Holding

The definition of "wages" in Section 2(22) of the Employees' State Insurance Act, 1948 is wide enough to include House Rent Allowance, Night Shift Allowance, Heat, Gas and Dust Allowance and Incentive Allowance.

Summary

The Supreme Court examined whether the term "wages" under Section 2(22) of the Employees' State Insurance Act, 1948 encompasses various allowances such as House Rent Allowance, Night Shift Allowance, Heat, Gas and Dust Allowance and Incentive Allowance. The Court held that the Act, being a social‑welfare legislation, gives a wide and liberal meaning to "wages" and that the definition expressly includes such additional remuneration paid at intervals not exceeding two months, even if not part of the employment contract. The Court relied on the plain reading of the definition, the inclusive‑exclusive language, and several High Court decisions interpreting the provision. Consequently, all the mentioned allowances were held to be "wages" within the meaning of the Act. The Special Leave Petition was dismissed.

Issues considered

Whether "wages" as defined in Section 2(22) of the Employees' State Insurance Act, 1948 includes House Rent Allowance, Night Shift Allowance, Heat, Gas and Dust Allowance and Incentive Allowance.

Legislation cited

Employees' State Insurance Act, 1948s. 2(22)

Subjects

wagesEmployees' State Insurance Actallowancesinterpretationsocial welfare legislationdefinition of wagesliberal construction

Judgment

712

A

HARIHAR POLYFIBRES
'
v.
B
THE REGIONAL DIRECTOR

ESI CORPORATION

September 4, 1984

c (0. CHINNAPPA REDDY AND AMARENDRA NATH SEN, JJ.J

En1ployees' State Insurance Act 1948, Section 2 (22)-"Wages"-'House
rent allowance'-'Night shift allowance'-'Heat, gas and dust allowance'-
'lncentfrc allowance'-Pay1n~nt of-Whether "wages".

D •
Words & Phrases : uWages"-Meaning of-Section 2 (22) Employees
State Insurance Act 1948.

The question was whether the expression 'wages' as defined ins. 2 (22) of
the Employees State Insurance Act, 1948 includes 'l-lousc' Rent Allowance',
Night Shift Allowance' 'Heat, Gas and Dust Allowance' and 'Incentive
E Allowance' paid by an employer to his employees,

HELD : By the Coul't

1. Employees' State Insurance Act, 1948 is a piece of social welfare
legislation. The definition of 'wages' is designedly wide. The definition on its
F plain reading is clear and unambiguous. Even if there is any a1nbiguity,
the .expression has to be given a liberal interpretation and receive beneficent
construction. [714C]

2. 'Wages• as defined in s. 2 (22) of the Employees' State Insurance Act,
•
1948 must necessarily include 'House Rent Allowance', 'Night Shift Allowance',
'Heat, Gas and Dust Allowance' and 'Incentive Allowance'. [7l5CJ
G
Braithwaite & Co. (India) Ltd, v. The Employees' State Insurance Corpora·
tion, [1968] 1 S.C.R. 771, referred to

N.G.E.F. Ltd. v. Deputy Regional Directo1·e, E.S.I.C., Bangalore, [t980] 1
LAB. I.C, 431 and Employees' State Insurance Cor,1oration, Hyderabad v.
Andhra Pradesh Paper Mi/ls Ltd., Rajahamundry, 1978 LAB. J.C. 19, approved.

H Bengal Potteries Ltd. v. Regional Director, W. Bengal Region, Employees
H. POLYFIBRES '· ECI CORP. (Chinnappa Raddy, J.) 713
State Insurance Corporation and others, [1973] LAB. J.C. 1328 (V 6 P 295),
over-ruled. A

Per Chinnappa Reddy, J.
Wages as defined in s. 2 (22) of the Act includes not only remuneration
paid ·or payable under the terms of the contract of employment, express or
implied but further extends to other additional remuneration, if any paid at
intervals not exceeding two months, though outside the terms of employment. B
[714G]

'Rcn1uneration' under the first clause has to be under a contract of
employment, express or implied while 'remuneration' under the third clause
need not be under the contract of en1ploymcnt but may be any 'additional
remuneration' outside the contract of employment, [715B)
c
Per Amarendra Nath Sen, J.

The inclusive part and the exciusive poftion in the definilion of 'wages'
ins. 2 (22) clearly indicate that the expression 'wages' has been given a very
wide meaning. The inclusive part of the definition read with the exclusive part
• in the definition clearly shows that the inclusive portion is not intended to be
limited only to the items mentioned therein. Taking into consideration the D
ex.eluding part in the definition and reading the definition as a whole the inclu-
sive part, is only illustrative and tends to express the wide meaning and import
of the word 'wages'. [7J7H; 7J8A-B]
CIVIL APPELLATE JURISDICTION Special Leave Petition
(Civil) No. 9795 of 1983.
E
From the Judgment and Order dated the 20th April, 1983 of
the Karnataka High Court in Misc. First Appeal No. 639 of 1983.
., K.R. Nagara;, Naresh Kaushik, R.S. Hegde and B. Krishna
Prasad, Miss CS La/itha for the Petitioners.

The following Orders were delivered F
• CH!NNAPPA REDDY, J. The question for consideration in
this petition for special leave to appeal under Article 136 of the
Constitution oflndia is whether the expression 'wages'; defined by
' .... s.2(22) of the Employees State Insurance Act, includes 'House Rent
Allwance', 'Night Shift Allowance, paid to those employe.es who are G
obliged to work in the night shift and the 'Heat, Gas and Dust
Allowance' and 'Incentive Allowance' paid by an employer to bis
employees. Section 2(22) defines 'wages' as meaning ;
•
"all remuneration paid or payable in cash to an
employee, if the terms of the contract of employment, H
714 SUPREME COURt REPORTS (1985] 1 S.C.ll.
express or implied, were fulfilled and includes any payment
A to an employee in respect of any period of authorised
]eave, lock out, strike which is not illegal or lay off and
other additional remuneration, if any, paid at intervals not
exceeding two months, but does not include -(a) any con-
•
tribution paid by the employer to any pension fund or
B provident fund, or under this Act ; (b) any travelling allow-
ance or the value of travelling concession ; (c) any sum
paid to the person employed to defray special expenses '
entailed on him by the nature of his employment ; or (d)
any gratuity payable on discharge."

The Employees State Insurance Act is a welfare legislation
c and the definition of'wages' is designedly wide. Any ambiguous expres-
sion is, or course, bound ?to receive a beneficent construction at our •
hands too. Now, under the definition first, whatever remuneration is
paid or payable to an employee under the terms of the contract of the
employment, express or implied is wages ; thus if remuneration is
is paid in terms of the original contract of employment or in terms
•
D
of a settlement arrived at between the employer and the employees
which by necessary implication becomes part of the contract of
employment it is wages : second, whatever payment is made to an
employee in respect of any period of authorised leave, lock out: strike
which is not illegal or lay-off is wages ; and third, other additional
..
F remuneration, if any paid at intervals not exceeding two months
is also wages ; this is unqualifiecl by any requirment that it should
be pursuant to any term of the contract of employment, express
or implied. However, 'wages' does not include any contribution paid
by the employer to any pension fund or provident fund, or under
the Act, any travelling allowance or the value of any travelling con-
E cession, any sum paid to the person employed to defray special
expenses entailed on bim by the nature of his employment and any
gratuity payable on. discharge. Therefore wages as defined includes
remuneration paid or payable under the terms of the contract of
employment, express or implied but further extends to other addi-
G
tional remmuneration, if any, paid at intervals not exceeding two
months, though outside the terms of employment. Thus remunera-
•
tion paid under the terms of the contract of the employment ]ex-
press or implied) or otherwise if paid at intervals not exceeding two
months is wages. The interposition of the clau~e 'and includes any •
payment to an employee in respect of any period of authorised
H leave, lock out, strike which is not illegal or lay off' between the
- H. POLYFIBRES v. EC! CORP. (Chinnappa Raddy, J.)

first clause, 'all remuneration paid or payable in cash to an
115

A
employee, if the terms of the contract of employment, express of
implied, was fulfilled' and the third clause, 'other additional remu-
neration, if any, paid at intervals not exceeding two months, 'makes
it abundantly clear that while 'remuneration' under the first clause
has to be under a contract of employment, express or implied,
'remuneration' under the third clause need not be under the contract B
of employment but may be any 'additional remuneration' outside
the contract of employment. So, there appears to our mind no
reason to exclude 'House Rent Allowance', Night Shift Allowance',
Incentive Allowance' and 'Heat, Gas and Dust Allowance' from the
definition of 'wages'. A Full Bench of the Karnataka High Court in
N.G.E.F. Ltd. v. Deputy Regional Director, E.S.1.C., Bangalore(') c
• considering the question at some length held that the amount paid
by way of incentive under the scheme of settlement entered into
between the Management and its workman was wages' within
the meaning of s. 2(22) of Employees' State Insuranee Act. It was
• observed by the Full Bench 0f the Karnataka High Court as
D
follows:-

"It is true that the word 'remuneration' is found both
in the first and second parts of the definition. But the con-
' dition attached to such payment in the first part cannot
legitimately be extended to the second part. The other E
'additional remuneration' referred to in the second part of
the definition is only qualified by the condition attached
• thereto (that is, paid at intervals not exceeding two
months). That was also the view taken by a Full Bench
of the Andhra Pradesh High Court in Employees State
F
Insurance Corpn. Hyderabad v. Andhra Pradesh Paper
Mills Ltd. and also the Bombay High Court in M/s
Maha/axmi Glass Works Pvt. Ltd. v. E,,.ployes' State
Insurance Corpn. But this aspect of the matter has been
completely overlooked by this Court in Kirloskar's case."
... G
In Employees State Insurance Corporation, Hyderabad v. Andhra
Pradesh Paper Mills Ltd., Rajahurnundry(2), a Full Bench (Divan,
C.J., Raghuvir and Gangadhara Rao, J.) of the Andhra Pradesh
•
(1) [1980] I LAB. l.C. 431.
(1) (1978] LAB. IC. 19. H
716 SUPREME COURT REPOl\TS [1985] l s.c.R.

A High court held that incentive bonus paid to an employee (which
the Court, on the facts of the case, found was not remuneration in
terms of the contract of employment, express or implied) fell within
the third part of the definition of 'wages' that is 'additional remu-
,
neration' if any, paid at intervals not exceeding two months'. The
Full Bench said : -
B
r
"The word 'other' appearing at commencement of the third
part of the definition of wages under s.2(22) indicates that
it must be remuneration or additional remuneration other
than the remuneration which is referred to in the earlier
c part of the definition viz., all remuneration paid or payable
in cash to an employee, if the terms of the contract of
employment, express or implied, were fulfilled and incentive •
bonus in the present scheme is certainly additional remu-
neration. It must be emphazised at this stage that under
the third part of the definition of 'wages' it is actual factum
of payment which counts because the word used is 'paid'
•
D
as distinguished from 'paid' or payable. The moment you
get any additional remuneration other than the remunera-
tion payable under the contract of employment and if this
additional remuneration is ·paid at intervals not exceeding
two months, it becomes wages by virtue of the third part •
E of the definition of 'wages'."

The learned judges of the Full Bench referred to the judgment
of a learned Single judge of the Calcutta High Court in Bengal •
Potteries Ltd. v. Regional Directer, W. Bengal Region, Employees, State
Insurance Corporation and others (1), where the learned Judges had
F
held that "the additional remuneration sought to be included by the
expression' and includes other additional remuneration' must be
remuneration which though no part of the wages could be paid as
part of the terms of contract .. of employment." The Full Bench
did not agree with the view expressed by the learned Single Judge
and said:-
G
"We are unable to agree with this part of his reason-
ing and for the reason which we have set out hereinabove
we disagree with this part of his judgment in para (3)".

ff (I) [19781 LAB. I.C. 1328 (Y 6 C 29')·
H. POLYFIBRES v. EC! CORP. (Chinnappa. Raddy, J.) 717

We express our respectful agreement with what has been said
by the Full Bench of the Andhra Pradesh High Court in the above A
extracted passage and their dissent from the view expressed by the
learned Single Judge of the Calcutta High Court. The Full Bench
further held that 'House Rent Allowance' paid by an employer to ·
his workmen would constitute wages within the meaning of the s.
2(22) of the Act. B
•
Our attention was also invited to the case of Braithwaite & Co.
(India) Ltd. v. The Employees' State Insurance Corporation (1) (V.
Bhargava and C.A. Vaidialingam, JJ). The case arose prior to the
amendment of the Employees' State Insurance Act in 1966 when
the explanation to s. 41 was bodily lifted from s. 41 into the definition c
• of 'wages' in s.2(22). The case related to the payment of an ex-
gratia reward styled as an 'Inam' (a bounty) which was admittedly
not claimed to be 'additional remuneration, if any, paid at intervals
not exceeding two months' but claimed to be 'remuneration paid or
• payable to in cash to an employee if the terms of the contract of
employment, express or implied was fulfilled' which the Court found D
it was not. The case has been sufficiently explained by the Full
Bench of the Andhra Pradesh High Court in E.S.l. Corpn., Hydera-
bad v. A.P. Paper Mills Ltd. (supra) and by the Fuli Bench of the,
Karnataka High Court in N.G.E.F. Bangalore v. Deputy Regional
Directar, E.S.I.C., Bangalore. We do not think that it is necessary
to say anything further in this matter. In this view, the special leave E
petition is dismissed.
,,
AMARBNDRA NATH SEN, J. I have read the judgment of my
learned brother 0. Chinnappa Reddy, J.

I entirely agree that on true interpretation of the word 'wages' F
defined in S.2(22) of the Employees' State Insurance Act, 'wages'
must necessarily include 'House Rent Allowance, Night Shift
Allowance, Heat, Gas and Dust Allowance and Incentive
Allowance'.

The definition of 'wages' has_ been set out in the judgment of G
my learned brother. The inclusive part and the exclusive portion in
the definition clearly indicate, to my mind, that the expression
• 'wages' has been given a very wide meaning. The inclusive part of

(I) [1%8] 1 S.C.R. 771.
H
718 SUPREME COURT REPORTS [1985] 1 s.c.R.

A the definition read with exclusive part in the definition clearly shows
to my mind, that the inclusive portion is not intended to be limited
only to the items mentioned therein. Taking into consideration the
excluding part in the definition and reading the definition as a whole
the inclvsive part, to my mind, is only illustrative and tends to
•
express the wide meaning and import of the word 'wages' used
B in the Employees State Insurance Act.

The Employees' State Insurance Act is a piece of social wel- •
fare legislation enacted for the benefit of the employees. The Act
has to be necessarily so construed as will serve its purpose and
objects.
c
I entirely agree with my learned brother that on a proper inter-
pretation of the term 'wages' the legislative intent is made manifestly •
clear that the term 'wages' as used in the Act will include House
Rent Allowance Night Shift Allowance, Heat, Gas and Dust
Allowance and Incentive Allowance. The definition, to my mind,
D on its plain reading is clear and unambiguous. Even if any •
ambiguity could have been suggested, the expression must be given
a liberal interpretation beneficial to the interests of the employees
for whose benefit the Employees State Insurance Act has been
passed.
E All other aspects including the various decisions of the High
Courts on this question have been considered by my learned brother
in his judgment. I entirely agree with the views of my learned
brother and I have nothing more to add.
•
With these observations I agree with my learned brother that
F
this Special Leave Petition has to be dismissed.

•

N.V.K. Petition dismissed.
•

•

I