Holding

The Court held that the quarterly production incentive payments do not fall within the definition of "wages" under either the first or third part of Section 2(22) of the Employees' State Insurance Act, 1948, and therefore ESIC cannot demand contribution.

Summary

The appellant, Whirlpool of India Ltd., paid its workers a quarterly production incentive under a scheme in addition to normal wages. The Employees' State Insurance Corporation (ESIC) treated these incentives as "wages" under Section 2(22) of the Employees' State Insurance Act, 1948 and demanded contribution to the ESIC fund. The Employees' Insurance Court held that the incentive payments were not wages because they were not payable under the contract of employment and were made at intervals exceeding two months. The High Court reversed that decision, but the Supreme Court reinstated the lower court's view, holding that the payments do not fall within either the first or third part of the definition of wages. Consequently, ESIC could not demand contribution on the incentive payments. The appeal was allowed and the High Court judgment set aside.

Issues considered

Whether quarterly production incentive payments under a scheme constitute "wages" within the meaning of Section 2(22) of the Employees' State Insurance Act, 1948.
Whether payments made at intervals exceeding two months can be treated as wages under the third part of the definition in Section 2(22).
Whether the incentive payments are payable under the contract of employment or constitute a condition of service under the Industrial Disputes Act.

Legislation cited

Employees' State Insurance Act, 1948s. 2(22), s. 26, s. 3, s. 46, s. 75
Industrial Disputes Act, 1947s. 2(p), s. 9A

Subjects

Employees' State Insurance Actdefinition of wagesproduction incentivequarterly paymentsadditional remunerationsocial legislationIndustrial Disputes Actcontract of employment

Judgment

MIS, WHIRLPOOL OF INDIA LTD. A
v.
EMPLOYEES' STATE INSURANCE CORPORATION

MARCH 8, 2000

[S.B. MAJMUDAR, S.N. PHUKAN AND Y.K. SABHARWAL, JJ.] B

Employees' State Insurance Act, 1948:

Sections 2(22), 3, 26, 46 and 75.

Wages-Scope of-Company-'Production Incentive Scheme '-Payments C
made quarterly to workers towards production incentive-Held, not covered
by the definition of 'wages'-Demand for contribution towards Employees'
State Insurance Fund in respect of quarterly payments made towards produc-
tion incentive-Held not permissible.

The appellant company was paying to its workers production incen- D
tive, under a 'Production Incentive Scheme', in addition to normal wages.
Treating the said payment as 'wages', the respondent-corporation issued a
demand notice to the appellant-company for payment of contribution
towards the Employees State Insurance Fund. The Employees Insurance
Court held that payment made towards production incentive was not E
wages under Section 2(22) of the Employees State Insurance Act, 1948. It
did not fall under the first part of definition of 'wages' as there was no
agreement between the appellant and its workers for payment of produc-
tion incentive and also that it did not fall under the third part of definition
as the actual payment was made quarterly which means at intervals ex-
..... ceeding two months•
F

Appeal preferred by ~he respondent-corporation was allowed by a
Single Judge of the Punjab & Haryana High Court. The Letters Patent
Appeal preferred by the appellant was dismissed by the High Court.
Hence this appeal by the Company. G
Allowing the appeal and setting aside the judgment of High Court,
this Court

HELD : 1. The payment of production incentive, on the facts of
present case, does not fall either under the first part or last part of the H
165
166 SUPREME COURT REPORTS [2000] 2 S.C.R.
A definition of term 'wages' as defined in Section 2(22) of the Employees'
State Insurance Act, 1948. (170-F]

2. Under first part of Section 2(22), all the remuneration paid or
payable in cash to an employee, if the terms of the contract of employment,
express or implied, were fulfilled would be 'wages'. Under this part neither
B the actual payment nor when the payment is made is of any relevance. The
last part of Section 2(22) relates to payments of additional remuneration.
The additional remuneration, if any, paid at intervals not exceeding two
months and not falling in clauses (a) to (b) would alsc be wages within the
meaning of the term as defined. Under this part of the definition, there has
c to be payment and not only payability and the payment has to be at
intervals not exceeding two months. [168-F-G]

3. None of the Courts below bas held that the amount in question was
paid or was payable on fulfilment of terms of contract of employment. It
also cannot be held that the payment in question under the scheme would
D amount to a condition of service requiring compliance of Section 9A of the
Industrial Disputes Act for effecting any change in the conditions_ of serv-
ice. The payment thus does not fall within the first part of definition of
'wages'. [170-C]

4. Additional remuneration to become wages has to be ''paid" at
E intervals not exceeding two months as distinguished from 'being payable'.
Thus, under the last part of Section 2(22) tliere has to be actual payment.
When the word used is 'paid', the Court cannot add the word 'payment'
or other similar expression thereto. [170-D-F]

Wellman (India) Pvt. Ltd v. Employees' State Insurance Corporation,
F
[1994) 1 SCC 219 and Madella Woollens Ltd v. Employees State Insurance
Corporation andAnr., [1994) Supp. 3 SCC 580, distinguished.

Mis. Harihar Poly.fibres v. Regional Director, ES/ Corporation, (1984)
4 SCC 324 and Handloom House, Emakulam v. Regional Direcfor, ES/,
G (1999] 4 sec 7, explained.

5•. The Act is a social legislation, enacted. to provide benefits to
employees in case of sickness, maternity and employment injury and to
make a provision for certain other matters in relation thereto. Undoubt-
edly, any provision of which two interpretations may be possible would
H deserve such construction as would be beneficial to the working class but,
; ,.

WHIRLPOOL OF INDIA v. E.S.l.C. 167
at the same time, Court cannot give a go by to the plain language of a A
provision. (168-C; E]

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1983 of2000.

From the Judgment and Order dated 23.7.98 of the Punjab and Haryana
High Court in LP.A. No. 297 of 1998. B

~
Ashok H. Desai, Ms. Meera Mathur, O.C. Mathur, Jaswant Singh, S.
' Sukumaran, Dinesh Mathur and D.N. Misra for the Appellant.

V.J. Francis for the Respondent.

The Judgment of the Court was delivered by c
SABHARWAL, J. Leave granted.
The appellant under a 'Production Incentive Scheme' pays to its
workers production incentive at the rates specified in the Scheme besides
normal wages. For the purpose of calculating contributions towards D
Employees' State Insurance Fund, the payment of production incentive by
the appellant to its workers is not treated by it as 'wages' within the meaning
of the term as defined in Section 2(22) of the Employees' State Insurance
Act, 1948 (for short 'the Act'). The respondent-Employees' State'
Insurance Corporation (for short 'the Corporation') treating the said payment E
as 'wages' issued a demand to the appellant for payment of contributions
towards the Employees' State Insurance Fund. This led to filing of an
application under Section 75 of the Act by the appellant before
Employees' Insurance Court challenging the said demand. The said court
allowed the application and quashed the demand. It held that the
payment was made quarterly and was not 'wages' under the Act as it did F
not fall either under the first part of Section 2(22) or under third part thereof.
The payment made by the appellant, it was held, did not fall under the
first part of the definition of 'wages' as there was no agreement between
the appellant and its workers for payment of production incentive and also
that it did not fall under the third part of the definition as the actual payment G
was made quarterly which means at intervals exceeding two months.

The appeal filed by the Corporation against the order of the
Employees' Insurance Court was allowed by a learned Single Judge of the
High Court holding that the production incentive was calculated on the basis
of the extra work done by the workers in each month but to avoid contribution H
I

168 SUPREME COURT REPORTS [2000] 2 S.C.R.
A under the Act, the payment was postponed and was made quarterly. The
Letters Patent Appeal of the appellant was dismissed and, therefore, the
present appeal.

The question for decision is whether payments towards production
incentive made by the appellant to its workers under the 'Production
B Incentive Scheme' falls within the scope and ambit of 'wages' as defined
in Section 2(22) of the Act and also the effect of payments being made
quarterly i.e. at intervals exceeding two months.

The Act is a social legislation enacted to provide benefits to
employees in case of sickness, maternity and employment. injury and to
c make a provision for certain other matters in relation thereto. Broadly this
is the purpose for which the Corporation has been establishecI under Section
3 of the Act. The main source of the Employees'· State Insurance Fund
is the contributions paid to the Corporation (Section 26). The benefits to
be provided to insured persons and others are as provided in Chapter
D V, in particular, Section 46 thereof. The words and expressions used but
not defined in the Act and defined in the Industrial Disputes Act,
1947, are to have the meanings respectively assigned to them in the
Industrial Disputes Act. Undoubtedly, any prov1s1on of which
two interpretations may .b~ :e.ossible would deserve such construction
E as would be beneficial to the working class but, at the same time, we·
cannot give a go by to the plain language of ff provision.

Under first part of Section 2(22), all the remuneration paid
or payable in cash to an employee, if the terms of the contract of
employment, express or implied, were fulfilled would be 'wages'. Under
F this part neither the actual payment nor when the payment is made is of
any relevance. The last part of Section 2(22) relates to payment of
additional remuneration. The additional remuneration, if any, paid at
intervals not exceeding two months and not falling in clauses (a) to (d)
would also be wages within the meaning of the term as defined. Under this
part of the definition, there has to be payment and not only payability and
G
the payment has to be at mtervals . not exceeding two months.

The High Court while coming to the conclusion that the payment of
production incentive to its workers by the appellant is 'wages' within
the meaning of the Act has relied upon the decision of this Court in
H Wellman (India) Pvt. lJd. v. Employees' State Insurance Corporation,

..,
,,
..

WHIRLPOOL OF INDIA v. E.S.l.C. [SABHARWAL, J.] 169
[1994] 1 SCC 219 and Madella Woollens Ltd. V. Employees' State Insurance A
Corporation and Am:, [1994] Supp. 3 SCC 580.

Wellman's case deals with the attendance bonus payable to the
employees under the terms of settlement which became part of contract of
employment and was thus held to be remuneration payable under the
contract of employment. That fell under the first part of the definition. In B
this case, it was held that the expression 'if any paid' after the words 'other
additional remuneration' will be fuconsistent if the remuneration is payable
under the contract of employment since such payment is not dependent on
the will of the employer but on the fulfillment of the terms of the contract.
Every remuneration payable under the GOntract would fall under the first C
part of the definition. The payment in Wellman's case fell within the first
part of the definition of 'wages'. In the present case, neither Insurance
- Court nor learned Single Judge nor Division Bench has held that the
payment of production incentive was contractual falling within the first part
of the definition of wages.
D
In Madella Woollens' case also, the payment of production bonus
to the employees though made at the end of each quarter was held to be wages
as the amount was payable under the agreement. Thus this case too was
concerned with the first part of the definition of wages.

None of the aforesaid decisions has any applicability to the facts of the E
present case.

In Mis. Harihar Polyfibres v. Regional Director, ES/ Corporation,
[1984) 4 SCC 324, affirming the Full Bench of the Andhra Pradesh High
Court holding that under third part of the definition to constitute 'wages', it
has to be actual factum of payment made at intervals not exceeding two F
months, 'House Rent Allowance', 'Night Shift Allowance', 'Incentive
Allowance' and 'Heat, Gas and Dust Allowance' were held to be covered
by the definition of •wages' in Section 2(22)". In this case, it was held
that for the aforesaid allowances to be covered by definition of 'wages', it
was not necessary that the payments• should be in terms of employment. G
In Handloom House, Emakulam v. Regional Director, ES/, [1999] 4
sec 7, it has been held that any additional remuneration paid at intervals
exceeding two months has been excluded from the purview of the definition.
It is clear that if the amount paid or payable is not remuneration on
fulfillment of the terms of employment falling under the first part and is H
170 SUPREME COURT REPORTS (2000] 2 S.C.R.
A also not covered by the second part of the definition, it would be wages if
the payment is made at intervals not exceeding two months.

Learned counsel for the respondent made a feeble attempt to
contend that the payment in the present case would fall within the first part
of definition of 'wages' as there is an implied contract for payment of the said
B amount. As already noticed, none of the Courts has held that the amount
in question was paid or was payable on fulfillment of terms of contract of
employment. Further learned counsel fairly conceded that the payment under
the scheme cannot be termed a payment under settlement as contemplated by
Section 2(p) of the Industrial Disputes Act. It also cannot be held that the
C paynient ·in question under the scheme would amount to a condition of service
requiring compliance of Section 9A of the Industrial Disputes Act for
effecting any change in the conditions of service. The payment thus does
not fall within the first part of definition of 'wages'.

It is evident that the additional remuneration to become wages has
D to be "paid" at intervals not exceeding two months as distinguished from
'being payable'. Thus, under the last part there has to.be actual payment.
The High Court bas found that the payment was made quarterly. It is not
for us to rewrite the definition of wages even if we assume that there is a
possibility of misuse by employers by malting the payment at a p_¢.od
exceeding two months and thus circumventing the provisions of the Act.
E
When in the last part of Section 2(22), the word used is 'paid', we cannot
add the word 'payable' or other similar expression thereto.

In view of the aforesaid, the payment of production ince:µtive, on the
facts of present case, does not fall either under the first part or last part
F of the definition of term ~wages' as defined in Section 2(22) of the Act.

For the aforesaid reasons, we allow the appeal and set aside the
judgment of the High Court and restore that of Employees' Insurance Court.
Parties are, however, left to bear theiJ; own costs.

G T.N.A. Appeal allowed.