Supreme Court of India

THE REGIONAL DIRECTOR, EMPLOYEES STATE INSURANCE CORPORATIONversusM/S POPULAR AUTOMOBILES ETC.

Citation: 1997 INSC 678
Decided: 29 September 1997
Disposal: Appeal(s) allowed
Bench: S B MAJMUDAR

Holding

Subsistence allowance forms part of wages under Section 2(22) of the Employees' State Insurance Act, 1948, and both the suspended employee and the employer are liable to pay contributions under Sections 39 and 40.

Summary

The Supreme Court examined whether a suspended employee and his employer must pay Employees' State Insurance (ESI) contributions on the subsistence allowance paid during a suspension pending a domestic enquiry. The High Courts had held that such allowance was not "wages" under Section 2(22) of the ESI Act and therefore no contribution was required. The Court rejected that view, holding that subsistence allowance is remuneration and falls within the definition of wages, making both employee and employer liable to contribute under Sections 39 and 40. It emphasized that the employer‑employee relationship continues during suspension and the employee remains entitled to the statutory benefits of the Act. Consequently, the appeals were allowed and the corporation was entitled to recover the contributions.

Issues considered

Whether subsistence allowance paid to a suspended employee during a domestic enquiry is covered by the definition of 'wages' in Section 2(22) of the Employees' State Insurance Act, 1948.
Whether a suspended employee and his employer are liable to remit ESI contributions on such subsistence allowance.

Legislation cited

Employees' State Insurance Act, 1948s. 2(22), s. 38, s. 39, s. 40, s. 46-73

Subjects

Employees' State Insurance Actsubsistence allowancedefinition of wagesESI contribution liabilitysuspended employeelabour law

Judgment

A THE REGIONAL DIRECTOR, EMPLOYEES
STATE INSURANCE CORPORATION
v.
MIS POPULAR AUTOMOBILES ETC.

SEPTEMBER 29, 1997
B
[S.B. MAJMUDAR ANDS. SAGHIR AHMAD, JJ.]

Labour law:

c Employees' State Insurance Act, 1948: Sections 39, 40-Remiffence of
contriblllion under--Liability of suspended employee and employer-
Suspended employee covered by beneficial provision of the Act-Plea, that
suspended employee and employer not liable because the subsistence
allowance is not covered under the definition of 'wages' as the suspended
D employee does not fulfil the terms of contract ofemployment-Held, suspended
employee and the employer are liable to contribute their respective shares.
on the amount of subsistence allowance paid to the suspended employee-
Susbsistence allowance forms part of the definition of 'wages '-Suspended
employee cannot be said to have not fulfilled his part of terms of contract
of employment as he is willing .to offer his services-Kera/a payment of
E subsistence allowance Act. 1972.

Section 2 (22)- 'Wages '-Definition of-Subsistence allowance-
Whether covered under the definition-Held, yes.

The question for determination in this case is whether suspended
F employees and its employer are liable to remit under Employee State Insurance
Act, (hereinafter called the Act) the contributions in connection with
subsistence allowance amounts received by suspended employee during
domestic enquiry.

The High Court held that there was no liability on the part of the
G suspended employee or his employer to remit contributions in connection with
subsistence allowance amounts under the Act, because the subsistence
allowance paid to an employee during suspension, pending domestic enquiry
could not be covered by· the definition of the term 'wages' as found in sub-
section (22) of Section 2 of the Act, as a suspended employee does not fulfil
H the terms of contract of employment as he is not actually rendering any service
346
THE REGIONAL DIRECTOR E.S.l. "·POPULAR AUTOMOBILES 347
during the period of suspension. A
In appeal to this court the appellant contended that the Act being a
beneficial piece of legislation, offers statutory insurance against employment
injuries suffered by insured workman while in service. For earning the
statutory coverage, employee as well as the employer are liable to contribute
and remit under the Act, in order to enable the corporation/appellant to B
discharge its statutory obligations and that during suspension period
employer-employee relationship does not get snapped; and that during
suspension the employee cannot be said to have refused to fulfil his part of
contract as he is willing to work but it is the employer who does not want him
to work and pays him reduced amount of wages; and that the subsistence C
allowance which is reduced scale of wage payable to the suspended employee
can also form part and parcel of the term 'wages'.

The respondent cont~nded that on the analogy of the payment made
during the period of lay off and lockout, subsistence allowance would also not
be covered by the first part of the definition of wages and as the inclusive part D
does not mention subsistence allowance, it should be treated to be outside the
sweep of section 2 sub section (22).

Allowing the appeals, this Court

HELD: 1.1. Subsistence allowance forms part of wages as per sub- E
section (22) of Section 2 of Employee S~ate Insurance Act and consequently
on the said amount the employee will be liable to contribute under section 39
by way of employees contributions and equally the employer would be liable to
contribute his share by way of employer's contribution on the amount of
subsistence allowance paid to the suspended employee. 1361-A-B)
F
1.2. It is not possible to appreciate as to how it can be said that on the
amount of subsistence allowance received by him permanently, he is not bound
to contribute any amount to the Corporation and equally the employer ofsuch
a suspended employee is also not bound to make his parallel contribution as
per the rates provided under the Act especially when all the benefits of G
statutory insurance coverage are made available by the Corporation to such
a suspended employee. All the employees are entitled to get the statut_ory
coverage of the benefits being insured employees and any person employed
for wages is to be treated as an employee for the purpose of the Act Under
these circumstances an employee who is ad".!ittedly covered by the Act and
who is entitled to get benefits under the Act as insured employee will not H
348 SUPREME COURT REPORTS [1997) SUPP. 4 S.C.R.

A cease to be an employee covered by the Act if he is placed under interim
suspension pending domestic enquiry on any alleged misconduct by his
employer. During suspension period pending enquiry the employer employee
relationship does not come to an end. It could come to an end only when after
enquiry his services on proof of misconduct are ordered to be terminated.
B Till then he continues to be an employee for all purposes subject to only two
consequences flowing from such interim suspension namely, in the first place
the employee will remain prohibited from actually offering his services and
discharging his duties as the employer does not want him to do so and
secondly during the period of suspension pending enquiry the remuneration
payable to the employee will get curtailed and will be treated as subsistence
C allowance as legally permissible under the rules and which may range from
50% at the lowest to even 100% of the wages at the highest ifthe suspension
continues beyond the requisite period as contemplated by service rules and
regulations concerned. Even during susp~nsion when the employee is being
paid subsistence allowance and not full wages, he remains entitled to get all
the benefits as available to working employees on the same basis as laid down
D by various provisions ofChapter-VofEmployees State Insurance Act. It is
not as if a suspended employee gets lesser benefit as compared to a working
employee under the provisions of the said Chapter. They stand at par.
Subsistence allowance is not to be refunded by the suspended employee
whatever may ultimately be the result of the domestic enquiry.
E [354-F-H; 355-A-C)

1.3. It cannot be said that subsistence allowance is not the remuneration
paid to him though at a reduced rate. The term wages as defined by Section 2
(22) means all remuneration paid or payable in cash to the employee, ifthe
terms of the contract of employment, express or implied, were fulfilled. Thus
F it is a more comprehensive definition, which taken in its sweep, in the first
part, all remuneration paid or payable to employee. Therefore, the amount to
an employee or actually paid to an employee, if terms of contract of employment
were fulfiled would constitute wages. A regular employee who is willing to
work and whose services are taken by the employer gets the remuneration
G for the work actually done by him under the contract of employment. But in
case of a suspended employee he gets lessrr amount by way of subsistence
allowance but that is also as a remuneration for being continued on the roll
of employment as an employee and so far as he is concerned, he cannot be
said to have not fulfilled his part of the terms of contract of employment as he
is willing to offer his services but it is the employer who prohibits him from
H actually giving his services under the contract of employment. The situation
THE REGIONAL DIRECTOR E.S.l. "·POPULAR AUTOMOBILES 349

almost resembles, to grant of half pay as the case may be. Therefore, it cannot A
be said that the suspended employee does not fulfil his part of the contract of
employment or commits breach of any of the terms of the contract of
employment. [355-G-H; 356-A-B]

1.4. If the first part of the definition of 'wages' will include all
remuneration paid or payable in cash, to an employee, ifthe terms of contract B
of employment express or implied, were fulfilled and consequently even if at
employee is suspended as per the service regulations by the employer pending
enquiry, it cannot be said that the employee has committed breach of any of
the terms of the contract of employment. Nor can it be said that the employer
has committed breach of any of the terms of the contract of employment as C
the service rules applicable to the employee would be part and parcel of his
conditions of employment and acting on the said service rules of the employer
prohibits the employees from reporting for duty and doing actual work, the
employer cannot be said to have committed breach of any of the terms of the
contract of employment when legally permissible suspension penc:ling enquiry
is imposed by the employer on the employee. Such is not a case when a lockout D
and layoff is imposed by the employer as in the case of lock out the employer
commits breach of the contract of employment by refusing to give work to the
employee for no fault of his. Similarly in case of layoff, the employees are
refused work by the employer for no fault of the employees. In either case the
employer would be committing breach of the terms of the contract of
employment by his own act which may be justified or otherwise. Under these E
circumstances, but for the inclusive part of the definition encompassing
payment made to an employee in respect of any period of lock out or lay off.,
the said payment would not have been covered by the definition of 'wages' und~r
section 2 sub-section (22) of the Act. The first part of the said definition
obviously would not apply to such a case, as terms of the contract of employment F
cannot be said to be complied with at least by the employer in such an
eventuality. Such is not the case when employer acting as per terms of
employment governing the employees, suspends him pending enquiry.
(358-B-G]

Balasubrahamanya Rajaram v. B.C. Patel & Ors., AIR (1958) SC 518 G
and Nutan Mills v. Employees State Insurance Corporation, AIR (1956)
Bombay 336, distinguished.

Madella Woollens Ltd. v. Employees' State insurance Corporation and
Ors., [1994] Suppl. 3 SCC 580; Harihar Polyfibres v. Regional Director ES!
Corporation, [1985] 1 SCR 712; Indian Drugs and Pharmaceuticals Ltd. etc. H

I
I~
350 SUPREME COURT REPORTS [1997] SUPP. 4 S.C.R.

A v. Employees State Insurance Corporation etc., [1996) 8 SCALE 688;
Assistant Regional Director, Nagpur v. Model Mills, Nagpur Ltd, (1993)
Suppl. 1 SCC 615 and Mulchandji Joshi v. First Civil Judge, Class I Nagpur
and Anr:, AIR (1956) Bombay 262, referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3850 of 1993
B Etc.
From the Judgment and Order dated 21.1.93 of the Kerala High Court
in M.F.A. No. 392of1992. i
WITH

c C.A. No. 6724/97, 6723/97, 6725/97 and C.A. No. 6726/97.
V.J. Francis, Rajiv Nanda, Ms. Anubha Jain and A.K. Shanna for the
Appellant.

T.L. Vishwanatha Iyer, S. Balakrishnan, S. Prasad, Ms. Ramni Taneja and
G. Prakash for the Respondents.
D i
The Judgment of the Court was delivered by

S.B. MAJMUDAR, J. Leave granted in all the cognate Special Leave
Petitions.
By consent of learned advocates of parties all these appeals were heard
E finally and are being disposed of by this common judgment. The Employees'
State ,.Insurance Corporation (in short 'the Corporation') functioning in the
State of Kerala as well as in the State of Kamataka in the appeals concerned,
have posed for our consideration the following question of law :
"Whether a suspended employee and his employer are liable to remit
F under the Employees' State Insurance Act, 1948 (hereinafter referred
to as 'the Act') the requisite contributions under the said Act in
connection with the subsistence allowance amounts received by the
suspended employee during the period of his suspension pending
domestic enquiry.''
G In the impugned judgments under appeal the High Courts ofKerala and
Kamataka have taken the view that there is no such liability on the part of
the suspended employee or his employer. The learned counsel for the
appellant-Corporation submitted to the contrary for our consideration.

A few relevant facts leading to these appeals may be noted at the
H outset. It is not in dispute between the contesting parties that the respondents
- THE REGIONAL DIRECTOR E.S.l. 1•. POPULAR AUTOMOBILES [S.B. MAJMUDAR, J.) 351

in these appeals are the employers and the suspended persons are their A
employees. Both of them are governed by the Act. It is also not in dispute
between the parties that prior to the suspension of these employees the
respondent-employers were remitting the requisite contribution under Sections
39 and 40 of the Act both by way of employees' contributions and the
employers' contributions to the Corporation which had insured all these B
employees concerned as per Section 3 8 of the Act in the manner provided
thereunder. It is also not in dispute that even during the period of suspension
the suspended employees covered by the beneficial provision of the Act and
were entitled to all the benefits available to employees under Chapter V of the
Act and the coverage of entire beneficial scheme provided by the Act in that
Chapter from Sectior. 46 to Section 73 was available even in cases of suspended C
employees who were getting only subsistence allowance as per the rules and
regulations governing their conditions of service. The High Courts in the
· impugned judgments have taken the view that subsistence allowance paid to
an employee during suspension pending domestic enquiry would not be
covered by the definition of the term 'Wages' as found in sub-section (22) D
of Section 2 of the Act. The said definition reads as under :

"(22) 'Wages' means all remuneration paid or payable in cash to
an employee, if the terms of the contract of employment, express or
implied, were fulfilled and includes any payment to an employee in
respect of any period of authorised leave, lock-out, strike which is not' E
illegal or lay-off and other additional remuneration, if any, paid at
intervals not exceeding two months, but does not include.

(a) any contribution paid by the employer to any pension fund or
provident fund, or under this Act;

(b) any travelling allowance or the value of any travelling concession; F
(c) any sum paid to the person employed to defray special expenses
entitled on him by the nature of his employment; or

(d) any gratuity payable on discharge;"
G
It was held that before any payment made by the employer to the
employee is covered by the said definition of 'wages' it should be a
remuneration paid or payable in cash to an employee, if the terms of the
contract of employment, express or implied, were fulfilled. That in case of a
suspended employee the terms of contract of employment would not be
fulfilled as he is not actually rendering any service during the period of H
352 SUPREME COURT REPORTS [1997] SUPP. 4 S.C.R.

A suspension.

Learned counsel appearing for the appellant-Corporation contended
that the aforesaid view of the High Courts is clearly erroneous in law. He
submitted that the Act is a beneficial piece of legislation offering statutory
insurance against employment injuries suffered by insured workmen while in
B service and for earning the statutory coverage of insurance the insured
workmen had to contribute as laid down by Act and simultaneously their
employers had also to add their contribution to the said amount and remit the
same to the Corporation to enable the Corporation to discharge its statutory
a obligations under the Act for the benefit of the.insured employees. It was
C submitted that during the period of suspension the employer-employee
relationship does not get snapped. The employee cannot be said to have
refused to fulfil his part of the contract as he is willing to work but it is the
employer who does not want him to work and instead pays him reduced
amount of wages as permissible under the rules by way of subsistence
allowance which in a given case beyond the requisite period may not only
D go up from 50% if wages to 75% but may also go up in given contingencies
to a ceiling of I 00% of wages. Consequently subsistence allowance squarely
falls within the first part of the definition of the term 'wages' as found in sub-
section (22) of Section 2 of Act. In support of his contention three decisions
of this court were pressed in service - Mode/la Woo/lens Ltd. v. Employees'
E State Insurance Corporation and another, [1994] Supp. 3 SCC 580; Hariher
Polyfibres v. The Regional Director ES/ Corporation, [1985] I SCR 712 and
Indian Drugs & Pharmaceuticals Ltd Etc. v. Employees State Insurance
Corporation Etc., (1996) 8 SCALE 688. The first judgment refers to production
bonus. The second one refers, amongst others, to incentive bonus while the
third one refers to overtime wages. All these additional monetary benefits
F were held to be covered by the inclusive definition of term 'wages' as found
in sub-section (22) of section 2 of the Act. It was, therefore contended that
there is no reason why subsistence allowance which is a reduced scale of
wages payable to the suspended employee cannot also form part and parcel ...
of the tenn 'wages' as defined in the Act.
G
Learned counsel for the respondent-employers on the other hand
submitted, placing reliance on a decision of a Bench of two learned Judges
of this Court in the case of Assistant Regional Director Nagpur v. Model
Mills Nagpur Ltd, (1993] Supp. I SCC 615, that prior to the amendment of
the definition of the term 'wages' in the Act even payment for any leave
H period was not treated as wages. He also placed reliance on two decisions
- THE REGIONAL DIRECTOR E.S.I. ''·POPULAR AUTOMOBILES [S.B. MAJMUDAR, J.l 353

of the Bombay High Court in the case of Ganpatlal Malchandji .Joshi v. First A
Civil Judge Class I Nagpur and another, AIR (1958) Bombay 262 and Nutan
Mills v. Employees State Insurance Corporation, AIR (1956) Bombay 336 for
submitting that even maternity leave benefit was not considered to be wages
in the first judgment and in the second judgment it was held of course in the
light of unamended definition of the term 'wages' as found in sub-section (22)
of section 2 of the Act that lay-off compensation would not be included in
B
the term 'wages' for the purpose of computing contributions from the employees
and employers qua the said amount.

Before referring to the aforesaid decisions it will be necessary to have
a quick glance at the scheme of the Act. The Act is to provide for certain
benefits to employees in case of sickness, maternity and employment injury
c
and to make provision for certain other matters in relation thereto. Thus this
is a beneficial piece of legislation which grants a statutory insurance coverage
¥" to employees in the establishments covered by the Act so that the Corporation
would be statutorily enjoined to make available these benefits to the suffering
employees and they may not have to be at mercy of the employer concerned D
who may or may not readily make available these benefits to the suffering
employees if statutory coverage of the Act is not available to them. As laid
down by Section I sub-section (4) of the Act it shall apply in the first
instance, to all factories (including factories belonging to the Government)
other than seasonal factories. As per sub-section (5) of section I of the Act,
E
the appropriate Government may, in consultation with the Corporation and
where the appropriate Government is a State Government with the approval
of the Central Government, after giving six months notice of its intention of
so doing by notification in the Official Gazette, extend the provisions of this
Act or any of them to any other establishment or class of establishments,
industrial, commercial, agricultural or otherwise. Section 2 is the Definition F
Section Sub-section (4) thereof defines 'contribution' to mean, 'the sum of
money payable to the Corporation by the principal employer in respect of an

- employee and includes any amount payable by or on behalf of the employee
in accordance with the provisions of this Act'. Sub-section (6) of Section 2
defines 'Corporation to mean, "Employees' State Insurance Corporation set
G
up under this Act" The appellant-corporation is the said Corporation. Sub-
section (8) of section 2 defines 'employment injury' to mean, 'a personal
injury to an employee caused by accident or an occupational disease arising
out of and in the course of his employment being an insurable employment,
whether the accident occurs or the occupational disease is contracted within
or outside the territorial limits of India'. Sub-section (9) of Section 2 defines H
354 SUPREME COURT REPORTS [1997] SUPP. 4 S.C.R.

A 'employee' to mean, 'any person employed for wages in or in or connection
with the work of a factory or establishment to which this Act applies'. We
are not concerned in the present cases with such employees whose wages
exceed the prescribed limit of wages permanently. Hence we need not refer
to that part of the definition of 'employee'. Sub-section (10) of Section 2
defines 'exempted employee' to mean, 'an employee who is not liable under
B this Act to pay the employee's contribution'. Such exempted employees are
contemplated by Section 42 which lays down that, 'no employee's contribution
shall be payable by or on behalf of an employee whose average daily wages
during a wage period are below such wages as may be prescribed by the
Central Government'. Chapter IV deals with 'Contributions'. Section 38 lays
C down that', subject to the provisions of this Act all employees in factories,
or establishments to which this Act applies shall be insured in the manner
provided by this Act. Section 39 deals with contributions payable under the
Act. Such contributions as per sub-section (I) thereof will comprise of
contribution payable by the employer (referred to as the employer's .
contribution) and the contribution paid by the employee (referred to as the
D employee's contribution) and shall be paid to the Corporation. These
contributions are to be paid at such rates as may be prescribed by the Central
Government. Section 40 enjoins the principal employer to pay contribution in
the first instance. Section 41 deals with 'Recovery of contribution from
immediate employer'. As indicated earlier, the benefits flowing from the scheme
E of the Act which are available to the insUied employees comprise of diverse
benefits enumerated in chapter V as provided in Sections 46 to 73.

On the aforesaid scheme of this Act, therefore it becomes very clear
that all employees are entitled to get the statutory coverage of the benefits
being insured employees and any person employed for wages is to be treated
F as an employee for the purpose of the Act. Under these circumstances an
employee who is admittedly covered by the Act and who is entitled to get
the benefits under the Act as insured employee will not cease to be an
employee covered by the Act if he is placed under interim suspension pending
domestic enquiry on any alleged misconduct by his employer. It is axiomatic
..
G to say that during suspension period pending enquiry the employer-employee
relationship' does not come to an end. It would come to an end only when
after enquiry his services on proof of misconduct are ordered to be terminated.
Till then he continues to be an employee for all purposes subject to only two
consequences flowing from such interim suspension, namely, in the first place
the employee will remain prohibited form actually offering his services and
H discharging his duties as the employer does not want him to do so and
- THE REGIONAL DIRECTOR E.S.I. v. POPULAR AUTOMOBILES [S.B. MAJMUDAR, J.] 355

secondly during the period of suspension pending enquiry the remuneration A
payable to the employee will get curtailed and will be treated as subsistence
allowance as legally permissible under the rules and which may range from
50% at the lowest to even 100% of the wages at the highest if the suspension
continues beyond the requisite period as contemplated by the service rules
and regulations concerned. It is also to be kept in view and there is no dispute B
on this aspect that even during suspension when the employee is being paid
subsistence allowance and not full wages he remains entitled to get all the
benefits as available to working employees on the same basis as laid down
by various provisions of chapter V. It is not as if a suspended employee gets
lesser benefits as compared to a working employee under the provisions of
the said Chapter. They stand at par. It is also to be appreciated that subsistence C
allowance is not to be refunded by the suspended employee whatever may
ultimately be the result of the domestic enquiry. Hence only because the total
remuneration paid to the susp:!nded employee gets reduced to 50% or to any
higher percentage going up to 100% it is not possible to appreciate as to how
it can be said that on the amount of subsistence allowance received by him
permanently he is not bound to contribute any amount to the Corporation and D
equally the employer of such a suspended employee is also not bound to
make his parallel contribution as per the rates provided under the Act especially
when all the benefits of statutory insurance coverage are made available by
the Corporation to such a suspended employee. However, great reliance was
placed by learned counsel f0r the respondents on a decision of this Court in E
the case of Bala Subrahmanya Rajaram v. B.C. Patel and others, AIR (1958)
SC 518 wherein it has been observed that the word 'remuneration' means the
amount payable for service rendered. The aforesaid observation was made in
the context of the payment of Wages Act with which thjs Court was concerned
in the said decision. We fail to appreciate how the said decision can be of
any real assistance to the respondents in the present cases as the term F
'wages' as defined by Section 2 sub-section (22) of the Act means all
remuneration paid or payable in cash to an employee, if the terms of the·
contract of employment, express or implied, were fulfilled. Thus it is a more
comprehensive definition which takes in its sweep in the first part all
remuneration paid or payable to the employee. Therefore, the amount payable G
to an employee or actually paid to an employee if the terms of the contract
of employment were fulfilled would constitute wages. A regular employee
who is willing to work and whose services are taken by the employer gets
the remuneration for the work actually done by him under the contract of
employment. But in case of a suspended employee he gets lesser amount by
way of subsistence allowance but that is also as a remuneration for being H
356 SUPREME COURT REPORTS [1997] SUPP. 4 S.C.R.

A continued on the roll of employment as an employee and so far as he is
concerned he cannot be sai<l to have not fulfilled his part of the terms of
contract of employment as he is willing to offer his services but it is the
employer who prohibits him from actually giving his services under the
contract of employment. The situation almost resembles to grant of half pay
B leave or leave on even more than half pay as the case may be. Therefore, it
cannot be said that the suspended employee does not fulfil his part of the
contract of employment or commits breach of any of the terms of the contract
of employment. The prohibition, if any, is imposed by the employer against
him and that prohibition in the absence of any rules and regulations governing
the payment for remuneration during suspension to the concerned employee
C would have entitled the suspended employee to get the full remuneration
because he was ready and willing to perform his part of the contract of
employment but it was the employer who prohibited him from performing his
duties. But if there is a valid service regulation which reduces the scale of
remuneration, during suspension, the employee gets that reduced permissible
D scale of remuneration by way of subsistence allowance. All the same it cannot
be said that it is not the remuneration paid to him though at a reduced rate.

It is also to be appreciated that a suspended employee who gets all the
benefits under the Act, may in giving contingencies ;emain suspended for a
E number of years pending the enquiry and in the meantime may be entitled to
draw I 00% of wages as subsistence allowance under the relevant service
rules and regulations. Under these circumstances even though he may get full
wages by way of subsistence allowance and even though he may be entitled
to all the benefits under the Act he may not be required to contribute
p anything ff the contention of the learned counsel for the respondents is
accepted and ultimately ifhe is removed from service after the decision in the
departmental enquiry he would walk away with. all benefits under the Act
without any corresponding obligation to contribute towards the said benefits.
On the other hand, if he is fully exonerated and reinstated in service and in
G the meantime if he had contributed proportionately to the extent of subsistence
allowance earned by him the balance of remuneration which may be paid to
him for the back period may make him liable to contribute only remaining
proportionate amount of contribution to the extent of additional remuneration
paid to him to make up for the difference between the full wages for the period
of erstwhile suspension in question and the actual subsistence allowance
H given to him and for which he had already contributed earlier. In either case
THE REGIONAL DIRECTOR E.S.I. 1•. POPULAR AUTOMOBILES (S.B. MAJMUDAR, J.] 357

employer will also remain liable to give his proportionate contribution along A
with employee's contribution both on subsistence allowance amount as well
as on balance of wages paid wp to the employee later on. If the suspended
employee is ultimately removed from service, there would arise no occasion
for such employee to make additional contribution on any extra amount other
than subsistence allowance received by him and equally employer would not B
be called upon to make proportionate contribution on any extra amount save
and except on such subsistence allowance received by the employee
concerned. The interpretation canvassed by learned counsel for the
respondents would create an anomalous situation as aforesaid while the
submission canvassed by learned counsel for the appellant-Corporation would C
avoid the same and would fructify and enhance the benevolent purpose
underlying the enactment of this welfare legislation.

In this connection one submission ofleamed counsel for the respondents
requires to be noted. He submitted, placing reliance on the inclusive part or'
the definition of the terms 'wages' in Section 2 sub-section (22) of the Act, D
that in a case where the employee is ready to work but the employer does
not allow him to work by imposing lock-out or lay-off, payment made to such
employee gets covered only by the inclusive part of the definition which
means that otherwise it would not have been covered by the first part of the
definition. That similar is the situation where the workman is suspended E
pending enquiry and payment is made to him by way of subsistence allowance.
In such a case also employee is ready to work but the employer does not
allow him to work. On the analogy of the payment made during the period
of lock-out or lay-out, such subsistence allowance would also not be covered
by the first part of the definition and as the inclusive part of the definition F
does not mention subsistence allowance, it should be treated to be outside
the sweep of Section 2 sub-section {22) of the Act. In our view, this submission
does not stand scrutiny. It has to be kept in view, as noted earlier, that
subsistence allowance paid to a suspended employee is not recoverable or
refundable even though ultimately the suspended employee is removed from
service on the proof of misconduct for which he was proceeded against in G
department.al enquiry. The Kerala Payment of Subsistence Allowance Act,
1972 also clearly provides in Section 3 sub-section (2) that an employee shall
not in any event be liable to refund or forfeit any part of the subsistence
allowance admissible to him under sub-section {I). But even apart from the
said statutory provision on the general principles applicable to subsistence H
358 SUPREME COURT REPORTS (1997] SUPP. 4 S.C.R.

A allowance paid to an employee pending departmental enquiry no such
allowance is refundable by him in case the employee gets ultimately removed
from service on proof of misconduct. So far as the submission of learned
counsel for the respondents on the inclusive part of the definition is concerned
it has to be kept in view that ifthe first part of the definition of'wages' will
B include all remuneration paid or payable in cash to an employee if the terms
of contract of employment, express or implied, were fulfilled and consequently
even if an employee is suspended as per the service regulations by the
employer pending enquiry it cannot be said that the employee has committed
breach of any of the tenns of the contract of employment. Nor can it be said
C that the employer has committed breach of any of the terms of the contract
of employment as the service rules applicable to the employee would be part
and parcel of his conditions of employment and acting on the said service
rules ifthe employer prohibits the employee from reporting for duty and doing
actual work the employer cannot be said to be committing breach of any of
the terms of the contract of emp.Joyment. Thus neither party can be said to
D have committed breach of any of the terms of the contract of employment
when legally permissible suspension pending enquiry is imposed by the
employer on the employee. Such is not a case when a lock-out or a lay-off
is imposed by the employer as in case of lock-out the employer commits
breach of !!le contract of employm~nt by refusing to give work to the employee
E for no fault of his. Similarly in case of iay-off the employees are refused work
by the employer for no fault of the employees. Therefore, in either case the
employer would be committing breach of the terms of the contract of
employment by his own act which may be justified or otherwise. Under these
circumstances, therefore, but for" the inclusive part of the definition
F encompassing payment made to an employee in respect of any period of lock-
out or Jay-off, said payment would not have been covered by the definition
of 'wages' under Section 2 sub-section (22) of the Act. The first part of the
said definition obviously would not apply to such a case as terms of the
contract of employment cannot be said to be complied with at least by the
G employer in such an eventuality. Such is not the case when employer acting
as per terms of employment governing the employees suspends him pending
enquiry.

It is now time for us to briefly refer to various decisions of this Court
to which our attention was invited by learned counsel for the parties. In the
H case of Mode/la Woollens Ltd. (supra) a Bench of two learned Judges of this
THE REGIONAL DIRECTOR E.S.l. v. POPULAR AUTOMOBILES [S.B. MAJMUDAR, J.] 359

Court had to consider whether the term 'wages' as defined by sub-section A
(22) of Section 2 of the Act would cover production bonus. The Court
observed that production bonus is nothing but remuneration for additional
production which the employees have brought about. In the case of Harihar
Polyfibres, (supra) another Bench of two learned Judges of this Court had to
consider the question whether the expression 'wages' as defined by Section B
2 sub-section (22) of the Act would include, amongst others, incentive
allowance. Chinnappa Reddy, J. delivering the main judgment made the following
pertinent observations in this connection at page 714 of the Report :

"The Employees State Insurance Act is a welfare legislation and
the definition of 'wages' is designedly wide. Any ambiguous expression C
is, of 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 paid
in terms of the original contract of employment or in terms of a D
settlement arrived at between the employer and the employees
which by nece- ssary implication becomes part of the contract of
employment it is wages :... "

ln the case of Indian Drugs & Pharmaceuticals Ltd. Etc .. (supra) a E
Bench of two learned Judges of this Court K. Ramaswamy and G.B. Pattanaik,
JJ. considered the question of overtime wages in the light of the definition
of 'wages' as found in Section 2 sub-section (22) of the Act. In this connection
it was observed that whatever remuneration paid or payable forms wages
under implied terms of the contract. It is of course true that none of these F
judgments dealt with the question with which we are concerned in these
appeals. However, the. common thread which runs through these three
judgments is to the effect that the definition of the word 'wages' should be
liberally construed as the Act is a welfare piece of legislation. On the
interpretation of the relevant terms found in the definition of the term 'wages',
as discussed earlier, it cannot be gainsaid that anything paid even by way G
of subsistence allowance to an existing employee though suspended by the
employer cannot but be said to be remuneration paid to him under the terms
of the contract of employment if they were fulfilled by the employee as well
as by the employer. However learned counsel for the respondents vehemently
relied upon a Division Bench judgment of the Bombay High Court in the case H
360 SUPREME COURT REPORTS [1997] SUPP. 4 S.C.R.

A of Nutan Mills, (supra) for submitting that in the light of the earlier unamended
definition of the term 'wages' as found in sub-section (22) of Section 2 of the
Act lay-off compensation was not held t~>. be covered by the term 'wages'.
The said decision cannot be of any assistance to learned counsel for the
respondents for two obvious reasons. Firstly, the High Court was considering
B unamended definition of the term 'wages'. The Legislature made its intention
clear by amending the definition and bringing in compensation for lay-off also
within the scope of the inclusive part of the definition of the 'wages'. But that
apart, secondly it is seen that in the said judgment Chagla, CJ., speaking for
the Division Bench of the Bombay High Court in terms observed that the
C provisions of the Industrial Disputes Act make it clear that there is no
relationship of master and servant during the period of lay-off. Employer has
no right to dictate to the employee that the he shall present himself at his
office, nor is there any obligation upon the employee so to do. During the
period of lay-off the employee would be entitled to go and serve another
master. The only result of his doing so would be that he would be disentitled
D to receive compensation. Therefore, during the period of lay-off the employee
is no longer the servant or the workman of his employer. That relationship
is suspended and that relationship would only be revived when he is reinstated
ur.der the terms of the contract. It is trite to say that in case of an employee
suspcmkd p~nding departmental enquiry, such legal result does not follow.
E On the contrary he continues to be the employee and the employer continues
to be his employer. He has to stay at the headquarters as directed by the
~mployer. All that happens is that during the suspension period the employee
is not allowed to actually work and he is not given full remuneration but only
permissible subsistence allowance by way of remuneration for remaining
F attached to the service of the employer as per the relevant service regulations
governing his contract of service. Consequently the aforesaid decision of the
Bombay High Court is also of no avail to learned counsel for the respondents.

As a result of the aforesaid discussion it must be held that the High
Courts in the impugned judgments erred in taking the view that subsistence
G allowance was not a part of wages as defined by Section 2 sub-section (22)
of the Act. It must be held that such allowance forms part of wages as per
sub-section (22) of Section 2 of the Act and consequently on the said amount
the employee will be liable to contribute under Section 39 by way of employee's
contribution and equally the employer would be liable to contribute his share
H by way of employee's contribution on the amount of subsistence allowance
THE REGIONAL DIRECTOR E.S.I. 1•. POPULAR AUTOMOBILES [S.B. MAJMUDAR, J.] 36J
paid to the suspended employee. The appeals are allowed. The impugned A
judgments and orders of the High Courts in respective cases are set aside.
The appellant-Corporation is held entitled to enforce the recovery of the
contributions centering round subsistence allowance paid to the suspended
employees concerned for the respective periods in accordance with law. No
costs.
B
KKT. Appeals allowed.

• •

Search Indian case law

Ask in plain English, not just keywords. 25,000 AI words free, no card.

Try "Employees' State Insurance Act"Sign in to search