1962 (9) TMI 58 - SC - Indian Laws

Summary

Issues Involved:
1. Whether production bonus is included within the term "basic wages" as defined in Section 2(b) of the Employees' Provident Funds Act, 1952.
2. The nature of the production bonus scheme in force in the company.
3. The constitutional validity of excluding production bonus from "basic wages" under Article 14 of the Constitution.
4. The Central Government's authority to direct the inclusion of production bonus in "basic wages" under Section 19A of the Act.

Issue-wise Detailed Analysis:

1. Whether production bonus is included within the term "basic wages" as defined in Section 2(b) of the Employees' Provident Funds Act, 1952:

The core issue in this writ petition is the interpretation of "basic wages" under Section 2(b) of the Employees' Provident Funds Act, 1952. The definition of "basic wages" includes "all emoluments which are earned by an employee while on duty or on leave with wages in accordance with the terms of the contract of employment and which are paid or payable in cash," but explicitly excludes "bonus." The court had to determine whether this exclusion applied to all types of bonuses, including production bonuses.

The court concluded that the term "bonus" in the exclusion clause of Section 2(b) was intended to cover all types of bonuses, not just profit bonuses. The court noted that various kinds of bonuses, such as production bonuses, festival bonuses, and attendance bonuses, were prevalent in the industrial sector before the Act was passed in 1952. Therefore, the legislature must have been aware of these different types of bonuses and intended to exclude them all from the definition of "basic wages."

2. The nature of the production bonus scheme in force in the company:

The company in question had a production bonus scheme that provided additional payments over and above the basic wages and dearness allowance fixed by the major engineering award of 1958. The scheme stipulated that production bonuses would be paid only when the output reached certain levels (e.g., 5,000 tons per year or 1,300 tons per quarter for hourly rated workers). The court found that this production bonus scheme was a typical incentive wage plan, where extra payments were made for superior performance beyond a set standard or base.

The court held that such production bonuses, being contingent on achieving certain production targets, did not qualify as "basic wages" under Section 2(b) because they were not earned by all employees uniformly and were not a guaranteed part of the wages.

3. The constitutional validity of excluding production bonus from "basic wages" under Article 14 of the Constitution:

The company argued that including production bonuses in "basic wages" would violate Article 14 of the Constitution, as it would create an unequal burden on companies that paid production bonuses compared to those that did not. However, the court found it unnecessary to delve into the constitutional aspect, as it had already concluded that production bonuses were excluded from "basic wages" under the Act.

4. The Central Government's authority to direct the inclusion of production bonus in "basic wages" under Section 19A of the Act:

The Central Government had issued a directive in March 1962, stating that production bonuses should be included in "basic wages" for the purpose of provident fund contributions. The court examined whether this directive was consistent with the provisions of the Act.

The court concluded that the Central Government's directive was incorrect. Section 19A of the Act allows the Central Government to remove difficulties in implementing the Act, but this power does not extend to altering the clear exclusions specified in the definition of "basic wages" under Section 2(b). Therefore, the directive to include production bonuses in "basic wages" was set aside.

Conclusion:

The petition was allowed, and the court held that production bonuses of the type in force in the company were excluded from the term "basic wages." Consequently, the Central Government's directive to include production bonuses in provident fund contributions was invalidated. The parties were ordered to bear their own costs.