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REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.77 OF 2014 (@SPECIAL LEAVE PETITION (CIVIL.) NO. 16382 OF 2009)

KICHHA SUGAR COMPANY LIMITED  TH. GEN. MANG.      … APPELLANT

VERSUS

TARAI CHINI MILL MAJDOOR  UNION, UTTARKHAND …RESPONDENT

J U D G M E N T

CHANDRAMAULI KR. PRASAD, J.

Kichha Sugar Company Limited aggrieved by the  

order  dated  24th of  June,  2008  passed  by  the  

Uttarakhand High  Court in WPMS No. 3717 of 2001,  

affirming  the  award  dated  12th of  November,  1992  

directing  payment  of  Hill  Development  Allowance

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after taking into account the amount received as  

“leave  encashment  and  overtime  wages”,  has  

preferred this special leave petition.

Leave granted.

Facts lie in a narrow compass;   

The Government of Uttar Pradesh, by its order  

dated 5th of January, 1981, had directed for payment  

of  Hill  Development  Allowance  to  its  employees  

working at specified hill areas at the rate of 15%  

of the basic wage.  Kichha Sugar Company Limited,  

the appellant herein (hereinafter referred to as  

‘the employer’), being a unit of a subsidiary of  

U.P. Government Corporation, adopted the same and  

started paying Hill Development Allowance at the  

rate  of  15%  of  the  basic  wage.   The  workmen  

demanded calculation of 15% of the said allowance  

by taking into account the amount paid as overtime,  

leave encashment and all other allowances.  When  

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the employer did not agree to the calculation of  

the Hill Development Allowance as suggested by the  

workmen, a dispute was raised.  It was referred to  

conciliation  and  on  its  failure,   the  competent  

Government made the following reference.

Whether the exclusion of payment  of  overtime,  leave  encashment,  bonus  and  retaining  allowance  while  calculating  the  Hill  Development  Allowance  by  the  Employer is legal and justified?  If  not,  to  what  relief,  the  workmen  concerned  are  entitled  to get?

It is common ground that while calculating Hill  

Development Allowance, the employer has not taken  

into  account  any  other  amount  including  amount  

received  as  bonus,  leave  encashment,  retaining  

allowance or overtime wages.  It is the claim of  

the  workmen  that  15%  of  the  Hill  Development  

Allowance is to be calculated and paid after taking  

into account the payments made under the aforesaid  

headings.  The employer repudiated their claim and  

according to it, the workmen shall be entitled to  

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15%  of  the  basic  wages  as  Hill  Development  

Allowance.   The  Industrial  Tribunal  gave  

opportunity to both the employer and the workmen to  

file  their  claim  and  produce  material  and  on  

consideration of the same, gave award dated 12th of  

November, 1992 directing the employer to “give Hill  

Development  Allowance  to  their  permanent  and  

regular workers on the amount received regarding  

leave encashment and overtime wages.”  However, the  

Tribunal observed that “Hill Development Allowance  

shall  not  be  payable  on  bonus  and  retaining  

allowance  or  on  any  other  allowances”.   The  

employer,  aggrieved  by  the  award  preferred  writ  

petition before the High Court, which affirmed the  

same without any discussion or assigning any reason  

in the following words:

“9.  After  going  through  the  aforesaid finding recorded by the  tribunal  concerned,  I  find  no  infirmity  or  illegality  in  the  impugned  award  passed  by  the  tribunal concerned and the same is  hereby confirmed.”

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Before we enter into the merit of the case, it  

is  apt  to  understand  what  Hill  Development  

Allowance  is.   In  our  opinion,  Hill  Development  

Allowances is nothing but a compensatory allowance.  

A compensatory allowance broadly falls into three  

categories; (i) allowance to meet the high cost of  

living  in  certain,  specially  costly  cities  and  

other local areas; (ii) allowance to compensate for  

the  hardship  of  service  in  certain  areas,  e.g.  

areas which have a bad climate and/or difficult to  

access; and (iii) allowances granted in areas, e.g.  

field  service  areas,  where,  because  of  special  

conditions  of  living  or  service,  an  employee  

cannot,  besides  other  disadvantages,  have  his  

family with him.  There may be cases in which more  

than  one  of  these  conditions  for  grant  of  

compensatory allowance is fulfilled.  It seems that  

taking  into  account  bad  climate  and  remote  and  

difficult access, the decision was taken to grant  

the Hill Development Allowance at the rate of 15%  

of the basic wage.

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We  have  heard  Mr.  Tanmaya  Agarwal  for  the  

appellant and Mr. Jatin Zaveri for the respondent.  

Mr.  Agarwal  submits  that  basic  wage  will  not  

include the amount received as leave encashment and  

overtime wages.  According to him, basic wage would  

mean the wage which is paid to all the employees.  

He submits that leave encashment and overtime wages  

would  vary  from  workman  to  workman  

and,  therefore,  those  cannot  be  included  in  the  

basic wage.  In support of the submission he placed  

reliance on a judgment of this Court in the case of  

Muir Mills Co. Ltd. v. Workmen, AIR 1960 SC 985 and  

our  attention  has  been  drawn  to  the  following  

passage from Paragraph 11 of the judgment, which  

reads as follows:

“11. Thus understood “basic wage”  never  includes  the  additional  emoluments which some workmen may  earn, on the basis of a system of  bonuses related to the production.  The  quantum  of  earnings  in  such  bonuses varies from individual to  individual  according  to  their  

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efficiency and diligence; it will  vary  sometimes  from  season  to  season  with  the  variations  of  working conditions in the factory  or other place where the work is  done;  it  will  vary  also  with  variations in the rate of supplies  of  raw  material  or  in  the  assistance  obtainable  from  machinery.  This  very  element  of  variation, excludes this part of  workmen's  emoluments  from  the  connotation of “basic wages”.”

Mr.  Garg,  however  submits  that  any  amount  

including the amount paid as leave encashment and  

overtime wages do come within the expression ‘basic  

wage’  and,  hence,  have  to  be  accounted  for  the  

purpose of calculating 15% of the basic pay.   

In view of the rival submissions, the question  

which  falls  for  our  determination  is  as  to  the  

meaning  of  the  expression  ‘basic  wage’.   The  

expression ‘basic wage’ has not been explained by  

the  Government  in  the  order  granting  Hill  

Development Allowance.  It has been defined only  

under  Section  2(b)  of  the  Employees’  Provident  

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Funds  and  Miscellaneous  Provisions  Act,  1952.  

Therefore, we have to see what meaning is to be  

given to this expression in the present context.  

Section 2(b) of the Employees’ Provident Funds and  

Miscellaneous Provisions Act, 1952 defines ‘basic  

wages’ as follows:

“2.  Definitions.  -  In  this  Act,  unless  the  context  otherwise  requires, - (a)  xxx xxx xxx

(b)  “basic  wages”  means  all  emoluments which are earned by an  employee while on duty or on leave  or  on  holidays  with  wages  in  either case in accordance with the  terms  of  the  contract  of  employment and which are paid or  payable in cash to him, but does  not include-

(i) the cash value of any food  concession;

(ii) any dearness allowance that  is  to  say,  all  cash  payments  by  whatever  name  called paid to an employee  on account of a rise in the  cost  of  living,  house-rent  allowance,  overtime  allowance, bonus commission  or  any  other  similar  

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allowance  payable  to  the  employee in respect of his  employment or of work done  in such employment;

(iii) any  presents  made  by  the  employer;”

According  to  http://www.merriam-webster.com  

(Merriam Webster Dictionary) the word ‘basic wage’  

means as follows:

“1. A wage or salary based on the  cost  of  living  and  used  as  a  standard for calculating rates of  pay

2. A rate of pay for a standard  work  period  exclusive  of  such  additional payments as bonuses and  overtime.”

When an expression is not defined, one can take  

into  account  the  definition  given  to  such  

expression  in  a  statute  as  also  the  dictionary  

meaning.  In our opinion, those wages which are  

universally, necessarily and ordinarily paid to all  

the  employees  across  the  board  are  basic  wage.  

Where the payment is available to those who avail  

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the opportunity more than others, the amount paid  

for that cannot be included in the basic wage.  As  

for example, the overtime allowance, though it is  

generally enforced across the board but not earned  

by all employees equally.  Overtime wages or for  

that matter, leave encashment may be available to  

each workman but it may vary from one workman to  

other.  The extra bonus depends upon the extra hour  

of  work  done  by  the  workman  whereas  leave  

encashment shall depend upon the number of days of  

leave available to workman.  Both are variable.  In  

view of what we have observed above, we are of the  

opinion  that  the  amount  received  as  leave  

encashment  and  overtime  wages  is  not  fit  to  be  

included  for  calculating  15%  of  the  Hill  

Development  Allowance.   The  view  which  we  have  

taken finds support from the judgment of this Court  

in  Muir Mills Co. Ltd. (supra),  relied on by the  

appellant, in which it has been specifically held  

that the basic wage shall not include bonus.   

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It also finds support from a judgment of this  

Court  in  the  case  of  Manipal  Academy  of  Higher  

Education v. Provident Fund Commr.,(2008) 5 SCC 428  

in which it has been held as follows:

“10. The basic principles as laid  down in  Bridge & Roofs case, AIR  1963  SC  1474,  on  a  combined  reading of Sections 2(b) and 6 are  as follows:

(a) Where the wage is universally,  necessarily and ordinarily paid to  all  across  the  board  such  emoluments are basic wages.

(b) Where the payment is available  to be specially paid to those who  avail  of  the  opportunity  is  not  basic wages. By way of example it  was held that overtime allowance,  though it is generally in force in  all concerns is not earned by all  employees of a concern. It is also  earned  in  accordance  with  the  terms  of  the  contract  of  employment but because it may not  be earned by all employees of a  concern, it is excluded from basic  wages.

(c) Conversely, any payment by way  of a special incentive or work is  not basic wages.”

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In view of what we have observed above, the  

impugned award and the judgment of the High Court  

are illegal and cannot be allowed to stand.

In the result, we allow this appeal, set aside  

the award and the judgment of the High Court and  

hold that overtime allowance and leave encashment  

are  not  fit  to  be  taken  into  account  for  

calculating  the  Hill  Development  Allowance.   No  

costs.

      ..………..……………………………….J. (CHANDRAMAULI KR. PRASAD)   

………………….………………………………….J. (JAGDISH SINGH KHEHAR)

NEW DELHI, JANUARY 06, 2014.

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