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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 4681 OF 2009

Employees State Insurance Corporation & Anr.           ..Appellants

Versus

Mangalam Publications (I) Private Limited ..Respondent

J U D G M E N T

MOHAN M. SHANTANAGOUDAR, J.

1. The  judgment  dated  28.02.2007  passed  in  Insurance

Appeal No. 2 of 2004 by the High Court of Kerala at Ernakulam is

called in question in this appeal. By the impugned judgment, the

High Court allowed the appeal filed by the respondent herein and

set  aside  the  order  dated  13.10.2003  passed  by  the  ESI  Court,

Idukki, Kerala.

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2. Brief facts leading to this appeal are as follows:

The  respondent  is  an  establishment  covered  by  the

provisions  of  Employees  State  Insurance  Act,  1948  (hereinafter

referred to as the ‘ESI Act’).  It is a private limited company engaged

in the business of  printing and publishing of  a  daily  Malayalam

newspaper called “Mangalam”; the respondent has more than 250

employees including working and non-working journalists.  In order

to  have  a  uniform  formula  regarding  the  wages  payable  to  the

employees of newspaper companies like the respondent, the Central

Government appointed Wage Boards from time to time to study and

submit reports from time to time.  Earlier, the Wage Board headed

by  Justice  Bachawat,  known  as  ‘Bachawat  Wage  Board’  was

constituted  and  the  Board  submitted  its  recommendations.

Thereafter, the Government of India appointed a new Wage Board,

headed by Justice Manisana which was called as ‘Manisana Wage

Board’.  As per the recommendations of ‘Manisana Wage Board’, the

Government of India issued a notification dated 24.09.1996 fixing

interim  rates  of  wages  in  respect  of  working  journalists,

non-working journalists  and newspaper  agency employees at  the

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rate of twenty per cent of the basic wages and an additional amount

of Rs.100/- per month, with effect from 20.04.1996.  As per the

said notification, the respondent started paying interim relief to its

employees,  and  paid  such  interim  relief  from  01.04.1996  to

31.03.2000.   However,  the respondent did not  pay the statutory

contribution under the ESI Act for the period during which it paid

interim  wages  to  its  employees.   The  ESI  contribution  due  on

interim  wages  paid  by  the  respondent  from  01.04.1996  to

31.03.2000 worked out to Rs.2,53,272/- (however, as per demand

notice dated 02.11.2000, the figure is Rs.2,58,061.50).

Subsequently,  another  office  memorandum was  issued

by  the  Government  of  India,  Department  of  Public  Enterprises,

Ministry of Industry, providing for the grant of interim relief to the

employees of Central Public Sector Enterprises (PSES).   The said

office memorandum was subject to the following conditions:

a) These instructions are applicable  to the employees  of  Central  PSES  following  IDA pattern.

b) The amount paid as interim relief would be  fully  adjusted  and  ….  in  the  final  pay revision package.

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c) xxx xxx xxx    

d) xxx xxx xxx

e) xxx xxx xxx

f) xxx xxx xxx

g) The amount of interim relief will be….viz. it  will  neither  be  termed  as  ‘pay’  nor ‘allowances’  nor  ‘wages’.   Accordingly,  this amount would not count for any service benefit i.e.  computation  of  house  rent  allowance, compensatory  allowance,  overtime  allowance, cash compensation, encashment of leave, pay fixation, pension or gratuity etc.

The afore-mentioned office memorandum dated 19.08.1998 of the

Ministry of Industry had nothing to do with the notification dated

20.04.1996  providing  for  interim  relief  to  the  employees  of

newspaper  agencies.   The  office  memorandum dated  19.08.1998

makes itself clear that the same was applicable to employees of the

Central PSES, and consequently it had no application to employees

of private sector undertakings like that of the respondent company.

3. The premises of the respondent-company was inspected

by  the  Insurance  Inspector  of  the  appellant-Corporation  on

13.06.2000, wherein it was found that the respondent had not paid

any contribution on the interim wages paid by it to its employees

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during the period from 01.04.1996 to 31.03.2000.  The contention

of  the  respondent  was  that  it  was  not  required  to  pay  any

contribution on the interim relief paid by it to its employees in view

of office memorandum dated 19.08.1998.  Since the contribution

was not paid by the respondent, as mentioned supra, a notice dated

18.07.2000 was issued by the appellant to the respondent to pay

contribution of the afore-mentioned amount for the afore-mentioned

period.  The notice of demand dated 02.11.2000 was also served on

the  respondent  demanding  an  amount  of  Rs.2,58,061.50  with

interest thereon.  

4. Feeling  aggrieved  by  the  afore-mentioned  notices,  the

respondent moved the Employees Insurance Court, Idukki, Kerala,

by filing a petition under Section 75 of the ESI Act, which came to

be numbered as Insurance Case No. 19/2000.  In the said petition

also,  the  respondent  relied  upon  the  office  memorandum  dated

19.08.1998 and a clarificatory letter dated 20.12.1996 of the Indian

Newspaper Society.  The said petition was opposed by the appellant

contending that the office memorandum dated 19.08.1998 was not

applicable to the respondent, and that the clarification given by the

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Indian Newspaper Society has no legal validity; the effect of the Act

of  Parliament  i.e.,  ESI  Act  cannot  be  superseded  by  the  office

memorandum issued by the department; that under Section 2(22)

of  the  ESI  Act,  all  remuneration  is  wages  except  the  categories

mentioned in clauses (a) to (d) of Section 2(22) of the ESI Act, and

that  interim  relief  does  not  come  within  the  excluded  parts  of

clauses (a) to (d).  After consideration of the material on record, the

ESI Court dismissed the application filed by the respondent holding

that the interim relief paid by the respondent to the employees was

“wages” as defined under Section 2(22) of the ESI Act, and hence

the respondent was liable to pay contribution for the interim relief

paid.  It was observed by the ESI Court that the respondent paid

interim relief to its employees as per the direction contained in the

notification dated 20.04.1996 and the provisions of the notification

became a part of the contract of employment of the employees of the

respondent  company.   It  was  also  observed  that  the  office

memorandum  dated  19.08.1998  was  only  applicable  to  the

employees of the Central PSES, and it does not anywhere say that

the interim relief is not “wages” as defined under Section 2(22) of

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the ESI Act or that contribution need not be paid on the payment of

interim relief.

The respondent filed Insurance Appeal No. 2/2000 before

the  High  Court  of  Kerala  under  Section  82  of  the  ESI  Act,

challenging the order passed by the ESI Court on 13.10.2003. The

appeal came to be allowed by the impugned judgment, holding that

the appellant herein is not entitled to collect any contribution in

respect of  interim relief paid by the respondent to its employees.

While concluding so, the High Court has held that the amount paid

as interim relief cannot be treated as “wages” or “part of wages” and

can only be treated as “ex-gratia payment”.  Hence, this appeal.

5. The only question to be considered and decided in this

appeal is as to whether the interim relief paid by the respondent to

its employees, during the period from 01.04.1996 to 31.03.2000, is

to be treated as “wages” as defined under Section 2(22) of the ESI

Act,  and  if  so,  whether  the  respondent  is  liable  to  pay  the  ESI

contribution?

6. There cannot be any dispute that if the interim relief paid

by the respondent is held by this Court as “wages” as defined under

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Section 2(22)  of  the  ESI  Act,  then the  respondent  is  necessarily

liable to pay ESI contribution on the amount of interim relief paid to

its employees.

7. Before proceeding further,  it  would be relevant to note

the definition of wages, as defined under Section 2(22) of the ESI

Act.  The same is extracted hereunder:

“Section  2  (22)  of  the  Employees'  State Insurance Act, 1948 defines Wages. It reads as follows:-

“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 authorized leave, 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  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;

(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.”

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A plain reading of  the afore-mentioned definition of  Section

2(22) of the ESI Act makes it amply clear that “wages” means all

remuneration paid or payable in cash to an employee, if the terms

of  the  contract  of  the  employment,  expressed  or  implied,  were

fulfilled and includes other additional remuneration, if any, paid at

intervals not exceeding two months.  But payments made on certain

contingencies under Clauses (a) to (d) of Section 2(22) of the ESI

Act, do not fall within the definition of “wages”.  The interim relief

paid to the employees of the respondent in the matter on hand, as

mentioned supra, will definitely not fall within the excluded part of

clauses (a) to (d) of Section 2(22) of the ESI Act, inasmuch as such

payment is not travelling allowance or the value of any travelling

concession, contribution paid by the employer to any pension fund

or  provident  fund;  sum  paid  to  an  employee  to  defray  special

expenses entailed on him by the nature of his employment; or any

gratuity payable on discharge.

8. The  Employees’  State  Insurance  Act  is  a  welfare

legislation. It has been enacted to protect and safeguard the rights

of the working class. Its preamble states that it is meant to “provide

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for certain benefits to employees in case of sickness, maternity and

‘employment injury’ and to make provision for certain other matters

in relation thereto”.  The Employees’  State Insurance Fund set up

under  this  Act  survives  primarily  on  contributions  paid  to  the

Employees’  State  Insurance  Corporation  (the  appellant).  All

employees  insured  in  accordance  with  this  Act  are  entitled  to

benefits  under  the  Act.  Undoubtedly,  the  literal  meaning  of

statutory provisions cannot  be ignored.  However,  in  cases where

there may be two or more ways to interpret a statutory provision,

the spirit of this legislation warrants a construction that benefits

the working class.  The inclusive part and exclusive portion of the

definition of  “wages”  clearly  indicate  that  the  expression “wages”

has been given wider  meaning.   As mentioned supra,  under  the

definition, firstly whatever remuneration is paid or payable to an

employee  under  the  terms  of  the  contract  of  the  employment,

expressed or implied, is “wages”.  Secondly, whatever payment is

made to an employee in respect of any period of authorized leave,

lock-out etc. is “wages”.  Thirdly, other additional remuneration, if

any, paid at intervals not exceeding two months is also “wages”.

Any  ambiguous  expression,  according  to  us,  should  be  given  a

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beneficent construction in favour of employees by the Court.  If the

definition of “wages” is read in its entirety including the inclusive

part  as  well  as  the  exclusive  portion,  it  appears  that  inclusive

portion  is  not  intended  to  be  limited  only  of  items  mentioned

therein, particularly, having regard to the objects and reasons for

which the Employees’ State Insurance Act is enacted.  The Act has

to be necessarily so construed as to serve its purpose and objects.

This Court in the case of  M/s Harihar Polyfibres vs. Regional

Director, ESI Corporation, (1984) 4 SCC 324 has held that the

definition of “wages” contained in Section 2(22) of  the ESI Act is

wide  enough  to  include  House  Rent  Allowance,  Night  Shift

Allowance, Incentive Allowance and Heat, Gas and Dust Allowance.

To come to the aforesaid conclusion, this Court observed thus:

“2. The Employees’ State Insurance Act is a welfare legislation  and the definition of ‘wages’ is designedly wide. Any ambiguous expression 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 settlement arrived at between the  employer  and  the  employees which  by

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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 remuneration,  if  any,  paid  at  intervals  not exceeding two months is  also wages; this is unqualified by any requirement 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  concession  any  sum  paid  to  the person  employed  to  defray  special  expenses entailed  on  him  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 additional remuneration,  if  any,  paid  at  intervals  not exceeding  two  months,  though  outside  the terms of employment. Thus remuneration paid under  the  terms  of  the  contract  of  the employment (express or implied) or otherwise if paid at intervals  not exceeding two months is wages.  The  interposition  of  the  clause  “and includes  any  payment  to  an  employee  in respect  of  any  period  of  authorised  leave, lock-out, strike  which is not illegal or lay-off” between  the  first  clause,  “all  remuneration paid or payable in cash to an employee, if the terms of the  contract of employment, express or implied, was fulfilled” and the third clause, "other additional remuneration, if any, paid at intervals not exceeding two months,” makes it

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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 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.l.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  workmen  was  wages within  the  meaning  of  Section  2(22) of  the Employees’  State  Insurance  Act.  It  was observed by the Full Bench of the Karnataka High Court as follows:

It is true that the word ‘remuneration’ is found both  in  the  first  and  second  parts  of  the definition. But the condition attached to such payment in the first part cannot legitimately be extended  to  the  second  part.  The  other ‘additional  remuneration’  referred  to  in  the second part  of  the definition is only qualified by 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  E.S.I.  Corpn., Hyderabad vs A.P Paper Mills Ltd., and also the Bombay High Court in Mahalaxmi Glass Works Pvt. Ltd. v. E.S.I. But this aspect of the matter has  been completely overlooked by this  Court in Kirloskar case (1974) 1 Kant LJ 358.

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Justice  Amarendra  Nath  Sen,  concurred  with  the

aforementioned observations of Justice O. Chinnappa Reddy

and supplemented as under:

“8. I entirely agree that on true interpretation of the word ‘wages’ defined in Section 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’.

9. The definition of ‘wages’ has been set out in the  judgment  of  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  the  definition read  with  exclusive  part  in  the  definition clearly shows,  to my mind, that the inclusive portion it 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  inclusive  part,  to  my  mind,  is  only illustrative  and  tends  to  express  the   wide meaning and import of the word 'wages' used in the Employees’ State Insurance Act.

10.  The Employees’ State Insurance Act is a piece of social welfare legislation enacted for the benefit of the employees. The Act has to be necessarily so  construed  as  will  serve  its  purpose  and objects.

11.   I entirely agree with my learned brother that on a proper  interpretation  of  the  term  ‘wages’  the legislative  intent  is  made  manifestly clear   that

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the  term ‘wages’ as used in the Act  will include House  Rent  Allowance,  Night  Shift  Allowance, Heat,  Gas  and  Dust  Allowance,  Night  Shift Allowance,  Heat,  Gas and Dust Allowance  and Incentive Allowance. The definition, to my mind, 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  interest  of  the employees for whose benefit the Employees’ State Insurance Act has been passed.”

9. This  Court,  in the case of  Whirlpool of  India Ltd.  vs

Employees’ State Insurance Corporation, (2000) 3 SCC 185, has

succinctly described the intention of the legislature in passing the

E.S.I. Act, and the same reads as thus,

“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. Broadly this is the purpose  for  which the  Corporation has  been established  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 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 provision of which two interpretations may be

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possible  would  deserve  such construction as would be beneficial to the working class but, at the same time, we cannot give a go-by to the plain language of a provision.”

10. As mentioned supra, the High Court while allowing the

appeal  filed by the respondent has mainly relied upon the office

memorandum dated 19.08.1998 issued by the Department of Public

Enterprises,  Ministry  of  Industry,  New  Delhi,  which  is  not

applicable to the facts of this case.  The said notification makes it

abundantly clear that the instructions contained in the said office

memorandum are applicable to Central Public Sector Enterprises

(PSES)  only.   Admittedly,  the  respondent  is  a  private  limited

company  and  hence  the  instructions  contained  in  office

memorandum  dated  19.08.1998  are  not  applicable  to  the

respondent company.  In the matter on hand, the appellant claimed

ESI  contribution only  on the amount paid by the respondent as

interim relief to its employees, treating the same as “wages” as per

Section 2(22) of the ESI Act.  The amount paid as interim relief by

the respondent to its employees definitely falls within the definition

of “wages” as per Section 2(22) of the ESI Act.  On the other hand,

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the High Court has strangely observed that the interim relief paid

for the period from 01.04.1996 to 31.03.2000 can only be treated as

“ex-gratia  payment”  paid  by  the  employer  to  its  employees  and

cannot be treated as “wages” for the purpose of ESI contribution.

In our considered opinion, the High Court has ignored to appreciate

that  the  effect  of  ESI  Act  enacted  by  the  Parliament  cannot  be

circumvented  by  the  department  office  memorandum.  The  High

Court  has  also  failed  to  appreciate  that  the  payment  of  interim

relief/wages emanates from the provisions contained in terms of the

settlement,  which forms part  of  the contract  of  employment and

forms the ingredients of “wages” as defined under Section 2(22) of

the ESI Act and that the respondent paid interim relief, as per a

scheme voluntarily promulgated by it as per the notification dated

20.04.1996,  issued  by  the  Government  of  India,  in  view  of  the

recommendations of  “Manisana’  Wage Board,  pending revision of

rates of wages. It was not an ex-gratia payment.  In this context, it

is beneficial to note the observations of this Court in the case of

Employees State Insurance Corporation vs. Gnanambigai Mills

Limited, (2005) 6 SCC 67, which read thus:    

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“6.  In  our  view  the  High  Court  has  gone completely wrong in concluding that by virtue of the award it ceases to be wages. As stated above, the Tribunal has not applied its mind as to whether or not the payments were wages. All  that  the  Tribunal  did  was  to  give  its imprimatur  to  a  compromise  between  the parties.  Merely  because  the  parties  in  their compromise chose to term the payments as “ex gratia  payments”  does  not  mean  that  those payments  cease  to  be  wages  if  they  were otherwise  wages.  As  stated above,  they  were wages at the time that they were paid.  They did  not  cease  to  be  wages  after  the  award merely  because  the  terms  of  compromise termed them as “ex gratia payments”. We are therefore unable to accept the reasoning of the judgments of the High Court. The judgment of the Division Bench as well as that of the Single Judge accordingly stands set aside. It is held that  the  amounts  paid  are  wages  and contribution  will  have  to  be  made  on  those amounts also. We, however, make it clear that payments  of  the  interest  will  be  as  per  the statutory provisions.”

11. The interim relief paid by the respondent to its employees

is not a “gift” or “inam”, but is a part of wages, as defined under

Section 2(22) of the ESI Act. In view of the above, we hold that the

payment  made by  way of  interim relief  to  the  employees  by  the

respondent  for  the  period  from  1.04.1996  to  31.03.2000  comes

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within the definition of “wages”, as contained in Section 2(22) of the

ESI Act, and hence the respondent is liable to pay ESI contribution.

12. Accordingly, the instant appeal is allowed, the impugned

judgment of the High Court is set aside, and that of the ESI Court is

restored.  The appellant is held to be entitled to recover the ESI

contribution from the respondent for the period from 01.04.1996 to

31.03.2000 as per demand notice dated 02.11.2000.  No order as to

costs.

……………………………………J. [ARUN MISHRA]

……………………………………J. [MOHAN M. SHANTANAGOUDAR]

NEW DELHI;

SEPTEMBER 21, 2017.