REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE/ORIGINAL JURISDICTION

CIVIL APPEAL NO(s). 6221 OF 2011

THE REGIONAL PROVIDENT FUND  COMMISSIONER (II) WEST BENGAL         

 ...APPELLANT(S)  VERSUS

VIVEKANANDA VIDYAMANDIR AND OTHERS    ...RESPONDENT(S)

WITH

CIVIL APPEAL NO(s). 3965­3966 OF 2013

SURYA ROSHNI LTD.  ...APPELLANT(S)

VERSUS

EMPLOYEES PROVIDENT FUND  AND OTHERS                                  ...RESPONDENT(S)

CIVIL APPEAL NO(s). 3969­3970 OF 2013

U­FLEX LTD.    ...APPELLANT(S)

VERSUS

EMPLOYEES PROVIDENT FUND  AND ANOTHER                          ...RESPONDENT(S)

CIVIL APPEAL NO(s). 3967­3968 OF 2013

MONTAGE ENTERPRSES PVT. LTD.    ...APPELLANT(S)

VERSUS

EMPLOYEES PROVIDENT FUND  AND ANOTHER                          ...RESPONDENT(S)

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TRANSFER CASE (C) NO(s).19 OF 2019 (arising out of T.P.(C)No. 1273 OF 2013)

THE MANAGEMENT OF  SAINT­GOBAIN GLASS INDIA LTD.  ...PETITIONER(S)

VERSUS

THE REGIONAL PROVIDENT FUND  COMMISSIONER, EMPLOYEES’  PROVIDENT FUND ORGANISATION              ...RESPONDENT(S)

JUDGMENT

NAVIN SINHA, J.

The appellants with the exception of Civil Appeal No. 6221

of 2011, are establishments covered under the Employees’

Provident Fund and Miscellaneous Provisions Act, 1952

(hereinafter referred to as the “Act”). The appeals raise a

common question of  law, if  the special allowances paid by an

establishment to its employees would fall within the expression

“basic wages” under Section 2(b)(ii) read with Section 6 of the Act

for computation of deduction towards Provident Fund.   The

appeals have therefore been heard together and are being

disposed by a common order.

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2. It is considered appropriate to briefly set out the individual

facts of each appeal for better appreciation.  

Civil Appeal No. 6221 of 2011   : The respondent is an

unaided school giving special allowance by way of incentive to

teaching and non­teaching staff pursuant to an agreement

between the staff and the  management.   The incentive was

reviewed from time to time upon enhancement of the tuition fees

of the students. The authority under the Act held that the

special allowance was to be included in basic wage for deduction

of provident fund.   The Single Judge set aside the order.   The

Division Bench initially after examining the salary structure

allowed the appeal on 13.01.2005 holding that the special

allowance was a part of dearness allowance liable to deduction.

The order was recalled on 16.01.2007 at the behest of the

respondent as none had appeared on its behalf. The subsequent

Division Bench dismissed  the  appeal  holding that the  special

allowance  was not linked to the consumer price index, and

therefore did not fall within the definition of basic wage, thus not

liable to deduction.  

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Civil Appeal Nos. 3965­66 of 2013:  The appellant was paying

basic  wage  + variable  dearness  allowance(VDA)  +  house rent

allowance(HRA) + travel allowance + canteen allowance + lunch

incentive.  The special allowances not having been included  in

basic wage, deduction for provident fund was not made from the

same. The authority under the Act held that only washing

allowance was to be excluded from basic wage. The High Court

partially allowed the writ petition by excluding lunch incentive

from  basic  wage. A review petition against the same  by the

appellant was dismissed.  

Civil Appeal Nos. 3969­70 of 2013:   The appellant was not

deducting Provident Fund contribution on house rent allowance,

special allowance, management allowance and conveyance

allowance by excluding it from basic wage.  The authority under

the Act held that the allowances had to be taken into account as

basic  wage  for  deduction.  The High Court  dismissed  the  writ

petition and the review petition filed by the appellant.  

Civil Appeal Nos. 3967­68 of 2013:   The appellant company

was not deducting Provident Fund contribution on house rent

allowance, special allowance, management allowance and

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conveyance allowance by excluding it from basic wage. The

authority under the Act held that the special allowances formed

part of basic wage and was liable to deduction.  The writ petition

and review petition filed by the appellant were dismissed.  

Transfer Case (C) No.19 of 2019 (arising out of T.P. (C) No.

1273 of 2013):    The petitioner filed W.P. No. 25443 of 2010

against the show cause notice issued by the authority under the

Act calling for records to determine if conveyance allowance,

education allowance, food concession, medical allowance, special

holidays, night shift incentives and city compensatory allowance

constituted part of basic wage. The writ petition was dismissed

being against a show cause  notice and the statutory remedy

available under the Act, including an appeal.     A Writ Appeal

(Civil) No.1026 of 2011 was preferred against the same and which

has been transferred to this Court at the request of the petitioner

even before a final adjudication of liability.  

3. We have heard  learned Additional  Solicitor General,  Shri

Vikramajit Banerjee and Shri Sanjay Kumar Jain appearing for

the Regional Provident Fund Commisioner and Shri Ranjit

Kumar, learned Senior Counsel who made the lead arguments

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on behalf of the Establishment­appellants, and also Mr. Anand

Gopalan, learned counsel appearing for the petitioner in the

transfer petition.   

 4.     Shri  Vikramajit Banerjee, learned  Additional Solicitor

General appearing for the appellant in Civil Appeal No. 6221 of

2011, submitted that the special allowance paid to the teaching

and non­teaching staff of the respondent school was nothing but

camouflaged dearness allowance liable to deduction as part of

basic wage.   Section 2(b)(ii) defined dearness allowance as all

cash payment by whatever name called paid to an employee on

account of a rise in the cost of living.   The  allowance shall

therefore fall within the term dearness allowance, irrespective of

the nomenclature, it being paid to all employees on account of

rise in the  cost of living.  The special allowance  had all the

indices of a dearness allowance.  A bare perusal of the breakup

of the different  ingredients of the salary noticed in the earlier

order of the Division Bench dated 13.01.2005 makes it apparent

that it formed part of the component of pay falling within

dearness allowance.   The special allowance was also subject to

increment on  a time scale.   The  Act  was a social beneficial

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welfare legislation meant for protection of the weaker sections of

the society, i.e. the workmen, and was therefore, required to be

interpreted in a manner to sub­serve and advance the purpose of

the legislation.   Under Section 6 of the Act, the appellant was

liable to pay contribution to the provident fund on basic wages,

dearness allowance, and retaining allowance (if any).  To exclude

any incentive  wage from basic  wage, it should  have  a  direct

nexus and linkage with the amount of extra output.  Relying on

Bridge and Roof Co. (India) Ltd. vs. Union of India, (1963) 3

SCR 978, it was submitted that whatever is payable by all

concerns or earned by all permanent employees had to be

included in basic wage for the purpose of deduction under

Section 6 of the Act.   It is only such allowances not payable by

all concerns or  may not be earned by all employees of the

concern, that would stand excluded from deduction. It is only

when a  worker  produces  beyond  the  base  standard,  what  he

earns would not  be  a basic  wage but  a production bonus or

incentive  wage  which  would then fall outside the  purview of

basic  wage  under  Section  2(b) of the  Act.  Since the special

allowance was earned by all teaching and non­teaching staff of

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the respondent school, it has to be included for the purpose of

deduction under Section 6 of the Act.  The special allowance in

the present case was a part of the salary breakup payable to all

employees and did not have any nexus with extra output

produced by the employee out of his allowance, and thus it fell

within the definition of “basic wage”.

5. The common submission on behalf of the appellants in the

remaining appeals was that basic wages defined under Section

2(b) contains exceptions and will not include what would

ordinarily  not  be earned  in accordance with  the  terms of the

contract of employment.  Even  with regard to the payments

earned by an employee in accordance with the terms of contract

of employment, the basis of inclusion in Section 6 and exclusion

in Section 2(b)(ii) is that whatever is payable in all concerns and

is earned by all permanent employees is included for the

purpose of contribution under Section 6.   But whatever is not

payable by all concerns or may not be earned by all employees of

a concern are excluded for the purposes of contribution.

Dearness  allowance  was  payable in  all concerns either  as  an

addition to basic wage or as part of consolidated wages.

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Retaining allowance was payable to all permanent employees in

seasonal factories and was therefore included in Section 6.  But,

house rent allowance is not paid in many concerns and

sometimes in the same concern, it is paid to some employees but

not to others, and would therefore stand excluded from basic

wage. Likewise overtime allowance though in force in all

concerns, is not earned by all employees and would again stand

excluded from basic wage.   It is only those emoluments earned

by an employee  in  accordance with  the terms of  employment

which would qualify as basic wage and discretionary allowances

not earned in accordance with the terms of employment would

not be covered by basic wage. The statute itself excludes certain

allowance from the term basic wages.  The exclusion of dearness

allowance in Section 2(b)(ii)  is an exception but that exception

has been corrected by including dearness allowance in Section 6

for the purpose of contribution.   

6. Attendance incentive was not paid in terms of the contract

of employment and was not legally enforceable by an employee.

It would therefore not fall within basic wage as it was not paid to

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all  employees of the concern.   Likewise,  transport/conveyance

allowance was similar to house rent allowance, as it was

reimbursement to an employee.   Such payments are ordinarily

not made universally, ordinarily and necessarily to all employees

and therefore will not fall within the definition of basic wage.  To

hold that canteen allowance was paid only to some employees,

being optional was not to be included in basic wage while

conveyance  allowance  was  paid to  all employees  without  any

proof in respect thereof was unsustainable.

7. Basic wage, would not  ipso­facto take within its ambit the

salary breakup structure to  hold it liable for provident fund

deductions when it was paid as special incentive or production

bonus given to  more  meritorious  workmen  who  put in extra

output which has a direct nexus and linkage with the output by

the eligible workmen. When a worker produces beyond the base

or standard, what he earns was not basic wage. This incentive

wage will fall outside the purview of basic wage.  

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8. We have considered the submissions on behalf of the

parties.  To  consider the  common question  of law, it  will  be

necessary to set out the relevant provisions of the Act for

purposes of the present controversy.  

“Section 2 (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), house­rent allowance, overtime allowance, bonus, commission or any other similar allowance payable to the employee in respect of  his employment  or of  work  done in such employment.

(iii) Any presents made by the employer;

Section 6:  Contributions and matters which may be provided  for  in Schemes.  –  The contribution which shall be paid by the employer to the Fund shall be ten percent. Of the basic wages, dearness allowance and retaining  allowance, if  any, for the time being payable to each of the employees whether employed by him directly or by or through a contractor, and the employees’ contribution shall be equal to the contribution payable  by  the employer in  respect  of him and  may, if any employee so desires, be an amount exceeding ten  percent of  his basic  wages, dearness allowance and retaining allowance  if  any, subject to the condition that the employer shall not be under an obligation to pay any contribution over

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and above his contribution payable under this section:

Provided that in its application to any establishment or class of establishments which the Central Government, after making such inquiry as it deems fit, may, by notification in the Official Gazette specify, this section shall be subject to the modification that for the words “ten percent”, at both the places where they occur, the words “12 percent” shall be substituted:  

Provided further that where the amount of any contribution payable under this Act involves a fraction of a rupee, the Scheme  may provide for rounding off  of  such fraction to  the nearest rupee, half of a rupee, or quarter of a rupee.  

Explanation I – For the purposes of this section dearness allowance shall be deemed to include also the cash value of any food concession allowed to the employee.  

Explanation  II. –  For the  purposes  of this  section, “retaining allowance”  means allowance payable for the time being to an employee of any factory or other establishment during any period in which the establishment is not working, for retaining his services.”

9. Basic wage, under the Act, has been defined as all

emoluments paid in cash to an employee in accordance with the

terms of his contract of employment.   But it carves out certain

exceptions which would not fall  within the definition of  basic

wage and which includes dearness allowance apart from other

allowances mentioned therein.   But this exclusion of dearness

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allowance finds inclusion in  Section  6.   The test adopted to

determine if any payment was to be excluded from basic wage is

that the payment under the scheme must have a direct access

and  linkage  to the payment of  such special  allowance as not

being common to all. The crucial test is one of universality.  The

employer, under the Act, has a statutory obligation to deduct the

specified percentage of the contribution from the employee’s

salary and make matching contribution.   The entire amount is

then required to be deposited in the fund within 15 days from

the  date  of such  collection.  The  aforesaid  provisions fell for

detailed consideration by this Court in  Bridge & Roof  (supra)

when it was observed as follows:

“7. The main question therefore that falls for decision is as to which of these two rival contentions is in consonance with s. 2(b). There is no doubt that "basic wages" as defined therein means 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. If there were no exceptions to this definition, there would have been no difficulty in holding that production bonus whatever be its nature would be included within these terms. The difficulty, however, arises because the definition also provides that certain things will not be included in the term "basic wages", and these are contained in three clauses. The first clause mentions the cash

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value of any food concession while the third clause mentions that presents made by the employer. The fact that the exceptions contain even presents made by the employer shows that though the definition mentions all emoluments which are earned in accordance with the terms of the contract of employment, care was taken to exclude presents which would ordinarily not be earned in accordance with the terms of the contract of employment. Similarly, though the definition includes "all emoluments" which are paid or payable  in cash, the exception excludes the cash value of  any  food concession,  which  in any case was not payable in cash. The exceptions therefore do  not seem  to follow any logical pattern  which would be in consonance with the main definition.

8. Then we come to clause (ii). It excludes dearness allowance, house­rent allowance, overtime allowance, bonus, commission or any other similar allowance payable to the employee in respect of his employment or of work done in such employment. This exception suggests that even though the main part of the definition includes all emoluments which are earned in accordance with the terms of the contract of employment, certain payments which are in fact the price of labour and earned in accordance with the terms of the contract of employment are excluded from the main part of the definition of "basic wages". It is undeniable that the exceptions contained in clause (ii) refer to payments which are earned by an employee in accordance with the terms of his contract of employment.  It  was admitted by counsel on both sides before us that it was difficult to find any one basis for the exceptions contained in the three clauses. It is clear  however from clause (ii) that from the definition of the word "basic wages" certain earnings were excluded, though they must be earned  by employees in accordance  with the terms of the contract of employment. Having

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excluded "dearness allowance" from the definition of "basic wages", s. 6 then provides for inclusion of dearness  allowance for  purposes  of contribution. But that is clearly the result of the specific provision in s. 6 which lays down that contribution shall be 6­1/4 per centum of the basic wages, dearness allowance and retaining allowance (if any). We must therefore try to discover some basis for the exclusion in clause (ii) as also the inclusion of dearness allowance and retaining allowance (for any) in s. 6. It seems that the basis of inclusion in s. 6 and exclusion in clause (ii) is that whatever is payable in all concerns and is earned by all permanent employees is included for the purpose, of contribution  under s. 6, but  whatever is not payable by all concerns or may not be earned by all employees of a concern is excluded for the purpose of contribution. Dearness allowance (for examples is payable in all concerns either as an addition to basic  wages or as a part of consolidated  wages where a concern does not have separate dearness allowance and basic wages. Similarly, retaining allowance is payable to all permanent employees in all seasonal factories like sugar factories and is therefore included in s. 6; but house­rent allowance is not paid in many concerns and sometimes in the same concern it is paid to some employees but not to others, for the theory is that house­rent is included in the payment of basic wages plus dearness allowance or consolidated wages. Therefore, house­rent allowance which may not be payable to all employees of a concern and which is certainly not paid by all concern is taken out of the definition of "basic wages", even though the basis of payment of house­rent allowance where it is paid is the contract of employment. Similarly, 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

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employment; but because it may not be earned by all employees of a concern it is excluded from "basic wages". Similarly, commission or any other similar allowance is excluded from the definition of "basic wages" for commission and other allowances are not necessarily to be found in all concerns; nor are they necessarily earned by all employees of the same concern, though where they  exist they  are earned in accordance with the terms of the contract of employment. It seems therefore that the basis for the exclusion in clause (ii) of the exceptions in s. 2(b) is that all that is not earned in all concerns or by all employees of concern is excluded from basic wages. To this the exclusion of dearness allowance  in clause  (ii) is  an exception. But that exception has been corrected by including dearness allowance in s. 6 for the purpose of contribution. Dearness allowance which is an exception in the definition of "basic wages", is included for the propose of contribution by s. 6 and the real exceptions therefore in clause (ii) are the other exceptions beside dearness allowance, which has been included through S. 6.”

10. Any  variable  earning  which may  vary from  individual to

individual according to their efficiency and diligence will stand

excluded from the term “basic wages” was considered in  Muir

Mills Co. Ltd.,  Kanpur Vs.  Its Workmen,  AIR 1960 SC 985

observing:

“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

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of earning in such bonuses varies from individual to individual according to their 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"…”

11. In Manipal Academy of Higher Education vs. Provident

Fund Commissioner, (2008) 5 SCC 428,  relying upon Bridge

Roof’s case it was observed:

“10. The basic principles as laid down in Bridge Roof's case (supra) 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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12. The term basic wage has not been defined under the Act.

Adverting to the dictionary  meaning of the same in  Kichha

Sugar Company Limited through General Manager vs. Tarai

Chini Mill Majdoor Union, Uttarakhand, (2014) 4 SCC 37, it

was observed as follows:

“9. 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.

10.  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 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

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encashment  and  overtime  wages is  not fit to  be included for calculating 15% of the Hill Development Allowance.”

13. That the Act was a piece of  beneficial  social welfare

legislation and must be interpreted as such was considered in

The  Daily Partap vs. The Regional Provident Fund

Commissioner, Punjab, Haryana, Himachal Pradesh and

Union Territory, Chandigarh, (1998) 8 SCC 90.

14. Applying the aforesaid tests to the facts of the present

appeals, no material has been placed by the establishments to

demonstrate that the allowances in question being paid to  its

employees were either variable or were linked to any incentive for

production resulting in greater output by an employee and that

the allowances in question were not paid across the board to all

employees in a particular category or were being paid especially

to those who avail the opportunity.   In order that the amount

goes beyond the basic wages, it has to be shown that the

workman concerned had become eligible to get this extra

amount beyond the normal work which he was otherwise

required to put in.  There is no data available on record to show

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what  were the  norms of  work  prescribed for those  workmen

during the relevant period.   It is therefore not possible to

ascertain whether extra amounts paid to the workmen were in

fact  paid for the extra  work  which  had  exceeded the  normal

output prescribed for the workmen.  The wage structure and the

components of salary have been examined on facts, both by the

authority and the appellate authority under the Act, who have

arrived at a factual conclusion that the allowances in question

were essentially a part of the basic wage camouflaged as part of

an allowance so as to avoid deduction and contribution

accordingly to the provident fund account of the employees.

There is  no occasion for  us to interfere  with the concurrent

conclusions of facts.   The appeals by the establishments

therefore merit no interference.  Conversely, for the same reason

the appeal preferred by the Regional Provident Fund

Commissioner deserves to be allowed.

15. Resultantly, Civil Appeal No. 6221 of 2011 is allowed. Civil

Appeal Nos. 3965­66 of 2013, Civil Appeal Nos. 3967­68 of 2013,

Civil Appeal Nos. 3969­70 of 2013 and Transfer Case (C) No.19

of 2019 are dismissed.   

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.……………………….J.  (Arun Mishra)                   

………………………..J.    (Navin Sinha)   

New Delhi, February 28, 2019

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