Patna High Court
Case Details
IN THE HIGH COURT OF JUDICATURE AT PATNA Civil Writ Jurisdiction Case No.3250 of 2007 ====================================================== Unit Manager,Bata India Limited, Bataganj, Digha, Patna. .... .... Petitioner Versus 1. The State Of Bihar through the Secretary, Department of Labour & Employment, New Secretariat, Patna-1. 2. Labour Commissioner-cum-Appellate Authority under Under Payment of Gratuity Act, 1972, New Secretariat, Patna. 3. Deputy Labour Commissioner-cum-Controlling Authority, Payment of Gratuity Act, 1972, Bailey Road, Patna-1. 4. Baleshwar Prasad Sinha, son of Late Banshi Prasad Sinha, resident of Gosaipur, P.O. Jogipur, P.S. Hilsa, District-Nalanda .... .... Respondents ====================================================== Appearance : For the Petitioners : Mr. Chandra Udai Singh, Senior Advocate Mr. K.N. Gupta Mr. Satyendra Krishna Prasad For the State : Mr. Rajiv Kumar Singh, G.P.II Mr. Indrajeet Bhushan, A.C. to G.P.II. For Respondent No.4 : Mr.Jyotendra Pratap Singh ====================================================== CORAM: HONOURABLE MR. JUSTICE RAMESH KUMAR DATTA ORAL ORDER 11 04-12-2013 Heard learned counsel for the petitioner and learned counsels for the State and for the private respondent No.4. The petitioner seeks quashing of the order dated 20.7.2006 passed by the Appellate Authority under the Payment of Gratuity Act, 1972 in Gratuity Appeal No.2 of 2005 and also the order dated 28.9.2004 of the Deputy Labour Commissioner-cum- Controlling Authority under Payment of Gratuity Act in G.A. Case No.16 of 2002, by which the claim filed by respondent No.4 was allowed. Patna High Court CWJC No.3250 of 2007 (11) dt.04-12-2013 2 The short facts of the case are that the respondent No.4, workman, was a permanent employee in the Factory of the petitioner located at Digha, Bataganj and his service conditions were regulated by the Certified Standing Orders. The stand of the petitioner is that although the respondent No.4 and similarly situated workmen were named as Accord/Piece Rated Workman but the same was not in the strict legal sense of the term Piece Rated Workman rather it was a name which was traditionally continuing in the company having no reference to the actual state of affairs. It is the emphatic stand, on the basis of the documents which had been brought on the record before the Authority under the Payment of Gratuity Act, including the last settlement dated 24.12.1998, that the respondent No.4 was employed as a Time Rated Employee and he was entitled like all such similarly situated employees to basic wages and dearness allowance, etc. The same was fixed weekly basic wages and the dearness allowance according to the price index. The payment of such wages did not vary upon the actual production whether high and low up to 1200 pairs per day. There was, however, an incentive scheme in the company under which if a workman pasted more than 1200 pairs in a day then the workman concerned was entitled to incentive for such extra production only and where
Facts
Patna High Court CWJC No.3250 of 2007 (11) dt.04-12-2013 3 the production was less than 1200 pairs per day, the respondent No.4 was entitled to his fixed wages and other allowances. It is, therefore, the stand of the respondent No.4 that in view of the definition of wages under Section 2 (s) of the Payment Wages Act, the respondent No.4 was paid his gratuity on the basis of the last basic wages + D.A. drawn by him at the time of superannuation from service with effect from 7.2.2002 and the amount paid to him towards gratuity was settled within time at Rs. 93, 234.90. After receiving the said payment, the respondent No.4 filed an application before the Authority under the Payment of Gratuity Act, 1972 claiming further gratuity to Rs. 27,650/- stating that under the Incentive Scheme of Production as a piece rated employee, apart from basic wages which was pegged to certain fixed number of pieces produced, he used to be paid incentive which was directly linked to the number of pieces produced extra. Even a single piece extra produced used to fetch an incentive over and above the basic wages and, therefore for the purpose of gratuity the incentive earned by the employee will form part of the wages earned apart from other qualifying components such as basic wages, dearness allowance, increment, etc. and further the calculation was to be made in accordance with Section 4 (2) of the Payment of Gratuity Act. The respondent No.4 had also examined Patna High Court CWJC No.3250 of 2007 (11) dt.04-12-2013 4 himself as A.W.1 before the Authority under the Payment of Gratuity Act and the petitioner-company also examined five management witnesses. From a perusal of the claim statement and the evidence of the witnesses, it is evident that the aforesaid factual matrix is not in dispute. The Deputy Labour Commissioner-cum- Controlling Authority by his order dated 28.9.2004 in G.A. No. 10/2002 allowed the claim of respondent No.4 to the extent of Rs.1,20,840 less the amount already paid holding that the respondent No.4 was entitled to be paid Rs.27,605.10 as the difference of gratuity which was to be paid with compound interest at the rate of 15 % per annum from the date of superannuation till the date of payment. Aggrieved by the said order, the petitioner filed an appeal before the Labour Commissioner, Bihar-cum- Appellate Authority under the Payment of Wages Act (Appellate Authority) which was registered as Gratuity Payment Case No. 2 of 2005. By the impugned order dated 20.7.2006, the Appellate Authority dismissed the appeal upholding both the difference of gratuity payable as also the interest that was to be paid thereon. Learned counsel for the petitioner relies upon the definition of wages given in Section 2 (s) of the Payment of Patna High Court CWJC No.3250 of 2007 (11) dt.04-12-2013 5 Gratuity Act, 1972, which is as follows: “2 (s) “Wages” means all emoluments which are earned by an employee while on duty or on leave in accordance with the terms and conditions of his employment and which are paid or are payable to him in cash and includes dearness allowance but does not include any bonus, commission, house rent allowance, overtime wages and any other allowance.” It is submitted by learned counsel for the petitioner that the definition of wages for the purpose of payment of gratuity under the Act means all emoluments including dearness allowance but does not include any bonus, commission, house rent, overtime wages and other allowance and it has been held by the Apex Court that the incentive scheme like that of the company comes within the purview of bonus and thus would be liable to be excluded from the definition of wages for the purpose of payment of gratuity. It is also submitted by learned counsel for the petitioner that with respect to piece rated employee specific formula for payment is provided in the first proviso to sub-section (2) of Section 4 of the Act,whereas for time rated employee the Patna High Court CWJC No.3250 of 2007 (11) dt.04-12-2013 6 gratuity is payable at the rate of 15 days wages based on the rate of wages last drawn by the employee concerned. Section 4 (2) and its first proviso which is relevant for our purpose is in the following terms:- “4 (2). For every completed year of service or part thereof in excess of six months, the employer shall pay gratuity to an employee at the rate of fifteen days’ wages based on the rate of wages last drawn by the employee concerned: Provided that in the case of a piece- rated employee, daily wages shall be computed on the average of the total wages received by him for a period of three months immediately preceding the termination of his employment, and, for this purpose, the wages paid for any overtime work shall not be taken into account…” It is contended by learned counsel for the petitioner that the issue regarding payment of gratuity to the respondent No.4 ought to have been considered in the light of the factual situation prevailing and not merely by looking into the nomenclature as Accord/Piece-Rated Workman which was a misnomer as the respondent No.4 is a permanent staff being paid regular wages Patna High Court CWJC No.3250 of 2007 (11) dt.04-12-2013 7 plus dearness allowance on the basis of the settlement entered into between the petitioner-company and its Labour Union from time to time, the last settlement prior to his superannuation being on 24.12.1998. Learned counsel has taken me through the Memorandum of Settlement dated 21.5.1994 (Annexure-5) and the Memorandum of Settlement dated 24.12.1998 (Annexure-6) between the Management of Bata India Limited and the Bata Mazdoor Union on the Union’s charter of demands during the course of conciliation proceedings held in the presence of Labour Commissioner and Conciliation Officer, Bihar, Patna. It is pointed out that the said settlement clearly refers to the existing weekly basic wages regarding piece-rated workman which was to be increased in the last settlement at the flat rate of Rs.31.50 per week and merger of Rs. 10/- per week in basic from the existing dearness allowance of Rs. 577.22 per week, thus making the total increase of Rs. 41.50 per week in basic pay and further the revised weekly basic wages of piece-rated workman is mentioned in Annexure-1 to the settlement. Learned counsel refers to the said Annexure-1 of 1998 Settlement in which the different weekly basic scales, the increase in basic, the merger from the basic revised weekly basic Patna High Court CWJC No.3250 of 2007 (11) dt.04-12-2013 8 have been mentioned stating that the case of the respondent No.4 falls in the last but two category of persons having weekly basic to Rs.128.25 with increase in basic pay of Rs. 31.50 and merger from D.A., Rs.10/- per week in basic pay leading to a total of Rs.169.75 which admittedly the petitioner was receiving at the time of his superannuation. It is, thus, submitted by learned counsel that irrespective of the fact that the employees like respondent No.4, were mentioned as piece-rated workmen, but they were enjoying weekly basic pay along with D.A. apart from the incentive scheme which fact has not been disputed, rather has been admitted by the respondent No.4 in the claims statement made before the Authority under the Payment of Gratuity Act. Thus, according to learned counsel, the case of the respondent No.4 is squarely covered by the main part of Section 4 (2) of the Act and not by its first proviso and thus the payment of gratuity made by the petitioner to the respondent No.4 was correct and the orders of the Authority and the Appellate Authority are fit to be quashed.
Legal Reasoning
11. Again this Court in Bridge & Roof Company (India) Ltd. vs. Union of India examined the scope of the term “basic wages” as defined in the PF Act and as to whether bonus would be included in the same and it was explained that the word “bonus”, not having been qualified in any manner in Section 2(b)(ii) of the PF Act, would not include only profit bonus but every other kind of bonus amounts paid by way of bonus under the scheme and held to be excluded from the definition of “basic wages” covered Patna High Court CWJC No.3250 of 2007 (11) dt.04-12-2013 11 by the exception to Section 2(b) of the PF Act. Therefore, these two decisions make it clear that bonus stands excluded from the purview of “wages” for the purpose of calculating the contribution to be made in the provident fund or the gratuity payable under the Act. These decisions could not have been brushed aside or explained away in the manner done by the High Court, one by stating that the decision has no bearing after the Act came into force and the other that the enactment is different. The essence of wages was explained in Straw Board case (supra) with reference to gratuity and the Act was relied upon to state what the law on the matter stood then is reflected in the Act, while in Bridge & Roof Co. (India) Ltd. this Court explained the scope of definition of “basic wages” which we have held to be identical with the term “wages used” in the Act. 14. The First and the Second Five Year Plans also recommended the introduction of incentive to promote more efficient work in industries with due safeguards to protect the interests of the workers through the guarantee of minimum or fall-back wages and Patna High Court CWJC No.3250 of 2007 (11) dt.04-12-2013 12 protection against fatigue and undue speed up. In the Second Five Year Plan, it was further made clear that earnings beyond the minimum wage should be necessarily related to results and workers should be consulted before a system of payment by results was introduced in such an establishment. The Third Five Year Plan emphasised the need for higher productivity and reduction in the unit cost of production and put the responsibility on the management to provide the most efficient equipment, correct conditions and methods of work, adequate training and suitable psychological and material incentives for the workers. One thing is clear from the report and the recommendations made in the various five- year plans that there is a base of (sic or) standard above which extra payment is made for extra production in addition to the basic wage. Sometimes, the piece rate-work (sic wage) is termed as bonus and such a question was considered by this Court in Daily Partap v. Regional Provident Fund Commissioner3. The test adopted in that case is that in order to be excluded from basic wages the payment under such a scheme must have a Patna High Court CWJC No.3250 of 2007 (11) dt.04-12-2013 13 direct nexus and linkage with the amount of extra output. On an examination of the scheme in that case, it was found that less than normal number of workmen doing normal work of a shift, production bonus was given according to the deficiency in the numerical strength of workmen and extra output given by any workman in any shift, output of different types of workmen being measured according to the prescribed norms but production bonus not directly linked with the amount of the extra output furnished by the workmen concerned but paid at a uniform rate of his normal wages, was held to be not bonus at all and the scheme was not a genuine one. It was not the same as incentive bonus scheme. 15. In the present case, the scheme sets out the terms under the settlements. Clause 1.1 sets out the objectives as follows : "The objective of the scheme is to ensure optimum production of high quality, promote safety and cost consciousness and maintain a high level of productivity." 16. Incentive payment is based on two components : Patna High Court CWJC No.3250 of 2007 (11) dt.04-12-2013 14 group performance index and individual/sectional performance index. It was made clear that no incentive will be payable to workmen on leave, absent, away from duty or on holidays. The minimum performance level is indicated in each sectional incentive table and below which no incentive will be paid for any reason whatsoever. If a person works for more than one group during the month, he will be awarded incentive as per the performance of each group in the respective periods. Clause 9.1 also sets out that incentive payment payable under the scheme will not be regarded as wages and, therefore, the payment shall not be taken into account for the purpose of leave wages, overtime wages, wages in lieu of notice, provident fund contributions, bonus, gratuity or any other allowance. However, this clause is subject to review in case of statutory amendments if any. 17. The Authorities were carried away by considering that the bonus is payable on the basis of output equivalent to certain pieces per man day. But it is made clear in the scheme that each payment will be Patna High Court CWJC No.3250 of 2007 (11) dt.04-12-2013 15 made not on the basis of pieces of per man day nor is it a piece rate work for which wages are paid but it is an additional incentive for payment of bonus in respect of extra work done. The measure of extra work done is indicated by pieces and not wages as such that are paid on that basis. It is not that in respect of each piece any wages are paid but altogether if certain number of pieces are produced, additional incentive will be payable at a particular rate. Therefore, the authorities have completely missed the scope of the scheme and have incorrectly interpreted the same. Inasmuch as both the High Court and the authorities have incorrectly understood the position in law and have wrongly held that the concept of wages under the Act would include bonus and that even on facts the scheme would attract Section 4 (2) of the Act. Proviso to Section 4 (2) of the Act is to the effect that in case of a piece-rated employee, daily wages shall be computed in a particular manner but that is not the rate at which the wages are paid in the present case at all. Therefore, Section 4 (2) of the Act is not attracted in the case of the present scheme with which Patna High Court CWJC No.3250 of 2007 (11) dt.04-12-2013 16 we are concerned”. Learned counsel for the petitioner further submits that the Incentive Scheme was by way of bonus which is also clear from the fact that the same was not to be counted when the workman concerned was either on leave or during holidays and on compulsory shut down of the factory from time to time, only the basic wages and D.A. were payable to the workmen and not any higher amount on account of the incentive scheme. Learned counsel for the petitioner also submits that the Authority and the Appellate Authority were not justified in granting compound interest at the rate of 15 % per annum because the amount of interest is governed by the specific statutory provision of Section 7 (3-A) of the Act, which is in the following terms:- “7 (3-A) If the amount of gratuity payable under sub-section (3) is not paid by the employer within the period specified in sub-section (3), the employer shall pay, from the date on which the gratuity becomes payable to the date on which it is paid, simple interest at such rate, not exceeding the rate notified by the Central Government from time to time for repayment of long-term deposits, Patna High Court CWJC No.3250 of 2007 (11) dt.04-12-2013 17 as that Government may, by notification specify: Provided that no such interest shall be payable if the delay in the payment is due to the fault of the employee and the employer has obtained permission in writing from the controlling authority for the delayed payment on this ground.” It is submitted that under the said provision only simple interest is payable that too at a rate not exceeding the rate notified by the Central Government from time to time for repayment of long term deposit and that by the Notification No.S.0. 873 (E) dated 1.10.1987 the Central Government had specified the rate of 10% per annum as the simple interest payable for the time being under sub-section (3-A) of Section 7 of the Payment of Gratuity Act, 1972. Thus, according to learned counsel at best simple interest at the notified rate could have been allowed by the Authority and the Appellate Authority. Learned counsels for the respondent No.4 and for the State, on the other hand, have sought to support the impugned orders. It is submitted by learned counsel for the respondent No.4 that respondent No.4 was earning the wages for the goods prepared by him during the fixed time of 8 ½ hours for which he was working and, therefore, whatever he earned by way of fixed Patna High Court CWJC No.3250 of 2007 (11) dt.04-12-2013 18 wages and incentive was his earning and his wages and gratuity have rightly been calculated on the basis of those earnings by the Authority and the Appellate Authority. It is submitted by learned counsel for respondent No.4 that such amounts would come within the definition of Section 2 (s) of the Payment of Gratuity Act. Learned counsel further submits that respondent No.4 even in the settlement relied upon by the petitioner has been shown as piece rated employee and thus his wages would definitely come under the proviso of Section 4 (2) of the Act and he is entitled to higher gratuity. Learned counsel for respondent No.4 also submits that the decision of the Apex Court in the case of T.I. Cycles of India (supra) is not applicable to the facts of the present case as the facts in that case were different. I have considered the submissions of learned counsels for the parties and perused the records of the case, including the evidence of the witnesses led before the Controlling Authority under the Payment of Gratuity Act. This Court is conscious of the fact that in its writ jurisdiction it does not sit in appeal over the decision of a statutory Authority or Appellate Authority. However, in case the decision is Patna High Court CWJC No.3250 of 2007 (11) dt.04-12-2013 19 found to be perverse on the basis of the facts and evidence on the record, then the same can and ought to be set aside by this Court in its writ jurisdiction. Fortunately, there is no real dispute as to the factual status regarding the payment of the wages, dearness allowance, incentive, etc. to the respondent No.4. It is evident even from the claim petition filed by the respondent No.4 before the Authority that he had stated in paragraph No.9 therein that piece-rated employee apart from the basic wages, which was pegged to a certain fixed number of pieces produced, over and above the same used to be paid incentive which was directly linked to the number of pieces produced extra. Even a single piece extra produced used to fetch an incentive over and above the basic wages and, therefore, for the purpose of gratuity, the incentive earned by respondent No.4 will form part of the wages earned from other qualifying components such as basic wages, dearness allowance, increment, etc. Thus, the factual basis that the respondent No.4 was entitled to basic wages and dearness allowance has not been disputed. In his cross-examination, he has admitted that there was five days work in a week. He was never given less than Rs.169.75. per week. Thus the factual situation is that the respondent No.4 was entitled to basic wages and dearness allowance of Rs.169.75/- Patna High Court CWJC No.3250 of 2007 (11) dt.04-12-2013 20 at the time of his superannuation and the same was irrespective of the number of pieces produced by him up to 1200 pieces. This Court is not concerned as to the nomenclature that the employer had given to the employee, rather it is the factual matrix which would determine the status of the employee, as to whether he is a piece rated employee or a time rated employee. From the aforesaid admitted facts, it is evident that the respondent No.4 was a time rated employee and was in addition entitled to a production bonus in the form of incentive for any extra production above the fixed amount which in his case was 1200 pieces per day; otherwise even if he failed to produce 1200 pieces in a day, he would continue to be paid the wages, dearness allowance, etc. calculated on the same. Thus his salary was not dependent on the number of pieces produced; rather the incentive was dependent on extra production beyond a certain point. In the aforesaid admitted factual matrix, the case of the respondent No.4 squarely falls within the purview of the decision in T.I. Cycles of India (supra). The Apex Court has clearly held therein that such incentive, which is of the nature of production bonus, could not be included in the wages for the purpose of calculation of gratuity and the proviso to Section 4 (2) of the Act shall not be attracted. Patna High Court CWJC No.3250 of 2007 (11) dt.04-12-2013 21 Learned counsel for the petitioner points out that the amount of Rs.27,605 has already been paid but without any interest and submits fairly that the company will not claim refund of the amount already paid to the respondent No.4 even if it succeeds in the case, and is essentially interested in having the legal issue settled. On the question of interest also this Court finds that the respondent Authority and the Appellate Authority have wrongly directed to pay compound interest at the rate of 15% per annum to respondent No.4 by not following the statutory scheme of Section 7 (3-A) of the Payment of Gratuity Act which lays down that simple interest is to be paid on the basis of the Central Government specified rate which as per the notification brought to the notice of this Court is 10%. Thus in view of the aforesaid discussions, the writ application is allowed. The impugned order dated 20.7.2006 of the Appellate Authority under the Payment of Gratuity Act and the order dated 28.9.2004 of the Authority under the Payment Gratuity are both quashed. It is, however, directed that the amount of Rs.27,605.10 already paid by the petitioner to the respondent No.4 shall not be recovered, but it is clarified that the respondent No.4 Patna High Court CWJC No.3250 of 2007 (11) dt.04-12-2013 22 would not be entitled to be paid any interest on the said amount, if not already paid. V.P.Sinha/- (Ramesh Kumar Datta, J)
Arguments
In support of the aforesaid stand, learned counsel for the petitioner relies upon a decision of the Supreme Court in the case of T.I. Cycles of India, Ambathur vs. M.K. Gurumani and others: (2001) 7 S.C.C. 204, in paragraph Nos. 10, 11, 14, 15, 16 Patna High Court CWJC No.3250 of 2007 (11) dt.04-12-2013 9 and 17 of which it has been held as follows:- “10. A comparison between these two provisions will make it clear that there is no basic difference between the two expressions used in these two enactments insofar as the exclusion of bonus from the emoluments is concerned. The High Court has been carried away by the expression basic wages used in the PF Act while the term wages is used in the Act but that distinction will not be of any impact, if we closely examine the manner in which the two terms are defined in the respective Acts. The nomenclature of the two expressions will not alter the contents of the two terms. Therefore, the High Court ought to have considered this aspect of the matter. Further this Court in Straw Board Mfg. Co. Ltd. v. Its Workmen was concerned with the gratuity scheme formulated prior to the Act and this is how this Court interpreted this aspect of the matter : (S.C.C. P.338, paras 25 -27) "25. Decisions have been brought to our notice some of which refer to basic wages and others to consolidated wages as the foundation for computation of gratuity. These are matters of discretion and the Patna High Court CWJC No.3250 of 2007 (11) dt.04-12-2013 10 `feel’ of the circumstances prevalent in the industry by the Tribunal and, unless it has gone haywire in the exercise of its discretion the award should stand. We see that in the Payment of Gratuity Act also, not basic wages but `gross wages inclusive of dearness allowance’ have been taken as the basis. This, incidentally, reflects the industrial sense in the country which has been crytalised into legislation. x x x x x 27. We clarify that wages will mean and include basic wages and dearness allowance and nothing else..." (emphasis supplied)