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PETITIONER: HANDLOOM HOUSE ERNAKULAM

       Vs.

RESPONDENT: REGIONAL DIRECTOR, ESI

DATE OF JUDGMENT:       29/04/1999

BENCH: S.Saghir Ahmad, K.T.Thomas

JUDGMENT:

THOMAS,J.

       Leave granted.

       Handloom House  is  a  Co-operative  Society  engaged  in manufacturing and  selling handloom fabrics.  It disburses to its employees, besides the normal wages, special  amounts  under  two counts.    One   is   incentive  bonu  and  the  other  is  sal commission. Thereupon, the Employees State Insurance Corporation (for sort  the  Corporation)  deman  from  the  Handloom  House additional  contribution  towards  insurance  fund on the premise that such extra benefits given to the employees fall  within  the ambit  of  wages under the Employe e s State Insurance Act 1948 (for short the Act).  When the Handl oom House  challenged  the said demand before the Employees Insurance Court it was held that such  benefits  do not form part of wages and hence the demand is unsustainable.  The Corporation filed statutory appeal before the High Court of Kerala and a Division  Bench  thereof  quashed  the judgment  of the Insurance Court and permitted the Corporation to proceed with the demand.

       The Handloom House, having lost even a motion for  review of the said judgment, has filed this appeal by special leave.

       It was first thought  that  appellant  cannot  re-canvass against  settled  position  since  this court had held on earlier occasions that wages as defined i n Section 2(22)  of  the  Act would  include, among others, incentive allowances and production bonus paid to the employees (Harihar  Polyfibres  vs.    Regional Director,  ESIC  [1984(4)  SCC  324]; Regional Director, ESIC vs. Enfield India Ltd.  (1997 (11) SCC 752.

       Sri T.L.  Viswanatha Iyer, learned Senior Counsel made an endeavour to distinguish the said decisions from the instant case on the premise that incentive bonus and sale commission  paid  to the  employees  of  the  appellant  society are paid at intervals exceeding two months and, therefor e, they cannot form part  of their wages as defined in the clause.

       In Modella Woollens  Ltd.   vs.  ESIC [1994 Suppl (3) SCC 219]  a  two  judge  bench  of  this  court  considered   whether production bonus paid to the workmen would fall within wages as defined in  the  Act.    The  employer  in  that case projected a particular  term  in  the  agreement  (between  workmen  and  the employer, which provides for payment of such bonus) that bonus is to  be  paid  at  the  end  of each quarter, and contended on its

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strength that it  would  not  be  wages.    However,  this  court highlighted  another term of the same agreement which stated that an employee can claim advances against such bonus  and  also  the fact   that  the  employees  were  availing  themselves  of  such advances.  On the basis of such clauses in the agreement  learned Judges observed thus :

       The mere term in the agreement that the payment of         bonus  would  be  made  at  the end of the quarter,         therefore, does not make the bonus, a payment other         than remuneration for the labour put in during  the         said quarter.      Hence  the  stipulation  in  the         agreement that the payment of the  bonus  would  be         made  at the end of the quarter is not material for         deciding the question whether the payments would be         covered by the first  part  of  the  definition  or         not.

       The  definition  of  wages  in section 2(22) of the Act reads thus:-

       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 authorised 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  person  fund  or provident fund, or under this         Act;

       (b) any travelling allowance or the  value  of  any         travelling concession;

       (a)  any  sum paid to the person employed to defray         special expenses entailed on him by the  nature  of         his employment.

       The main body of the definition  encompasses  within  its fold three  kinds  of  payments made to the employees.  First is, all remuneration paid or payable in cash  on  fulfilment  of  the terms of  employment.    The  second  is  any  payment made to an employee in respect of any period of authorised leave etc.    The third  is  other  additional remuneration paid at intervals not exceeding two months

       It  is  contended  that  if  incentive  bonus  and  sales commission  would  fall  within  the  scope of the first category mentioned above it is immaterial that  the  payment  is  made  at intervals or  in  a lump.  But that aspect is no more res integra in the light of the decision in Harihar  Polyfibres  vs  Regional Director, ESIC  [1984  (4)  SCC  484].   In that case a two judge bench (Chinnappa Reddy and AN Sen JJ) dealt with the decision  of a Full Bench of the High Court of Andhra Pradesh which held thus:

       The word other appear ing at the commencement  of  the third  part  of  the  definition  of  wages  under Section 2 (22) indicates that it must be remuneration or additional remuneration other than the remuneration which is referred to in  the  earlier part of the definition viz., all remuneration paid or payable, in cash  to an employee, if the terms of the contract of employment,

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express or implied, were fulfilled and  incentive  bonus  in  the present scheme  is certainly additional remuneration.  It must be emphasised at this  stage  that  under  the  third  part  of  the definition  of  wages    it  is  actual factum of payment which counts because the word used is  ppaid  as  distinguished  from ppaid or   payable.      The  moment  you  get  any  additional remuneration  other  than  the  remuneration  payable  under  the contract  of  employment  and  if this additional remuneration is paid at intervals not exceeding two months, it becomes wages by virtue of the third part of the definition of wages.

       This court approved the said statement of law as  correct by  observing that we express our respectful agreement with what has been said by the High Court of Andhra Pradesh  in  the  above extracted passage.

       So  the  only  question  to be determined in this case is whether incentive bonus and sales commission  would  fall  within the ambit of the aforesaid third category of remuneration or not. It  is  clear  that any additional remuneration paid at intervals exceeding two months has been excluded by  specific  terms,  from the purview  of  the  definition.    What  is  the  rationale for excluding such  remuneration  paid  at  intervals  exceeding  two months from the scope of wages?  Though we did not get any clue from  the  Statement  of  Objects and Reasons for the Bill (which became Employees  State  Insurance  (Amendment)  Act  1951),  the rationale  could be discerned as inter-linked with the definition clause wage period in Section 2(23).  It reads thus:

       "wage period in relation to an employee means the         period in respect of  which  wages  are  ordinarily         payable  to him whether in terms of the contract of         employment, express or implied or otherwise."

       Section 40 of the Act casts liability  on  the  Principal Employer  to  pay the contribution to the Corporation, whether it is of employers or of employees contribution.   Of  course  the Principal Employer is allowed to recover that part of employers contribution  by making deduction from his wages.  Section 39(4) of the Act states:

       The  contributions payable in respect of each wage         period shall ordinarily fall due on the last day of         the wage period, and where an employee is  employed         for  part  of  the wage period or is employed under         two or more employers during the same wage  period,         the  contributions  shall  fall due on such days as         may be specified in the regulations.

       No employer shall have the permission to dodge  the         payment  of contribution on the premise that annual         payments have to be worked out.  Normally, the wage         period is one month, but the Parliament would  have         thought  that  such wage period may be extended a         little more, but no employer shall make  it  longer         than two  months.    This  could  be the reason for         fixing a period of two months as the maximum period         for counting additional remuneration as to make  it         part of wages under the Act.

       It is a question of fact in each case whether sales         commission  and  incentive  bonus  are  payable  at         intervals not exceeding two months.  The  Insurance         Court  has,  in this case, found that such payments         were not made within a period  of  two  months  and

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       are, therefore,  not  includible as wages.  But the         High Court did not say anything about that  factual         position.  The question whether incentive bonus and         sales  commission  would  fall within the aforesaid         third category of wages  as  defined  in  Section         2(22) of Act has to be considered by the High Court         afresh  in the light of the observations made above         the High Court for disposal of  the  writ  petition         We  do  so,  and  for that purpose we set aside the         impugned judgment.

       Appeal is thus allowed.