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PETITIONER: THE REGIONAL DIRECTOR, EMPLOYEES’STATE INSURANCE CORPORATION

       Vs.

RESPONDENT: BATA SHOE COMPANY (P) LTD.

DATE OF JUDGMENT11/10/1985

BENCH: PATHAK, R.S. BENCH: PATHAK, R.S. SEN, A.P. (J)

CITATION:  1986 AIR  237            1985 SCR  Supl. (3) 639  1985 SCC  (4) 460        1985 SCALE  (2)766

ACT:      Employees State  Insurance  Act,  1948  -  S.  2(22)  - ’Bonus’ Whether part of wages".

HEADNOTE:      The  respondent-company   has  two   branch  factories. Various agreements/settlements were entered into between the managements of these factories and their employees regarding the payment  of bonus  from time  to time.  The appellant  - Regional Director  of Employees’ State Insurance Corporation - called  upon these  factories from  time to  time to  make requisite contribution  to the  Employees’  State  Insurance Fund.  Initially   the  managements   of   these   factories acknowledged their  liability to deposit the amounts as part of the  contract of  employment, but  subsequently realising that  they   were  not  liable  in  law  to  make  any  such contribution under the employees’ State Insurance Act, 1948, declined to  make such  payment. The  managements  of  these factories applied  under cl.  (g) of  sub-s. (1) of s. 75 of the Act  for a  decision by  the Employees’  State Insurance Court on the question of their liability, and contended that the sum payable or paid by way of bonus to the employees was not covered  by the  definition of  the term "wages" in sub- s.(22) of  s.2 of the Act and, therefore, the respondent was not liable  to make  any contribution.  The Employees’ State Insurance Court accepted the contention of the respondent.      Against that  order  the  appellant  preferred  appeals under S.82  of the  Act, which  were dismissed  by the  High Court holding  that the Employees’ State Insurance Court was right in  taking the view that the bonus in question did not form part  of the wages as defined in sub-s. (22) of s. 2 of the Act.      Dismissing the appeals of the appellant to this Court, ^ HELD: 1. The bonus in question, in the instant appeals, does not fall  under any  category  or  class  mentioned  in  the definition of "wages" set forth in sub-s.(22) of S. 2 of the Employees’ State Insurance Act, 1948. [645 E] 640      In the  instant case,  the bonus paid by the respondent to   its employees is in the nature of ex-gratia payment or, as has  been described  in one of the settlements, paid as a

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gesture of goodwill on the part of the respondent. The bonus in question  was neither  in the  nature of production bonus nor incentive  bonus nor  customary bonus  nor any statutory bonus. It  cannot be  regarded as  part of  the contract  of employment. Although  the provisions  relating  to  it  were included  in  the  Standing  Orders  and  Rules,  they  were subsequently excluded  from them.  Therefore, the bonus paid or payable  by the  respondent to  its employees  under  the successive settlements  and  agreements  made  between  them cannot be  regarded as  remuneration paid  or payable to the employees in  fulfillment of  the terms  of the  contract of employment. [644 C-F]      2. The concept of bonus has been analysed and described by this  Court as  representing the  cash incentive  paid in addition  to   wages  and  given  conditionally  on  certain standards of  attendance and efficiency being attained. When wages fall  short of  the living  standard or  the  industry makes huge profits part of which are due to the contribution which the  workmen make in increasing production, the demand for bonus becomes an industrial claim. It has not been shown that this  Court has  subsequently widened  the  concept  of bonus to include a payment made by the employer ex-gratia or as an  expression of goodwill towards its employees. [644 F- H; 645 A - C]      3. The  first category  of remuneration  falling within the definition  of "wages"  in sub-s.(22) of S. 2 of the Act is not  satisfied by  the bonus  in question  in the instant appeals. The  second category of remuneration defined within the expression  "wages" by  sub-s.(22) of  S. 2  of the  Act speaks of  other additional  remuneration paid  at intervals not exceeding two months. The bonus under consideration here is not  paid at  intervals not  exceeding two  months. It is payable within  "one month  after the  end of each quarter". [645 C-E]      Muir Mills  Co. Ltt.  v. Suti  Mills ,  [1955] 1 S.C.R. 991; Shree  Minakshi Mills  Ltd.  v.  Their  Workmen  [1958] S.C.R. 878; and Standard Vacuum Refining Co. of India v. Its Workmen  and Anr., [1961] 3 S.C.R. 536 relied on.

JUDGMENT:      CIVIL APPELLATE  JURISDICTION : Civil Appeal No. 741-42 of 1978.      From the Judgment and Order dated 2.5,1975 of the Patna High Court in Appeals from Original Orders Nos. 92 and 93 of 1971. 641      Abdul Khader,  R.N. Kapoor  and Miss  A. Subhashini for the Appellants.      G.B. Pai, Parveen Kumar, Anil Kumar Sharma and P.R. Das for the Respondent.      The Judgment of the Court was delivered by      PATHAK, J.  These appeals by special leave are directed against the  common judgment  and order  of the  Patna  High Court dismissing two appeals filed by the Regional Director, Employees’  State  Insurance  Corporation  on  the  question whether the  respondent is  liable to pay the disputed bonus to its workmen.      The respondent,  Bata Shoe  Company  (P)  Ltd.,  has  a branch factory  at Digha  Ghat and another at Mokamah in the State of  Bihar. At  the Digha  Ghat branch,  the respondent entered in  to a settlement with its workmen on May 6, 1947, in which  it was agreed that production bonus payable to the workmen would  remain unaltered  but employees  earning less

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than Rs 200 would get an extra bonus called "good attendance bonus" at  5% of their yearly salary provided they completed active service for 265 days annually inclusive of Saturdays. It was  stipulated that attendance bonus would be calculated in the  same way  as production  bonus On  November 28, 1951 there was  an agreement  by which  it was  agreed that  "the system of  attendance  bonus  for  the  year  1952  will  be discontinued and  the ex-gratia  bonus’s percentage  will be increased by  5%, i.e.  instead of 10% it will be 15% to all employees." It  was also  agreed that  corresponding changes would be  made in  the Standing Orders and Rules in order to incorporate these  changes  Later,  another  settlement  was recorded,  this   time  before   the  Chairman,   Industrial Tribunal, Bihar,  in a  pending   Reference of 1955 where it was mentioned that the respondent had agreed to increase the general bonus,  effective from  the first  quarter of  1957, from 15%  to 16%  Thereafter on  July  27,  1961  there  was another settlement which provided           "In view of the overall satisfactory settlement on           all the  outstanding points  of the  Union and  of           those points  raised by  the  management,  as    a           gesture of  good will the management declared that           with effect  from 3rd  quarter of 1961 the General           Bonus will  be increased  from 16-1/2%  to 17-1/2%           The  workmen’s  representatives  appreciated  this           gesture   of    the   management   and   expressed           satisfaction on  behalf  of  the  workman  on  the           increase of General Bonus." 642 This was  followed by  a further settlement dated January 9, 1963 arrived  at in  the course  of conciliation proceedings before   the    Conciliation    Officer-cum-Deputy    Labour Commissioner, Bihar. It provided that :           "BONUS:           The rate  of payment  of bonus, effective from 4th           quarter of 1962 will stand revised at 19% in place           of 17-1/2%  as at  present. The  payment of  bonus           will be  made one  month after  the  end  of  each           quarter at  the rate  of 19%  of the  total salary           and/or wages  paid to  each workman  and  employee           during the  quarter immediately   preceding  (such           salary or wages are exclusive of any other special           allowance or  rewards granted  to him  during such           period). Such  bonus will be payable only to those           who have  completed six  months’ approved  service           ending on  the last  day of  the quarter;  and  to           those who  have completed  less than  six  months’           approved service  on the  last day of the quarter,           the bonus  will be  payable at the rate of 19-1/2%           of their  total salary  or wages as aforesaid. The           bonus will  be avail able only to those who are in           the employ  of the  company on the last day of the           quarter and  who have  given regular  and approved           service during the quarter to which the payment of           bonus is available.’ The last  document recording  a settlement is dated July 17, 1963, and  pursuant to  it the bonus clause was deleted from the Standing Orders and Rules.      The facts  relating to the respondent’s Mokamah factory are substantially  similar, except that the bonus scheme was not incorporated  at any  time in  the Standing  Orders  and Rules.      The respondent  company at its two factories, Digha and Mokamah, was  called upon  from time to time by the Regional Director, Employees’ State Insurance Corporation to make the

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requisite contribution  to the  Employees’  State  insurance Fund.  At  first,  the  managements  of  the  two  factories acknowledged their  liability to deposit the amounts as part of the  contract of  employment, but subsequently realising, as they allege, that they were not liable in Law to make any such contribution  under the  Employees’ State Insurance Act 1948, they declined to make such 643 payment. Apprehending  coercive methods  of recovery  on the part of  the appellant, the managements of the two factories applied under  the cl.(g)  of sub-s.(l)  of s. 75 of the Act for a  decision by  the employees’  Insurance Court  on  the question  of   their  liability.   The  contention   of  the respondent was  that the sum payable or paid by way of bonus to the  employees was  not covered  by the definition of the term wages in sub-s. (22) of s. 2 of the Act and, therefore, the respondent  was not liable to make any contribution. The employees’ State  Insurance Court accepted the contention of the respondent.  Against that  order the  Regional Director, Employees’  State  Insurance  Corporation,  Patna  preferred appeals under  s. 82  of the  Employees’ State Insurance Act 1948, and  the appeals have been dismissed by the Patna High Court by  its judgment and order dated May 2, 1975. The High Court has held that the employees’ State Insurance Court was right in  taking the view that the bonus in question did not form part  of the wages as defined in sub-s. (22) of s. 2 of the Employees’ State Insurance Act, 1948. The contribution payable by an employer under the Employees’ State Insurance  Act, 1948 is computed with reference to the wages of  the  employee,  and  in  these  appeals  the  only question is  whether the bonus paid by the respondent to its employees at the Digha Ghat and the Mokamah branch factories under the  settlements mentioned  earlier can be regarded as wages as  defined by  sub-s. (22) of s. 2 of the Act. Sub-s. (22) of s. 2 defines wages as follows:-           "(22)  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-of f           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 644           (d) any gratuity payable on discharge."      The entire  argument of  the appellants before the High Court was  that the bonus paid or payable to the employee by the respondent  was in  the nature  of remuneration  paid in cash to  the  employees  under  the  express  terms  of  the contract of  employment.  In  other  words,  the  appellants relied on  that part.  of the  definition of  "wages"  which speaks of  "all remuneration  paid or payable, in cash to an employee, if  the  terms  of  the  contract  of  employment, express  or   implied,  were   fulfilled".  Before  us,  the appellants rely  on the  same provision  in the  definition. They also  rely on  that part of the definition which speaks

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of "wages"  as "other  additional remuneration, if any, paid at intervals  not exceeding  two months.....". The remaining provision of  the definition  were not  relied  on.  We  are therefore, called  upon to  consider whether  the  bonus  in question satisfies  the terms  of either of the two kinds of remuneration mentioned above.      It is  plain from  what has  gone before that the bonus paid by  the respondent to its employees is in the nature of ex-gratia payment  or, as  has been  described in one of the settlements, it  is paid as has been described in one of the settlements, it is paid as a gesture of goodwill on the part of the respondent. It is nothing else. In cannot be regarded as  part   of  the  contract  of  employment.  Although  the provisions relating  to it  were included  in  the  Standing Orders and Rules, they were subsequently excluded from them. In our  opinion, therefore  , the  bonus paid  or payable by the  respondent   to  its  employees  under  the  successive settlements and  agreements  made  between  them  cannot  in fulfilment of  the terms  of the of employment. Although the provisions relating  to it  were included  in  the  Standing Orders and Rules, they were subsequently excluded from them. In our opinion, there fore, the bonus paid or payable by the respondent to its employees under the successive settlements and agreements  made between  them. cannot  be  regarded  as remuneration paid  or payable to the employees in fulfilment of the terms of the contract of employment.      The concept of bonus has received the attention of this Court in a series of cases, and we need mention only some of the. One  of the  first  authoritative decisions rendered by this Court  is   Muir Mill  Co. Ltd.  v. Suti Mill, [1955] 1 S.C.R. 991, where N. H. Bhagwati, J. speaking for the Court, analysed  the   concept  of  bonus  and    described  it  as representing the  cash incentive  paid in  addition to wages and given  conditionally on  certain standards of attendance and efficiency being attained. When wages  fall short of the living standard  or the  industry makes huge profits profits part    of which are due to the contribution 645 Which the  workmen make in increasing production, the demand for   bonus, it  was said,  becomes an industrial claim. The view was followed by this Court in the Shri Meenakahi Mills, Ltd. v.  Their Workmen,  [1958]  S.C.R.  878,  but  the  two conditions, that  the wages  paid to  workmen fall  short of living wages  and that  the industry should be shown to have wade profits which are partly the result of the contribution made by  the workmen  in increasing production were regarded as being  of cumulative significance. Then followed Standard Vacuum  Refining   Co.  of  India  v.    Its  Workmen    and Ant.,[1961] 3  S.C.R. 536,  which dealt  with the concept of bonus elaborately  while re-affirming  what had been said in the earlier two cases. It has not been shown to us that this Court has  subsequently widened  the  concept  of  bonus  to include a  payment made  by the  employer ex-gratia or as an expression of goodwill towards its employees. It seems to us clear that the first category of remuneration falling within the definition  of "wages"  in sub-s.(22)  of 8.  2  of  the Employees’ State Insurance Act, 1948 is not satisfied by the bonus in question in these appeals.      The second  category of remuneration defined within the expression " wages" by sub-s. (22) of 8. 2 of the Act speaks of other  additional  remuneration  paid  at  intervals  not exceeding two  months. It  cannot be disputed that the bonus under consideration  here  is  not  paid  at  intervals  not exceeding two months. It is payable "one month after the end of each quarter" .

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    We have  carefully perused  the terms of the definition of "wages"  set  forth  in  sub-s.  (22)  of  8.  2  of  the Employees’ State  Insurance Act,  1948, and we are satisfied that the  bonus in  question in  these appeals does not fall under any category or class mentioned in the definition.      In the  result, we find ourselves in agreement with the high Court, and therefore we dismiss the appeals with costs. A.P.J.                                    Appeals dismissed. 646