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PETITIONER: BRAITHWAITE &. (INDIA) LTD.

       Vs.

RESPONDENT: THE EMPLOYEES’ STATE INSURANCE CORPORATION

DATE OF JUDGMENT: 06/10/1967

BENCH: BHARGAVA, VISHISHTHA BENCH: BHARGAVA, VISHISHTHA VAIDYIALINGAM, C.A.

CITATION:  1968 AIR  413            1968 SCR  (1) 771  CITATOR INFO :  R          1979 SC1495  (11)  E          1984 SC1680  (6)

ACT: Employees’     State  Insurance Act (34 of 1948),  s.  2(22) and Explanation to s. 41-Scope of.   Legal fiction-Nature of. Contract of employment-Promise of reward by employer--When a term of contract.

HEADNOTE: Section  2(22) of the Employees’ State Insurance Act,  1948, defines ’wages’.  Under its first part all remuneration paid or  payable  in  cash to an employee. if the  terms  of  the contract of employment, express or implied, were  fulfilled. would  be wages.  The Explanation to s. 41 lays  down  that, for  purposes  of ss. 40 and 41, wages shall  be  deemed  to include  payment to an employee in respect of any period  of authorised leave, lock-out or legal strike. Under  the  original  terms of the  contract  of  employment between the appellant and its employees, the employees  were expected  to  work for certain periods at  agreed  rates  of wages and there was no offer of any reward or prize or  inam to  be  paid for any work done by the  employees.   An  inam Scheme  was introduced later by the appellant  under  which, there  was an offer to make incentive payments,  if  certain specified  conditions were fulfilled by the employees.   The appellant,  however,  reserved  the right  to  withdraw  the Scheme altogether without assigning any reason, or to revise its   conditions  at  its  sole  discretion,  even  if   the production target was not achieved for reasons for which the employees  were  not to be blamed.  The appellant  had  also laid  down  that, if any deterioration  of  workmanship  was noticed on the part of the employees in order to achieve the targets prescribed for earning the inam, the Scheme could be abandoned forthwith.  It was also made clear to the  workmen that this payment of reward was in no way connected with  or part of wages.  The last paragraph of the Scheme stated that the  appellant  also reserved the right to  discontinue  the Scheme at the end of any period, if the Scheme was found  to be  in  any respect unworkable or to be a source  of  labour discontent or for any other reason.

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The  appellant  filed an application before  the  Employees’ Insurance Court constituted under the Act for a  declaration that  the  inam paid or to be paid to its  workmen  was  not wages  as  defined in the Act and for  other  reliefs.   The application  was  allowed.  On appeal, the High  Court  held that the inam was wages, because: (1) it was covered by  the first part of the definition of wages; (2) even if the terms of the contract of employment were not in fact fulfilled but were  only deemed to have been fulfilled.  the  remuneration paid would be wages by, virtue of the Explanation to s.  41; and  (3)  the Scheme contained an offer by the  employer  of payments to the employees for services rendered by them  and as that offer was accepted by the  employees impliedly,  by having L, P(N)7SCI-10 672 worked  on  the  terms of the  Scheme  and  having  received payments  on  that basis, the payment became a part  of  the contract of employment. In  appeal to this Court, the respondent sought ’co  support the judgment of the High Court, also on the ground that, the fact  that the Scheme could only be discontinued at the  end of a prescribed period as laid down in the last paragraph of the Scheme and not in the midst of a period, showed that the inam was payable as one of the conditions of the contract of employment. HELD:     (1) A remuneration paid to an employee can only be covered by the definition of wages if it is payable under  a clause of the contract of employment. [778 H]. Bala  Subrahmanya  Rajaram  v. B. C. Patil  &  Ors.,  [1958] S.C.R. 1504, followed. In this case there was a payment to the employees and  since that payment depended on their achieving certain targets,  A is remuneration, but this payment of inam cannot be held  to have become a term of the contract of employment.  There was no  express  clause in the contract of  employment  for  the payment  of  inam  to the employees, and  the  Scheme,  when brought into force, expressly excluded it from the  contract of  employment.   The  terms in the  Scheme  were  also  not consistent  with  the  Scheme having become a  part  of  the contract  of employment.  The fact that the appellant  could withdraw  the payment at its discretion and on  grounds  for which  the  employees could not be blamed, showed  that  the payment  was  not  enforceable as one of the  terms  of  the contract of employment. [777 A-C; 778 H; 779 A]. (2)  A  legal  fiction is adopted in law for a  limited  and definite  purpose  only and there is  no  justification  for extending  it beyond the purpose for which  the  legislature adopted  it.   The fiction in the Explanation to & 41  is  a limited  one and Is not to be utilised for interpreting  the general definition of wages given in the Act, as it did  not Iav  down  that  payments made to an  employee  under  other circumstances were also deemed to be wages.  The fiction  is to be taken into account only when the word ’wages’ requires interpretation  for  purposes of ss. 40 and 41’  It  cannot, therefore,  be held that the remuneration payable under  the Scheme  is  covered by the word wages if the  terms  of  the contract  are taken to have been fulfilled.  What is  really required by the definition is that the terms of the contract of employment must actually be fulfilled. [777 E-G; 778 AB]. Beneaal Immunity Co. Ltd. v. State of Bihar and Ors.  [1955] 2 S.C.R. 603, followed. (3)  In this case, when the Scheme was introduced, there was no  offer of any reward by the appellant which was  accepted by  the  employees  as a condition of  their  service.   The

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employees were already working in accordance with the  terms of their contract of employment when the employer decided to make  the  extra payment if the employees  did  successfully what  they were already expected to do under that  contract. The mere fact that the reward for good work was received  by the  employee  after  he  had  successfully  satisfied   the requirement laid down by the employer for earning the reward could  not  mean  that  the payment became  a  part  of  the contract of employment. [778 C-E]. (4)  The term contained in the last paragraph of the  Scheme was  a one-sided promise on behalf of the appellant  not  to deny  the  payment  of inam during a period  for  which  the Scheme had already 773 been  notified  by the appellant but such  an  assurance  on behalf of the appellant does not indicate that the employees could claim that a right to receive the inam had accrued  to them as an implied condition of the contract of  employment. [779 D-E].

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1056 of 1966. Appeal from the judgment and order dated July 6, 1965 of the Calcutta High Court in Appeal from Original Order No. 284 of 1961. A.   N. Sinha and D. N. Gupta, for the appellant. R.   N. Sachthey and S. P. Nayar, for the respondent. The Judgment of the Court was delivered by Bhargava, J. The appellant, M/s.  Braithwaite & Co.  (India) Ltd.,  (hereinafter referred to as "the Company")  filed  an application  before  the Employees’ Insurance  Court  for  a declaration  that ’Inam’ paid or to be paid to  its  workmen under  the Inam Scheme initiated on 28th December,  1955  is not  "wages " as defined in the Employees’  State  Insurance Act, 1948 (No.-34 of 1948) (hereinafter referred to as  "the Act"),  and  that  no  contribution,  either  as  employer’s special contribution or employees’ contribution, is  payable by  the Company in respect thereof.  The opposite  party  in this application was the present respondent, the  Employees’ State  Insurance Corporation, and there was. also  a  prayer for  perpetual  injunction restraining the  respondent  from realising  any  contribution in respect of  past  or  future payments  of Inam under that Scheme.  A further  prayer  was for  a decree for Rs. 32,761 against the  respondent,  being the  amount which the respondent had already  realised  from the appellant claiming that the Inam was "  wages", and  for costs.   The case was contested by the respondent,  but  the Employees’  Insurance Court allowed the application  of  the appellant, passed a decree with costs, making a  declaration that Inam was not wages and that no contribution in  respect of Inam paid to the workmen was payable by the appellant  to the respondent, and decreeing the claim of the appellant for the   sum  of  Rs.  32,761  against  the  respondent.    The respondent,  thereupon,  appealed  to  the  High  Court   of Calcutta under s. 82 of the Act. The  High Court allowed the appeal, held that the  Inam  was wages and dismissed the claim of the appellant, but made  no order  as to costs.  The appellant has now come up  to  this Court  on  the basis of a certificate granted  by  the  High Court under Art. 133 of the Constitution. The  decision of this appeal depends solely on the  question whether  the  Inam paid by the appellant  under  the  Scheme dated  28th December, 1955 is covered by the  definition  of

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"wages" as given in s. 2(22) of the Act.  That definition is reproduced below.               "2.  (22) ’wages’ means all remuneration  paid               or  payable  in cash to an  employee,  if  the               terms  of contract of employment.  express  or               implied, were fulfilled and includes               L/P(F)7SCI-10 (a)               774               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." The High Court has held that the Inam in question is covered by this definition where it is laid down that "wages"  means ill remuneration paid or payable in cash to an employee,  if the terms of the contract of employment, express or implied, were fulfilled.  Reliance is not placed on the second clause of   the   definition  which   includes   other   additional remuneration,  if any, paid at intervals not  exceeding  two months.  Counsel appearing for the respondent before us also did  not  rely  on this second part of  the  definition  and sought to support the decision of the High Court only on the basis  that  it  is  Covered by  the  first  part.   Counsel appearing  for the appellant also did not rely on  the  last part of the definition which excludes from the definition of "wages" items mentioned in clauses (a), (b), (c) & (d).   In this case, therefore, we have to confine our decision to the interpretation  of  the  first part  of  the  definition  of "wages". The  facts, which are relevant for deciding  this  question, are that conditions for the award of Inam were laid down  in a  Work  Notice issued by the appellant  on  28th  December, 1955,  and  with this Work Notice were issued  two  separate Notices laying down the remaining conditions for payment  of Inam  which  were  required to be laid down  by  the  Scheme contained in the first Work Notice which only stipulated the general terms.  One of these Notices issued on the same date covered  the workmen employed in Structural and  Tank  Shop, while the other covered workmen employed in Wagon Shop.  The terms  of  the  general  scheme  which  are  important   for interpretation are those contained in paras. 4 to 10 of  the Work  Notice, and it was on the basis of the  interpretation of these terms that the Employees’ Insurance Court  accepted the  plea of the appellant that Inam was not covered by  the definition of "  wages".  The High Court,  on interpretation of  the  same  terms, took a  contrary  view.   Both  Courts concurrently  held that the Inam paid under the  Scheme  was covered by the word "remuneration" used in the definition of "wages"  and  counsel appearing for the  appellant  did  not challenge  the  correctness of this  view.   The  Employees’ Insurance  Court held that the payments of Inam had  nothing to do with the terms of employment and the workmen were  not entitled to claim the Inam as a condition of service, so                             775 that it could not be held that this remuneration was paid or payable, if the terms of the contract of employment, express or implied, were fulfilled.  On the other hand, the view  of

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the  High  Court  was that this remuneration  was  paid  and became payable, if the terms of the contract of  employment, express or implied. were fulfilled.  This decision was given by  the High Court after holding that, on an  interpretation of  the  Scheme, the right of the employees to  receive  the Inam  had  become  an  implied  term  of    the  contract  of employment.    It   appears  to  us  that,  on   a   correct interpretation  of the terms of the Scheme, the  High  Court committed an error in holding that the payment of this  Inam had  become  a  term of the contract of  employment  of  the employees. The features of the Scheme, which indicate that the  payment of Inam did not become a term of the contract of employment, are  clear from the Scheme itself.  The first is  that  this payment  of  Inam  was not amongst  the  original  terms  of contract  of employment of the employees.  In  those  terms, there  was no ’offer of any reward or prize to be  paid  for any work done by the employees.  The employees were expected to work for certain periods at agreed rates of wages  which, in  some  cases,  left hourly rated and,  in  some,  monthly rated.  This Inam Scheme was introduced at a later stage  in December, 1955.  The only offer under the Scheme was to make incentive  payments,  if certain specified  conditions  were fulfilled  by  the  employees.  Even though  this  offer  of incentive  payment was made, the appellant, in clear  words, reserved the right to withdraw the Scheme altogether without assigning any reason or to revise its conditions at its sole discretion.  Clearly, if the right to the Inam had become an implied  condition  of  the  contract  of  employment,   the employer  could  not withdraw that right at  its  discretion without  assigning any reason, nor could the  employer  vary its  conditions  without agreement from the  employees  con- cerned.  The payment of the Inam was dependent upon the  em- ployees   exceeding  the  target  of  output   appropriately applicable  to  him.   But. though primarily  the  right  to receive  the Inam depended on the efficient working  of  the employee, there was another clause which laid down that,  if the targets were not achieved due to lack of orders, lack of materials, break-down of machinery, lack of labour, strikes, lock-outs,  go-slow or any other reason whatsoever, no  Inam was  to be awarded.  This condition is clearly  inconsistent with  the payment of Inam having become an implied  term  of the  contract of employment, because Inam became  nonpayable even  if the production target was not achieved for  reasons for  which the employees were not at all to blame.   If  the employer  did not receive sufficient orders for sale of  its output,  or  there was lack of raw-materials, or  there  was breakdown  of machinery and as a result, during  the  period for  which the Inam was notified, it became  impossible  for the employee to achieve the minimum target fixed, there  was no  liability_on  the  appellant  to  pay  the  Inam.   Such exemption from payment of the Inam on grounds for which  the employees could not be blamed and possibly for which the 776 appellant itself might be responsible clearly shows that the payment of this Inam was not enforceable as one of the terms of  the contract of employment, whether implied or  express. The appellant had also laid down that, if any  deterioration of  workmanship was noticed on the part of the employees  in order  to  achieve the targets prescribed  for  earning  the Inam, the Scheme could be abandoned forthwith.  It was  also made clear to the workmen in the Scheme that this payment of reward  was in no way connected with or part of  wages.   It was  on these conditions that the employees  were  receiving the Inam.  Thus, though there was a payment to the employees

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and  since that payment depended on their achieving  certain targets, it has to be held to be remuneration, this  payment of Inam cannot be held to have become a term of the contract of employment. The  High  Court,  in arriving  at  the  contrary  decision, referred  to  the Explanation to section 41 of the  Act  and held  on  its basis that, even if the terms of  contract  of employment   are   deemed  to  have  been   fulfilled,   the remuneration  paid  would be wages.   The  Explanation  lays down,,.that  for the purposes of sections 40 and  41,  wages shall  be  deemed  to include payment  to  an  ’employee  in respect of any period of authorised leave, lock-out or legal strike.   It appears to us that the High Court committed  an error  in applying this legal fiction, which was  meant  for sections 40 and 41 of the Act only, and extending it to  the definition  of  wages,  when dealing with  the  question  of payment  in the nature of Inam under the Scheme  started  by the  appellant.  The fiction in the Explanation was  a  very limited  one  and it only laid down that wages  were  to  be deemed  to include payment to an employee in respect of  any period  of authorised leave, lock-out or legal  strike.   It did  not lay down that other payments made to,  an  employee under  other  circumstances  were also to be  deemed  to  be wages.  A legal fiction is adopted in law for a limited  and definite  purpose  only and there is  no  justification  for extending  it beyond the purpose for which  the  legislature adopted  it.   In the Bengal Immunity Co. Ltd. v.  State  of Bihar   and   Others,(1)  this  Court,  dealing   with   the Explanation  to  Article 286(1) of the Constitution,  as  it existed before 11-9-1956, held:               "Whichever  view is taken of the  Explanation,               it  should  be  limited  to  the  purpose  the               Constitution-makers  had  in  view  when  they               incorporated  it  in  clause 1.  It  is  quite               obvious  that  it  created  a  legal  fiction.               Legal  fictions  are  created  only  for  some               definite purpose". Applying  the  same  principle, we have  to  hold  that  the Explanation to s. 41 is not to be utilised fox  interpreting the  general definition of "wages" given in s. 2(22) of  the Act and is to be taken into count only when the word "wages" requires  interpretation for purposes of sections 40 and  41 of the Act.  It cannot, therefore. (1) [1955] 2 S.C.R. 603, 646. 777 be  held that remuneration payable under a scheme is  to  be covered by the word "wages", if the terms of contract of em- ployment  are taken to have been fulfilled.  What is  really required by the definition is that the terms of the contract of employment must actually be fulfilled.  It is, therefore, not  correct  to  hold  that because  payments  made  to  an employee for no service rendered during the period of  lock- out,  or during the period of legal strike, would be  wages, Inam paid under that scheme must also be deemed to be wages. The  second reason which led the High Court to hold  against the appellant was that, according to that Court, the  Scheme contained  an  offer  by the employer for  payments  to  the employees  for service rendered by them, and that offer  was accepted by the employees impliedly by having worked on  the terms  of  the Notice and having received payments  on  that basis.  The mere fact that a reward for good work offered by the  employer  is  accepted by the  employee  after  he  has successfully  satisfied  the requirement laid  down  by  the employer  for earning reward cannot mean that  this  payment becomes a part of contract of employment.  In fact, in  this

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case,  there was no question of offer by the  appellant  and acceptance by the employees as a condition of their service. The  employees were already working in accordance  with  the terms  of  their contract of employment  when  the  employer decided  ’to  make this extra payment if the  employees  did successfully  what  they were already expected to  do  under that  contract.   It cannot, therefore, be  held  that  this payment  of  Inam ever became even an implied  term  of  the contract  of employment of the employees of  the  appellant. This  Court  in Bala Subrahmanya Rajaram v. B.  C.  Patil  & Others,(1)  had to interpret the meaning of word "wages"  as defined  in the Payment of Wages Act, where also wages  were defined as remuneration which would be payable if the  terms of  the  contract of employment, express  or  implied,  were fulfilled.  The Court expressed its opinion in the following words: "Now the question is whether the kind of bonus  contemplated by  this  definition must be a bonus that is payable  ‘as  a clause of the contract of employment’.  We think it is.  and for this reason." Thereafter, the Court proceeded to examine whether bonus was in fact, payable as a clause of the contract of  employment. The  word "wages" in the Act having been defined in  similar terms,  a  remuneration  paid to an  employee  can  only  be covered by the definition of "wages" if it is payable  under a  clause  of  the  contract  of  employment.   As  we  have indicated  earlier,  there  was no  express  clause  in  the contract  of  employment of the employees of  the  appellant laying  down  the  payment of Inam,  and  the  Scheme,  when brought into force, expressly excluded it from the  contract of employment.  The terms on which the Inam was payable were (1) [1958] S.C.R. 1504, 1508. 778 also not consistent with the Scheme having become a part  of the contract of employment. In  this  connection, counsel appearing for  the  respondent brought to our notice one other feature of the Scheme  which was not relied upon by the High Court to hold that this Inam was wages.  That term is contained in the last paragraph  of the  Scheme where, after stating that the  Company  reserved the   right  to  withdraw  the  Scheme  altogether   without assigning any reason or revise targets and any condition  of the  Scheme at its sole discretion, went on to add that  the Company also reserved the right to discontinue the scheme at the  end of any period, if the scheme is found to be in  any respect unworkable or to be a source of labour discontent or for  any other reason.  It was urged that the fact that  the Scheme could only be discontinued at the end of a prescribed period and not in the midst of a period showed that the Inam was  payable  as  one  of  the  conditions  of  contract  of employment  of the employees, We do not think that there  is any  force  in this submission.  It was  again  a  one-sided promise on behalf of the appellant not to deny this  payment of  Inam  during  a period for which  the  Inam  Scheme  had already  been  notified  by  the  appellant,  but  such   an assurance on behalf of the appellant does not indicate  that the  employees could claim that a right to receive the  Inam had  accrued to them as an implied condition of contract  of employment.   The  decision  given by the  High  Court  has, therefore, to be set aside. The  appeal is allowed with costs., The order passed by  the High  Court  is  set  aside and  the  order  passed  by  the Employees’ Insurance Court it restored. V.P.S.                  Appeal allowed. 779

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