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PETITIONER: JAY ENGINEERING WORKS LTD AND OTHERS

       Vs.

RESPONDENT: THE UNION OF INDIA AND OTHERS

DATE OF JUDGMENT: 12/12/1962

BENCH: WANCHOO, K.N. BENCH: WANCHOO, K.N. GAJENDRAGADKAR, P.B. GUPTA, K.C. DAS SHAH, J.C.

CITATION:  1963 AIR 1480            1963 SCR  (3) 995

ACT: Industrial  Dispute-Provident  Fund-Production   Bonus-Basic Wages-Whether  the  former  is  excluded  from  the   latter -Provident   Fund  Scheme-Quota-Proportion   of   production Corresponding to-Minimum basic wages and dearness  allowance -Norm-Higher  than  quota-Worker failing  to  produce  norm- Guilty  of misconduct-Production above quota or above  norms Which  should  be taken for computation of  provident  fund- Constitution  of India, Art. 32-Employees  Provident  Funds, Act, 1952(19 of 1952), s. 2(b).

HEADNOTE: Following the major awards in the engineering industries  in 1948,  1950 and 1958 the petitioner company and its  workmen entered  into  an agreement in 1958.  By  this  agreement  a scheme  was  established.   Under  this  scheme  a   certain proportion of the production was taken to correspond to  the minimum  basic  wages and dearness allowance  fixed  by  the awards and this was termed as quota’.  The production  above the  quota was paid at piece rates.  But there was a  ’norm’ also  fixed which was much higher than quota. Every  workman who failed to produce the ’norm’ would be considered  guilty of misconduct and would be liable to be dismissed. The petitioner’s contention was that the entire payment  for production  above the quota was payment of production  bonus and  therefore  could  not be taken  into  account  for  the purposes  of provident fund in view of the decision of  this Court in Bridge and Roof Co. Ltd. v. Union of India.  It was further  contended that even if the payment  for  production between quota and norm was not production bonus which can be taken  out  of the definition of basic wages in the  Act  it should be treated as payment in the nature of ’other similar allowances’  appearing  in  S.2(b)  (II)  of  the  Employees Provident  Fund Act, 1952.  The workmen contended  that  the scheme in force in the petitioner company was a peculiar one which   did  not  correspond  to  any  standard  scheme   of production  bonus  in as much as it had two bases.   It  was their contention that in the scheme in question production 996 bonus  started  after  the norm and  that  the  payment  for

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production  between the quota and the norm was nothing  more than basic wages as defined in Employees Provident Fund Act, 1952. Held, that straight piece rate plan was the simplest of  the incentive  wage plans.  In such a case all payment would  be basic  wage as defined in s.2(b) of the Employees  Provident Fund Act, 1952. M/s.   Titaghur Paper Mills Co. Ltd. v. Its  Workmen  (1959) Supp. 2 S.C.R. 1012 and Bridge and Roof Co. Ltd. v. Union of India (1962) 2 L.L.J. 490, referred to. In  the scheme of the petitioner Company however the  worker cannot  stop at the quota he must produce upto the  norm  on pain  of being charged with misconduct.  Therefore the  real base or standard which is the core of a 1 typical production bonus  scheme is, in the case of the petitioner company  the norm.   Any payment above the norm would be real  production bonus under the present scheme and any payment upto the norm whether made in one firm or the other, is basic wage for the purpose of the Act. Mr.   Ziakh  v. Firestone Tyre and Rubber Co.  Ltd.  (1954)1 L.L.J. 281, distinguished. The  payment for production between the quota and  the  norm having nothing of the nature of an allowance and it being  a straight payment for the daily work must be included in  the words defining basic wage.  The portion of the payment which is  made  by the petitioner for production above  the  norm’ would  be  production  bonus and would  be  covered  by  the judgment of this Court in Bridge & Roof Company.

JUDGMENT: ORIGINAL JURISDICTION : Petition No. 64 of 1962. Petit-ion  under  Art. 32 of the Constitution of  India  for enforcement of fundamental rights. G.B.   Pai,   J.  B.  Dadachanji,  O.   C.   Mathur   and RavinderNarain, for the petitioners. M.S.  K.  Sastri,  R.  H. Dhebar and  P.  D.  Menon,  for respondents Nos.  1 and 2.                             997 A. S. R. Chari,R. K. Garg, S. C. Agarwala, M. K.  Ramamurthi and D.P. Singh, for respondent No. 3. 1962.  December 12.  The Judgment of the Court was delivered by WANCHOO,  J.-This  writ petition was heard along  with  writ petition  No. 62 of 1962 (Bridge and Roof  Company  (India), Limited v. Union of India), as the short question in both of them was whether production bonus was excluded from the term "basic  wages"  as  defined  in s.2  (b)  of  the  Employees Provident  Funds Act, No. 19 of 1952, (hereinafter  referred to as the Act).  A further question also arose in this  writ petition as to the nature of’ the production bonus scheme in force in the petitioner company, and the patties were  given time to file additional affidavits in that connection.   The main  point raised in the two writ petitions was decided  in Bridge and Roof Company (India) Limited v. of India(1).  The only  question  that now remains is whether  the  production bonus  scheme in force in the petitioner-company is  of  the same type as in Bridge & Roof Company(1).  If it is of  the, same  nature the present petition would be governed by  that decision  and  production bonus would be excluded  from  the term "basic wages" as defined in the Act.  The parties  have filed additional affidavits and it now remains to  determine the  nature of production bonus in force in the  petitioner- company and to decide whether the decision in the Bridge and

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Roof Company(1) would apply in the present case, and if  so, to what extent. It  appears  that some kind of production bonus  scheme  was started in the petitioner-company in 1947 and that scheme is said to have been more or less (1)  [1963] 3 S.C.R. 978. 998 on  a  straight  piece-rate system.   Then  came  the  major engineering  awards in the years 1948, 1950 and 1958  fixing basic  minimum  wages  and  dearness  allowance.   This  was followed by an agreement between the petitioner-company  and its  workmen in August 1958, in which the present scheme  in force  was established even though some kind  of  production bonus  on a. more or less straight piece-rate system was  in force  from  as  far back as 1947.   The  scheme  which  was established  by the agreement of 1958 was this.   A  certain proportion of the production was taken to correspond to  the minimum  basic  wages and dearness allowance  fixed  by  the awards,  and  this was termed as  "quota".   The  production above the quota was paid for at piece-rates.  But there  was a  "norm" also fixed which was much higher than the  "quota" and  every  workman  was normally expected  to  produce  the "norm"  as the minimum production.  If the workman  did  not produce  the  ’norm", he would be guilty of  misconduct  and would be liable to dismissal, as the agreement provided that any deliberate deviation from production norms would  amount to  go-slow tactics.  The standing orders of course  provide that go-slow tactics would amount to misconduct and may lead to dismissal of the workman concerned. It  will be seen therefore that the peculiar feature of  the production  bonus scheme in force in the  petitioner-company is that it has got two bases namely, (i) the quota, and (ii) the norm, the quota being much lower than the norm.  In view of  the agreement between the parties and the precise  defi- nition of "go-slow" contained in that agreement, it is clear that workmen are expected to give the "norm" as the  minimum production   and  if  there  is  any  deliberate   deviation therefrom  they are liable to be charged with misconduct  in the  shape  of  go-slow  and  may  be  dismissed  for   such misconduct. 999 The  minimum wages and the dearness allowance fixed  by  the major engineering awards are payable for production upto the quota  and thereafter extra payments are made on  piece-rate basis  upto the norm, and even beyond it where  the  workmen produce  beyond  the  norm.  The  question  that  falls  for consideration  is  whether  such  a  system  is  a   typical production bonus system described in the case of Bridge  and Roof Company(1). The main dispute centers around production between the quota and  the  norm.  The petitioner’s case is  that  the  entire payment  for  production  above  the  quota  is  payment  of production  onus and therefore cannot be taken into  account for  the purpose of provident fund, in view of the  decision in Bridge and Roof Company(1).  The workmen however, contend that  the  scheme in force in the  petitioner-company  is  a peculiar  one  which  does not correspond  to  any  standard scheme  of  production bonus as known in standard  books  on such  schemes.  It is contended that no scheme dealing  with production bonus or incentive wage has two bases of the kind in force in the petitioner-company.  The workmen, therefore, contend  that  in  a scheme of the  kind  prevalent  in  the petitioner-company,  production bonus as well understood  in industry  only  starts after the norm and that  payment  for production  between the quota and the norm is  nothing  more

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than basic wage as defined in the Act and that the exception of bonus from basic wage will only apply to that part of the payment  which is made for production above the  norm.   The workmen  further  point  out that  the  straight  piece-rate system  was  in force in the petitioner-company  before  the major  engineering  awards fixing minimum  basic  wages  and dearness  allowance.   When  such minimum  basic  wages  and dearness allowance were fixed by the (1)  [1963] 3 S.C.R. 978. 1000 awards  they  became applicable to  the  petitioner  company also.   It was then that the system was evolved of having  a quota which would represent production for the minimum basic wages and dearness allowance and the rest of the  production was  to  be  paid on a piece-rate basis.   The  change  that resulted  was that instead of a straight piece-rate  system, the  petitioner-company  introduced  the  piece-rate  system along with a guaranteed time wage.  The workmen contend that the quota which was to represent payment for production upto the basic wages and dearness allowance was fixed arbitrarily and  had  no  relation to the  productive  capacity  of  the workmen, which is the basis for fixing the base or  standard in  a typical scheme of production bonus.   Therefore,  what happened was that the petitioner-oompany though it fixed the quota,  expected  much  higher production  even  before  the agreement  of  1958 for a fair day’s work and  used  to  pay extra   for  this  production.   This  matter  was   finally stabilised  by  the agreement of 1958 by  which  norms  were fixed and the workmen were expected to give production  upto the  norms as a rule and any deliberate deviation from  such production   amounted  to  go-slow  tactics,  resulting   in misconduct,  which  might  lead  to  the  dismissal  of  the workman.  The union therefore contends that the real base or standard of a typical production bonus scheme in the case of the  petitioner-company is not the quota but the  Dorm,  and the payment between the quota and the norm can only be basic wages  within the meaning of the Act and it is only  payment above the re norm" which would be production bonus as under- stood in industry.  It was conceded on behalf of the workmen in  arguments  that  any payment for  production  above  the "norm"  would  be payment of production bonus and  would  be covered by the judgment of this Court in Bridge and Roof Co. (1) (1) [1963] 3 S.C.R. 978,   1001 What is a typical production bonus scheme was considered  by this  Court  in M/s.  Titaghur Paper Mills Co  Ltd.  v.  Its Workmen, (1) and that has been confirmed in Bridge and  Roof Company(2).  It was pointed out that the straight piece-rate plan was the simplest of the incentive wage plans.  In  such a  case all payments would be basic wage as defined in s.  2 (1)) of the Act, even though the worker is working under  an incentive  wage plan.  But the difficulty arises  where  the straight  piece-rate system cannot work.  In such cases  the system  of  production  bonus by tonnage  or  by  any  other standard  is  introduced.  The core of such a plan  is  that there  is a base or a standard above which extra payment  is carried for extra production in addition to the basic  wages which  is  the payment for work upto the base  or  standard. Such  a plan typically guarantees time wage up to  the  time represented  by  standard performance and  gives  workers  a share  in the savings represented by  superior  performance. The  typical scheme thus has only one base or  standard  and time wages are guaranteed upto that base or standard and any production above that base or standard is production  bonus.

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But  it is clear that in such a scheme of  production  bonus the  workers  are not bound to produce beyond  the  base  or standard  and  no disciplinary action can be  taken  against them for riot producing above the base or standard.  Learned counsel for the petitioner has been unable to point out  any scheme of production bonus which has two bases or  standards as  is the case in the petitioner-company in the shape of  a quota and a norm, the quota being much lower than the  norm. What  we  have  to  decide is whether in  the  case  of  the peculiar system which is in force in the petitioner-company, production  bonus, as generally understood, can be  said  to start  immediately after the first base (namely, the  quota) or  it  can only start after the second  base  (namely,  the norm).  It was urged on behalf of the petitioner (1) 1959 Supp.  2 S.C.R. 1012. (2)  [1963] 3 S.C R. 9 . 1002 that  production bonus schemes have safeguards for both  the employer and the employee, and that production upto the norm in  addition  to  the quota in the scheme in  force  in  the petitioner-company  is a mere safeguard.  Reliance  in  this connection  was placed on a passage in the book "Payment  by Results" issued by International Labour Office, Geneva at p. 164, which is as follow :               "No employee will be compelled to produce more               than union has stated was fair, but  continued               failure  of  an  employee  to  co-operate   in               establishing  a fair standard or to  meet  the               agreed  rate of production of  an  established               standard  or the rate of production as  stated               by  the union as fair, without a reason  mutu-               ally  satisfactory to both union  and  company               will   result   in  dismissal   or,   if   the               circumstances   warrant   unusual   treatment,               transfer to another department." That   passage   appears  under  the   heading   "Management Safeguards", and apparently is concerned primarily with time studies for the purposes of setting up production standards. Therefore that passage cannot be taken as an indication that a  typical  production  bonus scheme can fix  two  bases  or standards,  at  the  best the passage  only  indicates  that disciplinary action may be taken in certain cases where  the established  standard is not reached by a workman without  a reason mutually satisfactory to both union and company.   We may add that learned counsel relied on this book which deals with  a  large number of various types  of  incentive  wages plans  or production bonus plans; but he was unable to  draw our attention to any plan in this book which fixes two bases or  standards.   It  is  true that when  fixing  a  base  or standard  the  employers sometimes fix a standard  which  is below the normal production worked out on the basis                             1003 of time studies.  Not infrequently such base is fixed at  80 per  centum of the normal production found on  time  studies and  in some cases it has been known to go as low as 67  per centum.  That if; however a matter of agreement between  the employer and the employee and depends upon various  factors. But  the reason behind fixing the base or standard  somewhat below the normal which might have been found by time studies is to make an allowance for workers who may be little slower than  the average and also to allow for some incentive  even before the normal is reached so that there may be an  effort on the part of the workman to produce not merely the  normal but  something more than normal.  This is helped  by  fixing the base or standard somewhat below the normal production as

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found  by  time  studies and gives  the  workmen  a  greater incentive  to produce without fail not only upto the  normal but  also  beyond  the normal.  The fact  however  that  the standard or the base may be fixed somewhat below the  normal production  found  by  time studies is of  no  help  to  the petitioner,  for  the scheme in the present case  is  not  a typical production bonus scheme, if the quota is taken to be the  base.   As  we have already  indicated,  in  a  typical production  bonus scheme the worker is not bound to  produce more than the base or standard, though he way do so in order that his earnings may go up.  In the scheme in force in  the petitioner-company  however  the worker cannot stop  at  the quota;  he  must  produce up to the norm on  pain  of  being charged  with misconduct in the shape of go-slow  and  being liable  to be dismissed.  It seems to us therefore that  the real  base  or  standard  which is the  core  of  a  typical production  bonus scheme is, in the case of the  petitioner- company,  the  norm.  Any payment for production  above  the norm  would  be real production bonus under  the  scheme  in force in the  petitioner-company. The production upto the                             1004 norm  is the standard which is expected of a workman in  the company and payment into that production must be basic wages as defined in the Act. it is true that this payment is split up  into two parts.  The first part consists of basic  wages and dearness allowance fixed in the awards for production up to  the quota and the latter part is payment  at  piece-rate for  production upto the norm; but the two together  in  our opinion  represent  the  base  or  standard  of  a   typical production  bonus scheme and so only payment above the  norm in the case of the petitioner-company can be properly called production bonus.  The mere fact that part of the basic wage as defined in the Act is paid in one form as a time wage and part  in  another form as a piece rate wage  would  make  no difference to the whole being basic wage within the  meaning of  the  Act.  The real base of production bonus  scheme  in force  in  the petitioner company is the norm  and  not  the quota  and therefore payment upto the norm whether  made  in one form or the other, is basic wage for the purpose of  the Act. It  is however urged on behalf of the petitioner that it  is open  to the employer to punish a workman for go-slow,  even where  wages  are  paid on a piece-rate basis  and  in  this connection  reliance  was placed on Mr. Ziakh  v.  Firestone Tyre  and  Rubber Co. Limited, (1) where it  was  held  that there  could be go-slow even where wages are being  paid  on piece-rate basis.  Assuming that to be so, we are of opinion that   does not affect the validity of the conclusion as  to base  or  standard in the present scheme at  which  we  have arrived.   It  may be possible to punish for  go  slow  even where  wages  are paid on a piece-rate  system  because  the employee  deliberately  does not produce what  he  had  been normally  producing.  But in the present case, the  position has been (1)  (1954) I I.L.J. 281.  1005 crystallised  by the agreement and what is go-slow has  been precisely  defined; usually it is rather a difficult  matter for   the  employer  to  prove  a  case  of  go-slow,   more particularly  when  the piece-rate system of payment  is  in vogue.  Under the agreement however any deliberate deviation from  production norms immediately becomes go-slow  and  the workman  is  liable to disciplinary action  which  may  even result in dismissal.  In these circumstances when go-slow is precisely  defined  it is obvious that of two  bases  to  be

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found in the scheme in the petitioner-company it is the norm which is the real base to be found in all typical production bonus  schemes and that it is only when payment is made  for production  above  the "norm" that it can be said  that  the workman is earning production bonus as generally  understood in  industry.  It would in our opinion be utterly wrong  and unrealistic  in  the  present  ease  to  call  payment   for production  between the quota and norm as  production  bonus when   the  employee  is  bound  to  produce  up  to    norm practically on pain of dismissal. It was further urged that norms have been fixed for a  small proportion of workmen employed in the petitioner-company and therefore  all payments above the quota which is  apparently fixed for all workmen should be treated as production  bonus in  the  case of workmen other than this  small  proportion. This  in  our  opinion is a disingenuous  argument  and  the union’s  reply  show that though norms have  been  fixed  by agreement only with respect to a small proportion of workmen in actual practice there are norms for all workmen  governed by the scheme, these norms being based on normal performance before the agreement of 1958.  It is not disputed that these actual norms are much higher than the quota. 1006 Finally,  it  was  urged  that  even  if  the  payment   for production between the quota and the norm is not  production bonus  which can be taken out of’ definition of basic  wages in the Act, it should be treated as payment in the nature of "other  similar allowance" appearing in s. 2 (b)  (ii).   We are  of opinion that this payment for work done between  the quota  and the norm cannot be treated as any  other  similar allowance".  The allowances mentioned   in   the    relevant clause   are  dearness  allowance,   house-rent   allowance, overtime allowance, bonus.,  and  commission.   Any   "other similar  allowance", must be of the same kind.  The  payment in  this case for production between the quota and the  norm has nothing of the nature of an allowance, it is a  straight payment for the daily work and must be included in the words defining  basic wage i.e., "all emoluments which are  earned by  an  employee  while on duty or on leave  with  wages  in accordance with terms of the contract of employment". In  the view we have taken of the scheme in this  case,  the petition succeeds partly.  We direct that the portion of the payment which is made by the petitioner for production above the "norm" would be production bonus and would be covered by the  judgment of this Court in Bridge and Roof Company,  but that portion of the payment which is made by petitioner  for production up to the quota as well as production between the "quota" and the " norm" is basic wage within the meaning  of that  term in the Act, The petition is  therefore  partially allowed as indicated above.  In the circumstances we pass no order as to costs. Petition allowed in part. 1