07 April 1960
Supreme Court


Case number: Appeal (civil) 305 of 1959






DATE OF JUDGMENT: 07/04/1960


CITATION:  1960 AIR  985            1960 SCR  (3) 488

ACT:        Industrial   Dispute-Wage  structure-Production  bonus   and        incentive  bonus, if could be taken into consideration  when        fixing  new  basic wage-Intention of Government  if  can  be        interpreted  to Prejudice interest of Labour, Industry   and        Country-U.P.  Industrial  Disputes Act, 1947 (U.  P.  28  of        1947).

HEADNOTE: The  appellant  paid  wages to its workmen  in  the  Carding Department on piece rate basis and in addition, the  workmen were  entitled  to  receive  further  emoluments  if   their production  exceeded a certain norm.  The right  to  receive these  additional emoluments had become a part of the  terms of  service  of these workmen.  In 1948  the  Government  of Uttar  Pradesh  with  a view to make it  obligatory  on  the employers  in the different industries to keep the wages  of workmen  at  a  certain  level,  by  its  order  under   the provisions  of  s. 3 of the U.P.  Industrial  Disputes  Act, 1947,  laid  down the standard of basic wages  and  dearness allowance  for  different industries in the  province.   The appellant  in  giving  effect  to  the  said  order  of  the Government  for  introducing the new piece rate  raised  the fixed piece rate but stopped the system of paying additional emoluments, as it thought itself to be justified, in  taking into  consideration  for this purpose the  amounts  actually earned  by  the workers including what had  been  earned  as additional  emoluments which were being paid to the  workmen by  way of productive and incentive bonuses.  The  workmen’s case  was that by stopping the additional  emoluments  which they used to get on the basis of better production by  extra efforts the employer had in fact reduced the wages to  which they were entitled and the fact that higher piece rates were introduced  did not affect the question.  The  question  was whether  the  Government order required  or  authorised  the company  to. include the incentive bonus and the  production bonus  which they had been so long paying in fixing the  new piece rate for the purpose of compliance with the directions given in the Government order as regards the basic wages: Held, that the Government. order did not require or  justify the employer including the production and incentive  bonuses



in  the  calculation of the rates of the basic wage  of  the workers  and consequently the Government order did not  have the  effect  of  absolving  the company  from  the  duty  of continuing  to pay the production and incentive  bonuses  to workmen as before: Held, further, that the concept of " basic " is not peculiar to  wages  alone; it is what is normally allowable  to  all, irrespective  of  special  claims  and  is  also  ordinarily understood  to mean that part of the price of labour,  which the employer must pay to all 489 workmen  belonging  to all categories.  The phrase  is  used ordinarily   in  marked  contradistinction  to  "   dearness allowance  " the quantum of which varies from time to  time, in  accordance with the rise or fall in the cost of  living. Thus understood " basic wage" never includes the  additional emoluments  which some workmen may earn, on the basis  of  a system of bonuses related to the production. Titaghur Paper Mills Co. Ltd. v. Their Workmen, [1959] SUPP. (2) S.C.R. 1012, referred to.

JUDGMENT:        CIVIL APPELLATE JURISDICTION: Civil Appeal No. 305 of 1959.        Appeal by special leave from the Decision dated January  10,        1957, of the Labour Appellate Tribunal of India, Bombay,  in        Appeal No. 111-346 of 1955.        G.   S.  Pathak,  S.  P. Sinha and K. K.  Sinha  for  G.  N.        Dikshit, for the appellants.        Maqbool  Ahmad  Khan (General Secretary of the  Union),  for        respondent No. 1.        J. P. Goyal, for respondent No. 2.        1960.  April 7. The Judgment of the Court was delivered by        DAS  GUPTA, J.-This appeal by the employer, the  Muir  Mills        Co.,  Ltd.,  Kanpur, is against the decision of  the  Labour        Appellate  Tribunal of India, Bombay, modifying an award  of        the  Adjudicator,  Kanpur,  in  a  reference  made  by   the        Government of: U. P. under the provisions of ss. 3, 4 and  8        of the Industrial Disputes Act, 1947.  The matter in dispute        referred was originally set out in these terms :-        " Whether the employers have wrongfully and/or unjustifiably        reduced  the wages of their workmen of  Carding  Department,        given  in  the  annexure ? If so, to  what  relief  are  the        workmen entitled and from what date ? "        By  an  order dated April 25, 1955, the  Government  amended        this issue by substituting therefor the following:-        " Whether the employers have wrongfully and/or unjustifiably        reduced  the wages of their workmen of  Carding  Department,        given  in  the annexure., by discontinuing  the  payment  of        production  and/or special bonus, if so, to what relief  are        the workmen entitled and from what date ?        490        It  will  be  noticed that the issue  as  re-framed  by  the        amendment indicated the manner in which the reduction in the        wages of these workmen had been alleged to be made, viz., by        "  discontinuing  the payment of production  and/or  special        bonus ". To understand how the question of such a  reduction        arose  and also the considerations which arise  in  deciding        the  question  whether the reduction, if any,  was  wrongful        and/or  unjustifiable a few facts need to be mentioned:  The        appellant company is a textile mill employing in its Carding        Department  workmen known as Inter Tenters, Roving  Tenters,        Draw Frame Tenters and Slubbers.  All these workmen are paid        wages  on piece rate basis.  Before 1948 the rates in  force



      per hank were -/2/3/- for the Inter Tenters, -/2/3/- for the        Slubbers  and Draw Frame Tenters and -/2/5/- for the  Roving        Tenters.  In addition to this these workmen were entitled to        receive  further emoluments if their production  exceeded  a        certain  norm.  The rates for these further emoluments  then        in  force were two annas per rupee of basic earnings of  Rs.        15  to Rs. 25 per month and three annas per rupee for  basic        earnings   above  Rs.  25  per  month.   Apart  from   these        emoluments  payment was also made at 9 pies per hank if  the        production  on  any day was 7 hanks or  more.   Though  both        these  additional emoluments were related to production  the        Tribunals below have described the first kind as  production        bonus and the second kind as incentive bonus and it will  be        convenient to adhere to that description here.        These  two  kinds of additional payments which  the  workmen        would  receive  only  if their production  would  reach  and        surpass  certain standards had the result of increasing  the        total emoluments received by some of the workmen much above,        what  they would be getting under the fixed rate  per  hank.        The right to receive these additional emoluments had  become        a  part  of the -terms of service of  these  workmen.   With        effect from December 1, 1948, however the  appellant-company        stopped the system of paying such additional emoluments  but        instead -raised the fixed rate per hank to -/3/9/- for Inter        Tenters,  -/3/6/-  for Slubbers and Draw Frame  Tenters  and        -/4/9/- for Roving Tenters.  This was done immediately after        an order had been made        491        by the Government under the provisions of s. 3 of the U.  P.        Industrial Disputes Act, 1947, laying down the standards  of        basic wages and dearness allowance for different  industries        in  the Province.  Clause 2 of this order fixed the  minimum        basic  wage  for cotton and woollen  textile  industries  in        Kanpur and certain other areas at Rs. 30 per month.   Clause        3  provided  for payment of dear food allowance.   Clause  5        provided  that persons who are already employed on  November        30,  1948, in any industrial textile concern  shall  receive        wages  at the increased rates mentioned therein.   Clause  7        provided  that " every employee of an industrial concern  or        undertaking to which this order applies, shall be paid wages        including  dear  food  allowance  in  accordance  with   the        provisions  of  cls. (2), (3), (5) and (6).  "  There  is  a        proviso to the clause which says that where the consolidated        wage  payable to an employee who was on the pay roll of  the        concern  or undertaking on November 30, 1948, is  more  than        the  consolidated  wage  payable  in  accordance  with   the        provisions of the said clauses, the difference shall be paid        to  him as personal wage.  Clause 8 defines " basic wages  "        as  " consolidated wages payable to an employee on  November        30, 1948, minus Dear Food Allowance calculated according  to        the rates prevalent in the concern on the said date.        The  workmen’s  case  is that  by  stopping  the  additional        emoluments  which  they used to get on the basis  of  better        production by extra efforts the employer had in fact reduced        the  wages  to which they were entitled and  the  fact  that        higher piece-rate were -introduced with effect from December        1,  1948,  does  not affect the  question.   The  employer’s        contention  is that by the Government order it  was-required        to introduce new piece-rates after taking into consideration        the  amounts actually earned by workers including  what  had        been earned by additional emoluments and so the stoppage  of        these additional emoluments did not amount to any reduction.        The  Adjudicator  held  that  these  additional   emoluments        payable as production bonus and incentive bonus had not been        taken  into consideration by the company while  arriving  at



      the revised piece-rates.  He        492        held  further  that  these  could not  be  taken  into  con-        sideration   in  law  as  the  Government  order   did   not        contemplate these bonuses to be taken into consideration  in        arriving  at the appropriate figure for basic wages for  the        purpose  of  the order.  In that view the  Adjudicator  held        that there had been an Unjustifiable reduction in the  wages        of  the workmen and directed the management to restore  with        effect  from  December  1, 1948, " the  system  of  granting        production and incentive bonuses to such of the workmen  who        are entitled to it ". He also gave directions as to how  the        calculations  should  be made for the purpose  of  incentive        bonus and production bonus.        The  Appellate Tribunal thought it unnecessary  to  consider        the  question whether these bonuses had been actually  taken        into  consideration while fixing new piece rates,  being  of        opinion  that  if the Government order did  not  require  or        justify  the  employer’s  including  these  bonuses  in  the        calculation  of the new rates the company would be bound  in        law to restore these bonuses even if they had actually taken        them into consideration.  It held that the Government  order        did  not  require or justify the  employer  including  these        bonuses  in  the calculation of the rates of wages  for  the        purposes  of  the  Government  order.   In  the  result  the        appellate tribunal agreed with the first tribunal’s decision        that  this  system  of  granting  production  and  incentive        bonuses must be restored.  In view of the fact however  that        for a long time after December 1, 1948, the workmen did  not        raise  this question the appellate tribunal was  of  opinion        that  the  restoration  should  be  only  with  effect  from        February  1,  1954.   As regards the rates  at  which  these        bonuses  had  to  be  calculated  they  also  modified   the        directions given by the Tribunal.        The  main  contention  raised before us  on  behalf  of  the        appellant-company  is that the appellate tribunal was  wrong        in  thinking  that the Government order did not  require  or        justify  the company in including the additional  emoluments        being  paid  by way of production bonus  and  the  incentive        bonus in the calculation of the rates of basic wages for the        purpose of the order,        493        Before we proceed to consider this question it is proper  to        mention  a  preliminary contention which was  sought  to  be        raised by Mr. Pathak, on behalf of the appellant.  Referring        to  a  note made by the Adjudicator on August 27,  1955,  he        wanted to argue that it was not open to the tribunals  below        to consider at all the question whether under the Government        order the appellant could have included the incentive  bonus        in the calculation of the basic rate.  The note is in  these        words :-        "  The parties are represented.  The calculations have  been        filed  by  them  which  were made in  the  presence  of  the        Adjudicator.   There  is no difference between  the  parties        that while calculating the rates with effect from 1-12-48 if        production  and  incentive bonus have  been  considered  the        question of any relief does not arise, and vice versa.   The        workers  say that in the said wages, these bonuses have  not        been  included  while the employers contend that  they  have        been included.        The   latter  have  not  filed  the  required   information.        Proceedings closed."        At  first  sight,  this does seem to give  a  basis  for  an        argument  that  the parties agreed before  the  Tribunal  to        treat  the  matter as a question of fact only and  that  the



      workmen  did not want to raise any question that  under  the        Government order these bonuses could not be included in  the        calculation of the rates.  It is unnecessary however for  us        to  examine  the effect of such concession in view  of  what        transpired before the appellate tribunal.  From the judgment        of  that Tribunal we find that on behalf of the  workmen  it        was  stated that they had not conceded any such position  in        the  lower tribunal and that their contention was that  such        bonuses  had not and could not be taken into  consideration.        It is also clear from the judgment that in view of this  the        parties argued their appeal before the appellate tribunal on        both  these contentions, viz., whether the Government  order        in question allowed the employers to include the bonuses  in        question in the calculation of the new rates of basic  wages        in  the case of the piece-rate workers like those  concerned        in this and if so, whether the employers have in 63        63        494        fact taken these bonuses into account.  It is clear that the        contention that in view of the concession made on August 27,        1955,  it was not open to the appellate tribunal to go  into        the  question  whether  the  Government  order  required  or        authorised  the  employer’s  including the  bonuses  in  the        calculation  of  the  new rates  was  abandoned  before  the        tribunal below.  When it was pointed out to Mr. Pathak  that        in  view  of this, he should not be allowed  to  raise  this        contention Mr. Pathak fairly abandoned this contention  here        also.         The real question therefore is whether the Government order        required or authorised the company to include the  incentive        bonus  and the production bonus which they had been so  long        paying  in  fixing  the new piece rate for  the  purpose  of        compliance with the directions given in the Government order        as  regards the basic wages.  In finding the correct  answer        to  this  question  it is necessary to  examine  the  entire        scheme of the Government order.  The relevant clauses of the        Government order have already been set out.  The purpose  of        the  scheme, on the face of it, is to make it obligatory  on        the  employers  in  different industries to  keep  wages  of        workmen  at a certain level.  This purpose is sought  to  be        achieved  by  laying down on the one hand  the  basic  wages        Which  must  be  paid and on’ the other  hand  the  dearness        allowance-called   in   the  Government  order   dear   food        allowance-which must be paid.  The concept of basic wage  is        familiar  to employers and workmen and all who have to  deal        with  the  problems  of labour’s remuneration.   It  may  be        profitably remembered in this connection that the concept of        a  " basic " is not peculiar to wages alone.  For  instance,        when  any rationing system is introduced for any  commodity,        whether  it  is  food,  or coal, or  petrol  or  some  other        commodity, it is usual to fix a quantum as the basic ration.        The  underlying  idea is to fix some amount  as  what  every        individual   coming  under  the  system  will   get;   while        additional  amounts to be fixed in accordance  with  further        directions  will be allowed to some individuals, in view  of        their special claims as supplementary rations.  " Basic " in        all  such  cases  is  what is  normally  allowable  to  all-        irrespective        495        of  special  claims.  The phrase "I basic wages  "  is  also        ordinarily  understood  to mean that part of  the  price  of        labour,  which  the  employer must pay  to  all  work-’  men        belonging to all categories.  The phrase is used  ordinarily        in marked contra-distinction to " dearness allowance ",  the        quantum  of  which varies from time to time,  in  accordance



      with the rise or fall in the cost of living.        Thus understood " basic wage" never includes the  additional        emoluments  which some workmen may earn, on the basis  of  a        system of bonuses related to the production.  The quantum of        earnings   in  such  bonuses  varies  from   individual   to        individual according to their efficiency and diligence ;  it        will   vary  sometimes  from  season  to  season  with   the        variations  of  working conditions in the factory  or  other        place  where  the  work  is done; it  will  vary  also  with        variations in the rate of supplies of raw material or in the        assistance obtainable from machinery.  This very element  of        variation,  excludes this part of workmen’s emoluments  from        the connotation of " basic wages ". But, says the appellant,        whatever may be ordinarily under. stood by the word "  basic        wages  "  hardly matters when the  Government  order  itself        contains a definition of " basic wage ". Clause 8, which has        already been referred to is in these words:-" Basic Wages  "        for the purposes of this order will mean consolidated  wages        payable to an employee on November 30, 1948, minus Dear Food        Allowance calculated according to the rates prevalent in the        concern  on the said date." On behalf of the  appellant  Mr.        Pathak concentrates on the words " consolidated wage ",  and        argues  that everything which answers to the description  of        wage  must  be included in this  process  of  consolidation.        Contending  next  that  the emoluments  payable  by  way  of        production bonus and incentive bonus are " wages even if not        ordinarily  understood to be basic wages he argues that  the        result  of the definition in cl. 8 is that basic  wages  for        this  order is the sum total of all emoluments answering  to        the  description  of  wages thus  including  production  and        incentive  bonuses, but excluding by reason of  the  express        words used " dearness allowance,        64        496        In  support  of his argument that  production  or  incentive        bonuses which used to be paid by the company is also a  kind        of  wage the learned advocate has placed strong reliance  on        some observations made by this Court in Titaghur Paper Mills        Co., Ltd. v. Their Workmen (1) that a production bonus is in        the nature of an incentive wage.        We  will  presently  consider how far the  fact  that  these        bonuses  are in the nature of an incentive wage assists  the        appellant’s  contention that it has to be included in the  "        consolidated wage" within the meaning of cl. 8 of the order.        But before we do that, it will be proper to see exactly what        this  Court  said in the above case.  A  question  had  been        raised  as  regards  the  jurisdiction  of  the   Industrial        Tribunals  to go into the question of any  production  bonus        claim  at all, that being a matter of agreement between  the        employer  and the employees.  In considering  this  question        this  Court thought fit to consider first what a  production        bonus essentially is.  In the course of that discussion  the        Court said:-        "  Before  we  go into the question  of  jurisdiction  of  a        tribunal   under   the   Industrial   Disputes   Act,   1947        (hereinafter  called  the Act), we should like  to  consider        what  production  bonus  essentially  is.   The  payment  of        production bonus depends upon production and is in  addition        to wages.  In effect it is an incentive to higher production        and is in the nature of an incentive wage."        "There  is a base or standard above which extra  payment  is        made  for  extra production in addition to the  basic  wage.        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."



      "Therefore  generally speaking, payment of production  bonus        is nothing more or less than a payment of further emoluments        depending upon production as an incentive to the workmen  to        put in more than the standard performance.  Production        (1)  [1959] SUPP. 2 S.C.R. 1012        497        bonus  in  this case also is of this nature and  is  nothing        more  than  additional emolument paid as  an  incentive  for        higher  production.   We shall later consider  the  argument        whether in this case the production bonus is anything  other        than  profit bonus.  It is enough to say at this stage  that        the bonus under the scheme in this case also depends  essen-        tially  on  production  and therefore is in  the  nature  of        incentive bonus."        It is important to notice that while the learned counsel  is        undoubtedly  right  in  saying  that  a  bonus  related   to        production was described in this case as in the nature of an        incentive  wage,  the Court was equally emphatic  in  laying        down  that such bonuses form no part of wages as  ordinarily        understood  and  again that these are in addition  to  basic        wages.  Can it be reasonably said that even such  "incentive        wage"  though not forming part of basic wage’ as  ordinarily        understood was intended to be included in the  consolidation        of  wages which cl. 8 speaks of?  The answer must be in  the        negative.   While  it is true that the word  "  consolidated        wage  "  taken  away  from  the  context  would  import  the        inclusion  of every kind of wage, we have to  remember  that        here  it is basic wage which is being, defined.  It will  be        unreasonable  to  think  that in  defining  basic  wage  the        Government   would   include  something  which   is   always        understood to be outside the ordinary concept of basic wage.        Remembering as we must that it is basic wage which is  being        defined here it is reasonable to think that only such emolu-        ments  which are receivable by the workmen generally,  as  a        normal  feature of their earnings and therefore satisfy  the        characteristics  of  "  basic wage ",  are  intended  to  be        covered  by  the  consolidation.  It is  because  dear  food        allowance does not satisfy this characteristic that this has        been expressly excluded.  Mr. Pathak’s argument that when in        the case of dearness allowance an express exclusion has been        made,  everything  else  in the nature of wages  has  to  be        included  would  have been of great force but for  the  fact        that when "basic wage" is being defined the presumption must        be that anything which is essentially        498        different  and distinct from basic wage was not intended  to        be included.        It  is worth mentioning also that the notification does  not        in terms refer to piece rate system of payment.  That itself        is  a reason for thinking that production bonuses which  are        an  essential feature of piece rate system but not  of  time        rate  system,  were not in the contemplation  of  those  who        drafted the order.        Equally  pertinent  is  the  consideration  that  when   the        Government  is  evolving  a  scheme  to  improve  the   wage        structure  of  workmen it would not  knowingly  do  anything        which  would  have  the effect  of  removing  incentives  to        production.   Such removal would harm labour  by  preventing        workmen from earning more by extra efforts, harm capital  by        diminishing  the return therefrom and harm the country as  a        whole at a time when higher production is the crying need of        every  branch  of industry.  An interpretation  which  would        impute  to Government such an unthinkable intention to  harm        all concerned, cannot be lightly accepted; but that would be        the  necessary  result  if " consolidated  wages  "  in  the



      definition of basic wages is interpreted to include even  an        incentive  wage like bonus related to production.  On  every        consideration   it  is  therefore  abundantly   clear   that        production  bonus and incentive bonus were not within  basic        wages as defined in the Government order.        It  was faintly argued by Mr. Pathak that the fact that  the        workmen did not for a number of years raise any objection to        the  stoppage  of  the old system of  production  bonus  and        incentive  bonus shows that they themselves  understood  the        Government  order  to  mean  that  these  bonuses  would  be        included  in fixing the basic wages for the purpose  of  the        order.  Whether that was so or not it is unnecessary for  us        to consider, for when the only reasonable interpretation  of        the  words  used in the order is that these are  not  to  be        included, it matters little how the ’employer or the workmen        understood these words to mean.        We  have  therefore come to the conclusion that  the  Labour        Appellate Tribunal was right in holding that the  Government        order did not require or justify th        499        employer  including the production and incentive bonuses  in        the  calculation  of  the rates of the  basic  wage  of  the        workers  and consequently that the Government order did  not        have  the effect of absolving the company from the  duty  of        continuing  to pay the production and incentive  bonuses  to        workmen as before.        No  objection  has  been raised before  us  as  regards  the        directions   given  by  the  appellate  tribunal   for   the        calculation of these bonuses.        The appeal is accordingly dismissed with costs.                           Apppeal dismissed.