http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 4  

CASE NO.: Appeal (civil) 8567  of  1997 Appeal (civil)  8568     of  1997

PETITIONER: SHREE CHANGDEO SUGAR MILLS & ANR.

       Vs.

RESPONDENT: UNION OF INDIA & ANR.

DATE OF JUDGMENT:       09/01/2000

BENCH: S.R.Babu, S.N.Variava

JUDGMENT:

L.....I.........T.......T.......T.......T.......T.......T..J

     J U D G M E N T

     S.  N.  VARIAVA, J.

     These  Appeals  are  against the Judgment  dated  23rd September,  1997.  Briefly stated the facts are as  follows: The  Appellant  claimed that they had ceased operation  from 1984.   In Suit No.  1937 of 1985, filed by Bank of  Madura, Court  Receiver,  High Court Bombay was appointed  as  Court Receiver  for  all the assets of the Appellant’s Company  on 28th  November,  1985.   The workers, through  their  Unions filed  various proceedings before the Labour Court, claiming their  arrears  of  wages, retrenchment  benefits,  terminal benefits  etc.  A number of Awards came to be passed by  the Labour Court.  The workers carried their dispute all the way upto  this Court.  On 21st March, 1988, this Court passed an order  wherein,  inter alia, directions were issued  to  the High  Court to look into the question whether there was  any scope  for restructuring the mill and if there was no  scope for  restructuring the mill, then to close down the same  so that  the  employees could be retrenched with effect from  a particular  date  to be indicated by the High Court  in  its Order.   On  12th December, 1988, the High Court fixed  31st October, 1988 as the date when the services of the employees was  to stand terminated/retrenched.  The Court Receiver was directed  to notify this date as the date of retrenchment of the  workers.   On 2nd December, 1995 the Appellant  Company entered  into  a Memorandum of Settlement with its  workers, wherein  it was agreed that the workmen whose services  were terminated/retrenched  with  effect from 31st October,  1988 would  be paid their dues on or before 31st March, 1996.  It was  also  agreed  that even though the amount  payable  was Rs.1,23,03,947.07   the   Union  would   accept  a  sum   of Rs.1,10,00,000/-  towards  settlement of dues.  Clause 5  of the Settlement is relevant.  It reads as follows :  "5.  The amount of Rs.  1,10,00,000/- to be paid by the Company shall

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 4  

be distributed in the following manner:

     Total wages 35,00,000.00

     Towards retaining (Seasional Wages) 10,00,000.00

     Towards Gratuity 50,00,000.00

     Towards Retr enchment Compensation 15,00,000.00

     ---------------------- Rs.  1,10,00,000.00

     ----------------------

     The  Short  fall  under one head may  be  adjusted  by paying  from  the  excess amount under any other  head.   No other  deduction  except  Union’s   contribution  of  7%  as stipulated hereinafter is permissible."

     The  2nd  Respondent declined to exempt the  Appellant Company  from payment of Provident Fund on the wages paid by the  Company under the said Settlement.  Thus Provident Fund was  claimed  on the sum of Rs.  35 lakhs i.e.   the  wages. The  Company  claimed that since this was an ad hoc  payment Provident Fund was not deductible on this sum.  This was not accepted  by  the 2nd Respondent.  The Appellants  therefore preferred  a Writ Petition in the High Court of Bombay which came  to  be dismissed on 12th August, 1997.  Their  Letters Patent  Appeal came to be dismissed by the impugned Judgment dated  23rd September, 1997.  Mr.  Sharma has submitted that with  effect from 1984 the Company was closed.  He submitted@@                            JJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJ that  admittedly  Court  Receiver, High  Court  Bombay  took@@ JJJJJJJJJJJJJJJJJJJJJJJ charge  of  all the assets with effect from  28th  November, 1985.  He submitted that the Workmen had, therefore, done no work  and were not on duty from 1984.  He submitted that  on 22nd  December,  1995, under the Settlement with the  Union, the   Workmen   had  agreed  to   accept  a  lump   sum   of Rs.1,10,00,000/-  in full and final settlement of all  their claims.   He submitted that this was an ad hoc amount  being paid under the Settlement.  He submitted that on such ad hoc payment  there  can  be no provident fund.  He  relied  upon definition  of  the term "basic wages" as given  in  Section 2(b)  of  the Employees’ Provident Funds Act  and  submitted that  the  basic  wage only included emoluments  which  were earned  by  an  employee while on duty.  He  submitted  that therefore  ad hoc payment made under a Settlement would  not be  a  basic pay.  He further submitted that as the  workers were  not working since 1984 it could not be said that  they were  on  duty.  He submitted that what was paid  under  the Settlement  remained an ad hoc payment and that there  could be  no claim for deduction of Provident Fund on the  amounts paid  under the Settlement.  In support of his submission he relied  upon  the  case  of Burmah  Shell  Oil  Storage  and Distributing  Co.   Ltd.   vs.    Regional  Provident   Fund Commissioner,  Delhi  reported in 1981 (2) L.L.J.   86.   In this  case  it has been held that a settlement allowance  is not  a basic wage.  He also relied upon the case of Bridge & Roof Co.  (India) Ltd.  vs.  Union of India reported in 1963 (3)  S.C.R.   978.   In this case the question  was  whether production bonus payable as part of a contract of employment was  basic  wage within the meaning of Section 2(b)  of  the Employees  Provident  Funds  Act,  1952  It  was  held  that production  bonus  was  a  kind   of  incentive  and  would,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 4  

therefore,  not be a basic wage He also relied upon the case of  Dinesh Khare vs.  Industrial Tribunal, Jaipur and others reported  in 1982 (2) L.L.J.  17, wherein one month’s  wages were  paid  to  a  workman under Section 33(2)  (b)  of  the Industrial Disputes Act.  The question was whether provident fund  was  deductible on this amount.  The Court  held  that this  was in the nature of a notice pay and was,  therefore, not  a basic wage within the meaning of Section 2(b) of  the Employees’ Provident Funds Act and therefore, provident fund was  not deductible on this amount.  He also relied upon the case of India United Mills Ltd.  v.  Regional Provident Fund@@                                      JJJJJJJJJJJJJJJJJJJJJJJ Commissioner  Bombay and others reported in AIR 1960  Bombay@@ JJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJ 203.   In  this case also the question was  whether  payment made  to a workman for termination of his service in lieu of a notice would be a basic wage within the meaning of Section 2(b)  of  the Employees’ Provident Funds Act.  It  was  held   that the amounts paid as notice pay for termination do not fall  within  the  term  basic  wage  it.   and,  therefore, provident  fund  cannot  be deducted on Based on  the  above authorities  it was submitted that as this was merely an  ad hoc  payment made under a Settlement it was not a basic wage and  no  deduction towards Provident Fund could be  made  on this  payment.   We  are unable to accept  the  submissions. Undoubtedly  contribution towards Provident Fund can only be on  a basic wage.  However, it is not at all necessary  that the  workman  must actually be on duty or that  the  workman should  actually  have  worked  in   order  to  attract  the provisions  of  the  Employees’ Provident  Funds  Act.   For example,  there  may be a lockout in a Company.  During  the period  of  lockout the workmen may not have worked yet  for the  purpose of the Employees’ Provident Funds Act they will be  deemed to have been on duty and Provident Fund would  be deductible on their wages.  In this case by order dated 12th December,  1988,  the High Court (pursuant to directions  of this  Court)  fixed  31st October, 1988 as a date  when  the services of the employees stood terminated/retrenched.  Thus upto 31st October, 1988 the employees were in service of the Appellant  Company.   They were, therefore, deemed to be  on duty  upto  31st  October, 1988.  As set out above  many  of these  employees  had raised claims before the Labour  Court and  there  were Awards of the Labour Court for  payment  of arrears  of  wages and retrenchment compensation.  All  that the  Settlement did was that, by Agreement, the total  claim of the workmen was reduced to a certain extent.  Amongst the claim  of  the  workmen  was a claim  for  wages  upto  31st October,  1988.   This  was a claim for wages for  a  period during  which  they were on "deemed duty".  Clause 5 of  the Settlement,  which has been set out herein above, shows that a  sum  of  Rs.  35 lakhs has been paid  towards  Wages  and another sum of Rs.  10 lakhs has been paid towards Retaining (Seasional)  wages.   These are amounts which are  paid  for wages  during a period when the workmen are deemed to be  on duty.   Therefore  it  is Basic Wage within the  meaning  of Section  2  (b) of the Employees’ Provident Funds Act.   All the cases relied upon by Mr.  Sharma are of no assistance to him  as  in those cases the amounts were clearly  not  Basic Wages.  In this case the above mentioned two sums of Rs.  35 lakhs and Rs.  10 lakhs are wages.

     Mr.  Sharma lastly submitted that the Settlement dated 2nd December, 1995 clearly provided that there were to be no@@     JJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJ deductions,  except Unions contribution of 7%.  He submitted

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 4  

that  even  though  the Appellant Company could  not  deduct Provident Fund from the wages paid to the employees they are now  being made liable to pay to the 2nd Respondent even the employees share.  He submitted that, even if it is held that the  Appellant Company is liable to pay Provident Fund, they should  not be made to now contribute the employees share as they could not and have not deducted the same from the wages paid.   We are unable to accept this submission also.  It is the  duty  of  the employer to  contribute.   The  employers agreement,  with  the  employee,  not  to  deduct  does  not discharge  the  employer  of his obligation in law  to  make payment.   The  term of the settlement which  provides  that there  shall  be no deduction only means that the  Appellant Company  has  agreed  to take on this liability  also.   We, therefore,  find  no infirmity in the order of  the  learned Single Judge or the Division Bench of the High Court.  These Appeals accordingly stand dismissed.  There will be no order as to costs.