Sri K. Chandru, J.:— In all these writ petitions, the short question that arises for consideration is whether the contribution for leave encashment expenditure is covered within the definition of “basic wages” under S. 2(b) of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (for short PF Act).
2. Section 2(b) of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 reads as follows:
“2. Definitions.— In this Act, unless the context otherwise requires—
(Sub-sections (a) and (aa) are omitted)
(b) ‘Basic wages’ means all emoluments which are earned by an employee while on duty or on leave or on holidays with wages in either case in accordance with the terms of the contract or employment and which are paid or payable in cash to him, but does not include—
(i) the cash value of any food concession;
(ii) any dearness allowance (that is to say, all cash payments by whatever name called paid to an employee on account of a rise in the cost of living), house rent allowance, overtime allowance, bonus commission or any other similar allowance payable to the employee in respect of his employment or of work done in such employment;
(iii) any presents made by the employer.”
3. It is the stand of the respondent/PF department that the leave encashment given to the workman is covered by the term of basic wages. In support of their stand, they were relying upon the judgment of the Bombay High Court as well as the Karnataka High Court. Therefore, all the petitioners/managements herein are bound to make contribution in terms of the leave encashment given to the workman as part of the basic wages. This was given as a reply to the letter written by the petitioner in W.P (M.D) No. 8075 of 2005. Therefore, the petitioners have come forward with these writ petitions seeking to challenge the various summons issued by the Department for producing their leave encashment register for making appropriate calculation of PF dues to be paid to the department.
4. A preliminary objection was raised by the respondent by stating that there is an alternative remedy under S. 7-I of the Act to an Appellate Tribunal and therefore, the writ petitions are not maintainable and the same should be dismissed.
5. The respondent/PF department has taken a definite stand that the liability of PF will have to be paid even on leave encashment, for which, the relied upon a judgment of the Bombay High Court and Karnataka High Court and there will be very little scope for a Tribunal to take any independent stand as they were bound by the judgments of the various High Courts. Therefore, this objection is overruled.
6. It is brought to the notice of this Court that the Regional Provident Fund Commissioner II (Exem), Chennai giving clarification in the matter of imple-nentation of leave encashment issued a circular, dated 22 September, 2005, which reads as follows:
“Please refer to this office letter of even number, dated 18 July, 2005 and 22 July, 2005, wherein all the establishments were directed to enforce recovery of PF contribution on leave encashment paid on or after 1 October, 1994.
Consequently, clarification has since been received from the head office intimating to force the recovery of PF contribution on leave encashment paid on or after 1 May, 2005 and the compliance in respect of recovery up to 30 April, 2005 has been kept in abeyance for the present.”
7. The learned counsel for the petitioners submitted that the petitioners are all involved in the manufacturing process and their units will come within the purview of the Factories Act, 1994, and they have registered their units under that Act. Under Chap. VIII of the Factories Act, 1948. Annual leave with wages are provided to workmen. The relevant portion of S. 79(3) to 79(5) reads as follows:
“79. Annual leave with wages—
(Sub-sections 1 and 2 are omitted)
(3) If a worker is discharged or dismissed from service or quits his employment or is superannuated or dies while in service during the course of the calender year he or his heir or nominee, as the case may be shall be entitled to wages in lieu of the quantum of leave to which he was entitled immediately before his discharge, dismissal, quitting of employment, superannuation or death calculated at the rates specified in Sub-sec. (1), even if he had not worked for the entire period specified in Sub-sec. (1) or Sub-sec. (2) making him eligible to avail of such leave, and such payment shall be made—
(i) where worker is discharged or dismissed or quits employment, before the expiry of the second working day from the date of such discharge, dismissal or quitting; and
(ii) where the worker is superannuated or dies while in service, before the expiry of two months from the date of such superannuation or death.
(4) In calculating leave under this section, fraction of leave of half a day or more shall be treated as one full day's leave and fraction of less than half a day shall be omitted.
(5) If a worker does not in any one calendar year take the whole of the leave allowed to him under Sub-sec. (1) or Sub-sec. (2), as the case may be, any leave not taken by him shall be added to the leave to be allowed to him in the succeeding calendar year:
Provided that the total number of days of leave that may be carried forward to a succeeding year shall not exceed thirty in the case of an adult or forty in the case of a child.
Provided further that a worker, who has applied for leave with wages but has not been given such leave in accordance with any scheme laid down in Sub-sees. (8) and (9) or in contravention of Sub-sec. (10) shall be entitled to carry forward the leave refused without any limit.
8. Therefore, statutorily employers are bound to give annual leave with wages. The option is given to workman either to encash or to avail leave depending upon the wishes of the workman.
9. The learned counsel also submitted that similar provisions for annual leave with wages are also provided under the Tamil Nadu Shops and Establishments Act, 1941, and the Motor Transport Workers Act, 1961, and the Plantation Labour Act, 1951. In the light of the statutory obligation leave with wages are granted and it can be either availed as leave or encashed depending upon the volition of the worker and this cannot be treated as basic wage in terms of S. 2(b) of the Act noted above.
10. The learned counsel also submitted that the term leave or holidays with wages as found in the definition under S. 2(b) cannot be read in isolation but should be read together with regulation 29(3) and also 38 of the EPF Scheme, Regulation 29(3) reads as follows:
“29. Contribution—
(Sub-regulations 1 and 2 are omitted)
(3) The contributions shall be calculated on the basis of basic wages, dearness allowance (including the cash value of any food concession) and retaining allowance (if any) actually drawn during the whole month whether paid on daily, weekly, fortnightly or monthly basis.”
Regulation 38 reads as follows:
“38 Mode of payment or contribution.— (1) The employer shall, before paying the member his wages in respect of any period or part of period for which contributions are payable, deduct the employee's contribution from his wages which together with his own contribution as well as an administrative charge of such percentage of the pay basic wages, dearness allowance, retaining allowance, if any, and cash value of food concessions admissible thereon for the time being payable to the employees other than an excluded employee, as the Central Government may fix. He shall within fifteen days of the close of every month pay the same to the fund by separate bank draft or cheques on account contributions and administrative charge.
11. A conjoint reading of the definition as well a the regulation under the Employees' Provider Fund Scheme, 1952, reveals that it was not the intention of the Parliament as well as the regulation making authorities to include the annual leave with wages as part of basic wage.
12. The learned counsel also submitted that in respect of the Tamil Nadu State Transport Corporation, Pudukkottai (TN), an appeal was filed before the Employees' Provident Fund Appellate Tribunal, New Delhi and in that appeal in case No. ATA/471(13)2000 and batch cases, the Tribunal held as follows:
“Therefore, holding that leave encashment is basic wages will create unnecessary disturbance. Therefore. I hold, that any payments made as leave encashment is not part of basic wages.”
This order of the Tribunal was not taken on appeal by the department and it has become final. Therefore, there cannot be one law for the State Transport Corporation establishment and another law for the other employees of the private sector in the very same State.
13. The learned counsel submitted a chart showing the definition of wages under various labour enactments such as the Payment of Gratuity Act, 1972, the Minimum Wages Act, 1948, the E.S.I Act, 1948, Payment of Bonus Act, 1965, the Payment of Wages Act, 1936, including PF Act. He submitted that the definition found in the EPF Act and the Payment of Gratuity Act, 1972, are in pari materia and therefore, any interpretation given under the Payment of Gratuity Act should also taken note of certain emoluments for the purpose of PF also.
14. A strong reliance is placed by the department on the judgment rendered in Hindustan Lever Employees' Union v. Regional Provident Fund Commissioner, [1995 (1) L.L.N 767], by the Bombay High Court and in Regional Provident Fund Commissioner Employees Provident Fund Organisation, Mangalore v. Kasturba Hospital, Manipal, in W.P Nos. 37017 and batch cases, dated 25 October, 2000, by the Karnataka High Court. Therefore, it is necessary, to refer to the decision of the Supreme Court rendered in Bridge and Roof Company (India), Ltd. v. Union of India, [1962 — II L.L.J 490], wherein the Supreme Court had an occasion to consider the scope of S. 2(b) of the PF Act. The following passage found at page 493 is relevant for the purpose of this case.
“The main contention of the company is that bonus without any qualification has been excepted from the term ‘basic wages’ in the definition in S. 2(b) of the Act. Therefore, all bonus whether it be profit bonus or production bonus or attendance bonus or festival bonus either as an implied condition of service or as a customary payment, are excluded from ‘basic wages.’ Further, S. 6 which provides for contribution only refers to basic wages, dearness allowance and retaining allowance (if any) and contributions have to be made, at the appropriate rate on these three payments and not on bonus which is not included in S. 6. It is urged that when the Act was passed in 1952, the legislature was aware of the various kinds of bonus which were being paid by various concerns in various industries and when it decided to exclude bonus without any qualification from the term ‘basic wages’ as defined in S. 2(b), it was not open to the Central Government to direct that production bonus should be included in basic wages for the purposes of contribution under S. 6. Besides this contention based on the interpretation of the word ‘bonus’ in S. 2(b) it is further contended that if the word ‘bonus’ thers in excludes production bonus the provision would be unconstitutional’ as it would be hit by Art. 14 of the Constitution inasmuch as production bonus is not a general feature of all industrial concerns but has been introduced only in some. The result of including production bonus within basic wages would be that some concerns where production bonus prevails would be contributing to the provident fund.”
15. In fact, the Supreme Court, in order to understand S. 2(b) of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 read in conjunction with the regulation read with S. 6 providing for framing of the scheme and other relevant regulations. The Supreme Court in the said judgment did not deal with any question which we are now faced with, viz., annual leave with wages forming part of basic wage. On the other hand, the Supreme Court laid down the law that S. 2(b) will have to read along with S. 6 the PF Act whereat the word “dearness allowance” and “retaining allowance” Were also included but in the definition in S. 2(b), clearness allowance has been excluded.
16. If in this context, the judgment of the Bombay High Court must be looked into. The learned Single Judge of the Bombay High Court held that the decision of the Supreme Court in Bridge and Roof case (vide supra), may not be helpful in deciding, whether the amount of encashment of leave fell within the meaning of the term basic wage. In fact, that case arose out of a peculiar situation. Where the department was including the amount of leave encashment as emoluments for the purpose of calculating PF dues from the employer as well as employee. When the employees' union took up the issue to the RPF Commissioner informed that the provision does not provide for deduction of provident fund on leave encashment. On the strength of the letter, dated 3 July, 1991, Hindustan Lever, Ltd., decided to make provident fund deduction. It was this direction of the department which was, challenged by the union. It is in this context, the Bombay High Court held that the RPF Commissioner's circular was illegal and that leave encashment wage should not be included for PF contribution. In fact, it is the parties understanding over the period that leave encashment will include part of the wages. In the present case, such a contingency did not arise.
17. In fact a learned Judge of the Karnataka High Court merely followed the Hindustan Lever case, [1995 (1) L.L.N 767] (vide supra), cited above and did not go beyond the said judgment. Thereafter, the learned counsel drew the attention of this Court to the Calcutta High Court Division Bench judgment in Regional Provident Fund Commissioner II, West Bengal v. Vivekananda Vidya Mandir, [2005 (2) L.L.N 214]. In that judgment, the Division Bench of the Calcutta High Court went into the question whether a special allowance could be treated as part of the basic wage in terms of S. 2(b) of the EPF Act. In Paras. 10 and 18, the following passages are found, in Paras. 5.5 and 6.4, at pages 216 and 217, the following passages are found:
“5.5 Admittedly, the special allowance is not a retaining allowance which is payable when the employee is retained without work. It is not a cash payment for food concession. Neither it is overtime, allowance, nor house rent, nor bonus, nor commission. Neither it comes within Cl. (iii) i.e presents by employer. Therefore, this special allowance is either some other similar allowance or dearness allowance, if it is not, then, it will be part of the basic wages since it is an emolument paid on account of the employment in terms of the contract therefor and is payable to each employee.
6.4 In the facts and circumstances of the case, the special allowance cannot be treated to be one of the other similar allowances which are otherwise exempted under S. 6 of the 1952, Act. It is either part of the basic wages or it is the dearness allowance itself described or called as special allowance or in the garb of special allowance it is the dearness allowance, which is being wrongly described.”
18. The learned counsel also drew the attention of this Court to S. 9 of the PF Act. As per the Income Tax Act, 1922, the fund also deemed to be a recognised provident fund. The Income Tax Act provides as to how the recognised provident fund should be maintained under the IV Schedule. Paragraph 4(b) of Part A of the IV Schedule reads as follows:
“(b) the contributions of an employee in any year shall be a definite proportion of his salary for that year, and shall be deducted by the employer from the employee's salary in that proportion, at each periodical payment of such salary in that year and credited to the employee's individual account in the fund.”
19. The learned counsel also submitted, that the deduction of employees contribution is either for a week or a month and the deductions will have to be made for the contribution of employees provident fund from their salary. If within the corresponding period, if deductions are not made, then thereafter, the employer has no right to deduct the contribution of employees from their salary in terms of the provisions of S. 12 of the EPF Act.
20. He also submitted that if the stand of the department is accepted, it will result in anamalous situation wherein one set of employees who availed the leave will not have any contribution to be made but people who never availed the leave but want to encash it at the tail end of their service, they will be punished by deductions being made in terms of leave encashment. This will result in punishing employees whoever availed the earned leave and worked for the organisation. This is not the intention of the PF Act.
21. With reference to the definition of the term basic wage as found in EPF Act, the learned counsel submitted that the said term is almost in pari materia with the definition found in Payment of Gratuity Act and for this purpose, the learned counsel cited the judgment of the Supreme Court, which considered the said vide its decision in T.I Cycles of India, Ambattur v. M.K Gurumani, [2001 (4) L.L.N 1], the Supreme Court also referred to the Bridge and Roof Company (India), Ltd. case (vide supra). The learned counsel drew the attention of this Court to Paras. 8 and 15, at pages 3 and 5, of the said judgment which read as follows:
“8. A comparison between these two provisions will make it clear that there is no basic difference between the two expressions used in these two enactments in so far as the exclusion of bonus from the emoluments is concerned. The High Court has been carried away by the expression ‘basic wages’ used in the PF Act while the term ‘wages’ is used in the Act but that distinction will not be of any impact, if we closely examine the manner in which the two terms are defined in the respective Acts. The nomenclature of the two expressions will not alter the contents of the two terms. Therefore, the High Court ought to have considered this aspect of the matter. Further this Court in Straw Board Manufacturing Co. Ltd. v. Its Workmen, [1977 (1) L.L.N 399], was concerned with the gratuity scheme formulated prior to the Act and this is how this Court interpreted this aspect of the matter, in Para. 26, at page 406:
‘Decisions have been brought to our notice some of which refer to basic wages and others to consolidated wages as the foundation for computation of gratuity. These are matters of discretion and the ‘feel’ of the circumstances prevalent in the industry by the Tribunal and, unless it has gone haywire in the exercise of its discretion the award should stand. We see that in the Payment of Gratuity Act also, not basic wages but ‘gross wages inclusive of dearness allowance; have been taken as the basis. This incidentally, reflects the industrial sense in the country which has been crystallized into legislation.
We clarify that wages will mean and include basic wages and dearness allowance and nothing else….
(emphasis supplied)
15. The authorities were carried away by considering that the bonus is payable on the basis of output equivalent to certain pieces per man day. But it is made clear in the scheme that each payment will be made not on the basis of pieces of per man day nor is it a piece-rate work for which wages are paid but it is an additional incentive for payment of bonus in respect of extra work done. The measure of extra work done is indicated by pieces and not wages as such that are paid on that basis. It is not that in respect of each piece any wages are paid but altogether if certain number of pieces are produced, additional incentive will be payable at a particular rate. Therefore, the authorities have completely missed the scope of the scheme and have incorrectly interpreted the same. Inasmuch as both the High Court and the authorities have incorrectly understood the position in law and have wrongly held that the concept of ‘wages’ under the Act would include bonus and that even on facts the scheme would attract S. 4(2) of the Act. Proviso to S. 4(2) of the Act is to the effect that in case of a piece-rated employee, daily wages shall be computed in a particular manner but that is not the rate at which the wages are paid in the present case at all. Therefore, S. 4(2) of the Act is not attracted in the case of the present scheme with which we are concerned.”
22. In the light of the above submissions, the learned counsel submits that the action of the respondent in including leave encashment as part of the basic wages cannot be accepted and the writ petitions should be allowed.
23. Per contra, Sri P.TS Narendravasan, learned counsel for the PF department submitted that the EPF Act is a welfare legislation and therefore, any interpretation should be to cover wider areas. In this context, the learned counsel referred to the judgment of the Supreme Court in All India Reporter Karmachari Sangh v. All India Reporter, Ltd., [1988 (2) L.L.N 540]. He drew the attention of this Court to Para. 19, at pages 547, which reads as follows:
“The Act in question is a beneficent legislation which is enacted for the purpose of improving the conditions of service of the employees of the newspaper establishments and hence even if it is possible to have two opinions on the construction of the provisions of the Act, the one which advances the object of the Act and is in favour of the employees for whose benefit the Act is passed has to be accepted.”
24. In the light of the same, the learned counsel submitted that the judgment of the Bombay High Court in Hindustan Lever Employees Union case, [1995 (1) L.L.N 767] (vide supra), as well the unreported Judgment of the Karnataka High Court in W.P No. 37017 and batch cases were squarely on the point and therefore, this Court should accept the interpretation given by these two High Courts.
25. With reference to the Appellate Tribunal's order sustaining the objection of the State Transport Corporation, the learned standing counsel did not have j any answer and merely stated that it was only the Tribunals older but however conceded that the order has become final.
26. In the light of the above submission, it has to be seen whether the impugned order is liable to be set aside.
27. If the two decisions of the Supreme Court in Bridge and Roof Company (India) Ltd. case (vide supra), as well as Cycles of India case, [2001 (4) L.L.N 1] (vide supra), read together, there will be no difficulty in arriving at the conclusion that the basic wage was never intended to include leave encashment is covered. The term “basic wage” which includes all emoluments which are earned by an employee while on duty or on leave or on holidays with wages, in accordance with the terms of the contract of employment, can only mean the weekly holidays, national and festival holidays, etc. In many cases, the employee do not take leave and encashes it only at the time of retirement or by his legal heirs get it paid at the time of his death, which is an uncertain contingency. Even though the employer make annual provisions for such contingency unless the contingencies of encashing the leave takes place, the question of any actual payment to the workmen never takes place. In case, he avails the entire leave during his tenure, then the question of payment any contribution may not arise. Any payment of contribution cannot be based upon different contingencies and uncertainties.
28. Further, the contributions of an employees in any year shall be a definite proportion of his salary for that year. If that's the case, the employer cannot violate the condition prescribed under the fourth schedule appended to the Income Tax Act while maintaining a recognised Provident Fund.
29. Even though the Supreme Court in Karamchari Sangh case, [1988 (2) L.L.N 540] (vide supra), stated that in case of two opinions on the construction of the provisions of the Act the one which advances the object of the Act and which is in favour of the employees for whose benefit the Act is passed has to be taken into account.
30. By allowing the deduction on the encashment of annual leave, in no way, the employees are benefited and at the time of retirement or death, a lump sum amount in his hand or in the hands of his legal heirs will give a greater relief because at that time only, he receives the entire PF contributions standing to his credit also.
31. Therefore, this Court respectfully disagree with the interpretation placed by the Bombay High Court and Karnataka High Court vide its decisions referred to above. Further, the department did not challenge the Appellate Tribunal's order in the case of Tamil Nadu State Transport Corporations also is a point in favour of the petitioners.
32. Under these circumstances, all the writ petitions will stand allowed and the Employees' Provident Fund Commissioner is precluded from seeking for contribution in respect of leave encashment paid payable to the workmen. However, there will be no order as to costs. Connected miscellaneous petitions are closed.
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