Carborundum Universal, Ltd. v. Employees' State Insurance Corporation, Trichur

Subramonian Poti, J.:— The question arising for decision in these appeals is the same. The question concerns the liability of the appellant in these appeals to pay contribution to the respondent, the Employees' State Insurance Corporation, under the provisions of the Employees' State Insurance Act in respect of the workmen of the appellant-company on the basis of the payment of incentive wages for production above a fixed norm for a group. Whether such payment is to be taken as wages for the purpose of calculating the remuneration payable under the Act was the controversy. The two appeals relate to the question raised for two different periods but between the same parties. The Employees' Insurance Court examined the position and held that on the terms concerning the payment of incentive wages, it has to be considered as remuneration coming within the meaning of the term as defined in S. 22(2) of the Employees' State Insurance Act. That is challenged in these appeals.

2. The term “wages” is defined in S. 2(22) to read:

“Wages means all remuneration paid or payable in cash to an employee, if the terms of the contract of employment, express or implied, were fulfilled and includes any payment to an employee in respect of any period of authorized leave, lockout, strike which is not illegal or lay-off and 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.”

Everything that is paid in cash to an employee may not be remuneration. There may be cash payments made by the employer which payments the employee may not be entitled to insist upon. Just as, there is an obligation on the employer to pay, there must be a right in the employee to demand as of right. Then only it would become remuneration payable. To put it in other words, it must be payable under the contract of employment. Where the management introduces a scheme to pay some incentive to workmen, if it is as a result of a settlement binding on both parties, necessarily the terms of the settlement become terms of the contract of employment between the parties. If on the other hand, it is introduced under a scheme under which it is open to the employer to withdraw it, alter, vary or modify it without reference to the employees and without their consent or without any binding settlement, it is a payment for which the assent is unilateral and, therefore, cannot be said to be a payment made in accordance with the terms of the employment. Consequently, it would not be wages within the meaning of S. 2(22). It appears to us that this is the test by which we should determine whether any payment in a given case is wages or not.

3. In the case before us, the applicant which is a public limited company having a factory at Edappally disputes the liability for payment of contribution on that part of the wages paid to its workmen which is said to be incentive payments. The amounts so paid are in terms of a settlement, dated 9 June 1971, which itself is in renewal of a prior settlement. The settlement, exhibit P2, dated 9 June 1971, was in renewal of exhibit P1, dated 26 September 1970. Exhibit P1 settlement provided for the introduction of a group incentive scheme under which money is payable for performances by the group above the norm fixed by mutual agreement of the parties. Clause 13 of exhibit P2 which was executed on renewal of the earlier settlement revised the norm fixed earlier. For all practical purposes, the terms may be taken to be the same as in the earlier settlement, exhibit P1. Reading this scheme of settlement, the Presiding Judge of the Insurance Court found that:

(1) Exhibit P1 as revised by exhibit P2 was not a scheme unilaterally implemented according to the will and pleasure of the management.

(2) There is no clause in exhibit P1 or exhibit P2 enabling the management to vary the terms of the scheme unilaterally on their own accord.

(3) There is a clause saying that the incentive earnings will not be taken into account for any other purposes such as provident fund, gratuity and bonus under the Payment of Bonus Act.

(4) The payment is to be made on the basis of an agreement and that depends upon the workers exceeding a particular target and if they exceeded it, the management has no right whatsoever to withdraw it according to their discretion.

On these, the Court found that the remuneration was payable in the case as a term of contract of employment.

4. On the facts, there is no scope for controversy. That the payment was being made by reason of settlement binding upon both the parties is not in controversy. Necessarily the payment was not one which could have been varied unilaterally to the disadvantage of the other party. The employer had no right to withdraw the scheme introduced by the settlement without the consent of the other party or without recourse to proceedings warranted by law. This, it appears to us, justifies the finding of the Employees' Insurance Court that the incentive bonus paid is really remuneration which is paid as a term of the contract of employment. That it is paid in return for the performance is evident. Of course, the workmen may not earn it if the performance falls below the prescribed norm. But when once such performance exceeds the norm, they get this as their remuneration as of right and necessarily, therefore, that must be wages which they earn.

5. Our attention has been drawn to the decision of the Supreme Court in Braithwaite & Co. (India) Ltd. v. Employees' State Insurance Corporation [A.I.R 1968 S.C 413]. There, the Court was concerned about the determination of the character of payment made by Braithwaite and Company to its workmen as inam under an warn scheme. The Court found that though there was a payment to the employees, that cannot be held to have become a term in the contract of employment. The facts of the case show that the payment of inam was in no way connected and in no way part of the wages. Further it is seen that though the employer made the offer of incentive payment, if reserved the right to withdraw the scheme altogether without assigning any reason or to revise its conditions at its sole discretion, and referring to this condition, the Court said:

“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 concerned.”

Again reference was made to a clause which laid down that if the targets were not achieved due to lack of orders, lack of materials, breakdown of machinery, lack of labour, strikes, lockouts, go-slow or any other reason whatsoever no inam was to be awarded. The Court found that this condition was inconsistent with the payment of inam having become an implied term of the contract of employment. What was examined by the Supreme Court in that case was whether construing the terms of the scheme, the payment of inam could be said to have become a term of the contract of employment relating to remuneration payable to the employees. On the facts of the case before us, we think, the decision should be as found by the Presiding Judge of the Insurance Court.

6. Out attention has been drawn to two other decisions, that of the High Court of Calcutta in Bengal Potteries v. Employees' State Insurance Corporation, West Bengal [1975 — II L.L.N 175] and Employees' State Insurance Corporation (by Regional Director, Bangalore) v. Mysore Kirloskar Ltd. [1974 — II L.L.N 474]. In the case before the Calcutta High Court, a similar question arose but in that case, in the original terms of employment, there was no term for payment of incentive bonus and when it was introduced later it was categorically agreed between the parties that the incentive bonus was not paid as a part of the term of employment. It is true that by itself this statement of the parties may not be conclusive but as observed by the Calcutta High Court, it was held to be an indication that the parties did not treat these payments as payments made in terms of the employment. Reference is also made by the learned Judge to the provision which reserved the power in the company to modify the scheme and also to hold that the workmen will not be eligible for bonus under certain circumstances. It was considering the totality of the terms relating to the incentive bonus scheme and in the background of how the parties treated it that the learned Judge held in that case that it cannot be said that the payments made as incentives under the incentive bonus scheme can be said to be payments made as part of the terms of the contract of employment. In the Karnataka case, the question considered was only whether the incentive payments which may not be remuneration in terms of the contract of employment could be said to be payments made to employees as “additional remuneration” referred to in the latter part of the definition of “wages” in S. 2(22), a plea which is not raised here.

7. In the circumstances, we find no reason to interfere with the decision of the Employees' Insurance Court. The appeals are dismissed. In the circumstances of the case, we direct the parties to suffer costs in both the appeals.