Definition of Wages, under the ESI Act – Supreme Court reaffirms that the definition of ‘wages’ as defined in Section 2(22) of the ESI Act, would include Conveyance Allowance
The Supreme Court, in its recent judgement dated 8th March, 2021_ (ESI Corporation vs Texmo Industries, SLP (C.) No.811/2021), held, inter alia, that the use of the expression “any travelling allowance” in Section 2(22)(b) makes it clear that all kinds of travelling allowance are excluded from the definition of wages.
- A reading of Section 2(22) of the ESI Act, makes it amply clear that ‘wages’ means all remuneration paid or payable in cash to an employee, under a contract of employment, express or implied, as consideration for discharging his duties and obligations under such contract of employment, including any payment to an employee in respect of any period of authorised leave, lock-out, strike which is not illegal or lay-off and other additional remuneration, if any, paid at intervals not exceeding two months.
- The definition of ‘wages’, however, expressly excludes any contribution paid by the employer to any pension fund or provident fund or under the ESI Act, any travelling allowance or the value of any travelling concession, any sum paid to the person employed to defray special expenses entailed on him by the nature of his employment or any gratuity payable on discharge.
- The short question involved in the SLP is, whether ‘wages’ as defined in Section 2(22) of the ESI Act, would include Conveyance Allowance paid by the respondents, to its employees!
KEY OBSERVATIONS IN THE JUDGEMENT
ESIC filed a Special Leave Petition against the judgment and order dated 8th October 2020 passed by the High Court of Madras, dismissing its appeal being C.M.A. No.152. The HC, while dismissing the appeal, affirmed the order dated 31st July 2020, passed by the ESI Court, Coimbatore, in E.S.I.O.P No. 1/2016 by TEXMO.
The short question involved in the SLP is, whether ‘wages’ as defined in Section 2(22) of the ESI Act, would include Conveyance Allowance paid by TEXMO, to its employees!
The Supreme Court, inter alia, affirmed as follows: –
“There can be no doubt, as held by this Court in Whirlpool of India Limited v. ESI Corporation reported in (2000) 3 SCC 185 that the ESI Act is a social legislation enacted to provide benefits to employees in case of sickness, maternity and employment injury and to make a provision for certain other matters in relation thereto. When there is any ambiguity in any provision, the Court would ordinarily favour a construction that would be beneficial to those for whom the legislation is enacted. In Whirlpool of India Limited (supra), this Court held that production incentive falls within the definition of wages. In this case, there is no ambiguity. There is no such difference between Conveyance Allowance and Travelling Allowance to justify the stand of the Petitioner Corporation that Conveyance Allowance would not fall within the ambit of Travelling Allowance. Travelling Allowance includes Conveyance Allowance. The use of the expression “any travelling allowance” in Section 2(22) (b) makes it clear that all kinds of travelling allowance are excluded from the definition of wages.
In Whirlpool of India Limited (supra), this Court referred to and relied inter alia on Wellman (India) (P) Ltd. v. ESI Corporation reported in (1999) 1 SCC 219, Modella Woollens Ltd. V ESI Corporation reported in 1994 Supp (3) SCC 580 and Harihar Polyfibres v. Regional Director, ESI Corporation reported in (1994) 4 SCC 7. In Wellman (supra), this Court held that attendance bonus payable to employees under the terms of settlement, which became part of the contract of employment was well within the definition of wages.
In Modella Woollens (supra), the payment of production bonus to the employees at the end of each quarter was held to be wages. In Harihar Polyfibres (supra), this Court held that payment made at intervals not exceeding two months such as “House Rent Allowance”, “Night Shift Allowance”, “Incentive Allowance” and “Heat, Gas and Dust Allowance” was covered by the definition of wages under Section 2(22) of the ESI Act. None of the judgments dealt with Conveyance Allowance or Travelling Allowance. There is no infirmity at all in the concurrent findings of the High Court and the Employees’ State Insurance Court, which calls for interference under Article 136 of the Constitution of India. The Special Leave Petition is dismissed.
This recent ruling by the Supreme Court affirms
- That there is no such difference between Conveyance Allowance and Travelling Allowance and hence Conveyance Allowance would not fall within the ambit of Travelling Allowance,
- That only when there is any ambiguity in any provision, the Court would ordinarily favour a construction that would be beneficial to those for whom the legislation is enacted
- That the expression “Travelling Allowance” has not been defined in the ESI Act. Under Section 2(24) of the ESI Act all words and expressions used, but not defined in the ESI Act shall have the meaning assigned to them under the Industrial Disputes Act, 1947 (ID Act). Travelling Allowance is also not defined in the ID Act. There is no provision in the ESI Act or in the ID Act, which restricts the scope and ambit of Travelling Allowance. In the absence of any definition or explanation of the expression “Travelling Allowance” in either of those Acts, the expression has to be construed as per its ordinary meaning in common parlance.
The Supreme Court also, while referring to the Oxford Learner’s Dictionary, 8th Edition, has illustrated why conveyance allowance has to be construed as Travelling Allowance, as follows: –
“Conveyance means the process of taking somebody from one place to another. A vehicle or other mode of transport is also formally referred to as conveyance. As per the same dictionary, the word “travel” means “to go from one place to another especially a long distance”. That distance could also be a few kilometres. One might travel 10 kms to one’s place of work. In many cities people may have to travel for hours to reach their place of work. Travel is an expression with a wide meaning to include long distance. It also covers short distances.
Had it been the intention of Section 2(22) to exclude only occasional long-distance travel from one city to another, from the definition of wages, the Act would have specifically provided so. The expression ‘travel’ is also often used interchangeably with the expression ‘commute’ which means “to travel regularly by bus, train, car etc. between one’s place of work and home, as per the said dictionary. An example given in the said dictionary is “she commutes from Oxford to London everyday”. Another example given is “people are prepared to commute long distances if they are desperate for work.
The employees State Insurance Corporation Court was right in holding that there was no difference between Conveyance Allowance and Travelling Allowance”
Code on Social Security 2020
It is imperative in this context, to refer to the relevant provisions of the Code on Social Security. This Code leaves no scope for ambiguity and has specifically covered conveyance under excluded category, under Section 2(88)(d), as follows: –
“2(88)(d) any conveyance allowance or the value of any travelling concession”
However, the Code, inter alia, for calculating wages under the above clause, if payments under sub-clauses (a) to (i) exceeds one-half or such other percent, as may be notified by the Central Government of all remuneration calculated under this clause, the amount which exceeds such one-half, or the percent, so notified, shall be deemed as remuneration and shall be accordingly added in wages under this clause.
Hence care has to be taken that the employers consider the proviso while determining the wages and accordingly determine the employers’ as well as employee’s contribution to ensure compliance.