THE EMPLOYEES STATE INSURANCE CORPORATION versus M/S TEXMO INDUSTRIES on 8 March 2021

ORDER

1. This Special Leave Petition is against a judgment and orderdated 8[th] October 2020 passed by the High Court of Judicature at Madras,dismissing the appeal being C.M.A. No.1527 filed by the EmployeesState Insurance Corporation, hereinafter referred to as the ‘PetitionerDCorporation’, under Section 82(2) of the Employees State InsuranceAct, and affirming the order dated 31[st] July 2020 passed by the EmployeesState Insurance Court, Coimbatore allowing E.S.I.O.P No. 1/2016 filedby the Respondent Company under Section 5 of the Employee StateInsurance Act, 1948 (for short, ‘ESI Act’).

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2. The Respondent Company manufactures different kinds ofagricultural pumps and other products and has ten branches in Coimbatore,Tamil Nadu. The ESI Act is applicable to the factories and establishmentsof the Respondent Company, and the employees of the RespondentCompany are required to be insured in the manner provided by the ESIFAct.

3. The Respondent Company is liable to pay Employees’ StateInsurance Contribution in respect of its employees, as provided in Section39 of the ESI Act. Section 44 of the ESI Act requires the RespondentCompany to maintain a register, containing particulars of its employees,Gand to submit Returns to the Petitioner Corporation, in the mannerprescribed by the Regulations framed under the ESI Act.

4. On or about 23[rd] January 2015, officials of the PetitionerCorporation inspected the records of the Respondent Company for theperiod from December 2010 to December 2014 and detectedHdiscrepancies in the wages, and consequential short payment by the Respondent Company, towards Employees State Insurance contributions,totalling Rs.21,52,829/-, out of which Rs.9,48,517/- was towardsConveyance Allowance, paid by the Respondent Company to itsemployees.

5. By an order dated 19[th] March, 2015, the Corporation calledupon the Respondent Company to pay its outstanding contributions totallingRs.21,52,829/-, with interest, within 15 days from the date of the order,failing which the same would be recovered as arrears of land revenue.The Respondent Company was, however, given the opportunity ofpersonal hearing, if it disputed the claim of the Corporation.

6. The Respondent Company made a representation against theclaim, pointing out that the Corporation had erroneously computed thesalary, by including Conveyance Allowance, leave salary, etc. which didnot constitute wages as defined in Section 2(22) of the ESI Act.

7. Thereafter the Petitioner Corporation passed an amended orderdated 6[th] July, 2016 under Section 45A of the ESI Act, determining thedifferential contribution payable by the Respondent Company atRs.19,38,300/- as per the break up given in the said amended order, thatis, Rs.9.89,783 towards difference in wages and Rs.9,48,517/- towardsConveyance Allowance. The Respondent Company duly remittedRs.9,89,783/- towards difference in wages.

8. The Respondent Company instituted proceedings in theEmployees State Insurance Court being E.S.I.O.P No.1 of 2016 inrespect of the claim of the Corporation of Rs.9,48,517/- in respect of theConveyance Allowance paid by the Respondent Company to itsemployees.

9. By a judgment and order dated 31[st] July, 2020, the Employees’State Insurance Court allowed the E.S.I.O.P No.1 of 2016, and set asidethe claim of Rs.9,48,517/- in respect of Conveyance Allowance, paid bythe Respondent Company to its employees.

10. Being aggrieved by the judgment and order dated 31[st] July,2016 of the Employees State Insurance Court, the Corporation filed anappeal therefrom in the High Court under Section 82(2) of the ESI Act.The said appeal has been dismissed by the judgment and order impugnedin this Special Leave Petition.

11. The short question involved in this Special Leave Petition iswhether ‘wages’, as defined in Section 2(22) of the ESI Act, would A

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Ainclude Conveyance Allowance paid by the Respondent Company to itsemployees.

12. Section 22(2) of the ESI Act is set out hereinbelow forconvenience:

“2.Definitions.—In this Act, unless there is anything repugnantBin the subject or context,—

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(22) “wages” means all remuneration paid or payable, in cashto an employee, if the terms of the contract of employment,Cexpress or implied, were fulfilled and includes any paymentto an employee in respect of any period of authorised leave,lock-out, strike which is not illegal or lay-off and otheradditional remuneration, if any paid at intervals not exceedingtwo months], but does not include—

D(a)any contribution paid by the employer to any pensionfund or provident fund, or under this Act; (b)any travelling allowance or the value of any travellingconcession;

(c) any sum paid to the person employed to defray specialEexpenses entailed on him by the nature of hisemployment; or (d)any gratuity payable on discharge”

13. A reading of Section 2(22) of the ESI Act, makes it amplyclear that ‘wages’ means all remuneration paid or payable in cash to anFemployee, under a contract of employment, express or implied, asconsideration for discharging his duties and obligations under suchcontract of employment, including any payment to an employee in respectof any period of authorised leave, lock-out, strike which is not illegal orlay-off and other additional remuneration, if any, paid at intervals notGexceeding two months. The definition of ‘wages’, however, expresslyexcludes any contribution paid by the employer to any pension fund orprovident fund or under the ESI Act, any travelling allowance or thevalue of any travelling concession, any sum paid to the person employedto defray special expenses entailed on him by the nature of hisemployment or any gratuity payable on discharge.H

14. From the definition of wages in Section 2(22) of the ESI Act,it is amply clear that wages includes remunerative payments, but doesnot include compensatory payments. Travelling allowance including thevalue of travelling concession has expressly been excluded from thedefinition of wages, as also any payment made to an employee to reimburseor compensate for special expenses that an employee might incur byreason of the nature of his employment.

15. The Employees’ State Insurance Court held, and in our view,rightly, that Conveyance Allowance is in the nature of travelling allowance,the object of which is to enable the employee to reach his place of workand to defray costs incurred on travel from his place of residence to hisplace of work. If instead of paying the Conveyance Allowance, theemployer provided free transport to the employee, the monetary valueof that benefit of travel from his residence, to his place of work wouldalso not be regarded as forming part of his wages.

16. In Management of Oriental Hotels Ltd., Chennai v.Employees’ State Insurance Corporation, Chennai reported in 2002(1) LLJ 14, a Division Bench of Madras High Court held:-

“8. In so far as the conveyance allowance is concerned, eventhough it forms part of the wages being the amount payablein terms of the contract of employment, having regard to thesettlement and even de hors the settlement, the payment of theamount would fall within the ambit of “additionalremuneration.” Nevertheless, that amount will have to beexcluded having regard to the specific exclusion provided inthe definition itself for travelling allowance or the value ofany travelling concession. The conveyance allowance paidis in the nature of travelling allowance as the object of thatpayment is to enable the employee to reach his place of workand to defray a part of the cost incurred on the travel fromhis place of residence to the place of work. If instead of payingthe conveyance allowance, the employer had provided freetransport to the employees, the monetary value of that benefitof free travel from his residence to the place of work wouldnot have been capable of being regarded as forming part ofthe wages. The conveyance allowance paid in cash for thepurpose of being utilised on the travel from place of residenceto the place of work, is of the same character and there is no A

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Areason why it should not be regarded as travelling allowancefor the purpose of Section 2(22)(b), of the Employees’ StateInsurance Act.”

17. In Regional Director, ESI Corporation v. Sundaram ClaytonLtd. Reported in 2004 (II) LLJ 30 another Division Bench of the MadrasBHigh Court reiterated that, payment towards Conveyance Allowancefor the travel of employees from their place of residence to their placeof work would have to be construed as Travelling Allowance and excludedfrom ‘wages’ in view of clause (b), sub-section (22) of Section 2 of theESI Act.

C18. We affirm the view taken by Madras High Court in OrientalHotels Limited, Chennai (supra) and Sundaram Clayton (supra). InRegional Director, ESI Corporation, Thrissur v. Royal PlasticsIndustries, Aluva reported in 2015 (2) KLT 64, a Single Bench of KeralaHigh Court referred to the judgment of the Madras High Court in OrientalHotels’ case (supra) and held that, clauses (a) to (d) of sub-section (22)Dof Section 2 of the ESI Act are in the nature of exception to the mainpart of the sub-section. Any Travelling Allowance or the value of anytravelling concession would be outside the purview of the term ‘wages’,and that it would make no difference whether the Travelling Allowancewas paid as part of the contract of employment, or whether it was paidEin lump sum or whether it was paid at regular intervals. It would notcease to be Travelling Allowance only because it was a fixed sum paidalong with the wages, as per the terms of the contract of employment.We agree with the view taken by the Single Bench of Kerala HighCourt in Royal Plastics Industries (supra).F19. We are unable to agree with the view taken by the SingleBench of Karnataka High Court in Regional Director, Employees StateInsurance Corporation v. M/s IT Solutions (India) Private Limitedreported in ILR 2002 KAR 4019, that the value of Conveyance Allowancecannot be excluded from the definition of ‘wages’. The reasoning of theKarnataka High Court that Conveyance Allowance cannot be excludedGfrom the definition of ‘wages’ because Conveyance Allowance is paidevery month to every employee like House Rent Allowance, in terms ofthe contract of employment, so as to meet to and fro conveyanceexpenses, whereas travelling allowance is paid to the concerned employeewhen he or she is sent out of station on duty to meet travelling expenses,His in our view, unsustainable in law.

20. We are of the view that, the reasoning that ConveyanceAllowance cannot be excluded from the definition of ‘wages’ as it ispaid every month to every employee, like House Rent Allowance, interms of the contract of employment, so as to meet to and fro conveyanceexpenses, is is based on an erroneous construction of Section 2(22) ofthe said Act.

21. The definition of wages in Section 2(22) of the ESI Act clearlyexcludes Travelling Allowance. The distinction sought to be made by thePetitioner Corporation between Travelling Allownace and ConveyanceAllowance, based on the Single Bench judgment of the Karnataka HighCourt in M/s IT Solutions (India) Private Limited (supra), is in ourview misconceived. There is no cogent reason why ConveyanceAllowance which is in effect and substance the same as TravellingAllowance, should be treated differently from Travelling Allowance.

22. The expression “Travelling Allowance” has not been definedin the ESI Act. Under Section 2(24) of the ESI Act all words andexpressions used, but not defined in the ESI Act shall have the meaningassigned to them under the Industrial Disputes Act, 1947, hereinafterreferred to as the “ID Act”. Travelling Allowance is also not defined inthe ID Act. There is no provision in the ESI Act or in the ID Act, whichrestricts the scope and ambit of Travelling Allowance. In the absenceof any definition or explanation of the expression “Travelling Allowance”in either of those Acts, the expression has to be construed as per itsordinary meaning in common parlance.

23. Conveyance Allowance may or may not be payable to everyemployee. For that matter, House Rent Allowance may also not be paidto all employees. It is immaterial whether an allowance is paid regularlyor intermittently depending on exigencies. It is the nature and purposeof the allowance which is relevant.

24. House Rent Allowance cannot possibly be equated toConveyance Allowance, since House Rent Allowance is not necessarilyconnected with the employment of an employee. Irrespective of whethera person is employed or not and irrespective of the nature of hisemployment, he needs shelter.

25. Conveyance Allowance, on the other hand, compensatesexpenses that might be incurred by an employee for reporting to hisusual place of work or to any other place of work, where he may have AB

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Ato report. If an employer were to provide the employee withaccommodation within walking distance from his place of work and thatemployee were not required to go to any other place in connection withhis duties under his contract of employment, the employee may not haveto incur any expenditure in connection with his employment. In such acase, Conveyance Allowance would be redundant and might be construedBas part of allowance consisting wages. In this case, it is not the case ofthe Corporation that the employees concerned did not need to avail anyconveyance expenditure to report for duty to their place of work, orotherwise in connection with their duties under their contracts ofemployment. Nor is there any such finding. We see no reason whyCConveyance Allowance should not be excluded from the definition ofwages.

26. As per the Oxford Learner’s Dictionary, 8[th] Edition,conveyance means the process of taking somebody from one place toanother. A vehicle or other mode of transport is also formally referredDto as conveyance. As per the same dictionary, the word “travel” means“to go from one place to another especially a long distance”. That distancecould also be a few kilometers. One might travel 10 kms to one’s placeof work. In many cities people may have to travel for hours to reachtheir place of work. Travel is an expression with a wide meaning toinclude long distance. It also covers short distances.E

27. Had it been the intention of Section 2(22) to exclude onlyoccasional long distance travel from one city to another, from the definitionof 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’sFplace of work and home, as per the said dictionary. An example given inthe said dictionary is “she commutes from Oxford to London everyday”.Another example given is “people are prepared to commute long distancesif they are desperate for work. The employees State InsuranceCorporation Court was right in holding that there was no differenceGbetween Conveyance Allowance and Travelling Allowance.

28. There can be no doubt, as held by this Court in Whirlpool ofIndia Limited v. ESI Corporation reported in (2000) 3 SCC 185 thatthe ESI Act is a social legislation enacted to provide benefits to employeesin case of sickness, maternity and employment injury and to make aHprovision for certain other matters in relation thereto. When there is any ambiguity in any provision, the Court would ordinarily favour aconstruction that would be beneficial to those for whom the legislation isenacted. In Whirlpool of India Limited (supra), this Court held thatproduction incentive falls within the definition of wages. In this case,there is no ambiguity. There is no such difference between ConveyanceAllowance and Travelling Allowance to justify the stand of the PetitionerCorporation that Conveyance Allowance would not fall within the ambitof Travelling Allowance. Travelling Allowance includes ConveyanceAllowance. The use of the expression “any travelling allowance” inSection 2(22)(b) makes it clear that all kinds of travelling allowance areexcluded from the definition of wages.

29. In Whirlpool of India Limited (supra), this Court referred toand relied inter alia on Wellman (India) (p) Ltd. v. ESI Corporationreported in (1999) 1 SCC 219, Modella Woollens Ltd. V ESICorporation reported in 1994 Supp(3) SCC 580 and Harihar Polyfibresv. Regional Director, ESI Corporation reported in (1994) 4 SCC 7. InWellman (supra), this Court held that attendance bonus payable toemployees under the terms of settlement, which became part of thecontract of employment was well within the definition of wages. InModella Woollens (supra), the payment of production bonus to theemployees at the end of each quarter was held to be wages. In HariharPolyfibres (supra), this Court held that payment made at intervals notexceeding two months such as “House Rent Allowance”, “Night ShiftAllowance”, “Incentive Allowance” and “Heat, Gas and DustAllowance” was covered by the definition of wages under Section 2(22)of the ESI Act. None of the judgments dealt with Conveyance Allowanceor Travelling Allowance.

30. There is no infirmity at all in the concurrent findings of theHigh Court and the Employees’ State Insurance Court, which calls forinterference under Article 136 of the Constitution of India. The SpecialLeave Petition is dismissed.

Bibhuti Bhushan Bose

Special Leave Petition dismissed.

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