HANDLOOM HOUSE ERNAKULAM versus REGIONAL DIRECTOR, ESI

Citation: [1999] 2 S.C.R. 943 · Decided: 29-04-1999 · Supreme Court of India · Bench: S. SAGHIR AHMAD · Disposal: Appeal(s) allowed

Judgment (excerpt)

HANDLOOM HOUSE ERNAKULAM 
A 
-
v. 
REGIONAL DIRECTOR, ESI 
APRIL 29, 1999 
[S. SAGHIR AHMAD AND K.T. THOMAS, JJ.] 
B 
Employees State Insurance Act, 1948-Sections 2(22), 2(23), 39(4), 
40-Wages-Ambit of-Held, the definition of wages encompasses within its 
fold three kinds of payments, namely, all remuneration paid or payable in 
cash on fulfilment of the terms of employment, secondly, any payment made c 
to an employee in respect of any period of authorised leave and thirdly, other 
additional remuneration paid at intervals not exceeding two months-Any 
additional remuneration paid at intervals exceeding two months has been 
excluded by specific terms, from the purview of definition of wages-Incentive 
bonus and sales commission-Inclusion of, as wages-Held, such payments D 
~ 
being 'other additional remuneration' can be covered by the definition of 
wages only if paid at intervals not exceeding two months-It is a question 
of fact in each case whether sales commission and incentive bonus are 
payable at intervals not exceeding two months-Jn the present case, the 
Insurance Court having found that such payments were not made within a 
period of two months and therefore not inc/udible as wages-High Court not E 
saying anything about that factual position while quashing the judgment of 
the Insurance Court-Hence, case remanded back to the High Court for fresh 
consideration of such question-Employees State Insurance (Amendment) 
Act, I95I-Statement of Objects and Reasons. 
Appellant, a Co-operative society was engaged in manufacturing and F 
selling handloom fabrics. It disbursed to its employees, besides the normal 
wages, special amount, namely, incentive bonus and sales commission. The 
.. 
respondent, Employees State Insurance Corporation, demanded from the 
appellant, additional contribution towards insurance fund on the premise that 
such extra benefits given to the employees fall within the ambit of wages 
under the Employees State Insurance Act, 1948. The said demand was G 
challenged by the appellant society before the Employees Insurance Court 
which held that such benefits did not form part of wages thereby holding that 
the demand was unsustainable. The respondent Corporation filed statutory 
appeal before the High Court which quashed the judgment of the Insurance 
Court and permitted the respondent Corporation to proceed with the demand. H 
943 
944 
SUPREME COURT REPORTS 
[1999] 2 S.C.R. 
A motion for review of the said judgement was also lost by the appellant society. 
B 
Hence the present appeal. 
On behalf of the respondent, it was contended that if incentive bonus 
and sales commission would fall within the scope of the first category of the 
definition of wages, it was immaterial that the payment was made at intervals 
or in a lump. 
Allowing the appeal, this Court 
HELD : 1. The main body of the definition of wages envisaged in 
C Section 2(22) of the Employees State Insurance Act, 1948 encompasses 
within its fold three kinds of payments made to the employees. First is, all 
remuneration paid or payable in cash on fulfilment of the terms of employment 
The second is any payment made to an employee in respect of any period of 
authorised leave etc. The third is other additional remuneration paid at 
D 
intervals 'not exceeding two months'. The only issue to be determined in this 
case is, whether incentive· bonus and sales commission would fall within the 
ambit of the aforesaid third category of remuneration or not. It is clear that 
any additional remuneration paid at intervals exceeding two months has been 
excluded by specific terms, from the purview of the definition of wages. 
Normally, the wage period is one month, but Parliament would have thought 
E that such 'wage period' my be extended a little more, but no employer shall 
make it longer than two months. It is a question of fact in each case whether 
sales commission and incentive bonus are payable at intervals not exceeding 
two months. The Insurance Court has, in this case, found that such payments 
were not made within a period of two months and are, therefore, not includible 
F 
G 
as wages. But the High Court did not say anything about that factual 
position. The question whether incentive bonus and sales commission would 
fall within the aforesaid third category of 'wages' as defined in Section 2(22) 
of the Act has to be considered by the High Court afresh in the light of the 
above observations. [946-H; 947-A-G-H; 948-E-G] 
Harih

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