T.I. CYCLES OF INDIA, AMBATTUR versus M.K. GURUMANI AND ORS.

Citation: [2001] SUPP. 2 S.C.R. 118 · Decided: 24-08-2001 · Supreme Court of India · Bench: S. RAJENDRA BABU · Disposal: Appeal(s) allowed

Judgment (excerpt)

A 
B 
T.I. CYCLES OF INDIA, AMBA TTUR 
v. 
M.K. GURUMANI AND ORS. 
AUGUST 24, 2001 
[S. RAJENDRA BABU AND SHIVARAJ V. PATIL, JJ.] 
Labour Law: 
Payment of Gratuity Act, 1972-Sections 4(2) and 2(s)-Gratuity-
C Payment of-Wages-Computation of-Exclusion of bonus-Gratuity paid on 
the basis of basic wages and dearness allowance-Incentive wages paid for 
extra work done-Claim for inclusion in the definition of wages for payment 
of gratuity-Held, cannot be included since incentive wages paid were in the 
nature of bonus which is excluded from the definition of wages-No basic 
D difference between the expression "wages" in the Gratuity Act and "basic 
wages" in the PF Act-Employees Provident Funds and Miscellaneous 
Provisions Act, 1952, Section 2(b). 
Words and Phrases: 
E 
"Wages"-Meaning of-In the context of Section 2(S) of the Payment of 
Gratuity Act, 1972. 
"Basic Wages"-Meaning of-In the context of Section 2(b) of the 
Employees Provident Funds and Miscellaneous Provisions Act, 1952. 
F 
Respondent-workmen on retirement from appellant establishment were 
paid gratuity on the basis of their basic wages and dearness allowance. They 
filed applications claiming that the incentive wages paid for extra work done 
by them ought to be treated as 'wages' for the purpose of Section 4(2) of the 
Payment of Gratuity Act, 1972 and claimed balance of payment of Gratuity 
on that basis. The said applications were allowed by Controlling Authority. 
G On appeal, Division Bench of the High Court dismissed the appeal holding 
that the incentive payments made to the workmen would fall within the 
definition of 'wages' for the purpose of the Act High Court also held that 
there was a difference between the term "wages" employed under the 
payment of Gratuity Act and 'basic wages' defined under the Employees 
H 
118 
T.l. CYCLES OF INDIA v. M.K. GURUMANI 
119 
Provident Funds and Miscellaneous Provisions Act, 1952. Hence the present A 
appeal by the company. 
On behalf of the appellant it was contended that the definition of the 
term 'basic wages' in the PF Act and the term 'wages' in the Payment of 
Gratuity Act were pari materia and both cover all emoluments paid while on 
duty but exclude any bonus, commission, HRA, Overtime wages and any other B 
allowance; that the terms of the settlement between the parties, clearly show 
that the incentive scheme introduced was not on the basis of piece rate wages 
and the concept relating to bonus was altogether ignored by both the 
controlling Authority and the High Court. 
Allowing the appeal, the Court 
HELD : 1.1. Incentive wages paid for extra work done would not fall 
within the definition of 'wages' under the payment of Gratuity Act, 1972 and 
thus Section 4(2) of the Act is not attracted. (121-D] 
c 
1.2. Bonus stands excluded from the purview of 'wages' for the purpose D 
of calculating the contribution to be made in the provident fund or the gratuity 
payable under the Act There is a base of standard above which extra payment 
is made for extra production in addition to basic wage. In the instant case, 
incentive payment is based on two components-group performance index 
and individual/sectional performance index. No incentive was payable to E 
workmen on leave, absent, away from duty or on holidays. Clause 9(1) of the 
Scheme also sets out that incentive payment payable under the scheme will 
not be regarded as wages and, therefore, the payment shall not be taken into 
account for the purpose of Leave wages, over time wages, wages in lieu of 
notice Provident Fund contributions, bonus, gratuity or any other allowance. 
It is made clear in the scheme that each payment will be made not on the F · 
basis of pieces of per man-day nor is it a piece rate work for which the wages 
are paid but it is an additional incentive for payment of bonus in respect of 
extra work done. The measure for extra work done is indicated by pieces and 
not wages as such that are paid on that basis. It is not in respect of each piece 
any wages are paid but altogether if certain number of pieces are produced, G 
additional incentive will be payable at a particular rate. Both the High Court 
and the authorities have in-correctly 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 Section 4(2) of the Act Proviso 
to Section 4(2) of the Act is to the effect that in case of a piece-rated employee; 
H 

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