In Civil Appeal(s) No.- 2260 of 2022-SC- Ad-hoc payments made pursuant to interim orders cannot form part of ‘wages’ u/s 2(s) of Payment of Gratuity Act: Supreme Court Justices Hemant Gupta & V. Ramasubramanian [07-04-2022]

Read Judgment: CHAIRMAN-CUM-MANAGING DIRECTOR FERTILIZER CORPORATION OF INDIA LTD. AND ANR Vs. RAJESH CHANDRA SHRIVASTAVA AND ORS 

Mansimran Kaur

New Delhi, April 8, 2022: Setting aside the orders of the lower Courts relating to the Payment of Gratuity Act, 1972, the Apex Court has observed that ad hoc payment made to the workers pursuant to the interim orders passed by this Court in a previous round of litigation could not form part of wages within the meaning of “wages” defined under Section 2(s).

The Division Bench of Justice Hemant Gupta  and Justice  V. Ramasubramanian also stressed on the fundamental principle of law that a party who is in enjoyment of an interim order, is bound to lose the benefit of such interim order when the ultimate outcome of the case goes against him.

The factual background of this case was such that the pay scale of the employees of the public sector undertakings were  revised with effect from January 1, 1992. However, the benefit of such revision was not received by the employees of the Fertilizer Corporation of India Limited and Hindustan Fertilizer Corporation Limited. Aggrieved by the same, the employees approached the High Court in the year 19996. At the instance of Union of India, these writ petitions were transferred to this Court and through an interim order dated August 18, 2000,the Court directed  an ad-hoc  monthly payment of Rs.1500 , Rs.1000 , Rs 700 and Rs 500 to the four different categories of employees as an interim relief subject to the final outcome of the writ petitions which stood transferred to this Court. It was also stated that this ad-hoc payment shall not intervene with the final decision that shall be passed by the Court. 

Thereafter, in the year 2000, the Government of India ordered closure of fertilizer units of public sector undertakings and a Voluntary Separation Scheme was introduced. Consequently after the introduction of the above stated scheme, the writ petitions that were transferred to this Court were eventually  dismissed by a final order dated April 25 ,2003. The Court in its order ruled that the “economic viability” or the  “financial capacity” of an employer is a relevant detrimental factor that cannot be shunned while framing the wage structure. It was also observed that the materials on record depicted that both these companies were at huge losses. At last, the Court remarked that the interim relief was purely an ad hoc measure. 

Consequent to this order, the employees started instituting applications before the Controlling Authority under the Act. The subject matter of the applications pertained to inclusion of ad- hoc payments made pursuant to the interim order as  part of the “wages”. At this stage the cause of action arose in the instant case as the Controlling Authority started passing individual  orders in pursuant to the applications instituted by the  employees and started including the ad-hoc payments made at the time of interim order as “wages”. 

Since the Controlling Authority’s order was in complete contradiction to the interim as well as the  final order of this Court passed on April 25, 2004, the Management of these companies instituted  applications before this Court with the objective of seeking modification and clarification of the above stated order. 

The Court by its order dated May 1, 2008 disposed of the interim applications by just observing that when the final order is passed, the interim order automatically comes to an end. The Appellate authority, however, dismissed the appeals filed by the Management, therefore the Management instituted writ petitions on the file of the High Court. 

The writ petition of the Management was allowed by the the Allahabad High Court.This order  was assailed by one named Shri Kashi Prasad, however he was unsuccessful in the same and it  compelled him to file a Special Leave Petition before this Court. The SLP was allowed by this Court by an order dated March 5, 2015.

In consequence to the SLP, the Management filed a review petition on October 13, 2015 and curative petition on March 3, 2016. However, both of these were dismissed. Thereafter the above mentioned SLP that was allowed by this Court was taken into consideration by the High Court Bench at Allahabad and consequently it dismissed the writ petitions filed in the case of other employees  by the  Management. Aggrieved by the same, the Management by way of appeal approached this Court. 

The question of law before this Court was whether the ad-hoc payments made to the employees pursuant to the interim orders can come within the scope of  “wages” under Section 2 (s) of the Payment and Gratuity Act, 1972. 

After perusing the  judgment of this Court delivered on May 5, 2015 , the Top Court, explicitly stated   that the respondent could not take undue advantage of order passed by this Court in Shir Kashi Prasad Thripathi’s Case (Supra) merely on the ground that the same question of law was raised by the Management in its civil appeal. 

The Court was of the view that inclusion of ad-hoc payments into wages was not discussed in the above mentioned case. It was further added that at times this Court denies to deal with a question of law whenever an order benefits an individual and not the State. However, the Court remarked that while dealing with appeals wherein the State or instrumentalities of State come up with appeals challenging small benefits granted to individuals, therein the Court shall apply the test of proportionality in order to determine that whether the quantum of benefits granted to individual concerned, does justice to the question of law. 

It was also added that the refusal of this Court to deal with questions of law in such cases is not an appreciative approach to be followed while settling such questions of law. The Court further referred to Section 2 (s) which describes “wages”as all emoluments which are earned by an employee while on duty or on leave in accordance with the terms and conditions of his employments and which are paid or are payable to him in cash and includes dearness allowance but does not include any bonus, commission, house rent allowance, overtime wages and any other allowance.

 The Court analyzed the facts in view of the above stated definition and concluded that in the first batch of petitions the employees were seeking the benefit of the revision of the pay scales in the year 1996 on the ground that the employees of the PSUs had been granted revision on par with the Government servants.  It was thus vivid that what was requested in the first batch of petitions  was not payable in accordance with the terms and conditions of the employment.  

It was also observed that that the party who is at benefit with the interim order shall give up those benefits once the final decision is passed by the Court not in the favour of the same party.   

The Bench referred to the judgment of this Court in The  Straw Board Manufacturing Co. Ltd. vs. Its Workmen wherein it was clarified that wages will mean and includebasic wages and Dearness Allowance and nothing else.

Thus taking into consideration the above observations, the Top Court held, “…the appeals are allowed and the orders of the High Court, the Controlling Authority and the Appellate Authority under the Act, holding that the ad hoc payment made pursuant to the interim orders by this Court will form part of the wages, are set aside. 

However, the Court also stated that the Management shall not seek recovery , if payment is made to the respondents or to their families.