In a Special Leave Petition (C.) No. 811/2021 filed in the Hon’ble Supreme Court of India, Civil Jurisdiction in the case between the Employees’ State Insurance Corporation, as the Petitioner and M/s Texmo Industries, the Respondent, the Apex Court has given another Landmark Judgment on the contention between parties to the case in SLP that “Conveyance Allowance” should not fall under the definition of “Wages” under Section 2(22) of the Employees’ State Insurance Act, 1948.
Brief Fact of the Case:
On or about 23/01/2015, ESIC authority from SRO Coimbatore inspected the establishment of the Respondent Company and had issued a Demand Notice to M/s Texmo Industries, charging escaped contribution amount on omitted wages totalling of Rs.21,52,829/- for the period from December 2010 to December 2014 out of which Rs.9,48,517 was towards the Conveyance Allowance which was part of the monthly wage component of employees in the establishment, that was felt an arbitrary order by M/s Texmo Industries and made a representation against the claim stating the fact of erroneous computation made by the Corporation and accordingly a dispute is raised where M/s Texmo declined and refused to pay ESI contribution on Conveyance Allowance defending their stands on the point filed an application under Section 75 of the ESI Act, 1948 challenging the said demand notice before the Employees Insurance Court and verdict of the Employees’ Insurance Court against the ESIC which is afterward maintained by the Hon’ble High Court also.
The disputed matter finally led to file the SLP in question by ESI Corporation before the Hon’ble Supreme Court of India and the Apex Court dismissed the SLP contending the fact and maintaining the order of Employee Insurance Court as well as the Hon’ble Supreme Court where the Learned Advocate of the Apex Court opined and passed the order that Conveyance Allowance shall not form part of the wages of the employees and the judgement clutches good with effect from 08/03/2021.
Basis of the judgment as given both the E.I. Court and the Hon’ble Supreme Court of India substantiate the excluded part of the Wages defined in Section 2(22) in which Travelling Allowance or value of Travelling Concession has been categorically and specifically have been kept out of the purview of definition of wages.
In Clause 14, of the order the Apex Court it has been observed in a very simple term criteria or yardsticks to determine why the Conveyance Allowance shall not fall in definition of wages as under:
“From the definition of wages in Section 2(22) of the ESI Act, it is amply clear that wages include remunerative payments but does not include compensatory payment. Travelling Allowance including value of travelling concession has expressly been excluded from the definition of wages, as also any payment to any employee to reimburse or compensate for special expenses that an employee might incur by reason of his employment”.
The Employees State Insurance Court also maintained the same thought and interpreted the issue of dispute which later on in SLP the Hon’ble Supreme Court gave it’s verdict on 08.03.2021.
Observation of ESI Court in Clause 15 of Special Leave Petition is as follows:
“The E.S.I. 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 work and defray costs incurred on travel from his place of residence to his place of work. If instead of paying the Conveyance Allowance, the employer provided free transport to the employee, the monetary value of that benefit of travel from his residence to his place of work would also not be regarded as forming part of this wages”
Section 2(22) of the ESI Act, 1948 defined the “Wages” as – it means all remuneration paid or payable, in cash to an employee, if the terms of the contract of employment, express or implied, were fulfilled and includes any payment to an employee in respect of any period of authorized leave, lock-out, strike which is not illegal or lay-off and other additional remuneration, if any paid at intervals not exceeding two months but does not include –
(a) Any contribution paid by the employer to any pension fund or provident fund, or under this Act;
(b) Any travelling allowance or the value of any travelling concession;
(c) Any sum paid to the person employed to defray special expenses entailed on him by the nature of his employment; or
(d) Any gratuity payable on discharge
In the judgement of the Hon’ble Supreme Court has made it clear that wages include remunerative payments but does not include compensatory payment. Travelling allowance including the value of travelling concession has expressly been excluded from the definition of wages, as also any payment made to an employee to reimburse or compensate for special expenses that an employee might incur by reason of the nature of employment.
Observations of ESI Court, in view of the Hon’ble Apex Court was very much correct of the fact in defining that Conveyance Allowance is purely in the nature of travelling allowance, the reason of which is to enable the employee to reach his place of work and to defray expenses incurred on travel from his place of residence to his place of work. On the contrary, had it been the case where the employer would have provided free transport to the employee instead of monetary payment towards Conveyance Allowance, the value of that benefit of travel from residence to place of work would also not be regarded as forming of the wages defined in Section 2(22) of the Act.
The Hon’ble Supreme Court went ahead to simplify the Travelling Allowance supported with reason that Conveyance Allowance cannot be excluded from the definition of “wages” as it is paid every month to every employee, like House Rent Allowance, in terms of the contract of employment, so as to meet to and fro conveyance expenses, is based on “erroneous construction” of Section 2(22) of the said Act.
Travelling Allowance has not been defined in the ESI Act. It has also been further stated in the judgment that under Section 2(24) of the ESI Act, 1948 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 but in the ID Act, 1947 also the expression of Travelling Allowance has not been defined. It has also been mooted in the ruling that both ESI Act and ID Act does not restrict the scope and ambit of Travelling Allowance and in the absence of any definition or elucidation of the appearance “Travelling Allowance” in either of the Acts, the expression must be interpreted as per its ordinary meaning in common parlance.
In the judgement it has been elucidated the fact of implication on terms of employment, the Conveyance Allowance may or may not be payable to every employee in the establishment and in reference and comparison to it, other components such as House Rent Allowance does not necessitate to be paid to all employees in the establishment. It is inconsequential whether an allowance is paid consistently or sporadically depending on exigencies. It is the nature and purpose of the allowance which is relevant.
House Rent Allowance, hence interpreted by the Apex Court that cannot possibly be equated to Conveyance Allowance since HRA is not necessarily connected with the employment of an employee. Regardless of whether a person is employed or not and irrespective of the nature of his employer, he needs the shelter.
Whereas Conveyance Allowance, on the contrary, compensates expenses that might be incurred by an employee for reporting to his place of work or to any other place of work where he was assigned to report for duty. If an employer were to provide the employee with accommodation within walking distance from his place of work and that employee were not required to go to any other place in connection with his duties under his terms & contract of employment, the employee may not have to incur any expenditure in connection with his employment. In such a scenario, Conveyance Allowance would be redundant and might be construed as part of allowance consisting of wages.
In this case, it is not the case of ESI that the employees concerned did not need to avail any conveyance expenditure to report for duty to their place of work, otherwise in connection with their duties under their contracts of employment.
Nor is there any such finding.
As a result of which, the Court did not find any logical reason as to why Conveyance Allowance should not be excluded from the definition of wages. Referring a few judgments of other cases, the Court has also expressed that none of the judgments dealt with Conveyance Allowance or Travelling Allowance.
Therefore, considering all material evidence place before the Hon’ble Supreme Court, it is specifically narrated by the Court that 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. Accordingly, the Special Leave Petition is dismissed by the Hon’ble Supreme Court of India.
Undoubtedly this landmark judgement of the Hon’ble Supreme Court has provided immense respite to employers as well as employees as it both ways would save a month cut from wage expenses, thereby would give rise to take home wages to employees and contribution of employers on the Conveyance Allowance. Compliance to cover employees under ESI Act is sure to foster and propel an effort of employers to bring more people in the net of ESI coverage than to avert it which would directly generate more revenues for the Corporation and availing of benefits by major scale of employees.