Supreme Court Upholds Dismissal, Clarifies ‘Wages’ Under UP Industrial Disputes Act: H.D. Sharma vs. Northern India Textile Research Association (2018)

Introduction

Date of the Judgment: 03 December 2018

Citation: (2018) INSC 1062

Judges: Abhay Manohar Sapre, J., Indu Malhotra, J.

Can a one-time payment made as an interim relief be considered part of an employee’s ‘wages’ when calculating the mandatory one-month’s pay required before dismissal? The Supreme Court of India recently addressed this question while interpreting the provisions of the Uttar Pradesh Industrial Disputes Act, 1947. This case revolves around whether a shortfall in the payment of one month’s wages, due to the exclusion of a one-time interim relief payment, invalidates a dismissal order. The judgment was delivered by a two-judge bench comprising Justice Abhay Manohar Sapre and Justice Indu Malhotra.

Case Background

The appellant, Shri H.D. Sharma, was employed as a Duplicating Machine Operator-cum-Clerk by the respondent, Northern India Textile Research Association, starting from May 26, 1978. On April 24, 1987, he was dismissed from service following a departmental inquiry that found him guilty of five charges of misconduct. Subsequently, on April 27, 1987, the employer sought approval for the dismissal from the Industrial Tribunal at Meerut under Section 6E(2) of the UP Industrial Disputes Act, 1947, along with Rule 31(2) of the Rules. The employer contended that they had complied with all the necessary conditions for seeking approval as per the proviso to Section 6E(2) of the Act. During the pendency of these approval proceedings, the State Government also made an Industrial Reference to the Industrial Tribunal under Section 4K of the Act, to decide the legality and correctness of the dismissal order.

Timeline

Course of Proceedings

The Industrial Tribunal initially dismissed the employer’s application to withdraw their application for approval of the dismissal order. The High Court, however, allowed the employer’s writ petition and set aside the Tribunal’s order, holding that two parallel proceedings on the same matter could not continue. The Supreme Court then set aside the High Court’s order and remanded the case back, clarifying that the scope of proceedings under the two provisions was different and that separate rights and remedies were available to the parties. On remand, the High Court dismissed the employer’s writ petition after the employer did not press their withdrawal application. The Industrial Tribunal subsequently ruled in favor of the employee, stating the employer failed to pay full wages as required under Section 6E(2) of the Act. The High Court then overturned this decision, which led to the current appeal before the Supreme Court.

Legal Framework

The case primarily revolves around Section 2(y) and Section 6E(2) of the UP Industrial Disputes Act, 1947.

Section 2(y) of the UP Industrial Disputes Act, 1947 defines “wages” as:

“all remuneration capable of being expressed in terms of money, which would, if the terms of employment, expressed or implied, were fulfilled, be payable to a workman in respect of his employment, or of work done in such employment, and includes:­ (i) such allowances (including dearness allowance) as the workman is for the time being entitled to; (ii) the value of any house accommodation, or of supply of light, water, medical attendance or other amenity or of any service or of any concessional supply of food grains or other articles; (iii) any traveling concession, but does not include­ (a) any bonus; (b) any contribution paid or payable by the employer to any pension fund or provident fund or for the benefit of the workman under any law for the time being in force; (c) any gratuity payable on the termination of his service.”

Section 6E(2) of the UP Industrial Disputes Act, 1947 states:

“During the pendency of any such proceeding in respect of an industrial dispute, the employer may, in accordance with the standing orders applicable to a workman concerned in such dispute—(a) alter, in regard to any matter not connected with the dispute, the conditions of service applicable to that workman immediately before the commencement of such proceeding; or (b) for any misconduct not connected with the dispute, discharge or punish, whether by dismissal or otherwise; Provided that no such workman shall be discharged or dismissed, unless he has been paid wages for one month and an application has been made by the employer to the authority before which the proceeding is pending for approval of the action taken by the employer.”

The proviso to Section 6E(2) mandates that a workman cannot be dismissed unless they have been paid one month’s wages and the employer has applied for approval of the dismissal to the relevant authority. This provision ensures that a worker is not left without immediate financial support upon dismissal.

Arguments

Appellant’s (Employee) Arguments:

• The appellant contended that the employer did not comply with the proviso to Section 6E(2) of the UP Industrial Disputes Act, 1947, because they did not pay “full wages of one month.”
• The appellant argued that he was paid Rs. 1103.30 as monthly wages, whereas his actual monthly wages were Rs. 1214.40, leaving a deficit of Rs. 110.
• The appellant asserted that the payment of full wages for one month was a mandatory pre-requisite for the dismissal to be valid.
• The appellant emphasized that the employer must ensure full compliance with Section 6E, which is mandatory as held by the Supreme Court, to claim the benefit of the section.

Respondent’s (Employer) Arguments:

• The respondent argued that they had paid full monthly wages to the appellant as per the terms of employment along with the dismissal order.
• The respondent contended that the sum of Rs. 110 was paid only once in August 1986 as “interim relief” and was not a part of the regular monthly wages.
• The respondent submitted that the payment of Rs. 110 was an ex-gratia payment and not a component of wages as defined under Section 2(y) of the Act.
• The respondent argued that they had complied with the proviso to Section 6E(2) of the Act, entitling them to seek approval for the dismissal.

Submissions Table:

Issues Framed by the Supreme Court

The Supreme Court framed the following issues for consideration:

1. Whether the High Court was justified in allowing the respondent’s writ petition and setting aside the order of the Industrial Tribunal.
2. Whether an isolated payment of Rs. 110 made by the employer to the employee as interim relief in August 1986 can be regarded as wages under Section 2(y) read with Section 6E(2) of the Act.
3. Whether the respondent can be held to have paid wages for one month to the appellant in compliance with the requirements of Section 6E(2) of the Act, so as to enable them to claim sanction to the appellant’s dismissal order.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Cases:

• Jaipur Zila Sahakari Bhoomi Vikas Bank Ltd. vs. Ram Gopal Sharma & Ors. (2002) 2 SCC 244 – Supreme Court of India: This case established that the proviso to Section 33(2)(b) of the Industrial Disputes Act, 1947 (which is similar to Section 6E of the UP Act) is mandatory, and non-compliance renders the dismissal order void.
• Bharat Electronics Limited vs. Industrial Tribunal, Karnataka, Bangalore & Anr. (1990) 2 SCC 314 – Supreme Court of India: This case clarified that “night shift allowance” is not a part of wages under Section 33(2)(b) of the Industrial Disputes Act, 1947, as it is contingent upon actual work.
• Syndicate Bank Limited vs. Ramanath (1968) 1 SCR 327 – Supreme Court of India: This case was referred to in Bharat Electronics Limited case to interpret the object of Section 33(2)(b).
• Ghaziabad Zila Sahkari Bank Ltd. vs. Additional Labour Commissioner & Ors. (2007) 11 SCC 756 – Supreme Court of India: This case held that an ex-gratia payment is not considered a bonus or part of wages.

Legal Provisions:

• Section 2(y) of the UP Industrial Disputes Act, 1947: Defines “wages.”
• Section 6E(2) of the UP Industrial Disputes Act, 1947: Specifies conditions for service during the pendency of proceedings, including the requirement to pay one month’s wages before dismissal.
• Section 33(2)(b) of the Industrial Disputes Act, 1947: This provision is analogous to Section 6E(2) of the UP Industrial Disputes Act, 1947 and was used for interpretation of the term “wages”.
• Section 2(rr) of the Industrial Disputes Act, 1947: Defines “wages” and is considered pari materia with Section 2(y) of the UP Act.

Authority Table:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• Jaipur Zila Sahakari Bhoomi Vikas Bank Ltd. vs. Ram Gopal Sharma & Ors. [CITATION]: The Court relied on this case to affirm that the proviso to Section 6E(2) is mandatory.
• Bharat Electronics Limited vs. Industrial Tribunal, Karnataka, Bangalore & Anr. [CITATION]: The Court used this case to interpret the definition of “wages,” clarifying that allowances contingent on actual work are not part of wages.
• Ghaziabad Zila Sahkari Bank Ltd. vs. Additional Labour Commissioner & Ors. [CITATION]: The Court cited this case to support the view that ex-gratia payments are not considered part of wages.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the interpretation of the term “wages” under Section 2(y) of the UP Industrial Disputes Act, 1947. The Court emphasized that for a payment to be considered wages, it must be a regular payment made as per the terms of employment. The fact that the Rs. 110 payment was a one-time ex-gratia payment was crucial in the Court’s reasoning. The Court also considered the purpose of Section 6E(2), which is to provide immediate financial support to a dismissed employee, and concluded that the employer had fulfilled this requirement by paying one month’s wages, excluding the ex-gratia payment.

Sentiment Analysis Ranking:

Fact:Law Ratio:

Logical Reasoning Flowchart:

The Court rejected the High Court’s reasoning that the shortfall could be adjusted against other payments. The Supreme Court emphasized that the primary question was whether the payment of Rs. 110 was part of the employee’s wages as defined under Section 2(y) of the Act. The Court concluded that it was not, as it was a one-time payment and not a regular component of wages. The Court upheld the conclusion of the High Court, but not its reasoning, stating that the employer had indeed complied with Section 6E(2) of the Act by paying one month’s wages, excluding the ex-gratia payment.

The Court quoted from the judgment:

• “In our opinion, such payment cannot be termed either as wages or its component within the meaning of Section 2 (y) read with Section 6E (2) of the Act.”
• “In order that any payment is regarded as “wages”, it must be proved that it was being paid by the employer to his employee pursuant to the terms of his employment.”
• “We are, therefore, of the considered opinion that the respondent rightly paid Rs.1103.40 to the appellant by way of his wages for one month along with his dismissal order.”

Key Takeaways

• A one-time ex-gratia payment made by an employer is not considered part of an employee’s “wages” under Section 2(y) of the UP Industrial Disputes Act, 1947.
• For a payment to be considered “wages,” it must be a regular payment made as per the terms of employment.
• Employers must ensure strict compliance with Section 6E(2) of the UP Industrial Disputes Act, 1947, by paying one month’s wages before dismissing an employee.
• The calculation of one month’s wages should exclude any one-time, ex-gratia payments.

Directions

No specific directions were given by the Supreme Court in this judgment.

Specific Amendments Analysis

There is no specific amendment analysis in this judgment.

Development of Law

The ratio decidendi of this case is that a one-time ex-gratia payment does not constitute “wages” under Section 2(y) of the UP Industrial Disputes Act, 1947. This clarifies the definition of wages and sets a precedent for similar cases. The court upheld the conclusion of the High Court but not its reasoning, thereby clarifying the correct approach to determine compliance with Section 6E(2) of the Act. The decision reinforces the importance of strict compliance with the statutory requirements for dismissal of employees and provides guidance on what constitutes “wages” in this context.

Conclusion

The Supreme Court dismissed the appeal, upholding the High Court’s conclusion that the employer had complied with Section 6E(2) of the UP Industrial Disputes Act, 1947. The Court clarified that a one-time ex-gratia payment is not part of “wages” and that the employer had rightly paid one month’s wages, excluding the interim relief payment. This judgment provides important clarity on the definition of “wages” and the requirements for compliance with Section 6E(2), ensuring that employers adhere to the necessary procedures when dismissing employees.