Union of India & Ors. v. Heavy Vehicles Factory Employees’ Union & Anr.

CIVIL APPEAL NOS.5185-5192 OF 2016

RAJESH BINDAL and MANMOHAN, JJ

Overview

The decision adjudicated by the Supreme Court is relevant to a crucial matter dealing with the law of labor and that is whether the compensatory allowances are also required to be taken into consideration for calculating the “ordinary rate of wages” for determining the overtime rate of wages under Section 59(2) of the Factories Act of 1948. The issue arose due to the disparity among the various departments of the Government of India while interpreting this legislation, as well as the disparity among the judicial views on the matter as well. The issue was dealt with and analyzed by the Judiciary based on the statutory provision and the limitations placed upon the legislation on this aspect by the Factories Act and also the fact that the legislation concerning the law of labor is beneficent. The decision was favorable and based on the judicial opinion stipulated by the Madras High Court decision that the workers’ remuneration for the purpose of calculating the over-time pay needs to be based on a wider scope of remuneration.

Facts of the Case

The unions of the workers from the Heavy Vehicles Factory and other units in the defense production, for instance, had questioned a number of Office Memorandums, issued in a span of 2002 to 2009. The Office Memorandums, among other aspects, logically excluded the determination of the surplus payment for the following only: House Rent Allowance (HRA), the Transport Allowance (TA), the Clothing & Washing Allowance (CWA), and the Small Family Allowance (SFA).

The attorneys representing the contractors argued that these were banned under the Section 59(2) Factories Act because “ordinary rate of wages” includes basic wages and every other allowance to which an employee is entitled at the time of doing the work. The Central Administrative Tribunal (CAT) refused to accept any claims brought by the employees in this case. In another instance, a decision by the CAT had been overturned by a judgment from the Madras High Court because “no executive instruction can disregard the act itself.” The Union of India felt betrayed by this and requested this matter be appealed to the Supreme Court.

Legal Issues

1. Whether compensatory allowances such as HRA, TA, CWA, and SFA fall within the expression “ordinary rate of wages” under Section 59(2) of the Factories Act, 1948.
2. Whether Ministries of the Central Government have the authority to issue executive instructions clarifying or restricting statutory entitlements under the Factories Act.
3. Whether exclusion of such allowances defeats the beneficial object of labour welfare legislation.

Decision and Reasoning

• The Supreme Court, while rejecting the appeals of the Indian Union, thereby confirming the judgment of the Madras High Court, held thus: Section 59(2) apparently encompasses all allowances payable to a workman except bonus and overtime. No exclusion can be implied except that which is provided under the Act itself.
• The power to make rules and proclaim exemptions are given to the State Governments in general and not the Central Ministries under the Factories Act. The memos issued by the various Ministries are not based on any laws, which do not empower them to put restrictions on the rights of workers.
• No diversions can be done at the Ministries level, such as Railways including the allowances but Defence excluding them for a legislation passed at the center.
• Such being the beneficent legislation, the Factories Act should be interpreted broadly in favour of the workers, so as to avoid the exploitation of the latter.

Conclusion

The court held that the word “ordinary rate of wages” includes compensatory allowances within the meaning of the Factories Act, 1948, for the calculation of overtime wages, and that the executive orders cannot have the effect of diminishing the statutory benefits.