The Supreme Court has clarified that the term “ordinary rate of wages” as defined in Section 59(2) of the Factories Act, 1948, includes basic wages plus all allowances that a worker is entitled to, except for those specifically excluded by the statute itself. The provision explicitly excludes only “a bonus and wages for overtime work”. Essentially, the Court explained calculation of overtime wages under Section 59(2) of the Factories Act.
Thus, the Court held that in the absence of any legislative intent to exclude other allowances, and without any delegated power to do so, the executive branch cannot, through administrative instructions or office memorandums, curtail the scope of “ordinary rate of wages” by excluding compensatory allowances like HRA, TA, CWA, and SFA. The Factories Act, being a piece of social welfare legislation, must be interpreted liberally in favour of the workers.
A Two-Judge Bench of Justice Rajesh Bindal and Justice Manmohan examined Chapter VI of the Factories Act, and noted that the power to make exempting rules and orders under Sections 64 and 65 is vested with the State Government, not the Central Government or its ministries. The Bench found no provision in the Act that empowers different Ministries of the Government of India to issue clarifications on what is included or excluded from the “ordinary rate of wages” under Section 59(2).
The Bench affirmed the principle that executive instructions, circulars, or guidelines that are contrary to statutory provisions cannot be enforced and do not have the force of law. The Office Memorandums issued by the ministries were deemed to be mere executive instructions lacking legal authority to override the statute.
The Bench reiterated that the Factories Act is a beneficial legislation enacted to protect workers from exploitation and to guarantee their occupational health and safety. Therefore, any interpretation that restricts or curtails the benefits admissible to workers under the Act must be avoided. Since Section 59(2) explicitly excludes only “a bonus and wages for overtime work”, the Bench said that the executive cannot add further exclusions through an Office Memorandum that the legislature did not contemplate.
Lastly, the Bench noted the contradictory stance of the Ministry of Railways, which included allowances like HRA and TA for calculating overtime. It observed that different ministries of the Government of India cannot assign different meanings to the same provision of an Act of Parliament.
Briefly, the central issue in this case was whether compensatory allowances, specifically House Rent Allowance (HRA), Transport Allowance (TA), Clothing and Washing Allowance (CWA), and Small Family Allowance (SFA), should be included within the definition of “ordinary rate of wages” for the calculation of overtime wages under Section 59(2) of the Factories Act, 1948. The Union of India, the appellant, contended that these allowances should be excluded. This position was based on a series of letters and Office Memorandums issued by the Ministry of Defence, Ministry of Labour, and Ministry of Finance, which stipulated that overtime wages should be calculated based only on basic pay and dearness allowance. The appellants argued that including variable allowances would lead to disparities in overtime calculations among different employees.
The respondents, the Heavy Vehicles Factory Employees’ Union, initially filed applications before the Central Administrative Tribunal (CAT), which were dismissed. However, they successfully challenged this dismissal before the High Court of Judicature at Madras.
The respondents argued that the plain language of Section 59(2) of the 1948 Act is clear and does not permit the exclusion of these allowances. They further submitted that the various ministries lacked the statutory power to issue clarifications that alter the meaning of a provision enacted by Parliament. They also highlighted that the Ministry of Railways interpreted the same provision to include HRA and TA for overtime calculations, demonstrating an inconsistency within the government.
Appearances:
A.S.G. Vikramjeet Banarjee, Senior Advocate Nachiketa Joshi, AOR Mukesh Kumar Maroria, along with Advocates Alka Agarwal and Bimal Roy Jad, for the Appellant
Senior Advocate Gagan Gupta, AORs Vijay Kumar and Shobha Ramamoorthy, along with Advocates B. Ragunath, N.C. Kavitha, Shilp Vinod, and Gokulakrisnan, for the Respondent
