# JAY ENGINEERING WORKS LTD. ANDOTH li)RS v. THE UNION OF INDIA AND OTHERS

- **Citation:** [1963] 3 S.C.R. 995
- **Court:** Supreme Court of India
- **Decided:** 1963
- **Bench:** P. B. Gajendragadkar, K. N. w ANCHOO, K. C. Das Gupta, J. C. Shah
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/jay-engineering-works-ltd-andoth-li-rs-v-the-union-of-india-and-others-2698
- **Pages:** 12

## Headnote

995
Industrial Dispute-Provident Fund-Production Bonus
-BaBic Wages-Whether the former is excluaed from the latter
-Provident Fund &heme-Quota-Proportion of productionOorresponding to-Minimum basic wages and dearness allowance
-Norm--Higher than quota--Worker failing to produce normGuilty of misconduct-Production above quota or above ru,rms
-Which should be talcen far computation nf provident fundOonstitution of India, Art. 32-Employees Provident Funds,
Act, 1952(I9 of 1952), s. 2(b).
Following the major !lwards in the engineering industries
in 1948, 1950 and 1958 the petitioner company and its
workmen entered into an agreement in 1958.
By this
agreement a scheme was established. Under this scheme
a certain proportion of the production was taken to correspond
to the minimum basic wages and dearness allowance fixed
by the awards and this was termed as 'quota'. The produc·
tion above the quota wa.s paid at piece rates. But there was
a 'norm' also fixed which was much higher than quota.
Every
workman who failed to produce the 'norm' would be considered guilty of miscouduct and would be liable to be dismissed.
The petitioner's contention was that the entire payment
for production above the quota was payment of production
bonus and therefore could not be taken into account for the
purposes of provident fund in view of the decision of this
1 Gour~ in Bridge and Roof Go. Ltd. v. Union of India. It was
further contended that even if the payment for production
between quota and norm was not production bonus which
can be taken out of the definition of basic wages in the
Act it should be treated as payment in the nature of 'other
similar allowances' appearing in s.2(b)(ll) of the Employees
Provident Fund Act, 1952. The workmen contended that
the scheme in force in the petitioner company was a peculiar
one which did not correspond to any standard scheme of
production bonus in as much as it had two bases. It was
their contention that in the scheme in question production
19114
1962
Jav Enginetring
Wov.ts Ltd.
v.
z:._· nion of India
996
.:lUPREME COURT REPORTS
[1963)
bonus •.tarted after the norm and
that the payment for
production between the quota and the norm '"as nothing
more than basic wages as defined in Employees Provident
fund Act, 1952.
!f eld, that straight piece rate plan was the sirnplest of
the
Incentive wage
plans.
In such a case all payment
would be basic wage as defined in s.2(b) of the Employees
Provident Fund Act, 1952.
·
M/s. TitaghurPaper JJiflls Co. Ltd. v. Its Workmen, (1959)
Supp.~ S.C.R. 1012 and Bridge and Roof Co. Ltd. v. Union
of India (1962) 2 L.L.J. 490, referred to.
In the scheme of the petitioner Company1 however the
worker ca~not stop at the quota he must produce upto the
nor1n on pain of being charged with misconduct.
Therefore
the real base or standard which is the core of a] typical production bonus scheme i~, in the case of the petitioner company
the norm. Any payment above the norm would be real
production bonus
under the present scheme and any pay1nent upto the nornf whether made in one firm or the.other,
is basic wage for the purpose of the Act:
Mr.
Zia/ch v. Fire1Jtone Pyre and
l/ub/Jer
Co.
ltd.
(1954)1 L.L.J. 281, distinguished.
The payment for production between the quota and the
norm having nothing of the nature of ._an aJlowancc and it
being a straight payment for the daily work must be included
in the words defining basic wage. The portion of the payment which is'made by the petitioner for production above
the 'norm' would be production bonus and would be COV'."red
by the judgment of this Court in Bridge & Roof Company.
ORIGINAL J.uRISDICTION : Petition No, 64 of
1962.
Petition under Art. 32 of the Constitution of
India for enforcement of fundamental rights.
G. B. Pai, J. B. Dadachanji, 0. 0. Mathur and
Ravinder Narain, for the petitioners.
M. S. K. Sastri, R.H. Dhebar and P. D. Menon,
for respondents Nos. 1 and 2.
j
-
r
3 ~.C.R. SUPREME COIJRT REPORTS
997
A. S. R. Chari, R. K. Garg, S. O. Agarwa

## Text

)ti
3 S.C.R.
SUPREME COURT REPORTS
JAY ENGINEERING WORKS LTD.
ANDOTH..li)RS
v.
THE UNION OF INDIA AND OTHERS
(P. B. GAJENDRAGADKAR, K. N. w
ANCHOO,
K. C. DAS GUPTA and J. C. SHAH JJ.)
995
Industrial Dispute-Provident Fund-Production Bonus
-BaBic Wages-Whether the former is excluaed from the latter
-Provident Fund &heme-Quota-Proportion of productionOorresponding to-Minimum basic wages and dearness allowance
-Norm--Higher than quota--Worker failing to produce normGuilty of misconduct-Production above quota or above ru,rms
-Which should be talcen far computation nf provident fundOonstitution of India, Art. 32-Employees Provident Funds,
Act, 1952(I9 of 1952), s. 2(b).
Following the major !lwards in the engineering industries
in 1948, 1950 and 1958 the petitioner company and its
workmen entered into an agreement in 1958.
By this
agreement a scheme was established. Under this scheme
a certain proportion of the production was taken to correspond
to the minimum basic wages and dearness allowance fixed
by the awards and this was termed as 'quota'. The produc·
tion above the quota wa.s paid at piece rates. But there was
a 'norm' also fixed which was much higher than quota.
Every
workman who failed to produce the 'norm' would be considered guilty of miscouduct and would be liable to be dismissed.
The petitioner's contention was that the entire payment
for production above the quota was payment of production
bonus and therefore could not be taken into account for the
purposes of provident fund in view of the decision of this
1 Gour~ in Bridge and Roof Go. Ltd. v. Union of India. It was
further contended that even if the payment for production
between quota and norm was not production bonus which
can be taken out of the definition of basic wages in the
Act it should be treated as payment in the nature of 'other
similar allowances' appearing in s.2(b)(ll) of the Employees
Provident Fund Act, 1952. The workmen contended that
the scheme in force in the petitioner company was a peculiar
one which did not correspond to any standard scheme of
production bonus in as much as it had two bases. It was
their contention that in the scheme in question production
19114
1962
Jav Enginetring
Wov.ts Ltd.
v.
z:._· nion of India
996
.:lUPREME COURT REPORTS
[1963)
bonus •.tarted after the norm and
that the payment for
production between the quota and the norm '"as nothing
more than basic wages as defined in Employees Provident
fund Act, 1952.
!f eld, that straight piece rate plan was the sirnplest of
the
Incentive wage
plans.
In such a case all payment
would be basic wage as defined in s.2(b) of the Employees
Provident Fund Act, 1952.
·
M/s. TitaghurPaper JJiflls Co. Ltd. v. Its Workmen, (1959)
Supp.~ S.C.R. 1012 and Bridge and Roof Co. Ltd. v. Union
of India (1962) 2 L.L.J. 490, referred to.
In the scheme of the petitioner Company1 however the
worker ca~not stop at the quota he must produce upto the
nor1n on pain of being charged with misconduct.
Therefore
the real base or standard which is the core of a] typical production bonus scheme i~, in the case of the petitioner company
the norm. Any payment above the norm would be real
production bonus
under the present scheme and any pay1nent upto the nornf whether made in one firm or the.other,
is basic wage for the purpose of the Act:
Mr.
Zia/ch v. Fire1Jtone Pyre and
l/ub/Jer
Co.
ltd.
(1954)1 L.L.J. 281, distinguished.
The payment for production between the quota and the
norm having nothing of the nature of ._an aJlowancc and it
being a straight payment for the daily work must be included
in the words defining basic wage. The portion of the payment which is'made by the petitioner for production above
the 'norm' would be production bonus and would be COV'."red
by the judgment of this Court in Bridge & Roof Company.
ORIGINAL J.uRISDICTION : Petition No, 64 of
1962.
Petition under Art. 32 of the Constitution of
India for enforcement of fundamental rights.
G. B. Pai, J. B. Dadachanji, 0. 0. Mathur and
Ravinder Narain, for the petitioners.
M. S. K. Sastri, R.H. Dhebar and P. D. Menon,
for respondents Nos. 1 and 2.
j
-
r
3 ~.C.R. SUPREME COIJRT REPORTS
997
A. S. R. Chari, R. K. Garg, S. O. Agarwala,
M. K. Ramamurthi and D.P. Singh, for respondent
No. 3.
1962. December 12.
The Judgment of the
Court was delivered by ·
W ANCHOO, J.-This writ petition was heard
along with writ petition No. 62 of 1902 (Bridge and
Roof Company (India), Limited v. Union
of India),
as the short question in both of them was whether
production bf'Jnus was excluded from the term
"basic wages" as defined in s.2 (b) of the Employees
Provident Funds Act, No. 19 of 1952, (hereinafter
referred to as thf.l Act).
A further question also
arose in this writ petition as to the nature of the
production bonus scheme in force in the petitionercompany, and the parties were given time to file
additional affidavits in that connection. The. main
point raised in the two writ petitions was decided
in Bridge and Roof Company (India) Limited v. Union
of India( 1).
The only question that now remains is
whether tqe production bonus scheme in force in
the petitioner-cD'npany is of the same type as in
Bridge & Roof Oompany(l). If it is of the same nature
the present petition would be governed by that
decision and production bonus would be excluded
from the term "basic wages" as defined in the Act.
Thfl parties have filed additional affidavits and it
now remains to determine the nature of production
bonus in force in the petitioner-company and to
decide whether the decision in the Bridge and Roof
Oompany( 1) would apply in the present case, and if
so, to what extent.
It appears that some kind of production bonus
scheme was started in the petitioner-company in 1947
and that scheme is sa.i4 to have been more or Jess
co c196SJ s s.c.R. 978.
1962
Jay Engineering
Works Ltd.
v.
Union of India
Wanohoa J.
•
•
196!
Jay Engintering
Works Ltd.
y
Union of India
CVanclaoo J.
998
SUPREME COURT REPORTS
[ l9u3]
on a straight piece-rate system.
Then came the
major engineering awards in the years 1948, 1950
and 1958 fixing basic minimum wages and dearness
allowance. This was followed by an agreement
between the petitioner-company and its workmen
in August 1958, in which the present scheme in
force was established even though some kind
of production bonus on a more or less straight
piece-rate system was in force from as far back as
1947. The scheme which was established by the
agreement of 1958 was this. A certain proportion
of the production was taken to correspond to the
minimum basic wages and dearness allowance fixed
by the awards, and this was termed as •'quota".
The production above the quota was paid for at
piece-rates. But there was a "norm" also fixed
which was much higher than the "quota" and every
workman was normally expected to produce the
"norm" as the minimum production. If the workman did not produce the "norm", he would be
guilty of misconduct and would bl'l liable to dismissal, as the agreement provided that any ~eliberate
deviation from production norms would amount to
go-slow tactics.
The standing orders of course
provide that go-slow tactics would amount to misconduct and may lead to dis:nissal of the workman
concerned.
It will be seen therefore that the peculiar
feature of the production bonus scheme in force in
the petitioner-company is that it has got two bases
namely, (i) the quota, and (ii) the norm, the quota
being much lower than the norm. In view of the
agreement between the parties and the precise definition of "go-slow" contained in that agreement, it
is clear that workmen are expected to give the
"norm" as the minimum production and if there
is any deliberate deviation therefrom they are
liable to be charged with misconduct in the shape of
go-slow and may be dismissed for such misconduct.
r }-
I
3 S.C.!;t. SUPREME OOURT REPORTS
999
The minimum wages and the dearness allowance
fixed by the major engineering awards are payable
for production upto the quota and thereafter extra
payments are made on piece'rate )Jasis. -upto the
norm, and even beyond it where the workmen
produce beyond the norm. The question that falls
for consideration is whether ~uch a system is a
typical production bonus system ·described in the
case of Bridge and Roqf Company(I).
The main dispute centres arqund production
between the quota and the norm. The petitioner's
case is that the entire payment for product.ion
above th.:. quota is payment of production bonus
and therefore cannot be taken into account for
the purpose of .proyident· fund, ·in view of the
decision in Bridge .and Rvoj Gompay(l). The workmen
however, con~end that th.e s9beme in force in the
petitioner-company is a peculiar one which does not
correspond to any standard scheme of produo~ion
bonus as known ,in standard books on such: schemes.
It is contended that no scheme df\aliag with prod~otion bonus qr incentive wage has two bases of
the kind in force in the petitioner-company. The
workmen, therefore, contend that in a scheme of
the. kind prevalent in the petitioner-company, production bonus as well understood in industry only
starts after the norm and that payment for production between the quota an\} the norm .is nothin'g
more than basic wage as, defined in the Act and
that the exception 0£ bonus from basic wage will only
apply to. that part of th.e payment which is made for
production abpve the norm.
'.!'he workmen further
point out that the straight piece-rate system was
in force in the petit~oner-oompp.ny pefore the major
engineering awards fixing miniqmm basic wages and
dearness allowance.
When suo\I minimum basic
wages and dearness al!owance were fixed by the
(I) [1963) 3 S.C.l.J.. 978 ...
1962
Jay Endineari11g
Wo,ks,Lld.
'v.
Union of India
Wanchoo J.
1962
J c.i y Engineeting
Work.s Ltd.
v.
Union of India
Wanchoo,.·J.
1000
SUPREME COURT REPORTS
(1963]
awards they became applicable to the petitionercompany also. It was then that the system was
evolved of having a quota which would represent
production for the minimum basio wages and dearness allowance and the rest of the production was
to be paid on a piece-rate basis.
The change that
resulted was that instead of a straight pieoe-rate
system, the petitioner-company · introduced the
piece-rate system along with a guaranteed time
wage.
The workmen contend that the quota which
was to represent payment for production upto
the basic wages and dearness
allowance
was
fixed arbitrarily and had no
relation to the
productive capacity of the workmen, which is
the basis for fixing the base or standard in a
typical scheme of production bonus.
Therefore,
what happened was that the petitioner-company
though it fixed the quota, expected much higher
production even before the agreement of 1958 for
a fair day's work and used to pay extra for this
production. This matter was finally stabilised
by the agreement of 1958 by which norms were
fixed and the workmen were expected to give
production upto the norms as a rule and any
deliberate deviation from such prodnotion amounted
to go-slow tactics, resulting in misconduct, which
might lead to the dismissal of the workman.
The
union therefore contends t,hat the real base or standard of a typical production bonus scheme in the
case of the petitioner-company is not the quota but
the nprm, and the payment between the quota and
the norm can only be basic wages within the meaning of the Act and it is only payment above the
"norm" which would be production bonus as understood in industry. It . was conceded on behalf of
the workmen in arguments that any payment for
production above. the "norm" would be payment of
production bonus and would be covered by the
judgment of this Court in Bridge and Roof Co. (I)
(I) (196313 s.c.R. 971.
I
I >
3 S.C.R.
SUPREME COURT REPORTS
1001
What is a typical production bonus scheme
was considered by this Court in M / s. Titaghur Paper
Mills Co Ltd. v. Its Workmen, (1) and that has been
confirmed in Bridge and Roef Onmpany(2). It was
pointed out that tLe straight piece-rate plan was
the simplest of the incentive wage plans. In such
a case all payments would be basic wage as defined
in s. 2 ( b) of the Act, even though the worker is
working under an incentive wage plan. But the
·difficulty
arises where
the
straight piece-rate
system cannot work. In such cases the system
of production bonus by
tonnage or by an}
other standard is introduced. The core 'of such a
plan is that there is a base or a standard above
which extra payment is earned for extra production
in ~ddition to the basic wages which is the payment
for work upto the base or standard. Such a plan
typically guarantees tin,e wage up to the time
represented by sta.ndard performance and gives
workers a share in the savings represented by superior performance. The typical scheme thus has only
one base or standard and time wages are guaranteed
upto that base or standard and any production
above that base or standard is production bonus.
But it is clear that in such a scheme of production
bonus the workers are not bound to produce beyond
the base or standard and no .disciplinary action can
be taken against them for not producing above the
base or standard. Learned counsel for the petitioner has been unable to point out any scheme of
production bonus which has two bases or standards
as is the case in the petitioner-company in the shape
of·a. quota and a non~, the quota being much lower
than the norm. What we have to decide is whether
in the case of the peculiar system which is in force
in the petitioner-company, production bonus, as
generally understood, can be said to start immediately after the first !Jase (namely, the quota) or it
can only start after the second base (namely, the
norm). It was qrged on behalf of the petitioner
(0 {1959) Supp. 2 8.C.R. 1012.
(2) [1963) S S.C,R. 978.
1962
Jay Enginee~ing
Wo•ksLtd
"
Union of Tndi1
Wan,ho• .I.
1962
Jay Engint~1ing
Works Ltd.
v.
Union of India
Wanchoo .J.
1002
SUPREME COURT REPORTS
[1963]
that production bonus schemes have safeguards for
both the employer and the employee, and that production upto the norm in addition to the quota in
the scheme in force in the petitioner-company is a
mere safeguard.
Keliance in this connection was
placed on a passage in the book "Payment by
Results" issued by Iqternational Labour Office,
Geneva at p. 164, which is as follow :
"No employee will be compelled to produce
more than union has stated was fair, but continued failure of an employee to co-operate in
estaplishing a fair standard or to meet the
agreed rate of production of an established
standard o:r the rate of production as stated
by the union as fair, without a reuson mutually satisfactory to both union and company
will result in dismissal or, if the circumstances
warrant unusm~l treatment; transfer to another
department."
That passage appears nnder the heading "Management Safeguards", and apparently is concerned
primarily with time stu<lies for the purposes of
setting up production standards. Therefore that
passage cannot be taken as an indication that a
typical production bonus scheme can fix two bases
or standards, at the best the passage only indicates
that disciplinary action may be taken in certain
cases where the
established standard is not
reached by a workman without a reason mutually
satisfactory to both union and company. We may
add that learned counsel relied on this book which
deals with a large number of various types of incentive wages plans or production bonus plans; but he
was unable to draw our attention to any 'Plan in
this book which fixes two bases or standards. It is
true that when fixing a base or standard the emplo-
'-,....
yers sometimes fix a standard w l;lich is below the
normal
production
worked out on the basis
3 S.C.R.
SUPREME COURT REPORTS
1003
.r
of time studies. Not infrequently such base is
fixed at 80 per oentum of the normal production
found on time studies and in some oases it has been
known to go as low as 67 per oentum.
':'hat ia
however a matter of agreement between the employer and the employee and depends upon various
factors.
But the reason behind fixing the base or
standard somewhat below the normal which might
have been foubd by time studies is to make an
allowance for workers who may be little slower than
the average and also to allow for some incentive
even before the normal is reached so that there
· may be an effort on the part of the workman to
produce not merely the norma.l but something more
than normal. This is helped by fixing the base or
standard somewhat below the normal production
as found by time studies and gives the workmen
a greater incentive to produce without fail not only
upto the normal but also beyond the normal. The
fact however that the standard or tht1 base may be
fixed somewhat below the normal production found
'__,
by time studies is of no he1p to the petitioner, for
the scheme in the present case is not a typical
production bonus scheme, if the quota is taken to
be
the base.
As we have already indicated,
in
a
typical production bonus
scheme the
worker is not bound to produce more than
the base or standard, though he may do so .in
order that his earnings may go up. In the scheme
• in force in the petitioner-company however the
)
worker cannot stop at the quota; he must produce
·up to the norm on pain of being charged with
misconduct in the shape of go-slow and being liable
to be dismh;sed. It seems to us therefore that the
real base or standard which is the core.of a typical
production bonus scheme is, in the case of the
-.
petitioner-company, the norm.
Any payment for
production above the norm would be real production bonus under the scheme in f oroe in the
petitioner-oompa.ny.
The production upto the
1962
Jay Engine1ring
Works Ltd.
v.
Union of India
Wonchoo J.
1962
Jov Engineering
·warks Ltd
v.
Union of India
W1mchcio J.
1004
SUPREME COURT REPORTS
[1963]
norm i1 the standard which is expected of a workman in the company and payment into that production must be basic wages as defined in the Act,
lt is true that this payment is split up into two
parts. The first part consists of basic wages and
dearness allowance fixed in the awards for production up to the quota and the latter part is payment
at piece-rate for production upto the norm; hut the
two together in our opinion represent the base or
standard of a typical production bonus scheme
and so only payment above the norm in the case
of the petitioner-company can be properly called
production bonus. The mere fact that part of the
basic wage as defined in the Act is paid in one form
as a time wage and part in another form as a piecerate wage would make no difference to the whole
being basic wage within the meaning of the Act.
The real base of production bonus scheme in force
in the petitioner· company is the norm and not the
quota and therefore payment upto the ilorm
whether made in one form or the other, is basic
wage for the purpose of the Act.
It is however · urged
on behalf of the
petitioner
that it is open to the employer to
punish a
workman for go-slow,
even where
wages are paid
on a piece-rate basis and in
this connection reliance was placed on Mr. Ziakh
v.
Firestone Tyre
and Rubber Co.
Limited, (I)
where it was held that there could be go-slow even
where wages are being paid on piece-rate basis.
Assuming that to be so, we are of opinion that that
does not affect the validity of the conclusion ae to
base or standard in the present scheme at which we
have arrived. It may be possible to punish for goslow even where wages are paid on a piece-rate
system because the employee deliberately does not
produce what he had been normally producing.
But in the present case, the
position has been
(I) (1954) I LL.J. 281.
•
~\
. '
L
1~.
1
j
1 l ..
1
1
3S.C.R.
SUPREME COURT REPORTS
1005
crystallised by the agreement and what is go·slow
has been precisely defined; usually it is rather a
'difficult matter for the employer to prove a oase
of go-slow, more particularly when the piece-rate
system of payment is in vogue. Under the agreement however any
deliberate
deviation from
production norms immediately becomes go-slow
and the workman is liable to disciplinary action
which may even result in dil!missal. In these
circumstances when go-slow is precisely defined it
is obvious that of two bases to be found in the
scheme in the petitioner-company it is the norm
which is the real base to be found in all typical
production bonus schemes and that it is only when
payment is made for produution above the "norm"
that it can be said that the· workman is earning
· production bonus as generally understood in
industry. It would in our opinion be utterly wrong
and unrealistic in the present case to call payment
for
productio~ between the quota and norm as
production bonus when the employee is bound to
produce up to to norm practically' on pain of
dismissal.
It was further urged that norms have been
fixed for a small proportion of workmen employed
in the petitioner-company and therefore all pay.
ments above the quota which is apparently fixed
for all workmen should be treated as production
bonus in the case of workmen other than this small
proportion. This in our opinion is a disingenuous
argument and the union's reply sho~ .·that though
norms have been fixed by agreement only with
respect to a small proportion of workmen in actual
practice there are norms· for all workmen governed
....(
by the scheme, these norms being based on normal
performance before the agreement of 1958. It is not
disputed that these actual norms are much higher
than. the quota .
._
. 1962
Ja.1 Engineering
Works Ltd
v.
Union of lndia
Wunchoo J.
1962
Joy Enginttring
Works Ltd.
v.
Union of India
f.Y onchoo J.
1006
SUPREME COURT REPORTS
[1963]
. Finally, it was urged that even if the payment
for production between the quota and the norm is
not production bonus which can be taken out of
definition of basic wages in the Act, it should be
treated as payment in the nature of "other similar
allowance" appearing in s. 2 (b) (ii).
We are of
opinion that this payment for work done between
the quota and the norm cannot be treated as any
''other similar
·allowance".
The
allowances
mentioned
in the relevant clause arc dearness
allowanee,
house.rent
allowance,
overtime
allowance, bonus, and commission. Any . ·"other
similar allowance", must be of the same kine. The
paymr.nt in this case for production between the
quota •tnd the norm has nothing of the nature of an
allowance, it is a straight payment for the daily
work and must be included in the words defining
basic wage i.e., "all emoluments which are earned
by an employee while on duty or on leave with
wages in accordance with terms of the contraet of
employment".
In the view we have taken of the scheme in
this case, the petition succeeds partly. We direct
that the portion of the payment which is made by
the petitioner for production above the "norm"
would be production bonus and would be covered
by the judgment of this Court in Bridge and Roof
Company, but that portion of the payment which is
made by petitioner for production up to the quota
as well as production between the "quota" and the
"norm" is ·basic wage within the meaning of that
term in the Act. The petition is therefore partially
allowed as indicated above. In the circumstances
we pass no order as to costs.
Petition allowed in part.
',_