Factories Act, 1948 — Section 59(2) — “Ordinary rate of wages” — Meaning
Expression “ordinary rate of wages” under Section 59(2) means basic wages plus such allowances as the worker is for the time being entitled to — Statute expressly excludes only bonus and overtime wages — No other exclusion can be read into the provision by executive instructions.
(Paras 2, 8, 15)
Overtime wages — Compensatory allowances — Inclusion
House Rent Allowance (HRA), Transport Allowance (TA), Clothing and Washing Allowance (CWA), Small Family Allowance (SFA) and similar compensatory allowances form part of “ordinary rate of wages” for calculation of overtime wages — Exclusion thereof is contrary to the plain language of Section 59(2).
(Paras 2, 15)
Executive instructions — Office Memorandums — No statutory force
Letters, circulars and Office Memorandums issued by Ministries of Defence, Labour or Finance have no statutory authority to interpret or modify Section 59(2) — Executive instructions cannot override or dilute parliamentary legislation.
(Paras 6.1, 9.3, 10–10.2, 12)
Powers under Factories Act — Central Government — Limits
Factories Act vests rule-making and exemption powers only with State Governments — Central Government has no authority to issue clarifications altering wage components under Section 59(2) — Section 113 permits only issuance of directions to State Governments for implementation.
(Paras 8–10.2)
Statutory interpretation — Legislature does not waste words
When statute expressly provides exclusions, courts cannot permit executive to add further exclusions — Legislature consciously excluded only bonus and overtime wages — Reading additional exclusions violates settled principles of statutory construction.
(Paras 15)
Beneficial labour legislation — Interpretation
Factories Act, 1948 is a beneficial and welfare legislation — Provisions relating to working hours and overtime must receive liberal construction in favour of workers — Interpretation curtailing statutory benefits must be avoided.
(Paras 6.2, 12.1–13)
Overtime wages — Social and economic purpose
Payment of overtime at double rate is a statutory safeguard against labour exploitation — Section 59 forms a mandatory protection mechanism — Neither employer nor employee can contract out of it.
(Paras 12.1–13)
Different interpretations by Ministries — Impermissibility
Different Ministries of Government of India cannot assign divergent meanings to the same parliamentary enactment — Uniform interpretation of central legislation is mandatory.
(Paras 14–14.1)
Judgments distinguished
Decisions in:
• Bridge and Roofs Co. Ltd. v. Union of India
• Govind Bapu Salvi v. Vishwanath Joshi
• Union of India v. Suresh C. Baskey
held distinguishable on facts and statutory context — None supports exclusion of compensatory allowances under Section 59(2).
(Paras 11–11.2)
Kerala High Court judgment — Overruled
Judgment of Kerala High Court in V.E. Jossie v. Flag Officers Commanding-in-Chief Headquarters held not laying down correct law, being contrary to Section 59(2) of the Factories Act.
(Para 16)
Result
High Court judgment upheld — Appeals dismissed — Compensatory allowances to be included while computing overtime wages.
(Paras 17–18)
ANALYSIS OF THE JUDGMENT
1. Core issue
Whether compensatory allowances such as:
-
HRA
-
Transport Allowance
-
Clothing and Washing Allowance
-
Small Family Allowance
can be excluded while computing overtime wages under Section 59(2) of the Factories Act, 1948.
2. Statutory provision examined
Section 59(2):
“Ordinary rate of wages means the basic wages plus such allowances… as the worker is for the time being entitled to, but does not include bonus and wages for overtime work.”
3. Court’s interpretation
The Supreme Court held:
-
Phrase “such allowances” is wide and inclusive.
-
Legislature made only two exclusions:
-
bonus, and
-
overtime wages.
-
-
No power exists to exclude compensatory allowances by executive fiat.
4. Lack of executive power
The Court held:
-
Chapter VI (Sections 59–65) vests exemption powers exclusively in State Governments.
-
Chapter XI confers no interpretative power on Central Government.
-
Ministries cannot issue clarifications altering statutory meaning.
5. Rejection of Ministry circulars
Multiple Office Memorandums relied upon by Union of India were rejected because:
-
they lack statutory backing,
-
they contradict express statutory language,
-
they attempt to amend law indirectly.
6. Beneficial interpretation reaffirmed
The Court reiterated:
-
Factories Act is meant to prevent exploitation,
-
overtime compensation is a labour-welfare guarantee,
-
restrictive interpretation defeats legislative intent.
7. Uniformity of central legislation
The Court strongly disapproved:
-
Defence Ministry excluding allowances, while
-
Railways including the same allowances,
holding that:
Parliament cannot be interpreted differently by different Ministries.
8. Precedents distinguished
Earlier judgments relied upon by Union of India were held inapplicable because they concerned:
-
definition of “basic wages” under other statutes, or
-
notional inclusion of allowances not actually paid.
9. Final holding
The High Court was correct in holding that:
-
compensatory allowances form part of ordinary wages,
-
executive instructions cannot curtail statutory benefits,
-
overtime wages must be calculated accordingly.
RATIO DECIDENDI
Under Section 59(2) of the Factories Act, 1948, the “ordinary rate of wages” includes basic wages together with all allowances to which the worker is entitled at the relevant time, excluding only bonus and overtime wages; compensatory allowances such as house rent allowance, transport allowance and similar payments cannot be excluded through executive instructions, as neither the Central Government nor its Ministries possess statutory authority to modify or restrict the scope of the provision.
LEGAL SIGNIFICANCE
This judgment conclusively establishes that:
-
Executive circulars cannot amend labour statutes
-
Compensatory allowances are part of overtime wage computation
-
Only Parliament may restrict statutory wage components
-
Factories Act must receive worker-protective interpretation
-
Section 59(2) admits no exclusions beyond those expressly stated
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