The Divisional Engineer, G.I.P. Railway Vs. Mahadeo Raghoo and Another
Rewritten Version Notice: This is a rewritten version of the original judgment.
Court: Supreme Court of India
Case Number: Civil Appeal No. 208 of 1952
Decision Date: 2 March 1955
Coram: Bhuvneshwar P. Sinha, Vivian Bose, B. Jagannadhadas
The case was titled The Divisional Engineer, G.I.P. Railway versus Mahadeo Raghoo and Another and was decided on 2 March 1955 by the Supreme Court of India. The judgment was authored by Justice Bhuvneshwar P. Sinha and the bench also comprised Justices Vivian Bose and B. Jagannadhadas. The petitioner in the proceeding was the Divisional Engineer of the G.I.P. Railway and the respondents were Mahadeo Raghoo and an additional respondent. The citation for the decision is reported as 1955 AIR 295 and 1955 SCR (1) 1345. The matter involved the provisions of the Payment of Wages Act, 1936, specifically section 2(vi) dealing with the definition of “wages”, and the question whether a house-rent allowance fell within that definition. The issue also required interpretation of Rule 3(i) of the statutory rules framed by the Government and the legal effect of that rule.
The Railway Board, functioning under the Ministry of Railways of the Government of India, introduced a scheme effective from 1 November 1947 that provided a compensatory—also called city—allowance and a house-rent allowance at prescribed rates to certain railway employees who were stationed at specified headquarters. The first respondent, Mahadeo Raghoo, who had been employed by the railway since 1945, was one of the employees covered by this scheme. He received the house-rent allowance together with his salary until 18 August 1948. On that date the Government offered him quarters that were considered suitable to his post. He declined to occupy the quarters, and consequently, the house-rent allowance was discontinued from the date of his refusal to take the government-offered accommodation.
Rule 3(i) of the statutory rules, which came into force on 1 November 1947, states: “The house rent allowance will not be admissible to those who occupy accommodation provided by Government or those to whom accommodation has been offered by Government but who have refused.” The Court held that the house-rent allowance is payable only while an employee remains stationed at one of the specified locations and has not been offered government quarters. The rule expressly bars the allowance for persons who either occupy government-provided accommodation or have been offered such accommodation and have refused it. Accordingly, once an employee who fits this description is offered suitable government housing and declines the offer, he loses entitlement to the house-rent allowance. The Court further observed that the allowance, upon such refusal, ceases to form part of “wages” under the definition in section 2(vi) of the Payment of Wages Act because it is no longer payable under the terms of the contract. The grant of the house-rent allowance, therefore, does not generate an indefeasible right for the employee at any posting, regardless of whether government quarters have been offered.
The matter arrived before the Supreme Court as Civil Appeal No. 208 of 1952, filed by special leave against the judgment and order dated 28 September 1951 of the Authority appointed under section 15(1) of the Payment of Wages Act, Bombay, which had allowed the first respondent’s claim for house-rent allowance as part of his wages. The appeal was presented on behalf of the Government of India by counsel for the Attorney-General, while counsel for the respondents appeared for the appellant. The Court’s judgment consequently addressed the legal status of the house-rent allowance within the statutory definition of wages and affirmed the Authority’s decision to discontinue the allowance after the respondent’s refusal of government quarters.
In this appeal, the Court recorded that counsel G. Gokhale, assisted by another advocate, represented the appellant, while J. B. Dadachanji, M. V. Jayakar and Rajinder Narain appeared for respondent No 1. The judgment was delivered on 2 March 1955 by Justice Sinha. The matter before the Court arose from a special-leave petition challenging the orders dated 28 September 1951 issued by the second respondent, which was the Authority constituted under section 15(1) of the Payment of Wages Act, 1936 (hereinafter referred to as “the Act”). Those orders had allowed the claim of the first respondent for a house-rent allowance as part of his wages. The Court observed that the factual background of the dispute was not contested and could therefore be summarised succinctly. The first respondent, identified as a gangman, had been in the service of the Central Railway—formerly known as the Great Indian Peninsula Railway—since April 1945. At the time of his appointment his remuneration consisted of a basic wage of Rs 18 per month together with a dearness allowance. Subsequently, with effect from 1 November 1947, the Railway Board, operating under the Ministry of Railways, issued a memorandum numbered E47 CPC/14 that introduced a scheme granting both a compensatory city allowance and a house-rent allowance in accordance with rates specified therein. This scheme was later amended by a letter bearing the same reference number dated 1 December 1947. The amendment made certain railway employees stationed at designated headquarters eligible for the specified allowances at the rates fixed by the Board. As a result of the scheme, the first respondent became entitled to a house-rent allowance of Rs 10 per month, which he drew together with his regular salary until 18 August 1948. On that date the Government offered him quarters suitable to his posting, but he declined to take up the accommodation. Consequently, the house-rent allowance was discontinued with effect from the following day, 19 August 1948.
On 8 June 1951 the first respondent filed a claim before the Authority seeking a total of Rs 290, contending that the appellant—identified as the Divisional Engineer of the Great Indian Peninsula Railway and the authority responsible under section 4 of the Act for the payment of wages—had unjustifiably stopped the house-rent allowance from 19 August 1948. The claim covered the period from 19 August 1948 to 18 January 1951, calculated at the rate of Rs 10 per month. The appellant appeared before the Authority and, through a written statement, contested the claim on two principal grounds. Firstly, the appellant argued that the house-rent allowance in question did not fall within the definition of “wages” as provided in section 2(vi) of the Act; therefore, the Authority lacked jurisdiction to entertain the claim and the claim should be dismissed at the threshold. Secondly, the appellant asserted that the claim was inadmissible because there had been no illegal deduction from the respondent’s wages. The appellant pointed out that the respondent had been allotted railway quarters of a suitable type, and his refusal to occupy those quarters meant that, under the applicable rules, he was not entitled to any house-rent allowance. These contentions formed the basis of the appellant’s opposition to the respondent’s claim.
The appellant contended that, under the applicable rules, the respondent was not entitled to any house-rent allowance. The appellant further argued that the portion of the claim relating to a period that fell within six months prior to the filing of the application was barred by the first proviso to section 15(2) of the Act. The Authority chose to condone the delay; the segment of the order dealing with that condonation is not under consideration in the present appeal.
Addressing the matters that were jointly raised by the parties, the Authority held that the house-rent allowance fell within the meaning of “wages” as defined by the Act. The Authority observed that, as a matter of fact, accommodation had been offered to the first respondent and that he had declined to occupy it. Nevertheless, the Authority concluded that the appellant was not authorized to withhold the house-rent allowance. Consequently, the Authority ordered that the respondent’s claim for the sum of Rs 290 be allowed.
The central issue for determination in this case is whether the house-rent allowance claimed by the first respondent is encompassed by the definition of “wages” contained in the Act. Because there is no dispute of fact between the parties, the answer to this issue must be derived from an interpretation of the relevant portion of the definition of “wages” found in section 2(vi) of the Act. The provision states:
“Wages means all remuneration, capable of being expressed in terms of money, which would, if the terms of the contract of employment, express or implied, were fulfilled, be payable, whether conditionally upon the regular attendance, good work or conduct or other behaviour of the person employed or otherwise, to a person employed in respect of his employment or of work done in such employment, and includes any bonus or other additional remuneration of the nature aforesaid which would be so payable and any sum payable to such person by reason of the termination of his employment, but does not include (a) the value of any house-accommodation, supply of light, water, medical attendance or other amenity, or any service excluded by general or special order of the State Government ….”
In plain language, “wages” are the monetary remuneration that an employer is obliged to pay to an employee for services rendered under the terms of their contract. The question therefore becomes: what are the contractual terms that govern the relationship between the parties? When the first respondent’s employment with the railway administration, represented by the appellant, commenced, it is admitted that he was not entitled to any house-rent allowance. The scheme for paying house-rent allowance was introduced effective 1 November 1947 when the rules were framed under sub-section (2) of section 241 of the Government of India Act, 1935, by order of the Governor-General. Those rules were later amended.
The amendment relevant to the present dispute was issued by the Railway Board in a letter dated 1 December 1947 (letter No. E47 CPC/14). Rule 3(i) of that amendment provides, in substance, that “the house rent allowance will not be admissible to those who occupy accommodation.”
The provision stated that the house rent allowance would not be payable to any employee who was provided accommodation by the Government, or to any employee to whom the Government had offered accommodation but who had refused to accept it. The appellant contended that this provision formed part of the contractual terms between the railway administration and the employee, and consequently, the law did not grant an absolute right to the first respondent to claim the allowance. According to the appellant, a condition precedent existed whereby the employee must first be posted to a specified locality, such as Bombay, Calcutta, or Madras, before any claim for house rent allowance could arise. In addition, the appellant asserted a condition subsequent, whereby the employee’s entitlement to the allowance would cease if the Government either provided accommodation to the employee or the employee declined to occupy accommodation offered by the Government.
The respondent, on the other hand, argued that the employee’s right to the allowance vested as soon as the employee fulfilled the contractual obligations of employment, which included regular attendance, satisfactory work performance, proper conduct, and other behaviour required by the definition of “wages” contained in the Act. The respondent further maintained that the definition of “wages” must be interpreted consistently with sections 7 and 11 of the Act, and that rule 3(i) was inconsistent with certain terms of that definition as well as with the provisions of sections 7 and 11. Moreover, the respondent submitted that, if rule 3(i) were treated as a contractual term, section 23 of the Act would bar an employee from entering into a contract that effectively deprives him of vested rights.
The Court observed that the learned Attorney-General appearing for the appellant had not advanced the argument, which appeared in the appellant’s written statement and before the Authority, that clause (a) excluding “the value of any house accommodation” demonstrated that house rent allowance was not included in “wages” as defined in section 2(vi) of the Act. The Court noted that this argument relied on the unwarranted assumption that house rent allowance is synonymous with the value of any house accommodation referred to in the definition of “wages” and in section 7(2)(b) and section 11 of the Act. The Court further indicated that the question of whether house rent allowance constitutes “wages” could be answered affirmatively only if the departmental rules governing the grant of house rent allowance made the payment compulsory for the employer without any further qualifications; that is, only if the allowance were granted unconditionally, which was not the case.
The Court observed that, although a house-rent allowance could theoretically be granted without any conditions or with conditions that might be unenforceable, the statutory rules framed by the Government did not make such a grant unconditional or absolute. The rules stipulated that the allowance was not available to every employee belonging to a particular class; rather, it was confined to railway employees who were posted in specified locations where the cost of rent was higher than normal. The purpose of the allowance, as expressly stated in the preamble to Railway Board letter No. E47 CPC/14 dated 1 December 1947, was to compensate those servants for the excessive rents they paid in those cities, and it was not intended to serve as a source of profit or as a substitute for free quarters.
The Court noted that the argument advanced by the first respondent would have been valid only if the rules contemplated the grant of house-rent allowance to every employee of a given category on an unconditional basis. Since the rules did not adopt such an absolute approach, the allowance was payable only while an employee remained stationed at one of the prescribed places and had not been offered Government quarters. The rules expressly barred the allowance for employees who occupied Government quarters or who had been offered such quarters but had refused to accept them. Consequently, once a suitable house accommodation was offered to an employee and the employee declined it, his entitlement to the allowance ceased, and the allowance therefore no longer qualified as “wages” within the meaning of the definition in the Act, because it was no longer payable under the terms of the employment contract.
In the Court’s view, it was beyond any reasonable doubt that the contractual terms between employer and employee incorporated the rules requiring that an employee posted at a specified location could claim the allowance, but that the moment the employee was offered Government quarters, his right to the allowance terminated, irrespective of whether he actually took the quarters. Thus, the grant of house-rent allowance did not create an indefeasible right that would follow the employee to any posting or circumstance, even if he had been offered Government quarters.
The Court rejected the respondent’s contention that this conclusion conflicted with sections 7 and 11 of the Act. It explained that section 7 dealt with deductions that could be made from wages as defined in the Act, and subsection (2) of that section clearly listed the permissible heads for such deductions. Clause (d) of the subsection referred specifically to deductions for house accommodation supplied by the employer, and section 11 provided that such a deduction could be made only if the employee accepted the accommodation and that the deduction could not exceed the value of the accommodation. The definition of “wages” in the Act expressly excluded the “value of any house accommodation” mentioned in sections 7 and 11. The legislature used the phrase “value of any house accommodation” to denote an amount that could be deducted from wages, thereby excluding it from the definition of wages itself. Accordingly, the definition of wages could not encompass the value of accommodation supplied by the employer, lest such a deduction become impermissible. Moreover, the Court observed that while house-rent allowance might, in certain circumstances, be treated as part of wages, it was not the same thing as the “value of any house accommodation” referred to in the statutory provisions.
Clause (d) of subsection (2) of section 7 of the Act mentions deductions for house accommodation supplied by the employer. Section 11 further provides that such a deduction may be made only when the employee has accepted the house accommodation and that the deduction may not exceed the monetary value of the accommodation provided. The Act’s definition of “wages” expressly excludes the value of any house accommodation that is referred to in sections 7 and 11. By using the phrase “value of any house accommodation” in that definition, the legislature intended to designate that amount as something that could be deducted from wages. Consequently, the two concepts – the definition of wages and the value of house accommodation – are mutually exclusive. It follows that the definition of “wages” under the Act cannot incorporate the value of any house accommodation supplied by the employer, because if it did, such an amount would no longer be a permissible deduction from wages. Moreover, it is equally clear that a house-rent allowance, which may at times be treated as part of wages, is not the same thing as the value of any house accommodation that the Act mentions. Since the two are distinct, the argument advanced on behalf of the first respondent that rule 3(i) is inconsistent with the provisions of sections 7 and 11 of the Act lacks any validity.
The next contention raised by the first respondent was that section 23 of the Act prevents an employee from relinquishing the right concerned in rule 3(i). That contention rests on the assumption that a house-rent allowance is an absolute right conferred on the employee. The Court has already held that the Act, read together with the rules that form the terms of the contract between the employer and the employee, does not create an absolute right to a house-rent allowance. Because no absolute right exists, there is no question of an employee surrendering such a right under section 23. For these reasons, the appeal succeeded, the orders issued by the Authority were set aside, and, given the special circumstances of the case, no order as to costs was made. The appeal was therefore allowed.