MD. QASIM LARRY, FACTORY MANAGER, SASAMUSA SUGAR WORKS Vs. MUHAMMAD SAMSUDDIN AND ANOTHER

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 251 of 1963

Decision Date: 24 March 1964

Coram: P.B. Gajendragadkar, K.N. Wanchoo, K.C. Das Gupta

In the matter styled Md Qasim Larry, Factory Manager, versus Muhammad Samsuddin and Another, the Supreme Court of India rendered its judgment on 24 March 1964. The judgment was authored by Justice P B Gajendragadkar, who was joined on the bench by Justices K N Wanchoo and K C Das Gupta. The parties are identified as the petitioner, Md Qasim Larry, who served as factory manager of Sasamusa Sugar Works, and the respondents, Muhammad Samsuddin and another individual. The citation for this decision is recorded as 1964 AIR 1699 and 1964 SCR (7) 419. The case is also referenced in citation indexes as RF 1980 SC2181 (76), RF 1981 SC1829 (75) and RF 1988 SC2223 (20). The dispute concerned the provisions of the Payment of Wages Act, 1936, specifically sections 2(vi) and 15, as they relate to wages determined by an industrial award in the context of an industrial dispute.

The factual background revealed that an Industrial Tribunal had issued an award fixing the daily wage of the workmen at rupees 2⁄2. Following that award, the management of the appellant entered into an agreement with its employees that the wage structure prescribed by the award would be implemented. Despite the award and the subsequent agreement, the appellant continued to pay the workers at a rate of rupees ½⁄10 per day. Consequently, the respondents filed a claim under section 15 of the Payment of Wages Act, seeking an order from the payment of wages authority directing the appellant to pay the wage rate stipulated by the award. The appellant contended that section 15 was inapplicable because the wage rates fixed by the award did not fall within the definition of “wages” contained in section 2(vi) of the Act. The authority rejected this contention, holding that the award wages did constitute “wages” under the Act. The appellant then approached the High Court under article 226 of the Constitution, challenging the authority’s conclusion. The High Court dismissed the writ petition, affirming the authority’s finding that section 15 applied because the award wages were indeed “wages” under section 2(vi). On appeal by special leave, the appellant argued that for the award wages to be regarded as falling within section 2(vi), it must first be demonstrated that they formed part of the contractual terms of employment, whether expressly or impliedly. The Supreme Court rejected this argument as untenable. It observed that when an award prescribes a new wage structure, the previous contractual wage arrangement becomes legally ineffective and is replaced by the wage structure mandated by the award. In effect, the award’s wage provision operates as the contract between employer and employee, reflecting the substantive outcome of industrial adjudication. The Court affirmed that awards made in the settlement of industrial disputes supplant the contractual terms concerning the matters they address, and therefore it is difficult to maintain that the award wages could not be treated as “wages” within the meaning of section 2(vi) of the Payment of Wages Act.

In this appeal, the Court examined whether the wages prescribed by an award could be regarded as wages under section 2(vi) of the Payment of Wages Act, 1936 before that provision was amended. The Court held that the wages set by the award could not be treated as wages within the meaning of section 2(vi) prior to the amendment, because the amendment merely clarified the scope of the original, unamended definition. The Court referred to the decision in South Indian Bank Ltd. v. A. R. Chacko, AIR 1964 SC 1522, and noted that Jogindra Nath Chatterjee and Sons v. V. Chandreswar Singh, AIR 1951 Cal 29, was inapplicable. The Court also approved the authorities Modern Mills Ltd. v. V. R. Mangalvedhikar, AIR 1950 Bom 342, and V. B. Godse, Manager, Prabha Mills Ltd. v. R. M. Naick [1953] 1 LLJ 577, in support of its reasoning.

The matter before the Court was a civil appeal, numbered 251 of 1963, filed by special leave from a judgment and order dated 20 March 1957 of the Patna High Court in Civil Revision No. 40 of 1956. Counsel for the appellants, identified only by their roles, appeared, while the respondent did not appear before the Court on 24 March 1964. The judgment was delivered by Justice Gajendragadkar, C.J. The central issue in the appeal was whether the term “wages” as defined by section 2(vi) of the Payment of Wages Act, 1936 (the “Act”) encompassed wages fixed by an award arising out of an industrial dispute between an employer and his employees. The Court clarified that this question had to be answered by reference to the definition of wages contained in section 2(vi) before its amendment in 1958. The later amendment, brought by section 2(vi)(a), expressly stated that any remuneration payable under any award, settlement, or court order would be included in the definition of wages under section 2(vi). Accordingly, the Court needed to determine whether remuneration payable under an award was already covered by the pre‑amendment definition of wages.

It was established as a matter of common ground that an award had been made by an Industrial Tribunal in a dispute between the appellant, Sasamusa Sugar Works Ltd., and its workmen, the respondents. The award fixed the employees’ pay at Rs 2⁄2 per day. In accordance with that award, the management of the appellant entered into an agreement with the respondents to implement the wage structure prescribed by the award. That agreement was subsequently published in the Bihar Gazette as part of the award. Despite the existence of the award and the agreement, the appellant continued to pay its employees only As ⁄ 10 ⁄ – per day. This discrepancy gave rise to the present claim made by the respondents under section 15 of the Act.

The respondents argued before the Payment of Wages Authority that the appellant’s refusal to pay the award‑determined rate amounted to an illegal deduction from their wages. On that basis, they sought an order directing the appellant to pay the wages specified in the award. The appellant raised two pleas in opposition to the respondents’ claim. Firstly, the appellant contended that section 15 of the Act was inapplicable because the rates of wages fixed by the award did not fall within the definition of wages prescribed by section 2(vi) at the relevant time. The Court proceeded to consider this contention in the context of the statutory language and the prior jurisprudence cited above.

In this case the appellant argued that the rates of wages fixed by the award did not fall within the definition of wages prescribed by section 2(vi) of the Act and further submitted that the respondents’ claim was barred by limitation. The authority examined the definition in section 2(vi) and concluded that it expressly includes wages prescribed by an Industrial Tribunal. Accordingly, the authority rejected the appellant’s contention that the applications filed by the respondents were incompetent under section 15 of the Act. Regarding the limitation issue, the authority declined to decide it as a preliminary matter, observing that the question involved both factual and legal components and therefore required a full trial after evidence was recorded. The appellant subsequently challenged the authority’s conclusion before the Patna High Court by filing a petition under article 226 of the Constitution. The High Court affirmed the authority’s finding, holding that section 15 applied because the wages specified by the award amounted to wages as defined in section 2(vi). Consequently, the writ petition filed by the appellant was dismissed. The appellant now seeks to overturn that order by filing a special leave appeal before this Court.

Section 2(vi), as it stood at the relevant time, defined “wages” to include all remuneration capable of being expressed in monetary terms which would be payable if the terms of the contract of employment, whether expressed or implied, were fulfilled. Counsel for the appellant contended that before the wages prescribed by the award could be said to fall within section 2(vi), it must be shown that they form part of the terms of the employment contract, either expressly or by implication. He argued that such terms, while they may be implied, must arise out of the contract of employment itself, and because an award issued by an Industrial Tribunal does not constitute a contract of employment, the wage structure prescribed by the award cannot be captured by the definition in section 2(vi). This was the essence of the appellant’s argument. The Court was not persuaded that, even under the unamended definition of “wages,” remuneration determined by an award could be excluded. In construing the unamended definition, the Court emphasized the broad powers vested in Industrial Tribunals under the Industrial Disputes Act, noting that unlike ordinary civil courts, industrial adjudication is not bound strictly by the existing terms of the employment contract and may revise those terms in the interest of social justice, provided the changes are made in accordance with principles of fairness and justice.

In this case, the Court observed that the terms of contract between the employer and the employees are not immutable and may be modified when industrial adjudication is satisfied that the existing terms of employment require revision in the interest of social justice. The Court explained that, once such satisfaction is reached, the industrial tribunal is free to examine the matter, consider all relevant factors, and, if it finds that a change or revision is justified, to radically alter the contractual terms governing employment. The Court further noted that the development of industrial law over the preceding decade provides clear evidence that references made under section 10(1) of the Industrial Disputes Act have consistently led industrial adjudication to scrutinise employment terms, and whenever a change has been deemed appropriate, it has been implemented in accordance with the well‑recognised principles of fairness and justice for both parties. Consequently, the Court rejected the basic assumption advanced by Mr Setalvad that section 2(vi) cannot encompass wages prescribed by an award, describing that contention as lacking foundation. The Court clarified that when an award is issued and it prescribes a new wage structure, the old contractual wage structure becomes legally inoperative and is replaced by the wage structure specified in the award. In effect, the Court held that the new wage structure must be regarded as a contract between the parties because that is the substantive result of industrial adjudication. The Court affirmed that the correct legal position is that awards issued by industrial tribunals supplant the original contractual terms with respect to the matters covered by the award, thereby substituting the award for the prior contract. On that basis, the Court found it difficult to accept the argument that wages prescribed by an award could not be treated as wages within the meaning of section 2(vi) of the Act prior to its amendment, noting that the amendment merely clarified what the unamended definition already included. In support of this view, the Court referred to its own decision in South Indian Bank Ltd. v. A R Chacko, wherein it was observed that the special authority granted to industrial adjudication to create new contracts between employers and workmen makes it reasonable to consider that, even after the award’s period of operation or its binding period expires under sections 23 and 29, the new contract continues to govern the parties’ relationship until it is replaced by another contract. The Court emphasized that this observation unmistakably demonstrates that the terms prescribed by an award, both legally and substantively, constitute a fresh contract between the parties. The Court also indicated that this issue has been examined by both the Bombay and the Calcutta High Courts, citing the decisions in Jogendra Nath and in Chatterjee and Sons v. Chandreswar Singh, where the Calcutta High Court appeared to have considered the same question.

In this case, the Court observed that the perspective taken by the earlier authority aligned with the argument presented by Mr. Setalvad. The Court explained that this perspective held that the terms of an industrial award could be treated as creating a fresh contractual relationship, thereby affecting the payment of wages. The Court then turned to the authorities cited by the parties. It noted the decision in Modern Mills Ltd. v. V. R. Mangalvedhkar and the decision in V. B. Godse, Manager, Prabha Mills Ltd. v. R. M. Naick, Inspector, both decided under the Payment of Wages Act. In those decisions, the Bombay High Court had examined section 2(vi) of the Act and had interpreted that provision to expressly include wages that were ordered to be paid pursuant to an industrial adjudication award. The Court expressed the view that the interpretation advanced by the Bombay High Court correctly captured the substantive legal position concerning the scope of section 2(vi). Consequently, the Court held that the appellant’s case did not succeed and that the appeal must be dismissed. The matter was therefore directed to be remitted to the competent authority created by the Act so that it could dispose of the issue in accordance with the applicable legal requirements. The Court further ordered that no costs be awarded to either side. The final order recorded the dismissal of the appeal. The judgments referred to for support were A.I.R. 1951 Cal. 29, A.I.R. 1930 Bom. 342 and [1953] 1 L.L.J. 577.