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The Supreme Court on Thursday held that ad hoc payment made to the workers pursuant to the interim orders passed by it in a previous round of litigation could not form part of “wages” within the meaning of the expression under Section 2(s) of the Payment of Gratuity Act, 1972, for the purpose of calculating gratuity.

Referring to Section 2(s) which defines wages, the Court held that such definition was in three parts.

"...the first part indicating the meaning of the expression, the second part indicating what is included therein and the third part indicating what is not included therein. In the first part of the definition, the emphasis is on what is earned by the employee “in accordance with the terms and conditions of employment”, noted the bench.

Irrespective of whether what was earned has been paid or remained payable, the same is included in the definition, provided it is in accordance with the terms and conditions of his employment, added a bench of Justices Hemant Gupta and V Ramasubramaniam.

The pay of employees of public sector undertakings were revised in 1992. When the benefit of such revision was not made available to the employees of Fertiliser Corporation of India Limited and Hindustan Fertiliser Corporation Limited, their employees moved writ petitions in various High Courts in 1996 which came to be transferred to the Supreme Court at the behest of Union of India.

By an interim order in 2000, the top Court directed an ad hoc monthly payment of Rs.1500/­, Rs.1000/­,  Rs.750/­ and Rs.500/­, respectively to four different categories of employees, as an interim measure, subject to the final outcome of the writ petitions so transferred.

In 2002, the Government of India ordered the closure of the fertiliser units of these public sector undertakings and introduced a Voluntary Separation Scheme. Due to this development, the transferred writ petitions were eventually dismissed by a final order wherein it was recorded that the interim relief was purely an ad hoc measure.

The employees after closure of these establishments approached the Controlling Authority. In their applications, the employees included the ad hoc payment as a part of the wages and the Authority passed order while considering the same fact.

Management of these companies moved an application before the Top Court for clarification/modification which was disposed of with an observation that when the final order is passed, the interim order automatically comes to an end.

This order was misunderstood by the Appellate Authority, which inturn dismissed the Management's petitions against the order of the Controlling Authority. 

Accordingly, petitions came to be filed before various High Courts and the two aggrieved companies approached the Top Court in appeal.

It was noted by the division bench that as per  fundamental principle of law  a party who is in enjoyment of an interim order, is bound to los the benefit of such interim order when the ultimate outcome of the case goes against him. 

"Merely because of the fortuitous circumstance of the Voluntary Separation Scheme coming into effect before the transferred cases were finally dismissed by this Court by an order dated 25.04.2003, creating an illusion as though the last drawn pay included this ad hoc  payment, it is not possible to go against the fundamental rule that the benefits of an interim order would automatically go when the party who secured it, failed at the final stage", held the bench.

With this view, the appeals came to be allowed and the orders of the High Court, the Controlling Authority and the Appellate Authority under the Act, holding that the ad hoc payment made pursuant to the interim orders by this Court will form part of the wages, were set aside.

Case Title: CHAIRMAN­-CUM-­MANAGING DIRECTOR FERTILIZER CORPORATION OF INDIA LTD. AND ANR. vs. RAJESH CHANDRA SHRIVASTAVA AND ORS.