Supreme Court Rejects PSU's Plea Against Order To Include HRA & Other Allowances In Overtime Wage Calculation

A bench of Justice Vikram Nath and Justice Prasanna B. Varale, clarified, however, that the petitioners could approach the High Court to seek an expedited hearing of their pending petition against the CAT decision.

“We are not inclined to interfere with the impugned judgment/order of the High Court. Accordingly, the Special Leave Petition is dismissed. However, it would be open for the petitioners to approach the High Court for early hearing of the pending petition on merits”, the Court held.

Section 59(1) of the Factories Act, 1948 mandates extra wages for overtime work at twice the “ordinary rate of wages”. Section 59(2) defines “ordinary rate of wages” as basic wages plus certain allowances, including the cash equivalent of concessional benefits, but explicitly excludes bonuses and overtime wages.

The issue involved was whether allowances such as House Rent Allowance (HRA), Transport Allowance, and Small Family Allowance fall under “ordinary rate of wages”.

The dispute revolves around Office Memoranda issued by the Ministry of Labour and Employment (dated May 27, 2009) and the Ministry of Defence (dated June 26, 2009), which excluded compensatory allowances such as House Rent Allowance (HRA), Transport Allowance, and Small Family Allowance from the calculation of overtime wages under Section 59 of the Factories Act, 1948.

The CAT, Hyderabad Bench quashed the Circular dated June 26, 2009, after considering a judgment of the Madras High Court that held that the decision to exclude the allowances for computing overtime allowance was contrary to Section 59(2) of the Factories Act, 1948. On April 4, 2014, the Tribunal directed the inclusion of allowances such as House Rent Allowance, Transport Allowance, and Small Family Allowance in the calculation of overtime wages, effective from January 1, 2006.

In 2022, CAT, Mumbai Bench allowed a petition by workers of the Ammunition Factory, Khadki, directing that these allowances be included for calculating overtime wages. The Tribunal also quashed the 2009 Office Memorandum issued by the Ministry of Defence.

This decision was challenged by the petitioners, Munitions India Limited and Ammunition Factory, Khadki, before the Bombay High Court.

On November 22, 2024, the Bombay High Court, in its interim order, directed the petitioners to implement the CAT decision. This was made subject to an undertaking by the employees to return the amounts if their claims were ultimately disallowed.

In their SLP, the petitioners argued that including compensatory allowances in overtime wage calculations would impose significant financial burdens on the newly corporatized entity, Munitions India Limited, which operates without financial aid from the government. They also highlighted potential discrepancies in payments due to allowances differing across regions and housing arrangements.

The petitioners argued that including compensatory allowances in overtime calculations would lead to discrepancies, as allowances like HRA vary based on city classifications and whether employees reside in government quarters or private accommodations.

Further, the principle of “equal pay for equal work” would be violated, as employees working the same overtime hours would receive different payments depending on their allowances, the petition stated.

It was further contended that implementation from 2006 would create difficulties in recovering amounts from retired employees if the CAT order was overturned.

The petitioners cited pending final decision on the validity of the office memoranda by the Supreme Court in another set of appeals. They argued that the High Court should have awaited a final decision on this issue before issuing its interim order.

However, the Supreme Court declined to interfere with the decision of the Bombay High Court.

Appearances : For Petitioner(s) - Mrs. Madhavi Divan, Sr. Adv. Mr. Pravartak Suhas Pathak, AOR Ms. Mansi Jain, Adv. Ms. Aandrita Deb, Adv. Mr. Ritu Raj, Adv. Ms. Shambhavi Kanade, Adv

For Respondent(s) - Mr. Sriram P., AOR; Mr.K.S. Shukla, Adv. Mr. Vijayan Balakrishnan, Adv. Ms. Neha Kumari, Adv. Nalukattil Anandhu S. Nair, Adv. Ms. Maneesha Sunilkumar, Adv. Ms. Anjali Singh, Adv. Ms. Isha Singh, Adv. Mr. Adhithya Santosh, Adv. Mr. Sohanlal A, Adv.

Case no. – Special Leave Petition (Civil) Diary No. 58516/2024

Case Title – Munitions India Limited & Anr. v. Ammunition Factory Workers Union & Ors.