Compensatory Allowances Must Be Included For Overtime Wage Calculation Under Section 59 Factories Act: Supreme Court
Kiran Raj
The Supreme Court of India Division Bench of Justice Rajesh Bindal and Justice Manmohan held that compensatory allowances, including House Rent Allowance (HRA), Transport Allowance (TA), Clothing and Washing Allowance (CWA) and Small Family Allowance (SFA), are part of the “ordinary rate of wages” for computing overtime wages under the Factories Act, 1948. The dispute arose after the government sought to exclude these allowances from overtime calculations for certain factory employees, relying on executive communications. Dismissing a batch of civil appeals filed by the Union of India, the Court declined to interfere with the Madras High Court’s decision that had set aside the tribunal’s contrary view, and the exclusion of such allowances was not sustained.
The dispute arose from differing interpretations of Section 59(2) of the Factories Act, 1948 concerning the components of “ordinary rate of wages” for calculating overtime wages payable to factory workers. Employees working in defence production units under the control of the Union of India claimed that compensatory allowances such as House Rent Allowance, Transport Allowance, Clothing and Washing Allowance, and Small Family Allowance formed part of their ordinary wages and ought to be included for overtime computation.
The Union of India relied on multiple executive communications and office memoranda issued by various Ministries over time, which sought to exclude compensatory allowances from overtime wage calculations. Based on these instructions, overtime wages were computed only on basic pay and dearness allowance.
Aggrieved employee unions filed original applications before the Central Administrative Tribunal challenging the exclusion of allowances. The Tribunal dismissed the applications. The employees thereafter approached the High Court, which set aside the Tribunal’s decision and held that compensatory allowances were includible for overtime computation.
The Union of India challenged the High Court’s judgment before the Supreme Court, contending that executive instructions validly governed overtime wage calculation and that inclusion of allowances would cause disparity and financial burden. The respondents maintained that executive instructions could not override statutory provisions and that Section 59(2) expressly permitted inclusion of allowances except those specifically excluded.
The Supreme Court examined the statutory framework of the Factories Act, 1948, particularly Chapter VI dealing with working hours of adults. The Court reproduced Section 59(2) and noted that “‘ordinary rate of wages’ means basic wages plus such allowances, including the cash equivalent of the advantage accruing through the concessional sale to workers of foodgrains and other articles, as the worker is for the time being entitled to, but does not include a bonus and wages for overtime work."
The Court observed that “as far as Chapter VI is concerned, there is no power vested with different Ministries of the Government of India to issue any clarification with reference to Section 59(2) of the 1948 Act.” It recorded that rule-making and exemption powers under Sections 64 and 65 were vested exclusively with the State Government.
While analysing the role of the Central Government, the Court stated that “none of the sections empowers the Central Government to issue any clarification or direction with reference to any provisions of the 1948 Act.” It further recorded that executive memoranda could not substitute statutory rules.
The Court examined earlier precedents relied upon by the Union of India and recorded that “the judgment in Bridge and Roofs Co. Ltd. does not support the argument raised by the appellants” and that other cited decisions were distinguishable on facts.
Referring to the nature of the Factories Act, the Court recorded that it is a beneficial legislation intended to prevent exploitation of labour. It quoted with approval prior judicial reasoning stating that “an interpretation which restricts or curtails benefits admissible to workers under the Factories Act has to be avoided.”
The Court also noted the inconsistency in interpretations adopted by different Ministries and recorded that “different Ministries of the Government of India cannot assign different meaning to a provision in the Act of Parliament.” The statutory language, according to the Court, was clear and left no scope for reading additional exclusions beyond those expressly provided.
The Supreme Court recorded that “we do not find any case is made out for interference with the impugned judgment of the High Court. The appeals are, accordingly, dismissed. Pending applications, if any, shall also stand disposed of, with no order as to costs.”
Case Title: Union of India & Ors. v. Heavy Vehicles Factory Employees’ Union & Anr.
Neutral Citation: 2026 INSC 74
Case Number: Civil Appeal Nos. 5185–5192 of 2016
Bench: Justice Rajesh Bindal, Justice Manmohan
