Kiran Raj

The Supreme Court of India, on January 2, 2025, dismissed a Special Leave Petition (SLP) filed by Munitions India Limited, challenging an interim order issued by the Bombay High Court. The High Court had directed the implementation of a decision by the Central Administrative Tribunal (CAT) requiring the inclusion of certain compensatory allowances in the calculation of overtime wages under the Factories Act, 1948. The case centered on the interpretation of Section 59 of the Factories Act and whether allowances such as House Rent Allowance (HRA), Transport Allowance, and Small Family Allowance fall under the definition of "ordinary rate of wages."

The petitioners contended that implementing the CAT decision would impose substantial financial burdens on Munitions India Limited, a recently corporatized public sector entity operating without financial assistance from the government.

The Supreme Court bench, comprising Justice Vikram Nath and Justice Prasanna B. Varale, declined to interfere with the High Court’s order, stating: “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 case involved Section 59 of the Factories Act, 1948, which mandates the payment of overtime wages at twice the "ordinary rate of wages." Section 59(2) defines "ordinary rate of wages" as including basic wages and certain allowances, such as the cash equivalent of concessional benefits. However, it excludes bonuses and overtime wages from this calculation. The dispute arose over whether compensatory allowances, including HRA, Transport Allowance, and Small Family Allowance, should be included in the computation of overtime wages.

The dispute arose from Office Memoranda issued by the Ministry of Labour and Employment (May 27, 2009) and the Ministry of Defence (June 26, 2009), which excluded these compensatory allowances from the calculation of overtime wages. The CAT, Hyderabad Bench, in 2014, quashed the Ministry of Defence's memorandum, holding that such exclusions were contrary to Section 59(2) of the Factories Act. It directed the inclusion of compensatory allowances in the computation of overtime wages, effective January 1, 2006.

Subsequently, in 2022, the CAT, Mumbai Bench addressed a similar petition filed by workers of the Ammunition Factory, Khadki. The Tribunal reiterated that allowances such as HRA, Transport Allowance, and Small Family Allowance must be factored into overtime calculations. This decision led to the Bombay High Court's interim order on November 22, 2024, directing Munitions India Limited to implement the CAT decision. The High Court’s order was contingent on the employees providing an undertaking to refund any amounts received if their claims were ultimately disallowed.

In their SLP before the Supreme Court, Munitions India Limited argued that including compensatory allowances in overtime wage calculations would place an excessive financial burden on the corporation. They asserted that such allowances vary significantly across regions and are influenced by factors such as city classifications and employees' housing arrangements (government quarters versus private accommodations). This variability, they claimed, would result in inconsistencies in overtime wage payments, undermining the principle of “equal pay for equal work.” For instance, employees working identical overtime hours might receive different payments depending on the allowances they are entitled to.

The petitioners also raised concerns about the retrospective implementation of the CAT directive from 2006. They argued that recovering overpaid amounts from retired employees would be impractical if the Tribunal’s decision were overturned in the future. Furthermore, they highlighted that the validity of the 2009 Office Memoranda was under scrutiny in a separate case before the Supreme Court, contending that the Bombay High Court should have awaited the resolution of that case before issuing its interim order.

The Supreme Court declined to interfere with the Bombay High Court’s interim order, stating that the petitioners were free to seek an expedited hearing of their pending petition in the High Court. The bench observed that the issues raised by the petitioners regarding financial implications, regional disparities in allowances, and the retrospective application of the CAT decision could be addressed during the final adjudication of the pending petition. The dismissal of the SLP, however, does not preclude the petitioners from contesting the CAT’s decision at a later stage.

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

Case Number: Special Leave Petition (Civil) No. 84/2025

Bench: Justice Vikram Nath and Justice Prasanna B. Varale

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