Jul 23,2019 | 20 min read

PF - Special Allowance - VIEWS By Dr. Gubbi S Subba Rao


Analysis of Supreme Court Judgment dt 28-02-2019 on Allowances to be part of PF: The Regional Provident Fund Commissioner, West Bengal v/s Vivekananda VidyaMandir and others, Civil Appeal No. 6221, 3965-3966/2013

Is Special Allowance Basic wage- Does the judgment of the Supreme Court constitute a Precedent? 

A lot of turbulence is created among industry circles in view of the judgment rendered by the Hon'ble Supreme Court in Civil Appeal No. 6221/2011 and other connected matters filed by The Regional Provident Fund Commissioner, West Bengal v/s Vivekananda VidyaMandir and others wherein, the issue of whether allowances will have to be considered as part of Basic Wage for the purpose of payment of contribution under the provisions of the Employee's Provident Fund & Miscellaneous Provisions Act, 1952. 

The appellants had approached the Supreme court on orders passed by the Provident Fund Commissioner on allowances such as ;

a. Special allowance b. Travel allowance 

c. Conveyance allowance d. Lunch Incentive 

e. Washing allowance f. House Rent allowance 

g. Management allowance h. Education allowance 

i. Food concession j. Medical allowance 

k. Nigh shift incentives l. City Compensatory Allowance 

Though the challenge was in respect of all the above allowances, the Additional Solicitor General appears to have emphasized and addressed his arguments only on the aspect of whether special allowance would fall within the ambit of basic wage as defined under Section 2(b) of the Act. No submissions have been made on whether other allowances apart from special allowance mentioned supra will constitute basic wage under the Act. The learned judges of the Supreme Court concluded at para 14 of the judgment and held; 

"no material was produced before the court to demonstrate that the allowances in question being paid to its employees were either variable or were linked to any incentive for production resulting in greater output by an employee and that the allowances in question were not paid across the board to all employees in a particular category or were being paid especially to those who avail the opportunity". 

The Court further proceed to hold that "the wage structure and the components of salary have been examined on facts both by the authority and the appellate authority under the act, who have arrived at a factual conclusion that the allowances in question were essentially a part of the basic wage camouflaged as part of an allowance so as to avoid deduction and contribution accordingly to the provident fund account of the employees" 

The Supreme Court proceeded to dismiss the appeals and upheld the appeal of the Provident Fund Commissioner. The fear among industries now is with regard to the actions which shall be initiated by the Provident Fund Department on the strength of this judgment. The fear not only rests with the actions, but also with regard to the year/dates from which industries may be directed to pay contribution on allowances on the strength of this judgment as there is no observation made with regard to the applicability of the judgment prospectively or retrospectively. 

This apart there has been a proposal by the Government of India, to increase the ceiling from Rs. 15,000/- to Rs. 21,000/-. If the amendment in this regard is brought into force, the ceiling limit shall go up and place additional burden on employers. This shall happen sooner or later. 

A few important questions about the judgment which deserves due consideration are 

A. Whether the judgment rendered by the Supreme Court acts as a precedent?

B. What was the ratio laid down by the Supreme Court in the judgment ?

C. Was there any law laid down by the Supreme Court ?

D. Whether the judgment of the Supreme Court is rendered Sub-Silentio?

The issue before the Supreme Court was whether the allowances mentioned supra should be considered as basic wage in order to attract contribution for the purpose of provident fund. The Supreme Court unfortunately did not even delve into this aspect and based on non-availability of any material to substantiate the claims of the appellants before it, proceeded to dismiss the petitions. In the process, the Supreme Court did not lay down any law which would bring in the allowances which were the subject matter of the appeals under the definition of basic wage under the act. Nowhere did the Supreme Court mention that the allowances has to be/ should not be considered as part of basic wage for the purpose of attracting contribution under the act. Ratio decidendi apart, the Supreme Court did not even observe anything about the allowances mentioned supra which would constitute obiter dictum in the case. 

Lord Halsbury's quote that "a case is only an authority for what it actually decides and not for what may seem to follow logically from it" comes into play in the interpretation of this judgment. 

The following words of Lord Denning in the matter of applying precedents have become locus classics :

"Each case depends on its own facts and a close similarly between one case and another is not enough because even a single significant detail may alter the entire aspect, in deciding such cases, one should avoid the temptation to decide cases (as said by Cordozo) by matching the colour of one case against the colour of another. To decide, therefore, on which side of the line a case falls, the broad resemblance to another case is not at all decisive. Precedent should be followed only so far as it marks the path of justice, but you must cut the dead wood and trim off the side branches else you will find yourself lost in thickets and branches. My plea is to keep the path to justice clear of obstructions which could impede it". 

This gives rise to an important question that whether the judgment rendered by the Supreme Court amounts to law declared under Article 141 of the Constitution ?

The Supreme Court in the case of Shama Rao v. State of Pondicherry AIR 1967 SC 1680 held; 

'It is trite to say that a decision is binding not because of its conclusions but in regard to its ratio and the principles, laid down there-in'. Any declaration or conclusion arrived without application of mind or preceded without any reason cannot be deemed to be declaration of law or authority of a general nature binding as a precedent. Restraint in dissenting or overruling is for sake of stability and uniformity but rigidity beyond reasonable limits is inimical to the growth of law'. 

Again the Supreme Court in the case of Union of India v. Chajju Ram MANU/SC/0322/2003 : [2003]3SCR647 held; 

'It is now well settled that a decision is an authority for what it decides and not what can logically be deduced there from. It is equally well settled that a little difference in facts or additional facts may lead to a different conclusion'. 

English Courts and jurists have carved out an exception to the rule of precedents. This principle is known as Sub Silentio. 

Professor P.J. Fitzgerald, editor of the Salmond on Jurisprudence, 12th edition, explains the concept of sub silentio at page 153 in these words: 

A decision passes sub silentio, in the technical sense that has come to be attached to that phrase, when the particular point of law involved in the decision is not perceived by the court or present to its mind. The court may consciously decide in favour of one party because of point A, which it considers and pronounces upon. It may be shown, however, that logically the court should not have decided in favour of the particular party unless it also decided point B in his favour; but point B was not argued or considered by the court. In such circumstances, although point B was logically involved in the facts and although the case had a specific outcome, the decision is not an authority on point B. Point B is said to pass sub silentio. 

This principle of sub silentio was approved by the Supreme Court in the case of Municipal Corporation of Delhi v. Gurnam Kaur reported in AIR 1989 SC 38. The Bench held that, 'precedents sub-silentio and without argument are of no moment'. The Courts thus have taken recourse to this principle for relieving from injustice perpetrated by unjust precedents. The only thing in a judge's decision binding as an authority upon a subsequent judge is the principle upon which the case was decided. Statements which are not part of the ratio decidendi are distinguished as obiter dicta and are not authoritative" 

A decision which is not express and is not founded on reasons nor it proceeds on consideration of issue cannot be deemed to be a law declared to have a binding effect as is contemplated by Article 141. Uniformity and consistency are core of judicial discipline. But that which escapes in the judgment without any occasion is not ratio decidendi. 

The Supreme Court in the case of Divisional Controller, KSRTC v. Mahadeva Shetty and Anr. MANU/SC/0529/2003 : AIR2003SC4172 held as under: 

'The decision ordinarily is a decision on the case before the Court, while the principle underlying the decision would be binding as a precedent in a case which comes up for decision subsequently. Therefore, while applying the decision to a later case, the Court dealing with it should carefully try to ascertain the principle laid down by the previous decision. A decision often takes its colour from the question involved in the case in which it is rendered. The scope and authority of a precedent should never be expanded unnecessarily beyond the needs of a given situation. The only thing binding as an authority upon a subsequent Judge is the principle upon which the case was decided. Statements which are not part of the ratio decidendi are distinguished as obiter dicta and are not authoritative. 

The task of finding the principle is fraught with difficulty as without an investigation into the facts, it cannot be assumed whether a similar direction must or ought to be made as measure of social justice. Precedents sub silentio and without argument are of no moment. Mere casual expression carry no weight at all. Nor every passing expression of a Judge, however eminent, can be treated as an ex cathedra statement having the weight of authority'. 

It is now well established that doctrines of per incuriam and sub-silentio operate as exceptions to the rule of precedent. The judgment of the Supreme Court has escaped the finding on the point of whether the allowances mentioned supra form part of basic wage or not and hence is rendered sub-silentio. The Supreme Court did not not lay down any law on the point. 

Under the circumstances, the binding force of the judgment shall be subject to interpretation and repeated challenge before the courts. 


Should you require any clarifications, you may contact me by email or on 8105671578
Dr Gubbi S Subba Rao
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Dr Gubbi Subba Rao

We assist individuals, family and corporates in Indian & International disputes in legal matters,international arbitration and litigation before appropriate courts globally. We handle disputes under different jurisdiction courts globally.Membership: BAR ASSOCIATIONS IN EUROPEAN COUNTRIES , UAE, FAE EAST, etc. Appearances: INDIA, ASIA, UK, UAE, EUROPE, FAR EAST.Property Litigation,Company Laws & All Corporate Laws, Industrial & Labour Laws,Indirect Taxation-inclusive of Central Excise&Customs.