ESI Act Interpretation: Supreme Court Ruling on Conveyance Allowance

The case of Employees State Insurance Corporation v. M/s Texmo Industries raised an important legal question regarding the interpretation of ‘wages’ under the Employees State Insurance Act, 1948 (ESI Act). The Supreme Court’s ruling on March 8, 2021, provided clarity on whether conveyance allowance falls within the definition of wages for ESI contributions.

The case originated when the Employees State Insurance Corporation (ESIC) conducted an inspection of M/s Texmo Industries and found discrepancies in wage calculations for ESI contributions. The dispute centered around a demand of Rs. 9,48,517, which ESIC claimed as unpaid contributions on conveyance allowance.

Arguments by the Petitioner (ESI Corporation)

The petitioner argued that conveyance allowance should be included in wages under Section 2(22) of the ESI Act. It maintained that since conveyance allowance is paid monthly along with salaries, it forms part of the employees’ remuneration and should be subject to ESI contributions.

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Arguments by the Respondent (M/s Texmo Industries)

The respondent contended that conveyance allowance is in the nature of travel reimbursement and should be excluded from wages, as explicitly stated in Section 2(22) of the ESI Act. The company had already paid contributions on wage differences but disputed the inclusion of conveyance allowance.

Key Observations by the Supreme Court

The judgment, delivered by Indira Banerjee and Hrishikesh Roy, examined the legal definition of wages under the ESI Act:

• Section 2(22) explicitly excludes ‘travelling allowance’ from wages.
• Conveyance allowance serves the same purpose as travel expenses, helping employees reach their workplace.
• Previous judicial precedents, including Management of Oriental Hotels Ltd. v. ESI Corporation, had excluded conveyance allowance from ESI calculations.

The Court concluded that conveyance allowance is essentially a travel-related expense and cannot be treated as remuneration for employment.

Final Verdict

The Supreme Court dismissed the appeal filed by ESIC and upheld the decision of the High Court and Employees’ State Insurance Court, ruling that conveyance allowance is not part of wages under the ESI Act.

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This judgment provides clarity on employer obligations under the ESI Act and reinforces the principle that compensatory payments are distinct from remuneration.

Petitioner Name: Employees State Insurance Corporation.
Respondent Name: M/s Texmo Industries.
Judgment By: Justice Indira Banerjee, Justice Hrishikesh Roy.
Place Of Incident: Coimbatore, Tamil Nadu.
Judgment Date: 08-03-2021.

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