The Supreme Court dismissed appeals filed by Union of India challenging High Court judgment which held compensatory allowances must be included in 'ordinary rate of wages' for overtime calculation under Section 59(2) of Factories Act, 1948. The Court examined conflicting government circulars from various ministries and concluded that administrative instructions cannot override statutory provisions. The Court emphasized the Factories Act, 1948 is beneficial legislation requiring liberal interpretation in favor of workmen. All compensatory allowances received by employees as part of their wages must be considered for overtime wage calculations.
The Supreme Court considered appeals against High Court judgment dated 30.11.2011 which set aside Central Administrative Tribunal order dated 24.12.2010 -- The core issue involved interpretation of Section 59(2) of Factories Act, 1948 regarding inclusion of compensatory allowances in 'ordinary rate of wages' for overtime calculation -- The appellants argued various government circulars excluded HRA, TA, CWA, and SFA from overtime calculations -- The respondents contended plain language of Section 59(2) included all wages received by workmen -- The Court held compensatory allowances form part of 'ordinary rate of wages' under Section 59(2) -- Government circulars cannot override statutory provisions -- The Factories Act, 1948 being beneficial legislation requires liberal construction in favor of employees -- The High Court judgment was upheld and appeals dismissed
The Supreme Court dismissed all appeals and upheld the High Court judgment -- Compensatory allowances including HRA, TA, CWA, and SFA form part of 'ordinary rate of wages' under Section 59(2) of Factories Act, 1948 -- Government circulars cannot override statutory provisions
Citation: 2026 LawText (SC) (01) 69
Case Number: Civil Appeal Nos.5185-5192 of 2016
Date of Decision: 2026-01-20
Case Title: Whether compensatory allowances such as House Rent Allowance, Transport Allowance, Clothing and Washing Allowance, and Small Family Allowance would fall within the term 'ordinary rate of wages' for calculation of overtime wages under Section 59(2) of Factories Act, 1948
Before Judge: Rajesh Bindal J. , Manmohan J.
Equivalent Citations: 2026 INSC 74
Appellant: Union of India & Others
Respondent: Heavy Vehicles Factory Employees' Union and Another
Nature of Litigation: Civil appeals challenging High Court judgment regarding interpretation of Factories Act, 1948 provisions for overtime wage calculation
Remedy Sought: Union of India sought reversal of High Court judgment which included compensatory allowances in overtime calculations
Filing Reason: Appellants contended High Court misinterpreted Section 59(2) of Factories Act, 1948 and placed exorbitant financial burden on factories
Previous Decisions: Central Administrative Tribunal dismissed employee applications on 24.12.2010 -- High Court set aside Tribunal order on 30.11.2011
Issues: Whether compensatory allowances form part of 'ordinary rate of wages' under Section 59(2) of Factories Act, 1948 for overtime calculation Whether government circulars can override statutory provisions of Factories Act, 1948
Submissions/Arguments: Appellants argued various government circulars excluded HRA, TA, CWA, and SFA from overtime calculations -- Appellants contended different allowances create disparity in calculations -- Respondents argued plain language of Section 59(2) includes all wages received -- Respondents contended government circulars cannot override statutory provisions -- Respondents emphasized Factories Act, 1948 as beneficial legislation requiring liberal construction
Ratio Decidendi: The plain language of Section 59(2) of Factories Act, 1948 includes all wages received by workmen in 'ordinary rate of wages' -- Administrative circulars issued by various ministries cannot override statutory provisions -- Factories Act, 1948 being beneficial legislation must be construed liberally in favor of employees
Judgment Excerpts: The issue is as to whether compensatory allowances, such as House Rent Allowance, Transport Allowance, Clothing and Washing Allowance and Small Family Allowance, would fall within the term 'ordinary rate of wages' for calculation of overtime wages in terms of Section 59(2) of Factories Act, 1948 The plain and simple meaning thereof is that, whatever wages, in any form, a workman is getting, the overtime is to be paid equivalent to the double of that rate There is no power vested with the aforesaid ministries to issue any clarifications with reference to Section 59(2) of the 1948 Act The 1948 Act, being a beneficial legislation, should be given liberal construction in favour of the employees
Procedural History: Multiple Original Applications filed before Central Administrative Tribunal by employee unions -- Tribunal dismissed applications on 24.12.2010 -- Respondents filed Writ Petitions before High Court -- High Court set aside Tribunal order on 30.11.2011 -- Union of India filed Civil Appeals before Supreme Court in 2016
