Union of India & Ors. v. Heavy Vehicles Factory Employees’ Union & Anr.

Compensatory allowances forming part of “ordinary rate of wages” must be included while computing overtime wages under s. 59(2) of the Factories Act, 1948; executive memoranda cannot curtail statutory entitlements.

 

Background

Employees of defence production factories claimed that compensatory allowances—House Rent Allowance (HRA), Transport Allowance (TA), Clothing and Washing Allowance (CWA), and Small Family Allowance (SFA)—must be included while computing overtime wages. The Central Administrative Tribunal rejected the claim, but the Madras High Court allowed it. The Union of India appealed. 

 

Issues Framed

1. Whether compensatory allowances fall within “ordinary rate of wages” for calculating overtime wages under s. 59(2) of the Factories Act, 1948. 
 

Court’s Reasoning

1. Statutory interpretation of s. 59(2) Factories Act, 1948

• Legal Rule: Section 59(2) defines “ordinary rate of wages” as basic wages plus such allowances as the worker is for the time being entitled to, excluding only bonus and overtime wages.
• Reasoning: The Legislature expressly provided only two exclusions. Applying settled principles of statutory construction, courts cannot read additional exclusions into the provision.

2. Lack of authority of executive instructions

• Rule: Executive circulars lacking statutory backing cannot override or dilute parliamentary enactments.
• Application: Ministries of Defence, Labour, and Finance have no power under the 1948 Act to issue binding interpretations excluding allowances from s. 59(2). Rule-making and exemption powers under S. 64, 65, 112 vest exclusively in State Governments; the Central Government may only issue directions to States under s. 113, not reinterpret the statute.

3. Beneficial construction

• Rule: The Factories Act is welfare legislation aimed at preventing exploitation; provisions in Chapter VI must be construed liberally in favour of workers.
• Application: Excluding compensatory allowances would impermissibly curtail benefits and defeat the protective purpose of overtime wages payable at double the ordinary rate.

4. Precedents

• Earlier decisions relied upon by the Union were distinguished as context-specific and not authorisingblanket exclusion of allowances.
• Contrary Kerala High Court view was expressly disapproved.
 

Decision 

Appeals dismissed; the Madras High Court’s judgment upheld. No costs. 

 

Ratio

For computation of overtime wages under s. 59(2) of the Factories Act, 1948, “ordinary rate of wages” includes basic wages and all allowances to which the worker is presently entitled, save bonus and overtime wages; executive instructions cannot exclude compensatory allowances.


Case Details

• Citation: 2026 INSC 74
• Decided on: 20 January 2026
• Case Title: Union of India & Ors. v. Heavy Vehicles Factory Employees’ Union & Anr.
• Court: Supreme Court of India
• Bench: Rajesh Bindal J., Manmohan J.



 Judgment PDF 

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