Legal Review and Analysis of Union of India & Ors vs Heavy Vehicles Factory Employees Union & Anr 2026 INSC 74
Synopsis
This Supreme Court judgment resolves a long-standing dispute regarding the computation of overtime wages under the Factories Act, 1948. The core legal question was whether various compensatory allowances—such as House Rent Allowance (HRA), Transport Allowance (TA), Clothing and Washing Allowance (CWA), and Small Family Allowance (SFA)—form part of the “ordinary rate of wages” for calculating overtime dues. The Court affirmed the High Court’s decision, holding that these allowances must be included, thereby rejecting the Union of India’s attempt to exclude them via executive memorandums. The judgment reinforces the primacy of statutory language over administrative instructions and underscores the Factories Act’s character as a beneficial social welfare legislation.
1. Basic Information of the Judgment
Case Title: Union of India & Others v. Heavy Vehicles Factory Employees’ Union & Another
INSC Citation: 2026 INSC 74
Court: Supreme Court of India
Bench: Justice Rajesh Bindal (Single Judge)
Nature: Civil Appellate Jurisdiction
Civil Appeal Nos.: 5185-5192 of 2016
Date of Judgment: January 20, 2026
Impugned Judgment: Order dated 30.11.2011 by a Division Bench of the High Court, which had set aside the Central Administrative Tribunal’s order dated 24.12.2010.
2. Legal Framework & Relevant Statutes
The judgment centers on the interpretation of the following statutory provisions:
Factories Act, 1948:
Section 59(2): Defines “ordinary rate of wages” as “basic wages plus such allowances… as the worker is for the time being entitled to,” explicitly excluding only “bonus and wages for overtime work.”
Sections 64 & 65: Empower the State Government (not the Central Government) to make rules and issue exempting orders concerning working hours.
Sections 112 & 113: General rule-making powers and power of the Central Government to issue directions to State Governments for implementation.Payment of Wages Act, 1936 (Section 2(vi)) & Industrial Disputes Act, 1947 (Section 2(rr)): Referenced for the inclusive definition of “wages.”
General Clauses Act, 1897 (Section 3(60)): Defines “State Government.”
Constitution of India (Article 258A): Regarding entrustment of functions.
Relevant Precedents Cited:
For Appellants (Union of India): Bridge and Roofs Co. Ltd. v. Union of India (on ‘basic wages’ under EPF Act); Govind Bapu Salvi v. Vishwanath Janardhan Joshi & Union of India v. Suresh C. Baskey (on HRA exclusion for employees in government quarters).
For Respondents (Employees): Rajasthan State Industrial Development & Investment Corpn. v. Subhash Sindhi Coop. Housing Society (executive instructions cannot override law); Gujarat Mazdoor Sabha v. State of Gujarat (objectives and beneficial interpretation of the Factories Act).
Overruled: V.E. Josie & Ors. v. The Flag Officers Commanding in Chief Headquarters (Kerala High Court judgment taking a contrary view).
3. Brief Relevant Facts
Employees of various defence production factories under the Ministry of Defence claimed overtime wages computed by including compensatory allowances (HRA, TA, CWA, SFA).
The Union of India, through multiple Office Memorandums (OMs) issued between 1959 and 2009 by the Ministries of Defence, Finance, and Labour, sought to exclude these allowances from the “ordinary rate of wages” for overtime calculation.
The Central Administrative Tribunal (CAT) dismissed the employees’ original applications, accepting the government’s interpretation.
The High Court set aside the CAT’s order, ruling in favour of the employees.
The Union of India appealed to the Supreme Court, arguing the High Court’s interpretation imposed an exorbitant financial burden and created disparities among employees.
4. Issues Before the Supreme Court
Whether compensatory allowances like HRA, TA, CWA, and SFA fall within the ambit of “such allowances” under Section 59(2) of the Factories Act, 1948, for computing the “ordinary rate of wages” payable for overtime work?
Whether the various Office Memorandums issued by different Central Government Ministries can validly exclude such allowances, thereby overriding the plain statutory language?
Whether the Factories Act, 1948, permits the Central Government to issue clarificatory instructions altering the substantive meaning of Section 59(2)?
5. Ratio Decidendi & Supreme Court’s Reasoning
The Supreme Court dismissed the appeals, upholding the High Court’s judgment. The core legal reasoning is as follows:
Plain Meaning of Statute Prevails: The Court applied the literal rule of interpretation. Section 59(2) explicitly defines “ordinary rate of wages” as “basic wages plus such allowances… as the worker is for the time being entitled to.” The only exclusions stipulated are “bonus and wages for overtime work.” The legislature’s intent was clear and inclusive. Courts cannot add exclusions that Parliament did not provide.
Executive Instructions Cannot Override Statute: The Court held that the OMs issued by various Ministries were merely executive instructions without statutory force. They could not amend, curtail, or override the express provisions of a parliamentary law. The power to make rules under the Factories Act is vested solely in the State Governments (Sections 64, 65, 112). The Central Government only has the power to issue directions to States for implementation (Section 113), not to issue substantive clarifications altering the Act’s meaning.
Beneficial Legislation Requires Liberal Construction: The Court reaffirmed that the Factories Act is a social welfare legislation enacted to protect workers from exploitation and ensure their health and safety. Provisions meant for workers’ benefit, like overtime compensation, must be interpreted liberally in their favour. An interpretation that restricts benefits must be avoided.
Distinguishing Contrary Precedents: The Court distinguished the judgments cited by the appellants. Suresh C. Baskey and Govind Bapu Salvi dealt with the specific scenario of employees provided government quarters (thus not receiving HRA) and correctly held that a notional HRA cannot be added. These cases did not support a blanket exclusion of HRA for all employees.
Uniformity in Law Application: The Court noted the contradictory stance of the Government itself, as the Ministry of Railways included these allowances for overtime calculation for its employees. The same statutory provision cannot be interpreted differently by different wings of the executive.
6. Legal Principles Established/Clarified
Hierarchy of Norms: Parliamentary statutes occupy the highest field. Executive instructions, circulars, or memorandums cannot subtract from or nullify the rights expressly conferred by statute.
Interpretation of “Allowances” in Labour Statutes: In the context of wage-based benefits under protective labour legislation, the term “allowances” (especially when qualified by “such… as the worker is for the time being entitled to”) is to be construed broadly and inclusively, encompassing all regular compensatory components of remuneration.
Jurisdictional Limits of Central Government: Under the scheme of the Factories Act, the Central Government lacks the delegated power to frame rules or issue substantive clarifications affecting core rights like overtime wage computation. That power resides with State Governments.
Doctrine of Non-Derogation: A worker cannot contract out of the benefits mandated by the Factories Act. Similarly, the executive cannot, through non-statutory means, derogate from these statutory protections.
7. Court’s Examination & Analysis
The Court’s analysis was methodical:
Statutory Scrutiny: It meticulously examined the relevant chapters of the Factories Act (VI and XI) to delineate the rule-making authority, concluding that the Central Government’s OMs were ultra vires.
Precedential Analysis: It distinguished the appellants’ cited cases on factual grounds and embraced the principles from Gujarat Mazdoor Sabha, which elaborated on the socio-economic objectives of the Factories Act and the critical role of double-rate overtime pay as a bulwark against exploitation.
Purpose-Oriented Approach: The Court interpreted Section 59(2) in light of the Act’s overarching purpose: to protect workers’ well-being and compensate them fairly for extended labour, which disrupts work-life balance.
Evaluation of Executive Action: It found the OMs to be an attempt to unilaterally alter service conditions to reduce financial liability, lacking legal sanction and creating arbitrariness.
8. Critical Analysis & Final Outcome
Critical Analysis:
This judgment is a significant affirmation of workers’ rights and the principle of legality in labour law. It curtails the executive’s tendency to circumvent parliamentary mandates through administrative diktats. By insisting on a plain reading of Section 59(2), the Court ensures predictability and uniformity in wage justice. The overruling of the contrary Kerala High Court judgment settles the law nationally. The decision also highlights the need for coherence in government policy across different ministries.
Final Outcome:
The Civil Appeals filed by the Union of India were dismissed.
The judgment of the High Court was upheld.
It was conclusively held that:
a) Compensatory allowances like HRA, TA, CWA, and SFA form part of the “ordinary rate of wages” under Section 59(2) of the Factories Act, 1948, for calculating overtime wages.
b) The Office Memorandums issued by various Central Government Ministries seeking to exclude these allowances were without legal authority and cannot override the statutory provision.
c) The Kerala High Court’s judgment in V.E. Josie was overruled as not laying down the correct law.No order as to costs.
(MCQs)
1. As per Section 59(2) of the Factories Act, 1948, the “ordinary rate of wages” for overtime calculation includes basic wages plus such allowances as the worker is entitled to, but expressly excludes?
a) House Rent Allowance and Transport Allowance.
b) Dearness Allowance and City Compensatory Allowance.
c) Bonus and wages for overtime work.
d) Clothing Allowance and Small Family Allowance.
2. The Supreme Court held that the Office Memorandums issued by Central Ministries seeking to exclude allowances from overtime calculation were invalid primarily because?
a) They were issued by the wrong Ministry.
b) They were not published in the Official Gazette.
c) They lacked statutory force and could not override the plain language of the Factories Act.
d) They were issued without consulting the employee unions.
3. Under the Factories Act, 1948, the power to make rules regarding working hours and exemptions is vested with the?
a) Central Government.
b) Inspector of Factories.
c) State Government.
d) Union Ministry of Labour.
4. Which principle of statutory interpretation was primarily applied by the Supreme Court in reading Section 59(2)?
a) The Mischief Rule
b) The Golden Rule
c) The Literal Rule (Plain Meaning)
d) The Doctrine of Eclipse