Workmen Of The Hercules Insurance Co.,
Ltd. Vs. Hercules Insurance Co., Ltd., Calcutta  INSC 272 (7 December
07/12/1960 GAJENDRAGADKAR, P.B.
GUPTA, K.C. DAS
CITATION: 1961 AIR 853 1961 SCR (2) 995
CITATOR INFO :
R 1964 SC1766 (14)
Industrial Dispute--Claim of bonus--General
Insurance business--Validity of reference--Industrial Disputes Act, 1947 (14 of
1947), s. 10(1)--Insurance Act, 1938 (IV of 1938), s. 31A(1)(c), proviso (vii).
In view of the unqualified and absolute
prohibition contained in s. 31A(1)(c) of the Insurance Act, 1938, against
payment of bonus to the employees in general insurance business, the exception
made by proviso (vii) to that section must be strictly confined to the limits
prescribed by the said proviso.
The policy underlying the proviso clearly is
to exclude the intervention of Industrial Tribunals and leave the question of
payment of such bonus entirely to the discretion of the Central Government.
Consequently, where the workmen in general
insurance business claimed bonus and the Central Government referred the
dispute for adjudication to the Industrial Tribunal under s. 10(1) of the Industrial
Disputes Act, 1947, and the Tribunal, on a preliminary objection under s.
31A(1)(c) of the Insurance Act, 1938, read with proviso (vii) thereof, held
that the reference was invalid, (1)  2 S.C.R. 978.
996 Held, the decision of the Tribunal was
correct and must be upheld.
The Central Bank of India v. Their Workmen,  1 S.C.R. 200, relied on.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 531 of 1959.
Appeal by special leave from the Award dated October 21, 1957 of the Central Government Industrial Tribunal, Dhanbad, in Reference No.
6 of 1957.
N. Dutta Mazumdar, G. N. Bhattacharjee and B.
P. Maheshwari, for the appellants.
M. C. Setalvad, Attorney-General of India and R. Gopalakrishnan, for the respondent.
1960. December 7. The Judgment of the Court
was delivered by GAJFNDRAGADKAR, J.-The short question of law which falls to be
decided in the present appeal is whether a dispute raised by the employees of a
General Insurance Company against their employer for payment of bonus in any
particular year can be referred for adjudication by an Industrial Tribunal
under S. 10(1) of the Industrial Disputes Act, 1947 (XIV of 1947). This
question arises in this way. The workmen of the Hercules Insurance Co. Ltd. are
the appellants and the Insurance Company is the respondent before us. On April 11, 1957, the Central Government referred the appellants' claim for bonus for the
years 1954 and 1955 for adjudication to the Industrial Tribunal, Dhanbad,
constituted under s. 7A of the Industrial Disputes Act, and this reference has
been made under S. 10(1)(d) of the Act. Before the Tribunal the respondent
urged a preliminary objection against the validity of the reference itself. Its
case was that the payment of bonus by an Insurance Company is conditioned
entirely by the relevant provisions of the Insurance Act, 1938 (IV of 1938),
and that the said provisions did not justify the reference of a dispute in that
behalf for adjudication by any Industrial Tribunal. This preliminary objection
was based on the provisions of S. 31A(1) and proviso (vii) of the 997 Insurance
Act. It was also urged by the respondent that having regard to the limitations
imposed on the General Insurance Companies by s. 40C of the Insurance Act the
claim for bonus made by the appellants, could not be sustained.
The Tribunal has upheld the preliminary
objection thus raised by the respondent and held that the reference is invalid.
Incidentally it has also considered the plea raised under s. 40C and has
observed that the said plea is also well founded In the result the Tribunal
refused to entertain the reference and dismissed it accordingly. It is against
this order of the Tribunal that the appellants have come to this Court by
It is common ground that the respondent has
paid the appellants bonus equivalent to two months' basic wages for each of the
two years 1954 and 1955. The appellants claim two months' basic wages as
additional bonus for each of the two years under reference. It is their case
that if the trading profits made by the respondent are ascertained from the
respondent's balance sheet and the Full Bench formula is applied, it would
appear that the respondent has in its hands a substantial amount of available
surplus from which the additional bonus claimed by them can be awarded. Since
the reference has been rejected on the preliminary ground the Tribunal has
naturally not considered this aspect of the problem.
The preliminary objection raised by the
respondent is founded on the relevant provisions of s. 31A of the Insurance Act
(hereafter called the Act) and so we must now turn to the said provisions.
Section 31A(1)(c) of the Act provides, inter alia, that notwithstanding anything
to the contrary contained in the Indian Companies Act, 1913, or in the articles
of association of the insurer, if a company, or in any contract or agreement,
no insurer shall after the expiry of one year from the commencement of the
Insurance (Amendment) Act, 1950, be directed or managed by, or employ as
manager or officer or in any capacity, any person whose remuneration or any
part thereof takes the form of commission or bonus in respect of the 126 998
general insurance business of the insurer. Thus looking s. at 31A(1)(c) by
itself without the proviso the position is absolutely at clear. The respondent
cannot be directed to employ the appellants in any capacity so as to include in
their remuneration a liability to pay bonus in respect of the general insurance
business of the respondent. Bonus under the Industrial Disputes Act is not a
part of wages, but the right to claim bonus which has been universally
recognised by industrial adjudication in cases of employment falling under the
said Act has now attained the status of a legal right. Bonus can be claimed as
a matter of right provided of course by the application of the Full Bench
formula it is shown that for the relevant year the employer has sufficient
available surplus in hand. Therefore a claim for bonus made by the appellants
in the present proceedings is a claim in respect of the general insurance
business of the respondent, and if allowed it would add to the remuneration payable
to them. In other words, bonus claimed by the appellants, if awarded, would,
for the purpose of s. 31A (1)(c), be a part of their remuneration, and that is
precisely what is prohibited by the said provision.
There are, however, certain exceptions to
this general prohibition, and it is to one of these exceptions that we must now
turn. Proviso (vii) to s. 31A (1)(c) lays down that nothing in this subsection
shall be deemed to prohibit" the payment of bonus in any year on a uniform
basis to all salaried employees or any class of them by way of additional
remuneration, such bonus, in the case of any employee, not exceeding in amount
the equivalent of his salary for a period which, in the opinion of the Central
Government, is reasonable having regard to the circumstances of the case."
This provision which constitutes an exception to the rule prescribed by s.
31A(1)(c) allows the payment of bonus to the employees of Insurance Companies
subject to the condition specified by it. Bonus intended to be paid to such
employees must not exceed in amount the equivalent of their salary for a period
which the Central Government regards as reasonable.
999 The result of this provision appears to
be that the Central Government has to consider the circumstances of each insurer
and then decide whether any bonus should be paid by the insurer to its
employees. If the financial position of the insurer is sufficiently
satisfactory, the Central Government may decide to allow the insurer to pay
bonus to its employees, and in that context the Central Government would
prescribe the maximum within which the payment should be made. In no case can
payment exceed the maximum prescribed by the Central Government, and in all
cases the matter has to be considered by the Central Government and no other
authority. Having regard to the scheme of the Act which purports to supervise
and regulate the working of Insurance Companies the legislature thought that
the payment of bonus by the Insurance Companies to their employees should
normally be prohibited and its payment should be permitted subject to the
over-riding control of the Central Government to prescribe the maximum in that
behalf. If the Central Government decides that no bonus should be paid, no
bonus can be paid by the insurer. If the Central Government decides that bonus
should be paid but not beyond specified limit the insurer cannot exceed that
limit. That, in our opinion, is the effect of proviso (vii) to s. 31A(1).
It is, however, urged that proviso (vii)
merely enables the Central Government to prescribe the maximum. It does not
take away the Central Government's authority to refer an industrial dispute in
respect of bonus for adjudication under s. 10 of the Industrial Disputes Act.
In this connection it is urged by Mr. Mazumdar that in some cases the Central
Government may take the view that the financial position of the insurer
justified the payment of bonus, but the quantum may be better left to the
In such a case the Central Government should
have authority to make the reference. Similarly it is urged that the Central
Government may decide that within the maximum prescribed by it, bonus should be
paid by an insurer, but the insurer 1000 may not comply with the Central
Government's decision and in that case the only way to make the Central
Government's decision effective is to refer the matter to adjudication and
enable the employees to obtain an award which can be executed. That is why the appellants
contend that the enabling provision contained in proviso (vii) should not be
construed to constitute a bar against the Central Government's power to act
under s. 10(1) of the Industrial Disputes Act.
We are not impressed by this argument. In our
opinion the policy of the relevant clause of the proviso is absolutely clear.
Payment of bonus by insurers was intended by the legislature to be conditioned
by the provisions contained in the said clause, and we feel no doubt or
difficulty in reaching the conclusion that the intervention of the Industrial
Tribunals was intended to be excluded and the matter was intended to be kept
within the discretion of the Central Government so far as the payment of bonus
by the insurers is concerned. Then, as to the argument that the Government
directive issued under proviso (vii) may not be obeyed by any insurer, we do
not think that such an event is likely to happen; but theoretically it is
conceivable that an insurer may refuse to comply with the decision of the
Government. In that case all we can say is that there is a lacuna left and the
legislature may consider whether it is necessary to provide adequate remedy for
making the Government decision binding and final. Having regard to the
unqualified and absolute prohibition contained in s. 31A(1)(c) it seems to us
difficult to hold that the payment of bonus to the employees of Insurance
Companies is not absolutely conditioned by proviso (vii). In the absence of the
said provision no bonus could have been claimed by Insurance employees, and so
the effect of the said provision must be to limit the said right to the
conditions prescribed by it. That is why we think that the Tribunal was right
in coming to the conclusion that the reference made by the Central Government
is invalid. The fact that the Central Government took the view that it could
make such a reference 1001 is hardly relevant in determining the scope and
effect of the relevant provisions of the Act. This question must be considered
on what we regard to be the fair construction of the relevant statutory
provision, and as we have just indicated the construction of the relevant
provision clearly supports the view taken by the Tribunal. Incidentally, it may
be pointed out that in its award the Tribunal has referred to several other
decisions of Industrial Tribunals which have taken the same view though there
are one or two decisions which have upheld the validity of the reference
without duly considering the effect of s. 31A(1).
In this connection we may refer to the
decision of this court in The Central Bank of India v. Their Workmen (1), where
a similar question has been considered. In that case the Court had to consider
the effect of s. 10 of the Banking Companies Act, 1949, prior to its amendment
in 1956. The said section, according to that decision, prohibited the grant of
industrial bonus to bank employees inasmuch as such bonus is remuneration which
takes the form of a share in the profits of a banking company. In dealing with
the character of bonus in relation to remuneration specified by s. 10, S. K.
Das, J., who spoke for the Court, observed that "bonus in the industrial
sense as understood in our country does come out of the available surplus gap,
wholly or in the actual wage. id it fills the wage and age in that sense,
whether it be called contingent or supplementary. None the less, it is labour's
share in the profits, and as it is a remuneration which takes the form of a
share in profits, it comes within the mischief of s. 10 of the Banking
Companies Act". Section 10 of the Banking Companies Act is comparable to
s. 31A of the Insurance Act, and so this decision supports the view that we
have taken about the effect of s. 31A(1)(c). We have already held that the
payment of bonus would be an additional remuneration to the employees of
Insurance Companies and it would be (1)  1 S.C.R. 200.
1002 bonus in respect of the general
insurance business of the insurer. In view of our conclusion that the Tribunal
was right in upholding the preliminary objection, we do not propose to consider
the other argument which had been urged by the respondent before the Tribunal
under s. 40C of the Act, and which the Tribunal has incidentally considered and
The result is that the appeal fails and is
There will be no order as to costs.