Jalan Trading Co. Private Ltd. Vs.
Mill Mazdoor Union [1966] INSC 132 (5 August 1966)
05/08/1966 SHAH, J.C.
SHAH, J.C.
WANCHOO, K.N.
HIDAYATULLAH, M.
SIKRI, S.M.
RAMASWAMI, V.
CITATION: 1967 AIR 691 1967 SCR (1) 15
CITATOR INFO:
R 1968 SC 162 (18) RF 1968 SC1138 (35) E 1968
SC1232 (53) E 1970 SC 778 (11) F 1970 SC1421 (3) RF 1970 SC1765 (10) R 1972
SC1690 (20) D 1974 SC 960 (38) R 1974 SC1300 (74) RF 1975 SC 511 (17) RF 1976
SC1455 (30) RF 1980 SC1789 (36)
ACT:
Constitution of India, 1950, Arts. 14,
31(1)-Payment of Bonus Act, 1965, ss. 10, 33, 36, 37--sections whether
discriminatory-Section 10 whether deprivation of property.
HEADNOTE:
During the pendency before the Industrial
Tribunal, Bombay, of a reference under s. 73-A of the Bombay Industrial
Relations Act, 1946, which arose out of a demand for the payment of bonus for
the years 1961 and 1962 the Payment of Bonus Ordinance 3 of 1965 was
promulgated by the President on May 29, 1965 with immediate effect. The
representatives of the workmen claimed that even if the plea of the employers
that the profit and loss account of establishment for the years in question
disclosed a loss, was correct, the ordinance governed the dispute and that the
employees were entitled to receive bonus, at the minimum rate of 4% of the
salary or wages or Rs. 40 whichever was higher. The Industrial Court upheld the
plea of the workmen and directed the employers subject to the provisions of the
Bonus Ordinance, 1965 to pay to each employee bonus for the year 1962 equivalent
to 15 days' of the salary or wages or Rs. 40 whichever was higher. With special
leave the employers appealed to this Court and challenged the validity of the
payment of Bonus Act, 1965, which repealed Ordinance 3 of 1965 and especially
of the provisions under which bonus at minimum rate was made payable under the
Act.
HELD: (i) The impugned legislation was within
the legislative competence of Parliament and therefore not a colourable
exercise of power or a fraud on the Constitution.
[27 B] Express Newspapers (Private) Ltd. v.
Union of India, [1959] S.C.R. 12 and K. C. Gajapati Narayan Deo & Ors. v.
State of Orissa, [1954] S.C.R. 1, referred to.
(ii) The power to exempt certain
establishments from the operation of the Act given to the appropriate Government
under s. 36 was not an unguided power because the Government was enjoined to
take public interest, the financial position of the establishment, and other
relevant circumstances into consideration before exercising the said power.
There was therefore no excessive delegation of leg= authority by s. 36 and the
section was valid, [31 F-G] (iii) Per Wanchoo, Shah and Sikri, JJ.-Section 10
is an integral part of a scheme for providing for a payment of bonus at rates
which do not juctuate from year to year. It is not in the interest of capital
or labour that there should be wide fluctuation in the payment of bonus by an
establishment from year to year. [33 H] The object of the Act being to maintain
peace and harmony between labour and capital by allowing the employees to share
the prosperity of 16 the establishment reflected by the profits earned by the
contributions made by capital, management and labour, Parliament has provided
that bonus in a given year shall not exceed 1/5th and shall not be less than 1/25th
of the total earning of each individual employee, and has directed that the
excess shall be carried forward to the next year, and that the amount paid by
way of minimum bonus not absorbed by the available profits shall be carried to
the next year and be set off against the profits of the succeeding years.
This scheme of prescribing maximum and
minimum rates of bonus together with the scheme of 'set off' and 'set on' not
only secure, the right of labour to share in the prospertity of the
establishment but also ensures a reasonable, degree of uniformity. [34 C-D]
Equal protection of the laws is denied if in achieving a certain object
persons, objects or transactions similarly circumstanced are differently
treated by law and the principle underlying that different treatment ha,,, no
rational -relation to the object sought to be achieved by the law. Examined in
the light of the object of the Act and the scheme of set off and 'set on', the
provision for payment of minimum bonus cannot be said to be discriminatory
between different establishments which are unable on the profits of the
accounting year to pay bonus merely because a uniform standard of minimum rate
of bonus is applied to them. [34 F] Kunnathat Thathunni Moopil Nair v. State of
Kerala and Another, [1961] 3 S.C.R. 77, distinguished.
Section 10 undoubtedly places in the same
class establishments which have made inadequate, profits not justifying payment
of bonus, establishments which have suffered marginal loss, and establishments
which have suffered heavy loss. The classification so made is not
unintelligible as all establishments which are unable to pay bonus under the
scheme of the Act, on the result of the working of the establishment,, are
grouped together. [35 F] Section 10 therefore is not open to attack on the
ground of denial of equality under Art. 14. [36 C] Nor was the attack under
Art. 31(1) well founded. The article guarantees the right against deprivation
of property otherwise than by authority of law. Compelling an employer to pay
sums of money to his employees which he has not contractually rendered himself
liable to pay may amount to deprivation of property : but the protection under
Art.
31(1) is available only if the deprivation is
not by authority of law. There was however deprivation by authority of law in
the present case. [36 F-H] Per Hidayatullah, (Ramaswami, J. concurring) Taking
the provision for minimum bonus with the provision for set off it can hardly be
said that the section is so exorbitant that it amounts to deprivation of the
property of the employers with a view to giving it to the workmen. [56 E-F] The
observations in Moopil Nair's case, wide as they may appear, must not be
extended by analogical application to a case of minimum bonus which is intended
to promote industrial peace and to be a first step towards the goal of
need-based wage. Even if the payment of minimum bonus is viewed an compulsory
payment of wage, the power to impose it as part of minimum wage is not lacking.
It must not be forgotten that the fixation of minimum wage was also criticised
along the same lines but was held justified. 'Me differentials, the paying
capacity of establishments or absence of profit made no difference. (56 G-H] 17
Kunnathat Thathunni Moopil Nair V. State of Kerala & Anr,.
[1961] 3 S. C. R. 77, distinguished.
Edward Mills Co. Ltd. Beawar v. State of
Ajmer,[1955]1 S.C.R, 735, Bijay Cotton Mills Ltd. v. State of Ajmer [1955]
IS.C.R. 752, Express Newspapers (Pvt.) Ltd. & Anr. v. Union of India &
Ors., [1959] S.C.R.12 and U. Unichoyi & Ors.v.
State of Kerala, [1962] 1 S.C.R. 946, relied
The provision for payment of 15 days' wages to workmen as bonus irrespective of
profits is a measure well-designed to keep industrial peace and to make way for
the need-based wage which the Tripartite Conference emphasized Some unequal
treatment can always be made to appear when laws apply uniformly. Two
establishments cannot be entirely Differences must exist but that does not
prevent the making of uniform laws for them provided the law made has a rational
relation to the object sought to be achieved and the inequality is trivial or
hypothetical. Classification can only be insisted upon if it is possible to
classify and a power to classify need not always be exercised when
classification is not reasonably possible. Section 10 does not lead to such
inequality as may be called discrimination.
[57 D-E] (iv) Per Wanchoo, Shah and Sikri,
JJ.-Application of the Act retrospectively under s. 33 depends upon the
pendency immediately before May 29, 1965, of an industrial dispute regarding
payment of bonus relating to any accounting year not earlier than the year
ending on any day in 1962. If there be no such dispute pending immediately
before the date on which the Act becomes operative, an establishment win be governed
by the Full Bench Formula and will be liable to pay bonus only if there be
adequate profits which would justify payment of bonus. If however a dispute is
pending immediately before May 29,, 1965 the scheme of the Act will apply not
only for the year for which the dispute is Pending but even in respect of
subsequent years. Assuming that the classification was founded on some
intelligible differential which distinguish an establishment from other
establishments the differentia has no rational -relation to the object sought
to be achieved by the statutory provision viz., of ensuring peaceful relations
between capital and labour by making an equitable distribution of the surplus
profits of the year Arbitrariness of the classification becomes more pronounced
when it is remembered that in respect of the year subsequent to the year for
which the dispute is pending, liability prescribed under the Act is attracted
even if for such subsequent years no dispute is pending, whereas to an
establishment in respect of which no dispute is pending immediately before May
29, 1965, no such liability is attracted. Therefore two establishments
similarly circumstanced having no dispute pending relating to bonus between the
employers and the workmen in a particular year would be liable to be dealt with
differently if in respect of a previous year (covered by s. 33) there is a
dispute pending between the employer and the workmen in one establishment and
there is no such dispute pending in the other. [40 C-G] Liability imposed by
the Act for payment of bonus is more onerous than the liability which had
arisen under the Full Bench Formula prior to the date of the Act. Imposition of
this onerous liability depending solely upon the fortuitous circumstance that a
dispute relating to bonus is pending between workmen or some of them
immediately before May 29, 1965, is plainly arbitrary and classification made
on that basis is not reasonable. [40 HI Discrimination also results from the
distinction made in the section between a dispute pending before, this Court or
the High Court and one 18 pending before the Industrial Tribunal or the
appropriate Government, the former not being treated as a pending dispute for
the purpose of the section. There is no, logical basis for the distinction. [41
C] Per Hidayatullah and Ramaswami, JJ. (dissenting) : Sections 33 by providing
uniformly for all cases pending on May 29, 1965, without any discrimination
between them,, has established a rational classification. The section therefore
cannot be said to be invalid by reason of inequality. [64 E-F] In s. 33 no note
was taken of cases pending before the High Court and Supreme Court because the
jurisdiction of the High Courts and the Supreme Court is either supervisory or
appellate and the intention was to cover cases in which no decisions of the
authorities appointed under the law relating to, industrial disputes was yet
made. Disputes prior to 1962 were not taken note of because a date line had to
be fixed and 1962 was the 'rational date to fix because the Bonus Commission
began its deliberations that year. [63 G] In several statutes a date is
generally selected to demarcate pending cases and the selection of the date has
never been challenged successfully if there is some rational ground for its
selection. If the resolution of the dispute by the instrumentality of the Act
was contemplated, the Act had also to say which dispute would be so resolved
and the only rational date to select was the, date on which the Ordinance was
promulgated. Thus the pendency of disputes with reference to the Ordinance, and
reopening of accounting years up to, the year in which the Bonus Commission
began its deliberation was logical and not arbitrary. [63 H] The provision with
regard to the reopening of the intervening account years for re-fixation of
bonus was also logical. If the dispute regarding 1962 or a later year was
decided by the application of the Act it was imperative to reconsider the
subsequent years even though there was no dispute in those years. The process
of the Act is an integrated one and by the principle of set on and set off four
accounting years are involved to avoid extraordinary results. [64 E] By the
different treatment of those establishments where a dispute is pending there is
no violation of equality. The fact that in one there is a dispute and in the
other there is not, clearly distinguishes the two establishments. The
distinguishing feature of the pendency of the dispute on the date of the
promulgation of the Ordinance clearly demarcates a distinct class of cases and
the classification made by the Act is a rational one. No doubt the liability
for bonus under the Act may be more in some cases but it is likely to be less
in others. The Act does not make any difference in the treatment within the
class it deals with. All establishments in which disputes were pending are
treated alike. [64 C-E] (v) Per Wanchoo, Shah and Sikri, JJ--Section 34 imposes
a special liability to pay bonus determined on the gross profits of the base
year on an assumption that the ratio which determine-, the allocable surplus is
the normal ratio not affected by any special circumstance and perpetuates for
the duration of the Act that ratio for determining the minimum allocable
surplus each year. If bonus contemplated to be paid under the Act is intended
to make an equitable distribution of the surplus profits of a particular year,
a scheme for computing labour's share which cannot be less than the amount
determined by the application of a ratio derived from the working of the base
year without taking into consideration the special Circumstances governing that
determination is prima facie arbitrary and unreasonable. It may be that the
ratio was intended to stabilise the previous grant of bonus and maintain in
favour of labour whatever was 19 achieved by collective bargaining in the base
year. But the validity of a statute is subject to judicial scrutiny in the
context of fundamental freedoms guaranteed to employers as well as employees
and the freedom of equal protection of the laws becomes chimerical if the only
ground in support of the validity of a statute ex facie discriminatory is that
the Parliament intended inconsistently with the very concept of bonus evolved
by it to maintain for the benefit of labour an advantage which labour had obtained
in an earlier year based on special circumstances of that year, without any
inquiry whether that advantage may reasonably be granted in subsequent years
according to the principles evolved by it and for securing the object of the
Act. If the concept of bonus as allocation of an equitable share of the surplus
profits of an establishment to the workmen who have contributed to the earning
has reality, any condition that the ratio on which the share of one party
computed on the basis of the working of an earlier year, without taking into
consideration the special circumstances which had a bearing on the earning of
the profits and payment of bonus in that year, shall not be touched, is
arbitrary and unreasonable.
The vice of the provision lies in the imposition
of an arbitrary ratio governing distribution of surplus profits.
Section 34(2) is invalid on the ground that
it infringes Art. 14 of the Constitution. [45 H-46 F] Per Hidayatullah and
Ramaswami, JJ. (dissenting) Section 34(1) which is criticised because it
sacrifices all principles which this Courthad established in the past and fixes
a ratio for all time to come is also not invalid. The Act was passed to make
for greater certainty, for improving relations between the employers and the
workmen and for the avoidance of disputes. It must not be forgotten that in
many establishments the payment of bonus in the past was the result of
collective bargaining and the advantage which labour has so achieved was not
likely to be given up so readily. Any legislation to be successful had to
preserve as far as possible what labour considered to be its right in a
particular establishment. By establishing a base year and by insisting that the
same proposition should be maintained in the payment of bonus the establishment
knew with certainly what their liabilities in respect of bonous would be in the
future years. If extraordinary circumstances appear set on and set off will
make them less onerous for the employers or employees. The existence of a rigid
ratio which applies to all establishments which come tinder s.
34(2) does not therefore create inequality.
[64 F-65 C] (vi) Per Wanchoo, Shah 'and Sikri, JJ.-Section 37 authorises the
Government to determine for itself what the purposes of the Act are and to make
provisions for the removal of doubts or difficulties. This in substance amounts
to exercise of legislative authority which cannot be delegated to an executive
authority. Sub-section (2) of s. 37 which purports to make the order of the
Central Government in such cases final accentuates the vice in sub-s. (1) since
by enacting that provision the Government is made the sole judge whether
difficulty or doubt had arisen in giving effect to the provisions of the Act,
whether it is necessary or expedient to remove the doubt or difficulty, and
whether the provision enacted is not inconsistent with the purpose of the Act.
Section 37 therefore is invalid. [32 A-C] Per Hidayatullah and Ramaswami, JJ.
(dissenting) The functions exercised under s. 37 are not legislative functions
at all but are intended to advance the purpose which the Legislature had in
mind. Apprehending that in the application of the new Act doubts and
difficulties might arise and not leaving their solution to the courts with the
attendant delays and expense, Parliament has chosen to give power to the
Central Government to remove doubts and.
differences by a suitable order. The order of
course 20 would be passed within the four corners of the parliamentary
legislation and would only apply the Act to concrete cases as the courts do
when they consider the application of the Act. The order of the Central
Government is made final for the reason that it is hardly practical to give
power to the Central Government and yet to leave the matter to be litigated further.
The fact that in the Government of India Act, 1935 and in the Constitution such
a power was and is contemplated and it has been conferred in various Acts
without a challenge before, shows amply that the argument that the section
amounts to delegation of legislative powers on the Central Government is
erroneous. Accordingly s. 37 is valid. [As to the validity of s. 32 with
reference to Art. 14 of the Constitution the Court found that there was not
enough material on record to decide the issue.] [58 H-59 E]
CIVIL, APPELLATE JURISDICTION : Civil Appeal
No. 187 or 1966 Appeal by special leave from the Award Part I dated the July
21, 1965 of the Industrial Court, Maharashtra, Bombay in Reference (IC) No. 78
of 1963.
AND Writ Petitions Nos. 3 and 32 of 1966.
Petition under Art. 32 of the Constitution of
India for the enforcement of fundamental rights.
N.A. Palkhivala, -R. J. Kolah, B. Dutta, C.
C. Jain, Bhuvnesh Kumari and J. B. Dadachanji, for the appellant (in C.A. No.
187 of 1966).
H. K. Sowani, K. Rajendra Chaudhuri and K. R.
Chaudhuri, for the respondent.
M. C. Setalvad, G. B. Pai, P. K. Kurain, B.
Dutta, Buvnesh Kumari and J. B. Dadachanji, for the appellant (in W.P. No. 3 of
1966).
Niren De, Addl. Solicitor-General, N. S.
Bindra, R. H. Dhebar and B. R. G. K. A(-liar, for respondent No. 1.
V.A. Seyid Muhammad, Advocate General,
Kerala, A. G.
Puddissery and M. R. K. Pillai, for
respondents Nos.2 and 3.
A. K. Sen and K. L. Hathi, for respondent No.
4.
N. Sreekantan Nair, for respondent No. 8.
G. B. Pai, B. Dutta, Buvnesh Kumari and J. B.
Dadachanji, for the petitioner (in W. P. No. 32 of 1966).
Niren De, Addl. Solicitor--General, N. S.
Bindra, R. H.
Dhebar and R. N. Sachthey, for respondents
Nos. 2 and 3.
V. A. Seyid Muhammad, Advocate-General,
Kerala and M. R. K Pillai, for respondents Nos. 2 and 3.
21 Janardan Sharma, for respondent No. 4.
A. K. Sen, and K. L. Hathi, for respondent
No. 4A.
H. K. Sowani and K. R. Chaudhuri, for
intervener No. 1.
K. Rajendra Chaudhuri and K. R. Chaudhuri, for
intervener No.2.
Niren De, Addl. Solicitor-General, Al. S.
Bindra, R. H.
Dhebar and B. R. G. K. Achar, for intervener
No. 3.
N. A. Palkhivala, J. B. Dadachanji, for
interveners Nos.
6, 9,11 and 15.
N.M. Barot, Officer, Textile Union (in
person) intervener No. 5.
I. N. Shroff, for intervener No. 7.
J. P. Goyal, for intervener No. 8.
S. R. Vasavada, for intervener No. 10.
N. C. Chatterjee, R. K. Garg, M. K.
Ramamurthi, Jitendra Sharma and Janardan Sharma and Satish Loomba, for
intervener No. 12 (in C.A. No. 187 of 1966 and W.P. No. 3 of 1966).
R. J. Kolalh, B. Narayanswami and J.B.
Dadachanji, for intervener No 13.
M. C. Setalvad, R. J. Kolah, and J. B.
Dadachanji, for intervener No. 14.
I M. Nanavati, O. P. Malhotra and J. B.
Dadachanji, for intervener N o. 16.
Vithalbhai B. Patel and I. N. Shroff for
interveners Nos. 18 and 19.
The Judgment of WANCHOO, SHAH and SIKRI, JJ
was delivered by SHAH, J. The dissenting Opinion of HIDAYATULLAH and RAMASWAMI,
JJ. was delivered by HIDAYATULLAH, J.
Shah, J. During the Pendency, before the
Industrial Court, Bombay, of a reference under s. 73A of the Bombay Industrial
Relations Act, 1946, which arose Out of a demand for payment of bonus for the
years 1961 and 1962, the Payment of Bonus Ordinance 3 of 1965 was promulgated
by the President on May 29, 1965, with immediate effect. The representatives of
the workmen claimed that even if the plea of the employers that the profit and
loss account of the establishment for the years in question disclosed a loss,
was correct, the Ordinance governed the dispute and that the employees were
entitled to receive bonus at the minimum rate of 4'@ of the salary or wages or
Rs. 40/whichever is higher. The 22 Industrial Court upheld the plea of the
workmen and directed the employers subject to the provisions of the Bonus
Ordinance, 1965, to pay to each employee bonus for the year 1962 equivalent to
15 days of the salary or wages or Rs.
40/whichever is higher.
With special leave, the employers have
appealed to this Court and they challenge the validity of the Payment of Bonus
Act, 1965, which replaced Ordinance 3 of 1965, and especially of the provisons
under which bonus at minimum rate is made payable under the Act.
Writ Petitions Nos. 3 of 1966 and 32 of 1966
are filed by two public limited companies. They challenge diverse provisions of
the Act and contend that they are not liable to pay bonus under the machinery
prescribed by the Act.
A synopsis of the development in the
industrial law which led to the enactment of the Payment of Bonus Act, 1965
will facilitate appreciation of the questions argued at the Bar.
Claims to receive bonus, it appears, were
made by industrial employees for the first time in India in the towns of Bombay
and Ahmadabad, after the commencement of the First World War when as a result
of inflationary trends there arose considerable disparity between the living
wage and the contractual remuneration earned by workmen in the textile
industry. The employers paid to the workmen increase in wages, initially called
"war bonus" and later called "special allowance". A
Committee appointed by the Government of Bombay in 1922 to consider, inter
alia, "the nature and basis" of this bonus payments, reported that
the workmen had a just claim against the employers to receive bonus, but the
claim was not "customary, legal or equitable". During the Second
World War the employers in the textile industry granted cash bonus equivalent
to a fraction of actual wages (not including dearness allowances but even this
was a voluntary payment made with a view to keep labour contented.
In the dispute for payment of bonus for the
years 1948 and 1949 in the textile industry in Bombay, the Industrial Court
expressed the view that since labour as well as capital employed in the
industry contribute to the profits of the industry, both are entitled to claim
a legitimate return out of the profits of an establishment, and evolved a
formula for charging certain prior liabilities on the gross profits of the
accounting year, and awarding a percentage of the balance as bonus to the
workmen. In adjudicating upon the claim for bonus, the Industrial Court
excluded establishments which had suffered loss in the year under consideration
from the liability to pay bonus, In appeals against the award relating to the
year 1949, the Labour Appellate Tribunal broadly approved of the method for
computing bonus as a fraction of surplus profit.
23 According to the formula which came to be
known as the "Full Bench Formula", surplus available for distribution
had to be determined by debiting the following prior charges against gross
profits:
(1) Provision for depreciation;
(2) Reserve for rehabilitation;
(3) Return of 6 % on the paid-up capital;
(4) Return on the working capital at a lower
rate than the return on paid-up capital;
and from the balance called "available
surplus" the workmen were to be awarded a reasonable share by way of bonus
for the year.
This Court considered the applicability of
this formula to claims for bonus in certain decisions: Muir Mills Co, Ltd.
v. Suti Mills Mazdoor Union, Kanpur;(1)
Baroda Borough Municipality v. Its Workmen;(2) Sree Mennakshi Mills Ltd. v.
Their Workmen:(3) and The State of Mysore v.
The Workers of Kolar Gold Mines.(4) The Court did not commit itself to
acceptance of the formula in its entirety, but ruled that bonus is not a
gratuitous payment made by the employer to his workmen, nor a deferred wage,
and that where wages fall short of the living standard and the industry makes
profit part of which is due to the contribution of labour, a claim for bonus
may legitimately be made by the workmen. The Court however did not examine the
propriety nor the order of priorities as between the several charges and their
relative importance, nor did it examine the desirability of making any
variation, change or addition in the Formula. These problems were for the first
time elaborately considered by this Court in the Associated Cement Companies
Ltd. v. Its Workmen.(5) Since that decision numerous cases have come before
this Court in which the basic formula has been accepted with some elaboration.
The principal incidents of the formula as evolved by the decisions of this
Court may be briefly stated: Each year for which bonus is claimed is a
self-contained unit and bonus will be computed on the profits of the establishment
in that year. In giving effect to the formula as a general rule from the gross
profits determined after debiting the wages and dearness allowances paid to the
employees, and other items of expenditure against total receipts, as disclosed
by the profit and loss account are accepted unless it appears that the debit
entries are not supported by recognized accountancy practice or are posted mala
fide with the object of reducing gross profits. Debit items which are wholly
extraneous to or unrelated to the determination (1) [1955] 1 S.C.R. 991. (2)
[1957] S.C.R. 33.
(3) [1958] S.C.R. 878. (4) [1959] S.C.R. 895.
(5) [1959] S. C. R. 925.
24 of trading profits are ignored. Similarly
income which is wholly ,extraneous to the conduct of the business book profits
on account of revaluation of assets may not be included in the gross profits.
Against the gross profits so ascertained the following items are charged as
prior debits:
(1) Depreciation: such depreciation being
only the normal or notional depreciation; (2) Incometax payable for the
accounting year on the balance remaining after ,deducting statutory
depreciation. The income-tax to be deducted is lot the actual amount, but the
notional amount of tax at the rate for the year, even if on assessment no tax
is determined to be payable. For the purpose of the Full Bench Formula
income-tax at the rate provided must be deducted, but in the computation of
income-tax statutory depreciation under the Indian Income-tax Act only may be
allowed. (3) Return on paid-up capital at 6% and on reserves used as working
capital at a lower rate. In the Associated Cement Companies case(1) it was
suggested that this rate should be 2% in later cases 4% on the working capital
was regarded as appropriate. (4) Expenditure for rehabilitation which includes
replacement and modernization of plant, machinery and buildings, but not for
expansion of building, or additions to the machinery.
It is not open to the Tribunal in
ascertaining the available surplus to extend by analogy the prior charges to be
debited to gross profits. Therefore for example (a) allocations for debenture
redemption fund; (b) losses in previous years which are written off at the end
of the year, (c) donations to a political fund are not deducted from gross
profits.
Rebate of income-tax available to the
employer on the amount of bonus paid to the workmen cannot be added to the
available surplus of profits determined in accordance with the Full Bench
Formula which should be taken into account only in distributing the available
surplus between workmen, industry and employers.
The formula it is clear was not based on any
strict theory of legal rights or obligations: it was intended to make an
equitable division of distributable profits after making reasonable allocations
for prior charges.
Attempts made from time to time to secure
revision of the Formula failed before this Court. In the companies' case,(1)
this Court observed:
"The plea for the revision of the
formula raised an issue which affects all industries;
and before any change is made ill it, all
industries and their workmen would have to be heard and their pleas carefully
considered.
It is obvious that while dealing with the
present group of appeals, it would be difficult, unreasonable and inexpedient
to attempt Such a task." (1) [1959] S.C.R. 925.
25 But the Court threw out a suggestion that
the question may be" comprehensively considered by a high-powered
Commission", this suggestion was repeated in The Ahmadabad Miscellaneous
Industrial Workers' Union v. Ahmadabad Electricity C.,). Ltd.(1) The Government
of India then setup a Commission on December 6, 1961 inter alia to define the
concept of bonus, to consider in relation to industrial employments the
question of payment of bonus based on profits and to recommend principles for
computation of such bonus and methods of payment, to determine what the prior
charges should be in different circumstances and how they should be calculated,
to consider whether there should be lower limits irrespective of losses in particular
establishments and upper limits for distribution in one year, and if so, the
manner of carrying forward profits and losses over a prescribed period, to
suggest an appropriate machinery and method for the settlement of bonus
disputes. The Commission held an elaborate enquiry and reported that
"bonus" was paid to the workers as a share in the prosperity of the
establishment and recommended adherence to the basic scheme of the Bonus
Formula viz. determination of bonus as a percentage of gross profits reduced by
certain prior charges, viz. normal depreciation admissible under the Indian
Income-tax Act including multiple shift allowance, income-tax and super-tax at
the current standard rate applicable for the year for which bonus is to be
calculated (but not super profits tax), and return on paid-up capital raised by
issue of preference shares at the actual rate of dividend payable, on other
paid-up capital at 7 % and on reserves used as capital at 4% but not provision
for rehabilitation. The Commission recommended that sixty per cent of the
available surplus should be distributed as bonus, the excess being carried
forward and taken into account in the next year: the balance of forty per
cent., should remain with the establishment into which would merge the saving
in tax on bonus payable, and the aggregate balance thus left to the
establishment may be intended to provide for gratuity, other necessary
reserves, rehabilitation in addition to the provision made by way of
depreciation in the prior charges, annual provision required for redemption of
debentures, return of borrowings, payment of super-profits tax and additional
return on capital. They recommended that the distinction between basic wages
and dearness allowance for the "Purpose" of expressing the bonus
quantum" should be abolished and that bonus should be related to wages and
dearness allowance taken together: that minimum bonus should be 4% of the total
basic wage and dearness allowance paid during the year or Rs. 40/to each
worker, whichever is higher, and in the case of children the minimum should be
equivalent to 4% of their basic wage and dearness allowance, or Rs. 25/whichever
is higher, subject to reduction pro rata for employees who have not (1) [1962]
2 S.C.R. 934.
M14 Sup. C.I./66-3 26 worked for the whole
year, and that the maximum bonus should be equivalent to 20 % of the total
basic is wage and dearness allowance paid during the year : that the bonus
formula proposed should be deemed to include bonus to employees drawing a total
basic pay and dearness allowance up to Rs. 1600 per month regardless of whether
they were "workmen" as defined in the Industrial Disputes Act or
other relevant statutes, but subject to the proviso that the quantum of bonus
payable to employees drawing total basic pay and dearness allowance over Rs.
750 per month shall be limited to what it would be if their pay and dearness
allowance were only Rs. 750 per month. It was proposed that the general formula
should not apply to new establishments until they had recouped all early losses
including all arrears of normal depreciation admissible under the Incometax
Act, subject to a time limit of six years. They also suggested that the scheme
recommended should be made applicable to all bonus matters relating to the accounting
year ending on any day in the calendar year 1962 other than those matters in
which settlements had been reached or decisions had been given.
The Government of India accepted a majority
of the recommendations and the President issued on May 29, 1965 the Payment of
Bonus Ordinance, 1965, providing for payment of bonus to all employees drawing
salary not exceeding Rs. 1600 under the formula devised by the Commission. It
is not necessary to set out the provisions of the Ordinance, for the Ordinance
was replaced, by the Payment of Bonus Act 21 of 1965 and by s. 40(2) it was
provided that notwithstanding such repeal, anything done or any action taken
under the Payment of Bonus Ordinance, 1965, shall be deemed to have been done
or taken under the Act as if the Act had commenced on May 29, 1965. Since the
action taken under the Ordinance is to be deemed to have been taken under the
Act, in these cases validity of the provisions of the Act alone need be
considered.
It may be broadly stated that bonus which was
originally a voluntary payment out of profits to workmen to keep them
contented, acquired the character, under the Bonus Formula, of a right to share
in the surplus profits, and enforceable through the machinery of the Industrial
Disputes Act. Under the Payment of Bonus Act, liability to pay bonus has become
a statutory obligation imposed upon employers covered by the Act.
Counsel for the Jalan Trading Company urged
that the Act was invalid in that it amounts to fraud on the Constitution or
otherwise is a colourable exercise of legislative power.
That argument has no force. It is not denied
that the Parliament has power to legislate in respect of bonus to be paid to
industrial employees. By enacting the Payment of Bonus Act, the Parliament has
not 27 attempted to trespass upon the province of the State Legislature. It is
true that by the impugned legislation certain principles declared by this Court
e.g. in Express Newspapers (Private) Ltd, and Anr. v. The Union of India and
Ors.(1) in respect of grant of bonus were modified, but on that account it
cannot be said that the legislation operates as fraud on the Constitution or is
a colourable exercise of legislative power. Parliament has normally power
within the frame-work of the Constitution to enact legislation which modifies
principles enunciated by this Court as applicable to the determination of any
dispute, and by exercising that power the Parliament does not perpetrate fraud
on the Constitution. An enactment may be charged as colourable, and on that
account void, only if it be found that the legislature has by enacting it
trespassed upon a field outside its competence: K. C. Gajapati Narayan Deo and
Ors.
v. The State of Orissa(2).
The provisions of the Act and its scheme may
now be summarised. The Payment of Bonus Act was published on September 25,
1965. By s.1(4) save as otherwise provided in the Act, the provisions of the
Act shall, in relation to a factory or other establishment to which the Act
applies, have effect in respect of the accounting year commencing on any day in
the year 1964 and in respect of every subsequent accounting year. Section 2(4)
defines " allocable surplus" as meaning (a) in relation to an
employer, being a company (other than a banking company) which has not made the
arrangements prescribed under the Income-tax Act for the declaration and
payment within India of the dividends payable out of its profits in accordance
with the provisions of s. 194 of that Act, sixty-seven per cent of the
available surplus in an accounting year; (b) in any other case, sixty per cent
of such available surplus, and includes any amount treated as such under sub-s.
(2) of s.34. "Available surplus" is defined in s. 2(6) as meaning the
available surplus computed under s. 5."Employee" is defined in s.
2(13) as meaning any person (other than an
apprentice) employed on a salary or wage not exceeding one thousand and six
hundred rupees per mensem in any industry to do any skilled or unskilled
manual, supervisory, managerial, administrative, technical or clerical work for
hire or reward whether the terms of employment be express or implied. By s.
2(21) "salary or wage" is defined as meaning all remuneration (other
than remuneration in respect of overtime work) capable of being expressed in
terms of money, which would, if the terms of employment, express or implied,
were fulfilled, be payable to an employee in respect of his employment or of
work done in such employment and includes dearness allowance (that is to say,
all cash payments, by whatever name called, paid to an employee on account of a
rise in the cost of living), but does not include certain specified allowances,
commissions, value of amenities (1) [1959] S.C.R. 12.
(2) [1954] S.C.R. 1.
28 etc. Section 4 provides for computation of
gross profit in the manner provided by the First Schedule in the case of a
banking company and in other case in the manner provided by the Second
Schedule. By s. 5 available surplus in respect of any accounting year is the
gross profits for that year after deducting there from ',he sums referred to in
s.6. The sums liable to be deducted from gross profit under s. 6 are:
(a) any amount by way of depreciation
admissible in accordance with the provisions of sub-section (1) of section 32
of the Income-tax Act, or in accordance with the provisions of the agricultural
income-tax law, as the case may be;
(b) any amount by way of development rebate
or development allowance which the employer is entitled to deduct from his
income under the Income-tax Act;
(c) any direct tax which the employer is
liable to pay for the accounting year in respect of his income, profits and
gains during that year; and (d) such further sums as are specified in respect
of the employer in the Third Schedule.
Section 7 deals with calculation of direct
taxes payable by the employer for any accounting year for the purpose of cl.(c)
of s. 6. Sections 8 & 9 deal with eligibility for and disqualifications for
receiving bonus. Sections 10 to 15 deal with payment of minimum and maximum
bonus and the scheme for "set-on" and "set-off". Every
employer is by s.10 bound to pay to every employee in an accounting year
minimum bonus which shall be four per cent. of the salary or wage earned by the
employee during the accounting year or Rs. 40 whichever is higher, whether
there are profits in the accounting year or not. In case of employees below the
age of 15, the minimum is Rs. 25. By s. I I where in respect of any accounting
year the allocable surplus exceeds the amount of minimum bonus payable the
employer shall be bound to pay to every employee in the accounting year bonus
which shall be an amount proportionate to the salary or wage earned by the
employee during the accounting year, subject to a maximum of twenty per cent of
such salary or wage. Section 15 provides that if for any accounting year the
allocable surplus exceeds the amount of maximum bonus payable to the employees
in the establishment under s. 1 1, then, the excess shall, subject to a limit
of twenty per cent. of the total salary or wage of the employees employed in
the establishment in that account year, be carried forward for being
"set-on" in the succeeding accounting year, upto and inclusive of the
fourth account year, and be utilised for the purpose of payment of bonus.
29 By sub-s. (2) it is provided that where
for any accounting year, there is no available surplus or the allocable surplus
in respect of that year falls short of the amount of minimum bonus payable to
the employees in the establishment under s. 10, and there is no amount or
sufficient amount carried forward and "set on" under sub-s. (1)
capable of being utilised for the purpose of payment of the minimum bonus,
then, such minimum amount or the deficiency, shall be carried forward for being
set off in the succeeding accounting year up to and inclusive of the fourth
accounting year.
By sub-s. (3) it is provided that principle
of "set-on" and "set-off" as illustrated in the Fourth Schedule
shall apply to all other cases not covered by sub-s. (1) or sub-s. (2) for the
purpose of payment of bonus under the Act. Bonus payable to an employee drawing
wage or salary exceeding Rs.
750 per mensem has to be calculated as if the
salary or wage were Rs. 750 per mensem, and an employee who has not worked for
all the working days in an accounting year, the minimum bonus of Rs. 40 or Rs.
25 would be proportionately reduced (ss. 12 & 13). Section 16 makes special
provisions relating to payment of bonus to employees of establishments which
have been newely set up. Sections 18, 19, 21, 22, 23, 24, 25, 26, 27, 28, 29,
30 & 31 deal with certain procedural and administrative matters. By s. 20
establishments in the public sector are in certain eventualities also made
subject to the provisions of the Act. Section 32 excludes from the operation of
the Act employees of certain classes and certain industries specified therein.
By s. 33 the Act is made applicable to pending industrial disputes (regarding
payment of bonus relating to any accounting year not being an accounting year
earlier than the accounting year ending on any day in the year 1962)
immediately before May 29, 1965, before the appropriate Government or any
Tribunal or other authority under the Industrial Disputes Act, 1947, or under
any corresponding law, or where it is pending before the Conciliation officer
or for adjudication. By s. 34(1) the provisions of the Act are declared to have
effect, notwithstanding anything inconsistent therewith contained in any other
law for the time being in force or in the terms of any award, agreement,
settlement or contract of service made before May, 29, 1965. Sub-s. (2) of s.
34 makes special overriding provisions regarding payment of bonus to employees
computed as a percentage of gross profits reduced by direct taxes payable for
the year, (subject to the maximum prescribed by s.11), when bonus has been paid
by the employer to workmen in the "base year" as defined in
Explanation 11. By s. 36 the appropriate Government is authorised, having
regard to the financial position and other relevant circumstances of any
establishment or class of establishments, to exempt for such period as may be specified
therein such establishment or class of establishments from all or any of the
provisions of the Act, and by s. 37 power is conferred upon the Central
Government by order to make provision, not inconsistent with the purposes 30 of
the Act, for removal of difficulties or doubts in giving effect to the
provisions of the Act.
The scheme of the Act, broadly stated, is
four dimensional:
(1) to impose statutory liability upon an
employer of every establishment covered by the Act to pay bonus to employees in
the establishment:
(2) to define the principle of payment of
bonus according to the prescribed Formula;
(3) to provide for payment of minimum and
maximum bonus and linking the payment of bonus with the scheme of "set-off
" and "set-on";
and (4) to provide machinery for enforcement
of the liability for payment of bonus.
Ordinarily a scheme imposing fresh liability
would, it is apprehended, be made prospective, leaving the pending disputes to
be disposed of according to the law in force before the Act. But the
Legislature has given by s. 33 retrospective operation to the Act to certain
pending disputes, and has sought to provide by s. 34 while extinguishing all
pre-existing agreements, settlements or contracts of service for freezing the
ratio which existed in the base year on which the bonus would be calculated in
subsequent years.
It was urged by counsel for the employers
that s. 10 which provides for payment of minimum bonus, s. 32 which seeks to
exclude certain classes of employees from the operation of the Act, s. 33 which
seeks to apply the Act to certain pending disputes regarding payment of bonus
and sub-s. (2) of s. 34 which freezes the ratio at which the available surplus
in any accounting year has (subject to s.11) to be distributed if in the base year
bonus has been paid, are ultra vires, because they infringe Arts. 14, 19 and 31
of the Constitution. It was also urged that conferment of power of exemption
under s. 36 is ultra vires the Parliament in that it invests the appropriate
Government with authority to exclude from the application of the Act,
establishments or a class of establishments, if the Governments, are of the
opinion having regard to the financial position and other relevant
circumstances that it would not be in the public interest to apply all or any
of the provisions of the Act.
Power conferred upon the Government under s.
37 is challenged on the ground that it amounts to delegation of legislative
power when the Central Government is authorised to remove doubt or difficulty
which had arisen in giving effect to the provisions of the Act.
The plea of invalidity of ss. 32, 36 and 37
may be dealt with first. It is true that several classes of employees set out
in cls.
(i) to (xi) of s. 32 are excluded from the
operation of the Act. But 31 the petitions and the affidavits in support filed
in this Court are singularly lacking in particulars showing how the employees
in the specified establishment or classes of establishments were similarly
situate and that discrimination was practiced by excluding those specified
classes of employees from the operation of the Act while making it applicable
to others. Neither the employees, nor the Government of India have chosen to
place before us any materials on which the question as to the vires of the provisions
of s. 32 which excludes from the operation of the Act certain specified classes
of employees can be determined. There is a presumption of constitutionality of
a statute when the challenge is founded on Art. 14 of the Constitution, and the
onus of proving unconstitutionality of the statute lies upon the person
challenging it. Again many classes of employees are excluded by s. 32 and
neither those employees, nor their employers, have been impleaded before us.
Each class of employees specified in s. 32 requires separate treatment having
regard to special circumstances and conditions governing their employment. We
therefore decline to express any opinion on the plea of unconstitutionality
raised before us in respect of the inapplicability of the Act to employees
described in s. 32.
By s. 36 the appropriate Government is
invested with power to exempt an establishment or a class of establishments
from the operation of the Act, provided the Government is of the opinion that
having regard to the financial position and other relevant circumstances of the
establishment, it would not be in the public interest to apply all or any of
the provisions of the Act. Condition for exercise of that power is that the
Government holds the opinion that it is not in the public interest to apply all
or any of the provisions of the Act to an establishment or class of
establishments, and that opinion is founded on a consideration of the financial
position and other relevant circumstances. Parliament has clearly laid down principles
-and has given adequate guidance to the appropriate Government in implementing
the provisions of s. 36. The power so conferred does not amount to delegation
of legislative authority. Section 36 amounts to conditional legislation, and is
not void. Whether in a given case, power has been properly exercised by the
appropriate Government would have to be considered when that occasion arises.
But s. 37 which authorises the Central
Government to provide by order for removal of doubts or difficulties in giving
effect to the provisions of the Act, in our judgment, delegates legislative
power which is not permissible.
Condition of the applicability of s. 37 is
the arising of the doubt or difficulty in giving effect to the provisions of
the Act. By providing that the order made must not be inconsistent with the
purposes of the Act, s. 37 is not saved from 32 the vice of delegation of
legislative authority. The section authorises the Government to determine for
itself what the purposes of the Act are and to make provisions for removal of
doubts or difficulties. If in giving effect to the provisions of the Act any
doubt or difficulty arises, -normally it is for the Legislature to remove that
doubt or difficulty. Power to remove the doubt or difficulty by altering the
provisions of the Act would in substance amount to exercise of legislative
authority and that cannot be delegated to an executive authority. Sub-section
(2) of s. 37 which purports to make the order of the Central Government in such
cases final accentuates the vice in subs. (1), since by enacting that provision
the Government. is made the sole judge whether difficulty or doubt has arisen
in giving effect to the provisions of the Act, whether it is necessary or
expedient to remove the doubt or difficulty, and whether the provision enacted
is not inconsistent with the purposes of the Act.
We may now turn to the challenge to s. 10.
Under the Full Bench Formula bonus being related to available surplus it can
only be made payable by an employer of an establishment who makes profit in the
accounting year to which the claim for bonus If no profit was made there was no
liability to pay bonus. As pointed out by this Court in Muir Mills Company's
case (1) :
"It is therefore clear that the claim
for bonus can be made by the employees only if as a result of the joint
contribution of capital and labour the industrial concern has earned profits.
If in any particular year the working of the industrial concern has resulted in
loss there is no basis nor justification for a demand for bonus. Bonus is not a
deferred wage..... The dividends can only be paid ,out of profits and unless
and until profits are made Do occasion or question can also arise for
distribution of any sum -is bonus amongst the employees. If the industrial
concern ,-as resulted in a trading loss, there would be no profits of the
particular year available for distribution of dividends, much less could the
employees claim the distribution of bonus during that year." But by s. 10
it is provided that even if there has resulted trading loss in the accounting
year, the employer is bound to pay bonus at 4%, of the salary or wages earned
by the employee or Rs. 40 whichever is higher. This, it was urged, completely
alters the character of bonus and converts what is a share in the year's
profits in the earning of which labour has contributed into additional wage. it
was pointed out to us that in giving effect to the Full Bench Formula, this
Court set aside the directions made by the Industrial Tribunal awarding minimum
bonus where the establishment had suffered loss, and remanded the case for a
fresh determination consistently (1) [1955] S. C. R. 991.
33 with the terms of the Full Bench Formula:
New Maneck Chowk Spg. and Weaving Co. Ltd. v. Textile Labour Association(1).
In that case there was a five year pact
between the Ahmedabad Mill owners' Association and the Textile Labour
Association. After the expiry of the period, the Labour Association demanded
bonus on the basis of the pact, but the Millowners claimed that the pact was
contrary to the Full Bench Formula, and the claim was not sustainable. The
Industrial Tribunal held that the pact did not "run counter to the law
laid down by this Court in the Associated Cement Companies' case(2)" and
the extension of the agreement for one more year would help in promoting peace
ID the industry in Ahmadabad. This Court held that the agreement departed from
the Full Bench Formula in that matter of bonus and when the Tribunal extended
the agreement after the expiry of the stipulated period, it ignored the law as
laid down by this Court as to what profit bonus was and how it should be worked
out, and that the Tribunal had no power to do by extending the agreement to
direct payment of minimum bonus for the year 1958 when there was no available
surplus to pay minimum bonus.
Indisputably Parliament has the power to
enact legislation within the constitutional limits to modify the Full Bench
Formula even after it has received the approval of this Court. It was urged,
however, that exercise of that power by treating establishments inherently
dissimilar as in the same class and subject to payment of minimum bonus
amounted to making unlawful discrimination. It was said that establishments
which suffered losses and establishments which made profits; establishments
paying high rates of wages and establishments paying low rates of wages;
establishments paying "bonus-added
wages" and establishments paying ordinary wages; establishments paying
higher dearness allowance and establishments paying lower dearness allowance,
do not belong to the same class, and by imposing liability upon all these
establishments to pay bonus at the statutory rate not below the minimum
irrespective of the differences between them, the Parliament created inequality.
It was also submitted that by directing
establishments passing through a succession of lean years in which losses have
accumulated and establishments which had made losses in the accounting year
alone, to pay minimum bonus, unlawful discrimination was practiced.
Section 10 at first sight may appear to be a
provision for granting additional wage to employees in establishments which
have not on the year's working an adequate allocable surplus to justify payment
of bonus at the rate of 4 % on the wages earned by each employee. But the
section is an integral part of a scheme for providing for payment of bonus at
rates which do not widely fluctuate (1) [1961] 3 S.C.R. 1.
(2) [1959] S.C.R. 925.
34 from year to year and that is sought to be
secured by restricting the quantum of bonus payable to the maximum rate of 20 %
and for carrying forward the excess remaining after paying bonus at that rate
into the account of the next year, and by providing for carrying forward the
liability for amounts drawn from reserves or capital to meet the obligation to
pay bonus at the minimum rate. Under the Act, for computing the rate of payment
of bonus each accounting year is distinct and bonus has to be worked out on the
profits of the establishment in the accounting year. But it is not in the
interest of capital or labour that there should be wide fluctuations in the
payment of bonus by an establishment year after year. The object of the Act
being to maintain peace and harmony between labour and capital by allowing the
employees to share the prosperity of the establishment reflected by the profits
earned by the contributions made by capital, management and labour, Parliament
has provided that bonus in a given year shall not exceed 1/5th and shall not be
less than 1/25th of the total earning of each individual employee, and has
directed that the excess share shall be carried forward to the next year, and
that the amount paid by way of minimum bonus not absorbed by the available
profits shall be carried to the next year and be set off against the profits of
the succeeding years. This scheme of prescribing maximum and minimum rates of
bonus together with the scheme of "set off " and "set on"
not only secures the right of labour to share in the prosperity of the
establishment, but also ensures a reasonable degree of uniformity.
Equal protection of the laws is denied if in
achieving a certain object persons, objects or transactions similarly
circumstanced are differently treated by law and the principle underlying that
different treatment has no rational relation to the object sought to be
achieved by the law. Examined in the light of the object of the Act and the
scheme of "set off" and "set on", the provision for payment
of minimum bonus cannot be said to be discriminatory between different
establishments which are unable on the profits of the accounting year to pay
bonus merely because a uniform standard of minimum rate of bonus is applied to
them.
The judgment of this Court in Kunnathat
Thathunni Moopil Nair v. The State of Kerala and Another,(1) and especially the
passage in the judgment of the majority of the Court at p. 92, has not
enunciated any broad proposition as was contended for on behalf of the
employers, that when persons or objects which are unequal are treated in the same
manner and are subjected to the same burden or liability, discrimination
inevitably results. In Moopil Nair's case(1) the validity of the
Travancore-Cochin Land Tax Act, 1955, was challenged. By s. 4 of the Act all
lands in the State, (1) [1961] 3 S.C.R. 77.
35 of whatever description and hold under
whatever tenure, were charged with payment of land tax at a uniform rate to be
called the basic tax. Owners of certain forest lands challenged certain
provisions of the Act pleading that those provisions contravened Arts. 14,
19(1) (f) and 31(1) of the Constitution. This Court held that the Act which
obliged every person who held land to pay the tax at a uniform rate, whether he
made any income out of the land, or whether the land was capable of yielding any
income, attempted no classification and that lack of classification by the Act
itself created inequality, and was on that account hit by the prohibition
against denial of equality before the law contained in Art. 14. The Court also
held that the Act was confiscatory in character,, since it had the effect of
eliminating private ownership of land through the machinery of the Act, without
proposing to acquire privately owned forests for the State. The
Travancore-Cochin Land Tax Act, it is clear, contained several peculiar
features: it was in the context of these features that the Court held that
imposition of a uniform liability upon lands which were inherently unequal, in
productive capacity amounted to discrimination, and that lack of classification
created inequality. It was not said by the Court in that case that imposition
of uniform liability upon persons,. objects or transactions which are unequal
must of necessity lead to discrimination. Ordinarily it may be predicated of
unproductive agricultural land that it is incapable of being put to profitable
agricultural use at any time. But that cannot be so predicated of an industrial
establishment which has suffered loss in the accounting year, or even over
several years successively . Such an establishment may suffer loss in one year
and make profit in another. Section 10 undoubtedly places in the same class
establishments which have made inadequate profits not justifying payment of
bonus, establishments which have suffered marginal loss, and establishments which
have suffered heavy loss. The classification so made is not unintelligible: all
establishments which are unable to pay bonus under the scheme of the Act, on
the result of the working of the establishments, are grouped together. The
object of the Act is to make an equitable distribution of the surplus profits
of the establishment with a view to maintain peace and harmony between the
three agencies which contribute to the earning of profits. Distribution of
profits which is not subject to great fluctuations year after year, would
certainly conduce to maintenance of peace and harmony and would be regarded as
equitable, and provision for payment of bonus at the statutory minimum rate,
even if the establishment has not earned profit is clearly enacted to ensure
the object of the Act.
Whether the scheme for payment of minimum
bonus is the best in the circumstances, or a more equitable method could have
been devised so as to avoid in certain cases undue hardship is ir36 relevant to
the enquiry in hand. If the classification is not patently arbitrary, the Court
will not rule it discriminatory merely because it involves hardship or
inequality of burden. With a view to secure a particular object a scheme may be
selected by the Legislature wisdom whereof may be open to debate; it may even
be demonstrated that the scheme is not the best in the circumstances and the
choice of the Legislature may be shown to be erroneous, but unless the
enactment fails to satisfy the dual test of intelligible classification and
rationality of the relation with the object of the law, it will not be subject
to judicial interference tinder Art-14. Invalidity of legislation is not
established by merely finding faults with the scheme adopted by the Legislature
to achieve the purpose it has in view. Equal treatment of unequal objects,
transactions or persons in not liable to be struck down as discriminatory
Unless there is simultaneously absence of a rational relation to the object
intended to be achieved by the law. Plea of in validity of s. 10 on the ground
that it infringes Art. 14 of the Constitution must therefore fail.
We need say nothing at this date about the
plea that s. 10 by imposing unreasonable restrictions infringes the fundamental
freedom under Art. 19(1) (g) of the Constitution, for by the declaration of
emergency by the President under Art. 352, the protection of Art. 19 against
any legislative measure, or executive order which is otherwise competent,
stands suspended. The plea that s. 10 infringes the fundamental freedom under
Art. 31(1) of the Constitution also has no force. Clause (1) of Art. 31
guarantees the right against deprivation of property otherwise than by
authority of law. Compelling an employer to pay sums of money to his employees
which he has not contractually rendered himself liable to pay may amount to
deprivation of property : but the protection against depriving a person of his
property under cl. (1) of Art. 31 is available only if the deprivation is not
by authority of law. Validity of the law authorising deprivation of property
may be challenged on three grounds : (i) incompetence of the authority which
has enacted the law;
(ii) infringement by the law of the
fundamental rights guaranteed by Ch. III of the Constitution and (iii)
.violation by the law of any express provisions of the Constitution. Authority
of the Parliament to legislate in respect of bonus is not denied and the
provision for payment of bonus is not open to attack on the ground of
infringement of fundamental rights other than those declared by Art. 14 and
Art. 19(1)(g) of the Constitution. Our attention has not been invited to any
prohibition imposed by the Constitution which renders a statute relating to
payment of bonus invalid. We are therefore of the view that s. 10 of the Bonus
Act is not open to attack on the ground that it infringes Art. 31(1).
37 We may now turn to s. 33 of the Act. The
section provides :
"Where, immediately before the 29th May,
1965, any industrial dispute regarding payment of bonus relating to any
accounting year, not being an accounting year earlier than the accounting year
ending on any day in the year 1962, was pending before the appropriate
Government or before any Tribunal or other authority under the Industrial
Disputes Act, 1947 (XIV of 1947) or under any corresponding law relating to
investigation and settlement of industrial disputes in a State, then, the bonus
shall be payable in accordance with the provisions of this Act in relation to
the accounting year to which the dispute relates and any subsequent accounting
year, notwithstanding that in respect of that subsequent accounting year no
such dispute was pending.
Explanation.-A dispute shall be deemed to be
pending before the appropriate Government where no decision of that Government
on any application made to it under the said Act or such corresponding law for
reference of that dispute to adjudication has been made or where having
received the report of the Conciliation Officer (by whatever designation known
under the said Act or law, the appropriate Government has not passed any order
refusing to make such reference." The section plainly seeks to apply the
provisions of the Act to a pending dispute, if the dispute relates to payment
of bonus for any accounting year not being an accounting year earlier than the
accounting year ending on any day in the year, 1962, and is pending on May 29,
1965 before the Government or other authority under the Industrial Disputes Act
or any other corresponding law. The provisions of the Act also apply even if
there be no dispute pending for the year subsequent to the year ending on any
day in the year 1962, provided there is a dispute pending in respect of an
earlier year. By s. 1(4) the provisions of the Act have effect in respect of
the accounting year commencing on any day in the year 1964 and in respect of
every subsequent accounting year. But by the application of s. 33 the scheme of
the Act is related back to three accounting years ending on any day in 1962, in
1963 and in 1964.
In considering the effect of s. 33 regard
must first be had to s. 34(1) which provides that save as otherwise provided in
the section, the provisions of the Act shall have effect notwithstanding
anything inconsistent therewith contained in any other law for the time being
in force or in the terms of any award, agreement, settlement or contract of
service made before May 29, 1965. All pre38 vious awards, agreements,
settlements or contracts of service made before May 29, 1965, therefore are,
since the commencement of the Act rendered ineffective, and if there be a
dispute relating to bonus pending on the date specified for the year ending on
any day in 1962 or thereafter, before any appropriate Government or before any
authority under the Industrial Disputes Act, bonus shall be computed and paid
in the manner provided by the Act. Even if in respect of an year there is no
such dispute pending on May 29, 1965, because of a dispute pending in respect
of an earlier year, not being earlier than the year ending on any day in 1962,
the same consequences follow.
Application of the Act involves departure in
many respects from the scheme of computation of bonus under the Full Bench
Formula. Under the Full Bench Formula bonus was a percentage of total wage not
inclusive of dearness allowance, and in the computation of available surplus
rehabilitation allowance was admissible as a deduction. It was also
well-settled that an establishment which suffered loss in the accounting year
was not liable to pay bonus: and a reference under the Industrial Disputes Act
on a claim to bonus could be adjudicated upon only if the claimants were
workmen as defined in the Industrial Disputes Act. Since the ,expression
"industrial dispute" used in s. 33 has not been defined in the Payment
of Bonus Act, the definition of that expression in the Industrial Disputes Act
will apply:
vide s. 2(22). The expression
"industrial dispute" under the Industrial Disputes Act inter alia
means a dispute or difference between employer and workmen which is connected
with the employment or non-employment or the terms of employment or with the
conditions of labour, of any person:
s. 2(k) : and the expression
"workmen" is defined in s. 2(s) of the Industrial Disputes Act means
"any person (including an apprentice) employed in any industry to do any
skilled or unskilled manual, supervisory, technical or clerical work for hire
or reward,. . . . . but does not include any such person(i)
.....................
(ii) .....................
(iii) who is employed mainly in a managerial
or administrative capacity; or (iv) who, being employed in a supervisory
capacity, draws wages exceeding five hundred rupees per mensem or exercises,
either by the nature of the duties attached to the office or by reason of the
powers vested in him, functions mainly of managerial nature." Therefore no
dispute relating to bonus between an employer and persons employed in
managerial or administrative capacity or 39 persons employed in supervisory
capacity drawing wages exceeding Rs. 500/per mensem could be referred under the
Industrial Disputes Act. But under s. 33 a pending industrial dispute between
the workmen and the employer, by reason of the application of the Act gives
rise to a statutory liability in favour of all employees of the establishment
as defined under the Act by s. 2(13) for payment of bonus under the scheme of
the Act. Whereas under the Industrial Disputes Act a dispute could only be
raised by employees who were workmen within the meaning of the Act, under the
scheme of the Act statutory liability is imposed upon the employer to pay to
all his employees as defined in s. 2 (13) bonus at the rates prescribed by the
Act. Even if before May 29, 1965, there had been a settlement with some workmen
or those workmen had not made any claim previously, and there would on that
account be no industrial dispute pending qua those workmen, pendency of a
dispute relating to bonus in which some other workmen are interested imposes
statutory liability upon the employer to pay bonus to all employees in the
establishment. Even if the employer had suffered loss or the available surplus
was inadequate, the employer will by virtue of s. 33 be liable to pay minimum
bonus at the statutory rate : the formula for computation of gross profits and
available surplus will be retrospectively altered and a percentage of wages
inclusive of dearness allowance will be allowed as bonus to all employees
(whether they were under the Full Bench Formula entitled to bonus or not), in
computing the available surplus rehabilitation will not be taken into account,
and bonus will also have to be paid to employees who were not entitled thereto
in the year of account. Application of the Act for the year for which the bonus
dispute is pending therefore creates an onerous liability on the employer
concerned because :
(1) employees who could not claim bonus under
the Industrial Disputes Act become entitled thereto merely because there was a
dispute pending between the workmen in that establishment, or some of them and
the employer qua bonus;
(2) workmen who had under agreement,
settlements, contracts or awards become entitled to bonus at certain rates
cease to be bound by such agreements, settlements, contracts or even awards and
become entitled to claim bonus at the rate computed under the scheme of the
Act;
(3) basis of the computation of gross
profits, available surplus and bonus is completely changed;
(4) the scheme of "set on" and
"set off" prescribed by s. 15 of the Act becomes operative and
applies to establishments as from the year in respect of which the bonus
dispute is pending; and (5) the scheme of the Act operates not only in respect
of the year for which the bonus dispute was pending, but also in respect of
subsequent years for which there is no bonus dispute pending.
If therefore in respect of an establishment
there had been a settlement or an agreement for a subsequent year, pendency of
a dispute for an earlier year before the authority specified in S. 33 is
sufficient to upset that agreement or settlement and a statutory liability for
payment of bonus according to the scheme of the Act is imposed upon the
employer. Application of the Act retrospectively therefore depends upon the
pendency immediately before May 29, 1965, of an industrial dispute regarding
payment of bonus relating to any accounting year not earlier than the year
ending on any day in 1962. If there be no such dispute pending immediately
before the date on which the Act becomes operative, an establishment will be
governed by the provisions of the Full Bench Formula and will be liable to pay
bonus only if there be adequate profits which would justify payment of bonus.
If however a dispute is pending immediately before May 29, 1965, the scheme of
the Act will apply not only for the year for which the the dispute is pending,
but even in respect of subsequent years. Assuming that the classification is
founded on some intelligible differentia which distinguishes an establishment,
from other establishments, the differentia has no rational relation to the
object sought to be achieved by the statutory provision, viz., of ensuring
peaceful relations between capital and labour by making an equitable
distribution of the surplus profits of the year. Arbitrariness of the classification
becomes more pronounced when it is remembered that in respect of the year
subsequent to the year for which the dispute is pending, liability prescribed
under the Act is attracted even if for such subsequent years no dispute is
pending, whereas to an establishment in respect of which no dispute is pending
immediately before May 29, 1965, no such liability is attracted. Therefore two
establishments similarly circumstanced having no dispute pending relating to
bonus between the employers and the workmen in a particular year would be
liable to be dealt with differently if in respect of a previous year (covered
by s. 33) there is a dispute pending between the employer and the workmen in
one establishment and there is no such dispute pending in the other.
Liability imposed by the Act for payment of
bonus is for reasons already set out more onerous than the liability which had
arisen under the Full Bench Formula prior to the date of the Act. Imposition of
this onerous liability depending solely upon the fortuitous circumstance that a
dispute relating to bonus is pending 41 between workmen or some of them
immediately before May 29, 1965, is plainly arbitrary and classification made
on that basis is not reasonable.
There is one other ground which emphasizes
the arbitrary character of the classification. If a dispute relating to bonus
is pending immediately before May 29, 1965, in respect of the years specified
in s. 33 before the appropriate Government or before any authority under the Industrial
Disputes Act or under any corresponding law, the provisions of the Act will be
attracted: if the dispute is pending before this Court in appeal or before the
High Court in a petition under Act. 226, the provisions of the Act will not
apply. It is difficult to perceive any logical basis for making a distinction
between pendency of a dispute relating to bonus for the years in question
before this Court or the High Court, and before the Industrial Tribunal or the
appropriate Government. This Court is under the Constitution competent to hear
and decide a dispute pending on May 29, 1965 relating to bonus as a Court of
Appeal, but is not required to apply the provisions of the Act. If 3 because of
misconception of the nature of evidence or failure to apply rules of natural
justice or misapplication of the law, this Court sets aside an award made by
the Industrial Tribunal and remands the case which was pending on May 29, 1965,
for rehearing, the Industrial Court will have to deal with the case under the
Full Bench Formula and not under the provisions of the Act. The High Court has
also jurisdiction in a petition under Art. 226 to issue an order or direction
declaring an order of the Industrial Tribunal invalid, and issue of such writ,
order or direction will ordinarily involve retrial of the proceeding. Again
pendency of a dispute in respect of the previous year before the appropriate Government
or the Industrial Tribunal will entail imposition of a statutory liability to
pay bonus in respect of the year for which the dispute is pending, and also in
respect of years subsequent thereto, but if immediately before May 29, 1965, a
proceeding arising out of a dispute relating to bonus is pending before a
superior court, even if it be for the years which are covered by s.
33, statutory liability to pay bonus to
employees will not be attracted. Take two industrial units-one has a dispute
with its workmen or some of them pending before the Government or before the
authority under the Industrial Disputes Act and relating to an accounting year
ending in the year 1962. For the years 1962, 1963 and 1964 this industrial unit
will be liable to pay bonus according to the statutory formula prescribed by
the Act, whereas another industrial unit in the same industry which may be
regarded as reasonably similar would be under no such obligation, if it has on
May 29, 1965, no dispute relating to bonus pending because the dispute has not
been raised or has been settled by agreement or by award, or that the dispute
having been determined by an award had reached a superior M 14 Sup C.I.166-4 42
Court by way of appeal or in exercise of the writ jurisdiction. There appears
neither logic nor reason in the different treatment meted out to the two
establishments. It is difficult to appreciate the rationality of the nexus-if
there by any-between the classification and the object of the Act. In our view
therefore s. 33 is patently discriminatory .
By sub-s. (2) of s. 34 it is provided
"If in respect of any accounting year the total bonus payable to all the
employees in any establishment under this Act is less than the total bonus paid
or payable to all the employees in that establishment in respect of the base
year under any award, agreement, settlement or contract of service, then, the employees
in the establishment shall be paid bonus in respect of that accounting year as
if the allocable surplus for that accounting year were an amount which bears
the same ratio to the gross profits of the said accounting year as the total
bonus paid or payable in respect of the base year to the gross profits of the
base year :
Provided that nothing contained in this
sub-section shall entitle any employee to be paid bonus exceeding twenty per
cent of the salary or wage earned by him during the accounting year :
Provided further that if in any accounting
year the allocable surplus computed as aforesaid exceeds the amount of maximum
bonus payable to the employees in the establishment under the first proviso,
then, the provisions of section 15 shall, so far as may be apply to such
excess.
Explanation I.-For the purpose of this
sub-section, the total bonus in respect of any accounting year shall be deemed
to be less, than the total bonus paid or payable in respect of the base year if
the ratio of bonus payable in respect of the accounting year to the gross
profits of that year is less than the ratio of bonus paid or payable in respect
of the base year to the gross profits of that year.
Explanation II.-In this sub-section, (a) base
Year" means(i) in a case where immediately before the 29th May, 1965, Any
dispute of the nature specified in section 33 was pending before the
appropriate Government or before any.
Tribunal or other authority under the
Industrial Disputes Act, 1947 (XIV of 1947), or under any corresponding law
relating to investigation and settlement of industrial disputes in a State, the
accounting year immediately preceding the accounting year to which the dispute
relates;
43 (ii) in any other case, the period of
twelve months immediately preceding the accounting year in respect of which
this Act becomes applicable to the establishment;
(b) "gross profits" in relation to
the base year or, as the case may be, to the accounting year, means gross
profits as reduced by the direct taxes payable by the employer in respect of
that year." This sub-section makes a departure from the scheme for payment
of bonus which pervades the rest of the Act. The expression "allocable
surplus" in s. 34(2) does not mean a percentage of the available surplus
under s. 2 (4) read with ss. 5 and 6, as that expression is understood in the
rest of the Act. It is a figure computed according to a special method Under s.
34(2) if the total bonus payable in any accounting year after the Act had come
into force is less than the total bonus paid or payable in the "base
year" under any award, agreement, settlement or contract of service, bonus
for the accounting year has to be determined according to the following scheme
First determine the ratio of the bonus paid or payable to all employees (not
workmen merely as defined in the Industrial Disputes Act) for the base year as
defined in Explanation II(a) to the gross -profits as defined in Explanation
II(b) of that year, and apply that ratio to the gross profits as defined in
Explanation 11 to the accounting year and determine the allocable surplus. That
allocable surplus will be distributed among the employees subject to the
restriction that no employee shall be paid bonus which exceeds 20 % of the
salary or wage earned by an employee, and that if the allocable surplus so
computed exceeds the, amount of maximum bonus payable to the employees in the
establishment then the provisions of s. 15 shall so far as may be apply to the
excess.
Gross profits which are to be taken into
account for determining the ratio both in the accounting year and the base year
are also specially defined for the purpose of this -sub-section'. They are not
the gross profits as determined under the Full Bench Formula nor-under s.4 of
the Act, but by" a method specially prescribed by the Explanation: they
are gross profits under S.4 as reduced by the direct taxes payable by the employer
in respect of that year Under the Full Bench Formula bonus Was determined as a
percentage is of the gross profits minus prior charges. Under S.5 of the Act
available surplus of which the normal allocable surplus is a percentage is
determined by deducting from the gross profits of the year the four heads of
charges items which are referred to under s. 4-depreciation, development rebate
or development allowance, direct taxes and other sums specified in the Third
Schedule. -But in applying the scheme under s. 34 only the direct taxes are
debited. Bonus 44 which becomes payable under s. 34(2) is therefore not worked
out as a percentage of the available surplus, but as a fraction of gross
profits computed according to the special formula. The expression "base
year" is also a variable unit: in any case where a dispute of the nature
specified in s. 33 is pending immediately before May 29, 1965, before the
authorities specified in s. 33, the accounting year immediately preceding the
accounting year to which the dispute relates is the base year : in other cases
a period of twelve months immediately preceding the accounting year in respect
of which the Act becomes applicable to the establishment, is the base year. For
instance, if there be a dispute pending in respect of the accounting year on
any day ending in 1962, 1963 or 1964, the base years will be the accounting
years ending on a day in 1961, 1962 or 1963 as the case may be. If there be no
dispute pending the period of twelve months immediately preceding the
accounting year in which the Act becomes applicable to the establishment is the
base year. Determination of the base year therefore depends upon the pendency
or otherwise of a bonus dispute immediately before May 29, 1965, for any of the
years ending on any day in 1962, 1963 and 1964.
There is also a special method for
determining whether the total bonus payable to all the employees is less than
the total bonus paid or payable in respect of the base year. By the First
Explanation it is provided that the total bonus in respect of any accounting
year shall be deemed to be less than the total bonus paid or payable in respect
of the base year, if the ratio of bonus payable in respect of the accounting
year to the gross profits of that year is less than the ratio of bonus paid or
payable in respect of the base year to the gross profits of that year.
Section 34 (2) contemplates a somewhat
complicated enquiry into the determination of the bonus payable. Gross profits
of the base year being determined in the manner prescribed by the Act and
reduced by the direct taxes payable by the employers in respect of that year,
the ratio between the gross profits and the bonus paid or payable in respect of
that base year is to be applied to the gross profits of the accounting year to
determine the allocable surplus. Apart from the complexity of the calculations
involved it was forcefully pointed out before us that in certain cases the
ratio may be unduly large or even infinite. In order to buy peace and in the
,expectation that in future the working of the establishments would be more profitable,
employers had in certain cases paid bonus out of reserves, even though there
was no gross profit or insufficient gross profit, and those establishments are
under s. 34(2) saddled with liability to allocate large sums of money wholly
disproportionate to or without any surplus profits, and even to the amount
which would be payable if the scheme of the Act applied. For in Cases where
there were no gross profit, the ratio between the amount 45 paid or payable as
bonus and gross profit would reach infinity : in cases where the gross profits
were small and substantial amounts were paid or became payable by way of bonus,
the ratio may become unduly large. These are not cases hypothetical but
practical, which had arisen in fact, and application of the ratio irrevocably
fixes the liability of the establishment to set apart year after year large
amounts whether the establishment made profits or not towards allocable
surplus.
Payment of bonus by agreement was generally
determined not by legalistic considerations and not infrequently generous
allowances were made by employers as bonus to workmen to buy peace especially
where industry wise settlements were made in certain regions, and weak units
were compelled to fall in line with prosperous units in the same industry and
had to pay bonus even though on the result of the working of the units no
liability to pay bonus on the application of the Full Bench Formula could
arise. But if in the base year such payment was made, for the duration of the
Act the ratio becomes frozen and the total bonus payable to the employees in
the establishment under the Act can never be less than the bonus worked out on
the application of the ratio prescribed by s. 34(2).
Here again units or establishments which had
paid bonus in the base year and those which had not paid bonus in the base year
are separately classified without taking into consideration the special
circumstances which operated upon the payment of bonus in the base year which
may very from establishment to establishment. The ratio under s. 34(2), so long
as the Act remains on the statute book, determines the minimum allocable
surplus for each accounting year of those establishments which had paid bonus
in the base year.
The fact that under sub-s. (3) the employees
and the employers are not precluded from entering into agreements for granting
bonus to the employers under a formula which is different from that prescribed
under the Act has little significance. If by statute a certain ratio is fixed
which determines the bonus payable by the employer whether or not the profits
of the accounting year warrant payment of bonus at that rate, it would be
futile to expect the employees to accept anything less than what has been
statutorily prescribed.
In our view s. 34 imposes a special liability
to pay bonus determined on the gross profits of the base year on an assumption
that the ratio which determines the allocable surplus is the normal ratio not
affected by any special circumstance and perpetuates for the duration of the
Act that ratio for determining the minimum allocable surplus each year. If
bonus contemplated to be paid under the Act is intended to make an equitable
distribution of the surplus profits of a particular year, a scheme for
computing labour's share 46 which cannot be less than the amount determined by
the application of a ratio derived from the working of the base year without
taking into consideration the special circumstances governing that
determination is ex facie arbitrary and unreasonable. The Additional Solicitor General
appearing for the Union of India and the representatives of the Labour Unions
and counsel appearing for them contended in support of their plea that s. 34(2)
was not invalid because the ratio was intended to stabilize the previous grant
of bonus and to maintain in favour of labour whatever was achieved by
collective bargaining in the base year. But the validity of a statute is
subject to judicial scrutiny in the context of fundamental freedoms guaranteed
to employers as well as employees and the freedom of equal protection of the
laws becomes chimerical, if the only ground in support of the validity of a
statute ex facie discriminatory is that the Parliament intended, inconsistently
with the very concept of bonus evolved by it, to maintain for the benefit of
labour an advantage which labour had obtained in an earlier year based on the
special circumstances of that year, without any enquiry Whether that, advantage
may reasonably be granted in subsequent years according to the principle
evolved by it and for securing the object of the Act. If the concept of bonus
as allocation of an equitable share of the surplus profits of an establishment
to the workmen who have contributed to the earning has reality, any condition
that the ratio on which the share of one party computed on the basis of the
working of an earlier year, without taking into consideration the special
circumstances which had a bearing on the earning of the profits and payment of
bonus in that year, shall not be touched, is in our judgment, arbitrary and
unreasonable.
The vice of the provision lies in the
imposition of an arbitrary ratio governing distribution of surplus profits.
In our view, s. 34(2) is invalid on the
ground that, it infringes Art. 14 of the Constitution. It is in the circumstances
unnecessary to consider whether the provisions of.s. 33 and s. 34(2) are
invalid as infringing the fundamental rights conferred by Arts. 19(1)(g) and
31(1).
But the invalidity of ss. 33 and 34(2) does
not affect the validity of the remaining provisions of the Act. These two
provisions are plainly severable. All proceedings which are pending before the
Act came into force including those which are convered by s. 33 will therefore
be governed by the Full Bench Formula and that ill the application of the Act
the special ratio for determining the allocable surplus under s.
34(2) will be ignored, for application of the
Full Bench Formula to pending proceedings on May 28, 1965, and refusal to apply
the special ratio in the determination of allocable surplus under s. 34(2) does
not affect the scheme of the rest of 'the Act. The declaration of invalidity of
s. 37 which confers upon the Central Government power to remove difficulties
also does not affect the validity of the remaining provisions of the Act.
47 The Industrial Tribunal has awarded to the
workmen of the Jalan Trading Company bonus at the minimum rate relying upon s.
33 of the Act. The claim for bonus related to the year 1962, and could be
upheld only if s. I0 was attracted by the operation of s. 33. But we have held
that s. 33 is invalid.
It is now common ground that the appellant
Company had suffered loss in 1962. The profit and loss account was accepted by
the workmen before the Tribunal. Civil Appeal No. 187 of 1966 will therefore be
allowed and the order passed by the Industrial Tribunal imposing liability for
payment of minimum bonus set aside. In Writ Petitions Nos. 3 of 1966 and 32 of
1966, it is declared that ss. 33 and 34(2) are invalid as infringing Art. 14 of
the Constitution, and that s. 37 is invalid in that. It delegates to the
executive authority legislative powers.
There will be no order as to costs in all,
these proceedings.
Hidayatullah J. The Judgment in this appeal
shall also govern Writ Petitions Nos. 3 of the 1966 (The Management of M/s.
Punalur Paper Mills Ltd ., Kerala State v. The Union of India and others) and
32 of 1966 (The Travancore Raymons Ltd. v. The Union of India and of hers). The
Jalan Trading Co. Pvt. Ltd. (appellant) was the opposite party to an industrial
dispute concerning a claim for bonus for the years 1961, 1962 raised by the
workmen of the Company represented by the Mill Mazdoor Sabha, Bombay
(respondents).
The Sabha gave notice of change on May 13,
1963 and demanded 25 % of 'the total wages as bonus for each of the two years.
This demand was refused by the employers on
the ground, among others, that there was no surplus as the Company was carrying
forward a big loss. Conciliation was tried but failed and a reference was made
by the Sabha to the Industrial Court, Maharashtra, Bombay under 73-A of the
Bombay Industrial Relations Act. While this reference was pending the Payment
of Bonus Ordinance oil 29th May, 1965 came into force. Applying s. 10 of the
Ordinance, the Industrial Court awarded for the year 1962, 4 % of the total
salary or wage or Rs. 40/(whichever was greater) to the workmen entitled under
the Ordinance, regardless of the absence of profit and set down the dispute
concerning 1961 for trial. In this appeal, by special leave against the said
order the validity of s. 10 of the Payment of Bonus Act, which received the
assent of the President on 25 September 1965 and replaced the Ordinance with a
few changes, is challenged.
In Writ Petitions 3 and 32 of 1966, heard
with this appeal, two-. other companies (The Punalur Paper Mills Ltd. and
Travancore, Rayons Ltd ) question the validity of s. 10, and also ss. 32-37 of
the Act, in respect of bonus for one or more of the years 1962, 1963 and 1964.
These sections, they contend, cut across the accepted and well-defined concept
of bonus and lead to discrimination and anomalies of various sorts, and, of course,
incidentally to the payment of a larger amount as bonus than would be payable
under 48 subsisting agreements or the previous state of law.
Comparative tables to demonstrate these and
other points are filed with the petitions.
At the hearing of this appeal and the two
writ petitions many Companies and Workers' Unions intervened in one or more of
them. The contending parties also intervened in matters other than their own.
The operative sections of the Bonus Act were challenged as ultra vires the Constitution.
These sections lay down the machinery for calculation of bonus generally and in
particular on foot of a past base year, apply the provisions with modifications
to pending cases, permit Government to exclude establishments from the
operation of the provisions of the Act and pass orders for the removal of
doubts and difficulties in the application of the Act. We shall refer to terms
of the relevant sections presently.
In short, the departures front the existing
laws on the Subject of bonus to workmen, are challenged in principle and also
as discriminatory. The arguments were full and were illustrated by examples
which ingenuity of counsel or reliance on statistics could suggest. To
understand the arguments it is necessary to glance at the history of payment of
bonus in India, the principles on which it was based and the relevant
provisions of the Act impugned before us.
The payment of bonus had its origin in the
generosity of the textile employers during the First World War when they
voluntarily gave away 10 % (later up to 35 %) additional wages as "war
bonus" The profits were then high and this extra payment gave a boost to
production and indirectly to the profits of the employers. When the lean years
came payment of bonus was sought to be stopped but disputes and strikes
followed. The workmen had begun to consider "bonus" as one of their
rights. The first dispute was settled by conciliation by the acceptance of
bonus equal to one month's wages, with a tacit understanding that this payment
could be more if profit allowed. The second had to be referred to a Committee
presided over by Chief Justice Macleod of Bombay.
The Committee found no legal foundation for
the claim especially when there were no profits.
During the Second World War the question of dearness
allowance was raised but it included consideration of bonus etc.
A Board of Conciliation with Mr. Justice
Rangnekar as Chairman, awarded -/2/per person per day as dearness allowance but
that was obviously a there nothing.
Therefore, at the intercession of Government
a cash bonus of 12-1/2% of Wages (that is to say, As. -/2/per rupee of wage)
was agreed upon and given to workmen. Bonus was thereafter paid voluntarily for
a number of years and was the result, by and large, of agreements of some sort.
49 When the law enjoining compulsory
reference to adjudication of trade disputes came the question of bonus, as did
many others, reached the courts and the claim for bonus became an industrial
claim and had to be settled on some tangible principle. Various reasons were
advanced to justify the legality of the claim and the court accepted some of
them.
At first it was merely treated as rooted in
fair play but later it was held to be claimable as of right and ranking in
importance next only to the claim of minimum wages and dearness allowance which
were considered the first liability of the employer. After the Industries
Conference of 1947, grant of bonus became a settled fact, as a very slender
means to bridge somewhat, the gap between actual and living wages. The workmen
had become accustomed to expect additional payment to meet extra-ordinary
expenditures, or, in other words, treated bonus as a kind of nest-egg for
emergencies.
The principles underlying the grant of bonus
were at first nebulous but after the deliberations of the Committee on Profit
Sharing (1948), some clear principles began to emerge. The Labour Appellate
Tribunal, Bombay then evolved a formula for calculation of the profits to find
Out the surplus from which the workmen could be paid. This formula goes under
the name of "the Full Bench Formula." The first step in the
application of the Formula was to ascertain gross profits. This was done by
adding back to the net profit as shown in the Profit & Loss Account, all amounts
transferred to reserves etc., and, in fact, all income except what could not be
attributed to the efforts of labour. In this way depreciation, taxes paid and
donations and such other items were all added back to determine the gross
profits. From these gross profits were deducted national normal depreciation
and national taxes, that is to say, not the depreciation or the taxes which the
Income-tax Authorities would have allowed in the case, but which would be
admissible on the amounts found under the Formula. There were further
deductions of amounts as reserve for rehabilitation of machinery etc., of
return on paid-up capital and on reserves employed as working capital. Afterthese
deductions were made the net amount was taken as the available surplus and
bonus was awarded to the workmen according to the size of this surplus. There
was no settled principle as to how the available surplus should be divided
between the employers and workmen and this Court, in the absence of any
discernable principles, suggested a half and half division. The Formula was
approved and applied in numerous cases by this Court and when the Tribunal
attempted to revise it this Court Put down the attempts, and recommended the
establishment of a Commission. At the second and third meetings of the 18th
Session of the Standing Labour Committee in 1960 the proposal to establish a
Commission was considered and was agreed upon. As a result the Government of
India, on December, 6, 1961, appointed 50 a Commission under the Chairmanship
of Mr. M. R. Meher. The Commission made its recommendations and they were
accepted by Government, with some modifications, by Resolution dated September,
2, 1964. The Bonus Ordinance as well as the Bonus Act were passed to implement
the recommendations accepted in the Government's Resolution.
The Full Bench Formula, although not
legislatively recognised' was binding as a decision of the courts. In essence
it was only a workable solution. it satisfied neither the employers nor the
workmen. Disputes continued even though the Formula was generally adhered to.
The workmen, while conceding that rehabilitation was necessary, used to
represent that large sums deducted from the gross profits as rehabilitation
reserves were not spent for that purpose. Often enough this was true. They also
used to dispute the reserves, used as working capital and asked the employers
to prove what amount was so used. Lastly, there were quarrels about the
division of the available surplus.
The employers, on the other hand, used to
contend that if rehabilitation charges were not deducted depreciation allowable
tinder the Indian Income-tax Act, being only a percentage of the written down
value, was inadequate to enable rehabilitation of machinery etc. They also used
to submit that the return on capital at 6% was too little and, in fact,
succeeded ill getting the return on reserves employed as capital, increased
from 2% to 4%. It was in this context that the Bonus Commission made its
recommendations. It is not necessary or profitable to summarise these recommendations
in their entirety. Only the fundamental proposals can be mentioned here for we
are concerned with them as part of the history lying at the back of the
legislation impugned here, and because a great deal of thought went into the
formulation of these proposals.
The Bonus Commission found it difficult to
accept the proposition that bonus represented the means to bridge the gap
between the actual and living wages but expressed the opinion that bonus
afforded the means of bridging the gap between actual and need based wages and
that such, a claim was admissible when profit exceeded a certain base. The
formula suggested by the Bonus Commission was different in many particulars
from the Full Bench Formula. A comprehensive mode for determining the gross
profits was evolved and to the net profits disclosed in the statement of Profit
& Loss were added numerous items which it is not necessary to mention here.
From the gross profits the first deduction was depreciation and this was not
the notional normal depreciation of the old Formula but the depreciation
allowable under the Income-tax law including , multiple shift allowance.
Income-tax and super-tax were next deducted. The development rebate which took
the place of 'initial depreciation under the previous Income-tax law was not
allowed to be deducted but the Commission 51 was of opinion that the tax
concession on account of development rebate should be retained, by the
employers and must, therefore, be deducted from the gross profits. As normal
depreciation and the tax concession on development rebate were to be retained
by the companies, rehabilitation charges were abolished. The super profits tax
was not made a prior charge mainly because bonus was treated as expenditure
under the Indian Income-tax Act and some saving to the employers was likely to
result.
The Commission suggested a 7 % return on
paid-up capital and a 4% return on reserves employed as capital. The balance
left after these deductions was the available surplus from which 60% was to be
paid as bonus to workmen and 40% was to be retained by the employers. The
Commission also suggested that the employers must pay a minimum bonus equal to
4 % of the total basic wage and dearness allowance or Rs. 40% (whichever was
greater) to each workman whether the allocable surplus permitted it or not and
also set a ceiling on bonus by providing that not more than 20% of the total
basic wage and dearness allowance bill may be paid as bonus in any year. If
there were no profits or if profits could allow payment of bonus more than the
20% maximum, a principle of set oil and set off was devised. The amount paid
out as minimum bonus or the extra over and above the 20% maximum had to be
carried forward to future years to be set on or set off. against the profits in
those years. In this way the payment of minimum -bonus when no bonus was
payable, was made less onerous and similarly the amount in excess of 20 % which
might have been paid as bonus under a 60 to 40 division was to be carried over
to the, future years to be available when the profits were low. The set on and
set off were to be valid only for 4 years at the end of which the amounts
available for set on or set off were to be ignored. The Commission also
recommended payment of bonus to persons whose total basic pay and dearness
allowance did not exceed Rs. 1,600/per month regardless of whether they were
"workmen" or not according to the definition of this word in the Industrial
Disputes Act. The amount of bonus, however, was flat after the basic wage and
dearness allowance taken together reached Rs. 750/per month. In respect of new
units. bonus was to be payable from the 6th year or when profits (after wiping
off old losses and allowing for depreciation etc.) permitted.
Government by its Resolution accepted these
recommendations but with certain modifications. Government allowed deduction of
all direct taxes from the gross profits and increased the return on capital to
8-5% (taxable) on paid-up equity capital and 6% on reserves (for banks 7 .5 %
and 5 % respectively). Government also gave retrospective effect to the
recommendations of the Bonus Commission as amended by itself by resolving that.
they should apply to all bonus matters other than those cases in which
settlement had been reached or decisions had been given already, relating 52 to
accounting year ending on any day in the calendar year 1962 in respect of which
dispute was pending. The Ordinance and the Act follow the recommendations of
the Bonus Commission as modified in the Government Resolution. We shall now
refer to the terms of the Act, contrasting them, where necessary, with the
terms of the Payment of Bonus Ordinance which has since been repealed.
The foregoing discussion of the
recommendations of the Bonus Commission renders it unnecessary to quote many of
the provisions of the Act which consists of 40 sections and four schedules.
Some terms, which have been used before by us, may be explained first. Bonus is
payable from "available surplus" which is the result of certain
deductions under s.
6 from the gross profits determined in
accordance with the provisions of Schedules I and 11 which apply respectively
to banking companies and companies other than banking companies.
"Allocable surplus" in relation to a company (other than a banking
company), which has not made arrangements prescribed under the Indian
Income-tax Act for the declaration of payment within India of the dividends
payable out of its profits in accordance with the provisions of s. 194 of that
Act, means 67% of the available surplus in the accounting year and in any other
case 60% of the available surplus including any amount treated as available
surplus under s. 34(2) to be mentioned hereafter. "Direct tax" means
any tax chargeable under the Indian Income-tax Act, the Super Profits Tax Act,
1963, the Companies (Profits) Surtax Act, 1964, the agricultural income-tax
law, and any other tax declared to be a direct tax. "Employer" means
a person employed on a salary or wage which does not exceed Rs. 1,600/per
month. "Salary or wage" means all remuneration (other than
remuneration in respect of overtime work) capable of being expressed in terms
of money, including dearness allowance but not including any other allowance or
amenity such as house accommodation, supply of light, water, medical attendance
or food-grain or other article or any travelling concession, bonus,
contribution to Provident Fund, retrenchment compensation or gratuity or
commission payable to the workmen.
The calculation of gross profits is to be
done as laid down in the first two Schedules. In both the Schedules the net
profits as shown in the Profit & Loss Account are adjusted by additions and
subtractions to determine the gross profits for purposes of bonus. The
available surplus is then reached by making deductions as laid down in s.6.
Three of the deductions are applicable to all employers and the fourth
deduction, which is return on capital, is different in the case of different
employers and the special deduction is set down separately for them. The first
deduction is depreciation admissible under the Indian Income-tax Act and
agricultural income-tax laws. Where, however, an employer was paying bonus
under 53 a settlement, award or agreement made before the date of the Ordinance
he is entitled to deduct the notional normal depreciation at his option to be
exercised once and for all before 29th May, 1966. The second deduction is the
amount of development rebate or development allowance which the employer is
entitled under the Income-tax Act to deduct from his income. The third
deduction embraces all direct taxes subject to certain special provisions. The
fourth deduction is return on capital and in respect of a company other than a
banking company the dedication according to Schedule II is as follows:"(i)
The dividends payable on its preference share capital for the accounting year
calculated at the actual rate at which such dividends are payable;
(ii) 8.5 percent. of its paid up equity share
capital as at the commencement of the accounting year;
(iii) 6 percent. of its reserves shown in its
balance-sheet as at the commencement of the accounting year, including any
profits carried forward from the previous accounting year:
Provided that where the employer is a foreign
company within the meaning of section 591 of the Companies Act, 1956 (1 of
1956), the total amount to be deducted under this Item shall be 8 .5 per cent.
on the aggregate of the value of the net fixed assets and the current assets of
the company in India after deducting the amount of its current liabilities
(other than any amount shown as payable by the company to its Head Office
whether towards any advance made by the Head Office or otherwise or any
interest paid by the company to its Head Office) in India." The deduction
varies in respect of banking companies, corporations, co-operative societies,
licencees under the Electricity Supply Act, 1948 and other employers. After
these deductions are made and the available surplus is determined the allocable
surplus (either 67% or 6O%, as the case may be) is payable as bonus. The amount
so payable is subject to an upper and a lower limit determined in relation to
salary or wage of the workmen qualified to receive it.
Under s. 10 every workman is entitled to
receive 4% or Rs. 40 (in the case of children below 15 years Rs. 25) whichever
be greater, whether there are profits in the accounting year or not. Under s.
11 the total amount payable as bonus in any accounting year may Dot exceed 20 %
of the total salary or wage bill. Although bonus is payable to employees
drawing salary or wage up to Rs. 1600 per month, the amount of bonus in any
case cannot exceed the amount payable to a person whose salary or wage is Rs.
750 per month.
54 Bonus is payable proportionately to the
number of days on which the workman works. The principle of set on and set off
of allocable surplus, as laid down by s. 15, has been adverted to in brief
already. It may be explained a little more fully . If the allocable surplus
exceeds the 20 per cent upper limit, the excess in the accounting year is to be
carried forward to be set on in the succeeding accounting years up to and
inclusive of the 4th accounting year so as to be available for payment of bonus
if the allocable surplus in those years falls below. 20 %. Similarly, if
minimum bonus of 4 % of the wage bill is paid, despite loss, the amount so paid
may be carried forward for four years for being set off against profits in the
subsequent years.
Schedule IV serves to illustrate the
application of the principle of set on and set off by giving some
illustrations. Section 16 makes special provision with respect to new
establishments and new departments or undertakings in old establishments and
generally gives them exemptions from payment of bonus for the first five years
or till profit is, made, whichever be earlier. Section 17 allows adjustment of
customary and interim bonus against bonus payable under the Act. Section's 18
to 31 are regulatory in character providing for accounts, inspections,
offenses, penalties and protection of authorities. These do not concern us.
Section 32 then exempts 11 kinds of employers from, the operation of the Act.
'Then follow s. 33, which applies the Act to certain pending disputes regarding
payment of bonus,s. 34 which lays down certain special rules regarding the
effect of laws and agreements inconsistent with the Bonus Act, s. 36 which
gives power of exemption, and s. 37 which enables the Central Government, by
order to" remove any difficulty or doubt arising in giving effect to the
provisions of the Act . Section 38 enables the Central Government to make rules
and under s. 39 the provisions of the Act are to be in addition to and not in
derogation of the Industrial Disputes Act, 1947 or any corresponding law
relating to investigation and settlement of industrial disputes in force in a
State. Section 35, which we omitted, preserves intact the provisions of the
Coal Mines Provident Fund and Bonus Schemes Act, 1948 or any scheme made there under,
and the last section (s 40) repeals the Payment of Bonus Ordinance, 1965, but
notwithstanding repeal, anything done or any action taken under the said
Ordinance is to be deemed to have been done or taken tinder the Act as if 'the
Act had commenced on the 29th May,, 1965 when the Ordinance was promulgated.
The, payment of bonus is now legislatively
recognised and the Full Bench Formula is not only altered but it Is to be seen
that payment of some bonus is compulsory and the payment in any year lies
within two termini of minimum and maximum bonus established by the Act. The
calculation of bonus becomes almost mechanical and, therefore, disputes are
less likely to take place. But the Act, although the result of a tripartite
deliberation, has not-satisfied the 55 employers generally. They object to some
of its provisions on various grounds and we shall now proceed to examine them.
The first attack is on the provision for
minimum bonus in s. 10 irrespective, of profits. It is submitted that a concept
of minimum bonus, unrelated to profits, makes the payment an accretion to wages
and leads indirectly to the erosion of capital since such payment. if it does
not come from profits, must come from reserves or capital. The provision is
thus said to be a "fraud on the Constitution" or "a colourable
exercise of power" conforming neither to the accepted concept of bonus nor
to the principles on which minimum wages are fixed. Section 10 is also said to
offend Art. 14 inasmuch as it makes no difference between companies making
profits and companies having losses whether marginal or heavy., It is said that
the fixation of the minimum bonus irrespective of consideration such as the
kind of wages and dearness allowance prevailing in an establishment;
profit or loss in its business; and whether
bonus is integrated with wages or not, creates inequality. It is pointed out
that while bonus was formerly calculated on basic wage only and took no note of
dearness allowance, the Act, by defining "wage or salary" to include
dearness allowance has increased the quantum of bonus payable. Even the 5
years' exemption to new establishments is criticised as discriminatory. Section
10 is said to enable deprivation of the property of the employers with a view
to paying it to the workmen. The contending parties could not attack the Act
under Art. 19 in view of the Emergency, but did not also give up the point,
although corporations not being citizens, have been held by this Court to be
not entitled to invoke the provisions of that article. In our judgment none of
the arguments against s 10 can be accepted.
No doubt this Court allowed claim to bonus
only if there was. profit but that was not because any universally accepted
recondite theory lay at the root. The Bonus Commission points out in its report
that there were bonus pacts under which bonus equal to 15 days' wages
irrespective of profits was payable and a maximum limit was also provided. The
principle of set on and set off was also a part of these, pacts. In fact, the
desire to fix a maximum limit for bonus must, inevitably lead to the fixation
of a minimum limit also. The workmen were not slow to suggest that if minimum
bonus is abolished the maximum limit must also go.
The employers rely upon the New Maneck Chowk
Spinning and Weaving Co., Ltd., Ahmedabad and Others v. The Textile Labour
Association, Ahmedabad(1) in which this Court rejected the fixation by the
Tribunal of minimum bonus for a year beyond the pact period although this was
done in the interest of industrial peace. This is of no value because the
question here is one of the case power of (1) [1961] 3 S.C.R. 1.
56 the Parliament and not of the power of the
Tribunal. The powers of Parliament to fix minimum bonus cannot be questioned
because it flows from jurisdiction over industrial and labour disputes, welfare
of labour including conditions of work and wages. The legislation is therefore
neither a fraud on the Constitution nor a colourable exercise of power. Under
any of these powers, or all of them viewed together, the fixation of minimum
bonus is legal and if these topics of legislation were found to be insufficient
the residuary power of Parliament must lend validity to the enactment.
The validity of arguments about the
integration of dearness allowance with wage to determine the quantum of bonus
depends on how wages can be viewed today. Labour considers dearness allowance
to be as fundamental as wage and, in fact, we have heard repeated pleas for the
merger of dearness allowance in minimum wage. In our opinion, dearness
allowance must obviously stay -on till at least the need-based wage is reached.
The gap between the actual wage and the need-based wage tends to widen as time
passes unless the wage and/or dearness allowance are revised to obtain
significant neutralization of the cost of living at any given moment of time.
It may be that in some industries dearness allowance does, to an appreciable
extent, neutralize the cost of living but such companies would hardly be
required to pay Minimum bonus for their profits would justify a higher bonus.
Again, loss can only be established after the prior charges or some of them are
deducted. The charge of minimum bonus is only 4% of the wage bill,i.e.equal to
15 days' wages and cannot be said to be heavy. Further, the provision for set
off keeps the matter in suspense for at least four years during which the
affairs of the company are likely to improve. Taking the provision for minimum
bonus with the provision for set off it can hardly be said that the section is
so exorbitant that it amounts to deprivation of the property of the employers
with a view to giving it to the workmen. The provision makes payment ,of
minimum bonus range next to payment of wages and dearness allowance and to rank
in priority over any of the prior charges, deductible in favour of employers.
Comparison of minimum bonus with the Land Tax
Act considered in Kunnathat Thathunni Moopil Nair v. The State of Kerala and
Another(1) which imposed a flat rate of tax on all lands irrespective of their
productivity, is not valid. The observations in that case, wide as they may
appear, must not be extended by analogical application to a case of minimum
bonus which is intended to promote industrial peace and to be a first step
towards the goal of needbased wage. Even if the payment is viewed as a compensatory
payment of wage the power to 'impose it as part of minimum wage is not lacking.
It must not be forgotten that the fixation of
mini(1) [1961] 3 S.C.R. 77.
57 mum wage was also criticised along the
same lines but was held justified. The differentials, the paying capacity of
establishments or absence of profit made no difference.
This was decided over and over again by this
Court. See Edward Mills Co. Ltd. Beawar v. State of Ajmer(2), Bijay Cotton
Mills Ltd. v. State of Ajmer(2) and Express Newspapers (Pt.) Ltd. & Anr. v.
Union of India & Ors.,(3) U.
Unichoyi & Ors. v. State of Kerala(4).
It has been said before that every uniform
legislation can be made to appear ridiculous by citing a few extreme examples
and comparing them and this statement will bear repetition in the context of
discrimination said to arise from s. 10. Even under the Minimum Wages Act a
prosperous establishment could be shown to be placed on the same footing as another
establishment not so prosperous, but this Court did not strike down the Minimum
Wages Act on that ground. In our judgment the provision for payment of 15 days'
wages to workmen as bonus irrespective of profits is a measure well-designed to
keep industrial peace and to make way for the need-based wage which the
Tripartite Conference emphasised. Some unequal treatment can always be made to
appear when laws apply uniformly. Two establishments cannot be so alike as the
hypothetical examples taken before us suggested. Differences must exist but
that does not prevent the making of uniform laws for them provided the law made
has a rational relation to the object sought to be achieved and the inequality
is trivial and hypothetical.
Classification can only be insisted upon when
it is possible to classify, and a power to classify need not always be
exercised when classification is not reasonably possible.
In our judgment s. 10 does not lead to such
inequality as may be called discrimination.
It is next contended that s. 32 creates
inequality because it excludes II kinds of establishments from the operation of
the Act At first sight a provision calculated to exclude a few selected
establishments from an otherwise uniform law must savour of discrimination but
it must be borne in mind that there are establishments and establishments and
certain classes of establishments cannot, with any practical advantage or
without fear of harm, be classified with others. Nor is their exclusion from
the general body of establishments necessarily discriminatory. In other words,
a question of discrimination can only be decided when the circumstances of each
exempted establishment are properly weighed and considered. It is only then
that the fundamental differences can be noticed of the establishments mentioned
in s. 32 none was present before us for the simple reason that none was made a
party. Nor was any special argument addressed in respect of any particular
class. It is, therefore, improper for us to say whether there is any rational
(1) [1965] 1 S.C.R. 735. (2) [1955] 1 S.C.R. 752 (3) [1959] S.C.R.12. (4)
[1962] 1 S.C.R. 946 14 Sup. C.I.166-5 58 classification in s. 32 or not. We
accordingly do not express any opinion on this section.
Similarly s. 36, which gives further power to
the Central Government to exempt in the public interest an establishment or
class of establishments for some period subject to such condition as the
Central Government might deem necessary to impose, does not per se augur
discrimination. There may be special cases which may require immediate relief
and but for such a provision there would be no means of affording the relief.
The existence of such a provision is not bad because it merely gives a power.
But the exercise of the power must, of course, bear the scrutiny of Art. 14. As
no abuse of power is suggested, we cannot say that the section is by reason of
a possibility of abuse discriminatory. The Section cannot rightly be described
as a piece of delegated legislation.
Section 37 gives power to the Central
Government to make orders, not inconsistent with the purposes of the Act as may
be necessary or expedient for the removal of any difficulty or doubt and the
order is made final. This provision is characterised as delegation of
legislative power. There is some misunderstanding as to the function of such a
provision which is to be found in several statutes. If a list were drawn up it
will fill many pages but for example the following may be seen: s. 14 of the
Central Regulation 1962 (VII of 1962), s. 128 of the States Reorganisation Act,
1956, s. 33A of the Business Profits Act of 1947, s. 6 of the Taxation Laws Act
of 1949, s. 7 of the Taxation Laws Extension (to Tehri Garhwal) Order, Taxation
of Laws (Merged States) (Removal of Difficulties) Order, 1949 and Art. 392 of
the Constitution. As a legislative practice this is not new and the fact that
one provision is in the Constitution and in some other the order has to be laid
on the table of Parliament, makes no difference. The Constituent Assembly gave
the power to Government but in this respect as in respect of powers of
amendment, Parliament can do so again today. Nor have we got an Act about
statutory orders such as in England. Much action under the Organisation of
States Acts was taken under s. 128 and the rest of Part XI of the Act. That
Section is in identical words. On this argument all the orders issued under these
provisions must be treated as void. None has questioned any action so far.
The functions so exercised are not
legislative functions at all but are intended to advance the purpose which the
Legislature has in mind. The power to pass an order of this character cannot be
used to add to or deduct from that which the Act provides. The order only makes
smooth the working of the Act particularly in its initial stages. This power is
given to the Central Government so that litigation may not ensue as the policy of
Act is to avoid litigation. The rejection of such a provision is only possible
if we 59 begin with a concept of trinity of powers with the legislature
performing delegated power on behalf of the people, as is sometimes held in the
United States. The rejection there takes place by the application of the maxim
delegatus non potest delegate. This doctrine, it has been accepted on all hands
was originated by the glossators and got introduced into English Law by a
misreading of Bracton as a doctrine of agency and was applied by Coke in
decisions to prevent the exercise of judicial power by another agency and later
received its present form in the United States.
The question is not one of a delegate making
a sub delegation but of the sovereignty of Parliament. Parliament has not
attempted to set up another legislature. It has stated all that it wished on
the subject of bonus in the Act. Apprehending, however, that in the application
of the new Act doubts and difficulties might arise and not leaving their solution
to the courts with the attendant delays and expense, Parliament has chosen to
give power to the Central Government to remove doubts and differences by a
suitable order. The order, of course, would be passed within the four corners
of the parliamentary legislation and would only apply the Act to concrete cases
as the courts do when they consider the application of an Act. The order of the
Central Government is made final for the reason that it is hardly practical to
give power to the Central Government and yet to leave the matter to be
litigated further. The fact that in the Government of India Act, 1935 and in
the Constitution such power was and is contemplated and it has been conferred
in diverse Acts without a challenge before, shows amply that the argument that
the section amounts to conferral of legislative powers on the Central
Government is erroneous. All other cognate provisions have never been
challenged on the ground that they amount to delegation of legislative power.
We accordingly hold s. 37 to be validly enacted.
It remains to consider the validity of ss. 33
and 34. They are in a sense inter-related. The sections need not be quoted as
we are concerned only with their scheme. These sections determine how the
provisions of the Act are to apply in relation to establishments which differ
in certain respects. For this purpose the Act provides for two dates for its
own commencement. Under s. 1(4) the provisions of the Act are to have effect
from an accounting year commencing on any day in 1964 and in respect of every
subsequent accounting year. But by ss. 33 and 34 the provisions are made
applicable with some modifications in respect of accounting years earlier than
the first accounting year mentioned in s. 1(4). To achieve this result
sub-section (1) of s. 34 provides that the provisions of the Act (as modified
by s. 34) shall apply, notwithstanding anything inconsistent therewith
contained in any other law for the time being in force or in the terms of any
award, agreement, settlement or contract of service made before the 29th May
1965.
60 The Act then takes note of establishments
which did not pay bonus in an accounting year earlier than the one mentioned in
s. 1(4), establishments which either paid bonus in an earlier accounting year
with or without a dispute but no dispute was pending on May 29, 1965, and
establishments in which a dispute was pending on May 29, 1965 in regard to
bonus in respect of a year not earlier than the accounting year ending on any
day in 1962 although no such dispute may be pending for subsequent accounting
years. In respect of establishments for which the Act is made retrospective
beyond what is laid down in S. 1(4) bonus is to be calculated in the manner
laid down in s. 34(2). Those establishments, which come under the Act for the
first time as laid down in s. 1(4), are to be governed by the Act without the
modifications envisaged by ss. 33 and 34. These are establishments without a
prior history of bonus payment.
Establishments with a history of bonus
payment come under ss. 33 and 34. They are divided into two categories.
Establishments in which a dispute was pending
on the date of the passing of the Ordinance in regard to bonus relating to an
accounting year not earlier than the accounting year ending on any day in the
year 1962 are in one class and those in which no such dispute was pending are
in another class. The Explanation to S. 33 determines when dispute is to be
deemed to be pending. In either of these two cases bonus is payable according
to the provisions of the Act but as specially laid down in sub-s. (2) of s. 34.
The Bonus Commission met for the first time on January 4, 1962 and the
Ordinance came into force on May 29, 1965. These two dates determine the class
of establishments to which the special provisions of ss. 33 and 34 are made
applicable.
The scheme may be summarized thus. The Act
applies to all establishments from the accounting year commencing on any day in
the year 1964 and in respect of any subsequent year.
Establishments having no prior history of
bonus payment are governed by the provisions of the Act without the
modifications contained in ss. 33 and 34. In respect of establishments with a
prior history we have two classes:
establishments in which a dispute was pending
on May 29, 1965 in respect of an accounting year not earlier than the
accounting year ending in the year 1962 and those in which no such dispute was
pending. The intention is to bring such cases under the Act but with some
modifications. If there was a dispute pending in respect of an accounting year
not earlier than an accounting year ending in the year 1962, the dispute is to
be resolved as laid down in the Act with the special modifications made by s.
34 notwithstanding that there was no dispute in subsequent years and the bonus
for the subsequent years is also to be calculated in accordance with the Act so
modified. In respect of establishments which had a history of payment but no
dispute was pending on May 29, 1965 the provisions of s. 34(2) apply a special
ratio between the allocable 61 surplus and gross profits for the determination
of the quantum of the amount available for payment of bonus. In this way, three
distinct classes are created which may be summarized still further thus:
(a) establishments without a history of prior
bonus payment. To these section 1(4) applies;
(b) establishments having a prior history of
bonus payment with a dispute pending in respect of an accounting year not
earlier than the accounting year ending, in the year 1962.
To these establishments the provisions of the
Bonus Act [as modified by s. 34(2)] apply, not only for the accounting year in
respect of which the dispute was pending but also for subsequent accounting
years;
(c) establishments with a prior history of
bonus payment without a dispute such as is mentioned in (b) above. To these the
provisions of the Bonus Act apply as modified in s. 34(2).
Section 34(2) takes note of the quantum of
bonus paid by establishments in a base year. This base year is different in the
case of establishments which come under s. 33 and establishments which do not
so come. In respect of establishments falling within s. 33 the base year means
an accounting year immediately preceding the accounting year to which the
dispute relates and in the case of establishments which do not fall within s.
33 it means a period of 12 months immediately preceding the accounting year in
respect of which the Act becomes applicable to the establishments.
The second sub-section of s. 34 preserves the
same level of payments in the case of establishments which had in the past paid
bonus at a higher rate than would be paid under the formula laid down by the
Act. For this purpose the ratio between the bonus and the gross profits in the
base year determines the proportion of allocable surplus must have to the gross
profits of the account year. Gross profits are defined to mean gross profits
reduced by direct taxes only.
The payment is, however, subject to the
maximum limit and the principle of set on. In this way the level of payment of
bonus is maintained to what had been paid in the past as a result of agreement
or award.
The question is whether this classification
is so arbitrary and creates such differences that it cannot be reasonably
related to the object which the Bonus Act intends to achieve, namely, the
settlement of all bonus disputes in future and to lay down a uniform formula
which is considered reasonable both for the workmen as well as the employers so
long as the Act remains in force.
62 The objections to ss. 33 and 34 may now be
noticed. These sections are criticised on many grounds. Firstly, it is said
that the Act creates inequality inasmuch as the formula under the Act is made
applicable to cases pending for the application of the Full Bench Formula in
respect of accounting years from 1962 onwards but leaves the establishments in
which there was no dispute to be governed by the Full Bench Formula. This, it
is submitted, is onerous to the establishments in which a dispute was pending.
The onerous nature, it is submitted, arises from the fact that payment of
minimum bonus even if there is a loss is compulsory, new categories of workmen
have become entitled to bonus, "salary or wage" is made equal to
wages plus dearness allowance and the employers lose the advantage of deductions
on account of rehabilitation. A further criticism is that not only the year of
dispute but all intervening years are brought under the Act even though there
may be no dispute in those years.
The object of the Bonus Act is to introduce a
new uniform formula for calculation of bonus with limits of maximum and minimum
and a principle of set on and set off to smoothen inequalities of payment over
a number of years. One difficulty in the way of uniform law was the pendency of
disputes at the time the Ordinance was promulgated. This would, of course, be
the case whenever any law was introduced if a dispute was pending in respect of
a prior year. There were two alternatives open. One was to leave the disputes
to be decided by the Tribunals under the Full Bench Formula and the other was
to apply the Act to the pending cases so that all decisions would be uniform
and almost mechanical. If pending cases were to be treated as a class, special
provision was required to deal with them.
The Act chose to do away with the Fun Bench
Formula from 1962. If it had been applied and no dispute was pending at all the
matter was left there. For other cases there was a clear need for
classification and classification was thus resorted to. Pending cases were
brought under the Act. The Act, of course, could not be applied without
suitable modifications to remove hardships. Section 34, therefore, provided
that the Act would apply to all cases as modified in the second subsection of
s. 34. That sub-section applied only to establishments in which there was a
prior history of bonus payment and attempted to harmonize the application of
the law to establishments in which disputes were pending and those in which
there was no dispute. We are thus required to see the provisions of that sub-section
before we can deal with the criticism against s. 33.
Section 34 deals with two matters. It deals
with establishments in which a dispute, as laid down in s. 33, was pending and
also with old establishments in which there was payment of bonus in the past
but no dispute was pending when the Ordinance was pro63 mulgated. It applies
the Act to both sets of cases. It lays down a simple condition that the total
bonus for any accounting year should correspond to the level of total bonus
paid in a base year and for this purpose the allocable surplus in an accounting
year dealt with under the Act must bear the same proportion to gross profits as
the total bonus paid in the base year did to the gross profits of the base
year, subject however to the maximum limit and the principle of set on. The
base year was so defined that it would be a year in which there would be no
dispute. In those cases in which a dispute was pending on May 29,1965 it meant
an accounting year immediately preceding the year of dispute and in other cases
a period of 12 months immediately preceding the period of accounting year in
respect of which this Act became applicable. Gross profits were differently
defined for the purpose of the application of the subsection and meant gross
profits as reduced by direct taxes payable in the year. It is obvious that this
definition was evolved to avoid a clash between the Full Bench Formula and the
formula under the Act. The provisions of s. 34(2) were specially enacted so
that there might not be divergence in the payment of bonus over a number of
years and to maintain the level of payment, as had existed in the past. In this
way, three classes of cases were contemplated and we shall describe them more
fully now.
In the first class were put all establishments
which. had no history of bonus payment. They came directly under the formula of
the Act from the accounting year 1964. All such establishments were dealt with
uniformly and there was no discrimination or inequality among them except what
was said to arise from s. 10. That alleged inequality does not offend Art. 14
as we have already indicated above.
In the second class were put cases in which a
dispute was pending on May 29, 1965 (the date of the promulgation of the
Ordinance). The dispute of which the Act took note was a dispute pending before
Government or before a Tribunal or Authority under the Industrial law. No note
was taken of cases pending before the High Courts and the Supreme Court because
the jurisdiction of the High Courts and the Supreme Court is either supervisory
or appellate and the intention was to cover cases in which no decisions of the
authorities appointed under the law relating to industrial disputes was yet
made. Disputes prior to 1962 were not taken note of because a date line had to
be fixed and 1962 was the rational date to fix because the Bonus Commission
began its deliberations in that year. Selection of this date is said to be
arbitrary. In several statutes a date is generally selected to demarcate
pending cases and the selection of the date has never been challenged
successfully if there is some rational ground for its selection. If the
resolution of the dispute by the instrumentality of the Act was contemplated,
the Act had also to say which dispute would be so resolved and the 64 only
rational date to select was the date on which the Ordinance was promulgated.
Thus the pendency of disputes with reference to the Ordinance and reopening of
accounting years up to the year in which the Bonus Commission began its
deliberation was logical and not arbitrary. The provision with regard to the
reopening of the intervening accounts year for refixation of bonus was also
logical. If the dispute regarding 1962 or a later year was decided by the
application of the Act it was imperative to reconsider the subsequent years
even though there was no dispute in those years. The process of the Act is an
integrated one and by the principle of set on and set off four accounting years
are involved to avoid extraordinary results. It is said that two establishments
equally situated are likely to be differently treated depending on the
fortuitous circumstance of the existence of a dispute but is not this
assumption an imaginary one? the fact that in one there is a dispute and in the
other there is not, clearly distinguishes the two establishments. We have
explained in connection with s. 10 why we do not consider such comparison of
any value and the same reasoning applies here. The distinguishing feature of
the pendency of the dispute on the date of the promulgation of the Ordinance
clearly demarcates a distinct class of cases and the classification made by the
Act is a rational one., No doubt the liability for bonus under the Act may be
more in some cases but it is likely to be less in others.
The Act does not make any difference in
treatment within the class it deals with. All establishments in which disputes
were pending are treated alike. They are brought under the Act in the same
manner without any discrimination. If they represent a class, the whole of the
class is treated in the same way. Section 33 by providing uniformly for all
pending ,cases, without any discrimination between them, has established a
rational classification. Section 33, therefore, cannot be said to be invalid by
reason of any inequality.
Section 34(2) which is next criticised
because it sacrifices all principles which this Court had established in the
past and fixes a ratio for all time to come is also not invalid.
The Act was passed to make for greater
certainty, for improving relations between the employers and the workmen and
for the avoidance of disputes. It must not be forgotten that in many
establishments the payment of bonus in the past was the result of collective
bargaining and the advantage which labour had so achieved was not likely to be
given up readily. Any legislation to be successful had to preserve, as far as
possible, what labour considered to be its right in a particular establishment.
For this purpose a base year for comparison had to be established. Section 34(2),
therefore, laid down that the total bonus paid in any year should bear the same
proportion to gross profits in the accounting year as did the bonus to the
gross profits in the base year. Gross profit was, however, defined to mean
gross profit minus direct taxes only. This obviously gave an 65 advantage to
the employers because the proportion was bound to be less if depreciation and
return on capital etc. were ignored. By establishing a base year and by
insisting that the same proportion should be maintained in the payment of bonus
the establishments knew with certainty what their liabilities in respect of
bonus would be in the future years. The establishment of the maximum and
minimum limits further controlled payments. The ratio so established is only
applicable if there is allocable surplus and the total payment of bonus cannot,
in any event, exceed 20 % which it might well have done if there was no limit.
In other words, between the maximum and the minimum the same ratio of payment
is to be maintained from year to year and the payment will be more or less
according as the profits from which the allocable surplus is to be calculated
are greater or smaller. If extraordinary circumstances appear set on and set
off will make them less onerous for the employers or employees. The existence
of this rigid ratio, which.
applies to all establishments which come
under s. 34(2) does not, in our opinion, create any inequality.
It is, however, submitted that the Act has
ignored the definition of "workmen" in the Industrial Disputes Act
and by allowing bonus to employees drawing salary or wage up to Rs. 1600 per
month has increased the burden of the employers. It is also argued that this
creates inequality between those establishments which come under s. 33 and
those which paid bonus under the Full Bench Formula. This argument ignores
several matters. The total bonus now cannot exceed 20% of the total wage bill,
i.e. less than 21 months' total wages 'and dearness allowance. The demand for
bonus in some establishments was much more and it is hardly correct to say that
bonus payable under ss. 33 and 34(2) will always be more than that payable
under the Full Bench Formula. The controlling factors are the establishment of
the ratio, the fixation of a maximum limit and the principle of set off. As a
result of the -operation of these factors, the net amount cannot be as
disadvantageous to the employers as was represented to us. The increase in the
number of persons entitled to receive bonus, therefore, will not be of much
significance. The number of such employees cannot be very large and in any
event no employee will get bonus at a higher rate than a person drawing wage or
salary of Rs. 750 per month. We are not in agreement with this argument.
The question thus is one of the power of
Parliament to enact a law relating to bonus. Once the power to make the law is
found, then the law so made cannot be struck down unless it offends a
fundamental right. As the Bonus Act makes valid classifications and everyone in
a class is equally treated, it is impossible to say that there is inequality.
The arguments have taken examples of what are called "similarly situated
establishments" in each class to show unequal treatment when it is obvious
that the similarity is imaginary 66 and even similarly situated establishment
(if any there be) in different classes cannot be compared. The arguments have
not faced the question of classification but have been extremely ambiguous. For
example it was even suggested that the ratio between profits and allocable
surplus in a base year might be infinity if there was no profit, overlooking
the simple fact that existence of profit is a condition precedent to the
finding of the ratio. On this kind of reasoning the provisions of S. 10 were
also attacked which we have explained are not affected.
Our bretheren have struck down sections 33,
34 and 37, but have upheld the other sections. We are, however, of opinion that
if Parliament can legally, constitutionally, and validly order payment of bonus
according to its formula, fix minimum bonus without profits, fix a ceiling in
spite of high profits, evolve a principle of set on and set off and make
disobedience subject to a penalty. there is no reason why it cannot order
decision of pending cases treated as a class, according to the new formula and
open up the intervening years of account for reconsideration. The power in
section 33 is of the same character as the other and no special competence is
required. Of course in doing this it should treat alike all establishments in
which there is a pending dispute. This Parliament has done. Similarly, by
section 34 Parliament orders that a certain proportion between profits and
allocable surplus shall be maintained.
This exercise of the power is of the same
character as the prescription that bonus shall be paid in this and this manner
and no other. If that action is legal so is this, provided there is no
discrimination. There is none in this class either. The power to remove
difficulties reserved to Government is in hundreds of statutes. All Land
Reforms Acts, State Reorganisation Acts, Industrial Disputes Acts, Encumbered
Estates Acts, many taxation laws and such widely differing statutes as
University Acts and Election Acts have it and the power of exemption is always
included but is seldom abused. We have, therefore, respectfully dissented from
their view.
ln our judgment, the matter requires to be
looked at from the point of view of avoidance of industrial disputes and the
imposition of a uniform formula for all establishments.
The existence of different kinds of
establishments, as set out above, has made it necessary to classify and to make
special rules for determination of bonus. By the special rules contained in ss.
33 and 34 the older establishments are treated as equally as possible, except
where the pendency of cases has necessitated different rules to make the Act
applicable to them. Uniformity in each class has been achieved and there is no
discrimination. As the power to frame a new bonus formula cannot be gainsaid,
the power to classify cannot also be denied. The Act further confers power to
exempt and remove doubts and difficulties (which provisions are unfortunately
67 criticized) and they can be invoked where in spite of so much care there is
hardship in a special case.
In our judgment the Bonus Act is validly
enacted and this appeal must fail. We would dismiss the appeal and the writ
petitions with costs.
ORDER In accordance with the opinion of the
majority, the appeal is allowed and the order of the Industrial Tribunal set
aside. The writ petitions are allowed in part and ss. 33, 34(2) and 37 are
declared ultra vires. There will be no order as to costs in all these
proceedings.
G.C.
Back
