Sanghi Jeevaraj Ghewar Chand & Ors
Vs. Secretary, Madras Chillies, Grains Kirana Merchants [1968] INSC 155 (16
July 1968)
16/07/1968 SHELAT, J.M.
SHELAT, J.M.
HEGDE, K.S.
CITATION: 1969 AIR 530 1969 SCR (1) 366
CITATOR INFO :
R 1972 SC1436 (13) E 1976 SC1455 (28,37,38)
RF 1976 SC1775 (17) RF 1979 SC 876 (6) R 1984 SC 457 (2,3,4) R 1986 SC1486 (4)
ACT:
Payment of Bonus Act (21 of 1965), ss. 1(3),
22, 32(x) and 39 Act whether exhaustive on the law relating to bonusWhether
employees entitled to payment of bonus dehors the Act in case of excluded and
exempted establishments--Scope of ss. 22 and 39.
Legislative history and Statement of Objects
and Reasons when can be looked into.
HEADNOTE:
The appellants are : (i) an establishment
with less than 20 employees and which was not a factory; and (ii) an
establishment in the public sector. On the question, whether in view of the
non-applicability of the Payment of Bonus Act, 1965, to the two appellants-in
the first case by reason of exclusion under s. 1(3) and in the other by reason
of exemption under s. 32(x)-the employees of the two appellants were entitled
to claim bonus dehors the Act.
HELD : Considering the history of the
legislation, the background and the circumstances in which the Act was enacted
the object of the Act and its scheme, it is not possible to accept the
construction suggested on behalf of the respondents (employees) that the Act is
not an exhaustive Act dealing comprehensively with the subjectMatter of bonus
in all its aspects, or that Parliament still left it open to those to whom the
Act does not apply by reason of exclusion or exemption to raise a dispute with
regard to bonus dehors the Act through industrial adjudication under the Industrial
Disputes Act, 1947, or other corresponding laws.
(1) The Court is justified in looking into
the history of the legislation and the statement of objects and reasons, not
for the purpose of construing the Act, but for the limited purpose of
ascertaining the background, the conditions and circumstances which led to its
passing, the mischief it was intended to prevent and the remedy it furnished to
prevent such mischief. [372 B-C] Heydon's case, 76 E.R. 637, Bengal Immunity
Co. Ltd. v. State of Bihar, [1955] 2 S.C.R. 603, R. M. D. Chamarbaughwalla v.
Union of India, [1957] S.C.R. 930, Central Bank of India v. Their Workmen,
[1960] 1 S.C.R. 200, Corporation, of the City of Nagpur v. Its Employees,
[1960] 2 S.C.R. 942, State of West Bengal v. Union of India, [1964] 1 S.C.R.
371 and Azeez Basha v. Union of India, [1968] 1 S.C.R. 833 referred to.
Until the enactment of the Payment of Bonus
Act, 1965, payment of bonus was not a statutory obligation on the part of the
employer nor was it a statutory right of an employee.
It was originally a voluntary payment. Under
the Full Bench formula, evolved by the Labour Appellate Tribunal with respect
to disputes for payment of bonus in the Bombay Textile Industry, it acquired
the character of a right to share in the surplus of profits enforceable through
the machinery of the Industrial Dispites Act, 1947, and other corresponding
Act. Under that Act, workmen of industrial establishments could raise an
industrial dispute and 367 demand by way of bonus a proportionate share in
profits on the principle that both capital and labour had contributed to the
making of profits and therefore both were entitled to a share therein. As a
result of the observations of this Court in Associated Cement Companies Ltd. v.
Its Workmen, [1959] S.C.R. 925 and in Ahmadabad Miscellaneous Industrial
Workers' Union v. The Ahmadabad Electricty Co., [1962] 2 S.C.R. 934, the
Government of India appointed a Commission to make recommendations with respect
to legislation regarding bonus. The Government accepted the majority of the
Commission's recommendations and sponsored the enactment of the Payment of
Bonus Act. Under this Act. liability to pay bonus has now become a statutory
obligation imposed on employers. In providing such statutory liability
Parliament has laid down a statutory formula on which bonus would be savable
irrespective of whether the establishment had, during a particular accounting
year, made profit or not.
Parliament further laid down that the formula
it had evolved and the statutory liability it provided, shall apply only to
certain establishments and not to all. In such circumstances, Parliament has
not to provide by express words that henceforth no bonus shall be payable under
the industrial Disputes Act or other corresponding Acts, as those Act never
conferred any statutory right to bonus. [373 G-H; 375 H; 376 B-C; 381 A-D] Muir
Mills Co. v. Suti Mills Mazdoor Union, Kanpur, [1955] 1 S.C.R. 991, Baroada
Borough Municipality v. Its Workmen, [1957] S.C.R. 33, Shree Meenakshi Mills
Ltd. v. Their Workmen [1958] S.C.R. 878, State of Mysore v. The Workers of Gold
Mines, [1959] S.C.R. 895, Associated Cement Companies Ltd. v. Its Workmen,
r.[1959] S.C.R. 925 and The Ahmadabad Miscellaneous Industrial Workers' Union
v. The Ahmadabad Electricity Co. Ltd. [1962] 2 S.C.R. 934, referred to.
(2) The Payment of Bonus Act was intended to
be a comprehensive and exhaustive law dealing with the entire subject of bonus.
The fact that the preamble states that the Act shall apply only to certain
establishments and that s. 1(3) of the Act excludes establishments where less
than 20 persons ape employed, from the application of the Act, does not necessarily
mean that Parliament as not dealt with the subject-matter of bonus and the
persons to whom it shall apply comprehensively in the Act. Even where an Act
deals comprehensively with a particular subject-matter, the Legislature can
provide that it shall apply to particular persons or group of persons or to
specified institutions only, and so, Parliament can lay down as a matter of
policy that it will exclude from the application of the Act certain types of
establishments and also provide for exemption of certain other types of
establishments which would otherwise fall within the scope of the Act. [380
C-H; 385 H] (3) Since the Payment of Bonus Art is an exhaustive statute dealing
with subject of bonus, one of the consequences is that under s. 1(3) of the
Act, employees in establishments engaging less than 20 Persons would get no
bonus either under this Act or under industrial adjudication provided for by
the Industrial Disputes Act and other corresponding Acts.
Under s. 1(3)Parliament has excluded petty
establishments with less than 20 employees in view of the recommendations of
the Commission in that regard, namely, that the application of the Act to such
establishments would lead to harassment of petty proprietors and disharmony
between them and their employees. To hold that employees in such establishments
would still be entitled to bonus, though not under the Act, would lead to the
anomaly that if there are two establishments in the same trade or industry one
engaging more than 20 persons and the other engaging less than 20 person, then,
in the former case the employer would be 368 liable to pay bonus at the rate
laid down in the Act, while in the latter, the employer would be liable to pay
bonus on the basis of the Full Bench formula which may be at a higher rate
depending upon the quantum of profits in the particular year. [382 C-F; 384
C-E] (4) Under s. 32(x) of the Payment of Bonus Act, establishments in the
public sector are exempted from the application of the Act. Therefore,
employees in public sector concerns would not be entitled to bonus, either
under the Act or which they might otherwise have got by raising a dispute under
the Industrial Disputes Act and other corresponding statutes. The exemption is
a limited one and in granting it, Parliament had a definite policy in mind,
namely, not to subject such establishments which are conducted without any
profit motive and are run for public benefit, to the burden of bonus. To hold
that even in these exempted cases, the employer would still be liable to pay
bonus if the employees of such institutions were to raise a dispute under the Industrial
Disputes Act and claim bonus in accordance with the Full Bench formula would
also lead to the anomaly that the Legislature would be giving exemption with
one hand and taking it away with the other. If Parliament wanted to retain the
right to claim bonus by way of industrial adjudication in the case of
establishments which are either excluded or exempted from the Act it would have
made an express saving provision to that effect as it has done for employees of
coal mines. [382 F-H; 383 F-H; 384 A-C] (5) There is no question of a right to
bonus under the Industrial Disputes Act or other corresponding laws being saved
under S. 39 of the Payment of Bonus Act, because :
(a) the Industrial Disputes Act or the
corresponding laws though they confer substantial rights on a workman with
regard to lay off, retrenchment compensation, etc., do not provide for a
statutory right to payment of bonus; and [385 C-G] (b) the definition of 'employee
under s. 2(13) of the Payment of Bonus Act is wider than that of 'workman'
under the Industrial Disputes Act. Therefore, a dispute between an employer and
his employees, in relation to bonus may not be an industrial dispute. Section
22 of the Payment of Bonus Act, by fiction, makes such disputes industrial
disputes and applies the provisions of the Industrial Disputes Act. But the Payment
of Bonus Act does not provide any machinery or procedure for the investigation
and settlement of disputes which may arise between employers and employees,
such as a dispute as to the computation of allocable surplus, or quantum of
bonus or as to whether an establishment in the public sector is liable to pay
bonus in view of s. 20 of the Act. Therefore, s. 39, which provides that the
provisions of the Payment of Bonus Act are in addition to and not in derogation
of the Industrial Disputes Act and other corresponding laws, became necessary
in order that the machinery of the Industrial Disputes Act may be available for
adjudication of such disputes under the Payment of Bonus Act F377 H; 378 A-G;
379 B-D]
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 1630 of 1967.
Appeal by special leave from the award dated
April 28, 1967, of the Industrial Tribunal, Madras in Industrial Dispute No. 78
of 1966.
and Civil Appeal No. 1721 of 1967.
369 Appeal by special leave from the order
dated July 14, 1967 of the Additional Industrial Tribunal, Mysore in A.I.D. No.
29 of 1966.
E.C. Agarwala and Santosh Gupta, for the
appellants (in C.A. No. 1630 of 1967).
C.K. Daphtary, Attorney-General, G. B. Pai,
S. K. Dholkia, and O. C. Mathur, for the appellant (in C.A. No. 1721 of 1967).
M. K. Ramamurthi and M. V. Goswami, for
respondent No. 1. (in C.A. No. 1630 of 1967).
H. R. Gokhale, M. K. Ramamurthi, Shyamala
Pappu and Vineet Kumar, for the respondents (in C.A. No. 1721 of 1967).
The Judgment of the Court was delivered by
Shelat, J. In Civil Appeal No. 1630 of 1967, workmen engaged by certain chilies
and kirana shops in Madras and who were members of the respondent Union made a
demand on December 13, 1965 for bonus for the year 1964-65 equivalent to four
months' wages. Conciliation proceedings having failed, the dispute was referred
to the Industrial Tribunal, Madras. In Civil Appeal No. 1721 of 1967, the
appellant-company is admittedly an establishment in public sector to which sec.
20 of the Payment of Bonus Act, 21 of 1965
(hereinafter referred to as the Act) does not apply. In both these cases, the
Tribunals held that though the Act did not apply, in the first case by reason
of sec. 1(3) and in the other by reason of sec. 32(x), the employees were
entitled to claim bonus and awarded their claims in C.A. No. 1630 of 1967.
The appeals by special leave challenge the
correctness of the view taken by the Tribunals as to the scope and nature of
the Act.
The question for decision in both the appeals
is whether in view of the non-applicability of the Act to establishments, not
being factories and which employ less than 20 persons therein as the appellants
in appeal No. 1630 of 1967 are, and the exemption of employees in an
establishment in public sector though employing more than 20 persons as the
appellant-company in appeal No. 1721 of 1967 is under sec.
32(x) of the Act, the employees in both these
establishments could claim bonus, dehors the Act. The question depends upon the
true view of certain provisions and the scope of the Act. But before we take
upon ourselves the burden of construing these, provisions, it is necessary to
refer briefly to the history of the question of bonus, the background and the
circumstances in which the Act was passed.
This Is Permissible for the limited purpose
of appreciating the mischief Parliament had in mind and the remedy which it
wanted to provide for preventing that mischief and not for the purpose of
aiding us in construing the provisions of the Act.
370 As early as 1584, in Heydao's case(1) it
was said that "for the sure and true interpretation of all statutes in
general" four things are to be considered: (i) What was the common law
before the making of the Act, (ii) What was the mischief and defect for which
the common law did not provide, (iii) What remedy the Parliament hath resolved
and appointed to cure the disease of the Commonwealth, and (iv) the true reason
of the remedy. In Bengal Immunity Company Limited v.
The State of Bihar(2) this Court approved the
rule in Heydon's case(1) and in construing Art. 2865 of the Constitution
observed at p. 633 as follows :In order to properly interpret the provisions of
that Article it is, therefore, necessary to consider how the matter stood
immediately before the, Constitution came into force, what the mischief was for
which the old law did not provide and the remedy which has been provided by the
Constitution to cure that mischief'.
In the Corporation of the City of Nagpur v.
Its Employee(3) the question was as to the meaning of the word
"industry" in sec. 2(14) of the C.P. & Berar Industrial Disputes
(Settlement) Act (23 of 1947). This Court said that "if the word were to
be construed in its ordinary sense every calling, service, employment of an
employee or any business, trade or calling of an employer would be an industry.
But such a wide meaning appears to overreach the object for which the Act was
passed". The Court, therefore, found it necessary to limit the scope of
the said word having regard to the aim, scope and the object of the Act.
Relying on the four tests laid down in Heydon's case(1) the Court considered
the fundamental basis of the definition of industry, viz. relationship between
employees and employers, the long title and the, preamble of the Act showing
the object of passing the Act the historical background for passing it and held
that "it is manifest that the Act was introduced as an important step in
achieving social justice, to ameliorate the conditions of service of the labour
in organised activities than to anything else and therefore the Act was not
intended to reach the personal services which do not depend on the employment
of labour force". Similarly in R. M. D. Chamarbaugwalla v. The Union of
India (4), the question arose whether looking to the general words used in sec.
2(d) of the Prize Competitions Act, 42 of 1955 the words 'prize competition'
included not merely competitions of a gambling nature but also those in which
success depended to a substantial degree on skill. In construing the said
definition, the Court gave a restricted meaning to the words "prize
competition" as meaning only competitions as were of a gambling` nature.
In doing so, the Court approved the (1)[1955] 2 S.C.R.603. (2) 76 E.R. 637. (3)
[1960] 2 S.C.R.
942 (4) 1957 S.C.R. 930.
371 principles of construction stated in the
case of the Bengal Immunity Ltd.(1) and held that "in interpreting an
enactment the Court should ascertain the intention of the legislature not
merely from a literal meaning of the words used but also from such matters as
the history of the legislation, its purpose and the mischief it seeks to
suppress". For considering the intention of Parliament not merely from the
literal meaning of the definition in sec. 2(d) but also from the history of the
legislation the Court looked into the Bombay Lotteries and Prize Competitions
Control and Tax Act, 1948, how it could be and was evaded by the promoters of
lotteries by shifting the venue of their business to the neighbouring State of
Mysore, the concerted action taken by the adjoining States, the resolutions
passed by each of them calling upon Parliament to undertake legislation, the
fact of Parliament having passed the law and its preamble reciting the fact of
the State legislatures having asked it to pass such a law. Having done that,
the Court observed at p. 938 "Having regard to the circumstances under
which the resolutions came to be passed, there cannot be any reasonable doubt
that the, law which the State legislatures moved Parliament to enact under Art.
252(1) was one to control and regulate prize competitions of a gambling
character. Competitions in which success depended substantially on skill could
not have been in the minds of the legislatures which passed those resolutions.
Those competitions had not been the subject of any controversy in Court. They
had not done any harm to the public and had presented no problems to the States
and at no time had there been any legislation directed to regulating
them".
Though the Court refused to look at the
statement of objects and reasons for the, purpose of construing sec. 2(d), it
held that "having regard to the history of the legislation, the declared
object thereof and the wording of the statute" the words had to be, given
a restricted meaning. In Central Bank of India v. Their Workmen (2 the Court in
construing sec. 10(1) (b) of the Banking Companies Act, 10 of 1949, again
looked at the legislative history to ascertain Jr the object of passing the Act
and the mischief it sought to remedy,but declined to use the statement of
objects and reasons to construe the section on the -round that the statement
could not control the actual words used in the section. (Cf. also State of West
Bengal v. Union of India(3). In S. Azeez Basha & Ors. v. Union of India(4),
the, petitioners challenged the validity of the Aligarh Muslim. University
(Amendment) Act, 62 of 1951 and the Aligarh (1) [1955] 2 S.C.R. 603.
(3) [1964] 1 S.C.R. 371, 382.
(2) [1960] 1 S.C.R. 200, 216-17.
(4) [1968] 1 S.C.R. 833.
372 Muslim University (Amendment) Act, 19 of
1965 as violating Art. 30(1) of the Constitution. this Court went into the
history of the establishment of the University to ascertain whether it was set
up by the Muslim minority and as such entitled to rights under Art. 30 and held
that it was not set up by the minority but in fact established by the
Government of India by passing the Aligarh Muslim University Act, 1920 of.
Crawford on Statutory Construction (3rd Ed.) pages 482-483]. There is thus
sample authority justifying the Court in looking into the history of the
legislation, not for the purpose of construing the Act but for the limited
purpose of ascertaining the background, the conditions and the circumstances
which led to its passing, the mischief it was intended to prevent and the
remedy it furnished to prevent such mischief. The, statement of objects and
reasons also can be legitimately used for ascertaining the object which the
legislature had in mind, though not for construing the Act.
What were the conditions prevailing at the
time when the Act was passed and what was the object which Parliament had in
mind in passing it ? Bonus was originally regarded as a gratuitous payment by
an employer to his employees. The practice of paying bonus as an ex gratia
payment had its early roots in the textile industry in Bombay and Ahmadabad.
In 1917 and 1918 an increase of 10 and 15% of
wages was granted as War bonus to the textile workers by the employers. In
October, 1920, a Committee appointed by the Bombay Millowners recommended to
the member mills payment of bonus equal to one month's pay. Similarly bonus was
declared in 1921 and 1922. It appears that trading conditions in the industry
having deteriorated, the millowners declared in July 1923 that they would be
unable to pay bonus for 1923. Thereupon a strike began which became general
towards the end of January 1924. In February 1924, a bonus dispute Committee
was appointed by the Government of Bombay to consider the nature of, the
conditions and the basis of bonus which had been granted to the employees in
the textile mills and to declare whether the employees had established any enforceable
claim, customary, legal or equitable. The Committee held that they had not
established any enforceable claim, customary, legal or equitable, to an annual
payment of bonus which could be upheld in a court.
The years that followed were years of depression
and no major dispute about bonus arose, although bonuses were given on ad hoc
basis by a few industrial undertakings. During the Second World War,
managements of textile mills paid cash bonus equivalent to a fraction of the
surplus profit but this was also voluntary payment to keep labour contented.
Disputes for payment of bonus for the years
1948 and 1949 arose in the Bombay textile industry. On the said dispute having
been referred to the Industrial Court, that Court expressed the view that since
both labour and capital contributed to the profits of the 373 industry both
were entitled to a legitimate return out of the profits and evolved a formula
for charging certain prior liabilities on the gross profits of the accounting
year and awarded a percentage of the balance as bonus. The Industrial Court
excluded the mills which had suffered loss from the liability to pay bonus. In
appeals against the said awards, the Labour Appellate Tribunal approved broadly
the method of computing bonus as a fraction of the surplus profit. According to
this formula, which has since been referred to as the Full Bench formula, the
surplus available for distribution is to be determined after debiting certain
prior charges from gross profits, viz. (1) provision for depreciation (2)
reservation for rehabilitation (3) return of 6% on paid-up capital, and (4)
return on working capital at a rate lower than the one on the paid-up capital.
In Muir Mills Company v. Suti Mills Mazdoor Union, Kanpur(1), Baroda Borough
Municipality v. Its Workmen(2), The Shree Meenakshi Mills Ltd. v. Their
Workmen(3) and The State of Mysore v. The Workers of Gold Mines(4) this Court
laid down (1) that bonus was not a gratuitous payment nor a deferred wage, and
(2) 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
alterations in the said formula. These questions came to be examined for the
first time in Associated Cement Companies Ltd. v. Its Workmen(5) where the said
formula was generally approved.
Since that decision, this Court has accepted
in several cases they said formula. The principal feature,,, of the formula are
that each year for which bonus is claimed is a self-contained unit, that bonus
is to be computed on the profits of the establishment during that year, that
the gross profits are to be determined after debiting the wages and dearness
allowance paid to the employees and other items of expenditure against total
receipts as disclosed by the profit and loss account, and that against such
gross profits the aforesaid four items are to be deducted as prior charges. The
formula was not based on any legal right or liability, its object being only to
distribute profits after reasonable allocations for the aforesaid charges. Attempts
were thereafter made from time to time to have the said formula revised but
they were rejected first in A.C.C.'s case(5) and again in The Ahmadabad
Miscellaneous Industrial Workers Union v. The Ahmadabad Electricity Co. Ltd.
(6) where it was observed that the plea for revision raised an issue which
affected all industries and, therefore, before any change was made all
industries and their workmen had (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. (6) [1962] 2 S.C.R.
934.
374 to be heard and their pleas considered.
The Court, therefore, suggested that the question of revising the formula
should be "comprehensively considered by a high powered Commission".
Taking up the-aforesaid suggestion, the Government of India appointed a:
Commission, by its resolution dated December 6, 1961, the terms of reference
whereof were, inter alia,
1. to define the concept of bonus and to
consider in relation to industrial employment the question of payment of bonus
based on profits and recommend principles for computation of such bonus and
methods of payment;
2. to determine what the prior charges should
be in different circumstances and how they should be calculated.
3. to determine conditions under which bonus
payment should be, made unit wise industry wise and industry-cum region wise;
4. to consider whether there should be, lower
limits irrespective of loss in particular establishment and upper limits for
distribution in one year and, if so, the manner to carry forward the profits
and losses over a prescribed period; and
5. to suggest an appropriate machinery and
method for settlement of bonus disputes.
After an elaborate enquiry, the Commission
made the following -amongst other recommendations :
1. That bonus was paid to the workers as
share in the prosperity of the establishment and that the basic scheme of the
bonus formula should be adhered to viz. determination of bonus as a percentage
of gross profits reduced by the following prior charges, viz. normal
depreciation allowable under the Indian Income Tax including multiple shifting
allowance, income tax and super tax at the current standard rate applicable for
the year for which tax is to be calculated but not super profits tax, return on
paid up capital raised through preference shares at the actual rate of dividend
payable, on other paid-up capital at 7% and on reserves used as capital at 4%.
The Commission did not recommend provision
for rehabilitation.
2. That 60% of the available surplus should
be distributed as bonus and excess should be carried forward and taken into
account in the next year; the balance of 40% should remain with the
establishment into which should merge the saving in tax on bonus and the aggre375
gate balance thus left to the establishment should be used for payment of
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, etc.
3. That the distinction between the basic
wages and dearness allowance for the purpose of arriving at the bonus quantum
should be done away with and bonus should be related to wages and dearness
allowance taken together;
4. That minimum bonus should be 4% of the
total basic wage and dearness allowance paid during the year or Rs. 40 to each
employee, 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;
5. That the maximum bonus should be
equivalent to 20% of the total basic wage and dearness allowance paid during
the year;
6. 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 p.m. regardless of whether they were workmen as
defined in the Industrial Disputes Act, 1947 or other corresponding Act
provided that quantum of bonus payable to employees drawing total basic pay and
allowance over Rs. 750/p.m. should be limited to what it would be if their pay
and dearness allowance were Rs. 750 p.m.
7. That the formula should not apply to new
establishments until they recouped all early losses including arrears of normal
depreciation subject to the time limit of 6 years; and
8. That the scheme should be applied to all
bonus matters relating to the accounting year ending on any day in the calendar
year 1962 except in those matters in which settlements had been reached or
decisions had been given.
The fact that the Government of India
accepted the majority of the Commission's recommendations is clear from the
Statement of objects and reasons attached to Bill No. 49 of 1965 which they
sponsored in Parliament. The Statement, inter alia, states that a
"tripartite Commission was set up by the Government of India by resolution
dated 6th December 1961 to consider in comprehensive manner the question of
payment of bonus based on profits to employees employed in establishments and
to make recommendations to the Government. The Commission's report containing
the recommendations was received by the Government on 24th January, 1964. By
resolution dated 2nd September, 1964, Government announced acceptance of the
Commission's recommendations subject to a few modifications as were mentioned
therein". To implement these recommendations the Payment of Bonus
Ordinance, 1965 was promulgated on May 29, 1965. Since the Ordinance was
replaced by the present Act published on September 25, 1965, it is unnecessary
to examine its provisions. Thus, bonus which was originally a voluntary payment
acquired under the Full Bench formula the character of a right to share in the
surplus profits enforceable through the machinery of the Industrial Disputes Act,
1947 and other corresponding Acts. Under the Act liability to pay bonus has now
become a statutory obligation imposed on the employers. From the history of the
legislation it is clear (1) that the Government set up a Commission to consider
comprehensively the entire question of bonus in all its aspects; and (2) that
the Commission accordingly Considered the concept of bonus, the, method of
computation, the machinery for enforcement and a statutory formula in place of
the one evolved by industrial adjudication.
We proceed next to examine some, of the
provisions of the Act and its scheme.
The preamble of the Act states that it is to
provide for payment of bonus in certain establishments and for matters
connected therewith. Section 1(3) provides that it shall apply "save as
otherwise provided in the Act" to (a) every factory and (b) every other establishment
in which 20 or more persons are employed on any day during the accounting year.
We may note that this subsection is in consonance with one of the Commission's
recommendations, viz. that its bonus formula should not be applied to small
shops and establishments which are not factories and which employ less than 20
persons. Having made clear that the Act is to apply only to those
establishments mentioned in sub.-sec. (3), sub.-sec. (4) provides that the Act
shall have effect in respect of the accounting year 1964 and every subsequent
year. "Allocable surplus" under S. 2(4) means 67% in cases falling
under cl. (a) and 60% in other cases of the available surplus. Sec. 2(6)
defines 'available surplus' to mean available surplus as computed under sec. 5.
Sec. 2(15) defines "establishment in private sector" to mean any
establishment other than an establishment in public sector. Sec. 2(16) defines
"establishment in public sector" as meaning (a) a Government company
as defined in S. 617 of the Companies Act, 1956, and (b) a Corporation in which
not less than 40% of it-capital is held by Government or the Reserve Bank of
India or a Corporation owned by Government or the Reserve Bank of India.
"Gross profits" a-, defined by sec. 2(18) means cross profits calculated
under sec. 4. Sees. 4 and 5 provide for computation of gross profits and
available surplus after deducting there from the sums referred to in sec. 6
viz., depreciation admissible under 32(1) of the Income Tax Act or the relevant
Agricultural Income Tax Act, development rebate or development allowance
Admissible under the Income Tax Act and such other sums as are specified in the
third Schedule.
Sec. 7 deals with calculation of direct tax.
Sees. 8 and 9 deals with eligibility of and disqualification from receiving
bonus. Sees. 10 to 15 deal with minimum and maximum bonus and the provisions
for 'set off' and 'set on'.
Sees. 18, 19, and 21 to 31 deal with certain
procedural and allied matters. Sec. 20 deals with certain establishments in
public sector to which the Act is made applicable in certain events. Sec. 32
exclude from the application of the Act certain categories of employees and
certain establishments therein specified. Sec. 34 provides for the overriding
effect of the Act notwithstanding anything inconsistent therewith contained in
any other law for the time being in force or in terms of any award, agreement,
settlement or contract of service made before May 29, 1965.
Sec. 35 saves the provisions of the Coal
Mines, Provident Fund and Bonus Schemes Act, 1948 or any scheme made there
under. Sec. 35 empowers an appropriate Government having regard to the
financial position and other relevant circumstances of any establishment or
class of establishments if it is of opinion that it would not be in public
interest to apply all or any of the provisions of the Act thereto, to exempt
for such period as may be specified by it such establishment or class of
establishments from all or any of the provisions of the Act. Sec. 39 provides
as follows :"Save as otherwise expressly provided, the provisions of this
Act shall 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".
It will be noticed that sec. 22 provides that
where a dispute arises between an employer and his employees (1) with respect
to the bonus payable under the Act, or (2) with respect to the application of
the Act, such a dispute shall be deemed to be an industrial dispute within the
meaning of the Industrial Disputes Act, 1947 or any corresponding law relating
to investigation and settlement of industrial disputes in force in a State and
the provisions of that Act and such law, as the case may be, shall, save as
otherwise expressly provided, apply accordingly. An industrial dispute under
the Industrial Disputes Act would be between a workman as defined in that Act
and his employer and the dispute can be an industrial dispute if it is one as
defined therein. But the definition of an "employee" under sec. 2(13)
of this Act is wider than that of a "workman" under the Industrial
Disputes 378 Act. A dispute; between an employer and an employee, therefore,
may not fall under the Industrial Disputes Act and in such a case the Act would
not apply and its machinery for investigation and settlement would not be
available.
That being so, and in order that such
machinery for investigation and settlement may be available, sec. 22 has been
enacted to create a legal fiction where under such disputes are deemed to be
industrial disputes under the Industrial Disputes Act or any other
corresponding law. For the purposes of such disputes the provisions of the Industrial
Disputes Act or such other law are made applicable. The effect of sec. 22 thus
is (1) to make the disputes referred to therein industrial disputes within the
meaning of the Industrial Disputes Act or other corresponding law and (2)
having so done to apply the provisions of that Act or other corresponding law
for investigation and settlement of such disputes. But the application of sec.
22 is limited only to the two types of disputes referred to therein and not to
others. Section 39, on the other hand, provides that "save as otherwise
expressly provided" the provisions of the Act shall be in addition to and
not in derogation of the, Industrial Disputes Act or any corresponding law
relating to investigation and settlement of industrial disputes in force in a
State. Except for providing for recovery of bonus due under a settlement,
award, or agreement as an arrear of land revenue as laid down in sec. 21, the
Act does not provide any machinery for the investigation and settlement of
disputes between an employer and an employee. If a dispute, for instance, were
to arise as regards the quantum of available surplus, such a dispute not being
one falling under sec. 22, Parliament had to make a provision for investigation
and settlement thereof. Though such a dispute would not be an industrial
dispute as defined by the Industrial Disputes Act or other corresponding Act in
force in a State, sec. 39 by providing that the provisions of this Act shall be
in addition to and not in derogation of the Industrial Disputes Act or such
corresponding law makes available the machinery in that Act or the
corresponding Act available for investigation and settlement of industrial
disputes there under for deciding the disputes arising under this Act. As
already seen sec. 22 artificially makes two kinds of disputes therein referred
to industrial disputes and having done so applies the provisions of the Industrial
Disputes Act and other corresponding law in force for their investigation and
settlement. But what about the remaining disputes ? As the Act does not provide
any machinery for their investigation and settlement, Parliament by enacting
sec. 39 has sought to apply the provisions of those Acts for investigation and
settlement of the remaining disputes, though such disputes are not industrial
disputes as defined in those Acts. Though, the words "in force in a
State" after the words "or any corresponding law relating to
investigation and settlement of industrial disputed appear to qualify the words
"any corresponding law" and not the 379 Industrial Disputes Act, the Industrial
Disputes Act is primarily a law relating to investigation and settlement of
industrial disputes and provides machinery there for.
Therefore the distinction there made between
that Act and the other laws does not seem to be of much point. It is thus clear
that by providing in s. 39 that the provisions of this Act shall be in addition
to and not in derogation of those Acts, Parliament wanted to avail of those
Acts for investigation and settlement of disputes which may arise under this
Act. The distinction between sec. 22 and sec. 39, therefore, is that whereas
sec. 22 by fiction makes the disputes referred to therein industrial disputes
and applies the provisions of the Industrial Disputes Act and other
corresponding laws for the investigation and settlement thereof, Sec. 39 makes
available for the rest of the disputes the machinery provided in that Act and
other corresponding laws for adjudication of disputes arising under this Act.
Therefore, there is no question of a right to bonus under the Industrial
Disputes Act or other corresponding Acts having been retained or saved by sec.
39.
Neither the Industrial Disputes Act nor any
of the other corresponding laws provides for a right to bonus. Item 5 in
Schedule 3 to the Industrial Disputes Act deals with jurisdiction of tribunals
set up under ss. 7, 7A and 7B of that Act, but does not provide for any right
to bonus. Such a right is statutorily provided for the first time by this Act.
Mr. Ramamurti and Mr. Gokhale for the
respondents, however, sought to make the following points :
1. The Act applies only to certain
establishments and its preamble and sec. 1(3) show to which of them it is
expressly made applicable;
2. Under sec. 1(3), the Act is made
applicable to all factories and establishments in which 20 or more persons are
employed except those "otherwise provided in the Act".
It means that the Act does not apply (i) to
factories and establishments otherwise provided in the Act, and (ii) to
establishments which have less than 20 persons employed. The Act, therefore, is
not a comprehensive Act but applies only to factories and establishments
covered by sec.
1(3);
3. There is no categorical provision in the
Act depriving the employees of factories and establishments not covered by or
otherwise saved in the Act of bonus which they would be entitled to under any
other law;
4. That being so, the employees of
establishments to which the Act is not made applicable would still be entitled
to bonus under a law other than the Act although they are not entitled to the
benefit of the Act;
380
5. Parliament was aware of the fact that
employees in establishments other than those to which, the Act applies were
getting bonus under adjudication provided by the Industrial Disputes Act and
other similar Acts. If it intended to deprive them of such bonus surely it
would have expressed so in the Act;
6. Sec. 39 in clear terms saves the right to
claim bonus under the Industrial Disputes Act or any corresponding law by
providing that the provisions of this Act shall be in addition to and not in
derogation of the provisions of those Acts.
It is true that the preamble states that the
Act is to provide for payment of bonus to persons employed in certain
establishments and sec. 1(3) provides that the Act is to apply, save as
otherwise provided therein, to factories and every other establishments in
which 20 or more persons are employed. Sub-sec. (4) of sec. 1 also provides
that the Act is to have effect in relation to such factories and establishments
from the accounting year commencing on any day in 1964 and every subsequent
accounting year. But these provisions do not, for that reason, necessarily mean
that the Act was not intended to be a comprehensive and exhaustive law dealing
with the entire subject of bonus and the persons to whom it should apply. Even
where an Act deals comprehensively with a particular subject-matter, the
Legislature can surely provide that it shall apply to particular persons or
groups of persons or to specified institutions only. Therefore, the fact that
the preamble states that the Act shall apply to certain establishments does not
necessarily mean that it was not intended to be a comprehensive provision
dealing with the subject-matter of bonus. While dealing with the subject-matter
of bonus the Legislature can lay down as a matter of policy that it will exclude
from its application certain types of establishments and also provide for
exemption of certain other types of establishments even though such
establishments would otherwise fall within the scope of the Act. The exclusion
of establishments where less than 20 persons are employed in sec. 1(3)
therefore is not a criterion suggesting that Parliament has not dealt with the
subject-matter of bonus comprehensively in the Act.
As already seen, there was until the
enactment of this Act no statute under which payment of bonus was a statutory
obligation on the part of ,in employer or a statutory right therefore of an
employee. Under the Industrial Disputes Act, 1947 and other corresponding Acts,
workmen of industrial establishments as defined therein could raise an
industrial dispute and demand by way of bonus a proportionate share in profits
and Industrial Tribunals could under those Acts adjudicate such disputes and
oblige the employers to pay bonus on the principle that both capital and 381
labour had contributed to the making of the profits and, therefore, both were
entitled to a share therein. The right to the payment of bonus and the
obligation to pay it arose on principles of equity and fairness in settling
such disputes under the machinery provided by the Industrial Acts and not as a
statutory right and liability as provided for the first time by the present
Act. In providing such statutory liability, Parliament has laid down a
statutory formula on which bonus would be calculated irrespective, of whether
the establishment in question has during a particular accounting year made
profit or not. It can further lay down that the formula it has evolved and the
statutory liability it provides in the Act shall apply only to certain
establishments and not to all. Since there was no such statutory obligation
under any previous Act, there would not be any question of Parliament having to
delete either such obligation or right. In such circumstances, since Parliament
is providing for such a right and obligation for the first time, there would be
no question also of its having to insert in the, Act an express provision of
exclusion. In other words, it has not to provide by express words that
henceforth no bonus shall be payable under the Industrial Disputes Act or other
corresponding Acts as those Acts did not confer any statutory right to bonus.
It will be noticed that though the Industrial
Disputes Act confers substantive rights on workmen with regard to lay off,
retrenchment compensation, etc., it does not create or confer any such
statutory right as to payment to bonus.
Bonus was so far the creature of industrial
adjudication and was made payable by the employers under the machinery provided
under that Act and other corresponding Acts enacted for investigation and
settlement of disputes raised there under. There was, therefore, no question of
Parliament having to delete or modify item 5 in the third Schedule to
Industrial 'Disputes Act or any such provision in any corresponding Act or its
having to 'exclude any right to bonus there under by any categorical exclusion
in the present Act.
But the argument was that if the Act were to
be held as an exhaustive statute dealing with the subject of bonus, three
results would follow which could never have been expected much less G intended
by Parliament. These results would be : (1) that employees in establishments
engaging less than 20 persons would get no bonus at all either under the Act or
under industrial adjudication provided for by the Industrial Disputes Act and
other corresponding Acts. Since such employees were so far getting bonus as a
result of industrial adjudication, Parliament could never have intended to
deprive them of such benefit; (ii) that employees in public sector Corporations
and Companies would get no bonus either under the Act or under the Industrial Disputes
Act or other corresponding law; and (iii) that such a construction would have
-12 Sup CI/68-10 382 the, effect of impliedly repealing and negating the provisions
of the Industrial Disputes Act and other corresponding laws.
Though sec. 1(3) excludes an establishment
other than a factory having less than 20 employees from the application of the
Act, all establishments which are factories irrespective of the number of
persons employed therein and all establishments which are not factories but are
having 20 or more employees are covered by the Act. Therefore, only small
establishments having less than 20 employees and which are not factories are
excluded. Even in such cases if any establishment were to have 20 or more
persons employed therein on any day in any accounting year, the Act would apply
to such an establishment. It is, therefore, clear that Parliament by enacting
sec. 1(3) excluded only petty establishments.
We are not impressed by the argument that
Parliament in excluding such petty establishments could not have intended that
employees therein who were getting bonus under the Full Bench formula should
lose that benefit. As aforesaid, Parliament was evolving for the first time a
statutory formula in regard to bonus and laying down a legislative policy in
regard thereto as to the classes of persons who would be entitled to bonus
there under. It laid down the definition of an 'employee' far more wider than
the definition of a 'workman' in the Industrial Disputes Act and the other
corresponding Acts. If, while doing so, it expressly excluded as a matter of
policy certain petty establishments in view of the recommendation of the
Commission in that regard, viz., that the application of the Act would lead to
harassment of petty proprietors and disharmony between them and their
employees, it cannot be said that Parliament did not intend or was not aware of
the result of exclusion of employees of such petty establishments.
It is true that the construction canvassed on
behalf of the appellants leads, as argued by counsel for the respondents, to
employees in public sector concerns being deprived of bonus which they would be
getting by raising a dispute under the Industrial Disputes Act and other
corresponding statutes. But such a result occurs in consequence of the
exemption of establishments in public sector from the Act, though such
establishments but for sec. 32(x) would have otherwise fallen within the
purview of the Act. It appears to us that the exemption is enacted with a
deliberate object, viz., not to subject such establishments to the burden of
bonus which are conducted without any profit motive and are run for public
benefit. The exemption in sec. 32(x) is, however, a limited one, for, under
sec. 20 if a public sector establishment were in any accounting year to sell
goods produced or manufactured by it in IF competition with an establishment in
private sector and the income from such sale is not less than the 20% of its
gross income, it would be liable to pay bonus under the Act. Once again it is
clear 383 that in exempting public sector establishments, Parliament had a
definite policy in mind.
This policy becomes all the more discernible
when the various other categories of establishments exempted from the Act by
sec. 32 are examined. An insurer carrying on general insurance business is
exempted under cl. (i) in view of certain provisions of the Insurance Act, 1936
and the Insurance (Amendment) Act, 1950. In view of these provisions the Full
Bench formula could not be and was not in fact applied at any time to such
insurance establishments. The Life Insurance Corporation of India is exempted
under clause (1) because of its being a public sector concern having no Cl.
(ii) of sec. 32 profit motive and conducted in public interest exempts shipping
companies employing seamen in view of sec.. 159(9) of the Merchant Shipping
Act, 1958 under which the Industrial Disputes Act was inapplicable to such
seamen, the disadvantages that Indian Shipping Companies vis-a-vis foreign
companies engaged in shipping would be put to if they were made to pay bonus
and the obvious difficulties in applying the Act to such foreign companies
engaging Indian seamen. The exemption in respect of stevedore labour contained
in cl.
(iii) also seems to have been provided for in
view of the peculiar nature of employment,, the difficulty of calculating
profits according to the normal methods and other such difficulties. The rest
of the categories of establishments set out in sec. 32 appear to have been
exempted on the ground of (a) absence of any profit motive, (b) their being of
educational, charitable or public nature, and (c) their being establishments in
public sector carried on in public interest. Building contractors appear to
have been exempted because of their work being contract job work, the
unfeasibility of applying the formula evolved in the Act and the problem of
employees of such contractors being more of evolving and enforcing a proper
wage structure rather than of payment of bonus to them.
It seems to us that if we were to accept the
contention that the. object of sec. 32 was only to exempt the establishments
therein enumerated from the application of the bonus formula enacted in the
Act, but that the employees of those establishments were left at liberty to
claim and get bonus under the machinery provided by the Industrial Disputes Act
and other corresponding Acts, them very object of enacting sec. 32 would be
frustrated. Surely, Parliament could not have intended to exempt these
establishments from the burden of bonus payable under the Act and yet have left
the door open for their employees to raise industrial disputes and ,,get bonus
under the Full Bench formula which it has rejected by laying down a different
statutory formula in the Act. For instance, is it to be contemplated that
though the Act by sec. 32 exempts institutions such as the Universities or the
Indian Red Cross Society or hospitals, or any of the establishments set out in
cl. (ix) of that section, they would still be liable to pay bonus if the
employees, 384 of those institutions were to raise a dispute under the Industrial
Disputes Act and claim bonus in accordance with the Full Bench formula ? The
legislature would in that case be giving exemption by one hand and taking it
away by the other, thus frustrating the very object of sec. 32. Where, on the
other hand, Parliament intended to retain a previous provision of law under
which bonus was payable or was being paid it has expressly saved such
provision. Thus, under sec. 35 the Coal Mines Provident Fund and Bonus Schemes
Act, 1946 and any scheme made there under are saved. If, therefore, Parliament
wanted to retain the right to claim bonus by way of industrial adjudication for
those who are either excluded or exempted from the Act it would have made an
express saving provision to that effect as it has done for employees in Coal
Mines.
Besides, the construction suggested on behalf
of the respondents, if accepted, would result in certain anomalies.
Take two establishments in the same trade or
industry, one engaging 20 or more persons and the other less than 20. The Act
would be applicable to the former but not to the latter.
If the respondents were to be right in their
contention the employer in the former case would be liable to, pay bonus at the
rates laid down by the Act, i.e. at the rate of 4% minimum and 20% maximum, but
in the latter case the Act would not apply and though his establishment is a
smaller one, on the basis of the Full Bench formula there would be a
possibility of his having to pay bonus at a higher rate than 20%, depending
upon the quantum of profit made in that particular accounting year.
Section 32(vii) exempts from the
applicability of the Act those employees who have entered before May 29, 1965
into an agreement or settlement with their employers for payment of bonus
linked with production or productivity in lieu of bonus based on profits and who
may enter after that date into such agreement or settlement for the period for
which such agreement or settlement is in operation. Can it be said that in
cases where there is such an agreement or settlement in operation, though this
clause expressly excludes such employees from claiming bonus under the Act
during such period, the employees in such cases can still resort to the Industrial
Disputes Act and claim bonus on the basis of the Full Bench formula ? The
answer is obviously in the negative for the object in enacting cl. (vii) is to
let the parties work out such an agreement or settlement. It cannot be that
despite this position, Parliament intended that those employees had still the option
of throwing aside such an agreement or settlement raise a dispute under the Industrial
Disputes Act and claim bonus under the Full Bench formula. The contention,
therefore, that the exemption under sec. 32 excludes those employees from
claiming bonus under the Act only and not from claiming bonus under the 385 Industrial
Disputes Act or such other Act is not correct.
This conclusion is buttressed by the
provisions of sec. 36 which empower the appropriate Government to exempt for a
specified period an establishment or class of establishments from the operation
of the Act, if it is of. the opinion that it is not in public interest to apply
all or any of the provisions of the Act to such establishment or class of
establishments. Since the appropriate Government can exempt such an
establishment or establishments from the operation of the Act on the ground of
public interest only, it cannot surely be that Parliament still intended that
the employees of such exempted establishment or establishments can claim bonus
through industrial adjudication under the Industrial Disputes Act or any such
corresponding law.
We are also not impressed by the contention
that the fact that sec. 39 provides that the provisions of this Act are in a
addition to and not in derogation of the Industrial Disputes Act or any other
corresponding law shows that Parliament did not wish to do away with the right
to payment of bonus altogether to those who cannot either by reason of
exclusion or exemption from the Act claim bonus under the Act. Such a
construction is fallacious on two ground.
Firstly because it assumes wrongly that the Industrial
Disputes Act or any other law corresponding to it provided for a statutory
right to payment of bonus. All that those Acts provided for, apart from rights
in respect of lay out, retrenchment etc., a machinery for investigation and
settlement of disputes arising between workmen and their employers. It is,
therefore, incorrect to say that the right to bonus under this Act is in
addition to and not in derogation of any right to bonus under those Acts.
Secondly, sec. 39 became necessary because
the Act does not provide any machinery or procedure for investigation and
settlement of disputes which may arise between employers and employees. In the
absence of any such provision Parliament intended that the machinery and
procedure under those Acts should be made available for the adjudication of
disputes arising under or in the operation of the Act. If, for instance, there
is a dispute as to the computation of allocable surplus or as to quantum of
bonus, or as to whether in view of sec. 20 an establishment in public sector is
liable to pay bonus, such a dispute is to be adjudicated under the machinery
provided by the Industrial Disputes Act or other corresponding Acts.
Considering the history of the legislation,
the background and the circumstances in which the Act was enacted, the object
of the Act and its scheme, it is not possible to accept the construction
suggested on behalf of the respondents that the Act is not an exhaustive Act
dealing comprehensively with the subject-matter of bonus in all its aspects or
that Parliament still left it open to those to whom the Act does not apply by
reason of its provisions either as to exclusion or exemption to raise a dispute
with regard to bonus 386 through industrial adjudication under the Industrial Disputes
Act or other corresponding law.
We are, therefore, of the view that the
construction given to the Act by the Tribunals was not correct and the orders
passed by them have to be set aside. The appeals are allowed, but as the
question as to the scope of the Act is raised in these appeals for the first
time, there will be no order as to costs.
V.P.S. Appeals allowed.
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