SANGHI JEEVARAJ GHEWAR CHAND & ORS. versus SECRETARY, MADRAS CHILLIES, GRAINS KIRANA MERCHANTS WORKERS UNION & ANR.

SAl\GHLlEEVARAJ GHEWAR CHAND & ORS.

v. SECRETARY, MADRAS CHILLIES, GRAINS KIRANA MERCHANTS WORKERS' U1"I0l\ & ANR.

July 16, 1968

[J.M. SHEi.AT AND K. S. HFulll·, JJ.]

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Payment of Bonus Act (21 of 1%5), ss. 1(3), 22, 32(x) and 39- Acl whether exhaustive on the la1v relating to bonus-Whether employees c:ntitled to pay1nrnt -:J.f bonus dchOr'.'. the Acr in cast' of excluded and exempted establishmenJs-Scope of ss. 22 and 39.

Legislative history and Statement of Objects and Reasons '"hen can C

he looked imo.

The appellants arc: (i) an estahlishmcnt with less than 20 employees :inli Ylhich was not a factory; and (ii) an establishment in the public sector. On the question, whether in view of the non-app!icahility of the Payinent of Honus Act, 1965, to the two appellants-in the first case by reason of exclusion under s. 1 (3) and in the other by reac;on of exemption under s. 32(x)-the employees of the two appellants were entitled claim honus dehors the Act.

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HELD : Considerin~ the history of the legislation, the background and 1he circumstances in \Vhich the Act was enacted the object of the Act and it'i scheme, it is not possible to :i.cccpt the construction suggested on behalf of the n .. 'Spondents (employee~) that the Act is not an exhaustive Act dealing comprehensively vtith the subjcct-n1:i.ttcr of honus in all its asp..-cts, or that Parliament ~till left it open to those to whom the Act E dOC'l not apply by r~ason of exclusion or exemption to 'raise a dispute with regard to bonus dehors the Act through industrial adjudietion under the Industrial Dispute<> Act, 1947, or other corresponding lavls.

( 1) The Court is justified in looking into the history o[ the lcgisla tilitt and the statement of objects and reasons, not for the pu'rposc of construing. the Act. hut for the limited purpose of ascertaining the back- ground. the conditions and circumstances which led to it'> pa~sing. the mischief it was intended to prevent and the remi:dy it furnished to prevent such mischief. (3 72 H-{:]

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fleydon's case. 76 E.R. 637. Bengal ln11nunity Co. Ltd. v. Stale of Rihar, fl955] 2 S.C.R. 603, R. M. D. (,'hanuirbaugluvalla v. Union of /nlliu, (19571 S.C.R. 910. Central Bank of India v. Their Workmen, fl960] I S.C.R. 200. Corporation of the City of Nu1;pur v. Its En1ployee.L (19601 2 S.C.R. 942. Statr of Wert Bengal'" Union of India. [1964] I G S.C.R. 371 and Acree Basha v. Union of India. (1968] 1 S.C.R. 833 referred to.

Until the cnactn1cnt df the Payment of Bonu..., Act. 1965, payment of bonu<> was not a 5tatutorv obligation on the part of the employer nor \Vas it a statutorv right Or an employee. It wa-.; originally a voluntary payment. Undc.r ·the Full Hench formula, evolved by the Labour. Appel- late Tribunal \\'Ith respect to disputes for payment of honus the Bombay Textile Industry, it acquired the character o.f a right to share in the surplus of profil<:. enforceable through the n1ach1nery of the lndu'>- trial Dispites Act, 1947. and other cormspandin~ Act. Under . that Act. workmen of industrial estahlic;hmcnts could raise an industrial dispute and

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GHEWAR CHAND V. WORKERS' UNION

367

regarding bonus.

. men, ~1959] S.C.R. 925 and in Ahmedabad Miscellaneous

demand by way df 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 obser vations of this Court in Associated Cement Companies Ltd. v. Its Work- Industrial Workers' Union v. The Ahmedabad Electricty Co., [1962] 2 S.C.R. 934, the Government of India appointed a Commission to make recommenda tions with resp<et .to legh>iation The Government accepted the majority of the Comnussion's recommendations and spon sored 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 statutdry formula on which bonus would be payable irrespective of whet11tr 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 establ~5Ilments 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-DJ

Muir Mills Co. v. Suti Mills Mazdoor Union, Kanpur, [1955] 1 S.C.R. 991, Baroda 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, [1959] S.C.R. 925 and The Ahmedabad Miscellaneous Industrial· Workers' Union v. The Ahmedabcd 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 ouly to certain establish ments and that s. 1 ( 3) of the Act excludes establishments where less than 20. persons are employed, from the application of the Act, does not necessarily mean. that .Parliament ras not dealt with the subject-matter o[ 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 per sons or group of persons or to specified institutions only, and so, Parlia· ment 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 HJ

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(3) Since the Payment of Bonus Act 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 adiudication provided for by the Industrial Disputes Act and other corresponding Acts. Under s. 1(3) Parliament has excluded petty establishments with Jess 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 harasment Of 'Petty ·properietors and disharmony .between them and their employees. To hold that employees in such establish ments 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 enagaging more than 20 persons and the other engaging less than 20 person, then, in the former case the employer would be

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liable to pay bonus at the rate· laid down in the Act, while in the latter, A the employer would he hablc to pay bonus on the basis of the Full Bench foriula \\'hich may be -at a higher rate depending upon the quantum of profits in the particular year. 1382 C-F; 384 C-E]

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( 4) Under s. 32(x) of the Payment of Bonus Act. establishments in the public sector are exempted from the application of the Act. There fore, employees in public sector conoerm would not be entitled to bonus. either under the Act or which they might otherwise have got by 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 suhjCct such establio;hment<> which arc conducted without any profit motive and are rua 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 employee.; of such institutions V-'ere to raise a dispute under the Industrial Disputes Act and claim bonus in accordance with the Full Bench formula would C also Jead to the anomaly that the Legislature would be giving exemption \\·ilh one hand and taking it away \\rith 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 \vould 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-CJ

( 5) There is no question of a right to bonus under the Industrial D

f)isputcs Act or other corresponding laws being saved under s. 39 of the Payment of Bonus Act, because :

though (a) the Industrial Disputes Ace or the corresponding laws they confer substantial rights on a v..·orkman with regard to lay off, retrenchment compensation, etc .. do not provide for a statutory right to payment of bonus; and (385 C-GJ

(b) the definition of 'employee• under s. 2( 13) of the Payment of Bonus Act is \\"idcr than that of ''vorkman' under the Industrial Disputes Act. Therefore, a dispute between an employer and hi'i employees, in relation to bonus may not be an indti'itrial dispute. Section 22 of th~ Payment of Bonus Act, by fiction, makes such disputes industrial disputes a.ad applies the provision.s of the Industrial Disputes Act. But the Pay- ment of Bonus Act does not provide any machinc'ry or procedure for the investigation and settlement of disputes which may arise between en1ploycrs and emplovecs, such as a dispute as to the computation of allocable sur plus. or qu.antum of bonus or a.'i to whether an establishment in the public sector is liable to pay bonus in view of s. 20 of the Act. Therefore. s. :19. which provides that the provisions of the Payment of Bonus Act arc in addition to and not in derogation of the Industrial Disputes Act and 01h~r corresponding Ja\\'s, hccamc neccssarv in order that the machinery of the Industrial Disputes Act may he ava.ilablc for adjudication of such disputes under the Payment of Bonus Act [377 H; 378 A-G; 379 B-D]

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CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1630 of

1967.

Appeal by specialleave from the award dated April 28. 1967, of the Industrial Tribunal, Madras in Industrial Dispute No. 78 cl1%6.

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Civil Appeal No. 1721 of 1967.

GHEWAR CHAND v. WORKERS' UNION (She/at, J.)

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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

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C.A. No. 1630 of 1967).

C. K. Daphtary, Attorney-General, G. B. Pai, S. K. Dhol kia, 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 Shela!, J.

In Civil Appeal No. 1630 of 1967, workmen en gaged by certain chillies 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, In the dispute was referred to the Industrial Tribunal, Madras. Civil Appeal No. 1721 of 1967, the appellant-company is admit tedly an establishment in public sector to which sec. 20 of the Payment of Bonus Act, 21 of 1965 (hereinafter referred to as the In both these cases, the Tribunals held that Act) does not apply. 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. These appeals by special leave challenge the cor rectness 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 a_s the appellants iri appeal No. 1630 of 1967 are, and the exemp tion 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 em ployees 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 back ground 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 pro vide for preventing that_ mischief .and not for the purpose of aiding us in construing the provisions of the Act.

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As early as 1584, in Heydon's case( 1

it was said that "for the sure and true interpretation of all statutes in general" four (i) What was the common law be things are to be considered : fore the making of the Act, (ii) What was the mischief and defect for which the common law did not pro,·ide; (iii) What remedy the Parliament hath resolved and appointed to cure the disease of In the Commonwealth, and· (iv) the true reason of the remedy. Bengal Immunity Company Limited v. The State o/Bihar(') this Court approved the rule in Heydon's case(') and in construing Art. 286i 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(') 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 ca~c ( 1 ) the Court considered the fun damental basis of the definition of industry, viz. relationship bet ween 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 jus tice, to ameliorate the conditions of service of the labour in orga nised ·activities than to anything else and therefore the Act was not intended to reach the personal services which do not depend nn the employment of labour force". Similarly in R. M. D: Cha marbai1gwa//a v, The Union of India('). the question arose whe ther looking to the general words used in sec. 2(d) of the Prize Competitions Act, 42 of 1955 the words 'prize competition' in cluded not merely competitions of a gambling nature but also those In in· which success depended to a substantial degree on skill. c~truing the said definition, the Court gave a restricted ~caning to tlie words "prize competition" as meaning only compeutions as In doin!' so, the Court approved the were of a !!ambling nature.

(I) [1955) 2 SC.ll. 60.1.

(3)

(1960) 2 S C.R. 942

(2J 76 F.R. 6Y7.

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[19;7) S.C.R. 910.

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in the case of

principles of construction stated the Bengal Immunity Ltd.(') and held that "in interpreting an enactment the Court should ascertain the intention of the legislature not merely fro111 a literal meaning of the words used but also from such mat ters as the history of the legislation, its purpose and the mischief it seeks to suppress". For considering the intention of Parlia ment 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 b~ and was evaded by the promoters of lotteries by shifting the venue of their business to the neigh bouring State of Mysore, the concerted action taken by the ad joining States, the resolutions passed by each of them calling upon Parliament to undertake legislation, the fact of Parliament hav ing passed the law and its preamble reciting tho 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 legisla tures 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 resolu tions. 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".

In Central Bank of India v. Their Workmen( 2

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 legislatio11, the declared object thereof and the wording of the statute" the words had to be criven a res tricted meaning. ), the Court in construing sec. 10 ( 1) (b) of the Banking Companies Act, 10 of 1949, again looked at the legislative history to ascertain the object of passing the Act and the mischief it sought to remedy, but declined to use the statement of objects and reasons to con strue the section on the ground that the statement conld not con trol the actual words used in the section. (Cf. also State of West Bengal v. Union of India('). In S. Azeez Basha & Ors. v. Union of India('), 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.

[1960] 1 S.C.R. 200, 216-17.

(2) (4) [1968] 1 S.C.R. 833.

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Muslim L'niversily (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 [Cf. Crawford on Statutory Con struction (3rd Ed.) pages 482-483]. There is thus ample autho rity justifying the Court in looking into the history of the legisla tion, 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. thongh 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 hy an employer to his employees. The practice of pay ing bonus as an ex gratia payment had its early roots in the textile industry in Bombay and Ahmedabad. In 1917 and 1918 an in crease of J 0 and 15 %. of wages was granted as War bonus to In October, 1920, a Com the textile workers by the employers. mittee appointed by the Bombay Millowncrs recommended to the member mills payment of bonus equal to one month's pay. It appears that Similarly bonus was declared in 1921 and 1922. trading conditions in the industrv havin~ deteriorated, the mill owners dcc!Jred in July 1923 that they would be unable to pay bonus for 1923. Thereupon a strike began which became gene ral 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 equi!able, to an annual p~yment of bonus which could be up held in a court. The years that followed were years of depression and no major dispute about bonus arose, although bonuses were given on a;/ 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 hut this was also voluntary payment to keep labour contented. Disputes for for the years I 94S and 1949 ar01;e in the payment of bonus Bombay textile industr.v. On the said dispute having been refer red to the Industrial Court, that Court expressed the view that since both labour and capital contributed to the profits of the

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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 In ap which had suffered loss from the liability to pay bonus. peals against the said awards, the Labour Appellate Tribunal ap proved 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 fonnula, 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 capi tal, 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('), Baroda Borough Municipality v. Its Workmen('), The Shree Meenakshi Mills Ltd. v. Their Work men(') and The State of Mysore v. The Workers of Gold Mines('') 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 legiti mately 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(') where the said for mula was generally approved. Since that decision, this Court has accepted in several cases the said formula. The principal features 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 re ceipts 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 Ahmeda bad Miscellaneous Industrial Workers Union v. The Ahmedabad Electricity Co. Ltd. (6 ) where it was observed that the plea for revi sion raised an issue which affected all industries and, therefore, before any change was made all industries and their workmen had

0) [1955] 1 S.C.R. 991. [1958] S.C.R. 878. (3) (5) [1959] S.C.R. 925.

(2) [1957] S.C.R. 33. (4) [1959] S.C.R. 895. (6J

[1962] 2 S.C.R. 934.

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to be heard and their pleas considered. suggested that the question of revising the formula should be "comprehensively considered by a high powered Conunission". Taking up the aforesaid suggestion, the Government of India ap pointed a Commission, by its resolution dated December 6, 1961. the terms of reference whereof were, inter a/ia,

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I. to define the concept of bonus and to consider in relation :o 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 calcn lated.

3. to detcnnine conditions under which bonus pay ment should be made unitwise, industrywisc :ind indus try-cum rcgionwisc:

4. to consider whether there should be lower limits irrespccti'e of loss in particular establishment and upper limits for distribution in one vear and, if so. the manner to carry forward the profits a·nd 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 :

I. 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 gro5' profits reduced by the following prior charges. viz. normal de preciation allowable under the Indian Income Tax in- cluding multiple shifting allowance, income tax and super tax at the current standard rate applicable for the vear for which tax is to be calculated hut not super pro- iits tax, return on paid up capital r:lised through pre- fcrence shares at the actual rnte 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 dis- tributed as bonus and excess should he carried forward and tak~n into account in the next year: th~ balance of 40'ii should remain with the establishment into which should rncrge the saving in tax on honus and the aggre·

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GHEWAR CHAND v. WORKERS' UNION (She/at, J.)

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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 re quired 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 eacµ_ 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 deem ed to include bonus to employees drawing a total basic pay and dearness allowance up to Rs. 1600 p.m. regard less of whether they were workmen as defined in the In- dustrial Disputes Act, 194 7 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 estab lishments 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 compre- hensive manner the question of payment of bonus based on profits to employees employed in establishments and to make recom-

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mendations to the Government. The Commission's report con taining the recommendations was received by the Government on 24th January, 1964. By resolution dated ind September, 1964, Government announced acceptance of the Commission's recom mendations subject to a few modifications as were mentioned therdn". To implement these recommendations the Payment of 1965 was promulgated on May 29, 1965. Bonus Ordinance, :Since the Ordinance was replaced by the present Act published on September 25, 1965, it is unnecessary to examine its provi sions. 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. 194 7 and other corresponding Acts. Under the Act liability to p;iy bonus has now become a statutory obligation imposed on the employers. From the history of the legislation it is clear (I) that the Government set up a Com mission to consider comprehensively the entire question of bonus in all its aspects; and (2) that the Commission accordingly con sidered 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 stales that it is to provide for pay ment of bonus in certain establishments and for matters connec ted therewith. Section I (3) provides that it shall apply "save as otherwise provided in the Act" to (a) every factory and (b) every other cstablbhment in which 20 or more persons arc employed on any day during the accounting year. We may note that this sub section is in .:onsonance with one of the Commission's recommen dations, 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 onlv to those establishments mentioned in s11b.-sec. (3). sub.-sec. (4) 'rrovidcs that the Act shall have effect in respect of the account ing year 1964 and every q1bsequent year. "Allocable surrlus" 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 surrlus' to mean available surplus as computed under sec. 5. Sec. 2(15) defines "establishment in private sector" to mean any estab lishment other than an establishment in public sector. Sec. 2(16) defines "establishment in public sector" as meaning (a) a Govern ment company as defined in s. 617 of the Companies Act, 1956, and (b) a Corporation in which not less than 40% of its capital is held by Government or the Reserve Bank of India or a Cor poration owned by Government or the Reserve Bank of India. "Gross profits" as defined by sec. 2(18) means gross profits cal-

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culated under sec. 4. Secs. 4 anq 5 provide for computation of gross profits and available surplus after. ~ducting !h~refrom the sums referred to in sec. 6 viz., deprecrallon admIBs1ble under s. 32( 1) of the Income Tax Act or the relevant Agricultural In come Tax Act, development rebate or development allowance admissible under the Income Tax Act and such other sums as are specified in the thifd Schedule. Sec. 7 deals with calculation. oi direct tax. Secs. 8 and 9 deals with eligibility of and disqualification from receiving bonus. Secs. 10 to 15 deal with minimum and maxi mum bonus and the provisions for 'set off' and 'set on'. Secs. 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 excludes 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 incon sistent therewith contained in any other law for the time being in force or in terms of any award, agreement, settlement or con tract 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 thereunder. Sec. 35 empowers an appropriate Government having regard to the financial posi tion 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 estab lishment 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 provi sions of this Act shall be illj addition to and not in dero gation of the Industrial Disputes Act, 1947 or any cor responding 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 dis pute arises between an employer and his employees (1) with res pect 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, 194 7 or any corresponding law relating to investi gation 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 in dustrial dispute under the Industrial Disputes Act would be bet ween 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

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law

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that Act or other corresponding

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 mav be avail able, sec. 22 has been enacted to create a-legal fiction whereunder such disputes are deemed to be industrial disputes under the Indus trial Disputes Act or any other corresponding law. For the pur poses of such disputes the :irovisions 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 for investigation and settlement of such disputes. But the applica types of the to limited only tion of disputes to others. Section therein and not 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 anv corresponding law relating to invcsti_gation and settlement of industrial disputes in force in a State. Except for providing for recovery of honus due under a settlement. award. or agreement as an arrear of land revenue as laid down in sec. 21, the Act docs not provide any machinery for the investigation and settlement of disputes between an employer and an employee. Tf a dispute. for instance, were to arise as regards the quantum of available surplus, such a dis pute 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 DLs putes Act or such corresponding law makes available the machi nery in that Act or the corresponding Act available for investiga tion and settlement of industrial disputes thereunder for deciding the disputes arising under this Act. As already seen sec. 22 arti ficially makes two kinds of disputes therein referred to industrial disputes and having done so applies the provisions of the Indus trial Disputes Act and other correspondin.g law in force for their -investigation -and settlement. But what about the remaining dis putes 0 · As the Act docs not provide any machinery for their in vestigation and settlement, Parliament by enacting sec. 39 has sou)!ht to apply the provisions uf those Acts for investigation and settlement of the remaining disputes, though such disputes arc 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 disputes" appear- to qualify ihe words "any corresponding law" and not the

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Industrial Disputes Act, the Industrial Disputes Act is primarily a law relating to investigation and settlement of industrial disputes and provides machinery therefor. 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 deroga tion 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 Indus trial Disputes Act and other corresponding laws for the investiga tion and settlement thereof, Sec. 39 makes available for the rest of the disputes the machinery provided in that Act and other corresponding Jaws 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 Item 5 in Schedule 3 to the Industrial Disputes Act to banns. deals with jurisdiction of tribunals set np under ss. 7, ?A 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, how

ever, 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 It means that the Act does not apply (i) in the Act". to factories and establishments otherwise provided in the Act, and (ii) to establishments which have less than is not a 20 persons employed. The Act, therefore, comprehensive Act ·but applies only to factories and establishments covered by sec. 1(3); ,

3. There is no categorical provision in the Act de priving 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 al though they are not entitled to the benefit of the Act;

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5. Parliament wa' aware of the fact that employees in establishments other than those to which the Act ap lics 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 expreosed so in the Act;

6. Sec. 39 in clear terms saves the right to claim bonus under the Industrial Disputes Act or any corres- ponding 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 establish ments and sec. 1(3) provides that the Act is to apply, save as other wise provided therein, to factories and every other establishments in which 20 or more persons arc 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 commenc ing on any day in I 964 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 deal ing with t<le subject-matter of bonus the Legislature can lay down as a matter of policy that it will exclude from its application cer tain types of establishments and also provide for exemption of certain other types of establishments even though such estab lishments would otherwise fall within the scope of the Act. The exclusion of establishments where less than 20 persons arc employ ed in sec. )(3) therefore is not a criterion suggesting that Parlia ment has not dealt with the subject-matter of bonus comprehen- sively in the Act. ·

As already seen. there was until the enactment of this Act no statute under which. payment of bonus was a statutory obli gation on the part of an employer or a statutory right therefor of an employee. Under the Industrial Disputes Act, I 947 and other corresoonding Acts. workmen of industrial estahlishmcnts as defined therein ccmld raise an industrial dispute and demand by way of bonus a proportionate share in profits and Industrial Tri bunals could under those Acts adjudicate such disputes and oblige the employers to pay bonus on the principle that both capital and

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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 pro vided by the Industrial Acts and not as a statutory right and lia- bility as provided for the first time by the present Act. In pro viding such statutory liability, Parliament has laid down a statu tory formula on which bonus would be cafculated irrespective of whether the establishment in question has during a particular ac counting 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 pre vious 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 o\her cor responding Acts as those Acts did not confer any statutory right to bonus.

It will be policed that though the 'Industrial Disputes Act con fers substantive rights on workmen with regard to lay off, retrench- E ment 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 thereunder. There was, therefore, no question of Parliament having to delete or modify item 5 in the third Sche- dule to Industrial Disputes Act or any such provision in any cor responding Act or its having to exclude any right to bonus there under by any categorical exclusion in the present Act.

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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 intended by Parliament. These results would be : · (1) that em ployees in establishments engaging less than 20 persons would get no bonus at all either under the Act or under industrial adjudica tion provided for by the Industrial Disputes Act and other ·corres ponding 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; aind (iii) that such a construction would have

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the effect of impliedly repealing and negating the provisions of the Industrial Disputes Act and other corresponding laws.

Though sec. I (3) excludes an establishment other than a fac tory having less than 20 employees from the application of the Act, all establishments which arc factories irrespective of the num ber of persons employed therein and all establishments which are not factories but arc having 20 or more employees are covered by the Act. Therefore, only small establishmcnt1 having less than 20 employees and which arc not factories are excluded. Even in silch cases if any establishment were to have 20 or more persons employed therein on any day in Jny accounting year. the Act It is, therefore, clear that would apply to such an establishment. Parliament by enacting sec. 1(3) excluded onlv petty establish ments.

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 >.tatutory formula in regard to bonus and laying down a legislative policy in regard thereto as to the classes of persons who would he entitled to bonus thereunder. It laid down the definition of an 'employee' far more wider than the definition of a 'workman' in the Industrial Disputes Act and the If. while doing so, it expressly ex other corresponding Acts. cluded as a 111atter 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 prc> prietors and disharmony between thc111 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 convassed on behalf of the ap pellants leads. as argued by counsel for the respondents, to emplo yees 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 estahlish111ents in public sector from the Act. though such establishments hut 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 arc conducted without any profit motive aPd are run for public benefit. The exemption in sec. 32(x) is, however. a li1nited one, for. under sec. 20 if a public sector establishment were in anv ac counting year to sell goods produced or manufactured hv ·it in competition with an establishment in private sector and the income fro1n such sak. is not less than the 20°{ of its gross income. it wou!d he li:iblc to pay bonus under the .'\ct. Once again it is clear

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that in exempting public sector establishments, Parliament had a definite policy in mind.

This policy becomes al) the more discernible when the various other categories of establishments exempted from the Act by se~. 32 are examined. An insurer carrying on general msurance busi ness 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 estabhsh ments. The Life Insurance Corporation of India is exempted under clause (i) because of its being a public sector concern having no profit motive and conducted in public interest. CJ. (ii) of sec. 32 exempts shipping companies employing seamen in vi~w of sec. 159(9) of the Merchant Shipping Act, 1958 under which the In dustrial Disputes Act was inapplicable to such seamen, the disad vantages that Indian Shipping Companies vis-a-vis foreign com panies 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 estab lishments set out in sec. 32 appear to have been exempted on the ground of (a) absence of any profit motive, (b) their being of edu cational, charitable or public nature, and (c) their being establish ments in public sector carried on in public interest. Building con tractors appear to have been exempted because of their work being contract job work, the infeasibility 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 Industnal Disputes Act and other corresponding- Acts, the v_ery object of enacting sec. 32 would be frustrated. Surely, Par llament 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 exempt~ institutions such as the Universities or the Indian Red Cross Society or h0$pitals, or any of the establishments set out in cl. (ix) of that section, they would still be liable to pay bonus if the employees

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ot. those institutions were to raise a dispute under the Industrial Disputes Act and claim bonus in accordance with the Full Bench f?nnula ? "The legislature would in that case be giving exemp tion by one. hand and taking it away by the other, thus frustrating the very ob1ect of sec. 32. Where. on the other hand, Parliament intended to retain a previous provision of law under which bonus ""'.~ payable or was being paid it has expressly saved such pro v1s1on. Tlius. undL'T sec. 35 the Coal Mines Provident Fund and Bonus Schemes Act, 1946 and any scheme made thereunder arc If, therefore, Parliament wanted to retain the right to claim saved. bonus by way of industrial adjudication for those who are either excluded or exempted from the Act it would have made an ex press saving provision to that effect as it has done for employees in Coal Mines.

Besides, the construction suggested on behalf of the respon dents, 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 he ap plicable 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 he 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 establish- ment 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.

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Section 32(vii) exempts from the applicability of the Act those employees who have entered before May 29, 1965 into an agree ment 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 such agreement or settle settlement for the period for which ment 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 fron:i claiming bonus u~der the Act durino such period, the employees m such cases can still resort to the Industrial Disputes Act and claim bonus on the basis of the G Full Bench formula ? The answer is obviously in the negative for the object in enacting cl. (vii) is to let the parties wo.rk o~t such an agreement or settlement. It cannot be that despite this position. Parliament intended that those employees had stil] the option of throwing aside such an agreement or settlement raise a dispute under the °Industrial Disputes ~ct and claim bonus under H the Full Bench formula. The contention, therefore, that the ex emption under sec. 32 excludes those employees from claiming bonus under the Act only and not from claiming bonus under the

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Industrial Disputes Act or such other Act is not correct. This conclusion is buttressed by the provisions of sec. 36 which em- . power the appropriate Gove=ent 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 Gove=ent can exempt such an establishment or establishments from the opera tion 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 Jaw.

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 Jaw 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 bet ween workmen and their employers. It is, therefore, incorrect to say that the right to bonus under this Act is iu addition to and not in derogation of any right to bonus under those Acts. Secondly, sec. 3 9 became necessary because the Act does not provide any machinery or procedure for investigation and settlement of dis putes which may arise between employers and employees. In the absence of any such provision Parliament intended that the machi nery 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 computa tion of allocable surplus or as to quantum of bonus, or as to whe ther in view of sec. 20 an establishment in public sector is liable to pay bonus, such a dispute is to be adjudicated under the machi nery provided by the Industrial Disputes Act or other correspond ing 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 ex haustive 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

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through industrial adjudication under the Industrial Disputes Act or other corresponding law.

We arc, therefore, of the view that the construction given to the Act hy the Tribunals was not correct and the orders passed by them have to be set aside. The appeals arc 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.

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Appeals allowed.

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