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Full Case Details
J. C. SHAH, J.
- A synopsis of the development in the industrial law which led to the enactment of the
Payment of Bonus Act, 1965 will facilitate appreciation of the questions argued at the Bar.
Claims to receive bonus, it appears, were made by industrial employees for the first time in
India in the towns of Bombay and Ahmedabad, after the commencement of the First World
War when as a result of inflationary trends there arose considerable disparity between the
living wage and the contractual remuneration earned by workmen in the textile industry. The
employers paid to the workmen increase in wages, initially called “war bonus” and later
called “special allowance”. A committee appointed by the Government of Bombay in 1922 to
consider, inter alia, “the nature and basis” of this bonus payments, reported that the workmen
had a just claim against the employers to receive bonus, but the claim was not “customary,
legal or equitable”. During the Second World War the employers in the textile industry
granted cash bonus equivalent to a fraction of actual wages (not including dearness
allowance) but even this was a voluntary payment made with a view to keep labour
contended.
- During the pendency, before the Industrial Court, Bombay, of a reference
under Section 73-A of the Bombay Industrial Relations Act, 1946, which arose out of a
demand for payment of bonus for the years 1961 and 1962, the Payment of Bonus Ordinance
3 of 1965 was promulgated by the President on May 29, 1965, with immediate effect. The
representatives of the workmen claimed that even if the plea of the employers that the profit
and loss account of the establishment for the years in question disclosed a loss, the Ordinance
governed the dispute and that the employees were entitled to receive bonus at the minimum
rate of 4 per cent of the salary or wages or Rs 40 whichever is higher. The Industrial Court
upheld the plea of the workmen and directed the employers subject to the provisions of the
Bonus Ordinance, 1965, to pay to each employee bonus for the year 1962 equivalent to 15
days of the salary or wages or Rs 40 whichever is higher.
- In the dispute for payment of bonus for the years 1948 and 1949 in the textile industry
in Bombay, the Industrial Court expressed the view that since labour as well as capital
employed in the industry contribute to the profits of the industry, both are entitled to claim a
legitimate return out of the profits of an establishment, and evolved a formula for charging
certain prior liabilities on the gross profits of the accounting year, and awarding a percentage
of the balance as bonus to the workmen. In adjudicating upon the claim for bonus, the
Industrial Court excluded establishments which had suffered loss in the year under
consideration from the liability to pay bonus. In appeals against the award relating to the year
1949, the Labour Appellate Tribunal broadly approved of the method for computing bonus as
a fraction of surplus profit.
167 - According to the formula which came to be known as the “Full Bench formula”,
surplus available for distribution had to be determined by debiting the following prior charges
against gross profits:
(1) Provision for depreciation;
(2) Reserve for rehabilitation;
(3) Return of 6 per cent on the paid-up capital;
(4) Return on the working capital at a lower rate than the return on paid-up
capital;
and from the balance called “available surplus” the workmen were to be awarded a reasonable
share by way of bonus for the year. - This Court considered the applicability of this formula to claims for bonus in certain
decisions: [Muir Mills Co. Ltd. v. Suti Mills Mazdoor Union, Kanpur (1955) 1 SCR 991;
Baroda Borough Municipality v. Its Workmen (1957) SCR 33; Sree Meenakshi Mills Ltd.
v. Workmen (1958) SCR 878 and State of Mysore v. Workers of Kolar Gold Mines (1959)
SCR 915]. The Court did not commit itself to acceptance of the formula in its entirety, but
ruled that bonus is not a gratuitous payment made by the employer to his workmen, nor a
deferred wage, and that where wages fall short of the living standard and the industry makes
profit part of which is due to the contribution of labour, a claim for bonus may legitimately be
made by the workmen. The Court however did not examine the propriety nor the order of
priorities as between the several charges and their relative importance nor did it examine the
desirability of making any variation, change or addition in the formula. These problems were
for the first time elaborately considered by this Court in the Associated Cement Companies
Ltd. v. Workmen [(1959) SCR 925]. Since that decision numerous cases have come before
this Court in which the basic formula has been accepted with some elaboration. The principal
incidents of the formula as evolved by the decisions of this Court may be briefly stated: Each
year for which bonus is claimed is a self contained unit and bonus will be computed on the
profits of the establishment in that year. In giving effect to the formula as a general rule from
the gross profits determined after debiting the wages and dearness allowances paid to the
employees, and other items of expenditure against total receipts, as disclosed by the profit and
loss account are accepted, unless it appears that the debit entries are not supported by
recognized accountancy practice or are posted mala fide with the object of reducing gross
profits. Debit items which are wholly extraneous to or unrelated to the determination of
trading profits are ignored. Similarly income which is wholly extraneous to the conduct of the
business e.g. book profits on account of revaluation of assets may not be included in the gross
profits. Against the gross profits so ascertained the following items are charged as prior
debits: (1) Depreciation: such depreciation being only the normal or notional depreciation; (2)
Income tax payable for the accounting year on the balance remaining after deducting statutory
depreciation. The income tax to be deducted is not the actual amount, but the notional amount
of tax at the rate for the year, even if on assessment no tax is determined to be payable. For
the purpose of the Full Bench formula income tax at the rate provided must be deducted, but
in the computation of income tax statutory depreciation under the Indian Income Tax Act only
may be allowed. (3) Return on paid-up capital at, 6 per cent and on reserves used as working
capital at a lower rate. In the Associated Cement Companies case it was suggested that this
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rate should be 2 per cent in later cases 4 per cent on the working capital was regarded as
appropriate. (4) Expenditure for rehabilitation which includes replacement and modernisation
of plant, machinery and buildings, but not for expansion of building, or additions to the
machinery. - It is not open to the Tribunal in ascertaining the available surplus to extend by analogy
the prior charges to be debited to gross profits. Therefore for example (a) allocations for
debenture redemption fund; (b) losses in previous years which are written off at the end of the
year; (c) donations to a political fund are not deducted from gross profits. - Rebate of income tax available to the employer on the amount of bonus paid to the
workmen cannot be added to the available surplus of profits determined in accordance with
the Full Bench formula which should be taken into account only in distributing the available
surplus between workmen, industry and employers. - The formula it is clear was not based on any strict theory of legal rights or obligations:
it was intended to make an equitable division of distributable profits after making reasonable
allocations for prior charges. - Attempts made from time to time to secure revision of the formula failed before this
Court. In Associated Cement Companies case, this Court observed:
“The plea for the revision of the formula raised an issue which affects all
industries; and before any change is made in it, all industries and their workmen
would have to be heard and their pleas carefully considered. It is obvious that while
dealing with the present group of appeals, it would be difficult, unreasonable and
inexpedient to attempt such a task.”
But the Court threw out a suggestion that the question may be “comprehensively
considered by a high powered commission”, this suggestion was repeated in Ahmedabad
Miscellaneous Industrial Workers’ Union v. Ahmedabad Electricity Co. Ltd. [(1962) 2 SCR
934]. - The Government of India then set up a commission on December 6, 1961 inter alia to
define the concept of bonus, to consider in relation to industrial employments the question of
payment of bonus based on profits and to recommend principles for computation of such
bonus and methods of payment, to determine what the prior charges should be in different
circumstances and how they should be calculated, to consider whether there should be lower
limits irrespective of losses in particular establishments and upper limits for distribution in
one year, and if so the manner of carrying forward profits and losses over a prescribed period,
and to suggest appropriate machinery and method for the settlement of bonus disputes. The
Commission held an elaborate enquiry and reported that “bonus” was paid to the workers as a
share in the prosperity of the establishment and recommended adherence to the basic scheme
of the bonus formula viz. determination of bonus as a percentage of gross profits reduced by
certain prior charges viz. normal depreciation admissible under the Indian Income Tax Act
including multiple shift allowance, income tax and super-tax at the current standard rate
applicable for the year for which bonus is to be calculated (but not super profits tax) and
return on paid-up capital raised by issue of preference shares at the actual rate of dividend
payable, on other paid-up capital at 7 per cent and on reserves used as capital at 4 per cent but
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not provision for rehabilitation. The Commission recommended that sixty per cent of the
available surplus should be distributed as bonus, the excess being carried forward and taken
into account in the next year: the balance of forty per cent, should remain with the
establishment into which would merge the saving in tax on bonus payable, and the aggregate
balance thus left to the establishment may be intended to provide for gratuity, other necessary
reserves, rehabilitation in addition to the provision made by way of depreciation in the prior
charges : annual provision required for redemption of debentures, return of borrowings,
payment of superprofits tax and additional return on capital.
They recommended that the distinction between basic wages and dearness allowance for
the purposes of expressing the bonus quantum should be abolished and that bonus should be
related to wages and dearness allowance taken together : that minimum bonus should be 4 per
cent of the total basic wage and dearness allowance paid during the year or Rs 40 to each
worker, whichever is higher, and in the case of children the minimum should be equivalent to
4 per cent of their basic wage and dearness allowance, or Rs 25 whichever is higher subject to
reduction pro rata for employees who have not worked for the whole year, and that the
maximum bonus should be equivalent to 20 per cent of the total basic wage and dearness
allowance paid during the year: that the bonus formula proposed should be deemed to include
bonus to employees drawing a total basic pay and dearness allowance upto Rs 1600 per
month regardless of whether they were “workmen” as defined in the Industrial Disputes Act
or other relevant statutes, but subject to the proviso that the quantum of bonus payable to
employees drawing total basic pay and dearness allowance over Rs 750 per month shall be
limited to what it would be if their pay and dearness allowance were only Rs 750 per month.
It was proposed that the general formula should not apply to new establishments until they
had recouped all early losses including all arrears of normal depreciation admissible under the
Income Tax Act, subject to a time limit of six years. They also suggested that the scheme
recommended should be made applicable to all bonus matters relating to the accounting year
ending on any day in the calendar year 1962 other than those matters in which settlements had
been reached or decisions had been given. - The Government of India accepted a majority of the recommendations and the
President issued on May 29, 1965 the Payment of Bonus Ordinance, 1965, providing for
payment of bonus to all employees drawing salary not exceeding Rs 1600 under the formula
devised by the commission. It is not necessary to set out the provisions of the Ordinance, for
the Ordinance was replaced, by the Payment of Bonus Act 21 of 1965 and by Section 40(2) it
was provided that notwithstanding such repeal, anything done or any action taken under the
Payment of Bonus Ordinance, 1965, shall be deemed to have been done or taken under the
Act as if the Act had commenced on May 29, 1965. Since the action taken under the
Ordinance is to be deemed to have been taken under the Act, in these cases validity of the
provisions of the Act alone need be considered. - It may be broadly stated that bonus which was originally a voluntary payment out of
profits to workmen to keep them contented, acquired the character, under the bonus formula,
of right to share in the surplus profits, and enforceable through the machinery of the Industrial
Disputes Act. Under the Payment of Bonus Act, liability to pay bonus has become a statutory
obligation imposed upon employers covered by the Act.
170 - Counsel for Jalan Trading Company urged that the Act was invalid in that it amounts
to fraud on the Constitution or otherwise is a colourable exercise of legislative power. That
argument has no force. It is not denied that the Parliament has power to legislate in respect of
bonus to be paid to industrial employees. By enacting the Payment of Bonus Act, the
Parliament has not attempted to trespass upon the province of the State Legislature. It is true
that by the impugned legislation certain principles declared by this Court e.g. in Express
Newspapers (Private) Ltd. v. Union of India in respect of grant of bonus were modified, but
on that account it cannot be said that the legislation operates as fraud on the Constitution or is
a colourable exercise of legislative power. Parliament has normally power within the
framework of the Constitution to enact legislation which modifies principles enunciated by
this Court as applicable to the determination of any dispute, and by exercising that power the
Parliament does not perpetrate fraud on the Constitution. An enactment may be charged as
colourable, and on that account void, only if it be found that the legislature has by enacting it
trespassed upon a field outside its competence. - The provisions of the Act and its scheme may now be summarised. The Payment of
Bonus Act was published on September 25, 1965. By Section 1(4) save as otherwise provided
in the Act, the provisions of the Act shall, in relation to a factory or other establishment to
which the Act applies, have effect in respect of the accounting year commencing on any day
in the year 1964 and in respect of every subsequent accounting year. Section 2(4) defines
“allocable surplus” as meaning (a) in relation to an employer, being a company (other than a
banking company) which has not made the arrangements prescribed under the Income Tax
Act for the declaration and payment within India of the dividends payable out of its profits in
accordance with the provisions of Section 194 of that Act, sixty-seven per cent of the
available surplus in an accounting year; (b) in any other case, sixty per cent of such available
surplus, and includes any amount treated as such under sub-section (2) of Section 34.
“Available surplus” is defined in Section 2(6) as meaning the available surplus computed
under Section 5. “Employee” is defined in Section 2(13) as meaning any person (other than an
apprentice) employed on a salary or wage not exceeding one thousand and six hundred rupees
per mensem in any industry to do any skilled or un-skilled manual, supervisory, managerial,
administrative, technical or clerical work for hire or reward, whether the terms of employment
be express or implied. By Section 2(21) “salary or wage” is defined as meaning all
remuneration (other than remuneration in respect of overtime work) capable of being
expressed in terms of money, which would, if the terms of employment, express or implied,
were fulfilled, be payable to an employee in respect of his employment or of work done in
such employment and includes dearness allowance (that is to say, all cash payments, by
whatever name called, paid to an employee on account of a rise in the cost of living), but does
not include certain specified allowances, commissions, value of amenities etc. Section 4
provides for computation of gross profit in the manner provided by the First Schedule in the
case of a banking company and in other case in the manner provided by the Second Schedule.
By Section 5 available surplus in respect of any accounting year is the gross profits for that
year after deducting therefrom the sums referred to in Section 6. The sums liable to be
deducted from gross profits under Section 6 are:
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(a) any amount by way of depreciation admissible in accordance with the
provisions of sub-section (1) of Section 32 of the Income Tax Act, or in accordance
with the provisions of the agricultural income tax law, as the case may be;
(b) any amount by way of development rebate or development allowance which
the employer is entitled to deduct from his income under the Income Tax Act;
(c) any direct tax which the employer is liable to pay for the accounting year in
respect of his income, profits and gains during that year; and
(d) such further sums as are specified in respect of the employer in the Third
Schedule.
Section 7 deals with calculation of direct taxes payable by the employer for any
accounting year for the purpose of clause (c) of Section 6. Sections 8 and 9 deal with
eligibility for and disqualifications for receiving bonus. Sections 10 to 15 deal with payment
of minimum and maximum bonus and the scheme for “set-on” and “set-off”. Every employer
is by Section 10 bound to pay to every employee in an accounting year minimum bonus
which shall be four per cent, of the salary or wage earned by the employee during the
accounting year or Rs 40 whichever is higher, whether there are profits in the accounting year
or not. In case of employees below the age of 15, the minimum is Rs 25. By Section 11 where
in respect of any accounting year the allocable surplus exceeds the amount of minimum bonus
payable the employer shall be bound to pay to every employee in the accounting year bonus
which shall be an amount proportionate to the salary or wage earned by the employee during
the accounting year, subject to a maximum of twenty per cent, of such salary or wage.
Section 15 provides that if for any accounting year the allocable surplus exceeds the
amount of maximum bonus payable the employees in the establishment under Section 11,
then, the excess shall, subject to a limit of twenty per cent of the total salary or wage of the
employees employed in the establishment in that account year, be carried forward for being
“set on” in the succeeding accounting year, upto and inclusive of the fourth account year, and
be utilised for the purpose of payment of bonus. By sub-section (2) it is provided that where
for any accounting year, there is no available surplus or the allocable surplus in respect of that
year falls short of the amount of minimum bonus payable to the employees in the
establishment under Section 10, and there is no amount or sufficient amount carried forward
and “set on” under sub-section (1) capable of being utilised for the purpose of payment of the
minimum bonus, then, such minimum amount or the deficiency, shall be carried forward for
being set off in the succeeding accounting year upto and inclusive of the fourth accounting
year. By “Sub-section (3) it is provided that principle of “set-on” and “set-off” as illustrated in
the Fourth Schedule shall apply to all other cases not covered by sub-section (1) or subsection (2) for the purpose of payment of bonus under the Act. Bonus payable to an employee
drawing wage or salary exceeding Rs 750 per mensem has to be calculated as if the salary or
wage were Rs 750 per mensem, and an employee who has not worked for all the working
days in an accounting year, the minimum bonus of Rs 40 or Rs 25 would be proportionately
reduced (Sections 12 and 13). Section 16 makes special provisions relating to payment of
bonus to employees of establishments which have been newly set up. Sections 18, 19, 21, 22,
23, 24, 25, 26, 27, 28, 29, 30 and 31 deal with certain procedural and administrative matters.
By Section 20 establishments in the public sector are, in certain eventualities, also made
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subject to the provisions of the Act. Section 32 excludes from the operation of the Act
employees of certain classes and certain industries specified therein. By Section 33 the Act is
made applicable to pending industrial disputes (regarding payment of bonus relating to any
accounting year not being an accounting year earlier than the accounting year ending on any
day in the year 1962) immediately before May 29, 1965, before the appropriate Government
or any tribunal or other authority under the Industrial Disputes Act, 1947, or under any
corresponding law, or where it is pending before the Conciliation Officer or for adjudication.
By Section 34(1) the provisions of the Act are declared to have effect, notwithstanding
anything inconsistent therewith contained in any other law for the time being in force or in the
terms of any award, agreement, settlement or contract of service made before May 29, 1965.
Sub-section (2) of Section 34 makes special overriding provisions regarding payment of
bonus to employees computed as a percentage of gross profits reduced by direct taxes payable
for the year (subject to the maximum prescribed by Section 11), when bonus has been paid by
the employer to workmen in the “base year” as defined in Explanation II. By Section 36 the
appropriate Government is authorised, having regard to the financial position and other
relevant circumstances of any establishment or class of establishments, to exempt for such
period as may be specified therein such establishment or class of establishments from all or
any of the provisions of the Act and by Section 37 power is conferred upon the Central
Government by order to make provision, not inconsistent with the purposes of the Act, for
removal of difficulties or doubts in giving effect to the provisions of the Act. - The scheme of the Act, broadly stated, is four dimensional:
(1) to impose statutory liability upon an employer of every establishment
covered by the Act to pay bonus to employees in the establishment;
(2) to define the principle of payment of bonus according to the prescribed
formula;
(3) to provide for payment of minimum and maximum bonus and linking the
payment of bonus with the scheme of “set-off and set-on”; and
(4) to provide machinery for enforcement of the liability for payment of bonus.
Ordinarily a scheme imposing fresh liability, would, it is apprehended, be made
prospective, leaving the pending disputes to be disposed of according to the law in force
before the Act. But the legislature has given by Section 33 retrospective operation to the Act
to certain pending disputes, and has sought to provide by Section 34 while extinguishing all
pre-existing agreements, settlements or contracts of service for freezing the ratio which
existed in the base year on which the bonus would be calculated in subsequent years. - It was urged by counsel for the employers that Section 10 which provides for payment
of minimum bonus, Section 32 which seeks to exclude certain classes of employees from the
operation of the Act, Section 33 which seeks to apply the Act to certain pending disputes
regarding payment of bonus and sub-section (2) of Section 34 which freezes the ratio at which
the available surplus in any accounting year has (subject to Section 11) to be distributed if in
the base year bonus has been paid, are ultra vires, because they infringe Articles 14, 19 and
31 of the Constitution. It was also urged that conferment of power of exemption under
Section 36 is ultra vires the Parliament in that it invests the appropriate Government with
authority to exclude from the application of the Act, establishments or a class of
173
establishments, if the Government are of the opinion having regard to the financial position
and other relevant circumstances that it would not be in the public interest to apply all or any
of the provisions of the Act. Power conferred upon the Government under Section 37 is
challenged on the ground that it amounts to delegation of legislative power when the Central
Government is authorised to remove doubt or difficulty which had arisen in giving effect to
the provisions of the Act. - The plea of invalidity of Sections 32, 36 and 37 may be dealt with first. It is true that
several classes of employees set out in clauses (i) to (xi) of Section 32 are excluded from the
operation of the Act. But the petitions and the affidavits in support filed in this Court are
singularly lacking in particulars showing how the employees in the specified establishment or
classes of establishments were similarly situate and that discrimination was practised by
excluding those specified classes of employees from the operation of the Act while making it
applicable to others. Neither the employees, nor the Government of India have chosen to
place before us any materials on which the question as to the vires of the provisions of
Section 32 which excludes from the provisions of the Act to an establishment or class of
establishments, and mined. There is a presumption of constitutionality of a statute when the
challenge is founded on Article 14 of the Constitution, and the onus of proving
unconstitutionality of the statute lies upon the person challenging it. Again many classes of
employees are excluded by Section 32 and neither those .employees, nor their employers,
have been impleaded before us. Each class of employees specified in Section 32 requires
separate treatment having regard to special circumstances and conditions governing their
employment. We therefore decline to express any opinion on the plea of unconstitutionality
raised before us in respect of the inapplicability of the Act to employees described in Section
32. - By Section 36 the appropriate Government is invested with power to exempt an
establishment or a class of establishments from the operation of the Act, provided the
Government is of the opinion that having regard to the financial position and other relevant
circumstances of the establishment, it would not be in the public interest to apply all or any of
the provisions of the Act. Condition for exercise of that power is that the Government holds
the opinion that it is not in the public interest to apply all or any of the provisions of the Act to
an establishment or class of establishments, and that opinion is founded on a consideration of
the financial position and other relevant circumstances. Parliament has clearly laid down
principles and has given adequate guidance to the appropriate Government in implementing
the provisions of Section 36. The power so conferred does not amount to delegation of
legislative authority. Section 36 amounts to conditional legislation, and is not void. Whether
in a given case, power has been properly exercised by the appropriate Government would
have to be considered when that occasion arises. - But Section 37 which authorises the Central Government to provide by order for
removal of doubts or difficulties in giving effect to the provisions of the Act, in our judgment,
delegates legislative power which is not permissible. Condition of the applicability of Section
37 is the arising of the doubt or difficulty is giving effect to the provisions of the Act. By
providing that the order made must not be inconsistent with the purposes of the Act, Section
37 is not saved from the vice of delegation of legislative authority. The section authorises the
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Government to determine for itself what the purposes of the Act are and to make provisions
for removal of doubts or difficulties. If in giving effect to the provisions of the Act any doubt
or difficulty arises, normally it is for the legislature to remove that doubt or difficulty. Power
to remove the doubt or difficulty by altering the provisions of the Act would in substance
amount to exercise of legislative authority and that cannot be delegated to an executive
authority. Sub-section (2) of Section 37 which purports to make the order of the Central
Government in such cases final accentuates the vice in sub-section (1), since by enacting that
provision the Government is made the sole judge whether difficulty or doubt had arisen in
giving effect to the provisions of the Act, whether it is necessary or expedient to remove the
doubt or difficulty, and whether the provision enacted is not in consistent with the purposes of
the Act. - We may now turn to the challenge to Section 10. Under the Full Bench formula bonus
being related to available surplus it can only be made payable by an employer of an
establishment who makes profit in the accounting year to which the claim for bonus relates. If
no profit was made there was no liability to pay bonus. As pointed out by this Court in Muir
Mills Company case:
“It is therefore clear that the claim for bonus can be made by the employees only
if as a result of the joint contribution of capital and labour the industrial concern has
earned profits. If in any particular year the working of the industrial concern has
resulted in loss there is no basis nor justification for a demand for bonus. Bonus is not
a deferred wage. The dividends can only be paid out of profits and unless and until
profits are made no occasion or question can also arise for distribution of any sum as
bonus amongst the employees. If the industrial concern has resulted in a trading loss,
there would be no profits of the particular year available for distribution of dividends,
much less could the employees claim the distribution of bonus during that year.”
But by Section 10 it is provided that even if there has resulted trading loss in the
accounting year, the employer is bound to pay bonus at 4% of the salary or wage earned by
the employee or Rs 40 whichever is higher. This, it was urged, completely alters the character
of bonus and converts what is a share in the year’s profits in the earning of which the labour
has contributed into additional wage. It was pointed out to us that in giving effect to the Full
Bench formula, this Court set aside the directions made by the Industrial Tribunal awarding
minimum bonus where the establishment had suffered loss, and remanded the case for a fresh
determination consistently with the terms of the Full Bench formula: New Maneck Chowk
Spg. & Weaving Co. Ltd. v. Textile Labour Association [(1961) 3 SCR 1]. In that case there
was a five year pact between the Ahmedabad Millowners’ Association and the Textile Labour
Association. After the expiry of the period, the Labour Association demanded bonus on the
basis of the pact, but the Millowners claimed that the pact was contrary to the Full Bench
formula, and the claim was not sustainable. The Industrial Tribunal held that the pact did not
“run counter to the law laid down by this Court in the Associated Cement Companies case
and the extension of the agreement for one more year would help in promoting peace in the
industry in Ahmedabad. This Court held that the agreement departed from the Full Bench
formula in the matter of bonus and when the Tribunal extended the agreement after the expiry
of the stipulated period, it ignored the law as laid down by this Court as to what profit bonus
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was and how it should be worked out, and that the Tribunal had no power to do by extending
the agreement to direct payment of minimum bonus for the year 1958 when there was no
available surplus to pay minimum bonus. - Indisputably Parliament has the power to enact legislation within the constitutional
limits to modify the Full Bench formula even after it has received the approval of this Court.
It was urged, however, that exercise of that power by treating establishments inherently
dissimilar as in the same class and subject to payment of minimum bonus, amounted to
making unlawful discrimination. It was said that establishments which suffered losses and
establishments which made profits; establishments paying high rates of wages and
establishments paying law rates of wages: establishments paying “bonus-added wages” and
establishments paying ordinary wages; establishments paying higher dearness allowance and
establishments paying lower dearness allowance, do not belong to the same class, and by
imposing liability upon all these establishments to pay bonus at the statutory rate not below
the minimum irrespective of the differences between them, the Parliament created inequality.
It was also submitted that by directing establishments passing through a succession of lean
years in which losses have accumulated and establishments which had made losses in the
accounting year alone, to pay minimum bonus, unlawful discrimination was practised. - Section 10 at first sight may appear to be a provision for granting additional wage to
employees in establishments which have not on the year’s working an adequate allocable
surplus to justify payment of bonus at the rate of 4% on the wages earned by each employee.
But the section is an integral part of a scheme for providing for payment of bonus at rates
which do not widely fluctuate from year to year and that is sought to be secured by restricting
the quantum of bonus payable to the maximum rate of 20% and for carrying forward the
excess remaining after paying bonus at that rate into the account of the next year, and by
providing for carrying forward the liability for amounts drawn from reserves or capital to
meet the obligation to pay bonus at the minimum rate. Under the Act, for computing the rate
of payment of bonus each accounting year is distinct and bonus has to be worked out on the
profits of the establishment in the accounting year. But it is not in the interest of capital or
labour that there should be wide fluctuations in the payment of bonus by an establishment
year after year. The object of the Act being to maintain peace and harmony between labour
and capital by allowing the employees to share the prosperity of the establishment reflected
by the profits earned by the contributions made by capital, management and labour,
Parliament has provided that bonus in a given year shall not exceed 1/5th and shall not be less
than 1/25th of the total earning of each individual employee, and has directed that the excess
share shall be carried forward to the next year, and that the amount paid by way of minimum
bonus not absorbed by the available profits shall be carried to the next year and be set off
against the profits of the succeeding years. This scheme of prescribing maximum and
minimum rates of bonus together with the scheme of “set off” and “set on” not only secures
the right of labour to share in the prosperity of the establishment, but also ensures a
reasonable degree of uniformity. - Equal protection of the laws is denied if in achieving a certain object persons, objects
or transactions similarly circumstanced are differently treated by law and the principle
underlying that different treatment has no rational relation to the object sought to be achieved
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by the law. Examined in the light of the object of the Act and the scheme of “set-off” and “set
on”, the provision for payment of minimum bonus cannot be said to be discriminatory
between different establishments which are unable on the profits of the accounting year to pay
bonus merely because a uniform standard of minimum rate of bonus is applied to them. - The judgment of this Court in Kunnathat Thathunni Moopll Nair v. State of Kerala
[(1961) 3 SCR 77] and especially the passage in the judgment of the majority of the Court at
p. 92, has not enunciated any broad proposition as was contended for on behalf of the
employers, that when, persons or objects which are unequal are treated in the same manner
and are subjected to the same burden or liability, discrimination inevitably results. In Moopil
Nair case the validity of the Travancore-Cochin Land Tax Act, 1955, was challenged. By
Section 4 of the Act all lands in the State, of whatever description and held under whatever
tenure, were charged with payment of land tax at a uniform rate to be called the basic tax.
Owners of certain forest lands challenged certain provisions of the Act pleading that those
provisions contravened Articles 14, 19(1)(f) and 31(1) of the Constitution. This Court held
that the Act which obliged every person who held land to pay the tax at a uniform rate,
whether he made any income but of the land, or whether the land was capable of yielding any
income, attempted no classification and that lack of classification by the Act itself created
inequality, and was on that account hit by the prohibition against denial of equality before the
law contained in Article 14. The Court also held that the Act was confiscatory in character
since it had the effect of eliminating private ownership of land through the machinery of the
Act, without proposing to acquire privately owned forests for the State. The TravancoreCochin Land Tax Act, it is clear, contained several peculiar features: it was in the context of
these features that the Court held that imposition of a uniform liability upon lands which were
inherently unequal in productive capacity amounted to discrimination, and that lack of
classification created inequality. It was not said by the Court in that case that imposition of
uniform liability upon persons, objects or transactions which are unequal must of necessity
lead to discrimination. Ordinarily it may be predicated of unproductive agricultural land that it
is incapable of being put to profitable agricultural use at any time. But that cannot be so
predicated of an industrial establishment which has suffered loss in the accounting year, or
even over several years successively. Such an establishment may suffer loss in one year and
make profit in another. Section 10 undoubtedly places in the same class establishments which
have made inadequate profits not justifying payment of bonus, establishments which have
suffered marginal loss, and establishments which have suffered heavy loss. The classification
so made is not unintelligible : all establishments which are unable to pay bonus under the
scheme of the Act, on the result of the working of the establishment, are grouped together.
The object of the Act is to make an equitable distribution of the surplus profits of the
establishment with a view to maintain peace and harmony between the three agencies which
contribute to the earning of profits. Distribution of profits which is not subject to great
fluctuations year after year, would certainly conduce to maintenance of peace and harmony
and would be regarded as equitable, and provision for payment of bonus at the statutory
minimum rate, even if the establishment has not earned profit is clearly enacted to ensure the
object of the Act.
177 - Whether the scheme for payment of minimum bonus is the best in the circumstances,
or a more equitable method could have been devised so as to avoid in certain cases undue
hardship is irrelevant to the enquiry in hand. If the classification is not patently arbitrary, the
Court will not rule it discriminatory merely because it involves hardship or inequality of
burden. With a view to secure a particular object a scheme may be selected by the Legislature,
wisdom whereof may be open to debate; it may even be demonstrated that the scheme is not
the best in the circumstances and the choice of the legislature may be shown to be erroneous,
but unless the enactment fails to satisfy the dual test of intelligible classification and
rationality of the relation with the object of the law, it will not be subject to judicial
interference under Article 14. Invalidity of legislation is not established by merely finding
faults with the scheme adopted by the Legislature to achieve the purpose it has in view. Equal
treatment of unequal objects, transactions or persons is not liable to be struck down as
discriminatory unless there is simultaneously absence of a rational relation to the object
intended to be achieved by the law. Plea of invalidity of Section 10 on the ground that it
infringes Article 14 of the Constitution must therefore fail. - We need say nothing at this date about the plea that Section 10 by imposing
unreasonable restrictions infringes the fundamental freedom under Article 19(1)(g) of the
Constitution, for by the declaration of emergency by the President under Article 352, the
protection of Article 19 against any legislative measure, or executive order which is otherwise
competent, stands suspended. The plea that Section 10 infringes the fundamental freedom
under Article 31(1) of the Constitution also has no force. Clause (1) of Article 31 guarantees
the right against deprivation of property otherwise than by authority of law. Compelling an
employer to pay sums of money to his employees which he has not contractually rendered
himself liable to pay may amount to deprivation of property, but the protection against
depriving a person of his property under clause (1) of Article 31 is available only if the
deprivation is not by authority of law. Validity of the law authorising deprivation of property
may be challenged on three grounds: (i) incompetence of the authority which has enacted the
law; (ii) infringement by the law of the fundamental rights guaranteed by Chapter III of the
Constitution, and (iii) violation by the law of any express provisions of the Constitution.
Authority of the Parliament to legislate in respect of bonus is not denied and the provision for
payment of bonus is not open to attack on the ground of infringement of fundamental rights
other than those declared by Article 14 and Article 19(l)(g) of the Constitution. Our attention
has not been invited to any prohibition imposed by the Constitution which renders a statute
relating to payment of bonus invalid. We are therefore of the view that Section 10 of the
Bonus Act is not open to attack on the ground that it infringes Article 31(1). - We may now turn to Section 33 of the Act. The section provides:
“Where, immediately before 29th May, 1965, any industrial dispute regarding
payment of bonus relating to any accounting year, not being an accounting year
earlier than the accounting year ending on any day in the year 1962, was pending
before the appropriate Government or before any tribunal to other authority under the
Industrial Disputes Act, 1947 (14 of 1947) or under any corresponding law relating to
investigation and settlement of industrial disputes in a State, then, the bonus shall be
payable in accordance with the provisions of this Act in relation to the accounting
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year to which the dispute relates and any subsequent accounting year,
notwithstanding that in respect of that subsequent accounting year no such dispute
was pending.
Explanation
The section plainly seeks to apply the provisions of the Act to a pending dispute, if the
dispute relates to payment of bonus for any accounting year not being an accounting year
earlier than the accounting year ending on any day in the year, 1962 and is pending on May
29, 1965 before the Government or other authority under the Industrial Disputes Act or any
other corresponding law. The provisions of the Act also apply even if there be no dispute
pending for the year subsequent to the year ending on any day in the year 1962, provided
there is a dispute pending in respect of an earlier year. By Section 1(4) the provisions of the
Act have effect in respect of the accounting year commencing on any day in the year 1964
and in respect of every subsequent accounting year. But by the application of Section 33 the
scheme of the Act is related back to three accounting years ending on any day in 1962, in
1963 and in 1964.
.- A dispute shall be deemed to be pending before the appropriate
Government where no decision of that Government on any application made to it
under the said Act or such corresponding law for reference of that dispute to
adjudication has been made or where having received the report of the Conciliation
Officer (by whatever designation known) under the said Act or law, the appropriate
Government has not passed any order refusing to make such reference.” - In considering the effect of Section 33 regard must first be had to Section 34(1) which
provides that save as otherwise provided in the section, the provisions of the Act shall have
effect notwithstanding anything inconsistent therewith, contained in any other law for the
time being in force or in the terms of any award, agreement, settlement or contract of service
made before May 29, 1965. All previous awards, agreements, settlements or contract of
service made before May 29, 1965, therefore are, since the commencement of the Act
rendered ineffective, and if there be a dispute relating to bonus pending on the date specified
for the year ending on any day in 1962 or thereafter, before any appropriate Government or
before any authority under the Industrial Disputes Act, bonus shall be computed and paid in
the manner provided by the Act. Even if in respect of a year there is no such dispute pending
on May 29, 1965, because of a dispute pending in respect of an earlier year, not being earlier
than the year ending on any day in 1962, the same consequences follow. - Application of the Act involves departure in many respects from the scheme of
computation of bonus under the Full Bench formula. Under the Full Bench formula bonus
was a percentage of total wage not inclusive of dearness allowance, and in the computation of
available surplus rehabilitation allowance was admissible as a deduction. It was also wellsettled that an establishment which suffered loss in the accounting year was not liable to pay
bonus: and a reference under the Industrial Disputes Act on a claim to bonus could be
adjudicated upon only if the claimants were workmen as defined in the Industrial Disputes
Act. Since the expression “industrial dispute” used in Section 33 has not been defined in the
Payment of Bonus Act, the definition of that expression in the Industrial Disputes Act will
apply vide Section 2(22). The expression “industrial dispute” under the Industrial Disputes
Act inter alia means a dispute or difference between employer and workmen which is
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connected with the employment or non-employment or the terms of employment or with the
conditions of labour, of any person: Section 2(k): and the expression “workmen” is defined in
Section 2(s) of the Industrial Disputes Act. Therefore no dispute relating to bonus between an
employer and persons employed in managerial or administrative capacity or persons
employed in supervisory capacity drawing wages exceeding Rs 500 per mensem could be
referred under the Industrial Disputes Act. But under Section 33 a pending industrial dispute
between the workmen and the employer, by reason of the application of the Act gives rise to a
statutory liability in favour of all employees of the establishment as defined under the Act by
Section 2(13) for payment of bonus under the scheme of the Act. Whereas under the
Industrial Disputes Act a dispute could only be raised by employees who were workmen
within the meaning of the Act, under the scheme of the Act statutory liability is imposed upon
the employer to pay to all his employees as defined in Section 2(13) bonus at the rates
prescribed by the Act. Even if before May 29, 1965, there had been a settlement with some
workmen or those workmen had not made any claim previously, and there would on that
account be no industrial dispute pending qua those workmen, pendency of a dispute relating
to bonus in which some other workmen are interested imposes statutory liability upon the
employer to pay bonus to all employees in the establishment. Even if the employer had
suffered loss or the available surplus was inadequate, the employer will by virtue of Section
33 be liable to pay minimum bonus at the statutory rate: the formula for computation of gross
profits and available surplus will be retrospectively altered and a percentage of wages
inclusive of dearness allowance will be allowed as bonus to all employees (whether they were
under the Full Bench formula entitled to bonus or not), in computing the available surplus
rehabilitation will not be taken into account, and bonus will also have to be paid to employees
who were not entitled thereto in the year of account. Application of the Act for the year for
which the bonus dispute is pending therefore creates an onerous liability on the employer
concerned because:
(1) employees who could not claim bonus under the Industrial Disputes Act
become entitled thereto merely because there was a dispute pending between the
workmen in that establishment, or some of them and the employer qua bonus;
(2) workmen who had under agreements, settlements, contracts or awards
become entitled to bonus at certain rates cease to be bound by such agreements,
settlements, contracts or even award; and become entitled to claim bonus at the rate
computed under the scheme of the Act;
(3) basis of the computation of gross profits, available surplus and bonus is
completely changed;
(4) the scheme of “set on” and “set off” prescribed by Section 15 of the Act
becomes operative and applies to establishments as from the year in respect of which
the bonus dispute is pending; and
(5) the scheme of the Act operates not only in respect of the year for which the
bonus dispute was pending, but also in respect of subsequent years for which there is
no bonus dispute pending. - If therefore in respect of an establishment there had been a settlement or an agreement
for a subsequent year, pendency of a dispute for an earlier year before the authority specified
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in Section 33 is sufficient to upset that agreement or settlement and a statutory liability for
payment of bonus according to the scheme of the Act is imposed upon the employer.
Application of the Act retrospectively therefore depends upon the pendency immediately
before May 29, 1965, of an industrial dispute regarding payment of bonus relating to any
accounting year not earlier than the year ending on any day in 1962. If there be no such
dispute pending immediately before the date on which the Act becomes operative, an
establishment will be governed by the provisions of the Full Bench formula and will be liable
to pay bonus only if there be adequate profits which would justify payment of bonus. If
however, a dispute is pending immediately before May 29, 1965, the scheme of the Act will
apply not only for the year for which the dispute is pending, but even in respect of subsequent
years. Assuming that the classification is founded on some intelligible differentia which
distinguishes an establishment, from other establishments, the differentia has no rational
relation to the object sought to be achieved by the statutory provision viz. of ensuring
peaceful relations between capital and labour by making an equitable distribution of the
surplus profits of the year. Arbitrariness of the classification becomes more pronounced when
it is remembered that in respect of the year subsequent to the year for which the dispute is
pending, liability prescribed under the Act is attracted even if for such subsequent years no
dispute is pending, whereas to an establishment in respect of which no dispute is pending
immediately before May 29, 1965, no such liability is attracted. Therefore two establishments
similarly circumstanced having no dispute pending relating to bonus between the employers
and the workmen in a particular year would be liable to be dealt with differently if in respect
of a previous year (covered by Section 33) there is a dispute pending between the employer
and the workmen in one establishment and there is no such dispute pending in the other. - Liability imposed by the Act for payment of bonus is for reasons already set out more
onerous than the liability which had arisen under the Full Bench formula prior to the date of
the Act. Imposition of this onerous liability depending solely upon the fortuitous circumstance
that a dispute relating to bonus is pending between workmen or some of them immediately
before May 29, 1965, is plainly arbitrary and classification made on that basis is not
reasonable. - There is one other ground which emphasizes the arbitrary character of the
classification. If a dispute relating to bonus is pending immediately before May 29, 1965, in
respect of the years specified in Section 33 before the appropriate Government or before any
authority under the Industrial Disputes Act or under any corresponding law, the provision of
the Act will be attracted: if the dispute is pending before this Court in appeal or before the
High Court in a petition under Article 226, the provisions of the Act will not apply. It is
difficult to perceive any logical basis for making a distinction between pendency of a dispute
relating to bonus for the years in question before this Court or the High Court, and before the
Industrial Tribunal or the appropriate Government. This Court is under the Constitution
competent to hear and decide a dispute pending on May 29, 1965 relating to bonus as a court
of appeal, but is not required to apply the provisions of the Act. If because of misconception
of the nature of evidence or failure to apply rules of natural justice or misapplication of the
law, this Court sets aside an award made by the Industrial Tribunal and remands the case
which was pending on May 29, 1965, for rehearing, the Industrial court will have to deal with
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the case under the Full Bench formula and not under the provisions of the Act. The High
Court has also jurisdiction in a petition under Article 226 to issue an order or direction
declaring an order of the Industrial Tribunal invalid, and issue of such writ, order or direction
will ordinarily involve retrial of the proceeding. Again pendency of a dispute in respect of the
previous year before the appropriate Government or the Industrial Tribunal will entail
imposition of a statutory liability to pay bonus in respect of the year for which the dispute is
pending, and also in respect of years subsequent thereto, but if immediately before May 29,
1965, a proceeding arising out of a dispute relating to bonus is pending before a superior
court, even if it be for the years which are covered by Section 33, statutory liability to pay
bonus to employees will not be attracted. Take two industrial units — one has a dispute with
its workmen or some of them, pending before the Government or before the authority under
the Industrial Disputes Act and relating to an accounting year ending in the year 1962. For the
years 1962, 1963 and 1964 this industrial unit will be liable to pay bonus according to the
statutory formula prescribed by the Act, whereas another industrial unit in the same industry
which may be regarded as reasonably similar would be under no such obligation, if it has on
May 29, 1965, no dispute relating to bonus pending because the dispute has not been raised or
has been settled by agreement or by award or that the dispute having been determined by an
award, had reached a superior court by way of appeal or in exercise of the writ jurisdiction.
There appears neither logic nor reason in the different treatment meted out to the two
establishments. It is difficult to appreciate the rationality of the nexus – if there be any –
between the classification and the object of the Act. In our view therefore Section 33 is
patently discriminatory. - The sub-section of section 34 makes a departure from the scheme for payment of
bonus which pervades the rest of the Act. The expression “allocable surplus” in Section 34(2)
does not mean a percentage of the available surplus under Section 2(4) read with Sections 5
and 6, as that expression is understood in the rest of the Act. It is a figure computed according
to a special method. Under Section 34(2) if the total bonus payable in any accounting year
after the Act had come into force is less than the total bonus paid or payable in the “base
year” under any award, agreement, settlement or contract of service, then, bonus for the
accounting year has to be determined according to the following scheme: - First determine the ratio of the bonus paid or payable to all employees (not workmen
merely as defined in the Industrial Disputes Act) for the base year as defined in Explanation
II(a) to the gross profits as defined in Explanation II(b) of that year, and apply that ratio to the
gross profits as defined in Explanation II to the accounting year and determine the allocable
surplus. That allocable surplus will be distributed among the employees subject to the
restriction that no employee shall be paid bonus which exceeds 20% of the salary or wage
earned by an employee, and that if the allocable surplus so computed exceeds the amount of
maximum bonus payable to the employees in the establishment then the provisions of Section
15 shall so far as may be apply to the excess. - Gross profits which are to be taken into account for determining the ratio both in the
accounting year and the base year are also specially defined for the purpose of this subsection. They are not the gross profits as determined under the Full Bench formula, nor under
Section 4 of the Act, but by a method specially prescribed by the Explanation: they are gross
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profits under Section 4 as reduced by the direct taxes payable by the employer in respect of
that year. Under the Full Bench formula bonus was determined as a percentage of the gross
profits minus prior charges. Under Section 5 of the Act available surplus of which the normal
allocable surplus is a percentage is determined by deducting from the gross profits of the year
the four heads of charges which are referred to under Section 4 – depreciation, development
rebate or development allowance, direct taxes and other sums specified in the Third Schedule.
But in applying the scheme under Section 34 only the direct taxes are debited. Bonus which
becomes payable under Section 34(2) is therefore not worked out as a percentage of the
available surplus, but as a fraction of gross profits computed according to the special formula.
The expression “base year” is also a variable unit: in any case where a dispute of the nature
specified in Section 33 is pending immediately before May 29, 1965, before the authorities
specified in Section 33, the accounting year immediately preceding the accounting year to
which the dispute relates is the base year : in other cases a period of twelve months
immediately preceding the accounting year in respect of which the Act becomes applicable to
the establishment, in the base year. For instance, if there be a dispute pending in respect of the
accounting year on any day ending in 1962, 1963 or 1964, the base years will be the
accounting years ending on a day in 1961, 1962 or 1963 as the case may be. If there be no
dispute pending the period of twelve months immediately preceding the accounting year in
which the Act becomes applicable to the establishment is the base year. Determination of the
base year therefore depends upon the pendency or otherwise of a bonus dispute immediately
before May 29, 1965, for any of the years ending on any day in 1962, 1963 and 1964. - There is also a special method for determining whether the total bonus payable to all
the employees is less than the total bonus paid or payable in respect of the base year. By the
First Explanation it is provided that the total bonus in respect of any accounting year shall be
deemed to be less than the total bonus paid or payable in respect of the base year, if the ratio
of bonus payable in respect of the accounting year to the gross profits of that year is less than
the ratio of bonus paid or payable in respect of the base year to the gross profits of that year. - Section 34(2) contemplates a somewhat complicated enquiry into the determination of
the bonus payable. Gross profits of the base year being determined in the manner prescribed
by the Act and reduced by the direct taxes payable by the employers in respect of that year,
the ratio between the gross profits and the bonus paid or payable in respect of that base year is
to be applied to the gross profits of the accounting year to determine the allocable surplus.
Apart from the complexity of the calculation involved it was forcefully pointed out before us
that in certain cases the ratio may be unduly large or even infinite. In order to buy peace and
in the expectation that in future the working of the establishments would be more profitable,
employers had in certain cases paid bonus out of reserves, even though there was no gross
profit or insufficient gross profit, and those establishments are under Section 34(2) saddled
with liability to allocate large sums of money wholly disproportionate to or without any
surplus profits, and even to the amount which would be payable if the scheme of the Act
applied. For in cases where there were no gross profit, the ratio between the amount paid or
payable as bonus and gross profit would reach infinity : in cases where the gross profits were
small and substantial amounts were paid or became payable by way of bonus, the ratio may
become unduly large. These are not cases hypothetical but practical, which had arisen in fact,
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and application of the ratio irrevocably fixes the liability of the establishment to set apart year
after year large amounts whether the establishment made profits or not towards allocable
surplus. - Payment of bonus by agreement was generally determined not by legalistic
considerations and not infrequently generous allowances were made by employers as bonus to
workmen to buy peace especially where industrywise settlements were made in certain
regions, and weak units were compelled to fall in line with prosperous units in the same
industry and had to pay bonus even though on the result of the working of the units no
liability to pay bonus on the application of the Full Bench formula could arise. But if in the
base year such payment was made, for the duration of the Act the ratio becomes frozen and
the total bonus payable to the employees in the establishment under the Act can never be less
than the bonus worked out on the application of the ratio prescribed by Section 34(2). - Here again units or establishments which had paid bonus in the base year and those
which had not paid bonus in the base year are separately classified without taking into
consideration the special circumstances which operated upon the payment of bonus in the
base year which may vary from establishment to establishment. The ratio under Section 34(2),
so long as the Act remains on the statute-book, determines the minimum allocable surplus for
each accounting year of those establishments which had paid bonus in the base year. The fact
that under sub-section (3) the employees and the employers are not precluded from entering
into agreements for granting bonus to the employees under a formula which is different from
that prescribed under the Act has little significance. If by statute a certain ratio is fixed which
determines the bonus payable by the employer whether or not the profits of the accounting
year warrant payment of bonus at that rate, it would be futile to expect the employees to
accept anything less than what has been statutorily prescribed. - In our view Section 34 imposes a special liability to pay bonus determined on the
gross profits of the base year on an assumption that the ratio which determines the allocable
surplus is the normal ratio not affected by any special circumstance and perpetuates for the
duration of the Act that ratio for determining the minimum allocable surplus each year. If
bonus contemplated to be paid under the Act is intended to make an equitable distribution of
the surplus profits of a particular year, a scheme for computing labour’s share which cannot
be less than the amount determined by the application of a ratio derived from the working of
the base year without taking into consideration the special circumstances governing that
determination is ex facie arbitrary and unreasonable. The Additional Solicitor-General
appearing for the Union of India and the representatives of the Labour Unions and counsel
appearing for them contended in support of their plea that Section 34(2) was not invalid
because the ratio was intended to stabilize the previous grant of bonus and to maintain in
favour of labour whatever was achieved by collective bargaining in the base year. But the
validity of a statute is subject to judicial scrutiny in the context of fundamental freedoms
guaranteed to employers as well as employees and the freedom of equal protection of the laws
becomes chimerical, if the only ground in support of the validity of a statute ex facie
discriminatory is that Parliament intended, inconsistently with the very concept of bonus
evolved by it to maintain for the benefit of labour an advantage which labour had obtained in
an earlier year, based on the special circumstances of that year, without any enquiry whether
184
that advantage may reasonably be granted in subsequent years according to the principles
evolved by it and for securing the object of the Act. If the concept of bonus as allocation of an
equitable share of the surplus profits of an establishment to the workmen who have
contributed to the earning has reality, any condition that the ratio on which the share of one
party computed on the basis of the working of an earlier year, without taking into
consideration the special circumstances which had a bearing on the earning of the profits and
payment of bonus in that year, shall not be touched, is in our judgment arbitrary and
unreasonable. The vice of the provision lies in the position of an arbitrary ratio governing
distribution of surplus profits. In our view, Section 34(2) is invalid on the ground that it
infringes Article 14 of the Constitution. It is in the circumstances unnecessary to consider
whether the provisions of Section 33 and Section 34(2) are invalid as infringing the
fundamental rights conferred by Articles 19(l)(g) and 31(1). - But the invalidity of Sections 33 and 34(2) does not affect the validity of the
remaining provisions of the Act. These two provisions are plainly severeable. All proceedings
which are pending before the Act came into force including those which are covered by
Section 33 will therefore be governed by the Full Bench formula and that in the application of
the Act the special ratio for determining the allocable surplus under Section 34(2) will be
ignored, for application of the Full Bench formula to pending proceedings on May 29, 1965,
and refusal to apply the special ratio in the determination of allocable surplus under Section
34(2) does not affect the scheme of the rest of the Act. The declaration of invalidity of Section
37 which confers upon the Central Government power to remove difficulties also does not
affect the validity of the remaining provisions of the Act. - The Industrial Tribunal has awarded to the workmen of Jalan Trading Company
bonus at the minimum rate relying upon Section 33 of the Act. The claim for bonus related to
the year 1962, and could be upheld only if Section 10 was attracted by the operation of
Section 33. But we have held that Section 33 is invalid. It is now common ground that the
appellant Company had suffered loss in 1962. The profit and loss account was accepted by the
workmen before the Tribunal. Civil Appeal No. 187 of 1966 will therefore be allowed and the
order passed by the Industrial Tribunal imposing liability for payment of minimum bonus set
aside. In Writ Petitions Nos. of 1966 and 32 of 1966, it is declared that Sections 33 and 34(2)
are invalid as infringing Article 14 of the Constitution, and that Section 37 is invalid in that it
delegates to the executive authority legislative powers.
[As per the judgment of M. Hidayatullah, J., the Bonus Act was validly enacted.] - In accordance with the opinion of the majority, the appeal is allowed and the order of
the Industrial Tribunal set aside. The writ petitions are allowed in part and Sections 33, 34(2)
and 37 are declared ultra vires.
