TMI Blog1970 (3) TMI 170X X X X Extracts X X X X X X X X Extracts X X X X ..... nt was advanced in Special Civil Application No. 2239 of 1968 and we would first set forth briefly the facts of that Special Civil Application. The petitioner before us is the manager of the India United Mills Ltd., No. 1 Mill, of Bombay, which we shall hereafter refer to for the sake of brevity as the Indu Mills as it is popularly known. On 29th November 1965 the Indu Mills was taken under the management of an authorised controller under Section 18-A of the Industries (Development and Regulation) Act, 1951 by a notification of the Government of India. One M.D. Bhat was appointed as the authorised controller. We shall refer to the detailed provisions of this notification a little later. On 21st December, 1967 the 1st respondent Dhondu Mahadeo Ghadi an employee of the Indu Mills applied before the Authority appointed under the Payment of Wages Act for the area of Greater Bombay for the payment to him of the minimum bonus payable to him under the provisions of Section 10 of the Payment of Bonus Act. He claimed to be entitled to receive ₹ 76.40 and ₹ 101.68 as bonus for the years 1965 and 1966. Though the amount claimed by this particular employee is small, the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dication of the claim of the workers to the payments under the Bonus Act would involve or give rise to difficult and complicated questions of law which the Payment of Wages Authority should not ordinarily undertake to decide or alternatively was not competent to decide and therefore ought to have directed the workers to pursue their ordinary remedy under law. Thirdly that in any case Section 22 of the Bonus Act itself excludes the jurisdiction of the Payment of Wages Authority because it has created a special forum before which claims under the Bonus Act can be tried namely the Industrial Court. Therefore the Payment of Wages Authority will have no jurisdiction. Lastly it was urged that in any event these companies are expressly exempted under the Bonus Act as being establishments engaged in an industry carried on by or under the authority of any department of the Central Government ......or a local authority within the meaning of Section 32, Clause (iv) and that therefore the mills are exempt under Act 6. The authorities have turned down these preliminary objections and ordered the amounts claimed by the workmen to be paid in both the cases. It may be mentioned here that so f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is the gross profit of that year after deducting therefrom the sums referred to in Section 6 and the sums referred to in Section 6 are amounts by way of depreciation, development rebate or development allowance, any direct tax and any other sums specified in the First Schedule. Section 7 shows how any direct tax payable by the employer has to be computed. These sections providing for the computation of bonus have to be read along with the two definitions in Section 2 namely the definition of available surplus in Sub-section (6) of Section 2 and of allocable surplus in Sub-section (4) of Section 2. Then the subsequent sections of the Act proceed to declare the right of the employees to receive the bonus (Section 8) in what cases an employee is disqualified from receiving bonus (Section 9) and the duty of the employer to pay the minimum bonus (Section 10). Section 10 indicates what is minimum bonus and when it is payable and Section 11 deals with the payment of maximum bonus . 8. The effect of these provisions is that the employer is bound to pay to every employee in an accounting year a minimum bonus which is stated to be 4% of the salary or wage earned by the employee du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carried forward for being set off in the succeeding accounting year and so on up to and inclusive of the fourth accounting year in the manner illustrated in the Fourth Schedule. The purpose of these provisions is clear. Where there are profits or allocable surplus, the allocable surplus must be set apart and utilised towards payment of the bonus under the Act subject to the limitations indicated. The balance has to be carried forward and when there are lean years and there is no available surplus or the allocable surplus falls short of the amount of minimum bonus, then the establishment can draw from the balance of the allocable surplus if any of the previous years. It is clear, however, that whether or not there is allocable surplus or available surplus, the minimum bonus has to be paid in any Case. 10. Various other deductions are permitted where the employer has paid different kinds of bonus or made other payments. Deductions are also allowed for certain reasons such as misconduct (Section 18). Section 21 makes provisions for the recovery of the bonus due from an employer. It permits either the employee himself or any other person authorised by him in writing in that behalf o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by any other name); but does not include ..... (1) any bonus (whether under a scheme of profit sharing or otherwise) which does not form part of the remuneration payable under the terms of employment or which is not payable under any award or settlement between the parties or order of a court; What is urged on behalf of the petitioners is that the definition of wages in Clause (vi) of Section 2 is confined only to consensual remuneration and not remuneration imposed by any law. In other words the definition only applies to remuneration payable under the terms of a contract of employment between the employer and the employee and that it cannot apply to a payment to be made compulsorily under the provisions of the Payment of Bonus Act. It was urged that payment of remuneration by operation of law would not fall within the definition of wages under the Payment of Wages Act. 12. We are unable to accept this contention because, in the first place as the definition of wages stands today there are no words of limitation in that definition limiting it to an agreement or contract between the employer and the employee. The definition says wages means all remunerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o remuneration payable under an agreement or contract. It is clear that the amended definition would apply to all kinds of remuneration whether arising from a contract, an award, a settlement or under a statute. As stated in Balaram Abaji's case , (1960)IILLJ491Bom , the definition as it now stands makes no reference to the origin of the employer's obligation to pay the remuneration. When we consider the legislative history of the definition, the construction which we have put upon it is further reinforced. 14. It was next argued that there is an express exclusion which was not noticed by the Payment of Wages Authority when it held that the payment of the amount under the Bonus Act amounted to wages . It was urged that Clause (c) includes in the definition of wages any additional remuneration payable under the terms of employment, whether called a bonus or by any other name. Sub-clause (1) does not include in the definition any bonus which does not form part of the remuneration under the terms of employment, and since this is a bonus not payable under the terms of employment, but under the terms of a statute there is an express exclusion. 15. The definition of wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re ........ the employer shall, in lieu of such minimum bonus, be bound to pay to every employee in the accounting year bonus ....... subject to a maximum of ....... Here again, therefore, the duty of the employer to pay the maximum bonus subject to the conditions laid down is clearly defined. Section 19 lays down the time-limit for payment of the bonus and is also couched in a language which shows that it is the mandatory duty of the employer to do so. It begins with the words all amounts payable to an employee by way of bonus under this Act shall be paid in cash by his employer , within a period of eight months from the close of the accounting year or in the case of a dispute within a month from the date on which the award becomes enforceable or the settlement comes into operation, in respect of such dispute. 17. In the Act therefore there is a right created in favour of the employee on the one hand and a duty enjoined upon the employer on the other hand to pay the bonus. It is clear, therefore that by this legislation a term of the employment has been introduced binding on the employer and in favour of the employee. The expression term of employment or under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayments under the Bonus Act amount to wages and in our opinion, they do amount to wages and to that extent, therefore, we must hold that so far as this contention is concerned, the Payment of Wages Authority had jurisdiction and the two authorities were right in the decision which they took on this point. 20. The same however cannot be said about the other two contentions on the question of jurisdiction. Section 15, Sub-section (1) confers the jurisdiction upon the Payment of Wages Authority in the following words the State Government may appoint one or more persons to be the authority or authorities to hear and decide for any specified area all claims arising out of deductions from the wages, or delay in payment of the wages of persons employed or paid in that area . In the present case the dispute is not regarding deductions from wages but regarding delay in the payment of wages. The procedure prescribed for the trial of claims to wages is contained in Sub-section (3) of Section 15 and a mere perusal of that sub-section would show that the procedure is a very summary procedure and enacted to ensure the speedy disposal of the employee's claim and the prompt pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he claim could not be entertained by the Payment of Wages Authority and gave its reasons as follows at p. 596, Column 2:-- In the first place, the claim made in the instant case is not a simple case of deductions having been unauthorisedly made or payment having been delayed beyond the wage periods and the time of payment fixed under Sections 4 and 5 of the Act. In the second place, in view of the defence taken by the Respondent No. 1, the Authority would inevitably have to enter into questions arising under the proviso to Section 25-FF, viz. whether there was any interruption in the employment of the workmen, whether the conditions of service under the Board were any the less favourable than those under the company and whether the Board, as the new employer, had become liable to pay compensation to the workmen if there was retrenchment in the future. Such an inquiry would necessarily be a prolonged inquiry involving questions of fact and of law ...... When the definition of wages was expanded to include cases of sums payable under a contract, instrument or a law it could not have been intended that such a claim for compensation which is denied on grounds which inevitably wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 of the Payment of Wages Act and the important question whether these Mills are exempt under Section 32(iv), These would require consideration of several provisions of the Bonus Act and the question which has been actually argued whether the Bonus Act is a self-contained Code in itself. Surely it was never intended that such questions would under Section 15 fall within the purview of the Payment of Wages Authority. In this view we do not think that the questions arising in these cases were fit for the Authority under the Payment of Wages Act to consider. 23. So far as we have viewed this question as if we were only concerned with the provisions of the Payment of Wages Act and even upon the provisions of that Act is clear that the Payment of Wages Authority would have no jurisdiction in a case like this where complicated questions of law arise and it is required to interpret the provisions of a new enactment, but when we come to consider the positive enactment contained in Section 22 of the Bonus Act, the position becomes clearer. Section 22 in terms says where any dispute arises between an employer and his employees with respect to the bonus payable under this Act or with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jurisdiction in a matter like this, we have held that it has not--still Section 34 would exclude the operation of the Payment of Wages Act, but we have already said that there is nothing in the Payment of Wages Act to indicate that the operation of any other law is excluded so far as the jurisdiction of the payment of wages authority is concerned. 25. Counsel on behalf of the employees, the respondents before us, urged that the ambit of Section 22 of the Bonus Act is very limited and that it only applies to any dispute between an employer and his employees with respect to the bonus payable under the Act, but in the present case he urged that there was no dispute whatsoever regarding the bonus payable under the Act, because as he said, none of the two employers had challenged the quantum of the bonus payable to the employees. He urged that though other disputes have been raised by the employers, these can hardly be said to be disputes with respect to the bonus payable, such as for instance, the main dispute raised in the present case whether the establishment was itself exempted or not from the provisions of the Bonus Act. The words of Section 22 which we have quoted refer to an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Payment of Wages Authority because it raises a complicated question of law and secondly that in any event Section 22 indicates a forum where such a dispute ought to be tried and therefore by implication ousts the jurisdiction of the Authority under the Payment of Wages Act. 27. The payment of Bonus Act is a special Act dealing with a special subject. It statutorily creates rights in favour of the employee and against the employer which the employee never enjoyed before namely the right to be paid what is called a bonus even though the establishment or undertaking may not be making profits at all. A bonus originally meant a boon or gift over and above what is normally due to the employee. It was in the nature of an extra dividend paid out of surplus profits. In the inception it was always paid ex-gratia by the employer but later legislation made the payment of bonus obligatory. Now the payment under this Act is also obligatory but it is payable whether there are profits in the accounting year or not (see Section 10). The payment has thus lost the essential characteristics of a bonus, yet it is called by that name in the Act. These are all steps taken by our legislatures wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the public sector. Regarding the first point of Quantum, there is no and cannot be any dispute about the payment of 4% bonus which is the minimum under the provisions under which the employer is obliged to pay irrespective of profit or loss within 8 months from the close of the accounting year. There is, therefore, hardly any dispute regarding the quantum of bonus. As regards the second point concerning the applicability of the Payment of Bonus Act to the concern of the opposite party, since the concern of the opposite party does not fall under the definition of establishment in public sector as given in Section 2(16) of the Payment of Bonus Act, there is no question of applicability of the Payment of Bonus Act. Section 22 is not attracted to the concern of the opposite party because the concern of the opposite party does not fall under the definition of establishment in public sector but is a private sector to which Section 22 will have no application. 29. These remarks which we have deliberately reproduced in extenso and which constitute the sole reasoning of the Authority show that it failed to grasp the effect of Section 22 altogether. In the first place we have show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is reiterated in that order also in paragraphs 16 and 17 of the judgment, though the manner of consideration of the two points is different. In this case the Authority said Section 22 refers to the application of the Act only in connection with establishments in public sector. Only then a dispute as to application of the Act would be deemed to be an industrial dispute under Section 22. Admittedly the Pratap Company is not an establishment in the public sector as defined by Section 2(16) of the Bonus Act . The Authority again failed to notice the first clause and the fact that the clause is separated from the second clause by the disjunctive or . 31. With regard to the latter judgment (in Pratap Spinning. Weaving and Manufacturing Co.'s case) we may say that the Authority gave some further reasons as can be seen from the following observations at the end of paragraph 16: Section 32 conceives of the non-application of the Act to certain classes of employees. Certainly this is far removed from the question of application of the Act under Section 20. We have already dealt with this point but we must say that these observations amount to an incorrect reading o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment of wages and we do not think that when the amendment speaks of matters incidental it meant to include within the ambit of the jurisdiction of the payment of wages authority substantial questions as to the applicability of the Act or as to the applicability of exemptions created under the Act and similar other questions especially where complicated questions of law or fact arise. Despite the amendment we think the decision of the Supreme Court in (1969)ILLJ762SC and the principle laid down there would still govern the present case. So long as any complicated question of law or fact is likely to arise, even though incidental , the matter cannot be tried by the payment of wages Authority, See para 10 at p. 596 of the report. For these reasons we are of the opinion that the payment of wages authority would not have jurisdiction to try the question raised in these two petitions before us and that the decisions of the authorities overruling the objection as to jurisdiction raised by the employers, were incorrect. 34. Then we turn to the third and the most important objection raised on behalf of the employers. The objection in both the cases was on the basis of the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aged in a manner highly detrimental to public interest and therefore action was being taken. The nature of the action is important. It was ordered as follows: now therefore in exercise of the powers conferred by Section 18-A of the said Act the Central Government hereby authorises Shri M.D. Bhat (hereinafter referred to as the authorised controller) to take over the management of the whole of the said undertaking, namely, the India United Mills Ltd., Bombay, subject to the following terms and conditions, namely:-- (i) the Authorised Controller shall comply with all directions issued from time to time by the Central Government; (ii) the Authorised Controller shall hold office for five years....... By the second notification issued on the 26th of March 68 by which another authorised controller Shri S.D. Mehta was appointed, none of the provisions of the previous notification were affected and it continued to remain in force. Similarly in the Pratap Mills case the notification dated 4th March 1963 made identical recitals and an almost identical order. That notification was followed by a further notification dated 4th March 1968 whereby the term of the authorised c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers or directors are deemed no longer to be managers or directors. They are deemed to have vacated their offices. The consequence is drastic in the extreme. From the moment the notification is issued its effect is automatic and those in charge of the management particularly the directors cease to be directors altogether. Similarly under Clause (b) of Section 18-B(1) any contract of management between the industrial undertaking and any managing agent or any director thereof holding office as such immediately before the issue of the notified order shall be deemed to have been terminated . Once again by a fiction a contract which is in existence is directed to be deemed not to be in existence. Under Clause (e) a further substitution takes place. In place of the directors the authorised controller is substituted. Clause (e) provides that the persons, if any, authorised under Section 18-A to take over the management of an industrial undertaking which is a company shall be for all purposes the directors of the industrial undertaking duly constituted under the Indian Companies Act, 1913, and shall alone be entitled to exercise all the powers of the directors of the Industrial undert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, shall not have any power to give any other person any directions under this section inconsistent with the provisions of any Act or instrument determining the functions for the authority carrying on the undertaking except in so far as may be specifically provided by the notified order . It is this sub-section which establishes the nexus between the Central Government and the industrial undertaking taken over. It provides affirmatively that the authorised controller who has been appointed in the present case must exercise his functions in accordance with the directions given by the Central Government and negatively that he shall not have power to give any other person any directions under this section inconsistent with the provisions of any Act or instrument determining the functions the authority carrying on the undertaking except in so far as be specifically provided by the notified order . Thus we may again stress that the memorandum and articles of association of the industrial undertaking are effectively and substantially put an end to by the use of the words notwithstanding anything contained in the memorandum and articles of association . These being the matte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hare-holders to pass resolutions because it says that no resolution passed at any meeting of the share-holders can be given effect to unless approved by the Central Government. This in itself shows to what extent the control of the Central Government is established. Lastly even assuming that the share-holders pass a resolution to wind up the company, which of course would under Clause (b) be ineffective without sanction still no proceeding for the winding up of the undertaking or for the appointment of a receiver can lie in any court except with the consent of the Central Government. 42. Such is the drastic effect and the vast power assumed by the Central Government and partially conferred upon the authorised controller functioning under the authority of the Central Government. It is clear that the principal officers of the company namely the manager and the director are wiped out of existence and the authorised controller substituted. The plenary body which usually has the plenary authority in a company, and appoints the directors viz. the share-holders is no doubt continued but it is an ineffective and powerless body of share-holders, for they cannot discharge their main func ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to apply to such undertaking in the same manner as it applied thereto before the issue of the notified order under Section 18-A. No doubt the Companies Act continues to apply but the conditions and limitations with which its operation is circumscribed are so numerous and drastic as to make the solemn statement that the Indian Companies Act shall continue to apply to such undertaking in the same manner as it applied thereto before the issue of the notified order under Section 18-A , more or less chimerical. As we have shown, every vestige and substance of power is taken away under the provisions of Sections 18-B and 18-E. The directors cease to function, the shareholders cannot pass effective resolutions unless approved by the Central Government; the share-holders cannot appoint directors under any circumstances; the authorised controller is given the control and management in place of the directors, and no proceeding for winding up can lie even though resolutions are passed to that effect without the consent of the Central Government. What remains of the powers of the directors of the company after these provisions come into operation, it is difficult to envisage. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter and in every respect in which the authorised controller can act in the management of the company it is the Central Government who is the authority to issue directions or to control his actions. He is therefore the person authorised and not an agent of Government. The establishment therefore, it must be held, is being carried on directly under the authority of a department of the Central Government. The argument moreover ignores the distinction drawn by the section itself by the use of the words by and under in contradistinction to each other. 47. The view we have taken is supported by the principles laid down in two of the cases which were referred to Abdul Rehman Abdul Gafur v. E. Paul (1962)IILLJ693Bom (decision of a single Judge of this Court) and Secretary, Indian Naval Canteen Control Board, New Delhi v. Industrial Tribunal, Ernakulam AIR1966Ker94 , though upon the facts a contrary conclusion was reached. In both these cases dealing with the identical phrase under the authority of the Central Government to be found in the definition of appropriate Government in Section 2(a)(i) of the Industrial Disputes Act, the Court held that the phrase means and is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred to the Industrial Tribunal by the Government of the State of Bihar and the reference was challenged on the ground that the appropriate Government who made the reference under Section 10 of the Industrial Disputes Act was the Central Government and not the State Government. In the Industrial Disputes Act appropriate Government is defined in Section 2(a)(i) in relation to any Industrial dispute concerning any industry carried on by or under the authority of the Central Government. The question was whether the Heavy Engineering Corporation Ltd. was an industry carried on by or under the authority of the Central Government. The Supreme Court pointed out that the company and its shareholders were continuing to function as a company and they constituted distinct entities. They held that the mere fact that the entire share capital of the Heavy Engineering Corporation Ltd., Ranchi, was contributed by the Central Government and the fact that all its shares were held by the President and certain officers of the Central Government made no difference and that the industry was not being carried on by or under the authority of the Central Government. The circumstances here are as we ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut the authorised controller is substituted as a director and is In the real management and control and the memorandum and articles of association of the company are either abrogated or modified to a very substantial measure. The distinction between that case and the present serves to emphasise that the present undertakings are being carried off under the authority of a department of the Central Government. 49. Another aspect of the same point was stressed on behalf of the employers--and we think very rightly. Under the provisions of the Companies Act the management and control which the directors exercise is exercised for the benefit of the share-holders of the company. This is clear upon the authorities. The principle is found stated in Palmer's Company Law, 21st Edition, page 530 under the heading in whose interest the powers have to be exercised. The Second Savoy Hotel Investigation and is thus stated in Gower's Principles of Modern Company Law, 3rd Edition, page 521. But what exactly is meant by saying that they must act in the interests of the company? Despite the: separate personality of the company it is clear that directors are not expected to act on the basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the benefit of the share-holders it is clear that the very fundamental principle involved in the constitution and functioning of companies has been given a go-by by the provisions contained in Chapter III-A of direct management and control of industrial undertakings by the Central Government. It can hardly therefore be said that the company qua company continues to exist in its pristine form though the mere outward shell or legal form of it is by Sub-section (2) of Section 18-B made to continue. This itself illustrates powerfully that the company is not being carried on as a company but is carried on for a completely different purpose under the authority of a department of the Central Government. We hold that Section 32, Sub-clause (iv) applies to both these companies and that they would therefore be exempt under that provision from the provisions of the Payment of Bonus Act. Nothing contain-in the Act would therefore apply to them. The Payment of Wages Authority therefore went wrong in granting the claims of the workmen in both the cases. 50. Some contentions raised on behalf of the employees may now be noticed. It was urged first of all that when Clause (iv) of Section 32 use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the Act never contemplated applying this provision to an industry but only to an establishment. It purports to be an Act for the payment of bonus to persons employed in certain establishment and for matters connected therewith and the main object and purpose of the Act also reinforces the construction which we have placed upon Clause (iv) of Section 32. 51. In order to get out of the impact of Clause (iv) of Section 32 an attempt was further made to limit the applicability of Section 32, Clause (iv) by saying that the provisions of Chapter III-A, particularly Sections 18-A, 18-B and 18-E to which we have referred, were all provisions which confer powers which were merely supplementary to the normal powers under the Companies Act such as for instance, the power of the Central Government under Sections 408 and 409 of the Companies Act and that therefore the company qua company continues to have the normal powers of control enjoined by the Central Government. We cannot appreciate such an argument because the powers conferred upon the Central Government under Sections 408 and 409 of the Companies Act are in no way comparable to the powers assumed by the Central Government under ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
