TMI Blog1966 (8) TMI 64X X X X Extracts X X X X X X X X Extracts X X X X ..... te of 4 @ of the salary or wages or ₹ 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 ₹ 40/- whichever is higher. With special leave, the employers have appealed to this Court and they challenge the validity of the Payment of Bonus Act, 1965, which replaced Ordinance 3 of 1965, and especially of the provisons under which bonus at minimum rate is made payable under the Act. Writ Petitions Nos. 3 of 1966 and 32 of 1966 are filed by two public limited companies. They challenge diverse provisions of the Act and contend that they are not liable to pay bonus under the machinery prescribed by the Act. A synopsis of the development in the industrial law which led to the enactment of the Payment of Bonus Act, 1965 will facilitate appreciation of the questions argued at the Bar. Claims to receive bonus, it appears, were made by industrial employees for the first time in India in the towns of Bombay and Ahmedabad, after the commencement of the First World War when as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... men;([1957] S.C.R. 33) Sree Mennakshi Mills Ltd. v. Their Workmen:( [1958] S.C.R. 878) and The State of Mysore v. The Workers of Kolar Gold Mines.([1959] S.C.R. 895) The Court did not commit itself to acceptance of the formula in its entirety, but ruled that bonus is not a gratuitous payment made by the employer to his workmen, nor a deferred wage, and that where wages fall short of the living standard and the industry makes profit part of which is due to the contribution of labour, a claim for bonus may legitimately be made by the workmen. The Court however did not examine the propriety nor the order of priorities as between the several charges and their relative importance, nor did it examine the desirability of making any variation, change or addition in the Formula. These problems were for the first time elaborately considered by this Court in the Associated Cement Companies Ltd. v. Its Workmen.([1959] S. C. R. 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 cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailable surplus of profits determined in accordance with the Full Bench Formula which should be taken into account only in distributing the available surplus between workmen, industry and employers. The formula it is clear was not based on any strict theory of legal rights or obligations: it was intended to make an equitable division of distributable profits after making reasonable allocations for prior charges. Attempts made from time to time to secure revision of the Formula failed before this Court. In the companies case,(1) this Court observed: The plea for the revision of the formula raised an issue which affects all industries; and before any change is made ill it, all industries and their workmen would have to be heard and their pleas carefully considered. It is obvious that while dealing with the present group of appeals, it would be difficult, unreasonable and inexpedient to attempt Such a task. But the Court threw out a suggestion that the question may be comprehensively considered by a high-powered Commission , this suggestion was repeated in The Ahmedabad Miscellaneous Industrial Workers Union v. Ahmedabad Electricity C.,). Ltd.([1962] 2 S.C.R. 934) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us should be 4% of the total basic wage and dearness allowance paid during the year or ₹ 40/- to each worker, whichever is higher, and in the case of children the minimum should be equivalent to 4% of their basic wage and dearness allowance, or ₹ 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 % of the total basic is wage and dearness allowance paid during the year : that the bonus formula proposed should be deemed to include bonus to employees drawing a total basic pay and dearness allowance up to ₹ 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 ₹ 750 per month shall be limited to what it would be if their pay and dearness allowance were only ₹ 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 un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gislative power. Parliament has normally power within the frame-work of the Constitution to enact legislation which modifies principles enunciated by this Court as applicable to the determination of any dispute, and by exercising that power the Parliament does not perpetrate fraud on the Constitution. An enactment may be charged as colourable, and on that account void, only if it be found that the legislature has by enacting it trespassed upon a field outside its competence: K. C. Gajapati Narayan Deo and Ors. v. The State of Orissa([1954] S.C.R. 1). The provisions of the Act and its scheme may now be summarised. The Payment of Bonus Act was published on September 25, 1965. By s.1(4) save as otherwise provided in the Act, the provisions of the Act shall, in relation to a factory or other establishment to which the Act applies, have effect in respect of the accounting year commencing on any day in the year 1964 and in respect of every subsequent accounting year. Section 2(4) defines allocable surplus as meaning (a) in relation to an employer, being a company (other than a banking company) which has not made the arrangements prescribed under the Income-tax Act for the declarati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hird Schedule. Section 7 deals with calculation of direct taxes payable by the employer for any accounting year for the purpose of cl.(c) of s. 6. Sections 8 9 deal with eligibility for and disqualifications for receiving bonus. Sections 10 to 15 deal with payment of minimum and maximum bonus and the scheme for set-on and set-off . Every employer is by s.10 bound to pay to every employee in an accounting year minimum bonus which shall be four per cent. of the salary or wage earned by the employee during the accounting year or ₹ 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 ₹ 25. By s. I I where in respect of any accounting year the allocable surplus exceeds the amount of minimum bonus payable the employer shall be bound to pay to every employee in the accounting year bonus which shall be an amount proportionate to the salary or wage earned by the employee during the accounting year, subject to a maximum of twenty per cent of such salary or wage. Section 15 provides that if for any accounting year the allocable surplus exceeds the amount of maximum bonus payable to the emp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rresponding law, or where it is pending before the Conciliation officer or for adjudication. By s. 34(1) the provisions of the Act are declared to have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in the terms of any award, agreement, settlement or contract of service made before May, 29, 1965. Sub-s. (2) of s. 34 makes special overriding provisions regarding payment of bonus to employees computed as a percentage of gross profits reduced by direct taxes payable for the year, (subject to the maximum prescribed by s.11), when bonus has been paid by the employer to workmen in the base year as defined in Explanation 11. By s. 36 the appropriate Government is authorised, having regard to the financial position and other relevant circumstances of any establishment or class of establishments, to exempt for such period as may be specified therein such establishment or class of establishments from all or any of the provisions of the Act, and by s. 37 power is conferred upon the Central Government by order to make provision, not inconsistent with the purposes of the Act, for removal of difficulties or doubts in giving eff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h first. It is true that several classes of employees set out in cls. (i) to (xi) of s. 32 are excluded from the operation of the Act. But 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 s. 32 which excludes from the operation of the Act certain specified classes of employees can be determined. There is a presumption of constitutionality of a statute when the challenge is founded on Art. 14 of the Constitution, and the onus of proving unconstitutionality of the statute lies upon the person challenging it. Again many classes of employees are excluded by s. 32 and neither those employees, nor their employers, have been impleaded before us. Each class of employees specified in s. 32 requires separate treatment having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authority. Sub-section (2) of s. 37 which purports to make the order of the Central Government in such cases final accentuates the vice in subs. (1), since by enacting that provision the Government. is made the sole judge whether difficulty or doubt has arisen in giving effect to the provisions of the Act, whether it is necessary or expedient to remove the doubt or difficulty, and whether the provision enacted is not inconsistent with the purposes of the Act. We may now turn to the challenge to s. 10. Under the Full Bench Formula bonus being related to available surplus it can only be made payable by an employer of an establishment who makes profit in the accounting year to which the claim for bonus If no profit was made there was no liability to pay bonus. As pointed out by this Court in Muir Mills Company s case ( [1955] S. C. R. 991) : 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 n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... constitutional limits to modify the Full Bench Formula even after it has received the approval of this Court. It was urged, however, that exercise of that power by treating establishments inherently dissimilar as in the same class and subject to payment of minimum bonus amounted to making unlawful discrimination. It was said that establishments which suffered losses and establishments which made profits; establishments paying high rates of wages and establishments paying low rates of wages; establishments paying bonus-added wages and establishments paying ordinary wages; establishments paying higher dearness allowance and establishments paying lower dearness allowance, do not belong to the same class, and by imposing liability upon all these establishments to pay bonus at the statutory rate not below the minimum irrespective of the differences between them, the Parliament created inequality. It was also submitted that by directing establishments passing through a succession of lean years in which losses have accumulated and establishments which had made losses in the accounting year alone, to pay minimum bonus, unlawful discrimination was practised. Section 10 at first sight ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or payment of minimum bonus cannot be said to be discriminatory between different establishments which are unable on the profits of the accounting year to pay bonus merely because a uniform standard of minimum rate of bonus is applied to them. The judgment of this Court in Kunnathat Thathunni Moopil Nair v. The State of Kerala and Another,([1961] 3 S.C.R. 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 s case(1) the validity of the Travancore-Cochin Land Tax Act, 1955, was challenged. By s. 4 of the Act all lands in the State, of whatever description and hold under whatever tenure, were charged with payment of land tax at a uniform rate to be called the basic tax. Owners of certain forest lands challenged certain provisions of the Act pleading that those provisions contravened Arts. 14, 19(1) (f) and 31(1) of the Constitution. This Court held that the Act which obliged every pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not earned profit is clearly enacted to ensure the object of the Act. Whether the scheme for payment of minimum bonus is the best in the circumstances, or a more equitable method could have been devised so as to avoid in certain cases undue hardship is ir-relevant to the enquiry in hand. If the classification is not patently arbitrary, the Court will not rule it discriminatory merely because it involves hardship or inequality of burden. With a view to secure a particular object a scheme may be selected by the Legislature wisdom whereof may be open to debate; it may even be demonstrated that the scheme is not the best in the circumstances and the choice of the Legislature may be shown to be erroneous, but unless the enactment fails to satisfy the dual test of intelligible classification and rationality of the relation with the object of the law, it will not be subject to judicial interference tinder Art-14. Invalidity of legislation is not established by merely finding- faults with the scheme adopted by the Legislature to achieve the purpose it has in view. Equal treatment of unequal objects, transactions or persons in not liable to be struck down as discriminatory Unless there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... V of 1947) or under any corresponding law relating to investigation and settlement of industrial disputes in a State, then, the bonus shall be payable in accordance with the provisions of this Act in relation to the accounting year to which the dispute relates and any subsequent accounting year, notwithstanding that in respect of that subsequent accounting year no such dispute was pending. Explanation.-A dispute shall be deemed to be pending before the appropriate Government where no decision of that Government on any application made to it under the said Act or such corresponding law for reference of that dispute to adjudication has been made or where having received the report of the Conciliation Officer (by whatever designation known under the said Act or law, the appropriate Government has not passed any order refusing to make such reference. The section plainly seeks to apply the provisions of the Act to a pending dispute, if the dispute relates to payment of bonus for any accounting year not being an accounting year earlier than the accounting year ending on any day in the year, 1962, and is pending on May 29, 1965 before the Government or other authority under the Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of that expression in the Industrial Disputes Act will apply: vide s. 2(22). The expression industrial dispute under the Industrial Disputes Act inter alia means a dispute or difference between employer and workmen which is connected with the employment or non-employment or the terms of employment or with the conditions of labour, of any person: s. 2(k) : and the expression workmen is defined in s. 2(s) of the Industrial Disputes Act means any person (including an apprentice) employed in any industry to do any skilled or unskilled manual, supervisory, technical or clerical work for hire or reward,. . . . . but does not include any such person- (i) ..................... (ii) ..................... (iii) who is employed mainly in a managerial or administrative capacity; or (iv) who, being employed in a supervisory capacity, draws wages exceeding five hundred rupees per mensem or exercises, either by the nature of the duties attached to the office or by reason of the powers vested in him, functions mainly of managerial nature. Therefore no dispute relating to bonus between an employer and persons employed in managerial or administrative capacity or persons emplo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act; (3) basis of the computation of gross profits, available surplus and bonus is completely changed; (4) the scheme of set on and set off prescribed by s. 15 of the Act becomes operative and applies to establishments as from the year in respect of which the bonus dispute is pending; and (5) the scheme of the Act operates not only in respect of the year for which the bonus dispute was pending, but also in respect of subsequent years for which there is no bonus dispute pending. If therefore in respect of an establishment there had been a settlement or an agreement for a subsequent year, pendency of a dispute for an earlier year before the authority specified in S. 33 is sufficient to upset that agreement or settlement and a statutory liability for payment of bonus according to the scheme of the Act is imposed upon the employer. Application of the Act retrospectively therefore depends upon the pendency immediately before May 29, 1965, of an industrial dispute regarding payment of bonus relating to any accounting year not earlier than the year ending on any day in 1962. If there be no such dispute pending immediately before the date on which the Act becomes operat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attracted: if the dispute is pending before this Court in appeal or before the High Court in a petition under Act. 226, the provisions of the Act will not apply. It is difficult to perceive any logical basis for making a distinction between pendency of a dispute relating to bonus for the years in question before this Court or the High Court, and before the Industrial Tribunal or the appropriate Government. This Court is under the Constitution competent to hear and decide a dispute pending on May 29, 1965 relating to bonus as a Court of Appeal, but is not required to apply the provisions of the Act. If 3 because of misconception of the nature of evidence or failure to apply rules of natural justice or misapplication of the law, this Court sets aside an award made by the Industrial Tribunal and remands the case which was pending on May 29, 1965, for rehearing, the Industrial Court will have to deal with the case under the Full Bench Formula and not under the provisions of the Act. The High Court has also jurisdiction in a petition under Art. 226 to issue an order or direction declaring an order of the Industrial Tribunal invalid, and issue of such writ, order or direction will ordina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion shall entitle any employee to be paid bonus exceeding twenty per cent of the salary or wage earned by him during the accounting year : Provided further that if in any accounting year the allocable surplus computed as aforesaid exceeds the amount of maximum bonus payable to the employees in the establishment under the first proviso, then, the provisions of section 15 shall, so far as may be apply to such excess. Explanation I.-For the purpose of this sub-section, the total bonus in respect of any accounting year shall be deemed to be less, than the total bonus paid or payable in respect of the base year if the ratio of bonus payable in respect of the accounting year to the gross profits of that year is less than the ratio of bonus paid or payable in respect of the base year to the gross profits of that year. Explanation II.-In this sub-section, (a) base Year means- (i) in a case where immediately before the 29th May, 1965, Any dispute of the nature specified in section 33 was pending before the appropriate Government or before any. Tribunal or other authority under the Industrial Disputes Act, 1947 (XIV of 1947), or under any corresponding law relating to investigation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of that year.Under the Full Bench Formula bonus Was determined as a percentage is of the gross profits minus prior charges. Under S.5 of the Act available surplus of which the normal allocable surplus is a percentage is determined by deducting from the gross profits of the year the four heads of charges items which are referred to under s. 4-depreciation, development rebate or development allowance, direct taxes and other sums specified in the Third Schedule. -But in applying the scheme under s. 34 only the direct taxes are debited. Bonus which becomes payable under s. 34(2) is therefore not worked out as a percentage of the available surplus, but as a fraction of gross profits computed according to the special formula. The expression base year is also a variable unit: in any case where a dispute of the nature specified in s. 33 is pending immediately before May 29, 1965, before the authorities specified in s. 33, the accounting year immediately preceding the accounting year to which the dispute relates is the base year : in other cases a period of twelve months immediately preceding the accounting year in respect of which the Act becomes applicable to the establishment, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and gross profit would reach infinity : in cases where the gross profits were small and substantial amounts were paid or became payable by way of bonus, the ratio may become unduly large. These are not cases hypothetical but practical, which had arisen in fact, and application of the ratio irrevocably fixes the liability of the establishment to set apart year after year large amounts whether the establishment made profits or not towards allocable surplus. Payment of bonus by agreement was generally determined not by legalistic considerations and not infrequently generous allowances were made by employers as bonus to workmen to buy peace especially where 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ell as employees and the freedom of equal protection of the laws becomes chimerical, if the only ground in support of the validity of a statute ex facie discriminatory is that the Parliament intended, inconsistently with the very concept of bonus evolved by it, to maintain for the benefit of labour an advantage which labour had obtained in an earlier year based on the special circumstances of that year, without any enquiry Whether that, advantage may reasonably be granted in subsequent years according to the principle evolved by it and for securing the object of the Act. If the concept of bonus as allocation of an equitable share of the surplus profits of an establishment to the workmen who have contributed to the earning has reality, any condition that the ratio on which the share of one party computed on the basis of the working of an earlier year, without taking into consideration the special circumstances which had a bearing on the earning of the profits and payment of bonus in that year, shall not be touched, is in our judgment, arbitrary and unreasonable. The vice of the provision lies in the imposition of an arbitrary ratio governing distribution of surplus profits. In our v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndustrial dispute concerning a claim for bonus for the years 1961, 1962 raised by the workmen of the Company represented by the Mill Mazdoor Sabha, Bombay (respondents). The Sabha gave notice of change on May 13, 1963 and demanded 25 % of the total wages as bonus for each of the two years. This demand was refused by the employers on the ground, among others, that there was no surplus as the Company was carrying forward a big loss. Conciliation was tried but failed and a reference was made by the Sabha to the Industrial Court, Maharashtra, Bombay under 73-A of the Bombay Industrial Relations Act. While this reference was pending the Payment of Bonus Ordinance oil 29th May, 1965 came into force. Applying s. 10 of the Ordinance, the Industrial Court awarded for the year 1962, 4 % of the total salary or wage or ₹ 40/- (whichever was greater) to the workmen entitled under the Ordinance, regardless of the absence of profit and set down the dispute concerning 1961 for trial. In this appeal, by special leave against the said order the validity of s. 10 of the Payment of Bonus Act, which received the assent of the President on 25 September 1965 and replaced the Ordinance with a few c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the acceptance of bonus equal to one month s wages, with a tacit understanding that this payment could be more if profit allowed. The second had to be referred to a Committee presided over by Chief Justice Macleod of Bombay. The Committee found no legal foundation for the claim especially when there were no profits. During the Second World War the question of dearness allowance was raised but it included consideration of bonus etc. A Board of Conciliation with Mr. Justice Rangnekar as Chairman, awarded -/2/- per person per day as dearness allowance but that was obviously a there nothing. Therefore, at the intercession of Government a cash bonus of 12-1/2% of Wages (that is to say, As. -/2/- per rupee of wage) was agreed upon and given to workmen. Bonus was thereafter paid voluntarily for a number of years and was the result, by and large, of agreements of some sort. When the law enjoining compulsory reference to adjudication of trade disputes came the question of bonus, as did many others, reached the courts and the claim for bonus became an industrial claim and had to be settled on some tangible principle. Various reasons were advanced to justify the legality of the claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and recommended the establishment of a Commission. At the second and third meetings of the 18th Session of the Standing Labour Committee in 1960 the proposal to establish a Commission was considered and was agreed upon. As a result the Government of India, on December, 6, 1961, appointed a Commission under the Chairmanship of Mr. M. R. Meher. The Commission made its recommendations and they were accepted by Government, with some modifications, by Resolution dated September, 2, 1964. The Bonus Ordinance as well as the Bonus Act were passed to implement the recommendations accepted in the Government s Resolution. The Full Bench Formula, although not legislatively recognised was binding as a decision of the courts. In essence it was only a workable solution. it satisfied neither the employers nor the workmen. Disputes continued even though the Formula was generally adhered to. The workmen, while conceding that rehabilitation was necessary, used to represent that large sums deducted from the gross profits as rehabilitation reserves were not spent for that purpose. Often enough this was true. They also used to dispute the reserves, used as working capital and asked the employers t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se bonus was treated as expenditure under the Indian Income-tax Act and some saving to the employers was likely to result. The Commission suggested a 7 % return on paid-up capital and a 4% return on reserves employed as capital. The balance left after these deductions was the available surplus from which 60% was to be paid as bonus to workmen and 40% was to be retained by the employers. The Commission also suggested that the employers must pay a minimum bonus equal to 4 % of the total basic wage and dearness allowance or ₹ 40% (whichever was greater) to each workman whether the allocable surplus permitted it or not and also set a ceiling on bonus by providing that not more than 20% of the total basic wage and dearness allowance bill may be paid as bonus in any year. If there were no profits or if profits could allow payment of bonus more than the 20% maximum, a principle of set oil and set off was devised. The amount paid out as minimum bonus or the extra over and above the 20% maximum had to be carried forward to future years to be set on or set off. against the profits in those years. In this way the payment of minimum -bonus when no bonus was payable, was made less oner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... locable surplus in relation to a company (other than a banking company), which has not made arrangements prescribed under the Indian Income-tax Act for the declaration of payment within India of the dividends payable out of its profits in accordance with the provisions of s. 194 of that Act, means 67% of the available surplus in the accounting year and in any other case 60% of the available surplus including any amount treated as available surplus under s. 34(2) to be mentioned hereafter. Direct tax means any tax chargeable under the Indian Income-tax Act, the Super Profits Tax Act, 1963, the Companies (Profits) Surtax Act, 1964, the agricultural income-tax law, and any other tax declared to be a direct tax. Employer means a person employed on a salary or wage which does not exceed ₹ 1,600/- per month. Salary or wage means all remuneration (other than remuneration in respect of overtime work) capable of being expressed in terms of money, including dearness allowance but not including any other allowance or amenity such as house accommodation, supply of light, water, medical attendance or food-grain or other article or any travelling concession, bonus, contribution to P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad Office) in India. The deduction varies in respect of banking companies, corporations, co-operative societies, licencees under the Electricity Supply Act, 1948 and other employers. After these deductions are made and the available surplus is determined the allocable surplus (either 67% or 6O%, as the case may be) is payable as bonus. The amount so payable is subject to an upper and a lower limit determined in relation to salary or wage of the workmen qualified to receive it. Under s. 10 every workman is entitled to receive 4% or ₹ 40 (in the case of children below 15 years ₹ 25) whichever be greater, whether there are profits in the accounting year or not. Under s. 11 the total amount payable as bonus in any accounting year may Dot exceed 20 % of the total salary or wage bill. Although bonus is payable to employees drawing salary or wage up to ₹ 1600 per month, the amount of bonus in any case cannot exceed the amount payable to a person whose salary or wage is ₹ 750 per month. Bonus is payable proportionately to the number of days on which the workman works. The principle of set on and set off of allocable surplus, as laid down by s. 15, has been ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h May,, 1965 when the Ordinance was promulgated. The, payment of bonus is now legislatively recognised and the Full Bench Formula is not only altered but it Is to be seen that payment of some bonus is compulsory and the payment in any year lies within two terminii of minimum and maximum bonus established by the Act. The calculation of bonus becomes almost mechanical and, therefore, disputes are less likely to take place. But the Act, although the result of a tripartite deliberation, has not-satisfied the employers generally. They object to some of its provisions on various grounds and we shall now proceed to examine them. The first attack is on the provision for minimum bonus in s. 10 irrespective, of profits. It is submitted that a concept of minimum bonus, unrelated to profits, makes the payment an accretion to wages and leads indirectly to the erosion of capital since such payment. if it does not come from profits, must come from reserves or capital. The provision is thus said to be a fraud on the Constitution or a colourable exercise of power conforming neither to the accepted concept of bonus nor to the principles on which minimum wages are fixed. Section 10 is also sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lfare of labour including conditions of work and wages. The legislation is therefore neither a fraud on the Constitution nor a colourable exercise of power. Under any of these powers, or all of them viewed together, the fixation of minimum bonus is legal and if these topics of legislation were found to be insufficient the residuary power of Parliament must lend validity to the enactment. The validity of arguments about the integration of dearness allowance with wage to determine the quantum of bonus depends on how wages can be viewed today. Labour considers dearness allowance to be as fundamental as wage and, in fact, we have heard repeated pleas for the merger of dearness allowance in minimum wage. In our opinion, dearness allowance must obviously stay -on till at least the need-based wage is reached. The gap between the actual wage and the need-based wage tends to widen as time passes unless the wage and/or dearness allowance are revised to obtain significant neutralization of the cost of living at any given moment of time. It may be that in some industries dearness allowance does, to an appreciable extent, neutralize the cost of living but such companies would hardly be requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prosperous, but this Court did not strike down the Minimum Wages Act on that ground. In our judgment the provision for payment of 15 days wages to workmen as bonus irrespective of profits is a measure well-designed to keep industrial peace and to make way for the need-based wage which the Tripartite Conference emphasised. Some unequal treatment can always be made to appear when laws apply uniformly. Two establishments cannot be so alike as the hypothetical examples taken before us suggested. Differences must exist but that does not prevent the making of uniform laws for them provided the law made has a rational relation to the object sought to be achieved and the inequality is trivial and hypothetical. Classification can only be insisted upon when it is possible to classify, and a power to classify need not always be exercised when classification is not reasonably possible. In our judgment s. 10 does not lead to such inequality as may be called discrimination. It is next contended that s. 32 creates inequality because it excludes II kinds of establishments from the operation of the Act At first sight a provision calculated to exclude a few selected establishments from an ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tension (to Tehri Garhwal) Order, Taxation of Laws (Merged States) (Removal of Difficulties) Order, 1949 and Art. 392 of the Constitution. As a legislative practice this is not new and the fact that one provision is in the Constitution and in some other the order has to be laid on the table of Parliament, makes no difference. The Constituent Assembly gave the power to Government but in this respect as in respect of powers of amendment, Parliament can do so again today. Nor have we got an Act about statutory orders such as in England. Much action under the Organisation of States Acts was taken under s. 128 and the rest of Part XI of the Act. That Section is in identical words. On this argument all the orders issued under these provisions must be treated as void. None has questioned any action so far. The functions so exercised are not legislative functions at all but are intended to advance the purpose which the Legislature has in mind. The power to pass an order of this character cannot be used to add to or deduct from that which the Act provides. The order only makes smooth the working of the Act particularly in its initial stages. This power is given to the Central Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respects. For this purpose the Act provides for two dates for its own commencement. Under s. 1(4) the provisions of the Act are to have effect from an accounting year commencing on any day in 1964 and in respect of every subsequent accounting year. But by ss. 33 and 34 the provisions are made applicable with some modifications in respect of accounting years earlier than the first accounting year mentioned in s. 1(4). To achieve this result sub-section (1) of s. 34 provides that the provisions of the Act (as modified by s. 34) shall apply, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in the terms of any award, agreement, settlement or contract of service made before the 29th May 1965. The Act then takes note of establishments which did not pay bonus in an accounting year earlier than the one mentioned in s. 1(4), establishments which either paid bonus in an earlier accounting year with or without a dispute but no dispute was pending on May 29, 1965, and establishments in which a dispute was pending on May 29, 1965 in regard to bonus in respect of a year not earlier than the accounting year ending on any day in 1962 alt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act so modified. In respect of establishments which had a history of payment but no dispute was pending on May 29, 1965 the provisions of s. 34(2) apply a special ratio between the allocable surplus and gross profits for the determination of the quantum of the amount available for payment of bonus. In this way, three distinct classes are created which may be summarized still further thus: (a) establishments without a history of prior bonus payment. To these section 1(4) applies; (b) establishments having a prior history of bonus payment with a dispute pending in respect of an accounting year not earlier than the accounting year ending, in the year 1962. To these establishments the provisions of the Bonus Act [as modified by s. 34(2)] apply, not only for the accounting year in respect of which the dispute was pending but also for subsequent accounting years; (c) establishments with a prior history of bonus payment without a dispute such as is mentioned in (b) above. To these the provisions of the Bonus Act apply as modified in s. 34(2). Section 34(2) takes note of the quantum of bonus paid by establishments in a base year. This base year is different in the case of est ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spute but all intervening years are brought under the Act even though there may be no dispute in those years. The object of the Bonus Act is to introduce a new uniform formula for calculation of bonus with limits of maximum and minimum and a principle of set on and set off to smoothen inequalities of payment over a number of years. One difficulty in the way of uniform law was the pendency of disputes at the time the Ordinance was promulgated. This would, of course, be the case whenever any law was introduced if a dispute was pending in respect of a prior year. There were two alternatives open. One was to leave the disputes to be decided by the Tribunals under the Full Bench Formula and the other was to apply the Act to the pending cases so that all decisions would be uniform and almost mechanical. If pending cases were to be treated as a class, special provision was required to deal with them. The Act chose to do away with the Fun Bench Formula from 1962. If it had been applied and no dispute was pending at all the matter was left there. For other cases there was a clear need for classification and classification was thus resorted to. Pending cases were brought under the Act. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e accounting year 1964. All such establishments were dealt with uniformly and there was no discrimination or inequality among them except what was said to arise from s. 10. That alleged inequality does not offend Art. 14 as we have already indicated above. In the second class were put cases in which a dispute was pending on May 29, 1965 (the date of the promulgation of the Ordinance). The dispute of which the Act took note was a dispute pending before Government or before a Tribunal or Authority under the Industrial law. No note was taken of cases pending before the High Courts and the Supreme Court because the jurisdiction of the High Courts and the Supreme Court is either supervisory or appellate and the intention was to cover cases in which no decisions of the authorities appointed under the law relating to industrial disputes was yet made. Disputes prior to 1962 were not taken note of because a date line had to be fixed and 1962 was the rational date to fix because the Bonus Commission began its deliberations in that year. Selection of this date is said to be arbitrary. In several statutes a date is generally selected to demarcate pending cases and the selection of the date has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the past and fixes a ratio for all time to come is also not invalid. The Act was passed to make for greater certainty, for improving relations between the employers and the workmen and for the avoidance of disputes. It must not be forgotten that in many establishments the payment of bonus in the past was the result of collective bargaining and the advantage which labour had so achieved was not likely to be given up readily. Any legislation to be successful had to preserve, as far as possible, what labour considered to be its right in a particular establishment. For this purpose a base year for comparison had to be established. Section 34(2), therefore, laid down that the total bonus paid in any year should bear the same proportion to gross profits in the accounting year as did the bonus to the gross profits in the base year. Gross profit was, however, defined to mean gross profit minus direct taxes only. This obviously gave an advantage to the employers because the proportion was bound to be less if depreciation and return on capital etc. were ignored. By establishing a base year and by insisting that the same proportion should be maintained in the payment of bonus the establishme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ruck down unless it offends a fundamental right. As the Bonus Act makes valid classifications and everyone in a class is equally treated, it is impossible to say that there is inequality. The arguments have taken examples of what are called similarly situated establishments in each class to show unequal treatment when it is obvious that the similarity is imaginary and even similarly situated establishment (if any there be) in different classes cannot be compared. The arguments have not faced the question of classification but have been extremely ambiguous. For example it was even suggested that the ratio between profits and allocable surplus in a base year might be infinity if there was no profit, overlooking the simple fact that existence of profit is a condition precedent to the finding of the ratio. On this kind of reasoning the provisions of S. 10 were also attacked which we have explained are not affected. Our bretheren have struck down sections 33, 34 and 37, but have upheld the other sections. We are, however, of opinion that if Parliament can legally, constitutionally, and validly order payment of bonus according to its formula, fix minimum bonus without profits, fix a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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