# INDIA v. THE WORKMEN

- **Citation:** [1969] 2 S.C.R. 706
- **Court:** Supreme Court of India
- **Decided:** 1968-11-15
- **Case number:** Civil Appeal No. 131 of 1968
- **Bench:** V. Bhargava, C. A. Vaidialingam
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/india-v-the-workmen-4585
- **Pages:** 21

## Headnote

Bonus-Ex-gratia payments made in
the past-Production bonus
scheme introduced_ eliminating ex-gratia payment-Option given to work~
nien_ to accept either previous or later-Claim for ex-gratia paymentStrike during conciliation pro~e_edings, if justified.
For the first year of production by a unit of the appellant Corporation
(a Central Government Undertaking), it granted ad hoc bonus for good
performanoe to . the unit's employees.
For the next year, the appellant
granted bonus as recommended by the Bonus Commission and also made
ex-gratiti payment for good performance. The ·appellant decided to pay
bonus for the third year, strictly in accordance with the Payment
of
Bonus Ordinance and the Act, which had come into force then.
The
Central Minister announced in the Lok Sabha that with the specific
approval of the Central Cabinet ex-gratia payments had been allowed in
the past by way of bonus to the employees and this was communicated
by the Government of India by a letter.
In the fourth year the production did not exceed the target, and the appellant offered to pay only the
statutory bonus under the Bonus Ordinance and Act ·and stated that a
production scheme had been introduced, that with the introduction of the
production bonus scheme all ex-gratia payments were eliminated and
that this scheme was approved by the Government of India. The workmen demanded that the bonus should be paid for the third and fourth
years at the same rate as it had been paid in previous years and the
appellant was bound to act according to the decision of the
Central
Cabinet and communicated by the letter. The workmen also stated that
if their demands were not met within 15 days, they would be forced
to adopt agitational approaches. Conciliation proceedings
started. The
appellant offered the workmen the option of either acoepting the Cabinet
decision or the production Bonus Scheme as formulated by the management. The workmen desired that the Cabinet's directions be made applicable to them, declined the offer to opt for the production bonus, and
prepared a draft of a letter which was intended to be sent by the workmen to the appellant stating that the offer was also made. The workmen
went on strike and the reference to adjudication was made.
The Tribunal
accepted the claim of the
workmen, and held
that the strike was
justified.
HELD : (i) The appellant failed to establish that production bonus
scheme was introduced with the consent and approval of the
Central
Government and that on its introduction the ex-grati.a payment of bonus
stood eliminated.
The evidence established that the Cabinet's decision was made known
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to the workmen, who were given the option either to accept the Cabinet
decision or the production bonus scheme as formulated by the appellant.
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So long as the Cabinet decision had been communicated and option was
given to the workmen, it did not matter at what .stage -the communication was made to the labour. The fact that the co.minuriication· of the
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FERTILIZER CORP. v. WORKMEN (Vaidialingam, J.) 707
Cabinet decision after the submission of the charter of demands was of
no con.sequence.
The striking down of s. 34(2) of the Bonus Act by this Court has
no bearing in considering the claim of the respondent in this case, When
once it was established, as this case, that the Cabinet decision regarding
ex-gratia payment of bonus had been communicated to the workmen with
an option to accept the said decision or the production bonus scheme
and the labour wanted the Cabinet decision to be implemented, it followed that an agreement, under s. 34(3) of the said Act h~d come
into
effect and it was valid. [720 E-Gl
Therefore, the workmen were entitled to ex-gratia payment of bonus
as in the previous years.
(ii) The management was prepared to pay at all times the bonus as
per the Bonus Act.
They had also announced the introduction of the
production bonus fcheme. They were actively taking part in the conciliation pr

## Text

_Characters 0–39,661 of 56,739. This is a partial read: ask again with offset=39661 for what follows._

MANAGEMENT OF ' FERTILIZER CORPORATION . OF
A
INDIA
v.
THE WORKMEN
November 15, 1968
(V. BHARGAVA AND C. A. VAIDIALINGAM, JJ.]
Bonus-Ex-gratia payments made in
the past-Production bonus
scheme introduced_ eliminating ex-gratia payment-Option given to work~
nien_ to accept either previous or later-Claim for ex-gratia paymentStrike during conciliation pro~e_edings, if justified.
For the first year of production by a unit of the appellant Corporation
(a Central Government Undertaking), it granted ad hoc bonus for good
performanoe to . the unit's employees.
For the next year, the appellant
granted bonus as recommended by the Bonus Commission and also made
ex-gratiti payment for good performance. The ·appellant decided to pay
bonus for the third year, strictly in accordance with the Payment
of
Bonus Ordinance and the Act, which had come into force then.
The
Central Minister announced in the Lok Sabha that with the specific
approval of the Central Cabinet ex-gratia payments had been allowed in
the past by way of bonus to the employees and this was communicated
by the Government of India by a letter.
In the fourth year the production did not exceed the target, and the appellant offered to pay only the
statutory bonus under the Bonus Ordinance and Act ·and stated that a
production scheme had been introduced, that with the introduction of the
production bonus scheme all ex-gratia payments were eliminated and
that this scheme was approved by the Government of India. The workmen demanded that the bonus should be paid for the third and fourth
years at the same rate as it had been paid in previous years and the
appellant was bound to act according to the decision of the
Central
Cabinet and communicated by the letter. The workmen also stated that
if their demands were not met within 15 days, they would be forced
to adopt agitational approaches. Conciliation proceedings
started. The
appellant offered the workmen the option of either acoepting the Cabinet
decision or the production Bonus Scheme as formulated by the management. The workmen desired that the Cabinet's directions be made applicable to them, declined the offer to opt for the production bonus, and
prepared a draft of a letter which was intended to be sent by the workmen to the appellant stating that the offer was also made. The workmen
went on strike and the reference to adjudication was made.
The Tribunal
accepted the claim of the
workmen, and held
that the strike was
justified.
HELD : (i) The appellant failed to establish that production bonus
scheme was introduced with the consent and approval of the
Central
Government and that on its introduction the ex-grati.a payment of bonus
stood eliminated.
The evidence established that the Cabinet's decision was made known
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to the workmen, who were given the option either to accept the Cabinet
decision or the production bonus scheme as formulated by the appellant.
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So long as the Cabinet decision had been communicated and option was
given to the workmen, it did not matter at what .stage -the communication was made to the labour. The fact that the co.minuriication· of the
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FERTILIZER CORP. v. WORKMEN (Vaidialingam, J.) 707
Cabinet decision after the submission of the charter of demands was of
no con.sequence.
The striking down of s. 34(2) of the Bonus Act by this Court has
no bearing in considering the claim of the respondent in this case, When
once it was established, as this case, that the Cabinet decision regarding
ex-gratia payment of bonus had been communicated to the workmen with
an option to accept the said decision or the production bonus scheme
and the labour wanted the Cabinet decision to be implemented, it followed that an agreement, under s. 34(3) of the said Act h~d come
into
effect and it was valid. [720 E-Gl
Therefore, the workmen were entitled to ex-gratia payment of bonus
as in the previous years.
(ii) The management was prepared to pay at all times the bonus as
per the Bonus Act.
They had also announced the introduction of the
production bonus fcheme. They were actively taking part in the conciliation proceedings. The appellant also made to the Union
certain
proposals at the conference which 'proposals' the representatives of the
workmen promised to discuss with the workmen and give a reply to the
appellant. But, at a meeting of the workmen next day, they were incited
to go on strike. The receipt of the telegram sent by the Labour Commissioner fixing a date for further discussions and inviting the Union and
the management to attend the meeting, was falsely denied by the Union.
The receipt of a telegram from a person representing the workmen at
conciliation meeting, requesting the Union to put off going on strike by
one day was admitted by the President of the Union, but that request
was not complied with by the workmen.
All these circumstances clearly
established that the demand of ~he Union regarding ex-gratia bonus
could not be considered to be of an 'urgent and serious nature'.
They
also showed that the launching of the strike was unjustified. [725 HJ
Therefore., the workmen were not entitled to any wages for the period
of strikei
CIVIL APPELLATE JURISDICTION:
Civil Appeal No. 131 of
1968.
Appeal by spei:ial leave from the Award dated December 8,
1967 of the Industrial Tribunal, Punjab in Reference No. 44 of
1966.
H. R. Gokhale, Anand Parkash,
J. B. Dadachanji,
K. P.
Bhandare and Bhuvnesh Kumari, for the appel!airit.
A. K. Sen, Rameshwar Nath and Mahinder Narain, for the
respondents.
The Judgment of the Court was delivered by
Vaidialingam, J. This. appeal, by special leave, is directed
against the award dated November 24, 1967 of the Industrial
Tribuual, Punjab, Chandigarh, in Reference No. 44 of 1966.
The President of India, by order dated October 31, 1966
referred the following issues for adjudication under s. lO(l)(d)
of the Industrial Disputes Act, 194 7 to the Industrial Tribunal,
Punjab, Chandigarh : ·
·
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SUPREME COURT ~EPORTS
[1969] 2 S.C.R.
"l. Whether the·workmen are justified in demanding
the minimum bonus payable for the years 1964-65,
1965-66 and future years being fixed @ Rs. 110/- and
the maximum @ Rs. 360/- per worker ? If so, with
what details ?
2. Whether the action of the management in treating 4 days advance bonus paid for the year 1965-66 as
deductible froni bonus payable in future years is justifield? If so, are any conditions or stipulations necessary and if so with what details ?
3. Whether there is any justification for making any
amendments in the production bonus-scheme introduced
by the management in such a way that it enables payment of bonus to the lower paid workers at higher
rates and higher paid workers at lower rates ? If so,
with what details ?
4. Whether the workers are entitled to any wages or
compensation for the period of strike viz., 12th October
to 31st October, 1966."
It may be stated at the outset that this Court is not concerned
with issue No. 3.
The question of introduction of production
bonus scheme arises only to a limited extent in so far as it has
got a bearing on a contention raised by the appellant that the
production bonus scheme has been introduced in substitution of
ex-gratia payment of bonus which was being made by the management. Even as regards the strike period mentioned in issue no.
· 4, · parties were agreed before the Tribunal that the period of
strike in respect of which wages or compensation were claimed
by the workmen was from 17th October to 31st October 1966
and not from 12th October as stated in the issue.
The circumstances under which the Reference came to be
made by the President of India may be stated.
The appellant
Fertiliser Co)'poration of India is a limited company incorporated
under th.e Companies Act, 1956 and it is also a Government
company, as defined in s. 617 of that Act.
The Nangal unit of
the appellant went into production for the first time during the
financial year 1962-63. On October 29, 1963, the appellant issued a Circ;ular regarding the grant of ad hoc bonus for the year
1962-63. The General Manager states, in this Circular that the
· management has sanctioned payment of ad hoc bonus to employees of Nangal unit for good performance during the year 1962-63
and. that bonus will· be payable to all employees who are on the
rolls of the Corporation on October 30, 1963 and had completed 1 year's service on March 31, 1963 and whose basic
salary on that date did not exceed Rs. 500/ - per mensem: · The
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FERTILIZER CORP. v. WORKMEN (Vaidialingam, J.)
709
Circular proceeds to state that the amount of bonus payable will
be 1 month's basic salary plus dearness allowance, subject to the
condition that no employee will get less than Rs. 100/- or more
than Rs. 300/-.
On December 17, 1964, the appellant issued a circular regarding the grant of bonus and ex gratia payment for the year
1963-64. This circular states that the management has decided
to sanction bonus and ex gratia payment to the employees of the
Nangal unit on the basis mentioned therein. The principles laid
. down in this circular regarding paymqnt of bonus and ex gratia
payment are: (1) Bonus is being paid to all eligible employees
strictly in conformity with the Bonus Commission's recommendations, as accepted by the Central Government, and the said
bonus is the minimum bonus payable as per the Bonus Commission's recommendations, equivalent to 4% of the total basic wage
and dearness allowance (excluding all other allowances etc.) paid
during the year 1963-64. The employees eligible for these payments are those who draw a total basic pay and dearness allowance
up to Rs. 1,600 per mensem and the quantum payable to employees drawing over Rs. 750/- of basic pay and dearness allowance will be limited to what they would get if their pay and
dearness allowance were only Rs. 750/- per month. (2) An additional ex gratia payment to be made to all workers drawing basic
pay up to Rs. 500/- per month, to the extent that such payment,
together with the bonus indicated earlier, is equivalent to at least
one month's full salary (basic pay plus dearness allowance); and
the total payment, i.e., bonus and ex gratia, in the case of workers drawing basic pay up to Rs. 500/- per month would be
subject to a minimum of Rs. 100/- and maximum of Rs. 300/-.
(3) The minimum qualifying service for ex gratia payment will
be 3 months and the minimum qualifying service for payment of
bonus as per Bonus Commission's recommendation is 30 days.
On December 30, 1964 the appellant issued another circular
stating that .the minimum limit of Rs. 100/- in respect of bonus
and ex grat1a payment for the year 1963-64, as per its circular
dated December 17, 1964 is raised to Rs. 110/- and that the
enhanced amount will be paid along with the salary for the month
of December 1964.
.
Regardin~ the grant of bonus for the year 1964-65, another
cn;cul:ir was ~ss.ued by the appellant on September 27, 1965. Jn
this. crrcular 1t 1s ~tated. that ?onus for the year 1964-65 has been
dC?~ded to be paid stnctly m accordance with legal obligations
ans'!lg out of the payment of bonus under the Payment of Bonus
Ordmance, 1965 .(Ordinance No. 3 of 1965) (hereinafter referred to as the Ordmance). According to that Ordinance, bonus
710
SUPRJ!ME COURT REPORTS
[1969] 2 S.C.R.
that is payable is the minimum bonus which will be equival~nt
to· 4 % of the total basic pay and dearness allowance (excludmg
all other allowances) paid during the year 1964-65, or Rs. 40~-,
whichever is higher.
The employees eligible for the bonus will
be those who draw a total basic pay and dearness allowance up
to Rs. 1,600/- per month, but the quantum of bonus payable
to employees drawing total pay and dearness allowance over
Rs. 750/- per month wiII be limited to what it would be if their
pay llllld dearness allowance are only Rs. 750/- per mensem. It
may be stated at this stage that the Ordinance was promulgated
on May 29, 1965 and the Payment of Bonus Act, 1965 (Act
XXI of 1965) (hereinafter called the Bonus Act) came into force
on September 25, 1965.
On December 9, 1965 the Minister of Labour and Employment made a statement in the Lok Sabha regarding a decision
having been taken by the Central Cabinet on December 2, 1965.
In this statement the Minister has referred to the fact that with
the specific approval of the Cabinet ex gratia payments had been
allowed in the past by way of bonus to employees drawing ·upto
Rs. 500/- per mensem in some undertakings in the public sector.
After referring to the recommendations of the Bonus Commission,
the Minister announced the decision of the Cabinet dated December 2, 1965. As the said decision of the Cabinet has been circulated to the appellant, the matters referred to in the said decision wiII be adverted to by us when we refer to the letter of the
Government addressed to the appellant.
On December 21, 1965 the Government of India addressed
a communication to the Chairman and Managing Director of the
appellant company on the subject of bonus payable to employees
in the public sector undertakings.
As the claim of the labour
in the case, for bonus being paid for 1964-65 and 1965-66 is
substantially based upon the decision of the Central Cabinet dated
December 2, 1965 and as according to the appellant this communication cannot be considered to be a direction or an order
it is desirable to quote, in extenso, the said communication :
'
No. CH/COORD/64/65
GOVERNMENT OF INDIA
MINISTRY OF PETROLEUM & CHEMICALS
· (Department of Chemicals)
New Delbi, the 21st December 1965
To
Shri Salish Chandra,
· Chairman. & Managing Director,
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FERTILIZER CORP. v. WORKMEN (Vaidialingam, J.)
711
Fertilizer Corporation of India Ltd.,
F-43, New Delhi South Extension, Pt. I,
New Delhi.
Subiect :-Bonus-payable to employees in the Public
Sector undertakings.
Sir,
I am directed to refer to the Payment of Bonus Act,
1965 (No. 21 of 1965) which provides for the payment
of bonus to persons employed in certain establishments
and for matter connected therewith.
"Establishment in
public sector" is defined in section 2(16) of the Act.
Further, sub-section (1) of section 20 lays down that
if in any accounting year an establishment in public
sector sells any goods produced or manufactured by it
or renders any services, in competition with an establishment in private sector, and the income from such
sale or services or both is not less than twenty per cent
of the gross income of the establishment in public sector for that year, than the provisions of this Act shall
apply in relation to such employment in public sector as
they apply in relation to a like establishment in private
sector.
It follows that the provisions of the Act do
not apply to such of the establishments in private sector.
Notwithstanding the provisions of the Act, it has been
decided by Government as a matter of policy that noncompetitive public sector undertaking should also make
ex gratia paymeints to their employees of the minimum of
4 (four) per cent of annual gross earnings of the employees on the same lines as bonus will be payable by public
sector undertakings falling within the provisions of the
aforesaid Act.
The benefit of six-year bonus holiday
( vide section 10 of the Act) should be available to non·
competitive public sector undertakings.
2. Government have further decided that the following should be the guiding principles for determining the
quantum of ex gratia payments to employees of noncompeting public sector undertakings :
(i) all non-competing public sector undertakings
should pay ex gratia to their employees amounts which
they would be liable to pay as bonus if they were to fall
within the purview of the Payment of Bonus Act;
(ii) ~here such an undertaking has made ex gratia
payment m the past, the amount of such payment should
be treated as absorbed in the amount determined as
712
SUPREME COURT REPORTS
[1969] 2 S.C.R.
in (i) above. In other words, any claim of employees
to payment determined on the lines of the Bonus Law
as an addition to payment on the scale of ex gratia payments in the past, should not be accepted. If the past
ex gratia payment had been higher than the amount as
worked out as in ( 1) above, the level of past ex gratia
payment should be maintained;
(iii) the principle in (ii), above, shall also be followed in the case of competing public sector undertakings;
and
(iv) the applicability of (ii) and (iii) above should be
conditional upon the maintenance of the level of performance of the undertaking in individual cases.
It is requested that the decisions of Government referred
to, may be noted for guidance and necessary action.
Yours failthfully,
Sd/- Nakul Sen
Secretary to Govt. of India."
Again, on September 9, 1966 the appellant issued a circular
regarding payment of bonus for the year 1965-66. It is stated
therein that the management has decided to pay bonus to the
employees of the Nangal unit for the year 1965-66 and that statutory bonus equivalent to 4% of basic pay and dearness allowance would be paid strictly in accordance with the provisions of
the Bonus Act, 1965. It is further mentioned that in addition
to this bonus it has been decided to pay production bonus at 3 %
of wages to employees whose maximum scale of pay does not
exceed Rs. 1,400/- per mensem.
Then the letter proceeds to
state as tO' how exactly the production bonus is to be calculated
and paid. The circular further states that in adidtion to the statutory bonus and production bonus the employees will also be
paid 4 days' wages in the form of advance production bonus to
be adjusted as and when total bonus payable to the workers
exceeds 30 days' wages in future.
There was a note appended
to this circular on the subject of bonus payments, for the information of workers. That note proceeds to state that as production for the year 1962-63 exceeded the target the management
has decided to pay ad hoc bonus equivalent to a month's salary
for employees drawing up to Rs. 580/- per month.
For the year 1963-64 the employees were entitled to the
minimum bonus of 4 % , according to the recommendations of
the Bonus Commission and that amount of bonus was paid.
Though legally the workmen were not entitled to anything more,
nevertheless, as the Nangal unit again exceeded the production
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FERTILIZER CORP. v. WORKMEN (Vaidialingam, J.)
713
target for the year 1963-64, the management decided to give an
ex gratia payment for good performance so that the bonus as per
the Bonus Commission's Report plus the ex gratia payment worked out to a month's wage.
But during the year 1964-65 the
production exceeded the target and the management d~cided to
pay, in addition to the bonus payable under the Ordmance a
performance reward equivalent to half a month's wages,
The
management was considering to introduce a production bonus
scheme to provide an incentive for increased production.
This
became necessary in view of the advice given by the Labour Law
Officer of the compll\ny that ex gratia payments should be avoided. The management further states that production bonus scheme
has been approved by the Government of India and under that
scheme employees are entitled to sums varying from 3% to 3.5%
of their wages.
In the year 1965-66 the production had not exceeded the target
and the employees of Nangal unit became entitled only to the statutory bonus of 4 % of their wages, under the Bonus Act and
production bonus was not admissible. Ex gratia payment also was
ruled out in view of the advice of the Labour Officer and because
of the fact that with the introduction of production bonus scheme
all ex gratia payments stood eliminated.
But, inasmuch as the
workers in the Nangal unit have maintained peace and good industrial relations, the management decided, as a special case, to
award production bonus of 3 %
under the production bonus
scheme.
The note summed up the position by stating that for
the year 1965-66 the Nangal workers were eligible to (a) statutory bonus at 4% of the annual wages under the Bonus Act; (b)
production bonus at 3 % of the annual wages and (c) 4 days' wages
in the form of advance production bonus to give the workmen a
month's wages in all, which was to be adjusted as and when
the total bonus payable to the workers exceeds 30 days' wages
in future.
From the circular letters dated September 27, 1965 and
September 9, 1966 it will be seen that the management offered to
pay only the statutory bonus under the Ordinance and the Bonus
Act and that ex gratia paymeint of bonus has been discontinued.
In particular, in the note annexed to the circular of September 9,
1966 the management has taken the specific stand that a production bonus scheme has been introduced and that the said scheme
has. be.en approve~ by th~ Government of India.
They also
mamtamed that with the mtroduction of the production bonus
scheme all ex gratia payments are eliminated.
As the appellant did not pay bonus for thC years 1964-65
and 1965-66 at the rate at which it was paid for the year 1963-64,
714
SUPREME COURT REPORTS .
[1969] 2 S.C.R.
th~ Union submitted a. charter of demands to the appellant on
Au.gust 19, 1966. The Union demanded that bonus should b.e
paid for the years 1964-65 and 1965-66 at the same rate as 1t
had been paid in previous years and that the appellant ':"as bound
to act according to the decision of the Central Cabmet dated
December 2, 1965 and communicated to it by the circular letter
of the Government of India dated December 2f, 1965. That
is, according to the Union the minimum bonus that a worker
was entitled to get was Rs. 110/-. There were certain other demands which are not necessary to consider in this appeal. By this
letter the Union also indicated that if the demands were not met
within 15 days, it would be forced to adopt agitational approaches to seek compliance with its demands.
The management
did not comply with this demand regarding payment of bonus and
attempts at mediation failed and the workmen went on strike
from October 17, 1966 and the reference to adjudication was
made on November 2, 1966.
Before th~ Tribunal the workmen pressed their claim fm:
bonus on the basis contained in their charter of demands. They
also raised the plea that the introduction of production bonus
· scheme had no effect regarding the ex gratia payment of bonus
made by the appellant.
As the management had not complied
with the reasonable demands of the labour and as it was acting
in violation of the Cabinet decision, the workmen were justified
in going on strike from October 17, 1966 and they were entitled
to full wages for the strike period.
The appellant resisted the claims of the Union. They raised
certain objections regarding the jurisdiction of the Industrial Tribunal to entertain the suit, but that again is not the subject of
the present appeal. The management pleaded that the claim for
·bonus for the years 1964-65 and 1965-66 had to be considered
and adjudication made only according to the provisions of the
Bonus Act and that the workmen were not entitled to claim anything beyond what was provided in the said Act. No legal claim
could be based on ex gratia payments of bonus in the previous
years.
They accepted the position that under article 110 of the
Articles of Association of the company the President of India
could issue direction which become binding on the company, but
pleaded that no such directive had been issued by the President.
Even assuming that such direction had been issued by the President to the company, the workmen, who were third parties, could
not seek to enforce any rights based upon such directives. The
appellant Corporation is a public limited company and as such
an autonomous statutory body. They further pleaded that the rate
of bonus mentioned· in -the- Cabinet decision would become payable only if the level of performance or production was properly
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FERTILIZER CORP. v. WORKMEN (Vaidialingam,' J.)
715
maintained and in the case of the Nangal unit the level had not
been kept up.
The management further averred that in consultation and with
the approval of the Central Government the appellant introduced
the production bonus scheme with effect from 1965-66 and the
said scheme replaced the previous system of ex gratia payments,
made on ad hoc basis for the initial two year& of the Nangal Unit's
operation.
The production bonus is payable in addition to the
statutory bonus which the workmen are entitled to under the
Bonus Act. As the Central Government had approved the scheme
of payment of statutory bonus and production bonus, in lieu of
the past system of making ex gratia and ad hoc payments, the
management pleaded that the Cabinet decision of December 2,
1965 stood modified to that extent.
Regarding the treating of the 4 days' advance bonus paid for
the year 1965-66 as deductible from bonus payable in future
years and management pleaded that in order to keep industrial
peace and as the new production bonus scheme substituting the
old ex gratia payment had come into force the appellant decided
to pay advance bonus of 4 days' wages. This advance bonus was
specifically stated as being deductible when the total bonus payable to workers in future years exceeded 30 days. Therefore the
management averred that they were entitled to adjust this advance
payment in future years.
The management further ,pleaded that there was absolutely no
justification for the workmen starting agitation from August 27,
1966 nor for going on strike from October 17, 1966. The conciliation proceedings started under the Act had not terminated
and the appellant also was participating in the conciliation proceedings and was anxious to meet the demands of the workmen
if it was otherwise possible.
The production bonus scheme for
the year 1965-66 had been announced on September 9, 1966.
The strike was both illegal and unjustified and hence the workmen
were not entitled to any wages during the strike period.
The Industrial Tribunal in its award has held that the appellant was bound to comply with the Cabinet decision dated Decemb~r 2, 1965 and communicated to it by the Government by its
Circular letter dated December 21, 1965. The decision of the
Central Cabinet had been publicly announced by the Minister
concer?-ed in the Lok Sab~a on December 9, 1965. The principles laid down .for ex gratw payments by non-competitive public
sector undertakmg~ had been made applicable to competitive public sector undertakings also. The Tribunal held that as the appel1.ant was a .comp.etitive. public sector undertaking and the directJons regardmg ex gratra payments of bonus as well as the prin-
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[1969] 2 s.c.R.
ciples for determining the quantum of such payments had all been
laid down in the Circular Jetter of December 21, 1965 and the
appellant was bound to implement those directions, the claim of
the Jabour for such payments for the years in question was perf.ectly justified. The ex gratia payment !O be made under the Cabm~t·
decision was to be in accordance with the level of past ex gratla
payments. No doubt such payments were to be made provided
tbe level of performance was maintained.
On the materiiils placed before it, the Tribunal held that the
said condition was satisfied. The Tribunal rejected the claim of
the appellant that production bonus scheme was introduced in
consultation and with the approval of the Central Government and
it further held that the introduction of that scheme was not in
lieu of the ex gratia payments made on an ad hoc basis in the
previous years. The Tribunal has further held that as the decision of the Central Cabinet, dated December 2, 1965 stands
and has not been modified in any way by the Government, the
management was bound to continue the ex gratia payments. It
further. held that the striking down, by this Court, of sub-s. (2)
of s. 34 of the Bonus Act had no effect on the claim made by the
Union because the claim of the Union was sufficiently safeguarded
by sub-s. (3) of s. 34. Ultimately the Tribunal accepted the claim
of the workmen for payment of minimum bonus for the years
1964-65 and 1965-66 being fixed at Rs.110/- and regarding the
maximum the Tribunal held that that was a matter of calculation,
having regard to the wages of an employee; but it restricted its
direction in this regard to the two years in question and declined
to express any opinion regarding future years. The Tribunal also
negatived the claim of the appellant to treat the 4 days' bonus
paid in advance for the year 1965-66 as deductible from the bonus
payable in future years.
Regarding the wages claimed by the
workmen for the period October 17 to October 31, 1966, the
Tribunal held that the strike was both legal and justified and it
direeted the management to pay the workmen half their wages for
that period.
The ·same stand that has been taken before the Tribunal by
the parties has been urged before us by Mr. Gokhale, the learned
counsel for the appellant-management and Mr. A. K. Sen, the
learned counsel for the Union.
.
We shall first consider the correctness of the decision of the
Industrial Tribunal regarding the claim of the workmen for ex
grat!a payment of bonus. We are not inclined to accept the con-
' tent10n of Mr. Gokhale that the appellant was not bound to implement. the directions contained in the Circular letter of the Government dated December 21, 1965, containing the Cabinet deci-
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FERT!LJZER CORP. v. WORKMEN (Vaidia/ingam, !.)
717
sion of December 2, 1965, nor his further contention that the
claim of the workmen for bonus should have been adjudicated
upon exclusively as per the provisions of the Bonus Act without
reference to the Cabinet decision.
The appellant company, registered under the Companies Act,
is no doubt an autonomous unit; but there are several articles
in t:Je Articles of Association of the appellant-Corporation which
give power to the President of India and the Central Government to give directions in the working of the appellant. In fact,
it may not be necessary to deal elaborately with this matter as
the appellant itself, in sub-paragraph ( l) of paragraph 8 of its
reply dated January 25, 1967 filed before the Industrial Tribunal, has categorically admitted the positon that under article
110 of the Articles of Association of the company the President
of India can issue directives which become binding on the company; but the stand taken therein is that no such directive was
ever issued by the President.
The further stand taken by the
appellant is that the production bonus scheme was introduced with
the consent and approval of the Central Government and that, on
its introduction, the ex gratia payments of bonus were eliminated
«nd, to that exent, the decision of the Central Cabinet, dated
December 2, 1965 stood modified. Even in respect of the Central Cabinet decision, relied on by the Union, the stand taken
l.Jy the appellant, in its letter dated September 21, 1966 to the
Chief Conciliation Officer, Punjab was that the Nangal μnit had
not "o far received any instructions from the controlling Ministry
regarding the Cabinet decision and that the position with regard
to the Cabinet decision would be checked up by the management
wiih their Head Office and the Ministry.
Therefore, it will be
seen that it was not the case of the appellant that it will not be
bound by the Cabinet decision, if the decision was there as a
fact.
We will only refer to articles 67 and 110 of the Articles
0f Association of the appellant.
Under article 67 the Board of
Directors of the company are e?titled to exercise all such powers
and to ~o all such acts and thmgs as the company is authorised
to ex~rc1s~ and. do, but subject to the provisions of the Act and
the d1rectives, 1f any, the President may issue from time to time
as contained in article 110. Article 110 is as follows :
"110" Notwithstandi?g anything contained in any of
!hesc articles:
t~e President may, from time to time,
issue such d!fec!Ives as he may consider necessary in
regar? to the conduct of the business of the Company
or Dlfectors there_of 3:11d in like manner may vary and
ann~I any such dtrec!Jve.
The Directors shall give immediate effect to directives so issued."
Readin~ !he two articles together, the position is very clear that
the exe1c1se of the powers of the Board of Directors of the com4 Sup. Cl/69-13
718
SUPREME COURT REPORTS
(1969] 2 S.C.R.
pany are, apart from othe~ restrictions'. subject. to the ~irectives,
if any, issued by the President from tune to ume, with regard
to the conduct of the business of the. company or Directors.
Any
direction given by the President may, in like manner, be varied
and annulled. The Directors are bound to give immediate effect
to the directives so issued.
As we are of opinion that the draft letter of October 14, 1966
(which is discussed later on by us) constitutes an offer made by
the appellant to the workmen to opt for payment of bonus eit~er
according to the Cabinet decision or according to the production
bonus scheme, it becomes unnecessary for us to investigate the
nature of the power that is exercised either by the President or
the Central Government when giving directions to the appellant
company, under the Articles of Association. For the same reason
the question as to whether the circular letter of the Central Government, dated December 21, 1965 is a direction or order,. as
envisaged by the Articles of Association, does not also arise for
consideration.
The decision of the Central Cabinet dated December 2, 1965
has been announced by the Minister in the Lok Sabha on December 9, 1965 and this decision has been communicated lo the appellant by the concerned Ministry by Circular letter dated December 21, 1965. There is no controversy that if the Cabinet. decision is given effect to, the claim of the workmen for ex gratia
payment of bonus as in previous years will have to be accepted,
unless the appellant is able to establish its plea that the production
bonus scheme was introduced with the consent and approval of
the Central Government in lieu of ex gratia payments of bonus.
As to whether the appellant has succeeded in establishing this
plea is an aspect which will be adverted to by us at a later
stage.
In this case it is not necessary to consider the wider question
as to how far, without anything else, the workmen would be
able to lay any claim on the basis of any decision communicated
by the Government to the appellant alone.
As pointed out by
Mr. Sen, it is clear that the Central Cabinet's decision was made
known to the workmen who were given the option either to accept
the Cabinet decision, as conveyed to the appellant by the Circular
letter of December 21, 1965 or the production bonus scheme as
formulated by the appellant Corporation.
Mr. Sen, the learned counsel for the Union, has invited our
attention to the draft of a letter, dated October 14, 1966, which
was intended to be sent by the workmen to the appellant. That
letter, which is addressed to the appellant Corporation, states :
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FERTILIZER CORP. v. WORKMEN (Vaidialingam, J.)
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"You have given us the option of accepting either the
Cabinet decision conveyed to you vide Department of
Chemical's letter No. CH/COORD/64/65 dated 21st
December 1965, the terms of which are annexed to this
letter, or the Production Bonus Scheme as formulated
by the FCI Board .... "
That the Circular letter of December 21, 1965 of the Government
was made known to the workmen is clear from the evidence of
the appellant's witness R. W. 7 Shri Wadehra. He has categorically stated that he joined the discussions between the representatives of the workmen and the Managing Director of the appellant corporation which took place at Delhi on October 15, 1966.
He further states that he came to know at that time that on
October 14, 1966, during the discussions between the labour
and the management at which he was not present, the workmen's
representatives had desired that the Cabinet's directions may be
made applicable to them with regard to bonus. This witness further states that the Managing Director made an offer during the
discussions and that offer is contained in the draft letter dated
October 14, 1966, to which we have already referred.
The
witness further states that the workmen declined to accept the offer
of the management to opt for the production bonus s;:;heme. His
evidence clearly shows that the management has communicated
to the workmen the Cabinet decision, as conveyed by the Cir- .
cular letter of the Government dated December 21, 1965. This
evidence further makes it clear that the workmen declined to opt
for the production bonus scheme, but, on the other hand, insisted that bonus must be paid to them according to the Cabinet's
decision.
Mr. Gokhale attempted to explain away the effect of the draft
letter of October 14, 1966 by urging that the Cabinet decision
has been communicated only after the ·Union had submitted its
charter of demands as early as August 19, 1966. So long as the
Cabinet decision has been communicated and option was given
to the workmen, it does not in our opinion matter at what stage
the communication was made to the labour.
Under the circumstances, it is idle for the management to contend either that the
appellant is not bound to comply with the Cabinet decision or
that the workmen are not entitled to make any claim on the basis
of that decision.
That leaves us with the alternative contention, raised by the
management, that production bonus scheme was introduced with
the consent and approval of the Central Government and that on
its introduction the ex gr;ztia payment of bonus stood eliminated
No doubt this is the stand that has been taken in the note attached
by the appellant in its Circular letter dated September 9, 1966.
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SUPREME COURT REPORTS
[1969] 2 S.C.R.
We have already adverted to that note in the earlier part of our
judgment. No materials, whatsoever, have been plac~d by the
appellant in support of this cor:tenti?n. . The production bom:s
scheme itself does not state that 1t 1s m lteu of all other ex gratza
payments. There is no order of Government on record to show
that the Circular letter of December 21, 1965 has been modified
by the Government in any manner whatsoever.
The only evidence relied on by the appellant in this connection was the statement of R. W. 7, Shri Wadehra. He says that after a full consideration of all the relevant factors and in consultation and with
the approval of the Central Government, a production bonus
scheme was introduced by the appellant with effect from the year
1965-66 and that he was himself present at a meeting in the
Ministry when a decision was taken that the Corporation might
introduce the production bonus scheme and that the workmen
should be paid production bonus in addition to the bonus payable
under the Bonus Act. He further speaks to the fact that production bonus scheme replaced the ad hoc ex gratia bonus made in
the past years. Excepting this bare statement in the oral evidence,
no order of the Central Government to this effect, or modifying
its previous decision, has been placed before the Tribunal. Under
those circumstances, the Tribunal was perfectly justified in holding that the appellant has not established that on the introduction
,of the production bonus scheme, i1ll payments of ex grmia bonus
ceased.
The striking down of sub-s. (2) of s.