# SAl\GHLlEEVARAJ GHEWAR CHAND & ORS v. SECRETARY, MADRAS CHILLIES, GRAINS KIRANA MERCHANTS WORKERS' U1"I0l\ & ANR

- **Citation:** [1969] 1 S.C.R. 366
- **Court:** Supreme Court of India
- **Decided:** 1968-07-16
- **Case number:** Civil Appeal No. 1630 of 1967
- **Bench:** J.M. SHEi.AT, K. S. HFulll·
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/sal-ghlleevaraj-ghewar-chand-ors-v-secretary-madras-chillies-grains-kirana-4414
- **Pages:** 21

## Headnote

Payment of Bonus Act (21 of 1%5), ss. 1(3), 22, 32(x) and 39Acl whether exhaustive on the la1v relating to bonus-Whether employees
c:ntitled to pay1nrnt -:J.f bonus dchOr'.'. the Acr in cast' of excluded and
exempted establishmenJs-Scope of ss. 22 and 39.
A
B
Legislative history and Statement of Objects and Reasons '"hen can
C
he looked imo.
The appellants arc: (i) an estahlishmcnt with less than 20 employees
:inli Ylhich was not a factory; and (ii) an establishment in the
public
sector.
On the question, whether in view of the non-app!icahility of the
Payinent of Honus Act, 1965, to the two appellants-in the first case by
reason of exclusion under s. 1 (3) and in the other by reac;on of exemption
under s. 32(x)-the employees of the two appellants
were entitled
to
D
claim honus dehors the Act.
HELD : Considerin~ the history of the legislation, the background and
1he circumstances in \Vhich the Act was enacted the object of the Act
and it'i scheme, it is not possible to :i.cccpt the construction suggested on
behalf of the n .. 'Spondents (employee~) that the Act is not an exhaustive
Act dealing comprehensively vtith the
subjcct-n1:i.ttcr of
honus in all
its asp..-cts, or that Parliament ~till left it open to those to whom the Act
E
dOC'l not apply by r~ason of exclusion or exemption to 'raise a dispute
with regard to bonus dehors the Act through industrial adjudietion under
the Industrial Dispute<> Act, 1947, or other corresponding lavls.
( 1) The Court is justified in looking into the history o[ the lcgislatilitt and the statement of objects and reasons, not for the pu'rposc of
construing. the Act. hut for the limited purpose of ascertaining the background. the conditions and circumstances which led to it'>
pa~sing. the
}"
mischief it was intended to prevent and the remi:dy it furnished to prevent
such mischief. (3 72 H-{:]
fleydon's case. 76 E.R. 637. Bengal ln11nunity Co. Ltd. v. Stale of
Rihar, fl955] 2 S.C.R. 603, R. M. D. (,'hanuirbaugluvalla v.
Union
of
/nlliu, (19571 S.C.R. 910. Central Bank of India v.
Their
Workmen,
fl960] I S.C.R. 200. Corporation of the City of Nu1;pur v. Its En1ployee.L
(19601 2 S.C.R. 942. Statr of Wert Bengal'" Union of India. [1964] I
G
S.C.R. 371 and Acree Basha v. Union of India. (1968] 1 S.C.R. 833
referred to.
Until the cnactn1cnt df the Payment of Bonu..., Act. 1965, payment of
bonu<> was not a 5tatutorv obligation on the part of the
employer
nor
\Vas it a statutorv right Or an employee.
It wa-.; originally a voluntary
payment.
Undc.r ·the Full Hench formula, evolved by the Labour. Appellate Tribunal \\'Ith respect to disputes for payment
of
honus
in
the
){
Bombay Textile Industry, it acquired the character o.f a right to share
in the surplus of profil<:. enforceable through the n1ach1nery of the lndu'>-
trial Dispites Act, 1947. and other cormspandin~ Act.
Under . that Act.
workmen of industrial estahlic;hmcnts could raise an industrial dispute and
•
•
'
A
B
...
c
·n
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G
H
GHEWAR CHAND V. WORKERS' UNION
367
demand by way df bonus a proportionate share in profits on the principle
that both capital and labour had contributed. to the making of profits and
therefore both were entitled to a share therein.
As a result of the observations of this Court in Associated Cement Companies Ltd. v. Its Work-
. men, ~1959] S.C.R. 925 and in
Ahmedabad
Miscellaneous
Industrial
Workers' Union v. The Ahmedabad Electricty Co., [1962] 2 S.C.R. 934,
the Government of India appointed a Commission to make recommendations with resp<et .to legh>iation
regarding
bonus.
The
Government
accepted the majority of the Comnussion's recommendations and sponsored the enactment of the
Payment of Bonus
Act. Under this Act.
liability to pay bonus has now become a statutory obligation imposed on
employers. In providing such statutory liability Parliament has laid down
a statutdry formula on which bonus would be payable irrespective of
whet11tr the establishment had, during .a particular accounting year, made
profit or not.
Parli

## Text

_Characters 0–39,748 of 60,207. This is a partial read: ask again with offset=39748 for what follows._

SAl\GHLlEEVARAJ GHEWAR CHAND & ORS.
v.
SECRETARY, MADRAS CHILLIES,
GRAINS KIRANA
MERCHANTS WORKERS' U1"I0l\ & ANR.
July 16, 1968
[J.M. SHEi.AT AND K. S. HFulll·, JJ.]
Payment of Bonus Act (21 of 1%5), ss. 1(3), 22, 32(x) and 39Acl whether exhaustive on the la1v relating to bonus-Whether employees
c:ntitled to pay1nrnt -:J.f bonus dchOr'.'. the Acr in cast' of excluded and
exempted establishmenJs-Scope of ss. 22 and 39.
A
B
Legislative history and Statement of Objects and Reasons '"hen can
C
he looked imo.
The appellants arc: (i) an estahlishmcnt with less than 20 employees
:inli Ylhich was not a factory; and (ii) an establishment in the
public
sector.
On the question, whether in view of the non-app!icahility of the
Payinent of Honus Act, 1965, to the two appellants-in the first case by
reason of exclusion under s. 1 (3) and in the other by reac;on of exemption
under s. 32(x)-the employees of the two appellants
were entitled
to
D
claim honus dehors the Act.
HELD : Considerin~ the history of the legislation, the background and
1he circumstances in \Vhich the Act was enacted the object of the Act
and it'i scheme, it is not possible to :i.cccpt the construction suggested on
behalf of the n .. 'Spondents (employee~) that the Act is not an exhaustive
Act dealing comprehensively vtith the
subjcct-n1:i.ttcr of
honus in all
its asp..-cts, or that Parliament ~till left it open to those to whom the Act
E
dOC'l not apply by r~ason of exclusion or exemption to 'raise a dispute
with regard to bonus dehors the Act through industrial adjudietion under
the Industrial Dispute<> Act, 1947, or other corresponding lavls.
( 1) The Court is justified in looking into the history o[ the lcgislatilitt and the statement of objects and reasons, not for the pu'rposc of
construing. the Act. hut for the limited purpose of ascertaining the background. the conditions and circumstances which led to it'>
pa~sing. the
}"
mischief it was intended to prevent and the remi:dy it furnished to prevent
such mischief. (3 72 H-{:]
fleydon's case. 76 E.R. 637. Bengal ln11nunity Co. Ltd. v. Stale of
Rihar, fl955] 2 S.C.R. 603, R. M. D. (,'hanuirbaugluvalla v.
Union
of
/nlliu, (19571 S.C.R. 910. Central Bank of India v.
Their
Workmen,
fl960] I S.C.R. 200. Corporation of the City of Nu1;pur v. Its En1ployee.L
(19601 2 S.C.R. 942. Statr of Wert Bengal'" Union of India. [1964] I
G
S.C.R. 371 and Acree Basha v. Union of India. (1968] 1 S.C.R. 833
referred to.
Until the cnactn1cnt df the Payment of Bonu..., Act. 1965, payment of
bonu<> was not a 5tatutorv obligation on the part of the
employer
nor
\Vas it a statutorv right Or an employee.
It wa-.; originally a voluntary
payment.
Undc.r ·the Full Hench formula, evolved by the Labour. Appellate Tribunal \\'Ith respect to disputes for payment
of
honus
in
the
){
Bombay Textile Industry, it acquired the character o.f a right to share
in the surplus of profil<:. enforceable through the n1ach1nery of the lndu'>-
trial Dispites Act, 1947. and other cormspandin~ Act.
Under . that Act.
workmen of industrial estahlic;hmcnts could raise an industrial dispute and
•
•
'
A
B
...
c
·n
'E
G
H
GHEWAR CHAND V. WORKERS' UNION
367
demand by way df bonus a proportionate share in profits on the principle
that both capital and labour had contributed. to the making of profits and
therefore both were entitled to a share therein.
As a result of the observations of this Court in Associated Cement Companies Ltd. v. Its Work-
. men, ~1959] S.C.R. 925 and in
Ahmedabad
Miscellaneous
Industrial
Workers' Union v. The Ahmedabad Electricty Co., [1962] 2 S.C.R. 934,
the Government of India appointed a Commission to make recommendations with resp<et .to legh>iation
regarding
bonus.
The
Government
accepted the majority of the Comnussion's recommendations and sponsored the enactment of the
Payment of Bonus
Act. Under this Act.
liability to pay bonus has now become a statutory obligation imposed on
employers. In providing such statutory liability Parliament has laid down
a statutdry formula on which bonus would be payable irrespective of
whet11tr the establishment had, during .a particular accounting year, made
profit or not.
Parliament further laid down that the formula it had
evolved and the statutory liability it provided, shall apply only to certain
establ~5Ilments and not to all.
In such circumstances, Parliament has not
to provide by express words that henceforth no bonus shall be payable
under the Industrial Disputes Act or other corresponding Acts. as those
Act never conferred any statutory right to bonus. [373 G-H; 375 H;
376 B-C; 381 A-DJ
Muir Mills Co. v. Suti Mills Mazdoor Union, Kanpur, [1955] 1 S.C.R.
991, Baroda
Borough Municipality v. Its Workmen, [1957] S.C.R.
33,
Shree Meenakshi Mills Ltd. v. Their Workmen [1958] S.C.R. 878, State
of Mysore v. The Workers of Gold Mines, [1959] S.C.R. 895, Associated
Cement Companies Ltd .. v. Its Workmen, [1959] S.C.R. 925 and
The
Ahmedabad Miscellaneous Industrial· Workers' Union v. The Ahmedabcd
Electricity Co. Ltd. [1962] 2 S.C.R. 934, referred to.
(2) The Payment of Bonus Act was intended to be a comprehensive
and exhaustive law dealing with the entire subject of bonus.
The ·fact
that .the: preamble states that the Act shall apply ouly to certain establishments and that s. 1 ( 3) of the Act excludes establishments where less
than 20. persons are employed, from the application of the Act, does not
necessarily mean. that .Parliament ras not dealt with the subject-matter
o[ bonus and· the persons to whom it shall apply comprehensively in the
Act. Even where an Act deals comprehensively with a particular subjectmatter, the Legislature can provide that it shall apply to particular persons or group of persons or to specified institutions only, and so, Parlia·
ment can lay down as a matter of policy that it will exclude from ·the
application of the Act certain types of establishments and also provide for
. exemption of certain other types of establishments which would otherwise
fall within the scope of the Act. [380 C-H; 385 HJ
·
(3) Since the Payment of Bonus Act is an exhaustive statute dealing
with . subject of bonus. one of the consequences is that under s. 1 (3)
of the ·Act. employees in establishments engaging less than 20 · persons
would get no bonus either under this Act or under industrial adiudication
provided for by the Industrial Disputes Act and other corresponding Acts.
Under s. 1(3) Parliament has excluded petty establishments with Jess than
20 .employees in view of the recommendations of the Commission in that
regard, namely, that the application of the Act to such establishments
would lead to harasment Of 'Petty ·properietors and disharmony .between
them and their employees. To
hold that employees in such establishments would still be entitled to bonus, though not under the Act. would
lead to the anomaly that if there are two establishments in the same trade
or industry one enagaging more than 20 persons and the other engaging
less than 20 person, then, in the former case the employer would be
368
SUP~l'ME COURT REPORTS
[ 1969) 1 S.C.R.
liable to pay bonus at the rate· laid down in the Act, while in the latter,
A
the employer would he hablc to pay bonus on the basis of the Full Bench
foriula \\'hich may be -at a higher rate depending upon the quantum of
profits in the particular year. 1382 C-F; 384 C-E]
( 4) Under s. 32(x) of the Payment of Bonus Act. establishments
in the public sector are exempted from the application of the Act. Therefore, employees in public sector conoerm would not be entitled to bonus.
either under the Act or which they might otherwise have got by raising
B
a dispute under the Industrial Disputes Act and
other
corresponding
statutes. The exemption is a limited one and in granting it, Parliament
had a definite policy in mind. namely, not to suhjCct such establio;hment<>
which arc conducted without any profit motive and are rua for public
benefit, to the burden of bonus.
To hold that even in these exempted
cases, the employer would still be liable to pay bonus if the employee.;
of such institutions V-'ere to raise a dispute under the Industrial Disputes
Act and claim bonus in accordance with the Full Bench formula would
C
also Jead to the anomaly that the Legislature would be giving exemption
\\·ilh one hand and taking it away \\rith the other.
If Parliament wanted
to retain the right to claim bonus by way of industrial adjudication in the
case of establishments which are either excluded or exempted from the
Act it \vould have made an express saving provision to that effect as it
has done for employees of coal mines. [382 F-H; 383 F-H; 384 A-CJ
( 5) There is no question of a right to bonus under the Industrial
D
f)isputcs Act or other corresponding laws being saved under s. 39 of the
Payment of Bonus Act, because :
(a) the Industrial Disputes Ace or the corresponding laws though
they confer substantial rights on a v..·orkman with regard to lay off,
retrenchment compensation, etc .. do not provide for a statutory right to
payment of bonus; and (385 C-GJ
(b) the definition of 'employee• under s. 2( 13) of the Payment of
Bonus Act is \\"idcr than that of ''vorkman' under the Industrial Disputes
Act.
Therefore, a dispute between an employer and hi'i employees, in
relation to bonus may not be an indti'itrial dispute.
Section 22 of th~
Payment of Bonus Act, by fiction, makes such disputes industrial disputes
a.ad applies the provision.s of the Industrial Disputes Act.
But the Payment of Bonus Act does not provide any machinc'ry or procedure for the
investigation and settlement of disputes which may arise between en1ploycrs
and emplovecs, such as a dispute as to the computation of allocable surplus. or qu.antum of bonus or a.'i to whether an establishment in the public
sector is liable to pay bonus in view of s. 20 of the Act.
Therefore.
s. :19. which provides that the provisions of the Payment of Bonus Act
arc in addition to and not in derogation of the Industrial Disputes Act and
01h~r corresponding Ja\\'s, hccamc neccssarv in order that the machinery
of the Industrial Disputes Act may he ava.ilablc for adjudication of such
disputes under the Payment of Bonus Act [377 H; 378 A-G; 379 B-D]
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1630 of
1967.
Appeal by specialleave from the award dated April 28. 1967,
of the Industrial Tribunal, Madras in Industrial Dispute No. 78
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and
Civil Appeal No. 1721 of 1967.
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GHEWAR CHAND v. WORKERS' UNION (She/at, J.)
369
Appeal by special leave from the order dated July 14, 1967
of the Additional Industrial Tribunal, Mysore in A.I.D. No. 29
of 1966.
E. C. Agarwala and Santosh Gupta, for the appellants (in
C.A. No. 1630 of 1967).
C. K. Daphtary, Attorney-General, G. B. Pai, S. K. Dholkia, and O. C. Mathur, for the appellant (in C.A. No. 1721 of
1967).
M. K. Ramamurthi and M. V. Goswami, for respondent No.
1. (in C.A. No. 1630 of 1967).
H. R. Gokhale, M. K. Ramamurthi, Shyamala Pappu and
Vineet Kumar, for the respondents (in C.A. No. 1721 of 1967).
The Judgment of the Court was delivered by
Shela!, J. In Civil Appeal No. 1630 of 1967, workmen engaged by certain chillies and kirana shops in Madras and who
were members
of the respondent Union made a demand on
December 13, 1965 for bonus for the year 1964-65 equivalent
to four months' wages.
Conciliation proceedings having failed,
the dispute was referred to the Industrial Tribunal, Madras. In
Civil Appeal No. 1721 of 1967, the appellant-company is admittedly an establishment in public sector to which sec. 20 of the
Payment of Bonus Act, 21 of 1965 (hereinafter referred to as the
Act) does not apply. In both these cases, the Tribunals held that
though the Act did not apply, in the first case by reason of sec.
1(3) and in the other by reason of sec. 32(x), the employees were
entitled to claim bonus and awarded their claims in C.A. No.
1630 of 1967. These appeals by special leave challenge the correctness of the view taken by the Tribunals as to the scope and
nature of the Act.
The question for decision in both the appeals is whether in
view of the non-applicability of the Act to establishments, not
being factories and which employ less than 20 persons therein
a_s the appellants iri appeal No. 1630 of 1967 are, and the exemption of employees in an establishment in public sector though
employing more than 20 persons as the appellant-company in
appeal No. 1721 of 1967 is under sec. 32(x) of the Act, the employees in both these establishments could claim bonus, dehors
the Act.
The question depends upon the true view of certain
provisions and the scope of the Act.
But before we take upon
ourselves the burden of construing these provisions, it is necessary
to refer briefly to the history of the question of bonus, the background and the circumstances in which the Act was passed. This
is permissible for the limited purpose of appreciating the mischief
Parliament had in mind and the remedy which it wanted to provide for preventing that_ mischief .and not for the purpose of aiding
us in construing the provisions of the Act.
370
SUPREME COURT REPORTS
(1969] 1 S.C.R.
As early as 1584, in Heydon's case( 1 ) it was said that "for
the sure and true interpretation of all statutes in general" four
things are to be considered : (i) What was the common law before the making of the Act, (ii) What was the mischief and defect
for which the common law did not pro,·ide; (iii) What remedy the
Parliament hath resolved and appointed to cure the disease of
the Commonwealth, and· (iv) the true reason of the remedy.
In
Bengal Immunity Company Limited v. The State o/Bihar(') this
Court approved the rule in Heydon's case(') and in construing
Art. 286i of the Constitution observed· at p. 633 as follows :-
'In order to properly interpret the provisions of that
Article it is, therefore, necessary to consider how the
matter stood· immediately before the· Constitution came
into force, what the mischief was for which the old law
did not provide and the remedy which has been provided
by the Constitution to cure that mischief.
In the Corporation of the City of Nagpur v. Its Employee(') the
question was as to the meaning of the word "industry" in sec.
2(14) of the C.P. & Berar Industrial Disputes (Settlement) Act (23
of 1947). This Court said that "if the word were to be construed
in its ordinary sense every calling, service, employment of an
employee or any business. trade or calling of an employer would
be an industry.
But such a wide meaning appears to overreach
the object for which the Act was passed".
The Court, therefore,
found it necessary to limit the scope of the said word having regard
to the aim, scope and the object of the Act. Relying on the four
tests laid down in Heydon's ca~c ( 1 ) the Court considered the fundamental basis of the definition of industry, viz. relationship between employees and employers, the long title and the preamble
of the Act showing the object of passing the Act. the historical
background for passing it and held that "it is manifest that the
Act was introduced as an important step in achieving social justice, to ameliorate the conditions of service of the labour in organised ·activities than to anything else and therefore the Act was not
intended to reach the personal services which do not depend nn
the employment of labour force".
Similarly in R. M. D: Chamarbai1gwa//a v, The Union of India('). the question arose whether looking to the general words used in sec. 2(d) of the Prize
Competitions Act, 42 of 1955 the words 'prize competition' included not merely competitions of a gambling nature but also those
in· which success depended to a substantial degree on skill.
In
c~truing the said definition, the Court gave a restricted ~caning
to tlie words "prize competition" as meaning only compeutions as
were of a !!ambling nature.
In doin!' so, the Court approved the
(I) [1955) 2 SC.ll. 60.1.
(3) (1960) 2 S C.R. 942
(2J
76 F.R. 6Y7.
14) [19;7) S.C.R. 910.
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GHEWAR CHAND V. WORKERS' UNION (Shelat, J.)
371
principles of construction stated in the case of the Bengal
Immunity Ltd.(') and held that "in interpreting an enactment the
Court should ascertain the intention of the legislature not merely
fro111 a literal meaning of the words used but also from such matters as the history of the legislation, its purpose and the mischief
it seeks to suppress".
For considering the intention of Parliament not merely from the literal meaning of the definition in sec.
2(d) but also from the history of the legislation the Court looked
into the Bombay Lotteries and Prize Competitions Control and
Tax Act, 1948, how it could b~ and was evaded by the promoters
of lotteries by shifting the venue of their business to the neighbouring State of Mysore, the concerted action taken by the adjoining States, the resolutions passed by each of them calling upon
Parliament to undertake legislation, the fact of Parliament having passed the law and its preamble reciting tho fact of the State
legislatures having asked it to pass such a law.
Having done
that, the Court observed .at p. 938 :
"Having regard to the circumstances under which
the resolutions came to be passed, there cannot be any
reasonable doubt that the law which the State legislatures moved Parliament to enact under Art. 252(1)
was one to control and regulate prize competitions of a
gambling character.
Competitions
in which success
depended substantially on skill could not have been in
the minds of the legislatures which passed those resolutions.
Those competitions had not been the subject of
any controversy in Court.
They had not done any
harm to the public and had presented no problems to the
States and at no time had there been any legislation
directed to regulating them".
Though the Court refused to look at the statement of objects and
reasons for the purpose of construing sec. 2(d), it held that "having
regard to the history of the legislatio11, the declared object thereof
and the wording of the statute" the words had to be criven a restricted meaning.
In Central Bank of India v. Their Workmen( 2 ),
the Court in construing sec. 10 ( 1) (b) of the Banking Companies
Act, 10 of 1949, again looked at the legislative history to ascertain
the object of passing the Act and the mischief it sought to remedy,
but declined to use the statement of objects and reasons to construe the section on the ground that the statement conld not control the actual words used in the section. (Cf. also State of West
Bengal v. Union of India('). In S. Azeez Basha & Ors. v. Union
of India('), the petitioners challenged the validity of the Aligarh
Muslim University (Amendment) Act, 62 of 1951 and the Aligarh
(1) [1955] 2 S.C.R. 603.
(3) [1964] 1 S.C.R. 371, 382.
(2) [1960] 1 S.C.R. 200, 216-17.
(4) [1968] 1 S.C.R. 833.
372
SUPRE:--!E COURT REPORTS
[ 1969] I S.C.R.
Muslim L'niversily (Amendment) Act, 19 of 1965 as violating
Art. 30(1) of the Constitution. This Court went into the history
of the establishment of the University to ascertain whether it was
set up by the Muslim minority and as such entitled to rights under
Art. 30 and held that it was not set up by the minority but in
fact established by the Government of India by passing the Aligarh
Muslim University Act, 1920 [Cf. Crawford on Statutory Construction (3rd Ed.) pages 482-483].
There is thus ample authority justifying the Court in looking into the history of the legislation, not for the purpose of construing the Act but for the limited
purpose of ascertaining the background, the conditions and the
circumstances which led to its passing, the mischief it was intended
to prevent and the remedy it furnished to prevent such mischief.
The statement of objects and reasons also can be legitimately
used for ascertaining the object which the legislature had in mind.
thongh not for construing the Act.
What were the conditions prevailing at the time when the Act
was passed and what was the object which Parliament had in mind
in passing it '!
Bonus was originally regarded as a gratuitous
payment hy an employer to his employees. The practice of paying bonus as an ex gratia payment had its early roots in the textile
industry in Bombay and Ahmedabad.
In 1917 and 1918 an increase of J 0 and 15 %. of wages was granted as War bonus to
the textile workers by the employers. In October, 1920, a Committee appointed by the Bombay Millowncrs recommended to
the member mills payment of bonus equal to one month's pay.
Similarly bonus was declared in 1921 and 1922. It appears that
trading conditions in the industrv havin~ deteriorated, the millowners dcc!Jred in July 1923 that they would be unable to pay
bonus for 1923.
Thereupon a strike began which became general towards the end of January 1924. In February 1924. a bonus
dispute Committee was appointed by the Government of Bombay
to consider the nature of, the conditions and the basis of bonus
which had been granted to the employees in the textile mills and
to declare whether the employees had established any enforceable
claim, customary. legal or equitable.
The Committee held that
they had not established any enforceable claim. customary. legal
or equi!able, to an annual p~yment of bonus which could be upheld in a court.
The years that followed were years of depression
and no major dispute about bonus arose, although bonuses were
given on a;/ hoc basis by a few industrial undertakings.
During
the Second World War. managements of textile mills paid cash
bonus equivalent to a fraction of the surplus profit hut this was
also voluntary payment to keep labour contented.
Disputes for
payment of bonus for the years I 94S and 1949
ar01;e in the
Bombay textile industr.v.
On the said dispute having been referred to the Industrial Court, that Court expressed the view that
since both labour and capital contributed to the profits of the
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GHEWAR CHAND v. WORKERS' UNION (She/at, J.)
373
industry both were entitled to a legitimate return out of the profits
and evolved a formula for charging certain prior liabilities on the
gross profits of the accounting year and awarded a percentage of
the balance as bonus.
The Industrial Court excluded the mills
which had suffered loss from the liability to pay bonus. In appeals against the said awards, the Labour Appellate Tribunal approved broadly the method of computing bonus as a fraction of
the surplus profit.
According to this formula, which has since
been referred to as the Full Bench fonnula, the surplus available
for distribution is to be determined after debiting certain prior
charges from gross profits, viz. ( 1) provision for depreciation (2)
reservation for rehabilitation, (3) return of 6% on paid-up capital, and (4) return on working capital at a rate lower than the
one on the paid-up capital. In Muir Mills Company v. Suti Mills
Mazdoor Union, Kanpur('), Baroda Borough Municipality v. Its
Workmen('), The Shree Meenakshi Mills Ltd. v. Their Workmen(') and The State of Mysore v.
The Workers of Gold
Mines('') this Court laid down ( 1) that bonus was not a gratuitous
payment nor a deferred wage, and ( 2) that where wages fall short
of the living standard and the industry makes profit part of which
is due to the contribution of labour, a claim for bonus may 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 alterations in the said formula. These
questions came to be examined for the first time in Associated
Cement Companies Ltd. v. Its Workmen(') where the said formula was generally approved. Since that decision, this Court has
accepted in several cases the said formula. The principal features
of the .formula are that each year for which bonus is claimed is a
self-contained unit, that bonus is to be computed on the profits of
the establishment during that year, that the gross profits are to be
determined after debiting the wages and dearness allowance paid
to the employees and other items of expenditure against total receipts as disclosed by the profit and loss account, and that against
such gross profits the aforesaid four items are to be deducted as
prior charges. The formula was not based on any legal right or
liability, its object being only to distribute profits after reasonable
allocations for the aforesaid charges.
Attempts were thereafter
made from time to time to have the said formula revised but they
were rejected first in A.C.C.'s case(5 ) and again in The Ahmedabad Miscellaneous Industrial Workers Union v. The Ahmedabad
Electricity Co. Ltd. (6 ) where it was observed that the plea for revision raised an issue which affected all industries and, therefore,
before any change was made all industries and their workmen had
0) [1955] 1 S.C.R. 991.
(2) [1957] S.C.R. 33.
(3) [1958] S.C.R. 878.
(4) [1959] S.C.R. 895.
(5) [1959] S.C.R. 925.
(6J
[1962] 2 S.C.R. 934.
374
SUPREME CQl;RT REPORTS
[ 1969] I S.C.R.
to be heard and their pleas considered.
The Court, therefore,
A
suggested that the question of revising the formula
should
be
"comprehensively considered by a high powered Conunission".
Taking up the aforesaid suggestion, the Government of India appointed a Commission, by its resolution dated December 6, 1961.
the terms of reference whereof were, inter a/ia,
I. to define the concept of bonus and to consider in
relation :o industrial employment the question of payment
of bonus based on profits and recommend principles for
computation of such bonus and methods of payment;
2. to determine what the prior charges should be in
different circumstances and how they should be calcnlated.
3. to detcnnine conditions under which bonus payment should be made unitwise, industrywisc :ind industry-cum rcgionwisc:
4. to consider whether there should be lower limits
irrespccti'e of loss in particular establishment and upper
limits for distribution in one vear and, if so. the manner
to carry forward the profits a·nd losses over a prescribed
period; and
5. to suggest an appropriate machinery and method
for settlement of bonus disputes.
After an elaborate enquiry, the Commission made the following
.amongst other recommendations :
I. That bonus was paid to the workers as share in
the prosperity of the establishment and that the basic
scheme of the bonus formula should be adhered to viz.
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determination of bonus as a percentage of gro5' profits
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reduced by the following prior charges. viz. normal depreciation allowable under the Indian Income Tax including multiple shifting allowance,
income tax and
super tax at the current standard rate applicable for the
vear for which tax is to be calculated hut not super proiits tax, return on paid up capital r:lised through preG
fcrence shares at the actual rnte of dividend payable. on
other paid-up capital at 7% and on reserves used as
capital at 4 % . The Commission did not recommend
provision for rehabilitation.
2. That 60% of the available surplus should be distributed as bonus and excess should he carried forward
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and tak~n into account in the next year: th~ balance
of 40'ii should remain with the establishment into which
should rncrge the saving in tax on honus and the aggre·
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GHEWAR CHAND v. WORKERS' UNION (She/at, J.)
375
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gate balance thus left to the establishment should be
used for payment of gratuity, other necessary reserves,
rehabilitation in addition to the provision made by way
of depreciation in the prior charges, annual provision required for redemption of debentures, etc.
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3. That the distinction between the basic wages and
dearness allowance for the purpose of arriving at the
bonus quantum should be done away with and bonus
should be related to wages and dearness allowance taken
together;
4. That minimum bonus should· be 4% of the total
basic wage and dearness allowance paid during the year
or Rs. 40 to eacμ_ employee, whichever is higher, and in
the case of children the minimum should be equivalent
to 4 % of their basic wage and dearness allowance, or
Rs. 25 whichever is higher;
5. That the maximum bonus should be equivalent
to 20 % of the total basic wage and dearness allowance
paid during the year;
6. That the bonus formula proposed should be deemed to include bonus to employees drawing a total basic
pay and dearness allowance up to Rs. 1600 p.m. regardless of whether they were workmen as defined in the Industrial Disputes Act, 194 7 or other corresponding Act
provided that quantum of bonus payable to employees
drawing total basic pay and allowance over Rs. 750/-
p.m. should be limited to what it would be if their pay
and dearness allowance were Rs. 750 p.m.
7. That the formula should not apply to new establishments until they recouped all early losses including
arrears of normal depreciation subject to the time limit
of 6 years; and
8. That the scheme should be applied to all bonus
matters relating to the accounting year ending on any
day in the calendar year 1962 except in those matters
in which settlements had been reached or decisions had
been given.
The fact that the Government of India accepted the majority of
the Commission's recommendations is clear from the Statement of
objects and reasons attached to Bill No. 49 of 1965 which they
sponsored in Parliament. The Statement, inter alia, states that a
"tripartite Commission was set up by the Government of India
by resolution dated 6th December 1961 to consider in comprehensive manner the question of payment of bonus based on profits
to employees employed in establishments and to make recom-
376
SUPREME COCRT REPORTS
[1969' I S.CR.
mendations to the Government.
The Commission's report containing the recommendations was received by the Government on
24th January, 1964.
By resolution dated ind September, 1964,
Government announced acceptance of the Commission's recommendations subject to a few modifications
as were mentioned
therdn".
To implement these recommendations the Payment of
Bonus Ordinance,
1965 was promulgated on May
29, 1965.
:Since the Ordinance was replaced by the present Act published
on September 25, 1965, it is unnecessary to examine its provisions.
Thus. bonus which was originally a voluntary payment
acquired under the Full Bench formula the character of a right
to share in the surplus profits enforceable through the machinery
of the Industrial Disputes Act. 194 7 and other corresponding
Acts.
Under the Act liability to p;iy bonus has now become a
statutory obligation imposed on the employers.
From the history
of the legislation it is clear (I) that the Government set up a Commission to consider comprehensively the entire question of bonus
in all its aspects; and (2) that the Commission accordingly considered the concept of bonus, the method of computation, the
machinery for enforcement and a statutory formula in place of the
one evolved by industrial adjudication.
We proceed next to examine some of the provisions of the Act
and its scheme.
The preamble of the Act stales that it is to provide for payment of bonus in certain establishments and for matters connected therewith.
Section I (3) provides that it shall apply "save as
otherwise provided in the Act" to (a) every factory and (b) every
other cstablbhment in which 20 or more persons arc employed on
any day during the accounting year. We may note that this subsection is in .:onsonance with one of the Commission's recommendations, viz. that its bonus formula should not be applied to small
shops and establishments which are not factories and which employ
less than 20 persons.
Having made clear that the Act is to apply
onlv to those establishments mentioned in s11b.-sec. (3). sub.-sec.
(4) 'rrovidcs that the Act shall have effect in respect of the accounting year 1964 and every q1bsequent year.
"Allocable surrlus"
under s. 2!4) means 67% in cases falling under cl. (a) and 60%
in other cases of the available surplus. Sec. 2(6) defines 'available
surrlus' to mean available surplus as computed under sec. 5. Sec.
2(15) defines "establishment in private sector" to mean any establishment other than an establishment in public sector. Sec. 2(16)
defines "establishment in public sector" as meaning (a) a Government company as defined in s. 617 of the Companies Act, 1956,
and (b) a Corporation in which not less than 40% of its capital
is held by Government or the Reserve Bank of India or a Corporation owned by Government or the Reserve Bank of India.
"Gross profits" as defined by sec. 2(18) means gross profits calA
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SUPREME COURT REPORTS
[1969]
377
culated under sec. 4.
Secs. 4 anq 5 provide for computation of
gross profits and available surplus after. ~ducting !h~refrom the
sums referred to in sec. 6 viz.,
deprecrallon admIBs1ble under
s. 32( 1) of the Income Tax Act or the relevant Agricultural Income Tax Act, development rebate or development allowance
admissible under the Income Tax Act and such other sums as are
specified in the thifd Schedule.
Sec. 7 deals with calculation. oi
direct tax. Secs. 8 and 9 deals with eligibility of and disqualification
from receiving bonus. Secs. 10 to 15 deal with minimum and maximum bonus and the provisions for 'set off' and 'set on'. Secs. 18,
19, and 21 to 31 deal with certain procedural and allied matters.
Sec. 20 deals with certain establishments in public sector to which
the Act is made applicable in certain events.
Sec. 32 excludes
from the application of the Act certain categories of employees
and certain establishments therein specified. Sec. 34 provides for
the overriding effect of the Act notwithstanding anything inconsistent therewith contained in any other law for the time being
in force or in terms of any award, agreement, settlement or contract of service made before May 29, 1965;
Sec. 35 saves the
provisions of the Coal Mines Provident Fund and Bonus Schemes
Act, 1948 or any scheme made thereunder.
Sec. 35 empowers
an appropriate Government having regard to the financial position and other relevant circumstances of any establishment or class
of establishments if it is of opinion that it would not be in public
interest to apply all or any of the provisions of the Act thereto,
to exempt for such period as may be specified by it such establishment or class of establishments from all or any of the provisions
of the Act. Sec. 39 provides as follows :-
"Save as otherwise expressly provided, the provisions of this Act shall be illj addition to and not in derogation of the Industrial Disputes Act, 1947 or any corresponding law relating to investigation and settlement
of industrial disputes in force in a State".
It will be noticed that sec. 22 provides that where a dispute arises between an employer and his employees (1) with respect to the bonus payable under the Act, or (2) with respect to
the application of the Act, such a dispute shall be deemed to be
an industrial
dispute within the meaning of the Industrial
Disputes Act, 194 7 or any corresponding law relating to investigation and settlement of industrial disputes in force in a State and
the provisions of that Act and such law, as the case may be, shall,
save as otherwise expressly provided, apply accordingly. An industrial dispute under the Industrial Disputes Act would be between a workman as defined in that Act and his employer and the
dispute can be an industrial dispute if it is one as defined therein.
But the definition .of an "employee" under .sec. 2(13) of this Act
is wider than that of a "workman" under .the Industrial Disputes
378
SUPREME COURT REPORTS
[1969] I S.C.R.
Act. A dispute between an employer and an employee, therefore,
may not fall under the Industrial Disputes Act and in such a case
the Act would not apply and its machinery for investigation and
settlement would not be available.
That being so, and in order
that such machinery for investigation and settlement mav be available, sec. 22 has been enacted to create a-legal fiction whereunder
such disputes are deemed to be industrial disputes under the Industrial Disputes Act or any other corresponding law.
For the purposes of such disputes the :irovisions of the Industrial Disputes
Act or such other law are made applicable. The effect of sec. 22
thus is ( 1) to make the disputes referred to therein industrial
disputes within the meaning of the Industrial Disputes Act or
other corresponding law and (2) having so done to apply the
provisions
of
that
Act
or
other
corresponding
law
for
investigation and settlement of such disputes.
But the application of
sec.
22
is
limited
only
to
the two
types
of
disputes
referred
to
therein
and
not
to
others.
Section
39, on the other hand, provides that "save as otherwise expressly
provided" the provisions of the Act shall be in addition to and not
in derogation of the Industrial Disputes Act or anv corresponding
law relating to invcsti_gation and settlement of industrial disputes
in force in a State.
Except for providing for recovery of honus
due under a settlement. award. or agreement as an arrear of land
revenue as laid down in sec. 21, the Act docs not provide any
machinery for the investigation and settlement of disputes between
an employer and an employee.
Tf a dispute. for instance, were
to arise as regards the quantum of available surplus, such a dispute not being one falling under sec. 22. Parliament had to make
a provision for . investigation and settlement thereof.
Though
such a dispute would not be an industrial dispute as defined by
the Industrial Disputes Act or other corresponding Act in force
in a State. sec. 39 by providing that the provisions of this Act
shall be· in addition to and not in derogation of the Industrial DLsputes Act or such corresponding law makes available the machinery in that Act or the corresponding Act available for investigation and settlement of industrial disputes thereunder for deciding
the disputes arising under this Act.
As already seen sec. 22 artificially makes two kinds of disputes therein referred to industrial
disputes and having done so applies the provisions of the Industrial Disputes Act and other correspondin.g law in force for their
-investigation -and settlement.
But what about the remaining disputes 0 · As the Act docs not provide any machinery for their investigation and settlement, Parliament by enacting sec. 39 has
sou)!ht to apply the provisions uf those Acts for investigation and
settlement of the remaining disputes, though such disputes arc not
industrial disputes as defined in those Acts.
Though. the words
"in force in a State" after the words "or any corresponding law
relating to investigation .and settlement
of industrial disputes"
appear- to qualify ihe words "any corresponding law" and not the
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GHEWAR CHAND v. WORKERS' UNION (She/at,!.)
379'
Industrial Disputes Act, the Industrial Disputes Act is primarily
a law relating to investigation and settlement of industrial disputes
and provides machinery therefor. Therefore the distinction there
made between that Act and the other laws does not seem to be
of much point. It is thus clear that by providing in s. 39 that the
provisions of this Act shall be in addition to and not in derogation of those Acts, Parliament wanted to avail of those Acts for
investigation and settlement of disputes which may arise under
this Act. The distinction between sec. 22 and sec. 39, therefore,
is that whereas sec. 22 by fiction makes the disputes referred to
therein industrial disputes and applies the provisions of the Industrial Disputes Act and other corresponding laws for the investigation and settlement thereof, Sec.