# THE WORKMEN OF M/S. BINNY LTD v. THE MANAGEMENT OF BINNY LTD. & ANOTHER

- **Citation:** [1985] Supp. 2 S.C.R. 652
- **Court:** Supreme Court of India
- **Decided:** 1985-08-22
- **Bench:** O. CHINNAPPA liliUUY, V. llALAKRISHNA ERADI, V. Khalid
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/the-workmen-of-m-s-binny-ltd-v-the-management-of-binny-ltd-another-9004
- **Pages:** 10

## Headnote

Payment of Bonus Act, Section 3 scope of, - Undertakings of
five companies get amalgamated with another in accordance with
the scheme of amalgamation sanctioned by the High Courts providing for preparation of a separate profit and loss account for the
C
year of amalgamation and also safeguarding the interest of workmen of a particular company and in particular their rights under
the payment of Bonus Act and Industrial Disputes Act - Whether
the new company take refuge under section 3 and refuse to pay
higher bonus as per the profit and loss account on the specious
plea that balance sheet has not been prepared - Construction of
.welfare legislation laws - Whether the adjudicating authority has
D
powers to direct the employers to prepare and submit a regular
balance sheet, on being satisfied that such balance sheet was not
prepared to defeat the claims of the employees.
The first respondent is a company incorporated on 30th June,
1969, which coanenced its busiuess in the name and style of Binny
E
Limited 0n and from Ist November, 1969. The appellants were
formerly employed by Binny & Co. Ltd. , and are now employed in
the Finabce, Trading and Agency Division of the respondent
Company. Messrs Binny & Co •. Limited in which the appellants were
formerly employed, was a well established British Company of a
standing of more than 170 years with branches all over India and
F
had accumulated huge reserves and was able to acquire interest in
various other companies namely, Messrs Buckingham and Carnatic
Co. Ltd., The Bangalore Woollen, Cotton and Silk Mills Co. Ltd.,
Binny Engineering Works Ltd .. , Gange Transport and Trading Company
Ltd.,
and Madura Company· Private Limited. All these five
companies were amalgamated in accordance with the scheme of
G
amalgamation sanctioned by different High Courts with the respondent Company. The scheme of amalgamation made provisions for
various matters. Clauae 12 of the scheme provided that "all the
employees of the amalgamating companies will become employees of
the new company without interruption in service and on terms no
less favourable to them.• Clauae 13 provided that "a separate
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WORKMEN v. MANAGEMENT OF BINNY LTD.
653
prof it and loss account would be prepared for each of the amalgamating companies for the financial year 1969. • The lligh Court
while sanctioning the scheme, included in paragraph 11 of the
order "In t.he result, the scheme of amalgamation is sanctioned
without prejudice to the rights of the employees of Binny and
A
Company Limited in working but their existing rights under the
B
aforesaid
Acts (Payment of Bonus Act and Industrial Disputes
Act) as against the new company, if they are so entitled." '
Till the year 1968, the employees of Binny & Co. Limited
namely, the appellants, had been getting the maximm bonus of 20
per cent of their gross salary every year in view of the huge
C
profit_s earned by the said company. However,. in the financial
year 1969, the respondent Company declared and paid the minimum
bonus of four per cent of the gross salary to the appellants
alougwith other employees of the respondent company,
who were
formerly
the employees of the remaining five amalgamating
companies on the basis of a consolidated profit and loss account
D
of the respondent company for the said year. The appellants
objected to this and raised a claim that they were entitled to
receive bonus at 20% of their gross salary on the basis of the
separate profit and loss account for the company formerly known
as Binny & Company Limited prepared under clause 13 of the .scheme
of amalgamation and which showed a profit of Rs.26,01,272 during
the fluanciaJ year 1969 in addition to a further sum of more than
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Rs. 10 ·lakhs lying i:o the credit of the ·appellants as on 31st
December,
1968. This claim was referred to the ,Industrial
Tribunal, Madras by a reference order dated 19th May, 1971,
directing the q.iestion of fixation of the quantum of bonus for
the year 1969 for adjudication. The Tri

## Text

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652
THE WORKMEN OF M/S. BINNY LTD.
v.
THE MANAGEMENT OF BINNY LTD. & ANOTHER
AUGUST 22, 1985
[O. CHINNAPPA liliUUY, V. llALAKRISHNA ERADI AND V. KHALID,.JJ.J
Payment of Bonus Act, Section 3 scope of, - Undertakings of
five companies get amalgamated with another in accordance with
the scheme of amalgamation sanctioned by the High Courts providing for preparation of a separate profit and loss account for the
C
year of amalgamation and also safeguarding the interest of workmen of a particular company and in particular their rights under
the payment of Bonus Act and Industrial Disputes Act - Whether
the new company take refuge under section 3 and refuse to pay
higher bonus as per the profit and loss account on the specious
plea that balance sheet has not been prepared - Construction of
.welfare legislation laws - Whether the adjudicating authority has
D
powers to direct the employers to prepare and submit a regular
balance sheet, on being satisfied that such balance sheet was not
prepared to defeat the claims of the employees.
The first respondent is a company incorporated on 30th June,
1969, which coanenced its busiuess in the name and style of Binny
E
Limited 0n and from Ist November, 1969. The appellants were
formerly employed by Binny & Co. Ltd. , and are now employed in
the Finabce, Trading and Agency Division of the respondent
Company. Messrs Binny & Co •. Limited in which the appellants were
formerly employed, was a well established British Company of a
standing of more than 170 years with branches all over India and
F
had accumulated huge reserves and was able to acquire interest in
various other companies namely, Messrs Buckingham and Carnatic
Co. Ltd., The Bangalore Woollen, Cotton and Silk Mills Co. Ltd.,
Binny Engineering Works Ltd .. , Gange Transport and Trading Company
Ltd.,
and Madura Company· Private Limited. All these five
companies were amalgamated in accordance with the scheme of
G
amalgamation sanctioned by different High Courts with the respondent Company. The scheme of amalgamation made provisions for
various matters. Clauae 12 of the scheme provided that "all the
employees of the amalgamating companies will become employees of
the new company without interruption in service and on terms no
less favourable to them.• Clauae 13 provided that "a separate
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WORKMEN v. MANAGEMENT OF BINNY LTD.
653
prof it and loss account would be prepared for each of the amalgamating companies for the financial year 1969. • The lligh Court
while sanctioning the scheme, included in paragraph 11 of the
order "In t.he result, the scheme of amalgamation is sanctioned
without prejudice to the rights of the employees of Binny and
A
Company Limited in working but their existing rights under the
B
aforesaid
Acts (Payment of Bonus Act and Industrial Disputes
Act) as against the new company, if they are so entitled." '
Till the year 1968, the employees of Binny & Co. Limited
namely, the appellants, had been getting the maximm bonus of 20
per cent of their gross salary every year in view of the huge
C
profit_s earned by the said company. However,. in the financial
year 1969, the respondent Company declared and paid the minimum
bonus of four per cent of the gross salary to the appellants
alougwith other employees of the respondent company,
who were
formerly
the employees of the remaining five amalgamating
companies on the basis of a consolidated profit and loss account
D
of the respondent company for the said year. The appellants
objected to this and raised a claim that they were entitled to
receive bonus at 20% of their gross salary on the basis of the
separate profit and loss account for the company formerly known
as Binny & Company Limited prepared under clause 13 of the .scheme
of amalgamation and which showed a profit of Rs.26,01,272 during
the fluanciaJ year 1969 in addition to a further sum of more than
E
Rs. 10 ·lakhs lying i:o the credit of the ·appellants as on 31st
December,
1968. This claim was referred to the ,Industrial
Tribunal, Madras by a reference order dated 19th May, 1971,
directing the q.iestion of fixation of the quantum of bonus for
the year 1969 for adjudication. The Tribunal considered the
evidence before it and also referred to the relevant provisions
F
of the law governing the question and came to the conclusion that
no separate balance sheet was prepared for this company and the
quantification of the bonus payable and to be made on the consolidated surplus available taking into account the balance sheet
of the •malgamating companies under section 3 of the payment of
the Bonus Act. Hence the appeal by special leave.
G
Allowing the appeal, the court,
Bl!LD:
1~ -It is trite law that in matters of welfare legislation, especially involving labour, the terma of contracts and
the provisions of law should be liberally construed in favour of
the week. [658 H, 659 A]
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SUPREME COURT REPORTS
[1985] SUPP;2 s.c.R.
2.1 Where an amalgamating unit can prepare a balance sheet,
when a trial balance sheet and profit and loss account are available, omission to do so deliberately and without any valid reason
would amount to denial of the benefit of the proviso to section 3
of the Payment of Bonus Act to the employees of such as amalgamating unit. [659 F-G]
2.2
When evidence and facts made· available before the
Court show that the claim of the employees (on the strength of
profit and loss account and trial balance-sheet) ia justifiable,
it would be not only improper but unjust for the Courts and
Tribunals to deny to themselves the jurisdiction to direct a ·
company to prepare a balance-sheet in terms of the profit and
loss account and the trial balance-sheet. To say that Tribunals
or Court cannot even in such exceptional situations direct the
employer company to prepare the balance-sheet
would
create
undesirable results, adverse to the employees. [659 B-C, F-G]
3.1
Section 3 is an enabling provision in favour of the
employers. When an establishment consists of different departments. undertakings or branches. all stich departments. undertakings or branches shall be treated as part of the 8ame establishment for the pcrpose of comput;ation of bonus under the Act.
This means that the employees will be entitled to bonus on the
basis of the surplus available from all the units put together.
The proviso speaks of separate balance-sheet and profit and loss
aecount being prepared and maintained for any accounting year in
respect of· one of the units of the whole undertaldng. In such
c&ses, the computation of allocable surplus for the payment of
bonus should be cin the basis of such separate profit and loss
account and balance-sheet t11us prepared and the employees will be
entitled· to claim bonus on this basis. The claim of the employees
on this basis can be defeated only if this separate unit was
treated as part of the establishment for the computation of bonus
immediately
before
commencsment
of
thPaccounting year in
question. In this case, the company has not put forward a plea
that for the previous year, Binny and Company Ltd., was treated
as part"of the respondent company for the purpose of c011pUtation
of bonus. The only pl<:a put forward is that no separate balancesheet was prepared for this unit. [659 H, 660 A-DJ
,.
_
3.2
The mere omnission to prepare a separate balancesheet for one of the amalgamating units will not by itself help
the company to deny bonus to the employees of such a unit. When
profit and loss 8.Ccount and trial balance-sheet are prepared
there should be no difficulty in preparing the regular balancesheet. [660 D-E]
WORKMEN v. MANAGEMENT OF. BINNY LTD. [KHALID, J. j
655
CIVIL APPELLATE JURISDIGrION : Civil Appeal No.440 of 1973.
From the Award dated 20.5.1972 of the Industrial Tribunal
Madras in I.D. No. 35 of 1971.
M.K. Ramamurthi and J, Ramamurthi for the Appellant.
G.d. Pai and Rameshwar Nath for the Respondents.
The Judgment of the court was delivered by
KHALID, J.
This is an appeal, by special leave, filed by
the Binny Employees Association, a registered trade union,
against the award dated 20th May, 1972, made by the Industrial
Tribunal, Madras, I.D. No. 35/71.
The first respondent is a company incorporated on .30th June,
1969, which commenced its business in the name and style of Binny
Limited. on and from 1st November, 1969.
The petitioners were
formerly employed by l!inny & Co. Ltd., and are now employed in
the Finance, Trading and Agency Division of the respondent
company. Messrs Hinny & Co. Limited in which the petitioners were
formerly employed, was a well established British company of a
standing of more than 170 years with branches all over India. The
company had accumulated huge reserves and . was able to acquire
interest in various other companies. Such companies are Messrs
Buckingham and Carnatic Co. Ltd., The Bangalore Woollen, Cotton
and Silk Mills Co. Ltd. , Binny Engineering Works Ltd. , Gange
Transport and Trading Company Ltd. and Madura Company Private
Limited.
Pursuant to orders passed in company petitions in va~ious
High Courts and in accordance with the scheme of amalgamation
sanctioned by the High Courts, the undertakings of all the five
companies referred to above were amalgamated with the respondent
company. The scheme of amalgamation made provisions for various
matters. Clause 12 of the scheme provided that "all the ""'Ployees
of the mn•lgmnating cmpanles will become EDployees of the new
anpany without interruptioo in service aod on tems no less
favourable to them" Clause 13 provided that "a separate profit
aod loss accowt -1.d be prepan!d for each of the ams! gmnating
compmdes for tbe f!Mnclal year 1969" The six compsril.es filed
company petitions in the high Court of Madras £or sanction of the
scheme of amalgamation. Notices as required under the Companies
Act were published. The Secretary of the Employees' Union opposed
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SUPREME COURT REPORTS
[1985] SUPP.2 s.c.R.
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to the unconditional grant of approval .to the scheme of amalgamation and wanted to get rights of the employees safe guarded and
for the purpose requested the Court for incorporation of certain
conditions in the order of sanction. The High Court while sanctioning the scheme included the following paragraph 11 of the
order:
B
c
"In the resl,llt, the scheme of amalgamation is sanctioned
without
prejudice
to
the rights
of
the
employees of Binny and Company Limited in working out
their existing rights under
the
aforesaid Acts
(Payment of Bonus Act and Industrial Disputes Act) as
against the new company, if they are so entitled."
Till the year 1968, the employees of Binny & Co. Limited
viz., the petitioners, had been getting the maximum bonus of 20
per cent- of their gross salary every year in view of the huge
profits earned by the said company. However, in the financial
year 1969,. the respondent company declared and paid the minimum
bonus of .. four per cent of the gross salary to the petitioners
D
along with other employees of the respondent company, who were
formerly · the
employees
of
the remaining five amalgamating
companies o~ the basis of a consolidated profit and loss account
of ·the respondent company for the said year. The petitioners
objected to this and rai~ed a claim that they were entitled to
receive bonus at 20 per cent of their gross salary on the basis
E
of.the separate profit and loss account for the company formerly
kllown as Binny & Company Limited. 1bis claim was referred to the
Industrial Tribunal, Madras, by a reference order dated 19th May,
1971, directing the question of fixation of the quantum of bonus
for the year 1969 for adjudication. The Tribunal considered the
evidence before it and also ref erred to the relevant provisions
F
of the law governing the question and came to the conclusion that
no separate balance-sheet was prepared for this company and
the
quantification of the bonus payable had to be made on the consolidated surplus avaiiable taking into account the balance-sheet
·Of the amalgamating companies. Hence this appeal.
G
The case of the appellant before the Tribunal and repeated
b~~ore us is that the amalgamating companies maintained separ3te
prQf it and loss accounts notwithstanding their amalgamation into
t~e resp0ndent company •. They also stated that the provident fund
account of the employees of each amalgamated unit was also
separately ~intained. The petitioners relied upon clause 13 of
H·
the scherlle which provided that 111: so far as the financial year
'
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WORKMEN v. MANAGEMENT OF BINNY LTD. [KHALID, J.j
657
1969 is concerned a separate profit and loss account for each of
A
the_arilalgamating companies would be prepared and that 1 in fact 1 a
separate profit and loss account was prepared accordingly for
that year. This profit and loss account shows that Binny &
Company Ltd., of which the petitioners were originally employed,
had earned a profit of Rs. 26,01,272 during the financial year
1969 in addition to a further sum of mm:e than Rs •• lQ lakhs lying
E
to the crdit of the petitioners as on 31st December, 1968. If the
profit mentioned above. is taken into account, the ··petitioners
contend, that they would be entitled to the maximum bonus of 20
per cent of their gross salary for the year 1969.
The respondent company pleaded in their return that conseC
quent to the amalgamation,
the respondent company (Binny &
Company Limited) became a single unit and all the employees were
covered by the same i:erms of the Payment of Bonus Act. They
denied that the business '1-Ctiv,ities of the former Binny & Co.
Limited constituted a separate department or undertaking as
envisaged in the Payment of ,Bonus Act. According to them there
r
was only a single balance-sheet for the whole Binny Limited. They
admitted that separate profit and loss account was prepared for
the year 1969 for the finance, trading and agency division and
the garment factory (former Binny & Company Limited) as required
in the scheme of amalgamation, but no separate ·balance~sheet was
prepared. The company relied upon Section 3 of the Payment of
E
Bonus Act which stated that the various companies which have been
amalgamated should be treated as part of the same establishment
under the Ac:.t for the p.μrpose of c·omputation of bonus.
It is against these facts,
that the controversy in this
,appeal has to be decided. The only question that is involved in
this appeal is as to which is the undertaking whose trading
f
profits have to be taken into consideration for computing the
bonus for the year 1969: the employees' union contending that it'
is 'the trading profits of the former Binny & Company Limited and
the respondent company contending that it is the total profits· of
the six units put together.
Before proceeding further, we may usefully quote· Section 3
of the Payment of Bonus Act:
"Where an establishment consists of different departments or undertakings or has branChes, whether situated in the Same place or in different plaCes, all such
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SUPREME COURT REPORTS
[1985] SUPP.2 s.c.R.
departments or undertakings or branches shall be treated as parts of the same establislnnent for the purpose
of computation of bonus under this Act:
Provided that where for any accounting year a separate
balance-sheet and profit and loss account are prepared
, and maintained in respect of any such department or
undertaking or branch shall be treated as a separate
establishment for the purpose of computation of bonus
under this Act for that year, unless such department
or undertaking or branch was immediately before the
commencement of that accounting year treated as part
of the establishment for the purpose of computation of
bonus."
This section provides that different departments or undertakings or branches of an establishment should be treated as part
of the same establishment for the purpose of computation of bonus
under the Act. For our purpose, the proviso is important. The
proviso deals with situations where in any accounting year, a
separate balance-sheet and profit and loss account are prepared
and maintained in respect of any such department of an establishment. It is not disputed that the profit and loss account for the
Binny & Company Limited was, in fact, prepared. Nor is it disputed that a trial balance-sheet was also prepared for this unit.
But the company takes refuge in the plea that a separate balancesheet was not prepared for this unit, to opt out of the proviso
to Section 3. To reinforce this plea, the company relies upon
clause 13 of the Scheme which reads as follows:
"Separate Prof it and loss account will be prepared for
each of the amalgamating companies for the financial
year 1969."
The contention of the company is that this clause speaks
only of Separate profit and loss account for each of the amalgamated companies for the financial year 1969 and not of a separate
balance-sheet for this year. The question before us is whether
the company
could be permitted to put forward such a specious
plea to defeat the claim of the employees, though the profit and
loss account and the trial balance-sheet disclose surplus permitting the company to pay 20 per cent bonus as claimed by the
petitioners. It is trite. law that in matters of welfare legislation, especially involving labour, the terms of contracts and
provisions of l~w should be liberally construed in favour of the
WORKMEN v. MANAGEMENT OF BINNY LTD. [KHALID, J.j
659
weak. If only a separate balance-sheet had been prepared for this
unit, the company would have had no answer to the claim made by
the petitioners. It could be that a separate balance-sheet was
not prepared deliberately to avoid payment of bcnus to the
employees of this unit under the cover of the proviso to Section
3 of the Payment of Bonus Act and clause 13 of the Scheme. When
evidence and facts made available before the Court show that the
claim of the employees (on the strength of profit and loss
account and trial balance-sheet) is justifiable, it would be not
only improper but unjust for the Courts and Tribunals to deny to
~hemselves the jurisdiction to direct a company to prepare a
balance-sheet in terms of the profit and loss account and the
trial balance-sheet.
We
thought it necessary to make
this
position clear because of the observations made by the Tribunal
in ~he award in answer to the plea raised by the Union that the
Tribunal could .authorise prP.paration of a
balance-sheet under
Section 25 of the Payment of Bonus Act and in the light of such
balance-sheet, so prepared, the Court could proceed to award
bonus on the allocable surplus. That por~ion of the award reads
as follows:
"But Section 25 does not apply to a company as in this
case. The section does not authorise Court to prepare
a balance-sheet. Even otherwise, I cannot agree that
the Court can order a balance-sheet to be prepared
from the accounts available of Binny & Co. and act on
it under Section 3 of the Act for the simple reasor"
that a balance-sheet so drawn up cannot by any stretch
of imagination be considered to ·be prepared and
maintained by the undertaking or unit."
If this statement of the Tribunal is accepted as the correct
law that would result .in .adverse consequences on t.he employees
and would .render them helpless in their claims for bonus, in
situations like the one that we have in this case. Where an
amalgamating unit can prepare a balance-sheet,
when
a
trial
balance-sheet and profit and loss account are available, omission
to do so deliberately and without any valil: reason would amount
to denial of the benefit of the proviso to the empioyees of such
an amalgamating unit. To say that Tribunals or Court cannot even
in such exceptional situations direct the employer comi-:.lny to
prepare the balance-sheet would in our opinion,
create undesirable results, adverse to the employees.
It is necessary t:o ·bear in ;nind t:he scope of Sect Lon '3
-~n.d
its proviso. Sec-:.:ion 3 is an enabling provision in fa\·our ,_:if t!·.·.:
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SUPREME COURT REPORTS
[1985] SUPP.2 s.c.R.
employers. When ah establishment consists of different departments, undertakings or branches, all such departments, undertakings or branches shall be treated as part of the same establishment for the purpose of computation of bonus under the Act.
This means that the employees will be entitled to bonus on the
basis of the surplus available from all the units put together.
The proviso speaks of separate balance-sheet and profit and loss
account being prepared and maintained for any accounting year in
respect of one of the units of the whole undertaking. In such
case, the .computation of allocable surplus for the payment of
bonus should be on the basis of such separate profit and loss
account and balance-sheet thus prepared and the employees will be
ent.itled to claim bonus on this basis. The claim of the employees
on this basis can be defeated only if this separate unit was
treated as part of the establislnnent for the computation of bonus
innnediately
Qefore
connnencem.ent
of
the
accounting year
in
qu~stion.·. In this case, the company has not put forward a plea
that for the previous year, Binny£ Company Ltd., was treated as
part of the responden.t company for the purpose of computation of
bonus. The only plea put forward is that no separate balancesheet was prepared for this unit. The mere omission to prepare a
separate balance-sheet for one of the amalgamating units will not
by its elf help the company to deny bonus to the employees of such
a unit. W~en_profit & loss account and trial balance-sheet are
prepared one fails to understand the difficulty in preparing the
regular balance-sheet. It is not disputed,
nor
can it be
disputed on the materials available before us, that the employees
of Binny & Company Ltd., could get 20 per cent bonus as claimed
by them. They cannot be denied this bonus merely on the ground
that separate balance-sheet was not prepared for their uni~ when
all the materials were available for preparation of such ·a
balance-sheet.
The employees should be deemed to have foreseen the difficulties of this kind when they sought and obtained an order from
the High \A>urt 'about which mention has been made earlier to see
that their rights were safeguarded and the scheme of amalgamation
was _not permitted to work tC their detriment.
We do not think it necessary
to consider the various authorities on this point in detail because the dispute falls within a
short factual compass which we have indicated above. We would
like -to make it clear that ·in situations like this where the
second part of the proviso to Section 3 is hot attracted, the
WORKMEN v. MANAGEMENT OF BINNY LTD. [KHALID, J.J
661
adjudicating authority has powers to direct that the employers to
prepare and submit a regular balance-sheet,
on being satisfied
that such balance-sheet was not prepared to defeat. the claims of
the employees. In our· opi·nion, the appeal has to succeed. We,
therefore, set aside the order of the Industrial Tribunal,
Madras, allow this appeal and uphold the claim of the petitioners
for 20 per cent bonus. The first respondent is directed to pay
the cost of the petitioners.
S.R.
Appeal allowed.
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