Recently, the Supreme Court held that charitable institutions running registered factories for commercial manufacturing are not exempt from the Payment of Bonus Act,1965, merely due to their charitable status. The Court clarified that once a factory is governed by the Factories Act and generates surplus, the Bonus Act applies regardless of the institution's objectives.
Brief Facts:
The appellant, a trust originally known as the Swedish Red Cross Rehabilitation Trust and now functioning as the Workshop for Rehabilitation and Training of the Handicapped (WORTH), has been involved in charitable rehabilitation activities for leprosy-cured and differently-abled persons. Since 1985, it has also begun engaging in manufacturing automobile and industrial machinery parts through its factories, thereby generating surplus income.
The workmen employed in these factories, largely comprising individuals who were leprosy-cured or differently abled, formed a union and raised an industrial dispute in 1998 seeking bonus and ex gratia for the year 1996–97. The Industrial Tribunal partly allowed their claim, granting a statutory minimum bonus of 8.33% and recognizing ex gratia already being paid. The High Court, while upholding the award, directed that the bonus amount must be calculated after deducting the ex gratia amount. Aggrieved, the appellant trust challenged the High Court’s judgment before the Supreme Court.
Contentions of the Appellant:
The counsel for the appellant argued that it is exempted from the Payment of Bonus Act under Section 32(v)(a) and Section 32(v)(c). Further, the counsel contended that it was originally established by the Swedish Red Cross and, like the Indian Red Cross Society, is an institution of a similar nature involved in social and welfare activities.
It was also stated that it is not a profit-making body and operates factories solely to support the employment and rehabilitation of specially-abled persons. Therefore, it qualifies for exemption under Section 32(v)(a), being akin to the Indian Red Cross Society, or under Section 32(v)(c), as an institution not established for profit.
Observations of the Court:
The Supreme Court rejected the plea of exemption under Section 32. The Court carefully interpreted the statutory scheme of the Payment of Bonus Act, particularly Sections 1(3)(a), 10, 11, and 32(v), in conjunction with definitions under the Factories Act, 1948. The Court stated, “There is no dispute that the factories operated by the appellant fall squarely within the definition of ‘factory’ under Section 2(17) of the Bonus Act read with Section 2(m) of the Factories Act, 1948.”
Regarding Section 32(v)(a) and (c), the Court clarified, “The exemption under Section 32(v)(a) applies only to the Indian Red Cross Society or institutions of a like nature in both form and function. Merely having a similar name or initial foreign affiliation is not sufficient to invoke the exemption.” On the appellant’s alternative argument under Section 32(v)(c), the Court held, “Even if the institution is charitable in its broader mission, once it engages in commercial activity through a manufacturing process governed by the Factories Act and generates surplus, it cannot claim to be established ‘not for purposes of profit’ for the purpose of the Bonus Act.”
Further elaborating on the object and intent of the legislation, the Court observed, “The purpose of the Bonus Act is to ensure equitable distribution of profits with employees. If such profit-generating industrial undertakings are exempted solely on account of the charitable status of the parent trust, the legislative object would stand defeated.”
The decision of the Court:
The Apex Court dismissed the appeal, affirming the findings of the Tribunal and the High Court. It upheld that the appellant trust, despite its charitable character, is obligated to comply with the provisions of the Payment of Bonus Act, 1965, for the workmen engaged in its factories. The trust was held liable to pay the statutory minimum bonus after deducting the amount already paid as ex gratia, as directed by the High Court.
Case Title: The Management of Worth Trust vs. The Secretary, Worth Trust Workers Union
Case No.: SLP (c) No. 20474 of 2019
Coram: Justice Sudhanshu Dhulia, Justice K. Vinod Chandran
Advocate for Petitioner: Adv. R. Anand Padmanabhan (Sr.Adv.), Arimardhan Sharma, Ruchi Arya, Shashi Bhushan Kumar (AOR)
Advocate for Respondent: Adv. Gautam Narayan (Sr. Adv.), Asmita Singh (AOR), Abheet Mangleek, Tushar Nair, Anirudh Anand, Punishk Handa
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