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Jalan Trading Co. Private Ltd. Vs. Mill Mazdoor Union [1966] INSC 132 (5 August 1966)
1966 Latest Caselaw 132 SC

Citation : 1966 Latest Caselaw 132 SC
Judgement Date : 05 Aug 1966

    

Constitution of India
Government of India Act, 1935
Industrial Disputes Act, 1947
Payment of Bonus Act, 1965

Bijay Cotton Mills Ltd. Vs. The State of Ajmer [1954] INSC 90 (14 October 1954)

Headnote :

While a reference under Section 73-A of the Bombay Industrial Relations Act, 1946 was pending before the Industrial Tribunal in Bombay regarding a demand for bonus payments for the years 1961 and 1962, the President promulgated the Payment of Bonus Ordinance 3 of 1965 on May 29, 1965, effective immediately. The workmen\'s representatives argued that even if the employers\' claim of a loss in the profit and loss account for those years was accurate, the ordinance applied to the dispute, entitling employees to a minimum bonus of 4% of their salary or wages, or Rs. 40, whichever was greater. The Industrial Court supported the workmen\'s claim, ordering the employers to pay each employee a bonus for 1962 equivalent to 15 days\' salary or wages, or Rs. 40, whichever was higher, in accordance with the Bonus Ordinance, 1965. The employers appealed to this Court with special leave, contesting the validity of the Payment of Bonus Act, 1965, which repealed Ordinance 3 of 1965, particularly the provisions mandating the minimum bonus payment under the Act.



HELD: (i) The contested legislation was within Parliament\'s legislative competence and did not constitute a colorable exercise of power or a fraud on the Constitution.



[27 B] Referenced cases: Express Newspapers (Private) Ltd. v. Union of India, [1959] S.C.R. 12 and K. C. Gajapati Narayan Deo & Ors. v. State of Orissa, [1954] S.C.R. 1.



(ii) The authority granted to the appropriate Government under Section 36 to exempt certain establishments from the Act\'s provisions was not an unguided power, as the Government was required to consider public interest, the establishment\'s financial status, and other relevant factors before exercising this power. Thus, there was no excessive delegation of legislative authority, and Section 36 was valid. [31 F-G] (iii) According to Justices Wanchoo, Shah, and Sikri, Section 10 is a crucial part of a framework designed to provide bonus payments at stable rates rather than fluctuating annually. It is not beneficial for either capital or labor to have significant variations in bonus payments from year to year. [33 H] The Act aims to foster peace and harmony between labor and capital by allowing employees to share in the establishment\'s prosperity, as reflected by profits generated through contributions from capital, management, and labor. Consequently, Parliament stipulated that bonuses in any given year should not exceed 1/5th and should not be less than 1/25th of each employee\'s total earnings, with excess amounts carried forward to the next year, and any minimum bonus not absorbed by available profits set off against profits in subsequent years.



This system of establishing maximum and minimum bonus rates, along with the \'set off\' and \'set on\' provisions, not only secures labor\'s right to participate in the establishment\'s prosperity but also ensures a reasonable degree of consistency. [34 C-D] Equal protection under the law is violated if similarly situated individuals, objects, or transactions are treated differently without a rational basis related to the law\'s intended objective. When evaluated against the Act\'s purpose and the set off and set on framework, the minimum bonus payment provision cannot be deemed discriminatory among different establishments that are unable to pay bonuses based solely on the profits of the accounting year, as a uniform minimum rate is applied to them. [34 F] Kunnathat Thathunni Moopil Nair v. State of Kerala and Another, [1961] 3 S.C.R. 77, distinguished.



Section 10 indeed categorizes establishments with insufficient profits that do not justify bonus payments, those with marginal losses, and those with significant losses into the same class. This classification is not irrational, as all establishments unable to pay bonuses under the Act\'s framework due to their operational results are grouped together. [35 F] Therefore, Section 10 is not subject to challenge on the grounds of violating equality under Article 14. [36 C] The challenge under Article 31(1) was also unfounded. This article protects against property deprivation without legal authority. While compelling an employer to pay amounts not contractually owed may constitute property deprivation, the protection under Article 31(1) applies only if the deprivation is not sanctioned by law. In this case, the deprivation was indeed authorized by law. [36 F-H] Justices Hidayatullah and Ramaswami concurred, stating that the minimum bonus provision, along with the set off provision, cannot be deemed so excessive as to amount to property deprivation from employers for the benefit of workers. [56 E-F] The observations in Moopil Nair\'s case, while broad, should not be analogously applied to a minimum bonus case aimed at promoting industrial peace and advancing towards need-based wages. Even if the minimum bonus is viewed as a compulsory wage payment, the authority to impose it as part of the minimum wage is justified. It is important to remember that the establishment\'s paying capacity or lack of profit does not alter this justification. [56 G-H] Kunnathat Thathunni Moopil Nair v. State of Kerala & Anr., [1961] 3 S.C.R. 77, distinguished.



Edward Mills Co. Ltd. Beawar v. State of Ajmer, [1955] 1 S.C.R. 735, Bijay Cotton Mills Ltd. v. State of Ajmer, [1955] 1 S.C.R. 752, Express Newspapers (Pvt.) Ltd. & Anr. v. Union of India & Ors., [1959] S.C.R. 12, and U. Unichoyi & Ors. v. State of Kerala, [1962] 1 S.C.R. 946, were cited. The provision for a bonus of 15 days\' wages to workers, regardless of profits, is a well-designed measure to maintain industrial peace and pave the way for need-based wages, as emphasized by the Tripartite Conference. Some degree of unequal treatment can always be perceived when laws are uniformly applied. Two establishments cannot be entirely identical; differences must exist, but this does not preclude the creation of uniform laws for them, provided the law has a rational connection to the intended objective and the inequality is minor or hypothetical. Classification should only be insisted upon if it is feasible, and the power to classify need not always be exercised when reasonable classification is not possible. Section 10 does not create such inequality that could be termed discriminatory.



[57 D-E] (iv) According to Justices Wanchoo, Shah, and Sikri, the application of the Act retroactively under Section 33 depends on whether an industrial dispute regarding bonus payments for any accounting year not earlier than the year ending on any day in 1962 was pending immediately before May 29, 1965. If no such dispute was pending at that time, an establishment would be governed by the Full Bench Formula and would only be liable to pay bonuses if there were adequate profits justifying such payments. However, if a dispute was pending immediately before May 29, 1965, the Act\'s provisions would apply not only to the year in question but also to subsequent years. Assuming the classification was based on some intelligible difference distinguishing one establishment from another, this difference lacks a rational connection to the statutory objective of ensuring peaceful relations between capital and labor through equitable profit distribution. The arbitrariness of the classification becomes more evident when considering that for the year following the one in which a dispute is pending, the Act\'s liability applies even if no dispute exists for those subsequent years, while an establishment without a pending dispute before May 29, 1965, would not face such liability. Thus, two similarly situated establishments without pending disputes regarding bonuses in a specific year would be treated differently based solely on whether a previous year\'s dispute was pending in one establishment and not the other. [40 C-G] The liability imposed by the Act for bonus payments is more burdensome than the liability that existed under the Full Bench Formula prior to the Act\'s enactment. This onerous liability, hinging solely on the chance occurrence of a pending dispute regarding bonuses immediately before May 29, 1965, is evidently arbitrary, and the classification based on this circumstance is unreasonable. [40 H-I] Discrimination also arises from the distinction made in the section between disputes pending before this Court or the High Court and those pending before the Industrial Tribunal or the appropriate Government, with the former not being considered pending for the section\'s purposes. There is no logical basis for this distinction. [41 C] Justices Hidayatullah and Ramaswami dissented, stating that Section 33, by uniformly addressing all cases pending on May 29, 1965, without discrimination, established a rational classification. Therefore, the section cannot be deemed invalid due to inequality. [64 E-F] In Section 33, no consideration was given to cases pending before the High Court and Supreme Court because their jurisdiction is either supervisory or appellate, and the intention was to encompass cases where no decisions had yet been made by the authorities designated under the industrial disputes law. Disputes prior to 1962 were excluded because a cutoff date was necessary, and 1962 was a rational choice since the Bonus Commission began its deliberations that year. [63 G] In various statutes, a date is typically chosen to delineate pending cases, and the selection of such a date has rarely been successfully challenged if a rational basis for its selection exists. If the Act aimed to resolve disputes through its provisions, it needed to specify which disputes would be addressed, and the date of the Ordinance\'s promulgation was a logical choice. Thus, the pendency of disputes concerning the Ordinance and the reopening of accounting years up to the year when the Bonus Commission began its deliberations was reasonable and not arbitrary. [63 H] The provision regarding the reopening of intervening accounting years for bonus re-fixation was also logical. If a dispute regarding 1962 or a later year was resolved under the Act, it was essential to reconsider subsequent years, even if no disputes existed in those years. The Act\'s process is integrated, and the principles of set on and set off involve four accounting years to prevent extraordinary outcomes. [64 E] The different treatment of establishments with pending disputes does not violate equality. The mere existence of a dispute in one establishment and not in another clearly differentiates the two. The distinguishing feature of the dispute\'s pendency at the time of the Ordinance\'s promulgation creates a distinct class of cases, and the classification made by the Act is rational. While the Act\'s bonus liability may be greater in some instances, it may also be less in others. The Act does not differentiate treatment within the class it addresses; all establishments with pending disputes are treated uniformly. [64 C-E] (v) According to Justices Wanchoo, Shah, and Sikri, Section 34 imposes a specific liability to pay bonuses based on the gross profits of the base year, assuming that the ratio determining the allocable surplus is the normal ratio unaffected by special circumstances, and perpetuates this ratio for the duration of the Act to determine the minimum allocable surplus each year. If the bonus intended to be paid under the Act aims to equitably distribute the surplus profits of a particular year, a scheme for calculating labor\'s share that cannot be less than the amount determined by applying a ratio derived from the base year\'s performance, without considering the special circumstances affecting that determination, is prima facie arbitrary and unreasonable. While the ratio may have been intended to stabilize previous bonus grants and maintain labor\'s benefits achieved through collective bargaining in the base year, the validity of a statute is subject to judicial review concerning the fundamental freedoms guaranteed to both employers and employees. The principle of equal protection under the law becomes illusory if the only justification for a statute that appears discriminatory is that Parliament intended to preserve for labor an advantage obtained in an earlier year based on that year\'s unique circumstances, without assessing whether that advantage could reasonably be granted in subsequent years according to the principles established by the Act to achieve its objectives. If the concept of a bonus as an equitable share of surplus profits earned by workers is to be meaningful, any stipulation that the ratio determining one party\'s share, based on the previous year\'s performance without considering the special circumstances affecting profit generation and bonus payments in that year, remains unchanged, is arbitrary and unreasonable.



The flaw in the provision lies in the imposition of an arbitrary ratio governing the distribution of surplus profits.



Section 34(2) is invalid as it violates Article 14 of the Constitution. [45 H-46 F] Justices Hidayatullah and Ramaswami dissented, asserting that Section 34(1), criticized for abandoning established principles and fixing a permanent ratio, is not invalid. The Act was enacted to enhance certainty, improve employer-employee relations, and prevent disputes. It is important to recognize that in many establishments, past bonus payments resulted from collective bargaining, and labor was unlikely to relinquish the advantages gained. Any successful legislation had to preserve labor\'s perceived rights in a given establishment. By establishing a base year and insisting on maintaining the same principles for bonus payments, establishments could clearly understand their future bonus liabilities. If extraordinary circumstances arise, the set on and set off provisions would alleviate the burden for employers or employees. The existence of a fixed ratio applicable to all establishments under Section 34(2) does not create inequality. [64 F-65 C] (vi) According to Justices Wanchoo, Shah, and Sikri, Section 37 empowers the Government to determine the purposes of the Act and to provide for the resolution of doubts or difficulties. This effectively amounts to the delegation of legislative authority, which cannot be assigned to an executive body. Sub-section (2) of Section 37, which makes the Central Government\'s order in such cases final, exacerbates the issue in sub-section (1) by allowing the Government to unilaterally decide whether a doubt or difficulty has arisen in implementing the Act\'s provisions, whether it is necessary or expedient to address the doubt or difficulty, and whether the enacted provision aligns with the Act\'s purpose. Therefore, Section 37 is invalid. [32 A-C] Justices Hidayatullah and Ramaswami dissented, arguing that the functions exercised under Section 37 are not legislative but are intended to further the Legislature\'s objectives. Recognizing that doubts and difficulties might arise in applying the new Act, Parliament chose to empower the Central Government to resolve these issues efficiently, avoiding delays and expenses associated with court proceedings. The Central Government\'s order would be confined within the parameters of parliamentary legislation and would apply the Act to specific cases, similar to how courts interpret the Act\'s application. The finality of the Central Government\'s order is practical, as it is impractical to grant power to the Central Government while allowing for further litigation. The fact that such powers were contemplated in the Government of India Act, 1935, and the Constitution, and have been conferred in various Acts without challenge, indicates that the argument claiming Section 37 constitutes a delegation of legislative powers to the Central Government is incorrect. Thus, Section 37 is valid. [As for the validity of Section 32 concerning Article 14 of the Constitution, the Court found insufficient material on record to resolve the issue.] [58 H-59 E]
 

Jalan Trading Co. Private Ltd. Vs. Mill Mazdoor Union [1966] INSC 132 (5 August 1966)

05/08/1966 SHAH, J.C.

SHAH, J.C.

WANCHOO, K.N.

HIDAYATULLAH, M.

SIKRI, S.M.

RAMASWAMI, V.

CITATION: 1967 AIR 691 1967 SCR (1) 15

CITATOR INFO:

R 1968 SC 162 (18) RF 1968 SC1138 (35) E 1968 SC1232 (53) E 1970 SC 778 (11) F 1970 SC1421 (3) RF 1970 SC1765 (10) R 1972 SC1690 (20) D 1974 SC 960 (38) R 1974 SC1300 (74) RF 1975 SC 511 (17) RF 1976 SC1455 (30) RF 1980 SC1789 (36)

ACT:

Constitution of India, 1950, Arts. 14, 31(1)-Payment of Bonus Act, 1965, ss. 10, 33, 36, 37--sections whether discriminatory-Section 10 whether deprivation of property.

HEADNOTE:

During the pendency before the Industrial Tribunal, Bombay, of a reference under s. 73-A of the Bombay Industrial Relations Act, 1946, which arose out of a demand for the payment of bonus for the years 1961 and 1962 the Payment of Bonus Ordinance 3 of 1965 was promulgated by the President on May 29, 1965 with immediate effect. The representatives of the workmen claimed that even if the plea of the employers that the profit and loss account of establishment for the years in question disclosed a loss, was correct, the ordinance governed the dispute and that the employees were entitled to receive bonus, at the minimum rate of 4% of the salary or wages or Rs. 40 whichever was higher. The Industrial Court upheld the plea of the workmen and directed the employers subject to the provisions of the Bonus Ordinance, 1965 to pay to each employee bonus for the year 1962 equivalent to 15 days' of the salary or wages or Rs. 40 whichever was higher. With special leave the employers appealed to this Court and challenged the validity of the payment of Bonus Act, 1965, which repealed Ordinance 3 of 1965 and especially of the provisions under which bonus at minimum rate was made payable under the Act.

HELD: (i) The impugned legislation was within the legislative competence of Parliament and therefore not a colourable exercise of power or a fraud on the Constitution.

[27 B] Express Newspapers (Private) Ltd. v. Union of India, [1959] S.C.R. 12 and K. C. Gajapati Narayan Deo & Ors. v. State of Orissa, [1954] S.C.R. 1, referred to.

(ii) The power to exempt certain establishments from the operation of the Act given to the appropriate Government under s. 36 was not an unguided power because the Government was enjoined to take public interest, the financial position of the establishment, and other relevant circumstances into consideration before exercising the said power. There was therefore no excessive delegation of leg= authority by s. 36 and the section was valid, [31 F-G] (iii) Per Wanchoo, Shah and Sikri, JJ.-Section 10 is an integral part of a scheme for providing for a payment of bonus at rates which do not juctuate from year to year. It is not in the interest of capital or labour that there should be wide fluctuation in the payment of bonus by an establishment from year to year. [33 H] The object of the Act being to maintain peace and harmony between labour and capital by allowing the employees to share the prosperity of 16 the establishment reflected by the profits earned by the contributions made by capital, management and labour, Parliament has provided that bonus in a given year shall not exceed 1/5th and shall not be less than 1/25th of the total earning of each individual employee, and has directed that the excess shall be carried forward to the next year, and that the amount paid by way of minimum bonus not absorbed by the available profits shall be carried to the next year and be set off against the profits of the succeeding years.

This scheme of prescribing maximum and minimum rates of bonus together with the scheme of 'set off' and 'set on' not only secure, the right of labour to share in the prospertity of the establishment but also ensures a reasonable, degree of uniformity. [34 C-D] Equal protection of the laws is denied if in achieving a certain object persons, objects or transactions similarly circumstanced are differently treated by law and the principle underlying that different treatment ha,,, no rational -relation to the object sought to be achieved by the law. Examined in the light of the object of the Act and the scheme of set off and 'set on', the provision for payment of minimum bonus cannot be said to be discriminatory between different establishments which are unable on the profits of the accounting year to pay bonus merely because a uniform standard of minimum rate of bonus is applied to them. [34 F] Kunnathat Thathunni Moopil Nair v. State of Kerala and Another, [1961] 3 S.C.R. 77, distinguished.

Section 10 undoubtedly places in the same class establishments which have made inadequate, profits not justifying payment of bonus, establishments which have suffered marginal loss, and establishments which have suffered heavy loss. The classification so made is not unintelligible as all establishments which are unable to pay bonus under the scheme of the Act, on the result of the working of the establishment,, are grouped together. [35 F] Section 10 therefore is not open to attack on the ground of denial of equality under Art. 14. [36 C] Nor was the attack under Art. 31(1) well founded. The article guarantees the right against deprivation of property otherwise than by authority of law. Compelling an employer to pay sums of money to his employees which he has not contractually rendered himself liable to pay may amount to deprivation of property : but the protection under Art.

31(1) is available only if the deprivation is not by authority of law. There was however deprivation by authority of law in the present case. [36 F-H] Per Hidayatullah, (Ramaswami, J. concurring) Taking the provision for minimum bonus with the provision for set off it can hardly be said that the section is so exorbitant that it amounts to deprivation of the property of the employers with a view to giving it to the workmen. [56 E-F] The observations in Moopil Nair's case, wide as they may appear, must not be extended by analogical application to a case of minimum bonus which is intended to promote industrial peace and to be a first step towards the goal of need-based wage. Even if the payment of minimum bonus is viewed an compulsory payment of wage, the power to impose it as part of minimum wage is not lacking. It must not be forgotten that the fixation of minimum wage was also criticised along the same lines but was held justified. 'Me differentials, the paying capacity of establishments or absence of profit made no difference. (56 G-H] 17 Kunnathat Thathunni Moopil Nair V. State of Kerala & Anr,.

[1961] 3 S. C. R. 77, distinguished.

Edward Mills Co. Ltd. Beawar v. State of Ajmer,[1955]1 S.C.R, 735, Bijay Cotton Mills Ltd. v. State of Ajmer [1955] IS.C.R. 752, Express Newspapers (Pvt.) Ltd. & Anr. v. Union of India & Ors., [1959] S.C.R.12 and U. Unichoyi & Ors.v.

State of Kerala, [1962] 1 S.C.R. 946, relied The provision for payment of 15 days' wages to workmen as bonus irrespective of profits is a measure well-designed to keep industrial peace and to make way for the need-based wage which the Tripartite Conference emphasized Some unequal treatment can always be made to appear when laws apply uniformly. Two establishments cannot be entirely Differences must exist but that does not prevent the making of uniform laws for them provided the law made has a rational relation to the object sought to be achieved and the inequality is trivial or hypothetical. Classification can only be insisted upon if it is possible to classify and a power to classify need not always be exercised when classification is not reasonably possible. Section 10 does not lead to such inequality as may be called discrimination.

[57 D-E] (iv) Per Wanchoo, Shah and Sikri, JJ.-Application of the Act retrospectively under s. 33 depends upon the pendency immediately before May 29, 1965, of an industrial dispute regarding payment of bonus relating to any accounting year not earlier than the year ending on any day in 1962. If there be no such dispute pending immediately before the date on which the Act becomes operative, an establishment win be governed by the Full Bench Formula and will be liable to pay bonus only if there be adequate profits which would justify payment of bonus. If however a dispute is pending immediately before May 29,, 1965 the scheme of the Act will apply not only for the year for which the dispute is Pending but even in respect of subsequent years. Assuming that the classification was founded on some intelligible differential which distinguish an establishment from other establishments the differentia has no rational -relation to the object sought to be achieved by the statutory provision viz., of ensuring peaceful relations between capital and labour by making an equitable distribution of the surplus profits of the year Arbitrariness of the classification becomes more pronounced when it is remembered that in respect of the year subsequent to the year for which the dispute is pending, liability prescribed under the Act is attracted even if for such subsequent years no dispute is pending, whereas to an establishment in respect of which no dispute is pending immediately before May 29, 1965, no such liability is attracted. Therefore two establishments similarly circumstanced having no dispute pending relating to bonus between the employers and the workmen in a particular year would be liable to be dealt with differently if in respect of a previous year (covered by s. 33) there is a dispute pending between the employer and the workmen in one establishment and there is no such dispute pending in the other. [40 C-G] Liability imposed by the Act for payment of bonus is more onerous than the liability which had arisen under the Full Bench Formula prior to the date of the Act. Imposition of this onerous liability depending solely upon the fortuitous circumstance that a dispute relating to bonus is pending between workmen or some of them immediately before May 29, 1965, is plainly arbitrary and classification made on that basis is not reasonable. [40 HI Discrimination also results from the distinction made in the section between a dispute pending before, this Court or the High Court and one 18 pending before the Industrial Tribunal or the appropriate Government, the former not being treated as a pending dispute for the purpose of the section. There is no, logical basis for the distinction. [41 C] Per Hidayatullah and Ramaswami, JJ. (dissenting) : Sections 33 by providing uniformly for all cases pending on May 29, 1965, without any discrimination between them,, has established a rational classification. The section therefore cannot be said to be invalid by reason of inequality. [64 E-F] In s. 33 no note was taken of cases pending before the High Court and Supreme Court because the jurisdiction of the High Courts and the Supreme Court is either supervisory or appellate and the intention was to cover cases in which no decisions of the authorities appointed under the law relating to, industrial disputes was yet made. Disputes prior to 1962 were not taken note of because a date line had to be fixed and 1962 was the 'rational date to fix because the Bonus Commission began its deliberations that year. [63 G] In several statutes a date is generally selected to demarcate pending cases and the selection of the date has never been challenged successfully if there is some rational ground for its selection. If the resolution of the dispute by the instrumentality of the Act was contemplated, the Act had also to say which dispute would be so resolved and the only rational date to select was the, date on which the Ordinance was promulgated. Thus the pendency of disputes with reference to the Ordinance, and reopening of accounting years up to, the year in which the Bonus Commission began its deliberation was logical and not arbitrary. [63 H] The provision with regard to the reopening of the intervening account years for re-fixation of bonus was also logical. If the dispute regarding 1962 or a later year was decided by the application of the Act it was imperative to reconsider the subsequent years even though there was no dispute in those years. The process of the Act is an integrated one and by the principle of set on and set off four accounting years are involved to avoid extraordinary results. [64 E] By the different treatment of those establishments where a dispute is pending there is no violation of equality. The fact that in one there is a dispute and in the other there is not, clearly distinguishes the two establishments. The distinguishing feature of the pendency of the dispute on the date of the promulgation of the Ordinance clearly demarcates a distinct class of cases and the classification made by the Act is a rational one. No doubt the liability for bonus under the Act may be more in some cases but it is likely to be less in others. The Act does not make any difference in the treatment within the class it deals with. All establishments in which disputes were pending are treated alike. [64 C-E] (v) Per Wanchoo, Shah and Sikri, JJ--Section 34 imposes a special liability to pay bonus determined on the gross profits of the base year on an assumption that the ratio which determine-, the allocable surplus is the normal ratio not affected by any special circumstance and perpetuates for the duration of the Act that ratio for determining the minimum allocable surplus each year. If bonus contemplated to be paid under the Act is intended to make an equitable distribution of the surplus profits of a particular year, a scheme for computing labour's share which cannot be less than the amount determined by the application of a ratio derived from the working of the base year without taking into consideration the special Circumstances governing that determination is prima facie arbitrary and unreasonable. It may be that the ratio was intended to stabilise the previous grant of bonus and maintain in favour of labour whatever was 19 achieved by collective bargaining in the base year. But the validity of a statute is subject to judicial scrutiny in the context of fundamental freedoms guaranteed to employers as well as employees and the freedom of equal protection of the laws becomes chimerical if the only ground in support of the validity of a statute ex facie discriminatory is that the Parliament intended inconsistently with the very concept of bonus evolved by it to maintain for the benefit of labour an advantage which labour had obtained in an earlier year based on special circumstances of that year, without any inquiry whether that advantage may reasonably be granted in subsequent years according to the principles evolved by it and for securing the object of the Act. If the concept of bonus as allocation of an equitable share of the surplus profits of an establishment to the workmen who have contributed to the earning has reality, any condition that the ratio on which the share of one party computed on the basis of the working of an earlier year, without taking into consideration the special circumstances which had a bearing on the earning of the profits and payment of bonus in that year, shall not be touched, is arbitrary and unreasonable.

The vice of the provision lies in the imposition of an arbitrary ratio governing distribution of surplus profits.

Section 34(2) is invalid on the ground that it infringes Art. 14 of the Constitution. [45 H-46 F] Per Hidayatullah and Ramaswami, JJ. (dissenting) Section 34(1) which is criticised because it sacrifices all principles which this Courthad established in the past and fixes a ratio for all time to come is also not invalid. The Act was passed to make for greater certainty, for improving relations between the employers and the workmen and for the avoidance of disputes. It must not be forgotten that in many establishments the payment of bonus in the past was the result of collective bargaining and the advantage which labour has so achieved was not likely to be given up so readily. Any legislation to be successful had to preserve as far as possible what labour considered to be its right in a particular establishment. By establishing a base year and by insisting that the same proposition should be maintained in the payment of bonus the establishment knew with certainly what their liabilities in respect of bonous would be in the future years. If extraordinary circumstances appear set on and set off will make them less onerous for the employers or employees. The existence of a rigid ratio which applies to all establishments which come tinder s.

34(2) does not therefore create inequality. [64 F-65 C] (vi) Per Wanchoo, Shah 'and Sikri, JJ.-Section 37 authorises the Government to determine for itself what the purposes of the Act are and to make provisions for the removal of doubts or difficulties. This in substance amounts to exercise of legislative authority which cannot be delegated to an executive authority. Sub-section (2) of s. 37 which purports to make the order of the Central Government in such cases final accentuates the vice in sub-s. (1) since by enacting that provision the Government is made the sole judge whether difficulty or doubt had arisen in giving effect to the provisions of the Act, whether it is necessary or expedient to remove the doubt or difficulty, and whether the provision enacted is not inconsistent with the purpose of the Act. Section 37 therefore is invalid. [32 A-C] Per Hidayatullah and Ramaswami, JJ. (dissenting) The functions exercised under s. 37 are not legislative functions at all but are intended to advance the purpose which the Legislature had in mind. Apprehending that in the application of the new Act doubts and difficulties might arise and not leaving their solution to the courts with the attendant delays and expense, Parliament has chosen to give power to the Central Government to remove doubts and.

differences by a suitable order. The order of course 20 would be passed within the four corners of the parliamentary legislation and would only apply the Act to concrete cases as the courts do when they consider the application of the Act. The order of the Central Government is made final for the reason that it is hardly practical to give power to the Central Government and yet to leave the matter to be litigated further. The fact that in the Government of India Act, 1935 and in the Constitution such a power was and is contemplated and it has been conferred in various Acts without a challenge before, shows amply that the argument that the section amounts to delegation of legislative powers on the Central Government is erroneous. Accordingly s. 37 is valid. [As to the validity of s. 32 with reference to Art. 14 of the Constitution the Court found that there was not enough material on record to decide the issue.] [58 H-59 E]

CIVIL, APPELLATE JURISDICTION : Civil Appeal No. 187 or 1966 Appeal by special leave from the Award Part I dated the July 21, 1965 of the Industrial Court, Maharashtra, Bombay in Reference (IC) No. 78 of 1963.

AND Writ Petitions Nos. 3 and 32 of 1966.

Petition under Art. 32 of the Constitution of India for the enforcement of fundamental rights.

N.A. Palkhivala, -R. J. Kolah, B. Dutta, C. C. Jain, Bhuvnesh Kumari and J. B. Dadachanji, for the appellant (in C.A. No. 187 of 1966).

H. K. Sowani, K. Rajendra Chaudhuri and K. R. Chaudhuri, for the respondent.

M. C. Setalvad, G. B. Pai, P. K. Kurain, B. Dutta, Buvnesh Kumari and J. B. Dadachanji, for the appellant (in W.P. No. 3 of 1966).

Niren De, Addl. Solicitor-General, N. S. Bindra, R. H. Dhebar and B. R. G. K. A(-liar, for respondent No. 1.

V.A. Seyid Muhammad, Advocate General, Kerala, A. G.

Puddissery and M. R. K. Pillai, for respondents Nos.2 and 3.

A. K. Sen and K. L. Hathi, for respondent No. 4.

N. Sreekantan Nair, for respondent No. 8.

G. B. Pai, B. Dutta, Buvnesh Kumari and J. B. Dadachanji, for the petitioner (in W. P. No. 32 of 1966).

Niren De, Addl. Solicitor--General, N. S. Bindra, R. H.

Dhebar and R. N. Sachthey, for respondents Nos. 2 and 3.

V. A. Seyid Muhammad, Advocate-General, Kerala and M. R. K Pillai, for respondents Nos. 2 and 3.

21 Janardan Sharma, for respondent No. 4.

A. K. Sen, and K. L. Hathi, for respondent No. 4A.

H. K. Sowani and K. R. Chaudhuri, for intervener No. 1.

K. Rajendra Chaudhuri and K. R. Chaudhuri, for intervener No.2.

Niren De, Addl. Solicitor-General, Al. S. Bindra, R. H.

Dhebar and B. R. G. K. Achar, for intervener No. 3.

N. A. Palkhivala, J. B. Dadachanji, for interveners Nos.

6, 9,11 and 15.

N.M. Barot, Officer, Textile Union (in person) intervener No. 5.

I. N. Shroff, for intervener No. 7.

J. P. Goyal, for intervener No. 8.

S. R. Vasavada, for intervener No. 10.

N. C. Chatterjee, R. K. Garg, M. K. Ramamurthi, Jitendra Sharma and Janardan Sharma and Satish Loomba, for intervener No. 12 (in C.A. No. 187 of 1966 and W.P. No. 3 of 1966).

R. J. Kolalh, B. Narayanswami and J.B. Dadachanji, for intervener No 13.

M. C. Setalvad, R. J. Kolah, and J. B. Dadachanji, for intervener No. 14.

I M. Nanavati, O. P. Malhotra and J. B. Dadachanji, for intervener N o. 16.

Vithalbhai B. Patel and I. N. Shroff for interveners Nos. 18 and 19.

The Judgment of WANCHOO, SHAH and SIKRI, JJ was delivered by SHAH, J. The dissenting Opinion of HIDAYATULLAH and RAMASWAMI, JJ. was delivered by HIDAYATULLAH, J.

Shah, J. During the Pendency, before the Industrial Court, Bombay, of a reference under s. 73A of the Bombay Industrial Relations Act, 1946, which arose Out of a demand for payment of bonus for the years 1961 and 1962, the Payment of Bonus Ordinance 3 of 1965 was promulgated by the President on May 29, 1965, with immediate effect. The representatives of the workmen claimed that even if the plea of the employers that the profit and loss account of the establishment for the years in question disclosed a loss, was correct, the Ordinance governed the dispute and that the employees were entitled to receive bonus at the minimum rate of 4'@ of the salary or wages or Rs. 40/whichever is higher. The 22 Industrial Court upheld the plea of the workmen and directed the employers subject to the provisions of the Bonus Ordinance, 1965, to pay to each employee bonus for the year 1962 equivalent to 15 days of the salary or wages or Rs.

40/whichever is higher.

With special leave, the employers have appealed to this Court and they challenge the validity of the Payment of Bonus Act, 1965, which replaced Ordinance 3 of 1965, and especially of the provisons under which bonus at minimum rate is made payable under the Act.

Writ Petitions Nos. 3 of 1966 and 32 of 1966 are filed by two public limited companies. They challenge diverse provisions of the Act and contend that they are not liable to pay bonus under the machinery prescribed by the Act.

A synopsis of the development in the industrial law which led to the enactment of the Payment of Bonus Act, 1965 will facilitate appreciation of the questions argued at the Bar.

Claims to receive bonus, it appears, were made by industrial employees for the first time in India in the towns of Bombay and Ahmadabad, after the commencement of the First World War when as a result of inflationary trends there arose considerable disparity between the living wage and the contractual remuneration earned by workmen in the textile industry. The employers paid to the workmen increase in wages, initially called "war bonus" and later called "special allowance". A Committee appointed by the Government of Bombay in 1922 to consider, inter alia, "the nature and basis" of this bonus payments, reported that the workmen had a just claim against the employers to receive bonus, but the claim was not "customary, legal or equitable". During the Second World War the employers in the textile industry granted cash bonus equivalent to a fraction of actual wages (not including dearness allowances but even this was a voluntary payment made with a view to keep labour contented.

In the dispute for payment of bonus for the years 1948 and 1949 in the textile industry in Bombay, the Industrial Court expressed the view that since labour as well as capital employed in the industry contribute to the profits of the industry, both are entitled to claim a legitimate return out of the profits of an establishment, and evolved a formula for charging certain prior liabilities on the gross profits of the accounting year, and awarding a percentage of the balance as bonus to the workmen. In adjudicating upon the claim for bonus, the Industrial Court excluded establishments which had suffered loss in the year under consideration from the liability to pay bonus, In appeals against the award relating to the year 1949, the Labour Appellate Tribunal broadly approved of the method for computing bonus as a fraction of surplus profit.

23 According to the formula which came to be known as the "Full Bench Formula", surplus available for distribution had to be determined by debiting the following prior charges against gross profits:

(1) Provision for depreciation;

(2) Reserve for rehabilitation;

(3) Return of 6 % on the paid-up capital;

(4) Return on the working capital at a lower rate than the return on paid-up capital;

and from the balance called "available surplus" the workmen were to be awarded a reasonable share by way of bonus for the year.

This Court considered the applicability of this formula to claims for bonus in certain decisions: Muir Mills Co, Ltd.

v. Suti Mills Mazdoor Union, Kanpur;(1) Baroda Borough Municipality v. Its Workmen;(2) Sree Mennakshi Mills Ltd. v.

Their Workmen:(3) and The State of Mysore v. The Workers of Kolar Gold Mines.(4) The Court did not commit itself to acceptance of the formula in its entirety, but ruled that bonus is not a gratuitous payment made by the employer to his workmen, nor a deferred wage, and that where wages fall short of the living standard and the industry makes profit part of which is due to the contribution of labour, a claim for bonus may legitimately be made by the workmen. The Court however did not examine the propriety nor the order of priorities as between the several charges and their relative importance, nor did it examine the desirability of making any variation, change or addition in the Formula. These problems were for the first time elaborately considered by this Court in the Associated Cement Companies Ltd. v. Its Workmen.(5) Since that decision numerous cases have come before this Court in which the basic formula has been accepted with some elaboration. The principal incidents of the formula as evolved by the decisions of this Court may be briefly stated: Each year for which bonus is claimed is a self-contained unit and bonus will be computed on the profits of the establishment in that year. In giving effect to the formula as a general rule from the gross profits determined after debiting the wages and dearness allowances paid to the employees, and other items of expenditure against total receipts, as disclosed by the profit and loss account are accepted unless it appears that the debit entries are not supported by recognized accountancy practice or are posted mala fide with the object of reducing gross profits. Debit items which are wholly extraneous to or unrelated to the determination (1) [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.

24 of trading profits are ignored. Similarly income which is wholly ,extraneous to the conduct of the business book profits on account of revaluation of assets may not be included in the gross profits. Against the gross profits so ascertained the following items are charged as prior debits:

(1) Depreciation: such depreciation being only the normal or notional depreciation; (2) Incometax payable for the accounting year on the balance remaining after ,deducting statutory depreciation. The income-tax to be deducted is lot the actual amount, but the notional amount of tax at the rate for the year, even if on assessment no tax is determined to be payable. For the purpose of the Full Bench Formula income-tax at the rate provided must be deducted, but in the computation of income-tax statutory depreciation under the Indian Income-tax Act only may be allowed. (3) Return on paid-up capital at 6% and on reserves used as working capital at a lower rate. In the Associated Cement Companies case(1) it was suggested that this rate should be 2% in later cases 4% on the working capital was regarded as appropriate. (4) Expenditure for rehabilitation which includes replacement and modernization of plant, machinery and buildings, but not for expansion of building, or additions to the machinery.

It is not open to the Tribunal in ascertaining the available surplus to extend by analogy the prior charges to be debited to gross profits. Therefore for example (a) allocations for debenture redemption fund; (b) losses in previous years which are written off at the end of the year, (c) donations to a political fund are not deducted from gross profits.

Rebate of income-tax available to the employer on the amount of bonus paid to the workmen cannot be added to the available surplus of profits determined in accordance with the Full Bench Formula which should be taken into account only in distributing the available surplus between workmen, industry and employers.

The formula it is clear was not based on any strict theory of legal rights or obligations: it was intended to make an equitable division of distributable profits after making reasonable allocations for prior charges.

Attempts made from time to time to secure revision of the Formula failed before this Court. In the companies' case,(1) this Court observed:

"The plea for the revision of the formula raised an issue which affects all industries;

and before any change is made ill it, all industries and their workmen would have to be heard and their pleas carefully considered.

It is obvious that while dealing with the present group of appeals, it would be difficult, unreasonable and inexpedient to attempt Such a task." (1) [1959] S.C.R. 925.

25 But the Court threw out a suggestion that the question may be" comprehensively considered by a high-powered Commission", this suggestion was repeated in The Ahmadabad Miscellaneous Industrial Workers' Union v. Ahmadabad Electricity C.,). Ltd.(1) The Government of India then setup a Commission on December 6, 1961 inter alia to define the concept of bonus, to consider in relation to industrial employments the question of payment of bonus based on profits and to recommend principles for computation of such bonus and methods of payment, to determine what the prior charges should be in different circumstances and how they should be calculated, to consider whether there should be lower limits irrespective of losses in particular establishments and upper limits for distribution in one year, and if so, the manner of carrying forward profits and losses over a prescribed period, to suggest an appropriate machinery and method for the settlement of bonus disputes. The Commission held an elaborate enquiry and reported that "bonus" was paid to the workers as a share in the prosperity of the establishment and recommended adherence to the basic scheme of the Bonus Formula viz. determination of bonus as a percentage of gross profits reduced by certain prior charges, viz. normal depreciation admissible under the Indian Income-tax Act including multiple shift allowance, income-tax and super-tax at the current standard rate applicable for the year for which bonus is to be calculated (but not super profits tax), and return on paid-up capital raised by issue of preference shares at the actual rate of dividend payable, on other paid-up capital at 7 % and on reserves used as capital at 4% but not provision for rehabilitation. The Commission recommended that sixty per cent of the available surplus should be distributed as bonus, the excess being carried forward and taken into account in the next year: the balance of forty per cent., should remain with the establishment into which would merge the saving in tax on bonus payable, and the aggregate balance thus left to the establishment may be intended to provide for 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, return of borrowings, payment of super-profits tax and additional return on capital. They recommended that the distinction between basic wages and dearness allowance for the "Purpose" of expressing the bonus quantum" should be abolished and that bonus should be related to wages and dearness allowance taken together: that minimum bonus should be 4% of the total basic wage and dearness allowance paid during the year or Rs. 40/to each worker, whichever is higher, and in the case of children the minimum should be equivalent to 4% of their basic wage and dearness allowance, or Rs. 25/whichever is higher, subject to reduction pro rata for employees who have not (1) [1962] 2 S.C.R. 934.

M14 Sup. C.I./66-3 26 worked for the whole year, and that the maximum bonus should be equivalent to 20 % of the total basic is wage and dearness allowance paid during the year : that the bonus formula proposed should be deemed to include bonus to employees drawing a total basic pay and dearness allowance up to Rs. 1600 per month regardless of whether they were "workmen" as defined in the Industrial Disputes Act or other relevant statutes, but subject to the proviso that the quantum of bonus payable to employees drawing total basic pay and dearness allowance over Rs. 750 per month shall be limited to what it would be if their pay and dearness allowance were only Rs. 750 per month. It was proposed that the general formula should not apply to new establishments until they had recouped all early losses including all arrears of normal depreciation admissible under the Incometax Act, subject to a time limit of six years. They also suggested that the scheme recommended should be made applicable to all bonus matters relating to the accounting year ending on any day in the calendar year 1962 other than those matters in which settlements had been reached or decisions had been given.

The Government of India accepted a majority of the recommendations and the President issued on May 29, 1965 the Payment of Bonus Ordinance, 1965, providing for payment of bonus to all employees drawing salary not exceeding Rs. 1600 under the formula devised by the Commission. It is not necessary to set out the provisions of the Ordinance, for the Ordinance was replaced, by the Payment of Bonus Act 21 of 1965 and by s. 40(2) it was provided that notwithstanding such repeal, anything done or any action taken under the Payment of Bonus Ordinance, 1965, shall be deemed to have been done or taken under the Act as if the Act had commenced on May 29, 1965. Since the action taken under the Ordinance is to be deemed to have been taken under the Act, in these cases validity of the provisions of the Act alone need be considered.

It may be broadly stated that bonus which was originally a voluntary payment out of profits to workmen to keep them contented, acquired the character, under the Bonus Formula, of a right to share in the surplus profits, and enforceable through the machinery of the Industrial Disputes Act. Under the Payment of Bonus Act, liability to pay bonus has become a statutory obligation imposed upon employers covered by the Act.

Counsel for the Jalan Trading Company urged that the Act was invalid in that it amounts to fraud on the Constitution or otherwise is a colourable exercise of legislative power.

That argument has no force. It is not denied that the Parliament has power to legislate in respect of bonus to be paid to industrial employees. By enacting the Payment of Bonus Act, the Parliament has not 27 attempted to trespass upon the province of the State Legislature. It is true that by the impugned legislation certain principles declared by this Court e.g. in Express Newspapers (Private) Ltd, and Anr. v. The Union of India and Ors.(1) in respect of grant of bonus were modified, but on that account it cannot be said that the legislation operates as fraud on the Constitution or is a colourable exercise of legislative power. Parliament has normally power within the frame-work of the Constitution to enact legislation which modifies principles enunciated by this Court as applicable to the determination of any dispute, and by exercising that power the Parliament does not perpetrate fraud on the Constitution. An enactment may be charged as colourable, and on that account void, only if it be found that the legislature has by enacting it trespassed upon a field outside its competence: K. C. Gajapati Narayan Deo and Ors.

v. The State of Orissa(2).

The provisions of the Act and its scheme may now be summarised. The Payment of Bonus Act was published on September 25, 1965. By s.1(4) save as otherwise provided in the Act, the provisions of the Act shall, in relation to a factory or other establishment to which the Act applies, have effect in respect of the accounting year commencing on any day in the year 1964 and in respect of every subsequent accounting year. Section 2(4) defines " allocable surplus" as meaning (a) in relation to an employer, being a company (other than a banking company) which has not made the arrangements prescribed under the Income-tax Act for the declaration and payment within India of the dividends payable out of its profits in accordance with the provisions of s. 194 of that Act, sixty-seven per cent of the available surplus in an accounting year; (b) in any other case, sixty per cent of such available surplus, and includes any amount treated as such under sub-s. (2) of s.34. "Available surplus" is defined in s. 2(6) as meaning the available surplus computed under s. 5."Employee" is defined in s.

2(13) as meaning any person (other than an apprentice) employed on a salary or wage not exceeding one thousand and six hundred rupees per mensem in any industry to do any skilled or unskilled manual, supervisory, managerial, administrative, technical or clerical work for hire or reward whether the terms of employment be express or implied. By s. 2(21) "salary or wage" is defined as meaning all remuneration (other than remuneration in respect of overtime work) capable of being expressed in terms of money, which would, if the terms of employment, express or implied, were fulfilled, be payable to an employee in respect of his employment or of work done in such employment and includes dearness allowance (that is to say, all cash payments, by whatever name called, paid to an employee on account of a rise in the cost of living), but does not include certain specified allowances, commissions, value of amenities (1) [1959] S.C.R. 12.

(2) [1954] S.C.R. 1.

28 etc. Section 4 provides for computation of gross profit in the manner provided by the First Schedule in the case of a banking company and in other case in the manner provided by the Second Schedule. By s. 5 available surplus in respect of any accounting year is the gross profits for that year after deducting there from ',he sums referred to in s.6. The sums liable to be deducted from gross profit under s. 6 are:

(a) any amount by way of depreciation admissible in accordance with the provisions of sub-section (1) of section 32 of the Income-tax Act, or in accordance with the provisions of the agricultural income-tax law, as the case may be;

(b) any amount by way of development rebate or development allowance which the employer is entitled to deduct from his income under the Income-tax Act;

(c) any direct tax which the employer is liable to pay for the accounting year in respect of his income, profits and gains during that year; and (d) such further sums as are specified in respect of the employer in the Third Schedule.

Section 7 deals with calculation of direct taxes payable by the employer for any accounting year for the purpose of cl.(c) of s. 6. Sections 8 & 9 deal with eligibility for and disqualifications for receiving bonus. Sections 10 to 15 deal with payment of minimum and maximum bonus and the scheme for "set-on" and "set-off". Every employer is by s.10 bound to pay to every employee in an accounting year minimum bonus which shall be four per cent. of the salary or wage earned by the employee during the accounting year or Rs. 40 whichever is higher, whether there are profits in the accounting year or not. In case of employees below the age of 15, the minimum is Rs. 25. By s. I I where in respect of any accounting year the allocable surplus exceeds the amount of minimum bonus payable the employer shall be bound to pay to every employee in the accounting year bonus which shall be an amount proportionate to the salary or wage earned by the employee during the accounting year, subject to a maximum of twenty per cent of such salary or wage. Section 15 provides that if for any accounting year the allocable surplus exceeds the amount of maximum bonus payable to the employees in the establishment under s. 1 1, then, the excess shall, subject to a limit of twenty per cent. of the total salary or wage of the employees employed in the establishment in that account year, be carried forward for being "set-on" in the succeeding accounting year, upto and inclusive of the fourth account year, and be utilised for the purpose of payment of bonus.

29 By sub-s. (2) it is provided that where for any accounting year, there is no available surplus or the allocable surplus in respect of that year falls short of the amount of minimum bonus payable to the employees in the establishment under s. 10, and there is no amount or sufficient amount carried forward and "set on" under sub-s. (1) capable of being utilised for the purpose of payment of the minimum bonus, then, such minimum amount or the deficiency, shall be carried forward for being set off in the succeeding accounting year up to and inclusive of the fourth accounting year.

By sub-s. (3) it is provided that principle of "set-on" and "set-off" as illustrated in the Fourth Schedule shall apply to all other cases not covered by sub-s. (1) or sub-s. (2) for the purpose of payment of bonus under the Act. Bonus payable to an employee drawing wage or salary exceeding Rs.

750 per mensem has to be calculated as if the salary or wage were Rs. 750 per mensem, and an employee who has not worked for all the working days in an accounting year, the minimum bonus of Rs. 40 or Rs. 25 would be proportionately reduced (ss. 12 & 13). Section 16 makes special provisions relating to payment of bonus to employees of establishments which have been newely set up. Sections 18, 19, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30 & 31 deal with certain procedural and administrative matters. By s. 20 establishments in the public sector are in certain eventualities also made subject to the provisions of the Act. Section 32 excludes from the operation of the Act employees of certain classes and certain industries specified therein. By s. 33 the Act is made applicable to pending industrial disputes (regarding payment of bonus relating to any accounting year not being an accounting year earlier than the accounting year ending on any day in the year 1962) immediately before May 29, 1965, before the appropriate Government or any Tribunal or other authority under the Industrial Disputes Act, 1947, or under any corresponding law, or where it is pending before the Conciliation officer or for adjudication. By s. 34(1) the provisions of the Act are declared to have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in the terms of any award, agreement, settlement or contract of service made before May, 29, 1965. Sub-s. (2) of s. 34 makes special overriding provisions regarding payment of bonus to employees computed as a percentage of gross profits reduced by direct taxes payable for the year, (subject to the maximum prescribed by s.11), when bonus has been paid by the employer to workmen in the "base year" as defined in Explanation 11. By s. 36 the appropriate Government is authorised, having regard to the financial position and other relevant circumstances of any establishment or class of establishments, to exempt for such period as may be specified therein such establishment or class of establishments from all or any of the provisions of the Act, and by s. 37 power is conferred upon the Central Government by order to make provision, not inconsistent with the purposes 30 of the Act, for removal of difficulties or doubts in giving effect to the provisions of the Act.

The scheme of the Act, broadly stated, is four dimensional:

(1) to impose statutory liability upon an employer of every establishment covered by the Act to pay bonus to employees in the establishment:

(2) to define the principle of payment of bonus according to the prescribed Formula;

(3) to provide for payment of minimum and maximum bonus and linking the payment of bonus with the scheme of "set-off " and "set-on";

and (4) to provide machinery for enforcement of the liability for payment of bonus.

Ordinarily a scheme imposing fresh liability would, it is apprehended, be made prospective, leaving the pending disputes to be disposed of according to the law in force before the Act. But the Legislature has given by s. 33 retrospective operation to the Act to certain pending disputes, and has sought to provide by s. 34 while extinguishing all pre-existing agreements, settlements or contracts of service for freezing the ratio which existed in the base year on which the bonus would be calculated in subsequent years.

It was urged by counsel for the employers that s. 10 which provides for payment of minimum bonus, s. 32 which seeks to exclude certain classes of employees from the operation of the Act, s. 33 which seeks to apply the Act to certain pending disputes regarding payment of bonus and sub-s. (2) of s. 34 which freezes the ratio at which the available surplus in any accounting year has (subject to s.11) to be distributed if in the base year bonus has been paid, are ultra vires, because they infringe Arts. 14, 19 and 31 of the Constitution. It was also urged that conferment of power of exemption under s. 36 is ultra vires the Parliament in that it invests the appropriate Government with authority to exclude from the application of the Act, establishments or a class of establishments, if the Governments, are of the opinion having regard to the financial position and other relevant circumstances that it would not be in the public interest to apply all or any of the provisions of the Act.

Power conferred upon the Government under s. 37 is challenged on the ground that it amounts to delegation of legislative power when the Central Government is authorised to remove doubt or difficulty which had arisen in giving effect to the provisions of the Act.

The plea of invalidity of ss. 32, 36 and 37 may be dealt with first. It is true that several classes of employees set out in cls.

(i) to (xi) of s. 32 are excluded from the operation of the Act. But 31 the petitions and the affidavits in support filed in this Court are singularly lacking in particulars showing how the employees in the specified establishment or classes of establishments were similarly situate and that discrimination was practiced by excluding those specified classes of employees from the operation of the Act while making it applicable to others. Neither the employees, nor the Government of India have chosen to place before us any materials on which the question as to the vires of the provisions of s. 32 which excludes from the operation of the Act certain specified classes of employees can be determined. There is a presumption of constitutionality of a statute when the challenge is founded on Art. 14 of the Constitution, and the onus of proving unconstitutionality of the statute lies upon the person challenging it. Again many classes of employees are excluded by s. 32 and neither those employees, nor their employers, have been impleaded before us. Each class of employees specified in s. 32 requires separate treatment having regard to special circumstances and conditions governing their employment. We therefore decline to express any opinion on the plea of unconstitutionality raised before us in respect of the inapplicability of the Act to employees described in s. 32.

By s. 36 the appropriate Government is invested with power to exempt an establishment or a class of establishments from the operation of the Act, provided the Government is of the opinion that having regard to the financial position and other relevant circumstances of the establishment, it would not be in the public interest to apply all or any of the provisions of the Act. Condition for exercise of that power is that the Government holds the opinion that it is not in the public interest to apply all or any of the provisions of the Act to an establishment or class of establishments, and that opinion is founded on a consideration of the financial position and other relevant circumstances. Parliament has clearly laid down principles -and has given adequate guidance to the appropriate Government in implementing the provisions of s. 36. The power so conferred does not amount to delegation of legislative authority. Section 36 amounts to conditional legislation, and is not void. Whether in a given case, power has been properly exercised by the appropriate Government would have to be considered when that occasion arises.

But s. 37 which authorises the Central Government to provide by order for removal of doubts or difficulties in giving effect to the provisions of the Act, in our judgment, delegates legislative power which is not permissible.

Condition of the applicability of s. 37 is the arising of the doubt or difficulty in giving effect to the provisions of the Act. By providing that the order made must not be inconsistent with the purposes of the Act, s. 37 is not saved from 32 the vice of delegation of legislative authority. The section authorises the Government to determine for itself what the purposes of the Act are and to make provisions for removal of doubts or difficulties. If in giving effect to the provisions of the Act any doubt or difficulty arises, -normally it is for the Legislature to remove that doubt or difficulty. Power to remove the doubt or difficulty by altering the provisions of the Act would in substance amount to exercise of legislative authority and that cannot be delegated to an executive authority. Sub-section (2) of s. 37 which purports to make the order of the Central Government in such cases final accentuates the vice in subs. (1), since by enacting that provision the Government. is made the sole judge whether difficulty or doubt has arisen in giving effect to the provisions of the Act, whether it is necessary or expedient to remove the doubt or difficulty, and whether the provision enacted is not inconsistent with the purposes of the Act.

We may now turn to the challenge to s. 10. Under the Full Bench Formula bonus being related to available surplus it can only be made payable by an employer of an establishment who makes profit in the accounting year to which the claim for bonus If no profit was made there was no liability to pay bonus. As pointed out by this Court in Muir Mills Company's case (1) :

"It is therefore clear that the claim for bonus can be made by the employees only if as a result of the joint contribution of capital and labour the industrial concern has earned profits. If in any particular year the working of the industrial concern has resulted in loss there is no basis nor justification for a demand for bonus. Bonus is not a deferred wage..... The dividends can only be paid ,out of profits and unless and until profits are made Do occasion or question can also arise for distribution of any sum -is bonus amongst the employees. If the industrial concern ,-as resulted in a trading loss, there would be no profits of the particular year available for distribution of dividends, much less could the employees claim the distribution of bonus during that year." But by s. 10 it is provided that even if there has resulted trading loss in the accounting year, the employer is bound to pay bonus at 4%, of the salary or wages earned by the employee or Rs. 40 whichever is higher. This, it was urged, completely alters the character of bonus and converts what is a share in the year's profits in the earning of which labour has contributed into additional wage. it was pointed out to us that in giving effect to the Full Bench Formula, this Court set aside the directions made by the Industrial Tribunal awarding minimum bonus where the establishment had suffered loss, and remanded the case for a fresh determination consistently (1) [1955] S. C. R. 991.

33 with the terms of the Full Bench Formula: New Maneck Chowk Spg. and Weaving Co. Ltd. v. Textile Labour Association(1).

In that case there was a five year pact between the Ahmedabad Mill owners' Association and the Textile Labour Association. After the expiry of the period, the Labour Association demanded bonus on the basis of the pact, but the Millowners claimed that the pact was contrary to the Full Bench Formula, and the claim was not sustainable. The Industrial Tribunal held that the pact did not "run counter to the law laid down by this Court in the Associated Cement Companies' case(2)" and the extension of the agreement for one more year would help in promoting peace ID the industry in Ahmadabad. This Court held that the agreement departed from the Full Bench Formula in that matter of bonus and when the Tribunal extended the agreement after the expiry of the stipulated period, it ignored the law as laid down by this Court as to what profit bonus was and how it should be worked out, and that the Tribunal had no power to do by extending the agreement to direct payment of minimum bonus for the year 1958 when there was no available surplus to pay minimum bonus.

Indisputably Parliament has the power to enact legislation within the constitutional limits to modify the Full Bench Formula even after it has received the approval of this Court. It was urged, however, that exercise of that power by treating establishments inherently dissimilar as in the same class and subject to payment of minimum bonus amounted to making unlawful discrimination. It was said that establishments which suffered losses and establishments which made profits; establishments paying high rates of wages and establishments paying low rates of wages;

establishments paying "bonus-added wages" and establishments paying ordinary wages; establishments paying higher dearness allowance and establishments paying lower dearness allowance, do not belong to the same class, and by imposing liability upon all these establishments to pay bonus at the statutory rate not below the minimum irrespective of the differences between them, the Parliament created inequality.

It was also submitted that by directing establishments passing through a succession of lean years in which losses have accumulated and establishments which had made losses in the accounting year alone, to pay minimum bonus, unlawful discrimination was practiced.

Section 10 at first sight may appear to be a provision for granting additional wage to employees in establishments which have not on the year's working an adequate allocable surplus to justify payment of bonus at the rate of 4 % on the wages earned by each employee. But the section is an integral part of a scheme for providing for payment of bonus at rates which do not widely fluctuate (1) [1961] 3 S.C.R. 1.

(2) [1959] S.C.R. 925.

34 from year to year and that is sought to be secured by restricting the quantum of bonus payable to the maximum rate of 20 % and for carrying forward the excess remaining after paying bonus at that rate into the account of the next year, and by providing for carrying forward the liability for amounts drawn from reserves or capital to meet the obligation to pay bonus at the minimum rate. Under the Act, for computing the rate of payment of bonus each accounting year is distinct and bonus has to be worked out on the profits of the establishment in the accounting year. But it is not in the interest of capital or labour that there should be wide fluctuations in the payment of bonus by an establishment year after year. The object of the Act being to maintain peace and harmony between labour and capital by allowing the employees to share the prosperity of the establishment reflected by the profits earned by the contributions made by capital, management and labour, Parliament has provided that bonus in a given year shall not exceed 1/5th and shall not be less than 1/25th of the total earning of each individual employee, and has directed that the excess share shall be carried forward to the next year, and that the amount paid by way of minimum bonus not absorbed by the available profits shall be carried to the next year and be set off against the profits of the succeeding years. This scheme of prescribing maximum and minimum rates of bonus together with the scheme of "set off " and "set on" not only secures the right of labour to share in the prosperity of the establishment, but also ensures a reasonable degree of uniformity.

Equal protection of the laws is denied if in achieving a certain object persons, objects or transactions similarly circumstanced are differently treated by law and the principle underlying that different treatment has no rational relation to the object sought to be achieved by the law. Examined in the light of the object of the Act and the scheme of "set off" and "set on", the provision for payment of minimum bonus cannot be said to be discriminatory between different establishments which are unable on the profits of the accounting year to pay bonus merely because a uniform standard of minimum rate of bonus is applied to them.

The judgment of this Court in Kunnathat Thathunni Moopil Nair v. The State of Kerala and Another,(1) and especially the passage in the judgment of the majority of the Court at p. 92, has not enunciated any broad proposition as was contended for on behalf of the employers, that when persons or objects which are unequal are treated in the same manner and are subjected to the same burden or liability, discrimination inevitably results. In Moopil Nair's case(1) the validity of the Travancore-Cochin Land Tax Act, 1955, was challenged. By s. 4 of the Act all lands in the State, (1) [1961] 3 S.C.R. 77.

35 of whatever description and hold under whatever tenure, were charged with payment of land tax at a uniform rate to be called the basic tax. Owners of certain forest lands challenged certain provisions of the Act pleading that those provisions contravened Arts. 14, 19(1) (f) and 31(1) of the Constitution. This Court held that the Act which obliged every person who held land to pay the tax at a uniform rate, whether he made any income out of the land, or whether the land was capable of yielding any income, attempted no classification and that lack of classification by the Act itself created inequality, and was on that account hit by the prohibition against denial of equality before the law contained in Art. 14. The Court also held that the Act was confiscatory in character,, since it had the effect of eliminating private ownership of land through the machinery of the Act, without proposing to acquire privately owned forests for the State. The Travancore-Cochin Land Tax Act, it is clear, contained several peculiar features: it was in the context of these features that the Court held that imposition of a uniform liability upon lands which were inherently unequal, in productive capacity amounted to discrimination, and that lack of classification created inequality. It was not said by the Court in that case that imposition of uniform liability upon persons,. objects or transactions which are unequal must of necessity lead to discrimination. Ordinarily it may be predicated of unproductive agricultural land that it is incapable of being put to profitable agricultural use at any time. But that cannot be so predicated of an industrial establishment which has suffered loss in the accounting year, or even over several years successively . Such an establishment may suffer loss in one year and make profit in another. Section 10 undoubtedly places in the same class establishments which have made inadequate profits not justifying payment of bonus, establishments which have suffered marginal loss, and establishments which have suffered heavy loss. The classification so made is not unintelligible: all establishments which are unable to pay bonus under the scheme of the Act, on the result of the working of the establishments, are grouped together. The object of the Act is to make an equitable distribution of the surplus profits of the establishment with a view to maintain peace and harmony between the three agencies which contribute to the earning of profits. Distribution of profits which is not subject to great fluctuations year after year, would certainly conduce to maintenance of peace and harmony and would be regarded as equitable, and provision for payment of bonus at the statutory minimum rate, even if the establishment has not earned profit is clearly enacted to ensure the object of the Act.

Whether the scheme for payment of minimum bonus is the best in the circumstances, or a more equitable method could have been devised so as to avoid in certain cases undue hardship is ir36 relevant to the enquiry in hand. If the classification is not patently arbitrary, the Court will not rule it discriminatory merely because it involves hardship or inequality of burden. With a view to secure a particular object a scheme may be selected by the Legislature wisdom whereof may be open to debate; it may even be demonstrated that the scheme is not the best in the circumstances and the choice of the Legislature may be shown to be erroneous, but unless the enactment fails to satisfy the dual test of intelligible classification and rationality of the relation with the object of the law, it will not be subject to judicial interference tinder Art-14. Invalidity of legislation is not established by merely finding faults with the scheme adopted by the Legislature to achieve the purpose it ha

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