Full Judgment Text
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PETITIONER:
THE WORKMEN OF H.M.T. & ANR.
Vs.
RESPONDENT:
THE PRESIDING OFFICER, NATIONALTRIBUNAL, CALCUTTA & OTHERS
DATE OF JUDGMENT03/04/1973
BENCH:
VAIDYIALINGAM, C.A.
BENCH:
VAIDYIALINGAM, C.A.
ALAGIRISWAMI, A.
DUA, I.D.
CITATION:
1973 AIR 2300 1973 SCR (3) 850
1973 SCC (2) 277
ACT:
Payment of Bonus Act, 1964-Payment of minimum bonus under s.
10 whether subject to provisions of s. 16-Where s. 16(1)
applies minimum bonus under s. 10 not payable-Different
establishments of H.M.T. treated separately each having a
separate balance-sheet and profit and loss account-Exemption
under s. 16(1) must be allowed.
HEADNOTE:
Unit No. IV of the Hindustan Machine Tools, a public sector
undertaking, was started at Kalamassery, in Kerala in 1963.
Production and sale at this Unit started in 1965-66. In an
industrial dispute referred to the National Tribunal at
Calcutta the workmen of Unit No. IV claimed bonus for the
years 19 3-64 to 1966-67 at the same rate as was paid in
Units Nos. 1 and 11 and the Watch Factory of the H.M.T. at
Bangalore. It was contended by the workmen of Unit No. IV
that bonus was payable on the basis of the consclidated
accounts of all the Units of the H.M.T. The National
Tribunal held that bonus for the year 1963-64 was payable to
the workmen of Unit No. IV at the same rate as in Units Nos.
1 and 11 and the Watch Factory at Bangalore, but no bonus
were payable to them for the years 1964-65 1966-67. In
appeal to this Court by special leave it wits contended on
behalf of the workmen of Unit No. IV (appellants) (i) that
minimum bonus was payable to the appellants for the years
1964-65 to 1966-67, Under s., 10 of the Payment of Bonus
Act, 1964 and in applying s. 10 the provisions of s. 16
could not be taken into consideration: (ii) that the H.M.T.
had in fact maintained a consolidated account for all its
Units and the claim of the management that separate profit
and loss accounts were maintained was falsely made to defeat
the rights of the workmen. The management, by leave of the
Court challenged the finding of the Tribunal that bonus was
payable to the appellants for the year 1963-64.
HELD : (i) The Tribunal was right in holding that the
appellants were not entitled to any bonus for the year 1964-
65 to 1966-67.
(a) Though section 10 has not been made subject to section
16 the two provisions will have to be read harmoniously so
as to give effect to the purpose of the Act. Section 10
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will apply to all those units, which are otherwise bound to
pay bonus, irrespective of the fact whether the units make
profit or loss. Section 16 has to be read as an exception
to section 10.
Section 16(1) gives a total exemption to the establishments
in the circumstances mentioned therein from payment of bonus
Which includes the minimum bonus also. When the section
says that an employee of the establishment referred to in
section 16 shall be entitled "to be paid bonus under this
Act" only if the conditions mentioned therein are satisfied,
it is idle to contend that, notwithstanding the exemption
granted under section 16, the establishment referred to
therein is sill bound to pay minimum bonus.
If section 16(1) applies, section 10 will not entitle an
employee to get even the minimum bonus under section 10.
Therefore the contention of
851
the appellants that in any event, the minimum bonus under
section 10’ ought to have been awarded, could not be
accepted.. [861 E-H]
Alloy Steel Project v. The Workmen, 1971 3 S.C.R. 629,
referred to.
(b) In this case Units 1 and 11 alone have always been
treated together ,for the computation of bonus. All the
other three Units and the Watch Factory at Bangalore have
each been treated separately and each of them has been
having a separate balance-sheet and profit and loss account.
This is the evidence on record which has been accepted by
the Tribunal. There was no reason to differ from this
finding. As Unit No. IV is a different establishment coming
under the proviso and not falling under the exception to the
proviso to section 3, the main part of section 3 will not
assist the appellants. Therefore the exemption claimed
under section 16(1) by the management for 1964-65 to, 1966-
67 in respect of Unit No. IV, has been correctly acceptedly
the Tribunal, [863E-G]
Delhi Cloth & General Mills Co. Ltd. v. Workmen, [1972] 1
S.C.R. 594, referred to.
(ii) The Tribunal missed certain items of evidence and
proceeded on the wrong assumption that profit bonus for the
year 1963-64 was paid to the workmen of the Units on the
basis of the Full Bench Formula. Hence the direction of the
Tribunal that profit bonus was to be paid to Unit No. IV as
was paid to the Units at Bangalore was clearly erroneous.
Even otherwise the finding of the Tribunal-that all the
Units Were treated as part of one establishment for purposes
of bonus for the year 1963-64 was also erroneous. For the
above reason,. the direction of the Tribunal for payment of
bonus for the year 1963-64 to Unit No. IV must be set aside.
[865E]
JUDGMENT:
CIVIL APPELLATE JURISDICTION Civil Appeal ’No.
389 of 1970.
Appeal by special leave from the award dated April, 16, 1969
of the National Tribunal, Calcutta in Ref. No. NIT-6 of
1967 published in the Gazette of India dated May 10, 1969.
N. Sreekantan Nair, appellant No. 1 in person.
Urmila Kapoor and K. Bansal for appellant No. 2.
G. B. Pai, P. P. Bopanna, K. N. Bhatt and M. M. Kshatriya,.
for respondents Nos. 2 to 7.
Ambrish Kumar and M. V. Goswami, for respondent No. 1. The
Judgment of the Court was delivered by
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VAIDIALINGAM, J. This appeal by special leave by the workmen
of the Hindustan Machine Tools, Unit, IV, Kalamassery, is
directed against the award dated April 16, 1969, of the,
National Tribunal at Calcutta in Reference No. NIT 6 of
1967, holding that the appellants are not entitled to any
bonus for the years.. 1964-65 to 1966-67.
852
By order dated October 17, 1967, the Central Government made
a reference for adjudication of the disputes to the National
’Tribunal in the following manner :
"Whereas the Central Government is of opinion
that an industrial dispute exists between the
employers in respect of the establishments
specified in Schedule I and their workmen in
respect. of the matters specified in Schedule
11 hereto annexed and that the said dispute is
of such a nature that industrial
establishments situated in more than one State
are likely to be interested in, or affected
by, such dispute;
And, whereas the Central Government is of
opinion ’that the dispute should be
adjudicated by a National ’Tribunal;
And, whereas the Central Government is of
opinion that the said dispute is of such a
nature that the Hindustan Machine Tools it
Pinjore and the Hindustan Machine Tools at
Hyderabad are likely to be interested in, or
affected by, such disputes.
Now, therefore, in exercise of the powers
conferred by section 7B, and sub-section (1A)
and 5 of section 10, of the Industrial
Disputes Act, 1947 (14 of 1947), the Central
Government hereby constitutes a National
Tribunal of Calcutta, of which Shri S. K. Sen
shall be ’the Presiding Officer, and refers
the said disputes to the said National
Tribunal for adjudication and includes in that
reference, the Hindustan Machine Tools at
Pinjore and the Hindustan Machine Tools at
Hyderabad.
SCHEDULEI
(1) Hindustan Machine Tools, I, Bangalore.
(2) Hindustan Machine Tools II, Bangalore.
(3) Hindustan Machine, Tools IV,
Kalamassery, Kerala.
SCHEDULEII
(1) Whether the demand of the workmen in the
Hindustan Machine Tools 1 and 11 at Bangalore
for payment of bonus at the rate of 20 per
cent of their salary for the year 1966-67 is
justified? If not, to what quantum of bonus
are they entitled ?
(2) Whether the workmen of the Hindustan
Machine Tools at Kalamassery, Pinjode and
853
Hyderabad are entitled to any bonus and if so,
what should be the quantum of such bonus ?
(3) Whether the demand of the workmen of the
Hindustan Machine Tools 1 and 11 of Bangalore
and of the Hindustan Machine Tools IV at
Kalamassery that the bonus should be cal-
culated on the basis of a consolidated Profit
and Loss Account for all the units and all
activities and not on the basis of Profit and
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Loss Account of the separate units and
separate activities is justified ?"
Although in Schedule I of the order of reference only the,
Units at Bangalore and Kalamassery were referred to,
nevertheless, copies of the reference were sent by the
Central Government to the labour unions of the Hindustan
Machine Tools Limited, Unit No. III at Pinjore (Haryana
State) and Unit No. V at Hyderabpd as also to the H.M.T.
Watch Factory at Bangalore. The unions representing the
workmen of the five Units as well as the Watch Factory had
filed statements before the National Tribunal. The
managements of these different Units had also filed
statements opposing the claims of the unions.
Before the proceedings commenced, the National Tribunal
appears to have felt certain difficulties regarding the
scope of the reference. In respect of item 1 of Schedule
11, the Tribunal felt a doubt whether it should also
consider the question of bonus for any other year in respect
of Units 1 and 11 at Bangalore. Similarly the Tribunal felt
a doubt as to what was the particular year for which the
claim for bonus is to be considered under item 2 of Schedule
II. This doubt arose because no year had been mentioned in
the reference under this item. For the purpose of getting
clarification, the Tribunal invited the views of all the
unions as well as the management. All parties agreed that
when the reference was ambiguous or doubtful,. the scope of
the reference can be gathered from the pleadings of the
parties. Accepting the agreement of the parties, the
Tribunal found from the pleadings that the workmen of the
Hindustan Machine Tools, Units 1 and 11 at Bangalore, had
been paid bonus at the rate of’ 20 per cent for the years
1964-65 and 1965-66. Therefore, it held that the claim of
these two Units under item I of Schedule II has to be
considered only for the year 1966-67. Similarly in respect
of item 2 of Schedule II of the reference, the Tribunal
found that the workmen of Unit No. III at Pinjore claimed
bonus for the years 1963-64 and 1964-65 according to the
Full Bench Formula and for the years 1965-66 and 1966-67
under the provisions of the Payment of Bonus Act, 1965
(hereinafter to be referred to as the Act). Similarly the
workmen of Unit No. IV’
854
on the basis of bonus paid and payable to the Bangalore
workmen. The workmen of Unit No. Vat Hyderabad claimed.
bonus at 20 per cent for each of the years, 1965-66 and
1966-67. The workmen of the Watch Factory, who were getting
bonus at the maximum rate of 20 per cent, did not require
any further bonus to be paid. But that-Unit took up the
position that the contention of the various unions who were
claiming annual bonus on the basis of the consolidated
balance sheets and profit and loss accounts, should be
rejected.
Having crystallised the actual scope of the reference in the
manner indicated above, the Tribunal proceeded to consider
the questions that arose for consideration. At this stage
it may be stated that the workmen of Unit No. IV at
Kalamassery, the appellant before us, claimed bonus for the
year 1963-64 and ,onwards on the basis of bonus paid and
payable to the Bangalore workmen. It must also be stated
that the claim of the appellants, as well as that of the
workmen of Units Nos. 1 and 11 at Bangalore was for payment
of bonus on the consolidated profit and loss account of all
the units of the Hindustan Machine Tools Limited situated in
Bangalore, Pinjore, Kalamassery and Hyderabad as well as of
the Watch Factory.
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In respect of item 1 of Schedule 11, the Tribunal held that
the workmen of Units Nos. 1 and 11 at Bangalore are entitled only
to the minimum bonus at 4 per cent under the Act and
that their claim for payment at 20 per cent of their salary
for the year 1966-67 has to be rejected. The Tribunal
answered items Nos. 2 and 3 of Schedule 11 as follows :-
My answer to item No. (2) is
The workmen of the Hindustan Machine Tools at
Kalamassery and Pinjore are entitled to the
same rate of bonus as is paid to the Watch
Factory and HMT 1 & 11 workmen during the year
1963-64. The factory ’at Hyderabad not having
been started by March 31, 1964, becomes
disentitled to the provisions of pre Bonus
Act. Since during the Bonus Act period by
virtue of the maintenance of separate accounts
no branch or undertaking becomes entitled to
the prosperity of, the company, the Hyderabad
is not entitled to any bonus at all under the
provisions of the Payment of Bonus Act.
My answer to item No. (3) is
The demand of the workmen of the Hindustan
Machine Tools Ltd. 1 & 11 at Bangalore and of
the
8 55
Hindustan Machine Tools Ltd. No. IV at
Kalamassery that bonus should be calculated on
the basis of consolidated profit and loss
accounts for all the units and for all the
activities and not on the basis of the profit
and loss accounts of the separate units and
separate activities is justified, for the year
1963-64 only and not for the years 1964-65,
1965-66 and 1966-67."
It may be stated that none of the workmen aggrieved by one
or other or all the findings of the Tribunal on items 1, 2
and 3, excepting the workmen of Unit No. IV at Kalamassery,
have come up in appeal. The net result of the above finding
so far as Unit No. IV at Kalamassery, which is the
appellant, is that its workmen are eligible for bonus for
the year 1963-64 at the same rate of bonus that has been
paid to the workmen of the Watch Factory and Units Nos. 1
and 11 at Bangalore for the said year. The workmen of Unit
No. IV are not entitled to claim bonus for the years 1964-65
to 1966-67 on the basis of the consolidated profit and loss
accounts of all the Units of the Hindustan Machine Tools but
only on the basis of the separate profit and loss account
maintained for Unit No. IV. After a consideration of the
evidence, oral and documentary, the Tribunal held that the
said Unit was not entitled to any bonus at all for these
three years.
The workmen of Unit No. IV challenged the disallowance of
bonus for the year 1964-65 to 1966-67. At the time of
granting special leave, the counsel for the management,
respondents 2 to 7 herein, appears, to have represented that
there are certain findings recorded in the award which are
challenged by the management. In view of this
representation, this Court passed an order on February 24,
1970, permitting the management to bring to the notice of
the learned Judges hearing the appeal the various findings
which the management proposes to challenge provided notice
has been given to the workmen concerned by putting them in
the statement of case. Accordingly the management has
raised in its statement of case, by- way of cross-
objections, its grounds of attack on certain findings.
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Mainly two matters have been referred, namely--
(1) the finding of the Tribunal that there
was functional integrality of all the units
for the period 1963-64 and the award in
consequence of bonus to all the units at the
rate that has been paid to Units Nos. 1 and
11, and
(2) the statement made by the Tribunal in
paragraph 25 of the award about payment of
bonus to the Watch Factory employees.
856
These points have been pressed before us by the learned
counsel for the management.
We will first take up the point regarding the disallowance
of bonus for the years 1964-65 to 1966-67 arising in the
union’s appeal. Mr. N. Sreekantan Nair, the President of
the Employees Federation, Appellant No. 1, has argued the
case in person on behalf of the appellants. It must be
stated to his credit that he has placed the case before us
as lucidly and candidly as possible. According to Mr. Nair
the finding of the Tribunal that the various units of the
Hindustan Machine Tools Limited located in the different
regions, are different establishments and that the
management has been having separate profit and loss accounts
for each of these Units and that it is only on that basis
that bonus will have to be calculated, is erroneous.
According to Mr. Nair the management, with a view to defeat
the legitimate rights of the workmen, have made it appear
that there are separate profit and loss accounts maintained
for each of the Units, while in reality it is not so.
According to him it is only a camouflage adopted by the
management to circumvent the provisions of the Act. Even
assuming that separate balance sheets and profit and loss
accounts are maintained for each of the Units, he contended
that in law the workmen of Unit No. IV at Kalamassery are
entitled to the minimum bonus for these years under section
10 of the Act. The reliance placed on section 16 by the
Tribunal for disallowing such a claim is erroneous.
Mr. G. B. Pai, learned counsel for the management, on the
other hand, has referred to the material provisions of the
Act and also to the evidence on record in support of his
contention that the five Units in the different regions and
the Watch Factory are all different entities having their
own profit and loss accounts and balance sheets. The
management, according to the counsel, has not done any thing
to defeat the provisions of the Act. The counsel urged that
the view of the Tribunal that Unit No. IV is exempt from
payment of bonus for the years 1964-65 to 1966-67 based upon
section 16, is correct. Section 10 also, the counsel
pointed out, will not help the appellants.
The history of the Hindustan Machine Tools Limited and the
establishment of the five Units at Bangalore, Pinjore,
Kalamassery and Hyderabad as well as of the Watch Factory
has been very elaborately dealt with by the Tribunal in the
award. Nobody has raised any dispute regarding the various
matters referred to by the Tribunal. Therefore, we do not
propose to cover the ground over again. From the evidence,
the following facts are also clear :-
The H.M.T. was incorporated in 1953. The Unit
1 in Bangalore was started in 1953, but
production and
857
sale began in 1956-57. No. 11 Unit of
Bangalore was started in April, 1960.
Production and sale from that Unit started in
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May, 1961. The third Unit at Pinjore in
Haryana was started in May, 1962. Production
and sale at that Unit started in the year
1964-65. The 4th Unit at Kalamassery was
started in July 1963. Production and sale
started at that Unit from 1965-66. The 5th
Unit of the H.M.T. at Hyderabad was started in
May, 1964 and production and sale at that Unit
started in 1966-67. The Watch Factory at
Bangalore was started in September, 1961 and
indigenous production of watches started in
1963.
From what is stated above, it will be seen that Unit No. 4
at Kalamassery, with which we are concerned, was started in
July, 1963. But that Unit commenced production and sale of
its. articles only from 1965-66. This aspect will have
considerable bearing when we consider the impact of section
16. It is now necessary to refer to the material provisions
of the Act. The Act by virtue of section 1(4) applies to a
factory or department in respect of the accounting year
commencing on any day in the year 1964 and in respect of
every subsequent accounting year. Therefore, there can be
no controversy that the periods with which we are concerned,
namely, 1964-65 to 1966-67, are governed by the Act. The
terms ’employees’, ’employer’, ’establishment in private
sector’ and ’establishment in public sector’ arc, defined in
clauses 13, 14, 15 and 16 respectively of section 2. Section
3 dealing with establishments, so as to include departments,
undertakings and branches, is as follows :-
Establishments to include departments,
undertakings and
branches
3. "Where an establishment consists of
different departments or undertakings or has
branches, whether situated in the same place
or in different places, all such departments
or undertakings or branches shall be treated
as parts of the same establishment 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, then, 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
7-L797 Sup. CI/73
8 58
of the establishment for the purpose of
computation of bonus."
Section 8 dealing with the eligibility for bonus is as
follows
Eligibility for bonus
8. "Every employee shall be entitled to be
paid by his employer in an accounting year,
bonus, in ’accordance with the provisions of
this Act, provided he has worked in the
establishment for not less than thirty working
days in that year."
Section 13 relating to proportionate reduction in bonus in
certain cases is as follows :-
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Proportionate reduction in bonus in certain
cases
13. "Where an employee has not worked for
all the working days in any accounting year,
the minimum bonus of forty rupees or, as the
case may be, of twenty five rupees, if such
bonus is higher than four per cent, of his
salary or wage for the days he has worked in
that accounting year, shall be proportionately
reduced."
Section 10 dealing with payment of minimum bonus runs
follows :-
Payment of minimum bonus
10. "Subject to the provisions of sections 8
and 13, every employer shall be bound to pay
to every employee in an accounting year a
minimum bonus which shall be four per cent of
the salary or wage earned by the employee
during the accounting year or forty rupees,
whichever is higher, whether there are profits
in the accounting year or not;
’Provided that where such employee has not
completed fifteen years of age at the
beginning of the accounting year, the
provisions of this section shall have effect
in relation to such employee as if for the
words "forty rupees", the words "twenty-five
rupees" were substituted."
We have earlier referred to sections 3 and 13 as section 10
is subject to those two sections. Section 11 provides for
payment of the maximum bonus of 20 per cent of the salary or
wages in the circumstances mentioned therein. Section 16,
which contains
859
special provisions with respect to certain establishments,
is follows
Special provisions with respect to certain
establishments
16 (1) "Where an establishment is newly set
up, whether before or after the commencement
of this Act, the employees of such
establishment shall be entitled to be paid
bonus under this Act only--
(a) from the accounting year in which the
employer derives profit from such
establishment; or
(b) from the sixth accounting year following
the accounting year in which the employer
sells the goods produced or manufactured by
him or renders services, as the case may be,
from such establishment,
whichever is earlier :
Provided that in the case of any such estab-
lishment the employees thereof shall not, save
as otherwise provided in section 33, be
entitled to be paid bonus under this Act in
respect of any accounting year prior to the
accounting year commencing on any day in the
year 1964.
Explanation I :-For the purpose of this
section. an establishment shall not be deemed
to be newly set up merely by reason of a
change in its location, management, name or
ownership.
Explanation II---For the purpose of clause
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(a), an employer shall not be deemed to have
derived profit in any accounting- year
unless---
(a) he has made provision for that year’s
depreciation to which he is entitled under the
Income-tax Act, or as the case may be, under
the agricultural income-tax law; and
(b) the arrears of such depreciation and
losses incurred by him in respect of the
establishment for the previous accounting
years have been fully set off against his
profits.
Explanation III.-For the purpose of clause
(b), sale of the goods produced or
manufactured during the course of the trial
run of any factory or of the prospecting stage
of any mine or an oil-field shall not be
:taken into consideration and where any
question arises
860
with regard to such production or manufacture,
the decision of the appropriate Government,
made after giving the parties a reasonable
opportunity of representing the case, shall be
final and shall not be called in question by
any court or other authority.
(2) The provisions of sub-section (1) shall,
so far as may be, apply to new departments or
undertakings or branches set up by existing
establishments :
Provided that if an employer in relation to an
existing establishment consisting of different
departments or undertakings or branches
(whether or not in the same industry) set up
at different periods has, before the 29th May,
1965, been paying bonus to the employees of
all such departments or undertakings or
branches, irrespective of the date on which
such departments or undertakings or branches
were set up, on the basis of the consolidated
profits computed in respect of all such
departments or undertakings or branches, then,
such employer shall be liable to pay bonus in
accordance with the provisions of this Act to
the employees of all such departments or
undertakings or branches (whether set up
before or after that date) on the basis of the
consolidated profits computed as aforesaid."
The only other section, which requires to be noted, is
section 20, which makes the Act applicable to establishments
in public sector in certain cases. The Hindustan Machine
Tools Ltd. is an establishment in public sector and there is
no controversy that by virtue of section 20, the Act applies
and it will be liable to pay bonus, if circumstances justify
the same.
We will now consider the contention of Mr. Nair that under
section 10 the Unit No. IV is bound to pay the minimum bonus
of 4 per cent for the years in question without reference to
any other circumstance. According to him the only
provisions, which have to be considered for applying section
10, are, as mentioned therein, the two provisions, namely,
sections 8 and 13. The contention of Mr. Nair is that the
workmen of Unit No. IV satisfy the requirements of sections
8 and 13 and, therefore, they are, as of right, entitled to
get the minimum bonus. Mr. Nair further urged that a
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reference to section 16 is absolutely immaterial for the
purpose of considering the applicability of section 10.
Section 16, according to him, will come into play only when
the workmen claim bonus at a rate higher than the minimum of
4 per cent provided under section 10. This aspect,
according to him, has not been at all considered by this
Court, when dealing with section 16 of the Act.
861
A reading of section 10, isolated from the other provisions
of the Act, may appear to lend support to the contention of
Mr. Nair that an employee, if he satisfies the requirements
of sections 8 and 13, will be entitled to get the minimum
bonus. No doubt, Mr. G. B. Pai, learned counsel, has
pointed out that the employees of Unit No. IV do not even
satisfy the requirements of sections 8 and 13. That apart,
though section 10 has not been made subject to section 16,
in our opinion, the two provisions will have to be read
harmoniously so as to give effect to the purpose of the Act.
Section 10 will apply to all those units, which are
otherwise bound to pay bonus, irrespective of the fact
whether the units make profit or incur loss. Section 16, in
our opinion, has to be read as an exception to section 10.
In particular, it will be noted that section 16(1), after
referring to an establishment newly set up, whether before
or after the commencement of the Act, states that ",the
employees of such establishment shall be entitled to be paid
bonus under this Act only...... It cannot be controverted
that payment of even the minimum bonus under section 10 or
bonus upto the maximum of 20 per cent, as per section II,
will both be "payment of bonus under this Act", as
contemplated by section 16. Similarly, eligibility for
bonus under section 8 "in accordance with the provisions of
this Act", can be related only to those cases where the
bonus is payable either under section 10 or under section
11. Section 16(1) gives a total exemption to the
establishments in the circumstances mentioned therein from
payment of bonus which include the minimum bonus also. When
the section says that an employee of the establishment
referred to in section 16 shall be entitled "to be paid
bonus under this Act" only if the conditions mentioned
therein are satisfied, it is idle to contend that, notwith-
standing the exemption granted under section 16, the
establishment referred to therein is still bound to pay a
minimum bonus. No doubt that liability to pay the minimum
bonus, at any rate, will certainly attach itself to the
particular establishment, if one or other of the conditions
mentioned in sub-clauses (a) or (b) of section 16(1) come
into play. Under such circumstances, it will be open to an
employee to claim not only the minimum bonus but also bonus
at a higher rate upto the maximum of 20 per cent, if
circumstances permit. Mr. Nair is no doubt right in his
contention that section 10 has not been referred to by this
Court, when dealing with section 16. The reason for such
non-consideration is because no such argument, as is now
placed before us, appears to have been raised before this
Court. Now that such a contention has been raised, we have
dealt with it. According to us, if section 16(1) applies,
however, hard the result may be, section 10 will not entitle
an employee to get even the minimum bonus under section 10.
Therefore, the, contention of
862
Mr. Nair that in any event the minimum bonus under section
10 should have been awarded, cannot be accepted.
In this connection we may also refer to the decision of this
Court in Alloy Steel Project v. The Workmen(1). The
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question was whether the Alloy Steel Project, which was
started in 1961 and went into production in 1964-65 and did
not earn profits upto 1967-68, was liable to pay bonus at
the minimum rate under the Act for the year 1965-66. On
behalf of the Alloy Steel Project, exemption from payment of
bonus was claimed’ under section 16(1) of the Act on the
ground that it was a new establishment and had not made
profits. This Court held that the said Unit was not liable
to pay even the minimum bonus, as claimed by the workmen, in
view of the provisions of section 16(1) of the Act. It is
no doubt true that there is no reference in this decision to
section 10, That is why we have stated earlier that a
contention, similar to that advanced by Mr. Nair, was not
raised before this Court.
The next question that arises for consideration is whether
the Tribunal was justified in rejecting the claim for bonus
for the years 1964-65 to 1966-67. We have already referred
to the fact that Unit No. IV was started in July 1963, but
production and sale started only from 1965-66. Therefore,
the question is whether it is liable to be treated as part
of the establishment of H.M.T. under section 3 or whether it
is entitled to exemption from payment of bonus under section
16. We have already extracted section 3. It is to be noted
that the principal part of section 3 lays down that
different departments or undertakings or branches of an
establishment are to be treated as parts of, the same
establishment for the purpose of computation of bonus under
the Act. From the main provision an exception is carved out
by the proviso and there is a further exception to the
proviso itself. The sum and substance of section 3 is that
an establishment initially takes in all establishments,
undertakings and branches for the purpose of computation of
bonus. But if, in respect of any department, undertaking or
branch separate balance sheet land profit and loss account
are prepared and maintained for any accounting year, then
for that particular year; computation of bonus shall. be by
treating it as a separate establishment. But this will be
subject to a further exception that immediately before the
commencement of that accounting year, namely, the accounting
year in which a separate balance sheet and profit and loss
account is prepared and maintained, such a department or
undertaking or branch has not been treated as part of the
establishment for the purpose of computation of bonus. In
this , case Units 1 and 11 alone have been always treated
together for the purpose of computation of bonus. All the
other three Units and
(1) [1971] 35. C. R. 629
863
the Watch Factory at Bangalore have each been treated sepa-
rately and each of them has been having a separate balance
sheet and profit and loss account. This is the evidence on
record, which has been accepted by the Tribunal. We see no
reason to differ from this finding.
The Controller of Finance of the management, MW 1, has given
in detail the various dates when these several units were
started and production and sales began. He has deposed that
H.M.T. Units Nos. 1 and 11 at Bangalore were alone treated
as one for the purpose of maintenance of accounts and that
H.M.T. Units Nos. 111, IV and V and the Watch Factory were
all having separate and independent profit and loss accounts
and balance sheets. This practice has been followed from
the inception of the different Units. A consolidated
balance sheet and profit and loss account was only being
prepared for the purpose of the Companies Act. There is no
evidence that any of the units or undertakings fell within
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the exception to the proviso in section 3 and that in such
branches, immediately before the commencement of the
accounting year 1964-65, separate balance sheets and profit
and loss accounts for purposes of computation of bonus were
prepared and maintained. If that was the case, it may well
be stated that the appellant-unit was treated as part of the
establishment, in this case the H.M.T., for purposes of
computation of bonus. In fact the evidence of MW 1 is that
no profit bonus was ever paid to any of the employees of
even H.M.T. Units Nos. 1 and 11 prior to 1964-65. What was
paid was only production bonus on the basis of individual
performance. Section 3 is the key to the Act, as it fixes
the property which is to provide the allocable surplus for
the distribution of bonus in terms of the Act. As the
different Units in this case had been treated separately for
the purpose of computation of bonus and separate balance
sheets and profit and loss accounts had been prepared in
respect thereof, the Units will not lose their separate
identity as establishments because of the main provision of
section 3 (see Delhi Cloth & General Mills Co. Ltd. v.
Workmen(1). As Unit No. IV is a different establishment
coming under the proviso and not falling under the exception
to the proviso to section 3, the main part of section 3 will
not assist the appellants.
Then the question is regarding the applicability of section
16. The evidence of MW 1, which has been accepted by the
Tribunal, is to the effect that Unit No. IV was started in
July 1963 and production and sale commenced only from 1965-
66. Section 16(1) grants exemption from payment of bonus to
establishments newly set up for a period of six years
following the accounting
(1) [1972] (1) S. C. R. 594.
8 64
year in which the goods produced or manufactured are sold
for the first time and, in the alternative, upto the year
when the new establishment results in profit, whichever is
earlier. Unit No. IV is to be treated as an establishment
newly set up, as contemplated under section 16(1). If so,
the exemption claimed would be fully justified because the
contingency contemplated under subclause (a) or (b) of
section 16(1) has not happened during the relevant years,
1964-65 to 1966-67. Even if Unit No. IV is considered to be
a new department, undertaking or branch set up by the
existing establishment, namely, the Hindustan Machine Tools
Ltd., section 16(2) makes the provisions of sub-section (1)
apply to such units. The proviso to sub-section (2) of
section 16 does not stand in the way of the management’s
claim for exemption because there is no evidence that for
any year, after Unit No. IV was set up, bonus was paid to
the employees of all the Units on the basis of consolidated
profits of all such Units. In fact the evidence, as we.
have already stated, is contra. No doubt it is in evidence
that the employees of the Head Office have been treated at
par with the employees of Units 1 and 11 at Bangalore. In
the case of the Head Office, calculation of bonus on the
basis of consolidated accounts is justified; but that does
not affect the principle to be applied to the separate units
for which separate accounts, separate balance sheets and
separate profit and loss accounts are maintained. The
proviso to sub-section (2) of section 16 will come in the
way of the management only if bonus is paid in any year to
the employees of all the Units on the basis of the
consolidated accounts. That is not the evidence in this
case. We may also state that the evidence in this regard
has been very elaborately considered by the Tribunal and we
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agree with the conclusions arrived at by it. Therefore, the
exemption claimed under section 16 (1) by the management for
the years 1964-65 to 1966-67 in respect of Unit No. IV, the
appellant, has been correctly accepted by the Tribunal.
This disposes of the points raised by the appellant in the
appeal.
We have already referred to the permission granted by this
Court by its order dated February 24, 1970, to the
respondents to attack certain findings. Accordingly the
respondents have attacked two of the findings recorded by
the Tribunal which we have set out earlier. For the
accounting year 1963-64, which is the pre-Bonus Act period,
the direction of the Tribunal is that Unit No. IV, the
appellant, is to get bonus on the basis of the consolidated
profit and loss accounts of all the Units in the same manner
as was paid to the Watch Factory and H.M.T. Units Nos. 1
and 11 for the said year. The Tribunal has recorded a
finding that during this period there was unity of
ownership, management and control and also functional
integrality and,
865
therefore, all the Units as well as the Watch Factory have
to be termed as one establishment and bonus will have to be
calculated according to the Full Bench Formula on the
consolidated profit and loss accounts of all the Units.
This finding is attacked by Mr. G. B. Pai, learned counsel
for the respondents. But it is not necessary for us to
consider the correctness or otherwise of this finding in
view of the fact that we are accepting another contention of
his relating to this year. According to the learned counsel
the evidence that has been accepted by the Tribunal itself,
clearly shows that there was no profit bonus paid prior to
1964-65 to either H.M.T Units 1 and 11 or the Watch Factory
in Bangalore. It was only from and after 1964-65 that bonus
was paid to those Units in accordance with the Act. Mr.
Pai’s contention is supported by the evidence of MW 1. From
the evidence of this witness it is clear that no profit
bonus was paid to the above Units prior to 1964-65 and what
was paid was only production bonus based on individual
performance. Apart from the evidence of this witness, there
is also an agreement Ext. 3 dated August 10, 1962, between
the management and the workmen of Units Nos. 1 and 11 at
Bangalore. That agreement provides for payment of deferred
annual bonus. The quantum of such bonus as well as the
circumstances under which it is to be paid to each worker,
has also been detailed in the said agreement. The Tribunal,
unfortunately, missed these items of evidence and has
proceeded on the assumption that profit bonus for the year
1963-64 was paid to the workmen of these Units on the basis
of the Full Bench Formula. This reasoning is erroneous.
Hence the direction of the Tribunal that profit bonus is to
be paid to Unit No. IV, as was paid to the Units at
Bangalore, is clearly erroneous, as it is totally
unworkable. Even otherwise the finding of the Tribunal that
all the Units were treated as part of one establishment
for purposes of bonus for the year 1963-64, is also
erroneous. For the above reasons, the direction of the
Tribunal for payment of bonus for the year 1963-64 to Unit
No. IV has to be set aside.
The second finding that has been attacked by Mr. Pai is the
statement, contained in paragraph 25 of the award that, it
appears from Ext. A(2), the balance sheet and the profit
and loss account for the year 1963-64, an amount of Rs.
18,80,902/- was paid as bonus to the employees of the Watch
Factory and Units Nos. 1 and 11 at Bangalore. A personal
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of the entry in Ext. A(2) shows that the particular entry
regarding this amount relates to payments made to Units Nos.
1 and 11 and not to the Watch Factory. It will be seen that
no claim whatsoever was put forward before the Tribunal by
the workmen of the Watch Factory. We have already referred
to the stand taken by the workmen of the
866
Watch Factory, who were getting bonus at the maximum rate,
that they wanted the claim of the other unions for bonus on
consolidated balance sheets and profits and loss accounts to
be rejected.
In the result the appeal is dismissed. The finding recorded
against the management on the points referred to above are
also set aside. The position will be that the claim of the
appellant, Unit No. IV, for payment of bonus for the years
1963-64 to 1966-67 will stand rejected. There will be no
order as to costs
G.C. Appeal dismissed.
867