Full Judgment Text
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PETITIONER:
SANGHI JEEVARAJ GHEWAR CHAND & ORS.
Vs.
RESPONDENT:
SECRETARY, MADRAS CHILLIES, GRAINS KIRANA MERCHANTS
DATE OF JUDGMENT:
16/07/1968
BENCH:
SHELAT, J.M.
BENCH:
SHELAT, J.M.
HEGDE, K.S.
CITATION:
1969 AIR 530 1969 SCR (1) 366
CITATOR INFO :
R 1972 SC1436 (13)
E 1976 SC1455 (28,37,38)
RF 1976 SC1775 (17)
RF 1979 SC 876 (6)
R 1984 SC 457 (2,3,4)
R 1986 SC1486 (4)
ACT:
Payment of Bonus Act (21 of 1965), ss. 1(3), 22, 32(x) and
39 - Act whether exhaustive on the law relating to bonus-
Whether employees entitled to payment of bonus dehors the
Act in case of excluded and exempted establishments--Scope
of ss. 22 and 39.
Legislative history and Statement of Objects and Reasons
when can be looked into.
HEADNOTE:
The appellants are : (i) an establishment with less than 20
employees and which was not a factory; and (ii) an
establishment in the public sector. On the question,
whether in view of the non-applicability of the Payment of
Bonus Act, 1965, to the two appellants-in the first case by
reason of exclusion under s. 1(3) and in the other by reason
of exemption under s. 32(x)-the employees of the two
appellants were entitled to claim bonus dehors the Act.
HELD : Considering the history of the legislation, the
background and the circumstances in which the Act was
enacted the object of the Act and its scheme, it is not
possible to accept the construction suggested on behalf of
the respondents (employees) that the Act is not an
exhaustive Act dealing comprehensively with the subject-
Matter of bonus in all its aspects, or that Parliament still
left it open to those to whom the Act does not apply by
reason of exclusion or exemption to raise a dispute with
regard to bonus dehors the Act through industrial
adjudication under the Industrial Disputes Act, 1947, or
other corresponding laws.
(1) The Court is justified in looking into the history of
the legislation and the statement of objects and reasons,
not for the purpose of construing the Act, but for the
limited purpose of ascertaining the background, the
conditions and circumstances which led to its passing, the
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mischief it was intended to prevent and the remedy it
furnished to prevent such mischief. [372 B-C]
Heydon’s case, 76 E.R. 637, Bengal Immunity Co. Ltd. v.
State of Bihar, [1955] 2 S.C.R. 603, R. M. D.
Chamarbaughwalla v. Union of India, [1957] S.C.R. 930,
Central Bank of India v. Their Workmen, [1960] 1 S.C.R. 200,
Corporation, of the City of Nagpur v. Its Employees, [1960]
2 S.C.R. 942, State of West Bengal v. Union of India, [1964]
1 S.C.R. 371 and Azeez Basha v. Union of India, [1968] 1
S.C.R. 833 referred to.
Until the enactment of the Payment of Bonus Act, 1965,
payment of bonus was not a statutory obligation on the part
of the employer nor was it a statutory right of an employee.
It was originally a voluntary payment. Under the Full Bench
formula, evolved by the Labour Appellate Tribunal with
respect to disputes for payment of bonus in the Bombay
Textile Industry, it acquired the character of a right to
share in the surplus of profits enforceable through the
machinery of the Industrial Dispites Act, 1947, and other
corresponding Act. Under that Act, workmen of industrial
establishments could raise an industrial dispute and
367
demand by way of bonus a proportionate share in profits on
the principle that both capital and labour had contributed
to the making of profits and therefore both were entitled to
a share therein. As a result of the observations of this
Court in Associated Cement Companies Ltd. v. Its Workmen,
[1959] S.C.R. 925 and in Ahmedabad Miscellaneous Industrial
Workers’ Union v. The Ahmedabad Electricty Co., [1962] 2
S.C.R. 934, the Government of India appointed a Commission
to make recommendations with respect to legislation
regarding bonus. The Government accepted the majority of
the Commission’s recommendations and sponsored the enactment
of the Payment of Bonus Act. Under this Act. liability to
pay bonus has now become a statutory obligation imposed on
employers. In providing such statutory liability Parliament
has laid down a statutory formula on which bonus would be
savable irrespective of whether the establishment had,
during a particular accounting year, made profit or not.
Parliament further laid down that the formula it had evolved
and the statutory liability it provided, shall apply only to
certain establishments and not to all. In such
circumstances, Parliament has not to provide by express
words that henceforth no bonus shall be payable under the
industrial Disputes Act or other corresponding Acts, as
those Act never conferred any statutory right to bonus. [373
G-H; 375 H; 376 B-C; 381 A-D]
Muir Mills Co. v. Suti Mills Mazdoor Union, Kanpur, [1955] 1
S.C.R. 991, Baroada Borough Municipality v. Its Workmen,
[1957] S.C.R. 33, Shree Meenakshi Mills Ltd. v. Their
Workmen [1958] S.C.R. 878, State of Mysore v. The Workers of
Gold Mines, [1959] S.C.R. 895, Associated Cement Companies
Ltd. v. Its Workmen, r.[1959] S.C.R. 925 and The Ahmedabad
Miscellaneous Industrial Workers’ Union v. The Ahmedabad
Electricity Co. Ltd. [1962] 2 S.C.R. 934, referred to.
(2) The Payment of Bonus Act was intended to be a
comprehensive and exhaustive law dealing with the entire
subject of bonus. The fact that the preamble states that
the Act shall apply only to certain establishments and that
s. 1(3) of the Act excludes establishments where less than
20 persons ape employed, from the application of the Act,
does not necessarily mean that Parliament ras not dealt with
the subject-matter of bonus and the persons to whom it shall
apply comprehensively in the Act. Even where an Act deals
comprehensively with a particular subject-matter, the
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Legislature can provide that it shall apply to particular
persons or group of persons or to specified institutions
only, and so, Parliament can lay down as a matter of policy
that it will exclude from the application of the Act certain
types of establishments and also provide for exemption of
certain other types of establishments which would otherwise
fall within the scope of the Act. [380 C-H; 385 H]
(3) Since the Payment of Bonus Art is an exhaustive statute
dealing with subject of bonus, one of the consequences is
that under s. 1(3) of the Act, employees in establishments
engaging less than 20 Persons would get no bonus either
under this Act or under industrial adjudication provided for
by the Industrial Disputes Act and other corresponding Acts.
Under s. 1(3)Parliament has excluded petty establishments
with less than 20 employees in view of the recommendations
of the Commission in that regard, namely, that the
application of the Act to such establishments would lead to
harassment of petty proprietors and disharmony between them
and their employees. To hold that employees in such
establishments would still be entitled to bonus, though not
under the Act, would lead to the anomaly that if there are
two establishments in the same trade or industry one
engaging more than 20 persons and the other engaging less
than 20 person, then, in the former case the employer would
be
368
liable to pay bonus at the rate laid down in the Act, while
in the latter, the employer would be liable to pay bonus on
the basis of the Full Bench formula which may be at a higher
rate depending upon the quantum of profits in the particular
year. [382 C-F; 384 C-E]
(4) Under s. 32(x) of the Payment of Bonus Act,
establishments in the public sector are exempted from the
application of the Act. Therefore, employees in public
sector concerns would not be entitled to bonus, either under
the Act or which they might otherwise have got by raising a
dispute under the Industrial Disputes Act and other
corresponding statutes. The exemption is a limited one and
in granting it, Parliament had a definite policy in mind,
namely, not to subject such establishments which are
conducted without any profit motive and are run for public
benefit, to the burden of bonus. To hold that even in these
exempted cases, the employer would still be liable to pay
bonus if the employees of such institutions were to raise a
dispute under the Industrial Disputes Act and claim bonus in
accordance with the Full Bench formula would also lead to
the anomaly that the Legislature would be giving exemption
with one hand and taking it away with the other. If
Parliament wanted to retain the right to claim bonus by way
of industrial adjudication in the case of establishments
which are either excluded or exempted from the Act it would
have made an express saving provision to that effect as it
has done for employees of coal mines. [382 F-H; 383 F-H; 384
A-C]
(5) There is no question of a right to bonus under the
Industrial Disputes Act or other corresponding laws being
saved under S. 39 of the Payment of Bonus Act, because :
(a) the Industrial Disputes Act or the corresponding laws
though they confer substantial rights on a workman with
regard to lay off, retrenchment compensation, etc., do not
provide for a statutory right to payment of bonus; and [385
C-G]
(b) the definition of ’employee under s. 2(13) of the
Payment of Bonus Act is wider than that of ’workman’ under
the Industrial Disputes Act. Therefore, a dispute between
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an employer and his employees, in relation to bonus may not
be an industrial dispute. Section 22 of the Payment of
Bonus Act, by fiction, makes such disputes industrial
disputes and applies the provisions of the Industrial
Disputes Act. But the Payment of Bonus Act does not provide
any machinery or procedure for the investigation and
settlement of disputes which may arise between employers and
employees, such as a dispute as to the computation of
allocable surplus, or quantum of bonus or as to whether an
establishment in the public sector is liable to pay bonus in
view of s. 20 of the Act. Therefore, s. 39, which provides
that the provisions of the Payment of Bonus Act are in
addition to and not in derogation of the Industrial Disputes
Act and other corresponding laws, became necessary in order
that the machinery of the Industrial Disputes Act may be
available for adjudication of such disputes under the
Payment of Bonus Act F377 H; 378 A-G; 379 B-D]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1630 of 1967.
Appeal by special leave from the award dated April 28, 1967,
of the Industrial Tribunal, Madras in Industrial Dispute No.
78 of 1966.
and
Civil Appeal No. 1721 of 1967.
369
Appeal by special leave from the order dated July 14, 1967
of the Additional Industrial Tribunal, Mysore in A.I.D. No.
29 of 1966.
E.C. Agarwala and Santosh Gupta, for the appellants (in C.A.
No. 1630 of 1967).
C.K. Daphtary, Attorney-General, G. B. Pai, S. K. Dholkia,
and O. C. Mathur, for the appellant (in C.A. No. 1721 of
1967).
M. K. Ramamurthi and M. V. Goswami, for respondent No.
1. (in C.A. No. 1630 of 1967).
H. R. Gokhale, M. K. Ramamurthi, Shyamala Pappu and
Vineet Kumar, for the respondents (in C.A. No. 1721 of
1967).
The Judgment of the Court was delivered by
Shelat, J. In Civil Appeal No. 1630 of 1967, workmen engaged
by certain chilies and kirana shops in Madras and who were
members of the respondent Union made a demand on December
13, 1965 for bonus for the year 1964-65 equivalent to four
months’ wages. Conciliation proceedings having failed, the
dispute was referred to the Industrial Tribunal, Madras. In
Civil Appeal No. 1721 of 1967, the appellant-company is
admittedly an establishment in public sector to which sec.
20 of the Payment of Bonus Act, 21 of 1965 (hereinafter
referred to as the Act) does not apply. In both these
cases, the Tribunals held that though the Act did not apply,
in the first case by reason of sec. 1(3) and in the other by
reason of sec. 32(x), the employees were entitled to claim
bonus and awarded their claims in C.A. No. 1630 of 1967.
The appeals by special leave challenge the correctness of
the view taken by the Tribunals as to the scope and nature
of the Act.
The question for decision in both the appeals is whether in
view of the non-applicability of the Act to establishments,
not being factories and which employ less than 20 persons
therein as the appellants in appeal No. 1630 of 1967 are,
and the exemption of employees in an establishment in public
sector though employing more than 20 persons as the
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appellant-company in appeal No. 1721 of 1967 is under sec.
32(x) of the Act, the employees in both these establishments
could claim bonus, dehors the Act. The question depends
upon the true view of certain provisions and the scope of
the Act. But before we take upon ourselves the burden of
construing these, provisions, it is necessary to refer
briefly to the history of the question of bonus, the back-
ground and the circumstances in which the Act was passed.
This Is Permissible for the limited purpose of appreciating
the mischief Parliament had in mind and the remedy which it
wanted to provide for preventing that mischief,and not for
the purpose of aiding us in construing the provisions of the
Act.
370
As early as 1584, in Heydao’s case(1) it was said that "for
the sure and true interpretation of all statutes in general"
four things are to be considered: (i) What was the common
law before the making of the Act, (ii) What was the mischief
and defect for which the common law did not provide, (iii)
What remedy the Parliament hath resolved and appointed to
cure the disease of the Commonwealth, and (iv) the true
reason of the remedy. In Bengal Immunity Company Limited v.
The State of Bihar(2) this Court approved the rule in
Heydon’s case(1) and in construing Art. 2865 of the
Constitution observed at p. 633 as follows :-
In order to properly interpret the
provisions of that Article it is, therefore,
necessary to consider how the matter stood
immediately before the, Constitution came into
force, what the mischief was for which the old
law did not provide and the remedy which has
been provided by the Constitution to cure that
mischief’.
In the Corporation of the City of Nagpur v. Its Employee(3)
the question was as to the meaning of the word "industry" in
sec. 2(14) of the C.P. & Berar Industrial Disputes
(Settlement) Act (23 of 1947). This Court said that "if the
word were to be construed in its ordinary sense every
calling, service, employment of an employee or any business,
trade or calling of an employer would be an industry. But
such a wide meaning appears to overreach the object for
which the Act was passed". The Court, therefore, found it
necessary to limit the scope of the said word having regard
to the aim, scope and the object of the Act. Relying on the
four tests laid down in Heydon’s case(1) the Court
considered the fundamental basis of the definition of
industry, viz. relationship between employees and employers,
the long title and the, preamble of the Act showing the
object of passing the Act the historical background for
passing it and held that "it is manifest that the Act was
introduced as an important step in achieving social justice,
to ameliorate the conditions of service of the labour in
organised activities than to anything else and therefore the
Act was not intended to reach the personal services which do
not depend on the employment of labour force". Similarly in
R. M. D. Chamarbaugwalla v. The Union of India (4), the
question arose whether looking to the general words used in
sec. 2(d) of the Prize Competitions Act, 42 of 1955 the
words ’prize competition’ included not merely competitions
of a gambling nature but also those in which success
depended to a substantial degree on skill. In construing
the said definition, the Court gave a restricted meaning to
the words "prize competition" as meaning only competitions
as were of a gambling‘ nature. In doing so, the Court
approved the
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(1)[1955] 2 S.C.R.603. (2) 76 E.R. 637. (3) [1960] 2 S.C.R.
942 (4) 1957 S.C.R. 930.
371
principles of construction stated in the case of the Bengal
Immunity Ltd.(1) and held that "in interpreting an enactment
the Court should ascertain the intention of the legislature
not merely from a literal meaning of the words used but also
from such matters as the history of the legislation, its
purpose and the mischief it seeks to suppress". For
considering the intention of Parliament not merely from the
literal meaning of the definition in sec. 2(d) but also from
the history of the legislation the Court looked into the
Bombay Lotteries and Prize Competitions Control and Tax Act,
1948, how it could be and was evaded by the promoters of
lotteries by shifting the venue of their business to the
neighbouring State of Mysore, the concerted action taken by
the adjoining States, the resolutions passed by each of them
calling upon Parliament to undertake legislation, the fact
of Parliament having passed the law and its preamble
reciting the fact of the State legislatures having asked it
to pass such a law. Having done that, the Court observed at
p. 938
"Having regard to the circumstances under
which the resolutions came to be passed, there
cannot be any reasonable doubt that
the, law
which the State legislatures moved Parliament
to enact under Art. 252(1) was one to control
and regulate prize competitions of a gambling
character. Competitions in which success
depended substantially on skill could not have
been in the minds of the legislatures which
passed those resolutions. Those competitions
had not been the subject of any controversy in
Court. They had not done any harm to the
public and had presented no problems to the
States and at no time had there been any
legislation directed to regulating them".
Though the Court refused to look at the statement of objects
and reasons for the, purpose of construing sec. 2(d), it
held that "having regard to the history of the legislation,
the declared object thereof and the wording of the statute"
the words had to be, given a restricted meaning. In Central
Bank of India v. Their Workmen (2 the Court in construing
sec. 10(1) (b) of the Banking Companies Act, 10 of 1949,
again looked at the legislative history to ascertain Jr the
object of passing the Act and the mischief it sought to
remedy,but declined to use the statement of objects and
reasons to construe the section on the -round that the
statement could not control the actual words used in the
section. (Cf. also State of West Bengal v. Union of
India(3). In S. Azeez Basha & Ors. v. Union of India(4),
the, petitioners challenged the validity of the Aligarh
Muslim. University (Amendment) Act, 62 of 1951 and the
Aligarh
(1) [1955] 2 S.C.R. 603.
(3) [1964] 1 S.C.R. 371, 382.
(2) [1960] 1 S.C.R. 200, 216-17.
(4) [1968] 1 S.C.R. 833.
372
Muslim University (Amendment) Act, 19 of 1965 as violating
Art. 30(1) of the Constitution. this Court went into the
history of the establishment of the University to ascertain
whether it was set up by the Muslim minority and as such
entitled to rights under Art. 30 and held that it was not
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set up by the minority but in fact established by the
Government of India by passing the Aligarh Muslim University
Act, 1920 of. Crawford on Statutory Construction (3rd Ed.)
pages 482-483]. There is thus sample authority justifying
the Court in looking into the history of the legislation,
not for the purpose of construing the Act but for the
limited purpose of ascertaining the background, the
conditions and the circumstances which led to its passing,
the mischief it was intended to prevent and the remedy it
furnished to prevent such mischief. The, statement of
objects and reasons also can be legitimately used for
ascertaining the object which the legislature had in mind,
though not for construing the Act.
What were the conditions prevailing at the time when the Act
was passed and what was the object which Parliament had in
mind in passing it ? Bonus was originally regarded as a
gratuitous payment by an employer to his employees. The
practice of paying bonus as an ex gratia payment had its
early roots in the textile industry in Bombay and Ahmedabad.
In 1917 and 1918 an increase of 10 and 15% of wages was
granted as War bonus to the textile workers by the
employers. In October, 1920, a Committee appointed by the
Bombay Millowners recommended to the member mills payment of
bonus equal to one month’s pay. Similarly bonus was
declared in 1921 and 1922. It appears that trading
conditions in the industry having deteriorated, the mill-
owners declared in July 1923 that they would be unable to
pay bonus for 1923. Thereupon a strike began which became
general towards the end of January 1924. In February 1924,
a bonus dispute Committee was appointed by the Government of
Bombay to consider the nature of, the conditions and the
basis of bonus which had been granted to the employees in
the textile mills and to declare whether the employees had
established any enforceable claim, customary, legal or
equitable. The Committee held that they had not established
any enforceable claim, customary, legal or equitable, to an
annual payment of bonus which could be upheld in a court.
The years that followed were years of depression and no
major dispute about bonus arose, although bonuses were given
on ad hoc basis by a few industrial undertakings. During
the Second World War, managements of textile mills paid cash
bonus equivalent to a fraction of the surplus profit but
this was also voluntary payment to keep labour contented.
Disputes for payment of bonus for the years 1948 and 1949
arose in the Bombay textile industry. On the said dispute
having been referred to the Industrial Court, that Court
expressed the view that since both labour and capital
contributed to the profits of the
373
industry both were entitled to a legitimate return out of
the profits and evolved a formula for charging certain prior
liabilities on the gross profits of the accounting year and
awarded a percentage of the balance as bonus. The
Industrial Court excluded the mills which had suffered loss
from the liability to pay bonus. In appeals against the
said awards, the Labour Appellate Tribunal approved broadly
the method of computing bonus as a fraction of the surplus
profit. According to this formula, which has since been
referred to as the Full Bench formula, the surplus available
for distribution is to be determined after debiting certain
prior charges from gross profits, viz. (1) provision for
depreciation (2) reservation for rehabilitation (3) return
of 6% on paid-up capital, and (4) return on working capital
at a rate lower than the one on the paid-up capital. In
Muir Mills Company v. Suti Mills Mazdoor Union, Kanpur(1),
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Baroda Borough Municipality v. Its Workmen(2), The Shree
Meenakshi Mills Ltd. v. Their Workmen(3) and The State of
Mysore v. The Workers of Gold Mines(4) this Court laid down
(1) that bonus was not a gratuitous payment nor a deferred
wage, and (2) that where wages fall short of the living
standard and the industry makes profit part of which is due
to the contribution of labour, a claim for bonus may legiti-
mately be made by the workmen. The Court, however, did not
examine the propriety nor the order of priorities as between
the several charges and their relative importance nor did it
examine the desirability of making any alterations in the
said formula. These questions came to be examined for the
first time in Associated Cement Companies Ltd. v. Its
Workmen(5) where the said formula was generally approved.
Since that decision, this Court has accepted in several
cases the said formula. The principal feature,,, of the
formula are that each year for which bonus is claimed is a
self-contained unit, that bonus is to be computed on the
profits of the establishment during that year, that the
gross profits are to be determined after debiting the wages
and dearness allowance paid to the employees and other items
of expenditure against total receipts as disclosed by the
profit and loss account, and that against such gross profits
the aforesaid four items are to be deducted as prior
charges. The formula was not based on any legal right or
liability, its object being only to distribute profits after
reasonable allocations for the aforesaid charges. Attempts
were thereafter made from time to time to have the said
formula revised but they were rejected first in A.C.C.’s
case(5) and again in The Ahmedabad Miscellaneous Industrial
Workers Union v. The Ahmedabad Electricity Co. Ltd. (6)
where it was observed that the plea for revision raised an
issue which affected all industries and, therefore, before
any change was made all industries and their workmen had
(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. (6) [1962] 2 S.C.R. 934.
374
to be heard and their pleas considered. The Court,
therefore, suggested that the question of revising the
formula should be "comprehensively considered by a high
powered Commission". Taking up the-aforesaid suggestion,
the Government of India appointed a: Commission, by its
resolution dated December 6, 1961, the terms of reference
whereof were, inter alia,
1. to define the concept of bonus and to
consider in relation to industrial employment
the question of payment of bonus based on
profits and recommend principles for
computation of such bonus and methods of
payment;
2. to determine what the prior charges
should be in different circumstances and how
they should be calculated.
3. to determine conditions under which
bonus payment should be, made unitwise,
industrywise and industry-cum regionwise;
4. to consider whether there should be,
lower limits irrespective of loss in
particular establishment and upper limits for
distribution in one year and, if so, the
manner to carry forward the profits and losses
over a prescribed period; and
5. to suggest an appropriate machinery and
method for settlement of bonus disputes.
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After an elaborate enquiry, the Commission
made the following -amongst other
recommendations :
1. That bonus was paid to the workers as
share in the prosperity of the establishment
and that the basic scheme of the bonus formula
should be adhered to viz. determination of
bonus as a percentage of gross profits reduced
by the following prior charges, viz. normal
depreciation allowable under the Indian Income
Tax including multiple shifting allowance,
income tax and super tax at the current
standard rate applicable for the year for
which tax is to be calculated but not super
profits tax, return on paid up capital raised
through preference shares at the actual rate
of dividend payable, on other paid-up capital
at 7% and on reserves used as capital at 4%.
The Commission did not recommend provision for
rehabilitation.
2. That 60% of the available surplus should
be distributed as bonus and excess should be
carried forward and taken into account in the
next year; the balance of 40% should remain
with the establishment into which shou
ld merge
the saving in tax on bonus and the aggre-
375
gate balance thus left to the establishment
should be used for payment of gratuity, other
necessary reserves, rehabilitation in addition
to the provision made by way of depreciation
in the prior charges, annual provision re-
quired for redemption of debentures, etc.
3. That the distinction between the basic
wages and dearness allowance for the purpose
of arriving at the bonus quantum should be
done away with and bonus should be related to
wages and dearness allowance taken together;
4. That minimum bonus should be 4% of the
total basic wage and dearness allowance paid
during the year or Rs. 40 to each employee,
whichever is higher, and in the case of
children the minimum should be equivalent to
4% of their basic wage and dearness allowance,
or Rs. 25 whichever is higher;
5. That the maximum bonus should be
equivalent
to 20% of the total basic wage and
dearness allowance
paid during the year;
6. That the bonus formula proposed should
be deemed to include bonus to employees
drawing a total basic pay and dearness
allowance up to Rs. 1600 p.m. regardless of
whether they were workmen as defined in the
Industrial Disputes Act, 1947 or other
corresponding Act provided that quantum of
bonus payable to employees drawing total basic
pay and allowance over Rs. 750/p.m. should be
limited to what it would be if their pay and
dearness allowance were Rs. 750 p.m.
7. That the formula should not apply to new
establishments until they recouped all early
losses including arrears of normal
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depreciation subject to the time limit of 6
years; and
8. That the scheme should be applied to all
bonus matters relating to the accounting year
ending on any day in the calendar year 1962
except in those matters in which se
ttlements
had been reached or decisions had been given.
The fact that the Government of India accepted the majority
of the Commission’s recommendations is clear from the
Statement of objects and reasons attached to Bill No. 49 of
1965 which they sponsored in Parliament. The Statement,
inter alia, states that a "tripartite Commission was set up
by the Government of India by resolution dated 6th December
1961 to consider in comprehensive manner the question of
payment of bonus based on profits to employees employed in
establishments and to make recom-
37 6
mendations to the Government. The Commission’s report con-
taining the recommendations was received by the Government
on 24th January, 1964. By resolution dated 2nd September,
1964, Government announced acceptance of the Commission’s
recommendations subject to a few modifications as were
mentioned therein". To implement these recommendations the
Payment of Bonus Ordinance, 1965 was promulgated on May 29,
1965. Since the Ordinance was replaced by the present Act
published on September 25, 1965, it is unnecessary to
examine its provisions. Thus, bonus which was originally a
voluntary payment acquired under the Full Bench formula the
character of a right to share in the surplus profits
enforceable through the machinery of the Industrial Disputes
Act, 1947 and other corresponding Acts. Under the Act
liability to pay bonus has now become a statutory obligation
imposed on the employers. From the history of the
legislation it is clear (1) that the Government set up a
Commission to consider comprehensively the entire question
of bonus in all its aspects; and (2) that the Commission
accordingly Considered the concept of bonus, the, method of
computation, the machinery for enforcement and a statutory
formula in place of the one evolved by industrial
adjudication.
We proceed next to examine some, of the provisions of the
Act and its scheme.
The preamble of the Act states that it is to provide for
payment of bonus in certain establishments and for matters
connected therewith. Section 1(3) provides that it shall
apply "save as otherwise provided in the Act" to (a) every
factory and (b) every other establishment in which 20 or
more persons are employed on any day during the accounting
year. We may note that this subsection is in consonance
with one of the Commission’s recommendations, viz. that its
bonus formula should not be applied to small shops and
establishments which are not factories and which employ less
than 20 persons. Having made clear that the Act is to apply
only to those establishments mentioned in sub.-sec. (3),
sub.-sec. (4) provides that the Act shall have effect in
respect of the accounting year 1964 and every subsequent
year. "Allocable surplus" under S. 2(4) means 67% in cases
falling under cl. (a) and 60% in other cases of the
available surplus. Sec. 2(6) defines ’available surplus’ to
mean available surplus as computed under sec. 5. Sec. 2(15)
defines "establishment in private sector" to mean any estab-
lishment other than an establishment in public sector. Sec.
2(16) defines "establishment in public sector" as meaning
(a) a Government company as defined in S. 617 of the
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Companies Act, 1956, and (b) a Corporation in which not less
than 40% of it-- capital is held by Government or the
Reserve Bank of India or a Corporation owned by Government
or the Reserve Bank of India. "Gross profits" a-, defined
by sec. 2(18) means oross profits cal-
377
culated under sec. 4. Sees. 4 and 5 provide for computation
of gross profits and available surplus after deducting
therefrom the sums referred to in sec. 6 viz., depreciation
admissible under 32(1) of the Income Tax Act or the relevant
Agricultural Income Tax Act, development rebate or
development allowance Admissible under the Income Tax Act
and such other sums as are specified in the third Schedule.
Sec. 7 deals with calculation of direct tax. Sees. 8 and 9
deals with eligibility of and disqualification from
receiving bonus. Sees. 10 to 15 deal with minimum and maxi-
mum bonus and the provisions for ’set off’ and ’set on’.
Sees. 18, 19, and 21 to 31 deal with certain procedural and
allied matters. Sec. 20 deals with certain establishments
in public sector to which the Act is made applicable in
certain events. Sec. 32 exclude from the application of the
Act certain categories of employees and certain
establishments therein specified. Sec. 34 provides for the
overriding effect of the Act notwithstanding anything incon-
sistent therewith contained in any other law for the time
being in force or in terms of any award, agreement,
settlement or contract of service made before May 29, 1965.
Sec. 35 saves the provisions of the Coal Mines, Provident
Fund and Bonus Schemes Act, 1948 or any scheme made
thereunder. Sec. 35 empowers an appropriate Government
having regard to the financial position and other relevant
circumstances of any establishment or class of
establishments if it is of opinion that it would not be in
public interest to apply all or any of the provisions of the
Act thereto, to exempt for such period as may be specified
by it such establishment or class of establishments from all
or any of the provisions of the Act. Sec. 39 provides as
follows :-
"Save as otherwise expressly provided, the
provisions of this Act shall be in addition to
and not in derogation of the Industrial
Disputes Act, 1947 or any corresponding law
relating to investigation and settlement of
industrial disputes in force in a State".
It will be noticed that sec. 22 provides that where a dis-
pute arises between an employer and his employees (1) with
respect to the bonus payable under the Act, or (2) with
respect to the application of the Act, such a dispute shall
be deemed to be an industrial dispute within the meaning of
the Industrial Disputes Act, 1947 or any corresponding law
relating to investigation and settlement of industrial
disputes in force in a State and the provisions of that Act
and such law, as the case may be, shall, save as otherwise
expressly provided, apply accordingly. An industrial
dispute under the Industrial Disputes Act would be between a
workman as defined in that Act and his employer and the
dispute can be an industrial dispute if it is one as defined
therein. But the definition of an "employee" under sec.
2(13) of this Act is wider than that of a "workman" under
the Industrial Disputes
378
Act. A dispute; between an employer and an employee,
therefore, may not fall under the Industrial Disputes Act
and in such a case the Act would not apply and its machinery
for investigation and settlement would not be available.
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That being so, and in order that such machinery for
investigation and settlement may be available, sec. 22 has
been enacted to create a legal fiction whereunder such
disputes are deemed to be industrial disputes under the
Industrial Disputes Act or any other corresponding law. For
the purposes of such disputes the provisions of the
Industrial Disputes Act or such other law are made
applicable. The effect of sec. 22 thus is (1) to make the
disputes referred to therein industrial disputes within the
meaning of the Industrial Disputes Act or other
corresponding law and (2) having so done to apply the
provisions of that Act or other corresponding law for
investigation and settlement of such disputes. But the
application of sec. 22 is limited only to the two types of
disputes referred to therein and not to others. Section
39, on theother hand, provides that "save as otherwise
expressly provided" the provisions of the Act shall be in
addition to and not in derogation of the, Industrial
Disputes Act or any corresponding law relating to
investigation and settlement of industrial disputes in force
in a State. Except for providing for recovery of bonus due
under a settlement, award, or agreement as an arrear of land
revenue as laid down in sec. 21, the Act does not provide
any machinery for the investigation and settlement of
disputes between an employer and an employee. If a dispute,
for instance, were to arise as regards the quantum of
available surplus, such a dispute not being one falling
under sec. 22, Parliament had to make a provision for
investigation and settlement thereof. Though such a dispute
would not be an industrial dispute as defined by the
Industrial Disputes Act or other corresponding Act in force
in a State, sec. 39 by providing that the provisions of this
Act shall be in addition to and not in derogation of the
Industrial Disputes Act or such corresponding law makes
available the machinery in that Act or the corresponding Act
available for investigation and settlement of industrial
disputes thereunder for deciding the disputes arising under
this Act. As already seen sec. 22 artificially makes two
kinds of disputes therein referred to industrial disputes
and having done so applies the provisions of the Industrial
Disputes Act and other corresponding law in force for their
investigation and settlement. But what about the remaining
disputes ? As the Act does not provide any machinery for
their investigation and settlement, Parliament by enacting
sec. 39 has sought to apply the provisions of those Acts for
investigation and settlement of the remaining disputes,
though such disputes are not industrial disputes as defined
in those Acts. Though, the words "in force in a State"
after the words "or any corresponding law relating to
investigation and settlement of industrial disputed appear
to qualify the words "any corresponding law" and not the
379
Industrial Disputes Act, the Industrial Disputes Act is
primarily a law relating to investigation and settlement of
industrial disputes and provides machinery therefor.
Therefore the distinction there made between that Act and
the other laws does not seem to be of much point. It is
thus clear that by providing in s. 39 that the provisions of
this Act shall be in addition to and not in derogation of
those Acts, Parliament wanted to avail of those Acts for
investigation and settlement of disputes which may arise
under this Act. The distinction between sec. 22 and sec.
39, therefore, is that whereas sec. 22 by fiction makes the
disputes referred to therein industrial disputes and applies
the provisions of the Industrial Disputes Act and other
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corresponding laws for the investigation and settlement
thereof, Sec. 39 makes available for the rest of the
disputes the machinery provided in that Act and other
corresponding laws for adjudication of disputes arising
under this Act. Therefore, there is no question of a right
to bonus under the Industrial Disputes Act or other
corresponding Acts having been retained or saved by sec. 39.
Neither the Industrial Disputes Act nor any of the other
corresponding laws provides for a right to bonus. Item 5 in
Schedule 3 to the Industrial Disputes Act deals with
jurisdiction of tribunals set up under ss. 7, 7A and 7B of
that Act, but does not provide for any right to bonus. Such
a right is statutorily provided for the first time by this
Act.
Mr. Ramamurti and Mr. Gokhale for the respondents, however,
sought to make the following points :
1. The Act applies only to certain
establishments and its preamble and sec. 1(3)
show to which of them it is expressly made
applicable;
2. Under sec. 1(3), the Act is made
applicable to all factories and establishments
in which 20 or more persons are employed
except those "otherwise provided in the Act".
It means that the Act does not apply (i) to
factories and establishments otherwise
provided in the Act, and (ii) to
establishments which have less than 20 persons
employed. The Act, therefore, is not a
comprehensive Act but applies only to
factories and establishments covered by sec.
1(3);
3. There is no categorical provision in the
Act depriving the employees of factories and
establishments not covered by or otherwise
saved in the Act of bonus which they would be
entitled to under any other law;
4. That being so, the employees of
establishments to which the Act is not made
applicable would still be entitled to bonus
under a law other than the Act although they
are not entitled to the benefit of the Act;
380
5. Parliament was aware of the fact that
employees in establishments other than those
to which, the Act aplies were getting bonus
under adjudication provided by the Industrial
Disputes Act and other similar Acts. If it
intended to deprive them of such bonus surely
it would have expressed so in the Act;
6. Sec. 39 in clear terms saves the right
to claim bonus under the Industrial Disputes
Act or any corresponding law by providing that
the provisions of this Act shall be in
addition to and not in derogation of the
provisions of those Acts.
It is true that the preamble states that the Act is to
provide for payment of bonus to persons employed in certain
establishments and sec. 1(3) provides that the Act is to
apply, save as otherwise provided therein, to factories and
every other establishments in which 20 or more persons are
employed. Sub-sec. (4) of sec. 1 also provides that the Act
is to have effect in relation to such factories and
establishments from the- accounting year commencing on any
day in 1964 and every subsequent accounting year. But these
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provisions do not, for that reason, necessarily mean that
the Act was not intended to be a comprehensive and
exhaustive law dealing with the entire subject of bonus and
the persons to whom it should apply. Even where an Act
deals comprehensively with a particular subject-matter, the
Legislature can surely provide that it shall apply to
particular persons or groups of persons or to specified
institutions only. Therefore, the fact that the preamble
states that the Act shall apply to certain establishments
does not necessarily mean that it was not intended to be a
comprehensive provision dealing with the subject-matter of
bonus. While dealing with the subject-matter of bonus the
Legislature can lay down as a matter of policy that it will
exclude from its application certain types of establishments
and also provide for exemption of certain other types of
establishments even though such establishments would
otherwise fall within the scope of the Act. The exclusion
of establishments where less than 20 persons are employed in
sec. 1(3) therefore is not a criterion suggesting that
Parliament has not dealt with the subject-matter of bonus
comprehensively in the Act.
As already seen, there was until the enactment of this Act
no statute under which payment of bonus was a statutory
obligation on the part of ,in employer or a statutory right
therefore of an employee. Under the Industrial Disputes
Act, 1947 and other corresponding Acts, workmen of
industrial establishments as defined therein could raise an
industrial dispute and demand by way of bonus a
proportionate share in profits and Industrial Tribunals
could under those Acts adjudicate such disputes and oblige
the employers to pay bonus on the principle that both
capital and
381
labour had contributed to the making of the profits and,
therefore, both were entitled to a share therein. The right
to the payment of bonus and the obligation to pay it arose
on principles of equity and fairness in settling such
disputes under the machinery provided by the Industrial Acts
and not as a statutory right and liability as provided for
the first time by the present Act. In providing such
statutory liability, Parliament has laid down a statutory
formula on which bonus would be calculated irrespective, of
whether the establishment in question has during a
particular accounting year made profit or not. It can
further lay down that the formula it has evolved and the
statutory liability it provides in the Act shall apply only
to certain establishments and not to all. Since there was
no such statutory obligation under any previous Act, there
would not be any question of Parliament having to delete
either such obligation or right. In such circumstances,
since Parliament is providing for such a right and
obligation for the first time, there would be no question
also of its having to insert in the, Act an express
provision of exclusion. In other words, it has not to
provide by express words that henceforth no bonus shall be
payable under the Industrial Disputes Act or other cor-
responding Acts as those Acts did not confer any statutory
right to bonus.
It will be noticed that though the Industrial Disputes Act
confers substantive rights on workmen with regard to lay
off, retrenchment compensation, etc., it does not create or
confer any such statutory right as to payment to bonus.
Bonus was so far the creature of industrial adjudication and
was made payable by the employers under the machinery
provided under that Act and other corresponding Acts enacted
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for investigation and settlement of disputes raised
thereunder. There was, therefore, no question of Parliament
having to delete or modify item 5 in the third Schedule to
Industrial ’Disputes Act or any such provision in any cor-
responding Act or its having to ’exclude any right to bonus
thereunder by any categorical exclusion in the present Act.
But the argument was that if the Act were to be held as an
exhaustive statute dealing with the subject of bonus, three
results would follow which could never have been expected
much less G intended by Parliament. These results would be
: (1) that employees in establishments engaging less than 20
persons would get no bonus at all either under the Act or
under industrial adjudication provided for by the Industrial
Disputes Act and other corresponding Acts. Since such
employees were so far getting bonus as a result of
industrial adjudication, Parliament could never have
intended to deprive them of such benefit; (ii) that
employees in public sector Corporations and Companies would
get no bonus either under the Act or under the Industrial
Disputes Act or other corresponding law; and (iii) that such
a construction would have
-12 Sup CI/68-10
382
the, effect of impliedly repealing and negating the
provisions of the Industrial Disputes Act and other
corresponding laws.
Though sec. 1(3) excludes an establishment other than a fac-
tory having less than 20 employees from the application of
the Act, all establishments which are factories irrespective
of the number of persons employed therein and all
establishments which are not factories but are having 20 or
more employees are covered by the Act. Therefore, only
small establishments having less than 20 employees and which
are not factories are excluded. Even in such cases if any
establishment were to have 20 or more persons employed
therein on any day in any accounting year, the Act would
apply to such an establishment. It is, therefore, clear
that Parliament by enacting sec. 1(3) excluded only petty
establishments.
We are not impressed by the argument that Parliament in
excluding such petty establishments could not have intended
that employees therein who were getting bonus under the Full
Bench formula should lose that benefit. As aforesaid,
Parliament was evolving for the first time a statutory
formula in regard to bonus and laying down a legislative
policy in regard thereto as to the classes of persons who
would be entitled to bonus thereunder. It laid down the
definition of an ’employee’ far more wider than the
definition of a ’workman’ in the Industrial Disputes Act and
the other corresponding Acts. If, while doing so, it
expressly excluded as a matter of policy certain petty
establishments in view of the recommendation of the
Commission in that regard, viz., that the application of the
Act would lead to harassment of petty proprietors and
disharmony between them and their employees, it cannot be
said that Parliament did not intend or was not aware of the
result of exclusion of employees of such petty
establishments.
It is true that the construction canvassed on behalf of the
appellants leads, as argued by counsel for the respondents,
to employees in public sector concerns being deprived of
bonus which they would be getting by raising a dispute under
the Industrial Disputes Act and other corresponding
statutes. But such a result occurs in consequence of the
exemption of establishments in public sector from the Act,
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though such establishments but for sec. 32(x) would have
otherwise fallen within the purview of the Act. It appears
to us that the exemption is enacted with a deliberate
object, viz., not to subject such establishments to the
burden of bonus which are conducted without any profit
motive and are run for public benefit. The exemption in
sec. 32(x) is, however, a limited one, for, under sec. 20 if
a public sector establishment were in any accounting year to
sell goods produced or manufactured by it in IF competition
with an establishment in private sector and the income from
such sale is not less than the 20% of its gross income, it
would be liable to pay bonus under the Act. Once again it
is clear
383
that in exempting public sector establishments, Parliament
had a definite policy in mind.
This policy becomes all the more discernible when the
various other categories of establishments exempted from the
Act by sec. 32 are examined. An insurer carrying on general
insurance business is exempted under cl. (i) in view of
certain provisions of the Insurance Act, 1936 and the
Insurance (Amendment) Act, 1950. In view of these
provisions the Full Bench formula could not be and was not
in fact applied at any time to such insurance establish-
ments. The Life Insurance Corporation of India is exempted
under clause (1) because of its being a public sector
concern having no Cl. (ii) of sec. 32 profit motive and
conducted in public interest.exempts shipping companies
employing seamen in view of sec.. 159(9) of the Merchant
Shipping Act, 1958 under which the Industrial Disputes Act
was inapplicable to such seamen, the disadvantages that
Indian Shipping Companies vis-a-vis foreign companies
engaged in shipping would be put to if they were made to pay
bonus and the obvious difficulties in applying the Act to
such foreign companies engaging Indian seamen. The
exemption in respect of stevedore labour contained in cl.
(iii) also seems to have been provided for in view of the
peculiar nature of employment,, the difficulty of
calculating profits according to the normal methods and
other such difficulties. The rest of the categories of
establishments set out in sec. 32 appear to have been
exempted on the ground of (a) absence of any profit motive,
(b) their being of educational, charitable or public nature,
and (c) their being establishments in public sector carried
on in public interest. Building contractors appear to have
been exempted because of their work being contract job work,
the unfeasibility of applying the formula evolved in the Act
and the problem of employees of such contractors being more
of evolving and enforcing a proper wage structure rather
than of payment of bonus to them.
It seems to us that if we were to accept the contention that
the. object of sec. 32 was only to exempt the establishments
therein enumerated from the application of the bonus formula
enacted in the Act, but that the employees of those
establishments were left at liberty to claim and get bonus
under the machinery provided by the Industrial Disputes Act
and other corresponding Acts, them very object of enacting
sec. 32 would be frustrated. Surely, Parliament could not
have intended to exempt these establishments from the burden
of bonus payable under the Act and yet have left the door
open for their employees to raise industrial disputes and ,-
,get bonus under the Full Bench formula which it has
rejected by laying down a different statutory formula in the
Act. For instance, is it to be contemplated that though the
Act by sec. 32 exempts institutions such as the Universities
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or the Indian Red Cross Society or hospitals, or any of the
establishments set out in cl. (ix) of that section, they
would still be liable to pay bonus if the employees,
384
of those institutions were to raise a dispute under the
Industrial Disputes Act and claim bonus in accordance with
the Full Bench formula ? The legislature would in that case
be giving exemption by one hand and taking it away by the
other, thus frustrating the very object of sec. 32. Where,
on the other hand, Parliament intended to retain a previous
provision of law under which bonus was payable or was being
paid it has expressly saved such provision. Thus, under
sec. 35 the Coal Mines Provident Fund and Bonus Schemes Act,
1946 and any scheme made thereunder are saved. If,
therefore, Parliament wanted to retain the right to claim
bonus by way of industrial adjudication for those who are
either excluded or exempted from the Act it would have made
an express saving provision to that effect as it has done
for employees in Coal Mines.
Besides, the construction suggested on behalf of the
respondents, if accepted, would result in certain anomalies.
Take two establishments in the same trade or industry, one
engaging 20 or more persons and the other less than 20. The
Act would be applicable to the former but not to the latter.
If the respondents were to be right in their contention the
employer in the former case would be liable to, pay bonus at
the rates laid down by the Act, i.e. at the rate of 4%
minimum and 20% maximum, but in the latter case the Act
would not apply and though his establishment is a smaller
one, on the basis of the Full Bench formula there would be a
possibility of his having to pay bonus at a higher rate than
20%, depending upon the quantum of profit made in that
particular accounting year.
Section 32(vii) exempts from the applicability of the Act
those employees who have entered before May 29, 1965 into an
agreement or settlement with their employers for payment of
bonus linked with production or productivity in lieu of
bonus based on profits and who may enter after that date
into such agreement or settlement for the period for which
such agreement or settlement is in operation. Can it be
said that in cases where there is such an agreement or
settlement in operation, though this clause expressly
excludes such employees from claiming bonus under the Act
during such period, the employees in such cases can still
resort to the Industrial Disputes Act and claim bonus on the
basis of the Full Bench formula ? The answer is obviously in
the negative for the object in enacting cl. (vii) is to let
the parties work out such an agreement or settlement. It
cannot be that despite this position, Parliament intended
that those employees had still the option of throwing aside
such an agreement or settlement raise a dispute under the
Industrial Disputes Act and claim bonus under the Full Bench
formula. The contention, therefore, that the exemption
under sec. 32 excludes those employees from claiming bonus
under the Act only and not from claiming bonus under the
385
Industrial Disputes Act or such other Act is not correct.
This conclusion is buttressed by the provisions of sec. 36
which empower the appropriate Government to exempt for a
specified period an establishment or class of establishments
from the operation of the Act, if it is of. the opinion that
it is not in public interest to apply all or any of the
provisions of the Act to such establishment or class of
establishments. Since the appropriate Government can exempt
such an establishment or establishments from the operation
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of the Act on the ground of public interest only, it cannot
surely be that Parliament still intended that the employees
of such exempted establishment or establishments can claim
bonus through industrial adjudication under the Industrial
Disputes Act or any such corresponding law.
We are also not impressed by the contention that the fact
that sec. 39 provides that the provisions of this Act are in
a addition to and not in derogation of the Industrial
Disputes Act or any other corresponding law shows that
Parliament did not wish to do away with the right to payment
of bonus altogether to those who cannot either by reason of
exclusion or exemption from the Act claim bonus under the
Act. Such a construction is fallacious on two ground.
Firstly because it assumes wrongly that the Industrial
Disputes Act or any other law corresponding to it provided
for a statutory right to payment of bonus. All that those
Acts provided for, apart from rights in respect of lay out,
retrenchment etc., a machinery for investigation and
settlement of disputes arising between workmen and their
employers. It is, therefore, incorrect to say that the
right to bonus under this Act is in addition to and not in
derogation of any right to bonus under those Acts.
Secondly, sec. 39 became necessary because the Act does not
provide any machinery or procedure for investigation and
settlement of disputes which may arise between employers and
employees. In the absence of any such provision Parliament
intended that the machinery and procedure under those Acts
should be made available for the adjudication of disputes
arising under or in the operation of the Act. If, for
instance, there is a dispute as to the computation of
allocable surplus or as to quantum of bonus, or as to whe-
ther in view of sec. 20 an establishment in public sector is
liable to pay bonus, such a dispute is to be adjudicated
under the machinery provided by the Industrial Disputes Act
or other corresponding Acts.
Considering the history of the legislation, the background
and the circumstances in which the Act was enacted, the
object of the Act and its scheme, it is not possible to
accept the construction suggested on behalf of the
respondents that the Act is not an exhaustive Act dealing
comprehensively with the subject-matter of bonus in all its
aspects or that Parliament still left it open to those to
whom the Act does not apply by reason of its provisions
either as to exclusion or exemption to raise a dispute with
regard to bonus
386
through industrial adjudication under the Industrial
Disputes Act or other corresponding law.
We are, therefore, of the view that the construction given
to the Act by the Tribunals was not correct and the orders
passed by them have to be set aside. The appeals are
allowed, but as the question as to the scope of the Act is
raised in these appeals for the first time, there will be no
order as to costs.
V.P.S. Appeals allowed.
387