Full Judgment Text
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PETITIONER:
ALLOY STEEL PROJECT
Vs.
RESPONDENT:
THE WORKMEN
DATE OF JUDGMENT02/02/1971
BENCH:
[J. M. SHELAT, V. BHARGAWA C.A. VAIDIALINGAM, J.J.]
ACT:
Payment of Bonus Act 21 of 1965-Exemption under s. 16(1) to
new establishments-Alloy Steel Project controlled and
managed by Hindustan Steel Ltd. whether an ’establishing’-
Word ’establishment whether synonymous with company’-A
department or undertaking of an establishment is separate
establishment for computation of bonus under the proviso to
s. 3 if separate accounts are maintained as in case of Alloy
Steel Section 16(2) comes in way only if bonus is
distributed on basis of consolidated accounts which was
never done in the case of Hindustan Steel.
HEADNOTE:
The Alloy Steel Project was an undertaking controlled and
managed by a government company, namely, the Hindustan Steel
Ltd. Alloy Steel was started in 1961 and went into
production in 1964-65. No profit was earned up to 1967-68.
The workmen claimed bonus at the minimum rate prescribed
under the Payment of Bonus Act, 21 of 1965 in respect of the
year 1965-66. On behalf of the Alloy Steel Project
exemption from payment of bonus was claimed under s. 16(1)
of the Act on the ground that it was a new establishment and
had not made profits. The Industrial Tribunal to which
reference was made held that Alloy Steel could not be
treated as a separate establishment because under the Act a
company is itself an establishment so that all units of a
company like Hindustan Steel Ltd. will constitute one
establishment. However, since Alloy Steel had not been
earning profits the Tribunal directed payment of bonus at
the minimum rate of 4% of wages as prescribed by the Act.
Aggrieved by this Award of the Tribunal the company
appealed.
HELD : The Tribunal erred in holding the word
’establishment’ to be synonymous with ’company’. In doing
so it ignored the indications which are manifest from the
language of the Act. The significant words are those
contained in s. 2(16) which show that an establishment in a
public sector has to be owned, controlled or managed by a
Government company or by a corporation of the nature
described in the clause. Obviously therefore an
’establishment in private sector’-defined in s. 2(15) to
mean an establishment not in the public sector-would be one
which is owned, controlled or managed by a person or body
other than a Government company or a corporation of the
nature described in s. 2(16). In this view an establishment
cannot be identified with a company. It would be absurd to
say that a company is owned, controlled or managed by a
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Government company or corporation Obviously, the word
’establishment’ is intended to indicate something different
from a company as defined in the Companies Act. [631 F-632
D]
(ii) Alloy Steel was a separate establishment by virtue of
the proviso to s. 3 of the Act because for each of the
undertakings of Hindustan Steel Ltd. including Alloy Steel
separate accounts were kept though for the purpose of
compliance with the provisions of the Companies Act a
consolidated balance-sheet and profit and loss account were
also prepared. There was no substance in the contention
that the proviso to s. 3 applies only to departments
undertaking or branches controlled and managed by persons
630
other than companies. It would be a strange method of
construction of language to hold that the establishment
referred to in the main part of s. 3 will include all
different departments undertakings and branches of a
company, while it will not do so in the proviso to the same
section. There is no reason for interpreting the proviso to
s. 3 in this manner simply because in the case of separate
departments, undertakings or branches of the establishment
of a company, it may not be possible to make a deduction @
8.5% of the paid up equity share capital. [635 C-D; 633 G-
634 H]
(iii) Sub-Section (1) of s. 16 grants exemption from
payment of bonus to establishments newly set up for a period
of six years following ,the accounting 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. If
the Alloy Steel Project was treated as an establishment
newly set up for the purposes of s. 16(1) the exemption
claimed would be fully justified. Section 16(2) of the Act
makes it clear that the provisions of sub-s. (1) are to
apply even to new departments, undertakings, or branches set
up by existing establishment. Consequently, even if Alloy
Steel Project was treated as a new undertaking set up by the
existing establishments of Hindustan Steel Ltd. the
exemption under s. 16(1) would be available to it. [637 D-E]
The proviso to Sub-s. (2) of s. 16 only comes in the way if
bonus is paid in any year to the employees of all the units
on the basis of the consolidated accounts. That had never
been done in the case of the Hindustan Steel Ltd.
Consequently the Alloy Steel Project should have been
treated as a separate establishment newly set up in the year
1961. , It went into production in 1964-65 and did not earn
any profits at all till 1967-68. Therefore no bonus was
payable to the workmen of this undertaking for the year
1965-66 in view of the provisions of s. 16(1) of the Act.
[638 A-B]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2128 of 1969.
Appeal by special leave from the Award dated July 19, 1969
of the Ninth Industrial Tribunal, West Bengal, Calcutta in
case No. VIII-396 of 1968.
C. K. Daphtarv. Santosh Chatterjee and D. N. Mukherjee,
for the appellant.
S. C. Gupta, Manju Gupta and S. C. Agarwala, for the
respondents.
The Judgment of the Court was delivered by
Bhargava, J. The appellant, Messrs Alloy Steel Project, is
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an undertaking owned, controlled and managed by a Government
Company, viz., Messrs Hindustan Steel Ltd. Alloy Steel
Project was started in the year 1961 and it went into
production in the year 1964-65. No profit was earned at
least right up to the year ’1967-68. The workmen, however,
claimed bonus at the minimum rate prescribed under the
Payment of Bonus Act No. 21 of 1965 (hereinafter referred to
as "the Act") in respect of the year 1965-
631
1966 on’ the plea that this Alloy Steel Project was a / part
of the Hindustan Steel Ltd. and could not be treated as a
new establishment for purposes of section 16 of the Act.
Hindustan Steel Ltd. was itself an establishment which had
been in existence for a long period and had been even
earning profits, so that exemption could not be granted to
this Company in respect of payment of bonus under s. 16 of
the Act. This claim of the workmen was resisted, by the
Company on the plea that Alloy Steel Project was a separate
establishment in respect of which separate balance-sheets
and profit and loss accounts were maintained, so that no
bonus was payable until either this Project itself earned
profits, or from the sixth accounting year following the
year 1964-65 when this Project went into production. The
dispute between the work-men and the Company. could not be
resolved amicably and, consequently, a reference was made
under the Industrial Disputes Act, 1947 which came up before
the Ninth Industrial Tribunal, West Bengal. The Tribunal
held that Alloy Steel Project could not be treated as a
separate establishment because, under the Act, a Company is
itself an establishment, so that all units of a Company like
Hindustan Steel Ltd. will constitute one establishment.
Since this Project had not been earning any profits the
Tribunal directed payment of bonus at the minimum rate of 4
per cent of wages prescribed by the Act. Aggrieved by this
award of the Tribunal, the Company has come up in this
appeal to this Court by special leave, though the name of
the appellant is shown as Alloy Steel Project, because it
was under this name that the reference was dealt with by the
Tribunal.
The main basis of the decision of the Tribunal is that ’the
word establishment’ has been used in this Act to indicate a
"Company" as called in common parlance." It was on this view
that the Tribunal further Proceeded to consider whether this
Alloy Steel Project could be held to be an establishment
separate from Hindustan Steel Ltd., or it had to be treated
as a part of the parent establishment, viz., Hindustan Steel
Ltd. In this approach, it is clear that the Tribunal
committed an obvious error, as it ignored the indications
which are manifest from the language used in the Act. In
section 2, sub-section (15) and (16), establishments have
been divided into two classes and their meaning has been
defined. In clause (16), "establishment in public sector’
is defined as meaning an establishment owned, controlled or
managed by-
(a) a Government company as defined in
section 617 of the Companies Act, 1956;
(b) a corporation in which not less than
forty per cent of its capital is held (whether
singly or taken together) by-
632
(i) the Government; or
(ii) the Reserve Bank of India; or
(iii) a corporation owned by the Government
or’ the Reserve Bank of India.
In clause (15) of S. 2, "establishment in private sector" is
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defined to mean any establishment other than an
establishment in public sector. Thus, between these two
clauses, all establishments are covered. If an
establishment is in public sector, it is covered by the
definition in clause (16). If the establishment is not in
public sector, it will be covered by the definition of
"establishment in private sector" in clause (15). The
significant words are those contained in clause (16) which
show that an establishment in a public sector hag to be
owned, controlled or managed by a Government company, or by
a corporation of the nature described in that clause.
Obviously, therefore, an establishment in a private sector
would be one which is owned, controlled or managed by a
person or body other than a Government company or a corpora-
tion of the nature described in clause (16). In this view,
an establishment cannot be identified with a company. It
would be absurd to say that a company is owned, controlled
or managed by a Government company or a corporation.
Obviously, the word "establishment" is intended to indicate
something different from a company as defined in the
Companies Act. This is further clarify by the provisions of
sub-s. (3) of section I which lays down the applicability of
the Act. The Act has been made applicable to every factory
and every other establishment in which twenty or more
persons are employed on any day during an accounting year.
Supposing a company has a factory in one premises and has
another workshop entirely distinct and separate from that
factory, in which the number of persons employed is less
than 20. The Act itself will apply to the factory, but will
not apply to the other establishment in which the number of
employees is less than 20. This applicability of the Act
will be independent of the other provisions of the Act.
Learned counsel for the respondent-workmen relied on section
3 of the Act to urge that even the establishment employing
less than 20 persons will be a part of the parent
establishment consisting of the factory. Section 3 is as
follows :-
"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
633.
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 of the
establishment for the purpose of computation
of bonus."
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 part of the same
establishment only for the purpose of computation of bonus
under the Act. They cannot be treated as part of one
establishment for purposes of subsection (3) of section 1 of
the Act. In fact, section 3 cannot be, resorted to at all
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when the Act itself is inapplicable in view of the provision
contained in section 1, sub-s. (3). It is, thus, quite
clear that the Tribunal went entirely wrong in holding that
simply because Alloy Steel Project is owned, controlled and
managed by Hindustan Steel Ltd., it has to be treated as a
part of Hindustan Steel Ltd. which is itself an
establishment. Hindustan Steel Ltd. cannot be described as
an establishment. The facts appearing on the record show
that Hindustan Steel Ltd. has a number of. establishments.
These include Alloy Steel Project besides the Head Office,
Rourkela Steel Plant, Bhilai Steel Plant, Durgapur Steel
Plant, Coal Washeries Project and Bokaro Steel Project. The
Company, Hindustan Steel Ltd., cannot be equated with any
one of these units. They are all separate undertakings,
departments or branches owned, controlled and managed by one
single Company and, consequently,. the point raised has to
be decided on the basis whether, under the proviso to
section 3 the Alloy Steel Project is to be treated as a
separate establishment, or is to be treated as part of the
main establishment owned by Hindustan Steel Ltd.
Learned counsel for the respondent-workmen, however,
advanced a new argument which was not put forward before the
Tribunal. His submission was that, if an establishment of a
Company consists of a number of departments, undertakings or
branches, the principal part of section 3 will apply and all
such departments, undertakings or branches must be treated
as parts of one single establishment for purposes of
computation of bonus under the Act, but the proviso to
section 3 will not apply in such a case. According to him,
the proviso to section 3 will apply to establishments
consisting of different departments, undertakings or
branches which are owned, controlled or managed by persons
other
634
than companies. This argument was based on the reasoning
that, in order to calculate available surplus for
distribution of bonus in the case of a company the Act lays
down in section, 6 (d) read with the Third Schedule that the
deductions to be made from net _profits will also include
dividends payable on , preference share ,capital, and 8.5
per cent of its paid up equity share, capital as at the
commencement of the accounting year. This provision cannot
be given effect to in respect of separate units of a
Company, .because the paid up capital or the preference
share capital is not ,allocated between different units. In
the case of the present Company, viz., Hindustan Steel Ltd.,
the entire paid up capital is shown in the accounts of the
Head Office. The money needed for working of the various
units, including the Alloy Steel Project, is shown as
remittance received from the Head Office and not as. paid up
capital of the Alloy Steel Project etc. The result is that,
if Alloy :Steel Project or other units of the Hindustan
Steel Ltd. are treated as separate establishments and
available surplus is calculated separately for each unit,
there will be no deduction @ 8.5 per cent ,of the paid up
equity share capital as envisaged by section, 6(d) ,and the
Third Schedule of the Act.
We do not think that there is any force in this argument.
First, it would be a strange method of construction of
language to hold that the establishment referred to in the
main part of section 3 will include all different
departments, undertakings and "branches of a company, while
it will not do so in the proviso to ’the same section. Such
different meanings in the same section in respect of the
same words or expression cannot be accepted. Secondly, it
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seems to us that no difficulty of the nature pointed out by
learned counsel can arise in calculating available surplus.
’Wherever the Act lays down that certain deductions are to
be made, it is obvious that those deductions will only be
effective if, in fact, circumstances do exist justifying
such deductions. In the ’Third Schedule itself, the first’
deduction envisaged is dividend payable on preference share
capital. A number of companies do not have preference share
capital. In such cases, clearly, no ,occasion would arise
for making such a deduction. Very similar is the position
with regard to certain other deductions which are
permissible under the Second Schedule which principally lays
down the method of calculation of available surplus.- There
is, therefore, no reason for interpreting the proviso to
section 3 in the manner urged by learned counsel simply
because, in the case of separate departments, undertakings
or branches of the establishment of a company, it may not be
possible to make a deduction @ 8.5 per cent of the paid up
equity share capital.
In the present case, there is very clear evidence that,
though the Company, Hindustan Steel Ltd., has a number of
undertakings,
635
Separate accounts are kept for each separate undertaking.
The annual reports for three years were produced before the
Tribunal. They clearly indicate that separate balance-sheet
was prepared for each unit and separate profit and loss
account was worked out for each unit, except that, for the
Head Office, though a separate balance-sheet was-prepared,
the profit and loss was worked out on the basis of the
consolidated accounts. The Tribunal, in support of its view
that Alloy Steel Project is a part of the establishment
constituted by the Company, Hindustan Steel Ltd., relied on
the circumstance that a consolidated balance-sheet is
prepared for the Company in respect of all its units and
after such consolidation, profit and loss is also worked out
for all the establishments together so as to find out the
actual profit and loss earned or incurred by the Company
itself. From this, the tribunal sought to infer that there
were no separate accounts in respect of each unit as are
required to be maintained before they can be treated as
separate establishments under the proviso to section 3. The
Tribunal has obviously gone wrong in ignoring the fact that
separate balance sheets and profit and loss accounts are in
fact maintained for each separate unit and the consolidated
accounts are prepared only for the purpose of complying with
the requirements of the companies Act. The Companies Act
does lay down the requirement that a consolidated balance-
sheet and profit and loss account for all the units of the
Company must be prepared and, for, that purpose, quarterly
statements of accounts have to be sent by each unit to the
Head Office. There is, however, no provision even in the
Companies Act containing a prohibition to maintenance of
separate balance-sheets and separate profit and loss
statements for each unit for purposes of the Act. That
accounts are separately maintained for each unit is not only
established from the various annual reports filed before the
Tribunal and the evidence of, the Company’s witness Umapada
Chakraborty, but is also admitted by Suprakash Kanjilal, the
only witness examined on behalf of the workmen. The latter
also admitted that separate bonus calculation is made in
respect of each unit and bonus was declared separately in
each unit. No bonus was, however, declared in respect of
the Alloy Steel Project. That declaration was not made
because of the claim that Alloy Steel Project was exempt
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from payment of bonus under section 16 of the Act. Section
16 runs as follows:-
"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
918Sup CI/71
636
(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
establishment 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 (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 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
6 3 7
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
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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
consolidated profits computed as aforesaid."
Sub-section (1) of section 16 grants exemption from payment
of bonus to establishments newly set up for a period of six
years, following the accounting year in which the goods
produced or manufactured are sold for the first time and, in
the alternative, up, to the year when the new establishment
results in profit, whichever is earlier. If the Alloy Steel
Project is treated as an establishment newly set up for
purposes of s. 16(1), the exemption claimed would be fully
justified. Section 16(2) of the Act makes it clear that the
provisions of sub-section (1) are to apply even to new
departments, undertakings or branches set up by existing
establishments. Consequently, even if Alloy Steel Project
is treated as a new undertaking set up by the-existing
establishments of Hindustan Steel Ltd., the exemption under
section 16(1) would be avail-able to it. The proviso to
sub-s. (2) of section 16 also does not stand in the way of
this claim, because there is no evidence at all that in any
year, after Alloy Steel Project was set up bonus was paid to
the employees of all the units on the basis of consolidated
profits of all such units. The only exception has been in
the case, of workmen of the Head Office where no separate
profit and loss was worked out and the bonus was paid on the
basis of the consolidated Profits of all the units belonging
to Hindustan Steel Ltd. That, of course, was fully
justified, because the Head Office was working for all the
units, though as a separate unit. It was in the accounts of
the Head Office that the entire paid up capital was credited
and advances were made by the Head Office to the various
units out of this capital or out of loans taken by the Head
Office. In the case of the Head Office, therefore, the
calculation of bonus on the basis of consolidated accounts
was 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
statements are maintained. The proviso to sub--
638
section (2) of section 16 only comes in the way it bonus is
paid in any year to the employees of all the units on the
basis of consolidated accounts. That has never been done in
the case of the Hindustan Steel Ltd. Consequently, the
Alloy Steel Project should have been treated as a separate
establishment newly set up in the year 1961. It went into
production in 1964-65 and did not, earn any profits at all
till 1967-68. Therefore, no bonus was payable, to, the
workmen of this undertaking for the year 1965-66 in view ,of
the provisions of section 16(1) of the Act.
The appeal is allowed, the order of the Tribunal is set
aside, and the reference of the dispute is answered
accordingly. In the circumstances of this case, we direct
parties to bear their own ,costs of the appeal.
G.C. Appeal allowed.
639
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