JALAN TRADING CO. (PRIVATE LTDJ) v. MILL MAZDOOR UNION

Citation: [1967] 1 S.C.R. 15; 1966 INSC 131

Court: Supreme Court of India

Bench: K.N. WANCHOO , M. HIDAYATULLAH , J.C. SHAH, S.M. SIKRI, V. RAMASWAMI

Judgment date: 1966-08-05

Case summary

1966 INSC 131. Supreme Court of India judgment dated 1966-08-05. JALAN TRADING CO. (PRIVATE LTDJ) v. MILL MAZDOOR UNION. Read the judgment and case details...

Judgment text

16 SUPREME COURT REPORTS (1967] I S. C. R. . JALAN TRADING CO. (PRIVATE LTDJ) v. MILL MAZDOOR UNION August 5, 1966 (With Connected Petitions) [K. N. WANCHOO, M. HIDAYATULLAH, J. C. SHAH, S. M. SIKRI AND V. RAMASWAMI, JJ. ] • Constitution of India, 1950, Arts. 14, 31(1)-Payment of Bo11us Act, 1965, ss. 10, 33, 36, 31-Sections whether discrimi11atory-Section ao whether deprivation of property. During the pendcncy before the Industrial Tribunal, Bombay, of a reference under s. 73-A of the Bombay Industrial Relations Act, 1946, which arose out of a dentancl for the payment of bonus for the years 1961 and 1962 the Payment of Bonus Ordinance 3 of 1965 was promulgated by the President on May 29, 1965 with immediate effect.

The representatives of the workmen claimed that even if the plea of the employers that the profit and loo; account of establishment for the years in question disclosed a loss, was correct, the ordinance governed the dispute and that the employees were entitled to receive bonus at the minimum rate of 4% of the salary or wages or Rs. 40 whichever was higher, The Industrial Court upheld the plea of the workmen and directed the employers subject to the provisions of the Bonus . Ordinance, 1965 to pay to each employee bonus for the, year 1962 equivalent to 15 days' of the salary or wages or Rs. 40 whichever was higher. With special leave the employers appealed to this Court and challenged the validity of the payment of Bonus Act, II 1965, which repealed Ordinance 3 of 1965 and especially of the pro,isions under which bonus at minimum rate was made payable under the Act.

HELD : (i) The impugned legislation was within the legislrutive competence of Parliament and therefore not a colourable exercise of power or a fraud on the Constitution. [27 BJ Express Newspapers (Private) Ltd. v. Union of India, [1959] S. C. R. 12 and K. C. Gajapati Narayan De. o & Oi·s. v. State of Orissa, [1954] S. C. R. 1, referred to. (ii) The power to exempt certain establishments from the operation of the Act given to the appropriate Government. ll! 'der s. 36 was n~ :in unguided power because the Government was en101ned to take pubhc in· terest, the :financial p6sition of the establishment, and other relevant circumstances into consideration before ex. ercising the said power. There was therefore no excessive delegation of legislative authority by s. 36 and the section was valid, [31 F-GJ (iii) Per Wanclloo·, Shah and Sikri, JJ. -Section 10 is an integral part of a scheme for providing for. a payment of bonus at rates which do not juctuate from year to year.

It is not in the interest cf capital or labour that there should be wide fluctuation in the payment of bonus by an establishment from year to year. [33 HJ • The object of the Act being to maintain peace and harmony b. etween labour and capital by alloWing the employees to share ,the prospenty of the est~blishment reflecled by the profils <>med by the conlribu1ions made by cap1lal, management and labour, Parliament has provided 1ha1 bonus in a given year s~all not exceed . 1(5th and shall not be less 1han I/25th of the total earning of each mdiv1dual employee and bas directed that th~ excess shall be carried forward to the next y. ,;. r, and 1hat the amount paid by. way of mlDlmum bonus not absorbed by the available profits shall he c~rncd to the n. ext year and be set. off against the profits of the suc-cccd1ag years. Thts scheme of . rrescnbing maximum and minimum rate~ of bO!

JUS together with the scheme of 'set off' and 'set on' not only secures the right of labour to share in the prospertity of the establishment hut :1150 ensures ~' reasonable degree of uniforn1ity. [34 (~-DJ Equal protection of the laws is denied if in achieving a certain object persons, objects or transattions similarly circumstanced are differently • Ircatet! by l3w and the principle underlying that different trca1ment ha. ,; no rational relation to the object sought to be achieved by the law. Examined in the light of the object of the Act and the scheme of set off •. nil 'set on:. _the provision for payment of minimum bonus cannot be s1ad to be d1scnm1natory between diffcrcru cstahlishmcnts which arc unable on the profits of the accounting year to pay bonus merely because a uniform standard of minimum rate of bonus is applied to them. [34 FJ Kunna:that Thathunnl Moopil Nair v. State of Kera/a and Another, [1961] 3 S. C. R. 77, distinguished.

Section 10 undoubtedly places in the same class e-;tahlishmcn1s ,~·hich have made inadcqua~c. profits not justifying payment of bonu:-.. establish· meats which have suliered n1arginal loss, and establishments \\"hich have suffered bea><y Joos. The classification so made is not unintelligible as ;1! I establishments which are unable to pay bonus under the scheme of the Act, on the result of the working of the establishment, are grouped together. [35 FJ Section. 10 therefore is not open to a1tack on the ground of Ucnial of equality under Ari. i4. [36 CJ Nor was the atlack under Art. 31(1) well founded. The article guarantees the right against deprivation of property otherwise than by auth<>-rity of law. Compelli. lig an employer to pay sums of money to his ern-polyccs which be has not contractually rendered himself liable to pay may amount to deprivation of property : but the protection under An. 31( I) ;, available only if the deprivation is not by authority of law. There was hov.

·cver d~privatiun by authority of Jaw in the present case. 136 F-HJ • Per 1-lidayatullah, (Ramasiw·ami, J, concurring) Taking the provision for minimum bonu~ with the provision for set off it can hardly be said that the section is so exorbitant that it amounts to deprivation of the prope-rty of the employers with a view to giving it to the ... ,·orkmcn. [56 E-FJ The observations in Moopil Nair's case, \i. ride as they may appear, must not be extended by analogical application to a case of minimum bonus which is intended to promote industrial peace and to be a first step towards the goal of need-based wage. Even if the payment of minimum honus is vie\ve. d an compulsory payment of "'age, the pD\\'Cf to impose it as pan of minimum wage is not lacking. It must not be forgotten that the fixation of minimum wage was also criticised along the same Jina.. but was held justified. The differentials, the paying capacity of establish· • mcnts or ab. ence of profit made no difference.

[S6 G-HJ JALAN TRADING CO. V. MAZDOOR UNION 17 Kunnathat Thathunni Moopif Nair v. Stat,e of Kenila & Anr. , [19611 3 S. C. R. 77, distinguished. Edward Mills Co. Ltd. Beawar v. State of Ajmer, [1955]1 S. C. R. 735, Bijay Cotton Mills Ltd. v. State of Ajmer, [ l 955] l S. C. R. 752, Express Newspapers (Pvt. ) Ltd. & Anr. v. Union of India & Ors. , [1959] S. C. R. 12 dnd U. Unichoyi & Ors. v. State of Kera/a, [1962] 1 S. C. R. 946, relied on. The provision for payment of 15 days' wages to workmen as bonus irrespective of profits is a measure well-designed to keep industrial peace and to make way for the need-based wage which the Tripartite Conference emphasiz(.. d Some unequal treatment can always be made to appear wlien laws apply uniformly. Two establishments cannot be entirely alike.

Differences n1ust exist but that does not prevent the making- of uniform laws for them provided the law made has a rational relation to the object sought to be achieved and the inequality is trivial or hypothetical. Classification can only be insisted upon if it is possible to classify and a power to classify need not always be exercised when classification is not reasonably possible. Section I 0 does not lead to such inequality as may be called dhcrimination. L57 D-E] (iv) Per Wanchoo, Shah and Sikri, JJ. -Application of the Act retrospectively under s. 33 depends upon the pendency immediately before May 29, 1965, of an industrial dispute regarding payment of bonus relating to any accounting year Mt earlier than the year ending on any eey in 1962.

If there be no such dispute pending immediately before the date on which the Act becomes operative, an establishment will be governed by the Full Bench Formula and will be liable to pay bonus only if there be adequate profits which would justify payment of bonus. If however a dispute is pending immediately before May 29, 1965 the scheme of the Act will apply not only for the year Jor which the dispute is pending but even in respect of subsequent years. Assuming that the classification was founded on son1e intelligible differential which distinguish an establishment from other establishments the differentia has no rational relation to the object sought to be achieved by the statutory provision viz. , of ensuring peaceful relations betweea capital and labour by making an equitable distribution of the surplus profits of the year Arbitrariness of the classification becomes more pronounced when it is remembered that in .

respect of the year subsequent to the year for which the dispute is pend-in~, liability prescribed unde. r the Act is attracted even if for such subsequent years no dispute is pending, whereas to an establishment in r. Spect of which no dispute is pending immediately before May 29, 1965, no such liability is attractecl. Therefore two establishments similarly cir· cumstanced having no dispute penc! ing relating to bonus between the employers and the workmen in• a particular year would be liable to be dealt with differently if in respect of a previous year (covered bys. 33) there is a dispute pending between the employer and the workmen in one establishment and there is no such dispute pending in the other. [40 C-G] LH! bility imposed by the Act for payment of bonus is more onerou• than the liability which bad arisen under the Full Bench Formula prior to the date of the Act.

Imposition of this onerous liability depending solely upon the fortuitous circumstance thait a Dispute relating to bonus is pending between workmen or some of 'them immediately before May 29, 1965, is plainly arbitrary and classification made on that basis is not reasonable. [40 HJ ' Discrimin3tion also results from the distinction made in the section between a dispute pending before, this Court or the High Court and one (1967] l S. C. R. pending before the Industrial Tribunal or the appropriate CJQvemment, the former not being trea1ed as a pending dispute for the purpose of the section. There is no logical basis for the distinction. [41 CJ Per Hidayatullah and Ramaswami, JJ. (disse11ting) : Se. :tions 33 by providing uniformly for all cases pending on May 29, 1965, without any discrimination between them,. has established a rational classification. The section therefore cannot be said to be invalid by reason of inequality, [64 E-F] In s.

33 no note was taken of cases pending before the High Court and Supreme Court becai"c the jurisdiction of the High Courts and the Supreme Court is either supervisory or appellate and the intention was to cover cases in which no decisions of the authori1ieo; appointed under the ,. , law relating to indu:-. trial disputes \Vas yet made. Disputes prior to 1962 were not taken note of because a date line had to be fixed anC 196~ v.. ·as the r:itional date to fix becau. sc the Bonus Commission began its delih~rations that year. [63 GJ In several statutes a date is generally selected to demarcate pending <:ascs and the selection of the date has never been challenged successiully if there is some rational ground for its selection. If the rcsolulion of the dispute by the instrumentality of the Act was contemplated, the Act had also to say which dispute would be so resolved and the only rational date to select v. ·as the date on which the Ordinance was promul!! atcd.

Thus the pendency of disputes with reference to the Ordinance and reopening of accowlling years up to the year in v. •hich lhe Bonus Con1n1is. -sion began its deliberation was logical and not arbitrary, [63 HJ The provision with rcg;i rd to 1be reopening of the intcrv~ning accoun1 years for re-fixation of bonus was also logical. If the 1fapute re~arding 1962 or a later year was decided by the application of the Act 11 was imperative to reconsider the subsequent years even though lhcre was no di. pule in those years. The process of the Act is an integrated one and by the principle of set on and set off four accounting years are involved to avoid extraordinary results. [64 E] By the different treatment of those establishments where a dispute is pending there is no violation or equality. The fact· that in one there is a dispute and in the other there is not, clearly distinguishel; the two establishments.

The distinguishing feature of the pendency of the dispute on the date of the promulgation of the Ordinance clearly demarcates a distinct tr class of cases and the classification made by rhe Act is a rational °'"'· No doubt the liability for bonus under the Act may be more in some cases hut it is likely to be less in others. The Act docs not make any difference in the treal'ment within the class it deals "'ith. All establishments in which disputes were~ pending are treated alike. [64 C-E] (v) Per Wanchoo, Shah and Sikri, JJ. -section 34 imposes a special liability to pay bonus determined on the gross profits of the base year on an assumption that the ratio which dctennines the allocable surplus i! the nonnal ratio not affected by any special circumstance and perpetuates for the duration of the Act that ratio for determining the minimum allocable surplus each year. If bonu.

\ contemplated to be paid under the Act i• intended to make an equitable distribution of the surplus profits of a particular year, a scheme for computing labour's share which cannot be Jess than the 3mount determined by the application of a ratio derived from the working of the base year without taking into consideration the special circumstances governing that determination is printa facie arbitrary • and unreasonable. It mav be that the ratio was intended to stabilise the previous grant of bonus 3nd mainlain in favour of labour whate\·er "'~ JALAN TRADING CO. V. MAZDOOR UNION (Shah, J. ) 19 ) achieved by collective bargaining in the b3lSe year. But the validity of a statute is subject to judicial scrutiny in the context of fundamental freedoms guaranteed to employers as well as employeeis and the freedom of equal protection of the Jaws becomes.

chimerical if the only ground in support of the validity of a statute ex facie discriminatory is that the Parliament intended inconsistently with the very concept of bonus evolved by it to maintain for the benefit of labour an advantage which labour had obtained in an earlier year based on special circumstances of that year, without any inquiry whether that advantage may reasonably be granted • in subsequent yea. rs according to the principles evolved by it and for securing the object of the Act. If the concept of bonus as allocation of an equitable share of the surplus profits of an establishment to the workmen who have contributed to the earning has reality, any condition that th• ratio on which the share of one party computed. on the basis of the working of an earlier year, without taking into consideration the special circumstances which had a bearing on the earning of the profits and payment of bonus in that year, shall not be touched, is arbitrary and unreasonable.

The vice of the provision lies in the imposition of an arbitrary ratio governing distribution of surplus profits. Section 34(2) is invalid on the ground that it infringes Art. 14 of the Constitution. [45 H-46 F] Per Hidayatullah and Ramaswami, JJ. (dissenting) Section 34(1) which is criticised because it sacrifices all principles which this Court had established in the past and fixes a ratio for all time to come is also not invalid. The Act was passed to make for greater certainty, for improving relations between the employers and the workmen and for the avoidance of disputes. It must not be forgotten that in many establisllments the payment of bonus in the past was the result of collective bargaining and the advantage which Jabour has so achieved was not likely to be given up so readily. Any legislation te> be successful had to preserve as far as possible what labour considered to be its right in a particular establishment. By establishing a base .

year and by insisting that the same proposition should be maintained in the payment of bonus the establishment knew with certainly what their liabilities in respect of bonous would be in the future years. If extraordinary circumstances appear set on and set off will make them less onerous for the employers or employees. The existence of a rigid ratio which applies to-all establishments which come under s. 34(2) does not therefore create inequality. [64 F. 65 CJ • (vi) Per Wanchoo, Shah ·and Sikri, JJ. ---Section 37 authorises the Gov-enunent to determine for itself what the purposes of the Act are and to make provisions for the removal of doubts or difficulties. This in substance amounts to exercise of legislative authority which cannot be delegated to an executive authority. Sub-section (2) of s. 37 which purports to make the order of the Central Government in such cases final accentuates the vice in sub-s.

( 1) since by enacting thati provision the Government is made the sole judge whether difficulty or doubt had arisen in givirig e. ffect to the provisions of the Act, whether it is necessary or expedient to remove the doubt or difficulty, and whether the provision enacted is not inconsistent with the purpose of the Act. Section 37 therefore is invalid. [32 A-CJ Per Hidayatullah and Ramaswami. JJ. (dissenting) The fum:tions exercised . under s. 3 7 are not legislative functions at all but are intended to advance the purpose which the Legislature bad in mind. Apprehending that in the application of the new Act de>ubts and difficulties might arise • and not lea\'ing their solution to the courts with the attendant delays and expense, Parliament has chosen to give power to the Central Government to remove doubts arid differences by a suitable order. The order of course would be passed within the four corners of the parliamentary legislation and would only apply the A.

ct to concrete cases as the courts do when they consider the application of the Act. The order of the Central (Jovemmcnt is made final for the JeJson that it is hardly practical to give pawer to the Ccntial Government and yet to leave the matter to be lihgated further. The fact that in the Goverrunent of Iridia Act, 193~ and in the Constitution such a power was and is contemplated and it has been conferred in various Acts without a challenge before, shows amply that the argwnent that the section amounts to delegation of legis· Iative powers on the Central Government is erroneous. Accordingly s. 37 is valid. [As to tile validity of s. 32 with reference to Art. 14 of the Constitution the Court found that there was not enough materi:ll on record 10 decide the issue. ] [58 H-59 f] • Ctvu. APP~Ll. ATf. JURISDWTIO:\ Civil Appeal No. 187 of 1966 Appeal by special leave from the Award Part I dated the July 21, 1965 of the Industrial Court, Maharashtra, Bombay in Reference (JC) No. 78 of 1963.

AND Writ Petitions N<,s. 3 and 32 of 1966. Petition under Art. 32 of the Constitution of India for the enforcement of fundamental rights. N. A. Palkhi1·ala, R. J. Ko/ah, B. Dutta, C. C. Jain, Bhuvnesh Kumari and J. B. Dadac/za1! ii, for the appellant (in C. A. No. 187 of 1966). H. K. Su11"G11i. K. Rajendra Chaudhuri and K. R. Chaudhuri, for the respondent. M. C. Seta/rad, (i. /J. Pai, P. K. Kurai11, 8. Dutta, ! Ju1'11esh Kumari and J. B. Dadacha11ji, for the appellant (in W. P. No. 3 of 1966). Niren De, Addi. Solicitor-Genera/, N. S. Bi11dra, R. H. Dlzehar and B. R. G. K. Aclwr. for respondent '. 'lo. l. V. A. Seyid Muhammad, Advocate Ge11era/, Kera/a, A. G. Puddissery and M. R. K. Pillai, for respondents Nos. 2 and 3. A. K. Sen and K. L. llathi, for respondent No. 4. N. Sreekanta11 Nair, for respondent No. 8. G. B. Pai, B. Dutta, Buvneslz Kumari and J. B. Dadachanji, for the petitioner (in W. P. No. 32 of 1966). Niren De, Addi. Solicitor-General, N. S. Bindra. R. H. Dhebar and R. N.

Sachthey, for respondents Nos. 2 and 3. • V. _A. Seyid Muhammad. Advocate-Genera/, Kera/a and M. R. K Pillai, for respondents Nos. 2 and 3. JALAN TRADING CO. V. MAZDOOR UNION (Shah, J. ) 21 Janardan Sharma, for respondent No. 4. A. K. Sen, and K. L. Hathi, for respondent No. 4A. H. K. Sowani and K. R. Chaudhuri, for intervener No. 1. K. Rajendra Chaudhuri and K. R. Chaudhuri, for intervener No. 2. • Niren De, Addi. Solicitor-General, N. S. Bindra, R. H. Dhebar and B. R. G. K. Achar, for intervener No. 3. N. A. Palkhiva/a, J. B. Dadachanji, for interveners Nos. 6, 9, II and 15. N. M. Barot, Officer, Textile Union (in person) intervener No. 5. I. N. Shroff, for intervener No. 7. J. P. Goyal, for intervener No. 8. S. R. Vasavada, for intervener No. IO. N. C. Chatterjee, R. K. Garg, M. K. Ramamurthi, Jitendra Sharma and Janardan Sharma and Satish Loomba, for intervener No. 12 (in C. A. No. 187 of 1966 and W. P. No. 3 of 1966). R. J. Ko/ah, B. Narayanswami and J. B.

Dadachanji, for intervener No. 13. & M. C. Setalvad, R. J. Ko/ah, and J. B. Dadachanji, for intervener No. 14. I. M. Nanavati, 0. P. Malhotra and J. B. Dadachanji, for intervener No. 16. Vitha/bhai B. Patel and /. N. Shroff, for interveners Nos. 18 and 19. The Judgment of w ANCHOO, SHAH and SIKRI, . JJ was delivered by SHAH, J. The dissenting Opinion of HIDAYATULLAH and RAMA- SWAMI, JJ. was delivered by HJDAYATULLAH, J. Shah, J. During the pendency, before the Industrial Court, Bombay, of a referenc~ under s. 73A of the Bombay Industrial Relations Act, 1946, which arose out of a demand for payment of bonus for the years 1961 and 1962, the Payment of Bonus Ordinance 3of1965 was promulgated by the President on May 29, 1965, with immediate effect.

The representatives of the workmen claimed that even if the plea of the employers that the profit and loss account of the establishment for the years in question disclosed a loss, was correct, the Ordinance governed the dispute and that the employees were entitled to receive bonus at the minimum rate • of 4 %of the salary or wages or Rs. 40/- whichever is higher. The Industrial Court upheld the plea of the workmen and directed ' the employers subject to the provisions of the Bonus Ordinance, 1965, to pay to each employee bonus for the year 1962 equivalent to 15 days of the salary or wages or Rs. 4-0/- whichever is higher. With special leave, the employers have appealed to this Court and they challenge the validity of the Payment of Bonus Act, 1965, which replaced Ordinance 3 of 1965, and especially of the provisons under which bonus at minimum rate rs made payable under the Act. Writ Petitions Nos. 3 of 1966 and 32 of 1966 are filed by two public limited companies.

They challenge diverse provisions of the Act and contend that they are not liable to pay bonus under the machinery prescribed by the Act. A synopsis of the development in the industrial Jaw which led to the enactment of the Payment of Bonus Act, 1965 will facilitate appreciation of the questions argued at the Bar. Claims to receive bonus, it appears, were made by industrial employees for the first time in India in the towns of Bombay and Ahmedabad, after the commencement of the First World War when as a result of infla-tionary trends there arose considerable disparity between the living wage and the contractual remuneration earned by workmen in the textile industry. The employers paid to the workmen increase in wages, initially called "war bonus" atid later called "special allowance".

A Committee appointed by the Government of Bombay in 1922 lo consider, inter alia, "the nature and basis" of this bonus payments, reported that the workmen had a just claim against the employers to receive bonus, but the claim was not "customary, legal or equitable". During the Second World War the employers in the textile industry granted cash bonus equivalent to a fraction of actual wages (not including dearness allowance) but even this I' was a voluntary payment made with a view to keep labour contented.

In the dispute for payment' of bonus for the years 1948 and 1949 in the textile industry in Bombay, the Industrial Court expressed the view that since labour as well as capital employed in the industry contribute to the profits of the industry, both are entitled to claim a legitimate return out of the profits of an establishment, and evolved a formula for charging certain prior liabilities on the gross profits of the accounting year, and awarding a per~entage of the balance as bonus to the workmen. In adjudicating upon the claim for bonus, the Industrial Court excluded establishments which had suffered loss in the year under consideration from the liability to pay bonus, In appeals against the award relating to the year 1949, the Labour Appellate Tribunal broadly approved of the method for computing bonus as a fraction of • surplus profit. JALAN TRADING CO. V. MAZDOOR UNION 23 . > A.

According to the formula which came to be known as the "Full Bench Formula", surplus available for distribution had to be determined by debiting the following prior charges against gross. profits: (1) Provision for depreciation ; B (2) Reserve for rehabilitation; (3) Return of 6 % on the paid-up capital; (4) Return on the working capital at a lower rate than the return on paid-up capital; and from the balance called "available surplus" the workmen were' to be awarded a reasonable share by way of bonus for the year. This Court considered the applicability of this formula to claims for bonus in certain decisions: Muir Mills Co, Ltd. v. Suti Mills Mazdoor Union, Kanpur;(') Baroda Borough Municipality v. 2 Its Workmen;( ) Sree Mennakshi Mills Ltd. v. Their Workmen:(') and The State of Mysore v. The Workers of Kolar Gold Mines.

(') • The Court did not commit itself to acceptance of the formula in its entirety, but ruled that bonus is not a gratuitous payment made by the employer to his workmen, nor a deferred wage, and that where wages fall short of the living standard and the industry makes profit part of which is due to the contribution of labour, a claim for bonus may legitimately be made by the workmen. The Court however did not examine the propriety nor the order of priorities as between the several charges and their relative importance, nor did it examine the desirability of making any variation, change or addition in the Formula. Tliese problems were for the first time elaborately considered by this Court in the Associated Cement Companies Ltd. v. Its Workmen. (5) Since that decision numerous I' cases have come before this Court in which the basic formula has been accepted with some elaboration.

The principal incidents of the formula as evolved by the decisions of this Court may be briefly stated: Each year for which bonus is claimed is a self-contained unit and bonus will be computed on the profits of the establishment in that year. In giving effect to the formula as a general rule from the gross profits determined after debiting the wages and dearness allowances paid to the employees, and other items of expenditure against total receipts, as disclosed by the profit and loss account are accepted unless it appears that the debit entries are not supported by recognized accountancy practice or are posted ma/a fide with the object of reducing gross profits. Debit items which are wholly extraneous to or unrelated to the determination (I) (1955] 1S. 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. SUPREME COl:RT REPORTS ( 1967] I S. C. R.. of trading profits are ignored.

Similarly income which 1s wholly A extraneous to the conduct of the business e. g. book profits on account of revaluation of assets may not be included in the gross profits. Against the gross profits so ascertained the following items are charged as prior debits: (I) Depreciation: such depreciation being· only the normal or notional depreciation; (2) Income-tax payable for the accounting year on the balance remaining after B deducting statutory depreciation. The income-tax to be deducted is not the actual amount, but the notional amount of ta. x at the rate for the year, even if on assessment no tax is determined to be pay- . able. For the purpose of the Full Bench Formula income-lax at the rate provided must be deducted, but in the computation of income-tax statutory depreciation under the Indian Income-tax c Act only may be allowed. (3) Return on paid-up capital at 6 % . and on reserves used as working capital at a lower rate.

In the Associated Cement Companies' case(') it was suggested that this rate should he 2 % in later cases 4 % on the working capital was regarded as appropriate. (4) Expenditure for rehabilitation which includes replacement and modernisation of plant, machinery and buildings, but not for expansion of building, or a<lditions to the D machinery. It is not open to the Tribunal in ascertaining the available surplus to extend by analogy the prior charges to he debited to grnss profits. Therefore for example (a) allocations for debenture redemption fund; (b) losses in previous years which are written off at the end of the year; (cl donations to a political fund arc not E -Oeducted from gross profits.

Rebate of income-tax available to the employer on the amount of bonus paid to the workmen cannot he added to the available surplus of profits determined in accordance with the Full Bench Formula which should he taken into account only in distributing the available surplus between workmen, industry and employers. F The formula it is clear was not based on any strict theory of legal rights or obligations: it was intended to make an equitable • division·of distributable profits after making reasonable allocations for prior charges. Attempts made from time to time to secure revision of the G Formula failed before this Court. In the Associated Cement 1 Companies' case,( ) this Court observed: "The plea for the revision of the formula raised an issue which affects all industries; and before any change is mnde in it, all industries and their workmen would have to he heard and their pleas carefully considered. It is obvious that wHi!

c H dealing with the present group of appeals, it would be ditlicult, unreasonable and inexpedient to attempt such a task. " • (l) [19591 S. C. R. 925. ~ JALAN TRADING CO. V. MAZDOOR UNION (Shah, J. ) 25 But the Court threw out a suggestion that the question may be "comprehensively considered by a hig! i,-powered Commission'', this suggestion was repeated. in The Ahmedabad Miscellaneous 1 Industrial Workers' Union v. Ahmedabad Electricity Co. Ltd.

( ) The Government of India then set up a Commission on December 6, 1961 inter alia to define the concept of bonus, to consider in relation to industrial employments the question of payment of bonus based on profits and to recommend principles for computation of such bonus and methods of payment, to determine what the prior charges should be in different circumstances and how they • should be calculated, to consider whether there should be lower limits irrespective of losses in particular establishments and upper limits for distribution in one year, and if so, the manner of carrying forward profits and losses over a prescribed period, to suggest an appropriate machinery and method for the settlement of bonus disputes. The Commission held an elaborate enquiry and reported that "bonus" . was paid to the workers as a share in the prosperity of the establishment and recommended adherence to the basic scheme of the Bonus Formula viz.

determination of bonus as a percentage of gross profits reduced by certain prior charges, viz. normal depreciation admissible under the Indian Income-tax Act including multiple shift allowance, income-tax and super-tax at the current standard rate applicable for the year for which bonus is to be calculated (but not super profits tax), and return on paid-up capital raised by issue of preference shan;s at the actual rate of dividend payable, on other paid-up capital at 7 % and on reserves used as capital at 4 % but not provision for rehabilitation. The Commission recommended that sixty per cent of the available surplus should be distributed as bonus, the excess being carried forward and taken into account in the next year: the balance of forty per cent.

, should remain with the establishment into which would merge the saving in tax on bonus payable, and the aggregate balance thus left to the establishment may be intended to provide for gratuity, other necessary reserves, rehabilitation in addition to the provision made by way of depreciation in the prior charges, annual provision required for redemption of debentures, return of borrowings, pay- . ment of super-profits tax and additional return on capital. They recommended that the distinction between basic wages and dearness allowance for the "purpose" of expressing the bonus quantum" should be abolished and that bonus should be related to wages and dearness allowance taken together: that minimum bonus should be 4 % of the total basic wage and dearness allowance paid during the year or Rs. 40/- to each worker, whichever is higher, and in the c~se of. children the minimum· should be eqilivalent to 4 % of thelf basic wage and dearness allowance, or Rs.

25/- whichever is higher, subject to reduction pro rata for employees who have not (1) [196212 S. C. R. 934. Ml4 Sup. C. I. /66-3 (1967] I S. C. R. worked for the whole year, and that the maximum bonus should be equivalent to 20% of the total basic wage and dearness allowance paid during the year : that the bonus formula proposed should be deemed to include bonus to employees drawing a total basic pay and dearness allowance up to Rs. 1600 per month regardless of whether they were "workmen" as defined in the Industrial Disputes Act or other relevant statutes, but subject to the proviso that the quantum of bonus payable to employees drawing total basic pay and dearness allowance over Rs. 750 per month shall be limited to what it woul<l be if their pay and dearness allowance were only Rs. 750 per month.

It was proposed that the general for- • mula should not apply to new establishments until they had re-couped all early losses including all arrears of normal depreciation admissible under the Income-tax Act, subject to a time limit of six years. They also suggested that the scheme recommended should be made applicable to all bonus matters relating to the accounting year ending on any day in the calendar year 1962 other than those matters in which settlements had been reached or decisions had been giv~n. The Government of India accepted a majority of the recommendations and the President issued on May 29, 1965 the Payment • of Bonus Ordinance, 1965, providing for payment of bonus to all employees drawing salary not exceeding Rs. 1600 under the formula devised by the Commission. It is not necessary to set out the provisions of the Ordinance, for the Ordinance was replaced, by the Payment of Bonus Act 21 of 1965 and bys.

40(2) it was provided that notwithstanding such repeal, anything done or any action taken under the Payment of Bonus Ordinance, 1965, shall be deemed to have been done or taken under the Act as if the Act had commenced on May 29, 1965. Since the action taken under the Ordinance is to be deemed to have been taken under the Act, in these cases validity of the provisions of the Act alone need be considered. • It may be broadly stated that bonus which was originally a voluntary payment out of profits to workmen to keep them contented, acquired the character, under the Bonus Formula, of a right to share in the surplus profits, and enforceable through the machinery of the Industrial Disputes Act. Under the Payment of Bonus Act, liability to pay bonus has become a statutory obligation imposed upon employers covered by the Act.

Counsel for the Jalan Trading Company urged that the Act was invalid in that it amounts to fraud on the Constitution or otherwise is a colourable exercise of legislative power. That argument H bas no force. It is not denied that the Parliament has power to • legislate in respect of bonus to be paid to industrial employees. - By enacting the Payment of Bonus Act, the Parliament has not JALAN TRADING CO. V. MAZDOOR UNION (Shah, J. ) 27 • attempted to trespass upon the province of the State Legislature. It is true that by the impugned legislation certain principles declared by this Court e. g. in Express Newspapers (Private) Ltd, and 1 Anr. v. The Union of India and Ors. ( ) in respect of grant . of bonus were modified, but on that account it cannot be said that the legislation operates as fraud on the Constitution or is a colour· able exercise of legislative power.

Padiament has normally power within the frame-work of the Constitution to enact legislation which modifies principles enunciated by this Court as applicable to the determination of any dispute, and by exercising that power the Parliament does not perpetrate fraud on the Constitution. An enactment may be charged as colourable, and on that account void, only if it be found that the legislature has by enacting it trespassed upon a field outside its competence: K. C. Gajapati Narayan Deo and Ors. v. The State of Orissa(2). The provisions of the Act and its scheme may now be sum-marised. The Payment of Bonus Act was published on September 25, 1965.. By s. 1(4) save as otherwise provided in the Act, the provisions of the Act shall, in relation to a factory or other establishment to which the Act applies, have effect in respect of the accounting year commencing on any day in the year 1964 and in '• respect of every subsequent accounting year.

Section 2(4) defines "allocable surplus" as meaning (a) in relation to an employer, being a company (other than a banking company) which has not made the arrangements prescribed under the Income-tax Act for the declaration and payment within India of the dividends payable out of its profits in accordance with the provisions of s. 194 of that Act, sixty-seven per cent of the available surplus in an accounting year; (b) in any other case, sixty per cent of such available surplus, and includes any amount treated as such under sub-s. (2) of s. 34. "Available surplus" is defined in s. 2( 6) as meaning the available surplus computed under s. 5. "Employee" is defined in s.

2(13) as meaning any person (other than an apprentice) employed on a salary or wage r Jt ~xceeding one thousand and six hundred rupees per mensem in any industry to do any skilled or unskilled manual, supervisory, managerial, administrative, technical or clerical work for hire or reward whether the terms of employment be express . or implied. By s. 2(21) "salary or wage" is defined as meaning all remuneration (other than remuneration in respect of overtime work) capable of being expressed in terms of money, which would, if the terms of employment, express or implied, were fulfilled, be payable to an employee in respect of his employment or of work done in such employment and includes dearness allowance (that is to say, all cash payments, by whatever name called, paid to an employee on account of a rise in the cost of living), but does not include certain specified allowances, commissions, valueofamenities (I) [1959) s. c. R. 12. (2) [1954) S. C. R. 1. etc.

Section 4 provides for computation of gross profit in the manner provided by the First Schedule in the case of a banking company and in other case in the manner provided by the Second Schedule. By s. 5 available surplus in respect of any accounting year is the gross profits for that year after deducting therefrom the sums referred to in s. 6. The sums liable to be deducted from gross profit under s. 6 are: (a) any amount by way of depreciation admissible in accordance with the provisions of sub-section (I) of section 32 of the Income-tax Act, or in accordance with the provisions of the agricultural income-tax law, as the • case may be; (b) any amount by way of development rebate or development allowance which the employer is entitled to deduct from his income under the Income-tax Act; (c) any dirrct tax which .

the employer is liable to pay for the accounting year in respect of his income, profits and gains during that year; and (d) such further sums as arc specified in respect of the employer in the Third Schedule. Section 7 deals with calculation of direct taxes payable by the emploier for any. accounting year for the purpose of cl. (c) of s. 6. Sections 8 & 9 deal with eligibility for and disqualifications for receivi11g bonus. Sections IO to 15 deal with payment of minimum and maximum bonus and the scheme for "set-on" and "set-off". Every employer is by s. IO bound to pay to every employee in an accounting year minimum bonus which shall be four per cent. of the salary or wage earned by the employee during the accounting year or Rs. 40 whichever is higher, whether there are profits in the accounting yea·r or not. In case of employees below the age of 15, the minimum is Rs. 25. By s.

l l where in respect of any accoun- • ting year the allocable surplus exceeds the amount of minimum bonus payable the employer shall be bound to pay to every employee in the accounting year bonus which shall be an amount proportionate to the salary or wage earned by the employee during the accounting year, subject to a maximum of twenty per cent of such salary or wage. Section 15 provides that if for any accounting year the allocable surplus exceeds the amount of maximum bonus payable to the employees in the establishment under s. 11, then, the excess shall, subject to a limit of twenty per cent. of the total salary or wage of the employees employed in the establishment in that account year, be carried forward for being "set-on" in the succeeding accounting year, up to and inclusive of the fourth account year, and be utili,ed for the purpose of payment of bonus. JALAN TRADING CO. v. MAZDOOR UNION (Shah, J. ) 29 • By sub-s.

(2) it is provided that where for any accounting year, there is no available surplus or the allocable · surplus in respect of that year falls short of the amount of minimum bonus payable to the employees in the establishment under s. 10, and there is no amount or sufficient amount· carried forward and "set on" under sub-s. (I) capable of being utilised for the purpose of payment of the minimum bonus, then, such minimum amount or the deficiency, shall be carried forward for being set off in the succeeding accoun, ting year up to and inclusive of the fourth accounting year. By sub-s. (3) it is provid. ,d that principle of "set-on" and "set-off" as illustrated in the Fourth Schedule shall apply to all other cases not covered by sub-s. (! ) or sub-s. (2) for the purpose of pay. ,,ent of bonus under the Act. Bonus payable to an employee drawing • wage or salary exceeding Rs. 750 per mensem has to be calculated as if the salary or wage were Rs.

750 per mensem, and an employee who has not worked for all the working days -in 'an accounting year, the minimum bonus of Rs. 40 or Rs. 25 would be proportionately reduced (ss. 12 & 13). Section 16 makes special provisions relating to payment of bonus to employees of establishments which have been newely set up. Sections)8, 19, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30 & 31 deal with certain procedural and administrative matters. By s. 20 establishments in the public sector are in certain eventualities also made subject to the provisions of the Act. Section 32 excludes from the operation of the Act employees of certain classes and certain industries specified therein. By s.

33 the Act is made applicable to pending industrial disputes (regarding payment of bonus relating to any accounting year not being an accounting year earlier than the accounting year eniling on any day in the year 1962) immediately before May 29, 1965, before the appropriate Government or any Tribunal or other authority under the Industrial Disputes Act, 1947, or under any corresponding law, or where it is pending before the Conciliation officer or ·for adjudication. By s. 34(1) the provisions of the Act are declared to have effect, notwithstanding anything · inconsistent therewith contained in any other law for the time being in force or in the terms of any award, agreement, settlement or contract of service made before May, 29, 1965. Sub-s. (2) of s. 34 makes special overriding provisions regarding payment of. bonus to employees computed as a percentage of gross profits reduced by direct taxes payable for the year, (subject to the maximum prescribed by s.

l I), when bonus has been paid by the employer to workmen in the "base year" asdefined in Explanation JI. By s. 36 the appropriate Government is authorised, having regard to the financial position and other relevant circumstances of any establishment or class of establishments, to exempt for such period as may be specified therein such establishment or class of establishments from all or any of the provisions of the Act, and bys. 37power is conferred upon the Central Government by order to make provision, not inconsistentwith the purposes 30 SUPllBME COURT REPORTS [1967] I S. C. R. of the Act, for removal of difficulties or doubts in giving effect to the provisions of the Act.

The scheme of the Act, broadly stated, is four dimensional: (I) to impose statutory liability upon an employer of every establishment covered by the Act to pay bon1Js to employees in the establishment: (2) to define the principle of payment of bonus according to the prescribed Formula; (3) to provide for payment of minimum and maximum bonus and linking the payment of bonus with the scheme of "set-off" and "set-on"; and (4) to provide machinery for enforcement of the liability for payment of bonus. Ordinarily a scheme imposing fresh liability would, it is appre-hended, be made prospective, leaving the p~nding disputes to be· disposed of according to the law in force before the Act. But the Legislature has given by s. 33 retrospective operation to the Act to certain pending disputes, and has sought to provide by s. 34 while extinguishing all pre-existing agreements, settlements or contracts of service for freezing the ratio which existed in the base year.

on which the bonus would be calculated in subsequent years. It was urged by counsel for the employers that s. 10 which provides for payment of minimum bonus, s. 32 which seeks to exclude certain classes of employees from the operation of the Act, s. 33 which seeks lO apply the Act to certain pending disputes regarding payment of bonus and sub-s. (2) of s. 34 which freezes the ratio at which the available surplus in any accounting year has (subject to s. 11) to be distributed if in the base year bonus has been paid, are ultra vires, bacause they infringe Arts. 14, 19 and 31 of the Constitution. It was also urged that conferment of power of exemption under s.

36 is ultra 1•ires the Parliament in that it invests the appropriate Government with authority to exclude from the application • of the Act, establishments or a class of establishments, if the Governments, are of the opinion having regard to the financial position and other relevant circumstances that it would not be in the public interest to apply all or any of the provisions of the Act. Power conferred upon the Government under s. 37 is challenged on the ground that it amounts to delegation of legislative power when the Central Government is authorised to remove doubt or difficulty which had arisen in giving effect to the provisions of the Act. The plea of invalidity of ss. 32, 36 and 37 may be dealt with first. It is true that several classes of employees set out in els. (i) to (xi) of s. 32 are excluded from the operation of the Act. But • JALAN TRADING CO. V. MAZDOOR UNION (Shah,/.

) 31 the petitions and the affidavits in support filed in this Court are singularly lacking in particulars showing how the employees in the specified establishment or classes of establishments were similarly situate and that· discrimination was practised by excluding those specified classes of employees from the operation of the Act while making it applicable to others. Neither the employees, nor the Government of India have chosen to place before us any materials on which the question as to the vires Gf the provisions of s. 32 which excludes from the operation of the Act certain specified classes of employees can be determined. There is a presumption of constitutionality of a statute when the challenge is founded on Art. 14 of the Constitution, and the onus of proving unconstitutionality of the statute lies upon the person. challenging it. Again many classes of employees are excluded by s. 32 and neither those employees, nor their employers, have been impleaded before us.

Each class of employees specified in s. 32 requires separate treatment having regard to special circumstances and conditions governing their employment. We therefore decline to express any opinion on the plea of unconstitutionality raised before us in respect of the inapplicability of the Act to employees described in s. 32. By s. 36 the appropriate Government is invested with power to exempt an establishment or a class of establishments from the operation of the Act, provided the Government is of the opinion that having regard to the financial position and other relevant circumstances of the establishment, it would not be in the pu@ic interest to apply all or any of the provisions of the Act.

Condition for exercise of that power is that the Government holds the opinion that it is not in the public interest to apply all or any of the provisions of the Act to an establishment or class of establishments, and that opinion is founded on a consideration of the finan- JI cial position and other relevant circumstances. Parliament has clearly laid down principles and has given adequate guidance to the appropriate Government in implementing the provisions of s. 36. The power so conferred does not amount to delegation of legislative authority. Section 36 amounts to conditional legislation, and is not void. Whether in a given case, power has been properly exercised by the appropriate Government would have to be considered when that occasion arises. But s. 37 which authorises the Central Government to provide by order for removal of doubts or difficulties in giving effect to the provisions of the Act, in our judgment, delegates legislative power which is not permissible.

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

(1), since by enacting that provision the Government is made the soJe judge whether difficulty or doubt had arisen in giving effect tc ihe provisions of the Act, whether it is necessary or expedient to remove the doubt or difficulty, and whether the provision enacted is not inconsistent with the purposes of the Act. We may now turn to the challenge to s. 10. Under the Full Bench Formula· bonus being related to available surplus it can only be made payable by an employer of an establishment who makes profit in the accounting year to which the claim for bonus relates. If no profit was made there was no liability to pay bonus. As pointed out by this Court in Muir Mills Company's case (') : "It is therefore clear that the claim for bonus can be - ' made by the employees only if as a result of. the joint contribution of capital and labour the industrial concern has earned profits. .

If in any part~cular year the working of the industrial concern has resulted in loss there is no basis nor justification for a demand for bonus. Bonus is not a deferred wage. . . . . The dividends can only be paid out of profits and unless and until profits are made no occasion or question can also arise for distribution of any sum as bonus amongst the employees. If the industrial concern has res11lted in a trading loss, there would be no profits of the particular year availble for distribution of dividends, much less could the employees claim the distribution of • bonus during that year. " But by s. I0 it is provided that even if there has resulted trading loss in the accounting year, the employer is bound to pay bonus at 4 % of the salary or wage earned by the employee or Rs. 40 whichever is higher. This, it was urged, completely alters the character of bonus and converts what is a share in the year's profits in the earning of which labour has contributed into additional wage.

It was pointed out to us that in giving effect to the Full Bench Formula, this Court set aside the directions made by the Industrial Tribunal awarding minimum bonus where the establishment had suffered loss, and remanded the case for a fresh determination consistently • (I) [19551 S. C. R. 991. JALAN TRADING CO. v. MAZDOOR UNION (Shah, J. ) 33 with the terms of the Full Bench Formula: New Maneck Chowk Spg. and Weaving Co. Ltd. v. Textile Labour Association('). In that case there was a five year pact between the Ahmedabad Mill owners' Association and the Textile Labour Association. After the expiry of the period, the Labour Association demanded bonus on the basis of the pact, but the Millowners claimed that the pact was contrary to the Full Bench Formula, and the claim was not sus-tainable. The Industrial Tribunal held that the pact did not "run countez to the Jaw laid down by this Court in the Associated Cement 2 Companies' case( )" and the extension of the agreement for .

one '· more year would help in promoting peace in the industry in Ahmedabad. This Court held that the agreement departed from the Full Bench Formula in that matter of bonus and when th~ Tribunal extended the agreement after the expiry of the stipulated period, it ignored th,e law as laid down by this Court as to what profit bonus was and how it should be worked out, and that the Tribunal had no power to do by extending the agreement to direct payment of minimum bonus for the year 1958 when there was no available surplus to pay minimum bonus. Indisputably Parliament has the power to enact legislation with in the constitutional limits to modify the Full Bench Formula even after it has received the approval of this Court. It was urged, however, that exercise of that power by treating establishments inherently dissimilar as in the same class and subject to payment of minimum bonus amounted to making unlawful discrimination.

It was said that establishments which suffered losses and establishments which made profits; establishments paying high rates of wages and establishments paying low rates of wages; establishments paying "bonus-added wages" and establishments paying ordinary wages; establishments paying higher dearness allowance and establishments paying lower dearness allowance, do not belong to the same class, and by imposing liability upon all these establishments to pay bonus at the statutory rate not below the minimum irrespective of the differences between them, the Parliament created inequality. It was also submitted that by directing establishments passing through a succession of lean years in which losses have. accumulated and establishments which had made losses in the accounting year alone, to pay minimum bonus, unlawful discrimination was practised.

Section 10 at first sight may appear to be a provision for granting additional wage to employees in establishments which have not on the year's working an adequate allocable surplus to justify payment of bonus at the rate of 4 % on the wages earned by each employee. But the section is an integral part of a scheme for' providing for payment of bonus at rates which do not widely fluctuate (I) [1961] 3 S. C. R. I. (2) [1959] S. C. R. 925. from year to year and that is sought to be secured by restricting the quantum of bonus payable to the maximum rate of 20 % and for carrying forward the excess remaining after paying bonus at that rate into the account of the next year, and by providing for carrying forward the liability for amounts drawn from reserves or capital to meet the obligation to pay bonus at the minimum rate.

Under the Act, for computing the rate of payment of bonus each accounting year is distinct and bonus has to be worked out on the profits of the establishment in the accounting year. But it is not in the interest of capital or labour that there should be wide fluctuations .. in the payment of bonus by an establishment year after year.

The object of the Act being to maintain peace and harmony between labour and capital by allowing the employees to share the pros-psrity of the establishment reflected by the profits earned by the contributions made by capital, management and labour, Parliament has provided that bonus in a given year shall not exceed 1/5th and shall not be less than 1/25th of the total earning of each individual employee, and has directed that the excess share shall be carried forward to the next year, and that the amount paid by way of minimum bonus not absorbed by the available profits shall be carried to the next year and be set off against the profits of the succeeding years. This scheme of prescribing maximum and minimum rates of bonus together with the scheme of "set off" and "set on" not only secures the right of labour to share in the prosperity of the establishment, but also ensures a reasonable degree of uniformity.

Equal protection of the laws is denied if in achieving a certain object persons, objects or transactions similarly circumstanced are differently treated by law and the principle underlying that different treatment has no rational relation to the object sought to . be achieved by the law. Examined in the light of the object of the Act and the scheme of "set off" and "set on", the provision for payment of minimum bonus cannot he said to be discriminatory between different establishments whic.. are unable on the profits of the accounting year to pay bonus merely because a uniform standard of minimum rate of bonus is applied to them. The judgment of this Court . in Kunnathat Thathunni Moopil Nairv. The Stale of Kera/a and Another,(') and especially the passage in the judgment of the majority of the Court at p.

92, has not enunciated any broad proposition as was contended for on behalf of the employers, that when persons or objects which arc unequal are treated in the same manner and are subjected to the same burden or liability, discrimination inevitably results. fn Moopil Nair's case(') the validity of the Travancore-Cochin Land Tax • Act, 1955, was challenged. Bys. 4 of the Act all lands in the State, -----·--- (! ) [196113 S. C. R. 77. JALAN TRADING CO. v. MAZDOOR )JNION (Shah, J. ) 35 of whatever description and held under whatever tenure, were· charged with payment of land tax at a uniform rate to be called the basic tax. Owners of certain forest lands challenged certain provisions of the Act pleading that those provisions contravened Arts. 14, l 9(1) (f) and 31 (I) of the Constitution.

This Court held that the Act which obliged every person who held land to pay the tax at a uniform rate, whether he made any income out of the land, or whether the land was capable of yielding any income, attempted no classification and that lack of classification by the Act itself created inequality, and was on that account hit by the prohibition ' . against denial of equality before the law contained in Art. 14. The Court also held that the Act was confiscatory in character, since it had the effect of eliminating private ownership of land through the machinery of the Act, without proposing to acquire privately owned forests for the State. The Travancore-Cochin Land Tax Act, it is clear, contained several peculiar features: it was in the context of these features that the Court held that imposition of a uniform liability upon lands which were inherently unequal in productive capacity amounted to discrimination, and that lack of classification created inequality.

It was not said by the Court in that cas·e that imposition of uniform liability upon persons, objects or transactions which are unequal must of necessityleadto discrimination. Ordinarily it may be predicated of unproductive agricultural land that it is incapable of being put to profitable agricultural use at any time. But that cannot be so predicated of an industrial establishment which ltas suffered loss in the accounting year, or even over several years successively. Such an establishment may suffer loss in one year and make profit in another. Section IO undoubtedly places in the same class establishments which have made inadequate profits not justifying payment of bonus, establishments which have suffered marginal loss, and establishments which have suffered heavy loss. The classification so made is not unintelligible: all establishments which are unable to pay bonus under the scheme of the Act, on the result of the working of the establishments,. are grouped together.

The object of the Act is to make an equitable distribution of the surplus profits of the establishment with a view to maintain peace and harmony between the three agencies which contribute to the earning of profits. · Distribution of profits which is not subject to great fluctuations year after year, would certainly conduce to maintenance of peace and harmony and would be regarded as equitable, and provision for payment of bonus at the statutory minimum rate, evun if the establishment has not earned profit is clearly enactoo to ensure · the object of the Act. • Whether the scheme for payment of minimum bonus is the best in the circumstances, or a more equitable method could have been devised so as to avoid in certain cases undue hardship is ir- [1967) I S. C. R. relevant to the enquiry in hand. If the classification is not patently arbitrary, 'the Court will not rule it discriminatory merely because it involves hardship or inequality of burden.

With a view to secure a particular object a scheme may be selected by the Legislature wisdom whereof may be open to debate; it may even be demonstrated that the scheme is not the best in the circumstances and the choice of the Lep. islature may be shown to be erroneous, but unless the enactment fails to satisfy the dual test of intelligible -classification and rationality of the relation with the object of the law, it will not be subject to judicial interference under Art-14. . . Invalidity of legislation is not established by merely finding faults with the scheme adopted by the Legislature to achieve the puqmse it has in view. Equal treatment of unequal objects, transactions or persons in not liable to be struck down as discriminatory unless there is simultaneously absence of a rational relation to the object intended to be achieved by the law. Plea of in validity of s. 10 on the ground that it infringes Art. 14 of the Constitution must therefore fail.

We need say nothing at this date about the plea that s. IO by imposing unreasonable restrictions infringes the fundamental freedom under Art. 19(1) (g) of the Constitution, for by the declaration of emergency by the President under Art. 352, the protection of Art. 19 against any legislative measure, or executive order which is otherwise competent, stands suspended. The plea that s. IO infringes the fundamental freedom under Art. 31(1) of the Constitution also has no force. Clause (1) of Art. 31 guarantees the right against deprivation of property otherwise than by authority of law. Compelling an employer to pay sums of money to his employees which he has not contractually rendered himselfliable to pay may amount to deprivation of property : but the protection against depriving a person of his property under cl. ( 1) of Art. 31 is available only if the deprivation is not by authority of law.

Validity of the law authorising deprivati1m of property may be challenged on three grounds : (i) incompetence of the authority which has enacted the law; (ii) infringement by the Jaw of the fundamental rights guaranteed by Ch. JII of the Constitution and (iii) violation by the law of any express provisions of the Constitution. Authority of the Parliament to legislate in respect of bonus is not denied and the provision for payment of bonus is not open to attack on the ground of infringement of fundamental rights other than those declared by Art. 14 and Art. 19(l)(g) of the Constitution. Our attention has not been invited to any prohibition imposed by the Constitution which renders a statute relating to payment of bonus invalid. We arc therefore of the view that s. JO of the Bonus Act is not open to attack on the ground that it infringes Art. 31(1). JALAN TRADING CO. V. MAZDOOR UNION (Shah,/. ) 37 We may now turn to s. 33 of the Act.

The section provides : "Where, immediately before the 29th May, 1965, any industrial dispute regarding payment of bonus relating to any accounting year, not being an accounting year earlier than the accounting year ending on any day in the year 1962, was wnding before the appropriate Government or before any Tribunal or other authority under the Industrial Disputes Act, 1947 (XIV of 1947) or under any corresponding law relating to investigation and settlement of industrial disputes in a State, then, the bonus shall be payable in accordance with the provisions of this Act. in relation to the accounting year to which the dispute relates and any subsequent accounting year, notwithstanding that in respect of that subsequent accounting year no such dispute was pending. Explanation.

-A dispute shall be deemed to be pending before the appropriate Government where no decision of that Government on any application made to it under the said Act or such corresponding law for reference of that dispute to adjudication has been made or where having received the report of the Conciliation Officer (by whatever designation known under the said Act or law, the appropriate Government has not passed any order refusing to make such reference. " The section plainly seeks to apply the provisions elf the Act to a pending dispute, if the dispute relates to payment of bonus for any accounting year not being an accounting year earlier than the accounting year ending on any day in the year, 1962, and is per>ding on May 29, 1965 before the Government or other authority under the Industrial· Disputes Act or any other corresponding law.

The provisions of the Act also apply even if there be no dispute pending for the year subsequent to the year ending on any day in the year 1962, provided there is a dispute pending in respect of an earlier year. By s. 1(4) the provisions of the Act have effect in respect of the accounting year commencing on any day in the year 1964 and in respect of every subsequent accounting year. But by the application of s. 33 the scheme of the Act is related back to three accounting years ending on any day in 1962, in 1963 and in 1964. In considering the effect of s. 33 regard must first be had to s. 34(1) which provides that save as otherwise provided in the section, the provisions of the Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in the terms of any award, agreement, settlement or contract of service made before May 29, 1965. All pre- [1967] I S. C. R.

vious awards, agreements, settlements or contracts of service made before May 29, 1965, therefore are, since the commencement of the Act rendered ineffective, and if there be a dispute relating to bonus pending on the date specified for the year ending on any day in 1962 or thereafter, before any appropriate Government or before any authority under the Industrial Disputes Act, bonus shall be computed and paid in the manner provided by the Act. Even if in respect of an year there is no such dispute pending on May 29, 1965, because of a dispute pending in respect of an earlier year, not being earlier than the year ending on any day in 1962, the same ronsequences follow. Application of the Act involves departure in many respects from the scheme of computation of bonus under the Full Bench Formula.

Under the Full Bench Formula bonus was a percentage of total wage not inclusive of dearness allowance, and in the computation of available surplus rehabilitation allowance was admissible as a deduction. It was also well-settled that an establishment which suffered loss in the accounting year was not liable to pay bonus: and a reference under the Industrial Disputes Act on a claim to bonus could be adjudicated upon only if the claimants ... were workmen as defined in the Industrial Disputes Act. Since the expression "industrial dispute" used in s. 33 has not been defined in the Payment of Bonus Act, the definition of that expression in the Industrial Disputes Act will apply: 1•ide s. 2(22). The expression "industrial dispute" under the Industrial Disputes Act inter alia means a dispute or difference between employer and workmen which is connected with the employment or non-employment or the terms of employment or with the conditions of labour, of any person: s.

2(k) : and the expression "workmen" is defined in s. 2(s) of the Industrial Disputes Act means "any person (including an apprentice) employed in any industry to do any skilled or unskilled manual, supervisory, technical or clerical work for hire or reward, but does not in- .. dude any such person- .. (i) (ii) (iii) who is employed mainly in a managerial or administrative capacity; or (iv) who, being employed in a supervisory capacity, draws wages exceeding five hundred rupees per mensem or exercises, either by the nature of the duties attached to the office or by reason of the powers vested in him, functions mainly of managerial nature. " Therefore no dispute relating to bonus between an employer and persons employed in managerial or administrative capacity or JALAN TRADING CO. v. MAZDOOR UNION (Shah, J. ) 39 persons employed in supervisory capacity drawing wages exceeding Rs. 500/- per mensem could be referred under the Industrial Disputes Act. But under s.

33 a pending industrial dispute between the workmen and the employer, by reason of the application of the Act gives rise to a statutory liability in favour of all employees of the establishment as defined under the Act by s. 2( 13) for payment of bonus under the scheme of the Act. Whereas under the Industrial Disputes Act a dispute could only be raised by employees who were workmen within the meaning of the Act, under the scheme of the Act statutory liability is imposed upon ,he employer I . to pay to all his employees as defined in s. 2 (13) bonus at the rates prescribed by the Act. Even if before May 29, 1965, there had been a settlement with some workmen or those workmen had not made any claim previously, and there would on that account be no industrial dispute pending qua those workmen, pendency of a dispute relating to bonus in which some other workmen are interested imposes statutory liability upon the employer to pay bonus to all employees in the establishment.

Even if the employer had suffered loss or the available surplus was inadequate, the employer will by virtue of s. 33 be li:;ble to pay minimum bonus at the statutory rate : the formula for computation of gross profits and available surplus will be retrospectively altered and a percentage of M<ges inclusive of dearness allowance will be allowed as bonus to all employees (whether they were under the Full Bench Formula entitled to bonus or not), in computing the available surplus rehabilitation will not be taken into account, and bonus will also have to be paid to employees who were not entitled thereto in the year of account.

Application of the Act for the year for which ·the bonus dispute is pending therefore creates an onerous liability on the employer concerned because : ( 1) employees who could not claim bonus under the Industrial Disputes Act become entitled thereto merely because there was a dispute pending between the workmen in that establishment, of some of them and the employer qua bonus; (2) workmen who had under agreement, settlements, contracts or awards become entitled to bonus at certain rates cease to be bound by such agreements, settlements, contracts or even awards and become entitled to claim bonus at the rate computed under the scheme of the Act; (3) basis of the computation of gross profits, available surplus and bonus is completely changed; (4) the scheme of "set on" and "'set off"' prescribed bys.

15 of the Act becomes operative and applies to esta-blishments as from the year in respect of which the bonus dispute is pending; and (5) the scheme of the Act operates not only in respect of the year for which the bonus dispute was pending, but also in respect of subsequent years for which "there is no bonus dispute pending. If therefore in respect of an establishment there had been a settlement or an agreement for a subsequent year, pendency of dispute for an earlier year before the authority specified in s. 33 is sufficient to upset that agreement or settlement and a statutory liability for payment of bonus according to the scheme of the Act is imposed upon the employer. Application of the Act retrospectively therefore depends upon the pcndency immediately before May 29, 1965, of an industrial dispute regarding payment of bonus relating to any accounting year not earlier . than the year ending on any day in 1962.

If there be no such dispute pending immediately before the date on which the Act becomes operative, an establishment will be governed by the provisions of the Full Bench Formula and will be liable to pay bonus only if there be adequate profits which would justify payment of bonus. If however a dispute is pending immediately before May 29, 1965, the scheme of the Act will apply not only for the year for which the the dispute is pending, but even in respect of subsequent years. Assuming that the classification is founded on some intelligible differentia which distinguishes an establishment, from other establishments, the differentia has no rational relation to the object sought to be achieved by the statutory provision, viz. , of ensuring peaceful relations between capital an. d labour by making an equitable distribution of the surplus profits of the year.

Arbitrariness of the classification becomes more pronounced when it is remembered that in respect of the year subsequent to the year for which the I' dispute is pending, liability prescribed under the Act is attracted even if for ~uch subsequent years no dispute is pending, whereas to • an establishment in respect of which no dispute is pending immediately before May 29, 1965, no such liability is attracted. Therefore two establishments similarly circumstanced having no dispute pending relating to bonus between the employers and the workmen in a particular year would be liable to be dealt with differently if in respect of a previous year (covered by s. 33) there is a dispute pending between the employer and the workmen in one establishment and there is no such dispute pending in the other. Liability imposed by the Act for payment of bonus is for reasons already set out more onerous than the liability which had arisen under the Full Bench Formula prior to the date of the Act.

Imposition of this onerous liability depending solely upon the fortuitous circumstance that a dispute relating to bonus is pendin3 .. JALAN TRADING CO. V. MAZDOOR UNION (Shah, J. ) 41 ' between workmen · or some of them immediately before May 29, 1965, is plainly arbitrary and classification made on that basis is not ~easonable. There is one other ground which emphasizes the arbitrary character of the classification. If a dispute relating to bonus is pending immediately before May 29; 1965, in respect of the years specified in s. 33 before the appropriate Government or before any authority under the Industrial Disputes Act or under any corresponding law, the provisions of the Act will be attracted: if the dispute is pending before this Court in appeal or before the High Court in a petition under Act. 226, the provisions of the Act will not apply.

It is difficult to perceive any logical basis for making a distinction between pendency of a dispute relating to bonus for the years in question before this Court or the High Court, and before the Industrial Tribunal or the appropriate Government. This Court is under the Constitution competent to hear and decide a dispute pending on May 29, 1965 relating to bonus as a Court of Appeal, but is not required to apply the provisions of the Act. If because of misconception of the nature of evidence or failure to apply rules of natural justice or misapplication of the law, this Court sets aside an award made by the Industrial Tribunal and remands the case which was pending on May 29, 1965, for rehearing, the Industrial Court will have to deal with the case under the Full Bench Formula and not under the provisions of the Act. The High Court has also jurisdiction in a petition under Art.

226 to issue an order or direction declaring an order of the Industrial Tribunal invalid, and issue of such writ, order or direction will ordinarily involve retrial of the proceeding. Again pendency of a dispute in respect of the previous year before the appropriate Government or the Industrial Tribunal wi! l entail imposition of a statutory liability to pay bonus in respect of the year for which the dispute is pending, and also in respect of years subsequent thereto, but if immediately before May 29, 1965, a proceeding arising out •• of a dispute relating to bonus is pending before a superior court, even if it be for the years which are covered by s. 33, statutory liability to pay bonus to employees will not be attracted. Take two industrial units-one has· a dispute with its workmen or some of them pending before the Government or before the authority under the Industrial Disputes Act and relating to· an accounting year ending in the year 1962.

For the years 1962, 1963 and 1964 this industrial unit will be liable to pay bonus according to the statutory formula prescribed by the Act, whereas another industrial unit in the same. industry which may be regarded as reasonably similar would be under no such obligation, if it has on May 29, 1965, no dispute relating to bonus pending because the dispute has not been raised or has been settled by agreement or by award, or that the dispute having been determined by an award had reached a superior Ml4Sup C. l. /66-4 (1967) l S. C. R. Court by way of appeal or in exercise of the writ jurisdiction. There appears neither logic nor reason in the different treatement meted out to the two establishments. It is difficult to appreciate the rationality of the nexus-if there by any-between the classification and the object of the Act. In our view therefore s. 33 is patently discriminatory . By sub-s. (2) of s.

34 it is provided : "If in respect of any accounting year the total bonus payable to all the employees in any establishment under this Act is less than the total bonus paid or payable to all the employees in that establishment in respect of the

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