SANGHVI JEEVRAJ GHEWAR CHAND INDIAN TELEPHONE INDUSTRIES LIMITED Vs. SECRETARY MADRAS CHILLIES GRAINS AND KIRANA MER CHANTS WORKERS UNION:THE WORKMEN

JUDGEMENT

(1.) In Civil Appeal No. 1630 of 1967, workmen engaged by certain chillies and kirana shops in Madras and who were members of the respondent Union made a demand on December 13, 1965 for bonus for the year 1964-65 equivalent to four months' wages. Conciliation proceedings having failed, the dispute was referred to the Industrial Tribunal, Madras. In Civil Appeal No. 1721 of 1967, the appellant company is admittedly an establishment in public sector to which Section 20 of the Payment of Bonus Act, 21 of 1965 (hereinafter referred to as the Act) does not apply. In both these cases, the Tribunals held that though the Act did not apply, in the first case by reason of Section 1 (3) and in the other by reason of Section 32 (x), the employees were entitled to claim bonus and awarded their claims in C. A. No. 1630 of 1967. These appeals by special leave challenge the correctness of the view taken by the Tribunals as to the scope and nature of the Act.

(2.) The question for decision in both the appeals is whether in view of the non-applicability of the Act to establishments, not being factories and which employ less than 20 persons therein as the appellants in appeal No. 1630 of 1967 are, and the exemption of employees in an establishment in public sector though employing more than 20 persons as the appellant company in appeal No. 1721 of 1967, is under Section 32 (x) of the Act, the employees in both these establishments could claim bonus dehors the Act. The question depends upon the true view of certain provisions and the scope of the Act. But before we take ourselves the burden of construing upon provisions, it is necessary to refer briefly to the history of the question of bonus, the background and the circumstances in which the Act was passed. This is permissible for the limited purpose of appreciating the mischief Parliament had in mind and the remedy which it wanted to provide for preventing that mischief and not for tire purpose of aiding us in construing the provisions of the Act. As early as 1584, in Hevdon's case, (supra) it was said that "for the sure and true interpretation of all statutes in general" four things are to be considered:(i) What was the common law before the making of the Act, (ii) What was the mischief and defect for which the common law did not provide, (iii) What remedy the Parliament hath resolved and appointed to cure the disease of the Commonwealth, and (iv) the true reason of the remedy. In Bengal Immunity Company Limited vs. The State of Bihar, (1955) 2 SCR 603 this Court approved the rule in Hevdon's case, (supra) and in construing Article 286 of the Constitution observed at page No. 633 of SCR as follows:-

(3.) What were the conditions prevailing at the time when the Act was passed and what was the object which Parliament had in mind in passing it Bonus was originally regarded as a gratuitous payment by an employer to his employees. The practice of paying bonus as an ex gratia payment had its early roots in the textile industry in Bombay and Ahmedabad. In 1917 and 1918 an increase of 10 and 15 per cent of wages was granted as war bonus to the textile workers by the employers. In October, 1920, a Committee appointed by the Bombay Millowners recommended to the member mills payment of bonus equal to one month's pay. Similarly bonus was declared in 1921 and 1922. It appears that trading conditions in the industry having deteriorated, the mill owners declared in July 1923 that they would be unable to pay bonus for 1923. Thereupon a strike began which became general towards the end of January 1924. In February 1924, a bonus dispute Committee was appointed by the Government of Bombay to consider the nature of, the conditions and the basis of bonus which had been granted to the employees in the textile mills and to declare whether the employees had established any enforceable claim, customary, legal or equitable. The Committee held that they had not established any enforceable claim, customary, legal or equitable, to an annual payment of bonus which could be upheld in a Court. The years that followed were years of depression and no major dispute about bonus arose, although bonuses were given on ad hoc basis by a few industrial undertakings. During the Second World War, managements of textile mills paid cash bonus equivalent to a fraction of the surplus profit but this was also voluntary payment to keep labour contended, Disputes for payment of bonus for the years 1948 and 1949 arose in the Bombay textile industry. On the said dispute having been referred to the Industrial Court, that Court expressed the view that since both labour and capital contributed to the profits of the industry both were entitled to a legitimate return out of the profits and evolved a formula for charging certain prior liabilities on the gross profit of the accounting year and awarded a percentage of the balance as bonus. The Industrial Court excluded the mills which had suffered loss from the liability to pay bonus. In appeals against the said awards, the Labour Appellate Tribunal approved broadly the method of computing bonus as a fraction of the surplus profit. According to this formula, which has since been referred to as the Full Bench formula, the surplus available for distribution is to be determined after debiting certain prior charges from gross profits, viz. (1) provision for depreciation, (2) reservation for rehabilitation, (3) return of 6 per cent on paid-up capital, and (4) return on working capital at a rate lower than the one on the paid up capital. In Muir Mills Company vs. Suti Mills Mazdoor Union, Kanpur, (1955) 1 SCR 991 , Baro Borough Municipality vs. Its Workmen, (1957) SCR 38 , The Shree Meenakshi Mills Ltd. vs. The Workmen, (1958) SCR 878 and State of Mysore vs. The Workers of Gold Mines, (1959) SCR 895 this Court laid down (1) that bonus was not a gratuitous payment nor a deferred wage, and (2) that where wages fall short of the living standard and the industry makes profit part of which is due to the contribution of labour, a claim for bonus may 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 alterations in the said formula. These questions came to be examined for the first time in Associated Cement Companies Ltd. vs. Its Workmen, (1959) SCR 925 where the said formula was generally approved. Since that decision, this Court has accepted in several cases the said formula. The principal features of the formula are that each year for which bonus is claimed is a self -contained unit, that bonus is to be computed on the profits of the establishment during that year, that the gross profits are to be determined after debiting the wages and dearness allowance paid to the employees and other items of expenditure against total receipts as disclosed by the profits and loss account, and that against such gross profits the aforesaid four items are to be deducted as prior charges. The formula was not based on any legal right or liability, its object being only to distribute profits after reasonable allocations for the aforesaid charges. Attempts were thereafter made from time to time to have the said formula revised but they were rejected first in A. C. C's case, (supra) and again in The Ahmedabad Miscellaneous Iudustrial Workers' Union vs. The Ahmedabad Electricity Co. Ltd., (1962) 2 SCR 934 where it was observed that the plea for revision raised an issue which affected all industries and, therefore, before any change was made all industries and their workmen had to be heard and their pleas considered. The Court, therefore, suggested that the question of revising the formula should be 'comprehensively considered by a high powered Commission". Taking up the aforesaid suggestion, the Government of India appointed a Commission, by its resolution dated December 6, 196l, the terms of reference whereof were, inter alia,