Appeal No 1630 of 1967
Appeal by special leave from the award dated April 28 1967 of the Industrial Tribunal Madras in Industrial Dispute No 78 of 1966 and Civil Appeal No 1721 of 1967
Appeal by special leave from the order dated July 14 1967 of the Additional Industrial Tribunal Mysore in AID No 29 of 1966
EC Agarwala and Santosh Gupta for the appellants in CA No 1630 of 1967
CK Daphtary Attorney General G B Pai section K Dholkia and O C Mathur for the appellant in CA No 1721 of 1967
M K Ramamurthi and M V Goswami for respondent No 1
in CA No 1630 of 1967
H R Gokhale M K Ramamurthi Shyamala Pappu and Vineet Kumar for the respondents in CA No 1721 of 1967
The Judgment of the Court was delivered by Shelat J
In Civil Appeal No 1630 of 1967 workmen engaged by certain chilies and kirana shops in Madras and who were members of the respondent Union made a demand on December 13 1965 for bonus for the year 1964 65 equivalent to four months  wages
Conciliation proceedings having failed the dispute was referred to the Industrial Tribunal Madras
In Civil Appeal No 1721 of 1967 the appellant company is admittedly an establishment in public sector to which sec
20 of the  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 sec13 and in the other by reason of sec32x the employees were entitled to claim bonus and awarded their claims in CA No 1630 of 1967
The appeals by special leave challenge the correctness of the view taken by the Tribunals as to the scope and nature of the Act
The question for decision in both the appeals is whether in view of the non applicability of the Act to establishments not being factories and which employ less than 20 persons therein as the appellants in appeal No 1630 of 1967 are and the exemption of employees in an establishment in public sector though employing more than 20 persons as the appellant company in appeal No 1721 of 1967 is under sec32x of the Act the employees in both these establishments could claim bonus dehors the Act
The question depends upon the true view of certain provisions and the scope of the Act
But before we take upon ourselves the burden of construing these provisions it is necessary to refer briefly to the history of the question of bonus the back ground and the circumstances in which the Act was passed
This Is Permissible for the limited purpose of appreciating the mischief Parliament had in mind and the remedy which it wanted to provide for preventing that mischiefand not for the purpose of aiding us in construing the provisions of the Act
370 As early as 1584 in Heydao s case1 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 Bihar2 this Court approved the rule in Heydon s case1 and in construing article 2865 of the Constitution observed at p 633 as follows  In order to properly interpret the provisions of that Article it is therefore necessary to consider how the matter stood immediately before the Constitution came into force what the mischief was for which the old law did not provide and the remedy which has been provided by the Constitution to cure that mischief 
In the Corporation of the City of Nagpur vs Its Employee3 the question was as to the meaning of the word industry in sec 214 of the CP  Berar Industrial Disputes Settlement Act 23 of 1947
This Court said that if the word were to be construed in its ordinary sense every calling service employment of an employee or any business trade or calling of an employer would be an industry
But such a wide meaning appears to overreach the object for which the Act was passed
The Court therefore found it necessary to limit the scope of the said word having regard to the aim scope and the object of the Act
Relying on the four tests laid down in Heydon s case1 the Court considered the fundamental basis of the definition of industry viz relationship between employees and employers the long title and the preamble of the Act showing the object of passing the Act the historical background for passing it and held that it is manifest that the Act was introduced as an important step in achieving social justice to ameliorate the conditions of service of the labour in organised activities than to anything else and therefore the Act was not intended to reach the personal services which do not depend on the employment of labour force
Similarly in R M D Chamarbaugwalla vs The Union of India 4 the question arose whether looking to the general words used in sec 2d of the Prize Competitions Act 42 of 1955 the words prize competition  included not merely competitions of a gambling nature but also those in which success depended to a substantial degree on skill
In construing the said definition the Court gave a restricted meaning to the words prize competition as meaning only competitions as were of a gambling nature
In doing so the Court approved the principles of construction stated in the case of the Bengal Immunity Ltd1 and held that in interpreting an enactment the Court should ascertain the intention of the legislature not merely from a literal meaning of the words used but also from such matters as the history of the legislation its purpose and the mischief it seeks to suppress
For considering the intention of Parliament not merely from the literal meaning of the definition in sec2d but also from the history of the legislation the Court looked into the Bombay Lotteries and Prize Competitions Control and Tax Act 1948 how it could be and was evaded by the promoters of lotteries by shifting the venue of their business to the neighbouring State of Mysore the concerted action taken by the adjoining States the resolutions passed by each of them calling upon Parliament to undertake legislation the fact of Parliament having passed the law and its preamble reciting the fact of the State legislatures having asked it to pass such a law
Having done that the Court observed at p 938 Having regard to the circumstances under which the resolutions came to be passed there cannot be any reasonable doubt that the law which the State legislatures moved Parliament to enact under article 2521 was one to control and regulate prize competitions of a gambling character
Competitions in which success depended substantially on skill could not have been in the minds of the legislatures which passed those resolutions
Those competitions had not been the subject of any controversy in Court
They had not done any harm to the public and had presented no problems to the States and at no time had there been any legislation directed to regulating them
Though the Court refused to look at the statement of objects and reasons for the purpose of construing sec 2d it held that having regard to the history of the legislation the declared object thereof and the wording of the statute the words had to be given a restricted meaning
In Central Bank of India vs Their Workmen 2 the Court in construing sec 101 b of the Banking Companies Act 10 of 1949 again looked at the legislative history to ascertain Jr the object of passing the Act and the mischief it sought to remedybut declined to use the statement of objects and reasons to construe the section on the round that the statement could not control the actual words used in the section also State of West Bengal vs Union of India3
In section Azeez Basha  Orsvs Union of India4 the petitioners challenged the validity of the Aligarh Muslim University Amendment Act 62 of 1951 and the Aligarh Muslim University Amendment Act 19 of 1965 as violating article 301 of the Constitution
this Court went into the history of the establishment of the University to ascertain whether it was set up by the Muslim minority and as such entitled to rights under article 30 and held that it was not set up by the minority but in fact established by the Government of India by passing the of Crawford on Statutory Construction 3rd Ed pages 482 483
There is thus sample authority justifying the Court in looking into the history of the legislation not for the purpose of construing the Act but for the limited purpose of ascertaining the background the conditions and the circumstances which led to its passing the mischief it was intended to prevent and the remedy it furnished to prevent such mischief
The statement of objects and reasons also can be legitimately used for ascertaining the object which the legislature had in mind though not for construing the Act
What were the conditions prevailing at the time when the Act was passed and what was the object which Parliament had in mind in passing it  Bonus was originally regarded as a gratuitous payment by an employer to his employees
The practice of paying bonus as an ex gratia payment had its early roots in the textile industry in Bombay and Ahmedabad
In 1917 and 1918 an increase of 10 and 15 of wages was granted as War bonus to the textile workers by the employers
In October 1920 a Committee appointed by the Bombay Millowners recommended to the member mills payment of bonus equal to one month s pay
Similarly bonus was declared in 1921 and 1922
It appears that trading conditions in the industry having deteriorated the mill owners declared in July 1923 that they would be unable to pay bonus for 1923
Thereupon a strike began which became general towards the end of January 1924
In February 1924 a bonus dispute Committee was appointed by the Government of Bombay to consider the nature of the conditions and the basis of bonus which had been granted to the employees in the textile mills and to declare whether the employees had established any enforceable claim customary legal or equitable
The Committee held that they had not established any enforceable claim customary legal or equitable to an annual payment of bonus which could be upheld in a court
The years that followed were years of depression and no major dispute about bonus arose although bonuses were given on ad hoc basis by a few industrial undertakings
During the Second World War managements of textile mills paid cash bonus equivalent to a fraction of the surplus profit but this was also voluntary payment to keep labour contented
Disputes for payment of bonus for the years 1948 and 1949 arose in the Bombay textile industry
On the said dispute having been referred to the Industrial Court that Court expressed the view that since both labour and capital contributed to the profits of the 373 industry both were entitled to a legitimate return out of the profits and evolved a formula for charging certain prior liabilities on the gross profits of the accounting year and awarded a percentage of the balance as bonus
The Industrial Court excluded the mills which had suffered loss from the liability to pay bonus
In appeals against the said awards the Labour Appellate Tribunal approved broadly the method of computing bonus as a fraction of the surplus profit
According to this formula which has since been referred to as the Full Bench formula the surplus available for distribution is to be determined after debiting certain prior charges from gross profits viz 1 provision for depreciation 2 reservation for rehabilitation 3 return of 6 on paid up capital and 4 return on working capital at a rate lower than the one on the paid up capital
In Muir Mills Company vs Suti Mills Mazdoor Union Kanpur1 Baroda Borough Municipality vs Its Workmen2 The Shree Meenakshi Mills Ltd vs Their Workmen3 and The State of Mysore vs The Workers of Gold Mines4 this Court laid down 1 that bonus was not a gratuitous payment nor a deferred wage and 2 that where wages fall short of the living standard and the industry makes profit part of which is due to the contribution of labour a claim for bonus may legiti mately be made by the workmen
The Court however did not examine the propriety nor the order of priorities as between the several charges and their relative importance nor did it examine the desirability of making any alterations in the said formula
These questions came to be examined for the first time in Associated Cement Companies Ltd vs Its Workmen5 where the said formula was generally approved
Since that decision this Court has accepted in several cases the said formula
The principal feature of the formula are that each year for which bonus is claimed is a self contained unit that bonus is to be computed on the profits of the establishment during that year that the gross profits are to be determined after debiting the wages and dearness allowance paid to the employees and other items of expenditure against total receipts as disclosed by the profit and loss account and that against such gross profits the aforesaid four items are to be deducted as prior charges
The formula was not based on any legal right or liability its object being only to distribute profits after reasonable allocations for the aforesaid charges
Attempts were thereafter made from time to time to have the said formula revised but they were rejected first in ACC s case5 and again in The Ahmedabad Miscellaneous Industrial Workers Union vs The Ahmedabad Electricity Co Ltd 6 where it was observed that the plea for revision raised an issue which affected all industries and therefore before any change was made all industries and their workmen had 1  2  3  4  5 6  374 to be heard and their pleas considered
The Court therefore suggested that the question of revising the formula should be comprehensively considered by a high powered Commission
Taking up the aforesaid suggestion the Government of India appointed a Commission by its resolution dated December 6 1961 the terms of reference whereof were inter alia 1 to define the concept of bonus and to consider in relation to industrial employment the question of payment of bonus based on profits and recommend principles for computation of such bonus and methods of payment 2 to determine what the prior charges should be in different circumstances and how they should be calculated3 to determine conditions under which bonus payment should be made unitwise industrywise and industry cum regionwise 4 to consider whether there should be lower limits irrespective of loss in particular establishment and upper limits for distribution in one year and if so the manner to carry forward the profits and losses over a prescribed period and 5to suggest an appropriate machinery and method for settlement of bonus disputes
After an elaborate enquiry the Commission made the following amongst other recommendations  1That bonus was paid to the workers as share in the prosperity of the establishment and that the basic scheme of the bonus formula should be adhered to viz determination of bonus as a percentage of gross profits reduced by the following prior charges viz normal depreciation allowable under the Indian Income Tax including multiple shifting allowance income tax and super tax at the current standard rate applicable for the year for which tax is to be calculated but not super profits tax return on paid up capital raised through preference shares at the actual rate of dividend payable on other paid up capital at 7 and on reserves used as capital at 4
The Commission did not recommend provision for rehabilitation
That 60 of the available surplus should be distributed as bonus and excess should be carried forward and taken into account in the next year the balance of 40 should remain with the establishment into which shou ld merge the saving in tax on bonus and the aggre 375 gate balance thus left to the establishment should be used for payment of gratuity other necessary reserves rehabilitation in addition to the provision made by way of depreciation in the prior charges annual provision re quired for redemption of debentures etc
That the distinction between the basic wages and dearness allowance for the purpose of arriving at the bonus quantum should be done away with and bonus should be related to wages and dearness allowance taken together 4
That minimum bonus should be 4 of the total basic wage and dearness allowance paid during the year or Rs 40 to each employee whichever is higher and in the case of children the minimum should be equivalent to 4 of their basic wage and dearness allowance or Rs 25 whichever is higher 5
That the maximum bonus should be equivalent to 20 of the total basic wage and dearness allowance paid during the year 6
That the bonus formula proposed should be deemed to include bonus to employees drawing a total basic pay and dearness allowance up to Rs 1600 pm regardless of whether they were workmen as defined in the or other corresponding Act provided that quantum of bonus payable to employees drawing total basic pay and allowance over Rs 750pm should be limited to what it would be if their pay and dearness allowance were Rs 750 pm 7
That the formula should not apply to new establishments until they recouped all early losses including arrears of normal depreciation subject to the time limit of 6 years and 8
That the scheme should be applied to all bonus matters relating to the accounting year ending on any day in the calendar year 1962 except in those matters in which se ttlements had been reached or decisions had been given
The fact that the Government of India accepted the majority of the Commission s recommendations is clear from the Statement of objects and reasons attached to Bill No 49 of 1965 which they sponsored in Parliament
The Statement inter alia states that a tripartite Commission was set up by the Government of India by resolution dated 6th December 1961 to consider in comprehensive manner the question of payment of bonus based on profits to employees employed in establishments and to make recom 37 6 mendations to the Government
The Commission s report con taining the recommendations was received by the Government on 24th January 1964
By resolution dated 2nd September 1964 Government announced acceptance of the Commission s recommendations subject to a few modifications as were mentioned therein
To implement these recommendations the Payment of Bonus Ordinance 1965 was promulgated on May 29 1965
Since the Ordinance was replaced by the present Act published on September 25 1965 it is unnecessary to examine its provisions
Thus bonus which was originally a voluntary payment acquired under the Full Bench formula the character of a right to share in the surplus profits enforceable through the machinery of the and other corresponding Acts
Under the Act liability to pay bonus has now become a statutory obligation imposed on the employers
From the history of the legislation it is clear 1 that the Government set up a Commission to consider comprehensively the entire question of bonus in all its aspects and 2 that the Commission accordingly Considered the concept of bonus the method of computation the machinery for enforcement and a statutory formula in place of the one evolved by industrial adjudication
We proceed next to examine some of the provisions of the Act and its scheme
The preamble of the Act states that it is to provide for payment of bonus in certain establishments and for matters connected therewith
Section 13 provides that it shall apply save as otherwise provided in the Act to a every factory and b every other establishment in which 20 or more persons are employed on any day during the accounting year
We may note that this subsection is in consonance with one of the Commission s recommendations viz that its bonus formula should not be applied to small shops and establishments which are not factories and which employ less than 20 persons
Having made clear that the Act is to apply only to those establishments mentioned in sub sec3 sub sec4 provides that the Act shall have effect in respect of the accounting year 1964 and every subsequent year
Allocable surplus under section 24 means 67 in cases falling under cla and 60 in other cases of the available surplus
26 defines available surplus  to mean available surplus as computed under sec defines establishment in private sector to mean any estab lishment other than an establishment in public sector
216 defines establishment in public sector as meaning a a Government company as defined in section 617 of the  and b a Corporation in which not less than 40 of it capital is held by Government or the Reserve Bank of India or a Corporation owned by Government or the Reserve Bank of India
Gross profits a  defined by sec218 means gross profits cal 377 culated under sec4 and 5 provide for computation of gross profits and available surplus after deducting therefrom the sums referred to in sec6 viz depreciation admissible under 321 of the Income Tax Act or the relevant Agricultural Income Tax Act development rebate or development allowance Admissible under the Income Tax Act and such other sums as are specified in the third Schedule
7 deals with calculation of direct tax
8 and 9 deals with eligibility of and disqualification from receiving bonus
10 to 15 deal with minimum and maxi mum bonus and the provisions for set off  and set on 
18 19 and 21 to 31 deal with certain procedural and allied matters
20 deals with certain establishments in public sector to which the Act is made applicable in certain events
32 exclude from the application of the Act certain categories of employees and certain establishments therein specified
34 provides for the overriding effect of the Act notwithstanding anything incon sistent therewith contained in any other law for the time being in force or in terms of any award agreement settlement or contract of service made before May 29 1965
35 saves the provisions of the Coal Mines Provident Fund and Bonus Schemes Act 1948 or any scheme made thereunder
35 empowers an appropriate Government having regard to the financial position and other relevant circumstances of any establishment or class of establishments if it is of opinion that it would not be in public interest to apply all or any of the provisions of the Act thereto to exempt for such period as may be specified by it such establishment or class of establishments from all or any of the provisions of the Act
39 provides as follows  Save as otherwise expressly provided the provisions of this Act shall be in addition to and not in derogation of the or any corresponding law relating to investigation and settlement of industrial disputes in force in a State
It will be noticed that sec22 provides that where a dis pute arises between an employer and his employees 1 with respect to the bonus payable under the Act or 2 with respect to the application of the Act such a dispute shall be deemed to be an industrial dispute within the meaning of the or any corresponding law relating to investigation and settlement of industrial disputes in force in a State and the provisions of that Act and such law as the case may be shall save as otherwise expressly provided apply accordingly
An industrial dispute under the would be between a workman as defined in that Act and his employer and the dispute can be an industrial dispute if it is one as defined therein
But the definition of an employee under sec213 of this Act is wider than that of a workman under the Industrial Disputes 378 Act
A dispute between an employer and an employee therefore may not fall under the and in such a case the Act would not apply and its machinery for investigation and settlement would not be available
That being so and in order that such machinery for investigation and settlement may be available sec 22 has been enacted to create a legal fiction whereunder such disputes are deemed to be industrial disputes under the or any other corresponding law
For the purposes of such disputes the provisions of the or such other law are made applicable
The effect of sec22 thus is 1 to make the disputes referred to therein industrial disputes within the meaning of the or other corresponding law and 2 having so done to apply the provisions of that Act or other corresponding law for investigation and settlement of such disputes
But the application of sec22 is limited only to the two types of disputes referred to therein and not to others
Section 39 on theother hand provides that save as otherwise expressly provided the provisions of the Act shall be in addition to and not in derogation of the or any corresponding law relating to investigation and settlement of industrial disputes in force in a State
Except for providing for recovery of bonus due under a settlement award or agreement as an arrear of land revenue as laid down in sec21 the Act does not provide any machinery for the investigation and settlement of disputes between an employer and an employee
If a dispute for instance were to arise as regards the quantum of available surplus such a dispute not being one falling under sec22 Parliament had to make a provision for investigation and settlement thereof
Though such a dispute would not be an industrial dispute as defined by the or other corresponding Act in force in a State sec 39 by providing that the provisions of this Act shall be in addition to and not in derogation of the or such corresponding law makes available the machinery in that Act or the corresponding Act available for investigation and settlement of industrial disputes thereunder for deciding the disputes arising under this Act
As already seen sec 22 artificially makes two kinds of disputes therein referred to industrial disputes and having done so applies the provisions of the and other corresponding law in force for their investigation and settlement
But what about the remaining disputes  As the Act does not provide any machinery for their investigation and settlement Parliament by enacting sec39 has sought to apply the provisions of those Acts for investigation and settlement of the remaining disputes though such disputes are not industrial disputes as defined in those Acts
Though the words in force in a State after the words or any corresponding law relating to investigation and settlement of industrial disputed appear to qualify the words any corresponding law and not the 379  the is primarily a law relating to investigation and settlement of industrial disputes and provides machinery therefor
Therefore the distinction there made between that Act and the other laws does not seem to be of much point
It is thus clear that by providing in section 39 that the provisions of this Act shall be in addition to and not in derogation of those Acts Parliament wanted to avail of those Acts for investigation and settlement of disputes which may arise under this Act
The distinction between sec22 and sec39 therefore is that whereas sec22 by fiction makes the disputes referred to therein industrial disputes and applies the provisions of the and other corresponding laws for the investigation and settlement thereof Sec39 makes available for the rest of the disputes the machinery provided in that Act and other corresponding laws for adjudication of disputes arising under this Act
Therefore there is no question of a right to bonus under the or other corresponding Acts having been retained or saved by sec
Neither the nor any of the other corresponding laws provides for a right to bonus
Item 5 in Schedule 3 to the deals with jurisdiction of tribunals set up under sections 7 7A and 7B of that Act but does not provide for any right to bonus
Such a right is statutorily provided for the first time by this Act
Mr Ramamurti and Mr Gokhale for the respondents however sought to make the following points  1The Act applies only to certain establishments and its preamble and sec13 show to which of them it is expressly made applicable 2 Under sec13 the Act is made applicable to all factories and establishments in which 20 or more persons are employed except those otherwise provided in the Act
It means that the Act does not apply i to factories and establishments otherwise provided in the Act and ii to establishments which have less than 20 persons employed
The Act therefore is not a comprehensive Act but applies only to factories and establishments covered by sec13 3There is no categorical provision in the Act depriving the employees of factories and establishments not covered by or otherwise saved in the Act of bonus which they would be entitled to under any other law 4That being so the employees of establishments to which the Act is not made applicable would still be entitled to bonus under a law other than the Act although they are not entitled to the benefit of the Act 5Parliament was aware of the fact that employees in establishments other than those to which the Act aplies were getting bonus under adjudication provided by the and other similar Acts
If it intended to deprive them of such bonus surely it would have expressed so in the Act in clear terms saves the right to claim bonus under the or any corresponding law by providing that the provisions of this Act shall be in addition to and not in derogation of the provisions of those Acts
It is true that the preamble states that the Act is to provide for payment of bonus to persons employed in certain establishments and sec 13 provides that the Act is to apply save as otherwise provided therein to factories and every other establishments in which 20 or more persons are employed
Sub sec4 of sec 1 also provides that the Act is to have effect in relation to such factories and establishments from the accounting year commencing on any day in 1964 and every subsequent accounting year
But these provisions do not for that reason necessarily mean that the Act was not intended to be a comprehensive and exhaustive law dealing with the entire subject of bonus and the persons to whom it should apply
Even where an Act deals comprehensively with a particular subject matter the Legislature can surely provide that it shall apply to particular persons or groups of persons or to specified institutions only
Therefore the fact that the preamble states that the Act shall apply to certain establishments does not necessarily mean that it was not intended to be a comprehensive provision dealing with the subject matter of bonus
While dealing with the subject matter of bonus the Legislature can lay down as a matter of policy that it will exclude from its application certain types of establishments and also provide for exemption of certain other types of establishments even though such establishments would otherwise fall within the scope of the Act
The exclusion of establishments where less than 20 persons are employed in sec13 therefore is not a criterion suggesting that Parliament has not dealt with the subject matter of bonus comprehensively in the Act
As already seen there was until the enactment of this Act no statute under which payment of bonus was a statutory obligation on the part of in employer or a statutory right therefore of an employee
Under the and other corresponding Acts workmen of industrial establishments as defined therein could raise an industrial dispute and demand by way of bonus a proportionate share in profits and Industrial Tribunals could under those Acts adjudicate such disputes and oblige the employers to pay bonus on the principle that both capital and 381 labour had contributed to the making of the profits and therefore both were entitled to a share therein
The right to the payment of bonus and the obligation to pay it arose on principles of equity and fairness in settling such disputes under the machinery provided by the Industrial Acts and not as a statutory right and liability as provided for the first time by the present Act
In providing such statutory liability Parliament has laid down a statutory formula on which bonus would be calculated irrespective of whether the establishment in question has during a particular accounting year made profit or not
It can further lay down that the formula it has evolved and the statutory liability it provides in the Act shall apply only to certain establishments and not to all
Since there was no such statutory obligation under any previous Act there would not be any question of Parliament having to delete either such obligation or right
In such circumstances since Parliament is providing for such a right and obligation for the first time there would be no question also of its having to insert in the Act an express provision of exclusion
In other words it has not to provide by express words that henceforth no bonus shall be payable under the or other cor responding Acts as those Acts did not confer any statutory right to bonus
It will be noticed that though the confers substantive rights on workmen with regard to lay off retrenchment compensation etc it does not create or confer any such statutory right as to payment to bonus
Bonus was so far the creature of industrial adjudication and was made payable by the employers under the machinery provided under that Act and other corresponding Acts enacted for investigation and settlement of disputes raised thereunder
There was therefore no question of Parliament having to delete or modify item 5 in the third Schedule to Industrial Disputes Act or any such provision in any cor responding Act or its having to exclude any right to bonus thereunder by any categorical exclusion in the present Act
But the argument was that if the Act were to be held as an exhaustive statute dealing with the subject of bonus three results would follow which could never have been expected much less G intended by Parliament
These results would be  1 that employees in establishments engaging less than 20 persons would get no bonus at all either under the Act or under industrial adjudication provided for by the and other corresponding Acts
Since such employees were so far getting bonus as a result of industrial adjudication Parliament could never have intended to deprive them of such benefit ii that employees in public sector Corporations and Companies would get no bonus either under the Act or under the or other corresponding law and iii that such a construction would have 12 Sup CI68 10 382 the effect of impliedly repealing and negating the provisions of the and other corresponding laws
Though sec13 excludes an establishment other than a fac tory having less than 20 employees from the application of the Act all establishments which are factories irrespective of the number of persons employed therein and all establishments which are not factories but are having 20 or more employees are covered by the Act
Therefore only small establishments having less than 20 employees and which are not factories are excluded
Even in such cases if any establishment were to have 20 or more persons employed therein on any day in any accounting year the Act would apply to such an establishment
It is therefore clear that Parliament by enacting sec13 excluded only petty establishments
We are not impressed by the argument that Parliament in excluding such petty establishments could not have intended that employees therein who were getting bonus under the Full Bench formula should lose that benefit
As aforesaid Parliament was evolving for the first time a statutory formula in regard to bonus and laying down a legislative policy in regard thereto as to the classes of persons who would be entitled to bonus thereunder
It laid down the definition of an employee  far more wider than the definition of a workman  in the and the other corresponding Acts
If while doing so it expressly excluded as a matter of policy certain petty establishments in view of the recommendation of the Commission in that regard viz that the application of the Act would lead to harassment of petty proprietors and disharmony between them and their employees it cannot be said that Parliament did not intend or was not aware of the result of exclusion of employees of such petty establishments
It is true that the construction canvassed on behalf of the appellants leads as argued by counsel for the respondents to employees in public sector concerns being deprived of bonus which they would be getting by raising a dispute under the and other corresponding statutes
But such a result occurs in consequence of the exemption of establishments in public sector from the Act though such establishments but for sec32x would have otherwise fallen within the purview of the Act
It appears to us that the exemption is enacted with a deliberate object viz not to subject such establishments to the burden of bonus which are conducted without any profit motive and are run for public benefit
The exemption in sec32x is however a limited one for under sec 20 if a public sector establishment were in any accounting year to sell goods produced or manufactured by it in IF competition with an establishment in private sector and the income from such sale is not less than the 20 of its gross income it would be liable to pay bonus under the Act
Once again it is clear 383 that in exempting public sector establishments Parliament had a definite policy in mind
This policy becomes all the more discernible when the various other categories of establishments exempted from the Act by sec32 are examined
An insurer carrying on general insurance business is exempted under cli in view of certain provisions of the Insurance Act 1936 and the Insurance Amendment Act 1950
In view of these provisions the Full Bench formula could not be and was not in fact applied at any time to such insurance establish ments
The Life Insurance Corporation of India is exempted under clause 1 because of its being a public sector concern having no Clii of sec32 profit motive and conducted in public interestexempts shipping companies employing seamen in view of sec 1599 of the under which the was inapplicable to such seamen the disadvantages that Indian Shipping Companies vis a vis foreign companies engaged in shipping would be put to if they were made to pay bonus and the obvious difficulties in applying the Act to such foreign companies engaging Indian seamen
The exemption in respect of stevedore labour contained in cliii also seems to have been provided for in view of the peculiar nature of employment the difficulty of calculating profits according to the normal methods and other such difficulties
The rest of the categories of establishments set out in sec32 appear to have been exempted on the ground of a absence of any profit motive b their being of educational charitable or public nature and c their being establishments in public sector carried on in public interest
Building contractors appear to have been exempted because of their work being contract job work the unfeasibility of applying the formula evolved in the Act and the problem of employees of such contractors being more of evolving and enforcing a proper wage structure rather than of payment of bonus to them
It seems to us that if we were to accept the contention that the object of sec32 was only to exempt the establishments therein enumerated from the application of the bonus formula enacted in the Act but that the employees of those establishments were left at liberty to claim and get bonus under the machinery provided by the and other corresponding Acts them very object of enacting sec32 would be frustrated
Surely Parliament could not have intended to exempt these establishments from the burden of bonus payable under the Act and yet have left the door open for their employees to raise industrial disputes and  get bonus under the Full Bench formula which it has rejected by laying down a different statutory formula in the Act
For instance is it to be contemplated that though the Act by sec32 exempts institutions such as the Universities or the Indian Red Cross Society or hospitals or any of the establishments set out in clix of that section they would still be liable to pay bonus if the employees 384 of those institutions were to raise a dispute under the and claim bonus in accordance with the Full Bench formula 
The legislature would in that case be giving exemption by one hand and taking it away by the other thus frustrating the very object of sec
Where on the other hand Parliament intended to retain a previous provision of law under which bonus was payable or was being paid it has expressly saved such provision
Thus under sec35 the Coal Mines Provident Fund and Bonus Schemes Act 1946 and any scheme made thereunder are saved
If therefore Parliament wanted to retain the right to claim bonus by way of industrial adjudication for those who are either excluded or exempted from the Act it would have made an express saving provision to that effect as it has done for employees in Coal Mines
Besides the construction suggested on behalf of the respondents if accepted would result in certain anomalies
Take two establishments in the same trade or industry one engaging 20 or more persons and the other less than 20
The Act would be applicable to the former but not to the latter
If the respondents were to be right in their contention the employer in the former case would be liable to pay bonus at the rates laid down by the Act ie at the rate of 4 minimum and 20 maximum but in the latter case the Act would not apply and though his establishment is a smaller one on the basis of the Full Bench formula there would be a possibility of his having to pay bonus at a higher rate than 20 depending upon the quantum of profit made in that particular accounting year
Section 32vii exempts from the applicability of the Act those employees who have entered before May 29 1965 into an agreement or settlement with their employers for payment of bonus linked with production or productivity in lieu of bonus based on profits and who may enter after that date into such agreement or settlement for the period for which such agreement or settlement is in operation
Can it be said that in cases where there is such an agreement or settlement in operation though this clause expressly excludes such employees from claiming bonus under the Act during such period the employees in such cases can still resort to the and claim bonus on the basis of the Full Bench formula  The answer is obviously in the negative for the object in enacting clvii is to let the parties work out such an agreement or settlement
It cannot be that despite this position Parliament intended that those employees had still the option of throwing aside such an agreement or settlement raise a dispute under the and claim bonus under the Full Bench formula
The contention therefore that the exemption under sec 32 excludes those employees from claiming bonus under the Act only and not from claiming bonus under the 385 or such other Act is not correct
This conclusion is buttressed by the provisions of sec36 which empower the appropriate Government to exempt for a specified period an establishment or class of establishments from the operation of the Act if it is of
the opinion that it is not in public interest to apply all or any of the provisions of the Act to such establishment or class of establishments
Since the appropriate Government can exempt such an establishment or establishments from the operation of the Act on the ground of public interest only it cannot surely be that Parliament still intended that the employees of such exempted establishment or establishments can claim bonus through industrial adjudication under the or any such corresponding law
We are also not impressed by the contention that the fact that sec39 provides that the provisions of this Act are in a addition to and not in derogation of the or any other corresponding law shows that Parliament did not wish to do away with the right to payment of bonus altogether to those who cannot either by reason of exclusion or exemption from the Act claim bonus under the Act
Such a construction is fallacious on two ground
Firstly because it assumes wrongly that the or any other law corresponding to it provided for a statutory right to payment of bonus
All that those Acts provided for apart from rights in respect of lay out retrenchment etc a machinery for investigation and settlement of disputes arising between workmen and their employers
It is therefore incorrect to say that the right to bonus under this Act is in addition to and not in derogation of any right to bonus under those Acts
Secondly sec39 became necessary because the Act does not provide any machinery or procedure for investigation and settlement of disputes which may arise between employers and employees
In the absence of any such provision Parliament intended that the machinery and procedure under those Acts should be made available for the adjudication of disputes arising under or in the operation of the Act
If for instance there is a dispute as to the computation of allocable surplus or as to quantum of bonus or as to whe ther in view of sec20 an establishment in public sector is liable to pay bonus such a dispute is to be adjudicated under the machinery provided by the or other corresponding Acts
Considering the history of the legislation the background and the circumstances in which the Act was enacted the object of the Act and its scheme it is not possible to accept the construction suggested on behalf of the respondents that the Act is not an exhaustive Act dealing comprehensively with the subject matter of bonus in all its aspects or that Parliament still left it open to those to whom the Act does not apply by reason of its provisions either as to exclusion or exemption to raise a dispute with regard to bonus 386 through industrial adjudication under the or other corresponding law
We are therefore of the view that the construction given to the Act by the Tribunals was not correct and the orders passed by them have to be set aside
The appeals are allowed but as the question as to the scope of the Act is raised in these appeals for the first time there will be no order as to costs
VPS Appeals allowed


Summary:
The appellants are  i an establishment with less than 20 employees and which was not a factory and ii an establishment in the public sector
On the question whether in view of the non applicability of the  to the two appellants in the first case by reason of exclusion under section 13 and in the other by reason of exemption under section 32x the employees of the two appellants were entitled to claim bonus dehors the Act
HELD  Considering the history of the legislation the background and the circumstances in which the Act was enacted the object of the Act and its scheme it is not possible to accept the construction suggested on behalf of the respondents employees that the Act is not an exhaustive Act dealing comprehensively with the subject Matter of bonus in all its aspects or that Parliament still left it open to those to whom the Act does not apply by reason of exclusion or exemption to raise a dispute with regard to bonus dehors the Act through industrial adjudication under the  or other corresponding laws
1 The Court is justified in looking into the history of the legislation and the statement of objects and reasons not for the purpose of construing the Act but for the limited purpose of ascertaining the background the conditions and circumstances which led to its passing the mischief it was intended to prevent and the remedy it furnished to prevent such mischief
372 B C Heydon s case 76 ER 637 Bengal Immunity Co Ltd vs State of Bihar  R M D Chamarbaughwalla vs Union of India   Central Bank of India vs Their Workmen   Corporation of the City of Nagpur vs Its Employees   State of West Bengal vs Union of India 1964 1 SCR 371 and Azeez Basha vs Union of India  referred to
Until the enactment of the  payment of bonus was not a statutory obligation on the part of the employer nor was it a statutory right of an employee
It was originally a voluntary payment
Under the Full Bench formula evolved by the Labour Appellate Tribunal with respect to disputes for payment of bonus in the Bombay Textile Industry it acquired the character of a right to share in the surplus of profits enforceable through the machinery of the Industrial Dispites Act 1947 and other corresponding Act
Under that Act workmen of industrial establishments could raise an industrial dispute and 367 demand by way of bonus a proportionate share in profits on the principle that both capital and labour had contributed to the making of profits and therefore both were entitled to a share therein
As a result of the observations of this Court in Associated Cement Companies Ltd vs Its Workmen and in Ahmedabad Miscellaneous Industrial Workers  Union vs The Ahmedabad Electricty Co   the Government of India appointed a Commission to make recommendations with respect to legislation regarding bonus
The Government accepted the majority of the Commission s recommendations and sponsored the enactment of the 
Under this Act
liability to pay bonus has now become a statutory obligation imposed on employers
In providing such statutory liability Parliament has laid down a statutory formula on which bonus would be savable irrespective of whether the establishment had during a particular accounting year made profit or not
Parliament further laid down that the formula it had evolved and the statutory liability it provided shall apply only to certain establishments and not to all
In such circumstances Parliament has not to provide by express words that henceforth no bonus shall be payable under the industrial Disputes Act or other corresponding Acts as those Act never conferred any statutory right to bonus
373 G H 375 H 376 B C 381 A D Muir Mills Co vs Suti Mills Mazdoor Union Kanpur   Baroada Borough Municipality vs Its Workmen   Shree Meenakshi Mills Ltd vs Their Workmen   State of Mysore vs The Workers of Gold Mines   Associated Cement Companies Ltd vs Its Workmen r1959 SCR 925 and The Ahmedabad Miscellaneous Industrial Workers  Union vs The Ahmedabad Electricity Co Ltd   referred to
2 The was intended to be a comprehensive and exhaustive law dealing with the entire subject of bonus
The fact that the preamble states that the Act shall apply only to certain establishments and that section 13 of the Act excludes establishments where less than 20 persons ape employed from the application of the Act does not necessarily mean that Parliament ras not dealt with the subject matter of bonus and the persons to whom it shall apply comprehensively in the Act
Even where an Act deals comprehensively with a particular subject matter the Legislature can provide that it shall apply to particular persons or group of persons or to specified institutions only and so Parliament can lay down as a matter of policy that it will exclude from the application of the Act certain types of establishments and also provide for exemption of certain other types of establishments which would otherwise fall within the scope of the Act
380 C H 385 H 3 Since the Payment of Bonus Art is an exhaustive statute dealing with subject of bonus one of the consequences is that under section 13 of the Act employees in establishments engaging less than 20 Persons would get no bonus either under this Act or under industrial adjudication provided for by the and other corresponding Acts
Under section 13Parliament has excluded petty establishments with less than 20 employees in view of the recommendations of the Commission in that regard namely that the application of the Act to such establishments would lead to harassment of petty proprietors and disharmony between them and their employees
To hold that employees in such establishments would still be entitled to bonus though not under the Act would lead to the anomaly that if there are two establishments in the same trade or industry one engaging more than 20 persons and the other engaging less than 20 person then in the former case the employer would be 368 liable to pay bonus at the rate laid down in the Act while in the latter the employer would be liable to pay bonus on the basis of the Full Bench formula which may be at a higher rate depending upon the quantum of profits in the particular year
382 C F 384 C E 4 Under section 32x of the  establishments in the public sector are exempted from the application of the Act
Therefore employees in public sector concerns would not be entitled to bonus either under the Act or which they might otherwise have got by raising a dispute under the and other corresponding statutes
The exemption is a limited one and in granting it Parliament had a definite policy in mind namely not to subject such establishments which are conducted without any profit motive and are run for public benefit to the burden of bonus
To hold that even in these exempted cases the employer would still be liable to pay bonus if the employees of such institutions were to raise a dispute under the and claim bonus in accordance with the Full Bench formula would also lead to the anomaly that the Legislature would be giving exemption with one hand and taking it away with the other
If Parliament wanted to retain the right to claim bonus by way of industrial adjudication in the case of establishments which are either excluded or exempted from the Act it would have made an express saving provision to that effect as it has done for employees of coal mines
382 F H 383 F H 384 A C 5 There is no question of a right to bonus under the or other corresponding laws being saved under section 39 of the  because  a the or the corresponding laws though they confer substantial rights on a workman with regard to lay off retrenchment compensation etc do not provide for a statutory right to payment of bonus and 385 C G b the definition of employee under section 213 of the is wider than that of workman  under the 
Therefore a dispute between an employer and his employees in relation to bonus may not be an industrial dispute
Section 22 of the  by fiction makes such disputes industrial disputes and applies the provisions of the 
But the does not provide any machinery or procedure for the investigation and settlement of disputes which may arise between employers and employees such as a dispute as to the computation of allocable surplus or quantum of bonus or as to whether an establishment in the public sector is liable to pay bonus in view of section 20 of the Act
Therefore section 39 which provides that the provisions of the are in addition to and not in derogation of the and other corresponding laws became necessary in order that the machinery of the may be available for adjudication of such disputes under the F377 H 378 A G 379 B D