Appeal No 2128 of 1969
Appeal by special leave from the Award dated July 19 1969 of the Ninth Industrial Tribunal West Bengal Calcutta in case No VIII 396 of 1968
C K Daphtarv
Santosh Chatterjee and D N Mukherjee for the appellant
section C Gupta Manju Gupta and section C Agarwala for the respondents
The Judgment of the Court was delivered by Bhargava J
The appellant Messrs Alloy Steel Project is an undertaking owned controlled and managed by a Government Company viz Messrs Hindustan Steel Ltd Alloy Steel Project was started in the year 1961 and it went into production in the year 1964 65
No profit was earned at least right up to the year 1967 68
The workmen however claimed bonus at the minimum rate prescribed under the Payment of Bonus Act No 21 of 1965 hereinafter referred to as the Act in respect of the year 1965 631 1966 on  the plea that this Alloy Steel Project was a  part of the Hindustan Steel Ltd and could not be treated as a new establishment for purposes of section 16 of the Act
Hindustan Steel Ltd was itself an establishment which had been in existence for a long period and had been even earning profits so that exemption could not be granted to this Company in respect of payment of bonus under section 16 of the Act
This claim of the workmen was resisted by the Company on the plea that Alloy Steel Project was a separate establishment in respect of which separate balance sheets and profit and loss accounts were maintained so that no bonus was payable until either this Project itself earned profits or from the sixth accounting year following the year 1964 65 when this Project went into production
The dispute between the work men and the Company
could not be resolved amicably and consequently a reference was made under the which came up before the Ninth Industrial Tribunal West Bengal
The Tribunal held that Alloy Steel Project could not be treated as a separate establishment because under the Act a Company is itself an establishment so that all units of a Company like Hindustan Steel Ltd will constitute one establishment
Since this Project had not been earning any profits the Tribunal directed payment of bonus at the minimum rate of 4 per cent of wages prescribed by the Act
Aggrieved by this award of the Tribunal the Company has come up in this appeal to this Court by special leave though the name of the appellant is shown as Alloy Steel Project because it was under this name that the reference was dealt with by the Tribunal
The main basis of the decision of the Tribunal is that the word establishment  has been used in this Act to indicate a Company as called in common parlance
 It was on this view that the Tribunal further Proceeded to consider whether this Alloy Steel Project could be held to be an establishment separate from Hindustan Steel Ltd or it had to be treated as a part of the parent establishment viz Hindustan Steel Ltd In this approach it is clear that the Tribunal committed an obvious error as it ignored the indications which are manifest from the language used in the Act
In section 2 sub section 15 and 16 establishments have been divided into two classes and their meaning has been defined
In clause 16 establishment in public sector  is defined as meaning an establishment owned controlled or managed by a a Government company as defined in section 617 of the  b a corporation in which not less than forty per cent of its capital is held whether singly or taken together by 632 i the Government or ii the Reserve Bank of India or iii a corporation owned by the Government or  the Reserve Bank of India
In clause 15 of section 2 establishment in private sector is defined to mean any establishment other than an establishment in public sector
Thus between these two clauses all establishments are covered
If an establishment is in public sector it is covered by the definition in clause 16
If the establishment is not in public sector it will be covered by the definition of establishment in private sector in clause 15
The significant words are those contained in clause 16 which show that an establishment in a public sector hag to be owned controlled or managed by a Government company or by a corporation of the nature described in that clause
Obviously therefore an establishment in a private sector would be one which is owned controlled or managed by a person or body other than a Government company or a corpora tion of the nature described in clause 16
In this view an establishment cannot be identified with a company
It would be absurd to say that a company is owned controlled or managed by a Government company or a corporation
Obviously the word establishment is intended to indicate something different from a company as defined in the 
This is further clarify by the provisions of sub section
3 of section I which lays down the applicability of the Act
The Act has been made applicable to every factory and every other establishment in which twenty or more persons are employed on any day during an accounting year
Supposing a company has a factory in one premises and has another workshop entirely distinct and separate from that factory in which the number of persons employed is less than 20
The Act itself will apply to the factory but will not apply to the other establishment in which the number of employees is less than 20
This applicability of the Act will be independent of the other provisions of the Act
Learned counsel for the respondent workmen relied on section 3 of the Act to urge that even the establishment employing less than 20 persons will be a part of the parent establishment consisting of the factory
Section 3 is as follows  3
Where an establishment consists of different departments or undertakings or has branches whether situated in the same place or in different places all such departments or undertakings or branches shall be treated as parts of the same establishment for the purpose of computation of bonus under this Act 633
Provided that where for any accounting year a separate balance sheet and profit and loss account are prepared and maintained in respect of any such department or undertaking or branch then such department or undertaking or branch shall be treated as a separate establishment for the purpose of computation of bonus under this Act for that year unless such department or undertaking or branch was immediately before the commencement of that accounting year treated as part of the establishment for the purpose of computation of bonus
 It is to be noted that the principal part of section 3 lays down that different departments or undertakings or branches of an establishment are to be treated as part of the same establishment only for the purpose of computation of bonus under the Act
They cannot be treated as part of one establishment for purposes of subsection 3 of section 1 of the Act
In fact section 3 cannot be resorted to at all when the Act itself is inapplicable in view of the provision contained in section 1 sub section
It is thus quite clear that the Tribunal went entirely wrong in holding that simply because Alloy Steel Project is owned controlled and managed by Hindustan Steel Ltd it has to be treated as a part of Hindustan Steel Ltd which is itself an establishment
Hindustan Steel Ltd cannot be described as an establishment
The facts appearing on the record show that Hindustan Steel Ltd has a number of establishments
These include Alloy Steel Project besides the Head Office Rourkela Steel Plant Bhilai Steel Plant Durgapur Steel Plant Coal Washeries Project and Bokaro Steel Project
The Company Hindustan Steel Ltd cannot be equated with any one of these units
They are all separate undertakings departments or branches owned controlled and managed by one single Company and consequently
the point raised has to be decided on the basis whether under the proviso to section 3 the Alloy Steel Project is to be treated as a separate establishment or is to be treated as part of the main establishment owned by Hindustan Steel Ltd Learned counsel for the respondent workmen however advanced a new argument which was not put forward before the Tribunal
His submission was that if an establishment of a Company consists of a number of departments undertakings or branches the principal part of section 3 will apply and all such departments undertakings or branches must be treated as parts of one single establishment for purposes of computation of bonus under the Act but the proviso to section 3 will not apply in such a case
According to him the proviso to section 3 will apply to establishments consisting of different departments undertakings or branches which are owned controlled or managed by persons other 634 than companies
This argument was based on the reasoning that in order to calculate available surplus for distribution of bonus in the case of a company the Act lays down in section 6 d read with the Third Schedule that the deductions to be made from net _profits will also include dividends payable on  preference share capital and 85 per cent of its paid up equity share capital as at the commencement of the accounting year
This provision cannot be given effect to in respect of separate units of a Company because the paid up capital or the preference share capital is not allocated between different units
In the case of the present Company viz Hindustan Steel Ltd the entire paid up capital is shown in the accounts of the Head Office
The money needed for working of the various units including the Alloy Steel Project is shown as remittance received from the Head Office and not as
paid up capital of the Alloy Steel Project etc
The result is that if Alloy Steel Project or other units of the Hindustan Steel Ltd are treated as separate establishments and available surplus is calculated separately for each unit there will be no deduction  85 per cent of the paid up equity share capital as envisaged by section 6d and the Third Schedule of the Act
We do not think that there is any force in this argument
First it would be a strange method of construction of language to hold that the establishment referred to in the main part of section 3 will include all different departments undertakings and branches of a company while it will not do so in the proviso to the same section
Such different meanings in the same section in respect of the same words or expression cannot be accepted
Secondly it seems to us that no difficulty of the nature pointed out by learned counsel can arise in calculating available surplus Wherever the Act lays down that certain deductions are to be made it is obvious that those deductions will only be effective if in fact circumstances do exist justifying such deductions
In the Third Schedule itself the first  deduction envisaged is dividend payable on preference share capital
A number of companies do not have preference share capital
In such cases clearly no occasion would arise for making such a deduction
Very similar is the position with regard to certain other deductions which are permissible under the Second Schedule which principally lays down the method of calculation of available surplus
There is therefore no reason for interpreting the proviso to section 3 in the manner urged by learned counsel simply because in the case of separate departments undertakings or branches of the establishment of a company it may not be possible to make a deduction  85 per cent of the paid up equity share capital
In the present case there is very clear evidence that though the Company Hindustan Steel Ltd has a number of undertakings 635 Separate accounts are kept for each separate undertaking
The annual reports for three years were produced before the Tribunal
They clearly indicate that separate balance sheet was prepared for each unit and separate profit and loss account was worked out for each unit except that for the Head Office though a separate balance sheet was prepared the profit and loss was worked out on the basis of the consolidated accounts
The Tribunal in support of its view that Alloy Steel Project is a part of the establishment constituted by the Company Hindustan Steel Ltd relied on the circumstance that a consolidated balance sheet is prepared for the Company in respect of all its units and after such consolidation profit and loss is also worked out for all the establishments together so as to find out the actual profit and loss earned or incurred by the Company itself
From this the tribunal sought to infer that there were no separate accounts in respect of each unit as are required to be maintained before they can be treated as separate establishments under the proviso to section 3
The Tribunal has obviously gone wrong in ignoring the fact that separate balance sheets and profit and loss accounts are in fact maintained for each separate unit and the consolidated accounts are prepared only for the purpose of complying with the requirements of the companies Act
The does lay down the requirement that a consolidated balance sheet and profit and loss account for all the units of the Company must be prepared and for that purpose quarterly statements of accounts have to be sent by each unit to the Head Office
There is however no provision even in the containing a prohibition to maintenance of separate balance sheets and separate profit and loss statements for each unit for purposes of the Act
That accounts are separately maintained for each unit is not only established from the various annual reports filed before the Tribunal and the evidence of the Company s witness Umapada Chakraborty but is also admitted by Suprakash Kanjilal the only witness examined on behalf of the workmen
The latter also admitted that separate bonus calculation is made in respect of each unit and bonus was declared separately in each unit
No bonus was however declared in respect of the Alloy Steel Project
That declaration was not made because of the claim that Alloy Steel Project was exempt from payment of bonus under section 16 of the Act
Section 16 runs as follows 16
1 Where an establishment is newly set up whether before or after the commencement of this Act the employees of such establishment shall be entitled to be paid bonus under this Act only a from the accounting year in which the employer derives profit from such establishment or 918Sup CI71 636 b from the sixth accounting year following the accounting year in which the employer sells the goods produced or manufactured by him or renders services as the case may be from such establishment whichever is earlier Provided that in the case of any such establishment the employees thereof shall not save as otherwise provided in section 33 be entitled to be paid bonus under this Act in respect of any accounting year prior to the accounting year commencing on any day in the year 1964
Explanation I For the purpose of this section an establishment shall not be deemed to be newly set up merely by reason of a change in its location management name or ownership
Explanation II
For the purpose of clause a an employer shall not be deemed to have derived profit in any accounting year unless a he has made provision for that year s depreciation to which he is entitled under the Income tax Act or as the case may be under the agricultural income tax law and b the arrears of such depreciation and losses incurred by him in respect of the establishment for the previous accounting years have been fully set off against his profits
Explanation III
For the purpose of clause b sale of the goods produced or manufactured during the course of the trial run of any factory or of the prospecting stage of any mine or an oil field shall not be taken into consideration and where any question arises with regard to such production or manufacture the decision of the appropriate Government made after giving the parties a reasonable opportunity of representing the case shall be final and shall not be called in question by any court or other authority
2 The provisions of sub section 1 shall so far as may be apply to new departments or undertakings or branches set up by existing establishments 6 3 7 Provided that if an employer in relation to an existing establishment consisting of different departments or undertakings or branches whether or not in the same industry set up at different periods has before the 29th May 1965 been paying bonus_to the employees of all such departments or undertakings or branches irrespective of the date on which such departments or undertakings or branches were set up on the basis of the consolidated profits computed in respect of all such departments or undertakings or branches then such employer shall be liable to pay bonus in accordance with the provisions of this Act to the employees of all such departments or undertakings or branches whether set up before or after that date on the basis of consolidated profits computed as aforesaid
 Sub section 1 of section 16 grants exemption from payment of bonus to establishments newly set up for a period of six years following the accounting year in which the goods produced or manufactured are sold for the first time and in the alternative up to the year when the new establishment results in profit whichever is earlier
If the Alloy Steel Project is treated as an establishment newly set up for purposes of section 161 the exemption claimed would be fully justified
Section 162 of the Act makes it clear that the provisions of sub section 1 are to apply even to new departments undertakings or branches set up by existing establishments
Consequently even if Alloy Steel Project is treated as a new undertaking set up by the existing establishments of Hindustan Steel Ltd the exemption under section 161 would be avail able to it
The proviso to sub section
2 of section 16 also does not stand in the way of this claim because there is no evidence at all that in any year after Alloy Steel Project was set up bonus was paid to the employees of all the units on the basis of consolidated profits of all such units
The only exception has been in the case of workmen of the Head Office where no separate profit and loss was worked out and the bonus was paid on the basis of the consolidated Profits of all the units belonging to Hindustan Steel Ltd That of course was fully justified because the Head Office was working for all the units though as a separate unit
It was in the accounts of the Head Office that the entire paid up capital was credited and advances were made by the Head Office to the various units out of this capital or out of loans taken by the Head Office
In the case of the Head Office therefore the calculation of bonus on the basis of consolidated accounts was Justified but that does not affect the principle to be applied to the separate units for which separate accounts separate balance sheets and separate profit and loss statements are maintained
The proviso to sub 638 section 2 of section 16 only comes in the way it bonus is paid in any year to the employees of all the units on the basis of consolidated accounts
That has never been done in the case of the Hindustan Steel Ltd Consequently the Alloy Steel Project should have been treated as a separate establishment newly set up in the year 1961
It went into production in 1964 65 and did not earn any profits at all till 1967 68
Therefore no bonus was payable to the workmen of this undertaking for the year 1965 66 in view of the provisions of section 161 of the Act
The appeal is allowed the order of the Tribunal is set aside and the reference of the dispute is answered accordingly
In the circumstances of this case we direct parties to bear their own costs of the appeal
GC Appeal allowed


Summary:
The Alloy Steel Project was an undertaking controlled and managed by a government company namely the Hindustan Steel Ltd Alloy Steel was started in 1961 and went into production in 1964 65
No profit was earned up to 1967 68
The workmen claimed bonus at the minimum rate prescribed under the Payment of Bonus Act 21 of 1965 in respect of the year 1965 66
On behalf of the Alloy Steel Project exemption from payment of bonus was claimed under section 161 of the Act on the ground that it was a new establishment and had not made profits
The Industrial Tribunal to which reference was made held that Alloy Steel could not be treated as a separate establishment because under the Act a company is itself an establishment so that all units of a company like Hindustan Steel Ltd will constitute one establishment
However since Alloy Steel had not been earning profits the Tribunal directed payment of bonus at the minimum rate of 4 of wages as prescribed by the Act
Aggrieved by this Award of the Tribunal the company appealed
HELD  The Tribunal erred in holding the word establishment  to be synonymous with company 
In doing so it ignored the indications which are manifest from the language of the Act
The significant words are those contained in section 216 which show that an establishment in a public sector has to be owned controlled or managed by a Government company or by a corporation of the nature described in the clause
Obviously therefore an establishment in private sector  defined in section 215 to mean an establishment not in the public sector would be one which is owned controlled or managed by a person or body other than a Government company or a corporation of the nature described in section 216
In this view an establishment cannot be identified with a company
It would be absurd to say that a company is owned controlled or managed by a Government company or corporation Obviously the word establishment  is intended to indicate something different from a company as defined in the Companies Act
631 F 632 D ii Alloy Steel was a separate establishment by virtue of the proviso to section 3 of the Act because for each of the undertakings of Hindustan Steel Ltd including Alloy Steel separate accounts were kept though for the purpose of compliance with the provisions of the Companies Act a consolidated balance sheet and profit and loss account were also prepared
There was no substance in the contention that the proviso to section 3 applies only to departments undertaking or branches controlled and managed by persons 630 other than companies
It would be a strange method of construction of language to hold that the establishment referred to in the main part of section 3 will include all different departments undertakings and branches of a company while it will not do so in the proviso to the same section
There is no reason for interpreting the proviso to section 3 in this manner simply because in the case of separate departments undertakings or branches of the establishment of a company it may not be possible to make a deduction  85 of the paid up equity share capital
635 C D 633 G 634 H iii Sub Section 1 of section 16 grants exemption from payment of bonus to establishments newly set up for a period of six years following the accounting year in which the goods produced or manufactured are sold for the first time and in the alternative upto the year when the new establishment results in profit whichever is earlier
If the Alloy Steel Project was treated as an establishment newly set up for the purposes of section 161 the exemption claimed would be fully justified
Section 162 of the Act makes it clear that the provisions of sub section
1 are to apply even to new departments undertakings or branches set up by existing establishment
Consequently even if Alloy Steel Project was treated as a new undertaking set up by the existing establishments of Hindustan Steel Ltd the exemption under section 161 would be available to it
637 D E The proviso to Sub section
2 of section 16 only comes in the way if bonus is paid in any year to the employees of all the units on the basis of the consolidated accounts
That had never been done in the case of the Hindustan Steel Ltd Consequently the Alloy Steel Project should have been treated as a separate establishment newly set up in the year 1961
 It went into production in 1964 65 and did not earn any profits at all till 1967 68
Therefore no bonus was payable to the workmen of this undertaking for the year 1965 66 in view of the provisions of section 161 of the Act
638 A B