IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 20/06/2003 CORAM THE HON'BLE MR. JUSTICE P. SHANMUGAM and THE HON'BLE MR. JUSTICE S.K. KRISHNAN Writ Appeal No.642 of 2002 Christian Medical College & Hospital, Ida Scudder Road, Vellore, rep. by its Council Secretary. .. Appellants -Vs- 1. The Presiding Officer, Industrial Tribunal, Madras. 2. The Secretary, CMC Hospital & Employees Union, 2/B, Yedhava Street, Sankaranpalayam, Vellore. .. Respondents PRAYER : Appeal against the order dated 31.1.2002 passed by a learned single Judge of this Court in Writ Petition No.1624 of 1994. !For Appellants : Mr. Sanjay Mohan for M/s. S. Ramasubramaniam Associates ^For Respondents : Mr. V. Selvaraj (For R-2) :J U D G M E N T P.SHANMUGAM, J. Respondent in the claim petition and petitioner in the writ petition, aggrieved by the confirming orders, has preferred the above writ appeal. 2. The facts leading to the case are stated below :- The Christian Medical College and Hospital Employees' Union raised Industrial Dispute No.90 of 1989 before the Industrial Tribunal in reference to payment of bonus and enhancement of pay scales. The Government of Tamil Nadu, as per G.O. No.1672 dated 8.9.1989, made the following reference to the Industrial Tribunal, Chennai : (1) Whether the demand for payment of bonus to the workers at 8.33% for the year 1986-87 is justified, and if not, to what relief they are entitled ? (2) Whether the demand for enhancement of pay scales to the workers by 20% over the present pay scales is justified ? and if so, to fix the pay scales and the dates from which the revised pay scales should be given effect to. The Management of Christian Medical College and Hospital raised an objection dated 9.1.1990 as to the applicability of the Payment of Bonus Act and prayed for a decision as a preliminary issue. The Industrial Tribunal, by an order dated 23.12.1993, over ruled the preliminary objection and posted the Industrial Dispute for enquiry on merits. Aggrieved by this order, Writ Petition No.1624 of 1994 was preferred by the Management. By an order dated 31.1.2002, the writ petition was allowed in part insofar as it related to the Christian Medical College, but it was dismissed insofar as it related to the Christian Medical College and Hospital. The present writ appeal is against this order. 3. In the present writ appeal, we are concerned only with the claim of bonus. The following questions arise for consideration in this appeal : (1) Whether the Management of the Hospital is an educational institution and therefore, whether the provisions of the Payment of Bonus Act, 1965 are applicable ? (2) Whether the Hospital is exempted from the application of Section 35(5)(c) of the Payment of Bonus Act ? 4. Whether the Christian Medical College and Hospital is an Educational Institution ? Looking at the history of the appellants' institution, it could be seen that Dr. Ida Soudder, a grand daughter of the First American Medical Missionary in India, realizing that the basic need in India was women doctors as custom did not allow women to be treated by men and to relieve the suffering of women in particular, started a one-bed clinic in 1900 and set up a hospital with 40 beds within two years with a group of medical women. But, her main desire was to train women doctors who would go out to serve suffering women and children. Thus, training courses for nurses and a medical school for women came into being. The hospital and the medical school were growing and the medical school became a medical college with degree courses in 1942. The historic change came in the year 1947 when men also were admitted to the medical college in response to the national need. The educational programmes of the college and the services of the main and branch hospitals have also expanded steadily. 5. The Christian Medical College Vellore Association has been formed for running and administering a Medical College and a College of Nursing in Vellore, both of which are affiliated to the University of Madras. Besides the Graduate Medical Course leading to M.B.B.S. Degree, they conduct Diploma, Post-Graduate Diploma and Post-Graduate Degree Courses in various specialties. 6. The college is situated about four miles away from the main hospital in a 186.75 acres area. The hospital is situated in the town of Vellore on 32.93 acres area. The non-clinical departments of Anatomy, Physiology, Bio-Chemistry and Pharmacology as well as departments of Community Health, Psychiatry, Rehabilitation Institutions and Rural Hospital are situated in the college campus, while other departments are situated in the hospital. The Medical Council of India has issued regulations relating to the standard requirements for a medical college for 100 admissions annually. For the medical college, the number of beds required according to the counter statement is 700 , whereas, the number of beds available in the institution as on date is 1484. 7. The Christian Medical College Vellore Association is a Society registered under Act XXI of 1860 on 13.9.1947. "The Object of the Association is the establishment, maintenance and development of a Christian Medical College and hospitals in India where women and men shall receive an education of the highest grade in the art and science of Medicine and Nursing or in one or other of the related professions to equip them, in the spirit of Christ for service in the relief of suffering and the promotion of health." The membership to the Association is restricted to a Christian Church or Group of Churches in India conducting medical work. The Christian Medical College, Vellore was affiliated and recognized by the University of Madras from its inception and now it is affiliated with the Tamil Nadu Dr. M.G.R. Medical University. Though initially the institution began with a two-bed clinic, now they have an Eye Hospital, Mental Health Centre, Rural Health Centre, besides having 1484 beds in the main hospital. They also have got their own pharmacies for manufacturing drugs and dispensing medicines. As per the instructions of the University of Madras, the number of beds available to students admitted annually to the college should not fall below the ratio 5:1 in reference to final M.B.B.S. and degree examination. M.W.1, Dr. V.I. Mathan, has stated before the Tribunal that each Medical student, during the period of clinical posting, should be in sole charge of not less than five beds continuously. As per the University and statutory requirement for training medical and nursing students and for students of allied health sciences in the college, they must have a teaching hospital. But, in the course of its development, the hospital has grown over many times than the minimum requirement, as could be evident from its income and expenditure. Though the exact number of students admitted and the requirement is not set out, there is no serious dispute as to the fact that the hospital has grown over many times than the minimum requirement for a teaching hospital. In other words, though initially the Association started with a clinic with about 40 beds, it has since grown into a hospital with 1484 beds, catering different faculties and having groups of hospitals offering special care and super care treatments. From the evidence, the records and the arguments, one can have no doubt as to the fact that the hospital cannot now exclusively be treated as an educational institution. The object of the Association itself is not only for establishment, maintenance and development of the medical college, but also the hospitals in India. Factually speaking, the Christian Medical College and Hospital is a referral hospital serving various organizations, corporate bodies and patients from all over India. The main or the dominant activity of the Society is providing treatment to the patients and teaching has now become subsidiary. Considering the number of departments in the hospital, the strength of staff, the number of inpatients and out-patients treated in the hospital, the income and expenditure of the hospital and in the light of the principle laid down by the decisions referred to below, the only conclusion possible is that the appellant is not an educational institution. Therefore on facts, it cannot now be stated that the Christian Medical College and Hospital is part of the college and that it is an educational institution. 8. Whether the Christian Medical College and Hospital is a nonprofit making institution ? It is admitted by the Management that the hospital provides free care to 40% of its out-patients and 10% of its in-patients every year. It is also admitted that the appellants are running the institution on commercial lines, which means that a professional and business like approach is adopted in running the appellants' college and hospital. The cost of education for a single Medical student per year for the year 1991 was estimated to have been at Rs.64,000/-, whereas the fee that was charged by the appellants for each student was only Rs.3,000/- per year. This follows that only from the earnings of the hospital, the Management is able to provide subsidy to the students for their education. From the Minutes of the Extraordinary Meeting of the Association held in the year 1987, the income from patients during 1 978-88 is shown to be 88%, whereas the contribution from the Members was only 1.42%, the amounts collected from the students amounted to 1 .5%, from other sources it was 2.5%, and from the division of community health it was 3.4%. The same was the position for the year 1983-8 4. It is stated by the Management that of the 1484 beds, only 161 beds are meant for free treatment, i.e. merely 11% of the beds are intended for free treatment. 9. As per the evidence let in by the Management, the income and expenditure statement for five years from 1987 to 1991 is as follows :- ------------------------------------------------------------ Year Income Expenditure Deficit Quantum of (in lakhs) (in lakhs) (in lakhs) free treatment (in lakhs) ------------------------------------------------------------ 1987 1165.98 1169.84 3.80 114.07 1988 1338.37 1342.01 3.60 142.42 1989 1140.03 1140.83 0.80 120.59 (9 months) 1990 1904.00 1906.75 2.75 193.04 1991 2187.92 2218.07 20.15 205.85 ---------------------------------------------------- 7736.30 7777.50 41.20 795.97 ------------------------------------------------------------ 10. It is admitted in the affidavit filed in support of the writ petition that while it is true that medicines are dispensed only to the patients of the hospital, whatever income is generated from such dispensing of medicines is ploughed back into the resources of the institution for the purpose of carrying out various educational functions and providing benefits to the deserving. It is further admitted that the hospital enjoys the benefit of Section 80-G of the Income Tax Act as well as Section 10(22), besides substantial exemption from customs duty, etc. on import of medical equipment and supplies, all of which clearly show that there is recognition by the State that the institution is a charitable institution. According to them, the fact that charges are levied for the treatments given in the hospital is of no consequence and even making a profit was irrelevant as it is only the object that is relevant. 11. In the counter affidavit, it is submitted that the dominant activity of the Society is running the hospital and not the medical college for the following reasons : (1) The number of beds available in the hospital is double the minimum number of beds required for administering a medical college. (2) Without the medical college, the hospital could survive, but without the hospital, it is impossible to run the medical college. (3) It is admitted that from the income of the hospital, a sum of Rs.61,000/- was given to each student as subsidy during the year 1991. At that time, there were 400 students and thus, the total expenditure incurred in this regard worked out approximately to Rs.2.5 crores per year. (4) Ex.W.5 would show that during the year 1987-88, the income from patients and others was 94.5% and the contribution from the Council Members was only 1.4%. (5) The institution is manufacturing 144 items of medicines and sells them for profit. (6) The hospital offers consultancy services to smaller hospitals on profit basis. (7) The hospital earns interest on investments. (8) The hospital gives treatment to persons referred by various Governmental and industrial establishments as set out in Ex.W.11. (9) Out of the 1484 beds, only 161 beds are meant for free treatment, which works out to 10.8%. (10) The hospital is not meant entirely for charitable purposes. 12. The Management manufactures 144 items of medicines and sells them to patients at rates higher than the market price. Treatment is also given on credit basis and they collect 18% interest on delayed payments. The finding of the Tribunal on this aspect is as follows : "Hence, it is obvious that it is only from the income of the hospital that the college is being maintained." It is admitted by the Management in their counter statement that while it is true that medicines are sold only to their patients, whatever income is generated from such sales is ploughed back into the resources of the institution for carrying out the various functions to the deserving. It is admitted by M.W.1 that a large number of patients visit their hospital from all over India. A significant proportion of the patients (about 25% of the in-patients) belong to various Governmental organizations or private companies which undertake to pay for the medical expenses of their employees. The hospital has definite arrangements with such Governmental and other organizations for credit billing facility for the convenience of the patients. In a similar way, several smaller hospitals consult their institution on difficult medical problems and a consultant's opinion is given by the appropriate faculty of their teaching hospital, for which a charge is levied. The institution being a Registered Society, it cannot distribute its profits and as rightly admitted, the surplus is being ploughed back to the institution itself. At the same time, from the admitted evidence, it is clear that the income from the hospital ranges from 88% to 90% of the total income of the institution. Only 40% of the total number of patients (out of them, only 10% being in-patients) are given free treatment. Therefore, the subsidy given to the students of the Medical College and the cost of free treatment given to the outpatients as well as the in-patients has to come from the surplus income of the hospital. There is no way for the Management to say that they are not making profit. Admittedly, the institution is run on a commercial, professional basis and therefore, the hospital cannot be termed as an institution established not for the purpose of profit. 13. When 90% of the in-patients and 60% of the out-patients are charged on a commercial basis and the hospital manufactures 144 items of medicines and sells them to its patients on higher price for profit and the surplus from the sales is ploughed back to the very institution and the substantial expenditure for the students is subsidized and when 90% of the income of the institution comes from the hospital, it is beyond any doubt that the institution is a hospital making profit. As pointed out, a vast majority of the workers are employed in the hospital and they contribute for 90% of the income for the institution. Their contribution of labour is also part of the income, which turns out to be 90% to the institution. Further, the subsidized education to medical students and the treatment given to patients of the hospital is, therefore, given at the cost of the labour of the workers also. Since the Central Government provides exemption to the hospital from customs duty, excise duty and income tax as also other such benefits, the hospital being a charitable institution and as they satisfy the requirement by providing free treatment to 40% of its out-patients and 10% of its in-patients, it does not mean that the workers also should contribute their labour, without any returns, for the purpose of providing subsidy to the students in respect of their education and giving treatment to the patients. It is true and is admitted that the substantial portion of the income, namely a significant portion of 25% of the income, comes from patients referred by various Governmental and private organizations with reimbursement and credit facility and the hospital offers consultation facility for smaller hospitals, all of which is done at the cost of the labour provided by the respondents/work force. Therefore, we find that the Medical College and Hospital is a separate entity, it cannot be treated as an exclusive educational institution and the hospital is now run on profit. 14. When the hospital is so generous as to allow subsidy to a tune of about Rs.60,000/- for each of its medical student, which works out to Rs.2.5 crores per year, it is somewhat ununderstandable as to why the lowest paid employees working in the hospital should not be provided with bonus at the rate of 8.33%, which may approximately work out to Rs.1,500/- per worker. Bonus is admittedly deferred wages and the lowest paid have to be compensated by way of bonus. The Association is having a hospital with double the number of beds required for an educational institution and 90% of the treatment is done on profit basis. We have seen from the facts and figures that the dominant activity of the Management is not education, but running the hospital and the hospital is also run on profit basis. 15. If the argument of the counsel for the appellants is to be accepted, then any management of an educational institution would start a hospital and claim that it is an educational institution since they cater to the needs of the students of that institution, especially in the light of the recent trend of big hospitals having their own educational set up for running Nursing and Physiotherapy Courses as well as Paramedical Courses like Bio-Chemistry, Laboratory Technician and Instrumentation, etc. The students who are admitted to these institutions are drawn for the service of the hospital for a fixed number of years and thus, both the students and the hospitals are benefited. However, the hospitals are run on commercial and professional lines. If the contention of the appellants is to be accepted, then big hospitals, having their own in-built educational arrangements like Paramedical, Nursing, etc. will have to be declared as educational institutions. 15A. The purpose of establishment and the object of the institution being to serve the poor and impart education on Medicine would not mean that the same object continues even today. Though it began as a primary medical educational institution, now it has become a premier hospital. Education is no longer their dominant activity. The object of providing free service to the poor on charitable lines is now no longer available to all the patients and it is admitted by the appellants themselves. 16. The argument of the appellants that the fact that treatments offered in the hospital are charged is of no consequence and that even making profit is irrelevant and that it is only the object that is relevant has got its own in-built fallacy in it. What is required as per Section 35(5)(c) of the Payment of Bonus Act is that an institution as on date should be run not for the purpose of profit. Even though the institution was established in the year 1900 with a one-bed hospital with no idea of making any profit whatsoever, it does not mean that the same object continues even today. This provision has to be interpreted taking into account the reality and not the theoretical framework. The argument that charging the patients and making profits is irrelevant and that the object originally conceived alone is relevant seems to be unacceptable. The court has jurisdiction to go into the nature and content of the claim and is not bound by their stated objects. There is a sea change in the teaching and charitable treatment conceived in the beginning of the 20th century than what it is today. For the reasons discussed above, if we look at the factual position of the hospital and the educational institution, no other conclusion is possible except to say that the hospital has grown out of its original concept of serving as the educational institution. The dominant activity of the Society now is to run the hospital on commercial lines and the education aspect has now become secondary. Therefore, the educational institution, namely the medical college, has rightly been treated as a separate unit by the learned single Judge and the hospital with a separate entity. Insofar as the hospital is concerned, considering the admitted position of the factual figures, like the number of beds available for free treatment for its out-patients etc., it is abundantly clear that the hospital is making profit. 17. The various decisions cited by the learned counsel can be looked into at this stage. In the recent judgment in T.M.A. Pai Foundation vs. State of Karnataka [2002 A.I.R. (S.C.W.) 4957], the eleven Judges' Bench of the Supreme Court has approved the view taken by the Supreme Court in St. Stephen's College vs. University of Delhi (A.I.R. 19 92 S.C. 1630) that minority institutions cannot claim immunity against the general pattern and standards of education or as against the general laws such as the laws relating to law and order, health, hygeine, labour relations, social welfare legislations, contracts, torts, etc. Their lordships agreed with the contention of the learned Solicitor General that the Constitution, in Part-III, does not contain or give any absolute right. All rights conferred in Part-III of the Constitution are subject to the other provisions of the said part. General laws of the land applicable to all persons have been held to be applicable to minority institutions also, like for example, the laws relating to taxation, economic relations, public order and morality. Even though the above ruling in the Constitution Bench judgment refers to the rights of the minority educational institutions, the Management of the hospital in this case initially have claimed the same rights and the non-applicability of Industrial Disputes Act against them, which has been negatived. 18. In Bangalore Water Supply and Sewerage Board vs. A. Rajappa [197 8 (1) L.L.J. 349], though the hospital concerned was being run by the Government for providing medical relief to the people and substantial education and training were also given, yet it was held by their lordships that it was an industry. Their lordships observed as follows : "Medical education, without mincing words, is industry. It has no vulgarizing import at all since the term 'industry' is a technical one for the purpose of the Act. Even as a masterpiece of painting is priceless art, but is within 'good' under the sales tax law without any philistanic import." Their lordships further held that the University of Delhi's case was wrongly decided and that education can be and is, in its institutional form, an industry. Ultimately, their lordships have held as follows : "We have adduced enough reasons in the various portions of this judgment with regard to hospitals, research institutions and training centres rendering valuable material services to the community, qualifying for coming within Section 2(j) of the Act." 19. A Constitution Bench of the Supreme Court, in Jalan Trading Company vs. Mill Mazdoor Union [1966 (II) L.L.J. 546], while considering the vires of the Payment of Bonus Act, including Section 32, laid down the law on the following lines : "It may be broadly stated that bonus, which was originally a voluntary payment, out of profits made, 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...." 20. In