IN THE HIGH COURT OF JUDICATURE AT MADRAS DATE : 29.07.2008 CORAM THE HONOURABLE MR. JUSTICE S.J.MUKHOPADHAYA AND THE HONOURABLE MR. JUSTICE V.DHANAPALAN W.A. NO. 2893 OF 2002 UCO Bank Employees Association Tamil Nadu, rep. by its Secretary Chennai – 1. .. Appellant/Petitioner - Vs - 1. The Union of India rep. by Secretary to Government Ministry of Labour, New Delhi. 2. The Government of India rep. by Secretary to Government Ministry of Finance (Banking Division), New Delhi. 3. The Management of UCO Bank rep. by its Chairman & Managing Director 10, B.T.M.Sarani (Barbourne Road) Kolkatta 700 001. .. Respondents/Respondents Writ Appeal filed against the order dated 5th July, 2002, passed by learned single Judge in W.P. No.19197 of 1993 to issue a writ of declaration, declaring the calling on the wages of the employees with regard to entitlement for Bonus in Section 2(13) of the payment of Bonus Act as illegal and unconstitutional and consequently direct the respondents 1 and 2 not to impose calling on the wages of the Employees Class III and IV categories with regard to entitlement for Bonus and direct the respondents 2 and 3 to pay arrears of Bonus for the period from 1986 to 1993 and award costs. For Appellant : Mr. N.G.R.Prasad for M/s.V.Ayyathurai For Respondents: Mr. P.Wilson, ASG, for RR-1 & 2 Ms. Rita Chandrasekaran for R-3 https://hcservices.ecourts.gov.in/hcservices/ JUDGMENT S.J.MUKHOPADHAYA, J. The appellant, UCO Bank Employees Association (hereinafter referred to as 'Association'), challenged the validity of ceiling imposed under Section 2 (13) of the Payment of Bonus Act, 1965 (hereinafter referred to as the 'Bonus Act'). Dismissal of writ petition by learned single Judge had given rise to the filing of the present writ appeal. 2. The main plea taken by the appellant is that the exclusion of a class of employees for the purpose of Section 2 (13) of the Bonus Act, 1965, on the basis of a prescribed ceiling of wages is arbitrary, violative of Article 14, unreasonable, without any basis and has no nexus with the object to achieve. He also referred to Section 12 of the Bonus Act to submit that the said provision takes care of all employees even if they draw wages above the prescribed ceiling and, thereby, the ceiling prescribed u/s 2 (13) is uncalled for and imposed without application of mind. Stand of Appellant :- 3. Learned counsel for the appellant submitted that as a result of ceiling limit for the purpose of coverage of the Act, Rs.3,500/= in the year 1995 and Rs.10,000/= per month now is taken into account, many employees, who had earlier been receiving bonus when their salary was less than Rs.10,000/=, will now be deprived of bonus. Referring to amendment relating to coverage under the Payment of Gratuity Act, learned counsel for the appellant submitted that all the employees, irrespective of their status, such as supervisors, managers, workmen, etc., are covered by the Payment of Gratuity Act with effect from 22nd June, 1995. There is only a limit of the amount of gratuity, which an employee can get. According to him, similar provision should be made and all employees, irrespective of ceiling limit, should be allowed to receive bonus. For the purpose of calculation, though ceiling mentioned u/s 12 of Bonus Act could be noticed, but all the employees cannot be excluded by giving a limited unreasonable definition of "employees". It was submitted that exclusion of employees from Bonus Act for payment of bonus by keeping a ceiling limit of Rs.10,000/= per month is arbitrary and violative of Article 14 of the Constitution of India. According to the counsel for the appellant, a Bill for payment of bonus for employees was introduced in the year 1965 as per preamble to the Act. The said Act was enacted to provide for payment of bonus to persons employed in certain establishments on the basis of profits or on the basis of production/productivity. When the purpose of the Act is for payment of bonus on the basis of productivity or production, then the question of exclusion of any https://hcservices.ecourts.gov.in/hcservices/ employee from getting the benefit of bonus based on his salary is arbitrary. It was submitted that there should not be any ceiling for coverage, particularly when there is a ceiling for calculation of bonus u/s 12 of the Bonus Act, which will take care of the situation. Learned counsel placed reliance on Bonus Commission report submitted before the law was enacted. The said Bonus Commission had taken note of the fact that the concern which pays bonus to the employees would ordinarily have to pay bonus also to the officers and supervisory staff, who have contributed to the profit of the concern no less than the workmen. Therefore, according to the appellant, u/s 2 (13), supervisory staff and officers have been included, prescription of ceiling limit for getting such benefit is unjust and uncalled for. Learned counsel for the appellant summarised his argument while challenging the exclusion of certain employees from the definition of employees, which reads as follows :- "a) The exclusion is arbitrary and is in violation of Art. 14 of the Constitution of India. b) The Supreme Court in Kasturi Lal's case reported in AIR 1980 SC 1992 at para 12 has held that the constitutional validity of a provision has got to be tested in the light of Art. 14 and the directive principles of state policy. c) In the case of workers, the Bonus Act has got to be tested in the light of Art. 39 of the Constitution of India. Art. 39 (a) states that the citizens, men and women equally have the right to an adequate means to livelihood.. Art. 39 (b) states that the material resources of the community are so distributed as best to subserve the common good. Art. 43 which promises a living wage states that a stage by suitable legislation or economic organisation or in any other way secure to all workers, agriculture, industrial or otherwise living wage ensuring a decent standard of life. It is nobody's case that the workers are getting a living wage which is an ideal wage. d) Tested in the light of Art. 39 and Art. 43 of the Constitution of India and the preamble to the Bonus Act, which provides for payment of bonus based on profit or on production or productivity, there is no justification for excluding employees drawing over a particular salary from the coverage of the Act itself. There is some meaning in saying https://hcservices.ecourts.gov.in/hcservices/ that if an employee draws over a particular salary he will get bonus, but for the purpose of the calculation only certain portion of salary will be taken into account and that is taken care by Sec. 12 of the Act. e) One has to see the adverse consequences on the employees on account of a ceiling on coverage under Sec. 2 (13) based on salary. We have given a statement to show that a bank employee with 5 years of service and who is getting Rs.8000/= as salary will get bonus whereas the same employee say after 10 years of service will not get any bonus because his salary has gone beyond Rs.10,000/= because of annual increments. Even though as an experienced employee he has contributed to the same extent if not more towards the profits he will not get bonus. One can understand an employee not being entitled to bonus if he does not work in that year and thereby not contributed to the profits. But to say that even if he has worked for more number of days in the year, even then he will not be entitled to bonus because his salary is more than Rs.10,000/= is not justified." It was submitted that injustice and irrationality in such exclusion earlier came to the notice of the Union of India, which introduced a Bill in the year 2002 in Parliament, as enclosed in the paper book to remove the ceiling for the purpose of coverage of the Act, but for reasons best known to the respondents, it was not given effect. Reliance was placed on Supreme court decision in Rattan Arya & Ors. – Vs – State of Tamil Nadu & Anr. reported in 1986 (3) SCC 385. In the said case Supreme Court held that if the purpose of the Rent Control Act was to give protection to the tenants, and if tenants of non-residential building, irrespective of ceiling limit on rental value are covered by the Act, then there is no justification to restrict the protection in the case of those, who occupy residential accommodation only to Rs.400/= per month. The Supreme Court struck down the ceiling of Rs.400/= per month in the case of residential premises on the ground that it was arbitrary. Though the aforesaid judgment has been referred, but it is not clear as to how the said judgment is applicable in the present case till it is shown that the exclusion of certain employees from the definition of "employee" is unjust, arbitrary, ultra vires and illegal. https://hcservices.ecourts.gov.in/hcservices/ Reliance was also placed on Supreme Court decision in Maple Vishwanath Acharya & Ors. - Vs – State of Maharashtra & Anr. reported in 1998 (2) SCC 1 , wherein following observation was made:- "30. When enacting socially progressive legislation the need is greater to approach the problem from a holistic perspective and not to have a narrow or short-sighted parochial approach. Giving a greater than due emphasis to a vocal section of society results not merely in the miscarriage of justice but in the abdication of responsibility of the legislative authority. Social legislation is treated with deference by the courts not merely because the legislature represents the people but also because in representing them the entire spectrum of views is expected to be taken into account. The legislature is not shackled by the same constraints as the courts of law. But its power is coupled with a responsibility. It is also the responsibility of the courts to look at legislation from the altar of Article 14 of the Constitution. This article is intended, as is obvious from its words, to check this tendency; giving undue preference to some over others." Certain other case laws were also referred to, but being not directly applicable in the present case, they have not been referred to. Stand of Union of India :- 4. Learned Asst. Solicitor General appearing on behalf of Union of India, while placed historical background of bonus, submitted that bonus used to be paid voluntarily by the employers out of its profit to keep the workmen contended. It is only after the enactment of Bonus Act it acquired character of a right to share in surplus profits and liability to pay bonus has become statutory obligation imposed upon employer covered by the Act. The payment of bonus is a social legislation, which was enacted by Parliament pursuant to powers conferred under List III, Entry 23 and 24 of Schedule VII of Constitution of India. While Entry 23 enables to legislate on social security and social insurance, employment and unemployment, Entry 24 enables to legislate on welfare of labour, including condition of work, provident fund, employers liability, workmen's compensation, old age pension and maternity leave. Therefore, Parliament itself has powers to legislate and, therefore, it enacted the Payment of Bonus Act, 1965. The provision is well within the legislative competence of the Parliament. Section 2 (13) brings in definition of "employee" only for the purpose of classifying the employees, who are entitled https://hcservices.ecourts.gov.in/hcservices/ to receive bonus and if classification is not made, as made by inserting ceiling limit on wages, it would have a wider meaning by including those drawing higher salary/wages. Therefore, according to him, the definition of "employee" without ceiling on wages will be wide and exhaustive and may run counter to the principle to provide benefit to those drawing lesser reward. The legislation being on social security of working class, particularly the employees at the grass-root level drawing lesser salary, the Central Government, from time to time, taking into consideration different factors, such as prevailing economic situation, capacity to pay price rise, living index and upward revision of pay scales, raised the ceiling limit. The purpose of segregation by way of ceiling is to see that those section of employees drawing lesser wages, by applying ceiling limit, is given the benefit of entire bonus so as to have an equal standard of living compared to other class of employees, who draw considerable amount of salary and who do not fall within the ceiling limit. If bonus is equally divided amongst all employees, the employees at the grass-root level will get meagre amount than the amount, which they could receive if it is limited to such employees getting lower wages. According to him, as ceiling do not discriminate amongst employees on the basis of their status, such as supervisors, managerial and administrative, technical or clerical work, it is not arbitrary. The classification being based on salary/wages drawn by an employee, it is just and proper. In order to maintain equal standard of living, it is always open to the Union of India to make reasonable classification, which is not violative of Article 14. Stand of the 3rd Respondent : 5. Learned counsel appearing on behalf of the 3rd respondent, UCO Bank, also highlighted the historical background of bonus and the recommendation of the Bonus Commission. It was submitted that the validity of Section 2 (13) of Bonus Act cannot be decided in isolation without reference to aforesaid provisions of the Bonus Act, besides Section 12 of the Act. The nexus between the provisions and the object sought to be achieved, namely, economic viability of the industrial concern all over the country establish that the provision of Section 2 (13) is not unreasonable, but it is reasonable. The lesser paid workmen and lower state of supervisory staff form a distinct class, who alone are entitled to benefit in the profit sharing bonus under the Act and there is no discrimination as erroneously contended by the appellant. Hence, according to the learned counsel for the 3rd respondent, the provisions are not arbitrary nor violative of Article 14 of the Constitution of India. It was further submitted that the appellant-association purports to represent the employees of a nationalised bank, fully owned by the Government of India and functioning under the Ministry of Finance and Economic Affairs. The bonus formula for payment of bonus to the employees in the banking industry depends upon the economic policy of the Central https://hcservices.ecourts.gov.in/hcservices/ Government and the formula is different from the formula prescribed for other industrial establishments. That being so, the claim of the appellant is not apposite to the well being of the country. 6. We have heard the learned counsel appearing for the parties, noticed the rival contentions, the report of the Bonus Commission as on record and decisions of the Supreme Court as referred by the parties. 7. Section 2 (13) defines "employee", as quoted hereunder :- "2. (13) "employee" means any person (other than an apprentice) employed on a salary or wage not exceeding [three thousand and five hundred rupees] per mensem in any industry to do any skilled or unskilled, manual, supervisory, managerial, administrative, technical or clerical work for hire or reward, whether the terms of employment be express or implied." Eligibility for bonus has been prescribed under Section 8, as evident from the provision and quoted hereunder :- "8. Eligibility for bonus. - Every employee shall be entitled to be paid by his employer in an accounting year, bonus, in accordance with the provisions of this Act, provided he has worked in the establishment for not less than thirty working days in that year." Section 10, while mandates payment of minimum bonus of 8.33% of the salary or wages earned by the employee during the accounting year, u/s 12, while calculating bonus, a ceiling has been prescribed, as evident and quoted hereunder :- "Calculation of bonus with respect to certain employees. - Where the salary or wage of an employee exceeds [two thousand and five hundred rupees] per mensem, the bonus payable to such employee under section 10 or, as the case may be, under section 11, shall be calculated as if his salary or wage were [two thousand and five hundred rupees] per mensem." Historical Background : 8. It appears that the industrial employees made claim for bonus since the commencement of the first world war. It was found that as a result of inflationary trends there were disparity between living wage and contractual remuneration earned by the workmen in the textile industry. The employers paid to the workmen certain wages by describing it as war bonus. Later on, it was https://hcservices.ecourts.gov.in/hcservices/ called as special allowance. A committee was constituted by the Government of Bombay in 1922 to consider the "nature and basis" of bonus payment, which reported that the workmen has a just claim against the employers to receive bonus, but the claim was not customary legal or equitable. During the second world war the employees in textile industry were granted cash bonus equivalent to a fraction of actual wages, excluding Dearness Allowance, but even that was a voluntary payment made with a view to keep the labour contended. The dispute for payment of bonus for the year 1948-1949 crept up in textile industries at Bombay. The Industrial Court expressed its view that since labourer as well as the capital employed in the industry contribute to the profits of the industry, both are entitled to claim a legitimate return out of the profits of an establishment and evolved a formula for charging certain prior liabilities on the gross profits of the accounting year and awarding a percentage of balance as bonus to the workmen. In adjudicating upon the claim for bonus, the industrial court excluded such establishment, which have suffered severe losses in the year (s) in consideration from the liability to pay bonus. On appeal against the award relating to the year 1949, the Labour Appellate Tribunal broadly approved the method for computing bonus as a fraction of surplus profit. According to the formula, commonly known as "Full Bench Formula", surplus available for distribution had to be determined by adopting the following prior charges against gross profit :- a) Provision for depreciation; b) Reserve for rehabilitation; c) Return of 6% on the paid-up capital; and d) Return on the working capital at a lower rate than the return on paid up capital and from the balance equally available surplus, the workmen were to be awarded a reasonable share by way of bonus for the year. The aforesaid Full Bench Formula was considered by the Supreme Court in Muir Mills Co. Ltd. - Vs – Suti Mills Mazdoor Union, Kanpur (AIR 1955 SC 170), Baroda Borough Municipality – Vs – Its Workman & Ors. (AIR 1957 SC 110), Sree Meenakshi Mills Ltd. - Vs – Their Workmen (AIR 1958 SC 153) and State of Mysore – Vs – The Workers of Gold Mines (AIR 1958 SC 923). However, the Supreme Court did not accept the formula in its entirety, but held that bonus is not gratuitous payment made by the employer to its workmen nor a deferred wage, and that where wages fall short of living standard and the industry makes a profit, part of which is due to the contribution of the labour, the claim of bonus may be legitimately made by the workmen. It further appears that in the year 1961, Government of India, from its Ministry of Labour and Employment, by its resolution dated 6th Dec., 1961, set up a commission to defend the concept of bonus, to consider the question of bonus based on profits and to recommend the principle of computation of such bonus and method of payment, https://hcservices.ecourts.gov.in/hcservices/ to determine what the prior charges should be in different circumstances and how they should be calculated. It was to consider whether there should be a lower limit irrespective of loss in a particular establishment and upper limit for distribution in one year, and if so, the manner of carrying forward profits and losses over a prescribed period and to suggest proper machinery and method for settlement of bonus dispute. Accordingly, the Commission submitted its report, which was accepted by the Union of India, subject to few modifications. Thereafter, Payment of Bonus Ordinance was issued on 29th May, 1965, which was later on enacted as the Payment of Bonus Act, 1965 (21 of 1965). The original definition of "employee" under the Payment of Bonus Act, 1965, provides for payment of bonus to all employees drawing salary not exceeding Rs.1,600/=. All the trade unions accepted the ceiling. With the passage of time, cost of living increased manifold necessitating increase in the wages payable to almost all categories of employees, including those who are covered by the definition of workmen u/s 2 (s) of the Industrial Disputes Act, 1947. As a result of this, according to Union of India, the eligibility criteria enshrined u/s 2 (13) read with Section 12 of the Act became redundant and large number of employees became ineligible to receive bonus. Therefore, the trade unions and individual employees represented the Central Government to revise the eligibility criteria by increasing the quantum of wages specified under the definition of the term "employee" u/s 2 (13). Section 2 (13) prescribes limit of Rs.1,600/= which underwent gradual amendments in the year 1985, 1995 followed by recent amendment in the year 2007. In the amendment carried in the year 1985, (vide Act 65 of 1985), w.e.f. 7th Nov., 1985, the ceiling limit was revised to Rs.2,500/= per month from Rs.1,600/=. Likewise, in the year 1995 (vide Act 34 of 1995), ceiling limit on salary was revised to Rs.3,500/= per month from Rs.2,500/= w.e.f. 1st April, 1993. Recently, vide Ordinance No.8/07, ceiling on salary has been revised to Rs.10,000/= per month. Gist of the report of the Bonus Commission : 9. Government of India, Ministry of Labour and employment, by its resolution dated 6th Dec., 1961, set up a Commission consisting of Shri M.R.Meher (Chairman), two independent members, two members representing the workers and two members representing the employers. The terms of reference were as follows :- "1) To define the concept of bonus to consider in relation to industrial employments, the question of payment of bonus based on profits and recommend principles for computation of such bonus and methods of payment. https://hcservices.ecourts.gov.in/hcservices/ Note :- The term "industrial employments" will include employment in the private sector and in establishments in the public sector not departmentally run and which compete with establishments in the private sector. 2) To determine the extent to which the quantum of bonus should be incluenced by the prevailing level of remuneration. 3) a) To determine what the prior charges should be in different circumstances and how they should be calculated. b) To determine conditions under which bonus payments should be made unitwise, industry-wise and industry-cum-region wise. 4) To consider whether the bonus due to workers, beyond a specified amount, should be paid in the form of National Savings Certificates or in any other form. 5) To consider whether there should be lower limits irrespective of losses in particular establishments and upper limits for distribution in one year and if so, the manner of carrying forward profits and losses over a prescribed period. 6) To suggest an appropriate machinery and method for the settlement of bonus disputes. 7) To make such other recommendations regarding matters concerning Bonus that might be placed before the Commission on an agreed basis by the employers' (including the public sector) and the worker's representatives." The Commission, in its report, while dealing with the concept of bonus and other facts, observed as follows :- "3.20. In our view, the concept that bonus is designed to fill the gap between the actual wage and the living wage is beset with difficulties. ....... Actually the highest bonuses are paid and Awards