Case: Jalan Trading Co. (Private Ltd.) Vs. Mill Mazdoor Union(With Connected Petitions)

The ratio so established is only applicable if there is allocable surplus and the total payment of bonus cannot, in any event, exceed 20 per cent which it might well have lone if there was no limit. In other words, between the maximum and the minimum the tame ratio of payment is to be maintained from year to year and the payment will be more or less according as the profits from which the allocable surplus is to be calculated are greater or smaller. If extraordinary circumstances appear set on and set off will make them less onerous for the employers or employees. The existence of this rigid ratio, which applies to all establishments which come under S.34 (2) does not, in our opinion, create any inequality.87. It is, however, submitted that the Act has ignored the definition of "workmen" in the Industrial Disputes Act and by allowing bonus to employees drawing salary or wage upto Rs. 1,600 per month has increased the burden of the employers. It is also argued that this creates inequality between those establishments which come under S. 33 and those which paid bonus under the Full Bench Formula. This argument ignores several matters. The total bonus now cannot exceed 20 per cent of the total wage bill, i.e., less than 21/2 months total wages and dearness allowance. The demand for bonus in some establishments was much more and it is hardly correct to say that bonus payable under Ss. 33 and 34 (2) will always he more than that payable under the Full Bench Formula. The controlling factors are the establishment of the ratio, the fixation of a minimum limit and the principle of set off. As a result of the operation of these factors, the net amount cannot be as disadvantageous to the employers as was represented to us. The increase in the number of persons entitled to receive bonus therefore, will not be of much significance. The number of such employees cannot he very large and in any event no employee will get bonus at a higher rate than a person drawing wage or salary of Rs. 750 per month. We are not in agreement with this argument.88. The question thus is one of the power of Parliament to enact a law relating to bonus. Once the power to make the law is found, then the law so made cannot be struck down unless it offends a fundamental right. As the Bonus Act makes valid classifications and everyone in a class is equally treated, it is impossible to say that there is inequality. The arguments have taken examples of what are called "similarly situated establishments in each class to show unequal treatment when it is obvious that the similarity is imaginary and even similarly situated establishment (if any there be) in different classes cannot be compared. The arguments have not faced the question of classification but have been extremely ambiguous. For example it was even suggested that the ratio between profits and allocable surplus in a base year might be infinity if there was no profit, overlooking the simple fact that existence of profit is a condition precedent to the finding of the ratio. On this kind of reasoning the provisions of S. 10 were also attacked which we have explained are not affected.89. Our brethren have struck down Ss. 33, 34 and 37, but have upheld the other sections. We are, however, of opinion that if Parliament can legally, constitutionally, and validly order payment of bonus according to its formula, fix minimum bonus without profits, fix a ceiling in spite of high profits, evolve a principle of set on and set off and make disobedience subject to a penalty, there is no reason why it cannot order decision of pending cases treated as a class, according to the new formula and open up the intervening years of account for reconsideration. The power in S. 33 is of the same character as the other and no special competence is required, of course in doing this it should treat alike all establishments in which there is a pending dispute. This Parliament has done. Similarly, by S. 34 Parliament orders that a certain proportion between profits and allocable surplus shall be maintained. This exercise of the power is of the same character as the prescription that bonus shall be paid in this and this manner and no other. If the action is legal, so is this, provided there is no discrimination. There is none in this class either. The power to remove difficulties reserved to Government is in hundreds of statutes. All Land Reform Acts, State Reorganisation Acts, Industrial Disputes Acts, Encumbered Estates Acts, many taxation laws and such widely differing statutes as University Acts and Election Acts have it and the power of exemption is always included but is seldom abused. We have, therefore, respectfully dissented from their view.90. In our judgment, the matter requires to be looked at from the point of view of avoidance of industrial disputes and the imposition of a uniform formula for all establishments. The existence of different kinds of establishments, as set out above, has made it necessary to classify and to make special rules for determination of bonus. By the special rules contained in Ss. 33 and 34 the older establishments are treated as equally as possible, except where the pendency of cases has necessitated different rules to make the Act applicable to them. Uniformity in each class has been achieved and there is no discrimination. As the power to frame a new bonus formula cannot be gainsaid, the power to classify cannot also be denied. The Act further confers power to exempt and remove doubts and difficulties (which provisions are unfortunately criticized) and they can be invoked where in spite of so much care there is hardship in a special case.91. In our judgment the Bonus Act is validly enacted and this appeal must fail. We would dismiss the appeal and the writ petitions with costs.ORDER92.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]It is true that by the impugned legislation certain principles declared by this Court e. g. in Express Newspapers (Private) Ltd. v. Union of India, 1959 SCR 12  : (AIR 1958 SC 578  ) in respect of grant of bonus were modified, but on that account it cannot be said that the legislation operates as fraud on the Constitution or is a colourable exercise of legislative power. Parliament has normally power within the frame-work of the Constitution to enact legislation which modifies principles enunciated by this Court as applicable to the determination of any dispute, and by exercising that power the Parliament does not perpetrate fraud on the Constitution. An enactment may be charged as colourable, and on that account void, only if it be found that the legislature has by enacting it trespassed upon a field outside its competence: K. C. Gajapati Narayan Deo v. State of Orissa, 1954 SCR 1  : (AIR 1953 SC 375  ).The plea of invalidity of Ss. 32, 36 and 37 may be dealt with first. It is true that several classes of employees set out in Cls. (i) to (xi) of S. 32 are excluded from the operation of the Act. But the petitions and the affidavits in support filed in this Court are singularly lacking in particulars showing how the employees in the specified establishment or classes of establishments were similarly situate and that discrimination was practiced by excluding those specified classes of employees from the operation of the Act while making it applicable to others. Neither the employees, nor the Government of India have chosen to place before us any materials on which the question as to the vires of the provisions of S. 32 which excludes from the operation of the Act certain specified classes of employees, can be determined. There is a presumption of constitutionality of a statute when the challenge is founded on Art. 14 of the Constitution, and the onus of proving unconstitutionality of the statute lies upon the person challenging it. Again many classes of employees are excluded by S. 32 and neither those employees, nor their employers, have been impleaded before us.Each class of employees specified in S. 32 requires separate treatment having regard to special circumstances and conditions governing their employment. We therefore decline to express any opinion on the plea of unconstitutionality raised before us in respect of the inapplicability of the Act to employees described in S. 32.We need say nothing at this date about the plea that S. 10 by imposing unreasonable restrictions infringes the fundamental freedom under Art. 19 (1) (g) of the Constitution, for by the declaration of emergency by the President under Art. 352, the protection of Art. 19 against any legislative measure, or executive order which is otherwise competent, stands suspended. The plea that S. l0 infringes the fundamental freedom under Art. 31 (1) of the Constitution also has no force. Clause (l) of Art. 31 guarantees the right against deprivation of property otherwise than by authority of law. Compelling an employer to pay sums of money to his employees which he has not contractually rendered himself liable to pay may amount to deprivation of property, but the protection against depriving a person of his property under C1. (1) of Art. 31 is available only if the deprivation is not by authority of law. Validity of the law authorising deprivation of property may be challenged on three grounds: (i) incompetence of the authority which has enacted the law; (ii) infringement by the law of the fundamental rights guaranteed by Ch. III of the Constitution; and (iii) violation by the law of any express provisions of the Constitution. Authority of the Parliament to legislate in respect of bonus is not denied and the provision for payment of bonus is not open to attack on the ground of infringement of fundamental rights other than those declared by Art. 14 and Art. 19 (1) (g) of the Constitution. Our attention has not been invited to any prohibition imposed by the Constitution which renders a statute relating to payment of bonus invalid. We are, therefore, of the view that S. 10 of the Bonus Act is not open to attack on the ground that it infringes Art. 31no dispute relating to bonus between an employer and persons employed in managerial or administrative capacity or persons employed in supervisory capacity drawing wages exceeding Rs. 500 per mensem could be referred under the Industrial Disputes Act. But under S.33 a pending industrial dispute between the workmen and the employer, by reason of the application of the Act gives rise to a statutory liability in favour of all employees of the establishment as defined under the Act by S. 2 (13) for payment of bonus under the scheme of the Act. Whereas under the Industrial Disputes Act a dispute could only be raised by employees who were workmen within the meaning of the Act, under the scheme of the Act statutory liability is imposed upon the employer to pay to all his employees as defined in S. 2 (13) bonus at the rates prescribed by the Act. Even if before May 29, 1965, there had been a settlement with some workmen or those workmen had not made any claim previously, and there would on that account be no industrial dispute pending qua those workmen, pendency of a dispute relating to bonus in which some other workmen are interested imposes statutory liability upon the employer to pay bonus to all employees in the establishment. Even if the employer had suffered loss or the available surplus was inadequate, the employer will by virtue of S. 33 be liable to pay minimum bonus at the statutory rate : the formula for computation of gross profits and available surplus will be retrospectively altered and a percentage of wages inclusive of dearness allowance will be allowed as bonus to all employees (whether they were under the Full Bench Formula entitled to bonus or not), in computing the available surplus rehabilitation will not be taken into account, and bonus will also have to be paid to employees who were not entitled thereto in the year of account. Application of the Act for the year for which the bonus dispute is pending, therefore, creates an onerous liability on the employer concernedemployees who could not claim bonus under the Industrial Disputes Act become entitled thereto merely because there was a dispute pending between the workmen in that establishment, or some of them and the employer qua bonus;2. workmen had under agreements, settlements, contracts or awards become entitled to bonus at certain rates cease to be bound by such agreements, settlements, contracts or even awards and become entitled to claim bonus at the rate computed under the scheme of the Act;3. basis of the computation of gross profits, available surplus and bonus is completely changed;4. the scheme of "set on" and "set of" prescribed by S. 15 of the Act becomes operative and applies to establishments as from the year in respect of which the bonus dispute is pending ; and5. the scheme of the Act operates not only in respect of the year for which the bonus dispute was pending, but also in respect of subsequent years for which there is no bonus dispute pending.If, therefore, in respect of an establishment there had been a settlement or an agreement for a subsequent year, pendency of a dispute for an earlier year before the authority specified in S. 33 is sufficient to upset that agreement or settlement and a statutory liability for payment of bonus according to the scheme of the Act is imposed upon the employer. Application of the Act retrospectively, therefore, depends upon the pendency immediately before May 29, 1965, of an industrial dispute regarding payment of bonus relating to any accounting year not earlier than the year ending on any day in 1962. If there be no such dispute pending immediately before the date on which the Act becomes operative, an establishment will be governed by the provisions of the Full Bench Formula and will be liable to pay bonus only if there be adequate profits which would justify payment of bonus. If, however, dispute is pending immediately before May 29, 1965, the scheme of the Act will apply not only for the year for which the dispute is pending, but even in respect at subsequent years. Assuming that the classification is founded on some intelligible differentia which distinguishes an establishment, from other establishments, the differentia has no rational relation to the object sought to be achieved by the statutory provision, viz., of ensuring peaceful relations between capital and labour by making an equitable distribution of the surplus profits of the year. Arbitrariness of the classification becomes more pronounced when it is remembered that in respect of the year subsequent to the year for which the dispute is pending, liability prescribed under the Act is attracted even if for such subsequent years no dispute is pending, whereas to an establishment in respect of which no dispute is pending immediately before May 29, 1965, no such liability is attracted. Therefore, two establishments similarly circumstanced having no dispute pending relating to bonus between the employers and the workmen in a particular year would be liable to be dealt with differently if in respect of a previous year (covered by S. 33) there is a dispute pending between the employer and the workmen in one establishment and there is no such dispute pending in the other.There is one other ground which emphasizes the arbitrary character of the classification. If a dispute relating to bonus is pending immediately before May 29, 1965, in respect of the years specified in S. 33 before the appropriate Government or before any authority under the Industrial Disputes Act or under any corresponding law, the provisions of the Act will be attracted: if the dispute is pending before this Court in appeal or before the High Court in a petition under Art. 226, the provisions of the Act will not apply. It is difficult to perceive any logical basis for making a distinction between Pendency of a dispute relating to bonus for the years in question before this Court or the High Court, and before the Industrial Tribunal or the appropriate Government. This Court is under the Constitution competent to hear and decide a dispute pending on May 29, 1965 relating to bonus as a Court of Appeal, but is not required to apply the provisions of the Act. If because of misconception of the nature of evidence or failure to apply rules of natural justice or misapplication of the law, this Court sets aside an award made by the Industrial Tribunal and remands the case which was pending on May 29, 1965, for rehearing, the Industrial Court will have to deal with the case under the Full Bench Formula and not under the provisions of the Act. The High Court has also jurisdiction in a petition under Art. 226 to issue an order or direction declaring an order of the Industrial Tribunal invalid, and issue of such writ, order or direction will ordinarily involve retrial of the proceeding. Again pendency of a dispute in respect of the previous year before the appropriate Government or the Industrial Tribunal will entail imposition of a statutory liability to pay bonus in respect of the year for which the dispute its pending, and also in respect of years subsequent thereto, but if immediately before May 29, 1965, a proceeding arising out of a dispute relating to bonus is pending before a superior Court , even if it be for the years which are covered by S. 33, statutory liability to pay bonus to employees will not be attracted. Take two industrial units-one has a dispute with its workmen or some of them, pending before the Government or before the authority under the Industrial Disputes Act and relating to an accounting year ending in the year 1962. For the years 1962, 1963 and 1964 this industrial unit will be liable to pay bonus according to the statutory formula prescribed by the Act, whereas another industrial unit in the same industry which may be regarded as reasonably similar would be under no such obligation, if it has on May 29, 1965, no dispute relating to bonus pending because the dispute has not been raised or has been settled by agreement or by award or that the dispute having been determined by an award, had reached a superior Court by way of appeal or in exercise of the writ jurisdiction. There appears neither logic nor reason in the different treatment meted out to the two establishments. It is difficult to appreciate the rationality of the nexus-if there be any-between the classification and the object of the Act. In our view, therefore, S. 33 is patently discriminatory.In our view S. 34 imposes a special liability to pay bonus determined on the gross profits of the base year on an assumption that the ratio which determines the allocable surplus is the normal ratio not affected by any special circumstance and perpetuates for the duration of the Act that ratio for determining the minimum allocable surplus each year. If bonus contemplated to be paid under the Act is intended to make an equitable distribution of the surplus profits of a particular year, a scheme for computing labours share which cannot be less than the amount determined by the application of a ratio derived from the working of the base year without taking into consideration the special circumstances governing that determination is ex facie arbitrary and unreasonable. The Additional Solicitor-General appearing for the Union of India and the representatives of the Labour Unions and counsel appearing for them contended in support of their plea that S. 34 (2) was not invalid because the ratio was intended to stabilize the previous grant of bonus and to maintain in favour of labour whatever was achieved by collective bargaining in the base year. But the validity of a statute is subject to judicial scrutiny in the context of fundamental freedoms guaranteed to employers as well as employees and the freedom of equal protection of the laws becomes chimerical, if the only ground in support of the validity of a statute ex-facie discriminatory is that Parliament intended, inconsistently with the very concept of bonus evolved by it to maintain for the benefit of labour an advantage which labour had obtained in an earlier year, based on the special circumstances of that year, without any enquiry whether that advantage may reasonably be granted in subsequent years according to the principles evolved by it and for securing the object of the Act. If the concept of bonus as allocation of an equitable share of the surplus profits of an establishment to the workmen who have contributed to the earning has reality, any condition that the ratio on which the share of one party computed on the basis of the working of an earlier year, without taking into consideration the special circumstances which had a bearing on the earning of the profits and payment of bonus in that year, shall not be touched, is in our judgment arbitrary and unreasonable. The vice of the provision lies in the position of an arbitrary ratio governing distribution of surplus profits. In our view, S. 34 (2) is invalid on the ground that it infringes Art. 14 of the Constitution. It is in the circumstances unnecessary to consider whether the provisions of S. 33 and S. 34 (2) are invalid as infringing the fundamental rights conferred by Arts. I9 (1) (g) and 31 (1).44. But the invalidity of Ss. 33 and 34 (2) does not affect the validity of the remaining provisions of the Act. These two provisions are plainly severable. All proceedings which are pending before the Act came into force including those which are covered by S. 33 will, therefore, be governed by the Full Bench Formula and that in the application of the Act the special ratio for determining the allocable surplus under S. 34 (2) will be ignored, for application of the Full Bench Formula to pending proceedings on May 29, 1965, and refusal to apply the special ratio in the determination of allocable surplus under S. 34 (2) does not affect the scheme of the rest of the Act. The declaration of invalidity of S. 37 which confers upon the Central Government power to remove difficulties also does not affect the validity of the remaining provisions of the Act.