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

1. During the pendency, before the Industrial Court, Bombay, of a reference under S. 73-A ofthe Bombay Industrial Relations Act, 1946, which arose out of a demand for payment of bonus for the years 1961 and 1962, the Payment of Bonus Ordinance 3 of 1965 was promulgated by the President on May 29, 1965, with immediate effect. The representatives of the workmen claimed that even if the plea of the employers that the profit and loss account of the establishment for the years in question disclosed a loss, the Ordinance governed the dispute and that the employees were entitled to receive bonus at the minimum rate of 4 per cent of the salary or wages or Rs. 40 whichever is higher. The Industrial Court upheld the plea of the workmen and directed the employers subject to the provision of the Bonus Ordinance, 1965, to pay to each employee bonus for the year 1962 equivalent to 15 days of the salary or wages or Rs. 40 whichever is higher.2. With special leave, the employers have appealed to this Court and they challenge the validity ofthe Payment of Bonus Act, 1965, which replaced Ordinance 3 of 1965, and especially of the provisions under which bonus at minimum rate is made payable under theJalan Trading Co. Pvt. Ltd. (appellant) was the opposite party to an industrial dispute concerning a claim for bonus for the years l961, 1962 raised by the workmen of the company represented by the Mill Mazdoor Sabha, Bombay (respondents). The Sabha gave a notice of change on May 13, 1963 and demanded 25 per cent of the total wages as bonus for each of the two years. This demand was refused by the employers on the ground, among others, that there was no surplus as the Company was carrying forward a big loss. Conciliation was tried but failed and a reference was made by the Sabha to the Industrial Court, Maharashtra, Bombay under S. 73-A of the Bombay Industrial Relations Act. While this reference was pending the payment of Bonus Ordinance of 29th May, 1965 came into force. Applying S. 10 of the Ordinance the Industrial Court awarded for the year 1962, 4 per cent of the total salary or wage or Rs. 40 whichever was greater) to the workmen entitled under the Ordinance, regardless of the absence of profit and set down the dispute concerning 1961 for trial in this appeal, by special leave against the said order the validity of S. 10 of the Payment of Bonus Act, which received the assent of the president on 25th, September 1965 and replaced the Ordinance with a few changes, is challenged.

Reasoning:
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.