FULL BENCH FORMULA IN PAYMENT OF BONUS ACT 1965

LABOUR LAW-II
PROJECT

NAME OF FACULTY- MR. BHARAT KUMAR

NAME OF CANDIDATE – SHEENU TALREJA
ROLL NO. – 2015118
6th SEMESTER

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INTRODUCTION
A bonus payment is usually made to employees in addition to their base salary as part of
their wages or salary. While the base salary usually is a fixed amount per month, bonus
payments more often than not vary depending on known criteria, such as the annual
turnover, or the net number of additional customers acquired, or the current value of the
stock of a public company. Thus bonus payments can act
as incentives for managers attracting their attention and their personal interest towards
what is seen as gainful for their companies' economic success.

There are widely‐used elements of pay for performance and working well in many
instances, including when a fair share of an employees participation in the success of a
company is desired. There are, however, problematic instances, most notably when bonus
payments are high. When they are tied to possibly short-lived figures such as an increase
in monthly turnover, or cash flow generated from an isolated marketing action, such
figures often do not reflect a solid reliable win for a company, and they certainly do not
reflect a manager's lasting efforts to the company's best.

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 1. The Central Bank Of India vs Their Workmen on 12 May, 19591

FACTS
The dispute between the appellant Banks and their employees related, inter alia, to the
question whether the provisions of the Banking Companies Act, 1949, prohibit the grant
of bonus to bank employees. The Labour Appellate Tribunal took the view that s. 10 of
the Act did not stand in the way of granting bonus to bank employees, because bonus
according to it was not a share in the profits of the company. On appeal, it was
contended for the appellant Banks that bonus as awarded by the Industrial Courts is
remuneration within the meaning of s. 10 read with s. 2 of the Banking Companies Act,
1949, and that it was also a share in profits, and therefore, the express provisions of s.
10 read with S. 2 override the provisions of the Industrial Disputes Act, 1947, so far as
banking companies are concerned, and prohibit the award of bonus to employees of
Banks.

Section 10(1)(b)(11) of the Banking Companies Act, 1949 provided: No banking

company shall employ any person whose remuneration or part of whose remuneration
takes the form of a share in the profits of the company.

1  1960 AIR 12, 1960 SCR (1) 200

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ISSUES-

1. Does s. 10 of the Banking Companies Act, 1949 prohibit the grant of bonus to Bank
employees?

3. Whether an industrial tribunal is entitled in law to compel Banks to disclose " secret
reserves " and " other necessary provisions" made by them, for the purpose of
adjudication?

4. Whether the Full Bench formula for the payment of bonus to employees in the textile
industry is applicable to Banks?

REASONING-
that the expression " shall employ any person in s. 10 of the Banking Companies Act,
1949, means and includes " shall have in employment any person " and that in this
respect the amendment of 1956, merely makes clear what was already meant by
the section ; that the word " remuneration " in s. 10 of the Act has been used in the widest
sense and includes bonus ; that bonus in the industrial sense comes out of the available
surplus of profits, and when paid, it fills the gap, wholly or in part, between the
living wage and the actual wage. It is labour's share in the profits, and as it is a
remuneration which takes the form of a share in profits, it comes within the
mischief of s. 10 of the Act; The Banking Companies (Amendment) Act, 1956, is not a
declaratory Act, and except in the small matter of the expression " shall continue to
employ " in sub-s. (1), it does not purport to explain any former law or declare what the
law has always been. Consequently, though sec.10 as amended by the Act of I956 does
not stand in the way of the grant of industrial bonus, for the period relating to the present
appeals, the amended section had no retrospective effect.
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CONCLUSION
Accordingly, s. 10 of the Banking Act, prior to the amendment of 1956, prohibited the
grant of industrial bonus to bank employees inasmuch as such bonus is remuneration
which takes the form of a share in the profits of the banking company.

1. Workmen Of M/S. Hindustan Motors vs M/S. Hindustan

Motors,Ltd.,& Anr on 2

FACTS
The workmen of the respondent company raised an industrial dispute about bonus
claimed by them for the year 1960-61. The Industrial Tribunal applying the Full
Bench Formula held that the sum needed for rehabilitation of machinery exceeded the
surplus otherwise available and therefore no bonus was payable. Against this decision
of the Tribunal the workmen appealed to this Court and raised various
objections as to the manner in which the available surplus was calculated by the
Tribunal.

ISSUES:
Whether the employees are entitled to get bonus for the year 1960-61?

REASONING (i) On the facts and the evidence produced in the case the life of the
respondent company's machinery should be taken at an average of 15 years if the
machinery is worked in two shifts. and 10 years if it is worked in three shifts. The
artificial rule laid down in the Income-tax Act for calculation of notional depreciation

2 November, 1967, 1968 AIR 963, 1968 SCR (2) 311

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can provide no criterion at all for determining the life of the machinery, and the
Tribunal committed an error in proceeding on that basis. The life of machinery taken in
other cases is also not a correct basis for fixing the life of machinery in a particular
case. Various factory come in that affect the useful life of a machinery. Factors
such as the quality of the material used in the machines, and the nature of the material
on which the machines are to operate, very materially affect their life. Further the life
of a machine will also depend on the manner in which it is handled in a particular
factory. Consequently the correct principle is to determine the life of machinery in
each case on the evidence adduced by the parties. Further what has to be determined is
the useful life of machinery rather than its economic life. In fact one of the very major
considerations which should be taken into account is the actual practice of the
manufacturers using the machinery and, if the evidence of machinery be available, to
find out how long the manufacturers continue to use the machinery as a rule.
The fact that in the Full Bench Formula the breakdown value of machinery is taken
at 5% is certainly an aspect to be taken into account. but it cannot be accepted that a
machinery should be deemed to have useful life until it reaches the stage of having a
breakdown value of 5% No such absolute rule can be inferred. The Tribunal was wrong
in not taking into account machinery installed during the bonus year itself for making
provision for rehabilitation. If any machinery is installed in. the bonus year, the company
would be justified in claiming that it must immediately Start making provision for its
rehabilitation, though the period for rehabilitation of that machinery would only start at
the end of the bonus year. '
(ii) The multipliers given by the company in the schedule originally submitted by
the company which were not objected to by the workers were the correct basis for
Calculation of the rehabilitation cost and the Tribunal should not have departed from
them. There was no justification for taking an average of the multipliers
submitted at first and those submitted thereafter in a second schedule. The Tribunal
also was not justified in reducing the multipliers on the ground that the new machines

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which would be purchased to replace the original ones would necessarily have more'
productive capacity. There was no material at all from which the Tribunal could
justifiably have inferred that the increase in production would be so. material as to,
attract the principle of apportionment laid down by this Court in the case of the
Associated Cement Companies Ltd.
(iii) In calculating the rehabilitation requirement for the machinery the depreciation
provision made in accordance with the principles of commercial accounting has to be
deducted from the amount that would be required to purchase the new machinery for
replacement. The contention that deduction should be made only of depreciation
reserves available to the employer cannot be accepted. Such an interpretation militates
against the very purpose for which rehabilitation provision is allowed, namely, to enable
the industry to cover the difference between the amount of depreciation which is
recouped by making provision for it in accordance with the, principles of commercial
accounting and the amount that would be required to purchase the new machinery for
replacement. Therefore, in the present case, the Tribunal erred when in calculating the
provision for rehabilitation it took the entire price of the replacement machinery as
required to be provided, entirely out of profits without reducing the price to
the extent of the depreciation provided for in the accounts.
(iv) The claim of the workmen that the sum shown in the balance-sheet of the
company as development rebate reserve should be deducted from the available
surplus must be allowed. The mere statement of the General Manager on affidavit to.
the effect that the reserves had been utilized as part of the working capital could not be
accepted as evidence of the fact. When the balance-sheet itself showed that cash
amounts in the form of fixed deposits were available which were far in excess
of the development rebate reserve in question, there would be no. justification for
holding that this development. rebate reserve was not available as a liquid asset and
had been included by the company in the working capital. This development rebate

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reserve was a liquid asset available for rehabilitation and consequently liable to be
deducted when calculating the for rehabilitation requirement.
(v) If some. machines have fully run out their lives, they must necessarily be replaced
out of resources available immediately and there would be no justification for keeping
the available resources in reserve for future rehabilitation while not providing out of
those available resourcesfor immediate. replacement of machinery.
(vi) For the purpose of working 'out return on working capital in the year of bonus the
origin of the fund used as working capital is immaterial and it cannot be said that the
return must be allowed only on reserves used as working capital and not on any other
funds used as such. However the fund must be available for investment before a claim
can be made by the employer for a return on it.
(vii) The company's claim that half the amount from the following sources, namely,
(1) the profit in the profit and loss account worked out at the end of the year,
(2) depreciation reserve for the year, (3) development rebate for the year, (4) value of
discarded fixed. assets written off should be treated as 'a fund which was available
during the bonus year for being available for being utilised as working capital,
could not be accepted. There was nothing to show whether any of these amounts
became available to the company during the year and if so when they came available.

(viii) In allowing 6% return on paid-up capital in accordance with the

Full Bench Formula no question could arise of deducting the amounts invested in
subsidiary
companies from the paid-up capital because the said investment had
not been held to have come out of paid-up capital
(ix) The income of the company from interest on fixed deposits was its extraneous
income which accrued to the company without any contribution by the
workmen. This income had therefore to be excluded in calculating the available
surplus. At the same time the company could not on equitable grounds be permitted to

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claim the interest paid by it on its borrowings as business expenditure. Therefore the
interest on fixed deposits was to be treated as extraneous income only after deducting
from it the interest paid on the borrowings.

(x) The income received by the company from its foreign collaborators as
commission on sales effected by the said collaborators of their own cars in India was
extraneous income to which the company's workmen made no contribution. It was not
therefore to be taken into account in calculating the available surplus.
(xi) Calculated in the above manner the available surplus came 10 Rs. 30.56 lacs.
The Tribunal was not right in its decision that the company was not in a position to pay
bonus at all. However, though the company had earned a large amount of profit in the
year of bonus it had for quite a large number of years been running at a loss. The
available surplus being only Rs. 30.56 lacs, the workmen's demand of bonus equivalent
to six months' wages amounting to
Rs. 24 lacs was too high. It would be just and proper to allow bonus at 20% of their
annual wages which would come to Rs. 8.60 lacs.

Conclusion

The appeal is, consequently, allowed, the decision of the Tribunal is set aside and it is
hereby ordered that the Company shall pay to the workmen a total amount of Rs. 9.60
lacs as bonus, representing 20% of the annual wage of the workmen. In the circumstances
of this case, we direct parties to bear their own costs of this appeal.

2. Sree Meenakshi Mills, Ltd vs Their Workmen3

FACTS

3 : 1958 AIR 153, 1958 SCR 878

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The workmen demanded bonus for the year 1950-51, on the allegation that the
employers had made profits during the relevant year. The employers resisted the demand
on the ground that there was a trading loss in the year and as such no bonus was payable.
To determine the available surplus out of which bonus was to be paid, the employers
deducted out of their gross profits an amount for depreciation admissible under the
Income-tax Act.The industrial tribunal disallowed a portion of the depreciation and
found that there were profits in the relevant year and awarded three months bonus to
the workmen. The employers preferred appeals to the Labour Appellate Tribunal but
they were dismissed. The employers then applied to the Appellate Tribunal for a review
and the Tribunal dismissed the application holding that it had no power to review its
own decision and that even if it had the power it would not grant the review as no case
for review had been made out.
ISSUES
Whether the workmen entitled for the bonus for the year 1950-51 when the employers
had made profit during the relevant year?

REASONING that the whole of the depreciation admissible under the Income-tax Act
is not allowable in determining the available surplus. The initial depreciation
and the additional depreciation are abnormal additions to the income-tax depreciation
and it would not be fair to the workmen if these depreciations are rated as prior
charges before the available surplus is ascertained. Considerations on which the grant
of additional depreciation may be justified under the Income-tax Act are
different from considerations of social justice and fair apportionment on which the
original Full Bench formula in regard to the
payment of bonus to the workmen is based. That is why only normal depreciation
including multiple shift depreciation should rank as prior charges.
The method adopted by the industrial tribunals in determining the trading profits of the
employer is an industrial dispute, does not conform to the requirements and provisions of

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the Income-tax Act, and it would, therefore, be fallacious to assume that gross
profits determined by the industrial tribunal can be taken to be gross profits that would
necessarily be taxable under the Income-tax Act. In determining the available
surplus for payment of bonus provision for a higher amount of income tax cannot be
made merely because the claim to initial and additional depreciation has been
disallowed which increase the amount of gross profits.
CONCLUSION
In determining the question as to whether the industry has made profit, and, if so, how
much is the net surplus in a given year, provision has first to be made in respect of prior
charges. This principle has been recognized by what is often described as the Full Bench
formula as laid down in the matter of The -Mill Owners Association, Bombay v. The
Rashtriya Mill Mazdoor Sangh, Bombay (1). According to this formula, distributable
surplus has to be ascertained after providing from the gross profits for (1) depreciation,
(2) rehabilitation, (3) return at 6% on the paid-up capital, (4) return on the working
capital at a lesser but reasonable rate, and (5) for an estimated amount in respect of the
payment of income-tax. It is common ground before us that the question as to whether
the workmen's claim for bonus is justified or not must be decided in the light of this Full
Bench Formula.

3. Messrs. Ispahani Ltd. Calcutta vs Ispahani Employees Union on 6

May, 19594
FACTS
The workmen were originally employed by M/s. M.M. Ispahani Ltd.,which shortly
before the partition of India transferred its registered office from
Calcutta to Chittagong. The appellant company was incorporated on September 5,
1947 and took over the good-will and trading rights of M/s. M. M. Ispahani Ltd.

4 1959 AIR 1147, 1960 SCR (1) 24

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and, also purchased its stock-in-trade,properties and assets. Most of the shares of the
appellant were held by M/s. M. M. Ispahani Ltd. and the business of the appellant was of
the same nature carried on in the same premises with the same workmen on the
same remuneration. On the transfer of M/s.M. M. Ispahani Ltd. to Chittgong
the question arose of retrenching those workmen who were not willing to go to
Chittagong and when the appellant company came into existence it agreed to
employ those workmen. The workmen apparently agreed to the termination of their
services with M/s. M.M. Ispahani Ltd., and after receiving their provident funds and
arrears -of salaries they were appointed by the appellant. M/s. M. M. Ispahani Ltd. used
to pay puja bonus to the workmen at the rate of one month's wages and the appellant
also paid the same from 1948 up to 1952, even in the years in which the appellant
suffered losses. As the appellant did not pay puja bonus for 1953, a dispute arose and was
referred for adjudication. The workmen also claimed benefits from the appellant for the
period of service rendered by them under M/s. M. M. Ispahani Ltd.
ISSUES
Whether the workmen entitled for the puja bonus for the year 1953?

REASONING
That the workmen were entitled to the puja bonus equal to one month's wages as it was
an implied term of the employment of the workmen. Puja was a special
festival in Bengal and it had become usual with many firms there to give bonus before
Puja to their workmen. A claim for puja bonus was based either on implied agreement
or on customary payment. An implied agreement could be inferred if the following
circumstances were established:-
(i) that the payment was unbroken
(ii) that the payment had been made for a sufficiently long period; and
(iii) that it was not paid out of bounty.

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The payment: need not necessarily be at a uniform rate throughout, and it was for
the Tribunal to decide the quantum in a particular year taking into account the various
payments made in previous years. In the present case the payment was unbroken and was
not made out of bounty as it was made even in years of loss. The sufficiency of the
length of the period depended on the circumstances of each case and in the present case
the appellant had paid the bonus since its birth.
.
CONCLUSION
that the workmen were not entitled to any benefits arising out of their employment with
M/s. M. M. Ispahani Ltd. The workmen had agreed to the termination of their service
with that company, and there was no express or implied undertaking given by the
appellant regarding continuity of service when employing the workmen.

4. M/S. Tulsidas Khimji vs Their Workmen on 11 April, 19625

FACTS
The appellants are a registered partnership firm. The firm carries on business in the name
of Messrs. Tulsidas Khimji. It has six partners. It carries on four different kinds of
business. The respondents are workmen employed under the firm. Disputes arose
between the appellants and the respondents and the question referred to the Tribunal was
the quantum of bonus payable to the respondents for the year ending October 30, 1958.
The Tribunal held that the workmen were entitled to claim bonus on each of the three
alternative bases, namely, profit-sharing bonus, bonus as an implied term of service
and customary or traditional bonus on the occasion of Divali. The Tribunal fixed the
amount of bonus at one- fourth of the total basic wages earned by the workmen during
the year under reference, less the amount of bonus equivalent to one month's

5 1963 AIR 1007, 1963 SCR Supl. (1) 675

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wages already paid for theyear under reference. The Tribunal also held that the
workmen had succeeded in proving their claim for traditional or customary bonus at
the uniform rate of one month's basic wages plus dearness allowance.The Tribunal also
held that the amount deductible on account of income-tax was a little over 5 per cent of
the total amount of gross profits. The Tribunal also fixed the remuneration of the partners
at Rs. 20,000 in all. Against the award of the Tribunal, the appellants came to this Court
by special leave.

ISSUES
1.whether the claim under reference should be restricted to a claim for profit-
sharing bonus or customary bonus on the basis of implied terms of contract,
and whether it was open to the respondents to claim bonus on the basis of the
surplus profits and at the same time claim bonus on the ground of custom or
practice or implied terms and conditions of service?
2. whether the workmen should elect the basis on which they claimed bonus?

REASONING
that a sum of Rs. 53,000 should be allowed under the head of income-tax. It was not
right to give the employers the double benefit of granting deduction on the basis of
income-tax payable by each partner in respect of his share in the profit of the firm, and
at the same time adding the registered firm tax which was paid by the firm in order to
obtain certain reliefs under the Income-tax Act which they would not otherwise have
obtained. As regards the remuneration to be paid to the partners of the firm, the amount
fixed by the Tribunal was found to be inadequate, but as this Court does not function as a
regular court of appeal from the Tribunal and its function is merely to see that the law is
being properly administered in accordance with the well- settled rules of natural
justice, this Court refused to determine the amount of remuneration to be allowed to the
partners. The Tribunal was fully justified in coming to the conclusion that the traditional

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or customary bonus had been established in this Case.what is important to negative a plea
for customary bonus is the proof that it was made ex gratis and accepted as such or that
it was unconnected with any such occasion as a festival.

This Court refused to allow the respondents to prove that a bonus could be granted as an
implied term of contract of service. Such a case had not been made out in the statement
of the case. This Court is very strict in enforcing the rules of pleading as laid down in the
Supreme Court Rules. Those rules have been laid down with a view to help the court
in narrowing down the controversies between the parties and also for the purpose of
giving notice to the other side that a particular question will be raised and that party
should be ready to meet that particular point.

CONCLUSION
Tbough a firm is regarded as an entity for the purpose of income-tax, a partnership is not
an entity at law and it is the partners who constitute the employers for all purposes other
than income-tax. It is the tax payable by the individual partners on their share income
from the firm without taking into account any income derived by them from other
sources and without allowing for any losses suffered by them in their other ventures
that would constitute the item of income-tax payable by the employer which would be
the deductable head for the purposes of computing the available surplus. The registered
firm tax paid by the appellant firm has to be added to the tax payable by the individual
partners on their share of the profits arriving at the total of the income-tax payable by
the business. The amount of registered firm tax payable by the firm should be added to
Rs. 53,000/and odd payable by the partners individually in respect of their shares of
profits and thus the sum deductable under the head 'Income-tax Payable, comes to Rs.
60,000. The amount reasonably allowable for remuneration to the partners should be Rs.
40,000. This amount was arrived at by considering the fact that the partners were
working for the firm, and if they had not done so somebody else would have been

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employed, and he would have been paid for hi work. The bonus to be awarded to the
respondents should be reduced from three months' basic wages to the basic wages for a
period of two months. The declaration granted by the Tribunal with regard to customary
bonus is not justified and the same is set aside.

6. The Rashtriya Mill Mazdoor vs The Apollo Mills Limited And on 10

March, 19606

FACTS

In 1951 on account of the failure of the monsoon, generation of electricity from the
Hydro-Electric System was affected and it was found necessary to reduce the
consumption of electricity. The Government of Bombay passed an order under s. 6A(1)
of the Bombay Electricity (Special Powers) Act, 1946, regulating the use of
electrical energy and the respondent Mills were compelled to reduce the working time.
For the period during which the short working continued the workers claimed their wages
and bonus or compensation in lieu thereof.' The Industrial Court to which the matter was
referred for arbitration under S. 73 Of the Bombay Industrial Relations Act, 1946,
made an award directing all the respondent Mills to pay compensation to the
employees. The Mills pleaded that no compensation was payable because (1) the
closure of the Mills was in pursuance of the directions made by the Government under
the Bombay Electricity (Special Powers)Act, 1946, and, therefore, s. 11(1) of that Act
barred the reference, (2)the Industrial Court had no jurisdiction to entertain the claim
for compensation as the matter was covered by Standing Orders 16 and 17 which were
determinative of the relations between the workmen and their employers under S. 40(1)
of the Bombay Industrial Relations Act, 1946.

6 1960 AIR 819, 1960 SCR (3) 231

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ISSUES
Whether the workers entitled to claim compensation and bonus thereof?

REASONING
(1) that s. 11 (1) of the Bombay Electricity (Special Powers) Act, 1946, barred only
proceedings arising from the interference with the supply of electric energy and
protected those who acted in pursuance of orders passed under that Act; the section
did not prevent the raising of an industrial dispute. (2)that Standing Orders 16 and 17
contemplated only cases of compensation in lieu of notice and wages for the period of
closure, and did not cover cases of compensation for closure that the provisions of
S.73 of the Bombay Industrial Relations Act, 1946, were wide enough to cover the
reference in the present case and that the claim for compensation was not barred by
Standing Orders 16 and 17, read with s. 40(1) of the Act.

7. Clerks Of Calcutta Tramways vs Calcutta Tramways Co. Ltd on 11

October, 19567

FACTS
It is well settled that the decisions of a Tribunal on questions of fact are final
and that the Supreme Court would interfere only in cases where (1) the
Tribunal acts in excess of the jurisdiction conferred upon it under the statute or
regulation creating it or where it ostensibly
fails to exercise a patent jurisdiction; (2) there is an error apparent on the face of the
decision; (3) the Tribunal has erroneously applied well-accepted principles of
jurisprudence. The Bengal Chamber of Commerce of which the respondent Company

7 Equivalent citations: 1957 AIR 78, 1956 SCR 772

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was a member, had made an investigation into the cost of living index for the middle
class families and, fixed the dearness allowance payable to the employees of the
mercantile firms in Calcutta.Before the Industrial Tribunal as well as the Labour
Appellate Tribunal the claim was put forward on behalf of the appellants (the clerks of
the respondent Company) that the dearness allowance for them should be at the same
rates as those decided upon by the Bengal Chamber of Commerce in respect of the
middle classes to which the appellants belonged and they contended that the
procedure adopted by the Labour, Appellate Tribunal leaving out 20 points of the living
cost index un-neutralised was not justifiable.
ISSUES
Whether the employees entitled to the bonus and dearness allowance?

REASONING that in matters of the grant of dearness allowance there cannot be a hard
and fast rule applicable to all kinds of employees and except in the very lowest class of
manual labourers it is not proper to neutralise the entire rise in the cost of living by
dearness allowance. There are different grades among the middle classes and the
appellants cannot claim to have the same rates of dearness allowance as those fixed for
the clerks of the mercantile firms by the Bengal Chamber of Commerce.

8. The New Maneck Chowk Spinning And vs The Textile Labour on 7

December, 19608

FACTS

8 Equivalent citations: 1961 AIR 867, 1961 SCR (3) 1

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The respondent, the Textile Labour Association at Ahmedabad, entered into a five years
pact with the Ahmedabad Mill- Owners' Association, representing the member mills,
in regard to payment of bonus to the employees of the mills for the years 1953-57.
Rehabilitation provided in the Agreement differed vitally from rehabilitation as
explained in that decision, the Agreement provided for payment of a minimum bonus
even though there may be no available surplus and even though the particular mill might
have made actual loss, and while the Full Bench Formula, as approved by the Supreme
Court treated a particular year as a self- sufficient unit, there was provision for set-off
and set-on in the Agreement. The Industrial Tribunal to which the dispute was referred
in the. form of sixty-six references, one relating to each mill, took the view that the pact
did not in any way run counter to the law laid down by the Supreme Court, and that the
extension of the agreement for one more year would help in promoting peace in the
industry in Ahmedabad.

ISSUES
Whether the full bench formula valid for determining the bonus and also employees
entitled to the bonus?
REASONING
that the Agreement in question departed from the Full Bench Formula in the matter of
bonus, in certain vital aspects and that the Tribunal when it extended the Agreement
for the year 1958 was ignoring the law as laid down by the Supreme Court as, to what
profit, bonus,was and how it should be worked out. The Tribunal had no power by
extending the Agreement to make it possible for payment of a minimum bonus for the
year 1958 even when there was either insufficient available surplus to pay bonus or no
available surplus at all or even actual loss. The jurisdiction of the Tribunal was limited
by its terms of reference, which was not on industry-cum-region basis, but one for each
mill to consider the question of bonus for each mill for theyear 1958 and,
consequently, it had no jurisdiction to apply the principle of set-off and set-on to be

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found in the Agreement in respect of payment of bonus or take into account the profits of
the industry as a whole in Ahmedabad. It is open to an industrial court in an appropriate
case to impose new obligations on the parties before it or modify contracts in the interest
of industrial peace or give awards which may have the effect of extending Agreement or
making new one, but this power is conditioned by the subject matter with which it is
dealing and also by the existing industrial law and it would, not be open to it while
dealing with a particular matter before it to overlook the industrial law relating to that
matter as laid down by the legislature or by the Supreme Court.
CONCLUSION
The impugned five years pact was not contrary to industrial law as laid down by the
Supreme Court. The pact also did not infringe the principle that bonus depends upon
profits; but it applied the same by evolving a formula of set-off and set-on to a
complicated situation of the entire industry in a particular area for a number of years.
The Full Bench Formula in regard to rehabilitation was not contravened by the pact.
The decisions of the SupremeCourt did not preclude employers and employees from
agreeing to a particular valuation of the block having regard to the circumstances
obtaining at the time of the agreement. Neither the Full Bench Formula nor the
decisions of the Supreme Court affirming it precluded the Tribunal from extending the
terms of the pact by another year if that was necessary to maintain industrial peace.

9. The State Of Mysore vs The Workers Of Gold Mines on 22 May,

19589

9 Equivalent citations: 1958 AIR 923, 1959 SCR 895

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FACTS
This was an appeal against an award of bonus to the workmen of the Mysore gold
mining industries, then under company management. A covenant in the lease executed in
favour of the companies permitted them to create a reserve fund to meet depreciation
and development expenditure by contributing 150 of the revenue expenditure to it and
deduct the same in calculating the net surplus. The covenant imposed no obligation on
the lessees to create such a fund and was obviously intended to provide a basis for the
lessor's claim to royalties. It was contended on behalf of the employer companies that
the formula for determination of available surplus as evolved by the Full Bench of the
Labour Appellate Tribunal in Mill Owners Association, Bombay v. The Rashtriya Mill
Mazdoor Sangh, Bombay, (1950) L.L.J. 1247, was inapplicable to gold mining industries
which had special and distinguishing features of their own and that the
employers were entitled under the said covenant to deduct 15% of the revenue
expenditure as a prior charge in calculating the available surplus. It was their case that,
thus calculated, there was no available surplus out of which bonus could be awarded. The
Tribunal was not impressed by this argument, disallowed the claim made on the basis of
the covenant, applied the formula, upheld the claim for depreciation but as there
was no evidence to show that any sums had actually been spent for rehabilitation for
the years in question, refused to make any allowance on that head. It was further urged
in appeal that since the companies were misled by previous awards passed in their
favour in not preferring any specific claim for reliabilitation, apart from the general
claim under the covenant, they should, in case their general claim was disallowed, be
permitted to do so.
ISSUES
Whether the employees entitled to bonus?

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REASONING that the formula evolved by the Labour Appellate Tribunal and
generally approved by this Court and the categories of prior charges prescribed
by it were
comprehensive enough to cover each individual case and there was no reason why it
should not apply to the gold mining industries as well.

CONCLUSION the concept of social and economic justice on which the claim of
bonus is founded apply equally to gold mining industries as to any others and the
formula, which had for its purpose the ascertainment of the available surplus to make an
award possible, owed its origin to the same principles of social and economic justice
enshrined in the Directive Principles of State Policy enunciated by Arts. 38 and 43 Of
the Constitution. It is for the Industrial Tribunal to determine in each particular case,
on the evidence adduced by the employers and having regard to the special
requirements of the industry, which items of expenditure should be admitted under
each of the four categories prescribed by the formula and in doing so they should apply
the principles laid down and discussed in decided cases in a flexible manner suited to
the requirements of each case. As in the present case, the employers were misled by the
previous awards, it was only pro-per that they should be allowed an opportunity to
prove their claim for Rehabilitation apart from the general claim under the covenant.
10. Rashtriya Mill Mazdoor Sangh, vs The Model Mills, Nagpur And
Anr on 18 September, 198410

FACTS
The appellant-Union served a notice of demand for the grant of bonus for the period
1964-65 to 1967-68. The matter was taken into conciliation. The Conciliation Officer
recorded a failure, issued a certificate under Section 73A of the Bombay Industrial

10 Equivalent citations: 1984 AIR 1813, 1985 SCR (1) 751

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Relations Act, 1946 certifying that the dispute was not capable of being settled by
conciliation. The Union thereupon made four independent references to the Industrial
Court, for the grant of bonus for each of the four accounting years 1964-65 to 1967-68.
The Union further alleged that it could not make a specific demand for bonus calculated
at a certain percentage of the salary as it had not got the requisite information about the
financial position and the balance sheet of the Employer, and that the Industrial Court
should compute the bonus which becomes payable under the Bonus Act, and award the
same to the workmen.

The employer resisted the references contending that once a notified order was issued
under Section 18A of the Industries (Development and Regulation) Act, 1951 appointing
an authorized controller in respect of an industrial undertaking, it was run by the
authorised controller under the authority of a Department of the Central Government and
therefore, in view of the provisions contained in Section 32(IV) of the Bonus Act its
employees were excluded from the application of the Bonus Act and the references must
consequently be rejected. The Industrial Court upheld the aforesaid contention on behalf
of the employer that having regard to the provisions contained in Section 32(IV) of the
Bonus Act read with Section 18A of the IDR Act, the workmen employed by the
employer were excluded from the operation of the Bonus Act as it was not applicable to
the employer. The Industrial Court however rejected the alternative contention that even
if the workmen employed by the employer were not entitled to bonus under the Bonus
Act, they were yet entitled to claim bonus apart from the Bonus Act as a norm of
industrial relations by observing that as the demand was made for bonus under the Bonus
Act, and the alternative demand was not made before the Conciliation Officer, the scope
of the references could not be enlarged to cover the same.

ISSUES

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(1) On the appointment of the authorised controller under Section 18A of the IDR Act
by the Central Government in respect of an industrial undertaking whether the
undertaking acquires the status of an establishment engaged in an industry carried on
under the authority of the Department of the Central Government?
(2) Whether the employees employed in such an industrial undertaking were excluded
from the operation of the Bonus Act?

REASONING 1(a) If on the issue of a notified order appointing an authorised

controller Sec.18AIndustries (Development and Regulation) Act 1951, the
management of the industrial undertaking undergoes a change, yet it does not become
an establishment engaged in an industry carried on by the department of the
Central Government, and therefore its employees would not be excluded from the
operation of the Payment of Bonus Act1965 as provided in Sec. 32(IV)
1. (b) The Industrial Tribunal was clearly in error in rejecting the references holding
that the workmen of the respondent were excluded from the operation of the
Bonus Act.
1.(c) The Award of the Industrial Tribunal rejecting the references is quashed
and set aside and the matter remitted to the Industrial Tribunal for disposal on merits.

2.(a) TheIndustries (Development and Regulation) Act, 1951 was enacted to confer
power on the Central Government to provide for development and regulations of
scheduled industries. With a view to regulating the industrial expansion of
the country and to lay the infrastructure for the same, the Central Government armed
itself with the powers to order investigation into the affairs of an industrial
undertaking as also, if necessary of a scheduled
industry as a whole. The investigation may be caused to be made where there has been
or likely to be a substantial fall in the volume of production or marked deterioration in
the quality of an article or an unwarranted rise in the price or for conserving any

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resources of national importance. On receipt of the report of investigation, the
Central Government could give necessary directions. These directions
are statutory in character.
2. (b) The Act provides not for taking over of the industrial undertaking. It provides
for control of management by giving directions or for change of management.
Where the industrial undertaking is owned by a company governed by the Companies
Act in force at the relevant time, the management would generally vest in the Board
of Directors, and/or the Managing Director, as the case may be. Where it is a firm or a
proprietary concern the partners or proprietors as the case may be, would be in the
saddle of management.
2.(c) On the issue of a notified order appointing an authorised controller, the person
in charge of management including persons holding office as Managers or Directors of
the industrial undertaking immediately before the issue of the notified order shall be
deemed to have vacated their office as such. The contract of management
between the industrial undertaking and any managing agent or any
director thereof holding office immediately before the issue
of the notified order shall be deemed to have been terminated. Subject to the
limitation specified in Sec. 18E, the Companies Act in force at the relevant
time will continue to apply to such undertaking in the same manner as it applied thereto
before the issuance of the notified order under Sec. 18A.
2. (d) The significant consequence that ensues on the issue of a notified order
appointing an authorized controller is to divert the management from the present
managers and to vest it in the authorised controller. This change of management does
not tantamount to either
acquisition of the industrial undertaking or a take over of its ownership.The industrial
undertaking continues to be governed by the Companies Act or the Partnership
Act or the relevant provisions of law applicable to a proprietary concern. The only
change is the removal of managers

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appointment of another manager andt o safeguard his position restriction on the
rights of
shareholders or partners or original proprietor. This is the net effect of the appointment of
an authorised controller by a notified order.
3.The expression 'under the authority of and department of the Central Government'
would in ordinary parlance mean that the department is directly responsible
for the management of the industrial undertaking. This responsibility may cover
amongst others, financial responsibility as well. Power to regulate management or
control the management is entirely distinguishable from the power to run the industry
under the authority of the Central Government.
4. The substitution of the management ordered under Sec. 18-A does not tantamount
to the industrial undertaking being taken over by the department of the
Central Government. Nor could it be said to be run under the authority of the
department of the Central Government. As the authorised controller enjoys all the
powers of directors conferred by the relevant provisions of the Companies Act, be can
exercise that power subject of course to any restriction or limitation on his power
specified in the notified order or under the general supervision of the Central
Government. But this power is subject to the inbuilt limitation that it can be exercised
for regulating the management of the industrial undertaking. Neither its identity nor its
ownership is affected in any manner. The change in personnel of management of the
industrial undertaking for a specified period can never make the industrial undertaking
one engaged in an industry carried on under the authority of the Central Government.
5. Under Sec. 16 of the IDR Act, the Central Government enjoys wide powers to
issue directions to the industrial undertaking as may be appropriate in the
circumstances for all or any of the purposes set out in the various sub- clauses of Sec.
16(1). This power to give directions without
appointing an authorised controller or to appoint an authorised controller giving
him specified directions is of a regulatory nature to be exercised with a view to

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regulating the managerial functions of an industrial undertaking so as to achieve
certain objects or to rectify the mis-management in larger national interest without in
any manner affecting the identity, the status or the ownership of the industrial
undertaking. The appointment of the authorized controller would not make the
industrial undertaking one run under the authority of the department of the Central
Government. While exercising power of giving directions under Sec. 16 the existing
management is subjected to regulatory control, failing which the management has to
be replaced to carry out the directions. In either case the industrial undertaking retains
its identity, personality and status unchanged.
CONCLUSION
In the instant case, the liability arose for the period after the management of the
undertaking had been taken over by the Central Government by appointing an
authorized controller under Sec. 18A of the IDR Act. Therefore, the liability to pay the
bonus if awarded would be of the National Textile Corporation.

11. The Associated Cement Companies ... vs Their Workmen on 3 March,

196011

FACTS
The appellant's workmen were represented by a Union called Kamdar Mandal Cement
Works, Porbandar. The registration of the said union was cancelled and that led to the
formation
of two Unions, the Cement Kamdar Mandal and Cement Employees Union. The Cement
Kamdar Mandal gave two notices one after another to the appellant, purporting to
terminate two

11 Equivalent citations: 1960 AIR 777, 1960 SCR (3) 157

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previous awards, wherein the defunct union represented the workmen. Thereafter the
Mandal presented fresh demands and the dispute was referred to the Tribunal. The
second union, the Cement Employees' Union which represented the majority of the
appellant's workmen at Porbandar had been impleaded in the proceedings. The
appellant raised preliminary objections before the Tribunal against the competency of the
reference inter alia on the ground that the award in question by which the parties
were bound had not been duly terminated under s. 19(6) of the Act in as much as the
union which purported to terminate the said award represented only a minority of
workmen bound by it. The Tribunal by its interlocutory judgment found against the
appellant. The dispute between the parties centres round the question as to who can
issue the notice terminating the award on behalf of workmen who are bound by the
award as a result of s. 18 of the Act.
ISSUES
1.Whether a registered trade union representing a minority of workmen governed
by an award can give notice to the other party intimating its intention to
terminate the award under s. 19(6) of the Industrial Disputes Act, 1947?

REASONING that the effect of s. 18 is that an award properly made by an industrial

tribunal governs the employer and all those who represent him under s. 18(c) and the
employees who are parties to the dispute and all those who are included in s. 18(b) and
(d). On a fair and reasonable reading of s.19(6), the true position is that, though the
expression "any party bound by the award" refers to all workmen bound by the award,
notice to terminate the said award can be given not by an individual workman but by a
group of workmen acting collectively either through their union or otherwise, and it is
not necessary that such a group of workmen acting collectively either through their
union or otherwise, should represent the majority of workmen bound by the award.

CONCLUSION

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Thus it is open to a minority of workmen or a minority union to terminate the award by
which they, along with other employees, are bound just as much as it is open to
them to raise an industrial dispute under the Act.

13. Muir Mills Co., Ltd vs Suti Mills Mazdoor Union, Kanpur on 19
November, 195412
FACTS
The term bonus is applied to a cash payment made in addition to wages. it generally
represents the cash incentive given conditionally on certain standards of
attendance and efficiency being attained. The employee claimed the bonus for the
particular relevant year. During the year 1948 the appellant made a profit of Rs.
11,97,648-11-9. It paid 24 3 per cent. dividend on ordinary shares, being the maximum
that could be paid under the Public Companies (Limitation of Dividend) Ordinance of
1948 and also paid to the workers their full share of bonus at annas 4 in a rupee of their
basic earnings. During the year 1949 the selling rates for cloth and yarn were controlled
by the Government and were approximately 4 per cent. below those obtained in 1948.
The basic wages were increased from the 1st December, 1948, by order of the
Government of Uttar Pradesh and the total wages paid were therefore higher than those in
the previous year. There was moreover indiscipline amongst the workers and production
suffered. There was a strike in the month of October and the mills were closed for nearly
a month. Further the management were unable to secure cotton which resulted in the
curtailment of the working hours. As a result of all these circumstances the appellant
suffered a trading loss of Rs. 5,02,563-1-10. A sum of Rs. 2,50,000 being the excess
reserve for taxation was written back and a sum of Rs. 10,01,871-13-5 being the amount
of reserve transferred from the investment account was also brought in. An aggregate

12 Equivalent citations: 1955 AIR 170, 1955 SCR (1) 991

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sum of Rs. 12,51,871-13-5 was thus brought into the balance- sheet by these two
transfers. The trading loss was deducted from this amount leaving a credit balance of Rs.
7,49,308-11-7 and that amount was shown as the profit for the year 1949 in the balance-
sheet for that year. The balance which had been brought forward from the previous year
was added thereto and a dividend of 243/4 per cent. was paid to the ordinary
shareholders. The appellant also paid ex gratia to the workmen bonus at the rate of annas
2 per rupee of their basic earnings making it clear by their notification dated the 7th
April, 1950, that the directors had sanctioned the payment at that rate in spite of the
appellant having suffered a trading loss for the year, that it was being paid entirely at the
discretion of the appellant and was not related to or connected with any contract of
employment of any worker.
ISSUES-
Whether the employee entitled to bonus for relevant year?
REASONING
There are two conditions, which have to be satisfied before a demand for bonus can be
justified and they are, (1) when wages fall short of the living standard and (2) the
industry makes huge profits part of which are due to the contribution which the workmen
make in increasing production. The demand for bonus becomes an industrial claim when
either or both these conditions are satisfied. The formula for the grant of bonus is as
follows:- As both labour and capital contribute to the earnings of the industrial concern,
it is fair that labour should derive some benefit, if there is a surplus after meeting prior
or necessary charges, The first charges on gross profits are
(1) provision for depreciation. (2) reserves for rehabilitation, (3) a return at 6 per
cent. on the paid up capital and (4) a return on the working capital at a lesser rate than
the return on paid up capital. The surplus that remained after meeting the aforesaid
deductions would be available for distribution as bonus. The claim for bonus can be
made by the employees only if as a result of the joint contribution of capital and labour
the industrial concern has earned profits. If in any particular year the working of the

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industrial concern has resulted in loss there is no basis nor justification for a
demand for bonus. Bonus is not a deferred wage. If it were so, it would necessarily
rank for precedence before dividends. The dividends can only be paid out of profits and
unless and until profits are made no occasion or question can arise for distribution of any
sum as bonus amongst the employees. Social justice is a very vague and indeterminate
expression and no clear cut definition can be laid down which will cover all the
situations.
CONCLUSION The concept of social justice does not emanate from the fanciful
notions of any particular adjudicator but must be founded on a more solid foundation.
Industrial Tribunals are Tribunals within the meaning of Art. 136 and Art. 136 has
vested in the Supreme Court exceptional and overriding power tointerfere where it
reaches the conclusion that a person has been dealt with arbitrarily or that a Court or
Tribunal within the territory of India has not given a fair deal to a litigant.

14. Gujrat Water Resources Dev. vs Baldevji Mohanji Solanki on 18

April, 2006

FACTS
The service of respondent workman was terminated on 15th July,1989. Industrial dispute
was referred for adjudication and award was passed by Labour Court, Ahmedabad in
Reference No. 1691 of 1992 on 21st November,2001 granting reinstatement with
continuity of service and also claimed for bonus. This award was published on 9th
April,2001 which was received by petitioner on 5th September,2001. This award is
challenged by petitioner in present petition.
ISSUES
Whether the employee entitled for reinstatement and bonus thereof?

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REASONING
Since it has not yet been possible to complete bonus calculations for all these years, it is
hereby agreed between the Rashtriya Mill Mazdoor Sangh, Bombay, and the Moon Mills
Ltd, Bombay, that under the Bonus Agreement the Moon Mills should pay a bonus at the
rate of 4.8 per cent for each of the years 1953, 1954 and 1955 as a tentative payment.

CONCLUSION In the circumstances of this case, we do not consider that there is such
acquiescence on the part of the appellant as to disentitle it to a grant of a writ under Art.
226 of the Constitution. It is true that the issue of a writ of certiorari is largely a matter of
sound discretion. It is also true that the writ will not be granted if there is such negligence
or omission on the part of the applicant to assert his right as, taken in conjunction with
the lapse of time and other circumstances, causes prejudice to the adverse party.

15. Mill Owners Association, Bombay v. The Rashtriya Mill Mazdoor

Sangh,13
According to this formula, distributable surplus has to be ascertained after providing
from the gross profits for (1) depreciation, (2) rehabilitation, (3) return at 6% on the paid-
up capital, (4) return on the working capital at a lesser but reasonable rate, and (5) for an
estimated amount in respect of the payment of income-tax. It is common ground before
us that the question as to whether the workmen's claim for bonus is justified or not must
be decided in the light of this Full Bench Formula.

13 1955 AIR 170, 1955 SCR (1) 991

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