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PETITIONER: JALAN TRADING CO. (PRIVATE LTD.)

       Vs.

RESPONDENT: MILL MAZDOOR UNION(With Connected Petitions)

DATE OF JUDGMENT: 05/08/1966

BENCH: SHAH, J.C. BENCH: SHAH, J.C. WANCHOO, K.N. HIDAYATULLAH, M. SIKRI, S.M. RAMASWAMI, V.

CITATION:  1967 AIR  691            1967 SCR  (1)  15  CITATOR INFO :  R          1968 SC 162  (18)  RF         1968 SC1138  (35)  E          1968 SC1232  (53)  E          1970 SC 778  (11)  F          1970 SC1421  (3)  RF         1970 SC1765  (10)  R          1972 SC1690  (20)  D          1974 SC 960  (38)  R          1974 SC1300  (74)  RF         1975 SC 511  (17)  RF         1976 SC1455  (30)  RF         1980 SC1789  (36)

ACT: Constitution  of  India, 1950, Arts.  14,  31(1)-Payment  of Bonus  Act,  1965,  ss. 10,  33,  36,  37--sections  whether discriminatory-Section 10 whether deprivation of property.

HEADNOTE: During the pendency before the Industrial Tribunal,  Bombay, of  a  reference  under s. 73-A  of  the  Bombay  Industrial Relations  Act,  1946, which arose out of a demand  for  the 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  establishment for the years in question disclosed a loss, was correct, the ordinance  governed the dispute and that the employees  were entitled to receive bonus, at the minimum rate of 4% of  the salary  or  wages  or  Rs. 40  whichever  was  higher.   The Industrial Court upheld the plea of the workmen and directed the  employers  subject  to  the  provisions  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  was  higher.  With special  leave  the  employers appealed  to this Court and challenged the validity  of  the payment  of Bonus Act, 1965, which repealed Ordinance  3  of 1965  and especially of the provisions under which bonus  at

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minimum rate was made payable under the Act. HELD:   (i)   The  impugned  legislation  was   within   the legislative  competence  of Parliament and therefore  not  a colourable exercise of power or a fraud on the Constitution. [27 B] Express Newspapers (Private) Ltd. v. Union of India,  [1959] S.C.R. 12 and K. C. Gajapati Narayan Deo & Ors. v. State  of Orissa, [1954] S.C.R. 1, referred to. (ii) The  power  to exempt certain establishments  from  the operation  of  the Act given to the  appropriate  Government under s. 36 was not an unguided power because the Government was enjoined to take public interest, the financial position of the establishment, and other relevant circumstances  into consideration  before exercising the said power.  There  was therefore no excessive delegation of leg= authority by s. 36 and the section was valid, [31 F-G] (iii)     Per Wanchoo, Shah and Sikri, JJ.-Section 10 is  an integral  part  of a scheme for providing for a  payment  of bonus at rates which do not juctuate from year to year.   It is  not  in  the interest of capital or  labour  that  there should  be  wide fluctuation in the payment of bonus  by  an establishment from year to year. [33 H] The  object of the Act being to maintain peace  and  harmony between  labour  and capital by allowing  the  employees  to share the prosperity of 16 the  establishment  reflected by the profits earned  by  the contributions  made  by  capital,  management  and   labour, Parliament has provided that bonus in a given year shall not exceed 1/5th and shall not be less than 1/25th of the  total earning  of each individual employee, and has directed  that the  excess shall be carried forward to the next  year,  and that the amount paid by way of minimum bonus not absorbed by the available profits shall be carried to the next year  and be  set  off against the profits of  the  succeeding  years. This  scheme  of prescribing maximum and  minimum  rates  of bonus together with the scheme of ’set off’ and ’set on’ not only secure, the right of labour to share in the prospertity of  the establishment but also ensures a reasonable,  degree of uniformity. [34 C-D] Equal  protection  of the laws is denied if in  achieving  a certain  object persons, objects or  transactions  similarly circumstanced  are  differently  treated  by  law  and   the principle  underlying  that  different  treatment  ha,,,  no rational  -relation to the object sought to be  achieved  by the law.  Examined in the light of the object of the Act and the  scheme  of  set off and ’set  on’,  the  provision  for payment of minimum bonus cannot be said to be discriminatory between  different  establishments which are unable  on  the profits of the accounting year to pay bonus merely because a uniform  standard  of minimum rate of bonus  is  applied  to them. [34 F] Kunnathat  Thathunni  Moopil  Nair v. State  of  Kerala  and Another, [1961] 3 S.C.R. 77, distinguished. Section   10   undoubtedly   places  in   the   same   class establishments  which  have  made  inadequate,  profits  not justifying  payment  of  bonus,  establishments  which  have suffered  marginal  loss,  and  establishments  which   have suffered  heavy  loss.  The classification so  made  is  not unintelligible as all establishments which are unable to pay bonus  under  the scheme of the Act, on the  result  of  the working of the establishment,, are grouped together. [35 F] Section 10 therefore is not open to attack on the ground  of denial of equality under Art. 14. [36 C] Nor  was  the  attack under Art. 31(1)  well  founded.   The

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article 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  under  Art. 31(1)  is  available  only  if the  deprivation  is  not  by authority   of  law.   There  was  however  deprivation   by authority of law in the present case. [36 F-H] Per  Hidayatullah,  (Ramaswami, J.  concurring)  Taking  the provision  for minimum bonus with the provision for set  off it can hardly be said that the section is so exorbitant that it  amounts to deprivation of the property of the  employers with a view to giving it to the workmen. [56 E-F] The  observations  in Moopil Nair’s case, wide as  they  may appear, must not be extended by analogical application to  a case   of  minimum  bonus  which  is  intended  to   promote industrial peace and to be a first step towards the goal  of need-based  wage.  Even if the payment of minimum  bonus  is viewed an compulsory payment of wage, the power to impose it as  part  of minimum wage is not lacking.  It  must  not  be forgotten  that  the  fixation  of  minimum  wage  was  also criticised along the same lines but was held justified.  ’Me differentials,  the  paying capacity  of  establishments  or absence of profit made no difference. (56 G-H] 17 Kunnathat  Thathunni Moopil Nair V. State of Kerala &  Anr,. [1961] 3 S. C. R. 77, distinguished. Edward  Mills  Co.  Ltd. Beawar v.  State  of  Ajmer,[1955]1 S.C.R, 735, Bijay Cotton Mills Ltd. v. State of Ajmer [1955] IS.C.R. 752, Express Newspapers (Pvt.) Ltd. & Anr. v.  Union of  India & Ors., [1959] S.C.R.12 and U. Unichoyi  &  Ors.v. State of Kerala, [1962] 1 S.C.R. 946, relied The  provision for payment of 15 days’ wages to  workmen  as bonus irrespective of profits is a measure well-designed  to keep  industrial  peace and to make way for  the  need-based wage which the Tripartite Conference emphasized Some unequal treatment  can  always  be made to appear  when  laws  apply uniformly.    Two   establishments   cannot   be    entirely Differences must exist but that does not prevent the  making of  uniform  laws  for  them provided the  law  made  has  a rational  relation to the object sought to be  achieved  and the  inequality is trivial or hypothetical.   Classification can only be insisted upon if it is possible to classify  and a  power  to  classify need not  always  be  exercised  when classification is not reasonably possible.  Section 10  does not lead to such inequality as may be called discrimination. [57 D-E] (iv) Per Wanchoo, Shah and Sikri, JJ.-Application of the Act retrospectively  under  s.  33  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 win be governed by 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 a 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 of subsequent years.  Assuming that  the classification was founded on some intelligible differential which distinguish 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

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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  cir- cumstanced  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. [40 C-G] Liability  imposed by the Act for payment of bonus  is  more onerous  than the liability which had arisen under the  Full Bench  Formula prior to the date of the Act.  Imposition  of this onerous liability depending solely upon the  fortuitous circumstance  that  a dispute relating to bonus  is  pending between  workmen or some of them immediately before May  29, 1965,  is plainly arbitrary and classification made on  that basis is not reasonable. [40 HI Discrimination also results from the distinction made in the section between a dispute pending before, this Court or  the High Court and one 18 pending  before the Industrial Tribunal or  the  appropriate Government,  the  former  not being  treated  as  a  pending dispute  for  the  purpose of the  section.   There  is  no, logical basis for the distinction. [41 C] Per Hidayatullah and Ramaswami, JJ. (dissenting) :  Sections 33  by providing uniformly for all cases pending on May  29, 1965,   without  any  discrimination   between  them,,   has established   a   rational  classification.    The   section therefore  cannot  be  said  to  be  invalid  by  reason  of inequality. [64 E-F] In s. 33 no note was taken of cases pending before the  High Court and Supreme Court because the jurisdiction of the High Courts  and  the  Supreme Court  is  either  supervisory  or appellate  and the intention was to cover cases in which  no decisions  of  the  authorities  appointed  under  the   law relating  to,  industrial disputes was yet  made.   Disputes prior to 1962 were not taken note of because a date line had to  be fixed and 1962 was the ’rational date to fix  because the Bonus Commission began its deliberations that year.  [63 G] In  several  statutes  a  date  is  generally  selected   to demarcate  pending cases and the selection of the  date  has never been challenged successfully if there is some rational ground for its selection.  If the resolution of the  dispute by the instrumentality of the Act was contemplated, the  Act had  also to say which dispute would be so resolved and  the only  rational  date to select was the, date  on  which  the Ordinance  was promulgated.  Thus the pendency  of  disputes with reference to the Ordinance, and reopening of accounting years  up to, the year in which the Bonus  Commission  began its deliberation was logical and not arbitrary. [63 H] The   provision  with  regard  to  the  reopening   of   the intervening account years for re-fixation of bonus was  also logical.  If the dispute regarding 1962 or a later year  was decided  by the application of the Act it was imperative  to reconsider  the  subsequent years even though there  was  no dispute  in  those  years.  The process of  the  Act  is  an

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integrated  one and by the principle of set on and  set  off four  accounting years are involved to  avoid  extraordinary results. [64 E] By  the different treatment of those establishments where  a dispute  is pending there is no violation of equality.   The fact  that in one there is a dispute and in the other  there is  not, clearly distinguishes the two establishments.   The distinguishing feature of the pendency of the dispute on the date of the promulgation of the Ordinance clearly demarcates a distinct class of cases and the classification made by the Act  is  a rational one.  No doubt the liability  for  bonus under the Act may be more in some cases but it is likely  to be less in others.  The Act does not make any difference  in the   treatment  within  the  class  it  deals  with.    All establishments  in which disputes were pending  are  treated alike. [64 C-E] (v)  Per  Wanchoo, Shah and Sikri, JJ--Section 34 imposes  a special  liability  to  pay bonus determined  on  the  gross profits  of  the base year on an assumption that  the  ratio which determine-, 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 labour’s 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 prima facie arbitrary and unreasonable.  It may be that the ratio was intended to stabilise the previous grant of bonus and maintain in favour of labour whatever was 19 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  the 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  special circumstances of that year, without any  inquiry 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 arbitrary and  unreasonable. The  vice  of  the provision lies in the  imposition  of  an arbitrary  ratio governing distribution of surplus  profits. Section  34(2)  is invalid on the ground that  it  infringes Art. 14 of the Constitution. [45 H-46 F] Per  Hidayatullah  and Ramaswami, JJ.  (dissenting)  Section 34(1)   which  is  criticised  because  it  sacrifices   all principles which this Court- had established in the past and fixes a ratio for all time to come is also not invalid.  The Act was passed to make for greater certainty, for  improving relations between the employers and the workmen and for  the avoidance  of  disputes.  It must not be forgotten  that  in

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many establishments the payment of bonus in the past was the result  of  collective bargaining and  the  advantage  which labour  has  so achieved was not likely to be  given  up  so readily.   Any legislation to be successful had to  preserve as far as possible what labour considered to be its right in a particular establishment.  By establishing a base year and by insisting that the same proposition should be  maintained in  the  payment  of  bonus  the  establishment  knew   with certainly what their liabilities in respect of bonous  would be  in  the future years.   If  extraordinary  circumstances appear  set on and set off will make them less  onerous  for the employers or employees.  The existence of a rigid  ratio which  applies  to all establishments which come  tinder  s. 34(2) does not therefore create inequality. [64 F-65 C] (vi) Per Wanchoo, Shah ’and Sikri, JJ.-Section 37 authorises the Government to determine for itself what the purposes  of the Act are and to make provisions for the removal of doubts or  difficulties.  This in substance amounts to exercise  of legislative  authority  which  cannot  be  delegated  to  an executive  authority.   Sub-section  (2)  of  s.  37   which purports to make the order of the Central Government in such cases  final  accentuates the vice in sub-s.  (1)  since  by enacting  that  provision the Government is  made  the  sole judge  whether  difficulty  or doubt had  arisen  in  giving effect to the provisions of the Act, whether it is necessary or expedient to remove the doubt or difficulty, and  whether the  provision enacted is not inconsistent with the  purpose of the Act.  Section 37 therefore is invalid. [32 A-C] Per   Hidayatullah  and  Ramaswami,  JJ.  (dissenting)   The functions   exercised  under  s.  37  are  not   legislative functions  at  all but are intended to advance  the  purpose which the Legislature had in mind.  Apprehending that in the application  of  the new Act doubts and  difficulties  might arise and not leaving their solution to the courts with  the attendant delays and expense, Parliament has chosen to  give power  to  the  Central Government  to  remove  doubts  and. differences by a suitable order.  The order of course 20 would be passed within the four corners of the parliamentary legislation  and would only apply the Act to concrete  cases as  the courts do when they consider the application of  the Act.  The order of the Central Government is made final  for the reason that it is hardly practical to give power to  the Central  Government  and  yet  to leave  the  matter  to  be litigated further.  The fact that in the Government of India Act,  1935 and in the Constitution such a power was  and  is contemplated  and  it  has been conferred  in  various  Acts without  a challenge before, shows amply that  the  argument that the section amounts to delegation of legislative powers on  the Central Government is erroneous.  Accordingly s.  37 is  valid.  [As to the validity of s. 32 with  reference  to Art.  14 of the Constitution the Court found that there  was not enough material on record to decide the issue.] [58 H-59 E]

JUDGMENT: CIVIL, APPELLATE JURISDICTION : Civil Appeal No. 187 or 1966 Appeal by special leave from the Award Part I dated the July 21,  1965  of the Industrial Court, Maharashtra,  Bombay  in Reference (IC) No. 78 of 1963. AND Writ Petitions Nos. 3 and 32 of 1966. Petition under Art. 32 of the Constitution of India for  the

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enforcement of fundamental rights. N.A.  Palkhivala,  -R.   J. Kolah, B.  Dutta,  C.  C.  Jain, Bhuvnesh Kumari and J. B. Dadachanji, for the appellant  (in C.A. No. 187 of 1966). H.   K.  Sowani, K. Rajendra Chaudhuri and K. R.  Chaudhuri, for the respondent. M.   C. Setalvad, G. B. Pai, P. K. Kurain, B. Dutta, Buvnesh Kumari and J. B. Dadachanji, for the appellant (in W.P.  No. 3 of 1966). Niren  De,  Addl.  Solicitor-General, N. S.  Bindra,  R.  H. Dhebar and B. R. G. K. A(-liar, for respondent No. 1. V.A.  Seyid  Muhammad,  Advocate  General,  Kerala,  A.   G. Puddissery and M. R. K. Pillai, for respondents Nos.2 and 3. A.   K. Sen and K. L. Hathi, for respondent No. 4. N.   Sreekantan Nair, for respondent No. 8. G.   B. Pai, B. Dutta, Buvnesh Kumari and J. B. Dadachanji, for the petitioner (in W. P. No. 32 of 1966). Niren  De,  Addl.  Solicitor--General, N. S. Bindra,  R.  H. Dhebar and R. N. Sachthey, for respondents Nos. 2 and 3. V.  A. Seyid Muhammad, Advocate-General, Kerala and M. R.  K Pillai, for respondents Nos. 2 and 3. 21 Janardan Sharma, for respondent No. 4. A. K. Sen, and K. L. Hathi, for respondent No. 4A. H. K. Sowani and K. R. Chaudhuri, for intervener No. 1. K.  Rajendra Chaudhuri and K. R. Chaudhuri,  for  intervener No.2. Niren  De, Addl.  Solicitor-General, Al.  S. Bindra,  R.  H. Dhebar    and B. R. G. K. Achar, for intervener No. 3. N.   A.  Palkhivala, J. B. Dadachanji, for interveners  Nos. 6, 9,11 and 15. N.M.  Barot, Officer, Textile Union (in  person)  intervener No. 5. I. N. Shroff,  for intervener No. 7. J. P. Goyal, for intervener No. 8. S. R. Vasavada, for intervener No. 10. N.  C. Chatterjee, R. K. Garg, M.  K.  Ramamurthi,  Jitendra Sharma and Janardan Sharma and Satish Loomba, for intervener No. 12 (in C.A. No. 187 of 1966 and W.P. No. 3 of 1966). R.  J.  Kolalh,  B. Narayanswami and  J.B.  Dadachanji,  for intervener No 13. M.  C.   Setalvad, R. J. Kolah, and J.  B.  Dadachanji,  for intervener No. 14. I M. Nanavati, O. P. Malhotra and J. B. Dadachanji, for  in- tervener N o. 16. Vithalbhai B. Patel and I. N. Shroff for interveners Nos. 18 and 19. The Judgment of WANCHOO, SHAH and SIKRI, JJ was delivered by SHAH,  J. The dissenting Opinion of HIDAYATULLAH  and  RAMA- SWAMI, JJ. was delivered by HIDAYATULLAH, J. Shah,  J. During the Pendency, before the Industrial  Court, Bombay, of a reference under s. 73A of the 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,  was  correct,  the Ordinance  governed the dispute and that the employees  were entitled to receive bonus at the minimum rate of 4’@ of  the salary or wages or Rs. 40/- whichever is higher.  The 22 Industrial Court upheld the plea of the workmen and directed the  employers  subject  to  the  provisions  of  the  Bonus

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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. With  special  leave, the employers have  appealed  to  this Court  and  they challenge the validity of  the  Payment  of Bonus  Act,  1965, which replaced Ordinance 3 of  1965,  and especially  of  the provisons under which bonus  at  minimum rate is made payable under the Act. Writ  Petitions Nos. 3 of 1966 and 32 of 1966 are  filed  by two  public  limited  companies.   They  challenge   diverse provisions  of the Act and contend that they are not  liable to pay bonus under the machinery prescribed by the Act. A  synopsis of the development in the industrial  law  which led to the enactment of the Payment of Bonus Act, 1965  will facilitate appreciation of the questions argued at the  Bar. Claims to receive bonus, it appears, were made by industrial employees for the first time in India in the towns of Bombay and Ahmedabad, after the commencement of the First World War when  as  a  result  of  inflationary  trends  there   arose considerable  disparity  between  the living  wage  and  the contractual  remuneration earned by workmen in  the  textile industry.   The  employers paid to the workmen  increase  in wages,  initially  called  "war  bonus"  and  later   called "special   allowance".    A  Committee  appointed   by   the Government  of Bombay in 1922 to consider, inter alia,  "the nature and basis" of this bonus payments, reported that  the workmen  had a just claim against the employers  to  receive bonus,   but  the  claim  was  not  "customary,   legal   or equitable".   During the Second World War the  employers  in the  textile  industry granted cash bonus  equivalent  to  a fraction of actual wages (not including dearness  allowances but  even this was a voluntary payment made with a  view  to keep labour contented. In  the dispute for payment of bonus for the years 1948  and 1949 in the textile industry in Bombay, the Industrial Court expressed  the  view that since labour as  well  as  capital employed  in the industry contribute to the profits  of  the industry, both are entitled to claim a legitimate return out of  the profits of an establishment, and evolved  a  formula for charging certain prior liabilities on the gross  profits of  the  accounting year, and awarding a percentage  of  the balance  as bonus to the workmen.  In adjudicating upon  the claim  for bonus, the Industrial Court  excluded  establish- ments   which   had  suffered  loss  in   the   year   under consideration  from the liability to pay bonus,  In  appeals against  the  award relating to the year  1949,  the  Labour Appellate  Tribunal  broadly  approved  of  the  method  for computing bonus as a fraction of surplus profit. 23 According to the formula which came to be known as the "Full Bench Formula", surplus available for distribution had to be determined  by debiting the following prior charges  against gross profits: (1)  Provision for depreciation; (2)  Reserve for rehabilitation; (3)  Return of 6 % on the paid-up capital; (4)  Return on the working capital at a lower rate than  the return on paid-up capital; and from the balance called "available surplus" the  workmen were  to be awarded a reasonable share by way of  bonus  for the year. This  Court considered the applicability of this formula  to claims  for bonus in certain decisions: Muir Mills Co,  Ltd. v.  Suti  Mills  Mazdoor Union,  Kanpur;(1)  Baroda  Borough Municipality v. Its Workmen;(2) Sree Mennakshi Mills Ltd. v.

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Their Workmen:(3) and The State of Mysore v. The Workers  of Kolar  Gold  Mines.(4) The Court did not  commit  itself  to acceptance  of the formula in its entirety, but  ruled  that bonus  is not a gratuitous payment made by the  employer  to his workmen, nor a deferred wage, and that where wages  fall short  of the living standard and the industry makes  profit part of which is due to the contribution of labour, a  claim for  bonus  may legitimately be made by  the  workmen.   The Court however did not examine the propriety nor the order of priorities as between the several charges and their relative importance,  nor did it examine the desirability  of  making any  variation,  change or addition in the  Formula.   These problems  were for the first time elaborately considered  by this  Court in the Associated Cement Companies Ltd.  v.  Its Workmen.(5)  Since  that decision numerous cases  have  come before  this  Court  in which the  basic  formula  has  been accepted with some elaboration.  The principal incidents  of the formula as evolved by the decisions of this Court may be briefly  stated: Each year for which bonus is claimed  is  a self-contained  unit  and  bonus will  be  computed  on  the profits of the establishment in that year.  In giving effect to  the  formula as a general rule from  the  gross  profits determined after debiting the wages and dearness  allowances paid  to  the  employees, and  other  items  of  expenditure against total receipts, as disclosed by the profit and  loss account  are  accepted  unless it  appears  that  the  debit entries are not supported by recognized accountancy practice or  are posted mala fide with the object of  reducing  gross profits.   Debit  items which are wholly  extraneous  to  or unrelated to the determination (1) [1955] 1 S.C.R. 991.   (2) [1957] S.C.R. 33. (3) [1958] S.C.R. 878.     (4) [1959] S.C.R. 895. (5) [1959] S. C. R. 925. 24 of  trading profits are ignored.  Similarly income which  is wholly  ,extraneous to the conduct of the business eg.  book profits  on  account  of revaluation of assets  may  not  be included in the gross profits.  Against the gross profits so ascertained the following items are charged as prior debits: (1) Depreciation: such depreciation being only the normal or notional   depreciation;  (2)  Incometax  payable  for   the accounting  year on the balance remaining  after  ,deducting statutory  depreciation.  The income-tax to be  deducted  is lot the actual amount, but the notional amount of tax at the rate  for  the  year,  even  if  on  assessment  no  tax  is determined to be payable.  For the purpose of the Full Bench Formula  income-tax at the rate provided must  be  deducted, but in the computation of income-tax statutory  depreciation under  the  Indian Income-tax Act only may be  allowed.  (3) Return  on  paid-up capital at 6% and on  reserves  used  as working  capital at a lower rate.  In the Associated  Cement Companies case(1) it was suggested that  this rate should be 2% in later cases 4% on the working capital was regarded  as appropriate.   (4)  Expenditure  for  rehabilitation   which includes  replacement and modernisation of plant,  machinery and  buildings,  but  not  for  expansion  of  building,  or additions to the machinery. It is not open to the Tribunal in ascertaining the available surplus to extend by analogy the prior charges to be debited to gross profits.  Therefore for example (a) allocations for debenture  redemption  fund; (b) losses  in  previous  years which are written off at the end of the year, (c)  donations to a political fund are not deducted from gross profits. Rebate of income-tax available to the employer on the amount of  bonus  paid  to  the workmen  cannot  be  added  to  the

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available  surplus of profits determined in accordance  with the  Full Bench Formula which should be taken  into  account only in distributing the available surplus between  workmen, industry and employers. The  formula it is clear was not based on any strict  theory of  legal rights or obligations: it was intended to make  an equitable  division  of distributable profits  after  making reasonable allocations for prior charges. Attempts  made from time to time to secure revision  of  the Formula  failed  before  this  Court.   In  the   companies’ case,(1) this Court observed:               "The  plea  for the revision  of  the  formula               raised an issue which affects all  industries;               and  before  any change is made  ill  it,  all               industries and their workmen would have to  be               heard  and their pleas  carefully  considered.               It  is  obvious that while  dealing  with  the               present   group  of  appeals,  it   would   be               difficult,  unreasonable  and  inexpedient  to               attempt Such a task." (1)  [1959] S.C.R. 925. 25 But  the Court threw out a suggestion that the question  may be"    comprehensively   considered   by   a    high-powered Commission",  this suggestion was repeated in The  Ahmedabad Miscellaneous   Industrial  Workers’  Union   v.   Ahmedabad Electricity C.,). Ltd.(1) The Government of India then setup a Commission on  December 6,  1961  inter  alia to define the  concept  of  bonus,  to consider in relation to industrial employments the  question of  payment  of  bonus based on  profits  and  to  recommend principles  for  computation of such bonus  and  methods  of payment,  to determine what the prior charges should  be  in different  circumstances and how they should be  calculated, to   consider   whether  there  should   be   lower   limits irrespective  of  losses in  particular  establishments  and upper  limits for distribution in one year, and if  so,  the manner  of  carrying  forward  profits  and  losses  over  a prescribed  period, to suggest an appropriate machinery  and method for the settlement of bonus disputes.  The Commission held an elaborate enquiry and reported that "bonus" was paid to  the  workers  as  a  share  in  the  prosperity  of  the establishment and recommended adherence to the basic  scheme of  the  Bonus  Formula viz. determination  of  bonus  as  a percentage  of  gross  profits  reduced  by  certain   prior charges,  viz.  normal  depreciation  admissible  under  the Indian  Income-tax Act including multiple  shift  allowance, income-tax  and  super-tax  at  the  current  standard  rate applicable for the year for which bonus is to be  calculated (but  not super profits tax), and return on paid-up  capital raised  by issue of preference shares at the actual rate  of dividend  payable,  on other paid-up capital at 7 %  and  on reserves  used  as  capital  at 4%  but  not  provision  for rehabilitation.   The Commission recommended that sixty  per cent  of  the  available surplus should  be  distributed  as bonus,  the  excess  being carried forward  and  taken  into account  in the next year: the balance of forty  per  cent., should remain with the establishment into which would  merge the  saving  in  tax on bonus  payable,  and  the  aggregate balance  thus left to the establishment may be  intended  to provide    for   gratuity,   other    necessary    reserves, rehabilitation  in addition to the provision made by way  of depreciation in the prior charges, annual provision required for redemption of debentures, return of borrowings,  payment of super-profits tax and additional return on capital.  They

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recommended  that  the distinction between basic  wages  and dearness allowance for the "Purpose" of expressing the bonus quantum"  should  be  abolished and  that  bonus  should  be related to wages and dearness allowance taken together: that minimum  bonus  should  be 4% of the total  basic  wage  and dearness allowance paid during the year or Rs. 40/- to  each worker, whichever is higher, and in the case of children the minimum  should be equivalent to 4% of their basic wage  and dearness allowance, or Rs. 25/- whichever is higher, subject to reduction pro rata for employees who have not (1) [1962] 2 S.C.R. 934. M14 Sup.  C.I./66-3 26 worked for the whole year, and that the maximum bonus should be  equivalent  to  20  % of the total  basic  is  wage  and dearness  allowance  paid during the year : that  the  bonus formula  proposed  should  be deemed  to  include  bonus  to employees  drawing a total basic pay and dearness  allowance up  to  Rs. 1600 per month regardless of whether  they  were "workmen" as defined in the Industrial Disputes Act or other relevant  statutes,  but  subject to the  proviso  that  the quantum  of bonus payable to employees drawing  total  basic pay  and dearness allowance over Rs. 750 per month shall  be limited  to  what  it would be if  their  pay  and  dearness allowance were only Rs. 750 per month.  It was proposed that the  general formula should not apply to new  establishments until  they  had  recouped all early  losses  including  all arrears of normal depreciation admissible under the  Income- tax  Act, subject to a time limit of six years.   They  also suggested  that  the  scheme  recommended  should  be   made applicable  to all bonus matters relating to the  accounting year ending on any day in the calendar year 1962 other  than those matters in which settlements had been reached or deci- sions had been given. The  Government of India accepted a majority of  the  recom- mendations  and  the President issued on May  29,  1965  the Payment  of Bonus Ordinance, 1965, providing for payment  of bonus to all employees drawing salary not exceeding Rs. 1600 under  the  formula devised by the Commission.   It  is  not necessary  to set out the provisions of the  Ordinance,  for the  Ordinance was replaced, by the Payment of Bonus Act  21 of 1965 and by s. 40(2) it was provided that notwithstanding such  repeal,  anything done or any action taken  under  the Payment  of Bonus Ordinance, 1965, shall be deemed  to  have been done or taken under the Act as if the Act had commenced on May 29, 1965.  Since the action taken under the Ordinance is  to be deemed to have been taken under the Act, in  these cases  validity of the provisions of the Act alone  need  be considered. It  may be broadly stated that bonus which was originally  a voluntary  payment  out of profits to workmen to  keep  them contented, acquired the character, under the Bonus  Formula, of a right to share in the surplus profits, and  enforceable through the machinery of the Industrial Disputes Act.  Under the Payment of Bonus Act, liability to pay bonus has  become a statutory obligation imposed upon employers covered by the Act. Counsel for the Jalan Trading Company urged that the Act was invalid  in that it amounts to fraud on the Constitution  or otherwise  is  a colourable exercise of  legislative  power. That  argument  has  no force.  It is not  denied  that  the Parliament has power to legislate in respect of bonus to  be paid  to industrial employees.  By enacting the  Payment  of Bonus Act, the Parliament has not 27

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attempted  to  trespass  upon  the  province  of  the  State Legislature.   It is true that by the  impugned  legislation certain  principles declared by this Court e.g.  in  Express Newspapers (Private) Ltd, and Anr. v. The Union of India and Ors.(1)  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 and  Ors. v. The State of Orissa(2). The  provisions  of the Act and its scheme may now  be  sum- marised.   The  Payment  of  Bonus  Act  was  published   on September 25, 1965.  By s.1(4) save as otherwise provided in the  Act, the provisions of the Act shall, in relation to  a factory  or  other establishment to which the  Act  applies, have effect in respect of the accounting year commencing  on any day in the year 1964 and in respect of every  subsequent accounting year.  Section 2(4) defines " allocable  surplus" as  meaning (a) in relation to an employer, being a  company (other  than  a  banking company) which  has  not  made  the arrangements  prescribed  under the Income-tax Act  for  the declaration  and  payment  within  India  of  the  dividends payable out of its profits in accordance with the provisions of s. 194 of that Act, sixty-seven per cent of the available surplus in an accounting year; (b) in any other case,  sixty per cent of such available surplus, and includes any  amount treated  as  such  under  sub-s.  (2)  of  s.34.  "Available surplus"  is  defined in s. 2(6) as  meaning  the  available surplus  computed  under s. 5."Employee" is  defined  in  s. 2(13)  as  meaning  any person (other  than  an  apprentice) employed on a salary or wage not exceeding one thousand  and six  hundred  rupees per mensem in any industry  to  do  any skilled   or  unskilled  manual,  supervisory,   managerial, administrative,  technical  or  clerical work  for  hire  or reward  whether  the  terms  of  employment  be  express  or implied.  By s. 2(21) "salary or wage" is defined as meaning all  remuneration  (other than remuneration  in  respect  of overtime work) capable of being expressed in terms of money, which would, if the terms of employment, express or implied, were fulfilled, be payable to an employee in respect of  his employment  or of work done in such employment and  includes dearness  allowance (that is to say, all cash  payments,  by whatever  name called, paid to an employee on account  of  a rise  in the cost of living), but does not  include  certain specified allowances, commissions, value of amenities (1) [1959] S.C.R. 12. (2) [1954] S.C.R. 1. 28 etc.  Section 4 provides for computation of gross profit  in the  manner provided by the First Schedule in the case of  a banking company and in other case in the manner provided  by the  Second Schedule.  By s. 5 available surplus in  respect of  any accounting year is the gross profits for  that  year after deducting therefrom ’,he sums referred to in s.6.  The sums liable to be deducted from gross profit under s. 6 are:               (a)   any   amount  by  way  of   depreciation               admissible  in accordance with the  provisions               of  sub-section  (1)  of  section  32  of  the

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             Income-tax  Act,  or in  accordance  with  the               provisions of the agricultural income-tax law,               as the case may be;               (b)   any amount by way of development  rebate               or development allowance which the employer is               entitled  to deduct from his income under  the               Income-tax Act;               (c)   any  direct  tax which the  employer  is               liable  to  pay  for the  accounting  year  in               respect  of  his  income,  profits  and  gains               during that year; and               (d)   such  further sums as are  specified  in               respect of the employer in the Third Schedule. Section 7 deals with calculation of direct taxes payable  by the  employer  for any accounting year for  the  purpose  of cl.(c) of s. 6. Sections 8 & 9 deal with eligibility for and disqualifications  for receiving bonus.  Sections 10  to  15 deal  with  payment  of minimum and maximum  bonus  and  the scheme  for  "set-on" and "set-off".  Every employer  is  by s.10  bound to pay to every employee in an  accounting  year minimum bonus which shall be four per cent. of the salary or wage  earned by the employee during the accounting  year  or Rs. 40 whichever is higher, whether there are profits in the accounting year or not.  In case of employees below the  age of 15, the minimum is Rs. 25.  By s. I I where in respect of any accounting year the allocable surplus exceeds the amount of minimum bonus payable the employer shall be bound to  pay to  every employee in the accounting year bonus which  shall be  an amount proportionate to the salary or wage earned  by the  employee  during  the accounting  year,  subject  to  a maximum of twenty per cent of such salary or wage.   Section 15  provides that if for any accounting year  the  allocable surplus  exceeds the amount of maximum bonus payable to  the employees  in  the  establishment under s. 1  1,  then,  the excess shall, subject to a limit of twenty per cent. of  the total  salary  or  wage of the  employees  employed  in  the establishment  in that account year, be carried forward  for being  "set-on" in the succeeding accounting year, upto  and inclusive  of the fourth account year, and be  utilised  for the purpose of payment of bonus. 29 By  sub-s. (2) it is provided that where for any  accounting year, there is no available surplus or the allocable surplus in respect of that year falls short of the amount of minimum bonus payable to the employees in the establishment under s. 10,  and  there is no amount or  sufficient  amount  carried forward  and  "set  on" under sub-s. (1)  capable  of  being utilised  for the purpose of payment of the  minimum  bonus, then,  such  minimum  amount or  the  deficiency,  shall  be carried forward for being set off in the succeeding  accoun- ting year up to and inclusive of the fourth accounting year. By sub-s. (3) it is provided that principle of "set-on"  and "set-off" as illustrated in the Fourth Schedule shall  apply to  all other cases not covered by sub-s. (1) or sub-s.  (2) for  the purpose of payment of bonus under the  Act.   Bonus payable to an employee drawing wage or salary exceeding  Rs. 750 per mensem has to be calculated as if the salary or wage were Rs. 750 per mensem, and an employee who has not  worked for all the working days in an accounting year, the  minimum bonus  of Rs. 40 or Rs. 25 would be proportionately  reduced (ss. 12 & 13).  Section 16 makes special provisions relating to  payment  of bonus to employees of  establishments  which have  been newely set up.  Sections 18, 19, 21, 22, 23,  24, 25, 26, 27, 28, 29, 30 & 31 deal with certain procedural and administrative  matters.   By s. 20  establishments  in  the

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public sector are in certain eventualities also made subject to the provisions of the Act.  Section 32 excludes from  the operation  of  the  Act employees  of  certain  classes  and certain  industries specified therein.  By s. 33 the Act  is made  applicable to pending industrial  disputes  (regarding payment  of bonus relating to any accounting year not  being an  accounting year earlier than the accounting year  ending on  any  day in the year 1962) immediately  before  May  29, 1965,  before the appropriate Government or any Tribunal  or other authority under the Industrial Disputes Act, 1947,  or under  any corresponding law, or where it is pending  before the  Conciliation officer or for adjudication.  By s.  34(1) the provisions of the Act are declared to have effect,  not- withstanding  anything inconsistent therewith  contained  in any other law for the time being in force or in the terms of any award, agreement, settlement or contract of service made before  May,  29, 1965.  Sub-s. (2) of s. 34  makes  special overriding   provisions  regarding  payment  of   bonus   to employees computed as a percentage of gross profits  reduced by  direct  taxes  payable for the  year,  (subject  to  the maximum prescribed by s.11), when bonus has been paid by the employer  to  workmen  in  the "base  year"  as  defined  in Explanation  11.   By s. 36 the  appropriate  Government  is authorised,  having  regard to the  financial  position  and other  relevant circumstances of any establishment or  class of  establishments,  to  exempt for such period  as  may  be specified   therein   such   establishment   or   class   of establishments from all or any of the provisions of the Act, and by s. 37 power is conferred upon the Central  Government by  order  to  make provision,  not  inconsistent  with  the purposes 30 of the Act, for removal of difficulties or doubts in  giving effect to the provisions of the Act.               The scheme of the Act, broadly stated, is four               dimensional:               (1)   to  impose statutory liability  upon  an               employer of every establishment covered by the               Act   to  pay  bonus  to  employees   in   the               establishment:               (2)   to  define the principle of  payment  of               bonus according to the prescribed Formula;               (3)   to  provide for payment of  minimum  and               maximum bonus and linking the payment of bonus               with  the scheme of "set-off "  and  "set-on";               and               (4)   to provide machinery for enforcement  of               the liability for payment of bonus. Ordinarily  a scheme imposing fresh liability would,  it  is apprehended,  be  made  prospective,  leaving  the   pending disputes  to  be disposed of according to the law  in  force before  the  Act.  But the Legislature has given  by  s.  33 retrospective  operation  to  the  Act  to  certain  pending disputes,  and  has  sought  to  provide  by  s.  34   while extinguishing  all pre-existing agreements,  settlements  or contracts of service for freezing the ratio which existed in the  base  year on which the bonus would  be  calculated  in subsequent years. It  was urged by counsel for the employers that s. 10  which provides for payment of minimum bonus, s. 32 which seeks  to exclude  certain classes of employees from the operation  of the  Act,  s.  33 which seeks to apply the  Act  to  certain pending  disputes regarding payment of bonus and sub-s.  (2) of  s.  34 which freezes the ratio at  which  the  available surplus  in any accounting year has (subject to s.11) to  be

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distributed  if  in the base year bonus has been  paid,  are ultra  vires, because they infringe Arts. 14, 19 and  31  of the  Constitution.   It was also urged  that  conferment  of power of exemption under s. 36 is ultra vires the Parliament in that it invests the appropriate Government with authority to  exclude from the application of the Act,  establishments or a class of establishments, if the Governments, are of the opinion  having regard to the financial position  and  other relevant  circumstances that it would not be in  the  public interest  to apply all or any of the provisions of the  Act. Power   conferred  upon  the  Government  under  s.  37   is challenged  on the ground that it amounts to  delegation  of legislative power when the Central Government is  authorised to  remove  doubt or difficulty which had arisen  in  giving effect to the provisions of the Act. 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 31 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 practised 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  unconsti- tutionality   raised   before   us   in   respect   of   the inapplicability of the Act to employees described in s. 32. By  s. 36 the appropriate Government is invested with  power to exempt an establishment or a class of establishments from the operation of the Act, provided the Government is of  the opinion  that  having regard to the financial  position  and other relevant circumstances of the establishment, it  would not  be  in the public interest to apply all or any  of  the provisions of the Act.  Condition for exercise of that power is  that the Government holds the opinion that it is not  in the public interest to apply all or any of the provisions of the Act to an establishment or class of establishments,  and that opinion is founded on a consideration of the  financial position  and other relevant circumstances.  Parliament  has clearly  laid  down  principles  -and  has  given   adequate guidance  to the appropriate Government in implementing  the provisions of s. 36. The power so conferred does not  amount to delegation of legislative authority.  Section 36  amounts to  conditional legislation, and is not void.  Whether in  a given  case,  power  has  been  properly  exercised  by  the appropriate Government would have to be considered when that occasion arises. But s. 37 which authorises the Central Government to provide

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by  order  for removal of doubts or difficulties  in  giving effect  to  the  provisions of the  Act,  in  our  judgment, delegates  legislative  power  which  is  not   permissible. Condition  of the applicability of s. 37 is the  arising  of the  doubt or difficulty in giving effect to the  provisions of  the Act.  By providing that the order made must  not  be inconsistent  with  the purposes of the Act, s.  37  is  not saved from 32 the  vice  of  delegation  of  legislative  authority.   The section  authorises the Government to determine  for  itself what the purposes of the Act are and to make provisions  for removal  of doubts or difficulties.  If in giving effect  to the  provisions of the Act any doubt or  difficulty  arises, -normally it is for the Legislature to remove that doubt  or difficulty.   Power  to remove the doubt  or  difficulty  by altering the provisions of the Act would in substance amount to  exercise  of legislative authority and  that  cannot  be delegated to an executive authority.  Sub-section (2) of  s. 37  which  purports  to  make  the  order  of  the   Central Government in such cases final accentuates the vice in  sub- s. (1), since by enacting that provision the Government.  is made  the sole judge whether difficulty or doubt has  arisen in giving effect to the provisions of the Act, whether it is necessary  or expedient to remove the doubt  or  difficulty, and  whether the provision enacted is not inconsistent  with the purposes of the Act. We may now turn to the challenge to s. 10.  Under the Full Bench  Formula bonus being related to available  surplus  it can only be made payable by an employer of an  establishment who  makes profit in the accounting year to which the  claim for  bonus If no profit was made there was no  liability  to pay  bonus.  As  pointed out by this  Court  in  Muir  Mills Company’s case (1) :               "It  is  therefore clear that  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 industrial concern has resulted               in  loss there is no basis  nor  justification               for  a  demand  for bonus.   Bonus  is  not  a               deferred  wage..... The dividends can only  be               paid  ,out  of profits and  unless  and  until               profits  are made Do occasion or question  can               also  arise  for distribution of any  sum  -is               bonus   amongst   the   employees.    If   the               industrial concern ,-as resulted in a  trading               loss,  there  would  be  no  profits  of   the               particular year available for distribution  of               dividends, much less could the employees claim               the distribution of bonus during that year." But by s. 10 it is provided that even if there has  resulted trading  loss in the accounting year, the employer is  bound to  pay  bonus at 4%, of the salary or wages earned  by  the employee or Rs. 40 whichever is higher.  This, it was urged, completely  alters the character of bonus and converts  what is  a  share in the year’s profits in the earning  of  which labour has contributed into additional wage. it was  pointed out  to us that in giving effect to the Full Bench  Formula, this  Court set aside the directions made by the  Industrial Tribunal awarding minimum bonus where the establishment  had suffered   loss,   and  remanded  the  case  for   a   fresh determination consistently (1)  [1955] S. C. R. 991.

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33 with  the terms of the Full Bench Formula: New Maneck  Chowk Spg. and Weaving Co. Ltd. v. Textile Labour  Association(1). In  that  case  there  was a  five  year  pact  between  the Ahmedabad  Mill owners’ Association and the  Textile  Labour Association.   After  the expiry of the period,  the  Labour Association demanded bonus on the basis of the pact, but the Millowners  claimed that the pact was contrary to  the  Full Bench  Formula,  and  the claim was  not  sustainable.   The Industrial Tribunal held that the pact did not "run  counter to the law laid down by this Court in the Associated  Cement Companies’  case(2)" and the extension of the agreement  for one more year would help in promoting peace ID the  industry in  Ahmedabad.  This Court held that the agreement  departed from the Full Bench Formula in that matter of bonus and when the Tribunal extended the agreement after the expiry of  the stipulated  period, it ignored the law as laid down by  this Court  as  to  what profit bonus was and how  it  should  be worked  out,  and that the Tribunal had no power  to  do  by extending  the agreement to direct payment of minimum  bonus for the year 1958 when there was no available surplus to pay minimum bonus. Indisputably  Parliament has the power to enact  legislation with  in the constitutional limits to modify the Full  Bench Formula  even  after it has received the  approval  of  this Court.   It was urged, however, that exercise of that  power by  treating establishments inherently dissimilar as in  the same class and subject to payment of minimum bonus  amounted to  making  unlawful  discrimination.   It  was  said   that establishments  which  suffered  losses  and  establishments which  made  profits; establishments paying  high  rates  of wages   and  establishments  paying  low  rates  of   wages; establishments paying "bonus-added wages" and establishments paying ordinary wages; establishments paying higher dearness allowance   and   establishments   paying   lower   dearness allowance, do not belong to the same class, and by  imposing liability upon all these establishments to pay bonus at  the statutory  rate  not below the minimum irrespective  of  the differences between them, the Parliament created inequality. It  was  also  submitted that  by  directing  establishments passing  through a succession of lean years in which  losses have accumulated and establishments which had made losses in the  accounting year alone, to pay minimum  bonus,  unlawful discrimination was practised. Section  10 at first sight may appear to be a provision  for granting  additional  wage to  employees  in  establishments which  have not on the year’s working an adequate  allocable surplus  to justify payment of bonus at the rate of 4  %  on the  wages earned by each employee.  But the section  is  an integral part of a scheme for providing for payment of bonus at rates which do not widely fluctuate (1) [1961] 3 S.C.R. 1. (2) [1959] S.C.R. 925. 34 from  year  to  year and that is sought  to  be  secured  by restricting the quantum of bonus payable to the maximum rate of 20 % and for carrying forward the excess remaining  after paying bonus at that rate into the account of the next year, and  by  providing for carrying forward  the  liability  for amounts   drawn  from  reserves  or  capital  to  meet   the obligation to pay bonus at the minimum rate.  Under the Act, for  computing the rate of payment of bonus each  accounting year  is  distinct  and bonus has to be worked  out  on  the profits of the establishment in the accounting year.  But it is  not  in  the interest of capital or  labour  that  there

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should  be wide fluctuations in the payment of bonus  by  an establishment year after year.  The object of the Act  being to maintain peace and harmony between labour and capital  by allowing  the  employees  to share  the  prosperity  of  the establishment  reflected  by  the  profits  earned  by   the contributions   made  by  capital,  management  and  labour, Parliament has provided that bonus in a given year shall not exceed 1/5th and shall not be less than 1/25th of the  total earning  of each individual employee, and has directed  that the excess share shall be carried forward to the next  year, and  that  the  amount  paid by way  of  minimum  bonus  not absorbed  by the available profits shall be carried  to  the next  year  and  be  set off  against  the  profits  of  the succeeding  years.  This scheme of prescribing  maximum  and minimum rates of bonus together with the scheme of "set  off " and "set on" not only secures the right of labour to share in  the prosperity of the establishment, but also ensures  a reasonable degree of uniformity. Equal  protection  of the laws is denied if in  achieving  a certain  object persons, objects or  transactions  similarly circumstanced  are  differently  treated  by  law  and   the principle   underlying  that  different  treatment  has   no rational relation to the object sought to be achieved by the law.  Examined in the light of the object of the Act and the scheme of "set off" and "set on", the provision for  payment of minimum bonus cannot be said to be discriminatory between different establishments which are unable on the profits  of the  accounting year to pay bonus merely because  a  uniform standard of minimum rate of bonus is applied to them. The  judgment  of this Court in Kunnathat  Thathunni  Moopil Nair  v. The State of Kerala and Another,(1) and  especially the passage in the judgment of the majority of the Court  at p.  92,  has  not enunciated any broad  proposition  as  was contended for on behalf of the employers, that when  persons or objects which are unequal are treated in the same  manner and   are  subjected  to  the  same  burden  or   liability, discrimination inevitably results.  In Moopil Nair’s case(1) the  validity of the Travancore-Cochin Land Tax  Act,  1955, was challenged.  By s. 4 of the Act all lands in the State, (1)  [1961] 3 S.C.R. 77. 35 of whatever description and hold under whatever tenure, were charged  with  payment of land tax at a uniform rate  to  be called  the  basic  tax.  Owners  of  certain  forest  lands challenged certain provisions of the Act pleading that those provisions contravened Arts. 14, 19(1) (f) and 31(1) of  the Constitution.   This Court held that the Act  which  obliged every person who held land to pay the tax at a uniform rate, whether  he made any income out of the land, or whether  the land  was  capable  of yielding  any  income,  attempted  no classification  and that lack of classification by  the  Act itself  created inequality, and was on that account  hit  by the  prohibition against denial of equality before  the  law contained in Art. 14.  The Court also held that the Act  was confiscatory  in  character,,  since it had  the  effect  of eliminating private ownership of land through the  machinery of  the  Act, without proposing to acquire  privately  owned forests for the State.  The Travancore-Cochin Land Tax  Act, it is clear, contained several peculiar features: it was  in the  context  of  these features that the  Court  held  that imposition  of  a uniform liability upon  lands  which  were inherently  unequal,  in  productive  capacity  amounted  to discrimination,  and  that lack  of  classification  created inequality.  It was not said by the Court in that case  that imposition  of uniform liability upon persons,.  objects  or

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transactions  which  are unequal must of necessity  lead  to discrimination.    Ordinarily  it  may  be   predicated   of unproductive agricultural land that it is incapable of being put  to profitable agricultural use at any time.   But  that cannot be so predicated of an industrial establishment which has  suffered  loss  in the accounting year,  or  even  over several  years  successively  . Such  an  establishment  may suffer loss in one year and make profit in another.  Section 10 undoubtedly places in the same class establishments which have  made  inadequate  profits not  justifying  payment  of bonus, establishments which have suffered marginal loss, and establishments   which  have  suffered  heavy   loss.    The classification   so   made  is   not   unintelligible:   all establishments  which  are  unable to pay  bonus  under  the scheme  of  the  Act, on the result of the  working  of  the establishments, are grouped together.  The object of the Act is to make an equitable distribution of the surplus  profits of  the  establishment  with a view to  maintain  peace  and harmony  between the three agencies which contribute to  the earning  of profits.  Distribution of profits which  is  not subject  to  great  fluctuations  year  after  year,   would certainly  conduce to maintenance of peace and  harmony  and would be regarded as equitable, and provision for payment of bonus   at   the  statutory  minimum  rate,  even   if   the establishment  has not earned profit is clearly  enacted  to ensure the object of the Act. Whether the scheme for payment of minimum bonus is the  best in the circumstances, or a more equitable method could  have been devised so as to avoid in certain cases undue  hardship is ir- 36 relevant  to the enquiry in hand.  If the classification  is not   patently  arbitrary,  the  Court  will  not  rule   it discriminatory  merely  because  it  involves  hardship   or inequality  of burden.  With a view to secure  a  particular object  a scheme may be selected by the  Legislature  wisdom whereof  may be open to debate; it may even be  demonstrated that the scheme is not the best in the circumstances and the choice of the Legislature may be shown to be erroneous,  but unless  the  enactment  fails to satisfy the  dual  test  of intelligible classification and rationality of the  relation with  the  object  of the law, it will  not  be  subject  to judicial   interference   tinder  Art-14.    Invalidity   of legislation  is  not established by merely  finding-  faults with  the scheme adopted by the Legislature to  achieve  the purpose it has in view.  Equal treatment of unequal objects, transactions  or persons in not liable to be struck down  as discriminatory  Unless there is simultaneously absence of  a rational  relation to the object intended to be achieved  by the law.  Plea of in validity of s. 10 on the ground that it infringes Art. 14 of the Constitution must therefore fail. 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.  10 infringes  the fundamental freedom under Art. 31(1)  of  the Constitution  also  has  no force.  Clause (1)  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

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depriving a person of his property under cl. (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. 31(1). 37 We may now turn to s. 33 of the Act.  The section provides :               "Where, immediately before the 29th May, 1965,               any  industrial dispute regarding  payment  of               bonus  relating  to any accounting  year,  not               being  an  accounting year  earlier  than  the               accounting year ending on any day in the  year               1962,  was  pending  before  the   appropriate               Government  or  before any Tribunal  or  other               authority  under the Industrial Disputes  Act,               1947 (XIV of 1947) or under any  corresponding               law  relating to investigation and  settlement               of  industrial disputes in a State, then,  the               bonus shall be payable in accordance with  the               provisions  of  this Act in  relation  to  the               accounting  year to which the dispute  relates               and    any   subsequent    accounting    year,               notwithstanding   that  in  respect  of   that               subsequent accounting year no such dispute was               pending.               Explanation.-A  dispute shall be deemed to  be               pending  before  the  appropriate   Government               where  no decision of that Government  on  any               application  made to it under the said Act  or               such  corresponding law for reference of  that               dispute to adjudication has been made or where               having received the report of the Conciliation               Officer  (by whatever designation known  under               the   said   Act  or  law,   the   appropriate               Government  has not passed any order  refusing               to make such reference." The section plainly seeks to apply the provisions of the Act to  a pending dispute, if the dispute relates to payment  of bonus  for any accounting year not being an accounting  year earlier  than the accounting year ending on any day  in  the year,  1962,  and  is pending on May  29,  1965  before  the Government or other authority under the Industrial  Disputes Act  or any other corresponding law.  The provisions of  the Act  also apply even if there be no dispute pending for  the year  subsequent to the year ending on any day in  the  year 1962,  provided there is a dispute pending in respect of  an earlier  year.   By s. 1(4) the provisions of the  Act  have effect  in respect of the accounting year commencing on  any day  in  the year 1964 and in respect  of  every  subsequent accounting year.  But by the application of s. 33 the scheme of the Act is related back to three accounting years  ending on any day in 1962, in 1963 and in 1964.

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In considering the effect of s. 33 regard must first be  had to  s. 34(1) which provides that save as otherwise  provided in the section, the provisions of the Act shall have  effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in the terms of any award, agreement, settlement or contract of service made before May 29, 1965.  All pre- 38 vious  awards,  agreements,  settlements  or  contracts   of service  made before May 29, 1965, therefore are, since  the commencement  of the Act rendered ineffective, and if  there be a dispute relating to bonus pending on the date specified for the year ending on any day in 1962 or thereafter, before any appropriate Government or before any authority under the Industrial Disputes Act, bonus shall be computed and paid in the  manner provided by the Act.  Even if in respect  of  an year  there  is  no such dispute pending on  May  29,  1965, because of a dispute pending in respect of an earlier  year, not  being earlier than the year ending on any day in  1962, the same consequences follow. Application  of the Act involves departure in many  respects from the scheme of computation of bonus under the Full Bench Formula.    Under  the  Full  Bench  Formula  bonus  was   a percentage   of  total  wage  not  inclusive   of   dearness allowance,  and  in  the computation  of  available  surplus rehabilitation allowance was admissible as a deduction.   It was  also well-settled that an establishment which  suffered loss in the accounting year was not liable to pay bonus: and a reference under the Industrial Disputes Act on a claim  to bonus  could be adjudicated upon only if the claimants  were workmen  as defined in the Industrial Disputes  Act.   Since the  ,expression "industrial dispute" used in s. 33 has  not been defined in the Payment of Bonus Act, the definition  of that  expression in the Industrial Disputes Act will  apply: vide  s. 2(22).  The expression "industrial  dispute"  under the  Industrial Disputes Act inter alia means a  dispute  or difference  between employer and workmen which is  connected with  the  employment  or non-employment  or  the  terms  of employment or with the conditions of labour, of any  person: s. 2(k) : and the expression "workmen" is defined in s. 2(s) of the Industrial Disputes Act means "any person  (including an apprentice) employed in any industry to do any skilled or unskilled  manual, supervisory, technical or  clerical  work for  hire or reward,.   .   .   .    . but does not  include any such person-               (i)  .....................               (ii) .....................               (iii)  who is employed mainly in a  managerial               or administrative capacity; or               (iv)  who,  being  employed in  a  supervisory               capacity,  draws wages exceeding five  hundred               rupees per mensem or exercises, either by  the               nature of the duties attached to the office or               by  reason  of  the  powers  vested  in   him,               functions mainly of managerial nature." Therefore  no dispute relating to bonus between an  employer and   persons  employed  in  managerial  or   administrative capacity or 39 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

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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 concerned because :               (1)   employees  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   who   had   under   agreement,               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  off"               prescribed  by  s.  15  of  the  Act   becomes               operative and applies to esta-               40               blishments  as  from the year  in  respect  of               which the bonus dispute is pending; and               (5)   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

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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 a dispute is  pending immediately before May 29, 1965, the scheme of the Act  will apply  not  only for the year for which the the  dispute  is pending, but even in respect of 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. Liability  imposed  by the Act for payment of bonus  is  for reasons  already  set out more onerous  than  the  liability which  had arisen under the Full Bench Formula prior to  the date  of  the  Act.  Imposition of  this  onerous  liability depending  solely  upon the fortuitous circumstance  that  a dispute relating to bonus is pending 41 between  workmen or some of them immediately before May  29, 1965,  is plainly arbitrary and classification made on  that basis is not reasonable. 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 Act. 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 3    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

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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 is  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 M 14 Sup C.I.166-4 42 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  by any-between the classification and the  object  of the   Act.   In  our  view  therefore  s.  33  is   patently discriminatory .       By sub-s. (2) of s. 34 it is provided "If  in  respect  of any accounting  year  the  total  bonus payable to all the employees in any establishment under this Act is less than the total bonus paid or payable to all  the employees in that establishment in respect of the base  year under  any  award,  agreement,  settlement  or  contract  of service,  then, the employees in the establishment shall  be paid  bonus  in respect of that accounting year  as  if  the allocable  surplus for that accounting year were  an  amount which bears the same ratio to the gross profits of the  said accounting  year  as  the total bonus  paid  or  payable  in respect  of the base year to the gross profits of  the  base year : Provided  that nothing contained in this  sub-section  shall entitle  any employee to be paid bonus exceeding twenty  per cent  of  the  salary  or wage  earned  by  him  during  the accounting year : Provided  further  that  if  in  any  accounting  year   the allocable  surplus computed as aforesaid exceeds the  amount of   maximum   bonus  payable  to  the  employees   in   the establishment under the first proviso, then, the  provisions of section 15 shall, so far as may be apply to such excess. Explanation  I.-For  the purpose of  this  sub-section,  the total  bonus  in  respect of any accounting  year  shall  be deemed  to be less, than the total bonus paid or payable  in respect  of the base year if the ratio of bonus  payable  in respect of the accounting year to the gross profits of  that year  is  less than the ratio of bonus paid  or  payable  in respect of the base year to the gross profits of that year.               Explanation II.-In this sub-section,               (a)   base Year" means-               (i)   in  a case where immediately before  the

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             29th  May,  1965, Any dispute  of  the  nature               specified in section 33 was pending before the               appropriate   Government   or   before    any.               Tribunal   or   other  authority   under   the               Industrial  Disputes Act, 1947 (XIV of  1947),               or  under  any corresponding law  relating  to               investigation  and  settlement  of  industrial               disputes  in  a  State,  the  accounting  year               immediately  preceding the accounting year  to               which the dispute relates;               43               (ii)  in any other case, the period,of  twelve               months  immediately preceding  the  accounting               year  in  respect of which  this  Act  becomes               applicable to the establishment;               (b)   "gross profits" in relation to the  base               year or, as the case may be, to the accounting               year,  means gross profits as reduced  by  the               direct  taxes  payable  by  the  employer   in               respect of that year." This sub-section makes a departure from the scheme for  pay- ment  of  bonus  which pervades the rest of  the  Act.   The expression  "allocable surplus" in s. 34(2) does not mean  a percentage of the available surplus under s. 2 (4) read with ss. 5 and 6, as that expression is understood in the rest of the  Act.   It is a figure computed according to  a  special method.Under  s.  34(2) if the total bonus  payable  in  any accounting  year after the Act had come into force  is  less than  the  total bonus paid or payable in  the  "base  year" under  any  award,  agreement,  settlement  or  contract  of service, bonus for the accounting year has to be  determined according to the following scheme First  determine the ratio of the bonus paid or  payable  to all  employees  (not  workmen  merely  as  defined  in   the Industrial  Disputes  Act) for the base year as  defined  in Explanation  II(a)  to  the gross  -profits  as  defined  in Explanation II(b) of that year, and apply that ratio to  the gross profits as defined in Explanation 11 to the accounting year  and determine the allocable surplus.   That  allocable surplus  will be distributed among the employees subject  to the  restriction that no employee shall be paid bonus  which exceeds  20 % of the salary or wage earned by  an  employee, and  that if the allocable surplus so computed exceeds  the, amount  of  maximum bonus payable to the  employees  in  the establishment  then the provisions of s. 15 shall so far  as may be apply to the excess. Gross profits which are to be taken into account for  deter- mining  the ratio both in the accounting year and  the  base year  are  also specially defined for the  purpose  of  this -sub-section’.  They are not the gross profits as determined under  the Full Bench Formula nor-under s.4 of the Act,  but by"  a method specially prescribed by the Explanation:  they are  gross profits under S.4 as reduced by the direct  taxes payable  by the employer in respect of that  year.Under  the Full  Bench Formula bonus Was determined as a percentage  is of the gross profits minus prior charges.  Under S.5 of  the Act available surplus of which the normal allocable  surplus is  a percentage is determined by deducting from  the  gross profits  of the year the four heads of charges  items  which are referred to under s. 4-depreciation, development  rebate or  development  allowance,  direct  taxes  and  other  sums specified in the Third Schedule. -But in applying the scheme under s. 34 only the direct taxes are debited.  Bonus 44 which becomes payable under s. 34(2) is therefore not worked

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out  as  a  percentage of the available surplus,  but  as  a fraction of gross profits computed according to the  special formula.   The  expression "base year" is  also  a  variable unit: in any case where a dispute of the nature specified in s. 33 is pending immediately before May 29, 1965, before the authorities   specified  in  s.  33,  the  accounting   year immediately  preceding  the  accounting year  to  which  the dispute  relates is the base year : in other cases a  period of twelve months immediately preceding the accounting   year in  respect  of  which the Act  becomes  applicable  to  the establishment, is the base year.  For instance, if there  be a  dispute pending in respect of the accounting year on  any day ending in 1962, 1963 or 1964, the base years will be the accounting  years ending on a day in 1961, 1962 or  1963  as the case may be.  If there be no dispute pending the  period of  twelve months immediately preceding the accounting  year in which the Act becomes applicable to the establishment  is the  base  year.  Determination of the base  year  therefore depends  upon the pendency or otherwise of a  bonus  dispute immediately before May 29, 1965, for any of the years ending on any day in 1962, 1963 and 1964. There  is also a special method for determining whether  the total  bonus payable to all the employees is less  than  the total bonus paid or payable in respect of the base year.  By the First Explanation it is provided that the total bonus in respect  of any accounting year shall be deemed to  be  less than the total bonus paid or payable in respect of the  base year,  if  the  ratio of bonus payable  in  respect  of  the accounting  year to the gross profits of that year  is  less than  the ratio of bonus paid or payable in respect  of  the base year to the gross profits of that year. Section  34 (2) contemplates a somewhat complicated  enquiry into the determination of the bonus payable.  Gross  profits of  the base year being determined in the manner  prescribed by  the Act and reduced by the direct taxes payable  by  the employers  in  respect of that year, the ratio  between  the gross  profits and the bonus paid or payable in  respect  of that base year is to be applied to the gross profits of  the accounting  year to determine the allocable surplus.   Apart from  the  complexity of the calculations  involved  it  was forcefully  pointed out before us that in certain cases  the ratio may be unduly large or even infinite.  In order to buy peace and in the ,expectation that in future the working  of the  establishments would be more profitable, employers  had in  certain  cases paid bonus out of reserves,  even  though there was no gross profit or insufficient gross profit,  and those  establishments  are  under  s.  34(2)  saddled   with liability to allocate large sums of money wholly  dispropor- tionate  to or without any surplus profits, and even to  the amount  which  would  be payable if the scheme  of  the  Act applied.  For in Cases where there were no gross profit, the ratio between the amount 45 paid  or  payable  as bonus and  gross  profit  would  reach infinity  : in cases where the gross profits were small  and substantial  amounts were paid or became payable by  way  of bonus,  the  ratio may become unduly large.  These  are  not cases hypothetical but practical, which had arisen in  fact, and application of the ratio irrevocably fixes the liability of  the  establishment to set apart year  after  year  large amounts  whether the establishment made profits or not  tow- ards allocable surplus. Payment  of bonus by agreement was generally determined  not by  legalistic considerations and not infrequently  generous allowances were made by employers as bonus to workmen to buy

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peace especially where industrywise settlements were made in certain  regions, and weak units were compelled to  fall  in line  with prosperous units in the same industry and had  to pay  bonus even though on the result of the working  of  the units  no liability to pay bonus on the application  of  the Full  Bench  Formula could arise.  But if in the  base  year such payment was made, for the duration of the Act the ratio becomes frozen and the total bonus payable to the  employees in  the establishment under the Act can never be  less  than the  bonus  worked  out  on the  application  of  the  ratio prescribed by s. 34(2). Here  again units or establishments which had paid bonus  in the base year and those which had not paid bonus in the base year   are   separately  classified  without   taking   into consideration the special circumstances which operated  upon the  payment of bonus in the base year which may  very  from establishment  to establishment.  The ratio under s.  34(2), so  long as the Act remains on the statute book,  determines the  minimum allocable surplus for each accounting  year  of those establishments which had paid bonus in the base  year. The  fact  that  under  sub-s. (3)  the  employees  and  the employers  are not precluded from entering  into  agreements for granting bonus to the employers under a formula which is different  from  that prescribed under the  Act  has  little significance.  If by statute a certain ratio is fixed  which determines the bonus payable by the employer whether or  not the profits of the accounting year warrant payment of  bonus at that rate, it would be futile to expect the employees  to accept   anything  less  than  what  has  been   statutorily prescribed. 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  prepetuates 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 labour’s share 46 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   the    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 principle evolved by  it  and  for securing the object of the Act.  If the concept of bonus  as

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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  imposition  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  funda- mental rights conferred by Arts. 19(1)(g) and 31(1). 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 convered by s. 33 will therefore be governed by the Full Bench  Formula and that ill 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 28, 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. 47 The  Industrial Tribunal has awarded to the workmen  of  the Jalan Trading Company bonus at the minimum rate relying upon s.  33 of the Act.  The claim for bonus related to the  year 1962, and could be upheld only if s. I0 was attracted by the operation of s. 33.  But we have held that s. 33 is invalid. It  is  now  common ground that the  appellant  Company  had suffered  loss  in 1962.  The profit and  loss  account  was accepted  by the workmen before the Tribunal.  Civil  Appeal No.  187  of 1966 will therefore be allowed  and  the  order passed  by  the Industrial Tribunal imposing  liability  for payment of minimum bonus set aside.  In Writ Petitions  Nos. 3  of  1966 and 32 of 1966, it is declared that ss.  33  and 34(2) are invalid as infringing Art. 14 of the Constitution, and  that  s. 37 is invalid in that.  It  delegates  to  the executive authority legislative powers. There   will  be  no  order  as  to  costs  in  all,   these proceedings. Hidayatullah  J.  The  Judgment in this  appeal  shall  also govern Writ Petitions Nos. 3 of the 1966 (The Management  of M/s.   Punalur Paper Mills Ltd ., Kerala State v. The  Union of India and others) and 32 of 1966 (The Travancore  Raymons Ltd. v. The Union of India and of hers).  The Jalan  Trading Co.  Pvt.   Ltd. (appellant) was the opposite  party  to  an industrial  dispute  concerning a claim for  bonus  for  the years  1961,  1962  raised by the  workmen  of  the  Company represented by the Mill Mazdoor Sabha, Bombay (respondents). The Sabha gave notice of change on May 13, 1963 and demanded 25 % 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  73-A  of  the Bombay  Industrial Relations Act.  While this reference  was

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pending  the Payment of Bonus Ordinance oil 29th  May,  1965 came  into  force.   Applying s. 10 of  the  Ordinance,  the Industrial Court awarded for the year 1962, 4 % 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  25 September  1965  and  replaced  the  Ordinance  with  a  few changes, is challenged. In Writ Petitions 3 and 32 of 1966, heard with this  appeal, two-.  other  companies (The Punalur Paper  Mills  Ltd.  and Travancore, Rayons Ltd ) question the validity of s. 10, and also  ss. 32-37 of the Act, in respect of bonus for  one  or more of the years 1962, 1963 and 1964.  These sections, they contend, cut across the accepted and well-defined concept of bonus  and lead to discrimination and anomalies  of  various sorts,  and,  of course, incidentally to the  payment  of  a larger amount as bonus than would be payable under 48 subsisting   agreements  or  the  previous  state  of   law. Comparative tables to demonstrate these and other points are filed with the petitions. At  the  hearing of this appeal and the two  writ  petitions many Companies and Workers’ Unions intervened in one or more of them.  The contending parties also intervened in  matters other  than their own.  The operative sections of the  Bonus Act were challenged as ultra vires the Constitution.   These sections  lay  down the machinery for calculation  of  bonus generally  and  in particular on foot of a past  base  year, apply  the provisions with modifications to  pending  cases, permit   Government  to  exclude  establishments  from   the operation  of the provisions of the Act and pass orders  for the removal of doubts and difficulties in the application of the  Act.  We shall refer to terms of the relevant  sections presently. In  short,  the departures front the existing  laws  on  the Subject of bonus to workmen, are challenged in principle and also  as discriminatory.  The arguments were full  and  were illustrated  by  examples  which  ingenuity  of  counsel  or reliance  on  statistics could suggest.  To  understand  the arguments  it  is  necessary to glance  at  the  history  of payment  of bonus in India, the principles on which  it  was based and the relevant provisions of the Act impugned before us. The payment of bonus had its origin in the generosity of the textile  employers  during  the First World  War  when  they voluntarily  gave  away 10 % (later up to 35  %)  additional wages  as  "war bonus" The profits were then high  and  this extra  payment gave a boost to production and indirectly  to the  profits  of the employers.  When the  lean  years  came payment  of bonus was sought to be stopped but disputes  and strikes followed.  The workmen had begun to consider "bonus" as  one of their rights.  The first dispute was  settled  by conciliation by the acceptance of bonus equal to one month’s wages, with a tacit understanding that this payment could be more if profit allowed.  The second had to be referred to  a Committee presided over by Chief Justice Macleod of  Bombay. The  Committee  found  no legal  foundation  for  the  claim especially when there were no profits. During the Second World War the question of dearness  allow- ance was raised but it included consideration of bonus  etc. A  Board  of  Conciliation with  Mr.  Justice  Rangnekar  as Chairman,  awarded  -/2/-  per person per  day  as  dearness

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allowance   but   that  was  obviously  a   there   nothing. Therefore, at the intercession of Government a cash bonus of 12-1/2%  of  Wages (that is to say, As. -/2/- per  rupee  of wage)  was  agreed  upon and given to  workmen.   Bonus  was thereafter  paid voluntarily for a number of years  and  was the result, by and large, of agreements of some sort. 49 When the law enjoining compulsory reference to  adjudication of  trade disputes came the question of bonus, as  did  many others, reached the courts and the claim for bonus became an industrial  claim  and had to be settled  on  some  tangible principle.   Various  reasons were advanced to  justify  the legality  of the claim and the court accepted some of  them. At  first it was merely treated as rooted in fair  play  but later it was held to be claimable as of right and ranking in importance  next  only  to the claim of  minimum  wages  and dearness allowance which were considered the first liability of  the employer.  After the Industries Conference of  1947, grant  of  bonus became a settled fact, as  a  very  slender means to bridge somewhat, the gap between actual and  living wages.    The  workmen  had  become  accustomed  to   expect additional payment to meet extra-ordinary expenditures,  or, in  other  words, treated bonus as a kind  of  nest-egg  for emergencies. The  principles underlying the grant of bonus were at  first nebulous  but  after the deliberations of the  Committee  on Profit  Sharing  (1948),  some  clear  principles  began  to emerge.  The Labour Appellate Tribunal, Bombay then  evolved a  formula  for calculation of the profits to find  Out  the surplus from which the workmen could be paid.  This  formula goes  under the name of "the Full Bench Formula." The  first step  in  the application of the Formula  was  to  ascertain gross  profits.   This was done by adding back  to  the  net profit  as shown in the Profit & Loss Account,  all  amounts transferred  to  reserves  etc., and, in  fact,  all  income except  what  could  not be attributed  to  the  efforts  of labour.  In this way depreciation, taxes paid and  donations and  such other items were all added back to  determine  the gross  profits.   From  these gross  profits  were  deducted national normal depreciation and national taxes, that is  to say, not the depreciation or the taxes which the  Income-tax Authorities would have allowed in the case, but which  would be admissible on the amounts found under the Formula.  There were further deductions of amounts as reserve for  rehabili- tation  of machinery etc., of return on paid-up capital  and on  reserves  employed  as working  capital.   After-  these deductions  were  made  the  net amount  was  taken  as  the available  surplus  and  bonus was awarded  to  the  workmen according to the size of this surplus.  There was no settled principle as to how the available surplus should be  divided between  the  employers and workmen and this Court,  in  the absence of any  discernable principles, suggested a half and half  division.   The Formula was approved  and  applied  in numerous cases by this Court and when the Tribunal attempted to  revise  it  this  Court  Put  down  the  attempts,   and recommended  the  establishment  of a  Commission.   At  the second  and  third  meetings  of the  18th  Session  of  the Standing Labour Committee in 1960 the proposal to  establish a  Commission  was  considered and was agreed  upon.   As  a result  the  Government  of India,  on  December,  6,  1961, appointed 50 a Commission under the Chairmanship of Mr. M. R. Meher.  The Commission  made its recommendations and they were  accepted by Government, with some modifications, by Resolution  dated

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September,  2,  1964.  The Bonus Ordinance as  well  as  the Bonus  Act  were  passed to  implement  the  recommendations accepted in the Government’s Resolution. The   Full   Bench  Formula,  although   not   legislatively recognised’  was  binding as a decision of the  courts.   In essence  it  was  only a  workable  solution.  it  satisfied neither  the employers nor the workmen.  Disputes  continued even  though  the  Formula was generally  adhered  to.   The workmen, while conceding that rehabilitation was  necessary, used  to represent that large sums deducted from  the  gross profits  as rehabilitation reserves were not spent for  that purpose.   Often  enough this was true.  They also  used  to dispute the reserves, used as working capital and asked  the employers  to prove what amount was so used.  Lastly,  there were  quarrels about the division of the available  surplus. The  employers, on the other hand, used to contend  that  if rehabilitation   charges  were  not  deducted   depreciation allowable  tinder  the Indian Income-tax Act, being  only  a percentage  of  the written down value,  was  inadequate  to enable  rehabilitation of machinery etc.  They also used  to submit that the return on capital at 6% was too little  and, in  fact,  succeeded  ill getting  the  return  on  reserves employed  as  capital, increased from 2% to 4%.  It  was  in this   context   that   the  Bonus   Commission   made   its recommendations.   It  is  not necessary  or  profitable  to summarise these recommendations in their entirety.  Only the fundamental  proposals  can  be mentioned here  for  we  are concerned with them as part of the history lying at the back of  the legislation impugned here, and because a great  deal of thought went into the formulation of these proposals. The Bonus Commission found it difficult to accept the propo- sition  that bonus represented the means to bridge  the  gap between  the  actual  and living  wages  but  expressed  the opinion  that bonus afforded the means of bridging  the  gap between  actual and needbased wages and that such,  a  claim was  admissible  when profit exceeded a certain  base.   The formula  suggested by the Bonus Commission was different  in many particulars from the Full Bench Formula.A comprehensive mode  for determining the gross profits was evolved. and  to the net profits disclosed in the statement of Profit &  Loss were  added  numerous  items which it is  not  necessary  to mention  here.  From the gross profits the  first  deduction was  depreciation  and  this was  not  the  notional  normal depreciation  of  the  old  Formula  but  the   depreciation allowable  under  the Income-tax law including  ,  multiple- shift   allowance.   Income-tax  and  super-tax  were   next deducted.   The development rebate which took the  place  of ’initial depreciation under the previous Income-tax law  was not allowed to be deducted but the Commission 51 was  of  opinion  that  the tax  concession  on  account  of development rebate should be retained, by the employers  and must,  therefore,  be deducted from the gross  profits.   As normal  depreciation and the tax concession  on  development rebate were to be retained by the companies,  rehabilitation charges were abolished.  The super profits tax was not  made a   prior  charge  mainly  because  bonus  was  treated   as expenditure under the Indian Income-tax Act and some  saving to the employers was likely to result. The Commission suggested a 7 % return on paid-up capital and a  4% return on reserves employed as capital.   The  balance left  after these deductions was the available surplus  from which 60% was to be paid as bonus to workmen and 40% was  to be retained by the employers.  The Commission also suggested that the employers must pay a minimum bonus equal to 4 %  of

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the  total  basic  wage and dearness allowance  or  Rs.  40% (whichever   was  greater)  to  each  workman  whether   the allocable surplus permitted it or not and also set a ceiling on  bonus by providing that not more than 20% of  the  total basic wage and dearness allowance bill may be paid as  bonus in  any year.  If there were no profits or if profits  could allow  payment  of  bonus  more  than  the  20%  maximum,  a principle  of set oil and set off was devised.   The  amount paid  out as minimum bonus or the extra over and  above  the 20% maximum had to be carried forward to future years to  be set  on or set off. against the profits in those years.   In this  way  the payment of minimum -bonus when no  bonus  was payable,  was made less onerous and similarly the amount  in excess  of 20 % which might have been paid as bonus under  a 60  to  40 division was to be carried over  to  the,  future years to be available when the profits were low.  The set on and set off were to be valid only for 4 years at the end  of which the amounts available for set on or set off were to be ignored.   The Commission also recommended payment of  bonus to persons whose total basic pay and dearness allowance  did not exceed Rs. 1,600/- per month regardless of whether  they were  "workmen" or not according to the definition  of  this word  in the Industrial Disputes Act.  The amount of  bonus, however,  was  flat  after  the  basic  wage  and   dearness allowance  taken together reached Rs. 750/- per  month.   In respect  of new units. bonus was to be payable from the  6th year  or  when  profits (after wiping  off  old  losses  and allowing for depreciation etc.) permitted. Government by its Resolution accepted these  recommendations but   with   certain  modifications.    Government   allowed deduction  of  all direct taxes from the gross  profits  and increased the return on capital to 8-5% (taxable) on paid-up equity capital and 6% on reserves (for banks 7 .5 % and 5  % respectively).  Government also gave retrospective effect to the  recommendations of the Bonus Commission as  amended  by itself  by resolving that. they should apply to.- all  bonus matters other than those cases in which settlement had  been reached or decisions had been given already, relating 52 to  accounting year ending on any day in the  calendar  year 1962 in respect of which dispute was pending.  The Ordinance and  the  Act  follow  the  recommendations  of  the   Bonus Commission  as  modified in the Government  Resolution.   We shall  now refer to the terms of the Act, contrasting  them, where  necessary,  with the terms of the  Payment  of  Bonus Ordinance which has since been repealed. The foregoing discussion of the recommendations of the Bonus Commission  renders  it  unnecessary to quote  many  of  the provisions of the Act which consists of 40 sections and four schedules.   Some terms, which have been used before by  us, may  be explained first.  Bonus is payable  from  "available surplus" which is the result of certain deductions under  s. 6  from the gross profits determined in accordance with  the provisions of Schedules I and 11 which apply respectively to banking   companies   and  companies  other   than   banking companies.   "Allocable  surplus" in relation to  a  company (other   than  a  banking  company),  which  has  not   made arrangements prescribed under the Indian Income-tax Act  for the  declaration  of payment within India of  the  dividends payable out of its profits in accordance with the provisions of s. 194 of that Act, means 67% of the available surplus in the  accounting  year  and  in any other  case  60%  of  the available surplus including any amount treated as  available surplus  under s. 34(2) to be mentioned hereafter.   "Direct tax"  means any tax chargeable under the  Indian  Income-tax

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Act,  the  Super  Profits  Tax  Act,  1963,  the   Companies (Profits) Surtax Act, 1964, the agricultural income-tax law, and  any other tax declared to be a direct tax.   "Employer" means  a person employed on a salary or wage which does  not exceed  Rs. 1,600/- per month.  "Salary or wage"  means  all remuneration  (other than remuneration in respect  of  over- time  work)  capable of being expressed in terms  of  money, including  dearness  allowance but not including  any  other allowance or amenity such as house accommodation, supply  of light,  water,  medical attendance or  food-grain  or  other article or any travelling concession, bonus, contribution to Provident  Fund,  retrenchment compensation or  gratuity  or commission payable to the workmen. The calculation of gross profits is to be done as laid  down in  the first two Schedules.  In both the Schedules the  net profits  as shown in the Profit & Loss Account are  adjusted by  additions  and  substractions  to  determine  the  gross profits  for  purposes of bonus.  The available  surplus  is then reached by making deductions as laid down in s.6. Three of  the deductions are applicable to all employers  and  the fourth  deduction, which is return on capital, is  different in the case of different employers and the special deduction is  set  down separately for them.  The first  deduction  is depreciation admissible under the Indian Income-tax Act  and agricultural  income-tax laws.  Where, however, an  employer was paying bonus under 53 a settlement, award or agreement made before the date of the Ordinance  he  is  entitled to deduct  the  notional  normal depreciation at his option to be exercised once and for  all before  29th May, 1966.  The second deduction is the  amount of  development  rebate or development allowance  which  the employer is entitled under the Income-tax Act to deduct from his  income.  The third deduction embraces all direct  taxes subject to certain special provisions.  The fourth deduction is return on capital and in respect of a company other  than a banking company the deducation according to Schedule II is as follows:-               "(i)  The dividends payable on its  preference               share   capital   for  the   accounting   year               calculated  at the actual rate at  which  such               dividends are payable;               (ii)  8.5 percent. of its paid up equity share               capital   as  at  the  commencement   of   the               accounting year;               (iii) 6 percent. of its reserves shown in  its               balance-sheet  as at the commencement  of  the               accounting year, including any profits carried               forward from the previous accounting year:               Provided that where the employer is a  foreign               company  within the meaning of section 591  of               the Companies Act, 1956 (1 of 1956), the total               amount to be deducted under this Item shall be               8  .5 per cent. on the aggregate of the  value               of the net fixed assets and the current assets               of  the company in India after  deducting  the               amount of its current liabilities (other  than               any amount shown as payable by the company  to               its  Head Office whether towards  any  advance               made  by the Head Office or otherwise  or  any               interest  paid  by  the company  to  its  Head               Office) in India." The  deduction  varies  in  respect  of  banking  companies, corporations,  co-operative societies, licencees  under  the Electricity  Supply  Act, 1948 and other  employers.   After

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these  deductions  are  made and the  available  surplus  is determined the allocable surplus (either 67% or 6O%, as  the case may be) is payable as bonus.  The amount so payable  is subject to an upper and a lower limit determined in relation to  salary or wage of the workmen qualified to  receive  it. Under  s. 10 every workman is entitled to receive 4% or  Rs. 40 (in the case of children below 15 years Rs. 25) whichever be greater, whether there are profits in the accounting year or  not.  Under s. 11 the total amount payable as  bonus  in any accounting year may Dot exceed 20 % of the total  salary or  wage  bill.   Although bonus  is  payable  to  employees drawing salary or wage up to Rs. 1600 per month, the  amount of  bonus in any case cannot exceed the amount payable to  a person whose salary or wage is Rs. 750 per month. 54 Bonus  is payable proportionately to the number of  days  on which  the workman works.  The principle of set on  and  set off  of allocable surplus, as laid down by s. 15,  has  been adverted to in brief already.  It may be explained a  little more  fully .  If the allocable surplus exceeds the  20  per cent upper limit, the excess in the accounting year is to be carried  forward to be set on in the  succeeding  accounting years  up to and inclusive of the 4th accounting year so  as to  be  available  for payment of  bonus  if  the  allocable surplus  in  those years falls below. 20  %.  Similarly,  if minimum bonus of 4 % of the wage bill is paid, despite loss, the amount so paid may be carried forward for four years for being  set  off  against profits in  the  subsequent  years. Schedule  IV  serves to illustrate the  application  of  the principle   of   set  on  and  set  off   by   giving   some illustrations.   Section  16 makes  special  provision  with respect  to  new  establishments  and  new  departments   or undertakings in old establishments and generally gives  them exemptions from payment of bonus for the first five years or till  profit  is, made, whichever be  earlier.   Section  17 allows  adjustment of customary and  interim  bonus  against bonus  payable  under  the Act. - Section’s  18  to  31  are regulatory in character providing for accounts, inspections, offenses, penalties and protection of authorities.  These do not  concern  us.   Section  32 then  exempts  11  kinds  of employers  from, the operation of the Act.  ’Then follow  s. 33,  which  applies  the Act  to  certain  pending  disputes regarding  payment  of bonus,s. 34 which lays  down  certain special  rules regarding the effect of laws  and  agreements inconsistent with the Bonus Act, s. 36 which gives power  of exemption,  and s. 37 which enables the Central  Government, by  order  to"  remove any difficulty or  doubt  arising  in giving  effect  to the provisions of the Act  .  Section  38 enables the Central Government to make rules and under s. 39 the  provisions of the Act are to be in addition to and  not in  derogation of the Industrial Disputes Act, 1947  or  any corresponding  law relating to investigation and  settlement of  industrial  disputes in force in a State.   Section  35, which  we  omitted, preserves intact the provisions  of  the Coal Mines Provident Fund and Bonus Schemes Act, 1948 or any scheme made thereunder, and the last section (s 40)  repeals the  Payment of Bonus Ordinance, 1965,  but  notwithstanding repeal,  anything  done or any action taken under  the  said Ordinance is to be deemed to have been done or taken  tinder the Act as if ’the Act had commenced on the 29th May,,  1965 when the Ordinance was promulgated. The,  payment of bonus is now legislatively  recognised  and the  Full Bench Formula is not only altered but it Is to  be seen  that  payment  of some bonus  is  compulsory  and  the payment in any year lies within two terminii of minimum  and

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maximum  bonus established by the Act.  The  calculation  of bonus becomes almost mechanical and, therefore, disputes are less likely to take place.  But the Act, although the result of a tripartite deliberation, has not-satisfied the 55 employers generally.  They object to some of its  provisions on various grounds and we shall now proceed to examine them. The first attack is on the provision for minimum bonus in s. 10 irrespective, of profits.  It is submitted that a concept of minimum bonus, unrelated to profits, makes the payment an accretion  to wages and leads indirectly to the  erosion  of capital  since  such  payment.  if it  does  not  come  from profits, must come from reserves or capital.  The  provision is  thus  said  to be a "fraud on the  Constitution"  or  "a colourable  exercise  of power" conforming  neither  to  the accepted  concept  of bonus nor to the principles  on  which minimum wages are fixed.  Section 10 is also said to  offend Art. 14 inasmuch as it makes no difference between companies making profits and companies having losses whether  marginal or  heavy.,  It is said,.that the fixation  of  the  minimum bonus  irrespective-  of consideration such as the  kind  of wages and dearness allowance prevailing in an establishment; profit  or  loss  in  its business;  and  whether  bonus  is integrated  with  wages or not, creates inequality.   It  is pointed  out  that while bonus was  formerly  calculated  on basic wage only and took no note of dearness allowance,  the Act,  by  defining  "wage or  salary"  to  include  dearness allowance has increased the quantum of bonus payable.   Even the  5 years’ exemption to new establishments is  criticised as discriminatory.  Section 10 is said to enable deprivation of the property of the employers with a view to paying it to the  workmen.  The contending parties could not  attack  the Act under Art. 19 in view of the Emergency, but did not also give up the point, although corporations not being citizens, have  been held by this Court to be not entitled  to  invoke the provisions of that article.  In our judgment none of the arguments against s 10 can be accepted. No  doubt  this Court allowed claim to bonus only  if  there was.  profit  but  that  was  not  because  any  universally accepted  recondite  theory  lay at  the  root.   The  Bonus Commission  points out in its report that there  were  bonus pacts under which bonus equal to 15 days’ wages irrespective of  profits  was  payable  and  a  maximum  limit  was  also provided.   The principle of set on and set off was  also  a part of these, pacts.  In fact, the desire to fix a  maximum limit  for bonus must, inevitably lead to the fixation of  a minimum  limit also.  The workmen were not slow  to  suggest that  if minimum bonus is abolished the maximum  limit  must also go. The  employers rely upon the New Maneck Chowk  Spinning  and Weaving  Co.,  Ltd.,  Ahmedabad and Others  v.  The  Textile Labour   Association,  Ahmedabad(1)  in  which  this   Court rejected the fixation by the Tribunal of minimum bonus for a year  beyond the pact period although this was done  in  the interest  of industrial peace.  This is of no value  because the question here is one of the case power of (1) [1961] 3 S.C.R. 1. 56 the  Parliament  and not of the power of the  Tribunal.  The powers  of  Parliament  to  fix  minimum  bonus  cannot   be questioned   because   it  flows  from   jurisdiction   over industrial and labour disputes, welfare of labour  including conditions of work and wages.  The legislation is  therefore neither  a  fraud  on  the  Constitution  nor  a  colourable exercise  of  power.  Under any of these powers, or  all  of

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them viewed together, the fixation of minimum bonus is legal and  if  these  topics  of  legislation  were  found  to  be insufficient  the  residuary power of Parliament  must  lend validity to the enactment. The validity of arguments about the integration of  dearness allowance  with  wage  to determine  the  quantum  of  bonus depends on how wages can be viewed today.  Labour  considers dearness  allowance  to be as fundamental as  wage  and,  in fact,  we  have  heard  repeated pleas  for  the  merger  of dearness  allowance  in  minimum  wage.   In  our   opinion, dearness allowance must obviously stay -on till at least the need-based wage is reached.  The gap between the actual wage and the need-based wage tends to widen as time passes unless the  wage  and/or dearness allowance are revised  to  obtain significant  neutralization  of the cost of  living  at  any given  moment  of time.  It may be that in  some  industries dearness   allowance   does,  to  an   appreciable   extent, neutralize  the  cost  of living but  such  companies  would hardly  be required to pay Minimum bonus for  their  profits would  justify  a  higher bonus.  Again, loss  can  only  be established  after  the prior charges or some  of  them  are deducted.   The  charge of minimum bonus is only 4%  of  the wage bill,i.e.equal to 15 days’ wages and cannot be said  to be  heavy.   Further, the provision for set  off  keeps  the matter in suspense for at least four years during which  the affairs  of the company are likely to improve.   Taking  the provision  for minimum bonus with the provision for set  off it can hardly be said that the section is so exorbitant that it  amounts to deprivation of the property of the  employers with  a  view to giving it to the  workmen.   The  provision makes  payment  ,of minimum bonus range next to  payment  of wages  and dearness allowance and to rank in  priority  over any of the prior charges, deductible in favour of employers. Comparison of minimum bonus with the Land Tax Act considered in  Kunnathat Thathunni Moopil Nair v. The State  of  Kerala and Another(1) which imposed a flat rate of tax on all lands irrespective  of  their  productivity, is  not  valid.   The observations in that case, wide as they may appear, must not be  extended by analogical application to a case of  minimum bonus  which is intended to promote industrial peace and  to be a first step towards the goal of needbased wage.  Even if the payment is viewed as a compulsatory payment of wage  the power to ’impose it as part of minimum wage is not  lacking. It must not be forgotten that the fixation of mini- (1)  [1961] 3 S.C.R. 77. 57 mum  wage was also criticised along the same lines  but  was held  justified.  The differentials, the paying capacity  of establishments  or  absence of profit  made  no  difference. This  was  decided over and over again by  this  Court.  See Edward  Mills Co. Ltd.  Beawar v. State of  Ajmer(2),  Bijay Cotton   Mills  Ltd.  v.  State  of  Ajmer(2)  and   Express Newspapers (Pt.) Ltd. & Anr. v. Union of India & Ors.,(3) U. Unichoyi & Ors. v. State of Kerala(4). It  has been said before that every uniform legislation  can be  made  to  appear  ridiculous by  citing  a  few  extreme examples  and  comparing them and this statement  will  bear repetition  in the context of discrimination said  to  arise from  s. 10.  Even under the Minimum Wages Act a  prosperous establishment  could  be  shown to be  placed  on  the  same footing as another establishment not so prosperous, but this Court  did  not strike down the Minimum Wages  Act  on  that ground.   In  our judgment the provision for payment  of  15 days’ wages to workmen as bonus irrespective of profits is a measure  well-designed to keep industrial peace and to  make

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way for the need-based wage which the Tripartite  Conference emphasised.   Some unequal treatment can always be  made  to appear when laws apply uniformly.  Two establishments cannot be  so  alike as the hypothetical examples taken  before  us suggested.  Differences must exist but that does not prevent the  making of uniform laws for them provided the  law  made has a rational relation to the object sought to be  achieved and   the   inequality   is   trivial   and    hypothetical. Classification can only be insisted upon when it is possible to  classify,  and a power to classify need  not  always  be exercised  when classification is not  reasonably  possible. In  our judgment s. 10 does not lead to such  inequality  as may be called discrimination. It  is next contended that s. 32 creates inequality  because it excludes II kinds of establishments from the operation of the  Act At first sight a provision calculated to exclude  a few  selected establishments from an otherwise  uniform  law must  savour of discrimination but it must be borne in  mind that there are establishments and establishments and certain classes   of  establishments  cannot,  with  any   practical advantage  or  without  fear of  harm,  be  classified  with others.   Nor  is their exclusion from the general  body  of establishments necessarily discriminatory.  In other  words, a  question of discrimination can only be decided  when  the circumstances  of each exempted establishment  are  properly weighed and considered.It is only then that the  fundamental differences  can be noticed.Of the establishments  mentioned in  s. 32 none was present before us for the  simple  reason that  none was made a party.  Nor was any  special  argument addressed  in  respect  of any  particular  class.   It  is, therefore,  improper  for  us to say whether  there  is  any rational (1) [1965] 1 S.C.R. 735.     (2) [1955] 1 S.C.R. 752 (3) [1959] S.C.R.12.         (4) [1962] 1 S.C.R. 946 14 Sup.  C.I.166-5 58 classification  in  s.  32 or not.  We  accordingly  do  not express any opinion on this section. Similarly  s. 36, which gives further power to  the  Central Government to exempt in the public interest an establishment or  class of establishments for some period subject to  such condition as the Central Government might deem necessary  to impose, does not per se augur discrimination.  There may  be special cases which may require immediate relief and but for such  a provision there would be no means of  affording  the relief.   The  existence  of such a  provision  is  not  bad because  it merely gives a power.  But the exercise  of  the power must, of course, bear the scrutiny of Art. 14.  As no abuse of power is suggested, we cannot say that the  section is  by reason of a possibility of abuse discriminatory.  The Section cannot rightly be described as a piece of  delegated legislation. Section  37  gives power to the Central Government  to  make orders, not inconsistent with the purposes of the Act as may be necessary or expedient for the removal of any  difficulty or  doubt  and the order is made final.  This  provision  is characterised as delegation of legislative power.  There  is some misunderstanding as to the function of such a provision which  is to be found in several statutes.  If a  list  were drawn  up  it  will  fill many pages  but  for  example  the following may be seen: s. 14 of the Central Regulation  1962 (VII  of  1962), s. 128 of the  States  Reorganisation  Act, 1956,  s. 33A of the Business Profits Act of 1947, s.  6  of the  Taxation  Laws Act of 1949, s. 7 of the  Taxation  Laws Extension (to Tehri Garhwal) Order, Taxation of Laws (Merged

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States)  (Removal of Difficulties) Order, 1949 and Art.  392 of the Constitution.  As a legislative practice this is  not new  and the fact that one provision is in the  Constitution and  in some other the order has to be laid on the table  of Parliament,  makes no difference.  The Constituent  Assembly gave  the  power  to Government but in this  respect  as  in respect  of powers of amendment, Parliament can do so  again today.   Nor have we got an Act about statutory orders  such as in England.  Much action under the Organisation of States Acts  was taken under s. 128 and the rest of Part XI of  the Act.  That Section is in identical words.  On this  argument all the orders issued under these provisions must be treated as void.  None has questioned any action so far. The functions so exercised are not legislative functions  at all  but  are  intended to advance  the  purpose  which  the Legislature has in mind.  The power to pass an order of this character cannot be used to add to or deduct from that which the  Act provides.  The order only makes smooth the  working of  the Act particularly in its initial stages.  This  power is  given to the Central Government so that  litigation  may not ensue as the policy of Act is to avoid litigation.   The rejection of such a provision is only possible if we 59 begin  with  a  concept  of  trinity  of  powers  with   the legislature  performing  delegated power on  behalf  of  the people,  as  is sometimes held in the  United  States.   The rejection there takes place by the application of the  maxim delegatus  non potest delegate.  This doctrine, it has  been accepted  on all hands was originated by the glossators  and got  introduced into English Law by a misreading of  Bracton as a doctrine of agency and was applied by Coke in decisions to prevent the exercise of judicial power by another  agency and  later received its present form in the  United  States. The  question  is  not  one of  a  delegate  making  a  sub- delegation but of the sovereignty of Parliament.  Parliament has  not  attempted to set up another legislature.   It  has stated  all  that it wished on the subject of bonus  in  the Act.  Apprehending, however, that in the application of  the new Act doubts and difficulties might arise and not  leaving their  solution to the courts with the attendant delays  and expense, Parliament has chosen to give power to the  Central Government  to remove doubts and differences by  a  suitable order.   The  order, of course, would be passed  within  the four corners of the parliamentary legislation and would only apply  the Act to concrete cases as the courts do when  they consider  the  application  of an Act.   The  order  of  the Central  Government is made final for the reason that it  is hardly practical to give power to the Central Government and yet  to leave the matter to be litigated further.  The  fact that  in  the  Government  of India Act,  1935  and  in  the Constitution  such power was and is contemplated and it  has been  conferred in diverse Acts without a challenge  before, shows  amply that the argument that the section  amounts  to conferral of legislative powers on the Central Government is erroneous.   All  other cognate provisions have  never  been challenged  on the ground that they amount to delegation  of legislative power.  We accordingly hold s. 37 to be  validly enacted. It remains to consider the validity of ss. 33 and 34.   They are  in  a sense inter-related.  The sections  need  not  be quoted  as we are concerned only with their  scheme.   These sections  determine  how the provisions of the  Act  are  to apply in relation to establishments which differ in  certain respects.   For this purpose the Act provides for two  dates for  its own commencement.  Under s. 1(4) the provisions  of

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the  Act  are to have effect from an  accounting  year  com- mencing  on  any  day  in  1964  and  in  respect  of  every subsequent  accounting  year.   But by ss.  33  and  34  the provisions  are made applicable with some  modifications  in respect   of  accounting  years  earlier  than   the   first accounting  year  mentioned  in s. 1(4).   To  achieve  this result sub-section (1) of s. 34 provides that the provisions of   the   Act  (as  modified  by  s.   34)   shall   apply, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in the terms of any award, agreement, settlement or contract of service made before the 29th May 1965. 60 The Act then takes note of establishments which did not  pay bonus  in an accounting year earlier than the one  mentioned in  s.  1(4), establishments which either paid bonus  in  an earlier  accounting  year with or without a dispute  but  no dispute  was pending on May 29, 1965, and establishments  in which  a  dispute was pending on May 29, 1965 in  regard  to bonus  in respect of a year not earlier than the  accounting year ending on any day in 1962 although no such dispute  may be  pending for subsequent accounting years.  In respect  of establishments  for  which  the Act  is  made  retrospective beyond  what  is  laid  down  in S.  1(4)  bonus  is  to  be calculated  in  the  manner laid down in  s.  34(2).   Those establishments, which come under the Act for the first  time as  laid  down  in s. 1(4), are to be governed  by  the  Act without the modifications envisaged by ss. 33 and 34.  These are establishments without a prior history of bonus payment. Establishments  with a history of bonus payment  come  under ss.  33  and  34.  They are  divided  into  two  categories. Establishments in which a dispute was pending on the date of the passing of the Ordinance in regard to bonus relating  to an  accounting  year not earlier than  the  accounting  year ending  on  any day in the year 1962 are in  one  class  and those  in which no such dispute was pending are  in  another class.  The Explanation to S. 33 determines when dispute  is to  be deemed to be pending.  In either of these  two  cases bonus is payable according to the provisions of the Act  but as  specially laid down in sub-s. (2) of s. 34.   The  Bonus Commission met for the first time on January 4, 1962 and the Ordinance came into force on May 29, 1965.  These two  dates determine  the class of establishments to which the  special provisions of ss. 33 and 34 are made applicable. The  scheme may be summarized thus.  The Act applies to  all establishments  from the accounting year commencing  on  any day in the year 1964 and in respect of any subsequent  year. Establishments having no prior history of bonus payment  are governed   by  the  provisions  of  the  Act   without   the modifications  contained  in ss. 33 and 34.  In  respect  of establishments  with  a prior history we have  two  classes: establishments  in  which a dispute was pending on  May  29, 1965  in respect of an accounting year not earlier than  the accounting  year ending in the year 1962 and those in  which no such dispute was pending.  The intention is to bring such cases  under the Act but with some modifications.  If  there was  a dispute pending in respect of an accounting year  not earlier than an accounting year ending in the year 1962, the dispute  is to be resolved as laid down in the Act with  the special  modifications  made by s. 34  notwithstanding  that there  was no dispute in subsequent years and the bonus  for the subsequent years is also to be calculated in  accordance with  the  Act so modified.  In  respect  of  establishments which had a history of payment but no dispute was pending on May  29,  1965 the provisions of s. 34(2)  apply  a  special

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ratio between the allocable 61 surplus  and  gross  profits for the  determination  of  the quantum  of the amount available for payment of  bonus.   In this  way, three distinct classes are created which  may  be summarized still further thus:               (a)   establishments  without  a  history   of               prior  bonus payment.  To these  section  1(4)               applies;               (b)   establishments having a prior history of               bonus  payment  with  a  dispute  pending   in               respect of an accounting year not earlier than               the accounting year ending, in the year  1962.               To these establishments the provisions of  the               Bonus Act [as modified by s. 34(2)] apply, not               only  for  the accounting year in  respect  of               which  the  dispute was pending but  also  for               subsequent accounting years;               (c)   establishments  with a prior history  of               bonus  payment  without a dispute such  as  is               mentioned   in  (b)  above.   To   these   the               provisions of the Bonus Act apply as  modified               in s. 34(2). Section  34(2)  takes note of the quantum of bonus  paid  by establishments in a base year.  This base year is  different in  the  case of establishments which come under s.  33  and establishments  which  do  not  so  come.   In  respect   of establishments  falling within s. 33 the base year means  an accounting year immediately preceding the accounting year to which the dispute relates and in the case of  establishments which  do  not  fall within s. 33 it means a  period  of  12 months immediately preceding the accounting year in  respect of  which the Act becomes applicable to the  establishments. The second sub-section of s. 34 preserves the same level  of payments in the case of establishments which had in the past paid  bonus  at a higher rate than would be paid  under  the formula  laid down by the Act.  For this purpose  the  ratio between  the  bonus and the gross profits in the  base  year determines the proportion of allocable surplus must have  to the  gross profits of the account year.  Gross  profits  are defined to mean gross profits reduced by direct taxes  only. The  payment is, however, subject to the maximum  limit  and the  principle of set on.  In this way the level of  payment of bonus is maintained to what had been paid in the past  as a result of agreement or award. The question is whether this classification is so  arbitrary and  creates such differences that it cannot  be  reasonably related  to  the  object  which the  Bonus  Act  intends  to achieve,  namely,  the settlement of all bonus  disputes  in future and to lay down a uniform formula which is considered reasonable both for the workmen as well as the employers  so long as the Act remains in force. 62 The  objections to ss. 33 and 34 may now be noticed.   These sections  are  criticised on many grounds.  Firstly,  it  is said that the Act creates inequality inasmuch as the formula under  the Act is made applicable to cases pending  for  the application  of  the  Full  Bench  Formula  in  respect   of accounting   years   from  1962  onwards  but   leaves   the establishments in which there was no dispute to be  governed by  the  Full  Bench Formula.  This,  it  is  submitted,  is onerous  to  the  establishments  in  which  a  dispute  was pending.   The onerous nature, it is submitted, arises  from the  fact that payment of minimum bonus even if there  is  a loss  is compulsory, new categories of workmen  have  become

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entitled  to bonus, "salary or wage" is made equal to  wages plus dearness allowance and the employers lose the advantage of  deductions  on  account of  rehabilitation.   A  further criticism  is  that  not only the year of  dispute  but  all intervening  years  are brought under the  Act  even  though there may be no dispute in those years. The  object of the Bonus Act is to introduce a  new  uniform formula for calculation of bonus with limits of maximum  and minimum  and a principle of set on and set off  to  smoothen inequalities  of  payment  over  a  number  of  years.   One difficulty  in  the way of uniform law was the  pendency  of disputes  at the time the Ordinance was  promulgated.   This would,  of  course,  be  the  case  whenever  any  law   was introduced  if a dispute was pending in respect of  a  prior year.   There were two alternatives open.  One was to  leave the  disputes to be decided by the Tribunals under the  Full Bench  Formula  and the other was to apply the  Act  to  the pending  cases  so that all decisions would be  uniform  and almost mechanical.  If pending cases were to be treated as a class,  special  provision was required to deal  with  them. The  Act  chose to do away with the Fun Bench  Formula  from 1962.  If it had been applied and no dispute was pending  at all the matter was left there.  For other cases there was  a clear  need for classification and classification  was  thus resorted to.  Pending cases were brought under the Act.  The Act, of course, could not be applied without suitable  modi- fications  to  remove  hardships.   Section  34,  therefore, provided  that the Act would apply to all cases as  modified in the second subsection of s. 34.  That sub-section applied only to establishments in which there was a prior history of bonus payment and attempted to harmonize the application  of the law to establishments in which disputes were pending and those  in which there was no dispute.  We are thus  required to see the provisions of that sub-section before we can deal with the criticism against s. 33. Section   34  deals  with  two  matters.   It   deals   with establishments  in which a dispute, as laid down in  s.  33, was pending and also with old establishments in which  there was payment of bonus in the past but no dispute was  pending when the Ordinance was pro- 63 mulgated.   It  applies the Act to both sets of  cases.   It lays  down a simple condition that the total bonus  for  any accounting  year  should correspond to the  level  of  total bonus paid in a base year and for this purpose the allocable surplus in an accounting year dealt with under the Act  must bear the same proportion to gross profits as the total bonus paid  in the base year did to the gross profits of the  base year, subject however to the maximum limit and the principle of set on.  The base year was so defined that it would be  a year in which there would be no dispute.  In those cases  in which  a  dispute  was pending on May 29,1965  it  meant  an accounting  year immediately preceding the year  of  dispute and  in  other  cases  a period  of  12  months  immediately preceding the period of accounting year in respect of  which this Act became applicable.  Gross profits were  differently defined for the purpose of the application of the subsection and  meant gross profits as reduced by direct taxes  payable in the year.  It is obvious that this definition was evolved to  avoid  a clash between the Full Bench  Formula  and  the formula  under  the Act.  The provisions of  s.  34(2)  were specially  enacted so that there might not be divergence  in the payment of bonus over a number of years and to  maintain the  level of payment, as had existed in the past.  In  this way,  three classes of cases were contemplated and we  shall

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describe them more fully now. In the first class were put all establishments which. had no history  of  bonus payment.  They came  directly  under  the formula of the Act from the accounting year 1964.  All  such establishments  were dealt with uniformly and there  was  no discrimination or inequality among them except what was said to  arise  from  s. 10.  That alleged  inequality  does  not offend Art. 14 as we have already indicated above. In  the second class were put cases in which a  dispute  was pending on May 29, 1965 (the date of the promulgation of the Ordinance).   The dispute of which the Act took note  was  a dispute  pending before Government or before a  Tribunal  or Authority  under the Industrial law.  No note was  taken  of cases  pending before the High Courts and the Supreme  Court because the jurisdiction of the High Courts and the  Supreme Court  is either supervisory or appellate and the  intention was to cover cases in which no decisions of the  authorities appointed under the law relating to industrial disputes  was yet  made.   Disputes prior to 1962 were not taken  note  of because  a  date  line  had to be fixed  and  1962  was  the rational date to fix because the Bonus Commission began  its deliberations in that year.  Selection of this date is  said to  be arbitrary.  In several statutes a date  is  generally selected to demarcate pending cases and the selection of the date has never been challenged successfully if there is some rational ground for its selection.  If the resolution of the dispute by the instrumentality of the Act was  contemplated, the  Act had also to say which dispute would be so  resolved and the 64 only  rational  date  to select was the date  on  which  the Ordinance  was promulgated.  Thus the pendency  of  disputes with reference to the Ordinance and reopening of  accounting years up to the year in which the Bonus Commission began its deliberation  was logical and not arbitrary.  The  provision with  regard  to the reopening of the  intervening  accounts year  for  refixation  of bonus was also  logical.   If  the dispute  regarding 1962 or a later year was decided  by  the application  of the Act it was imperative to reconsider  the subsequent  years even though there was no dispute in  those years.   The process of the Act is an integrated one and  by the  principle of set on and set off four  accounting  years are  involved  to avoid extraordinary results.  It  is  said that  two establishments equally situated are likely  to  be differently treated depending on the fortuitous circumstance of the existence of a dispute but is not this assumption  an imaginary  one? the fact that in one there is a dispute  and in  the  other there is not, clearly distinguishes  the  two establishments.  We have explained in connection with s.  10 why we do not consider such comparison of any value and  the same reasoning applies here.  The distinguishing feature  of the pendency of the dispute on the date of the  promulgation of  the  Ordinance clearly demarcates a  distinct  class  of cases  and the classification made by the Act is a  rational one., No doubt the liability for bonus under the Act may  be more  in some cases but it is likely to be less  in  others. The Act does not make any difference in treatment within the class  it deals with.  All establishments in which  disputes were pending are treated alike.  They are brought under  the Act in the same manner without any discrimination.  If  they represent a class, the whole of the class is treated in  the same way.  Section 33 by providing uniformly for all pending ,cases,   without  any  discrimination  between  them,   has established   a   rational  classification.    Section   33, therefore,  cannot  be said to be invalid by reason  of  any

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inequality. Section 34(2) which is next criticised because it sacrifices all principles which this Court had established in the  past and fixes a ratio for all time to come is also not  invalid. The  Act  was  passed to make  for  greater  certainty,  for improving  relations between the employers and  the  workmen and for the avoidance of disputes.  It must not be forgotten that in many establishments the payment of bonus in the past was  the result of collective bargaining and  the  advantage which  labour had so achieved was not likely to be given  up readily.  Any legislation to be successful had to  preserve, as  far as possible, what labour considered to be its  right in a particular establishment.  For this purpose a base year for  comparison  had  to  be  established.   Section  34(2), therefore,  laid down that the total bonus paid in any  year should  bear  the same proportion to gross  profits  in  the accounting year as did the bonus to the gross profits in the base year.  Gross profit was, however, defined to mean gross profit minus direct taxes only.  This obviously gave an 65 advantage to the employers because the proportion was  bound to  be less if depreciation and return on capital etc.  were ignored.  By establishing a base year and by insisting  that the  same proportion should be maintained in the payment  of bonus  the  establishments knew with  certainty  what  their liabilities  in  respect  of bonus would be  in  the  future years.  The establishment of the maximum and minimum  limits further  controlled payments.  The ratio so  established  is only applicable if there is allocable surplus and the  total payment of bonus cannot, in any event, exceed 20 % which  it might well have done if there was no limit.  In other words, between  the  maximum  and the minimum  the  same  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. 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 up  to Rs.  1600  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% of the total wage bill, i.e. less than  21 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 be more than that payable under the Full  Bench Formula.   The controlling factors are the establishment  of the ratio, the fixation of a maximum 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  be 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. 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

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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 66 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. Our  bretheren have struck down sections 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  section 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 section  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 that 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  Reforms 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. ln  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 67 criticized)  and  they can be invoked where in spite  of  so much care there is hardship in a special case.

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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.                            ORDER In  accordance with the opinion of the majority, the  appeal is  allowed  and the order of the  Industrial  Tribunal  set aside.   The writ petitions are allowed in part and ss.  33, 34(2)  and  37 are declared ultra vires.  There will  be  no order as to costs in all these proceedings. G.C. 68