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PETITIONER: THE WORKMAN OF M/S. BINNY LTD.

       Vs.

RESPONDENT: THE  MANAGEMENT OF BINNY LTD. &  ANOTHER

DATE OF JUDGMENT22/08/1985

BENCH: KHALID, V. (J) BENCH: KHALID, V. (J) REDDY, O. CHINNAPPA (J) ERADI, V. BALAKRISHNA (J)

CITATION:  1986 AIR  509            1985 SCR  Supl. (2) 652  1985 SCC  (4) 325        1985 SCALE  (2)329

ACT:      Payment  of   Bonus  Act,   section  3   scope  of,   - Undertakings of  five companies get amalgamated with another in accordance  with the scheme of amalgamation sanctioned by the High  Courts providing  for preparation  of  a  separate profit and  loss account  for the  year of  amalgamation and also safeguarding  the interest  of workmen  of a particular company and  in particular their rights under the payment of Bonus Act  and Industrial  Disputes Act  - Whether  the  new company take refuge under section 3 and refuse to pay higher bonus as  per the  profit and  loss account  on the specious plea that  balance sheet  has not  been  prepared  -  Const- ruction  of   welfare  legislation   laws  -   Whether   the adjudicating authority  has   powers to direct the employers to prepare  and submit  a regular  balance sheet,  on  being satisfied that such balance sheet was not prepared to defeat the claims of the employees.

HEADNOTE:      The first  respondent is a company incorporated on 30th June, 1969,  which commenced  its business  in the  name and style of  Binny Limited  on ant from Ist November, 1969. The appellants were  formerly employed  by Binny & Co. Ltd., and are now employed in the Finance, Trading ant Agency Division of the  respondent Company.  Messrs Binny  & Co.  Limited in which the  appellants were  formerly employed,  was  a  well established British  Company of  a standing of more than 170 years with  branch. all  over India and had accumulated huge reserves and  was able  to acquire interest in various other companies namely,  Messrs Buckingham  and Carnatic Co. Ltd., The Bangalore Woollen, Cotton ant Silk Mills Co. Ltd., Binny Engineering Works  Ltd, Gange  Transport and Trading Company Ltd., and  Madura Company  Private Limited.  All these  five companies were  amalgamated in accordance with the scheme of amalgamation sanctioned  by different  High Courts  with the respondent  Company.   The  scheme   of  amalgamation   made provisions for  various matters.  Clause 12  of  the  scheme provided  that   "all  the  employees  of  the  amalgamating companies will  become employees  of the new company without interruption in  service and  on terms no less favourable to them."  Clause 13 provided that "a separate

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653 profit ant  1088 account  would be  prepared for each of the amalgamating companies  for the  financial year  1969."  The High  Court   while  sanctioning  the  scheme,  included  in paragraph 11  of the  order "In  the result,  the scheme  of amalgamation is  sanctioned without  prejudice to the rights of the employees of Binny and Company Limited in working but their existing  rights  under the aforesaid Acts (Payment of Bonus Act  and Industrial  Disputes Act)  as against  the  w company, if they are 80 entitled."      Till the  year 1968,  the  employees  of  Binny  &  Co. Limited namely, the appellants, had been getting the maximum bonus of  20 per  cent of  their gross  salary every year in view of  the  huge  profits  earned  by  the  said  company. However, in  the financial year 1969, the respondent Company declared and  paid the minimum bonus of four per cent of the gross salary  to the appellants alongwith other employees of the respondent  company, who  were formerly the employees of the remaining  five amalgamating companies on the basis of a consolidated profit  and  loss  account  of  the  respondent company for  the said  year. The appellants objected to this ant raised  a claim that they were entitled to receive bonus at 20%  of their  gross salary  on the basis of the separate profit and  1088 account  for the  company formerly known as Binny &  Company Limited  prepared under  clause 13  of  the scheme  of   amalgamation  and  which  showed  a  profit  of Rs.26,01,272 during the financial year 1969 in addition to a further sum  of more  than Rs.. 10 Lakhs lying to the credit of the  appellants as on 31st December, 1968. This claim was referred to  the Industrial  Tribunal, Madras by a reference order dated  l9th  May,  1971,  directing  the  question  of fixation of  the quantum  of bonus  for the  year  1969  for adjudication. The Tribunal considered the evidence before it ant also  referred to  the relevant  provisions of  the  law governing the  question and  came to  the conclusion that no separate balance sheet was prepared for this company and the quantification of  the bonus  payable and  to be made on the consolidated  surplus  available  taking  into  account  the balance sheet  of the amalgamating companies under section 3 of the  payment   of the  Bonus Act.  Hence  the  appeal  by special leave.      Allowing the appeal, the court, ^      HELD: 1.  It is  trite law  that in  matters of welfare legislation,  especially  involving  labour,  the  terms  of contracts ant  the provisions  of law  should  be  liberally construed in favour of the week. [658 H, 659 A] 654      2.1 Where  an amalgamating  unit can  prepare a balance sheet, when  a trial  balance  sheet  and  profit  and  loss account are  avail able,  omission to do 80 deliberately and without any  valid reason  would amount  to  denial  of  the benefit of  the proviso to section 3 of the Payment of Bonus Act to the employees of such as amalgamating unit. [659 F-G]      2.2 When  evidence and  facts made available before the Court show  that the claim of the employees (on the strength of profit  and loss  account  and  trial  balance-sheet)  is justifiable, it  would be  not only  improper but unjust for the  Courts   and  Tribunals   to  deny  to  themselves  the jurisdiction to  direct a company to prepare a balance-sheet in terms  of the  profit and  1088  account  and  the  trial balance-sheet. To say that Tribunals or Court cannot even in such exceptional  situations direct  the employer company to prepare the  balance-sheet would create undesirable results, adverse to the employees. [659 B-C, F-G]

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    3.1 Section 3 is an enabling provision in favour of the employers.  When  an  establishment  consists  of  different departments, undertakings or branches, all such departments, under takings  or branches  shall be  treated as part of the same establishment  for the  purpose of computation of bonus under the  Act.  This  means  that  the  employees  will  be entitled to bonus on the basis of the surplus available from all the  units put  together. The proviso speaks of separate balance-sheet and profit and 1088 account being prepared and maintained for  any accounting year in respect of one of the units  of   the  whole   undertaking.  In  such  cases,  the computation of  allocable surplus  for the  payment of bonus should be  on the  basis of  such separate  profit and  loss account and  balance-sheet thus  prepared and  the employees will be  entitled to claim bonus on this basis. The claim of the employees  on this  basis can  be defeated  only if this separate unit  was treated  as part of the establishment for the computation  of bonus immediately before commencement of the accounting  year in  question. In  this case the company has not put forward a plea that for the previous year, Binny and Company  Ltd., was  treated as  part of  the  respondent company for  the purpose  of computation  of bonus. The only plea put  forward is  that no  separate balance-  sheet  was prepared for this unit. [659 H, 660 A-D)]      3.2 The  mere ommission  to prepare  a separate balance sheet for  one of  the amalgamating units will not by itself help the  company to  deny bonus  to the employees of such a unit. When  profit and  loss account and trial balance-sheet are prepared  there should  be / difficulty in preparing the regular balance sheet. [660 DEL 655

JUDGMENT:      CIVIL APPELLATE  JURISDICTION :  Civil Appeal No.440 of 1973.      From  the  Award  dated  2O.5.1972  of  the  Industrial Tribunal Madras in I.D. No. 35 of 1971.      M.K. Ramamurthi and J. Ramamurthi for the Appellant.      G.B. Pai and Rameshwar Nath for the Respondents.      The Judgment of the court was delivered by      KHALID, J.  This is  an appeal, by special leave, filed by the  Binny  Employees  Association,  a  registered  trade union, against  the award  dated 20th May, 1972, made by the Industrial Tribunal, Madras, I.D. No. 35/71.      The first  respondent is a company incorporated on 30th June, 1969,  which commenced  its business  in the  name and style of  Binny Limited  on and from 1st November, 1969. The petitioners were  formerly employed by Binny & Co. Ltd., and are now employed in the Finance, Trading and Agency Division of the  respondent company.  Messrs Binny  & Co.  Limited in which the  petitioners were  formerly employed,  was a  well established British  company of  a standing of more than 170 years  with   branches  all  over  India.  The  company  had accumulated huge  reserves and  was able to acquire interest in  various  other  companies.  Such  companies  are  Messrs Buckingham and  Carnatic Co.  Ltd., The  Bangalore  Woollen, Cotton and  Silk Mills  Co. Ltd.,  Binny  Engineering  Works Ltd., Gange  Transport and  Trading Company  Ltd. and Madura Company Private Limited.      Pursuant to  orders  passed  in  company  petitions  in various High  Courts and  in accordance  with the  scheme of amalgamation sanctioned by the High Courts, the undertakings of all the five companies referred to above were amalgamated

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with the respondent company. The scheme of amalgamation made provisions for  various matters.  Clause 12  of  the  scheme provided  that   all  the   employees  of  the  amalgamating companies will  become employees  of the new company without interruption in  service and  on terms no less favourable to them" Clause  13 provided  that "a  separate profit and loss account would  be prepared  for  each  of  the  amalgamating companies for  the financial  year 1969"  m e  six companies filed company  petitions in  the high  Court of  Madras  for sanction of  the scheme of amalgamation. Notices as required under the Companies Act were Published. The Secretary of the Employees’ Union opposed 656 to the  unconditional grant  of approval  to the  scheme  of amalgamation and  wanted to get rights of the employees safe guarded  and   for  the  purpose  requested  the  Court  for incorporation  of   certain  conditions   in  the  order  of sanction.  The  High  Court  while  sanctioning  the  scheme included the following paragraph 11 of the order:           In the  result,  the  scheme  of  amalgamation  is           sanctioned without  prejudice to the rights of the           employees of  Binny and Company Limited in working           out their existing rights under the aforesaid Acts           (Payment of Bonus Act and Industrial Disputes Act)           as  against  the  new  company,  if  they  are  so           entitled.      Till the  year 1968,  the  employees  of  Binny  &  Co. Limited viz.,  the petitioners, had been getting the maximum bonus of  20 per  cent of  their gross  salary every year in view of  the  huge  profits  earned  by  the  said  company. However, in  the financial year 1969, the respondent company declared and  paid the minimum bonus of four per cent of the gross salary  to the  petitioners along with other employees of the  respondent company,  who were formerly the employees of the remaining five amalgamating companies on the basis of a consolidated  profit and  loss account  of the  respondent company for  the said year. The petitioners objected to this and raised  a claim that they were entitled to receive bonus at 20  per cent  of their  gross salary  on the basis Of the separate profit  and loss  account for  the company formerly known as Binny & Company Limited. This claim was referred to the Industrial  Tribunal, Madras, by a reference order dated l9th May,  1971, directing  the question  of fixation of the quantum of  bonus for  the year  1969 for  adjudication. The Tribunal considered the evidence before it and also referred to the relevant provisions of the law governing the question and came  to the  conclusion that  no separate balance-sheet was prepared  for this company and the quantification of the bonus payable  had to  be made  on the  consolidated surplus available taking  into  account  the  balance-sheet  of  the amalgamating companies. Hence this appeal.      The case  of the  appellant  before  the  Tribunal  and repeated before  us  is  that  the  amalgamating;  companies maintained separate profit and loss accounts notwithstanding their amalgamation  into the  respondent company.  They also stated that  the provident  fund account of the employees of each amalgamated  unit was  also separately  maintained. The petitioners relied  upon  clause  13  of  the  scheme  which provided that in so far as the financial year 657 1969 is  concerned a  separate profit  and loss  account for each of  the amalgamating  companies would  be prepared  and that, in  fact, a  separate  profit  and  loss  account  was prepared accordingly  for that  year. This  profit and  loss account shows  that Binny  &  Company  Ltd.,  of  which  the

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petitioners were originally employed, had earned a profit of Rs. 26,01,272  during the financial year 1969 in addition to a further  sum of more than Rs. 10 lakhs lying to the credit of the  petitioners as on 31st December, 1968. If the profit mentioned above  is  taken  into  account,  the  petitioners contend, that they would be entitled to the maximum bonus of 20 per cent of their gross salary for the year 1969.      The respondent  company pleaded  in their  return  that consequent  to  the  amalgamation,  the  respondent  company (Binny &  Company Limited)  became a single unit and all the employees were  covered by  the same terms of the Payment of Bonus Act.  They denied  that the business activities of the former Binny & Co. Limited constituted a separate department or undertaking  as envisaged  in the  Payment of  Bonus Act. According to  them there was only a single balance-sheet for the whole  Binny Limited. They admitted that separate profit and loss  account was  prepared for  the year  1969 for  the finance, trading and agency division and the garment factory (former Binny  & Company  Limited) as required in the scheme of amalgamation, but no separate balance-sheet was prepared. The company  relied upon  Section 3  of the Payment of Bonus Act which  stated that the various companies which have been amalgamated  should   be  treated   as  part   of  the  same establishment under  the Act  for the purpose of computation of bonus.      It is against these facts, that the controversy in this appeal has to be decided. The only question that is involved in this  appeal is  as to  which is  the  undertaking  whose trading profits  have to  be taken  into  consideration  for computing the  bonus for the year 1969: the employees’ union contending that  it is  the trading  profits of  the  former Binny  &   Company  Limited   and  the   respondent  company contending that it is the total profits of the six units put together.      Before  proceeding   further,  we  may  usefully  quote Section 3 of the Payment of Bonus Act:           Where  an   establishment  consists  of  different           departments   or  undertakings  or  has  branches,           whether situated in the same place or in different           places, all such 658           departments or  undertakings or  branches shall be           treated as parts of the same establishment for the           purpose of computation of bonus under this Act:           Provided that  where for  any  accounting  year  a           separate balance-sheet and profit and loss account           are prepared and maintained in respect of any such           department  or  undertaking  or  branch  shall  be           treated  as   a  separate  establishment  for  the           purpose of computation of bonus under this Act for           that year,  unless such  department or undertaking           or branch  was immediately before the commencement           of that  accounting year  treated as  part of  the           establishment for  the purpose  of computation  of           bonus."      This section  provides that  different  departments  or undertakings or  branches  of  an  establishment  should  be treated as part of the same establishment for the purpose of computation of  bonus under  the Act.  For our  purpose, the proviso is  important. The  proviso  deals  with  situations where in  any accounting  year, a separate balance-sheet and profit and  loss account  are  prepared  and  maintained  in respect of  any such  department of  an establishment. It is not disputed  that the profit and loss account for the Binny & Company Limited was, in fact, prepared. Nor is it disputed

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that a  trial balance-sheet was also prepared for this unit. But the  company takes  refuge in  the plea  that a separate balance-sheet was  not prepared for this unit, to opt out of the proviso  to Section  3.  To  reinforce  this  plea,  the company relies  upon clause  13 of the Scheme which reads as follows:           "Separate Profit and loss account will be prepared           for each  of the  amalgamating companies  for  the           financial year 1969.      The contention  of the  company  is  that  this  clause speaks only  of separate profit and loss account for each of the amalgamated  companies for  the financial  year 1969 and not of  a separate balance-sheet for this year. The question before us  is whether  the company could be permitted to put forward such  a specious  plea to  defeat the  claim of  the employees, though  the profit and loss account and the trial balance-sheet disclose surplus permitting the company to pay 2() per  cent bonus  as claimed  by the  petitioners. It  is trite law that in matters of welfare legislation, especially involving labour,  the terms  of contracts and provisions of law should be liberally construed in favour of the 659 weak. If only a separate balance-sheet had been prepared for this unit, the company would have had no answer to the claim made by  the  petitioners.  It  could  be  that  a  separate balance-sheet was not prepared deliberately to avoid payment of bonus  to the  employees of  this unit under the cover of the proviso  to Section  3 of  the Payment  of Bonus Act and clause 13  of the  Scheme.  When  evidence  and  facts  made available before  the Court  show  that  the  claim  of  the employees (on  the strength  of profit  and loss account and trial balance-sheet)  is justifiable,  it would  be not only improper but  unjust for the Courts and Tribunals to deny to themselves the jurisdiction to direct a company to prepare a balance-sheet in  terms of  the profit  and loss account and the trial  balance-sheet. We  thought it  necessary to  make this position  clear because of the observations made by the Tribunal in  the award  in answer  to the plea raised by the Union that  the Tribunal  could authorise  preparation of  a balance-sheet under  Section ;25 of the Payment of bonus Act and in  the light  of such  balance-sheet, so  prepared, the Court could proceed to award bonus on the allocable surplus. That portion of the award reads L as follows:           "But Section  25 does not apply to a company as in           this case. The section does not authorise Court to           prepare a  balance-sheet. Even otherwise, I cannot           agree Chat  the Court can order a balance-sheet to           be prepared from the accounts available of Binny &           Co. and  act on  it under Section 3 of the Act for           the simple reason that a balance-sheet so drawn up           cannot by any stretch of imagination be considered           to be  prepared and  maintained by the undertaking           or unit.      If this  statement of  the Tribunal  is accepted as the correct law that would result in adverse consequences on the employees and would render them helpless in their claims for bonus, in situations like the one that we have in this case. Where an amalgamating unit can prepare a balance-sheet, when a trial  balance-sheet  and  profit  and  loss  account  are available, omission  to do  so deliberately  and without any valid reason  would amount  to denial  of the benefit of the proviso to  the employees  of such  an amalgamating unit. To say that  Tribunals or Court cannot even in such exceptional situations  direct  the  employer  company  to  prepare  the balance-sheet  would  in  our  opinion,  create  undesirable

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results, adverse co the employees.      It is  necessary to bear in mind the scope of Section 3 and its  proviso. Section  3 is  an  enabling  provision  in favour of the 660 employers.  When  ah  establishment  consists  of  different departments, undertakings or branches, all such departments, undertakings or  branches shall  be treated  as part  of the same establishment  for the  purpose of computation of bonus under the  Act.  This  means  that  the  employees  will  be entitled to bonus on the basis of the surplus available from all the  units put  together. The proviso speaks of separate balance-sheet and profit and loss account being prepared and maintained for  any accounting year in respect of one of the units  of   the  whole   undertaking.  In   such  case,  the computation of  allocable surplus  for the  payment of bonus should be  on the  basis of  such separate  profit and  loss account and  balance-sheet thus  prepared and  the employees will be  entitled to claim bonus on this basis. The claim of the employees  on this  basis can  be defeated  only if this separate unit  was treated  as part of the establishment for the computation  of bonus immediately before commencement of the accounting  year in  question. In this case, the company has not put forward a plea that for the previous year, Binny & Company  Ltd., was  treated  as  part  of  the  respondent company for  the purpose  of computation  of bonus. The only plea put  forward is  that  no  separate  balance-sheet  was prepared for  this unit.  The mere  omission  to  prepare  a separate balance-sheet  for one  of the  amalgamating  units will not  by itself  help the  company to  deny bonus to the employees of  such a  unit. When  profit &  loss account and trial balance-sheet are prepared one fails to understand the difficulty in preparing the regular balance-sheet. It is not disputed, nor  can it be disputed on the materials available before us, that the employees of Binny & Company Ltd., could get 20  per cent  bonus as  claimed by  them. They cannot be denied  this  bonus  merely  on  the  ground  that  separate balance-sheet was  not prepared  for their unit when all the materials were  available for preparation of such a balance- sheet.      The employees  should be  deemed to  have foreseen  the difficulties of  this kind  when they sought and obtained an order from  the High Court about which mention has been made earlier to  see that  their rights  were safeguarded and the scheme of  amalgamation was  not permitted  to work tc their detriment.      We do  not think  it necessary  to consider the various authorities on  this point  in detail  because  the  dispute falls within a short factual compass which we have indicated above. We  would like  to make  it clear  that in situations like this  where the second part of the proviso to Section 3 is not attracted, the 661 adjudicating  authority   has  powers  to  direct  that  the employers to  prepare and submit a regular balance-sheet, on being satisfied  that such balance-sheet was not prepared to defeat the  claims of  the employees.  In our  opinion,  the appeal has to succeed. We, therefore, set aside the order of the Industrial  Tribunal,  Madras,  allow  this  appeal  and uphold the  claim of  the petitioners for 20 per cent bonus. The first  respondent is  directed to  pay the  cost of  the petitioners. S.R.                                         Appeal allowed. 662

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