http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 5  

PETITIONER: WORKMEN OF THE HERCULES INSURANCE CO., LTD.

       Vs.

RESPONDENT: HERCULES INSURANCE CO., LTD., CALCUTTA

DATE OF JUDGMENT: 07/12/1960

BENCH: GAJENDRAGADKAR, P.B. BENCH: GAJENDRAGADKAR, P.B. WANCHOO, K.N. GUPTA, K.C. DAS

CITATION:  1961 AIR  853            1961 SCR  (2) 995  CITATOR INFO :  R          1964 SC1766  (14)

ACT: Industrial Dispute--Claim of bonus--General Insurance  busi- ness--Validity  of reference--Industrial Disputes Act,  1947 (14 of 1947), s. 10(1)--Insurance Act, 1938 (IV of 1938), s. 31A(1)(c), proviso (vii).

HEADNOTE: In view of the unqualified and absolute prohibition contain- ed  in  s.  31A(1)(c) of the Insurance  Act,  1938,  against payment  of  bonus  to the employees  in  general  insurance business,  the  exception  made by  proviso  (vii)  to  that section  must be strictly confined to the limits  prescribed by the said proviso. The policy underlying the proviso clearly is to exclude  the intervention of Industrial Tribunals and leave the  question of  payment of such bonus entirely to the discretion of  the Central Government. Consequently,   where  the  workmen  in  general   insurance business  claimed bonus and the Central Government  referred the  dispute  for adjudication to  the  Industrial  Tribunal under s. 10(1) of the Industrial Disputes Act, 1947, and the Tribunal,  on a preliminary objection under s. 31A(1)(c)  of the  Insurance Act, 1938, read with proviso  (vii)  thereof, held that the reference was invalid, (1)  [1961] 2 S.C.R. 978. 996 Held,  the decision of the Tribunal was correct and must  be upheld. The Central Bank of India v. Their Workmen, [1960] 1  S.C.R. 200, relied on.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 531 of 1959. Appeal  by  special leave from the Award dated  October  21, 1957 of the Central Government Industrial Tribunal, Dhanbad, in Reference No. 6 of 1957. N.   Dutta   Mazumdar,  G.  N.  Bhattacharjee  and   B.   P.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 5  

Maheshwari, for the appellants. M.   C.   Setalvad,   Attorney-General  of  India   and   R. Gopalakrishnan, for the respondent. 1960.   December 7. The Judgment of the Court was  delivered by  GAJFNDRAGADKAR, J.-The short question of law which falls to be decided in the present appeal is whether a dispute raised by  the  employees of a General  Insurance  Company  against their  employer for payment of bonus in any particular  year can  be referred for adjudication by an Industrial  Tribunal under S. 10(1) of the Industrial Disputes Act, 1947 (XIV  of 1947).   This question arises in this way.  The  workmen  of the  Hercules Insurance Co. Ltd. are the appellants and  the Insurance Company is the respondent before us.  On April 11, 1957, the Central Government referred the appellants’  claim for  bonus for the years 1954 and 1955 for  adjudication  to the Industrial Tribunal, Dhanbad, constituted under s. 7A of the  Industrial  Disputes Act, and this reference  has  been made under S. 10(1)(d) of the Act.  Before the Tribunal  the respondent   urged  a  preliminary  objection  against   the validity  of  the reference itself.  Its case was  that  the payment  of  bonus by an Insurance  Company  is  conditioned entirely  by the relevant provisions of the  Insurance  Act, 1938  (IV  of 1938), and that the said  provisions  did  not justify  the  reference  of a dispute  in  that  behalf  for adjudication  by any Industrial Tribunal.  This  preliminary objection  was  based  on the provisions of  S.  31A(1)  and proviso (vii) of the 997 Insurance  Act.   It was also urged by the  respondent  that having  regard  to the limitations imposed  on  the  General Insurance Companies by s. 40C of the Insurance Act the claim for  bonus made by the appellants, could not  be  sustained. The  Tribunal  has  upheld the  preliminary  objection  thus raised  by  the respondent and held that  the  reference  is invalid.   Incidentally  it  has also  considered  the  plea raised  under s. 40C and has observed that the said plea  is also  well  founded In the result the  Tribunal  refused  to entertain the reference and dismissed it accordingly.  It is against this order of the Tribunal that the appellants  have come to this Court by special leave. It  is  common  ground  that the  respondent  has  paid  the appellants  bonus equivalent to two months’ basic wages  for each  of the two years 1954 and 1955.  The appellants  claim two months’ basic wages as additional bonus for each of  the two  years  under reference.  It is their case that  if  the trading profits made by the respondent are ascertained  from the respondent’s balance sheet and the Full Bench formula is applied,  it  would appear that the respondent  has  in  its hands  a substantial amount of available surplus from  which the  additional bonus claimed by them can be awarded.  Since the  reference has been rejected on the  preliminary  ground the Tribunal has naturally not considered this aspect of the problem. The  preliminary  objection  raised  by  the  respondent  is founded  on  the  relevant  provisions  of  s.  31A  of  the Insurance Act (hereafter called the Act) and so we must  now turn  to the said provisions.  Section 31A(1)(c) of the  Act provides,  inter alia, that notwithstanding anything to  the contrary contained in the Indian Companies Act, 1913, or  in the articles of association of the insurer, if a company, or in  any  contract or agreement, no insurer shall  after  the expiry  of one year from the commencement of  the  Insurance (Amendment) Act, 1950, be directed or managed by, or  employ as  manager or officer or in any capacity, any person  whose

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 5  

remuneration   or  any  part  thereof  takes  the  form   of commission or bonus in respect of the 126 998 general insurance business of the insurer.  Thus looking  s. at  31A(1)(c) by itself without the proviso the position  is absolutely  at clear.  The respondent cannot be directed  to employ  the appellants in any capacity so as to  include  in their  remuneration a liability to pay bonus in  respect  of the  general  insurance business of the  respondent.   Bonus under  the Industrial Disputes Act is not a part  of  wages, but  the  right to claim bonus which  has  been  universally recognised by industrial adjudication in cases of employment falling under the said Act has now attained the status of  a legal  right.   Bonus can be claimed as a  matter  of  right provided  of  course by the application of  the  Full  Bench formula it is shown that for the relevant year the  employer has sufficient available surplus in hand.  Therefore a claim for bonus made by the appellants in the present  proceedings is  a claim in respect of the general insurance business  of the  respondent,  and  if  allowed  it  would  add  to   the remuneration payable to them.  In other words, bonus claimed by the appellants, if awarded, would, for the purpose of  s. 31A  (1)(c),  be a part of their remuneration, and  that  is precisely what is prohibited by the said provision. There  are,  however,  certain exceptions  to  this  general prohibition,  and it is to one of these exceptions  that  we must  now  turn.  Proviso (vii) to s. 31A (1)(c)  lays  down that nothing in this subsection shall be deemed to prohibit- "the payment of bonus in any year on a uniform basis to  all salaried employees or any class of them by way of additional remuneration,  such bonus, in the case of any employee,  not exceeding  in  amount  the equivalent of his  salary  for  a period  which, in the opinion of the Central Government,  is reasonable having regard to the circumstances of the case." This  provision which constitutes an exception to  the  rule prescribed  by s. 31A(1)(c) allows the payment of  bonus  to the   employees  of  Insurance  Companies  subject  to   the condition  specified  by it.  Bonus intended to be  paid  to such  employees must not exceed in amount the equivalent  of their  salary  for  a period which  the  Central  Government regards as reasonable. 999 The result of this provision appears to be that the  Central Government has to consider the circumstances of each insurer and  then  decide whether any bonus should be  paid  by  the insurer to its employees.  If the financial position of  the insurer is sufficiently satisfactory, the Central Government may  decide  to  allow  the insurer  to  pay  bonus  to  its employees, and in that context the Central Government  would prescribe  the  maximum within which the payment  should  be made.  In no case can payment exceed the  maximum prescribed by  the Central Government, and in all cases the matter  has to  be  considered by the Central Government  and  no  other authority.   Having  regard to the scheme of the  Act  which purports to supervise and regulate the working of  Insurance Companies the legislature thought that the payment of  bonus by  the  Insurance  Companies  to  their  employees   should normally  be prohibited and its payment should be  permitted subject to the over-riding control of the Central Government to  prescribe  the maximum in that behalf.  If  the  Central Government  decides that no bonus should be paid,  no  bonus can  be  paid  by the insurer.  If  the  Central  Government decides  that bonus should be paid but not beyond  specified limit  the insurer cannot exceed that limit.  That,  in  our

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 5  

opinion, is the effect of proviso (vii) to s. 31A(1). It is, however, urged that proviso (vii) merely enables  the Central  Government to prescribe the maximum.  It  does  not take  away  the Central Government’s authority to  refer  an industrial  dispute  in respect of  bonus  for  adjudication under  s.  10  of  the Industrial  Disputes  Act.   In  this connection  it is urged by Mr. Mazumdar that in  some  cases the Central Government may take the view that the  financial position of the insurer justified the payment of bonus,  but the  quantum may be better left to the Industrial  Tribunal. In such a case the Central Government should have  authority to  make  the  reference.  Similarly it is  urged  that  the Central  Government  may  decide  that  within  the  maximum prescribed  by it, bonus should be paid by an  insurer,  but the insurer 1000 may not comply with the Central Government’s decision and in that  case  the only way to make  the  Central  Government’s decision effective is to refer the    matter to adjudication and  enable  the employees to obtain an award which  can  be executed.   That  is  why the appellants  contend  that  the enabling provision contained in proviso (vii) should not  be construed   to   constitute  a  bar  against   the   Central Government’s  power to act under s. 10(1) of the  Industrial Disputes Act. We  are not impressed by this argument.  In our opinion  the policy  of the relevant clause of the proviso is  absolutely clear.   Payment  of bonus by insurers was intended  by  the legislature to be conditioned by the provisions contained in the  said  clause,  and we feel no doubt  or  difficulty  in reaching  the  conclusion  that  the  intervention  of   the Industrial  Tribunals  was intended to be excluded  and  the matter was intended to be kept within the discretion of  the Central  Government  so far as the payment of bonus  by  the insurers  is concerned.  Then, as to the argument  that  the Government  directive issued under proviso (vii) may not  be obeyed by any insurer, we do not think that such an event is likely  to happen; but theoretically it is conceivable  that an  insurer  may refuse to comply with the decision  of  the Government.  In that case all we can say is that there is  a lacuna  left and the legislature may consider whether it  is necessary   to  provide  adequate  remedy  for  making   the Government decision binding and final.  Having regard to the unqualified   and  absolute  prohibition  contained  in   s. 31A(1)(c) it seems to us difficult to hold that the  payment of  bonus  to the employees of Insurance  Companies  is  not absolutely conditioned by proviso (vii).  In the absence  of the  said  provision  no bonus could have  been  claimed  by Insurance employees, and so the effect of the said provision must be to limit the said right to the conditions prescribed by it.  That is why we think that the Tribunal was right  in coming  to  the conclusion that the reference  made  by  the Central  Government is invalid.  The fact that  the  Central Government took the view that it could make such a reference 1001 is  hardly relevant in determining the scope and  effect  of the  relevant provisions of the Act.  This question must  be considered on what we regard to be the fair construction  of the  relevant  statutory  provision, and  as  we  have  just indicated the construction of the relevant provision clearly supports  the view taken by the Tribunal.  Incidentally,  it may  be  pointed  out that in its  award  the  Tribunal  has referred to several other decisions of Industrial  Tribunals which  have taken the same view though there are one or  two decisions  which have upheld the validity of  the  reference

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 5  

without duly considering the effect of s. 31A(1). In  this  connection we may refer to the  decision  of  this court  in  The Central Bank of India v. Their  Workmen  (1), where a similar question has been considered.  In that  case the Court had to consider the effect of s. 10 of the Banking Companies  Act, 1949, prior to its amendment in  1956.   The said  section,  according to that decision,  prohibited  the grant of industrial bonus to bank employees inasmuch as such bonus is remuneration which takes the form of a share in the profits of a banking company.  In dealing with the character of bonus in relation to remuneration specified by s. 10,  S. K. Das, J., who spoke for the Court, observed that "bonus in the industrial sense as understood in our country does  come out  of the available surplus gap, wholly or in  the  actual wage.   id it fills the wage and age in that sense,  whether it be called contingent or supplementary.  None the less, it is   labour’s  share  in  the  profits,  and  as  it  is   a remuneration which takes the form of a share in profits,  it comes within the mischief of s. 10 of the Banking  Companies Act".  Section 10 of the Banking Companies Act is comparable to  s.  31A  of  the Insurance Act,  and  so  this  decision supports the view that we have taken about the effect of  s. 31A(1)(c).   We have already held that the payment of  bonus would  be  an additional remuneration to  the  employees  of Insurance Companies and it would be (1)  [1960] 1 S.C.R. 200. 1002 bonus  in respect of the general insurance business  of  the insurer.   In view of our conclusion that the  Tribunal  was right  in  upholding the preliminary objection, we    do not propose to consider the other argument which had been  urged by  the respondent before the Tribunal under s. 40C  of  the Act, and which the Tribunal has incidentally considered  and accepted. The result is that the appeal fails and is dismissed. There will be no order as to costs.                                     Appeal dismissed.