LABOUR LAW - II

FINAL PROJECT

Research Topic: CONSTITUTIONAL VALIDITY OF –

PAYMENT OF BONUS ACT, 1965: A CRITICAL
ANALYSIS

SUBMITTED TO - SUBMITTED BY -

Ms. Pallavi Shankar Kumar Sambhav

(Faculty Of Labour Law) Roll No.: 1536
Semester: 5th
Session: 2016-2021

CHANAKYA NATIONAL LAW UNIVERSITY

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 ACKNOWLEDGEMENT

I would like to take this opportunity to express my sincere and profound

gratitude to my guide and mentor for this subject Ms. Pallavi Shankar
for her guidance and constant encouragement throughout the course of
my work. She gladly accepted all the pains in going through my work,
and participated in enlightening and motivating discussions, which were
extremely helpful.
I humbly extend my words of gratitude to other faculty members,
teachers and administration of the department for promising me the
valuable help and time whenever it was required.

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 CONTENTS:

Chapters Page
No.

1. Introduction & Meaning of Bonus…………………………….………4

2. Provisions & Terms Under Payment Of Bonus Act………………….9

3. Constitutional Validity of Payment of Bonus Act, 1965……………15

4. Judicial Interpretation & Case Laws………………………………19

5. Conclusion & Suggestions………………………………………….23

#BIBLIOGRAPHY

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 1. Introduction & Meaning of Bonus

The practice of paying bonus in India appears to have originated during First World War when
certain textile mills granted 10% of wages as war bonus to their workers in 1917. In certain cases
of industrial disputes demand for payment of bonus was also included. In 1950, the Full Bench
of the Labour Appellate evolved a formula for determination of bonus. A plea was made to raise
that formula in 1959. At the second and third meetings of the Eighteenth Session of Standing
Labour Committee (G. O.I.) held in New Delhi in March/April 1960, it was agreed that a
Commission be appointed to go into the question of bonus and evolve suitable norms. A
Tripartite Commission was set up by the Government of India to consider in a comprehensive
manner, the question of payment of bonus based on profits to employees employed in
establishments and to make recommendations to the Government. The Government of India
accepted the recommendations of the Commission subject to certain modifications. To
implement these recommendations the Payment of Bonus Ordinance, 1965 was promulgated on
29th May, 1965. To replace the said Ordinance the Payment of Bonus Bill was introduced in the
Parliament.

The Payment of Bonus Act, 1965 (the “Bonus Act”) was enacted in order to make it a statutory
obligation for employers to share their profits with the employees of the organization.
The Bonus Act applies to every factory whereon ten or more workers are working or were
working on any day of the preceding twelve months and the manufacturing process is being
carried on with the aid of power. Further, the Bonus Act also applies to every establishment in
which 20 (twenty)1 or more workers are employed on any day during an accounting year.
Additionally, an establishment or factory once covered under the Bonus Act shall continue to be
governed by the said Act even if the number of employees fall below ten or 20 (twenty)
as the case may be. For calculating the number of persons, ten or 20 (twenty), as the case may
be, a part time employee is also an employee.

1
Section-1 of Payment Of Bonus Act, 1965

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The purpose of bonus is to bridge the gulf between the wages paid and the ideal of a living wage.
Every employee receiving salary or wages upto Rs. 3,500 p.m. and engaged in any kind of work
whether skilled, unskilled, managerial, supervisory etc. is entitled to bonus for every accounting
year if he has worked for at least 30 working days in that year.
 
However, employees of L.I.C., Universities and Educational institutions, Hospitals, Chamber of
Commerce, R.B.I., IFCI, U.T.I. Social Welfare institutions are not entitled to bonus under this
Act.
The preamble of the Act states that the main objective of the Act is to provide for the payment of
bonus, persons in certain establishments on the basis of profits just to maintain peace and
harmony between labour and capital.2

The scheme of the Act, broadly stated, is four- dimensional i.e.-

(10) To impose statutory liability upon the employer of an establishment covered by this
Act to pay bonus to employees of the establishment;

(ii) To define the principle of payment of bonus according to the prescribed formula;

(iii) To provide for minimum and maximum bonus and liking the payment of bonus with the ‘set
on’ and ‘set off scheme; and

(iv) To provide machinery for the enforcement of the liability for payment of bonus.

A minimum bonus has been fixed by the act at 8.33% of the wages or salary of an employee
irrespective of the fact whether there is a profit in the concern or not.3 Bonus is no longer linked
with production or producing. Liabilities for payment of bonus are statutory liability and not a
contingent liability.

Unless it is provided otherwise in this Act, it shall apply to:

(a) every factory; and

2
https://labour.gov.in/sites/default/files/ThePaymentofBonusAct1965.pdf
3
Section-10 of Payment Of Bonus Act, 1965

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(b) every other establishment in which20 or more persons are employed on any day during an
accounting year
I the appropriate Governmentmay also apply the provisions of this Act with effect from
such accounting year as may be notified in the official Gazette, to any establishment or class of
establishments [including an establishment as defined by Section 2(m)of the Factories Act,1948 ]
employing persons less than 20but not less than 10 in number. 4
(d) The provision of this Act shall also apply to certain public sector establishments.5 An
establishment in which 20 or more persons are employed on any day during an accounting year,
must continue to be governed by this Act, inspite of the fact that the number of persons
employed therein falls below 20 .

The following are the categories of employees who are excluded from the operation of the Act:
1. Employees employed by the Life Insurance Corporation of India;

2. Seamen as defined under Section 3(42) of the Merchant Shipping Act, 1958

3. Employees registered or listed under any scheme made under the Dock Workers
(Regulation of Employment) Act, 1948 and employed by registered or listed employers

4. Employees employed by an establishment engaged in any industry carried on by or under

the authority of any department of the Central Government or a State Government or a
local authority.

5. Employees employed by –

(a ) the Indian Red Cross Society or any other institution of a like nature (including its
branches);
4
Section-1(3) of Payment Of Bonus Act, 1965
5
Section-20(1) of Payment Of Bonus Act, 1965

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 (b) Universities and other educational Institutions;
I Institutions (including hospitals, chambers of commerce and social welfare institutions)
established not for purposes of profit

6. Employees employed by the Reserve Bank of India

7. Employees employed by the financial and other institutions such as; the Industrial
Finance Corporation of India, any Financial Corporation established under Section 3, or
any Joint Financial Corporation established under Section 3A, of the State Financial
Corporations Act, 1951; NABARD Etc

8. Employees employed by inland water transport establishment operating on routes

passing through any other country

In, Jalan Trading Co. (Pvt.) Ltd. V. Mill Mazdor Sabha6

In this case Justice Shah observed that 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 and prescribing the 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 profits but
also ensures a reasonable degree of uniformity”.

The meaning of BONUS was dealt in the case of:

Kamgar Sabha v. Abdulbhai Faizullabhai7

In this case the Supreme Court observed that “bonus” is a word of many generous connotations.
There is profit based bonus which is one specific kind of claim and perhaps the most common.
There is customary or traditional bonus which has its emergence from long.
There is attendance bonus. The Bonus Act speak and speaks as a whole Code on the sole subject
of profit-based bonus but is silent and cannot, therefore, annihilate by implication, other distinct
and different kinds of bonuses, such as the one oriented on custom.
6
AIR 1967 SC 691
7
AIR 1976 SC 1455

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The Bonus Act, 1965 as it then stood does not bar claims to customary bonus or those based on
conditions of service. Held, a discerning and concrete analysis of the scheme of the Bonus Act
and reasoning of the Court leaves no doubt that the Act leaves untouched customary bonus.
AIMS & OBJECTIVES
 To Study about different provisions under this Act.
 To know about the constitutional validity of the said Act.
 To Study various important judgement regarding this Act.
HYPOTHESIS
Employer is forced to pay bonus to employees by virtue of this act.

METHODOLOGY
The researcher has primarily relied on the “Doctrinal Methods”. Various Online
and Offline Sources were used while preparing this project.
SOURCES OF DATA:
Primary Source:
The Constitution, The Payment Of Bonus Act of 1965 and Amendment Act of
2015, Books, Articles, Reports etc.
Secondary Source:
Manupatra, SCCOnline, Westlaw Etc

MODE OF CITATION:
The researcher has used the universal mode of citation.

2. Provisions & Terms Under Payment Of Bonus Act

The employees or workers during their employment, not only receive wages, salary, house rent
allowance, medical benefits, education allowance for their children, but also the ex-gratia

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payment in the form of bonus. The bonus is paid on the basis of profits or on the basis of
production or productivity. All factory workers are eligible for bonus and so are the workers of
such other establishments that employ twenty or more persons. If the bonus is paid on the basis
of gross profit, the gross profit has to be calculated in accordance with the provisions under the
Payment of Bonus Act.

Some Important Definitions Under This Act :8

Accounting Year [Section 2(1)]

Means in relation to a corporation, the year ending on the day on which the books and accounts
of the corporation are to be closed and balanced; in relation to a company, the period in respect
of which any profit and loss account of the company laid before it in annual general meeting is
made up, whether that period is a year or not; in any other case the year commencing on the 1st
day of April; or if the accounts of an establishment maintained by the employer thereof are
closed and balanced on any day other than the 31st day of March, then, at the option of
the employer, the year ending on the day on which its accounts are so closed and balanced;
Option once exercised by the employer shall not again be exercised except with the previous
permission in writing of the prescribed authority and upon such conditions as that authority may
think fit.

Allocable Surplus [Section 2(4)]

Means –
(a) in relation to an employer, being a company (other than a banking company),67% of the
available surplus in an accounting year;
(b) in any other case 60% of such available surplus.

8
Section-2 of Payment Of Bonus Act, 1965

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Appropriate Government [(Section 2(5)]

Appropriate Government means—
(10) in  relation  to  an  establishment  in  respect  of  which  the  appropriate  Government
under  the  IndustrialDisputes  Act,  1947  is  the  Central  Government,  the  Central Gov
ernment;
(ii)  in relation to any other establishment, the Government of the State in which that
other establishment is situated.

Award  [(Section 2(7)]
“Award” means an interim or a final determination of any industrial dispute or of any
question  relating  thereto  by  anyLabour  Court,  Industrial  Tribunal  or  National  Tribunal
constituted under the Industrial Disputes Act, 1947 or by anyother authority constituted
under any corresponding law relating to investigation and settlement of industrial disputes
inforce in a State and includes an arbitration award made under section 10A of that Act or
under that law.

Company [(Section 2(9)]

“Company” means any company as defined is section 3 of the Companies Act, 1956
and includes a foreign companywithin the meaning of section 591 of that Act.

Corporation [(Section 2(11)]

“Corporation” means any body corporate established by or under any Central, Provincial or State 
Act butdoes not include a company or a co-operative society.

Employee [Section 2(13)]

Means
any person (other than an apprentice) employed on a salary or wages not exceeding Rs. 21,000/-
per mensem in any industry to do any skilled or unskilled, manual, supervisory, managerial,
administrative, technical or clerical work of hire or reward, whether the terms of employment be
express or implied. Part time permanent employees working on fixed hours are employees.

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Employer [Section 2(14)]
Includes:
In relation to an establishment which is a factory, the owner or occupier of the factory, including
the agent of such owner or occupier, the legal representative of a deceased owner or occupier,
and where a person has been named as a manager of the factory, the person so named; and
in relation to any other establishment, the person who, or the authority which, has the ultimate
control over the affairs of the establishment and where the said affairs are entrusted to a
manager, managing director or managing agent, such manager, managing director or managing
agent.

Establishment in the Private Sector [(Section 2(15)]

“Establishment in private sector” means any establishment other than an establishment
in public sector.

Establishment in the public Sector [(Section 2(16)]
“Establishment in public sector” means an establishment owned, controlled or managed by—

Government company as defined in section 617 of the Companies Act, 1956 ;
(b)  a corporation in which notless than forty per cent of its capital is held (whethr
singly or taken together) by—

(i) the Government; or

(ii)  the Reserve Bank of India; or

(iii) a corporation owned by the Government or the Reserve Bank of India.

Salary or Wage [(Section 2(21)]

“Salary or Wage” means all remuneration (other than remuneration in respect of over-
time work) capable of being expressed in terms of money, which would, if the terms of
employment, express or implied, were fulfilled, be payable toan employee in respect of his
employment or of work done in such employment and includes dearness allowance (that is
tosay, 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-

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 (10) any other allowance which the employee is for the time being entitled to;

(ii)     the  value  of  any  house  accommodation  or  supply  of  light,  water,  medical atten
dance or otheramenity or of any service or of any concessional supply of
food grains or other articles;

(iii)    any traveling concession;

(iv)    any bonus (including incentive, production and attendance bonus);

(v)     any contribution paid or payable by the employer to any pension fund or provident
fund or for the benefit of the employee under any law for the time being in force;

(vi)    any retrenchment compensation or any gratuity or other retirement benefit payable the 
employeeor any ex-gratia payment made to him;

(vii)   any commission payable to the employee.
Where an employee is given in lieu of the whole or part of the salary or wage payable
to him, free food allowance or freefood by his employer, such food allowance or the value
of such food shall, for the purpose of this clause, be deemed tofrom part of the salary or
wage of such employee.

Set On and Set Off of Allocable Surplus:

Section -2 sub-Section (4) defines the words allocable surplus. Allocable surplus means in
relation to an employer, being a company other than a banking company which has not made the
arrangement prescribed under the Income-tax Act, for the declaration and payment within India
of the dividends payable out of its profit in accordance with the provisions of Section 4 of that
Act, 67 percent of such available surplus in any other case 60% of such available surplus.
Under Section 15, if in an accounting year the allocable surplus exceeds the amount of bonus
payable to the employee under Section 10 the excess shall subject to a limit of 20 per cent of the
total salary or wage of the employees be carried forward for being set on in the succeeding
accounting year. It will be utilized for paying the bonus as illustrated in the fourth schedule to
this Act. If there is no allocable surplus in a year or the allocable surplus in respect of that year
falls short of the amount of bonus payable under, Section 10 and there on sufficient amount

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carded forward and set on under sub-Section (1) which could be utilized for paying the bonus
then the amount necessary for paying the bonus shall be carried forward for being set off in the
next accounting year.

Establishments [(Section 3)]

Where  an  establishment  consists  of  different  department  or  undertakings  or  has branches, w
hethersituated in the same place or in different places, all; such departments
or undertakings or branches shall betreated as parts of the same establishment for the
purpose of computation of bonus under this Act.Providedthat where for any accounting year a se
parate balancesheet and profit and loss account are prepared and maintained inrespect of any suc
h department or undertaking or branch, then such department or undertaking or branch shall betr
eate as a separate
establishment for the purpose of computation of bonus, under this Act for that year, unless
suchdepartment or undertaking or branch was, immediately before the commencement of
that accounting year treated as partof the establishment for the purpose of computation of bonus.

In,
Chalthan Vibhag Sahakari Khand Udyog v. Government Labour Officer 9

The definition is wide enough to cover the payment of retaining allowance and also dearness
allowance paid to the workmen. It is nothing but remuneration. Subsistence allowance given
during suspension is not wages. However lay-off compensation is wages.

As establishment not may be newly set up. It may be an existing establishment of which merely
the ownership has changed. But the new owner may not necessarily be the successor in interest
of the old in respect of the business carried on in the establishment. One may acquire the
ownership of an establishment without taking over the business as growing concern and
becoming a successor-in interest in respect of it. An establishment which is used for the purpose
of carrying on trade, business or undertaking may change hands and pass from one owner to
9
1981 SCC (2) 147

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another. The workers operating this apparatus and working in it may change; new workers may
take the place of old or come as additional workers.
When the ownership of the establishment which is nothing but another name for this apparatus is
transferred from one person to another, the establishment in the hands of the transferee. Now
though the transferee may become the owner of the establishment he would not necessarily be a
successor in interest of the transferor in respect of the business carried on in the establishment.
The question as to whether he can be held to be a successor – in -interest of the transferor would
depend on consideration of several relevant facts.

3. Constitutional Validity of Payment of Bonus Act,1965

The Constitutional validity of the Payment Of Bonus Act, 1965 was challenged in the Case :

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Jalan Trading Company (Pvt.) Limited. Vs. Mill Mazdoor Union10 , on the ground of violation of
rights under Article 14 and Article 19 of the constitution.
The Supreme Court Upheld the Validity as constitutional because Payment of Bonus Act which
is in accordance to article 39 and Article 43.

In,
Jalan Trading co. (P) Ltd. Vs. D.M.Aney and Anr.11
The constitutional validity of Sec. 10 was unsuccessfully challenged. The restriction imposed by
the Bonus Act in compelling the employer to pay the statutory minimum bonus even in years
where there has been a loss sustained by the management is reasonable or in public interest
within the meaning of Articles 19(6) and 302. The payment of bonus is in the implementation
of Articles 39 and 43 of the Constitution is reasonable. The payment of the minimum bonus is
subject to the provisions of Sections 8 and 13 which means that only employees who have
worked for not less than 30 days in the accounting year would alone be entitled to the minimum
bonus.
The statutory minimum bonus of 8.33% shall be payable whether there are profits in the
accounting year or not. After the Act coming into force, the bonus has become an implied term
of employment not dependent upon the profits.
The employee is entitled to festival bonus only if there is an implied agreement or it is, paid as
customary bonus.

In,

Grindlays Bank Ltd. Vs_ The National and Grindlays Bank Ltd.12

The bank claimed a deduction of depreciation at a higher figure than that appearing in the profit
and loss account. It was held that the burden of proving the depreciation was on the bank and
that burden has to be discharged by the bank by producing proper and satisfactory evidence. It
10
AIR 1979 SC 233
11
1979 (1) L.L.J. 162
12
1976 (1) L.L.J. 463

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was further held that the deprecation in accordance with the method specified in Section 32(I) of
the Income Tax Act has to be done by the Tribunal in the exercise of the quasi-judicial duty. The
determination of depreciation under’Section 32 (1) of the Income Tax Act can be taken into
account as evidence only if there is some provision of law which provides for that effect. “it is
clear on a plain and natural reading of the language of Section 6(a), that what is deductible
under that clause is depreciation admissible in accordance with the provisions of sec 32(1) of the
Income-tax Act and not depreciation allowed by the Income-tax officer in making assessment on
the employer. The Industrial Tribunal has to calculate the amount of depreciation by adopting the
method set out in sub-sec (1) of sec 32. There is nothing in the Income Tax Act or in thePayment
of Bonus Act or in any other provisions of law which attaches a presumption of accuracy to the
determination of the Income-tax officer in this matter or invests it with probative or evidentiary
value in the proceeding before the Industrial Tribunal. The workers who are sought to be bound
by the determination of the Income tax officer. The possibility cannot be ruled out that the
determination made by the Income-tax officer may be wrong and he might have made a bonafide
mistake in arriving at the figure of depreciation. Therefore the certificate issued by the
Incometax officer is not admissible in evidence to prove the depreciation admissible under
Sec.32(1).
In ,
Jayna Time Industries (P) Ltd. Vs. Industrial Tribunal and others.13
It was laid down that while computing the surplus of a particular year an employer is entitled to
deduct depreciation as also development rebate of that year and deduct further the arrears of
depreciation and business losses of earlier years. But the development rebate of earlier years is
not admissible.

There was also an AMENDMENT made in the said act.

The Payment of Bonus, 1965 was amended by the Central Govt. The amendment is made
effective 1st April 2014. The amendments to the Act are as follows:

SECTIONS which were amended:

13
1975 (2) L.L.J 436

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 1. Section – 2(13) Eligibility for Bonus: Employees whose salary or wages is up to Rs.
Twenty one thousand (21000/-) per month are eligible to receive the Bonus.
2. Section-12 Calculation of Bonus: salary or wage of an employee exceeds Rs. Seven
thousand (7000/-) per month, while calculating bonus payable to such employee, the
bonus shall be calculated as if his salary or wages are Rs. Seven thousand per month or
the minimum wage notified by the appropriate Government for the Scheduled
employment under the Minimum Wages Act, 1948 (whichever is higher).
In view of the above amendment employers have to take following steps to comply with the
amendment:
To Find out eligible employees who are drawing salary wage from 10001/-P.M. to Twenty one
Thousand P.M. during the F.Y. 2014-15. (As they were not eligible for bonus earlier).and to
compute and pay the Bonus to them as per above amendment.14

To compute differential Bonus in respect of the employees to whom Bonus for the F.Y. 2014-15
was already paid and pay the differential amount to them. While computing Bonus in above two
categories consider the salary or wage of these employees as Rs. Seven thousand p.m. or
minimum wage for the scheduled employment as notified by the appropriate govt
during the period April 2014 to March 2015 whichever is higher.
i. To Prepare ‘Form C’ Register for these payments.
ii. To File Revised Return in ‘Form D ‘for the year 2014-15.

Most of the employers represented their stand in high courts, forums & discussion panels that
bonus for the financial year based on P&L is calculated and paid in Oct/Nov 2015. Therefore,
The effective date of 1st April 2014 as mentioned in the amended of Bonus act should be
rethought and it should be made effective 1st April 2015. Employees and their unions feel
that Minimum wage is revised annually, there is no standardized minimum wage among the
states/zones/within the state/ industries of the same locality, and there will be no uniformity of
bonus. Therefore, insertion of minimum wages act in bonus (amendment) act, 2015 may be
reviewed. HR professionals opine that bifurcation of the minimum wage is allowed but their
14
Jambhulkar Shobha .B, International Journal of Advance Research, Ideas and Innovations in Technology, 2017

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proportion/percentage is not defined anywhere in the law. In absence of such guideline,
employers may bifurcate as per their convenience, in order to get the maximum benefit;
employees may approach their unions, which will lead to more and more disputes.
Therefore, under the amendment of payment of bonus act, 2015 “whichever is higher” term may
be reconsidered. 15
Paying 8.33% of actual Basic + DA, ignoring minimum wage may solve the issues. But, paying
8.33% on actual will cause a heavy financial burden to employers and also sec 12 of payment of
bonus act will lose its presence in the long run.

4. Judicial Interpretation & Case Laws

Case:- Jalan Trading Co. (Pvt.) Ltd. V. Mill Mazdoor Sabha 16

15
https://indiankanoon.org/doc/633148/
16
AIR 1979 SC 233

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In this case Shah J. observed that 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 and prescribing the 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 profits but
also ensures a reasonable degree of uniformity”.

Case – Kamgar Sabha v. Abdulbhai Faizullabhai17

In this case the Supreme Court observed that “bonus” is a word of many generous connotations.
There is profit based bonus which is one specific kind of claim and perhaps the most common.
There is customary or traditional bonus which has its emergence from long. There is attendance
bonus. The Bonus Act speak and speaks as a whole Code on the sole subject of profit based
bonus but is silent and cannot, therefore, annihilate by implication, other distinct and different
kinds of bonuses, such as the one oriented on custom.
The Bonus Act, 1965 as it then stood does not bar claims to customary bonus or those based on
conditions of service.
It was Held that, a discerning and concrete analysis of the scheme of the Bonus Act and
reasoning of the Court leaves no doubt that the Act leaves untouched customary bonus.

In,
Workmen, N.G.Bank Vs N.G.Bank18

It was held that it is clear from the scheme of the Act and the context in which Section .15 (1)
occurs. Following closely upon Section 4 to that the basic condition for the applicability of
Section 15 (1) is that bonus is computed in accordance with the formula provided in the

17
AIR 1976 SC 1455
18
AIR 1976 SC 611

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Act. As a result of such computation, if it is found that the allocable surplus is more than
sufficient to cover the in bonus payable under the Act and where such is the case the sub-Section
provides that the excess, over the amount of maximum bonus shall to the extent of 20 percent of
the total wage or salary be carried forward and set on in the succeeding year. The sub-Section
can have no application where no computation is made under the Act and bonus is paid not in
accordance with the statutory formula, but on an adhoc basis.

Eligibility for bonus (Section 8)

Every employee shall be entitled to be paid by his employer in an accounting year, bonus, in
accordance with the provisions of this Act, provided he has worked in the establishment for not
less than 30 working days that year.

Case :- Project Manager, Ahmedabad Project, ONGC Vs. Sham Kumar Sahegal 19

An employee suspended but subsequently reinstated with full back wages can not be treated to
be ineligible for bonus for the period of suspension.

Disqualification for bonus (Section 9)

An employee shall be disqualified from receiving bonus under this Act, if he is dismissed from
service for: fraud; or riotous or violent behaviour while on the premises or the establishment; or
theft, misappropriation or sabotage of any property of the establishment.
This provision is based on the recommendations of the Bonus Commission which observed
“after all bonus can only be shared by those workers who promote the stability and well-being of
the industry and not by those who positively display disruptive tendencies. Bonus certainly
carries with it obligation of good behaviour”.

Case :- Pandian Roadways Corp. Ltd. V. Preseding Officer, Principal Labour Court20

19
(1995) ILLJ 863 Guj
20
(1996) IILLJ 606 Mad

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If an employee is dismissed from service for any act of misconduct enumerated in Section 9, he
stands disqualified from receiving any bonus under the Act, and not the bonus only for the
accounting year in which the dismissal takes place.

Payment of minimum bonus {Section 10}

every employer shall be bound to pay to every employee in respect of any accounting year a
minimum bonus which shall be 8.33 % of the salary or wage earned by the employee during the
accounting year or 100 rupees whichever is higher, whether or not the employer has any
allocable surplus in the accounting year: where an employee has not completed fifteen years of
age at the beginning of the accounting year, minimum bonus which shall be 8.33 % of the salary
or wage earned by the employee during the accounting year or 60 rupees whichever is higher.

Case: - State v. Sardar Singh Majithia 21

Section 10 of the Act is not violative of Articles 19 and 301 of the Constitution. Even if the
employer suffers losses during the accounting year, he is bound to pay minimum bonus as
prescribed by Section 10.

Case : Hukam Chand Jute Mills Ltd. V. Second Industrial Tribunal, West Bengal 22

The Supreme Court held that the claim for customary bonus is not affected by 1976 Amendment
Act. In fact, it has left Section 17 intact which refers to puja bonus or other customary bonus.
Section 31A speaks about productivity bonus but says nothing about other kinds of bonuses. The
contention that all agreements inconsistent with the provisions of the Act become inoperative has
no substance vis-a-vis customary bonus. Conceptually statutory bonus and customary bonus
operate in two fields and do not clash with each other.

Power of exemption (Section 36)

21
1970 CriLJ 558
22
1979 SCR (3) 644

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If the appropriate Government, having regard to the financial position and other relevant
circumstances of any establishment or class of establishments, is of opinion that it will not be in
public interest to apply all or any of the provisions of this Act thereto, it may, by notification in
the Official Gazette, exempt for such period as maybe specified therein and subject to such
conditions as it may think fit to impose, such establishment or class of establishments from all or
any of the provisions of this Act.

Case: - J.K.Chemicals v. State Of Maharashtra 23

Government should consider public interest, financial position and whether workers contributed
to the loss, before grant of exemption from this Act for payment of bonus.

In,

Muir Mills Co. Ltd. V. Suti Mills Mazdoor Union, Kanpur, 24

Supreme Court in this case by observing that the demand of labour for bonus can be justified and
becomes an industrial claim only if wages in any industry are below the standard of living
wages, and industry has made profits in the earning of which workman have contributed by their
labour. The demand fathoms cannot be sustained when either of these two conditions is not
satisfied

5. Conclusion & Suggestions

The Hypothesis of researcher was that Employer is forced to pay bonus to employees by virtue
of this act if found true.

23
1996 (1) MHLj 126
24
AIR 1955 SC 170

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In the conclusion the researcher has summarized the project with relevant points.

The practice of paying bonus in India appears to have originated during First World War when
certain textile mills granted 10% of wages as war bonus to their workers in 1917. In certain cases
of industrial disputes demand for payment of bonus was also included. In 1950, the Full Bench
of the Labour Appellate evolved a formula for determination of bonus. A plea was made to raise
that formula in 1959. At the second and third meetings of the Eighteenth Session of Standing

Labour Committee (G. O.I.) held in New Delhi in March/April 1960, it was agreed that a
Commission be appointed to go into the question of bonus and evolve suitable norms. A
Tripartite Commission was set up by the Government of India to consider in a comprehensive
manner, the question of payment of bonus based on profits to employees employed in
establishments and to make recommendations to the Government. The Government of India
accepted the recommendations of the Commission subject to certain modifications. To
implement these recommendations the Payment of Bonus Ordinance, 1965 was promulgated on
29th May, 1965. To replace the said Ordinance the Payment of Bonus Bill was introduced in the
Parliament.

The Payment of Bonus Act, 1965 (the “Bonus Act”) was enacted in order to make it a statutory
obligation for employers to share their profits with the employees of the organization.
The Bonus Act applies to every factory whereon ten or more workers are working or were
working on any day of the preceding twelve months and the manufacturing process is being
carried on with the aid of power. Further, the Bonus Act also applies to every establishment in
which 20 (twenty) or more workers are employed on any day during an accounting year.

Additionally, an establishment or factory once covered under the Bonus Act shall continue to be
governed by the said Act even if the number of employees fall below ten or 20 (twenty)
as the case may be. For calculating the number of persons, ten or 20 (twenty), as the case may
be, a part time employee is also an employee.

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The preamble of the Act states that the main objective of the Act is to provide for the payment of
bonus, persons in certain establishments on the basis of profits just to maintain peace and
harmony between labour and capital.

The employees or workers during their employment, not only receive wages, salary, house rent
allowance, medical benefits, education allowance for their children, but also the ex-gratia
payment in the form of bonus. The bonus is paid on the basis of profits or on the basis of
production or productivity. All factory workers are eligible for bonus and so are the workers of
such other establishments that employ twenty or more persons. If the bonus is paid on the basis
of gross profit, the gross profit has to be calculated in accordance with the provisions under the
Payment of Bonus Act.

This Act extends to the whole of India. It applies to every factory as defined under the Factories
Act, 1948; and every other establishment wherein 20 or more persons are employed on any day
during any accounting year.
The appropriate Government may, after giving a notice of not less than two months through
notification in the Official Gazette, make the Act applicable to any factory or establishment
employing less than twenty but not less than ten persons.

The Payment of Bonus Act, 1965 has ransformed bonus which originated as gift and continued
to be a gift or exgratia payment for a long time, into a statutory obligation of the employers. This
legislation which is peculiar to India, confers on workmen a legal right to receive a minimum
bonus annually irrespective of the fact whether the establishment makes anyprofit or not.
Minimum bonus has, therefore become necessary adjunct of wages. In other words, the system
of annual bonus has now come to stay and may continue in future.
The constitutional validity of this enactment was challenged soon after it was brought into force.
The Supreme Court upheld its validity and also of its provisions relating to minimum bonus and
set on set on-set off.

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 BIBLIOGRAPHY

BARE ACTS:
The Constitution Of India, 1950

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 The Payement Of Bonus Act,1965
The Payment Of Bonus(Amendment) Act,2015

BOOKS:

Balaji, Desikan “Industrial Labour & General Laws” (2015)

Kumar, H.L “Practice & Procedures of Labour Laws” (2016)
Mishra, S.N “Labour & Industrial Laws” 28th Edn. (2016)
Khan & Khan, “ Labour & Industrial Laws” Asia Law House (2014)

JOURNAL:
International Journal of Advance Research, Ideas and Innovations in
Technology, 2017

WEBSITES:

WWW.SCRIBD.COM
WWW.MANUPATRA.COM
WWW.INDIANKANOON.COM
WWW.LIVELAW.COM

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