The Payment of Bonus Act, 1965 This Act may be called the Payment of Bonus Act, 1965.

it extends to the whole of India. It shall apply to : (a)every factory; and (b)every other establishment in which 20 or more persons are employed on any day during the accounting year.

Notes: 1. The employment of 20 or more persons even for a day in a year is sufficient ground to hit the provisions of the Act. [Ramanujam Pres V.R.P.F. Commr., A.I.R. (1970) Mad. 224]. 2. While determining the number of persons employed in an establishment, all employees even those drawing upto Rs. 3,500 must be taken into account.

1. The term 'establishment' is not defined in the Act. However, Sec. 3 of the Act provides that the term 'establishment' shall include departments, undertaking and branches. DEFINITIONS

Employee means any person employed on a salary or wage not exceeding Rs. 3,500 per month in any industry to d any
(a) skilled or unskilled work; (b) manual, supervisory or managerial work; or

(c) administrative technical or clerical work for hire or reward, whether the terms of employment are express or implied [Sec. 2(11)]. where the salary or wage of an employee exceeds Rs. 2,500 per month, the bonus payable to such employee under the Act shall be calculated as if his salary or wage were Rs. 2,500 per month [Sec.12]. In other works employees getting salaries or wages amounting to Rs. 2,500/ Rs. 3,000 / Rs. 3,500 per month shall be entitled for the same amount of bouns. Note: An apprentice is into an employee for the purposes of the Act.

2.Employer includes (a) in relation to an establishment which is a factory i. the owner o occupier of the factory including the agent of such owner or occupier; ii.the legal representatives of a deceased owner or occupier; and iii.where a person has been named as a manager of the factory under Sec. 7 of the Factories Act, 1948, the person so named.

(b) in relation to any other establishment, i. the person who, or the authority which, has the ultimate control over the affairs of the establishment; and ii.where the said affairs are entrusted to a - manager; - managing director; - managing agent, such manager, managing director or managing agent [Sec. 2 (14)].

3. Salary or Wage means all remuneration capable of begin 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. It 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 -

(a)any other allowance which the employee is for the time being entitled to; (b)the value of any house accommodation or of supply of light, water, medical attendance or other amenity or of any service or of any concessional supply of food grains or other articles; (c)any traveling concession; (d)any bonus (including incentive, production and attendance bonus);

(e) any contribution paid or payable by the employer i. to any pension fund; ii. to any provident fund; or iii.for the benefit of the employee under any law for he time being in force; (a)any retrenchment compensation; (b)any gratuity; (c)other retirement benefits tot he employee; (i) any ex-gratia payment made to him. (ii) any commission payable to the employee [Sec.2(21)].

Notes: 1. 'lay-off compensation' forms part of the salary or wage [Mohan Kumar V. Deputy Labour Commissioner, (1991) 62 FLR 903 (Ker.)]. 2. Dearness allowance (DA) and City Compensatory Allowance (CCA) are included in the definition of salary on wage [S. Krishnamurthy V. Presiding Officer, labour Court (1986) 55 FLR 535].

3. Where an employee is given in lieu of the whole or part of the salary or wage payable to him, free food allowance or free food by his employer, such food allowance or the value of such food shall form part of the salary or wage of such employee.

Act Not to Apply to Certain Classes of Employees [Sec. 32] The Act does not apply to the following categories of persons:

1. employees employed by Life Insurance Corporation (LIC); 2. seamen as defined in Sec. 3 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, the State Government or a local authority.

Note: A local authority, as such does not fall within the purview of the Act, it is an establishment engaged in any industry under the authority of a local authority which shall be exempt from the provisions of the Act. [Union of India V.R.C. Jain, AIR (1981) SC 1951].

5. employees employed by (a)the Indian Red Cross Society or any other institution of a like nature;

(b)universities institutions;

and

other

educational

(c)institutions (including hospitals, chambers of commerce and social welfare institutions) established not for profit. [Maharashtra Electricity board V.M.C. Chitale, (1981) 1 LLJ 162 (Bom.) (DB)].

1.Employees employed through contractors on building operations; 2.employees employed by Reserve Bank of India; 3.employees employed by (a)the industrial Finance Corporation of India (IFCI). (b)Any Financial Corporation established under Secs. 3 and 3A of the State Financial Corporations Act, 1951; (c)the National Bank for Agriculture and Rural Development (NABARD).

(a)the Unit Trust of India (UTI). (b)The Industrial Development bank of India. (c)The Small Industries Development Bank of India (SIDBI); (d)the national Housing Bank; (e)any other financial institution being an establishment in the public sector, which the Central Government may specify. 9. Employees employed by inland water transport establishments operating on routes passing through any other country.

Eligibility for Bonus [Sec. 8] 1. Every employee is eligible for bonus provided he has worked for at least 30 working days n that year.

1. An employee is deemed to have worked in an establishment in the accounting year also on the days on which

(a)he has been laid off; (b)he has been on leave with salary or wage; (c)he has been absent due to temporary disablement caused by accidents arising out of and in the course of his employment; (d)the employee has been on maternity leave with salary or wage, during the accounting year [Sec. 14]. Note: Sec. 14 is exhaustive and not merely illustrative. [Spencer & Co. Ltd. vs. K. Manuswamy) (1982) I.L.L.N 180 (Mad.)].

3. Where an employee has not worked for all the working days in any accounting year, the bonus payable to him shall be proportionately reduced [Sec. 13]. Where a worker works only seasonably, the words 'working days in any accounting year' mean those days of the year during which the employee concerned is actually allowed to work. [Shakkar Mill Mazdoor Singh vs. Gwalior Sugar Co. Ltd., (1982) 2 S.C.C. 134].

4. The following categories of employees are entitled for bonus: a)a temporary workman; b)a probationer [Bank of Madhura vs. bank of Madhura Employees' Union, 1970 Lab IC 1215]; c)a piece rated worker; d)a dismissed employee reinstated back with wages; e)a part time employee [Arun Mills Ltd vs. Dr. Chander Prasad C. Trivedi(1976) 32 FLR 323]; f) a retrenched employee.

Disqualification for Bonus [Sec. 9] An employee shall be disqualified from receiving bonus if he is dismissed from service for

(a) fraud; (b) riotious or violent behaviour while on the premises of the establishment; (c) theft, misappropriation or sabotage of any property of the establishment.

An employee may be disqualified from receiving bonus with reference to the accounting year in which he committed fraud, theft. [Himalaya Drug Co. V.P.O. 2nd Addl. Labour Court, (1986) 52 FLR 704. Minimum Bonus [Sec. 10] 1. Every employer is bound to pay to every employee a minimum bonus which shall be 8.33% of his salary or wage. 2. Minimum bonus is payable whether or not the employer has any allocable surplus in the counting year.

Notes: 1. Ex-gratia bonus is not a bonus within the meaning of Sec. 10. [R.P.C] Officers' Association vs. R.P.C., 1990 LLR 222 (Raj.)]. 2. The appropriate Government has the power under the Act to exempt any establishment from the operation of Sec. 10 having regard to the financial position of an establishment which is unable to pay minimum bonus. [Mahalaxmi Mills vs. Government of madras, A.I.R. (1969) Mad. 273].

Maximum Bonus [Sec. 11] 1. Where in respect of any accounting year referred to in Sec. 10, the allocable surplus exceeds the amount of minimum bonus, the employer shall in lieu of such minimum bonus be bound to pay to every employee bonus which shall be an amount in proportion to the salary or wage earned by the employee upto a maximum of 20% of such salary or wage.

2. In computing the allocable surplus under this section, the amount set on or the amount set off under the provisions of Sec. 15 shall be taken into account. Adjustment of Customary or Interim Bonus Against Bonus Payable Under the Act [Sec. 17] 1. Where in any accounting year

(a) an employer has paid any 'puja bonus' or other customary bonus' to an employee' (b) an employer has paid a part of the bonus payable under this Act to an employee before the date on which such bonus becomes payable. 2. An employer is entitled to deduct the amount of bonus so paid from the amount of bonus payable by him to the employee for that accounting year.

3. In Vegetable Products Ltd. vs. Workmen, A.I.R (1965) S.C. 1499, the Supreme Court laid down that a particular payment is customary or festival bonus if (a) the payment has been made over an unbroken series of years; (b) it has been paid for a sufficiently long period the period has to be longer in case of an implied term of employment; (c) it did not depend on earning of profits; (d) the payment has been made at a uniform rate throughout.

Deduction of Certain Amounts from Bonus [Sec. 18]

Where in any accounting year, an employee is found guilty of misconduct, causing financial loss to the employer then, the employer shall be allowed to deduct the amount of loss from the amount of bonus payable to the employee in respect of that accounting year only and the employee shall be entitled to receive the balance, if any.

Time Limit for Payment of Bonus [Sec. 19]

1. The amount of bonus payable under the Act shall be paid in cash within a period of 89 months from the close of the financial year

Illustration The financial year of A Ltd. Ends on 31st December, 2005. The latest date by which bonus can be paid to the employees is 31st August, 2006. However, the aforesaid period of 8 months can be extended by the appropriate Government or authority provided the total period so extended does not exceed 2 years.

CASES Salary or wage

In Chalthan Vibhag Sahkari Khand Udyog v. Government Labour Officer and others, the question was, whether the retaining allowance paid by the sugar industry to its seasonal employees for the off season period is to be taken into account in calculating bonus payable to such seasonal workmen by the sugar industry. It was held that retaining allowance is remuneration which would, if the

terms of employment express or implied were fulfilled, be payable to any employee, in respect of his employment. The retainer allowance is a remuneration, on a lower scale, which is paid to the workmen by management during the off season for their forced idleness. The payment of such allowance is indicative of the fact that the management wants to retain their services for the next crushing season. The very fact that the retaining allowance is paid to the workmen clearly shown that their services are retained, therefore, the jural relationship of employer and employee continues.

Therefore, retainer allowance being a remuneration is covered by the definition of salary or wage, in Section 2(21) of the Act. It is not within the purview of Clause (i) of the exclusionary clause of Section 2(21). Eligibility for bonus It was held in Project Manager, Ahmedabad Project, O.N.G.C Sabarmati v. Sham Kumar Sahegal (Died by his Legal Representatives that when an employee is suspended, it cannot be said that such an employee did not work for the establishment.

The word worked in Section 8 of the Act should mean ready and willing to work. Therefore when an employee is prevented from working by an overt act on the part of the employer, which is ultimately set aside and the employer is reinstated in service then the reasonable inference is that the employees' statutory eligibility for bonus within the meaning of Section 8 of the Act cannot be said to have been lost. Nor can the employer refuse to accede to the demand for such bonus if it is otherwise payable under the provisions of the Act.

Disqualification for bonus In Himalaya Drug Co. Makali v. II Additional Labour Court, Bangalore, some of the workmen who were dismissed for misconduct in October 1980 claimed bonus for the accounting year ending 31st March, 1980. The management denied their claim on the ground that they were dismissed for misconduct mentioned in Section 9 and, therefore, were disqualified from claiming bonus. It was held that if a dispute regarding bonus for 3 consecutive accounting years is pending under Section 22 of the Act, and the workman is dismissed for misconduct during the third accounting year,

it is not proper to extend the scope of Section 9 to the earlier two accounting years in which the workmen had a clean record of service and during which period he did not incur any disqualification as provided under Section 9 of the Act. Alternatively, if the workman commits misconduct during the accounting year 1983-84 and if he continues to work during subsequent accounting year 1984-85 and is dismissed at the end of subsequent year, he cannot lose the bonus for accounting year 1984-85. Hence the omission of the words 'accounting year' in Section 9 does not mean that the legislature had

the intention of disqualifying the workman from claiming bonus for all the previous years or year preceding the accounting year in question or year/years succeeding the accounting year. Section 9 should be construed harmoniously so that it should not conflict with other beneficial provisions of the Act. Adjustment of customary or interim bonus against bonus payable under the Act. It was held in Himalaya Drug Co. Makali v. II Additional Labour Court, Bangalore that if an

employee is paid puja or customary bonus before he is found guilty of the act of misconduct, it will not be open to the employer to recover that amount on the ground that he had a right of adjustment under Section 17 because the disqualification in Section 9 applies to bonus receivable under the Act and not to puja or customary bonus.

Act not to apply to certain classes of employees In Union of India v. R.C. Jain, the question was whether the Delhi Development Authority was an authority fulfilling the definition of 'local authority' and as such fell outside the scope of Bonus Act by reason of the provisions of Section 32 (iv). It was held that it is an authority to which is entrusted by statute a governmental function ordinarily entrusted to municipal bodies and that function is to make regulations. Thus Delhi Development Authority is endowed with all the usual attributes and characteristics of a local authority and as such it falls outside the scope of the Bonus Act.

In Workman of Central Institute of Plastis Engineering and Tools v. Management and Others, the Institute was making plastic moulds for the purpose of training. It was held that it is not a commercial institute established for purpose of profit. Education does not mean mere teaching. The Institute imports specialized institution and practical training in the field of plastic technology. The consultant service is rendered free. Therefore, when training is imparted to students, the institute is an educational institution entitled to exemption under Section 33(v)(b). It is not established for the purpose of profit within the meaning of Section 32(v)(c).

In Tamil Nadu Supply and Drainage Board Engineers Association etc. v. Government of Tamil Nadu etc., the Tamil Nadu Water Supply and Drainage Board has been established to serve the public interest by exposing better amenities of life. The function of the Board is to provide protected drinking water supply and drainage facilities. It has its own assets and liabilities, method of recovery of the cost of the schemes, making investments and constituting its funds. The Board has got a scheme of profit and loss. It shall earn profit in some year and loss in another year. It has got a capital structure, profit and liability and a labour force to care for.

In view of all this it was held that the Board is an institution designed for profit in the limited sense that when the Government found it difficult to run such projects through its own department, they created a Board and transferred the projects to ensure that there was proper service tot he community and at the same time there was no pressure on meager revenue and other resources of the State. Therefore, the employees of the Board qualifying for bonus under the Payment of Bonus Act are entitled to minimum amount of bonus and / or such amount computed in accordance with law upon the surplus in the accounting year.

In Christian Medical College and Hospital, Vellore v. Presiding Officer, Industrial Tribunal, madras and another, the employees of the Christian medical College claimed that the provisions of Payment of Bonus Act applied to them. The High Court upheld the impugned order of the Industrial Tribunal's conclusion that the hospital, could be separate department, and it was fun for profit. Therefore the exemption under Section 32(v)(c) of the Industrial Disputes Act, 1947 was not available to hospital. But so far as the Medical College excluding the hospital was concerned, the Act would not be applicable as it was an educational institution under Section 32(v)(b) of the Act.

In Subanayagam, K. v. the Secretary to Government of Tamil Nadu Housing Development, the Tamil Nadu Housing Board is a statutory body engaged in the business of constructing houses and conveying the same to public for consideration. The Board has been paying bonus to employees of Cellular Concerete Plant and Wood Working unit but not to other employees. The Secretary of the Diploma engineers Association of the Board filed a writ petition claiming statutory minimum bonus.

They agreed to pay minimum bonus for the year 1978-79 provided the employees gave up claim for such bonus for the previous year. After taking such commitment the Government issued a G.O. Exempting the Housing Board from the applicability of this Act after the year 1977-78. Even thereafter the Board did not pay minimum bonus. It was held that the Board comes within the provisions of Bonus Act and having provided for payment of bonus for its employees in its budget, it is not entitled to claim benefit of exemption under Section 32(v)(b). The Housing Board was held liable to pay minimum bonus of 8.33 per cent.