Supreme Court Quashes Industrial Tribunal Direction for Half-Yearly Bonus Payments and Modifies Additional Bonus Award. Payment of Bonus Act, 1965 Sections 17 and 19 Did Not Permit Obligatory Half-Yearly Bonus, and Equitable Allocation of Available Surplus Required 60% to Workmen and 40% to Company, Making Excess Bonus for 1962 Unjustified.

Industrial dispute adjudication before Additional Industrial Tribunal, Bangalore, concerning payment of bonus and additional bonus, appealed to Supreme Court by special leave.

Management sought to justify payment of one month's basic wages as advance wages instead of advance bonus for half-year ending June 1965; workmen sought additional bonus of 2 months for 1962 and 4 months for 1963 on total wages; company sought to set aside Tribunal directions.

Dispute arose after company issued circular following Payment of Bonus Act, 1965, announcing advance wages instead of half-yearly bonus; conciliation failed and workmen struck, leading to two references under Industrial Disputes Act.

Additional Industrial Tribunal, Bangalore, in A.I.D. Nos.6 and 8 of 1966, by common award dated June 30, 1967/1970, held management not justified in announcing advance wages instead of bonus and directed profit bonus in two installments; for additional bonus, applied Full Bench Formula, disallowed return on reserves for fixed assets and capital work in progress, rejected rehabilitation claim, but awarded 1962 bonus exceeding 60% allocation.

Whether management was justified in announcing payment of one month's basic wages as advance against wages instead of advance bonus for half-year ending June 1965. Whether workmen were entitled to additional bonus for 1962 and 1963 and the correct method of calculation. Whether the Industrial Tribunal had jurisdiction to direct half-yearly bonus payments under the Payment of Bonus Act, 1965. Whether fixed assets and capital work in progress should be included in working capital for calculating return on reserves. Whether the employer was entitled to a provision for rehabilitation. What is the equitable allocation of available surplus between company and workmen.

Appellant company argued that half-yearly bonus was not a condition of service but a unilateral payment contingent on profits; after the Act, bonus could only be paid after close of accounting year within 8 months, so payment was rightly treated as advance wages. Appellant claimed that in computing return on reserves used as working capital, amounts sunk in fixed assets and capital work in progress should be included. Appellant contended it was entitled to a provision for rehabilitation based on balance sheets and notes in statements of account. Respondents/workmen argued that half-yearly bonus had become a condition of service due to long practice and the change to advance wages was illegal. Workmen demanded additional bonus of 2 months for 1962 and 4 months for 1963 on total wages, and opposed rehabilitation claim as there was no scheme, machinery was modern, and no amounts were spent on replacement. Workmen contended that working capital should not include fixed assets or capital work in progress.

Under the Payment of Bonus Act, 1965, bonus for an accounting year must be computed only after the close of the accounting year based on gross profits and available and allocable surplus, and Section 19 prescribes payment within 8 months; a direction for half-yearly bonus is contrary to the Act and beyond jurisdiction. Section 17(b) is an enabling provision for the employer to deduct advance bonus paid, but it does not confer a right on employees to claim part payment during the accounting year. Working capital for return on reserves excludes fixed assets and capital work in progress, as it represents funds for day-to-day operations. An employer claiming rehabilitation reserve must prove multiplier and divisor with satisfactory evidence; failure to do so leads to rejection. The equitable allocation of available surplus between company and workmen is 60% to workmen and 40% to company.

The scheme of the Act shows that a claim for bonus can be made only after the close of the accounting year, because, gross profits and the available and allocable surplus can be worked out only at the end of the accounting year and not earlier, whereas the direction given by the Tribunal requires the employer to make two computations at the end of each half year. Section 17(b) is an enabling section in favour of the employer in that it visualizes a situation when he may have paid during the accounting year a part of the bonus payable under the Act, before the date on which such bonus becomes payable. If the payment was by way of profit bonus, he is entitled to deduct it from the final amount that may be payable under the Act. But that provision does not give a right to an employee to claim payment of bonus by way of part payment during the currency of the accounting year. The equitable method of allocating the available surplus between the company and its workmen is to distribute 60% as bonus to the workmen leaving the remaining 40% to the company. Working capital represents the funds required for day-to-day work of the company and cannot include fixed assets, and the capital works in progress.

On December 8, 1965, the Government of Mysore referred to the Additional Industrial Tribunal, Bangalore, the question whether the management was justified in announcing payment of one month's basic wages as advance against wages instead of advance bonus for the half-year ending June 1965 (Reference A.I.D. No.6 of 1966). On March 5, 1966, the same government referred the question of additional bonus for 1962 and 1963 (Reference A.I.D. No.8 of 1966). The Tribunal passed a common award dated June 30, 1967/1970, holding the management not justified in declaring advance wages and directing half-yearly bonus payments; on additional bonus, it applied the Full Bench Formula, disallowed claims for fixed assets and capital work in progress in working capital, rejected rehabilitation, but awarded 1962 bonus exceeding 60%. Aggrieved, the company filed Civil Appeals Nos.1291 and 1292 of 1967 by special leave before the Supreme Court. The Supreme Court heard the appeals and delivered judgment on February 15, 1972, allowing the first appeal and partly allowing the second as described.

• Payment of Bonus Act, 1965: Section 10, Section 11, Section 17, Section 19