Case Note & Summary
The dispute arose between the respondent company and its workmen, represented by the Bata Mazdoor Union, regarding payment of profit bonus under the Payment of Bonus Act, 1965. The company, a large footwear manufacturer with factories and offices across India, had entered into a series of agreements with the union over time, the last being the agreement dated 30 August 1962 (Ex. A-5). Under this agreement, the company paid bonus for the year 1964 at the agreed rates. The workmen demanded additional profit bonus under the Act beyond what was paid under Ex. A-5. The company declined, claiming that the general bonus paid under the agreement was production bonus or incentive wages and that Section 32(vii)(a) of the Act barred any further claim. During conciliation, the parties agreed to refer the dispute to adjudication, and the State Government referred the following question to the Third Industrial Tribunal, West Bengal on 25 June 1966: whether the employees were entitled to bonus for 1964 under the Payment of Bonus Act, 1965 in addition to the bonus already paid, and whether the Act applied in view of the agreement dated 30 August 1962. Before the Tribunal, the workmen argued that the amount paid under Ex. A-5 was an ad hoc or ex-gratia payment, not linked with production or productivity, not annual, and not paid in lieu of profit bonus. They accepted that the general bonus was neither customary nor profit bonus nor an implied term of contract. The company relied on prior agreements, demands, and minutes of discussions to show that the payments were understood as production bonus or incentive wages. The Tribunal, after considering the materials, held that the general bonus under the 1962 agreement was an annual bonus linked with production/productivity and paid in lieu of profit bonus, even though paid quarterly, and therefore the workmen were not entitled to additional bonus under the Act. On appeal by special leave, the Supreme Court addressed the short question whether Section 32(vii)(a) precluded the workmen from claiming bonus under the Act in view of the agreement Ex. A-5. The appellants contended that the Tribunal erred in referring to previous agreements because the 1962 agreement was self-contained; read alone, the general bonus was not annual, not linked with production/productivity, and not paid in lieu of profit bonus, and quarterly payments could not be annual. They maintained the payment was an ex-gratia supplement to wages. The respondent argued that reference to previous agreements was necessary and obligatory; the continuous demands and discussions showed the payment was production bonus or incentive wage, and the agreements were intended to operate throughout the year and from year to year until terminated by notice, making the payments annual. The Supreme Court examined the provisions of the Act, including Sections 2(21), 8, 10, 11, 17 and 32(vii)(a). It held that although Article VI of Ex. A-5 did not by itself reveal the nature of the general bonus, the prior settlements and discussions showed a pattern: initially called production bonus, later ex-gratia, but from 1951 called general bonus paid quarterly at the workers' request at a percentage of salary excluding dearness allowance. This background established that the payment was linked with production or productivity and was intended as an incentive to production. The Court further held that the payment was an annual bonus because it was made from year to year, continued during the agreement and even after notice until a fresh agreement was entered into. Accordingly, the quarterly-paid general bonus was an annual bonus within the meaning of Section 32(vii)(a) of the Act. The Court followed Smith v. Smith (1923) P.D. 191 and Moss' Empires Ltd. v. Inland Revenue Commissioners [1937] 3 All E.R. 381, and referred to Titaghur Paper Mills Co. v. Its Workmen, New Manek Chowk Spinning and Weaving Co. Ltd. v. Textile Labour Association, and Sanghi Jeevaraj Chewar Chand v. Secretary, Madras Chillies, Grains Kirana Merchants Workers Union. It concluded that the workmen could not claim any additional bonus under the Act for the period during which the agreement was in operation, and Section 32(vii)(a) barred their claim. The appeal was dismissed.
Headnote
A) Payment of Bonus - Exemption provisions - Annual bonus under agreement - Payment of Bonus Act, 1965, Section 32(vii)(a) - The general bonus paid under Article VI of the agreement dated 30-08-1962 (Ex. A-5) was an annual bonus based on profits, linked with production/productivity, and paid in lieu of profit bonus - Held that the workmen were precluded from claiming additional bonus under the Act for the period the agreement was in operation (Paras 464 A-465 G). B) Industrial Adjudication - Interpretation of settlement agreements - Admissibility of prior agreements and negotiations - Payment of Bonus Act, 1965, Section 32(vii)(a) - The Tribunal was justified in referring to previous agreements, demands, and minutes of discussions to determine the character of the general bonus under the 1962 agreement, because Article VI alone did not reveal its true nature - Held that the pattern showed the payment was considered production bonus/incentive wage, not ex-gratia (Paras 464 A-465 G). C) Payment of Bonus - Definition of annual bonus - Quarterly payments as annual bonus - Payment of Bonus Act, 1965, Section 32(vii)(a) - Quarterly payment made at the request of workers, extending throughout the year and continuing year to year until notice, constituted annual bonus - Held that the payment was not ex-gratia but an annual bonus linked with production/productivity, thus barring a further claim (Paras 464 A-465 G).
Issue of Consideration
Whether the appellants were precluded by Section 32(vii)(a) of the Payment of Bonus Act, 1965 from claiming bonus under the Act in view of the agreement Ex. A-5 dated 30-08-1962; whether the general bonus paid under Ex. A-5 was an annual bonus linked with production/productivity and paid in lieu of bonus based on profits despite being paid quarterly
Final Decision
Appeal dismissed; Supreme Court affirmed Industrial Tribunal award. The general bonus paid under Article VI of agreement Ex. A-5 was annual bonus based on profits, linked with production/productivity, and Section 32(vii)(a) barred additional claim for profit bonus for 1964.
Law Points
- annual bonus
- production bonus
- incentive wage
- section 32(vii)(a) bar
- interpretation of general bonus by prior agreements
- quarterly payment can be annual
- continuous year to year
- in lieu of profit bonus
