LABOUR L A W

Anand Prakash

T h e r e has bean little legislative activity in respect of labour

during the year 1966. This survey will, therefore, be mainly concerned
with judicial decisions in the field of labour law during the year under
review.

I. CONSTITUTIONAL V A L I D I T Y OF THE
PAYMENT OF BONUS A C T , 1965

By far the most important judicial pronouncement in the field of

labour law during the year 1966 was the decision of the Supreme
Court in Jalan Trading Co. v. Mill Mazdoor Union.1 Apart from its
importance in the field of labour law, this decision also throws interest-
ing light on the nature of the judicial process and how judicial
pronouncements shape social legislation. It has also an interest for
students of constitutional law the importance of which cannot be
exaggerated.
For understanding the majority as well as the minority opinion in
the case, it will be necessary to give a brief background of the law
relating to bonus before the Payment of Bonus Act, 1965, came to be
enacted.
T h e question of bonus has been a frequent cause of industrial
disputes ever since the end of the First World War. In the case of
Mill Owners' Association v. Rashtriya Mill Mazdoor SangH2 a full bench
of the Labour Appellate Tribunal held that it was no longer an ex gratia
payment and laid down a formula konwn as Full Bench Formula) by
which the workmen could share in the profits of the company. T h e
Supreme Court in Associated Cement Companies case 3 approved this
formula elaborated and clarified some of its basic features. Broadly
speaking, the formula, provided that the following prior charges
should be deducted from the gross profits of an enterprise: (i) Return
on paid u p capital generally at the rate of six per cent.; (ii) return
on working capital varying from two to four p e r c e n t . ; (iii) depreciation
worked out on a notional basis; (iv) rehabilitation; and (v) income tax.
If after the deduction of these prior charges, a surplus was left over,
the workmen would be entitled to a share in the said surplus on an
equitable basis. In the absence of any surplus, however, there would
*M.A., LL.B., B.Sc (Econ.), Ph. D. (London), Bar-at-law, Advocate, Supreme
Court of India, New Delhi.
1. 1966 L.L.J. 546.
2. 1952 L.A.C. 433.
3. (1959) I L.LJ. 644.
 LABOUR LAW 317

be no question of payment of bonus on general notions of social

justice.
Labour unions, however, did not feel satisfied with the formula.
Their particular grievance was against the rehabilitation charge which,
according to them, generally wiped out what was left of the available
surplus. Some employers were also not quite happy with the formula
as it did not provide an easy method for computation of bonus and
often led to disputes year after year. T h e Supreme Court itself,
while it was not willing to disturb the formula which h a d been in
existence for a long time, had suggested in some of its judgments that
the legislature could, if it so liked, regulate bonus by statute on an
equitable principle according to its own notion of social justice.
Eventually, the government of India by a resolution dated December 6,
1951 appointed a commission to study the question of bonus to
workmen in industrial undertakings and to make suitable recommenda-
tions. T h e Bonus Commission issued a comprehensive questionnaire
and after hearing the representatives of industry, trade unions and
other persons interested in the subject made its recommendations on
J a n u a r y 18, 1964. T h e Commission did not accept the proposal for
the abolition of bonus altogether as had been urged by some employers
and employers' organizations T h e Commission was, however, anxious
to devise a formula "which is not complicated, which is easy to
understand and broadly just and fair to all concerned." 4 It accepted
the proposition made by employers that bonus should be subject to a
reasonable maximum. As a corollary to this, it also accepted labour's
demand for a minimum bonus adding that
If a reasonable minimum and maximum are fixed, linked with a system of set-
off of deficiencies and seton of excesses in the succeeding years, it would be a
satisfactory arrangement both from the point of view of employers and
labour... 6
It then went on to recommend an elaborate formula for arriving
at the available surplus. As under the Full Bench Formula, 6 the
Bonus Commission formula starts with the figure of gross profits, which,
broadly speaking, is arrived at by deducting the total expenditure
during the year from the total income. O u t of the balance, prior
charges are then deducted. T h e first prior charge allowed is the
normal depreciation admissible under the Income T a x Act (including
multi-shift depreciation). Taxation is the second prior charge, but
excluding super-profits tax which should be borne by the employer.
In addition to the above prior charges, the Commission recommended
seven per cent, return on paid-up capital and four per cent, return on
reserves used as working capital. T h e main departure from the

4. Govt, of India, Ministry of Labour & Employment, Report of Bonus Commission

22 (1964).
5. Id. at 36.
6. See supra at 316.
318 ANNUAL SURVEY OF INDIAN LAW 1966

previous Full Bench Formula was that rehabilitation was no longer to

be allowed as a prior charge. The Commission also rejected claims
by industry that development rebate should be allowed as a prior
charge, although in fairness it also recommended that any tax
concession on account of development rebate should not be taken into
consideration when calculating the income tax liability. Out of the
balance thus left, the Commission recommended that sixty per cent,
should be paid to workmen as bonus, the balance together with savings
in tax on account of such bonus, is left to industry for its various needs
including rehabilitation. It was in this way that the Bonus Commission
sought to balance the competing claims of employers and employees.
It further provided that the bonus to each employee should be payable
as a proportion of his salary or wage inclusive of dearness allowance
and not merely on his basic wage as previously. Further, all employees
drawing upto Rs. 1,600 as their salary would be entitled to bonus
although the maximum salary on which they would earn bonus would
be Rs. 750.
The Bonus Commission recommendations had a mixed reception.
While the workmen and their organizations generally welcomed the
recommendations, the employers in general were opposed to them, their
representative on the Commission, Mr. Dandekar, having appended a
note of dissent. Their main grievance was against the elimination of
rehabilitation as a perior charge which, they urged, was vital to
industry's development and to provision for minimum bonus which
according to them would bear heavily on losing enterprisses.
The Bonus Commission's recommendations were considered by
the government of India which by a resolution dated September 2,
1964 decided to accept them subject to certain modifications. The
main modifications were that:
1. all direct taxes for the time being in force and also
developmnet rebate should be deducted as pride charges
for calculation of available surplus : and
2. that the return on paid up capital should be raised from
six per cent to 8.5 per cent, and on reserves from four
per cent, to six per cent.
With regard to the Commission's proposal that its recommendations
should apply from 1962 onwards, the government decision was that
they should so apply from that year except where settlement had
already been reached or decisions pronounced for those years.
It will be seen that the modifications made by the government
were all in favour of the employers. The result was fresh agitation by
the workmen and their organizations for either the adoption of the
recommendations of the Bonus Commission in their entirety or alter*
natively for corresponding modifications in favour of the workmen.
 LABOUR LAW 319

The government's effort to placate trade unions' opinion found expres-

sion in section 34 of the Payment of Bonus Act, 1965,7
With this background, it will be possible to appreciate both the
majority and the minority judgments in the momentus case of Jalan
Trading Company mentioned above.
The attack of the employers was directed against the Act as a
whole but mainly centred on the provisions in the Act with regard to
minimum bonus and sections 33, 34, 36 and 37 of the Act. Let us
deal first with the challenge to section 10 of the Payment of Bonus
Act, 1965, which relates to minimum bonus. Under the previous
law, no'tribunal could award bonus to workmen if there had been a
trading loss in the year in dispute.8 The Act, however, provided that
even if there is trading loss in the year in dispute, the employer must
pay bonus at the rate of four per cent, of the salary of wage earned
by the employee or rupees forty whichever is higher. This, it was urged
by the employers, was constitutionally invalid as it clubbed together
establishments making profits with establishments making losses and
amounted to an indirect addition in the wages of the employee, even
though there was no capacity to pay such wages. Both the majority
and the minority judgments rejected this argument. The Court took
note of the history of bonus payment and of the central object of the
Act which is to make an equitable distribution of the surplus profits of
the establishment with a view to maintain peace and harmony between
the agencies which contribute to the earning of the profits. Mr. Justice
Shah, who wrote the majority judgment, summed up the view of the
Court in the following words :
Whether the scheme for payment of minimum bonus is the best in the circum-
stances, or a more equitable method could have been devised so as to avoid in
7. Payment of Bonus Act, 1965 34 :
Save as otherwise provided in this section, the provisions of this Act shall have
effect notwithstanding anything inconsistent therewith contained in other law
for the time being in force or in the terms of any award, agreement, settlement
or contract of service made before the 29th May, 1965.
If in respect of any accounting year the total bonus payable to all the employees
in any establishment under this Act is less than the total bonus paid or payable
to all the employees'in that establishment in respect of the base year under any
award, agreement, settlement or contract of service, then, the employees in the
establishment shall be paid bonus in respect of that accounting year as if the
allocable surplus for that accounting year were an amount which bears the
same ratio to the gross profits of the said accounting year as the total bonus
paid or payable in respect of the base year bears to the gross profits of the base
year :
Provided that nothing contained in this sub-section shall entitle any employee
to be paid bonus exceeding twenty per cent, of the salary or wage earned by
him during the accounting year ;
Provided further that if in any accounting year the allocable surplus computed
as aforesaid exceeds the amount of maximum bonus payable to the employees
in the establishment under the first proviso, then, the provisions of section 15
shall, so far as may be, apply to such excess.
8. Muir Mills Company Ltd. v. Its Workmen, (1955) 2 L.LJ. 29.
320 ANNUAL SURVEY OF INDIAN LAW 1966

certain cases undue hardship is irrelevant to the enquiry in hand. If the

classification is not patently arbitrary, the Court will not rule it discriminatory-
merely because it involves hardship or inequality of burden. With a view to
secure a particular object a scheme may be selected by the legislature the
wisdom whereof may be open to debate; it may even be demonstrated that the
scheme is not the best in the circumstances and the choice of the legislature
may be shown to be erroneous but unless the enactment fails to satisfy the
dual test of intelligible classification and rationality of the relation with the
object of the law, it will not be subject to judicial interference under
Art. 14. Invalidity of legislation is not established by merely finding faults
with the scheme adopted by the legislature to achieve the purpose it has in
view. Equal treatment of unequal objects, transactions or persons is not liable
to be struck down as discriminatory unless there is simultaneously absence of
rational relation to the object intended to be achieved by the law. Plea of
invalidity of S. 10 on the ground that it infringes Art. 14 of the Constitution
must, therefore, fails.9
The matter was put rather forcefully by Mr. Justice Hidaya-
tullah (as he then was) in the minority judgment in the following
words :
It has been said before that every uniform legislation can be made to appear
ridiculous by citing a few extreme examples and comparing them and this
statement will bear repetition in the context of discrimination said to arise
from S. 10. Even under the Minimum Wages Act, a prosperous establish-
ment could be shown to be placed on the same footing as another establish-
ment not so prosperous, but this Court did not strike down the Minimum
Wages Act on that ground. In our judgment, the provision for payment of
fifteen days' wages to workmen as bonus irrespective of profits is a measure
well-designed to keep industrial peace and to make way for the need-based
wage which the Tripartite conference emphasized. Some unequal treatment
can always be made to appear when laws apply uniformly. Two establish-
ments cannot be so alike as the hypothetical examples taken before us suggest-
ed. Difference must exist but that does not prevent the making of uniform
laws for them provided the law made has a rational relation to the object
sought to be achieved and the inequality is trivial and hypothetical. Classifi-
cation can only be insisted upon when it is possible to classify and a power to
classify need not always be exercised when classification is not reasonably
possible. In our judgment, S. 10 does not lead to such inequality as may be
called discrimination. 10
Having rejected the attack on the provisions with regard to mini-
mum bonus, the Court then went on to examine certain other provi-
sions in the Act, Section 32 of the Act exempts certain classes of
employees in establishments mainly in the public sector from the opera-
tion of the Act. The Bonus Commission had recommended a com-
plicate formula for deciding this question suggesting that
if not less than 20% of the gross aggregate sales turnover of a public sector
undertaking consists of sales of services and/or profits which compete with the
products and/or services produced and sold by units in the private sector, then
such undertakings should be deemed to be competitive and the formula should
apply to such units. 11
9. Supra note 1 at 562-63.
10. Id. at 577.
11. Govt, of India, Ministry of Labour & Employment, Report of Bonus Commission
89 (1964).
 LABOUR LAW 321

Dr. Ganguli, a member of the Commission, felt impelled to write

a note disagreeing with this recommendation. The Payment of Bonus
Act, 1965, instead of leaving it to be decided on facts and circum-
stances of each case, whether an establishment in the public sector was
competitive or not, makes out a list of certain enterprises which would
not be covered by the provisions of the Act. This provision was
attacked by the employers as discriminatory and violative of article 14
of the* Constitution. However, the necessary particulars having not
been submitted to show this Qand also because neither the employees
nor the employers concerned in such excluded enterprises had been
impleaded by those who had sought intervention, the Court did not ex-
press an opinion on this part of their pleas. On the constitutional
validity of sections 33, 34(2) and 37 of the Act, the opinion of the
Court was, however, divided. These will now be dealt with.
Tt will be convenient to deal with sections 33 and 84(2) together.
Ai will be seen from the above description, the Bonus Commission was
set up on the December 6, 1961. Probably for this reason it
recommended that its recommendations should apply from the year
1962. The Commission, however, took more than two years to com-
plete its report. In the meantime, a number of disputes with regard
to bonus had already been settled mutually or referred for adjudica-
tion. In some cases, the awards of the adjudicator had already been
announced and these awards had become final. The government of
India's resolution of September 2, 1964, therefore, modified the
recommendations saying that
they should apply to all bonus matters, other than those in which settlements
have been reached or decisions have been given already, relating to the
accounting year ending on any day in the calender year 1962 in respect of
which dispute is pending. 12

The Bonus Ordinance modified this further by enacting that its provi-
sions shall apply to any dispute in respect of accounting year commenc-
ing on any day in the year 1964 and in respect of any subsequent
accounting year. However, under section 33 of the Act, an exception
was made in respect of establishments in which a dispute was pending
before the appropriate government or before any tribunal or other
authority constituted under the Industrial Disputes Act, 1947, or
corresponding law relating to investigation or settlement of industrial
disputes in a state. In such cases, the provisions of the Ordinance
were made applicable in respect of accounting years ending on any
day in the year 1962 and all subsequent accounting years. The Pay-
ment of Bonus Act, 1965, substantially adopted the provisions of the
Ordinance except that the material date for application of the provi-
sions of the Act was changed from September 2, 1964 to May 29,
1965. To appreciate both the majority and the minority opinions
12. The Gazette of India Extraordinary, pt. 1, sec. 1, dt. Sept. 2, 1964, at p. 1290.
322 ANNUAL SURVEY OF INDIAN LAW 1966

with regard to the constitutional validity of section 33; it will be worth-

while to quote section 33 :
Where, immediately before the 29th May, 1965, any industrial dispute regard-
ing payment of bonus relating to any accounting year, not being an accounting
year earlier than the accounting year ending on any day in the year 1962, was
pending before any Tribunal or other authority under the Industrial Disputes
Act, 1947 (14 of 1947), or under any corresponding law relating to investiga-
tion and settlement of industrial disputes in a State, then, the bonus shall be
payable in accordance with the provisions of this Act in relation to the
accounting year to which the dispute relates and any subsequent accounting
year, notwithstanding that in respect of that subsequent accounting year no
such dispute was pending. 18

M r . Justice Shah, while pronouncing the majority view, observed

that application of the Act in the year for which the bonus dispute is
pending creates an onerous liability on the employer concerned
because :
(i) employees who could not claim bonus under the Industrial Dispute Act
become entitled thereto merely because there was a dispute pending between
the workmen in that establishment, or some of them and the employer qua
bonus;
(ii) workmen who had under agreements, settlements, contracts or awards
become entitled to bonus at certain rates cease to be bound by such agree-
ments, settlements, contracts or even awards and become entitled to claim
bonus at the rate computed under the scheme of the Act;
(iii) basis of the computation of gross profits, available surplus and bonus is
completely changed;
(iv) the scheme of "set-on" and "set-off" prescribed by S. 15 of the Act becomes
operative and applies to establishments as from the year in respect of which
the bonus dispute is pending ; and
(v) the scheme of the Act operates not only in respect of the year for which the
bonus dispute was pending, but also in respect of subsequent years for which
there is no bonus dispute pending. 1 *

In view of this onerous liability, his Lordship examined whether the

Act had any rational relation with the object sought to be achieved
by it, viz-, of ensuring peaceful relations between capital and labour by
making a n equitable distribution of the surplus profits of the year. No
such rational relation was found by his Lordship, and, therefore, the
said section was struck down as unconstitutional. Arbitrariness of the
classification, M r . Justice Shah observed, becomes more pronounced
when it is remembered that in respect of the year subsequent to the
year for which the dispute is pending, liability prescribed under the
Act is attracted, even if for such subsequent years no dispute is
pending, whereas to an establishment in respect of which no dispute
is pending immediately before M a y 29, 1965, no such liability is
attracted. Such arbitrariness is also seen from the fact that if a dispute
relating to bonus is pending immediately before M a y 28, 1965 in
respect of the years specified under section 33, before the appropriate

13. Explanation omitted.

14. Supra note 1 at 565.
 LABOUR LAW 323

government or any authority under the Industrial Disputes Act or

under any corresponding law, the provisions of the Act will be attrac-
ted ; if the dispute is pending before the Supreme Court in a petition
under article 226, the provisions of the Act will not apply. For this
distinction, his Lordship could not find any logical basis. The imposi-
tion of the onerous liability depending solely on the fortuitous
circumstance whether a dispute relating to bonus is pending between
workmen or some of them immediately before May 12, 1965 was,
therefore, held by the majority judgment as plainly arbitrary and the
classification, made on that basis not reasonable. It was accordingly
struck down as contrary to article 14 of the Constitution.
Mr. Justice Hidayatullah, however (as he then was), writing on
behalf of himself and Mr. Justice Ramaswami took the contrary view.
His Lordship's view in this connection was summed up in the following
worcjs:
The dispute of which the Act took note was a dispute pending before Govern-
ment or before a tribunal, or authority under the industrial law. No note
was taken of cases pending before the High Courts and the Supieme Court,
because the jurisdiction of the High Courts and the Supreme Court is either
supervisory or appellate and the intention was to cover cases in which no
decisions of the authorities appointed under the law relating to industrial
dispute were yet made. Disputes prior to 1962 were not taken note of because
a date line had to be fixed and 1962 was the rational date to fix because the
Bonus Commission began its deliberations in that year. Selcctk n of this date
is said to be arbitrary. In several statutes, a date is generally selected to
demarcate pending cases and the selection of the date has never been chal-
lenged successfully if there is some rational ground for its selection. If the
resolution of the dispute by the instrumentality of the Act was contemplated,
the Act had also to say which dispute would be so resolved and the only
rational date to select was the date on which the Ordinance was promulgated.
Thus the pendency of disputes with reference to the Ordinance and reopening
of accoxmting years upto the year in which the Bonus Commission began its
deliberation was logical and not arbitrary. The provision with regard to the
reopening of the intervening accounting years for refixation of bonus was also
logical. If the dispute regarding 1962 or a later year was decided by the applica-
tion of the Act, it was imperative to reconsider the subsequent years even though
there was no dispute in those years. The process of the Act is an integrated one
and by the principle of set-on and set-off four accounting years are involved to
avoid extraordinary results. It is said that two establishments equally
situated are likely to be differently treated depending on the fortuitous
circumstance of the existence of a dispute but is not this assumption an
imaginary one? The fact that in one there is a dispute and in the other there
is not, clearly distinguishes the two establishments. We have explained in
connexion with S. 10 why we do not consider such comparison of any value
and the same reasoning applies here. The distinguishing feature of the
pendency of the dispute on the date of the promulgation of the Ordinance
clearly demarcates a distinct class of cases and the classification made by the
Act is a rational one. No doubt the liability for bonus under the Act may be
more in some cases but is likely to be less in others. The Act does not make
any difference in treatment within the class it deals with. All establishments
in which disputes were pending are treated alike. They are brought under
324 ANNUAL SURVEY OF INDIAN LAW 1966

the Act in the same manner without any discrimination. If they represent a
class, the whole of the class is treated in the same way. Section 33 by pro-
viding uniformly for all pending cases, without any discrimination between
them, has established a rational classification. Section 33, therefore, cannot
be said to be invalid by reason of any inequality.15
We may now reproduce sub-section (2) of section 34 of the
Payment of Bonus Act, which again was held by the majority to be
ultra vires the Constitution. The section reads :
If in respect of any accounting year the total bonus payable to all the
employees in any establishment under this Act is less than the total bonus
paid or payable to all the employees in that establishment in respect of the
base year, under any award, agreement, settlement or contract of service,
then the employees in the establishment shall be paid bonus in respect of that
accounting year as if the allocable surplus for that accounting year were an
amount which bears the same ratio to the gross profits of the said accounting
year as the total bonus paid or payable in respect of the base year bears to the
gross profits of the base year:
Provided that nothing contained in this sub-section shall entitle any
employee to be paid bonus exceeding twenty per cent, of the salary or wage
earned by him during the account year :
Provided further that if in any accounting year the allocable surplus
computed as aforesaid exceeds the amount of maximum bonus payable to the
employees in the establishment under the first proviso, then, the provisions
of Section 15 shall, so far as may be, apply to such excess.
Section 34(2) quoted above contemplates a somewhat complicated
enquiry into the determination of the bonus payable. Gross profits of
the base year having been determined in the manner prescribed by the
Act and reduced by the direct taxes payable by the employers in
respect of that year, the ratio between the gross profits and bonus
payable in respect of the base year is to be applied to all subsequent
years covered under the Payment of Bonus Act to determine the
allocable surplus. Apart from the complexities of the calculations
involved, it was forcefully pointed out to the Court that in certain cases
the ratio may be unduly large or even infinite. The Court noted the
fact that in order to buy peace and in the expectation that in future the
working of the establishments would be more profitable, employers had
in certain cases paid bonus out of reserves, even though there was
insufficient gross profit or no gross profit. In such cases the establish-
ments under section 34(2) of the Act are saddled with liability to
allocate large sums of money wholly disproportionate to or without any
surplus profit, and even to the amount which would be payable if the
scheme of the Act applied. The Court went on to note that payment
of bonus by agreement was generally determined not by legalistic
considerations but by other considerations also and not infrequently
generous allowances were made by employers as bonus to workmen to
buy peace. This was specially true where industrywise settlements
were made in certain regions and weak units were compelled to fall in
15. Supra note 1 at 581.
 LABOUR LAW 325

line with prosperous units in the same industry and had to pay bonus
even though on the result of the working of the units no liability to pay
bonus on the application of the Full Bench Formula could arise. The
vice of the sub-section lies in this that, if in the base year such payment
was made, then for the duration of the Act, the ratio becomes frozen
and the total bonus payable to the employees in the establishment
under the Act can never be less than the bonus worked out on the
application of the ratio prescribed by section 34(2). This, Mr. Justice
Shah observed, had no rational basis whatsoever as it does not consider
the special circumstances which operated on the payment of bonus in
the base year which may vary from establishment to establishment.
The learned Judge went on to observe t h a t :
If the concept of bonus as allocation of an equitable share of surplus profits
of an establishment to the workmen who have contributed to the earning has
reality, any condition that the ratio on which the share of one party com-
puted on the basis of the working of an earlier year, without taking into
consideration the special circumstances which had a bearing on the earning
of the profits and the payment of bonus in that year, shall not be touched, is
in our judgment arbitrary and unreasonable. The vice of the provision lies
in the imposition of an arbitrary ratio governing distribution of surplus profits.
In our view, S. 34(2) is invalid on the ground that it infringes Art. 14 of
the Constitution. It is in the circumstances unnecessary to consider whether
the provisions of Ss. 33 and 34(2) are invalid as infringing the fundamental
rights conferred by Arts. 19(l)(g) and 31(1). 16

Mr. Justice Hidayatullah, however, in his minority judgment,

justified the provisions under section 34(2) on the ground that in many
establishments the payment of bonus in the past was the result of
collective bargaining and any legislation to be successful had to preserve
these rights to the workmen. Mr. Justice Hidayatullah cited examples
from the Payment of Bonus Act to show that in certain other matters,
the employers stood to gain under the Payment of Bonus Act. The
Payment of Bonus Act has tried to reconcil conflicting claims and
interests of the employers and employees and, therefore, any provision
as made under the Act would not be unreasonable and against funda-
mental rights.
Another provision which has been set aside as unconstitutional by
the majority judgment is section 37 of the Act which gives power to
the central government to make orders, ^not inconsistent with the
purposes of the Act, as may be necessary or expedient for the removal
of any difficulty or doubt, in giving effect to the provisions of the Act;
and this order is made final under that section. The provision was
held as amounting to an undue delegation of legislative power and,
therefore, set aside by the Supreme Court in its majority judgment.
On this matter also, Mr. Justice Hidayatullah on behalf of himself and
Mr. Justice Ramaswami recorded a minority judgment* According to
Mr, Justice Hidayatullah, the order makes smooth the working of the
16. Supra note 1 at 569.
326 ANNUAL SURVEY OF INDIAN LAW 1966

Act particularly in its initial stages. This power is given to the central
government so that litigation may not ensue as the purpose of the Act
is to avoid litigation. As such, the delegation of powers was considered
valid by his Lordship.
T o sum u p : in accordance with the majority judgment,
sections 33(2) and 37 have been struck down as unconstitutional by
the Court. About one fact, however, all the Judges were unanimous
and t h a t is t h a i striking out certain sections in the Act as had been
done by the majority would not affect its essential provisions. The
attack on the constitutional validity of the Act, as a whole, was,
therefore, not accepted. T h e Payment of Bonus Act, therefore, is the
law as far as regulation of bonus disputes is concerned except that
sections 33, 34(2) and 37 have been struck down as unconstitutional.
T h e Court has not pronounced any final verdict on the constitutional
validity of section 32 exempting certain establishments from the
operation of the Act. Moreover, due to the suspension of certain
fundamental rights during the emergency, the validity of the Act in
terms of article 19 of the Constitution has not been examined by the
Supreme Court. Nov/ that the emergency is over, it may be expected
thai some employers would test the validity of the Act in terms of this
article also.

T h e majority and the minority judgments reflect a somewhat

different approach of the judiciary as to extent to which the legis-
lature should be allowed the discretion to deal with specific situations
and make distinctions between one group of cases and another on
grounds of policy. With regard to the provisions of section 33 of the
Payment of Bonus Act, it would appear that the matter has been
unduly complicated due to the delay in dealing with this matter at
various stages. It m a y be that initially the intention was to regulate
bonus from 1962 onwards in accordance with the new formula; and, in
t h a t sense, the anxiety to stick to that date, as far as possible, for
dealing with such matters, is quite understandable. However, as time
passed on, complications arose because the pending disputes from 1962
onwards could not be put in cold storage and had to be decided by
industrial adjudication or settled mutually between the management
and the workmen. Being confronted with this difficulty, the executive
and the legislature have tried to improvise, and in doing so, inevitably,
a certain amount of arbitrariness in dealing with different class of cases
has crept in. T h e majority view reflects the anxiety of the Court to
check such arbitrariness; while the minority opinion shows the willing-
ness to recognize the difficulties of the policy makers, the executive and
the legislature, and to avoid judicial interference except in extreme
cases O n e c m n o t help feeling that much of this difficulty, and the
division in the Court on this a c c o u n t could have been avoided if a
simpler method had been adopted for dealing with this matter, rather
 LABOUR LAW 327

than the very round-about and complicated formula provided under

section 33 of the Act, which has led to many anamolous results, as
pointed out by the majority judgment.
T h e same ineptitude in legislative drafting is evident in the pro-
visions of section 34(2) of the Payment of Bonus Act. T h e r e appears
to be a great deal of force in the observations of M r . Justice Hidaya-
tullah that in order to maintain industrial peace and harmony, and
to avoid a sense of inujstice among the workmen, some formula
had to be found by which the existing rights of the workmen
could be safeguarded. If the legislature had devised a simple and
straightforward formula to safeguard such existing rights, perhaps, the
majority would have found no difficulty in agreeing with the approach
of M r . Justice Hidayatullah. However, the provisions of section 34(2)
show that the matter was sought to be dealt with rather clumsily by
bringing the concept of base year and freezing the bonus in terms of
t h a t base year for all future times. It has been recognized by the
Supreme Court itself in several cases, particularly in Isphani Ltd.9
Calcutta v. Isphani Employees' Union17 and B. JV. E. & Co. Employees
Union v. B. JV. E. & Co., 18 that granting of a certain amenity or making
exgratia payment for only a year or two does not mean that it
becomes a condition of service of the employees. T h e r e has to be a
certain amount of countinuity and uniformity with regard to such
practice before it could fructify into a condition of service of the
employees. If the legislature h a d devised an equitable basis and laid
down a rule in this connection, which could have intelligible relation to
the objective of safeguarding existing conditions of service, a unanimous
judgment upholding such a provision might have been passed. As it
happens, legislative and executive ineptitude h a v e created an impasse
which has not yet been resolved. T h e employers seem to be largely
satisfied with the provisions of the Act inasmuch as the recommenda-
tions of the Bonus Commission appear to have been modified sufficiently
by the government to give them relief. T h e employees, however, feel
dissatisfied because the countervailing advantage t h a t they h a d
sought to get for themselves through the provisions m a d e under sec-
tion 34(2) of the Payment of Bonus Act has been struck down as
unconstitutional. T h a t is why they have been pressing the government
to bring forward legislation safeguarding their previous existing rights
by laying down new formula which would be accepted by the courts.

II. WAGE STRUCTURE

T h e problem of wage structure has oten featured as a m a t t e r of

dispute before adjudication authorities in India. I n the case of Express
Newspapers v. Union of India & Others19 the Supreme Court examined

17. A.I.R. 1959 S.C. 1147.

18. A.I.R. 1960 S.C. 886.
19. (1961) 1 L.LJ. 339.
328 ANNUAL SURVEY OF INDIAN LAW 1966

how wage structure is determined in other countries and laid down

what principles should be applicable in this regard. The Court gave
paramount importance to the capacity of the industry to pay in the
absence of which there would not be a justification for increase in the
wage structure. One exception was, however, recognized, and that is,
in the case of bare subsistence wage which has to be paid by the
employer irrespective of the capacity to pay. The later principle
received added emphasis in the case of Crown Aluminium Works v.
Their Workmen,20 where the Court laid down the law that in industry
which cannot pay even the minimum wages has no right to exist. In
the case of the Hindustan Times v. Their Workmen*1 the Supreme Court
recognized the difficulty of framing a wage structure and emphasized
that in doing so both the needs of the employees and the claims of the
industry and its paying capacity should receive due consideration. On
the one hand, the wage structure should try to meet the needs of the
employees and fill up the gap between the actual and the living wage;
bn the other hand, industrial adjudication must consider carefully the
capacity of the industry to pay before asking the employer to pay
higher wages where they are not less than the minimum wage.
By the time the question of wage structure again came to be
raised before the Supreme Court in the case of Ahmedabad Millownersy
Association v. Textile Labour Association^ the main principles with regard
to regulation of wage structure had thus been already settled. It was,
therefore, not a question of laying down any new principles, but of
applying the principles which were already well established. Even so,
the case of Ahmedabad Millowners' Association and other cases decided
by the Supreme Court with regard to wage structure are instructive as
reflecting how the judiciary is moulding social and economic structure
in the country. In the case under review, the Ahmedabad Millowners*
Association had made a broad attack against the consumers' price index
numbers as published by the government of India to support their
grievance that the wage structure as determined by the Tribunal was
not scientifically based. The Court discussed the principles relating to
compilation of consumers5 price index at length and did not find any
basic error in the compilation. It reemphasized the task of construct-
ing a wage structure for industrial employees is a very responsible task
and presents several difficult and delicate problems. The claim of the
employees for a fair and higher wage cannot be ignored as it is related
to the basic concept of social justice. There can be little doubt, the
Court observed, that if the employees are paid a better wage which
would enable them to live in fair comfort and discharge their obligations
to the members of their families in a reasonable way, they would be
encouraged to work wholeheartedly and their work would show
20. (1958) 1 L.LJ. 1.
21. (1963) 1 L.L.J. 108.
22. (1966) 1 L.LJ. 1.
 LABOUR LAW 329

appreciable increase in efficiency. On the other hand, the Court also

recognized that in trying to give effect to the above principle, industrial
adjudication cannot ignore the problem of the additional burden which
such wage structure would impose upon the employer. The problem
has to be tackled in the broad perspective of the capacity of the
industry to pay having regard to its performance in the past and its
prospects in the future. Inevitably, of course, the wage structure
itself being a matter for determination not at short intervals, but over a
period of time, short range difficulties and temporary prosperity cannot
be allowed to assume too much importance. But, subject to this the
tribunal ought to consider all the relevant factors weighing carefully
the claim of labour and the capacity of the industry to bear the
additional burden. The Court, however, cautioned against an approach
which would give too much importance to the investors' point of view.
No doubt, the Court observed, the position must be examined in detail,
but the decision should be based on a broad view which emerges from
a consideration of all the relevant factors. In the case under considera-
tion, the Court rejected the appeal of the employer because it was not
satisfied that the industry cannot bear the additional burden; the
prospects of the industry were also bright.
Before parting with this case, however, it would be worth-noticing
some observations in this case which are of wider interest. The
previous decisions of the Supreme Court appear to have put exclusive
emphasis on the conflicting claims of employers and workmen. The
tendency has been to examine the evidence of both sides and to see if a
case for revision of the wage structure is made out This approach,
though quite natural for a court to adopt, may not be completely
satisfactory in dealing with problems like those of wage structure.
Industrial adjudication in other countries, while giving due importance
to the conflicting claims of labour and capital, has not ignored the
interest of the consumers and the paramount considerations of the
national economy. It is, therefore, refreshing to note that in this
decision the Supreme Court also recognized that in deciding disputes
about wages it may also be permissible to take into account the extent
of the rise in price structure which may result from the fixing of a
wage structure, and the reasonableness of the additional burden which
may thereby be imposed upon the consumer. It is, however, difficult
to see how this can be done in the present context of industrial adjudi-
cation when the Court has to examine matters on the basis of what is
disclosed on the record. Unless a drastic revision is made in the
approach of industrial adjudication and procedures and practices
hitherto prevailing drastically revised, practical effect could not be
given to these principles which appear to be of over-riding importance.
In this case, the Supreme Court for the first time gave recognition
to the principle that in a suitable case the wage structure may even
330 ANNUAL SURVEY OF INDIAN LAW 1966

h a v e to be revised downwards. If it appears that the employer

cannot really bear the burden of the increase in the wage bill, indus-
trial adjudication, on principle, cannot refuse to examine the employer's
case in this behalf and should not hesitate to give him relief if it is
satisfied that if such relief is not given, the employer may have to
close down his business. It is unlikely, the Court observed, that such
situation would frequently arise; but on principle, if such situation
arises, the claim of the employer for revision of the wage structure
cannot be rejected summarily. These remarks perhaps did not have
immediate relevance when the Court pronounced its decision; but now
t h a t there has beeen a recession, which has affected the paying capacity
of some industries they have assumed importance. How the Court
deals with the problems when it is properly raised before it would be
of interest to a public wider than the students of labour law.
T w o other cases may be noted before we part with the subject of
wage structure. In the case of Filmistan v. Its Workmen,2* the Court
reemphasized that in dealing with a claim for revision in wages, which
is generally complex and complicated, industrial adjudication should
not be content with making general observations only. It must examine
the facts and figures relating to the financial position of the industrial
concern; compare the said position with the financial position of
comparable concerns and enquire what would be the total impact of
t h e additional burden of the revised wage structure. As this had not
been done in the case under review, the Supreme Court set aside the
award of the tribunal. I n the case of Mathura Prasad Srivastava v.
Saugor Electric Supply Co.,2i the tribunal had given a finding in favour
of the employer that any increase in wage scales of the workmen
would almost completely wipe out the profit of the company. It had
compared the wage scales with those of the similar companies in the
region and found no justification for increase in wages. I n the matter
of dearness allowance, it had not awarded the same rates of dearness
allowance, as was paid in the case of the company with which a
comparison had been m a d e . T h e Supreme Court upheld the award
on both these counts, giving thereby overriding importance to the
capacity of the industry to pay.
W e may now try to d r a w some general conclusions from the
above survey regarding wage structure. T h e decisions of the Supreme
Court on wages in the year under review disclose a pragmatic and
practical approach to the problem. T h e Court has tried, within the
limitations under which it has to work, to maintain a balance between
t h e claims of labour and capital. O n e sees an anxiety to recognize
the demands of social justice but at the same time not to impose a
burden which would be too much for the industry to bear.

23. (1966) 1 L.LJ. 744.

24. (1966) 2 L.L.J. 307.
 LABOUR LAW 331

III. SECURITY OF S E R V I C E AND DISCIPLINE

We will now examine some decisions of the Court on matters

relating to discipline and security of service. From the judgments of
the Supreme Court in previous years, it will be seen that the Court's
approach has been that while giving full protection to employer
against indiscipline, it has at the same time been anxious to grant proper
security of tenure to the employees. I n the case of Utkal Machinery
Ltd* v. Santi Patnaik,^ the Court extended such security even to a
probationer. Thus, if a probationer is discharged on the grounds of
unsatisfactoy work it may be treated as a tantamount to punishment on
alleged misconduct and the management would not be justified in dis-
charging the probationer from service without holding a proper
enquiry. Moreover, the Court would protect an employee who has
been discharged mala fide even though he be a probationer. A broad
social perspective which is consonant with modern time is also evident
in the case of Bombay Labour Union v. International Franchises Ltd.2&
T h e question raised in this appeal was propriety of a service rule under
which unmarried women in a particular department (pharmaceutical
concern) in an industrial undertaking had to lesign on their getting
married. Tht 3 tribunal had upheld this rule, but the Supreme Court
reversed this decision. T h e employers' case before the Court was
urged on the basis that the employer was free to impose any condition
in the matter of employment and industrial adjudication ought not to
interfere with this freedom of the employer. T h e Court observed that
it was too late in the day to uphold this absolute freedom of the em-
ployer to impose any condition of employment he likes. It is always
open to industrial adjudication to consider the fairness of these condi-
tions and to vary them if found necessary. This, the Court did in the
case in the interests of social justice and so struck down the rule. A
comparison with similar rules applicable to Indian Administrative
Service personnel was not considered quite germane by the Court
because that rule is not as drastic as the rule under consideration. T h e
Court's approach to the question of security of tenure of the employees
is also seen in the case of Tata Oil Mills Co. v. Their Workmen.21
While recognizing the position that employer may in a proper case
exercise his power to terminate the service of employees in accordance
with the contract of employment or provisions in standing orders, the
Court emphasized that industrial adjudication would in a proper
case be entitled to examine the substance of the matter and decide
whether the termination is in fact discharge simpliciter or it amounts to
a dismissal which has put on the cloak of a discharge simpliciter. If
the Court is satisfied that the order of discharge is punitive, so that it is
mala fide or that it amounts to victimization or unfair labour practice,
25. (1966) 1 L.L.J. 398.
26. (1966) 1 L.LJ. 417.
27. (1966) 2 L.L.J. 602.
332 ANNUAL SURVEY OF INDIAN LAW 1966

it would set aside the order and in a proper case direct reinstatement.
I n the case under consideration, however, the Court found that the
action of the management was bona fide a n d as such it set aside the
order of the tribunal reinstating the workmen. T h e case of Madhu-
band Colliery v. Their Workmen,2^ further shows that an inference of
victimization should not be drawn by a tribunal unless there is reliable
evidence to support such a conclusion.
T h e anxiety to safeguard security of service and to ensure that
the enquiries conducted by the employer are fair is also evident from
the case of Workmen of Lambabari Tea Estate v. L. T. Estate.2** In this
case, the labourers were charged by the management with forcibly and
illegally confining the manager and other managerial staff and shouting
slogans abusing the management. After an enquiry, ten of them were
dismissed from service. T h e enquiry was held by the manager in the
presence of assistant manager and two others. T h e manager recorded
t h e statements, crossexamined the labourers who were the offenders
a n d m a d e and recorded his own statement on facts and questioned the
offending labourers about the truth of his own statement recorded by
himself. In these circumstances, the Supreme Court was constrained
to observe that the enquiry was not proper. Referring to its decisions in
the cases of Workmen v. Dem Dema Tea Estate,* Meenglas Tea Estate v.
Its Workmen*1 and Andhra Scientific Co. Ltd. v. Seshagiri Rao & Another*2
the Court emphasized that the enquiry should always be entrusted to a
person who is not a witness. If such a person cannot be found, some
officer from another estate should be asked to help in the matter. An
enquiry cannot be said held properly when the person holding the
enquiry begins to rely on his own statement. However, in spite of the
above infirmities in the enquiry the tribunal had accepted the result of
the domestic enquiry and also examined some witnesses to satisfy itself
t h a t the charges were well based. In these circumstances the Court
did not intefere with the award of the tribunal. Nothing shows more
clearly than this decision that the Supreme Court's jurisdiction under
article 136 is discretionary and is not exercised in cases where substan-
tial justice has been done regardless of the technicalities of law. One
also sees in this decision the anxiety of the Court not to encourage
indiscipline in any form.

IV. MANAGEMENT'S FUNCTIONS

A. Retrenchment and Lay Off

While the Supreme Court has been anxious to ensure fair condi-
tions of service to the employees and to protect security of tenure,
28. (1966) 1 L.LJ. 738.
29. (1966) 2 L.LJ. 315.
30. (1963) 1 L.LJ. 250.
31. (1963) 2 L.LJ. 392.
32. (1961) 2 L.LJ. 117.
 LABOUR LAW 333

its decisions show that the Court has been conscious of the fact that
it is primarily for the employer to run his industry and it is not for
industrial adjudication to tell him how to do so. Moreover, if some
decisions are taken bona fide in the interests of business, there will be
no interference from the court even if this may mean some hardship to
the employees. This is evident from the case of Cachar Chah Sramik
Union v. Tea Estate of Cachar.** In this case, there was ample evidence
to show that there was a deep recession in the entire tea industry in
the Cachar District of Assam as a result of which a number of work-
men were retrenched or laid off in the tea estate. The bona fide of the
retrenchment and lay off was questioned by the union which came up
to the Supreme Court because the award of the tribunal had gone
against it. The Court examined the provisions of the standing orders
and came to the conclusion that the lay off and the retrenchment was
justified in terms of the standing orders. In these circumstances the
Court did not feel impelled to interfere specially because there was no
victimization or unfair labour practice or mala fides on the part of the
management in closing down the gardens or making the retrenchment.
The same anxiety of the Court in protecting essential interests of the
employers and ensuring smooth and efficient working of industry is also
seen in its attitude regarding the order in which retrenchment should
be carried out. Under section 25G of the Industrial Disputes Act, 1947,
it is provided that where the employer retrenches any workman, he shall
ordinarily retrench the workman who was the last person to be employed
in that category, unless for reasons to be recorded the employer
retrenches any other worker. This section incorporates what has
popularly come to be known as the principle of "last come, first go."
That is to say, that in matters of retrenchment, the junior-most person
will be retrenched first and the senior-most last. However, departure
from this principle is allowed in suitable cases.
In the case of Swadesamitran Ltd. v. Their Workmen,** it was
observed by the Supreme Court that it would normally be for the
employer to decide which of the employees should be retrenched, but
there could be no doubt that the normal industrial rule of retrenchment
is "first come, last go," and where other things are equal, this rule has
to be followed by the employer in effecting retrenchment. In the case
of Om Oil & Oil Seeds Exchange v. Their Workmen,*^ the further question
arose as to whether mere departure from the rule would justify an
inference of mala fides. This question was answered in the negative and
the management's right to depart from the rule in suitable cases was
upheld. Thus even among clerical staff if a degree of specialization is
necessary for discharging clerical duties efficiently, retention of a junior
clerk on the ground that the duty performed by him requires experience
33. (1966)1 L.LJ. 420.
34. (I960) 1 L.LJ. 504.
35. (1966) 2 L.LJ. 324.
334 ANNUAL SURVEY OF INDIAN LAW 1966

and aptitude will not expose the management to a charge of mala fides
or unfair labour practice. Moreover, in case of bona fide retrenchment
there is no scope for grant of compensation more than what is provided
under the Act merely on compassionate grounds.
B. Promotion and Transfer
W e might now consider two other cases decided by the Supreme
Court which would be of interest to show the approach of the Court in
regard to normal management's functions in running an enterprise. In
the case of Brooke Bond {India) Ltd. v. Their Workmen*^ the Court
considered as to what is the extent of the jurisdiction of the tribunal in
interfering with the promotions made by the management. Generally
speaking, the Court laid down, promotion is a management function.
It, however, recognized that there may be occasions when a tribunal may
have to interfere with promotions made by the management if some
persons have been superseded on account of mala fides 01 victimization.
Even in such cases, however, it is not the function of the tribunal to
consider the merits of various employees and then decide whom to
promote or whom not to promote. T h e proper course for it would be
to set aside the promotions and ask the management to consider the
cas*s of superseded employees and decide whom to promote, except, of
course, the persons whose promotion has been set aside by the tribunal.
I n the case under consideration, an agreement between the workmen
and the management provided, inter alia, that all things being equal, the
seniority shall count for promotion, and that if a senior employee is
overlooked for promotion, the management should furnish him the reasons
for his claim being overlooked. T h e management promoted two employees
superseding the claims of other employees and furnished the reasons for
doing so only after a delay of eleven weeks, saying that, in considering
the promotions, it had considered merit, personality and suitability of
all the concerned employees. O u t of seven employees, six were union
members and out of the five members whose claims had been over-
looked one was a union official. T h e r e was no evidence on record that
the relationship between the concerned employees and the management
was constrained on account of their union activities. T h e industrial
tribunal, dealing with the dispute, inferred mala fides on the part of the
management from the fact that the management took eleven weeks to
furnish the reasons and that the reasons furnished were evasive and
vague. It also appears to have held that the six employees were
superseded on the ground that they were more or less active members
of the union a n d because of their trade union activities, though there
was no specific finding to that effect. It directed the management to
promote five out of the six employees with effect from the date on
which the company h a d promoted two employees with all the
consequential benefits. T h e Supreme Court in appeal set aside the

36. (1966) 1 L.L.J. 402.

 LABOUR LAW 335

judgment of the tribunal observing that the grounds relied upon by the
industrial tribunal for coming to the conclusion of mala fides were not
valid and there was hardly any justification to arrive at a finding of
victimization.
In the case of Syndicate Bank Ltd. v. Its Workmen,3,1 an allied
question arose as to the circumstances in which the industrial tribunal
can interfere with an order of trie management transferring an employee
from one station to another. T h e Court upheld the right of the bank
on consideration of necessities of banking business to decide how to
distribute its employees between the different branches and to transfer
employees from one station to another and emphasized t h a t industrial
tribunals should be very careful in interfering with the orders m a d e by
the banks in the discharge of their managerial functions. T h e Court
said that even an order of transfer, if m a d e mala fide or for some ulterior
purpose like punishing an employee for his trade union activities, could
be set aside, because the mala fide exercise of powers is not a legal
exercise of the power. It, however, cautioned that the findings of
mala fides should be reached by the industrial tribunals only when there
is proper and sufficient material in support of such a finding and should
not be reached capriciously or on flimsy grounds as the tribunal h a d
done in this case. T h e appeal of the employer was, therefore, allowed.
Nothing demonstrates better than the above cases that, while
protecting the legitimate interest of the employees the Supreme Court
has been careful that there should not be undue interference with the
industrial enterprise, the prime responsibility for which much rest with
the management. If the Court interferes too often and without
sufficient grounds with the exercise of the discretion of the management
functions, it may be doing h a r m to industry on whose future ultimately
the welfare of labour depends.

C Contract Labour
W e shall now examine another set of cases where the needs of
social justice have been balanced by the Court against the aim of seeing
that there is proper production. T h e question of contract labour has
often featured as a matter of dispute before industrial tribunals. I n the
case of Standard Vacuum Refining Co. v. Their Workmen,*8 the Supreme
Court had upheld the right of the workmen directly employed to raise
a dispute for the abolition of the contract system. T h e Court expressed
the view that industrial adjudication generally does not encourage the
employment of contract labour in modern times. T h e Court, however,
emphasized that the matter should not be decided merely on theoretical
or academic considerations but on the facts and circumstances of each
case having regard to the terms and conditions of employment of
37. (1966) 1 L.L.J, 440.
38. (1960) 2 L.LJ. 233.
336 ANNUAL SURVEY OF INDIAN LAW 1966

contract labour and the grievance made out by the employees. In the
case of Shibu Metal Works v. Their Workmen,*9 the tribunal had found that
contractor's labour were employed on work which was of a permanent
nature and an integral part of the munufacturing process in the factory.
On these facts the Court refused to interfere with the direction in the
award for abolition of the contract system. It was, however, careful
to add that the matter would have been different if the work had been
of an intermittent nature or was so little in extent that it would not be
possible to employ whole-time workmen for the purpose. Morever, the
dispute for abolition of the contract system must be properly raised.
Thus in the case of Indian General Navigation & Ry. Co. v. Their
Workmen,*0 a direction in the award of the industrial tribunal that
retrenchment compensation should be paid by the company to the
contractor's labour was set aside on the ground that there was no
relationship of master and servant between such labour and the
company and the company, therefore, could not be directed to pay
such compensation.
It will thus be seen that even in such matters like the abolition of
contract system, pragmatic considerations have weighed with the
Supreme Court. While protecting the essential interests of workmen
and assuring them fair conditions of service, the paramount interests of
industry have not been ignored and it has been emphasized time and
over again that the matter has to be decided on the facts and
circumstances of each case and that no rigid principles applicable to
all cases should be laid down.
D. Standing Orders Act
Two decisions of the Supreme Court under the Industrial
Employment Standing Orders Act, 1946, as amended by the amendment
Act of 1956 are instructive and may now be reviewed. In the case of
Salem-Erode Elecy. * Distribution Co. v. Their Employees' Union,*1 the
employer had intended to provide holidays and leave facilities to the
employees in accordance with the minimum provided under the
statutory provisions with the rider that those employees who were
already enjoying more facilities than the statutory minimum would not
lose the same. The effect of this would have been that all the old
employees would continue to enjoy the facilities to which they were
already entitled, but new employees would not be entitled to these
facilities but to the minimum provided under the statute. There was
already a provision in the letter of appointment of the new entrants to
this effect. The employer had justified this provision because of the
urgent need for production and for the increased supply of electrical
energy. The certifying officer nevertheless refused to incorporate the
39. (1966) 1 L.LJ. 717.
40. (1966) 1 L.L.J. 735.
41. (1966) 1 L.LJ. 443.
 LABOUR LAW 337

change in the standing orders as desired by the employer. The Supreme

Court dismissed the appeal of the employer against the orders of the
certifying officer on the ground that there is no scope for having two
separate standing orders in respect of the same matter. Such a course,
the Court observed, was bound to lead to dissatisfaction amongst the
employees and would lead to the anamolous result that in course of
time there may come into existence three or four different sets of
standing orders applicable to the employees in the same industrial
establishment. In this connection, the Court distinguished the cases
previously decided by it on the subject particularly the cases of
Association Cement Staff Union v. A.C.C.** and of Guest, Keen, Williams
Ltd. v. Sterling & Others,** in which the Court had made observations
that the employees who were employed previous to the certification of
the standing orders were not bound by the provisions of the same
relating to the retirement age. Another question which arose in this
case was with respect to the respective scope of the Industrial Disputes
Act and the provisions of the Industrial Employment Standing Orders
Act. The Court recognized the position that under the amendment
made in 1956 the certifying officer has been given the jurisdiction to
consider the question of fairness and reasonableness of the standing
orders. It also recognized that the Act provides for a self-contained
code in this connection. It did not, however, answer the question
whether an industrial dispute can be raised under the provisions of the
Industrial Disputes Act for adjudication of the same matters which had
already been dealt with by the certifying authorities under the Standing
Orders Act. This question of the respective scope of the two Acts
was again raised in the case of Rohtak & Hissar Districts Electric Supply
Co. v. State of U.P.** In this case, the employer contended that certain
additions made to the model standing orders were not within the scope
of the Act. It was their contention that the model standing orders
under the Act should be confined to matters which do not fall within
the purview of the Industrial Disputes Act, 1947, or of the U.P.
Industrial Disputes Act, 1947. The Court did not accept the basic
assumption of this argument that there is a conflict between the Indus-
trial Employment Standing Orders Act and the Industrial Disputes
Act, The schemes of the two Acts, the Court observed, is essentially
different in character. The Industrial Employment Standing Orders
Act purports to secure to industrial employees clear and unambiguous
conditions of their employment. The scheme of the Industrial Disputes
Act, on the other hand, is to deal with the problem posed by an
industrial dispute which had actually arisen or is apprehended. Even
after the scope of the Industrial Employment Standing Orders Act has
been made wider by the Amendment in 1957, there cannot be said to
42. (1964) 1 L.LJ. 12.
43. (1959) 2 L.LJ. 405.
44. (1966) 2 L.LJ. 330.
338 ANNUAL SURVEY OF INDIAN LAW 1966

be any conflict between its provisions and that of the Industrial

Disputes Act. Having laid down the above principle, it necessarily
follows that the Industrial Employment Standing Orders Act is limited
in its scope and purpose. T h e Court held t h a t the standing orders
cannot travel outside the items for which provision is made in the
schedule. T h u s , the provisions in the standing orders under this appeal
under which the certifying officer had provided for a scheme of
pension were struck down as beyond the scope. So also the provision
in the standing orders providing for appeals to an outside authority
against the domestic tribunal. T h e Court also placed the responsibility
in this case squarely on the certifying officer to see that the provisions
are fair and reasonable. T h u s , even though the employer may be
able to persuade the employees who are not well organized to agree to
certain provisions in the standing orders, that would not necessarily
oblige the certifying officer to certify them. Consent of the employees
in such a case cannot have decisive significance and will not rob the
certifying officer of his jurisdiction to adjudicate on the matter and
provide what is reasonable and just.
W e shall now examine the case of Sawatram Ramprasad Mills Co,
v. Baliram Ukandaji,*5 regarding interpretation of the provisions of
section 3 3 C ( l ) of the Industrial Disputes Act. U n d e r this provision,
the employee who is entitled to benefits under the provisions of an
a w a r d , settlement or under chapter V(A) of the Industrial Disputes
Act relating to retrenchment and lay off compensation may make an
application to the government for recovery of the amount and the
government on being satisfied that the amount is due, may issue a
certificate to that effect. Thereafter, the amount as certified may be
recovered in the same manner as arrears of land revenue. It had been
laid down by the Supreme Court in the case of the Central Bank of
India v. Rajagopalan,*6 that the recovery under section 3 3 C ( l ) can be
only of an ascertained amount. T h e Court in this case, however,
while relying on the case of Kays Construction Ltd. v. State of Uttar
Pradesh,*7 held that the amount to be realised under this sub-section
need not always be a predetermined sum. Thus the contention that
the claim for lay off compensation in the instant case could not be
called a claim for money due within the meaning of section 3 3 C ( l ) ,
because calculations had to be m a d e before the money due could be
ascertained, was rejected. T h e Court went on to add that even if
there was any question whether there was lay off or not, the labour
court would have to decide that question also. It is submitted that
this decision has raised a very broad question as to the respective scope
of sub-sections 3 3 C ( l ) and 33C(2) of the Industrial Disputes Act. T h e
interpretation given by the Court to the provisions of section 33C(l)

45. (1966) 1 L.LJ. 41.

46. (1963) 2 L.LJ. 89.
47. (1965) 2 L.LJ. 429.
 LABOUR LAW 339

would virtually vest in the government the power to adjudicate on the

question whether there has in fact been lay off or retrenchment, a
power which is generally vested in a judicial or quasi-judicial tribunal.
T h e question inevitably arises whether the government in exercising
functions under section 3 3 C ( l ) is exercising quasi-judicial powers or is
acting in an administrative capacity. Another very important question
which will also arise is : what is the respective scope of proceedings
under sub-sections 3 3 C ( l ) and section 33C(2) of the Industrial Disputes
Act. If the two jurisdictions can be overlapping in certain cases,
another very important question raised would be whether the employee
has an option to claim relief under any of these sub-sections. This is
not merely a theoretical problem but has an important practical
implication also. T h e legislature while amending section 33C of the
Industrial Disputes Act has provided for limitation under section 3 3 C ( l )
of the Industrial Disputes Act, but has not done so under section 33C(2)
of the Industrial Disputes Act. Could it be open to an employee under
these circumstances to make a claim under section 33C(2) when his
claim had already become time barred under section 3 3 C ( l ) ? O r , is it,
that the limitation provided under section 3 3 C ( l ) should also be read
into section 33C(2) of the Industrial Disputes Act ? All these questions
will have to be answered by the Court sooner or later and a harmonious
construction adopted will avoid anamolies and disputes.

E. Provident Fund Act

It now remains to mention two cases decided by the Supreme
Court under the Employees' Provident Fund Act. In the case of
Lakshmi Rattan Engineering Works v. R.P.E. Commr.*8 a running establish-
ment was purchased by the employer from the previous employer. As
provisions of the Act are not applicable to an establishment unless three
years have elapsed from its establishment, it was urged t h a t the parti-
cular industry was not covered by the provisions of the Provident Fund
Scheme. This contention was rejected by the Supreme Court which
held that the date of the establishment must be counted from the initial
date on which the establishment started functioning and the mere
change of ownership would not entitle it to claim exemption. In the
case of the R.P.F. Commr. v. Shibu Metal Works,*9 the exact meaning
of the word "general engineering" was discussed. T h e Court refused
to give too broad a construction to this word to include even those
engineering industries which are known by specialized names. I n the
circumstances of the case, however, the particular industry was held to
be a general engineering industry as it was engaged in the manufacture
of brass utensils.

48. (1966) 1L.LJ. 741.

49. (1965) 1 L.LJ. 473.
340 ANNUAL SURVEY OF INDIAN LAW 1966

V. CONCLUSIONS

We may now seek to draw certain general conclusions from the

above survey. Of necessity, the courts could not be expected to lay
down many new basic propositions of law in the field of industrial juris-
prudence in the year under survey. Through judicial pronouncements
over a period of fifteen years starting from the case of Bharat Bank
Ltd.,50 the Supreme Court has pronounced its judgment on almost every
point of importance in the field of industrial law. The year under
review has mainly reaffirmed these principles while giving them added
emphasis and in certain cases clarifying previous decisions. In a
political system in which the methods of parliamentary democracy are
given as much importance as the objective of social justice and a mixed
economy has of necessity to be adopted, the courts are faced with the
very delicate task of balancing the interests of property and the
demands of social progress and social justice, of the interest of indus-
trial development as well as the importance of meeting the basic need
of the employees for a proper standard of living. All these are delicate
tasks and sometimes the balance has to be carefully and cautiously
brought about. While deciding questions like those of wages and
retirement benefits and others which deal with the conditions of service
of the employees, the Court has been liberal and sympathetic to the
demands of the employees. However, in doing so, it has not lost sight
of the fact that ultimately the welfare of the employees is linked with
the progress of industry and burden should not be put on industry
while it will be too much for it to bear. Where, therefore, the
employer has been able to show that he has no capacity to bear the
additional burden of increased wage structure or other amenities to the
workmen, the Court has not hesitated to reject even the most moderate
demands of the employees. At the same time it has not been hesitant
to grant even liberal wage structure and benefits where the capacity of
the employer to bear the burden has been proved.
The same basic approach of maintaining a proper balance between
the employer and the workmen is seen in its decisions on other indus-
trial matters. Thus in matters of discipline, the Court has almost
always gone with the employer and has not countenanced indiscipline
of any type. At the same time, the employer has not been allowed to
exercise his power of discharge or dismissal of employees capriciously
or for ulterior motives and in suitable cases the court has not hesitated
to grant relief to aggrieved employees. The same considerations have
weighed with the Court in pronouncing other management functions
like promotion and transfer. In these matters, the Court has recog-
nized the necessity of leaving the final discretion in the employer to
decide who is fit for promotion and who is not. This is for the reason
that the employer is in the best position to know who is worthy of
50. (1950) 2 L.LJ. 921.
 LABOUR LAW 341

promotion and how the placement of various employees should be done.

The recognition of the right of the employer to run his business in his
own way is also evident in the cases of retrenchment and lay off.
Retrenchment and lay off may be unfortunate for the workmen, but
where they become necessity in the interests of business, the employer's
right to resort to them has been unhesitatingly recognized by the
Court.
On one thing, however, the Court has been firm and uncompro-
mising, and that is that the statutory obligations must be strictly
construed and rigorously enforced. For interpretation of social legisla-
tion, a liberal construction which will remedy the mischief for which
the legislation has been passed appears to have been adopted. This
fits in with the basic approach of the Court that minimum standards
with regard to conditions of employment, security of service and mini-
mum wages must always be assured to the employees; but to grant
them anything more than the minimum, the financial condition of the
industry and its future interests must receive paramount consideration.
This also appears to be the only approach which is consistent with a
mixed economy in which social progress must keep pace with economic
progress and in which welfare of labour can only accompany develop-
ment of the national economy.