Rashtriya Mill Mazdoor Sangh vs.

The Model Mills, Nagpur And Anr AIR 1984 SC 1813

Rajiv Gandhi National University of Law

Labour and Industrial Law Project

Rashtriya Mill Mazdoor Sangh vs. The Model Mills, Nagpur

and Anr

Submitted by: Submitted to:

Bitthal Sharma Dr. Shiva Satish Sharda
17126 Ass. Professor of Law

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 Rashtriya Mill Mazdoor Sangh vs. The Model Mills, Nagpur And Anr AIR 1984 SC 1813

Acknowledgement

I would like to express my gratitude towards Dr. Shiva Satish Sharda who assigned
me the project Rashtriya Mill Mazdoor Sangh vs. The Model Mills, Nagpur and
Anr which helped me to do a lot of research on the topic and helped me increase my
understanding of the concepts of the project.

I would also like to thank my parents and friends who helped me complete my project
assisted me in knowing the nuances.

Bitthal Sharma

17126

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 Rashtriya Mill Mazdoor Sangh vs. The Model Mills, Nagpur And Anr AIR 1984 SC 1813

Certificate

This is to certify that Bitthal Sharma bearing roll no.17126 of B.A LLB second year
has completed this project titled Rashtriya Mill Mazdoor Sangh vs. The Model
Mills, Nagpur and Anr under the guidance of Dr. Shiva Satish Sharda. The project is
an original work and information which has been taken from different sources has
been duly acknowledged.

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 Rashtriya Mill Mazdoor Sangh vs. The Model Mills, Nagpur And Anr AIR 1984 SC 1813

Contents

Payment of Bonus Act, 1965 ............................................................................................. 5

How the Act Came Into Existence? ....................................................................................... 5

Objectives of The Act............................................................................................................. 6

Important Provisions ............................................................................................................. 6

Offences and Penalties .......................................................................................................... 6

Industries( Development and Regulation) Act, 1951 ............................................................ 7

Judges/Quorum ............................................................................................................... 7

Facts of The Case ............................................................................................................. 7

Applicability of law .......................................................................................................... 8

Judgement of The Court/ Tribunal .................................................................................... 9

Ratio Decidendi ............................................................................................................. 10

Law Laid Down............................................................................................................... 12

Validity .......................................................................................................................... 13

Bibliography .................................................................................................................. 14

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 Rashtriya Mill Mazdoor Sangh vs. The Model Mills, Nagpur And Anr AIR 1984 SC 1813

Case Law

Rashtriya Mill Mazdoor Sangh Vs. The Model Mills, Nagpur and Anr
AIR 1984 SC 1813

Law Involved-
Payment of Bonus Act, 1965

One of the laws which is pertinent in this case is the Payment of Wages Act, 1965. This
act regulates the payment of bonus to certain persons employed in establishments based
on their profits and productivity.

How the Act Came Into Existence?

The practice of paying bonus in India to the employees seems to have been originated
during the first world war at the time of which textile mills used to grant 10% of wages
as war bonus to the workers. In the year 1950, full bench of the Labour Appellate
Tribunal evolved a formula for the evaluation of the bonus. After that, in 1959 a plea
was made to raise the given formula. Then in 1960, in the second and the third meetings
of the 18th session of Standing Labour Committee, it was agreed by the members that a
commission be appointed to delve in the question of bonus and formulate norms in that
regard.1

A tripartite commission was then set up by the government to consider the question of
bonus based on profits to employees and to make suitable recommendations to the
government. The commission made certain recommendations which were accepted by
the government subjected to certain modifications. In order to implement these
recommendations, the payment of Bonus Act was passed which came into force on
September 9, 1965. The act is the major act applicable in India regulating the bonus
payed to the employees in India at present.

1
, at https://quikchex.in/what-is-payment-of-bonus-act-1965/(last accessed 11 February 2019)

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 Rashtriya Mill Mazdoor Sangh vs. The Model Mills, Nagpur And Anr AIR 1984 SC 1813

Objectives of The Act

The objectives of the Payment of Bonus Act. 1965 are as follows:

i. To impose a legal responsibility upon an employer of every establishment

covered by the Act to pay the bonus to employees in an establishment
ii. To designate the minimum and maximum percentage of bonus
iii. To prescribe the formula for calculating bonus
iv. To provide redressal mechanism

Important Provisions

The act applies to every factory and to every establishment in which 20 or more persons
are employed. Even if less than 20 persons are employed, the act can be applied by
‘Appropriate government’ through a notification in the Gazette.2

An employee is entitled to bonus to be payed by his employer if he has worked in the

establishment for not less than thirty working days in that particular year. On the other
hand, an employee is barred from enjoying bonus if he has been dismissed from services
and the reasons of dismissal are Fraud, riotous or violent behaviour while on the
premises and theft, misappropriation or sabotage of any property of the establishment.
The payment of bonus should be paid in cash within eight months from the end of the
accounting year or within a month from the date of enforcement of the act.

Offences and Penalties

In case of violation of the provisions under the Act or rules then the penalty is
imprisonment for six months or may impose fine of Rs.1000 or with both.

In case of failure to comply with the directions or requisitions made the penalty is
imprisonment for six months or may impose fine of Rs.1000 or with both.

In case of offences by companies, firms, body corporate or association of individuals,

its director, partner or a principal or officer responsible for the conduct of its business,

2
ibid

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 Rashtriya Mill Mazdoor Sangh vs. The Model Mills, Nagpur And Anr AIR 1984 SC 1813

should be deemed to be guilty of that offence, unless the person concerned proves that
the crime was committed out of his knowledge or that he exercised all due diligence.3

Industries( Development and Regulation) Act, 1951

This act came into force on May 8, 1952. Some of the major objectives of the act are
as follows:

i. To Implement the Industrial Policy

ii. Regulation and Development of Important Industries
iii. Planning and Future Development of New Undertakings

Judges/Quorum
This case was decided by the Supreme court bench which consisted of three judges
comprising of D.A Desai, V. Balakrishna Eradi and V. Khalid.

Facts of the Case

The union which was representing the Rashtriya Mill Mazdoor Sangh, a union of
employees working in the Modern Mills in Nagpur served a notice of demand for the
payment of bonus to the employees for the period of 1964-65 and 1967-68. The matter
was taken in the Industrial court where the Union made four independent references to
the court for the grant of Bonus. The Union further alleged that it could not make a
specific demand for bonus calculated at a certain percentage of the salary as it had not
got the requisite information about the financial position and the balance sheet of the
Employer, and that the Industrial Court should compute the bonus which becomes
payable under the Bonus Act, and award the same to the workmen.

The employer Modern Mills in its defence resisted the references and contended that a
notified order was issued under section 18A of the Industries (Development and
Regulation) Act, 1951 according to which an authorized controller was appointed in
respect of the industrial undertaking. Hence, in view of the provisions contained in
Section 32(IV) of the Payment of Bonus Act, 1965, its employees were excluded from
the payment of Bonus and hence the references must be rejected.

The Industrial court accepted the contention of the employers and came to the
conclusion that the employees were excluded from receiving the Bonus from the

3
Supra 1.

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 Rashtriya Mill Mazdoor Sangh vs. The Model Mills, Nagpur And Anr AIR 1984 SC 1813

employer having regard to Section 32(IV) of the Payment of Bonus Act read along with
Section 18A of the Industries(Development and Regulation Act). The court also
rejected the argument of the appellant that the even if the workmen employed by the
employer were not entitled to bonus under the Bonus Act , they were yet entitled to
claim bonus apart from the Bonus Act as a norm of industrial relations by observing
that as the demand was made for bonus under the Bonus Act.4

Applicability of law
The Industries(Development and Regulation) Act is one of the laws which has come
into question in this case. This act was enacted to provide development and regulation
of scheduled industries. Section 15 of the Act confers power on the Central Government
to cause investigation to be made into scheduled industries or industrial undertaking for
the purposes therein set out.5

Sec. 16 confers power on the Central Government to give directions on completion of

an investigation under Sec. 15 to the industrial undertaking for the following purposes:

(a) regulating the production of any article or class of articles by the industrial
undertaking or undertakings and fixing the standards of production;

(b) requiring the industrial undertaking or undertakings to take such steps as the Central
Government may consider necessary to stimulate the development of the industry to
which the undertaking or undertakings relates or relate;

(c) prohibiting the industrial undertaking or undertakings from resorting to any act or
practice which might reduce its or their production, capacity or economic value;

(d) controlling the prices, or regulating the distribution, of any article or class of articles
which have been the subject matter of investigation."6

The Supreme court in its judgement held that Section 18A is of utmost importance for
this case. Section 18A confers power on the Central Government to take management
or control of an industrial undertaking in some certain situations. These situations
include:

4
, at https://indiankanoon.org/doc/1756398/(last accessed 12 February 2019)
5
ibid
6
ibid

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 Rashtriya Mill Mazdoor Sangh vs. The Model Mills, Nagpur And Anr AIR 1984 SC 1813

(a) an industrial undertaking to which directions have been issued in pursuance

of Section 16 has failed to comply with such directions, or

(b) an industrial undertaking in respect of which an investigation has been made under
Section 15 is being managed in a manner highly detrimental to the scheduled industry
concerned or to public interest, the Central Government may by notified order authorise
any person or body of persons to take over the management of the whole or any part of
the undertaking or to exercise in respect of the whole or any part of the undertaking
such functions, of control as may be specified in the order.7

Thus, Section 18A lets the government either to assume the management of an
industrial undertaking or control its management. The Central government can exercise
this power by a notified order appointing an authorized controller who can assume the
management of an industrial undertaking or control its management.

Another act which is pertinent to this case and is applicable to the facts is the Payment
of Bonus Act, 1965. The provision which is in question is Section 32(IV) which lays
down certain situations in which the provisions of this act are not applicable.

Section 32(IV) is as follows:

"Nothing in this Act shall apply to

(iv) employees employed by an establishment engaged in any industry carried on by or

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

The question in front of the court was whether on the issuance of order under
Section18A of the IDR Act appointing an authorized controller to take over the
management of the industrial undertaking, the employees on the undertaking which in
this case are the Rashtriya Mill Mazdoor Sangh are excluded from the benefits of the
Bonus act due to the reason that they have become employees of an establishment in an
industry carried on under the authority of the Central government.

Judgement of The Court/ Tribunal

7
ibid

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 Rashtriya Mill Mazdoor Sangh vs. The Model Mills, Nagpur And Anr AIR 1984 SC 1813

Industrial Tribunal

The Industrial Tribunal rejected all the four references given by the appellant against
the employer, Modern Mills to get the benefits of the Bonus Act for a given time period.

Supreme Court

On the question whether an industrial undertaking acquires the status of an

establishment engaged in textile industry carried on by the department of the Central
Government on the appointment of an authorized controller, the Supreme Court
answered in negative.

The court quashed the order of the Industrial Tribunal which had earlier rejected the
four references of the appellant. The Supreme Court held that the order of the Industrial
Court was wrong and “was clearly in error in rejecting the references holding that the
workmen of the respondent were excluded from the operation of the Bonus Act”.8

The court also quashed the award given by the Industrial Tribunal and also set aside the
matter remitted to the Industrial Tribunal for disposal on merits. It ordered the
respondents to pay the deserved bonus to the appellants and quantified it to be at Rs.
2000 per employee.

Ratio Decidendi

Supreme Court in its judgement said, “IDR Act was enacted as its long title shows to
confer power on the Central Government to provide for development and regulation of
scheduled industries. The Statement of objects and Reasons shows that the object
behind the enactment was to provide the Central Government with the means of
implementing their industrial policy and for that purpose to extend the control of the
Central Government over the development and regulation of a number of important
industries the activities of which affect the country as a whole and the development of
which must be governed by economic factors of all India import. The Act amongst
others confers power on the Central Government for regulating the production and
development of the scheduled industries.”9

8
Supra 4.
9
Rashtriya Mill Mazdoor Sangh vs. The Model Mills, Nagpur and Anr, AIR 1984 SC 1813

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The court held that this transfer of management of an industrial undertaking from one
body to another only has an effect on the management and not on the ownership of that
undertaking, nor does that mean that the Central Government possesses control in each
and every sphere of the Industrial undertaking. Thus the change of management does
not confer absolute power on the government to control the establishment. Therefore,
the Act provides not for taking over of the industrial undertakings. It provides for
control of management by giving directions or for change of management.

The heading of Chapter-III is misleading when it says that the Central Government
assumes the direct management of the Industrial undertaking on the issuance of an
notified order. Only the management of the undertaking goes a change on the issuance
of such an order. This change does not mean that the ownership of the undertaking also
goes a change as if that were the case then the act would be in violation of Article 31
and 19(f) of the Constitution. That was not intended to be the effect of appointment of
an authorised controller. The industrial undertaking continues to be governed by the
Companies Act or the Partnership Act or the relevant provisions of law applicable to a
proprietary concern. The only change is the removal of managers and appointment of
another manager and to safeguard his position restriction on the rights of shareholders
or partners or original proprietor. This is the net effect of the appointment of an
authorised controller by a notified order.

According to the court, The underlying purpose of Sec. 32(IV) of the Bonus Act is not
to exclude the employees of some stray establishment from the operation of the Act but
to exclude all employees of all establishments in any industry which is carried on under
the authority of the department of the Central Government.

The expression 'carried on by or under the authority of any department of the Central
Government' qualifies the expression industry and not the expression 'establishment' as
used in sub-sec. (iv) of Sec. 32 of the Bonus Act.10

The intention of the framers of the Bonus Act was to exclude employees employed in
an establishment engaged in any industry which is carried on by or under the authority
of the department of the Central Government. It cannot be said that textile industry is
being carried on under the authority of the department of the Central Government.

10
ibid

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The Supreme Court in in order to reach its decision also took assistance from some
precedents and cited some of them in the judgement.

In the case of Carlsbad Mineral Water Mfg. Co. vs .P. K. Sarkar,11 the Calcutta High
Court held that the authorised controller appointed by the Central Government is to be
presumed to be a Director for the purposes of the Bonus Act, the conclusion is
inescapable that the business remains that of the industrial undertaking and does not
become one of the Central Government. The fact that the authorised controller is
appointed by the Central Government and that he has to work subject to the directions
of the Central Government does not render the industrial undertaking an agent of the
Central Government and therefore, could not be said to be an establishment engaged in
an industry carried on by or under the authority of the Central Government.

Similarly, in M/s Swadeshi Cotton Mills Thoznialar Shemalana Padukaypu Union v.

M/s National Textile Corporation Ltd. & Ors.(2), the Union in its writ petition
contended that as the National Textile Corporation a Government of India Undertaking
was appointed as the authorised controller of the Swadeshi Cotton Mills under Sec. 18-
A of the IDR Act on April 13, 1978 the appropriate Government in respect of such mill
would be the Central Government and the State Government had no power to appoint
the Conciliation Officer under the Industrial Disputes Act. Repelling this contention, it
was held that appointment of an authorised controller under Sec. 18-A by a notified
order would not make the industrial undertaking an undertaking of the Central
Government because by the appointment of the authorised controller, the management
of the industrial undertaking is changed to achieve a certain purpose and that too is a
temporary phase. It was held that at any rate the appointment of an authorised controller
does not vest the ownership.

Law Laid Down

The Supreme Court tried to reconcile Section 18A of the Industries(Development and
Regulation) Act and Section 32(IV) of the Payment of Bonus Act in the following case.
The matter in question in the case was whether on the issue of a notified order under
Sec. 18-A appointing an authorised controller in respect of an industrial undertaking

11
Carlsbad Mineral Water Mfg. Co. vs .P. K. Sarkar, AIR 1952 Cal 315

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governed by the IDR Act, the employees of such undertaking are excluded from the
application of the Bonus Act for the only reason that they are or have become the
employees of an establishment in an industry carried on under the authority of the
department of Central Government.12 The Court answered this in negative and laid
down that the workmen would be entitled to payment of Bonus which they deserve
under the payment of Bonus Act. It ordered the respondents, Modern Mills to pay the
respective Bonus to the Appellants, Rashtriya Mill Mazdoor Sangh according to the
Payment of Bonus Act which amounted to 2000 despite the exception given in given
act in Section 32(IV).

Thus, the principle laid down by the court in the case was that the employees of an
undertaking which is under the management of an authorized officer are also subjected
to the provisions of the Payment of Bonus Act and are entitled to the bonus despite the
exception given in Section 32(IV) of the Payment of Bonus Act.

Validity
The case Rashtriya Mill Mazdoor Sangh vs. Modern Mills, Nagpur and Anr has not yet
been overruled by any Indian Court till now.

12
ibid

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Bibliography

Cases

Rashtriya Mill Mazdoor Sangh vs. The Model Mills, Nagpur and Anr, AIR 1984 SC
1813

Carlsbad Mineral Water Mfg. Co. vs .P. K. Sarkar, AIR 1952 Cal 315

Websites

https://quikchex.in/what-is-payment-of-bonus-act-1965/

https://www.indiafilings.com/learn/payment-of-bonus-act/

https://indiankanoon.org/doc/1756398

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