Karnataka High Court
Workmen Of Hindustan Machine Tools Ltd. ... vs Hindustan Machine Tools Ltd. And Ors. on 9 February, 2001
Equivalent citations: [2001(89)FLR452], ILR2001KAR1502, (2001)ILLJ1449KANT
ORDER V.P. Mohan Kumar, J.
1. In this Writ Petition the question raised is with respect to the interpretation of Section 3 of the Payment of Bonus Act hereinafter referred to as 'the Act'. Petitioner is representing the workers of HMT Specialised Watch Case Division manufacturing specialised watch cases. This unit was started in 1983. It is alleged that bonus was not paid to the workers for the years 1983 and 1984 on the ground that the factory in question is a separate new establishment which is not making any profit. A dispute was raised which resulted in reference to the Industrial Tribunal. The Tribunal held that the unit is being run as a separate establishment and as such in the light of Section 16(1A), as the Unit did not make profit during the relevant year, the workers are not entitled for bonus. The workers contended that it being only a division of H.M.T. it cannot be assigned the status of a separate establishment to claim the exclusion from the payment of bonus. That order is the subject matter of challenge in this Writ Petition.
2. I have heard Mr. K. Subba Rao, learned senior counsel for the petitioner and Mr. Joshua H. Samuel, learned counsel for the respondent-factory. The whole issue is with respect to the interpretation of Section 3 and Section 16(2) of the Act, Section 3 reads thus:
"3. Establishments to include departments, undertakings and branches where an establishment consists of different departments or undertakings or has branches, whether situated in the same place or in different places, all such departments or undertakings or branches shall be treated as parts of the same establishment for the purpose of computation of bonus under this Act.
Provided that where for any accounting year a separate balance-sheet and profit and loss account are prepared and maintained in respect of any such department or undertaking or branch, then, such department or undertaking or branch shall be treated as a separate establishment for the purposes of computation of bonus, under this Act for that year, unless such department or undertaking or branch was, immediately before the commencement of that accounting year treated as part of the establishment for the purpose of computation of bonus."
3. In this connection we may advert to Section 16 of the Act as well. Section 16 of the Act reads as follows:
"(1) Where an establishment newly set up whether before or after the commencement of this Act, the employees of such establishment shall be entitled to be paid bonus under this Act in accordance with the provisions of Sub-sections (1A), (1B) and (1C). (Clauses (1A) to (1C) are omitted as they are not relevant for the case in hand).
(2) The provisions of Sub-sections (1), (1A), (1B) and (1C) shall, so far as may be, apply to new departments or undertakings or branches set up by existing establishments:
Provided that if an employer in relation to an existing establishment consisting of different departments or undertakings or branches (whether or not in the same industry) set up at different periods has, before May 29, 1965, been paying bonus to the employees of all such departments or undertakings or branches irrespective of the date on which such departments or undertakings or branches were set up, on the basis of the consolidated profits computed in respect of all such departments or undertakings or branches, then, such employer shall be liable to pay bonus in accordance with the provisions of this Act to the employees of all such departments or undertakings or branches (whether set up before or after that date) on the basis of the consolidated profits computed as aforesaid."
The important stress made in this case is relying on the proviso to Section 3 referred to above. The arguments of the learned counsel for the respondent is that the respondent has established a separate unit which is separately started in the year 1983 and it has separate profit and loss of account and as such it will come within the ambit of the proviso to Section 3 and hence a separate Department as that Department had not made any profit during the year in question. Therefore they are not liable to pay bonus. He submits this question has come up before the Supreme Court in the case of Alloy Steel Project v. Workmen . Therein the worker contended that their employer is an integral part of Hindustan Steel Ltd., whereas the Management's contention was, relying on the proviso to Section 3, it was to be treated as a separate establishment. The question raised therein was as to whether the workers could claim bonus from the employer reckoning the profit made by Hindustan Steel Ltd. Considering the question in detail their: Lordships stated as follows in 1971-I-LLJ-217 at 220, 221:
"3. It is to be noted that the principal part of Section 3 lays down that different, departments or undertakings or branches of an establishment are to be treated as part of the same establishment only for the purpose of computation of bonus under the Act. They cannot be treated as part of an, establishment for purposes of Sub-section (3) of Section 1 of the Act. In fact Section 3 cannot be resorted to at all when the Act itself is inapplicable in view of the provisions contained in Section I, Sub-section (3). It is, thus, quite clear that the Tribunal went entirely wrong in holding that simply because Alloy Steel Project is owned, controlled and managed by Hindustan Steel Ltd., it has to be treated as a part of Hindustan Steel Ltd. which is itself an establishment. Hindustan Steel Ltd. cannot be described as an establishment. The facts appearing on the record show that Hindustan Steel Ltd. has a number of establishments. These include Alloy Steel Project besides the Head Office, Rourkela Steel Plant, Bhilai Steel Plant, Durgapur Steel Plant, Coal Washeries Project and Bokaro Steel Project. The Company, Hindustan Steel Ltd., cannot be equated with any one of these units. They are all separate undertakings, departments or branches owned, controlled and managed by one single company and, consequently, the point raised has to be decided on the basis whether, under the proviso to Section 3, the Alloy Steel Project is to be treated as a separate establishment, or is to be treated as part of the main establishment owned by Hindustan Steel Ltd." (Italicised for reference) That is to say in short when the principal establishment was itself is not covered by the Payment of Bonus Act, then by employing the proviso to Section 3 of the Act, a separate establishment cannot be created and come into being which employs the workers who claim the bonus. To put it differently, the question considered was, that when the whole establishment did not come within the ambit of Payment of Bonus Act, can one of its department/branch be treated as a separate establishment applying the proviso to Section 3 of the Act. The answer was in the negative. Section 3 is enacted only for the purpose of computing the bonus payable and not to create any liability to pay the bonus.
4. The charging Section for payment of bonus is Section 16 of the Act. What is the scope of Section 16(2)? It declares that the liability to pay bonus is in accordance with Section 16(1), (1A), (1B) and (1C) lies on the new departments or branches or undertakings set up by an existing establishment. When the whole establishment comes within the ambit of Section 16, Section 16(2) would apply and the liability for payment of bonus arises within the ambit of Section 3. The proviso to Section 3 is not an exclusion clause to save any establishment from the obligation to pay bonus. The proviso to Section 3 of the Act only provides that where for any accounting year a separate balance-sheet and profit and loss account are prepared and maintained in respect of any such department or undertaking or branch, then, such department or undertaking or branch shall be treated as a separate establishment for the purpose of commutation of bonus, under the Act for that year, unless such department or undertaking or branch was, immediately before the commencement of that accounting year treated as part of the establishment for the purpose of computation of bonus. We may advert to the Section 16 of the Act once again. Section 16(2) in particular reads thus:
"(2) The provisions of Sub-sections (1A), (1B) and (1C) shall, so far as may be, apply to new departments, undertakings or branches set up, by existing establishments:
Provided that if an employer in relation to an existing establishment consisting of different departments or undertakings or branches (whether or not in the same industry) set up at different periods has, before May 29, 1965, been paying bonus to the employees of all such departments or undertakings or branches irrespective of the date on which such departments or undertakings or branches were set up, on the basis of the consolidated profits computed in respect of all such departments or undertakings or branches, then, such employer shall be liable to pay bonus in accordance with the provisions of this Act to the employees of all such departments or undertakings or branches (whether set up before or after that date) on the basis of the consolidated profits computed as aforesaid."
This proviso has to be read along with proviso to Section 3 of the Act. The proviso to Section 3 states as to when a separate establishment comes into existence. It provides that the "treatment'' of the same as a separate establishment is for the purpose of computation of the Bonus under the Act. Now we can observe from the proviso to Section 16(2) that it declares as to how in a case where any department or undertaking or branch was set up for the first time the manner in which the bonus has to be calculated. What is meant by a separate establishment is only the Department or undertaking or branch which has separate balance sheet and profit and loss account. And that fictional assignment of the status is, only for the purpose of computation of the bonus; and that computation shall be in accordance with Section 16 of the Act.
5. In this case, the specialised watch case division was a newly started unit and supplying the watch cases to the main factory. There is no independent business in the newly created establishment and they are manufacturing the special watch cases for the main factory and has no separate existence. It is not a new company incorporated under the Companies Act and has no separate juristic entity. The specialised watch case division is thus a captive division depending wholly on the main factory i.e. H.M.T. Watch Company for its existence. In such circumstances it is not possible to say that the specialised watch case division is a separate establishment to be excluded from the ambit of the Payment of Bonus Act. Section 3 relates to only with respect to computing purpose for payment of bonus and it does not control the charging Section 16 of the Act. An establishment has to fall outside the ambit of Section 16, and proviso to Section 3 does operate as an escape route for an establishment to get out of the purview of Section 16. The reasons given by the respondent for not paying the bonus cannot stand the scrutiny of law as Section 3 obviously confines its operation for the computation of bonus while Section 16 of the Act casts the liability to pay bonus. In view of these circumstances the reasons for not paying the bonus for the year 1983 and 1984 on the ground that the specialised watch division is a new establishment is not correct.
6. Again we will examine the scope of Section 16. Section 16(1) declares that an establishment newly established need declare bonus during the first five year only in respect of the accounting year in which it made profits. But a newly created establishment which comes into being by virtue of operation of proviso to Section 3 and Section 16(2) is also liable to pay bonus irrespective of the circumstances it makes profit or not, if in the event the circumstances made mention of in the proviso exists. In such cases, the proviso cannot be employed to claim exclusion from payment of liability to pay bonus.
7. The learned counsel for the respondent submitted that the case on hand is covered by the decision of the Supreme Court reported in Alloy Steel Project v. Workmen (supra). I do not think the dictum therein would apply to the facts of the case, on hand. That was a case where Alloy Steel Project had proved itself to be separated and as a different establishment functioning and the workers therein had nothing to do with the Hindustan Steel Ltd. Nevertheless it was functionally attached to Hindustan Steel Ltd. On such circumstances the Supreme Court considered it as a separate establishment and exonerated it from payment of bonus. Strictly, it is not applying the proviso to Section 3 the Supreme Court held so.
This is very clear from the following paragraph of the judgment:
"6. Sub-section (1) of Section 16 grants exemption from payment of bonus to establishments newly set up for a period of six years following the accounting year in which the goods produced or manufactured are sold for the first time and, in the alternative, up to the year when the new establishment results in profits whichever is earlier. If the Alloy Steel Project is treated as an establishment newly set up for purposes of Section 16(1) the exemption claimed would be fully justified. Section 16(2) of the Act makes it clear that the provisions of Sub-section (1) are to apply even to new departments, undertakings or branches set up by existing establishments. Consequently, even if Alloy Steel Project is treated as a new undertaking set up by the existing establishments of Hindustan Steel Ltd., the exemption under Section 16(1) would be available to it. The Proviso to Sub-section (2) of Section 16 also does not stand in the way of this claim because there is no evidence at all that in any year after Alloy Steel Project was set up bonus was paid to the employees of all the units on the basis of consolidated profits of all such units. The only exception has been in the case of workmen of the Head Office where no separate profit and loss was worked out and the bonus was paid on the basis of the consolidated profits of all the units belonging to Hindustan Steel Ltd. That, of course, was fully justified because the Head Office was working for all the units though as a separate unit. It was in the account of the Head Office that the entire paid up capital was credited and advances were made by the Head Office to the various units out of this capital or out of loans taken by the Head Office. In the case of the Head Office, therefore, the calculation of bonus on the basis of consolidated accounts was justified; but that does not affect the principle to be applied to the separate units for which separate accounts, separate balance-sheets and separate profit and loss statements are maintained. The proviso to Sub-section (2) of Section 16 only comes in the way if bonus is paid in any year to the employees of all the units on the basis of consolidated accounts. That has never been done in the case of the Hindustan Steel Ltd. Consequently, the Alloy Steel Project should have been treated as a separate establishment newly set up in the year 1961, It went into production in 1964-65 and did not earn any profits at all till 1967-68. Therefore, no bonus was payable to the workmen of this undertaking for the year 1965-66 in view of the provisions of Section 16(1) of the Act."
That is to say, as the parent organisation itself is outside the purview of the Payment of Bonus Act, by invoking the proviso to Section 3, its department/branch which had all the incidence of a "separate establishment" cannot be reckoned as such, and bonus claimed from them. The emphasised part of the judgment make it clear that the proviso to the Section 16(2) nor Section 3 can in any way be made use of to exclude or include oneself from the operation of Payment of Bonus Act.
8. In the light of what is stated above the Writ Petition has to be allowed. I do so. The workers of the Specialised Watch Case Division the employees herein are entitled to receive bonus for the year 1983-1984. The computation of the quantum of bonus would be subject to Section 3 of the Act. The Writ Petition is disposed of as above.
26.02.2001 ORDERS ON FOR BEING SPOKEN TO:
There is no need to rehear the matter. The Order dated February 9, 2001 would hold good.