Shelat, J. - (1.) In Civil Appeal No. 1630 of 1967, workmen engaged by certain chillies and kirana shops in Madras and who were members of the respondent Union made a demand on December 13, 1965 for bonus for the year 1964-65 equivalent to four months' wages. Conciliation proceedings having failed, the dispute was referred to the Industrial Tribunal, Madras. In Civil Appeal No. 1721 of 1967, the appellant company is admittedly an establishment in public sector to which Section 20 of the Payment of Bonus Act, 21 of 1965 (hereinafter referred to as the Act) does not apply. In both these cases, the Tribunals held that though the Act did not apply, in the first case by reason of Section 1 (3) and in the other by reason of Section 32 (x), the employees were entitled to claim bonus and awarded their claims in C. A. No. 1630 of 1967. These appeals by special leave challenge the correctness of the view taken by the Tribunals as to the scope and nature of the Act.
(2.) The question for decision in both the appeals is whether in view of the non-applicability of the Act to establishments, not being factories and which employ less than 20 persons therein as the appellants in appeal No. 1630 of 1967 are, and the exemption of employees in an establishment in public sector though employing more than 20 persons as the appellant company in appeal No. 1721 of 1967, is under Section 32 (x) of the Act, the employees in both these establishments could claim bonus dehors the Act. The question depends upon the true view of certain provisions and the scope of the Act. But before we take ourselves the burden of construing upon provisions, it is necessary to refer briefly to the history of the question of bonus, the background and the circumstances in which the Act was passed. This is permissible for the limited purpose of appreciating the mischief Parliament had in mind and the remedy which it wanted to provide for preventing that mischief and not for tire purpose of aiding us in construing the provisions of the Act. As early as 1584, in Hevdon's case, (supra) it was said that "for the sure and true interpretation of all statutes in general" four things are to be considered:(i) What was the common law before the making of the Act, (ii) What was the mischief and defect for which the common law did not provide, (iii) What remedy the Parliament hath resolved and appointed to cure the disease of the Commonwealth, and (iv) the true reason of the remedy. In Bengal Immunity Company Limited vs. The State of Bihar, (1955) 2 SCR 603 this Court approved the rule in Hevdon's case, (supra) and in construing Article 286 of the Constitution observed at page No. 633 of SCR as follows:- "In order to properly interpret the provisions of that Article it is, therefore, necessary to consider how the matter stood immediately before the Constitution came into force, what the mischief was for which the old law did not provide and the remedy which has been provided by the Coustitution to cure that mischief." In The Corporation of the City of Nagpur vs. Its Employees, (1960) 2 SCR 942 the question was as to the meaning of the word "industry" in Section 2 (14) of the C. P. and Berar Industrial Disputes (Settlement) Act (23 of 1947). This Court said that "if the word were to be construed in its ordinary sense every calling, service, employment of an employee or any business, trade or calling of an employer would be an industry. But such a wide meaning appears to overreach the object for which the Act was passed. The Court, therefore, found it necessary to limit the scope of the said word having regard to the aim, scope and the object of the Act. Relying on the four tests laid down in Heydon's case, (supra) the Court considered the fundamental basis of the definition of industry, viz., relationship between employees and employers, the long title an the preamble of the Act showing the object of passing the Act, the historical background for passing it and held that "it is manifest that the Act was introduced as an important step in achieving social justice, to ameliorate the conditions of service of the labour in organised activities than to anything else and therefore the Act was not intended to reach the personal services which do not depend on the employment of labour force". Similarly in R. M. D. Chamarbaugwalla vs. The Union of India, (1957) SCR 930 the question arose whether looking to the general words used in Section 2 (d) of the Prize Competitions Act, 42 of 1955 the words 'prize competition' included not merely competitions of a gambling nature but also those in which success depended in a substantial degree on skill. In construing the said definition, the Court gave a restricted meaning to the words ''prize competition" as meaning only competitions as were of a gambling nature. In doing so, the Court approved the principles of construction stated in the case of the Bengal Immunity Co. Ltd. (1955) 2 SCR 603 and told that "in interpreting an enactment the Court should ascertain the intention of the legislature not merely from a literal meaning of the words used but also from such matters us the history of the legislation, its purpose and the mischief it seeks to suppress". For considering the intention of Parliament not merely from the literal meaning of the definition in Section 2 (d) but also from the history of the legislation the Court looked into the Bombay Lotteries and Prize Competitions Control and Tax Act, 1948, how it could be and was evaded by the promoters of lotteries by shifting the venue of their business to the neighbouring State of Mysore, the concerted action taken by the adjoining States, the resolutions passed by each of them calling upon Parliament to undertake legislation, the fact of Parliament having passed the law and its preamble reciting the fact of the State legislatures having asked it to pass such a law. Having done that, the Court observed at page No. 938 of SCR : "Having regard to the circumstances under which the resolutions came to be passed, there cannot be any reasonable doubt that the law which the State Legislatures moved Parliament to enact under Article 252 (1) was one to control and regulate prize competitions of a gambling character. Competitions in which success depended substantially on skill could not have been in the minds of the legislatures which passed those resolutions. Those competitions had not been the subject of any controversy in Court. They all not done any harm to the public and had presented no problems to the States and at no time had there been any legislation directed to regulating them". Though the court refused to look at the statement of objects and reasons for the purpose of construing Section 2 (d), it held that "having regard to the history of the legislation, the declared object thereof and the wording of the statute" the words had to be given a restricted meaning. In Central Bank of India vs. Their Workmen, (1960) 1 SCR 200 the Court in construing Section 10 (1) (b) of the Banking Companies Act, 10 of 1949 again looked at the legislative history to ascertain the object of passing the Act and the mischief it sought to remedy, but declined to use the statement of objects and reasons to construe the Section on the ground that the statement could not control the actual words used in the Section. (Cf. also State of West Bengal vs. Union of India, (1964) 1 SCR 371. S. Azeez Basha vs. Union of India W. Ps. Nos. 84, 174, 188, 24l and 244 of 1966, D/- 20-10-1967 the petitioners challenged the validity of the Aligarh Muslim University (Amendment) Act, 62 of 1951 and the Aligarh Muslim University (Amendment) Act, 19 of 1965 as violating Article 30 (1) of the Constitution. This Court went into the history of the establishment of the University to ascertain whether it was set up by the Muslim minority and as such entitled to rights under Article 30 and held that it was not set up by the minority but in fact established by the Government of India by passing the Aligrah Muslim University Act, 1920 (Cf. Crawford on Statutory Construction (3rd Ed.) pages 482-483). There is thus ample authority justifying the Court in looking into the history of the legislation, not for the purpose of construing the Act but for the limited purpose of ascertaining the background, the conditions and the circumstances which led to its passing, the mischief it was intended to prevent and the remedy it furnished to prevent such mischief. The statement of objects and reasons also can be legitimately used for ascertaining the object which the legislative had in mind, though not for construing the Act.
(3.) What were the conditions prevailing at the time when the Act was passed and what was the object which Parliament had in mind in passing it Bonus was originally regarded as a gratuitous payment by an employer to his employees. The practice of paying bonus as an ex gratia payment had its early roots in the textile industry in Bombay and Ahmedabad. In 1917 and 1918 an increase of 10 and 15 per cent of wages was granted as war bonus to the textile workers by the employers. In October, 1920, a Committee appointed by the Bombay Millowners recommended to the member mills payment of bonus equal to one month's pay. Similarly bonus was declared in 1921 and 1922. It appears that trading conditions in the industry having deteriorated, the mill owners declared in July 1923 that they would be unable to pay bonus for 1923. Thereupon a strike began which became general towards the end of January 1924. In February 1924, a bonus dispute Committee was appointed by the Government of Bombay to consider the nature of, the conditions and the basis of bonus which had been granted to the employees in the textile mills and to declare whether the employees had established any enforceable claim, customary, legal or equitable. The Committee held that they had not established any enforceable claim, customary, legal or equitable, to an annual payment of bonus which could be upheld in a Court. The years that followed were years of depression and no major dispute about bonus arose, although bonuses were given on ad hoc basis by a few industrial undertakings. During the Second World War, managements of textile mills paid cash bonus equivalent to a fraction of the surplus profit but this was also voluntary payment to keep labour contended, Disputes for payment of bonus for the years 1948 and 1949 arose in the Bombay textile industry. On the said dispute having been referred to the Industrial Court, that Court expressed the view that since both labour and capital contributed to the profits of the industry both were entitled to a legitimate return out of the profits and evolved a formula for charging certain prior liabilities on the gross profit of the accounting year and awarded a percentage of the balance as bonus. The Industrial Court excluded the mills which had suffered loss from the liability to pay bonus. In appeals against the said awards, the Labour Appellate Tribunal approved broadly the method of computing bonus as a fraction of the surplus profit. According to this formula, which has since been referred to as the Full Bench formula, the surplus available for distribution is to be determined after debiting certain prior charges from gross profits, viz. (1) provision for depreciation, (2) reservation for rehabilitation, (3) return of 6 per cent on paid-up capital, and (4) return on working capital at a rate lower than the one on the paid up capital. In Muir Mills Company vs. Suti Mills Mazdoor Union, Kanpur, (1955) 1 SCR 991 , Baro Borough Municipality vs. Its Workmen, (1957) SCR 38 , The Shree Meenakshi Mills Ltd. vs. The Workmen, (1958) SCR 878 and State of Mysore vs. The Workers of Gold Mines, (1959) SCR 895 this Court laid down (1) that bonus was not a gratuitous payment nor a deferred wage, and (2) that where wages fall short of the living standard and the industry makes profit part of which is due to the contribution of labour, a claim for bonus may legitimately be made by the workmen. The Court, however, did not examine the propriety nor the order of priorities as between the several charges and their relative importance nor did it examine the desirability of making any alterations in the said formula. These questions came to be examined for the first time in Associated Cement Companies Ltd. vs. Its Workmen, (1959) SCR 925 where the said formula was generally approved. Since that decision, this Court has accepted in several cases the said formula. The principal features of the formula are that each year for which bonus is claimed is a self -contained unit, that bonus is to be computed on the profits of the establishment during that year, that the gross profits are to be determined after debiting the wages and dearness allowance paid to the employees and other items of expenditure against total receipts as disclosed by the profits and loss account, and that against such gross profits the aforesaid four items are to be deducted as prior charges. The formula was not based on any legal right or liability, its object being only to distribute profits after reasonable allocations for the aforesaid charges. Attempts were thereafter made from time to time to have the said formula revised but they were rejected first in A. C. C's case, (supra) and again in The Ahmedabad Miscellaneous Iudustrial Workers' Union vs. The Ahmedabad Electricity Co. Ltd., (1962) 2 SCR 934 where it was observed that the plea for revision raised an issue which affected all industries and, therefore, before any change was made all industries and their workmen had to be heard and their pleas considered. The Court, therefore, suggested that the question of revising the formula should be 'comprehensively considered by a high powered Commission". Taking up the aforesaid suggestion, the Government of India appointed a Commission, by its resolution dated December 6, 196l, the terms of reference whereof were, inter alia, 1. to define the concept of bonus and to consider in relation to industrial employment the question of payment of bonus based on profits and recommend principles for computation of such bonus and methods of payment; 2. to determine what the prior charges should be in different circumstances and how they should be calculated; 3. to determine conditions under which bonus payment should be made unitwise, industrywise and industry-cum-regionwise; 4. to consider whether there should be lower limits irrespective of loss in particular establishment and upper limits for distribution in one year and, if so, the manner to carry forward the profits and losses over a prescribed period; and 5. to suggest an appropriate machinery and method for settlement of bonus disputes. After an elaborate enquiry, the Commission made the following amongst other recommendations: 1. That bonus was paid to the workers as share in the prosperity of the establishment and that the basic scheme of the bonus formula should be adhered to viz., determination of bonus as a percentage of gross profits reduced by the following prior charges, viz., normal depreciation allowable under the Income Tax including multiple shifting allowance, income tax and super tax at the current standard rate applicable for the year for which tax is to be calculated but not super profits tax, return on paid-up capital raised through preference shares at the actual rate of dividend payable, on other paid-up capital at 7 per cent and on reserves used as capital at 4 per cent. The Commission did not recommend provision for rehabilitation. 2. That 60 per cent of the available surplus should be distributed as bonus and excess should be carried forward and taken into account in the next year; the balance of 40 per cent should remain with the establishment into which should merge the saving in tax on bonus and the aggregate balance thus left to the establishment should be used for payment of gratuity, other necessary reserves, rehabilitation in addition to the provision made by way of depreciation in the prior charges, annual provision required for redemption of debentures, etc. 3. That the distinction between the basic wages and dearness allowance for the purpose of arriving at the bonus quantum should be done away with and bonus should be related to wages and dearness allowance taken together; 4. That minimum bonus should be 4 per cent of the total basic wage and dearness allowance paid during the year or Rs. 40 to each employee, whichever is higher, and in the case of children the minimum should be equivalent to 4% of their basic wage and dearness allowance, or Rs. 25 whichever is higher; 5. That the maximum bonus should be equivalent to 20 per cent of the total basic wage and dearness allowance paid during the year; 6. That the bonus formula proposed should be deemed to include bonus to employees drawing a total basic pay and dearness allowance upto Rs. 1600 p. m. regardless of whether they were workmen as defined in the Industrial Disputes Act, 1947 or other corresponding Act provided that quantum of bonus payable to employees drawing total basic pay and allowance over Rs. 750 p. m. should be limited to what it would be if their pay and dearness allowance were Rs. 750 p. m. 7. That the formula should not apply to new establishments until they recouped all early losses including arrears of normal depreciation subject to the time limit of 6 years; and 8. That the scheme should be applied to all bonus matters relating to the accounting year ending on any day in the calendar year 1962 except in those matters in which settlements had been reached or decisions had been given. The fact that the Government of India accepted the majority of the Commission's recommendations is clear from the Statement of Objects and Reasons attached to Bill No. 49 of 1965 which they sponsored in Parliament. The Statement, inter alia, states that a "tripartite Commission was set up by the Government of India by resolution dated 6th December 1961 to consider in comprehensive manner the question of payment of bonus based on profits to employees employed in establishments and to make recommendations to the Government. The Commission's report containing the recommendations was received by the Government on 24th January, 1964. By resolution dated 2nd September, 1964, Government announced acceptance of the Commission's recommendations subject to a few modifications as were mentioned therein". To implement these recommendations the Payment of Bonus Ordinance, 1965 was promulgated on May 29, 1965. Since the Ordinance was replaced by the present Act published on September 25, 1965, it is unnecessary to examine its provisions. Thus, bonus which was originally a voluntary payment acquired under the Full Bench formula the character of a right to share in the surplus profits enforceable through the machinery of the Industrial Disputes Act, 1947 and other corresponding Acts. Under the Act liability to pay bonus has now become a statutory obligation imposed on the employers. From the history of the legislation it is clear (1) that the Government set a Commission to consider comprehensively the entire question of bonus in all its aspects; and (2) that the Commission accordingly considered the concept of bonus, the method of computation, the machinery for enforcement and a statutory formula in place of the one evolved by industrial adjudication.;