Unit 14 The Industrial Disputes ACT, 1947-I: Objectives

Industrial Relations Laws
UNIT 14 THE INDUSTRIAL DISPUTES

ACT, 1947-I
Objectives
After going through this unit, you will be able to understand:

• the scope, coverage and important concepts regarding industrial disputes
• principal objectives of the Act
• various machineries for investigation and settlement of disputes
• about settlement, awards, etc
Structure
14.1 Introduction
14.2 The Principal Objectives of the Act
14.3 Scope and Coverage
14.4 Measures for Prevention of Conflicts and Disputes
14.5 Machineries for Investigation and Settlement of Disputes
14.6 Conciliation
14.7 Voluntary Arbitration
14.8 Adjudication
14.9 Awards of Labour Courts and Industrial Tribunals
14.10 Protection of Workmen during Pendency of Proceedings
14.11 Powers of Labour Courts and Industrial Tribunals
14.12 Effectiveness of Adjudication Machinery
14.1 INTRODUCTION
Based on the experiences of Trade Disputes Act, 1929 and usefulness of rule 81 (a)
of the Defence of India Rules, the bill pertaining to Industrial Disputes Act, 1947
embodied the essential principles of rule 81 (a) which was acceptable to both
employers and workers retaining most parts of the provisions of Trade Disputes Act,
1929.
This legislation is designed to ensure industrial peace by recourse to a given form of
procedure and machinery for investigation and settlement of industrial disputes. Its
main objective is to provide for a just and equitable settlement of disputes by
negotiations, conciliation, dedication, voluntary arbitration and adjudication instead
of by trial of strength through strikes and lock-outs.
As State Governments are free to have their own labour laws, States like UP.,MP.,
Gujarat and Maharashtra have their own legislation for settlement of disputes in their
respective states. U.P. legislation is known as U.P. Industrial Distputes Act, while
others have Industrial Relations Act more or less on the lines of 'Bombay Industrial
Relations Act, 1946.
14.2 THE PRINCIPAL OBJECTIVES OF THE ACT
a) promotion of measures for securing amity and good relations between employer
and workmen
10 b) Investigation and settlement of industrial disputes
The Industrial Disputes
c) Prevention of illegal strike and lock-outs Act, 1947-I
d) Relief to workmen in the matter of lay-off, retrenchment and closure of an
undertaking
e) Promotion of Collective Bargaining
14.3 SCOPE AND COVERAGE
The Industrial Disputes Act, 1947, extends to the whole of India, and is applicable to
all industrial establishments employing one or more workmen. It covers all
employees both technical and non-technical, and also supervisors drawing salaries
and wages upto Rs.1600 per month. It excludes persons employed in managerial and
administrative capacities and workmen subject to Army Act, Navy Act, Air Force
Act and those engaged in police, prison and civil services of the Government. As
regards disputes, it covers only collective disputes or disputes supported by trade
unions or by substantial number of workers and also individual disputes relating to
termination of service. For purposes of this act the term "dispute" is defined as
dispute or difference between employers and employees, which is connected with the
employment and non-employment or the terms of employment or with the condition
of labour of any person.-section 2(k)
Section 2 (a) defining appropriate Government states, inter alia: (a) In relation to any
industrial disputes concerning any industry carried on by or under the authority of
Central Government or by a Railway or concerning any such controlled industry such
as may, be specified or linking or insurance company or oil field or major part the
Central Government, and (b) In relaltion to other industrial disputes the State
Government: In HEC Majdoor Union Vs. State of Bihar S.C. (1969), it was held that
in respect of Central Public Sector Undertakings the State where the factory was
situated was the appropriate Government. This decision was changed in Air India
case S.C. 1997 where it was held that in resepct of Central Public Undertakings the
appropriate Government is the Central Government. This definition of appropriate
Government is applicable to contract labour (R&A) Act, 1970 and Payment of Bonus
Act, 1965.
The term "Industry" includes not only manufacturing and commercial establishments
but also professionals like that of the lawyers, medical practitioners, accountants,
architects, etc., clubs, educational institutions like universities, cooperatives, research
institutes, charitable projects and other kindred adventures, if they are being carried
on as systematic activity organised by cooperation between employers and
employees for the production and/or distribution of goods and services calculated to
satisfy human wants and wishes. It also includes welfare activities or economic
adventures or projects undertaken by the government or statutory bodies, and,
Government departments discharging sovereign functions if there are units which are
industries and which are substantially severable units. (Judgement dated 21.2.78 in
the civil appeals no. 753-754 in the matter of Bangalore Water Supply & Sewerage
Board etc. Vs. Rajappa & Sons, etc.).
Sec. 2 (s) defines "workman" as any person (including an apprentice) employed in
any industry to do any skilled, unskilled manual, supervisory, operational, technical
or clerical work for hire or reward. Whether the terms of employment be expressed or
employed and for the purposes of any proceedings under this act in relation to an
industrial dispute, includes any such person who has been dismissed, discharged,
retrenched in connection with or as a consequence of that dispute or whose dismissal,
discharge or retrenchment has led to that dispute but does not include any such
person (i) who is subject to Air Force Act, Army Act or Navy Act or (ii) who is
employed in police service or prison service, (iii) who is employed mainly in a
managerial and advisory capacity or (iv) who being employed in supervisory capacity
ity draws wages exceeding Rs.1600/- and exercises by the nature of the duties
attached to the office or by means of powers vested in him, functions mainly of a
managerial nature. May and Baker India case S.C. (1976) which led to passing of
Sales Promotion Employees Act, 1976, had been stipulated that sales /medical
representatives are not workmen under Sec. 2(s) of ID Act.
The provisions of ID Act, 1947 will be applicable to certain class of working
journalists as per section 3 of Working Journalists Act 1955. 11
14.4 MEASURES FOR PREVENTION OF CONFLICTS
AND DISPUTES
The Act not only provides machinery for investigation and settlement of disputes, but
also some measures for the containment and prevention of conflicts and disputes.
Important preventive measures provided under the Act are:
1. Setting up of Works Committees in establishments employing 100 or more
persons, with equal number of representatives of workers and management for
endeavouring to compose any differences of opinion in matters of common
interest, and thereby promote measure for securing and preserving amity and
cordial relations between the employer and workmen. The representatives of
workmen will not be less than the representatives of employers and such
representatives of workmen will be from among the workmen engaged in the
establishment and in consultation with registered trade unions. The decision of
the works committee carries weight but is not conclusive and binding; its duties
is to smooth away friction then to alter conditions of services, etc. (Section 3).
2. Prohibition of changes in the conditions of service in respect of matters laid
down in the Fourth Schedule of the Act (Appendix-1) (a) without giving notice
to the workmen affected by such changes; and (b) within 21 days of giving such
notice. No such prior notice is required in case of (a) Changes affected as a
result of any award or settlement; (b) Employees governed by Government.
rules and regulations (see 9A).
3. Prohibition of strikes and lock outs in a public utility service (a) without giving
notice to other party within six weeks before striking or locking out, (b) within
14 days of giving such notice, (c) before the expiry, of the date of strike or lock-
out specified in the notice and during the pendency of any conciliation
proceedings before a conciliation office and seven days after the conclusion of
such proceedings. In non-public utility services strikes and lock out are
prohibited during the pendency of conciliation proceedings before the Board of
Conciliation and seven days after the 'conclusion of such proceedings, during the
pendency of proceedings before an arbitrator, labour court, and Industrial
Tribunal and National Tribunal, during the operation of an award and settlement
in respect of matters covered by the settlement or award. (Sections 22 and 23).
4. Prohibition of Unfair Labour Practices: Sec. 25 T and 25 U prohibit employers,
employees and unions from committing unfair labour practices mentioned in the
Schedule V of the Act (Appendix-In. Commission of such an offence is
punishable with imprisonment upto six months and fine upto Rs.1000, or both.
(Ch. V -C)
5. Requiring employers to obtain prior permission of the authorities concerned
before whom disputes are pending for conciliation, arbitration and adjudication,
for changing working and employment conditions, or for dismissal or
discharging employees and their union leaders. (Section 33).
6. Regulation, of lay-off and retrenchment and closure of establishment: Sec. 25
and its' sub-sections require employers to (a) pay lay-off compensation to
employees (in establishments employing 50 or more) for the period that they are
laid-off, at the rat of 50% of the salary or wages which they would have paid
otherwise, (b) give one month notice, and three months notice in case of
establishments employing 100 or more persons or pay in lieu of notice, and also
pay compensation at the rate of 15 days wages for every completed year of
service for retrenchment and closing establishments (c),-Retrench employees on
the basis of first come last go, and (d) obtain permission from the Government
for retrenchment and laying off employees and closing, of establishments
employing 100 or more persons. (Ch. VA, VB)
14.5 MACHINERIES FOR INVESTIGATION AND
SETTLEMENT OF DISPUTES
For Industrial; disputes which are not. prevented or settled by, collective bargaining
or Works Committees or by Bipartite negotiations, the following authorities are
12 provided under the. Industrial Disputes Act for resolving the same.
a) Conciliation Officer and Board of Conciliation Act, 1947-I
b) Voluntary Arbitration
c) Adjudication by Labour Court, Industrial Tribunal, and National Tribunal
14.6 CONCILIATION
Conciliation in industrial disputes is a process by which representatives of
management and employees and their unions are brought together before a third
person or a body of persons with a view to induce or persuade them to arrive at some
agreement to their satisfaction and in the larger interest of industry and community as
a whole. This may be regarded as one of-the phases of collective bargaining and
extension of process of mutual negotiation under the guidance of a third party, i.e.
Conciliation Officer, or a Board of Conciliation appointed by the Government.
Both the Central and State Governments are -empowered under the Industrial
Disputes Act, 1947 to appoint such number of conciliation officers as may be
considered necessary for specified areas or for specified industries in specified areas
either permanently or for limited periods.
The main duty of a Conciliation Officer is to investigate and promote settlement of
.disputes. He has wide discretion and may do all such sthings, as he may deem fit to
bring about settlement of disputes. His role is only advisory and mediatory. He has
no authority to make a final decision or to pass formal order directing the parties to
act in a particular manner.
Process of Conciliation
Where any industrial dispute exists or is apprehended, and is brought to the notice of
conciliation officer by the parties concerned, or is referred to him by the government,
or he receives a notice of strike or lock-out, he is to hold conciliation proceedings in
the prescribed manner. Conciliation proceedings are obligatory in case of public
utility services, and in such cases conciliation proceedings have to be started
immediately after receiving notice of strike or lock-out or reference from the
Government. In such cases conciliation proceedings are deemed to have commenced
from the time the notice of strike is received by the conciliation officer. In other cases
conciliation may be initiated at the discretion of the Government. The conciliation
officer' may send formal intimation to the parties concerned declaring his intention to
commence conciliation proceedings with effect from the date he may specify. He
may hold meetings with the parties to the dispute either jointly or separately. A joint
meeting saves time and also affords parties an opportunity to meet each other and put
forward their respective view points and comments about the dispute. Conciliation
proceedings are to be conducted expeditiously in a manner considered fit by the
conciliation officer for the discharge of his duties imposed on him by the Act, If a
settlement is arrived at in the course of the conciliation proceedings, memorandum of
settlement is worked out and signed by the parties concerned, and it becomes then
binding on all parties concerned for a period agreed upon.
The conciliation officer is to send a report to the Government giving full facts along
with a copy of the settlement. If no agreement is arrived at, the-conciliation- officer is
required to submit a full report to the Government explaining the causes -of :failure.'
After considering the failure report the Government may refer the dispute to the
Board of Conciliation, arbitration, or for adjudication to Labour Court or Industrial
Tribunal. If the Government does not make such a reference, it shall record and
communicate to the. parties concerned the reasons thereof. While exercising its
discretion, the Government must act in a bonafide manner and on consideration of
relevant matters and facts. The reasons must be such as to show that the question was
carefully and properly considered. The conciliation officer has to send his report
within 14 days of the commencement of conciliation proceedings, and this period
may be extended as may be agreed upon by the parties in writing.
The conciliation officer is not h judicial officer. After reporting that no settlement
could be arrived at, he cannot be debarred from, making fresh effort to bring about a
settlement. 13
But he cannot take final decision by himself.
Powers of Conciliation Officer
Under the Act, conciliation is not a judicial activity. It is only administrative, since it is
executed by the Government agency. Although conciliation officer is not a judicial
officer, but to enable him to discharge his duties cast upon him under the Act, he has
been empowered to enter the premises occupied by an establishment to which the
dispute relates after giving reasonable notice for inspecting same, or any of its
machinery, appliances or articles. He can also interrogate any person there in' respect of
any thing situated therein or any matter relevant to the subject matter of conciliation.
He can also call for any document which he has ground for considering relevant in the
dispute, or to be., necessary for the purposes of verifying the implementation of any
award or carrying out any other duty imposed on him under the Act. He is also
empowered to enforce the attendance of any person for the purpose of examination of
such persons. For all these purposes the conciliation officer shall have the same power
as are vested in a Civil Court under the Code of Civil Procedure. He is also deemed to
be public servant within the meaning of Sec. 21 of the Indian Penal Code:
Settlements In and Ouside Conciliation
A settlement arrived at in proceedings under the Act is binding on all the parties to the
dispute. It is also binding on other parties if they are summoned to appear in
conciliation proceedings as parties to the dispute: In case' of employer such a
settlement is also binding on his heirs, successors, assigns in respect of establishment
to which these disput relate. In regard to employees, it is binding on all persons who
were employed in establishment or part of the establishment to which the dispute'
relates on the date of dispute, and to all persons who subsequently become employed
in that establishment.
A settlement arrived at by agreement between the management and workers or their
unions outside conciliation. proceedings is binding only on the parties to the
agreement. (Section 18).
Board of Conciliation
This is a higher forum which is constituted for a specific dispute. It is not a permanent
institution fake the Conciliation Officer, The Government may, as occasion arises,
constitute a Board of Conciliation for settlement of an industrial dispute with an
independent chairman and equal representatives of the parties concerned as its members.
. The chairman who is appointed by the Government, is to be a person unconnected with
the dispute or with any industry directly affected by such dispute. Other members are to
be appointed on the recommendations of the parties concerned; and if any party fails to
make recommendation, the Government shall appoint such persons as it thinks fit to
represent that party. The Board cannot admit a dispute in conciliation on its own.-It can
act only when reference is made to it by the Government. (Section 5).
As soon as a dispute is referred to a Board, it has to endeavour to bring about a
settlement of the same.. For this purpose, it has to investigate the dispute and all matters
affecting the merits and right settlement thereof, for the purpose of inducing the parties
to come to a fair and amicable settlement. Procedure followed by the Board in this
regard is almost the same as adopted by the conciliation officers. The Board is, however,
required to submit its report within two months of the date on which the dispute was
referred to it, or within such short period as the Government may fix in this behalf. The
proceedings before the Board are to be held in public, but the Board may at any stage
direct that any witness shall be examined or proceedings shall be held in camera.
If a settlement is arrived at, a report with a copy of the settlement is submitted, to the
Government. If the Board fails to bring about settlement, a report is submitted to the
Government stating the facts and circumstances, the steps taken, reasons for failure
along with its findings. After considering its findings the Government may refer the
dispute for voluntary arbitration if both the parties to the dispute agree for the same,
or for 'Adjudication to Labour Court or Industrial Tribunal or National Tribunal.
There period of submission of report may be extended by the Government beyond
two months as agreed upon by the parties in writing. A member of the Board may
record any minute of dissent from the report, or from any recommendation made
therein. With the minute of dissent the report shall be published by, the Government
14 within thirty days from the receipt
thereof. A Board of Conciliation can only try to bring about a settlement. It has no Act, 1947-I
power to impose a settlement on the parties to the dispute. The Board has the power
of a Civil Court for,(i) enforcing the attendance of any person and examining on oath;
(ii) compelling the production of documents and material objects; (iii) issuing
commissions for the examination of witnesses. The enquiry or investigation by the
Board is regarded as judicial proceedings.
The Boards of conciliation are rarely appointed by the Government these days. The
original intention was that major disputes should be referred to a Board and minor
disputes shout be handled by the conciliation officers. In pracice,, however, it was found
that when the Parties to the dispute could not come to an agreement between themselves,
their representatives on the Board in association with independent chairman (unless latter
had the role of n umpire or arbitrator), could rarely arrive at a settlement. The much more
flexible procedure followed by the conciliation officer is found to be more acceptable.
This is more so when disputes relate to a whole industry, or important issues, and a senior
officer of the Industrial Relations Machinery, i.e. a senior officer of the Directorate of
Labour, is entrusted with the work of conciliation. The Chief Labour Commissioner
(Central) or Labour Commissioner of the State Government generally intervene
themselves in conciliation when important issues form the subject matters of the dispute.
Court of Inquiry may be constituted for inquiring about matter appearing to be
connected with or relevant to an I.D. The court may consist of one or more
independent persons. It has to submit its report within six months on the matter
referred to Units. (Sec. 6).
14.7 VOLUNTARY ARBITRATION
When Conciliation Officer or Board of Conciliation fail to resolve conflict/dispute,
parties can be advised to agree to voluntary arbitration for settling their dispute. For
settlement of differences or conflicts between two parties, arbitration is an age old
practice in India. The Panchayat system is based on this concept. In the industrial
sphere, voluntary arbitration originated at Ahmedabad in the textile industry under
the influence of Mahatma Gandhi. Provision for it was made under the Bombay
Industrial Relations Act by the Bombay Government along with the provision for
adjudication, since this was fairly popular in the Bombay region in the 40s and 50s.
The Government of India has also been emphasising the importance of voluntary
arbitration' for settlement of disputes in the labour policy chapter in the first three
plan documents, and has also been advocating this step as an essential feature of
collective bargaining. This was also incorporated in the Code of Discipline in
Industry adopted at the 15th Indian Labour Conference in 1958. Parties were
enjoined to adopt voluntary arbitration without any reservation. The position was
reviewed in 1962 at the session of the Indian Labour Conference where it was agreed
that this 'step would be the normal method after conciliation effort fails, except when
the employer feels that for some reason he would prefer adjudication. In the
Industrial Trade Resolution also which was adopted at the time of Chinese
aggression, voluntary arbitration was accepted as a must in all matters of disputes.
The Government had thereafter set up a National Arbitration Board for making the
measure popular in all the states, and all efforts are being made to sell this idea to
management and employees and their unions.
In 1956 the Government decided to place voluntary arbitration as one of the measures
for settlement of a dispute through third party intervention under the law. Sec. 10A
was added to the Industrial Disputes Act, and it was enforced from 10th March, 1957.
Reference of Disputes for Arbitration
Where a dispute exists or is apprehended, it can be referred for arbitration if the parties
to the dispute agree to do so by submitting a written agreement to that effect,
mentioning the person acceptable to them as arbitrator and also the issues to. be
decided in arbitration - proceedings, to the Government and the Conciliation Officer
concerned before it is referred for adjudication to Labour Court or Tribunal. The
Agreement must be signed by both the parties. Both under Sec. 10A and 10(2)
reference is obligatory.
Where an agreement provides for even number of arbitrators, it will provide for the 15
appointment of another person as an Umpire who shall decide upon the reference if the
arbitrators are divided in their opinion. The award of the Umpire shall be deemed to
be the arbitration award for the purposes of the Act.
The appropriate Government shall within one month from the date of the receipt of
the copy of the arbitration agreement publish the same in the Official Gazette if the
Government is satisfied that the parties who have signed the agreement for
arbitration, represent majority of each party; otherwise it can reject the request for
arbitration.
Where any such notification has been issued, the employer and workmen who are not
parties to the arbitration agreement, but are concerned in the dispute, shall be given
an opportunity to present their case before the arbitrator or arbitrators.
The arbitrator shall investigate the dispute and submit to the Government the
Arbitration Award signed by him.
Where an industrial dispute has been referred for arbitration and notification has been
issued, the Government may by order prohibit the continuance of any strike or lock-
out in connection with such dispute, which may be in existence on the date of
reference.
The arbitration award which is submitted to the Government and becomes
enforceable, is binding on all parties to the agreement and all other parties summoned
to appear in the proceedings as parties to 'dispute. Such an award is also binding on
all, employees at the time of award, or to be employed subsequently even if they are
not party to the initial agreement. If the arbitration agreement is not notified in the
Official Gazette under Sec. 10-A, it is applicable only to the parties who have agreed
to refer the dispute for arbitration.
Arbitration Award is enforceable in the same manner as the adjudication award of
Labour Colt or Industrial Tribunal.
Arbitration is an alternative-to adjudication and the two cannot be used
simultaneously. It is voluntary at the discretion of the parties to a dispute. Arbitrator
is a quasi-judicial body. He is an independent person and has all the attributes of a
statutory arbitrator. He has wide freedom, but he must function within the limit of his
powers. He must follow due procedure of giving notice to parties, giving fair
hearings, relying upon all available evidence and documents. There must be no
violation of the principles of natural justice.
Acceptance of Arbitration
Voluntary arbitration has been recommended and given place in law by the
Government. Experience, however, shows that although the step has been strongly
pressed by the Government for over thirty years it has yet to take roots. During the
last decade not even 1% of the disputes reported were referred for arbitration. The
National, Commission on Labour examined the working of arbitration as a method of
settling disputes, and found that it was yet to be accepted by the parties, particularly
by the 'employers, unreservedly. The main hurdles noticed yet are:
a) Choice of suitable arbitrator acceptable to both parties.
b) Payment of-arbitration-fees-Unions can seldom afford to share such costs
equally with management.
Apart from these, it appears that arbitration under the Act is not correctly understood
by the employers and trade unions. When arbitration is suggested, the impression
often is that matter is to be left to the sole decision of an individual who can act in
any manner he likes. The sanctity of the decision by an arbitrator. is also held in
doubt. The fact that law covers voluntary arbitration, and places it almost parallel to
adjudication, is not appreciated or known widely.
Undoubtedly an arbitrator can give a decision more promptly and enjoys greater
freedom since he is not bound by fetters of law and procedure. He is also not required
to only interpret the technicality and meaning of statutory provisions. He is required
in fact to decide the issue on grounds of natural justice and fair play to both the
parties. Arbitration if accepted voluntarily and not under any duress or pressure,
should provide a more wholesome answer.- It,, however, is for the parties to give a
16 trial to this measure.
14.8 ADJUDICATION Act, 1947-I
Unlike conciliation and arbitration, adjudication is compulsory method of resolving

conflict. The Industrial Disputes Act provides the machinery for adjudication,
namely, Labour Courts, Industrial Tribunals and National Tribunals. The procedures
and powers of these three bodies are similar as well as provisions regarding
commencement of award and period of operation of awards. Under the provisions of
the Act, Labour Courts and Industrial Tribunals can be constituted by both Central
and State Governments, but the National Tribunals can be constituted by the Central
Government only, for adjudicating disputes which, in its opinion, involve a question
of national importance or of such a nature that industrial establishments situated in
more than one State are likely to be affected by such disputes.
Labour Court
It consists of one person only, who is also called the Presiding Officer, and who is or
has been a judge of a High Court, or he has been a district judge or an additional
district judge for a period not less than three years, or has held any judicial office in
India for not less than seven years. Industrial disputes relating to any matter specified
in the Second Schedule of the Act (Appendix-III) may be referred for adjudication to
the Labour Court. (Section 7).
Industrial Tribunal
This is also one-man body (Presiding Officer). The Third Schedule of the Act
mentions matters of industrial disputes which can be referred to it for adjudication
(Appendix-IV). This Schedule shows that Industrial Tribunal has wider jurisdiction
than the Labour Court. The Government concerned may appoint two assessors to
advise the Presiding Officer in the proceedings. (Section 7A).
National Tribunal
This is the third adjudicatory body to be appointed by the Central Government under
the Act for the reasons already mentioned above. It can deal with any dispute
mentioned in Schedule II and III of the Act or any matter which is not specified
therein. This also consists of one person to be appointed by the Central Government,
and he must have been a Judge of a High Court. He may also be assisted by two
assessors appointed by the Government to advise him in adjudicating disputes.
The presiding officers of the above three adjudicatory bodies must be independent
persons and should not have attained the age of 65 years. Again, these three bodies
are not hierarchical. It is the prerogative of the Government to refer a dispute to these
bodies. They are under the control of the labour department of the respective State
Government and the Central Government. The contending parties cannot refer any
dispute for adjudication themselves, and the award of these bodies are binding on
them. (Section 7B).
Reference of Dispute for Adjudication (Section 10)
If a dispute is not settled by direct negotiation, or conciliation, if the parties do not
agree to get it settled by voluntary arbitration, the Government at its discretion may
refer it to Labour Court, Industrial Tribunal or National Tribunal, depending upon
whether the matter of the dispute appears in the Second of Third Schedule of the Act.
However, if the parties to the dispute jointly or separately apply for a reference to
Labour Court or Tribunal, the Government is obliged to make a reference
accordingly if it is satisfied that the persons applying represent the majority of each
party. Disputes which are considered vexatious or frivolous, are not referred to
adjudication. The Government has also the power to refer disputes which have not
taken place, but are only apprehended. After referring the dispute to adjudication the
Government can prohibit the continuance of any strike or lock-out in connection with
such dispute which may be in existence on the date of its reference.
An order referring a dispute to Labour Court or Industrial Tribunal or National
Tribunal shall specify the period within which they shall submit their award on such
dispute to the Government concerned. In case of individual disputes such a period
shall not exceed three months. The period can, however, be extended if the parties
concerned apply for such extension, or the Labour Court or Industrial Tribunal may
consider expedient to do so for the reason to be recorded. The proceedings before 17
these authorities shall not lapse on the
ground that the proceedings have not been completed' within the specified time or by
reason of the death of any of the parties to dispute being a workman. In computing
any period specified in the order of reference, the period if any, for which
proceedings had been stayed by the injunction of the Civil Court, shall be excluded.
When the Central Government is the appropriate Government in relation to any

industrial dispute, it can refer the dispute for adjudication to Labour Court or
Industrial Tribunal appointed by the State Government instead of setting up its own
Labour Court or Tribunal for that purpose.
14.9 AWARDS OF LABOUR COURTS AND INDUSTRIAL

TRIBUNALS
Awards of Labour Courts and Industrial Tribunals are binding on the parties
concerned, on their heirs, successors and assignee of employers and on all persons
employed subsequently. On receipt of award, it is to be published by the appropriate
Government within thirty days of the receipt. They become enforceable on the expiry
of thirty days from the date of their publication in the Official Gazette. The normal
period of operation of any award, as fixed under the Act, is one year. The
Government has, however, the power to fix such period as it thinks fit. The
Government can also extend the operation of the award up to one year at a time, but
the total period of operation of any award cannot exceed three years from the date
when it came into effect. Even if it is not extended, the award remains binding on the
parties till it is terminated by two months notice given by majority of one of the
parties bound by the award to the other party, intimating its intention to terminate the
award. The appropriate Government may not accept or give effect to an award in
relation to a dispute to which it is a party, or if the award is given by the National
Tribunal, and if it is considered inexpedient on grounds of national economy or social
justice. In such a situation the Government may by notification in the Official
Gazette declare that the award does not become enforceable on the expiry of the said
period of thirty days. Within thirty days of its publication the Government may make
an order, rejecting or modifying the award, and shall on the first available
opportunity lay the award together with a copy of the order before the State
Assembly or the Parliament, as the case may be, where the award may be modified or
rejected. Such an award shall become enforceable on the expiry of 15 days from the
date it is so laid. Where no order is made in pursuance of declaration, award becomes
enforceable within 90 days of its publication. The award comes into operation from
the date mentioned in the order, and where no date is mentioned, it operates from the
date it becomes enforceable. (Sections 17, 17A, 19).
14.10 PROTECTION OF WORXMEN DURING

PENDENCEY OF PROCEEDINGS
These awards are semi judicial in nature after they are published. They are amenable
to constitutional remedies provided by Articles 32,226 and 227 of the Constitution on
grounds of defects of jurisdiction, violation of the principles of natural justice or any
error of law. Proceedings can be initiated against these awards both in the High Court
and the Supreme Court. But if an employer prefers any proceedings against an award
which directs the reinstatement of any workman, in High Court or the Supreme
Court, he is liable to pay to such workman during the pendency of such proceedings
full wages last drawn by him, inclusive of any maintenance allowance admissible to
him under any rule if the workman had not been employed in any establishment
during such period. If, however, it is proved to the satisfaction of the Court that such
workman had been employed and had been receiving adequate remuneration during
any such period or part thereof, the Court shall order that no wages shall be payable
for such period or part thereof, as the case may be. (Section 17B).
18
14.11 POWERS OF LABOUR COURT AND INDUSTRIAL Act, 1947-I
TRIBUNALS
Every investigation by these authorities is deemed to be a judicial proceeding within
the meanings of Section 193 and 228 of the Indian Penal Code. They are also deemed
to be Civil Court for the purposes of Section 345, 346 and 348 of the Code of
Criminal Procedure. They have also the power to substitute their decision for the
decision of the employer in disciplinary cases. They are empowered to determine as
to who, to what extent, and to whom the cost of proceedings before them are to be
paid.
They are also empowered to enforce the attendance of any person for the purpose of
examination of such persons, compel the production of documents and material
objects and issue commission for examination of witnesses. They are also deemed to
be public servants within the meaning of Section 21 of the Indian Penal Code. They
can also enter premises of an establishment to which dispute is related for purposes
of enquiry after giving reasonable notice.
Section 11A was inserted in the Act in 1971. It was sequel to IISCO case (S.C. 1958)
and ILO's recommendation that worker aggrieved by his termination should be
entitled for appeal against such termination to a neutral body such as arbitrator, a
court, and arbitration committee, or a similar body.
If the Court or Tribunal, as the case may be, is satisfied that the order of discharge or
dismissal was not justified, it may, by its award, set aside the order of discharge or
dismissal and direct re-instatement of the workman on such terms and conditions, as
it thinks fit, or give such other relief to the workman, including the award of lesser
punishment in lieu of discharge or dismisssal, as the circumstances of the case may
be.
14.12 EFFECTIVENESS OF ADJUDICATION

MACHINERY
Initially trade unions affiliated to all political parties were enthusiastic in getting their
disputes settled by conciliation and adjudication as provided under the Industrial
Disputes Act, 1947. Their enthusiasm started waning when they found this method of
settling disputes as very time consuming. Not a few employers also started
questioning the credibility of the presiding officers of the Labour Courts and
Industrial Tribunals, who are generally retired persons engaged on yearly contract
basis. Some trade union leaders now prefer to get disputes settled by pressurised
bargaining rather than by adjudication. Quite a number of disputes are reported to be
pending with Labour Courts and Industrial Tribunals for four or five years, and for
still longer periods in High Courts and the Supreme Court. It, therefore, appears that
the machinery provided by the Industrial Disputes Act is failing to cope with demand
made on it. Its record shows that is is far from successful in resolving conflict
effectively. This may be due to red-tapism and bureaucractic delays and complicated
procedure which are inherent in the Government organisation. Such delays have
encouraged militancy or violence in management and union relations.
The Industrial Disputes Act as amended recently (Act 46 of 1982), provides time
limits for the disposal of disputes by Labour Courts and Tribunals, but these time
limits are observed rarely. The amended Act also provides for setting up a machinery-
within the establishment for prompt handling of grievances, but this amendment has
yet to be given effect to. Over thirty years back, National Commission on Labour
recommended setting up of a more independent machinery in the form of Industrial
Relations Commissions, and this recommendation is still under the consideration of
the Government. In view of all this it is no wonder that union and management
relations in the country are still brittle, and arrangements for settlement of dispsutes
19
need considerable improvement.
Appendix I
THE FOURTH SCHEDULE
(See Section 9A)
Conditions of Service for Change of which Notice is to be given

1. Wages, including the period and mode of payment;
2. Contribution paid, or payable, by the employer to any provident fund or pension
fund or for the benefit of the workmen under any law for the time being in force;
3. Compensatory and other allowances;
4. Hours of work and rest intervals;
5. Leave with wages and holidays;
6. Starting, alteration or discontinuance of shift working otherwise than in
accordance with standing orders;
7. Classification by grades;
8. Withdrawal of any customary concession or privilege or change in usage;
9. Introduction of new rules of discipline, or alteration of existing rules, except in
so far as they are provided in standing orders;
10. Rationalisation, standardisation or improvement of plant or technique which is
likely to lead to retrenchment of workmen;
11. Any increase or reduction (other than casual) in the number of persons
employed or to be employed in any occupation or process or department to shift,
not occasioned by circumstances over which the employer has no control.
Appendix II
THE FIFTH SCHEDULE
(Unfair Labour Practices)
On the Part of Employers
I) To interfere with, restrain from, or coerce, workmen in the exercise of their rights
to organise, form, join or assist a trade union or to engage in concerted activities
or the purpose of collective bargaining or other mutual aid or protection, that is to
say,
a) threatening workmen with discharge or dismissal, if they join a trade union;
b) threatening a lock-out or closure, if a trade union is organised;
c) granting wage increase to workmen at crucial periods of trade union
organisation with a view to undermine its efforts.
II) To determine, interfere with or contribute support, financial or otherwise, to any
trade union, that is to say,
a) an employer taking an active interest in organising a trade union of his

workmen; and
b) an employer showing partiality or granting favour to one or several trade

unions attempting to organise his workmen, or to its members where such a
trade union is not a recognised trade union.
III) To establish employer-sponsored unions of workmen.
IV) To encourage or discourage membership in any trade union by discriminating

20 against any workman, that is to say:
a) discharging or punishing a workman, because he urged other workmen to Act, 1947-I
join or organise a trade union;
b) discharging or dismissing a workman for taking part in any strike (not
being a strike which is deemed to be illegal under the Act);
c) changing seniority rating of workmen because of trade union activities;
d) refusing to promote workmen to higher posts on account of their trade
union activities;
e) giving unmerited promotion to certain workmen with a view of creating
discord amongst other workmen, or to undermine the strength of their trade
union;
f) discharging office bearers or active members of the trade union on account
of their trade union activities.
V) To discharge or dismiss workmen
a) by way of victimisation;
b) for patently false reasons;
c) not in good faith, but in the colourable exercise of the employers rights;
d) by falsely implicating a workman in a criminal case on false or concocted
evidence;
e) on untrue or trumped up allegations of absence without leave;
f) in utter disregard of the principles of natural justice in the conduct of
domestic enquiry or with undue haste;
g) for misconduct of a minor or technical character, without having any regard
to the nature of the particular misconduct or the past record or service of
workman, thereby leading to disproportionate punishment.
VI. To abolish the work of a regular nature being done by workmen and to give such
work to contractors as measures of breaking a strike.
VII. To transfer a workman malafide from one place to another, under the guise of
following management policy.
VIII. To insist upon individual workmen who are on a legal strike to sign a good
conduct bond, as a precondition to allowing them to resume work.
IX. To show favourtitism or partiality to one set of workers regardless of merit.
X. To employ workmen as "Badlis", casuals, or temporaries, and to continue them
as such for years, with the object of depriving them of the status and privileges
of permanent workmen.
XI. To discharge or discriminate against any workman for filing charges or
testifying against an employer in an enquiry or proceeding relating to any
industrial dispute.
XII. To recruit workmen during a strike which is not illegal.
XIII. Failure to implement award, settlement or agreement.
XIV. To indulge in acts of force or violence.
XV. To refuse to bargain collectively, in good faith with the recognised union.
XVI. Proposing and continuing a lock-out deemed to be illegal under the Act.
On the part of Workmen and Trade Unions of Workmen
I. To advise, or actively support or instigate any strike deemed to be illegal under
this Act.
II. To coerce workmen in the exercise of the right of self-organisation or to join a
trade union or refrain from joining a trade union, that is to say:
a) For a trade union or its members to picketing in such a manner that non-striking
workmen are physically debarred from entering the work place; 21
b) To indulge in acts of force or violence or to hold out threats of intimidation in
connection with a strike against non-striking workmen or against managerial
staff.
III. For a recognised union to refuse to bargain collectively in good faith with the
employer.
IV. To indulge in coercive activities against certification of a bargaining
representative.
V. To stage, encourage or instigate such forms of coercive actions as wilful "go-
slow”, squatting on the work premises after working hours or "Gherao" of any of
the members of the managerial or other staff.
VI. To stage demonstration at the residence of the employers or the managerial staff
members.
VII. To incite or indulge in wilful damage to employer's property connected with
industry.
VIII. To indulge in acts of force 'or violence or to hold out threats of intimidation
against any workman with a view to prevent him from attending work.
Appendix III
THE SECOND SCHEDULE
(See Section 7)
Matters within the Jurisdiction of Labour Courts
1. The propriety or legality of an order passed by an employer under the standing

orders;
2. The application and interpretation of standing orders;
3. Discharge or dismissal of workmen including reinstatement of, or grant of relief
to workmen wrongfully dismissed;
4. Withdrawal of any customary `concession of privilege;
5. Illegality or otherwise of a strike or lock-out; and
6. All matters other than those specified in the Third Schedule.
Appendix IV
THE THIRD SCHEDULE
(See Section 7A)
Matters within the Jurisdiction of Industrial Tribunals.
1. Wages, including the period and mode of payment;
2. Compensatory and other allowances;
3. Hour of work and rest intervals;
4. Leave with wages and holidays;
5. Bonus, profit-sharing, provident fund and gratuity;
6. Shift working otherwise than in accordance with standing orders;
7. Classification by grades;
8. Rules of discipline;
9. Rationalisation;
10. Retrenchment of workmen and closure of establishment; and
11. Any other matter that may be prescribed.
22
Wages and Labour Laws
UNIT 21 PAYMENT OF BONUS ACT, 1965

Objectives
The objective of this Unit is to explain briefly:
• The concept of Bonus and how it has been changing from that of a Gift or
Grauitous payment to that of share in profit or property, and finally becoming a
statutory obligation of employer
• How this legislation has enacted
• Definition of some important term used in this Act
• Strength and weakness of this legislation and the need for its further amendment
and
• Some important case law.
Structure
21.1 Introduction
21.2 Concept of Bonus
21.3 L.A.T. or Full Bench Bonus Formula
21.4 Bonus Commission
21.5 Enactment of Payment of Bonus Act, 1965
21.6 Eligibility for Bonus
21.7 Computation of Gross Profits in Banking and other Companies
21.8 Determination of Available Surplus
21.9 Sums Deductible from Gross Profit: Third schedule
21.10 Calculation of Direct Tax Payable by the Employer
21.11 Allocable Surplus
21.12 Special Provisions with Respect to Certain Establishments
21.13 Presumption about Accuracy of Balance Sheet and Profit and Loss Account
of Corporations and Companies
21.14 General Remarks
21.15 Self-Assessment Test
21.16 Further Readings
21.1 INTRODUCTION
Annual Bonus is an important component of wage payable to workers. This forms 8
to 10% of the total earnings of workers. As its payment can now be claimed as a legal
right, it is looked upon by the working class as a great hope and expectation. Again,
as real wages payable to most of the workers in India have not reached even the
prewar (1939) level, the annual bonus will continue to play the part of tilling the gap
between the existing and the living wage. Though views have been expressed for the
total abolition of bonus claim, and instead for raising the wage level, it appears that
such a radical step has no chance of acceptance at least till the whole wage policy
undergoes a rational and planned formulation in place of its present haphazard
growth.
21.2 CONCEPT OF BONUS

Concept of annual profit bonus has a long history behind it. Originally bonus was
36 regarded as a gift or an ex-gratia payment by any employer to his employees in cash
Payment of Bonus Act, 1965
or kind to motivate their efforts on important festivals like Diwali, Durga Puja and
Onam. Before the first world war some European firms used to given free Dhoties
and other household articles on festivals, while Indian firms gave gifts in cash and
kind by way of bonus. In Bengal there was a system of paying bonus at the time of
Durga Puja irrespective of profit and loss. In large concerns extra payments were
made which were called bonus. A proper system of paying bonus was started during
the First World War. In 1917 the textile industry in Bombay and Ahmedabad gave 10
recent increase in wages calling it a war bonus, and this was increased to 15 per cent
1918. After the war when some concerns stopped paying bonus. Workers claimed it
(fit as a right, and went on strike. The matter was referred to a committee headed by
the Chief Justice of Bombay in February, 1924. The Committee observed that the
employees had not established any enforceable claim, customary, legal or equitable.
However, workers continued to receive bonus as an ex-gratia payment in concerns
which were making profit. During the years that followed bonus ceased to be a
serious industrial relations problem due to economic recession.
During the 2nd World War, bonus again became a live issue when industries started
making extra-ordinary profits. Though some employers paid bonus voluntarily, many
disputes regarding bonus were referred to ad-hoc Industrial Courts of Tribunals for
adjudication under the Defence of India Rules. Some of these disputes went upto the
Supreme Court also. The adjudicators took the view that profits were made possible
by the joint efforts of both capital and labour. The latter therefore had a right to share
in the increased profits. This position continued until the Bombay High Court laid
down that the payment of Bonus could be demanded by workers as a right, that is to
say, a payment which could be made by the employer as extra remuneration for work
done by employees under a contract, express of implied (India Hume Pipe Company
V. E.M. Nanavutty 48 Bombay L.R., 551). The Supreme Court also held in the case
of Associated Cement Co. Ltd. V. Their workers, A.I.R. (1959) S.C. 967 that it is fair
and just that labour should derive some share in the surplus available after meeting
necessary prior charges.
21.3 L.A.T. OR FULL BENCH BONUS FORMULA

The Labour Appellate Tribunal appointed under the Industrial Disputes Act, 1947,
evolved following Bouns Formula in the case of Mill Owners Association, Bombay
V. Rashtriya Mill Mazdoor Singh, Bombay (1950) 2 L.L.J. 247, known as LAT or
Full Bench Formula.
As both labour and capital contribute to the earnings of the industrial concern it is fair
that labour should derive some benefits if there is surplus after meeting necessary
prior charges: These prior charges on gross profit as mentioned in the Formula are:
i) Provision for depreciation;
ii) Reserve for rehabilitation;
iii) Return of six per cent of the paid up capital;
iv) A return of the working capital at a lower rate than the return on paid up capital.
The surplus left after meeting the above deductions would be available for
distribution as bonus. Workers, therefore, can claim bonus if the concern has earned
profit and there is left some surplus after meeting the above mentioned prior charges.
If the working of the concern; results in loss in any particular year, there is no
justification for demanding bonus.
These views were endorsed by the Supreme Court in the case of Muir Mills Co. Ltd.
V. Suti Mills Mazdoor Union, Kanpur, A.I.R. (1955)S.C. 170, by observing that the
demand of labour for bonus can be justified and becomes an industrial claim only if
wages in any industry are below the standard of living wages, and industry has made
profits in the earning of which workman have contributed by their labour. The
demand fathoms cannot be sustained when either of these two conditions is not
satisfied.
Although the Bonus Formula, underlying principles of which wet e upheld by the
Supreme Court was followed all over the country by Industrial Tribunals, in 37
awarding
bonus, demand for its revision also continued to be made from time to time.
Rehabilitation charge was the most objected point for which revision was sought, as
it was alleged to be denying workers bonus even when the concern was making
profit. This issue came up for consideration by the Supreme Court in 1959 in an
appeal form the Associated Cement Companies. The representatives of employees
complained that the LAT formula was not adequate to ensure worker social and
economic justice as it was denying them bonus even when there was sufficient profit,
mainly because of the rehabilitation charge. The Supreme Court suggested that
question of revising the formula should be considered comprehensively by a high
powered Commission in all its aspects by taking evidence from all industries and
workers and their organisations.
21.4 BONUS COMMISSION
In pursuance of this suggestion the Government set up a tripartite Commission, known
as Bonus Commission by its resolution dated 6th December 1961. The Commission
submitted its report to the Government on 28th January, 1964. The Government
accepted the report with slight modification by their resolution dated, September 1964.
The report was placed in two sessions of the Indian Labour Conference for the
consideration of the representatives of employees, employers and State Government to
see if the recommendations of the Commission could be accepted unanimously by all
the parties represented in the Conference. As there was no unanimity and the views
expressed were divergent, the Government decided to implement the recommendations
of the commission statutorily, and promulgated an Ordinance known as Payment of
Bonus Ordinance in May 1965. This Ordinance was replaced by the Payment of Bonus
Act, 1965 in September of that year. The Act came into operation with effect from 25th
September, 1965. A Bonus Review Committee was set up in 1972 to review the
operation of the Act. In pursuance of the Recommendations of this Committee, the Act
was amended to increase the minimum bonus from 4% to 8.33%.
21.5 ENACTMENT OF PAYMENT OF BONUS ACT, 1965
Objects of the Act As mentioned in the Act itself it aims at providing for the payment
of bonus to persons employed in certain establishments and formatters connected
therewith. But the Act does not define the term "Bonus", and nor does a definition of
bouns exist in any other enactment. One of the terms of reference to Bonus
Commission was to define the concept of bonus. The Commission in its report said:
"It is difficult to define in rigid terms the concept of bonus, but it is possible to urge
that once the profits exceed a certain base, labour should legitimately have a share in
them. In other words, we think it to construe the concept of bonus as sharing by the
workers in the prosperity of the concern in which they are employed. This has also
the advantage that in the case of low paid workers sharing in prosperity augments
their earnings to bridge the gap between the actual wage and the need based wage. If
it is not feasible to better the standard of living of all the industrial and agricultural
workers as aimed at in Article 43 of the Constitution it is nothing wrong in
endeavoring to do so in respect of those workers whose efforts have contributed to
the profits of the concern in which they have worked. The validity of such a
conception of bonus is not affected by the difficulty of determining or qualifying
precisely the living wage or even the “need-based:” wage at any given time and
place.
It appears tows that aproperly conceived bonus system that is linked to profit also
imparts a measure of desirable flexibility to wage structure. The workers are enabled
to share in the prosperity of the concern without disturbing the underlying- basic
wage structure."
From the above observations of the Commission it appears that its recommendations,
for the implementation of which this Act was enacted, were made to promote the
welfare of workers and to make bonus as non-barganiable as possible to minimise the
disputes on this account, The Act is designed to: (i) impose a statutory obligation on
an employer to pay bonus to his workers; (ii) provide for payment of minimum, and--
maximum bonus; (iii) lay down principle and formula for calculation of bonus; and
38 (iv) provide machinery Or the enforcement of the Act.
Scope and Coverage:
This Act extends to the whole of India. It applies to every factory as defined under
the Factories Act, 1948; and every other establishment wherein 20 or more persons
are employed on any day during any accounting year.
The appropriate Government may, after giving a notice of not less than two months
through notification in the Official Gazette, make the Act applicable to any factory or
establishment employing less than twenty but not less than ten persons.
An establishment to which this Act applies shall continue to be governed by the Act
notwithstanding that the number of persons employed therein falls below twenty.
(Section 1)
The Act shall not apply to the following classes of employees; (i) Employees
employed in (a) Life Insurance Corporation of India (b) Industry carried on or under
the authority of any department of Central Government or a State Government or a
Local Authority. (c) Indian Red Cross Society or any other institution of like nature
including its branches; (d) Universities and other educational *institutions; (e)
Hospital, Chambers of Commerce and Social Welfare Institutions established not for
purposes of profits; (f) employed through contractors on building operations; (g)
Reserve Bank of India; (h) Industrial Finance Corporation of India, Deposit
Insurance Corporation and other financial corporations being set up financially
assisted by the Government, and Unit Trust of India, Agricultural Refinance
Corporation, and Industrial Bank of India, (i) Seamen as defined in Sec. 3(42) of the
Merchant Shipping Act, 1958; (j) Inland Water Transport establishment. (Section 32)
Application of the Act to establishments in Public Sector: The Act is applicable to
public sector establishment if in any accounting year it sells any goods produced or
manufactured by it or renders any service in competition with an establishment iii-the
private sector, and the income from such sale or service or both is not less than
twenty per cent of its gross income for that year. (Section 20)
Exemption (Sec. 36):
The appropriate Government may, having regard to the financial position and other
relevant circumstances of an establishment or class of establishment,. exempt by
notification in the Official Gazette, such establishments or class of establishments
from all or any provision of the Payment of Bonus Act. It may do so if it. is of
opinion that is will not be in public interest to apply all or any of the provision of this
Act to such establishment or class of establishment. It may exempt such
establishments or class of establishment from the application of the provision of this
Act for such period as may be specified in the notification and impose such
conditions as it may think fit to impose.
An order passed in the proceedings under Sec. 36 refusing exemption must be
speaking one as the proceedings under the Section are quasi/judicial. If it is passed
without giving reason, it is invalid.
Constitutionality of the Act:
The constitutional validity of the act was challenged in the Supreme Court in the case
of Jalan Trading Company (Pvt,) Ltd. V. Mill Mazdoor Union, AIR (1977) S.C. on
the ground of violation of Articles 14 and 19 of the Constitution. The Supreme Court
upheld the main provision of the Act regarding payment of minimum bonus as
constitutional. The payment of bonus, being in implementation of the Articles 39 and
43 of the Constitution is reasonable.
Definitions: (Section 2)
Accounting year: (i) In relation to a Corporation, the year ending on the day on which
books and accounts of the corporation are to be closed and balanced; (ii) In relation
to a company, the period in respect of which any profit and loss account of the
company laid before it in an annual general meeting is made up, whether that period
is a year or not, (iii) In any other case (a) the year commencing on the Ist day of
April, or (b) if the accounts of an establishment are maintained by the employer 39
thereof are closed and balanced on any day other than the 31st day of March, then at
the option of the employer, the year ending on the day on which the accounts are so
closed and balanced.
An option once exercised by the employer under clause (iii) (b) shall not be again
exercised except-with the previous permission of the prescribed authority in writing
and on such terms as the authority may think to impose.
Allocable Surplus (Sec 2 (4)): It means (a) in relation to a company or to an
employer being a company (other than a banking company) which has not made the
arrangements prescribed under the Income Tax Act, 1961 for the declaration and
payment within India of the dividend payable out of its profits in accordance with the
provisions of Sec. 194 of the Income Tax, 67% of the available surplus in an
accounting year as computed under Sec. 5 of the Act. (b) in any other case it is sixty
percent of the available surplus. The allocable surplus. is the workers share in the
available surplus. It is the amount available for distribution as bonus among the
employees in the relevant accounting year.
Appropriate Government (Sec. 2(5)): It means; (i) in relation to an establishment in
respect of which appropriate Government under the Industrial Disputes Act, 1947 is
the Central Government, the Central Government; (ii) In relation to any other
establishment, the Government of the State in which that establishment is situated.
Available Surplus (Sec. 2(6)): It means the available surplus computed under
Sections 4,5,6,7 of the Act. It is, in respect of any accounting year, the gross profit
for that year after deducting from it prior charges like depreciation as permissible
under the Income Tax Act, 1961, any amount by way of development rebate or
investment-allowance or development allowance, any direct tax calculated according
to the Provisions of Sec. 7, and other sums mentioned in the Third Schedule-to the
Act.
Award: It means interim or final determination of any industrial dispute or any
question relating thereto by any labour Court, Industrial Tribunal, or-National
Tribunal constituted under the Industrial Disputes Act, 1947, or by any_ other
authority constituted under any corresponding law relating to investigation and-
settlement of industrial disputes in force in a State, and includes an arbitration award
made under Sec. 10A of that Act or under that law.
Employee and employer (Sec. 2 (3) and (14)). "Employee" means any person (other
than an apprentice) employed on a salary or wage not exceeding Rs. 3500 per
mensem in any industry to do any skilled or unskilled, manual, supervisory,
managerial, administrative, technical or clerical work for hire or reward, whether the
terms of employment be express or implied (Sec. 2 (13)).
"Employer" includes:
i) in relation to an establishment which is a factory, the owner or occupier of the
factory, including the agent of such owner or occupier, the legal representative
of a deceased owner or occupier and the manager of the factory;
ii) in relation to any other establishment, the person who, or the authority which,
has the ultimate control over the affairs of the establishment. Where the said
affairs, are entrusted to a manager or managing director, such manager or
manager director is the employer (Sec. 2(14)).
Establishment in private sector (Sec 2(15)). It means any establishment other than
an establishment in public sector.
Establishment in public sector (Sec. 2(16)). It means an establishment owned,
controlled or managed by:
a) a Government company as defined in Sec. 617 of the Companies Act 1956;
b) a corporation in which not less than forty per cent of its capital is held whether
singly or taken together) by
i) the Government, or.
40 ii) the Reserve Bank of India, or
iii) a corporation owned by the Government or the Reserve Bank of India.
Sec.20 of the Act provides that if in any accounting year an establishment in public
sector sells any goods produced or manufactured by it in competition with an
establishment in the private sector, and the income from such sale is not, less than
twenty per -cent of its gross income for that year, then the provisions of this Act shall
also apply to such establishment as they apply to an establishment in private sector.
Salary or wage (Sec. 2 (21)). It means all remuneration (other than remuneration in
respect of overtime work) capable of being expressed in terms of motley, which
would, if the terms of employment, express or implied, were fulfilled, be payable to
an employee in respect of his employment or of work in such employment. It
includes dearness allowance (that is to say, all cash payments, by whatever name
called paid to an employee on account of a rise in the cost of living). But it does not
include.
i) any other allowance which the employee is for the time being entitled to;
ii) the value of any house accommodation or of supply of light, water, medical
attendance or other amenity or of any service or of any confessional supply of
foodgrains or, other articles;
iii) any travelling concession;
iv) any bonus (including incentive, production and attendance bonus);
v) any contribution paid or payable by the employer to any pension fund or for the
benefit of the employee under any law for the time being in force;
vi) any retrenchment compensation or any gratuity or other retirement benefit
payable to the employee or any ex-gratia payment made to him;
vii) any commission payable to the employee.
Explanation to Sec. 2 (21) further provides that where an employee is given in lieu of
the whole or part of the salary or wages payable to him, free food allowance of free
food by his employer, such food allowance or the value of such food shall, for the
purpose of this clause, be deemed to from part of the salary or wage of such
employee.
Establishments to include departments, undertakings and branches (Sec. 3)
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. 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 unq6rta.q4g` or branch, then, such
department or undertaking or branch shall be treated as, a separate establishment for
me purpose 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 or the establishment for the purpose of
computation of bonus;
21.6 ELIGIBILITY FOR BONUS

Every employee shall be entitled to be paid by his employer in an accounting year,
bonus, in accordance with the provisions of this Act, provided he has worked in the
establishment for not less than thirty working days in that year. (Section 8)
Where an employee has not worked for all the working days in any accounting year,
the bonus payable to him under Sec. to shall be proportionately reduced (Sec. 13).
Disqualification for bonus (Sec. 9)
Notwithstanding anything contained in this Act, an employee shall be disqualified 41

from, receiving bonus under this Act, if he is dismissed from service for:
a) fraud; or
b) riotous or violent behaviour while on the premises of the establishment; or
c) theft, misappropriation or sabotage of any property of the establishment.
Determination of Bonus
Bonus, under the Payment of Bonus Act, can now be claimed by workers as a matter
of right. The Bonus Formula under Act rests on the calculation of the àvailable
surplus' and it envisages the following steps:
1. Computation of gross profit (Sec. 4)
The computation of gross profits for an accounting year for the purpose of the bonus
formula is the first step. It is calculated according to Sec. 4 of the Act.
Computation of gross profit in case of a banking company (Sec. 4(a).
The gross profits derived by an employer from an establishment in respect of any
accounting year shall, in the case of a banking company, be calculated in the manner
specified in the First Schedule.
The First Schedule
(See Sec. 4 (a))
21.7 COMPUTATION OF GROSS PROFITS IN BANKING

AND OTHER COMPANIES
1 The starting point in the computation of the gross profits in case of a banking
company is the net profit as shown in the profit and loss account after usual and
necessary provisions. Where profit subject to taxation is shown in the profit and
loss account and the provision made for taxes on income is shown, the actual
provision for taxes on income shall be deducted from the profit.
Items to be added back to net profit

To the net profit of a banking company, the following amounts shall be added:
1). provision for bonus to employees and bonus paid to employees in that
particular accounting year or in respect of previous accounting years, to the
extent charged to profit and loss account:
2). Provision for depreciation.
3). Provision for Development Rebate Reserve to the extent charge to profit
and account.
4). provision for any other reserves, to the extent charged to profit and loss.
account.
5). The amount debited in respect of gratuity paid or payable to employees in
excess of the aggregate of:
a) the amount, if any, paid to, or provided for payment to, an approved
gratuity fund; and
b) the amount actually paid to employees on their retirement or on
termination of their employment for any reason.
6). donations in excess of the amount admissible for income-tax.
7). Capital expenditure (other than capital expenditure on scientific research
which is allowed as a deduction under any law for the time being in force
relating to depreciation has been allowed for income tax). To the extent
charged to profit and loss account.
8). Any amount certified by the Reserve Bank of India in terms of Sec. 34-A
(a) of the Banking Regulation Act, 1949. Sec. 34-A of the Banking
42 Regulation Act deals with production of documents of confidential nature.
9). Losses of, or expenditure relating to, any business situated outside
India.
10). Income, profits and gains (if any) credited directly to published or disclosed
reserve; other than-
i) Capital receipts and capital profits (including profits on the sale of capital
assets on which depreciation has not been allowed for Income-tax)
ii) Profits of, and receipts relating to, any business situated outside India;
iii) Income of foreign banking companies from investments outside India.
Item to be deducted
The following items (and these items are in addition to sums which have to be
deducted from gross profits under Sec. 6) must be deducted from the aggregate of the
items added luck to the net profits as discussed above, namely.
a) Capital receipts and capital profits (other than profits on the sale of assets
on which depreciation has been allowed for income, tax), to the extent
credited to profit and loss account.
b) Profits of, and receipts relating to, any business situated outside India, to
the extent credited to profit and loss account.
c) Income-of foreign baking companies from investments outside India, to the
extent credited to profit and loss account.
d) Expenditure of losses (if any) directly to published or disclosed reserve
other than-
i) Capital expenditure and capital losses (other than losses on sale of
capital assets on which depreciation has not been allowed for income, -
tax);
ii) Losses of any business situated outside India.
e) In the case of foreign banking companies proportionate administrative
(overhead) expenses of Head Office allocable to Indian business.
f) Refund of any excess direct tax paid for previous accounting years and
excess provision, if any, of pervious accounting years relating to bonus,
depreciation, or development rebate, T written back and to the extent
g) Cash subsidy, if any, received from Government or from any body
corporate established by any law for the time being in force or by any other
agency through budgetary grants, to the extent credited to profit and loss
account.
The resultant figure after making the necessary additions to, the deductions
from, the net profit is the gross profit.
II Computation of gross profit in any other case (See. 4(b)). The gross profits
derived by an employer from an establishment in respect of an accounting year
shall, in any other case (i.e., other than that of a banking company) shall be
calculated in the manner specified in the second schedule:
The Second Schedule
(See Sec 4. (b))
Computation of gross profit. In other cases
The manner of computing the gross profit derived by non-banking establishments is
specified; in the Second Schedule to the Act. The starting point in the computation of
the gross profits in such cases is the net profit as shown in the profit and loss account
after making usual and necessary provisions.
Items to be added back to net profit
The following items shall be added to the net profit of the relevant accounting year as
43
shown in that year's profit and loss account.
1). Provision for bonus to employees and bonus paid in that particular
accounting year or in respect of previous accounting years, to the extent
charged to profit and loss account.
2). Provision for depreciation.
3). Provision for direct taxes, including the provision (if any) for previous
accounting years.
4). Provision for Development Rebate/Investment Allowance/Development
Allowance Reserve, to the extent charged to profit and loss account.
5). Provision for any other reserves, to the extent charged to profit and loss
account.
6). The amount debited in respect of gratuity paid or payable to employees in
"respect of
i) The amount, if any, paid to, or provided for payment to, an approved
gratuity fund; and
ii) the amount actually paid to employees on their retirement or on
termination of their employment for any reason.
7). Donations in excess of the amount admissible for income-tax.
8). Any annuity due, or commuted value of any annuity paid under the
provisions of Sec, 280-D of the Income-tax Act, 1961 during the
accounting year.
9). Capital expenditure (other than capital expenditure on scientific research
which is allowed as a deduction under any Iaw for the time being in force
relating to direct taxes) and capital losses (other than losses on sale of
capital assets on which depreciation has been allowed for income-tax or
agricultural income-tax, to the extent charged to profit and loss account).
10). Losses of, or expenditure relating to, any business situated outside India.
11). Income, profits or gains (if any) credited directly to reserves, other than-
i) capital receipts and capital profits (including profits on the sale of capital
assets on which depreciation has not been allowed for income-tax or
agricultural income-tax);
ii) Profits of, and receipts relating to, any business situated outside India.
iii) Income of foreign concerns from investments outside India.
Items to be deducted
The following items (these items are in addition to sums which have to be deducted
from gross profits under Sec. (6) must be deducted from the aggregate of the items
added back to the net profit as discussed above namely:
a) Capital receipts and capital profits (other than profits on the sale of assets on
which depreciation has been allowed for income-tax or agricultural income tax),
to the extent credited to profit and loss account.
b) Profits of, and receipts relating to, any business situated outside India, to the
c) Income of foreign concerns from investments outside India, to the extent
d) Expenditure or losses (if any) debited directly to reserves, other than-
i) capital expenditure and capital losses (other than losses on sale of capital
assets on which depreciation has not been allowed for income-tax or
agricultural income tax);
44
ii) losses of any business situated outside India.
e) In the case of foreign concerns proportionate administrative (overhead) expenses
Payment of Bonus Act, 1965 of Head Office allocable to India business.
f) Refund of any direct tax paid for previous accounting years and excess
provision, if any, of previous accounting years relating to bonus, deprecation,
taxation or development rebate or development allowance, if written back, to the
g) Cash subsidy, if any, given by the Government or by any body corporate

established by any law for the time being in the force or by any other agency
through budgetary grants.
The resultant figure after making the necessary additions to, and deductions from, the
net profit is the gross profit.
21.8 DETERMINATION OF AVAILABLE SURPLUS

The next step, after the determination of gross profits in the manner discussed above,
in the determination of available surplus. The available surplus in respect of any
accounting year shall be the gross profits for that year after deducting thereform the
sums referred to ink Sec. 6 (Sec. 5).
The payment of Bonus (Amendment) Act, 1969 added the following proviso to Sec. 5:
The available surplus in respect of the accounting years commencing on any day in
the year 1968 and in respect of every subsequent accounting year shall be the,
aggregate of:
a) the gross profits for that accounting years after deducting therefrom the sum
referred to in Sec. 6; and
b) an amount equal to the difference between-
i) The direct tax, calculated in accordance with the provisions of Sec. 7, in
respect of an amount equal to the gross profits of the employer for the
immediately preceding accounting year; and
ii) The direct tax, calculated in accordance with the provisions of Sec. 7, in
respect of an amount equal to the gross profits of the employer for such
preceding accounting year after deducting therefrom the amount of bonus
which the employer has paid or is liable to pay to this employees in
accordance with the provisions of this Act for that year (Proviso to Sec. 5)
21.9 SUMS DEDUCTIBLE FROM GROSS PROFIT :

THIRD SCHEDULE
Sec. 6 specifies the sums that are to be deducted from gross profits as prior charges.
The amount which remains after deducting these sums (known as prior charges) is
the ‘available surplus’ for distribution as 'bonus'. These sums are as follows;
a) Any amount by way of depreciation admissible in accordance with the
provisions of Sec. 32 (i) of the Income-tax Act, 19 Y or in accordance with the
provisions of the Agricultural Income-tax Law, as the 4se may be.
b) Any amount by way of development rebate or investment allowance or
development allowance which the employer is entitled to deduct from his
income under the Income-tax Act, 1961.
c) Any direct tax which the employer is liable 1,~ pay for the accounting year in
respect of his income, profits and gains during that year. This deduction is
subject to the provisions, of Sec. 7 which deals with the calculation of direct tax
payable by the employer.
d) Any other sum specified in respect of the employer in the Third Schedule is 45
given below.
The Third Schedule
(See Sec. 6 ((I))
The sums mentioned in the Third Schedule (and referred in Sec. 6 (d) as prior
charges to be deducted from gross profits) are as follows:
1. In respect of a company other than banking company
i) The dividends payable on its preference share capital for the accounting
year calculated at the actual rate at which such dividends are payable;
ii) 8.5 per cent of its paid up equity share capital as at the commencement of
the accounting years.
iii) 6 per cent of its reserves shown in its balance-sheet as at the
commencement of the accounting year, including any profits carried
forward from the previous accounting year;
Provided that where the employer is a foreign company within the meaning of Sec.
591 of the Companies Act, 1956, the total amount to be deducted under this item
shall be 8.5 per cent on the aggregate of the value of the net fixed assets and the
current assets of the company in India after deducting the amount of its current
liabilities (other than any amount shown as payable by the company to its Head
Office whether towards any advance made by the Head Office or otherwise or any
interest paid by the company to its Head Office) in India.
2. In respect of a banking company
i) The dividends payable on its preference share capital for the accounting
year calculated at the rate at which such dividends are payable;
ii) 7.5 per cent of its paid-up equity share capital as at the commencement of
the accounting year;
iii) 5 per cent of its reserves shown in the balance-sheet at the commencement
of the accounting year, including any profits carried forward from the
previous accounting year;
iv) any sum which, in respect of the accounting year, is transferred by it:
a) to a reserve fund under Sec. 17 (I) of the Banking Regulation Act, 1949,-or
b) to any reserves in India in pursuance of any direction or advice given by the
Reserve Bank of India, Whichever is higher.
Provided that where the banking company is a foreign company within the meaning
of Sec. 591 of the Companies Act, 1956, the amount to be deducted under this Item
shall be the aggregate of:
i) the dividends payable to its preference shareholders for the accounting year
at he rate at which dividends are payable on such amount as bears the same
proportion to its total preference share capital as its total working funds in
India bear to its total world working funds;
ii) 7.5 per cent of such amount as bears the same proportion to its total paid-up
equity share capital as the total working funds in India bear to its total
world working funds;
iii) 5 per cent of such amount as bears the same proportion to its 'total
disclosed reserves as its total working funds in India bear to its total world
working funds;
iv) any sum which, in respect of the accounting year, is /deposited by it with
the Reserve Bank of India under Sec. 11(2) (b) (ii) Of the Banking
Regulation Act, 1949, not exceeding the amount required under the
aforesaid provision to be so deposited.
3. In respect of a corporation
46
i) 8.5 per cent of its paid-up capital as at the commencement of the
accounting year;
ii) 6 per cent of its reserves, if any, shown in balance-sheet as at the

commencement of the accounting year, including any profits carried
forward from the previous accounting year.
4. In respect of co-operative society
i) 8.5 per cent of the capital invested by such society in its establishment as
evidenced from its books of account at the commencement of the
accounting year;
ii) such sum as has been carried forward in respect of the accounting year to a
reserve fund under any law relating to co-operative societies for the time
being in force.
5. Any other employer not falling under any of the aforesaid categories
8.5 percent of the capital invested by him in his establishment as evidence from his
books of accounts at the commencement of the accounting year:
Provided that where such employer is a person to whom Chapter XXIIA of the
Income-tax Act, 1961, applies , the annuity deposit payable by him under the
provisions of that Chapter during the accounting years shall also be deducted:
Provided further that where such employer is a firm, an amount equal to 25 per cent
of the gross profits derived by its from the establishment in respect of the accounting
year after deducting depreciation in accordance with the provisions of clause (a) of
Sec. 6 by way of remuneration to all the partners taking part in the conduct of
business of the establishment shall also be deducted, but where the partnership
agreement, whether oral or written, provides for the payment of remuneration to any
such partner, and
i) the total remuneration payable to all such partners is less than the said 25
per cent, the amount payable, subject to a maximum of Rs. 48,000 to each
such partner; or
ii) the total remuneration payable to all such partners is higher than the said 25
per cent, such percentage, or a sum calculated at the rate of Rs. 48,000 to
each such partner, whichever is less, shall be deducted under this provise:
Provided also that where such employer is an individual or a Hindu undivided family-
i) amount equal to 25 per cent of the gross profits derived by such employer
from the establishment in respect of the accounting year after deducting
depreciation in accordance with the provisions of clause (a) of Sec. 6; or
ii) Rs. 48,000 whichever-is less, by way of remuneration to such employer,

shall also be deducted.
21.10 CALCULATION OF DIRECT TAX PAYABLE BY

THE EMPLOYER
Any direct tax payable by the employer for any accounting year shall, subject to the
following provisions, be calculated at the rate applicable to the income of the
employer for that year. This will, however, be subject to the following provisions:
I) In calculating such tax no account shall be taken of:
i) any loss incurred by the employer in respect of any previous accountings

year and carried forward under any law for the time being in force relating
47
to direct taxes.
ii) any arrears of depreciation which the employer is entitled to add to the
amount of the allowance for depreciation for any following accounting year
or years under Sec. 32 (2) of the Income-tax Act, 1961;
iii) any exemption conferred on the employer under Sec. 84 of the Income-tax
Act, 1961, or of any deduction to which he is entitled under Sec. 1.01 (I) of
that Act, as in force immediately before the commencement of the Finance
Act, 1965.
2. Where the employer is a religious or a charitable institution to which the
provisions of See. 32 do not apply and the whole or any part of its income is
exempt from tax under the Income-tax Act, 1961, then; with respect to the
income so exempted, such institution shall be treated as if it were a company in
which the public are substantially interested within the meaning of that Act.
3. Where the employer is an individual or a Hindu undivided family, the tax
payable by such employer under the Income-tax Act shall be calculated on the
basis that the income derived by him from the establishment is his only income.
4. Where the income of any employer includes any profits and gains derived from
the export of any goods or merchandise out of India and any rebate on such
income is allowed under any law for the time being in force relating of direct
taxes, then, no account shall be taken of such rebate.
5. No account shall be taken of any rebate other than development rebate-,
investment allowance or development allowance or credit or relief-or deduction
(not hereinbefore mentioned in this Section) in the paymerd-6 any duct tax
allowed under any law for the time being in force relating to direct taxes of
under the relevant annual Finance Act, for the development of any industry.-
(Section 7)
21.11 ALLOCABLE SURPLUS

After determining the àvailable surplus' the employees' share known as àllocable
surplus' is to be determined. Allocable surplus, according to Sec 2 (4), means-
a) in relation to an employer, being a company other than a banking company which
has not made the arrangements prescribed under the Income-tax Act, 1961, for
the declaration and payment within India of the dividends payable out of its
profits in accordance with the provision of Sec. 194 of that Act, sixty-seven per
cent of the available surplus in an accounting, year;
b) in any other case, sixty per cent of such available surplus.
The allocable surplus is the worker's share in the available surplus. The rules to be
followed for distribution of allocable surplus are as follows:
1. Amount of Bonus (Sec. 10)
The bonus formula as envisaged in the Act provides for the payment of minimum and
maximum bonus to the employees in an accounting year so that they are not deprived
of any bonus in the accounting year notwithstanding any losses in that particular
accounting year. This also ensures a regular sustained income to the employees
which is in addition to their-salary or wage.
a) Minimum Bonus (Sec. 10)
Every employer shall be bound to pay to every employee in respect of the accounting
year commencing any day in 1979 and in respect of any subsequent year, a minimum
bonus which shall be 8.33% of the salary of wages earned by the employee during
the accounting year or Rs. 100 (Rs. 60 in case of employees below the age of fifteen
years), whichever in higher. The minimum bonus shall be payable whether or not the
employer has any allocable surplus in the accounting year.
b) Maximum Bonus (Sec. 11)
Bonus at a rate higher than the minimum rate is payable only when the allocable
48 surplus in a particular accounting year exceeds the amount of minimum bonus
payable
'to the employees. Where in respect of any accounting year the allocable surplus
exceeds the amount of minimum bonus payable to the employees, the employer shall
be bound to pay to every employee in the accounting year an amount in proportion to
the salary or wage earned by the employee during the accounting year subject to a
maximum of twenty per cent of such salary or wage.
According to Sec. 10(2), the allocable surplus shall be computed taking into account
“set on” and “set off” as founded in Sec. 15.
2. Calculation of bonus with respect to certain employees (Sec. 12)
Where the salary or wage bf an employee exceeds Rs. 2500 per mensem, the bonus
payable to such employee under Sec. 10 shall be calculated as if his salary or wage
were Rs. 2500 per mensem:
3. ‘Set on’ and ‘set off' of allocable surplus (Sec. 15)
The payment of Bonus Act, 1965, envisages a scheme prescribing minimum and
maximum rates of bonus together with the scheme of `set off' and `set on' of allocable
surplus.
The allocable surplus for the payment of bonus for the relevant accounting year is
arrived at after taking into account the figures of set on and set off in the previous
year. The rules relating to set on and set off of the allocable surplus areas under:
a) Set on. Where the allocable surplus for any accounting year exceeds the amount
of maximum bonus payable to employs under Sec. 11, then the excess of
allocable surplus, subject to a limit of twenty per cent of the total salary or wage
of the employees employed in that accountingar, shall be carried forward for
being set on to the succeeding accounting year an so on upto and inclusive of the
fourth accounting year.
This excess amount which is carried forward shall be utilised for the purpose of
payment of bonus in the manner illustrated in the Fourth Schedule (Sec. 15 (1)).
b) Set off. Where there is no allocable surplus or the allocable surplus in respect of
that year falls short of the minimum amount of bonus payable to the employees
in the establishment under Sec. 10 and there in no sufficient amount carried
forward and set on which could be utilised for the purpose of payment of bonus,
then so much amount as is necessary for the payment of bonus shall be carried
forward for being set off in the succeeding accounting year and so on in the
manner illustrated in the Fourth Schedule (Sec. 15(2)).
The Fourth Schedule illustrates the method of calculation of allocable surplus, its
distribution and set off or set on of the amount available out of it.
The total fund of allocable surplus in distributed amongst employees in the ratio in
which they receive salary or wage during the relevant accounting year.
The principle of set on the set off as illustrated in the Fourth Schedule shall apply to
all other cases not covered by Sec. 15(1) or (2) for the purpose of payment of bonus
under this Act (Sec. 15 (3)).
The manner of setting on and setting off allocable surplus is illustrated in the Fourth.
Schedule which is reproduced below:
4. Proportionate reduction in bonus in certain case (Sec. 13)
Where an employee has not worked for all the working days in any accounting year,
the bonus payable to him under Sec. 10 shall be proportionately reduced.
Sec. 14 provides that an employee shall be deemed to have worked in an
establishment in the accounting year also on the days on which-
a) he has been laid oft under an agreement or as permitted by standing orders under
the Industrial Employment (Standing Orders) Act, 1946, or under the Industrial
Disputes Act, 1947, or under any other law applicable to the establishment.
b) he has been on leave with salary or wage; 49
c) he has been absent due to temporary disablement caused by accident arising out
of and in the course of his employment; and
d) the employee has been or maternity leave with salary or wage, during the
accounting year.
5. Adjustment of customary or interim bonus against bonus payable under the
Act. (Sec. 17)
Sec. 17 authorises the employer to deduct the amount of any puja bonus or other
customary bonus paid to an employee in an accounting year from the amount of
bonus payable by him to the employee under this Act in respect of that accounting
year. The employee in such a case is entitled to receive only the balance. Customary
bonus is a voluntary payment made by the employer to its employees to meet special
expenses of a festival.
The payment of Bonus Act, 1965, does not bar claims to customary bonus or those
based on conditions of service. Customary bonus does not require calculation of
profits or available surplus because it is a payment founded on long usage and
justified often by spending on the festivals, and the Act gives no guidance to fix the
quantum of festivals bonus, nor does it expressly wish such a usage.
Where Puja bonus is claimed by the workmen as a matter of right payable by the
employer at a special season of the year, the right is not based on the general
principle that labour and capital should share the surplus left after meeting necessary
and prior charges but is based on an agreement between the employer and workers
which may be either express or implied; If the agreement is not express, past practice
may lead to an inference of implied agreement where the practice has been unbroken
for a sufficiently long period to exclude the hypothesis that the payments have been
made out of bounty. If the amount of the Puja bonus is not expressly laid down or
cannot be inferred, the industrial Tribunal must hold that the workers are entitled to a
reasonable amount as a term of employment and determine the amount. The question
of any profit or loss does not arise for consideration in determining the Puja bonus
(Mahalakshmi Cotton Mills Ltd. V. Their Workmen, 4 F.J.R. 248).
Customary bonus is always connected with some local festival of importance. A

claim to bonus on the basis of custom or tradition is established when all the three
condition are satisfied-
a) that such bonus was paid in the past in connection with some important festival,
over a sufficiently long period without interruption.
b) that the payment was made at a uniform rate, and
c) that it was paid even, is a year of loss.
Where the payment of one month's basic wages at Puja time as bonus to the
subordinate staff continued uninterrupted from the time it started in 1942 up to the
time the dispute arose in 1954 and where the payment was made even in a year of
doss, held the payment had become customary and traditional and could not be
stopped`(B.N. Elias & Co. Ltd. Employees' Union V. B. N. Elias & Co. Ltd., (1960)
I. F. L R. 86).
Where an employer has paid a part of the bonus payable under this Act to an
employee before the date on which such bonus becomes payable, the employer is
entitled to deduct the amount from the amount of bonus payable to the employee in
respect of the same accounting' year.
6. Deduction of certain amounts from bonus payable under the Act. (Sec. 18)
Where in any accounting year, an employee is found guilty of misconduct causing
financial loss to the employer, then it shall be lawful for the employer to deduct the
amount of loss from the amount of bonus payable by him to the employee under this
Act in respect of that accounting year only and the employee shall be entitled to
50 receive the balance, if any.
7. Time-limit for payment of bonus (Sec. 19)
All amounts payable to an employee byway of bonus under this Act shall be paid in
cash by his employer-
a) whether there is a dispute regarding p y e of bonus pending before any authority
under Sec. 22, within a month from the date on which the award becomes
enforceable or the settlement comes into operation, in respect, of such dispute.
b) in any other case; within a period of eight months, from the close of the
accounting year.
The appropriate Government may, upon an application made to it by the employer
and for sufficient reasons, extend the said period of eight months to such further
period or periods as it thinks fit, so, however, that the total period so extended shall
not in any case exceed two years.
8. Recovery of Bonus,(Sec. 21)
Where any money is due to an employee by way of bonus from his employer under a
settlement or an award or agreement, he may make an application to the appropriate
Government for the recovery of the money due to him. If the appropriate
Government or such authority as the appropriate Government may specify-in this
behalf is satisfied that any money is so due, it shall issue a certificate for that amount
to the Collector who shall proceed to recover the same as an arrear of land revenue.
The application under Sec. 21 for the recovery of any amount of bonus due from an
employer to an employee may be made by:
i) the employee himself, or
ii) any other person authorised by the employee in writing to act on his behalf, or
iii) in the case of the death of the employee, his assignee or heirs.
An application for the recovery of bonus shall be made within one year from the date
on which the money became due to the employee from the employer. The delay may
be condoned if the appropriate Government is satisfied that the applicant has
sufficient cause for not making the application within the said period.
In Secs. 22, 23, 24 and 25 "employee" includes a person who is entitled to the
payment of bonus under this Act but who is no longer in employment,
21.12 SPECIAL PROVISIONS WITH RESPECT TO

CERTAIN ESTABLISHMENTS
In the case of new establishments, whether before or after the commencement of this
Act, its employees shall be entitled to be paid bonus under this Act in accordance
with the provision of Secs. 16 (I-A), 16 (I-B) and 16 (I-Q. According to these Sub-
Sections, the liability for paying bonus in a newly set up establishment has to be
judged with reference to different accounting years as under:
a) first five accounting years following the accounting year in which the employer
sells the goods produced or manufactured by him or renders services, as the case
may be, from such establishment. (Sec..A6 (I-A))
b) Sixth accounting year (Sec. 16(I-By(i)).
c) Seventh accounting year (Sec. 16 (I-B)(ii)).
d) Eighth and succeeding accounting years (Sec. 16 (I-C)).
(1) First five accounting years
Sec 16 (I-A) deals with the payment of bonus by a new establishment in the first five
accounting years following the accounting year in which the employer sells the goods
51
produced or manufactured by him or renders services, as the case may be, from such
establishment. According to it, bonus shall be payable only in respect of the
accounting year in which the employer derives profits from such establishment. As
regards calculation of bonus, the provisions of the Act (but not Sec. 15) shall apply in
relation to that year.
(2) Sixth and seventh accounting years
For the sixth and seventh'. accounting years following the accounting year in which
the employer sells the go,6ds produced or manufactured by him or renders services,
as the case may be, from such establishment, the provisions of Sec, 15 shall apply
subject to the following modifications, namely-
i) for the sixth accounting year, set on or set off, as the case may be, shall be
made in the manner illustrated in the Fourth Schedule taking into account
the excess or deficiency, if any, as the case may be, of the allocable surplus
set on or set off in respect of the fifth and sixth accounting years;
ii) for the seventh accounting year, set on or set off, as the case may be, shall
be made in the manner illustrate in the Fourth Schedule taking into account
the excess or deficiency, if any, as the case may be of the allocable surplus
set on or set off in respect of the fifth, sixth and seventh accounting years
(Sec. 16 (I-B))
3) Form the eighth accounting year
From the eighth accounting year following the accounting year in which the
employer sells the goods produced or manufactured by him or renders services, as the
case may be, from such establishment, the provisions of Sec. 15 shall apply in
relation to such establishment as they apply in relation to any other establishment
(Sec. 16 (I-C)).
The three Explanations given in Sec. 16 (I) clarify certain points raised in Sec. 46. An
establishment shall not be deemed to be newly set up merely by reason; of a change
in its location, management, name of ownership (Explanation I).
An employer shall not be deemed to have derived profit in any accounting year
unless-
a) he has made provision for that year's depreciation to which he is entitled under
the Income-tax Act, 1961.or, as the case may be, under the agricultural income-
tax law; and
b) the arrears of such depreciation and losses incurred by him in respect of the
establishment for the previous accounting years have been fully set off against
him profits. (Explanation II).
The sale of the goods produced or manufactured during the course of the trial run of
any factory or of the prospecting stage of any mine or oil-field shall not be taken into
consideration and where any question arises with regard to such production or
manufacture, the decision of the appropriate Government, made after giving the
parties a reasonable opportunity of representing the case, shall be final and shall not
be called in question by any Court or other authority (Explanation III).
The above provisions, so far as may be, shall apply also to new departments or
undertakings or branches set up by existing establishment4~(Sec. 16(2)). The proviso
to Sec. 16 (2) further states that if an employer in relation town existing
establishment consisting of different departments or undertakings or branch (whether
or not in the same industry) set up at different periods has, before the 29th.-ffiay,
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
52 date) on the basis of the consolidated profits:
Special provision with respect to payai3eni of bonus linked with production or
productivity. (Sec. 31-A)
According to Sec. 31-A introduced by the Amendment Act of 1976, where the
employees have entered into an agreement with their employer (either before or after
the commencement of the Payment of Bonus (Amendement) Act, 1976) for payment
of an annual bonus linked with production or productivity in lieu of bonus based on
profits under the Payment of Bonus Act, 1965, then, such employees shall be entitled
to receive bonus due to them under such agreement. But any such agreement or
settlement whereby the employees relinquish their right to receive the minimum
bonus under Sec 10 (2-A) shall be null and void in so far as it purports to deprive
them of such right.
Sec. 31-A further provides that such employees even under an agreement shall not be
entitled to be paid any bonus in excess of 20% of the salary or wage earned by them
during the, relevant accounting year.
Inspectors (Sec. 27)
The appropriate Government may, by notification in the Official Gazettee, appoint
such persons as it thinks fit to be inspectors for the purposes of this Act and may
define the limits within which they shall exercise jurisdiction (Sec. 27 (I)). An
Inspector may, for the purpose of ascertaining whether any of the provisions of third
Act has been complied with: ----
a) require an employer to furnish such information as he may consider necessary;
b) at any reasonable time and with such assistance, if any, as he thinks fat, enter
any establishment or any premises connected there with the require anyone
found in charge thereof to produce before him for examination any accounts,
books, registers and other documents relating to the employment of persons or
the payment of salary or wage or bonus in the establishment;
c) examine with respect to any matter relevant to any of the purposes aforesaid, the
employer, his agent or servant or any other person found in charge of the
establishment or any premises connected therewith or any person whom the
Inspector has reasonable cause to believe to be or to have been an employee in
the establishment;
d) Make copies of, or take extracts from, any book, register or other document
maintained in relation to the establishment;
e) Exercise such other power as may be prescribed (Sec. 27(2)).
An Inspector is deemed to be a public servant within., the meaning of the Indian
Penal Code, 1860 (Sec. 27 (3)).
Any person required to produce any account, book, register or other document or to
give information to any Inspector shall be legally bound to do so (Sec. 27 (4)). But
the Inspector cannot require a banking company to furnish or disclose any statement
or information or to produce, or to given inspection of, any of its books of account or
other. produce, or to give inspection of, any of its books of account or other
documents, which a banking company cannot be compelled to furnish, disclose,
produce of give inspection or, under the provisions of Sec. 34-A of the Banking
Regulation Act, 1949 (Sec. 27 (5)).
Penalties and offences
Penalty (Sec. 28)
If any person-
a) contravenes any of the provisions of this Act or any rule made thereunder; or
b) to whom a direction is given or a requisition is made under this Act, fails to
comply with the direction or requisition; he shall be punishable with
imprisonment for a term which may extend to six months, or with fine which
may extend to Rs. 1,000 or with both. 53
Offences by companies (See. 29)
If the person committing an offence under this Act is a company, every person who,
at the time the offence was committed was in charge of, and was responsible to the
company for the conduct of business of the company, as well as the company, shall
be deemed to be guilty of the offence and shall be liable to be proceeded against and
punished accordingly. But any of these persons shall not be liable to any punishment
if he proves that the offence was committed without his knowledge or that he
exercised all due diligence to prevent the commission of such offence (Sec. 29(1)).
Where an offence under this Act has been committed by a company and it is proved
that the offence has been committed with the consent of any director, manager,
secretary or other officer of the company, such director, manager or secretary or other
officer shall also be deemed to be guilty of that offence and shall be liable to be'
proceeded against and punished accordingly. Same consequence would follow when
the offence is committed with the connivance of, or is attributable to any neglect on
the part of any director, manager, secretary or other officer of company (Sec. 29(2)).
For the purposes of Sec. 29, `Company' means any body corporate and includes a
firm or other association of individuals, and director, in relation to a firm, means a
partner in the firm (Explanation to Sec. 29).
Cognizance of offences (Sec. 30)
No Court shall take cognizance of any offence punishable under this Act, save on
complaint made by or under the authority of appropriate Government (Sec: 30 (1)).
Further, no Court inferior to that of a Presidency Magistrate or a magistrate of the
first class shall try any offence punishable under this Act (Sec. 30(2)).
Protection of action (Sec. 31)
No suit, prosecution or other legal proceeding shall lie against the Government or any
officer of the Government for anything which is in good faith done or intended to be
done in pursuance of this Act or any rule made thereunder.
Miscellaneous
Reference of disputes under the Act (Sec. 22)
Sec. 22 provides that where a dispute arises between an employer and his employees
with respect to the bonus payable under this Act or with respect to the application of
this Act to an establishment in public sector, then, such dispute shall be deemed to be
an industrial dispute within the meaning of the Industrial Disputes Act, 1.947. In such
a case provisions of the Industrial Dispute Act or, as the case may be, any other law
made by the State in that regard shall apply to such an industrial dispute.
Sec. 39 further provides that the provisions of this Act are in addition to and not in
derogation of the Industrial Disputes Act, 1947, or any corresponding law relating to
investigation and settlement of industrial disputes in force in a State.
Only after the industrial dispute results in an award or a settlement or an agreement
the employee can recover all the bonus due from an employer as per Sec. 21 of the
Payment of Bonus Act. Therefore a claim made under the Act in a Civil-Court cannot
be sustained.
The Authority under the Payment of Wages Act will also have no jurisdiction to
proceed under Payment of Wages Act But where there is no dispute and there are no
complicated question involved, there is no reason to why the authority under the
Wages Act cannot proceed on an application tiled before him under Sec. 15 of the
Wages. Act.
It is not every dispute between an employer and employee in regard to bonus which
shall be covered under Sec. 22 of the Bonus Act but this Section would be attracted
only if the disputes are:
1). with respect to the bonus payable under the Act, or
54 2). with respect to the application of the Act. 54
3). Hence the authority under Payment of Wages Act will have a jurisdiction to deal
with the applications filed by the petitioner for a direction for payment of the
amount of bonus which would be covered within the meaning of the words
‘delayed wages’ (Junior Labour Inspector V. Presiding Officer, (1976) I L.L.J.
(S.C.)).
21.13 PRESUMPTION ABOUT ACCURACY OF

BALANCES EET AND PROFIT AND LOSS
ACCOUNT OF CORPORATIONS AND
COMPANIES
Sec. 23 states that the authority dealing with investigation and settlement of industrial
disputes of the kind referred to in Sec. 22 may presume that the statements and
particulars in the balance sheet and profit and loss account of the company are
accurate. The company or corporation in such cases need not prove the accuracy of
such statements and particulars by the filing of an affidavit or any other method. The
presumption of accuracy. of statements and particulars in the balance sheet and profit
and loss account may be made in case of a corporation if its accounts are audited by
the Comptroller and Auditor General of India, and in case of companies if the
accounts are audited by the auditors qualified to act as auditor of companies under
Sec. 226 (1) of the companies Act. 1956. The authority who can presume such
accuracy is any arbitrator or tribunal under the Industrial Dispute Act, 1947, or under
any corresponding law relating to investigation and settlement of industrial disputes
in force in a State to which any dispute between an employer and his employees with
respect to bonus payable under this Act, or with respect to the applicability of this
Act to an establishment in the public sector is referred.
Sec. 23 further states that the trade union or the employees who are a party to the
dispute, may make an application to the authority requiring any clarification relating
to any item in the balance sheet or profit and loss account from the employer,
company or corporation. The authority shall then satisfy itself whether such
clarification is necessary. If it concludes that such clarification is necessary it shall
direct the corporation or the company to furnish such clarification to the trade union
or the employees within a specified time limit. The corporation or the company shall
comply with such direction of the authority (Sec. 23(2)).
Audited accounts of banking companies not to be questioned (Sec. 24)
"24 (1) where any dispute of the nature specified in Section 22 between an employer,
being a banking company, and its employees has been referred to the said authority
under that Section and during the course of proceedings the accounts of the banking
company duly audited are produced before it, the said authority shall not permit any
trade union, or employees to question the correctness of such accounts; but the trade
union or the employees may be permitted to obtain from the banking company such
information as is necessary for verifying the amount of bonus due under this Act.
(2)Nothing contained in Sub-Section (1) shall enable the trade union or the
employees to obtain any information which the banking company is not compelled to
furnish under the provisions of Section 34-A of the Banking Regulation Act. 1949:'
Audit of accounts of employers who are not companies (Sec. 25)
Sec. 25 deals with the audit of accounts of employers who are not companies or
corporations. According to it, if the employer has any dispute relating to the payment
of bonus under this Actor with respect to the applicability of this Act to an
establishment in the public sector with his employees, and the accounts of such
employer are audited by an auditor duly qualified to act as auditor of companies
under Sec. 226 (1) of the Companies Act, 1956, and such accounts are produced
before the authority then the provisions of Sec. 23 shall, sq far as may be, apply to
the accounts so audited (Sec. 25(1)),,---'.
When the authority finds that the accounts of such employer have not been audited by
any such auditor and it is of opinion that an audit of the accounts of such employer is 55
necessary for deciding the question referred to it, then, it may direct the employer to
get his accounts audited within the specified time (Sec. 25(2)). Where the employer
tail, to get the accounts audited, the authority may get the accounts audited by such
auditor or auditors as it thinks fit (Sec. 25 (3)). When the accounts are so audited, the
provisions of Sec. 23 shall, so far as may be, apply to the accounts so audited (Sec.
23 (4)). The expenses of, and incidental to, any audit (including the remuneration of
the auditor or auditors) shall be determined by the said authority (which
determination shall be final) and paid by the employer (Sec. 25 (5)).
Maintenance of registers, records, etc. (Sec. 26)
Every employer shall prepare and maintain such registers, and other documents in
such form and in such manner as may be prescribed.
Effect of laws and agreements inconsistent with the Act (Sec. 34)
Subje4t the provisions of Sec. 31-A the provisions of this Act shall have effect
notwithstanding anything inconsistent there with contained in any, other law for the
times being in force or in the terms of any award, agreement, settlement or contract
of service.
Power to make rules (Sec. 38)
Sec. 38 confers power on the Central Government to make rules for the purpose of
carrying into effect the provisions of this Act (Sec. 38(1)).
21.14 GENERAL REMARKS

Bonus has been a subject of persistent dispute between the management and the
workmen. It is rather ironic that while bonus was intended to given a sense of _ ,
partnership to labour in industry and help the identification of workmen with the
welfare of industry, and thus promote harmonious relations, it has been responsible
for some of the major strikes in industry and has often hindered the establishment of
harmonious relations between the workmen and management.
The Payment of Bonus Act, 1965 has transformed bonus which originated as gift and
continued to be a gift or exgratia payment for a long time, into a statutory obligation
of the employers. This legislation which is peculiar to India, confers on workmen a
legal right to receive a minimum bonus annually irrespective of the fact whether the
establishment makes any profit or not. Minimum bonus has, therefore become
necessary adjunct of wages. In other words, the system of annual bonus has now
come to stay and may continue in future. The constitutional validity of this enactment
was challenged soon after it was brought into force. The Supreme Court upheld its
validity and also of its provisions relating to minimum bonus and set on set on-set
off.
Although this Act is not applicable to non-completing public sector undertakings, but
annually ex-gratia amounts are paid to employees of all of theirs and-these amounts
are computed on the same basis as provided in the Act, The Central Government
have also now started paying bonus linked with productivity to employees of most of
their undertakings, such as railways, P&T Mints, Ordnance-factories and other
defence establishments. Annual ex-gratin payments are made also to Central and
State Government Employees. So is the case with most of the organisations exempted
from the Act under Sec. 32. Their employees are being paid bonus either as ex-gratia
payment, or productivity linked bonus.
All the disputes pertaining to bonus can be referred to Industrial Courts and Tribunals
for investigation and settlement under the Industrial Disputes Act, 1947. The
Industrial Courts and Tribunals have been vested with the powers to go into the
«curacy of balance sheets and statements of profit and loss accounts if the same are
questioned by workers and their unions in case of disputes relating to bonus pending
with them.
One of the objective of this legislation is to make bonus as unbargainable as possible
and thereby reduce disputes on this account. This was also sought to be achieved by
56 providing a simpler formula for determining bonus payable and by limiting variations
in the amount payable by different concerns by laying down the minimum and
maximum bonus payable in the accounting year. From the operation of the Act it
appears that this objective has not been achieved substantially. The fact is that neither
employers nor employees have been happy with the provisions of the Act. Workers
.complain about its inadequate coverage and available surplus. They also feel that
many workers have been deprived of their bonus which they were getting before the
Act was enforced, because their establishments are now outside the purview of the
Act, and in case of not a few concerns covered, the minimum bonus is being treated
as maximum bonus. On the other hand employers are feeling more about the fact that
they have to pay minimum bonus whether they make/any profit or not. Employers
and workers have been feeling about the Act as stated above from the time the Act
was enforced, and that is about 35 years back. During this long period their hostility
towards the Act has been diminishing. This diminishing process together with the
further amendments of the Act to meet the demands of the employees for increasing
the salary limit of Rs. 3500 for being covered by Act, and removing or increasing the
limit of maximum bonus, may improve the acceptability and the working of the Act.
21.15 SELF-ASSESSMENT TEST

1). "One of the objectives of the Payment of Bonus Act 1965 was to minimise the
number of disputes of bonus. Has that objective been achieved? If not, Why?
2). Distinguish between available surplus and allocable surplus. How are they
worked out?
3). Explain the provision for set-on and set-off in the Payment of Bonus Act. Why
has such a provision been made in the Act?
4). Explain the provision made in the Act for payment of bonus to the employees of
newly set up establishments. What is meant by Newly set-up establishment
under this Act.
5). State briefly the obligations of employers and rights of employees under this
Act.
6). Explain the following terms for the purposes of Payment of Bonus Act, 1965:-
"accoundy year" "employer" "appropriate government" "prior changes" "wage"
7). Is this Act applicable to all public sector undertaking; if not, what type of
undertaking are covered by this Act?
8). What can make an employee eligible or disqualified for the payment of bonus
under the Act. Can employer forfeit the whole amount of bonus payable to
worker? If so, for what reasons?
21.16 FURTHER READINGS

1. Law and Practice of Minimum Wages Act - S.B. Rao (1999) -Law Publishing
House, Allahabad.
2. Wages A Workers Education Manual - I.L.O. Publication, Geneva.
3. Labour Law - Chrones J.B. and Grime, R.P., Butterworth & Co. Ltd., London.
4. Indian Labour Laws a Servisor Shoud Know, - B.R. Seth All India Management
Association, Lodi Road.
5. Industrial Relations and Labour Laws - P. C. Tripathi and C.B. Gupta, S. Chanel
& Sons, Delhi.
6. A Manual of Mercantile Law. M. C. Shukla, Sultan Chand & Sons, Delhi.
7. Concept of Bonus (A Commentary on Payment of Bonus Act, 1965) -;S. B. Rao

Law Publishing House, Allahabad.
57
Social Security Legislation :
An Overview
UNIT 23 SOCIAL SECURITY
LEGISLATION : AN OVERVIEW
Objectives :
The objectives of this unit are to:
• give a brief account of the historical evolution of social security laws in India.
• examine in brief the problems associated with the administration of social
security schemes.
Structure
23.1 Introduction
23.2 Problems and Prospects
23.1 INTRODUCTION
Historically, the development of social security systems in their modern form is
traced from the enactment in 1883 of the first social insurance law in Germany under
Bismarck. The modern concept of social security is the offshoot of industrialisation.
In the industrialised countries, social security was first introduced hi the form of
social insurance. Its application was limited to certain occupational groups and it was
financed by contributions from the employers and the workers. In course of time it
was generalised; its coverage was extended to all cot more occupational groups, and
the State assumed the liability for financing the schemes wholly or partly. It has since
been further expanded in term of the numbers covered and the benefits provided and
has taken the form of social protection.
In our country social security programmes have been in existence since times
immemorial. Joint families, panchayats,(guilds), religious and charitable institutions
have continued to provide assistance to the needy for various common risks,
misfortunes and calamities. Kautilya's Arthashatra and Manusmriti bear testimony to
the fact that the social structure in those days was so evolved and codes so designed
as to provide security to all people. The joint Hindu family was the original cell of
security and first line of defence which could cope only with limited misfortunes. In
cases of longer calamities, appeal was made to the neighbours or the guilds.
Reference to such guilds was found in Rigveda, Upanishads' and in Other ancient
Indian literature. Their main purpose was collective security of life and property,
freedom from want and misery, and security against common risks., But organised
social security measures in statutory form are only of recent origin. Our Constitution
guarantees social security in the following words:'
The State shall, in particular, direct its policy towards securing:

a) “Right to an adequate means of livelihood.” [Article 39(a)]
b) “The State shall within the limits of its economic capacity and development,
make effective provision for securing public assistance In case of
unemployment, did-age, sickness, disablement and other cases of undeserved
want.” (Artlcle41)
c) “The State shall endeavour to secure to all workers agricultural, industrial or
otherwise, work, a living wage, conditions of work ensuring a decent standard of
life “……(Article 43)
Social security legislation in India in the industrial field consists of the following
enactments: (1) the Workmen's Compensation Act, 1923; (2) the Employees' State
Insurance Act, 1948; (3) the Employees' Provident Funds and Miscellaneous
Provisions Act, .1952; (4) the Maternity Benefit Act, 1961; and (5) the Payment of 5
Gratuity Act, 1970.
Laws for Labour Welfare
and Social Security The Workmen's Compensation Act is being administered exclusively by the State
Governments/Union Territory administrations. The Employees' Provident Funds and
Miscellaneous Provisions Act is administered by the Government of India through
the Employees' Provident Fund Organisation.-In the administration of the Employees'
State Insurance Act, the Central Government and State Governments share the
responsibility. Cash benefits under the ESI Act are administered by the Central
Government through the Employees' State Insurance Corporation (ESIC), whereas
medical care under-the ESI Act is being administered by the State Governments and
Union Territory Administrations. The Payment of Gratuity Act is being administered
by the Central Government in establishments under its control, and also
establishments having branches in more than one state, major ports, mines, oil fields
and the railways; and by the respective State Governments and Union Territory
Administrations in all other cases. In mines and circus industry, the provisions of the
Maternity Benefit Act are being administered by the Central Government through the
Chief Labour Commissioner (Central) and by the State Governments in factories,
plantations and other establishments.
In our country, the institutionalised form of social security began with the Workmen's
Compensation Act which "provides for the payment by certain classes of employers
to their workmen of compensation for injury by accident." As in the industrialised
countries the protection under the Act was limited to certain occupational groups and
the contingency covered was also limited to occupational injuries and diseases. The
Act was based on the principle of employer's liability. Social insurance came later
with the enactment of the Employees' State Insurance Act.
The International Labour Organisation was founded in 1919 and India was a founder
member of the ILO. One of the major functions of the ILO is to set standards for
protection of workers against exploitation. Social security is-one of the subjects on
which ILO has adopted a number of Conventions and Recommendations. Workmen's
compensation, maternity benefit, sickness. insurance and unemployment insurance
were some of the matters in which the ILO adopted Conventions or
Recommendations in the very first few years after its formation.
The Government of India examined the question of enacting a law for payment of
compensation to workers on the pattern of the Workmen's Compensation Act of
Great Britain. The matter was. referred to the local Governments and a committee
was set up to consider the matter. Eventually, the Workmen's Compensation Act was
passed in 1923 and it came into force in 1924.
The enactment of this law is of great significance from the point of view of social
security because it established the principle that compensation was payable to the
workers not as a penalty for an omission or commission on the part of the employer
which resulted in the accident or disease but as an insurance benefit. It created a new
type of liability to pay compensation at% fixed rate to an employee who is
incapacitated or to his dependent in the event of his death by accident arising out of
and in the course of employment. This liability is independent of any neglect or
wrongful act on the part of his master or his servants. In other words, it is not a
liability which arises out of tort. It is a liability arising out of the very relationship of
master and servant: .
Maternity benefit was the second contingency to receive attention. Some of the
provincial legislatures enacted a legislation providing for payment of a cash benefit to
women workers for a period ranging from 7 to 12 weeks of their absence from work as
a measure of maternity protection. The Presidency of Bombay was the first to pass the
Maternity Benefit Act in 1929. It was followed by Central Provinces, Sind, Ajmer-
Merwara, Madras, Delhi, U.P., Bengal, Punjab, Assam and Bihar. The last state to
enact maternity benefit law was Orissa in 1953. In the meantime the Government of
India also enacted a separate maternity benefit legislation for mine workers. The Royal
Commission on Labour in its report submitted in 1931 suggested a central legislation to
replace the provincial laws. The central law was enacted in 1961.
The Royal Commission on Labour also examined the question of introducing a scheme
of health insurance for workers. It recognised several difficulties in its Implementation
and yet it drew up a broad outline of a tentative scheme and suggested its introduction
6 on an experimental basis. Subsequently, the Government appointed
Social Security Legislation :
Prof. B.P. Adarkar to frame a fresh scheme of health insurance for industrial workers. An Overview
Prof. Adarkar submitted his report in 1944. The Government initiated further
consultations on the report of Prof. Adarkar. The matter was referred to the ILO and
the ILO deputed two experts to advise the Government. The experts suggested certain
modifications in the scheme proposed by Prof. Adarkar. The Adarkar Plan as
modified by the ILO experts culminated in the enactment of the Employees' State
Insurance Act, 1948.
The ESI. Act was followed by the Coal Mines Provident Fund and Bonus Schemes in
1948 and the Employees' Provident Fund and Miscellaneous Provisions Act in 1952.
There are different types of P.F. Schemes in India. Some of the establishments are
covered under the Provident Fund Act, 1925 and others under the Employees
Provident Fund and Miscellaneous Provisions Act. Besides, there are a number of
special enactments like the Coal Mines Provident Fund and Miscellaneous Provisions
Act, 1948 which provide for the establishment of provident fund in the coal mines.
The next statutory measure in the field of social security was the Payment of Gratuity
Act, 1971, which provides for payment of gratuity as a retiral benefit.
23.2 PROBLEMS AND PROSPE&S

India has been a pioneer in introducing social security for its people. The beginning
of social security may be traced back to the 1920s when the Workmen's
Compensation Act was passed. Subsequently, the country made significant progress
during the first decade after independence from 1947-57 and again between 1967-77.
Since then, however, the situation has stagnated with the result that the social security
benefit expenditure in terms of percentage of the GDP seems to have dwindled from
2.4 to 0.5.
The social security system in India is characterised by multiplicity of schemes '
administered by different agencies without any co-ordination. Schemes have been
floated by the Central Government, State Governments and also by some voluntary
organisations in response to their own perception of the needs leading to wide gaps in
the coverage on the one hand and overlapping of benefits on the other. A co-
ordinated or systems approach has been lacking. It would, therefore, be a misnomer
to call the existing arrangements a system.
The basic feature of these arrangements is their narrow coverage. As there is no
unified system of social security, there is also no uniform coverage. The coverage
varies from scheme to scheme. The maximum coverage so far as statutory schemes
are concerned is that of the EPF Act which is about 17 million. The next in
importance in terms of coverage is the ESI Scheme being about 7 million. A
significant aspect of the coverage of the ESI Scheme is that it has been fluctuating
due to the ceiling on wages for application of the Act.
Another significant feature of these arrangements is that different groups of people
receive different types of benefits. No one receives the full range of all the benefits.
In other words no one is insured against all the contingencies or risks of life. It is,
therefore, said that the system is inadequate, highly skewed, complex and
fragmented.
Further all the schemes are procedure ridden with the result effective access to it is
severely constrained by a variety of factors. Lack of awareness of the schemes and
the procedure involved in availing the benefits under the schemes is a major handicap
in the implementation of the schemes.
The initiative to introduce the schemes has come mainly from the Central
Government. Except in the case of cash benefits under the ESI Scheme and the
schemes under the EPF Act which are administered by central organisations, the
administration of all other schemes is in the hands of the State Governments The
result is a dichotomy in the administration of the schemes which is not conducive to
effective implementation.
Considering that nearly 90 per cent of the workforce is in the informal sector 7
characterised by lack of continuity of employment and low wages it has not been
and Social Security possible to make much headway in extending contributory social insurance schemes.
The social security types of schemes are, therefore, based largely on employers'
liability or social assistance. Employers' liability schemes are notoriously subjective
in their approach and social assistance schemes are subject to budgetary constraints.
These factors have circumscribed the effectiveness of the, schemes.
The situation calls for an integrated and comprehensive social security system
evolved by a national authority and administered by Central -and State authorities
providing minimum benefits at the cost of the State preempting a prescribed
percentage of the GDP for the purpose with a system of social insurance
superimposed over it to provide additional benefits at higher levels to those who can
contribute to it.
On the whole, the social security legislation of our country suffer from such defects
as uneven scope, inadequacy of benefits, duplication and overlapping provisions, and
different administrative authorities for implementation and enforcement. Hence there
should be integration of various social security measures with a unified scheme of
administration and contribution, providing for medical care and coverage against
sickness, maternity, employment injury, old age and death.
The statutory social security schemes in our country cater-only for a small proportion
of the population. Even all industrial workers are not covered as smaller
establishments and those drawing salaries exceeding certain limits are excluded from
the benefits of the various social security programmes. A vast majority of labour
force in the unorganised and agricultural sector are beyond the benefits of, organised
social security schemes.
8
The Maternity Benefit Act, 1961
UNIT 26 THE MATERNITY BENEFIT ACT,

1961
Objectives
The Objectives of this unit are to:
• discuss the salient features of the Act

• present selected case law on the subject
Structure
26.1 Genesis of the Act
26.2 Applicability of the Act
26.3 Benefits
26.4 Restrictions on Employment
26.5 Forfeiture
26.6 Miscellaneous
26.7 Administration
26.8 Case Law
26.9 Self-Assessment Questions
26.10 Answers to Check Your Progress
26.1 GENESIS OF THE ACT

The Convention of "Protection of Motherhood" adopted in 1919 was the earliest
among the ILO Conventions. In 1921, the Government of India reported that it was
not possible to adopt the Convention passed in 1919 due to various reasons. A Bill
was brought before the Central Legislative Assembly by a private member in 1924;
urging the Government to make it compulsory for the employers to provide maternity
benefit to women workers. However, the Bill was opposed by the government on the
ground that the need for such a Bill was not felt and that if legislation was passed to
that effect, it might have adverse repercussions on the employment of women. The
Royal Commission on Labour, in its recommendations, also stressed the need for
suitable maternity legislation, at least for women employed permanently in non
seasonal factories. As the Government of India was slow to 'act on these
recommendations, the provincial governments took the lead. The Government of
Bombay passed the Maternity Benefit Act, way back in 1926.. It was followed by
Central Provinces, Madras, U.P., Bengal and some other provinces. The period of
leave, the quantum of benefit and the qualifying conditions varied slightly from
province. With a view to reducing the disparities relating to maternity protection
under different provincial or State enactments, the Central Government passed the
Maternity Benefit Act in 1961.
26.2 APPLICABILITY OF THE ACT

The Act extends to the whole of India and applies to every establishment, factory,
mine or plantation, including any such establishment belonging to the government
and to every establishment wherein persons are employed for the exhibition of
equestrian, acrobatic and other performances. The Act was brought into force in
mines with effect from 10 November 1963, after repealing the Mines Maternity
Benefit Act, 1941. The State government may extend all or any of the provisions of
the Act to any other establishment or class of establishments, industrial, commercial, 27
agricultural or
Laws for Labour Welfare and
Social Security otherwise. But the State government-can do so-only with the approval of the Central
Government, after giving not less than two months' notice, by a notification in the
Official Gazette, of its intention to do so. The-Act specifically excludes the
applicability of the provisions of the Act to any factory or other establishment to
which provisions of the Act to any factor or other establishment to which provisions
of the Act to any factor or other establishment to which provisions of the Employees'
State Insurance Act, 1948, apply for the time being. The Act was amended on May 1,
1976 to extend the benefits to all women employees earning more than the wage
ceiling in establishments covered by the E. S.I. Act.
26.3 BENEFITS
The Maternity Benefit Act is a piece of social legislation enacted to promote the
welfare of working women. It prohibits the working of pregnant women for a
specified period before and after delivery. It also provides for maternity leave and
payment of certain monetary benefits to women workers during the period when they
are out of employment because of their pregnancy. Further, the services of a woman
worker cannot be terminated during the. period of her absence on account of
pregnancy, except for gross misconduct.
The maximum period for which a woman can get maternity benefit is twelve weeks.
Of this, six weeks must be taken prior to the date of delivery of the child and six
weeks immediately following that date.
To be entitled to maternity leave, however, a woman must have actually worked for
not less than 80 days in the twelve months immediately preceding the day of her
expected delivery. Only working days are taken into account when calculating these
80 days. Weekly holidays and all leave - paid or unpaid - are not included. However,
if a workman is laid off from work, such periods will be deemed as working days.
To avail of the six weeks' leave before expected delivery,, a notice must be given in
writing stating the date of absence from work also a certificate of pregnancy. (There
is a form for both which must be filled in). The employer has to pay the maternity
benefit in advance for this period to the concerned employee or any person
nominated for this purpose.
For the six weeks' leave from the date of delivery, another notice must be sent
together with a certificate of delivery after the child is born. The employer has to pay
to the employee, or her nominees, maternity benefit within 48 hours of receiving this
notice. The failure to give notice for the subsequent six weeks does not, however,
disentitle a woman from maternity benefit.
Every woman entitled to maternity benefit is also entitled to a medical bonus of
rupees two hundred and fifty if no pre-natal and post-natal care have provided for by
the employer free. of charge.
In case of miscarriage, a woman is entitled to six weeks leave with pay from the day
of miscarriage. In this case, too, .she must give notice, together with a certificate of
miscarriage.
For illness arising-out of pregnancy, delivery, premature birth or miscarriage, a
woman employee can take extra leave up to a maximum period of one month. She
has, of course, to get a certificate from a doctor in the prescribed form. This leave can
be taken at any time during the pregnancy, or can be attached to the six weeks prior
to or after delivery or miscarriage.
With a view to encourage planned parenthood, the Act provides for (a) six weeks
leave with wages in cases of medical termination of pregnancy (MTP); (b) grant of
leave with wages for a maximum period of one month in cases of illness arising out
of MTP or tubectomy; and (c) two weeks' leave with wages to women workers who
undergo tubectomy operation.,
A female employee can ask for light work for one month preceding the six weeks
28 prior to her delivery or during these six weeks if, for any reason, she does not avail of
her leave,
Marketing Communication
26.4 RESTRICTIONS ON EMPLOYMENT Process
An employer is prohibited from knowingly employing any woman in any

establishment during the six weeks immediately following the day of her delivery or
her miscarriage. Likewise, a woman is prohibited from working in any establishment
during this period of six weeks. Further, no pregnant woman shall, on a request
being; made by her, be given
1. Any work which is of an arduous nature;
2. Any work which involves long hours of standing;
3. Any work which in any way is likely to interfere with her pregnancy or the
normal development of the foetus, or is likely to cause miscarriage or otherwise
adversely affect her health.
A female employee resuming duties after delivery is to be given two nursing breaks
of prescribed duration, in addition to her regular rest intervals, to nurse the child until
her child attains the age of fifteen months. Each State has its own rules as to the
length of this break. (In Maharashtra, it is fifteen minutes).
An employer cannot reduce the salary on account of light work assigned to her or for
breaks taken', to nurse her child. Further, she cannot be discharged or dismissed on
grounds of absence arising out of pregnancy, miscarriage, delivery or premature
birth. Nor can her service conditions be altered to her disadvantage during this
period.
If a woman entitled to maternity benefit dies before receiving her dues, the employer
has to pay the person nominated by her in the notice, or to her legal representative, in
case there is no nominee. If she dies during the six weeks before delivery, maternity
benefit is payable only for the days up to and including the day of her death. If she
dies during delivery or during the following six weeks, leaving behind a child, the
employer has to pay maternity benefit for the entire six weeks; but if the child also
dies during the period, then only for the days up to-and including the death of the
child.
26.5 FORFEITURE
A female employee, however, can be deprived of maternity benefit if :
1. After going on maternity leave, she works in any other establishment during the
period she is supposed to, be on leave; and
2. During the period of her pregnancy, she is dismissed for any prescribed gross
misconduct;
The acts which constitute misconduct are

a) Wilful destruction of employer's goods or property;
b) Assaulting any superior or co-employee at the place of work;
c) Criminal offence involving moral turpitude resulting in conviction in a court of
law;
d) Theft, fraud or dishonesty in connection with the employer's business or
property; and
e) Wilful non-observance of safety measures or rules or wilful interference with
safety devices or with fire fighting equipment.
The aggrieved woman may, within sixty days from the date, on which the order of
such deprivation is communicated to her, appeal to the prescribed authority, and the
decision of the authority on such appeal shall be final. 29
Laws for Labour Welfare and
Social Security 26.6 MISCELLANEOUS
An abstract of the provisions of the Act and the rules made thereunder has to be
exhibited in the language or languages of the locality in a conspicuous place in every
of the establishment in which women are employed.
The Act provides for penalties for the contravention of the provisions of the Act.
The Central Government has power to exempt an establishment from the operation of
all or any of the provisions of the Act if it is satisfied that the benefits granted by the
establishment are not less favourable than those provided in the Act.
Apart from the benefits provided under the Central Act, some State enactments
provide additional benefits, such as free medical aid, maternity bonus, provision of
creches, and additional rest intervals. If benefits are improperly withheld, a complaint
can be made to the inspectors appointed by the government.
26.7 ADMINISTRATI®N
The administration of the Act in all the States is the responsibility of the factory
inspectorate. So far as the coal mines are concerned, the Coal Mines Welfare
Commissioner is responsible for. the administration of the Act. The Director-General
of Mines Safety administers the Act in mines other than coal mines. The rules framed
under the Central and State enactments require the employers to furnish to the
administering authorities annual returns, showing the number of women workers
covered, number of claims made, the amount paid, etc., during the year. The
information contained in these returns is analysed and published by State
Governments in their annual reports on the working of the Act.
26.8 CASE LAW

In the case of B. Shah v, Labour Court, Coimbatore and Others (1978-1 LLJ 29), the
Supreme Court held that the computation of maternity benefit in case of a female
worker engaged on a daily wage basis has to be made for all the days, including
Sundays and rest days which may be wageless holidays, upto six weeks preceding
and excluding the day of delivery, as also for all the days falling within six weeks
immediately following the day of delivery thereby ensuring that the woman worker
gets for the said period not only the amount equalling 100 % of the wages which she
was previously earning but also the benefit of the wages for all the Sundays and rest
days falling within the aforesaid two periods. This being a beneficial piece of
legislation, the interpretation of law is in tune with social justice. It is also in
conformity with the Maternity Benefit Protection (Revised) Convention adopted, by
the ILO in 1952. The court struck down the decision of the full bench of -the Kerala
High Court in Malayalam Plantations Ltd. v. Inspector of Plantations (A.I.R. 1975
Ker. 86).
The computation of maternity benefit in case of a female worker engaged on a daily

wage basis has to be made for ail the days including Sundays and rest days which
may be wageless holidays upto six weeks preceding and excluding the day of
delivery as also for all the days falling within six weeks immediately following the
day of delivery thereby ensuring that the woman worker gets for the said period not
only the amount equalling 100% of the wages which she was previously earning but
also the benefit of the wages for all the Sundays and rest days falling within the
aforesaid two periods (B. Shah vs. Labour Court, Coimbatore and Ors. 19'781 LLJ
29 SC).
Work on half days and the period during which women worker was laid-off should
be included in calculating the days of qualifying service (Ram Bahadur Thakur vs.
30 Inspector of Plantations 1989 II'LLJ 20).
Marketing Communication
26.9 SELF-ASSESSMENT QUESTIONS Process
1. What is the object of the Maternity Benefit Act, 1961?
2. Which establishments are covered by the Act?
3. What are the benefits payable to a female employee under the Act?
26.10 ANSWERS TO CHECK YOUR PROGRESS

Write “True” or “False” against the following statements :
( ) 1. The Convention of "Protection of Motherhood" was adopted in 1929
( ) 2. The Act is applicable to the mines and plantations.
( ) 3. To be entitled to maternity benefit a female employee must have actually

worked for not less than 160 days in the twelve months immediately
preceding the day of her expected delivery.
( ) 4. The computation of maternity benefit in case of a female worker engaged

on a daily wage basis has to be made for all the days excluding Sundays
and rest days.
Answers:
1. False
2. True
3. False
4. False

Bare Act on the Maternity Benefit Act, 1961 (latest edition).
Kumar, H.L., What Everybody Should Know About Labour Laws, Universal Book.
Traders, Delhi, 1995.
Samant, S.R., Employer's Guide to Labour Laws, Labour Law Agency, Mumbai, 1999.
31
and Social Security
UNIT 28 THE PAYMENT OF GRATUITY
ACT, 1972
Objectives
The Objectives of this unit are to:
• discuss the salient features of the Act

• present selected case law on the subject
Structure
28.1 Genesis of the Act
28.2 Object of the Act
28.3 Applicability
28.4 Definitions
28.5 Payment of Gratuity
28.6 Forfeiture
28.7 Exemption
28.8 Nomination
28.9 Settlement of Claims
28.10 Offences and Penalties
28.11 Miscellaneous
28.12 Case Law
28.13 Self-Assessment Questions
28.14 Answers to Check Your Progress
28.1 GENESIS OF THE ACT

Gratuity as an additional retirement benefit has been secured by labour in numerous
instances, either by agreement or by awards. It was conceded as a provision for old
age and a reward for good, efficient and faithful service for a considerable period.
But in the early stages, gratuity was treated as a payment gratuitously made by an
employer at his will and pleasure. In the course of time, gratuity came to be paid as a
result of bilateral agreements or industrial adjudication. Even though the payment of
gratuity was voluntary in character, it had led to several industrial disputes. The
Supreme Court had laid down certain broad principles to serve as guidelines for the
framing of the gratuity scheme. They were
1. The general financial stability of the concern;
2. Its profit-earning capacity;
3. Profits earned in the past;
4. Reserves and the possibility of replenishing the reserves; and
5. Return on capital, regard being had to the risk involved.
The first central legislation to regulate the payment of gratuity was, the Working
Journalists (Conditions of Service). and Miscellaneous Provisions Act, 1955. The
Government of Kerala enacted legislation in 1971, for payment of gratuity to workers
employed in factories, plantations, shops and establishments. In 1971, the West
42 Bengal Government promulgated an ordinance which was subsequently replaced by
The Payment of Gratuity
the West Bengal Employees' Payment of Compulsory Gratuity Act, 1971. After the Act, 1972
enactment of these two Acts, some other state governments also voiced their
intention of enacting similar measures in their respective states. It became necessary,
therefore, to have a Central law on the subject so as -
1. To ensure a uniform pattern of payment of gratuity to the employees throughout
the country, and
2. To avoid different treatment to the employees of establishment having branches
in more than one state, when, under the conditions of their service, the
employees were liable to transfer from one state to another.
Hence the Government of India enacted a legislation on gratuity. The Act came into
force from September 16, 1972. The Payment of Gratuity Central Rules also came
into force from September 16, 1.972.
28.2 OBJECT OF THE ACT

The Act provides for a scheme of compulsory payment of gratuity to employees
engaged in factories, mines, oilfields, plantations, ports, railway companies, motor
transport undertakings, shops or other establishments and for matters connected
therewith or incidental thereto.
28.3 APPLICABILITY
The Act is applicable to:
1. Every factory, mine, oilfield, plantation, port and railway company;
2. Every shop or establishment within the meaning of any law for the time being in
force in relation to shops and establishments in a state; in which 10 or more ,
persons are employed or were employed on any day of the preceding 12 months;
3. To every motor transport undertaking in which 10 or more persons are employed
or were employed on any day of the preceding 12 months;
4. Such other establishments or class of establishments in which 10 or more
employees are employed or were employed on any day of the preceding 12
months, as the Central Government may, by notification, specify in this behalf.
A shop or establishment once covered shall continue to be covered notwithstanding
that the number of persons employed therein at any time falls below 10.
28.4 DEFINITIONS
Completed Year of Service
The term `completed year of service' means continuous service for one year. An
employee shall be said to be in continuous service for a period if he has, for that
period, been in uninterrupted service, including service which may be interrupted on
account of sickness, accident, leave, absence from duty without leave (not being
absence in respect of which an order imposing a punishment or penalty or treating the
absence as break in service has been passed in accordance with the standing orders,
rules or regulation governing the employees of the establishment), lay-off, strike or a
lockout or cessation of work not due to any fault of the employees, whether such
uninterrupted or interrupted service was rendered before or after the commencement
of this Act.
1. Where an employee (not being an employee employed in a seasonal

establishment) is not in continuous service within the meaning of the above
clause for any period of one year or six months, he shall be deemed to be in
continuous service under the employer if he has actually worked for 190 days 43
and Social Security during the preceding 12 months in an establishment which works less than 6
days a week and 240 days in any other case;
2. Further, for determining the continuous period of six months, an employee

should have completed 95 days in an establishment which works for not less
than 6 days in a week and 120 days in any other case.
Employee
An employee is a person (other than apprentice) employed on wages (no wage
ceiling) in any establishment, factory, mine, oilfield, plantation, railway company or
shop, to do any:-skilled, semi-skilled or unskilled, manual, supervisory, technical or
clerical work, where the terms of such employment are express or implied, and
includes any such person, who is employed in a managerial or administrative
capacity, but does not include any person who holds a civil post under the Central
Government or a State Government, or who is subject to the Air Force Act, 1950, the
Army Act, 1950, or the Navy Act, 1957.
The fancily consists of
i) In the case of a male employee, himself, his wife, his children, whether married
or unmarried, his dependant-parents and the widow and children of his
predeceased son, if any;
ii) In the case of female employee, herself, her husband, her children, whether
married or unmarried, her dependant parents, and the dependant parents of her
husband, and the widow and children of her predeceased son, if any.
A female employee can exclude her husband from her family by a notice in writing to
the controlling authority. In such event, her husband and his dependent parents will
not be deemed to be included in her family unless the said notice is subsequently
withdrawn.
Wages
The term `wages' under the Act means all emoluments, which are earned by an
employee while on duty or on leave in accordance with the terms and conditions of
his employment and which are paid or are payable to him in cash and includes
dearness allowance, overtime wages and any other allowance.
Retirement
The term- "retirement' has been defined under the Act as the termination of the
service of an employee otherwise than on superannuation. Superannuation means the
attainment of such age by the employee a$ is fixed in the contract or conditions of
service as the age on the attainment of which he has to leave the employment where
there is no such provision, then attainment of the age of 58 years by the employee.
28.5 PAYMENT OF GRATUITY.

Section 3 authorises the appropriate- government to appoint any officer as a
controlling authority for the administration of the Act. In Maharashtra, the labour
courts in different localities are notified as controlling authorities and the President,
Industrial Court; is an appellate authority under the Act. `
Gratuity is payable to an employee on the termination of his employment after he has
rendered continuous service for not less than 5 years - on his superannuation; or on'
his retirement or resignation; or on his death or disablement due to accident or
disease. However, the completion of 5 years of continuous service for earning
gratuity is not necessary if the termination of the employment of any employee is due
to death or disablement. In case of death of the employee gratuity is payable to his
nominee or to the guardian of such nominee.
For every completed year of service or apart, thereof its excess of six months, the
employer has to pay gratuity to an employee at the rate of 15 days wages based on the
44 rate of wages last drawn by the concerned employee. In the case of Piece-rated
employee, daily wages are computed on the average of the total wages received by Act, 1972
him for a period of 3 months immediately preceding the termination of his
employment. For this purpose, the wages paid for any overtime work will not be
taken into account. In the case of an employee employed in a seasonal establishment,
and who is not so employed throughout the year, the employer shall pay gratuity at
the rate of 7 days wages for each season.
The amount of gratuity payable to an employee is not to exceed rupees three lakhs
and fifty thousand.
The right of employees to receive better terms of gratuity under any award or
agreement or contract with the employer is not taken away by this Act.
28.6 FORFEITURE
If the services of an employee have been terminated for any act of wilful omission or
negligence causing any damage or loss to, or destruction of, property belonging to the
employer, his gratuity can be forfeited to the extent of the damage or loss so caused
to the employer. The gratuity payable to an employee can be wholly forfeited, if the
services of such employee have been terminated for his riotous or disorderly conduct
- or any other act of violence or an offence involving moral turpitude committed by
him in the, course of his employment.
28.7 EXEMPTION
The Act provides for the grant of exemption from the operation of the Act to any
person or class of persons if they are in receipt of gratuity or pensionary benefits not
less favourable than the benefits conferred under the Act.
28.8 NOMINATION
An employee who has completed one year of service has to name his/her nominee in
the prescribed form. An employee in his nomination can distribute the amount of
gratuity amongst more than one nominee. If an employee has a family at the time of
making the nomination, it has to be made in favour of one or more members of the
family. If nomination is made in favour of a person who is not a member of his
family, the same is void. However, if the employee has no family at the time of
making a nomination, he can make the nomination in favour of any person. But is
such employee acquires a family subsequently, then such nomination becomes
invalid forthwith, and thereafter the employee has to make a fresh nomination in
favour of one or more members of his family: Nomination once made can be
modified after giving due notice to the employer, If a nominee predeceases the
employee, a fresh nomination is required to be made:
A person who is entitled to gratuity has to apply himself/herself or, through an

authorised person to the employer for gratuity within the prescribed time. Even if the
application is made after the prescribed time, the employer has to consider the same.
Similarly, the employer has to give notice to the person entitled to gratuity and to the
controlling authority immediately after it became payable, specifying the amount of
gratuity, and thereafter make .arrangements for its payment.
28.9 SETTLEMENT OF CLAIMS

The employee and' the employer or any other person raising the dispute regarding the
amount of gratuity may make an application to the controlling authority to decide the
dispute. No appeal by and employer shall be admitted unless the employer produces a
certificate of the controlling authority-to the effect that he has deposited with the
controlling authority an amount equal to the amount of gratuity required to be 45
deposited or deposits with the appellate authority such amount
and Social Security Section 8 stipulates that an aggrieved employee can file an application to the
controlling authority for recovery of the amount of gratuity. The controlling,
authority will issue a certificate to the collector for recovery of that amount. The
collector shall recover the amount, together, with compound interest, at the rate of
nine per cent per annum from the date of expiry of the prescribed time as arrears of
land revenue, and pay the same to the person entitled to it.
28.10 OFFENCES AND PENALTIES

Section 9 declares certain acts as offences and prescribes penalties for them.
Whoever, for the purpose of avoiding any payment to be made under this Act, makes
or causes to be made any false statement or false representation, is punishable with
imprisonment up to 6 months and/or fine upto Rs. 1,000.
No court shall take cognizance of any offence punishable under this Act unless a
complaint is made by or under the authority of the appropriate government.
28.11 MISCELLANEOUS
Gratuity amount cannot be attached in execution of any decree or order of any civil,
revenue or criminal court.
Notwithstanding anything contained in any other enactment, instrument or contract,

the provisions of this Act would prevail.
The Act confers power on the appropriate government to make rules for the purpose
of carrying out the provisions of this Act.
The Act also empowers the appropriate government to appoint inspectors with
various powers to inspect documents and ensure payment of gratuity to the
employees as prescribed under the Act.
28.12 CASE LAW

The word "15 days' wages" has been interpreted differently by different judicial
authorities. The conflicting judgments of the different High Courts regarding mode of
calculation of gratuity was finally set at rest by the judgment of the Supreme Court
between (a) Digvijay Woolen Mills Ltd. and Shri Mahendra Prataprai Buch and
between the Maharana Mills Ltd. and Shri Gopaldas Ladhabhai Kakkad. In these
appeals the question came up how to calculate 15 days wages for the purpose of
Payment of Gratuity in terms of Section 4(2) of the Payment of Gratuity Act. In one
case, the appellant-company calculated the amount of gratuity on the basis that
fifteen days' were half of the company wages last drawn. The respondents demanded
an additional sum as gratuity on the ground that their monthly wages should be taken
as what they got for 26 working days and their daily wages should be ascertained on
that basis, but not by just taking half of the wages for a month of 30 days of fixing
their daily wages by dividing monthly wages by 30. According to the Supreme Court,
the pattern followed by the method of 26 working days appears to be legitimate and
reasonable. Ordinarily, of course, a month is understood to mean 30 days but the
manner of calculating gratuity payable under the Act to the employees who work for
26 days a month followed by the Gujarat High Court cannot be called perverse.
Treating monthly wages as wages for 26 working days is not anything unique or
unknown as is evident from the Supreme Court decision in Delhi Cloth and General
Mills Ltd. vs. Workmen (1969 II "LLJ 755). The expression "average of the basic
wages" can only mean the wage earned by a workman during the month. The
Supreme Court held that the mode of calculation of gratuity would be to divide the
monthly wages by 26 and then multiply by 45 (1980 II LLJ 252).
In Tournamulla Estate vs. Workmen (1973 43 FJR 403), the Supreme Court held that
the object of having a gratuity scheme is to provide a retiring benefit to the workmen,
46
who have rendered long and unblemished service and thereby contributed to the The Act, 1972
Payment or Graialty Act, 1972 prosperity of the employer, It is, therefore, not correct
to say that no misconduct, however, grave, may not be vested with forfeiture of
gratuity. Misconduct could be of three kinds: (i) technical misconduct which leaves
no trail of indiscipline; (ii) misconduct resulting in damage to the employers' property
which might be compensated by forfeiture of gratuity or part thereof; and (iii) serious
misconduct such as acts of violence against the management or other employees or
riotous or disorderly behaviour in or near the place of employment, which do not
directly causing damage, is conducive to grave indiscipline. The first should involve
no forfeiture of the amount equal to the loss directly suffered by the employer, and
the third will entail forfeiture of gratuity due to the workman in its entirety. The
principle which is incorporated in the Payment of Gratuity Act is conducive to
industrial harmony and is in consonance with public policy.
Gratuity is paid in consideration of past service and the definition of the term
"employee" is couched in a language which admits no periodical limitation (Sarabhai
Chemicals vs. A.A. Patel 1978 I LLJ 105).
In case of rival claimants to gratuity under the Payment of Gratuity Act, Civil Court
has. jurisdiction to go into the disputed matter (Asha Devi Jauhar vs. Sharda Devi
1978 II LLJ 345).
A company having its main place of business of textile mill in one state and a branch
mill in another state would fall within Section 2(a)(i)(b) of the Act and appropriate
government, in relation thereto, will be the Central Government (Binny Ltd. vs.
Commissioner of Labour & Ors. 1980 57 FJR 139).
For calculation of gratuity the factory will be a seasonal establishment in respect of
those persons who work- seasonally and will be non-seasonal establishment in
respect of others who are engaged throughout the year (Consolidated Coffee Ltd. vs.
Uthaman 1980 I LLJ 83).
Gratuity is payable if the termination of the employment is after the date of coming
into force of the Act for that period during which the employee came within the
definition of "employee" within the meaning of the Act. A person whose services are
terminated for the reasons mentioned in section 4(1) of the Act after coming into
force of the Act is entitled to payment of gratuity, if he has rendered continuous
service for not less than five years for that period during which he satisfied the
definition of employee under section 2(e) of the Act (The Management of Goodyear
India v Shri' K.G. Devessar 1986 I LLJ 25 S.C.).
A local authority created under the Delhi Municipal Corporation Act is an
establishment governed under the Payment of Gratuity Act (Municipal Corporation
of Delhi v V.T. Naresh 19861 LLJ 323).
Merely stating that the employees went on an illegal strike and thereby caused a
heavy loss to the company is not a ground for denying gratuity (Bombay Gas Public
Ltd. Co. Vs. Papa Akbar & Anr. 1990 II LLJ 220).
28.13 SELF ASSESSMENT QUESTIONS

1. What is the object of the Payment of Gratuity Act, 1972?
2. Which are the establishments covered under the Act?
3. Who is an employee under the Act?
4. What are the benefits payable under the Act?
28.14 ANSWERS TO CHECK YOUR PROGRESS

47
Write "True" (T) or "False" (F) against the following statements:
and Social Security ( ) 1. The Act is applicable to shops and establishments in a State, in which 10 or
more persons are employed.
( ) 2. An employee is a person employed on wages not exceeding Rs. 2,500 per

mensem.
( ) 3. Completion of 5 years of continuous service for earning gratuity is

necessary if the termination of the employment of any employee is due to
death or disablement.
( ) 4. The amount of gratuity payable to an employee is not to exceed Rs. One

lakh.
( ) 5. The right of employees to receive better terms of gratuity under any award
or agreement or contract with the employer is not taken away by the Act.
( ) 6. In case of rival claimants to gratuity under the Payment of Gratuity Act,

civil court has jurisdiction to go into the disputed matter.
( ) 7. The mode of calculation of gratuity would be to divide the monthly wages

by 26 and then multiply by 15
Answers:
(1) True (5) True
(2) False (6) True
(3) False (7) True
(4) False

Bari Act on the Payment of Gratuity Act, 1972 (latest edition).
Chopra, D.S., Payment of Gratuity Act, 1972, Eastern Law House, Calcutta" umar,
H.L., What Everybody Should Know About Labour Laws, Universal Book Traders,
Delhi, 1995.
Samant, S.R.,Rmployer's Guide to Labour Laws, Labour Law Agency, Mumbai,

1999.
48
Definition of Industry
As per Section 2(j) of Industrial Disputes Act,1947 “Industry” means any

systematic activity carried on by co-operation between an employer and his
workmen(whether such workmen are employed by such employer directly or
by or through any agency, including a contractor) for the production ,supply or
distribution of goods or services with a view to satisfy human wants or wishes
(not being wants or wishes which are merely spiritual or religious in nature),
whether or not,-
(i) any capital has been invested for the purpose of carrying on such
activity; or
(ii) such activity is carried on with a motive to make any gain or profit,
and includes-
(a) any activity of the Dock Labour Board established under
section 5-A of the Dock Workers ( Regulation of
Employment)Act,1948( 9 of 1948);
(b) any activity relating to the promotion of sales or business or
both carried on by an establishment,
but does not include-
1) any agricultural operation except where such agricultural
operation is carried on in an integrated manner with any
other activity (being any such activity as is referred to in
the foregoing provisions of this clause) and such other
activity is the predominant one.
Explanation:- For the purposes of this sub-clause ,” agricultural operation”
does not include any activity carried on in a plantation as defined in clause (f)
of section 2 of the Plantation Labour Act,1951; or
2) hospitals or dispensaries; or
3) educational, scientific, research to training institutions ; or
4) institutions owned or managed by organizations wholly or
substantially engaged in any charitable ,social or
philanthropic service; or
5) khadi or village industries ; or
6) any activity of the Government relatable to the sovereign
functions of the Government including all the activities
carried on by the departments of the Central
Governments dealing with defence research , atomic
energy and space ; or
7) any domestic service ;or
8) any activity ,being a profession practiced by an individual
or body of individuals ,if the number of persons
employed by the individuals or body of individuals in
relation to such profession is less than ten; or
9) any activity , being an activity carried on by a co-operative
society or a club or any other like body of individuals , if
the number of persons employed by the co-operative
society ,club or other like body of individuals in relation
to such activity is less than ten;
Definition of Industrial Dispute

As per Section 2(k) of ID Act,1947
“industrial dispute” means any dispute or difference between employers and

employers ,or between employers and workmen, or between workmen and
workmen , which is connected with the employment or non-employment or
the terms of employment or with the conditions of labour , of any person;
Definition of Workman
As per Section 2(s) of ID Act,1947
“workman” means any person (including an apprentice) employed in any
industry to do any manual ,unskilled ,skilled ,technical ,operational ,clerical or
supervisory work for hire or reward ,whether the terms of employment be
express or implied ,and for the purposes of any proceeding under this Act in
relation to an industrial dispute ,includes any such person who has been
dismissed ,discharged or retrenched in connection with ,or as a consequence
of ,that dispute ,or whose dismissal ,discharge or retrenchment has led to that
dispute ,but does not include any such person-
i) who is subject to the Air Force Act,1950 (45 of 1950),or the Army
Act,1950(46 of 1950), or the Navy Act,1957(62 of 1957); or
ii) who is employed in the police service or as an officer or other
employee of a prison; or
iii) who is employed mainly in a managerial or administrative capacity; or
iv) who, being employed in a supervisory capacity, draws wages
exceeding one thousand six hundred rupees per mensem or exercises
,either by the nature of the duties attached to the office or by reason
of the powers vested in him ,functions mainly of a managerial nature.
WORKMAN
INTRODUCTION
The concept of workman is central to the concept of an industrial dispute as an industrial dispute
can be raised either by a "workman" or an "employer." Since the Industrial Disputes Act, 1947 ("ID
Act") is a piece of beneficial legislation, the courts have enlarged the scope and applicability of this
Act by giving wide interpretation to the term "workman." Section 2(s) defines workman as any
person (including an apprentice) employed in any industry to do any manual, unskilled, skilled,
technical, operational, clerical or supervisory work, for hire or reward, terms of employment be
express or implied and includes any such person who has been dismissed, discharged or retrenched
in connection with, or as a consequence of dispute. It excludes persons employed in army/Navy/Air
Force/Police and those employed in mainly managerial or administrative, supervisory capacity and
drawing wages of more than INR 6500.
The Courts have interpreted this definition and have identified various determining factors to know
whether a person is "workman" or not. The factors which should be considered are (a) whether
there is a Master-Servant relationship;1 (b) when a person is performing various functions which
overlap in their characteristics, the nature of main function for which the claimant is employed
should be considered;2 (c) work is either manual, skilled, unskilled, technical operational, clerical or
supervisory in nature, the mere fact that it does not fall within the exception would not render a
person to be workman; and (d) that the exceptions are not applicable.3Further, designation, source
of employment, method of recruitment, terms and conditions of employment/contract of service,
the quantum of wages/pay and the mode of payment should not be considered while determining
whether a person can be termed as "workman."4
Over a period of time, courts have interpreted specific points of contention in the definition under
the ID Act which has enlarged the scope of the legislation. This note discusses some of the important
components of section 2(s) and their interpretation by the courts below.
1. Supervisory and Managerial work
1.1 A person working in purely managerial and/or supervisory capacity does not fall within the
definition of workman under ID Act. However, when a person performs multifarious functions, the
nature of the main function performed by the person has to be considered to determine if the
person is a "workman." The designation of a person is not a conclusive factor in determining the
nature of work. Even if a person is designated as supervisor, the employer has to prove that his work
and his duties were in nature of a supervisor.5
1.2 To squarely fall within the exception, the person must be (a) employed in a supervisory
capacity; (b) draw more than INR 6500 as wages; and (c) primarily perform the functions of
managerial nature. The emphasis really is to exclude those persons who are performing mainly
managerial work and are employed in supervisory capacity i.e. evaluating the work of their
subordinates. A managerial work includes powers and duties related to hiring and firing of new
employees, grant of leave to employees and actual participation in the policy of the business. The
managerial functions may not be performed as a consequence of a written contract but may be
implied from the powers vested in a person or the nature of his duties. A mere leader of a team who
makes checks and forwards it to seniors for consideration cannot be said to be covered within the
exception.6 Further, a supervisor earning less than 6,500/- may also raise an industrial dispute for an
increment in wages which may eventually exclude him from the definition of workman. 7
2. Skilled and Unskilled manual and operational work
2.1 Courts have not formulated an explanation as to who are considered as people employed in
"manual and operational work." Manual or operational work may be classified as one that requires
no special set of skills. It is mostly associated with physical labour. By way of exception, the courts
have excluded such works which need imaginative or creative quotient. A work that requires
training would imply that the work is of special nature and requires a distinct application of mind. It
is not considered a manual/clerical/operational work or technical work. However, in a few cases the
courts have deviated from strict interpretation and excluded ancillary creative works while
considering the definition of "workman." A person suggesting ways to increase sale is using an
imaginative minds and therefore, is out of the scope of this definition. However, a person carrying
out such ideas by distributing pamphlets or engaging in door-to-door publicity will be covered as a
"workman" under the ID Act.
2.2 A salesperson may use various techniques to convince the consumers but that is not considered
as use of creative or imaginative faculty and such sales person, even if he goes through a training to
acquire knowledge about the product, will not be excluded from the definition of a workman. 8
3. Part Time and Full Time workman
The number of working hours is not considered while determining whether a person qualifies as
"workman" or not. However, there must exist a master-servant relationship between the employee
and his employer. An independent contractor cannot be termed as a workman. The employer must
be in a position to control the manner of employee‟s work.
The ID Act does not differentiate between part-time, full time, casual, daily wage,9 regular or
permanent workman. All such individuals are subject to ID Act if they fulfill the ingredients as
provided in section 2(s).10
Conclusion
To give effect to the objects of this Act, the courts have followed a purposive approach while
interpreting the term workman‟ and industrial dispute‟. The emphasis is laid on the nature of duties
and powers conferredon an employee rather than the designation.

Unit 14 The Industrial Disputes ACT, 1947-I: Objectives

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Unit 14 The Industrial Disputes ACT, 1947-I: Objectives

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Industrial Relations Laws

UNIT 14 THE INDUSTRIAL DISPUTES

After going through this unit, you will be able to understand:

14.2 THE PRINCIPAL OBJECTIVES OF THE ACT

Unlike conciliation and arbitration, adjudication is compulsory method of resolving

When the Central Government is the appropriate Government in relation to any

14.9 AWARDS OF LABOUR COURTS AND INDUSTRIAL

14.10 PROTECTION OF WORXMEN DURING

14.12 EFFECTIVENESS OF ADJUDICATION

THE FOURTH SCHEDULE

(See Section 9A)

Conditions of Service for Change of which Notice is to be given

a) an employer taking an active interest in organising a trade union of his

b) an employer showing partiality or granting favour to one or several trade

III) To establish employer-sponsored unions of workmen.

IV) To encourage or discourage membership in any trade union by discriminating

1. The propriety or legality of an order passed by an employer under the standing

UNIT 21 PAYMENT OF BONUS ACT, 1965

The objective of this Unit is to explain briefly:

21.2 CONCEPT OF BONUS

21.3 L.A.T. OR FULL BENCH BONUS FORMULA

Establishments to include departments, undertakings and branches (Sec. 3)

Where an establishment consists of different departments or undertakings or, has-

21.6 ELIGIBILITY FOR BONUS

Disqualification for bonus (Sec. 9)

Notwithstanding anything contained in this Act, an employee shall be disqualified 41

21.7 COMPUTATION OF GROSS PROFITS IN BANKING

Items to be added back to net profit

g) Cash subsidy, if any, given by the Government or by any body corporate

21.8 DETERMINATION OF AVAILABLE SURPLUS

21.9 SUMS DEDUCTIBLE FROM GROSS PROFIT :

ii) 6 per cent of its reserves, if any, shown in balance-sheet as at the

4. In respect of co-operative society

ii) Rs. 48,000 whichever-is less, by way of remuneration to such employer,

21.10 CALCULATION OF DIRECT TAX PAYABLE BY

I) In calculating such tax no account shall be taken of:

i) any loss incurred by the employer in respect of any previous accountings

21.11 ALLOCABLE SURPLUS

Customary bonus is always connected with some local festival of importance. A

8. Recovery of Bonus,(Sec. 21)

21.12 SPECIAL PROVISIONS WITH RESPECT TO

(2) Sixth and seventh accounting years

21.13 PRESUMPTION ABOUT ACCURACY OF

21.14 GENERAL REMARKS

21.15 SELF-ASSESSMENT TEST

21.16 FURTHER READINGS

2. Wages A Workers Education Manual - I.L.O. Publication, Geneva.

6. A Manual of Mercantile Law. M. C. Shukla, Sultan Chand & Sons, Delhi.

7. Concept of Bonus (A Commentary on Payment of Bonus Act, 1965) -;S. B. Rao

The State shall, in particular, direct its policy towards securing:

23.2 PROBLEMS AND PROSPE&S

UNIT 26 THE MATERNITY BENEFIT ACT,

The Objectives of this unit are to:

• discuss the salient features of the Act

26.1 GENESIS OF THE ACT

26.2 APPLICABILITY OF THE ACT

An employer is prohibited from knowingly employing any woman in any

The acts which constitute misconduct are

26.8 CASE LAW

The computation of maternity benefit in case of a female worker engaged on a daily

1. What is the object of the Maternity Benefit Act, 1961?

2. Which establishments are covered by the Act?

26.10 ANSWERS TO CHECK YOUR PROGRESS