Bala Subrahmanya Rajaram vs B.C. Patil And Others

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Not extracted

Decision Date: 19 March 1958

Coram: Syed Jaffer Imam, Bose, Vivian

In this case, the Court noted that the petition was filed by Bala Subrahmanya Rajaram against B.C. Patil and others on 19 March 1958. The matter was heard before the Supreme Court of India by a bench comprising Justice B. J. Bose and Justice Vivian Imam, with Justice Syed Jaffer Imam also listed. The citation of the decision is reported in 1958 AIR 518 and 1958 SCR 1504. The dispute concerned the applicability of Section 2(vi) and Section 15 of the Payment of Wages Act, 1936 to a bonus awarded by the Industrial Court, Bombay. The Industrial Court, Bombay, had awarded a bonus equal to four and a half months’ wages to operatives of Tata Mills Ltd and directed that operatives who were no longer employed by the mill should receive the bonus in a single lump sum by a prescribed date, with any claim to be made in writing to the manager of the mill. Operatives who filed claims before the fixed date received payment, whereas those who filed after the date were denied payment. The denied operatives filed applications under the Payment of Wages Act to the Authority. The mill argued that the Authority lacked jurisdiction, but the argument was rejected. The mill subsequently filed a writ petition in the Bombay High Court, which was dismissed by a single judge; an appeal to the Division Bench was also dismissed. The Supreme Court held that the bonus awarded by the Industrial Court did not constitute wages within the meaning of Section 2(vi) of the Act, and therefore the Authority had no jurisdiction to entertain applications under Section 15. Although the bonus was remuneration, it was not remuneration payable on fulfilment of the terms of the employment contract, whether express or implied, as required by Section 2(vi). The Court followed the precedent set in F. W. Heilgers & Co. v. N. C. Chakravarthi, [1949] F.C.R. 356. The judgment further recorded the civil appellate jurisdiction: the appeals were Civil Appeals Nos. 35 and 36 of 1954, arising from orders dated 28 August 1952 of the Bombay High Court in Appeals Nos. 34 and 35 of 1952, which themselves arose from orders dated 24 January 1952 of the same High Court exercising its original civil jurisdiction in miscellaneous applications Nos. 302 of 1951 and Nos. 303, 304, 305 of 1951 respectively. Counsel for the appellant included R. J. Kolah, B. Narayanaswami, J. B. Dadachanji, S. N. Andley and Rameshwar Nath. Counsel for respondent No. 3 in Civil Appeal was H. N. Sanyal, Additional Solicitor‑General of India, together with N. P. Nathwani and R. H. Dhebar. Counsel for respondent No. 2 in Civil Appeal was D. H. Buch and Naunit Lal, and additional counsel represented respondents Nos. 2‑4 in Civil Appeal 36. The judgment was delivered on 19 March 1958 by Justice Bose. The Court observed that these appeals stemmed from petitions filed under Article 226 of the Constitution for writs of certiorari, the appellant being the manager of Tata Mills Limited, which engages in the manufacture and sale of textile goods in Bombay and is responsible for payment of wages under the Payment of Wages Act, 1936. The first respondent was the Authority under the Act at the relevant time, and the sixth respondent was the present Authority charged with deciding cases within the purview of the Act. The second through fifth respondents were employees of the mill.

In this dispute the appellant was the manager of Tata Mills Limited, a company that carried on the manufacture and sale of textile goods in Bombay and was therefore obligated to pay wages under the Payment of Wages Act, 1936. The first respondent was the Authority established under that Act at the time relevant to the appeals, and the sixth respondent is the present Authority that continues to exercise the duties assigned to it by the legislation. The Authority’s function is to decide all matters that fall within the purview of the Act. The second, third, fourth and fifth respondents were employees of the mill.

A disagreement arose concerning a claim made by the operatives of the mill for a bonus for the year 1948. The matter was referred to the Industrial Court at Bombay, which on 23 April 1949 awarded a bonus equal to four and a half months’ wages, subject to certain conditions. Only the sixth condition was material to the present case and it stipulated that persons eligible for the bonus but not in the service of the mill on the date of payment were to be paid in a single lump sum by 30 November 1949, and that in such cases the claim had to be made in writing to the manager of the concerned mill. Operatives who lodged their claims before the stipulated date received payment, but the third respondent, who applied much later, was denied the bonus on the ground that the condition precedent had not been satisfied. Consequently, the third respondent filed an application before the first respondent, the Authority under the Payment of Wages Act.

Similar claims were made by the second, fourth and fifth respondents for a bonus for the year 1949. The Industrial Court awarded them a bonus equal to two months’ wages and fixed the date for payment as 31 December 1950. By that time Labour Appellate Tribunals had been established, and both parties appealed the award to the Labour Appellate Tribunal of Bombay. The Tribunal rejected the appeals and upheld the award. After the Tribunal’s decision the same pattern repeated: respondents 2, 4 and 5 applied for their bonuses after 31 December 1950, the mill refused to pay, and the employees again approached the first respondent, the Authority under the Act. The two sets of claims—the third respondent’s claim for the 1948 bonus and the claims of respondents 2, 4 and 5 for the 1949 bonuses—were heard together before the Authority.

The appellant contested these applications on two grounds. First, it challenged the jurisdiction of the Authority to entertain the petitions filed with it. Second, it argued that, irrespective of jurisdiction, the claim for a bonus could not succeed because the condition attached to the award—namely, that an application be made on or before 30 November 1949—had not been fulfilled. The first respondent held that it possessed the requisite jurisdiction and, after hearing the parties on the merits, decreed the various claims in favour of the employees.

In this case, the appellant initially filed writ petitions in the High Court, which were heard and dismissed by Judge Coyajee. Subsequently, the appellant appealed the dismissal in the same High Court, where the appeal was heard by the Chief Justice and Judge Bhagwati. Those judges observed that the issues raised were already decided in an earlier judgment of theirs dated 11 March 1952; consequently, they dismissed the appeal without hearing further arguments because counsel for both parties agreed that the matter fell within the earlier decision. The appellant then sought a certificate authorising a appeal to the Supreme Court, and that certificate was granted by Chief Justice Chagla and Judge Dixit on 2 February 1953. The first question that required determination was whether the first respondent, acting as the Authority under the Payment of Wages Act, possessed jurisdiction to entertain the petitions filed before it. This question depended on whether the bonuses claimed qualified as “wages” within the meaning of the definition contained in section 2(vi) of the Act. Section 15 of the Act defines the scope of the Authority’s jurisdiction, directing it to consider (1) all claims arising out of deductions from wages and (2) all claims concerning delay in the payment of wages. Accordingly, if the bonuses were not classified as “wages” under the Act, the Authority would lack jurisdiction to adjudicate the claims. The definition of “wages” in section 2(vi) is extensive; setting aside clauses that are irrelevant to the present inquiry, the definition reads: “‘Wages’ means all remuneration which, if the terms of the contract of employment, express or implied, were fulfilled, would be payable, whether conditionally upon regular attendance, good work or conduct or other behaviour of the person employed, or otherwise, to a person employed in respect of his employment or of work done in such employment, and includes any bonus or other additional remuneration of the nature aforesaid which would be so payable and any sum payable to such person by reason of the termination of his employment, but does not include …” followed by five exclusions. The Court then examined the definition clause by clause. The opening words state that “wages” means all remuneration. The Court considered whether a bonus constitutes remuneration and concluded that it does. Remuneration is essentially a formal term for payment, and payment represents recompense for services rendered. While a bonus in the abstract may sometimes arise from sources unrelated to services—such as a shareholder’s bonus or a life‑insurance bonus—those forms are not the type contemplated by the definition. The definition expressly requires remuneration that is payable “in respect of his employment or of work done in such employment.” Consequently, the bonus at issue, being payable in relation to employment, qualifies as remuneration for services rendered and therefore falls within the definition of “wages.”

In this part of the judgment the Court examined whether a bonus that arises from work performed can be characterised as “remuneration” within the definition set out in the relevant provision. The Court observed that the definition begins with the words “all remuneration” and therefore includes any payment that qualifies as remuneration of the type described. Consequently, the Court held that the kind of bonus under consideration does fall within the portion of the definition that requires the payment to be “remuneration”. The Court then turned to the subsequent clause which narrows the scope of “all remuneration”. Although the opening phrase remains “all remuneration”, the following words limit the reference to remuneration of the kind that would be payable only if the terms of the contract of employment, whether expressed or implied, were satisfied. The Court posed the question of whether the bonus contemplated by the definition must be payable as a term of the employment contract itself. The Court concluded that it must, and explained the reasoning. By equating “bonus” with “remuneration”, the definition expressly requires that the bonus be payable only on the condition that the contractual terms are fulfilled; in other words, the bonus would not become payable if the terms were not fulfilled. The Court recognised two situations in which this condition could be satisfied. First, a statute may provide that a bonus becomes payable whenever the contractual terms are fulfilled. Second, an employer may, through a separate and independent agreement that is not part of the employment contract, undertake to pay a bonus upon fulfilment of those terms. In either of these scenarios the bonus would fall within the definition. However, the Court found no alternative way for a bonus to be deemed payable on the basis of contract‑term fulfilment except through legislation or a separate agreement, or through a term that is expressly or implicitly contained in the employment contract itself. The Court then examined the present case and determined that the bonus at issue was awarded by an Industrial Court and therefore was not linked to the fulfilment of the employment contract terms, except in an indirect manner. It was submitted that because an Industrial Court can order the payment of a bonus when an industrial dispute arises, the bonus should be covered by the definition. The Court questioned this view. While an Industrial Court may consider whether the contractual terms have been met before granting a bonus, and may refuse to award a bonus where the terms have not been satisfied, the Court noted that the Industrial Court is not bound by that consideration. Its authority to award a bonus is not conditioned on the contractual terms being fulfilled, unlike the requirement embedded in the definition.

In analysing the definition, the Court observed that the fulfilment of the terms of the employment contract constitutes an essential ingredient. Consequently, even if the proper performance of those contractual terms were considered a reason for granting a bonus, a bonus that is awarded in that circumstance would not be payable on the basis of contract performance; instead, it would be payable because an industrial dispute existed and the Court awarded the bonus to settle that dispute. The Court stated that further analysis of the definition was unnecessary except for one specific clause, because even if all other elements of the definition were satisfied, that particular clause would exclude a bonus of the type under consideration—namely, a bonus awarded by an Industrial Court. The clause pending examination reads: “and includes any bonus or other additional remuneration of the nature aforesaid which would be so payable.” It was argued that the words “and includes any bonus” should be read in isolation and that the succeeding words ought to be disregarded when dealing with a bonus, as they supposedly refer only to “additional remuneration” and not to “bonus.” The Court considered the possibility that the phrase “of the nature aforesaid” might qualify only the words “additional remuneration” and not the word “bonus,” which would render the inclusion clause as referring to two distinct items: (1) bonus, and (2) other additional remuneration of the nature aforesaid. In the Court’s view, the clause should be interpreted to mean: (1) “bonus…which would be so payable,” and (2) “other additional remuneration of the nature aforesaid which would be so payable.” If this interpretation is adopted, the phrase “which would be so payable” refers back to the earlier part of the definition, leading to the conclusion that the kind of bonus covered by the inclusion clause is one that becomes payable only when the terms of the employment contract, whether expressed or implied, have been fulfilled. The Court provided another reason for this conclusion. The introductory words of the definition clearly state that “wages” means remuneration that is payable when the contractual terms are fulfilled. That statement is certain. One can know in advance that if the contractual terms are fulfilled, the bonus becomes payable. Although the precise amount of the bonus may still be uncertain, the fact that the bonus is payable and can be claimed as soon as the contractual terms are satisfied is a condition that can be predicted beforehand, even before the terms are actually performed or, in some cases, even before work commences if the contract is executed that early. This predictability does not exist when a bonus is awarded by an Industrial Court, because in that situation it is impossible to determine in advance whether a bonus will be awarded; the award depends on the existence of surplus and other factors at the time of the dispute resolution.

At the moment a contract of employment is concluded, it is impossible to determine whether a claim for bonus could be presented before an Industrial Court, because a disagreement between a worker and his employer over the entitlement to a bonus would not necessarily result in an industrial dispute. When an Industrial Court awards a bonus without reference to any contract, the award is made only if a surplus exists that can be distributed as bonus, and the quantum of the award depends on the size of that surplus. Consequently, the satisfaction or non‑satisfaction of the contractual terms of employment is not a necessary condition for an Industrial Court’s award. In the precedent of F. W. Heilgers & Co. v. N. C. Chakravarthi, the Federal Court held that a bonus that is not payable under a contract of employment does not fall within the definition of “wages” in section 2(vi) of the Payment of Wages Act as it stood before the 1957 amendment. The present matter concerns that pre‑amendment definition, and the Court therefore considered the Heilgers authority applicable. Although the Heilgers case involved no actual bonus being awarded and therefore no ascertained sum, the present case does involve an ascertainable sum, but that fact was only one of several grounds on which the Federal Court based its decision. The Federal Court said that, to bring a payment within the definition of “wages,” two requirements must be satisfied: first, the sum must be definite; second, there must be a contract specifying when the sum becomes payable. The Court further observed that, without an express provision for paying a stipulated sum, the definition will not encompass such a payment. In the instant case the bonus is payable not by virtue of a contract but because an Industrial Court has awarded it, and therefore, according to the Federal Court, it is not “wages” within the meaning of the Payment of Wages Act. In 1957 the definition was amended to include “any additional remuneration payable under the terms of employment (whether called a bonus or by any other name)” and to exclude “any bonus … which does not form part of remuneration payable under the terms of employment.” The amendment would have been unnecessary if the earlier definition had already covered such bonuses, and it cannot be said that the amendment was inserted merely as a precaution against the Federal Court’s 1949 decision. In light of the amendment and the Federal Court’s earlier ruling, the Court felt no justification for departing from that view and affirmed that the earlier decision was correct. The judges of the Bombay High Court attempted

The Court observed that the learned parties attempted to set the Federal Court’s judgment apart on the basis that no bonus had been formally declared in that case and therefore no specific amount could be identified. However, the Court pointed out that the principle (ratio) articulated in the Federal Court decision was applicable to the present matter, and it held that this reasoning was relevant regardless of the parties’ separate conclusion. On this basis, the Court stated that it was unnecessary to examine the remaining arguments that had been advanced. The Court explained that if the pre‑amendment definition of “wages” did not extend to include a bonus of the type under consideration – specifically, a bonus payable under an award of an Industrial Court – then the authority created by the Payment of Wages Act did not possess jurisdiction to entertain the petitions filed under section 15 of that Act. Consequently, the Court allowed the appeals and ordered that the costs be awarded. The Court further directed that the decisions rendered by the learned High Court judges be set aside, together with the decrees issued by the authority operating under the Payment of Wages Act. It clarified that there would be only a single order for costs, and affirmed that the appeals were allowed.