The Central Bank of India vs Their Workmen (And Connected Appeals)

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

Court: supreme-court

Case Number: Civil Appeals Nos. 56 to 62 of 1957

Decision Date: 12 May, 1959

Coram: S.K. Das, Syed Jaffer Imam, K.N. Wanchoo, M. Hidayatullah, Sudhi Ranjan

The case styled The Central Bank of India versus Their Workmen and Connected Appeals was decided by the Supreme Court of India on 12 May 1959. The judgment was authored by Justice S.K. Das and the bench was composed of Justice S.K. Das, Justice Syed Jaffer Imam, Justice K.N. Wanchoo and Justice M. Hidayatullah. The petitioner in the proceedings was the Central Bank of India and the respondents were the workmen of the bank together with related appeals. The judgment bears the citation 1960 AIR 12 and also appears in the Supreme Court Reporter at 1960 SCR (1) 200. The case is referenced in several citator reports, including R 1960 SC 653, R 1961 SC 853, RF 1962 SC 171, D 1962 SC 1221, R 1964 SC 864, R 1969 SC 530, R 1986 SC 1760, R 1987 SC 2310, and RF 1988 SC 782. The legal issues concerned the interpretation of statutory provisions relating to industrial disputes, the payment of bonus, and the regulation of bank employees under the Banking Companies Act, 1949 as amended by the Banking Companies (Amendment) Act, 1956, specifically section 10 of the 1949 Act and whether the amendment operated retrospectively.

The primary question before the Court was whether the language of section 10(1)(b)(ii) of the Banking Companies Act, 1949, which states that “No banking company shall employ any person whose remuneration or part of whose remuneration takes the form of a share in the profits of the company,” precludes a bank from granting an industrial bonus to its employees. The Labour Appellate Tribunal had previously held that section 10 did not bar the payment of a bonus because a bonus was not a share in the company’s profits. On appeal, the banks argued that any bonus awarded by an industrial court constituted remuneration within the meaning of section 10 read together with section 2 of the Banking Companies Act, 1949, and that such bonus also represented a share in profits. Consequently, they contended that the explicit provisions of section 10, read with section 2, overrode the provisions of the Industrial Disputes Act, 1947 as far as banking companies were concerned, thereby prohibiting the award of a bonus. The Court held that (1) the phrase “shall employ any person” in section 10 includes the meaning “shall have in employment any person,” and that the 1956 amendment merely clarified an already existing intent; (2) the term “remuneration” in section 10 is employed in its broadest sense and therefore embraces a bonus; and (3) a bonus in the industrial context is drawn from the surplus of profits and, when paid, bridges the gap between a living wage and the actual wage, constituting labour’s share in the profits and, as a form of remuneration that takes the shape of a share in profits, it falls within the scope of section 10.

The Court observed that the Banking Companies (Amendment) Act of 1956 was not intended to be a declaratory statute. Apart from the limited clarification of the phrase “shall continue to employ” in subsection (1), the amendment did not aim to explain any earlier law nor to declare a perpetual legal position. Consequently, while the amendment to section 10 of the Banking Companies Act did not prevent the award of an industrial bonus, the amendment was not applied retrospectively for the period covered by the present appeals. Therefore, the version of section 10 that existed before the 1956 amendment continued to prohibit the granting of an industrial bonus to bank employees, because such a bonus constituted remuneration in the form of a share in the profits of the banking company.

The judgment was rendered in the Civil Appellate Jurisdiction under Civil Appeals numbered 56 to 62 of 1957. The appeals were taken by special leave from the judgment and order dated 28 April 1954 of the Labour Appellate Tribunal of India (Special Bench-Banks), Bombay, arising from multiple appeals numbered 122, 129, 130, 142, 144, 145, 152, 153, 154, 155, 162, 169, 217 and 218 of 1953. Counsel for the appellants in appeals 56 and 60 of 1957 appeared, as did counsel for the Attorney-General for India and additional counsel for the appellants in appeals 57, 58, 59 and 61 of 1957, together with counsel for the Punjab National Bank in appeal 62 of 1957. Counsel for respondent 1 in appeal 56 of 1957, and counsel for the respondents in appeals 57 to 61 of 1957, represented by the All India Bank Employees Association, also appeared. Further representation included counsel for the Association of the Punjab National Bank Employees in appeal 62 of 1957, counsel for the Surat Bank Employees Union, and counsel for the All India Central Bank Employees’ Association. The judgment was delivered on 12 May 1959 by Justice S. K. Das. The Court noted that the matter comprised seven separate appeals filed by different banking institutions, some incorporated within India and others outside its borders. In order to set the stage, the Court briefly recounted the background of the industrial dispute that gave rise to the appeals. It was widely recognised that there had been a sharp increase in commodity prices during and after the Second World War, a rise that severely affected middle-class salaried workers, including those employed in banks. Around the year 1946, trade unions representing bank employees had put forward demands for higher wages, additional allowances and improved service conditions; in several instances, they had also issued notices of threatened strikes to the employers.

The Court observed that the disturbance among bank employees grew especially intense in the provinces that were then called Bombay, the United Provinces and Bengal. The provincial governments of those three areas referred the industrial disagreements to their own adjudicatory mechanisms. This referral produced a series of regional awards: in Bombay the award became known as the Divatia Award; in the United Provinces it was called the B B Singh Award; and in Bengal the awards were collectively identified as the Gupta, Chakravarty and Sen Awards. Even after those awards were issued, the overall unrest among bank workers persisted, and a widespread demand emerged for the Central Government to assume control over the banking sector.

In response, the Central Government enacted the Industrial Disputes (Banking and Insurance Companies) Ordinance, identified as Ordinance VI of 1949, on 30 April 1949. Under the provisions of that Ordinance, every banking company that maintained branches or other establishments in more than one province was placed under the jurisdiction of the Central Government for purposes of the Industrial Disputes Act, 1947 (XIV of 1947). By a notification dated 13 June 1949, the Central Government constituted an ad hoc Tribunal to deal with an industrial dispute involving several banking companies and their workmen. The Tribunal was headed by Shri K C Sen, a retired judge of the Bombay High Court, who served as Chairman, and it included two additional members. On the same day, a separate order formally referred the dispute to this newly created body. The matters in dispute comprised a number of items, and further items were added as the proceedings progressed. For ease of reference, the Court designated this body as the “Sen Tribunal” and its decision as the “Sen Award”. After conducting a thorough enquiry, the Sen Tribunal issued its award, which was published on 12 August 1950.

Several major banks expressed dissatisfaction with the Sen Award and consequently applied to the Supreme Court for special leave to appeal, arguing that the award had been specially excluded from the jurisdiction of the Labour Appellate Tribunal established under the Industrial Disputes (Appellate Tribunal) Act, 1950 (XLVIII of 1950). The Supreme Court ultimately held that the Sen Tribunal’s award was void for lack of jurisdiction, although the Court did not examine the substantive merits of any of the issues addressed in the award. As a result of that judgment, the industrial conflict in the banking sector remained unsettled. Soon thereafter, strikes broke out following certain actions taken by some banks, prompting the Central Government to revisit its approach to resolving the protracted dispute.

The Government first attempted to settle the matter through conciliation mechanisms, but those efforts failed to produce a settlement. Consequently, on 26 June 1951 the Parliament enacted the Industrial Disputes (Amendment and Temporary Provisions) Act, 1951 (XL of 1951), which temporarily froze several of the labour gains that had been granted under the Sen Award. In July 1951 the Central Government made a fresh reference to another Industrial Tribunal, this time chaired by Shri H V Divatia, a retired judge, together with two other members. However, the Chairman and the members of this new Tribunal resigned shortly after their appointment, leaving the reference unresolved.

Shortly after the earlier events, on 5 January 1952 the Government issued two separate notifications. The first notification created a new body to be known as the All India Industrial Tribunal (Bank Disputes). The tribunal was to be headed by Shri Panchapagesa Sastry, a retired Judge, and its two other members were appointed to be Shri M. L. Tannan and Shri V. L. D’Souza. For convenience, the judgment later refers to this body as the Sastry Tribunal. The second notification, issued on the same day, directed the Central Government to refer to the tribunal the matters described in clause II of that notification. Those matters comprised the disputes that existed between the employers and the workmen of the banking companies listed in schedule 1, and they were to be decided by the tribunal. The judgment does not reproduce the full list of matters set out in schedule 1, as it will later refer only to those items that are relevant to the present appeals. The Sastry Tribunal rendered its award and the award was published on 20 April 1953. That award was subsequently examined by a Special Bench of the Labour Appellate Tribunal on behalf of appeals filed by bank employees from all over India as well as by the banks themselves. The Labour Appellate Tribunal delivered its decision on 28 April 1954. Following that decision, several banks applied to this Court for special leave to appeal the Tribunal’s order of 28 April 1954. The Court granted that special leave on 4 October 1954 and, in the same order, directed that all the pending appeals be consolidated. Consequently, seven separate appeals, each brought by a different bank against its workmen, were filed in accordance with the special leave that had been granted. One of those consolidated matters is Civil Appeal No. 56 of 1957, in which the Imperial Bank—now known as the State Bank of India—appears as the appellant. In that appeal, the workmen representing the respondents raised a preliminary objection, asserting that the appeal was incompetent. The Court will consider that preliminary objection after it first sets out the main issues that arise in the seven consolidated appeals. The Court has framed those issues under four headings. First, it must determine the scope of item 5 of schedule II of the notification dated 5 January 1952, which is worded as “Bonus, including the qualifications for eligibility and method of payment”. Second, it must decide whether section 10 of the Banking Companies Act, 1949, as it stood before its amendment by Act 95 of 1956, bars the payment of bonuses to bank employees. Third, it must consider whether an industrial tribunal possesses the legal authority to require banks to disclose their “secret reserves” and other “necessary provisions” for the purpose of adjudication. Fourth, it must examine whether the Full Bench formula articulated by the Labour Appellate Tribunal in the case of Mill Owners’ Association, Bombay v. Rashtriya Mill Mazdoor Sangh, Bombay, which governs the payment of bonuses to workers in the textile sector, is applicable to banks as well. Of these four questions, the Court notes that the first two directly fall for determination in the present appeals, while the remaining two will be addressed later if required.

The Court observed that, for the reasons it would explain later, the matters raised in questions three and four did not require a ruling at this stage of the proceedings. Consequently, the judgment would be limited to the analysis of the first two questions only. The Court then set out how the two tribunals that had examined those questions – the Sastry Tribunal and the Labour Appellate Tribunal – had approached the issues. It recalled that Item 5 of Schedule II of the notification dated 5 January 1952 was directed at the claim for bonus made by employees of the banks, and it reiterated the exact wording in which Item 5 had been expressed in the earlier part of the judgment. The banks, appearing before the Sastry Tribunal, argued that the dispute covered by Item 5 did not require the Tribunal to determine the exact quantum of bonus payable by any particular bank for any specific year. Instead, the banks maintained that the provision dealt only with the general concept of bonus, focusing on the qualifications for eligibility and the method of payment, without delving into year-by-year calculations. The Sastry Tribunal accepted this contention. In its reasoning, the Tribunal stated that the primary responsibility lay with the Government to subjectively decide whether a reference should be made. It further expressed hesitation in holding that the Tribunal was required to consider the quantum of benefits for individual banks for past years, especially in view of the banks’ profits during those periods. Accordingly, the Tribunal declined to order the taking of evidence for the purpose of fixing the amount of bonus. However, the Tribunal observed that parties with a genuine grievance could still approach the Government to obtain a suitable reference covering both future periods and the accounting years 1949, 1950 and 1951. After making this observation, the Sastry Tribunal examined whether a bonus scheme could be created for future years and whether that scheme should be applied retrospectively to all banks and for all previous years. In doing so, the Tribunal outlined several guiding principles for ascertaining the bonus and recommended that both parties give earnest consideration to those proposed approaches.

The Labour Appellate Tribunal reached a different conclusion on the scope of Item 5. It held that Item 5 embraced the claims for bonus relating to the relevant past years and that those claims had not yet been adjudicated. Accordingly, the Tribunal declared that the terms of the original reference had not been exhausted and that the ad hoc Tribunal which had originally dealt with the reference no longer existed. Consequently, a different Tribunal would need to decide what bonus, if any, was payable by the banks to their employees for the years in question. The Court noted that the correctness of this portion of the Labour Appellate Tribunal’s judgment had been seriously challenged by the appellants, and that deciding this issue constituted the first question that required resolution. The Court then turned to the second question, concerning the interpretation of section 10 of the Banking Companies Act, 1949, as it stood before the amendment made in 1956. This question would be examined in the subsequent part of the judgment.

In this case there was again a divergence of opinion between the Sastry Tribunal and the Labour Appellate Tribunal concerning the operation of section 10 of the Banking Companies Act, 1949. The Chairman of the Sastry Tribunal expressed the view that section 10 did not prevent the granting of a bonus to bank employees. However, the other members of that Tribunal appeared to think that the question remained doubtful, and the Tribunal as a whole recommended to the Government that the alleged legal difficulty created by section 10 should be removed by suitable legislation. It is probable that this recommendation led to the amendment of section 10 in 1956. By contrast, the Labour Appellate Tribunal, by a majority of two to one, concluded that section 10 did not bar a claim for bonus by bank employees. One member of that Tribunal, Shri D. E. Reuben, recorded a dissenting note holding that, as the provision stood at the relevant time, the Industrial Courts could not grant a bonus to the workmen of a bank. On behalf of the appellants it was contended that the majority view of the Labour Appellate Tribunal on section 10 was incorrect, and this formed the second question for the Court’s decision. As the Court was not addressing the other two questions, it saw no purpose in restating the findings of the lower tribunals on those matters. The Court then turned to the preliminary objection raised on behalf of the respondent workmen in Civil Appeal No. 56 of 1957. Further facts relevant to that objection were necessary. After the Labour Appellate Tribunal rendered its decision but before it could be implemented, several banks appealed to the Government to set aside the decision, arguing that the total burden imposed was beyond their capacity. Consequently, the Reserve Bank of India, acting under the direction of the Central Government, conducted a rapid survey of the probable impact of the Tribunal’s decision on a few typical banks that were parties to the dispute. Upon examining the evidence collected, the Central Government concluded that, on public grounds, it would be inexpedient to give effect to parts of the decision. Accordingly, the Government modified the Labour Appellate Tribunal’s decision by an order dated 24 August 1954. The decision was debated in Parliament, and the Government announced the establishment of a Commission, known as the Bank Award Commission, to assess more fully the effect of the award. The Commission submitted its report on 25 July 1955, and with respect to the claim for bonus it observed: “In regard to the claim for bonus, no general principles can be invoked and the case of each individual bank would have to be considered on its merits.”

In the Commission’s report, it was observed that no general legal principle could be applied to the bonus claims of the banks and that each bank’s case would have to be examined on its own merits. The report further noted that because the dispute over the bonus claims remained unsettled, it was probable that the matter would require resolution in the near future. The Commissioner also stated that the question of bonus was outside the scope of his reference and that he did not intend to intrude into that particular controversy. Nevertheless, he mentioned the bonus issue incidentally, explaining that establishing a wage structure could influence the employees’ entitlement to bonus, as recorded in paragraph 51 at page 34 of the Commission’s report.

Subsequently, Parliament enacted the Industrial Disputes (Banking Companies) Decision Act, 1955 (XLI of 1955) in order to give effect to the modifications recommended by the Commission to the decision of the Labour Appellate Tribunal. Section 3 of that Act provided that, for the purposes of the present case, the decision of the Labour Appellate Tribunal should be deemed to have the effect as if the changes suggested in Chapter XI of the Commission’s report dated 25 July 1955 had actually been incorporated. The modified decision, according to the Act, would constitute the decision of the Appellate Tribunal within the meaning of the Industrial Disputes (Appellate Tribunal) Act, 1950, and the award would thereafter have the corresponding legal effect.

It was evident from the Commission’s report that the Commission had made no recommendation concerning the bonus claim. Accordingly, the Industrial Disputes (Banking Companies) Decision Act, 1955 did not alter the present appeals; the Act merely operationalised the modifications that the Commission had recommended and did not elevate the Labour Appellate Tribunal’s decision to the status of a statutory enactment.

The workmen, acting as respondents, raised a preliminary objection. They argued that the Labour Appellate Tribunal’s decision merely indicated that the bonus claims for the relevant years had not been adjudicated, and therefore the terms of reference had not been fully resolved. From this, they contended that another Tribunal would be required to determine the amount, if any, of bonus payable by the banks to their employees. Because no such Tribunal had been appointed for a considerable period, they claimed that, at present, there was no enforceable award within the meaning of the Industrial Disputes Act, 1947, and that the appeal was therefore premature and incompetent. This contention was rejected as incorrect.

Representing the banks, it was submitted that the Labour Appellate Tribunal had misinterpreted the scope of item 5 of Schedule 11 of the relevant notification. On that basis, the Tribunal concluded that the terms of reference had not been exhausted. The banks argued that this conclusion could be challenged by way of appeal; otherwise, the parties would be bound by a decision that the reference remained pending and could be dealt with by another Tribunal. The Court found this submission to be correct and consequently rejected the workmen’s preliminary objection.

According to the Industrial Disputes Act, 1947, an “award” is defined as any interim or final determination made by an Industrial Tribunal concerning an industrial dispute or any related question. In the present matter, the dispute between the banks and their workmen concerned the payment of bonus. The banks argued that item 5 of Schedule 11 did not refer to claims for bonus for specific years and specific banks, but rather to a general scheme of bonus that would set out eligibility criteria and the method of payment. The banks further contended that even a general scheme could not be formulated because of the limitations imposed by section 10 of the Banking Companies Act, 1949. On the other side, the employee representatives maintained that item 5 did encompass claims for bonus for particular years and particular banks, and that section 10 of the Banking Companies Act, 1949 did not bar such claims. These opposing positions gave rise to an industrial dispute, which was finally determined by the Labour Appellate Tribunal in its decision dated 28 April 1954. The Court found no reason to consider that decision anything other than an “award” within the meaning of the 1947 Act and consequently held that the appeals were neither premature nor incompetent.

The Court noted that the appeals were filed pursuant to special leave granted under article 136 of the Constitution, a provision that authorises the Court, at its discretion, to entertain appeals from any judgment, decree, determination, sentence or order issued by any court or tribunal in India. The Court explained that the scope of its powers under this article is broad and subject only to considerations it itself has laid down for exercising its discretion. The argument presented was not that the appeals fell outside those considerations, but that they were otherwise incompetent, an objection the Court found unsound. Counsel for the workmen cited decisions from Australian and American jurisdictions in support of his contention, but the Court considered the point clear and unrelated to the present facts, thereby dismissing the need to examine those foreign rulings. Consequently, the preliminary objection was deemed to lack substance and was overruled. The Court then turned to the proper interpretation of item 5 of Schedule 11 of the notification dated 5 January 1952. It observed that Schedule 11 of the earlier notification dated 13 June 1949 contained an identical provision labeled as item 6, and that the earlier Tribunal had expressed the same wording for that item.

In this case the Court observed that the wording of item five of schedule eleven of the notification dated 5 January 1952 was exactly the same as the wording of the corresponding item in the earlier notification that had been under consideration. The Sen Tribunal had examined the scope of that item and noted that a large number of demands had been made by the trade unions for bonus payments for particular years and for particular banks. The Tribunal explained that it could not deal with each individual demand, except for matters that were already pending in the various States at the time of its appointment and that had been specifically referred to it under section 5 of Ordinance VI of 1949 or under Act LIV of 1949. It further observed that hearing and disposing of every application for a specific year and a specific bank would consume an inordinate amount of time, and that the disputes referred to it were of a general nature, such as questions concerning the qualifications for eligibility and the method of payment of bonuses. Consequently, the Tribunal understood the item as referring to a dispute of a general nature and not to demands for bonus payments for particular years and particular banks.

The Court noted that the Central Government, when it made the reference to the Sastry Tribunal by the notification dated 5 January 1952, was already aware of the interpretation given by the Sen Tribunal to the same item. Having that interpretation before it, the Government employed identical language to describe the dispute it referred to the Sastry Tribunal in item five of schedule eleven. The Court held that this clearly demonstrates that item five of schedule eleven of the 1952 notification, which related to the Sastry Tribunal, carried the same meaning as item six of schedule eleven of the earlier notification, which had been interpreted by the Sen Tribunal. The Court further pointed out that the items listed in schedule eleven of the relevant notification were not items in a legislative list but were items in an administrative order, and therefore the same rules of construction applicable to legislative provisions should not be applied to them.

The Court also observed that some of the items in the Sen reference were altered when the same matters were later referred to the Sastry Tribunal. For example, item thirty-eight of the Sen reference read: “In what manner and to what extent do the decisions of the Tribunal require modification in the case of employees of banks in liquidation or moratorium?” The Sen Tribunal dealt with this item on pages 157 to 160 of its award and identified certain defects in the wording of the item. When a comparable item was referred to the Sastry Tribunal, the necessary changes were incorporated into the wording to eliminate the defects noted by the Sen Tribunal, as reflected in item eleven of schedule eleven of the notification relating to the Sastry Tribunal. The Court cited this as another illustration of the adjustments made to the phrasing of items when later references were made, taking into account the criticisms raised by the earlier tribunal.

In this case the Court observed that item five of schedule eleven of the Sen reference was of a similar character to the other items discussed, because it concerned “other allowances” that were payable to bank employees, including a conveyance allowance for clerks travelling to and from the clearing house. The Court noted that, before the Sen Tribunal, it was submitted that the term “conveyance allowance” was intended to mean an allowance for journeys to and from the place of work. The Sen Tribunal therefore limited the conveyance allowance to expenses incurred when the employee travelled while performing the bank’s work and while he was on duty. The Court further explained that the scope of the reference became clearer when the wording of the item was altered at the time of the subsequent reference to the Sastry Tribunal; the Court directed attention to the wording of item twenty-eight of schedule eleven of the notification relating to the Sastry Tribunal. From these observations the Court derived two kinds of examples: first, in some cases the wording of the items was changed at the later reference, taking into account the criticisms raised by the Sen Tribunal; second, in other cases no change in wording occurred even though the Sen Tribunal had understood a particular item in a particular sense. Considering these examples, the Court concluded that the true scope of item five of schedule eleven was what the Sastry Tribunal understood it to be – namely, whether a bonus was payable to bank employees and, if so, what the qualifications for eligibility were and how the bonus should be paid. The Court stressed that the reference in item five of schedule eleven did not itself contain claims for bonus for particular years in respect of particular banks. The Sastry Tribunal pointed out that there were separate specific references concerning bonus claims for some banks, and that those specific references did not fall within item five of schedule eleven. The Court added that, had they fallen within that item, it would have been unnecessary to make separate and specific references to such claims. The Court noted that item five was not the only item that raised a general question; many other items of a similar nature, such as items three, six and nine, also did so. The Labour Appellate Tribunal itself recognised the difficulty of deciding, under item five of schedule eleven, the particular bonus claims for particular years. The Sastry Tribunal further observed that there were one hundred and twenty-nine banks before it and that no evidence had been produced to substantiate the bonus claims for particular years in respect of particular banks. The Tribunal quoted its own finding: “We cannot assume that, for all these 129 banks before us and for all these years there were live disputes about this matter which the Government had considered fit and proper to be referred to us after applying their minds to the problem whether such a reference should be made to an industrial tribunal. There is also this additional circumstance that there had been two special and specific references by the Government in relation to the payment of bonus by the Central Bank of India, the Allahabad.”

In this case, the Court observed that the reference to the Central Bank of India and the United Commercial Bank for the years 1951 and 1951, as well as the two special references made by the Government concerning the payment of bonus by those banks, illustrated the difficulty of dealing with individual bonus claims. The Court noted that, apart from the general nature of the various heads of dispute in the reference, the Government had singled out particular cases, for example the absorption of Bharat Bank employees in schedule 31 of the notification. It was further mentioned that the claim before the Tribunal concerning the bonus payable by the Imperial Bank of India for the years 1948, 1949, 1950 and 1951 would involve a payment of almost one crore of rupees in addition to the amounts already paid for those years. The Court stated that it could not ascertain what the Government’s attitude would have been on the question of referring a dispute of this character to the Tribunal under section 10 of the Industrial Disputes Act, 1947. Faced with the difficulty highlighted by the Sastry Tribunal, the Labour Appellate Tribunal also expressed that it could not adjudicate individual bonus claims in the present proceedings. The Tribunal explained that attempting to decide such individual claims without specific cases before it would amount to acting in vacuum, especially because there were no materials on record to enable a determination of the quantum of bonus payable by a particular bank for a particular year. Instead of using this difficulty to interpret the true scope of item 5 of schedule 11, the Tribunal concluded that item 5 of schedule 11 itself encompassed individual claims for bonus for particular years and that those claims must be dealt with by another tribunal on the ground that the reference had not been fully worked out. The Court regarded this conclusion as a complete non-sequitur. It held that item 5 of schedule 11 must be interpreted as an item in an order of reference, considering the language in which it is expressed and the background against which the dispute arose. The practical problem of deciding individual bonus claims for specific banks is merely a circumstance to be taken into account and cannot be decisive in determining the true scope and effect of item 5 of schedule 11. After examining all relevant circumstances and the context of the wording, the Court was of the view that the Labour Appellate Tribunal was wrong in holding that the reference had not been worked out and that individual bonus claims for particular banks should be referred to another tribunal based on the 1952 reference. The Court then proceeded to consider the more important question concerning the effect of section 10 of the Banking Companies Act, 1949.

The Court turned to the question of the effect of section ten of the Banking Companies Act, 1949, and observed that this provision, hereinafter referred to as the Banking Act, had been amended in the year 1956. It first set out the wording of the provision as it stood before the amendment, noting that those pre-amendment provisions were the ones in force at the material point of the appeals. Later, the Court indicated that it would also consider the amended wording because the employees of the bank had argued that the Banking Companies (Amendment) Act, 1956 (XCV of 1956) was not intended to introduce a new remedial scheme but merely to declare the law that had always existed. The Court then reproduced the unamended section ten in full. Section ten, subsection one, provided that no banking company shall employ or be managed by a managing agent, nor shall it employ any person who is or has been adjudicated insolvent, who has suspended payment, who has compounded with his creditors, or who has been convicted of an offence involving moral turpitude; nor shall it employ any person whose remuneration or part thereof takes the form of commission or a share in the profits of the company; nor shall it employ any person whose remuneration, according to the normal standards prevailing in banking business, is disproportionate to the resources of the company. Subsection one further prohibited a banking company from being managed by any person who is a director of any other company, except where that other company is a subsidiary; or who is engaged in any other business or vocation; or who has a contract with the company for its management for a period exceeding five years at any one time. The provision added that for contracts existing on 1 July 1944, the five-year period would be computed from that date, and that any management contract could be renewed or extended for an additional period not exceeding five years at a time, provided the directors so decided. Subsection two explained that if any question arose in a particular case as to whether remuneration was, according to prevailing banking standards, disproportionate to the company’s resources, the decision of the Reserve Bank on that point would be final for all purposes.

Before analysing the construction of the provision, the Court supplied a brief historical background. It recalled that the Companies (Amendment) Act, 1936 had introduced a new Part XA into the Indian Companies Act, 1913 (VII of 1913). Part XA contained special provisions that applied only to banking companies, and the provision relevant to the present discussion was section 277HH, which had been inserted by an amending Act of 1944. The Court noted that section 277HH was the predecessor of section ten of the Banking Act and suggested that it might be useful to read the wording of section 277HH as far as it was relevant. Section 277HH stated that no banking company, after the expiry of two years from the commencement of the Indian Companies (Amendment) Act, 1944, shall employ or be managed by a managing agent, or any person whose remuneration or part thereof takes the form of commission or a share in the profits of the company, or any person having a contract with the company for its management for a period exceeding five years at any one time; provided that the five-year period would be computed from the date on which the section came into force, and that any such contract could be renewed or extended for a further period not exceeding five years at a time if the directors so thought fit. The Court observed that the most undesirable feature the section sought to remedy was the appointment of managing directors or managers on long-term contracts with remuneration based on commission or a share of profits.

In this case, the Court examined section 277HH of the Indian Companies (Amendment) Act, 1944, which prohibited a banking company, after two years from the commencement of that amendment, from employing or being managed by a managing agent or any person whose remuneration, or part of it, consisted of commission or a share in the company’s profits, or from entering into a management contract that lasted more than five years at a time. The provision clarified that the five-year period would be measured from the date the section became operative, and it allowed the directors to renew or extend any such contract for additional periods not exceeding five years each, if they deemed it appropriate. The Court observed that the provision was intended to address the undesirable practice of appointing managing directors or managers on long-term contracts where their pay was linked to commissions or profit sharing. Although the respondents suggested, based on the statement of objects and reasons accompanying the 1944 amendment, that the section applied only to managing agents or managers, the Court held that such explanatory material could not be used to interpret the statutory language, nor could it override the clear words of the section, which expressly forbade a banking company from employing any person whose remuneration included a share in the profits. The Court noted that the Banking Act of 1949 later repealed Part XA of the 1913 Companies Act, including section 277HH, but section 2 of the Banking Act expressly stated that its provisions were to be read as additions to, and except as expressly provided, not in derogation of the Indian Companies Act, 1913, or any other law then in force. The Indian Companies Act, 1913 itself had subsequently been repealed by the Indian Companies Act, 1956. Returning to section 10 of the Banking Act, which was the immediate issue before the Court, the Court reiterated that, stripped of unnecessary detail, the provision said that no banking company shall employ any person whose remuneration, or part thereof, took the form of a share in the company’s profits. The provision began with a negative phrase, indicating that the prohibition applied to any person fitting the description contained in the following adjectival clause, namely a person whose remuneration or part of it was a share in the profits of the company.

The Court observed that the individual who is prohibited from being employed is one whose remuneration, or any part of that remuneration, takes the form of a share in the profits of the company. This raised two questions at once: firstly, whether a bonus constitutes remuneration, and secondly, whether such a bonus qualifies as a share in the profits of the company. The banks contended that a bonus awarded by Industrial Courts is indeed remuneration within the meaning of section 10 and also represents a share in profits; consequently, the express provisions of section 10 read with section 2 of the Banking Act would override the provisions of the Industrial Disputes Act, 1947 as far as banking companies are concerned, thereby prohibiting the award of bonus to bank employees. In contrast, the employees argued that a bonus granted by Industrial Courts is not “remuneration” as intended by section 10 of the Banking Act, nor is it a share in profits in its true nature. Both sides focused their arguments on the two key expressions “remuneration” and “share in profits”, and the Court indicated that the meaning of these expressions would be examined in detail. At the same time, the Court found it appropriate to set aside certain minor points and turn to the operative language of section 10, which states that “no banking company shall employ any person…”. The 1956 amendment added the words “or continue the employment of any person”. The Court considered whether, before the amendment, the phrase “shall employ” was intended to include “shall continue the employment of”. It concluded that it must, because otherwise the purpose of the section would be defeated. For example, the provision bars a banking company from employing any person who is or has ever been adjudicated insolvent. If a person is hired before an insolvency order and later adjudicated insolvent, the provision clearly intends that such a person can no longer remain employed. Ignoring subsequent disqualification would defeat the safety and well-being purpose of the section. Accordingly, the Court held that “shall employ a person” in section 10 includes “shall have in employment”, and that the 1956 amendment merely clarifies an already existing intention.

The Court further addressed an argument based on section 2. When a dispute concerning bonus between an employer and workmen is referred to an industrial tribunal, the tribunal possesses the authority to resolve the dispute by granting an award, which may include a bonus to the workmen if certain conditions are satisfied. The parties contended that the Banking Act should be construed in addition to, not in derogation of, the Industrial Disputes Act, 1947, but the Court noted that section 2 contains a qualification stating “save as hereinafter expressly provided”. If section 10 expressly forbids a banking company from employing a person whose remuneration or part thereof takes the form of a share in profits, and a bonus fits both descriptions, then section 2 cannot rescue the employees. The express terms of section 10 must therefore prevail over any other law in force concerning banking companies. This brings the analysis back to the meanings of “remuneration” and “share in profits”, which the Court indicated it would now examine in depth.

In this case, the Court observed that the provisions of the Banking Act could not be read so as to diminish the effect of the provisions of the Industrial Disputes Act of 1947; rather, the Banking Act was to operate in addition to the industrial legislation. The Court noted, however, that this line of argument overlooked an essential qualification contained in section two of the Banking Act, namely the phrase “save as hereinafter expressly provided.” The Court explained that when section ten expressly prohibited any banking company from employing a person whose remuneration or any part of that remuneration took the form of a share in profits, and when a bonus constitutes both remuneration and a share in profits, the protective clause in section two could not assist the respondents. The explicit terms of section ten therefore had to prevail over any other law then in force as far as banking companies were concerned.The Court then turned to the two pivotal expressions “remuneration” and “share in profits.” It first examined the meaning of “remuneration.” The Court indicated that the ordinary dictionary definition of the word, as found in the Concise Oxford Dictionary, is “reward, recompense, pay for service rendered.” The Court observed that this ordinary meaning was the meaning intended by the statute. To illustrate the judicial approach to the term, the Court referred to an early English decision, R v. Postmaster General (1876) 1 Q.B.D. 658, and the subsequent appeal (1878) 3 Q.B.D. 428, in which Justice Blackburn remarked that remuneration meant “a quid pro quo. If a man gives his services, whatever consideration he gets for giving his services is a remuneration for them. Consequently, I think if a person was in receipt of a payment, or in receipt of a percentage, or any kind of payment which would not be an actual money payment, the amount he would receive annually in respect of this would be remuneration.”The Court further noted that the term had been considered in several English cases involving section thirteen of the Workmen’s Compensation Act, 1906, which defined a workman as a person whose “remuneration” exceeded a specified amount. In Skiles v. Blue Anchor Line, Ltd., the Court held that remuneration was not limited to salary or cash payment by the employer but encompassed the same considerations as earnings. The case involved a ship’s purser who, apart from his regular wages, received a fixed-rate bonus at the end of each voyage and also earned a profit from the sale of whisky on board. The majority concluded that both the bonus and the profit from whisky sales must be taken into account when assessing the purser’s remuneration. Similarly, in Penn v. Spiers and Pond Limited, the Court treated gratuities and tips received by a waiter from restaurant-car passengers as “earnings in the employment of the same employer.” The Court pointed out that the decision in Penn v. Spiers and Pond Limited was subsequently approved by the House of Lords in Great Western Railway v. Helps, where the Lords rejected the argument that the term “earnings” should be confined to amounts received directly from the employer and reiterated that the statute used the general term “earnings” (or, in the present case, the general term “remuneration”) rather than the narrower expression “wages.” The Court concluded by citing an Australian decision, Conolly v. Victorian Railways, which succinctly observed that the word “remuneration” should be given its natural meaning unless there is a reason to do otherwise, and suggested that this rule of construction should be applied in the present case.

In the House of Lords case Great Western Railway v. Helps, Lord Dunedin dismissed the contention raised on behalf of the appellants that the expression “earnings” should be confined to the amount a workman receives directly from his employer under a contract. He observed that the statute did not impose such a limitation; it employed the broader term “earnings,” which in the present dispute corresponded to the word “remuneration,” rather than the narrower words “wages” or “what he gets from his employer.” Lord Dunedin further remarked that it was unnecessary to multiply decisions on the same point.

The Court then referred to a recent Australian decision, Conolly v. Victorian Railways, where the Commissioner succinctly stated that the word “remuneration” should be given its natural meaning unless there was a reason to depart from that meaning. The Court characterised this principle as a salutary rule of construction and indicated that it should be applied in the present matter.

The Court examined whether the Banking Act supplied a restricted definition of the term “remuneration.” It identified three competing interpretations that had been advanced before it. The widest interpretation, advocated by the learned Attorney-General appearing for several banks, described “remuneration” in its natural sense as any recompense for services rendered, irrespective of whether the payment was made voluntarily or by legal compulsion. The intermediate interpretation, situated between the widest and the narrowest, defined “remuneration” as any amount payable under a legal obligation, whether that obligation arose from a contract, a statute, or an industrial award.

The narrowest interpretation was advanced by Shri N.C. Chatterjee, counsel for the respondent workmen, who argued that “remuneration” in section 10 of the Banking Act should be limited to contractual wages—that is, only the amount payable under the terms of the employment contract. He contended that the provision in section 10, which stated that “no banking company shall employ a person …,” referred specifically to the contractual relationship created by the parties and was intended to prohibit a particular form of employment in which a person received a designated remuneration under the terms of his contract. According to this view, the prohibition targeted any profit-sharing remuneration that was fixed by a contract of service between the bank and its employees. Moreover, he submitted that a bonus awarded by an industrial tribunal did not create an obligation arising from a contractual act of the parties, and even if it implied a term, it lay outside the employment contract and was the product of a judicial decision under industrial law.

The Court found the argument presented by counsel for the workmen to be intellectually appealing but concluded that, upon close examination, it did not withstand scrutiny. The Court therefore proceeded to analyse the provision more closely, beginning with an examination of the language of section 10 of the Banking Act.

In the passage that follows, the Court referred to the decision reported in the 1957 Australian Law Reports at page 1097 and then turned its attention more closely to section 10 of the Banking Act. That provision, inter alia, states that no banking company shall employ or be managed by a managing agent, nor shall it employ any person who is or has been convicted by a criminal court of an offence involving moral turpitude, among other disqualifications set out in clause (b)(1). The Court observed that when the section uses the expression “shall employ,” it is intended to mean that the bank must not have such a person in its employment. It was further noted that the disqualifications listed in clause (b)(1) are not confined merely to the terms of a contract of service. If the disqualification were limited only to contractual provisions, the provision would fail to achieve the purpose for which it was enacted.

The Court illustrated the meaning of the section by presenting a hypothetical situation. Suppose a bank hires a manager on a contract of service that contains no reference to bonus or commission. Counsel for the respondents argued that, under section 10, the bank would be free to pay the manager voluntarily and ex gratia any amount as commission or bonus, provided that the contract of service does not expressly provide for such payment. The Court held that such an argument would render the statutory provision meaningless. Counsel for the respondents himself had contended, based on the legislative history, that the provision was intended to prevent banks from employing managers—regardless of the title given to them—who receive remuneration in the form of commission or a share of profits. Yet, according to the Court, a bank could circumvent this prohibition simply by omitting any mention of commission or bonus in the contract, a maneuver that defeats the purpose of the statute.

Turning to the wording of the section itself, the Court pointed out that there are clear indications that the term “remuneration” is employed in its widest sense. First, clause (b)(iii) also uses the word “remuneration,” stating that a person’s remuneration, according to normal standards prevailing in the banking business, must not be on a scale disproportionate to the resources of the company. Second, subsection (2), which remains unamended, provides that if any question arises in a particular case as to whether the remuneration is, according to prevailing banking standards, disproportionate to the company’s resources, the decision of the Reserve Bank shall be final. Both clause (b)(iii) of subsection (1) and subsection (2) employ “remuneration” in an expansive manner.

The Court further referred to rule 5 of the Banking Companies Rules, 1949, which are statutory rules requiring a banking company to periodically submit to the principal office of the Reserve Bank a statement in Form I showing the remuneration paid during the preceding calendar year to the company’s officers and other persons. Form I contains a footnote stating that “Remuneration includes salary, house allowance, dearness allowance, … bonus … fees and allowances to directors, etc.” The Court clarified that a statutory rule cannot enlarge the meaning of section 10; if a rule attempts to go beyond what the section contemplates, the rule must yield to the statute. However, because section 10 itself uses “remuneration” in its widest sense, rule 5 and Form I are consistent with the section. The Court concluded that the provision in section 10 is intended to cover all forms of remuneration, including bonus, and that the statutory framework supports this broad interpretation.

The Court observed that a statutory rule cannot be employed to broaden the meaning of section ten. If a rule extends beyond what the legislative provision contemplates, the rule must yield to the statute. It was previously noted that section ten itself employs the term “remuneration” in its widest possible sense, and that rule five together with Form I are therefore consistent with that provision. Counsel appearing for some of the respondents argued that, assuming the term “remuneration” in section ten includes bonuses, rule five and Form I consequently permit the payment of bonuses. That argument, however, rests on the premise that the provisions of section ten are limited to employees who serve in a managerial or administrative capacity and do not cover “workmen” as defined in the Industrial Disputes Act, 1947. The Court found this reasoning difficult to accept. Section ten declares that “no banking company shall employ any person,” and the Court saw no basis for restricting the expression “any person” solely to managerial or administrative staff. The Court emphasized that it cannot arbitrarily narrow the scope of a expression chosen by the legislature.

The Court then referred to the decision in Wrottesley v. Regent Street Florida Restaurant [1951] 2 K.B. 277, a case on which counsel for the respondent workmen relied heavily. The case facts, set out in the headnote, involved waiters at an unlicensed restaurant who, by mutual oral agreement with each other and their employer, placed all tips they earned into a common pool. The pooled tips were kept in a locked box and distributed weekly according to the agreed formula. Although the total weekly amount each waiter received—including the share of tips—exceeded the minimum wage prescribed by the Wages Regulations (Unlicensed Place of Refreshment) Order, 1949, the weekly wage paid directly by the employer fell below that statutory minimum. The restaurant proprietors were prosecuted for failing to pay the minimum wage. The Court held that the sums drawn from the tip pool constituted remuneration, distinguishing this situation from earlier decisions on the calculation of a waiter’s earnings under the Workmen’s Compensation Acts. Lord Goddard, C.J., explained that “the amount of a man’s earnings in an employment and the amount of remuneration which his employer pays to him are not necessarily the same thing.” The offence in question was created under section 9, sub-section 2, of the Catering Wages Act, 1943, which provides that an employer who fails to pay a worker covered by a wages regulation order remuneration not…

The provision in section 9 of the Catering Wages Act, 1943 declares that any employer who fails to pay a worker, to whom a wages-regulation order applies, a remuneration that is below the statutory minimum after clearing all authorised deductions, commits an offence. Section 10 then sets out relatively detailed rules for calculating that remuneration. The very short title of the statute, together with its overall structure—which establishes a wages commission, authorises the creation of wages boards, and empowers the issuance of wage-regulation orders—demonstrates that the legislation was intended to govern wages. The repeated use of the term “remuneration” in sections 9, 10 and elsewhere is likely because section 10 permits certain deductions from wages; consequently “remuneration” is employed to denote the net amount that actually reaches the employee. The question before the Court was whether, when a waiter receives a sum from the tronc in the manner described in the case, that sum may be characterised as remuneration paid by the employer, or rather as cash remuneration obtained by the waiter directly from the employer. In our view, once a customer hands a tip to a waiter, that money instantly becomes the property of the waiter. The decision itself illustrates that the word “remuneration” must be interpreted with reference to the statutory context in which it appears. Within the Catering Wages Act, 1943, it signifies the net payment after the deductions authorised by the Act; under the Workmen’s Compensation Acts, it signifies the total earnings of a man in his employment. We have also observed that, in the Banking Act under consideration, “remuneration” is employed in its broadest sense and therefore unquestionably embraces a bonus. Turning now to the second pivotal phrase, namely “takes the form of a share in the profits of the company”, we examine the evolution of the industrial bonus concept. Early judgments of Bombay industrial adjudicators treated the award of a bonus as a discretionary act of grace rather than a legal right, sometimes describing a bonus as a gift, a kind of bakshis or pourboire (see D. G. Damle’s Labour Adjudications in India, p. 408). By 1948 the doctrine had become settled, and the judiciary recognised that a claim for a profit bonus could no longer be regarded as an ex gratia payment. In Millowner’s Association, Bombay v. Rashtriya Mill Mazdoor Sangh Bombay (1) the Full Bench of the Labour Appellate Tribunal formulated a method for computing the quantum of bonus and laid down general principles governing such claims. These principles are: (1) since both capital and labour contribute to the earnings of an industrial concern, it is equitable that labour should obtain a share of any surplus that remains after satisfying prior or necessary charges; (2) a claim for bonus arises only if, after providing for prior charges and ensuring a fair return on paid-up capital and on reserves employed as working capital, there is a residual surplus; and (3) the bonus serves as a temporary measure to meet the employee’s needs when the industry’s capacity varies from year to year, preventing the employer from being obliged to pay a continuous “living wage”. The Tribunal also observed that, where the goal of a living wage has been achieved, a bonus or profit-sharing arrangement functions more as a cash incentive to promote greater efficiency and production.

The Court explained that a claim for bonus could arise only when three conditions were satisfied. First, the employer must have discharged all ordinary charges. Second, there must remain a surplus after providing for (a) any prior charges and (b) a reasonable return on the paid-up capital as well as on reserves that are being used as working capital. Third, the bonus serves as a temporary relief, wholly or partially, for the employee’s needs when the industry’s capacity fluctuates from year to year, making it impossible for the industry to pay what is referred to as a “living wage.” The Labour Appellate Tribunal observed that once the objective of paying living wages is achieved, a bonus becomes similar to profit-sharing in the narrow technical sense and functions primarily as a cash incentive encouraging greater efficiency and production. The notion of a living wage is still evolving, and the Court noted that very few, if any, industries in this country have actually attained that goal. The general principles articulated by the Full Bench of the Labour Appellate Tribunal were affirmed by this Court in the case of Muir Mills Co. Ltd. v. Suti Mills Mazdoor Union, Kanpur, and were again fully considered and endorsed in Civil Appeals Nos. 459 and 460 of 1957 (Associated Cements), the judgment for which was delivered on 5 May 1959. The Court then turned to the expression “takes the form of a share in the profits of the company” and examined its meaning in the context of the word “bonus” as previously explained. It clarified that the present discussion does not involve production bonus or Puja bonus, which may not be derived from profits and therefore rest on a different footing. The Court affirmed without doubt that a profit bonus, as understood in industrial law today, represents a share in the company’s profits; it is essentially the labour-side share of the contribution made by employees to the earning of those profits. Two arguments had been advanced to contend that a bonus is not a share in profits: first, that it does not constitute a fixed or certain percentage of the surplus profits available; and second, that it possesses the character of a contingent, supplementary wage, as noted in [1955] 1 S.C.R. 991. These arguments carried significant weight with the majority of the Labour Appellate Tribunal members, who held that section 10 of the Banking Act did not preclude granting a bonus to bank employees because, in their view, a bonus was not a share in the company’s profits. The Court found both arguments unpersuasive. It observed that the first argument stemmed from a misunderstanding between the phrase “takes the form of a share in profits” and the narrowly defined technical term “profit-sharing.” While it is true that the statutory bonus formula does not prescribe a fixed percentage of the surplus to be allocated to labour, the actual share allotted to labour will depend on a variety of circumstances, though this variability does not alter the character of the bonus as a share in the company’s profits.

In the analysis, the Court observed that once the quantum of the amount that should be allocated to labour is ascertained, it becomes a straightforward exercise to compute the ratio of that amount to the total available surplus of profits, thereby establishing that the bonus can readily be identified as a share in the company's profits. The Court noted that although the International Congress on Profit-sharing convened in Paris in 1889 formulated a definition of profit-sharing in a narrow technical sense—characterising it as an agreement, whether formal or informal, whereby employees receive a share that is fixed in advance of the profits (see Encyclopaedia of the Social Sciences, Seligman and Johnson, Vol. XII, p. 487)—this definition does not correspond to the way bonus has been understood within Indian industrial law. The provision in section 10 of the Banking Act employs the broader wording “takes the form of a share in the profits,” and the Court declined to construe this general expression as having the same technical requirement that the share be predetermined, because such an interpretation would unjustifiably exclude schemes in which workers are regularly granted a portion of net profits on an ad-hoc basis by an independent authority such as an industrial court or tribunal. The Court further rejected the second argument, holding that in the Indian industrial context bonus does indeed arise out of the surplus of profits and, when paid, bridges the gap—wholly or partially—between a living wage and the actual wage earned, thereby constituting an addition to wages even though it may be described as contingent or supplementary. Consequently, bonus remains the labour-share in profits and, as a form of remuneration that takes the shape of a share in profits, it falls squarely within the mischief that section 10 of the Banking Act seeks to address. The Court remarked that it was not the function of the judiciary to speculate on the policy question of why the legislature might choose to deny bank employees—who are not part of the managerial or administrative cadre—their industrial entitlement to bonus despite their contribution to the banks’ prosperity. The balance between safeguarding the integrity and stability of the banking sector on the one hand, and recognising the employees’ claim to a share in profits on the other, is a matter for legislative determination. By way of contrast, the Court pointed out that section 31A of the Insurance Act, 1938, although framed in terms comparable to section 10 of the Banking Act, contains notable distinctions, such as explicit references to bonus and a proviso permitting uniform bonus payments to all salaried employees when deemed reasonable by the Central Government, underscoring that the legislature alone decides how to reconcile employee claims with the safety and security of the business in which they are employed.

Section 10 of the Banking Act differs in several important respects from the corresponding provision in the Insurance Act. First, the latter provision expressly refers to “bonus” as well as to a share in profits in clauses (b) and (c) of sub-section (1). Second, the Insurance Act includes a proviso stating that nothing in sub-section (1) shall prevent the payment of a bonus in any year on a uniform basis to all salaried employees, or any bonus that, in the opinion of the Central Government, is reasonable having regard to the circumstances of the case. This language indicates that the legislature alone is authorized to balance the employees’ entitlement to a share of earnings against the need to preserve the safety and security of the business in which they are employed. The learned Attorney-General relied on several authorities to support his argument that a bonus falls within the expression “takes the form of a share in profits”. In In re Young, Ex Parte Jones (1) the Court held that a contract obliging a person to receive a fixed sum “out of the profits” of a business is equivalent to a contract to receive “a share of the profits” as contemplated by sub-section 3(d) of section 2 of the Partnership Act, 1890. A comparable issue arose in Admiral Fishing Company v. Robinson (1) concerning section 7, sub-section 2, of the Workmen’s Compensation Act, 1906, which provides that the Act does not apply to crew members who are remunerated by shares in the profits or gross earnings of the vessel’s work. The claimant, an engineer of a fishing smack, was entitled to one share of the net profits from a particular voyage, and the Court concluded that he was indeed remunerated by a share of the profits. In Costello v. Owners of Ship Pigeon (2) the claimant served as a boatswain on a steam fishing trawler and received wages, maintenance and poundage that varied with the profits of the fishing expedition. By a majority decision the House of Lords held that this remuneration constituted a share in profits within the meaning of section 7, sub-section 2, of the Workmen’s Compensation Act, 1906. Shri N. C. Chatterjee drew the Court’s attention to Newstead v. Owners of Steam Trawler Labrador (3), a case involving a claim for compensation by the widow of a crew member who perished when the vessel was lost. The owners argued that the deceased, who was employed as chief engineer on a steam trawler for a fixed weekly wage of £2 5s, received remuneration in the form of a share in the profits or gross earnings of the vessel under section 7, sub-section 2, of the Workmen’s Compensation Act, 1906, and therefore the Act was inapplicable. It was the custom of the owners, when the gross earnings of the

The bonus scheme on the trawler operated as follows: on any single voyage, which normally lasted about one week, if the gross earnings of the boat exceeded £100, a bonus of £2 was made available. Of that £2, £1 was paid to the captain and 2 shillings and 6 pence were paid to each of the remaining eight crew members. When the gross earnings of the boat exceeded £125, the bonus was increased proportionately, and the increases continued in a similar manner, but the bonus ceased to rise once the gross earnings surpassed £175. The court’s decision was based on the view that, in that case, the bonus was not a share in profits but rather an additional sum of wages that was determined by the amount of the gross earnings. Lord Cozens Hardy, M.R., explained the ratio of the earlier decision in these words: “The question is whether, having regard to the circumstances, that can be said in the present case. It seems that by the custom of this firm and by the understanding and arrangement between the parties, if the vessel made £100 the skipper was entitled to £1, and in that particular case each member of the crew was entitled to half a crown. If the vessel made more the skipper and crew were entitled to larger sums. Now what was the effect of that? The bonus was not, as it seems to me, any part of the profits, nor was it a share in the gross earnings of the vessel. There was an obligation on the part of the owners of the trawler to pay the half a crown (to take that as one instance) in a certain event, which event was to be determined by the gross earnings of the vessel. I see no ground for holding that it was in any sense of the word a share of the gross earnings of the working of the vessel any more than the actual wages which were payable to the seamen could be treated as being a share of the gross earnings of the vessel, although the bonus as well as the wages would figure in the ship’s accounts as against the receipts on the other side.” The present Court found that the ratio articulated in that earlier decision does not apply to the present facts. The bonus in the present case is not an additional wage calculated on the basis of profits; rather, it is part of the surplus of profits that is distributed to labour for its contribution to the earnings. It does not arise from any contractual obligation to pay, although the claim is recognised as one grounded in social justice. Shri Phadke relied on the decision In re The Spanish Prospecting Company Limited (1) [1911] 1 Ch. 92, which was decided on the meaning of the word ‘profits’, a term for which a classic definition had been given by Fletcher MOUITON, L.J. In view of the decisions of this Court referred to earlier, it is (1) [1910] 1 K.B. 540. (2) [1913] A.C. 407. (3) [1916] 1 K.B. 166.

In this case, the Court observed that it is now beyond dispute that an industrial bonus, when understood in the industrial sense, is drawn from the profits of the undertaking. Because the bonus originates from profit, the Court could not accept the argument that such a bonus could be characterised as something other than a share in those profits. The industrial bonus is a statutory payment intended to distribute a portion of the surplus earnings of an employer to its employees as recognition of their contribution to the profitability of the business. Counsel for the petitioner, Shri Phadke, had contended that the notion of a “share in profits” inherently requires that either a definite monetary amount or a definite proportion be predetermined in advance. The Court noted that this point had already been examined in detail at an earlier stage of the proceedings, and that reiterating the earlier discussion would not add any further substance to the present reasoning. Having dealt with that issue, the Court turned its attention to two additional contentions that had been raised on behalf of the workmen respondents. Those contentions were premised upon the statutory amendments that were effected in the year 1956 to the Banking Companies Act.

The Court then set out the wording of Section ten as it stood after its amendment by the Banking Companies (Amendment) Act of 1956, which is cited as the eighty-fifth amendment of that year. The provision reads, in the part relevant to the present matter, that no banking company shall (a) employ or be managed by a managing agent; or (b) employ or continue the employment of any person who is, or at any time has been, adjudicated insolvent, has suspended payment, has compounded with his creditors, or who has been convicted by a criminal court of an offence involving (i) remuneration or part of remuneration that takes the form of commission or a share in the profits of the company; provided, however, that nothing in this clause shall apply to the payment of any bonus by a banking company when such bonus is made pursuant to a settlement or award arrived at under any law relating to industrial disputes, or when the bonus is paid in accordance with any scheme framed by the banking company, or in accordance with the usual practice prevailing in banking business; or (ii) remuneration that, in the opinion of the Reserve Bank, is excessive. The section also contains an explanation stating that, for the purpose of sub-clause (iii) of clause (b), the term “remuneration” includes salary, fees and perquisites but excludes any allowances or other amounts paid to reimburse the employee for actual expenses incurred in the performance of his duties. Moreover, the provision provides that if any question arises in a particular case as to whether remuneration is excessive under sub-clause (iii), the decision of the Reserve Bank shall be final for all purposes. The Court observed that the proviso inserted in the amended section makes it explicit that the restriction in sub-section (1) does not apply to the payment of any bonus that is made pursuant to a settlement or award under industrial-dispute legislation, or in accordance with a scheme adopted by the banking company, or in line with the usual banking practice. Consequently, the Court concluded that the 1956 amendment does not impede the granting of an industrial bonus. The Court also noted that the amendment was not in force at the relevant time, and therefore could not be applied retrospectively to the facts of the present dispute.

In considering the matters raised in these appeals, the Court observed that the Banking Companies (Amendment) Act, 1956 contains no provision that would cause it to operate retrospectively. One counsel, identified as Shri N. C. Chatterjee, argued that the amending Act merely declares the law as it has always been. Another counsel, identified as Shri Phadke, contended that the amending Act serves as a parliamentary exposition of the true meaning of section ten of the Banking Companies Act. The Court found that neither of these submissions could be accepted. The long title of the amending Act expressly characterises it as “an Act to amend the Banking Companies Act, 1949”, and section two of that Act provides that “for section ten of the Banking Companies Act, 1949, the following section shall be substituted”. No language within the amending Act indicates that it was enacted to remove any doubt, to explain any earlier statute, or to correct any omission or error. To clarify the nature of a declaratory enactment, the Court cited the authoritative commentary in Craies on Statute Law, Fifth Edition, pages fifty-six to fifty-seven, which observes that a modern declaratory Act is intended to dispel doubts concerning common law or the meaning or effect of a statute, and such Acts are usually held to be retrospective. The commentary further explains that declaratory Acts typically contain a preamble and the words “declared” and “enacted”, and are passed to overturn what Parliament regards as a judicial error in the common law or statutory interpretation. By contrast, a remedial Act is not necessarily retrospective; it may either expand or restrict legal provisions and ordinarily takes effect prospectively unless it expressly provides for retrospective operation or such operation is necessarily implied. After applying this analysis, the Court concluded that the 1956 amendment is not a declaratory Act. Apart from the limited issue of the expression “shall continue to employ” in subsection one, the amendment does not purport to explain any earlier law or to declare that the law had always been as now stated. The amendment is therefore an ordinary remedial piece of legislation that came into force on fourteen January 1957. Consequently, for the period relevant to the appeals before this Court, the amended provision was not yet in operation.

This determination brings the Court to the resolution of the two principal questions that arise in the seven appeals. In contrast to the findings of the Labour Appellate Tribunal, the Court holds that the scope of item five of schedule two of the applicable notification is not what the Tribunal had understood. Moreover, the reference made in the year 1952 does not remain pending for the purpose of assessing the amount of bonus for the relevant years concerning the particular banks. Secondly, the Court confirms that, prior to the 1956 amendment, section ten of the Banking Companies Act prohibited the grant of industrial bonus to bank employees, because such a bonus constitutes remuneration in the form of a share of the bank’s profits. This prohibition, as it stood before amendment, means that no claim for industrial bonus could be sustained for the past years in question.

The Court observed that the remaining two issues, identified as questions three and four, did not require a determination at this point in time. It emphasized that the jurisdiction being exercised was strictly appellate in nature with respect to the seven appeals before it, and that it was not acting in an advisory capacity. Consequently, the Court held that the seven appeals were fully resolved on the basis of the findings already rendered on the first two questions that had been previously examined. According to those findings, the dispute concerning the industrial bonus that had been referred to the Industrial Tribunal in the year 1952 was now concluded. The reference to the Tribunal was no longer pending, and, having interpreted the unamended provision of section ten of the Banking Act, the Court concluded that no claim for a bonus could be adjudicated for any of the relevant past years. In light of this conclusion, the Court found it unnecessary to address any hypothetical questions that might arise from a future reference made under the subsequently amended section of the Act.

In exercising its appellate powers, the Court stated that it does not issue speculative opinions on matters that are purely hypothetical. To do so would be contrary to established principle and would be both inconvenient and unwise. The Court explained that any such questions could only be properly considered if they arose in a concrete case. Citing the words of the Earl of Halsbury, L.C., from Attorney General of Ontario v. Hamilton Street Railway, the Court noted that it would be extremely imprudent for a judicial tribunal to attempt to anticipate and exhaust every possible factual scenario before an actual case is before it. The Court also observed that no evidence had been permitted from either the banks or the bank employees regarding bonus claims for specific years or specific banks; the dispute had been correctly treated, in the Court’s view, as a question of a general nature concerning the bonus. That general question had now been disposed of by the Court’s earlier findings. While acknowledging that future references to an industrial dispute over bonus might be made by the appropriate Government under the amended provision, the Court declared that questions three and four could be addressed at that later time when concrete facts were before the Court. It would be unwise and expedient to decide those issues in a vacuum, without the necessary material. Accordingly, the Court held that questions three and four should not be decided at this stage. The Court further noted that any remarks made by the lower tribunals on those questions would constitute obiter dicta, and that both parties remained free to raise those issues in any future concrete case.

The Court stated that it was not required to set out in detail the contentions that had been raised before it on behalf of the parties with respect to questions three and four. Before concluding, the Court turned to a brief discussion of Civil Appeal No 62 of 1957. In that appeal, aside from the question of bonus, two further issues had been raised: first, whether the Labour Appellate Tribunal possessed jurisdiction to order the cancellation and refund of cash deposits; and second, whether the lower tribunals were incorrect in holding that the taking of cash deposits should be limited to workmen belonging to three specified categories. The Court noted that it had been pointed out that the cash deposits had already been refunded in accordance with the decision of the Labour Appellate Tribunal. Consequently, the learned Attorney-General who appeared for the appellant, The Punjab National Bank Limited, did not press those points further. As a result, the only remaining question in Civil Appeal No 62 of 1957 was the question of bonus, a question on which the Court had already rendered its decision. Shri Sadhan Chandra Gupta, appearing for the respondents in that appeal, made submissions concerning the bonus issue. He argued that section 2 of the Banking Act, even if bonus is characterised as remuneration in the form of a share of profits, preserves the power of industrial tribunals to award such bonus under the Industrial Disputes Act, 1947. According to his submission, an award made by a tribunal would create an obligation on the banks to pay the bonus and would not expose the banks to a penalty under section 46 of the Banking Act. The Court recalled that it had already addressed this argument, observing that section 2 is a saving provision that applies to any other law in force, provided that the Banking Act itself does not contain an express contrary provision. The Court held that, in the unamended version, section 10 of the Banking Act expressly prohibited the employment of any person by a bank whose remuneration took the form of a share in the bank’s profits. Accordingly, section 2 could not override or mitigate the prohibition contained in section 10. On the basis of the foregoing reasoning, the Court allowed the seven appeals to the extent already indicated. Specifically, the Court held that the reference of 1952 was no longer pending for determination of the bonus question for the relevant years with respect to the banks concerned, and that section 10 of the Banking Act, prior to its amendment in 1956, barred the grant of an industrial bonus to bank employees when such bonus constituted remuneration in the form of a share of the bank’s profits. In view of the prolonged nature of the dispute, the Court made no order as to costs. The appeals were thus allowed in part.