B.N. Elias And Co., Ltd. vs B.N. Elias and Co., Ltd., And Others

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 121 of 1959

Decision Date: 24 March, 1960

Coram: K.N. Wanchoo, P.B. Gajendragadkar, K.C. Das Gupta

The case was titled B.N. Elias And Co., Ltd. versus B.N. Elias & Co., Ltd. and Others, and it was decided on 24 March 1960 by the Supreme Court of India. The judgment was authored by Justice K.N. Wanchoo, who sat with Justices P.B. Gajendragadkar and K.C. Das Gupta. The matter was recorded as Civil Appeal No. 121 of 1959 and arose on special leave from an award dated 3 June 1957 issued by the Second Industrial Tribunal of West Bengal. The parties were identified as the petitioners, B.N. Elias And Co., Ltd., the employees’ union and other claimants, and the respondents, B.N. Elias & Co., Ltd. together with additional respondents. The official citation for the decision was 1960 AIR 886 and 1960 SCR (3) 382, with subsequent citations recorded in later Supreme Court reports. The matter concerned the interpretation of industrial law provisions relating to bonuses, ex gratia payments, and customary practices such as the Puja bonus.

The headnote of the judgment summarized the factual background. Since 1942 the respondents had been making ex gratia payments to their employees in addition to regular wages and salaries. Those payments were not made on a regular schedule, and in 1956 no ex gratia payments were made at all. The appellants contended that their right to receive a bonus had become an implied term of their employment agreement, or at least a condition of service, and they argued that the bonus should be treated as a customary payment. They relied heavily on the precedent set in The Graham Trading Co. (India) Ltd. v. Its Workmen, reported in 1960 SCR 107. Evidence established that although payments had been made from 1942 to 1952, each time the respondents expressly described the sums as ex gratia. The Court held three key points: first, when payments are expressly made and accepted as ex gratia, a contractual term cannot be implied to create a bonus obligation; second, customary bonus payments cannot arise under a contract of service unless the bonus is linked to a recognized festival such as the Puja celebration in Bengal or an equivalent festival elsewhere; third, for the year 1956 the Court ordered that one month’s basic wage be paid as a Puja bonus to the subordinate staff because such a practice had become customary and traditional within the respondents’ establishment.

The judgment itself began with the Court noting that the appeal raised the question of bonus entitlement. A dispute existed between the workmen of B.N. Elias & Co., Ltd., referred to as the appellants, and their employers, the respondents, concerning bonuses for the years 1954, 1955 and 1956. The appellants claimed that a bonus formed a condition of service, irrespective of the company's profit or loss, and they set out a detailed scale for the bonus. For clerical staff they sought one month’s basic pay as a bonus in April, August and December. For subordinate staff they sought one month’s basic wages as a bonus in April, August, at the time of Puja and in December. According to the appellants, this bonus had been regularly paid from 1942 to 1952. After disputes arose, the respondents attempted to discontinue the bonus from 1953, reducing the amount in 1954 and further lowering it thereafter. The disagreement was referred by the Government of West Bengal in May 1956, and subsequent disputes were raised concerning the bonuses for 1955 and 1956. Counsel for the appellants, described in the record as legal representatives, presented these arguments, while counsel for the respondents, identified as the Solicitor‑General and Additional Solicitor‑Generals of India, defended the employer’s position. The Court then proceeded to examine the evidence and the applicable legal principles to determine whether the claimed bonus constituted an implied term of service or a customary payment.

In the matter before the tribunal, the workmen claimed that they were entitled to receive a bonus for the years 1954, 1955 and 1956. They asserted that the bonus formed a condition of service and that it had to be paid regardless of whether the company made a profit or incurred a loss. According to the workmen’s submission, the bonus schedule was set out as follows. For clerical staff, a bonus equal to one month’s basic pay was to be paid in April, another month’s basic pay in August and a further month’s basic pay in December. For subordinate staff, the same quantum of bonus – one month’s basic wages – was to be paid in April, August, at the time of Puja and in December. The workmen further contended that this pattern of bonus payments had been observed continuously from 1942 up to 1952. After 1952, however, disputes arose between the workmen and the employer. The employer reportedly attempted to discontinue the bonus from 1953 onward, although a reduced amount was nevertheless paid in that year. In 1954 the amount of bonus was again reduced, prompting the workmen to lodge a grievance. The Government of West Bengal took note of the dispute and referred it to the Second Industrial Tribunal in May 1956. Subsequently, a second dispute was raised concerning the bonus for the years 1955 and 1956, in which the workmen claimed that the bonus had become a customary right or a condition of service payable at regular four‑monthly intervals and at a uniform rate. The Government then made a consolidated reference in September 1956, seeking the tribunal’s determination on the three years – 1954, 1955 and 1956 – together.

When the matter was heard, the employer argued that it was not in a financially prosperous position and that it could not afford to pay any further bonus beyond the amounts that had already been paid for the years in dispute. The employer admitted that, since about 1942, it had been making ex gratia payments to its employees in addition to their regular wages and salaries. These ex gratia payments were normally equivalent to one month’s basic wage each time, but the number of such payments made in a year varied. Initially, four ex gratia payments were made annually to both clerical and subordinate staff. Later the employer reduced the number of payments to three per year for clerical staff, while the subordinate staff continued to receive four payments per year until 1952. Because trading results deteriorated in 1952 compared with earlier years, the employer made only two ex gratia payments to clerical staff and three to subordinate staff in 1953. A dispute concerning the 1953 payments was raised by the workmen, but the Government declined to refer that year’s grievance to the tribunal. In 1954 and 1955 the employer made two ex gratia payments to both categories of staff, and in 1956 no ex gratia payments were made at all. The employer denied that these payments were made as a condition of service, as an implied term of the employment agreement, or as customary payments irrespective of profit or loss. It was alleged

It was contended that the payments made by the respondents were genuine ex gratia payments, given voluntarily out of goodwill in situations where no tribunal would have awarded a bonus. Consequently, the respondents opposed any further claim for bonus payment for the three years in question. Before the tribunal, the appellants withdrew their claim for bonus based on the Full Bench formula, but they continued to argue that a bonus was payable as an implied condition of service and that it had also become a customary bonus. The tribunal rejected the argument that the bonus had become an implied condition of service and also held that the claim founded on custom was untenable. As a result, the tribunal declined to award any additional bonus for 1954 and 1955 beyond the amounts already paid to the appellants and dismissed the claim for 1956 entirely.

Advocate N. C. Chatterjee, representing the appellants, primarily advanced the claim on the basis that the bonus was customary, relying on The Graham Trading Co. (India) Ltd. v. Its Workmen (1). Before addressing that issue, the Court first considered the argument that the bonus arose from an implied agreement or condition of service. Evidence demonstrated that from 1942 to 1952 the respondents had paid bonuses uninterruptedly—three times a year to clerical staff and four times a year to subordinate staff—but each time it was expressly stated that the payment was ex gratia. Moreover, the receipts produced by the employees, a representative sample of which was entered into evidence, showed that the workers accepted the payments as ex gratia bonuses. In accordance with the principle set out in The Graham Trading Co. (1), a term of service cannot be implied when the payment is clearly designated and accepted as ex gratia. Accordingly, the appellants’ contention that the bonus had become an implied term of the employment contract or a condition of service could not succeed.

The Court’s attention was drawn to a letter of appointment addressed to C. V. Thomas, in which, under the heading “other allowance,” it provided that “equivalent to a month’s salary every fourth month will be allowed after your confirmation in employment.” This provision is an express term of the contract between National Tobacco Company of India Limited—one of the respondents—and Mr. Thomas, as recorded in the judgment of [1960] 1 S.C.R. 107, and therefore cannot serve as the basis for finding an implied term obliging the employer to pay a bonus three times a year. While Mr. Thomas may have a claim under that specific express term, the Court does not comment on it. A similar appointment letter concerning Ram Shankar Misra of the same company was also noted, but the Court’s analysis in this segment concludes that the tribunal was correct in rejecting the argument that an implied term or condition of service gave rise to the claimed bonuses.

In the letter referred to, the Court observed that among its provisions there was a clause granting a bonus of fifteen rupees per month after the employee’s confirmation. The Court characterised that clause as an express term of the employment contract between the individual employee and National Tobacco Co. of India Limited. Because the clause was expressly stated, the Court held that it could not be used to support a claim that an implied term existed. The Court further noted that such an implied term would require a one‑month bonus to be paid three times a year, specifically in April, August and December. Consequently, the tribunal’s rejection of the party’s argument founded on an implied term of agreement or a condition of service was affirmed as correct. The Court then turned to the argument concerning a customary bonus, which the parties relied upon by invoking the authority of The Graham Trading Co. (1) [1960] 1 S.C.R. 107. The Court explained that the Graham case involved a customary and traditional bonus that was payable at the Puja festival, a celebration of particular significance in Bengal. The Court clarified that the Graham decision did not establish a general principle allowing a customary bonus that was unrelated to any festival. It is difficult, the Court said, to create a customary bonus arrangement when the terms of employment are already governed by an express or implied contract. Such a bonus, the Court added, must be linked to a festival, for example Puja or an equally important festival celebrated elsewhere in the country. The Court further held that the principles articulated in Graham concerning customary and traditional bonuses tied to a festival could not be extended. The Court explained that such an extension to a notion of a customary bonus that bears no connection to any festival was not permissible. The Court emphasized that such a bonus must have some connection to a festival, and therefore a purely customary bonus without any festival link was not permissible. Accordingly, the Court expressed the opinion that the appellants had failed to demonstrate an implied agreement or condition of service for the payment of a bonus.

The Court noted that, except for one matter that would be dealt with later, the appellants could not rely on a claimed customary payment that was unrelated to any festival. The Court then turned to a particular payment made to subordinate staff, described as ‘one month’s basic wages as bonus at Puja time.’ It will be noticed that this payment to the subordinate staff at Puja time is in addition to the other payments which are common between the clerical and the subordinate staff. This payment of one month's basic wage as bonus at Puja appears to have continued uninterrupted from the time it started in 1942 or thereabout up to the time the dispute arose in 1954. The payment was invariably of one month's basic wage and it appears that it was paid even in a year of loss, vide Ex. E. The Court was of the opinion that the principles laid down in The Graham Trading Co. (1) applied to the one‑month Puja bonus payable to subordinate staff. Accordingly, the Court concluded that this payment had become a customary and traditional practice within the respondents’ operations at the time the dispute was first raised in 1954. The Court expressed confidence that, had the Graham judgment been available to the tribunal, the tribunal would have reached the same conclusion.

The Court observed that the practice of granting a bonus equivalent to one month’s basic wage to the subordinate staff at the time of the Puja festival had become customary, reflecting a pattern of remuneration. By the year 1954 this payment had also become a traditional entitlement within the business affairs of the respondents, having been made regularly each year irrespective of the company's financial results. Accordingly the Court partially allowed the appeal, holding that the one‑month basic‑wage Puja bonus for the subordinate staff was indeed customary and traditional in the respondents’ concerns. The Court directed the respondents to pay the outstanding Puja bonus for the year 1956, noting that no such bonus had been paid for that year. All other relief claimed in the appeal, including any additional monetary claims and any injunctions, was rejected and the remaining portion of the appeal was dismissed. The Court further ordered that each party should bear its own costs of the proceedings, meaning that neither side would be required to reimburse the other for legal expenses. Thus the appeal was allowed in part, with the specific direction to pay the 1956 Puja bonus, and the final order was recorded accordingly. (1) [1960] 1 S.C.R. 107.