The Prakash Cotton Mills (Private) Ltd. and Others vs The State of Bombay (Now Maharashtra)

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 759 of 1957

Decision Date: 16/02/1961

Coram: K.N. Wanchoo, P.B. Gajendragadkar, A.K. Sarkar, J.R. Mudholkar

In this matter the Supreme Court of India delivered a judgment on 16 February 1961 concerning the dispute between The Prakash Cotton Mills (Private) Ltd. and others and the State of Bombay, now known as Maharashtra. The opinion was authored by Justice K.N. Wanchoo and was heard by a bench comprising Justices K.N. Wanchoo, P.B. Gajendragadkar, A.K. Sarkar and J.R. Mudholkar. The case is reported in the 1961 All India Reporter at page 977 and also appears in the 1962 Supplement to the Criminal Reports at volume 1, page 105, with an additional citation in the 1967 Supreme Court Reports, entry SC1450 (5). The statutory framework involved the Bombay Industrial Relations Act of 1946, enacted as Bombay Act 11 of 1947, specifically sections 95A and 114(2), which dealt with bonuses for textile mill workers and the extension of awards to other mills in the same locality.

The factual background set out that the workmen of the appellant mill and other cotton‑textile mills situated in Greater Bombay were seeking bonuses for the years 1952 and 1953. Under the provisions of the Bombay Industrial Relations Act, these bonus matters were referred to the Industrial Court for determination. While those references remained pending, the Mill‑Owners’ Association of Bombay negotiated an agreement with the Rashtriya Mills Mazdoor Sangh, a union representing workers in the cotton‑textile sector. The agreement, which covered the period from 1952 to 1957, stipulated that a bonus would be payable even if a mill incurred an actual loss, fixing the minimum bonus at four point eight per cent of the basic wages earned during the relevant year. The agreement further allowed a mill to adjust any bonus paid as the minimum amount against any surplus that might arise in later years. This arrangement was subsequently registered and declared enforceable as an award against the mills that had become parties to it.

The appellant, The Prakash Cotton Mills (Private) Ltd., chose not to sign the agreement and argued that it had sustained continuous losses from 1950 through 1955. On 31 July 1956 the Government of Bombay issued a notification pursuant to section 114(2) of the Act, directing that the award issued by the Industrial Court for the bonus years 1952‑1953 and also for the years 1954‑1957 be enforced upon the appellant. The appellant challenged the constitutional validity of section 114 on three principal grounds. First, it contended that the provision violated Article 14 of the Constitution by granting the State Government an unchecked and arbitrary power to discriminate between different groups of employers and employees, allowing it to issue orders at its own discretion while excluding others. Second, it asserted that the provision infringed Article 19(1)(g) by imposing an unreasonable restriction on the right to carry on a business or profession. Third, it argued that the notification deprived the appellant of the opportunity to have its industrial dispute resolved by the Industrial Court as provided under the Act. These contentions formed the basis of the appellant’s petition before the Supreme Court.

The appellant argued that the government notification of 31 July 1956 was invalid for two reasons. First, the notification was issued while a reference was still pending before an Industrial Court, and the appellant claimed that this act removed the Court’s authority to decide the pending reference. Second, the appellant maintained that the notification exceeded the powers granted to the State Government by section 114 of the Bombay Industrial Relations Act because, under that provision and in accordance with section 95A, the Government was required to follow the decisions of the Full Bench of the Industrial Court. The appellant pointed out that the Full Bench had previously decided that an employer could not be required to pay bonus when it had made no profits, a decision that the notification ignored.

Justice Sarkar, dissenting, held that the July‑31‑1956 notification was indeed beyond the authority conferred on the State Government by subsection 2 of section 114 of the 1946 Act and therefore had to be set aside. He explained that three distinct limitations govern the State’s power when it acts under that subsection. The first limitation is that the State’s action must be confined to the subject‑matter of the agreement, settlement, submission or award that is sought to be extended. The second limitation requires the State’s action to conform with the industrial law established by the Full Bench of the Industrial Court and with any decision of the Supreme Court. The third limitation provides that the State’s power to issue a direction under the subsection ends at the same point as the adjudicator’s power; consequently the State may not do anything that the adjudicator under the Act is prohibited from doing.

Justice Sarkar further noted that any action taken by the State under subsection 2 of section 114 constitutes a proceeding under the Act within the meaning of section 95A. He cited the decision in New Maneckchowk Spinning Co. Ltd. and others v. Textile Labour Association as authority. He then addressed several constitutional questions. He observed that section 114 does not violate Article 14 because its purpose is to settle industrial disputes and promote industrial peace, and it does not grant the State an unlimited or arbitrary power. He added that the restrictions imposed by subsection 2 of section 114 are reasonable and serve the public interest, so the provision does not infringe Article 19(i)(g), referring to Bijay Cotton Mills Ltd. v. State of Ajmer for support. He further explained that the Act’s provisions must be read as a whole, and when the State exercises power under subsection 2, the right to seek adjudication by an Industrial Court is either removed or rendered ineffective. He also held that issuing a notification under subsection 2 does not constitute a proceeding contemplated by section 95A; therefore, compliance with a Full Bench decision is not required in that context. Finally, he stated that section 114 expressly allows a notification that may differ from a Supreme Court decision, and consequently a notification properly issued under the section cannot be characterized as being issued in bad faith, citing Muir Mills Co. Ltd. v. Suti Mills Mazdoor Union for illustration.

1 S.C.R. 991 was cited in the judgment. The Court held that the Act was not invalid and that the notification dated July 31, 1956, was proper and could not be set aside. The judgment fell under the civil appellate jurisdiction and concerned Civil Appeal No. 759 of 1957. The appeal arose from the judgment and order dated June 26, 1957, of the Bombay High Court in Appeal No. 92 of 1956. Counsel for the appellants comprised J. C. Bhatt, S. N. Andley, J. B. Dadachanji, Rameshuar Nath and P. L. Vohra. Counsel for the respondent was R. Ganapathy Iyer and D. Gupta. The judgment was rendered on February 16, 1961, and the opinions of Judges Gajendragadkar, Subba Rao, Wanchoo and Mudholkar were delivered, with Judge Wanchoo authoring the main opinion and Judge Sarkar delivering a separate opinion.

Judge Wanchoo noted that this appeal, which had been granted a certificate by the High Court of Bombay, raised the constitutional validity of section 114(2) of the Bombay Industrial Relations Act, No. XI of 1947 (hereinafter referred to as the Act). The essential facts necessary for the Court’s consideration were as follows. The appellant was a cotton textile mill situated in Bombay. The mill had reportedly incurred continuous losses during each year from 1950 to 1955. Despite these losses, references under section 73‑A of the Act were made by the Rashtriya Mill Mazdoor Sangh, Bombay, concerning disputes over bonus payments for the years 1952 and 1953. Those references were pending before the Industrial Court, Bombay. The mill argued before the Industrial Court that, because it had sustained losses, there was no obligation to pay any bonus for the disputed years. At the same time, other mills also had bonus disputes before the same court, and the appellant requested that its matter be heard separately; the court acceded to that request.

While the references were still pending, an agreement was reached between the Mill‑Owners’ Association, Bombay, and the Rashtriya Mill Mazdoor Sangh, Bombay, covering the payment of bonuses for the years 1952 to 1957. The agreement stipulated that it would become effective for each mill when signed by that mill as a member of the Mill‑Owners’ Association. Clause 6 of the agreement provided that a bonus would be payable even if a mill’s profit was insufficient to meet all prior charges, following the Full Bench formula developed by the Labour Appellate Tribunal in The Mill‑Owners’ Association, Bombay v. The Rashtriya Mill Mazdoor Sangh. The clause further stated that even where a mill incurred an actual loss, a minimum bonus of four to eight per cent of the basic wages earned during the year would be payable. The mill was entitled to adjust the amount paid as the minimum bonus against any surplus that might arise in later years, in accordance with the provisions of the agreement.

The agreement was subsequently registered and made enforceable as an award against those mills that were parties to it. However, the appellant mill did not sign the agreement, and consequently the award was not enforced against the appellant.

The Rashtriya Mill Mazdoor Sangh subsequently wrote to the Government of Bombay requesting that the award, referred to in the citation [1930] 2 L.L.J. 1247, be enforced against the appellant by using the authority granted to the Government under section 114(2) of the Industrial Disputes Act. After completing the procedural steps prescribed in section 114(2), the Government of Bombay issued a formal notification dated 31 July 1956. That notification directed that the award rendered by the Industrial Court on 13 March 1956—an award that required payment of bonus for the fiscal years 1952‑1953 and also for the period 1954‑1957—be enforced against the appellant. In response, the appellant filed a writ petition before the High Court challenging both the constitutionality of section 114(2) and the State Government’s power to issue such a notification under that provision. The High Court dismissed the petition on 9 October 1956. The appellant then appealed this decision to a Division Bench of the same High Court, but the appeal was likewise rejected. Seeking further recourse, the appellant applied for a certificate authorising an appeal to the Supreme Court; that certificate was granted, and consequently the matter now stands before this Court.

Before this Court, the appellant raised two principal arguments. First, it contended that section 114(2) is unconstitutional because it infringes the fundamental freedoms guaranteed under Article 19(1)(f) and Article 19(1)(g) of the Constitution. Second, the appellant argued that even assuming the provision is constitutionally valid, the Government’s notification exceeds the authority conferred by section 114(2) and must therefore be declared void. The Court considered that it was unnecessary to decide the first question of constitutionality, having concluded that the notification itself is invalid for transgressing the limits of the Government’s power under the statute. Consequently, the analysis focused on the second contention, requiring an examination of the scope of the State Government’s authority under section 114(2). The statute reads: “In cases in which a Representative Union is a party to a registered agreement, or a settlement, submission or award, the State Government may, after giving the parties affected an opportunity of being heard, by notification in the Official Gazette, direct that such agreement, settlement, submission or award shall be binding upon such other employers and employees in such industry or occupation in that local area as may be specified in the notification: Provided that before giving a direction under this section the State Government may, in such cases as it deems fit, make a reference to the Industrial Court for its opinion.” At first glance, the language appears broad, seemingly allowing any such instrument to be extended wherever it fulfills its terms. However, a deeper consideration reveals that the provision is subject to two important limitations, which must be applied to determine whether the specific notification issued in this case was within the permissible scope of the Government’s statutory power.

In this case, the Court observed that the power of the State Government under section 114(2) was subject to two clear limitations. The first limitation derived from the subject‑matter of the agreement, settlement, submission or award that was sought to be extended. For example, if an agreement dealt with wages of a particular class of workmen employed in a certain mill, the same agreement could not be extended to another mill where that class of workmen did not exist, because the subject‑matter would not be applicable. Hence the State’s authority was confined by the nature of the matter covered by the instrument it intended to promulgate. The second limitation arose from the existing law. The proviso to section 114(2) empowered the Government to refer the proposed extension to the Industrial Court for its opinion before issuing a direction. The Court noted that an Industrial Court could not, and would not, advise anything that contravened the law. Section 95‑A made the determination of any question of law by the Full Bench of the Industrial Court binding on all proceedings under the Act. Since a direction under section 114(2) constituted a proceeding under the Act after notice to the parties, the State Government was bound by any legal ruling issued by the Full Bench. The policy underlying section 95‑A therefore required that the exercise of the power conferred by section 114(2) be consistent with the industrial law laid down by the Full Bench of the Industrial Court and by any decision of this Court. Consequently, when the State Government issued an order under section 114(2), it had to respect the law as established by the legislature and by judicial decisions, and it could not issue an order that was contrary to that law. Moreover, section 114(2) placed a registered agreement, a settlement, a submission and an award on the same footing, so that any award had to comply with section 95‑A, and the same compliance was required of the other three instruments. Thus, the Court concluded that the State Government, acting under section 114(2), could only do what a labour court, an Industrial Court or a wage board could lawfully do under the Act. It could not act beyond the limits set by the legislation or by this Court’s jurisprudence. Section 114(2) therefore functioned as a speedy remedy, dispensing with the usual appeals, by allowing the State Government to direct that terms and conditions of employment concerning wages, hours of work and related matters be uniform in a particular industry or occupation within a designated area, provided that such direction was consistent with what an adjudicator could lawfully award.

In this case the Court observed that the State Government, acting under section 114(2), could not exercise any power that an adjudicator under the Act was forbidden to exercise. Consequently, the Court read section 114(2) to mean that the authority of the State Government to issue a direction was limited to the same scope that a labour court, an Industrial Court or a wage board possessed when making an award, and the State Government could not do anything that such an adjudicator could not do under the statutory scheme. Having clarified the extent of the State Government’s power, the Court then examined whether the notification that was being challenged fell within that limited authority. By the impugned notification the State Government had directed that the award dated 13 March 1956, which had been made by the Industrial Court, should be binding on the appellant and on its employees for the purpose of paying bonus for the years 1952 through 1957 inclusive. The Court noted that there was no dispute that the said award derived from an agreement between the Mill‑owners’ Association, Bombay and the Rashtriya Mill Mazdoor Sangh, Bombay. That agreement stipulated that it would become binding on a mill only after the mill, as a member of the Mill‑owners’ Association, had signed it; the Court further noted that although the appellant‑mill was a member of the Association, it had never signed the agreement. Moreover, clause 6 of the agreement provided that a minimum bonus must be paid even in situations where the mill did not generate sufficient profit to meet all prior charges according to the Full‑Bench formula, and even where the mill incurred an actual loss for the year, subject to a proviso concerning adjustment. By issuing the notification, the State Government therefore compelled the appellant to pay a bonus notwithstanding that the appellant had not earned enough profit to meet prior charges or had actually suffered a loss. The appellant argued that an Industrial Court did not have the jurisdiction to award a bonus when profit was insufficient to meet all prior charges or when there was a loss, and consequently the notification, by making such a bonus payable in those circumstances—where the appellant allegedly incurred losses up to 1955—directed a result that an Industrial Court could not have ordered. On that basis the appellant contended that the notification exceeded the powers granted to the State Government under section 114(2) because it permitted an action that an Industrial Court was powerless to permit. The appellant relied on the Court’s earlier decision in The New Manekchowk Spinning Co. Ltd. and Others v. The Textile Labour Association to support this argument.

In that case the Court was considering a similar agreement relating to Ahmedabad. The Industrial Court had imposed that agreement after its expiry for one year on the mills despite the mills’ contention that they were not bound to pay any bonus for the years in dispute, relying on the law laid down by the Court in The Associated Cement Companies, Limited v. The Workmen. After examining the terms of the agreement then in dispute the Court concluded that, in view of the law laid down in The Associated Cement Companies case, the Industrial Court had no jurisdiction to impose that agreement on the mills. It further held that an agreement of that kind could continue only by the consent of the parties and could not be enforced by industrial adjudication against the will of any party. The agreement in the present case that the impugned notification seeks to enforce is similar in terms, and as held in New Manekchowk’s case it could not be enforced by industrial adjudication against the will of any party. The power of the State Government under section 114(2) is co‑terminus with the power of an adjudicator under the Act; therefore such an agreement cannot be directed to be enforced against the will of the appellant even under section 114(2), because by doing so the State Government would exceed the powers conferred on it by that section. Consequently the impugned notification must be held to be invalid insofar as it exceeds the powers of the State Government under section 114(2) and must be struck down. The appeal was allowed with costs and the order of the High Court set aside. The notification dated 31 July 1956 was held to be beyond the powers of the State Government under section 114(2) and was directed not to be enforced. However, it was made clear that this decision would not prejudice the trial of any references concerning bonus that may be pending or may be made in the future between the appellant and its employees for the years 1952 to 1957 inclusive. If such references are pending or are thereafter made, they will be decided in accordance with the decision of the Court in The Associated Cement Companies case. SARKAR, J. observed that the appeal arose from an application made by the appellants to the High Court at Bombay under article 226 of the Constitution for a writ directing the State of Bombay to refrain from acting upon or enforcing a certain notification issued by it under section 114(2) of the Bombay Industrial Relations Act, 1946. The order was sought on two grounds. The first ground was that section 114(2) was ultra vires, illegal and void. The second ground was that, if it was not so, the notification had been issued in an improper exercise of the powers conferred by that provision.

In this case the Court noted that the order under review had been issued in an improper exercise of the powers conferred by the relevant provision. The appellants were identified as a cotton textile mill situated in Greater Bombay, together with the mill’s directors and shareholders, all of whom fell within the territorial scope of the Act. Their petition to the High Court seeking a writ of prohibition was dismissed, which gave rise to the present appeal before this Court. The record showed that certain industrial references had been pending under the Act since 1953 and 1954 in the Industrial Court. These references involved various cotton textile mills in Greater Bombay and their employees and concerned disputes over the payment of bonus for the years 1952 and 1953. In each of those references the employees were represented by the Rashtriya Mill Mazdoor Sangh, a representative union of workers in the cotton textile industry as defined by the Act and a union duly registered under the Act. The appellant mill itself was a party to those references.

On 1 March 1956, while the references were still pending, the Rashtriya Mill Mazdoor Sangh entered into an agreement with the Mill Owners Association, Bombay. The Association comprised forty‑seven cotton textile mills, including the appellant mill, and the agreement dealt with the bonus to be paid to the employees of the member mills for the years 1952 to 1957. Subsequently about forty‑two of the mills that were members of the Association and parties to the references accepted the agreement individually, and the acceptance made the agreement binding upon those mills. The agreement was later registered under the Act and filed in the pending references. Accordingly, the Industrial Court made an award on 13 March 1956 under the terms of the agreement, binding the mills that had accepted it and their employees. The appellant mill, however, did not accept the agreement; consequently no award was made in the references involving the appellant mill and the references concerning that mill remained unresolved.

On 31 July 1956 the respondent Government of Bombay issued an order that is the subject of this challenge. The order read, in substance, that the Rashtriya Mill Mazdoor Sangh was a party to the award dated 13 March 1956, and that the Government considered the award should be made binding upon the employers listed in column 1 of the annexed schedule and upon their employees. It further stated that the employers and the union, being the affected parties, had been heard. Exercising the powers conferred by sub‑section (2) of section 114 of the Act, the Government directed that the award shall be binding on the employers specified in column 1 of the schedule and on their employees for the payment of bonus for the years indicated opposite those employers in column 2 of the schedule. The appellant mill was one of the employers named in the schedule, and the schedule expressly provided that the award would be binding on the appellant mill and its employees for the entire period from 1952 to 1957, inclusive. As a result of this notification, the appellant mill became liable under the terms of the award, even though it had not been a party to the agreement on which the award was based.

The notification made the appellant mill liable to pay bonus to its employees for the years specified, relying on an award that was based on an agreement to which the mill was not a party. The appellants argue that, according to the law laid down in Muir Mills Co. Ltd. v. Suti Mills Mazdoor Union and the Full Bench decision of the Labour Appellate Tribunal in Mill Owners’ Association, Bombay v. Rashtreeya Mills Mazdoor Sangh, the mill cannot be required to pay a bonus because it did not earn any profit during the period from 30 June 1950 to 30 June 1955. The agreement on which the award was founded employed a formula for determining the surplus of an employer’s profits and provided for the payment of a certain bonus out of that surplus. The Court noted that the bonus calculated under this formula would have been smaller than the bonus prescribed in the earlier cases. The appellants do not object to this part of the agreement, apparently because under it they would owe no bonus at all. Their objection is directed at clause 6 of the agreement. Clause 6 essentially provides that where the surplus calculated by the formula is nil, or where the mill suffers a loss in a particular year, the mill must nevertheless pay its workers a minimum bonus equal to 4.8 per cent of the basic wages earned by them during that year. The clause further permits the mill to recover the amount of the minimum bonus from future bonuses payable under the agreement or from any remaining surplus profits that may later arise. Consequently, the appellants’ main grievance against the notification is that it forces the mill to pay a bonus pursuant to clause 6 even though the mill has been operating at a loss. The first issue before the Court is whether section 114(2) of the relevant Act is invalid or illegal. For the purposes of this dispute, the provision reads as follows: “Section 114(1) – A registered agreement, settlement, submission or award shall be binding upon all persons who are parties thereto. (2) In cases in which a Representative Union is a party to a registered agreement, settlement, submission or award, the State Government may, after giving the parties affected an opportunity of being heard, by notification in the Official Gazette, direct that such agreement, settlement, submission or award shall be binding on such other employers or employees in such industry or occupation in that local area as may be specified in the notification.” The appellants initially challenge the validity of this section on the ground that it contravenes Article 14 of the Constitution. They contend that it gives the State Government an unchecked and arbitrary power to discriminate among different sets of employers and employees, allowing it to impose obligations on one group while excluding others.

The Court observed that the argument that the provision allows the State Government to issue an order for one group of employers and employees while excluding others, thereby exercising an unfettered and arbitrary discretion, was not well founded. In the Court’s view the authority conferred by the provision is not uncontrolled. The primary purpose of the Act, as the Court noted, is to settle industrial disputes and to achieve industrial peace. Moreover, the provision limits the order to employers and employees who are situated within a specified local area, which further restrains the scope of the power. The Court explained that a “local area” is an area that has been notified for the purposes of the Act, referring to section 2(23). The rationale for designating local areas, according to the Court, is to divide the State into several zones so that industrial peace can be better maintained, and to group together within each zone the industries that operate there. When labour conditions are uniform across a locality that contains a large concentration of workmen, the likelihood of disaffection among them is reduced; conversely, where conditions vary, the workmen are more prone to become restless. The Court emphasized that regional considerations are closely linked to industrial disputes and are significant for their resolution. Regarding section 114(2), the Court held that the “local area” referred to is plainly the area in which the Representative Union mentioned in the provision has been registered; the provision contains no reference to any other locality. Under section 2(33) a Representative Union means a union that is registered as such under the Act, and under section 13(1) a Representative Union is defined as a union whose membership comprises at least fifteen per cent of the employees in any industry within any local area and that is registered for that industry in that area. Consequently, the agreement, settlement, submission or award contemplated by the provision must be one to which a Representative Union is a party. From this the Court inferred that a substantial body of workmen in the specified locality has either reached a decision or become bound by an award on matters that affect them. Accordingly, the power under the section may be exercised solely for the purpose of attaining industrial peace in that particular area. The Court observed that it is not unlikely that, when a sizable segment of workmen in a locality secures certain rights, other employees in the same locality may claim comparable rights, a situation that could disturb industrial peace there. The statutory power may therefore be invoked only to address such disturbances and only within the locality where the disturbance arises. The Court distilled two guiding principles: first, the power may be exercised only to prevent a breach of industrial peace; second, it may be exercised only in a specifically identified area when a threat to industrial peace exists in that area. An exercise of the power beyond the designated area or for purposes other than preserving industrial peace would exceed the scope of the section. The Court further noted that once a legitimate occasion for the exercise of the power arises and the power is employed, it

In this case the Court observed that where a threat to industrial peace existed in a particular locality, the power conferred by the section had to be exercised in every unit of the industry located in that same locality if doing so would restore peace. The Court said that the Judiciary could intervene to rectify any discriminatory application of the power or any use that extended beyond the limits set by the statute. Consequently, the Court concluded that the provision did not grant an unregulated or arbitrary authority. It noted with interest that, in the facts before it, there was no evidence of discriminatory exercise of the power nor any exercise that fell outside the statutory scope. The respondent had made the award binding on all the remaining mills that had not accepted the agreement, and there was proof that a threat to industrial peace existed in those mills. The Court further held that the power was vested in the highest authority, namely the Government itself, which provided an additional safeguard that the power would be exercised properly. This, the Court said, reinforced the view that the section did not confer an absolute or arbitrary power. The next objection raised was that the provision infringed Article 19(1)(g) because it imposed an unreasonable restriction on a person’s right to carry on a business. The Court rejected this contention, acknowledging that the provision indeed placed certain restrictions on the right to carry on an occupation or business, but emphasized that the true issue was whether those restrictions served the public interest and were reasonable. The Court found that the restrictions were unquestionably in the public interest, since they were intended to prevent disturbance of industrial peace, a matter of concern to the entire nation. Regarding reasonableness, the Court held that the restrictions were reasonable. The restriction required that an agreement, settlement, award or submission—each relating to an industrial dispute in which the person was not a party—be made binding on that person. The Court explained that an “agreement” arises when the parties to an industrial dispute settle the dispute themselves; a “settlement” results from a conciliator’s assistance during conciliation proceedings under the Act; a “submission” refers to the referral of an industrial dispute to arbitration; and an “award” is the adjudication of an industrial dispute by a court established under the Act. All of these mechanisms stem from the free consent of the parties to the dispute. The Court stressed that the section applied only to an agreement, settlement or submission to which a Representative Union—defined as a union representing a substantial number of workmen—was a party. Accordingly, the section could be invoked only where a substantial number of workmen and an employer, of their own free choice, had accepted such an agreement, settlement or submission. Thus, the Court concluded that the restrictions imposed by the provision were reasonable and fell within the intended scope of the legislation.

In the judgment, the Court observed that an agreement, settlement or submission is regarded as reasonable when it is accepted by the parties concerned, and, in the case of a settlement, also when it is approved by the conciliator appointed under the Act. Consequently, any restrictions that arise out of such an agreement, settlement or submission must themselves be reasonable. By contrast, an award is a decision rendered by a court, and therefore it can always be presumed to be reasonable. The Court reasoned that if particular restrictions are reasonable for one employer and his employees, the same restrictions should be considered reasonable for other employers and their employees, especially when all the parties operate in the same locality where economic conditions are similar. On this basis, the Court concluded that the restrictions imposed by section 114(2) could not be characterized as unreasonable. The Court recalled that it had earlier summarized the contested portion of the agreement and stated that no element of that portion appeared unreasonable. Under the agreement, the employer was required to contribute only 4.8 percent of the basic wage in a year in which the employer earned no profit, with the right to recover that amount in a later, more profitable year. In the most favourable year, the maximum bonus the employer would have to pay, according to the Court’s understanding, was less than the bonus that would be payable under the formula for bonus established by this Court. The agreement was to remain in force for six years, and it was not unreasonable to assume that profits might be earned during those years sufficient to offset the minimum bonus paid in a lean year. Accordingly, the Court held that the restrictions imposed by the agreement were quite reasonable. While acknowledging that, in a few individual cases, the restrictions might cause hardship, the Court rejected the proposition that section 114(2) itself imposes unreasonable limits on a person’s right to carry on business or occupation. The Court cited its earlier decision in Bijay Cotton Mills v. State of Ajmer, where it had held, with reference to the Minimum Wages Act, 1948, that “individual employers might find it difficult to carry on the business on the basis of the minimum wages fixed under the Act but this must be due entirely to the economic conditions of these particular employers. That cannot be a reason for striking down the law itself as unreasonable.” The Court then addressed another ground of challenge, namely that the provision prevented a party from having an industrial dispute resolved by an Industrial Court under the Act. The Court stated that there is no inherent right for a party to an industrial dispute to demand adjudication by an Industrial Court; rather, the right to seek such adjudication is created by the Act itself. Accordingly, the Act may lawfully limit or withdraw that right in any manner it deems appropriate, and the provisions of the Act must be read together when determining the scope of the powers conferred by section 114(2).

Section 114(2) had been exercised, and consequently the right to ask for an adjudication by an Industrial Court must be regarded as either taken away or ineffective. The Court therefore concluded that the section was not invalid for any of the reasons that had been raised. The Court also expressed no doubt that the section fell well within the legislative competence of the legislature that had enacted it. The Court did not understand the argument advanced by counsel for the appellants that the section exceeded legislative authority. The mention of legislative competence was made primarily to dispose of another argument that was also aimed at the validity of the section. That argument asserted that there was no power anywhere to provide for the payment of a bonus where, according to law, such a bonus was not payable. The argument relied on the decision of this Court in the Muir Mills case (1) where it was held that no bonus is payable where no profit has been made. On the basis of that decision it was claimed that the section authorized the payment of a bonus in circumstances where no bonus would be payable under law. The Court found this contention to be mistaken. If the section is legislatively competent and otherwise valid, as the Court believes it to be, it cannot be rendered invalid merely because it directs the payment of a bonus at a time when, as this Court has adjudicated, no bonus would be payable under law. The law laid down by this Court applies only when the question is raised before a court that is bound by that law; it has no bearing on the determination of the validity of a law that is otherwise within legislative competence. No judicial decision can divest a legislature of its competence. The enactment in question, cited as (1) [1955] 1 S.C.R. 991, therefore leaves the law laid down by this Court unaffected, and that law will continue to apply in all cases to which it is relevant.

The Court then turned to the question of the validity of the notification. According to the understanding of counsel for the appellants, two grounds were raised. The first ground asserted that the notification was invalid because it was issued while a reference was pending before an Industrial Court, and that such issuance deprived that Court of jurisdiction to decide the pending reference. The Court held that the earlier discussion already provided a sufficient answer to this contention. The right to have the pending reference proceed was granted by the Act itself, and nothing prevents that Act or any other provision from providing that the pending reference shall be discontinued or become ineffective. If a notification could be made under the section, as the present argument assumes, then the timing of such a notification would necessarily depend on the terms of the statute. The Court found no provision in the Act that prohibited a notification from being made while a reference was pending, thereby rendering the reference abortive. Consequently, the Court concluded that no exception could be taken to the

The Court observed that the first ground of challenge to the notification – that it was issued while the reference was pending – had already been addressed and therefore did not merit further consideration. The second ground of challenge, which had not been raised before the High Court, relied on section 95A of the Industrial Disputes Act. That provision reads: “The determination of any question of law in any order, decision, award or declaration passed or made by the Full Bench of the Industrial Court, constituted under the regulations made under section 92, shall be recognised as binding and shall be followed in all proceedings under this Act.” The argument advanced by the petitioners was that, by issuing a notification under section 114(2), the Government was bound by the Full Bench’s decision that an employer could not be required to pay a bonus when no profit had been earned, and that the present notification ignored that decision and was therefore invalid. The Court declined to accept this argument. Assuming, for the sake of argument, that such a Full Bench decision existed, the Court noted that the effect of the notification was indeed to compel the appellant mill to pay a bonus for a year in which it had made no profit. Nevertheless, the Court held that this fact did not alter the legal analysis. While section 114(2) obliges the Government, before issuing a notification, to give a hearing to the parties who are to be affected, the issuance of a notification does not amount to a “proceeding” within the meaning of section 95A. Section 95A merely makes the determination of a question of law by the Full Bench binding in certain proceedings, and such binding effect arises only when the same question of law is raised in another proceeding. The Court explained that the question posed when a notification is contemplated under section 114(2) is whether it is necessary, for preserving industrial peace in a locality, to make an agreement, settlement, submission or award binding on persons who are not parties to it. This is a policy question, not a question of law, and therefore could never have been decided by the Full Bench. Consequently, no situation arises in which the Government must be bound by a Full Bench determination when contemplating a notification under section 114(2). Even if the result of the notification creates a liability, such as the obligation to pay a bonus, and even if the Full Bench has previously decided the legal question of liability, that does not transform the question under section 114(2) into a legal question about the permissibility of the bonus itself.

The Court further analysed the scope of section 95A, noting that it lies in Chapter XIII of the Act, which deals with Industrial Courts. The provisions of that chapter indicate that the Industrial Court is the highest court contemplated by the legislation, and that, under section 92, the Court may sit in benches comprising more than one member when important or difficult questions arise. Section 95A was therefore enacted to ensure that other courts or tribunals exercising powers under the Act would follow Full Bench decisions, promoting uniformity of law. The Court concluded that the purpose of section 95A was not to apply to the issuance of a notification under section 114(2). Accordingly, when the Government considers issuing a notification under section 114(2), the requirements of section 95A do not arise, because the matter does not involve a proceeding that raises a legal question for determination by the Full Bench. Thus, the notification issued in the present case cannot be struck down on the ground that it contravenes section 95A. The Court accordingly held that the notification remained valid and enforceable despite the arguments presented.

In this case, the Court observed that section 114(2) does not envisage a proceeding of the type described in section 95A. The Court noted that section 95A is placed in Chapter XIII of the Act, a chapter that deals with Industrial Courts. From the provisions of that chapter, the Court inferred that the Industrial Court is the highest court contemplated by the Act, and that under section 92 the Court may, by its own regulations, sit in benches consisting of more than one member. This arrangement is clearly intended for situations where a question of great importance or difficulty arises, so that a larger bench can hear it. Consequently, the Court concluded that section 95A was enacted to require other courts operating under the Act to follow the decisions of a Full Bench, thereby ensuring uniformity of law. It was not intended to apply to the question of a notification made under section 114(2). The Court further reasoned that if the Government, while issuing a notification under section 114(2), were bound by the decisions of a Full Bench, then the purpose of section 114(2) would be almost entirely defeated. The Court explained that the issue of whether, in view of section 95A, the Government must follow Full Bench decisions when issuing a notification under section 114(2) can arise only if section 114(2) itself is valid. If section 114(2) is valid, an interpretation of section 95A that renders it ineffective cannot be correct, because the provisions of a statute must be read so as not to nullify each other. To illustrate the point, the Court referred to a hypothetical agreement concerning bonus between an employer, designated as employer A, and his employees. The Court emphasized that there is no rule in law that prevents an employer and his employees from agreeing on any method of calculating or paying bonus, even if the employer has not made any profit. Such an agreement would be perfectly valid. In the present case, the agreement that was the subject of the dispute was of this type. No submission was made that the agreement was invalid. Moreover, the fact that the agreement was filed in the pending references and that an award was made pursuant to it confirms that the agreement was beyond doubt valid, because an award could be made only in accordance with section 115A and only if the agreement was valid in every respect. The Act therefore contemplates agreements of this nature. The Court then considered the argument of counsel for the appellants, which contended that the agreement could not be made binding on the persons referred to as B and his employees. The Court rejected this argument on two grounds. First, section 114(2) does not state that an agreement covered by it must comply with every decision of the Full Bench, and there is no justification for inserting words such as “provided it is in compliance with decisions of the Full Bench” into the phrase “agreement” in section 114(2). Second, the Court observed that common experience shows that when disputants settle their disputes by an agreement, they rarely, if ever, frame the agreement strictly in terms of the legal rights laid down by the Full Bench; instead, they compromise and adjust matters in their own way.

In situations where disputing parties settle their differences by mutual agreement, they seldom frame the settlement strictly according to the legal rights that may exist, because they typically negotiate and compromise in a manner that reflects practical considerations rather than pure legal theory. Consequently, instances in which the parties craft an agreement that follows precisely the law articulated by the Full Bench are extremely uncommon. If the appellants’ contention were correct, then practically no agreement would fall within the scope of section 114(2) of the Act.

The law that the Full Bench is capable of laying down concerning the right to a bonus is limited to broad principles that specify when a bonus becomes payable and, if it is payable, the method by which the amount should be calculated. This approach was adopted by this Court in the Muir Mills case and in the subsequent cases dealing with bonus matters. The actual award of a bonus by the Full Bench, based on the facts of the particular case before it, does not constitute a determination of a question of law but rather an application of those general principles to the specific circumstances.

Assume, for illustration, that the agreement between employer A and his employees complies with the Full Bench decision. Such an agreement would necessarily state that a bonus of a specified amount will be paid in particular years. It is difficult to imagine a post‑Full Bench agreement concerning bonus that refrains from specifying the bonus amount and instead only provides a formula for calculation, because the formula itself is already contained in the Full Bench decision and need not be restated. An agreement that merely restates the formula would still be regarded as being in compliance with the Full Bench decision. For example, the agreement might provide that a bonus equal to one month’s wages, expressed as a percentage of salary, shall be paid.

If the argument is that this agreement can become binding on employer B and his employees only when, as a result, B is not required to pay more than what the Full Bench decision itself would obligate him to pay, then the agreement could bind B only in the narrow situation where the figures used to compute the bonus—such as income, expenses, rehabilitation costs and other relevant data—are exactly the same for B as they were for A. Any deviation in those figures could make a one‑month‑wage bonus excessive for B under the Full Bench principle, even though it might be appropriate for A. Such exact identity of financial particulars is practically impossible to achieve. It is therefore important to note that section 114(2) allows only the agreement as originally made to be extended to bind others; the provision does not confer any power to modify the agreement in order to make it binding on additional parties.

It was observed that the law does not permit any alteration of an agreement and then attempt to make such altered instrument binding. The considerations previously expressed with respect to agreements were held to apply in exactly the same way to settlements. Consequently, almost every settlement that was concluded in accordance with the Full Bench decision would also fall outside the operation of section 114(2). The discussion then moved to the question of an award. An award is understood to be a decision rendered by a court when it adjudicates an industrial dispute under the Act. The Court noted that an award which is derived from an agreement cannot, in substance, be treated as an agreement, and the issues concerning agreements had already been addressed. Accordingly, the focus was placed on an award that is issued as a matter of adjudication. It was presumed that such an award would be made pursuant to the law as articulated by the Full Bench, because the Full Bench’s decision would bind the court issuing the award in view of section 95A. As with agreements, the Court explained that an award would only determine the amount of bonus to be paid where the dispute concerned bonus; it would not lay down any new general principle for calculating bonus, since those principles were already established by the Full Bench. For the same reason, if the appellants’ argument were accepted, an award could bind employers who are not parties to the award only when the relevant figures applicable to both employers – the one who is a party to the award and the other on whom the award is to be made binding – are exactly the same. The Court expressed the view that such a perfect identity of figures would never arise in practice.

Turning to the issue of submissions, the Court found that section 95A could not be said to have any application. Submissions are defined by section 66 of the Act, which essentially provides that any employer and a representative union may, by a written agreement, agree to submit any present or future industrial dispute to arbitration; such an agreement is termed a submission. The Court observed that it is not conceivable that the Full Bench could ever have decided whether a particular submission should be made, because the making of a submission does not involve any question of law and is limited to industrial disputes. Section 66 simply confers upon the parties the right to enter into a submission. Therefore, when a submission entered into by employer A and his employees is sought to be made binding on employer B and his employees, there is no question of compliance with any Full Bench decision. The Court concluded that if a notification under section 114(2) could be issued only when its effect does not produce a result inconsistent with Full Bench decisions, then section 114(2) would become essentially ineffective. Moreover, the Court noted that requiring the Government to follow Full Bench decisions when issuing such a notification would create further difficulties.

The Court observed that if a notification under section 114(2) were issued, the matter would effectively become an adjudication, with the Government stepping into the role traditionally performed by the Industrial Court; consequently, the same legal questions that would arise before an Industrial Court would reappear. The Court could not accept the proposition that the legislative intent was to transform the Government itself into an Industrial Court. It further noted that where an adjudication by a court was required, the Industrial Court already existed, and therefore there was no justification for assigning the duty of adjudication to the Government. For these reasons, the Court concluded that the issuance of a notification under section 114(2) did not raise any issue of compliance with any Full Bench decision, and that the notification process was not a proceeding contemplated by section 95A.

Finally, the Court addressed the allegation that the notification had been issued mala fide in order to circumvent the decision rendered in the Muir Mills case (1). The Court acknowledged that one of the motivations of the Rashtriya Mill Mazdoor Sangh in seeking the notification was to discover “a way out of the situation arising as a result of the decision of the Supreme Court in Muir Mills case (1).” However, the Court was unable to agree that this motivation rendered the notification mala fide. The Court accepted that the Sangh’s belief that the Supreme Court decision had not benefited the industry or the workmen was a genuine and honest feeling, and it found no legal basis to deem the act of seeking a permissible statutory remedy— even if the result was to achieve an outcome contrary to the earlier judgment— as mala fide. The Act expressly authorises and envisages a notification that may produce a result differing from a Supreme Court decision, and there was no evidence of misuse of the Act.

Regarding the specific context of bonus payments, the Court explained that a notification under section 114(2) would almost invariably permit a course of action that the rule established in Muir Mills case (1) prohibited. Accordingly, a duly issued notification could not be characterized as mala fide. On this basis, the Court held that the Act was not invalid, that the notification dated 31 July 1956 was proper and could not be set aside, and that the appeal should be dismissed with costs. By the judgment of the Court, in line with the majority opinion, the order of the High Court was set aside, the appeal was allowed with costs, and the decision was affirmed.