Management Of Bombay Co. Ltd vs Workmen

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 583 of 1963

Decision Date: 25 March 1964

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

In this matter the Supreme Court of India rendered its judgment on twenty‑five March 1964. The case was titled Management of Bombay Co. Ltd. versus Workmen and was decided by a bench consisting of Justice K. N. Wanchoo, Chief Justice P. B. Gajendragadkar and Justice K. C. Das Gupta. The petitioner was the management of Bombay Co. Ltd. and the respondents were the workmen employed by the company. The judgment is reported in the 1964 All India Reporter at page 1770 and in the 1964 Supreme Court Reporter (Special) at page 477, and it has been subsequently cited in later authorities such as the 1969 Supreme Court Reporter and the 1976 Supreme Court Reporter. The case concerned the application of the Industrial Disputes Act in relation to the payment of a Christmas bonus that the parties alleged was an implied term of their employment contract.

The dispute arose because the workmen claimed that they were entitled to a bonus for the financial years 1957‑58 and 1958‑59. They argued that the payment of a bonus at Christmas had become an implied condition of service, and they sought an amount equal to one and a half months’ wages for each year on that basis. The industrial tribunal, after referring to the earlier decision of this Court in M/s Ispahani Ltd. v. Ispahani Employees’ Union, held that an implied condition of service existed requiring the employer to pay a bonus of one and a half months’ salary each Christmas. The tribunal’s award was subsequently challenged before this Court. The Court examined two principal issues. First, it considered whether a bonus that is connected with a festival can be inferred as an implied condition of service even if the amount paid in previous years was not uniform. The Court observed that, although the payments in earlier years varied, the fact that at least one month’s salary was retained by the workmen as a Christmas bonus established an implied term that something would be paid annually around the Christmas festival. The Court therefore rejected the tribunal’s finding that an implied condition could exist where the bonus was unconnected with any festival, and it affirmed the relevance of the Ispahani case. Second, the Court addressed the situation where the bonus is paid at varying times and without a uniform rate. It held that the Court’s role was to link such payments to a recognized festival, which in this case was Christmas. Evidence showed that a minimum of one month’s salary had indeed been paid as a Christmas bonus in the years 1951‑52 and 1953‑54, establishing that the customary practice was to provide at least one month’s wages as a festival bonus.

In this case, the Court noted that the Christmas bonus had been established as an implied condition of service between the appellant and its workmen based on the facts admitted. The matter before the Court was a civil appeal, number 583 of 1963, filed by special leave against the award dated June 18, 1962, rendered by the Industrial Tribunal at Ernakulam in Industrial Dispute number 38 of 1960. The appellant was represented by counsel, while the respondents were represented by counsel, and the judgment was delivered on March 25, 1964. The appeal concerned a disagreement over the payment of bonus for the financial years 1957‑58 and 1958‑59, which the Industrial Tribunal had been asked to resolve. The workmen claimed bonus on two separate bases: first, on the ground that a profit‑sharing bonus was owed because the appellant had earned profits; second, on the ground that a customary bonus paid at Christmas had become an implied term of their employment. The profit‑bonus claim sought an amount equivalent to four months’ wages for each of the two years, while the alternative claim sought eleven‑half months’ wages for each year on the basis of the alleged implied term. It was also established that the appellant had already paid two months’ basic salary as bonus for 1957‑58 and one month’s basic salary as bonus for 1958‑59. The appellant argued that, applying the Full Bench formula, there was no surplus profit in either year, and consequently no profit‑bonus could be awarded; it further contended that no bonus was owed under any implied term of service. The Industrial Tribunal applied the Full Bench formula, found that no surplus existed for either year, and therefore concluded that no profit‑bonus was payable. Turning to the implied‑condition issue, the Tribunal relied on the Supreme Court’s decision in Messrs Ispahani Ltd. v. Ispahani Employees’ Union, holding that a bonus of eleven‑half months’ salary could be treated as an implied condition of service. Based on that precedent, the Tribunal ordered the appellant to pay the balance of the eleven‑half months’ salary, after deducting the one month already paid as bonus. The appellant raised two principal objections to the Tribunal’s award: first, that the Tribunal erred in deciding that an implied condition of service for a bonus need not be linked to any festival; second, that, on the undisputed facts, the Tribunal was incorrect in finding that a claim for an implied‑condition bonus existed at all, and even if such a claim existed, the rate could not be eleven‑half months’ salary.

The Court turned to the first contention advanced by the appellant and expressed the view that the tribunal had erred in concluding that an implied condition of service could exist for the payment of a bonus when such payment was not linked to any festival. The Court recalled the earlier decision in Ispahani’s case, where the issue before the Court was whether an implied condition of service arose for the payment of a bonus that was customarily given at the time of the puja festival in Bengal. In that earlier case the Court set out the tests to be applied when determining whether an implied condition of service could be inferred for the payment of a bonus in connection with a particular festival. The Court also observed that, to establish an implied condition of service for a festival‑related bonus, it was not essential that the amount paid each year be identical; even in the absence of a uniform rate, an implied agreement to pay could be inferred from the surrounding circumstances. Consequently, when the payment is clearly associated with a festival, the Court may infer that an implied obligation exists to make the payment at the time of that festival, even though the evidence may show that the amount varied from year to year.

However, the Court found it difficult to extend that principle to a situation where the bonus payment had been made entirely without any connection to a festival and where the rates had differed each year. The Court therefore held that the reasoning in Ispahani’s case, which recognised an implied condition of service for a festival‑related bonus, was limited to circumstances in which the payment was evidently linked to a festival. In the present case, the bonus payments had not been uniform over the years, and there was no evidence that they were tied to any festival. The Court therefore concluded that, before an implied term of service to pay a bonus could be inferred, it must first be shown that the payment was associated with a specific festival. In the absence of such a connection, it would be impossible to infer an implied condition of service when the historical payments were irregular. Accordingly, the Court held that the tribunal was wrong in holding that an implied condition of service could be inferred for the payment of a bonus in the present case, where the payments were neither uniform nor linked to any festival. The Court noted, however, that this conclusion on the first contention did not by itself dispose of the entire matter, and the evidence regarding the payment of some bonus would need further consideration.

In this case, it was recorded that the practice of paying a bonus began in the financial year 1945‑46, when the amount varied between the equivalent of one month and three and a half months’ salary for the Cochin branch. The Court noted that the appellant operated additional branches elsewhere in the country, but the findings and discussion were limited strictly to the Cochin branch, and the situation in the other branches was not before the Court. From the year 1946‑47 through 1949‑50 the records showed that a lump‑sum payment had been made each year, although the precise amounts could not be ascertained. The evidence did not establish whether those payments had been made around the Christmas period, and no proof was offered either to confirm or to deny that timing. In the year 1950‑51 it appeared that a bonus equal to one and a half months’ salary had been paid, but again there was no indication that any payment had been made during the Christmas season; the statement only indicated that the bonus was paid at some later time during the year. From the financial year 1951‑52 up to 1958‑59 the records consistently showed that a payment ranging from one month to two months’ salary was made, and that these payments were made about the time of the Christmas festival. Consequently, the Court found that, at least from 1951‑52 onward, the bonus payments were evidently linked to the Christmas celebration, while the earlier years remained uncertain. Nevertheless, the Court observed that there was no evidence to prove that the earlier payments were not connected with Christmas, and that the 1950‑54 payments might also have been made after the festival. Considering the totality of the evidence, the Court concluded that it was feasible to infer that the series of payments starting in 1945‑46 and continuing through 1958‑59 were probably associated with the Christmas festival. This inference was reinforced by the clear pattern from 1951‑52 onward, where payments were regularly made at Christmas, even though on some occasions the amounts were later adjusted by either increasing the payment or reducing it through subsequent salary deductions. Therefore, the Court held that, despite the tribunal’s error in stating that a connection with a festival was unnecessary when the bonus rate was irregular, the respondents had established a case for a bonus that functioned as an implied term of service tied to a festival, subject to the additional consideration raised on the second contention by the appellant. The appellant, however, maintained that the undisputed evidence did not demonstrate a link between the bonus and the Christmas festival. The Court observed that the evidence showed a consistent pattern of payments at least from 1951‑52 during the Christmas period, with later years showing varied payment behavior, including years when nothing additional was paid and years when part of a previously given payment was reclaimed.

In this case, the appellant argued that the sum paid before Christmas, which the evidence established, was only an advance intended for the festival and later adjustable against the workmen’s wages. The record confirmed that when the payment was made, it was indeed described as an advance. For instance, the payment made in December 1953 was labeled an advance, and the accompanying notice explained that it would be treated as an advance against any bonus and, if no bonus were awarded, as an advance against salary. Nevertheless, the evidence demonstrated that this so‑called advance was never fully recovered. On some occasions a larger amount was paid in addition to the December payment; on one occasion nothing further was paid yet the December amount remained unrecovered. On three occasions a portion of the December advance was recovered, but even then at least one month’s salary of the advance always remained with the workmen. Consequently, although the December payment was originally termed an advance, at least one month’s salary of that advance consistently stayed with the employees and was treated as a bonus connected with the Christmas festival. The fact that the payment was initially called an advance does not defeat the conclusion that part of it functioned as a bonus for the Christmas festival. No evidence was presented to show that this amount was paid gratuitously. Regarding an event in April 1954, a notice described an additional bonus as ex‑gratia. The evidence, however, indicated that in the year 1953‑54 one month’s salary was paid in December and, subsequently, an additional half month’s salary was paid, the latter being designated as the ex‑gratia payment. There was no indication that the December payment was ever characterized as ex‑gratia; it was routinely referred to as an advance that the employer claimed could be recovered, although the entirety of it was never reclaimed. Despite the December payment being labeled an advance, the evidence makes clear that part of that advance functioned as a bonus in connection with the Christmas festival. Accordingly, the facts establish that an implicit condition of service existed between the appellant and its workmen, requiring the payment of a festival bonus each year around Christmas. The next issue considered was the minimum amount that must be paid under this implied condition of service. The evidence again showed that, at a minimum, one month’s salary had been paid each year since 1951‑52, although at times a larger sum was paid.

In the present case the evidence showed that a payment equivalent to one month’s salary had been made each Christmas for a long uninterrupted period, which is sufficient to infer the existence of an implied term of service requiring the employer to pay a Christmas bonus of at least one month’s salary. The Court could not accept the tribunal’s conclusion that the minimum Christmas payment was one and a half months’ salary. While it is true that, if the payments made after December over the whole period beginning in 1950‑51 are taken into account, the lowest amount appears to be one and a half months’ salary, the Court noted that the payments were not uniform and therefore must be linked to the Christmas festival to determine the minimum that may be treated as a condition of service. Accordingly, the Court examined only the amounts paid in December to decide the minimum appropriate under the implied term. The Court held that once an implied condition of service is proved, the amount to be paid under that term is a factual question. From the evidence it was clear that the minimum amount actually paid as a Christmas bonus was one month’s salary, which was paid in the financial years 1951‑52 and 1953‑54, although in some other years larger sums were paid and later adjusted. Consequently, the Court affirmed that there was an implied condition of service between the employer and its workmen obliging the employer to pay at least one month’s salary as a Christmas bonus each year. The tribunal’s award of one and a half months’ salary as the minimum therefore had to be modified. The Court further stated that the minimum of one month’s basic salary must be paid even in years when the company suffers a loss. While the employer may pay more than the minimum if its profit situation permits, the Court disagreed with the tribunal’s view that the profit position in the year 1958‑59 justified a payment exceeding the minimum. The records showed that the company actually incurred a loss of eight thousand rupees in that year. Hence, although the tribunal could award a reasonable festival bonus once an implied obligation is established, it could not justify awarding an amount above the minimum in a year of loss. The Court therefore concluded that the festival bonus awarded for the year 1958‑59 should be reduced to one month’s salary.

In giving its judgment the Court first noted that no order of stay had been issued by this Court at any time during the proceedings. Consequently the Court proceeded to consider the effect of the tribunal’s award of an additional amount equal to fifteen days’ salary. The Court examined whether this additional payment created any further liability beyond the amounts already determined by the tribunal. The Court observed that the additional fifteen days’ salary had already been disbursed to the workmen in accordance with the tribunal’s order. The payment had been effected promptly after the tribunal’s award and was reflected in the payroll records of the employer. The counsel for the respondent, identified as Mr. Pai, affirmed that he would inform his client that, under the present circumstances, the amount that had already been paid could not be reclaimed. Having taken these facts into account, the Court decided to grant a partial relief to the appellant in the manner earlier specified in the judgment. This partial allowance was consistent with the earlier finding that the festival bonus should not exceed one month's salary for the year in which the company incurred a loss. Because the relief granted was limited and the parties had already complied with the payment, the Court chose not to make any order as to the award of costs. Accordingly, the Court concluded that the appeal was to be partly allowed, with the partial relief described above.