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REGISTERED No. D. 221

The Gazette of India

EXTRAORDINARY

PART II—Section 3—Sub-section (ii)

PUBLISHED BY AUTHORITY

No. 277] NEW DELHI, MONDAY, AUGUST 20, 1962/SRAVANA 29, 1884

MINISTRY OF LABOUR AND EMPLOYMENT

NOTIFICATION

New Delhi-2, the 7th August 1962

S.O. 2603.—In pursuance of sub-section (1) of section 17 of the Industrial Disputes Act, 1947 (14 of 1947), the Central Government hereby publishes the following award of the National Industrial Tribunal, Bombay, in the industrial dispute referred to the said Tribunal by the Order of the Government of India. In the Ministry of Labour and Employment, N5. S.O. 2384, dated the 22nd September, 1960.

BEFORE THE NATIONAL INDUSTRIAL TRIBUNAL (BANK DISPUTES) AT BOMBAY

REFERENCE NO. 3 OF 1960.

In the matter of the dispute between the Banking Companies specified in Schedule I to the Order No. S.O. 2384, dated the 22nd September 1960 of the Government of India in the Ministry of Labour and Employment

and

Their Workmen.

PRESENT :

The Honourable Shri Justice Kantilal T. Desai, Presiding Officer of the National Industrial Tribunal (Bank Disputes), Bombay. (Now Chief Justice of the High Court of Gujarat).

APPEARANCES.

As in Appendix B.

INDUSTRY: Banking. Dated the 21st July, 1962.

( 1923 )

AWARD

CHAPTER I

INTRODUCTORY

1. By a Notification. Rearing No. S.O. 704, dated New Delhi, the 21st March 1960, the Centra] Government, in exercise of the powers conferred by section 7B of the Industrial Disputes Act, 1947, constituted a National Industrial Tribunal with headquarters at Bombay, and appointed me as the Presiding Officer of the Tribunal.

2. By an order bearing No. S.O. 2384, dated the 22nd September 1960, the Central Government being of opinion that an industrial dispute existed or was apprehended between the banking companies specified in Schedule I to the said order and their workmen, in respect of the matters specified in Schedule II thereto, and that the dispute involved a question oi national importance and also was of such a nature that industrial establishments situated in more than one State were likely to be interested in, or affected by, such dispute, and being further of opinion that the dispute should be adjudicated by a National Tribunal, In exercise of the powers conferred by sub-section (1A) of section 10 of the Industrial Disputes Act, 1947, has referred the said dispute to this National Tribunal for adjudication. Schedule I to that order specifies the names of 7a banks. Schedule II to the said crder specifies the following matters; —

"Bonus—principles and conditions under which payable, qualification for eligibility and method of computation, after making provision for all rtiatters for which provision is necessary by or under any of the Acts applicable to the banks or which are usually provided for by banks."

A copy of the said order will be found in Appendix A.

3. Requisite notices were served upon all the banking companies and theii workmen, requiring the workmen to file their statements of claim on or before the 18th October 1960 and the banking companies to file their written statements to the statements of claim on or before the 7th November 1960 and fixing the hearing of the reference on the 14th November I960.

4. On 17th October 1960, the All India Bank Employees Association filed an application tor extention of time for filing its statement of claim by at least one month from 18th October 1960. On 24th October 1060, the time for filing the statement of claim was extended to the first week of November 1960 and there- after further extended to 22nd November 1960.

5. In the month of December 1960, the All India Bank Employees Association filed a preliminary statement of claim bearing date 8th December 19G0, disputing the validity of the provisions containing in the newly added section 34A of the Banking Companies Act, 1949 which had come Into force from the 26th of August 1960 which provided as follows: —

"(1) Notwithstanding anything contained in section 11 of the Industrial Disputes Act, 1947, or any other law for the time being in force, no banking company shall, in any proceedings under the said Act or in any appeal or other proceeding arising therefrom or connected therewith, be compelled by any authority before which such proceeding is pending to produce, or give inspection of, any of its bocks of account or othei document or furnish or disclose any statement or information, when the banking company claims that such" document, statement or information is of a confidential nature and that the production or Inspection of such document or the furnishing or disclosure of such statement or informa- tion would involve disclosure of information relating to— (a) any reserves not shown as such in its published balance sheet, or (b) any particulars not shown therein in respect of provisions made for bad and doubtful debts and other >isual or necessary provisions.

(2) If, in any such proceeding in relation to any banking company other than the Reserve Bank of India, any question arises as to whether any amount out of the reserves or provisions referred to In sub-section (1) should be taken into account by the authority before which such pro- ceeding is pending, the authority may, if it so thinks fit, refer the question to the Reserve Bank and the Reserve Bank shall, after taking Into account principles of sound banking and all relevant circumstances concerning the banking company, furnish to the authority a certificate

stating that the authority shall not take into account any amount as such reserves of the banking company or may lake them Into account only to the extent of the amount specified by It in the certificate, and the certificate of the Reserve Bank on such question shall be final and shall not be called in question in any such proceeding."

By the preliminary statement of claim, the said Association pleaded that unless and until the issue of disclosure of secret reserves was decided no bonus formula could be worked out and it was difficult to place before the Tribunal any principles lor determination of bonus in respect of banking companies. It was further pleaded friat the amendment made as aforesaid virtually defeated the claim of any bonus to employees and debarred them from the advantage of judicial determina- tion of the claim. The Association submitted that the constitutional validity of the said amendment should be determined as a preliminary issue. It pleaded that section L54A was ultra vires the Constitution of India, being in derogation of the fundamental rights set out in Part III of the Constitution of India, and in particular, Article 14 of the Constitution of India. The Association craved leave to put in its statement of claim on the merits of the reference after the preliminary issues were decided by the Tribunal.

6. The All India Bank Employees Federation filed a statement of claim, dated 8th December 11)60, submitting that the reference was vague, that it was difficult to lay down any precise formula without looking at the actual profits of each bank for the years in question, that the reference savoured of discrimination between banks and banks and their respective employees inasmuch as the State Bank of India and Its Subsidiaries were not included in Lhe reference and under the amend- ment made in the Banking Companies Act, 1949, privilege had been given to banks to withhold important, relevant and material information required for the purposes of laying down the principles of b_onus, that the profits shown in the balance-sheets and profit and loss accounts of banks did not show the true and complete picture of the working results of banks, that numerous deductions were made before the profits were shown In the balance-sheets and profit and loss accounts and that, the lull and complete picture relating to the profits of banks, including the secret reserves provided for in each year should first be disclosed. By this statement of claim, the All India Bank Employees Federation has also made its submissions on the merits of the matter referred to the Tribunal.

7. The All India Bank of Baroda Employees' Federation filed a preliminary statement of claim, dated 3rd December I960, submitting that the order of reference was invalid and bad in law, that the matter referred to the Tribunal for adjudi- cation was "only a matter appearing to be connected with or relevant to the main dispute relating to the fixation of the quantum of Bonus to be paia to the employees in respect of the year* 1957 to 1959'*, that the order referring only connected or relevant matters without referring the main matter or dispute for adjudication was incomplete and therefore, bad in law, and that the Tribunal had no jurisdiction to decide the reference. A plea to a similar effect has been taken by the Indian Overseas Bank Employees¹ Union by Its preliminary statement of claim, dated 3rd December 1960.

8. The Punjab National Bank Start Association, Eastern Circle, Calcutta, filed a statement of claim, bearing date 13th October I960, making its submissions on the merits of the matter referred to the TribunaL

9. When these statements of claim were filed, there was pending before me an earlier reference, being Reference No. 1 of 1960. That reference related to various matters in dispute between the aforesaid 73 banking companies and 1] other banking companies and corporations and their workmen in connection with cate- gorisation of banks and areas, scales of pay, dearness allowance, house rent and other allowances, provident fund, pension and gratuity and several other matters ? *u ,i e-e r ePce a ls°. a question had arisen regarding the constitutional validity of the aforesaid newly added section 34A of the Banking Companies Act 1949 In that reierence, the question was argued at considerable length. 1 passed an order in connection therewith on 31st October I960, holding that the provisions of the aforesaid section were validly enacted and were not violative oi any fundamental right as alleged The said order appears as Appendix D to my award dated the 7th June 1962 in Reference No. f of 1960, published in the Gazette of India Extraordinary, Part II, section 3(ii), dated June 30, 19f>2 at page 1487. at page 1799 The matter was carried to the Supreme Court. The SuDreme Court delivered its judgment in connection with the aforesaid matter In Civil Arjpeal No I.14 of 1961 and m Writ Petition Nos. 70, 80 and 82 of 1961 (All India Banft Employee Asso- ciation and others vs. National Industrial Tribunal and others) on 28th August 1961

upholding the constitutional validity of this newly enacted section 34A of the Banning Companies Act, 1949. The said decision is reported in (1961) II LLJ. at page 385. The aforesaid decisions were sufficient for the purpose o! disposing oi the preliminary point relating to the validity of section 34A of the Banking Companies Act, 194U, raised as aforesaid by Ihe All India Bank Employees Association in its statement of claim, dated 8th December I960.

10. The All India Bank Employees Association thereafter filed a further statement of claim on 5th November 1961 raising numerous turther preliminary objections and also pleading on the merits of the mailer referred to the Tribunal. On 2dth December 1961, the Vadodra Rajya Bank Nokar Sangh filed a statement of claim adopting the statement of claim tiled by the All India Bank Employees Federation on 8th December I960. On the same day, the Indian Overseas Bank Employees' Union filed a statement of claim, adopcing the statement of claim filed by the All India Bank Employees Federation on 8th December I960,

11. On 8th June 1961, the Indian Banks Association on behalf of its 27 member banks tiled a written statement in reply to the preliminary statement of claim filed by the All India Bank Employees Association, dated 8th December 1900, and to the statement of claim of the All India Bank Employees Federation, dated 8th December 1960. On 31st May 1981 the Bombay Exchange Banks Association on behalf of its 10 member banks filed a written statement in reply to the preliminary statement of claim filed by the AH India Bank Employees Association, dated 8th December 1960 and the statement of claim filed by the All India Bunk Employees Federation, dated 8th December 1960. On 11th August 1901 lhe Northern India Banks Association on behalf of its 6 member banKs filed two written statements, one in reply to the preliminary statement of claim filed by the All India Bank Employees Association, dated 8th December 1960 and the other in reply to the statement of claim filed by the All India Bank Employees Federation, dated 8th December 1960. The Bank of Baroda Limited filed its written statement dated 23rd August 1961 in reply to the statement of claim dated 3rd December 1960 filed by the All India Bank of Baroda Employees' Federation. The Miraj State Bank Ltd., filed & written statement, dated 12th September 1961, In reply to the prelimi- nary statement of claim filed by the All India Bank Employees Association, dated 8th December 1960 and the statement ofl claim filed by the All India Bank Employees Federation, dated 8th December 1960, The Indian Banks Association has filed a further written statement, dated 15th December 1961, in reply to the further statement of claim filed by the All India Bank Employees Association, dated 5th November 1961. The Bombay Exchange Banks Association has also filed a further written statement, dated Jlth December 1961 in reply to the aforesaid further statement of claim of the All India Bank Employees Association. The Miraj State Bank Ltd., has filed a further written statement, dated 20th' December 1961 in reply to the further statement of claim filed by the All India Bank Employees Association, dated 5th November 1961. The Bharatha Lakshml Bank, by its communication, dated 9th November 1960, has made its submissions in connection with the matter referred to the Tribunal.

12. The hearing of this reference commenced on 2tfth December 1961 and was concluded on 8th January 1962. Thereafter the time of this Tribunal was mainly taken up in connection with the preparation of the award of this Tribunal in Reference No. 1 of 1060 which was signed on 7th June 1962.

CHAPTER II

PARTIES TO THE DISPUPTE

3 3. By the order of reference certain disputes relating to bonus between 73 banking companies and their workmen have been referred for adjudication to this Tribunal. Material changes have taken place affecting some of the aforesaid banks and their workmen which necessitate my not making an award concerning them and their workmen.

I. Stoppage of banking business. .

14. (1) Safe Bank Ltd.—This bank is listed as bank No. 60 in schedule I to the order of reference. On 22nd June 1961, the Safe Bank Ltd., Intimated to this Tribunal that on 3lst January 1961, the Reserve /3ank of India had sent a notice In writing to the bank informing the bank that licence to carry on banking business fcould net be granted to it under the proviso to section 22(2) of the Banking Companies Act, 1949, and that as per orders of the Reserve Bank it had stopped

banking business with effect from 6th February 1961. As the aforesaid bank has ceased to be a banking company within the meaning of section 2(bb) of the Indus- trial Disputes Act, 1947, no award Is made in connection with the dispute between the said bank and its workmen.

15. (2) Thomcos Bank Ltd.—This bank is listed as bank No. 64 in schedule I to the order of reference. Some of the assets and liabilities of this bank have been •transferred to the Bank of Madura Ltd., under en agreement of transfer, dated 12th September I960, entered into between the Thomcos Bank Ltd., and the Bank of Madura Ltd. Under the "terms of The said agreement it is provided that after the transfer of the assets and liabilities therein mentioned, the Thomco? Bank Ltd., would not carry on banking business except to the extent necessary for the realisation of its residuary and other assets and to convert the same into cash. By clause 13 of the said agreement.it is provided that the Bank of Madura Ltd., would tebsorb in Its service all the then members of the staff of the Thony.os Bank Ltd., on the same emoluments then obtaining in the Thomcos Bank Ltd., and that in case of any member of the staff was not willing to join the service of the Bank of Madura Ltd., the Thomcos Bank Ltd., would pay to such person compensation, if any, legallj due to him on the termination of his service. In view of the fact that for all practical purposes the Thomcos Bank Ltd., has ceased to do banking business and to be a banking company and the services of a large number of its employees have been taken over by the Bank of Madura Limited, no award is made in con- nection with the dispute between the Thomcos Bank Ltd., and its employees in this reference.

II. Amalgamation under section 45 of the Banking Companies Act, 1949.

16. (3) Jodhvur Commercial Bank Limited.—This bark is listed as hank No. 37 In schedule I to the order of reference. This bank was under moratorium for a period of three months with effect from 6th July 1061. On 16th October 19G1 this bank has been amalgamated with the Central Bank of India Limited, Bombay (hereinafter referred to as a 'transferee bank').

17. (4) The New Citizen Bank of India Limited.—This bank is listed as bank No. 51 in schedule I to the order of reference. This bank was under moratorium from 15th November 1960 to 28th April 1961. The bank has been amalgamated with the Bank of Baroda Limited (hereinafter referred to as a 'transferee bank') with effect from 29th April 1961.

18. (5) The Travancore Forward Bank Limited.—This bank Is listed as bank No. 65 in schedule I to the order of reference. This bank was under moratorium irom IRth December 1960 to 14th May 1961. This bank has been amalgamated with the State Bank of Travancore, Trivandrum (hereinafter referred to as a 'transferee bank') with effect from 15th May 1961.

19. (6) The Bank of Naanur Limited.—This bank Is listed as bank No. 9 in schedule I to the order of reference. This bank was under moratorium from 27th November 1960 to 26th March 1961. This bank has been amalgamated with the Bank of Maharashtra Limited (Hereinafter referred to as a 'transferee bank') with effect from 27th March 1961.

20. (7) The Indo-Commercial Bank Limited.—This bank is listed as bank No. 34 in schedule I to the order of reference. This bank was under moratorium from 25th October I960 to 24th March 1961. This bank has been amalgamated with the Punjab National Bank Limited, New Delhi (hereinafter referred to as a 'transferee bank') with effect from 25th March 1961.

21. (8) The Rayalaaeema Bank Limited.—This bank is listed as bank No. 59 in schedule I to the order of reference. It was under moratorium from 14th May 1961 to 31st August 1961. This bank has been amalgamated with the Indian Bank Limited, Madras (hereinafter referred to as a 'transferee bank') with effect from 1st September 1961.

22. The aforesaid six banRs have been amalgamated with other banks. Under the schemes of amalgamation, the workmen employed by the aforesaid six banks, would continue in service and would be deemed to have been appointed by the transferee banks at the same remuneration and on the same terms and conditions of service as were applicable to such employees immediately prior to the date of the respective orders of moratorium. There is a further provision to the effect that the transferee banks would pay or grant, not later than the expiry of the period of 3 years from the dates on which the schemes of amalgamation were respectively sanctioned by the Central Government to such employees the same remuneration

and the same terms and conditions of service as were applicable to the employees oi the respective transieree banks of corresponding rank or status subject to certain qualifications

23. In view of the aforesaid provisions, no award is made in connection with the disputes between the aforesaid six banks which have been amalgamated and the employees of such banks.

Ill, Merger,

24. (9) Lloyds Bank Limited.—This bank is listed as bank No. 40 in schedule I •to the order of reference. Since 1st January 1961 the business of this bank in India had been transferred to the National and Grlndlays Bank Limited and the services of all the employees employed by this bank in India have been taken over by the National and Grindlays Bank Limited. No award is rr.ade in connec- tion with the dispute between the Lloyds Bank Limited and its employees.

IV, Transfer of service.

25. (10) The Trivandrum Permanent Bank Limited.—This bank is listed as bank No. 66 in schedule I to the order of reference. As a result of an agreement arrived at between the Trivandrum Permanent Bank Limited and the Canara Bank Limited, selective assets and liabilities of the former bank have been tkken over by the latter bank. The All Kerala Bank Employees Union representing the workmen of the Trivandrum Permanent Bank Limited raised before the Conciliation Officer (Central), Ernakulam, a dispute regarding the absorption of the workmen of the said bank in tfie Canara Bank Limited. A-settlement was arrived tit In the course of the conciliation proceedings on 16th May 1961 whfereunder it was agreed that all the employees of the Trivandrum Permanent Bank Limited other than those who were over 80 years of age on the date of the taking over of the assets and liabilities of the Trivandrum Permanent Bank Limited by the Canara Bank Limited, should continue in service and be deemed to have been appointed by the Canara Bank Limited at the same remuneration and on the same conditions of service as were applicable to such employees immediately before the date of taking over. Under the terms of the said settlement it was agreed that the Canara Bank Limited would, on the expiry of a period not later than 3 years from the date of the taking over, pay or grant to the employees of the Trivandrum Permanent Bank Limited appointed in the Canara Bank Limited the same remuneration and the same terms and conditions of service as were applicable to the employees of the corresponding tank and status of the Canara Bank Limited, subject to the qualifications and experience of the said employees Of the Trivandrum Permanent Bank Limited being the same as or equivalent to those of the said employees of the Canara Bank Limited. A joint application was made by the Canara Bank Limited, the Trivandrum Permanent Bank Limited and the All Kerala Employees' Union on behalf of the workmen of the Trivandrum Permanent Bank Limited in Reference No. 1 of 1960 that an award should be made by this Tribunal In terms of the settlement arrived at in the course of the conciliation proceedings on 16th May 1901 as aforesaid. On 7th August 1961, I have made an award in Reference No. 1 of 1980 in terms of the settlement arrived at as aforesaid. In view of the fact that the services of most of the employees of Trivandrum Permanent Bank ' Ltd. have been taken over by the Canara Bank Ltd., no award is made in connection with the disputei between the Trivandrum Permanent Bank Limited and its workmen in this reference.

V. Other grounds.

26. (Ill Salem Bank Limited, Salem.—This bank is listed as bank No. 61 in schedule I to the order of reference. A settlement was arrived at between the workmen employed by the Salem Bank Limited and the Salem Bank Limited, in connection with all che disputes covered by Reference No. 1 of I960 and also In connection with this reference. An application was made before me on 3rd Decemher 1960 in Reference No. 1 of 1960, signed on behalf of the bank and by two representatives of the employees of the bank, In which it was stated that all the emplovees of the bank, without a single exception, and the bank had entered into the aforesaid settlement and had signed the same. They prayed for an award •in terms of the settlement. A copy of the said settlement signed as aforesaid was produced befoie me in the said reference. After due notice to all the parties, I recorded the said settlement arrived at between the Salem Bank Limited and its workmen in Reference No. 1 of 1960 and made an award In terms therepf, to the

extent that it related to the said Reference No. 1 of I960, on 18th January 1961. The said award is published in the Gazette of India, Part II, section 3(il), dated the 4th February 1961 at page 357. One of the terms of the said statement, which concerns the present reference, relating to bonus provides as under:—"Left to the discretion of the bank to continue the giving of additional remuneration provided the profits admit." In view of the aforesaid settlement arrived at between the Salem Bank Limited and its workmen, which has been recorded in Reference No. 1 of lOtiO, I do not consider it proper to make any award in the present reference in connection with the Salem Bank Limited and its workmen. The award made by me in this reference will not apply to the said bank and its workmen.

27. The present award will only apply to the banks referred to in the order of reference other than the aforesaid eleven banks and to the workmen oi the banks other than those of the aforesaid eleven banks.

CHAPTER III

BACKGROUND

28. During the period of the first world war, bonuses were being paid to workmen in various industries. In July 1923, the Bombay Millowners' Association declared that the textile industry was suffering a set-back and was considering the question of stopping the practice of annual bonuses to the workers. In the month of January 1924, there was a general strike of workers employed in the textile industry. On 22nd February 1024, the Government of Bombay appointed a Committee known as the Bonus Dispute Committee under the chairmanship of the Hon'ble Sir Norman Macleod, the then Chief Justice of the High Court of Bombay, to enquire Into the question of the textile workers' claim for bonus. The terms of reference of this Committee inter alia were to consider the nature and basis of the bonus which had been granted to the employees In the cotton textile mills of Bombay since 1919 and to declare whether the employees had established any enforceable claim, cus- tomary, legal or equitable. The Committee expressed the opinion that the workers had no legal right to claim bonus. The Committee came to the conclusion that the mill workers had not established any enforceable claim, customary, legal or equit- able, to the payment annually of a bonus which could be upheld in a Court of Law. The Committee, however, observed that it was a question of bargaining between the workers and the employers in which consideration might well be Riven to principles of equity and that It was not a question of determining what was the contract between the parties. The question of bonus assumed great importance after the outbreak of the second world war. Shri Justice Chagla, as he then was, in his award in connection with the dispute between the General Motors Workers' Union vs. General Motors (India) Limited, Bombay, reported in Bombay Govern- ment Gazette, Part I—May 28, 1942, page 1899, observes as follows:—

It is true that it cannot be enforced in a Court of Law because it is nut n possible by the contribution that both capital and labour make in any particular Industry, and I think It is also conceded that labour has a righr, to share in increased profits that are made in any particular perioa."

Some of the adjudicators characterised bonus as a gift, a sort of bakshis or pour-bolre. A reference in thii; connection may be made to the decision in Poona Electric Supply Co. Ltd. vs. Its Employees, published in Bombay Labour Gazette, ^February 1945 at page 361. In the year 1945, the Industrial Court of Bombay, In a dispute between the Textile Labour Association, Ahmedabad, and the Ahmedabad Millowners' Association, held that bonus was in the nature of a reward and observed as follows:—•

"A reward is anything given or paid in return for anything done as kindness, service, etc. It includes additional gratuitous payment for work already done, over and above a payment according to agreement. • * * * Such additional payment is not a pure gift because a Rift may have no relation to any work done or to be done by the donee, but it is a reward inasmuch as It is asked for as an extra payment for work actually done. It is true that it cannot be enforced in a Court of Law because it is not a legal right. But it does not follow that it cannot become a subject matter of an industrial dispute between the employers and the workers. If the latter demand such payment as a reward In the form of a bonus."

(Bombay Labour Gazette, 1945-46 p. 124).

20. The Industrial Court, Bombay, In the year 1947 In the case of Millowners' Association, Bombay vs. Employees in the Cotton Textile Mills in Bombay, reported In 1946-47 Industrial Court Reporter, page 386, at pages 390 and 391 observed as follows:—

"The Justification for such demands as 'Industrial matter' arises especially when wages fall short of the living wage standard and the industry makes huge profits part of which are due to the contribution which the workers make in Increasing production. The demand for a bonus is therefore an industrial claim when either or both these conditions are satisfied. * + * It is to be remembered that 'adequate wages and clearness allowance', If any, for increased cost of living are a first charge on the industry, but the workers may reasonably ask for a bonus when there are enhanced profits, when dividends are paid out after providing for taxation and depreciation—especially when their wages are below the livirig wage standard."

30. In the award made by the Industrial Court, Bombay, in Mlllowners¹ Associa- tion, Bombay and others vs. Their Employees, reported in Industrial Court Reporter (Supp.), 1949, at page 168, relating to bonus in the cotton textile industry in Bombay for the year 1948, it has been stated by the said Court in connection with the demand of bonus at pages 173 and 174 as under:—

"Such a demand derives its strength, where the living wage standard has not been reached, from a feeling of deficiency in the means to attain the necessary standard of living. Therefore bonus in such circumstances no doubt serves as a temporary satisfaction, wholly or in part, of his need. Theoratlcally, adequate wages and dearness allowance should be the first charge on an Industry. * * * Labour as well as the working capital employed In the Industry both contribute to the profit made and both are, therefore, entitled to claim a legitimate return out of the profit; and such legitimate return, so far as labour is concerned, must be based on the living wage standard. It is, however, to be remembered that a claim to bonus might be admissible even if the living wage standard were com- pletely attained. It may, therefore, be stated that so long as the living wage standard has not been attained, the bonus partakes primarily of the character of the satisfaction, often partial and temporary, of the defi- ciency In the legitimate income of the average worker in an industry, and that once such income has been attained it would also partake the character of profit-sharing. Owing to this dual character of bonus it would be a mistake to regard a demand for bonus as a demand for profit- sharing pure and simple. Even if it be held, as the Committee on Profit Sharing have held, that profit sharing on a fifty-fifty basis would be equitable, it would be proper, in our opinion, when the living wage standard has not been reached, for labour to demand even a greater share after the gross profits have been reduced by depreciation, reasonable reserves and dividend and suitable provision for taxation."

31. There was a dispute in connection with bonus payable to workers employed in the textile industry in Bombay for the year 1949. The Industrial Court at Bombay gave its award in connection with that dispute. An appeal was filed from the deci- sion of the Industrial Court before the Labour Appellate Tribunal of India by The Millowners' Association. Bombay. The respondents In that appeal were The Rash- trlya Mill Mazdoor Sangh, Bombay and another. The decision of the Labour Appellate Tribunal given in that case has become well-known as the decision laying down the Full Bench Bonus Formula. All the five members of the Labour Appellate Tribunal sat on th" bench. The decision given by the Labour Appellate Tribunal is reported in (1950) II LLJ. at page 1247. In paragraph 18 of the decision at page 1253, the Labour Appellate Tribunal has observed as follows:—

"Both parties have suggested that It is desirable that definite principles should be formulated for the purpose of determining the questions relating to bonus. Without doubt principles are necessary in order to serve as guide for future years, as that is likely to lead to a uniform practice and to ^promote harmonious relations between Capital and Labour and ensure Industrial peace, things which are very desirable and which would tend to increase production, which the welfare of the nation urgently requires ......".

In paragraph 20, It hat stated as under:—

"NoVv, bonus is cash payment made to employees in addition to wages. It cannot any longer be regarded as an ex-gratia payment, for it has been recognised that a claim for bonus, if resisted, gives rise to an Industrial

dispute, which has to be settled by a duly constituted Industrial Court Or Tribunal. 'It differs from wages, in that it does not rest on contract, but still payments for bonus are made, because legally due, but which the parties do not contemplate to continue indefinitely.¹ [per Lord Birkenhead in Sutton vs. Attorney General (1923) 39 T.L.R. 294].

Where the goal of living wages has been attained bonus, like profit sharing, would represent more as the cash Incentive to greater efficiency and pro- duction. We cannot, therefore, accept the broad contention that a claim to bonus is not admissible where wages have (as in the case before us) been standardised at a figure lower than what Is said to be the living wage. Where the industry has capacity to pay, and has be'en so stabilised that its capacity to pay may be counted upon continuously, payment of 'living wage' is desirable; but where the industry has not that capacity or its capacity varies or is expected to vary from year to year, so that the Industry cannot afford to pay 'living wages', bonus must be looked upon BE the temporary satisfaction, wholly or in part, of the needs of the employee ".

In paragraph 21 and in subsequent paragraphs, the Labour Appellate Tribunal has observed as under:—

"21. We will now consider what should be the general principles governing bonus. As both capital and labour contribute to the earnings of the Industrial concern, it is fair that labour should derive some benefit, if there Is a surplus after meeting prior or necessary charges."

"22. The gross profits are arrived at after payment of wages and dearness allowances to the employees, and other items of expenditure which are not necessary for our present purposes to enumerate in detail. As invest- ment necessarily Implies the legitimate expectation of the investor to secure recurring returns on the money invested by him in the industrial undertaking, it is essential that the plant and machinery should be kepi continuously in good working order for the purpose of ensuring that return, and such maintenance of plant and machinery would also be to the advantage of labour, for the better the machinery the larger the earnings, and the better the chance of securing a good bonus. The first charge on the gross profits should, therefore, be the amount of money that would be necessary for rehabilitation, replacement and modernisa- tion of the machinery. As depreciation allowed by the income-tax autho- rities is only a percentage of the written down value, the fund set apart yearly for depreciation and designated under that head would not be sufficient for these purposes. An extra amount would have to be annually set apart under the heading of "reserves" to make un that deficit."

In dealing with the question of return on the reserves employed as workine capital, the Labour Appellate Tribunal has observed as follows:—

In dealing with the Question of distribution of surplus and the amount of bonus payable thereout, the Labour Appellate Tribunal in paragraph 37 has observed as follows:—

" The answer to this Issue is not easy, for we have to consider In this context the needs of the employees, the claims of the share-holders, and the requirements of the industry. The subject is not readily responsive to any rigid principle or precise formula, and so far we have been unable tc discover a general formula. This does not, however, mean that the answer to this issue is in any way fortuitous; nor are we in any doubt as to the considerations which must prevail in deciding what the amount oL bonus should be. Essentially the question of bonus must depend upon the relative prosperity of the concern during the year under review, and that prosperity Is probably best reflected in the amount of the residuary surplus; the needs of labour at existing wages is also a consideration of importance; but we should make it plain that these are not necessarily the only considerations; for instance, no scheme of allocation of bonus could be complete if the amount out of which a bonus is to be paid is unrelated to employees' efforts: and even when we have mentioned all these considerations we must not be deemed to have exhausted the sub- ject. Our approach to this problem is motivated by the requirement that we should ensure and achieve industrial peace which is essential for the development and expansion of industry. This can be achieved by having a contented labour force on the one hand, and on the other hand an investing public who would be attracted to the industry by a steady and progressive return on capital which the industry may be able to offer. It goes without saying that if the residuary surplus is appreciably larger in any particular year it should be possible for the company to give a more liberal bonus to the employees."

The Labour Appellate Tribunal did not accede to the view that In the matter of payment of bonus a unit in an industry in a particular region should be ordered to pay bonus on the ground that some other units in the industry are able to pay bonus by reason of having surplus, It further directed a deletion of two of the conditions imposed by the Industrial Court, viz., that no bonus was to be paid to employees who worked less than 32 days and that no bonus would be payable to employees who had been dismissed for misconduct.

32. Before the constitution of the Labour Appellate Tribunal, disputes had arisen In the banking industry in connection with bonus. A dispute regarding bonus for the first time came up before the Industrial Court at Bombay consisting of Sir Harsidhbhai vs. Divatia in the year 1946 in Reference No. 6 of 1946 and Reference No. 10 of 1B47, between certain banking companies and their employees. A demand was made by the employees that after allowing six per cent, dividend to the share- holders, fifty per cent, of the remaining net profit should be divided among the employees. It was further claimed that under no circumstances should the yearly bonus be less than two months' salary which should be calculated on the basis of each employee's respective salary plus dearness allowance for the last month of the preceding accounting year of the bank. Shri Shantilal H, Shah, who appeared for the employees In that case contended before the Industrial Court that the profits of a bank were earned due to the joint endeavour of capital and labour and therefore, bonus must be a first charge on the profits. He suggested that a bank need not pay any bonus If it paid to Its shareholders a dividend of less than four per cent., but that if the dividend was from four to six per cent,, a bonus of one month's salary should be granted, that If It was from six to ten per cent., then two months' bonus should be granted and that If It was over ten per cent., then three months' bonus should be granted. This suggestion was opposed by the banks on the ground that It would amount to participation In the profits of the company and that under sec- tion 277 HH of the Indian Companies Act, 1913 the bonus in the form of such participation in the profits was not legally allowed. The Industrial Court did not accede to the demand of the employees for laying down a general principle concern- ing all bonuses in future and the reference was confined to bonus for the past accounting year of the banks concerned which in most cases, was the calendar year 1946. The decision Is reported In 1946-47 Industrial Court Reporter, page 335.

33. On 13th Jun^ 194R th" Govprnm^nt r>f Tndia in tho Ministry of Labour, in exercise of the powers conferred bv section 7 of the Industrial Disputes Act. 1947, constituted an Industrial Tribunal (hereinafter for brevity's sake referred to as the Sen Tribunal) consisting of Shri K. C, Spn. President, Industrial Court. Bombav and a retired Judge of the High Court of Judicature at Bombay, as Chflirmar., and

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two other members who were also retired Judges of High Courts, and referred cer- tain disputes between 205 banking companies and their workmen for adjudication by the said Tribunal. Among the disputes so referred was the dispute relating to "bonus, including the qualifications for eligibility and rnethoa ol payment," In interpreting the said term of reference, the Sen Tribunal observed that the kind of disputes regarding bonus that had been referred to it were disputes ol a general nature, as distinct from disputes relating to quantum of bonus for particular years in respect of particular banks. In dealing with the question of bonus, the Sen Tribunal referred to the provisions of section 10(1) (b) (11) of the Banking Companies Act. 1949, as it then stood, which provided as under:—

"No banking company * * * * shall employ any person * * * whose remuneration or part of whose remuneration takes the form of commission or of a share in the profits of the company."

The Sen Tribunal thereafter observed that it did not propose t& lay down any formula making bonus z share in the profits. It observed that "a company has sometimes to declare a particular dividend owing to considerations not strictly related to the profits alone; for instance, a sudden declaration that no dividend can be paid may have serious consequences on the credit of such a delicate organisation as a bank; or for certain reasons the shareholder^ hopes might have been pitched high (.e.g., by a return of excess profit tax or some other windfall) which it may not be expedient to disappoint; or it may be necessary to set aside a substantial part of large profits made in the year, In the form of a reserve, for particular purposes." It quoted the following passage from "Modern Banking'' (Edition 1941) by Mr. R. S. Sayers:—

"the central bank must, therefore, always demonstrate that it is not incur- ring losses, even if it has Incurred losses. Accordingly it must never pass a dividend, and there is a strong case against ever reducing the dividend. If proper performance of Its functions leads to its incurring losses, either it must cover them out of secret reserves or it must be helped by the Government."

The Sen Tribunal thereafter proceeded to state that it would not be proper to hold that dividend was necessarily a function (to use a mathematical term) of a bank's profits, although ordinarily the rule must be the greater the profits the greater the dividend. It was of opinion that if it linked bonus to the amount of dividend, that would not necessarily amount to giving an employee remuneration which took the form of a share In the profits of the company. It considered that linking of dividends and bonus did not appear to be Illegitimate. It further observed that in the case of banks, the major part of the working funds were provided not by the paid-up capital but by the deposits. It further stated that in the case of banks only a small part of their establishment was concerned with matters of policy and intelligent use of the banks' resources .which were primarily responsible for their profits. It directed that bonus should be paid to the employees on the following scale:

Upto 4 per cent, dividend—Nil.

For every increase of i per cent, in the dividend over 4 per cent.—1/fl month's pay.

The scale was to apply to employees who had worked throughout the year, authorised holidays and leave on fulj pay counting as days of work for this pur- pose. In the case of others, the amount indicated above was to be multiplied by the following co-efficient: total number of days on which the employee has worked plus authorised holidays and leave on full pay divided by total number of working days in the year.

34. The award of the Sen Tribunal was given on 31st J.uly 1950 before the decision o! the Full Bench of the Labour Appellate Tribunal was given, Some of the banks which were parties, to the said dispute being dissatisfied with the award, applied to the Supreme Court for special leave to appeal against the said award. The said leave was granted by the Supreme Court. Pending the hearing of the appeal, the Supreme Court stayed the operation of Ihe award with regard inter alia to the directions contained therein regarding bonus. On 9th April 1951 the Supreme Court declared the Sen Award as being void and Inoperative for technical reasons relating to the constitution of that Tribunal. The Supreme Court did not deal with any question relating to the merits nl any matter dealt with in the award.

35. By a notification dated 5th January lf)52. in exercise of the powers conferred by section 7 of the Industrial Disputes Act. 1947, the Central Government consti- tuted an Industrial Tribunal consisting of Shri S. Panchapatfesa Sastry, a retired

1934 . . - . .. . L*

Judge of the High .Court of Judicature at Madras, as chairman and Shri M. L. Tannan ana Shri V. L. D'Souza, as members. The said Tribunal is hereinafter referred to as the Sastry Tribunal. On the same day, in exercise of the powers conferred by section 10 of the said Act, the Central Government re-erred to the Sastry Tribunal for adjudication disputes concerning 129 banks and their workmen. Among the disputes so referred was one relating to "bonus—including the quali- fications for eligibility and method of payment". The Sastry Tribunal, in dealing with the term of reference relating to bonus, observed that the only question for consideration was "whether what may be called a bonus scheme for the future years can and should be devised and whether it should be made to apply retros- pectively even to all banks and for all years". On behalf of the banks it was contended before the Sastry Tribunal that a demand for a bonus scheme in relation to banking companies could not be an industrial dispute which could be referred for adjudication. The Sastry Tribunal negatived that contention. The Sastry Tribunal in the course of its award has observed that it was well-settled In industrial law that the payment of bonus was not a mere ex-gratia payment at the sole discretion of the employer but that a claim for bonus might lead to an industrial dispute to be decided by an award of a competent tribunal binding on the employers. The Sastry Tribunal has further observed that where "the award laid down a general formula for a whole Industry or separate units thereof prescribing how much should be awarded by way of bonus from the profits of future years, It was incorporating an enforceable term in the contract of employ- ment between the workmen and the bank. It observed that the general rule would feally be¹ adding a new term to the contract of service. The amount of bonus which was given was really a part of the remuneration for the services done because It was then admitted that bonus was being given to cover in part at least the gap between what a living wage should be and what the actual wage was in a particular case. It took the view that such a rule or a formula imposed by an award might offend against the terms of the Banking Companies Act, 1949 and it would not be open to the tribunal to lay down a scheme in those terms.

36. Dealing with the suggested formula of linking bonus to dividend, the Sastry Tribunal stated that it was opposed by a large majority of the workmen though a few supported it, but only as a last resort, the objection on behalf of the workmen being! that not infrequently dividends were not declared even though enough profits had been earned to justify payment of dividend as well as bonus to work- men. The Sastry Tribunal thereafter proceeds to observe as follows: —

"Moreover there are inherent defects in adopting such a formula some of which are the absence of a ceiling (which perhaps may be rectified), the difficulty of dividends being sometimes declared tax-free and sometimes subject to tax, the difficulty resulting from different rates of dividends for different kinds of shares, the issue of bonus shares, the payment of cash bonus instead of fixed dividends."

The Sastry Tribunal also referred to a decision given by the Labour Appellate Tribunal in the case of Trichinopoly Mills Ltd. and National Cotton Mills Workers' Union, reported in (1952) 2 LLJ. page 608, where the Tribunal had stated that it was not in favour of Uniting bonus to dividend paid to the share- holders, "since the employer may appropriate a large portion of the profits to reserves nnd dividend equalisation fund "so as substantially to reduce the amount available for payment of dividend to shareholders". The Sastry Tribunal was against making payment of bonus dependent upon the dividends paid to shareholders.

37. In dealing with the demand for payment of bonus at the rate of 2, 3 and 4 months' basic pay according as the working capital of the bank was below Rs. 15 crores, between Rs. 15 and Rs. 40 Crores and over Rs. 40 crores respectively, the Sastry Tribunal observed that it was difficult to support the formula on principle.

38. The Sastry Tribunal in paragraph 353 of Its award, has observed that bonus as was then laid down, should come only from profits of any particular year, that it could not be made a part of the fixed costs of establishment irrespective of profits being earned or not, that it could not become part of the salary or an Integral part of the fixed wage structure, that bonus was really contingent on profits being earned and that it must, therefore, primarily bear some relation to ascertained profits ol any particular year. It further observed that to lay down a rule upon the basis of assumed profits which the units of Industry were expected to make in the normal course could not therefore be right and that there could not be a generalisation with reference to the rate of profits which the various, component units of the industry could be assumed to earn In the normal course.

39. In dealing with the Full Bench formula, the Sastry Tribunal observed as follows: —

"It Is not however possible to adopt it for the banking industry which differs from it (the textile Industry) in many respects. In the textile industry, bonus Is awarded on the profits of the industry as a whole excluding units which have sustained losses. Here it is admitted that bonus can only be with reference to each Individual bank and not on the whole industry as such. Even apart from that banking requires special safeguards for the creation of reserves for various purposes and for the maintenance of confidence In the Investing public."

The Chairman of the Tribunal took the view that section 10 of the Banking Companies Act, 1949, as it then stood, did not prohibit a term of employment relating to bonus being imposed by courts and tribunals over and above what the parties stipulate as part of the contract between them. In the view of the Tribunal, the matter was not however free from doubt. The Sastry Tribunal did not give any binding award In connection with the dispute relating to bonus, but merely commended a scheme which it had formulated for the earnest consideration of both the parties before it, viz, the banking oompanies and their workmen. It also recommended to tho Government that the alleged legal difficulty by reason of section 10 of the Banking Companies Act. 1949, may be removed by suitable Jegwlattun, making it clear that tho payment of bonus to stall did not fall within the scope of section 10 of the Banking Companies Act, 1949.

40. The scheme recommended by the Sastry Tribunal was as follows: —

" bonus should come only out of what may be termed as "available surplus" of the profits after providing for certain prior charges which should be recognised as paramount claims. Prior charges to be so recognised aw— (1) The amount that should be set statutorily apart for reserves under Section 17 of the Banking Companies Act, 1949.

(2) Reasonable amounts that should be set apart by way of additional reserves and in accordance with sound banking principles for meet- Ing such contingencies, as depreciation of securities, reserves for bad and doubtful debts., appropriations towards gratuity or pension fund and some amounts to carry over tor next year, etc.

(a) Reasonable, dividends on paid-up capital and return on reserve

funds.

(4) Amount required for taxes (Tax on what is to be paid as bonus is to be added back in reconstructing the balance sheet).

If any of these items have been provided either wholly or partly before net profits are ascertained these Items should not 5e deducted once again. The balanre remaining after providing for the aforesaid amounts will constitute "available surplus" in which both capital and labour should share. These are the general principles to be kept In view."

"As regards a reasonable return for capital we think 6 per cent, should be allowed on paid-up capital as well as on reserves. In the case of the textile industry the full bench decision provides for a smaller return on reserves. We think in the case of the banking Industry no distinction should be made for the purposes of return between paid-up capital and reserves. * 1 * * * "

"Lastly, the provision for reserves other than statutory reserves and t&xation need not, in our opinion, exceed 30 per cent, of the net profits. It is in our opinion a safe estimate sufficient to safeguard the bank's interests. We think that It is desirable to lay down a definite percentage of the available surplus to be paid "ffs bonus. We have considered the question whether the said percentage should vary according to the size and resources of the bank. In the case of the workmen of small banks the need for covering the gap between living wage and the salary that is fixed is greater than in the case of workmen of the bigger banks. This consideration requites a higher percentage in the case of the smallejr banks. The smaller banks, however, unlike many of the bigger banks have to contribute for a long time from their profits towards building up statutory reserves as in their case reserves have not yet reached the paid-up capital. In the light of these considerations we think that flft.

per cent, of the "available surplus" in the case of banks belonging to 'A' and 'B' groups and sixty per cent, of the "available surplus" In the case of banks belonging to 'C and 'D' groups may well be laid down as the fund available for bonus distribution ".

41. Dealing with the question whether claims both of workmen and officers for bonus should rank part passu, or whether the workmen should have either a prior claim or a claim to a higher amount than officers, the Sastry Tribunal observed that in the case of workmen bonus was really intended to cover partly at least the gap between the living wage and the actual wage, and in the cose of officers, it was more an incentive for greater efficiency. It, however, ohserved that profits depended to a large extent upon the exercise of the intelligence and capacity and brain power of the officer staff and concluded as under: —

"In the matter of bonus, therefore, we do not tlr-nk a difference can be made between them as each group has a special argument in its favour except perhaps as regards the fixing of a ceiling limit for bonus."

42. There was an appeal filed from the decision given by the Sastry Tribunal before the Labour Appellate Tribunal. The Labour Appellate Tribunal gave its decision on 28th April 1954. It took a different view of the scope of the terms of reference relating to bonus. It also took the view that section 10 was no bar to a claim for bonus made by the employees and stated in paragraph 330 of its decision as follows:-—

" the claims to bonus made for the relevant years have not yet been adjudicated upon, and that the terms of the Reference have not been exhausted. The ad hoc tribunal to which this Reference was made is no longer in existence and some other tribunal will have to decide what bonus if any is payable by the banks to its employees for the relevant years."

An regards the guiding principles for the ascertainment of bonus set out by the Sastry Tribunal, the Labour Appellate Tribunal observed that the same could hardly be called a scheme. It stated that the Full Bench formula contained principles which were applicable to all industries and businesses subject to such modifications as* might be necessitated by special differences and that those essential principles w"re of general application and should be applied mutatis mutandis to the case of banks.

43. There were seven appeals filed before the Supreme Court against the decision of the Labour Appellate Tribunal after obtaining special leave to appeal therefrom. The appeals were consolidated. Questions which arose in those appeals were the following: —

"(1) What is the scope of item 5 of schedule U of the notification dated January 5, 1952, the item being expressed in the following words—"Bonus, including the qualifications for eligibility and method of peyment";

(2) does s. 10 of the Banking Companies Act, 1940 (prior to its amendment by Act 95 of 1956) prohibit the grant of bonus to Bank employees; (3) whether an Industrial tribunal Is entitled in law to compel Banks to disclose "secret reserves" and "other necessary provisions" made by them, for the purpose of adjudication;

(4) whether the Full Bench formula laid d:>wn by the Labour Appellate Tribunal in Mill Ownerg' Association, Bombay vs. Rashtriya Mill Mazdoor Sangh, Bombay for the payment' of bonus to employees In the textile industry is applicable to Banks." •

The judgment of the Supreme Court fn connection with those appeals is reported In (1060) 1 S.C.R. page 200 (The Central Bank of India vs. Their Workmen and the parties Jn connected appeals). The Supreme Court took the view that item 5 of Schedule II related to the dispute of a general nature regarding bonus which did not include a demand for bonus for particular years In respect of particular banks and held that the Labour ADtiellate Tribunal was wrong in its conclusion that the reference had not been worked out and that individual claims for bonus in respect of particular banks must be determined by another tribunal on the basis of the reference made in the year 1952.

44. In dealing with the provisions contained In section 10 ct the Banking Companies Act, 1949, prior to its amendment in the year 1950 and the words "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", the Supreme Court observed that the express provisions of section 10 must override any other law for the time being m force so far as banking com- panies were concerned and that the word "remuneration" had been used in the widest sense and in that sense it undoubtedly included bonus. Dealing with the words "takes the form of a share In the profits of the company" the Supreme Court has at page 225 observed as under: —

" The conception of Industrial bonus (that is, profit bonus claimed by employees and granted amicably, through conciliation or as a result of an industrial award) has had a chequered development. In some of the earlier Bombay decisions of Industrial Adjudicators, it was held that the grant of bonus was entirely a matter of grace and not of right; some derisions characterised bonus as a gift, a sort of bakshm or pour-boire (see D. G. Damle's Labour Adjudications In India, p. 408). By 1948, however, the conception had crystallised, and it way judicially recog- nised that the clainr. of profit bonus could not any longer be regarded as an ex gratia payment. In Millowners' Association, Bombay vs. Rashtriya Mill Mazdoor Sangh, Bombay the Full Bench of the Labour Appellate Tribunal evolved the formula for determining the quantum ot bonus, and the general principles governing the claim of bonus were hlso laid down. These are: (1) as both capital and labour contribute to th( earnings of the industrial concern, it Is fair that labour should derive some benefit, if there is a surplus after meeting prior or necessary charges; (2) the claim of bonus would only arise if there should be a residue after making provision for (a) prior charges and \b) a fair return on paid-up capital and on reserves employed as working capital; and (3) bonus is a temporary satisfaction, wholly or in part, of the needs of the employee where the capacity of the Industry varies or is expected to vary from year to year, so that the industry cannot afford to pay 'living wages'. The Labour Appellate Tribunal recognised that where the goal of living wages had been attained, bonus like profit sharing In the technical, narrow sense would represent more the cash incentive to greater efficiency and production. The conception of the living wage Itself is a growing conception, and the goal has been reached In very few industries, If any in this country. The general principles laid down by the aforesaid Full Bench decision of the Labour Appellate Tribunal were generally approved by this Court in Muir Mills Co. Ltd. vs. Suti Mills Mazdoor Union, Kanpur, and have been fully considered again and approved in Civil Appeals Nos. 46!) and 460 of 1937 (Associated Cements) in which judgment was 'delivered on May 5, 1959.

We have to consider the expression 'takes the form of a share In the profits of the company* in the context of the meaning of the word 'bonus' as explained above. It Is neces^aiy to state that we are not considering here the question of production bonus or Puja bonus, which may not necessarily come out of profits and these stand on a different footing There can be now no doubt, however, that profit bonus, In the industrial sense in which we now understand it, is a share in the profits oi the company; it Is labour'^ share of the contribution which it has made in the earning of the profits. The two grounds on which it has been contended that bonus is not a share In the profits are (1) that it is not a fixed or certain per- centage of the available surplus of profits and (2) it partakes of the nature of a contingent, supplementary wage. These two grounds weighed considerably with the majority of members of the Labour Appellate Tribunal who expressed the view that s. 10 of the Banking Act did .not stand In the way of granting bonus to bank employees, because bonus according to them was not a share in the profits of the company. We do not think that, either of those two grounds is valid. The first ground arises out of a confusion "between the expression Makes the form of a share in profits' and the expression 'profit sharing' used in a narrow, technical sense. It is undoubtedly true that the bonus formula does not Jay down any fixed percentage which should go to labour out of the available surplus. The share of labour will depend on a number of circumstances: but once the amount which should go to labour has been determined, it is easy enourrh to calculate what oroportlon it bears to the whole amount of available surplus of nrofits. There is thus no difficulty In identifying bonus as a share In the profits cf the company. It is true that the International Congress on Profit-sharing held In Paris In 1B89 adopted the definition of 'profit-sharing' in the technical, narrow

sense. That definition said, that proflt-eharina waa "an agreement (formal or informal) freely entered into by which the employees receive a share, fixed in advance, of the profits" (see Encyclopaedia ol the Social Sciences, Seligman and Johnson. Vol. XII, p. 487). But that is not the sense in which bonus has been understood in our Industrial law, and it is worthy of note that s, 10 of (he Banking Act does not use the technical expression 'profit-sharing' but the more general expression 'takes the form of a share in the profits, etc.'. We are unable to hold that this general expression has a technical meaning in the sense that the share in profits must be fixed in advance, es in technical profit- sharing; such a meaning would, without sufficient reason, exclude from its purview schemes under which the workers are granted regularly a share in the net profits of industry, but in which the share to be distri- buted among the workers is not fixed in advance but is decided from time to time on ad hoc basis by an independent authority such as an industrial court or tribunal.

The second ground also appears to us to be equally untenable. Bonus in the industrial sense as understood in our , country does ccme out of the availablo surplus of profits, and when paid, it fills the gap, wholly or in part, between the living wage and the actual wage. It is an addition to the wage in that sense, .vhether it be called contingent and supplementary. None the less, it is labour's share in the profits, and as it is a remuneration which takes the form of a share In profits, it comes within the mischief of s. 10 of the Banking Act."

The Supreme Court did not decide the remaining two questions.

45. Section 10 of the Banking Companies Act was amended by the Banking Companies (Amendment) Act, 95 of 1955. By the nmendment, to sub-clause (ii) of section 10(l)(b), a proviso is added in the terms following: —

"Provided that nothing contained in this sub-clause shall apply to the payment by a banking company of (a) any bonus in pursuance of a settlement or award arrived at or made under any law relating to industrial disputes or in accordance with any scheme framed by such bankingn company or in accordance with the usual practice prevailing in banking business * • *."

As a result of this amendment, the former bar imposed by section 10 to the payment of bonus is removed,

46. The formula evolved by the Full Bench of the Labour Appellate Tribunal in Millowners' Association, Bombay vs. Rashtrlya Mill Mazdoor Sangh, (1950) 2 LLJ. page 1247, has been subsequently applied in many industries, ft came up for detailed examination before the Supreme Court in the case of The Associated Cement Companies Ltd., Dwarka Cement Works, Dwarka vs. Its Workmen and another, reported in (1959) Supreme Court Reports, page 925. In that case, the employers had paid bonus to workmen equal to three months' wages. The work- men employed by one of the appellants had demanded bonus equivalent to seven months basic wages with dearnesg allowance whilst those of another appellant had demanded six months basic wages with dearness allowance. The appellants an that case had contended that after making deductions for the prior charges from the gross profits In accordance with the formula evolved by the Full Bench of the Labour Appellate Tribunal, there was no available surplus left and conse- quently, the workmen could not claim any bonus. The workmen contended that the formuJa itself required revision as the employers were becoming increasingly more rehabilitation conscious and their appetite for the provision for rehabilitation was fast growing with the result that in most cases, after allowing for rehabilitation there was no surplus left for the payment of bonus and the main object of the formula was thus frustrated. The Supreme Court, after referring to the genesis and the terms of the formula evolved by the Full Bench, has observed at naae 943 as under: —

" This formula is based on considerations of social justice and is intended to satisfy the legitimate claims of both capital and labour in respect of the profits made by the industry in a particular year It takes the particular year as a unit and makes all its notional calculations on the basis of the grosa profits usually taken from the profit and loss accounts; ".

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In dealing with the question of revision of the formula, the Supreme Court has expressed itself at page 951 In terms following: —

"It may be conceded that there Is some force In some of the arguments urged in support.of the plea that the formula should be revised and Its priori- ties should be readjusted arid redeflne'l; but, on the other hand, we cannot ignore the fact that on the whole the formula has worked satisfactorily In a large number of industries all over the country. Except for a few cases, particularly in Bombay, where some of the tribunals have taken the view that, in its rigid form, the formula has become unworkable from the point of view of labour, in a majority of cases industrial disputes arising between employers and their workmen in regard to bonus have been settled by tribunals on the basis of this formula; and it would not be unreasonable or inaccurate to say that by and large labour's claim for bonus has been fairly and satisfactorily dealt with. The main source of contest In the working of the formula centres round the Industry's claim for rehabilitation; but, as we shall presently point out, if this claim is carefully scrutinised and examined In the light of evidence which the employer has to produce in support of his claim, even the settlement of this item would, as it is intended to, Invest the tribunal with sufficient discretion to make the working of the formula elastic enough to meet its two-fold object of doing justice both to industry and labour,"

The Supreme Court has thereafter observed that labour's claim for bonus should be decided by tribunals on the basis of the formula without attempting to revise it. It has further observed as under: —

"whilst we are not prepared to accede to the argument that the formula should be revised, we wish to emphasise that the formula is elastic enouEh to meet reasonably the claims of the Industry and labour for fairplay and justice. In its broad features it recognises the claims of the industry and tabulates them under different items as prior charges, and then provides for the distribution of available surplus between the labour, the industry and the shareholders. The items specified in the fqrmula have to be worked out notionally on theoretical grounds; in determining the con- tent of each one of the items it is therefore essential to scrutinise and weigh carefully all the relevant and material facts. If the content of each item Is determined objectively in the light of all relevant and material facts, the tribunals would generally find it possible to make reasonable adjustments between the rival claims and provide for a fair distribution of the available surplus. In this sense it is necessary to treat the formula as elastic and not rigid in working out detailed calculations under It."

The Supreme Court has in thut caso fully dealt with each one of the provisions of the Full Bench formula.

47, In the case of the Standard Vacuum Heflning Co. of India vs. Its Workmen and Another, reported in (1961") 3 S.C.R., page 536, the Supreme Court, after observ- ing that the concept of o living wage was not a static concept and that It was expand- ing and the number of its constituents and their respective contents were bound to expand and widen with the development and growth of national economy, has stated at page 661 that it wished to make it clear that Its decision in that case should not be taken to mean that as soon, as a living wage standard was reached, no claim for bonus could be made by workmen and that the said question may have to be considered on its merits if and when it arose. In dealing with the claim that there may be a ceiling in the matter of awarding bonus so that excessive claims for bonus would be discouraged, the Supreme Court has observed that in its opinion, it would be inadvisable and inexpedient to put such a celling. It has further observed at page 562 as follows:—

" This Court has consistently refused to lay down any rigid rule or formula which wouM govern the distribution of the available surplus between the three cl&lmants. The decision of this question must Inevit- ably depend on a proper assessment of all the relevant facts. If wages are small and the profits are high then the workmen would be entitled to have a high rate of bonus. Indeed, if an employer makes consistently high profits and the wages continue to be low it may Justify the increase in the wage structure itself: In other words, the award of bonus would have some relation to the wages paid to the employees. It Is also true that unreasonably high or extravagant claims for bonus cannot be enter- tained just because the available surplus would justify such a claim. As has been observed by the Labour Appellate Tribunal in Burmah-Shell

Oil Storage and Distributing Co. of India Ltd,, Bombay vs. Their Work- men (li^3), 2 LLJ. 246. care must be taken to see that the bonus which is given is not so excessive as to create fresh problems in the vicinity that upset emoluments all-round or that it creates industrial discontent or the possible emergence of a privileged class. The impact of the award of bonus in an industrial dispute on comparable employments or on other employments In the region cannot be altogether ignored, though its effect should not be over-estimated either."

48, The question regarding the powers of the Industrial Tribunals in connection with awarding bonus came up for consideration before the Supreme Court in the case of The New Maneck Chowk Spinning and Weaving Co. Ltd., Ahmedabad and others vs. The Textile Labour Association, Ahmedabad, reported In (1961) 8 S.C.R., page 1. In that case, the Textile Laboyr Association at Ahmedabad- bad entered into a five-year pact with the Ahmedabad Millowners' Association representing the member mills, in regard to payment of bonus to employees of the mills for the years 1953 to 1957- The Textile Labour Association demanded bonus for the year 1958 on the basis of the pact, but the millowners claimed that the pact was contrary to the Fail Bench formula which had been approved by the Supreme Court in the caae of the Associated Cement Companies Ltd. vs. Their Workmen. The Industrial Tribu- nal to which the dispute was referred took the view that the pact did not in any way run counter to the law laid down by the Supreme Court and that extension of the agreement for one year more would help in promoting peace In the Industry In Ahmedabad. In that cnse the Supreme Court has observed that there was no doubt that it was open to an industrial court in an appropriate case to impose new obligations on the parties before it or modify contracts In the Interest of industrial peace or give awards which may have the effect of extending existing agreement or making a new one, but that did not mean that it could do anything and every- thing when dealing with an industrial dispute, that this power was conditioned by the subject-matter with which it was dealing and also by the existing industrial law and it would not be open to It while dealing with a particular matter before it to overlook the Industrial '.aw relating to that matter as laid down by the legislature or by the Supreme Court. In connection with the decision under appeal it observed as follows:—

<• by extending the Agreement the tribunal made it possible for payment of a minimum bonus even when there was either insufficient avalltible surplus to pay bonus or no available surplus at all or even actual loss; the trlhunal was thus definitely going against the industrial law relating to bonus as laid down by this Court. It had In our opinion no rjower to do so."

In dealing with the industry-cum-region approach to the problem of bonus, it stated that in its opinion there was no scope for an approach of that kind In the case of bonus, the basic concept of which was that payment depended on surplus of profits available according to some formula in the case of each industrial concern. In dealing with Lhe argument that time had come when the industrial courts would have to face the problem of radically changing the Full Bench formula, the Supreme Court once again reiterated what it had stated in the case of Associated Cement Companies (1959) S.C.R., 925. in words following:—

"These matters can be properly and effectively decided by an Industrial court if the major representative industries In the country and their employees are brought before it with a proper reference, or it can be tackled more appropriately by a high-power commission appointed in that behalf.

49 In the month of April 1959, the All India Bank Employees Association, by Its charter of demands, made a demand inter alia in connection with bonus. Demand No. 24 pertaining to bonus was as under:—

"24.—BonwG^-All employees should be paid bonus at the following rates for

the years 1957 and 1958:— (1) A Class Banks—An adequate bonus with a minimum of four months

pay.

(2) B Class Banks—An adequate bonus with a minimum of three months

pay-

(3) C Class Banks—An adequate bonus with a minimum of two months

pay."

By the expression 'A Class Banks' the Association meant banks whose working funds amounted to Rs. 2S croics and more, all Exchange Banks and all Subsidiaries of the State Bank of India By the expression "B Class Banks' the Association meant

banks whose working funds amounted to Rs. 74 crores and more but were below Rs. 25 crores. By the expression 'C Class Banks' the Association meant banks whose working funds were below Rs. 7£ crores. Similar demands werS also made by the various constituent units of the All India Bank Employees Association. On behalf of the AH India Bank Employees Federation and the units affiliated to it. a demand wns made that bonus to workmen in a bank should be linked with the dividend declared by the bank each year in the manner following:—

"upto 3 per cent, dividend of the bank concerned, one month's salary Including all allowances and thereafter with every Increase of 4 per cent, in the dividend of the Bank concerned, five days salary inclusive of all allow- ances should be paid. Every employees should be paid minimum ono bonus inclusive 01 all allowances every year."

50, On 22nd September 19C0. the Government of India in the Ministry of Labour and Employment made the piesen+ reference. On 6th December 19C1 the Govern- ment of India set up a Commission to study the question of bonus tc workers In industrial employments and to make suitable recommendations. The terms of reference of the Commission are the following:—•

''(1) To define the concept of bonus and to consider, in relation to Industrial employments, the question of payment of bonus based on profits and recommend principles for computation of such bonus and methods of payment.

NOTE:—The term "Industrie¹ employments" will include employment in the private sector and in establishments in the public sector not depart- mentally run and which compete with establishments In the private sector.

(2) To determine the extent to which the quantum cf bonus should be influenced by the prevailing level of remuneration.

(D) (a) To determine what the prior charges should be in different circum- stances and hew they should be calculated.

(b) To determine conditions under which bonus payments should be made ' , unitwise, industrywise, and industry-cum-regionwlse.

(4) To consider whether the bonus due to workers, beyond a specified amount, should be paid in the form of National Saving Certificates or in any other form.

(5) To consider whether there should be lower limits irrespective of losses in particular establishments, and upper limits for distribution In one yean and. if so, the manner of carrying forward profits and losses over a prescribed periqd.

(6) To suggest an appropriate machinery and method of the settlement of bonus disputes.

(7) To make such other recommendations regarding matters concerning bonus that might be placed before the Commission on an agreed basis by the employers' (Including the public sector) and the workers' representatives."

CHAPTER IV

PRELIMINARY OBJECTIONS

51. One of the preliminary objections raised in the pleadings related to the constitutional validity of the newly enacted section 34A of the Banking Com- panies Act, 1949. It was contended that until the issue of disclosure or secret reserves was decided, no bonus formula could be worked out and that it was difficult for workers to place before the Tribunal any principles- for determination of bonus in respect of banking companies. In view of the decision of the Supreme Court in Civil Appeal No. 154 of 1961 and in Writ Petitions Nos. 70, 80 and 82- of 1961 (The All India Bank Employees Association and others on the one hand and the National Industrial Tribunal and others on the other) dated 28th August 1961, reported in (1961) II LLJ. page 385, the aforesaid objection was not pressed at the hearing.

52. The All India Bank Employees Association has, by paragraph fl2 of its further statement of claim, dated 5th November 1961, raised the following further preliminary objections :—-

"(1) The question of bonus as referred to does not constitute an industrial dispute. Industrial dispute has been defined in section (2) (k) of the Industrial Disputes Act, 1G47 as follows :—"Industrial dispute means any dispute or difference between employers and employers, or between employers and workmen, or between workmen and workmen, which is connected with the employment or non-employment or the terms of employment or with the conditions of labour, of any person."

(2) The reference as worded does not constitute an industrial dispute in the light of the above definition and the reference, therefore, is bad in law and liable to be rejected.

(3) Neither the Association nor any other union of the bank employees nor the banks have raised any dispute nor was any dispute apprehended as regards the principles and conditions under which the bonus should be payable, nor was any dispute ever raised about the qualification of eligibility and method of computation. No dispute ever existed nor was ever debated about the question as to whether or not the banks should be allowed to make provision for all matters for which provision is necessary by Or under any of the Acts applicable to the banks or which are usually provided for by the banks. The various questions included in the said item in the reference order were never discussed by the banks or by the bank employees at a con- ference table nor any dispute or difference of opinion was voiced by any of the parties to this dispute hefore the reference order was made. That situation would only arise when discussions for settlement of the quantum of bonus would take place between the parties. It can never arise incidentally and in isolation. The Government had, therefore, no ground or basis to hold that any industrial dispute existed or was apprehended on the terms of reference now before this Honourable Tribunal.

(4) Thf¹ opposition of the bank employees to the introduction of section 34-A Of the Banking Companies Act, 1049, can at the most be an opposition to a statute but cannot constitute a difference between employers and the employees, because an industrial dispute cannot arise out of the provisions of statute but must arise out of an industrial relation between the employers and the employees.

(5) The reference is bad for the reason that it is not open to the Govern- ment to apprehend the arising of an industrial dispute without any gesture or move made cither by the employees or by the banks. It is not open to the Government to imagine that an industrial dispute exists or to apprehend that a dispute exists or may arise out of its own fancy.

(6) The question of deciding the principles and conditions under which the bonus should be payable or deciding the question of qualification for eligibility and method of computation after making provisions for certain matters cannot constitute an industrial dispute for reasons of vagueness and uncertainty.

(7) An industrial tribunal is permitted to make an award which may be an interim or a final determination of an industrial dispute or on any question relating thereto but the Tribunal is not permitted under the Act to decide a theory or a method relating to an industrial dispute without the specific dispute having been referred to it.

(8) The Central Government under section 10(1) (a) is empowered to refer an industrial dispute or any matter appearing to be connected with, or relevant to the dispute but this power can be exercised only when the matter connected with the dispute or relevant thereto is a matter that can be enforced in material form against the parties under section 10(3) of the Act.

(9) The reference is bad for the reason that an award on principles about bonus, qualification for eligibility, conditions under which it would be payable and method of its computation are all theoretical matters and without substance unless the main dispute about a specific quantum of

bonus for specific year is referred for adjudication. Mere principles or theoretical notions that may h?ve to be considered, discussed and determined before a final relief could be given would, in itself, not constitute an industrial dispute.

(10) The determination of principles, eligibility, etc. cannot be enforced and no relief can be obtained from an award which proceeds to determine such theoretical principles etc. An award under the Act creates certain rights and liabilities contravention of which becomes penal. An award on theory or mere principles cannot create such obligations. The refer- ence is bad in law for this reason also.

(13) An industrial dispute raised by employees seeks a material relief and an award on an item referred to this Honourable Tribunal for adjudica- tion cannot bring in any such material relief and would not be amen- able to enforcement under section 33C of the Act particularly when a demand for bonus is a demand for cash payment or a monetary benefit. (12) Principles on which bonus should be paid or conditions on which it snould be paid are matters which cannot be decided in vacuum and without reference to facts in each rase because principles and conditions mav differ from case to case and from situation to situation and cannot validity constitute an industrial dispute under the Act and the item under the reference cannot constitute a valid industrial dispute. The refer- ence is bad for this reason also.

(13) Statutory provisions reflating the affairs of the banking companies contained in any Act are binding not only on the banking companies and their employees but also on this Honourable Tribunal and, therefore, no industrial dispute can ever arise between the parties as regards those provisions. On this point, therefore, an industrial dispute cannot exist and cannot be apprehended.

(14) The reference is bad on the ground that it denies equality before the law or equal protection of the laws and that it offends the provisions of Article 14 of the Constitution. The reference order seeks to differen- tiate and discriminate among banks inter se and also bank employees inter se. The Association had served its charter of demands against all the banks and, the exclusion of the public sector banks such as the Reserve Bank of India, the State Bank of India and State Subsidiary Banks from the scope of the present adjudication caters to a most unwholesome and unwarranted discrimination as between banks which conioete with each other. Any award of this Honourable Tribunal would thus ultimately result in differentiating and discriminating between banks and banks and between bank employees and bank employees. The award would be the starting point for disputes) between the banks in the private sector and those in the public sector, In fact the very basic object of the Industrial Disputes Act to settle industrial disputes and bring industrial peace would be frustrated by any direction in this reference by this Honourable Tribunal, In Reference No. 1 of I960 before thig very Honourable Tribunal the State Bank of India and State Subsidiary Banks have been included for common service condi- tions. The exclusion of these banks from this reference will lead to anomalous position in that the banks now before this Honourable Tribunal would, if thege preliminary objections are not upheld, have a certain set of principles and conditions on which bonus should be pay- able as well as other conditions that may be directed in regard to bonus while the banks not before this Honourable Tribunal would be free to have a separate set of such principles and conditions etc.

(15) The reference is bad in that the Central Government has malaflde issued this order of reference making a colourable use of the powers conferred upon it by sub-section (1) (a) of section 10 of the Industrial Disputes Act, 1947, in not referring the real or the substantial dispute, viz., the Association's demand for a certain quantum of bonus for specific years and merely referring for adjudication the shadow of the substance of the dispute, the principles, viz., the principles and conditions on which bonus should be payable. The reference is bad in law because there is malice in law contained in this order of reference.

(16) By virtue of the pendency of the reference before this Honourable Tribunal the workmen in the banking companies which are parties to this reference are malaflde prevented from going on strike under section S3 of the Act. The Association submits that the prohibition under section

23 of the Act continues during the pendency of proceedings before this- Honourable Tribunal and two months after the conclusion of such pro- ceedings and even thereafter for a minimum period of 12 months. Such a prohibition of strike would prevent the bank employees raise an agitation in pursuance of their original claims for bonus for specific years in terms of any decision that this Honourable Tribunal may arrive at on the merits of the reference. Thus any decision of this Tribunal on the merits of the reference would militate against the Industrial Disputes AcL itself.

(17) This restriction on the fundamental right of workmen to go on strike for the purpose of winning their economic demands—bonus, in this parti- cular case—makes this reference bad in law and malaflde in the eyes of law. The reference should therefore be rejected."

The All India Bank Employees Association has stated in the same paragraph that the Association craves leave to raise further preliminary objections at the time of hearing of the reference, In fact, no further preliminary objections were raised at the time of the hearing of the reference,

53. The All India Bank Employees Federation and the Vadodra Rajya Bank Nokar Sangh and the Indian Overseas Bank Employees' Union have pleaded that the reference was vague and that it was difficult to lay down a precise formula without looking at the actual profits of each bank for the years in question, that the reference savours of discrimination between banks and banks and between banks and their respective employees inasmuch as the State Bank of India and its Subsidiaries were not included in the reference. The All India Bank of Baroda Employees Federation and the Indian Overseas Bank Employees Union have sub- mitted that the order of reference was invalid and bad in law, that the matter that was referred to this Tribunal for adjudication was only a matter appearing to be connected with or relevant to the main dispute relating to the fixation of quantum of bonus to be paid to the employees in respect of the years 1957 to 1959, that the order referring only connected or relevant matters without referring the main matter or dispute for adjudication was incomplete and therefore bad in law and that the Tribunal had no jurisdiction-to decide the reference.

54. The Indian Banks Association has denied the various contentions raised by the All India Bank Employees Association. It has submitted that in order to evolve uniform methods and principles for payment of bonus in the banking industry in view of the different and divergent claims made by the employees' unions in respect of bonus and to preserve industrial peace, the Central Govern- ment had bona fide made the reference under section 10 (1A) of the Industrial Disputes Act, 1947. It has pleaded that at all relevant times there was a dispute or an apprehended dispute regarding the principles and conditions under which bonus should be payable as also as regards the questions of eligibility for the same and the method of computation. It has further pleaded that as held by the Supreme Court, there was no fundamental right of workmen to go on strike.

55. The Bombay Exchange Banks Association has pleaded that both the Govern- ment, and at an earlier stage, the banks, had before them demands for bonus not only made by the All India Bank Employees Association but also by the All India Bank Employees Federation and other unions, "differing materially not only as regards the principles and method of computation of the bonus demanded, but also on eligibility", that the difference in approach was obvious on a perusal of the statements of claim filed before this Tribunal, that the Government, in the light of such demands, had made the present reference in the manner it had done so as to set at rest not only the differences between the banks and their workmen on the question of bonus, but also the differences between the various unions as to the basis on which bonus should be paid, that it was incorrect to state that neither the All India Bank Employees Assocaition nor any other union of bank- employees had raised any dispute that did not involve consideration in the first instance of the principles and conditions under which bonus should be payable by banking companies and that similar was the position as regards qualifications and eligibility. It has further pleaded that the reference made by the Central Govern- ment was an administrative act, the correctness of which could not be canvassed before an Industrial Tribunal or a court of law either on the ground that the Government did not have any material before it to come to the conclusion that there was a dispute or that a dispute was apprehended, that even among the workmen there was, and is, a difference as to the principles, the method of com- putation, the conditions under which bonus should be paid and eligibility for

bonus, that the Tribunal in making an award in this reference will not be decid- ing any theory, that the award will amount to a final determination of the dispute as regards the principles, method of computation etc., in connection with bonus payable to the workmen of banks, that what the Government had referred was an industrial dispute and no question arises of the Government only referring any matter appearing to be connected with or relevant to an industrial dispute, that an award made on this reference will be binding on the parties and such an award will certainly create rights and liabilities in the sense that if on an application of the principles etc., contained in the award a claim for bonus arises, the workmen will have a right to that bonus and banks would be liable to pay the bonus, that reference to the provisions of section 33C was totally irrelevant and besides the point, that an award does not cease to be one merely because there is no scope for an application under the said section, that the Tribunal will not be adjudicating in vacuum or without reference to the facts, that there is no violation of the provisions of Article 14 of the Constitution^ that the reference does not differentiate or discriminate as alleged or otherwise and that even assuming without admitting that there was differentiation, such differentiation was rational and was a result of a reasonable classification In that the only inter State Banks excluded were those in the public sector and the Reserve Bank was not a commercial bank at all. It has denied that any colourable use of powers had been made or that the reference was in any way bad In law or that there was malice in law contained in the order of reference or that the deci- sion of the Tribunal would militate against the Industrial Disputes Act or any other law or that there was any restriction on any fundamental right. It stated that the Supreme Court had held that the workmen had no fundamental right to go on strike.

66. The Indian Banks Association as well as the Bombay Exchange Banks Asso- ciation have denied that there Is any vagueness in the reference or that there is any discrimination as alleged by the All India Bank Employees Federation, The Bombay Exchange Banks Association has further pleaded that it was not aware of the reasons for excluding the State Bank of India and its subsidiaries from the reference and has submitted that the reference was required to be dealt with as It stood.

57. The Northern India Banks Association, in reply to the statement of claim filed by the All India Bank Employees Federation, has denied that the reference was in any way vague. It has pleaded that there is no discrimination between banks and banks and their respective employees and that in any event, the same could not affect the validity of the reference. The Miraj State Bank has put in a reply taking practically the same stand as the one taken by the Indian Banks Association in connection with these preliminary objections.

58, The dispute in connection with bonus in the banking industry is fairly old. The Sen Tribunal was constituted as far back as June 1949 to adjudicate upon the dispute which existed between 205 banking companies and their workmen relat- ing to "bonus, including the qualifications for eligibility and method of pay- ment." The dispute remained unresolved as the award of the Sen Tribunal was set aside by the Supreme Court. The dispute regarding bonus was again referred by the Government to the Sastry Tribunal in identical terms. The Sastry Tribunal merely made certain recommendations in connection therewith in view of the legal difficulties experienced by the Tribunal. The Labour Appellate Tribunal differed from the Sastry Tribunal as regards the scope of this term of reference. The Labour Appellate Tribunal further held that section 10 of the Banknig Com- panies Act as it then stood was no bar to the claim for bonus made by the employees. The Supreme Court, in appeal, held that section 10 of the Banking Companies Act, prior to its amendment in the year 1956, prohibited the grant of industrial bonus to bank employees inasmuch as such bonus was remuneration which took the form of a share in the profits of the banking company. The dis- pute relating to bonus thus remained unresolved. In fact, till the amendment of section 10 of the Banking Companies Act in the year 1956, there was a legal bar to the raising of any industrial dispute in connection therewith. After the removal of the bar, there was no settlement of any dispute relating to bonus. The demands made on behalf of the workmen employed in banks by the All India Bank Em- ployees Association and the All India Bank Employees Federation and by unions affiliated to them, show that there was considerable divergence as regards the claim for bonus and the principles on which it was based. In the charter of demands of the All India Bank Employees Association, a cla.im was made for "adequate bonus" with a minimum of four months pay for A Class Ijanks, with a minimum of three months pay for B Class banks and with a minimum of two

months pay for C Class banks for the years 1957 and 1958. The claim made by the All India Bank Employees Federation and the unions affiliated to it was that bonus should be linked with the dividend declared by a bank "every year" as follows: —

"Upto 3 per cent dividend of the Bank concerned, one month's salary in- cluding all allowances and thereafter with every increase of i per cent in the dividend of the Bank concerned, five days salary inclusive of all allowances should be paid. Every employee should be paid one (months) bonus inclusive of all allowances every year."

None of these demands was accepted by the banks. A reference has, therefore, been made by the Central Government to this Tribunal in terms referred to earlier. In view of this, it would be contrary to facts to say that "neither the Association nor any other union of the bank employees nor the banks have raised any dispute nor was any dispute apprehended as regards the principles and condi- tions under which the bonus should be payable nor was any dispute ever raised about the qualification of eligibility and method of computation." A dispute, in fact, existed. The question of bonus was a live issue between the parties. The same is also evident from the statements of claims made before me and the written statements filed by banks. There existed and there does exist an in- dustrial dispute in connection with bonus, and the Central Government was entitled to refer the same for adjudication to this Tribunal. The contentions raised in this connection are based on incorrect facts and are without any merit.

59. The next question which I will consider is whether there could be s reference in connection with the general principles governing bonus without there being a reference in connection with the quantum of bonus to be awarded for a particular year. A dispute concerning bonus may relate to the general principles on which bonus can be claimed or be awarded Including the method of computation of bonus, the qualification for eligibility and conditions under which it is payable. It may also relate to the quantum thereof, having regard to the application of those principles to the facts pertaining to a bank or banks in each year. A dispute may relate to either of these matters or both these matters. Where numerous banks are concerned and where the disputes relate both to the general principles and to the quantum of bonus payable by the banks for any particular year or years, it is open to the Government to refer the disputes relating to principles governing bonus applicable to all the banks without at the same time referring the disputes relating to any particular bank or banks regarding the quantum of bonus payable for any particular year or years. A similar reference was made by the Government when the Sen Tribunal was appointed and also when the Sastry Tribunal was appointed. In a dispute relating to general principles governing bonus, all the banking companies may be interested, whilst in a dispute governing the quantum of bonus payable for a particular year, if bonus is payable unitwise the particular bank concerned alone may be interested, and if bonus is payable by banks classwise, a particular class of banks alone may be interested. It is both lawful and eminently just and convenient that where general principles relating to bonus are in dispute, all banking companies interested therein should be made parties to one reference. There is no merit in the plea that there cannot be an industrial dispute in connection with the matter referred to this Tribunal "for reasons of vagueness and uncertainty", as alleged. There is no vagueness Or uncertainty in the reference. II' a dispute concerning principles governing bonus involves a question of national importance and also is of such a nature that industrial establishments situated in more than one State are likely to be interested In, or affected by, such dispute, it can be referred for adjudication by a National Tribunal without the Tribunal being burdened with a reference relating to the quantum of bonus which may have to be paid as a result of the working out and application of the principles so evolved for particular years by particular banks or a class of banks. In my view, Government had sufficient reason to come to the conclusion that an industrial dispute existed or was apprehended as stated in the reference and was empowered and entitled to make the reference.

60 In view of what is stated above, it is not necessary to consider the pica that the making of the reference by the Government being an administrative act, the correctness thereof cannot be canvassed before me on the ground that the Government did not have any material before it to come to the conclusion that there was a dispute or that a dispute was apprehended. The award given by this Tribunal in connection with "bonus—principles and conditions under which pay- able Qualification for eligibility and method of computation" would be binding on all parties to the reference under the provisions of section 18(3) of the Industrial

Sic. t(ll)] THlfl (3A2afrTE 0I> INDIA EXTRAORDINARY 1947

Disputes Act, 1947 and would create rights and obligations thereunder and so long as it remains In force, bonus would have to be calculated and would become payable on the basis thereof. The decision given in such reference would not be a decision "in vacuum". Equally without substance is the plea that the reference offends the provisions of Article 14 of the Constitution. It is pleaded that the reference order seeks to differentiate and¹ discriminate amongst banks inter se and bank employees inter se. There are eleven banks which were included in the order of reference dated 21st March 1960 in Reference No, 1 of 1960 before this Tribunal which are not included in the present reference. Two out of these eleven banks had gone into liquidation between the date of the order of reference in Reference No. 1 of 1960 and the date of this reference. The remaining nine banks are the State Bank of India and its eight Subsidiaries. All these nine banks are in the public sector and are governed by special enactments. The Reserve Bank is governed by a special enactment. All these banks in the public sector have certain statutory functions to perform. The mere fact that these banks have not been made parties to the present reference does not render the reference in any sense bad under the provisions of Article 14 of the Constitution of India. Merely because an order of reference has been made in respect of some banks and not in respect of others would not render the reference bad. The All India Bank Employees' Association has signally failed to establish any mala fides on /the part of the Central Government in issuing the order of reference. There is no malice in law contained in the order of reference. There is no substance in the plea that any decision given by this Tribunal on merits would militate against the Industrial Disputes Act as alleged or at all, or that there is any "fundamental right" conferred under the Constitution on workmen to go on strike for the purpose of winning their economic demands. The submission made by the All India Bank Employees' Federation "that the reference is vague" or "that the reference savours of discrimination" has no merit. The pleas of the All India Bank of Baroda Employees' Federation and the Indian Overseas Bank Employees' Union that the order of reference is invalid and bad in law and that the Tribunal has no jurisdiction to decide the reference, are equally without any substance. The reference is in no sense bad in law or invalid. All the preliminary objections are without any merit and are rejected.

61. It is stated by the All India Bank Employees' Association that "the Govern- ment of India has appointed a Bonus Commission which will be considering all the aspects of the bonus question both in the private and public sector and the enquiry that will be made by that Commission will be a comprehensive enquiry and the workmen concerned in this dispute would have a right to appear before that Bonus Commission and state their views on all the aspects of the question of bonus". Thereafter, it is pleadqd as under: —

"It is very likely that the recommendations of the Bonus Commission would be later on incorporated in the Statute of the Parliament. The Association, therefore, respectfully submits to this Honourable Tribunal that the Tribunal may be pleased to reject the reference and direct the parties to appear and place their views before the said Bonus Commission if they so desire."

The terms of reference of the said Commission provide for the definition of the concept of bonus and the consideration, in relation to industrial employment, of the question of payment of bonus based on profits and the recommendation of principles for computation of such bonus and methods of payment. They provide for the determination of the extent to which the quantum of bonus should be influenced by the prevailing level of remuneration, of what prior charges should be in different circumstances and how they should be calculated, and of the conditions under which bonus payments should be made unitwise, industrywise and industry-ciwn-regionwlse. Tlir. terms of reference include several other matters and are comprehensive, The functions however of a Commission and of a National Tribunal are distinct and different. Merely because a Commission is appointed, a National Tribunal cannot cease to function or reject the reference. One cannot predicate and say that the recommendations of the Commission would bo incorporated in an Act of Parliament. A National Tribunal has to function within the limits of the industrial' law as laid down by the legislature and as set out by the Supreme Court. The reference to this Tribunal relates to certain banking companies and their workmen and this Tribunal has to examine the question of bonus within the limits of the industrial law and within the limits of the terms of the reference. It is not open to this Tribunal to direct any parties to appear and place their views before the Bonus Commission. The mere fact that Government has appointed a Bonus Commission would not constitute a valid

ground for rejecting the reference, and the demand made in that connection cannot be acceded to.

CHAPTER V

MERITS OF THE QUESTION RELATING TO BONUS

62. I will now proceed to deal with the merits of the matter concerning bonus. The All India Bank Employees Association has, in connection with the principles governing bonus and conditions under which bonus should be payable, pleaded that so loug as a living wage had not been obtained, workmen would have a right to claim bonus even in cases where an Industry would be making a loss, though in such eases, the payment of bonus would be small, and that where the goal of living wage has been attained, bonus, like profit sharing, would be a cnsh incentive to greater efficiency and production. The Association has emphatically stated that bonus was a deferred wage and that the workmen working In an industry had a right to claim bonus over and above their stipulated wages where such wages fell short of the living wage standard. It has also submitted that in the banking indus- try, bonus cannot be related to trading profits but should be related to dividends, that In the banking Industry, the profit and loss accounts of banks, as disclosed in, the published balance-sheets, were fictitious and never reflected a correct picture of trading results, that bonus should not be determined unit-wise but should be determined class-wise or on the basis of the whole industry where the whole indus- try or a major part of it was before the tribunal and that bonus in.'the banking Industry should be paid on the same principles and basis as those evolved by the Sen Tribunal, except as regards the rates and except as regards xhe unit-wise basis which should be replaced by a diisswise basis. The Association has further pleaded that the computation of the percentage of dividends should be arrived at after ave- raging the dividends of banks classwise and that the method of computation pres- cribed by the Sen Tribunal should be applied on the dividends arrived at as above, and that a minimum bonus of one month's pay must always be paid to workmen in the banking industry.

63. In the event of the Tribunal not accepting the above principle, the Associa- tion has. In the alternative, pleaded that the quantum of bonus should be decided on gross profits made during the particular year by banks considered clasewise and the Items of expenditure for previous yeara and previous liabilities should not be allowed to reduce the gross profits of the year In question and that "where the classes of banks would be giving dividends the workmen must necessarily be given bonus which in any event would not fall below the same amount as dividends for the year in question", that the balance-sheets and the profit and loss accounts of the class of banks concerned should be closely scrutinised particularly to see whe-- >ther the entries have been made on the debit side deliberately and mala fide to reduce the amount of gross profits or whether some of the items, of income are not disclosed, that if there were entries on the expenditure side which were wholly extraneous or entirely unrelated to the trade of the year, the same should not be allowed to the industry, that only normal depreciation should be allowed and that notional normal depreciation should not be allowed, that where the actual provision for income-tax was less than the statutory income-tax, the actual provision should be allowed, that In all other cases, statutory Income-tax after considering allowable items, should he allowed, that the return on the paid-up capital should be much less than the usual return allowed in the bonus cases for other industries ard should never be more than four per cent., that where there was bonus share capital, a return of two per cent, only thould be allowed and not more, that only the reserves in excess of the reserves required under the Banking Companies Act, when actually used as working capital during the year should be allowed a return of not more than two per cent., that depreciation reserves should not be permitted any return even though such reserves may have been used as working capital, that no provision for rehabilitation should be allowed on buildings and other fixed assets, that provision which must be made under the compulsion of the Banking Companies A?t should be allowed in the calculation of bonus but only to the extent of puch compulsion, that as regards all other provisions which were usually provided for by banks, the banks should be called upon to state clearly what those provisions were and t.hn purpose for which the provisions were made and the extent thereof, that the Tribunal should thoroughly investigate the necessity or justifiability of such provisions in such a manner that excessive provisions should not prejudicially affect the claim of tjie employees for adequate bonus and that tha extent of ihe justifiability of those provisions must be made justiciable by the Tribunal.

(34. The All India JBanfc Employees Federation and the Vadodra Rejya Bank Nokar Sangh have submitted that the principles regarding bonus in other industries were well settled and that the bank employees were entitled to an adequate and substantial 'oonus to illl the gap between the living wage and the actual watte and to share in the profits of the banks, that the Supreme Court of India had In various decisions en bonus and particularly in the case of the Associated Cement Co. LtcL laid down the governing principles regarding payment of bonus, that so far as the banking industry was concerned, it had been repeatedly stated by the Industrial Tribunals, Labour Appellate Tribunals and also by the Bank Award Commissioa that tne profits shown in the baLance-sheets and profit and toss accounts Of the banks did not show the true and complete picture of the working results of the banks and that numerous deductions were made before the profits were shown in. the balance-sheets and profit and loss accounts of the banks, that the full and com- plete picture relating to the profits of the banks, Including the secret reserves provided for duiing each year should first be disclosed, that if any return was to be allowed on the reserves used as working capital as. a prior charge the banks would have to disclose the total quantum of reserves on which they wished to cJaim the return that nQ provisions other than those as laid down by the Supreme Court in the"Associated Cement Companies case should be allowed as a prior charge lor the purpose of calculating the available surplus out, of which bonus could be awarded, that if any provisions were to be made which were peculiar to any banks, the same should be taken into consideration only in distributing the available sur- plus, that in-any case the minimum quantum of bonus should be paid by all ihe banks on the basis of four months emoluments for big banks and three months, emoluments for small banks and that over and above the minimum bonus referred to above additional bonus should be computed on the basis of the principles referred to above. As regards the conditions for payment of bonus, it is submitted that It should be proportionate to the earnings of the workmen for +he year in auestlon- Irrespective of the fact whether they were in service of the bank at the time of psyment or not and lhat bonus should be paid unconditionally.

65. The Punjab National Bank Staff Association, Eastern Circle, Calcutta, has pleaded that the quantum of benur should be related to the working capital cf the banks on the following scale:—

Working capital of less than Bs. 25 crores—3 months to+al wage as bonus. Working capital of Rs. 25 crores but less than RE, 50 crores—4 months bonus. Working capital of Rs. 50 crores but less than Rs. 75 crores—4& months bonus- Working capital of Rs. 75 crores but less than Rs. 100 crores—3 mciilhs bonus. Working capital of Hs. 100 crores but less than Rs, 125 crores—51 months

bonua.

Working capital of Rs. 125 crores but less than Rs, 200 crores—6 months bonus. Working capital of Rs. 200 crores and above—7 months bonus.

As regards the conditions for payment of bonus it has pleaded that bonus, should be calculated en the totel wage earned during the official year of the bank, that a monthly wage in the formula would thus mean one-twelfth of such aggregate* that bonus may be paid in one or two instalments in a year, that persons who weie- eligible for bonus but who would not in service of the bank should be paid bonua on their submitting claims in writing to the bank,

6H. The Indian Banks Association has pleaded that payment of bonus should not be compulsory in xhe case of banks as in the case of other industries having regard to the peculiar nature of the banking Industry and its requirements and that the same should be left to the bona fide discretion of the management. Without pre- judice to the aforesaid submission, it has pleaded that the principles applicable to nun-baking concerns, could not opply to the banking industry and that payment of bonus to the bank employees should be governed in accordance with the prin- ciples to be evolved having regard to the peculiar nature of the business transacted by banks and the provisions of the Banking Companies Act, 1949, that "not only mutt the usual prior charges be deducted from the profits of the year Including statutory reserves under section 17 etc., but additional items extraneous to trading profit*, capital rights, etc.. should be allowed to be deducted from the profits shown in the published accounts", that the return on paid-up capital and on reserves should be allowed at a higher rate than in other trades or industries in view of the great hazards to which the funds of banks were exposed and considering the change In the pattern of taxation whereby the grossing up of dividends, had. been recently stopped and that a suitable formula should be devised inter alia in view of the requirements of sections 17, 34A and other provisions and reserves permissible.

under the said Act. It has denied the claim of the All India Bank Employees Asso- ciation that so long as living wage had not been attained, workmen would have a right to claim bonus even in cases where an industry Would be making a loss or that bonus was a deferred wage. It has pleaded that the question about bonus where the floal of living wage had been attained, did not arise for consideration in the present reference and that the principle of linking bonus to dividend had not been accepted by the Sastry Tribunal and had been negatived by the Supreme Court. It has denied that the published balance-sheets and profit and loss accounts of the banking companies did not disclose a true and fair view of the company's affairs or were fictitious or that bonus should be paid on the same principles and basis as those evolved by the Sen Tribunal with the suggested modifications. It has pleaded inter alia that a unitwise approach was proper and more appropriate than a classwlse approach, that the demand for a minimum bonus of me month's pay was contrary to the well-established concept of bonus, that the Tribunal "should adopt the principles relating to bonus as laid down by the Supremo Court with such modifications as may be necessary for applying the said principles to the special features of the banking industry", that ihe claim for bonus equal to divi- dends was contrary to all established principles, that the method of computation suggested whereunder gross profits must be first determined en the basis of the balance-sheets tind profit and loss accounts of a class of banks was tantamount to a consolidation of the balance-sheets and profit and loss accounts of all such "banks and was an impracticable solution, that the banks should be allowed as prior charge all expenditure incurred during the year in respect cf known liabilities, that it was fair and just to allow at least the notional normal depreciation, that the principle of deduction of actual income-tax had been disapproved by the Supreme Court, that no discrimination should be made between bonus share capital and other subscribed capital, that there was no justification for differentiating between statutory reserves ana the reserves over and above the statutory reserves when used as working capital, that depreciation reserves should be treated on the same footing as other reserves, that rehabilitation with regard to buildings, fixed asset3, comptometers, accounting machines, typewriters, etc., should be provided, that all usual, necessary or permissible provisions should be allowed, that privilege was claimed "in respect of disclosure of reserves and provisions made under section 34A of the Banking Companies Act, and that the Tribunal had no jurisdiction to call for the said information or to Investigate the necessity or justifiability of such provisions".

67. The Indian Banks Association has, in reply to the statement of claim filed by the All India Bank Employees Federation, pleaded inter alia that the Full Bench formula was not applicable in its entirety, that it denied the correctness of the submission that no provisions other than those laid down in the Associated Cement Companies case should be allowed as a prior charge for calculating the available surplus and that the demand for four months' emoluments as minimum bonus for big banks and three months' emoluments ss minimum bonus for small banks was contrary to all principles and was inconsistent with the concept of bonus.

68. The Bombay Exchange Banks Association hos pleaded that having regard to the nature of the banking industry and its requirements, the rights and privileges conferred upon it under the provisions of law, the requirements of law imposed upon it, the nature of the contribution of workmen employed in banks and the part played by the higher executives and the management staff of banks, It would be wrong in principle to make it compulsory for banks to pay bonus to workmen out of 1he profits of any particular year in which there was a profit. It has stated that all the Exchange Banks had voluntarily been paying bonus to their employees unrelated to the profits of any particular year and has assured that the 10 Exchange banks referred to by it in its written statement, dated 31st May 1961, would continue to pay such bonus voluntarily as would be sanctioned" by the directors of each of the said banks. Without prejudice to the aforesaid submissions, It has pleaded that if at all any general formula or basis for the grant of bonus is to he evolved, it should not be related to the factors like deposits, working funds, reserves or dividends and that before arriving at any 'available surplus of profits' return should be provided not only for the banking company and its shareholders but nlso for safeguarding the interest of depositors, which was a bank's primary duty, as prior charge on profits, apart from depreciation, income and other taxes, provision for rehabilitation, replacement and modernisation and all matters usually provided for out of profits by banks, It has denied the claim made by the All India Bank "Employees Association that bonus was an additional or deferred wage or that a workman had a right to claim bonus even in cases when Industry was making a loss so long as a living wage had not been -ittalned. It has pleaded tfiat there was no final pronouncement on the concept of bonus in a case where a living wage was paid. It has denied that bonus should be related to "dividends and has

toc."(U)] TttB 0 4. < . . A

submitted that such a position would lead to the same incongruous results as wherji the Sen Award linked bonus to dividends and that the question of dividends paid to shareholders did not arise In the case 0* the Indian business of Its members. It has denied that the profits disclosed by banks In their puulished accounts were fictitious or did not reflect the correct picture of trading results and has stated that the balance-sheet and profit and loss account of a bunking company disclose a true ana fair view of the company's affairs and of the profit or loss in accordance with the provisions ot the Companies Act, 1958 read with Banking Companies Act, 194S-1 and that bonus should not be linked otherwise than to the published profits. It has denied the submission that bonus should not be determined unitwise but should be determined classwisc or on the basis of ^he whole Industry or that bonus should be paid on the same principles and basis as those evolved by the Sen Tribunal or that a minimum bonus equal to one month's pay should be given or that workmen must be given bonus which, in any event, should not fall below the same amount as dividends Jor the year in question. It has stated that classwlse determination of bonus was unacceptable. It has denied a number of submissions mad? by the All India Bank Employees Association regarding the method of computation ot bonus and has pleaded that banks should be allowed all expenses paid durmp the year or provided against known liabilities, that it was equitable that notional normal depreciation, if not full statutory depreciation, should be allowed, thai if a formula was evolved showing the notional gross profits, tax at the appropriate rate on such profits should be allowed, that the return on paid-up capital should be at a much higher rato than that allowed in the case of other industries, that there was IID principle to justify a lower return in connection with bonus shares, that banks should be entitled to a much higher return on reserves used as working capital, that depreciation reserves should be treated as any other reserves and that the banks claimed privilege from disclosure under section 34A of the Banking Companies Act In respect of undisclosed provisions or reserves and dented the submissions made in connection therewith.

6P. The Bombay Exchange Banks Association, in reply to the claim made by the AIL India Bank Employees Federation, has denied that no provisions other than those laid down by the Supreme Court in the Associated Cement Companies' case should be allowed as a prior charge or that the provisions peculiar to banks should merely be taken into consideration only when distributing the available surplus and has stated that the demand for minimum quantum of bonus on the basis of four months' emoluments for big banks and three months' emoluments for small banks was fantastic and unreal. It has denied the claim that bonus should be paid unconditionally or that it should be proportionate to tho earnings of the workmen for the yoar In question irrespective of the fact whether they were in servii e of the banks at the time of payment or not.

70. The Northern India Banks Association has pleaded that payment of bonus should not be compulsory in the case of b3nks is in the case of other industries and should be left to the bona fidp discretion of the management on grounds similar lo those set out by the Indian Banks Association. It has pleaded that the prin- ciples regarding bonus settled in respect of other industries could not, having regard to the nature of their business apply in the case of banking companies and that payment of bonus to bank employees should be governed In accordance with the principles to be evolved having regard to the peculiar nature of the business transacted by banks under the provisions of the Banking Companies Act, that in the case of payment of bonus to bank employees, in addition to the usual prior charp.es including statutory reserves, additional items extraneous to trading profits, capital rates, etc., have to be allowed to be deducted from the profits shown in the published accounts, that return on the paid-up capital and on reserves should be allowed at a higher rate to banks than in other trades or industries, that the question of bonus can be decided from the figures given in the balance- sheets without reference to secret reserves and that "In view of the requirements of sections IT and 34A and other provisions and reserves permissible under the Banking Companies Act, a suitable formula is to be devised". In reply to the statement of claim of the All India Bank Employees Federation it has further pleaded that the reserves and the provisions made by banks cannot be questioned in view o* the statutory protection given in this regard and that the claim for four months bonus for big banks and three months bonus for small banks was contrary to all principles and was Inconsistent with the concept of bonus.

71. The Mirajj State Bank Limited has more or less adopted the stand taken by the Indian Banks Association. The Bharatha Lakshmi Bank Ltd., has pleaded as follows: —

"As regards principles and conditions under which Bonus is payable by- Banking Companies, we beg to sumbit that out of the net profits earned

for the year, provision is to be made for payment for Income-tax and other taxes and for allocation to statutory Reserve Fund. Out of the balance remaining, provision will have to be made for payment of a reasonable Dividend to Shareholders. Only after making the above provisions, question of payment of Bonus to employees will come up for consideration, should there be availability of further allocations from net profits. Bonus is not to take priority over Dividend to Share- holders and the above-mentioned provisions are either statutory requirements to be complies with under certain Acts or legitimate appropriations in common amongst all Banks.

Besides, Bonus is only ain ex~gratia payment based on the net profits available and is not a legitimate claim of the employees."

72. Before dealing with the various points urged by the parlies, it would be necessary first to see what is the ambit" and scope of the reference. The terms of reference to this Tribunal provide for the adjudication of the dispute con- •eerning: —

"Bofius—principles and conditions under whicfi payable, qualification foi eligibility and method of computation, after making provision for all matters for which provision Is necessary by or under any of the Acts applicable to the banks or which are usually provided for by banks."

The reference is in connection with the dispute roneerning bonus. The expression "bonus" in connection with Industrial disputes has now acquired a definite meaning. In the case of The New Maneck Chowk Spinning and Weaving Co. Ltd., Ahmedabad and others vs. The Textile Labour Association, Ahmedabyd, reported in (H

The Supreme Court, In the course of its judgment, adverted to a fifth kind of bonus, namely, goodwill bonus. Dealing with the same, the Supreme Court has observed •as follows: —

"As its very name implies, It is a bonus which is given by the employer out of his own free consent In order that there may be goodwill between him and his workmen; but there can he no question of Imposing a goodwill bonus by industrial courts as imposition of such bonus Is a contradiction of Its very concept."

73. From the terms of reference it Is clear rhat thS dispute In the present case •does not relate to production bonus or Incentive wage or to bonus as an implied term of the contract between the parties, or to customary bonus in connection with -some festival It is a dispute in connection with profit bonus. Under the terms of reference, this Tribunal has only to deal with profit bonus. The concept of profit bonus, has been discussed and set out by the Supreme Court in several cases In Mulr Mills Co. Ltd., vs. Suti Mills Mazdoor Union, Kanpur, (1955) 1 S CR 991' Ihe Supreme Court has pointed out as under: —

"There are however two conditions which have to be satisfied before a demand for bonus can be justified and they are, (1) when wages fall short of the living standard, and (2) the industry makes huge profits part of which are due to the contribution which the workmen make In increasing production. •" •* *• As ooth labour and capital" cftntrlbute to the earning of the Industrial concern, it is fair that labour should derive some benefit, if there is a surplus after meeting prior or necessary

Sift. tffrD] TteS

Jn the case of the Associated Cement Companies Ltd., vs. Its Workmen, reported in (1959) S.C.R., page 929 the Supreme Court has at pages 955 and 958 observed as under: —

" the formula for awarding bonus to workmen Is based on two considerations; first that labour is entitled to claim a share in the trading profits of the industry because it has partially contributed to the same; and second that labour is entitled to claim that the gap between its actual wage and the living wage should within reasonable limits be rilled up."

74. The terms of the reference require that I shduld lay down principles and •conditions under which bonus, i.e. profit bonus, should become payable and that I should specify the qualification for eligibility and the method of computation in connection with such bonus. There is an overriding provision that the same has to be done "after making provision for all matters for which provision is necessary by or under any of the Acts applicable to the banks or which are usually provided for by banks". My decision in connection, with the dispute before me will, there- fore, have to be limited by the concept of profit bonus as enunciated by the Supreme Court and the overriding provision referred to above.

75. The All India Bank Employees Association has contended that bonus is a deferred wage and that workmen working in an Industry have a right to claim bonus over and above their stipulated wages where such wages fall short of the living wage standard, whilst the Bharatha Lakshmi Bank Ltd., has contended that It is only an ex-gratia payment. Bonus is neither an ex-yratia payment made by the employer to his workmen nor is to be regarded as a deferred wage. The broad idea underlying this concept is that capital invested by the employer and labour •contributed by workmen jointly produce profits of an industry. The two-fold basis of the foimula that labour Is entitled to claim a share in the trading profits of an industiy because It has partially contributed to the same and that labour is entitled to claim that the gap between its actual wage and the living wage should, within reasonable limits, be filled up, has always to be kept in mind. The claim made on behalf of the All India Bank Employees Association that so long as a living wage was not obtained, workmen have a right to claim bonus even in eases where the industry was making a loss, runs counter to the very concept of profit bonus enunciated above, It is implicit in the concept of bonus, which constitutes the subject matter of the reference, that its payment depends upon the making of profit and that when there is a loss, bonus cannot be claimed. This claim of the All Indi^i Bank Employees Association is therefore rejected. It is not necessary for me to determine whether any bonus would be payable where the goal of living -wage has been attained. I have on the 7th June 1962 given my award in connec- tion with the remuneration payable to the workmen of the banks which are before me, and the wage given under my award cannot be regarded as a living wage. It would be more proper to decide that question when a living wage has been attained. The Supreme Court has refrained from deciding that question in the "ase of the Standard Vacuum Refining Co. of India vs. Its Workmen and another, reported in (196J) 3 S.C.R. page 538, observing that no employer had till then succeeded In "showing that a living wage standard had been reeched and that the question may have to be considered on its merits if and when it arose in future.

76. The next question that is required to be considered in connection with bonus is whether profits should be ascertained industrywlse or industry-ewm- reglonwise or, as the banks are grouped into various classes, classwise Or unitwise. Banks which are parties to the reference are spread all over the country. The working funds, the areas Of operation and the profit making capacity of the banks vary considerably and tribunals have in the past in the case of banking companies as defined in the Industrial Disputes Act, 1947 whilst dealing with industrial disputes given up the industrywise and industry-cum-regionwise approach. Under my award, dated 7th June 1962 in Reference No. 1 of 1960, while fixing wages for banking companies, including the banking companies which are parties before me in this reference, the industry basis or the industry-cum-region basis has not been adopted by me for the reasons given therein and banks have been divided into threo classes according to their working funds, viz., (i) Class A consisting of banks with working funds amounting to Rs. 25 crores and above and all Exchange banks, (ii) Class B consisting of banks with working funds amounting to Rs. 7J" crores and above but less than Rs. 25 crores, and (iii) Class C consisting of banks with working funds below Rs. 74 crores. To the extent that bonus is intended to fill the gap between the actual wage and the living wage, it may be proper to consider banks according to the scales of wages prescribed. But the

a . . A u IDINAHY tPwsr#

wages paid is no{ the only factor to be taken into account in determining the amount of bonus. Another essential factor to be taken into account Is the factor relating to profits. Profits are made unitwise and not industrywise. It cannot be said that the labour employed in one unit of the industry, namely, one bank, has contributed to the profits made by another unit in the industry, namely, another bank. The participation by labour in the process of making profit is one of the necessary ingredients for claiming bonus. For the purpose of considering profit, it would not be proper to pool the profits of various units of banks classwise, industry-cum-regionwise or Industrywise. If the various units of the industry are banded together for the purpose of calculation of profits, it may be that units of the industry which have in fact made losses would bo made to pay to their workmen bonus without having the funds from which to pay the same. The profits made by various units of the banks which are before me are not shared in common by the banks according to their class or having regard to the industry as a whole. The matter would have been different if the profits of various units of banks or of the banking industry as a whole were pooled together and distributed amongst the various units of the industry according to some formula evolved by them or by the legislature. So long as the concept of bonus remains what is and so long as the profits made by a bank &ce being retained by the bank and are riot shared with other banks, it would not be proper to consider the profits of the banking industry as a whole or of any class or banks as a whole for the purpose of payment of bonus. So far as the 73 banks which are before me are concerned, each One of the banks makes its own profit. No bank shares its own profit with other banks. No bank contributes in any wasy to the payment of bonus by other banks. It may be desirable that there should be some standardisation of payments made to workmen in an industry, but the very concept of bonus Is such that it eludes standardisation. Under the present economic system prevailing in the country, the only way in which the concept of bonus, as laid down by the Supreme Court, could be given effect to, is by considering the profit of each unit of the industry taken by itself. In the case of the New Maneck Chowk Spinning and Weaving Co. Ltd., Ahmedabad and others vs. the Textile Labour Association, Ahmedabad, reported in (1961) 3 S.C.R. page 1, the Supreme Court at page 15 observes as follows: —

"As we have said already the basic concept of profit bonus, as it appears from the judgments of this Court, is that there should be an available surplus of profits in a particular concern in a particular year, to which the bonus relates and on this basis concept there is no scope for an approach on the basis of industry-ewm-region in the matter of bonus in the sense that every mill in a region should pay the same bonus."

77. The next question to consider will be whether the profits that have to be taken into account should be the profits of any particular year or whether the profits of one year should to any extent be carried forward to another year so as to make the same available for payment of bonus during a lean year or a year in which there Is a loss. The Supreme Court has, for the purpose of bonus regarded each year as a separate self-sufficient unit and for the purpose of calculation and payment of bonus the profits of one year are not permitted to be appropriated towards the losses made in any previous year, or set apart to meet the losses which may be incurred in subsequent years and I will proceed to determine the dispute before me on that basis. Item (5) of the terms of reference to the Bonus Commission is intended to deal with the question afresh. The said item runs as under: —

"To consider whether there should be lower limits irrespective of losses in particular establishments, and upper limits for distribution in one year and, if so, the manner of carrying forward profits and losses over a prescribed period."

There is no such claim made before me for carrying forward profits or losses and it is not necessary for me to consider the same.

78 The All India Bank Employees' Association has pleaded that in the banking industry bonus cannot be related to trading profits but should be related to dividends It is urged that the profit and loss account of banks as published, are fictitious and never reflect a correct picture of trading results in view of the pro- tection given to the banking industry by the statute. It is no doubt true that the balance-sheets of banking companies are prepared differently from the balance- sheets of other companies governed by the provisions of the Companies Act, 1956. By section 29 of the Banking Companies Act, 1949, it is provided that at the expiration of each calendar year every banking company incorporated in India,

In lespect of all business transacted by it, and every banking company incorporated outside India, in respect of business transacted through its branches in India, shall prepare with reference to that year a balance-sheet and profit and loss account as on the last working day of thp year in the Forms set out in the Third Schedule or as near thereto as circumstances admit; provided that in the case of a banking company incorporated outside IndiP, profit and loss account may be prepared as on a date not earlier than two months before tho last working day of the year. Form B aet out in the Third Schedule under the heading 'Profit and Loss Account for the year ended December ' on one side provides for the "Expenditure" and nn the other for "Income (less provisions made during the year for bad and doubtful debts and other usual or necessary provisions)". The banking companies are permitted by law to prepare balance-sheets in this form with a view to enable them to make provisions inter alia for what are known as secret or inner reserves without disclosing the same. Under the newly enacted section 34A of the Banking Companies Act, no banking company in any proceeding Under tho Industrial Disputes Act, 1947 or in any appeal or other proceeding arising therefrom or connected therewith, can be compelled by any authority before which such proceeding is pending to produce or give inspection of any of its books of account or othex- document or furnish or disclose any statement or information when the banking company claims that surh document, statement or hiformation is of a confidential nature and that the production or inspect-on of such document or furnishing or disclosure of such statement or information would involve disclosure cf information relating to any reserves not shown as such in its published balance-sheets or any particulars not shown therein in respect of provision made for bad and doubtful debts and other usual or necessary provisions The profit and loss account of banks as published cannot however be treated as fictitious. Section 30 of the Banking Companies Act, 1940, provides that the balance-sheet and profit and loss account prepared In accordance with section 20 shall be audited m the case of a banking company incorporated in Ind'a, by a person duly qualified under any law for the time being in force to be an auditor of companies; and in the case of a banking company incorporated outside India, either by such an auditor as aforesaid, or by a person duly qualified to be an auditor under the law of the country in which the company is incorporated. The auditor is required, in the rase of a banking company incorporated in India, to state in his report "whether the profit and l

79 Shri Sule ha

"Secret reserves.—In the past, it has been the practice of Banks • * _ • * to accumulate reserves out of profits and not to disclose them m the accounts. This can be done by either: (a) charging capital expenditure direct to revenue, (b) providing excessive depreciation or even wr'tmg off fixed assets completely, either of which amount to v?ry much the same thing as (a), (c) overstating liabilities, or (d¹) undervalu'ng current assets.