THE WORKMEN OF M/S. BINNY LTD.versusTHE MANAGEMENT OF BINNY LTD. & ANOTHER

     652


A
                       THE WORKMEN OF M/S. BINNY LTD.
                                      v.
                  THE MANAGEMENT OF BINNY LTD. & ANOTHER

                              AUGUST 22, 1985
ll
       [O. CHINNAPPA liliUUY, V. llALAKRISHNA ERADI AND V. KHALID,.JJ.J

           Payment of Bonus Act, Section 3 scope of, - Undertakings of
      five companies get amalgamated with another in accordance with
      the scheme of amalgamation sanctioned by the High Courts provid-
      ing for preparation of a separate profit and loss account for the
C     year of amalgamation and also safeguarding the interest of work-
      men of a particular company and in particular their rights under
      the payment of Bonus Act and Industrial Disputes Act - Whether
      the new company take refuge under section 3 and refuse to pay
      higher bonus as per the profit and loss account on the specious
      plea that balance sheet has not been prepared - Construction of
     .welfare legislation laws - Whether the adjudicating authority has
D     powers to direct the employers to prepare and submit a regular
      balance sheet, on being satisfied that such balance sheet was not
      prepared to defeat the claims of the employees.

          The first respondent is a company incorporated on 30th June,
     1969, which coanenced its busiuess in the name and style of Binny
E    Limited 0n and from Ist November, 1969. The appellants were
     formerly employed by Binny & Co. Ltd. , and are now employed in
     the Finabce, Trading and Agency Division of the respondent
     Company. Messrs Binny & Co •.Limited in which the appellants were
     formerly employed, was a well established British Company of a
     standing of more than 170 years with branches all over India and
 F   had accumulated huge reserves and was able to acquire interest in
     various other companies namely, Messrs Buckingham and Carnatic
     Co. Ltd., The Bangalore Woollen, Cotton and Silk Mills Co. Ltd.,
     Binny Engineering Works Ltd .. , Gange Transport and Trading Company
     Ltd., and Madura Company· Private Limited. All these five
     companies were amalgamated in accordance with the scheme of
 G   amalgamation sanctioned by different High Courts with the respon-
     dent Company. The scheme of amalgamation made provisions for
     various matters. Clauae 12 of the scheme provided that "all the
     employees of the amalgamating companies will become employees of
     the new company without interruption in service and on terms no
     less favourable to them.• Clauae 13 provided that "a separate
 H
               WORKMEN v. MANAGEMENT OF BINNY LTD.             653

                                                                     A
profit and loss account would be prepared for each of the amalga-
mating companies for the financial year 1969. • The lligh Court
while sanctioning the scheme, included in paragraph 11 of the
order "In t.he result, the scheme of amalgamation is sanctioned
without prejudice to the rights of the employees of Binny and
Company Limited in working but their existing rights under the       B
aforesaid Acts (Payment of Bonus Act and Industrial Disputes
Act) as against the new company, if they are so entitled." '

      Till the year 1968, the employees of Binny & Co. Limited
namely, the appellants, had been getting the maximm bonus of 20
per cent of their gross salary every year in view of the huge        C
profit_s earned by the said company. However,. in the financial
year 1969, the respondent Company declared and paid the minimum
bonus of four per cent of the gross salary to the appellants
alougwith other employees of the respondent company, who were
formerly the employees of the remaining five amalgamating
companies on the basis of a consolidated profit and loss account     D
of the respondent company for the said year. The appellants
objected to this and raised a claim that they were entitled to
receive bonus at 20% of their gross salary on the basis of the
separate profit and loss account for the company formerly known
as Binny & Company Limited prepared under clause 13 of the .scheme
of amalgamation and which showed a profit of Rs.26,01,272 during
the fluanciaJ year 1969 in addition to a further sum of more than    E
Rs. 10 ·lakhs lying i:o the credit of the ·appellants as on 31st
December, 1968. This claim was referred to the ,Industrial
Tribunal, Madras by a reference order dated 19th May, 1971,
directing the q.iestion of fixation of the quantum of bonus for
the year 1969 for adjudication. The Tribunal considered the
evidence before it and also referred to the relevant provisions          F
of the law governing the question and came to the conclusion that
no separate balance sheet was prepared for this company and the
quantification of the bonus payable and to be made on the conso-
lidated surplus available taking into account the balance sheet
of the •malgamating companies under section 3 of the payment of
the Bonus Act. Hence the appeal by special leave.                        G

      Allowing the appeal, the court,

     Bl!LD: 1~ - It is trite law that in matters of welfare legis-
lation, especially involving labour, the terma of contracts and
the provisions of law should be liberally construed in favour of         H.
the week. [658 H, 659 A]
    654            SUPREME COURT REPORTS               [1985] SUPP;2 s.c.R.

A        2.1 Where an amalgamating unit can prepare a balance sheet,
    when a trial balance sheet and profit and loss account are avail-
    able, omission to do so deliberately and without any valid reason
    would amount to denial of the benefit of the proviso to section 3
    of the Payment of Bonus Act to the employees of such as amalga-
    mating unit. [659 F-G]
B
         2.2    When evidence and facts made· available before the
    Court show that the claim of the employees (on the strength of
    profit and loss account and trial balance-sheet) ia justifiable,
    it would be not only improper but unjust for the Courts and
    Tribunals to deny to themselves the jurisdiction to direct a ·
    company to prepare a balance-sheet in terms of the profit and
c   loss account and the trial balance-sheet. To say that Tribunals
    or Court cannot even in such exceptional situations direct the
    employer company to prepare the balance-sheet would create
    undesirable results, adverse to the employees. [659 B-C, F-G]

         3.1    Section 3 is an enabling provision in favour of the
    employers. When an establishment consists of different depart-
D
    ments. undertakings or branches. all stich departments. under-
    takings or branches shall be treated as part of the 8ame estab-
    lishment for the pcrpose of comput;ation of bonus under the Act.
    This means that the employees will be entitled to bonus on the
    basis of the surplus available from all the units put together.
    The proviso speaks of separate balance-sheet and profit and loss
E
    aecount being prepared and maintained for any accounting year in
    respect of· one of the units of the whole undertaldng. In such
    c&ses, the computation of allocable surplus for the payment of
    bonus should be cin the basis of such separate profit and loss
    account and balance-sheet t11us prepared and the employees will be
    entitled· to claim bonus on this basis. The claim of the employees
F
    on this basis can be defeated only if this separate unit was
    treated as part of the establishment for the computation of bonus
    immediately    before   commencsment   of   thP-   accounting   year   in
    question. In this case, the company has not put forward a plea
    that for the previous year, Binny and Company Ltd., was treated
    as part"of the respondent company for the purpose of c011pUtation
G
    of bonus. The only pl<:a put forward is that no separate balance-
    sheet was prepared for this unit. [659 H, 660 A-DJ
              ,.
     _ 3.2     The mere omnission to prepare a separate balance-
    sheet for one of the amalgamating units will not by itself help
    the company to deny bonus to the employees of such a unit. When
H
    profit and loss 8.Ccount and trial balance-sheet are prepared
    there should be no difficulty in preparing the regular balance-
    sheet. [660 D-E]
         WORKMEN v. MANAGEMENT OF. BINNY LTD. [KHALID, J. j   655

                                                                     A
     CIVIL APPELLATE JURISDIGrION : Civil Appeal No.440 of 1973.

     From the Award dated 20.5.1972 of the Industrial Tribunal
Madras in I.D. No. 35 of 1971.

     M.K. Ramamurthi and J, Ramamurthi for the Appellant.
                                                                     B

     G.d. Pai and Rameshwar Nath for the Respondents.

     The Judgment of the court was delivered by

     KHALID, J. This is an appeal, by special leave, filed by        c
the Binny Employees Association, a registered trade union,
against the award dated 20th May, 1972, made by the Industrial
Tribunal, Madras, I.D. No. 35/71.

     The first respondent is a company incorporated on .30th June,
1969, which commenced its business in the name and style of Binny
                                                                     D
Limited. on and from 1st November, 1969. The petitioners were
formerly employed by l!inny & Co. Ltd., and are now employed in
the Finance, Trading and Agency Division of the respondent
company. Messrs Hinny & Co. Limited in which the petitioners were
formerly employed, was a well established British company of a
standing of more than 170 years with branches all over India. The
company had accumulated huge reserves and . was able to acquire
                                                                     E
interest in various other companies. Such companies are Messrs
Buckingham and Carnatic Co. Ltd., The Bangalore Woollen, Cotton
and Silk Mills Co. Ltd. , Binny Engineering Works Ltd. , Gange
Transport and Trading Company Ltd. and Madura Company Private
Limited.
                                                                     F
     Pursuant to orders passed in company petitions in va~ious
High Courts and in accordance with the scheme of amalgamation
sanctioned by the High Courts, the undertakings of all the five
companies referred to above were amalgamated with the respondent
company. The scheme of amalgamation made provisions for various
matters. Clause 12 of the scheme provided that "all the ""'Ployees
                                                                         G
of the mn•lgmnating cmpanles will become EDployees of the new
anpany without interruptioo in service aod on tems no less
favourable to them" Clause 13 provided that "a separate profit
aod loss accowt -1.d be prepan!d for each of the ams! gmnating
compmdes for tbe f!Mnclal year 1969" The six compsril.es filed
company petitions in the high Court of Madras £or sanction of the
                                                                         H
scheme of amalgamation. Notices as required under the Companies
Act were published. The Secretary of the Employees' Union opposed
     656              SUPREME COURT REPORTS               [1985] SUPP.2 s.c.R.


A    to the unconditional grant of approval .to the scheme of amalgama-
     tion and wanted to get rights of the employees safe guarded and
     for the purpose requested the Court for incorporation of certain
     conditions in the order of sanction. The High Court while sanc-
     tioning the scheme included the following paragraph 11 of the
     order:
B
                "In the resl,llt, the scheme of amalgamation is sanc-
                tioned without prejudice to the rights of the
                employees of Binny and Company Limited in working out
                their existing rights under the aforesaid Acts
                (Payment of Bonus Act and Industrial Disputes Act) as
                against the new company, if they are so entitled."
c
           Till the year 1968, the employees of Binny & Co. Limited
     viz., the petitioners, had been getting the maximum bonus of 20
     per cent- of their gross salary every year in view of the huge
     profits earned by the said company. However, in the financial
     year 1969,. the respondent company declared and paid the minimum
     bonus of .. four per cent of the gross salary to the petitioners
D    along with other employees of the respondent company, who were
     formerly · the    employees   of   the   remaining    five   amalgamating
     companies o~ the basis of a consolidated profit and loss account
     of ·the respondent company for the said year. The petitioners
     objected to this and rai~ed a claim that they were entitled to
     receive bonus at 20 per cent of their gross salary on the basis
E    of.the separate profit and loss account for the company formerly
     kllown as Binny &Company Limited. 1bis claim was referred to the
     Industrial Tribunal, Madras, by a reference order dated 19th May,
     1971, directing the question of fixation of the quantum of bonus
     for the year 1969 for adjudication. The Tribunal considered the
      evidence before it and also ref erred to the relevant provisions
F     of the law governing the question and came to the conclusion that
      no separate balance-sheet was prepared for this company and the
                                                                                 '
      quantification of the bonus payable had to be made on the conso-
      lidated surplus avaiiable taking into account the balance-sheet
     ·Of the amalgamating companies. Hence this appeal.

G          The case of the appellant before the Tribunal and repeated
     b~~ore  us is that the amalgamating companies maintained separ3te
     prQf it and loss accounts notwithstanding their amalgamation into
     t~e resp0ndent company •. They also stated that the provident fund
     account of the employees of each amalgamated unit was also                  '
     separately ~intained. The petitioners relied upon clause 13 of
H·   the scherlle which provided that 111: so far as the financial year
          WORKMEN v. MANAGEMENT OF BINNY LTD. [KHALID, J.j        657


 1969 is concerned a separate profit and loss account for each of        A
 the_arilalgamating companies would be prepared and that 1 in fact 1 a
 separate profit and loss account was prepared accordingly for
 that year. This profit and loss account shows that Binny &
 Company Ltd., of which the petitioners were originally employed,
 had earned a profit of Rs. 26,01,272 during the financial year
 1969 in addition to a further sum of mm:e than Rs ••lQ lakhs lying      E
 to the crdit of the petitioners as on 31st December, 1968. If the
 profit mentioned above. is taken into account, the ··petitioners
 contend, that they would be entitled to the maximum bonus of 20
 per cent of their gross salary for the year 1969.

      The respondent company pleaded in their return that conse-         C
 quent to the amalgamation, the respondent company (Binny &
 Company Limited) became a single unit and all the employees were
 covered by the same i:erms of the Payment of Bonus Act. They
 denied that the business '1-Ctiv,ities of the former Binny & Co.
 Limited constituted a     separate department    or undertaking as
envisaged in the Payment of ,Bonus Act. According to them there          r
was only a single balance-sheet for the whole Binny Limited. They
admitted that separate profit and loss account was prepared for
the year 1969 for the finance, trading and agency division and
the garment factory (former Binny & Company Limited) as required
in the scheme of amalgamation, but no separate ·balance~sheet was
 prepared. The company relied upon Section 3 of the Payment of           E
 Bonus Act which stated that the various companies which have been
amalgamated should be treated as part of the same establishment
under the Ac:.t for the p.µrpose of c·omputation of bonus.

      It is against these facts,      that the controversy in this
,appeal has to be decided. The only question that is involved in
 this appeal is as to which is the undertaking whose trading             f
profits have to be taken into consideration for computing the
 bonus for the year 1969: the employees' union contending that it'
 is 'the trading profits of the former Binny & Company Limited and
 the respondent company contending that it is the total profits· of
 the six units put together.
                                                                         c
      Before proceeding further, we may usefully quote· Section 3
 of the Payment of Bonus Act:

            "Where an establishment consists of different depart-
            ments or undertakings or has branChes, whether situa-
            ted in the Same place or in different plaCes, all such
                                                                         H
    658           SUPREME COURT REPORTS           [1985] SUPP.2 s.c.R.

A
               departments or undertakings or branches shall be trea-
               ted as parts of the same establislnnent for the purpose
               of computation of bonus under this Act:

                Provided that where for any accounting year a separate
                balance-sheet and profit and loss account are prepared
B
              , and maintained in respect of any such department or
                undertaking or branch shall be treated as a separate
                establishment for the purpose of computation of bonus
                under this Act for that year, unless such department
                or undertaking or branch was immediately before the
                commencement of that accounting year treated as part
                of the establishment for the purpose of computation of
c              bonus."

         This section provides that different departments or under-
    takings or branches of an establishment should be treated as part
    of the same establishment for the purpose of computation of bonus
    under the Act. For our purpose, the proviso is important. The
D   proviso deals with situations where in any accounting year, a
    separate balance-sheet and profit and loss account are prepared
    and maintained in respect of any such department of an establish-
    ment. It is not disputed that the profit and loss account for the
    Binny & Company Limited was, in fact, prepared. Nor is it dispu-
    ted that a trial balance-sheet was also prepared for this unit.
    But the company takes refuge in the plea that a separate balance-
E   sheet was not prepared for this unit, to opt out of the proviso
    to Section 3. To reinforce this plea, the company relies upon
    clause 13 of the Scheme which reads as follows:

               "Separate Prof it and loss account will be prepared for
               each of the amalgamating companies for the financial
F              year 1969."

          The contention of the company is that this clause speaks
    only of Separate profit and loss account for each of the amalga-
    mated companies for the financial year 1969 and not of a separate
    balance-sheet for this year. The question before us is whether
G   the company could be permitted to put forward such a specious
    plea to defeat the claim of the employees, though the profit and
    loss account and the trial balance-sheet disclose surplus permit-
    ting the company to pay 20 per cent bonus as claimed by the
    petitioners. It is trite. law that in matters of welfare legisla-
    tion, especially involving labour, the terms of contracts and
H   provisions of l~w should be liberally construed in favour of the
         WORKMEN v. MANAGEMENT OF BINNY LTD. [KHALID, J.j              659


weak. If only a separate balance-sheet had been prepared for this
unit, the company would have had no answer to the claim made by
the petitioners. It could be that a separate balance-sheet was
not prepared deliberately to avoid payment of bcnus to the
employees of this unit under the cover of the proviso to Section
3 of the Payment of Bonus Act and clause 13 of the Scheme. When
                                                                              E
evidence and facts made available before the Court show that the
claim of the employees (on the strength of profit and loss
account and trial balance-sheet) is justifiable, it would be not
only improper but unjust for the Courts and Tribunals to deny to
~hemselves   the jurisdiction to direct a company to prepare a
balance-sheet in terms of the profit and loss account and the
trial balance-sheet. We thought it necessary to make this                     c
position clear because of the observations made by the Tribunal
in ~he award in answer to the plea raised by the Union that the
Tribunal could .authorise prP.paration of a balance-sheet under
Section 25 of the Payment of Bonus Act and in the light of such
balance-sheet, so prepared, the Court could proceed to award
bonus on the allocable surplus. That por~ion of the award reads               D
as follows:

             "But Section 25 does not apply to a company as in this
             case. The section does not authorise Court to prepare
             a balance-sheet. Even otherwise, I cannot agree that
             the Court can order a balance-sheet to be prepared               I
             from the accounts available of Binny & Co. and act on
             it under Section 3 of the Act for the simple reasor"
             that a balance-sheet so drawn up cannot by any stretch
             of imagination be considered to ·be prepared and
             maintained by the undertaking or unit."

     If this statement of the Tribunal is accepted as the correct             F
law that would result .in .adverse consequences on t.he employees
and would .render them helpless in their claims for bonus, in
situations like the one that we have in this case. Where an
amalgamating unit can prepare a balance-sheet, when a trial
balance-sheet and profit and loss account are available, omission
to do so deliberately and without any valil: reason would amount
to denial of the benefit of the proviso to the empioyees of such
an amalgamating unit. To say that Tribunals or Court cannot even
in such exceptional situations direct the employer comi-:.lny to
prepare the balance-sheet would in our opinion, create undesir-
able results, adverse to the employees.

     It is necessary t:o ·bear in ;nind t:he scope of Sect Lon '3 -~n.d       E
its proviso. Sec-:.:ion 3 is an enabling provision in fa\·our ,_:if t!·.·.:
     660           SUPREME COURT REPORTS          [1985] SUPP.2 s.c.R.

A    employers. When ah establishment consists of different depart-
     ments, undertakings or branches, all such departments, under-
     takings or branches shall be treated as part of the same estab-
     lishment for the purpose of computation of bonus under the Act.
     This means that the employees will be entitled to bonus on the
     basis of the surplus available from all the units put together.
B    The proviso speaks of separate balance-sheet and profit and loss
     account being prepared and maintained for any accounting year in
     respect of one of the units of the whole undertaking. In such
     case, the .computation of allocable surplus for the payment of
     bonus should be on the basis of such separate profit and loss
     account and balance-sheet thus prepared and the employees will be
     ent.itled to claim bonus on this basis. The claim of the employees
c    on this basis can be defeated only if this separate unit was
     treated as part of the establislnnent for the computation of bonus
     innnediately Qefore connnencem.ent of the accounting year in
     qu~stion.·. In this case, the company has not put forward a plea
     that for the previous year, Binny£ Company Ltd., was treated as
     part of the responden.t company for the purpose of computation of
D    bonus. The only plea put forward is that no separate balance-
     sheet was prepared for this unit. The mere omission to prepare a
     separate balance-sheet for one of the amalgamating units will not
     by its elf help the company to deny bonus to the employees of such
     a unit. W~en_profit & loss account and trial balance-sheet are
     prepared one fails to understand the difficulty in preparing the
     regular balance-sheet. It is not disputed, nor can it be
E    disputed on the materials available before us, that the employees
     of Binny & Company Ltd., could get 20 per cent bonus as claimed
     by them. They cannot be denied this bonus merely on the ground
      that separate balance-sheet was not prepared for their uni~ when
     all the materials were available for preparation of such ·a
      balance-sheet.
F
          The employees should be deemed to have foreseen the diffi-
     culties of this kind when they sought and obtained an order from
     the High \A>urt 'about which mention has been made earlier to see
     that their rights were safeguarded and the scheme of amalgamation
     was _not permitted to work tC their detriment.
G
          We do not think it necessary to consider the various autho-
     rities on this point in detail because the dispute falls within a
     short factual compass which we have indicated above. We would
     like -to make it clear that ·in situations like this where the
     second part of the proviso to Section 3 is hot attracted, the
Ii
        WORKMEN v. MANAGEMENT OF BINNY LTD. [KHALID, J.J      661

                                                                    A
adjudicating authority has powers to direct that the employers to
prepare and submit a regular balance-sheet, on being satisfied
that such balance-sheet was not prepared to defeat. the claims of
the employees. In our· opi·nion, the appeal has to succeed. We,
therefore, set aside the order of the Industrial Tribunal,
Madras, allow this appeal and uphold the claim of the petitioners
                                                                    E
for 20 per cent bonus. The first respondent is directed to pay
the cost of the petitioners.




S.R.                                              Appeal allowed.




                                                 '.