Petroleum Employees Union v. Industrial Court, Maharashtra, Bombay And Another

V.S Deshpande, J.:— This petition raises question as to the true interpretation of item 9 of Schedule IV read with section 26 of the Maharashtra Recognition of Trade Unions and Prevention of Unfair Labour Practices Act, 1971, hereinafter referred to as ‘the M.R.T.U & P.U.L.P Act’ and the effect of section 34 of the Payment of Bonus Act, 1965, hereinafter referred to as ‘the Bonus Act’.

2. The petitioner is the Union of the employees. Respondent No. 2, the Hindustan Petroleum Corporation Limited, hereinafter referred to as ‘the Corporation’ is the employer. The Employees of the Corporation earning salary or wages exceeding Rs. 1,600 per month are also the members of this Union. An agreement was entered into between the Corporation and the Union on 27th March, 1975, on the question of bonus. Sub-clause (H) of clause II of the said agreement provided for the mode of its payment. The Bonus Act contemplates payment of bonus only to the employees earning less than Rs. 1,600 per month in terms of the definition of the word “employees” thereunder. The agreement thus covered only such employees of the Corporation. The Corporation, however, agreed at that time to make ex-gratia payment in lieu of bonus to the employees earning more than Rs. 1,600 per month in the course of discussion with the Union. The Corporation addressed a letter on 12th May, 1975 to the President of the Union confirming this agreement. It made reference to the discussions that the author of the letter had with the President of the Union at the time of signing the above agreement on 27th March, 1975 about the payment of bonus to the employees drawing gross salary over Rs. 1,600 per month. The letter then confirms that such employees will be paid by the Corportion “an ex-gratia amount calculated at the same rate as bonus payable to employees drawing gross salaries up to Rs. 1,600 under the Payment of Bonus Act.” Such ex-gratia amount was agreed to be calculated on the first Rs. 750 of gross salary in terms of this letter. It is not in dispute that pursuant to this agreement, the ex-gratia payment in lieu of bonus was in fact made to all the employees of the Corporation drawing gross salary over Rs. 1,600 per month. Subsequent to this settlement, Income-tax Act was amended excluding such ex-gratia payments, not covered by the Bonus Act, from the deductible expenses under the Act for determining the taxable income. This was obviously an uncontemplated burden on their income. In the meanwhile section 31A was added to the Bonus Act by Amendment Act No. 23 of 1976, while section 34 was substituted under the same Amendment Act. An agreement to pay bonus linked with production or productivity, in lieu of the profit based bonus payable in terms of the Scheme of the Act, is made permissible under this section 31a. section 34 seeks to give overriding effect to the provisions of the bonus act subject to the departure permissible under the above section 31A. The Central Government appears to have advised the Corporation to withdraw its commitment under its letter to the Union dated 12-5-1975 as to such ex-gratia payment presumably assuming that amendments of sections 31a and 34 of the bonus act can justify such withdrawal. The Corporation accordingly took a decision to that effect in compliance with their advice and conveyed it to the President of the Union by a letter dated 2nd April, 1976. The ex-gratia payment was accordingly treated as over-payments. It was decided to recover the same in instalments within the period not exceeding two years from the salaries payable. The Corporation then started deducting the amount at the rate of Rs. 75 per month commencing from the salary of April, 1976.

3. The Union thereupon filed a complaint to the Industrial Court, Maharashtra, Bombay, complaining of unfair labour practice by the employer, in terms of section 26 read with item 9 of schedule iv of the m.r.t.u & p.u.l.p act, by its failure to implement the agreement. The Corporation contested the complaint on grounds amongst others that section 34 of the Bonus Act made such ex-gratia payment illegal thereby relieving it from its obligation to pay and that deduction of the amount after payment in compliance with agreement cannot amount to “failure to implement such an agreement.” Both these contentions weighed with the Industrial Court. By an order dated 8th November 1976, the complaint was dismissed. The validity of this order is challenged in this petition.

4. Mr. C.J Sawant, the learned advocate appearing for the Union, contends that amendments in the Income Tax Act or the Bonus Act cannot relieve the employer of its obligation to carry out the agreement and deduction of the amount, after payment, amounts to non-payment and failure to implement the agreement. Mr. K.K Singhvi, the learned Advocate appearing for the employer, on the other hand, contends that agreement can have no legal effect, it not having been recorded in the manner prescribed under section 2(p) of the Industrial Disputes Act and section 34 of the Bonus Act prohibits any payment which is not in conformity with its provisions.

5. There is no doubt that payment of any amount as bonus, or ex-gratia payment, or in any way otherwise to the employees drawing gross salary exceeding Rs. 1,600 is not provided in the Bonus Act. Such employees are not the “employees” within the definition of section 2(13) of the Bonus Act. The ex-gratia payments made to the such employees by the Corporation, therefore, cannot amount to bonus within the meaning of the Bonus Act. An agreement to pay bonus to them or anything in lieu thereof does not make it bonus. The employer cannot be said to be under any statutory obligation to pay any such amount under the Bonus Act. Even so, the employer is bound to honour and implement such agreement, if any, like any other agreement or contract with any other person. That the contract is with its employees or the obligation created thereunder is not the creature of the Bonus Act or any other statute, by itself cannot make any difference to such contractual obligation and cannot relieve the employer of its obligation to implement the same.

6. Mr. Singhavi, however, contends that payment of such ex-gratia amount is prohibited by section 34 of the Bonus Act. This contention is also upheld by the Industrial Court. The said section 34 reads as follows:—

“Subject to the provisions of section 31a, the provisions of this act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in the terms of any award, agreement, settlement or contract of service.”

7. Section 8 of the Bonus Act confers a right on every employee to get bonus in an accounting year, while section 10 of the Act casts an obligation on the employers to pay bonus to their employees out of the allocable surplus, understood in common parlance, as a profit based bonus. This section merely seeks to ensure that benefit intended for the employees under this Act is not scuttled and made ineffective either by any contrary provision in any other enactment or under any award, settlement or otherwise. The overriding effect given to the provisions of this Act is aimed to achieve this object and protect whatever is given to the employees thereunder. Prohibition implicit in the section against contracting out of the statute is for the benefit of the employee and not to his detriment. Section 31A is an exception to this policy. It permits the employees and employers to alter the basis of bonus by linking it to production and delinking it from profits. There is nothing in this section to prevent the employers from paying more than what is required to be paid by way of the minimum. Section 34 does not prevent the employers from paying to the employees anything not covered or contemplated by the Act. There is nothing in this section to prevent the employers from implementing the agreement dated 12th May, 1975. Sections 8, 10 and consequently section 34 have no application whatsoever to this payment. The bogey of illegality is clearly a figment of imagination without any trace of foundation in this provision.

8. It is true that the amendment of the Income Tax Act and exclusion of such payment from deductible expenses, was never contemplated when the employer committed itself to such payment on 12th May, 1975. The amendment, however, does not prohibit or make such payment illegal. Addition of financial burden howsoever unfortunate, cannot permit the employer to avoid this obligation or the agreement giving rise to the same, in the same way as it cannot avoid any other agreement, excepting by recourse to remedies available to the affected party under any law. The Labour Court appears to us to be clearly in error in assuming that section 34 prohibits, such payment or such payment was illegal.

9. The next question is whether such deduction from the salary, of the amount already paid earlier in compliance with the agreement, amounts to failure to implement the said agreement and an unfair labour practice. section 26 of the m.r.t.u & p.u.l.p act defines ‘unfair labour practices’ as follows:—

“In this Act, unless the context requires otherwise, ‘unfair labour practices’ mean any of the practices listed in Schedules II, III and IV”.

10. Failure to implement an agreement is an unfair labour practice in terms of item 9 of Schedule IV. Though these employees are not “employees” within its definition under section 2(13) of the Bonus Act, they are nonetheless “workmen” under its definition under section 2(s) of the industrial disputes act read with section 2(18) of the m.r.t.u & p.u.l.p act to claim relief under the latter Act. Mr. Singhavi contends that no question of failure to implement the agreement arises in the present case when the ex-gratia payment was already made in compliance with the agreement. Recovery of the amount so paid in instalments, so contends Mr. Singhavi, even if found to be unjustified, can still not amount to failure to implement the agreement. The contention, no doubt, is deceptively attractive.

11. The process of recovery could not have been resorted to by the employer without first cancelling the agreement. The employer has unilaterally withdrawn the commitment and declared the payment made as over-payments. Thus the recovery based on such decision of the employer is in substance refusing to implement the agreement. The payment loses its meaning and its significance once the same is being taken back. It is, therefore, difficult to accept the contention that deduction of the amount paid in this case does not amount to failure to implement the agreement.

12. As seen earlier, amendment of the Income Tax Act does cast uncontemplated burden on the employer. In common parlance, such deduction may not appear to be unfair. We are, however, concerned with its conception in a statute designed to prevent the employer and the employees from causing breach of industrial peace. Several acts and omissions, including the breach of agreement, is prohibited under this Act. The statute has enumerated several such acts and omissions, commission of which is sought to be prevented to maintain such industrial peace. Breach thereof is considered to be an unfair labour practice under the statutory fiction thereunder. Once the deduction amounts to failure to implement the agreement, it also amounts to unfair labour practice under section 26 read with item 9 of Schedule IV of the M.R.T.U & P.U.L.P Act.

13. Secondly, under the terms of the agreement between the employer and the employees, the employer has to pay the salary at the end of each month. Non-payment of the salary or any portion thereof also amounts to failure to implement the said agreement.

14. Mr. Singhavi then contends that any such “agreement” between the employer and the employees even with regard to the ex-gratia payment is included in the definition of the word “settlement” under section 2(p) of the Industrial Disputes Act. as section 2(18) of the m.r.t.u & p.u.l.p act adopts all the definitions of the Industrial Disputes Act, conception of settlement can be in no way different under M.R.T.U & P.U.L.P Act for the purposes of item 9 of Schedule IV and section 26, from its conception under the Industrial Disputes Act. Settlement under the Industrial Disputes Act, so contends Mr. Singhavi, includes an agreement and cannot be effective unless it complies with the requirements of the said section. The said agreement not having been recorded in the manner specified in section 2(p), it cannot have any legal effect and non-implementation of the same cannot amount, according to Mr. Singhavi, to any unfair labour practice within its meaning under section 26 of the m.r.t.u & p.u.l.p act.

15. The contention, to our mind, is thoroughly untenable. Item 9 itself refers to an award and settlement, in addition to agreement. The employer is thus under an obligation to implement any agreement even if it does not amount to settlement. The fact that such an agreement does not possess all the attributes of settlement and agreement contemplated under section 2(p) of the Industrial Disputes Act, does not prevent it still from being an agreement for the purposes of item 9 of Schedule IV of the M.R.T.U & P.U.L.P Act. Breach of such an agreement does amount to failure to implement the agreement and the unfair labour practice contemplated under section 26 of the m.r.t.u & p.u.l.p act. The reasoning of the Labour Court in this behalf is unacceptable and the order is liable to be set aside. We accordingly set aside the order of the Labour Court allow this Special Civil Application and make the rule absolute with costs. The Corporation will refund the amount to the employees deducted from their salaries. We were informed at the Bar that the amount of Income-tax deducted at source has already been paid by the Corporation to the employees. It is only the balance that will be payable under this order by the Corporation to the employees.

16. Mr. Singhavi orally applies for leave to appeal to the Supreme Court. Leave refused.

Rule absolute.