Payment of Bonus Act | Workers Can’t Be Denied Bonus Claiming Factories Are Run by Charitable Trusts: Supreme Court

Introduction

The recent decision by the Supreme Court of India to protect workers by stating that factory entities run by a charitable trust cannot deny bonuses to workers on the basis that it is operated by a charitable trust is extremely important. The Court noted that entitlement to bonus is a legal right per the Payment of Bonus Act, 1965 (“Bonus Act”) and determined that a charitable designation cannot be a defence excuse for inaction compliance when an entity takes part in business profit making activities. This was decided in the matter of The Management of Worth Trust v. The Secretary, Worth Trust Workers Union, which concerns the Supreme Court severely restricts the appeal by the management of the charitable trust which perpetually endorsed the exploitative practices against factory working people.

Background of the Case

The Appellant, Worth Trust, is a charitable organization established for the rehabilitation of leprosy patients. Initially engaged in social welfare activities, over time, the Trust expanded into commercial ventures, including the manufacturing and sale of automobile parts. It employed rehabilitated leprosy patients in its factories for these commercial operations.

The Workmen Union, representing these factory workers, sought bonuses under the Payment of Bonus Act, 1965. However, the management of the Trust denied the claim, asserting exemption under Section 32 of the Bonus Act, arguing that it operated as a non-profit organization akin to the Indian Red Cross Society, which enjoys statutory exemption from paying bonuses under the Act.

Key Issues Before the Court

The principal issue before the Supreme Court was:

Whether the Appellant Trust, by virtue of being a charitable institution and allegedly similar to the Indian Red Cross Society, could claim exemption under Section 32 of the Payment of Bonus Act, and thereby deny bonus payments to its factory workers engaged in commercial activities.

Arguments by the Appellant

Exemption under Section 32(v)(a) and (c):

The Appellant contended that it was akin to the Indian Red Cross Society under Section 32(v)(a) of the Bonus Act and, alternatively, a non-profit social welfare organization under Section 32(v)(c).

Charitable Character:

It argued that its principal purpose was charitable rehabilitation, not commercial profit, thus meriting exemption.

Supreme Court’s Observations and Ruling

1. On Applicability of the Payment of Bonus Act

The Court, through Justice Sudhanshu Dhulia, firmly rejected the Trust’s arguments. It observed that merely having charitable objects does not grant automatic exemption from labour welfare statutes if the institution engages in commercial activities through factories.

The Court emphasized:

Once it was established that factories were being run, and commercial manufacturing activities were taking place, the applicability of the Bonus Act became inevitable. The charitable nature of other activities carried out by the Trust did not shield it from its statutory obligations towards factory workers.

2. Rejection of Exemption Claims

The Court categorically held:

The appellant Trust did not qualify for exemption under Section 32(v)(a) (as a society akin to the Indian Red Cross Society).

Nor did it qualify under Section 32(v)(c) (as a purely non-profit establishment).

Thus, workers engaged in factory operations must be paid bonus in accordance with the provisions of the Bonus Act.

3. Emphasis on Worker Welfare and Interpretation of Welfare Legislation

The Court reiterated the principle that labour welfare statutes must be interpreted liberally in Favor of the workmen to fulfil the objective of social justice enshrined in the Constitution.

It directed the Appellant Trust to pay bonuses to the workmen as per law within one month from the date of the order.

This judgment carries major implications:

• Prevention of Misuse of Charitable Status: Charitable organizations involved in commercial operations cannot evade labour welfare legislations by merely relying on their non-profit status.

• Reinforcement of Workers’ Rights: The decision reinforces that bonus is a statutory right under the Payment of Bonus Act, and cannot be denied arbitrarily.

• Liberal Interpretation of Welfare Laws: It reiterates that labour welfare statutes must be interpreted to benefit the workers, ensuring that commercial entities comply with statutory duties even if they have charitable undertones.

Conclusion

In the decision of The Management of Worth Trust v. Worth Trust Workers Union, the Supreme Court has made it abundantly clear that workers cannot be deprived of statutory benefits under the guise of charitable purposes. The commercial establishments, as factories or other entities covered within the Payment of Bonus Act, 1965, must have a charitable intent or philanthropic vision.

For this reason, the Court was right to require the Appellant Trust to pay bonuses authorized by the law. Commercial activities, regardless of the nature and character of the employer, impose statutory burdens – and clearly welfare statutes take precedence.

King Stubb & Kasiva,
Advocates & Attorneys

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