Jalan Trading Co. (P) Ltd. v. Mill Mazdoor Sabha

By FG LawKit

The dispute originated from a bonus payment demand for 1961 and 1962, which was pending before the Industrial Court in Bombay.
The Payment of Bonus Ordinance 3 of 1965 (later replaced by the Payment of Bonus Act, 1965—PBA) was promulgated, providing for a minimum bonus of 4% of salary or wages, or Rs 40, whichever is higher.
The Industrial Court applied the new law and directed employers to pay the minimum bonus for 1962.
The appeal to the Supreme Court challenged the constitutional validity of several key provisions of the Payment of Bonus Act, 1965, arguing they violated the Constitution, particularly Article 14 (Equality) and the principle against excessive delegation of legislative power.

Whether Section 33 (which gave retrospective effect to the Act for prior accounting years, applying the new, more onerous formula) infringed upon Article 14 of the Constitution.
Whether Section 34(2) (which determined allocable surplus based on a "base year" ratio, overriding the Full Bench Formula) was arbitrary and discriminatory, violating Article 14.
Whether Section 37 (which granted the Central Government power to remove doubts or difficulties in giving effect to the provisions of the Act) amounted to excessive delegation of legislative power to the Executive.

The Supreme Court delivered a 3:2 majority judgment (Shah, Wanchoo, and Sikri JJ. forming the majority):

Validity of the Act: The core of the Payment of Bonus Act was upheld (as per Hidayatullah, J.).
Sections Struck Down: The Court declared Sections 33, 34(2), and 37 of the PBA ultra vires and invalid.

The majority opinion scrutinized the challenged sections as follows:

1. Section 33 (Retrospective Effect) - Invalid (Article 14)

The Provision: Section 33 sought to apply the PBA's formula retroactively to pending disputes for accounting years like 1962-63, 1963-64, and 1964-65.
The Ruling: The Court held this retrospective application was arbitrary and unreasonable because it applied a new formula (which was more onerous than the existing Full Bench Formula) to disputes relating to prior years that were fully covered by the old ruling formula. The retrospective imposition of a more onerous liability based on the mere pendency of a dispute was held to be discriminatory and repugnant to Article 14.

2. Section 34(2) (Base Year Ratio) - Invalid (Article 14)

The Provision: Section 34(2) imposed a special liability by fixing the allocable surplus for future years based on the gross profits ratio of a single "base year," regardless of the actual working results or special circumstances governing that base year.
The Ruling: The Court found this to be ex facie arbitrary and unreasonable. If the bonus scheme is intended to distribute equitable surplus profits annually, perpetuating an assumption derived from a single base year's ratio, without regard to special circumstances, constitutes an arbitrary classification and violates Article 14.

3. Section 37 (Removal of Difficulties Clause) - Invalid (Delegation)

The Provision: Section 37 authorized the Central Government to provide for the removal of doubts or difficulties in giving effect to the provisions of the Act.
The Ruling: The Court struck down this section on the grounds that it amounted to excessive delegation of legislative authority. The power to remove doubt or difficulty by effectively altering the provisions of the Act is a legislative function and cannot be delegated to the executive authority, even if the order made is stated to be "not inconsistent with the purposes of the Act."