1982 PLP 947 (PLC(CS))

9. This brings me to a consideration of the main issue in the case, namely, whether the bonus payable under the settlement, dated 9th February, 1972, falls within the purview of clause (1) of Standing Order 10-C or of clause (4) of the said Standing Order. It was contended by Mr. Ali Amjad, the learned counsel for the employee's Union, that the bonus payable under the settlement is based entirely on production, being payable at the rate of one bonus for every one lac bags of sugar produced up to a maximum of 4 bonuses. The learned counsel submitted that the said bonus does not refer to profits at all and was payable irrespective of the facts whether there are profits, no profits or even losses. According to the learned counsel, the production bonus payable under the settle ment is a totally different concept or scheme from profit bonus as greater ' production need not result in profit or increased profits. He contended that production was not directly relatable to profits as there are other factor also which together with production regulate the quantum of profits. The learned counsel contended that bonus payable under clause (1) of Standing Order l0 C was on known and realized profits, while bonus pay able on production is at best on the conception of expected rather than realized and. known profits. In support of his contentions, the learned counsel relied upon the decision of the Indian Supreme Court in the case of Messrs Titaghar Paper Mills v. Their Workmen (1). On the other hand, Mr. Nizam Ahmad, the learned counsel for the Fouji Mills con tended that the bonus payable under the settlement was directly relatable as also proportionate to the profit earned by the Fouji Sugar Mills. His first argument in support of his contention was that as both the price of the sugarcane as also the price of sugar were fixed by the Government for the whole season, and he produced notification of the Government fixing such prices, the profits of the mills, including the quantum sad rates of the profits, were directly relatable to and dependent upon the production of the mills. Mr. Nizam Ahmad also sought support for his contention that the bonus falling under clause (1) of Standing Order 10-C from the conduct of the parties, the demands made by workmen and the settlements arrived at between the parties previous and subsequent to the settlement, dated 9th February. 1972.

10. In order to appreciate the respective contentions of the 2 learned counsel, it would be appropriate to reproduce Standing Order IO-C in the entirety. The said Standing Order reads as follows:- "10-C. Payment of Bonus.-(1) Every employer making profit in any year shall pay for that year within three months of the closing of that year to the workmen who have been in his employment in that year for a continuous period of not less than ninety days a bonus in addition to the wages payable to such workmen. (2) The amount of bonus payable shall- (a) if the amount of the profit is not less than the aggregate of one month's wages of the workmen employed, be not less than the amount of such aggregate, subject to the maximum of thirty per cent of such profit Illustration No. l.-If the profit is Rs.1,20,000 and the aggregate of one month's wages of the workmen is Rs.30,000 the amount of bonus payable shall be not less than the aggregate of one month's wages, that is to say, Rs.30,

000. Illustration No. 2.-If the Profit is Rs.30,000 and the aggregate of one month's wages of the workmen is also Rs.30.000 the amount of bonus payable shall be not less than thirty per cent of the profit that it to fifty, Rs.9,000. (b) if the amount of the profit is less than the aggregate referred to in paragraph (a) be not less than fifteen per cent of such profit. (3) The bonus payable to a workmen entitled thereto under clause (A I R 1959 S C 1059) shall bear to his monthly wages the same proportion as the total bonus payable by the employer bears to the aggregate of the wages referred to in paragraph (a) of clause (1) end shall be paid either in cash or in N.

1. T. Units of equivalent value at the option of such workman. (4) Nothing in this section shall be deemed to affect the right of any workmen to receive any bonus other than that payable under clause (L) to which he may be entitled in accordance with the terms of his employment or any usage or any settlement or an award of a labour Court established under the Industrial Relations Ordinance, 1969 (XXIII of 1969). Explanation.-For the purpose of this section- (a) N.

1. T. Units' mean the Units referred to in the National Investment (Unit) 'trust Ordinance, 19-65 (`III of 1965) ; (b) "Profit" means the "net profits" as defined-in section 87-Cof the Companies Act, 1913 (VII of 1913) ; (c) "Wages" does not, for the purpose of calculating tile bonus payable to a person under clause (1), include the bonus referred to in clause (vi) of section 2 of the payment of Wages Act, 1936 (IV of 1936).

11. A bare perusal of the above Standing Order indicates that the essential ingredients of a profit bonus payable under clause (i) are: (1) that it is statutorily payable i, e., it is payable under law as against bonus payable under clause (4) to which a workman is entitled in accordance with the terms of his employment or any usage or any settlement or an award; (2) that the bonus under clause (1) is payable only when the employer makes profit during a particular year while bonus under clause (4) may be payable irrespective of profits being earned by the employer ; (3) that the bonus under clause (1) is an annual bonus, i. e., it is relatable to the year during which the employee has made a profit, while bonus under clause (4) may cover one or more years; (4) that the maximum bonus payable under clause (1) is limited to the aggregate of one month's wages, while bonus under clause (4) contains no such limitation and may cover wages for more than one month ; and (5) that the total amount payable as bonus to workmen under clause (1) is further subject to the limit of 30;0 of the profit made by the employer in the year for which the bonus is payable, while the bonus payable under clause (4) is not subject to any such limit and in fact may be payable irrespective of the employer having made profit or even where he had incurred losses,

12. An examination of the bonus payable in the instant case under the settlement, dated 9th February, 1972, clearly indicates that it does not fulfil the above conditions of statutory bonus payable under clause (1) of Standing Order 10-C. Although the demand of the workers, as con tained in their Charter of Demands, dated 2nd January, 1972, was that for the season 1971-72, a formula should be adopted for the payment of bonus, the settlement, dated 9th February, 1972, while laying down the formula of payment of one bonus for production of every one lac of bags of sugar up to a maximum of 4 bonus, clearly stipulates that the Union accepted this formula for the current season as well as more seasons of, 1972-73 and 1973-74. In other words, the bonus was payable under the D aforesaid formula not only for the year 1971-72, but also for the 2, subsequent years. The bonus payable under the settlement further wag not subject to either of the 2 limitations prescribed in clause (1) of Stand ing Order 10-C, i. e., the amount of bonus not to exceed the aggregates of one month's wages of workmen as also 30% of the profits earned by, the employer. Most important, the bonus under the settlement is based not on known or realized profits but on expected profits. Although, ordinarily in an industry where there the prices of the raw material and the finished goods are controlled, the quantum of profits would depend upon the production, but there can be other factors which may reduce or even eleminate the profits together For instance, if there is over production, there may not be also of the products resulting in the establishment having to keep unsold stocks on which interest and other charge may be payable. The possibility of breakdown in the machinery or damage to or destruction ay the machinery and the stocks by fire, flood or other natural or human causes, which may seriously affect or eleminate profits altogether, cannot also be excluded. The production bonus thus, as contended by Mr. Ali Amjad is an incen tive bonus based on expected profits than known and realised profits. Production may be an important or even the most important factor in the earning of profits by an industry but it certainly is not the sole factor determining whether an establishment earns a profit or not In any case a production bonus clearly is a wage incentive plan devised in the hope or expectation that profits will thereby accrue to the employer but it is not necessarily based on profits. In the Dictionary of Business and Econo mics by Christine Ammer, wage incentive has been described as follows :-- "Incentive plans for production workers individuals or groups, tend to be one of two types: (1) piece-rate plants, which provide for wage payments based on the number of units produced; (2) pro duction bonus plans, with payments based oh unit production in excess of standard output in standard time (standards being set by time and motion studies or other industrial engineering techniques). Piece-rate plans are the more common of the two. Among the many production bonus plans are the Beduax point system; in which an employee receives a premium of 75 per cent of the points in excess of 60 per hour, each point representing one minute of productive work at normal speed: the Emerson efficiency plan, whereby the employee receives a base rate for standard output puts an accelerating premium for any work in excess of two-thirds of standard output (the more output, the higher the premium; the Gantt premium plan, whereby an employee receives base pay for standard output and a standard piece rate puts a percentage premium on work in excess of standard output s and variations on these plans known as the Barth plan. Halsey premium plan, Rowan premium plan, and Taylor differential piece rate. Still other incentive plans are sales-pay plans, with commissions or bonuses based on the dollar volume or number of items sold, and the measured day-rate plan, whereby employees are rated periodi cally on productivity, quality of output, reliability, etc., and are paid a premium according to their current rating."

13. I may also refer on the subject of production to certain passage from the book Increasing Employees Productivity by Robert E. Sibson. The learned Author in his chapter on Incentive at page 170 of his book writes as follows:- Brother financial and non-financial incentive are critical parts of any organised effort to achieve and maintain a high level of productivity. Incentives provide motivation to do what is required, and to do it effectively. There is a direct and frequently measure-able relationship between many incentive plans are programme and the productivity of workers. Incentives alone of course will not bring about higher productivity. Some companies have erred in the past by assuming that incentives would in and of themselves increase productivity Incentives obviously are not a substitute for management, rather, they are part of a management system's approach toward obtaining high levels of productivity. It is equally incorrect, however to assume that there could be an effective work force or a high level of pro ductivity without having incentives of some type." "There is a limit to how hard employees can work or should work. If employees percievs-that the incentives are forcing them to work beyond reasonable limits, then the incentives system will have a negative effect. It may, for instance, motivate people to work hard to loosen up on standards or take shortcuts in the system. Incentives, as a part of the management of human resources, aim at a delicate balance between employee effect and work expecta tions." .. .. . "Incentives of all types also have their costs. These are time costs and usually some expenditures of money. There is, therefore, in the management of incentives a cost/value variable, which re appears in so many of the considerations involving human re sources management. The enterprise goal is to have the values of the greater productivity from incentive plans exceed the cost of such plans. Thus the structuring of incentives must represent the appropriate balance of motivating people to perform at optimum effort on the right things at a cost that justifies improvement in operations."

14. It will thus appear that apart from the fact that excessive stress on high production may on the one hand lower the standard of the pro ducts produced and on the other hand, the cost of incentives, for extra production may conceivably exceed the increased income resulting from such higher production.

15. Finally, I may refer to the decision of the Indian Supreme Court in the Titaghar Paper Mills. In that case the management had put forward a scheme of production bonus on the basis of a minimum production of 30000 tons of paper in a year, in its 2 mills, which scheme was accepted by the workers. The basis of the scheme was that the workmen would get 13 days basic wage this being equivalent to 1/2 of 1 month's basic wage by way of bonus on production of 30000 tons for both mills. Thereafter, the workmen were to get an additional one day's basic wage for every 460 tons produced up to a maximum of 36000 tons, when the production bonus would come up to 26 day's basic wage which would be equivant to one month's basic wage including weekly aholidays. Disputes. however, arose between the management and its workmen. The workmen, among other demands, made a demand of profit bonus in addition to the production bonus settled between the parties. Repelling the contention of the management that the production bonus offered by the company was in fact profit bonus, the Indian Supreme Court examined the characteristic of a production bonus and the difference between such a bowers and the profit bonus and observed as follows:- "The payment of production bonus depends upon production and is in addition to wages. In effect, it is an incentive to higher pro duction and is in the nature of an incentive wage. There are various plans prevalent in other countries for this purpose known as Incentive wage Plans worked out on various bases, for example, Halsey Premium Plan, Beduax Point Premium Plan Haynes Maint System and Emerson Efficiency, p.

723. The simplest of such plans is the straight piece-rate plan where payment is made accord ing to each piece produced, subject in some cases to a guaranteed minimum wage for so many hours' work. But the straight piece- rate system cannot work where the finished product is the result of the co-operative effort of a large number of workers each doing a small part which contributes to the result. In such cases production bonus by tonnage produced, as in this case, is given. There is a base or standard above which extra payment is made for extra production in addition to the basic wage. Such a plan typically guaran tees time-wage up to the time represented by standard performance and gives workers a share in the savings represented by superior performance. But whatever may be the nature of the plan the pay ment in effect is an extra emolument for extra effort put in by workmen over the standard that may be fixed. That is the reason why all these plans are known as Incentive wage plans and generally speaking have little to do with profits. The extra-pay ment depends not on extra-profits but on extra production. This extra-payment calculated on the basis of extra production is in a case like the present where the payment is made after the annual production is known, in the nature of emoluments,. paid at the end f the year. Therefore, generally speaking, payment of production bonus is nothing more nor less than a payment of further emolu ments depending upon production as an incentive to the workmen to put in more than the standard performance. Production bonus in this case also is of this nature and is nothing more than additional emolument paid as an incentive for higher production."

16. The above decision of the Indian Supreme Court appears to lend considerable weight to the contention of Mr. Ali Amjad that the bonus payable under the settlement in the instant case is not profit bonus contemplated under clause (1) of Standing Order 10-C.

17. Lastly, I would examine the contention of Mr. Nizam Ahmad that the conduct of the parties previous and subsequent to the settlement, dated 9th February, 1972, indicates. that the bonus payable under the settlement is profit bonus. In the first place, as already pointed in this judgment, in its Charter of Demands, dated 17th January, 1972, the employees Union had merely demanded that for the season 1971-72 there should be formulated and adopted a scheme for the payment of bonus. The demand was not based on the making of profits by the management and in fact makes no reference to the earning of the profits or the quantum of profits. This demand may be contrasted with the demands made by the employee's Union in its Charter of Demands, dated 25th January, 1970. The first 2 demands in the said Charter are as follows: --

18. It will be seen that the above demands for bonus are directly relatable to profits. Substantially identical demands were made by the employees' Union in its Charter of Demands, dated 4th February, 1970, According to the settlement, dated 23rd February, 1970, it was agreed that the management would pay further bonus, equivalent to half month's pay, on the same terms and conditions which govern payment of bonus for 1968-69, while for the year 1969-70, the management agreed to adopt a formula for payment of bonus on the basis of percentage of profits. In the charter of demands, dated 29th August, 1979, the employee's Union demanded payment of bonus on the basis of production i. e., on production up to one lac bags of sugar, bonus equivalent to one month's pay and further bonus, equivalent to one month's pay, for production of every additional 2,000 bags of sugar. As the management wag unwilling to agree to the above demand of the employee's Union, the dispute was referred for arbitration to the then District Judge, Hyderabad. The learned District Judge, however, with out evolving a formula, award bonus equivalent to 31 months' wages to the workers for the year 1969-70. The award of this bonus by the learned District Judge was not based on profits earned by the mills. In fact the statement of accounts was not produced before the learned District Judge as the accounts had not yet been audited. Subsequent to this award, the employee's Union submitted their charter of demand: which resulted in the settlement, dated 9th February, 1972. An examination of the above documents and the relationship between the parties does not appear in any way to advance the case of Mr. Nizam Ahmad. He also sought to rely on the note in the agreement between the parties, dated 15th March, 1975'according to which, during the period of settlement, no financial demands of whatsoever nature would be raised by the Union. The Union is not raising any new or fresh financial demands but is asking for statu tory bonus payable under Standing Order 10-C. I have already shown that the bonus paid under the settlement, dated 9th February, 197 2, does not fall under the purview of bonus payable under clause (1) of Stand in Order 10-C. As such, the statutory bonus payable under the said clause would be payable by the Fouji Sugar Mills notwithstanding the payment B of bonus according to the terms of the settlement, dated 9th February, 1972. The reference is answered accordingly.