ALLOY STEEL PROJECT versus THE WORKMEN

Citation: [1971] 3 S.C.R. 629 · Decided: 02-02-1971 · Supreme Court of India · Bench: J.M. SHELAT · Disposal: Appeal(s) allowed

Judgment (excerpt)

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629 
ALLOY STEEL PROJECT 
·v. 
THE WORKMEN 
February 2, 1971 
(J. M. SHELAT, V. BHARGAVA C.A. VAIDIAL!NGAM, J.J.] 
Payment of Bonus Ac~ 21 of 1965-Exemption under s. 16(1) to new 
estabUshmenu-Al/oy Steel Project conl(olled and managed by Hinduslan 
Steel fad. 
whether an 
'estab/ishment'-Word 'establishment 
whether 
synonymous with compa]!y'-A department or undertaking of an esta-
blishment is separate establishment for computation of bonus under the 
proviso to s. 3 if separate accoullls are maintained as in case of Alloy Steel 
-Section 16(2) comes in way only if bonus is distributed on basis of con-
solidared accounts which was never done in the case of Hindustan Steel. 
The Alloy Steel Project was an undertaking controlled and managed 
by a government company, namely, the Hindustan Steel Ltd. Alloy Steel 
was started in 1961 and went into production in 1964-65. No profit was 
earned up to 1967-68. The workmen claimed bonus at the minimum rate 
prescribed under the Payment of Bonus Act, 21 of 1965 in respect of the 
year 1965-66. On behalf of the Alloy Steel Project exemption from pay-
ment of bonus was claimed under s. 16( 1) of the Act on the ground that 
it was a new establishment and had not made profits. The Industrial Tri-
bunal to which reference was made held that Alloy Steel could not be 
treated as a separate establishment because under the Act a company is 
itself an establishment so that all units of a company like Hindustan Steel 
Ltd. will constitute one establishment. However, since Alloy Steel had not 
been earning profits the Tribunal dir~cted payment of bonus at the mini-
mum rate of 4% of wages as prescribed by the Act. Aggrieved by this 
Award of the Tribunal the company appealed. 
HELD : The Tribunal erred in holding the word 'establishment' to be 
synonymous with 'company'. Jn doing so it ignored the indications which 
are manifest from the language of the Act. The significant words are 
those containei! in s. 2(16) which show that an establishment in a public 
secto'r has to be owned, controlled or managed by a Government company 
or by a corporation of the nature described in the clause. 
Obviously 
therefore an 'establishment in private sector'--Oefined in s. 2(15) to mean 
an establishment not in the public se9tor-would be one which is owned, 
controlled or managed by a person or body other than a Gove'rnment 
company or a corporation of the nature described in s. 2(16). Jn this view 
an establishment cannot be identified with a company. It would be absurd 
to say that a company is owned, controlled or managed by a Government 
company or co'rporation. 
Obviously, the word 'establishment' is intended 
to indicate something different from a company as defined in the Com· 
panies Act. [631 F-632 DJ 
(ii) Alloy Steel was a separate establiShment by virtue of the proviso 
to s. 3 of the Act because for eacli of the undertakings of Hindmtan Steel 
Ltd. including Alloy Steel separate accounts were kept though for the 
purpose of compliance with the provisions of the Companies Act a consoli-
dated balance-11heet and profit and loss. account were also prepared. There 
was no substance in the contention that the proviso to s. 3 applies only to 
departments undertaking or branches controlled and managed by persons 
630 
SUPREME COURT REPORTS 
[1971] 3 S.C.R. 
other than companies. 
It would be a stcange method of construction of 
Janguage to hold that the establishment referred to in the main part of 
s. 3 will include all different departments undertakings and branches of a 
company, while it will not do so in the proviso to the same section. There 
is no reason for interpreting the proviso to s. 3 in this manner simply be-
cause in the case of separate departments, undertakings or branches of the 
establishment of a company, it may not be possible to make a deduction 
(ti) 8.5% of the paid up equity share capital. [635 C-D; 633 G-634 HJ 
(iii) Sub-Section (!) of s. 16 grants exemption from payment of 
bonus to establishments newly set up for a period of six years following 
the accounting year in which the goods produced or manufactured are . sold 
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for the first ·time and, .in the alternative; upto the year when the new 
establisjtment results in profit, whichever is earlier. If the Alloy Steel Pro-
ject was treated as an establishment newly set ui> for the purposes of s. 
16(1) the exemption claimed would be fully justified. Section 16(2) of 
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the Act makes it c

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