Allahabad High Court Upholds Retrospective Application Of Payment Of Bonus Amendment Act, 2015

The Allahabad High Court has upheld the validity of retrospective applicability of Payment of Bonus (Amendment) Act, 2015 on grounds that no new rights of the employees were being created by the amendment and it was not impairing any existing rights of the employers. The Amendment Act raises the eligibility of 'employee' under the Act from those who earned maximum of Rs. 10,000/- per month to those earning Rs. 21,000/- per month. It further amended Section 12 of the Payment of Bonus Act, 1965 which provides for calculation of bonus with respect to certain employees. The amendment raised the salary limit from Rs.3,500/- to Rs. 7,000/- for calculation of bonus, i.e., where an employee earned Rs.7,000 or more per month, his salary shall be treated as Rs.7,000/- for the purpose of payment of bonus. The amendment further added the words “or the minimum wage for the scheduled employment, as fixed by the appropriate Government, whichever is higher,” in Section 12. The bench of Justice Saral Srivastava and Justice Sudhanshu Chauhan held,“The law does not permit the legislature to take away or impair any existing right or create a new obligation or impose a new liability retrospectively. At this stage, it is pertinent to note that the payment of bonus is a statutory right given to the employees. The liability to pay the bonus lies upon the employer which emanates from the Act, 1965.”“So by introducing the Amendment Act with retrospective effect, it neither impairs any existing right of the employer nor creates any new obligation upon the employer. The employer at the most can say that by retrospective operation of Amendment Act, 2015, additional liability to pay bonus upon the employer has been created. Thus, by Amendment Act, 2015, no new liability has been imposed upon the employer.”Petitioners, industrial establishments, challenged the validity of the Payment of Bonus (Amendment) Act, 2015 on various grounds. The addition of the minimum wage component added vide amendment to Section 12 was challenged on grounds that it would hinder the accounting standards of the companies. It was also pleaded that no time frame was provided to the petitioners for compliance of the retrospective applicability to the amendments. It was further pleaded that the retrospective applicability would cause difficulties to the petitioners as the books of accounts for the previous year had already been closed, and accounting for increased pool of employees due to the amendment was difficult. It was also pleaded that since the price fixation had already been done, and the products had been launched in the market, it was impossible to recover the cost. It was also pleaded that in certain scheduled employments, different minimum wages are fixed by the Central and State Governments, therefore, petitioners will have to segregate employees and then calculating their bonus. It was argued that the retrospective amendment is arbitrary in nature and violative of Article 14 of the Constitution of India. The Court observed that the petitioners had not disclosed how the liability due to retrospective amendment would be detrimental to the interest of the employer. It held that the petitioners failed to demonstrate infringement of their right by the retrospective applicability of the amendment. “The payment of bonus is a statutory liability upon the employer emanating from the Act, 1965. The employer is statutorily bound to pay the bonus to the employees in compliance of statutory obligations posed upon it by the Act, 1965, therefore, to say that the petitioners' vested right by implementing Amendment Act, 2015 retrospectively has been infringed is not justified for the reason that the vested right is a right independent of any contingency whereas the petitioners are obligated to pay bonus by virtue of Section 10 of the Act, 2015.”The Court relied on the decision of the Supreme Court in R.C. Tobacco Pvt. Ltd. and Another Vs. Union of India and Another wherein it was held that a law cannot be declared unreasonable only because of its retrospective applicability. For declaring such law bad, the Court laid down 2 factors to be determined: “(i) the context in which retrospectivity was contemplated, (ii) the period of such retrospectivity, and (iii) the degree of any unforeseen or unforeseeable financial burden imposed for the past period.”The Court held that the payment of bonus is a statutory liability upon the employer which emanates from the Payment of Bonus act, 1965 and neither new rights or liabilities have been created, nor existing rights have been impaired by the Amending Act. It observed that Section 15(2) of the Act empowered the employer to carry forward and set off the deficiency in payment of minimum bonus to the next accounting year when sufficient amount is not available for the same. “So, in the absence of available surplus or allocable surplus in respect of that year and there is shortfall of the amount of the minimum bonus payable to the...

Allahabad High Court Upholds Retrospective Application Of Payment Of Bonus Amendment Act, 2015

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