Constitution of India: The Concept of Minimum Bonus

Most of the companies are aware of the fact that money is a powerful incentive to motivate and increase the morale of workers, particularly in the industrial sector. Ensuring productivity is of paramount importance in industrial development. That is why employers often make extra cash payments, other than the wages or salary to the employees, which is known as bonus. Bonus is often directly linked to performance of an employee.

As per the section 10 of the Payment of Bonus Act, 1965, an employer is obliged to pay a minimum amount of bonus to his employees even, if he incurs losses during an accounting year. The minimum bonus payable by an employer is 8.33 percent of the annual salary or wages of the employee or Rs.100 for employees above the age of 15 years and Rs.60 for employees below 15 years, whichever is higher.

The bonus shall be paid within eight months of the closure of accounting years or within one month in case of enforcement of award of an industrial dispute pertaining to payment of bonus. However, the time period can be extended, if there is a valid reason.

Constitutional of India: Is Payment of Bonus Unconstitutional?

In a landmark case of Jalan Trading Co. V. Mill Mazdoor Union, Citation (1966) 11 LLJ 546 SC, section 10, of the Act was challenged on the ground that it contravened the Article 14, 19(1) (g) and 31 (1) of the Constitution of India. Let’s not forget, Article 14, of Constitution of India provides that the right to equality before law and equal protection of laws within territory of India. Article 19(1) (g) of the Constitution of India provides for right to practice any profession, or to carry on any occupation, trade or business. Article 31(1), of Constitution of India guarantees the right against deprivation of property otherwise than by authority of law.

The complainant party in the abovementioned case argued that the concept of minimum bonus irrespective of profit or loss leads to indirect abrasion of capital, because the payment of bonus in case of a loss or no profit is made from the capital or reserves of the company. It was argued that the section 10, of the Act, violates Article 14, of the Constitution of India as; it makes no difference between companies earning profit or facing loss. However, the Supreme Court rejected all the contentions and held the Section 10, of the Payment of Bonus Act, 1965, as valid.