Case Study: When “No Profit” Means “No Bonus” Gurdaspur Co-operative Sugar Mills Ltd. vs. Presiding Officer & Another (2013)

Case:

Gurdaspur Co-operative Sugar Mills Ltd. vs. Presiding Officer & Another
C.W.P. No. 13652 of 1994

Court and Date:

Punjab & Haryana High Court
Decided on: 28 May 2013
Hon’ble Judge: Ms. Ritu Bahri, J.

Relevant Law:

Payment of Bonus Act, 1965 — Section 16(1), Explanation II

This section provides exemption to new establishments from payment of bonus during their first five accounting years, except in years when they actually derive profit after setting off previous losses and depreciation.

Background:

The case arose from a dispute between Gurdaspur Co-operative Sugar Mills Ltd. and its employees regarding payment of bonus for the years 1982-83 and 1983-84.
Initially, the mill was owned by M/s Punjab Khand Udyog Ltd., which later wound up, and its assets and liabilities were taken over by the petitioner company in 1981. The employees demanded a 20% bonus, claiming that the company had made profits in those years.

The petitioner company argued that since it was a new establishment, it was eligible for exemption under Section 16(1A) of the Payment of Bonus Act and had incurred losses in its first few years of operation.

Legal Issue:

Whether Gurdaspur Co-operative Sugar Mills Ltd., being a new establishment, was liable to pay bonus for the accounting years 1982–83 and 1983–84 despite having incurred losses in the initial years.

Key Legal Findings:

• As per Section 16(1A) of the Payment of Bonus Act, a new establishment is required to pay bonus only for those years in which it derives actual profit.
• Explanation II clarifies that an employer is not deemed to have earned profit if losses from previous years have not been fully set off against the profits of the current year.
• The petitioner had incurred continuous losses from 1981–82 to 1983–84, and even though there was a slight profit in 1983–84, it was completely offset by previous accumulated losses.
• The High Court referred to earlier Supreme Court judgments in:
  • Alloy Steel Project v. Workmen (1971) 1 SCC 536
  • Workmen of H.M.T. v. Presiding Officer, National Tribunal (1973) 26 FLR 311
  • Delhi Cloth & General Mills Co. Ltd. v. Workmen (1972) 1 SCR 594

These rulings reinforced that new undertakings are entitled to exemption under Section 16 for their initial loss-making years.

Judgment:

The Punjab & Haryana High Court allowed the writ petition, setting aside the Labour Court’s award that directed payment of the statutory minimum bonus.

The Court held that since the petitioner was a new establishment and had incurred losses during its first four years, it was entitled to exemption from payment of bonus under Section 16(1) and Explanation II of the Payment of Bonus Act, 1965.

There was no order as to costs.

Conclusion:

The judgment underscores the protection available to new establishments under Section 16 of the Payment of Bonus Act, 1965. Companies that are newly set up and face losses in their initial years are not obliged to pay bonuses unless they earn profits after fully setting off previous losses.

Key Learning:

• No bonus is payable by a new establishment during its first five accounting years unless it earns real profit after setting off earlier losses.
• This provision encourages industrial growth by offering financial flexibility to new ventures during their formative years.
• Employers must maintain audited financial records to prove their eligibility for exemption.
• Labour tribunals must carefully assess the profit-and-loss statements before directing payment of bonuses.

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