The Hon’ble Supreme Court, in the case of The Management of WORTH Trust v. The Secretary, WORTH Trust Workers Union, 2025 INSC 432 decided on 02.04.2025, held that a trust performing both charitable work and running factories is not exempted from paying bonuses to the workers engaged in the factories, as per the law.
FACTS
The Management of Workshop for Rehabilitation and Training of the Handicapped Trust/ WORTH Trust (hereinafter referred to as “the Appellant”) was initially established by the Swedish Red Cross Society as a rehabilitation trust. The Appellant has been involved in different charitable activities including the rehabilitation of various differently abled patients and those who suffered from leprosy.
Around 1985, the Appellant started engaging itself in various industrial and commercial establishments. It started the manufacturing of automobile parts and other crucial components for industrial machinery. These operations are generally conducted in factories and establishments, and they also generate profit of several kinds, which is known as “surplus.” These establishments typically fall within the ambit and scope of the Factories Act of 1948, and therefore it categorized them as factories.
The factories and other establishments operated by the Appellant have the workforce that largely comprises of individuals who have been cured of leprosy or are differently abled. The workers of these factories formed and established a trade union known as the WORTH Trust Workers Union (hereinafter referred to as “the Respondent”).
In 1988, an industrial dispute arose, as the Respondent demanded the payment of 20% bonuses as well as 5% ex-gratia on the annual earnings of each and every worker. Initially, the dispute was referred to the Industrial Disputes Tribunal (hereinafter referred to as “the Tribunal”) of Chennai under Section 10(2) of the Industrial Disputes Act of 1947, read with Section 22 of the Payment of Bonus Act of 1965. The Tribunal ruled in favor of the Respondent by agreeing to their claims and demands partially. The Tribunal ordered the Appellant to pay an 8.33% bonus to the workers, and the same would be adjusted by deducting any ex-gratia amounts already paid by the Appellant.
Aggrieved by the award of the Tribunal, the Appellant approached the Hon’ble High Court. The single-judge bench of the High Court upheld the findings and rulings of the Tribunal with slight modifications. The High Court directed that the Appellant must make a bonus payment after accounting for ex-gratia amounts already paid. Thereafter, a writ appeal was filed before a Division Bench of the High Court. However, the division bench also dismissed the appeal.
Thus, the aggrieved Appellant filed a special leave petition before the Hon’ble Supreme Court.
ISSUES BEFORE THE SUPREME COURT
- Whether the Appellant is exempted from paying a bonus under the Payment of Bonus Act, 1965?
- Whether the Respondent is entitled to get the bonus as per the provisions of the law?
CONTENTIONS OF THE PARTIES
The Appellant submitted that the Payment of Bonus Act, 1965 is not applicable to them, as its employees are treated as employees of the Red Cross Society of India and, if not, then the employees of an institution which is of like or similar nature. Thus, they are excused and exempted from paying bonuses in terms of Section 32(v) (a) of the Payment of Bonus Act, 1965.
The Appellant further put forward, that it can be treated as an institution which is established for the purpose of serving and providing help and support, and not for any profit purposes. Therefore, in this manner, they are exempted under Section 32(v)(c) of the Payment of Bonus Act, 1965.
The Appellant also contended that it has been paying ex-gratia for a long period of time to its employees. It is a measure of charity by the Appellant and the same is accepted by the Respondent as well.
On the contrary, the Respondent has put forth that they are engaged in various industrial and other manufacturing processes, and the same is run by the Appellant. Therefore, the Respondent is entitled to receive the bonus as per the provisions of labour laws.
The Respondent has submitted the demand for receiving a 20% bonus along with 5% ex-gratia on their annual earning as per Section 11 of the Payment of Bonus Act, 1965.
Furthermore, the Respondent also contended that the establishments of the Appellant are considered factories, and they are employed in a factory which is governed and regulated by the Factories Act, 1948.
DECISION AND FINDINGS
The Supreme Court observed that, the Section 1(3) (a) of the Payment of Bonus Act, 1965 makes this legislation applicable to all the factories. Further, it was undisputed fact that, the Appellant of the present appeal was running an industrial setup where manufacturing as well as other activities are being carried out. Thus, the Appellant clearly qualified as “factories” within the meaning of the law.
The claim that the Appellant was operated by or similar to the Indian Red Cross Society was rejected as no proper evidence and proof were put forward. It is also emphasized that, through an amendment in 1989, the Trust had formally cut its ties with the Swedish Red Cross Society.
The Hon’ble Supreme Court also categorically rejected the argument for exemption from the Payment of Bonus Act, 1965. It was opined that merely having charitable objectives or a social work history is not adequate to qualify for an exception and exclusion when the institution is engaged in various commercial undertakings and earning profits. When an establishment is earning profit then they are subjected to various labour legislations which also includes Payment of Bonus Act, 1965.
As a result, the Court dismissed the appeal, made by the Appellant and held that it was not exempted from paying bonus to the Respondent. The Court also directed the Appellant to pay the bonus to the Respondent from 1996-97 onwards, within the period of one month of the order.
AMLEGALS REMARKS
This judgment is significant in reinforcing the principle that statutory labour rights cannot be denied under the guise of charitable operations. The Court clearly drew a distinction between the Trust’s social objectives and its commercial operations, holding that once an organization engages in profit-generating manufacturing activities, it is subject to industrial and labour laws, including the Payment of Bonus Act of 1965.
Furthermore, the tribunal and courts at various levels rightly emphasized that charitable work does not exempt employers from complying with statutory obligations owed to workers engaged in factory operations.
Moreover, this ruling underscores that exemptions under Section 32 of the Payment of Bonus Act, 1965 are to be construed strictly, and if the workers are employed in a factory, industry or similar establishments, then they are entitled to receive a bonus. Therefore, the Court not only protected the legal rights of workers employed in such industries but also delivered a socially sensitive and legally robust decision.
– Team AMLEGALS assisted by Mr. Aditya Raj Pandey (Intern)
For any further queries or feedback, feel free to reach out to mridusha.guha@amlegals.com or laksha.bhavnani@amlegals.com