B. N. Elias And Company LTD. , Employees Union vs B. N. Elias And Company LTD.

Headnote:(A) Labour Law - Bonus - Implied Condition of Service - Customary Bonus - Where payments are explicitly made as ex gratia and accepted by employees as such, it is not possible to imply a term of service or an implied agreement for the payment of bonus irrespective of profit or loss. (Para 5)

(B) Customary Bonus - A customary payment of bonus between employer and employee, where terms of service are governed by contract, is difficult to establish unless the bonus is connected with a traditional festival of particular importance. The principles governing customary and traditional bonuses connected with a festival cannot be extended to bonuses unconnected with any festival. (Para 7)

(C) Traditional Festival Bonus - A bonus paid uninterruptedly for a traditional festival, even in years of loss, acquires the status of a customary and traditional bonus. (Para 8)

Facts of the case:
Workmen claimed bonus for three years as a condition of service or as a customary bonus. They contended that bonus had been paid regularly from 1942 to 1952. The employer argued that the payments were strictly ex gratia, made voluntarily out of goodwill, and were not a condition of service. Evidence showed that payments were marked as ex gratia and accepted as such by the employees. One specific payment was made to subordinate staff during a traditional festival, which had continued uninterruptedly since 1942, including during years of loss.

Findings of Court:
The court found that the bonus could not be an implied condition of service because the payments were explicitly ex gratia. It further held that a customary bonus unconnected with a festival cannot be claimed in contractual employment. However, the payment made to subordinate staff during the traditional festival was held to be customary and traditional.

Issues: Whether the payment of bonus had become an implied condition of service or a customary bonus, and whether a bonus unconnected with a festival can be recognized as a customary bonus.

Ratio Decidendi: An implied term of agreement cannot be inferred when payments are clearly made and accepted as ex gratia. While customary bonuses unconnected with festivals are generally not recognized in contractual employment, a bonus tied to a significant traditional festival, paid consistently regardless of profit or loss, constitutes a customary and traditional bonus.

Result: Appeal partly allowed.

Legal Category Hierarchy

1. Dispute regarding bonus payments claimed as conditions of service or customary bonuses. (Para 1 , 2 )

2. Claim for bonus as implied condition of service or custom versus contention that payments were voluntary ex gratia disbursements. (Para 3 , 4 )

3. Ex gratia payments accepted as such cannot be implied terms; customary bonuses are typically recognized only when linked to festivals. (Para 5 , 6 , 7 )

4. Payments explicitly made and accepted as ex gratia do not constitute implied service conditions; customary bonuses must be connected to festivals to be enforceable. (Para 5 , 7 )

5. Appeal partly allowed; respondents ordered to pay the customary Puja bonus to subordinate staff for the year 1956. (Para 8 )

6. Can ex gratia payments be interpreted as an implied condition of service?

No, where payments are clearly made ex gratia and accepted by employees as such, it is not possible to imply a term of service based on an implied agreement. (Para 5 )

7. When is a bonus considered a customary and traditional payment?

A bonus is considered customary and traditional when it is connected to a festival of particular importance and paid uninterruptedly, including during years of loss. (Para 7 , 8 )

8. Does an express bonus term in an individual's appointment letter create an implied term for other employees?

No, an express term in a contract between an employer and a specific employee cannot be the basis for finding an implied term of agreement for others. (Para 6 )

Judgment

WANCHOO, J.: This appeal by special leave raises the question of bonus. There was a dispute between the workmen of B. N. Elias and Co. Ltd. (hereinafter called the appellants) and their employers, B. N. Elias and Co. Ltd. and others (hereinafter called the respondents) with respect to bonus for the years 1954, 1955 and 1956. The case of the appellants was that they were entitled to bonus as a condition of service irrespective of profit or loss on the following scale:I - Clerical staff.1 month s basic pay as bonus in April,1 month s basic pay as bonus in August,1 month s basic pay as bonus in December,II- Subordinate staff.1 month s basic wages as bonus in April,1 month s basic wages as bonus in August,1 month s basic wages as bonus at Puja time,1 month s basic wages as bonus in December.

According to the appellants this bonus was always paid from 1942 to 1952. Later as there were some disputes between the appellants and the respondents, the respondents wanted to stop the payment of bonus from1953, though something less was paid that year. In 1954 the amount of bonus was further reduced. Consequently, a dispute was raised which was referred by the Government of West Bengal in May 1956. Subsequently another dispute was raised with respect to the bonus for the years 1955 and 1956 and this time it was claimed as a customary bonus or as a condition of service payable at regular intervals of four months and at a uniform rate. Thereupon a consolidated reference was made by the Government of West Bengal in September 1956 with respect to all the three years, i.e., 1954, 1955 and 1956, to the same tribunal.

3. When the matter came up before the tribunal, the respondents contended that they were not in a prosperous condition and were unable to pay any further bonus besides what had already been paid for the years in dispute. It was admitted that since about 1942 the respondents had been making ex gratia payments to their employees in addition to wages and salaries. These payments were made at the rate of one month s basic wages each time but their number in the course of one year used to vary. At one time four ex gratia payments were made to clerical and subordinate staff but later the number of ex gratia payments was reduced for the clerical staff to three per year but it remained at four for the subordinate staff until the year 1952. As however, the trading result in 1952 deteriorated as compared with the previous years, the respondents made only two ex gratia payments to clerical staff and three to subordinate staff for the year 1953. A dispute was then raised by the workmen with regard to that year but the Government refused to make a reference to the tribunal. In 1954 and 1955 two ex gratia payments were made to clerical staff and two to the subordinate staff. In 1956, no ex gratia payments were made at all. The respondents denied that these payments were made as a condition of service or as an implied term of agreement irrespective of profit or loss. They also denied that these were customary payments irrespective of profit and loss. It was alleged that they were truly and strictly ex gratia payments made by the respondent voluntarily out of goodwill in circumstances in which no tribunal would award a bonus. The respondents therefore resisted the claim for any further payment as bonus for these three years.

4. Before the tribunal, the appellants abandoned their claim for bonus on the basis of the Full Bench formula. They however pressed their claim on the ground that bonus was payable as an implied condition of service and had also acquired the status of customary bonus. The tribunal, however, negatived the contention that the payment of bonus as claimed had become an implied condition of service. It also held that the case of the employees based on custom was not tenable. In consequence it refused to grant any further bonus for the years 1954 and 1955 beyond what the appellants had been already paid and rejected the claim for