JUDGMENT :

J.C. SHAH, J.

1. During the pendency, before the Industrial Court, Bombay, of a reference under s. 73A of the Bombay Industrial Relations Act, 1946, which arose out of a demand for payment of bonus for the years 1961 and 1962, the Payment of Bonus Ordinance 3 of 1965 was promulgated by the President on May 29, 1965, with immediate effect. The representatives of the workmen claimed that even if the plea of the employers that the profit and loss account of the establishment for the years in question disclosed a loss, was correct, the Ordinance governed the dispute and that the employees were entitled to receive bonus at the minimum rate of 4% of the salary or wages or Rs. 40/- whichever is higher. The Industrial Court upheld the plea of the workmen and directed the employers subject to the provisions of the Bonus Ordinance, 1965, to pay to each employee bonus for the year 1962 equivalent to 15 days of the salary or wages or Rs. 40/- whichever is higher.

2. With special leave, the employers have appealed to this Court and they challenge the validity of the Payment of Bonus Act, 1965, which replaced Ordinance 3 of 1965, and especially of the provisions under which bonus at minimum rate is made payable under the Act.

3. Writ Petitions Nos. 3 of 1966 and 32 of 1966 are filed by two public limited companies. They challenge diverse provisions of the Act and contend that they are not liable to pay bonus under the machinery prescribed by the Act.

4. A synopsis of the development in the industrial law which led to the enactment of the Payment of Bonus Act, 1965 will facilitate appreciation of the questions argued at the Bar. Claims to receive bonus, it appears, were made by industrial employees for the first time in India in the towns of Bombay and Ahmedabad, after the commencement of the First World War when as a result of inflationary trends there arose considerable disparity between the living wage and the contractual remuneration earned by workmen in the textile industry. The employers paid to the workmen increase in wages, initially called "war bonus" and later called "special allowance". A Committee appointed by the Government of Bombay in 1922 to consider, inter alia, "the nature and basis" of this bonus payments, reported that the workmen had a just claim against the employers to receive bonus, but the claim was not "customary, legal or equitable". During the Second World War the employers in the textile industry granted cash bonus equivalent to a fraction of actual wages (not including dearness allowance) but even this was a voluntary payment made with a view to keep labour contented.

5. In the dispute for payment of bonus for the years 1948 and 1949 in the textile industry in Bombay, the Industrial Court expressed the view that since labour as well as capital employed in the industry contribute to the profits of the industry, both are entitled to claim a legitimate return out of profits of an establishment, and evolved a formula for charging certain prior liabilities on the gross profits of the accounting year, and awarding a percentage of the balance as bonus to the workmen. In adjudicating upon the claim for bonus, the Industrial Court excluded establishments which had suffered loss in the year under consideration from the liability to pay bonus. In appeals against the award relating to the year 1949, the Labour Appellate Tribunal broadly approved of the method for computing bonus as a fraction of surplus profit.

6. According to the formula which came to be known as the "Full Bench Formula", surplus available for distribution had to be determined by debiting the following prior charges against gross profits :

(1) Provision for depreciation;

(2) Reserve for rehabilitation;

(3) Return of 6% on the paid-up capital;

(4) Return on the working capital at a lower rate than the return on paid-up capital;

and from the balance called "available surplus" the workmen were to be awarded a reasonable share by way of bonus for the year.

7. Th