What did the Supreme Court decide about the Payment of Bonus Act, 1965?

Parliament could legislate on bonus. The core scheme stood, but some sections were struck down for discrimination and invalid delegation.

Which sections were held unconstitutional?

Sections 33 and 34(2) violated Article 14. Section 37 was invalid for excessive delegation to remove “difficulties” by executive order.

Was delegated legislation allowed anywhere in the Act?

Yes. Section 36 was treated as conditional legislation with guiding principles, so it was valid.

Could Section 10 be challenged as taking property under Article 31?

No. The Court rejected an Article 31(1) challenge. Only Article 14 and 19(1)(g) were relevant grounds to test bonus provisions.

What happens to disputes pending when the Act came in?

Proceedings already underway and those within Section 33 were to be resolved using the Full Bench formula, despite parts being struck.

Jalan Trading Co. Pvt. Ltd. v. Mill Mazdoor Union (1967)

Quick Summary

This case tested the Payment of Bonus Act, 1965. The Supreme Court said Parliament can regulate bonus for industrial workers. Most of the Act stood. But the Court struck down parts that treated similar factories differently or that handed excessive power to the Government to “remove difficulties”.

Core idea: Bonus law valid in principle; equality and non-delegation limits still apply.
Outcome: Sections 33 & 34(2) hit by Article 14; Section 37 invalid for excessive delegation; Section 36 upheld; disputes to use the Full Bench formula.

Issues

Did Parliament have power to enact a uniform bonus law for industry?
Were Sections 33 and 34(2) of the Act discriminatory under Article 14?
Was Section 37 an unconstitutional delegation of legislative power?
Was Section 36 valid conditional legislation with guiding principles?

Rules

Parliament can legislate on industrial bonus; core scheme not a violation per se.
Laws must pass Article 14 (no arbitrary classification).
Delegation needs clear limits. Excessive delegation is invalid.
Section 36 = conditional legislation with guidance → valid.

Facts (Timeline)

CASE_TITLE

1965: President issues Payment of Bonus Ordinance 3 of 1965 to resolve bonus disputes.
Workers claimed minimum bonus even for loss-making years (e.g., 1961–62).
Industrial Court ordered payment (e.g., 15 days’ wages or ₹40, whichever higher for 1962).
The Ordinance was replaced by the Payment of Bonus Act, 1965.
Employers moved the Supreme Court against parts of the Act—especially minimum bonus and classification rules.

Timeline of Bonus Ordinance, Act, and challenge in Jalan Trading

Arguments

Employers (Petitioners)

Minimum bonus despite losses is arbitrary; violates Articles 14 & 19(1)(g).
Section 33 creates illogical distinctions between similar units.
Section 34(2) forces payment using base-year gross profits without special circumstances → unfair.
Section 37 gives blanket power to “remove difficulties” → excessive delegation.

Union/Government (Respondents)

Parliament can set nationwide rules for bonus to ensure industrial peace.
Classifications further policy goals; discretion needed to implement.
Section 36 is valid conditional legislation with guiding factors.

Judgment

Held

Competence: Parliament validly legislated on bonus. Core provisions stand; Section 10 not hit by Article 31(1).
Section 33: Unconstitutional. It produced irrational differences between similar units → violates Article 14.
Section 34(2): Unconstitutional. Fixing liability on base-year gross profits, ignoring exceptional conditions → arbitrary.
Section 36: Valid. Conditional legislation with guidance; not excessive delegation.
Section 37: Invalid. “Remove difficulties” power = excessive delegation of legislative function.
Severability: Striking these parts does not sink the whole Act. Pending disputes (incl. Section 33 situations) to follow the Full Bench formula.

Judgment outcome: Parts struck for Article 14 and excessive delegation

Ratio Decidendi

A national bonus law is valid, but it must treat like units alike and cannot give the Executive a free hand to rewrite the Act. Equality (Art. 14) and limits on delegation apply even in social-welfare legislation.

Why It Matters

Shows courts will keep welfare laws within constitutional lines.
Clarifies when “remove difficulty” clauses cross into law-making.
Guides future drafting on classifications and implementation powers.

Key Takeaways

Parliament can legislate bonus; property challenge under Art. 31(1) failed.
Sections 33 & 34(2): discriminatory/arbitrary → struck down.
Section 36: valid conditional legislation with guidance.
Section 37: excessive delegation → invalid.

Mnemonic + 3-Step Hook

Mnemonic: “C-E-D-C” — Competence yes, Equality checks, Delegation limited, Conditional OK.

Ask: Is the class treated fairly? (Art. 14)
Check: Is the power guided or unlimited?
Conclude: Keep core; strike arbitrary/over-broad bits.

IRAC Outline

Issue

Validity of Payment of Bonus Act provisions on equality and delegation; Parliament’s power to legislate bonus.

Rule

Art. 14 bars arbitrary classification; delegation needs guidance; conditional legislation allowed; Parliament has competence.

Application

S.33 & 34(2) drew irrational lines/ignored special cases; S.37 delegated too much; S.36 had clear guidance → valid.

Conclusion

Act mostly upheld; S.33, S.34(2), S.37 invalid; pending matters to use the Full Bench formula.

Glossary

Delegated Legislation: Rules/orders made by the Executive under a law. Must have limits and guidance.
Conditional Legislation: Law where the Executive applies/extends provisions after checking laid guidelines.
Full Bench Formula: Judicial formula historically used to compute bonus in pending disputes.