Here are clean, concise, exam-ready notes on the Concept of Bonus based on your text:

Concept of Bonus — Notes

1. Meaning & Purpose

 The Payment of Bonus Act, 1965 ensures payment of bonus to employees in certain
establishments.
 Bonus is linked to:
o Profits, or
o Production/Productivity,
o Along with other connected matters.

2. Historical Development

(a) 1917 – War Bonus

 First bonus payment in India.

 Bombay textile workers received 10% of wages as “War Bonus.”

(b) 1924 – Bonus Disputes Committee

 Led by Sir Norman McLeod (Chief Justice, Bombay High Court).

 Committee concluded:
o Workers had no legal/customary right to bonus.
o Bonus was ex-gratia, paid on an ad hoc basis.

3. Post-World War II Era (After 1946)

 Bonus became a recognized principle of industrial law.

 Courts acknowledged that both capital & labour contribute to profits.

Associated Cement Co. Ltd v Their Workers

 Supreme Court held:

o Labour must receive a share in surplus profits after prior charges.
o Basis of “bonus formula” grounded in social justice.

4. Full Bench Formula

Mill Owners’ Association v Rashtriya Mill Mazdoor Sangh

 Surplus = Gross profits minus:

o Depreciation
o Rehabilitation reserves
o 6% return on paid-up capital
 Remaining surplus to be equitably shared between labour & capital.
 Confirmed again in Associated Cement Co. Ltd v Their Workers.

5. Path to Legislation

 1961: Tripartite Commission formed to study bonus based on profits and employee
entitlement.
 2 September 1964: Commission submitted report.
 Led to an ordinance, which resulted in the Payment of Bonus Act, 1965.

6. Types of Bonus

(a) Contractual Bonus

 Employer must pay when employee fulfills specified conditions.

 Example: Achieving performance targets.

(b) Discretionary Bonus

 Employer decides:
o Whether to pay,
o How much to pay,
o How to calculate.
 Must NOT be used irrationally or perversely (as per case law).

(c) Mixed Bonus

 Very common.
 Employee has contractual right to be considered, but employer has discretion
regarding amount.

7Here are clear, concise, exam-ready notes on Eligibility & Disqualification for Bonus
(Sections 8 & 9) with case laws included:
Section 8 – Eligibility for Bonus
Who is eligible?

An employee becomes eligible for bonus if:

✔ They have worked for at least 30 working days

✔ In that accounting year
✔ In the same establishment

➡ Applies to all employees covered under the Act.

Case Law: Kale Khan Mohd. Hanif v. Jhanoi Bibi Mazdoor Union

 Seasonal workers are also eligible.

 If a seasonal worker works 30 days or more, they are entitled to bonus.

Section 9 – Disqualification from Bonus

An employee loses the right to bonus if dismissed for any of the following reasons:

(a) Fraud

 Any dishonest or deceptive act by the employee.

(b) Riotous or Violent Behaviour

 Misconduct inside the establishment premises.

(c) Theft, Misappropriation, Sabotage

 Stealing, damaging, destroying, or misusing employer’s property.

➡ If dismissal is based on any one of these grounds, the employee is disqualified from
receiving bonus for that year.

Case Law: Himalaya Drug Co. v. Additional Labour Court

 Bonus can be forfeited only for the accounting year in which the offence was
committed.
  Cannot deny bonus of:
o Previous years
o Future years

➡ Forfeiture applies strictly to the specific year of misconduct.

Here are clear, simple, exam-ready notes on Section 10 (Minimum Bonus) and Section 11
(Maximum Bonus) with case law:

Section 10 – Payment of Minimum Bonus

Minimum Bonus Rule

Every employer must pay a minimum bonus to every eligible employee:

**Minimum Bonus = 8.33% of Salary/Wage Earned

OR
₹100 (whichever is higher)**

This applies to:

 Accounting year starting 1979, and

 Every year thereafter,
 Even if the employer has no allocable surplus (i.e., even if the company makes no
profit).

➡ Minimum bonus is compulsory.

Case Law: Jalan Trading Co. Pvt. Ltd. v. D.M. Aney

 The Supreme Court held that:

o Mandatory payment of minimum bonus even without profit
o Does NOT violate Articles 19 (freedom to carry on business) or 301 (freedom
of trade) of the Constitution.
 Therefore, Section 10 is constitutionally valid.

Section 11 – Payment of Maximum Bonus

When does Section 11 apply?
If the allocable surplus for the year exceeds the minimum bonus calculated under Section
10.

Rule for Maximum Bonus

Employer must pay bonus proportionate to the employee’s salary/wage,

but not more than 20% of the salary/wage.

So:

Maximum Bonus = 20% of Salary/Wage

➡ If surplus allows more, employer cannot exceed 20%.

Summary Table
Section Bonus Type Percentage Notes
Minimum 8.33% or ₹100
Sec 10 Payable even if no profit
Bonus (whichever higher)
Maximum Payable only if allocable surplus exceeds
Sec 11 20%
Bonus minimum bonus

If you want, I can explain the meaning of allocable surplus, or make a numerical example
showing how minimum and maximum bonus are calculated.

Here are clear, concise, exam-ready notes for Sections 17, 19, 21, and 32 of the Payment of
Bonus Act, 1965, based on your text:

Section 17 – Adjustment of Customary or

Interim Bonus
1. Adjustment Allowed

If in any accounting year:

(a) Employer has paid customary bonus

(e.g., Puja bonus, festival bonus)

OR
(b) Employer has paid interim bonus

(i.e., part of the statutory bonus before it becomes due),

➡ Then the employer can deduct these amounts from the statutory bonus payable under the
Act.

Result:

Employee receives only the balance bonus after adjusting the above payments.

Section 18 (Set-on and Set-off) (Your text

refers to the concept—explained simply)
When surplus is NOT enough to pay minimum bonus:

If:

 There is no available surplus,

 OR surplus is less than minimum bonus,
 AND there is no previously carried-forward (set-on) amount,

➡ Then:
The shortfall or entire minimum bonus amount is carried forward for set-off in the next
4 accounting years.

✔ The Fourth Schedule provides illustrations.

Section 19 – Time Limit for Payment of

Bonus
All bonus must be paid in cash:

(a) When a dispute exists

 If bonus dispute is pending before an authority (Sec 22),

 Bonus must be paid within 1 month from:
o Date the award becomes enforceable, or
o Date settlement comes into operation.

(b) In all other cases

  Bonus must be paid within 8 months from the close of the accounting year.

Section 21 – Recovery of Bonus

If bonus is due but not paid:

 Employee (or authorized person), OR heirs (if employee dies)

may apply to the appropriate Government.
 If the authority is satisfied, it issues a certificate to the Collector.
 Collector recovers it as arrears of land revenue.

➡ This ensures compulsory recovery, like tax arrears.

Section 27 – Inspectors (brief overview)

Inspectors are appointed to:

 Ensure compliance with the Act,

 Demand information,
 Examine documents,
 Enter premises,
 Conduct inquiries.

(You can ask for a detailed breakdown if needed.)

Section 32 – Act Not to Apply to Certain

Employees
The Act does NOT apply to the following classes of employees:

(i) Employees of insurers (general insurance) and LIC

(ii) Seamen under Merchant Shipping Act

(iii) Dock workers registered under the Dock Workers Regulation Act

(iv) Employees of establishments run by:

 Central Government,
  State Government, or
 Local authorities

(v) Employees of the following non-profit institutions:

 Indian Red Cross Society (and similar institutions)

 Universities and educational institutions
 Hospitals, chambers of commerce, and other social welfare institutions

(vi) Employees hired through contractors on building operations

If you want, I can compile all sections into one full set of notes for the entire Payment of
Bonus Act, or convert them into one-page revision notes or Q&A format for exam
practice.