A) ABSTRACT / HEADNOTE

The appeal concerns whether Workshop for Rehabilitation and Training of the Handicapped Trust (WORTH) originally Swedish Red Cross Rehabilitation Trust which combines charitable rehabilitation with commercial manufacturing, falls within the exemptions of Section 32 of the Payment of Bonus Act, 1965 and thereby escapes liability to pay statutory bonus to factory workmen. The Tribunal had held the Union’s claim for bonus and ex-gratia partly justified, awarding the minimum statutory bonus (8.33%) and recognising prior ex-gratia payments. The High Court affirmed the Tribunal but permitted adjustment of bonus by deducting amounts paid ex-gratia.

On challenge, the Supreme Court analysed the Bonus Act’s scheme and the Factories Act, 1948 definition of “factory”, concluded that factories operated by the trust attract the Bonus Act, and rejected the trust’s contention that it is an institution akin to the Indian Red Cross Society or an institution established not for purposes of profit under Section 32(v)(a) & (c). The Court held that the character of the employing unit (running manufacturing units generating surplus) and the fact that employees work in factories bring them within the Bonus Act irrespective of the parent trust’s charitable objects; ex-gratia charity does not supplant the statutory right to bonus. The appellant was directed to pay bonus from 1996–97 till date, subject to set-off of earlier ex-gratia.

Keywords: Section 32 Payment of Bonus Act, 1965; factory; ex-gratia; charitable trust with commercial arms; minimum bonus 8.33%; Indian Red Cross Society exemption.

B) CASE DETAILS 

C) INTRODUCTION AND BACKGROUND OF JUDGMENT

The dispute arises from intersecting themes: statutory social welfare legislation (the Payment of Bonus Act, 1965) and organisations that combine charitable work with commercial enterprises. WORTH began as a charity (established by Swedish Red Cross Society, 1969) focusing on rehabilitation of leprosy-cured persons, but since 1985 expanded into manufacturing automobile and industrial parts in factories which generate surplus from sales. Workers in those factories (largely persons rehabilitated by the trust) formed the WORTH Trust Workers Union and claimed bonus and ex-gratia for 1996–97. The industrial dispute travelled from the Tribunal (which awarded minimum bonus and recognised ex-gratia) through the High Court (which affirmed but ordered adjustment) to the Supreme Court.

Central to the litigation was whether the Bonus Act expressly applicable to every factory excludes employees of institutions like the Indian Red Cross Society or institutions established not for the purposes of profit under Section 32(v)(a) & (c), and whether ex-gratia charity can displace statutory entitlement. The Supreme Court set out the legislative history of the Bonus Act, the definitions imported from the Factories Act, 1948, and weighed documentary evidence of the trust’s activities and amendments that severed formal ties with the Swedish Red Cross, concluding that running profit-generating factories places the employees squarely within the Bonus Act’s protective ambit.

D) FACTS OF THE CASE

WORTH (formerly Swedish Red Cross Rehabilitation Trust) was formed with charitable objects of rehabilitating leprosy-cured and specially-abled persons. Since 1985 the trust began operating manufacturing units producing automobile parts and industrial machinery components; these units are run as factories and produce profits (referred to in the Bonus Act as surplus). The workforce in those factories largely comprises rehabilitated persons; they organised as the WORTH Trust Workers Union. In 1998 the Union raised an industrial dispute seeking bonus (claimed at 20%) and ex-gratia (5%) for 1996–97. The dispute was referred to the Industrial Disputes Tribunal, Chennai under s.10(2) ID Act read with s.22 Bonus Act.

The Tribunal allowed part of the claim, granting the minimum bonus of 8.33% and confirming entitlement to ex-gratia already being paid. The trust challenged the award before the High Court; the Single Judge upheld the Tribunal but allowed deduction of amounts already paid ex-gratia from the bonus. Writ appeal to the Division Bench was dismissed. The trust contended exemption under Section 32(v)(a) & (c) — i.e., employees of the Indian Red Cross Society or institutions not established for purposes of profit — relying on the trust’s charitable origin and asserted similarity to Red Cross institutions. Evidence showed the trust had amended its deed (1989) deleting references to Swedish Red Cross and had materially expanded commercial operations since 1985. The Union did not dispute the charitable rehabilitation work but asserted that the employees nonetheless work in factories governed by the Factories Act and are thus entitled to bonus.

E) LEGAL ISSUES RAISED

i. Whether the Payment of Bonus Act, 1965 applies to employees of WORTH engaged in manufacturing units run as factories.
ii. Whether Section 32(v)(a) (employees of Indian Red Cross Society or institutions of a like nature) exempts WORTH’s factory employees from the Bonus Act.
iii. Whether Section 32(v)(c) (institutions established not for purposes of profit) exempts the trust when its factories generate surplus.
iv. Whether ex-gratia payments already made by the trust can discharge its statutory obligation to pay bonus.

F) PETITIONER / APPELLANT’S ARGUMENTS

The appellant-trust argued: the trust has charitable origins and continued charitable work; it should be treated as an institution akin to the Indian Red Cross Society and therefore exempt under Section 32(v)(a); alternatively, it is an institution established not for purposes of profit within Section 32(v)(c); ex-gratia sums already paid reflect benevolence and should be treated as satisfying or mitigating bonus liability; the trust’s identity as a charitable institution should shield its employees from statutory bonus obligations.

G) RESPONDENT’S ARGUMENTS

The Union/respondent contended: employees work in factories as defined in the Factories Act, 1948, therefore the Bonus Act applies (s.1(3)(a) and definition of “factory” via s.2(17)); the trust’s commercial manufacturing activities since 1985 produce surplus and are not incidental charity; mere charitable umbrella does not strip statutory protection; there is no evidence WORTH is run by or akin to Indian Red Cross Society; ex-gratia charity cannot supplant statutory minimum bonus entitlements.

H) JUDGMENT

The Supreme Court dismissed the appeal. It began by emphasising the legislative scheme: the Bonus Act’s objective (implementing Bonus Commission recommendations) and explicit coverage of every factory via s.1(3)(a) and the cross-reference to clause (m) of s.2 Factories Act, 1948 for the definition of factory. The Court analysed evidence that since 1985 WORTH expanded into manufacturing automobile and machinery parts, running factories that generated surplus. The Tribunal and High Court had found that the trust’s objects and operations changed materially; references to the Swedish Red Cross were deleted in 1989.

The Court held that where employees work in factories satisfying the statutory definition they fall within the Bonus Act; ancillary charitable identity of the parent trust is immaterial if the employing unit runs commercial factories. The Court found no evidence that WORTH is run by the Indian Red Cross Society or is akin to it; similarity of some objects is insufficient. On Section 32(v)(c), the Court observed that being an institution established not for purposes of profit cannot be read to exclude institutions running profit-generating factories; the production of surplus and commercial scale contradicted the appellant’s contention.

Regarding ex-gratia, the Court reiterated that voluntary charitable payments cannot defeat a statutory duty; the Single Judge’s adjustment (set-off) of ex-gratia against statutory bonus was acceptable and undisputed by the Union. Consequently, the Court directed payment of bonus from 1996–97 to date within one month, subject to adjustments.

a. RATIO DECIDENDI

The decisive legal principle is that the Payment of Bonus Act, 1965 applies to employees working in factories as defined by the Factories Act, 1948; a parent entity’s charitable character does not negate statutory application where the employing units are factories engaged in commercial manufacturing producing surplus.

Exemptions in Section 32 are narrowly construed: an institution must demonstrably be the Indian Red Cross Society or an institution of the same legal and functional character, or truly established without profit motive in practice mere charitable objects or occasional reinvestment of surplus into charitable work is insufficient to attract exemption.

Voluntary ex-gratia is not a substitute for statutory bonus; however, legitimate prior charitable payments may be adjusted against the statutory amount if judicially ordered. The Act’s purposive objective to secure bonus rights for factory employees underpins this interpretation.

b. OBITER DICTA 

The Court noted, as guiding remarks, that beneficial labour statutes (Factories Act, ESI, EPF) ought to be available to workmen irrespective of the employer’s charitable label when conditions of a factory are met. It emphasised legislative intent behind the Bonus Act social justice and distributive fairness for wage-earners suggesting courts should not permit form (charitable status) to defeat substance (commercial factory operation). The opinion implicitly warns trustees and NGOs that operating commercial undertakings may attract full labour-law obligations.

c. GUIDELINES 

1. Where an entity runs manufacturing units meeting the Factories Act definition, employees are covered by the Payment of Bonus Act irrespective of the parent organisation’s charitable origin.

2. Section 32 exemptions must be strictly and factually established; similarity of objects alone does not suffice to treat an entity as Indian Red Cross Society or an institution of like nature.

3. Evidence of continued operational and legal ties to exempt bodies must be produced; mere historical origin is insufficient.

4. Commercial profit or surplus arising from factory operations indicates applicability of bonus obligations, even if surplus is later channelled into charitable activities.

5. Voluntary ex-gratia payments do not extinguish statutory claims; courts may order adjustment (set-off) of ex-gratia against statutory bonus where appropriate and contested amounts are quantified.

I) CONCLUSION & COMMENTS

The judgment reinforces the principle that the protective ambit of labour welfare statutes is determined by the nature of work and the character of the employing unit’s operations, not by the benevolent label of the parent organisation. Organisations that combine charitable purposes with commercial manufacturing must recognise concomitant statutory obligations towards their factory employees. The Court’s strict approach to Section 32 prevents an overly broad exemption for charitable bodies that run commercial enterprises and produce surplus.

Practically, trustees and NGOs should account for labour-law liabilities (bonus, ESI, EPF, factories compliance) when operating manufacturing activities, maintain transparent accounts distinguishing charitable receipts from commercial surplus, and avoid relying on historical affiliations to claim exemptions. For workmen, the ruling affirms statutory protection and the limited role of ex-gratia charity in displacing legal entitlements. The decision thus balances protective labour policy with a realistic view of organisational form and function.

J) REFERENCES

a. Important Cases Referred
i. The Management of Worth Trust v. The Secretary, Worth Trust Workers Union, Civil Appeal No. 4717 of 2025, Supreme Court of India, Sudhanshu Dhulia, J., 02 April 2025. [2025] 5 S.C.R. 360 : 2025 INSC 432.

b. Important Statutes Referred
i. Payment of Bonus Act, 1965 (esp. ss.1, 2(17), 10, 11, 15, 22, 32).
ii. Factories Act, 1948 (clause (m) of s.2 — definition of factory).
iii. Industrial Disputes Act, 1947 (s.10(2) — reference to Tribunal procedures).