Enterprise Being Run On Commercial Lines Involving Generation Of Profit Cannot Escape Liability Under Payment Of Bonus Act: Delhi High Court

Observing that an enterprise being run on commercial lines cannot escape liability under Payment of Bonus Act, the Delhi High Court recently upheld a single judge bench’s decision of upholding Industrial Tribunal Award to pay bonus for the year 1997-98 to the workers of Moolchand Kharaiti Ram Hospital & Ayurvedic Research Institute.

“If an enterprise is being run on commercial lines involving generation of profit then it cannot escape liability under the Act by contending that it was not established for the purpose of profit,” said the division bench of Justice Najmi Waziri and Justice Sudhir Kumar Jain.

The division bench said the Single Judge rightly observed that a multi bedded super-speciality enterprise like the appellant Hospital cannot be said to be neither running on commercial lines nor it is generating profits.

"Although the profit generated by the appellant Hospital might not be distributed amongst the Trustees and might be ploughed back into the corpus of the Hospital to better its facilities and augment its quality of services would not allow the appellant Hospital to be exempted from the applicability of the provisions of the Act," said the court.

The court was hearing an appeal filed by the hospital challenging the judgment of the single judge, which upheld the award of the Industrial Tribunal wherein it was held that “the Hospital is liable to pay, to its workmen, bonus for the year 1997-1998.”

The hospital argued that the Single Judge in absence of evidence incorrectly assumed that profit earning is its predominant purpose. It was argued that if the primary objective of an establishment is to carry out a charitable activity rather than making profits, then the character of charitable purpose would not be lost merely because the establishment earn some profits from its activities.

The court noted that the Hospital was paying a bonus to its workmen and had paid the bonus prior to 1997-98.

“The Act was enacted with the objective to provide for the payment of bonus to persons employed in certain establishments on the basis of profits or on the basis of production or productivity. Section 1 of the Act provides that the Act shall apply to every factory and every other establishment in which twenty or more persons are employed on any day during an accounting year,” the court observed.

The court rejected the argument of the hospital that it was granted exemption under section 80G of the Income Tax Act, 1961 being established for charitable purposes and if the primary objective of an establishment is to carry out a charitable activity rather than making profits then character of charitable purpose would not be lost merely because the establishment earn some profits from its activities.

“This argument advanced by the learned counsel for the appellant Hospital is without any justification in view of observations made by the learned Single Judge in Batra Hospital Employees Union,” it said.

The court said it was for the hospital to establish and prove that the Act does not require it to pay bonus to its workmen for year 1997-98.

"The learned Single Judge has rightly observed that the onus to prove lack of the liability and exemption from payment of bonus to the workmen for the year 1997-98 was on the appellant Hospital which it could not discharge,” said the court.

While dismissing the appeal the Court said, “The learned Single Judge while upholding Award passed by the Tribunal has rightly concluded that the provisions of the Act are applicable to the appellant Hospital and the appellant Hospital cannot be exempted from the liability to pay bonus to its workmen for the year 1997-98.”

Case Title: MoolChand Kharaiti Ram Hospital & Ayurvedic Research institute v. Workers & Ors.

Citation: 2023 LiveLaw (Del) 524

Advocates Ramesh Kumar Mishra and Sandeep Pandey appeared for the applicants.

Advocates Abinash K. Mishra, Mohit Sharma and Gaurav Kumar Pandey for respondents.

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