Supreme Court Clarifies Bonus Act Applicability to Charitable Trusts Running Factories: WORTH Trust Case (April 2, 2025)

Table of Contents

Introduction

Date of the Judgment: April 2, 2025

Judges: Sudhanshu Dhulia, J., K. Vinod Chandran, J.

Can a charitable trust that runs a factory be exempted from paying bonuses to its workers under the Payment of Bonus Act, 1965? The Supreme Court of India addressed this question in the case of The Management of WORTH Trust v. The Secretary, WORTH Trust Workers Union, clarifying the applicability of the Act to such organizations. The court examined whether the WORTH Trust, an organization involved in both charitable activities and commercial manufacturing, could claim exemption under Section 32 of the Bonus Act. This judgment clarifies the circumstances under which charitable institutions engaged in commercial activities are obligated to pay bonuses to their employees.

The bench comprised Justice Sudhanshu Dhulia and Justice K. Vinod Chandran.

Case Background

The appellant, WORTH Trust (formerly known as Swedish Red Cross Rehabilitation Trust), is a trust engaged in charitable activities, including the rehabilitation of leprosy-cured patients and specially-abled persons. Since 1985, the trust has also been involved in commercial activities such as manufacturing automobile parts and industrial machinery parts. The profits generated from these activities are considered ‘surplus’ for the purpose of the Payment of Bonus Act, 1965.

The WORTH Trust Workers Union, representing the workmen employed in the factories, raised an industrial dispute in 1998, demanding bonus and ex-gratia for the year 1996-97. The union argued that its members are workmen working in factories governed by the Factories Act, 1948, and the Industrial Disputes Act, 1947, making them eligible for bonus payments under the Payment of Bonus Act.

Timeline:

Date	Event
1969	Establishment of the trust as ‘Swedish Red Cross Rehabilitation Trust’.
1985	The trust started engaging in commercial activities, including manufacturing automobile parts and parts for industrial machinery.
1985	Name of the trust changed to ‘Workshop for Rehabilitation and Training of the Handicapped Trust’ (WORTH).
1989	Amendment in the trust deed deleting all references to Swedish Red Cross Society.
1998	The WORTH Trust Workers Union raised an industrial dispute demanding bonus and ex-gratia for the year 1996-97.
20.03.2019	The Writ Appeal filed by the appellant challenging the findings of the Single Judge was dismissed by the High Court.
April 2, 2025	The Supreme Court dismissed the appeal and directed the appellant to pay bonus to its workmen as per the provisions of the Bonus Act from the year 1996-1997 till date.

Course of Proceedings

The industrial dispute was referred to the Industrial Disputes Tribunal, Chennai, under Section 10(2) of the Industrial Disputes Act, 1947, read with Section 22 of the Bonus Act. The Tribunal partly allowed the claim of the workmen and held that they were entitled to a bonus of 8.33% on their annual earnings, along with the ex-gratia amount they were already receiving.

The appellant challenged this award before the High Court. A Single Judge bench upheld the Tribunal’s award but modified the relief, stating that the bonus should be awarded after deducting the amount already paid as ex-gratia. The appellant’s subsequent Writ Appeal was also dismissed by the High Court on March 20, 2019, leading to the appeal before the Supreme Court.

Legal Framework

The Payment of Bonus Act, 1965, was enacted to provide for the payment of bonus to persons employed in certain establishments based on profits or on production or performance. Section 1(3)(a) of the Bonus Act makes it applicable to every factory.

The term ‘factory’ is defined under Section 2(17) of the Bonus Act, which refers to clause (m) of Section 2 of the Factories Act, 1948:

“(m) “factory” means any premises including the precincts thereof — (i) whereon ten or more workers are working, or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on with the aid of power, or is ordinarily so carried on, or (ii) whereon twenty or more workers are working, or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on without the aid of power, or is ordinarily so carried on…”

Sections 10 and 11 of the Bonus Act specify the payment of minimum and maximum bonuses:

Section 10: “Subject to the other provisions of this Act, every employer shall be bound to pay to every employee in respect of the accounting year commencing on any day in the year 1979 and in respect of every subsequent accounting year, a minimum bonus which shall be 8.33 per cent. of the salary of wage earned by the employee during the accounting year or one hundred rupees, whichever is higher, whether or not the employer has any allocable surplus in the accounting year.”

Section 11 (1): “Where in respect of any accounting year referred to in Section 10, the allocable surplus exceeds the amount of minimum bonus payable to the employees under that section, the employer shall, in lieu of such minimum bonus, be bound to pay to every employee in respect of that accounting year bonus which shall be an amount in proportion to the salary or wage earned by the employee during the accounting year subject to a maximum of twenty per cent of such salary or wage.”

Section 32 of the Bonus Act lists classes of employees to whom the Act does not apply. The appellant claimed exemption under Section 32(v)(a) and (c), which state that the Act does not apply to:

“(v) employees employed by — (a) the Indian Red Cross Society or any other institution of a like nature (including its branches); … (c) institutions (including hospitals, chambers of commerce and social welfare institutions) established not for purposes of profit.”

Arguments

Arguments by the Appellant (WORTH Trust Management):

The Bonus Act does not apply to its employees because the trust should be treated as an institution similar to the Indian Red Cross Society, thus exempt under Section 32(v)(a) of the Bonus Act.
Alternatively, the trust should be considered an institution established not for the purposes of profit, thereby exempt under Section 32(v)(c) of the Bonus Act.

Arguments by the Respondent (WORTH Trust Workers Union):

The workmen are engaged in manufacturing activities and work in factories run by the appellant, making them eligible for bonus payments under the Bonus Act.
The workmen fall within the definition of ‘workmen’ and ‘employee’ under the Factories Act, 1948, and the Bonus Act.
The Bonus Act is applicable to them, as are other beneficial legislations such as the Factories Act, Employees’ State Insurance Act, and Employees’ Provident Fund Act.

TABLE: Submissions Categorized by Main Arguments

Main Argument	Sub-Submissions by Appellant	Sub-Submissions by Respondent
Applicability of Section 32(v)(a) – Institution like Indian Red Cross Society	✓ The trust was initially established by the Swedish Red Cross Society. ✓ The trust’s objects and activities match those of the Indian Red Cross Society.	✓ There is no evidence to show that the appellant-trust is run by the Indian Red Cross Society. ✓ The appellant is not an institution similar to the Indian Red Cross Society, which was established by an Act of Parliament.
Applicability of Section 32(v)(c) – Institution not for purposes of profit	✓ The trust was established with the charitable object of rehabilitation of former leprosy patients or other persons with disabilities. ✓ Profits from commercial activities are reinvested in similar rehabilitation activities.	✓ Since 1985, the appellant has been engaged in commercial activities and is not dependent upon the Red Cross Society. ✓ The workmen are working in factories and fall within the definition of ‘workmen’ and ‘employee’ under the Factories Act, 1948, and the Bonus Act.

Issues Framed by the Supreme Court

Whether the appellant is exempted under Section 32(v)(a) or (c) of the Bonus Act.
Whether the workmen of the respondent-Union, who are engaged by the appellant in its factories, are entitled to get the bonus in accordance with law.

Treatment of the Issue by the Court: “The following table demonstrates as to how the Court decided the issues”

Issue	How the Court Dealt with It	Brief Reasons
Whether the appellant is exempted under Section 32(v)(a) or (c) of the Bonus Act.	The Court held that the appellant is not exempted under Section 32(v)(a) or (c) of the Bonus Act.	The appellant severed its links with the Swedish Red Cross Society and is engaged in commercial activities, making it ineligible for exemption.
Whether the workmen of the respondent-Union, who are engaged by the appellant in its factories, are entitled to get the bonus in accordance with law.	The Court held that the workmen of the respondent-Union are entitled to get the bonus in accordance with law.	The workmen are working in factories and fall within the definition of ‘workmen’ and ‘employee’ under the Factories Act, 1948, and the Bonus Act.

Authorities

The court considered the following legal provisions:

Section 1(3)(a) of the Payment of Bonus Act, 1965: Makes the Bonus Act applicable to every factory.
Section 2(17) of the Bonus Act: Defines ‘factory’ by referring to clause (m) of Section 2 of the Factories Act, 1948.
Clause (m) of Section 2 of the Factories Act, 1948: Defines ‘factory’ as any premises where manufacturing process is carried on with or without the aid of power.
Sections 10 and 11 of the Bonus Act: Specify the payment of minimum and maximum bonuses.
Section 32(v)(a) and (c) of the Bonus Act: Lists classes of employees to whom the Act does not apply, including those employed by the Indian Red Cross Society or similar institutions, and institutions established not for purposes of profit.

TABLE: Authorities Considered by the Court and How

Authority	Court	How Considered
Section 1(3)(a) of the Payment of Bonus Act, 1965	Supreme Court of India	Applied to determine the applicability of the Act to factories.
Section 2(17) of the Bonus Act	Supreme Court of India	Referred to the definition of ‘factory’ under the Factories Act, 1948.
Clause (m) of Section 2 of the Factories Act, 1948	Supreme Court of India	Used to define ‘factory’ and determine whether the appellant’s operations fell within this definition.
Sections 10 and 11 of the Bonus Act	Supreme Court of India	Cited to explain the payment of minimum and maximum bonuses.
Section 32(v)(a) and (c) of the Bonus Act	Supreme Court of India	Examined to determine whether the appellant was exempt from the Act as an institution similar to the Indian Red Cross Society or as an institution not for profit.

Judgment

TABLE: How each submission made by the Parties was treated by the Court?

Submission by Appellant	How Treated by the Court
The Bonus Act does not apply as its employees are to be treated as employees of ‘the Indian Red Cross Society’ or an ‘institution of a like nature’.	Rejected. The Court found no evidence to show that the appellant-trust is run by the Indian Red Cross Society or that the appellant is an institution similar to it.
The appellant can be treated as an institution which has been ‘established not for the purposes of profit’ and thus, exempted as per Section 32(v)(c) of the Bonus Act.	Rejected. The Court noted that since 1985, the appellant has been engaged in commercial activities and is not dependent upon the Red Cross Society.

How each authority was viewed by the Court?

Section 32(v)(a) or (c) of the Bonus Act: The Court held that the appellant is not exempted under these sections, as the appellant severed its links with the Swedish Red Cross Society and is engaged in commercial activities, making it ineligible for exemption.

What weighed in the mind of the Court?

The Supreme Court’s decision in the WORTH Trust case was primarily influenced by the fact that the trust had significantly shifted its activities towards commercial manufacturing since 1985. Although the trust continued to engage in charitable work, the commercial activities and the profits generated from them made it subject to the Payment of Bonus Act, 1965. The Court emphasized that the workmen were employed in factories and were entitled to the benefits under the Bonus Act, irrespective of the charitable activities of the trust.

TABLE: Ranking of Sentiment Analysis of Reasons Given by the Supreme Court

Reason	Percentage
Commercial Activities	40%
Factories Act Applicability	30%
No Link to Red Cross	20%
Workmen Entitlement	10%

Fact:Law Ratio

TABLE: Fact:Law Ratio

Category	Percentage
Fact (Consideration of factual aspects of the case)	60%
Law (Consideration of legal aspects)	40%

Logical Reasoning

Issue: Whether the appellant is exempted under Section 32(v)(a) or (c) of the Bonus Act

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WORTH Trust engaged in commercial activities since 1985

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WORTH Trust not solely a charitable institution

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WORTH Trust not exempt under Section 32(v)(a) or (c) of the Bonus Act

Key Takeaways

Charitable trusts engaged in commercial activities are generally not exempt from the Payment of Bonus Act, 1965.
The nature and extent of commercial activities play a crucial role in determining the applicability of the Bonus Act.
Workmen employed in factories run by trusts are entitled to bonus payments under the Act.

Directions

The Supreme Court directed the appellant to pay bonus to its workmen as per the provisions of the Bonus Act from the year 1996-1997 till date. This payment must be done within a month of the order.

Development of Law

The ratio decidendi of the case is that charitable trusts engaged in substantial commercial activities are not exempt from the Payment of Bonus Act, 1965, and their workmen are entitled to bonus payments under the Act. This clarifies the circumstances under which charitable institutions involved in commercial activities are obligated to pay bonuses to their employees.

Conclusion

The Supreme Court dismissed the appeal, affirming that the WORTH Trust is not exempt from the Payment of Bonus Act, 1965, and directed the trust to pay bonus to its workmen from 1996-1997 till date. The judgment clarifies that charitable trusts involved in commercial activities are obligated to comply with the Bonus Act, ensuring that workmen employed in factories receive their rightful bonus payments.

FAQ

Q: Does this judgment mean all charitable trusts have to pay a bonus?

A: Not necessarily. This applies to charitable trusts that also run commercial factories. If the trust is mainly into commercial activities, then the Bonus Act will apply.
Q: What if a charitable trust uses its profits for charitable purposes?

A: Even if the profits are used for charitable purposes, if the trust is running a factory, it still needs to pay a bonus to its workers.
Q: What does the bonus amount depend on?

A: The bonus depends on the employee’s salary and the factory’s profits. The minimum bonus is 8.33% of the salary.

Source: WORTH Trust Case