India: Bombay High Court Stays The Retrospective Operation Of The Payment Of Bonus (Amendment) Act, 2015

On 13 June 2016, the Division Bench of the Hon'ble Bombay High Court (comprising of Hon'ble Justice V M Kanade and Hon'ble Justice M S Sonak) has passed an ad interim order staying the retrospective operation of the Payment of Bonus (Amendment) Act, 2015 (the Amendment Act) in a writ petition filed by Tech Mahindra Limited, who was represented by the Firm.


The Payment of Bonus Act, 1965 (the Principal Act) was enacted by the Parliament in 1965. The preamble to the Principal Act states that it is an "Act to provide for the payment of bonus to persons employed in certain establishments on the basis of profit or on the basis of production or productivity and for matters connected therewith".

The Principal Act provides for the mandatory annual payment of bonus, calculated on the basis of the gross-profits which are determined at the close of the accounting year, to eligible employees of establishments which employ 20 or more persons. Under the Principal Act, every employee who draws a salary of INR 10,000 or below per month and who has worked for not less than 30 days in an accounting year, is eligible for bonus (calculated as per the methodology provided under the Principal Act) with the floor of 8.33% of the salary payable to him/her and a cap on the maximum bonus statutorily payable (20% of the salary). The manner of calculation of the gross-profits and the available and allocable surplus for calculation of bonus to be arrived at, are also set out in the Principal Act.

The Amendment Act

The Bill to amend the Principal Act was tabled in the Lok Sabha (Upper House) on 30 November 2015. Clause 1(2) of the said Bill provided that "It shall be deemed to have come into force on the 1st day of April, 2015." This Bill was passed by the Lok Sabha (Upper House) on 22 December 2015 with one amendment by which the date of operation of the Amendment Act was advanced from 1 April 2015 as provided in Clause 1(2) of the Bill to 1 April 2014.

Some of the key amendments carried out to the Principal Act by the Amendment Act are as follows:

Eligibility Limit of Employees

Section 2(13) of the Principal Act was amended to increase the ceiling on salary or wage limit for eligible employees from INR 10,000 per month to INR 21,000 per month.

Ceiling on Salary or Wages for Calculation of Bonus

The amended Section 12 now provides that where the salary or wage of an employee exceeds INR 7,000 per month or the minimum wage for the scheduled employment, the bonus payable to such employee shall be calculated as if his salary or wage were INR 7,000 per month or the minimum wage for the scheduled employment, whichever is higher.

Retrospective Applicability of Amendments

Section 1(2) of the Amendment Act makes the amendments relating to eligibility of employees entitled to receive bonus and the ceiling on salary or wages for calculation of such bonus payments, effective retrospectively from 1 April 2014.

Challenges to the Amendment Act

Tech Mahindra Limited and others (Petitioners) filed a writ petition in the Hon'ble Bombay High Court challenging the Amendment Act by stating that: (i) the retrospective operation of the Amendment Act with effect from 1 April 2014; and (ii) the amendment introduced vide Section 3 of the Amendment Act in so far as the words "or the Minimum Wage for the scheduled employment, as fixed by the appropriate Government, whichever is higher", should be struck down for being unreasonable, illegal and unconstitutional and in violation of Articles 14 and 19(1)(g) of the Constitution of India.

The following grounds, inter alia, were raised in the writ petition to challenge the constitutional validity of the Amendment Act:

Linking of Ceiling for Calculation of Bonus to Minimum Wages Act

The object of the Principal Act is, inter alia, to require equitable distribution of the surplus profits of an establishment  with a view to maintain peace and harmony between labour and capital and allow the employees to participate in the prosperity of an establishment (as reflected in the profits earned) due to the contributions by capital, management and labour.

The Amendment Act unreasonably and impermissibly discriminates between employees that are within the same class in the same establishment having offices in different parts of India by providing that employees drawing minimum wages higher than INR 7,000 shall be entitled to receive higher bonus than the employees drawing minimum wages of or lesser than INR 7,000. In this manner, the Amendment Act has introduced a classification among employees previously unknown to the scheme of the Principal Act, right from inception. This classification is not only discriminatory amongst the employees but also adversely affects the Petitioners. Further, it is contrary to the object and purpose of the Principal Act, inasmuch as such a distinction in the manner of computing bonus may give rise to unrest and discontent and affect the business of the Petitioners.

Retrospective Applicability imposes hardship and leads to absurd Consequences

The Amendment Act was introduced and passed much after the financial statements for the financial year 2014-15 have already been finalized, audited and approved by the members of the respective companies at their respective annual general body meeting. Further, income tax / bonus computation and payments and statutory filings under various laws and regulations have already been made on the basis of these audited financial statements.

Therefore, the Petitioners, for no fault of theirs, may be constrained to get their financial statements re-audited. This will result in absurd consequences as tax audit and filing of income tax returns as well as the publication of audited financial statements and filing the same with the regulatory authorities will have to be carried out again. Such harsh and undue consequences was not desirable nor intended by the Parliament while enacting the Amendment Act.


Along with the Hon'ble Bombay High Court, the Hon'ble High Courts of Karnataka, Allahabad, Madras, Kerala, Punjab and Haryana, Rajasthan, Gujarat, Madhya Pradesh, Calcutta and Andhra Pradesh have also passed ad interim orders staying the retrospective operation of the Amendment Act.

The case raises few important questions of constitutional law and interpretation of statutes, which will have to be determined by the courts. The retrospective applicability of the Amendment Act imposes harsh burden on the employers since there is no specified timeframe to factor in the increased costs of compliance in their financial statements. The Amendment Act, by linking payment of bonus to minimum wages, creates discrimination among employees situated in different States. The Amendment Act had the potential to work against the object of the Principal Act, thereby warranting interference from courts.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.