India: Employees Cannot be Denied Statutory Bonus on the Pretext that Factories are Run by a Charitable Trust
Authors: Avik Biswas, Ivana Chatterjee, Kevin Kennedy
The Supreme Court of India dismissed an appeal from the management of the Worth Trust to deny statutory bonus payments to workers engaged in its factories on the ground that the trust was exempted under Section 32 of the Payment of Bonus Act, 1965. The trust stated that it was associated with the Red Cross Society in order to claim exemption on the grounds that its activities were not for the purposes of generating profit. The Apex Court emphasised that once an organisation engages in commercial manufacturing activities, workers cannot be denied statutory bonus.
In the case of the Management of Worth Trust vs. The Secretary, Worth Trust Workers Union[1], the appellant, which initially was a charitable trust that worked for rehabilitation of leprosy patients, expanded over time into commercial activities that included manufacturing activities and the sale of automobile parts. The appellant employed rehabilitated patients as factory workers to carry out the abovementioned commercial activities. The respondent union, consisting of rehabilitated patients from the appellant, sought payment of unpaid bonus due to them under the Payment of Bonus Act, 1965 (“Bonus Act”), for a period of 28 years on account of their employment with the trust. The appellant denied the claims made by the employees stating that the trust was exempted from complying with the requirements of the Bonus Act, pursuant to Section 32.
Section 32 of the Bonus Act states that certain classes of employees such as employees of the Indian Red Cross Society or similar organisations (including their branches) and employees of non-profit institutions, including hospitals, chambers of commerce, and social welfare institutions are exempt from the provisions of the Bonus Act.
The appellant argued that the Bonus Act did not apply as its employees should be considered part of the Indian Red Cross Society or a similar institution, seeing that the trust was initially established in 1969 as the “Swedish Red Cross Rehabilitation Trust” with the charitable object of rehabilitation of former leprosy patients and other persons with disabilities. The appellant stated that on account of the above, they are exempted under Section 32(v)(a) of the Bonus Act. Alternatively, it claimed exemption under Section 32(v)(c) of the Bonus Act, as a non-profit institution. Rejecting the appellant’s argument, the Court noted that the appellant had not presented any evidence to support the above contention and thereby it rejected the argument. Further, while the Court noted that while the appellant initially was established as the “Swedish Red Cross Rehabilitation Trust,” it subsequently was renamed to the “Workshop for Rehabilitation and Training of the Handicapped” in 1985, and it expanded its operations into commercial activities such as manufacturing and sales, marking a major shift from the activities the trust had been carrying out. Additionally, the Court noted that appellant had severed all its links with the Swedish Red Cross Society by deleting all references to Swedish Red Cross Society from the trust deed via an amendment in 1989. Therefore, the Court stated that despite operating under the garb of a trust, these operations would be governed by the Factories Act, 1948. The Court noted that while some objects and activities of the appellant might align with that of the Indian Red Cross Society, it would not be enough to exempt the trust from its obligations under the Bonus Act. Additionally, the Court noted that other social security legislations such as the Employees’ State Insurance Act, 1948 and the Employees Provident Funds and Miscellaneous Provisions Act, 1952, amongst others, would also be applicable to the trust.
The Court observed that entitlement to bonus is a statutory right of employees and merely because such factories come under the broad umbrella of the appellant-trust, which may also be involved in some charitable work, the workers cannot be deprived of the benefit of the Bonus Act. The Court notes that the primary nature of the engagement of such workers was to facilitate a commercial activity.
[1] 2025 INSC 432
Key Action Points for Human Resources and In-house Counsel
Organisations that operate commercial ventures, irrespective of the manner in which they are structured, must recognise that their workers are entitled to statutory benefits like statutory bonus under the Payment of Bonus Act, 1965. The exemption under Section 32 of the Payment of Bonus Act, 1965 applies strictly to specified entities carrying out only charitable and non-profit driven activities. Employers should ensure compliance with the Bonus Act when they engage in profit-generating commercial activities, regardless of whether there are any charitable objectives as part of their larger operations.
