604-Business Laws II

Self Learning Material
Business Laws II
(BBA 604)
Course: BBA
Semester-VI
Distance Education Programme

I.K. Gujral Punjab Technical University
Jalandhar
Table of Contents
Lesson Reviewed
Title Author Page
Number By
1
1. Introduction
Dr. Savita,
Assistant 22
2. Share and Share Capital
Professor
Provision With Respect To Ms. Deepali Soni, Deptt. of 30
Appointment & Removal of IKGPTU Commerce,
3. Director and Winding up of a Maharaja
Company Agarsen
University,
Baddi 42
4. Meetings
Dr. Aman Khera, 59

Dr. Pooja Mehta,
Assistant
Assistant
5. Factories Act, 1948 Professor, UIAMS,
Professor,
Panjab
IKGPTU
University, Chd
Ms. Anu Jhamb, 74
6. Payment of Wages Act Dr. Aman Khera,
Assistant
Assistant 95
7. Minimum Wages Act Professor,
Professor,
Department of
UIAMS, Panjab 118
8. Employees Provident Fund Act Applied
University,
Management, UIET,
Payment of Bonus Act Chandigarh 126
9. PU, Chandigarh
Dr. Aman Khera, 143
10. Trade Union Act Dr. Pooja Mehta,
Assistant
Assistant 165
Professor, UIAMS,
Professor,
11. Industrial Dispute Act, 1947 Panjab
IKGPTU
University, Chd.
© IK Gujral Punjab Technical University Jalandhar

All rights reserved with IK Gujral Punjab Technical University Jalandhar
Syllabus
BUSINESS LAWS – II BBA 604

Max. Marks: 100
External Assessment: 60
Internal Assessment: 40
Objectives: The course aims at providing fundamental knowledge and exposure of the
company law, factories Act, Trade union Act and industrial dispute Act.
Unit I
Company Law: Definition, Characteristics, kinds and Formation of Company

Documents: Memorandum, Articles and Prospectus
Unit II
Shares And Share Capital, Provision With respect To Appointment and Removal of Director,
Meeting: types of meeting, quorum, notice, agenda.
Winding up of companies and its methods
Unit III
Factories Act: Object and definition, Health, Safety and welfare provisions, Provision of
working hours for women and young persons.
Basic Features of payment of wages Act, Minimum Wages Act and Basic features of
Employees Provident Fund Act, and Payment of bonus act.
Unit IV
The Trade Union Act: Objects, definitions, and registration of trade unions. Rights and
liabilities of trade union.
The Industrial Disputes Act: Scope and object. The settlement machinery and authorities
under the act, introduction of strikes, lockouts, and layoffs, retrenchment.
Suggested Readings:
 N D Kapoor, Element of Mercantile Law, Sultan Chand & Sons
 S S Gilshan, Business Law, New Age International Publication
 M C Kuchhal, Business Law, Vikas Publication
 Gulshan, Kapoor, Business Law including C. Law, New Age International
 Pathak, Akhileshwa, Legal Aspects of Business, McGraw Hill Education
Lesson - 1
Company Law
Structure
1.0 Learning Objectives
1.1 Introduction
1.2 Definition of Company
1.3 Characteristics of a company
1.4 Types of company
1.5 Incorporation of company
1.6 Memorandum of Association
1.7 The Articles of Association
1.8 Contents of articles
1.9 Alteration of Articles
1.10 Membership of a company
1.11 Summary
1.12 Keywords
1.13 Answer to check your progress
1.14 Terminal questions
1.15 Suggested readings
1
After reading this lesson, you would be able to:
(a) Define a company.
(b) Explain the features of the company.
(b) Describe the formation process of a company.
(c) Explain the memorandum of association and the alterations.
(d) Describe the contents of articles of association.
1.1 Introduction
In this era of industrial revolution many big business organization exists and many more
emerges. All these required big investment and involvement of risk. The Multinational
companies like General Motors, Coca-Cola, and Reliance have their investors and customers
all over the world. We know that a company is a separate legal entity ―which is formed and
registered under the Companies Act‖. It may be noted that before a company is actually
formed (i.e., formed and registered under the Companies Act), ―certain persons, who wish to
form a company, come together with a view to carry on some business for the purpose of
earning profits. Such persons have to decide various questions like (a) which business they
should start or begin with, (b) whether they should form a new company or take over some
existing company, (c) if new company is to be started, whether they should start a private
company or pubic company, (d) what should be the capital of the company‖. After taking
decision upon the formation of the company, the keen persons should take necessary steps,
before the company is actually formed. After that, they can start their business. Thus, there
are various stages in the formation of a company from thinking of starting a business to the
actual start of the business. We will go one by one on these topic stating with meanings of
company and its different type then all relevant documents AOA, MOA etc.
1.2 Definition of Company
Company is a voluntary association which is formed and organized to carry out business
activity.
 A company is a "corporation" - an artificial person created by law.
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 A human being is a "natural" person.
 A company is a "legal" person.
 A company thus has legal rights and obligations in the same way that a natural person
does.
Section 3 (1) (i) of the Companies Act, 1956 defines a company as, ―a company formed and
registered under this Act or an existing company‖. Section 3(1) (ii) Of the act states that ―an
existing company means a company formed and registered under any of the previous
companies laws‖.
According to Chief Justice Marshall of USA, ―A company is a person, artificial, invisible,

intangible, and existing only in the contemplation of the law. Being a mere creature of law, it
possesses only those properties which the character of its creation of its creation confers upon
it either expressly or as incidental to its very existence‖.
Another comprehensive and clear definition of a company is given by Lord Justice Lindley,
―A company is meant an association of many persons who contribute money or money‘s
worth to a common stock and employs it in some trade or business, and who share the profit
and loss (as the case may be) arising there from‖.
Example: Suppose, two persons want to do business at large scale but they have limited
money. They are also not interested to make partnership due to its unlimited liability. They
go to the office of registrar of companies and fill the form of creation of company and
attaching required documents. They also pay the required fees. After
this, registrar will register their company. This registered company will be independent
Identity.
1.3 Characteristics of a company
Following are the characteristics of the company:
1. Incorporated association: A company is created after registration under the

Companies Act. It comes into existence from the date mentioned in the certificate of
incorporation. Section 11 provides that ―an association of more than ten persons
carrying on business in banking or an association or more than twenty persons
carrying on any other type of business must be registered under the Companies Act‖
and ―is deemed to be an illegal association, if it is not registered in such way. For
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forming a public company at least seven persons and for a private company at least
two persons are persons are required. These persons will subscribe their names to the
Memorandum of association and also conform with other legal requirements of the
Act in respect of registration to form and incorporate a company, with or without
limited liability‖. [Sec 12 (1)].
2. Artificial legal person. A company is not natural person as we discussed already in
the beginning of this chapter it is an artificial person. It exists in the eyes of the law
but cannot act on its own. It has to act through a board of directors chosen by
shareholders. It was rightly pointed out in Bates V Standard Land Co. ―The board of
directors are the brains and the only brains of the company, which is the body and the
company can and does act only through them‖.
3. A company has a legal distinct entity and is independent of its members: The
creditors of the company can recover their money only from the company and the
property of the company. They cannot sue individual members. Similarly, the
company is not in any way liable for the individual debts of its members.
4. Perpetual succession
The life of company is very stable that human being‘s life. There is no effect of
changing, death, insolvency of respected member on company. Its existence is not
affected by members‘ existence at any time. Shares can easily transfer from one
member to another member, so liquidation of company is only possible by law. Thus,
a company has a perpetual existence, irrespective of changes in its membership.
5. Common seal
Company cannot sign on any contract being an artificial person so it works with
common seal. Every document of contract with company is only valid, if there is
common seal of company on it.
6. Limited Liability
Limited liability is also another important feature of company. It is the reason that
large number of investors invest in limited liability companies. It is the liability of
company to repay not the liability of its members. Members‘ liability is only limited
up to the purchased value of shares. They have to pay balance amount of their shares.
7. Separate Property
It is also feature of company that property of company is different from its member‘s
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property. It can purchase or sell property without the permission of shareholders. In
other words, assets of company are not the assets of members.
8. Right to Sue
Company can sue other parties like natural person for protecting its assets and
properties. Other persons can also charge on the company.
1.4 Types of company
There are different types of company based on formation, liability and investment. These
are as follows:
Types of company based on formation:
a) Chartered companies
Chartered Companies are formed under a special charter by the king or sovereign
such as East Indian Company. This company are rarely formed now-a-days.
b) Statutory Companies: These companies are formed by special acts of Legislatures
for example Industrial Finance Corporation, Reserve Bank of India and Damodar
Valley Corporation etc.
c) Registered Companies: Such Companies are incorporate under the Companies Act,
1956 or were registered under the previous Companies Act.
Types of company based on liabilities:
a) Limited Companies: In limited companies, the liability of each member is limited to
the extent of a price value of shares held by him. Suppose ajay takes a share of Rs 50.
, he remains liable to the extent of that amount only. As soon as that amount in paid,
he is no more liable.
b) Guarantee Companies: The liability of the member of such kind of companies is
limited to the amount member has undertaken to contribute to the assets of the
company in the event of its wound up. This guaranteed amount is limited to fixed sum
which is specified in the memorandum. Chambers of commerce, trade associations
and sports clubs are usually guarantee concerns. The object of such companies is not
to make profit and distribute dividend.
c) Unlimited Companies: They are nothing but large partnership firm registered under
the Companies Act and the members just like partners have unlimited liability and
share contribution as well as their property are at stake when the company is to be
wound up. Such companies are rare these days.
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Types of company based in investment:
a)Private Companies :A private company means a company which by its articles (i)
restricts the right to transfer its shares, if any (ii) limits the number of its members to
fifty excluding past or present employees of the company who are also members of
the company. (iii) Prohibits any invitation to the public to subscribe for any shares in
our debentures of the company.
b) Public Companies: Public companies are those companies which are not private
companies. All the three restrictions are not imposed on such companies.
Difference between private company and public company
The major difference between a private company and a public company are as follows:
1. Number of members (minimum):

The minimum number of members required to form a ‗ public company is seven whereas in a
private company it is only two‘.
2. Number of members (maximum):

There is as such no maximum limit on the members of a public company but a private
company cannot have more than 50 members excluding its employees and ex-employees of
the company.
3. Commencement of business:
A public company can commence its business only after getting the certificate of
commencement of business. But a private company can commence its business as soon as it
is incorporated.
4. Restriction on name:
The name of a public company must end with the word, ―limited‖ But in the case of a private
company the word private limited must be used at the end of the name.
5. Invitation to the public:
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A public company must issue a prospectus or statement in lieu of prospectus for inviting
public to subscribe to its shares or debentures. A private company on the other hand cannot
issue such invitation to the public.
6. Transferability of shares:
In case of public company there is no restriction on the transfer of shares whereas the articles
of a private company must restrict its right to transfer its shares.
7. Number of its directors:

A public company must have at least three directors and a private company must have at least
two directors.
8. Restrictions on the appointment of directors:

A director of a public company shall file with the Registrar consent to act as a director or sign
the memorandum of association or enter into a contract for their qualification shares. The
directors of a private company need not do so.
9. Statutory meeting:
A public company must hold a statutory meeting and file with the Registrar a statutory report.
But a private company has no such obligations.
10. Quorum:
If the articles of a company do not provide five members personally present in the case of a
public company are quorum for a meeting of the company. It is two in the case of a private
company.
11. Issue of share warrants:

A public company can issue share warrants but such a right is denied to a private company.
12. Further issue of capital:
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A public company proposing further issue of shares must offer them to the existing members.
A private company is free to allot new issue to outsiders.
13. Managerial remuneration:

Total managerial remuneration in the case of a public company cannot exceed 11% of the net
profits but in the case of inadequacy of profits a minimum of 50,000 can be paid. These
restrictions do not apply to a private company.
1.5 Incorporation of company
In a common meaning a company is an association of a group of person to achieve any

objective whether it is towards social objective or economic objective.
It has no legal existence until is get registered under the companies act. Thus, a Company
comes into legal existence only after registration under the Act, which can be termed as
formation or incorporation of a company.
Procedure of formation or incorporation of a company:
In case of private company any two persons or in case of public company any seven member
can join to form incorporated company. The following procedures are to be followed in
registering of a company.
1. Application regarding the name of proposed company which is to be incorporated is

made to Registrar of companies in a prescribed format in the state where registered
office of a company is to be situated.
2. After the name is made available, Memorandum and Article of association is to be
filed with all necessary stamp duty and filing fees according to authorised capital
with Registrar.
3. It is always advisable to file with the registrar along with MOA and AOA,
particulars of the situation of the registered office and particulars of first directors of
the company. If at this stage this particulars are not filed then, same has be filed
within 30 days of obtaining certificate of incorporation.
4. A declaration by an advocate of supreme court or a high court is entitled to appear
before a high court or a secretary or a chartered accountant practising in India who
8
is engaged in the formation of a company or by a person named in AOA as director
,manager or secretary of the company, that all requirement of the act have been
compiled with respect of registration ,shall be filed with registrar.
5. If a company intends to participate in an industry included in the schedule of
Industries act 1951, a licence to that effect must be obtained.
In case of public company further following requirement are to be compiled with
(i) List of persons who have consented to act as directors.
(ii) A written consent of the directors to act in that capacity.
(iii) An undertaking by the directors to take up and pay for their qualification
shares.
If Registrar is satisfied with all requirement under the act for the purpose of registration of a
company have been compiled, he shall register the company and issue a certificate of
incorporation under his hand and seal.
Advantages of incorporation
1. Transferability of shares: Shares of a company can easily be transferred without the
consent of directors.
2. Separate legal entity: Only after getting certificate of incorporation company is legally
formed.
3. Perpetual succession: As the company has separate legal existence ,it is not affected by
death and insolvency of any member.
4. Common seal: No members of a company have their own seal to make business but
they all have common company‘s seal.
5. Separate property: Though capital and assets are contributed by its member but
ownership is enjoyed by company only.
6. Capacity to sue or be sued: A company being a corporate body can sue or be sued in its
own name.
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Check your progress A
State whether the following statements are true or false:
1. A company being a corporate body can sue or be sued in its own name.
2. Members of a company have their own seal to make business.
3. Company has no legal existence until is get registered under the companies act.
4. In limited companies, the liability of each member is limited to the extent of a price value
of shares held by him.
5. RBI is an example of statutory company.
1.6 Memorandum of Association (MOA): The Company has to be registered under the
companies Act, required two stamped and registered documents i.e. MOA and AOA. First we
will discuss MOA.
MOA is the most important documents for the company to be registered. It contains rules
regarding activities and constitution or objects of a company. MOA sets limit on the working
of company outside which a company is not supposed to work. In this sense, it is considered
as the fundamental documents of the company. It also includes regulation norms for the
affairs of the company with out-siders.
The following clauses are contained in Memorandum of Association of company:
1. Name clause. This clause tells about the name of the company. It should not be
identical to the name of any existing company registered with the Registrar of
companies.
2. Situation clause. By definition, a company is an artificial and an invisible person.

To enable notices and letters to be sent to that invisible person, there must be a
registered office. The State in which a company has its registered office is to be stated
in this clause. Exact address within the State need not be, and in fact is not, given in
the Memorandum. This clause determines the jurisdiction of the Registrar of
Companies.
(iii) Object clause. This clause may, in fact, be regarded as the most important clause
in the Memorandum. It should specify in unambiguous language the ob rejects for this
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which the company is formed. The objects defined lay down the maximum permitted
range of activities in which the company may engage and beyond which it cannot go.
(iv)Liability clause. It contains a statement that the liability of the members is limited
to the face value of the shares taken up by them and if some amount has already been
paid on the shares, a member can be called upon to pay only the unpaid amount of the
shares. If the liability of members of the company is limited by guarantee under this
clause, it must be stated clearly as to what is the amount of guarantee which is agreed
to be contributed by each member towards the liability arising in the event of the
company going into liquidation.
(v) Capital clause. This clause is required to specify only the amount of share capital
with which a company is proposed to be registered and the division of that capital into
shares of a fixed amount. The classes of shares and their rights need not be disclosed
here.
(vi) Association and subscription clause. This contains a declaration by the

subscribers to the Memorandum that they are desirous of forming themselves into a
company and agree to take the number of shares in the capital of the company written
against their respective names. Thereafter, each subscriber signs the Memorandum in
the presence of a witness. There must be at least seven subscribers in case of a public
company and two subscribers in case of a private company and each of them has to
take up at least one share.
In addition to the above clauses which are required by the statute to be included in a
Memorandum, and other information, such as the rights of members, contracts with
managing agents, etc, may also be given there at the discretion of the promoters.
Activity A
―Six/seven of the signatures to the memorandum of association of a company were forged. The
Memorandum was duly presented, registered and a certificate of incorporation was issued. Can
the existence of the company be subsequently attacked on the ground that the registration was
void‖. Decide.
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1.7 The Articles of Association
These are rules and regulations for the internal working of a company.
Each and Every company is required to file Articles of Association along with the
Memorandum of Association with the Registrar at the time of its incorporation/registration.
12
Companies Act defines ―Articles as Articles of Association of a company as originally
framed or as altered from time to time in pursuance of any previous companies Acts. They
also include, so far as they apply to the company, those in the Table A in Schedule I annexed
to the Act or corresponding provisions in earlier Acts.‖
Articles of Association work to the rules, regulations and laws to guide the governing of the
company‘s internal affairs. They place down the manner and mode in which the business of
any company is to be conducted.
While framing AOA utmost care should be taken so that farmed regulations do not go beyond
company‘s power.
In framing Articles of Association care must be taken to see that regulations framed do not go
beyond the powers of the company itself as envisaged by the Memorandum of Association
nor should they be such as would violate any of the requirements of the companies Act, itself.
All clauses in the Articles ultra vires the Memorandum or the Act shall be null and void.
Articles‘ means, ―the articles of association of a company as originally framed or as altered

from time to time in pursuance of any previous companies‘ law of this act. The articles of
association are the rules and regulations of a company framed for the purpose of internal
management of its affairs. It deals with the rights of the member of the company inter-se. The
articles are framed for carrying out the aims and object of the Memorandum of association‖.
The articles of association of a company are sub -ordinate to and are controlled by the
memorandum of association. Lord Cairns observed in this regard, ―The memorandum is as it
were the area beyond which the action of the company cannot go; inside that area the
shareholder may make such regulation for their own government as they think fit.‖
―It is not obligatory to register articles in the case of a public company limited by shares. In
such a case model articles contained in ‗Table A‘ of schedule I will apply. However, a private
company, a company limited by guaranteed and an unlimited company must register their
articles along with the memorandum‖.[section26].
―In the case of an unlimited company, the articles shall state the number of the members, with
which the company is to be registered, and if it has a share capital, the amount of share
capital with which it is to be registered‖.[section 27(1)].
13
―In the case of a company limited by guarantee, the articles shall state the number of
members with which the company is to be registered.
In the case of a private company, articles must contain provisions which
(a) Restrict the right to transfer its shares;
(b) Limit the number of its member to fifty excluding past and the present employees of the
company;
(c) Prohibit any invitation to the public to subscribe for any share in or debenture of the
company.
The articles must be printed and divided into paragraph, numbered consecutively. The articles
must be signed by each subscriber of the memorandum in the presence of at least one witness
who will attest the signature and likewise add his address, description and occupation, if
any‖.
1.8 Contents of articles:

The articles generally contain provision related to the following matters:
1. Exclusion wholly or in part of Table A.
2. Adoption of preliminary contracts.
3. Number and value of shares.
4. Allotment of shares.
5. Calls on shares.
6. Lien on shares.
7. Transfer and Transmission of shares.
8. Forfeiture of share.
9. Alteration of capital.
10. Share certificates.
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11. Conversion of share into stock.
12. Voting rights and proxies.
13. Meeting.
14. Directors their appointment etc.
15. Borrowing powers.
16. Dividends and reserves.
17. Accounts and audit.
18. Winding up.
Articles’ Model form:
In schedule I to the act various different model form of AOA and MOA for various types of
companies are specified.
The whole schedule is divided into tables which are as follows.
Table A which deals with rules and regulations for management of a company which is
limited by shares.
Table B contains MOA‘s model form of a company limited by shares.
Table C states model forms of MOA and AOA of a company which is limited by guarantee
and which does not have share capital.
Table D states model forms of MOA and AOA of a company which is limited by guarantee
and which have share capital.
Table E gives model forms of memorandum and Articles of Association of an unlimited

company. A Public Company have its own Article of Association but in case it does not have
its own Articles, it can adopt Table A given in Schedule I to the Act.
15
1.9 Alteration of Articles:
Companies do have powers to make some alteration in their articles. There are no restrictions
on exercising powers. Company can make alteration in their articles through special
resolution. It has same capacity of binding as that of original article. The company must have
to file with the registrar a copy of the special resolution for altering the articles within one
month from the date of its passing.
Limitations
The right to alter an existing article have some limitations which are as follows:
1. The alteration must be consistent with provisions of the memorandum or should not go
beyond the provisions of the memorandum.
2. The alteration must provide all for anything which is similar to provisions of the act; say
for example, articles cannot give any authority to a company to purchase its own shares.
3. The alteration of articles must be made for a company as a whole and in good faith for the
benefit of the company.
4. The alteration of articles must not establish any fraud on minority.
5. ―No member of a company will be bound by any alteration made in the memorandum or
the articles after he become a member which requires him to take or subscribe for more
shares or in any way increases his liability to contribute to the share capital of or otherwise to
pay money to the company, unless he agrees in writing before or after the alteration is made‖.
6. There are no alterations possible in articles which can convert the public company into a
private company unless approved by the central government.
7. An alteration in the articles which reasons a breach of contract with an outsider will be
inoperative.
8. The alteration must be legal.
Check your Progress A
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State the following statement as true and false:
1. Registration with of alteration of AOA and MOA of the companies with ROC is mandatory.
2. Section 8 of the Companies act cannot alter their AOA & MOA.
3. Default in noting the alteration of AOA & MOA attracts imprisonment.
4. Within 30 days altered AOA is to be filed with ROC.
5. Shifting of company‘s registered office to jurisdiction of different ROC required approval of

RD along with passing special resolution.
1.10 Membership of a company
A shareholder is a person who owns the shares and member is a person whose name is
mentioned on the register of member. But in practicality member and shareholder are
interchangeably used reason for this is that in normal course member can also be shareholder
and vice-versa. But closely there are few cases where shareholder cannot be a member and
member cannot be shareholder. Examples are in an unlimited company there is no share
capital but it has members on the contrary to it a holder of a share warrant is a shareholder
but not member.
Methods for attaining membership:
Any person may become a member of a company by any of the following methods:
1. By allotment:
In general a person becomes a member of the company by securing allotment and by
applying for shares in writing.
2. By subscribing to the memorandum:
Section 41 of the Act provides that—‖The subscribers of the memorandum of a company

shall be deemed to have agreed to become members of the company, and on its registration
shall be entered as members in its register of members.‖
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3. By agreeing to purchase qualification shares:
Section 266(2) states that ―all such persons who have signed an undertaking to take and pay
for their qualification shares, for acting as a director of the company and delivered it to the
Registrar, are also in the same position as subscribers to the memorandum. As such they are
also deemed to have become members automatically on the registration of the company‖. But
this method of becoming a member is only possible in public companies having a share
capital
4.By transfer:
By purchasing shares in the open market and then registered them in his name makes a
person member of that company.
5.By succession or transmission:
Transmission of shares on lunacy of a member or death makes a person shareholder .It is a

kind of transfer which is involuntary and takes place by operation of law, to a person who is
entitled under the law to succeed to the estate of the lunatic automatically and does not
require an instrument of transfer.
6. By principle of estoppel:
―If a person‘s name is improperly placed on the register of members and he knows and
assents to it, that is, agrees in writing to become member or attends company meetings or/and
accepts dividend, he shall be deemed to be a member‖. Under the principle of estoppel if a
person holds himself out being in a position of membership which is not true, he will then be
estopped from denying that he is a member‖.
It is important to note that such a person whose name has been wrongly entered in the
Register of Members, does not become liable as a member unless either he agrees in writing
to become a member of the company or he has in fact accepted the position and acted as a
member. A person cannot be deemed to have become a member by means of ‗estoppel‘
simply because his name is entered wrongly in the ‗Register‘.
1.11 Summary
Company can be defined as group of persons associated together to achieve some common
business objective. A company formed and registered under the Companies Act has certain
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special features, which disclose the nature of a company. Companies can be classified into
five categories according to the mode of incorporation, on the basis of liability of the
member, on the basis of investment. The entire process of formation of a company can be
divided into four distinct stages namely promotion incorporation, capital subscription and
commencement of business. However, a private company can start business as soon as it
obtains the certificate of incorporation. ―The memorandum of Association of a company tells
about the objectives behind the company's formation and the maximum possible scope of its
operations beyond which its actions cannot go. Memorandum of association cannot be altered
by the will of the members of the company. It can be altered only by following the procedure
prescribed in the Companies Act, ―Articles of association contain the rules and regulations
which are granted for the internal management of the company. The company may alter its
articles of association any time by following the procedure as prescribed in the Companies
Act‖. Every person dealing with the company is presumed to have read the memorandum and
articles of association and understood them in their time perspective. This is known as
doctrine of constructive notice.
1.12 Keywords
Company: A company is a body of individuals associated together for a common objective,

which can be business for profit or for some charitable purposes.
Registered Company: A registered company is formed and registered under the Indian
Companies Act, 1956.
Public Company: A public company is a company which is not a private. Any seven or more
persons can form a public company.
Holding Company: A company shall be deemed to be the holding company to another if that
other is its subsidiary.
Unlimited Company: It is a company which is not having any limit on the liability of its
member.
Promotion: Promotion means discovery of business opportunities and the subsequent

organization of funds, property and managerial ability into a business concern for the purpose
of making profits.
19
Promoter: Who undertakes to form a company with reference to a given object and brings it
into actual existence.
Preliminary Contract: Refers to those agreements or contracts between different parties on

behalf and for the benefit of the company prior to its incorporation.
Certificate of Commencement of Business: A public company, having a share capital and

issuing a prospectus inviting the public to subscribe for shares, will have to file a few
documents with the registrar who shall scrutinize them and if registrar is satisfied ,then he
/she will issue a certificate to commence business.
Memorandum of Association: It is the document that defines the objects and lays down the
fundamental conditions upon which along the company is allowed to be incorporated.
Articles of Association: Articles of association are the rules, regulation and byelaws for
governing the internal affairs of the company.
Answer to check your progress A
Ans.1 True.
Ans.2 False.
Ans.3 True.
Ans.4 True.
Ans.5 True.
Answer to check your progress B
Ans.1 True.
Ans. 2 False
Ans.3. False
Ans.4. True
Ans.5 True.
20
1. Explain the process of formation of a company.
2. ―A certificate of incorporation is conclusive evidence that all the requirements of the

Companies Act have been complied with‖. Comment.
3. What do you mean by Memorandum of Association? Discuss its clauses
4. How the alteration in the different clauses of MoA can be made?
5. Explain the Articles of Association and its contents?
6. Distinguish between Memorandum of Association and Articles of Association.
7. Define ‗Company‘ and explain its essential characteristics?
8. Explain the special privileges of a private company over a public company.
9. Write down the difference between partnership and all other different form of organization.
10. Write short notes on: a) Government Companies b) Chartered Companies.
11. Give classification of a company form of organization.
1. S.S. Gulshan & G.K. Kapoor, Business Law, New Age International Publishers, New
Delhi.
2. S.C. Kuchhal, Mercantile Law, Vikas Publishing House, New Delhi.
3. P.P.S. Gogna, Mercantile Law, S.Chand & Company, New Delhi.
4. S.K. Aggarwal, Business Law, Galgotia Publishing Company, New Delhi.
5. G.K. Varshney, Elements of Business Law, S Chand & Co., New Delhi.
6. K.R. Balchandari, Business Law for Management, Himalaya Publication House, New
Delhi.
7. N.D. Kapoor, Company Law, Sultan Chand & Sons, New Delhi.
8. S.C. Aggarwal, Company Law, Dhanpat Rai Publications, New Delhi.
9. Avtar Singh, the Principles of Mercantile Law, Eastern Book Co., Lucknow.
10. M.C. Shukla, a Manual of Mercantile Law, S. Chand & Co., New Delhi.
11. R.S.N. Pillai and Bagavathi, Business Law, S. Chand & Co., New Delhi.
21
LESSON - 2
Shares and Share Capital
STRUCTURE
2.1: Objectives
2.2: Introduction
2.3: Share Capital
2.4: Allotment of shares
2.5: Forfeiture of shares
2.6: Redemption of Preference Shares
2.7: Buy Back of Shares
2.8: Summary
2.9: Glossary
2.10: Answers to Check Your Progress
2.11: References
2.12: Suggested Readings
2.13: Terminal and Model Questions
2.1: Objectives
After reading this lesson, you should be able to:
rstand the meaning of shares and share capital
2.2: Introduction
A company is an association of persons who contribute money or money‘s worth to a
common stock and uses it for a common purpose. In the words of Justice James, ―a company
is an association of persons united for a common object‖. Companies Act 2013 defines a
company as ―company formed and registered under this Act or an existing company‖.
2.3: Shares and Share Capital

Total capital of the company is divided into units of small denominations; each one is called a
share. According to Companies Act 2013, share has been defined as a share in the share
capital of the company; and includes stock except where a distinction between stock and
share is expressed or implied.
Classes of Shares
A. Preference Shares
Shares which enjoy the preferential rights as to dividend and repayment of capital in the
event of winding up of the company over the equity shares are called preference shares. The
holder of preference shares will get a fixed rate o dividend.
Types of preference shares
1. Cumulative preference shares – In case of these shares, the arrears of dividend are
carried forward and paid out of the profits of the subsequent years.
22
2. Non-cumulative preference shares – If dividend not to accumulate and not to carried
forward to next year, these are called non‐cumulative preference shares.
3. Participating preference shares – In addition to a fixed dividend, balance of profit (after

meeting equity dividend) shared by some preference shareholders. Such shares are
participating preference shares.
4. Non-participating preference shares – These shares get only a fixed rate of dividend.
These do not get share in the surplus profit.
5. Redeemable preference shares – If preference shares are returned after a specified period
to shareholders, these preference shares e shares are called redeemable preference shares.
6. Convertible preference shares – These shares are given the right of conversion into
equity shares within a specified period or at a specified date according to the terms of issue.
B. Equity Shares
Equity shares are those which are not preference shares. Equity shares do not carry any
preferential gain in respect of dividend or repayment of capital. So these are known as
ordinary shares. There will be no fixed rate of dividend to be paid to the equity shareholders
and this rate may vary from year to year. In winding up, the equity capital is repaid last.
However, equity shareholder gets full voting power.
2.4 Types of share capital

– It is the maximum amount of capital which
the company is authorized to raise by way of public subscription.
– The part of authorized capital which is offered top the public for
subscription is called issued capital.
– That part of the issued capital for which applications are received
from the public is called subscribed capital.
-up Capital – That part of subscribed capital which has been called-up or demanded
by the company is called called-up capital.
-up Capital – The part of called-up capital which is offered and actually paid by the
members is known as paid-up capital. Any unpaid amount of balance on the called-up capital
is known as unpaid capital or calls in arrears.
– It is that portion of the uncalled capital which is called-up only at the

event of company‘s winding up.
23
Difference between Equity Shares and Preference Shares
Sr. No. Equity Shares Preference Shares

1. It is an ownership security It is a hybrid security
2. Dividend rate is not fixed Dividend rate is fixed
3. Capital is repaid only in winding up Capital is repaid after a stipulated period
These shares have voting rights These shares generally do not have
4.
voting rights
5. Face value is lower Face value is higher
2.5 Issue of Share Capital

The shares can be issued either at par, premium or at discount. Shares are said to be issued at
par when a shareholder is required to pay the face value of the shares to the company. Shares
are said to be issued at premium when a shareholder is required to pay more than the face
value to the company. Shares are said to be issued at discount when the shareholder is
required to pay less amount than the face value to the company. For example, a company
issues the shares having the face value of Rs.10 at Rs.10; it is the issue at par. If it is issued at
Rs. 12, the issue is at premium. If it is issued at Rs.8, the issue is at discount.
The issue price of the shares can be received in one instalment or it can be received in
different instalments. If the issue is in different instalments, it may be paid on application,
allotment and on one or more calls. The amount on application is called application money,
the amount dues on allotment is called allotment money and the rest amount is called call
money. As per SEBI guidelines the application money on issue must not be less than 25% of
issue price (as per Cos Act, it is 5%).
2.6: ALLOTMENT OF SHARES
Allotment of shares means the acceptance of offer of the applicant for the purchase of shares.
Directors have the discretionary power to reject or accept the applications. But the public
company cannot allot its shares unless the minimum subscription has been subscribed by the
public and the amount of application has been received. After the allotment of shares to the
applicants who will become the shareholders of the company.
Issue of shares at premium

Shares are said to be issued at premium when a shareholder is required to pay more than the
face value to the company. The excess amount received over the face value is called share
premium. It is a capital receipt. The share premium shall be transferred to ―Securities
Premium A/c‖. It should be shown on the liability side of balance sheet under the head
―Reserves and Surplus‖.
Issue of shares at discount

Shares are said to be issued at discount when the shareholder is required to pay less amount
than the face value to the company. Discount on issue of shares is a capital loss and it should
be debited to a separate account called ―Discount on issue of shares A/c‖. It is shown on the
assets side of balance sheet under ―Miscellaneous Expenditure‖. The rate of discount should
not exceed 10% of nominal value of shares. Generally the discount on issue is recorded at the
time of allotment. It is also noted that a newly registered company cannot issue shares at
discount.
24
Under subscription of shares
Sometimes the applications for shares received will be less than the number of shares issued.
This is called under subscription. In such a case, the allotment will be equal to the number of
shares subscribed and not to the shares issued.
Over subscription of shares

Sometimes the applications for shares received will be more than the number of shares
issued. This is called over subscription. When there is over subscription, it is not possible to
issue shares to all applicants. In such a situation company shall reject some applications
altogether, allot in full on some applications and make a pro‐rata allotment on some
applications. Pro‐rata allotment means that allotment on every application is made in the ratio
which the number of shares allotted bears to number of shares applied. In case of applications
fully rejected will be returned to the applicants. In pro‐rata allotment the excess application
will be adjusted either on allotment and or on calls. Any surplus left even after the adjustment
will be refunded to the applicants.
Check your progress

Answer if True or False
1. Issued capital can be more than authorized capital.
2. Reserve capital can only be used at the time of winding up of the company.
3. Company cannot recover interest on calls in arrears.
4. Issue is said to be oversubscribed when applications are more than number of shares
available.
2.7: FORFEITURE OF SHARES
The cancellation of shares due to non‐payment of allotment money or call money within a
specified period is called forfeiture of shares. It is the compulsory termination of membership
of the defaulting shareholders. He also losses whatever amount he has paid to the company so
far. A company can forfeit the shares only if it is authorized by its Articles. The forfeiting is
done only after giving 14 days notice to the defaulting shareholders. The balance of forfeited
shares A/c should be shown by way of an addition to called up capital on the liability side of
balance sheet till the shares are reissued.
Surrender of shares
Sometimes a shareholder is not able to pay further calls and returns his shares to the company
for cancellation. Such voluntary return of shares to the company by the shareholder himself is
called surrender of shares.
2.8: REDEMPTION OF PREFERENCE SHARES

When the preference shares are issued it is to be paid back by the company to such
shareholders after the expiry of a stipulated period whether the company is to be wound up or
not.
STATUTORY REQUIREMENTS
As per Sec 80 of the Companies Act, a company limited by shares can redeem the preference
shares, subject to the following conditions
1. The shares to be redeemed must be fully paid up.
25
2. Such shares can be redeemed either out of profit or out of the proceeds of fresh issue of
shares. But these cannot be redeemed out of fresh issue of debentures or out of sale proceeds
of any property of the company.
3. Premium payable on redemption must be provided out of profits of company or out of
company‘s security premium account.
4. When shares are redeemed out of profit, a sum equal to the nominal amount of shares so
redeemed must be transferred out of profit to a reserve account namely Capital Redemption
Reserve A/c.
5. The Capital Redemption reserve A/c can be utilized only for the issue of fully paid up
bonus shares.
6. The preference shares can be redeemed either at par or at premium (but not at discount).
Premium on redemption is provided out of existing security premium account or security
premium on fresh issue. If they are not sufficient, the redemption premium should be
provided out of P&L A/c or General Reserve.
Methods of Redemption
There are three methods for redemption of preference shares. They are:
(a) Redemption out of fresh issue of shares
(b) Redemption out of profits
(c) Redemption partly out of fresh issue and partly out of profit
2.9: BUY BACK OF SHARES

Buy back is a method of cancellation of share capital. It simply means buying of own shares.
It leads to reduction in the share capital of a company.
Objectives of buy back

1. To return surplus cash to investors
2. To improve the financial health
3. To increase the EPS
4. To increase the market price of the share
Advantages of buy back

1. It helps to return the surplus cash to investors
2. It helps to increase the EPS
3. It increases promoter‘s holding in the company
4. It helps to restructure the capital base of the company
Disadvantages of buy back

1. It implies under valuation of company‘s stock
2. It may be used as a tool of insider trading
3. It may be used for manipulating the prices of shares.
Methods of buy back

As per SEBI guidelines, there are two methods of buy back of shares.
They are:
1. Buy back through tender offer – Under this, a company can buy back its shares from its
existing shareholders on a proportionate basis.
2. Buy back from the open market – A company can also buy back its shares from the open
market either through stock exchanges or book building process.
26
Check your progress – B
Choose the correct alternative.
1. Which account is debited when excess applications are rejected?
a) Bank b) Share Application c) Premium d) None of these
2. What is the minimum number of applications for subscription for a company?

a) 70% b) 80% c) 90% d) 60%
3. In India, share buyback can only be used for……

a) Cancellation of shares b) Reissue of shares c) None
4. Preference shares cannot be redeemed at…….

a) Par b) Discount c) Premium
2.10: SUMMARY
A joint stock company can raise funds by issue of share capital. Issue is based on the
quantum of authorized capital. Shares can be equity shares or preference shares. As process, a
company firstly invites share applications with application money, then allots shares and
receives allotment money. Finally, calls are made for balance of the amount. Interest can be
paid on calls in advance and can be received on calls in arrears. In case of default in payment,
shares can be forfeited and reissued to someone else. Preference shares are generally issued
for fixed period, after which these are redeemed. Redemption is made out of fresh issue of
shares or use of free reserves only. Finally, shares can also be bought back keeping in mind
the relevant legislation. These shares can subsequently be cancelled too.
2.11: GLOSSARY
Reserve capital: It is that portion of the uncalled capital which is called‐up only at the
event of company‘s winding up.
Forfeiture of Shares: The cancellation of shares due to non‐payment of allotment money

or call money within a specified period is called forfeiture of shares. It is the compulsory
termination of membership of the defaulting shareholders.
Participating preference shares – In addition to a fixed dividend, balance of profit (after

meeting equity dividend) shared by some preference shareholders. Such shares are
participating preference shares.
2.12: ANSWERS TO CHECK YOUR PROGRESS
Check your progress-A

a) False
b) True
c) False
d) True
Check your progress-B

1. B
2. C
3. A
27
4. B
2.13: SUGGESTED READINGS

Publications House
Pvt. Ltd., New Delhi.
tic Publications Pvt. Ltd., New Delhi.
Delhi
2.14: TERMINAL AND MODEL QUESTIONS
1. What do you mean by share capital? Discuss various types of share capital.
2. Discuss various journal entries which are passed for issue of share capital.
3. Define forfeiture of shares. In what circumstances are shares forfeited? Describe
accounting treatment for this effect.
4. Describe the process of redemption of preference shares. Also write two modes of
redemption of preference shares.
5. Write a detailed note on buyback of shares. Discuss the accounting entries for buyback of
shares.
28
Lesson – 3
Provision With Respect To Appointment & Removal of Director and
Winding up of a Company
Structure
3.1 Objective
3.2 Meaning of director
3.3 Appointment and Qualifications of Directors
3.4 Disqualifications for appointment of director
3.5 Duties of directors
3.6 Removal of director
3.7 Modes of winding up

3.8 Summary
3.9 Glossary
3.11 Suggested Readings
3.12 Model Questions
3.1 Objective
 To understand the meaning of director

 To understand the appointment and qualification of director
3.2 Meaning of director

A director of a company is only the director of a company he cannot be an employee or
stakeholder of a company. Resolution has been made in director‘s meetings upon which a
director has to perform his duties or act accordingly. Company‘s articles of association and
corporate legislation provide powers to the director. Director performs as an agent of the
company and he has the power to bind a company into valid contracts with third party who
may be buyers, lenders and supplieretc.
3.3 Qualifications of Directors

According to section 39 Company to have Board of Directors
 Every company consists of board of directors who shall have-
29
1. Minimum three director are required in public company and two directors are required in
private comp-any.
2. Maximum fifteen director can be appointed. A company can appoint more than fifteen
directors with the help of special resolution.
3. A company must have one women director.
4. Every company must have at least one director who must stay in India for total period of
one hundred and eighty two days.
5. Every company must have at least one third of total number of directors as independent
directors.
 An independent director in a company means a director who is not a managing

director or a nominee director or a whole time director.
1. An independent director is a person who must have relevant experience and

expertise and a man of integrity.
2. A person who has no internal relationship with the company and its subsidiary, its
holding and associate company within two financial years.
3. a person whose relatives has no relationship and transaction with the company,
subsidiary and associate company.
4. a person who himself and his/her relatives has not hold any position in key
managerial personnel and has not been appointed as the employee of a company or its
holding , associate company and its subsidiary in any of three financial years.
 He has not been an employee or proprietor or partner in any three financial years
when he is proposed to be appointed of-
a) A firm of auditors or its subsidiary and associate company.

b) Any consulting and legal firm that has any business with company, its
subsidiary, associate company.
c) Holds together with his relatives two per cent or more of the total voting
power of the company.
 Who possesses such other qualifications as may be prescribed
1. The independent director and company must in accordance with the provisions of
Schedule IV.
2. According to section 152 an independent director must hold office for five
consecutive years on the board of a company. But he is eligible for reappointment
when a company passes a special resolution and discloses such appointment in
board‘s report.
3. According to section 152 in respect of retirement of directors by rotation shall not
be applicable to appointment of independent directors.
3.4 Appointment of Directors
According to section 152 of company act 2013-
30
 No provision has been made in the company act 2013 for the appointment of the first
director. But the subscribers to the memorandum who are individual become the
deemed to be first directors of the company up to the time when the directors are not
appointed in the case of one Person Company.
 According to the act company has to appoint every director in general meeting.
 Only when the director can be appointed when he has given director identification
number according to section 154.
 Every person must furnish his director identification number and provide a
declaration that he is able to become a director and he is not disqualified as per the
act.
 A director must give his/her consent to hold the office otherwise he/she is not act as a
director and this consent has been filed with the registrar within 30 days of the
appointment as per the manners prescribed.
 Only those directors can be retired by rotation who has longest in office since his/her
last appointment.
 When the director retires in the annual general meeting. The company may fill the
seat by appointing retired director or any other person.
Activity-1
Explain the procedure of appointment of director -----------------------------------------------------

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3.5 Disqualifications of appointment of director

According to section 164 of company act 2013
 A person shall not be able to appoint as a director of a company, if -
I. He is of unsound mind and this is declared by a court.

II. He is insolvent.
III. His application is pending in the court to be adjudicated as an insolvent.
IV. He has been convicted of any offence by a court.
V. A court has passed an order of disqualifying for the appointment as a director
and this order is in force.
31
VI. He has found convicted of the offence while dealing with related party
transaction as per the section 188 at any time during last five years.
VII. The person who has not filed annual returns and financial statements for
continuous period of three years.
VIII. The person who has not repaid the deposits accepted by him/her or pay interest
on it.
3.6 Duties of directors

According to section 166 these are duties of a director:
I. A director shall perform his duties as per the provisions of the Act.
II. In order to promote the objects of the company which are beneficial for its members
and for whole company which include its employees, community, shareholders, and
for the protection of environment, a director shall perform his duties in good faith.
III. A director shall exercise independent judgement and fulfill his duties with due, skill,
diligence and care.
IV. The situation that creates conflicts of interest that is related to the interest of company,
a director shall not involve in this kind situation.
V. If a director tries to take advantage or undue gain to him, or partners, or relatives or
associates then he shall be liable to pay this amount to the company.
VI. If a director found guilty to not act as per the provisions of this section the he can be
fined which is not less than one lakh rupees or it can be extend to five lakh rupees.
3.7 Removal of directors

According to the section 169
I. A director may be removed who is appointed by a tribunal by a company with help of

ordinary resolution as per the section 242, before the expiration of his office after
giving him an opportunity of being heard.
II. When the director has been removed from his office and appoint other director in his
place, a special notice shall be required.
III. When the notice of a resolution to remove a director as per the section is issued, the
copy sends to the concerned director.
IV. When the notice of resolution to remove a director has been given to the concerned
director, the director makes with respect to written representation to the company and
requests its notification to the other members of the company.
V. The special notice of the intended appointment has been given when the director has
been removed; the vacancy is being filled by the appointment of another director at
the meeting in which he is removed under sub section 2.
VI. The appointed director in place of other shall hold the office for the remaining time
period of the earlier director.
Activity-2
Explain the duties of director ------------------------------------------------------------------------

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3.8 Modes of winding up
According to section 270 there are two methods of winding up-
a) Winding up by the Tribunal
b) Voluntary winding up
a) Winding up by the Tribunal

According to section 271 these are different circumstances in which company may be wound
up by Tribunal
 A company may, on a petition under section 272, be wound up by the Tribunal-
a) If the company is not able to pay its debts.

b) A company may be wound up by the Tribunal If the company itself has passed a
special resolution for winding up.
c) A company can be wound up if it acted against interests of the integrity of India,
harmful for the security of the state.
d) If the Tribunal has passed an order to wind up of the company according to
Chapter XIX of Act.
e) if the register or any other authorized person made an application then the tribunal
is of the opinion that the affairs of the company are fraudulent.
f) If a company has made misleading or default in its annual returns and financial
statements from last five years.
 A company shall be consider to be unable to pay its debts-
a. If a company takes a debt from a creditor that is more than the amount of one lakh
rupees and a demand has been made to pay the due amount but company has
failed to pay the sum within 21 days after the receipt of demand.
b. If the tribunal has passed an order in the favor of creditor that company is not to
satisfied the creditor as whole or part.
33
c. If it is proved that company is not able to pay its debt by tribunal.

1) Which of the following is the mode of winding up:-
a) By the Tribunal
b) Voluntary
c) None of these
d) Both A and B
Which of the following is the section under which the mode of winding up is
explained:
a) 270
b) 217
c) 271
d) 280
Procedure of winding up by tribunal

1) According to section 272 Petition for winding up
As per the provisions of this section, a petition shall be filed by the following to the Tribunal
for the winding up of a company-
a) The company it self

b) Any creditor can file a petition.
c) Any contributory can present it.
d) The Registrar can file.
f) Any person who is authorized by the Central Government of India.
g) ―In a case- falling under clause (c) of sub-section (1) of section 271, by the Central
Government or a State Government.‖
2) Powers of Tribunal
According to section 273 these are the powers of Tribunal for winding up.
When a tribunal receives any petition for winding up as per the section 272, then tribunal
passes the following different order-
a. Tribunal can dismiss it.

b. Tribunal can make interim order.
c. Tribunal can appoint a provisional liquidator for a company.
34
d. Tribunal can pass an order to for the winding up of the company.
e. Tribunal can pass any other order that it thinks to fit the situation.
f. If other possible remedies are available for the petitioner other than winding up then
the tribunal may reject the petition.
3) Directions for filing statement of affairs

According to section 274 these are the different directions for filing statement of affairs-
a. When a petition is made by any person other than the company itself for winding up,
if the tribunal satisfied then it can order the company to file its objections with a
statement of affairs within 30 days of the order as per provisions of the Act.
b. As per sub section (4) directors and officers are irresponsible for compliance shall be
liable for punishment if they fail to produce the statement of affairs as per sub section
(1) and lost the right to oppose the petition.
c. If the tribunal passes the order of winding up of a company the officers of the
company at the cost of the company submit the books of account of the company
completed and audited up to the date of order to the liquidators as per the manners of
the tribunal within 30 days of the order.
d. If the director and offers not comply with the provisions of the Act and the director
and officer are defaulters shall be punishable with imprisonment or fine that is not less
than 25000 Rs or it can be extending to 5 lakhs.
e. ―The complaint may be filed in this behalf before the Special Court by Registrar,
provisional liquidator, Company Liquidator or any person authorized by the
Tribunal.‖
4) Company Liquidators and their appointments

According to section 275 of company act Company Liquidators and their appointments has
made as following-
a. As per sub section (2) the tribunal appoints an official liquidator from the panel for
the purpose of winding up after passing the order of winding up.
b. Central government maintain a panel which consist of charted accounts, cost
accountants, advocates, company secretaries, firms and body corporates and other
persons notified by central government must have experience of 10 years in company
matters are appointed as company liquidators.
c. The tribunal may limit and restrict the power of liquidator who is appointing as a
provisional liquidator of a company but otherwise he has similar powers as
liquidators.
d. As per sub section (2) the central government can remove any person, firm and body
corporate from the panel on the basis of fraud, irresponsibity regarding duties,
professional incompetence and misconduct.
e. Tribunal shall specified the term and conditions for the appointment and fee payable
to them on the basis of the work required, qualification, experience of liquidator and
size of company.
f. When a person is appointed as liquidator the he has to a declaration within 7 days
from the date of appointment related to conflicts of interest or lack of independence in
respect of his appointment, if any.
35
g. ―While passing a winding up order, the Tribunal may appoint a provisional liquidator,
if any, appointed under clause (c) of sub-section (1) of section 273, as the Company
Liquidator for the conduct of the proceedings for the winding up of the company.‖
5) Removal and replacement of liquidator

According to section 276 the following points related to removal and replacement of
liquidator-
1. The tribunal may remove the liquidator on basis of following ground-
a. Due to misconduct.
b. If the liquidator has done any fraud.
c. If he not competent or fail exercise his duties
d. If he is not able to act as company liquidator.
e. If the liquidator resign or death of liquidator the tribunal can assign the duties
of liquidator to other person. When these reasons are recorded in writing.
2. If the tribunal has an opinion that any liquidator is responsible to damage or loss to
the company due to fraudulent activities or fail to perform its duty. The tribunal can
recover these loses from liquidator and pass order as it fit.
3. The tribunal shall give the right to be heard to liquidator before passing any order
against him.
6) Intimation to Company Liquidator, provisional liquidator and Registrar

According to section 277 Intimation to Company Liquidator, provisional liquidator and
Registrar-
a. The intimation for the appointment of liquidator of a company by tribunal has send to
the liquidator, provisional liquidator and registrar not exceeding 7 days from date of
passing the order.
b. ―On receipt of the copy of order of appointment of provisional liquidator or winding
up order, the Registrar shall make an endorsement to that effect in his records relating
to the company and notify in the Official Gazette that such an order has been made
and in the case of a listed company, the Registrar shall intimate about such
appointment or order, as the case may be, to the stock exchange or exchanges where
the securities of the company are listed.‖
c. ―The winding up order shall be deemed to be a notice of discharge to the officers,
employees and workmen of the company, except when the business of the company is
continued.‖
d. As per sub section (5) the liquidator make an application to the tribunal to constitute
the winding up committee who assist and monitor the progress of liquidation within
the three weeks from the date of passing the order. This committee consist of the
following-
 Tribunal‘s official liquidators.

 Secured creditors nominee
 Professional who are nominated by tribunal.
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e. the convener of the meetings of winding up committee is company liquidator which
shall assist and monitor the progress of liquidation proceedings in the following
liquidation functions-
 While taking over assets

 Examine the statement of affair of the company
 Recovery of cash assets and property.
 Review of company accounts and audit reports.
 Sale of assets
 To make a list of creditors and contributories
 Claims settlement
 Dividend payments
 Those functions which is directed by tribunal from time to time.
f. On monthly basis a report along with minutes of meeting shall place before tribunal which
is duly signed by members of the meeting.
g. The final report draft and approval of the winding up is made by company liquidator.
h. When the winding up committee approve the final report of winding up then the company
liquidator preset this report in front of tribunal for passing dissolution order.
7) Effect of winding up order

According to section 278 effect of winding up order
All the creditor and contributories of the company has been effected by the order of winding
up but the effect is favourable to them.
8) Jurisdiction of Tribunal
According to section 280 Jurisdiction of Tribunal-
The Tribunal shall have jurisdiction to entertain, or dispose of-
a) Any suit which is made by company or against to company.

b) Any claim that is made by company or against the company.
c) Those applications that are made under section 233.
d) Any scheme that is under section 262.
e) Any question that is related to law or facts which include question of assets, actions,
privileges, benefits responsibilities, rights, duties in relation to winding up.
9) Submission of report by Company Liquidator

According to section 281of company act 2013-
1. When the order of winding up has been made by tribunal and appointed a company
liquidator, such liquidator has to produce or submit the report to the tribunal within 16
days from the order which include the following particulars-
37
a) A report includes nature and details of the company which includes location of
company, value, and cash in hand, cash in bank and negotiable securities.
b) Amount of capital issued
c) Subscribed capital of the company
d) And paid up capital of the company
e) The contingent and existing liabilities of the company which include name, address
and occupation of its creditors and amount of secured and unsecured debt.
f) The due debts of the company and the names, address and occupations of the person
from whom they are due.
g) Guarantees of the company.
h) Details of unpaid calls and list of contributories and dues
i) The report contains the detail of intellectual properties and trademarks owned by
company
j) Detail of joint venture and collaborations of company
k) Details subsidiary and holding companies
l) The report contains the detail of legal cases that is filed by company or against it.
m) Information which is important from tribunal and liquidator point of view.
n) The manners which are used to promote and formed the company are also become the
part of the report.
o) The liquidator also mentions the steps which are used by the company for maximizing
the value of assets of the company.
10) Directions of Tribunal on report of Company Liquidator

According to section 282 of the company act 2013
a) When the report is submitted to the tribunal by liquidator the tribunal considers the
report and all proceeding shall be completed and company is dissolve within the time
limit.
b) The tribunal examines the submitted report and after hearing the creditor,
contributories and company liquidator, tribunal decide to sale the company as going
concern or part of it. Whenever the tribunal thinks fit to appoint a sale committee
which comprise of creditor, promoters, and officer of the company.
c) When the company liquidator or central government, or any person present a report
the fraud has been committed in respect to company then tribunal can order for
investigation as per section 210 and when the report has been received for the
investigation then pass an order or direct the company liquidator to file a criminal
complaint against a person who involve in such kind of fraud.
d) The tribunal has the power to give such orders or take such steps which protect,
preserve or enhance the value of the company.
11) Custody of company's properties

According to section 283 of company act 2013
a) ―Where a winding up order has been made or where a provisional liquidator has been
appointed, the Company Liquidator or the provisional liquidator, as the case may be,
shall, on the order of the Tribunal, forthwith take into his or its custody or control all
the property, effects and actionable claims to which the company is or appears to be
entitled to and take such steps and measures, as may be necessary, to protect and
preserve the properties of the company.‖
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b) All the property of the company shall be in the custody of the tribunal from the date
of the order of winding up.
c) ―On an application by the Company Liquidator or otherwise, the Tribunal may, at any
time after the making of a winding up order, require any contributory for the time
being on the list of contributories, and any trustee, receiver, banker, agent, officer or
other employee of the company, to pay, deliver, surrender or transfer forthwith, or
within such time as the Tribunal directs, to the Company Liquidator, any money,
property or books and papers in his custody or under his control to which the
company is or appears to be entitled.‖
12) Promoters, directors, etc., to cooperate with Company Liquidator

According to section 284 promoters, directors must to cooperate with Company Liquidator-
a) All employees, director, officers of the company shall give full cooperation to the
company liquidator in discharge of his duties and functions.
b) If a person of the company fail to discharge his duties, shall be punishable to
imprisonment which may extend to 6 months and fine which may extend to 50,000
Rs. Or both as per sub section (1).
13) Settlement of list of contributories and application of assets

According to section 285 Settlement of list of contributories and application of assets
 All those person are include in the list of contributories who is member or who shall
be liable to contribute to the assets of the company, subject to the following
conditions-
a) If a person is not a member of the company from last one year then he is not
liable to contribute.
b) If a person ceased to be a member then he is not liable to contribute in respect
of any liability and debt.
c) ―No person who has been a member shall be liable to contribute unless it
appears to the Tribunal that the present members are unable to satisfy the
contributions required to be made by them in pursuance of this Act.
d) In the case of a company limited by shares, no contribution shall be required
from any person, who is or has been a member exceeding the amount, if any,
unpaid on the shares in respect of which he is liable as such member.
e) In the case of a company limited by guarantee, no contribution shall be
required from any person, who is or has been a member exceeding the amount
undertaken to be contributed by him to the assets of the company in the event
of its being wound up but if the company has a share capital, such member
shall be liable to contribute to the extent of any sum unpaid on any shares held
by him as if the company were a company limited by shares.‖
3) Obligations of directors and managers

According to section 286 obligations of directors and managers
39
a) If the person who is dire tor or manager is not member other company from last one
year before the commencement of winding up then he is not liable to any
contribution.
b) If the director or manger ceased to hold the office the he is not liable to make any
contribution.
c) When tribunal deems it necessary to require the contribution to satisfied the liabilities
and debt, cost and charges of winding up only then the director or manger shall be
liable.
15) Advisory committee.

According to section 287 Advisory committee
When the tribunal passes an order of winding up and direct that there shall an advisory
committee to advise the company liquidator and report the tribunal when tribunal direct it.
Tribunal appoints the advisory committee to which consists of not more than 12 members of
creditors and contributors. The advisory committee has the right to inspect the books of
account, and other documents, property and assets of the winding up company.
16) Submission of periodical reports to Tribunal

According to section 288 Submission of periodical reports to Tribunal
The liquidator shall make the periodical report which places in front of tribunal and make
quarter report which is required by the tribunal.
17) Dissolution of company by Tribunal

According to section 302 Dissolution of company by Tribunal
The liquidator makes an application to tribunal for the dissolution of the company when all
affairs of the company has completed then the order of dissolution shall made by tribunal.
The liquidator forwards a copy of order to the registrar within 30 days from the order.

1) Removal of liquidator of the company on any of the following grounds, namely:—
a) Misconduct
b) Fraud or misfeasance
c) Professional incompetence or failure to exercise due care and diligence in
performance of the powers and functions
d) All of These
3.8 Summary
A director of a company is only the director of a company he cannot be an employee or

stakeholder of a company. Resolution has been made in director‘s meetings upon which a
director has to perform his duties or act accordingly. Company‘s articles of association and
40
corporate legislation provide powers to the director. Director performs as an agent of the
company and he has the power to bind a company into valid contracts with third party who
may be buyers, lenders and supplier etc.
3.9 Glossary
Director- A person who is in charge of an activity, department, or organization
1) (a)
2) (d)
1) (d)
 Garg, Sareen, Sharma, Chawla. Mercantile Law. Kalyani Publishers, 2010.
 Kapoor, N.d. Elements of Mercantile Law. Sultan Chand & Sons, 2013.
 http://www.mca.gov.in/Ministry/pdf/CompaniesAct2013.pdf
 http://www.mca.gov.in/MCASearch/search_table.html
 http://www.mca.gov.in/SearchableActs/Section286.htm
3.12 Model Questions
1. Explain the procedure of appointment of director?
2. Explain the duties of director?
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Lesson 4
Meetings
STRUCTURE
4.0 Objectives
4.1 Introduction
4.2 Meaning of Meetings
4.3 Kinds of meetings
4.3.1. Shareholder meetings\ statutory (legal) meetings
4.3.2 Annual General Meeting (AGM)
4.3.3 Extra ordinary General Meetings
4.4 Requisites of meetings
4.5 Role of chairmen of a meeting
4.6 Secretarial work regarding statutory meeting
4.6.1 Functions before the meeting
4.6.2 Functions at the meeting
4.6.3 Functions after the meeting
4.7 Accounts and auditors
4.7.1 Introduction
4.7.2 Annual accounts
4.7.3Accounting reference dates
4.7.4 Requirement for accounts to be audited
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4.7.5 Auditor
4.8 Appointment of Auditors
4.8.1 For private companies
4.8.2 For public companies
4.9 Purpose of audit
4.10Auditor‘s duties
4.11 Auditor‘s right to information
4.12 Auditor‘s report
4.13 Compromise or Arrangements
4.14 Statutory provision
4.15 Reconstruction and amalgamation
4.16 Acquisition of shares of dissenting shareholders in case of Take-over Bid
4.17 Amalgamation in national interest
4.18 Summary
4.19 Keywords
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4.0 OBJECTIVE
After reading this lesson, you should be able to
(a) Define a meeting and explain different types of meeting.
(b) Describe the provisions regarding voting and poll, proxies and resolutions.
(c )Discuss the statutory provision of various types of shareholders‘ meeting.
(d ) Explain the prerequisites of a valid meeting.
4.1 INTRODUCTION
The company is a legal creation, a separate entity different from its members and is an
artificial person. Being an artificial person, it cannot take any decisions on its own. It has to
conduct meetings to make any decisions relating to its wellbeing by passing resolutions at
properly constituted meetings of its shareholders or directors. Routine management of a
company is in the hands of the directors, not in the hand of shareholders but the shareholders
are important and retain some important powers. Many decisions require a resolution of the
shareholders and cannot be decided by the directors alone. When two or more than two
persons come together to have discussion on the matters of common goal or interest, it is said
to be a meeting.
4.2 Meaning of Meetings
When two or more than two persons come together to make decision after having discussion
on the matters of common interest of its member, it is said to be a meeting. In simple
language get together of persons with some objective and plan is known as meetings.
Who is a ‗Member‘
(i) Anyone who subscribes the memorandum.
(ii)Any other person who agrees to become a member and whose name is entered on the
register of members.
(b) Register of Members
CA 1985, s.352 requires‖ that every company must keep a register of its members. The
register must show name and address of each member, date person became a member and,
44
where applicable, the date he ceased to be a member ,the number of shares held by each
member and the amount paid on them‖.
4.3 Kinds of meetings
4.3.1. Shareholder meetings\ statutory (legal) meetings
Sec-165 states, ‖Such a meetings may be called within a period of less than 1 month and not
more than 6 months from the date of issue of Certificate of Commencement of Business‖.
Companies exempt from conducting a Statutory meeting:
•Private Company
•A public Company not having Share Capital
•A Public company limited by Guarantee and not having share capital
•An Unlimited Company
•A Government Company
Objectives of the Statutory Meeting:
1. To discuss the success of the formation of the company.
2. To approve/modify the contracts specified in the prospectus
3. Providing information to the members regarding Shares.

Note: Sec-433(b) provides, ―the statutory report be delivered to the ROC otherwise company
will be wound up‖.
Requirements to conduct a Statutory Meeting:
 Notice: A clear 21 day notice must be given to all

 Place, Date and Time of statutory meeting.
 .Agenda: Since all items are of Special Business category therefore each must be
accompanied with an explanatory note for each item.
Statutory Report: Directors must send a report to every member 21 days before the date of the
meeting.
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Contents of the Statutory Report
 Shares
 Cash Received
 Abstract of Receipts and Payments
 Directors, Auditors and other Managerial personnel
 Contracts
 Underwriting Contracts
 Arrears of Calls
 Commission and Brokerage
Certification of the Statutory Report: At least 2 directors and the auditors must certify the
Correctness. The Statutory report must be filed with the ROC in e-form 22.
4.3.2 Annual General Meeting (AGM)
This meetings must be held by every kind of company whether it is public or private once in
a year. This meeting is to be call and held by the directors of company. The interval between
two meetings cannot exceed than 15 months. The first AGM must be held within 18 months
from date of its corporation.
A notice of the meetings to the directors should send at least 21 day before the meetings. The
AGM must hold on a working day during business hours at the place of registered office of
the company.
Objectives of the Meetings:
1) To check annual accounts.
2) Declaration of dividend.
3) Election of directors.
4) Appointment of auditors.
4.3.3 Extra ordinary General Meetings:
46
This meeting is different than statutory and AGM as it is held in the emergency situations like
at the time of venture etc.
Objective of the business:
1) Special business e.g. a case of 20 billion rupees of export is at the door.
2) In some innovative cases: e.g. an idea of launching a new product.
4.4 Requisites of meetings
The necessities for a meetings to be valid are as following:
1. Right convening authority: A meeting is valid when it is convened by the proper

authority otherwise it is invalid. For example secretary of the company is the proper
authority to call a formal meeting.
2. Legal purposes: Every valid meeting must have a legal purpose to fulfil.
3. Proper notice: Duly signed notice must be submitted to members before meeting. The
place, time and date of meeting must be stated on that notice.
4. Proper publicity of agenda: Every member of the meeting should be aware of the
agenda of meetings.
5. Proper presiding officer: The chairman of a valid meeting must be a proper person.
6. Requisite quorum: For valid meeting requisite quorum is necessary. The meeting should
not be stared until the requisite members of member s are resent.
7. Presence of right persons: Only members which are legally exists can present in the
meeting otherwise the meeting will be invalid.
8. Conducting meeting according to the agenda: A valid meeting must be conducted as
per the agenda decided.
4.5 Role of chairmen of a meeting: In any types of meetings following are the
responsibilities of a presiding officer:
 To prepare an agenda
 To make arrangement for time and place
 To call the meeting to order on time
 To summarize the discussion timely
 To frame the purpose of the meeting
 To keep the discussion on course
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 To control over enthusiastic members
 Elect contributions from each of the member
 To create a good atmosphere
 To work for an end of the meeting on schedule
4.6 Secretarial work relating to statutory meeting
4.6.1 Functions before the meeting:

 Serving the notice to the concerned members.
 Maintaining time for statutory meeting,
 Drafting a notice for the meeting,

 Preparing statutory statement or report,
 Collecting the auditor‘s certificate,
 Preparing agenda of the meeting,
 Selection the place of the meeting,
 Calling on board of directors meeting,
 Listing the name of members who will attend the meeting,
 Calling on board of directors meeting,
 Preparing final notice of the meeting.
4.6.2 Functions at the meeting:
 Determine the quorum of the meeting,

 Stating the agenda,
 Supply necessary explanations,
 Giving the explanations,
 Writing the rough minutes.
4.6.3 Functions after the meeting:
 Prepare final minutes and resolutions,

 Submit the statutory report
4.7 Accounts and auditors
4.7.1 Introduction
To make directors to prepare accounts for showing the company‘s financial position to take
decision at any particular point of time every company need to keep adequate accounting
48
records in accordance with the Companies Act 2006, ―The records must show all sums of
money received and spent by the company and a record of assets and liabilities and if the
company fails to do so it will attract imprisonment or fine or both. Public company needs to
keep records for 6 years from the date they were made while for private company this period
is 3 years‖.
4.7.2 Annual accounts
―The directors of a company must prepare accounts of the company for each of its financial
years. These are ‗individual accounts‘ .It should include fair detail of company‘s assets,
liabilities, financial position and profit and loss ,balance sheet. It should have compliance
with international accounting standards‖. Companies Act 2006.
4.7.3 Accounting reference dates
The accounting reference date is the anniversary of the last day in the month in which the
company was incorporated for all Companies which are incorporated after 1 April 1996. The
subsequent accounting reference dates will be automatically on the same date each year
further. Companies incorporated before 1 April 1996 will already have mentioned an
accounting reference date according to previous company legislation. A company can an
accounting reference date by giving notice to the registrar of companies.
4.7.4 Requirement for accounts to be audited
A company‘s annual accounts must be audited but an exemption is there for a small
company, a dormant company or a non-profit making company subject to a public sector
audit.
4.7.5 Auditor
―An auditor is an independent person of the with a current practicing certificate issued by one
of the recognised supervisory bodies‖. As per the Institute of Chartered Accountants in
England and Wales, The Institute of Chartered Accountants of Scotland, The Institute of
Chartered Accountants in Ireland, and the Association of Chartered Certified Accountants .
4.8 Appointment of Auditors
49
4.8.1 for public companies
In public companies also first auditor is chosen by the directors of the company and
then members can re-appoint the auditor to hold office until the end of the next
meeting at which the accounts are laid. If a public company fails to make appointment
of an auditor then Secretary of State may appoint one or more persons to fill the
vacancy
4.8.2 for private companies
In first auditor in private companies is appointed by the directors. The members must
then appoint or re-appoint an auditor for each year within 28 days of the directors
sending the accounts to members at the end of the time allowed for the sending out of
the accounts.
4.9 Purpose of audit
The auditor examines the company‘s financial accounts in accordance with the International
Standards on Auditing (UK and Ireland) and check whether company‘s financial accounts
(evidence) is supporting the amounts and disclosures in the company‘s financial statements
or not and whether they reflect the true position of the company‘s affairs or no
4.10Auditor’s duties
An auditor must be satisfied with adequate accounting records that have been kept by the
company‘s accountants are in agreement with the accounting records, in the case of a quoted
company, the relevant part of the directors‘ remuneration report is in agreement with the
accounting records. Further the accounts were incorrectly prepared in accordance with the
small companies in the opinion of the auditor provisions this should be stated in the report.
4.11 Auditor’s right to information
An auditor has a right to access the company‘s accounts, books and vouchers at any time.
Further, an auditor have a requirement of a number of people associated with the company or
its subsidiary to provide information as he/she requires for the performance of his/her duties.
4.12 Auditor’s report
50
―At the conclusion of an audit the auditor must report to the company‘s members before
general meeting. The report includes, an introduction identifying the accounts that were the
subject of the audit, a description of the audit identifying the auditing standards used, a
statement that the accounts have been prepared in accordance with the relevant financial
reporting framework‖ (currently the Companies Act 2006) and where appropriate Article 4 of
the European Union Regulation on International Accounting Standards (Regulation (EC)
1606/2002), ― The auditor must state as to whether the accounts give a true and fair view of
the company‘s financial affairs or not if it is not then it referred as unqualified or otherwise
qualified. The auditor must confirm whether the directors‘ report is consistent with the
accounts .The auditor‘s report must state the name of the auditor and be signed and dated. If
the auditor is an individual the report must be signed by him/her. If the auditor is a firm the
report must be signed by the senior statutory auditor in his/her own name, for and on behalf
of the auditor‖.
Activity
At a meeting of a company, only 15 shareholders were present.9 voted for special resolution
and 2 against and 4 did not vote at all. No poll was demanded and the chairman declared the
resolution to be carried. Is this a valid resolution?
4.13 Compromise or Arrangements
51
―The scheme compromise or arrangements are mainly applicable to foreign companies
formed outside India and doing business in India and government company i.e. those
companies are liable to wound up‖ under the act sec 390(a). By the Compromise or
Arrangement provision is kind of substitute for winding up and saving a company to go for
liquidation.
4.14 Statutory provision (section 391,392,393)
Section 391 states that,‖ where a compromise or rearrangements is proposed between a

company and its creditors, between a company and its members. The compromise or
rearrangements will be on binding on all the creditors, all the members, the company,
liquidators and contributor in case of company which is being wound up. If the certified copy
of order is not filed with registrar then it is not effective. Every copy of the memorandum
should be annexed with the copy of every order. If it is not done in respect it will attract fine.
Any order under this section is open to appeal to high court‖.
Section 392 deals with power of courts and lays down ,‖when a court has made order to
company regarding compromise and arrangements it can exercise following powers to
supervise carrying out the scheme compromise and arrangements, to give direction and make
modifications for proper functioning of compromise and arrangements.
Section 393 deals with rules regarding meetings of creditors.
4.15 Reconstruction and amalgamation (section 394 & 395)
―When a company is suffering loss for several past years and suffering
from financial difficulties, it may go for reconstruction .i.e. Formation of a new company to
take-over the Assets of an existing company with the idea that the persons interested and the
nature of business substantially remains the same. The term Amalgamation is taken to mean
as the union of two or more companies, so as to form a third entity or one company is
absorbed into another company‖. Both reconstruction and amalgamation have similar legal
procedures and schemes can be carried out.
(a) Section 494 and 507 provide for Reconstruction or Amalgamation of companies by
winding up the company voluntary.
52
(b) Section 394 and 395 provide for a scheme of Reconstruction and Amalgamation without
winding up.
Section 394 lays down,‖ Transfer of the undertaking , property or liabilities of one company
to another , the allotment or appropriation by the transferee company of any shares ,
debentures , policies , or other like interests in that company, the continuation by or against
the transferee company of any legal proceedings pending by or against the transferor
company ,the dissolution , without winding up , of the transferor company ,the provision to
be made for any person who dissents from the scheme ,such incidental , consequential and
supplemental matters as may be necessary to secure that the reconstruction or Amalgamation
shall be fully and effectively carried out‖ .
4.16 Acquisition of shares of dissenting shareholders in case of Take-over Bid
The method of Amalgamation by take-over bid is quite common.
A ―takeover Bid‖ means an offer to acquire shares of company with a view to obtaining legal
control of the company.
Section 395 provides for the compulsory Acquisition of the shares of the dissenting
minorities.
The provisions of sec.395 are as follows:
1. ―The offer of the transferee company to acquire the shares or any class of shares, must be
placed before the shareholder of the transfer or company
2. The shareholders have the option to approve the offer within four month. Approval must
be Accorded by the holders of at least 90 % in value of the shares .whose transfer is involved
(other than shares already held by transferee company at the date of the offer or by its
nominees or by its subsidiary)
3. If the scheme is so approved, the transferee company may, at any time, within two month,
after the expiration of the Above four months, give notice to the dissenting shareholders.
4. The dissenting shareholders can, with in one month of the receipt of such notice, apply to
the court for annulling the scheme.
53
5. If the court refuse to issue the order annulling the scheme of Amalgamation or if no
application is made to the court, the transferee company shall be entitled and bound to
Acquire the share of dissenting shareholders.
6. The transfer of shares pursuant to the notice given by the transferee company after the
disposal of the appeal field by the dissenting shareholders .
7. Any sums which so received by the transferee company must be paid in to a bank account
and this amount or any other consideration received must be held for dissenting
shareholders‖.
4.17 Amalgamation in national interest
Under section 396 of the Act, ―the central Govt. is given power to order Amalgamation of
two or more companies in public interest‖. The section provide as follows:
1. ―If the central govt. is satisfied that it is essential in the public interest that two or more
companies should be amalgamated‖.
2. ―The order aforesaid may provide for the continuation by or against the transferee
company of any legal proceedings pending by transferee company‖.
3. ―Every member, debenture holder or any other creditors of the Amalgamation companies,
continue to have the same interest in the new company‖.
4. ―No order under this section shall be made by the central govt. unless:
(a) A draft copy of the proposed order has been sent to each of the companies to file their
objectives and suggestions.
(b) The time for preferring an appeal to company law board has expired.
(c) It has considered and made such modifications if any, in the draft order as may seem to it
desirable in the light of any suggestions and objectives‖.
5. ―Copies of the order made by the govt. in this connection must, as soon as possible, be laid
before both the house of parliament‖.
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Check your progress
1. The minimum number of members that must be present at the meeting is termed as ------------
------.
2. A person who is conducting Audit or person appointed by the company to execute the audit is
called --------
3. -----------------is the resolution which is passed, at a valid meeting by simple majority of the
members.
4. ------------------is the first meeting of the members of the company after its incorporations.
5. A notice of the meetings to the directors should send at-least---------- day before the meetings.
4.18 Summary
―A meeting is a gathering or assembly of a number of persons for transacting any lawful

business. But every gathering of persons does not constitute a meeting. A meeting would be
valid if it is held by following the prescribed rules and regulations. The meetings of a
company are of three kinds namely meetings of shareholders directors and creditors.
Statutory meeting is the first meeting of the members of the company after its incorporations
and must be held within six months from the date at which the company is entitled to start
business. Annual general meeting is the regular meeting of the members of the company and
the purpose of this meeting is to provide an opportunity to the members of the company
express their views on the management of company's affairs. Any meeting other than the
statutory and the annual general meeting of the company is known as extra-ordinary general
meeting, class meeting is the meeting of a particular class of shareholders. The business of
the meeting is conducted in the form of resolutions passed at the meeting and the resolutions
proposed in the meeting are decided on the votes of the members of the company. The
remuneration payable to directors is determined by the articles of association of the company,
or by a resolution of the company passed in its general meeting‖. The overall maximum limit
of management remuneration in fixed by Section 198 of the Companies Act. The goal of an
audit is to form and express an opinion on financial statements. The audit is performed to get
reasonable assurance on whether the financial statements are free of material misstatement.
55
An audit also includes assessing the accounting principles used and the significant estimates
made by the management. Audit conclusions and reporting are one of the principles
governing an audit. Reporting is the last procedure of the process of an audit. ―The scheme
compromise or arrangements are mainly applicable to foreign companies formed outside
India and doing business in India and government company i.e. those companies are liable to
wound up‖ under the act sec 390(a). When a company is suffering loss for several past years
and suffering from financial difficulties, it may go for reconstruction .i.e. Formation of a new
company to take-over the Assets of an existing company with the idea that the persons
interested and the nature of business substantially remains the same. The term Amalgamation
is taken to mean as the union of two or more companies, so as to form a third entity or one
company is absorbed into another company.
4.19 Keywords
Meeting: A meeting may be defined as gathering or assembly of a number of persons for

transacting any lawful business.
Statutory Meeting: Every public company limited by shares and every company limited
by guarantee and having a share capital shall, within a period of not less than one month
but more than six months from the date on which the company is entitled to commence
business hold a general meeting of the members of the company. This meeting is called
the statutory meeting.
Annual General Meeting: Every company must in each year hold in addition to any
other meeting, a general meeting as its annual general meeting.
Extra Ordinary General Meeting: Any meeting other than a statutory and an annual
general meeting is called an Extra Ordinary General Meeting.
Class Meeting: Class meetings are separate meetings of holders of different classes of
shares. They are held in cases where their rights are sought to be affected.
Quorum: It means the minimum number of members that must be present at the meeting.
Vote: A vote is the formal expression of the will of the members of the house either for or
against a proposal.
56
Ordinary Resolution: It is the resolution which is passed, at a valid meeting by simple
majority of the members, i.e., where the votes cast in favour of resolution exceeds the
votes cast against it.
Managerial Remuneration: The total managerial remuneration payable by a public

company or a private company which is a subsidiary of a public company to its directors,
managing agent, secretaries and treasurer or manager in respect of any financial year shall
not exceed 11% of the net profit of that company for that financial year.
Auditor: A person who is conducting audit or person appointed by the company to

execute the audit is called Auditor.
Reconstruction: Formation of a new company to take-over the Assets of an existing

company with the idea that the persons interested and the nature of business substantially
remains the same.
Amalgamation: The combination of one or more companies into a new entity. An

amalgamation is distinct from a merger because neither of the combining companies
survives as a legal entity. Rather, a completely new entity is formed to house the
combined assets and liabilities of both companies.
Ans.1 Quorum
Ans.2 Auditor
Ans.3 Ordinary Resolution
Ans.4 Statutory meeting
Ans.5 21
4.21 SELF ASSESSMENT QUESTIONS
1. What do you mean by statutory meeting? What business is transacted at such meeting?
2. What are the statutory provisions regarding the holding of an annual general meeting?
57
3. What are the essentials of a valid meeting? Discuss in detail
4. What is a quorum? What happens if there is no quorum at a meeting at all?
5. Discuss the statutory provisions relating to payment of managerial remuneration of a

public limited company.
6. What are different types of resolutions in the meeting of shareholders which must be
passed?
7. State the reason for a company for Amalgamation, reconstructions, arrangements and
compromises.
8. Discuss the purpose of an audit.
9. What are different types of meetings?
10. What do you understand by quorum?
1. S.R. Davar, Mercantile Law, Progressive Corporation Pvt. Ltd., Mumbai.
2. G.K. Varshney, Elements of Business Law, S Chand & Co., New Delhi.
3. S.K. Aggarwal, Business Law, Galgotia Publishing Company, New Delhi.
4. R.H. Pandia, Principles of Mercantile Law, N.M. Tripathi Pvt. Ltd., Mumbai.
5. N.D. Kapoor, Company Law, Sultan Chand & Sons, New Delhi. S.C. Aggarwal, Company
Law, Dhanpat Rai Publications, New Delhi.
58
Lesson 5
Factories Act 1948
5.1. Objectives
5.2 Introduction
5.3. Definitions
5.4. Scope and Objectives of the Act
5.5. Health, Welfare & Safety Measures
5.6. Provisions Relating To Hazardous Process
5.7. Employment of Women and Young Persons
5.8. Special Provisions for Accidents
5.5. Recent Amendments
5.10 Check Your Progress
5.11 Summary
5.12 Glossary
5.13 Answers to Check Your Progress
5.14 Terminal and Model Questions
5.1. Objectives
Dear student, after reading this lesson, you will be to:
 Define scope and objectives of The Factories Act, 1948

 Discuss the provisions related to Health, safety and welfare measures under this Act.
 Explain Provisions Relating To Hazardous Process
 Illustrate the provisions related to employment of women and young persons
 Enumerate Special Provisions for Accidents
 Comprehend Recent Amendments of this Act
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5.2. Introduction
In the hindsight, foundation of the modern factory system was laid upon by establishment of
Cotton Mills and a Bengal based Jute Mill in 1851 and 1855, respectively. Employers in the
absence of sufficient legislations employed women and children for excessive amount and
length of work hours. A weak Factories Act was implemented in 1881 aimed at protection
especially to children, however, to ascertain other encompassing aspects the then
Government of India appointed Factory Commission in 1890. It amended the previous
definition of ‗Factory‘ to include premises in which at least fifty persons were employed
which could be reduced to twenty at the discretion of State Governments, among other
provisions relating to limiting women‘s working hours with at least thirty minute rest
interval. Going through a series of amendments, one worth mentioning is related to
implementation of ILO convention of 1919 regarding Hours of Work and more important
provisions were added in 1934 based on recommendations of Royal Commissioner on Labour
which was appointed in 1925. The revised Factories Act 1934 had provisions regarding
reduced working hours, improvement of working conditions, inspection and enforcement of
this Act at discretion of the Provincial Government even to establishments with ten
employees and using power.
Factories Act 1948 extended the scope of the erstwhile Factories Act 1934 by including
welfare, cleanliness, health, payments for overtime etc. to convince workers of protection
against accidents and physical strain.
However, necessary safeguards for dealing with hazardous substance in factories weren‘t
timely introduced and only after the Bhopal Gas Tragedy, Factories Amendment Act 1987
was passed which included timely investigations of fatal accidents within a month of the
accident, appointment of safety officers in factories with worker strength of at least 1000,
provided protection to contract labour who may even be engaged without remuneration,
entitlement to wages in lieu of quantum of leave due to dismissed employee or nominee of
the deceased and enhanced penalties for repeated conviction etc.
5.3. Definitions
Section 2 of the Factories Act 1948, defines Factory, as ―based on use of power in process as,
any premises including the precincts thereof 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
60
manufacturing process is being carried on with the help of power, or is ordinarily so carried
on; 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.‖
However, the definition specifically excludes a mine subject to the operation of the Mines
Act, 1952, or a mobile unit belonging to the army, shed or a hotel or a eating place ran by
railway.
The words ‗premises‘, ‗precinct‘ and ‗manufacturing process‘ used, too have been defined
under the Act as:
 The word 'premises' means open land or land with building or building alone.
 ‗Precinct‘ means a space enclosed by wall.
 ‗Manufacturing Process‘ has been defined as ―any process wherein making, altering,
packing, oiling, washing, cleaning repairing, ornamenting, finishing, breaking up,
demolishing, or otherwise treating or mending any article or substance with a view to
its use, sale, transport, delivery or disposal takes place; or pumping oil, water, sewage,
or any other substance or generating, transmitting or transforming power; or making
types for printing, printing by letter press, lithography, photogravure or other similar
process or book binding; or constructing, refitting, finishing reconstructing, or
breaking up ships or vessels; or preserving or storing any article in cold storage
occur.‖
However, based on court decisions Bidi making and carrying out salt works i.e.
manufacturing salt from sea water (Section 2(k)) too have been deemed to be
manufacturing processes.
Other clarifications have been regarding the aspects encompassed regarding ‗worker‘ and the
‗occupier‘.
The term "worker" includes ―a person employed, directly or through any agency (including a
contractor) with or without knowledge of principal employer, whether for remuneration or
not, in any manufacturing process, or in cleaning any part of the machinery or premises used
for a manufacturing process or in any other kind of work incidental to, or connected with, the
manufacturing process, or the subject of the manufacturing process but does not include any
member of the armed forces of the Union.‖ (Section 2 (1))
61
Another important term ‗occupier‘ of a factory has been defined as ―the person who has
ultimate control over the affairs of the factory. Specifically clarified that in the case of a farm
or other association of individuals, any one of the individual partners or members thereof
shall be deemed to be the occupier; in the case of a company, any one of the directors shall be
deemed to the occupier; in the case of a factory owned or controlled by the Central
Government or any State Government, or any local authority, the person or persons appointed
to manage the affairs of the factory by the Central Government, the State Government or the
local authority, as the case may, be shall deemed to be the occupier.‖ (Section 2 (n))
5.4. Scope & Objectives of the Act
The Act extends to whole of India except the state of Jammu & Kashmir, and it has been
drafted with the objective to protect workmen from unfair working conditions and to
minimize their strain and stress at workplace. It also ensures that employees should work in
healthy and sanitary conditions and all safety measures against any accidents should be
followed at workplace.
Essential Provisions of ‘The Factories Act 1948’
Licensing: As defined under section 6: ―There should be compulsory approval, licensing and
Registration of Factories and prescribed License fees and registration fees and supplying such
information as may be required by the Government should be done.‖
Notice by Occupier: As defined under 7: ―The Occupier has to send to the Chief Inspector a
written notice at least 15 days before he begins to use any premises as a factory. This notice
should contain such particulars as to the name and location of the factory; name and address
of the manager, owner and occupier to the factory; type of the manufacturing process to be
carried on, number of workers it would employee; rated horsepower installed or to be
installed including that of any stand-by plant and all other information as may be required by
the Government.‖
5.5. Health and Safety Measures
As defined under Chapter-3: ―the comprehensive measures for safeguarding the health of
workers and following safety measures at workplace which include:
 Proper cleanliness, wherein frequency and mode of cleaning is also prescribed,

arrangement for disposal of manufacturing waste and effluents, provision of proper
62
temperature and ventilated conditions for reasonable comfort of worker, control of
fumes and dust particles, so as to prevent its inhalation by the workers is prescribed
 There should be no overcrowding in the factory, to an extent; that it may negatively
impact workers health.
 It is the responsibility of the manager of the factory to provide adequate drinking
water points, latrines, urinals, washing points, etc.‖
Safety
As defined under Chapter 4: ―the measures of safety are the following:
 To ensure safety of workers working on or around the machines, it is essential that all
dangerous parts of machinery should be properly fenced with safe-guarded, which
shall be maintained and kept in position, while the machinery is in motion (section
21).
 This section also states that there should be no examination and lubrication of
machinery while in motion, unless it is done by a trained, male adult worker, whose
name has been recorded in the register prescribed for this purpose.
 Section 23 of this Act prohibits employment of young person‘s on dangerous
machines such as presses, wood working machines, etc
The other sections of this Chapter deal with the safety of self-acting machines, installing of
new machinery, prohibition on employment of children and women in cotton openers,
maintenance and testing of hoists and lifts, lifting machines, chains, ropes, etc., pressure
plants, revolving machines. There should be proper maintenance of staircase, floors, pits etc
at workplace so that there are no accidents due to this. Also where in any factory employing
more than 1000 workers should appoint a chief safety officer as stated in rules.‖
Welfare
As defined under Chapter 5: ―The important requirements of this Chapter are to provide:-
 Facilities for sitting for workers.

 First Aid-box under charge of a trained person. One for every 150 workmen
 Separate and adequate washing facilities for male and female workmen.
 Facilities for storing and drying wet clothes.
 Ambulance room for factory ordinarily employing more than 500 workmen.
63
 Creche of prescribed standards for use of children below 6 years of age of women
workers employed in factories ordinarily employing more than 30 women workers.
Such crèche should be under the charge of a trained woman.
 Suitable and adequate Rest Shelter or a Rest room and Lunch room to be provided in
factories ordinarily employing more than 150 workers.
 Canteen of prescribed standards in factories employing more than 250 workmen, to be
run on no profit basis by a duly constituted canteen managing committee should be
there.
 Factory employing 500 or more workers, are required to appoint a Welfare officer,
whose duties, qualifications and terms of service are prescribed under the State
Factory Rules.‖
Working Hours, Rest Intervals, Holidays for Adults (Sections 51, 53, 54, 55, 56): As
defined: ―The various rules which are defined are as under:
 No adult worker is to be allowed to work in a factory for more than 48 hours, in a

week or 9 hours a day.
 Weekly holiday on the first day of the week, which is Sunday or may be any other
day, as may be approved by the Chief Inspector of Factories, for a particular area.
There is also a provision for substitution of weekly off
 The spread-over should not exceed 10 ½ hours, unless exempted by the Chief
Inspector up to 12 hours.
 A rest interval of at least half an hour should be provided, in such a way that no
period of work shall exceed 5 hours.
 Overlapping of shifts is not permitted, unless exemption is obtained from Chief
Inspector of Factories.
 A worker, who works in a factory for more than 9 hours on any day
 or more than 48 hours in a week, is entitled for overtime wages at twice the ordinary
rate of wages
 The total No of hours of overtime which a workman can work should not to exceed
fifty for any one quarter. Quarter means a period of three consecutive months
beginning from 1st of Jan, 1st of April, 1st of July and 1st of October.
 Double employment of a worker is prohibited under Sec 60.‖
5.6. Provisions Relating To Hazardous Process (Introduced after Bhopal Gas Tragedy)
64
As defined under Chapter 6: ―The Hazardous Process has been described as any process or
activity in relation to an industry specified in the First Schedule, where in if special care is
not taken, raw materials used therein or finished products, bye-products, wastes or effluents
would –cause impairment to the health of the employees employed in such activities or they
may cause environmental pollution as well.
Section 41-A encompasses / deals with Constitution of Site Appraisal Committee to review
applications for grant of permission for the initial location of such a factory, involving
hazardous process or an expansion of any such factory.
Section 41-B demands for compulsory disclosure of following information by the occupier. It
states that it shall be the duty of the occupier to –
 Disclose information regarding dangers, including health hazards and measures to

overcome such hazards arising out of hazardous substances and processes carried out,
to the Chief Inspector of Factories, local authority and the general public in the
vicinity.
 Prepare health and safety policy. It even applies to non-hazardous and non-dangerous
processes of factories employing 100 or more workers.
Section 41-C explains the specific responsibility of the occupier in relation to hazardous
processes –
 To maintain accurate and up to date medical record of the workers;

 Pre-employment and post-employment medical examination of workers, at regular
intervals.
 To appoint qualified, experienced and competent supervisors to supervise handling of
hazardous substances.
Section 41-D & Section 41-E empower the Central Government to appoint an Enquiry
Committee, in extraordinary situations and to prescribe safety standards, wherever the same
have not been prescribed.
Section 41-F specifies permissible limits of exposure of chemical and toxic substances that
have been prescribed under the Second Schedule. These limits are applicable, whether
industry is hazardous or not.
65
Section 41-G deals with Workers participation in Safety Management where ―Safety
committees‖ are required to be set up comprising of representatives of Management and
workers, to promote better co-operation.
Section 41-H provides for Right of workers to warn about imminent danger –This section
empowers workers to bring to the notice of the occupier, manager or in charge, directly or
through the Safety Committee any situation where there is a likelihood of imminent danger to
human life and to simultaneously bring to the notice of the Inspector of Factories.‖
5.7. Employment of Women and Young Persons
As defined under Chapter 6: ―Women workers are not to be employed during night or
between 7pm and 6am.The Government is empowered to relax from 10pm to 5am. (Section
66)
 No child below the age of 14years is required to be employed in any factory. (Section
67).
 No child is to be employed for more than four and half hours on any day and during
night, or between 10 pm and 6am.
 A child who has completed his 14th year, or an adolescent, is not to be employed
unless he his certified to be fit for work in a factory by a Certifying Surgeon. The
certificate is valid for one year and is to be kept in the custody of the manager and the
child or the adolescent has to carry with him while at work a token giving reference to
such certificate. (Section 68, 69).
 The period of work is also not to be spread over more than two shifts of five hours
each. (Section 71).
 Every child worker is to be allowed a weekly holiday and no exemption is
permissible. (Section 71(3)).
 No female or male adolescent below the age of seventeen who is certified to be fit to
work shall be required or allowed to work except between 6am to 7pm.
 No female child shall be required to work between 7pm and 8 am. (Section 71).
 A register of child workers is to be maintained. (Section 71).
It should be noted that ‗Child worker‘ means a person who has not completed his 15th year of
age; ‗Adolescent‘ means a person who has completed his 15th year of age but not completed
his 18th year and ‗Young person‘ means a person who is either a child or an adolescent.‖
66
Annual Leave with Wages (Sections 78 To 81)
As defined under Chapter 8: ―The provisions of this Chapter do not apply, if a worker, under
any award, settlement, agreement or contract of service is entitled to leave with wages which
are more favorable than those in this Act.
 An adult worker is entitled to leave with wages, in the subsequent calendar year, if he
has worked for 240 days or more in a year. One leave for 20 days of actual working
days is given, in case of an adult. One for every 15 days in case of a child. The period
of lay-off, maternity leave in case of women workers and the leave earned in the year
prior to which it is enjoyed shall be deemed to be days on which the worker has
worked, for the purpose of computation of 240 days but shall not earn leave for those
days.
 While calculating leave Sundays and holidays should be excluded, whether occurring
during or at the end of the leave period
 For a worker whose employment commences otherwise than on 1st of Jan shall be
entitled to leave, if he has worked for more than 2/3rd of number of days in the
remainder of the calendar year even if it is less than 240 days.
 Payment in lieu of leave has to be made within two months from date of
superannuation or death or on the next working day in other cases of termination.
 Unavailed leave can be carried forward up to 30 days for adult and 40 days for child
worker. Leave refused can be carried forward without any limit.
 A notice of minimum 15 days is required to be given, from date of commencement of
leave in non-public utility service and for public utility service a minimum of 30 days.
Notice period not necessary to cover period of sickness.
 Leave cannot be taken for more than 3 times in a year.
 Unavailed leave cannot be taken into consideration while calculating notice period, in
case of discharge or dismissal fraction of ½ day or more has to be treated as one.‖
5.8. Special Provisions for Accidents (Sections 88-91)
Section 88 provides that ―where in any factory an accident occurs, which causes death or
which causes any bodily injury, within 4 hrs of happening of such accident notice has to be
sent either by telephone, special messenger or telegram to the Inspector and the
Administrative Medical officer, ESIS.
67
Where accident is fatal or of very serious nature that it is likely to prove fatal, notice as
aforesaid to be sent to District Magistrate or Sub Divisional Officer, Officer in charge of
nearest police station and nearest relatives of the injured or deceased person.
In case of an accident where the injured person subsequently dies information to be sent,
within 24 hours, to the Inspector, Medical Officer In charge, District Magistrate or Sub
Divisional Magistrate and the officer in charge of the nearest police station.‖
―Where any worker in a factory contacts any disease specified in the third schedule the
manager of the factory shall send a notice in Form 25, not later than 4 hours, to the Chief
Inspector and to the Medical inspector of factories by the manager of the Factory.‖ (Section
89)
Rule116 shall be applicable to the medical practitioner attending to such an employee

requiring that the practitioner shall send without delay a report in writing to the office of the
Chief Inspector of Factories
Section 91 relates to Safety and Occupational Health Surveys and provides that ―such surveys
may be conducted by the Director General of Factory Advice Service and Labor Institutes, or
the Director General of Health Services to the Government of India and every occupier and
manager of factories has to afford all facilities for such surveys, including facilities for the
examination and testing of plant and machinery and collection of samples and other data
relevant to the survey.‖
5.5. Recent Amendments in Factories Act 1948
An Act further to amend the Factories Act, 1948, in its application to the State of
Maharashtra was enacted in the Sixty-sixth Year of the Republic of India with details as
follows:
1. This Act may be called the Factories (Maharashtra Amendment) Act, 2015.
2. It shall come into force on such date as the State Government may, by notification
in the Official Gazette, appoint.
3. In section 2 of the Factories Act, 1948, in its application to the State of

Maharashtra (hereinafter referred to as ―the principal Act‖), in Clause (m).
68
 in sub-clause (i), after the words ―whereon ten or more workers‖ the words ―or
such number of workers as may be specified by the State Government by
notification, from time to time‖ shall be inserted;
 in sub-clause(ii),after the words ―whereon twenty or more workers‖ the words
―or such number of workers as may be specified by the State Government by
notification, from time to time‖ shall be inserted;
 after sub-clause (ii), the following proviso shall be inserted, namely :—
―Provided that, the number of workers to be specified by the State Government
in sub-clauses (i) and (ii) shall not exceed twenty and forty workers,
respectively.‖
4. In section 65 of the principal Act, for sub-section (2), the following sub-section shall be
substituted, namely:—
 ―(2)On such terms and conditions as may be prescribed, any or all of the adult
male workers in any factory or group or class or description of factories may
be exempted from any or all of the provisions of sections 51,52, 54 and 56
on the ground that the exemption is required to enable the factory or factories
to deal with an exceptional press of work.‖
 in sub-section (3), in clause (iv), for the words ―shall not exceed seventy-five‖
the words ―shall not exceed one hundred and fifteen‖ shall be substituted.
5. In section 66 of the principal Act, in sub-section(1),in clause(b), for the existing

provision, the following provision shall be substituted, namely:
―Provided that, the women workers may be required or allowed to work even between
the hours of 7.00 p.m and 6.00 a.m in any factory in which adequate safety and security
measures or safeguards as may be prescribed are provided;‖
6. In section 85 of the principal Act, in sub-section (1), in clause (i),—
 after the words ―less than ten‖ the words ―or such number of workers as may
be specified by the State Government under sub-clause(i) of clause (m) of
section 2‖ shall be inserted;
69
 after the words ―less than twenty‖ the words ―or such number of workers as
may be specified by the State Government under sub-clause (ii) of clause(m) of
section 2,‖ shall be inserted.
Previously, the changes under Factories (Amendment) Act 1987 were:
Besides amendments to Sections 2, 4, 9, 13, 16, 18, 19, 23, 25, 28-32, 36-A, 64, 70, 80, 87,
89, 90, 91-A, 92, 94-99, 114, 119 and schedule to the Principal Act, the amended Act of 1987
also provides for omission of Section 100 of the Principal Act and insertion of new Section 7-
A, 7-13, 87-A, 96-A, 104-A, 106-A, 111-A and 118- A, substitution of new sections for
Sections 36.and 38, insertion of a new Chapter IVA, after Chapter IV and the insertion of two
new schedules before the schedule to the
Principal Act. The newly inserted Sections 7-A, 7-B, 87-A, 96-A, 104-A, 106-A, 111-A and
118-A relate to general duties of the occupier, general duties of
manufacturers, etc., regarding articles and substances for use in factories; power to prohibit
employment on account of serious hazard; penalty for contravention of the provisions of
Sections 41-B, 41-C and 41-H, onus of providing limits of what is practicable, etc;
jurisdiction of a court. for entertaining proceedings, and so on, for offence, right of workers,
etc.; and restriction on disclosure of information; respectively.
The new Sections 36 and 38 relate to precautions against dangerous fumes, gases, etc., and
precautions in case of fire, respectively. The new Chapter IV-―A Inserted after Chapter IV of
the principal Act, includes the following provisions relating to hazardous processes:
i) Constitution of Site Appraisal

ii) Compulsory disclosure of information by the occupier
iii) Specific responsibility of the occupier in relation to hazardous processes
iv) Power of Central Government to appoint Inquiry Committees
v) Emergency standards
vi) Permissible limits of exposoure of chemical and toxic substances
vii) Workers' participation in safety management
viii) Right of workers to warn about imminent danger.‖
The new schedules, inserted before the Schedule to the Principal Act, include the list of
industries involving hazardous processes and permissible levels of certain chemical
substances in the working environment.
All the provisions of the Factories (Amendment) Act, 1987 came into force with effect from
70
1st December, 1987 except the Schedule containing list of notifiable diseases and Sections 7-
13 and 41-F which came into force with effect from 1st June, 1988.

1. The responsibility for getting the premises approved, when the factory is to be established,
lies on the ...................... .
2. ...................... empowers the State Government to declare different departments‘ or
branches of a factory as separate factories, in case a request is made in writing in this regard
by the occupier.
3. No license or renewal of license shall be granted unless the occupier gives at least
...................... days notice in writing to the Chief Inspector of factories before he proposes to
occupy or use any premises as factory.
4. .................. of the Factories Act, 1948 provides for general cleanliness of the factory.
5. To eliminate .................., the Factories Act, 1948 prescribes that no room of any factory
shall be overcrowded to the extent it is injurious to the health of the workers.
6. .................. provides that in every factory there shall be provided and‘ maintained, separate
arrangement for toilets for male and female workers at convenient places.
5.11 Summary
The Factories Act, is a social legislation which has been enacted for occupational safety,
health and welfare of workers at work places. This legislation is being enforced by technical
officers i.e. Inspectors of Factories, Dy. Chief Inspectors of Factories who work under the
control of the Chief Inspector of Factories and overall control of the Labour Commissioner,
Government of National Capital Territory of Delhi. It applies to factories covered under the
Factories Act, 1948. The industries in which ten (10) or more than ten workers are employed
on any day of the preceding twelve months and are engaged in manufacturing process being
carried out with the aid of power or twenty or more than twenty workers are employed in
manufacturing process being carried out without the aid of power, are covered under the
provisions of this Act. The enforcement of this legislation is being carried out on district basis
by the district Inspectors of Factories. After inspection, Improvement Notices are issued to
the defaulting managements and ultimately legal action is taken against the defaulting
managements. The Inspectors of Factories file Challans against the defaulters, in the Courts
of Metropolitan Magistrates. The work of Inspectors of Factories is supervised by the Dy.
71
Chief Inspector of Factories on district basis. This Act provides for a maximum punishment
up to two years and or a fine up to 1 lakh or both.
5.12 Glossary
Adolescent: A person who has completed his fifteenth year of age has not completed his
eighteenth year.
Adult: Adult means a person who has completed his 18th year of age.
Approval: The action of officially agreeing to something or accepting something as
satisfactory.
Constitution: A body of fundamental principles or established precedents according to which
a state or other organization is acknowledged to be governed.
Factory: Whereon ten or more workers are working on any day of the preceding twelve
months and in any part of which manufacturing process is being carried on.
Machinery: Prime movers transmission machinery and all other appliances whereby power
is generated, transformed, transmitted or applied.
Manufacturing Process: Manufacturing process management (MPM) is a collection of
technologies and methods used to define how products are to be manufactured.
Occupier: Person performing the duties of a position, and enjoying the benefits and salary
that go with it.
Safety: Safety is a term that refers to the state or condition of being protected from some kind
of risk, injury or danger.
Welfare: Availability of resources and presence of conditions required for reasonably
comfortable, healthy, and secure living.
5.13 Answers to Check Your Progress

(1) Occupier (2) Section 4 (3) 15 (4) Section 11 (5) Overcrowding (6) Section 19
1. Discuss the various provisions governing working hours of adults?
2. What are the provisions for giant of annual leave with pay?
3. Discuss the provisions for overtime wages?
4. Discuss the provisions relating to employment of young persons in factories?
5. Explain the essentials of the definition of worker under the Act.
72
6. Is it necessary for the occupier to get the premises approved when the factory is to be
established?
7. What is the procedure for registration of factories?
8. Enumerate the provisions relating to protection of the health of workers.
5. Enumerate the provisions relating to welfare of workers.
10. Critically examine the provisions for women and children working in a factory.
 Factories Act 1948
 S.C. Srivastava, Commentaries on the Factories Act, (1948), Universal Book
Company, New Delhi (1999).
 B.R. Seth, Indian Lahour Laws A Supervisor should know. Revised Eleventh Edition
1997, All India Management Association, Delhi
 Davis, J E (2012). Labour Laws. General Books.
 Kumar, H.L. (2010). Labour Laws. Universal Law Publishing.
 Davidov, Guy & Langille, Brian (2011). The Idea of Labour Law. Oxford University
Press.
 Singh, B.D. (2009). Labour Laws for Managers. Excel Books India.
 Rao, VSP (2008). Industrial Relations & Labour Laws. Excel Books.
73
LESSON – 6
The Payment of Wages Act, 1936
Structure
6.1 Introduction
6.2 Objectives of the Act
6.3 Salient Features
6.4 Definitions
6.5 Application
6.6 Responsibility for Payment of Wages
6.7 Fixation of Wage Period
6.8 Medium of Payment of Wages
6.9 Authorised deductions
6.10 Illegal deductions
6.11 Prevention and Recovery of illegal deductions
6.12 Authorities & Appellate Authority
6.13 Summary
6.14 Glossary
6.15 Test Questions
LEARNING OBJECTIVES:
After studying this lesson, you will be able to:
 Understand the object of the Act
 Understand meaning of wages and Payment of wages
 Know Application of the Act
 Know about the authorities and appellate authorities.
6.1 INTRODUCTION
Before the enactment of this Act, many evils relating to wages were prevalent at that
time an attempt was made to remedy some of the evils. Hence, the need to protect the wages
earned by the worker had been felt by the government in 1926 and The Royal Commission on
Labour was constituted to made some valuable recommendations regarding protection of
wages. This Act is mostly based on those recommendations. A Bill of Payment of wages Act
was introduced in the legislative assembly in 1933 but could not come into existence because
74
of the dissolution of the Assembly. The Act was passed in 1936 and came into force on 21st
March, 1937.
6.2 OBJECTIVES OF THE ACT
The objective of the payment of wages Act, 1936 is to regulate the payment of wages
to certain classes of employed persons. It provides regulation in two folds:
1. Payment of wages without delays and
2. Payment without unauthorised deductions.
Regular payment of wages without unauthorised deductions to the employees create
harmonious and cordial relations between the employer and employees. This Act also aims at
recovery of unpaid wages by the employed persons by simple and speedy procedure.
6.3 SALIENT FEATURES OF THE ACT
The Act clearly lays down the essential elements in the payment, its mode and its
enforcement. The Salient features of the Act are as:
1. The wages required to be paid must be disbursed to the workers by any person
designated with such responsibility in the establishment.
2. The payment must be made before the 7th or 10th day of the month.
3. The payment may be done in currency, using cheques, or by crediting the bank
account wages in kind is not allowed.
4. Only the deductions authorised by law can be made from the wages of workers.
5. An employer is required to maintain a prescribed register containing the
particulars of the employees for three years after the last entry is made.
6. The government appoints inspectors for the purpose of this Act, who shall
exercise their functions within assigned local limits.
6.4 DEFINITIONS
1. Factory [Sec.2(ib)]: It means a factory as defined in the Factories Act, 1948.
2. Industrial or Other Establishment [Sec.2(ii)]: It means any (a) Tramway
service, or motor transport service engaged in carrying passengers or goods or
both by road for hire or reward; (b) air transport services other than such
service belonging to or exclusively employed in the military, naval or air force
of the Civil Aviation Department of the Government of India;
(b) Dock;
(c) Inland vessel, mechanically propelled;
(d) Mine, quarry or oil field;
(e) Plantation
75
(f) workshop or other establishment in which article are produced, adapted
or manufactured, with a view to their use, transport or sale:
(g) Establishment in which any work relating to the construction
development or maintenance of buildings, roads, bridges or canals, or
relating to operation connected with navigation, irrigation or the supply
of water or relating to the generation, transmission and distribution of
electricity or any other form of power is being carried on; In the Tamil
Nadu Water Supply and Drainage Board and another v. M.D.
Vijayakumar and others,1 the Tamil Nadu Water Supply and Drainage
Board was created for regulation and development of drinking water
and drainage in the State of Tamil Nadu. It was held that in view of
Clause (g) of Section 2(ii) and the statement of objects and reasons
under which the Board has been created, it is clear that the Board is an
establishment in which work relating to operations connected with
supply of water is being carried on and consequently it is an
establishment within the meaning of Section 2(ii)(g) of the Payment of
Wages Act. )
(h) Any other establishment or class or establishments which the Central
Government or a State Government may, having regard to the nature
thereof, the need for protection of persons employed therein and other
relevant circumstances, specified, by notification in the Official
Gazette.
In K.L. Garg vs. New India Assurance Co. Ltd. and others,2 the
petitioner an employee of the New India Assurance Company was
dismissed from service. He filed an application under Section 15(2) of
the Payment of Wages Act for the recovery of Rs. 1350/- as an ex
gratia in lieu of bonus along with interest amounting to Rs. 1267/- i.e.,
a total of Rs. 2617. He also claimed compensation at ten times the
wages. The wages deducted i.e., a sum of Rs. 2617. It was held that the
provisions of the Payment of Wages Act, 1936 are not applicable to the
Insurance company as it does not fall within the definition of
1
. (1991) I L.L.J. 260 (Madras)
2
. (1992) I L.L.J. 190 (P & H)
76
“Industrial or other establishment” as defined in Section 2(ii) of the
Payment of Wages Act. No notification as contemplated in clause (h) of
Section 2(ii) has been issued either by the Central or State
Government. In the absence of any such notification, no application as
such was maintainable under Section 15 of the Act against the
Insurance Company.
6. WAGES [Sec.2(vi)]; ‗Wages‘ means all‘ remuneration whether by way of
salary, allowances of otherwise expressed in terms of money or capable of
being so expressed.
The definition of expression ‗wages‘ is made sufficiently wide by
including within the expression:
(a) Any remuneration payable under any award or settlement between the
parties, or order of court.
(b) Any remuneration to which the person employed is entitled in respect
of overtime work or holiday‘s or any leave period;
(c) Any additional remuneration payable, under the terms of employment
(whether called a bonus or by any other name);
(d) Any sum which by reason of the termination of employment of the
person employed is liable under any law, contract or instrument which
provides for the payment of such sum, whether with or without
deductions, but does not provide for the time within which the payment
is to be made.
(e) Any sum to which the person employed is entitled under, any scheme
framed under any law for the time being in force'.
(1) The value of any house accommodation, or the supply of tight, water,
medical attendance or other amenity or of any service excluded from
the computation of wages by a general or special order of the State
Government:
(2) Any contribution paid by the employer in any pension or provident
fund, and the interest which may have accrued thereon;
(3) Any travelling allowance or the value of any travelling concession;
(4) Any sum paid to the employed person to defray special expenses
entailed on him by the nature of his employment:
77
(5) Any gratuity payable on the termination of employment in cases other
than those specified in clause (d) above. From this, it is understood that
the legislator‘s intent is to safeguard the interest of the worker by
making provisions for wages and benefits and thus provide economic
security. It was held in State of Rajasthan and Others v. Bhawani
Shankar and Another,3 that remuneration payable under the Labour
Court award setting aside termination of workman‘s service would be
wages. Any claim for it was held to be maintainable under the Payment
of Wages, 1936. It was further held that the workman could avail
remedy either under the Payment of Wages Act or the Industrial
Disputes Act, 1947. The amount of lay-off compensation under
Section 25-C of the Industrial Disputes Act, 1947, does not come
within the definition of wages as given in this Act.4 Where the rule
framed under the Motor Transport Workers Act, 1961 provided that
each member of certain class of staff is entitled, as a part of a uniform,
two pairs of Pathani chappals a year, the claim relating to value of
Pathani chappals would fall within the definition of wages.5 It was held
in K.L. Garg v. New India Assurance Co. Ltd. and others, 6 that an
application for recovery of loan was not maintainable as loan did not
fall within the definition of wages under Section 2(vi) of the Payment
of Wages Act, 1936 nor the amount claimed could be said to be a
deduction as provided under Section 7 of the Act. In Payment of
Wages Inspector v. B.E.S. & Co.,7 the Supreme Court observed that,
―A workman whose service is terminated in consequence of transfer of
an undertaking whether by agreement or by operation of law has a
statutory right under Section 25-F of the Industrial Disputes Act 1947,
to compensation unless such right is defeated under proviso to that
section. The same is the position in the case of closure under Section
25-FFF of that Act. Such compensation would be wages as defined by
3
. (2005) I L.L.J. 1011 (Raj.).
4
. Trichinopoly Mills Ltd. v. Swaminaihan and others, (1956) I L.L.J. 269 (Mad); Refer also to Anusuyabai v.
J.H. Mehta, AIR 1960 Bom 201.
5
. S.R.T. Corporation v. Industrial Court, AIR 1971 MB 54.
6
. (1992) I L.L.J. 190 (P & H).
7
. AIR 1969 SC 590.
78
Section 2(vi)(d) of the Payment of Wages Act, 1936, as it is sum which
by reason of the termination of employment of the person employed, is
payable under any law... which provides for the payment of such sum
whether with or without deduction but does not provide for the time
within which the payment is to be made‖. It was held in Purshottam v.
Potadar,8 that expression by reason of the termination of employment
in sub-clause (d) of Section 2(vi) must in the context have the same
meaning as the expression, ‗payable on the termination of
employment‘ which is used in sub-clause (b). In other words gratuity
which may be payable to an employee by reason of the termination of
the employment would fall under sub-clause (b) provided it is shown
that it is payable under any law, contract, or instrument. It is true that
an award made by industrial adjudication framing a scheme of gratuity
becomes enforceable under Sections 18 and 19 of the Industrial
Disputes Act and in that sense it is a scheme which is enforceable by
virtue of the operation of law. But that would not justify the conclusion
that the gratuity itself is payable under any law. It is payable under an
award which is made enforceable by Section 18 of the Industrial
Disputes Act. Therefore, it cannot be said that the gratuity under an
award is payable under any law. Having regard to the object which the
legislature had in mind in widening the scope of the definition it would
not be unreasonable to hold that the word ‗instrument‘ has a wider
denotation in the context and cannot be confined only to documents
executed as between the parties. The scheme of the definition and the
context of sub-clause (d) read with sub-clause (6) seems to suggest that
the word ‗instrument‘ would include awards made by Industrial Courts
of competent jurisdiction.9 When an award is made and it prescribes a
new wage structure, in law the old contractual wage structure becomes
inoperative and its place is taken by the wage structure prescribed by
the award.10 When industrial disputes are decided by industrial
adjudication and awards are made, the said awards supplant contractual
8
.AIR 1966 SC 856.
9
.Ibid.
10
. Md. Quasim Larry v. Muhammad Samsuddin, AIR 1964 SC 1999.
79
terms in respect of matters covered by them and are substituted for
them. Therefore, the term ‗wages‘ as defined in Section 2(vi), of the
Payment of Wages Act, 1936, as it stood prior to its amendment in
1957, includes wages fixed by an award. Though it is well settled that
awards have on many occasions the effect of altering or modifying the
contractual terms of employment between an industrial employer and
his employees, it would be difficult to hold that the award as such is a
contract.11
6.5 APPLICATION OF THE ACT

The Act extends to the whole of India. This Act provides for its application:
1) In the first instance
2) By the notification by the Government
This Act applies in the first instance to the payment of wages to persons employed in
any factory, persons employed upon railways by a railway administration and persons
employed in an industrial or other establishment specified in sub-clause(a) to (g) of clause (ii)
of sec. 2.
The Act may be applied to any industrial or other establishment other than those
specified under sec.2(ii)(a) to (g) by the central or state government by notification in the
official gazette.
The appropriate govt. May, after giving three months notice of its intention of so
doing, by notification in the official gazette, extend the provisions of this Act or apply any of
them to the payment of wages to any class of persons employed in any establishment.
6.6 RESPONSIBIUTY FOR PAYMENT OF WAGES
Every employer shall be responsible for the payment to persons employed by him of
all wages required to be paid under the Payment of Wages Act, 1936 (Sec.3) The following
persons shall also be responsible for the payment of wages.
(a) In factories, the person named as the manager;
(b) In industrial or other establishment, the person, if any, who responsible to the
employer for the supervision and control of the industrial or other
establishment:
11
. Purshottam v. Potadar, AIR 1966 SC 856.
80
(c) Upon railways (otherwise than in factories), the person nominated by the
railway administration in his behalf for the local area concerned (Provision to
Sec.3).
(d) In the case of contractor, a person designated by such contractor who is
directly under his charge; and
(e) In any other case, a person designated by the employer shall be responsible for
such payment.
In Cominco Binani Zinc Ltd. v. Pappachan,12 the appellant company was
obliged to provide and maintain a canteen for its employees. The company
entrusted the running of a canteen to the contractor. It was held that the
responsibility to provide and maintain a canteen under Section 46 of the
Factories Act cannot make the management the ultimate employer for the
worker engaged in the canteen for all purposes. They are not workmen of the
management. Therefore the liability of the principal employer is restricted
only to pay wages if contractor fails to pay the same by virtue of Contract
Labour Act, 1970. In Agarwala P.C. v. Payment of Wages Inspector, M.P. and
Others13 Jiyajirao Cotton Mills became a sick company. It owed to its
workmen wages for certain periods. Payment of Wages Inspector initiated
action under Section 15 of the Payment of Wages Act, 1936 against the
Directors of the Company. The authorities under the Act held the Directors
personally liable to pay the wages. That was affirmed by the High Court. The
Directors filed appeal challenging the judgment of the High Court. They were
allowed and the appeals filed by the functionaries under the Act were
dismissed. Referring to the provisions of the Act as amended by Madhya
Pradesh Act, 1964, the Supreme Court observed that the High Court held the
appellant Directors liable by introducing the expression “occupier” used in
the Factories Act, 1948 and not in the Payment of Wages Act, 1936. The basic
premises on which the High Court proceeded were clearly untenable. On a
plain reading of the Payment of Wages Act it could not be held that Directors
had any personal liability.
6.7 FIXATION OF WAGE PERIOD
12
. (1989) I L.L.J. 452 (Kerala).
13
. 2005 III L.L.J. 1077 (S.C.).
81
Every person responsible for the payment of wages under Sec.3 shall fix periods
known as wages-periods, in respect of which such wages shall be payable [Sec.4(1)]. No
wage period shall exceed one month.
Time of payment of wages (sec.5s): The rules relating to time of payment of wages
are as
follows:
1. Wages to be paid before 7th or 10th day: The wages of every person employed
upon or in any railway, factory or industrial or other establishment upon or in
which less than 1,000 persons are employed, shall be paid before the expiry of
the seventh day of the following wage-period. In case the number of workers
exceeds 1,000 the wages shall be paid before the expiry of the tenth day of the
following wage-period [Sec.5 (1)].
2. Wages in case of termination of employment: Where the employment of any
person in terminated by or on behalf of the employer, the wages earned by him
shall be paid before the expiry of the second working day from the day on
which his employment is terminated.
6. Exemption: The State Government may, by general or special order, exempt
the person responsible for the payment of wages from the operation of the
above provisions in certain cases [Sec.5(3)]. No such order shall be made
exception consultation with the central govt.
4. Wages to be paid on a working day: All payment of wages shall be made on
working day [(Sec.5(4)].
6.8 MEDIUM OF PAYMENT OF WAGES
All wages shall be paid in current coin or currency notes or in both. Payment of wages
in kind is not permitted. The process of payment of wages in cash is very cumbersome where
the number of workers is very large. It is also risky where the sum involved is large and the
factory or industrial establishment is situated at a remote place. In order to obviate these
difficulties and save the workers from carrying cash on the pay day and mis- speed it, a
provisions has been added to Sec.6 by the Payment of Wages (Amendment) Act, 1976.
According to it, the employer may after obtaining the written authorisation of the employed
person, pay him the wages either by cheque or by crediting the wages in his bank account, the
provision in Amendment Act for paying wages by cheque or depositing wages in bank
account will also inculcate the banking habit among the workers and also make the process of
payment simpler for employer.
82
6.9 AUTHORISED DEDUCTIONS:
Section 7 to 13 of the Act deal with permissible and non-permissible deduction which
can be made from the wages of the worker.
The wages of an employed person shall be paid to him without deduction of anything
except those which are authorised by or under this Act. Every payment made by an employed
person to his employer or agent is deemed to be a deduction.
The following deductions are permitted :
6.9.1 FINES: Deduction by way of lines from the wages of an employed person shall be
made only in accordance with the provisions of the Act, which are as follows :
(a) An employed person can be fined only for acts and omissions which are
specified in a list which is approved by the State Government or the prescribed
authority.
(b) The list must be exhibited in the place of work.
(c) Before the fine is imposed on an employed person he must be given an
opportunity of showing cause why the fine should not be imposed.
(d) The total amount of the fine which can be imposed upon person in any wage
period must not exceed an amount equal to three percent of the wages payable
to him during the wage period.
(e) No fine can be imposed on a person who is below the age of 15 years.
(f) No fine can be recovered by instalment or after the expiry of ninety days from
the day on which it was imposed.
(g) Every fine shall be deemed to have been imposed on the day of the act or
omission in respect of which it is imposed.
(h) All fines and realization thereof shall be recorded in a register to be kept by
the person responsible for the payment of wages in the form as may be
prescribed. All such realisation shall be applied only to such purpose as are
beneficial to the person employed in the factory and are approved by
prescribed authority.
6.9.2 Deductions for Absence from Duty: Deduction from wages are permitted for
absence from duty. Absence from duty means ―absence from the place where the employed
person is required to work.‖ If the employed person though present at such place, refuses to
perform his work in pursuance of a stay-in-strike, of for any other cause which is not
reasonable he is deemed to be absent from duty. The ratio between the amount of such
deduction and the wages payable must not exceed the, ratio between the period of absence
83
and the total period. In the Bank of India, Bombay and another v. T.S. Kelawala Bombay and
others,14 the Bank employees demanded wage revision and pending acceptance of demand
decided to go on 4 hours strike daily. Bank issued a circular to deduct full day‘s wages of
such employees who participated in the strike. It was held that strikes and demonstrations are
legitimate forms of protest and they are not banned in this country. By an administrative
circular the legitimate mode of protest allowed and recognized by law cannot be stifled. It
was further held that Payment of Wages Act is regulatory. Section 7(2) read with Section 9 of
the Act provides the circumstances under which and the extent to which deduction can be
made. It is only when the employer has right to make deduction, resort should be had to the
Act to ascertain the extent to which the deduction can be made. No deduction exceeding the
limit provided by the Act is permissible even if the contract so provides. There cannot be any
contract contrary to or in terms wider than the import of Sections 7 and 9 of the Act.
Therefore wage deduction cannot be made under Section 7(2) of the Payment of Wages Act
if there is no such power to the employer under the terms of contract. 15 In Surendranathan
Nair and others v. Senior Divisional Personal Officer (Rlys.)16 some of the railway
employees had applied for casual leave for participating in an agitation against the Railway
Administration. The leave was refused but the employees participated in the agitation. The
management deducted the wages treating the period of leave applied for as absence from
duty. It was held that the leave rules to the railway employees are contained in the Railway
Establishment Code and the rules made there under. The Code derives its authority from
Article 309 of the Constitution and the rules are made under the delegated power. These rules
have general application to all non-gazetted railway servants. Rejection of leave under such
circumstances was legal and proper. Absence from duty, especially for the purpose of
participation in an agitation against the management is unauthorised. An unauthorised
absentee has no right to compel payment of wages for the period of unauthorised absence. In
Mineral Miner's Union v. Kudremukh Iron Ore Co. Ltd.17 it was held by the Karnataka High
Court that deduction of wages for the strike period is justified provided strike was illegal. In
French Motor Car Co. Ltd. Workers Union v. French Motor Car Co. Ltd.,18 three questions
have been decided. Some employees of the company indulged in go slow and resorted to
strike for 3 days and 29 employees were not allowed by the employer to resume work unless
14
. (1988) II L.L.J. 264 (Bom).
15
. Bank of India, Bombay and another v. T.S. Kelawala Bombay and others, (1988) II L.L.J. 264 (Bom).
16
. (1988) I L.L.J. 227 (Kerala).
17
. (1989) I L.L.J. 227 (Karn).
18
. (1991) I L.L.J. 107 (Gauhati).
84
they sign a guarantee bond. It has been held that on the principle of ‗no work no pay‘ the
management was justified in deducting the wages of 3 days i.e., the strike period. Further the
authority under the Payment of Wages Act is not competent to examine whether the strike
was legal or not. The wages of the workmen could be deducted under Section 7(2)(b) for
absence from duty. However, the absence from duty by an employee must be voluntary and it
cannot cover his absence when he is forced by circumstances created by the employer from
carrying out his duty. Therefore no deduction can be made from wages of 29 employees
whose absence was not voluntary, inasmuch as they were not allowed to resume their work
without signing the guarantee bond. The third question related to non-payment of variable.
D.A. and the case of employees was that such non-payment should be treated as deduction. It
was held that the question whether the employees are entitled to get variable D.A. or not
cannot be treated as deduction, and as such, the wage court has no jurisdiction to entertain
this claim.
(a) deduction for damage to or loss of goods expressly entrusted to the employed
person for custody; or for loss of money for which he is required to account,
where such damage or loss is directly attributable to his neglect or default;
(b) deduction for house accommodation supplied by the employer or by
Government or any housing Board set up under any law for the time being in
force (whether the Government or the Board is employer or not) or any other
authority engaged in the business of subsidising house accommodation which
may be specified in this behalf by the State Government by notification in the
official Gazette;
(c) deduction for such amenities and services supplied by the employer as the
State Government or any officer specified by it in this behalf may by general
or special order authorise.
Explanation.—The word ―services‖ in this sub-clause does not include the
supply of tools and raw material required for the purposes of employment;
(d) deductions for recovery of advances of whatever nature (including advances
for travelling allowance) and the interest due in respect thereof, or for an
adjustment of overpayments of wages.
6.9.3 Deduction for Damage or loss: Deduction from wages are permitted for damage or
loss of goods expressly entrusted to the employed person for custody or for loss of money
which he is required to account where such loss is directly attributable to his neglect or
85
default. A deduction shall not be made until the employed person has been given an
opportunity of showing cause against the deduction.
A deduction shall not exceed the amount of damage or loss caused to the employer.
All deductions and realisation thereof must be recorded in a register.
6.9.4 Deductions for Recovery of Advances and Overpayment of Wages: Deduction are
permitted for recovery of advances or for adjustments of overpayment of wages:
(a) Recovery of advance of money given before the employment began shall be
made from the first payment of wages in respect of a complete wage-period
but no recovery shall be made or such advances given for travelling expenses
and (b) Recovery of advances of wages not already earned shall be subject to
rules made by the State Government.
6.9.5 Deduction for Income Tax: Payable by the Employed Person Deduction can be
made for income-tax payable by an employed person.
6.9.6 Deductions by Orders of The Court: If any deduction is directed by the court (e.g.
in execution of a decree against the employed person, it must be done). In Municipal
Corporation v. N.L. Abhyankar,19 a representative Union requested the employer to collect
levies from the employee and remit the same to it. The employer refused to do so and the
Union made an application to the Labour Court requesting the Court to order the employer to
accept their request. The Labour Court ordered the employer to collect the levy as requested
by the Union. In appeal the employer's contention was that no deductions other than those
permissible under the Act can be made. It was held that while it is correct that no deductions
can be made from the wages of an employee, other than those deductions which have been
specifically set out in Section 7(2) of the Act, clause (h) of sub-section (2) of Section 7
clearly allows deduction ―required to be made by order of a Court or other authorities
competent to make such order‖. In view of this the Industrial Court or Labour Court are
competent to make the order for deduction. In the Manager, Rajapalayam Mills Ltd. v.
Labour Court, Madurai and another,20 an employee resigned from service. While in service
the employee had taken loan for house building. The employer, after the resignation of the
employee adjusted certain salary amount due to be paid to the employee against the house
building loan. In a claim for salary by the employee it was held that after resignation the
employee ceased to be in the employment and therefore, his relationship with the employee
after resignation will be governed by the Contract Act and the provisions of sub-sections (1)
19
. (1979) II L.L.J. 258 (Bombay).
20
. (1987) II L.L.J. 59 (Mad).
86
to (3) of Section 7 of the Payment of Wages Act will not apply. In such a case it would be
open to the employer to adjust the entire amount due on account of wages under Section 7(4)
of the Payment of Wages Act. In Nathulal v. M.P. State Road Transport Corporation and
others,21 a driver in the employment of Madhya Pradesh State Road Transport Corporation
was found responsible for causing accident and was directed to pay Rs. 3,700/- as damages to
Transport Corporation and the same was directed to be deducted in monthly installments of
Rs. 25/- from his salary. This order was challenged by the petitioner. It was held that section
7(2)(c) of the Payment of Wages Act permits deduction for damages only when the damages
or loss is directly attributable to the negligence or default of the employee and in order to
hold an employee negligent it is essential that he should be afforded an opportunity of being
heard against such a charge. In the present case no such opportunity has been given to the
petitioner employee and therefore the order of deduction is liable to be quashed.
6.9.7 Deductions for Provident Fund: Deduction may be made of the contribution
payable by the employed person to the provident fund.
6.9.8 Deduction for Payment to Co-Operative Societies and Insurance Schemes:
Deduction may be made for payments to cooperative societies or to a scheme of insurance
maintained.
6.9.9 Deductions for House Accommodation: Deduction made for house accommodation
supplied by the employer or by the Government or any Housing Board set-up under any law
in force.
6.9.10 Deductions for Acceptance of Counterfeit Base Coin: Deductions for recovery of
losses sustained by a railway administration on account of acceptances by the employed
person of counterfiet or base coins or mutilated, or forged currency notes.
6.9.11 Deductions for Recovery of Losses Resulting From Failure to Invoice or to
Collect: Deductions for the recovery of the losses sustained by railway administration
because of the failure of the employed person to invoice, to bill to collector to account for the
appropriate charges due to that administration whether in respect of fares, freight,
demurrange, wharfage or carriage, or in respect of sale of food in catering establishments or
in respect of sale of commodities in grain shops or otherwise.
6.9.12 Deduction for incorrect Rebates or Refunds: Deductions for the recovery of the
losses sustained by a railway administration on account of any rebates of refunds incorrectly
21
. (1986) II L.L.J. 255 (MP).
87
granted by the employed person where such loss is directly attributable to his neglect or
default.
6.9.13 Other Deductions:
(a) Deductions made with the written authorisation of:
(i) The employed person or
(ii) The president or secretary of the registered trade union of which the employed
person is a member, for contribution to the National
(b) Relief Fund or any defence Savings Scheme.
(c) Deduction made with the authorisation of the person employed for payment of
any premium on his life insurance policy or for the purchase of the securities
of the Government of India, or for deposits in the Post Office Saving Bank.
6.10 ILLEGAL DEDUCTIONS
6.10.1 Illegal deduction: There are some other deductions which may considered as any
deductions other than those authorised under section 7 of the Act would constitute illegal
deductions. Examples of illegal deductions are as follows:
(1) When an employer deducts from the wages of an employed person any amount of
damage to or loss of goods expressly entrusted to him for custody, or for loss of money for
which he is required to account, where such damage or loss is not directly attributable to his
neglect or default, then deduction would considered as illegal deduction.
(2) Where deductions are made from the wage of the person employed for tools or
raw materials supplied to him required for the purpose of employment, such deduction would
constitute illegal deductions.
(3) Deductions made from the wages of person employed for recovery of losses
sustained by railway administration on account of any rebates or refunds incorrectly granted
by the employed person where such loss is not directly attributable to the neglect or default of
an employed person in such cases deductions would constitute illegal deductions.
(4) Deduction made for payment of any premium on a life insurance policy without
the written authorisation of the employed person or any dependent of employed person, then
such deduction would considered illegal deductions.
(5) Where deductions, wholly or partly made for payment to cooperative societies,
exceed 75% of the wages and in any other case exceed 50% of the wages, such excess
deductions would constitute illegal deduction.
88
Activity 1
Highlight the various provision of deduction from wages for the following reasons:
1. Deduction for absence of duty
__________________________________________________________________
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2. Deduction for Income Tax
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__________________________________________________________________
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3. Deduction for provident fund
__________________________________________________________________
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__________________________________________________________________
__

I. Fill in the blanks
(a) Wage-period (____________) exceed one month.
(b) Appropriate Govt. is (________________________)
(c) The payment of wages must be paid (_________________) of the month.
(d) Inspectors are appointed by (___________________)
(e) (_________) has right to appeal within (__________) days from the date on
which order or direction was made by the authority.
Answers to Check your Progress A
(a) Shall not

(b) Central or State Govt.
(c) Before 7th or 10th day
(d) The Govt.
(e) Both employers or employed, 30 days
89
6.11 PREVENTION AND RECOVERY OF WRONGFUL DEDUCTIONS
Law does not allow an employer to make any type of deduction out of the wages of a
worker except those authorised by this Act. The following rules provide for the prevention
and recovery of wrongful deductions made by the employer out of the wages of worker:
1. An employer who is found to have acted in contravention of the provisions of this
Act and has either made wrongful deductions or has delayed the payment of wages may be
punished with a fine upto Rs. 500.
2. According to Sec. 15 where any wrongful deduction have been made from the
wages of a worker or any payment of wages to the worker has been delayed, legal
practitioner or an officer of a trade union duly authorised by the worker to act his behalf or
Inspector of Factories may, within 12 months of the date of deduction or the date on which
the payment or wages was due apply to the prescribed authority for a deduction. If the
application is made after the period of 12 months. If may be admitted if the authority is
satisfied that the delay was on account of judicial experience to hear and decide such
application for refund of deductions wrongly made out of the wages of a worker. Prescribed
authority will give opportunity to both the parties to explain their position and if the claim for
refined of wrongful deductions of wages of the worker is proved, it shall direct the employer
to pay to the worker the amount wrongfully deducted plus compensation upto ten times the
amount so withheld or an amount upto Rs.25 per worker where payment of wages was
wrongfully delayed. Compensation can be ordered to be paid only along with the delayed
wages. No compensation can be ordered to be paid only along with the delayed wages. No
compensation shall be payable if the delayed wages have already been paid before the
making of an application for direction by the worker before the prescribed authority. An
order for the payment of compensation independently of an order for payment of delayed
wages cannot be made. Application can be made only for the recovery of delayed wages and
Industrial Tribunal because the latter amount is not included in the definition of the term
wages.
6.12 AUTHORITIES & APPELLATE AUTHORITY
The Act provides for the appointment of inspectors for the purpose of this Act. He
helps in the enforcement of provision of this Act. He has all the powers of inquiring,
searching & seizing the registers and documents in order to ascertain whether the provisions
of this Act or rules made there under are observed.
Sec.15 of this Act provides for the appointment of any authority to hear and decide
the claims of persons employed in that area. Such authority shall decide all the matters
90
incidental to such claims. The appropriate govt. may appoint such authority for any specified
area by notification in the official gazette. Procedure before the authority appointed begins
when the employed person files on application to the authority. The application must be made
within 12 months from the date on which the deduction from the wages was made or the
payment of the wages was due to be made.
The Act also provides for appellate authority under Sec. 17 to appeal against the
orders and directions of the authority appointed under Sec.15. Both the employer and
employee has a right to appeal within 30 days from the date on which the order or direction
was made by the authority. Such a person may file on appeal only if the memorandum of
appeal is accompanied by a certificate by the authority to the effect that the appellant has
deposited the amount payable under the direction appealed against.
In Rakesh Kumar Jaiswal alias Guddu v. Prescribed Authority (Payment of Wages
Act) Deoria and others,22 the prescribed authority under the Payment of Wages Act, 1936
allowed the workman‘s application for payment of wages and compensation under Sections
16 and 15(2) of the Act. Aggrieved by the said order the employer made an application for
recalling of ex parte order dated October 18, 1995. This application was rejected by
respondent No. 1 on the ground of limitation. Thereafter, employer preferred an appeal under
Order XLIII of the Civil Procedure Code before respondent No. 2 praying that order dated
October 18, 1995 has been passed ex parte and the restoration application has also been
rejected by respondent No. 1. The respondent No. 1 while rejecting the restoration application
filed by the employer observed that the order dated October 18, 1995 has been passed after
hearing both the parties and the employer was directed to pay wages and compensation with
cost within one month. But the employer instead of paying the wages etc. to the workman has
filed this restoration application after the expiry of limitation period. The employer has stated
before respondent No. 2 that the application dated December 21, 1995 was filed under Order
IX, Rule XIII of the C.P. Code for setting aside the ex parte order passed against petitioner
and therefore the employer is entitled to file an appeal under Order XLIII of Code of Civil
Procedure and that is why this appeal has not been filed under Section 17 of the Payment of
Wages Act.
The High Court held that the respondent No. 2 while dealing with the matter has
observed that since restoration application filed under Rule 8 of the Payment of Wages
(Procedure) Rules, 1937 has already been rejected by the Prescribed Authority on the ground
22
. (2002) III L.L.J. 369 (All.).
91
of limitation, therefore no appeal will lie against the impugned order as the said rule do not
say that an appeal will lie against the order of rejection of the application for setting aside an
ex parte order and has dismissed the appeal filed by the employer. The High Court, therefore,
held that the order passed by the respondents did not warrant interference and hence the
petition was dismissed.
Section 17(2) lays down that any order dismissing either wholly or in part an
application made under Section 15(2) or a direction made under Section 15(3) or Section
15(4) shall be final unless an appeal under Section 17(1) is preferred against any such order
or direction. Section 17(3) provides that where an employer prefers an appeal under this
section, the authority against whose decision the appeal is filed may, pending the decision of
the appeal, withhold payment of any sum in deposit with it. Where a direction to withhold
payment of such sum is made by the Court of Appeal such authority shall, and in other cases,
may withhold payment of any sum so deposited with it.
Section 17(4) lays down that the Court of Appeal as referred to in Section 17(1) may
in its discretion, submit any question of law for the decision of the High Court. Where any
such question is so referred, the Court of Appeal shall decide the matter in conformity with
the decision of the High Court.
In Hajari Rain vs. Khadi Mandir, Bikaner,23 an application under Section 15(2) was
filed after the expiry of the limitation period. The application for condonation of delay was
granted by the Authority. It was held that the appellate court can decide the correctness of the
order of condonation of delay. It was further pointed out that for condoning delay, reasons are
necessary and such reasons are to be supported by evidence. If the Authority while condoning
the delay in making an application, fails to record the reasons for condonation, the order
granting condonation is liable to be set aside. In Laxman Panda v. Chief Mechanical
Engineer, W. Rly.24 it was held that the employer or the other person under Section 17(1)(a)
may file an appeal if the total sum directed to be paid to a single worker by way of wages and
compensation exceeds rupees three hundred; there is no right of appeal if the sum exceeding
rupees three hundred is directed to be paid collectively to an unpaid group of workers. An
appeal may also be preferred where an application for claim is dismissed on merits, that is
where he is held not to be entitled to the amount as claimed by him. The employee has a right
23
. AIR 1979 Raj 76. However in Prem Narayan Varma v. D.T.M. Bhusawal, AIR 1954 Bom 78, it was held
that no appeal can be filed against an order of the Authority condoning the delay in filing the application for
claims.
24
. (1955) II L.L.J. 5.
92
of appeal provided that claims application is entertained by the authority, but a direction on
the merits of the applications is refused.25 But where the application is dismissed not on
merits but on the ground that the authority has no jurisdiction to entertain the application
there is no refusal to give direction and therefore there is no right of appeal against such an
order. It was held in Daru v. Manager, Ahmedabad Spinning and Manufacturing Co. Ltd.26
that Section 17(1) provides a right of appeal to the District Court and there is no further right
of appeal under the Act. Therefore only a revision application may be made to the High Court
under Section 115 of the Civil Procedure Code; but in the opinion of the Bombay High Court
it would be better if the decisions under the Payment of Wages Act are challenged under
Article 227 of the Constitution.27
In Hajari Ram v. Khadi Mandir, Bikaner,28 an appeal under Section 17 was filed. The
amount to be deposited in view of the direction under Section 15(3) was deposited by a
cheque before the time for an appeal had expired. The Authority issued the certificate on the
same date on which the cheque was produced. The Authority, by treating the cheque as valid
tender, stated in the certificate that the amount has been deposited in pursuance of the
direction issued by it. The certificate was filed along with the memo of appeal. However the
cheque was encashed after the period of limitation for filing the appeal had expired. It was
held that this was sufficient compliance with the provisions of Section 17(1-A). It could not
be said that the certificate could only be issued by the Authority after encashment of the
cheque.
It was held in Executive Engineer U.P.S.E.B. v. Prescribed Authority and others,29
that if statute prescribed thing to be done in a particular manner, it has to be done in that
manner and not otherwise. Section 17 of the Payment of Wages Act provides that no appeal
shall lie unless the memorandum of appeal is accompanied by a certificate by the authority to
the effect that the appellant has deposited the amount payable under the direction appealed
against. The High Court observed that in the present case the prescribed certificate of deposit
of amount payable under the order appealed against did not accompany the memorandum of
appeal nor was the amount subsequently deposited within the limitation period. Therefore,
the question of application of ―Section 29(2) of the Limitation Act, 1963 would not arise.
Hence the appeal was not maintainable.
25
. C.S. Lal v. Shaikh Badshah, 56 Bom LR 895.
26
. (1955) I L.L.J. 555.
27
. Dani v. Manager, Ahmedabad Spinning and Manufacturing Co. Ltd., (1995) I L.L.J. 555.
28
. AIR 1979 Raj 76.
29
. (2002) III L.L.J. 142 (All.).
93
In Mohd. Nasir and another v. District Judge, Rajouri and another,30 the appeal was
preferred before the appellate authority against the order of Prescribed Authority without
depositing the amount ordered to be paid under the order appealed against and even then the
Court set aside the award and allowed the appeal. In the present writ petition preferred
against the said setting aside of the award the High Court observed that Section 17(1-A) of
the Payment of Wages Act was mandatory and the appeals under Section 17 of the Act were
not maintainable as they had not complied with that provision.
In U.P. State Electricity Board, Lucknow and others v. District Judge Gorakhpur and
others31 an application under Section 5 of the Limitation Act was made for condoning delay
in filing appeal under Section 17 of the Payment of Wages Act, 1936. The application was
rejected by the District Judge on the ground that Section 5 of the Limitation Act cannot be
called in aid for application to Section 17 of the Payment of Wages Act. Allowing the
petition the High Court observed that the Payment of Wages Act was not a complete Code in
itself and it did not exclude the application of Section 5 of the Limitation Act to proceedings
under the Payment of Wages Act. Hence, the matter was relegated to the lower authority for
decision of the application on merits.
The Act also provides for the penalties for committing offences under the Act. The
state govt. may, by notification in the official gazette, make rules for the purpose of carrying
into effect the provisions of the Act.
Activity 2
Highlight the various provision under different sections for appeal to Authorities and
Appellate Authorities
Appeal u/s 15 Appeal u/s 17
30
. (2002) I L.L.J. 266 (J. & K.).
31
. (2003) I L.L.J. 260 (All.).
94
Check your Progress B
II. True / False
(a) Wages include any contribution paid by the employer to any pension or
provident fund, and the interest that may have accrued thereon.
(b) Wages in kind is allowed
(c) ‗Employed Person‘ includes the legal representative of a deceased employed
person.
(d) Deductions for absence from duty are unauthorised deductions.
(e) Deductions with the consent of employees does not contravene the Act.
Answers to Check your Progress B
1. False
2. False
3. True
4. False
5. True
6.13 SUMMARY
The Payment of wages Act deals with delay in payment of wages and unauthorised
deductions made from wages of people employed in factories, railways and other industrial
establishment. The Act provides the provisions to regulate the payment of wages and
describes the appointment of authorities for enforcement of provisions and decide the claims
under the Act. It also describes the penalties and procedure to deal with complaints made by
the persons employed.
6.14 Glossary
1. Appropriate Govt.: It means the central govt. or the state govt. as the case may
be.
2. Wage-Period: A fixed time period for which the wages are to be paid.
3. Authorised deductions: Deductions which can be legally made from the wages
are known as authorised deductions.
4. Appellate Authority: Authority to whom appeal can be made against the
orders and directions of legally appointed authority.
6.15 REVIEW QUESTIONS
1. Define wages under the payment of Wages Act, 1936.
2. State the authorised and unauthorised deductions given under the Act.
3. What are the major objectives of this Act?
95
4. Describe the authorities and their powers & functions mentioned under the
Act.
5. Discuss remedies and appeals along with suitable case laws?
6.16 SUGGESTED READINGS.
1. A.M. Sharma, 1981, Aspects of Labour Welfare and Social Security, Himalaya
Publishing House; Bombay.
2. S.L. Agarwal, 1980, Labour Regulations Law in India, Macmillan Company of India Ltd.,
New Delhi.
3. S.N. Misra, 1970, Labour & Industrial Laws, Central Law Publications, Allahabad.
4. Bare Acts, The Payment of Wages Act,1936
96
LESSON – 7
The Minimum Wages Act, 1948
Structure

7.1 Introduction
7.3 Applicability of the Act
7.4 Definitions
7.5 Fixation and Revision of Minimum Wages
7.6 Procedure for fixing and Revising Minimum Wages
7.7 Inspectors and their Powers
7.8 Procedure for deciding claims
7.9 Power of the Central Govt. to make rules
7.10 Summary
7.11 Glossary
7.12 Answers to check your progress
7.14 Terminal and model questions
 Understand the object of this Act
 Analyse the fixation and revision of minimum wages
 Know the procedure for fixing, revising and payment of minimum wages
 Have knowledge about authorities and procedure for deciding claims
7.1 INTRODUCTION
In a force competitive market the wages payable to workers is determined by forces of
demand and supply. The Indian labour class besides being illiterate is by and large not
organized to protect its interests in a competitive market where supply of labour is always in
excess of demand. Under such conditions the labour class is unable to protect its legitimate
interests. In a country which is still under developed, the exploitation of labour in certain
industries is a common feature and the labourers are forced to accept the employment on
starvation wages.
97
Therefore the Act was enacted to protect the welfare of the workers in a competitive
market by prescribing for a minimum limit of wages in certain employments. The Act is to
prevent exploitation of the workers and for this purpose, it aims at fixation of minimum
wages which the employer must pay.
7.2 OBJECTIVE OF THE ACT
The object of Minimum Wages Act, 1948 is to fix minimum rates of wages for those
employments where there is a big chance of exploitation of labour or where sweated labour is
most prevalent. These certain employments are specified in Part I and Part II of the schedule
of this Act. More categories of employment can be added under this Act. The Act is directed
against exploitation of the ignorant, less organized and less privileged members of the society
by the employer. It aims to provide social justice to the workmen employed and for that
purpose it aims at fixation of minimum wages which the employer must pay.
The Act provides for fixation by the central govt. of minimum wages for
employments detailed in the schedule of the Act. This Act enjoins upon an employer a
statutory liability to pay minimum wages irrespective of his capacity to pay. The Act
contemplates that minimum wages rates must ensure fulfilment of basic need of the worker
not only for his subsistence and that of his family but also preserve his efficiency as a
workman.
Salient features of the Act: The important features of the Act are:
1. The Act provides for the fixation of:
(a) Minimum time rate of wages
(b) A minimum piece rate, compensation based on a worker's quantitative output or
production, usually an agreed sum per article of work turned out.
(c) A guaranteed time rate and
(d) An overtime rate for different occupations, localities or classes of work and for adults,
adolescents children and apprentices.
2. The minimum rate of wages and a cost of living allowance or
(i) A basic rate of wages and a cost of living allowance or
(ii) A basic rate of wages with or without the cost of living allowance and the cash value
of the concessions in respect of essential commodities supplied at concessional rates.
(3) The Act lays down that wages shall be paid in cash although it empowers the
appropriate government to authorise the payment of minimum wages either wholly or
partly in kind in particular cases.
98
(4) It provides that the competent authority shall compute the concessions for supplies of
essential commodities and the cost of living allowance to be paid to the employees at
certain intervals. In case of undertaking controlled by the Union Territories and central
government, the Director Labour Bureau is the competent authority.
(5) The Act empowers the appropriate government to fix the number of hours of work per
day, to provide for a weekly holidays and the payment of overtime wages.
(6) The Act lays down for appointment of inspectors and other authorities to hear and
decide claims arising out of payment of wages less than minimum rates of wages and
other matter regarding rest or overtime.
(7) All establishment covered by the Act are required to maintain registers and office
records in the prescribed manner.
(8) The Act provides the procedure for dealing with complaints arising out of the violation
of the provisions of the Act and for Imposing polities for offences committed under this
Act.
7.3 APPLICABILITY OF THE ACT
The Minimum Wages Act, 1948 extends to the whole of India. It applies to the
employments detailed in the schedule of the Act and in certain cases may, in the discretion of
the appropriate govt. be extended to any other employment.
7.4 DEFINITIONS
In this Act, unless there is anything inconsistent in the subject or context.
(a) ―adult‖. ―adolescent‖, and ―child‖, have the meanings respectively assigned to
them in section 2 of the factories Act, 1948.
(b) ―appropriate government‖ means.
(i) In relation to any scheduled employment carried on by under the authority of
the central government or a railways administration or in relation to a mine,
oil-field or major part, or any corporation established by central Act. the
central government and
(ii) in relation to any other scheduled employment the State Government.
(c) ―Competent authority‖ means the authority appointed by the appropriate
government by notification in its official gazette to ascertain from time to time
the cost of living index applicable to the employees employed in the scheduled
employments specified in such notification.
(d) ―cost of living index number‖ in relation to employees in any scheduled
employment in respect of which minimum rates of wages have been fined, means
99
the index number ascertained and declared by the competent authority by
notification in the official gazette to all cost of living index number applicable to
employees in such employment.
(e) ―employer‖ means any person who employers, whether directly or through another
person, or whether on behalf of himself or any other person, one or more
employees in any scheduled employment in respect of which minimum rates of
wages have been fined under this Act, and includes, except in such section (3) of
section 26.
(i) In a factory, where there is varied on any scheduled employment in respect of
which minimum rates of wages have been section (1) of section 7 of the factories
Act; 1948 as manager of the factory;
(ii) In any scheduled employment under the control of any government in India in
respect of which minimum rates of wages have been fixed under this act, the
persons or authority appointed by such government for the supervision and control
of employees or where no persons or authority is so appointed, the head of the
department;
(iii) in any scheduled employment under any local authority in respect of which
minimum rates of wages have been fixed under this Act, the person appointed by
such authority for the supervision and control of the employees or where no person
is so appointed, the chief executive officer of the local authority;
(iv) in any other case where there is carried on any scheduled employment in respect of
which minimum rates of wages have been fixed under this Act, any person
responsible to the owner or the supervision and control of the employees or for the
payment of wages.
(f) ―Prescribed‖ means prescribed by rules made under this Act;
(g) ―Scheduled Employment‖ means an employment specified in the schedule or any
process or branch of work forming part of such employment. The list of scheduled
employments is given below and is not a closed list in view of section 27 of this
Act.
Employment in agriculture i.e. form of farming including the cultivation,
dairy farming, harvesting of any agriculture or horticultural commodity, the raising of
live-stock bees, or poultry, and any practice performed by farmer or on a farm as
Incidental to or in combination with farm operation including any forestry of
100
timbering operations and the preparation for marked and delivery to storage or to
market or to carriage for transportation to market of farm produce.
(h) ―Wages‖ means all remuneration, capable of being expressed in terms of
money, which would, if the terms of the contract of employment, express or
implied, were fulfilled be payable to a person employed in respect of his
employment or of work done in such employment and includes house rent
allowance but does not include the value of:
(i) any house accommodation, supply of light, water medical attendance or
(ii) any other amenity or any service excluded by general or special order of the
appropriate government:
(iii) any contribution paid by the employer to any pension fund or provident fund
or under any scheme or social insurance;
(iv) any travelling allowance or the value of any travelling concession.
(v) any sum paid to the person employed to meet special expenses entitled on him
by the nature of his employment; or
(vi) any gratuity payable on discharge
(i) ―Employee‖ means any person who is employed for hire or reward to do any
work, skilled or unskilled, manual or clerical in a scheduled employment in
respect of which minimum rates of wages have been fixed and includes an
outworker to whom any articles or materials are given out by another person
to be made up, cleaned, mashed, altered, ornamented, finished, repaired,
adapted or otherwise processed for sale for the purpose, of the trade of
business of that other person where the process is to be carried out either in the
have of the out worker or in some another promises not being premises under
the control and management of that other, person and also included an
employee declared to be an employee by the appropriate government; but does
not include any member of, the aired forces of the union.
Notes: The definition of the employee is wide enough to include a person
working on job basis or piece work.
Illustration: A an outdoor worker, engaged by B. prepared goods at his
residence or at some, other place or premises not controlled by B and thereafter
supplier to B. He is already covered by the definition of ‗employee‘ as given in the
Act provided he is working in the scheduled employment, in respect of which
minimum rates of wages have been fixed under the minimum wages Act.
101
CHECK YOUR PROGRESS A
1. State whether the following statements are true or false.
(a) The Minimum Wage is the lowest wage prescribed for the emplyoees to
preserve the efficiency of a workman.
(b) The capacity of the employer to pay is not relevant in fixing minimum wage.
(c) There is no difference between minimum wages and fair wages.
(d) The minimum wage means a wage that enables the worker to over his bare
physical need.
(e) It is obligatory upon the central government to appoint a central advisory
board for fixation and revision of minimum rates of wages.
7.5 FIXATION AND REVISION OF MINIMUM WAGES
Section 3 provides that the appropriate government shall (a) for the minimum rates of
wages payable to employees employed in an employment specified in Part I or Part II of the
schedule and in an employment added either partly by notification under section 27. In
respect of employees employed in an employment specified in Part II of schedule, the
appropriate government may instead of fixing minimum rates of wages for the entire may
state, fix such rates for any part of state or for any specified class or classes of such
employment in the whole state of part thereof.
(b) The appropriate government shall review the minimum rates of wages at interval
not more than 5 year. In case the minimum rates of wages are not reviewed within five years,
such rates may be reviewed after the expiry of 5 years and until so revised, the minimum
rates in force immediately before expiry of 5 years shall continue in force. Further if the
number of employees is less that 1,000 engaged in an scheduled employment in the whole
state, minimum rates of wages need not be fixed till the number rises to 1,000 or more.
(2) The appropriate government may fix:
(a) minimum rate of wages for time work (here in after referred to as minimum
time rate)
(b) A minimum rate of wages for piece work (here in after referred to as a
minimum piece rate)
(c) A minimum rate of remuneration to apply in case of employees employed on
time work for the purpose of securing to such employees minimum rate of
wages on a time work basis (here in after referred to as guaranteed time rate)
102
(d) a minimum rate (whether a time rate or piece rate) to apply in substitution for
the minimum rate which would otherwise be applicable in respect of overtime
work done by employees (what is known as overtime rate).
The minimum rates of wages so fixed and revised shall not apply to such employees
during the pending proceedings before a Tribunal or National Tribunal under the Industrial
Disputes Act. 1947 or before any like authority or during the period of operation of an award.
Where such proceeding or award relates to the rates of wages payable to ail the employees in
the scheduled employment, no minimum rates of wages shall be fixed or revised in respect of
such employment during the said period, In fixing or revising rates of wages under section
(3)
(a) Different minimum rates of wages may be fixed for:
(i) different scheduled employment.
(ii) different classes of work in the same scheduled employment.
(iii) adult, adolescents, children and. apprentices,
(iv) different localities
(b) minimum rates of wages may be fixed by any one or more of the following
wage periods namely:
(i) by the hour
(ii) by the day
(iii) by the month or
(iv) by such other longer wages period as may be prescribed. Where such rates are
fixed by the day or by the month the manner of calculating wages for a month
or for a day as the case may be, may be indicated. Where any wage periods
have been fixed under section 4 of the payment of wages Act 1936 minimum
wages shall be fixed in accordance there with
Minimum rate of wages and computation there of:
(i) Section 4 provides that a minimum rate of wages fixed or revised by the
appropriate government may consist of a special allowance at a rate to be
adjusted at such intervals and in such manner as the appropriate government
may direct to accord or nearly as particular with the variation in the cost of
living index, or
(ii) A basic rate of wages with or without the cost of living allowance and the cash
value of the concession in respect of supplies of essential commodities at
concessional rate when so authorised; or.
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(iii) An all Inclusive rate allowing for the basic rate, the cost of living allowance
and the case value of the concessions, if any. The cost of living allowance and
the cash value of concessions in respect of supplies, of essential commodities
at concession rates shall be computed by the competent authority of such
intervals and in accordance with such directions as may be specified or given
by the appropriate government.
The special allowance mentioned above is a variable amount forming part of the
wages, being linked with the cost of living index number.
The following considerations are not relevant in fixation of wages:
(a) It is irrelevant that an employer may find it difficult to carry out his business
on the basis of minimum wages;
(b) the financial capacity of the employer;
(c) the fact of the company having incurred losses during the previous years.
(d) employer's difficulties in importing raw material, and
(e) the region-cum – industry principles.
7.6 Procedure for Fixing and Revising Minimum Wages
Section 5 in the Minimum Wages Act provides that in fixing or revising minimum
rates of wages, the appropriate government shall, either
(a) appoint as many committees and such committees; as it considers necessary to
hold enquiries and advise it in respect of such fixation or revision as the case may be (a
committee without men of experience and knowledge would be illegal- (A.S.D. Basha V.
State of Madras-1962-63-FJR 50) for the purpose or
(b) by notification in the official gazette, publish its proposals for the information of
persons likely to be affected thereby.
After considering the advice of committee or committees appointed under clause (a)
or considering all representation received by it user clause (b) above, the appropriate
government shall, by notification in the official gazette, fix or revise the minimum rates or
wages in respect of each scheduled employment. The fixation or revisions shall come into
force on the expiry of three months from the date of issue of the notification.
In state of Madras V.P.N. Ram Chander Rao (1956 LLJ-558) it was held that the
notification not, specifying in what manner and at what intervals special allowance made
payable is to be adjusted is defective and is vitiated by an error of law apparent on the face of
the record.
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In Bengal Motion Pictures Employee‘s Union, vs. Kohinoor Pictures (P) Ltd. and
other (1968 IIJ 387) it was held that employees who are in receipt of higher wages that those
fixed under the notification should continue to enjoy the same, was not warranted by the
provisions of the Act. Government cannot either convert a voluntary payment into
compulsory payment.
The appropriate Government shall while revising the minimum rates of wages, by the
mode specified in clauses (b) consult the Advisory Board also.
This power to fix or revise the minimum wages in subsection 5(2) is limited only to
employment specified in schedule under section 27 of the Act, the appropriate government
may add any employment to the schedule. The fixation of minimum wages depends on the
prevailing economic conditions. The cost of living in a place, the nature of the work, to be
performed and the conditions in which the work is performed. Where a notification is issued
by the government authorising the employer to deduct the sums mentioned in the notification
towards the costs of means supplied to the workers by him, it was held that the notification
gives only an option to the workers by him and does not impose any obligation upon him
(Chandra Bhawan & Lodging V. State of Mysore A.I.R. 1970 S.C. 2042).
Where a committee has no representation of the employees the proposals given by it
are not by the committee and as such notification fixing minimum wages was of no force and
effect (N.R. Jain V. Labour Commission Raj. A.I.R. 1957)
ACTIVITY 1
1 Highlight the provisions of the following in the Minimum wages Act, 1948 .
a) Fixation of Minimum Wages
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
b) Revision of Minimum Wages
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
Advisory Board
According to section 7 the appropriate government shall appoint an Advisory Board
for the following purpose of:
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(i) Co-cordinating the work of committees and sub-committees appointed by it for
fixing & revising minimum rates of wages.
(ii) Advising the appropriate government generally in the matter of fixing and revising
minimum rates of wages. Under section 8 the central Government shall appoint a Central
Advisory Board for the purpose of (i) advising the central and the state government in the
matter of fixation and revision of minimum rates of wages and other matters under the act,
and (ii) for coordinating the work of the Advisory Board. The central Advisory Board shall
consist of persons to be nominated by the Central Government representing employers and
employees in the scheduled employments who shall be equal in number and independent
persons not exceeding one-third of the total number of members, one of such independent
persons, shall be appointed as the chairman of the Board of the Central Government.
Similarly each of committees, sub-committees and the Advisory Board consists of
person to be nominated by the appropriate government representing employers and
employees in the scheduled employment who shall be equal in number. Independent persons
not exceeding one third of its number of members shall also be appointed, one of which such
independent persons shall be appointed as the chairman by the appropriate government (sec.
9).
Section 9 does not require that the representative of employees should actually be
employees in the employment in question not does it require that a person who has
experience or knowledge in one capacity or another of the problems of employees in a
particular industry cannot represent those employees for the purpose of nomination user sec.
9(1) Salt works V. State A.I.R. 1971 GU. 14)
The expression ―independent person‖ in this section means a person other than those
who are employee and employees in relation to the scheduled employment in respect of
which minimum wages are sought to be fixed.
Correction of Errors
Section 10 provides that appropriate government may at any time correct clerical or.
arithmetical mistakes in any order fixing or revising minimum rates of wages under this Act
or errors arising therein from any accidental slip or omission by notification in the official
gazette and such notification shall be placed before the Advisory Board for information.
Wages in Kind
Section 11 provides that the minimum wages shall be payable in cash. The
appropriate government may by notification in the official gazette, authorise the payment of
minimum wages wholly or partly in kind where it is customary. Similarly it may authorise the
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supply of essential committees at concession rates. The cash value of wages in kind and of
concessions in respect of essential commodities at concessional rates shall lie estimated in the
prescribed manner.
Payment of Minimum Wages
Section 12 provides that where minimum wages have been in force in any scheduled
employment, the employer shall, pay wages at a rate not less than the minimum fixed for
every category of employees without any deduction except as may be authorised under the
payment of wages Act 1936.
Fixing hours for a normal working pay.etc.
Section 13 provides that in scheduled employment where minimum wages are fixed
under the Act, the government may:
(a) fix the number of hours of work which, shall constitute a normal working day
inclusive of one or more specified intervals;
(b) provide a day of rest in every period of 7 days and for the payment or
remuneration on respect of such days of rest arid (c) provide for payment for work on a day
of rest at a rate not less than overtime rate.
The above provisions shall apply to the following classes of employees only to such
extent and subject to conditions prescribed.
(a) Employees engaged on urgent work or in any emergency which should not have
been foreseen or prevented.
(b) Employees, engaged on preparatory or complementary work.
(c) Employees whose employment is essentially irregular.
(d) Employees engaged in any work which for technical reasons has to be completed
before the duty is done.
(e) Employees engaged in a work which would not be carried on except at times
dependent on the irregular action of natural forces. Employment of employee is essentially
irregular when it is declared to be so by the appropriate government.
Overtime
Section 14 lays down that where an employee, whose minimum rate of wages is fixed
works on any day in excess of the number of hours constituting a normal working day, the
employer shall pay him for every hour or part of an hour so worked in excess, at the overtime
rate fixed under this Act or whichever is higher.
Wages of Worker who works for less than normal working day
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Section 15 lays down that if an employee works for a period less than the requisite
numbers of hour constituting a normal working day, not for his own reason, he shall be
entitled to receive wages for a full normal working day.
But however, he shall not be entitled, to receive wages for full normal working day in
the following cases;
(i) the failure to work is caused by his unwillingness to work and not by omission of
the employees to provided him with work.
Wages for two or more Classes of work
Section 16 lays down, where an employee does two or more classes of work to each
of which a different minimum rate of wage is applicable the employer shall pay to such
employee in, wages at not less than the minimum rate in force in respect of each such class.
Minimum time rate wages for piece work
Section 17 provides that where employee is employed on piece work, for which
minimum time rate and not a minimum piece rate has been fixed, the employer shall pay to
such employee wages at not less than the minimum time rate.
Maintenance of registers and records section 18 provides that every employer shall
maintain such particulars of employees employed by him, the work performed by them, the
wages paid to them the receipts given by them and such other particulars, and in such form as
may be prescribed.
The appropriate government may by rules made under this Act, provide for the issue
of wage, books or wage slips to employees employed in any scheduled employment in
respect of which minimum rates of wages have been fixed and prescribe the manner in which
entries shall be made and authenticated in such wage book or wage slips by the employer or
his agent.
7.7 Inspectors and their powers
Section 19 provides that the appropriate government may by notification in the
official gazette, appoint such persons, as it thinks fit to be inspectors for the purpose of this
Act and define the local-limits, within which they shall exercise, their functions.
The inspector may have the following powers:
(a) enter all the reasonable hours with such assistance (if any being person in the
service of govt. or any local or other public authority, as he deems fit) any premises a place
where employees are employed or work is given out to our workers in any scheduled
employment for the purpose of examine any register, record of wages or notices required to
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be kept or exhibited under this Act and require the production there of for inspections,., The
inspector is empowered to
(b) examine any person whom he finds in any such premises or places.
(c) require any person giving out works and any out workers to give information.
(d) seize, or take copies or such register, record of wages or notices as he may
consider excellent in respect of an offence under this Act which he has reason to believe, has
been committed by an employer and
(e) exercise such other powers as may be prescribed. Every inspector shall be deemed
to be public servant within the meaning of Indian Penal code.
Claims
Section 20 provides the procedure for filing claims where an employee has any claim:
(i) arising out of payment of less than the minimum rate of wages fixed for his class
of worker; or
(ii) In respect of payment of remuneration for days of less hours than normal working
day; or
(iii) In respect of payment of remuneration for work done on such days under clause
(b) or (c) or section 13 (1) or
(iv) of wages at the overtime rate under section 14 to employees employed or paid in
that area.
The following persons can apply to the authority appointed, by appropriate
government to hear and decide for any specified area all claims for a direction:
(a) the employee himself, or
(b) any legal, practitioner authorized in visiting to act on his behalf, or
(c) any official of a registered trade union authorized in writing to as on behalf of the
employee, or
(d) any Inspector, or
(e) any person acting with the permission of the authority.
Application for claims
The applications should be made within 6 months from the date on which the
minimum wages or other amount becomes payable. But it can be admitted by the authority
after the said period of 6 months if the applicant satisfied the authority that he had sufficient
cause for not making the application within the prescribed time. (Case-chief officer town
municipal council V. Chandra Dattatraya Patil A.I.R. 1969, Mys 202).
109
7.8 Procedure for deciding claims
Where any application is entertained, the authority shall, give them an opportunity
for being heard and make further inquiry, if any, as it may consider necessary direct (i) in
case off claims arising out of the payment, of less than the minimum rates of wages payable
to him the amount be paid together with payment of such compensation as the authority may
think not exceeding ten times the amount.
(ii) payment of such compensation in case where the unless or the amount due is paid
by the employer to the employee before the disposal of the application.
If the authority bearing any application under this section is satisfied that it was either
malicious or vexations, it may direct that a penalty be paid to the employer by the person
presenting the application.
Who can be appointed as authority?
The following may be appointed as an authority to decide any claim:
(a) Any commissioner for workmen‘ compensation.
(b) Any office of the central govt. exercising functions as labour commissioner for
any regions;
(c) Any other officer with experience as Judge of a civil court or as a stipendiary
magistrate.
(d) Any office of the state govt. not below the rank of civil court under the civil
procedure. Code for the purposes of:
(a) taking evidence
(b) enforcing the attendance of witness and
(c) compelling the production of documents every direction the authority shall be
final.
Recovery of Amount under order of Authority
Any amount directed to be paid be the authority may be recovery:
(a) If the authority is a magistrate, by the authority as if it case a fine imposed by
authority is a magistrate.
(b) If the authority is not a magistrates, by any magistrate to when the authority makes
application in this behalf as it new a fine imposed by sub magistrate.
Single Application in respect of a number of employees

110
Section 21 provides that a single application may be presented under section 20 on
behalf of any number of employers in the scheduled employment in respect of which
minimum rates of wages have less fixed. In such cases, the maximum compensation which
may be awarded under section 20 (3) shall not exceed 10 times the aggregate amount of such
increase.
Penalties for certain Office
Section 22 provides that any employee less than the minimum rate of wages fixed for
the employee‘ class or work or less than the amount due to him under the provisions of this
Act or.
(b) contravenes any rule or order made under section 13 shall be punishable with the
imprisonment for a term which may extend to 6 months or with fine which may extend to Rs.
500 or with both.
In imposing such fine for an offence under this section the court shall take into
consideration the amount of any compensation already amended against the accused in any
proceedings taken under section 20.
General Provision for Punishment of other offences.
An employer who contravenes any provisions of this Act or of any rule or order made
there under shall, if no other penalty is provided for such contravention by this Act, be
punishable with fine which may 'extend to Rs. 500
Cognizance of offence
Section (22-B) lays down that no court shall take cognizance of complaint on its own
against any person for an offence committed under this Act:
(a) Under clause (a) of section 22 unless an application in respect of the facts
constituting such offence has even, presented under section 20 and has been granted wholly
or in part and the appropriate government or an officer authorised by it in this behalf has
sanctioned the making of the complaint (b) Under clause (b) of section 22 (A) except on a
complaint made by a with the sanction of an inspector section 22 (b) provides that no court
shall take cognizance of an offence (c) under clause (a) or clause (b) of sanction 22 unless
complaint thereof is made within one month of the grant of section under this, section; (d)
Under Section 22 (A) unless, complaint thereof is made within 6 months of the date on which
the offence is alleged to have been committed.
Offences by companies
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If a person committing any offence under this Act is a company every person who in
Charge of and even responsible to company for the conduct of the business of the company as
well as the company shall be deemed to be guilty of offence and shall be liable to be
proceeded against and punished accordingly unless such person plea that (i) the offence was
committed without his knowledge or (ii) he exercised all the reasonable care to prevent it.
Section 22 (i) provides that other on offence under this Act, been committed by a
company and it is provided that the offence has been committed with the concert or
connivance of or is attributable to any neglect on the part of any director, secretary or other
officer to the company, such director, manager, secretary or other officer of the company
snail also be deemed to be fully aware of that offence and shall be proceeded against and
punished accordingly.
Payment of undisbursed amounts due to employees
Section 22 (d) provides that all amounts payable to an employee under this act which
could not be paid to the employee due to his death before payment or on A/c or his where
about not being known shall be deposited with the prescribed authority who shall be
deposited with the prescribed authority who shall deal with the money in the prescribed
manner.
Protection Against Attachment of Assets of Employer
Any amount deposited with the appropriate govt. by an employee to secure the due
performance of a contract with the govt. any other amount due to such employer from that
govt. on respect of such contract shall be liable to attachment under any decree or order of
any court in respect of any debit or liability incurred by the employer towards any employee
employed in concentration with the contract aforesaid.
Application of payment of wages Act. 1936 to scheduled employment
The appropriate govt. may by notification in the official gazette direct that ail or any
of the provisions of payment of wages Act, 1936 shall apply to wages payable to employees
in such scheduled employments. An inspector appointed under this Act shall be deemed to be
inspector for the purpose of enforcement of the provisions of Payment of Wages Act so
applied.
Exemption of employer from liability in certain cases
When an employer is charged with an offence under this Act he is entitled to file a
complaint against the actual offender and on this complaint the actual offender shall be
brought before the court at the appointed for hearing the charge, if the commission of the
offence is proved, the employer shall be liable unless he proves to the satisfaction of the court
112
that: (i) he has used due diligence to enforce in question without his knowledge, consent or
connivance.
It the employer succeeds in establishing that other person has responsible for the
offence the actual offender shall be committed of the offence and shall liable of punishment
as if he was the employer and the employer shall be discharged. The employer may be
examined on with in seeking to prove his innocence.
Bar of Suits
Section 24 bars the jurisdiction of any court to entertain any suit for the recovery of
wages in so far as the sum so claimed:
(a) in case it forms the subject of any application under section 20, which has been
presented by or on behalf of the plaintiff or
(b) has forced the subject of direction under that section in favour of plaintiff or
(c) has been adjudged in any proceeding under that section or
(d) could have been recovered by an application under that section.
Contracting out
Section 25 lays down that any contract whether made before or after the
commencement of this Act, wholly on employee with relinquishes or reduces his right to a
minimum rate of wages or any privilege or concession accruing to him under this Act shall be
will and void so far as it per posts to reduce the minimum rate of wages paid under this Act.
Exemption and exception.
Section 26 provides for the full exemption
(1) The provisions of the Act shall not apply to disable employees of the appropriate
government so declares.
(2) The provisions of the Act shall not apply to all or any class of employees
employed in scheduled employment, according to the notification in the official gazette of
appropriate govt.
(3) Nothing in this Act shall apply to wages payable by an employer to a member of
his family who is family who is living with him and is dependent on him.
Powers the appropriate government to add to schedule
Section 27 provides, that the appropriate government may, by notification in the
official gazette add to either part of the schedule any employment in respect of which if is of
opinion that minimum rate of wages should be fixed under this Act. But before doing so the
government concerned shall give 3 months notice by an official gazette notification of its
113
intention to do so. After notice and subsequent addition to any employment in the schedule,
the schedule shall be deemed to be amended accordingly in respect of that state.
ACTIVITY II
1 Distinguish in brief the penalties under the following sections
a) Section 22
__________________________________________________________________
__________________________________________________________________
b) Section 22-B
__________________________________________________________________
__________________________________________________________________
7.9 Power of Centre Government to make rules

Section 29 provides that central government may by notification in the official gazette
makes rules for carrying out the purpose of this Act in respect of the following:
(a) Prescribe the term of office of the member
(b) the procedure to be followed in conduct of business
(c) the method of voting.
(d) the manner of filling up casual vacancies in the membership of the Central
Advisor Board and
(e) the quorum necessary for a transaction of business of the Central Advisory Board.
Power of the appropriate govt. to made rules.
Section 30(2) confers special powers for making rules for convey act the purpose of
this Act. Such rules may
(a) prescribe the term of officer of the members the procedure to be followed in the
conduct of business, the method of nothing, the manner of filling in casual vacancies in
membership and the quorum necessary for the transaction of business of the committees, sub-
committees and the Advisory Boards.
(b) prescribe the method of summoning witnesses, production of documents relevant
to the subject matter of the enquiry before the committees sub-committees and the Advisory
Boards.
(c) prescribe the mode of computation of the cash value of wage in kind and of
concessions in respect of supplies of essential commodities of concession rates.
(d) prescribe the time and conditions of payment of and the deductions permissible
from wages.
114
(e) provide for giving adequate publicity to the minimum rates of wages fixed under
the Act.
(f) provide for day of rest in every (period) of 7 days and for the payment of
remuneration in respect of such day.
(g) prescribe the member of houses of work which shall constitute a normal working
day.
(h) prescribe the cases and circumstances in which an employee employed for a
period of less than the required number of houses constituting a normal working day shall not
be entitled to receive wages for a file normal working day.
(i) prescribe the form of registers and records to be maintained and the particular to be
entered in such registers and records:
j) provide for the issued of wage books and wage slips and prescribe for the manner of
making and authenticating conferees in wages books ad wages slips.
(k) prescribe powers of in sectors for purpose of this Act
(l) regulate the scale of costs that may be allowed in proceeding under section 20.
(m) prescribe the amount of court fees payable in respect of proceedings under section
20 days and
(n) provide for any other matter which, is to be or may be prescribe.
Rule made by central government to be laid before parliament
Section 30A laid down that every rule made by the central government under the Act
shall be laid as soon as may be after it is made, before each house of parliament and both
houses agree in making any modification in the rule or both Houses agree that the rule should
not be made, the rule shall thereafter have effect only in such modified form or be or no
effect, as the case may be, so however, that any such modification or no effect shall be
without injuring the validity of anything previously one under that rule.
CHECK YOUR PROGRESS B

Fill in the blanks:
(a) The Act requires that wages shall be paid in ___________
(b) The time period to revise the minimum rates of wages shall not
exceed_________
(c) Wage period shall not exceed ____________
(d) The fact of the employer company having incurred losses during the previous
years is __________ in fixation of wages.
115
(e) Inspectors shall exercise their functions within _________ defined by the
appropriate government.
7.10 SUMMARY
The Minimum Wages Act prescribes minimum wages for all employees in all
establishments in certain employments specified in the schedule of the Act. Central and state
government revise minimum wages specified in the schedule. For the purposes of
coordinating work between committees and sub-committees, advisory boards have been set
up at the central and the state levels, who advise the government in the matter of fixing and
revising minimum wages. Law is enforced through an inspector appointed by a notification in
the official gazette. For the purpose of hearing and deciding claims, authorities are appointed
by the appropriate government. The government has the power to make appropriate rules.
7.11 GLOSSARY
1. Minimum Wages: Minimum Wages are determined on the cost of living and
the normal or reasonable needs of the worker and his family.
2. Scheduled Employment: It means an employment specified in the schedule.
7.12 ANSWERS TO CHECK YOUR PROGRESS
Check your progress A
(a) true
(b) true
(c) false
(d) false
(e) true
Check your progress B
(a) Cash
(b) Five years
(c) One month
(d) Irrelevant
(e) Local limits
7.13 SUGGESTED READING

1 A.M.Sharma, 1981. Aspects of Labour welfare and social security, Himalaya
Publishing House: Bombay.
116
2. NayanBarua, 1995. Social Security and labour welfare in India, Ashish Publishing
House, New Delhi.
7.14 TERMINAL AND MODEL QUESTIONS
1. Write the object of fixing minimum wages. Also state the procedure laid down
under the minimum wages Act for fixing and revising minimum wages.
2. Who is authorised to fix minimum wages and in what manner?

3. State the procedure provided under the Act for filing the claims. Who is the
authority to decide any claim and what is the procedure to decide the claims?
7. Write the powers of the inspectors.
5. Describe the powers of the govt. relating to various provisions given in the
minimum wages Act.
117
LESSON – 8
Employees’ Provident Fund & Miscellaneous Provisions Act, 1951
Structure
8.0 Learning objectives
8.1 Introduction
8.3 Scope & Application
8.4 Schemes under the Act
8.6 Summary
8.7 Glossary
8. 0 LEARNING OBJECTIVES:
 to understand the provisions of EPF & Miscellaneous Provisions Act, 1951
 to know the objectives of EPF & Miscellaneous Provisions Act, 1951
 to know the authorities to decide the claims under these Acts.
8.1 INTRODUCTION
Statutory provident funds governed by provident funds Act 1952 are recognised by the
commissioner of Income tax. The provident funds Act 1952 as amended by amendment Act,
1971, now provides also for family pension and life assurance benefits . The Act was
renamed as employees Provident funds and family Pension Funds Act. 1952.

The Object of the Act is to make some provision for and industrial worker for the future so
that he may utilise this, after retirement and his dependents may not suffer an account of his
retirement or premature death. The Act extents to the whole of India except the state of
Jammu and Kashmir.
8.3 Scope & Application:
The Act does not apply to factory or establishment registered under the co-operative societies
Act, 1912 of any other law relating to cooperative societies and employing less than 50
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persons and working without aid of power. Even establishment (1) employing 50 or more
persons (2) employing so or more but less than 50, will not attract the provisions of the Act
until the expiry of three years in case of former and 5 year in case of latter from the date on
which establishment is or has been set up, An establishment shall not be deemed to tie newly
set up simply by mason of a change in its location.
8.4: Schemes under the Act:
(a) the Employees Provident Funds Schemes, 1952: The central govt., may by notification
in the official gazette, frame a scheme to be called the employees provident fund scheme for
the establishment of provident funds under this Act for employees or any class of employees
and specify the establishment to which the said scheme shall apply and they shall be
established as soon as may be after the funding of scheme, a fund in accordance with the
provisions of this Act and the scheme.
Administration of the funds: The Central Govt. may by notification in the official Gazette
constitute, a Board of Trustee for territories to which the Act extends consisting of the full
person.
(a) a chairman to be appointed by the central government:
(b) the central provident fund commissioner ex-officio.
(c) not more than 15 persons appointed by the central government from among its
officials.
(d) not more than 15 persons representing govt. of such states as the central
government may specify in this behalf appointed by central govt.
(e) ten persons representing employer of the establishment to which the scheme
applies, appointed by the central govt. after consultation with such organization of employees
as may be recognised be the central govt. in this behalf.
The Board of Trustees constituted shall be a body corporate under the name specified
in the notification constituting it, having perpetual succession and a common seal and shall
by the said name sue and be sued.
State Board: (1) The central government may, after consultation with the government of any
state by notification in the official gazette, constitute for that state, a Board of trustees in the
manner as may be specified in the scheme.
(2) The state Board shall exercise such power and perform such duties as the central
government may assign to it from time to time.
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(3) The terms and condition subject to which a member of a State Board may be
appointed and the time, place and procedure of the meetings of a State Board may be such as
provided for in the scheme.
(4) Every Board of Trustees Constituted shall be body corporate under the name
specified in the notification constituting it having perpetual succession and common seal and
shall by the said name sue and be sued.
Appointment of officers: The Central Govt. shall appoint a central P.F. Commissioner who
shall be the chief executive officer of the Central Board and shall be subject to the general
control and superintendent of the Board. The appointment to the post of the central P.F.
Commissioner or an additional central P.F. Commissioner or financial advisor and chief A/c
officer or any other.post under the Central Board. The method of recruitment, salary and
allowances, discipline and-other condition of service of the Central P.F. Commissioner and
the Financial Advisor and chief A/c officer shall be such as may be specified by the central
govt. and such salary and allowances shall be paid out of the P.F.
When the central Board is of the opinion that it is necessary to make a departure from
the said rules or orders in respect of any of the matters aforesaid, it shall obtain the prior
approval of the central govt.
Delegation of Powers: The Central Board may delegate to the executive committee or to its
chairman or to any of its officers such of its powers and functions under the Act as it may
deem necessary for the efficient administration of the employees P.F. schemes the family
pension scheme and the employees deposit linked insurance scheme.
Class of employees entitled and required to join Provident Fund: Every employee
employed in or in connection with the work of a factory or other establishment, other than on
excluded employee shall be entitled and required to become a member of the P.F.
Excluded Employee: means (i) an employee who having been a member of the fund,
withdrew, the full amount of his accumulation in the fund (ii) and employee where pay in the
time be is otherwise entitled to become a member of the fund, exceeds Rs. 2,500 per month,
and as apprentice.
An apprentice means a person who according to the certified standing order
applicable to the factory or establishment is an apprentice by the oath or they specified this
behalf by the appropriate govt.
“Pay” includes basic wages with dearness allowance retaining allowance and value
of food concession admissible thereon.
120
Contributions and matter which may be provided for in the scheme. The contribution
which shall be paid by the employer to the fund shall; be 10% of the basis wages, dearness
allowance and retaining allowance for the time being payable to each of the employee and
the employee’s contribution payable by the employer in respect of him.
Recovery of member’s share of contribution the amount of member's contribution
paid by the employer shall not withstanding the provisions in the employee’s provident fund
scheme or any law for the time being in force or any contract to the contrary, be recoverable
by means of deduction from any wages of the member and otherwise.
(B) Employee’s Family Pension scheme and fund: By the Labour Provident Fund laws
ordinance, 1971, Promulgated by; the president of India on 13 Feb. 1971, provision has been
made for the creation of an employee's family pension fund and family pension scheme. By
the Amending Act, the employee‘s Provident Fund Act 1952 was renamed as the employees
Provident Fund and family pension Act, 1952.
Retention of membership: A member of the family pension fund shall continue to be a
member till he attains the age of 60 yrs. or he retires or quits the service and withdraws or
becomes entitled to with draw the benefit to which he is entitled under this scheme.
Benefits under the Scheme:
(1) Family Pension: if a member of the family Pension scheme dies during reasonable
service before attaining the age of 60 years. Family pension will be paid immediately
following the death of the member.
(2) Life assurance fund: where a member who has contributed to the E.P.F. for a
period not less than one year dies while reasonable service a lump sum of Rs. 2000 is payable
to his/her family as life assurance benefit.
(3) Retirement-cum-withdrawal Benefit: The benefit becomes payable to the members
either on attaining the age of 60 years or on cessation of membership from the E.P.F. before
attending the age of 60 years for reasons other than death provided that the member has
contributed to the fund for a period of not less than one year.
6 (b) special grant by central govt. The central govt. shall after due appropriation
made by parliament by law in this behalf pay such further sums as may be determined by it
into the family pension fund to meet all the expenses in connection with the administration
scheme.
(C) Employees Deposit-linked Insurance scheme, 1976:
121
The Act as amended in 1976 and a new scheme 6(c) was inserted empowering the central
government to frame a scheme for the purpose of providing life insurance benefit to the
employees of any establishment to which the act applies.
This scheme is applicable to all factories establishments to which the employees P.F.
and miscellaneous provisions Act, 1952 applies. All the employees who are members of the
P.F. in both the exempted and the. unexampled establishments are covered under the scheme.
The scheme covers all employees drawing upto Rs. 3500 per month.
Priority of payment of contributions over other debits: Where any employer is

adjudicated insolvent or, being a company an order for winding up is made the following
payments due from the employee are to be made in priority to all other debits in the
distribution of the property of the insolvent or the assets of the company being wound up as
the case may be.
(1) Any amount due from the employer in respect of
(a) any contribution payable to the provident fund or the deposit linked insurance
fund.
(b) Damages recoverable u/s 14-B
(c) Accumulation required to be transferred under section 15 (2)
(d) Any charges payable by the employer under any other provision of the Act or of
any provision of the employees provident fund scheme or the employees deposit linked
insurance scheme.
Employer not to reduce wages: Section 12 prohibits an employer not to reduce
direct or indirectly the wages of an employee to whom the provident fund scheme or the
insurance scheme applies or the total quantum of benefits in the nature of old age pension,
gratuity or provident fund or life insurance to which the employee is entitled under the terms
of employment.
Section 13 inspectors: (1) The appropriate government may by notification in the
official gazette appoint such persons as it thinks fit to be inspectors for the purpose of this
Act or the Family Pension Scheme or the insurance scheme as the case may be and may
define their Jurisdiction.
(2) Any Inspector appointed under sub-section (1) may for the purpose of inquiring
into the correctness of any information furnished in connection with this Act or with any
scheme or for the purpose of ascertaining whether any of the provisions or of any scheme
have been complied which in respect of an establishment to which the scheme applies or for
122
the purpose of ascertains whether the provisions of this Act or any scheme are applicable to
any establishment to which the scheme or the insurance scheme has not been applied.
Cancellation of exemption: An exemption granted under section 17 may be
cancelled by authority which granted it by order in writing, if an employer fails to comply
with the conditions subject to which it was granted.
Transfer of Accounts: (1) Section 17-A Provides that where an employee in an
establishment to which this act' applies leaves his employment and obtained re-employment
in another establishment to which this Act does not apply the amount of accumulation to the
credit of such employee in the fund, or as the case may be, in the provident fund of the
establishment left shall be transferred to the credit of his account in the provident fund of the
establishment in which he is re-employed.
(2) Where an employer in establishment to which this Act does not apply leaves his
employment; and obtains re-employment in other establishment to which the Act applies the
amount of accumulation to the credit of such employee in the provident fund the
establishment left by him may, if the employee so desires and the rules in relation to such
provident fund permit, be transferred to the credit of his account in the fund or as the case
may be in the provident fund of the establishment in which be is re-employed.
Power to remove difficulties: If any difficulty arises in giving effect to the
provisions of this Act as amended by the employee provident fund and miscellaneous
provisions Act, 1988, the central govt. may by order published in the official gazette, make
such provision, not in consisting with the provision of this Act as appear to into be necessary
or expedient for the removal of the difficulty.
Constitutional validity of section 22: The power of the central govt. to adjudicate on
various statutory issues on which there is doubt or difficulty is hot arbitrary or uncanalised.
The central govt. has to act within the cover of the act. Its orders are the speaking orders with
reasons.
Delegation of power: Section 19 permits the delegation of any power or authority or
jurisdiction exercisable by the appropriate government under the act the E.P.F. scheme the
C.P scheme or the E.P.F. scheme.
Where the appropriate govt. is the central govt., it may delegate such power, authority
or Jurisdiction to such officer or authority subordinate to the central govt. or the state govt.,
or such officer or authority subordinate to the state govt. as may be specified in the
notification.(ICDEOL)
123
CHECK YOUR PROGRESS A
1. State whether the following statements are true or false.
(a) Employment of 20 person in an establishment even for a single day will bring
the establishment within the purview of the statute.
(b) The central government may constitute an executive committee to assist the
central board in the performance of its functions.
(c) The employer may reduce the wages of any employee entitled to benefits
under this Act.
(d) The employer shall not be liable to pay damages if he fails to pay any
contribution to the fund.
(e) The appropriate government may exempt any establishment from the
operation of all or any of the provisions of the Act.
8.5 SUMMARY
This chapter familiarize you with the Laws and Rules governing worker welfare
programmes and employee benefit schemes. It described the need of these benefits and
welfare measures to the worker and the advantages that these may bring to increase worker
efficiency, morale and productivity. ESI Act provides benefits in sickness, maternity benefits
and other similar cases. Its funding is one both through the financial contributions by the
employees as well as the employers. The provident fund legislation was yet another step in
the direction of social security whereby employees would be encouraged to save for the safe
of family. Gratuity is an addition retirement benefit. Gratuity is payable on termination of
employment after the completion of at least five years of continuous service.
8.6 GLOSSARY
1. Social Welfare Activities: Activities which will improve the living conditions
of people (especially of manual workers)
2. Social Security Measures: Measures that will ensure protection by society to
its members against economic and social distress.
Answers to check your progress-A: 1. (a) True (b) True (c) False
(d) False (e) False
2. (a) Sickness, maternity and employment injury.
(b) employers and employees (c) Contributory fund
124
(d) Supervision and control (e) Employment injury
Answers to Check Your Progress-B
1. (a) T (b) T (c) F (d) F (e) T
Answers to check your progress-C

1. (a) True (b) True (c) True (d) True
(e) False
8.8 SUGGESTED READINGS
1. T.N. Bhagliwal, Economics of Labour and Social Welfare
2. S.N. Misra, Labour Law
3. K.R. Bulchandani, Industrial Law
4. ICDEOL, HPU, Shimla.
5. Meenu Paul, 2007, Labour & Industrial Laws, ALA, Haryana.
8.9 TERMINAL AND MODEL QUESTIONS
1. Write about the Employees‘ State Insurance Corporation.
2. Explain the man features of employees‘ family pension scheme and funds.
3. Critically evaluate Employee‘s Provident Funds Act.
4. State the general provisions concerning the payment of Gratuity Act, 1972.
125
LESSON – 9
The Payment of Bonus Act, 1965
Structure
9.1 Introduction
9.2 Objectives
9.3 Scope and Application
9.4 Definitions
9.5 Establishments and Provisions
9.6 Computation
9.7 Eligibility and disqualification
9.8 Payment of minimum & maximum bonus
9.9 Set on and set off of allocable Surplus
9.10 Recovery of Bonus
9.11 Reference of disputes
9.12 Inspectors
9.13 Cognizance of offences
9.14 Act not to apply to certain classes of employees
9.15 Summary
9.16 Glossary
9.17 Answers to check your progress
9.19 References
 Understand the object and meaning of bonus
 To know the calculation and payment of bonus
 To analyse the allocable and available surplus
 To know the reference of disputes
 And cognizance of offences
126
9.1 INTRODUCTION
The ‗Bonus‘ implies something paid as a gesture of goodwill. According to
Encyclopedia Britannica, ―Bonus is an award in cash or its equivalent by an employer to an
employee, for accomplishment other than that paid for the regular wages, such
accomplishment being considered desirable and perhaps implied, though not required by the
contract of employment. It is usually intended as a stimulus but may also express a desire on
the part of the employer to share with the employees the fruits of their joint enterprise.‖ Thus
the bonus is payment made to the employees, out of the profits earned by the employers over
and above the remuneration that they get. It is not an ex-gratia payment but the statutory right
of the employee. The question of payment of bonus had been one of the main causes of
industrial disputes during post-independence days. In K.S. Balan and others v. State of Kerala
and another,32 a public sector employer was paying ex-gratia payment to its highly paid
employees who were not entitled to get bonus. On Government disapproving such payment,
the Board of Directors passed a resolution stopping payment in future and seeking to recover
the amount, already paid. The employees challenged the said resolution. The petitioners have
no case that the claim was linked with profit or production or connected with any festival. It
was held that the claim of petitioners that the payment has become an implied condition of
service cannot be accepted. Therefore there is no ground to interfere with the order of the
Government stopping ex-gratia payment and recovery of such payments already made. In
Mill Owners Association v. Rastriya Mill Mazdoor Sangh,33 a Full Bench of the Labour
Appellate Tribunal observed that bonus could no longer be considered as an ex-gratia
payment and laid down a formula known as ―Full Bench Formula‖. Since both labour and
capital contributed to the earnings of industrial concerns, it was only fair that labour should
get some benefit if there was a surplus left after meeting prior and necessary charges. Broadly
speaking the formula provided that the prior charges should be deducted from the gross
profits of an enterprise:
(i) return on paid up capital generally at the rate of 6%;
(ii) return on working capital varying from two to 4%;
(iii) depreciation worked out on a notional basis;
(iv) rehabilitation; and
(iv) income tax.
32
. (1988) II L.L.J. III (Kerala).
33
. (1952) LAC 423.
127
If after deduction of these prior charges, surplus was left over the workmen would be
entitled to a share in the said surplus on an equitable basis. In the absence of any surplus,
however, there would be no question of payment of bonus on general notions of social
justice. Labour unions did not feel satisfied with the Full Bench Formula. Their main
grievance was against the rehabilitation charge which, in their view, generally wiped out
what was left of the available surplus. Some employers were also not quite happy with this
formula because it did not provide an easy method for computation of bonus and often led to
disputes year after year. The Supreme Court, while approving this principle in Muir Mill Ltd.
v. Suti MSI Mazdoor Union,34 laid down two conditions which had to be satisfied before a
demand for bonus could be justified:
(1) the wages fell short of the living standard; and
(2) the industry makes huge profits and part of it is due to the workmen who
contributed in increasing production.
The demand for bonus would become an industrial claim when either or both the
conditions were satisfied. The Government of India had been under a constant pressure to
revise the bonus formula. The present Act is the result of the recommendations made by a
Tripartite Commission, which was set up by the Government of India in 1961. The
Commission was asked to consider the question of payment of bonus based on profits to
employees employed in establishments. The recommendation of the Commission was
received by .the Government on January 24, 1964. On September 2, 1964 the Government
implemented the recommendations, subject to certain modifications. With a view to accept
these recommendations, the Payment of Bonus Ordinance, 1965 was promulgated on 26 th
May, 1969. The Ordinance later on was adopted by the Parliament and enacted as Payment of
Bonus Act, 1969. Under the Act the payment of bonus has become a legal obligation imposed
upon the employers covered by the Act.
9.2 OBJECTIVE OF THE ACT
The Payment of Bonus Act, 1965 was enforced on 25th Sept., 1965 to maintain peace
and harmony between labour and capital goods by allowing employees to share in the
progress and prosperity of the establishment towards which they have also contributed. Its
object is:
1. To impose a legal obligation on an employer to pay bonus to his workers
2. To define the principle or formula for the calculation of bonus
34
. (1955) I L.L.J. 1.
128
3. To provide for payment of minimum and maximum bonus with scheme of ‗set on‘
and set off‘.
4. To provide for machinery for enforcement of the Act.
9.3 SCOPE AND APPLICATION

The Act extends to whole of India. Sec.1(3) provides that the Act shall be applicable
to those establishments employing 20 or more workers employed on any day during an
accounting year. However, subsequent reduction of strength in the number of employees
would not make it inapplicable to an establishment. The Act does not apply to public
enterprises except those operating in competition with similar other private undertakings. It is
also not applicable to non-profit making institutions like R.B.I., L.I.C. of India and
departmentally managed undertakings. However all banks are covered under the Act.
The appropriate government may by notification in the official gazette can make the
provisions of the Act applicable to any class of establishments specified therein, including
factories. However in case of factories, if the number of employees fall below ten, then the
Act cannot be enforced.
9.4 DEFINITIONS
A few important definitions in context of the Act are given below.
9.4.1 SECTION 2(1) Accounting Year: “Accounting year‖ means:
(a) In relation to a corporation the year ending on the day on which account books
of the corporation are closed and balanced;
(b) In relation to a company, the period in respect of which any profit and loss
account of the company is laid before its annual general meeting.
(c) In any other cases,
(i) the year commencing from 1st April; or
(ii) if the accounts of an establishment maintained by the employer are
closed and balanced on any other day than the 31st March, then it is up
to the employer to fix any date on which its accounts are closed and
balanced.
9.4.2 SECTION 2(4) Allocable Surplus: In relation to an employer being a company other
than a banking company which has not made the agreement prescribed under the Income Tax
Act for declaration of payment within India of the dividends payable out of its profit in
accordance with provisions of Section 194 of that Act 67% of the available surplus in an
accounting year, and in any other case 60% of such available surplus.
129
9.4.3 SECTION 2(6) Available Surplus: It means the available surplus computed under
Section 5 of the act.
9.4.4 Appropriate Government: It means:
(a) In relation to an establishment in respect of which the appropriate government
under the I.D. Act 1947 is the Central Government.
(b) In relation to any other establishment, the State Government of the state in
which the establishment is situated.
9.4.5 SECTION 2(7) Award: “Award‖ means an interim or a final determination of any
industrial dispute or of any question relating thereto by any labour court, Industrial Tribunal
or National Tribunal under the Industrial Disputes Act 1947, or by any authority constituted
by the government.
9.4.6 SECTION 2(13) Employee: Employee means any person (other than apprentice)
employed on a salary or wage not exceeding Rs. 3500/- per month, in any industry to do any
skilled, or unskilled, manual, clerical, supervisory, managerial and technical work, for hire or
reward whether the terms of employment expressed or implied.
9.4.7 SECTION 2(14) Employer: “Employer‖ includes:
(i) In relation to an establishment which is a factory the owner or occupier of the
factory including agent of such owner or the person working as manager under
clause (f) of Sub section (i) of Section 7 of the Factories Act, 1949.
(ii) In relation to any other establishment the person who or the authority which
has the ultimate control over the affairs of the establishment and where the
said affairs are entrusted to a manager, managing director or managing agent.
9.4.8 SECTION 2(21) Wage or Salary: Wage or Salary means all remuneration (other
than remuneration in respect of overtime work) capable of being expressed in monetary terms
which would be if the terms of employment express or implied were fulfilled, be payable to
an employee in respect of his employment and Includes D.A. However, it does not include:
(a) Any other allowance for which an employee is entitled to for the time being;
(b) Any commission payable to the employee;
(c) Any travelling concession;
(d) The value of house accommodation, H.R.A. or of supply of light, water,
medical allowance or other amenity or of any service or of any concessional
supply of food grain or articles;
(e) Any bonus; (including incentive, production and attendance bonus);
130
(f) Any contribution paid or payable by the employer to any pension or provident
fund or for the same fit of the employee under any law for the time being in
force;
(g) Any retrenchment compensation or any gratuity or other retirement benefit
payable to the employee or any ex-gratia payment made to him.
(h) any commission payable to the employee.
Bonus payable to an employee is like a wage arid is not liable to attachment. In
Gopalan v. Angamali Chit fund it was observed by the court that the wages do not include
bonus but for the purpose of the Act it is necessary to distinguish between bonus and wages.
9.5 ESTABLISHMENTS AND PROVISIONS
With reference to bonus, the gross profit derived by an employer from an
establishment in respect of the accounting year shall:
(i) in the case of a banking company be calculated in the manner specified in the
first schedule.
(ii) in any other case it is required to be calculated in manner as mentioned in the
second schedule.
9.6 COMPUTATION
The available surplus in respect of any accounting year shall be gross profit for the
year question after deducting the amount stated in Section 6.
9.7 ELIGIBILITY AND DISQUALIFICATION
Every employee shall be entitled to receive any bonus in a given accounting year,
provided he has worked in the establishment for not less than thirty days in that year
notwithstanding anything contained in the Act. An employee shall not be entitled to any
bonus if his services are terminated on account of:
(i) Fraud; or
(ii) Riotous or violent behaviour within the establishment; or
(iii) Theft, misappropriation or sabotage of any property of the establishment.
The employees of newly set up establishment are entitled to claim bonus under the
Act from the sixth accounting year or in the year in which profits are derived whichever is
earlier. It was held in Project Manager, Ahmedabad Project, O.N.C.C. Sabarrnati v. Sham
Kutnar Sahegal (Died) by his Legal Representatives35 that when an employee is suspended, it
cannot be said that such an employee did not work for the establishment. The word ―worked‖
35
. (1995) I L.L.J. 863 (Guj).
131
in Section 8 of the Act should mean ―ready and willing to work‖. Therefore when an
employee is prevented from working by an overt act on the part of the employer, which is
ultimately set aside and the employer is reinstated in service then the reasonable inference is
that the employees‘ statutory eligibility for bonus within the meaning of Section 8 of the Act
cannot be said to have been lost. Nor can the employer refuse to accede to the demand for
such bonus if it is otherwise payable under the provisions of the Act. It was held in H.P. State
Electricity Board and Another v. Ranjeet Singh and Others,36 that the Labour Court under the
Payment of Bonus Act, 1965 can decide only matters specified in Second Schedule of the
Act. Bonus appears as item 5 in the Third Schedule. Therefore, the question of entitlement to
bonus could not have been decided by the Labour Court. It could only decide the quantum of
bonus and not its pay ability. In Himalaya Drug Co. Makali v. II Additional Labour Court,
Bangalore37, some of the workmen who were dismissed for misconduct in October 1980
claimed bonus for the accounting year ending 31st March, 1980. The Management denied
their claim on the ground that they were dismissed for misconduct mentioned in Section 9
and, therefore, were disqualified from claiming bonus. It was held that if a dispute regarding
bonus for 3 consecutive accounting years is pending under Section 22 of the Act, and the
workman is dismissed for misconduct during the third accounting year, it is not proper to
extend the scope of Section 9 to the earlier two accounting years in which the workmen had a
clean record of service and during which period he did not incur any disqualification as
provided under Section 9 of the Act. Alternatively, if the workman commits misconduct
during the accounting year 1983-84 and if he continues to work during subsequent
accounting year 1984-85 and is dismissed at the end of subsequent year, he cannot lose the
bonus for accounting year 1984-89. Hence the omission of the words ‗accounting year‘ in
Section 9 does not mean that the legislature had the intention of disqualifying the workman
from claiming bonus for all the previous years or year preceding the accounting year in
question or year/years succeeding the accounting year. Section 9 should be construed
harmoniously so that it should not conflict with other beneficial provisions of the Act.
When Section 31-A was inserted in 1976 with effect from 25th September, 1975 the
Legislature must be deemed to have in view the non-obstante clause in Section 9 and
therefore the later non-obstante clause in Section 31-A overrides earlier clause in Section 9.
Hence the right of the management to forfeit bonus on the ground that the workman was
dismissed from service for misconduct, more particularly mentioned in Section 9 of the Act,
36
. 2008 II L.L.J. 629 (S.C.)
37
. (1986) II L.L.J. 45 (Karnataka).
132
would be only with reference to the accounting year in which the said act of misconduct was
committed and not with reference to any year or years preceding or succeeding in the
accounting year in question.38 In M/s. Sriram Bearings Limited v. The Presiding Officer,
Labour Court, Ranchi & others,39 a view contrary to that expressed by Karnataka High Court
in Himalaya Drug Co. Makali v. II Additional Labour Court, Bangalore, 40 has been
expressed. It was held that the provisions of Section 9 of the Payment of Bonus Act cannot be
given a restricted meaning and the words ―an employee shall be disqualified from receiving
bonus under the Act‖ cannot be read so as to mean that the employee shall be disqualified
from receiving the bonus of the accounting year only in which he is dismissed because such
disqualification is dependent only upon the order of dismissal from service. No such
restriction in Section 9 has been put by the Legislature. Therefore, if an employee is
dismissed from services, he stands disqualified from receiving any bonus under the Act and
not the bonus only of the accounting year.41 In K.L.J. Plastics Limited, Jedimetla v. Labour
Court III, Hyderabad and others42 the second respondent was the erstwhile workman of the
petitioner company and was employed as Supervisor. He was dismissed from service for
proved misconduct of riotious and disorderly behaviour of assaulting and gheraoing
Managers of the company. The Labour Court III, Hyderabad dismissed the claim of second
respondent in respect of back-wages, arrears etc. but granted the relief in respect of bonus
payable and subsistence allowance payable. The petitioner pleaded that the Labour Court‘s
order was illegal being in violation of Section 9 of the Payment of Bonus Act. Allowing the
petition the High Court held that the disqualification imposed by Section 9 of the Act was
clear and a distinction could not be made between bonus payable subsequent to the order of
termination and that payable prior to it.

III. Fill in the blanks
(a) The Act shall apply to every establishment in which (_______) persons are
employed on any day during on accounting year.
(b) An employee who has worked in an establishment for not less than
(________) in an accounting year is eligible to be paid bonus for that
38
. Ibid.
39
. (1986) II L.L.J. 459 (Patna).
40
(1986) II L.L.J. 45 (Karnatka).
41
M/s. Shri Ram Bearings Ltd. V. The Presiding Officer Labour Court, Ranchi & others, (1986) II L.L.J. 459
(Patna.)
42
. (2002) III L.L.J. 619 (A.P.)
133
accounting year is eligible to be paid bonus for that accounting year.
(c) (___________) of the salary or wages is the minimum bonus payable in the
accounting year.
(d) Maximum Bonus payable to an employee in an accounting year is (_______)
of the salary of wages.
(e) Bonus is paid within (________) from the close of the accounting year.
9.8 PAYMENT OF MINIMUM & MAXIMUM BONUS

The act requires that where an employer has any allocable surplus in any accounting
year, then he shall be bound to pay it to every employee in respect of that accounting year, a
minimum bonus which shall be not less than 9.33% of the wages and salary earned by the
employee during the accounting year or rupees one hundred whichever is higher. However,
in case where the allocable surplus during the accounting year shall be subjected to a
maximum of 20% of such salary or wage earned by the employee during the year.
Notwithstanding anything contained in sub-Section (1) every employer is bound to
pay to every employee in respect of the accounting year commencing from on any day a
minimum bonus as prescribed by the Act.
For the purpose of bonus the allocable surplus shall be computed taking into account
the amount ―set on‖ or ―set off‖ in three immediately preceding accounting years and
accounting year in respect of which bonus is payable in the matter illustrated in the schedule.
The statutory bonus is required to be paid to all eligible employees as per provisions
of laws. However, employees are entitled to festival bonus only if there is an implied
agreement in this regard or it is paid as a customary bonus.
All employees excepting apprentice earning a wage or salary not exceeding Rs.
3500/- per month in any establishment as specified in the schedule of the act, to do any
skilled or unskilled, manual, clerical, technical, managerial and administrative work, are
entitled to bonus under the act. However the amount of bonus payable under the act is
required to be calculated on a maximum salary of Rs. 3500/- per month.
For the purpose of calculating bonus the words salary or wages means all
remuneration including dearness allowance payable to employee. However it excludes
remuneration for time work and other allowances to which an employee is entitled.
Activity 1
134
State the features of the followings:
1. Powers of Inspector
__________________________________________________________________
__
__________________________________________________________________
__
2. Power of Cognizance
__________________________________________________________________
__
__________________________________________________________________
__
9.9 SET ON AND SET OFF OF ALLOCABLE SURPLUS

The amount of bonus is required to be paid to an employee within a period of eight
months from the close of accounting year. In case of any dispute regarding payment of bonus
is pending fare any authority it is required to be paid within a period of one month from
which the award becomes enforceable or the settlement becomes operational. However, the
appropriate government may grant extension to an employer in this context, if valid reasons
are offered but the total period of extension in no case shall exceed more than two years.
9.10 REDUCTION OF BONUS
When in any accounting year an employee is found guilty of misconduct, causing
financial loss to the employer, under such circumstances, the employer is authorized to
deduct the amount of loss from the bonus payable to the guilty employee in that accounting
year. Also where an employee has not worked for all the days in accounting year, the amount
of bonus payable to him under Section 10 shall be proportionately reduced.
9.11 REFERENCE OF DISPUTES
Where any dispute crops up between the employer and employee, with respect to
bonus to be payable under this Act or with respect to the application of this Act to an
establishment in public sector then such dispute shall be deemed to be the industrial dispute
within the purview of the Industrial Disputes Act. In case of a reference of dispute under
Section 22 of this Act the machinery under the Payment of Wages Act cannot intervene.
However, in case if there is no dispute, the authority can proceed under Section 15 of the
Payment of Wages Act.
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The two types of disputes covered under Section 22 are as under:
(i) dispute with respect to the bonus payable under the Act and
(ii) with respect to application of the Bonus Act.
A dispute raised by an individual workman with regard to payment of bonus cannot
be considered as industrial dispute within purview of the Bonus Act. However the aggrieved
employee can get the dispute redressed by referring it to the labour court under Section
33C(2) of the I.D. Act.
9.11.1 PENALTY FOR OFFENCES
If any person violates any of the provisions of this act or to whom a direction is given
or a requisition is made fails to comply with the direction, he is punishable with
imprisonment for a term which may extend to six months or with fine which may extend to
one thousand rupees or both.
9.11.2 MAINTENANCE OF RECORDS
It is statutory obligation on the part of employer to maintain register in the prescribed
forms showing respectively the computation of the allocable surplus and the disbursement of
the bonus to the employees and other accounts as prescribed under the Act. Any employer
who contravenes the provisions of the Act shall be liable for punishment.
9.12 INSPECTORS (SECTION-27)
1. The appropriate Government may, by notification in the Official Gazette, appoint
such persons as it thinks fit to be Inspectors for the purposes of this Act and may define the
limits within which they shall exercise jurisdiction.
2. An Inspector appointed under sub-section (1) may, for the purpose of ascertaining
whether any of the provisions of this Act has been complied with:
a. require an employer to furnish such information as he may consider necessary;
b. at any reasonable time and with such assistance, if any, as he thinks fit, enter
any establishment or any premises connected therewith and require any one
found in charge thereof to produce before him for examination any accounts,
books, registers and other documents relating to the employment of persons or
the payment of salary or wage or bonus in the establishment;
c. examine with respect to any matter relevant to any of the purposes aforesaid,
the employer, his agent or servant or any other person found in charge of the
establishment or any premises connected therewith or any person whom the
Inspector has reasonable cause to believe to be or to have been an employee in
the establishment;
136
d. make copies of, or take extracts, from any book, register or other documents
maintained in relation to the establishment; and
e. exercises such other powers as maybe prescribed.
3. Every inspector shall be deemed to be public servant within the meaning of Indian
Penal Code (45 of 1860).
4. Any person required to produce any accounts, book, register or other document or
to give information by an Inspector under sub-section (1) shall be legally bound to do so.
9. Nothing contained in this section shall enable an inspector to require banking
company to furnish or disclose any statement or information or to produce, or give inspection
of, any of its books of account or other documents, which a banking company cannot be
compelled to furnish, disclose, produce or give inspection of, under the Provisions of Section
34A of the Banking Regulation Act, 1949 (10 o 1949).
9.13 COGNIZANCE OF OFFENCES (SECTION-30)
1. No Court shall take cognizance of any offence punishable under this Act, save on
complaint made by or under the authority of appropriate Government or an officer of that
Government (not below the rank of a Regional Labour Commissioner in the case of an officer
of the Central government, and not below the rank of a Labour Commissioner in the case of
an officer of the State Government) specially authorised in this behalf by that Government.
2. No Court inferior to that of a presidency magistrate or a magistrate of the first class
shall try any offence punishable under this Act.
9.13.1 Protection of action taken under the Act
No suit, prosecution or other legal proceeding shall lie against the Government or any
officer of the Government for anything which is in good faith done or intended to be done in
pursuance of this Act or any rule made there under.
9.13.2 Extension of the Liability of Employers
The obligation to pay the salary of the employees is co-extensive with obligation to
settle the dues of those employees who leave, retire or resign and long as a liability is
outstanding against the publication, it will have to be discharged by the management
regardless of the point of time when it assumed office, aspect of giving notice to the
employees is irrelevant and of no consequence because a statutory liability as one to pay
taxes or to pay bonus under the Payment of Bonus Act is legal duty from which one cannot
be absolved merely by giving notice.
Activity 2
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Distinguish between the followings:
Payment of Minimum Bonus Payment of Maximum Bonus
9.13.3 Effect of Laws and Agreements Inconsistent with the Act

Subject to the provisions of Section 31A, (Special provision with respect to payment
of bonus linked with production or productivity), provisions of this apply notwithstanding
anything inconsistent contained in any other law for the being in force or in the terms of any
award, agreement, settlement or contract service.
But nothing contained in this Act shall be deemed to affect the provisions of the Coal
Mines Provident Fund and Bonus Scheme Act, 1948 (46 of 1948) or of any schemes made
thereunder.
9.13.4 Power of Exemption: If the appropriate Government, having regard to the financial
position and other relevant circumstances of any establishment or class of establishments, is
of opinion that it will not be in public interest to apply all or any of the provisions of this Act
thereto, it may, by notification in the official Gazette, exempt for such period as may be
specified therein and subject to such conditions as it may think fit to impose, such
establishment or class of establishments from all or any of the provisions of this Act.
By Section 36, the appropriate Government is vested with power to exempt an
establishment or a class of establishment from the operation of the Act, provided the
Government is of opinion that with regard to the financial position and other relevant
circumstances of the establishment it would not be in public interest to apply all or any of the
provisions of the Act. Condition for exercise of the power is that the Government holds
opinion that it is not in the public interest to apply all or any of the provisions of the Act to an
establishment or class of establishments; and that opinion is based on a consideration of the
financial position and other relevant circumstances. Parliament has clearly laid down
principles and has given adequate guidance to the appropriate Government in implementing
the provisions of Section 36. The power so conferred does not amount to delegation of
legislative authority. Section 36 amounts to a conditional legislation and is not void. Whether
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in a given case power has been properly exercised by the appropriate Government would
have to be considered when that occasion arises.
9.13.5 Application of Certain Laws not Barred
Save as otherwise provided, the provisions of this Act are declared to be in addition to
and not in derogation of the Industrial Disputes Act 1947 or any corresponding law relating
to investigation and settlement of industrial disputes in force in a State. Section 39 of the
Payment of Bonus Act, expressly saves the application of the provisions of the Industrial
Disputes Act to such claims by declaring that the provision of the Payment of Bonus Act
shall be in addition to and not in derogation of the Industrial Disputes Act. Section 33-C(2) of
the Industrial Disputes Act must therefore be held applicable to such claims inasmuch as no
provision of the Industrial Disputes Act expressly provides otherwise. In other words, the
provision contained in Section 33-C(2) cannot be deemed to be excluded by necessary
implication or by any fiction of law.43
9.13.6 Rule-making Power of the Central Government (SECTION-38)

The Central Government may make rules for the purpose of carrying into effect the
provisions of this Act.
(1) In particular, and without prejudice to the generality of the foregoing power,
such rules may provide for:
(a) the authority for granting permission under the proviso to sub-clause (iii)
of clause (1) of Section 2;
(b) the preparation of registers, records and other documents and the form and
manner in which such registers, records and documents may be maintained
under Section 26;
(c) the powers which may be exercised by an Inspector under clause (e) of
sub-section (2) of Section 27; and
(d) any other matter which is to be, or may be, prescribed.
(2) Every rule made under this section shall be laid as soon as may be after it is
made, before each House of Parliament while it is in session for a total period
of thirty days, which may be comprised in one session or in two or more
successive sessions and if before the expiry of the session immediately
following the session or the successive sessions aforesaid both Houses agree
43
. Anand oil Industries v. Labour Court, Hyderabad, AIR 1979 AP 182.
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in making any modification in the rule or both Houses agree that the rule
should not be made, the rule shall thereafter have effect only in such modified
form or be of no effect, as the case may be, so, however, that any such
modification or annulment shall be without prejudice to the validity of
anything previously done under that rule.
II. True / False
(a) The claim for bonus can be made only after the close of the accounting year.
(b) Bonus is regarded as a gradations payment by an employer to his employee.
(c) Bonus motivates employees towards contributing their best efforts in the
industry employed in.
(d) Bonus payment is a statutory obligation.
(e) Wages include any bonus including incentive, production and attendance
bonus.
9.15 SUMMARY
The payment of Bonus Act provides for the payment of bonus to persons employed in
certain establishment on the basis of profits or on the basis of production or productivity. The
Act is applicable to establishments employing 20 or more persons. The minimum bonus that
an employer is required to pay even if he suffers losses during the accounting year is 9.33%
of the salary. The law pays down clear provisions for the computation of bonus. The
schedules of the Act have details for the determination of bonus based on such computation.
The labour inspectors and commissioners enforce the law and award penalties as prescribed
in the Act. The Penalty involves both imprisonment upto 6 months and a fine of upto Rs.
1000.
9.16 GLOSSARY
1. Bonus: It is a cash payment made to employees in addition to wages.
2. Customary Bonus: Festival Bonus, Puja Bonus or other customary bonus paid
by employer to an employee.
3. Interim Bonus: The employer paid a part of the Bonus payable before the date
on which such bonus becomes payable.
4. Recovery of Bonus: Any money which is due to an employee by way of bonus
from his employer can be claimed.
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(a) 20 or more
(b) 30 working days
(c) 9.33%
(d) 20%
(e) 8 months
(a) True
(b) False
(c) True
(d) True
(e) False
9.18 SUGGESTED READING

1. A.M. Sharma, 1981, Aspects of Labour Welfare and Social Security, Himalaya Publishing
House; Bombay.
2. S.L. Agarwal, 1980, Labour Regulations Law in India, Macmillan Company of India Ltd.,
New Delhi.
3. S.N. Misra, 1970, Labour & Industrial Laws, Central Law Publications, Allahabad.
4. Bare Acts, The Payment of Bonus Act, 1965
9.19 REFERENCES
1. Mill Owners‘ Association, Bombay v. Rashtriya Mill Mazdoor Sangh, L.L.C., 1952,
423.
2. 1970, 2, L.L.J. 91, Madras.
3. Gopalan v. Anagamali Chit Fund, A.I.R. 1977, Kerala, 120.
4. Gopalan v. Anagamali Chit Fund, A.I.R. 1977, Kerala, 120.
5. J.B.K. Panchayat v. J. E. Supply Co., A.I.R. 1972, S.C. 70.
6. Labour Inspector v. Authority, Payment of Wages Act, (1976), I. LLJ, 511, M.P.
7. Anand Oil Industries v. Labour Court, Hyderabad, A.I.R., 1973, A.P. 182.
9.20 Terminal and Model questions

1. Explain the scope and application of payment of Bonus Act, 1969.
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2. State the computation of Bonus provided under the Act alongwith the deductions
given under it.
3. Write the powers of the Inspectors in relation to the enforcement of law.
4. State the provisions relating to Bonus with ‗Set on‘ or ‗set off‘ scheme.
5. Explain the meaning and objectives of the payment of Bonus Act, 1969.
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Chapter 10
Trade Union Act 1926
Structure
Objectives
10.1. Introduction
10.2. Definition
10.10. Recognition of Trade Unions
10.4. Registration – Mode and Application
Provisions to be mentioned in the rules of a Trade Union
10.5. Certificate of Registration
10.6. Cancellation of registration
10.7. Rights of Trade Union
10.8. Returns / Liabilities of Trade Union
Miscellaneous Provisions
10.9. Amendment Act 2001
10.10 Check your Progress
10.11 Summary
10.12 Glossary
10.13 Answer to Check Your Progress
Objectives
Dear student, after reading this lesson, you will be able to:
a. Explain the registration of trade union.
b. Discuss various rights and liabilities of registered trade union
c. Get an overview of the amendment of trade union Act 2001
d. Describe the amalgamation, dissolution and penalties in trade union
10.1. Introduction
Trade Union is defined as any temporary or permanent combination, formed primarily
for the purpose of supervising, maintaining and improving the relations between workmen
and employers or between workmen and workmen or between employers and employers, or
for imposing restrictive conditions on the conduct of any trade or business, and includes any
federation of two or more trade unions.
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Workers employed in a common or specific trade, industry or company when
voluntarily organize with aim of collectively protecting their welfare and interests, basically
constitute a Trade union. To improve the relations between employer and employees the trade
union is the best suitable organization owing to its grassroots presence and hence, a better
understanding of strengths, needs and duties of both sides. Workers as a part of trade union
are disciplined based on internal code of conduct guided by predefined group norms and
more accountable and responsible in terms of implications of their collective actions. It also
helps employees to ascertain and meet the demands relating to welfare and working terms,
present as well as future.
Every registered Trade Union owing to the attained legal status exists as a body,
nature of which shall be based on characteristics of perpetual succession and a common seal
to undertake obligations and affix approvals in addition to power to deal in terms of acquiring
and holding both movable and immovable property, as well as enter into to a contract, and
shall by the name under which it is registered sue and be sued.
The genesis of the Act lies in necessity for procedures related to registration of Trade
Unions as well as post-registration working, rights necessary to avoid demeaning lawsuits in
pursuit of its founding objectives, as well as liabilities arising out of its legal status. The
requirement of necessary protection from criminal conspiracy laws and civil suits in pursuit
of genuine & legitimate member welfare and trade related activities, was recognized by The
Royal Commission on Labour in India. The Applicability of The Trade Union Act extends to
the whole of India including the state of Jammu and Kashmir. Its provisions came into force
on June 1st, 1927. In this lesson, students will be acclimatized with the legal framework
stipulated under the Trade Unions Act, 1926.
Besides specifying the procedure for registration of union, this Act lays down the
guidelines for the day to day working of the registered unions. It also defines their rights and
obligations of the registered Trade Union.
10.2. Definition44
Section 2(h) of Trade Union Act 1926 provides statutory definition of Trade Union as
―any combination, whether temporary or permanent, formed primarily for the purpose of
regulating the relations between workmen and employers or between workmen and workmen,
44
Trade Union Act 1926
144
or between employers and employers, or for imposing restrictive conditions on the conduct of
any trade or business, and includes any federation of two or more Trade Unions‖.
―The applicability of said Act is limited to the extent that it shall not affect:
(i) any agreement between partners as to their own business;
(ii) any agreement between an employer and those employed by him as to such
employment;
(iii) any agreement in consideration of the sale of the good-will of a business or of
instruction in any profession, trade or handicraft.
It should be understood that the Act is applicable for both employers‘ associations as well
as workers‘ unions.‖
Trade Union Act, 1926
The Trade Union Act 1926 allows association of employees into a legally formed
Trade Union, and provides procedure for registering the Trade Union under said Act hence,
providing a legal status that of a body corporate. As a separate legal entity from its members,
said body corporate can hold moveable and immoveable property as well as enter into
contract in its registered name and has the power to sue and can be sued in a court of law, and
all such characteristics as per the Companies Act. The Act provides Trade Unions certain
rights enabling immunities in pursuit of bona fide trade union activities from civil and
criminal prosecution. The Union can rely for the day-to-day activities on the General Fund
contributions from its members and too can indulge in political activities based on non-
mandatory Political Fund contributions.
The primitive labour organizations originated in India during the dusk of the 19th
century; however, the evolution of the Modern Trade Unions can only be traced to the First
World War in 1914. The challenges while working for promotion and safeguarding interests
of member workers‘ to these associations in wake of increasing members and overall increase
in number of unions, were the open hostilities of the employers and the public authorities.
However, legislative relief was absent to them, such hardships had been faced by their British
counterparts much earlier since Common Law didn‘t provided any special legislation
protecting their status. Indian Penal Code though applicable since 1860, the interpretation of
its section 120(B) which dealt with criminal conspiracy, raised considerable doubts with
respect to the legality of trade unions. Additionally, restraint of trade activities of such
associations may be within the contrasting Section 27 of Indian Contract Act 1872 which
stipulated that, ―Every agreement by which any one is restrained from exercising a lawful
profession, trade or business of any kind is to that extent void.‖
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More light can be shed on the situation faced by trade associations under prevalent
statutes and the Common Law from then decision of the High Court of Madras in 1921, in a
case titled M/s. Binny and Company (Managing Agents of the Buckingham Mills) vs. the
Madras Labour Union. Common Law of England acted as foundation of the decision which
declared the trade unions as illegal conspiracy and issued injunctions on the leaders of the
Madras Labour Union, hence putting restrains in terms of instigating workmen to break their
contracts with their employer, further penalizing with imprisonment order. Though, the case
was withdrawn, the attitude of the courts towards trade unions became publically obvious
confirming the doubts regarding the repetition in India with respect of legal prosecution that
British Trade Unions faced in their early days causing wide resentment among unionists, as
well as recognition of need to adequately amend the erstwhile Common Law by a specific
statute guaranteeing to the workers the right to organize. Thus, it led to rising of demands for
a legislation which accomplishes recognition of workers‘ right to organize and to engage in
concerted activities. The same year, the Legislative Assembly adopted a resolution moved by
N.M. Joshi, the then general secretary of the AITUC, urging immediate steps for registration
of trade unions and protection of the legitimate trade union activities. Subsequently the local
government submitted to Government of India, collective views on certain related issues such
as recognition of strikes, rights providing protection to unions from civil and criminal
lawsuits, management of unions among others from public bodies as well as private persons.
After receiving the view of the local governments, the Government of India drew up a Bill
subsequently introduced in the Legislative Assembly on August 31st, 1925 and passed the
next year as the Indian Trade Unions Act, 1926. The Act with subsequent amendments is still
in force.
The said Act enabled protection of Indian Trade Unions from the hardships that Great
Britain‘s Trade Unions faced in terms of prosecutions for about 100 years under Common
Law and Combination Acts. This early protection however, maybe intrinsically weakening,
since Indian Trade Unions never witnessed the toughness and unity which Great Britain‘s
Trade Unions acquired during their struggle for existence.
10.10. Recognition of Trade Union45
The Bombay Industrial Relations Act, 1946, classified the registered unions as:
1. Representative union as one with membership of not less than 25% of the total employees
in an industry as its members;
45
www.labour.nic.in
146
2. Qualified union as one with at least 5% of membership in an industry; and
10. Primary union as one with a membership of at least 15% of employees in an undertaking.
The rights of a Representative union under the Act are:
1. First preference to appear as the representative of employees in any proceedings under the
Act;
2. Right to submit a dispute for arbitration;
10. To make a special application to the Labour Court to hold an inquiry; and
4. Office-bearers of the union cannot be dismissed or discharged.
One of the long pending problems of the Indian Industrial Relations System is to
evolve a satisfactory and acceptable means of setting the problem of recognising a bargaining
agent from out of rival unions. Collective bargaining cannot exist and function without
recognising the bargaining agent. Since there is no law for compulsory recognition of trade
unions, it is left to the choice of the employees. In view of the union rivalry and multiple
unions, the employer finds it difficult to recognise a union in the context of political
affiliation. The employer may -recognise those unions with the highest number of members.
But more than one union may claim the highest number of membership in view of dual and
multiple memberships. Efforts have been made to bring about legislative measures for
compulsory recognition of unions immediately after Independence.
The Bombay Industrial Relations Act 1946 provided for the largest trade union in an
undertaking with a total membership of at least 15% of the workforce. Madhya Pradesh and
Rajasthan laid down, more or less, similar conditions for the recognition of a representative
union. In other States, unfortunately, there is no statutory provision for union recognition
(they follow the Code of Discipline adopted in 1958).
The basic purpose of negotiation and bargaining for improvement of employment
terms and working conditions on workers behalf with employer, are fulfilled by a trade union.
The Trade Union Act, 1926 although, the only central legislature with provisions
regarding regulation of working of the unions, lacks in terms of absence of any provision for
recognition of trade unions in terms of compulsory registration and dominant union strength.
Failed attempts in 1947, 1950, 1978 and 1988 were made to include compulsory recognition
in the Trade Union Act. However, state legislations namely The Maharashtra Recognition of
Trade Union and the Prevention of Unfair Labour Practices Act 1971, the Madhya Pradesh
Industrial Relations Act, 1960 and in other states like Gujarat, Andhra Pradesh and Orissa,
etc., have opted for such legislations gradually.
147
The commonly used methods to determine union strength as the basis for recognition
are as follows:
1. Election by Secret Ballot: The method is similar to that of conducting general elections,
where generally The Registrar of Unions acts as a neutral agent and all eligible workers in an
establishment vote for union of their choice. The results shall be valid for usually two years,
or any other prescribed minimum period.
2. Check-off Method: The method is concrete but subject to all unions accepting and
cooperating in implementation of the system where each individual worker in writing gives
consent to deduction of union fees from his/her wages towards a particular union, hence
accumulatively gives data to management regarding respective strengths of unions. However,
error rate may increase in case of large number of employees and can be manipulated by
collusion between management and their favoured union.
10. Verification of the union membership method by the labour directorate is used widely
in many establishments. Upon invitation by the Union and management of an organisation /
industry, Labour Directorate collects details regarding registration and membership of each
union, while duplicity in membership is identified through fees books, membership and
accounts books which may be fortified with physical sampling of workers, and hence a final
verified list is prepared for employers, unions and the government.
4. Rule of Thumb / intelligent guessing by management / general observation to assess
the union strength is an unreliable method in case of large organizations and variations too
occur at short intervals, and is done either on basis of responses at gate meetings, strikes or
discussions with employees.
Election by Secret Ballot is the universally accepted method used all over the world
however there is no consensus over the method among Indian trade unions.
The Second National Commission of Labour (2003) deliberated on the issues related
to identification of union strength and made the following recommendations:
1. Recognition of the negotiating agent should be based on the check off system, where 66%
membership is the threshold for acceptance as single negotiating agent, and otherwise,
proportionate representation to the union with more than 25% supporters.
2. Check off system is a superior to Secret Ballot in certain industries, in terms of procedural
simplicity and financial requirements.
They recommended compulsory use of check off system in establishments employing
300 or more workers, and be the preferred mode for less than 300 workers also. Recognition,
148
once granted, should be valid for a period of four years, to be in sync with the period of
settlement.
Voluntary Recognition under the Code of Discipline, 1958: With the consensus of
employers, employees and the Government, the following criteria for the recognition of
unions were drawn up under the Code of Discipline which was adopted at the 16th Indian
Labour Conference.
1. Where there is more than one union, a union claiming recognition should have been
functioning for at least one year after recognition, not applicable where there is only one
union.
2. The membership of the union should cover at least 15% of the workers in the
establishment concerned. Membership should be counted only of those who had paid their
subscriptions for at least three months during the period of six months immediately preceding
recognition.
10. The threshold for claiming to gain recognition as an industry‘s representative union shall
be membership of at least 25 per cent of the workers of that industry in that area.
4. When a union has been recognised, there should be no change in the position for a period
of 2 years.
5. The union with the largest membership should be recognized among several unions in an
industry or establishment.
6. A particular establishment‘s union with 59% membership should have the right to deal
with local matters such as members‘ grievance handling. Other workers may seek redress
directly, or operate through the representative union which shall represent workers in all
establishments in the industry.
7. Following Code of Discipline mandatory for recognition entitlement of union.
8. Separate dealing with recognition of trade union federations not affiliated to any of the four
central organisations of labour.
Verification of Trade Union Membership46
Employers often face difficulties (even when observing the above criteria) while
verifying the majority character of the union to be recognised when there is more than one
union. At present the Labour Department, on the request of the management, does the
verification work taking the following things into account:
46
www.indiakanoon.org
149
1. Details of existing unions in the establishment i.e. their date of registration; whether the
existing recognised union has completed a two year period; whether any of the unions
violated any conditions of the Code of Discipline etc
Within 10 days the unions claiming recognition and other existing unions will have to
produce documentary proof to the verification officer regarding details about union‘s
membership, subscription list of members who have paid subscriptions for 3 months out of
the preceding 6 months, books of account, bank statements, etc.
2. Where there are two or more unions, all of them have to furnish the above details. If they
fail to produce the above data, the verification officer may, after giving 10 days‘ notice,
decide the issue as per the evidence collected and facts obtained.
10. The verification process is done in the presence of unions furnishing the above stated data
where the muster rolls of the firm are usually inspected to see whether the members‘ names
tally with the employment register.
4. The concerned unions can recheck the verified list and forward objections, if any, to the
verification officer. In case of objections regarding dual membership, the officer talks to the
concerned workers and draws his own conclusions (based on personal interrogation).
5. The verification officer will then submit the report to the Government as well as the
management of the firm.
Verification, thus, is a contentious and time-consuming process. Most trade unions in
India do not maintain their membership records properly and even after several requests from
the Labour Department do not furnish membership register as well as receipts. Again,
verifying common names appearing in the Trade Union registers is not an easy task, with
claims and counterclaims coming from various quarters. Some of the unions do not agree to
the secret ballot too, which is adopted to find out the truth behind the curtain. The ‗secret
ballot‘ itself is a critical proposition because leaders may make promises outside the purview
of their abilities to fulfil or maybe divide and rule principle along caste, community, religion,
linguistic and regional lines. For short-term gains, the leaders may divide the illiterate
workers playing on sentimental and emotional issues and, in the process, damage the
harmonious relations within the unit permanently.
The Check-off System
Check-off system is, often, being advocated as a useful way of verifying the
membership claims of rival unions within a unit. In this system the membership fee is
collected through the payroll at the time of payment of wages. The amount so collected by
the employer will directly go into the account of the concerned union. The subscription
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figures of each union following the check-off system, thus, offer reliable evidence of its
membership and the same can be used to determine its representative character or otherwise
rights of a Representative Union.
The Code of Discipline mentions the following rights of a recognised union:
(a) enter into a collective agreement with employer regarding terms of employment and
service conditions
(b) Collect subscription from members within the premises
(c) Put up a notice board within the unit and use it for its regular announcements relating to
meetings etc.
(d) Hold discussions with its members inside the unit
(e) discuss the grievances of its members with the management
(f) Inspect any place in the undertaking, where any member of the union is employed
(g) Finally, appoint its nominees on joint consultative bodies and committees.
Need for resolution of the problems emerging out of multiplicity of trade unions have
created the necessity for recognition of a trade union as a negotiating agent. The need for it in
form of a central legislation, is immediate since employers and workers are its mutual
beneficiaries owing to the strength, opportunity for understanding and mutual appreciation
and, thus, opportunity for a matured employer-union relationship.
The Trade Unions Act, 1926 and Legal Framework
This Act is a Central legislation, but its administration and enforcement lies with the
State Governments. They appoint Registrars of Trade Unions, and Additional or Deputy
Registrars too, who may exercise the functions of the Registrar. They have been provided the
powers to make rules for giving effect to provisions of the Act. (Section 3)
10.4. Registration
The Trade Unions Act, 1926, legalises the formation of trade unions by allowing
employees the right to form and organise unions. ―It permits any 7 persons to form their
union and get it registered under the Act., and such application shall not be deemed to have
become invalid merely by reason of the fact that, at any time after the date of the application,
but before the registration of the Trade Union, some of the applicants, but not exceeding half
of the total number of persons who made the application, have ceased to be members of the
Trade Union.‖ (Section 4)
―They must agree to abide by the provisions of the Act relating to registration and
submit a copy of the rules of the trade union in their application to the Registrar of Trade
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Unions. If the union has been in existence for more than one year, the application must be
accompanied by a statement of assets and liabilities of the union.‖ (Section 5)
The application must contain (a) the names, occupations and addresses of the
members (b) name of the union, its Head Office (c) details about office bearers. After
verifying the particulars, the Registrar will issue a certificate of registration in the prescribed
form.
However, Under Section 6, the rules of the trade union thereof should provide for the
following matters, namely:
 the name of the Trade Union;
 the whole of the objects for which the Trade Union has been established;
 the whole of the purposes for which the general funds of the Trade Union shall be
applicable (As permitted by this Act)
 the maintenance of a list of the members of the Trade Union and adequate facilities
for the inspection thereof by the office-bearers and members of the Trade Union;
 the admission of ordinary members who shall be persons actually engaged or
employed in an industry with which the Trade Union is connected, and
 the conditions under which any member shall be entitled to any benefit assured by the
rules and under which any fine or forfeiture may be imposed on the members;
 the manner in which the rules shall be amended or rescinded;
 the manner in which the members of the executive and the other office-bearers of the
Trade Union shall be appointed and removed;
 the safe custody of the funds of the Trade Union, an annual audit, in such manner as
may be prescribed, of the accounts thereof, and adequate facilities for the inspection
of the account books by the office-bearers and members of the Trade Union; and
 the manner in which the Trade Union may be dissolved.
Status of a Registered Union: A trade union enjoys the following advantages after
registration:
1. It becomes a body corporate
2. It gets a common seal
10. It can buy and hold movable and immovable property
4. It can enter into contracts with others
5. It can sue and be sued in its name.
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10.5. Certificate of registration
Under Section 9, ―The Registrar, on registering a Trade Union under section 8, shall issue a
certificate of registration in the prescribed form which shall be conclusive evidence that the
Trade Union has been duly registered under this Act.‖
10.6. Cancellation of Registration

Under Section 10, ―The Registrar of Unions can cancel the registration of a union on the
following grounds:
1. On the application by the union
2. Where the application was obtained by fraud or mistake
10. Where the union has ceased to exist
4. Where it has wilfully and after notice from the Registrar contravened any provisions of the
Act or allowed any rule to continue in force which is inconsistent with any provisions of the
Act
5. Where the union has rescinded any rule providing for any matter, provision for which is
required by Section 6
6. Where the primary objects of the union are no longer in agreement with the statutory
objects.‖
Appeal
Under Section 11, ―Any person aggrieved by any refusal of the Registrar to register a Trade
Union or by the withdrawal or cancellation of a certificate of registration may, within such
period as may be prescribed, appeal
(a) where the head office of the Trade Union is situated within the limits of a
Presidency-town to the High Court, or
(b) where the head office is situated in any other area, to such Court, not
inferior to the Court of an additional or assistant Judge of a principal Civil
Court of original jurisdiction
The appellate Court may dismiss the appeal, or pass an order directing the Registrar to
register the Union and to issue a certificate of registration or setting aside the order for
withdrawal or cancellation of the certificate, as the case may be, and the Registrar shall
comply with such order.
In the event of the dismissal of an appeal, the person aggrieved shall have a right of
appeal to the High Court, and the High Court shall, for the purpose of such appeal, have all
the powers of an appellate Court.‖
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Registered office
Under Section 12, ―All communications to the Trade Union may be addressed to its
registered office. Notice of any change in the address of the head office shall be given within
fourteen days of such change to the Registrar in writing.‖
Under Section 14, ―Certain Acts not to apply to registered Trade Unions. The following Acts,
namely:
(a) The Societies Registration Act, 1860
(b) The Co-operative Societies Act, 1912,
(c) The Companies Act, 1956, shall not apply to any registered Trade
Union, and the registration of any such Trade Union under any such Act
shall be void.‖
10.7. Rights
Under Section 18, ―Any
1. Claim immunity from civil and criminal prosecution for bonafide trade union activities
2. Create a political fund
10. Spend general funds on salaries of staff and meet certain other expenses as stated in the
Act
4. Can represent workers to the works committee
If a union is formed by giving wrong information or registration is obtained through
fraudulent means, the Registrar of Trade Unions can cancel such registration by giving 2
months‘ notice stating reasons.‖
Objects on which general funds may be spent
Under Section 15, ―The general funds of registered Trade union shall not be spent on any
other objects than:
 the payment of salaries, allowances and expenses to office-bearers of the Trade
Union;
 the payment of expenses for the administration of the Trade Union, including audit of
the accounts of the general funds of the Trade Union;
 the prosecution or defence of any legal proceeding to which the Trade Union or any
member thereof is a party, when such prosecution or defence is undertaken for the
purpose of securing or protecting any rights of the Trade Union;
 the conduct of trade disputes on behalf of the Trade Union or any member thereof;
 the compensation of members for loss arising out of trade disputes;
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 allowances to members or their dependants on account of death, old age, sickness,
accidents or unemployment of such members;
 the undertaking of liability under, policies of assurance on the lives of members, or
under policies insuring members against sickness, accident or unemployment;
 the provision of educational, social or religious benefits for members (including the
payment of the expenses of funeral or religious ceremonies for deceased members) or
for the dependants of members;
 the upkeep of a periodical published mainly for the purpose of discussing questions
affecting employers or workmen as such;
 the payment, in furtherance of any of the objects intended to benefit workmen in
general, provided that the expenditure in respect of such contributions in any financial
year shall not be in excess of one-fourth of the combined total of the gross income
which has up to that time accrued to the general funds of the Trade Union during that
year and of the balance at the credit of those funds at the commencement of that
year.‖
Constitution of a separate fund for political purposes
Under Section 16, ―A registered Trade Union may constitute a separate fund, from
contributions separately made to that fund, from which payments may be made, for the
promotion of the civic and political interests of its members, in furtherance of any of the
following objects
 the payment of any expenses incurred, either directly or indirectly, by a candidate or
prospective candidate for election as a member of any legislative body constituted
under the Constitution or of any local authority, before, during, or after the election in
connection with his candidature or election; or
 the maintenance of any person who is a member of any legislative body constituted
under the Constitution or of any local authority; or
 the holding of political meetings of any kind, or the distribution of political literature
or political documents of any kind.
No member shall be compelled to contribute to the political fund and a member who does
not contribute to the said fund shall not be excluded from any benefits of the Trade Union, or
placed at any disadvantage as compared with other members of the Trade Union (except in
relation to the control or management of the said fund) by reason of his not contributing to
the said fund; and contribution to the said fund shall not be made a condition for admission to
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the Trade Union.‖
Criminal conspiracy in trade disputes
Under Section 17, ―No office-bearer or member of a registered Trade Union shall be liable to
punishment under party to criminal conspiracy charges (sub-section (2) of section 120B
Indian Penal Code), in respect of any agreement made between the members for the purpose
of furthering any such object of the Trade Union as is specified in section 15, unless the
agreement is an agreement to commit an offence.‖
Immunity from civil suit in certain cases
Under Section 18, ―Any registered Trade Union or any office-bearer or member thereof
cannot be subjected to a Legal Proceeding in any Civil Court, respect to any act done in
furtherance of a trade dispute to which the member of the Trade Union is a party on the
ground of an act of inducing some other person to break a contract of employment or act in
interference with the trade, business or employment of some other person or a person‘s right
to dispose of his capital or his labour as he wills.
A registered Trade union shall not be liable in any suit or other legal proceeding in
any civil court in respect of any wrongful act done in furtherance of a trade dispute by an
agent of the Trade Union if it is proved that such person acted without the knowledge or
contrary to express instructions by Trade Union executive.‖
Enforceability of agreements
Under Section 19, ―An agreement between the members of a registered Trade Union shall not
be void or voidable merely by reason of the fact that any of the objects of the agreement are
in restraint of trade. Hence, a legal proceeding to enforce or recover damages for breach of
any agreement concerning the terms on which the any member of a Trade Union shall or shall
not sell their goods, transact business, work, employ or be employed can‘t be entertained in a
Civil Court.‖
Right to inspect books of Trade Union
Under Section 20, ―The account books of a registered Trade Union and the list of members
thereof shall be open to inspection by an office-bearer or member of the Trade Union at such
times as may be provided for in the rules of the Trade Union.
Obligations
Under Section 21, ―Under the act it is obligatory for the union to:
1. Allow anyone above the age of 15 years to be a member of the union
2. Collect membership fees not less than 25 paise per month and per member
10. Specify that 50% of office bearers must be from the persons actually employed
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4. Maintain membership register, get the books of account audited and make them available
to members
5. State the procedure for change of its name, its merger with other unions and its dissolution
6. Spend uniform funds for the purposes specified in the Act.
Rights of minors to membership of Trade Unions
Any person who has attained the age of fifteen years may be a member of a registered
Trade Union subject to any rules of the Trade Union to the contrary.‖
Disqualifications of office-bearers of Trade Unions
Under Section 21A, ―A person shall be disqualified for being chosen as, and for being, a
member of the executive or any other office-bearer of a registered Trade Union if-- he has not
attained the age of eighteen years, and/or he has been convicted by a Court in India of any
offence involving moral turpitude and sentenced to imprisonment, unless a period of five
years has elapsed since his release.‖
Proportion of office-bearers to be connected with the industry
Under Section 22, ―Not less than one-half of the total number of the office-bearers of every
registered Trade Union shall be persons actually engaged or employed in an industry with
which the Trade Union is connected, unless appropriate Government may, by special or
general order, declare that the provisions of this section shall not apply to any Trade Union or
class of Trade Unions specified in the order.‖
Change of Name
Under Section 23, ―Any registered Trade Union may, with the consent of not less than two-
thirds of the total number of its members can change its name. The change takes place from
the date it is registered by the Registrar.‖
Amalgamation
Under Section 24, ―Any two or more registered Trade Unions may amalgamate into
one, with or without dissolution or division of funds of individual Trade Unions, provided at
least one-half of the members of each such Trade Union vote and at least sixty percent of
recorded votes are in favour of the amalgamation proposal.‖
Further, Under Section 24, ―Notice in writing of every change of name of every
amalgamation, signed by the Secretary and by seven members of each and every Trade Union
which is a party thereto, shall be sent to the Registrar (of previous and new amalgamated
trade union‘s head office state), which will be registered provided that proposed name isn‘t
identical to existing Trade Union as per discretion of the Registrar.‖
Under Section 25, ―The Registrar of the State in which the head office of the
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amalgamated Trade Union is situated shall, if he is satisfied that the provisions of this Act in
respect of amalgamation have been complied with and that the Trade Union formed thereby
is entitled to registration.‖
Under Section 26, ―The change in the name of a registered Trade Union shall not
affect any rights or obligations, and any legal proceeding which might have been continued
or commenced by or against it by its former name may be continued or commenced by or
against it by its new name. An amalgamation of two or more registered Trade Unions shall
not prejudice any right of a creditor of any of them.‖
Dissolution
Under Section 27, ―When a registered Trade Union is dissolved, notice of the dissolution
signed by seven members and by the Secretary of the Trade Union shall, within fourteen days
of the dissolution, be sent to the Registrar, and shall be registered by him if he is satisfied that
the dissolution has been effected in accordance with the rules of the Trade Union.
Where the dissolution of a registered Trade Union has been registered and the rules of
the Trade Union do not provide for the distribution of funds of the Trade Union on
dissolution, the Registrar shall divide the funds amongst the members in such manner as may
be prescribed.‖
10.8. Liabilities
1. A registered union should maintain books of account and a list of members
2. Should keep books and the list open for inspection by members
10. Should have office bearers who do not suffer from the disqualifications prescribed under
the TU Act, 1926
4. Should submit statements of receipts, expenditure, assets, liabilities etc., to the registrar of
trade unions
5. Should give correct information to persons intending to become members.
Returns
Under Section 28, ―A general statement audited in the prescribed manner, of all receipts and
expenditure of every registered Trade Union during the year ending on the 31st day of
December next preceding such prescribed date, and of the assets and liabilities of the Trade
Union existing on such 31st day of December shall be sent annually to the Registrar, on or
before such date as may be prescribed.
Together with the general statement, there shall be sent to Registrar a statement
showing all changes of office-bearers made by the Trade Union during the year together with
a copy of corrected up to date rules of Trade Union. A copy of every alteration made in the
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rules of a registered Trade Union shall be sent to the Registrar within fifteen days of the
making of the alteration.
The Registrar, or any officer authorised by him, by general or special order, may at all
reasonable times inspect the certificate of registration, account books, registers, and other
documents, relating to a Trade Union, at its registered office or may require their production
at such place as he may specify in this behalf, but no such place shall be at a distance of more
than ten miles from the registered office of a Trade Union.‖
Penalties
Under Section 31 and 32, ―In case of wilful false entry or omission in general statement to be
submitted with the Registrar, a fine upto Rs 500 can be imposed.
A penalty upto Rs 200 can be imposed for giving incorrect copy of the rule or other
documents with intention to deceive a union member or such person intending to be a
member.
If default is made on the part of any registered Trade Union in giving any notice or
sending any statement or other document as required by or under any provision of this Act,
every office- bearer or other person bound by the rules of the Trade Union to give or send the
same, or, if there is no such office-bearer or person every member of the executive of the
Trade Union, shall be punishable, with fine which may extend to five rupees and, in the case
of a continuing default, with an additional fine which may extend to five rupees for each
week after the first during which the default continues. The aggregate fine shall not exceed
fifty rupees.‖
Cognizance of offences
Under Section 33, ―No Court inferior to that of a Presidency Magistrate or a Magistrate of the
first class shall try any offence under this Act.
 No Court shall take cognizance of any offence under this Act, unless complaint
thereof has been made by, or with the previous sanction of, the Registrar or, in the
case of an offence under section 32, by the person to whom the copy was given,
within six months of the date on which the offence is alleged to have been
committed.‖
10.9. The Trade Unions (Amendment) Act, 2001
Amendment of section 4 stated that, ―Provided that no Trade Union of workmen shall be
registered unless at least ten per cent or one hundred of the workmen, whichever is less,
engaged or employed in the establishment or industry with which it is connected are the
members of such Trade Union on the date of making of application for registration. Provided
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further that no Trade Union of workmen shall be registered unless it has on date of making
application not less than seven persons as its members, who are workmen engaged or
employed in the establishment or industry with which it is connected.
Amendment of section 5 stated that, ―In case of a Trade Union of workmen, the names,
occupations and addresses of the place of work of the members of the Trade Union making
the application shall be mentioned.‖
Amendment of section 6 stated that, ―The payment of a minimum subscription by members
of the Trade
Union which shall not be less than-
(i) one rupee per annum for rural workers;
(ii) three rupees per annum for workers in other unorganised sectors;
(iii) twelve rupees per annum for workers in any other case
The duration of period being not more than three years, for which the members of the
executive and other office-bearers of the Trade Union shall be elected.‖
Amendment of section 9 stated that, ―A registered Trade Union of workmen shall at all
times continue to have not less than ten per cent. or one hundred of the workmen, whichever
is less, subject to a minimum of seven, engaged or employed in an establishment or industry
with which it is connected, as its members.‖
Amendment of section 10
Relates to Cancellation of Licence, if the Registrar is satisfied that a registered Trade
Union of workmen ceases to have the requisite number of members.
Amendment of section 11 stated that, ―In case of Appeal the case may be entertained,
where the head office is situated in an area, falling within the jurisdiction of a Labour Court
or an Industrial Tribunal, to that Court or Tribunal, as the case may be.‖
Substitution of new section for section 22 stated that, ―Proportion of office-bearers to be
connected with the industry shall be:
(1) Not less than one-half of the total number of the office-bearers of every registered Trade
Union in an unorganised sector shall be persons actually engaged or employed in an industry
with which the Trade Union is connected
(2) Save as otherwise provided in sub-section (1), all office-bearers of a registered Trade
Union, except not more than one-third of the total number of the office-bearers or five,
whichever is less, shall be persons actually engaged or employed in the establishment or
industry with which the Trade Union is connected.
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Hence, an employee who has retired or has been retrenched shall not be construed as outsider
for the purpose of holding an office in a Trade Union.
(3) No member of the Council of Ministers or a person holding an office of profit (not being
an engagement or employment in an establishment or industry with which the Trade Union is
connected), in the Union or a State, shall be a member of the executive or other office-bearer
of a registered Trade Union.‖
1. Which of the following is the right of Registered Unions?
(a) Right to collect membership fees within the premises of the organisation.
(b) Right to raise issues with the management
(c) Right to discuss member‘s grievances with employer
(d) All of the above.
2. Which sections of the Trade Union Act 1926, grant immunity to registered Trade Unions
from civil suits?
(a) Sec. 19,
(b) Sec. 18
(c) Sec.14
(d) Sec.13
10. Which of the following Acts shall not be applied to a Registered Trade Union?
(a) The Societies Registration Act, 1860
(b) The Co-operative Societies Act, 1912
(c) The Companies Act, 1956
(d) All of the above
4. Under which of the following conditions Registrar can withdraw or cancel registration of
the Trade Union by giving 2 months notice?
(a) If the registration has been obtained by fraud or mistake
(b) If the Trade Union has ceased to exist.
(c) If it has wilfully contravened any of the provisions of the Act.
5. Which of the following constitute the obligations of Registered Trade Unions?
(a) The general funds can only be spent on few specific objects under Section 15
(b) The Account books and membership register should be kept open
(c) A copy of every alteration made in the union rules should be sent to the registrar within 15
days
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6. Which of the following is / are the features of Trade Union?
(a) An association of employers, employees or independent workers.
(b) A permanent body, not a casual or temporary
(c) Negotiation and collective bargaining are its tools
7. Which of the following documents are to be submitted to the Registrar for the registration
of a Trade Union?
(a) Application in form A
(b) Minutes of the General Body Meeting
(c) Form F membership Register
8. Where can an appeal be made on any refusal of a Registrar to register a trade union or
cancellation of registration?
(a) Where the head office of the Trade Union is situated
(b) To High Court
(c) Either „a‟ or „b‟
(d) None of the above
9. Which of the following is the main reason for disqualification of office-bearers of Trade
Unions? (a) If the applicant has not attained the age of eighteen years
(b) If the applicant has been convicted by a Court in India of any offence involving moral
turpitude
(c) If the applicant has been sentenced to imprisonment and a period of five years has not
been passed since his release
10. Which of the following is / are the main provisions to be contained in the rules of Trade
Union? (a) The objects for which the Trade Union has been established
(b) List of the members of the Trade Union
(c) The manner of election of office bearers
10.11 Summary
In the present shape, the Trade Union Act, 1926 does not serve the purpose and requires
immediate amendment to make it more useful. The non-existence of provisions on
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Recognition of Trade Unions makes the Collective Bargaining processes absolutely difficult
and industry faces acute difficulties in shape of inter-union rivalry and multiplicity of trade
unions, having no or negligible following. These conditions continue to be so despite S.C.
(1995) judgement in Food Corporation of India Staff Union Vs. Food Corporation of India
and others, where it was held that where more than one union claim representative character,
the method of secret ballot should be adopted to ascertain the correct position as regards the
membership of different Trade Unions. Many of the State Governments have gone for
enacting legislation to determine representative character, but Central Government dithers to
do so; obviously under the :pressure of vested interests.
10.12 Glossary
Amalgamation: The combination of one or more companies into a new entity.
Authorities: Institutionalized and legal power inherent in a particular job, function, or
position that is meant to enable its holder to successfully carry out his or her responsibilities.
Commissioner: Commissioner is in principle the title given to a member of a commission or
to an individual who has been given a commission.
Dissolution: The closing down or dismissal of an assembly, partnership, or official body.
Industrial Relations: Industrial relations are the relationships between employees and
employers within the organizational settings.
Intervention: An intervention is a deliberate process by which change is introduced into
peoples‘ thoughts, feelings and behaviors.
Penalty: A punishment imposed for breaking a law, rule, or contract.
Registration: Entering certain information in a register, such as about invoices or mail
delivered or received.
Statutory: Established, regulated or imposed by or in conformity with laws passed by a
legislative body.
Trade Union: Trade union is a voluntary organization of workers pertaining to a particular
trade, industry or a company and formed to promote and protect their interests and welfare by
collective action.
Workmen: A man employed to do manual labour.
10.13 Answer to Check Your Progress
1. d 2. b 10. d 4. d 5. d 6. d 7. d 8. c 9. d 10. d
1. Define the term Trade Union and its features.
2. What do you mean by Trade Union? Describe the various types of the trade unions.
163
10. Why the employees unions the Trade Unions and what functions a Trade Union performs
for their employees?
4. Describe the role of the Trade Unions.
5. Write a note on the current condition of trade union in India? Put a light on its future.
 www.ilo.org
 Trade Union Act
 A N Aiyar, Encyclopaedia of Labour Laws and Industrial Legislation. Vol 6. The
Labour and Industrial Digest 1855 - 1956, Federal Law Depot, Delhi, 1957
 Arya P P, Labour Management Relations in Public Sector Undertakings, Deep and
Deep Publications, New Delhi, 1982
 B D Singh, Industrial Relations, Excel Books, New Delhi.
 B D Singh, Labour Laws for Managers, Excel Books, New Delhi.
 Benjamin H Selekmar, Problems in Labour Relations, Mc Graw Hill Book Co. INC,
Toronto, 1958
 K K Bhattacharya and L C Joshi, Labour Law Digest (1966-1969), Law Publishing
House, Allahabad, 1970
 Monal Arora, Industrial Relations, Excel Books, New Delhi.
 Sethi R B and Dwivedi R N, Law of Trade Unions, Law Book and Co., Allahabad,
1966
 V S P Rao, Human Resource Management, Excel Books, New Delhi.
 Vasant Desai, Indian Industry; Profile and Related Issues, Himalaya Publishing
House, Bombay, Delhi, Nagpur, 1947
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Lesson 11
Industrial Dispute Act-1947
11.1 Objectives
11.2 Introduction
11.3 Definitions
11.4 Essential provisions of the act
11.5 Scope and applicability
11.6 Causes of industrial dispute
11.7 Offences and penalties under the act
11.8 Industrial dispute redressal machinery
11.9 Recent amendments
11.10 Summary
11.11 Keywords
11.12 Self Assessment
11.13 Questions
11.1 Objectives
Dear student, after reading this lesson, you will be able to:
 Describe essential provisions, scope and applicability of Industrial Dispute Act, 1947.
 Discuss various causes of Industrial disputes.
 Comprehend dispute redressal machinery given by the Act.
11.2 Introduction
Before the introduction of industrial dispute act 1947, the industrial disputes were settled
under trade dispute act 1929. The act had various loop holes that needed to be overcome
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through the introduction of new legislation. So the industrial dispute bill was introduced, and
it was kept in front of select committee, who did the amendments and thus Industrial Dispute
Act was introduced and enacted in April 1947.
This legislation is designed to ensure industrial peace and harmony through the introduction
of the various settlement machinery and processes for investigation and resolution of
industrial disputes. Its main objective is to provide for a fair and equitable settlement of
disputes by negotiations, conciliation, dedication, voluntary arbitration and adjudication
instead of by trial of strength through strikes and lock-outs. This act contains 40 sections
divided into 7 chapters, that pay attention of settlement of dispute as well as safeguarding
interests of the workers in a industry through fair and just means.
Objective of the Act
The principal objectives of the act are as follows
a) Promotion of steps for achieving peace and good relations between employer and
workmen.
b) Investigation and resolution of industrial disputes.
c) Prevention of illegal strike and lock-outs.
d) Proper compensation and relief to workmen in the matter of lay-off, retrenchment and
closure of an undertaking.
f) Promotion of Collective Bargaining.
11.3. Definitions
Various definitions that fall under this act are:
"Dispute" is defined as ―the difference of opinion between employers and employees, which
is connected with the employment and non-employment or the terms of employment or with
the condition of labour of any person.-section 2(k).‖
The term "Industry" includes ―not only manufacturing and commercial establishments but
also professionals like that of the lawyers, medical practitioners, accountants, architects, etc.,
clubs, educational institutions like universities, cooperatives, research institutes, charitable
projects and other kindred adventures, if they are being carried on as systematic activity
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organised by cooperation between employers and employees for the production and/or
distribution of goods and services calculated to satisfy human wants and wishes. It also
includes welfare activities or economic adventures or projects undertaken by the government
or statutory bodies, and, Government departments discharging sovereign functions if there
are units which are industries and which are substantially severable units.‖
Sec. 2 (s) defines "workman" as ―any person (including an apprentice) employed in any
industry to do any skilled, unskilled manual, supervisory, operational, technical or clerical
work for remuneration or reward. Whether the terms of employment be expressed or
employed and for the purposes of any proceedings under this act in relation to an industrial
dispute, includes any such person who has been dismissed, discharged, retrenched in
connection with or as a consequence of that dispute or whose dismissal, discharge or
retrenchment has led to that dispute but does not include any such person (i) who is subject to
Air Force Act, Army Act or Navy Act or (ii) who is employed in police service or prison
service, (iii) who is employed mainly in a managerial and advisory capacity or (iv) who being
employed in supervisory capacity draws wages exceeding Rs.1600/-.‖
In this Act, unless there is anything repugnant in the subject or context,

Under Section 2(a) ―appropriate Government‖ means–
―(i) in relation to any industrial dispute concerning any industry carried on by or under the
authority of the Central Government, or by a railway company or concerning any such
controlled industry as may be specified in this behalf by the Central Government or in
relation to an industrial dispute concerning a Dock Labour Board established under section
5A of the Dock Workers (Regulation of Employment) Act, 1948 (9 of 1948), or the Industrial
Finance Corporation of India Limited formed and registered under the Companies Act, 1956
(1 of 1956) or the Employees‘ State Insurance Corporation established under section 3 of the
Employees‘ State Insurance Act, 1948 (34 of 1948), or the Board of Trustees constituted
under section 3A of the Coal Mines Provident Fund and Miscellaneous Provisions Act, 1948
(46 of 1948), or the Central Board of Trustees and the State Boards of Trustees constituted
under section 5A and section 5B, respectively, of the Employees‘ Provident Fund and
Miscellaneous Provisions Act, 1952 (19 of 1952), or the Life Insurance Corporation of India
established under section 3 of the Life Insurance Corporation Act, 1956 (31 of 1956), or the
Oil and Natural Gas Corporation Limited registered under the Companies Act, 1956 (1 of
1956), or the Deposit Insurance and Credit Guarantee Corporation established under section 3
of the Deposit Insurance and Credit Guarantee Corporation Act, 1961 (47 of 1961), or the
167
Central Warehousing Corporation established under section 3 of the Warehousing
Corporations Act, 1962 (58 of 1962), or the Unit Trust of India established under section 3 of
the Unit Trust of India Act, 1963 (52 of 1963), or the Food Corporation of India established
under section 3, or a Board of Management established for two or more contiguous States
under section 16, of the Food Corporations Act, 1964 (37 of 1964), or the Airports Authority
of India constituted under section 3 of the Airports Authority of India Act, 1994 (55 of 1994),
or a Regional Rural Bank established under section 3 of the Regional Rural Banks Act, 1976
(21 of 1976), or the Export Credit and Guarantee Corporation Limited or the Industrial
Reconstruction Bank of India Limited, the National Housing Bank established under section
3 of the National Housing Bank Act, 1987 (53 of 1987), or an air transport service, or a
banking or an insurance company, a mine, an oil field, a Cantonment Board, or a major port,
the Central Government, and
(ii) in relation to any other industrial dispute, the State Government‖.
Under Section 2(aa) ―arbitrator‖ includes an umpire;
Under Section 2 (aaa) ―average pay‖ means ―the average of the wages payable to a workman:
(i) in the case of monthly paid workman, in the three complete calendar months,
(ii) in the case of weekly paid workman, in the four complete weeks,
(iii) in the case of daily paid workman, in the twelve full working days, preceding the date on
which the average pay becomes payable if the workman had worked for three complete
calendar months or four complete weeks or twelve full working days, as the case may be, and
where such calculation cannot be made, the average pay shall be calculated as the average of
the wages payable to a workman during the period he actually worked.‖
Under Section 2(b) ―award‖ means ―an interim or a final determination of any industrial
dispute or of any question relating thereto by any Labour Court, Industrial Tribunal or
National Industrial Tribunal and includes an arbitration award made under section 10A‖
Under Section 2 bb) ―banking company‖ means ―a banking company as defined in section 5
of the Banking Companies Act, 1949 (10 of 1949), having branches or other establishments
in more than one State, and includes the Export - Import Bank of India the Industrial
Reconstruction Bank of India, the Industrial Development Bank of India, the Small Industries
Development Bank of India established under section 3 of the Small Industries Development
Bank of India Act, 1989, the Reserve Bank of India, the State Bank of India, a corresponding
new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of
Undertakings) Act, 1970 (5 of 1970) a corresponding new bank constituted under section 3 of
the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980),
168
and any subsidiary bank, as defined in the State Bank of India (Subsidiary Banks) Act, 1959
(38 of 1959)‖
Under Section 2(c) ―Board‖ means ―a Board of Conciliation constituted under this Act.‖
Under Section 2(cc) ―closure‖ means ―the permanent closing down of a place of employment
or part thereof.‖
Under Section 2(d) ―conciliation officer‖ means ―a conciliation officer appointed under this
Act.‖
Under Section 2(e) ―conciliation proceeding‖ means any proceeding held by a conciliation
officer or Board under this Act.‖
Under Section 2(ee) ―controlled industry‖ means ―any industry the control of which by the
Union has been declared by any Central Act to be expedient in the public interest.‖
Under Section 2(f) ―Court‖ means ―a Court of Inquiry constituted under this Act.‖
Under Section 2(g) ―employer‖ means:
―(i) in relation to any industry carried on by or under the authority of any department of the
Central Government or a State Government, the authority prescribed in this behalf, or where
no authority is prescribed, the head of the department;
(ii) in relation to an industry carried on by or on behalf of a local authority, the chief
executive officer of that authority.‖
Under Section 2 gg) ―executive‖, in relation to a trade union, means ―the body, by whatever
name called, to which the management of the affairs of the trade union is entrusted.‖
Under Section 2(j)―industry‖ means ―any business, trade, undertaking, manufacture or calling
of employers and includes any calling, service, employment, handicraft, or industrial
occupation or avocation of workmen.‖
Under Section 2(k) ―industrial dispute‖ means ―any dispute or difference between employers
and employers, or between employers and workmen, or between workmen and workmen,
which is connected with the employment or non-employment or the terms of employment or
with the conditions of labour, of any persons.‖
Under Section 2(ka) ―Industrial establishment or undertaking‖ means ―an establishment or
undertaking in which any industry is carried on.‖
11.4 Essential provisions of the act
Essential provisions of the Act are mentioned as follows:
 Defines industry, workmen, dispute, strike, lockout, retrenchment, lay-off, closure etc.
 Provides machinery for dispute settlement.
169
 Refer dispute for adjudication etc.
 Awards of labour courts and tribunals.
 Defines right of appeal
 Provides settlements outside conciliation.
 Defines procedures for strikes and lock outs
 Layoff compensation
 Retrenchment compensation
 Defines closure procedures
 Defines offenses and penalties.
 Defines obligations and rights of employer.
 Protect workmen rights.
11.5 Scope and Applicability of the Act
The Industrial Disputes Act, 1947, covers the whole of India, and is applicable to all
industrial establishments employing one or more workmen. It covers all employees whether
technical and non-technical, and also supervisors who receive the salary or wages of or upto
Rs.1600 per month. It doesn‘t include persons employed in managerial and administrative
positions and workmen subject to Army Act, Navy Act, Air Force Act and those engaged in
police, prison and civil services of the Government. As regards disputes, it covers only
collective disputes or disputes supported by trade unions or by enough number of workers
and also individual disputes relating to termination of service.
11.6. Causes of Industrial Dispute
Usual causes of industrial disputes which lead to poor industrial relations are:
1. Lack of open mindedness of employers which makes them think to get maximum work
from workers by paying them minimally, while employees think to avoid work and get more
increase in pay and wages. This difference in attitudes leads to industrial dispute.
2. Irrational wages, wage system and division of wage component that is not acceptable to
employers and workmen.
3. Poor working conditions and environment, absence of safety measures, hygiene conditions,
well ventilated surroundings etc that hampers the working conditions and comfort of the
workers.
170
4. Poor personnel management and absence or lack of flexibility from the side of
management towards the employees.
5. Lack of control over the situations where there is breach of discipline, which rebounds
later.
6. Introduction of new technology or automation mechanization, in the organization without

adequate involvement of the workers, dissatisfies the workers and lead to disputes, as they
feel avoided as well as they might not be ready to accept the new change.
7. Discrimination and nepotism in the work, improper and unequal distribution of wages,
biasness among employees, unequal division of workloads. Such discriminations at work
place are the most common causes of industrial dispute.
8. Adoption of unfair labour practices either by employer or employees and trade unions.
9. Non-justifiable profit sharing by the employers, and not involving workers as partners in
sharing of the gains of the industry.
11. Enmity and rivalry among trade unions for memberships as well as having fake unions.
11. Unusual and unjust strikes lock out, lay off, and resulting retrenchment just to show the
dominance by the concerned parties.
12. Not abiding by the agreements and arrived settlements.
13. Groupism among the trade unions
14. Attitude of government and political parties who may indirectly control some the unions
for their own personal benefits or to get a control over the industry‘
11.6.1 How to minimize industrial disputes.
1. Trade unions should be supported politically so that they can better understand the main
stream of the national industrial activities.
2. Employers should have more fairness and transparency in their workings with workers to
build their trust and have progressive outlook.
3. There should be a properly established and flexible system of Collective Bargaining.
171
4. Workers participation in the management should be encouraged through forums,
committees and councils.
5. Sound labour policy, planning should be established and followed.
6. Effective leadership and clear communication should be there.
7. Enforcement of discipline
8. Try to have union within workers fold.
9. No disparity in distribution of wealth by acknowledging workers as team members.
11.7 Offences and penalties under the act
SECTION 25-Q- In case of retrenchment or lay-off without permission the workmen is

entitled to all the benefits he was getting and employer is imprisoned for 1 month or fined
1000/-
SECTION 25-R(1) In case of illegal closure the workmen is entitled to all the benefits before
closure and employer is imprisoned for 6 months or fined upto 5000/-.
SECTION 25-R(2)- In case of contravening the closure of undertaking, the workmen gets all
the benefits while employer can be imprisoned for one year or fined 5000/-, and additional
2000/- for each day of contravention further.
SECTION 25-T AND 25-U In case of committing unfair labour practices, imprisonment of
6months and or fine upto 1000/- is charged.
SECTION 26(1) In case of illegal strike by workmen, imprisonment of 1month or fine of 50/-
is charged.
SECTION 26(2) In case of illegal lock out by employer, imprisonment of 1month and fine
upto 1000/- is charged.
SECTION 27 In case of instigation, any person who instigates or takes part in it is

imprisoned upto 6 months and or fined upto1000/-.
SECTION 28 In case of financial assistance to illegal strike, any person doing so is fined
1000/- and or imprisoned for 6 months.
172
SECTION 29 In case of breach of settlement of award binding under the act, imprisonment of
6 months and additional fine of 200/- for each day of continuing breach is charged.
SECTION 30 In case of disclosing confidential information, imprisonment of 6 months and

or fine upto 1000/- is charged.
SECTION 31(1) In case of contravening any other law under the act, fine of 100/- is charged.
11.8 Industrial dispute’s settlement machineries47
The following is the process of settlement for industrial disputes.
11.8.1 Mediation
Mediations is a process for the parties involved in contract negotiations by which a third
party from outside is called in by trade union and the management to assist them reach a
conclusion. The mediator acts as a neutral member who does not ultimately resolve the
dispute, rather makes the parties involved reach a negotiation by maintaining proper
communication and suggesting alternative solutions to dead-locked issues. His function is to
foster a positive environment for dispute resolution by using his extensive professional
experience in the field of labour management interaction. He must also have detailed
knowledge of the issues, and be capable enough to find out solutions to problems. The
mediator must be an effective communicator, know the importance of timing and most of all,
both parties should have trust on him. He must possess qualities such as integrity, impartiality
and fairness.
11.8.2. Conciliation
Conciliation is a process by which members of workers and employers are brought face to
face before a third person or a group of persons with a reason to convince them to come to a
mutually satisfying agreement. The aim of this method is to resolve disputes quickly and
prevent excessive work stoppages if they have already occurred. The essential hallmarks of
this approach are:
1. The conciliator tries to bridge the differences between the parties, if possible.
47
www.labour.nic.in
173
2. If he does not fully succeed, he tries to reduce the differences as much as possible. He acts
as a mediator who passes message from one side to the other adding his own interpretations
to facilitate the understanding of disputing parties. Wherever possible he tries to clearly
communicate the views and remove misunderstandings between the two parties.
3. He convinces both the parties to take a new look at the whole issues and explore the
possibility of reaching a conclusion.
4. He only passes the appropriate lines of solutions to be considered by the disputants. He

never enforces the parties to accept his viewpoint. He never gives any kind of judgement on
the matters of disputes. If parties feel that the suggestions offered by the conciliator are
acceptable, they may strike a deal.
5. The conciliator need not follow the same process every time. The process of conciliation,
therefore, has a certain amount of flexibility and informality built around it. The conciliation
machinery in India consists of the following:
a. Conciliation Officer According to the Industrial Disputes Act, 1947, the conciliation
officer is appointed by the Central or State Government. The officer is vested with the similar
powers as of a civil court. He can call and witness disputants on oath and look into and
investigate the facts of the case. He is bound to give his judgement within 14 days of the
commencement of the conciliation proceedings. His judgement is binding on all the parties to
the dispute. The conciliation officer has a lot of freedom and choices over the paths and
methods to be followed to bring about a negotiations and resolution between the disputants.
b. Board of Conciliation When the conciliation officer is unable to resolve the disputes
between the parties, the governments can appoint a Board of Conciliation. The Board of
Conciliation is not a permanent institution like the Conciliation officer. It is an adhoc,
tripartite body having the powers of a civil court, created for a particular dispute. It consists
of a Chairman and two or four other members nominated in equal number by the parties to
the dispute. The chairman who is appointed by the government should not be relating to the
dispute or with any industry that would be directly impacting the dispute. The board cannot
take up any dispute for resolution, voluntarily. It can act only when the dispute is referred to
it by the Government. The board conducts Conciliation proceedings in the same way as
conducted by a Conciliation officer. The board, however, is expected to submit its report
within two months of the date on which the dispute was referred to it. The Boards of
174
Conciliation are rarely constituted by the government these days. In actual practice, settling
disputes through a conciliation officer was found to be more flexible when compared to the
Board of Conciliation.
11.8.3. Voluntary Arbitration
When conciliation proceedings also are not able to settle the dispute, the conciliation officer
may ask the conflicting parties to voluntary refer the dispute to a third party known as
Arbitrator, who is appointed by the parties themselves. The arbitrator hears the reasons and
defences of both parties and delivers an award or judgement on the dispute. The arbitrator
though doesn‘t have all the judicial powers; he has to submit his decision to the appropriate
government within 30 days after receiving the case. The government makes it binding onto
both parties within next 30 days. Before giving the judgement, the arbitrator should follow a
due process of giving notice to parties, having a fair hearing session, after looking upon all
available facts and records he should follow the principles of natural justice.
Arbitration is good way of settling disputes because it is:
1. Established by the parties themselves and the decisions is acceptable to them, and
2. Relatively fast when compared to courts or tribunals. However, it is not without its
weakness.
Some weaknesses of arbitration are:
1. It is expensive. The expenditure needs to be shared by the labour and the management.
2. Judgement becomes arbitrary if there is a mistake in selecting the arbitrator.
3. Too much arbitration is not a sign of healthy Industrial Relation.
11.8.4. Adjudication
Adjudication or compulsory arbitration is the ultimate remedy for the settlement of disputes
in India. Adjudication consists of settling disputes through the intervention of a third party
appointed by the government. An industrial dispute can be referred to adjudication by the
mutual consent of the disputing parties. The government can also refer a dispute to
adjudication without the consent of the parties.
175
The Industrial Disputes Act, 1947, provides three-tier adjudication machinery – namely
Labour Courts, Industrial Tribunals and National Tribunals – for the settlement of industrial
disputes. Under the provisions of the Act, Labour Courts and Industrial Tribunals can be
constituted by both Central and State governments but the National Tribunals can be
constituted by the Central government only.
a. Labour Courts: Under section 7, ―The labour court consists of one independent person
(called as presiding officer) who is or has been a judge of a High Court, or has been a
district judge or additional district judge for not less than 3 years or has held any judicial
office in India for not less than 7 years. The labour court handles all disputes relating to:
(a) the property or legality of an order passed by employer under the standing orders; (b)
the application and interpretation of standing orders; (c) discharge or dismissal of workers
without notice or in a wrong way (d) withdrawal of any statutory concession or privilege;
(e) illegal strike or lockout; and (f) all matters except those reserved for industrial
tribunals.‖
b. Industrial Tribunal: Under section-7A, ―This is also a one – man adhoc body
(presiding officer) appointed by the Government. It has a broader jurisdiction than the
labour court under it. The Government concerned may appoint two assessors to advise
the presiding officer in the proceedings. An industrial Tribunal can adjudicate on the
following matters; (a) wages including the period and mode of payment; (b)
compensatory and other allowances; (c) hours of work and rest periods; (d) leave with
wages and holidays; (e) bonus, profit sharing, provident fund and gratuity; (f) shift
working, otherwise than in accordance with the standing orders; (g) classification by
grades; (h) rules of discipline; (i) rationalization; (j) retrenchment and closure of
establishment; and (k) any other matter that may be prescribed.‖
c. National Tribunal: Under section-7B, ―This is the third one-man adjudicatory body to
be appointed by the central government to deal with dispute of national importance or
issues which are likely to affect the industrial establishments in more than one state. It
consists of one person only, who is an independent person and is below 65 years of age.
He should be or has been judge of a High Court or held the office of Chairman or any
other member of the Labour Appellate Tribunal for a period of not less than 2 years. The
Central Government may, if it thinks appropriate, may appoint two persons as assessors
to advise the National Tribunal. Duties of a national tribunal are to hold proceedings of an
industrial dispute referred to it by the Central Government expeditiously, and to submit
176
the award to the referred on the conclusion thereof. When a national tribunal has been
referred to, no Labour Court or Industrial tribunal shall have any jurisdiction to adjudicate
upon such a matter.‖
Measures for Prevention of Conflicts and Disputes

The Act not only provides machinery for investigation and settlement of disputes, but also
some measures for the containment and prevention of conflicts and disputes. Important
preventive measures provided under the Act are:
1. Setting up of Works Committees in establishments employing 100 or more persons, with
equal number of representatives of workers and management to promote measures
forsecuring and preserving cordial relations between the employer and workmen. The
representatives of workmen will not be less than the representatives of employers and such
representatives of workmen will be from among the workmen engaged in the establishment
and in consultation with registered trade unions. The decision of the works committee carries
weight but is not conclusive and binding; its duties is to smooth away friction then to alter
conditions of services, etc. (Section 3).
2. Prohibition of changes in the conditions of service in respect of matters laid down in the
Fourth Schedule of the Act (a) without giving notice to the workmen affected by such
changes; and (b) within 21 days of giving such notice. No such prior notice is required in case
of (a) Changes affected as a result of any award or settlement; (b) Employees governed by
Government rules and regulations.
3. Prohibition of strikes and lock outs in a public utility service (a) without giving notice to
other party within six weeks before striking or locking out, (b) within 14 days of giving such
notice, (c) before the expiry, of the date of strike or lock-out specified in the notice and
during the pendency of any conciliation proceedings before a conciliation office and seven
days after the conclusion of such proceedings. In non-public utility services strikes and lock
out are prohibited during the pendency of conciliation proceedings before the Board of
Conciliation and seven days after the conclusion of such proceedings, during the pendency of
proceedings before an arbitrator, labour court, and Industrial Tribunal and National Tribunal,
during the operation of an award and settlement in respect of matters covered by the
settlement or award. (Sections 22 and 23).
4. Prohibition of Unfair Labour Practices: Sections 25T and 25U prohibit employers,
employees and unions from committing unfair labour practices mentioned in the Schedule V
177
of the Act. Commission of such an offence is punishable with imprisonment upto six months
and fine upto ` 1000, or both. (Ch. V -C)
5. Requiring employers to obtain prior permission of the authorities concerned before which
disputes are pending for conciliation, arbitration and adjudication, for changing working and
employment conditions, or for dismissal or discharging employees and their union leaders.
(Section 33).
6. Regulation, of lay-off and retrenchment and closure of establishment: Sec. 25 and its
subsections require employers to (a) pay lay-off compensation to employees (in
establishments employing 50 or more) for the period that they are laid-off, at the rate of 50%
of the salary or wages which they would have paid otherwise, (b) give one month notice, and
three months notice in case of establishments employing 100 or more persons or pay in lieu
of notice, and also pay compensation at the rate of 15 days wages for every completed year of
service for retrenchment and closing establishments (c) Retrench employees on the basis of
first come last go, and (d) obtain permission from the Government for retrenchment and
laying off
employees and closing, of establishments employing 100 or more persons.
11.9 Recent Amendments
Key amendments of the act are as follows:
1. Section.2(a)(i) The scope of the act has now been expanded and it would now include the
companies as well in which not less than 51% of paid up capital is owned by the central
government.
Another important amendment has been made in defining appropriate government with
regard to dispute between contractor and labour on contract. The government, under which
contract falls would be the appropriate government.
2. Section 2(s) states that now supervisors drawing salary upto 10,000 would be included
under workmen.
3. Section 2A says that a individual who has been retrenched or dismissed can now directly
write an application of his case to Labour Court or National Tribunal.
Check Your Progress
Fill in the blanks:
178
1. The main duty of a .................... Officer is to investigate and promote settlement of
disputes.
2. A Board of Conciliation can only try to bring about a .................... .

3. The Boards of conciliation are rarely appointed by the .................... these days.
11.10 Summary
An industrial dispute may be defined as a conflict or difference of opinion between

management and workers on the terms of employment. It is a disagreement between an
employer and employees‘ representative; usually a trade union, over pay and other working
conditions and can result in industrial actions. When an industrial dispute occurs, both the
parties, that is the management and the workmen, try to pressurize each other. The
management may resort to lockouts while the workers may resort to strikes, picketing or
gheraos. The object of the Act is to make provisions for investigation and settlement of
industrial disputes. The purpose is to bring the conflicts between employer and employees to
an amicable settlement. Section 10, Industrial Disputes Act, 1947 provides that where the
appropriate Government is of opinion that any industrial dispute exists or is apprehended, it
may at any time; by order in writing refer the dispute for redressal before the competent
Jurisdictional Tribunals or as provided in the Act. Section 10A, Industrial Disputes Act, 1947
provides that where any industrial dispute exists or is apprehended and the employer and the
workmen agree to refer the dispute to arbitration, they may at any time before the dispute has
been referred to a Labour Court or Tribunal or National Tribunal, by a written agreement,
refer the dispute to arbitration and the reference shall be to such persons (including the
presidency officer of a Labour Court or Tribunal or National Tribunal) as an arbitrator as may
be specified in the arbitration agreement. Where any industrial dispute exists or is
apprehended, the conciliation officer may, or where the dispute relates to a public utility
service and a notice has been received, shall hold conciliation proceedings in the prescribed
manner.
11.11 Glossary
 Adjudication: Adjudication is a procedure for resolving disputes without resorting to

lengthy and expensive court procedure.
 Arbitration: Arbitration is a procedure in which a dispute is submitted, by agreement
of the parties, to one or more arbitrators who make a binding decision on the dispute.
179
 Arbitrator: An independent person or body officially appointed to settle a dispute.
 Conciliation: Conciliation in industrial disputes is a process by which representatives
of management and employees and their unions are brought together before a third
person or a body of persons with a view to induce or persuade them to arrive at some
agreement to their satisfaction and in the larger interest of industry and community as
a whole.
 Conflict: Conflict may be defined as a struggle or contest between people with
opposing needs, ideas, beliefs, values, or goals.
 Industrial Disputes: Industrial disputes are conflicts, disorder or unrest arising
between workers and employers on any ground.
 Industry: Economic activity concerned with the processing of raw materials and
manufacture of goods in factories.
 Tribunals: A tribunal is a committee or court which is convened to address a special
issue.
 Workman: A person with specified skill in a job or craft.
11.12 Answers to Check your Progress
1. Conciliation
2. Settlement
3. Government
1. What do you mean by Industrial disputes?

2. Define an industrial dispute as per Industrial Disputes Act, 1947.
3. Discuss the concept of workman according to Industrial Disputes Act, 1947.
4. Discuss the objectives and scope of Industrial Disputes Act.
5. Describe in detail the scope and coverage of Industrial Disputes Act.
6. What authorities are included under Industrial Disputes Act?
7. Discuss the functions of Industrial Tribunals in detail.
8. What is the function of Labour Court? Discuss.
9. Explain the differences between Adjudication and Arbitration.
11. What measures does Industrial Dispute Act provides for Prevention of Conflicts and
Disputes?
180
11.14 Suggested Readings and References
 www.labour.nic.in
 Industrial Dispute Act 1947
 Davidov, Guy & Langille, Brian (2011). The Idea of Labour Law. Oxford University
Press.
 Davis, Ja E (2012). Labour Laws. General Books.
 Kumar, H.L. (2010). Labour Laws. Universal Law Publishing.
 Rao, VSP (2008). Industrial Relations & Labour Laws. Excel Books.
 Singh, B.D. (2009). Labour Laws for Managers. Excel Books India.
 VSP Rao, Industrial Relations & Labour Laws, Excel Books, New Delhi, 2008
181

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Self Learning Material

Distance Education Programme

Dr. Aman Khera, 59

© IK Gujral Punjab Technical University Jalandhar

BUSINESS LAWS – II BBA 604

Company Law: Definition, Characteristics, kinds and Formation of Company

1.0 Learning Objectives

1.2 Definition of Company

1.3 Characteristics of a company

1.4 Types of company

1.5 Incorporation of company

1.6 Memorandum of Association

1.7 The Articles of Association

1.8 Contents of articles

1.9 Alteration of Articles

1.10 Membership of a company

1.13 Answer to check your progress

1.14 Terminal questions

1.15 Suggested readings

After reading this lesson, you would be able to:

(a) Define a company.

(b) Explain the features of the company.

(b) Describe the formation process of a company.

(c) Explain the memorandum of association and the alterations.

(d) Describe the contents of articles of association.

1.2 Definition of Company

 A company is a "corporation" - an artificial person created by law.

According to Chief Justice Marshall of USA, ―A company is a person, artificial, invisible,

1.3 Characteristics of a company

Following are the characteristics of the company:

1. Incorporated association: A company is created after registration under the

1.4 Types of company

Types of company based on formation:

1. Number of members (minimum):

2. Number of members (maximum):

5. Invitation to the public:

7. Number of its directors:

8. Restrictions on the appointment of directors:

11. Issue of share warrants:

12. Further issue of capital:

13. Managerial remuneration:

1.5 Incorporation of company

In a common meaning a company is an association of a group of person to achieve any

Procedure of formation or incorporation of a company:

1. Application regarding the name of proposed company which is to be incorporated is

The following clauses are contained in Memorandum of Association of company:

2. Situation clause. By definition, a company is an artificial and an invisible person.

(vi) Association and subscription clause. This contains a declaration by the

1.7 The Articles of Association

Articles‘ means, ―the articles of association of a company as originally framed or as altered

In the case of a private company, articles must contain provisions which

(a) Restrict the right to transfer its shares;

1.8 Contents of articles:

1. Exclusion wholly or in part of Table A.

2. Adoption of preliminary contracts.

3. Number and value of shares.

7. Transfer and Transmission of shares.

10. Share certificates.

12. Voting rights and proxies.