COFFEE BOARD EMPLOYEES ASSOCIATION AND ORS.versusA. C. SHIV.A GOWDA AND ORS.

        COFFEE BOARD EMPLOYEES ASSOCIATION AND ORS.                               A
                                         V.
                      A. C. SHIV.A GOWDA AND ORS.

                             DECEMBER 11, 1991

              [P. B. SAWANT AND B. P. JEEV AN REDDY , JJ.]                        B·
         Coffee Act, 1942: Section 32.

          Coffee Board-Employees engaged for storing, curing and marketing
    coffee-Ex-gratia payment made to employees at the minimum rate at which
    bonus is payable under the Payment of Bonus Act-Payment made out of the       c
    Pool Fund constituted under the Ac I-field payment made was for the purpose
    mentioned in Section 32 and was the refore valid.

         The appellant-Coffee Board engaged employees for storing, curing
    and marketing coffee. After obtaining previous sanction of the Central
    Government, the Board made an ex-gratia payment to these employees            o:
    equivalent to the minimum bonus payable to the workmen under the
    Bonus Act for the year 1964-65 to 1968-69. The said payment was made
    out of the Pool Fund constituted under the Coffee Act. The respondent-
    Coffee planters challenged the said payment by filing petitions in the High
    Court and a Single Judge of the High Court upheld the payment as legal.
                                                                                  E
          On appeal the Division Bench or the High Court reversed the
    decision of the Single Judge by holding: (i) that the Bonus Act was inap-
    plicable to the Coffee Board and therefore no bonus was payable under the
    Act; (ii) the payment made was illegal because it was not covered by
    Section 32. The Coffee Board and the Board Employees Association tiled
    appeals in this Court.
                                                                                  F

          It was contended on behalf of the respondent-coffee planters that
    section 32(2)(b) which refers to the cost of storing, curing and marketing
    coffee deposited in and of administering the surplus pool will not include
    the payment made to the employees because the Board engages no                G
    workman for the said purpose; the Board gives contracts and the contrac-
-   tors get the work done through their own workmen who are not employees
    of the Board.

      . Allowing the appeals and setting aside the decision of the Division
    Bench, this Court,                                                            H

                                         387
      388               SUPREME COURT REPORTS              [1991) SUPP. 3 S. C. R.

 A           HELD: 1. An ex-gratia payment to the staff is a well recognised
      legitimate mode of incentive payment. Incentives are necessary for secur-
      ing from the workmen cooperation and efficient work. In the absence of
      efficiency, the cost oUhe work undertaken is bound to increase. In the long
      term, such payment helps to keep down the costs and acts in the interests ·
      of the industry. The decision to make the payment has, therefore, to be left
 B    entirely to the discretion of the management. Since the payment in
      question was ex-gratia and not as bonus, the question whether the Bonus
      Act applied or not was irrelevant. The Division Bench of the High Court
      erred in considering the question as to whether the Bonus Act was
      applicable to the Coffee Board or not. ~391 B, 389~G]

c        2. It is evident from the record that the Board does employ workmen
   for storing and marketing of coffee as well as for administering the surplus ·
   pool of coffee. Even assuming that there is a dispute as to whether curing ·
   is done by the Board's employees, it is not disputed that those who were
   paid, the ex-gratia payment from the Pool Fund were engaged also for
   storing and marketing of coffee as well as for administering the surplus
·D pool of coffee. Therefore, the payment made to the said employees would
   legitimately be a part of the costs of storing and marketing coffee as well
   as of administering the surplus pool of coffee. (390 F-GJ

           Sub-se<;tion(2) of Sectton 32 does not require that the cost of storing
     and marketing of coffee as well as of administering the surplus pool of
·E coffee should be incurred only in terms of the salaries paid to the
     concerned staff and not otherwise. Whether the payment is made by way
     of salary or by way of ex-gratia payment over and above the salary, it
     would legitimately constitute the cost of the labour engaged in the said
     work. Thus, all legitimate payments made to the staff would constitute the
 F . cost of labour engaged in the said activities. In the circumstances, the
     Division Bench erred in holding that the payment in question from the
     Pool. Fund was unauthorised. (391 A-C, 390-H]
               CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 3097-3099 of
     . 1979.
G          From the Judgment apd Order dated 23.8. 79 of the Kamataka High Court
      in W.P.No. 90 to 92 of 1974.
                                            WITH
               Civil Appeal Nos. 3100-3103 of 1979.
            From the Judgement and Order dt 23-8-79.of the Kamataka High Court
H    -in W.P. Nos. 90 to 93 of 1974.
       COFFEE BOARD ASSCN. v. SHIVA GOWDA· [SA WANT, J.]                   389

     M.K. Ramamurthy, Dr. Anand Prakash, M.Veenppa and C.V.S.Rao for              A
the Appellants.

      G.B.Pai, S.N.Sikka and Ms. Meera Mathur for the ~espondents.

      _The Judgment of the Court was delivered by
                                                                                  B
       SAW ANT, J. The question involved in these appeals is whether the ex-"':..
gratia payment made by the Coffee Board tu its employees at the minimum rate
at which bonus is payable under the Payment of Bonus Act [hereinafter
referred to as the 'Bonus Act'] is legal and further whether such payment could
be made from the Pool Fund constituted under the Coffee Act, 1942 [herein-
after referred to as the 'Act']. The relevant facts in brief are as follow::     C
      2. The appellant-coffee Board is constituted under Section 4 of the Acl.
For the purpose of carrying out its activities under the Act, the Board engages
various categories of employees. In the present appeals, we are concerned with
the staff engaged 'for storing, curing and marketing coffee. The Board· made an
ex-gratia payment equivalent to the minimum bonus payable to the workmen          D
under the Bonus Act for the years 1964-65 to 1968-69. There is no dispute that
this payment was made by the Board after obtaining previous sanction of the
Central Government. There is further no dispute that the concerned employees
were made the said payment out of the Pool Fund constituted under the Act.
The respondent-Coffee planters challenged the said payment by filing different
writ petitions before the Kamataka High Court The learned Single Judge of the     E
High Court upheld the said payment as legal and dismissed the writ petitions.
In appeal, the Division Bench of the High Court reversed the said finding and
held that the Bonus Act was inapplicable to the Coffee Board and, therefore,
no bonus was payable under the Act The Bench also held that inasmuch as the
payment was made outof the Pool Fund which was to be applied only for the
purposes mentioned in Section 32 of the Act, the Said payment was illegal on
                                                                                  F
the ground that the purposes mentioned under the said section did not cover the
payment to the employees by way of bonus. It is aggrieved by this decision that
the Coffee Board and the Coffee Bo$"d Employees' Association have preferred
these appeals.
                                                                                  G
       We are afraid that the Division Bench of the High Court had erred by
considering the question as to whether the Bonus Act was applicable to the
Coffee Board or not. On the undisputed fact that the payment in question was
ex-gratia and nut as bonus Act applied or not was irrelevant. The only question
that fell for consideration was whether the payment could be made out of the
Pool Fund. It is for this reason that it is not necessary for us to go into the   H
      390              SUPREME COURT REPORTS                   (1991) SUPP. 3 S. C.R.

A question whether the Bonus Act applied to the Coffee Board or not. Mr. Pai,
      learned counsel appearing for the respondents-owners/planters of Coffee
      Estates contended that Section 32 had laid down that. the Pool Fund shall be
      applied only to "(a) the making to registered owners of estates of payments
      proportionate to the value of the coffee delivered by them for inclusion in the
      surplus pool; (b) the costs of storing, curing and marketing coffee deposited in
B     and of administering the surplus pool; (c) the purchase of coffee not delivered
      for inclusion in the surplus pool"; "Provided that where, after the requirements
      of the clauses of this sub-section have been met, there remains any excess in
      the pool fund, the Board may, with the previous sanction of the Central
      Government, transfer the whole or any part of such excess to the credit of the
      General Fund". According to him, this does not include payment to employees
C     either for securing better working conditions or for providing amenities and
      incentives to the workers. Nor does any one of the said purposes include
      expenses of the board which may broadly be held to cover the expenses
      incurred on the maintenance of the staff. He submitted that the payment for
      both purposes is to be made from the General Fund since clauses (2) (a) and
      (e) of Section 31 of the Act specifically mention that it is the General Fund
D     which shall be applied to meet both the said expenses. He further contended
      that Section 2(b) of Section 32 which refers to the cost of storing, curing and
      marketing coffee deposited in, and of administering the surpfos pool, will not
      include the expenses on empioyees employed for the said purposes because,
      urges he, the Board neither stores nor cures coffee and engages no workmen
      for the said purposes. He submitted that for curing, the Board gives contracts
E     and it is the contractors who get the work done through their own workmen
      who are admittedly not the employees of· the Board and to whom the said
      payment is not made ..

              We are afraid that on the factual aspect Shri Pai is not right because
       paragraph 14 of the Board's affidavit-in-reply filed in the writ petition clearly
F      mentions the fact that the· staff who were paid the exgratia payment from the
       Pool Fund had "rendered service in the service of the Board insofar as it related
      ·to p0oling, curing and marketing of coffee". This statement has nowhere been
       controverted by the respondent-Coffee planters. We also find from the record
       that the Board does employ workmen for storing and marketing of coffee as
G      well as for administering the surplus pool of coffee. This is also not disputed
       on 'behalf of the respondent-Coffee planters. Even assuming, therefore, that
       there is a dispute as to whether curing is done by the Board's employees it is
       not disputed that those who were paid the ex-gratia payment from the Pool
      :Ftinlwere engaged also for storing and marketing of coffee as well as for
       a~miniStering the surplus pool of coffee. If that is so, the.paymentmade to the
l-I    said employees would legitimately be a part of the cost of storing and
         COFFEE BOARDASSCN.v. SHIVA GOWDA [SAWANT, J.]                        391
                                                      ,
marketing coffee as well as of administering the surplus pool of coffee.             A
Whether the payment is made by way of salary or by way of ex-gratia payment
over and above the salary, it would legitimately constitute the cost of the labour
engaged in the said work. Sub-section (2) of Section 32 does not require that
the cost of storing and marketing of coffee as well as of administering the
smplus pool of coffee should be incurred only in terms of the salaries paid to
the concerned staff and not otherwise. All legitimate payment made to the staff      B
would constitute the cost of labour engaged in the said activities. An ex-gratia
payment to the staff is a well recognized fogitimate mode of incentive payment.
Incentives are necessary for securing from the workmen cooperation and
efficient work. In the absence of efficiency, the cost of the work undertaken is
bound to increase. In the long term such payment helps to keep down the costs
and acts in the interests of the industry. The decision to make the payment has,     C
therefore, to be left entirely to the discretion of the management.

       3. In the circumstances, we are afraid that the Division Bench has erred
firstly in going into the question whether the Bonus Act was applicable or not
and secondly in holding that the payment in question from the Pool Fund was
unauthorised. The appeals are, therefore, allowed. The decision of the Division D
Bench of the High Court is set aside and that of the learned Single Judge is
restored. The respondent-Coffee planters will pay costs in each of the appeals.

T.N.A.                                                          Appeal allowed.