Supreme Court Denies Bonus Exemption to Factories Run by Charitable Trusts

By Abhishek Jat, Advocate

In a landmark ruling that clarifies the scope of exemptions under the Payment of Bonus Act, 1965, the Supreme Court has definitively established that factories operated by charitable trusts cannot claim exemption from paying statutory bonus to their workers. The judgment delivered on April 2, 2025, in the case of The Management of WORTH Trust v. The Secretary, WORTH Trust Workers Union, addresses the critical intersection of charitable purposes and commercial operations under labor welfare legislation.

The case concerned the Workshop for Rehabilitation and Training of the Handicapped Trust (WORTH), formerly known as the Swedish Red Cross Rehabilitation Trust, which engages in rehabilitation of leprosy-cured patients and differently abled persons. While WORTH maintained its charitable character, since 1985 it has also conducted commercial manufacturing activities producing automobile parts and industrial machinery components in factories governed by the Factories Act, 1948.

The dispute originated when the workers' union demanded bonus and ex-gratia payments for 1996-97. WORTH contended it was exempt under Section 32(v)(a) and (c) of the Bonus Act, which exempts the Indian Red Cross Society or similar institutions, as well as institutions established not for profit purposes. The Industrial Disputes Tribunal awarded workers the minimum bonus of 8.33% of annual earnings, a decision upheld by both the Single Judge and Division Bench of the High Court.

The Supreme Court, through Justice Sudhanshu Dhulia, observed that WORTH had severed its connections with the Swedish Red Cross Society through a 1989 amendment to its trust deed. The Court emphasized that mere similarities in some objectives with the Indian Red Cross Society, which was established by an Act of Parliament, were insufficient to qualify for exemption. The Court further noted that when an organization operates factories engaged in commercial manufacturing activities generating profits (termed "surplus" in this context), those operations fall squarely within the ambit of the Bonus Act.

Significantly, the Court established that the charitable nature of the parent trust cannot override the statutory rights of workers employed in commercial operations. The judgment reinforces that workers cannot be deprived of statutory benefits merely because their employer operates under the umbrella of a charitable organization. The Court directed WORTH to pay the minimum statutory bonus of 8.33% to its workers from 1996-97 onward, after adjusting any ex-gratia payments already made.

This ruling has substantial implications for charitable organizations engaged in commercial activities, clarifying that the exemption under Section 32(v) must be strictly construed and cannot be extended to commercial operations merely because they are controlled by charitable entities. The judgment emphasizes that labor welfare legislation applies based on the nature of the activity rather than the overarching purpose of the controlling entity.