India: State High Courts Put Retrospective Payment of Bonus on Hold

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By Madhur Singh

Feb. 29—Two state High Courts have stayed the retrospective applicability of the Payment of Bonus (Amendment) Act of 2015, which became effective Jan. 1 with retroactive applicability to April 1, 2014. In addition to increasing the minimum amount of bonus to be paid and making more employees eligible for bonus payments, the amendments require employers to recalculate and repay bonuses from the beginning of the last financial year.

Steel products maker Benaras Udyog Ltd challenged the retrospective applicability of the act before the Allahabad High Court (the top court in the central Indian state of Uttar Pradesh), saying employers would have to recalculate their financial liability upwards for a past period for which they had already made deposits towards bonus payments. The company argued that the retrospective amendments were arbitrary and violated Article 14 of the Constitution of India, which guarantees every citizen equality before law.

The court granted a temporary stay on compliance with the retrospective applicability provisions pending a March 15 hearing to give the government opportunity to file a counter-affidavit. Under the stay, employers will only have to calculate and pay bonuses for the 2015-16 financial year.

In arriving at its decision, the court relied on a Jan. 27, 2016, order by the Kerala High Court, which stayed retrospective application of the Bonus Act in response to a petition by two tea planters' associations.

When the amendment was first announced, practitioners had warned that businesses would have to reopen their accounts for the last fiscal year, recalculate the bonuses due and either pay out more or take back excess amounts paid.

To contact the reporter on this story: Madhur Singh in Chandigarh at correspondents@bna.com

To contact the editor responsible for this story, Rick Vollmar at rvollmar@bna.com

For More Information

For more information on Indian HR law and regulation, see the India primer.