Bonus promised during liquidation was not wages or a preferential debt, the High Court held under company law.

The High Court of Travancore-Cochin held that the definition of "wages" in the Travancore Payment of Wages Act could not be imported into the Companies Act to treat a director-sanctioned bonus as wages. Because the bonus was sanctioned while winding-up claims remained pending and the liquidation was sub judice, it did not qualify as wages or as a preferential debt under company law. The court also rejected reliance on the provision for compensation for past services, since the employees had served under an existing contract of employment in return for wages, and the promised bonus was outside that provision. The employees were therefore not entitled to preferential creditor status for the bonus claim.

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Issues: Whether a bonus sanctioned by the directors after the appeal was filed could be treated as wages, and whether the employees could claim preferential status as creditors in the liquidation.

Analysis: The definition of wages in the Travancore Payment of Wages Act was confined to that Act and could not be carried into the Companies Act to enlarge the meaning of wages so as to include bonus. A bonus sanctioned when large creditor claims were pending and while winding-up proceedings were still sub judice could not be treated as wages or as a preferential debt under the companies law. The reliance on the provision dealing with compensation for past services was also rejected because the employees had rendered services under an existing contract of employment in return for wages, and the promised bonus did not fall within that provision.

Conclusion: The employees were not entitled to be treated as preferential creditors in respect of the bonus, and the order recognising that claim was set aside.

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