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Section 35: Adjustment of customary or interim bonus

The Code on Wages, 2019 (Act No. 29 of 2019) • Official Statutory Text & Plain English Practice Guide

Statutory Mandate
Chapter IV: Payment of Bonus
Competent Labour Forum
Act No. 29 of 2019
Section 34 All 67 Sections of Code on Wages, 2019 Section 36

Legal Commentary & Landmark Judgments: Section 35

Section 35 authorizes an employer to adjust (deduct) any customary, festival (puja/diwali), or interim bonus paid to an employee during an accounting year from the total annual statutory bonus payable under the Code, paying only the remaining balance.

  • Statutory Right of Adjustment / Set-Off: Empowers the employer to deduct advance interim bonuses or customary festival payments from the final bonus determined under Section 26 or Section 29.
  • Coverage of Customary and Interim Bonuses: Encompasses bonuses paid on festival occasions (such as Puja, Diwali, Onam, or Eid) or interim profit distributions disbursed prior to the completion of annual accounts.
  • Requirement of Payment in Respect of the Same Accounting Year: Mandates that the customary or interim bonus sought to be adjusted must have been paid specifically in respect of the accounting year for which statutory bonus is being calculated.
Key Landmark Precedents:
  • Mumbai Kamgar Sabha v. Abdulbhai Faizullabhai (1976) 3 SCC 832: The Supreme Court held that while customary or festival bonus has an independent contractual origin, the employer is statutorily entitled to adjust it against the statutory bonus payable for the accounting year.
  • Tulsidas Khimji v. Their Workmen (1962) 1 LLJ 435 (SC): The Supreme Court established the classic tests for customary bonus—unbroken historical payment, payment in lean years, and independence from net profit—holding that statutory adjustment requires a clear temporal nexus with the accounting year.
Courtroom Practice & Strategic Litigation Guidance:

When disbursing festive advances or Diwali/Puja bonuses, employers must clearly specify in the circular, voucher, and payment slip: 'This payment constitutes an advance/customary bonus adjustable against the annual statutory bonus payable under Section 35 of the Code on Wages, 2019'. Omission of this express reservation allows unions to successfully argue that festive payments were ex-gratia gifts over and above statutory bonus.

Section 34 All 67 Sections of Code on Wages, 2019 Section 36