Appeal No 1291 of 1968
Appeal by special leave from the Award dated October 291967 of the Industrial Tribunal Madras in Industrial Dispute No 65 of 1966 published in the Supplement to Section I of the Fort St George Gazette dated the 15th day of November 1967
M K Ramamurthi R C Pathak and J Ramamurthi for the appellants
B Sen C Doraiswami and D N Gupta for the respondent
The Judgment of the Court was delivered by VAIDIALINGAM J
This appeal by special leave by the workmen is against the award dated October 20 1967 of the Industrial Tribual Madras in ID No 65 of 1966 in so far as it declined to grant additional bonus for the years 1962 and 1963
The respondent Dunlop Rubber Company of India Limited which is engaged in the manufacture and sale of types and tubes for light and heavy vehicles has a factory in Calcutta besides one at Ambattur in Madras which was started or about 1959
At the time of the award the company was employing about 1200 workmen but 230 during the years 1962 and 1963 it wag employing about 800 workmen
The company paid to its workmen for each of these two years 1962 and 1963 12 weeks  basic wages as annual bonus
The workmen were not satisfied with the said payment and demanded additional bonus of three months  basic wages for each of these years
According to the workmen the company has made a net profit of about 330 crones in each of these years
The company however declined to meet the demand with the result that the Government of Madras by its order dated October 15 1966 referred the dispute regarding the additional bonus to the Industrial Tribunal Madras
There was also another dispute referred regarding the alteration of the gratuity scheme
But we are not concerned with this dispute
The case of the workmen as disclosed by their written statement before the Tribunal was as follows The company according to their published profit and loss account has made a net profit of Rs 330 crores and Rs 327 crores for the years 1962 and 1963 respectively
The management have made various deductions from their gross profit which were not justified according to the Full Bench Formula
The management in their work sheet claimed Rs 249 crores as rehabilitation and this huge amount has been claimed to purposely defeat the just demands of the workmen
Having due regard to the profits earned by the company the demand of three months  basic wages as additional bonus was justified The company resisted the claim of the union
The case of the company was as follows  In each of these two years 1962 and 1963 it has paid to its workmen in India bonus equivalent to
fifteen weeks  basic wages
All the workmen except the workmen at Ambattur who represent only about 12 per cent of
the total number of employees have accepted the payment and they are fully satisfied with the amount paid voluntarily by the company
The company made proper deductions and additions according to the Full Bench Formula and arrived at the available surplus
Out of the said available surplus the company has paid nearly 60 or 63 per cent as bonus to the workmen which represents fifteen weeks  basic wages
Before the Tribunal the company as well as the workmen filed charts in respect of their pleas
The union objected to the deduction made by the company in respect of the commission received out of the sales made by the Dunlop United Kingdom as well as the royalties receivable out of the sales made by the London firm
There were also objections taken by the union in respect of certain deductions and claims made by the company
As those contentions have been raised before us also we will refer to those matters later
There was also controversy regarding the rehabilitation claimed by the company
The Tribunal on a consideration of the materials placed before it by both the parties ultimately accepted the case of the management and held that the bonus already paid to the workmen was sufficient and that they are not entitled to any additional bonus for these two years
231 Mr M K Ramamurthi learned counsel for the appellant workmen attacked the view of the Tribunal accepting the claims made by the company in respect of several items
The company had filed before the Tribunal a statement Ext
M 3 extracted below showing the available surplus for the years 1962 and 1963  The Dunlop Rubber Co India Limited Available Surplus Computations for the years 1962 and 1963
1962 1963 Rs Rs Rs Rs Net Profit per Accounts 9559317 16886953 Add Bonus account charged in accounts 4886449 4840912 Provision for Taxation per Accounts 23478958 18882441 Depreciation per Accounts 6079969 34145376 59826642 6706024 43704693 43592977 Deducts Commission receivable Note 1 394964394973 Royalties receivable Note 2 5919150580 Profit on sale of Fixed Assets Note 3 925962974 Provision for Retirement Gratuities written back 552751500000942579 Total Gross Profit 43151942 42650398 Less  Notional Normal Depre ciation 72678878390107 358840551762395334260291 Less  Notional Income Tax and Super Tax 18468616 Notional Super Profits TaxSur Tax
490996523378581253658520160538 1250547414099753 Less Return on paid up Capital Ordinary share Capital 6
27000002700000 Share Premium 6  420000420000 Preference share Capital Actual
460000460000 4 Return on Reserves employed as working capital Schedule A 23350095915O0924905636070 563 Available surplus subject to rehabilitation claim 6590465 8029190 Note 1
Commission receivable arises out of sales made by Dunlop U K of their products to India either through the Indian High Commissioners purchasing Commission in London or to direct importers
2 32 Note 2
Royalties receivable arise out of sales made by Dunlop UK of their products to Afghanistan Burma and Pakistan
According to the company it has paid more than 60 per cent of the available surplus as bonus to the workmen and that they are not entitled to any additional bonus
The first item that was challenged by Mr Ramamurthi was regarding the deduction made by the company in the sum of Rs 394964 and Rs 394973 for the years 1962 and 1963 respectively as commission as well as the sums of Rs 59191 and 50582 as royalties for the years 1962 and 1963 respectively received from Dunlop United Kingdom
According to the counsel the workmen have also contributed to enable the company to earn these amounts and therefore they will be entitled to a share in the said profits
In this connection Mr Rammurthi referred us to the decision of this Court in The Tata Oil Mills Co Ltd vs Its Workmen and mothers1 In that decision certain items were claimed by the company as extraneous income obtained by them without any contribution by labour
While allowing the claim of the company in respect of two items regarding the rest it was held by this Court that they had been earned by the company in the normal course of its business and that there was no reason why the labour should be  excluded from its share in the profit
It was no doubt observed by this Court that normally there must be contribution of the workmen in earning profits before they are entitled to profit bonus but it is not necessary that a direct connection between the efforts of the workmen and a particular item of profit earned has to be established before the profit can be taken into account for the purpose of arriving at the available surplus
Mr B Sen learned counsel for the company on the other hand referred us to Notes 1 and 2 in Ext
M 3 which has been extracted by us earlier
Notes 1 and 2 clearly explain the circumstances under which the said amounts are earned by the company and they show that the labour has made no contribution whatsoever in the company s earning either the commission or the royalties
Mr Sen also drew Our attention to the evidence of MW 1 the Deputy Chief Accountant of the company who has explained the circumstances under which the said amounts were received
We are of the opinion that the Tribunal was justified in accepting the contention of the company that the amounts received as commission and royalties need not be added back
MB 1 the Deputy Chief Accountant of the company has deposed to the nature of these amounts received by the company
According to him the commission is received from the parent company in United Kingdom for sales made by them through the High Commission in London or sales effected as against orders received directly by the company from the Indian customers
The amounts due to the company were credited by the London office
Similarly royalties were also received out of sales of Dunlop products made to Afghanistan Burma and Pakistan
No canvassing for orders in those countries is done by the company Apart from the fact that Notes 1 and 2 in Ext
M 3 1   233 have not been challenged we also find that there is no cross examination by the union of MB 1 when he has referred to the nature of these receipts which go to show that the workmen in India have not at all contributed in any measure in earning those amounts
In our opinion the amounts received by the company by way of commission and royalties are analogous to the home delivery commission which was held by this Court in Workmen of MS Hindustan Motors Ltd vs MIS Hindustan Motors Ltd  Anr1 to be extraneous income
The Hindustan Motors Limited which was manufacturing cars in collaboration with a foreign concern was entitled to commission on the sales made in India by the foreign concern even though the company was not a party to those transactions
This amount was called home delivery commission
The company claimed that the said commission should be deducted while calculating the surplus out of the profits available for distribution of bonus
The workmen challenged the said deduction
This Court however rejected the contention of the workmen and held that the amount received as home delivery commission has to be treated as extraneous income which was earned by the company without any activities in which the workmen participated or contributed their labour
The decision relied on by Mr Rammurthi in the Tata Oil Mills Co Ltd2 was referred and it was held that the situation therein was entirely different
But the principle laid in the Tata Oil Mills Co Ltd2 that if any income was earned in the course of the normal business of a company in which the workmen were also engaged that income must be included in the profits for calculation of surplus available for distribution of bonus was approved in the Hindustan Motors1 case
Applying the said principle to the case on hand we are of the opinion that the commission and royalties received by the company did not require any contribution or work or labour on the part of the workmen and it accrued to the company in view of the arrangements spoken to by MW 1
In the circumstances the deduction of these amounts from the profits by the company was fully justified
It may be mentioned that the company had deducted from the profits the provision made for retirement gratuities written back
Mr Sen has quite fairly accepted that the deduction is not justified
Therefore this item need not be discussed further
The company had claimed Rs 420000 for each of these years being return of 6 on the share premium of 70 lakhs
The company had also claimed a sum of Rs 27 lakhs for each of these years being 6 return on ordinary share capital
The claim for return made in respect of ordinary share capital is not challenged
But the claim made for return on the share premium of 70 lakhs is attacked by Mr Ramamurthi on the ground that the share premium does not represent paid up capital
The Tribunal did not accept this contention advanced on behalf of the workmen
MW 1 has again spoken regarding the share premium amount
From his evidence it is clear that when a company makes a Rights 1  2  234 issue the Government while giving consent fixes a certain amount of premium to be charged for those shares
Those shares are issued only to the shareholders who ask for it and who pay the premium amount in addition to the nominal value of the share
A capital introduced by the shareholders in the company is shown as part of share capital according to the Companies Act upto 1956
When the said Act was amended it had to be shown in accordance with Schedule VI as a separate item as it was only available for issue to shareholders and could not be distributed as dividend
The said share premium amount had no bearing as general reserves and they were really the share capital of the company and therefore the company was justified in claiming 6 return on this amount
The share premium is not undistributed profit and cannot be distributed as dividend
We are satisfied in the circumstances that the contention of the union that no return should be allowed on the share premium amount has been rightly rejected by the Tribunal
The third item relates to the deductions made by the respondent out of the profits of two items of donations made in 1962
No donations were claimed as deduction in 1963
As a substantial part of the donations was for the National Defence Fund the Tribunal held that the expenditure was properly incurred and the company was justified in deducting the donations from the profits
Mr Sen accepted that the deduction made by the management under this head is not justified
Even otherwise the company is not entitled to deduct those amounts as is clear from the decision of this Court in Voltas Ltd vs Its Workmen1
The fourth item which is contested by the appellant is the return of 4 on reserves employed as working capital
The company claimed Rs 2335009 and Rs 2490563 as 4 return on reserves employed as working capital in 1962 and 1963 respectively
According to Mr Ramamurthi this claim has not been established in accordance with the decisions of this Court
He referred us to the decision in The Oriental Gas Company Ltd vs The Workmen  and Bareilly Electricity Supply Col Ltd vs The Workmen  Ors3
In both these decisions the nature of the evidence to sustain a claim for return on working capital has been discussed and laid down
In particular in the second decision cited above the various decisions bearing on the point have been exhaustively reviewed
The position emerging from the decisions of this Court is that mere production of a balance sheet by a company cannot be taken as proof of a claim as to what portion of the reserves has been actually used as working capital
The utilisation of any amount from the reserves as working capital has to be proved by an employer by adducing proper evidence by way of affidavit or otherwise after giving an opportunity to the workmen to contest the correctness of the same in cross examination
The company will have to satisfactorily prove that the amount on which return is claimed has been actually used as working capital
1  2 319721 section C R 241
235 The question is whether the criticism of Mr Ramamurthi that the company has not properly established its claim for return on working capital in accordance with the decisions of this Court is justified The company has filed Ext
M 8 containing particulars regarding the amount used as working capital for the years 1962 and 1963
It has also filed Ext
M 9 the certificate of the Chartered Accountant that reserves of Rs 58375236 and Rs 62254083 have been used as working capital in the years 1962 and 1963 respectively
MW 1 has spoken to the con tents of Exts
M 8 and M 9
The Chartered Accountant of the auditors who issued the certificate Ext
M 9 has also given evidence as MW 2
When they have spoken about the amounts used as working capital there is absolutely no cross examination by the union regarding these matters  This is not a case where merely the profit and loss account alone has been filed without any further evidence adduced by the management
Mr Ramamurthi no doubt attempted to satisfy us by a reference to the profit and loss account for the two years that the entire amount claimed by the company could not have been used as working capital
We have gone through the balance sheet and profit and loss account
We are satisfied that the Tribunal has rightly accepted the claim of the management for 4 return on the working capital
The fifth and the last item that is in controversy between the parties is the claim for rehabilitation made by the company
Before we consider that question we must refer to a contention raised by Mr Ramamurthi that the management had no claim for rehabilitation and therefore no claim for rehabilitation should be allowed
In particular Mr Ramamurthi referred us to the statement in Ext
M 3 which we have adverted to earlier to the effect available surplus subject to rehabilitation claim and stressed that the company itself has made a calculation without claiming any rehabilitation
We are not inclined to accept this plea of Mr Ramamurthi
On the other hand Ext
M 3 shows that the company was prepared to take a stand that even without any claim for rehabilitation being allowed in its favour the available surplus shown in Ext
M 3 will establish that the workmen have been paid more than 60 to 62 of the available surplus as bonus for each of the two years
M 3 does not and cannot be put against the company if it can properly establish a claim for rehabilitation
Before we discuss further the claim for rehabilitation it is now necessary to work out the figures on the basis of the findings recorded by us earlier
We have accepted the claim for deduction of commission and royalties in favour of the company
We have also accepted its claim for return on the share premium amount 2 36 of Rs 70 lakhs
We have disallowed the claim of the company regarding the amount paid by them as donation in 1962
We have allowed the company s claim for return on the working capital
On the above basis two charts have been prepared of the available surplus for the years 1962 and 1963
They areas follows Available Surplus Computations for the year 1962
Rs Rs Net Profit per Accounts 9559317 Add Bonus amount charged in Accounts 4586449 Provision for taxation per Accounts
23473958 Donation to N D F 525000 Depreciation per Accounts
607996934670376 44229693 DeductCommission receivable Note 1 394964 Royalties receivable Note 259191 Profit on sale of fixed Assets Note 39859655251 Total Gross Profits  4 93942 Less Notional Normal Depreciation 7267887 36409065 Less Notional Income tax and Supertax 18731118 Notional Super Profits TaxSurtax 505343423734542 12524513 Less Return on paid up capital Ordinary Share Capital 6  2700000 Share Premium 6  420000 Preference Share Capital Actual460000 4  Return on Reserves employed as working capital Schedule A2335009 5915006 Available Surplus 6709504 Available Surplus Computations for the year 1963 Rs Rs Net Profit per Accounts16886952 Add Bonus amount charged in Accounts4840912 Prevision for Taxation per Accounts15882448 Depreciation per Accounts
598266426706024 43592977 Deduct Commission receivable Note 1394973 Royalties receivable Note 2 50580 Profit on Sales of Fixed Assets Note 32974442579 Total Gross Profit4 3150298 Less  Notional Normal Depreciation 8390197 24760291 Less  Notional Income tax and Supertax17873953 Notional Super Profits TaxSur Tax219052820064481 14695810 2 3 7 LessReturn on paid up capital Ordinary Share Capital 6 2700000 Share Premium 6  420000 Preference Share Capital Actual
460000 4 Return on Reserves employed as working capital Schedule A
24905636070563 Available Surplus 2625247 In both the charts no claim for rehabilitation has been taken into account
Out of the available surplus in 1962 the company paid nearly 66 as bonus for that year
Similarly out of the available surplus in 1963 the company has paid nearly 60 to 62 as bonus
Prima facie we are of the view that even if the claim of the company for rehabilitation is rejected completely still on the basis of the figures worked out in the above charts after taking into account the rebate in Income tax that will be received by the company the workmen have been paid bonus at a rate which has been accepted as correct by this Court and as such they cannot have any grievance
Regarding the claim for  rehabilitation the company had filed three statements
M 15 M 16 and M 17 are charts relating to the buildings plant and machinery and moulds
The company has also adduced evidence in respect of the claims made in these statements
Mr Ramamurthi has attacked the claim for rehabilitation made by the company
When the charts prepared by the management regarding rehabilitation were before the Tribunal we find that several matters spoken to by the witnesses regarding the charts do not appear to have been seriously challenged by the workmen
Regarding the multipliers and divisor for plant and machinery including moulds these have been spoken to by the factory Engineer MW 3
Regarding the buildings the Architect MW 4 has also given evidence
Regarding all these matters the Chartered Accountant attached to the auditors of the respondent company has given evidence as MW 2
The appellant has not objected to the data adduced as well as the documents produced by the company
No suggestions have been made to these witnesses that the figures on the basis of which the rehabilitation claim was made were in any way erroneous
It is before us for the first time that Mr Ramamurthi has urged that the evidence of these witnesses is not sufficient to justify the claim for rehabilitation made by the company
Mr Ramamurthi has referred us to the variousdecision regarding the nature of the evidence that is required to be produced by a company when it makes a claim for rehabilitation
Mr B Sen invited our attention to the award dated February 5 1960of the Industrial Tribunal Calcutta Ext
M 26 which related tothe claim of the workmen of the respondent company in Calcutta for bonus for the year 1957
In that award the Tribunal has very elaborately gone into the evidence adduced by the company and has allowed a sum of Rs 21836983 as calculated by the company asrehabilitation charges
When once a Tribunal has considered a similar claim and has adopted on the basis of the evidence adduced by the parties normally the amount awarded towards rehabilitation claim should be adopted
We do not say that it is conclusive
But that award is certainly entitled to due consideration at our hands
In 238 that award the Tribunal had worked out the rehabilitation claim for the year 1957
The charts filed by the company regarding rehabilitation though for the years 1962 and 1963 were worked out only on the basis of the replacement cost of the year 1958
 We are mentioning this aspect because if the appellant s case was that the Tribunal when working out the claim for 1957 in Ext
M 26 has not properly appreciated evidence it should have elicited from the witnesses who deposed on behalf of the company that the figures furnished by them are not correct and cannot be accepted
No such attempt has been made by the appellant
Mr Sen learned counsel relied on the decision of this Court in Ms Hindustan Motors Ltd1 case and pointed out that according to that decision the only permissible deduction from the total amount claimed as required for rehabilitation by the appellant can be the depreciation amounting to Rs 517 crores and Rs 575 crores in 1962 and 1963 respectively
He further pointed out that if the amount representing depreciation reserve is taken out of the total reserves which is established by the evidence then the balance amount has been utilised in raw material and hence there were no available liquid assets towards rehabilitation
We do not propose to go into the details of the claim for rehabilitation made by the respondent company as well as the objections now made on behalf of the workmen to the said claim
The reason is that when evidence oral and documentary was adduced by the company before the Tribunal the appellant has not objected to the data adduced and the documents produced by the management and they have not put any questions to the witnesses to establish that the calculation made by the company is erroneous
There is also the additional fact that from the two charts of available surplus for the years 1962 and 1963 reproduced earlier even without allowing any claim for rehabilitation the workmen have been paid bonus for the two years in question at rates higher than 60
Allowing for the benefit that the management will get by way of tax rebate on the amount of bonus paid the payment of bonus already made is in accordance with the Proportion accepted by this Court vide Ms Gannon Dunkerley and Co Ltd vs Their WorkMen2
Even on the basis of the calculation to be made according to the appellant in respect of the rehabilitation claim the company will be entitled to
some amount at least in that regard
Even if the amount as contended by Mr Ramamurthi is taken into account the available surplus as shown in the charts will be reduced further
The result will be that even the amount paid as bonus already by the company will be more than what the work 1  2 AIR 1971 section C 2567
239 men will be entitled to according to the decisions of this Court
As pointed out earlier even without making any provision for rehabilitation the percentage of bonus paid is amply sufficient
Considering the matter from any point of view there is no question of the workmen being entitled to any additional bonus over and above what has already been paid
To conclude we are satisfied that the award of the Tribunal holding that the workmen are not entitled to any additional bonus for the years in question is correct
The appeal fails and is dismissed
There will be no order as to costs
V P section Appeal dismissed


Summary:
For the years 1962 and 1963 the appellants workmen demanded additional bonus of three months  basic wages
The tribunal to which the industrial dispute was referred on a consideration of the materials placed before it by both the parties accepted the case of the respondent management regarding certain deductions made from the profits
and held that the bonus already paid to the workmen was sufficient and that they were not entitled to any additional bonus for those two years
Dismissing the appeal to this Court
HELD  i The commission and royalties received from Dunlop UK for the two years were rightly not included by the respondent in its profits because the evidence established that the circumstances under which the respondent earned the amounts showed that appellants had not made any contribution of work or labour for earning those amounts
It accrued to the respondent as extraneous income
233D F Workmen of Ms Hindustan Motors Ltd vs Ms Hindustan Motors Ltd  Anr 1968 2 S CR 311 followed
Tata Oil Mills Co Ltd vs Its Workmen and Others   referred to
ii The contention of the appellants that no return should be allowed on the share premium of Rs 70 lacs was rightly rejected by the tribunal
When a company makes a Rights issue the Government while giving consent fixes a certain amount of premium to be charged for those shares
Those shares are issued only to the shareholders who ask for them and who pay the premium amount in addition to the nominal value of the share
Under the  as amended a capital introduced by the shareholders in a company had to be shown in accordance with schedule VI as a separate item
But the share premium is not undistributed profit and cannot be distributed as dividend
It is really the share capital of the respondent and therefore the respondent was justified in claiming 6 return on this amount
234 A C iii Mere production of a balance sheet by a company cannot be taken
as proof of a claim as to what portion of the reserves had been actually used as working capital
The utilisation of any amount from the reserves as working capital has to be proved by an employer by adducing proper evidence by way of affidavit or otherwise after giving opportunity to the workmen to contest its correctness in cross examination
The company will have to satisfactorily prove that the amount on which the return is claimed has been actually used as working capital
But in the present case the respondent has adduced oral and documentary evidence
It is not a case where merely profit and loss account alone has been filed without any further evidence being adduced by  the respondent
Therefore there is no basis for the contention of the appellants that the respondent had not properly established its claim for return on working capital 234G H 235 C D 2 2 9 The Oriental Gas Company Ltd vs Their Workmen and Bareilly Electricity Supply Co Ltd vs The Workmen  Ors  referred to
iv a Even if the claim of the company for rehabilitation is rejected completely on the basis of the findings that is after taking into account the claims of the respondent allowed and rejected and the rebate in income tax that may be received by the company the workmen would still have been paid bonus at a rate which has been accepted as correct by this Court
237 C D b On the basis of the education to be made according to the appellants in respect of rehabilitation claim the respondent will be entitled to some amount at least in that regard
Even if that lesser amount is taken into account the available surplus will be reduced further and the result will be that even the amount paid as bonus already by the respondent will be more than what the workmen will be entitled to according to the decisions of this Court
238 E H c The industrial Tribunal Calcutta in relation to a claim for bonus for the year 1957 had elaborately discussed the matter and allowed a certain sum as rehabilitation charges
When once the tribunal had considered a similar claim and had adopted it on the basis of evidence adduced by the parties normally the amount so awarded towards rehabilitation should be adopted even though it will not be conclusive for subsequent years
In the present case the rehabilitation claim was worked out only on the basis of replacement costs of the year 1958
If the appellant s case was that the tribunal when working out the claim for 1957 had not properly appreciated the evidence they should have elicited from the witnesses who deposed on behalf of the respondent that the figures furnished by the respondent are not correct and could not be accepted
But the appellants had not objected to the data adduced as well as the documents produced by the company with reference to its rehabilitation claim
No suggestions had been made to the various witnesses examined on behalf of the respondent that the figures on the basis of which the rehabilitation claim was made were in any way erroneous
237G 238D Therefore considering the matter from any point of view there is no question of the workmen being entitled to any additional bonus over and above what has already been paid Ms Gannon Dunkerley and Co Ltd vs Their Workmen AIR followed