Appeals Nos 351 356 and 358 369 of 1960
Appeals by special leave from the Award Part 1 of the Industrial Court Bombay in References IC Nos 261 297 238 241 248 263 266 271 301 302 257 237 296 299 300 283 and 284 of 1959
3 N A Palkhivala I M Nanavati section N Andley J B Dadachanji Rameshwar Nath and P L Vohra for the appellants in C A No 351 of 1960
N A Palkhivala J B Mehta section N Andley J B Dadachanji Rameshwar Nath and P L Vohra for the appellant in CAs
Nos 352 and 358 of 1960
R J Kolah J B Mehta section N Andley J B Dadachanji Rameshwar Nath and P L Vohra for the appellants in CAs
Nos 353 and 362 of 1960
I M Nanavati section N Andley J B Dadachanji Rameshwar Nath and P L Vohra for the appellants in C As
Nos 354 356 363 365 367 and 369 of 1960
J B Mehta section N Andley J B Dadachanji Rameshwar Nath and P L Vohra for the appellants in C As
Nos 355 359 361 366 and 368 of 1960
section R Vasavada for the respondent in C As
Nos 351 352 355 358 360 364 and 368 of 1960
N H Shaikh for the respondent in C As
Nos 353 and 365 of 1960
N M Barot for the respondent in C As
Nos 354 359 and 367 of 1960
K L Hathi for the respondent in C As
Nos 366 and 369 of 1960
December 7
The Judgment of Gajendragadkar Sarkar Wanchoo and Mudholkar JJ was delivered by Wanchoo J Subba Rao J delivered a separate Judgment
WANCHOO J
These eighteen appeals by  special leave raise a common question and will be dealt with by this judgment
The appellants are certain cotton textile mills in Ahmedabad while the respondent in each appeal is the Textile Labour Association Ahmedabad which is a representative union of the cotton textile workers in Ahmedabad
The total number of cotton textile mills in Ahmedabad is 66 therefore 66 references under section 73 A of the Bombay Industrial Relations Act No XI of 1947 hereinafter called the Act were made to the industrial court for arbitration of disputes arising out of notices of change 4 given by the respondent making a demand for bonus for employees of textile mills in Ahmedabad
It appears that there was an agreement between the Textile Labour Association and the Ahmedabad Mill owners  Association representing the member mills on June 27 1955 hereinafter referred to as the Agreement with respect to payment of bonus by the mills to their employees
The Agreement was to remain in force for a period of five years beginning with January 1 1953 and ending with December 31 1957 and related to bonus for the five calendar years from 1953 to 1957 both inclusive
When the Agreement came to an end disputes arose about bonus for the year 1958
The Agreement was not extended and a notice of change under section 42 of the Act was given by the Textile Labour Association to the Ahmedabad Mill owners  Association on July 21 1959 claiming that all the employees employed during the year 1958 in the member mills be paid an adequate amount of bonus having regard to the volume of profits if any or some bonus irrespective of profits to fill the gap between the existing wage and the living wage so as to avoid unrest among the employees
It further appears that notice in the same terms was given to individual mills about the same time
As no agreement was arrived at between the parties 66 references with respect to the sixty six mills were made to the industrial court as already mentioned above
The industrial court considered all the sixty six references together and came to the conclusion that the Agreement of 1955 had worked fairly to both sides and was substantially in accord with the long standing practice in the industry in Ahmedabad even before the Agreement and that its extension for one year was essential for keeping industrial peace
It therefore ordered the extension of the Agreement for the year 1958 and directed the parties to file within six weeks from the date of the award calculations of bonus payable for the year 1958 in the light of the decision and thereafter the court would proceed to award appropriate bonus in the case of each individual mill
Thereupon there were fifty two applications for special leave to 5 appeal to this Court in which special leave was granted
Thirty four of the appeals arising out of the special leave petitions have been withdrawn and only eighteen now remain for decision
It appears that the remaining fourteen mills accepted the decision of the industrial court so that now forty eight mills are out of the picture and only eighteen are before the Court
The main contention of the appellants before the industrial court was that in view of the law laid down as to bonus by this Court in the Associated Cement Companies Ltd vs The Workmen 1 it was not open to it to extend the Agreement for the year 1958 as that would be against the concept of bonus as understood in industrial law
The same point is being urged before us and the question that falls for decision is whether the industrial court was right in law in extending the Agreement for another year
In order to appreciate the dispute between the parties with respect to the extension of the Agreement we may refer to the salient terms of the Agreement
Before we do so we may mention that the Agreement was without renouncing the general principles enunciated in decisions and awards of the arbitration boards the industrial court the Labour Appellate Tribunal and the Supreme Court in respect of bonus or the rights and privileges created thereunder
It was entered into only with a view to creating goodwill among workers and for the purpose of maintaining peace in the industry and without creating a precedent for the future
The Agreement in the first place provided that the claim of the employees for bonus would only arise if there is an available surplus of profit after making provision for all the prior charges
These prior charges were i statutory depreciation and the development rebate ii taxes iii reserve for rehabilitation replacement and modernisation of block as calculated by the industrial court basic year 1947 iv six per centum return on paid up capital including bonus shares and v two per cent
return on reserves employed as working capital
After the available surplus was determined thus a mill 1 6 having an available surplus of profit had to pay to its employees bonus which would in no case be less than an amount equivalent to 48 of basic wages earned during the year nor was it to exceed an amount equivalent to 25 of the basic wages earned during the year
It was also provided that in case the available surplus was more than sufficient for granting bonus at a higher figure than the ceiling of twenty five per centum of basic wages earned during the year and the maximum bonus of 25 per centum was paid such a mill would be deemed to have set aside a part of the residue of available surplus after grant of maximum bonus not exceeding 25 per cent
of the basic wages earned during the year as a reserve for bonus for purposes of set on adjustment in subsequent years
Secondly it was provided that where in the case of a mill the available surplus was not more than the ceiling of 25 per cent
of basic wages fixed for bonus the bonus would be fixed after deducting at least Rs 10000 from the available surplus
Further it was provided that if a mill had an available surplus of profits which would suffice to pay bonus at a rate lower than the minimum of 48 per cent
it would pay the minimum and would be entitled to set off the excess amount thus paid against the available surplus in a subsequent year or years and there were provisions how this set off would be worked out
Lastly it was provided that if the profits of a mill were not sufficient to provide for all prior charges as mentioned above though it had made profits or where the mill had actually suffered a loss such a mill would a a special case for creating goodwill among its workers and for continuing peace in the industry but without creating a precedent pay to its employees the minimum bonus equivalent to 48 per cent
of the basic wages but would be entitled to set off this amount towards any available surplus in any subsequent years subject however always to a payment of a minimum bonus at the rate of 48 per cent
of basic wages earned during the year
It has been contended on behalf of the appellants that the formula under the Agreement departs in 7 some vital aspects from what is known as the Full Bench formula evolved by the Labour Appellate Tribunal in The Mill owners  Association Bombay vs The Bashtriya Mill Mazdoor Sangh 1 which has been approved by this Court in the Associated Cement Companies  case 2 and is thus the law of the land so far as bonus is concerned
It is urged therefore that inasmuch as the formula under the Agreement departs from the Full Bench formula which is now the law of the land it was not open to the industrial court to extend the Agreement in the face of the decision of this Court in Associated Cement Companies  case1 and in so far as the industrial court has done so it has gone against the law relating to bonus and therefore the award should be set aside
Two questions immediately arise in this connection the first relates to the jurisdiction of the industrial court to impose new obligations upon the parties and the second is whether if the industrial court has jurisdiction to impose new obligations it could do so in a matter of this kind considering the concept of bonus as laid down by the decisions of this Court
So far as the first question is concerned namely the general power of an industrial court to impose new obligations upon the parties the matter is now well settled by the decisions of the Federal Court and also of this Court
It was held by the Federal Court in Western India Automobile Association vs Industrial Tribunal Bombay and Others 3 that  adjudication does not in our opinion mean adjudication according to the strict law of master and servant
The award of the tribunal may contain provisions for settlement of a dispute which no court could order if it was bound by ordinary law but the tribunal is not fettered in any way by these limitations
 The Federal Court also approved the view of Ludwig Teller that industrial arbitration may involve the extension of an agreement or the making of a new one or in 1 2 3 8 general the creation of new obligations or modification of old ones while commercial arbitration generally concerns itself with interpretation of existing obligations and disputes relating to existing agreements see p 345 This Court also in Rohtas Industries Ltd vs Brijnandan Pandey 1 held that  a court of law proceeds on the footing that no power exists in the courts to make contracts for the people and the parties must make their own contracts
The Courts reach their limit of power when they enforce contracts which the parties have made
An industrial tribunal is not so fettered and may create new obligations or modify contracts in the interests of industrial peace to protect legitimate trade union activities and to prevent unfair practice andor victimisation see p 810
 In Patna Electric Supply Co vs Patna Electric Supply Workers  Union 2 this Court held that there is no doubt that in appropriate cases industrial adjudication may impose new obligations on the employer in the interest of social justice and with the object of securing peace and harmony between the employer and his workmen and full cooperation between them see p 1038 and approved of the decision of the Federal Court in Western India Automobile Association s case 3
There is no doubt therefore that it is open to an industrial court in an appropriate case to impose new obligations on the parties before it or modify contracts in the interest of industrial peace or give awards which may have the effect of extending existing agreement or making a new one
This however does not mean than an industrial court can do anything and every thing when dealing with an industrial dispute
This power is conditioned by the subject matter with which it is dealing and also by the existing industrial law and it would not be open to it while dealing with a particular matter before it to overlook the industrial 1  2 1959 SUPP
2 SCR 761
3 9 law relating to that matter as laid down by the legislature or by this Court
This brings us to the second question which is the real question in dispute in this case namely when dealing with a bonus case like the present was it open to the industrial court to overlook the law laid 7 down by this Court in Associated Cement Companies  case 1 and make an award extending the Agreement for a further period of one year In order to determine this question we have to look at the concept of bonus as evolved in the industrial law of this country by industrial tribunals and now by the decision of this Court
So far as we can see there are four types of bonus which have been evolved under the industrial law as laid down by this Court
Firstly there is what is called a production bonus or incentive wage see Titaghur Paper Mills V Its Workmen 2  the second is bonus as an implied term of contract between the parties see Messrs Ispahani Ltd vs Ispahani Employees  Union 3 the third is customary bonus in connection with some festival see The Graham Trading Co vs Its Workmen 4 and the fourth is profit bonus which was evolved by the Labour Appellate Tribunal in The Mill owners  Association Bombay vs The Rashtriya Mill Mazdoor Sangh Bombay 5 and which has been considered by this Court fully in two cases
We are in the present case dealing with bonus of the fourth kind namely profit bonus and what we say subsequently refers only to this kind of bonus
What is the concept of profit bonus with which we are concerned in this case for it is this concept which will determine whether it was open to the industrial court in this case to extend the Agreement for 1958 In Muir Mills Co Ltd vs Suti Mills Mazdoor Union 6 this Court pointed out that There are two conditions which have to be satisfied before a demand for bonus can be justified and 1 1959 SUPP
2 SCR 1012
3 1960 1 SCR 244 1960 1 SCR 107
5 1955 1 SCR 991
2 10 they are 1 when wages fall short of the living standard and 2 industry makes huge profits part of which are due to the contribution which the workmen make in increasing production
The demand for bonus becomes an industrial claim 
The basis for the claim is that labour and capital both contribute to the earning of the industrial concern and it is fair that labour should  derive some benefit if there is a surplus after meeting prior or necessary charges  
The surplus that remained after meeting the aforesaid prior charges would be available for distribution as bonus
 The matter was again considered by this Court in the Associated Cement Companies  case 1 where the Full Bench formula evolved by the Labour Appellate Tribunal was gone into at length
The workmen contended in that case that the formula required revision as the employers were becoming increasingly more rehabilitation conscious and their appetite for the provision for rehabilitation was fast growing with the result that in most cases after allowing for rehabilitation there was no surplus left for the purpose of bonus and the main object of the formula was thus frustrated
It was further contended for the workmen that the whole of rehabilitation expenses should not be provided for out of trading profits and that the claim for rehabilitation should be fixed at a reasonable amount and the industry should be required to find the balance from other sources
It was there held thatthough there may be some force in the plea made for the revision of the Full Bench formula the problem raised by the said plea is of such a character that it can appropriately be considered only by a high powered commission and not by this Court while hearing the present group of appeals
This Court also held that the Full Bench formula had on the whole work ed fairly satisfactorily in a large number of industries all over the country and the claim for bonus should be decided by the Tribunals on the basis of this formula without attempting to revise it
The 1 11 formula was elastic enough to meet reasonably the claims of the industry and labour for fair play and justice 
It was based on two considerations first that labour was entitled to claim a share in the trading profits of the industry because it had parti ally contributed to the same and second that labour was entitled to claim that the gap between its actual wage and the living wage should within reasonable limits be filled up
 The Full Bench formula provided for arriving at the available surplus after meeting prior charges namely i depreciation ii taxes iii return on paid up capital iv return on working capital and v rehabilitation
The formula further dealt with the claim for bonus on the basis that the relevant year is a selfsufficient unit and appropriate accounts have to be made in respect of the said year
Finally it was pointed out that it was only after all the prior charges had thus been determined and deducted from the gross profits that the available surplus could be ascertained for payment of bonus and that when the available surplus had been ascertained there were three parties entitled to claim shares therein namely i labour s claim for bonus ii industry s claim for the purpose of expansion and other needs and iii the shareholders  claim for additional return on the capital invested by them the ratio of distribution would neces sarily depend on several factors
It would thus be clear that the essential concept of profit bonus is that there should be an available surplus determined according to the principles laid down in the cases mentioned above for distribution
If there is no such available surplus for distribution there can be no case for payment of profit bonus
This is the industrial law as laid down by this Court with respect to this kind of bonus in Associated Cement Companies  case 1
It would in our opinion be not open to an industrial court or tribunal to ignore this law as to bonus and to extend an agreement for payment of bonus which is against the basic concept of bonus as laid down by the decisions of this Court on the ground that an 1 12 industrial court has power generally to extend agreements or to create new obligations
As already pointed out that power has to be exercised keeping in view the subject matter before the tribunal and the law laid down by the legislature or by the decisions of this Court with respect to that subject matter
The industrial court in this case was not unaware of this position viz that it as departing from the law laid down in the Associated Cement Companies  case 1 and other bonus cases but it held that this Court was dealing in those cases with individual units and not with a case where there were numerous concerns in an industry at one centre with its particular historical back ground where previous awards had been on an industry wise basis
It therefore held that the decisions of this Court could not apply in their entirety to the dispute before it and that this Court could not have intended that in a case where there was the additional circumstance that the parties had themselves voluntarily modified the bonus formula in some respects by a long term agreement that could not be extended by an industrial court
It is the correctness of this view which has been strongly disputed before us by the appellants
Before deal with this matter we should like to point out that the fact that there are numerous concerns in a particular place can have no relevance in considering the question whether the Full Bench formula can apply to cases like the present
Even though this Court was dealing with the case of one concern namely the Associated Cement Companies it pointed out that the Full Bench formula had worked fairly satisfactorily all over the country and should continue to be applied without revision till such time as a high powered commission went into the question
There is in our opinion no question of industry cum region approach in the matter of a bonus dispute of this kind
There is no doubt that in many matters like wages conditions of service over time allowance dearness allowance gratuity and so on industry cum region approach has been made by industrial courts 1 13 in this country and rightly so
But there is in our opinion no scope for an approach of this kind in the case of bonus the basic concept of which is that payment depends on surplus of profits available according to some formula in the case of each industrial concern
Nor can it be said that the Agreement in this case is dealing with bonus in what is known as industry cumregion basis
Its salient terms as set out above will show that it deals with bonus according to available surplus of each mill so that bonus paid by each mill depends on its own available surplus and the sixty six mills situate in Ahmedabad may pay different amounts of bonus varying from a minimum of 4 8 per cent
of the basic wages to 25 per cent
of the basic wages
Similar differences will arise if the Full Bench formula is applied to the sixty six mills in Ahmedabad
Thus the Agreement which has been extended is not based on industry cum region approach as it is understood
That approach say with respect to wages means that wages of all concerns situate in a particular area engaged in a particular industry should be the same
On that approach the bonus of all these sixty six mills should also be the same percentage for each mill in that area but that is not the basis on which the Agreement was arrived at
The basis of the Agreement is that each individual mill is treated as a separate unit and its available surplus worked out according to the formula in the Agreement itself
This is also the basis of the Full Bench formula and the available surplus of each unit is worked out according to that formula though the result of the application of the two formulae in each case may not be the same
There is in our opinion therefore no justification for the view that the Full Bench formula approved by this Court in the Associated Cement Companies  case 1 can have no application where there are numerous concerns of one nature at one centre
Some bonus awards were brought to our notice to show that they were on industry cum region basis namely The Sugar Mills of Bihar vs Their Workmen 2 and The Sugar Mills Uttar Pradesh vs 1 2 1951 I L L J 469
14 Their Workmen1
These awards related to sugar industry in Uttar Pradesh and in Bihar
As we read these decisions we do not find real industry cumregion approach which would result in uniform bonus for all the mills dealt with by these two awards
What we find is that a different formula was worked out for awarding profit bonus linked with production on the basis that there were profits but when the formula is worked for each mill the bonus would differ from mill to mill according to its production
Further we find that in the Uttar Pradesh case there were certain exemptions granted to certain factories presumably on the ground that they were not in a position to pay bonus for want of sufficient profits
It is true that in the Bihar case it was said that the question of bonus could be considered on industry wise and not on unit wise basis but that only meant that one formula was evolved for the whole of Bihar and applied to every mill in that area
That is what exactly the Full Bench formula also has done for it is the same formula which applies to all industrial concerns all over the country now after the decision of this Court
In the Bihar case an argument was addressed to apply the Full Bench formula but that was not accepted on the ground that balance sheets and profit and loss accounts were not reliable and therefore bonus was linked with production
In the Bihar case also some factories were exempted from paying bonus presumably on the ground that they were unable to do so not having made profits
These cases therefore are not instances of real industry cum region approach
Reference was also made to The Textile Mills in Coimbatore District vs Their Workmen 2 relating to Coimbatore textile mills
In that case the industrial court considered whether bonus at a flat rate for all the mills should be awarded or whether a distinction should be made between mills and mills
It held that the mills themselves when they paid bonus observed or maintained no distinction therefore in the peculiar circumstances of that case a uniform rate of 33 13 per cent was awarded for all the mills as specially all the mills had 1 2 15 without exception made unique profits
As we have said already the basic concept of profit bonus as it appears from the judgments of this Court is that there should be an available surplus of profits in a particular concern in a particular year to which the bonus relates and on this basic concept there is no scope for an approach on the basis of industry cum region in the matter of bonus in the sense that every mill in a region should pay the same bonus
There is therefore no question of industry cum region approach in the present case and even the formula in the Agreement is not on a real industry cum region approach and has to be worked out from mill to mill which is like the Full Bench formula
The reasons therefore which led the industrial court in this case to distinguish and depart from the decision of this Court in The Associated Cement Companies  case 1 do not appear to us to be substantial and there was therefore no ground for departing from that decision for those reasons
This brings us to a consideration of the formula as provided in the Agreement and the Full Bench formula as approved by this Court
It was urged on behalf of the respondent that the two formulae were basically the same both provided for prior charges and in both bonus was to be paid on the availability of surplus profits though it was admitted that in certain respects there were differences
Now if these differences were merely of detail and did not affect some of the vital aspects of the Full Bench formula it might be said that there was no ignoring of the law as laid down by this Court and therefore the tribunal was not unjustified in extending the Agreement for a year
But a comparison of the formula in the Agreement with the Full Bench formula shows differences in three vital aspects
In the first place rehabilitation provided in the Agreement differs vitally from rehabilitation as explained in The Associated Cement Companies case 1
In the second place the formula in the Agreement provides for payment of a minimum bonus even though there may be no available surplus and even though the particular mill might have made actual 1 16 loss
Thirdly while the Full Bench formula as approved by this Court treats a particular year as a selfsufficient unit there is provision for set off and set on in the formula in the Agreement
Can it therefore be said that the formula in the Agreement which departs in these vital particulars from the Full Bench formula in the matter of bonus could be extended for another year by the industrial court in the face of the decisions of this Court laying down the law as to what profit bonus is and how it should be worked out The tribunal therefore when it extended the formula in the Agreement which departed from the Full Bench formula in certain vital aspects was undoubtedly ignoring the industrial law as laid down by this Court and going against it
It was its duty when dealing with the question of profit bonus to apply the Full Bench formula as approved by this Court and then arrive at the quantum of bonus to be awarded in the case of each mill
In particular by extending the Agreement the tribunal made it possible for payment of a minimum bonus even when there was either insufficient available surplus to pay bonus or no available surplus at all or even actual loss the tribunal was thus definitely going against the industrial law relating to bonus as laid down by this Court
It had in our opinion no power to do so and the reasons which it gave for departing from the law laid down by this Court are unsubstantial and do not commend themselves to us
In these circumstances the order of the tribunal extending the Agreement for a year cannot be upheld
Further it was urged that in any case the Agreement contemplates payment of bonus out of profits of the industry at Ahmedabad as a whole and that is why it has provided for set off and set on
Whatever may be said about this provision on a long term basis the tribunal s jurisdiction was limited by its terms of reference
There was not one reference before the tribunal on industry cum region basis but sixty six separate references one relating to each mill
It was required to consider the question of bonus for each mill for the year 1958 only and thus had nothing to 17 do with set off and set on or the profits of the industry as a whole at Ahmedabad
The tribunal was only concerned with 1958 and no consideration as to what happened before that year or what may happen after 1958 could enter into its decision of the question of bonus for the year 1958
The principle of set off and set on therefore to be found in the Agreement could not convert payment of bonus for 1958 say by a loss making mill into profit bonus as laid down by the decisions of this Court
The tribunal s award in this case therefore would clearly be against the law as to bonus laid down by this Court for its jurisdiction was confined only to the year 1958 and no more
It was however urged on behalf of the respondent that there is a fifth kind of bonus namely goodwill bonus and that the Agreement when it provides for a minimum bonus irrespective of availability of profits provides for such bonus in the interest of industrial peace
It is enough to say that so far as what is called goodwill bonus is concerned it pre supposes that it is given by the employer out of his own free will without any compulsion by an industrial court
As its very name implies it is a bonus which is given by the employer out of his free consent in order that there may be goodwill between him and his workmen but there can be no question of imposing a goodwill bonus by industrial courts as imposition of such a bonus is a contradiction of its very concept
We have already referred to four kinds of bonus which prevail in the industrial law in India and which can in certain circumstances be imposed by industrial tribunals but there can be no question of the imposition of the so called goodwill bonus for that bonus depends upon the goodwill of the parties and on their free consent
In the absence of such free consent there can be no question of any goodwill bonus
Before we part with these appeals however we must briefly advert to the general considerations which have been pressed before us very strongly by Mr Vasavada for the respondents and Mr Ambekar for the intervening parties
It has been urged before us 18 that we should be reluctant to interfere with the agreement because it has worked satisfactorily in Ahmedabad and the reversal of the award under appeal may lead to discontent in a very important centre oftextile industry in this country
It has also been strenuously argued that the Agreement offers a very reasonable solution to the vexed problem of bonus and the pattern set by it has been copied in Bombay Madhya Pradesh and Coimbatore
If the pattern thus set for determining the textile employees  claim for bonus has been adopted by a substantial part of the textile industry in this country the Court should desist from disturbing the smooth working of the said pattern unless it is com pelled to do so
It may be conceded that some features of the Agreement are undoubtedly very reasonable and in the interest of the industry as a whole
The agreement has put a ceiling on bonus and that is a term very much in favour of the employer because in some cases where the available surplus is very large then under the working of the Full Bench formula the employees are tempted to claim and industrial tribunals are justified in awarding a pro portionately substantial amount as bonus reaching or even exceeding in some cases the level of basic wages of even 8 or 9 months
This trend has been controlled by the Agreement
It is true that the Agreement requires the payment of the minimum bonus but this provision is intended to work as a part of the larger agreement spreading over some years and the employer has agreed to pay the minimum bonus even though in a particular year he may have no available surplus because he and his employees expect or anticipate that the employer may have available surplus in the succeeding year
The working of the Agreement is really intended to spread over a number of years and the account between the employers and the employees in that behalf is conceived as a continuing and running account
These features of the Agreement may be regarded as commendable
The problem of rehabilitation which has assumed a complex form has also been attempted to be solved by the Agreement in a practical way
The solution 19 adopted by the Agreement in that behalf it is claimed is based on the historical and factual genesis of the original formula evolved by the Full Bench of the Labour Appellate Tribunal when it dealt with the problem of the textile industry in Bombay
The argument is that until 1962 the Agreement should be allowed to work when the position may be reviewed at length
Since this Court delivered its judgment in the case of The Associated Cement Companies 1 it has come to our notice that in cases where the employer claims an exaggerated amount for rehabilitation or where a reasonable claim made by the employer in that behalf is unreasonably challenged by the employees the dispute is protracted
The trial of the issue tends to become complicated and that leads to bitterness between the parties
It has been urged before us that time has now come when the industrial courts will have to face the problem of radically changing the formula
It is argued that modern economic thought does not encourage the theory that the whole of the rehabilitation amount must come from the current profits of the industry and it was stated before us that Government may have gradually to step in to assist the industry by advancing sufficient loans on reasonable terms to enable the industry to meet the demand of its rehabilitation
However as we pointed out in our decision in the case of The Associated Cement Companies 1 these matters can be properly and effectively decided by an industrial court if the major representative industries in the country and their employees are brought before it with a proper reference or it can be tackled more appropriately by a high power commission appointed in that behalf
We were told that the Government of India has taken a decision to appoint such a commission and that it would soon resolve this problem on a more rational and scientific basis
During the course of the hearing of these appeals we suggested to the parties that in view of the pending appointment of the commission parties may settle the present dispute amicably and that the appellant mills may fall in line with the rest 1 20 of the mills in Ahmedabad but despite their best efforts the parties could not settle the dispute and wanted a decision from this Court on the points of law raised in the present appeals that is why we have had to decide the points of law and in doing so inevitably general considerations to which we have just adverted cannot play a material part
In the course of the argument reference was made by Mr Ambekar to the concept of goodwill bonus that again is a matter which may be evolved by agreement between the parties or decided by a highpower commission
If the matter has to be decided according to law as has been laid down by this Court then the conclusion would be inevitable that on essential points the Agreement departs from the Full Bench formula and however commendable it may be on the whole it can continue only by agreement and cannot be enforced by industrial adjudication against the will of any of the parties that is why we have come to the conclusion though not without regret that the appeals must be allowed and the matter must be sent back to the tribunal for disposing of the issue before it in accordance with law
We direct that the tribunal should proceed to try the question whether any bonus should be awarded to the employees of the eighteen mills before us on the basis of the Full Bench formula as interpreted by this Court in the case of The Associated Cement Companies 1
In the circumstances there will be no order as to costs
SUBBA RAO J
I have had the advantage of perusing the judgment prepared by my learned brother Wanchoo J
I regret my inability to agree
As mine is a solitary dissent it may not serve any useful purpose to elaborate on the question raised at great length
I would therefore briefly refer to the relevant facts which have already been fully stated by my learned brother and express my views concisely on the question
presented before us
These appeals raise a dispute between the Textile Labour Association Ahmedabad the representative 1 21 union of the textile industry in Ahmedabad and the various textile mills in that area in respect of the bonus payable for the year 1958
The said Labour Union entered into a five year pact with the Ahmedabad Mill Owners  Association representing the member mills in regard to payment of bonus for the years 1953 to 1957
The Labour Union demanded bonus for the year 1958 on the basis of the said pact
The mill owners claimed that the said pact was contrary to the law laid down by the decision of this Court in the case of The Associated Cement Companies Ltd Dwarka Cement Works Dwarka vs Its Workmen 1 and that if the rehabilitation cost was calculated on the basis of the principles laid down therein there would not be any available surplus to sustain the claim for bonus
The Industrial Court to which the dispute was referred elaborately
considered the arguments advanced and came to the conclusion that the five year pact which originated in Ahmedabad was not only fair in itself but also an important contribution to industrial peace and that it did not in any way run counter to the law laid down by the Supreme Court
On that finding it extended the operation of the pact for one more year and directed the parties to file within six weeks from the date of the award calculations in respect of the bonus payable for the year 1958 in the light of its decision and on the footing that the five year pact was for six years
The main question in the appeals is whether the said pact violates the law laid down by this Court
Before considering this contention it would be convenient to notice the terms of the said pact
The said pact is a lengthy document though precisely drawn and to read it in full is to unnecessarily burden the judgment
I shall therefore briefly summarize its terms
The contracting parties were the Textile Labour Association of Ahmedabad a representative union for the local area of Ahmedabad on the one part and the Ahmedabad Mill Owners  Association Ahmedabad representing its local member mills on the other part
1 22 It was executed on June 27 1955 to cover a period of five years from 1953 to 1957 inclusive of both years for grant of bonus to the employees of the Cotton Textile Mills of Ahmedabad
The object of the agreement was to create good will among the workers and for the purpose of maintaining peace in the industry
The basis of the agreement was that it applied for the entire Ahmedabad Textile Industry and for a period of five years
The available surplus of each mill was ascertained in accordance with the Full Bench Formula laid down by the Labour Appellate Tribunal in Mill Owners  Association Bombay vs The Rashtriya Mill Mazdoor Sangh Bombay 1
The maximum bonus payable by every mill of the said area was fixed at 25 per cent
of the total basic wages earned during the year and the minimum was fixed at 48 per cent
of the said basic wages
If in a particular year a mill had an available surplus adequate for granting bonus at a higher quantum than the ceiling of 25 per cent
of the basic wages
it would nationally set aside the part of the residue of the available surplus after the grant of the maximum bonus not exceeding an amount equivalent to 25 per cent
of the basic wages earned during that year as a reserve for bonus for the purpose of set on adjustment in subsequent years
If the available surplus was adequate only to grant bonus at a rate lower than the ceiling the quantum of bonus would be fixed in such a manner that there would remain with the mill at least a minimum of Rs 10000
If in respect of any year a mill had an available surplus adequate to pay bonus at a rate lower than the minimum rate it would be entitled to set off the excess amount of bonus that would be payable in a subsequent year or years
In setting off the said amount of bonus that would be payable against subsequent year or years if the surplus was adequate only to grant bonus at a rate lower than the maximum rate the mill would first set aside out of the available surplus an amount of Rs 10000 and then out of the balance it would further take out the excess amount paid by it as bonus in the previous 1 23 year and then it would distribute the remainder as bonus
Even if a mill had made a loss in a particular year it had to pay the minimum bonus but it would be entitled to set off the amount thus paid against the amount of bonus that would be payable in the subsequent year or years in the same manner as in the case of a surplus adequate to grant bonus only at a rate lower than 25 per cent
of the basic wages
In short when the surplus was adequate to pay bonus at 25 per cent
of the basic wages earned during the year a mill had to pay the maximum of 25 per cent
of the basic wages
When it was adequate only to grant bonus of less than 25 per cent
of the basic wages it would pay the said bonus after reserving a sum of Rs 10000 for itself
If there was loss it would pay the minimum bonus
Whatever amounts were paid were adjusted on the principle of set on and set off in the subsequent years
There was also a provision that after the prescribed period all the outstanding liabilities under the formula of set on and set off would come to an end
Three principles clearly underlie the entire scheme namely i that though for the purpose of ascertaining the surplus the profits of a particular mill were taken as the criterion the position of the entire Ahmedabad Textile Industry was taken into consideration ii that the beneficent features of the scheme could be gathered only by its long term operation and iii that though in a particular year in the case of a particular mill there might not be available surplus the principles of set on and set off indicate that the bonus was linked with profits
As reasonable men trying to settle their disputes both the parties representing their respective associations adopted an optimistic attitude and proceeded on the basis that the entire industry would make a profit and that every mill could be expected to make reasonable profits in at least some of the five years though it might incur loss in other years
The validity of the agreement should be judged on the basis adopted
In the Ahmedabad Textile Industry it is in evidence the average monthly wage for workers in 1957 24 was Rs 54
Fifteen days  basic wages ie the minimum bonus prescribed under the pact would come to an average total wages for 5 days and 3 months  basic wages would come to 19 days  total wages on the average
Prima facie the bonus fixed is very reasonable and cannot be said to be oppressive to the mill owners
The said bonus agreement by its reasonableness and beneficent effects on the industry attracted the attention of other mills throughout India
Exhibit U 2 shows the particulars of other mills which have adopted the agreement
The Bombay Textile Industry The Madhya Bharat Mill owners  Association The Modi Spinning  Weaving Mills Modinagar and the cotton mills at Surendranagar Saurashtra  Sidhpur Viramgam Nadiad and Petlad Cambay Baroda Surat adopted the said scheme with suitable modifications
The silk industry in Bombay and the plantation industry in Madras also accepted the principles underlying the said agreement
We are told that even the Coimbatore area has recently adopted a similar agreement
The fact that the said five year pact was followed by so many other mills is a fair indication that it was basically sound and capable of yielding good results
Experienced members of the Industrial Courts spoke highly of the pact
Late Shri section H Naik a Member of the Industrial Court adopted the pact in a dispute between the Bombay Mill Owners  Association and the Rashtriya Mill Mazdoor Sangh and in making an award in terms of a similar pact made the following observations This award based upon an agreement arrived at as a result of persistent and continued efforts on the part of both the parties keeping in view the prosperity of the employers as well as the well being of the employees will go down in history as a significant landmark in collective bargaining
It augurs well for the future of the industry as well as those employed therein particularly in view of the ambitious Second Five Year Plan on which the country will shortly launch
It also avoids for 25 some time and let us hope for all time to come the bonus dispute which cropped up every year since 1947
I congratulate both the parties and compliment them on the successful termination of their efforts to bring peace to the industry and set an example to the employers and employees in the country
 The said weighty observations apply mutatis mutandis to the agreement in question
Shri H V Divatia another experienced Member of the Industrial Court in his award on the bonus dispute of the Ahmedabad Textile Mills for 1952 observed Ever since the former practice of taking all the textile mills in one centre as one unit for the purpose of determining the bonus was given up there has been dissatisfaction on both sides on the bonus question every year and in my view this change as well as the formula set up by the Labour Appellate Tribunal have made the bonus issue a very complicated one resulting in bitterness on both the sides instead of promoting peace and harmony between the employers and workers
I hope the whole matter is reconsidered at the highest level
If bonus is to be given it must be awarded in such a way that it does not defeat its purpose
 The agreement did nothing more than reverting to the former practice of taking all the textile mills in one centre as one unit for the purpose of determining
the bonus though for ascertaining the quantum of bonus payable the balance sheets of individual units were taken into consideration
In making the present award the Industrial Court on a consideration of the entire material placed before it came to a definite finding that on the
whole the five year pact had worked fairly for both the parties and that the extension of the said agreement for one more year would help in promoting peace in that industry in Ahmedabad and that owing to the goodwill created by the five year bonus pact the industry also benefited by schemes of rationalization
It was also brought to our notice that in the textile industry 4 26 in Ahmedabad area there were never any strike and the disputes in the recent years were settled amicably across the table
In such a situation this Court was asked under article 136 of the Constitution to set aside the award and to bring about chaos where peace existed and to introduce unrest and disharmony where stability and harmony prevailed
It was said that this Court had no option but to do so as the agreement was contrary to law as laid down by this Court
I shall now examine briefly the relevant decisions laying down the principle governing bonus to ascertain whether the impugned agreement is in any way inconsistent with them
In Muir Mills Co Limited vs Suti Mills Mazdoor Union Kanpur 1 this Court defined the term bonus and laid down the conditions which would give rise to the claim for bonus
Bhagwati J after considering the relevant decisions and text books on the subject accepted the following definition of bonus given by the Textile Labour Inquiry Committee The term bonus is applied to a cash payment made in addition to wages
It generally represents the cash incentive given conditionally on certain standards of attendance and efficiency being attained
 The learned Judge then proceeded to state at p 998 thus There are however two conditions which have to be satisfied before a demand for bonus can be justified and they are 1 when wages fall short of the living standard and 2 the industry makes huge profits part of which are due to the contribution which the workmen make in increasing production
The demand for bonus becomes an industrial claim when either or both these conditions are satisfied
 The learned Judge then referred to the formula evolved by the Full Bench of the Labour Appellate Tribunal in the Mill Owners  Association Bombay vs Rashtreeya Mill Mazdoor Sangh Bombay 2 and narrated the first charges on the gross profits as laid
down by 1  2 27 that decision
The learned Judge then expressed his view thus at p 999 It is therefore clear that the claim for bonus can be made by the employees only if as a result of the joint contribution of capital and labour the industrial concern has earned profits
If in any particular year the working of the industrial concern has resulted in loss there is no basis nor justification for a demand for bonus
Bonus is not a deferred wage This decision lays down in clear terms that the payment of bonus is linked with profits
But this decision was given in a dispute between one specified mill namely Muir Mills Co Limited and the Union representing its employees
This Court was not considering a case of a bonus claim on industry cum region basis
The principle of the decision namely that the claim for bonus is linked with profits may equally apply to such a case but the working of the principle must necessarily depend upon the peculiarities of such a claim
Industrial law is in the process of evolution and it cannot be put in a straight jacket but must be allowed to grow to meet varying situations that present themselves to industrial tribunals subject of course to the statutory provisions and the general principles laid down by courts
The application of the principles laid down by this decision to a bonus claim on industry cum region basis would to some extent be different from its application to a single unit
I shall consider this aspect at a later stage of the judgment
It is unnecessary to consider the other decisions on this subject except the recent decision of this Court in The Associated Cement Companies Ltd Dwarka Cement Works Dwarka vs Its Workmen That decision reviewed the entire law on the subject vis a vis the profit bonus
It accepted the principles laid down by the said Full Bench Formula and elaborately considered the mode of application of the prin
ciples for ascertaining the available surplus
 Gajendragadkar J who spoke for the Court referred to the earlier decision and restated the basis for awarding bonus thus at p 995 1 28 We have already noticed that the formula for awarding bonus to workmen is based on two considerations first that labour is entitled to claim a share in the trading profits of the industry because it has partially contributed to the same and second that labour is entitled to claim that the gap between its actual wage and the living wage should within reasonable limits be filled up
 Then the learned Judge after referring to the earlier decisions gave the various amounts that should be deducted from the bonus year s profits and the manner in which they should be done to ascertain the available surplus According to the learned Judge the following items have to be deducted 1 Depreciation which should be the notional normal depreciation
2 Income tax
3 A return on paid up capital as well as working capital
Though the usual rates were mentioned it was made clear that the rates were not inflexible but would vary according to the circumstances of each case
4 Rehabilitation For ascertaining the amount necessary for rehabilitation it was pointed out that a multiplier and divisor should be adopted the former to ascertain the probable price which may have to be paid for the rehabilitation replacement or modernization of machinery and the latter in order to ascertain the annual requirement of the employer in that behalf year by year
 Out of the balance which was described as available surplus it was stated that three parties namely the labour the industry and the shareholders were entitled to claim shares
This is the broad picture drawn by that decision for fixing the bonus
That decision therefore restated the pre existing law and reaffirmed the doctrine that bonus is linked with profits and also the Full Bench Formula for ascertaining the available surplus
That decision was also not concerned with a claim for bonus on industry cum region basis but only with a claim in regard to a particular unit
It also did not lay down that employer and 29 employee could not agree in regard to the distribution of the available surplus or in respect of the amount required for rehabilitation
It also did not purport to prevent the parties from agreeing on the payment of bonus linked with profits on industry cum region basis spread over a number of years
Some of the observations in the judgment indicate the consciousness of the court that the formula accepted or the directions given therein could not meet every conceiv able situation that might arise in the complicated field of industrial relations
Does the impugned pact contravene the law laid down by this Court It is contended that it infringes the law mainly in three respects namely i bonus was payable thereunder by a mill incurring loss ii the pact did not provide for rehabilitation of the post 1947 block and iii the depreciation and the interest on the reserves allowed were not in accordance with the formula
The first objection appears to be plausible and has also been upheld by my learned brethren
But in my view there is a fallacy underlying it
The contention invokes the law of bonus laid down in respect of an industrial claim for bonus for a particular year made by the employees of a single mill and seeks to apply it to a case of an agreement evolving a scheme of bonus on the basis of industry cum region spread over a reasonable period of time
Though the fundamental principle namely that bonus is linked with profits applies to both the application of the same to two different situations must necessarily differ
The short question is whether under the impugned agreement the claim for bonus was not based on profits
The agreement was a multilateral one involving mutual obligations
It was on industry cum region basis that is it was entered into between the employers of the entire industry and the employees thereof
The basis of the agreement was that the entire industry would make a profit
For the purpose of convenient payment of bonus it was worked out on the unit basis
All the parties to the agreement the employers and the 30 employees of different mills in Ahmedabad desired in dustrial peace in order to build up the textile industry
The industry comprised many units with varying prospects and different strata of financial stability and prosperity
Some mills may earn profits throughout the period some may earn profits in some years and incur loss in other years and under extremely unfortunate and unexpected circumstances a mill may incur loss throughout
Though aparticular mill may earn abnormal profits another mill may be just able to make its both ends meet and another may have a narrow margin of profits or even incur loss
But all of them were sincerely interested in the general prosperity of the industry as a whole in the said area which would have its repercussions on individual units
A mill which earns large profits may have to pay more than 25 per cent
of basic wages for the year as bonus and a mill which incurs loss may not have to pay bonus at all
The employees of a particular mill may be entitled in a particular year having regard to the profits to get bonus far in excess of 25 per cent
of the basic wages
But in the general interest of all concerned they were all willing to make a little sacrifice for the common good
Each mill undertook the liability to pay bonus to its employees with a minimum and maximum limits in consideration of a similar undertaking of liability by other mills
So too the employees in consideration of a minimum bonus being guaranteed to them agreed not to claim more than the maximum fixed and the mills as a whole guaranteed payment of the minimum bonus
But what is important to remember is that the entire scheme of payment of bonus was linked with profits
It would be paid on the basis of profits earned or to be earned by a mill
If a mill did not make profits in a particular year bonus would be paid on account to be adjusted in subsequent years
The formula of set on and set off emphasizes the integral connection between bonus and profits and the fact that the total loss incurred by a particular mill during the entire period may break that formula does not affect the basis of 31 the agreement
In effect and substance under the agreement each of the mills agreed for a consideration on the happening of a contingency to treat certain amounts as notional profits adequate to pay the minimum bonus with a right to set off in subsequent years against larger profits if any earned by them
In the premises it is not correct to state that bonus is not linked with profits for four reasons namely i the agreement was between the employers and employees of the entire textile industry in Ahmedabad ii the basis of the agreement was that the industry as a whole would make a profit there is nothing illegal in parties to the agreement who had intimate knowledge of the financial position of the entire industry from accepting that position iii instead of the profits of the entire industry being ascertained and bonus paid to all the employees under the agreement each mill for a consideration namely obligations undertaken by other parties agreed to pay bonus ranging between a maximum and a minimum and iv each mill also agreed for a consideration even if in fact it incurred a loss in a particular year
 to set apart a notional amount as profits adequate to pay the minimum bonus with a right to readjust its bonus account in subsequent years
In this view the impugned pact does not contravene the law of the land for the simple reason that there is no decision of this Court which prevents the making of ouch agreements so long as the fundamental principle is not violated and in this case for the reason given by me I am of the view that the said principle viz that bonus should be linked with profits has been adhered to in the agreement
Now let us see whether the Full Bench Formula in regard to rehabilitation has been contravened by the impugned pact
The main emphasis is on the want of a provision in the agreement in regard to valuation of the block subsequent to 1947
In The Associated Cement Companies  case 1 this Court observed at p 971 thus it has also been observed by the Labour Appellate Tribunal that if an appropriate multiplier and 1 32 divisor are determined they are generally used because the tribunals take the view that the reconsideration of the said multiplier and divisor should not be hastily undertaken and could be justified only on the basis of a stable character extending or likely to extend over a sufficient number of years so as to make a definite and appreciable difference in the cost of replacement The Industrial Court in the bonus
case of the textile industry at Ahmedabad for the year 1949 fixed the cost of replacement of the block of the entire industry at Ahmedabad at Rs 3389 crores spread over 15 years from 1947
The Industrial Court on the material placed before it fixed the multiplier at 27 and the divisor at 15
The result is that the cost of the machinery and building as it existed in 1947 was multiplied by 27 and after making the necessary deduction therefrom such as that of depreciation and reserves available and the breakdown value of machinery divided the surplus by 15 years
Ordinarily change in the said multiplier and divisor as laid down by this Court should not be hastily undertaken and could be justified only on the basis of a substantial change of a stable character extending or likely to extend over a sufficient number of years
In the impugned pact the parties agreed to abide by the said multiplier and divisor and they did not think fit to revise the same
The decisions of this Court do not preclude employers and employees from agreeing to a particular valuation of the block or to their agreeing to a particular multiplier and divisor having regard to the circumstances obtaining at the time of the agreement
Nor does the agreement infringe any of the principles laid down by the Full Bench Formula in the matter of fixing the prior charges
A perusal of paragraph 2a of the agreement shows that the prior charges mentioned therein are only those that are stated in the Full Bench Formula though there is certainly a difference in the particulars under different heads such as interest etc
Certainly the decisions of this Court do not preclude the parties from 33 agreeing to certain amounts or to certain rates under different heads of prior charges
As the agreement does not infringe the law laid down by this Court it cannot be contended that the Industrial Court could not extend the said agreement if it is necessary to secure industrial peace for another year
In effect and substance the Industrial Court adopted the said agreement as a part of the award by giving it a span of six years instead of five years with the result that the entire formula of set on and set off would automatically apply in the sixth year
Courts have held that Industrial Courts have power to extend agreements in appropriate circum stances
The Federal Court of India in Western India Automobile Association vs Industrial Tribunal Bombay 1 explained the scope of industrial adjudication and the functions of an industrial tribunal in labour disputes thus at p 345 Adjudication does not in our opinion mean adjudication according to the strict law of master and servant
The award of the Tribunal may contain provisions for settlement of a dispute which no Court could order if it was bound by ordinary law but the Tribunal is not fettered in any way by these limitations
In Volume 1 of Labour Disputes and Collectiv e Bargaining  by Ludwig Teller it is said at page 536 that industrial arbitration may involve the extension of an existing agreement or the making of a new one or in general the creation of new obligations or modifications of old ones while commercial arbitration generally concerns itself with interpretation of existing obligations and disputes relating to existing agreements 
In our opinion it is a true statement about the functions of an Industrial Tribunal in labour disputes The same view in different phraseology has been expressed by this Court in Bohtas Industries Limited vs Brijnandan Pandey 2 section K Das J speaking for the Court observed at p 810 thus 1 1949 FCR 321
2  5 34 A Court of law proceeds on the footing that no power exists in the courts to make contracts for people and the parties must make their own contracts
The courts reach their limit of power when they enforce contracts which the parties have made
An Industrial Tribunal is not so fettered and may create new obligations or modify contracts in the interests of industrial peace to protect legitimate trade union activities and to prevent unfair practice or victimization
We cannot however accept the extreme position canvassed before us that an Industrial Tribunal can ignore altogether an existing agreement or existing obligations for no rhyme or reason whatsoever This Court again reiterated the same principle in the case of Patna Electricity Supply Co Limited 1 thus at p 1038 There is no doubt that in appropriate cases industrial adjudication may impose new obligations on the employer in the interest of social justice and with the object of securing peace and harmony between the employer and his workmen and full cooperation between them
This view about the jurisdiction and power of Industrial Tribunals has been consistently recognized in this country since the decision of the Federal Court in Western India Automobile Association vs Industrial Tribunal Bombay 2
These authorities clearly establish the proposition that an Industrial Tribunal can extend an existing agreement or make a new one if for good reasons it comes to the conclusion that such extension promotes industrial peace
If as I have held the impugned pact was lawful and did not contravene the law laid down by this Court the Industrial Court in the present case was certainly within its rights to extend that pact for another year for the very good reasons given by it for doing so
I shall now state my view in the form of the following propositions 1 Neither the Full Bench Formula nor the decisions of this Court affirming it preclude an 1 1959 SUPP
2 SCR 76r
2 35 Industrial Court in appropriate cases from extending the terms of a pact by another year if that was necessary to maintain industrial peace
2 The law laid down by the Federal Court and the Supreme Court recognizes such a power in an Industrial Court
3 The fact that the subsequent block has not been valued does not affect the question for the parties can certainly agree for various reasons that the value of the existing block should govern the situation for a specified period
4 The impugned five year pact is not contrary to industrial law as laid down by this Court indeed it expressly followed the principles laid down in the Full Bench Formula which was subsequently affirmed by this Court in the case of Associated Cement Companies 1
5 The impugned pact also does not infringe the principle that bonus depends upon profits but it applied the same by evolving a formula of set on and set off to a complicated situation of the entire industry in a particular area for a number of years
For the foregoing reasons and in view of the aforesaid definite findings of the Industrial Court I hold that this is eminently a fit case for extending the agreement for the bonus year 1958
Before closing I must express my appreciation of the way in which the impugned pact was brought about between the parties
It is in the interest of both the employers and the employees while the employees of every mill are assured of payment of a minimum bonus the employers of every mill also are assured protection against extravagant claims
The agreement avoided complicated and acrimonious disputes in courts every year in regard to bonus
The working of this agreement certainly helped the mills to achieve the introduction of schemes of rationalization
The agreement has become a model one for other mills
Ironically the Full Bench Formula affirmed by this Court in the case of Associated Cement Companies Limited 1 mainly evolved to fix the amount required for rehabilitation in the interest of industrial peace turned out to be the sheet anchor for 1 36 the employers to depart from the path of negotiation and agreement which they were following all these years and to enter the arena of open fight with the employees
It may be though it may turn out to be wrong that they are under the belief that the Full Bench Formula if strictly followed would not leave any surplus and that they need not pay any bonus to the employees
This attitude is neither reasonable nor in the interest of industrial peace
I hope and trust that the parties in spite of the temporary success in these appeals would see better light and settle their disputes as they had been doing all these years
In the result the appeals fail and are dismissed with costs
By COURT  In accordance with the opinion of the majority the appeals are allowed and the matter sent back to the Tribunal for disposing of the issue before it in accordance with law
We direct that the Tribunal should proceed to try the question whether any bonus should be awarded to the employees of the eighteen mills before us on the basis of the Full Bench Formula as interpreted by this Court in the case of The Associated Cement Companies 1
In the circumstances there will be no order as to costs
Appeals allowed
Cases remanded to the Tribunal


Summary:
The respondent the Textile Labour Association at Ahmedabad entered into a five years pact with the Ahmedabad Mill Owners  Association representing the member mills in regard to payment of bonus to the employees of the mills for the years 1953 57
The Labour Union demanded bonus for the year 1958 on the basis of the pact but the mill owners claimed that the pact was contrary to the formula evolved by the Full Bench in Mill Owners  Association Bombay vs The Rashtriya Mill Mazdoor Sangh Bombay  which was approved by the Supreme Court in The Associated Cement Companies Ltd vs Its Workmen  inasmuch as 1 rehabilitation provided in the Agreement differed vitally from rehabilitation as explained in that decision 2 the Agreement provided for payment of a minimum bonus even though there may be no available surplus and even though the particular mill might have made actual loss and 3 while the Full Bench Formula as approved by the Supreme Court treated a particular year as a self sufficient unit there was provision for set off and set on in the Agreement
The Industrial Tribunal to which the dispute was referred in the
form of sixty six references one relating to each mill took the view that the pact did not in any way run counter to the law laid down by the Supreme Court and that the extension of the agreement for one more year would help in promoting peace in the industry in Ahmedabad
Held Subba Rao J dissenting that the Agreement in question departed from the Full Bench Formula in the matter of bonus in certain vital aspects and that the Tribunal when it extended the Agreement for the year 1958 was ignoring the law as laid down by the Supreme Court as to what profit bonuswas and how it should be worked out
2 The Tribunal had no power by extending the Agreement to make it possible for payment of a minimum bonus for the year 1958 even when there was either insufficient available surplus to pay bonus or no available surplus at all or even actual loss
The jurisdiction of the Tribunal was limited by its terms of reference which was not on industry cum region basis but one for each mill to consider the question of bonus for each mill for the year 1958 and consequently it had no jurisdiction to apply the principle of set off and set on to be found in the Agreement in respect of payment of bonus or take into account the profits of the industry as a whole in Ahmedabad
Per Gajendragadkar Sarkar Wanchoo and Mudholkar JJIt is open to an industrial court in an appropriate case to impose new obligations on the parties before it or modify contracts in the interest of industrial peace or give awards which may have the effect of extending Agreement or making new one but this power is conditioned by the subject matter with which it is dealing and also by the existing industrial law and it wouldnot be open to it while dealing with a particular matter before it to overlook the industrial law relating to that matter as laid down by the legislature or by the Supreme Court
Western India Automobile Association vs Industrial Tribunal Bombay  Rohtas Industries Limited vs Brijnandan Pandey  and Patna Electricity Supply Cov
Patna Electric Supply Workers  Union 1959 SUPP
2 SCR 761 relied on
Per Subba Rao J 1 The impugned five years pact was not contrary to industrial law as laid down by the Supreme Court
2 The pact also did not infringe the principle that bonus depends upon profits but it applied the same by evolving a formula of set off and set on to a complicated situation of the entire industry in a particular area for a number of years
3 The Full Bench Formula in regard to rehabilitation was not contravened by the pact
The decisions of the Supreme Court did not preclude employers and employees from agreeing to a particular valuation of the block having regard to the circumstances obtaining at the time of the agreement
4 Neither the Full Bench Formula nor the decisions of the Supreme Court affirming it precluded the Tribunal from extending the terms of the pact by another year if that was necessary to maintain industrial peace