Appeal No 226 of 1958
163 Appeal by special leave from the award dated May 30 1957 of the Labour Court Coimbatore in Industrial Dispute No 89 of 1955
A V Viswanatha Sastri and T V R Tatachari for the appellants
M section K Sastri for the respondents
May 8
The Judgment of the Court was delivered by GAJENDRAGARKAR J
This appeal by special leave arises out of an industrial dispute between the Management of Praga Industries P Ltd hereafter called the appellant and its workmen hereafter called the respondents
The dispute which was referred by the Government of Madras for adjudication to tile Industrial Tribunal at Coimbatore covered four items
Two of them were settled by compromise between the parties and the remaining two were the subject matter of adjudication
They are the question about the quantum of bonus payable to the respondents for the year 1954 and the question of fixing scales of wages with graded annual increments for different categories of respondents
The tribunal has ordered the appellant to pay to the respondents by way of bonus three months  wages
The appellant had already paid one month s bonus and so it had been directed to pay bonus for two months more
In regard to the fixation of the wage structure the tribunal has refrained from fixing any wage structure at present and as an interim measure it has ordered the appellant to grant all its workmen all increment at the rate of 4 and to continue to grant such an increment every year until they are classified and their pay scale is introduced to reach a particular maximum
It is these two directions in the award which are challenged by the appellant in the present appeal
The appellant is a private limited company carrying on the business of manufacturing nut and plastic buttons in Coimbatore as a lessee under Praga Industries Coimbatore which is a partnership firm
The appellant took on lease from the said firm land buildings 164 and machinery belonging to it under an indenture of lease executed on January 15 1954
Under this deed a monthly rental of Rs 5000 has to be paid by the appellant for five years the lease includes a clause by which a right of renewal is given to the appellant for a period of three years
The appellant s case was that its financial position was not satisfactory that it had to borrow an overdraft from the Indian Bank Limited Coimbatore under an overdraft account which left the appellant a debtor to the said Bank to the extent of Rs 48414 in 1954
The appellant had also not paid the rent due to the lessor for the said year and had in fact ploughed back the said amount of rent of Rs 60000 into the business of the appellant as working capital
According to the appellant under the Full Bench formula the respondents  claim for additional bonus was not justified
On the other hand the respondents urged that the appellant was making large profits and their claim for bonus was fully justified
The respondents also alleged that it was high time that a proper wage structure was fixed by the tribunal guaranteeing to the respondents the payment of fair wages with fair annual increments with a view to reach specified maximums
On behalf of the appellant Mr Viswanatha Sastri has challenged the propriety of the course adopted by the tribunal in making an interim order about the increments in wages of the appellant s employees
The tribunal was asked to fix a wage structure under issue No 3
Instead it has come out with an interim order which is very irregular says Mr Sastri
In our opinion this argument is wholly untenable
It is clear from the award that the appellant itself suggested to the tribunal that the lease in its favour was due to expire within a year and a half and that the question of classifying the respondents into skilled and unskilled workmen and providing for systematic grades of pay with increments may be conveniently deferred to a future date
The respondents agreed to this suggestion and both parties represented to the tribunal that they would be satisfied if a reasonable interim order 165 was made providing for increment in the wages of the respondents
That being so it is not open to the appellant now to contend that the tribunal should have fixed a wage structure and not passed an interim  order
On the merits of the interim order the only objection which has been raised by the appellant before us is in respect of the application of the said order to piece rate workers
It appears that on October 25 1955 an agreement had been reached between
the appellant and the respondents and by cls
5 and 6 of this agreement it was settled that an annual increment of 4 of the basic pay for all the monthly rated and time rated employees should be given and that the revised wages should come into force from November 1 1955
That being so Mr Sastri has not challenged the interim order passed by the tribunal in respect of the monthlyrated and the daily rated workmen
His grievance is that the tribunal was in error in making a similar order in regard to the piece rated workmen
It is true that generally annual increments in the wages of piece rated workers are not provided
These workers are paid by the work which they do though the rates fixed for such payment relay be legitimately increased in proper cases usually a wage structure with annual increments is not provided for such piecerated workers
It is on this aspect of the matter that Mr Sastri has laid considerable emphasis
On the other hand Mr Joseph Nejedly who gave evidence for the appellant frankly admitted that piece rate wages had been fixed in 1947 and though there were some changes in them they were insignificant
He also conceded that since 1947 the cost of living had gone up in Coimbatore
These statements make it clear that a case for revising the rates of wages payable to piecerated workers has been made out Asmuch as in the case of monthly rated or daily rated workmen
Therefore we think that the appellant cannot successfully challenge the direction issued by the tribunal in regard to the increment of 4 in the case of rates of wages fixed for piece rated workers
We would however like to modify the interim order in regard to piece rated 166 workers by directing that though their rates of wages should be increased at the rate of 4 they should not have the benefit of the annual increment at the said rate until all the workers are classified and their pay scales are introduced
In other words we confirm this part of the award with the only modification that future annual Increment at the rate of 4 should not be granted to the piece rated workers
The next contention raised by Mr Sastri is in regard to the order made by the award directing the appellant to pay two months  additional bonus to the respondents
It is now well settled that the claim for bonus must be decided by the application of the Full Bench formula
In the application of the formula there are only two items which have given rise to a controversy in the present proceedings
The appellant claimed that he should be allowed 4 interest on Rs 60000 either on the basis that this interest would be payable to the lessor since default had been committed in the payment of rent due to him  or on the basis that the said amount had been utilised as working capital and so should carry 4 interest
In our opinion the latter claim is well founded and must be upheld
There is no doubt that the monthly rent of Rs 5000 payable to the lessor though shown as a liability in the profit and loss account has in fact not been paid to the lessor and it is also clear that the whole of this amount has in fact been used as working capital by the appellant
Therefore its claim to have interest at 40 on this amount cannot be resisted by the respondents
The tribunal was inclined to dissect this claim month by month and to consider the question of return on the amount month by month
We do not think that it is necessary to adopt such a course in the present case
The other clam made by the appellant is in respect of improvement and modernisation of its machinery
The appellant claimed Rs 20000 under this head
This claim has been rejected by the tribunal and we think rightly As we have already observed the appellant has taken the land machinery and buildings for its business as a lessee from the Praga Industries Coimbatore and so the appellant cannot claim to 167 rehabilitate any of the said machinery and plant
If the appellant has purchased new machinery in 1954 the amount of rehabilitation which the appellant can claim in respect of the said machinery for 1954 is covered by the depreciation allowed to the appellant
 This position is not disputed by Mr Sastri
Therefore we are satisfied that the appellant is not entitled to claim Rs 20000 as a prior charge for rehabilitation
If the Full Bench formula is worked out in the light of these findings there can be no doubt that the tribunal was justified in directing the appellant to pay additional bonus for two months
It is common ground that taking the net profit at Rs 42726 if the depreciation and the bonus paid for 1953 are added back the figure of gross profit would be Rs 69546
From this figure if the notional normal depreciation income tax return at 6 on paid up capital and return at 4 on working capital of Rs 60000 are deducted it still leaves a balance of over Rs 26000
The three months  bonus including one month s bonus already paid by the appellant awarded by the tribunal is in the neighborhood of Rs 22000 but in respect of this bonus the appellant would be entitled to a rebate of income tax to the extent of Rs 12300
That being so it cannot be said that the order passed by the tribunal involves an unfair distribution of the available surplus
In the result the appeal substantially fails and the award passed by the tribunal is confirmed with the modification as to the future annual increments in regard to piece rated workers
In the circumstances of this case we direct that the parties should bear their own costs
Appeal substantially dismissed award partially modified


Summary:
A suit claiming damages for negligent driving was filed aginst the owner of a motor car who was insured against third party risks
The insurer was subsequently added as defendant to the suit under section 962 of the 
it contended that the defence available to it was not restricted to the grounds enumerated in section 962 Of the Act but that it was entitled to take all defences including those on which the assured himself could have relied for his defence subject only to the restriction that it could not in view of section 963 Of the Act rely on the conditions of the policy as a defence
Held that an insurer made a defendant to the action under section 962 of the Act was not entitled to defend it on a ground not specified in that section