1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY O. O. C. J. WRIT PETITION NO.3125 OF 2003 Madura Coats Employees Union. ...Petitioner. Vs. Madura Coats Ltd. & Anr. ...Respondents. .... Mr. V. A. Pai for the Petitioner. Mr.M. S. Naik for Respondent No.1. ..... CORAM : DR.D.Y.CHANDRACHUD, J. March 30, 2005. ORAL JUDGMENT : The Industrial Tribunal has ruled on a wage reference that was referred to it for adjudication. The Union has confined the challenge before the Court to the award to the extent to which it accepted the plea of the management in a notice of change under Section 9A of the Industrial Disputes Act, 1947 and substituted a fresh scheme for dearness allowance for the existing scheme which had held the field for over 30 years. The existing pattern of providing dearness allowance was based on a dual 2 linkage - linkage based on slabs of basic pay and linked to the Consumer Price Index. As a result of the award, the Tribunal accepted the case of the management and while removing the linkage with basic pay approved the payment of dearness allowance confined only to a variation based on the Consumer Price Index. The Union representing the workmen challenges the award to this extent under Article 226 of the Constitution. 2. Madura Coats Limited came into existence on 1st July 1974 upon an amalgamation of three Companies, J. & P. Coats India Pvt. Ltd., A & F. Harvey Ltd. and Madura Mills Co. Ltd. The establishment at Palton Road, Mumbai, in which a majority of the workmen covered by the reference are employed, was an establishment of J. & P. Coats India Pvt. Ltd. prior to amalgamation. There was an industrial settlement of 1971 and upon its termination, the Union had raised fresh demands on 3rd March 1975. The management issued a notice of change for introducing a new scheme for dearness allowance which was withdrawn and a settlement was entered into in respect of the 3 demands of the workmen in terms whereof an award was passed in an industrial adjudication. Upon the expiry of the award, the last wage settlement was entered into between the Union and the management 25 years ago on 22nd January 1980. There has been no wage revision since then. On the eve of the expiry of the settlement, the Union raised a Charter of Demands on 13th November 1982. On 6th April 1983, the management issued a notice of change under Section 9A of the Industrial Disputes Act, 1947. 3. Even prior to the settlement of 22nd January 1980, the dearness allowance payable to the workmen to whom the present proceeding relates, was linked both to the basic wage as well as to the Bombay Consumer Price Index. As a result of the settlement of 22nd January 1980, the principle underlying the scheme for dearness allowance - a dual linkage with the basic pay and the Consumer Price Index - was continued, but there was a variation in the rate of dearness allowance. The pattern of dearness allowance as it existed in the settlement of 1980 was as follows: 4 "Dearness Allowance Existing ----------------------------------------------------------------------------- --- Basic Salary Variation for Bombay Consumer per month 10 points per Price Index month range 1621-1630 ----------------------------------------------------------------------------- -- First Rs.100/- 3% 725% of Basic Salary Next Rs.100/- 1.1/2% 362 1/2% of basic salary Remainder 3/4% 181 1/4% of basic salary. Minimum Dearness Allowance : Rs.564/- Minimum Variation : Rs.3/-" 4. The management in its notice of change sought the introduction of the following scheme of dearness allowance with effect from 1st January 1983, namely: ---------------------------------------------------------------------------- --- Basic Pay Slab Bombay Consumer Variation for Price Index 10 points Range 1621-1630 (+) or (-) Points 5 ---------------------------------------------------------------------------- --- "Rs.1 to 100 1000% 5% Rs.101 to Rs.200 500% 2.5% Rs.210 to Rs.300 250% 1.25% Rs.301 and above 125% 0.625% Minimum Dearness Allowance : Rs.1000/- Minimum Variation : Rs.5/-" 5. The Consumer Price Index (Simla Series) with a base of 1960, as applicable to the City of Bombay for the calculation of Dearness Allowance for January 1983 was 510 points. The management proposed that Dearness Allowance corresponding to CPI 510 will be Rs.410/- for all employees irrespective of basic pay. For a rise in CPI over 510 points, it was proposed that Dearness Allowance will be paid at the rate of Rs.1.20 per point rise. The maximum Dearness Allowance was sought to be capped at Rs.650 per month. The notice of change which was issued by the management inter alia proposed revised grades of basic pay to which the new scheme of Dearness Allowance was to 6 be applied. The Union stated before the Industrial Tribunal that it was willing to accept the grades of basic pay which were proposed by the management, but was not willing to accept the proposal of the management to substitute the existing scheme of Dearness Allowance that had held the field for several decades with a scheme based an linkage with the Consumer Price Index alone. 6. The demands which were raised by the Union were adjudicated upon by the Industrial Tribunal in an award dated 10th June 1996. Writ Petitions were filed by the management as well as the workmen to impugn the award of the Industrial Tribunal. A Learned Single Judge of this Court by a judgment and order dated 8th March 2000 dismissed the petition filed by the management. By another judgment also of the same date, the Petition filed by the workmen was allowed in part and the award of the Industrial Tribunal was quashed and set aside in certain areas in order to facilitate a fresh determination on remand. The management carried the order dismissing its petition in appeal. On 1st August 2000, a Division Bench while disposing of the appeal, directed that 7 the Industrial Tribunal on remand shall also reconsider the first and third items of the notice of change proposed by the management in the course of the proceeding on remand. The Division Bench, however, directed that the Industrial Tribunal shall not accept the case of the management to the extent to which it involves a reduction of the wages that were being paid as on date and the payment of Dearness Allowance, in accordance with the Consumer Price Index for August 2000 shall be maintained subject to a revision by an agreement or by operation of law. 7. The Industrial Tribunal has, upon remand, rendered its award on 17th April 2003. The Industrial Tribunal has accepted the contention of the employer in the notice of change under Section 9A and has abolished the prevailing pattern for the payment of Dearness Allowance based on a linkage both with the basic pay and the Consumer Price Index. The basic wage scales as proposed by the management have also been accepted. That has given rise to the institution of these proceedings under Article 226. At the hearing of the Petition, the submissions of the Union before 8 the Court have been confined to a challenge to the award of the Tribunal only in so far as it introduces a new system for Dearness Allowance based on linkage with the Consumer Price Index alone. 8. When this petition came up on 12th January 2004, a Learned Single Judge directed that the Petition be listed for hearing and final disposal at the stage of admission. In view of these directions, liberty was granted to the parties to complete their pleadings, to file documentary material on which they propose to rely and to place written submissions on record. This has been done. With the consent of Counsel and at the request of parties, the Petition is being taken up for hearing and final disposal. Rule is accordingly issued. Counsel for the management has waived service and the Petition is taken up for hearing and final disposal. 9. In order to appreciate the nature of the challenge to the award of the Industrial Tribunal, it would be necessary to advert to the basis on which the employer had sought an alteration of the prevailing system of the payment of Dearness Allowance. In the 9 Written Statement that was filed before the Industrial Tribunal, the case of the employer was that the Sales Depot of J. & P. Coats India Pvt. Ltd. had prior to the amalgamation of that Company on 1st July 1974 handled the products of the said Company. According to the employer, the Company which was formed under the management of Madura Coats was formed by amalgamation of 20 Sales Depots with offices spread all over the country. According to the employer, upon the expiry of the settlement of 1971, an attempt had been made by the management to issue a notice of change, but this was not pressed during the years of the emergency. When the last settlement was entered into on 22nd January 1980, the Union had agreed to a concession whereby the rate of variation over the Consumer Price Index was fixed at a lower rate. This, according to the management, did not entirely rectify the “deficiency” in the scheme for Dearness Allowance. The grounds on which the employer sought an alteration of the existing scheme for Dearness Allowance were as follows : (i) There had to be a uniformity in the service conditions in respect of employees doing similar kind of work. The wages and benefits 10 prevailing in the Mumbai establishments were better than those prevailing in other establishments of the Company and it was necessary to recast the wage structure and service conditions to bring them in line with the service conditions of the other offices of the Company; (ii) As a result of the double linkage, an increase per point of the Consumer Price Index was “phenomenal” and since the increase in the Dearness Allowance was automatic, the management had no control over the payment thereof; (iii) The scheme would upset the budget of the Company; (iv) Labour costs incurred by the management as a percentage of the cost of production and of turn over were 28% and 21% respectively; (v) An employee with a higher basic wage obtained higher Dearness Allowance per every point of increase in the Consumer Price Index than an employee with lesser basic salary which would aggravate the disparity between employees drawing lower basic wages and employees drawing higher basic wages; (vi) The payment of Dearness Allowance to industrial employees alone is discriminatory since the workforce which is employed in the commercial/industrial undertakings does not enjoy Dearness Allowance; (vii) The 11 scheme for Dearness Allowance lacks a relationship with productivity; (viii) Neutralization to the extent of 95% and/or 100% is permissible only in the case of those employees whose wages are at the subsistence level and in the present case, the rate of neutralization exceeded beyond 100%. These were the grounds which were urged in the Written Statement in support of a modification of the scheme of Dearness Allowance. 10. The submission of the Union before the Court is that as a result of the award of the Tribunal, serious prejudice would be caused to the workmen and the abolition of the existing scheme of Dearness Allowance would in fact, result in a serious reduction of the total wage packet. A Chart has been placed on the record. Counsel submitted that in view of the settled principles of law laid down by the Supreme Court, the management ought to have made out a compelling necessity for altering the existing scheme of Dearness Allowance which held the field for over three decades. The Industrial Tribunal in its original award and even after remand held that there was no financial stringency and the position of the 12 Company was financially sound. The evidence of the sole witness who stepped into the witness box, was destructive of the entire case of the management since he has admitted on behalf of the management that the rate of neutralization was in fact, below 60%. Counsel submitted that the scheme for Dearness Allowance based on double linkage has existed since 1960; and as has been the subject matter of industrial settlements between the management and the workforce since 1971. As a result of the obdurate attitude of the management, it has been urged, there has been no wage revision since the expiry of the last settlement 25 years ago in 1980. The Industrial Tribunal, it was submitted, has seriously erred in abolishing the existing system of the payment of Dearness Allowance in the absence of any evidence on the record and the award is in the teeth of the settled principles of law that have been laid down by the Supreme Court. 11. On the other hand, it was urged on behalf of the management that there was no intention on the part of the management to hurt the wage packet of the workmen and the 13 emoluments as of August 2000 would be protected in view of the order that was passed by a Division Bench in the earlier round of litigation. Counsel submitted that it is evident from the deposition of the witness for the management that he was not even aware of the basic concepts relating to Dearness Allowance such as neutralization and that it would be appropriate for the Court to keep aside the evidence of the management's witness. Counsel relied on a chart to demonstrate that the rate of neutralization would be in excess of 100% and that consequently, a case for abolition of the existing system has been established. The management, it was urged, had attempted to issue a notice of change in 1975 which could not be pressed earlier during the emergency and the settlement of 1980 continued the dual linkage based Dearness Allowance. In the circumstances, it was submitted that no case for interference under Article 226 of the Constitution has been made out. 12. In considering the rival submissions, it would at the outset, be worthwhile to have regard to the evidence that was 14 adduced on behalf of the management. On behalf of the management, S.S. Thakur who was the Administration Manager stepped into the witness box. In his Examination-in-Chief, the witness stated that in the Bombay establishment, the service conditions of the workmen were on the higher side and one of the major contributory factors was a faulty scheme of Dearness Allowance which has double linkage both with the Consumer Price Index and the basic wage. According to the witness, as a result of this scheme, the Dearness Allowance has increased in geometrical proportions. The witness then stated that the Company has over 20 Sales Depots all over India and that there was no justification for the Depots in Mumbai to have service conditions at variance with those of the others. In the course of the cross-examination, the witness was specifically questioned as to why the management has regarded the existing system of Dearness Allowance as faulty. The witness stated that it was faulty because employees with lesser basic wages get substantial lesser Dearness Allowance, whereas employees with higher basic wages get higher Dearness Allowance resulting in an increasing 15 disparity. The principal case of the management for the abolition of the existing system of Dearness Allowance was that the existing scheme resulted in neutralization in excess of hundred percent. When the witness was cross-examined with reference to this, he stated that he did not know the method of neutralization; that he did not know the basis of the calculation of hundred percent neutralization or the details thereof. The witness stated that he was unaware of the percentage of neutralization in respect of the Bombay employees and that it was true that after 1980, there was no wage revision for the employees in Bombay. The witness admitted that when the employees reached the maximum of their wage scales of basic wages, there was a stagnation and that some of the employees had already reached their maximum in the grade. In the course of his Examination-in-Chief the witness had tendered a document at Exh.C-14 to establish the case of the management in regard to the increases in Dearness Allowance in the existing scheme. When the witness was cross-examined further, his answers are to my mind material because they are completely destructive of the case of the management that the neutralization 16 was in excess of hundred percent. The answers of witness are of crucial importance and it would be convenient to extract them verbatim: “It is true that we had not calculated the rate of percentage of neutralization on the basis of provision of 1980 settlement. I have calculated the correct rate of neutralization after receiving this statement. “We are paying wages neutralising rise in the Index at the rate of 59.27% at the basic wage of Rs.100/- as against 100% increase in the Index. In respect of Rs.200 basic wages neutralization is 56.97%. In respect of Rs.300 basic and in respect of Rs.400 basic wages neutralization is 52.86% wages neutralization is 54.55%. In respect of Rs.500 basic wages neutralization is 51.62% and in respect of Rs.600/- basic wages neutralization is 50.67%.” I shall furnish to the Court chart of neutralization as calculated by me above, next time.” 13. This is the only oral evidence that was adduced on behalf of the management. Ex-facie, it is evident that the management failed to demonstrate how the slab system of Dearness Allowance which had held the field for over three decades warranted an abolition. If the case of the management was that the slab system has resulted in neutralization in excess of hundred percent, the management failed to establish that in the evidence of its own witness. The witness stated initially that he 17 was unaware of the concept of neutralization or of even the basis of the averment that neutralization was in excess of hundred percent. In the subsequent part of his evidence, the witness added that the correct rate of neutralization had been calculated. At the basic wage of Rs.100, the rate of neutralization was 59.27%; at the basic wage of Rs.200, it was 56.97%; at the basic wage of Rs.300, it was 52.86%; at the basic wage of Rs.400, it was 54.55%; at the basic wage of Rs.500, it was 51.62% and at the basic wage of Rs.600, the rate of neutralization was 50.67%. Counsel appearing on behalf of the management submits that the evidence of the witness has to be simply discarded as he was unaware of the concept of neutralization. The submission can be looked at from either of two perspectives. If the evidence of the sole witness for the management is discarded, then there is absolutely no evidence to establish a case for the abolition of the existing system of Dearness Allowance which had held the field for a long period of time, in excess of three decades. Alternatively, if the admissions of the witness in the course of the cross-examination are considered, they would clearly demonstrate that neutralization has 18 not approached hundred percent and in fact, had never exceeded sixty percent. 14. The Industrial Tribunal in its earlier award prior to remand, had dealt with the financial position of the management. This was not disturbed in the order of a Learned Single Judge of this Court remanding the proceedings for fresh consideration of certain issues. In the course of the award dated 10th June 1996, the Industrial Tribunal held thus: “The financial position of the present Company for the period from 1979 to 1989 and for the further period has been brought before Tribunal by both the parties by filing different statements. It may be seen from the statements that, while the subscribed capital has increased between the years 1978 and 1993 from Rs.1,1278 lakhs to Rs.3,286 lakhs, registering an increase of 279 percent. The gross asset of the Company between the same period has increased from Rs.3,725 lakhs to Rs.64,344 lakhs registering in increase of 1727 percent. Similarly revenue and surplus which in 1978-79 stood at Rs.608 lakhs and has become Rs.24,936 lakhs in the year 1992- 93 registering as increase of 4101 percent. Whereas, the sales and other income during the period rise from Rs.8,775 lakhs to Rs.58,379 lakhs registering a percentage increase of 655 per cent. It will also be seen that between the period 1978 to 1992-93 the share- holders of the Company have enjoyed 361 per cent dividends over their capital. The net profits of the Company has increased from Rs.278 lakhs in 1978-79 to 19 Rs.1,612 lakhs in 1992-93, registering an increase of 580 percent. Whereas, the gross profit has increased between the same period from Rs.3,014 lakhs to Rs.38,834 lakhs, registering an increase of 1288 percent.” 15. In the course of its award after remand, the Industrial Tribunal noted that the profit making position of the Company had not been denied (para 45). The Industrial Tribunal held that the material before it showed that the Company had a sound financial position. The Industrial Tribunal, however, then held as follows : “However, merely the company is in profit, shall not necessarily lead to the inference or direction for paying more Dearness Allowance for increase in wage structure of the employees. The profitability has to be seen within the angle that the employer must have used the profit for increase in the business and to satisfy the motive, therefore, the profitability clause though can be taken into consideration, for revising the wage structure pertaining to Dearness Allowance, it cannot be assumed that the profitability shall be diverted solely to the employees concerned without giving any entitlement to the employer for making any increase in the business.” Now it was not the case of the Union that the entire profitability should be handed down to the workmen in the form of a wage revision. That was not the case of the Union. The case of the 20 Union was that the financial condition of the Company was sound and that consequently, the plea of the workmen for wage revision which had not taken place since 1980 should be accepted. 16. On the basis of the aforesaid material which has come on record, it would now be appropriate to deal with the position in law as it emerges from several decided cases. In Monthly Rated Workmen at the Wadala factory of the Indian Hume Pipe Co. Ltd. vs. Indian Hume Pipe Co. Ltd. Bombay, 1986 1 CLR 380 (S.C.), the management had a factory and its head office at Mumbai. In the factory at Mumbai, there were 375 daily rated workers and 80 monthly rated clerks and subordinate staff. The Company had branches all over India and it employed 3000 daily rated workers and 1000 monthly rated clerks and subordinate staff. A slab system of Dearness Allowance was in force since 1958 pursuant to an industrial award. The management gave a notice of change in 1975 for doing away with the slab system of Dearness Allowance and it was referred to adjudication in respect of the monthly rated staff. The Industrial Tribunal accepted the 21 contention of the management and that decision was carried in appeal to the Supreme Court. The Supreme Court held that the slab system had been in vogue for 18 years; that it had worked satisfactorily and had become a part of the service conditions. The Tribunal had founded the abolition of the system on the ground that when the system was introduced, the spiralling rise in the cost of living index had not been foreseen; that it would work against the principle of parity and uniformity and there was a danger of the subordinate staff getting more emoluments than their officers who were recently employed. Rejecting the contention, the Supreme Court held thus : “These are all assumptions without necessary materials and this is the second error committed by the tribunal. It is not uncommon that even in prestigious institution recently employed officers get emoluments less than the subordinate staff. On this plea, the benefits that the