Case: Cannanore Spinning and Weaving Mills, Limited, Cannanore Vs. Cannanore Spinning and Weaving Mills Workers' Union (By Secretary) and Others

Bhargava, J. 1. This appeal by special leave is directed against an award of the industrial tribunal, Kozhikode, in an industrial dispute referred to it in respect of payment of bonus by the appellant-company to its workmen represented by the three respondent unions for the year 1961-62. It is the common case of the parties that, for that year, the appellant-company voluntarily declared and paid bonus to its workman equivalent to four months wages. The unions on behalf of the workmen demanded bonus equivalent to eight months wages on the ground that the appellant had made large profits and it was but fair that the workmen should be given a reasonable share in the profits earned through their efforts. The Government of Kerala referred this dispute to the tribunal by the order dated May 18, 1963 and mentioned the subject-matter of the dispute as "additional bonus for the year 1961-62." On behalf of the management, it was pleaded that the appellant was already paying fair and adequate wages and had, in addition, paid bonus equal to four months basic wages and that there was no available surplus out of which any further bonus could be paid to the workmen. During the proceedings before the tribunal, the management produced its accounts, statement of profit and loss and balance sheet in addition to tendering oral evidence by examination of four witnesses in order to show that the appellant was not in a position to pay any further amount as bonus in addition to that already paid. Certain statements prepared on the basis of these accounts were also put forward on behalf of the appellant to substantiate this plea. On behalf of the workmen, the accounts were not challenged, but there was a dispute about four items in the calculations which had been made on behalf of the appellant company to find out the surplus available for distribution as bonus. The four items challenged were :(1) the amount of charity and presents which, according to the workmen, had to be added back and were to the extent of Rs. 35, 000; (2) the provision for rehabilitation; (3) the return claimed on paid-up capital; and (4) the return claimed on working capital. 2. The first item related to the sum of Rs. 35, 000 shown in the accounts as given to Sri Narayana College as a donation. The appellant claimed that it should be treated as a revenue expenditure. The tribunal has not allowed this amount to be deducted from gross profits and, in our opinion, rightly, because even though the donation was charitable or philanthropic, it cannot be said to be an expenditure incurred for the purpose of earning profits for which the workmen have contributed their labour. It is true that this donation was not against the memorandum of articles of association of the appellant-company but this mere circumstance will not justify its deduction as a legitimate expenditure in calculating surplus available for payment of bonus. Such payment, in our opinion, must come out of the share of available surplus left for distribution to the shareholders in case they desire that such charitable or philanthropic donations be made. The tribunal, in exercising its discretion in disallowing this amount as an expenditure, did not, in the circumstances, commit any error requiring interference by us. 3. The main controversial item is the provision for rehabilitation. It appears that, earlier, an industrial dispute relating to bonus for the year 1955-56 was also referred to an industrial tribunal and the same question of provision for rehabilitation was contested on that occasion also. The tribunal, in the award in that industrial dispute, held that an annual provision of Rs. 3, 63, 002 was essential for purposes of rehabilitation for a number of years. In the present reference, however, the appellant did not primarily claim rehabilitation provision at the same rate and, instead, in the written claim filed, pleaded that rehabilitation provision should be calculated afresh according to the Full Bench formula approved by this Court in the case of Associated Cement Companies, Ltd. (Dwarka Cement Works, Dwarka and Bombay) and others v. their workmen and another [1959 - I L.L.J. 644]. It was for this purpose that the appellant filed the copy of the balance sheet, the profit and loss account and various statements showing the calculation justifying a claim for rehabilitation to the extent of Rs. 2, 20, 119, after taking into account the depreciation for the year in dispute.In order to establish the annual amount required for rehabilitation, according to the Full Bench formula, the appellant-company produced evidence to show the original cost of the machinery and buildings and the cost of the machinery and buildings at the time of replacement in the year 1961-62, and examined witnesses who made statements giving the estimated life of the machinery and the buildings. No evidence was produced on behalf of any of the unions in this respect. The tribunal, after discussing the evidence of the witnesses examined, and after analysing the statements furnished on behalf of the appellant-company and the workmen, came to the conclusion that in this case, the two expert witnesses examined to prove the life of the machinery and the buildings were unreliable and that the appellant-company had failed to prove the amount of rehabilitation provision required. Consequently, the tribunal did not allow any amount at all for rehabilitation. 4. It appears to us that, in arriving at its conclusion, the tribunal fell into an error, because it misinterpreted the statement Ex M. 5 filled on behalf of the appellant-company showing the calculation for rehabilitation. In that statement, the divisor in 1961 for the machinery was given as 15 and for the buildings as 27. The clear inference from these figures of divisors is that according to the appellant-company, in 1961 the machinery still had a residue life of 15 years and the buildings of 27 years. It, however, appears that in the oral evidence given by the witnesses examined on behalf of the appellant, there was some confusion and the witnesses appeared to state that the total life of the machinery and the buildings was 15 or 27 years. The statements given by the witnesses in this respect are, no doubt, ambiguous but statement Ex. M. 5 relied upon by the appellant-company for calculation of rehabilitation provision clearly proceeds on the basis that the machinery still had a life of 15 years in 1961 and the buildings a life of 27 years in the same year. This life of machinery and buildings was in respect of that machinery and buildings which had been purchased or erected prior to April 1, 1948, so that 13 years had already run by the year 1961. The calculation of the rehabilitation on behalf of the appellant-company, therefore, on the basis of a total life of the machinery of 28 years and of the buildings of 40 years. The tribunal proceeded on the basis that this statement Ex. M. 5 showed that, according to the appellant-company, the total life of the machinery was 15 years, so that, by the year 1961, the machinery would have run through most of its life and, in 1963 when this adjudication was taken up, the machinery had completed its whole life. The tribunal, on this basis, held that the claim of the appellant-company that the machinery had a total life of 15 years was entirely wrong, because the machinery was still working efficiently and did not even require heavy maintenance charges. As we have said earlier, the tribunal fell into an error in holding that this statement Ex M. 5 showed that the total life of the machinery was 15 years when, in fact, this statement furnished information that, according to the appellant-company, the total life of the machinery was 28 years. The tribunal referred to cases decided by other tribunals as well as a decision of this Court where the life of textile machinery was accepted to be 25 years, though this figure of 25 was held to be flexible. In this case, if the appellant-company treated the life of their textile machinery as 28 years from the time of installation and 15 years in 1961, it cannot be said that the appellant-company had markedly departed from the principle laid down in those cases.It appears to us, however, that, in this case, the tribunal has given other reasons also for not relying on the evidence of the witnesses produced on behalf of the appellant in order to prove its claim for rehabilitation and we do not think that it will be appropriate for us to reappraise that evidence and record our own fresh findings of fact in this appeal. In the circumstances, we are not inclined to interfere with the decision of the tribunal that provision for rehabilitation should not be granted to the appellant-company on the basis of the evidence given in support of this fresh claim for calculation of rehabilitation at the time of this reference. We have already mentioned earlier that, for the year 1955-56, a similar dispute was referred to an industrial tribunal and that tribunal had fixed a sum of Rs. 3, 63, 002 as the annual rehabilitation requirement for a number of years. The number of years was dependent on the remaining life of machinery and the buildings. It is no partys case that that period has expired. The appellant on this basis, claimed that, even if the tribunal did not accept the claim for higher rehabilitation based on the evidence tendered during the adjudication proceedings in this dispute, it should have at least granted the same amount which was fixed by the tribunal in the previous award Counsel appearing on behalf of the appellant, in support of the proposition that the appellant was entitled to provision for rehabilitation at the same amount which was prescribed in the previous award, relied on three decisions of this Court which we may notice. In Dhrangadhra Chemical Works v. Their workmen and another [1964 - I L.L.J. 16] this Court considered a case where there had been a similar provision for rehabilitation in an earlier award relating to bonus, but, in the dispute that came up subsequently, a different amount of rehabilitation was claimed. The Court held :It would, we think, be a fair reading of the Labour Appellate Tribunals decision that the appellant was bound to adduce fresh evidence in case it wanted increased rehabilitation amount just as it imposed on the workmen the liability to lead evidence in case they wanted the rehabilitation amount to be reduced and that, we think, would be the normal course which industrial adjudication would adopt in dealing with claims for rehabilitation. If, in a given case, the employers claim for rehabilitation has been properly considered and the amount payable in that behalf is determined, it should not ordinarily be change or varied from year to year, unless a material change of circumstances is pleaded by either party." 5. In Bengal Kagazkal Mazdoor Union and other v. Titaghur Paper Mills Company, Ltd., and others [1963 - II L.L.J. 358] the decision was : "In the first place, determination of rehabilitation is a long-term affair and once it has been determined it cannot go on increasing from year to year except in case of a sudden appreciable rise in prices or on account of new blocks being added followed by further rise of price after the purchase of the new block." Similarly, in Burn & Co., Ltd. v. Their workmen [1964 - I L.L.J. 373]. It was held : "Once the question as to what is necessary rehabilitation and over how many years it should be spread has been properly decided by industrial adjudication, the assessment made ought not to be lightly disturbed if the question comes up again in any future year. It is necessary for industrial adjudication to project itself into the future and decide the total rehabilitation charges over the years and the number of years over which rehabilitation has to be spread. Rehabilitation is, thus, rightly regarded as a long-term problem."Relying on these principles, it was urged on behalf of the appellant that the tribunal should have at least made provision for rehabilitation on the basis of the previous award in respect of the year 1955-56. 6. Sri Sastri, on behalf of the unions, urged that, in this case, the tribunal was right in not allowing rehabilitation on the basis of the previous award, because the appellant, in its statement filed before the tribunal, only claimed rehabilitation on the basis of the figure arrived at in the previous award. It is true that, in the original claim filed by the appellant, there was no mention that, if the tribunal did not grant rehabilitation on the basis of fresh calculation put forward by the appellant, rehabilitation amount should be awarded on the basis of the previous award for the year 1955-56; but, during the proceedings in adjudication, such a case was specifically put forward by the appellant before the tribunal and evidence was tendered in respect of it without any objection being put forward by the unions. A copy of the award in respect of the year 1955-56 was filed and one of the witnesses also made a statement about it, but no objection was taken before the tribunal that the appellant-company should not, at that stage, be allowed to fall back, in the alternative, on that previous award to claim rehabilitation provision. It was not even urged on behalf of the workmen that, at the time of the previous award, the tribunal then dealing with the dispute had not made proper calculations of the rehabilitation provision in accordance with the Full Bench formula. In fact, that award was accepted by the workmen and was given effect to. In the present case, therefore, the tribunal could justifiably vary that figure, only if either of the parties to the dispute led evidence and satisfied the tribunal that such variation was called for because of changed circumstances. The appellant, as we have mentioned earlier, did give evidence before the tribunal in an attempt to justify its claim for a larger provision for rehabilitation, but that evidence was not accepted by the tribunal. The workmen, on the other hand, gave no evidence at all to show that the circumstances had changed in any such manner as could have justified reduction of the annual provision for rehabilitation arrived at in the previous adjudication. Consequently, the tribunal, in our opinion, committed an error in not permitting any provision for rehabilitation at all when calculating the bonus. The tribunal should have allowed a provision of Rs. 3, 63, 002 for rehabilitation. Of course, out of this amount, a sum of Rs. 2, 31, 055 had to be deducted, being the normal depreciation, for the year 1961-62 itself. Deducting this amount, the net provision for rehabilitation, to which the appellant-company was entitled, comes to Rs. 1, 31, 947. This amount must be allowed to the appellant-company in calculating the surplus available for distribution of bonus. The effect of this conclusion of ours may be indicated at this stage. Even if the claim of the appellant for higher rate of return on paid-up capital and reserves used as working capital be not taken into account, the amount of available surplus calculated by the tribunal in the award would have to be reduced by this figure of Rs. 1, 31, 947. The figure arrived at by the tribunal for the available surplus was Rs. 4, 14, 167, so that the balance of available surplus comes to Rs. 2, 82, 220. The appellant has already paid four months wages as bonus which has been computed by the tribunal at the figure of Rs. 1, 64, 000. Deducting this amount out of the surplus available, the management is left with a surplus of Rs. 1, 18, 220, to which must be added the sum of Rs. 82, 000, which the management will be entitled to obtain as refund of incometax on the sum of Rs. 1, 64, 000 paid as bonus to the workmen. The total amount of surplus available to the management would thus be Rs. 2, 00, 220, while the labour would get Rs. 1, 64, 000. This would make the allocation of the available surplus between the management and the workmen in the proportion of 74 : 60. It seems to us that, in view of the benefit to the shareholders of their return on paid-up capital and reserves employed as working capital having gone down as a result of the change in incometax law, it will be quite fair to allocate the available surplus in this proportion of 74 : 60. Consequently, if the claim of the management for enhanced rate of return on paid-up capital and reserves employed as working capital is disregarded, the workmen are still entitled to bonus equivalent to four months wages only and there is no justification for granting bonus to them in excess of that amount. In case the bonus is increased to six months wages, the labour would get a sum of Rs. 2, 46, 000 out of the available surplus of Rs. 2, 82, 220, and the management would be left with a sum of Rs. 36, 220 only which, together with the amount of incometax refundable, would only come to Rs. 1, 59, 220. Clearly, it would be very inequitable to reduce the share of the management to Rs. 1, 59, 220 by granting bonus to the workmen totalling to the sum of Rs. 2, 46, 000. The result is that, on our view that the management is entitled to a provision of Rs. 1, 31, 947 for rehabilitation, the bonus payable to the workmen cannot be increased beyond four months basic wages and, on this ground alone, the award made by the tribunal must be set aside and the original payment of bonus made voluntarily by the appellant must be restored.

Decision reasoning: 1[ds]The appellant claimed that it should be treated as a revenue expenditure. The tribunal has not allowed this amount to be deducted from gross profits and, in our opinion, rightly, because even though the donation was charitable or philanthropic, it cannot be said to be an expenditure incurred for the purpose of earning profits for which the workmen have contributed their labour. It is true that this donation was not against the memorandum of articles of association of they but this mere circumstance will not justify its deduction as a legitimate expenditure in calculating surplus available for payment of bonus. Such payment, in our opinion, must come out of the share of available surplus left for distribution to the shareholders in case they desire that such charitable or philanthropic donations be made. The tribunal, in exercising its discretion in disallowing this amount as an expenditure, did not, in the circumstances, commit any error requiring interference by us4. It appears to us that, in arriving at its conclusion, the tribunal fell into an error, because it misinterpreted the statement Ex M. 5 filled on behalf of they showing the calculation for rehabilitation. In that statement, the divisor in 1961 for the machinery was given as 15 and for the buildings as 27. The clear inference from these figures of divisors is that according to the, in 1961 the machinery still had a residue life of 15 years and the buildings of 27 years. It, however, appears that in the oral evidence given by the witnesses examined on behalf of the appellant, there was some confusion and the witnesses appeared to state that the total life of the machinery and the buildings was 15 or 27 years. The statements given by the witnesses in this respect are, no doubt, ambiguous but statement Ex. M. 5 relied upon by they for calculation of rehabilitation provision clearly proceeds on the basis that the machinery still had a life of 15 years in 1961 and the buildings a life of 27 years in the same year. This life of machinery and buildings was in respect of that machinery and buildings which had been purchased or erected prior to April 1, 1948, so that 13 years had already run by the year 1961. The calculation of the rehabilitation on behalf of the, therefore, on the basis of a total life of the machinery of 28 years and of the buildings of 40 yearsAs we have said earlier, the tribunal fell into an error in holding that this statement Ex M. 5 showed that the total life of the machinery was 15 years when, in fact, this statement furnished information that, according to the, the total life of the machinery was 28 years. The tribunal referred to cases decided by other tribunals as well as a decision of this Court where the life of textile machinery was accepted to be 25 years, though this figure of 25 was held to be flexible. In this case, if they treated the life of their textile machinery as 28 years from the time of installation and 15 years in 1961, it cannot be said that they had markedly departed from the principle laid down in those cases.It appears to us, however, that, in this case, the tribunal has given other reasons also for not relying on the evidence of the witnesses produced on behalf of the appellant in order to prove its claim for rehabilitation and we do not think that it will be appropriate for us to reappraise that evidence and record our own fresh findings of fact in this appeal. In the circumstances, we are not inclined to interfere with the decision of the tribunal that provision for rehabilitation should not be granted to they on the basis of the evidence given in support of this fresh claim for calculation of rehabilitation at the time of this referenceIt is true that, in the original claim filed by the appellant, there was no mention that, if the tribunal did not grant rehabilitation on the basis of fresh calculation put forward by the appellant, rehabilitation amount should be awarded on the basis of the previous award for the year; but, during the proceedings in adjudication, such a case was specifically put forward by the appellant before the tribunal and evidence was tendered in respect of it without any objection being put forward by the unions. A copy of the award in respect of the year6 was filed and one of the witnesses also made a statement about it, but no objection was taken before the tribunal that they should not, at that stage, be allowed to fall back, in the alternative, on that previous award to claim rehabilitation provision. It was not even urged on behalf of the workmen that, at the time of the previous award, the tribunal then dealing with the dispute had not made proper calculations of the rehabilitation provision in accordance with the Full Bench formula. In fact, that award was accepted by the workmen and was given effect to. In the present case, therefore, the tribunal could justifiably vary that figure, only if either of the parties to the dispute led evidence and satisfied the tribunal that such variation was called for because of changed circumstances. The appellant, as we have mentioned earlier, did give evidence before the tribunal in an attempt to justify its claim for a larger provision for rehabilitation, but that evidence was not accepted by the tribunal. The workmen, on the other hand, gave no evidence at all to show that the circumstances had changed in any such manner as could have justified reduction of the annual provision for rehabilitation arrived at in the previous adjudication. Consequently, the tribunal, in our opinion, committed an error in not permitting any provision for rehabilitation at all when calculating the bonus. The tribunal should have allowed a provision of Rs. 3, 63, 002 for rehabilitation. Of course, out of this amount, a sum of Rs. 2, 31, 055 had to be deducted, being the normal depreciation, for the year2 itself. Deducting this amount, the net provision for rehabilitation, to which they was entitled, comes to Rs. 1, 31, 947. This amount must be allowed to they in calculating the surplus available for distribution of bonus. The effect of this conclusion of ours may be indicated at this stage. Even if the claim of the appellant for higher rate of return onp capital and reserves used as working capital be not taken into account, the amount of available surplus calculated by the tribunal in the award would have to be reduced by this figure of Rs. 1, 31, 947. The figure arrived at by the tribunal for the available surplus was Rs. 4, 14, 167, so that the balance of available surplus comes to Rs. 2, 82, 220It seems to us that, in view of the benefit to the shareholders of their return onp capital and reserves employed as working capital having gone down as a result of the change in incometax law, it will be quite fair to allocate the available surplus in this proportion of 74 : 60. Consequently, if the claim of the management for enhanced rate of return onp capital and reserves employed as working capital is disregarded, the workmen are still entitled to bonus equivalent to four months wages only and there is no justification for granting bonus to them in excess of that amount. In case the bonus is increased to six months wages, the labour would get a sum of Rs. 2, 46, 000 out of the available surplus of Rs. 2, 82, 220, and the management would be left with a sum of Rs. 36, 220 only which, together with the amount of incometax refundable, would only come to Rs. 1, 59, 220. Clearly, it would be very inequitable to reduce the share of the management to Rs. 1, 59, 220 by granting bonus to the workmen totalling to the sum of Rs. 2, 46, 000. The result is that, on our view that the management is entitled to a provision of Rs. 1, 31, 947 for rehabilitation, the bonus payable to the workmen cannot be increased beyond four months basic wages and, on this ground alone, the award made by the tribunal must be set aside and the original payment of bonus made voluntarily by the appellant must be restored.