Case: J. K. Synthetics Ltd Vs. J. K. Synthetics Mazdoor Union

machinery. The evidence of Talwar was equally found to be defective. He was greatly relying on the handbook of Chemical Engineers by John Parry for establishing the life of the machinery. He said that in that Book the life of a Chemical plant working in three shifts is shown to be 11 years. He also admitted that the Author gives only the guideline for Income-tax purposes only. An extract of the Parrys Handbook was also given by the Tribunal which stated its conclusion as under:"In view of the above said infirmities it is evident that the managements claim for rehabilitation is very much inflated. The selection of the average multiplier is rather arbitrary or atleast quite generous to the management and their estimate about the life of the machinery is slightly conservative. From the available evidence on record he then proceeds to make his own estimates which as far as the life of the machinery is concerned was placed between that adopted for textile machinery of 25 years and the life given in the Chemical Engineers Handbook of 11 years. It said after referring to the statement in the Chemical Engineers Handbook that the life of a Chemical machinery must be more than 11 years in America where they work efficiently to the maximum capacity of the machinery. It was observed "here the working conditions being different the machinery is likely to last longer and certainly due to poor economic conditions in the country the management also cannot afford to discard such valuable machines in eleven years only. The life of the plant therefore must be more than 11 years. On the other hand the ordinary life of textile machinery is taken to be 25 years or more. In this view of the matter if we taken the life of the machinery as 14 years it would still be on the side of the conservative estimate". Regarding the multiplier the Tribunal said that:"the 1961-62 Block the machinery would require replacement according to our estimate in 1975-76. The Companys claim of six times the original cost based on a comparative study of invoices Exs. M. 1 to M. 3 on the one hand and Ex. M. 4 to M. 6 on the other is very much inflated ... ... ... The Company has not produced the current price list also the machinery or any price indices indicating the trend of prices of machines. The prices of machines are more stabilised than prices of consumer goods. The production of the machines has also gone up in the country and it is not impossible that by 1975 we might manufacture our own machines for Nylon factory also. Even otherwise the prices of imported machines are not likely to be more than four times. Therefore, in our opinion the multiplier should only be four for the block of 1961-62. in awards also relied upon by Shri Talwar even though they considered only prewar block of machines, in no case they allowed a multiplier of six. For the block of machines installed in the accounting year, ordinarily the unit is taken as the multiplier but as there has been in the meantime devaluation of the rupee we think it would on the whole be fair to adopt two as a suitable multiplier for the block installed in the accounting year".26. It appears to us that this is an unsatisfactory way of determining the two most important factors required for computing the rehabilitation requirement. The evidence produced before the Tribunal consisted only of a few invoices which were to serve as samples of the price of machines to show that they have gone up. We are not impressed with the submission of the learned advocate for the Appellant that a complete set of invoices in respect of all the Departments of the industry which required rehabilitation had been placed before the Tribunal. Indeed the very application for appointment of Assessor demonstrably contradicts this assumption. In this application the management stated that it did "examine S/Shri S. S. Aggarwal, A. C. Talwar as its expert witnesses and have filed some invoices by way of example to show the trend in rising cost in plant and machinery. With regard to useful life of the plant the Respondent places reliance on Chemical Engineers handbook IVth Edition by John Parry" (emphasis ours).27. It is apparent from this application that the management was relying only on a few sample invoices which they said they had produced while depending heavily only on Parrys Handbook for ascertaining the life of the machinery and the probable cost.28. We have also gone through the evidence of the three witnesses and the invoices referred to and we think that the Tribunal rightly rejected this evidence as not being of much assistance. It is quite probable that the price of the indigenous industry as appearing from the bulletin of the Reserve Bank of India has gone up but that does not furnish a basis for arriving at any specific multiplier or deviser for the Appellants plant. All that the invoices produced before the Tribunal establish is only the probable cost of machinery of 2 1/2 lakhs,. In an attempt to prove the cost of replacement of plant and machinery worth Rs. 825 lakhs. The Tribunal was therefore amply, justified in saying that the only evidence given is of the few invoices the value of which is only 2 1/2 per cent of the requirement of the replacement cost which is our view is not sufficient to establish how many machines in each Department of the industry are required, what is the nature of those machines and what is the probable cost of each of those machines. We are far from satisfied that the management has placed before the Tribunal any satisfactory evidence much less sufficient evidence to arrive at a multiplier and deviser nor has the Tribunal any bases for arriving at its own multiplier and deviser except it be on a pure conjecture and guess work.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]With respect to the first item, the disallowance of Rs. 4.10 lakhs, the management not only claimed this amount but also Rs. 7.5 lakhs as return on paid up capital of Rs. 125 lakhs at 6 per cent, per annum. Obviously even on a cursory glance it would appear that the management was seeking to obtain double benefit in respect of investments made out of the paid up capital. The reasons which impelled the Tribunal to reject the claim of the management have already been noticed and it would therefore be unnecessary to reiterate them. It however, appeared to the Tribunal that if the Company wanted to exclude income from investments it cannot also be allowed 6 per cent, return on that part of the share capital which is invested elsewhere and at the same time be allowed to treat the income of Rs. 4.10 lakhs earned therefrom as extraneous income, because apart from deducting income-tax on this amount the Company also meets the expenses of administration and management in respect of the said investments. In this view it sustained the objection of the Union.The return on paid up capital is one of the prior charges admissible under the Full Bench formula as approved by this Court. It is based on the principle that while the claim of labour to a share in the profits by way of bonus is in furtherance of social justice, the claim of the capital for a fair return to the investor and also to keep the industry running efficiently which will in the long run enure for the benefit of labour is equally based upon that principle. If therefore any amount is earned from the employment of capital unconnected with the business of the Company, the labour cannot claim the right to participate in its returns. Apart from this if any reserves are utilised for working capital whether these reserves are depreciation reserves or any other, a return in respect of these also is allowed as a prior charge at a reduced rate because utilisation of such reserves would obviate the borrowing from outside sources for which a higher interest has to be paid and which in the long run will not be for the benefit of the workers. These principles have been laid down by this Court as well accepted in Industrial adjudication. While it is true that the Company has the discretion to invest its capital in various activities it cannot on that account deprive the workmen of the benefits of the returns derived therefrom unless of course the investments in such activity is extraneous to the activities of the company, in the earning of which they had not made any contribution. Whether in any particular case the return on investments amounts to an extraneous income will depend on the facts and circumstances of each case. So far as the case before us is concerned there can be no doubt that the return from the investments is a return on a part of the paid up capital of the Company which is invested for the purpose of earning an income. It cannot therefore be construed as extraneousas we are not allowing the deduction of Rs. 4.1 lakhs as extraneous income, the question whether the corpus should be treated as being available also has to be considered in the light of the decisions of this Court. The Appellant in our view is fully justified in urging this contention before us, as it cannot be said that this was not raised before the Tribunal. The Tribunal had ample opportunity of considering this aspect since it did specifically consider the nature of the income therefrom.15. Assuming for the present that the adoption by the Tribunal of the multiplier and deviser can be justified, though the validity of the Tribunals award in this behalf has been seriously challenged before us, the question to be determined is whether the investments of the Appellant amounting to Rs. 85.6 lakhs is available for rehabilitation which is turn will depend upon whether these investments are made in the course of the business of the Company or are unconnected with its business and only invested with a view to earning extraneous income.The principles upon which rehabilitation grant is to be calculated as laid down by this Court is that the depreciation reserves, or in the case of other reserves only if they are available as liquid assets and cash and not earmarked for any specific purposes, are deemed to be available and can be taken into account in computing the annual requirement. The depreciation reserve, the object of which is to meet the requirement of replacement, rehabilitation and modernisation at a future date is considered to be always available whether it is in the form of liquid assets or not. It is obvious that even this amount will not achieve the purpose of recouping the cost of replacement of the wasted assets and it is for that reason the claim of the industry for rehabilitation in addition to the admissible depreciation has been recognised. Then there are the general reserves, capital reserves and development reserves all of which will be considered to be available if they are in the form of liquid assets or cash. The question in some of the these cases will be whether they are considered to be the capital assets of the Company kept in that form in the course of its business or kept as investments outside the business of the Company for the purposes of earning an extraneous income. If it is the former then they are available but if it is the latter they cannot be brought into account for calculating the rehabilitation requirement.As it happens in most cases the claim by the employer is that the reserves are either wholly or partly not available because they have been used as working capital and consequently the amount to be utilised should not be excluded from the amount claimed towardsis ample justification in the contention of the Appellants Advocate that the Tribunal did advert to the fact that the Company invested initially a capital of Rs. 75 lakhs as an investment Trust Company and from its inception these investments have been made and that it is only after the amendment in 1960 when it was not possible for it to invest further amounts that it changed its name, increased its capital and started the presentthese observations in view what we must see is whether the Tribunal was justified on the evidence in adopting the particular multiplier and the deviser. The stand taken by the management is that it has produced sufficient evidence in support of its own multiplier and deviser and in any case the learned Advocate says the Tribunal is right in arriving at its own conclusion. In fact it is submitted, the management had made an application for appointment of an assessor to assist the Tribunal as an expert for determining the several questions appertaining to the computation of rehabilitation requirements, but that was rejected as the Tribunal did not feel any necessity for it and there is nothing more which the management could do in the circumstances.24. It is pointed out that the Nylon industry was a new industry at the time when it was started and the evidence of the General Manager, who had been with the Company from the initial stages and throughtout the negotiations for purchase of the machinery, says that according to the manufacturers the life of the machinery could only be six years. That apart the management also produced sample invoices for each year and adduced the evidence of the Manager to prove what would be the cost of rehabilitation. In fact it is said that the appellant was fortunate in having actual invoices of machinery purchased because the Company had only then expanded its undertaking. The Tribunal rejected the oral evidence on the ground that the witnesses produced by the management were no experts and they did not throw any material light on the matters to be adjudicated by it. It also rejected the documentary evidence on the ground that the machinery which was said to have been purchased was not the same as was sought to be replaced and in the any case there was not sufficient evidence for it to accept the multiplier and deviser as claimed by the management. Whether this criticism is valid or not will depend largely on what in fact weighed with the Tribunal in arriving at the multiplier and the deviser. No doubt the employer did make an application to the Tribunal as noticed earlier and the same was rejected on 5-8-1969 as it did not find it necessary to appoint an assessor.The application itself was for requesting the Tribunal to appoint an assessor if it thinks necessary. The management cannot without discharging its duty of placing all the necessary material before the Tribunal ask it to appoint an assessor who would be useless without that material. We do not think in the circumstances the Tribunal was wrong in rejecting the application.25. The Tribunal considered the evidence of Shri Jain, Aggarwal and Talwar in detail. With respect of Jain it noted that certain machinery worth about Rs. 10 lakhs had already been replaced and that there had been hundred per cent increase in prices also due to devaluation. The witness was however not able to give any details as to when the replacement of the parts and machinery took place even though the management kept the record of the replacement of the machinery. He could not also explain what exactly was the impact of the devaluation of Rupee on prices. He did not see the quotations of the machinery. It was therefore concluded that his statement both with regard to the life of the machinery and the replacement cost was quite useless and was based on hearsay. Shri Aggarwals evidence was also considered unsatisfactory, both with respect to the estimate of the replacement cost and the life of the machinery. His calculations were based on a comparison of the original cost of machinery in invoices Exs. M. 1, M. 2 and M. 3 and their cost in 1967, as given in the corresponding invoices Exs. M. 4, M. 5 and M. 6 and the devaluation of the Rupee. The Tribunal then considered the discrepancy between the machines mentioned in various exhibits. No doubt there is some justification in the comment of the learned Advocate for the Appellant that some of these invoices were not relied upon by the Tribunal merely because the machines mentioned therein were different in size and weight to those which were installed in the factory. Undoubtedly there would be a variation because the ingenuity of the inventor and technician is not static and as time goes on there are improvements. Renovations and changes that make the machine more sophisticated and efficient. While this is so the question is whether satisfactory evidence has been produced to prove the total cost of rehabilitation and also the life of the machinery. The evidence of Talwar was equally found to be defective. He was greatly relying on the handbook of Chemical Engineers by John Parry for establishing the life of the machinery. He said that in that Book the life of a Chemical plant working in three shifts is shown to be 11 years. He also admitted that the Author gives only the guideline for Income-tax purposes only.It appears to us that this is an unsatisfactory way of determining the two most important factors required for computing the rehabilitation requirement. The evidence produced before the Tribunal consisted only of a few invoices which were to serve as samples of the price of machines to show that they have gone up. We are not impressed with the submission of the learned advocate for the Appellant that a complete set of invoices in respect of all the Departments of the industry which required rehabilitation had been placed before the Tribunal. Indeed the very application for appointment of Assessor demonstrably contradicts this assumption. In this application the management stated that it did "examine S/Shri S. S. Aggarwal, A. C. Talwar as its expert witnesses and have filed some invoices by way of example to show the trend in rising cost in plant and machinery. With regard to useful life of the plant the Respondent places reliance on Chemical Engineers handbook IVth Edition by John Parry" (emphasis ours).27. It is apparent from this application that the management was relying only on a few sample invoices which they said they had produced while depending heavily only on Parrys Handbook for ascertaining the life of the machinery and the probable cost.28. We have also gone through the evidence of the three witnesses and the invoices referred to and we think that the Tribunal rightly rejected this evidence as not being of much assistance. It is quite probable that the price of the indigenous industry as appearing from the bulletin of the Reserve Bank of India has gone up but that does not furnish a basis for arriving at any specific multiplier or deviser for the Appellants plant. All that the invoices produced before the Tribunal establish is only the probable cost of machinery of 2 1/2 lakhs,. In an attempt to prove the cost of replacement of plant and machinery worth Rs. 825 lakhs. The Tribunal was therefore amply, justified in saying that the only evidence given is of the few invoices the value of which is only 2 1/2 per cent of the requirement of the replacement cost which is our view is not sufficient to establish how many machines in each Department of the industry are required, what is the nature of those machines and what is the probable cost of each of those machines. We are far from satisfied that the management has placed before the Tribunal any satisfactory evidence much less sufficient evidence to arrive at a multiplier and deviser nor has the Tribunal any bases for arriving at its own multiplier and deviser except it be on a pure conjecture and guess work.