Case: Khandesh Spg. &amp; Wvg. Mills Co. Ltd Vs. The Rashtriya Girni Kamgar Sangh,Jalgaon

p. 1086 of AIR), thus:"Moreover, no objection was urged in this behalf, nor was any finding to the contrary recorded by the tribunal."In that case it was conceded that the reserves were in fact used as working capital. It is suggested that the learned Judge solely relied upon the relevant items in the balance-sheet in support of his conclusion and that the said observation was only an additional ground given by him, but we are inclined to think that the Court would not have accepted the items in the balance-sheet as proof of user if it was not satisfied that no objection was taken in that behalf. In Tata Oil Mills Company Ltd. v. Its Workmen, 1959-2 Lab LJ 250 at p. 256: (AIR 1959 SC 1065 at p. 1070), a similar question was raised. It was contended by the labour in that case that the depreciation reserve was not used as working capital and therefore no return should be allowed on the said reserve. The Chief Accountant of the Company made an affidavit on behalf of the Company that the said depreciation reserve, along with others, had been used as working capital. This Court accepted the affidavit for the year in question, but made the following observations for future guidance:"It will, however, be open to the workmen in future to show by proper cross-examination of the companys witnesses or by proper evidence that the amount shown as the depreciation reserve was not available in whole or in part to be used as working capital and that whatever may be available was not in fact so used in the sense explained above. In the present appeal, however, we must accept the affidavit of the chief accountant."These observations also recognized the necessity to give an opportunity to the workmen to cross-examine the witnesses put forward by the management to prove the user of any particular reserve as working capital. This Court once again dealt with the same subject in Anil Starch Products Ltd. v. Ahmedabad Chemical Workers Union. Civil Appeal No. 684 of 1957 (S.C). That appeal also raised the question whether return should be allowed on the depreciation reserve used as working capital. It was contended for the labour in that case that the depreciation reserve was not used as working capital. Rejecting the said contention, Wanchoo, J., observed:"It is enough to say in that connection that an affidavit was filed by the manager of the company to the effect that all its reserves including the depreciation fund had been used as working capital. The Manager appeared as a witness for the company before the Tribunal and swore that the affidavit made by him was correct. He was cross-examined as to the amount required for rehabilitation, which was also given by him in that affidavit; but no question was put to him to challenge his statement that the entire depreciation reserve had been used as working capital ........In the circumstances, we must accept the affidavit so far as the present year is concerned and hold that the working capital was Rs. 34 lacs."Notwithstanding the said finding, the learned Judge took care to reserve the rights of the workmen in future by making the following observations:"It will, however, be open to the workmen in future to show by proper cross-examination of the companys witnesses or by proper evidence that the amount shown as depreciation reserve was not available in whole or in part as explained above to be used as working capital and that whatever was available was not in fact so used."This judgment again reinforces the view of this Court that proper opportunity should be given to the labour to test the correctness of the evidence given on affidavit on behalf of the management in regard to the user of the reserves as working capital.11. What is the position in the present case? It is not suggested that there is any reserve which has been reasonably earmarked to discharge a contractual or statutory obligation. We are only concerned with general reserves. The learned Solicitor General contends that the balance-sheet discloses that the entire reserves have been used as working capital and that the respondent did not canvass this position in the statement filed by it before the Industrial Court. We have already pointed out that the balance-sheet, without its being proved by a person competent to do so, cannot prove that any reserves have been utilised as working capital. In the written-statement filed by the appellant before the Industrial Court, no specific allegation is made that the reserves were utilised as working capital, though in its statement of calculations the said reserves were not excluded from the amount claimed towards rehabilitation. As there is no specific allegation, the respondent also in its statement did not deny the said fact, but in its statement of calculations it did not deduct the reserves from the rehabilitation amount, Therefore, it must be held that the respondent did not accept the position that the reserve funds were utilised as working capital. Strong reliance is placed upon the evidence of the General Superintendent of the appellant-Company, but a persual of that evidence discloses that the said witness has not deposed that the Company used the reserves as working capital; nor does the said witness seek to prove either the balance-sheet or any extract taken therefrom. In the circumstances, the respondent had no opportunity to cross-examine him in respect of the alleged user of the reserves. For the aforesaid reasons, we have no option but to hold that Rs. 51 lakhs representing the reserves were not used as working capital and, therefore, the said amount was rightly deducted by the Industrial Court from Rs. 60 lakhs fixed by it towards rehabilitation. As the balance of Rs. 9 lakhs spread over 15 years came to only Rs. 60,000 during the bonus year and as the statutory depreciation was Rs. 83,639, the Industrial Court rightly excluded the entire rehabilitation amount from its calculations in arriving at the surplus.

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

Explanation:
0[ds]These observations did not record any finding that the reserves were used as working capital. It was only an assumption made by the Industrial Court, as, in the view taken by it, it was immaterial whether the reserves were used as working capital or not. We do not think that the aforesaid opinion expressed by the Industrial Court is sound. In ascertaining the surplus for the purpose of fixing the bonus for a particular year, the state of affairs in that year is the guiding factor. If a subsequent year any part of the reserves used as working capital is released, that amount will have to be taken into account in ascertaining the surplus for that year and so on for subsequent years: otherwise it will lead to the anomaly of the reserves being excluded from the amount required for rehabilitation, though as a matter of fact the entire reserves were utilised as working capital, and though in future years they were expected to be released but in fact not so released. This would lead to a result inconsistent with the decisions on the subject which have clearly laid down that the reserves which have been used as working capital shall not be deducted from the amount fixed fordo not think that by using the said words this Court meant to depart from the well-recognized principle that if the general reserves have not been used as working capital, they cannot be deducted from the rehabilitation amount. The reserves may be of two kinds. Moneys may be set apart by a company to meet future payments which the company is under a contractual or statutory obligation to meet, such as gratuity etc. These amounts are set apart and tied down for a specific purpose and,. therefore, they are not available to the employer for rehabilitation purposes. But the same thing cannot be said of the general reserves: they would be available to the employer unless he has used them as working capital. The use of the words "reasonably earmarked" is also deliberate and significant. The mere nominal allocation for binding purposes, such as gratuity etc., in the companys books is not enough. It must be ascertained by the Industrial Court on the material placed before it whether the said amount is far in excess of the requirements of the particular purpose for which it is so earmarked and whether it is only a device to reduce the claim of the labour for bonus. We do not suggest that it is the duty of the Industrial Court to ascertain the correct or exact figure required for a particular purpose; but it is certainly its duty to discover whether the so-called earmarking for a particular purpose is a device to circumvent the formula. If it is satisfied that there is such a device, it shall deduct that figure in calculating the rehabilitation amount and if possible arrive at a real figure for that purpose. So too, in the case of general reserves when an employer claims that a specific amount reserved has been used as working capital, it is the duty of the Industrial Court to arrive at a finding whether the said reserves, or any part of them, have been used as working capital and, if so, to what extent during the bonus year.Shortly stated before a particular reserve can be deducted from the rehabilitation amount it must be established that it has been reasonably earmarked for a binding purpose or the whole or a part of it has been used as working capital and that only such part of the reserves coming under either of the two heads can be deducted from the saidthe company has specifically earmarked certain amounts for specific binding purposes in 1954 or earlier to meet future binding obligations, such as gratuity etc.; or has reserved amounts for general purposes but not to meet any contractual or statutory obligations and has not utilised the same as working capital. In the former case the amount must be deemed to have been utilised and, therefore, it cannot be deducted from the rehabilitation amount; but in the latter case ,as the said amounts were not utilised by the employer as working capital, they shall be deducted from the rehabilitationburden is obviously on the employer who claims the exclusion of the reserves from the rehabilitation amount on the ground that they are used as working capital or reasonably earmarked for a specific purpose to establish the said facts and to prove the same by relevant and acceptableimportance of this question in the context of fixing the amount required for rehabilitation cannot be over-estimated. The item of rehabilitation is generally a major item that enters into the calculations for the purpose of ascertaining the surplus and, therefore, the amount of bonus. So, there would be a tendency on the part of the employer to inflate this figure and the employees to deflate it. The accounts of a company are prepared by the management. The balance-sheet and the profit and loss account are also prepared by the companys officers. The labour have no concern in it.When so much depends on this item, the principles of equity and justice demand that an Industrial Court should insist upon a clear proof of the same and also give a real and adequate opportunity to the labour to canvass the correctness of the particulars furnished by the employer.8. Cases coming before us disclose that the Industrial Courts and Labour Tribunals are not bestowing so much attention on this aspect of the case as theyis not suggested that there is any reserve which has been reasonably earmarked to discharge a contractual or statutory obligation. We are only concerned with generalhave already pointed out that the balance-sheet, without its being proved by a person competent to do so, cannot prove that any reserves have been utilised as working capital. In the written-statement filed by the appellant before the Industrial Court, no specific allegation is made that the reserves were utilised as working capital, though in its statement of calculations the said reserves were not excluded from the amount claimed towards rehabilitation. As there is no specific allegation, the respondent also in its statement did not deny the said fact, but in its statement of calculations it did not deduct the reserves from the rehabilitation amount, Therefore, it must be held that the respondent did not accept the position that the reserve funds were utilised as working capital. Strong reliance is placed upon the evidence of the General Superintendent of the appellant-Company, but a persual of that evidence discloses that the said witness has not deposed that the Company used the reserves as working capital; nor does the said witness seek to prove either the balance-sheet or any extract taken therefrom. In the circumstances, the respondent had no opportunity to cross-examine him in respect of the alleged user of the reserves. For the aforesaid reasons, we have no option but to hold that Rs. 51 lakhs representing the reserves were not used as working capital and, therefore, the said amount was rightly deducted by the Industrial Court from Rs. 60 lakhs fixed by it towards rehabilitation. As the balance of Rs. 9 lakhs spread over 15 years came to only Rs. 60,000 during the bonus year and as the statutory depreciation was Rs. 83,639, the Industrial Court rightly excluded the entire rehabilitation amount from its calculations in arriving at the surplus.