Case: M/S. Peirce Leslie &amp; Co., Ltd., Kozhikode Vs. Their Workmen

the fact that not these staff members alone but 11,247 other workmen as well have contributed to the emergence of this surplus.The appellants argument was that staff members who have raised this dispute should not be allowed to steal an advantage over the numerous other workers of the company and that just as results of the different branches of the company have been considered as a whole in arriving at the figure of available surplus it is just and proper that these workmen who have raised the dispute should be given only a fair share not of that portion of the surplus which may be considered properly payable to all the workmen of the company.In dealing with this question the Tribunal has said :-"But the fortune of the 11,247 workers depends upon the trading results of the department in which they are working; the bonus of the workers is decided compartment-wise and not on the basis of the over-all profits of the company. Cashew workers are given bonus on the basis of the cashew department profits and not on the basis of the total profits of the company. The staff members are transferable from one department to another and from one branch to another branch." We are not able to understand how in spite of the way the companys balance-sheets and profit and loss accounts have been kept the different departments of the company could be treated separately for the purposes of bonus. The mere fact that the company has actually done so does not make such distribution right. Obviously if cashew workers would in fact be entitled to a larger bonus on the overall results of the company they have been unfairly treated by the company in having been given lesser bonus on the basis of cashew department profits. It is urged on behalf of the appellant that the fact that the workmen other than these staff-members have got less than they would have been entitled to does not justify the grant of a larger share to the present workmen than what they would be entitled to if those other workmen had been given a fair share. 19. This Court had to deal with a some-what similar position in Indian Hume Pipe Co. v. Their Workmen, 1959-2 Lab LJ 357 : (AIR 1959 SC 1081 ). The respondents there were workmen only of the Wadala factory. The appellant had however paid to various workmen elsewhere as and by way of bonus varying between 4 per cent and 29 per cent of the basic wages for the year in question. It was clear that the sum of Rs. 1,23,138 only had been paid in full and final settlement to the workmen in some of the factories and the bonus calculations on an all-India basis would work to the advantage of the appellant, in so far as they would result in saving to the appellant of the difference between the amounts to which those workmen would be entitled to on the basis of the all-India figures adopted by the tribunal and the amounts actually paid to them as a result of agreements, conciliation or adjudication. On behalf of the respondents it was therefore contended that the calculations should be made after taking into account the savings thus effected. Dealing with this contention this Court observed :-"We are afraid we cannot accept this contention. If this contention was accepted, the respondents before us would have an advantage over those workmen with whom settlements have been made and would get larger amounts by way of bonus merely by reason of the fact that the appellant had managed to settle the claims of those workmen at lesser figures. If this contention of the respondents was pushed to its logical extent, it would also mean that in the event of the non-fulfilment of the conditions imposed by the tribunal in the award of bonus herein bringing in saving in the hands of the appellant, the respondents would be entitled to take advantage of those savings also and should be awarded larger amounts by way of bonus, which would really be the result of the claimants entitled to the same not receiving it under certain circumstances - an event which would be purely an extraneous one and unconnected with the contribution of the respondents towards the gross profits earned by the appellant. The tribunal was, therefore, right in calculating the bonus on an all-India basis." 20. Though in the present case there has been no "settlement" strictly speaking with the other workers in the various branches, the considerations which weighed with the Court in the above case are fully applicable to this case and the Tribunal must be held to have committed an error in treating the sum still in the hands of the company as a matter only between the company and these present claimants. 21. In deciding what relief may reasonably be given to the appellant company in view of this error in the Tribunals approach to the question of distribution of the amount still available, we have however to take into account two errors which have been made by the Tribunal in this connection in favour of the appellant. One of these is that in distributing the available surplus the Tribunal omitted to take into account the important fact that a sum of no less than L1,10,000 has been capitalised out of the reserves at the beginning of the year. The second error was that the Tribunal in saying that after paying 8 months bonus there is a balance of L34,397 with the employer, omitted to take into consideration the fact that the company would also have the benefit of a large amount as income-tax rebate in respect of the bonus paid of its clerical staff. 22. Taking all these facts into consideration we are of opinion that a fair order would be to award to the staff bonus equivalent to 3 months basic wages in addition to the amount already paid voluntarily.

Court's decision (1 = petition accepted / positive for appellant, 0 = rejected / negative): 1

Reasoning from the judgment:
1[ds]3. If therefore there was reason to think that the appellant companys contention that its business was attended with ususual risks was correct there would have been good reason to allow a higher rate than 6 per cent on the paid up capital and also a higher rate than 4 per cent on the reserves used a working capital. We are not however satisfied that any such unusual risk is run. There is no more speculation in buying raw nuts and roasting the same and selling them than there is, say, in buying raw cotton in the market, spinning yarn therefrom, making it into cloth and selling such cloth, or in buying raw jute, spinning yarn therefrom weaving it into gunny cloth and selling the same.No case for any higher return on the paid up capital or working capital has been made out by the evidence6. The very fact that such care has been taken in furnishing details to the Court inclines on prima facie to accept the correctness of these figures without much scrutiny. Scrutiny is however very much needed before the figures and the calculations are accepted. Mention may first be made of the fact that though it was stated by the witness who is responsible for the preparation of the replacement costs of the machinery that he obtained quotations from different firms, no such quotation has been placed on record. That, as the Tribunal itself recognized affected very much the value of these figures. As however after mentioning the infirmities of the evidence the Tribunal decided to accept as a reasonably accurate statement this figure of Rs. 1,08,02,330 as the total replacement value we need not consider whether we ourselves would have been prepared to accept the evidence if the matter was being considered by us in the first instance9. It appears to us that this method of arriving at the rehabilitation costs to be provided in a particular year is not useful and cannot be safely relied upon.To understand the fallacy of the method applied we may briefly state the logic behind the provisions for rehabilitation. Because the fixed capital of any industry is the victim of gradual deterioration the prudent businessman creates reserves out of his profits so that as soon as any portion of the fixed capital has become too deteriorated for efficient working it may be replaced. The economic welfare of the country as a whole no less than the interests of the businessman requires that the companys capital fund should remain intact. It is for this reason that an amount reasonably sufficient for the notional requirement of rehabilitation during the relevant year is deducted as a prior charge in ascertaining surplus profits from which bonus can be paid. The basis of the prior charge is the assumption that rehabilitation is a continuing process and so needs allotment from year to year. That is why it has now been held that if the amount allotted for a specific year is not used, it should be taken into account in the later year11. The entire basis of the calculation of the replacement cost by the appellants experts is what such costs will be if the building was pulled down or the machinery scrapped in 1955 and had to be replaced by a new machinery on that date. His estimate of the replacement cost cannot therefore be accepted as a sure basis for any calculation of the rehabilitation costs to be provided12. It is unnecessary therefore to go into the further question as to whether the Tribunal was justified in treating the sum of L20,000 and also another sum of L44,760 as available towards rehabilitation. We may however indicate that if it were necessary to go into the question we would have probably hesitated to hold that these sums were not in fact available for rehabilitation13. A strict view of the evidence thus justifies a conclusion that the appellant company has failed to make out any case for rehabilitation allowance in addition to the ordinary depreciation. As however the learned counsel for the respondent did not challenge the correctness of the allowance of L11,250 assessed by the Tribunal as the total allowances towards statutory depreciation and rehabilitation together it would be proper to apply the formula on that basis16. There is apart from this the important fact that the company itself does not claim that whatever appears to be one the asset side over and above the paid up capital has some from the reserves. Exhibit E-30 is the statement prepared by the companys chartered Accountant to show "Reconciliation of working capital as on 30th June, 1958." It arrives at the figure of L6,05,564 as the working capital by deducting from the current assets as per balance-sheet as on June 30, 1955, six out of nine items under "Current liabilities and provisions", - 3 items not deducted are those under (1) liability for taxation other than U. K. Income-tax, (2) proposed dividend on deferred ordinary shares and (3) capital profits on proposed distribution. The obvious reason for deducting the six items from the current assets to arrive at the working capital is that these items in the balance-sheets under current liabilities and provision would have to be met during the year out of a portion of the current assets, which portion would accordingly not be available for use as working capital. If that is the case as regards the other items under current liabilities and provisions it is not clear why that should not also be the case as regards the current liabilities under "liabilities for taxation other than U. K. Income-tax and under "proposed dividend on deferred ordinary shares." In the absence of evidence to the contrary there is no ground for thinking that these current liabilities had not also to be met out of the current assets during the year. No such evidence has been produced. The Tribunal is therefore right in our opinion in rejecting the companys claim that these amounts were also employed as working capital20. Though in the present case there has been no "settlement" strictly speaking with the other workers in the various branches, the considerations which weighed with the Court in the above case are fully applicable to this case and the Tribunal must be held to have committed an error in treating the sum still in the hands of the company as a matter only between the company and these present claimants22. Taking all these facts into consideration we are of opinion that a fair order would be to award to the staff bonus equivalent to 3 months basic wages in addition to the amount already paid voluntarily.