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

It would be enough if we narrated only the facts relevant to the question raised. The appellant, Khandesh Spinning and Weaving Mills Company Limited, is a textile mill and its factory is situate at Jalgaon. The respondent, Rashtriya Girni Kamgar Sangh, represents the employees of the appellant-Company. The respondent on behalf of the employees issued a notice to the appellant under S. 42 (2) of the Bombay Industrial Relations Act, 1946, demanding payment of reasonable bonus for the period from January 1, 1955 to December 31, 1955. Negotiations in this regard having failed, the respondent made a reference to the Industrial Court under S. 73A of the said Act for arbitration of the dispute arising out of the said notice.2. The arbitrator, i.e., the Industrial Court, following the "Full Bench Formula", ascertained the surplus to be Rs. 2.20 lakhs after deducting the prior charges from the gross profits of the Company, but it did not give any credit to the rehabilitation amount apart from the statutory depreciation. The Industrial Court disallowed this item for the following reasons: It estimated the amount required for rehabilitation at Rs. 60 lakhs; out of this amount it deducted Rs. 51 lakhs representing the reserves and the balance of Rs. 9 lakhs spread over a period of 15 years gave the figure of Rs. 60,000 as the amount that should be set apart for the year in question for rehabilitation. As the statutory depreciation was Rs. 83,639, it came to the conclusion that the Company would not be entitled to any allocation as a prior charge for rehabilitation. After excluding the said item of rehabilitation, it fixed the surplus in a sum of Rs. 2.20 lakhs and awarded to the employees four months basic wages as bonus.

Reasoning:
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.