Case: Binny Ltd Vs. Their Workmen

2. On December 8, 1965, the Government of Mysore referred to the Industrial Tribunal for adjudication the following questions :"Is the Management of the Bangalore Woollen, Cotton and Silk Mills Company Limited, Bangalore, justified in announcing payment of one months basic wages as advance against wages for the half-year ending June 1965 instead of declaring this payment as an advance against payment of bonus as was being done all these years?If not, what other relief the workers are entitled to?"3. This was numbered as Reference No. A.I.D. 6 of 1966, Civil Appeal No. 1291 of 1967 is directed against that part of the order of the Tribunal regarding this Reference4. On March 5, 1966, the Government of Mysore referred to the same Tribunal for adjudication the following question:"Whether the demand of the workers of Bangalore Woollen, Cotton and Silk Mills Co., Ltd., Bangalore, for additional bonus for the years 1962 and 1963 at the rate of 2 months additional bonus and 4 months additional bonus on total wages respectively is justified?If not, to what other relief or reliefs are the workmen entitled?"5. This Reference was numbered as A.I.D. 8 of 1966, Civil Appeal No. 1292 of 1967 is directed against that part of the order of the Tribunal regarding this Reference. Both the appeals are by the Company6. We will first take up Civil Appeal No. 1291 of 1967. The appellant was making two payments of bonus every year, one for the half-year ending 30th June and half-year ending 30th December. The accounting year is the calendar year. The half-yearly payments were unilaterally declared by the appellant and not on the basis of any agreement between the parties. The quantum of bonus that was paid for each half-year was also not constant. Half-yearly payments were made at the end of the half-year when the working result of the said year was known and if there was sufficient profit to pay bonus. The payment of bonus for the half-years also depended upon the approximate estimate that the Directors used to make about their prospective future earnings for the next half-year. According to the appellant the bonus amounts were paid out of profits. As the Payment of Bonus Act, 1965 (hereinafter to be referred to as the Act) had come into force on August 28, 1965, the appellant issued a circular to the effect that for the half-year ending June 30, 1965, payments will be made as advance of wages equivalent to 1/6th of the basic earnings of the employees. In this circular there is a reference to the Payment of Bonus Ordinance, 1965, promulgated on May 29, 1965 and that under the terms of the Ordinance, bonus is payable only within a period of 8 months from the end of the accounting year. The circular further states that no bonus is payable for the accounting year 1965 until the accounts for the year are closed. It was further mentioned that the amounts are paid as advance wages in view of the representations made by the employees. The circular further mentioned that the amounts paid as advance wages will be set off against the bonus that may be found payable for the accounting year 1965 and that if no bonus is payable, the amount paid will be adjusted against the wages due for any month after March, 19667. The issue of the above circular led to the unions concerned raising a dispute with the management that the payment of bonus at the end of each half-year has become a condition of service of the workmen as the same was being paid for several decades without any relation to profits. The appellant was charged by the unions of having changed the conditions of service by offering to make payments as advance against wages instead of payment by way of bonus. As conciliation proceedings failed, the workmen resorted to a strike in December 1965, which led to the Reference being made by State Government on December 8, 1965, No. A.I.D. 6 of 19669. The unions pleaded that the payment of bonus at the end of eachd half-year, which was being done for a long number of years, has become a condition of service and the amounts paid were not related to the profits earned by the Company. The unions further contended that the Act has not in any manner affected the right of the employees getting bonus in the manner paid by the appellant, namely, at the end of every half-year22. Now coming to Civil Appeal No. 1292 of 1967, as mentioned earlier, it is against that part of the Award of the Tribunal in A. I. D. No. 8 of 1966. The question that was referred to the Tribunal has also been extracted in the earlier part of the judgment. That relates to a claim for additional bonus for the years 1962 and 1963. There is no controversy that the appellant has already paid for the year 1962, three months basic wages as bonus. Similarly for the year 1963 also four months basic wages as bonus has already been paid. The claim was for two months total wages as additional bonus for the year 1962 and four months total wages as additional bonus for the year 1963. The findings recorded by the Tribunal in A. I. D. No. 6 of 1966 regarding the nature of bonus paid to the employees have been adopted for this reference also. The respondents-Unions do not challenge those findings. Therefore, even in respect of the years 1962 and 1963, what is payable is only profit bonus. There is also no controversy that for these two years the quantum of bonus payable has to be calculated in accordance with what is known as the Labour Appellate Tribunal Full Bench Formula, which has been approved by this Court in Associated Cement Co. Ltd., Dwarka Cement Works, Dwarka v. Its Workmen, 1959 SCR 925   = (AIR 1959 SC 967  ). Both the parties have filed statements of calculations according to the said Formula. The statements Exs. M-1 and M-2 filed by the Management represent the computation of available surplus for the years ended December 31, 1962 and 1963 respectively,24. The Tribunal has accepted as correct the gross-profits as given by the appellant in these two exhibits for the two years in question. Even though the Unions contested the return on Preference Share Capital at 7.8 per cent., the Tribunal has rejected their objections. It has held that under the Preference Shares Regulations Act, the Company is bound to pay 7.8 per cent on Preference Share Capital. The Workmen did not raise any controversy regarding the return on Ordinary Share Capital at 6 per cent. The Tribunal, therefore, accepted the figures given in both Exs. M-1 and M-2 and to the return of Ordinary Share Capital. But the controversy arose about the claim made by the appellant regarding return on Reserves employed during the two years. It will be noted that neither in Ex. M-1 nor in Ex. M-2 the appellant has made any claim for rehabilitation excepting adding a note to the statement that they are subject to a claim for rehabilitation29. The Tribunal after a reference to the evidence of the Chartered Accountant, M.W. 1 has held that the amounts which should have been used as Working Capital are those mentioned in Exs. M-1 (a) and M-2 (a), less the fixed assets and capital works in progress. The Tribunal has further held that the working capital cannot include fixed assets nor the capital works in progress, as they represent the funds required for day to day work of the Company. According to the Tribunal these fixed assets have been accumulated over years and they cannot form part of the working capital. However, the Tribunal accepted the claim of the appellant that the other items in Exs. M-1 (a) and M-2 (a), namely, investments, interest accrued on investments, stores and spare parts, raw materials process stocks, finished stocks, sundry debtors, advances etc., are the amounts available to be used as working capital. On this reasoning the Tribunal held that in calculating the return on working capital, the amounts mentioned in Ex. M-1 (a) and M-2 (a) less the amount sunk in fixed assets and working capital in progress, have to be deducted. On this basis it deducted from Rs. 44468315, a sum of Rupees 43139570, and fixed a sum of Rs. 1328745, as Reserves employed in business during the year ended December 31, 1962. On this amount it allowed a sum of Rs. 53150/- as return on Reserves at 4 per cent, for the year 196230. Similarly, for the year 1963, it deducted from Rs. 46937947, a sum of Rs. 45229423, and fixed a sum of Rs. 1708524/- as Reserves employed in business during that year. On this amount it allowed Rs. 68340 as return on Reserves at 4 per cent.

Reasoning:
13. We are not inclined to accept the contentions of Mr. Puri. We have already referred to the findings of the Tribunal to the effect that the amount that was paid by the appellant as bonus at the end of each half-year was on the basis of the profits earned by it. The Tribunal has rejected the claim of the unions that the payment of bonus, in the manner claimed by them, was not a condition of service and that the payment had nothing to do with any custom or festival. These findings have not been and in fact could not be challenged by the respondents. There is also no controversy that payment of bonus for the accounting year 1965 is governed by the provisions of the Act. If so,the question is whether the directions given by the Tribunal and referred to above, can be supported by the provisions of the ActWe are not inclined to accept this contention of Mr. Puri. The direction given by the Tribunal making it obligatory on the Management to make half yearly payment of bonus, apart from being opposed to the scheme of the Act, also runs counter to the provisions of Section 19. Whether it is the minimum bonus of 4 per cent, under Section 19 or the maximum bonus of 20 per cent, under Section 11, they have to be paid, as is made clear by Section 19, only within the period mentioned therein. It may be that an employer voluntarily pays amount during the accounting year by way of part bonus which he is entitled to take into account and adjust when making final payment at the close of the accounting year. It is one thing to say that an employer can make voluntary payment, but it is a different thing for the Tribunal to give a direction to that effect20. In this case, it is no doubt, seen that the appellant has been paying bonus at the end of each half-year. But the Tribunal has found that such payment has not become a condition of service.Therefore by the mere fact that the appellant has been making payments on previous occasions every half-yearly, does not confer a right on the employee to have such payments by way of bonus in the same manner even after the Act came into force26. We will first take up the question regarding the claim of the appellant for return on Reserves. In Ex. M-1, the appellant has claimed a sum of Rs. 17833.00 as 4 per cent, return of Rs. 44468315.00, being the amount employed in business. Similar by in Ex. M-2, for the year 1963, it had claimed Rs. 1877518.00, being 4 per cent. return on Reserves on Rs. 46937947.00, employed in the business. The Unions contested the claim of the appellant on the ground that they are not entitled to any return on Reserves32. We may straightway say that these decisions do not assist the appellant. In the case before us it is not necessary to do any guesswork as the appellant wants us to do. The appellant has filed statements showing how it has calculated the amount of reserve utilised as working capital and we have to find out whether the calculations made by it are correct. In fact, Mr. Malhotra has not been able to point out from the balance sheets, as to what amount, according to the appellant, can be considered to have been used as working capital. In the two decisions, relied on by him, the company concerned was able to refer to the figures in the balance sheets from which this Court was able to draw a conclusion regarding the approximate amount that would have been utilised as working capital. The position before us is entirely different34. We have already pointed out that the Tribunal has held that the working capital cannot include fixed assets nor the capital works in progress as it represents the funds required for day-to-day running of the company. The Tribunal has further held that the appellant is entitled to deduct investments, interest accrued on investments, etc., which have been shown in Exhibits M-1 (a) and M-2 (a) on the ground that they must be considered to be the amounts available to be used as working capital. These findings have not been challenged by the learned counsel for the appellant. The appellant has also filed details of reserves employed in the business during the years ended 31st December, 1962 and 1963 as shown in Exhibits M-1 (b) and M-2 (b) respectively. Even there the appellant has deducted the share capital before giving final figures35. Therefore, the contention of Mr. Malhotra that the Tribunal has committed a mistake in calculating the amount of Reserve used as working capital for these two years, cannot be accepted. If so, it follows that the amount fixed by the Tribunal as return at 4 per cent on Reserves used as working capital for these two years, is correct38.It must be noted that Rehabilitation Reserve is a substantial item which goes to reduce the available surplus and as a result affects the right of the employees to receive the bonus. Hence the employer will have to place all relevant materials and the Tribunal will have to scrutinise them carefully and be satisfied that the claim is justified.It is no doubt true that it is but proper in the larger interest of the industry as well as the employees that proper rehabilitation reserve should be built up taking into consideration the increase in price in plant and machinery which has to be replaced at a future date and by determination of multiplier and its divisor.It is also clear from the decisions of this Court that if a company has no scheme for rehabilitation, then, of course, its claim on that head must be rejected (vide Azam Jahi Mills Ltd. v. Their Workmen, (1967) 2 Lab LJ 18 = (AIR 1967 SC 1222  ). Further, since it is the employer who seeks replacement costs, it is for him to satisfy the Tribunal as to what will be the overall cost of replacement and in doing so, it is he who has to discharge this burden by adducing proper evidence and giving other party an opportunity to test the correctness of that evidence by cross-examination (vide National Engineering Industries Ltd. v. Its Workmen, (1968) 1 SCR 779   = (AIR 1968 SC 538  )39.It is also now well settled that in determining the claim of the employer for rehabilitation, 2 factors are essential to be ascertained, namely, (1) the multiplier, and that has to be done by reference to the purchase price of the machinery and the price which has to be paid for rehabilitation or replacement; and (2) the determination of the diviser and that has to be done by deciding the probable life of the machinery(vide Honorary Secy., South India Millowners Association and others v. Secy., Coimbatore District Textiles Workers Union, (1962) Supp 2 SCR 926 = (AIR 1962 SC 1221  ) and Messrs. Gannon Dunkerley and Co. Ltd. v. Their Workmen, AIR 1971 SC 2567  41. So far as the age of the machinery is concerned, it is no doubt true that in (1962) Supp 2 SCR 926 = (AIR 1962 SC 1221  ) this Court, after a reference to the evidence adduced, confirmed the findings of the Tribunal that the estimated life of the textile machinery in question should be taken to be 25 years, but in the said decision itself it is observed as follows:"We are not prepared to accept either argument because, in our opinion, the life of the machinery in every case has to be determined in the light of evidence adduced by the parties."But it is unnecessary for us to pursue this aspect further as we are disallowing the entire claim for rehabilitation46. It is clear from the above answers of the witness that there is no material placed before the Tribunal by the appellant from which the multiplier and divisor can be properly worked out for the purpose of considering the claim for rehabilitation. In fact, the Mill Manager, M.W. 2 has stated that the company has floated a debenture for 1 1/2 crore for buying new machinery. This clearly shows that the appellant had no scheme for rehabilitation and that explains the reason why it had not made any provision for rehabilitation48. It is no doubt true that these amounts are shown in the schedules to the balance sheets for the years concerned. Admittedly, there is no such claim made in the written statement filed by the appellant before the Tribunal. When the unions were contesting the claim of the appellant on the ground that it has no scheme for rehabilitation and that it has not spent any amount by way of replacement of old machinery, it was the duty of the appellant to have made a proper claim and it should have adduced evidence regarding that aspect before the Tribunal.Mere production of balance sheet and profit and loss accounts by themselves will not entitle the appellant to sustain its claim for rehabilitation49. For all the reasons given above, it is clear that the Tribunal was justified in holding that the appellant has not been able to make out its claim for making provision for rehabilitation. In this view the Tribunal was justified in rejecting this claim of the appellant50. We may also state that the Tribunal is also of the view that the appellant has large reserves with which it can meet rehabilitation expenses of the machinery. In this connection the Tribunal has also referred to the evidence on the side of the appellant, that even according to the appellant rehabilitation will have to be completed only within eight years from 1962 and that only a sum of rupees eighty lakhs will be required for each year. On this reasoning the Tribunal has held that this amount of rupees eighty lakhs can be easily met with from the large reserves available with the appellant. It is not necessary for us to consider this aspect further because we have already agreed with the findings of the Tribunal that the appellant has no scheme for rehabilitation and that it has not placed any satisfactory evidence before the Tribunal in support of its claime Tribunal, after rejecting the appellants claim for rehabilitation and also allowing return on reserves used as working capital in the manner, already referred to, had arrived at the available surplus for the year 1962 in the sum of Rs. 26,35,914 and for the year 1963 at Rs. 49,04,987. The appellant filed a statement Exhibit M-4 showing the amount of bonus already paid for the years 1962 and 1963 to all employees drawing a total of Rs. 500 and less per mensem. From that statement it is seen that for the year 1962 it had paid a sum of Rs. 14,41,455 and for the year 1963 a sum of Rs. 19,60,795. On the basis of the available surplus worked out for the years 1962 and 1963, the balance available surplus after deducting bonus already paid55. From the available surplus of Rs. 49,04,987 in 1963, the workmen will get a sum of Rs. 29,42,192 for that year which works out more or less about 60 per cent of the available surplus, falling short by a sum of Rs. 80057. So far as 1963 is concerned, the available surplus as found by the Tribunal is Rs. 49,04,987. 60 per cent of this available surplus, to which the workmen will be entitled to will be Rs. 29,42,992. On the other hand, the total amount that the workmen will get as per the award including the amount already paid by the appellant as bonus is Rs. 29,42,192. The appellant will have to pay only an additional sum of Rs. 800 to make up 60 per cent. There is no appeal by the unions and therefore the bonus awarded for the year 1963 does not require any interference58.In allocating the available surplus between the company and the workmen, it has been held by this Court that it will be equitable if roughly 60 per cent of the surplus is distributed as bonus to the workmen and the Company is left with the remaining 40 per cent. The Company will get in addition to this 40 per cent, the benefit of the income-tax rebate on the 60 per cent bonus payable to the workmen (vide AIR 1971 SC 2567  ). We have adopted the same principle in the case on hand.