Case: The New Maneck Chowk Spinning And Weaving Co., Ltd Vs. The Textile Labour Association,Ahmedabad

The appellants are certain cotton textile mills in Ahmedabad while the respondent in each appeal is the Textile Labour Association, Ahmedabad, which is a representative union of the cotton textile workers in Ahmedabad. The total number of cotton textile mills in Ahmedabad is 66; therefore, 66 references under S. 73-A of the Bombay Industrial Relations Act, No. XI of 1947 (hereinafter called the Act), were made to the industrial court for arbitration of disputes arising out of notices of change given by the respondent making a demand for bonus for employees of textile mills in Ahmedabad. It appears that there was an agreement between the Textile Labour Association and the Ahmedabad Mill owners Association representing the member-mills on June 27, 1955 (hereinafter referred to as the Agreement), with respect to payment of bonus by the mills to their employees. The Agreement was to remain in force for a period of five years, beginning with January 1, 1953, and ending with December 31, 1957, and related to bonus for the five calendar years from 1953 to 1957 (both inclusive). When the Agreement came to an end disputes arose about bonus for the year 1958. The Agreement was not extended and a notice of change under S. 42 of the Act was given by the Textile Labour Association to the Ahmedabad Mill-owners Association on July 21, 1959, claiming that all the employees employed during the year 1958 in the member-mills be paid an adequate amount of bonus having regard to the volume of profits, if any, or some bonus irrespective of profits to fill the gap between the existing wage and the living wage so as to avoid unrest among the employees. It further appears that notice in the same terms was given to individual mills about the same time. As no agreement was arrived at between the parties, 66 references with respect to the sixty-six mills were made to the industrial court as already mentioned above. The industrial court considered all the sixty-six references together and came to the conclusion that the Agreement of 1955 had worked fairly to both sides and was substantially in accord with the long-standing practice in the industry in Ahmedabad even before the Agreement and that its extension for one year was essential for keeping industrial peace. It therefore ordered the extension of the Agreement for the year 1958 and directed the parties to file within six weeks from the date of the award calculations of bonus payable for the year 1958 in the light of the decision and thereafter the court would proceed to award appropriate bonus in the case of each individual mill. Thereupon there were fifty-two applications for special leave to appeal to this Court in which special leave was granted. Thirty-four of the appeals arising out of the special leave petitions have been withdrawn and only eighteen now remain for decision. It appears that the remaining fourteen mills accepted the decision of the industrial court, so that now forty-eight mills are out of the picture and only eighteen are before the Court2. The main contention of the appellants before the industrial court was that in view of the law laid down as to bonus by this Court is Associated Cement Companies Ltd. v. The Workmen, 1959 SCR 925  : (AIR 1959 SC 967  ), it was not open to it to extend the Agreement for the year1958 as that would be against the concept of bonus as understood in industrial lawthe Agreement was "without renouncing the general principles enunciated in decisions and awards of the arbitration boards, the industrial court, the Labour Appellate Tribunal and the Supreme court in respect of bonus or the rights and privilages created thereunder. It was entered into only with a view to creating goodwill among workers and for the purpose of maintaining peace in the industry and without creating a precedent for the future. The Agreement in the first place provided that the claim of the employees for bonus would only arise if there is an available surplus of profit after making provision for all the prior charges. These prior charges were : (i) statutory depreciation and the development rebate; (ii) taxes; (iii) reserve for rehabilitation, replacement and modernisation of block as calculated by the industrial court (basic year 1947); (iv) six per centum return on paid-up capital including bonus shares; and (v) two per cent, return on reserves employed as working capital. After the available surplus was determined thus, a mill having an available surplus of profit had to pay to its employees bonus which would in no case be less than an amount equivalent to 4.8% of basic wages earned during the year; nor was it to exceed an amount equivalent to 25% of the basic wages earned during the year. It was also provided that in case the available surplus was more than sufficient for granting bonus at a higher figure than the ceiling of twenty-five per centum of basic wages earned during the year and the maximum bonus of 25 per centum was paid, such a mill would be deemed to have set aside a part of the residue of available surplus after grant of maximum bonus not exceeding 25 per cent, of the basic wages earned during the year as a reserve for bonus for purposes of "set on (adjustment) in subsequent years. Secondly it was provided that where in the case of a mill, the available surplus was not more than the ceiling of 25 per cent, of basic wages fixed for bonus, the bonus would be fixed after deducting at least Rs. 10,000/- from the available surplus. Further it was provided that if a mill had an available surplus of profits which would suffice to pay bonus at a rate lower than the minimum of 4.8 per cent, it would pay the minimum and would be entitled to set off the excess amount thus paid against the available surplus in a subsequent year or years and there were provisions how this set-off would be worked out, Lastly it was provided that if the profits of a mill were not sufficient to provide for all prior charges as mentioned above, though it had made profits, or where the mill had actually suffered a loss, such a mill would as a special case for creating goodwill among its workers and for continuing peace in the industry but without creating a precedent pay to its employees the minimum bonus equivalent to 4.8 per cent, of the basic wages but would be entitled to set off this amount towards any available surplus in any subsequent years, subject, however, always to a payment of a minimum bonus at the rate of 4.8 per cent, of basic wages earned during the year.

Reasoning:
There is no doubt therefore that it is open to an industrial court in an appropriate case to impose new obligations on the parties before it or modify contracts in the interest of industrial peace or give awards which may have the effect of extending existing agreement or making a new one. This, however, does not mean that an industrial court can do anything and everything when dealing with an industrial dispute. This power is conditioned by the subject-matter with which it is dealing and also by the existing industrial law and it would not be open to it while dealing with a particular matter before it to overlook the industrial law relating to that matter as laid down by the legislature or by this CourtWe are in the present case dealing with bonus of the fourth kind, namely, profit bonus and what we say subsequently refers only to this kind of bonusIt would thus be clear that the essential concept of profit bonus is that there should be an available surplus determined according to the principles laid down in the cases mentioned above for distribution. If there is no such available surplus for distribution, there can be no case for payment of profit bonus. This is the industrial law as laid down by this Court Companies case, 1959 SCR 925  : (AIR 1959 SC 967  ). It would in our opinion be not open to an industrial court or tribunal to ignore this law as to bonus and to extend an agreement for payment of bonus, which is against the basic concept of bonus as laid down by the decisions of this Court on the ground that an industrial court has power generally to extend agreements or to create new obligations. As already pointed out, that power has to be exercised keeping in view the subject-matter before the tribunal and the law laid down by the legislature or by the decisions of this Court, with respect to that subject-matter. The industrial court in this case was not unaware of this position, viz., that it was departing from the law laid down in Associated Cement Companies case, 1959 SCR 925  : (AIR 1959 SC 967  ) and other bonus cases; but it held that this Court was dealing in those cases with individual units, and not with a case where there were numerous concerns in an industry at one centre, with its particular historical background, where previous awards had been on an industry-wise basis. It therefore held that the decisions of this Court could not apply in their entirety to the dispute before it and that this Court could not have intended that in a case where there was the additional circumstance that the parties had themselves voluntarily modified the bonus formula in some respects by a long term agreement, that could not be extended by an industrial court. It is the correctness of this view which has been strongly disputed before us by the appellantsNow if these differences were merely of detail and did not affect some of the vital aspects of the Full Bench formula it might be said that there was no ignoring of the law as laid down by this Court and therefore the tribunal was not unjustified in extending the Agreement for a year. But a comparison of the formula in the Agreement with the Full Bench formula shows differences in three vital aspects. In the first place, rehabilitation provided in the Agreement differs vitally from rehabilitation as explained in Associated Cement Companies case, 1959 SCR 925  : (AIR 1959 SC 967  ). In the second place, the formula in the Agreement provides for payment of a minimum bonus even though there may be no available surplus and even though the particular mill might have made actual loss. Thirdly, while the Full-Bench formula as approved by this Court treats a particular year as a self-sufficient unit, there is provision for set-off and set-on in the formula in the AgreementThe tribunal therefore when it extended the formula in the Agreement which departed from the Full Bench formula in certain vital aspects was undoubtedly ignoring the industrial law as laid down by this Court and going against it. It was its duty when dealing with the question of profit bonus to apply the Full Bench formula, as approved by this Court and then arrive at the quantum of bonus to be awarded in the case of each mill. In particular by extending the Agreement the tribunal made it possible for payment of a minimum bonus even when there was either insufficient available surplus to pay bonus or no available surplus at all or even actual loss; the tribunal was thus definitely going against the industrial law relating to bonus as laid down by this Court. It had in our opinion no power to do so and the reasons which it gave for departing from the law laid down by this Court are unsubstantial and do not commend themselves to us. In these circumstances the order of the tribunal extending the Agreement for a year cannot be upheldWhatever may be said about this provision on a long term basis, the tribunals jurisdiction was limited by its terms of reference. There was not one reference before the tribunal on industry-cum-region basis but sixty-six separate references, one relating to each mill. It was required to consider the question of bonus for each mill for the year 1958 only and thus had nothing to do with set-off and set-on or the profits of industry as a whole at Ahmedabad. The tribunal was only concerned with 1958 and no consideration as to what happened before that year or what may happened after 1958 could enter into its decision of the question of bonus for the year 1958. The principle of set-off and set-on therefore to be found in the Agreement could not convert payment of bonus for 1958, say, by a loss making mill into profit bonus as laid down by the decisions of this Court. The tribunals award in this case therefore would clearly be against the law as to bonus laid down by this Court, for its jurisdiction was confined only to the year 1958 and no moreIt is enough to say that so far as what is called goodwill bonus is concerned it pre-supposes that it is given by the employer out of his own free will without any conclusion by an industrial court. As its very name implies it is a bonus which is given by the employer out of his free consent in order that there may be goodwill between him and his workmen; but there can be no question of imposing a goodwill bonus by industrial courts, as imposition of such a bonus is a contradiction of its very concept. We have already referred to four kinds of bonus which prevail in the industrial law in India and which can in certain circumstances be imposed by industrial tribunals; but there can be no question of the imposition of the so-called goodwill bonus, for that bonus depends upon the goodwill of the parties and on their free consent. In the absence of such free consent, there can be no question of any goodwill bonusIf the pattern thus set for determining the textile employees claim for bonus has been adopted by a substantial part of the textile industry in this country, the Court should desist from disturbing the smooth working of the said pattern unless it is compelled to do so. It may be conceded that some features of the Agreement are undoubtedly very reasonable and in the interest of the industry as a whole. The agreement has put a ceiling on bonus and that is a term very much in favour of the employer, because in some cases where the available surplus is very large, then under the working of the Full Bench formula the employees are tempted to claim, and industrial tribunals are justified in awarding, a proportionately substantial amount as bonus reaching or even exceeding in some cases the level of basic wages of even 8 or 9 months. This trend has been controlled by the Agreement. It is true that the Agreement requires the payment of the minimum bonus but this provision is intended to work as a part of the larger agreement spreading over some years and the employer has agreed to pay the minimum bonus even though in a particular year he may have no available surplus, because he and his employees expect or anticipate that the employer may have available surplus in the succeeding year. The working of the Agreement is really intended to spread over a number of year and the account between the employers and the employees in that behalf is conceived as a continuing and running account. These features of the Agreement may be regarded as commendable15. The problem of rehabilitation which has assumed a complex form has also been attempted to be solved by the Agreement in a practical way. the solution adopted by the Agreement in that behalf, it is claimed, is based on the historical and factual genesis of the original formula evolved by the Full Bench of the Labour Appellate Tribunal when it dealt with the problem of the textile industry in BombayHowever, as we pointed out in our decision in the case of Associated Cement Companies, 1959 SCR 925   : (AIR 1959 SC 967  ) these matters can be properly and effectively decided by an industrial court if the major representative industries in the country and their employees are brought before it with a proper reference, or it can be tackled more appropriately by a high-power commission appointed in that behalf. We were told that the Government of India has taken a decision to appoint such a commission, and that it would soon resolve this problem on a more rational and scientific basis. During the course of the hearing of these appeals we suggested to the parties that in view of the pending appointment of the commission, parties may settle the present dispute amicably and that the appellant-mills may fall in line with the rest of the mills in Ahmedabad, but despite their best efforts the parties could not settle the dispute and wanted a decision from his court on the points of law raised in the present appeals; that is why we have had to decide the points of law, and in doing so inevitably general considerations to which we have just adverted cannot play a material part. Since this Court delivered its judgment in the case of Associated Cement Companies, 1959 SCR 925   : (AIR 1959 SC 967  ) it has come to our notice that in cases where the employer claims an exaggerated amount for rehabilitation, or where a reasonable claim made by the employer in that behalf is unreasonably challenged by the employees, the dispute is protracted. The trial of the issue tends to become complicated, and that leads to bitterness between the partiesIf the matter has to be decided according to law as has been laid down by this Court then the conclusion would be inevitable that on essential points the Agreement departs from the Full Bench formula, and however commendable it may be on the whole it can continue only by agreement and cannot be enforced by industrial adjudication against the will of any of the parties;Even though this Court was dealing with the case of one concern, namely, the Associated Cement Companies, it pointed out that the Full Bench formula had worked fairly satisfactorily all over the country and should continue to be applied without revision till such time as a high-powered commission went into the question. There is in our opinion no question of industry-cum-region approach in the matter of a bonus dispute of this kind. There is no doubt that in many matters, like wages, conditions of service, overtime allowance, dearness allowance, gratuity, nd so on, industry-cum-region approach has been made by industrial courts in this country and, rightly so. But there is, in our opinion, no scope for an approach of this kind in the case of bonus, the basic concept of which is that payment depends on surplus of profits available according to some formula in the case of each industrial concern. Nor can it be said that the Agreement in this case is dealing with bonus in what is known as industry-cum-region basisAs we have said already the basic concept of profit bonus, as it appears from the judgments of this Court, is that there should be an available surplus of profits in a particular concern in a particular year, to which the bonus relates and on this basic concept there is no scope for an approach on the basis of industry-cum-region in the matter of bonus in the sense that every mill in a region should pay the same bonus. There is therefore no question of industry-cum-region approach in the present case, and even the formula in the Agreement is not on a real industry-cum-region approach and has to be worked out from mill to mill, which is like the Full Bench formula. The reasons therefore which led the industrial court in this case to distinguish and depart from the decision of this Court in Associated Cement Companies case, 1959 SCR 925  : (AIR 1959 SC 967  ) do not appear to us to be substantial and there was therefore no ground for departing from that decision for those reasonsAs we read these decisions, we do not find real industry-cum-region approach which would result in uniform bonus for all the mills dealt with by these two awards. What we find is that a different formula was worked out for awarding profit bonus linked with production on the basis that there were profits; but when the formula is worked for each mill the bonus would differ from mill to mill according to its productionIts salient terms as set out above will show that it deals with bonus according to available surplus of each mill, so that bonus paid by each mill depends on its own available surplus and the sixty-six mills situate in Ahmedabad may pay different amounts of bonus varying from a minimum of 4.8 percent, of the basic wages to 25 per cent, of the basic wages. Similar differences will arise if the Full Bench formula is applied to the sixty-six mills in Ahmedabad. Thus the Agreement which has been extended, is not based on industry-cum-region approach, as it is understood. That approach, say, with respect to wages means that wages of all concerns situate in a particular area engaged in a particular industry should be the same. On that approach the bonus of all these sixty-six mills should also be the same percentage for each mill in that area; but that is not the basis on which the Agreement was arrived at. The basis of the Agreement is that each individual mill is treated as a separate unit and its available surplus worked out according to the formula in the Agreement itself. This is also the basis of the Full Bench formula and the available surplus of each unit is worked out according to that formula, though the result of the application of the two formula in each case may not be the same.