Case: Baroda Borough Municipality Vs. Its Workman

2. We may first state the relevant facts. Before 1-5-1949, on which date the former State of Baroda was merged in and integrated with the Province of Bombay (now the Bombay State), the Baroda Electric Supply Concern was owned and managed by the State of Baroda. On 19-4- 1949, the State Government of Baroda decided to hand over the said Concern as a gift to the Baroda Municipality and communicated an order to that effect in which it was stated inter alia:is likely that the various types of assistance, financial or otherwise which the Baroda Municipality has been receiving up to now from the Baroda Government may not be continued to a similar extent after integration. It is therefore very necessary to find out new sources of revenue for the Municipality so that it may continue to maintain a high Standard of efficiency as far as possible ......" With this object in view the Baroda Government are pleased to hand over to the Municipality as a gift the Baroda Electric Supply Concern which at present is a Government concern including both the generation and distribution of electric power. With the transfer of the electric concern to the Municipality the various fund of the electric department like the Reserve Fund, the Depreciation Fund, Etc. are also to be transferred to the Municipality with this specific understanding that these funds should not be used for purposes other than those for which they are intended ...... The Baroda City Municipality will have to be issued licence for the generation and distribution of electricity as per Baroda Electricity Act and the Municipality should immediately apply for such a licence for the supply of electric power not only within the municipal limits but within the twenty miles radious round Baroda. The Municipality should continue the policy of the department to give electric energy at concessional rates for irrigation purposes in the villages, although this may not be profitable in the beginning ....... The entire staff of the Baroda Electric Supply Concern will be taken up by the Municipality without any reservation and the Municipality is directed to bring into operation terms and conditions of services as are prevalent under the Bombay Government and the officers and staff should be given emoluments which they would have got had they joined Bombay29-4-1949, a formal order of handing over was made, subject to certain directions reserving the rights of the employees in the matter of pension, gratuity, provident fund, continuity of service, etc. In 1951 there was an industrial dispute between the Baroda Borough Municipality and the workman employed in the electric department with reference to a number of demands made by the latter, and by consent of the appellant Municipality and the respondent Union, the dispute was referred to the Industrial Tribunal Bombay, for adjudication by an order of the Government of Bombay datedThe dispute related to a large number of items one of which was "payment of bonus equivalent to three months" wages (including dearness allowance) for the year 1949- 50 to all employees of the electric department including daily wage workers and temporary workers". The dispute was settled by agreement with regard to all other item except the items of bonus; on that item the Industrial Tribunal heard that parties and came to the conclusion that the respondents were not entitled to the bonus claimed because- (1) the Municipality was not a profit making concern (2) the balance of earnings over the outgoings of the electric department of the Municipality was not profit as that word is understood in the ordinary trading or business sense; (3) the Municipality consisted both earning and spending departments and it was not permissible to create an indivious distinction between the different employees of the Municipality by granting bonus to the workman in one department only; and (4) the respondents having been compensated by higher scales of salary on the municipalisation of the undertaking and having got other benefits and amenities appertaining to municipal service were not entitled to claim such bonus as was granted to them during the regime of the former State-owned company.3. Against this decision of the Tribunal, there was an appeal to the Labour Appellate Tribunal of India at Bombay. The Appellate Tribunal came to the conclusion that the respondents were entitled to claim bonus; it expressed the view that on the decision of this Court inD. N. Banerji v. P. R. Mukherjee,1953 S C R 302: (AIR 1953 S C 58) (A), the expression industrial dispute in the Industrial Dispute Act, 1947 includes disputes between municipalities and their employees in branches of work that can be regarded as analogous to the carrying on of a trade or business and if, the undertaking resulted in profit during the relevant trading period, the workmen were entitled to claim bonus as of right. On the question whether the excess of earnings over outlay of a municipal undertaking like the one under consideration here was profit or not, the Appellate Tribunal relied on the circumstances stated below for its finding that the excess was really profit:(a) the very nature of the gift to the Baroda Municipality by the State Government of Baroda showed that the concern (or undertaking) made over to the former was a profit making concern;(b) the concern was run separately and as it was a trading concern by its nature, the balance of earnings derived from it after allowing for all out goings was pecuniary gain and it made no material difference to the actual nature of the gain, whether it was called surplus or profit; and(c) no distinction could be made in principle between a municipal undertaking and an undertaking by a private or public concern, if the conditions laid down for the grant of bonus in Muir Mills Co. Ltd. v. Suti Mills Mazdoor Union, Kanpur 1955-1 S C R 995: ,((S) A. I. R 1955 S.C. 170) (B) were fulfilled.As to the payment of bonus to the employees of one department only, the Appellate Tribunal said that if the profits were not sufficiently large to admit of bonus to all employees, it was permissible to treat the profit-making department as a separate unit for the purpose of granting bonus, unless there was some essential nexus or connection between the profit-making department and other departments or some unity or purposes of parallel or co-ordinate activity towards a common goal in all the departments without which the undertaking could not be carried on to proper advantage. The Appellate Tribunal pointed out that the accounts of the electricity department of the Baroda Municipality were separately kept and the undertaking carried on by the electricity department of the Municipality differed from other normal activities of the Municipality, there being no common nexus between them, it was open to the workmen of the electricity department to claim bonus out of the profit made by that department after making deductions for all prior charges. The Appellate Tribunal accordingly allowed the appeal, set aside the decision of the Industrial Tribunal and remanded the case for decision on merits according to law. p73

Court's reasoning:
4. It is now finally settled by the decision of this Court in D. N. Banerjee v. P.R. Mukerjee (A) (supra) that a municipal undertaking of the nature, we have under consideration here is an industry within the meaning of the definition of that word in S.2 (j) of the Industrial Disputes Act 1947 and that the expression industrial dispute in that Act includes disputes between municipalities and their employees in branches of work that can be regarded as analogous to the carrying on of a trade or business.It is clear to us that having regard to the provisions of the Bombay Municipal Boroughs Act,1925 (Bombay Act XVIII of 1925) hereinafter called the Municipal Act under which the appellant Municipality is constituted and functions, the earnings of one department of the Municipality cannot be held to be gross profits in the ordinary commercial or trading sense; nor can the principles governing the grant of bonus out of such profits after meeting necessary or prior charges be applied to the presentscrutiny of these provisions clearly establishes two propositions: one is that all municipal property, including moneys, etc., received by way of gift, is vested in the municipality and shall be held and applied by it as trustee subject to the provisions and for the purposes of the Municipal Act, and it is not open to the municipality to treat some of its property separately from other property and divert it for purposes other than those sanctioned by the Municipal Act; the other proposition is that there are some obligatory functions which a municipality must perform and one of these is the lighting of public streets, places and buildings, and there are some other functions which the municipality may at its discretion perform either wholly or partly out of municipal property and fund, and one of these discretional functions is the supply of electrical energy which is for the use of the inhabitants of the municipal borough or for the benefit of any person, buildings or lands in any place whether such place is or is not within the limits of the municipal borough.In our opinion, such a treatment of the income of one department of the Municipality would be clearly against the provision of the Municipal Act. It is pertinent to refer here to Chapter XI of the Municipal Act dealing with Municipal Accounts. Under S.209 a complete account of all receipts and expenditure, of the municipality and a complete account of the actual and expected receipts and expenditure, together with a budget estimate of the income and expenditure of the municipality, have to be prepared for each year and these have to be prepared and laid before the municipality on or before a particular date. These budget estimates have then to be sanctioned at a special general meeting of thesound point stressed was that the distinction between the obligatory and discretional functions of the municipality showed that in the exercise of discretional functions the municipality might engage in an undertaking with p73 a profit makingour opinion, these submissions are based on a misappreciation of the true position in law.With regard to the first point, it is worthy of note that the maintenance of separate accounts of a particular department by the Municipality does not alter the nature or quality of the property or income therefrom. The property or income is still municipal property within the meaning of Ss.63 and 65 of the Municipal Act and it can be utilised only for the purposes of the Act as laid down by S.66. Maintenance of a separate account for a particular department is in the nature of an internal accounting arrangement; it does not really alter the quality or nature of the property or income: and for the purposes of S.209 of the Act the property or income has to be treated like all other property or income of the Municipality inhave already pointed out that in the present case also, the claim of the Municipality was that,even including the income of its electricity department, municipal budget for the relevant year was a deficit one. With regard, to the second submission of learned counsel for the respondents, nothing turns upon the distinction between obligatory and discretional functions of the municipality so far as the nature or quality of municipal property or municipal income is concerned.The distinction referred to above does not entitle the municipality to treat the income from one, department as though it were not part of the whole income of the municipality. Moreover, in its true nature or quality, such income is not profit in the sense in which that expression has been held to be the basis for the grant of bonus in the, Muir Mills case (B) (supra), though the word "Profits" occurs in S.65 of the Municipal Act and has been loosely used in connection with State or municipalare not concerned with those refinements and it is unnecessary to discuss them here. For our purpose it is sufficient to state that what the Baroda Municipality got from the State Government of Baroda merged in and became municipal property or municipal fund under the provision of the Municipal Act and was not capital on which a return had to be earned in accordance with the principles laid down in theMuir Millscase p73 (B) (supra). In our opinion, it is impossible to apply these principles in the case of a municipal undertaking of the nature we have under consideration here.The argument of learned counsel for the respondents that once it is found that there was capital and actual profit in the sense of excess of earnings over outgoings from the undertaking in question no distinction can be drawn between private enterprise, and municipal enterprise cannot, therefore, be accepted. In the case before us, there was neither capital nor profit on which the principles laid down in Muir Mills case (B) (supra) could operate. We must make it clear that the question is not merely one of terminology;that is, whether the more appropriate word to use in connection with a municipal undertaking is surplus or profit; it is the nature or quality of the municipal property or fund which must be determinative of the question at issue, and it is on that basis that we have come to the conclusion that in the present case there were no profits of one single department of the municipality out of which the respondents could claim ado not take those observations as deciding any question of principle; at best they express an opinion of the members of the committee -an opinion which is expressly confined to undertakings organised in the form of corporations with the aim of making a profit in the ordinary trading or business sense. In our opinion, those observations have no apt application to a municipal undertaking meant for the purpose of augmenting municipal revenues in order to meet the municipal service demands and improve the amenities of the inhabitants of a modern municipal borough.13. We proceed now to consider the second argument of the learned Attorney General. This argument depends on the provisions of S.58 of the Municipal Act. That section deals with the rule-making power of the municipality and proviso (a) lays down that no rule or alteration or rescission of a rule made shall have effect unless and until it has been approved by the Statecannot accept this argument as correct. The demand for bonus as an industrial claim is not dealt with by the Municipal Act; it is dealt with by the Industrial Act, 1947. Therefore, it is not relevant consideration whether there are provisions in the Municipal Act with regard to payment of bonus. The provisions of the Municipal Act are relevant only for the purposes of determining the quality or nature municipal property or fund; those provisions cannot be stretched beyond that limited purpose for defeating a claim of bonus. We do not, therefore, think that the absence of provisions in the Municipal Act for the payment of bonus through municipal employees is a consideration which is either determinative or conclusive of the question at issue before us.If we had come to a different conclusion as respects the first contention of the learned Attorney-General and his third contention to be referred to presently the absence of suitable provisions relating to payment of bonus to municipal employees in the Municipal Act would not have stood in the way of our allowing the claim of the respondents for the payment ofspite of these distinctions in the internal arrangement of departments within a municipality, the property or income of the municipality remains of the same nature, or quality and it will be obviously unfair to draw a distinction between the employees of one department and the employees of another department for the payment of bonus.The result of such distinction will be that the staff of the spending departments will never be entitled to any bonus at all and instead of promoting peace and harmony amongst the employees of the municipality, a distinction like the one suggested by learned counsel for the respondents will create unrest anddo not think that this submission is correct. Under the Municipal Act, the total income and expenditure of the municipality form one integrated whole; they are both for the purposes of the Act; and if the workmen of a service or spending department do not work efficiently with the result that the expenses on the obligatory functions of the municipality increases, that in efficiency is bound to affect - even to dwindle or wipe out the surplus of an earning department. For a true appreciation of the financial position of a municipality, its total income, and expenditure must be considered; we must look at the whole picture the part which is in shade as well as the part which has caught the sun, for a correct appraisal of thethe question with reference to the facts of the present case, it is clear to us that the different activities of the Baroda Municipality constituted one integrated whole and the activities of the different department of the Municipality were not distinct or unconnected activities of the different departments of the Municipality were not distinct or unconnected with activities so as to permit the isolation of one department from another or of an earning department from another or of an earning department from a spending department. From this point of view also, the claim of bonus was notis not necessary to consider those decisions in the present case, because they have no bearing on the questions which we have to consider in this case.17. For the reasons given above, we hold that the Industrial Tribunal came to the correct decision that the respondents p73 employed in the electricity department of the Baroda Municipality were not entitled to the bonus claimed, and the Labour Appellate Tribunal came to an erroneous decision on that question in its order dated November 23, 1955.