Case: The Silk and Art Silk Mills' Association Ltd. &amp; Another Vs. Mills Mazdoor Sabha

1. These two appeals, by special leave, are directed against a supplementary award, dated October 15, 1971, passed by the Industrial Court, Maharashtra, Bombay, in Miscellaneous Applications (I.C.) Nos. 1, 2 and 3 of 1970 filed by the respondent, the mill sabha, hereinafter called the sabha. By the supplementary award, the Industrial Court has modified an existing award of the Industrial Court, Maharashtra, Bombay, dated April 25, 1962, passed in Reference (I.C.) Nos. 131, 138, 139 and 155 of 1961, and published in the Maharashtra Government Gazette, dated June 14, 1962, by directing with retrospective effect from January 1, 1971, that the employees in silk and art silk industry who were concerned in the dispute shall be granted dearness allowance at the rate of 99 per cent neutralization of the rise in the Bombay Consumer Price Index 106 (old series) on the basis of the minimum wage of Rs. 30 per month of 26 working days2. We will deal with Appeal No. 276 of 1972 first. The appellant is the Silk and Art Silk Mills Association Ltd., a public company having its registered office in Bombay, hereinafter called the Association. For the purpose of Bombay Industrial Relations Act, 1946, the association was recognised under S.27 read with S.3(23) of that Act as the association of employers in silk and art silk textile industry within the local area of Greater Bombay. Silk textile industry was started in India sometime in 1933 and the association came into being in 1939 with 16 members having 2, 000 looms. Till 1965, the association was registering as members only mills having 25 or more looms. Thereafter, it began to register smaller units also as its members. Such smaller units numbered 300 with 2, 326 looms in March, 1969. The total number of mills within and outside the State of Maharashtra which were members of the association on March 31, 1969, was 512 with a total of 20, 200 looms. According to the association, out of the 512 units which were its members, a large number of units numbering about 444 were gray units, which means, that none of these units has its own raw materials and that they have not got any equipment for dyeing, bleaching or otherwise finishing their products3. On February 6, 1970, when Miscellaneous Application (I.C.) No. 1 was filed, the association had, as its members, about 325 units of employers in the art silk textile industry within the local area of Greater Bombay. Out of these 325 employer-units, 90 employer-units alone were concerned with the Miscellaneous Application (I.C.) No. 1 of 1970, as that application sought modification of the award, dated April 25, 1962, in Reference (I.C.) Nos. 131, 138, 139 and 155 of 1961, which governed only the 90 units of the art silk industry. In this case, we are directly concerned with 55 member-units only, as the remaining 35 units had gone out of business between April 25, 1962 and February 5, 19704. There were two previous decisions binding on these units regarding dearness allowance. One was the award passed in Reference No. 97 of 1951, which granted neutralization to the extent of 75 per cent rise in the Bombay Consumer Price Index 106 (old series). The other was a settlement arrived at during the pendency of Miscellaneous Application (I.C.) No. 3 of 1957, which modified the award in Reference No. 97 of 1951, by raising the percentage of neutralization to 80 per cent with effect from June 1, 195710. The Court found that at the time when the wages were raised in 1962, the consumer prices index stood at 429, that there has been a steep rise in the cost of living as reflected in the Bombay Consumer Price Index - in May, 1970, it stood at 799 - and on the date of the award it stood at 839, and so, there was a fall in real wages by 39 paise per day of the lowest class of workers. The Court, therefore, came to the conclusion that the demand for neutralization of the rise in the cost of living was reasonable. It further found that exhibit U. 8, which is a comparative table showing the minimum basic wages and dearness allowance paid in other industries in the region was a relevant document as it indicated the trend in other industries in the region to allow full neutralization on account of the rise in the cost of living. The Court then proceeded to assess the financial capacity of the employer-units with particular reference to their volume of business, the capital invested, profits earned, the standing of the industry, the strength of the labour force employed, the position of reserves, the dividend declared and the future prospect of the industry. The association, although it represented 55 employer-units, produced no data as regards the financial capacity of 27 units in spite of the clear direction of the Court, and so, the Court, on the basis of the materials placed before it by the other units, came to the conclusion that the silk and art silk industry has prospered and has established itself, that the prospect of the industry was bright and the financial position of the 28 units which produced their balance-sheets and profit and loss accounts or other documents to show their gross profits was such that they could afford to bear the additional burden.

Court's reasoning:
11. For reaching the conclusion that the industry is prosperous and has a bright future, the Court relied on the speech made by the Chairman of the Silk and Art Silk Mills Association at the 30th annual general meeting in 1969, in which he said that the man-made fibre industry had made remarkable progress during the last decade, that the production during the year 1969 exceeded the Third Plan target by over 25 per cent, that there was a rise in the per capita consumption of fabrics, that rapid progress was expected in the production of non-cellulosic yarn and that the total demand in relation to the year 1969 was likely to increase by 41 per cent by the year 1973-74 and by 110 per cent by the year 1978-79. The Court also relied upon the fact that actual export in 1970 exceeded the export in the previous three years, the fact that production has substantially increased in the first six months of 1970, that it was as much as 525.77 million metres compared to the total production of 892.67 million metres in 1969, and the fact that the total production of art silk yarn had reached the figure of 114.680 thousand kilograms compared to 106.480 thousand kilograms in 1969. The Court estimated that export of rayon fabrics and synthetic textiles will reach Rs. 26.50 crores a year by 1973-74. Although excise duty has been increased, the Court found that it had not adversely affected the industry in any substantial degree as the economic incidence of the burden of the excise duty was passed on to the consumer. As regards the financial capacity of the units, the Court relied on Exhibit U. 9 which is an analysis of the profit and loss accounts of the 28 mills and Exhibit U. 10, which is a consolidated statement showing the financial conditions of these mills and Exhibit U. 11, the statement regarding the bonus paid by the mills which did not file their balance-sheet and profit and loss accounts and Exhibit U. 12, a statement showing the interest paid by some of the units which had filed their balance-sheets and Exhibit U. 13, a statement showing the profitability ratio for art silk industry in Bombay and Exhibit U. 14, a comparative statement of the profitability ratio in cotton textiles, engineering and chemical industry. The Court found from Exhibit U. 9 that there was an increase in the paid up capital of Rs. 44.07 lakhs from 1965, an increase in the reserve amounting to Rs. 32.96 lakhs, an increase in the gross block amounting to Rs. 285.54 lakhs and an increase in the net block of Rs. 140.63 lakhs from 1965 to 1968. From the figures given in Exhibits U. 9 and U. 10, the Court found that, after providing for depreciation to the total paid up capital, the profit would work out at 40.02 per cent and that after providing for depreciation to the total paid up capital and reserve, it would work out at 21.10 per cent. From the large amount of interest paid by some of the units as disclosed in Exhibit U. 12, the Court inferred that these units are under-capitalised but that, at the same time, they preferred to borrow money at the current rate of interest. The Court also found from Exhibit U. 11 that 17 mills which did not file their balance-sheets or profit and loss accounts were in a position to pay bonus in excess of the 4 per cent which is the statutory minimum under the Payment of Bonus Act and, therefore, these units must have been making profits and, as their present financial position was not shown to have become worse, they had the financial capacity to bear the additional burden16. We think that the Industrial Court has carefully examined the financial position of the employer-units as also the position of the industry and its future prospects. The Court was fully aware of the nature of the demand and the extent of the burden which the employer-units will have to bear. A broad and overall view of the financial position of the employer-units was taken into account by the Court and it has tried to reconcile the natural and just claims of the employees for a higher rate of dearness allowance with the capacity of the employer to pay it and in that process it has made allowance for the legitimate desire of the employer to make reasonable profit. What is really material in assessing the financial capacity of the employer-units in this context is the extent of gross profits made by them. See Unichem Laboratories Ltd. v. Their Workmen, [1972 - I L.L.J. 567]. On the basis of Exhibit U. 9 which is an analysis of the balance-sheets and profit and loss accounts of the 28 units, the Court found that the 28 mills have been making good profits and that, on an average, the profit would work out at 40 and odd per cent of the capital. There was some decline in the profits made during the years 1966-67 and 1968, but the Court found that the industry was rallying round in 197019. We do not think that the Industrial Court went wrong in relying upon exhibit U. 8 or in granting 99 per cent neutralization on account of the steep rise in the cost of living. Exhibit U. 8 it may be recalled is a comparative table showing the minimum basic wages and dearness allowance paid in other industries in the region like the engineering, pharmaceuticals, etc. The court relied upon it only to show the trend in the region. The Court also relied upon the report of the Norms Committee which stated that the trend for the last decade in industrial adjudication as well as in settlements and awards, was to allow 100 per cent neutralization in the case of lowest-paid employees. The Court was of the view that if 80 per cent neutralization could be allowed in the industry under the settlement arrived at in 1957, there was no reason why 100 per cent neutralization should not be granted, in view of the steep rise in the cost of living from 1957, to the lowest-paid employees. We cannot agree with the contention of the appellant that the Industrial Court went wrong in relying upon Exhibit U. 8 or the report of the Norms Committee to find out the trend in the region as to the extent of neutralization to be allowed to the employees concerned. The question of the extent of neutralization to the workmen in the units does not depend solely upon the fact whether neutralization to that extent has been allowed to the employees in comparable concerns in the same industry in the same region. Much distinction cannot be made in this respect among the lowest-paid employees in the region merely because some of them are employed in other industries. In other words, for finding the trend or the norm in the region as regards the extent of neutralization for the lowest-paid employees, the Industrial Court cannot be said to have gone wrong in relying upon either the Norms Committee Report or on Exhibit U. 8The Court said that it was ordinarily desirable to have as much uniformity as possible in the wage-scales of different concerns of the same industry working in the same region, as this puts similar industries more or less on an equal footing in their production struggle. The Court then referred to the French Motor Car Co.s case, (1963) Supp. 2 S.C.R. 16 at pp. 20-21, and observed that in that case this Court held so far as clerical and subordinate staff are concerned that it may be possible to take into account even those concerns which are engaged in different lines of business for the work of clerical and subordinate staff is more or less the same in all kinds of concerns. The Court further observed that where there are a large number of industrial concerns of the same kind in the same region it would be proper to put greater emphasis on the industry part of the industry-cum-region principle as that would put all concerns on a more or less equal footing in the matter of production costs and, therefore, in the matter of competition in the market and this will equally apply to clerical and subordinate staff whose wages and dearness allowance also go into calculation of production costs; but where the number of comparable concerns is small in a particular region and, therefore, the competition aspect is not of the same importance, the region part of the industry-cum-region formula assumes greater importance particularly with reference to clerical and subordinate staff and this was what was emphasised in the French Motor Car Co.s case (supra) where that company was already paying the highest wages in the particular line of business and, therefore, comparison had to be made with as similar concerns as possible in different lines of business for the purpose of fixing wage scales and dearness allowance. According to the Court, the principle, therefore, which emerges from these two decisions is that in applying the industry-cum-region formula for fixing wage scales the Tribunal should lay stress on the industry part of the formula if there are a large number of concerns in the same region carrying on the same industry; in such a case in order that production cost may not be unequal and there may be equal competition, wages should generally be fixed on the basis of the comparable industries, namely, industries of the same kind. But where the number of industries of the same kind in a particular region is small it is the region part of the industry-cum-region formula which assumes importance particularly in the case of clerical and subordinate staff, for, as pointed out in the French Motor Car Co.s case (supra), there is not much difference in the work of this class of employees in different industries21. If the employer has the financial capacity, would it be just to reject the claim of the lowest paid workmen for an enhancement in dearness allowance to neutralize the rise in cost of living and thus to maintain their subsistence wage at its real level in terms of the purchasing capacity, merely because there is a comparable concern in the industry in the region in which workmen are paid dearness allowance at a low rate ? We do not think it necessary to answer this question for the purpose of deciding this case22. The association never wanted the Court to make any comparison with any other units in the same industry in the region. In the written statement of the association there was no averment that there were other comparable units in the same industry in the region. Nor did the association, at the time of argument before the Industrial Court, put forward the contention that there were comparable concerns in the same industry in the region and that the Court should make a comparison of the employer-units in question with those concerns to find out the extent of neutralization which could be granted. The association had a membership of 325 units in Greater Bombay on February 6, 1970, when the Miscellaneous Application (I.C.) No. 1 was filed. It was certainly in a position to tell the Court whether there were any other comparable units in the same industry in the region and the only inference from its conduct is that there were no comparable units in the industry in the region.