Case: Mazgaon Dock Limited Vs. Association of Engineering &amp; Others

The Appellant Messrs Mazgoan Docks Limited, Bombay (hereinafter referred to a the Company) is a public sector undertaking in the administrative control of the Ministry of Defence. It is engaged in ship building, ship repairing, merchant engineering and construction of off share platforms, and employees as on 31st March, 1989 about 11,920 workers of various categories (at the time of dispute they were about 10,000). The wages and other service conditions of the workmen were governed by various Awards/Settlements made from time to time. The last of the settlements was of August 28, 1973. On the expiry of the said settlement, demands were raised by the workmen as well as the Company between June to October, 1976 (there being different Unions of workmen, they had raised demands on different dates between the said period). The demands related to various items. We are, however, concerned in the present case with only five of the said demands. Although these demands, as stated earlier were raised in 1976, they were referred by the State Government for adjudication to the Industrial Tribunal only on January 11, 1980. The delay was on account, firstly of the dispute between the different Unions inter se with regard to the exclusive right to represent the workmen and secondly, on occount of the negotiations between the parties at various levels for settlement of the demands. The Industrial Tribunal made the present Award on December 11, 1984. It was challenged by the workmen by a writ petition filed under Article 226 of the Constitution on the Original Side of this Court, and the learned Single Judge decided the said petition by his impugned decision on August 14, 1987. These facts are referred to only to point out that the present dispute between the parties has been pending since 1976. We are informed that some of the demands are still pending adjudication before the Tribunal.2. The five demands with which we are concerned in this appeal are :(a) Change in the existing basis for neutralisation of variation in the cost of living index by adopting the neutralisation rate of Rs. 1.30 per month per point shift in the Bombay Cost of Living Index i.e. C.P.I. (1960 = 100) uniformally for all workmen including clerical and subordinate staff without linking it to their basic pay;(b) Revision of wage structure;(c) Change in the existing pattern or paying acting allowance;(d) Abolition of the payment of nucleus allowance;abolition of over time work for workmen of the launches and boats department and alternatively for payment ofwages at double the rate of wages inclusive of dearness allowance instead of at the rate of 1 1/4 times of basic and dearness allowance as at present.Demands at (a) and (b) are raised by the Company, while the rest of the demands are of the workmen.3. The Tribunal conceded the demand of the Company for change in the existing pattern of the payment of dearness allowance and also abolished the payment of nucleus allowance. It rejected the workmens demand for change in the pattern of the payment of acting allowance and also the demand for abolition of over time work and the payment ofwages at the higher rate. It granted their demand for revision of the basic wages.4. In the writ petition, the learned Single Judge set aside the Award with regard to the dearness allowance and acting allowance. He maintained the Tribunals direction to abolish the nucleus allowance. He further set aside the revision of wage structure and remanded the dispute with regard to the dearness allowance and the wage structure for fresh consideration of the Tribunal.

Court's reasoning:
7. There is no dispute before us, as indeed there was no dispute either before the learned Single Judge or the Tribunal, that the main bone of contention between the parties was the desirability or otherwise of the continuation of the present system of dearness allowance. Even the consideration of the demand of the workers for revision of the wage structure was linked to the Companys demand for change in the system for payment of dearness allowance. As is apparent from the Award of the industrial Tribunal, even the Tribunal has linked the change in the revision of the wage structure which it has granted, to the change in the dearness allowance system which it has introduced, and both changes are so linked by it as to be dependant upon each other. That is why even the learned Single Judge, while setting aside the Award of the Tribunal with regard to the dearness allowance, has also quashed the Award revising the wage structure and remanded both for fresh consideration to the Tribunal. Further, the Appellant Companys grievance before us against the learned Judges decision is also mainly on the ground that the learned Judge has interfered with the Award of the Tribunal introducing the new system of dearness allowance. Hence the preliminary contention as to whether the learned Judge was right in interferring with the award while exercising his jurisdiction under Article 226 of the Constitution is intimately connected with the larger question on merits as to whether the Tribunal was right in doing away with the existing system of dearness allowance and introducing a new one. It may also be mentioned in this connection that the reasons given by the learned Judge for interferring with the Tribunals Award in that behalf are also reasons connected intimately with the merits and demerits of the existing and the new system. Hence before we answer the preliminary contention, it is necessary to examine the arguments and counter arguments on the merits and demerits of the present and the new system of dearness allowance.It will thus be apparent that for the operatives drawing basic wage upto Rs. 306/per month, there in no slab system under scale B. The dearness allowance paid to them is linked both to the percentage of basic pay and consumer price index figure ("CPI"). For every 2 points rise in CPI, they are paid dearness allowance at the rate of 1 per cent of their basic pay. It is only the operative whose basic pay is in excess of Rs. 306/per month who are paid dearness allowance on the sliding scale shown in the table above applicable to the clerical and subordinate staff, there being again the same dual linkage to basic pay and CPI as shown in the table. It is possible to describe the system on which dearness allowance is paid to operatives drawing wage above basic wage of Rs. 306/and to the clerical and subordinate staff, as being a slab system, since the rate of dearness allowance goes on varying on a sliding scale for every next Rs.However, the rate of dearness allowance paid even to this category of workmen is not a varying lump sum amount but a varying percentage of basic wage.It would thus appear from the aforesaid review of the discussion and findings of the Central Government Dearness Allowance Commission, National Labour Commission, Third Pay Commission, and Boothlingam Committee and the Fourth Pay Commission that certain broad principles were accepted as underlying any system of dearness allowance. It is accepted that the, the purpose of dearness allowance is to neutralise as far as possible the entire rise in the cost of living of the minimum wage earner. The minimum wage which is sought to be thus protected completely is the minimum wage in theIndustries and not necessarily the wage fixed under the Minimum Wages Act. This means that complete protection which is advised to be given against the price rise is to the employees who draw the lowest wage in any establishment. The percentage of neutralisation of the lowest paid worker may vary between 95 to 100. Till the Fourth Pay Commission made a departure in that respect it was commonly held that there need be no protection against the rise in the cost of living to incomes above a certain amount of salary firstly because the higher wage/salary earners are expected to make the same sacrifice as other sections of society whose incomes are not protected by dearness allowance, and secondly because, the higher salary they draw is expected to cushion them against the price rise. However, it is commonly accepted that all wage/salary earners who are paid dearness allowance need not be protected to the same extent, and their protection may be on a scale sliding or declining with the rise in the income. This is also on the principle that the higher the wage group, more the cushion and more the need to sacrifice. To this principle as pointed out above the Palekar Award has made an exception and has on the contrary granted higher rate of dearness allowance, to the higher incomes. The cost of price index which is generally taken into consideration for protecting the wage/salary is the cost of price index of the basket of goods and services consumed by the average worker because what is to be protected against is the rise in prices of the essentials and not of the other goods and services. These essentials are deemed to be the same for all wage/salary earners whatever their income bracket.One thing, therefore, is certain that the trend beginning from the Third Pay Commission is in favour of the view that the object of the dearness allowances is to prevent the erosion of real income, and not merely to protect the consumption basket of essential goods and services against the price rise. The Fourth Pay Commission and the High Power Pay Committee have, as pointed out earlier, felt the need to protect monthly basic pay upto Rs. 3,500/of the Government employees fully. Whatever the view, therefore, with regard to the object of dearness allowance that one may accept, it can sagely be concluded on the authority of these expert Government panels that the rise in the cost of living upto the basic pay of at least Rs. 3,500/per month needs to be neutralized to the extent of 100%. As observed by the High Power Pay Committee, the consumption basket, which is the basis of the All India Consumer Price Index is not relevant up to the said basic pay range. It has also to be noted that these expert panels have afforded substantial protection even to monthly incomes above Rs. 3,500/by recommending 75% and 65% of neutralization to incomes between Rs. 3,505/to Rs. 6,000/and above Rs. 6,000/is demonstrated there on the basis of the method devised for the purpose that the dearness allowance system prevalent in that Company did notthe rise in the cost of living and the Company had failed to make out any other reason for change in the existing system Hence the Companys demand for placing a ceiling on dearness allowance was not justified. That decision has become most relevant and important for our purpose for three reasons in particular. Firstly, the method evolved there to find out whether the dearness allowance system existing in an establishmentthe rise in the cost of living can be applied in the present case to find out the neutralisation under the existing system. Secondly, the decision has discussed the circumstances in the light of which the distortions and disparties in the incomes of the workmen and their superiors have to be examined. Since the Tribunal in the present case have given such distortions as one of the grounds to replace the existing system, and the Company also relies heavily on that circumstances in support of its demand, it will be necessary to examine the contention in the light of the said decision. It is in the light of that decision also, further that we will have to consider whether the Company has made out any other compelling reason for changing the present system of the payment of dearness allowance and to replace it by the new one as the Tribunal has done.23. The method evolved by that decision to determine whether the existing dearness allowance system result inof the rise in the cost of living is as follows. First the rate at which the future rise in the cost of living is to be neutralized is found out by dividing the total wage packet of the workmen (basic pay plus dearness allowance) in the base year by the cost of living index of that year, is multiplied by the said neutralization rate. If the wage packet thus arrived at exceeds the wage packet payable to the workmen under the existing system, there is nounder the existing system and the converse.It is, therefore, clear that the existing dearness allowance system does not over neutralise the rise in the cost of living either at the minimum or the maximum pay scale of any of the workmen involved in the Reference, Hence the Company cannot be said to have made out a case for change in the existing system on thatis true that the existing system, as indicated by the aforesaid table does show this anomaly in some cases. But the anomaly is so marginal as to require no serious consideration at least for replacing it by a totally new one as the Tribunal has done. It has also to be remembered that the demand for affecting the changes is not raised by the workmen. If the workmen have no grievance against it, there is no reason to tinker with the system which has been prevalent in the Company for more about 40 yearsregards the first contention, we may point out that the National Labour Commission has prescribed the neutralization percentage at the lowest level between 95 to 100. The existing scheme by ensuring it at 96.92% at the minimum scale does confirm to the pattern. It is only orginally less at the maximum pay scale. But as is pointed out earlier, the workmen have no grievance against it. As regards the second contention, there is no law to prevent, an employer from giving equal neutralization percentage to all employees. If, therefore, an employer has already given it, he cannot ask for a reduction in it, except for compellingare afraid that this argument also misses the point, namely that the present demand for change in the dearness allowance system is not made by the workmen, including those whose wages are not protected fully. What is more, as is admitted by Mr. Damania, the new system introduced by the Tribunal is bound to affect adversely the wage packets of 60% of the workmen. On balance, therefore, the existing system is not disadvantageous to the workmen as a whole. There is also no grievance against it from any of the section of the workmen. Further under the new system the lowest paid workmen stand to gain only marginally. But a more disarming reply to all these contentions advanced on behalf of the new system is that the Companys demand for the introduction of the new system is not motivated by a concern for the lowest paid workmen but by its alarm at the alleged disproportionate wage packets of the workmen in the higher income brackets. As has been held by the Supreme Court in the Indian Hume Pipe case (supra) the existing service conditions should not be tinkered with to the disadvantage of the workmen unless there are compiling reasons to do so. Hence, these contentions by themselves have no merit inhave already appointed out that there has been a change in the trend of thinking on the object of the dearness allowance. The Third and the Fourth Pay Commissions and the High Power Pay Committee have now come to accept the view that it is the real value of the income of the workman which requires to be protected against its erosion by inflation. The object of dearness allowance is no longer merely to protect the workman against the rise in the cost of living of the basic necessities. There is nothing in law to prevent an employer from introducing a system which protects the real value of the workmens income. If, therefore, an employer has done so, so long as, it is not shown that the dearness allowance paid to the workman protects more than the real value of their income, it is not possible to accept that the existing system should be changed merely because the incomes are allegedly out of proportion to the increases in the cost of basic necessities. The table reproduced above which is also worked out by the method suggested by the Division Bench in the Hindustan Liver case (supra) shows that under the existing system the extent of the protection afforded to the income of the workmen at all levels is less thanargument was general in nature and not with reference to any particular allowance and therefore has to be met by a general reply. The argument firstly forgets that what is under scrutiny is the working of the existing system of dearness allowance and the extent to which the same neutralizes the rise in the CPI. The other allowances, if any, have nothing to do with the dearness allowance system. They are paid independently of it. The purposes for which they are paid are also different. Secondly, the CPI though it takes into account the items for some of which these separate allowances are paid (such as house rent allowance, for example) does no more than take into account only the all India average of their incidence. The allowances, on the other hand, are paid to compensate for more than average or normal incidence of these items. For example, the house rent allowance is not paid in every town but only in such cities as Bombay where the rents are abnormally high. Such disproportionate costs are not reflected in the AICPI is complied on an All India average of the prices of the items which go into the consumer basket. Hence it is not possible to accept the saidnone of the shipyards in the country are comparable to the Company either on the basis of the size of its operation or the nature of the work undertaken by it. Secondly, the business of the Company is unique not only in the country but also in the region. Hence the wage packets of the General Engineering concerns in the region cannot also be compared with those in the Company. Thirdly, what has to be compared is the totality of the service condition and not merely the wage packet. There is no material on record in that respect. For all these reasons, theformula cannot be applied in the resent case and certainly not for reducing the existing benefits. The Tribunal has, therefore, certainly erred in the applying the said formula.28. For introducing the new system, the Tribunal has further taken into consideration the fact that about 89% of the workmen in the public sector to which admittedly the Company belongs, are paid dearness allowance at the uniform rate as prescribed by the Public Bureau of Enterprises. The tribunal has, however, forgotten the fact that it was not introducing the dearness allowance system for the first time in the Company but was replacing the existing system. There is no doubt that the said consideration would have been valid if the Tribunal was called upon to formulate a dearness allowance system for introduction in the Company for the first time. When an adjudication body is called upon to replace the existing system, the first thing that it is required to consider is whether the system which is sought to be introduced is more or less beneficial to the workmen compared to the existing one. If it finds that the new system is less beneficial than or deprives the workmen of the benefits available in, the existing system, it has to stay its hands off the new system, unless of course there are compelling reasons to do so. Any consideration such as the uniformity with the other concerns is not a valid consideration for downgrading the existing benefits. The existing system of dearness allowance further, as stated earlier, is about 40 years old. It was introduced when some of the other public sector concerns had not even come into existence. The workmen cannot be deprived of their existing benefits on the ground that the other concerns give lesser benefits to their workmen. It is equally open for the workmen to argue that the need in such cases is to upgrade the service conditions in the other concerns, and not thefurther comments are, therefore, necessary on this contention.29. The Tribunal has also harped upon the fact that the existing dearness allowance system has a dual linkage both with the basic salary and the rise in the cost of living and it is this dual linkage which is responsible for giving the workers wages allegedly out of proportion to the increase in the cost of the basic necessities. In the first instance, it has to be remembered that the dual linkage is not unique to this Company. In fact, such system is prevalent in many other concerns. Even the recommendations of the Pay Commissions and the High Power Pay Committee are based on such dualare referring to these observations only for the purpose of pointing out that the reason given by the Tribunal for abolishing the slab system, namely the dual linkage, is not by itself a valid one. We have already pointed out that in spite of the dual linkage under the existing system, the neutralization of the cost of living for all workman involved in the Reference is less that 100% and varies between 88.98% and 97.05% at the minimum of the scales of pay and between 82.92% any 94.80% at the maximum. Hence, according to us, this reason by itself cannot furnish a ground for replacing the existing system.30. The further reason given by the Tribunal for replacing the existing system is that the existing system results in the ever widening of disparities in the minimum and maximum wages of the workmen in the different categories. In that connection, the Tribunal has referred to Exhibitwhich gives the number of workmen in different categories who received wages exceeding the salary received by their officers in the year 1983. According to that statement, about 2,539 workmen drew higher wages than the salary of the junior engineers and other equivalent ranks of officers. The Tribunal has further observed that the number of workmen receiving wages exceeding the salaries of the officers would go on increasing as a result of the present Dearness Allowance Formula and that such a state of affairs would be detrimental to industrial discipline. Before us, the Company produced yet another statement at pages 1205 to 1207 showing the total emoluments drawn in December, 1988 by officers and workmen/clerical staff working under them. The statement does show dispartities in the wage packets of the workmen and the officers. However, admittedly this statement was not before the Tribunal and as is rightly contended on behalf of the Union, the workmen had no opportunity to test the statement byBesides, as has been observed by the Division Bench in The Hindustan Lever case (supra) it is not enough to show that the wages received by the workmen are higher than theirThe wage disparities pointed out by the Company, therefore, will have to be examined in the light of what has been observed above. Neither the Tribunal nor the learned Single Judge has taken these factors into consideration. It is also necessary to observe in this connection that, with respect, we do not agree with the learned Judge that the disparities and distortions between the emoluments of the workmen and their superiors would not create discontent or problems of control and discipline. However, according to us, the disparities have to be established by applying the aforesaid tests. The argument based on disparities, therefore, cannot either be accepted or rejected off hand or on mere philosophical rhetorics. We are, therefore, of the view that this question requires serious reconsideration in the light of what has been held by the Division Bench in Hindustan Lever case (supra), as pointed out above. That can be done only giving an opportunity to both the parties to prove their respective case in that behalf. For that purpose the matter will have to be remanded to the Tribunal.32. Although the Company had not pleaded before the Tribunal that it was unable to bear the burden of the existing dearness allowance system, the Tribunal has referred to the Companys statement Exhibitgiving the figures of profits before tax for the years82 with yearwise additional burden "if the workmens demands" were granted. The result shown in that statement is that the Company would suffer during these years a net loss of Rs. 3,787.87appears that the General Manager of the Company had filed his affidavit dated January 7, 1987 before the learned Judge summarising its financial position for the years6. Before us, the same General Manager has filed his affidavit dated March 14, 1989 producing along with it up dated statement showing certain financial particulars of the Company since88 and also producing along with it,for the years88 to contend that the financial position of the Company has since undergone a change for theare afraid that this contention ignores that the documents have to be disseminated from different angels and in different light depending upon the purpose for which they are sought to be utilised.We are, therefore, of the view that while it is not possible to ignore the financial position of the Company as it is pleaded before us today, it is also not possible to accept the documents and the companys mere assertion in that behalf without giving an opportunity to the workmen to test the said documents byIt is, therefore, only fair that both sides should get an opportunity to prove their case on this aspectthe existing and the new wage structure, both old and new, including dearness allowance system. There is no doubt that if the Company is unable to bear the burden of the existing wage structure that will be one of the compelling reasons to modify or replace it.37. It must in fairness to the tribunal be observed that either the 4th Pay Commission Report not the High Power Pay Committee Report nor the Supreme Court decision in The Indian Hume Pipe case (supra) was before it when it gave the award. But it ignored some obvious considerations. The workman are not to be deprived of their existing benefits except for compelling reasons. The Tribunal was impressed by the uniform dearness allowance which neutralized the increase in the cost of only essential goods and services for all income groups. But the Tribunal forgot to find out whether the existing dearness allowance system which was giving more benefits to the workmenthe rise in the cost of living as indicated even by AICPI itself. That had to be found out by the method formulated by the Division Bench in its decision Hindustan Lever case (supra). Secondly, the tribunal did not examine the case sought to be made out by the Company on the basis of disparities in income from all angles. It merely accepted a bald table showing the wage packets of the different categories of workman and the staff. Lastly, the Company had not even leaded before it, its financial incapacity to bear the burden on account of the existing dearness allowance system which the Company wanted to replace. The bleak picture of its finances in future was painted by the Company in the context of the workmens demands which had nothing to do with the Companys demand. The Tribunal has not recorded its finding with regard to the Companys finances, even in the context of the workmens demands. These according to us are the errors apparent on the face of the award and it is for these reasons, and not necessarily for the reasons given by the learned Judge that an interference with the award was and is justified even in exercise of the writ jurisdiction.38. There is further no dispute that the Tribunal has revised the wage scales upward because it has replaced the existing system of dearness allowance by a new system. The learned Judge has, with respect, correctly pointed out that the new system of payment of dearness allowance is interlinked with the new pay scales, and since he was remanding the Companys demand for introducing new system of dearness allowance, it was also necessary to set aside the award with regard to the revision of the wage scales and remand it to the Tribunal. Since we are setting aside the new Dearness Allowance System for the reasons given above and since admittedly the new dearness allowance system and the newgranted are intimately interlinked and are dependent upon each other, it is only just and fair that the revision of pay scales granted by the Tribunal is also set aside and the workers demand in that behalf is also sent back to the tribunal for fresh consideration.39. The question whether there should be a replacement of the existing system of dearness allowance will have to be examined in the light of the two circumstances, namely distortions or the disparities in the incomes of the workmen and their superiors and the financial capacity of the Company to bear the burden of the existing system. Both parties should be given an opportunity to lead evidence and to test each others case in that behalf. If the Company succeeds in proving either of the circumstances, then a reconsideration of the existing pattern of the payment of dearness allowance may become necessary notwithstanding that there is noof the increase in the cost of living under the existing system and notwithstanding further that the existing system has been prevalent for a long time.40. The Respondent Association has filed an objection petition challenging the decision of the learned Judge with regard to the nucleus allowance, and overtime allowance claimed by the workmen in the Launches and Boats Department. The nucleus allowance was started as an incentive for workman primarily engaged in ship repair, to move over to the ship building work. The incentive was given to overcome the workmens reluctance to loseallowance which was available in ship repair work, but not in his building work. Since admittedly today the ship building predominates and the ship repair work is considerably reduced, there is no need for continuance of this allowance to compensate the loss of over time allowance. As observed by the learned Judge the raison detere for the nucleus allowance has thus disappeared and hence there is no need to continue it.We also do not find any reason to interfere with the denial of over time allowance for the workmen of the Launches and Boats Department. As has been observed by the tribunal and accepted by the learned Judge, a similar demand made in an earlier reference No. 126 of 1954 was rejected by the then Tribunal on the ground that the duties of the workmen involved were intermittent and leisurely in character as compared to the continuous and arduous nature of the work done by other workmen. The Associations contention in that behalf that the workmen in the Launches and Boats Department have to suffer long waits which cause as much fatigue as continuous work does not merit any consideration, since we are of the view that the alleged fatigue cause by such waits even if true, needs no additional compensation.The objection petition of the workmen, therefore, has to be rejected.