Case: The Associated Cement Companies Ltd.,Dwarka Cement Works, Vs. Its Workmen &amp; Another

The Associated Cement Companies Ltd., Bombay, the Cement Marketing Company of India Ltd., Bombay and the Concrete Association of India, Bombay, were faced with a demand of their workmen employed in their offices at Bombay for bonus equivalent to seven months basic wages with dearness allowance. The industrial dispute arising out of this demand was referred by the Government of Bombay for adjudication before the Industrial Tribunal, Bombay, under S. 10 of the Industrial Disputes Act and it was numbered I. T. No. 10 of 1956. The Associated Cement Companies Ltd., Dwarka Cement Works, Dwarka, was similarly faced with a demand of its workmen for bonus equivalent to 50 per cent. of total earnings or six months total earnings. This dispute was referred to the same tribunal and was numbered I. T. No. 13 of 1956. By consent of parties both the references were heard together and evidence was recorded and documents tendered in the first reference. By its award delivered on 30-11-1956, the tribunal directed the companies to pay their workmen drawing a basic pay or wages up to Rs. 500 per month bonus equivalent to 1/3 of their basic wages or pay (less bonus already paid for the year 1953-54) subject to the conditions specified in the award. It is against this award that the respective companies have preferred the two appeals by special leave. In this judgment the said companies will hereafter be described as the appellant and their workmen as respondents2. The A. C. C. is the principal company concerned in the dispute. The Cement Marketing Company of India Ltd., (hereafter called the C.M. I.) has been separately registered under the Indian Companies Act as a Joint Stock Company; but it is a hundred per cent. subsidiary of the A. C. C. The C. M. I. are the Sales Managers of the A. C. C. while the Concrete Association of India (hereafter called the C. A. I.) is merely a department of the C. M. I. As a result of the agreement which came into operation from 1-8-1953, all financial transactions of the C. M. I., in relation to sales now find a place in the accounts of the A. C. C. Similarly all of its fixed assets have been taken over and appear in the balance-sheets of the A. C. C. All the three concerns have a common staff in Bombay. The A. C. C. had already paid to its employees bonus equivalent to three months basic wages for the year 1953-54 and so had the C. M. I. to its workmen. It appears that the C. M. I., including the C. A. I., undertakes to pay to its employees the same amount of bonus as has been paid or awarded to the employees of the A. C. C3. There is no dispute that the A. C. C. is the biggest amongst the companies in India which manufacture cement. It owns 15 cement factories at different places in India and 2 in Pakistan. Out of the total quantity of cement despatched by all the cement factories in India in 1953-54 the A. C. C. despatched 55.46 percent. The A.C.C. came into existence in 1936 as a result of the merger of four important groups of companies engaged in the manufacture of cement. These were F. E. Dinshaw, Tatas, Killick Nixon and Khatau, groups. It appears that 11 companies in all merged with the A. C. C4. Before the tribunal the case for the respondents was that the appellant held a position of monopoly in the cement industry and was easily in a position to pay the bonus claimed by them. Their allegation was that the appellant had inflated the capital invested by the merging companies while taking them over in 1936; it had set up new factories out of the profits earned by it without raising fresh capital and thereby had used profits for the purpose of expansion. In the year 1953-54 the appellant had capitalised the full amount standing to the credit of the premium-on-shares account and had transferred a part of the reserves for taxation to the capital account thus increasing the aggregate capital. The emoluments of the workers were inadequate and so they were entitled to the bonus claimed by them in order to fill up the gap between the actual wage paid to them and the living wage due to them. The respondents also contended that the claim made by the appellant for rehabilitation and replacement in the dispute for the year 1951-52 included not only the amount required for rehabilitation and replacement but also expansion; and so, according to them, the appellant was not entitled to any amount for rehabilitation purposes in the year in dispute. They also alleged that the appellant was not entitled to claim interest at more than 4 per cent on paid up capital and 2 per cent, on working capital. Thus the respondents urged that if all the relevant facts are taken into account it would be found that the claim for bonus made by them in the two respective references was just and proper. In support of their case the respondents filed several statements which, they claimed, had been prepared in accordance with the Full Bench formula, and they also cross-examined Mr. Tongaonkar who gave evidence on behalf of the appellant5. This claim was resisted by the appellant. It was urged on its behalf that the points raised by the respondents in the present references had been heard and finally decided in the previous adjudication (Ref. I. T. No. 115 of 1953) which dealt with their claim for bonus for the preceding year; and it was alleged that the respondents were barred from raising the same questions over again in the present adjudication. The cement machinery, though heavy, is subject to rigours of extremely tough and heavy duties and the machinery has to run ceaselessly day and night throughout the year. The appellant contended that, having regard to the special features of the cement industry, the machinery had to be kept on the highest standards of maintenance and needed frequent replacement and rehabilitation. A cement factory is a very expensive industrial proposition. The appellant denied that it was in a monopolistic position and pleaded that its object was to deliver cement as cheaply as possible to the consumers. The respondents allegation that there was "puffing up of block capital at the time of the merger in 1936" was denied by the appellant and it was not admitted that ever since its inception it had steadily made huge profits. The appellant also denied the allegation of the respondents that the profits coming out of the business had been used in expanding its factories. It had used all available resources including premium on issue of shares and depreciation fund for replacement, rehabilitation and modernisation. It was not true that the appellant had built huge reserves and that the wages paid by the appellant to its employees were inadequate; on the contrary they compared very favourably with those in other comparable industries. The appellant denied the statement of the respondents that no plant reinstatement reserve over and above the depreciation allowance was necessary in the current year and it urged that the calculations made by the respondents alleged to be in terms of the Labour Appellate Tribunal formula were inaccurate. In its turn the appellant claimed more than 6 per cent. interest on paid-up capital and more than 4 per cent. interest on working capital. The appellant also emphasised that it had already paid to the respondents bonus for three months though the strict working out of the formula would show that there was no available surplus for the relevant year and so the respondents would not be entitled to any bonus at all6. In support of its case the appellant examined Mr. G. R. Tongaonkar, its controller of planning and development, and produced a statement (Ex. C-2) showing the original cost of the blocks to be replaced and the approximate replacement cost. It also produced amongst other documents a statement (Ex. C. 10) showing the cost of the assets of the merging companies on 31-7-1936 as taken over by the appellant and the statement (Ex. C-29) showing the capital expenditure from 1936-37 to 1953-54 on expansion, modernisation, rehabilitation, replacement, sundry capital jobs etc. In addition a statement was filed by the appellant (Ex. C-23) showing that the calculations made under the Full Bench formula would show a substantial deficit and that would support its case that there was no available surplus for the relevant year from which any bonus could be claimed by the respondents7. Ex. C-2 is a statement prepared by Mr. Tongaonkar showing the original cost of the block to be replaced and the approximate replacement cost. This statement has been prepared on the basis that the approximate cost to the merging companies of their assets as on 31-7-1936 was 5.73 crores. It is admitted that this statement has lumped together all the properties of the appellant including plant and machinery, as well as buildings, roads, bridges and railway-sidings and has classified them into four categories. The statement contains 9 columns. The first column gives the year or years of purchase of machinery. This column classifies the four categories of the blocks recording to their respective years of purchase. The first category consists of blocks purchased up to 1939, the second purchased between 1940-44, the third purchased between 1945-47 and the last purchased between 1949-54. Column 2 gives the original cost of the said categories as on 31-7-1954. Column 3 gives particulars of such portions of the blocks as have been discarded, scrapped or sold. In this column the years in which the blocks were discarded, scrapped or sold are indicated and their original cost is mentioned. Columns 4 and 5 give the present approximate cost of rehabilitation according as the machinery in question is either purchased or made by the appellant itself. The cost of machinery which may have to be purchased is shown in col 4, while the cost of machinery which may be produced by the appellant is shown in col. 5. The figures in col. 4 have been arrived at by multiplying the corresponding figures in col. 2 by a ratio, which, according to Mr. Tongaonkar, supplies an appropriate multiplier. Regarding the replacement cost of 1939 block, the witness has applied the multiplier 4.28, whereas in regard to the subsequent block of 1940-44 he has utilised the multiplier of 2.8. The figures mentioned in col. 5 for 1939 and 1940-44 blocks have been arrived at by reducing the corresponding figures given in col. 4 by 20 per cent. Column 6 gives the approximate present life of the machinery and plant mentioned in col. 4; col. 7 sets out the breakdown value of the machinery referred to in col. 4, whilst col. 8 gives the approximate cost of rehabilitation of machinery as shown in col. 5 less breakdown value as shown in col. 7. The last column works out the annual requirements of the appellant in respect of the rehabilitation of the four categories of blocks. The figures in this column are arrived at by dividing the amounts mentioned in col. 8 by the respective divisors mentioned in col. 6. The total annual requirement of the appellant in respect of rehabilitation is shown as of the order of Rs. 3,29,61,7528. Ex. C-23 is a statement prepared by Mr. Tongaonkar to show the deficiency in profits in relation to payment of additional bonus claimed by the respondents for the accounting year 1953-54. This statement has been prepared alternatively on the basis of statutory depreciation allowable by income-tax authorities and also on the basis of straight computation at ordinary rates. The first method results in a deficit of Rs. 107.20 lakhs, while the second in a deficit of Rs 97.86 lakhs. In working out the provision for rehabilitation, this statement first takes the replacement cost of block up to 1939 as per Ex. C-2 to be Rs. 1601.19 lakhs. From this amount the available reserves as on 1-8-1953 which are of the order of Rs. 311 lakhs are deducted, leaving a balance of Rs. 1290.19 lakhs. Then the replacement costs of the three remaining categories of blocks are taken into account and all the said amounts are divided by the appropriate divisors mentioned in col. 6 of Ex. C- 2. The result is the sum of Rs. 284.48 lakhs, and that is claimed by the appellant as the provision for rehabilitation under the formula9. In his evidence Mr. Tongaonkar has given reasons in support of the respective multipliers and divisors adopted by him in making his calculations in Ex. C- 2. He has also given several details on all the relevant and material points in support of the appellants case. Naturally the respondents have cross-examined him at length. One of the questions in controversy between the parties in the present appeals centres round the appreciation of Mr. Tongaonkars evidence and the value to be attached to the statements prepared by him10. On the contentions raised by the parties before it the tribunal framed ten issues for determination and it has made its findings on them in the light of the evidence adduced before it. It has held that the appellant had not inflated the capital invested by the merging companies while taking them over in 1936. It has allowed 6 per cent. interest on the entire paid-up capital of Rs. 1267.59 lakhs, and 4 per cent. interest on the working capital. In regard to the claim for depreciation the tribunal has held that it was normal depreciation calculated according to the straightline method which should be allowed. On the question of Income-tax, the tribunal has allowed the same at 83.4 pies in a rupee as claimed by the appellant on its net profits. It has, however, rejected the appellants case that the income from investments in shares and securities received by it should he excluded for the purpose of bonus; while it has allowed the sum of Rs. 10 lakhs provided by the appellant as annual contribution to the reserve for gratuity, as also the expenditure on the cost of dismantling buildings, prospecting expenses etc. It did not accept the respondents case that the bonus paid by the appellant to its officers should be reduced or wholly disallowed for the purpose of calculations under the formula; and on the question as to whether overtime payment should be included in the payment of bonus, it has upheld the respondents contention and allowed the inclusion of the said payment11. Having disposed of these minor issues, the tribunal examined at length the claim made by the appellant in regard to the provision for rehabilitation, replacement and modernisation. Indeed this was the most controversial and the most important issue raised before it. The tribunal examined the evidence of Mr. Tongaonkar as well as Ex. C-2 and other documents produced by him, and came to the conclusion that "Ex. C-2 presents an incorrect and exaggerated picture of the A. C. Cs requirements of rehabilitation and replacement" and so it cannot be relied upon. According to the tribunal the multiplier 4.28 adopted by Mr. Tongaonkar was itself an inflationary figure; and it thought that "the consequence of applying it not to the original price but to its increased price paid by the A. C. C. would be to obtain an inflationary result." It appears that the tribunal was inclined to hold that 2.7 was a fair multiplier representing the price increase over the pre-war base. The tribunal was also not satisfied with Mr. Tongaonkars evidence in regard to the life of plant and machinery; and so it held that the period of life given in col. 6 of Ex. C.2 can not be accepted as correct. While dealing with the question about the rise in prices, the tribunal has held that it was usual to take the average level of prices prevailing in a period of about five years in preference to the prices prevailing in a particular year as was done by Mr. Tongaonkar. The tribunal subjected Mr. Tongaonkars evidence on the question of replacement, rehabilitation and modernisation to a close examination and held that the method adopted by Mr. Tongaonkar in distinguishing between modernisation and expansion was of a purely subjective estimate "which does not bear the scrutiny of an objective test". On the whole the tribunal was not prepared to accept Mr. Tongaonkars evidence at its face value and it was not prepared to treat Ex. C-2 and consequently Ex. C-23 as reliable. It is relevant to point out at this stage that the tribunal has not made any finding about the life of the machinery nor has it recorded any conclusion as to a proper divisor. In fact it has completely left out of consideration Exs. C-2 and C-23 while determining the amount which should be allowed for the appellants claim for rehabilitation for the relevant year12. The tribunal then examined the principle underlying the Full Bench formula and held that it was not intended to be worked out as a rigid mathematical formula, "We must make it", says the tribunal, "as flexible as possible so as to do justice to everybody concerned in the earning of profits, The general question, which it has considered in this connection, is how far and to what extent profits of a concern should contribute to the satisfaction of the claims of industry for replacement, rehabilitation and modernisation. It was impressed by the argument that, where the requirements under these items are so huge as to be out of tune with the profits, it would be open to an industrial adjudicator to allow only a reasonable provision to be made out of the profits for the said items and leave the industry concerned to tap other resources to make up the balance. In support of this conclusion it has referred to the observations made by F. R. M. de Paula in his "Principles of Auditing", the report of the Taxation Enquiry Commission and of the working party for the Cotton Textile Industry. It has also relied on a part of the speech delivered by Mr. J. R. D. Tata in addressing the annual general meeting of the shareholders of the Tata Iron and Steel Company in August 195013. In this connection the tribunal has expressed its apprehension that if all the money required for a continuous process of modernisation and expansion is to come out of the profits made by the concern, labour will rarely see a day when they will enjoy bonus granted to them out of profits; though it has hastened to add that it was far from its mind that a progressive concern like the A. C. C. should not keep pace with time and modernise its machinery; but it only wished that it should give a fair deal to the workers in the distribution of the profits. Having held that, if the claims for rehabilitation turn out to be huge and out of tune with the profits made by the industry, it would be open to the tribunal to grant the claim of the industry in that behalf only to the extent that it deems to be reasonable and fair, it proceeded to consider how far and to what extent the appellants claim should be allowed in the present proceedings14. It is necessary to mention that in dealing with this question the tribunal was considerably influenced by the past conduct of the appellant. It thought that for rehabilitation the appellant had claimed no more than Rs. 192 or 193 lakhs in the previous adjudication proceedings where the dispute for bonus had reference to the year 1951-52. If the claim then made by the appellant was no more than Rs. 192 or 193 lakhs, the present claim for Rs. 284 lakhs, the tribunal thought, was obviously inflated and unreal. Similarly the tribunal emphasised the fact that the programme earlier submitted by the appellant to the Tariff Commission was in turn more modest than the claim made in the said adjudication proceedings. It appears that in the said programme the appellant had made out a case for the estimated expenditure of Rs. 18.36 crores to be spread over a period of ten years from 1-8-1952 to 31-7-1962 and that works out approximately at the figure of Rs. 184 lakhs per year. It was on these facts that the tribunal held that "if the A. C. C. estimated its annual requirements of rehabilitation, replacement and modernisation at Rs. 192 lakhs per year during the period of ten years commencing from 1-8- 1952, I do not think that it should be allowed to depart from it now". In substance, according to the tribunal, the present claim for rehabilitation was very much inflated, it had no relation to realities, and so the appellant should not be allowed to make such a claim. That is why it did not think it necessary to record any finding as to the proper divisor, and to determine, in the light of Mr. Tongaonkars evidence, what approximately would be a fair or reasonable amount for rehabilitation under the formula15. It is thus clear that in making its final calculations the tribunal has assumed that the claim made by the appellant for rehabilitation, replacement and modernisation must be taken to be no more than Rs. 192 or 193 lakhs, and on that assumption it has considered to what extent the claim should be allowed. Ultimately the tribunal came to the conclusion that in the circumstances of the case it would be fair to allow the appellant about Rs. 165 to 170 lakhs as annual provision for the said items. In support of this conclusion the tribunal has relied on the fact that for the two years 1952-53 and 1953-54 the appellant had spent about Rs. 339.76 lakhs for the purpose of rehabilitation, replacement and modernisation and that works at the average of Rs. 170 lakhs per year. The tribunal has then taken into account the fact that the appellant had a plant reinstatement reserve of Rs. 235 lakhs and a general reserve of Rs. 76 lakhs in the beginning of the year 1953-54. If these amounts which would be available for rehabilitation are spread over the ten year period of the tentative programme planned by the appellant, the annual figure would come to Rs. 31 lakhs; and this amount would have to be deducted from Rs. 165 lakhs which the tribunal was inclined to grant in respect of the relevant item. That is how the tribunal has made the appropriate calculations under the formula, and has shown that, even after the payment of one months additional bonus as directed by it, the appellant would still be left with a surplus of Rs. 23.48 lakhs. That in brief is the nature and effect of the findings made by the tribunal.

Court's reasoning:
It is for the first time since 1950 that, in the present appeals, we are called upon to examine the formula carefully and express our decision on the merits of its specific provisions. As we have already indicated, in dealing with the present dispute the tribunal has held that, in working out the formula, it could relax its provisions even though the proposed relaxation may mean a material variation of the formula itself22. It is true that, in the report submitted by the appellant before the Tariff Commission in April 1953, it had set out the details of its ten year programme which included, besides replacement, rehabilitation, modernisation and expansion, mechanisation of quarries as well as construction and improvement of houses for its labour staff. The report of the Tariff Commission (p. 30) shows that the cost of the programme was estimated at Rs. 18.36 crores, excluding the cost of a new plant at Sindri, or about Rs. 184 lakhs per annum. Subsequently in January 1954, when Mr. Tongaonkar gave evidence in the previous adjudication proceedings, he produced a statement (Ex. U. 8) according to which the appellants annual requirements for rehabilitation would be of the order of Rs. 192 or 193 lakhs, whereas in the present proceedings the said claim is made at Rs. 284 lakhs. A bare statement of these facts prima facie suggests that the appellants present claim for rehabilitation has been growing from stage to stage, and in its present form it is very much inflated; and that is what the tribunal has also assumed. In our opinion this assumption is not wholly correct. Mr. Tongaonkars evidence shows that in the report of the jobs submitted to the Tariff Comissission the appellant had not included all relevant items of rehabilitation, replacement and modernisation. The report merely gave a list of the jobs which the appellant had proposed to undertake during the ten year period ending July 31, 1962. It was in no sense an exhaustive statement about the appellants requirements in regard to the rehabilitation of all its blocks. In fact, having regard to the nature and scope of the enquiry before the Tariff Commission, the report made by the appellant had to be restricted to the urgent jobs which it wanted to undertake during the execution of its ten year programme; and so it would not be reasonable to hold that the figure of annual rehabilitation expenses which can be deduced from the said report has any relation to the claim for rehabilitation made by the appellant in terms of the working of the formulaEven so the Labour Appellate Tribunal found that the appellants contention that its workmen were not entitled to any additional bonus was not well-founded even if its claim for rehabilitation was confined to Rs. 192 or Rs. 193 lakhs. Besides, Mr. Tongaonkar has stated on oath that Ex. U. 8. was not among the documents originally submitted by the appellant to the tribunal in 1954. It was in fact prepared and submitted at a later stage at the instance of the tribunal itself. It is, therefore, clear that Ex. U. 8 was not intended to, and did not supply, the basis of the appellants claim in the earlier proceedings in accordance with the formulaIt is nevertheless clear that the items in Ex. U. 8 do not include a claim for rehabilitation for all the blocks of the appellant, and it is not surprising either, because a claim for the rehabilitation of all the blocks had been separately made by the appellant in the earlier proceedings under Ex. C- 3. Thus there can be no doubt that neither the report submitted by the appellant before the Tariff Commission nor the estimate given by Ex. U. 8 was prepared under the formula; and so any disparity in the amounts claimed in the two earlier documents cannot be seriously pressed into service against the appellant when it seeks to make a claim for rehabilitation strictly in accordance with the formula.We must, therefore hold that the tribunal was in error in coming to the conclusion that by reason of its previous conduct the appellant could not be allowed to place its claim for rehabilitation at a figure higher than Rs. 192 lakhs in the relevant year32. It may be conceded that there is some force in some of the arguments urged in support of the plea that the formula should be revised and its priorities should be readjusted and redefined; but, on the other hand, we cannot ignore the fact that on the whole the formula has worked satisfactorily in a large number of industries all over the country. Except for a few cases, particularly in Bombay, where some of the tribunals have taken the view that, in its rigid form, the formula has become unworkable from the point of view of labour, in a majority of cases industrial disputes arising between employers and their workmen in regard to bonus have been settled by tribunals on the basis of this formula; and it would not be unreasonable or inaccurate to say that by and large labours claim for bonus has been fairly and satisfactorily dealt with. The main source of contest in the working of the formula centres round the industrys claim for rehabilitation; but, as we shall presently point out, if this claim is carefully scrutinised and examined in the light of evidence which the employer has to produce in support of his claim, even the settlement of this item would, as it is intended to, invest the tribunal with sufficient discretion to make the working of the formula elastic enough to meet its two-fold object of doing justice both to industry and labour.