Baroda Borough Municipality vs Its Workmen
Rewritten Version Notice: This is a rewritten version of the original judgment.
Court: Supreme Court of India
Case Number: Civil Appeal No. 182 of 1956
Decision Date: 13 November 1956
Coram: S.K. Das, Natwarlal H. Bhagwati, P. Govinda Menon
In the matter titled Baroda Borough Municipality versus its Workmen, the Supreme Court delivered its judgment on 13 November 1956. The judgment was authored by Justice S K Das, who was joined by Justices Natwarlal H Bhagwati and P Govinda Menon. The case is reported in 1957 AIR 110 and 1957 SCR 33. The dispute concerned the application of the Bombay Municipal Boroughs Act 1925 (Bombay Act XVIII of 1925) to a claim for bonus by workmen employed in a municipal electricity department that had generated surplus earnings.
The Baroda Electric Supply Concern had been owned and operated by the State of Baroda. Shortly before the State merged into the Province of Bombay, the State transferred the Concern to the Baroda Municipality as a gift, intending to provide the Municipality with a new source of revenue in anticipation that State assistance might cease after the merger. In 1951 the employees of the electricity department demanded a bonus, alleging that the Concern functioned as a commercial enterprise that was earning huge profits, and that they were therefore entitled to share in those profits. The dispute was referred to an adjudicating authority.
The Municipality opposed the bonus claim on several grounds. Primarily, it argued that the earnings of a single department could not be treated as the profits of the Municipality as a whole, especially since the overall municipal budget for the relevant period showed a deficit. Consequently, the Municipality contended that the statutory provision for bonus under the Bombay Municipal Boroughs Act could not be invoked on the basis of the department’s surplus.
The Court held that the workmen in the electricity department were not entitled to the bonus they claimed. It observed that, under the Bombay Municipal Boroughs Act 1925, the income of one department does not constitute gross profits in the ordinary commercial or trading sense. The fact that separate accounts were maintained for the electricity department did not change this position, because the Municipality prepared a single consolidated budget in which the incomes and expenditures of all departments were combined. The Court emphasized that the various activities of the Municipality formed an integrated whole; the departments were not distinct or unrelated enterprises that could be isolated from one another, nor could a profit-making department be separated from a spending department.
The Court further stated that drawing a distinction between the workers of an earning department and those of a spending department for the purpose of granting a bonus would be unfair. Such a distinction would not promote peace and harmony among municipal employees but would instead foster unrest and discontent. The Court referred to the authorities D N Banerji v P R Mukherjee, (1953) SCR 302 and Muir Mills Co Ltd v Suti Mills Mazdoor Union, Kanpur, (1955) 1 SCR 991 in support of its reasoning.
This decision arose from Civil Appeal No 182 of 1956, which was filed by special leave against the judgment and order dated 23 November 1955 of the Labour Appellate Tribunal.
The Appellate Tribunal of India at Bombay entertained Appeal No 224 of 1953, which arose from an award (Part II) dated 4 June 1953 issued by the Bombay Industrial Tribunal in Reference No (I.T.A.) No 18 of 1951. The appellant was represented by counsel comprising the Attorney-General for India, Mr M C Setalvad, together with Mr N C Chatterji, Mr J B Dadachanji, Mr S N Andley and Mr Rameshwar Nath of the firm Rajinder Narain & Co. The respondents were represented by Mr Purshottam Tricumdas, Mr H R Gokhale, Mr K R Choudhury and Mr M R Rangaswamy. The judgment was delivered on 13 November 1956 by Justice S K Das. This proceeding was an appeal by special leave from a decision of the Labour Appellate Tribunal at Bombay dated 23 November 1955. In this appeal the Baroda Borough Municipality stood as the appellant, while the respondents were the workmen employed in the municipality’s electricity department, whose interests were principally represented by the Baroda State Electric Workers Union, referred to in the judgment as the respondent Union. The core issue for determination was whether those workmen, who were engaged in a municipal department that generated, supplied and sold electric energy, were entitled to a bonus claimed out of the surplus earnings of that department – described by the respondents as “profits” – after deducting all necessary departmental expenditures and any prior charges. Although the question presented was concise, the Court recognised that its answer possessed significance and ramifications extending beyond the immediate dispute. The Court therefore began by setting out the relevant factual background. Prior to 1 May 1949 the former State of Baroda, which on that date was merged into the then Province of Bombay (now the State of Bombay), owned and administered the Baroda Electric Supply Concern. On 19 April 1949 the Baroda State Government resolved to transfer the Concern to the Baroda Municipality as a gift and issued an order to that effect. The order expressly observed that the various forms of assistance – financial or otherwise – that the municipality had hitherto received from the Baroda Government were unlikely to continue after integration, and therefore it was necessary for the municipality to identify new sources of revenue in order to maintain a high standard of efficiency. With that objective, the Baroda Government announced its intention to hand over to the municipality, as a gift, the Baroda Electric Supply Concern, which at that time comprised both the generation and distribution of electric power. The order further provided that, together with the transfer of the concern, the electric department’s various funds – including the Reserve Fund, the Depreciation Fund and similar accounts – were to be transferred to the municipality, subject to the explicit understanding that those funds were to be employed solely for the purposes for which they had originally been created and not for any other uses.
The Court observed that, following the transfer of the Baroda Electric Supply Concern to the municipality, the municipal authority was required to obtain a licence authorising the supply of electricity not only within the municipal limits but also within a radius of twenty miles surrounding Baroda. The municipality was directed to maintain the existing policy of providing electricity at concessional rates for irrigation purposes in the surrounding villages, even though such a policy might not be profitable at the outset. All personnel employed by the Baroda Electric Supply Concern were to be taken over by the municipality without any reservation, and the municipality was instructed to implement the terms and conditions of service that were then applicable under the Bombay Government. Moreover, the officers and staff were to receive the emoluments they would have been entitled to had they been appointed under the Bombay Government’s service rules. An order effecting the formal hand-over was issued on 29 April 1949, subject to specific directions that preserved the employees’ rights with respect to pension, gratuity, provident fund, continuity of service and related benefits.
In 1951 a dispute arose between the Baroda Borough Municipality and the workmen employed in its electric department concerning several demands made by the employees. By mutual consent of the municipality and the respondents’ union, the Government of Bombay ordered on 22 October 1951 that the matter be referred to the Industrial Tribunal, Bombay, for adjudication. The dispute encompassed numerous items, one of which sought payment of a bonus equal to three months’ wages, including dearness allowance, for the year 1940-50 to all employees of the electric department, encompassing daily-wage and temporary workers. While the parties reached agreement on all other issues, the bonus claim remained unresolved. The Industrial Tribunal heard the arguments and concluded that the respondents were not entitled to the claimed bonus for four reasons: (1) the municipality was not a profit-making concern; (2) the surplus of earnings over outgoings of the electric department did not constitute “profit” in the ordinary commercial sense; (3) the municipality comprised both earning and spending departments, making it impermissible to create an inequitable distinction by granting a bonus only to workers of one department; and (4) the respondents had already been compensated through higher salary scales upon municipalisation of the undertaking and had received other benefits and amenities associated with municipal service, rendering the bonus claim untenable. An appeal against the tribunal’s decision was filed before the Labour Appellate Tribunal of India at Bombay. The appellate tribunal reversed the tribunal’s finding, holding that the respondents were entitled to the bonus. It relied on the decision in D. N. Banerji v. P. R. Mukherjee, interpreting the term “industrial dispute” under the Industrial Disputes Act, 1947, to include 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 consequently held that where the undertaking generated profit during the relevant trading period, the workmen were entitled to claim the bonus as a matter of right.
The Tribunal explained that when work performed by a municipal undertaking can be treated as comparable to the conduct of a trade or business, and when that undertaking generates a profit during the relevant accounting period, the workmen acquire a right to claim a bonus. To decide whether the surplus of earnings over expenditures of the Baroda municipal undertaking constituted profit, the Tribunal examined several factual circumstances. First, it observed that the State Government of Baroda had transferred the concern to the Municipality as a gift, indicating that the concern was intended to be a profit-making enterprise. Second, the Tribunal noted that the concern was operated independently and, by its very nature as a trading concern, the balance of earnings remaining after all outgoings represented a pecuniary gain; the Tribunal held that the label applied to this gain—whether surplus or profit—was immaterial to its character as profit. Third, the Tribunal held that no principled distinction could be drawn between a municipal undertaking and a private or public undertaking when the conditions prescribed in Muir Mills Co. Ltd. v. Suti Mills Mazdoor Union, Kanpur were satisfied for the award of a bonus. Accordingly, the Tribunal concluded that the excess earnings of the municipal undertaking were indeed profit for the purpose of bonus liability.
The Tribunal then addressed the question of granting a bonus to employees of only one department. It held that if the overall profit of the municipal undertaking was insufficient to justify a bonus for all employees, it was permissible to treat a profit-making department as a separate unit for bonus purposes, provided there was no essential nexus, common purpose, or coordinated activity linking that department with other departments essential to the enterprise’s advantage. The Tribunal pointed out that the accounts of the Electricity Department of the Baroda Municipality were maintained separately and that the activities of that department differed from the municipality’s other normal functions, with no common nexus between them. Consequently, the workmen of the Electricity Department were entitled to claim a bonus out of the profit generated by that department after deducting all prior charges. Based on this reasoning, the Tribunal allowed the appeal, set aside the decision of the Industrial Tribunal, and remanded the matter for determination on its merits according to law. The Supreme Court later affirmed that a municipal undertaking of the type under consideration qualifies as an “industry” within the meaning of section 2(j) of the Industrial Disputes Act, 1947, and that the term “industrial dispute” in that Act embraces disputes between municipalities and their employees in branches of work analogous to the carrying on of a trade or business.
The Attorney-General appearing for the appellant clarified at the very beginning that the issues to be considered in this case differed from those addressed in the earlier judgment cited. He placed his first argument in the forefront, urging the Court to examine the precedent set in Muir Mills Co. Ltd. v. Suti Mills Mazdoor Union, Kanpur. He contended that, although the electricity department of the municipality qualifies as an “industry” under the definition in the Industrial Disputes Act, 1947, the respondents could not claim any bonus because the undertaking had not generated any profit and, consequently, the principles governing the grant of bonus out of profits, as explained in the Muir Mills decision, were inapplicable to a municipal undertaking of the nature before the Court. In the Muir Mills case, the Court had observed that two conditions must be satisfied before a demand for bonus could be justified: first, the wages of the workmen must fall short of the prevailing living standard; second, the industry must have made profits to which the workmen had contributed. The principle for granting a bonus was articulated as follows: it is equitable that labour should receive some benefit if there remains a surplus after meeting prior or necessary charges. The Court further explained that such prior or necessary charges comprised (i) provision for depreciation, (ii) reserves for rehabilitation, (iii) a return of six per cent on the paid-up capital, and (iv) a return on working capital at a rate lower than that on the paid-up capital. The Attorney-General questioned whether these principles could be applied to the municipal undertaking in the present suit. He pointed out that the respondents based their claim for bonus on the alleged existence of profits after meeting the aforementioned charges. In their claim, the respondents stated that the electric concern had been treated as a commercial concern by the former Baroda State Government and had yielded huge profits to the State; they further asserted that after the merger, the municipality continued to treat the concern as a commercial enterprise and that it was now generating huge profits for the municipality as well. Accordingly, the respondents submitted that all workers of the electric department should be paid a bonus equivalent to three months’ wages, including dearness allowance, and that this bonus should be paid to all categories of employees, including daily-wage, temporary and semi-permanent workmen. They contended that the workers were entitled to the bonus both as a share in the profits and as deferred wages. The Court, however, had previously held in Muir Mills that a bonus is not a form of deferred wage; consequently, the respondents’ alternative claim that the bonus was a deferred wage lacked a substantive basis. Their claim for a bonus as a share in profits remained the only aspect that merited consideration.
The appellant responded to the workers’ claim by stating that the demand for a bonus could not be accepted. It relied on the former Baroda Government Order numbered (R) 403/63 dated 19-April-1949, which had examined the municipal finances after the integration of Baroda State into the Bombay Province. The order explained that the Government, seeking additional revenue sources to enable the municipality to preserve its efficiency and meet its statutory duties, transferred the Baroda Electric Supply Concern to the municipality. The appellant then recounted the municipality’s current financial hardship, noting that even after accounting for the income of the electric supply concern the municipal budget remained in deficit. Because of inadequate funds, the municipality was compelled either to abandon certain schemes and projects or to postpone them. The appellant further emphasized that local authorities such as municipalities and local boards are public-utility bodies, and that any profit generated by the electric supply concern is deposited into the municipal treasury for the benefit of the city’s taxpayers, unlike a private commercial enterprise where profits are distributed solely among investors.
Next, the appellant argued that, in view of the Bombay Municipal Boroughs Act of 1925 (referred to as the Municipal Act), which governs the constitution and operation of the municipality, the earnings of a municipal department cannot be treated as “gross profits” in the ordinary commercial sense. Consequently, the legal principles that allow a bonus to be granted out of such profits after necessary charges have been satisfied were inapplicable to this case. The appellant identified the specific provisions of the Municipal Act that were relevant, namely sections 58, 63, 65, 66, 68 and 71. While it indicated that section 58 would be addressed later in relation to another submission of the learned Attorney-General, it focused on sections 63, 65, 66, 68 and 71. Section 63 was explained to provide that all property described in clauses (a) through (f) of subsection (2) is vested in the municipality, and that such property, together with any other assets that may become vested, is to be held, managed and applied by the municipality as a trustee for the purposes of the Act. Those clauses concern immovable property and permanent fixtures. Section 65, which the appellant described as more pertinent, was quoted to show that all monies received on behalf of the municipality—including taxes, fines, penalties, proceeds from the sale of land or other property, rents from municipal assets, and any interest, profits or other monies obtained by gift, transfer or otherwise—form part of the municipal fund and are to be dealt with in the same manner as the property specified in section 63.
In this case, the Court explained that under section 65 all monies received by or on behalf of a municipality, whether they originated from the Government, private individuals or any other source, formed part of the municipal fund and were required to be handled in the same manner as the property described in section 63. Section 66 then provided that the municipal fund together with all property vested in the municipality had to be applied only for the purposes specified in the Act and only within the limits of the municipal borough. Section 68 imposed a duty on every municipality to provide lighting for public streets, places and buildings, and the Court described this duty as obligatory. Section 71 listed the discretionary functions of a municipality; among those functions was the power to construct, maintain, repair or purchase any works necessary for the supply of electrical energy. The Court noted that clause (q) of section 71 had been inserted by an amending Act in 1951 (Bombay Act 44 of 1951). A similar amendment was made to section 66 of the Municipal Act in the same year, and the effect of that amendment was to permit a municipality to incur expenditure for the supply of electrical energy not only for the inhabitants of the municipal borough but also for the benefit of any person, building or land, whether or not that place lay within the borough limits. A careful reading of these provisions, the Court held, established two basic propositions. First, all municipal property, including any money received as a gift, was vested in the municipality and had to be held and applied by the municipality as a trustee, subject to the provisions and purposes of the Municipal Act; the municipality could not treat any part of its property separately or divert it for purposes not authorised by the Act. Second, the Act distinguished between obligatory functions that a municipality must perform—such as lighting of public streets, places and buildings—and discretionary functions that the municipality could perform, either wholly or partly, using municipal property and funds. Supplying electrical energy for the use of the borough’s inhabitants or for the benefit of any person, building or land, whether inside or outside the borough, fell within those discretionary functions. The Court then addressed the question whether, in view of these provisions, the municipality was permitted to treat the electricity department, its property and the income it generated as separate from the other departments and to spend part of that income solely for the benefit of the department’s employees, treating it as departmental profit rather than as part of the overall municipal fund or property. The Court expressed the opinion that such a separation of income was clearly contrary to the Municipal Act. It concluded by indicating that it was pertinent to refer
Chapter XI of the Municipal Act, which governs municipal accounts, requires under section 209 that a complete statement of all receipts and expenditures of the municipality be prepared each year. The statement must also include a full accounting of both actual and anticipated receipts and expenditures together with a budget estimate of the municipality’s income and outgo for that year. These documents must be prepared and laid before the municipality on or before a prescribed date, and the budget estimates must subsequently be sanctioned at a special general meeting of the municipality. Counsel for the respondents advanced two principal arguments. First, he observed that the Baroda Municipality maintained separate accounts for its electrical undertaking, including a capital account that recorded capital expenditures and receipts, as well as distinct accounts for the reserve fund, depreciation fund, provident fund and other items. He contended that the existence of these separate accounts demonstrated that the municipality treated the income of the electricity department independently of the income of other departments, and that such a practice did not violate any provision of the Municipal Act. Second, the counsel stressed that the distinction between obligatory and discretionary functions of a municipality permitted the municipal authority, in exercising its discretionary powers, to engage in a profit-making enterprise. He submitted that if the electricity department generated profit while operating as a discretionary undertaking of the Baroda Municipality, the workmen employed in that department would, as a matter of right, be entitled to a bonus. The Court held that these submissions were based on a misapprehension of the law. Regarding the first point, the Court noted that keeping separate accounts for a particular department does not alter the nature or quality of the property or income of that department. Such property or income remains municipal property within the meaning of sections 63 and 65 of the Municipal Act and may be used only for the purposes specified in section 66. Maintaining separate accounts is merely an internal accounting arrangement and does not change the character of the property or income; consequently, for the purposes of section 209, the property and income of the electricity department must be treated like any other municipal property or income. The Court also referred to the observations of Mr Findlay Shirras in his work on public finance, noting that the classification of public revenue, including non-tax revenue of the State, has evolved considerably. Shirras divided non-tax revenue into three main classes, the first being developmental revenues derived from the public domain and public undertakings, which encompass revenue from both the State domain and other public sources.
In the discussion of public finance, the author Findlay Shirras classifies revenue of the State and municipalities into three principal categories. The first category consists of developmental revenues that arise from the public domain and from public undertakings, and this includes revenue generated from both the State domain and the municipal domain. The second category comprises administrative and miscellaneous revenues, expressly excluding any loan revenues. The third category is made up of loan revenues. In volume I, Book III, Chapter XIII, pages 211-212 of his work Science of Public Finance, Shirras sets out this classification, and later, on page 717 of volume II, Book III, Chapter XXX, he poses a question concerning State or municipal concerns. He asks how strictly commercial accounting should be applied, whether interest should be paid on capital, and whether provisions should be made for depreciation of machinery and plant, pension funds, land rents, and income tax in order to determine the true net profit. He observes that State concerns sometimes show a surplus, but he does not provide an answer to this query.
The Court considered that the answer to this question had been succinctly expressed in Dr Paterson’s Accountants’ Handbook, third edition, section 24 on Governmental Accounting, page 1277. Dr Paterson explains that in private business the proprietary or residual equity usually represents the ownership of individuals or, in a corporation, of shareholders. In government, however, the residual element represents the equity of the whole citizenry as a collective body; it does not belong to particular members, is not represented by capital stock, and there are no shares with voting rights or dividend expectations. The Court held that the legal position under the Municipal Act mirrors this principle. The income earned by any one department forms part of the income of the municipality as a whole, and such income cannot be described as “profit” in the ordinary commercial sense, which implies earnings derived from the capital of specific individuals or shareholders. Moreover, the surplus of one department may turn into a deficit when the total municipal income and expenditure are taken together. In the present case the municipality itself claimed that even after including the income of its electricity department, the municipal budget for the year in question was in deficit.
Regarding the respondents’ second submission, the Court observed that the distinction between obligatory and discretionary functions of the municipality does not affect the nature or quality of municipal property or municipal income. This distinction does not permit the municipality to treat the income of a single department as though it were not part of the municipality’s overall income. Furthermore, in its true nature, such income is not profit in the sense used in the Muir Mills case, where the word “profits” appears in section 65 of the Municipal Act and has been loosely applied to State or municipal undertakings. Consequently, the Court raised the further question of whether the principles laid down in the Muir Mills decision for granting a bonus could be applied in the present case.
In this case the Court examined whether the principles laid down in the Muir Mills decision for awarding a bonus could be applied to the present municipal undertaking. Counsel for the respondents argued that the gift transferred by the State Government of Baroda supplied the necessary capital for the municipality’s enterprise and, because the reserve fund, depreciation fund and similar accounts were required to be kept separate, the Muir Mills principles could be applied without difficulty to the facts before the Court. The Court, however, observed that difficulties arose once the nature of the State’s gift was considered. The Court noted that any amount given by the State Government of Baroda to the Baroda Municipality became municipal property or a municipal fund under sections 63 and 65 of the Municipal Act, and that such a transfer could not be described as capital in the sense that a return on paid-up or working capital is permitted under the Muir Mills rule for granting a bonus. Counsel for the respondents then referred the Court to the ordinary dictionary definition of the word “capital”, citing Webster’s New International Dictionary (1937 edition, page 397), which defines capital as “the amount of property owned by an individual or corporation which is used for business purposes.” He argued that the State’s contribution fell within that definition of capital.
The Court also considered the explanation offered by Palgrave’s Dictionary of Political Economy (volume 1, 1925 edition, page 217), which remarked that the term “capital” has generated considerable controversy in economics. The dictionary traced the word to the Latin “caput”, originally meaning a principal sum distinct from interest, and explained that historically the term applied to loans of money. Over time, the meaning broadened so that capital was regarded primarily as a source of profit, and in common thought it was understood as wealth that yields revenue. Although later economic theories have refined the concept, the Court held that such refinements were unnecessary for the present purpose. For the matter at hand, it was sufficient to state that the amount received by the Baroda Municipality from the State Government merged into municipal property or a municipal fund under the provisions of the Municipal Act, and therefore did not constitute capital on which a return must be earned under the Muir Mills principles. Consequently, the Court concluded that applying the Muir Mills rule to this municipal undertaking was impossible. The Court rejected the respondent’s argument that, once capital and actual profit—meaning excess of earnings over outgoings—were found, no distinction could be drawn between private and municipal enterprises. In the present case, the Court found that neither “capital” nor “profit” existed on which the Muir Mills principles could operate.
The Court explained that the principles laid down in the Muir Mills case (supra) could not operate in the present situation because the issue was not merely a matter of terminology, that is, whether the more suitable expression for a municipal undertaking should be “surplus” or “profit.” Instead, the Court stressed that the nature and quality of the municipal property or fund must determine the question, and on that basis it concluded that in the facts before it there were no profits derived from any single department of the municipality from which the respondents could claim a bonus.
During the arguments, counsel referred to observations contained in a Report of the Committee on Profit-sharing that had been set up by the Ministry of Industry and Supply in 1948. The Committee, when asked how Government undertakings should be treated for profit-sharing purposes, responded that the question was essentially academic because none of the industries recommended for an experiment in profit-sharing comprised Government undertakings. The Committee further stated that, in general, any Government business undertaking organized as a corporation and intending to earn a profit would automatically fall under any law applicable to private undertakings of a similar kind. The Court held that these observations did not resolve any principle of law; at most they represented the opinion of the Committee members and were expressly limited to corporate undertakings whose aim was to make a profit in the ordinary trading sense. Consequently, the Court found that such observations had no appropriate application to a municipal undertaking whose purpose was to augment municipal revenues so as to meet service demands and improve amenities for the residents of a modern municipal borough.
Turning to the second argument raised by the learned Attorney-General, the Court examined the provisions of section 58 of the Municipal Act. That section governs the rule-making authority of a municipality and, by its proviso (a), provides that no rule, alteration, or rescission of a rule shall take effect until it has been approved by the State Government. The Court noted that clauses (c), (f) and (l) of section 58 empower the municipality to make rules relating, inter alia, to salaries and other allowances of officers and servants, to their pensions, gratuities, compassionate allowances on retirement, and to provident funds. It was submitted that, under section 58, the Baroda Municipality lacked the power to make a rule for the payment of a bonus to its employees because the term “allowances” did not encompass bonus, and even if such a rule could be made, it would require the State Government’s sanction under proviso (a). The learned Attorney-General further submitted that the municipality therefore had no authority to provide a bonus.
In this case the Court observed that there were no municipal rules governing the payment of bonus to an employee of the municipality. The learned Attorney-General therefore argued that a Labour Court or Tribunal could not be empowered to order the payment of such a bonus. The Court rejected that argument. It noted that a claim for bonus is an industrial matter and is to be dealt with under the Industrial Disputes Act, 1947, not under the Municipal Act. Consequently, the existence or non-existence of provisions in the Municipal Act concerning bonus payments was not a material consideration for the issue before the Court. The Court further explained that the provisions of the Municipal Act are relevant only for determining the character or nature of municipal property or funds, and that they cannot be extended beyond that narrow purpose in order to defeat a legitimate claim for bonus. Accordingly, the absence of a specific rule on bonus in the Municipal Act could not be treated as either decisive or conclusive of the matter before the Court. The Court added that even if it had reached a different conclusion on the first contention raised by the Attorney-General, and even if it had accepted his third contention, the lack of a municipal provision on bonus would not have prevented the Court from allowing the respondents’ claim for bonus. The Court then turned to the third and final contention raised by the Attorney-General, which concerned whether a particular department of the municipality could be singled out and distinguished from other departments for the purpose of granting a bonus. The Court recalled that the Municipal Act permits a municipality to carry out a variety of functions, some of which are obligatory and some discretionary, and that the municipal activities are often of a mixed character. Certain departments, such as the one responsible for collection of municipal taxes or other revenues, are essentially earning departments, whereas departments such as the sanitary or other service departments are essentially spending departments. In some cases the earnings and expenditures of a department may almost balance each other. Nevertheless, irrespective of these internal distinctions, the property and income of the municipality as a whole retain the same nature and quality. The Court held that it would be manifestly unfair to create a distinction between employees of one department and those of another for the purpose of bonus payment. Such a distinction would effectively deny any bonus to staff of the spending departments and would, rather than fostering harmony among municipal employees, give rise to unrest and dissatisfaction. The Court also noted that counsel for the respondents had submitted that a distinction of this sort should be permitted, but the Court found that submission to be unconvincing.
Beyond the fact that the electricity department and the other municipal departments shared a single ownership, the learned counsel argued that there was no additional connection between them. The Court was not persuaded that this submission was correct. Under the Municipal Act, the total income and the total expenditure of a municipality constitute a single integrated whole, both being relevant for the purposes of the Act. Consequently, if the workmen employed in a service or spending department fail to perform efficiently, the resulting increase in expenses incurred on the municipality’s obligatory functions inevitably impacts the surplus generated by an earning department, potentially diminishing or even eliminating it. For an accurate understanding of a municipality’s financial position, it is therefore necessary to consider the aggregate income and expenditure, examining the entire picture—including both the shaded and illuminated portions—so that a correct appraisal may be made. Counsel for the respondents referred the Court to several Labour Tribunal decisions in which a distinction was drawn between a parent concern and its subsidiaries, or among different units of the same concern, for the purpose of determining liability for payment of bonus. The cited cases were Rohit Mills Ltd. v. Sri R. S. Parmar [1951] 1 L.L.J 463, Mackinnon Mackenzie and Company’s Indian Staff Organisation v. Mackinnon Mackenzie and Company Ltd. [1955] 1 L.L.J 154, Ahmedabad Manufacturing & Calico Partnership Co. Ltd. v. Their Workmen [1951] 2 L.L.J 765, Shaparia Dock and Steel Company v. Their Workers [1954] 2 L.L.J 208, and Minakshi Mills Ltd. v. Their Workmen [1953] 2 L.L.J 520. More recently, the Court had examined this issue in Messrs. Burn & Co., Calcutta v. Their Employees [C.A. 325 of 1955, decided 11 October 1956], where it highlighted the harmful consequences that could arise if an invidious distinction were made among employees within the same industry. Applying this reasoning to the facts of the present case, the Court found that the various activities of the Baroda Municipality formed one integrated whole; the different municipal departments did not operate as distinct or unrelated units that could be isolated from each other, nor could an earning department be separated from a spending department for the purpose of bonus entitlement. Accordingly, the claim for bonus by the workmen of the electricity department could not be sustained. The Court also noted that certain decisions had been brought to its attention concerning bonus liability of employees of electric supply companies that were not operated as State or municipal undertakings, with reference to clause XVII (2) (b) (xi) of Schedule VI of the Electricity (Supply) Act, 1948. However, the Court held that it was unnecessary to consider those decisions in the present matter, as they bore no relevance to the questions that required determination in this case. For the reasons set out above, the Court concluded that the bonus claim was not maintainable.
Having considered the matters raised, the Court concluded that the decision of the Industrial Tribunal was correct. The Tribunal had found that the workers employed in the electricity department of the Baroda Municipality did not have a legal right to the bonus that they had claimed. Accordingly, the Court held that the conclusion reached by the Industrial Tribunal should be affirmed. In contrast, the Court observed that the Labour Appellate Tribunal had reached an erroneous conclusion on the same issue when it delivered its order dated 23 November 1955. The appellate Tribunal’s decision was therefore found to be contrary to the correct interpretation of the applicable law and the facts of the case.
Because the Labour Appellate Tribunal’s order was erroneous, the Court allowed the appeal filed by the respondents and set aside the order of the Labour Appellate Tribunal in its entirety. The Court further directed that each of the parties to the proceeding should bear its own costs for the entire period of the litigation. No costs were to be awarded against any party. The appeal was thus allowed, and the orders of the lower appellate body were vacated and replaced by the findings of the Industrial Tribunal as affirmed by this judgment.