The State Of Mysore vs The Workers Of Gold Mines

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 648 of 1957

Decision Date: 22 May 1958

Coram: P.B. Gajendragadkar, A.K. Sarkar, A.K. Subbarao, K. Bose, Vivian

The State of Mysore brought an appeal against an award of bonus granted to the workers employed in the Mysore gold mining enterprises, which at the time were managed by private companies. The appeal was decided by the Supreme Court of India on 22 May 1958, with the judgment authored by Justice P. B. Gajendragadkar. The Bench that heard the matter comprised Justices P. B. Gajendragadkar, A. K. Sarkar, Subbarao, K. Bose and Vivian. The citation of the decision is reported in the 1958 All India Reporter at page 923 and in the 1959 Supreme Court Reporter at page 895.

The dispute arose from a covenant contained in the lease that the mining companies had executed in favour of the government. That covenant allowed the lessees to create a reserve fund by contributing fifteen per cent of the revenue expenditure, and to deduct that contribution when calculating the net surplus available for bonus distribution. The covenant did not obligate the lessees to create such a fund, and it was clearly intended to give the lessor a basis for claiming royalties. The companies argued that the formula for determining the available surplus, which had been developed by the Full Bench of the Labour Appellate Tribunal in the case of Mill Owners Association, Bombay v. Rashtriya Mill Mazdoor Sangh (1950) L.L.J. 1247, should not apply to gold mining because the industry possessed special and distinguishing features. They maintained that, under the lease covenant, they were entitled to deduct fifteen per cent of revenue expenditure as a prior charge, and that after such deduction no surplus remained from which a bonus could be awarded.

The Labour Appellate Tribunal rejected the companies’ argument. It disallowed the claim that was based solely on the covenant, applied the Full Bench formula, upheld the portion of the surplus that related to depreciation, but found no evidence that any sums had actually been spent on rehabilitation for the years in question, and therefore refused to make any allowance for that head. On appeal, the companies contended that earlier awards made in their favour had misled them into not presenting a specific claim for rehabilitation, and that if the general claim under the covenant were dismissed they should be permitted to raise a separate claim.

The Supreme Court held that the formula devised by the Labour Appellate Tribunal and the categories of prior charges prescribed therein were sufficiently comprehensive to cover every individual case, including those involving gold mining. Consequently, there was no reason to exclude the gold mining industry from the application of that formula. The Court referred to the Mill Owners Association decision and also to Muir Mills Co. Ltd., Kanpur v. Suti Mills Mazdoor Union, Kanpur, [1955] 1 S.C.R. 991, to support its reasoning. It observed that the lease covenant, apart from the question of whether it could bind the workmen, imposed no obligation on the employees and could not prevent the Tribunal from investigating each specific claim of expenditure to determine whether any surplus existed. The Tribunal was therefore correct in disallowing the claim that relied solely on the covenant, a claim that could otherwise have been assessed under the established formula.

The Court observed that a covenant contained in a lease could not bar the Industrial Tribunal from examining each specific expenditure claim presented by the employers, because such an examination was necessary to determine whether any surplus actually existed. Consequently, the Tribunal was justified in rejecting a claim that relied solely on the covenant, when the same claim could have been assessed under the established formula. The Court further held that the principle of social and economic justice, which underlies the entitlement to a bonus, applies to the gold‑mining sector in the same manner as it does to any other industry. The formula used to calculate a bonus was designed to identify any surplus that could be distributed as an award, and its foundation lay in the same concepts of social and economic justice that are embodied in the Directive Principles of State Policy expressed in Articles 38 and 43 of the Constitution. The responsibility, therefore, rested with the Industrial Tribunal to decide, on a case‑by‑case basis and after evaluating the evidence offered by the employers, which items of expenditure should be admitted under each of the four categories prescribed by the formula. In carrying out this function, the Tribunal was required to apply the principles articulated in earlier decisions in a flexible way that responded to the particular facts and special requirements of the gold‑mining industry. The Court cited several earlier cases, including Ganesh Flour Mills Co. Ltd. v. Ganesh Flour Mills Staff Union (1952) L.A.C. 172, Trichinopoly Mills Ltd., Ramjeenagar v. National Cotton Mills Workers’ Union (1953) L.A.C. 672, The Meenakshi Mills Ltd. v. Their Workmen (1954) L.A.C. 131, The Rohtas Sugar Ltd. v. Their Workmen (1954) L.A.C. 168 and The Mettur Industries Ltd. v. The Workers (1957) L.A.C. 288, to illustrate the appropriate application of the formula. Noting that, as in the present matter, the employers had been misled by earlier awards, the Court concluded that it was only proper that they be given a chance to substantiate a separate claim for rehabilitation, distinct from the general claim based on the covenant. The judgment then set out the civil appeal details: Civil Appeal No. 648 of 1957, filed by special leave against the order dated 24 November 1956 of the Central Government Industrial Tribunal, Madras, in Industrial Dispute No. 1 of 1956. The appeal was presented by counsel for the State of Mysore, with representation for the various respondents, and the judgment was delivered by Justice Gajendragadkar on 22 May 1958, reviewing the award made against the Champion Reef Gold Mines of India (KGF) Ltd., Mysore Gold Mining Company (KGF) Ltd., Nundydroog Mines (KGF) Ltd., and their allied establishments.

The dispute involved the Central Administration Department, the Kolar Gold Field Hospital and the Kolar Gold Field Watch and Ward establishment together with the three mining companies, and it arose from the workmen’s claim for a bonus for the calendar years 1953 and 1954. The trade unions representing the workmen asserted that the employers possessed a sufficient surplus from which a bonus ought to be paid for both years. The union representing the employees of Mysore Gold Mining Co. Ltd. demanded a bonus equivalent to four months’ wages for 1953 and five months’ wages for 1954. The union acting for the workers of Nundydroog Mines Ltd. sought a total of four months’ wages as bonus for each of the two years, while the employees of Champion Reef Gold Mines Ltd. asked for four months’ wages as bonus for both 1953 and 1954. The management opposed all of these demands, arguing that there was no surplus available in any of the mines for either year and consequently that no bonus could be awarded.

After hearing the arguments, the tribunal rejected the management’s case and issued an award in favour of the workmen. Considering all relevant factors, the tribunal granted the workers of Champion Reef Gold Mines Ltd. a bonus of one and a half months’ wages for 1953 and three months’ wages for 1954. It awarded the workers of Nundydroog Mines Ltd. a bonus of two and a half months’ wages for 1953 and three and a half months’ wages for 1954. The workers of Mysore Gold Mining Co. Ltd. received a bonus of one month’s wages for 1953 and three months’ wages for 1954. For the employees employed in the allied establishments, the tribunal granted a bonus of one month’s wages for 1953 and two months’ basic wages for 1954. The management argued that the Full Bench formula devised by the Labour Appellate Tribunal in the Mill Owners Association case should not be applied without suitable modification to the mining context, contending that gold mining is a wasting industry unlike the textile sector and that a rigid application of the formula could not properly balance the competing claims of employer and employee even on a basis of social justice. The tribunal accepted that the special requirements of the gold‑mining industry—such as the need for large investments in the search for new ore and the higher costs of renewing and replacing machinery—must be taken into account, but it remained inclined to follow the principles laid down by the Labour Appellate Tribunal in arriving at the Full Bench formula. The next argument presented to the tribunal concerned sub‑para (5) of the lease deed.

The lease deed, which had been executed in favour of the management on 20 February 1949, formed the basis of the management’s principal claim. The management contended that it was entitled to deduct fifteen percent of the revenue expenditure as a prior charge when calculating the available surplus, relying on a clause in the lease deed that required the creation of a reserve fund for depreciation, capital‑nature development expenditure and the search for new ore. It submitted that the amount debited by the management in accordance with this clause should accordingly be treated as a prior charge. The tribunal was not persuaded by this argument. While it accepted that a separate fund for the discovery of new ore and for preserving the longevity of the mining industry was indeed necessary, the tribunal held that the covenant in the lease on which the management relied could not bind the workmen, nor could the amount debited be classified as a prior charge. Moreover, the tribunal observed that no evidence had been produced to show that any portion of the debited sum had actually been applied to the purposes specified in the covenant. It further found that there was no evidence that, besides the statutory depreciation, an additional allowance for a rehabilitation reserve had been made, and it was not shown that any expenditure on rehabilitation had occurred in the two relevant years. In light of these findings, the tribunal refused to allow the management’s claim to the sum of Rs 20.26 lakhs, describing the amount as a mixture of numerous items arising from the options exercised under the joint operation schemes.

Another dispute concerned the management’s contributions to a pension fund scheme. The management sought credit for both the initial contribution and the subsequent annual contributions made during the relevant years, arguing that these should be deducted from the workers’ bonus entitlement. The tribunal held that, given the circumstances under which the pension fund had been introduced and the fact that it was intended solely for the benefit of the covenanted staff of the companies, it would be inequitable to permit either the initial or the annual contributions to take precedence over the workers’ claim for bonus. Accordingly, the claim for deduction of both contributions was rejected. The management also urged that the bonus paid to the workers for the year 1950 should be deducted in 1958, on the ground that the amount had actually been debited to the workers in that year; the tribunal found this claim inadmissible. Finally, the tribunal disallowed the management’s request for interest at a rate higher than two per cent on reserves employed as working capital during the relevant years. Having rejected most of the management’s contentions, the tribunal proceeded to apply the Full Bench formula to determine the surplus available for the award of bonus to the workmen.

Having rejected the numerous contentions advanced by the management, the tribunal applied the Full Bench formula and determined that a surplus sufficient to meet the bonus obligations existed in the management’s accounts for the fiscal years 1953 and 1954. Consequently, the tribunal issued an award directing payment of the bonus to the workmen, an award that now forms the basis of the present appeal. Before examining the substantive issues raised in the appeal, the Court found it necessary to set out the factual background concerning the operation of the gold mines, background which ultimately led the State of Mysore to appear as the appellant. Four public joint‑stock companies incorporated in the United Kingdom were engaged in the exploitation of the Kolar Gold Fields under mining leases granted by the Government of Mysore. These companies were Mysore Gold Mining Ltd., Champion Reef Gold Mines of India Ltd., Oorgaum Gold Mining Co. Ltd., and Nundydroog Mines Ltd., and each held an identical lease on the same terms and conditions. After the Second World War, the market price of gold rose sharply, prompting the Mysore Legislature to enact the Mysore Duty on Gold Act, 1940 (Mys. XIX of 1940), which imposed a duty on gold produced from the mines. That duty was charged in addition to the royalties, rents, cesses and other taxes that were already payable under the lease agreements dated 25 March 1935. The British‑incorporated mining companies contended that the duty created a financial hardship, leaving inadequate funds for necessary depreciation and development required for the long‑term viability of the mines. Following negotiations, the 1940 Act was repealed in 1946 and a new agreement was executed whereby the State of Mysore imposed a contribution on the companies. Under the terms of that agreement, Indian‑rupee companies were to be incorporated to assume the undertakings and assets located in Mysore that previously belonged to the Sterling or United Kingdom companies, and the management headquarters were required to be transferred from the United Kingdom to India. Accordingly, four rupee‑denominated companies corresponding to the four original Sterling companies were formed: Mysore Gold Mining Co. (KGF) Ltd., Champion Reef Gold Mines of India (KGF) Ltd., Oorgaum Gold Mines (KGF) Ltd., and Nundydroog Mines (KGF) Ltd. All share capital of each rupee company remained owned by its respective Sterling counterpart. The assets situated in Mysore belonging to the Sterling companies were transferred to the corresponding KGF companies, and mining operations were conducted by these Indian companies from 1 April 1951 in accordance with the stipulations set out in the transferred agreements (exhibits 1 and 2). For the purposes of efficiency and economy, the four gold‑mining entities shared common facilities collectively referred to as the Central Administration.

In the mining enterprises, the companies operated a common Medical Establishment and an Electricity Department, and there existed a private limited company called Kolar Mines Power Station (K.G.F.) Private Ltd. All of the shares of this power‑station company were owned by the gold‑mining companies, and its sole purpose was to keep a standby emergency plant for generating electricity whenever needed and to supply power to the mining companies. The same managing agents, John Taylor & Sons (Private) Ltd., administered the gold‑mining companies. The Oorgaum Mine soon became uneconomic because it had been excavated to such depths that technical difficulties prevented the extraction of ore. Consequently, the Oorgaum company stopped mining operations in 1953 and, with the approval of the Mysore Government, transferred its leases to the Champion Reef Gold Mines of India (K.G.F.) Ltd. After this transfer, the Oorgaum company entered liquidation. By 1954 only three mining companies and their related establishments continued to operate. In 1956 the Mysore State enacted the Kolar Gold Mine Undertakings (Acquisition) Act, 1956 (Mys. XXII of 1956), and, pursuant to the provisions of that Act and the accompanying notification, the undertakings of the gold‑mining companies vested in the State on 29 November 1956. As a result of the vesting, the Government became liable to pay the bonus that had been awarded by the Central Government Industrial Tribunal, Madras. Feeling aggrieved by that award, the State of Mysore approached this Court by special leave. The first question for determination was whether the Tribunal was right to apply the Full Bench formula in ascertaining whether a surplus existed in the hands of the appellant during the relevant years. In the case of The Mill Owners Association, Bombay v. The Rashtriya Mill Mazdoor Sangh, Bombay (1950) L.L.J. 1247, the Labour Appellate Tribunal considered a workers’ claim for bonus and held that bonus was neither an ex gratia payment nor a matter of deferred wages, even where wages had been standardised. The Tribunal affirmed that the workers’ claim rested on the well‑established view that both labour and capital contribute to an industrial concern’s earnings and that social justice requires that workers receive a reasonable share of the profits. To determine the amount of profit to which workers as a whole might be entitled, the Tribunal devised a formula that calculates the available surplus in the employer’s hands. The formula begins with the gross profit for the year and then deducts amounts for depreciation, reserves, rehabilitation, a 6 percent return on paid‑up capital, a lower return on working capital, and income tax. These deductions are treated as prior charges, and the balance after all deductions is deemed the available surplus for that year. It is from this deduced surplus that labour may claim a reasonable share in the form of bonus. Thus, under the formula, the existence of an available surplus is a prerequisite for awarding bonus, and the claim is intended for workers whose wages do not constitute living wages, the bonus serving to bridge, as far as reasonably possible, the gap between actual wages and living wages. This formula has received general approval from this Court in subsequent decisions.

In the formula applied to determine the amount of bonus, the court explained that the starting point is the gross profit earned by the industrial concern during the relevant financial year. From this gross profit, the court deducts a series of items that are treated as prior charges. These items include depreciation, the amounts set aside as reserves, any sums allocated for rehabilitation, a return of six percent on the paid‑up capital, a return on the working capital calculated at a rate lower than that applied to the paid‑up capital, and the payment of income tax. After subtracting the aggregate total of these charges from the gross profit, the remaining figure is deemed to be the available surplus for that year. It is from this available surplus that labour is entitled to claim a reasonable share in the form of a bonus. Consequently, the court held that the existence of an available surplus is a condition precedent for the award of a bonus to the workmen. The formula further presumes that the claim for bonus is made by workmen whose wages do not constitute living wages. The purpose of the bonus, therefore, is to bridge, as far as reasonably possible, the gap between the wages actually paid and the living wages that the workmen legitimately aspire to secure. The Supreme Court had earlier endorsed this formula in the case of Muir Mills Co. Ltd., Kanpur v. Suti Mills Mazdoor Union, Kanpur. Since the year 1950, the basis supplied by this formula has been adopted by industrial adjudication bodies throughout the country in dealing with workmen’s claims for bonus across a variety of industries.

While acknowledging that the appellant’s industry is a “wasting” industry with distinctive characteristics, the appellant, through counsel, urged that special consideration should be given because the search for new ore, which is essential for the industry’s prosperity and longevity, requires adequate provision for prospecting before any bonus can be awarded. The appellant also suggested that larger provisions might be necessary for depreciation or rehabilitation owing to the special needs of the industry. The court accepted that the industry indeed has special needs; however, it emphasized that the principles of social justice on which a claim for bonus is founded apply equally to this industry as to any other. Social and economic justice occupy a place of pride in the Constitution, and one of the directive principles of State policy, embodied in Article 38, requires the State to strive to promote the welfare of the people by securing a social order in which social, economic and political justice inform all institutions of national life. Moreover, Article 43 directs the State to secure, by suitable legislation or economic organization, to all workers – whether agricultural, industrial or otherwise – a living wage, decent working conditions, and a standard of life that ensures full enjoyment of leisure and social and cultural opportunities. The court therefore held that, despite the appellant’s industry‑specific concerns, the constitutional commitment to social and economic justice obliges the application of the established bonus formula without deviation.

Justice was described as a living concept of revolutionary importance that sustains the rule of law and gives meaning to the ideal of a welfare state. The Court explained that the formula under discussion was founded upon this concept of social justice and that, according to experience in industrial adjudication, the formula had generally achieved a reasonable degree of success. The Court observed that in industrial adjudication it is not appropriate to rely solely on technical or legalistic considerations that may create rigidity, nor is it desirable to allow purely theoretical or academic ideas unrelated to the facts to influence the outcome. In order to accomplish social justice, the adjudicatory process must balance the competing claims of the employer and the workmen in a fair and equitable manner, and this balance is best achieved by examining each problem according to its own facts and circumstances. The Court noted that the formula has proven to be sufficiently elastic in its application to meet the needs of individual cases, and therefore concluded that the appellant had not established a ground for adding any new categories to the existing prior‑charge classifications. It was further clarified that the amounts admissible under the existing categories must be determined based on the evidence presented by the employer and taking into account the particular requirements of the employer’s industry. In the present matter, the special features of the appellant’s industry, which were relied upon by the counsel representing the appellant, had to be considered when deciding the sums that could be included either as depreciation or as rehabilitation. The Court affirmed that this was the approach adopted by the tribunal and held that no valid complaint could be made against that methodology.

The Court then turned to the next issue raised by the counsel for the appellant, which concerned the appellant’s claim for a deduction of fifteen per cent of the revenue expenditure under a special covenant in the lease. To address this claim, the Court first set out the relevant terms of the lease. The original lease, executed in 1935, contained in paragraph three an obligation on the lessees to, throughout the lease term, search diligently and without interruption—except when prevented by unavoidable accident—for all gold metals, metallic ores, precious stones, coal and other commodities of a saleable or marketable nature within or upon the mining block. The second schedule to that lease sought to define the term “adjusted annual profits of the lessee,” which formed the basis of the lessor’s royalty claim. According to that schedule, the adjusted annual profits were to be calculated by reference to the published annual accounts of the lessees and were defined as the difference in any year between the lessees’ gross income from all sources and the gross amount of…

In this case, the Court explained that the schedule to the lease set out that the sums referred to in paragraphs one through six of the schedule were to be deducted from the gross revenue for the purpose of calculating the lessee’s adjusted annual profits. Paragraph five of the schedule specified a sum equal to fifteen per cent of the aggregate amount of the expenses mentioned in paragraph four of the same schedule. Consequently, the amount mentioned in paragraph five was among the items that the lessee could deduct from the gross revenue when determining his adjusted annual profits. Later, by means of an agreement and deed of variation executed in 1949, the parties restated the deductions that the lessee could make from the gross profits for the purpose of arriving at his adjusted surplus. Under the new arrangement the adjusted profit was renamed the net surplus, and the method for computing this net surplus was set out in paragraph five of the variation document. Clause (v) of paragraph five was identified as the material clause. That clause provided that a sum up to fifteen per cent of the aggregate amount of the lessee’s expenses shown as debit items in the published revenue account or income‑and‑expenditure account should be reserved for depreciation and development expenditure of a capital nature, such as searching for new ore, purchasing machinery, and for renewals and replacements, and that this sum should be credited to a separate fund. The clause further stipulated that the accumulated balance in that fund, after deducting commitments, could not exceed twenty‑five per cent of the expenses shown as debit items in the published revenue account or income‑and‑expenditure account for either the first year on which the fifteen per cent was calculated or the last preceding year, whichever was greater. The appellant relied on this clause to argue that the fifteen‑per‑cent amount should be treated as a prior charge in the present proceedings, contending that the clause represented a valid contract between the lessor and the lessee and that the lessee was entitled to claim the benefit of that contract and to treat the amount as a prior charge. The Court observed that it was unnecessary to decide the broader academic question of whether such a contract would bind the workmen. The tribunal had held that because the covenant withdrew a substantial portion from the gross profits, the workmen were entitled to argue that the contract did not bind them and that the amount should not be treated as a prior charge. The Court further noted that the appellant’s argument presupposed that the lessee was under an obligation to create a reserve fund and to contribute an amount equal to fifteen per cent as specified in the clause. However, that assumption was not supported by the wording of the clause itself. It was significant that the clause did not impose any obligation on the appellant to create a reserve fund at all; the only obligation imposed by the lease was that the appellant should conduct a search for all gold and metallic ores during the continuance of the lease.

The lease imposed on the appellant solely the duty to conduct searches for all gold and metallic ores throughout the continuance of the lease. The lease and its annexures do not oblige the appellant to expend any specified sum in pursuance of that search, nor do they require the appellant to establish a special fund designated for that purpose. Accordingly, if the appellant actually incurs expenses while carrying out the search, he may be permitted to claim credit for those expenditures; however, no contractual provision mandates a particular amount of spending or the creation of a reserve fund. The lessor, by contrast, has merely permitted the appellant to set up a specific fund as described in the relevant clause, and has agreed that the amount placed in that reserve fund may be deducted each year from the gross receipts when calculating the appellant’s net surplus. In effect, when determining the net surplus upon which the lessor’s claims—such as royalties or other contributions—are to be based, the appellant is allowed to make certain prescribed deductions, one of which is the fifteen percent mentioned in paragraph five, clause (v). Moreover, the fifteen percent of the aggregate amount referenced in the clause represents the maximum ceiling that the contribution to the special fund may reach in any given year under that provision. At first glance, it is uncertain whether the appellant’s failure to create the reserve fund or to make an annual contribution to it would automatically result in the forfeiture of his lease. Nevertheless, apart from that consideration, the clause imposes no further obligation on the appellant, and any argument predicated on an alleged duty to create or fund such a reserve cannot be accepted. Another important point to bear in mind is that the fund contemplated by the clause is intended to meet depreciation and development expenditure. It is evident that depreciation and rehabilitation are included in the Full Bench formula among the items of prior charge when dealing with workmen’s claims for bonus. If the appellant wishes to claim depreciation and rehabilitation, he may do so under the Full Bench formula, and his claim for depreciation has already been upheld by the present award. The inclusion of depreciation and rehabilitation items in the clause demonstrates that, even if the appellant’s claims based solely on that clause are disallowed, he remains free to seek recovery for admissible items independently of the clause. Should he succeed in proving such a claim, no injustice would befall him. In the Court’s view, it would be neither reasonable nor fair to permit the appellant’s specific claim for fifteen percent as rehabilitation merely because the clause permits a deduction of up to fifteen percent into a special fund, without first examining whether a claim for depreciation and rehabilitation is justified and, if so, what amount should be treated as a prior charge in the present proceedings.

The Court observed that the amount which the appellant seeks to treat as a prior charge in the present proceeding must be identified on the basis of evidence, and that the mere inclusion of such items in a separate fund permitted by the relevant clause does not bar the industrial tribunal from investigating the substance of those items. The appellant relied solely on that clause to place his claim before the tribunal, but the Court was satisfied that the tribunal was correct in refusing to allow the claim on the basis of that clause alone. The Court further noted that the tribunal had already recognised that the appellant could, in principle, make a claim for the cost of prospecting new ore in order to promote the long‑term viability of the industry. However, because no documentary material had been placed before the tribunal to enable it to assess the amount that could legitimately be claimed for such prospecting, the tribunal was unable to grant any relief on that ground.

In the course of the proceedings counsel for the appellant, Mr. Sanyal, referred the Court to extracts from the balance‑sheets that showed capital expenditure during the relevant years on items such as buildings, machinery, plant, sundries and shaft‑sinking. For the Mysore Gold Mining Co. the balance‑sheet indicated a total capital expenditure of Rs. 3,30,729 for the year ending 31 December 1953 (Exhibit VIII‑A). The Court explained that accepting this figure as a prior charge, either under depreciation or rehabilitation, was problematic because the appellant’s witness, Mr. Rajagopal Srinivasan, could not explain how the total amount was composed. The witness expressly admitted that the companies did not maintain separate records showing the breakdown of the amount under different heads. Counsel for the appellant conceded that the companies might have produced better evidence in support of their case.

Given the state of the evidence, the Court found it difficult to dispute the tribunal’s view that the figures shown in the balance‑sheet extracts represented a mixture of many different items, reflecting the various options exercised by management. Consequently, it would be impossible to isolate any portion of those amounts that could be reliably treated as a prior charge under the heading of rehabilitation. For that reason, the Court concluded that Mr. Sanyal could not succeed in arguing, on the existing evidence, that the appellant was entitled to any specific amount as a rehabilitation charge.

The Court then turned to the appellant’s claim concerning the annual contribution to the pension fund, which the tribunal had disallowed. The Court noted that the pension‑fund scheme was intended for the benefit of the covenanted servants of the Sterling companies and had come into operation on 1 January 1951, shortly after the rupee companies were formed. Certain rules had been framed for the administration of this pension fund and a trust had been established for that purpose.

In this case, the Court explained that a trust had apparently been created to administer a pension fund that was established for the benefit of the covenanted servants of the former Sterling companies. According to the rules governing the fund, each company was required to make an initial contribution as described in paragraph 1(c) of those rules. In addition to this initial contribution, the companies were obligated to pay an ordinary annual contribution, in two half‑yearly instalments on June 30 and December 31, at the rate set out in paragraph 6. The appellant claimed that the annual contribution should be allowed as a prior charge and complained that the tribunal had unreasonably refused this deduction. The tribunal made several factual findings concerning the fund that are not open to challenge before the Court. Those findings were based on the circumstances surrounding the fund’s creation. The respondent’s counsel described the fund as a parting gift from the Sterling companies to their covenanted servants, and the tribunal appeared inclined to accept that description. The fund was intended for a very small class of officers, and the record shows that these officers neither demanded the benefit nor was the benefit essential for the effective operation of the companies. Those officers were already entitled to gratuity, and throughout the existence of the Sterling companies there had never been any intention to create such a fund. No claim for the initial contribution to the fund was made to the Court. Even with respect to the annual contribution, the tribunal was not convinced that the amount claimed was reasonable or that payment of the amount was justified on its merits. The tribunal contrasted this situation with the larger number of non‑covenanted servants and other employees for whom no similar fund existed. Considering all these circumstances, the tribunal concluded that it would be neither fair nor just to permit the appellant to treat the annual contribution as a prior charge, because doing so would reduce the gross profits and adversely affect the respondents’ entitlement to bonus. The Court held that whether the amount should be allowed does not raise any general question of law; the reasonableness of the claim must be assessed in view of the relevant facts and circumstances. Since the tribunal had found against the appellant on this point, the Court saw no basis for interfering with that decision. The next issue raised by the appellant concerned the tribunal’s finding on the amount of bonus paid by the companies to their workmen for the year 1950.

The contention put forward was that although the bonus had accrued for the financial year 1950, it was actually paid in 1953 and therefore the amount of the bonus should be deducted from the gross profits of 1953. The tribunal rejected this contention. In its reasoning, the tribunal observed that although the disbursement of the bonus for the year 1950 was made in the early part of 1953, the amount had been provided for and debited in the accounts of 1952. This fact was evident from the income‑tax assessment order that the tribunal referred to. The employer had claimed the amount of the bonus as an expenditure in that income‑tax proceeding, and consequently the tribunal held that the same amount could not now be taken into consideration for the year 1953. The Court found no error of law in the tribunal’s recording of this finding. It was clear that the respondents were entitled to the bonus for the year 1950 because the companies possessed a sufficient surplus of trading profits for that year. In the absence of satisfactory evidence, a bonus paid for 1950 could not ordinarily be brought into the accounts of a later year. Accordingly, the Court was satisfied that the appellant could not successfully challenge the tribunal’s finding on this point.

It was then necessary to refer to two earlier awards between the companies and their workmen because counsel for the appellant had based an argument on those awards, an argument that remained to be examined. On 5 January 1953, Mr V N Dikshitulu, the sole member of the industrial tribunal, made an award in a dispute between Champion Reef Gold Mines of India Ltd. and its workmen. By that award the tribunal held that the employer’s claim, founded on a clause permitting the creation of a reserve fund with an annual contribution of up to fifteen per cent, “cannot but be allowed because mining operations can be performed only subject to the condition of making the said item of reserve as per the agreement and hence it stands to reason that the reserve should be deducted from the gross profits to ascertain the available surplus.” The award showed that the tribunal did not consider the effect of the terms contained in the clause after construing the relevant provisions, and there was no discussion of the merits of the rival contentions concerning this claim. It appeared that the tribunal accepted the employer’s case at face value and granted relief to the employer without examining all the relevant clauses of the lease and its annexures and without evaluating the workmen’s case on the point. The next award was passed by Mr Dave on 31 December 1954 in Reference Nos 6 and 7 of 1954. These two references arose from disputes between the Orgaum Gold Mines and the Champion Reef Gold Mines and their workmen. By this award Mr Dave

The tribunal under Mr. Dave rejected the employer’s request to deduct fifteen per cent from its gross profits under the contractual clause because he was unconvinced that the clause’s maximum limit of twenty‑five per cent had not been exceeded in the year 1952. The employer failed to produce the relevant accounting books, and Mr. Dave interpreted this failure as evidence that the employer feared the books would reveal that the maximum percentage had already been surpassed. On the basis of that inference, Mr. Dave concluded that the employer was not entitled to make any contribution to the reserve fund for that year. Concerning the pension fund, Mr. Dave disallowed the claim for an initial contribution but allowed the claim for an annual contribution. He reasoned that the annual contribution corresponded to services rendered during the same year and therefore must be counted as an expense of that year.

The Labour Appellate Tribunal subsequently reviewed the award. It affirmed Mr. Dave’s decisions regarding both the initial and the annual pension‑fund contributions. However, the Appellate Tribunal diverged from Mr. Dave on the issue of the fifteen‑per‑cent deduction. While it accepted the finding that the employer had not proved that the required fifteen‑per‑cent contribution to the reserve fund was necessary in any particular year, the Tribunal held that the sum of Rs 4.77 lakhs reflected the employer’s actual expenditure for the year and therefore could be treated as a prior charge. The Tribunal appeared to have taken this figure from the balance‑sheet as evidence of the real outlay, though the present Court did not examine whether that conclusion was correct. What remains material for the present consideration is the Tribunal’s finding that the company could not claim the full fifteen‑per‑cent rate of total revenue expenditure authorized by the clause. Mr. Sainyal cited these two awards to support his contention that the companies had not deemed it necessary to make a separate rehabilitation claim because they expected that the earlier awards would permit the fifteen‑per‑cent claim. He argued that, if the covenant‑based claim were denied, it would be unfair to his client to bar any rehabilitation claim altogether. The record shows that the companies did not make a distinct rehabilitation claim, having incorporated it within the fifteen‑per‑cent deduction request. There is some merit in Mr. Sainyal’s argument that, given the precedent of the earlier awards, the companies might have believed the rehabilitation component would be allowed. Nevertheless, having ruled against the appellant on the principal claim concerning the fifteen‑per‑cent deduction, the Court must now decide whether the appellant should be permitted to pursue a specific rehabilitation claim and present supporting evidence.

The Court first examined whether the appellant should be permitted to lodge a distinct claim for rehabilitation and to adduce evidence in support of that specific claim. Counsel for the respondents, identified as Mr Jha, opposed the appellant’s request for a remand, asserting that the companies intentionally omitted a separate rehabilitation claim. He contended that the companies relied solely on the contractual clause because they were aware that a stand‑alone rehabilitation claim would not survive judicial scrutiny. In support of his position, Mr Jha referred the Court to the principles traditionally applied by industrial courts when assessing employer claims for rehabilitation. The Court found this argument unconvincing and expressed dissatisfaction with its persuasiveness. The Court observed that if the employer had been partially misled by earlier awards and consequently failed to present a specific rehabilitation claim, it would be inequitable to bar the claim now. Even after the general claim for a fifteen percent deduction is rejected, fairness demands that the employer not be denied the opportunity to seek a rehabilitation deduction. The Court noted that the Full Bench formula identifies four items constituting a prior charge grounded in principles of social justice, and that penalising the employer for omitting one item would be unjust. Accordingly, the Court ordered that the appellant be allowed to submit a separate rehabilitation claim before the tribunal and to present any supporting evidence. The matter is therefore remitted to the tribunal for determination of the appellant’s rehabilitation claim together with two additional points that the Court will specify subsequently. The Court further indicated that it would be useful to briefly outline the general principles that industrial courts normally apply when adjudicating employer rehabilitation claims. These principles, the Court affirmed, must be kept in mind by the tribunal when it assesses the validity of the appellant’s newly permitted rehabilitation claim. The Court cited the Labour Appellate Tribunal decision in Ganesh Flour Mills Co. Ltd., Kanpur v. Ganesh Flour Mills Staff Union (1), which held that an employer may deduct rehabilitation expenses from gross profits as a matter of right. However, the same decision warned that no universal rule can be imposed on every industry regarding the computation of such deductions. The Court also referred to the Full Bench formula developed in The Mill Owners Association, Bombay (2), noting that it was never intended to create a rigid, inflexible standard. Finally, the Court stressed that sustaining a rehabilitation claim requires concrete evidence concerning the age of the machinery, the period until replacement is required, and the cost of such replacement.

In determining the amount required for rehabilitation, the appellate tribunal in Trichinopoly Mills Ltd., Ramjeenagar v. National Cotton Mills Workers’ Union, Ramjeenagar (1) explained that the original cost of machinery, buildings and plant must be multiplied by a suitable factor—such as 2.7—to arrive at a replacement value. From that replacement value the tribunal directed that five per cent of the original cost be deducted as breakdown value, and the remaining balance be regarded as sufficient to replace the machinery and buildings. The tribunal further required that the sums presently available under the heads of depreciation, general reserve and rehabilitation be aggregated and that this total be deducted from the balance required for replacement. The residual amount, after this deduction, is to be spread over a period, for example fifteen years, so that the annual portion is treated as a prior charge for rehabilitation for the relevant year. The Court cited the decisions in The Meenakshi Mills Ltd., Madurai and Manapparai v. Their Workmen (1); The Rohtas Sugar Ltd. v. Their Workmen (3); and The Mettur Industries Ltd., Mettur Dam v. The Workers (4) as authority for applying this methodology. Consequently, the appellant’s claim for rehabilitation must be examined by the tribunal in accordance with these precedents. While applying the principles outlined in those cases, the tribunal is cautioned against adopting a rigid formula; instead, it must adjust the method as necessary to accommodate the specific evidence presented, the special needs of the industry, and the requirements of justice, a position that the Labour Appellate Tribunal itself has recognised in the cited decisions.

Mr. Sanyal has asked the Court to direct the tribunal to make a finding on a second matter, asserting that the tribunal’s award contains an error apparent on the face of the record. He contends that the award added back both the initial contribution to the pension fund and the annual contribution to the pension fund for each year and for all companies, but that the figure recorded under “annual contribution to the pension fund” already includes the initial contribution. Accordingly, he argues that the initial contribution has been added back twice, creating a duplication of amount. This grievance forms the basis of his request that the tribunal determine whether a double addition of the initial contribution has indeed occurred. The opposing counsel for the respondents, Mr. Jha, disputes the assumption that the annual contribution subsumes the initial contribution and does not accept Mr. Sanyal’s claim of a facial error. The Court has refrained from expressing an opinion on the merits of the dispute but proposes to remit the question to the tribunal for a definitive finding on whether the initial contribution was erroneously added back a second time.

In the matter of the respondents, the Court did not accept the contention advanced by Mr. Sanyal that the record contains an error apparent on its face. The Court observed that the respondents dispute the assumption made by Mr. Sanyal that the annual contribution to the pension fund, in each case, already includes the initial contribution. The Court stated that it would not express any opinion on the merits of this disagreement. However, the Court considered it appropriate to direct the tribunal to determine whether the initial contribution has been added back twice, as alleged by the appellant. This issue was identified as the second point that the Court intended to remit to the tribunal for consideration. The Court also noted a third point, raised on behalf of the respondents by Mr. Jha, which it proposed to remit to the tribunal. Mr. Jha argued that the tribunal had made a clear mistake by allowing a deduction for statutory depreciation for each of the companies for both years under review. To support this argument, he relied upon statements found in the directors’ reports of the respective companies. As an example, the Court referred to the report and accounts of Nundydroog Mines (KGF) Ltd. for the financial year ending 31 December 1953. In that report, under the heading “capital expenditures,” it was stated that an amount of Rs. 13,50,000, representing depreciation for the period from 1 April 1951 to 31 December 1953, had been written off. Mr. Jha contended that because this sum had already been written off as depreciation, no further amount should be allowed as statutory depreciation when calculating the available surplus for that year. The tribunal had examined this argument in paragraph 20 of its award, but Mr. Jha sought to challenge the tribunal’s conclusion. The Court indicated that ordinarily it would not have permitted Mr. Jha’s request for reconsideration of that matter. Nevertheless, because the Court was already remanding the case to the tribunal on two points raised by the appellant and was seeking the tribunal’s findings on those points, the Court thought it just to give the respondents an opportunity to re‑agitate the depreciation issue. The Court added that the appellant, Mr. Sanyal, had not objected to the matter being sent back to the tribunal for reconsideration. Finally, the Court clarified that, in dealing with this third point, the respondents could not argue that the appellant was not entitled to claim additional depreciation under the head of statutory depreciation. The Court referenced its earlier decision in Sree Meenakshi Mills Ltd. v. Their Workmen, which held that depreciation admissible under section 10(2)(vi) of the Income‑Tax Act need not be allowed by industrial courts when determining the available surplus under the Full Bench formula. Accordingly, the Court emphasized that the respondents could not rely on that decision to make a contention on the issue that was being remitted.

In this case the matter was remitted to the tribunal at the request of the parties. The Court expressed regret that, although it had decided against the appellant on the principal arguments presented by Mr Sanyal, it was unable to give a final disposal of the appeal on the present day. The Court recognized that industrial disputes ought to be resolved quickly and without unnecessary delay, yet concluded that fairness required allowing the appellant to pursue the two points identified in the earlier judgment, including the reference to (1)[1958] S.C.R. 878. Consequently, the Court directed that the case be sent back to the tribunal with an instruction that the tribunal should render findings on the issues that were referred to it by this judgment. The Court listed three specific matters for which it required findings: first, whether, in addition to the statutory depreciation already permitted, the appellant was entitled to claim any deduction under the head of rehabilitation and, if so, the exact amount of such deduction; second, whether the award in substance added back the initial contribution to the pension fund twice when calculating the available surplus; and third, whether the award effectively allowed statutory depreciation for the relevant years twice, considering that the appellant had already written off a large sum as depreciation for that period. The Court further explained that the parties would be free to present any additional relevant evidence. It ordered the tribunal to examine the evidence submitted by the parties, to hear the counsel for each side, and to make its findings on each of the three identified issues.

The Court also instructed the tribunal to determine whether, as a result of its findings on any of the stated issues, any adjustment to the final award would be necessary. If the tribunal’s findings indicated that the amount of available surplus might be materially altered, the tribunal was required to specify the revised amount of available surplus for each company for each of the two years that were under consideration. Moreover, the tribunal was directed to decide the amount of bonus to which the respondents would be entitled based on the revised calculation of available surplus. The Court emphasized its desire for a prompt final disposal of the appeal and therefore set a deadline that the tribunal should submit its findings together with the evidence to be recorded thereafter within three months from the date of the order. Both sides informed the Court that the matter would be handled by the Central Government Industrial Tribunal located in Bangalore, and accordingly the proceedings were remitted to that tribunal. The Court ordered that the appellant would bear the costs of the remand in any event, and that the costs of the present hearing of the appeal would be treated as costs in the appeal. Finally, the Court noted that Mr Sanyal had agreed, without prejudice, that the appellant would pay to the respondents the basic wage for fifteen days as claimed for bonus during the relevant years.

In the final order, the Court directed that the respondents should receive an amount equal to fifteen days of their basic wages. This payment was to satisfy the portion of their claim for bonus that pertained to the years under consideration. The direction required the respondents to be granted this specific sum as part of the bonus entitlement that they had sought for the relevant periods. After issuing this directive, the Court indicated that the matter would be sent back for further consideration. Accordingly, the case was remanded to the appropriate authority for the next stage of proceedings. The remand meant that the file would return to the lower forum to apply the Court’s instructions and to carry out any further actions necessary in accordance with the order. The Court’s order therefore combined a specific monetary award to the respondents with an instruction that the case be returned for implementation of that award.