Kirloskar Oil Engines Ltd vs Their Workmen

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

Court: Supreme Court of India

Case Number: Appeal (civil) 770 of 1957

Decision Date: 05/05/1959

Coram: N.H. Bhagwati, S.K. Das, P.B. Gajendragadkar, K.N. Wanchoo, S.R. Das

In this appeal by special leave, the appellant, Kirloskar Oil Engines Ltd., is opposed by its workmen, who are collectively described as the respondents. The respondents belong to three distinct groups: two groups are each represented by a separate trade union, while the third group consists of workers who are not represented by any union. The matter before the Court concerns the claim for a bonus made by the un‑unionised respondents for the fiscal year that ended on 31 March 1955. Kirloskar Oil Engines Ltd. is a public limited company that manufactures oil engines at Kirkee, Poona. The company was incorporated under the Indian Companies Act of 1913 in 1946 and commenced production in June 1949. Its financial year is aligned with the calendar that ends on 31 March. The employer has adopted the wage structure recommended by the Standardisation Committee (Engineering) of Bombay and, in addition to basic wages and dearness allowance, it pays a production incentive bonus and an attendance bonus. Apart from these monetary components, the employer also provides other amenities to its employees. On the basis of these various components, the appellant asserts that the total remuneration it provides to its workers approximates a living wage. The respondents reject this assertion. They argue that the sum of their basic wages, the production and attendance bonuses, and the additional amenities falls considerably short of a living wage. Consequently, they contend that they are entitled to an extra bonus out of the surplus trading profits of the appellant. Accordingly, the un‑unionised workers demanded a bonus for the year in question that would amount to one‑third of their total earnings for that year, demanding immediate payment without imposing any further conditions.

The demand gave rise to an industrial dispute that was referred, under section 12(4) of the Industrial Disputes Act, 1947 (14 of 1947), to a conciliation officer by the Government of Bombay. The conciliation effort did not succeed, and after the conciliation officer filed his report, the Government elevated the dispute to the Industrial Tribunal, Bombay, invoking section 12(5) of the same Act. The Tribunal delivered its award on 9 January 1957. By that award, the Tribunal directed the appellant to pay the respondents a bonus equal to one‑eighth of their basic earnings—excluding any allowances and the production bonus—within two months from the date the award became enforceable, subject to two conditions that were specified in the award. The appellant challenged this award by filing the present appeal. The Tribunal, applying the Full Bench formula, had performed calculations that indicated that even after the bonus payment ordered by the award, the appellant would retain a surplus of Rs 1.89 lakhs. Those calculations are contested by the appellant, which argues that the Tribunal’s formula was applied inconsistently. The appellant further contends that the Tribunal erred by not allowing a deduction for the income tax payable on the profit of the bonus year, as prescribed by the applicable formula. The factual basis for this tax claim is not disputed. The respondents concede that, if the income tax on the profit—after deducting allowable depreciation—were permitted, the tax liability would be Rs 2.25 lakhs. The respondents, however, maintain before the Tribunal that the appellant had incurred a loss of Rs 9 lakhs in the previous financial year ending 31 March 1953, and that, under section 24(2) of the Income‑Tax Act, the appellant was entitled to set off that loss against the profits of the current year.

In this case, the Court observed that if the appellant were to pay the bonus as ordered by the award, a surplus of Rs 1.89 lakhs would remain. The appellant, however, contested these calculations, asserting that they did not follow the prescribed formula. It was submitted on the appellant’s behalf that the tribunal erred by refusing the appellant’s request for a deduction of the income‑tax that would be payable on the profit of the bonus year in accordance with the formula. The Court noted that there was no dispute concerning the material facts relating to this claim. The Court further explained that, had the income‑tax payable on the profit—determined after deducting admissible depreciation from the gross profit—been allowed as a deduction, the amount would be Rs 2.25 lakhs, a figure conceded by the respondents. The respondents, however, contended before the tribunal that the appellant had incurred a loss of Rs 9 lakhs for the year ending 31 March 1953, and that, under Section 24(2) of the Income‑Tax Act, the appellant was entitled to set off that loss against the current year’s profit, thereby eliminating any tax liability for the relevant year. On that basis, the respondents argued that the appellant could not claim any deduction for income‑tax, and the tribunal accepted this argument, disallowing the entire income‑tax claim. The Court recalled the earlier decision in Associated Cement Companies, Ltd. v. Their Workmen (1959 (1) LLJ 644), where it had held that while working out the Full Bench formula, an employer may claim the appropriate amount of income‑tax payable on the profits calculated under the formula even if, under the Income‑Tax Act, the tax is not actually payable. Applying that principle, the Court held that the tribunal was mistaken in refusing to allow the appellant’s claim for a deduction of Rs 2.25 lakhs as a prior charge under income‑tax for the year in question. The Court accepted the concession made by the respondent’s counsel that, if this deduction were permitted, the tribunal’s conclusion that a surplus existed for payment of the bonus could not be sustained. The award indicated that the surplus from which the bonus was to be paid was Rs 2.26 lakhs; deducting Rs 2.25 lakhs would leave only Rs 0.01 lakhs, while the bonus awarded was Rs 0.37 lakhs. The Court noted that the appellant also challenged the award on another point, claiming interest at four per cent on the depreciation fund that had been used as working capital, a claim amounting to Rs 0.32 lakhs, which the tribunal had disallowed.

The tribunal had refused the appellant’s claim for interest on the depreciation fund on the basis that the employer could not claim any allowance on that fund. The Court noted that this issue had previously been examined in Associated Cement Companies, Ltd. v. Their Workmen (1959 (1) LLJ 644) and held that where it is demonstrated that the amount in the depreciation fund was actually available to the employer and was employed as working capital, the employer was entitled to claim a return on that amount. The Court explained that the appropriate rate of interest for such a return was a factual question to be decided in each case according to the surrounding circumstances. In the present case, however, the appellant had not filed any sworn statement showing that the sum from the depreciation fund on which it sought a 4 percent return was available to it and had indeed been used as working capital. Nevertheless, the appellant had asserted a claim for Rs 0.32 lakh as a return on the fund, and the respondents had not contested this claim on the ground that the fund had not been used as working capital or was not available to the appellant. The Court observed that both parties were aware that the tribunal had for some time taken the position that a depreciation fund could not earn any return even when used as working capital, and that this awareness explained the state of the pleadings. The Court further stated that it was unnecessary to determine whether the appellant was entitled to any return on the depreciation fund because, as already indicated, allowing the appellant’s claim for income‑tax deduction alone would be sufficient to secure the appellant’s success on appeal.

Mr Naunit Lal, appearing for respondent 2, contended that the tribunal was not justified in awarding the appellant Rs 1.39 lakh as a provision for rehabilitation, arguing that the appellant had failed to establish the rehabilitation claim with proper evidence. The Court found no merit in that argument. It observed that the appellant’s works manager, Mr Mandke, had filed an affidavit before the tribunal in which he stated that he had prepared Exhibit C‑15 from his personal knowledge and that the exhibit accurately depicted the useful life of the machinery used by the appellant and the period after which replacement would be required. The same witness had also submitted other statements, including Exhibit C‑8, which explained the methodology he employed to calculate the rehabilitation amount claimed by the appellant. The Court noted that the appellant had offered this witness for examination before the tribunal, but the respondents declined to cross‑examine him, resulting in the witness not taking the stand. Consequently, the tribunal concluded that the estimate presented by the appellant for rehabilitation, replacement, and modernization should be accepted and that the requested quota should be granted out of profits. The Court therefore rejected the respondents’ challenge to the rehabilitation award.

The Court held that the financial estimate presented by the appellant, which covered the costs of rehabilitation, replacement of machinery and modernization of the plant, ought to be accepted. Accordingly, the portion of profit that the appellant sought to appropriate for these purposes was to be allowed to be drawn from the company's profits. In light of these findings, the Court found it impossible to sustain the respondent’s contention that the appellant had failed to prove the rehabilitation claim. Consequently, the Court concluded that the appeal should be upheld and that the award previously granted by the tribunal must be set aside in its entirety. The Court further observed that this decision follows the legal principle articulated in Associated Cement Companies v. Their Workmen, reported in 1959 (1) LLJ 644. On the basis of that precedent, the Court determined that no order assigning costs to either party was warranted in this proceeding. By allowing the appellant to recover the sum from profits, the Court ensured that the necessary funds for the plant’s rejuvenation would be made available without further delay. The removal of the tribunal’s award eliminates any contrary determination and restores the parties to the position that would have existed had the award not been made. The decision also reflects the Court’s consistent approach that, where the claimant substantiates the amount claimed, the burden of proof cannot be shifted back to the claimant. Accordingly, no monetary liability for costs was imposed on either side, consistent with the principle that costs follow the outcome of the substantive issue.