M/S. Lipton Limited and Another vs Their Employees

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

Court: Supreme Court of India

Case Number: Civil Appeals Nos. 713 to 715 of 1957

Decision Date: 02/02/1959

Coram: S.K. Das, Syed Jaffer Imam, J.L. Kapur

The case, titled M/s Lipton Limited and Another versus Their Employees, was decided on 2 February 1959 by the Supreme Court of India. The judgment was authored by Justice S.K. Das and the bench comprised Justice S.K. Das, Justice Syed Jaffer Imam and Justice J.L. Kapur. The petitioner in the proceedings was M/s Lipton Limited together with another corporate entity, while the respondents were the employees of the petitioner’s Delhi office. The official citation of the decision is 1959 AIR 676 and 1959 SCR Supl. (2) 150, with additional citator references recorded as R 1963 SC1327 (6), R 1963 SC1332 (7) and RF 1966 SC 305 (46). The dispute fell within the scope of the Industrial Dispute Act concerning issues of bonus, fixation of grades and scales of pay, the status of a company having its head office in England and a branch in India, claims to bonus on the basis of global profits, revision of wage structure, the distinction between bonus and wage, and the jurisdiction of the Tribunal to make an award for employees of the Delhi office who were employed outside the State of Delhi.

The appellant company was incorporated in the United Kingdom with its registered office in London. Its business in the United Kingdom comprised stores and groceries, of which tea accounted for only about ten percent of the total turnover. In India the company operated through a branch whose head office was situated in Calcutta, and the Indian operation primarily involved the sale of “packeted” tea throughout the country. The Delhi office of this Indian branch exercised control over salesmen and other workers employed in the states of Punjab, Delhi, Rajasthan and Uttar Pradesh, but it had no connection with the export segment of the business. The Indian branch did not possess any subscribed capital or reserves of its own; the capital employed in India consisted of monies advanced from the company’s fund in England.

The dispute between the respondents, who were employees of the Delhi office, and the appellant related to three principal matters. First, the parties contested the fixation of grades and scales of pay for the employees. Second, they argued whether the new scales of pay should have retrospective effect. Third, the respondents claimed a bonus for the year 1951. The employees argued that the total global profits of the appellant should be used as the basis for determining their bonus entitlement, contending that the company operated as an integrated industry with trading activities in various countries.

The Tribunal examined the evidence and concluded that the Indian workmen did not in any manner contribute to the profits that the appellant derived from its business outside India. It observed that the Indian branch maintained separate accounts, which had been audited and accepted by the Income-tax authorities as reflecting the profit and loss of the Indian branch alone. Although at the relevant time the appellant was a single legal entity and the capital of the Indian branch originated from London, the Tribunal held that the Indian branch was treated as a separate entity for all practical purposes. Accordingly, the Tribunal found that for the year 1951 there was no surplus available for distribution as a bonus to the employees in India. Regarding the fixation of grades and scales of pay, the Tribunal noted that the existing wage scale of the Delhi employees was considerably below the standard of a living wage. (The discussion of this issue continues in the subsequent portion of the judgment.)

In this case the Tribunal observed that the wages of the employees were considerably below the standard of a living wage and, after taking into account the company’s overall capacity to pay, concluded that the firm possessed sufficient global resources to support a modest increase in the wage structure; consequently the Tribunal revised the wage grades by granting a uniform twenty percent rise to every worker. The Tribunal further directed that the revised grades should take retrospective effect from the first day of January 1954, rather than from the first day of January 1953 as the Union had asserted. The appellant company argued that the Tribunal erred in relying on the company’s global financial resources to justify a wage increase while simultaneously treating the Indian branch as a separate entity for the purpose of bonus payments, and maintained that the Indian branch’s own financial position did not demonstrate any ability to afford higher wages. The appellant also contended that there was no reliable evidence showing that the existing wage structure required alteration when compared with the wage structures prevailing in comparable industries in the Delhi region. Additionally, a question was raised as to whether the Industrial Tribunal of Delhi possessed jurisdiction to grant an award concerning employees of the Delhi office who were working outside the territorial limits of the State of Delhi. The Court held that, because the Delhi office exercised complete control over its employees with respect to appointment, leave, transfer, supervision and related matters, the Industrial Tribunal of Delhi was competent to adjudicate the dispute between the appellant and its workmen of the Delhi office; the Delhi State Government was the appropriate Government within the meaning of section two of the Industrial Disputes Act, 1947, and, under section eighteen of that Act, any award made by the Tribunal was binding on all persons employed in the Delhi office. The Court further held that, given the circumstances of the appellant’s operations in India at the relevant time and the finding that no portion of the profits earned in India was diverted to England and that the Indian business relied on its own trading results, the global profits of the company could not serve as the basis for granting a bonus to Indian workmen, who could claim a bonus only when there was an available surplus of profits from the Indian business, as reflected in the authorities cited. Moreover, the Court clarified that, in assessing a revision of the wage scale, the pertinent considerations were (i) whether the existing wage structure fell short of the standard of a living wage, and (ii) whether the industry, evaluated on an industry-cum-region basis, could sustain the additional financial burden of a higher wage scale given its financial resources in India; on that basis the Court concluded that the Tribunal had not erred in revising the wage structure on the evidence before it and that the increase in wages was not beyond the financial resources of the company as shown by its trading results in India.

The Court examined whether the industry could bear the additional burden of increasing the wage scale on the basis of the combined industry-and-region financial resources generated in India. After applying the considerations previously set out, the Court concluded that the Tribunal had not acted erroneously in revising the wage structure, because the evidence before it supported the revision. Moreover, the Court found that the wage increase did not exceed the financial capacity of the company as shown by its trading results in India. The judgment also emphasized the legal distinction between bonus and wage. A bonus is derived from profits and is payable only when, after satisfying all prior charges, a surplus remains available. In contrast, wages are principally governed by contract, are set on a long-term basis and are not necessarily linked to the profits of any particular year. The Court relied upon the authorities Crown Aluminium Works v. Their Workmen, [1958] S.C.R. 651 and Express Newspapers (Private) Ltd. v. The Union of India, [1959] S.C.R. 12 in reaching this conclusion. Finally, the Court directed that the new scales of pay should become operative from 1 November 1955, rather than from 1 January 1954 as originally directed by the Tribunal. The judgment pertains to Civil Appeals Nos. 713 to 715 of 1957, which were heard by special leave from the Labour Appellate Tribunal of India (Lucknow Bench) order dated 25 May 1956, arising out of an award dated 18 August 1955 of the Additional Industrial Tribunal, Delhi. Counsel for the appellants included the Attorney-General for India and other representatives, while counsel for the respondents represented the employees. The judgment was delivered on 2 February 1959 by Justice S. K. DAS.

Subsequently, on 14 April 1958, the appellant filed a petition seeking to amend the cause title of the three appeals. The petition explained that, as an internal reorganisation, the Board of Directors of Lipton Ltd., London resolved to separate the export operations from the internal trade of its Indian branch. Accordingly, on 4 April 1957, a distinct sterling company named Lipton (India) Ltd. was incorporated in the United Kingdom. This new company assumed control of the internal trading activities in India effective from 5 January 1958, while the export activities remained a branch of Lipton Ltd., London. In accordance with this arrangement, the employees of Lipton Ltd.’s Delhi office were informed of the formation of the new company and, from 5 January 1958, their services were transferred to Lipton (India) Ltd., on the condition that their employment would continue uninterrupted and on the same terms as previously enjoyed.

According to the record, the employees of the Delhi office were transferred to Lipton (India) Ltd. on the condition that their services would be regarded as continuous, uninterrupted and subject to the same terms as they had previously enjoyed. On the basis of that statement, the appellant prayed that the cause title of the three pending appeals should be amended so that Lipton (India) Ltd. would replace Lipton Ltd. as a party. The Court directed that Lipton (India) Ltd. be added as one of the appellants, without prejudice to either side on the merits of the dispute. Subsequently, Civil Appeals Nos. 713 and 714 of 1957 were merged by a Court order because they raised common questions, namely the fixation of grades and pay scales for the respondent-employees and the computation of the bonus for the year 1951. The third matter, Civil Appeal No. 715 of 1957, concerned a different issue – the payment of overtime – and was filed against an order of the Additional Industrial Tribunal, Delhi, dated 15 October 1955, which modified the Tribunal’s award of 18 August 1955 regarding overtime remuneration. The Court found it expedient to hear Civil Appeal No. 715 of 1957 separately from the two consolidated appeals. After noting the procedural posture, the Court proceeded to summarise briefly the factual background that gave rise to the three appeals.

The appellant, Lipton Ltd., is a company incorporated in England with its registered office in London. In the United Kingdom its commercial activities consist principally of stores and grocery outlets, and tea accounts for only about ten percent of its UK turnover. In India the Company conducts its business through a branch whose head office is located in Calcutta. This Indian branch, which may be referred to as the Indian branch, has been operating in the country for more than sixty years. The Company’s main interest in India is the sale of packeted tea throughout the Indian market, together with modest sales of imported tinned milk, and it also engages in the export of tea to destinations worldwide. Lipton Ltd. does not own any tea gardens in India and holds no financial interest in the production side of the tea industry. All tea sold domestically or exported is purchased from Indian producers either at public auctions held in Calcutta and Cochin or through private contracts. The Company maintains tea-blending and packing factories in Calcutta, Allahabad and Coimbatore, where tea is processed into retail packets for sale across India. It sells tea directly to retail dealers and, except for minor exceptions, does not operate through wholesale intermediaries. Each dealer is supplied by the Company’s own salesmen, each of whom operates a sales depot that stocks the Company’s products. The salesmen sell the tea to dealers at the Company’s wholesale prices for cash, and the cash proceeds are remitted through banking channels to the head office in Calcutta. The sales organisation is coordinated through six regional offices, one of which is situated in Delhi. The Delhi office oversees the salesmen and other employees engaged in the states of Punjab, Delhi, Rajasthan and Uttar Pradesh.

In the Delhi office the business activities were limited to domestic sales and did not involve any connection with the export side of the undertaking. The export operations of the Indian branch were divided into two distinct categories. In the first category the branch sold packet tea bearing the Lipton label to certain foreign markets and was able to earn a profit on those sales. The profit from these sales was recorded in the accounts of the Indian branch, which were kept separately and were audited independently. This form of export trade was largely limited to countries such as Burma, Iraq, Iran and a few smaller Middle-Eastern states. The second, and substantially larger, category of export trade consisted of purchases made at the Calcutta tea auctions on behalf of overseas buyers. These foreign buyers employed the expertise of Lipton’s specialist tea-tasting staff in Calcutta to procure tea at the auctions for their own accounts. For providing this service the Indian branch received a commission of one per cent of the value of the tea bought. The branch itself held no subscribed capital and possessed no reserves. In evidence, the Administrator of Lipton Ltd., A W Samuel, explained that the capital employed in India consisted solely of money advanced from the company’s funds in England. He stated that the amount of this advance, as at the balance-sheet date, appeared as the balance of the current account with Lipton Ltd., London, and that the Indian operations also relied on overdraft facilities from local banks to meet working-capital requirements. An account known as the London General Account was maintained for this purpose, and the capital available to the Indian branch was shown as the balance of that current account in the Indian books. To determine the amount of capital employed in India, a daily average of the current-account balance was taken, and the working capital of the branch was calculated as the excess of fixed current assets over total liabilities.

The Delhi office employed a range of personnel, including peons, sweepers, van-workers, godown workers, village salesmen, drivers, junior clerks, godown keepers, senior clerks, stenographers, divisional salesmen and various other categories of workers; a detailed enumeration of each category is unnecessary at this stage. According to the Union, the workers of the Delhi office first made a formal representation in June 1951 requesting an increase in their wages, and they repeated the same request in April 1952. The management did not accede to these demands, and consequently a union representing Lipton employees was formed in September 1953. The Union prepared a charter of demands, which it submitted in December 1953. This charter contained a large number of items. The management responded that it was not in a position to meet the demands, and conciliation proceedings were initiated. Those conciliation efforts, however, failed to produce any agreement, and on 1 October 1954 the industrial dispute between Lipton Ltd. and the Union was referred for adjudication.

The matter was referred to the Additional Industrial Tribunal in Delhi for adjudication. The reference was accompanied by a schedule that listed the questions requiring determination, and the schedule comprised twenty separate terms of reference. Of those twenty, the two issues that are presently relevant were: (a) the fixation of grades and scales of pay, including whether the newly fixed scales should be given retrospective effect from 1 January 1953; and (b) the award of a bonus for each of the years 1951, 1952 and 1953. After hearing both parties, the Tribunal delivered its award on 18 August 1955. In that award the Tribunal rejected the claim for bonus altogether, but it authorized an increase of approximately twenty per cent in the basic wages of all workers, together with a proportionate increase in the dearness allowance; the precise details of those increases will be set out later. Regarding overtime payment, which was item number 8 of the terms of reference, the Tribunal observed and directed as follows: “Since the company is permitted by law to require up to forty-eight hours of work in a week from its employees, it is only fair that if a worker renders overtime in any week within the total of forty-eight working hours, he should be paid at the single rate for all overtime performed between thirty-nine and forty-eight hours in that week. If the overtime performed by the worker causes his total weekly working hours to exceed forty-eight, any excess overtime beyond forty-eight hours should be paid at double the rate. I direct accordingly.” It should be noted that there was also a dispute concerning the regular working hours. The Tribunal altered the standard working hours from 9:30 a.m. to 5 p.m. to a schedule of 10 a.m. to 5 p.m. on weekdays, allowing a half-hour lunch interval, and from 10 a.m. to 1 p.m. on Saturdays, thereby fixing the normal work week at thirty-six hours. Consequently, overtime could arise only when a workman was required to work beyond the thirty-six hours fixed by the Tribunal. On 12 October 1955 the Union filed an application asserting that the figure “39” appearing in paragraph 24 of the award in relation to overtime was evidently a typographical error and should have read “36,” because paragraph 23 of the same award had established the normal work week as thirty-six hours. The Tribunal, without giving notice to the present appellant, considered the Union’s application and corrected the error by amending the figure “39” to “36.” It justified this correction on the basis that the discrepancy was a clerical mistake, an accidental slip that could be rectified under rule 23 of the Industrial Disputes (Central) Rules, 1947. Following the award of the Industrial Tribunal, three appeals were lodged before the Labour Appellate Tribunal, Lucknow Bench. The two principal appeals, numbered 272 of 1955 and 282 of 1955, were filed.

The original appeals before the Labour Appellate Tribunal were filed by Lipton, Ltd. and by the Union, each seeking review of a different portion of the terms of reference that had formed the basis of the Industrial Tribunal’s award. A further appeal, designated as No 327 of 1955, concerned a subsidiary issue involving overtime payment, for which the Industrial Tribunal had already amended its award in order to correct the figure that had been recorded.

Regarding the two matters that remained before the Court in Civil Appeals Nos 713 and 714 of 1957, the Labour Appellate Tribunal delivered a judgment on 25 May 1956. In that judgment the Tribunal affirmed the Industrial Tribunal’s determination concerning the fixation of grades and the establishment of scales of pay, which were identified as term of reference 1(a). The Tribunal also confirmed the Industrial Tribunal’s order that the newly fixed scales of pay should operate retrospectively from 1 January 1954, a point that corresponded to term of reference 1(b). Thus, both the grading structure and the retroactive application of the new pay scales were upheld.

The question of bonus, which formed term of reference 4, was dealt with in a more nuanced manner. The Appellate Tribunal upheld the Industrial Tribunal’s award for the years 1952 and 1953, finding no error in the bonus calculations for those years. However, for the year 1951 the Tribunal concluded that the workmen were entitled to an additional bonus equivalent to two months’ salary. This additional award was to be granted on top of the one-month bonus that Lipton, Ltd. had already paid to the workers on a gratuitous basis.

In the subsidiary appeal concerning overtime payment, the Appellate Tribunal accepted the view expressed by the Industrial Tribunal that the original computation of working hours contained an error. The Tribunal characterized the error as merely clerical in nature and therefore affirmed that the Industrial Tribunal was within its authority to correct the mistake without providing notice to the appellant.

Following the decisions in all three appeals, the appellant obtained special leave to appeal to the Supreme Court on 27 June 1956. In accordance with the order granting that special leave, the present appeals were instituted before this Court. The first of those, Civil Appeal No 715 of 1957, was considered next. The Court found no doubt that the miscalculation of working hours for overtime purposes resulted from an accidental slip in the arithmetic—a pure clerical error. Because the Industrial Tribunal was properly entitled to correct such an error without notifying the appellant, the Court deemed that there was no substantive ground for further review. Moreover, the learned Attorney-General, who had represented the appellant in the three related appeals, did not pursue Appeal No 715 of 1957. Consequently, the Court dismissed that appeal and ordered the appellant to pay costs.

Turning now to the remaining matters, the Court focused on Civil Appeals Nos 713 and 714 of 1957. It reiterated that the only issues still open for determination were those relating to items 1(a), 1(b) and 4 of the terms of reference. Item 1(a) dealt with the fixation of grades and scales of pay, item 1(b) concerned whether the new scales should have retrospective effect, and item 4 pertained to the bonus for the year 1951. All other provisions of the award, including the city compensatory allowance, leave, holidays and similar benefits, had not been contested before the Court and therefore were left untouched.

The Court explained that it would refrain from addressing the remaining items of the award, which necessarily had to remain in force. It then clarified that one of the questions presented before the Industrial Tribunal on behalf of Lipton Ltd. concerned whether the Tribunal possessed jurisdiction to make an award for employees of the Delhi office who were employed outside the State of Delhi. The Tribunal decided against the appellant on this jurisdictional point. It observed that all workmen of the Delhi office, irrespective of the place where they actually performed their duties, received their salaries from the Delhi office, were subject to leave, transfer and supervisory control by that office, and therefore the Delhi State Government was the appropriate Government within the meaning of section 2 of the Industrial Disputes Act, 1947, as it related to the dispute between Lipton Ltd. and the Union. Moreover, under section 18 of the same Act, the award made by the Tribunal was binding on every person employed in the Delhi office. The Appellate Tribunal affirmed the Industrial Tribunal’s decision on this jurisdictional issue, and although the matter of jurisdiction was raised again in the appeals before this Court, the learned Attorney-General did not press it vigorously. The Court held that the Industrial Tribunal was duly vested with jurisdiction to adjudicate the dispute between Lipton Ltd. and the workmen of its Delhi office.

Having resolved the jurisdictional question, the Court turned to the two principal matters raised by the appellant, beginning with the question of bonus. Item 4 of the terms of reference dealt with bonus and was framed in two parts. It read: “Bonus: (a) Whether every workman be, paid bonus at the rate of 5 months' salary for each of the years 1951, 1952 and 1953 and what other directions are necessary in this respect? (b) Whether special bonus equivalent to three months salary should be paid to all workmen in honour of the company's Diamond Jubilee celebration for the year 1953?” Before the Industrial Tribunal, the Union contended that the total global profits of Lipton Ltd. should form the basis for calculating the bonus entitlement, whereas Lipton Ltd. argued that only the profits of its Indian business should be considered in assessing any surplus available for bonus payment. The Tribunal held that both labour and capital contributed to the earnings of an industrial concern, and consequently labour was entitled to a legitimate share of the profits to which it had contributed. However, the Tribunal observed that the employees of Lipton Ltd. in India did not, by any plausible reasoning, contribute to the profits generated by Lipton Ltd. from its trading activities outside India. Accordingly, the Tribunal concluded that the Indian employees could not claim a bonus on the basis of profits derived from Lipton Ltd.’s overseas operations.

The Tribunal observed that Indian employees could not rely on profits earned by the company’s operations outside India because they did not contribute to those earnings. Accordingly, the Industrial Tribunal examined the question of bonus and concluded that for the year 1951 there was no surplus available for distribution as bonus to Indian workers under the formula developed by the Full Bench of the Labour Appellate Tribunal in Millowner’s Association, Bombay v. Rashtriya Mill Mazdoor Sangh, a formula later only partially approved by this Court in Muir Mills Co’ Ltd. v. Suti Mills Mazdoor Union, Kanpur. For the years 1952 and 1953 the Union’s claim for bonus was found to be even weaker, since the surplus in those years was still smaller, and the Tribunal rejected outright the Union’s additional claim for a special Diamond Jubilee bonus. The Labour Appellate Tribunal substantially affirmed the Industrial Tribunal’s decision and set out several reasons why the global profits of Lipton Ltd. could not be taken into account for the payment of bonus to its Indian workers. After giving those reasons, the Tribunal referred to an auditors’ report dated 17 March 1952, which dealt with the profit and loss account and balance sheet of the Indian business as at 5 January 1952. The report, concerning the year 1951, stated that the value of tea stocks held at the end of 1951 had been written down below cost by ₹9,93,824-5-3. The auditors further observed: “We estimate the net realisable value of the total stocks of tea as on 5 January 1952 to be in excess of their cost and, therefore, in our opinion, such stocks have been undervalued to the extent of the above reduction below cost.” Relying on this statement, the Labour Appellate Tribunal added ₹9,93,824 to the surplus of ₹9,66,654 shown in the Indian profit and loss account for 1951. By adding the two amounts, the Tribunal calculated the available surplus at the end of 1951 to be ₹19,60,478. After deducting legitimate prior charges—namely rehabilitation expenses, a four per cent return on capital, and one month’s bonus already paid—the Tribunal concluded that a clear surplus of ₹4,11,478 remained for distribution as an extra bonus beyond the one month’s salary already paid by Lipton Ltd. to its workers. It was subsequently contended before this Court, and rightly so, that the Labour Appellate Tribunal committed a manifest error in treating the sum of ₹9,93,824-5-3 as an addition to surplus. While the auditors’ report indeed referred to an undervaluation of tea stocks by that amount, the correct interpretation of that figure required further explanation.

The written statement submitted by Lipton Ltd. on 8 February 1955 set out the explanation for the alleged undervaluation of tea stock. In that statement the company asserted that it was a well-known fact, requiring no evidence, that the tea market had collapsed rapidly and catastrophically towards the end of 1951. Because of this collapse the company said it anticipated severe losses on the tea stocks it was holding, and consequently it made a provision for those losses in the 1951 accounts by reducing the recorded value of tea stock on hand at the end of December 1951. The amount of that reduction was specified as Rs 9,93,824. The statement further contended that, as a result of this adjustment, the profits shown for 1951 were understated, while the profits shown for 1952 were overstated. The company added that the Income-tax Department had insisted that the amount of Rs 9,93,824 should be treated as profit of the year 1951, and that accordingly the company had been taxed on that basis.

The Court noted that, when the Income-tax Department required the amount of Rs 9,93,824 to be recognized as profit of 1951, the same amount was added back in the summarized profit and loss account of the Indian branch. After this addition, the summarized account displayed an available surplus of Rs 9,66,654, having taken the Rs 9,93,824 into consideration. The Court observed that the 1951 profit and loss account therefore already incorporated the Rs 9,93,824 adjustment, and that the addition of that sum produced the stated surplus of Rs 9,66,654. Because the surplus figure already reflected the addition of the Rs 9,93,824, the Court concluded that the Labour Appellate Tribunal had erred manifestly in adding the same amount again. This error removed the principal basis on which the Tribunal had ordered the payment of an extra bonus for 1951.

The Court further explained that, if the true available surplus for 1951 was only Rs 9,66,654, then after deducting the prescribed prior charges—such as rehabilitation costs, a four per cent return on capital, and the one-month bonus already paid—no funds would remain to be distributed as an additional bonus to the workers in India for that year. Regarding the years 1952 and 1953, the Court held that it was unnecessary to examine the profits of those years because no appeal had been filed on behalf of the Union concerning them.

The Union, however, had strongly argued before the Court that the bonus awarded by the Labour Appellate Tribunal for 1951 could be justified if the global profits of Lipton Ltd. were taken into account. The Union contended that Lipton Ltd. should be regarded as a single integrated industry with trading activities across various countries, and that, for the purpose of calculating the bonus, the total worldwide profits of the company ought to be considered. The Court recorded this submission without expressing agreement, setting the stage for further analysis of whether global profits could lawfully be used to support the bonus claim.

The Court observed that the Union was not entitled to claim a bonus for a specific year on the basis of the worldwide profits of Lipton, Ltd. It noted that the nature of a bonus claim had been examined in many decisions of Labour Tribunals and Courts. The Court recounted that judicial decisions have consistently held that a bonus is not a deferred wage. The justification for treating a bonus as an industrial claim arises when the ordinary wages paid to workers fall below the living wage and the enterprise has generated sufficient profits to which both labour and capital have contributed. In substance, a bonus claim is a demand that the surplus available from the profits of an industrial undertaking, created jointly by labour and capital, be paid to the employees. The Court referred to the principle articulated in Muir Mills Co. Ltd. v. Suti Mills Mazdoor Union, Kanpur (1) as an illustration of this aspect of bonus. The Court also referred to other authorities that describe bonus as a temporary and partial filling of the gap between a living wage and the actual wage paid. According to those authorities, when a living wage has already been achieved, a bonus functions merely as a cash incentive to increase efficiency and production. However, where an enterprise lacks the capacity to pay a living wage, or where that capacity varies from year to year, the payment of a bonus may be regarded as a temporary satisfaction, wholly or partly, of the employees’ needs. Counsel for the Union emphasized this latter viewpoint and argued that it was not unfair to consider the global profits of Lipton, Ltd. when granting a temporary satisfaction that meets, in part, the needs of its Indian workers.

The Court stated that it was neither necessary nor advisable to impose an inflexible, general rule governing the basis of a bonus claim for employees of an industrial undertaking that conducts trade in several countries or in different regions of the same country. Regarding foreign operations, the Court observed that various factors such as restrictions on foreign remittances and other trade limitations must be taken into account when deciding the issue, as illustrated in Ganesh Flour Mills v. Employees of Ganesh Flour Mills (2). The Court further indicated that a number of Labour Tribunal decisions, many of which were cited in Ganesh Flour Mills Co. Ltd. v. Employees of Ganesh Flour Mills (2), have distinguished between a parent concern and its subsidiary concerns or between different units of the same concern. Speaking in general terms, the Court explained that the test applied for the payment of bonus in such circumstances is two-fold: first, if the various units are so closely connected or integrated that granting a bonus to one group of employees would contravene the principle that all workers should share in the prosperity to which they have jointly contributed; or second, if the units are sufficiently separate that the trade activity and the profit contribution of labour in one unit have no necessary connection with the trade activity and profits of the other units. The Court cited the earlier authority (1) [1955] 1 S.C.R. 991. (2) as supporting this analytical framework.

The Court cited A.I.R. 1958 S.C. 382 and explained that when the various units of an undertaking are so separated or unconnected that the trade activity of one unit and the labour contribution to the profits of that unit have no necessary connection with the trade activity and profits of the other units, each unit must be treated independently for the purpose of granting bonus. In contrast, where the units are so closely integrated that granting bonus to one section would violate the principle that all workers should share in the prosperity to which they have jointly contributed, the undertaking is to be treated as a whole, as held in Burn and Co., Calcutta v. Their Employees (1) and Baroda Borough Municipality v. Its Workmen (2). The Court further observed that the mere keeping of separate accounts is not in every case a proper test for deciding whether the units are integrated or not; the determination must depend on the facts and circumstances of each case.

For the present appeals, the Court found that, in view of the findings recorded by the Tribunals below, it would be unfair and unjust to award bonus to the Indian work-men on the basis of the global profits of Lipton Ltd. The Tribunals had clearly held that the Indian work-men do not in any way contribute to the profits which Lipton Ltd derives from its business outside India. Moreover, the nature of the trade activity differs significantly: tea accounts for only about ten percent of Lipton Ltd’s trading activities in the United Kingdom, whereas tea is the principal commodity of the Indian branch. The Indian branch maintains separate accounts that have been audited and accepted by the Income-Tax authorities as reflecting the profit and loss of the Indian operation.

The Labour Appellate Tribunal expressly stated that, although at the relevant time Lipton Ltd was a single legal entity and the capital of the Indian branch originated in London, the Indian branch was treated as a separate entity for all practical purposes. The Tribunal observed that “Lipton, London never interferes with the trading operations of Lipton, India, in India. Lipton, India buys vast quantities of tea amounting to millions of tons at auctions in India and sells the same loose or in packets at a profit in the markets of India. Profits thus made go entirely to the credit of the Indian concern. No part of the profits is diverted to England. Lipton, India also purchases tea for export… Trading results of Lipton, India must be regarded to be restricted to the earning of commission on tea exported and returns on sale of tea-loose or in packets in the internal markets in India. Lipton, India has to pay income-tax to the Government of India on the basis of its earnings on those two heads. Workmen of the Indian Organisation have to work mainly for purchase of tea at auctions in India, for sale of tea at profit in Indian markets and for export of tea on commission to a lesser extent.” These findings led the Court to conclude that any bonus entitlement of the Indian workers must be based solely on the surplus of profits generated by the Indian business, and not on the worldwide earnings of Lipton Ltd.

In this case the employees of the Indian branch earned their income primarily from selling tea at a profit in domestic markets and, to a lesser extent, from earning a commission on tea exported abroad. Consequently, the only sources of revenue on which the Indian staff could rely for a bonus were the profits derived from these two activities. The claim for a bonus that was before the Court was based on the existence of a surplus of profits, and the Court agreed with the Labour Appellate Tribunal that a bonus could be granted only when such a surplus existed within the Indian business itself. Considering the manner in which Lipton Ltd. operated in India at the relevant period, the Court found it would be unfair to grant a bonus to the Indian workers on the basis of the worldwide profits of Lipton Ltd. The Court noted that Lipton Ltd. was a large organisation with substantial reserves that had been accumulated in earlier years from its global earnings. No evidence was produced to demonstrate the extent, if any, to which the Indian operations had contributed to those reserves. The Labour Appellate Tribunal had determined that none of the profits generated in India were transferred to England and that the Indian operation relied exclusively on its own trading results. On the basis of these findings, the Court concluded that the tribunals below were correct in holding that the global profits of Lipton Ltd. could not serve as the foundation for awarding a bonus to its Indian employees.

The parties also disputed whether the one-per-cent commission earned by the Indian branch on tea exports accurately reflected the proper remuneration for that branch. The Court held that this issue was not open for investigation in the present appeals. It observed that the income-tax authorities had accepted the returns filed by Lipton Ltd. concerning its Indian business, and that no suggestion had been made that the Indian branch had taken a commission greater than one per cent or that the accounts had been manipulated. Whether the one-per-cent rate was the prevailing market rate for commissions on purchases made for overseas buyers was not examined, because the accounts submitted by Lipton Ltd. were accepted as correct. Given this position, the Court rejected the respondent’s argument that the available surplus should be calculated on speculative assumptions about what the Indian branch might have earned from exports. After considering all relevant factors, the Court determined that the Labour Appellate Tribunal had erred in granting an extra two months’ bonus for the year 1951, and that the decision of the Industrial Tribunal was proper. Accordingly, the portion of the award directing payment of the extra two months’ bonus for 1951 was set aside. The Court then proceeded to address the more complex issue of fixing grades and wages, noting the demands made by the Union in that regard.

In this matter the Tribunal was asked to consider the fixation of grades and scales of pay as set out in the terms of reference. The reference required the Tribunal to determine whether the pay scales listed below should be adopted and, if so, what directions were necessary to implement them. The scales were as follows: Peon, Sweeper, Van Mazdoors and Godown Mazdoors at Rs 60-3-90-4-130-5-155; Village Salesmen at Rs 70-5-120-7 ½-195-10-245; Drivers at Rs 90-7 ½-150-10-250-15-325; Junior Clerks, Typists, Salesmen and Assistant Godown Keepers at Rs 90-7 ½-150-10-250-15-325; Godown Keepers at Rs 120-10-200-12-320-20-460; Senior Clerks, Stenographers, Comptometer operators and Divisional Salesmen at Rs 150-10-250-15-400-20-500. The reference also asked whether these scales should be applied retrospectively from 1-1-53 and what method of adjustment should be used in fixing the actual pay in the revised scale.

The Industrial Tribunal responded by granting a uniform increase of twenty per cent to all workers and by presenting a table that showed the present grades and the revised grades after the increase. The table listed the categories as follows: Peons, Sweepers, Van Mazdoors and Godown Mazdoors moved from grade 27-2-45 to grade 35-2-55; Village Salesmen from grade 40-0-50 to grade 50-2-60; Drivers from grade 65-3-95 to grade 78-3-114; Junior Clerks and Typists from grade 70-5-125 to grade 84-6-150; Salesmen from grade 50-0-75 to grade 60-5-90; Godown Keepers (Grade 1) from grade 70-5-130 to grade 84-6-150, Grade 2 from 125-8-200 to 150-9-240, and Grade 3 from 195-10-235 to 230-10-280; Senior Clerks and Comptometer Operators from grade 120-8-200 to grade 140-10-240; Stenographers from grade 125-8-205 to grade 150-10-240; and Divisional Salesmen from grade 80-0-125 to grade 100-10-150. Regarding the date of effect, the Tribunal directed that the revised grades should be applied retrospectively from 1 January 1954 rather than from 1 January 1953 as claimed by the Union, because the Union had presented its demands to Lipton Ltd. for the first time at the end of December 1953. The Tribunal also issued directions on how existing employees should be transferred to the new scales and what adjustments should be made. In forming its view, the Tribunal observed that although the existing wage structure was not far below what it termed the minimum fair wage, it was considerably below the standard of a living wage, the progressive attainment of which it described as the aim of all labour laws. The Tribunal then examined the financial capacity of Lipton Ltd. to bear a higher wage structure and stated: “Since as remarked before, the existing wage level of the company's employees cannot be said to be far below the minimum fair wage level obtaining in this country, this wage level can be increased only if it can be found that the company is in a financially sound position to bear the additional burden. This again brings us face to face with the question whether it is the company's capacity to pay on an all-world basis that should be considered for this purpose or only the prosperity of its Indian branch. So far as bonus is concerned, since bonus according to the latest theory represents a due share of the labour in the profits of business so largely contributed.”

In this case, the Tribunal observed that profit derived from foreign business does not factor into the calculation of bonus payments. However, the Tribunal stated that the same reasoning cannot be applied to the determination of wages for employees in India, because all such employees are ultimately employees of the parent company. Accordingly, the Tribunal held that the global resources of the company cannot be ignored when assessing its capacity to meet wage obligations. At the same time, the Tribunal cautioned that the company’s overall balance-sheet and overall business condition should not be the sole basis for fixing the upper limit of a fair wage in India. The Tribunal explained that if a wage burden were imposed that was disproportionate to the income generated by the Indian operations, the company might be compelled to shut down its Indian business and redeploy capital elsewhere, a result that would be undesirable for anyone, especially for the company’s own workers. Therefore, while the company’s worldwide ability to pay must be taken into account in setting Indian wage levels, any wage increase must not be so high as to make continuing the Indian business unviable. In other words, the Tribunal said that the overall prosperity of the company may be considered, but the increase must not drive the company out of India. The Tribunal then referred to the most recent balance-sheet filed in the proceedings. That balance-sheet showed that the share capital of Lipton Ltd. in 1954 was nominally £2,75,000, although the document actually displayed a figure of £2,500,000, and that the reserve capital stood at £3,60,417. Based on these figures and the company’s global resources, the Tribunal expressed the view that Lipton Ltd. was financially capable of sustaining a modestly higher wage structure, at least in part to reduce the gap between the existing wage structure and the living-wage standard. The Tribunal also noted that Lipton Ltd. had suffered losses in 1949 and 1950, but that it had recovered in 1951 after overhauling its sales system, creating a reasonable expectation of larger profits in subsequent years. During the hearing, the Tribunal asked the parties whether an overall increase of five lakh rupees in the wage structure on an all-India basis could be borne by the company. The Tribunal recorded that Mr. Samuel was prepared to accept this additional burden on the condition that, in the future, the company would have no liability to pay bonuses to its workers on an ex gratia basis, a bonus that had previously been paid each year at the rate of one month’s basic salary. On these grounds, the Tribunal concluded that Lipton Ltd. could readily bear the additional burden.

In arriving at its decision, the Industrial Tribunal accepted that an increase of approximately five to six lakh rupees could be added to the wages and dearness allowance currently paid to employees throughout India. The Tribunal observed that the total annual wage outlay for Indian workmen was roughly twenty lakh rupees, and therefore a twenty percent rise applied uniformly to all workers, together with a proportional increase in dearness allowance, would not exceed six lakh rupees. On this basis the Industrial Tribunal issued its award. The Labour Appellate Tribunal subsequently reviewed the award and largely affirmed the reasons articulated by the Industrial Tribunal. It identified two principal questions for determination: first, whether the existing scales of pay required revision; and second, whether the revised scales fixed by the Industrial Tribunal were unwarranted and beyond the financial capacity of Lipton Ltd. The Appellate Tribunal answered both questions in favour of the workmen, upholding the wage revision. In the appeals before this Court, the Attorney-General appearing for Lipton Ltd. advanced a vigorous challenge to the Tribunals’ reasoning. He contended that the reasons for revising the wage structure were unsound in principle and unsupported by the factual record. He emphasized a perceived inconsistency in the Tribunals’ reliance on the global financial resources of Lipton Ltd. to justify a wage increase while simultaneously treating the Indian branch as a separate entity whose bonus payments depended solely on its own profits. He further submitted that the financial resources of the Indian branch did not demonstrate any capacity to pay higher wages, and that there was no reliable evidence showing that the existing wage structure required revision when compared with wage structures in similar industries within the Delhi region. The Attorney-General also argued that the Tribunal erred in concluding that Lipton Ltd. “turned the corner” in 1951 and that there was a reasonable expectation of larger future profits. To support this contention, he referred to the appellant’s statement of case, which included a chart of profit and loss figures for the Indian branch from 1949 to 1957, showing average capital for each year alongside net profit or loss and the percentage of net profit or loss relative to average capital. The data indicated fluctuating profits and occasional losses during the period. The Attorney-General further cited an alleged admission by Mr. Samuel regarding Lipton Ltd.’s capacity to bear an additional burden of about five lakh rupees, and drew attention to an affidavit filed by S. K. Choudhury, the personnel officer of Lipton Ltd., before the Appellate Tribunal, in which it was asserted that Mr. Samuel never agreed that the appellant could bear such an additional financial burden.

In response to the contention that the appellant could bear an additional burden of five lakh rupees in its wage structure, the learned Attorney-General argued very strongly that the tribunals below had erred both in principle and in fact by disturbing the existing wage arrangement. The Court identified three principal questions for consideration. First, it asked whether the tribunals were wrong in relying on the overall financial resources of Lipton Ltd. while fixing the wage structure, whereas for the bonus calculation they had considered only the profits of the Indian branch. Second, it examined whether the present wage structure required revision and whether any reliable evidence existed showing the wage arrangements of comparable industries in the same region, on the basis that the capacity to pay should be measured against industry-and-region standards. Third, it inquired whether Lipton Ltd. possessed the financial capacity to bear the additional burden on its Indian resources. The Court then stated that a clear distinction existed between bonus and wage, a distinction previously noted in this judgment. It explained that a bonus is derived from profits and has no priority over dividends or other prior charges; a bonus is payable only if, after meeting those prior charges, a surplus remains. In contrast, wages rest primarily on contractual obligations, are determined on a long-term basis, and are not necessarily dependent on the profits earned in any particular year. This differentiation formed the backdrop for the Court’s subsequent analysis of the relevant legal principles.

The Court referred to two recent decisions of this Court that had addressed the wage-bonus distinction. In Messrs. Crown Aluminium Works v. Their Workmen (1), the Court observed that the old doctrine of absolute freedom of contract and laissez-faire had given way to new principles of social welfare and the common good, noting that workers view wage structures as a bulwark against depression, a safeguard against unfair competition, and a guarantee of wages sufficient for their basic needs. The Court further explained that industrial adjudication, through a gradual process, aims to achieve the welfare-state objective of securing social and economic justice for all citizens, a goal reinforced by the Indian Constitution’s commitment to social welfare. Regarding the bare minimum wage, the Court held that no industry may exist unless it can pay its workers at least a minimum wage, which therefore represents the first charge on an industry. In the later decision of Express Newspapers (Private) Ltd. v. The Union of India (2), the Court examined the concepts of minimum wage, fair wage and living wage, emphasizing that the financial capacity of an industry is a relevant consideration when determining whether a fair or living wage can be paid. These authorities guided the Court in assessing Lipton Ltd.’s capacity to meet the additional wage burden.

In the earlier authorities it was observed, citing the decisions reported in [1958] S.C.R. 651 at page 660 and [1959] S.C.R. 12, that the meanings of the terms “minimum wage”, “fair wage” and “living wage” are not fixed or static; rather, they evolve over time and must be interpreted in the context of contemporary conditions. The matter before this Court, however, does not concern the payment of a statutory minimum wage. Instead, the dispute involves the payment of a fair wage, which, although higher than a bare minimum, remains below the level that would qualify as a living wage. Both the determination of a fair wage and the determination of a living wage require an examination of the financial capacity of the relevant industry, and that capacity is undeniably a material consideration. The present question, therefore, is how the financial capacity of Lipton Ltd. should be assessed.

The issue of an industry’s capacity to pay a fair wage had previously been examined in the case of Express Newspapers (Private) Ltd., reported at [1959] S.C.R. 12 (page 89). In that decision the Court noted that the phrase “capacity of industry to pay” may refer to any of three concepts: (i) the capacity of a specific unit—whether marginal, representative or average—to meet wage demands; (ii) the capacity of the industry taken as a whole; or (iii) the capacity of all industries throughout the country. The Committee on Fair Wages, in paragraphs 13-15 of its report, warned that it would be erroneous to base the assessment on either the capacity of a single unit or the aggregate capacity of every industry nationwide. Instead, the Committee recommended that the appropriate benchmark should be the capacity of a particular industry operating within a defined geographical region, and, insofar as practicable, that uniform wages be prescribed for all units of that industry in that region. This approach has come to be known as the “industry-cum-region” basis for wage fixation.

Subsequently, in the same Express Newspapers (Private) Ltd. case, the Court articulated several guiding principles for setting wages, as recorded on page 92 of the report. First, when fixing wage rates—including the determination of wage scales—the capacity of the industry to pay must be regarded as one of the essential circumstances, except in cases involving bare subsistence or minimum wages where the employer is obligated to pay a uniform amount regardless of capacity. Second, the industry’s capacity to pay should be evaluated on an industry-cum-region basis, after taking a representative cross-section of the industry. Third, the proper metric for gauging that capacity must consider factors such as the elasticity of demand for the product, the potential for organisational tightening that would enable the industry to afford higher wages without undue difficulty, and the possibility of improving the efficiency of the lowest-paid workers, which could raise production in conjunction with the product’s demand elasticity. All of these considerations are to be weighed against the overarching concern that the burden of higher wages must not drive the employer out of business.

In this case, the Court noted that the increased rate should not be such as to drive the employer out of business. The Court held that it was unnecessary to determine whether the lower tribunals were correct in taking Lipton Ltd’s global resources into account for revising the wage structure. The Court reasoned that, applying the industry-cum-region principle, the tribunals’ revision could not be said to be unjustified on the basis of Lipton’s financial resources. Those resources were shown by Lipton’s trading results within India as reflected in its audited statements for the relevant financial year. The learned Attorney-General raised broader considerations, suggesting that taking into account the worldwide resources of a multinational such as Lipton could create wage disparities between regions. He warned that such disparities might spark industrial unrest, discourage new industries in the country, and increase unemployment. The Court observed that these extensive issues might be examined in a more suitable case, but the present dispute required a narrower focus on Lipton’s Indian trading performance. The Court then addressed a subsidiary but related point concerning the argument before the Industrial Tribunal that Lipton maintained a uniform wage system throughout India. Accordingly, revising the wage structure for Delhi employees would necessarily entail revising wages for workers in all other Indian offices. It was further submitted that a uniform revision across all locations, together with other reliefs granted by the Tribunal, would raise the total cost to more than five or six lakh rupees. The Court held that this consideration did not provide a sufficient basis for setting aside the Tribunal’s award. The Tribunal in Delhi possessed jurisdiction only over employees of the Delhi office and lacked authority to issue an award applicable to the whole country. Moreover, if the correct principle for fixing wages is the region-cum-industry test, there is no logical reason for a Delhi award to automatically extend to other regions. The Court noted that it was not contested that the present wages of Delhi workers were well below a living wage. The initial enquiry, therefore, was whether reliable evidence existed showing that comparable industries in the same region paid higher wages, thereby justifying the extent of revision permitted by the Tribunal. On behalf of the Union, evidence was adduced concerning the pay scales of employees in the Delhi offices of several industrial undertakings. The undertakings mentioned included Standard Vacuum Oil Company, Thomas Cook (Continental) Overseas, Burma Shell, Lever Brothers (India) Ltd., Associated Companies, and Marshall Sons and Co. (India) Ltd.

The appellant argued that none of the companies cited by the Union could be regarded as comparable industries, observing that the list included oil manufacturers, engineering firms and other manufacturing concerns. In response, counsel for the Union emphasized that the majority of the work force – drivers, sweepers, peons, clerks, store-keepers, typists and stenographers – performed essentially the same type of tasks in each of the aforementioned enterprises. Because these categories of employees formed the bulk of the labour in all the cited firms, the Union maintained that a legitimate basis for comparison existed, enabling the tribunals below to assess the wage structure. The Court held that it was impossible to conclude that the tribunals lacked any evidential foundation for a wage revision. On the contrary, the tribunals had accepted evidence that supported a modification of the wage scale. Consequently, the Court rejected the contention that the tribunals were proceeding without an evidential basis.

The Appellate Tribunal had also referred to the wage scales used by Brooke Bond, India, and had expressed the view that the appellant’s wage rates were lower than those of Brooke Bond. This view was challenged before the Court on two grounds. First, it was contended that although Brooke Bond was engaged in tea-related trade, it could not be treated as a comparable industry because the company owned tea plantations in India, making its business structure different. Second, it was pointed out that no documentary evidence of Brooke Bond’s wage scales had been produced before the Industrial Tribunal, and the Appellate Tribunal’s observation was therefore based merely on conjecture. The record showed that no such evidence was presented at the first instance, and although some additional material was offered at the appellate stage, it was not admitted. In light of these facts, the Court concluded that the Brooke Bond wage information could not be taken into account. Nonetheless, the Court reiterated that other evidence, which the tribunals had relied upon, provided a sufficient basis for comparison and justified an increase in wages.

The next issue before the Court was whether the Indian operations of Lipton Limited possessed the financial capacity to shoulder the additional wage burden. The Court referred to a chart of profit-and-loss statements for the years 1949-1957, which had been previously mentioned. The figures indicated that net profits were six lakh rupees in 1952, seven lakh rupees in 1953, eight lakh rupees in 1954 and ten lakh rupees in 1956. The Court noted that wages are not required to be drawn solely from the net profit of any single year, nor must a fair wage be postponed until a satisfactory return on capital is achieved. Wage determinations are made on a long-term basis and must also consider the cost of living and the needs of the workers. After assessing the trading performance of Lipton’s Indian business over several years, the Court found no error in the tribunals’ decision to revise the wage structure. The Court also observed that evidence from the witness Samuel indicated that the managerial staff of the Indian branch received relatively high salaries, a point that would be considered in the broader analysis of the wage structure.

The evidence presented by Samuel demonstrated that the senior managerial staff of the Indian operation, who were recruited in England, received salaries that were markedly higher than those of the rank-and-file workers. Specifically, the General Manager, who also served as the Chief Executive Officer of the Indian branch, was paid Rs 5,000 per month. The next most senior officer, the Administrator, received Rs 4,250 per month, and the Manager of the Tea Department earned an identical amount to the Administrator. The company’s Accountant was allotted a monthly salary of Rs 3,800, while the Marketing Controller received Rs 3,650. The Factory Manager’s remuneration was Rs 3,350 per month. In addition to these named officers, several other executives also drew very high salaries, and the total complement of senior executive officers comprised thirty-two Europeans and seventeen Indians.

Union counsel argued that the wage structure of the Indian branch was “top-heavy,” contending that the compensation of the higher administrative officers was disproportionate to the wage scale of the employees whose wages were under dispute. The Union further submitted that these elevated executive salaries indicated two points: first, that the wage structure of the lower-paid employees required revision; and second, that the financial capacity of the Indian branch was not as negligible as the appellant had portrayed.

The Court observed that it is not the function of a Labour Tribunal or a Court to prescribe the salaries of senior executives who are not classified as workmen under the Industrial Disputes Act, 1947. The Court referred to the earlier decision in Express Newspapers (Private) Ltd. (1) [1959] S.C.R. 12, which emphasized that the possibility of reorganising an industry so that higher wages could be paid without difficulty, together with improvements in the efficiency of the lowest-paid workers leading to increased production, must be weighed against the elasticity of demand for the product and the overall principle that the burden of any wage increase should not be so great as to drive the employer out of business.

The Tribunals below had taken this aspect into account, and the Industrial Tribunal had expressly concluded that the proposed increase in the wage structure would not be sufficient to force Lipton Ltd. out of its Indian business. The Court also noted the financial implications of the award: the total annual cost to the company of the wage increase for employees in the Delhi office was estimated at approximately Rs 49,721, while on an all-India basis the cost was roughly Rs 2,71,000 and some change. Based on Samuel’s testimony, the Court could not conclude that the burden of the increased rate exceeded the financial resources of Lipton Ltd. as reflected in its Indian trading results.

The Court considered whether, on the basis of Lipton Ltd.’s trading results in India, the wage increase contemplated by the award would be so burdensome as to force the company out of its Indian operations. Even when all the reliefs granted by the award are taken into account, the total annual cost to the company for the Delhi office would be approximately Rs 115,000, and on an all-India basis the cost would be around Rs 634,000. The Court observed earlier that the award was not intended to be an all-India award; therefore, the fixation of wages must be assessed according to the principle of industry-cum-region. Applying that principle, the Court concluded that the increase is not beyond the financial resources of Lipton Ltd., as shown by its trading results in India. The appellant submitted that one way to gauge the industry’s capacity to bear a higher wage is to look at the selling price of the product. It was pointed out that, because an excise duty of three annas per pound of packet tea was imposed in 1953, there is intense competition from sellers of loose tea, and any further rise in price could meet consumer resistance, leading to reduced sales and lower profits. In the Court’s view, the Industrial Tribunal correctly noted that the moderate increase in the wage scale proposed would represent only a very small fraction of the overall cost of producing a packet of tea and would have negligible effect on its market price. The Court also noted an award of the Special Industrial Tribunal, Madras, dated 15 October 1956, which involved the management of Lipton Ltd. in Madras and its workers there. In that case, on facts similar to the present ones, the Tribunal rejected the workers’ argument that the global financial position of Lipton Ltd. should be considered in assessing the company’s ability to pay higher salaries and dearness allowance, holding that Lipton Ltd. could not be burdened with any additional liability and that the employees would have to wait for better times. The Court observed that this Madras award is not the subject of the present appeals and therefore it would be unnecessary and even unadvisable to pass any judgment on the correctness of that award. The only remaining issue for consideration was the date from which the new wage scales should become effective. The Industrial Tribunal had fixed 1 January 1954 as the effective date, reasoning that the trade union had presented its charter of demands to the appellant for the first time towards the end of December 1953. The Court could not agree with the lower tribunals that the mere fact of a charter of demands being presented in December 1953 justified giving the new scales retrospective effect. The charter of demands presented by the union contained twenty items, and in the matter of the

In this case, the Court observed that the wage scale proposed by the Union contained demands for increases that, in several instances, amounted to more than fifty to seventy-five percent over the existing rates of pay. The Court described those demands as excessive and held that the management was therefore entitled to reject the Union’s proposals in their entirety. Consequently, the Court could not agree with the view that the new scales of pay should be given retrospective effect from 1 January 1954. The Court noted that the award establishing the new wage scales was rendered on 18 August 1955 and that it was formally published on 6 October 1955. On the basis of these facts, the Court concluded that it would be fairer to make the new scales operative from 1 November 1955 and it issued a directive to that effect. The Court further held that the other directions previously issued by the Industrial Tribunal, which required the present employees to be placed on the new scales, would continue to apply but only after being modified so that the effective date would be changed from 1 January 1954 to 1 November 1955. The Court then set out the final result of the appeals: Appeal No. 715 of 1957 was dismissed with costs; Appeals Nos. 713 and 714 of 1957 were allowed to the extent indicated in the order; the order granting a bonus for the year 1951 was set aside; and the new wage scales were ordered to take effect from 1 November 1955 instead of from 1 January 1944. The Court specified that no costs would be awarded in Appeals 713 and 714, and it reiterated that Appeal 715 was dismissed.