The Indian Hume Pipe Co., Ltd vs Their Workmen

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 54 of 1958

Decision Date: 05/05/1959

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

In this matter the Supreme Court of India rendered its judgment on 5 May 1959 in the case titled The Indian Hume Pipe Co., Ltd versus Their Workmen. The opinion was written by Justice Natwarlal H. Bhagwati and the bench consisted of Justices Natwarlal H. Bhagwati, S.K. Das, P.B. Gajendragadkar and K.N. Wanchoo. The petitioner was The Indian Hume Pipe Co., Ltd and the respondents were the workmen employed by the company. The official date of the judgment is recorded as 05/05/1959. The bench is cited in the report as Bhagwati, Natwar Lal H.; Das, S.K.; Gajendragadkar, P.B.; and Wanchoo, K.N. The case is reported in the All India Reporter at 1959 AIR 1081 and in the Supreme Court Reporter Supplement at 1959 SCR Supl. (2) 948. Additional citator references include R 1960 SC 571 (10), E&D 1960 SC 826 (19), R 1960 SC 1006 (5), RF 1966 SC 1754 (11) and R 1972 SC 330 (10). The dispute concerned an industrial dispute under the Industrial Dispute Act relating to the computation of bonus, the determination of the available surplus for the year 1954-55, and whether certain items could be deducted as proper prior charges. The appellant, a manufacturer of hume pipes with factories in India, Pakistan and Ceylon, claimed deductions on account of losses incurred at its Lahore factory, expenditure on patents and a contribution to a debenture redemption reserve. It also sought to include a 6 percent return on its preference shares as part of the return on paid-up capital. The losses at the Lahore factory had arisen in earlier years, had been carried forward and were written off as irrecoverable in the bonus year. The amounts spent on purchasing patents had similarly been written off in the bonus year after being amortised in previous years. The company had issued debentures in 1942-43 redeemable in 1962-63 and claimed an annual contribution of Rs 3,50,000 towards the redemption reserve. The preference shares were issued on terms that limited the shareholders’ entitlement to a maximum of 5 percent, yet the appellant argued that a 6 percent return on those shares should be allowed as a return on paid-up capital under the Full Bench formula. The controversy over the bonus calculation was raised solely by the workmen of the Wadala factory; workmen at other factories had settled their claims and received the agreed bonus. The respondents contended that the bonus should be computed on the basis of actual amounts paid or payable under the settlements rather than on All-India figures. The Court held that the losses on the Lahore factory and the amortised patent expenditure could not be treated as prior charges because they were merely debits relating to the operations of previous years. Likewise, the amount contributed to the debenture redemption reserve could not be allowed as a prior charge since the Full Bench formula of the Labour Appellate Tribunal did not contemplate such a deduction, although the Court noted that the reserve amount could be considered when the available surplus was distributed among the various entitled interests.

In this case the Court observed that, when the available surplus was being determined, the Full Bench formula had to be followed in its essential particulars; otherwise there would be no stability or uniformity of practice. The Court held that a deduction of more than a five per cent return on the preference shares could not be permitted because five per cent was the maximum return that shareholders could obtain on those shares. Although the Full Bench formula mentioned a six per cent return on paid-up capital, the Court explained that the provision was not to be taken literally and that the Tribunal could vary the rate upward or downward if the circumstances required. For the purpose of calculating the actual amount of bonus to be paid, the Court required that the calculations be based on All-India figures; otherwise the respondents would obtain an advantage over those workmen with whom settlements had already been concluded and would receive larger bonus amounts merely because the appellant had managed to settle the claims of those workmen for lower figures. The judgment was rendered in the civil appellate jurisdiction as Civil Appeal No 54 of 1958, filed by special leave against the award dated 14 January 1957 of the Industrial Tribunal at Bombay in Reference (I.T.) No 75 of 1956. The appellant was represented by the Attorney-General for India and counsel for the respondents and the intervener were also named. The judgment was delivered on 5 May 1959 by Justice Bhagwati. The appeal challenged the award of four and a half months’ basic wages as bonus for the year 1954-55 (the year ending 30 June 1955). The appellant was a subsidiary of the Premier Construction Co., Ltd., engaged in the manufacture of Hume pipes and operating factories in various parts of India, Pakistan and Ceylon. The respondents were the workers employed in the appellant’s factory at Antop Hill, Wadala, Bombay. In October 1955 respondent I, representing workmen through the Engineering Mazdoor Sabha, demanded six months’ wages as bonus for the year 1954-55. The dispute was referred to the Conciliation Officer, and conciliation proceedings continued until 23 March 1956, when both parties executed an agreement to refer the matter to an Industrial Tribunal for adjudication. Accordingly, on 30 April 1956 the parties drew up and signed a joint application for referring the dispute to a Tribunal, and the Government of Bombay, exercising the powers conferred by sub-section (2) of section 10 of the Industrial Disputes Act, 1947, by its order dated 11 June 1956, referred the dispute to the Tribunal. The demand stated that every workman (daily-rated) should be paid a bonus for the year 1954-55 (the year ending 30 June 1955) equivalent to six months’ wages without any condition attached.

Respondent No I presented a statement of claim to the Industrial Tribunal on 29 June 1956, asserting that the appellant’s profits for the financial year 1954-55 exceeded those of 1953-54, a year in which the appellant had paid a bonus equal to four months’ basic wages. The respondents further contended that the wages they received were below the living-wage threshold and therefore the appellant ought to pay a bonus of six months’ basic wages for the same year. In response, the appellant filed a written statement of defence on 14 August 1956, arguing that after allocating the “prior charges” prescribed by the Labour Appellate Tribunal’s formula, the profits earned during the year under consideration left no surplus, and consequently the respondents were not entitled to any bonus. The appellant denied that it had generated substantial profits in that year and maintained that the earnings were insufficient even to meet the stipulated prior charges. After hearing both sides, the Tribunal concluded that, even if a bonus of four and a half months’ basic wages were granted, a reasonable surplus of Rs 3.30 lakhs would still remain with the appellant. Accordingly, the Tribunal awarded the bonus subject to two conditions: (a) any employee dismissed for misconduct that caused a financial loss to the company shall be denied bonus to the extent of that loss; and (b) any person who qualifies for the bonus but is no longer employed by the company on the date of payment shall receive the bonus only if a written application is submitted within three months of the award’s publication. Such applications must be acted upon within one month of receipt, and no claim may be enforced before six weeks from the date the award becomes enforceable. Dissatisfied with this award, the appellant obtained special leave to appeal from this Court under Article 136 of the Constitution, thereby initiating the present appeal.

The Tribunal’s reasoning relied on the formula developed by the Full Bench of the Labour Appellate Tribunal in the case of Millowners’ Association, Bombay v Rashtreeya Mill Mazdoor Sangh, Bombay, which is founded on the principle that both labour and capital contribute to industrial earnings, and therefore labour should share in any surplus that remains after meeting “prior or necessary charges”. The formula identifies five primary charges to be deducted from gross profits: (1) provision for depreciation; (2) reserves for rehabilitation; (3) a return of six percent on the paid-up capital; (4) a return on working capital calculated at a rate lower than that applied to paid-up capital; and (5) an estimated amount to cover payment of income tax. The surplus that remains after deducting these charges is then available for distribution among the shareholders, the industry and the workmen. This Full Bench formula has been applied throughout the country since its articulation and has generally been regarded as satisfactory, balancing the interests of both capital and labour while allowing for limited flexibility to meet the exigencies of particular situations.

After the deductions that had been previously specified, the balance remaining was to be distributed among three categories of beneficiaries, namely the shareholders, the industry itself, and the workmen, as referred to in Muir Mills Co., Ltd. v. Suti Mills Mazdoor Union, Kanpur (1) and Sree Meenakshi Mills Ltd. v. Their Workmen (2). The Full-Bench formula that originated from the Labour Appellate Tribunal has been applied uniformly across the country since its initial proclamation, and it has been judged, in the main, to be satisfactory. This formula is designed to advance the interests of both labour and capital; although occasional variations have been suggested over time, the essential components of the formula have remained substantially intact. The Court expressed the view that a scheme which has achieved nationwide acceptance and has functioned reasonably well should continue to be observed, while still allowing for a degree of flexibility to accommodate the particular exigencies of individual cases. In applying the formula, the Court stressed that both capital and labour interests must be accorded appropriate consideration. In any industrial undertaking there are three distinct interests: those of the shareholders, those of the company, and those of the workmen. Each of these interests must obtain its proper share of the surplus profits after reasonable provision has been made for the “prior charges.” The shareholders are entitled to larger dividends that correspond with the prosperity of the industrial concern; the company, besides needing resources for rehabilitation, replacement of buildings, plant and machinery, may also require funds for expansion and for meeting other industrial necessities; and the workmen are entitled to a share of the surplus so that the gap between their ordinary wages and a living wage may be narrowed. All of these interests, as highlighted in the cited authorities (1) [1955] 1 S.C.R. 991, 998 and (2) [1958] S.C.R. 878, 884, must be provided for in accordance with the principles of social justice. Once the surplus profits available for distribution among the respective interests have been ascertained after making the appropriate deductions for the prior charges, the Industrial Tribunal adjudicating the dispute enjoys a free hand to allocate the surplus, taking into account the considerations set out above. Nevertheless, the Court emphasized that the determination of the surplus profits must adhere to the essential particulars of the formula; departure from those essentials would undermine stability and uniformity of practice.

The Court further observed that a persistent divergence exists between the approach adopted by income-tax authorities and that adopted by industrial tribunals in relation to depreciation, which is a prior charge on gross profits. In the earlier decision of Sree Meenakshi Mills Ltd. v. Their Workmen (1) the Court had pointed out that the whole amount of depreciation permissible under the Income-Tax Act could not be allowed when calculating the available surplus. Specifically, the initial depreciation and the additional depreciation represent abnormal additions and should not be treated as prior charges in the computation of surplus profits. The Court noted that treating those abnormal depreciations as prior charges would be unfair to the workmen, because the rationale for granting such depreciations under the Income-Tax Act differs from the considerations of social justice and equitable apportionment that underlie the Full-Bench formula for payment of bonuses to workmen. Accordingly, only normal depreciation, including multiple-shift depreciation, should be permitted as a prior charge, while initial and additional depreciation must be excluded from the calculation of the surplus available for distribution.

The Court observed that it would be inequitable to the workmen if the depreciation amounts permitted under the Income-tax Act, specifically the initial and additional depreciation, were treated as prior charges before the surplus available for distribution was determined. The Court explained that the reasons for allowing initial and additional depreciation under the Income-tax Act differ from the considerations of social justice and equitable sharing that underlie the Full Bench Formula used for computing bonuses for workmen. Consequently, the Court held in the earlier case that only normal depreciation, which includes multiple-shift depreciation, should be regarded as a prior charge, whereas initial or additional depreciation should be excluded. The Court affirmed the decision of the Labour Appellate Tribunal in U. P. Electric Supply Co., Ltd. v. Their Workmen (2) and consequently rejected the company’s claim that it could deduct the initial or additional depreciation as a prior charge in the bonus calculations. The relevant citations in that decision were (1) [1958] S.C.R. 878 and (2) (1955) L.A.C. 659.

The Court further noted that at the time this decision was rendered, it had not yet considered the Labour Appellate Tribunal’s judgment in Surat Electricity Company’s Staff Union v. The Surat Electricity Co., Ltd. (1). In that judgment a bench of the Tribunal rejected the contention that permitting only the “normal” depreciation allowed by the Income-tax law would enable a company to recover the original cost of its assets. The Tribunal observed: “For the purpose of bonus formula the initial and additional depreciation, which are disallowed by that formula, must be ignored in fixing the written down value and in determining the period over which the normal depreciation will be allowed. The result will be a notional amount of normal depreciation; but, as we have said repeatedly the bonus formula is a notional formula.” The Court subsequently reiterated, in the judgment of Associated Cement Co., Ltd. v. Its Workmen (1), that for the purpose of the bonus formula the notional normal depreciation should be deducted from gross profits calculated on the basis adopted in Surat Electricity Co. Staff Union v. Surat Electricity Co., Ltd. (1), and not merely the normal depreciation, including multiple-shift depreciation, as allowed by the income-tax authorities in U. P. Electric Supply Co., Ltd. v. Their Workmen (3). The Court affirmed the settled principle that the actual income-tax payable, based on the full statutory depreciation permitted by the income-tax authorities for the relevant accounting year, must be taken into account as a prior charge, regardless of any set-off allowed by the tax authorities or any other considerations such as building reserves for future tax liabilities. It also affirmed that the surplus available for distribution must be calculated with reference to the operations of the industrial concern in the relevant accounting year, without taking into account credits or debits relating to previous years. The citations for these principles were (1) (1956) L.A.C. 443, (2) [1959] S.C.R. 925, and (3) (1955) L.A.C. 659.

The Court explained that debits which relate to the operations of earlier years, such as a refund of excess profits tax that was paid previously, a loss from earlier years that was carried forward but then written off in the present accounting year, or any provision that might be required to meet future obligations—examples being the redemption of debenture stock or a provision for a provident fund, gratuity and other benefits—cannot be treated as prior charges even though those items may be necessary. Applying the principles previously set out, the Court found that three specific items could not be permitted as deductions from gross profits for the purpose of calculating the bonus. The first item was a loss of Rs 1.14 lacs representing the balance of the Lahore factory that was written off; the second was Rs 0.34 lacs of patents that were written off; and the third was Rs 0.09 lacs shown as a loss on the sale of the Tardeo property. The Court noted that the first two amounts were debits connected with the workings of prior years. The loss of the Lahore factory had arisen during the three preceding accounting years, had been carried forward each year, and was finally written off in the year under consideration as unrecoverable. Likewise, the patents had been acquired in earlier years, and the amounts spent on them were written off, but they also related to the company’s earlier operations. The third amount of Rs 0.09 lacs was described as trivial and therefore was not contested; consequently, all three amounts were correctly added back to the gross-profit calculation, resulting in a gross-profit figure of Rs 36.21 lacs as determined by the Tribunal. The Tribunal had allowed depreciation of Rs 9.82 lacs, which corresponded to the full statutory depreciation permitted by the income-tax authorities. The Court held that this was incorrect; only the notional normal depreciation agreed between the parties, amounting to Rs 6.23 lacs, should have been allowed. Using the method adopted in Shree Meenakshi Mills Ltd. v. Their Workmen, the Court computed the income-tax payable by the appellant on gross profits of Rs 36.21 lacs after deducting the statutory depreciation of Rs 9.82 lacs. This calculation yielded a tax rate of seven annas in the rupee on Rs 26.39 lacs, equating to Rs 11.55 lacs of tax, leaving a balance of Rs 16.82 lacs. From this balance, other prior charges must be deducted to determine the distributable surplus. The Court then considered the statutory returns: a 6 percent return on ordinary share capital and a 5 percent return on preference share capital together amounted to Rs 4.30 lacs. The appellant argued that a 6 percent return should also apply to preference shares, even though the terms of issue limited preference shareholders to a maximum of 5 percent. The appellant’s argument was based on the wording of the bonus formula, which referred to a “return at 6 percent.”

The appellant argued that because the preference shares were part of the paid-up capital, the bonus formula should grant a six percent return on those shares even though the terms of issue limited the return on preference shares to five percent. The Court rejected this argument, observing that although the bonus formula is a notional device, it cannot be interpreted to compel the appellant to pay a rate higher than the contractual five percent to preference shareholders. The Court noted that the formula’s reference to a six percent return on paid-up capital is not rigid and may be varied by the Tribunal according to the circumstances, either upward or downward. However, on the facts presented, there was no justification for allowing a return exceeding five percent on the preference share capital. Consequently, the Court held that the amount of four lakh thirty thousand rupees, representing the excess claimed return, must be deducted as an additional prior charge from the appellant’s gross profits.

The Court then examined the calculation of a four percent return on reserves employed as working capital. The Tribunal had initially computed this return at only two lakh ninety thousand rupees based on a total reserve figure of seven lakh forty-two thousand one hundred thirty-nine rupees. The Tribunal, however, failed to consider an additional sum of forty-one lakh eighty-one thousand one hundred ninety-six rupees, which the appellant identified as a depreciation fund purportedly utilised as working capital during the year. Had this amount been taken into account, an extra one lakh sixty-seven thousand rupees would have been added to the earlier figure, raising the total four percent return on working-capital reserves to one lakh ninety-six thousand rupees. The appellant faced two principal objections to this claim. First, it was contended that no separate depreciation fund existed; the amount merely reflected a credit entry in the balance sheet contrasting with the original cost of fixed assets and would disappear if the assets were shown at their depreciated values after accounting for depreciation. Such an entry, the objection argued, did not create a usable fund for the company, and therefore the claim of a depreciation fund used as working capital lacked foundation. Second, there was no documentary evidence indicating that any such fund, even if it existed, had actually been employed as working capital during the relevant year. In response, the appellant maintained that a proper reading of the balance sheet showed that the forty-one lakh eighty-one thousand one hundred ninety-six rupees constituted reserves used as working capital, as demonstrated in the calculations set out in Exhibit C-12. The appellant further pointed out that the provision for depreciation amounted to one crore ten lakh twenty-nine thousand nine hundred fifty-four rupees and that the paid-up capital was eighty lakh rupees, together totaling one crore ninety lakh twenty-nine thousand nine hundred fifty-four rupees.

According to the balance-sheet, the total capital block for the financial year that ended on 30 June 1955 was recorded as Rs 1,48,48,758. From this total, the working capital was shown to be Rs 41,81,196. In addition to that working capital, the balance-sheet listed a further amount of Rs 7,42,139, which comprised three separate items that appeared on page 4: capital reserves of Rs 98,405, other reserves of Rs 4,73,734 and a provision for doubtful debts of Rs 1,70,000, together with the balances of investments, cash and bank. The Court held that this description reflected the actual situation and therefore the amount of Rs 41,81,196 was genuinely available for use as working capital, a fact that the balance-sheet itself confirmed. No objection to this finding was raised, and the Tribunal had not recorded any finding that contradicted the Court’s view. Consequently, the Court concluded that the Tribunal’s reasoning was erroneous and that the appellant was entitled to receive a return of four per cent on the reserves that had been employed as working capital, which included the sum of Rs 41,81,196. By applying the four per cent rate, the appellant should have received Rs 1.96 lakhs, rather than the Rs 0.29 lakhs that the Tribunal had allowed.

The appellant also claimed a provision for rehabilitation of Rs 1.10 lakhs, basing the claim on a ten per cent share of net profits derived from paragraph 20 of the Report of the Committee on Profit-Sharing. That Committee had recommended that ten per cent of net profits be set aside compulsorily for reserves to meet emergencies, as well as for rehabilitation, modernisation and reasonable expansion. The Court observed that the appellant had offered no evidence before the Tribunal to demonstrate the cost of the machinery purchased, its age, or any estimate of replacement that would justify the rehabilitation claim. The appellant relied solely on the Committee’s recommendation, a reliance that the Tribunal correctly regarded as insufficient support for the claim. Nevertheless, the Tribunal allowed a rehabilitation amount in addition to statutory depreciation, specifically the excess of depreciation written off for the year over the statutory depreciation, calculated as Rs 10,00,000 minus Rs 9,82,799, which equalled Rs 17,201 (or Rs 0.17 lakhs). The Court noted that this sum was small and did not affect the bonus calculation. Although the Tribunal permitted this amount, the Court opined that, even without supporting evidence, the Rs 0.17 lakhs should perhaps not have been allowed. In the present circumstances, the Court found it impossible to grant the appellant any rehabilitation amount beyond the Rs 0.17 lakhs already allowed, and therefore ordered that any further claim for rehabilitation be disallowed for the purpose of computing the bonus for the year in question.

The Court observed that the appellant could obtain a larger amount for rehabilitation only if it were able to substantiate its claim by presenting proper evidence. Regarding the other sums that the Tribunal had permitted as prior charges against the gross profit for the accounting year, the Court noted that the Tribunal had also allowed the appellant a provision of Rs. 2.50 lakh for a debenture redemption fund. The appellant had originally claimed a sum of Rs. 3.50 lakh for that purpose, and the claim arose from the following facts. In the financial year 1942-43 the appellant issued debentures having a total face value of Rs. 30 lakh, with a redemption date fixed for the year 1962-63. Because the appellant did not earn a profit until the year 1949, no annual provision was made from profits for the redemption of those debentures. After 1949 the appellant began to set aside amounts for redemption. Specifically, for the year 1950-51 a provision of Rs. 75,000 was made; for 1951-52 a provision of Rs. 1.50 lakh; for 1952-53 another Rs. 1.50 lakh; for 1953-54 a further Rs. 75,000; and subsequently a large sum of Rs. 24.50 lakh was required to meet the ultimate redemption obligation. Since seven years remained before the redemption date, the appellant asserted that an annual amount of Rs. 3.50 lakh should be set apart for the purpose of calculating the bonus. In reality, however, the balance-sheet showed that only Rs. 2.50 lakh had actually been provided for a debenture redemption reserve. The Tribunal pointed out that when the appellant had already appropriated Rs. 2.50 lakh in its accounts for the redemption fund, the appellant’s claim for Rs. 3.50 lakh in the bonus formula was untenable. Nevertheless, the Tribunal held that a reasonable provision for the redemption fund should be allowed as a prior charge and therefore permitted the sum of Rs. 2.50 lakh, which had been actually provided for in the balance-sheet, thereby rejecting the respondents’ contention that no provision for the debenture redemption fund should be permitted in the bonus calculation. The Court expressed the view that the Tribunal was not justified in allowing Rs. 2.50 lakh as a prior charge for the debenture redemption fund in the bonus calculations because the Full Bench Formula does not contemplate any such prior charge. While acknowledging that capital is often scarce and that it may not be practical for an industrial concern to raise fresh debentures when existing ones mature, the Court also noted that debentures differ from ordinary debts since debenture-holders could, in certain circumstances, enforce their security by effectively taking control of the entire concern. Consequently, the redemption of such debentures constitutes a primary obligation of the industrial concern, and a provision for redemption must necessarily be made by the due date. However, the Court emphasized that this mandatory provision does not mean that, when calculating the distributable surplus, the amount set aside for debenture redemption should be treated as a prior charge.

In this case the Court observed that, although the existence of a prior charge is a relevant consideration when the available surplus is to be distributed among the various entitled interests, it should not have been treated as a deduction in the bonus computation. Consequently, the Court held that the Tribunal was incorrect in allowing Rs. 2,50,000/- as a prior charge in the bonus calculations. That error resolves all of the submissions raised by both parties. Using the corrected approach, the Court recomputed the available surplus as follows: Gross profit, as per the Tribunal’s calculations, was Rs. 36.21 lacs. From that amount a notional normal depreciation of Rs. 6.23 lacs was deducted, leaving Rs. 29.98 lacs. Next, tax at the rate of 7 per cent, amounting to Rs. 11.55 lacs, was subtracted, reducing the balance to Rs. 18.43 lacs. A return of 6 % on ordinary share capital together with 5 % on preference share capital, totalling Rs. 4.30 lacs, was then taken out, leaving Rs. 14.13 lacs. A further deduction of 4 % on reserves used as working capital was applied; the calculation amounted to Rs. 7,42,139 plus Rs. 41,81,196 multiplied by 1.67 %, giving a total deduction of Rs. 1.96 lacs, which reduced the figure to Rs. 12.17 lacs. After providing for a rehabilitation provision of Rs. 0.17 lacs, the net surplus available for distribution was Rs. 12.00 lacs. The Court explained that this Rs. 12 lacs could be shared among the shareholders, the company itself, and the workmen who were parties to the dispute. The Court further noted that it would be inappropriate to prescribe a rigid formula for allocating that surplus among the different interests. The shareholders and the company would naturally be concerned with maintaining debenture-redemption reserves and with financing further expansion of the enterprise, while the workmen would be interested in narrowing the gap between their actual wages and a living wage, as far as practicable. Accordingly, the distribution of the Rs. 12 lacs surplus must be carried out in accordance with the particular facts and circumstances of the case, taking into account the considerations previously outlined. Before determining the exact amount of bonus that should be awarded to the workmen, the Court turned to an argument raised by the workmen. They contended that the bonus should not be computed on the basis of the All-India figures adopted by the Tribunal, but should instead be based on the actual sums that the appellant had already paid or would be required to pay to the workmen concerned. The workmen pointed out that they were employed only at the appellant’s Wadala factory, whereas the appellant had paid bonuses to workers at other locations at rates ranging from 4 % to 29 % of basic wages for the relevant year. In some factories, the appellant had settled the matter by paying a final sum of Rs. 1,23,138/-. Accordingly, the workmen argued that using the All-India figures would benefit the appellant, because it would allow the appellant to retain the difference between the amounts the workmen would be entitled to under the Tribunal’s All-India calculation and the amounts actually paid under the various settlements.

In this case, the Court observed that the bonus sums which had already been paid to certain workmen resulted from agreements, conciliation proceedings or adjudication, and the respondents argued that the bonus calculations should be based only on the actual amount of Rs 1,23,138 that had been paid to those workmen, taking into account the savings achieved by the appellant and excluding any further amounts. The Court stated that it could not accept that argument, because accepting it would give the respondents an advantage over those workmen with whom settlements had already been reached, allowing them to obtain larger bonus payments merely because the appellant had settled those particular claims for a lower amount. The Court further explained that if the respondents’ contention were pursued to its logical conclusion, it would mean that whenever the conditions imposed by the Tribunal in the award of bonus were not fulfilled and the appellant consequently saved money, the respondents would be entitled to benefit from those savings as well, resulting in larger bonus awards that would not be linked to the respondents’ actual contribution to the appellant’s gross profits, but would instead arise from circumstances unrelated to their labour. Therefore, the Court affirmed that the Tribunal had been correct in calculating the bonus on an All-India basis.

By an order dated 12 April 1957, the Court had directed the appellant to pay the respondents, within fourteen days, a bonus for the year 1954-55 equal to two months’ basic wages; that amount had already been paid and, when calculated on an All-India basis, amounted to Rs 3.39 lacs. Consequently, the only remaining issue was whether the respondents were entitled to any additional bonus from the distributable surplus of Rs 12 lacs. The Court noted that the appellant required Rs 3.50 lacs to create a debenture redemption reserve, a necessity that had to be considered when determining the final bonus figure, especially because the redemption of debentures would benefit not only the company and its shareholders but also the workmen employed by it. After weighing all the circumstances, the Court concluded that awarding a total bonus of four months’ basic wages for the year 1954-55 – which corresponded to the bonus awarded for the preceding year 1953-54 – would provide a fair share of the distributable surplus to labour, while leaving a balance of Rs 5.22 lacs for the shareholders and the company to use for building the debenture redemption reserve and other reserves for various purposes. The Court also mentioned that the appellant would recover the income-tax refund on the bonus payments it had already made.

The Court observed that the rebate would also contribute to achieving the very same objectives that had been identified earlier, and that its effect would ultimately be advantageous to both the capital of the company and its labor force. Consequently, the Court reached the conclusion that the appellant was required to make an additional payment to the respondents beyond the two months’ basic wages that had already been disbursed under the Court’s order dated 12 April 1957. The further amount to be paid was specified as an amount equal to two months’ basic wages, to be granted as a bonus for the financial year 1954-55. This bonus was to be paid subject to the same conditions that had been set out in the award of the Industrial Tribunal that had been previously referred to by the Court. All dates mentioned in the Tribunal award were to be recalculated so that they would be measured from the date on which this judgment was rendered. Accordingly, the Court allowed the appeal and modified the award of the Industrial Tribunal to incorporate the additional two months’ basic wages as described. However, the Court found that, given the circumstances of the case, it was not appropriate to order costs against either party, and therefore each side was directed to bear its own costs. The final order thus affirmed that the appeal was allowed, the tribunal award was adjusted as indicated, and no costs were awarded to either party.