The Indian Oxygen and Acetylene Co., Private Ltd., Bombay vs. Its Workmen and Another

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 753 of 1957

Decision Date: 5 May 1959

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

The case was titled The Indian Oxygen & Acetylene Co., Private Ltd., Bombay versus Its Workmen and Another, and it was decided on 5 May 1959 by the Supreme Court of India. The judgment was authored by Justice P. B. Gajendragadkar, who sat with Justices Natwarlal H. Bhagwati, S. K. Das and K. N. Wanchoo. The petition was filed by The Indian Oxygen & Acetylene Co., Private Ltd., Bombay as the petitioner and the respondents were its workmen and another individual. The decision was recorded on 05/05/1959. The bench is identified in the report as containing Justice Gajendragadkar, and also references a bench comprising Justice Gajendragadkar, Justice P. B. Das, and Justice Sudhi Ranjan as Chief Justice, together with Justices Natwar Lal H. Bhagwati, S. K. Das and K. N. Wanchoo. The case is cited in the All India Reporter as 1959 AIR 1114 and also appears in the Supreme Court Reports Supplement, volume 2, page 1002. The substantive issue involved the Industrial Dispute Act, specifically the application of the Full Bench formula for the calculation of bonus, the question of whether that formula could be disregarded, the claim for rehabilitation, the computation of average life of assets, the use of the weighted-average method, and whether the cost of exhausted assets could be taken into account.

The headnote records that the workmen sought bonus for the financial years 1952-53 and 1953-54. The employer argued that, applying the Full Bench formula correctly, there was no surplus available in either year and therefore no bonus was payable. The Industrial Tribunal held that the formula was not binding on it and, on the basis of genuine considerations of social justice, rejected the employer’s claim for rehabilitation. The Tribunal awarded bonus at the rate of one-third of the annual basic wages for each of the years 1952-53 and 1953-54. Alternatively, the Tribunal observed that if the claim for rehabilitation were allowed, there would still be no surplus in either year. The Tribunal concluded that it was bound to give effect to the Full Bench formula and to allow the employer’s rehabilitation claim, following the precedent set in A.C.C. Ltd., Bombay v. Their Workmen, [1959] S.C.R. 925. In its alternative calculations, the Tribunal acted on correct principles, taking into account the price level prevailing in 1956 rather than only the price level of the two bonus years. The Tribunal noted that any rehabilitation amounts allowed in earlier years should be accounted for if they had not been exhausted, but it was not demonstrated that such amounts remained unused in the present case.

The Tribunal further explained that, when calculating the average life of buildings, machinery and similar assets, the weighted-average method was scientifically more accurate and yielded a more realistic result. It also held that the rehabilitation costs of assets that had reached the end of their useful life and were exhausted could be admitted in the weighted-average calculations, provided those assets existed and were in use in the relevant year. The judgment concerned Civil Appeal No. 753 of 1957, filed by special leave from the Industrial Tribunal’s order dated 6 October 1956 in Reference (I.T.) Nos. 40 and 44 of 1956. Counsel for the appellant included the Solicitor-General of India and other senior advocates, while counsel for the respondents and the intervenor were also listed. The judgment was delivered on 5 May 1959 by Justice Gajendragadkar.

The appeal, which was entertained by special leave, arose from a dispute over bonus payments between the Indian Oxygen and Acetylene Company Private Limited, hereinafter referred to as the appellant, and its workmen, the years in controversy being 1952-53 and 1953-54. The workmen lodged a claim that excluded members of the clerical staff, while the clerical staff filed a separate claim; both claims were referred by the Bombay Government to the Industrial Tribunal for determination. The claim filed by the workmen excluding clerical staff was recorded as Reference (I. T.) No. 40 of 1956, and the claim filed by the clerical staff was recorded as Reference (I. T.) No. 44 of 1956. For the purpose of this judgment both categories of workmen will be described as the respondents. The appellant is a private limited company incorporated in 1935 with its head office in Calcutta. Its business consists of manufacturing and selling oxygen and acetylene; it is a subsidiary of the British Oxygen Company Limited. The company supplies its products to hospitals, nursing homes and, in large quantities, to industrial concerns for welding, cutting and blasting operations. The appellant voluntarily paid a bonus equal to two months’ basic wages for each of the years in dispute, but the respondents were dissatisfied with that payment and claimed a bonus equal to one-third of their total earnings for each of the two years. Evidence showed that all of the appellant’s shares, except for two or three held by nominee shareholders, were owned by the British Oxygen Company Limited. The evidence also indicated that the appellant had been prospering and expanding at a rapid rate. It had capitalised its reserves in 1940, 1941, 1942, 1945, 1946, 1947 and 1949, resulting in a major portion of its capital being comprised of bonus shares. The company recorded good profits for the year ending 30 September 1953 as well as for the year ending 30 September 1954. There was also a substantial gap between the actual wages paid to its workmen and the living wage. On the basis of these allegations the respondents claimed a bonus of one-third of their total earnings. The appellant contended that it already paid satisfactory wages to the respondents and that, under the applicable formula, the respondents were not entitled to any additional bonus for the years in question. In fact, the appellant argued that a correct application of the formula would show that the voluntarily paid bonus could not be claimed again by the respondents. The tribunal, however, rejected the appellant’s case and directed the appellant to pay the respondents a bonus at the rate of one-fourth of the annual basic wages for 1952-53 and one-third of the said wages for 1953-54, after deducting the bonus already paid for those years. The tribunal also directed that, in calculating the amount of bonus, overtime, dearness and

Other allowances were to be excluded from the calculation, and the award was made subject to the two conditions that the tribunal itself specified. The appellant challenged the correctness of this award before the Court. The appellant’s first contention was that the tribunal had erroneously held that it was not bound to apply the Full Bench formula when determining the available surplus. The tribunal had taken the position that the formula was not binding and, relying on considerations of social justice, it felt free to reject the appellant’s claim for rehabilitation. The Court had examined this issue extensively in A. C. C. Ltd., Bombay v. Their Workmen (1) and had held that, in bonus disputes, industrial tribunals must give effect to the Full Bench formula and had also explained the method for making the required calculations. Consequently, the Court concluded that the tribunal was in error in refusing to grant the appellant’s rehabilitation claim. According to the tribunal’s own calculations, when no rehabilitation amount was provided for (Ex. TA), the surplus available for 1952-53 was Rs 6,14,830 and for 1953-54 was Rs 12,16,120, and the award was based on these figures. However, the tribunal also made an alternative finding, noted in the judgment of A. C. C. (1) [1959] S.C.R. 925, that if the appellant’s rehabilitation claim were allowed, there would be no surplus available for either year, as shown by the calculations recorded under Ex. TB. Under that alternative conclusion, the appellant would have succeeded and the award under appeal would have to be set aside. The respondents argued that the tribunal’s alternative calculations were incorrect and therefore sought to uphold the final award by pointing out errors in those calculations. Their first argument was that the tribunal wrongly took the price level of 1956 into account, insisting that only the price levels of the two bonus years should have been considered. The Court, having considered this point in A. C. C.’s case (1), held that it would be inappropriate to limit the tribunal’s decision solely to the price level of the bonus years. Accordingly, the objection that the tribunal erred on this ground was rejected. The respondents further contended that the tribunal failed to apply the appropriate methodology in making its calculations, a point that the Court was required to consider.

In this case the tribunal was observed to have taken the position that, although the appellant had previously been allowed substantial sums for the rehabilitation of plant and machinery, those sums were not to be considered when assessing its present rehabilitation claims. The tribunal appeared to hold that once an allowance for rehabilitation had been granted to the employer, it was not open to the tribunal to inquire how the employer had utilised that amount. However, in the earlier A. C. C. decision (1) the Court had ruled that if a rehabilitation sum was allowed to an employer and it was evident that the sum was available to him during the relevant year, then the same sum must be taken into account in the subsequent years unless the employer could demonstrate that the amount had already been spent for rehabilitation purposes. Accordingly, the Court accepted the respondents’ argument that the appellant was required to consider the rehabilitation amounts that had previously been granted to it. While examining this point, the Court noted that the earlier awards, which the respondents had highlighted, had granted the appellant twenty per cent of net profits on a rough basis as a provision for both rehabilitation and expansion. Those awards explicitly referred to repairs, replacement, modernisation and reasonable expansion. It is now well settled that an employer may not claim a prior charge for any item of expansion under the formula, yet the earlier awards between the appellant and its workmen appeared to allow a claim for expansion as a prior charge, a fact that could not be ignored. Apart from this aspect, the Court observed that the appellant had already taken into account one-half of its general reserve as on 30 September 1953 and 30 September 1954, amounts of Rs 5,51,363 and Rs 3,95,376 respectively. In view of this, it was difficult to accept the contention that the rehabilitation amounts allowed in previous years had not been taken into account. The Court also pointed out that this issue had not been raised before the tribunal, and perhaps could not have been, because the tribunal had held that the employer could not be required to bring the amount into account.

The respondents further contended that the tribunal had erred in working out the rehabilitation figures by accepting the appellant’s claim. The award showed that the tribunal had been very favourably impressed by the evidence presented on behalf of the appellant by Mr Saigal and Mr Basak. In reaching a conclusion about the average useful life of the buildings, machinery and other assets, Mr Basak had adopted the weighted-average method. This method, a development of the ordinary arithmetic mean, attaches a specific weight to each quantity and calculates the average as the sum of the products of the weights and the quantities divided by the sum of the weights. The Court noted that this approach was scientifically more accurate and produced a more realistic result in determining the average life of the assets. The tribunal’s own illustration of the method, showing the cost of assets, their life, and the annual replacement cost required, demonstrated that the weighted-average calculation yielded an average life of 8.02 years, whereas the simple arithmetic average of the same figures produced an incorrect estimate of 4.33 years because the small-item figures distorted the result.

The method applied by Mr. Basak was the weighted average. This method develops the ordinary arithmetic mean. Under the weighted average, a set of quantities X is assigned a weight W to each quantity, and the weighted arithmetic mean is obtained by dividing the sum of the products W × X by the sum of the weights W. The judgment noted that this method is scientifically more accurate and yields a more realistic result when determining the average life of assets.

To illustrate the method, the tribunal presented an example. The example listed the cost of each asset, its estimated life, and the annual replacement cost required. The figures were as follows: an asset costing Rs. 5 with a life of one year required an annual replacement cost of 5; an asset costing Rs. 8 with a life of two years required an annual replacement cost of 4; an asset costing Rs. 300 with a life of ten years required an annual replacement cost of 30; and an asset costing Rs. 313 with a life of thirteen years required an annual replacement cost of 39. Using the weighted average method, Mr. Basak calculated the average life of the assets to be 8.02 years. In contrast, the simple arithmetic average of the life figures in the second column equals 13 divided by 3, which is 4.33 years. The judgment observed that the arithmetic average gave an incorrect estimate because the small items distorted the result; within two years the first two items would be replaced, while the remaining machinery was expected to last eight more years, yet the arithmetic average would suggest a remaining life of only 2.33 years.

The respondents did not dispute the validity of the weighted average method itself, but they argued that certain calculations performed within the method were open to objection. Before addressing those objections, the judgment stated that when Mr. Saigal and Mr. Basak gave evidence, they were not asked any precise questions on which the present objections were based. It was considered desirable that, in such inquiries, workmen should cross-examine expert witnesses on all points they intended to raise against the employer’s rehabilitation claim. Nonetheless, the judgment proceeded to consider the merits of the objections in light of the evidence recorded.

The first objection asserted that assets which had exhausted their useful lives should be excluded from the weighted calculations. This objection concerned assets such as lease-hold buildings, cars, and trucks. The judgment was inclined to think that the method adopted by the appellant presented a more accurate picture of the assets actually in use and the rehabilitation cost claimed for them. The judgment held that if an asset existed and was in use in the relevant year, a claim for its rehabilitation would not become inadmissible. A similar argument was advanced in another form, contending that when an asset that had reached the end of its life was included, it would be inappropriate to also include a new asset that had come into existence in the same year, on the ground that this would result in a double claim for rehabilitation. The judgment expressed that this argument was not sufficiently well-founded and proceeded to examine it by reference to a specific item.

In this case the Court examined the respondents’ contention that the appellant’s method of calculation allowed a duplicate claim for rehabilitation. The Court considered the argument by looking at a specific example involving the lease-hold buildings identified as D. A. and Oxygen located in Bombay. According to the schedule dated 30 September 1953, the estimated remaining useful life of each of these buildings, beginning 1 October 1953, was one year, and the annual amounts claimed for their rehabilitation were respectively Rs 97,468 and Rs 30,590. The records showed that no similar rehabilitation claim was made for these two buildings in the following year.

In the same financial year the appellant also listed two newly erected buildings, also called D. A. and Oxygen, which had been constructed in 1952. For these newer structures the appellant claimed annual rehabilitation provisions of Rs 6,474 and Rs 6,972 respectively. The Court noted that if the respondents’ argument were accepted and the calculations relating to the new buildings were excluded from the statements, the appellant would appear to be entitled to a larger overall rehabilitation claim.

The Court observed that the appellant’s detailed working, presented in Exhibit C-II, incorporated an amount of approximately Rs 13,000 under the broader heading of Rs 4,58,316 that represented the uncovered requirement for rehabilitation and replacement for that year. At the same time the appellant deducted a normal depreciation charge of Rs 2,31,700, of which roughly Rs 22,000 was allocated as the normal depreciation for the two new buildings. Consequently, while the claim for rehabilitation of the new buildings amounted to about Rs 13,000, the depreciation allowance granted for the same buildings was higher, at around Rs 22,000. The Court therefore concluded that the evidence did not show that the appellant’s calculation method created a serious defect or produced an inflated rehabilitation provision.

The Court further noted that the appellant’s calculations were based on an item-by-item analysis of its plant and machinery, a methodology that the appellant acknowledged would tend to yield more satisfactory results. The appellant’s representative produced Exhibits C-I through C-16, which contained all the relevant calculations, and testified that, as a matter of business practice, a proprietor must consider replacing machinery even when the equipment had been purchased in the year under review. In assessing a rehabilitation claim for such an item, the multiplier would normally be one, and the divisor would represent the total remaining useful life of the equipment.

Regarding assets that were fully exhausted, the witness explained that omitting them from the schedule would render the final results shown in Exhibits C-11 and C-12 incorrect, because those statements already incorporated proportionate depreciation on the assets in question. The witness also added that the total value of all fixed assets shown in Exhibits C-11 and C-12 had to correspond with the values presented in the balance sheet, and he asserted that his method of calculating the weighted average of the remaining life of assets was the most accurate approach available.

It was explained that the total depreciation calculated up to the beginning of the year had been deducted, and that this amount also incorporated the proportionate depreciation on the particular assets that were being referred to. The witness further stated that the aggregate value of all fixed assets shown in Exhibits C-11 and C-12 “have got to agree with the values shown in the balance-sheets,” and he asserted that “his method of calculating weighted average of the remaining life of assets is the most correct that can be employed.” In a similar line of enquiry, the witness identified as Mr Saigal was cross-examined regarding the Bangalore plant that had originally been installed in 1946. He explained that, in theory, the plant should have remained serviceable until 1968; however, in practice the plant had become so unreliable that a new plant had to be installed while the old one was retained only as a standby unit. According to his testimony, the actual useful life of the machinery listed in Exhibit C-20 amounted to less than twenty-two years, but for the sake of accounting simplicity he had chosen to treat the period as twenty-two years. The tribunal, as previously noted, held that the evidence presented by the appellant’s witnesses during the present proceedings was satisfactory. The tribunal further concluded that no material had been uncovered during cross-examination that would support the respondents’ contention that the tribunal had failed to appreciate the evidence correctly. Consequently, the court found that the respondents had not demonstrated that any of the tribunal’s conclusions, as derived from its calculations under the alternative finding, were erroneous. The appeal was therefore upheld, the award made by the tribunal was set aside, and the appeal was allowed. Because the principal issue raised by the appeal was of limited importance and the matter had been argued in a series of related appeals, the court ordered that each party bear its own costs.