Titaghur Paper Mills Co. Ltd vs Its Workmen

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

Court: Supreme Court of India

Case Number: Civil Appeals Nos. 450 and 451 of 1957

Decision Date: 5 May 1959

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

In the case titled M/S. Titaghur Paper Mills Co. Ltd versus its workmen, decided on 5 May 1959, the Supreme Court of India issued its judgment. The opinion was authored by Justice K.N. Wanchoo, and the bench comprised Justices K.N. Wanchoo, Natwarlal H. Bhagwati, S.K. Das, and P.B. Gajendragadkar. The petitioner was M/S. Titaghur Paper Mills Co. Ltd and the respondent was the workmen of the mill. The judgment was reported in 1959 AIR 1095 and in the Supreme Court Reporter Supplement (2) 1012, and it has been cited in several subsequent reports, including R 1960 SC 896, F 1960 SC 985, RF 1961 SC 867, and others up to RF 1972 SC 2148. The dispute involved the Industrial Disputes Act and concerned the nature of the jurisdiction of an industrial tribunal to revise a production‑bonus scheme introduced by the employer, the relationship between profit bonus and production bonus, the availability of surplus for payment, and the method of calculating deductions for rehabilitation.

The factual background set out that in 1949 the appellant introduced a “Tonnage Production Bonus Scheme” under which the workmen would receive a bonus equal to thirteen days’ basic wages on the condition that the mill produced thirty thousand tons, and thereafter an additional one day’s basic wage for each increase of four hundred and sixty tons, up to a maximum production level of thirty‑six thousand tons. The workmen accepted this scheme. In 1953 the workmen raised industrial disputes claiming that they were entitled to a profit bonus for the financial years 1950‑51 and 1951‑52 in addition to the production bonus, and they also sought a revision of the production‑bonus scheme. The Industrial Tribunal to which the disputes were referred rejected both the claim for profit bonus and the request for revision of the production bonus.

Upon appeal, the Appellate Tribunal awarded a profit bonus equal to one month’s basic wage for the year 1951‑52, but dismissed the claim for the year 1950‑51 on the ground that it had been filed too late. The Appellate Tribunal also modified the production‑bonus scheme by providing that for each increase of four hundred and sixty tons over thirty thousand tons up to thirty‑six thousand tons the workmen would receive one day’s basic wage, and for each increase of four hundred and sixty tons in excess of thirty‑six thousand tons they would receive two days’ basic wage. The appellant put forward several arguments: first, that the tribunal lacked jurisdiction to alter the production‑bonus scheme; second, that any alteration could be effected only by agreement of the parties; third, that there were no proper grounds for varying the scheme; fourth, that a profit bonus could not be awarded in addition to a production bonus; fifth, that the production bonus in the present case was in reality a profit bonus; and sixth, that there was no surplus from which a profit bonus could be paid.

The Court held that the tribunal possessed the jurisdiction to revise the production‑bonus scheme. It observed that the payment of a production bonus constituted additional remuneration that depended not on the existence of extra profits but on the achievement of higher production, serving as an incentive for the workmen to exceed the standard level of performance. While the introduction of such a scheme was discretionary on the part of the employer, once introduced and put into operation it became a term of employment. Consequently, any dispute concerning that term of employment was an industrial dispute that could rightly be referred to a tribunal. The Court further concluded that the tribunal’s power was not limited to examining the employer’s motive or good faith; it extended to varying the terms of the scheme where circumstances justified such variation. Accordingly, the tribunal’s revision of the scheme and its award of profit bonus were deemed lawful.

It was observed that any disagreement concerning that term of employment constituted an industrial dispute and could therefore be properly referred to a Tribunal. The Tribunal’s authority in examining the scheme was not limited to questions of bad faith on the part of the employer; the Tribunal also possessed the power to vary the terms of the scheme whenever the circumstances warranted such variation. The Court held that there was no justification for interfering with the scheme for production up to thirty‑six thousand tons because the parties had a standing agreement covering that level of output. However, the scheme contained no provision for production exceeding thirty‑six thousand tons, and consequently there was no agreement governing production beyond that figure. Since actual production had risen beyond thirty‑six thousand tons, it became necessary to provide for a production bonus for the excess quantity. The Court identified two reasons for raising the rates of the production bonus: first, the workmen had intensified their efforts to increase output; second, the labour cost per ton fell progressively as production grew. Accordingly, the bonus rates needed to increase in step with production. The Court stipulated that for every four hundred and sixty tons of additional production, the appropriate bonus rates would be one and one‑quarter days, one and three‑quarters days, and two days of basic wages respectively for the production ranges of thirty‑six thousand to forty‑two thousand tons, forty‑two thousand to forty‑eight thousand tons, forty‑eight thousand to fifty‑four thousand tons, and fifty‑four thousand to sixty thousand tons. The so‑called “Tonnage Production Bonus Scheme” introduced by the appellant was determined to be a genuine production‑bonus scheme rather than a profit‑bonus scheme. Although one clause authorized the directors to cancel or reduce the production bonus if gross profit proved insufficient to meet fixed dividends, interest, depreciation, taxes and a ten percent dividend to ordinary shareholders, the Court held that this did not transform the scheme into a profit‑bonus arrangement because the factors cited differed from those required to compute the surplus under the Full Bench formula. Likewise, a clause allowing the appellant to alter or cancel the scheme if the Government legislated any bonus or profit‑sharing scheme did not convert the scheme itself into a profit‑sharing or profit‑bonus plan. The remaining provisions of the scheme clearly indicated its nature as a production bonus. The Court noted that if a surplus of profits existed according to the Full Bench formula, the workmen would be entitled to a profit bonus in addition to the production bonus, distinguishing the case of Mathuradas Kanji v. Labour Appellate Tribunal, A.I.R. 1958 SC 899. Further, the Court held that there was indeed a surplus of profits and that a profit bonus equal to one month’s basic wages had been properly awarded by the Appellate Tribunal for the year 1951‑52. The appellant’s claim for a deduction for rehabilitation was found to be based on an erroneous foundation. To compute a realistic rehabilitation figure, the total block needed to be divided into three categories: land, buildings and railway sidings, and machinery.

The Court explained that for the purpose of calculating rehabilitation costs the assets should be divided into three categories: (i) land and similar items having a very long useful life and requiring no importation, (ii) buildings and related structures, and (iii) machinery. Regarding land, the Court held that no replacement was necessary and therefore no amount needed to be set aside for rehabilitation. In the case of buildings and similar property, the multiplier to be applied would be smaller and the divisor larger than for land. Machinery had to be further separated according to the period of acquisition so that appropriate multipliers and divisors could be applied. The Court observed that machinery acquired before the last war formed one block, which it referred to as the pre‑1939 block. A second block comprised machinery purchased during the war and a third block consisted of machinery bought after the war; the last two blocks were not rigidly defined. Applying the facts of the present case, the Court assigned multipliers of four, two and one respectively to the three blocks of machinery. Both tribunals had accepted the number ten as the divisor, and the Court was prepared to adopt the same divisor for all three blocks. On that basis, the calculation showed that the rehabilitation expenses did not consume the entire gross profit as the appellants alleged, and there remained a surplus from which a profit bonus could be distributed.

The Court further stated that the clerical staff, budli workers and temporary workers were not eligible to claim an attendance bonus because they were distinguished from the other workmen.

The judgment was rendered in the Civil Appellate jurisdiction relating to Civil Appeals Nos 450 and 451 of 1957. These appeals were taken by special leave from the judgment and order dated 31 July 1956 of the Labour Appellate Tribunal of India, Calcutta, in Appeals Nos Cal 282/55 and 6/56. Counsel for the appellant in Appeal No 450/57 included the Solicitor‑General of India, the Additional Solicitor‑General of India and two additional advocates. Counsel for the respondent in the same appeal were two advocates. In the same appeal, the Attorney‑General for India, the Solicitor‑General, the Additional Solicitor‑General and the two advocates also appeared for the appellants. Separate counsel represented the parties in Appeal No 451/57, and in Appeal No 514/57 the Attorney‑General for India, the Additional Solicitor‑General and the two advocates appeared for the respondent. An intervener, represented by counsel for the Secretary, also participated, as did another intervener represented by two advocates. The judgment was delivered on 5 May 1959 by Justice Wanchoo.

These three appeals by special leave arose from the same decision of the Labour Appellate Tribunal of India and were to be heard together. The first two appeals, Nos 450 and 451, were filed by Titaghur Paper Mills Co. Ltd., while the third appeal, No 514, was filed by its workmen. The company owned two paper mills, one located at Titaghur, referred to as Mill No 1, and the other at Kankinarah, referred to as Mill No 2.

It was shown that a disagreement had arisen between the company and its workmen in the year 1948, and that disagreement was sent to a tribunal for adjudication. The tribunal finally disposed of the matter on 5 November 1949. One of the questions that the tribunal considered concerned the profit bonus for the financial years 1945‑46 and 1946‑47. While that question was before the tribunal, the company presented a scheme of production bonus that was based on the combined output of its two paper mills reaching a minimum of thirty thousand tons of paper in a single year. Under the proposed scheme the workmen would receive a bonus equal to thirteen days’ basic wage – which the company described as being equivalent to one‑half of a month’s basic wage – if the combined production of the two mills reached the thirty‑thousand‑ton threshold. After that, the scheme provided that the workmen would be entitled to an additional one day’s basic wage for every four hundred and sixty tons produced, up to a maximum production level of thirty‑six thousand tons, at which point the total production bonus would rise to twenty‑six days’ basic wage, an amount the company said was equivalent to a full month’s basic wage including weekly holidays. The company qualified its proposal by stating that “as an admittedly rough basis for such a scheme something on the following lines might, we think, be equitable,” and then set out the details just described. The tribunal, in dealing with the profit‑bonus issue for the years 1945‑46 and 1946‑47, observed that the union had accepted the company’s production‑bonus scheme as satisfactory and, for the purpose of that proceeding, the tribunal adopted the scheme as the measure for awarding the profit bonus for those two years. The actual bonuses that were calculated under that scheme amounted to seventeen days’ basic wage for the year 1945‑46 and nineteen days’ basic wage for the year 1946‑47, as recorded in the award of Sri M. C. Banerji published by the Government of West Bengal, Labour Department, in the volume “Awards made by the Tribunals for the quarter ending December, 1949” (pages 130‑150). The detailed scheme was later communicated to the union in July 1950, and because the principle of the scheme had already been accepted by the union before Sri Banerji’s award, the company placed the scheme into operation from 1 April 1949, and production bonuses have been paid in accordance with it ever since.

Subsequent disputes, however, emerged between the company and its workmen in 1953. The workmen employed at Mill No. 2 were the first to raise a grievance in August 1953; in that grievance they asked for profit bonuses for the years 1950‑51 and 1951‑52 and also sought certain alterations to the production‑bonus scheme. The workmen at Mill No. 1 lodged a similar dispute in October 1953, presenting a charter of demands to the company. Their demands likewise included profit bonuses for the two years 1950‑51 and 1951‑52 and a revision of the production‑bonus scheme. The Government of West Bengal referred both sets of disputes to the Fifth Industrial Tribunal, West Bengal. Two separate references were made, one for each mill, and each reference was dealt with by the tribunal as an individual matter.

In the matter before the Fifth Industrial Tribunal, the two mills were heard separately and each tribunal issued a distinct award that rejected every demand presented by the workmen. Consequently, the workmen filed two appeals before the Labour Appellate Tribunal. The parties requested that the two appeals be heard together, and the appellate tribunal disposed of both appeals in a single judgment dated 31 July 1956. The Fifth Industrial Tribunal had refused the workmen’s request for a revision of the production bonus scheme and also denied any grant of profit bonus for the fiscal years 1950‑51 and 1951‑52. The tribunal held that the claim for profit bonus for those two years could not be maintained because the workmen were already receiving a production bonus, which, in the tribunal’s view, satisfied the profit bonus claim in full; therefore, any profit bonus for the two years was deemed completely satisfied. The tribunal also considered the argument that the profit‑bonus claim was filed after a delay, and it concluded that the claim could not be rejected merely on the ground of delay. Regarding the revision of the production bonus scheme, the tribunal observed that the scheme had been accepted by the union and that no justification had been offered to alter the provision granting one day’s basic wage as a production bonus for each increase of 460 tons over the 30,000‑ton threshold. The tribunal further opined that the rise in production was not principally due to increased effort by the workmen but was largely attributable to an expansion of the labour force and the installation of new machinery. On appeal, the Labour Appellate Tribunal rejected the profit‑bonus claim for the year 1950‑51 because it was filed too late. However, the appellate tribunal disagreed with the Fifth Industrial Tribunal’s conclusion that the production bonus scheme wholly satisfied the profit‑bonus claim, and it held that the profit‑bonus claim for the year 1951‑52 was not barred by delay. The appellate tribunal therefore examined the profit figures and applied the “Full Bench Formula” derived from The Mill‑Owners’ Association v. The Rashtriya Mill Mazdoor Sangh (1950) L.L.J. 1247 to determine the surplus available. After calculating the surplus, the tribunal granted the workmen an additional profit bonus equal to one month’s wages, on top of the entitlement under the revised production bonus scheme. Concerning the production bonus scheme itself, the appellate tribunal found sufficient reasons to modify it, and it introduced a new schedule that provided 112 days’ basic wage for each increase of 460 tons over 30,000 tons up to a ceiling of 36,000 tons, and two days’ basic wage for each increase of 460 tons beyond 36,000 tons. The amendment to the production bonus scheme was not made retrospective; therefore, it would become effective only after the appellate tribunal’s judgment.

The Court observed that the provisions of the production‑bonus scheme were to become effective only after the judgment of the Labour Appellate Tribunal had been delivered. Consequently, the workmen’s appeals were allowed on those two points, and those allowances gave rise to the two appeals filed by the company before this Court. The workmen, acting through their union, also lodged an appeal challenging the portions of the Labour Appellate Tribunal’s decision that had rejected their remaining demands. In the two appeals submitted by the company, two specific issues were raised: first, the question of the production bonus, and second, the question of the profit bonus. The Court indicated that it would first consider these two matters and thereafter turn to the appeal filed by the workmen. The company put forward three principal contentions concerning the production‑bonus scheme. First, it argued that the Industrial Tribunal possessed no jurisdiction to examine the production‑bonus scheme at all, contending that such a scheme, by its very nature, could exist only as a matter of agreement between the employer and the employees and therefore could not be imposed by a tribunal. Second, the company maintained that even if a production‑bonus scheme were already in force, its terms could not be altered by a tribunal; any alteration, it said, had to result from a fresh agreement between the employer and the employees because the initiation or introduction of such a scheme constituted a management function. Third, the company asserted that, even assuming the tribunal had the power to vary the scheme, no material had been placed on record in the present case that would permit the tribunal to order any variation of the existing scheme. Regarding the award of a profit bonus for the year 1951‑52, the company advanced two further attacks. Fourth, it claimed that a tribunal was not authorised to award both a production bonus and a profit bonus, and that, in any event, the production bonus in this case was essentially the same as a profit bonus, rendering a separate profit‑bonus award impermissible. Fifth, the company argued that even if both bonuses could be awarded, there was no surplus available in the company's accounts from which a profit bonus for that year could be paid. The Court then turned to the first of the company’s contentions, identified as point (1), and examined the question of whether the tribunal, under the Act, had jurisdiction to consider a production‑bonus scheme at all. The argument presented was that the introduction of a production‑bonus scheme was a matter wholly within the employer’s discretion and that no tribunal could impose such a scheme. The Court noted that the decision to pursue increased production in a particular concern was to be determined entirely by the employer and depended on a complex set of factors, including the state of the market, the demand for the product, prevailing price ranges, and other related considerations. Accordingly, it was entirely for the employer to decide whether to introduce a production‑bonus scheme. While the Court recognized that this line of reasoning possessed considerable force, it also observed that the argument extended further, asserting that even after a scheme had been introduced, the employer’s discretion continued to govern its continuation for the same reasons.

The respondents argued that the tribunal lacks authority to examine a production bonus scheme because the employer may simply discontinue the scheme or frustrate the tribunal’s order by preventing the required level of production. They further contended that if the employer retains complete discretion to introduce or withdraw such a scheme, the mere introduction of a scheme does not confer jurisdiction on the tribunal to interfere with it. According to this reasoning, any tribunal‑initiated revision would amount to compelling the employer to act in a manner that the tribunal could not originally impose. The Court’s attention was drawn to the decision in Shalimar Rope Works Mazdoor Union, Howrah v. Shalimar Rope Works Ltd., where the judgment observed that although a production bonus scheme may promote harmonious industrial relations, management is under no legal obligation to provide such a bonus. The same authority further noted that no earlier decision had been reported to the Labour Appellate Tribunal establishing a production‑bonus scheme as obligatory on the employer. However, the Court clarified that it was not called upon to determine whether a demand for introducing a previously absent production bonus scheme constitutes an industrial dispute within the meaning of section 2(k) of the Act, nor whether a tribunal may impose such a scheme for the first time.

The principal issue before the Court was whether, under the Act, the tribunal possessed jurisdiction to adjudicate a production‑bonus scheme that had already been introduced in the enterprise. The Court indicated that the answer depends solely on the provisions of the Act and not on the premise that only the employer can initially institute the scheme. For the tribunal to acquire jurisdiction, it is sufficient that an industrial dispute, as defined by section 2(k), either exists or is reasonably apprehended, and that the appropriate government refers the matter to the tribunal under section 10. Section 2(k) defines an industrial dispute in very broad terms, encompassing any dispute or difference between employers and workmen that relates to employment, non‑employment, terms of employment, or conditions of labour. The Court recalled that it had previously held the production‑bonus arrangement in the present matter to be an incentive‑wage plan, and consequently a component of the terms of employment. Accordingly, because the scheme forms part of the wage structure, any disagreement over its operation falls within the scope of conditions of labour that the tribunal may examine. Thus, when the employer implements the scheme and the workmen accept it, the scheme becomes a term of employment, making any controversy an industrial dispute that the tribunal can address. Hence, the presence of an industrial dispute coupled with a valid reference under section 10 suffices to confer jurisdiction, irrespective of the employer’s initial discretion to adopt the scheme.

In this case the Court explained that a production bonus scheme operates as an incentive wage plan whereby the amount paid in addition to the basic wage constitutes a supplementary emolument that varies according to the annual level of production. The Court observed that any dispute that arises concerning such a supplementary emolument inevitably falls within the expression “terms of employment” used in the statute. Accordingly, when an employer introduces a production bonus scheme and puts it into effect, and the workmen accept the scheme, the bonus becomes a term of employment that governs the employees working for that employer. The Court further held that any controversy relating to that term of employment qualifies as an industrial dispute. Because the dispute has been referred to a tribunal under section 10 of the Act, the tribunal possesses jurisdiction under section 15 to adjudicate the matter. Consequently, the Court rejected the argument that the tribunal lacked jurisdiction and affirmed that the tribunal was duly empowered under the Act to consider the production bonus scheme that had been introduced in the company and was in force at all material times.

The Court then turned to the second issue, namely the extent of the tribunal’s authority to deal with a dispute concerning the terms of a scheme that is already in operation. It noted that the contention advanced by the respondents was that the introduction and continuation of a production bonus scheme are functions exclusively reserved for management. Under that view, the tribunal should limit its inquiry to whether the matter is an exclusive management function and, only if it finds the employer to have acted in bad faith, to engage in any interference. The Court rejected the need to elaborate on the precise contours of an exclusive management function, observing that, as a general principle, everything connected with the management of an industrial undertaking constitutes a management function, save for the internal affairs of any trade union that may exist. The Act does not draw a distinction between exclusive and non‑exclusive management functions, and it is well settled that tribunals established under the Act have authority to intervene in management matters that fall within their jurisdiction in order to preserve industrial peace. Having accepted that the tribunal was competent to entertain the industrial dispute defined in section 2(k), the Court saw no justification for limiting the tribunal’s power to merely assess questions of bad faith. Accordingly, the Court concluded that the tribunal retains the capacity to consider and, where appropriate, modify the terms of an incentive wage plan such as a production bonus scheme, provided that the circumstances warrant such intervention.

In this case, the Court observed that when an incentive wage plan such as a production bonus scheme has already been introduced and has become part of the employment terms, the tribunal’s consideration should not be limited only to whether the employer acted in bad faith. The Court explained that if a production bonus scheme is in force and has been incorporated into the workers’ contracts, there is no reason why the tribunal should be prohibited from varying the terms of that scheme when justified by the circumstances. Moreover, the Court rejected the notion that the power of revision could be refused to the tribunal simply because the scheme was introduced as an exclusive management function. Even if the initiation of a production bonus scheme is regarded as an exclusive management function and the initial decision to introduce it rests with management, the Court affirmed that the tribunal retains the right, under the Act, to consider such a scheme—once it has become a term of employment—and to revise it whenever necessary. The Court further noted that the tribunal would not interfere lightly with a scheme that has been introduced by management and accepted by the union, and any change in the rates would be made only for good and sufficient reasons. Nonetheless, there can be no doubt that the tribunal possesses jurisdiction under the Act to examine a production bonus scheme that is already operating and, in appropriate cases, to amend its rates and other conditions of payment.

The Court also referred to the decision in Indian Iron and Steel Co. Ltd. v. Their Workmen (1), which dealt with the limits of a tribunal’s power to interfere with an order of dismissal. The Court held that decision to be of no assistance to the appellant, observing that while management unquestionably has the authority to direct internal administration and discipline, that authority is not unlimited. When a dispute arises, Industrial Tribunals have the power to determine whether the termination of a workman’s services is justified and to grant suitable relief, and the conditions under which such interference is permissible were clearly laid down. By analogy, the Court reasoned that the Industrial Tribunal likewise has the power under the Act to revise a production bonus scheme after it has been introduced, but only for cogent reasons such as a material change in method, product, tools, material, design, production conditions, or a significant saving in labour cost. The revision must aim to preserve the relationship between earnings and effort and avoid rates that are disproportionately high compared to the basic wage. Consequently, the Court concluded that the argument presented under this heading must be rejected. The main contention raised on this point was thereafter addressed in the following sections.

In this case the Court observed that there was no material placed before the Appellate Tribunal to justify the increase in the rate that tribunal ordered. The Court recalled that the scheme proposed by the company provided a production bonus equal to thirteen days’ basic wage for a minimum production of thirty thousand tons. Under the scheme, for every additional four hundred and sixty tons produced up to a maximum of thirty‑six thousand tons, one day’s basic wage was to be paid as bonus, the rated capacity of the mills at that time being stated to exceed thirty‑six thousand tons. The Appellate Tribunal retained the minimum production requirement of thirty thousand tons with a bonus of thirteen days’ basic wage. However, for production between thirty thousand and thirty‑six thousand tons the Tribunal raised the bonus rate to one and a half days’ basic wage for each increase of four hundred and sixty tons over the thirty thousand‑ton threshold, continuing that higher rate up to the thirty‑six thousand‑ton limit. For production beyond thirty‑six thousand tons, the Tribunal further increased the rate to two days’ basic wage for every four hundred and sixty tons produced in excess of the thirty‑six thousand‑ton level.

The Tribunal offered two reasons for these increases. First, it said that the great increase in production since the scheme’s introduction was largely due to a considerable rise in the efforts of labour, and therefore a reasonable proportion of the additional income generated by higher production should be allocated to the workers. Second, it argued that a bonus of only one day’s wage for each four hundred and sixty tons above thirty thousand tons was not commensurate with the actual increase in income attributable to that additional block of production. The Court found the Tribunal’s reference to “increase of income” as a basis for raising the rate to be unclear.

The Court explained that the question of raising the rate had to be examined in two stages: the increase applicable between thirty thousand and thirty‑six thousand tons, and the increase applicable when production exceeded thirty‑six thousand tons. It noted that, according to the award of 1949 delivered by Mr Banerji, the basic principle of the scheme as presented to him had been accepted by the union as satisfactory. This acceptance indicated that the union considered the provision of thirteen days’ basic wage for the minimum production of thirty thousand tons and one day’s basic wage for each additional four hundred and sixty tons up to thirty‑six thousand tons to be fair to labour.

The Court addressed the allegation that there was no agreement between the workmen and the company concerning the scheme. While it acknowledged that the terms communicated to labour in July 1950 were not all initially negotiated with the union, it held that the rate of bonus itself had been accepted by the union as satisfactory. Since the company’s present appeals concerned only the rate, the Court focused on whether the Appellate Tribunal was justified in altering a rate that had been mutually agreed up to a production of thirty‑six thousand tons. In the Court’s opinion, given the agreement between the parties for production up to thirty‑six thousand tons, there was no material before the Tribunal that warranted interference with the agreed rate.

In relation to production up to 36,000 tons, the Court observed that no evidence or material had been placed before the Appellate Tribunal that could justify interfering with the rate that had been mutually agreed upon by the parties. The Court noted that when the union consented to the bonus rate for production up to that level, it had necessarily taken into account the degree of labour intensification that was then present. Since that agreement, the Court found nothing to indicate any alteration in the working conditions or any new circumstance that would warrant a revision of the agreed rate. Consequently, the Court held that the portion of the Appellate Tribunal’s order that dealt with production up to 36,000 tons could not be upheld, because the Tribunal had not been furnished with any material that would warrant a departure from the rate already settled between the parties.

The Court then turned to the question of the rate applicable to production above 36,000 tons and explained that the considerations were different in that context. The scheme originally contemplated only a maximum production of 36,000 tons; therefore, any production beyond that figure fell outside the scope of the agreed formula. The Court acknowledged that after the threshold of 36,000 tons was crossed, the company continued to pay a flat rate of one day's basic wage for every additional 460 tons and that the workmen had, in practice, accepted those payments. However, the Court emphasized that there was no collective acceptance by the union on behalf of the workmen that this flat rate was satisfactory or fair for output exceeding 36,000 tons. Production first exceeded the 36,000‑ton mark in the year 1951‑52, and a dispute was raised in October 1953 by the workmen of Mill No 1 shortly after the production figures for that year became known. While the workmen of Mill No 2 did not dispute the general revision of the rate, the company conceded that both mills should be treated on the same footing for this matter. Accordingly, the Court concluded that the company could not argue that the Appellate Tribunal should have refrained from intervening with the rate for production above 36,000 tons, because there was no collective agreement by the union representing the workmen and, again, no material had been placed before the Tribunal to justify maintaining the same rate beyond the agreed limit.

The Court noted that the Appellate Tribunal had given two reasons for ordering a change in the rate. The second reason was described as difficult to understand because it was not clearly expressed, whereas the first reason – namely, the increased effort required of the labour force – was readily applicable to the situation of production beyond 36,000 tons. The Court reasoned that, where the size of the labour force remained essentially unchanged, achieving output beyond the original target of 36,000 tons would inevitably require greater intensification of labour effort, especially since the working hours had not been altered. All other factors being equal, a higher output produced by the same number of workers in the same period of time must involve a corresponding increase in labour intensity. The Court held that this very consideration was something the Appellate Tribunal could legitimately take into account when deciding whether the rate for production above 36,000 tons should be raised. The Court further indicated that a comparison of the production figures and the size of the labour force employed between 1948 and 1952 – assuming other variables remained constant – would demonstrate the extent of such intensification.

In the Court’s view, the rise in output necessarily implied that the workers had to intensify their effort. The records showed that in 1948 the combined labour force of the two mills numbered 5,860 persons, as exhibited in Exhibits F and H. By 1952 this number had risen to 6,213, which represented an increase of just a little more than six per cent. During the same period the amount of paper produced grew from 28,244 tons in the financial year 1948‑49 to 37,738 tons in 1951‑52, an increase of slightly above thirty‑three per cent. The Court therefore concluded that the growth in production was far greater than the modest rise in the size of the workforce. It was acknowledged that in 1950 a new paper‑making machine had been installed in one of the mills and that additional bamboo‑crushers, digesters and other substantial machinery expenditures had also taken place. While these additions certainly contributed to the higher output, the Court observed that it was not possible to calculate with any mathematical precision the exact proportion of the increase that was due to improved machinery and the proportion that was due to greater effort by the workers. Nevertheless, the Court was satisfied that, because the labour force had not risen appreciably, a large part of the production gain must be attributed to intensification of the workmen’s efforts. The Court noted that figures for the size of the workforce in the later years were not available, even though production continued to rise and was projected to reach the 54,000‑ton mark in 1958‑59. From this it was apparent that, as production moved beyond the 36,000‑ton threshold, the workers must have progressively increased the intensity of their labour. The Court held that this circumstance was one that the Appellate Tribunal was properly entitled to consider when deciding whether to alter the rate of bonus for production exceeding 36,000 tons. Regarding the second ground relied upon by the Tribunal, the Court found the wording of the Tribunal’s reasoning to be unclear. Counsel for the workmen explained that the Tribunal meant that as total production grew, the labour cost per ton fell, resulting in a saving for the company that should be shared with the workers. This explanation reflected the principle that underlies the practice of increasing production‑bonus rates as output rises. To illustrate this principle, the Court prepared a simplified example based as closely as possible on the conditions in the two mills, using rounded figures for ease of calculation. The illustration assumed that the size of the labour force and other relevant factors remained constant. It began with a baseline scenario in which the mills produced 30,000 tons, employing a labour force of 6,000 workers and paying an average total wage of Rs 110 per month, as shown in Exhibit E. Under these assumptions the total labour cost for this level of production was calculated as follows.

The calculation showed that for a basic production level of thirty thousand tons per year the total labour cost amounted to seventy‑nine point two lakh rupees, which corresponded to a cost of two hundred sixty‑four rupees per ton. When the production level was raised to thirty‑six thousand tons, the scheme provided an additional production bonus of twenty‑five rupees per year for each worker, as illustrated in Exhibit E. The extra six thousand tons generated a supplementary labour cost of one point five lakh rupees, bringing the aggregate labour expenditure for thirty‑six thousand tons to eighty point seven lakh rupees. Dividing this total by the thirty‑six thousand tons yielded a cost slightly above two hundred twenty‑four rupees per ton. If production increased further to forty‑two thousand tons, the labour outlay rose by three lakh rupees, resulting in a total of eighty‑two point two lakh rupees, which worked out to just under one hundred ninety‑six rupees per ton. At a production level of forty‑eight thousand tons, the additional labour cost amounted to four point five lakh rupees, so the overall expense reached eighty‑three point seven lakh rupees, giving a cost per ton of slightly more than one hundred seventy‑four rupees. When output reached fifty‑four thousand tons, the labour cost rose by six lakh rupees, producing a total expense of eighty‑five point two lakh rupees and a per‑ton cost just below one hundred fifty‑eight rupees. At the highest level considered, sixty thousand tons—double the basic production—the bonus paid to labour increased by seven point five lakh rupees, making the total labour cost eighty‑six point seven lakh rupees, which equated to approximately one hundred forty‑four point five rupees per ton. These figures were derived on the assumption that the production bonus rate applicable above thirty‑six thousand tons remained constant at the rate prescribed in the prevailing scheme. Consequently, it became evident that, provided all other factors such as the size of the labour force and the machinery remained unchanged, a rise in production produced a progressive reduction in the cost of labour per ton. In the Court’s view, this pattern established a clear example of a tonnage‑based production bonus where the bonus rate should increase progressively as output expands. The factual record indicated that during the period of heightened production there was a modest increase in the size of the labour force. It was also established that a new paper‑making machine had replaced an older unit and that new bamboo‑crushers and digesters had been installed. Furthermore, between 1 April 1948 and 1 April 1959, the company incurred a total investment in machinery and plant amounting to two hundred twenty‑three point nine‑four lakh rupees, inclusive of the aforementioned additions. There was no doubt that the anticipated production of fifty‑four thousand tons in the fiscal year 1958‑59 was partly attributable to this substantial outlay on plant and equipment. Any increase in the labour force after 1 April 1952 might also have contributed to the rise in output. Nevertheless, the Court held that the progressive saving in labour cost remained valid, and that workers were entitled to claim a correspondingly higher bonus rate as production grew. Accordingly, although the second reasoning of the Appellate Tribunal was not articulated with complete clarity, the Court inferred that the Tribunal’s decision to alter the bonus rate above thirty‑six thousand tons was likely based on the considerations set out above.

The Court observed that the consideration previously outlined supported the Appellate Tribunal’s view that the rate should be altered when production exceeded thirty‑six thousand tons, although it did not necessarily endorse the specific change ordered by that Tribunal. It was noted that, unlike the situation for production up to thirty‑six thousand tons, there had been no collective bargaining agreement between the union and the company for output beyond that level. Consequently, a case existed for revising the rate once production passed thirty‑six thousand tons. The Court then examined whether the flat rate of two days’ basic wage for each four hundred and sixty tons, as fixed by the Tribunal, could be justified. It pointed out that, in ordinary practice, tonnage‑production bonuses are calculated on a scale that rises progressively. In this respect, the Court referred to an illustration in “Payment by Results,” published by the International Labour Office, Geneva, page one hundred and two. Accordingly, the Court concluded that, although a basis existed for increasing the rate above thirty‑six thousand tons, such an increase should follow a progressively increasing schedule. The Court explained that the existing scheme, admittedly a rough and equitable basis, employed blocks of six thousand tons divided into slabs of four hundred and sixty tons. Using the data presently available, the Court deemed it fair to introduce progressive rates for production from over thirty‑six thousand tons up to sixty thousand tons, postponing any consideration beyond that figure for future review. The Court therefore modified the rate as follows: one and one‑quarter days’ basic wage for production between thirty‑six thousand and forty‑two thousand tons; one and one‑half days’ basic wage for production between forty‑two thousand and forty‑eight thousand tons; one and three‑quarters days’ basic wage for production between forty‑eight thousand and fifty‑four thousand tons; and two days’ basic wage for production between fifty‑four thousand and sixty thousand tons. The Court then turned to the contention that the scheme, although termed a production bonus scheme, was in reality a profit‑bonus scheme and that workers were not entitled to any profit bonus calculated on the Full Bench formula in addition to the production bonus. Relying particularly on clauses fourteen and eighteen of the scheme, the Court set out to determine the true nature of the scheme. It noted that the scheme was titled “Tonnage Production Bonus Scheme” and not a profit‑bonus scheme based on the Full Bench formula. While the title was not decisive, it was a relevant factor in the analysis.

In this case the Court observed that the label given to a bonus arrangement was not conclusive, but it could be taken into account when the nature of the scheme was being examined. The Court noted that the principal purpose of the scheme, as set out in clause (2), was to encourage the clerks and workers of the company to increase the output of saleable paper and to assure them that a higher level of production would bring a greater return for their labour in the form of an incentive. By emphasising that the aim was to link bonus payment to the volume of paper produced, the Court concluded that the scheme was intended to be a production‑bonus plan and nothing else.

Clause (4) then specified the manner in which the bonus would be calculated. It provided that, for a total production of up to at least 30 000 tons, the workers would receive a bonus equivalent to thirteen days’ basic wage. After that threshold, the scheme added one additional day’s basic wage for every additional 460 tons produced, continuing until a maximum of twenty‑six days’ basic wage was attained when production reached 36 000 tons. The Court pointed out that this provision made no reference to the company’s profit levels; the bonus depended solely on the tonnage achieved. The Court illustrated this by noting that if production fell below the minimum of 30 000 tons, no bonus would be payable under the scheme, irrespective of any profit that might have been earned. This characteristic, the Court held, demonstrated that the arrangement was a production‑bonus scheme rather than a profit‑bonus scheme calculated under the Full Bench formula, which related bonus entitlement entirely to the surplus of profits after meeting prescribed deductions.

Clause (14) introduced a single, important general exception. It stated that the scheme would be subject to the condition that the company’s profit‑earning capacity remained satisfactory during the financial year, regardless of the amount of paper produced. Accordingly, the clause authorised the directors, at their sole discretion, either to cancel the bonus altogether or to reduce the monetary amount of the bonus in any financial year in which the gross profit for the whole year was insufficient to cover fixed dividends, interest, depreciation charges and taxation, and to ensure that a dividend of not less than ten per cent was paid to ordinary shareholders. The respondents argued that this provision transformed the scheme into a profit‑bonus plan. The Court rejected that contention, acknowledging that the scale of payment might be lowered or even eliminated under the circumstances described in clause (14), but stressing that those circumstances were not the same as those required to determine the surplus of profits under the Full Bench formula. The Court therefore regarded clause (14) as merely another condition governing the payment of the production bonus, comparable to other clauses in the scheme. For instance, the Court referred to clause (5), which provided that workers who had worked for less than half of the total working days in the financial year would not receive any bonus, illustrating that the scheme contained several qualifying and disqualifying conditions unrelated to profit calculations.

In this case, the Court examined the specific provisions of the bonus scheme contained in clauses 5 through 14. Clause 5 stipulated that any worker who had worked for fewer than one half of the total number of working days in the financial year for which the bonus was being paid would receive no bonus at all; the clause therefore limited the right to bonus only to those workers who had completed more than half of the total working days, the calculation of which was to be made according to other rules prescribed in the scheme. Clause 6 identified categories of employees who were expressly excluded from bonus entitlement, namely bungalow servants, Budli clerks or workers, temporary clerks or workers, and casual clerks or workers. In addition, the clause authorized the mill manager or the cost accountant, acting at their sole discretion, to withhold part or the whole of the bonus as a punitive measure against any person who committed a major misdemeanor, provided that written proceedings were initiated for that purpose. Clause 7 dealt with the manner in which service was to be counted for bonus purposes: leave taken on full or half pay was to be treated as qualifying service for bonus, whereas leave taken without pay was to be excluded from the calculation of qualifying service. Clause 8 provided that a worker who attended all the working days in the financial year for which the bonus was declared would be entitled to the maximum bonus amount prescribed by the scheme. Clause 9 then explained how that maximum bonus could be proportionately reduced when a worker did not attend every working day. Clause 14 was described as another condition that could either result in no payment of bonus or in a payment that was lower than that prescribed under clause 4. The Court observed that the presence of clause 14 demonstrated that the scheme was not a profit‑bonus arrangement but a production‑bonus arrangement, because the clause linked bonus entitlement to the fulfilment of certain conditions, including profit‑related conditions. The Court illustrated this by supposing that the gross profit for a year was sufficient to meet fixed dividends, interest, depreciation, taxation and a ten‑percent dividend to ordinary shareholders, leaving only a small surplus, for example Rs 5. Even if the conditions of clause 14 were satisfied, the workers would be entitled to a production bonus, but the remaining Rs 5 would be inadequate to meet the bonus claim. Consequently, the Court concluded that the scheme under review was a pure production bonus scheme based on tonnage and certain conditions, one of which related to profits, and that its nature was fundamentally different from the profit bonus calculated under the Full‑Bench formula. The Court therefore held that, despite the existence of a surplus of profits according to the Full‑Bench formula, the workers could not claim a profit bonus; their entitlement was limited to the production bonus as defined by the scheme.

In this matter the Court pointed out that the two arrangements being compared are fundamentally different. Under the scheme that the workmen rely upon, the payment they receive is a supplemental emolument that is calculated according to a prescribed formula. By contrast, the Full Bench formula provides a bonus that is drawn from the company's profits, and it may be paid only when a surplus exists. The rationale behind the Full Bench approach is that both capital and labour contribute to the creation of profits, and therefore it is just that labour should receive a share of any surplus.

The Court’s attention was drawn to the decision in Mathuradas Kanji v. Labour Appellate Tribunal (1), where the court observed that “one of the categories of bonus is described as ‘incentive bonus’.” The terminology indicates that such a bonus is intended as a cash incentive to encourage greater effort by the workers. However, the essential condition for granting an incentive bonus, like any other bonus, is that the undertaking must have earned profits, part of which must be attributable to the contribution of the workmen in increasing production. The case cited involved a contract between the Government and its contractors for clearing and transporting imported food grains. The contract stipulated that if the rate of discharge from a ship exceeded 1,500 tons in a 24‑hour period and no shed demurrage was incurred, the Government would pay the contractors the prescribed remuneration plus a bonus of four annas per ton. The workmen employed by those contractors claimed entitlement to that per‑ton bonus. Their claim was rejected on the ground that, under the terms of the contract, the bonus was payable to the contractors and not directly to the workmen. Those observations, made in a different factual setting, were therefore held to be irrelevant to the present production bonus scheme, which has become a term of employment for the workmen in this case.

Regarding clause (18) of the scheme, the provision states that if, during the three‑year period for which the scheme is intended to remain in force, the Government enforces by legislation any scheme or provision for bonus or profit‑sharing, the company may, at that time, cancel or modify the entire scheme. It was argued that this clause demonstrates that the scheme was intended as a profit‑sharing or profit‑bonus arrangement because it could be altered or cancelled if legislation on profit‑sharing were introduced. The Court accepted that the scheme might indeed have been cancelled or modified if such legislation were enacted, but emphasized that this possibility does not transform the scheme itself into a profit‑sharing plan. The mere ability to amend a scheme because the legislature steps in to provide an additional payment for workmen does not mean that the scheme originally provides for profit‑sharing. Consequently, the nature of the scheme must be judged on its own terms, without importing the legal effects of a different legislative scheme.

In this case, the Court observed that the scheme, when read according to its own language, clearly did not constitute a profit‑bonus arrangement but rather an incentive‑wage plan that hinged principally on the level of production achieved by the workmen. Consequently, the argument that the bonus payable under the scheme should be classified as a profit bonus, and that the workmen therefore could not claim a profit bonus calculated by applying the Full Bench formula, could not be sustained. Reference (5) was cited for this proposition. The Court also noted that the petitioners advanced the additional contention that, even assuming a profit bonus might be payable together with a production bonus, the enterprise had no surplus profit available to support the Appellate Tribunal’s decision to grant only one month’s bonus. The workmen had originally demanded a bonus for two months; however, after assessing the surplus using the Full Bench formula, the Tribunal determined that only a single month’s bonus could be justified and awarded that amount.

The Court explained that the Full Bench formula originated in 1950 in connection with a dispute in the textile sector and has subsequently been applied across a wide range of other industries. The formula was devised because, when price levels are stable or falling, the standard depreciation provision prescribed by the Income‑Tax Act is sufficient to accumulate a fund for replacing plant and machinery as they wear out, eliminating the need for any additional rehabilitation provision. By contrast, when prices rise, the ordinary depreciation fund becomes inadequate to replace equipment that has become obsolete due to inflation. This problem became especially acute after the conclusion of the last war, when the issue of replacing machinery acquired before 1939 was presented before the Full Bench of the Labour Appellate Tribunal in 1950. To address the particular difficulty created by a sharp increase in prices, the Full Bench formula was created to allocate an extra sum for rehabilitation out of profits, in addition to the statutory depreciation. The formula operates on a notional basis, employing a multiplier to determine the current market price of the machinery slated for replacement and a divisor reflecting the useful life of that machinery to calculate the annual amount that should be set aside for rehabilitation. The Court further held that, in order for the annually provided rehabilitation sum to bear a realistic relationship to the actual amount required, it is essential to subdivide the total asset block of the concern – which includes land, buildings, plant and machinery – rather than applying a uniform multiplier to the entire block. The Court therefore recommended that the total asset block be split into three categories: (i) land, (ii) buildings, railway sidings and similar structures that have a considerably longer lifespan and do not require frequent replacement, and (iii) machinery. Regarding land, the Court observed that no replacement is ever needed; consequently, no amount should be earmarked for rehabilitation under the land category.

In this matter, the Court explained that the land component of the concern does not require any provision for rehabilitation because land itself is not replaced. Even when the land is held on a lease that is about to expire, any payment made for renewing the lease is treated as an expense and is not to be included in the rehabilitation calculations. However, if there are buildings situated on lease‑hold land, the cost of rehabilitating those buildings is to be taken under the separate heading of buildings. Regarding buildings, railway sidings and similar structures, the Court noted that a smaller multiplier and a larger divisor must be applied because these items have a considerably longer useful life and do not involve the procurement of new imports.

The Court further observed that the machinery component must be subdivided according to the period in which the machinery was acquired. Machinery purchased before the last war forms one block, often referred to as pre‑1939 machinery. A second block consists of machinery bought during the war, and a third block comprises machinery acquired after the war. Although these divisions are not rigid, they illustrate the necessity of separating machinery into categories based on the year of purchase so that an appropriate multiplier and divisor can be applied to each block. With these principles in mind, the Court proceeded to examine how the Full Bench formula was applied in the present case.

The Court stated that there was no dispute concerning the components of the formula itself; the only controversy concerned the manner in which the formula was actually used. The company had submitted two different calculations. In the first, it employed a multiplier of 4.5 together with a divisor of 10 and, on that basis, produced a chart that indicated a shortfall of 112 lakh rupees for the year 1951‑52. In the second, the company used a multiplier of 3.5 with the same divisor of 10, resulting in a calculated deficit of 65 lakh rupees. In both instances, the company took the total block comprising land, buildings, railway sidings and machinery, valued at 468 lakh rupees, and applied the chosen multiplier uniformly to the entire amount without distinguishing between the various categories. Likewise, it applied the divisor of 10 uniformly, making no distinction between land, buildings, railway sidings, or the different sub‑blocks of machinery based on purchase dates.

The Court regarded this method as completely unrealistic because it failed to reflect the differing nature and useful lives of the various assets. Consequently, the company was able to demonstrate an exaggerated deficit in its charts. The Appellate Tribunal did not accept the company’s calculations. It excluded land from the computation altogether, which the Court affirmed as correct. For the buildings, the Tribunal applied a distinct multiplier and divisor, and the Court noted that no dispute had been raised regarding that treatment. Regarding the machinery, which includes plant, machinery, bamboo forest blocks, furniture, flotilla and vehicles, the Tribunal divided the block into two portions: the portion that existed on 1 April 1947 and the additions made between 1 April 1947 and 31 March 1951. For the block existing up to 1 April 1947, the Tribunal applied a multiplier of 3 and then took the block of additions after that date at cost price, thereby using a multiplier of one for that portion. The Court’s analysis stopped at the point where the Tribunal “took the block.”

In this case, the Tribunal had treated the additions that occurred after 1‑4‑1947 as being valued at their cost price and therefore applied a multiplier of one to that portion. It was not explained why the Tribunal omitted the additions that were made in the financial year 1951‑52 from its calculations. The Tribunal also adopted a divisor of ten for the entire plant and machinery block, without distinguishing the different useful lives of machinery acquired at different times. After performing the relevant computations, the Tribunal concluded that there existed a surplus of profits of twenty‑two lakh rupees and consequently granted the workers a profit bonus equal to one month’s basic normal wage. The company argued that it had produced evidence showing that the prices of plant and machinery had risen by four and a half times compared with the prices in 1939, and therefore it should have been allowed to use a multiplier of 4.5, at least for the machinery block dating up to 1‑4‑1939. The company further asserted that a multiplier greater than one should be applied to the block covering 1939‑1947 and also to the block covering 1947‑1951, and that the additions made in 1951‑52 should likewise have been taken into account. It was noted that the Labour Appellate Tribunal, which had formulated the Full Bench method in 1950, had employed a multiplier of 2.7 for the pre‑war block, and that multiplier had subsequently been applied in many cases. The company maintained, however, that the multiplier is not immutable; if a greater increase in price can be proven, a higher multiplier should be permissible. While it is accepted that an employer who can demonstrate a higher price rise should be allowed a higher multiplier, the employer must nevertheless tender satisfactory proof to support the claimed multiplier. Consequently, the Court examined the evidence which the company had placed before it in support of a 4.5 multiplier for the block up to 1‑4‑1939. In its written statement the company contended that it was a known fact that the price of plant and machinery had risen by three to four hundred percent since before the war. At that point the company had not claimed a rise of four and a half times after 1‑4‑1939; its written claim was therefore for a maximum multiplier of four for the block up to that date. By contrast, the testimony of Mr Taylor, who appeared as a witness for the company, asserted that prices had increased by four and a half times. That assertion was based on Exhibit D, which the company had prepared by collecting enquiries from various firms about certain types of machinery and by attaching copies of the corresponding correspondence. Exhibit D listed nineteen items, and the average multiplier calculated from those items was 4.56. The items enumerated in Exhibit D included motors, beaters, machine drives, a paper‑making machine, a turbo‑alternator, and a couch

In this case the Court examined the list of items that the company had identified as part of the machinery, which included roll, bamboo‑crushers, bamboo‑digesters, a boiler, circular tanks and three roaster‑smelter units. The aggregate price of these items was stated to be nineteen lakh rupees, the figure being derived after converting the original amount from pounds. In addition to those items, the company pointed to other components such as steam piping, steam tees, galvanized bends and other steam bends, which it said would be required in large quantities; the price per foot or per piece for these components had also been noted. The Court observed that the correspondence attached to Exhibit D consisted of four letters – one dated September 1954 and three dated June 1955 – each relating to a single piece of equipment: one paper‑making machine comparable to the one installed in Mill No 2, a turbo‑alternator comparable to the one installed in Mill No 1, a machine drive comparable to the one installed in Mill No 1, and a boiler comparable to the one installed in Mill No 1. The Court further noted that the total cost of the machinery block as at 1 April 1939 was approximately one hundred and fifty‑three lakh rupees, whereas Exhibit D dealt only with machinery having a value of nineteen lakh rupees as described above. The witness for the company, Mr Taylor, did not state in his testimony that Exhibit D was intended to be a representative sample, nor did he indicate that other machines of the same type were priced in the same way or that the price increases for other machinery were similar or of the same magnitude. The Court pointed out that Exhibits D‑1 to D‑4 showed that the price of only one out of ten paper‑making machines had been ascertained and that no price information had been obtained for the remaining nine machines. Likewise, the price of only one turbo‑alternator, one machine drive and one boiler from Mill No 1 had been established. Consequently, the Court could not determine how many additional machines of those types existed in the two mills, nor could it conclude that the price increase for those additional machines was also four and a half times. In these circumstances, the Court found that the company had failed to furnish sufficient material on which a multiplier of 4.5 could be based. The responsibility to prove the correct multiplier rested on the company because it was the party seeking to apply a particular multiplier to calculate the rehabilitation reserve. Moreover, the Court observed that in the company’s written statement it had only claimed a price rise of three hundred to four hundred percent on pre‑war prices. Therefore, the Tribunal was not unjustified in refusing to adopt a multiplier of 4.5. The Court further held that it would be inappropriate to assign a multiplier higher than four, since four was the maximum multiplier the company had claimed in its written statement. However, the Court clarified that the use of a multiplier of four for the block as at 1 April 1939 should not be regarded as a precedent for future years, even for this company. Either party would be entitled to present proper evidence to demonstrate the exact multiplier applicable to that block, whether it be higher or lower than four. The discussion then proceeded to the next block of time.

In the period from 1 April 1939 to 31 March 1947 the Tribunal assigned a multiplier of three. That assignment was based on the Tribunal’s earlier decision to apply the same multiplier to the entire block as at 1947, which included the pre‑war block. Because this judgment now adopts a multiplier of four for the pre‑war block, the multiplier of three for the 1939‑1947 block can be justified only if the company demonstrates that prices rose by that factor after 1939. The company, however, did not produce any such evidence before the Industrial Tribunal.

It appears that certain documents were introduced before the Appellate Tribunal on 12 June 1956 when the appeals were ready for argument. The order sheet of that day records that the Appellate Tribunal permitted admission of four statements concerning particular machines submitted by different firms. The counsel for the workmen objected to the consideration of these statements, contending that they were filed at the last moment, that no party had relied upon them before the Appellate Tribunal, and that the judgment itself makes no reference to them. Those objections carry considerable weight. Nevertheless, after examining the statements that were placed on record, the Court found that they concerned ten items. Four of the items dated 1945‑1948 showed price increases ranging from sixty percent to seventy‑five percent. Two items dated 1950 showed increases from fifteen percent to fifty percent. Three items dated 1951 showed increases from ninety‑nine point five percent to one hundred sixteen percent. One item dated 1954 showed a sixty percent increase. All of these price increases were measured as of 1956. Even when these documents are taken into account, the Court concluded that the company cannot be permitted to request a multiplier higher than two for the block covering 1939‑1947. This determination is not to be taken as a precedent for future calculations, and either party remains free to present better evidence that might justify varying the multiplier in either direction.

Concerning the block after 1947, the company reported that it added machinery costing eighty‑seven lakh rupees between 1 April 1949 and 31 March 1952. The price quotations for the years 1950 and 1951 appearing in the aforementioned documents relate only to machines valued at five lakh rupees. It is not known whether the machinery added by the company is of the same kind as that described in those documents. Consequently, those documents cannot serve as a guide for determining any multiplier higher than one for the period that concerns the eighty‑seven lakh rupee block. Again, the Court makes clear that if, in future years, better evidence is produced, the question of assigning a multiplier higher than one for this block may be reconsidered. This concludes the Court’s consideration of the appropriate multipliers for the various blocks of machinery.

In this case the machinery was separated into three chronological blocks. The Court then examined the divisor that should be applied to the value of the machinery. Both the Industrial Tribunal and the Labour Appellate Tribunal had accepted a divisor of ten, relying on the testimony of Mr. Taylor. The Court observed that it seemed unusual to apply the same divisor to machinery that existed before 1939, to machinery added between 1939 and 1947, and to machinery added between 1947 and 1952. Logically, newer plant should have a larger divisor because the newer equipment would be expected to enjoy a longer useful life. Nevertheless, since both tribunals had agreed to use ten for the whole set of plant in the present matter, the Court felt bound to follow that determination. The Court also clarified that this choice of ten should not be regarded as a binding precedent for future cases, and that either party may in later proceedings demonstrate that a different divisor – either higher or lower than ten – is appropriate for any of the three identified periods.

The Court then proceeded to compute the rehabilitation figures using the data supplied by counsel for the company. For plant and machinery the initial amount stated was Rs 153.43 lakh. This figure was multiplied by four, giving Rs 613.72 lakh as of 1 April 1939. An addition of Rs 22.41 lakh was recorded for the period up to 31 March 1947; this was multiplied by two, resulting in Rs 44.82 lakh. Further additions amounting to Rs 87.27 lakh occurred between 1 April 1947 and 31 March 1952 and were taken at a multiplier of one, yielding Rs 87.27 lakh. The aggregate of these three amounts totaled Rs 745.81 lakh. From this sum a 5 percent breakdown allowance of Rs 13.15 lakh was deducted, leaving a balance of Rs 732.66 lakh. Depreciation up to 31 March 1951 of Rs 176.03 lakh was then subtracted, producing a net figure of Rs 556.63 lakh. The Court further reduced this amount by a general reserve of Rs 25.49 lakh and a plant‑replacement reserve of Rs 67.98 lakh, resulting in a final balance of Rs 463.16 lakh. Applying the accepted divisor of ten to this balance gave a rehabilitation charge for plant and machinery of Rs 46.31 lakh.

For the building component, the value of the building was stated as Rs 42.85 lakh. This amount was multiplied by two, giving Rs 85.70 lakh. An additional depreciation of Rs 5.96 lakh brought the net building value to Rs 79.74 lakh as at 31 March 1947. Additions of Rs 21.19 lakh were then recorded for the period from 1 April 1947 to 31 March 1952; this addition was multiplied by one, adding Rs 21.19 lakh and raising the total to Rs 117.60 lakh. A 5 percent breakdown allowance of Rs 3.20 lakh was deducted, leaving Rs 114.40 lakh. Depreciation up to 31 March 1951 of Rs 47.21 lakh was then subtracted, resulting in a balance of Rs 67.19 lakh. Dividing this balance by a divisor of twenty‑seven produced a rehabilitation amount for the building of Rs 2.48 lakh.

Adding the rehabilitation amounts for plant and machinery (Rs 46.31 lakh) and for the building (Rs 2.48 lakh) gave a combined rehabilitation charge of Rs 48.79 lakh. From this total, depreciation for the year 1951‑52 amounting to Rs 16.50 lakh was deducted, leaving a final rehabilitation amount of Rs 32.29 lakh for the year 1951‑52.

The Company’s profit statement showed net profits of Rs 36.09 lakh after deducting all charges except the rehabilitation cost. The Court identified an error in this calculation: the working‑capital figure of Rs 76.3 lakh was treated as cash, although it represented only a bookkeeping entry with no corresponding cash. Because interest at four percent had been allowed on this working capital, the Court added the interest amount of Rs 3.05 lakh to the profit figure. Consequently, the corrected amount of profit available before accounting for rehabilitation costs became Rs 39.14 lakh (Rs 36.09 lakh + Rs 3.05 lakh). Subtracting the rehabilitation charge of Rs 32.29 lakh left a surplus profit of Rs 6.85 lakh. This surplus was to be shared equally among the three parties named in the Labour Appellate Tribunal’s formula. The Tribunal had previously authorised a bonus equal to one month’s basic wages, which was estimated to cost approximately Rs 3 lakh. Considering all the circumstances, the Court concluded that there was no basis for interfering with the Tribunal’s order.

The Court observed that there was no justification for interfering with the order issued by the Appellate Tribunal. It was noted that the Court had deliberately excluded consideration of bamboo‑mills and grass‑block matters on the basis of reasons previously articulated by the Appellate Tribunal, reasons which the Court found commendable. Turning to the specific appeal lodged by the workmen, the Court recorded that the appellants had raised a large number of issues in their grounds of appeal, but that only three of those issues would be examined in detail. The first of the three issues concerned the allegation that the minimum basic wage should have been increased from Rs 30 to Rs 35. The second issue related to the claim that clerical staff as well as “Buidl” and temporary workers ought to have been brought within the attendance‑bonus scheme. The third issue, although mentioned in the appeal, concerned the contention that profit bonus for the fiscal year 1951‑52 should have been calculated at two months’ basic wages rather than the one month permitted. The Court indicated that it would address each of these three points in the order that they were presented.

Regarding the first point, the Court explained that both the Labour Tribunal and the Appellate Tribunal had rejected the request for a higher basic wage on the basis of the “Industry‑cum‑Region Rate of Basic Wages” principle. The workmen had relied on the wage structure of Bengal Paper Mills Ltd., Raniganj, a fellow paper‑making enterprise, where the minimum basic wage was Rs 38‑3, dearness allowance Rs 35 and the incentive wage amounted to Rs 7‑5‑6 per mensem, giving a total of Rs 80‑8‑6. By contrast, the present company paid a minimum basic wage of Rs 30, dearness allowance of Rs 35, house allowance of Rs 2, attendance bonus of Rs 8 and a production bonus of approximately Rs 3, which summed to Rs 78 per mensem. The Court observed that the overall difference between the two establishments was marginal. Moreover, if the production bonus and incentive wage were omitted from the calculation, the present company’s total remuneration would be Rs 75 per mensem, while the Raniganj company’s total would be Rs 73‑3. In light of these comparisons, the Court found no reason to disturb the concurrent orders of the two Tribunals.

Concerning the second point, the Court noted that the Tribunals had dismissed the request to extend the attendance‑bonus scheme to clerical staff, “Budli” workers and temporary workers, holding that these categories occupied a different position. For the clerical staff, the Tribunals reasoned that they already benefited from incremental salary scales that had previously been denied to the mill hands for whose advantage the attendance‑bonus scheme had been created. As for the “Budli” and temporary workers, the Tribunals argued that the uncertainty of their service tenure made it impracticable to apply the attendance‑bonus scheme to them. The Court found that the rationale offered for the exclusion of “Budli” and temporary workers was satisfactory and justified their separate treatment. With respect to the clerical personnel, the Court examined the correspondence exchanged between the union and the company during the introduction of the attendance‑bonus scheme and concluded that the scheme had been primarily linked to the establishment of a time‑keeping office. Accordingly, clerks were in a distinct occupational category from the production workers who performed the actual manufacturing tasks. In view of these considerations, and notwithstanding the additional factors contemplated by the two Tribunals, the Court saw no basis for altering the Tribunals’ findings on this matter.

In the Court’s view, there was a clear basis for treating clerical staff differently from other workmen. The company informed the union that, to the best of its knowledge, no attendance‑bonus scheme had ever been applied to clerks, apparently because the rate of absenteeism among clerks was not as high as that among other categories of workmen. Consequently, the Court found no reason to disturb the concurrent finding of the two Tribunals on this point. Regarding the third issue, the Court noted that it had already calculated the available surplus of profits from which a profit bonus could be distributed. The surplus amounted to Rs 6.85 lakh, and the amount that had been allowed as a profit bonus—equivalent to one month’s basic wages—was approximately Rs 3 lakh. The Court observed that this percentage was already sufficiently large, and that permitting a profit bonus at the rate of two months’ basic wages would result in a payment of about Rs 6 lakh, which would almost exhaust the entire surplus. It is well established that the surplus must be divided fairly among the industry, the shareholders and the workmen. The Court also recalled that the workmen had already received a production bonus for the year in question. In view of these considerations, the Court concluded that there was no scope for granting any additional profit bonus beyond what had been allowed by the Appellate Tribunal. Accordingly, the Court partly allowed the company’s appeals and varied the production‑bonus rate in the manner indicated earlier. The Court dismissed the company’s appeals with respect to the profit bonus and also dismissed the workmen’s appeal. Since each party had succeeded on some points and failed on others, the Court ordered both parties to bear their own costs in all the appeals. Appeals numbered 450 and 451 were allowed in part, while appeal number 514 was dismissed.