Management of Rajendra Mills Ltd. vs Their Workmen and Ors.

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

Court: Supreme Court of India

Case Number: Civil Appeal Nos. 294, 295, 296 of 1958

Decision Date: 11 February, 1960

Coram: P.B. Gajendragadkar, K.C. Das Gupta

The case titled Management of Rajendra Mills Ltd. and others versus Their Workmen and others was decided on 11 February 1960 by the Supreme Court of India. The judgment was authored by Justice K.C. Das Gupta and the bench comprised Justices P.B. Gajendragadkar and K.C. Das Gupta. The Court identified two common points for consideration in the three appeals filed by employers against the order of the Labour Appellate Tribunal of India that directed the payment of bonus. First, the Court needed to determine whether the Appellate Tribunal was justified in disallowing any amount on account of rehabilitation costs in the calculation of the available surplus. Second, the Court had to consider, assuming that the available surplus had been correctly determined by the Tribunal, whether the distribution of that surplus was fair. In each of the three cases the Industrial Tribunal had allowed substantial sums as rehabilitation costs. Because those costs were deducted as prior charges, no surplus remained for the distribution of any further bonus. The Appellate Tribunal held that a claim for rehabilitation costs must be supported by proper evidence relating to the various factors that enter into the computation of such costs. The Tribunal observed that the employer in each case had failed to adduce such evidence, and therefore nothing could be allowed on account of rehabilitation costs beyond the amounts already deductible as depreciation charges. The Court noted that the position of law is now well settled by a series of its own decisions: the burden of proving what amount, if any, should be allowed as rehabilitation costs rests on the employer, and the employer must discharge that burden by presenting proper evidence and giving the opposite party an opportunity to test the evidence by cross‑examination. The Court acknowledged that this evidential burden had not been met in any of the cases. The mere filing of balance‑sheets on record did not assist the employer in meeting that burden. Consequently, the Court held that the Appellate Tribunal was correct in its view that, in the absence of proper evidence, any claim for a deduction on account of rehabilitation costs must be rejected. The Court then turned to the question of distribution of the available surplus and noted that each of the three appeals required separate consideration. Regarding Civil Appeal No. 294 of 1958, which was filed by the management of Jawahar Mills Ltd., the Court recorded that the amount remaining available for distribution was admittedly Rs 1,10,573. Of this amount, a sum of Rs 64,901, which includes an amount voluntarily paid, was to be allocated to the workmen pursuant to the Labour Appellate Tribunal’s award. This allocation left the employer with Rs 45,672. Adding to this the amount available as an income‑tax rebate in respect of the bonus paid, which was Rs 28,394, the management’s share for the shareholders as well as the industry amounted to Rs 74,066. The Court noted that the appellant had raised further submissions on behalf of the management concerning these figures.

The appellant contended that the Company was burdened with a considerable debenture loan and that a sum of Rs. 40,000 had been specifically set aside in a debenture redemption fund for that purpose. It was rightly urged that the necessity of making a provision for the redemption of these debentures should be properly taken into account when the Court distributes the available surplus between the workmen and the management. The Labour Appellate Tribunal, however, had taken no account of this fact in its award. The Court observed that the argument that a provision for debenture redemption ought to be considered in the distribution of the surplus had not been raised on behalf of the appellant in the statement of case filed in this Court, nor does any record show that such a case was presented before the Appellate Tribunal. Consequently, the appellant could not be permitted to introduce that argument at this stage. The Court further noted that Shri Viswanatha Sastri had attempted to argue that the amount of Rs. 5,045‑5‑9 shown in the profit and loss account as profit on the sale of motor vehicles, together with a further sum of Rs. 3,952‑1‑0 received as rent, should be excluded from the bonus calculation on the ground that the workmen had not contributed to the earning of those receipts. Since no such contention had been put forward at any earlier stage on behalf of the appellant, and it was raised only before the learned counsel in this Court, the Court refused to entertain that point. After considering the submissions, the Court found no reason to interfere with the award made by the Labour Appellate Tribunal and therefore dismissed the appeal, directing that costs be awarded to the other party.

Civil Appeal No. 295 of 1958 was filed by Rajendra Mills Ltd. and concerned the bonus for the financial year 1951‑52. The amount that remained available for distribution was Rs. 59,747. Of this, the sum awarded by the Labour Appellate Tribunal together with the voluntarily paid amount by the employer amounted to Rs. 51,192. Consequently, the employer was left with a residual sum of Rs. 8,555, to which could be added a rebate of Rs. 22,396 on income‑tax in respect of the bonus paid, bringing the employer’s total share to Rs. 30,951. Thus the distribution resulted in the workmen receiving Rs. 51,192 while the employer received Rs. 30,951. On behalf of the appellant it was argued that there was no justification for granting such a large share of the surplus to the workmen. Shri Viswanatha Sastri further urged that, where the employer had acted liberally by making a voluntary contribution of as much as fifteen percent of basic wages, the Appellate Tribunal should not have ordered any bonus at all. He suggested that there may be merit in the contention that when an employer, of his own accord, acts liberally—whether out of generosity or out of anxiety for a contented labour force—industrial adjudicators should hesitate to do

In considering the bonus dispute, the Court recognised that the Tribunal must not ignore factors such as the generally low wage structure while also respecting the employer’s voluntary generosity. The Court noted that a Tribunal, even when its decision is under appellate review, may exercise discretion to award an amount above the voluntary payment, but such discretion will only be disturbed when justice demands a correction. After examining all the surrounding circumstances, the Court concluded that the award of the Appellate Tribunal required modification to achieve a more balanced outcome. Although no rigid formula exists for allocating a modest surplus, a practical approach often adopted is to distribute the surplus so that both the employer‑industry side and the workmen receive roughly comparable benefits when no other relevant evidence is presented. The Court found that the Tribunal’s original allocation failed to approximate this balance. While judicial intervention in a Tribunal’s discretionary distribution is approached with caution, the absence of any explanation for the Tribunal’s calculation made the apparent disparity unavoidable. The Court calculated that replacing the additional bonus of eight and one‑third percent ordered by the Tribunal with an extra bonus of two and one‑half percent of the yearly basic wages would result in the workmen receiving a total bonus of Rs 39,930, while the management would obtain approximately Rs 37,568, including the income‑tax rebate. The Court considered this distribution to be fair. Consequently, the Court modified the order of the lower tribunals by directing that the workmen receive an additional bonus equal to two and one‑half percent of the yearly basic wages, in addition to the fifteen percent already paid voluntarily by the employer, and ordered each party to bear its own costs.

The Court then turned to the third appeal, identified as Appeal No 296 of 1958, also filed by Rajendra Mills Ltd., which concerned the bonus for the year 1952‑53. The surplus available for that year was Rs 97,162. The Appellate Tribunal had allocated Rs 70,000 as bonus, representing twenty‑nine and one‑sixth percent of the workmen’s basic earnings for the year. Under that award, the employer would retain Rs 27,162 and would also receive a tax rebate of Rs 30,625, giving a total of Rs 57,787 to the employer. It was contended that this allocation overly favored the labour side. Because no evidence was adduced to illuminate any specific facts that might guide a different distribution of the surplus, the Court held that the same principle of approximate equality should apply. The Court therefore examined the effect of granting a bonus equivalent to three months’ basic wages to the workmen. It found that such a bonus would allow the workmen to receive Rs 60,000, while the management would obtain Rs 63,312, inclusive of the income‑tax rebate on the bonus paid. The Court deemed this to be a fair distribution of the surplus and accordingly directed that a bonus equal to three months’ basic wages be paid for the year 1952‑53, with each party again bearing its own costs.

The Court observed that if a bonus equal to three months’ basic wages were paid to the workmen, the workmen would receive a benefit of approximately Rs 60,000. At the same time, the management would obtain a sum of about Rs 63,312, this amount including the rebate on income‑tax that would arise from the bonus payment. The Court expressed the view that such an allocation would constitute a fair sharing of the surplus that had been identified in the case. Accordingly, the Court modified the order originally issued by the Appellate Tribunal and directed that the bonus for the year 1952‑53 be calculated on the basis of three months’ basic wages and paid to the workmen. The Court also ordered that each party bear its own costs in the proceedings.

The Court further noted that, in the two appeals filed by Rajendra Mills Ltd., Shri Viswanatha Sastri had sought to contend that a portion of the profit should be excluded from the account because, in his view, the workmen had not contributed to the acquisition of that profit. The Court pointed out that this contention had not been raised at any earlier stage of the litigation and that it essentially raised a factual issue that required evidentiary examination. Because the matter was new and factual, the Court declined to permit Shri Sastri to press this argument before it.