Petlad Turkey Red Dye Works Ltd vs Dyes and Chemical Workers' Union

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 258 of 1958

Decision Date: 03 February 1960

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

Petlad Turkey Red Dye Works Ltd filed an appeal against Dyes & Chemical Workers’ Union, Petlad, and another respondent. The case was decided by the Supreme Court of India on 3 February 1960. The judgment was authored by Justice K.C. Das Gupta, with Justice P.B. Gajendragadkar also sitting on the bench. The citation for the decision is 1960 AIR 1006 and 1960 SCR (2) 906. The case is also referenced in later reports as R 1962 SC 1221 (24), R 1969 SC 612 (8), RF 1971 SC 2567 (8), and R 1972 SC 330 (11). The matter concerned the treatment of a reserve fund that had been used as working capital and whether a return on that fund was permissible when calculating the surplus for bonus purposes.

The Industrial Tribunal, while determining the surplus available for distribution to workers, rejected the employer’s claim for interest on a sum of Rs 2,27,000 that was held in the depreciation reserve and claimed to have been employed as working capital. The Tribunal reasoned that allowing the interest claim and then deducting it as a prior charge would leave no surplus, meaning the employees would be ineligible for any bonus. The Tribunal further held that even if the depreciation reserve had been used as working capital, no return on that amount could be considered when deciding the prior charge. On appeal, the employer argued, among other points, that the company’s balance sheet submitted to the Tribunal clearly indicated that the entire depreciation reserve had been utilized as working capital. The Supreme Court held that any portion of the reserve actually employed as working capital during the relevant year must be afforded a reasonable rate of return, and that amount should be deducted as a prior charge in calculating the available surplus. However, the Court observed that a balance sheet alone did not establish the fact of reserve utilization; the law required the employer to prove such utilization by affidavit or other evidence, and to provide the workmen an opportunity to challenge that evidence through cross‑examination. The Court relied on precedents such as Management of Trichinopoly Mills Ltd. v. National Cotton Textile Mills Workers’ Union (C.A. No 309 of 1957) and Khandesh Spg. & Weaving Mills Co. Ltd. v. The Rashtriya Girni Kamgar Sangh, Jalgaon (C.A. No 257 of 1958), and explained the principles in Indian Hume Pipe Co. Ltd. v. Their Workmen (1959) 11 L.L.J. 357.

The appeal was filed under civil appellate jurisdiction as Civil Appeal No 258 of 1958, seeking special leave to challenge the award dated 17 August 1957 rendered by the Industrial Tribunal, Bombay, in Reference (IT) No 15 of 1957. Counsel for the appellant included I.M. Nanavati, S.N. Andley, J.B. Dadachanji, and Rameshwar Nath. Representing the first respondent were B.K.B. Naidu and I.N. Shroff, while I.N. Shroff also appeared for the interveners numbered one and two. The judgment was delivered on 3 February 1960, concluding the Court’s consideration of the matters raised in the appeal.

The judgment was delivered by Justice Das Gupta. The employer, Petlad Turkey Red Dye Works Ltd., raised a single issue in its appeal against the award of the industrial Tribunal. The Tribunal had awarded the workmen a sum of Rs 9,839, an amount equivalent to one month’s basic wages. The employer argued that the Tribunal was incorrect in disallowing a claim for interest at four per cent on Rs 2,27,000, which the employer said formed part of the depreciation fund and had been used as working capital. The employer maintained that, if that interest claim were allowed and the amount were deducted as a prior charge, no surplus would remain and consequently the employees would not be entitled to any bonus. The Tribunal, however, held that even assuming the depreciation reserve had been employed as working capital, no return on that amount could be allowed for the purpose of computing the prior charges under the Full Bench Formula. The Court found that view to be plainly erroneous. Numerous decisions of this Court make it clear that any portion of a reserve actually utilized as working capital in the year under consideration must be accorded a reasonable rate of return, and that return must be deducted as a prior charge in determining the available surplus. There is no justification for treating depreciation reserves differently. The remaining question, therefore, was whether the Rs 2,27,000 recorded in the depreciation fund had truly been used as working capital. The Tribunal did not deem it necessary to examine that question, because it believed that even if the whole amount had been used, no return could be allowed. The Court stated that, had the material on record enabled it to conclude that any reserve or any portion thereof had been used as working capital during the relevant period, it would have calculated the appropriate return and deducted it from the surplus identified by the Tribunal. On reviewing the record, the Court found no evidence to support such a conclusion. The only material available was the employer’s written statement, which claimed interest on reserves employed as working capital of Rs 32,000 at a rate of four per cent. The statement did not expressly say that the depreciation fund formed part of the reserves used as working capital. The employer contended that this implication was embedded in the claim for Rs 32,000 as the allowable return on reserves employed as working capital. Even if that implication were accepted, the employer still bore the burden of proving that any portion of the depreciation fund had actually been utilized as working capital. It was suggested before the Court that the workers had not contested the employer’s implied claim that the depreciation fund was also used as working capital. The Court found that suggestion to be incorrect, observing that Exhibit U/I contained a statement filed on behalf of the workers.

The record shows that a statement submitted on behalf of the workmen contained calculations indicating that the available surplus of Rs 3,000 could be deducted against working capital at a rate of two per cent. According to that statement a sum of Rs 1,50,000 out of the total reserves was said to have been employed as working capital. The employer, on the other hand, filed a document marked Exhibit C/3 dated 12 July 1957 which recorded a deduction titled “Interest at four per cent on reserves employed as working capital – Rs 32,000”. A second document, Exhibit C/4, filed on the same date, reiterated the same claim in an alternative form. The workmen likewise lodged a statement, identified as Exhibit U/3 and also dated 12 July 1957, in which they set out their own calculations of bonus. In that calculation they allowed a return of four per cent on working capital amounting to Rs 1,66,000 as a permissible deduction. Consequently, the workmen’s figures show that the reserves used as working capital were Rs 1,66,000, whereas the employer’s figures assert that the amount employed as working capital was not less than eight lakh rupees. From these contrasting submissions it is evident that the workmen never, either expressly or by implication, accepted the employer’s contention that any part of the depreciation fund had been utilised as a working reserve.

The appellant argued vigorously that the balance‑sheet of the company, which had been placed before the Industrial Tribunal, demonstrated that the entire depreciation fund of Rs 2,27,000 had been applied to working capital. The balance‑sheet indeed records a depreciation fund of Rs 2,27,000. Assuming, solely for the purpose of this case, that this figure represents the actual balance in the depreciation reserve, the next issue is whether the balance‑sheet itself proves that the whole amount was employed as working capital. Even if one were to assume that an analysis of the balance‑sheet entries suggested that the sum must have been used in that manner, such a conclusion cannot be drawn unless it is established as a fact that the statements made in the balance‑sheet under the various heads are correct. No evidence was offered to confirm the accuracy of those statements. All that the balance‑sheet, as presented, demonstrates is that certain figures were asserted. The mere existence of those assertions cannot be taken as proof of their correctness, a principle consistently observed by courts of law. For analogy, a medical certificate stating that a person was ill on a particular date is not, by itself, sufficient evidence of illness; the correctness of the certificate must be established by an affidavit, oral testimony of the doctor, or other supporting evidence. No special exception is justified for balance‑sheets prepared by companies for their own use, and the presumption of correctness cannot be applied without proper evidentiary support.

In many instances the directors of a company might be tempted to make inaccurate statements in the balance‑sheet for improper purposes. Although that tendency does not justify questioning every entry in a balance‑sheet, the law was clear that a presumption of correctness could not be placed upon those statements. The responsibility rested upon the party asserting that a particular statement was true, and that party had to prove it with relevant and acceptable evidence. The balance‑sheet itself could not, by its mere existence, demonstrate that any part of the reserve had actually been employed as working capital. The question of whether a balance‑sheet could be relied upon as proof of the portion of reserve used as working capital had been examined recently by the Court in Khandesh Spg. & Weaving Mill Co., Ltd. v. The Rashtriya Girni Kamgar Sangh, Jalgaon (Civil Appeal No. 257 of 1958). In that decision Subba Rao, J. observed that a balance‑sheet is prepared by the company’s own officers, and when the determination of the amount of reserve utilized as working capital is at stake, principles of equity and justice required an industrial court to demand clear proof of the claim and to provide the labour side with a genuine opportunity to challenge the accuracy of the particulars supplied by the employer. The same case also considered a passage from Indian Hume Pipe Company Ltd. v. Their Workmen (1), which the employer had relied upon to argue that a balance‑sheet constituted good evidence that amounts had been actually used as working capital. As the Court clarified in the Khandesh case, that passage—specifically a sentence on page 362 stating, “Moreover, no objection was urged in this behalf, nor was any finding to the contrary recorded by the Tribunal”—was not intended to establish a rule that a balance‑sheet alone could prove the utilization of a reserve as working capital. Had that been the intention, the additional sentence would have been unnecessary. The sufficiency of a balance‑sheet to prove the fact of reserve utilization was also addressed by the Court in Management of Trichinopoly Mills Ltd. v. National Cotton Textile Mills Workers Union (Civil Appeal No. 309 of 1957). In that judgment the Court held that a balance‑sheet by itself does not establish such a fact, and that the law required the employer to prove the important matter of a reserve’s use as working capital by means of an affidavit or other evidence, and to give the workmen an opportunity to contest the correctness of that evidence through cross‑examination.

The Court observed that the workmen must be given an opportunity to contest the correctness of any such evidence by cross‑examination. Accordingly, the Court therefore rejected the contention raised on behalf of the employer‑appellant that the balance‑sheet filed was sufficient to prove that the amount of Rs 2,27,000 shown in the depreciation fund had actually been used as working capital. The Court reiterated that, as previously stated, the record contained no material from which any conclusion could be drawn regarding the utilisation of the whole amount or any portion of that sum lying in the depreciation fund as working capital. The appellant’s counsel subsequently requested that the matter be sent back to the Industrial Tribunal and that an opportunity be given to the appellant to adduce proper evidence on this point. After considering the submissions, the Court found no circumstance that would justify issuing an order of remand in a case of this nature. Consequently, the appeal was dismissed with costs, and the order of dismissal was affirmed.