Phaltan Sugar Works Ltd., Sakharwadi vs Employees Of The Phaltan Sugar Works

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

Court: Supreme Court of India

Case Number: Not extracted

Decision Date: 12 April, 1960

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

The case titled Phaltan Sugar Works Ltd., Sakharwadi versus Employees of the Phaltan Sugar Works was decided on 12 April 1960 by the Supreme Court of India. The judgment was authored by Justice K.C. Das Gupta, who sat on a bench together with Justice P.B. Gajendragadkar. The appeal challenged the award rendered by the Industrial Court in Bombay, which had been made pursuant to a reference under Section 73‑A of the Bombay Industrial Relations Act, 1946. The reference directed the appellant, Phaltan Sugar Works Ltd., Sakharwadi, to pay dearness allowance to the employees represented by the Phaltan Taluka Sakhar Kamgar Union. The award specified distinct rates of dearness allowance for monthly‑rated and daily‑rated employees. For monthly‑rated workers, those whose basic wages fell between Rs 25 and Rs 50 were to receive Rs 45; those earning between Rs 51 and Rs 100 were to receive Rs 55; those earning between Rs 101 and Rs 150 were to receive Rs 62; those earning between Rs 151 and Rs 200 were to receive Rs 67; those earning between Rs 201 and Rs 250 were to receive Rs 72; and those whose basic wages were Rs 251 and above were to receive Rs 77. For daily‑rated workers, the award fixed Rs 1‑11‑0 for employees whose basic wage ranged from Rs 0‑14‑0 to Rs 1‑15‑0, Rs 2‑1‑0 for those earning between Rs 2 and Rs 3‑14‑0, and Rs 2‑4‑0 for those whose basic wage lay between Rs 3‑15‑0 and Rs 6.

At the time the reference was made, the workmen were already receiving a dearness allowance at a lower rate under an agreement reached in 1951. In 1957 a separate reference concerning the fixation of wage scales for the same workmen was pending before the Wage Board for the sugar industries in Bombay. On 15 February 1957, the parties submitted the terms of their agreement on wage scales to the Board, and the Board issued an order implementing those terms. By that order a time‑scale of wages became operative, establishing different starting pays for various categories of employees, the lowest being fifteen annas for an office boy. The workmen argued that, because of the high cost of living, the dearness allowance they were already obtaining under the 1951 agreement, when added to the wages awarded by the Wage Board, left a substantial gap between their reasonable needs and their actual earnings. Consequently, they contended that the dearness allowance should be increased to bridge this gap. They further submitted that the industry’s financial position was more than sound and that the employer possessed the capacity to meet the higher allowance. In its written statement, the employer maintained that the workmen should not be permitted to claim a higher dearness allowance so soon after their wages had been raised by agreement. The employer’s submission emphasized that the workmen ought to have raised the present demand at the time of the recent fixation of revised pay scales, rather than now.

The employer contended that the workmen should have presented their demand for a higher dearness allowance at the moment when the revised pay scales were recently fixed. It argued that the employer had consented to the higher revised wage scales on the assumption that the workmen would not seek any revision of the existing dearness allowance rates. Moreover, the employer maintained that it would be unjustified to impose a fresh financial burden of an increased dearness allowance after the employer had already acted liberally and generously toward its workmen in a number of other respects.

Although the award does not indicate that this particular argument—namely, that no dearness allowance should be allowed because the claim had not been raised prior to the recent wage agreement and because the employer had agreed to higher wages on the presumption that no claim for a higher allowance would be made—was expressly advanced at the Tribunal hearing, the appellant’s principal contention before this Court has been founded upon that same plea. The appellant asserted that when the higher wage rates were accepted, both the employer and the workmen took into account the total emoluments, that is, the basic wage together with the dearness allowance, and that there existed a tacit understanding between the parties that the dearness allowance would continue at the old rate. It was further submitted that, but for this understanding, the employer would not have consented to the higher wage rates.

Counsel for the appellant suggested that the workmen, after persuading the employer that they were agreeing to keep the dearness allowance unchanged, induced the employer to accept the increased wages and therefore could not now, shortly after the wage increase, be allowed to demand a higher dearness allowance. It must be noted, however, that the employer’s written statement does not contain any allegation that such an understanding existed. The only reference to this point appears in paragraph 4 of the written statement, which reads as follows: “With reference to Para. No. 4 of the statement of claim, the second party submits that the first party ought to have made the present demand at the time of the recent fixation of revised wage scale. The second party agreed to the higher revised wage scales on the presumption that the first party would not agitate for a revision of the existing scales of D. A. The second party submits that it is not now open to the first party to make a demand for higher dearness allowance at this stage after the fixation of the wage scale.”

Furthermore, the employer has not pleaded, nor have the workmen asserted, any statement or conduct that would give the employer a basis for the presumption that there would be no agitation for a revision of the dearness allowance. In the absence of any suggestion in the written statement of an understanding between the parties that the dearness allowance would remain unchanged, the appellant cannot now plead such an understanding or claim that it was misled into believing that no agitation for a higher dearness allowance would occur.

In the case before the Court, it was observed that the appellant had not alleged, either in its written statement or otherwise, that the dearness allowance would remain unchanged, nor had it shown that the workmen had given the employer any basis for believing that they would not seek a revision of the dearness allowance. Consequently, the Court held that the appellant could not rely on any purported understanding to the effect that the parties had agreed to keep the allowance the same, nor could it claim that it had been misled into thinking that no agitation for a higher dearness allowance would arise. The Court further noted that if the appellant had indeed entertained such a presumption, it ought to have borne the consequences of that presumption itself. Moreover, the Court found it striking that no evidence had been produced on behalf of the appellant to demonstrate that any such presumption had actually been entertained by the appellant. Had the appellant truly presumed that the workmen would not press for a revision of dearness allowance at the time it accepted the higher wage scale, the Court reasoned that the appellant could have proved that presumption by calling its General Manager or another responsible official for examination. No such evidence was offered, and the Court concluded that it was not unreasonable to infer that no such presumption existed. The Court then turned to an examination of the wage scales that had been agreed upon. The agreed scheme set out different time scales of wages for various categories of employees, each with distinct starting pay and incremental rates. The lowest rates applied to the office boy and the laboratory boy, who began at fifteen annas per day and could rise to Rs 1‑9‑0, with an increment of one anna per year. The next higher rates were for positions such as centrifuge operator, assistant evaporator man, and juice heater man, all starting at Rs 1‑9‑0 with the same annual increment of one anna. The Court observed that these scales were fixed by adding differentials to the minimum rate established for the office boy and laboratory boy. That minimum rate of fifteen annas per day corresponded to just above Rs 23 per month for twenty‑six days of work, which was the minimum basic wage fixed for sugar mills in the Deccan by the Naik Award of 1953. The Court considered the argument that the total emolument theory—whereby wages should be fixed so that, together with the existing dearness allowance, a reasonable weekly wage packet would result—had been taken into account by the parties at the time of the 1957 agreement. It concluded that if such a theory had guided the parties, the wage rates would have been set higher. The analysis of the 1957 wage scales therefore reinforced the view that the question of keeping the dearness allowance at the same level as before had not entered the minds of either the employer or the workmen at that time. As a result, the Court held that the appellant’s first contention failed. This finding led the Court to consider the propriety of the actual dearness allowance awarded.

In fixing the dearness allowance, the Tribunal examined three primary considerations. First, it looked at the increase in the cost of living that had occurred since 1939, the year in which Mr. Naik had originally set the minimum rate. Second, it assessed the financial capacity of the company. Third, it compared the rates of dearness allowance paid by other sugar factories in the same region. The appellant argued that the Tribunal committed an error of law by accepting an affidavit from one Mr. Fauzdar to demonstrate prices at Sakharwadi. The appellant also contended that the Tribunal failed to account for the fact that price levels in the Nira Canal Division, where the appellant’s factory is located, differ from those in the Nagar Division, and that there was no justification for fixing the dearness allowance at a level higher than that allegedly paid by the Belapur factory, which the appellant described as the most prosperous concern nearby.

The Court observed that shortly after the award under appeal was published, the Belapur Sugar Factory raised its dearness allowance, resulting in only a minimal difference between the new rates paid by Belapur and those awarded by the Tribunal. No evidence was presented to show that Belapur was more prosperous than the appellant’s company. Regarding the claim that the cost of living in the Nira Canal Division is lower than in the Nagar Division, the record contained no material to support such a contention. The appellant’s objection to the acceptance of Mr. Fauzdar’s affidavit was based on the argument that he was not produced for cross‑examination. However, the appellant did not request that the Tribunal summon Mr. Fauzdar for cross‑examination, and it was therefore untimely to raise this grievance now. The Tribunal’s primary finding was that the cost of living had risen fourfold since 1939, a point that was not seriously contested. The Court emphasized that fixing dearness allowance rates is a delicate task, and once the Tribunal, after a fair assessment of the material before it, determines rates to be reasonable, such rates should not be disturbed absent clear proof of error or unfairness. The fact that the Belapur factory soon thereafter paid rates practically identical to those awarded reinforces the reasonableness of the Tribunal’s decision. Finally, the appellant objected to the Tribunal’s direction that the new rates should become payable from 1 March 1958. It was noted that the reference itself was made on 7 November 1957, and although the Tribunal could have chosen that earlier date for effect, it exercised its discretion to set the effective date as 1 March 1958, a decision that the Court found no basis to interfere with.

The reference in this matter was made on 7 November 1957. The Tribunal was legally authorised to apply the new dearness‑allowance rates from that very date, but when it issued its award on 28 November 1958 it elected, in its view of fairness, to make the rates operative not from 7 November 1957 but from the later date of 1 March 1958. The Court found no reason to disturb the Tribunal’s discretionary choice in this respect. In support of its view, the Court noted the company’s markedly satisfactory financial condition during the recent years. The Tribunal had pointed out that the balance‑sheet for the year 1956‑57 showed a paid‑up capital of Rs 50 lacs, of which Rs 40 lacs represented bonus shares, while the reserve fund exceeded Rs 69 lacs. Fixed assets were valued at Rs 116 lacs, of which depreciation of Rs 67 lacs had already been written off. Furthermore, the company had paid a dividend of 10 per cent for the year 1955‑56 and a dividend of 24 per cent for the year 1956‑57, both amounts being free of income‑tax. Given this backdrop of prosperity, the Tribunal could have legitimately made the new rates effective from the date of the reference, namely 7 November 1957, yet it chose the later commencement date of 1 March 1958. Accordingly, the company had no reasonable ground for grievance. The Court therefore concluded that all the contentions raised in the appeal failed and dismissed the appeal, ordering costs against the appellant.