Textile Machinery Corporation Ltd. vs Its Workmen on 13 January, 1960

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

Court: Supreme Court of India

Case Number: Not extracted

Decision Date: Not extracted

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

In this matter, the Supreme Court of India recorded a judgment written by Justice P B Gajendragadkar, with Judges K Subba Rao and K C Das Gupta sitting on the bench. The appeal, taken on special leave, arose out of an industrial dispute between Textile Machinery Corporation Ltd. (referred to as the appellant) and its workmen (referred to as the respondents). The dispute concerned demands made by the respondents for the payment of a Puja Bonus for the year 1955. On 14 October 1955 the parties reached an agreement that the issues raised by the respondents would be referred to an Industrial Tribunal for adjudication. As part of that agreement the appellant advanced a sum of Rs 35 to each worker, an amount calculated as the equivalent of seventeen days’ average basic wages, to be treated as an advance against the Puja Bonus and to alleviate the hardship of the Puja period. Subsequently, on 21 March 1956 the Government of West Bengal made a formal reference to the Second Industrial Tribunal, asking the tribunal to determine the respondents’ claim for a bonus for the year 1955. The tribunal applied the relevant statutory formula and awarded the respondents an amount equal to two months’ basic wages as bonus for that year. The award of this bonus, which was in addition to the Puja Bonus that had already been paid, became the subject of the present appeal before this Court.

The tribunal’s award was based on the Full Bench formula, and the appellant, through the Solicitor‑General, contended that the tribunal erred on several points. First, the appellant argued that the tribunal failed to consider material and relevant evidence presented by the appellant concerning its claim for rehabilitation and replacement charges. Second, the appellant submitted that the tribunal should have permitted a four per cent interest charge on the entire reserve fund, asserting that the reserves had been used as working capital and thus attracted interest. Third, the appellant objected to the tribunal’s decision to add back to the profits an amount of Rs 2.50 lakh that had been donated by the appellant, as well as an amount of Rs 2.35 lakh that the appellant had set aside for disputed claims. Regarding the interest claim, the tribunal observed that there was no evidence showing that the reserve had been, either partially or wholly, employed as working capital during the relevant year. The appellant attempted to rely on the balance‑sheet for the year 1955 to support the interest claim, but the tribunal held that the balance‑sheet, which had been prepared and published in August 1956, could not demonstrate the use of the reserve in the year 1955. Moreover, the tribunal noted that several items appearing in the 1955 balance‑sheet were being recorded for the first time, with no corresponding entries in the preceding year’s balance‑sheet, reinforcing the view that the later balance‑sheet could not be used to infer reserve utilisation for the earlier year. Although the tribunal found no evidence that any portion of the reserves had been used as working capital, it nevertheless adopted a broad and sensible approach to the matter and ultimately allowed the appellant interest at the rate that had been claimed.

The tribunal observed that the balance‑sheet relied upon by the appellant was for the financial year 1955 but it had been prepared and made public only in August 1956. Consequently, the tribunal concluded that the items shown in that balance‑sheet could not have been employed in the business during the year 1955, because they were recorded after that year had ended. It was not contested that several material items appeared for the first time in the 1955 balance‑sheet and that there was no comparable entry for the preceding year. Therefore, the tribunal’s finding that a later balance‑sheet could not be used to demonstrate whether any portion of the reserve had been utilized as working capital in the relevant year remained unchallenged. After determining that no evidence existed to show that any part of the reserves had been used as working capital, the tribunal nonetheless adopted what it described as a “broad and sensible” approach and granted the appellant interest at four per cent on the amount of general reserves, which it calculated to be Rs 3,51,406 as of 31‑12‑1954. If the tribunal’s conclusion that no evidence had been produced to prove the use of the reserves as working capital is correct, then the interest awarded on that sum would not be strictly justified. However, the respondents did not lodge any objection to this portion of the award, and therefore the court found no need to pursue the matter further.

The remaining issue for determination was whether the tribunal correctly held that there was no relevant evidence on the point of reserve utilisation. The learned Solicitor‑General drew the court’s attention to an affidavit sworn by Mr Radhey Shyam Sharma, the finance officer of the appellant, in which it was asserted that the audited balance‑sheet itself demonstrated that the reserves had been fully utilised in the business under the headings mentioned. A similar assertion appeared in the appellant’s statement of case. The court was unable to accept the affidavit’s statement as proof that the reserves had indeed been used as working capital. The affidavit merely compiled the figures from the balance‑sheet and presented them without providing independent verification. Established jurisprudence requires an employer to produce evidence that liquid reserves were employed as working capital before a claim for interest can be entertained. Accordingly, the court was satisfied that the tribunal was correct in holding that no evidence had actually been adduced before it to establish the use of the reserves as working capital.

In regard to the sum of Rs 2.50 lakhs that the appellant had donated to the West Bengal Engineering Foremen’s College, the Court acknowledged that the contribution was indeed charitable. Nevertheless, the issue for the tribunal was whether that amount should be deducted when calculating the available surplus. The tribunal relied upon the decision of the Labour Appellate Tribunal in Sree Meenakshi Mills Ltd. v. Their Workmen, reported in 1954 Lab AC 132 at page 138, which held that any such donation, irrespective of its philanthropic nature, must be added back for the purpose of arriving at the gross profit. That judgment had subsequently been affirmed by the Supreme Court in the same case. Consequently, the tribunal was justified in adding the Rs 2.50 lakhs back to the gross profit when determining the surplus. Turning to the amount of Rs 2.35 lakhs for which the appellant had created a reserve to meet possible future losses, the tribunal again correctly added this amount back in computing the gross profit. While it was true that some of the appellant’s debts might not be fully realised, the Court found it difficult to accept a reserve created solely to cover potential losses from doubtful debts as a permissible deduction. Such a reserve conflicted with the Full Bench formula that governed the calculation, and therefore the argument that this amount should not be added back lacked any substantive merit.

The principal contention raised by the appellant concerned the rehabilitation and replacement charges. The appellant contended that it had produced evidence supporting its claim and had filed the necessary statements, yet the tribunal had allegedly ignored that evidence and proceeded on the basis of a presumed convention. The tribunal had stated that it was a common practice for tribunals to multiply the cost of buildings erected before 1949 by a factor of 2.25 and the cost of plants and machinery installed before 1948 by a factor of 2.7 to equate them with present market values, and that it was also customary to assess a total useful life of 27 to 30 years for buildings and 15 years for plants and machinery. Although the tribunal admitted that such conventions might not always favour the industries, it found no alternative and consequently allowed Rs 12 lakhs as rehabilitation charges. The Court observed that this conclusion was unsound and could not be endorsed. The tribunal had erred in assuming the existence of any legally established convention dictating the life of machinery or the price required for its replacement. Established case law required that the amount of rehabilitation be determined solely on the basis of evidence presented by the employer, a position not contested by the respondents’ counsel. While the respondents argued that the appellant’s evidence was unsatisfactory and therefore rightly rejected, the Court refrained from commenting on the merits of the evidence. It was satisfied, however, that the tribunal should have examined the evidence before deciding the quantum of rehabilitation charges, leading to the partial allowance of the appeal and the remand of the matter to the Second Industrial Tribunal for further consideration of the appellant’s rehabilitation claim.

In this case, the Court found that the tribunal’s conclusion was unsound and could not be affirmed. The tribunal erred by assuming that a legally established convention existed which required certain presumptions about the useful life of the machinery and the price needed to replace it. Judicial decisions have consistently held that the amount of rehabilitation must be determined solely on the basis of evidence adduced by the employer. That proposition was not disputed by the counsel representing the respondents. The counsel for the respondents, however, argued that the evidence presented by the appellant was unsatisfactory and therefore properly rejected. The Court declined to express any opinion on the merits of the evidence. Nevertheless, the Court was satisfied that the tribunal needed to consider the evidence before finally determining the amount to be paid to the appellant as rehabilitation charges. Accordingly, the appeal was partially allowed and the proceedings were remitted to the Second Industrial Tribunal for dealing with the appellant’s claim for rehabilitation charges in accordance with law. The tribunal should consider the evidence led by the parties and then apply the principles which have been laid down by this Court in the case of Associated Cement Companies Ltd. v. The Workmen Employed. It will not be open to the parties to lead any further evidence. After the tribunal reaches its conclusion with respect to the appellant’s rehabilitation claim, it may make its final award regarding the bonus claimed by the respondents. No further point can be raised by the parties thereafter in the subsequent enquiry which is now directed. The appeal therefore succeeds in part, and the matter is sent back to the Second Industrial Tribunal for disposal in accordance with law and in the light of this judgment. There will be no order as to costs.