Airlines Hotel (Private) Ltd. vs Its Workmen on 13 January, 1961

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

Court: supreme-court

Case Number: Not extracted

Decision Date: 13 January 1961

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

The case titled Airlines Hotel (Private) Ltd. versus its workmen was decided on 13 January 1961 by the Supreme Court of India. The judgment was written by Justice K.C. Das Gupta and the bench also comprised Justices P.B. Gajendragadkar and K.N. Wanchoo. The matter before the Court arose from a dispute between the appellant, Airlines Hotel (Private) Limited, a hotel operating in Bombay, and its workmen. The workmen had presented a series of demands covering wages, service charges and contributions to a provident fund. Their claim concerning service charges was broken down into five separate headings, one of which specifically called for the inspection of the company’s account books, bills and receipt registers so that the workers could determine the exact amount collected by management and the sum that was due to them. The Government referred the dispute to an industrial tribunal under Section 10 of the relevant Act for adjudication of all the demands except the one relating to inspection of the accounts. The tribunal issued an award granting the workers’ claims for wages and for the provident fund. Regarding the service‑charge claim, the tribunal rejected the demand but directed that any arrears which the company had acknowledged as payable be settled within one month, and it also ordered that the workers be given access to the accounting books to ascertain the amounts collected. The special leave granted by this Court was limited to three issues: (1) the question of inspection of accounts, (2) the question of wages, and (3) the question of the provident fund. The Court stated that it would not consider any other parts of the tribunal’s award in this appeal.

The appellant’s principal argument on the first issue was that the tribunal lacked jurisdiction to order the company to grant the workers access to its account books because the Government had expressly refused to refer the dispute concerning inspection of accounts to the tribunal. The appellant contended that without a reference, the tribunal could not lawfully issue such a direction. The Court examined this submission and concluded that the appellant’s contention should be sustained, affirming that the tribunal indeed exceeded its jurisdiction by directing access to the books when the specific demand had not been referred for adjudication.

The workmen, through their counsel, argued that the Government’s refusal to refer the demand for inspection of accounts merely meant that the tribunal could not decide that particular issue as a primary matter. However, they maintained that the tribunal retained the power to issue ancillary directions that were necessary to implement its award on other matters that had been referred. According to their submission, the direction to provide access to the books was not a determination of a separate, non‑referred claim but an incidental order connected with the service‑charge issue that had been properly referred. They further argued that even if the demand for inspection of accounts had not been raised at all, the tribunal might still have considered it incidental to the service‑charge question. The Court noted this argument but, in light of the facts, found that the workmen’s demand for inspection of accounts had been specifically excluded from referral because the Government deemed it unreasonable, and therefore the tribunal could not lawfully issue the direction.

In the matter of inspection of accounts, the Court observed that the workmen had listed five separate heads of demand for service charges, one of which expressly concerned inspection of accounts. Their request was phrased as follows: the management should make available all account books, bills, receipt books and related documents from 1‑1‑57 onward, along with any relevant records of the Airlines Hotel Private Ltd., so that the representatives of the Bombay Hotels Kamgar Union could examine them to determine the correct amount collected by the management and due to the workers. The Government declined to refer this particular demand to the Tribunal, holding that the demand was unreasonable and therefore not suitable for referral. Because the Government refused to refer the question, the Court found no justification for treating the request as merely incidental to the service‑charge dispute that had been referred. The Tribunal therefore lacked jurisdiction to issue any direction concerning inspection of accounts, and the direction it had given on that point was set aside.

With respect to the wage dispute, the workmen’s union had, in its letter dated 25 May 1957, asked that wage scales be fixed for various categories of workmen at the rates specified in the letter. The same letter formed the basis of the reference to the Tribunal, which was asked to decide whether the demanded wage scales should be imposed. Instead of fixing a permanent wage scale, the Tribunal ordered three separate ad‑hoc wage increases: one effective from January 1959, another from 1 January 1960, and a third from 1 January 1961. In addition, for certain categories the Tribunal set a fixed minimum wage that any future recruitment to those categories must meet. The appellant raised two principal criticisms of these directions. First, it argued that because the dispute concerned the fixation of a wage scale, the Tribunal erred by refusing to fix such a scale and by opting for ad‑hoc increments over three years. Second, it contended that the Tribunal was wrong to grant any wage increases without first finding that the company possessed the financial capacity to bear those increases. Both criticisms were regarded as having considerable merit. Even assuming that the Tribunal could lawfully order ad‑hoc increases despite the original demand for a wage scale, the Court noted that no further question could arise regarding the validity of such increases without an assessment of the employer’s financial condition.

Before any increase could be ordered by an industrial adjudicator, the adjudicator was required to be positively satisfied that the employer’s financial condition was such that it could bear the additional burden. In its written statement the company expressly contended that it was not in a position to advance the existing wage structure, describing the structure as onerous. The company further asserted that its financial position was precarious, that it was struggling for its existence, and that the shareholders had received dividend in only one year of the entire period. It added that since its inception the company had been unable to set aside any reserves or create any fund to tide over difficult periods. By contrast, the workman alleged that the company was prosperous and fully capable of shouldering the additional burden of increased wages. Because of this disagreement, it was the tribunal’s duty to make a definite finding as to whether the company possessed the financial capacity to bear the extra burden; only if the tribunal was satisfied of such capacity could an increase in wages be justified. The tribunal appeared aware of the need to consider this question, but after noting that it could not examine the balance‑sheets and profit‑and‑loss statements marked confidential, it merely observed that “from the balance‑sheets of the last few years it does appear that the concern has been making a certain amount of profits from the Bombay Branch. It does appear however that it landed itself in difficulties by starting a branch in London which resulted in a fairly heavy loss for about two years and that the concern has now closed the said branch.” No specific figures were given regarding the loss or the “certain amount of profit.” If the profits were sufficient to place the company on a sound financial footing after absorbing the loss, there would be no objection to imposing the additional burden, provided it was otherwise justified. However, imposing an increase in wages without a definitive finding on the company’s financial position is wholly improper. Moreover, there is no justification in the present circumstances for granting an ad‑hoc wage increase for a limited period in place of the wage scales demanded by the workmen. In explaining its approach, the tribunal stated in paragraph 31 of its award that, “I may however add that in the hotel industry there are wage‑scales prevailing in a large number of concerns. But I have not fixed wage‑scales at the present juncture for two reasons, as it is not possible…”

The Tribunal had explained that it could not fully predict whether the company would be able to carry the increasing burden of higher wage scales that it was now proposing. It observed that the wages it had awarded for several categories actually exceeded the maximum rates that were common in many other establishments within the same industry. The Tribunal added that it did not want a situation in which there would be a very large gap between the rates it set and those that were prevailing elsewhere. The Court described the Tribunal’s reasoning as completely erroneous. It held that if the Tribunal truly doubted the company’s capacity to bear the extra burden, the proper response would be to refuse any increase at all, not to grant a temporary rise for a limited period. The Court further noted that the Tribunal’s concern about avoiding “too great a disparity” between the company’s wages and those of other concerns could be considered when determining the size of a lawful increase, but it could not be used as a justification for permitting only a short‑term increase.

The Court stated that, although it did not wish to declare an absolute rule that ad‑hoc wage increases could never be ordered in disputes concerning wage scales, the normal practice was that such temporary increases should not be granted. In the present case, the Court found no special circumstances that warranted deviating from this ordinary principle. The dispute concerned the establishment of a proper wage scale, and the Tribunal could have either granted the scale in whole or in part, or rejected the demand entirely. Granting the ad‑hoc increases as it had done was therefore improper. Because the Tribunal had not examined the matter correctly, the Court decided to set aside the Tribunal’s order on wages and to remit the case back to the Tribunal for a proper adjudication on the merits. The remand required the Tribunal to consider the evidence already produced, to allow each party to present any further evidence, and to give both parties a fair opportunity to be heard. Regarding the workmen’s request for a provident fund scheme, the Tribunal had affirmed that workers should receive at least one retirement benefit, preferably two, wherever feasible. While the Court saw no objection to this principle, it emphasized that any decision on retirement benefits must first assess the employer’s financial ability to bear the additional cost and must also take into account the prevailing practice in comparable establishments in the same region and the future prospects of the industry.

In this case the Court observed that future prospects must also be taken into consideration. It noted that the Tribunal had failed to consider any of these factors in the present matter. The Tribunal merely stated that it was not satisfied that introducing a provident fund scheme would be beyond the concern’s capacity on a reasonable basis, and then proceeded to frame a scheme. The Court had previously pointed out, in relation to the question of increased wages, that the company had made a definite case that it was in a precarious financial condition. On that basis it was correctly submitted that, except for industries where the Provident Funds Act, 1925, makes the scheme compulsory, a demand for a provident fund in any other concern should arise only when that concern has the capacity to bear the additional burden. In the state of the pleadings, the Tribunal’s negative finding—that it was not satisfied that introducing a provident fund scheme would be beyond the concern’s capacity—could not form a basis for granting a provident fund benefit. Accordingly the Court set aside the Tribunal’s award on the matter of the provident fund. Nevertheless the Court thought it proper and reasonable that the matter should be disposed of after the Tribunal properly considers the financial capacity of the company and other relevant factors. Accordingly the matter was remitted to the Tribunal for disposal according to law, in light of the foregoing observations, based on the evidence already adduced and on any further evidence that may be adduced by the parties. The appeal was allowed in part and no order as to costs was made.