The Burmah-Shell Refineries Limited vs Their Workmen

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 250/1959

Decision Date: 01/02/1961

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

In this case, the Supreme Court of India delivered its judgment on 1 February 1961. The matter was titled The Burmah‑Shell Refineries Limited versus Their Workmen. The judgment was authored by Justice K. C. Das Gupta, and the bench also included Justices P. B. Gajendragadkar and K. N. Wanchoo. The petitioner was the Burmah‑Shell Refineries Limited and the respondents were their workmen. The decision is reported in the 1961 volume of the All India Reporter, page 917, and also in the 1961 Supplement to the Supreme Court Reporter, page 669. The issue before the Court related to the Industrial Dispute Act and concerned the payment of bonus to clerical staff in an oil company, specifically whether the bonus rate for clerical employees could be lower than that for tabour staff. The Court observed that when a bonus is linked to the contribution of workmen to a company’s profits, the contribution must be considered as a whole and it is not appropriate to examine how much each class or section of workmen contributed individually. The Court referred to the decisions in Burn and Co., Calcutta v. Their Employees, reported in 1956 S. C. R. 781, and Baroda Borough Municipality v. Its Workmen, reported in 1957 S. C. R. 33. From this standpoint, the Court held that it would be unfair, in the absence of any overriding consideration, to differentiate the rate of bonus payable to different classes such as clerks and operatives, because it is ordinarily impossible to determine which class contributed more to the prosperity of the industry. Nevertheless, the Court said that it could not be laid down as a rigid rule that clerical and labour staff must always receive the same rate. The Industrial Tribunals were recognised as having wide discretion in fixing bonus rates, and the Court would be reluctant to interfere unless the Tribunal’s exercise of discretion was arbitrary. Consequently, when the Industrial Tribunal, after fully considering the wage‑scale differences between labour and clerical staff, concluded that it would be improper to award a lower bonus rate to clerical staff, who were middle‑class employees and suffered more than labour staff from price rises, and when no evidence was shown to the contrary, the Court found the Tribunal’s decision to be reasonable and ordered that it be upheld.

The appeal arose under civil appellate jurisdiction as Civil Appeal No. 250 of 1959, filed by special leave against the award dated 18 May 1958 of the Industrial Tribunal, Bombay, in Reference (I.T.) No. 106 of 1955. The appellant company was represented by counsel for the Attorney‑General of India, while the respondents were represented by counsel for the workmen. The factual dispute concerned an industrial disagreement between the appellant company and its clerical staff regarding the bonus for the year 1956. The workmen demanded a bonus equal to eight months of their total earnings for that year. The company opposed this demand, primarily on the ground that a prior agreement existed between the company and its labour employees whereby the bonus for 1956 had been settled at four and a half months’ earnings. The Court proceeded to examine these submissions and the relevant principles before reaching its conclusion.

In the matter before the Tribunal, it was observed that the prevailing practice in awards concerning bonus had historically resulted in clerical employees receiving smaller bonuses than labour employees, and that granting an identical bonus rate to both categories could potentially foster industrial strife and discontent. The Tribunal concluded that the agreement concerning the bonus for the year 1956 had been entered into voluntarily on behalf of the workers, that it was advantageous to them, and that, accordingly, the bonus for the clerical staff should be assessed on the same scale as that for the labour staff. Consequently, the Tribunal rejected the clerical staff’s demand for a bonus at a higher rate than that applicable to the labour workmen, reasoning that such a demand would likely provoke industrial unrest, while at the same time it found no justification for awarding the clerical staff a bonus at a lower rate. Based on this reasoning, the Tribunal awarded the clerical staff a bonus calculated at nine twenty‑fourths of their basic wages for the financial year ending 31 December 1956. Two separate contentions were raised on appeal. The first contention asserted that the Tribunal had erred by granting the bonus without first making a finding on the existence and magnitude of any gap between the actual wages received by the workmen and the statutory living wage. The second contention, put forward on behalf of the appellant, argued that the Tribunal was mistaken in granting the clerical staff a bonus at the same rate as that paid to the labour staff on the basis of the agreement, and that the clerical staff should have received a lower rate. The Court held that the appellant could not advance the first contention in this appeal because the issue had not been seriously raised before the Tribunal. Although the company’s written statement filed initially before the Tribunal referred to a previous written statement filed in Reference (I.T.) 279 of 1957 and incorporated its submissions, that earlier statement had posed the question of whether, given the relatively high wages paid by the company, any gap existed between the actual wages and the living wage. However, no separate written statement filed in the present reference, namely Reference (I.T.) 106 of 1958, made an independent submission on that question, and the Tribunal’s award—issued after hearing both references together—contained no reference to any contention concerning the existence or extent of such a wage gap. Moreover, the petition for special leave to appeal did not raise any ground that the Tribunal had awarded the bonus without first determining the presence or size of a gap between actual wages and the living wage, and the appellant’s statement of case likewise omitted that question. Accordingly, the Court concluded that the appellant was not entitled to raise that contention at this stage of the proceedings.

In this appeal, the Court observed that the appellant had not raised the question concerning a possible gap between the actual wage received by the workmen and a living wage either in the original statement of case or in the written statement filed in the present reference. Consequently, the Court held that the appellant could not now introduce that contention. The appellant also argued that the Tribunal erred in granting a bonus to the clerical staff at the same rate as that paid to the labour staff, relying on an alleged long‑standing practice in the petroleum industry of awarding a lower bonus rate to clerical employees than to operatives. The Court noted that it was unnecessary to decide whether such a practice, if established, would prevent an industrial adjudicator from awarding the same bonus rate to both categories of employees. The Court found that the premise of a uniform practice of paying a lower bonus to clerical staff had not been proven. While it was true that in certain years, either by award of an Industrial Tribunal or by agreement, clerical staff in petroleum concerns had received a bonus at a lower rate than labour employees, it was equally true that in other years clerical staff and operatives had been granted bonus at the same rate. The Court therefore examined the evidence concerning the year 1951. It referred to the disputes between three oil companies – The Burmah‑Shell Oil Co., Caltex, and Standard Vacuum – and their employees in the Calcutta office, which were considered by the Labour Appellate Tribunal in Burmah‑Shell Oil Co. Ltd. v. Their Workmen. The Tribunal observed that for the bonus for 1950 both clerical staff and the working class received a bonus calculated at three months’ basic wages, although the working class were, by calculation, entitled to four months. During the pendency of the Tribunal proceedings, the companies entered into agreements with the workers’ union providing that the bonus for 1951 would be based on three and a half months’ wages. The Tribunal warned that allowing the clerical staff to receive any amount in excess of that would have serious repercussions, while paying the clerks less than the amount already paid to the working class would create real discontent. The Court also noted that the same issue – whether clerical staff should receive the same bonus rate as operatives – had previously been raised before the Industrial Tribunal at Ernakulam in another dispute between Burmah‑Shell Co. and their workmen. In view of these findings, the Court concluded that the appellant’s argument that a uniform industry practice required a lower bonus rate for clerical staff was unfounded and that no basis existed for the assumption that awarding the same bonus rate to clerical staff as to labour staff would cause discontent or be contrary to established practice.

In this proceeding, the counsel representing the company admitted that the company would not argue for a distinction in the manner in which bonus should be paid. Accordingly, the Court observed that there was no basis for the presumption that the oil companies uniformly, or almost uniformly, paid a lower rate of bonus to clerical staff than to operative staff. The Court further held that the contention that granting a bonus calculated at nine‑twenty‑fourths of basic wages to clerical employees would create discontent among labour employees, who had entered into an agreement to receive bonus at the same rate, lacked any substance. The second line of argument asserted that because the clerical staff’s pay scale was higher than that of the labour staff, the difference between a living wage and the actual wages received was smaller for clerical workers; therefore, paying a bonus—intended chiefly to bridge that gap—at the same rate to both categories would be inappropriate. The Court rejected this argument, emphasizing the fundamental principle that bonus payment is grounded in the contribution of labour to the profits of the enterprise. It noted that the Court had repeatedly held that the relevant contribution is that of the workmen taken collectively as a class, and that it is irrelevant to examine how much profit each particular class of workmen may have generated. In Burn & Co., Calcutta v. Their Employees, the Court set aside an Appellate Tribunal award of an additional month’s basic wages and observed that the entire profit of a company results from the labour of all its workmen and employees across all units. To grant a bonus to a selected section on the basis of total company profit would give that section a share of profits to which it had not contributed. The Court warned that giving effect to the Tribunal’s order would mean that some employees received a bonus while others did not, a situation that, as noted in Karam Chand Thapar & Bros. Workmen v. The Company, would engender disaffection among workers and could precipitate further industrial disputes. A similar perspective was expressed by the Court in Baroda Borough Municipality v. Its Workmen. While those earlier cases examined whether one class of employees might receive a bonus while another class received none, and did not directly address the propriety of varying bonus rates between classes, the underlying principle remained the same: all workmen, when considered as a whole, contribute to the company’s profits, and this collective contribution forms the basis for any bonus allocation.

In this matter, the Court observed that the question of whether it is fair to grant different bonus rates to two distinct classes of workmen is directly relevant. The Court noted that, ordinarily, it is impossible to demonstrate that one class of employees—for example clerical staff—contributes more to the profitability of the enterprise than another class such as operatives. Consequently, absent any overriding factor, creating a distinction in bonus rates between different classes would be unfair. However, the Court cautioned against establishing a rigid rule that clerical and labour employees must always receive identical bonus percentages. The Court recognized that in some industries the wages of labour staff may be extremely low while the salary scale of clerical staff may be many times higher. In such a circumstance, if a Tribunal believes that applying a uniform bonus rate would be inequitable and might generate discontent among workers, it may lawfully award a lower bonus rate to clerical staff than to labour staff without disturbing the award. The Court emphasized that industrial tribunals possess a broad discretion in matters of this nature and that the Court will not intervene in the exercise of that discretion unless the decision is plainly arbitrary. Applying this principle to the present case, the Tribunal, fully aware of the wage differentials between labour and clerical personnel, observed that clerical employees belong to a middle‑class background with a higher standard of living and that this group may have suffered more than the operative group because of price rises. After considering these factors, the Tribunal concluded that it would be appropriate not to grant a lower bonus rate to the clerical class. The Court found no material to call doubt on the correctness of the Tribunal’s premises and regarded the conclusion as highly reasonable. The Attorney‑General, representing the appellant company, argued that although the middle‑class background of clerical staff implies a higher standard of living, the gap between the average wages of clerical staff and operatives is far greater than the monetary difference between their respective living wages. He presented figures showing that, as of 1 January 1958, the starting remuneration for a middle‑grade operative, including non‑wage components, was Rs 188‑94, whereas the comparable amount for a middle‑grade clerk was Rs 404‑45, indicating that clerical starting pay was approximately 113.91 percent higher than that of labour. He contrasted this with the suggestion that the living wage for clerical staff should be only 80 percent higher than that for operatives.

In this case, the Court examined the claim that the living wage for clerical staff should be measured at only eighty percent more than the living wage for operatives. The Court accepted, without further investigation, the accuracy of the statement concerning the comparative remuneration received by middle‑grade operatives and middle‑grade clerical staff as presented by the company. However, the Court found no basis for assuming that the living wage of clerical staff was merely eighty percent higher than the living wage of operatives. It noted that a formula for determining wages, first suggested by Justice Rajadhyaksha while enquiring into the cost of living of non‑gazetted employees of the Post and Telegraph Department, involved multiplying the figures derived for lower‑class employees by one hundred and eighty percent; this method had often been adopted by industrial tribunals. The Court stressed that, even if it assumed, without deciding, that the one hundred and eighty percent coefficient might be correctly applied to derive the fair‑wage requirements of clerical staff from those of operatives, the same coefficient could not automatically be used to calculate the living wage of clerical staff from the living wage of operatives. The Court referred to a recent judgment in C. A. No. 416 of 1958, Standard Vacuum Refining Co., Ltd. versus Its Workmen, which clearly explained that the components of a living wage differ substantially from the components of a fair wage. Consequently, the difference in living‑wage standards between the class to which operatives generally belong and the class to which clerical staff belong could produce a far larger disparity in monetary terms than the difference observed in the components of fair wages for the two classes. Because of this, the Court found no justification for the proposition that the living wage of clerical staff was only eighty percent higher than that of operatives, nor could it conclude that the gap between living wage and actual wage was smaller for clerks than for operatives based solely on the comparative wage percentages. Accordingly, the Court saw no reason to interfere with the Tribunal’s conclusion that clerical staff should receive a bonus at the same rate as operatives. The appeal was therefore dismissed with costs, and the order of dismissal was affirmed.