The Management of Marina Hotel vs The Woremen

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 393 of 1960

Decision Date: 4 August 1961

Coram: K.N. Wanchoo, K.C. Das Gupta

In the matter titled The Management Of Marina Hotel versus The Woremen, the Supreme Court of India delivered its judgment on 4 August 1961. The opinion was authored by Justice K. N. Wanchoo, who sat on the bench together with Justice K. C. Das Gupta. The petitioner in the appeal was the Management of Marina Hotel, while the respondent was identified as the Woremen. The judgment was recorded on the date 04/08/1961, and the bench composition was repeatedly noted as Justice K. N. Wanchoo and Justice K. C. Das Gupta. The case is reported in the 1962 All India Reporter at page 1258 and also appears in the 1962 Supreme Court Reports (third series) at page 1. Citator references include D 1970 SC 245 (9) and D 1972 SC 1738 (32). The dispute concerned an industrial question involving the payment of bonus to hotel workmen, the entitlement of those workmen to service charges and tips, and the appropriate amount of casual‑cum‑sickness leave under Section 22 of the Delhi Shops and Establishments Act, 1954 (Delhi Act No 7 of 1954). The headnote of the reported decision explained that the award made by the Industrial Tribunal, to which the dispute between the hotel in New Delhi and its workmen had been referred, was challenged by the hotel on two principal grounds. First, the hotel contended that because the workmen received a share of the service charges and also occasional tips from customers, they should be excluded from receiving a statutory bonus. Second, the hotel argued that the Tribunal erred in granting fifteen days of casual‑cum‑sickness leave, since Section 22 of the Delhi Shops and Establishments Act permitted only a maximum of twelve days for such leave. The factual record showed that the workmen had indeed contributed to the generation of profits during the relevant years, that their wages, as paid by the hotel, fell considerably short of the living wage, and that the amounts they obtained from service‑charge distribution and tips were insufficient to bridge that wage gap. The Court held that it is well settled that a bonus is payable to workmen out of any surplus of profits in order to fill the gap between existing wages and a living wage, provided the workmen have contributed to profit generation. Consequently, if a surplus of profits existed in accordance with the Full‑Bench formula, the workmen were entitled to the bonus. The Court distinguished the earlier decision in Voltas Limited v. Its Workmen (1961) 3 S.C.R. 167 on this point. In addition, the Court held that the Tribunal was in error in awarding fifteen days of casual‑cum‑sickness leave, contrary to the provisions of Section 22 of the Delhi Shops and Establishments Act, 1954, and that the leave entitlement must be reduced to twelve days as prescribed by the Act. The decision also followed the precedent set in Messrs Dalmia Cement (Bharat) Limited v. Their Workmen, A. 1 R. 1960 S.C. 413. The judgment was rendered in the civil appellate jurisdiction concerning Civil Appeal No. 393 of 1960, which was an appeal by special leave from the Tribunal’s award dated 1 July 1958 in Industrial Dispute No. 99 of 1958. Counsel for the appellant was identified as S. P. Varma, while counsel for the respondent was Janardan Sharma. The judgment was delivered by Justice K. N. Wanchoo on 4 August 1961.

This appeal, taken on leave, arose from an industrial dispute between the appellant, Marina New Delhi, and its workmen, which had been referred to the Industrial Tribunal in Delhi for adjudication. Although several issues were raised before the Tribunal, the present appeal was limited to five matters: the bonus for the fiscal years 1953‑54 and 1954‑55; the question of leave; the liability to contribute to a provident fund; the scales of pay; and the dearness allowance. The Court examined each of these points in turn, beginning with the issue of bonus. The appellant’s first argument concerning bonus was that the workmen already received a share of the service‑charges and also obtained tips from customers, and therefore no additional bonus should be payable. In support of this contention, the appellant referred to the observations of this Court in Voltas Limited v. Its Workmen, where the Court had held that salesmen who received commission on sales had already taken a fair share of the employer’s profits and consequently were not entitled to a further bonus out of any surplus. The appellant argued that, similarly, the workmen of Marina New Delhi participated in the profit pool through the distribution of service‑charges and tips, and thus should be excluded from any further bonus entitlement. The Court noted that the purpose of a bonus is to be paid from any surplus of profits in order to bridge the gap between the workers’ existing wages and a living wage, provided that the workers have contributed to the generation of those profits. It was undisputed that the workmen in this case had indeed contributed to the earning of profits, and it could not be denied that a substantial disparity existed between the wages paid by the appellant and the living wage. Accordingly, if a surplus of profits existed as measured by the Full Bench formula, the workmen would ordinarily be entitled to a bonus. While the appellant continued to rely on the Voltas Limited precedent, the Court held that the observations in that case were not applicable. Even after accounting for the amounts received by the workmen from service‑charge distribution and tips, a gap remained between their actual income and the living wage. Moreover, the Voltas Limited case involved salesmen who, on average, earned about Rs 1,000 per month in commission, rendering their total emoluments adequate; those salesmen also represented a small fraction of the overall workforce. The circumstances in the present case differed materially, and therefore the earlier observations could not be used to deny the bonus claim.

In the earlier decision involving Voltas Limited, the Court observed that the salesmen formed only a small fraction of the total workforce and that they already received a share of the company's profits on a fair basis. Consequently, the Court held that there was no justification for granting those salesmen any additional bonus from the surplus that might be available, because doing so would disadvantage the larger group of other workmen. The observations relied upon by the appellant were therefore predicated on two specific circumstances: first, that the salesmen’s total remuneration, when the commissions they earned were taken into account, was adequate; second, that the salesmen constituted a minor portion of the overall employees and had already partaken in profit sharing, so they could not claim a further portion of any surplus. Neither of these conditions is present in the present matter. The evidence on record demonstrates that the amounts distributed to the workmen through service‑charge and tip allocations are insufficient to raise their earnings to the level of a living wage. Moreover, every employee of the appellant participates in the distribution of service charges, placing them all on an equal footing with respect to any possible allocation of bonus from any surplus that may exist. Accordingly, the appellant cannot invoke the reasoning of Voltas Limited out of context to justify denying a bonus to the workmen in this case.

The Tribunal, when examining the available surplus for the fiscal year 1953‑54, found that the net profit of the appellant amounted to Rs 98,343. On that basis, it opined that, after accounting for prior charges, a three‑month bonus would be justified because the monthly wage bill was approximately Rs 5,500. However, the Tribunal did not prepare a detailed chart applying the Full Bench formula to quantify the surplus. It merely stated that, even after allowing for prior charges, a substantial surplus remained that could support payment of a three‑month bonus. The appellant’s principal challenge to the Tribunal’s order concerns this omission. Yet the appellant also failed to submit its own calculation sheet showing the surplus as would normally be required of an employer in such cases. This omission appears to stem from the fact that the appellant’s balance sheet and profit‑and‑loss account are prepared in an unusual manner, rendering it difficult to extract the figures required by the Full Bench formula. Notwithstanding the irregular accounting, there is no dispute that the net profit for 1953‑54 exceeded Rs 98,000. Depreciation had already been accounted for in the profit‑and‑loss statement, and because the Tribunal based its assessment on net profit, it was unnecessary to make any additional depreciation adjustments. Regarding rehabilitation expenses, the Court observes that the profit‑and‑loss account records repairs and replacements, which encompass the expenses understood as rehabilitation, leaving little scope for further rehabilitation allowances.

In the present case, the Court observed that the profit and loss account recorded expenses for repairs and replacements, which encompassed what is commonly understood as rehabilitation. The Court noted that the income‑tax rate applicable in the relevant year was forty‑five per cent, resulting in an income‑tax liability of approximately forty‑four thousand rupees and leaving a balance of about fifty‑four thousand rupees. The Court then turned to the requirement of a six per cent return on paid‑up capital. The balance sheet showed paid‑up capital of six thousand rupees, which entitled the appellant to a return of three hundred and sixty rupees. The appellant argued that the business had been purchased for sixty thousand rupees and that this amount should also be treated as capital. The Court found that no evidence of such a capital figure had been presented before the Tribunal and that the balance sheet did not reflect sixty thousand rupees as capital. Consequently, the Court held that, in the absence of proof, the appellant could not claim a six per cent interest on a capital base of sixty thousand rupees, although the appellant could attempt to establish this in future proceedings. Regarding the return on working capital, the Court found no substantive evidence as to the amount of working capital used. In light of these findings, the Court concluded that the award of a three‑month bonus could not be successfully challenged. The Court had asked the appellant to provide a chart showing the surplus according to its case; the chart was produced and indicated an available surplus of twenty‑eight thousand five hundred and fifty rupees. Although the respondents disputed several items in that chart, the Court held that even accepting the surplus figure would justify a three‑month bonus of sixteen thousand five hundred rupees, especially since eight thousand one hundred rupees of that amount would be returned to the appellant as an income‑tax rebate. Accordingly, the Court affirmed that the Tribunal’s order granting the bonus for the year 1953‑54 was correct.

Turning to the year 1954‑55, the Court noted that the appellant failed to produce the balance sheet and profit and loss account for that year. Nevertheless, the appellant had conceded before the Tribunal that there were profits in 1954‑55, leading the Tribunal to determine that sufficient profit existed to merit a three‑month wage bonus. The appellant now challenged that determination, arguing that the absence of detailed figures rendered any bonus award improper. The Court observed that the lack of figures resulted from the appellant’s own failure to produce the accounts. Although the balance sheet and profit and loss account for the year 1956‑57 had been produced in a different proceeding, it was evident that the accounts for 1954‑55 were also available, and the appellant’s failure to present them was attributable to the appellant’s neglect. Accordingly, the Court held that the appellant’s omission prevented a proper assessment, but did not invalidate the Tribunal’s award of the bonus for 1954‑55.

In this case the Court considered an affidavit filed on behalf of the respondents in connection with the stay application, which stated that the profits for the financial year 1954‑55 exceeded Rs 85,000. The Court then directed the appellant to produce the accounts for that year, and the appellant complied by producing the original accounts before the Court. Upon examination the Court found that the figures shown in those original accounts corroborated the profit amount alleged in the respondents’ affidavit. Further, the Court noted that the profit and loss account for the preceding year 1953‑54 contained an entry of more than Rs 13,000 representing a refund of water charges, which the appellant claimed to be extraneous income unrelated to the labour effort. The Court observed that, if this water‑charge refund is deducted from the 1953‑54 profit, the resulting profit for that year would also be approximately Rs 85,000. Consequently, the Court concluded that the profit for 1954‑55 was essentially the same as that for 1953‑54. In view of these findings the Court saw no justification for disturbing the Tribunal’s award of a bonus equal to three months’ wages for the year 1954‑55, and therefore allowed that award to stand.

The appellant further contended that the Tribunal had erroneously granted fifteen days of casual‑cum‑sickness leave, exceeding the limit prescribed by section 22 of the Delhi Shops and Establishments Act, (No VII of 1954), which caps such leave at twelve days. The Court referred to its earlier decision in Mesrs Dalmia Cement (Bharat) Limited New Delhi v. Their Workmen and another (1), where it was held that section 22 expressly sets a maximum of twelve days of total leave with full wages and that a Tribunal could not disregard this statutory ceiling. The Court noted that, although the Tribunal was aware of the provisions of section 22, it nonetheless chose to award fifteen days of leave, a circumstance the Court described as illegal and ordered that the leave be reduced to the statutory twelve days. The respondents argued that the hotel kitchen should be treated as a factory, thereby exempting its staff from the Delhi Shops and Establishments Act. However, this argument was not raised in the written statement, where the respondents’ position was that the Act did not prevent workers from seeking leave beyond the amount provided. The Court affirmed that the Delhi Shops and Establishments Act unquestionably applies to the hotel, and it concluded that the question of whether the kitchen constitutes a factory, and thus whether its employees are exempt from the Act, could not be resolved in the present appeal due to lack of factual basis.

In the matter before the Court, the order issued by the Tribunal concerning casual‑cum‑sickness leave was altered in accordance with the circumstances explained earlier. Regarding the Employees’ Provident Funds Act, No. XIX of 1952, counsel for the appellant informed the Court that this legislation had been extended to cover the hotel industry. Consequently, the appellant chose not to pursue the appeal on the provident‑fund issue because the award’s provisions on that subject were already consistent with the statutory requirements of the Employees’ Provident Funds Act. Turning to the question of scales of pay, the workmen had sought remuneration at certain higher levels, but the Tribunal fixed pay scales that were somewhat lower than the amounts demanded. The Tribunal justified its decision by stating that the scales it fixed were comparable to those prevailing in several hotels situated in the Delhi region, specifically referring to the scales followed by the Cecil Hotel and the Grand Hotel, which were described as more or less similar. The appellant, however, relied upon the testimony of Lakshmi Chand Narula, the Honorable Secretary of the Delhi Caterers’ Association, who asserted that the Marina Hotel belonged to Category B. The Court also noted the evidence presented by D. D. Singh, the Secretary of the Hotel Workers’ Union appearing for the respondents, who claimed that the workers classified the Marina Hotel in Category A, a classification that encompassed almost all hotels located in New Delhi and the Civil Lines area. Singh further observed that the Grand and Cecil Hotels were situated in Civil Lines and were therefore comparable, although he did not articulate this point in explicit terms. The appellant argued that, because Narula placed the Marina Hotel in Category B, it could not be compared with the Grand and Cecil Hotels. Yet the evidence of Shri Narula did not disclose the categories applicable to the Cecil and Grand Hotels. In contrast, Singh’s testimony overall indicated that the Marina Hotel fell in the same category as those two establishments. Considering the totality of the evidence, the Court found no justification for disregarding the Tribunal’s view that the Marina Hotel was not inferior to the Grand and Cecil Hotels in any respect. Accordingly, the pay scales fixed by the Tribunal, which closely resembled those of the Cecil and Grand Hotels, could not be challenged, nor were they so excessive as to necessitate reduction. Moreover, the Court saw no reason to reject the Tribunal’s finding that the appellant possessed the financial capacity to meet the prescribed scales. Although the hotel’s profits had declined since the years 1954‑55, the Court was not persuaded that the Tribunal erred in concluding that the hotel could sustain the additional wage‑bill arising from the newly fixed pay scales. Consequently, the Court declined to interfere with the scales determined by the Tribunal. Finally, the Court noted that the dearness allowance provision had been fixed by the Tribunal as detailed in the award.

The judgment observed that the Tribunal had acted in accordance with the existing wage scale. The workmen had demanded a dearness allowance of thirty‑five rupees, but the Tribunal had fixed the allowance at twenty rupees per month. In addition, the Tribunal specified that the allowance would be reduced in certain situations: if a workman took his meals at the hotel, the allowance would be reduced by fifteen rupees; if a workman lived in accommodation provided by the hotel but did not take his meals there, the allowance would be reduced by five rupees; and if a workman both lived in the hotel’s accommodation and took his meals at the hotel, no dearness allowance would be paid to him at all. The judgment found no reason to disagree with the Tribunal’s approach, especially because the Tribunal’s direction was consistent with the practice that had been in place at the hotel prior to the present award, as reflected in the award rendered by Shri Dulat on the seventeenth day of May, nineteen‑fifty. Consequently, the appeal was held to have failed in every respect except for the issue concerning a modification of the casual‑cum‑sickness leave, which had been mentioned earlier. The appeal was therefore dismissed, with costs, and the only relief granted was the slight modification to the casual‑cum‑sickness leave provision.