The Management Of Marina Hotel vs The Workmen

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

Court: supreme-court

Case Number: Not extracted

Decision Date: 4 August, 1961

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

In this matter the Supreme Court recorded that the appeal was filed by special leave in an industrial dispute involving the Marina Hotel in New Delhi and its workmen. The dispute had earlier been referred to the Industrial Tribunal, Delhi, for adjudication. Although several questions were raised before the Tribunal, the present appeal was limited to five specific matters: the payment of bonus for the fiscal years 1953‑54 and 1954‑55; the question of leave; the liability under the Provident Fund; the scales of pay applicable to the employees; and the entitlement to dear­ness allowance. The Court indicated that it would consider each of these points in turn, beginning with the issue of bonus.

The hotel’s first argument concerning bonus was that the workmen already received a portion of the service‑charges collected from guests and also obtained tips directly from customers; consequently, the hotel contended that no further bonus should be payable. To support this position the hotel relied on earlier observations of this Court in the case of Voltas Limited v. Its Workmen, where it was held that salesmen who earned commission on sales had already received a fair share of the employer’s profits and therefore were not justified in receiving an additional bonus from any surplus. The hotel argued that, analogously, its workmen also participated in the profit distribution through the service‑charge and tip mechanism and thus should be excluded from bonus entitlement. The Court, however, reiterated the established principle that bonus is to be paid from any surplus of profits in order to bridge the gap between the actual wages of employees and a living wage, provided that the employees have contributed to the generation of those profits. The Court noted that it was not contested that the workmen had indeed contributed to the hotel’s profits, nor was it disputed that a significant disparity existed between their current wages and a living wage. Accordingly, where a surplus of profits exists according to the Full Bench formula, the workmen would ordinarily be entitled to a bonus. The Court further observed that the reliance on the Voltas Limited decision could not aid the hotel, because even after accounting for the service‑charge share and tips, a gap between the workmen’s total earnings and a living wage persisted, and the factual context of the Voltas case—particularly the adequacy of salesmen’s total emoluments and their minority status among the workforce—differed materially from the present case.

In the earlier case involving salesmen, the Court observed that each salesman earned roughly Rs 1,000 per month as commission, making their total remuneration satisfactory. Those observations were made in the specific context where the salesmen constituted only a small portion of the overall workforce of Voltas Limited and had already received a fair share of the employer’s profits. Consequently the Court concluded that granting them any additional bonus out of the remaining surplus would be unjustified, because the majority of other workmen, who formed the bulk of the staff, had not yet benefited from such profit sharing. The reasoning was therefore based on two explicit conditions: first, that the salesmen’s wages, when the commission was included, were adequate; and second, that the salesmen were a minority of the workmen and had already taken part in the profit distribution. Neither of those conditions exists in the present matter. The evidence on record shows that the amounts obtained by the workers through the distribution of service charges and tips are insufficient to raise their wages to the level of a living wage. Moreover, every workman of the appellant participates in the distribution of service charges, placing all of them on an equal footing with respect to any bonus that might be drawn from any surplus. For these reasons the appellant cannot invoke the Voltas Limited observations by extracting them from their proper context.

The Tribunal, when considering the surplus for the fiscal year 1953‑54, determined that the net profit amounted to Rs 98,343 and expressed the view that, after accounting for prior charges, a bonus equivalent to three months’ wages would be justified, given that the monthly wage bill was about Rs 5,500. However, the Tribunal did not prepare a detailed chart applying the Full Bench formula to calculate the exact surplus. Instead, it simply stated that even after allowing for the prior charges, a substantial surplus remained to support payment of the three‑month bonus. The appellant’s principal objection concerns this procedural shortcoming in the Tribunal’s judgment. It is noteworthy that the appellant also failed to produce a chart showing its own calculation of the available surplus, a step that employers ordinarily undertake in similar cases. This omission appears to stem from the fact that the appellant’s balance‑sheet and profit‑and‑loss account are maintained in an unconventional manner, making it difficult to extract the figures required by the Full Bench formula. Nevertheless, 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 account, and because the Tribunal based its assessment on net profit, no additional depreciation needed to be allowed.

In addressing the issue of further depreciation, the Court observed that it was unnecessary because the net profits had already been calculated after depreciation had been charged. Regarding rehabilitation, the Court found that the profit and loss account showed expenses for repairs and replacements, which it considered to include any rehabilitation costs, leaving essentially no scope for additional rehabilitation claims. The Court noted that the income‑tax rate applicable in the relevant year was forty‑five percent, which translated into an income‑tax liability of approximately forty‑four thousand rupees. After deducting this tax amount, the remaining balance was roughly fifty‑four thousand rupees. The Court then turned to the statutory return of six percent on paid‑up capital. The balance‑sheet indicated that the paid‑up capital amounted to six thousand rupees, which would generate a return of three hundred and sixty rupees. It was submitted that the business had been purchased for sixty thousand rupees and that this amount should also be treated as capital for interest calculation. The Court held that there was no evidence before the Tribunal to support this claim, and the balance‑sheet did not record sixty thousand rupees as capital. Consequently, in the absence of proof, the appellant could not claim that six percent interest should be calculated on sixty thousand rupees, although the Court left open the possibility for the appellant to establish such a fact in future proceedings. Likewise, the Court found no admissible evidence regarding the amount of working capital used, and therefore could not entertain a claim for a return on working capital. In view of these findings, the Court concluded that the award of three months’ bonus could not be successfully challenged on the grounds raised.

The Court thereafter requested the appellant to produce a chart showing the surplus according to the appellant’s own calculations. The appellant complied, presenting a chart that indicated an available surplus of twenty‑eight thousand five hundred and fifty rupees. The respondents contested several items in the chart, and the Court recognized that some of these disputes might be justified. Nevertheless, even if the Court accepted the appellant’s figure of a twenty‑eight thousand five hundred and fifty rupee surplus for that year, the award of three months’ bonus, amounting to sixteen thousand five hundred rupees, would remain justified. This is because eight thousand one hundred rupees of the surplus would be refunded to the appellant as a rebate on income‑tax, thereby reducing the net amount that needed to be allocated for bonus purposes. Accordingly, the Court expressed the opinion that the Tribunal’s order concerning the bonus for the year 1953‑54 was correct and should be upheld.

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. Although the appellant acknowledged before the Tribunal that profits had been earned in 1954‑55, the absence of the supporting financial statements meant that the Tribunal could not verify the exact amount of profit. The Tribunal had nonetheless held that sufficient profit existed to justify the payment of a three‑month wages bonus for that year. This finding was contested, with the argument that without the financial figures, the Tribunal should not have awarded any bonus. The Court observed that the unavailability of the accounts was attributable to the appellant’s failure to produce them. Consequently, the Court held that the lack of financial documents was due to the appellant’s default, and it could not accept the Tribunal’s award of bonus for the year 1954‑55 without the requisite evidence.

The accounts for the financial year 1956‑57 had been produced in another matter, which makes it clear that the accounts for the year 1954‑55 were also in existence. The failure to produce those 1954‑55 accounts before the Tribunal was therefore attributable to the appellant. Despite the non‑production, an affidavit submitted by the respondents in connection with the stay application disclosed that the profit for the year 1954‑55 exceeded Rs 85,000. The Court directed the appellant to produce the original statements for that year; the appellant complied and the original balance sheet and profit‑and‑loss account were placed before the Court. Those documents verified the profit figure stated in the respondents’ affidavit. Further, the Court noted that the profit‑and‑loss account for the year 1953‑54 contained a credit of more than Rs 13,000 that represented a refund of water charges. The Court held that this amount was extraneous income not derived from the labour of the workmen and should be deducted from the stated profit of 1953‑54. After making that deduction, the profit for 1953‑54 also amounted to approximately Rs 85,000. Consequently, 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 altering the Tribunal’s award of a bonus equal to three months’ wages for the year 1954‑55.

The appellant contended that the Tribunal had erred in granting fifteen days of casual‑cum‑sickness leave because Section 22 of the Delhi Shops and Establishments Act (No VII of 1954) caps such leave at twelve days for either sickness or casual absence, and therefore exceeds the statutory limit. The Court referred to its earlier decision in Dalmia Cement (Bharat) Limited v. Their Workmen, where it was held that Section 22 imposes an absolute ceiling of twelve days of full‑pay leave for either sickness or casual absence, and that a Tribunal may not disregard this statutory limitation. In the present case, the Tribunal was aware of the statutory ceiling but nevertheless awarded fifteen days, exceeding the limit. The Court determined that this award was contrary to the Act and ordered that the casual‑cum‑sickness leave be reduced to the statutory maximum of twelve days. The respondents argued that the hotel kitchen should be classified as a factory and therefore exempt from the provisions of the Delhi Shops and Establishments Act. That argument was not raised in their written statement, where they merely maintained that the Act did not prevent the workmen from seeking leave beyond the statutory entitlement. The Court found that there was no dispute that the Delhi Shops and Establishments Act applied to the hotel as a whole. Whether the kitchen constitutes a factory, and consequently whether its staff are exempt from the Act, was a question that could not be decided in the present appeal due to an absence of factual material. Accordingly, the Court modified the Tribunal’s order on casual‑cum‑sickness leave as indicated above.

The Court observed that deciding whether the kitchen of the hotel was exempt from the Delhi Shops and Establishments Act required factual investigation that was not available on the record, and therefore the question could not be decided in the present appeal. Consequently, the Court modified the Tribunal’s order concerning casual‑cum‑sickness leave as previously indicated. The Court then turned to the issue of the Employees’ Provident Funds Act (No XIX of 1952). Counsel for the appellant explained that the Act had been extended to cover the hotel industry and that the appellant was not pressing the appeal on any point relating to the provident fund because the award’s provisions on that matter already conformed with the statutory requirements of the Employees’ Provident Funds Act.

Regarding the scales of pay, the Court noted that the workmen had demanded certain pay scales, but the Tribunal had fixed scales that were somewhat lower than the workmen’s demands. The Tribunal had justified its decision by citing the prevailing scales in other Delhi hotels, specifically the Cecil and Grand Hotels, which were described as more or less similar establishments. The appellant relied on the evidence of Lakshmi Chand Narula, Honorary Secretary of the Delhi Caterers’ Association, who asserted that the Marina Hotel was classified in category B. In contrast, D. D. Singh, Secretary of the Hotel Workers’ Union, testified on behalf of the respondents that the workers placed the Marina Hotel in category A, a category that included almost all hotels in New Delhi and in Civil Lines. Singh further pointed out that the Grand and Cecil Hotels were situated in Civil Lines and were therefore comparable, although he did not state this explicitly. The appellant argued that because the Marina Hotel was in category B, it could not be compared with the Grand and Cecil Hotels. However, the Court found that Narula’s testimony did not disclose the category of the Cecil and Grand Hotels, while Singh’s evidence indicated that the Marina Hotel was in the same category as those two hotels. On the whole, the Court saw no reason to reject the Tribunal’s view that the Marina Hotel was not inferior to the Grand and Cecil Hotels in any material respect. Accordingly, the Court held that the scales of pay fixed by the Tribunal, which were broadly similar to those in the Cecil and Grand Hotels, could not be objected to, nor were they so high as to require reduction. The Court also found no basis to overturn the Tribunal’s assessment that the appellant possessed the financial capacity to meet the fixed scales, noting that although profits had declined since 1954‑55, there was no justification for concluding that the hotel could not bear the increased wage bill. The Court therefore declined to interfere with the Tribunal’s scales of pay. With respect to dearness allowance, the Court observed that the Tribunal’s award of Rs 20 per month, adjusted according to the workman’s meal and accommodation arrangements, was consistent with the prevailing scale and the earlier award of May 17, 1950, and thus warranted no alteration. In sum, the appeal failed in all respects except for the limited modification of the casual‑cum‑sickness leave entitlement.

In this matter, the Court observed that the wage scales introduced by the Tribunal were proper and therefore there was no basis for the Court to intervene or to vary those scales. Regarding the dearness allowance, the Tribunal had fixed the allowance in conformity with the existing scale. The workmen had claimed an amount of thirty‑five rupees per month; however, the Tribunal determined that the appropriate allowance should be twenty rupees per month. The Tribunal further specified that if a workman took his meals at the hotel, the allowance would be reduced by fifteen rupees; if a workman resided in accommodation supplied 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 accommodation and took his meals there, no dearness allowance would be paid at all. The Court found no reason to disagree with the Tribunal’s approach, especially because the method of calculation corresponded with the practice that had previously existed in the hotel, as reflected in the award rendered by Shri Dulat on 17 May 1950. Consequently, the appeal was dismissed with costs, the only exception being a limited modification concerning the casual‑cum‑sickness leave, which the Court ordered to be altered as previously indicated. Apart from this minor adjustment, the appeal was entirely dismissed.