French Motor Car Co., Limited vs Workmen

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 391 of 1962

Decision Date: 13 November 1962

Coram: K.N. Wanchoo, P.B. Gajendragadkar, A.K. Sarkar

In this case the Supreme Court of India delivered its judgment on 13 November 1962 in the matter titled French Motor Car Co., Limited versus Workmen. The opinion was authored by Justice K.N. Wanchoo and the bench was composed of Justice K.N. Wanchoo, Justice P.B. Gajendragadkar and Justice A.K. Sarkar. The official citation of the decision appears as 1963 AIR 1327 and 1963 SCR Supl. (2) 16, and the decision is also referenced in various citator reports including but not limited to F 1963 SC1332 (16), R 1964 SC 689 (6, 15, 16), RF 1967 SC 948 (9), R 1967 SC1286 (8), RF 1969 SC 360 (20), R 1969 SC 976 (3, 4, 5), R 1970 SC 878 (9), R 1972 SC 343 (13), R 1972 SC2273 (20), RF 1973 SC2758 (12), R 1978 SC 828 (21), R 1978 SC1113 (12, 14), RF 1984 SC 356 (14, 15, 16). The matter concerned the provisions of the Industrial Dispute Act relating to the fixation of wage scales on an industry‑cum‑region basis, the applicability of that principle to large and dissimilar concerns for comparative purposes, the power of an industrial tribunal to make adjustments, and related issues of dearness allowance and provident fund.

The headnote of the judgment sets out that three distinct questions were raised on appeal from an award made by the Industrial Tribunal. The first question concerned the wages and scales of pay applicable to clerical staff; the second dealt with the dearness allowance payable to those clerical employees; and the third involved the provision of a provident fund. The Tribunal had concluded that the business of French Motor Car Co., Limited was capable of bearing the financial burden imposed by the award. In reaching that conclusion, the Tribunal examined the company’s wage‑revision history and noted that several revisions of wages, scales and dearness allowance had been effected in recent years. It further observed that the cost‑of‑living index for workmen had risen sharply since 1955, and that, although a dearness allowance reduction had been agreed in 1954, a further revision of wage scales was justified. The appellant argued that wages should be fixed on an industry‑cum‑region basis and contended that the Tribunal erred by comparing the company with industrial concerns that were entirely dissimilar. The appellant also submitted that, because it already paid the highest wage scale in the relevant industry, there was no basis for further increase. The Court held that settled law requires an industrial court, when considering wage structure, dearness allowance and similar service conditions, to proceed on an industry‑cum‑region basis and to compare the concerned establishment with other enterprises that are similar in the same line of business and situated in the same geographical region. The Court emphasized that such comparison must not be drawn between a small, financially strained concern and a large, thriving one. In support of this principle, the Court referred to the decisions in Williamsons (India) Private Ltd. v. Workmen (1962) 1 L.L.J. 302 and Novex Dry Cleaners v. Workmen (1952) 1 L.L.J. 271. Since the Tribunal, in fixing the wage scales for workshop employees, had relied on concerns that were considerably larger than the appellant and not engaged in the same line of business, the Court concluded that the portion of the award based on those comparisons could not be sustained. Although the appellant claimed to be paying the highest wages in its specific line of business, the Court ruled that this fact did not preclude a revision of the wage scales.

The Court explained that when considering wage matters the industrial court must give greater weight to the regional aspect of the industry‑cum‑region principle, but it must also ensure that the enterprises used for comparison are as similar as possible to the one before it. Although the Tribunal was entitled to look at other concerns in the same region for comparative purposes, it should not have selected enterprises that were disproportionately large and completely unrelated to the appellant’s business. Consequently, the wage structure that the Tribunal fixed for the workshop employees was ordered to be set aside. The Court noted that this rule could not be extended to clerical and subordinate staff, who occupy a different position from the skilled workshop workers. In support of this distinction, the Court referred to the decision in Messrs. Lipton Limited v. Their Employees, [1959] Supp. 2 S.C.R. 150. The Court also observed that the law does not forbid a Tribunal from granting adjustments where earlier pay scales existed, but such adjustments must be made sparingly and after a careful examination of the specific facts and circumstances of each case.

The appeal, identified as Civil Appeal No. 391 of 1962, was filed by special leave against Part I of the award dated 23 December 1961 rendered by the Industrial Tribunal of Maharashtra in Reference (IT) No. 127 of 1960. The appellant was represented by counsel for the Solicitor General of India and additional counsel, while the workmen were represented by a secretary of a workers’ federation. The judgment was delivered on 13 November 1962 by Justice Wanchoo. The dispute arose between Messrs. French Motor Car Co., Limited and its workmen and involved four matters referred by the Government of Maharashtra under section 10 of the Industrial Disputes Act, 1947. The appeal focused on (i) wages and pay scales for clerical staff, workshop employees and subordinate staff, (ii) dearness allowance for clerical staff, and (iii) provident fund. The respondents argued that the appellant’s flourishing financial condition justified a revision of the wage scales. The appellant did not dispute its ability to bear a higher wage burden but contended that the scales had been revised only a few years earlier and that there was no justification for another revision so soon. The Tribunal examined the appellant’s financial capacity and concluded that the company could sustain the additional burden resulting from revised wage scales. It also reviewed the company’s historical wage arrangements to determine whether a further revision was warranted, and the Tribunal’s findings on that history were subsequently considered by the Court.

In 1948 the appellant entered into its first agreement with the workmen, establishing fixed wage scales for the employees. Shortly after this agreement, another tribunal issued an award in the case of United Motors (India) Limited, a company engaged in business that was comparable to the appellant’s, and the award confirmed that United Motors operated with substantially higher wage scales. Those higher scales were subsequently adopted by two additional firms in Bombay, namely Dadajee Dhakjee and Metro Motors, both of which were engaged in similar lines of business. A further dispute arose between the appellant and its workmen in 1953 concerning wage scales; the tribunal’s award in that matter prescribed wage scales for workshop employees and subordinate staff that were virtually identical to the scales applied by United Motors, Dadajee Dhakjee and Metro Motors. In 1954 the appellant and the workmen executed another agreement that fixed wage scales specifically for clerical staff. The present controversy began in 1958 and was referred by the Government of Maharashtra in 1960; the appellant contended that the existing wage scales were intended to be long‑term arrangements and therefore should not be revised so soon. The tribunal, however, observed that the cost of living for workmen had risen markedly since 1955, with the cost‑of‑living index increasing from 338 in 1955 to 420 in 1960 and further to 428 in 1961, the year the award was rendered. In light of this significant economic change, the tribunal concluded that there was a clear case for a further revision of wage scales, especially because the dearness allowance, which had been adjusted by agreement in 1954, had the effect of reducing the allowance. The Court found no reason to disagree with the tribunal’s assessment that a revision of the wage structure was justified. The appellant’s principal argument was that wages should be fixed on an industry‑cum‑region basis and that the tribunal erred by comparing the appellant with industrial concerns that were entirely dissimilar. It is now well settled that an industrial court must apply the industry‑cum‑region principle when addressing issues such as wage structure, dearness allowance and similar conditions of service. This principle requires that the court compare the wage scales prevailing in concerns that are similar in the same geographical region, where “similar” generally denotes businesses operating in the same line of trade. Even within the same line of trade, it is improper to compare a small, financially strained concern with a large, prosperous one. In Williamsons (India) Private Ltd. v. The Workmen, the Court examined this point, noting that the tribunal had compared Williamsons Private Ltd. with Messrs. Gillanders Arbuthnot and Company for the purpose of fixing wages. The Court observed that factors such as the scale of business, capital invested, profits, nature of operations, standing, size of the labour force, existence of reserves, declared dividends and future prospects must all be weighed when making such comparisons. These observations were intended to demonstrate that even in the same line of business a small concern cannot be measured against a large concern, and where a substantial disparity exists it would be unsafe to impose the same wage structure as that of the larger enterprise.

In the wage‑fixation proceedings, the tribunal compared French Motor Car Co., Limited with Messrs. Gillanders Arbuthnot and Company. The tribunal observed that, for the purpose of comparison, it must take into account a wide range of factors, including the extent of business carried on by each concern, the capital invested, the profits earned, the nature of the business, the commercial standing, the strength of the labour force, the presence or absence and amount of reserves, the dividends declared, the future prospects of the business, and any other relevant considerations. These observations were intended to illustrate the proper method of comparison even when the concerns are in the same line of business, and to establish the principle that a small concern cannot be likened to a large concern merely because they belong to the same industry. Consequently, where a large disparity exists between two concerns operating in the same business, it would be unsafe to impose the wage structure of the larger concern on the smaller one without further analysis. Whether a large disparity exists is a factual determination; it is not required that the two concerns be identical in every respect. What the tribunal must ascertain is that the disparity is not so great that a realistic comparison becomes impossible. In the earlier decision of Novex Dry Cleaners v. Workmen, the Court similarly warned against comparing a comparatively small concern with a large one in the same line of business and then applying the larger concern’s wage structure as a blanket rule, without examining the standing of each concern, the size of their labour forces, the scale of their businesses, and the profit levels sustained over several years.

The appellant contended that, in fixing the wage structure for its workshop employees, the tribunal improperly relied on comparisons with concerns that were not only in a different line of business but also substantially larger than the appellant company. This argument was found to have merit. The tribunal had, in fact, taken into account the wages prevailing in enterprises such as Greaves Cotton and Dumex, both of which are considerably larger and operate in different industries from the appellant. As a result, the wage scales fixed for the workshop employees were influenced by these larger, unrelated concerns, and the award based on that comparison could not be sustained. It was further noted that the appellant appears to be paying the highest wage scales within its own line of business, and it was submitted that, if compared only with peers in the same industry, there would be no justification for increasing its wage scales because it already leads the market. The Court rejected this line of reasoning, observing that accepting it would imply that a concern paying the highest wages in its sector could never receive a wage increase, regardless of prevailing economic conditions. Therefore, when a concern already offers the highest wages in its line of business, greater emphasis should be placed on the regional element of the industry‑cum‑region principle, while still ensuring that the industrial court considers other industries in the same region that are as nearly comparable as possible to the concern before it.

The Court observed that the appellant’s contention that no justification existed for raising the wage scales because it already paid the highest scales in its line of business could not be accepted. Accepting such a proposition would imply that a concern earning the highest wages in a particular industry could never increase those wages, irrespective of prevailing economic conditions at the time of dispute. Consequently, the Court held that where a concern pays the highest wages in its own line, greater emphasis must be placed on the regional aspect of the industry‑cum‑region principle. It became the duty of the industrial court, for the purpose of comparison, to consider other industries in the same region that are as nearly similar as possible to the concern before it. Even when a concern already offers the highest wages in its own line of business, the industrial courts may look at wages paid in that region in other lines of business; however, they must ensure that the concerns selected for comparison belong to lines of business that closely resemble the concern’s own activity. The Court further stressed that the selected concerns should not be so disproportionately large as to deprive the comparison of a proper basis. In the present case, although the tribunal could have looked beyond the specific industry of the appellant for comparison, it was erroneous for the tribunal to rely on concerns such as Dumex and Greaves Cotton, which operate in completely different and dissimilar lines of business and are vastly larger than the appellant, thereby failing to provide a proper basis for comparison.

The Court therefore concluded that the wage structure fixed by the tribunal for workshop employees could not be upheld and must be set aside. Accordingly, the award pertaining to workshop employees was annulled and the matter remanded to the tribunal to fix appropriate wage scales in accordance with the Court’s observations. The Court noted that evidence had already been placed before the tribunal for the purpose of comparing concerns whose businesses were nearly similar to that of the appellant. Hence, it was unnecessary to procure fresh evidence on that point. The tribunal was directed to re‑determine the wage structure after excluding from consideration any concerns that are in wholly different lines of business or that are disproportionately larger than the appellant. This re‑examination is to be conducted in light of the principles articulated by the Court, ensuring a proper and relevant basis for wage comparison.

In this part of the proceedings the appellant repeated the same argument that the tribunal had selected comparison concerns which, in reality, were not comparable for the purpose of fixing wages for clerical and subordinate staff. The Court noted that a distinction must be drawn between workshop employees, who typically possess a skill that is unique to a particular industry, and clerical as well as subordinate staff, whose work does not generally require such specialised skill. The Court referred to a similar question that it had examined in Messrs. Lipton Limited v. Their employees (1959) Supp. 2 S.C.R. 150. In that earlier case the tribunal was tasked with fixing wages for clerical and subordinate workers, and the employer argued that there was no reliable evidence showing higher wages in any comparable industry within the same region, and therefore the existing wage structure should be revised. The employer in that case was Messrs Lipton Limited, a tea‑merchant business operating in Delhi. The workmen, however, produced evidence of the pay scales of employees in the Delhi offices of several other concerns, namely Standard Vacuum Oil Company, Thomas Cook (Continental) Overseas, Burmah Shell, Lever Brothers (India) Limited, Associated Companies and Marshall Sons and Company (India) Limited. The employer contended that these concerns could not be taken as comparators because they belonged to different sectors such as oil, engineering and manufacturing. The workmen counter‑argued that for occupations such as drivers, sweepers, peons, clerks, godown keepers, typists and stenographers, the nature of the work was essentially the same across all the cited concerns, and consequently comparable evidence did exist. The Court observed that it was impossible to conclude that no evidence was available for the tribunal to act upon, and indeed the material presented justified a revision of the wage structure. This decision, the Court explained, establishes that for employees of the class mentioned, the tribunal may consider even those concerns engaged in entirely different lines of business where the work performed by the employees is more or less similar. Accordingly, the Court agreed with this view and held that the appellant’s submission could not succeed with respect to clerical and subordinate staff.

Nevertheless, the Court found that the tribunal had made an error in its treatment of subordinate staff. In the appellant’s company the subordinate staff comprised drivers, watchmen, peons, cleaners and sweepers. According to the company’s prevailing wage system, drivers and watchmen each occupied a separate pay scale, while peons, cleaners and sweepers were placed together in a single scale. The tribunal, however, had failed to recognise this distinction correctly. The Court therefore concluded that the tribunal’s order concerning the subordinate staff required correction, noting that the mistake lay in the inaccurate grouping of these categories, as the company’s own system did not align with the tribunal’s classification. The subordinate staff were therefore correctly described as being organised in separate scales for drivers and watchmen, with peons, cleaners and sweepers sharing another scale, which the tribunal had not properly reflected.

In the company under consideration the same wage scale was applied to drivers, watchmen, peons, cleaners and sweepers, and the employees were treated similarly. The tribunal, however, prescribed a separate scale for drivers, another scale that combined watchmen, peons and cleaners, and a third scale for sweepers, thereby redistributing the existing system without giving any reason for this alteration. The tribunal inadvertently erred when it stated that the scales for watchmen, peons and cleaners were uniform in the company. This statement was inaccurate, and the respondents’ counsel accepted that it was wrong. Consequently, the court directed that the tribunal’s order fixing the scale identified as 50‑3‑77‑4‑85 for watchmen, peons and cleaners would apply only to watchmen and would not extend to peons and cleaners. In addition, the court ordered that the scale identified as 40‑2‑58‑373 would apply not only to sweepers but also to peons and cleaners. With these modifications, the appeal concerning both clerical staff and subordinate staff was dismissed, except for the specific adjustments just described.

The discussion then turned to the dearness allowance for clerical staff. It had been revised by agreement in 1954, a revision that resulted in a reduction of the allowance. The tribunal set aside the 1954 agreement and reinstated the dearness‑allowance system that had been in force before that agreement. The court observed that this restored system was consistent with the prevailing pattern of dearness allowance in Bombay and had previously applied in the appellant company itself; therefore, the appellant’s contention that this system could be successfully challenged was rejected. The court next considered the provident‑fund scheme. The company operated both a gratuity scheme and a provident‑fund scheme. Initially, the rate of contribution to the provident fund was eight and one‑third per cent of basic pay. From 1 July 1960, the contribution rate was altered to six and one‑quarter per cent of the gross earnings (that is, basic pay plus dearness allowance), in accordance with the Employees Provident Funds Act (No XIX of 1952) and the Employees Provident Funds Scheme of 1952 applicable to the industry. The tribunal, however, fixed the contribution at eight per cent of the gross earnings, ignoring the existing rate of six and one‑quarter per cent. The tribunal justified this increase on the sole basis that a technical committee, before the tribunal’s award, had reported that the contribution rate should be raised to eight per cent of gross earnings after a thorough study of the problem from all points of view, and that such a rate should be adopted by well‑established and prosperous concerns such as the appellant, although the tribunal was aware of the prevailing regional rates.

The Court observed that the rate the Tribunal had fixed was not the rate normally applied in that geographical area. The respondents argued that a new law was being considered concerning the contribution rate, but the Court noted that, to date, no legislation had been enacted to alter the existing contribution percentage. The Court found no justification for raising the contribution to eight per centum for the appellant company alone merely because a Committee had issued a recommendation that had not yet been put into effect, especially when the prevailing rate across the industry remained six and one‑quarter per centum of gross earnings, defined as basic pay plus dearness allowance. Consequently, the Court held that the portion of the award that increased the rate must be set aside and that the contribution rate for the appellant company should continue to be six and one‑quarter per centum of the gross earnings as it stood at the time of the award.

Turning to the issue of adjustment, the appellant contended that when the company introduced its wage scales they were already generous, and therefore there was no basis for the Tribunal to grant an adjustment, as adjustments are ordinarily made only when wage scales are being fixed for the first time. The respondents, however, maintained that industrial tribunals have on occasion granted adjustments even where existing wage scales were already in place, and that the power to adjust was not confined solely to inaugural scale determinations. To support this position, the respondents relied upon a series of awards listed in Exhibit U‑15. The Court asked the parties to provide a joint statement indicating what those awards said about adjustments and whether they demonstrated that adjustments had been granted despite pre‑existing wage scales. Such a joint statement was filed. The Court examined the awards and found that the great majority concerned cases where wage scales were being established for the first time, and adjustments were accordingly awarded either point‑by‑point or in other manners the tribunals deemed just based on the facts of each case. In a minority of the cited awards, adjustments had been granted even though earlier wage scales existed; the reason for those adjustments was that the earlier scales were considered low and the prescribed increments were particularly meagre. In those instances the tribunals concluded that a further adjustment was warranted despite the existence of prior scales. The Court therefore concluded that, while adjustments are generally made when wage scales are newly fixed, there is no absolute rule prohibiting an adjustment where earlier scales are already in force, provided the specific circumstances of the case justify such a decision.

In this case the Court observed that there is no legal prohibition against a tribunal granting an adjustment even when a wage scale already existed, but such a grant must be applied sparingly and must take into account the particular facts and circumstances of each case. The Court explained that the usual justification for granting an adjustment despite the existence of a previous scale is that the increments in the earlier scale were unusually low, and therefore equity demanded a second adjustment. The Court then examined the facts of the present matter. It noted that for clerical staff the earlier grades of pay provided yearly increments of five to ten rupees, which matched the typical regional increase rates for such employees. For unskilled workshop workers and subordinate staff, the Court found that the appellant company had previously offered comparatively generous increments, even when measured against other firms such as Dumex Private Limited and Greaves Cotton Company. The Court further observed that the same conclusion applied to the semi‑skilled and skilled grades that were in force in the company. On this basis the Court concluded that there was no justification for the tribunal’s method of granting adjustments when the new scales were introduced. Instead, the Court held that the appropriate adjustment should simply ensure that any employee transferred to a new scale should be placed on the next step of that scale where his former pay does not correspond to an existing step. The Court added that the tribunal, in issuing its adjustment order, had failed to consider the merits of the opposing arguments on this point. Consequently, the Court was of the view that an adjustment should not have been ordered as a matter of course. Moreover, the respondents had not demonstrated a need for adjustments given that the company had already been providing relatively generous increments and was paying the highest wages within its industry. Accordingly, the Court decided that the tribunal’s adjustment order should be modified in the manner it has described. Regarding clarification, the Court noted that the parties had agreed that after Part I of the award was published, the company would classify its employees and forward that classification to the sabha, that is, the union. The sabha would then have the opportunity to raise any objections, and any disputed cases would subsequently be decided by the tribunal. The Court pointed out that the tribunal had not addressed the issue of classification in the award under appeal, although some remarks in the award appeared to touch on classification. Because the tribunal had not examined classification at this stage, any provisional observations it made would not affect the parties’ agreement on the classification process.

The parties had agreed that the employer would initially classify its employees and would forward that classification to the union, which would then have the right to raise any objections; any remaining disputed cases would subsequently be determined by the tribunal. In view of this agreement, the Court found that there is no issue of classification to be decided at this stage of the proceedings. Accordingly, the Court partially allowed the appeal and set aside the tribunal’s order concerning the workshop employees, directing that the matter be remanded so that their wages could be fixed in accordance with the observations made in this judgment. The Court also set aside the tribunal’s order relating to the provident fund and reduced the contribution rate to sixty‑one per cent. Further, the Court nullified the order regarding the adjustment of wages, ordering that the adjustment be carried out thereafter as provided for in this judgment. The appeal concerning the salary of clerical staff and subordinate staff, except for the specific modifications to subordinate staff, as well as the appeal relating to dearness allowance for clerical staff, was rejected and dismissed. The Court added that the new wage scales to be fixed on remand shall take effect from 1 July 1960, as had already been ordered in the present award. Each party was directed to bear its own costs. In sum, the appeal was allowed in part.