Management of the D.C.M. Chemical Works vs Their Workmen

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

Court: Supreme Court of India

Case Number: Civil Appeals Nos. 4 and 5 of 1962

Decision Date: 01/03/1962

Coram: Wanchoo

In the matter titled Management of the D.C.M. Chemical Works versus Their Workmen, the Supreme Court of India delivered its judgment on 1 March 1962. The petitioner's name was the Management of the D.C.M. Chemical Works, and the respondent was the workmen of that establishment. The bench heard the case under the provisions dealing with industrial disputes where a company undertakes several concerns, and the issues involved the determination of wage structure, the use of incremental scales, the distinction between minimum wage and fair wage, as well as the possibility of framing a gratuity scheme in addition to a provident‑fund scheme.

The headnote recorded that the dispute between the appellant, which was the management of the D.C.M. Chemical Works, a constituent unit of Delhi Cloth and General Mills Limited, and its workmen concerned, among other matters, the wage scales and the entitlement to gratuity. The workmen argued that the chemical works formed an integral part of the larger company and that the overall financial position of the parent company should be taken into account when fixing the wage structure. The Industrial Tribunal referred the matter to held that, on the facts, the chemical works ought to be treated as an independent unit and that the wage structure could not be fixed on the basis of the overall position of the parent company.

The factual matrix disclosed that the parent company was a single limited concern that owned and controlled a number of industrial units of different kinds. Several features demonstrated that the various undertakings were operated as independent concerns and could not be regarded as a single integrated whole. First, each unit maintained separate books of account and prepared its own profit‑and‑loss statement. Second, each unit kept its own muster rolls for employees, and any transfer of an employee from one unit to another was generally effected only with the consent of the employee concerned. Third, each unit paid its own wages, dearness allowance and bonus, and these components varied from one concern to another. Fourth, when sales took place between one unit and another, the transactions were conducted at market price rather than at cost price. Fifth, each unit was administered by its own separate management.

The evidence further showed that since its inception in 1942 the chemical works had recorded profit in only two years, while in the remaining years it had incurred losses that were met by the parent company out of the profits earned by other units. On the basis of these facts, the Court held that there was no nexus of integration between the different lines of business carried on by the company. Consequently, the Tribunal’s conclusion that the chemical works was an independent unit was affirmed, and it was determined that in fixing the wage structure and related matters the position of the chemical works alone must be considered, without integrating it with the other units of the parent company.

The judgment cited several earlier decisions for support, including Associated Cement Companies Limited, Chaibassa Cement Works, Jhinkpani v. Their Workmen (1960) 1 S.C.R. 703, Pratap Press etc. v. Workmen (1960) 1 L.L.J. 497, and Pakshi‑raja Studios v. Workmen (1961).

The Court referred to the decisions reported in the second volume of the Law Journal (2 L.L.J. 380) and the case of the Hon Secretary of the South India Millers’ Association versus the Secretary of the District Coimbatore District Textile Workmen Union, reported in the second supplement to the Supreme Court Reporter in 1962 at page 926. It also applied the authority of Fine Knitting Co. Ltd. versus the Industrial Court, Bombay, reported in the third supplement to the Supreme Court Reporter in 1962 at page 196. The Court held that when a tribunal directs the fixation of a higher fair wage on an incremental basis, it must consider both the present financial condition of the concern and its stability. The Court explained that a fair wage is distinct from a minimum wage because it exceeds the bare minimum; in the case of a minimum wage the tribunal could require the employer to pay it even if that meant using capital. The Court further cited the decision of Crown Aluminium Works versus Their Workmen, reported in the Supreme Court Reporter 1958 at page 651, to illustrate this point. The Court also held that it is well‑settled that both gratuity and provident‑fund schemes may be established within the same undertaking provided its financial position permits such schemes. Although the financial position of the chemical works had not been found to be sufficiently good and stable to support an incremental wage structure, the Court observed that the tribunal’s direction to create a gratuity scheme was not erroneous because a gratuity is a long‑term provision and there was no reason to assume that, in the long run, the appellant would not be in a flourishing condition. The judgment then set out the procedural background: The matter was an appeal in civil appellate jurisdiction, namely Civil Appeals Nos 4 and 5 of 1962, filed by special leave against the award dated 25 January 1960 of the Industrial Tribunal, Delhi, in Industrial Dispute No 40 of 1957. Counsel for the appellant in Appeal 4 and for the respondent in Appeal 5 comprised senior advocates, while counsel for the respondents in Appeal 4 and for the appellants in Appeal 5 were also named. The judgment was delivered on 1 March 1962 by Justice Wanchoo. The Court noted that the two appeals arose from the same industrial‑tribunal award and would be considered together. Appeal 4 was filed by the management of D.C.M. Chemical Works and Appeal 5 by the workmen; for convenience the management was called the appellant and the workmen the respondents in both appeals. A dispute had arisen concerning wage scales, dearness allowance and gratuity, and because the parties could not reach an agreement, the matter was referred to the industrial tribunal, which was asked to decide eleven distinct issues. The principal disagreement centered on whether, in fixing the wage structure of the chemical works – a constituent unit of Delhi Cloth and General Mills Limited (the “Company”) – the tribunal should consider the overall financial position of the Company or limit its consideration to the financial position of the chemical works alone.

In this case the workmen argued that the chemical works was an integral part of the Company and that, consequently, the overall financial position of the Company should be taken into account in fixing the wage structure, dearness allowance and gratuity for the chemical works. They pointed out that the Company owned and controlled several different units, all situated in the same area of Delhi, and that there were noticeable differences in the wage structures among those various units. The workmen submitted that such disparities should be eliminated and that every enterprise in Delhi under the Company’s control ought to be treated on an identical footing. In contrast, the management maintained that although the chemical works constituted one unit among many industries controlled by the Company, each of those units functioned as an independent industry. Accordingly, the management submitted that the wage structure for each unit should be determined on the basis of the financial position of that particular unit alone. The management further emphasized that two of the principal units in Delhi were the textile mills operated by the Company, and it contended that the workmen’s claim that the chemical works should be treated on a par with the textile units in all respects was untenable. Among the reasons given for this view was the argument that such treatment would run counter to the principle of industry‑cum‑region. Before addressing the specific matters raised in the two appeals, the Court first needed to examine whether the workmen’s contention that the Company’s overall position should be considered in fixing the wage structure for the chemical works was legally sound. If that contention were accepted, the award might have to be set aside because the tribunal had held that, under the circumstances of the case, the chemical works should be treated as an independent unit and that its wage structure could not be fixed on the basis of the Company’s overall position. To appreciate the various contentions advanced by the parties on this question, the Court looked into the history and growth of the Company. The Company was founded in 1889 with a modest capital of about Rs. 10 lacs. The policy of those who controlled the Company was to reinvest a substantial portion of the profits back into the industry and to create a reserve for that purpose. Initially the Company started with a single textile mill, but over time, using the reinvested profits as well as additional capital, it established a large number of other industrial concerns both in Delhi and elsewhere. In Delhi the Company now owned the Delhi Cloth Mills, the Swatantra Bharat Mills—both textile concerns—the D.C.M. Tent Factory established in 1940, and the chemical works with which the present appeals are concerned in the

The respondents noted that, besides the enterprises already described, the Company owned and controlled several other industrial concerns outside Delhi, including the Daurala Sugar Works founded in 1932, the Lyallpur Cotton Mills commenced in 1934, and the Mawans Sugar Works established in 1940. The chemical works themselves began operations in 1942 with the sole production of sulphuric acid. In the following year, 1943, an alum plant was added; in 1944 a soap plant was set up; in 1945 a super‑phosphate plant commenced; and in 1946 a contact sulphuric‑acid plant was introduced. In 1947 the Company erected a vanaspati plant together with a power house to supply the energy required by the vanaspati operation. During the financial year 1948‑49 a caustic‑soda plant was incorporated, thereby transforming what had originally been a modest subsidiary to the textile mills into a fully fledged unit producing a variety of chemicals and vanaspati. The capital of the Company, which at its inception in 1889 was approximately ten lakh rupees, had risen by the time of the present appeals to four crore rupees. The capital employed specifically in the chemical works had always been drawn from the general reserves of the Company and had grown to exceed one crore rupees. It was not in dispute that only a negligible portion of the chemical works’ output was consumed by the Company’s textile mills; the overwhelming majority of the chemicals produced were sold on the open market. Moreover, the small amount of product that was supplied to other units of the Company was charged at prevailing market rates rather than at cost, indicating that, for all practical purposes, the chemical works functioned as an independent undertaking. The respondents, however, pointed to certain characteristics of the overall corporate structure to argue that the wage structure and related conditions in the chemical works should be determined by reference to the Company’s aggregate position, treating the chemical works as an integral component of the entire industrial enterprise. Those characteristics included the fact that no individual unit possessed a distinct paid‑up capital and that there was no separate depreciation or reserve fund for each unit; the Company issued a single balance‑sheet that presented the total profits of all undertakings after accounting for any losses incurred by any particular undertaking; the shareholders of the Company were also the shareholders of every unit; a single board of directors and a common managing agency oversaw all units, and policy decisions for the various units were made on the basis of the Company as a unified whole; the profits of the Company were pooled together and were not earmarked for expenditure by any specific undertaking; dividends were paid out of the collective profits of the Company; a solitary provident fund covered all employees across all units; the various units had been established from the profits generated by the Company as a whole; and income tax was paid on the total profits of the Company after taking into account any losses incurred by an individual unit. The respondents therefore submitted that these features were sufficient to establish that the different industries carried on by the Company formed one integrated whole, and consequently that the overall position of the Company should be taken into account when fixing the wage structure and related conditions for the chemical works.

The respondents argued that the features described earlier demonstrated that all the different industries carried on by the Company formed a single integrated whole, and that therefore, when fixing the wage structure for the chemical works, the overall position of the Company should be considered. The Court, however, found a very strong counter‑argument to those features. It observed that the Company was a single limited concern that owned and controlled various industrial units of different kinds, and that under Company Law the Company was a separate legal entity. Consequently, the common features identified by the respondents were necessarily common to every unit of a single legal entity and could not, by themselves, lead to the conclusion that the various undertakings were one integrated whole for the purpose of fixing wages in a particular unit. The Court then turned to certain other characteristics, which the tribunal had pointed out and which were not in dispute, and which showed that the Company actually treated its various units as independent concerns in practice. Each unit maintained separate books of account and separate profit‑and‑loss statements, illustrating how each business was performing. Each unit also kept its own muster‑rolls for employees, and transfers of employees from one unit to another—although possible despite the very different kinds of business—generally occurred only with the consent of the employees concerned. Moreover, each unit paid its own wages, dearness allowance, other allowances and bonuses, all of which differed from those paid in other units. Even when sales were made from one unit to another, they were conducted at market rates rather than at cost price, and the adjustments were reflected in the respective accounts. Although the Company had a common board of directors and a common managing agency, each unit possessed its own separate management, which was necessary because the nature of the business carried on by each unit was often entirely different. On the basis of these facts, the Court needed to determine whether the chemical works could be said to be so integrated with the other units of the Company as to justify treating them as part of the same business and therefore as a single establishment, which would preclude the adoption of different wage structures, dearness allowances and other conditions of service within the same establishment. The Court noted that this issue had been examined earlier in the case of Jay‑off in The Associated Cement Companies Limited, Chaibasa Cement Works, Jhinkpani v. Their Workmen, where certain tests were laid down for deciding whether a particular unit formed part of a larger establishment. Those tests included geographical proximity, unity of ownership, management and control, unity of employment and conditions of service, functional integrality and general unity of purpose. The Court emphasized that no single test could be applied absolutely in every case; rather, the true relationship between the parts, branches or units had to be examined to see whether they constituted an integrated whole, making the whole establishment one, or whether they remained separate units. The appropriate test depended on the facts proved, and could be ownership and control in one case, functional integrality or general unity in another, or unity of employment in a third. The Court therefore proceeded to apply these principles to the facts of the present dispute.

The Court explained that the determination of whether several units constitute a single, larger establishment depends on a series of tests that assess factors such as geographical proximity, unity of ownership, unity of management and control, unity of employment and conditions of service, functional integrality and a general unity of purpose. The Court emphasized that no single test can be prescribed as an absolute and unvarying rule for every situation; rather, the purpose of these tests is to discover the actual relationship among the various parts, branches or units of an enterprise. If, upon examining that relationship, the units are found to form one integrated whole, the enterprise is to be regarded as a single establishment. Conversely, if the units do not form such an integrated whole, each unit must be treated as a separate establishment. The Court further noted that the assessment of the relationship between the units must be based on the facts proved before the tribunal. Consequently, in one case the most crucial test may be the unity of ownership, management and control; in another case the decisive factor may be functional integrality or a general unity of purpose; and in a different case the pivotal test may be the unity of employment. The Court observed that often several of these tests must be considered simultaneously, and the difficulty in applying them arises from the complexities of modern industrial organization. The Court referred to earlier decisions that revisited these principles, namely Pratap Press etc. v. Workmen (2), Pakshiraj Studios v. Workmen (3), Hon’ble Secretary, South India Millowners’ Association v. Secretary, District Coimbatore District Textile Workmen Union (4) and Fine Knitting Co. Ltd. v. Industrial Court, Bombay (4). In the Fine Knitting Co. case the Court examined a single limited company and held that, despite the presence of unity of ownership, management and control, the two divisions of the concern were to be regarded as separate units because there was no functional integrality between them. The Court stressed that these tests must now be applied to decide whether the tribunal was correct in holding that the chemical works should be treated as an independent unit. The Court observed that the respondents had highlighted several common features of the enterprise, but in the Court’s view these commonalities could be explained by the fact that the Company is a limited concern engaged in diverse lines of business. Yet, under the Companies Act a limited concern constitutes a single legal entity, and the common features cited by the respondents stem from that single circumstance of the Company being governed by company law. Therefore, the Court concluded that it would be inappropriate to rely solely on those common features and to hold that all the various businesses carried on by the Company must be treated as one integrated whole for purposes such as wage‑structure. The outstanding fact in the present case is that, although a

The Court observed that although the Company operates a large number of businesses, the nature of those enterprises is in many instances completely different and generally unrelated to one another. It noted that the three principal lines of business carried on by the Company are sugar production, textile manufacturing, and chemical manufacturing. The Court found it obvious that no common factor links these three distinct lines of business, and therefore no one line can be said to depend on another, nor can there be any functional integrality among them in the ordinary sense. While acknowledging that a limited connection might exist between the chemical works and the textile mills because some chemical products could be used in textile processes, the evidence demonstrated that only a very small proportion of the chemicals produced in the chemical works actually reach the textile mills, the vast majority being sold on the open market. Consequently, the Court concluded that the chemical works, as it presently operates, cannot be considered to exist for the purpose of serving the textile mills, nor can it be described as integrated with those mills. Regarding employment matters, the evidence showed that each unit conducts its own separate recruitment of labour, maintains its own muster rolls, and employs staff with skills specific to the particular line of business, which is a natural consequence of the differing nature of the three businesses. The Court further held that there is no essential dependence of the chemical works on the textile units, and that neither unit can be said to be incapable of operating without the other.

The Court also pointed out that the Company’s historical treatment of its various units demonstrates that each unit has been regarded as an independent entity. Each unit maintains its own separate labour union, and the Company has entered into distinct agreements with the unions of each unit concerning conditions of service, which differ from unit to unit. Even the matter of bonus payments reflects differences that have arisen from the separate agreements negotiated between the various units and their respective unions. The Court noted that, in a prior adjudication involving two textile units – the Delhi Cloth Mills and the Swats Bharat Mills – the workmen themselves contended, and the adjudicating authority accepted, that those two were distinct and separate units of the Company. In the Court’s opinion, regardless of any arguments concerning units that operate in the same line of business, the facts established in the present case leave no doubt that there is no nexus of integration between the different lines of business carried on by the Company. Accordingly, the Court applied the ratio of the decision in the Fine Knitting Co. case and held that the chemical works must be treated as an independent unit. As a result, when fixing the wage structure and related matters, the Court must consider the position of the chemical works alone, without integrating it with the other units of the Company.

The Court observed that the wage structure for the chemical works must be fixed solely by looking at that unit and it could not be integrated with other units or considered on the basis of such integration, as indicated in citation (5) C.A. 306 of 1961 decided on 15‑2‑1962. In light of the conclusion that the chemical works is an independent unit, the Court turned to the specific points raised in the two appeals. The first appeal was filed by the workmen, who presented four separate contentions. First, even assuming the chemical works as an independent unit, the tribunal should have fixed a wage structure that included incremental scales. Second, the tribunal should have granted the same minimum scales to the workmen employed in the canteen as are given to the other workmen of the concern. Third, the tribunal should have made those members of the civil engineering department who had been working for more than one year permanent and should have given them the same terms and conditions of service enjoyed by other workmen of the concern. Fourth, the tribunal should have awarded an additional bonus to the workmen. Regarding the first contention, the workmen argued that there were no incremental scales in the concern and that the tribunal ought, at the very least, to have begun by fixing some incremental scales for the workmen. The tribunal, however, declined to fix incremental scales on the ground that the concern lacked both the financial capacity and stability required to justify such a fixation at the present time. It was not disputed that throughout its existence the chemical works had made a profit in only two years, while for the remaining period it had incurred losses that had to be met by the company out of profits earned by other units. On this point, the respondents relied on certain observations in the Tariff Commission Report and on a book entitled “Fertilizers Statistics in India” to demonstrate that the chemical industry possessed a very prosperous future. They also relied on a communication addressed by the appellant to the respondents, which stated that, based on sound business principles, the chemical works had not yet turned the corner of losses, that the position appeared brighter, and that with the cooperation of labour the chemical works would become an asset to the D. C. M. family. The Court’s attention was further drawn to various annual reports in which the directors presented an optimistic picture for the benefit of shareholders. While acknowledging the possibility that the chemical works might in time acquire stability and become a source of increasing profit for the company, the Court agreed with the tribunal that, up to the present, the chemical works had operated at a loss except for those two profitable years, and that certainty about future profitability could not be claimed.

In this case, the Court observed that the tribunal was correct in refusing to prescribe an incremental wage scale at the present time because imposing such a scale would place a heavy burden on the finances of the chemical works, which had not yet achieved financial stability. The Court explained that, at present, the losses of this unit are being met from the profits earned by other units of the Company, and therefore it could not consider the tribunal’s refusal to fashion incremental scales as erroneous. The respondents, however, argued that over the past twenty years the capital invested in the chemical works had grown substantially compared with the modest amount with which it was started in 1942, and that if the Company could obtain capital for expansion it should also be able to pay incremental wages by using the same source of capital. In effect, the respondents contended that even though the concern continued to incur losses, it ought to find money to pay the labour force higher wages, even if doing so would increase the losses further. The respondents further suggested that the concern could draw on capital to meet the wage increase. The Court noted that such an argument would be unanswerable only if the claim concerned the statutory minimum wage, referring to the authority in Messrs Crown Aluminium Works v. Their Workmen (1). The Court stated that if the wages paid by the appellant were below the minimum wage, the tribunal would unquestionably be entitled to order payment of the minimum wage, because no industry can be permitted to exist without paying wages at the bare subsistence level, and the tribunal could require the employer to meet that obligation even from capital. However, the Court clarified that the present dispute did not concern the bare minimum wage but rather a “fair” wage that is above the minimum. The respondents were not claiming that they received less than the minimum wage; they were asserting that, although their current wages exceeded the minimum, those wages were still not sufficiently fair and therefore should be increased by fixing an incremental scale. Consequently, the Court held that both the present financial condition of the concern and its future stability must be examined before any increase in a fair wage can be mandated. The Court emphasized that the employer’s present capacity to pay higher incremental wages, as well as its projected capacity, must be taken into account when determining whether an increased fair wage on an incremental scale is appropriate.

In determining whether a higher level of fair wages can be fixed on an incremental scale, the Court explained that both the present financial ability of the employer and the near‑future financial stability of the concern must be established. The Court held that it would be inappropriate to require an increased fair wage on an incremental basis where the employer lacks the requisite financial capacity and stability, as judged by ordinary business principles. Moreover, the Court warned that compelling the employer to meet the increased wage obligation by drawing on capital would, in ordinary cases, lead inevitably to the closure of the business concern, a result that would be more harmful to the workmen than maintaining the existing wage structure. Consequently, the Court observed that the only practicable alternative at the present time is to continue the existing scale of fair wages while hoping that the concern’s financial condition will improve, thereby allowing an incremental increase in the future. The Court therefore concurred with the tribunal’s view that, under the present circumstances, no case existed for fixing an incremental wage scale, and the contention seeking such a scale was dismissed.

Regarding the workers employed in the canteen, the Court noted that the canteen is operated by the appellant on a no‑profit‑no‑loss basis and that the canteen staff, numbering sixteen or seventeen, are also employees of the appellant. At the relevant time, the minimum basic wage for unskilled workers in the concern was Rs 38 plus a dearness allowance of Rs 55, totaling Rs 93. However, the canteen employees received consolidated wages ranging from Rs 50 to Rs 78, with all but one earning less than the minimum. The tribunal had held that there was no justification for treating the service conditions of the canteen workers differently from those of the other employees, and it ordered that the canteen staff be granted the same leave, provident‑fund, bonus and gratuity benefits as the other workmen. The tribunal, however, did not award them the minimum wage and dearness allowance. The appellant argued that granting the minimum wage to the canteen staff would raise the price of food sold by the canteen to the workers, and on that basis the appellant opposed the wage increase for those earning below Rs 93. The Court agreed with the tribunal’s finding that the appellant’s objection did not warrant denying the canteen workers the minimum wage to which they were entitled.

In this matter the Court observed that although improving the service conditions of the canteen work‑men might cause the prices of the items sold by the canteen to rise, there was no justification for denying the work‑men’s demand for equal treatment. The tribunal had directed that the canteen work‑men should receive the same leave facilities and other benefits as other employees, but it had stopped short of granting them identical wages and dearness allowance. The tribunal explained that it could not fix a wage or dearness allowance for the canteen staff because it lacked satisfactory material on the appropriate rates. The Court, however, held that the tribunal ought to have at least extended to the canteen work‑men the minimum wage that was being paid to other employees of the concern, especially to those whose current earnings were below that floor. The Court noted that fifteen canteen work‑men were drawing wages that varied between Rs 50 and Rs 78 per month as consolidated wages. By granting them the statutory minimum of Rs 38 in basic wage together with the dearness allowance of Rs 55, each of these workers would receive the same minimum total of Rs 93. This adjustment would place them on an equal footing with the other work‑men, would remedy the disparity, and would likely remove a source of discontent. In the absence of the detailed material that the tribunal had sought, the Court concluded that raising the wages of these fifteen workers to the minimum level was the only practicable step. Accordingly, the Court disagreed with the tribunal’s order concerning the canteen employees and directed that the wages of those work‑men who were receiving less than the minimum should be raised to match the minimum wage paid to the other employees of the concern. The remainder of the award on this issue was left untouched, and the Court ordered that the minimum wages so specified should be payable from the date on which the tribunal’s award was declared to be in force.

The Court then turned to the claim of the work‑men employed in the civil‑engineering department. The work‑men contended that the three hundred employees of that department should be made permanent. The tribunal rejected this contention, observing that most of those work‑men had been engaged on a temporary basis to carry out construction work that was itself temporary in nature, and therefore permanent appointment could not be justified merely because the construction activity had continued for more than a year. The Court agreed with the tribunal’s reasoning as to the three hundred work‑men taken as a whole. It held that the tribunal’s view was correct in stating that the temporary character of the work precluded an automatic conversion to permanent status. Consequently, the Court found no merit in the argument that all three hundred work‑men should be granted permanent positions.

In the record, evidence showed that although three hundred workmen had previously been employed in the civil engineering department, the great majority of them had been discharged because they were no longer required, leaving only about sixty‑five individuals still in service. The Joint Works Manager testified that a small “skeleton” staff was retained on the civil engineering side for the purpose of maintaining the buildings, and that this skeleton staff was of a more or less permanent character. On this basis, the argument presented to the Court was that, at a minimum, this skeleton staff ought to be granted permanent status. The appellant contended that the tribunal had not been asked to consider such a matter. Nevertheless, the Court observed that the present facts established that a skeleton staff was indeed being kept on a permanent basis for the civil engineering department, and it was therefore equitable to direct the appellant to convert this skeleton staff into permanent employees and to provide them with the same facilities, wages and conditions of service as those enjoyed by the other workmen. Accordingly, the Court ordered that the appellant shall make permanent such members of the skeleton staff who are maintained for civil engineering purposes and shall grant them the same conditions of service, including the same minimum wages, as those applicable to the rest of the workmen. The Court, however, left it to the appellant’s discretion to decide the appropriate strength of this permanent staff and to determine which specific individuals should be retained, noting that the tribunal had not examined these questions and that the Court possessed no material on which to make such a determination. The direction was to be complied with within three months of the judgment. In a separate matter, the workmen had been awarded two and a half months’ basic wages as bonus for the years 1953‑54 and 1954‑55, but they also claimed an additional bonus. It was fairly conceded on behalf of the respondent that, if the chemical works were treated as an independent unit, the workmen could not succeed in claiming an extra bonus on the basis of the Full‑Bench formula. The tribunal’s rejection of the demand for additional bonus, on the ground that the chemical works constituted an independent unit, was therefore deemed correct. The Court noted that this case was distinguishable from the earlier decision of the Hon’ble Secretary, South India Mill‑owners Association, because the two lines of business in the present case were distinct and unrelated. The appeal raised five points on behalf of the appellant: (i) dearness allowance, (ii) uniforms, (iii) acid and gas allowance, (iv) leave facilities, and (v) gratuity. The Court addressed these points individually. Regarding dearness allowance, the tribunal had ordered that the dearness allowance in the chemical works be fixed at the same rate as that applicable in the power house, which forms part of the chemical works, and the Court noted this determination before proceeding to the remaining issues.

At the time relevant to the dispute, the dearness allowance paid to workers in the chemical works was Rs 55 per mensem, while workers employed in the power house received Rs 66 per mensem. The appellant argued that the disparity between the two rates was rooted in historical circumstances. It was further explained that, although the nominal difference in dearness allowance amounted to Rs 11, the overall difference in total wages was only Rs 3 because the minimum basic wage in the power house was Rs 30, whereas the minimum basic wage in the chemical works was Rs 38. Consequently, the minimum total remuneration for a power house employee was Rs 96, compared with Rs 93 for a worker in the rest of the chemical works, a variation described in Civil Appeal 419 of 1960 decided on 1‑2‑1962 as not being serious. The tribunal, in increasing the dearness allowance for the other workmen, reasoned that there was no justification for discriminating between power house employees and the remaining workmen. In doing so, it is said to have overlooked the historical basis for the existing difference in dearness allowance, as well as the disparity in basic minimum wages between the two groups. Moreover, the tribunal appears to have disregarded its own earlier finding that the chemical works was operating at a loss and lacked the financial capacity to shoulder an additional burden. It was observed that, but for the discrimination the tribunal identified concerning the dearness allowance rates, it might not have altered the dearness allowance payable to the rest of the workmen. The company’s system of dearness allowance was described as providing a neutralisation of 2½ annas (now 17 nP) for each point increase over the working‑class cost‑of‑living index, with the base index fixed at 100 for the year 1939. Since the reference was made, a voluntary increase of Rs 6 per mensem had been granted to the rest of the workmen. The cause of the continuing difference between the power house and the other workmen was traced to a period when the power house had been integrated with Swatantra Bharat Mills. As an integral part of the cotton‑textile business, the power house adopted the same basic wage and dearness allowance rates as those applied in the textile operations of the company, leading to the rates that existed at the relevant time.

In the period under discussion, the wage structure for the power‑house employees consisted of a basic wage of Rs 30 together with a dearness allowance of Rs 66, while the minimum wage applicable to the remaining workers at the chemical works comprised a basic component of Rs 38 and a dearness allowance of Rs 55, making a total remuneration of Rs 93. The Excise Department of the Government raised an objection because a gate separated the Swatantra Mills from the chemical works, and the department sought the closure of that gate in order to achieve better control over the excisable articles produced within the chemical works. Consequently, the appellant was compelled to block the gate in 1950, and as a result the power‑house situated on the chemical‑works side of the gate was transferred from the Swatantra Mills to the chemical works. Although the power‑house staff thereafter fell under the administrative control of the chemical works, the company gave them an assurance that, for the purposes of pay scales and dearness allowance, they would continue to be governed by the rules applicable to the Swatantra Mills, which were essentially the textile rates. This assurance gave rise to a distinction between the salary scales of the power‑house personnel and those of the other employees of the chemical works. In 1957 a retrenchment took place in the power‑house, and the retrenched employees were, as far as possible, absorbed into other units of the enterprise. At that time an agreement was reached between the company and the power‑house workers whereby the transferred workers would accept the service conditions of the units to which they were assigned, while those who remained in the power‑house would continue to receive the Swatantra Mills textile scales. The tribunal, when it ordered that the dearness‑allowance scale used for the power‑house should be extended to all workers of the chemical works, failed to consider these historical developments and the special arrangement that had been made. The power‑house scale is, in effect, the textile scale, and the appellant argued that imposing this textile dearness‑allowance formula on the chemical works would create considerable complications. The Court agreed that the appellant’s contention was well founded and that the tribunal was not justified in raising the dearness allowance for the chemical works merely because of the fortuitous historical circumstance. Moreover, the number of power‑house employees affected was very small, amounting to roughly thirty individuals, and the total wage package of those workers did not differ significantly from that of the remaining workforce. This lack of substantial difference formed an additional basis for concluding that the tribunal should not have introduced the power‑house dearness‑allowance scale for the rest of the employees.

The respondents contended that the difference in minimum wages between the power‑house workmen and the other workmen in the chemical works had disappeared after the Textile Wage Board issued its recommendations, which raised the minimum basic wage for textile workers by eight rupees to Rs 38 effective from 1 January 1960. On that basis they argued that there was no reason to set aside the tribunal’s award which required that the dearness allowance for the other workmen be the same as that paid to the power‑house workmen. At first sight this argument appeared persuasive; however, when examined in the context of the Textile Wage Board’s recommendations, it became clear that linking the dearness allowance of the chemical‑works workmen with that of the power‑house workmen would create endless complications. The power‑house workmen would become entitled to the same dearness allowance that governed the textile workers employed in the Swatantra Bharat Mills. The Textile Wage Board report not only recommended an increase in the basic wage but also advised that a substantial portion of the dearness allowance be merged into the basic wage, leaving only a smaller residual amount as dearness allowance.

The appellant submitted that it had acted on the Textile Wage Board’s recommendations, resulting in a basic wage for the textile workers— which would also apply to the power‑house workmen—being fixed at approximately Rs 88 or Rs 89, while the dearness allowance would be reduced to about Rs 15. The appellant further argued that the practical effect of linking the dearness allowance for the remaining chemical‑works workmen with that of the power‑house workmen, as ordered by the tribunal on the ground of eliminating discrimination, would generate endless trouble. Moreover, there was a question whether, in view of the tribunal’s earlier finding regarding the appellant’s limited financial capacity, the appellant could realistically bear the additional burden of an increased dearness allowance. The operative order of the tribunal directed that all workmen of the chemical works, except those covered by Exhibit W/2, should receive dearness allowance at the same rate as the power‑house workmen. In the Court’s view, this order would inevitably lead to endless difficulties, especially now that the Textile Wage Board’s recommendations, for historical reasons, apply to the power‑house workmen. Consequently, the Court held that the basis on which the tribunal equated the dearness allowance of the other chemical‑works workmen with that of the power‑house workmen was unsustainable, and that the tribunal had erred by failing to give proper weight to the historical reasons underlying the rates prevailing in the power‑house.

The Court held that the increase in dearness allowance could not be sustained on its own merits because the financial capacity of the concern was found by the tribunal itself to be unsound; the concern had been operating at a loss for virtually its entire existence except for two years. Consequently, the Court accepted the appellant’s contention on this point and set aside the tribunal’s order that had increased the dearness allowance. Regarding the question of uniforms, the Court saw no reason to depart from the tribunal’s view that the reasons for directing certain categories of workmen to receive uniforms were sound. However, the Court found that the tribunal erred when it also ordered that protective equipment should be supplied in addition to uniforms to those persons whom the tribunal had identified as entitled to uniforms. The tribunal, the Court observed, failed to appreciate the distinction established in the Delhi Factory Rules between uniforms, which are supplied by employers for reasons unrelated to safety, and protective equipment, which is provided for specific safety purposes enumerated in the Rules. Accordingly, the Court held that the tribunal’s direction to provide protective equipment to all persons entitled to uniforms was incorrect and should be set aside. The Court therefore ordered that protective equipment be furnished only to those workers who are entitled to it under the Delhi Factory Rules and not automatically to every worker who receives a uniform. Concerning the acid and gas allowance, the tribunal had ordered a payment of rupees three per month to certain categories of workmen. The record showed that originally the appellant paid rupees five as an acid‑and‑gas allowance in the nitric acid gas plant and rupees three in the contact plant, and that later this allowance had been merged into wages. Nevertheless, the allowance appeared to continue to be paid to workers in the nitric acid gas plant. The appellant contended that this continuation was because the allowance for those workers had not been merged into wages. The Court found no evidence on record to support that claim and concluded that there was no basis to hold that the original gas allowance for the nitric acid gas plant workers had remained unmerged. In view of the foregoing, the Court considered the tribunal’s reasons for fixing a rupees three allowance for workers engaged in the manufacture of chlorine, sulphuric acid, caustic soda and hydrochloric acid to be sound and saw no reason to interfere with that portion of the award. Regarding point (iv), the Court reserved further consideration as indicated in the subsequent discussion.

Regarding leave facilities, the tribunal held that the privilege of leave should be granted in accordance with the provisions of the Factories Act. It further directed that casual‑cum‑sick leave be allowed for a total of twelve days in each calendar year. The Court found that this portion of the award was not unreasonable in any respect. However, the tribunal also addressed the question of festival holidays, a matter which the Court considered to be outside the tribunal’s jurisdiction. The reference that was posed to the tribunal read: “Whether leave facilities should be increased and if so, to what extent.” No reference to holidays was included in the terms of reference. Nevertheless, the tribunal construed holidays as being covered by the expression “leave facilities” used in the reference. The Court disagreed with that construction, observing that holidays are categorically distinct from ordinary leave facilities. On a holiday the entire undertaking is closed and no work is performed, whereas leave facilities pertain to individual workers taking leave while the business continues to operate. To illustrate this distinction, the Court referred to item 4 of the Third Schedule to the Industrial Disputes Act (No. 14 of 1947), which reads “Leave with wages and holidays.” This wording shows that holidays occupy a separate position from leave with wages, and therefore a reference concerning leave facilities cannot encompass a consideration of holidays. Consequently, the Court set aside the tribunal’s order relating to holidays.

The Court then turned to the gratuity scheme that had been sanctioned by the tribunal. It noted that a provident fund scheme was already in operation in the concerned establishment, but recognised that it is well settled that both a gratuity scheme and a provident fund scheme may coexist in the same employer’s concern provided that the employer’s financial position permits it. Although the financial condition of the chemical works had not been found to be sufficiently robust to support an incremental wage‑structure, the Court observed that gratuity is a long‑term statutory provision and there was no justification to assume that, in the long run, the appellant would not become financially prosperous. In assessing the burden of a gratuity scheme, the Court considered the practical aspects: the establishment employs roughly eight hundred workers, and the annual retiree rate is estimated to be between three and four per cent of the total strength. Under these circumstances, the annual financial charge of the scheme would not be excessive. Moreover, the same concern already operates a gratuity scheme for clerical staff numbering between one hundred and two hundred, who are part of the labour force. Given these facts, the Court found no reason why a comparable gratuity scheme could not be extended to the remaining workmen. Accordingly, the Court saw no basis for interfering with the tribunal’s order on the gratuity scheme. The Court therefore allowed the appeals in part and dismissed them in part, as directed in the body of the judgment.

In this matter the Court directed that each of the parties to the two appeals would be required to pay the expenses that they themselves incurred in pursuing their respective cases. The order made clear that no party would be ordered to pay the costs of the other, and that this allocation of costs applied to both appeals that were pending before the Court.

The Court also indicated that the relief sought in the appeals would not be granted in its entirety. Instead, the Court held that only a portion of the claims raised by the appellants could be sanctioned. Accordingly, the Court stated that the appeals were allowed in part, meaning that the Court granted the relief that it considered appropriate while rejecting the remainder of the requests. This partial allowance of the appeals was recorded as the final disposition of the matters, with each side bearing its own costs and the judgment reflecting a limited grant of the relief sought.