Aluminium Corporation vs Their Workmen and Ors

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

Court: Supreme Court of India

Case Number: Civil Appeals Nos. 238 and 818 of 1962

Decision Date: 14 August 1963

Coram: DAS GUPTA

In this case the Court noted that the appellant was a manufacturer of aluminium that operated two factories, one situated near Asansol and the other located in Asansol itself. A dispute arose between the appellant and the workmen of the first factory concerning the payment of bonus for the financial year 1957‑58. The Government of West Bengal referred the matter to the Industrial Tribunal. A similar disagreement occurred with the workmen of the second factory, and that matter was also placed before the same Tribunal. In the second dispute the parties filed joint petitions before the Tribunal, expressly agreeing to accept the award that would be made on the bonus issue in the first dispute and requesting that a similar award be rendered in the second case. The Tribunal, after considering the facts, awarded a bonus equal to three months’ basic wages, the amount already including the sum that the company had voluntarily paid. An award of the same character was subsequently made in the second dispute.

The Tribunal, in determining the amount of surplus available for the bonus, applied the rules embodied in the Full Bench Formula that had been approved by this Court in Associated Cement Co. Ltd. v. Its Workmen, [1959] S.C.R. 925. Using that formula the Tribunal allowed Rs 43 lakh to be treated as “return on reserve used as working capital” and permitted no amount under the head “rehabilitation charge.” Dissatisfied with both awards, the appellant obtained special leave to appeal the Tribunal’s orders.

On behalf of the appellant it was contended that the Tribunal was not justified in rejecting the claim for a rehabilitation charge. The appellant argued that the company’s balance sheet, by itself, would disclose the portion of reserve that had been used as working capital, and that the correct figure for the reserve employed as working capital could be arrived at by deducting the liabilities shown in the balance sheet from the assets shown therein.

The Court held that the burden of proving any prior expenditure under the head “rehabilitation charge” rested upon the employer. Unless the employer could establish such a charge by proper evidence, the claim had to be rejected. In the present proceedings the materials on the basis of which the multipliers and divisors had been calculated were not supported by proper evidence; consequently the Tribunal was justified in refusing the rehabilitation‑charge claim. Regarding the claim for “return on reserve used as working capital,” the Court observed that the appellant had produced widely differing estimates, which gave the Tribunal reason to reject all of them as reliable. The Court further stated that mere statements in the balance sheet concerning current assets and liabilities could not be taken as accurate unless they were proved by competent evidence. On these grounds the Court dismissed the appeals.

In the matter before the Tribunal, the Court held that the balance‑sheet figures must be proved by reliable evidence supplied either by the persons who prepared the balance sheet or by other competent witnesses. The Court observed that such proof had not been produced in the present case. The Court referred to several earlier decisions, namely Petled Turkey Dye Works v. Dye and Commercial Workers Union reported in 1960 S.C.R. 906, Khandesh Spg and Wvg. Mills Co. Ltd. v. Rastriya Girni Kamgar Sangh, Jalgaon reported in 1960 S.C.R. 841, and Bengal Kagazkal Mazdoor Union v. The Titagarh Paper Mills Co. reported in 1964 S.C.R. 38, to support its view that proper evidence is essential for establishing the amounts claimed in the balance sheet. The Court further noted that it is incorrect for employers to present the entire reserve that is theoretically available for use as working capital as if that entire amount had actually been utilized. When determining the portion of the available surplus that should be paid to workmen as a bonus, the Tribunal must consider only the wage bill of the workmen and is not required to take into account the remuneration paid by the company to its officers. The Court concluded that the Tribunal had not erred in fixing the bonus figures and therefore the appeals were dismissed.

The judgment was delivered by the Civil Appellate Court in the form of Civil Appeals Nos. 238 and 818 of 1962, which were taken on special leave from the awards dated 21 October 1960 and 17 May 1961, respectively. Those awards had been issued by the Fifth Industrial Tribunal, West Bengal, in Cases VIII‑77 of 1959 and VIII‑93 of 1959. Counsel for the appellant in both appeals comprised A. V. Viswanatha Sastri and B. P. Maheshwari, while the respondents were represented by Janardhan Sharma. The judgment was pronounced on 14 August 1963. The Court, through Justice Das Gupta, explained that the appeals challenged the Tribunal’s award concerning the bonus payable for the financial year 1957‑58 to the workmen of the appellant‑company, which is engaged in the manufacture of aluminium from basic material and operates a factory at J. K. Nagar near Asansol, West Bengal.

The dispute over the 1957‑58 bonus arose between the company and certain workmen and was initially referred to the Fifth Industrial Tribunal, West Bengal, by an order of the Government of West Bengal. A second reference was made by the same Government on 2 May 1959, bringing the same bonus dispute before the Tribunal concerning workmen employed at the J. K. Nagar factory. In the first reference, the Tribunal awarded the workmen a bonus equal to three months’ basic wages, which included an amount equivalent to half a month’s basic wages that the company had already paid voluntarily. In the second reference, both parties filed joint petitions indicating their willingness to accept any decision of the Tribunal concerning the bonus issue in the first reference and requesting that a similar award be made for the bonus in both references. Accordingly, the Tribunal ordered that the workmen in the second reference would receive the same bonus as awarded in the first reference. The result

From the order of the Tribunal it followed that the workmen who were covered by the second reference would also receive a bonus equal to three months’ basic wages for the year 1957‑58. In calculating the profit bonus the Tribunal applied the rule commonly known as the Full Bench Formula, which had been formulated by the Labour Appellate Tribunal in 1950 and later approved by this Court in Associated Cement Companies Ltd., v. Its Workmen (1959) S.C.R. 925. By using that formula the Tribunal determined that the surplus available for distribution amounted to Rs 4.63 lacs. The Tribunal further observed that even after granting a bonus equivalent to three months’ basic wage to the workmen, the Company would still retain a surplus of Rs 3.91 lacs, a figure that already incorporated the refund of income tax resulting from the bonus payment. Consequently, the net expenditure of the Company on the bonus would be only Rs 0.72 lacs. In arriving at the Rs 4.63 lacs surplus the Tribunal allowed a sum of Rs 0.43 lacs as a return on reserves that had been used as working capital, and it permitted no amount under the head of rehabilitation charge. In support of the appeals, the Company’s counsel, Mr Vishwanatha Sastri, forcefully contested the Tribunal’s conclusions on both of those points. Regarding the rehabilitation charge, Mr Sastri argued that there was absolutely no justification for the Tribunal’s outright rejection of the claim. It is important to recall that a series of decisions of this Court have firmly established that the burden of proving any prior charge under the rehabilitation heading rests upon the employer; unless the employer can produce proper evidence establishing the amount claimed as a rehabilitation charge, the claim must be dismissed. The Company adopted an unusual method in presenting its case. It called its Manager as a witness and, through him, produced a series of statements purporting to show the calculations of the available surplus. Several statements were presented, each indicating that the surplus was nil. Yet in statements 1 and 11 the rehabilitation charge was shown as Rs 6,27,234.00, while in statements III and IV it was shown as Rs 5,84,534.00, and in statements V and VI the figure was Rs 10,25,021.00. No explanation was offered for how such disparate figures could have been derived, and the sole witness, the Manager, failed to clarify the matter. The witness testified that the Company’s assets had been revalued in 1956 by a Committee of which he was a member, and that each asset had been identified from the Company’s registers and grouped into blocks according to the date of acquisition. A portion of the Revaluation Committee’s report was entered into evidence, but neither the report nor the witness’s evidence shed any light on the critical issues of the multiplier and divisor used in the revaluation. Concerning the multiplier, the witness merely stated that it had been worked out in accordance with the procedure detailed in the Revaluation Report itself, without providing any personal explanation of the basis. He did not demonstrate any special knowledge or skill in the matter of the replacement of the various machinery. The report was also signed by two other Committee members, neither of whom was examined, and the material on which the multipliers were based was not established by any evidence. When the divisor is considered, the situation is even more unsatisfactory because the witness offered no statement at all as to how the divisor was calculated. It is evident that a mere submission of a statement prepared within the Company’s office showing a particular divisor does not satisfy legal requirements unless the basis of that calculation is explained under oath and subjected to cross‑examination. Accordingly, the Tribunal was fully justified in rejecting the claim for rehabilitation. Regarding the claim for a prior charge under the head “return on reserves used as working capital,” the Tribunal, as already noted, allowed Rs 0.43 lacs. The Company’s contention under this head is difficult to comprehend, for, analogous to the rehabilitation charge, the same evidentiary deficiencies are apparent.

The Court noted that the dispute related to the replacement of various pieces of machinery and that the revaluation report bearing the signatures of two additional committee members had not been examined, nor had any evidence been produced to establish the material on which the multipliers cited in the report were based. When the Court turned to the divisor, it found the situation even more unsatisfactory because the witness offered no explanation at all as to how the divisor had been calculated. The Court emphasized that a mere statement prepared in the Company’s office, showing a particular divisor, could not satisfy legal requirements unless the basis of that calculation were set out under oath and could be tested by cross‑examination. Consequently, the Tribunal was fully justified in rejecting the Company’s claim for rehabilitation. Regarding the claim for a prior charge under the heading “return on reserves used as working capital,” the Tribunal had, as previously indicated, allowed only Rs 0.43 lacs. The Court observed that the Company’s contentions under this heading were difficult to comprehend because, as with the rehabilitation charge, different statements presented divergent figures. Statements 1, III, and V reflected reserves employed in the business as Rs 111,74,162.00, whereas statements 11, IV, and VI showed the amount as Rs 199,56,718.00. The discrepancy arose because the former set of statements listed depreciation reserves of Rs 86 lacs, while the latter set recorded depreciation reserves of Rs 173,82,556.00, more than double the former amount. The Court held that such widely varying estimates provided a reasonable basis for refusing to accept any of them as correct. Moreover, the Court expressed strong disapproval of the manner in which the Company approached the calculation of reserves used as working capital, suggesting that those responsible had not treated the matter with the necessary seriousness and had apparently inserted arbitrary figures in an attempt to manipulate the Full Bench Formula. The Court observed that Mr Sastri made no effort to justify these calculations. Although he attempted to persuade the Court that the Company’s balance sheet would itself reveal the portion of reserves used as working capital, counsel for the Company submitted that a simple and reliable method for ascertaining the correct figure was to deduct the current liabilities shown in the balance sheet from the current assets shown therein. The Court acknowledged that standard accounting textbooks support the proposition that the excess of readily realizable, liquid, or current assets over current liabilities constitutes the proper measure of working capital, citing Cropper’s Higher Book‑Keeping and Accounts (7th Edition, p. 301) and Pickles on Accountancy (2nd Edition, p. 1325). However, the Court identified two difficulties with accepting Mr Sastri’s contention, the first being that the mere statements in the balance sheet regarding current assets

The Court observed that the figures shown for current assets and current liabilities in a balance‑sheet cannot be regarded as unquestionable. It reiterated that, as emphasized in several earlier decisions, the accuracy of the balance‑sheet numbers must be proved by proper evidence presented in court by the individuals who prepared the balance‑sheet or by other competent witnesses. The Court cited Petlad Turkey Dye Works v. Dyes and Chemical Workers’ Union (1) and Khandesh Spg. and Weaving Mills Case (2) as authorities that have stressed this point, and noted that the principle was again highlighted in Bengal Kagabkal Mazdoor Union v. The Titagarh Paper Mills Co. Ltd. (3). The Court then explained that the difficulty in the present case was not to determine the total working capital of the company but to ascertain what portion of the reserves had actually been used as working capital. It observed that, in many instances, the entire working capital may be funded from the remaining subscribed capital after the purchase of fixed assets, while in other situations a part of the working capital may come from the subscribed capital and the remainder from the reserves. The Court warned that some employers tend to represent the whole amount of reserves that are theoretically available for use as working capital as if the entire amount had been actually deployed for that purpose, which the Court described as clearly erroneous. Accordingly, the Court held that relying solely on a superficial examination of the balance‑sheet would be improper and, in most cases, impossible to reach a correct conclusion about the use of reserves. Whenever a company seeks to claim deductions from gross profits under the head “return on reserves used as working capital” as a prior charge for determining the available surplus under the Full Bench Formula, the Court stated that it is necessary and appropriate for the company’s accountant or other qualified officers to appear as witnesses and assist the Tribunal in reaching a satisfactory determination. In the present matter, no such evidence was offered, and the Court found it impossible to ascertain from the record what, if any, portion of the reserves had been employed as working capital. Consequently, the Court concluded that the Tribunal would have been justified in rejecting the company’s claim in its entirety. The Court therefore held that the allowance of Rs 0.43 lacs as a prior charge on the return on reserves used as working capital was an error in favour of the appellant and that there was no basis for reducing the amount that the Tribunal had identified as the available surplus. Finally, the Court addressed the suggestion made by counsel that the Tribunal should have calculated the bonus entitlement on the basis of a monthly basic wage of Rs 90,000 rather than the Rs 50,000 figure used by the Tribunal. The higher figure of Rs 90,000 had been supplied by the company’s manager as the total wage bill covering both workmen and employees, including officers, and it was noted that officers also received bonuses, which would likewise have to be accounted for.

The argument put forward by Mr. Sastri, although expressed in a rather faint manner, was that the bonus should have been calculated on the basis of a wage bill amounting to Rs. 90,000. The Court, however, was not persuaded that this approach was correct in the circumstances of the case as presented. The Industrial Tribunal’s jurisdiction is limited to the claim for bonus made by the workmen and does not extend to the amounts paid by the Company to its officers. Consequently, in determining the portion of the available surplus that should be distributed as bonus, only the wage bill attributable to the workmen needs to be taken into account. The evidence established, and it is not disputed, that the basic wage bill of the workmen, excluding any officers, amounted to Rs. 50,000. Accordingly, the Tribunal’s decision to fix the bonus figures on the basis of the Rs. 50,000 workmen wage bill was without error. The Court wishes to make clear that the observations contained in this judgment are not intended to bar the employer from later substantiating a claim for a rehabilitation charge, provided that proper evidence is produced in any future dispute concerning that issue. Since every point raised in the appellants’ submissions has been found to fail, the appeals are dismissed and the parties are ordered to bear the costs of the proceedings.