Western India Match Co. Ltd vs Their Workmen

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

Court: Supreme Court of India

Case Number: Civil Appeal Nos. 300-301 of 1963

Decision Date: 3 May 1963

Coram: K.C. Das Gupta, P.B. Gajendragadkar, K.N. Wanchoo

In the matter styled Western India Match Co. Ltd versus Their Workmen, the Supreme Court of India delivered a judgment on 3 May 1963. The case was heard by a bench comprising Justice K. C. Das Gupta, Justice P. B. Gajendragadkar and Justice K. N. Wanchoo. The petitioner was Western India Match Co. Ltd and the respondents were the workmen employed by the company. The judgment was recorded on the same date and the bench was identified as Gupta, K. C. Das. The case citation appears in the 1964 All India Reports at page 472 and in the 1964 Supreme Court Reporter (Third Series) at page 560, with a citator reference to 1984 Supreme Court Reports at page 516. The dispute concerned the application of a production bonus scheme under the Uttar Pradesh Industrial Disputes Act, 1947.

The appellant company manufactured and sold matches at four locations in India, including a plant at Bareilly that comprised both a factory and a sales office. To encourage higher output, the company introduced in 1945 a Production Bonus Scheme that was made applicable to workmen engaged in the factory’s manufacturing operations as well as to those employed in the factory office. In 1947 the company withdrew the scheme’s application to the sales office. Subsequently, the clerical staff, salesmen and inspectors employed in the sales office asserted a claim for the production bonus, arguing that there should be no discrimination between employees of the same enterprise. The company opposed the claim on two principal grounds: first, that the sales office functioned independently of the factory; and second, that the salesmen, retail salesmen and inspectors were not “workmen” within the meaning of the Uttar Pradesh Industrial Disputes Act, 1947.

The factual material placed before the Court demonstrated a close interdependence between the factory and the sales office. The sales office could not exist without the manufacturing unit, and the factory could not operate efficiently without an accompanying sales organization. Moreover, the factory adjusted its production volume according to programmes prepared periodically by the sales manager. Financially, the two entities operated through a single bank account, although they maintained separate cheque books. The financial projections prepared for the Bareilly branch did not distinguish between outlays of the sales office and those of the factory. In matters of recruitment, control and discipline of personnel, the records—including appointment letters, standing orders and muster rolls—were kept separately for the factory and the sales office. The sales office also paid rent to the factory for the premises it occupied by means of book adjustments. Evidence further indicated that seventy‑five percent of the workmen’s time in the sales office was devoted to writing work.

The record showed that seventy‑five percent of the workmen’s time in the sales office was devoted to writing work. The Court held, on the facts, that there existed functional integrality and inter‑dependence, constituting a community of financial control and management between the sales office and the factory of the appellant company. Consequently, the Court concluded that the two entities must be regarded as a single unit of industrial production. The Court further held that the inspectors, the salesmen and the retail salesmen fell within the definition of workmen prescribed by the Uttar Pradesh Industrial Disputes Act, 1947. The matter was placed before the Civil Appellate jurisdiction as Civil Appeal Nos. 300 and 301 of 1963, each appeal taken by special leave from the award dated 23 October 196 by the Industrial Tribunal, Allahabad, in Adjudication Case No. 33 of 1961. Counsel for the appellant in Appeal 300 of 1963 and the respondent in Appeal 301 of 1963 appeared on behalf of those parties. Counsel for the respondents in Appeal 300 of 1963 and the appellants in Appeal 301 of 1963 appeared on behalf of those parties. The judgment was delivered on 3 May 1963 by Justice Das Gupta. The Western India Match Company, whose Bareilly branch is the appellant in the first appeal, engaged in the manufacture and sale of matches throughout India. The company operated four match‑manufacturing factories located at Ambernath, Madras, Calcutta and at Clutterbuckganj in Bareilly, each accompanied by a corresponding sales office serving its regional market. The sales office at Clutterbuckganj, which is the subject of this appeal, conducted sales activities in the States of Uttar Pradesh, Punjab, Delhi, Himachal Pradesh, portions of Rajasthan and Madhya Pradesh. According to the appellant, each sales office functioned independently of the factory in its region, and therefore the Bareilly sales office was asserted to be independent of the Bareilly factory. In 1945 the company introduced a Production Bonus Scheme as an incentive for greater match production, a scheme initially applied to the 1,500 factory workmen and to approximately one hundred employees of the factory office. In 1947 the production bonus was withdrawn from the factory office staff, although it continued for the remaining factory workmen. The factory office staff raised a dispute in 1957, and on 13 March 1958 the adjudicator ruled that the office staff should receive the bonus on the same terms as other factory workmen. Subsequently, the workmen of the sales office, including clerical personnel, salesmen and inspectors, were denied the benefit of the scheme, although for a brief period in 1946 the sales‑office staff had received payments described as a production bonus.

It was recorded that the sales‑office staff had at one time received payments described as a production bonus. The decision of the Adjudicator, which had extended the production‑bonus scheme to the factory staff, was affirmed by the Court on 17 March 1961. While the appeal against that Adjudicator’s order remained pending before the Court, communications took place between the Union, of which the sales‑office staff became members around 1957, and the sales manager at the Bareilly plant. The Union sought clarification on whether the Production Bonus Scheme would also be extended to the members of the sales staff in the event that the Court’s decision favored the factory office workers. On 13 March 1961 the Union addressed a letter to the sales manager, restating its claim to a production bonus and warning that “discrimination between the employees of the same company in the matter of admissibility of item of wage was bound to lead to heartburning.” The manager responded on 22 May 1961, describing the sales‑office staff’s demand as unreasonable and stating that management could not assent to it. The disagreement persisted, and on 18 August 1961 the Government of Uttar Pradesh referred the dispute that had arisen between the employer and the workmen to the Third Industrial Tribunal at Allahabad for adjudication.

The reference presented the question in the following terms: “Should the employers be required to pay production bonus to the workmen employed in their sales office? If so, with effect from what date and with what other details.” A subsequent amendment on 4 December 1961 altered the wording of the reference by substituting the word “in” with the word “by.” Although several issues were raised, both parties concentrated at the hearing on whether the sales office and the factory constituted independent units of production or whether they formed integral parts of a single industrial unit. The Court reiterated that the introduction of an incentive scheme for improved production is fundamentally a management decision, a principle previously recognized in Titaghur Paper Mills Company Ltd. v. Their Workmen and in Burn & Co. v. Their Workmen. While emphasizing the importance of industrial adjudication not intruding upon purely managerial functions, the Court observed that adjudication should not impose a new incentive bonus on management for the first time. However, the Court noted a different situation when an incentive bonus is already in force for the majority of workmen, quoting Burn Company’s case: “We can see no reason … why, where an incentive bonus scheme is in force in a concern for the majority of its workmen, the Tribunal should not be able to extend the same to the remainder of the workmen.” In light of this reasoning, the appellant sought to establish that the sales office operated entirely independent of the factory, whereas the respondents endeavoured to demonstrate that the two were merely separate departments of one and the same industrial unit.

In this case the parties also disputed whether the inspectors, salesmen and retail salesmen who worked in the sales office should be classified as workmen within the meaning of the Uttar Pradesh Industrial Disputes Act. The management argued that these persons were not workmen and therefore fell outside the scope of the dispute, while the respondents contended that they were indeed workmen as defined by the Act. The Tribunal examined the matter by applying principles previously laid down by this Court in several decisions that addressed whether two or more business units owned by the same employer constitute a single industrial unit or separate units. After considering the oral testimony and documentary evidence presented, the Tribunal concluded that the sales office and the factory constituted one single unit of industry and that there was no justification for discriminating against the sales‑office staff with respect to the production bonus. Consequently, the Tribunal held that the employer was required to pay a production bonus to the workmen employed in the sales office. It directed that the sales‑office staff receive the production bonus at the same rate that was granted to the factory and factory‑office workmen. The Tribunal also answered affirmatively the question of whether the inspectors, salesmen and retail salesmen employed by the sales office were workmen, thereby making them eligible for the benefit of the award. Believing that the dispute ought to have been raised earlier by the sales‑office workmen, the Tribunal ordered that the payment of the production bonus to the sales‑office staff should commence from the date the award became enforceable by law. The employer, Western India Match Co. Ltd., Bareilly, challenged this decision by filing an appeal under special leave granted by this Court, while the workmen also appealed the direction that the bonus should start from the enforceable date of the award. On behalf of the employer, three points were raised in Civil Appeal No. 300 of 1963. The first and principal argument was that the Tribunal erred in holding that the sales office and the factory formed a single unit of industrial production. The second argument was that the Tribunal should not have extended the factory’s production‑bonus scheme to the sales‑office staff without any modification. The third argument challenged the Tribunal’s finding that inspectors, salesmen and retail salesmen are workmen under the Uttar Pradesh Industrial Disputes Act. This last contention was noted to be readily disposible because the Act defines “workman” as any person employed in an industry to perform manual, supervisory, technical or clerical work.

The Tribunal accepted the testimony of the workmen’s witness, Sexena, who stated that writing work occupied seventy‑five per cent of the time of the categories of sales staff under consideration. The employer, represented by Mr Pai, described this finding as arbitrary. The Court found that such criticism was not justified. The employer did not produce any document enumerating the duties of the inspectors, salesmen and retail salesmen. Instead, the employer submitted an affidavit stating that no certified duty list for these categories had ever been circulated by the employer for the purpose of travelling letters. In contrast, the workmen filed a statement of duties for the salesmen and retail salesmen, which was recorded as Exhibit W‑61. The employer did not challenge the accuracy of the statements contained in that exhibit. After reviewing the duty‑statement document together with the oral evidence of the workmen’s witnesses, the Court concluded that the Tribunal could not be said to have acted unreasonably or arbitrarily in concluding that approximately seventy‑five per cent of the time of the inspected categories was spent on writing work. It is also noteworthy that, on earlier occasions, the employer itself had treated these categories of staff as “workmen” within the meaning of the Uttar Pradesh Industrial Disputes Act. Consequently, the employer’s contention that the Tribunal erred in classifying inspectors, salesmen and retail salesmen as workmen must be rejected. A more complex issue then arises as to whether the sales office and the factory constitute a single unit of industrial production or function as independent units. The Court found it necessary first to dispel the confused notion expressed in paragraph 8 of the company’s written statement, which asserted that employees of the sales office have nothing to do with “production.” It is not necessary to be an economist to understand that the person who tills the soil and grows a crop participates in producing wealth for the community, just as the person who harvests the crop, transports it to storage, and ultimately brings it to the consumer also contributes to production. Similarly, a person who manufactures an article—whether bricks, steel, boxes, or any other item—by shaping raw materials to satisfy human wants performs productive labour, and so do those who deliver the finished product to the consumer. Therefore it would be unreasonable to maintain that the workers who manufacture matches are “producing” while those who sell the matches are not. Once this misunderstanding is removed, the parties are confronted with the core problem, for which the principles governing such determinations have been repeatedly considered by this Court.

In this case the Court observed that the principles and tests previously formulated by the Court to resolve similar industrial questions had been set out so often that a further detailed exposition was unnecessary. It noted that among the most important of those tests were functional integrality, the inter‑dependence or community of financial control and management, the community of manpower together with its recruitment, control and discipline, and the manner in which the employer had organized the various activities, specifically whether the activities had been treated as independent of each other or as inter‑connected and inter‑dependent. The Court emphasized that this list was not exhaustive and that the established tests could not be applied in a mechanical or purely syllogistic fashion. While a mechanical approach might appear to offer an easy solution to a complicated problem, the Court warned that such an approach carried a high risk of error in all branches of law and was especially unsafe in industrial law, where delicate questions of human relations must be resolved within the complexities of modern industrial organisation. Consequently, the Court stated that in applying the settled tests and principles, all relevant tests should be considered, but the weight given to each test must vary according to the nature of the industrial activity and the specific dispute, whether it concerned lay‑off, retrenchment, a production bonus, a profit bonus, or any other matter. The Court further stressed that, as with most questions before the courts, the substance of the matter mattered more than its form, and that every fact and circumstance relevant to determining the substance deserved careful attention.

The Court then turned to the factual situation at hand and affirmed that functional integrality was clearly evident in the activities under consideration. It observed that the sales office could not exist without the factory, and although the sales office occasionally handled the production of a sister concern, the overwhelming majority of its work was devoted to marketing the output of the Bareilly factory and, to a lesser extent, the products of the Western India Match Company. Likewise, the factory could not function efficiently without a sales organisation. The Court highlighted the inter‑dependence of manufacturing and sales by noting that the factory arranged its production volume in accordance with programmes prepared from time to time by the sales manager. Regarding financial matters, the Court found that the sales office and the factory shared a single bank account, even though they maintained separate cheque books. More importantly, the financial forecasts prepared for the branch made no distinction between disbursements of the sales office and those of the factory. The Court cited the forecast for the period October‑December 1961, prepared by the sales manager under the heading “Bareilly Sales Office,” which listed cash disbursements for bonus, woods, splints, raw materials, and general stores, followed by a single inclusive entry for salaries and wages covering both factory and sales office. The forecast also showed that excise duty, a duty on the production of matches, was incorporated into the financial plan prepared by the sales manager for the sales office. These facts, the Court concluded, demonstrated that the company regarded the factory and the sales office as inter‑dependent components of the same production unit.

In the material presented, the branch of the enterprise repeatedly failed to separate the outlays of the sales office from those of the factory. This lack of distinction is evident in the financial forecast covering the months of October through December 1961, labeled as Exhibit W.27. The forecast was prepared by the sales manager and carried the heading “Bareilly Sales Office.” Under the sub‑heading “Cash Disbursements,” the document listed amounts for items such as bonus, woods, splints, raw materials, and general stores, and then included a single combined entry for salaries and wages that covered both the factory and the sales office. Moreover, the same forecast incorporated the excise duty, a tax levied on the production of matches, even though the duty pertained to the factory’s output, indicating that the sales manager’s financial planning accounted for functions of the factory as well as those of the sales office. The manner in which the sales manager prepared this forecast, treating the sales office and the factory as mutually dependent components of one production unit, provides clear evidence that the company regarded them as a single integrated operation.

Mr. Pai, however, argued that the sales office should be regarded as independent of the factory, basing his contention chiefly on the rules and practices governing recruitment, control, and discipline of personnel. The documents placed before the Court, including letters of appointment and the standing orders, indeed demonstrate that the company kept matters of recruitment, control, and disciplinary action separate for the factory and for the sales office. It is also established that distinct muster rolls were maintained for each entity, although a small number of workmen were common to both. Further, the Court noted that the sales office made rental payments to the factory for the premises it occupied, doing so through adjustments in the books, and that several other particulars highlighted by Mr. Pai were on record. Nevertheless, the Court found that these details did not substantially aid his claim that the Tribunal had acted arbitrarily in concluding that the sales office and the factory formed one industrial unit.

The Court clarified that its purpose in examining these evidentiary points was not to re‑determine whether the Tribunal’s factual findings were erroneous, but rather to assess whether the Tribunal had applied the appropriate legal principles correctly and whether its conclusion was unreasonable, arbitrary, or perverse. After a careful analysis of the record, the Court concluded that the Tribunal had indeed applied the correct principles in a fair and reasonable manner, and that the conclusion reached by the Tribunal could not be successfully challenged before this Court.

There remained, however, the issue raised by Mr. Pai concerning the extension of the production bonus scheme to the staff of the sales office without any modification. Mr. Pai complained that, having decided that the production bonus should be extended to the sales office personnel, the Tribunal had failed to address the further question that had been referred to it, namely, the specific details and manner in which the production bonus scheme should be applied to the sales office staff.

In this case the Court considered Mr Pai’s contention that the production bonus scheme applied to factory staff should not automatically be extended to the sales‑office staff without adjustment. Mr Pai argued that, in general, the sales‑office employees received substantially higher wages than the comparable categories in the factory office, and that this wage differential ought to be weighed when deciding whether the existing factory bonus scheme could be imposed on the sales‑office personnel unchanged. The Court observed that if the Tribunal had fully examined this wage‑difference issue, the Court would not have found any basis to uphold Mr Pai’s complaint. However, it appeared that the Tribunal had not given this aspect any deliberation. Consequently, the Court held that, for the sake of industrial harmony and social justice, the Tribunal should be required to consider the wage‑difference factor and then reach a decision. The Court expressly refrained from passing judgment on whether Mr Pai’s assertion about higher pay scales for the sales‑office staff was factually correct, nor did it decide whether such a finding would necessitate any modification of the bonus scheme. The Court affirmed the Tribunal’s original determination that the production bonus scheme should be extended to the sales‑office staff, but it remanded the matter back to the Tribunal for a fresh determination after taking into account all relevant facts, including whether the scheme should be applied with or without modification. This order disposed of the management’s challenge, which was recorded as Civil Appeal No 300 of 1963, by remanding that appeal for further consideration.

The Court then turned to the workmen’s challenge, recorded as Civil Appeal No 301 of 1963, which questioned the Tribunal’s direction that the production bonus should commence from the date the award became legally enforceable. The workmen contended that the bonus should have been ordered to start from the date of reference, or at the very least from the date the demand was made. The Court noted that, as a general rule, the appropriate commencement date for benefits granted by an award is a matter within the discretionary jurisdiction of the Tribunal that issued the award, and that the Court ordinarily refrains from interfering with such discretion. No special circumstances were found in the present case that would warrant departure from established practice. Accordingly, the Court dismissed Appeal No 301 of 1963. In view of the remand of the case to the Tribunal for the question previously identified, the Court directed that the ultimate award issued by the Tribunal should take effect from the same date that the award currently under appeal would have become operative. No order as to costs was made in either appeal. The Court therefore remanded Appeal No 300 and dismissed Appeal No 301.