Vegetable Products Ltd. vs Their Workmen

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

Court: Supreme Court of India

Case Number: Not extracted

Decision Date: 9 November 1964

Coram: P.B. Gajendragadkar, K.N. Wanchoo, M. Hidayatullah

In this matter, the Supreme Court recorded that the appeal was filed on 9 November 1964 by Vegetable Products Ltd. against its workmen. The judgment was authored by Justice K.N. Wanchoo, with the bench comprising Justices P.B. Gajendragadkar, K.N. Wanchoo, and M. Hidayatullah. The appeal challenged the award made by the Fourth Industrial Tribunal of West Bengal. The dispute centred on the entitlement of the workmen to a profit bonus for the fiscal years ending December 1959 and December 1960, as well as a Puja bonus that was claimed to be payable in 1961. In response to the disagreement, the Government of West Bengal, on 13 March 1962, referred these specific issues to the tribunal, namely the payment of a Puja bonus for 1961 and the determination of profit bonuses for the two referenced years.

The workmen contended that the payment of a Puja bonus had either become an implied term of their employment or had acquired the character of a customary practice. Regarding profit bonus, they argued that the considerable profits earned by the company in the two years justified a bonus equal to four months’ wages for each year, together with a Puja bonus of one and a half months’ wages for 1961. The employer, on the other hand, maintained that no such implied term existed concerning the Puja bonus and that the practice had not become customary or traditional at the time of the festival. In relation to profit bonus, the employer asserted that there was no surplus available in either year, and consequently the workmen were not entitled to any profit bonus. After hearing evidence, the tribunal concluded that the payment of one month’s wages at the time of Puja had become a customary bonus, although it did not accept that the payment had been established as an implied condition of service. For profit bonus, the tribunal calculated that the surplus permitted a bonus of four months’ wages for the year ending December 1959 and one month’s wages for the year ending December 1960, and it made its award accordingly. The appellant challenged the tribunal’s finding that a one‑month‑wage Puja bonus had become customary, and also disputed the tribunal’s calculations of profit bonus for the two years. The Court first examined whether the evidence demonstrated that a one‑month‑wage bonus at Puja had indeed become customary, noting that the claim of an implied condition of service had not been seriously pursued before the tribunal and was effectively contradicted by the fact that the payment made in 1959 was characterized as an ex gratia payment.

The payment in the year under review was made voluntarily and was accepted by the workers as a gift without any legal obligation. Consequently, the only issue remaining for the Court was to decide whether the tribunal correctly concluded that the payment of one month’s wages at the time of Puja constituted a customary bonus. The Court had previously examined the criteria for establishing a customary or traditional festival bonus in the decision of The Grahams Trading Co. (India) Ltd. v. Its Workmen. In that decision the Court identified four factual circumstances that, if proven, would demonstrate that a customary bonus had been created. The first circumstance requires that the bonus be paid continuously for an unbroken series of years without interruption. The second circumstance demands that the period of payment be sufficiently long, meaning a longer duration than is necessary to establish an implied term of employment. The third circumstance requires that the bonus be paid even in years when the business suffered a loss, showing that the payment did not depend on the existence of profits. The fourth circumstance requires that the amount of the bonus be fixed at a uniform rate throughout the period of payment. The Court also held that the fact that an employer makes the payment ex gratia does not affect the existence of a customary bonus, and that unilateral statements inconsistent with the established practice are irrelevant. Applying these principles, the tribunal found that all four circumstances were satisfied in the present dispute and consequently concluded that a customary or traditional Puja bonus had been proved. Before addressing the appellant’s challenge to that finding, the Court found it useful to explain the precise meaning of the third and fourth circumstances. The third circumstance simply requires proof that the bonus was paid in any year that the enterprise experienced a loss; it does not imply that the absence of any loss defeats the existence of a customary bonus. In other words, when losses have occurred, the claimant must show that the bonus continued to be paid in those loss years, but if the business has never incurred a loss, the customary nature of the bonus can still be established provided the other conditions are met. The fourth circumstance demands that the bonus be paid at a uniform rate, yet the Court clarified that uniformity need not extend from the very first year of payment to the last. For example, an employer might have paid the bonus at one amount for a few initial years and later, for many more years, paid it at a different amount that remained constant. In such a situation the tribunal may still conclude that the bonus was paid at a uniform rate for the period in which the consistent amount prevailed. Accordingly, the tribunal’s conclusion that the customary Puja bonus existed was consistent with the established criteria and could not be readily overturned by the appellant.

The Court explained that if a bonus is claimed to have been paid at a uniform rate, the record must show that the rate remained the same for the entire period under consideration, and any variation in rates over different years defeats the claim of uniformity. For example, if the bonus was paid at rate X for a few years, then at X‑Y for the next few years, again at X for another span, and finally at X + Y for the last years, the Court would conclude that the payment was not uniform, because uniformity is a factual determination that depends on the actual pattern of payments.

Turning to the facts of the case, the Court noted that the industrial concern at issue was founded sometime after 1946, went into liquidation, and was purchased by the appellant in 1953. The Court had no information about the practices of the earlier owner. According to evidence provided by the Secretary of the Workmen’s Union, the first Puja bonus was paid on the eve of the Puja festival in 1954 at the rate of ten days’ wages. In 1955 the bonus was increased to twenty days’ wages, and from 1956 through 1961 the bonus was consistently paid at the rate of thirty days’ wages before Puja. The tribunal, having disregarded the payments made in 1954 and 1955, held that the payments from 1956 to 1961 were made at a uniform rate, and therefore found that a custom of paying a bonus of thirty days’ wages before Puja existed in the concern.

The Court observed that if the facts had stopped at the tribunal’s finding, the tribunal might rightly have ignored the early years and concluded that the thirty‑day rate from 1956 to 1961 established uniformity. However, the tribunal also ignored evidence that argued against the existence of a customary or traditional festival bonus. The Court pointed out that payments made during 1956, 1957 and 1958 were undisputed and unconditional, but in 1959 a dispute arose concerning the Puja bonus for that year. The dispute was resolved before the conciliation officer through a settlement between the appellant and the workmen. The settlement stipulated that “it is agreed by the company and accepted by the workmen that thirty days’ wages will be paid as bonus (ex gratia) for the accounting year 1957‑58 to all the workmen who will have completed 240 days work by the day of payment and will be on the rolls of the company on that day. The payment will be made by the 26th of September 1959.” The Court highlighted that this term made clear that the 1959 payment was conditional, ex gratia, and contingent upon the workmen having completed a specified number of days, thereby demonstrating that the payment was not unconditional and could not be treated as part of an established customary bonus practice.

In this case the Court observed that the employer had not made a unilateral declaration that the payment was ex gratia. Rather, the appellant had expressly described the payment as ex gratia, and the workmen had accepted it on that basis. Moreover, the payment was conditioned on the workmen having completed at least 240 days of work by the date of payment. The Court explained that a customary or traditional bonus associated with a festival could not be subject to such a condition; it must be payable to all employees regardless of the number of days they had worked before the festival in the relevant year. Consequently, the 1959 payment could not be treated as a customary or traditional Puja bonus because it was made and accepted as an ex gratia payment that was subject to a condition. The Court referred to the decision in Tulsidas Khimji v. Their Workmen, which held that a claim for a customary bonus could be rejected if the payment was shown to have been made ex gratia and accepted as such, or if it was unrelated to any festival. The settlement in the present case demonstrated that the 1959 payment was indeed ex gratia and therefore could not be counted as a customary or traditional Puja bonus, creating a break in any alleged continuous series of such bonuses.

The Court then turned to the payments made in 1960 and 1961, which had also been overlooked by the tribunal. The Secretary of the Union of the workmen admitted that in both years a payment equivalent to 30 days’ wages was made before Puja as a bonus, but in each case the workmen provided receipts stating that the payment was an advance to be adjusted against the profit bonus for the preceding year. This fact indicated that the payments for 1960 and 1961 were not intended as customary or traditional Puja bonuses. The Court noted that while unconditional payments from 1954 to 1958 might suggest the existence of a traditional bonus, the 1959 payment was ex gratia and the 1960‑61 payments were conditioned on adjustment against profit bonuses. Accordingly, there was no evidence of an uninterrupted series of customary bonus payments prior to the dispute. As a result, the tribunal’s finding that a customary or traditional bonus on the occasion of Puja had been established was set aside. The Court then proceeded to examine the issue of profit bonus, first considering the year ending December 1960. In that year the tribunal found that the

In the year ending December 1960 the tribunal reported that the available surplus was Rs 4,000, yet it ordered the payment of a profit bonus equivalent to one month’s wages totaling Rs 12,000. Because the surplus was far less than the amount ordered, the tribunal could not have legally awarded a bonus of Rs 12,000, and consequently no profit bonus was payable for that year. The workmen did not dispute that the tribunal had erred in its calculation for 1960, and therefore the Court set aside the tribunal’s award of a profit bonus for the year 1960.

Turning to the year ending December 1959, the tribunal found an available surplus of Rs 1,04,000 and granted a profit bonus equal to four months’ wages, calculated at Rs 12,000 per month, amounting to Rs 48,000 in total. The appellant challenged the correctness of this award on two separate grounds. First, the appellant argued that the tribunal’s determination that rehabilitation charges amounted only to Rs 54,000 was incorrect. The tribunal had arrived at that figure by deducting depreciation of Rs 1,23,000 from the amount it had initially identified as the rehabilitation charge for the year. The appellant pointed out that the tribunal had excluded certain items from rehabilitation altogether; consequently, depreciation on those excluded items could not be deducted, and the proper depreciation deduction should have been Rs 1,07,000. Accepting this correction reduced the available surplus from Rs 1,04,000 to Rs 88,000. Even on the reduced surplus, the award of four months’ wages as profit bonus remained reasonable, particularly when the appellant’s entitlement to an income‑tax rebate was taken into account.

The second ground of attack concerned the multiplier applied to machinery purchased prior to 1949. The appellant relied on a letter from the English company that originally supplied part of the plant, showing that the price of that portion of the plant in 1961 had more than doubled the original price. The appellant contended that the tribunal should therefore have allowed a multiplier higher than the 1.25 that it had used. The Court noted two relevant circumstances. Firstly, there was considerable difficulty in ascertaining the original price of all machinery purchased before 1949 that required rehabilitation, and the tribunal had accepted the appellant’s figure of Rs 13.1 lakhs despite the lack of satisfactory proof. Secondly, regarding the multiplier, the tribunal observed that, because of insufficient evidence, it had at one stage been inclined to reject the rehabilitation claim entirely; however, taking into account the general rise in prices of plant and machinery since 1949, the tribunal deemed it appropriate to apply a multiplier of 1.25. Although the Court recognized that 1.25 might not be the exact multiplier appropriate in this case, the absence of adequate evidence to establish the original cost price of pre‑1949 plant and machinery and to demonstrate the extent of price increase meant that the Court would not interfere with the tribunal’s finding. Accordingly, the tribunal’s award of four months’ wages as profit bonus for the year 1959 was upheld.

In this case the Court observed that the multiplier of one point two five that had been applied by the tribunal might not have been the correct figure for the circumstances, but because the parties had failed to produce adequate and reliable evidence showing the original cost of the plant and machinery acquired before 1949, nor evidence establishing the precise increase in price of the remaining plant apart from the portion supplied by the English company, the Court decided that it could not overturn the tribunal’s determination on that issue. Consequently the Court declined to order a higher multiplier. The Court further held that the tribunal’s award of a profit bonus equal to four months’ wages, calculated at a rate of twelve thousand rupees per month for the year 1959, was proper and therefore should remain in force. Accordingly the appeal was allowed in part. The Court set aside the tribunal’s award of a customary Puja bonus that was to be paid in 1961, and also set aside the tribunal’s award of a profit bonus for the year ending December 1960. However, the Court confirmed that the tribunal’s award of a profit bonus for the year ending December 1959, measured at four months’ wages, would continue to stand. Finally, the Court made no order as to costs in the circumstances of the case.