# [1962] Supp. 3 S.C.R. 582

- **Citation:** [1962] Supp. 3 S.C.R. 582
- **Court:** Supreme Court of India
- **Decided:** 1960-04-18
- **Case number:** Civil Appeal No. 359 of 1961
- **Bench:** P. B. GA.JENl)J\AGADKAR, A. K. Sarkar, K. N. 'Van Choo
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/1962-supp-3-s-c-r-582-2482
- **Pages:** 8

## Headnote

lnduJtrial Dispute-Bon u•-A vaila/ile Surpl u.•-Determi·
natio!'.of-C/0.<ing
Bonus- Implied tum uf agreement or
ctnidtt1on of seri-1r:e-Custo1nary bonu..•L
~fhe appellant is a
company carr} ing on business in
Calcutta an<l ha<l bcP.n paying a bonus callc<l closing bonus
to its v.·orkmcn at the. rate of one month's pay from 1948 to
1957, but as the profits of the appellant considerably fell in
1958, the quantun1 of closing bonus was reduced to half a
month's pay; consequently, a reference \Vas made to the tribunal for dccision 1 \\'hcthcr the management ,,·as jui;tified in
reducing the qaantum of closing bonus to half a month's pay
in 1958. The workmen claimed that closing bon,.s had been
paid at a uniforrn rate from 1918 to 1957 an<l had beco1nc an
implied condition of service between the workmen and appellant: in the alternative, the claim was that the payment ha<l
acquire.cl the character of customary honus aud \Vas not dependent upon profits earned. by
the appelLmt.
The tribunal
held, that the payment of closing bonus had not become an
implied condition of service and also held, that the bonus
cou1cl not be hclc..I to be a cu~tomary bonus.
It held that there
"·as s11fficient available surplus to \varrant payment of one
month's pay as profits bonus and ordered thas half a n1onth's
bac:ic salary, be further paid as profit bonus to the \\·ork1nen
for the year in disputr.
Held, that the fact that a company declares dividend
~·t morr. or less than six percentum is no reason for changing
the rate of interest allr)\\•e<l under the Full Bench formula on
paid-up capital.
. field, further that custornary Uonus is ahvays connected
v.•ith some festival.
As closing bonus is not r.onnectcd with
anv festival it cannot he trt":ated as customary bonus of the
ki~d dealt \Vith the Graham's case.
Graham Tra./ing Co. J,td. v. lts workmen, (l!IGO) IS .. C. 11.
107, R. }.T. F,lia .. and Co. Ltd. Emplnytr.'s lJnio1i v. IJ. iV.
J~"lia.ll
and Co. Limited. ( 1%0) 3 S. C. R. 382 and As.<ix:iated Cement
Com7vmies Lt<l· v. It.• Irorkmw, (1959) S. C.R. 925, referred to.
In tbe present case during the whole of the period from
1948 to 1957 when closing bonus was paid there was no loss
.,.
3 S.C.R. SUPREME COURT REPORTS
583
incurred by the appellant. Further the bonus was paid only
after the trading results of the year were known.
Ii eld, that taking all circumstances into account it appears
that closing bonus had been paid on the basis of the trading
results of the previous year and depended upon the profits
earned in the previous year, and it could not be held, that one
month's pay as closing bonus was payable as an implied condition of se.rvice irrespective of profit made by the appellant.
M/B. lsphani Ltd. Ciflcutta] v. 18phani Employees Union
(1960) I S. C. R. 24, referred to.

## Text

1962
Jlorch 5,
'
582
SUPREME COURT REPORTS [I 962] SUPP.
.JARDINE HENDERSON LTD.
?!.
THE WORKMEN AND ANOTHEii
(P. B.
GA.JENl)J\AGADKAR, A. K. SARKAR, and
K. N. 'VAN CHOO, ,J,J.)
lnduJtrial Dispute-Bon u•-A vaila/ile Surpl u.•-Determi·
natio!'.of-C/0.<ing
Bonus- Implied tum uf agreement or
ctnidtt1on of seri-1r:e-Custo1nary bonu..•L
~fhe appellant is a
company carr} ing on business in
Calcutta an<l ha<l bcP.n paying a bonus callc<l closing bonus
to its v.·orkmcn at the. rate of one month's pay from 1948 to
1957, but as the profits of the appellant considerably fell in
1958, the quantun1 of closing bonus was reduced to half a
month's pay; consequently, a reference \Vas made to the tribunal for dccision 1 \\'hcthcr the management ,,·as jui;tified in
reducing the qaantum of closing bonus to half a month's pay
in 1958. The workmen claimed that closing bon,.s had been
paid at a uniforrn rate from 1918 to 1957 an<l had beco1nc an
implied condition of service between the workmen and appellant: in the alternative, the claim was that the payment ha<l
acquire.cl the character of customary honus aud \Vas not dependent upon profits earned. by
the appelLmt.
The tribunal
held, that the payment of closing bonus had not become an
implied condition of service and also held, that the bonus
cou1cl not be hclc..I to be a cu~tomary bonus.
It held that there
"·as s11fficient available surplus to \varrant payment of one
month's pay as profits bonus and ordered thas half a n1onth's
bac:ic salary, be further paid as profit bonus to the \\·ork1nen
for the year in disputr.
Held, that the fact that a company declares dividend
~·t morr. or less than six percentum is no reason for changing
the rate of interest allr)\\•e<l under the Full Bench formula on
paid-up capital.
. field, further that custornary Uonus is ahvays connected
v.•ith some festival.
As closing bonus is not r.onnectcd with
anv festival it cannot he trt":ated as customary bonus of the
ki~d dealt \Vith the Graham's case.
Graham Tra./ing Co. J,td. v. lts workmen, (l!IGO) IS .. C. 11.
107, R. }.T. F,lia .. and Co. Ltd. Emplnytr.'s lJnio1i v. IJ. iV.
J~"lia.ll
and Co. Limited. ( 1%0) 3 S. C. R. 382 and As.<ix:iated Cement
Com7vmies Lt<l· v. It.• Irorkmw, (1959) S. C.R. 925, referred to.
In tbe present case during the whole of the period from
1948 to 1957 when closing bonus was paid there was no loss
.,.
3 S.C.R. SUPREME COURT REPORTS
583
incurred by the appellant. Further the bonus was paid only
after the trading results of the year were known.
Ii eld, that taking all circumstances into account it appears
that closing bonus had been paid on the basis of the trading
results of the previous year and depended upon the profits
earned in the previous year, and it could not be held, that one
month's pay as closing bonus was payable as an implied condition of se.rvice irrespective of profit made by the appellant.
M/B. lsphani Ltd. Ciflcutta] v. 18phani Employees Union
(1960) I S. C. R. 24, referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeal
No. 359 of 1961.
Appeal by special leave from the award dated
April 18, 1960, of the Third Industrial, Tribunal
\Vest Bengal, in case No. VIII-153 of 1959.
B. Sen, Sukumar Ghose and B. N. Ghosh, for
the appellant.
·
D. N. Mukhe1;jee, for the respondent No.I.
1962. March 5. The Judgment of the court was
delivered by
WANCHOO, J:-This appeal by special leave
arises out of a question of bonus referred by the
Government of West Bengal to the Third Industrial
Tribunal. The appellant is a company carrying
on business in Calcutta and the dispute relates to
closing bonus for the year 1958. It appears that
the appellant had beon paying a bonus which was
called closing bonus. to its workmen at the rate of
one month's pay from 1948 to 1957.
In 1958, however, as the profits. of the appellant fell considerably, the quantum of closing bonus was reduced to
half a month's p<J.y.
In consequence a dispute was
raised by the respondents workmen represented by
two unions and their claim was that they should have
been paid one month's bonus as usual. Consequently reference was made to the tribunal and the question for decision was whether the management was
1962
Jardin• HmtUrson
Ltd.
v.
The Workmen
Wanchoo J,
1962
.!~Jint 'Htndtrso11
Ltd.
v.
The W1trknun
Wanclioo J.
584 SUPREME COURT REPORTS [1962) SUPP.
justified in reducing the quantum of closing bonus
to half a month's pay in 1958 .
The case of the workmen was that the appellant had been paying two kinds of bonuses to its
workmen each year, namely, (i) Puja bonus which
was paid usually before the Puja festival, and (ii)
closing bonus which was paid after the elosc. of the
financial year ending on llfarch 31st each year. Tho
workmen claimed that cloRing bonus had been paid
at a uniform rate from 1948 to 19iii and this payment ha<l therefore become an implied condition of
service between tho workmen and the appellant ;
in the alternative the claim was that the payment
had acquired tho character of customary bonus and
was not dependent upon profits earned by the
appellant.
On the other hand the contention of the appellant was that the payment of closing bonus at a
uniform rate of one month's pay for ten years previous to 1958 had not in faot turned the payment
into an implied condition of service as this bonus
was of the nature of profit bonus and it.s payment
depended upon the prpfits made by the appellant.
It was urged further that the very fact that this
bouus was paid after the accounts for the year were
made up and the profit ascertained showed that it
was a bonus depending upon profits ; the circumstance that it was paid at a uniform rate for sometime was only fortuitous, particularly as tho appellant had increased the Puja bonus as its profits
increased in order to holp the workmen at festival
time. As to the alternative ca.so of customary bonus,
the appellant cont-Ondcd that this bonus had no
connection with any fcAtiyaJ and wa8 paid after the
state of profits e:;,rned by the appellant was known
and therefore could not be demander! aa a customary bonus.
Finally, appellant pleaded that if
closing bonus was treated
a.s profit bonus there
was no available surplus to justify tho grant of
I
3 S. C.R.
SUPREME COURT REPORTS
585
any further amount as bonus besides half a month's
pay which the appellant had already given to the
workmen.
The tribunal came to the conclusion that it
had not been proved .that the payment of closi?g
bonus had become an implied condition of servrne
and in that connection relied on the decision of
this Court in Messrs. lspahani Limited Calcutta v.
Ispalwni Employees' Union. (') Further, it held that
the bonus could uot be held to be a customary
bonus as there was nothing to show that it had
been paid even in a year of loss. It therefore
negative the case of the workmen that closing
bonus of one month's pay was payable every year
after the accounts were closed either as an implied
condition of service or as a customary bonus. The
tribunal then went into the question whether any ·
further amount besides half a month's pay which
had already been paid by the appellant as bonus
could be awarded as profit bonus on the basis of
the Full-Bench formula approved by this Court in
the Associated Cement
Companie-~ Limited
v. Its
Workmen('). It held that there sufficient available
surplus to warrant payment of one month's pay
as profits bonus and therefore ordered that half a
month's basic salary be further paid as profit bonus
to the workmen for the year in dispute. It is this
decision of the tribunal which has been assailed
before us by the appellant.
So far as profit bonus is concerned, the main
contention on behalf of the appellant is that the
tribunal went wrong in allowing 2 1/2 per centum
interest on paid·up capital and that it should have
allowed, 6 per centum interest, which is the usual
amount allowed under the Full-Bench formula.
The reason why the tribunal allowed 2 1/2 per
centum interest was that the appellant had paid
dividend at 2 1/2 per centum in that year as its
(l) [1960] 1 S.C.R. 24.
\2) (1959] s.c.R. 92~,
1968
Jardine Hinder son
Ltd.
v.
TM Workmen
WanchOD J.
1962
Jardiru Htntkr•on
Lid.
v.
The Workmen
Wonchoo J.
586 SUPREME OOURT REPORTS [19112] SUPP.
profits harl show a considerable fall. W c are of
opinion th&t the tribunal wa.s wrong in allowing
only 2 1/2 per centum 'interest on paid-up capital
on the ground that the actual dividend doclared by
the appellant was only 2 l/2 per cent.um for that
year.
The return on paid-up capita.I provided in
the .Full· Bench formula is not linked with actual
dividends that. might be declared by a company. Many
a time companieR declare dividends higher than six
per centum. But under the formula they are usually allowed Aix per centum interest on paid-up ea.pita]
irrcspecti\'e of the dividends declared.
It is only
where a company can make out an exceptional case
for allowing more than six per contum interest on
paid-up capital thn,t the tribunal can award moro.
Similarly it. is onl.Y when an exceptional Calle is made
out for allowing less than six per cent.um interest
that thn tribunal would be justified in allowing
Jes•. We arc of opinion that the fact that a company
declares rfr;idend at more or less than six per centum
i• no rea8on for ch1mging the rate of inwrest
allowed under the Full-Bench formula on paid· up
capital. In the present case no reP..son lms h'"'ll
shown
beRides
th•'
fact
th1~t
the di\' id"nd
declared
was
less than Rix
per cent.um
to
rerluco t.Jw usual rate of interest from six por
cent.um to 2 1 /2 per ccntum
We arc therefore of
opinion that the tribunal should have allowed six
per centum interest mi paid-up capital in this coasc
and that. would increase the amount due under this
head from Rs. 5 lacs to Hs. 12 lacA. It is not dispukd by lcarnerl counAel for the rnspondcnts that
if six per centum interest is allowed on paid-up
c1tpital in this caAe as is usually done there will be
no justificittion for allowing more ns profit bonus
than what the appellant has already giwn. In the
result t.hc tribunal's award of half a month's
further 11·a.ges as bonus on th!l grom1d that. there .
is available surplus to justify it
must be 8ct
aside,
3 S.C.R. SUPREME COURT REPORTS
587
Learned counsel for the respondents however
submitted that even though no further bonus could
be allowed on the basis of the Full-Bench formula,
the workmen were entitled to one month's pay as
closing bonus either as an implied condition
of service
or as
a
customary bonus.
So
far as customary bonus is concerned, it is enough to
say that customary bonus of the nature dealt with
in Graham Trading Co. Ltd,. v, Its Workmen(l) is always
connected with some festival. In the present case
it is not in dispute that the closing bonus is not
connected with a,ny festival and therefore cannot be
treated as customary bonus of the kind dealt . with
in Graham's case.
This was pointed out by this
Court in B. N. Elias & Co. Ltd,. Employees' Union v.
13.N.Elias & Co. Limited, (2) where it was observed
that it was difficult to introduce the payment of
customary bonus
between employer and employees where terms of service are governed by
contrnct, express or implied, except where the
bonus may be connected with a festival,. whether
puja in Bengal or some other equally important
festiv!;11 in any other part of the country. Therefore as closing bonus is admittedly not connected
with any festival it cannot be allowed as a customary bonus of the type considered in Graham's
case( 3 ).
Turning now to the question whether payment
of one month's pay as closing bonus has become an
implied condition of service, the first point to be
noticed is that closing bonus was always paid after
the trading results of the year were known. Under
these circumstances it would not be improper to
infer that closing boims was dependent upon profits
made by the appellant, f'or it was paid only after
profits for the previous year had been ascertained.
In the present case during the whole of the period
from 1948 to 1957 when the closing bonus was paid
(1) [1960] 1s.c.R.107.
(2) [1960] 3 S,C.R. 332.
(3) [1960] 1S.C.R.107,
1962
J ardint Hender•rm
Ltd.
v.
The
orkmen
Wanchoo J.
1962
Jardine Htndtrsnn
Ltd.
Th 1 IV ortnum
:i88
SUPREME COURT REPORTS [1962] SUPP.
there was no loss incurred by tho appellant. As was
pointed out in lspaliani's ca.~e the "fact that bonus
was paid during a year of loss also would ho an
important circumstance in coming to the conclusion
th;it pa,vmf)nt was a matter of obligation baRed on
an implied agreement. In the present ca.se that
important circumstance is absent.
The absence of
this oirr:umstancc along with the fact that the bonus
was paid only after the trading results of the year
were knmvn and therefore in all probability depended upon the profits would show that it could not
be a matter of obligation based upon implied agreement.
BPsides it appears that this company formerly
belonged to another owner and merged with thn
appellant in 1946. When the former company was
the owrwr it does not appear that it paid any closing bonus as such from 1940 t.o 1945.
Even after
the appellant took over no payment was made in
194() and 194 7. It was only from 1948 after the
tradin~ rnsults for the year ending on 1Iarch 31,
1948 11·ere known that oud mm1th'8 basic wages
hegau to be paid 1i.s closing bonus in a.dditiu11 to puja
bonus which was origin:dly paid at tho rate of one
month's basic wages but which was gradually increased to two months' basic wages from '1951i,
For the year in dispute the appellant has paid two
months' puja bonus; but it reducer! tho closing
bonus from one month to half 11 month's basic
wages because of the fall in profits which fell from
Rs. 27 lac' in 1957 to a little over Rs. 15 lacs in 1958.
It i8 clear therefore that the closing bonus has not
been pa.id from tho beginning when th() appellant took
over the business of the previous company, though
it was paid at a. uniform rato fr1>m 1!148 to 1957. It
may be mantioncd that in 1 fl!i9 when profits went
up again the appellant has paid one month's pay S\8
closing bonus. Taking therefore all the circumstances into account it appears that closing bonqs 4as
38.C.R.
SUPREME COUR'i: REPORTS
589
been paid on the basis of the trading results of the
previous year and depended upon the profits earned
in the previous year. In the .oircumstances it cannot be held that one month's pay as closing bonus
is payable as an implied condition of service irrespective of the profit made by the appellant. It
seems to have been of the nature ·of profit bonus,
even though it may have been paid at a uniform
rate for ten years.
We therefore allow the appeal, set aside the
order of the tribunal and reject the claim of the.
workmen for any closing bonus over and above
that paid by the appellant for the year 1958.
In
the circumstances we order the parties to bear
their own costs.
Appeal aUowed.
THE MANAGEMENT OF INDIAN CABLE CO.,
LTD., CALCUTTA
v.
ITS WORKMEN
(B. P. SINHA, C.J., K. SuBBA Rao, N. Ra.r.AGOPA.LA
AYYANGAR, J. R. MuDHOLKAR and T. L.
VENK.AT.AR.AM.A AIY.AR, JJ.)
Industrial Dispute-Closure of branch-Retrenchment of
workmen-Right to be absorbed in other branches-Branch if an
industrial establishment-Individual
dispute and industrial
dispute-DiBtinction-Dispute raised by majority of workmen
if an industrial dispute-Competence of State Government
t~
make reference-"lndustrial dispute" "industrial establishment", meaning of-Industrial Dispute. Act, 1947 (14 of 1947),
ss. 2(k), 10, 25G.
Section 25-G of the Industrial Disputes Act, 1947
provided : "Where any workman in an industrial csta:
blishment •... is to be retrenched and he belongs to a
1962
Jardine ilendersen '
Lit.
V,
The W 011'mtn
Wonchoo J.
1961
·--
March 6.