# Alril 11. 38 SUPREME COURT REPORTS [1964] VOL. BENGAL KAG"AZKAL MAZDOOR UNJON & ANOTHER v. THE TITAGHUR PAPER MILLS CO. LTD

- **Citation:** [1964] 3 S.C.R. 38
- **Court:** Supreme Court of India
- **Decided:** 1964
- **Case number:** Civil Appeal Nos. 550 and 551 of 1962
- **Bench:** P. B. Gajendragadkar, K. N. Wanchoo, K. c. DAS GUPTA
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/alril-11-38-supreme-court-reports-1964-vol-bengal-kag-azkal-mazdoor-unjon-2902
- **Pages:** 17

## Headnote

-
Indu•trial Disputt-Bonus-Oomputation-Gross Profit•-
[ ncome-tax-W orking c<u>ital-Rthabilitation.
An industrial dispute having arisen between the appellants
and the respondents, the Government of West Bengal referred
the dispute to the Second Industrial Tribunal, West Bengal,
for determining the question of bonus for each of the four
years (from 1955 to 1959) and the method of its dhtribution
amongst different categories of workmen including temporary
hands. The tribunal on ei<amination of the evidence applying
the Full Bench Formula came to the conclusion that there was
no surplus in any ot the four years for the.grant of bClnus and
therefore rejected the claim. The appellants thereupon appealed to this Court with special leave. The Tribunal's Award was
impugned by the appellants on four grounds, namely, the
tribunal went wrong in calculating (a) gross profits for the
years 1956-57 (b) income-tax for all the four years (c) working
capital for all the four years and (d) rehabilitation for all the
four years.
·
Held that if there had been any addition to the profit on
account of an increase in the value of the stock that would be
an extraneous profit for which no credit could be claimed by the
workmen and such extraneous profit could not be taken into
account in calculating the available surplus.
But in that case
the result of the reavaluation was not that increased value wa.!l
taken into account in. the matter of consurnption Of raw
materials. The Tribunal overlooked this fact in applying the
ratio of that ca•e to the facts to the present case.
Tata Oil Mills .Go. Ltd., v. Its Workmen, [1960] I S.C.R.
I, explained.
If the stc-cks are revalued that is no reason far ::1ho\\•ing
\he relevant cost on the debil side a• consumption 1 for in reality
-
-.....
-
3 S.C.R.
SUPREME COURT REPORTS
39
the revalued price is not what the mills paid for the raw
materials etc. consumed and therefore to get a correct picture
of the actual profit made it is only the original cost price which
will have to be taken into account for that purpose. On sale
of paper, the profit must be on the original valuation of paper
stock and not on the revalued figure.
Held further, that at p. 962 of the decision of this Court
in The Associated Cement Companies Ltd. v. Its Workmen,
[1959] S.C.R. 925, the word "not" has been printed by
mistake and what the court then decided was that in calculating
,,....
the amount of tax payable the Tribunal should take into account the concession given by the Income-Tax Act. The Tribunal
was wrong in calculating the income tax after deducting the
notional normal depreciation and not the statutory depreciation.
Sree Meenakshi Mills Ltd. v.
Their Workmen [1958]
S.C.R. 878, referred to.
Held further that it is well settled that a balance shert
cannot be taken as proof of a claim as to what portion of
reserves has actually betn used as working capital and that the
utilization of a portion of reserves as working capital hag to be
proved by the employer by evidence ,on affidavit or otherwise
after giving opportunity to the workmen to contest the correctness of such evidence by cross-examination. In the present
case no acceptable proof has been given and the method of
proof was not proper.
Petled Turkey Red Dye Works Lia. v. Dye and Chemical
IVork•rs Union, [1960] 2 S.C.R. 906, refered to.
Held further, that the question whether investmcr ts have
been actualiy used as working capital is a question of fact and
it has to be proved by proper evidence. In the present case
the Tribunal was wrong in assuming that all investments have
been used as working capital without any evidence to >Upport
this assumption.
Where advances have been given for obtaining
re.w
materials etc. they would certainly be part of the amount used
as working capital. But where advances are purely loans and
where advances have not been made for the purpose of the
business such advances cannot be taken to have been used as
working capital.
Held further that the determ

## Text

1963
Alril 11.
38 SUPREME COURT REPORTS [1964] VOL.
BENGAL KAG"AZKAL MAZDOOR UNJON
& ANOTHER
v.
THE TITAGHUR PAPER MILLS CO. LTD.
(P. B. GAJENDRAGADKAR, K. N. WANCHOO and
.....
K. c. DAS GUPTA JJ.)
-
Indu•trial Disputt-Bonus-Oomputation-Gross Profit•-
[ ncome-tax-W orking c<u>ital-Rthabilitation.
An industrial dispute having arisen between the appellants
and the respondents, the Government of West Bengal referred
the dispute to the Second Industrial Tribunal, West Bengal,
for determining the question of bonus for each of the four
years (from 1955 to 1959) and the method of its dhtribution
amongst different categories of workmen including temporary
hands. The tribunal on ei<amination of the evidence applying
the Full Bench Formula came to the conclusion that there was
no surplus in any ot the four years for the.grant of bClnus and
therefore rejected the claim. The appellants thereupon appealed to this Court with special leave. The Tribunal's Award was
impugned by the appellants on four grounds, namely, the
tribunal went wrong in calculating (a) gross profits for the
years 1956-57 (b) income-tax for all the four years (c) working
capital for all the four years and (d) rehabilitation for all the
four years.
·
Held that if there had been any addition to the profit on
account of an increase in the value of the stock that would be
an extraneous profit for which no credit could be claimed by the
workmen and such extraneous profit could not be taken into
account in calculating the available surplus.
But in that case
the result of the reavaluation was not that increased value wa.!l
taken into account in. the matter of consurnption Of raw
materials. The Tribunal overlooked this fact in applying the
ratio of that ca•e to the facts to the present case.
Tata Oil Mills .Go. Ltd., v. Its Workmen, [1960] I S.C.R.
I, explained.
If the stc-cks are revalued that is no reason far ::1ho\\•ing
\he relevant cost on the debil side a• consumption 1 for in reality
-
-.....
-
3 S.C.R.
SUPREME COURT REPORTS
39
the revalued price is not what the mills paid for the raw
materials etc. consumed and therefore to get a correct picture
of the actual profit made it is only the original cost price which
will have to be taken into account for that purpose. On sale
of paper, the profit must be on the original valuation of paper
stock and not on the revalued figure.
Held further, that at p. 962 of the decision of this Court
in The Associated Cement Companies Ltd. v. Its Workmen,
[1959] S.C.R. 925, the word "not" has been printed by
mistake and what the court then decided was that in calculating
,,....
the amount of tax payable the Tribunal should take into account the concession given by the Income-Tax Act. The Tribunal
was wrong in calculating the income tax after deducting the
notional normal depreciation and not the statutory depreciation.
Sree Meenakshi Mills Ltd. v.
Their Workmen [1958]
S.C.R. 878, referred to.
Held further that it is well settled that a balance shert
cannot be taken as proof of a claim as to what portion of
reserves has actually betn used as working capital and that the
utilization of a portion of reserves as working capital hag to be
proved by the employer by evidence ,on affidavit or otherwise
after giving opportunity to the workmen to contest the correctness of such evidence by cross-examination. In the present
case no acceptable proof has been given and the method of
proof was not proper.
Petled Turkey Red Dye Works Lia. v. Dye and Chemical
IVork•rs Union, [1960] 2 S.C.R. 906, refered to.
Held further, that the question whether investmcr ts have
been actualiy used as working capital is a question of fact and
it has to be proved by proper evidence. In the present case
the Tribunal was wrong in assuming that all investments have
been used as working capital without any evidence to >Upport
this assumption.
Where advances have been given for obtaining
re.w
materials etc. they would certainly be part of the amount used
as working capital. But where advances are purely loans and
where advances have not been made for the purpose of the
business such advances cannot be taken to have been used as
working capital.
Held further that the determination of rehabilitatiu'1 is a
Jon!l term affair and once it has been determined it cannot go
1965
B1111al lr111ozkal
Mav/ffrUniGn
••
Titathu' Pa/Jer
Mil/! Co. Ltd.
I9i3
.aent•l Kag•zk•l
M •zJ1Dr Uni•n
v.
Tit•thur P•;er
Mills Co. Ltd
40
SUPREME COURT REPORTS [1964] VOL.
on increasing from year to year except in case of a sudden
appreciable rise in prices or on account of new blocks being
added followed by further rise of price after the purchase of the
new blocks. All rehabilitation amounts which may have been
allowed to the employer for rehabilitation in previous years but
remained unused for rehabilitation in the meantime have to
be taken into account in arriving at the amount .required for
rehabilitation.
The Associated Cement Companies Ltd. v. Its Workm•n
[1959) S.C.R. 925, referred to.
In KandlSh Spinning & W•aving Alill& Go. Ltd. v. The
Rashtriya Girni Kamgar Sangh Jalgaon, [1960) 2 S.C.R. 841,
this Court held that before a particular reserve could be said
to be not available for rehabilitation it must be C!tablished that
it had been reasonably earmarked for a binding purpose or the
whole or a part of it has been used as working capital and that
only such part of the reserves coming under either of the two .
heads can be said to be not available for rehabilitation. This
means that if any reserve has been earmarked for a particular
purpose which is binding it cannot be deducted from the gross
rehabilitation amount.
For example assessment kept in reserve
for paying debentures when they fall due or working capital
which is in the shape of raw materials cannot be deducted from
the gross rehabilitation amount. The Tribunal misunderstood
and misapplied the ratio of this decision to the facts of the
present case.
CIVIL APPELLATE JURISDICTION : Civil Appeal
Nos. 550 and 551 of 1962.
Appeals by special leave from the Award dated
March 20, 1961 of the Second Industrial Tribunal,
West Bengal, in Case No. VIII-27 of 1960.
Ajit Roy Mukherjee, M.K. Ramamurthi, R.K.
Garg, D. P. Singh and S. 0. Agarwal, for appellant
(in C.A. 550 of 1962).
Ajit Roy Mukherjee and N.H. Hingorani, for
the appellant (in C.A. No. 551 of 1962).
M.O. Setalvad, D.N. Mukherjee and B.N.
Ghosh, for the respondents.
.~ -
-
·.
...
3 S.C.R.
SUPREME COURT REPORTS
41
1963. April 11. The Judgment of the Court
was delivered by
W ANCHOO J. -These two appeals by special
leave arise out of the same award of the Second
Industrial Tribunal, West Bengal and will be dealt
with together. The two appeals are by two unions
of workmen of the Titaghar Paper Mills Co., Tita·
ghar No. 1 and the Titaghar Paper Mills Co. Kankinara No. 2.
The two mills have been treated as one
establishment and are under one management. So
the Government of West Bengal referred the dispute
between the mills and the unions for profit bonus for
the years 1955.56, 1956-57, 1957-58 and 1958-59
to the tribunal for determining the quantum of bonus
for each year and the method ·of its distribution
amonc;st different categories of workmen including
temporary hands.
The tribunal went into the matter and came to .
the conclusion after the application of what is known
as the Full Bench formula evolved by the Labour
Appellate Tribunal in 1950 and approved by this
Court in
the
Associated Cement Companies Ltd.
v. Its Workmen (1), that there was no surplus in any
of the four years for the grant
of bonus and ·
therefore rejected the claim of the workmen.
The
two appeals are by the two unions against this
award.
The contention of the workmen is
that the
tribunal's conclusion that there was no available
surplus in any of the years is incorrect and four
points have been urged in this connection to show
how the tribunal went wrong. These points are :
(l) The tribunal's calculation of gross profits for the
years 1956-57 was .wrong; (2)
The tribunal went
wrong in the matter of calculation of income-tax for
all the four years; (3)
The tribunal went wrong
in the matter of calculating working capital for all
(I) [195g] S. C. R. 925,
W1•.n...1,.
r96J
dingaJ l\~iaikal
MaUoor u,iion
. ". . .
. T,iti,lrVr ·Paper
Mills c,; Ltd.
W11nchcio J.
42 SUPREME COURT REPORTS [1964] VOL.
the four years; and (4) The tribunal went wrong in
calculating rehabilitation for all the four years.
We shall deal with these points one by one .
Re • (1).
The contention in this behalf is that for the
year 1956.57 the mills revalued their stock of raw
materials, chemicals and dyes etc. as well as general
stores, machine furnishings etc. and paper stock as
well as coal stock.
This revaluation resulted in an
increase of Rs. 38,81,618/-in the value of these things
as on April 1, 1_956.
This increase in value was
reflected
in the consumption of raw materials,
general ·stores and coal and in the sale of paper with
the result that the profit•and-loss account showed
inflated figures in terms of money on the basis of this
revaluation, though in actual fact this amount was
not spent, the increase being merely due to a paper
entry on account of revaluation.
Therefore it is said
that as the tribunal ignored this aspect of the matter
it did not correctly calculate the gross profits for the
year 1956-57.
The tribunal in this connection relied
on the judgment of this Court in the Tata Oil Mills
Go. Ltd. v. Its Workmen ('), and said that if there
had been any addition to the profit on account of an
increase in the value of the stock, that would be an
extraneous profit for which no credit could
be
claimed by the workmen and such extraneous profit
could not be taken into account in calculating the
available surplus. It is urged on behalf of the appellants that the tribunal was in error in applying the
principle laid down in the· Tata Oil Mills Go.'s
case (1), to the facts of this case.
There is in our opinion force· in this contention.
It is true ·that in 1'he Tata Oil Mills case ('), the
profit of rupees three lacs which arose merely on
account of a change in the method of accounting
was treated as extraneous income; but the judgment
(I) llllOOJ 1 S, 0. R, 1,
..
3 S.C.R.
SUPREME COURT REPORTS
or that case does not show that the result of the
revaluation was that increased value was taken into
account in the matter of consumption of raw
materials etc. The tribunal overlooked this fact
when it proceeded to apply the ratio in the Tata
Oil Mills case (1), to the facts of the present case. It
has however been urged on behalf of the respondent
that there is a contra-entry in the profit-and -loss
account and that shows that the tribunal was right
in ignoring the effect of revaluation on the debit side,
for the same sum of money i.e. Rs. 38,81,618/- was
entered on the credit side and so there could be no
mistake in arriving at the correct gross profit for that
year.
We have not been able to understand what
the effect of this entry on the credit side is in
arriving at the gross profit for the year; nor has the
learned counsel for the respondent been ab le to
explain the position clearly to us. We are of opinion
that the matter requires looking into and evidence
may have to be taken to find out how exactly the
real profits have been affected by showing on the
debit side as consumption the valuation of raw
materials etc. at the revaluation cost. The matter
will therefore have to be investigated further. But it
may be added that if the stocks are revalued that is
no reason for showing the revalued cost on the debit
side as consumption, for in reality, the revalued
price is not what the mills paid for the raw materials
etc., consumed and therefore to get a correct picture
of the actual profit made, it is only the original cost
price which will have to be taken into account for
that purpose, for that is what the mills actually paid
for acquiring the raw materials.
Further on sale
of paper, the profit made must be on the original
valuation of paper stock and not on the revalued
figure which was not the cost to the mills of making
the paper. Finally it will also have to be considered
what is the effect of the so-called contra-entry on
the credit side of the profit and -loss account for that
year. Expert evidence may be necessary to explain
\ll [1960) IS. C, R. I.
1963
IJenlal .KtU_O°;;kal
Mazdoor Union
v.
Tit•1lwr Paper
Mills C•. ltd.
Wanc,\do J,
•
1963
B1nt•l. lr•1•.;klll
Mu:awURion
. v.
Tit.1,h•r P•P.r
Mills' Co. Ltd.
Wi1n"'h01 J.
•
44 SUPREME COURT REPORTS [1964) VOL.
the position properly and arrive at the correct profits
for that year and so there will have to be a remand
for the determination of this question by the tribunal,
as it is not possible for us on the materials available
on the record to arrive at a final conclusion ourselves.
Re. (2).
The contention under this head is that the
tribunal while calculating income-tax has only taken
into account the notional normal depreciation and
not the statutory depreciation, as it- should have
done. This matter was considered by this Court
in Bree IJ!eenakshi 111ills Ltd. v. Their Workmen
( 1), and again in the Associated Cement Companies
case (2), and it was pointed out that in calculating
income-tax the tribunal should take into account
the concessions given by the Income-tax Act to the
employers, for two more depreciations are allowed
under s. 10 (2) (vi) of the Income-tax Act.
At
p. 962 of the report in the Supreme Court Reports,
the word "not" has been printed by mistake and
what this Court then decided was that in calculating the amount of tax payable, the tribunal should
take into account the
concessions given by the
Income-tax Act, though in the report it is printed
that the , tribunal should not take into account the
concessions. This will however be clear from the
calculation of income-tax which is made at p. !194.
Chart V shows that the notional normal depreciation
in that case was Rs. 100.22 lacs.
Note A below
that chart further shows that in arriving at the amou•t
to be deducted as income-tax, the statutory depreciation amounting to Rs. 165.49 lacs was deducted
from the gross profits and it was on the balance that
income-tax payable was calculated. We may add
that a correction slip was issued later. Jn the present
case the tribunal has apparently calculated incometax after deducting the notional normal depreciation
and not the statutory depreciation. The contention
(I) [1958) 8, C, R, 878,
(2) f!959 8. C.R. 925.
• -
'----
•
3 S.C,R.
SUPREME COURT REPORTS
45
of the appellants is that the statutory depreciation
i1 much higher. The respondent has not been able
to controvert this contention of the appellants, though
there does not seem to be any evidence on the record
as to what is the exact amount of statutory depreciation allowed during these years.
It seems that on
behalf of the workmen calculation sheets were put in
for all the four years, according to which the statutory depreciation was much higher than the depreciation which was deducted by the tribunal from gross
profits in arriving at the income-tax payable. But as
the appellants were unable to point out any evidence
beyond their own charts to prove the exact statutory
depreciation for the years in controversy, it is not
possible for us to calculate the correct amount of
income-tax to be deducted in the absence of such
evidence.
The matter will therefore have to go
back to the tribunal for taking further evidence on
this point and then arriving at the amount payable as
income-tax after deducting statutory depreciation
from gross profits.
Re. (3).
Three
contentions have been raised in this
respect on behalf of the appellants. It is now well
settled that a balance-sheet cannot be taken as proof
of a claim of what portion of reserves has actually
been used as working capital and that the utilization
of a portion of the ·reserves as working capita[ has
to be proved by the employer by evidence on affidavit or otherwise after giving opportunity to the
workmen to contest the correctness of such evidence
by cross-examination : (see Petlad Turkey Red Dy6
Work8 Ltil. v. Dyes & Chemical Workers' Union (1).
What happened in the present case was that the
accountant of the respondent gave two alternative
calculations for arriving at the reserves used as
working capital. Thus there were two figures given
by the respondent to show what reserves were actually
(I) (lll60} 2 s. c. &. 906 •
IHI
ll••f•I l<'fdtl:•I
·Mat'• Uition
...
Tit"INur P•P"
Milli Co:' Lt,.
----
WM1,,,, I,
B•ngal K•t<Zk•I
M~::d<10' Unicn
v.
Ti'!thur P.;er
Mills C.. Ltd.
·--
46
SUPREME COURT REPORTS [1964] VOL.
used as working capital. Further, according to the
accountant, the lower figure represented the assets
which could be at once converted into liquid cash
while the higher figure represented both cash invested
in the business and liquid cash that would be avail·
able.
He then went on to state that the amount
was al ways available for utilization as
working
capital and that it was actually utilised during tht!
years.
There was no effective cross·examination of
this statement. However, before the tribunal it was
claimed on behalf of the respondents that the lower.
figure should be taken as the actual working capital
and that the tribunal did. We must say that it looks
odd that the respondent should have produced two
figures for working capital for each year. We should
have expected more positive evidence on the point
which would have shown one figure, for reserves
·actually used as working capital could only be
represented by one figure.
Though therefore the
accountant did swear that the amount was used as
working capital and his oath was apparently with
respect to both figures, the respondent
in the end
was content to take the lower figure.
This in our
opinion is not the right way of proving what reserves
were actually used as working c:ipital during the
year and we should expect a firm figure to be given
by the employers for this purpose.· But as there was
no effective cross-examination on t,he point by the
appellants, we would not disallow interest on working capital altogether.
As we are remanding thr:
matter we expect
proper evidence to be given by
the respondent in this connection.
The next point urged on behalf of the appellants with respect to the calculation of working capi-
. ta! is that investments cannot be taken into account
in arrivmg at the figure of working capital. Put in
this broad form
the contention of the appellant
cannot be accepted, for there may be circumstances in which investments may have been used,
. ..
3 S.C.R.
SUPREME COURT REPORTS
47
as working capital while equally there may be
circumstances in which investments may not have
been so used, and it will depend upon the evidence
available whether investments have been actually
used as working capital or not. For example, where
investments at the beginning of a particular year
were of a particular kind and the same investments
appear at the end of the year without any change,
it cannot be said that the amount invested has been
used as working capital. We may make this clearer
by a hypothetical example. Suppose at the beginning of the year the employer has investments in
government securities of 3 percent conversion loan
to the tune of 20 lacs.
At the end of the year also,
the same investment continues in the same form,
namely, 3 percent conversion loan for Rupees twenty
lacs. In those circumstances it cannot be said that
this investment has been used during the year as
working capital. On the other hand where investments have been realised during the year and actually used as working capital, evidence can be given to
show that this has happened and then the investments
so realised and used as working capital can be taken
to be part of working capital for the year. If such
a thing has happened the balance-sheet will show
that though, for example, at the beginning of the
year the investment consisted of 3 percent conversion
loan for Rs. 20 lacs but at the end of the year it
consisted of 3 percent conversion loan for Rs. 5 lacs,
which would show that Rs. 15 lacs out of investments,
might have been used as working capital. Similarly
where investments are pledged as security for the
purpose of business, even though there may be no
change in them, that may show that part of the investments so pledged has been used as wurking capital.
Therefore the question whether investments have been
actually used as working capital is a question of fact;
whether they have been so used will have to be
shown by evidence, oral and doc.;umentary, in support
thereof. In the present case however it seems to
1969
81ngn/ K~z.V.«l
.Wazd,(ilr Union
v.
i'iloz!iur F«per
Mills Co. Ltd.
Wanchoo J.
.. : 11~3(Jr_ t.tw.1
A(azdoo'r'Union
'
v.
,, 'l'ita.,.,, , PoJJ"
'Mills Co.' L .. d,
_,_
48
SUPREME COURT REPORTS [1964] VOL.
,have been assumed by the tribunal that all investments have been used as working capital and this in
our opinion was not correct. The matter will therefore have to go back to find out exactly what investments were used as working capital.
The last argument under this head is that certain advances have also been taken into account as
working capital and that this is not permissible.
Here again the contention of the appellant~ cannot ,
be accepted in this broad form.
There may be some
advances which may have been used as working
capital while there may be others which may not
have been so used. Where advances have been given
for obtaining raw materials etc., they would certainly be part of the amount used as working capital.
On the other hand where advances are purely loans
and have not . been realised during the year and the
same advances which appear at the beginning of the
year continue at the end of the year to the same
,person and the advances have not been made for the
, purpose of business, such advances cannot be taken to
have been used as working capital.
Further, as in
,the case of investments, if advances have been realised during the year and the amount realised has then
been used as working capital, evidence will have
to be given to show this. In the present case however
it'seems that advances have been taken en bloc as
part of working capital and this in our opinion is
not correct.
The result therefore is that there will have to
;be a Temand on the question of determining working
capital and the interest to be allowed on it in the
, light ofthe observations we have made herein.
, Re. (4).
, We now {;ome to the question of rehabilitation.
It is urged that the tribunal had occasion to consider
'
'
~>:··
"
3 S.C.R.
SUPREME COURT REPORTS
49
-
'
..
the question of rehabilitation in connection with
the respondent-mills for the year 1954-55, i. e., just
before the four years now in dispute. On that
occasion, the tribunal found that the total amount
necessary for rehabilitation was Rs. 43.39 lacs per
year; but .in the four years in dispute the tribunal has
iμcreased this amount to Rs.63.56 lacs in 1955-56 and
Rs. 67.66 lacs in 1956-57.
As for the years 1957-58
and 1958-59 the tribunal has found the rehabilitation
amount only for the pre-1939 block as Rs. 64.59
lacks and Rs. 64. 71 lacs respectively. The appellants
contend that these calculations are incorrect and
that rehabilitation calculations are a long term
matter and there was no reason for the rehabilitation
amount to go up as compared to that for 1954-55
as there was no appreciable change in prices during
the four years in dispute as compared to the prices
in 1954-55. It is conceded that rehabilitation may
have increased slightly on account of new blocks
which came into existence after l!l54-55. Even so
it is urged that the tribunal has fallen into two basic
errors and that is how it came to arrive at such an
inflated figure of rehabilitation for the years in
dispute as compared to the year 1954-55. The first
basic error is said to be that the tribunal did not
take into account what had already been allowed
for previous years as rehabilitation and proceeded
to calculate rehabilitation as if nothing had been
allowed for rehabilitation for previous years, which
would naturally have the effect of inflating the
rehabilitation amount year by year. The second
basic error is said to be that the tribunal did not
give credit for all the reserves available for rehabilitation as it should have done with the result that
the amount of rehabilitation found by it became
inflated.
We are of opinion that there is force in this
argument and the tribunal has undoubtedly fallen
into error
011
both counts.
In the first place
1963
B1n:•I KqW;.l
l1ladot11 Uhitn
••
Titaghur lajJM
Mills Co. LtO.
Wa11cM" J.
lffl
8.K.,..,
Mid#rUlli,.
v.
Ti141/wr Pq,r
MUUC.. Lt,,
W .... /.
50 SUPREMECOURTREP01fi[[l)H] \1'0[;.
determination of rehabilitation is a long term affair
and once it has been determined it cannot go on
increasing from year· to year except in case of a
sudden appreciable rise in prices or on account of
new blocks being added followed by further rise
of prices after the purchase of the new blocks.
As
was pointed out in the Associated· Cement Companies
case ('), the tribunal has before awarding the proper
amount in respect of rehabilitation, to make deduction, (firstly) on account of break-down value,
(secondly) on account of depreciation and general
liquid reserves available to the employer other than
those reasonably earmarked for specific purposes,
and (thirdly) on account of the rehabilitation amount
which may have been allowed to the employer in
previous years and remained unused in the meantime.
It appears tbat in the year 1954-55 the net figure
arrived at for rehabilitation for· that year was
Rs. 33.39 lacs after allowing depreciation for that
year and as the available surplus after deducting
other prior charges was only Rs. 24.46 lacs, the
tribunal did not grant any bonus to the workmen.
Even so it is remarkable that out of the rehabilitation amount of Rs. 33.39 lacs for that year a sum
of Rs. 24.46 lacs was left in the hands of the
employer as rehabilitation amount.
The tribunal
seems to have ignored this fact altogether in calculating rehabilitation amount for the years in dispute.
As was pointed out in the Associated Cement
Companies case (1), all the rehabilitation amount
which may have been allowed to the employer for
rehabilitation in previous years but remained unused
for rehabilitation in the meantime, has to be taken
into account in arriving at the amount required for
rehabilitation. The same result can be arrived at
in other way, provided there is no appreciable rise
in price, by taking the rehabilitatior, amount once
arrived at and adding to·it such amounts as may be
due for rehabilitation for new blocks and also such
amounts as may not have been left in the hanas of
(I) [1959] S. C. R, P25,
,
...--, ..
3 S.C.R.
SUPREME COURT REPORTS
51
the employer in the previous years, because the
available surplus in his hand after a!lowing all other
prior charges was less thau the rehabilitation amount
found due. In any case the tribunal was certainly
wrong in not taking into account the rehabilitation
amounts allowed in previous years in working out
the rehabilitation amount for the years in dispute.
The second error into which the tribunal fell
was in the matter of deducting the amount ·available
from liquid reserves other than those
ear-marked
for specific purposes. What the tribunal did in
this case was that it did not properly take into
account the liquid reserves available and deduct
them from the rehabilitation amount found due by
it. The tribunal seems to have held that whatever
sum was working capital could not be deducted from
the gross rehabilitation amount found by it and
reliance in this connection
was placed on the
judgment of this Court in Khandesh Spg. & Wvg .
. Mills Go. Ltd. v. The Rashtriya Girni Kamgar
Sangh Jalgaon (').
In that case the employer claimed that the balance-sheet disclosed that the entire
reserves had been used
as working capital and
consequently such reserves should not be excluded
from the claim towards rehabilitation. It was however held that the employer had failed to prove that
reserves had in fact been used as working capital
and as such the amount was rightly deducted by the
industrial court from the amount fixed for rehabilitation. In our opinion the ratio of that case has
been misunderstood. That case does not lay down
that all the amount on which interest is allowed as
working capita\ cannot be deducted from the gross
rehabilitation amount found by the tribunal to
arrive at the net rehabilitation amount. What that
case decided was that before a particular reserve
could be said to be not available for rehabilitation
it must be established that it has been reasonably
earmarked for a binding purpose or the whole or a
Cl) [1960) 2 8, 0. R, IKI,
196S
B1ngol Katazk•I
Ma~d~r U1fi0n
v.
Titoilwr P•le•
Mill• Co. Ltd
w .. ,M..J.
J9fJ
B.,.i :r.,.u.1
M_.,lhlon
••
7U..br Paper
MUI. C.. Ltj,
w--.1.
52 SUPREME COURT REPORTs [1964] VOL.
part of it has been used as working capital and that
only such part of the reserves coming under either of
the two heads can be said to be not avail able for
rehabilitation. This means that if any reserve has
been earmarked for a particular purpose which is
binding and must be carried out, for example, an
amount kept in reserve for paying debentures when
they fall due, it cannot be deducted from the gross
rehabilitation
amount. Further when that case
Jays down that the whole or a part of the reserves
which have been actually used as working capital
cannot be deducted from the gross rehabilitation
amount it does not mean that money which may be
available.for use as working capital in the next year
cannot also be deducted from the gross rehabilitation
amount. The position would be clear if we indicate
how generally the amount of working capital is
arrived at. What is usually done is to take into
account the liquid assets of various kinds available at
the beginning of the relevant y,ear and the total of
such assets available at the beginning of the year is
considered as working capital for that year, if there
is evidence that it has been actually used during the
year.
But when we come to the end of the year and
look at the balance sheet we have to find out the
liquid · assets available at the end of the year from
which the amount available as working capital for
the next year may be arrived at. But the liquid
assets available at the end of the year will usually
be of two kinds ; firstly there will be cash assets in
the various reserves and secondly there will be assets
in the shape ·of raw materials etc. and both together
become the available working capital ·for the next
year subject to necessary adjustments and also subect to the evidence
that they were
actually
used as working c2.pital. Now, what was laid down
in the Khandesh Spg. & Wvg. Co.'s case ('), when
it was said that the amount which had been actually
used as working capital could not be deducted
from the
gross rehabilitation amount was that
(I) [l!liO) 2 S. C.R. Ml,
3 S.C.R.
SUPREME COURT REPORTS
53
that part of the working capital which is in the shape
of raw materials etc. could not be deducted. The distinction which we have pointed out did not arise for
consideration in that ca 1e, for it was held in that case
that there was no evidence to show that any part of
such reserves had in fact been used as working capital and this Court upheld the award of the industrial
court deducting the entire reserves from the gross
rehabilitation amount.
The matter will be clearer
if we take a concrete example. Take the year 1955-56.
Now the working capitaL is generally arrived at l:>y
finding the liquid reserves available on April 1, 1955.
These liquid reserves may be in the form of reserves
of various kinds i. e. depreciation reserve,
general
reserve, renewal reserve, and so on, and also in the
form of investments, advances and raw materials etc.
in stock.
All these have to be taken into account
in arriving at the working capital after necessary
adjustments.
As we have already pointed out, the
amount of working capital thus arrived at if there is
~ evidence that it was actually used as working capital
for the year may be allowed interest in accordance
with the Full Bench formula.
But then we come to
the end of the year i. e. March 31, 1956.
At that
time we have again to see what the position of the
reserves is. The reserves may be again in the form of
cash reserves or investments or advances and also in
•
. , -...
the form of raw materials etc. From these reserves
working capital for the next year may have to be
calculated and if evidence is given that it has been
actually used, interest may have to be allowed on it;
but that is no reason for not deducting that part of
the reserves which is in the shape of cash reserve,
investments or advances on the ground that it is not
available for rehabilitation, as it may be used as
working capital for the year 1956-57. Only that part
of the reserves which is in the shape of raw materials
etc. or which is ear-marked as indicated alreadv
cannot be deducted for purposes of rehabilitation,
for it will not be available for that purpose and
IHJ
81111•1 ,. ..... .,
Mwlott fJ11in
••
m.,.,,. P.,.,
Miiis Co. LU.
Wdoof.
19.63
B1•1•l Kqa.tkal
M•z::.d9or Union
••
Til•gliur Popn
Mills C•. Ltd.
Wa~J.
I
54
SUPREME COURT REPORTS [1964] VOL.
would be consumed or sold during the course of the
next year or used for a specific purpose. But all
other reserves are available for rehabilitation' on
March 31, 1956 and have to be deducted from the
gross rehabilitation amount for the year. The tribunal in this case however, has not followed this principle on a misappreciation of the effect of the judgment of this Court in Khandesh Spy. & Wvg. Oo.'s
case ('). All that that decision lays down is that that
part of the reserves which go to make up the working
capital which is in the shape of raw materials etc. or
earmarked reserve will not be deducted from the
gross-rehabilitation amount; it does not lay down
that all cash reserves in the shape of depreciation
reserve, general reserve, renewal reserve and so on
and also in the shape of investments and advances
cannot be deducted from the gross rehabilitation
amount as they may be used as working capital next
year. 'J his means that the tribunal has to recalculate
the rehabilitation amount due in view of what we have
said above.
In view of the fact that the adjudication of the
claim for bonus has already been delayed, we direct
the tribunal to recalculate the available surplus in
accordance with the observations made in this judgment after giving opportunity to the parties to·
adduce further evidence and submit its findings to
this Court within three months of the receipt of the
record by it. When the findings of the tribunal
have been received, notice will be given to parties to
file objections if any within ten days of the receipt
of the notice and thereafter the appeals will be· listed
for final disposal.
Gase remanded.
(I) [19601 2 S, C, R. Bil.
r--
1