# Decnnber 7. New Manech Chowk Spg. <!> Wvg. Co. Ltd v. Te%tife Labour Association

- **Citation:** [1961] 3 S.C.R. 1
- **Court:** Supreme Court of India
- **Decided:** 1961
- **Bench:** P. B. Gajendragadkar, A. K. Sarkar, K. Subba Rao, K. N. W Anchoo, J. R. Mudholkar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/decnnber-7-new-manech-chowk-spg-wvg-co-ltd-v-te-tife-labour-association-1959
- **Pages:** 36

## Headnote

Industrial Dispute-Profit bonus-Agreement between Labour
and Mill-owners-Full Bench Formula, whether contravened by
Agreement-Tribunal's competence to extend Agreement.
The respondent, the Textile Labour Association at Ahmedabad, entered into a five years pact with the Ahmedabad MillOwners' Association, representing the member mills, in regard
to payment of bonus to the employees of the mills for the years
1953,57. The Labour Unlon demanded bonus for the year 1958
on the basis of the pact, but the mill-owners claimed that the pact
was contrary to the formula evolved by the Full Bench in Mill
Owners' Association, Bombay v. The Rashtriya Mill M azdoor Sangh,
Bombay, [1950] 2 L.L.J. 247, which was approved by the Supreme
Court in The Associated Cement Companies Ltd. v. Its Workmen,
[1959] S.C.R. 925, inasmuch as (1) rehabilitation provided in
the Agreement differed vitally from rehabilitation as explained
in that decision, (2) the_ Agreement provided for payment of a
minimum bonus even though there may be no available surplus
and even though the particular mill might have made actual
loss, and (3) while the Full Bench Formula, as approved by the
Supreme Court treated a particular year as a self-sullicient
unit, there was provision for set-off and set-on in the Agreement.
The Industrial Tribunal to which the dispute was referred in
t4e form of sixty-six references, one relating to each mill, took
the view that the pact did not in any· way run counter to the
law. laid down by the Supreme Court, ·and that the extension of
the agreement for one more year would help in promoting peace
in the industry in Ahmedabad.
··
Held (Subba Rao, J'.-ditsenting), thaf the Agreement in
question departed from the Full ·Bench, Formula in the. matter•
of bonus,, in certain vital aspects and that the' Tribunal when it·
extended the Agreement for the_.year 1958 was.ignoring the law
as laid down by the Supreme Courtas to what profit boiius waa
and how it should be worked out.
I
1960
Decnnber 7.
New Manech
Chowk Spg. <!>
Wvg. Co. Ltd,
v.
Te%tife Labour
Association
2
SUPREME COURT REPORTS
[1961]
The Tribunal had no power by extending the Agreement to
make it possible for payment of a minimum bonus for the year
1958 even when thel'I> was either insufficient available surplus
to pay bonus or no available surplus at all or even actual loss.
The jurisdiction of the Tribunal was limited by its terms of
reference, which was not on industry-cum-region basis, but one
for each mill to consider the question of bonus for each mill for
the year 1958 and, consequently, it had no jurisdiction to apply
the principle of set-off and set-on to be found in the Agreement
in respect of payment of bonus or take into account the profits
of the industry as a whole in Ahmedabad.
Per Gajendragadkar, Sarkar, Wanchoo and Mudho1kar, JJ.-
It is open to an industrial court in an appropriate case to impose
new obligations on the parties before it or modify contracts in
the interest of industrial peace or give awards which may have.
the effect of extending Agreement or making new one, but this
power is conditioned by the subject matter with which it is
dealing and also by the existing industrial law and it would not
be open to it while dealing with a particular matter before it to
overlook the industrial l.a.w relating to that matter as laid down
by the legislature or by the Supreme Court.
Western India Automo.bile Association v. Industrial Tribunal,
Bombay, [194g] F.C.R. 3i1, Rohtas Industries Limited v. Brijnandan Pandey, [1956] S.C.R. Boo and Patna Electricity Supply Co.
v. Patna Electric Supply Workers' Union, [1959] Supp. 2 S.C.R.
761, relied on.
Per Sobba Rao, J.-(r) The impugned five years pact was
not contrary to industrial law as laid down by the Supreme
Court. (2) The pact also did not infringe the principle that
bonus depends upon profits; but it applied the same by evolving
a formula of set-off and set-on to a complicated situation of the
entire industry in a particular area

## Text

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i
THE SUPREME COURT REPORTS
THE NEW MANECK CHOWK SPINNING AND
WEAVING CO., LTD., AHMEDABAD
AND OTHERS
v.
THE TEXTILE LABOUR ASSOCIATION,
AHMED ABAD
(P. B. GAJENDRAGADKAR, A. K. SARKAR,
K. SUBBA RAO, K. N. W ANCHOO and
J. R. MUDHOLKAR, JJ.)
Industrial Dispute-Profit bonus-Agreement between Labour
and Mill-owners-Full Bench Formula, whether contravened by
Agreement-Tribunal's competence to extend Agreement.
The respondent, the Textile Labour Association at Ahmedabad, entered into a five years pact with the Ahmedabad MillOwners' Association, representing the member mills, in regard
to payment of bonus to the employees of the mills for the years
1953,57. The Labour Unlon demanded bonus for the year 1958
on the basis of the pact, but the mill-owners claimed that the pact
was contrary to the formula evolved by the Full Bench in Mill
Owners' Association, Bombay v. The Rashtriya Mill M azdoor Sangh,
Bombay, [1950] 2 L.L.J. 247, which was approved by the Supreme
Court in The Associated Cement Companies Ltd. v. Its Workmen,
[1959] S.C.R. 925, inasmuch as (1) rehabilitation provided in
the Agreement differed vitally from rehabilitation as explained
in that decision, (2) the_ Agreement provided for payment of a
minimum bonus even though there may be no available surplus
and even though the particular mill might have made actual
loss, and (3) while the Full Bench Formula, as approved by the
Supreme Court treated a particular year as a self-sullicient
unit, there was provision for set-off and set-on in the Agreement.
The Industrial Tribunal to which the dispute was referred in
t4e form of sixty-six references, one relating to each mill, took
the view that the pact did not in any· way run counter to the
law. laid down by the Supreme Court, ·and that the extension of
the agreement for one more year would help in promoting peace
in the industry in Ahmedabad.
··
Held (Subba Rao, J'.-ditsenting), thaf the Agreement in
question departed from the Full ·Bench, Formula in the. matter•
of bonus,, in certain vital aspects and that the' Tribunal when it·
extended the Agreement for the_.year 1958 was.ignoring the law
as laid down by the Supreme Courtas to what profit boiius waa
and how it should be worked out.
I
1960
Decnnber 7.
New Manech
Chowk Spg. <!>
Wvg. Co. Ltd,
v.
Te%tife Labour
Association
2
SUPREME COURT REPORTS
[1961]
The Tribunal had no power by extending the Agreement to
make it possible for payment of a minimum bonus for the year
1958 even when thel'I> was either insufficient available surplus
to pay bonus or no available surplus at all or even actual loss.
The jurisdiction of the Tribunal was limited by its terms of
reference, which was not on industry-cum-region basis, but one
for each mill to consider the question of bonus for each mill for
the year 1958 and, consequently, it had no jurisdiction to apply
the principle of set-off and set-on to be found in the Agreement
in respect of payment of bonus or take into account the profits
of the industry as a whole in Ahmedabad.
Per Gajendragadkar, Sarkar, Wanchoo and Mudho1kar, JJ.-
It is open to an industrial court in an appropriate case to impose
new obligations on the parties before it or modify contracts in
the interest of industrial peace or give awards which may have.
the effect of extending Agreement or making new one, but this
power is conditioned by the subject matter with which it is
dealing and also by the existing industrial law and it would not
be open to it while dealing with a particular matter before it to
overlook the industrial l.a.w relating to that matter as laid down
by the legislature or by the Supreme Court.
Western India Automo.bile Association v. Industrial Tribunal,
Bombay, [194g] F.C.R. 3i1, Rohtas Industries Limited v. Brijnandan Pandey, [1956] S.C.R. Boo and Patna Electricity Supply Co.
v. Patna Electric Supply Workers' Union, [1959] Supp. 2 S.C.R.
761, relied on.
Per Sobba Rao, J.-(r) The impugned five years pact was
not contrary to industrial law as laid down by the Supreme
Court. (2) The pact also did not infringe the principle that
bonus depends upon profits; but it applied the same by evolving
a formula of set-off and set-on to a complicated situation of the
entire industry in a particular area for a number of years. (3)
The Full Bench Formula in regard to rehabilitation was not contravened by the pact. The decisions of the Supreme Court did
not preclude employers' and employees from agreeing to a particular valuation of the block having regard to the circumstances
obtaining at the time of the agreement. (4) Neither the Full
Bench Formula nor the decisions of the Supreme Court affirm·
ing it precluded the Tribunal from extending the terms of the
pact by another year if that was· necessary to maintain industrial peace.
CIVIL APPELLATE JURISDICTION:
Civil Appeals
Nos, 351-356 and 358-369 of 1960.
f
Appeals by special leave from the Award Pa.rt I of
the Industrial Court, Bombay, in References IC,Nos.
261, 297, 238, 241, 248, 263, 266, 271, 301, 302, 257,
).
237 296, 299, '300, 283 and 284 of 1959. ·
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3 S.C.R. SUPREME COURT REPORTS
3
N. A. Palkhivala, I. M. Nanavati, S. N. Andley,
J.B. Dadachanji, Rameshwar Nath and P. L. Vohra,
for the appellants in C. A. No. 351 of 1960.
N. A. Palkhivala, J. B. Mehta, S. N. Andley, J. B.
Dadachanji, Rameshwar Nath and P. L. Vohra, for the
appellants in C.As. Nos. 352 and 358 of 1960.
R. J. Kolah, J.B. Mehta, S. N. Andley, J. B. Dadachanji, Rameshwar Nath and P. L. Vohra, for the
appellants in C.As. Nos. 353 and 362of1960.
I. M. Nanavati, S. N. Andley, J. B. Dadachanji,
Rameshwar Nath and P. L. Vohra, for the appellants
in C. As. Nos. 354, 356, 363-365, 367 and 369 of
1960.
J. B. Mehta, S. N. AnQ,ley, J. B. Dadachanji,
Rameshwar Nath and P. L. Vohra, for the appellants
in C. As. Nos. 355, 359-361, 366 and 368 of 1960.
S. R. Vasavada, for the respondent in C. As. Nos.
351, 352, 355, 358, 360-364, and 368 of 1960.
N. H. Shaikh, for the respondent in C. As. Nos. 353
and 365 of 1960.
N. M. Barot, for the respondent in C. As. Nos. 354, ·
359 and 367 of 1960.
J(. L. Hathi, for the respondent in C. As. Nos. 366
and 369 of 1960.
1960. December 7. The Judgment of Gajendragadkar, Sarkar, Wanchoo and Mudholkar, JJ. was delivered by Wanchoo, J. Subba. Rao, J. delivered a
separate Judgment.
WANCHOO, J.-These eighteen appeals by special
leave raise a common question and will be dealt with
by this judgment. The appellants are certain cotton
textile mills in Ahmedaba.d while the respondent in
each appeal is the Textile Labour Association,
Ahmedabad, which is a representative union of the
cotton textile workers in Ahmedabad. The total
number of cotton textile mills in Ahmeda.ba.d is 66;
therefore, 66 references under s. 73-A of the Bombay
Industrial Relations Act, No. XI of 1947 (hereinafter
called the Act), were made to the industrial court for
arbitration of disputes arising out of notices of change
New Manetk
Chowk Spg. &
Wvg. Co. Ltd.
v.
Texttl~ Labour
Association
Wanchoo ].
•
r960
New Maneck
Chowk Spg. b
Wvg. Co. Ltd.
v.
Textile Labour
Association
Wanchoo ].
4
SUPREME COURT REPORTS
[1961)
given by the respondent making a demand for bonus
for employees of textile mills in Ahmedabad. It
appears that there was an agreement between the
Textile Labour Association and the Ahmedabad Millowners' Association representing the member-mills on
June 27, 1955 (hereinafter referred to as the Agreement), with respect to payment of bonus by the mills
to their employees. The Agreement was to remain in
force for a period of five years, beginning with
January 1, 1953, and ending with December 31, 1957,
and related to bonus for the five calendar years from
1953 to 1957 (both inclusive). When the Agreement
came to an end disputes arose about bonus for the year
1958. The Agreement was not extended and a notice
of change under s. 42 of the Act was given by the
Textile Labour Association to the Ahmedabad Millowners' Association on July 21, 1959, claiming that all
the employees employed during the year 1958 in the
member-mills be paid an adequate amount of bonus
having regard to the volume of profits, if any, or some
bonus irrespective of profits to fill the gap between the
existing wage and the living wage so as to avoid
unrest among the employees. It further appears th;>t
notice in the same terms was given to individual mills
about the same time. As no agreement was arrived
at between the parties, 66 references with respect to
the sixty-six mills were made to the industrial court
as already mentioned above. The industrial court
considered all the sixty-six references together and
came to the conclusion that the Agreement of 1955
had worked fairly to both sides and was substantially
in accord with the long-standing practice in the
industry in Ahmedabad even before the Agreement
and that its extension for one year was essential for
keeping industrial peace. It therefore ordered the
extension of the Agreement for the year 1958 and
directed the parties to file within six weeks from the
date of· the award calculations of bonus payable for
the year 1958 in the light of the decision and thereafter the court would proceed to award appropriate
bonus in the case of each h~_dividual mill. Thereupon
there were fifty-two applications for special leave to
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3 s.c.R. SUPREME COURT REPORTS
5
appeal to this Court in which special leave was granted. Thirty-four of the appeals arising out of the
special leave petitions have been withdrawn and only
eighteen now remain for decision. It appears that the
remaining fourteen mills accepted the decision of the
industrial court, so that now forty-eight mills are out
of the picture and only eighteen are before the Court.
The main contention of the appellants before the
industrial court was that in view of the law laid down
as to bonus by this Court in the Associated Cement Companies Ltd. v. The Workmen (1), it was not open to it to
extend the Agreement for the year 1958 as that would
be against the concept of bonus as understood in
industrial Jaw. The same point is being urged before
us and the question that falls for decision is whether
the industrial court was right in law in extending the
Agreement for another year.
In order to appreciate the dispute between the parties with respect to the extension of the Agreement
we may refer to the salient terms of the Agreement.
Before we do so, we may mention that the Agreement
was "without renouncing the general principles enunciated in decisions and awards of the arbitration
boards, the industrial court, the Labour Appellate
Tribunal and the Supreme Court in respect of bonus
or the rights and privileges created thereunder". It
was entered into only with a view to creating goodwill among workers and for the purpose of maintaining peace in the industry and without creating a precedent for the future. The Agreement in the first
place provided that the claim of the employees for
bonus would only arise if there is an available surplus of profit after making provision for all the prior
charges. These prior charges were: (i) statutory depreciation and the development rebate; (ii) taxes; (iii)
reserve for rehabilitation, replacement and modernisation of block as calculated by the industrial court
(basic year 1947); (iv) six per centum return on paid-up
capital including bonus shares; and (v) two per cent.
return on reserves employed as working capital. After
the available surplus was determined thus, a mill
(I) [1959] S.C.R. 925.
New Man!'ck
Chowk Spg. &-
Wvg. Co. Ltd.
v.
Textile Labour
Assoc·iaJion
~Vanchoo ].
New ~1aneck
Chowh Spg. &
Wvg. Co. Ltd.
v.
Textile Labof:4r
Association
Wane/Joo j.
6
SUPREME COURT REPORTS
[1961)
having an available surplus of profit had to pay to its
employees bonus which would in no case be less than
an amount equivalent to 4•8% of basic wages earned
during the year; nor wa!\ it to exceed an amount
equivalent to 25% of the basic wages earned during
the year. It was also provided that in case ~he available surplus was more than sufficient for granting
bonus at a higher figure than the ceiling of twentyfive per centum of basic wages earned during the year
and the maximum bonus of 25 per centum was paid,
such a mill would be deemed to have set a.side a part
of the residue of available surplus after grant of maximum bonus not exceeding 25 per cent. of the basic
wages earned during the year as a reserve for bonus
for purposes of "set on" (adjustment) in subsequent
years. Secondly it was provided that where in the
case of a mill, the available surplus was not more
than the ceiling of 25 per cent. of basic wages fixed
for bonus, the bonus would be fixed after deducting at
least Rs. 10,000 from the available surplus. Further
it was provided that if a mill had an available surplus
of profits which would suffice to 'pay bonus at a rate
lower than the minimum of 4'8 per cent. it would pay
the minimum and would be entitled to set off the
excess amount thus paid against the available surplus
in a subsequent year or years and there were provisions how this set-off would be worked out. Lastly
it was provided that if the profits of a mill were not
sufficient to provide for all prior charges as mentioned
above, though it had made profits, or where the mill
had actually suffered a loss, such a mill would as a
special case for creating good will among its workers
and for continuing peace in the industry but without
creating a precedent pay to its employees the minimum bonus equivalent to 4·8 per cent. of the basic
wages but would be entitled to set off this amount towards any available surplus in any subsequent years,
subject, however, always to a payment of a minimum
bonus at the rate of 4·8 per cent. of basic wages earned during the year.
It has been contended on behalf of'the appellants
that the formula under the Agreement departs in
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3 S.C.R. SUPREME COURT REPORTS
7
some vital aspects from what is known as the Full
Bench formula evolved by the Labour Appellate Tribunal in The Mill-owners' Association, Bombay v. The
Rashtriya Mill Mazdoor Sangh('), which has been
approved by this Court in the Associated Cement Companies' case (') and is thus the law of the land so far
as bonus is concerned. It is urged therefore that inasmuch as the formula under the Agreement departs
from the Full-Bench formula which is now the law of
the land, it was not op{ln to the industrial court to extend the Agreement in the face of the decision of this
Court in Associated Cement Companies' case(') and in
so far as the industrial court has done so it has gone
against the law relating· to bonus and therefore the
award should be set aside.
·
Two questione immediately arise in this connection:
the first relates to the jurisdiction of the industrial
court to impose new obligations upon the parties and
the second is whether if the industrial court has jurisdiction to impose new obligations it could do so in a
matter of this kind considering the concept of bonus
as laid down by the decisions of this Court.
So far as the first question is concerned (namely,
the general power of an industrial court to impose
new obligations upon the parties), the matter is now
well-settled by the decisions of the Federal Court and
also of this Court. It was held by the Federal Court
in Western India Automobile Association v. Industrial
Tribunal, Bombay and Others (') that-
"adjudication does not in our opinion mean adjudication according to the strict law of master and
servant. The award of the tribunal may contain
provisions for settlement of a dispute which no
court could order if it was bound by ordinary law,
but the tribunal is not fettered in any way by these
limitations."
The Federal Court also approved the view of Ludwig
Teller that-
"industrial arbitration may involve the extension
of an agreement or the making· of a new one, or in
(I) [1950] 2 L.L.J. 1247.
(2) [1959] S.C.R. 925.
(3) [1949] F.C.R. 321.
New Maneck
Chowk Spg. b
Wvg. Co. Ltd.
v.
Te~tile Labour
Association
Wanchoo ].
New Maneck
Chowk Spg. O>
Wvg. Co. Ltd.
v.
T~~tile Labour
Association
Ji'l"anchoo j.
8
'
SUPREME COURT REPORTS
[1961)
general the creation of new obligations or modification of old ones while commercial arbitration generally concerns itself with interpretation Of existing
• obligations and disputes relating to existing agreements (see p. 345)."
This Court also in Rohtas Industries Ltd. v. Brijnandan Pandey (1) held th!l.t-
"a court of law proceeds on the footing that no
power exists in the courts to make contracts for the
people; and the parties must make their own contracts. The Courts reach their limit of power when
they enforce contracts which the parties have made.
An industrial tribunal is not so fettered and may
create new obligations or modify contracts in the
interests of industrial peace, to protect legitimate
trade union activities and to prevent unfair practice
and/or victimisation (seep. 810)."
In Patna Electric Supply Oo. v. Patna Electric Supply
Workers' Union('), this Court held that-
"there is no doubt that in appropriate cases
industrial adjudication may impose new obligations
on the employer in the interest of social justice and
with the object of securing peace and harmony between the employer and his workmen and full cooperation between thei:n (see p. 1038)."
and approved of the decision of the Federal Court in
Western India Automobile Association's case ('). There
is no doubt therefore that it is open to an industrial
court in an appropriate case to impose new obligations on the parties before it or modify contracts in
the interest of industrial peace or give awards which
may have the effect of extending existing agreement
or making a new one. This, however, does not mean
than an industrial court can do anything and everything when dealing with an industrial dispute. This
power is conditioned by the subject-matter with which
it is dealing and also by the existing industrial law
and it would not be open to it while dealing with a
particular matter before it to overlook the industrial
(1) [1956] S.C.R. Boo.
(2) [1959] Supp. 2 S.C.R. 761.
(3) [111-49] F.C.R. 321.
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3 S.O.R. SUPREME COURT REPORTS
9
law relating to that matter as laid down by the legislature or by this Court.
This brings us to the second question; which is the
real question in dispute in this case, namely, whel}
dealing with a bonus case, like the present, was it
open to the industrial court to overlook the law laid
down by this Court in Associated Cement Companies'
case(') and make an award extending the Agreement
for a further period of one year?
In order to determine this question, we have to
look at the concept of bonus as evolved in the industrial law of this country by industrial tribunals and
_now by the decision of this Court. So far as we can
see, there are four types of •bonus which have been
evolved under the industrial law as laid down by this
Court. Firstly, there is what is called a production
bonus or incentive wage (see Titaghur Paper Mills v.
I ts Workmen (') ); the second is bonus as an implied
term of contract between the parties (see Messrs.
lspahani Ltd. v. lspahani Employees' UniQn (')); the
third is customary bonus in connection with some
festival (see The Graham Trading Go. v. Its Workmen(')) and the fourth is profit bonus which was evolved by the Labour Appellate Tribunal in The Millowners' Association Bombay v. The Rashtriya Mill
Mazdoor Sangh, Bombay (6), and which has been considered by this Court fully in two cases. We are in the
present case dealing with bonus of the fourth kind,
namely, profit bonus and what we say subsequently
refers only to this kind of bonus.
What is the concept of profit bonus with which we
are concerned in this case, for it is this concept which
will determine whether it was open to the industrial
court in this case to exter.d the Agreement for 1958?
In Muir Mills .Go. Ltd. v. Suti Mills Mazdoor
Union (6), this Court pointed out that-
"There are two conditions, which have to be satisfied before a demand for bonus can be justified and
(1) [1059] S.C.R. 9Z5
(3) [1960] I S.C.R. :24.
(5) [1950] :z L.L.J. 1247,
(2) [t9)9] Supp. 2 S.C.R. 1012.
(-4) [1q60] I S.C_R. 107.
(6) [1955] 1 S.C.R. 991.
New A1antck
Chowk Spg. b
Wvg. Co. Ltd.
v.
Te.tlile LaboH1
Association
Wanclloo ].
l\rew Ma,uch
Chowk Spg. ii-·
lf"vg_ Co. Ltd.
v.
Textile labour
Association
~Vanchoo J.
IO
SUPREME COURT. REPORTS
[1961]
they are: (1) when wages fall short of the living standard, and (2) industry makes huge profits part of
which are due to the contribution which the workmen make in increasing production. The demand
for bonus becomes an industrial claim ............ The
basis for the claim .is that labour and capital both
contribute to the earning of the industrial concern
and it is fair that labour should derive some benefit, if there is a surplus after meeting prior or necessary charges ............... The surplus that remained
after meeting the aforesaid prior charges would be
available for distribution as bonus."
The matter was again considered by this Court in t.he
Associated Cement Companies' case (1) where the Full
Bench formula evolved by the Labour Appellate Tribunal was gone into at length. The workmen contended in that case that the formula required revision as
the employers were becoming increasingly more rehabilitation-conscious and their appetite for the provision
for rehabilit.ation was fast growing with the result
that in most cases, after allowing for rehabilitation,
there was no surplus left for the purpose of bonus and
the main object of the formula was thus frustrated.
It was further contended for the workmen that the
whole of rehabilitation expenses should not be provided for out of trading profits and that the claim for
rehabilitation should be fixed at a reasonable amount
and the industry should be required to find the
balance from other sources. It was there held that-
"though there may be some force in the plea
made for the revision of the Full Bench formula,
the problem raised by the said plea is of such a
character that it can appropriately be considered
only by a high-powered commission and not by this
Court, while hearing the present group of appeals."
This Court also held that-
" the Full Bench formula had on the whole worked fairly satisfactorily in a large number of industries all over the country, and the claim for bonus
should be decided by the Tribunals on the basis of
this formula without attempting to revise it. The
(1) [1959] S.C.R. 925.
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3 S.C.R. SUPREME COUR'l' REPORTS
11
formula. was elastic enough to meet reasonably the
claims of the industry and labour for fair-play and
justice ............ It was based on two considerations:
first, that labour was entitled to claim a share in the
trading profits of the industry, because it had partially contributed to the same; and second, that
labour was enhtled to claim that the gap between
its actual wage -a.nd the Ii ving wage should within
reasonable limits be filled up."
The Full Bench formula provided for arriving at the
available surplus after meeting prior charges, namely,
(i) depreciation, (ii) taxes, (iii) return on paid-up
capital, (iv) return on working ca.pita.I a.nd (v) rehabilitation. The formula further dealt with the claim
for bonus on the basis that the relevant year is a. self.
sufficient unit and appropriate accounts have to be
made in respect of the said year. Finally, it wa.s pointed out that it was only after all the prior charges ha.d
thus been determined and deducted from the gross
profits that the available surplus could be a.sserta.ined
for payment of bonus, and that when the ava.il~ble
surplus had been ascertained, there were three parties
entitled to claim shares therein, namely, (i) labour's
claim for bonus, (ii) industry's claim for the purpose
of expansion and other needs, and (iii) the shareholders' claim for additional return on the capita.I invested by them; the ratio of distribution would necessarily depend on several factors. It would thus be
clear that the essential concept of profit bonus is that
there should be an available surplus determined according to the principles laid down in the cases mentioned above for distribution. If there is no such available surplus for distribution, there can be no case for
payment of profit bonus. This is the industrial law
as laid down by this Court with respect to this kind
of bonus in Associated Cement Companies'- case ('). It
would in onr opinion he not open to an industrial
court or tribunal to ignore this law as to bonus and
to ~xtend an agreement for payment of bonus, which is
ag~inst the basic concept of bonus as laid down by
the decisions of this Court on the ground that an
(1) [1959] S.C.R. 925.
~vew Mantck
Chowk Spg. &
H'ug. Co. Ltd.
v.
Textile Labour
Association
H'a~ichoo J.
1960
New .11aneck
Chowk spg . .s.
Wvg. Co. Ltd.
..
Textil~ Labour
Association
Wandoo J.
12
SUPREME COURT REPORTS
[1961]
industrial court has power generally to extend agreements or to create new obligations. As :ilready pointed out, that power has to be exercised keeping in
view the subject-matter before the triounal and the
law la.id down by the legislature or by the decisions
of this Court, with respect to that subject-matter.
The industrial court in this case was not unaware of
this position, viz., that it was departing from the law
laid down in the Associated Cement Companies' case (1)
and other bonus cases; but it held that this Court was
dealing in those cases with individual units, and not
with a case where there were numerous concerns in
an industry at one centre, with its particular historical
back-ground, where previous awards had been on an
industry-wise basis. It therefore held that the decisions of this Court could not apply in their entirety to
the dispute before it and that this Court could not
have intended that in a case where there was the additional circumstance that the parties had themselves
voluntarily modified the bonus formula in some respects by a long term agreement, that could not be
extended by an industrial court. It is the correctness
of this view which has been strongly disputed before
us by the appellants.
Before we deal with this matter, we should like to
point out that the fact that there are numerous concerns in a particular place can have no relevance in
considering the question whether the Full Bench formula can apply to cases like the present. Even though
this Court was dealing with the case of one concern,
namely, the Associated Cement Companies, it pointed
out that the Full Bench formula had worked fairly
satisfactorily all over the country and should continue
to be applied without revision till such time as a highpowered commission went· into the question. There
is in our opinion no question of industry-cum-region
approach in the matter of a bonus dispute of this
kind. There is no doubt that in many matters, like
wages, conditions of service, over-1.ime allowance,
dearness allowance, gratuity, and so on, industry-cumregion approach has been made by industrial courts
(t) [1959] S.C.R. 9•5.
,
1
f
•
"
3 S.C.R. SUPREME COURT REPORTS
13
in this country and, rightly so.
But there is, in our
opinion, no scope for an a pp roach of this kind in the
case of bonus, the basic concept of which is that payment depends on surplus of profits available according
to some formula in the case of each industrial concern.
Nor can it be said that the Agreement in this case is
dealing with bonus in what is known as industry-cumregion basis. Its salient terms as set out above will
show that it deals with bonus according to available
surplus of each mill, so that bonus paid by each mill
depends on its own available surplus and the sixty-six
mills situate in Ahmedabad may pay different
amounts of bonus varying from a minimum of 4·8 per
cent. of the basic wages to 25 per cent. of the basic
wages.
Similar differences will arise if the Full
Bench formula is applied to the sixty-six mills in
Ahmedabad. Thus the Agreement which has been
extended, is not based on industry.cum-region approach, as it is understood. That approach, say, with
respect to wages means that wages of all concerns
situate in a particular area engaged in a particular
industry should be the same. On that approach the
bonus of all these sixty-six mills should also be the
same percentage for each mill in that area; but that
is not the basis on which the Agreement was arrived
a.t.
The basis of the Agreement is that each individual mill is treated as a. separate unit and its available
surplus worked out according to the formula in the
Agreement itself. This is also the basis of the Full
Bench formula. and the available surplus of each unit
is worked out according to that formula, though the
result of the application of the two formulae in each
case may not be the same. There is in our opinion therefore .no justification for the view that the Full Bench
formula approved by this Court in the Associated
Cement Companies' case (1) can have no application
where there are numerous concerns of one nature a.t
one centre. Some bonus awards were brought to our
notice to show that they were on industry-cum-region
basis, namely, The Sugar Mills of Bihar v. Their
Worktnen(') and The Sugar Mills, Uttar PradMh v.
(1) (195~! ~C.R. 925.
J.\Tew Maneck
Chowk Stg . .S.
Wvg. Co. Ltd.
v.
Textile Labour
A.~socialicnt
iv anchoo J,
New Maneck
Chowk Spg. o;.
Wvg. Co. Ltd.
v.
Textile Labour
Association
~ranchoo ].
14
SUPREME COURT REPORTS
[1961)
Their Workmen(').
These awards related to sugar
industry in Uttar Pradesh and iu Bihar. As we read
these decisions, we do not find real industry-cumregion approach which would result in uniform bonus
for all the mills dealt with by these two awards. What
we find is that a different formula was worked out for
awarding profit bonus linked with production on the
basis that there were profits; but when the formula is
worked for each mill the bonus would differ from mill
to mill acco~ding to its production. Further, we find
that in the Uttar Pradesh case there. were certain
exemptions granted to certain factories, presumably on
the ground that they were not in a position to pay
bonus for want of sufficient profits. It jg true that in
the Bihar case it was said that the question of bonus
could be considered on industry-wise and not on unitwise basis, but that only meant that one formula was
evolved for the whole of Bihar and applied to every
mill in that area. That is what exactly the Full Bench
formula also has done, for it is the same formula
which applies to all industrial eoncerm. all over the
country now after the decision of this Court. In the
Bihar case, an argument was addressed to apply the
Full Bench formula, but that was not accepted on the
ground that balance sheets and profit and loss accounts
were not reliable and therefore bonus wa8 linked with
production. In the Bihar case also some factories
were exempted from paying bonus presumably on the
ground that they were unable to do so not having
made profits. These cases therefore are not instances
of real industry-cum-region approach. Reference was
also made to The Textile M ill8 in Ooimba,tore Distr·ict
v. Their Workmen(') relating to Coimh~tore textile
mills. In that case the industrial court considered
whether bonus at a flat rate for all the mills should be
awarded or whether a distinction should be made
between mills and mills. It held that the mills themselves when they paid bonus observed or maintained
no distinction; therefore in the peculiar circumstances
of that case a uniform rate of 33-1/3 per cent. was
awarded for all the mills as specially all the mills had
(1) [1952] 1 L. L. J. 615.
(2) [1950] 2 L .. L. J. 203.
'
•
•
'
3 S.C.R. SUPREME- COURT REPORTS
15
without exception made unique profits.
As we have
said already the basic concept of profit bonus, as it
appears from the judgments of this Court, is that
there should be an available surplus of profits in a
particular concern in a particular year, to which the
bonus relates and on this basic concept there is no
scope for an approach on the basis of industry-cumregion in the matter of bonus in the sense that every
mill in a region should pay the same bonus. There is
therefore no question of industry-cum-region approach
in the present case, and even the formula in the Agreement is not on a real industry-cum-region approach and
has to be worked out from mill to mill, which is like
the Full Bench formula.
The reasons therefore which
led the industrial court in this case to distinguish and
depart from the decision of this Court in The Associated Cement Companies' case (1) do not appear to us to
be substantial and there was therefore no ground for
departing from that decision for those reasons.
This brings us to a consideration of the formula.
as provided in the Agreement and the Full Bench
formula as approved by this Court.. It was urged on
behalf of the respondent that the two formulae were
basically the same; both provided for prior charges and
in both bonus was to be paid on the availability of
surplus profits, though it was admitted that in certain
respects there were differences.
Now if these differences were merely of detail and did not affect some
of the vital aspects of the Full Bench formula it might
be said that there ,was no ignoring of the law as laid
down by this Court and therefore the tribunal was not
unjustified. in extending the Agreement for a year.
But a comparison of the formula in the Agreement
with the :Full Bench formula shows differences in three
vital aspects. In the first place, rehabilitation provided in the Agreement differs vitally from rehabilitation as explained in The Associated Cement Companies
case (1 ). In the second place, the formula in the Agreement provides for payment of a minimum bonus even
though there may be no available surplus and even
though the particular mill might have made actual
(1) [1959] S.C.R. 925.
1960
New Mane&k
Chowh SP:. b
Wvg. Co. Lid.
v.
Textile Labour
Association
Wanchoo ].
New l'v! a neck
Chowk Spg. &
Wvg. Co. Ltd.
v.
Tc;rJile Labottr
Associalio11
Wanchoo J.
16
SUPREME COURT· REPOR'rS
[1961]
loss. Thirdly, while the Full-Bench formula as approved by this Court treats a particular year as a self.
sufficient unit, there is provision for set-off and set-on
in the formula in the Agreement. Can it therefore be
said that the formula in the Agreement which departs
in these vital particulars from the Full Bench formula
in the matter of bonus could be extended for another
year by the industrial court in the face of the decisions
of this Court laying down the law as to what profit
bonus is and how it should be worked out? The tribunal therefore when it extended the formula in the
. Agreement which departed from the Full Bench formula in certain vital aspects was undoubtedly ignoring
the industrial law as laid down by this Court and
going against it.
It was its duty when dealing
with the question of profit bonus to apply the
Full Bench formula, as approved by this Court and
then arrive at the quantum of bonus to be awarded in
the case of each mill. In particular by extending the
Agreement the tribunal made it possible for payment
of a minimum bonus even when there was either
insufficient available surplus to pay bonus or no available surplus at all or even act11al losB; the tribunal
was thus definitely going against the industrial law
relating to bonus as laid down by this Court. It had
in our opinion no power to do so and the reasons .
which it gave for departing from the law laid down by
this Court are unsubstantial and do not commend
themselves to us. In these circumstances the order
of the trib,unal extending the Agreement for a year
cannot be upheld.
Further it was urged that in any case the Agreement contemplates payment of bonus out of profits of
the industry at Ahmedabad. as a whole and that is
why it has provided for set-off and set.on. Whatever
may be said about this provision on a long term basis,
the tribunal's jurisdiction was limited by its terms of
reference. There was not one reference before the
tribunal on industry-cum-region basiB but sixty-six
separate references, one relating to each mill. It was
required to consider the question of bonus for each
mill for the year 1958 only and thus had nothing to
•
••
3 S.C.R. SUPREME COURT REPORTS
17
do with set-off and set-.on or the profits of the industry
as a whole at Ahmedabad. The tribunal was only concerned with 1958 and no consideration as to what
happened before that year or what may happen after
1958 could enter into its decision of the question of
bonus for the year 1958. The principle of set-off
and set-on therefore to be found in the Agreement
could not convert payment of bonus for 1958, say, by
a loss making mill into profit bonus as laid down by
the decisions of this Court. The tribunal's award in
this case therefore would clearly be against the law as
to bonus laid down by this Court, for its jurisdiction
was confined only to the year 1958 and no more.
It was however urged on behalf of the respondent
that there is a fifth kind of bonus, namely, goodwill
bonus and that the Agreement when it provides for
a minimum bonus irrespective of availability of
profits provides for such bonus in the interest of industrial peace. It is enough to say that so far as what is
called goodwill bonus is concerned it pre-supposes that
it is given by the employer out of his own free will
without any compulsion by an industrial court. As
its very name implies it is a bonus which is given by
the employer out· of his free consent in order that
there may be goodwill between him and his workmen;
but there can be no question of imposing a goodwill
bonus by industrial courts, as imposition of such a
bonus is a contradiction of its very concept. We have
already referred to four kinds of bonus which prevail
in the industrial law in India and which can in certain
circumstancei> be imposed by industrial tribunals; but
there can be no question of the imposition of the socalled goodwill bonus, for. that bonus depends upon
the good will of the parties and on their' free consent.
In the absence of such free consent, there can be no
question of any goodwill bonus.
Before we part with these appeals, however, we
must briefly advert to the general considerations which
have been pressed before us very strongly by Mr.
Vasavada for the respondents and Mr. Ambekar for
the intervening parties. It has been urged before us
3
· .......
New Maneck
Chowk Spg. &
Wvc. Co. Ltd.
v.
Te:rtile Labour
Association
Wanchoo ].
z960
AT ew M aneck
Chowk Spg. &
Wvg. Co. Ltd.
v.
Te:J. tile Labour
Association
H' anchoo ].
18
SUPREME COURT REPORTS
[1961)
that we should be reluctant to interfere with the agreement because it has worked satisfactorily in Ahmedabad, and the reversal of the award under appeal may
lead to discontent in a very important centre of textile
industry in this country. It has also been strenuously
argued that the Agreement offers a very reasonable
solution to the vexed problem of bonus and the pattern set by it has been copied in Bombay, Madhya
Pradesh and Coimbatore. If the pattern thus set for
determining the textile employees' cla.im for bonus
has been adopted by a substantial part of the textile
industry in this country, the Court should desist from
disturbing the smooth working of the said pattern unless it is compelled to do so: It may be conceded that
some features of the Agreement are undoubtedly very
reasonable and in the interest of the industry as a
whole. The agreement has put a ceiling on bonus and
that is a term very mucJ,i in favour of the employer,
because in some cases where the available surplus is
very large, then under the working of the .Full Bench
formula the employees arc tempted to claim, and
industrial tribunals are justified in awarding, a proportionately .substantial amount as bonus reaching or
even exceeding in some cases the level of basic wages
of even 8 or 9 months.