# J. K. SYNTHETICS LTD v. J. K. SYNTHETICS MAZDOOR UNION

- **Citation:** [1972] 1 S.C.R. 651
- **Court:** Supreme Court of India
- **Decided:** 1971-09-09
- **Case number:** Civil Appeal No. 1675 of 1970
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/j-k-synthetics-ltd-v-j-k-synthetics-mazdoor-union-5423
- **Pages:** 22

## Headnote

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J. K. SYNTHETICS LTD.
v.
J. K. SYNTHETICS MAZDOOR UNION
September 9, 1971
65I
lC. A. VAIDIALINGAM AND P. JAGANMOHAN REDDY, JJ.J
Bonus-When dividends on shares are extraneous inconie for the
purpose of pay111ent of Bonus Act, 1965-The principle for determining
the sha1e rt'qriired for rehahilitation.
A dispute for Bonus was raised by the workers of the Appellant company before the Tribunal for the Bonus year
1962-63,
as the appellant
company which made profit during the year, did not pay any bonus to the
workers; hut only a gratuity of one month was paid to them. According
to revised returns filed by the workers, there was an available surplus of
Rs. 5.34 lakhs: hut according to the n1anagemcnt, there was a deficit.
There were two main points of dispute : ( 1) the workers challenged the
deduction of Rs. 4.1 lakh received as dividend by the company as extraneous income..
According to the management however, as the company invested part of the paid up capital in shares which earned an income of
Rs. 4.1 lakh, the company was entitled to claim this amount as an extraneous income because the workers had made no contribution in its ea.ming
and so this amount should be deducted from the groos profit. (2)
The·
workers also disputed Rs. 75.89 lakhs shown by the management as the·
annual share required for rehabilitation. The management divided
the
plant and machinery of the company into two blocks. The original cost
of the plant and machinery for first block was Rs.
133.00 lakhs and
Rs . .15.0 lakhs for the second block. The appellant company claimed the
'Multiplier' (which is the probable increase. in the price of assets at the
time of rehabilitailion over the original cost) for each of the two blocks
as 6 and the 'deviser' (number of years after which the asset requires replaooment), for the first block as 10 and for the second block as 11.
The Tribunal decided the first point against the management because
even though there was share capital available to the appellant, instead of
utilising it as working capital, it had borrowed amount'i
to
work the
Nylon factorv for which it had to pay an interest of over Rs. 5 lakhs. Jn
these circumstances, it disallowed the claim for deduction on the ground
that it would be unfair to allow the management to treat the income
from investments as extraneous income and still reduce the profits
bv
raising loans and pay interest'\ resulting in diminution o'f the surplus. on
the second point the Tribunal admitted
only a fraction
of the total
amount as annual share required for rehabilitation. It held the 'Multiplier' as 4 for the first block and 2 for the second block and the 'deviser'
as 13 and 14 respectively.
After deducting the prior charges from the
gross profits, the tribunal computed the available surplus to be Rs. 3.25
lakhs and of this,
60 per cent payable as bonus would · come to
Rs. 2,11,000/-. As the company had already distributed Rs. 90,000 the
tribunal directed payment of the balance of Rh 1,21,000/- as bonus.
In
appeal by special leave, a. further point was a.oitated before the Court as
to whether the Respondent can challenge a finding by the Tribunal in the
absence of an appeal by it.
Dismissing the appeal,
HELD : (i) Since the divictend in the present case is the return from
investments of part of the paid up capital of the company whjch is invested •for the purpooe of earning an income, it cannot be construed as
•652
SUPREME COURT REPORTS
[1972] [ S.C.R.
extraneous income and the Tribunal is justified in disallowing the dividend
.on shares as a valid deduction.
The return on paid up capital is· one of
the prior charges admissible
as. a valid deduction and if any amount is
earned from the employment of capital unconnected with the business of
the company, the labour cannot claim the right to participate in its returns.
Further if any reserve is utilised for working capital, whether this
.reserve is depreciation reserve or any reserve, a return in respect of these
arc also

## Text

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J. K. SYNTHETICS LTD.
v.
J. K. SYNTHETICS MAZDOOR UNION
September 9, 1971
65I
lC. A. VAIDIALINGAM AND P. JAGANMOHAN REDDY, JJ.J
Bonus-When dividends on shares are extraneous inconie for the
purpose of pay111ent of Bonus Act, 1965-The principle for determining
the sha1e rt'qriired for rehahilitation.
A dispute for Bonus was raised by the workers of the Appellant company before the Tribunal for the Bonus year
1962-63,
as the appellant
company which made profit during the year, did not pay any bonus to the
workers; hut only a gratuity of one month was paid to them. According
to revised returns filed by the workers, there was an available surplus of
Rs. 5.34 lakhs: hut according to the n1anagemcnt, there was a deficit.
There were two main points of dispute : ( 1) the workers challenged the
deduction of Rs. 4.1 lakh received as dividend by the company as extraneous income..
According to the management however, as the company invested part of the paid up capital in shares which earned an income of
Rs. 4.1 lakh, the company was entitled to claim this amount as an extraneous income because the workers had made no contribution in its ea.ming
and so this amount should be deducted from the groos profit. (2)
The·
workers also disputed Rs. 75.89 lakhs shown by the management as the·
annual share required for rehabilitation. The management divided
the
plant and machinery of the company into two blocks. The original cost
of the plant and machinery for first block was Rs.
133.00 lakhs and
Rs . .15.0 lakhs for the second block. The appellant company claimed the
'Multiplier' (which is the probable increase. in the price of assets at the
time of rehabilitailion over the original cost) for each of the two blocks
as 6 and the 'deviser' (number of years after which the asset requires replaooment), for the first block as 10 and for the second block as 11.
The Tribunal decided the first point against the management because
even though there was share capital available to the appellant, instead of
utilising it as working capital, it had borrowed amount'i
to
work the
Nylon factorv for which it had to pay an interest of over Rs. 5 lakhs. Jn
these circumstances, it disallowed the claim for deduction on the ground
that it would be unfair to allow the management to treat the income
from investments as extraneous income and still reduce the profits
bv
raising loans and pay interest'\ resulting in diminution o'f the surplus. on
the second point the Tribunal admitted
only a fraction
of the total
amount as annual share required for rehabilitation. It held the 'Multiplier' as 4 for the first block and 2 for the second block and the 'deviser'
as 13 and 14 respectively.
After deducting the prior charges from the
gross profits, the tribunal computed the available surplus to be Rs. 3.25
lakhs and of this,
60 per cent payable as bonus would · come to
Rs. 2,11,000/-. As the company had already distributed Rs. 90,000 the
tribunal directed payment of the balance of Rh 1,21,000/- as bonus.
In
appeal by special leave, a. further point was a.oitated before the Court as
to whether the Respondent can challenge a finding by the Tribunal in the
absence of an appeal by it.
Dismissing the appeal,
HELD : (i) Since the divictend in the present case is the return from
investments of part of the paid up capital of the company whjch is invested •for the purpooe of earning an income, it cannot be construed as
•652
SUPREME COURT REPORTS
[1972] [ S.C.R.
extraneous income and the Tribunal is justified in disallowing the dividend
.on shares as a valid deduction.
The return on paid up capital is· one of
the prior charges admissible
as. a valid deduction and if any amount is
earned from the employment of capital unconnected with the business of
the company, the labour cannot claim the right to participate in its returns.
Further if any reserve is utilised for working capital, whether this
.reserve is depreciation reserve or any reserve, a return in respect of these
arc also allowed as prior charges, at a reduced rate.
The company has
the discretion to invest its capital in various activities; but it cannot de-
.Prive the workmen of the benefits of the returns derived therefrom unless
the investments in such activity is extraneous to the activities of the company, in the earning of which the workers had not made any contribution.
In the present case, the return from the investments is a return on a part
of th~ paid up capital which is invested for the purpose of earning &n
income and therefore, it is not
extraneous income
as cJaimed
by the
managioment .. l656 G-H)
(ii) The elements which are important for the computation of annual
rehabilitation is the price of the
asset at original cost, the period for
which these assets can be used before requiring rehabilitation due to rise
:in
prices,
devaluation
etc.
In othet
\Vords,
for
computation
of
annual rehabilitation, the 'multiplier' and the 'deviser' is to be found out.
In the present case, the management failed to place satisfactory evidence
before the Tribunal to arrive at a proper" 'multiplier' and _'deviser' and in
absence of any ,proof as to how and on what basis the Tribunal had arrived
J.t its own 'multi.plier' and 'deviser' on a pure conjecture and guess \York.
the appeal cannot be sustained.
Further, the Tribunal is not justified in
including the trading investments to be available for the. purpose of re~
habilitation dS these investments
were made prior to !960 when the
company was c1.n investment company and as such these iuvestments \vere
not c.:on11ected
~ith the activities of the present company, \vhich
was
·floated only in 1960. [666 G]
(iii) In appeal, the respondents are entitled to challenge or support the
judgment in his favour given before the High Court even upon grounds
which are negatived in the judgment.
Workmen of M/s. Hindustan Motors Ltd. v. M/s. Hindustan Motors
Ltd. & Anr. [1968] 2 S.C.R. 311, M/s. Gannon Dunkerley & Co. v. Their
Workmen, [1971) 22 F.L.R. 158, Management of Northern.Railway Cooperative Society Ltd. v. Industrial Tribunal, Rojasthan,
[1967) 2 S.C.R.
476, Ramabhai Ashabhai Patel v. Dabhai Ajit Kumar Fulshin11ii [1965) 1
S.C.R. 712, Associated Cement Co. Ltd. v. Its Workmen, [1959) S.C.R.
925, Khandesh .<·pinning & Wvg. Mills Co. Ltd. v. Rashrriya Gir Kamgar
Samiti Jalgocm, [196-0) 2 S.C.R. 841, Bengal Kagazkar Mazdoor Union
v. Titaghar Paper Mills Co. Ltd., [1964) 3 S.C.R. 38, Nati01ud Engineering IndustriEs Ltd. v. Its Workmen, ,f,1968] l S.C.R. 779 and Honorary
Secretc,ry, Cobnhatore District Textile Workers Union [1962] Supp. 2
S.C.R. 926, referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1675 of
1970.
Appeal by special leave from the Award dated February 18,
I Q70 of the Industrial Tribunal, Rajas than, Jaipur in Case No.
I.T. 12 of 1967.
G. H. Pai, P. N. Tiwari and 0. C. Mathur, for the appellant.
M, K. Ramamurthi and Vineei Kumar, for the respondent.
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J. K. SYNTHETICS LTD. V. MAZDOOR UNION
653'
(Jaganmohan Reddy, J.)
The Judgme,a.t of the Court was delivered by
P. Jagll!"ohan Reddy, J.-This Appeal is by Special
Leave against the Award of the Industrial Tribunal; Rajasthan
directing the payment of a bonus of Rs. 1,21,000/- apart from an
amount of Rs. 90,000/- already disbursed to the workmen of the
Appellant for the year 1962-63. The dispute for the bonus year
beginning !st July '62 and ending 30th June '63 was raised by
the workmen because the Company which had admittedly made
profits, did not pay them a bonus though a gratuity of one month
was given to them. The following dispute was therefore referred
to the Tribunal :
"Whether workmen of M/s. J. K. Synthetics Ltd.,
Kota are entitled to any bonus for the year 1962-63 and
whether payment of one month's wages as gratuity by
the management can be regarded as payment towards
bonus for the year in question?".
The Mazdoor Union (hereinafter called 'the Union') on behalf
of the Workmen contended that on the basis of the calculation·
of available surplus they were entitled to a bonus of 60% in
accordance with the bonus formula which will entitle them to a
five months wages apart from the one month's wages already
paid to them. The first statement of computation filed on behalf
of the workers was obviously incorrect because it did not take
into account the various prior charges such as Income Tax, return
on reserves, rehabilitation reserve etc. which are deductible under
Full Bench fonnula as approved and accepted by this Court from
time to time. It therefore filed another revised return showing an·
available surplus of Rs. 5 .34 lakhs.
The management on the
other hand challenged the validity of the claim as according to it
there was no available surplus for distribution even though they
had already paid one month's bonus wrongly styled as gratuity.
The calculations given by it were also found to be equally wanting.
As such it filed a revised calculation showing a net deficit of
Rs. 72.35 lakhs. It may however, be mentioned that as pointed
out by the Tribunal, there was no dispute with regard to any of
the eight items which comprised the computation of gross profits
amounting to Rs. 62.16 lakhs. The Union also did not dispute the
deduction of interest on debentures of Rs. 0.06 lakhs;
share
transfer fee of Rs. 0.05 lakhs; the notional normal depreciation of
Rs. 30.57 lakhs; and the return on share capital of Rs. 7.50 lakhs.
It had however challenged the deduction of Rs. 4.1 lakhs received
as dividend on shares as extraneous income which was being claimed as a deduction by the management. It also disputed an amount
of Rs. 1, 11,000/- shown as return on reserves employed in the
business and Rs. 75.89 Jakhs shown as the annual share required
for rehabilitation.
The method of calculation of income tax
amounting to Rs. 15.23 lakhs was also objected to.
The four·
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SUPREME COURT REPORTS
[1972] l S.C.R.
items upon which the Tribunal was called on to adjudicate therefore were:
(1) Deduction of Rs. 4.10 lakhs received as dividend
.on shares from the gross
profits as extraneous
income;
(2)
Rs. l,11,000/- as return on reserves employed in business; (3)
Rs. 75.89 lakhs as annual share required for rehabilitation, and
( 4) Rs. 15.23 lakhs towards Income tax.
With respect to the first issue the Tribunal felt that even though
there was share capital available to the Appellant, instead
of
utilising it as working capital it had borrowed amounts to work
the Nylon factory for which they had to pay an interest of over
Rs. 5 lakhs.
In these circumstances it disallowed the claim for
deduction on the ground .that it would be unfair to allow the
management to treat the income from Investments as extraneous
income and still reduce the profits by raising
loans and pay
interests rc~ulting in demunition of the surplus.
On the second
;,,uc the objection of the Union for a deduction of Rs. l. ll
':ikM '" return on reserves employed as working capital was
,:;sallowed on the ground that the statement M.W. 2/1 produced
by Talwar. established that the excess of liability over the assets
,,, cts utilised as working capital during the course of the bonus.
year.
The claim of the management for deduction of Rs. 75.89
1,1 khs as share required for rehabilitation was however disallowed,
'" the oral and documentary evidence produced on behalf of the
\1anagement did not according to the Tribunal either establish
that the life of the Plant and machinery was only 10 years for
1961-62 Block (hereinafter called 'the first Block') and 11 years
for 1962-63 Block (hereinafter called 'the second Block') nor
was the deviser of six years for both the first and the second Block
reasonable. It found that the more reasonable multiplier was 13
years for machinery purchased in respect of the first Block and
14 years for machinery purchased in respect of the second Block
and likewise a reasonable deviser for these two Blocks would be
four years and two years respectively. In so far as rehabilitation
requirements for buildings was concerned the Union did not raise
arty dispute to the claim of the management amounting to Rs. 0.90
lakhs.
As there was also no dispute about the original cost of
plant & machinery, the Tribunal by applying the multiplier and
deviser as aforesaid computed the annual rehabilitation replacement for plant, machinery and buildings as follows :
Rupees in !aJ..hs
·~~~~--~~~~
Block
OrigiMulRep la- Break- BalanFunds Net
Life
Annu--
of Plant
nal
ti plier cement down
ce
availReplaal re
&
cost
cost
value
able
cement
quireMachinery
cost
n1cnt
-----·-
61-62
133·00
4
522 ·00 6·65
525·35
113 ·28
412·07
13
31 ·70
·62-63
15 ·00
2·0
30·00 0·75 ' 29 ·25
29 ·25
14
~ ·10
-._i ·)'0
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.T. K. SYNTHETICS LTD. v. MAZDOOR UNION
(Jaganmohan Reddy, J.)
Rehabilitation replace111ent for machinery
Rehabilitation replaccn1ent for building (as per Cotnpany calculation) .
Total
65 5
33·80
0·90
34·70
Accordingly the additional rehabilitation to be provided for was calculated as under :
B
Funds available :
c
Depreciation upto 31-3-62
General reserves
Investn1ents
Annual rehabilitation replacement
less : Depreciation provided during the year
Additional rehabilitation to be proYided ...
Rs. 15 ·68 lakhs
12 ·00
85 ·60
"
113 ·28
34 ·70
30·57
In so far as Income tax calculation is concerned the Com pan y"s
calculation of Rs. 15.18 lakhs was accepted being in accordance
with the calculations under the Income Tax Act with respect to
o
which it was said the Union did not find itself in a position to
contest.
The Tribunal after giving its finding on the matters in
issue computed the available surplus as follows:
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I. Gross profit
2. Deduct prior charges :
1. Notional normal depreciation
2. Direct tux
.
3. Return on share capital
Rs.
30·57 lakhs
15 ·18
7·50 "
4. Return on reserves
1 ·11
5. Additional requirement for rehabilitation
4 -~:;
58·59
"
Rs- 6~ ·I I lakhs
Available surplus .
Rs.
'.I ·25 lakhs
Of the 60% payable as bonus would come to Rs. 2,ll,000/-.
As the Company had already disbursed Rs. 90,000/-, the Tribunal
directed payment of the balance of Rs. 1,21,000/-.
Before us only two items of controversy have been
urged
namely: ( 1) relating to extraneous income of Rs. 4.10 lakhs and
(2) relating to rehabilitation requirement amounting to Rs. 75.89
lakhs, the first of which the Tribunal disallowed while in respect
of the second it only admitted Rs. 4.23 lakhs. With respect to
the first item, the disallowance of Rs. 4.10 lakhs, the management
not only claimed this amount but also Rs. 7.5 lakhs as retum on
paid np capital of Rs. 125 Jakhs @ 6% per annum. Obviously
even on a cursory glance it would appear that the management
was seeking to obtain double benefit in respect of investments
SUPREME COURT REPORTS
(1972] l S.C.R.
made out of the paid up capital.
The reasons which impelled
the Tribunal to reject the claim of the management have already
been noticed and it would therefore be unnecessary to reiterate
them. It however, ~ppeared to th~ Tribunal that if the Company
wanted to exclude mcome from mvestments it cannot also be
allowed 6% return on that part of the share capital which is invested elsewhere and at the same time be allowed to treat the
income of Rs. 4.10 lakhs earned therefrom as extraneous income.
because apart from deducting income tax on this amount the Com:
pany also meets the expenses of administration and management
in respect of the said investments.
In this view it sustained the
objection of the Union.
The return on paid up capital is one of the prior charges admissible under the Full Bench formula as approved by this Court.
It is based on the principle that while the claim of labour to a
share in the profits by way of bonus is in furtherence of social
justice, the claim of the capital for a fair return to the investor
and also to keep the industry running efficiently which will in the
long run enure for the benefit of labour is equally based upon that
principle. If therefore any amount is earned from the employment of capital unconnected. with the business of the Company.
the labour cannot claim the right to participate in its returns.
Apart from this if any reserves are utilised for working capital
whether these reserves are depreciation reserves or any other, a
return in respect of these also is allowed as a prior charge at a
reduced rate because utilisation of such reserves would obviate
the borrowing from outside sources for which a higher interest has
to be paid and which in the long run will not be for the benefit
of the workers.
These principles have been laid down by this
Court as well accepted in Industrial adjudication. While it is true
that the Company has the discretion to invest its capital in various
activities it cannot on that account deprive the workmen of the
benefits of the returns derived therefrom unless of course the investments in such activity is extraneous to the activities of the
Company. in the earning of which they had not made any contribution.
Whether in any particular case the return on investmeng amounts to an extraneous income will depend on the facts
and circumstances of each case. So far as the case before us is
concerned there can be no doubt that the return from the investment> is a return on a part of the paid up capital of the Company
which is invested for the purpose of earning an income. It cannot
therefore be construed as extraneous income.
In Workmen of
M/s. Hi!l(/ustan Motors Ltd. v. M/s. Hindustan Motors Ltd. &
Anr.,<1) to which one of us was a party (Vaidialingam. J. i no
doubt where the income of the Company was from interest on
II) 11968) 2S.C.R. 311.
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J. K. SYNTHETICS LTD. v. MAZDOOR UNION
657
(Jaganmohan Reddy, J.)
fixed deposits, it was treated as extraneous income because it was
held that it accrued to the Company without any concribution by
the workmen. At the same time the Company was not permitted
on equitab;e ground to claim the interest paid by it on its borrowings as business expenditure. Further in that case even the income
received by the Company from its foreign collaborators as commission on sales effec~ed by the said collaborators~of the.r own
cars in India was treated as extraneous income to which the Company's workmen made no contribution and was th~refore not to
be taken into account in calcula ing the availab.e surplus. In the
recent case of M/s. Gann,on Dunkarley & Co. Ltd. v.
Their
Workmen (1), by a reference to the deci;ion in rhe Hindustan
Motor's this principle was again reiterated.
In that case o~e of
the question which this Court considered \Vas whether dividends
received from trade investments should be deducted from the
gross profits for calculating the surplus available for bonus. It
was held that "these trade investments have to be treated <IS-capital
assets of the Company forming part of their trading activities.
The income accruing from these dividends must therefore be related to the business of the Company as a whole and hence- the
income from these dividends has to be included in the income for
purposes of calculation of surplus . .available for bonus". In this
view we think the Tribunal was justified in disallowing the deducton of Rs. 4.10 lakhs and in fact on behalf of the Appellant it
w'as frankly conceded before us that the claim in respect of the
said item cannot be pressed on any tenable or valid grounds.
This brings us to the only remaining controversy, the provision for rehabilitation requirement. The claim for a prior charge
on this account like any other prior charge has to be established
by evidence but as this item results in a substantial deduction from
the gross profits and reduces available surplus, materially, effecting
the claim of the employees for bonus, each constituent element
which is necessary for computing the amount to be provided for
must be proved by satisfactory evidence and cannot be left to
surmises and conjectures.
It is idle to suggest that as the employees have not in any particular case given any evidence or
have not produced any material to controvert the claim of the
management that claim must be admitteo, because it is the management that is in possession of all the relevant material and is
accordingly required to satisfactorily substantiate that claim. The
elements which <'re important for the Cl mputation of annual rehabilitation requirement, is, the price of the assets at the original
cost, the period for which these assets can be used before requiring
rehabilitation and the probable increase in the cost of rehabili!ltion,
due to rise in prices, devaluation etc. The probable increase in
the price of assets at the time of the rehabilitation over the original
111 11971) 22 F.L.R. 148,
8 -L3S J pCl/72
658
SUPREME COURT REPORTS
[1972] l S.C.R.
cost is the multiplier, as it is measured in terms of multiples of
the ongmal cost.
The number of years after which the asset
requires replacement, rehabilitation or modernisation is termed
the deviser because the probable cost on a future date has to be
provided annually and therefore has to be divided by the number
of years at the end of which the amount would be required. There
is in this ca~e no dispute between the parties as to the original
cost of the plant and machinery which is for the first
block
Rs. 133.00 lakhs and for the second block Rs. 15.00 lakhs. The
only controversy is about the multiplier and the deviser which
has been adopted by the Tribunal. The Appellant had in its
written statement claimed the
multiplier for
each of the two
blocks as six and the deviser for the first block as 10 and for
the second block as 11 but as we have already noticed earlier
the Tribunal has accepted the multiplier as 4 for the first block
and 2 for the second block and the deviser as 13 and 14 respectively.
Even in respect of these the learned Advocate for the
Appellant admitted that he is not in a position to contest the
reasonableness of what has been adopted by the Tribunal but the
Respondent has challenged the very basis adopted by the Tribunal
as bei.ng more dependent on guess work than on any evidence or
material before it.
On behalf of the management the right of the Union to challenge the multiplier and deviser, in the absence of an Appeal
by it is strenuous:y contested but in our view there is little force
in this objection. The appeal by the employer is against the grant
of bonus to the employees which implies that the method of computation of the gross profits, as well as of the availab.le surplus
and the rate at which the bonus is granted can be subjected to
''crutiny. It is needless to recount the several priorities that have
to be deducted and the items in respect of which amounts have
to be added, before arriving at the available
surplus.
In an
Appeal, the several steps which have to be taken for computation
of the available surplus either in respect of the actual amounts
or the method adopted, can be challenged. If so the Union, even
where it has not appealed against the Award, can support it on
a method of computation, which may not have been adopted by
the Tribunal but nonetheless is recognised ,by the Full Bench
formula of this Court so long as in the final result the amount
awarded is not exceeded.
We are ~upported in this view by a
decision of this Court in Management of Northern Railway Cooperative Society Ltd. v. Industrial Tribunal, Rajasthan, Jaipur
& Anr. (1) where it was held th 0 t ~he Res.,onden•s were entitled
!o support the decision of the Tribunal even on grounds which
were not accepted by the Tribunal or on other grounds which
U) [19671 2 S.C.R. 476.
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J. K. SYNTHETICS LTD. v. MAZOOOR UNION
659
(Jaganmohan Reddy, !.)
may not have been taken notice of by the Tribunal while they werepatent on the face of the record.
A passage from the case of Ramanbhai Ashabhai Patel v.
Dabhi Aiitkumar Fulsinii & Ors. (1), will give the reasons adopted
by this Court for the aforesaid view.
That no doubt was an
election appeal but it was said that though the rules framed by this
Court in exercise of its rule making powers do not contain any
provisions anologous to Order XLI Rule 22 of the Civil Procedure Code, which permits a party to support the Judgment appealed against upon a ground which has been found against him
in the Judgment, it was held that this Court has the jurisdiction to
sustain the Judgment on grounds which have been found against
the Respondent.
Mudho!kar, J. speaking for himself, Gajendragadkar, C.J., Wanchoo, Hidayatul!ah, and Raghubar Dayal, JJ.,
after considering whether the provisions of Order XVIII, Rule 3
of the Ru!es of this Court which requires parties to file statement of
the case could limit it only to those contentions which deal with the
points found in favour of that party in the Judgment appealed
from, observed at page 724:
"J\ pa rt from that we think that while dealing with
the appeal before it this Court has the power to decide
all the points arising from the Judgment appealed against
and even in the absence of an express provision like
O.XLI, R. 22 of the Code of Civil Procedure it can devise the appropriate procedure to be adopted at the hearing. There could be no better way of suoplyin~ the deficiency than by drawing upon the provisicns of a general
law like the Code of Civil Procedure and adopting such
of those provisions as are suitable.
We cannot lose
sight of the fact that normally a party in whose favour
the Judgment appealed from has been given will not be
granted special leave to appeal from it.
Consideration~
of justice, therefore, require that this Court should in
appropriate cases permit a party placed in such a posi·
tion to support the judgment in his favour even upon
grounds which were negatived in that Judgment".
In the view we have taken, we will have to consider the plea
on behalf of the Respondents that the rehabilitation requirement
has not. been properly established, but this need only be entertained
if we come to the conclusion that the main contention that the
rehabilitation requirement has not been properly computed and
if so computed there will be no available surplus for awarding
bonus to the employees.
(!) {1965] I S.C,R. 712.
660
SUPREME COURT REPORTS
[1972] l S.C.R.
The learned Advocate for the Appellant as we said earlier has
not seriously insisted on the adoption of the multiplier and the
devi>er claimed by the Appellant but on the other hand contends
that even if the multiplier and the deviser as adopted by the Tribunal is followed the trade investments amounting to Rs.
85.6
lakhs cannot be said to be available for computation of rehabilitation requirement.
On this assumption while not disputing the
computation of the Tribunal in respect of the original cost which
as we have earlier mentioned has not been disputed, even by
accepting the multiplier, the breakdown value and the deviser as
adopted by tbs: Tribunal the annual amount required would be
Rs. 10.71 lakhs and not Rs. 4.23 lakhs as computed by the
Tribunal.
The only variation between the computation of the
appellant and that of the Tribunal is in respect of the funds available which according to the Tribunal is Rs. 113.28 lakhs including the trade investment of Rs. 85.6 lakhs and according to the
Appellant it is Rs. 27.8 lakhs comprising of only two items namely
depreciation of Rs. 15.68 lakhs and general reserve of Rs. 12
lakhs. If this computation is accepted then there will be a negative balance of Rs. 2.9 lakhs.
This result is arrived at as follows :
Gross profits .
Rs. 62 ·t t lakhs
1. Notional normal depreciation
. Rs. 30 ·57 lakhs
2. Direct tax
.
. Rs. 15 ·18
,,
3. Return on share capital
. Rs. 7 ·50
,.
4. Return on reserves
. Rs. 1 · 11
,,
5. Additional requirement for rehabilitation
Rs. 10 ·71
Rs. 65 .07 ,.
Rs. 65.07
Negative balance
(-)
Rs. 2 ·96 Jakhs
It will be observed that the prior charges comprised in items
1 to 4 are not really in dispute.
It is only the additional requirement for rehabilitation that is the bone of contention be'ween the
parties and this is challenged on two grounds; firstly that the trade
investment of Rs. 85.6 lakhs are available funds for rehabilitation
requkement as admitted by the Appellant to be so available in the
statement which it furnished to the Tribunal; secondly that no
claim for rehabilitation requirement has been substantiated.
On the first ground it is contended that. the question, whM was
the available amount for the annual reqmrement was spec•fically
before the Tribunal. and that it was the case of the management
and not of the workmen that an amount of Rs. 1.23,90,000/- was
available consisting of Rs. 26.30 lakhs towards depreciation,
Rs.
12 lakhs towards general reserves and Rs. 85 6 lakhs
towards
investments.
In ·these circumstances
the Tribunal
was not
called
upon
to investigate
the
question
as
to
what exactly was the nature of the investments or whether any of
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J, K. SYNTHETICS LTD. V. MAZDOOR UNION
661
(Jaganmohan Reddy, J.)
them were realisable or were not available for meeting the rehabilitation requirements.
Further there was no grievance made in
this behalf in the Special Leave Petition and therefore the management is, it is submitted stopped from ~hallenging before ,his Court
the validity of inclusion of this amount in the amount available for
rehabilitation. It is further submitted that assuming that this question can be agitated, in the absence of any specific investigation
as to the nature of the investments and more particulaily when the
management itself had shown this amount as being available, the
Appellant cannot be permitted to say that it is not available. The
c,ontention of the respondents proceeds on a basic error namely
that the Appellant had held out that the trade inves:ments were
available for rehabilitation requirement.
This is not so.
In the
amended written statement filed on 4-7-69 after obtaining the permission of the Tribunal on 3-7-69, the Appellant claimed the
annual share required for rehabilitation as Rs. 93,56,207 /-. Even
in the statement filed earlier on 10-4-69 it showed two amounts as
being available namely depreciation of Rs. 26.31 lakhs and general reserves of Rs. 12 lakhs.
It is submitted by the Appellant
that only when the arguments were completed on behalf of the
Company on 9-12-69, having regard to the claim made by it for
deduction of Rs. 4.1 lakhs as extraneous income derived from the
trade investments, the col'pus of Rs. 85.Q lakhs which earned that
income was also shown as available and a statement to 'hat effect
was filed on the same day to facili'ate the Tribunal in arriving al
an Award.
In as much as we are not allowing the deduction of
Rs. 4.1 lakhs as extraneous income, the question whether the
corpus should be treated as being availabJe. also has to be considered in the light of the decisions of this Court.
The Appellant
in our view is fully justified in urging this contention before us, as
it cannot be said that this was not raised before the Tribunal. The
Tribunal had ample opportunity of considering this aspect since it
did specifically consider the nature of the income therefrom.
Assuming for the present that the adoption by the Tribunal of
the multiplier and deviser can be justified, though the validi.y of
the Tribunal's award in this behalf has been seriously challenged
before us, the question to be determined is whe'.her the investments
of the Appellant amount to Rs. 85.6 lakhs is avai'able for rehabilitation which in turn will de~end upJn whether hese innstments
are made in the course of the business of the Company or are
unconnected with its business and only invested with a view to
earning .:xtraneous income.
The principles upon which rehabilitation grant is to be calculated as laid down by this Court is that
the depreciation reserves, or in the case of o•her reserves only if
they are available as liquid ass~ts and cash and not earmarked for
any specific purposes, are deemed to · be available and can be
-taken into account in computing the annual requirement.
The
662
SUPREME COURT REPORTS
[1972] 1 S.C.R.
depreciation reserve, the object of which is to meet the requirement
of replacement, rehabilitation and modernisation at a future date
is considered to be always available whether it is in the form of a
liquid asset or not.
It is obvious that even this amount will not
achieve the purpose of recouping the cost of replacement of the
wasted assets and it is for that reason the claim of the industry for
rehabilitation in addition to the admissible depreciation has been
recognised.
Then there are the general reserves, capital reserves
and deveiopment reserves all of which will be considered to be
available if they are in the form of liquid assets or cash.
The
question in some of these cases will be whether they are considered
to be the capital assets of the Company kept in that form in the
course of its business or kept as investments outside the business
of the Company for the purposes of earning an extraneous income.
If it is the former then they are available but if it is the latler they
cannot be brought into account for calculating the rehabilitation
requirement.
As it happens in most cases the claim by the
employer is that the reserves are either wholly or partly not available because they have been used as working capital and consequently the. amount to be utilised should not be excluded from the
amount claimed towards rehabilitation.
The principles govern- '
ing what. deductions should be made from out of reserves before
calculating the amount in respect of rehabilitation for the bonus
year were set out in the Full Bench formula and have been restated
in the Aswciated Cement Co. Ltd. v. Its W0rkmen(1). The two
items according to that decision that are to be taken into consideration are the general reserves available to the employer and the
reserves which have been reasonably earmarked for specific purposes of the industry.
In explaining what was meant by availability of the reserves or the earmarking for specific purposes Subba
Rao, J. as he then was in Khrmdesh Spinnini? & Wvi.>. Mills Co.
Ltd. v. Tho Ra<h'riya .Gimi Kamgar Sang Jalgaon('), observed
at page 845-846 :-
"We do not think that by using the said words th~
Court meant to depart from the well recognized principle that if the general reserves have not been used as
working capital, they cannot be deducted from the retiabilitation amount.
The reserves may be of two kinds.
Moneys may be set apart by a company to meet future
payments which the Company is under a contractual or
statutory obligation to meet, such as gratuity etc.
These
amounts are set apart and tied down for a specific purpose
and, therefore, they are not available to the employer for
rehabilitation purposes.
But the same thing cannot be
said of the general -reserves : they would be available to
(t) [19'9] S.C.R. 925 @ 970.
(2) [1960] 2 S.C.R. 841.
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J. K. SYNTHETICS LTD. V. MAZDOOR UNION
663
(Jaganmohan Reddy, !. )
the employer unless he has'used them as working capital.
The use of the words "reasonably earmarked" is also
deliberate and significant.
The mere nominal allocation for binding purposes, such as gratuity etc. in the
Company's books is not enough. It must be ascertained
by the Industrial Court on the material placed before it
whether the said amount is far in excess of the requirements of the particular purpose for which it is so earmarked and whether it is only a device to reduce the
claim of the labour for bonus".
What is meant by the above observations in the Khandesh Spinning & Wvg. Mills case was Ja:er explained by Wanchoo J, as he
then was in Bengal Kagazkal Mazdoor Union & Anr. v. The Titaghur Paper Mills Co. Ltd. (1 ).
This was what was said at page
54:
''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 re>erve, 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''.
Now the question of trade investments unconnected with the
purposes of the industry fell for consideration in the National
Engin~ering Industries Lt1. v. Its Workmen(').
In this case the
Company had an investment of Rs. 18 .22 in shares, which were
treated by this Tribunal as liquid assets available for rehabilitation.
But the Company contended that this investment can either be
treated as a trading transaction carried out in the ordinary course
of business or as a capital asset.
If it was the former then it
should have been allowed the loss of Rs. 1. 72 lakhs as trading
expenditure but instead the tribunal had added the profits therefrom
to the gross profits, thereby treating the investment as capital
asset.
It could not therefore deduct Rs. 18.22 lakhs as a fund
available for rehabilitation cost.
Negativing this contention of
the Company, Shelat J, observed at page 796-797 :-
"We fail to see any contradiction on the part of the
Tribunal.
The balance sheet for the year 1957-58 cnntains two schedules; Schedule A shows fixed assets and
schedule B shows trade investments of the value of
(1) [1964] 3 S.C.R. 38.
(2) [1968] 1 S.C.R. 779
664
SUPREME COURT REPORTS
[1972] l S.C.R.
Rs. 18,21,571/-. The Company not being an investment Company the investme.nt of Rs. 18.22 .acs in
shares of other joint stock Companies prima facie represents extra capital not required as working capital for
otherwise the · Company could not have spared this
amount for investment in the stocks of other Companies.
The Tribunal was right in treating this investment as a
capital asset and in refusing to treat the loss therefrom
as trading expenditure.
The Tribunal at the same
time could deduct this amount from the rehabilitation
cost because that amount was ·available to meet the
rehabilitation cost.
The investment in shares could
easily, if the Company was so minded, be converted into
cash and utilised for replacement of its worn out
· machinery".
In Gannon Dunker/ey's case also these principles were reiterated.
It was held in that case that in calculating rehabilitation
grant one of the principles which this Court has laid down is that
the depreciation reserve must always be deducted irrespective of
the fact whether it is available or not as a !;quid asset.
In addition other reserves like general reserve are also to be deducted if
they are available as liquid reserves and are not ear-marked for
any specific purpose.
The capital reserve and the development
reserve can also be deducted if there is ma'erial to show that they
existed in the form of liquid assets or cash.
The question would
be whether they are capital assets of the C.ompany kept in that
form in the course of its business or whether they have been
treated as investments outside the business for the purposes of
earning extraneous income. If they are investments made in the
course of its business they are to be trea'ed as part of the capital
but otherwise if they are extraneous to the business they do not
form part of the reserves available for rehabilitation.
It may be observed that in the National Engineering Industries
Ltd. v. It< W'>rkmen('), an exceptbn had been made in the case
of an inves•ment Company the investment of which is to be treated
as working capital employed in the bu;iness of the C-mpany. The
Companies Act placed restrictions oq the purchase of shares by
one Company, of shar~s of any other body corporate except to th_e
extent and except i.n accordance wi•h lhe restric•ions and conditions specified in Sec. 372 of that Act as amended by Act 65 of
1960.
By. Sec.