# Karnani Ltd. ProfJtrties v. Augustin November 13

- **Citation:** [1957] 1 S.C.R. 33
- **Court:** Supreme Court of India
- **Decided:** 1956-11-13
- **Case number:** Civil Appeal No. 182 of 1956
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/karnani-ltd-profjtrties-v-augustin-november-13-1344
- **Pages:** 19

## Headnote

-
S.C.R.
SUPREME COURT REPORTS
33
must pay the costs of the respondents, one .set of hearing fee to be equally divided amongst th<! three respondents.
Appeal allowed in part.
BARODA BOROUGH MUNICIPALITY
v.
ITS WORKMEN
(BHAGWATI,
VENKATARAMA
AYYAR, s. K. DAS
and GoVINDA MENON JJ.]
Industrial Dispute-Bonus-One department of a municipality
Jiaving surplus earnings-Whether workers engaged in that department can claim bonus-Bombay Municipal Boroughs Act, 1925 (Bom.
Act XVlll of 1925).
The Baroda Electric Supply Concern was owned and managed
by the State· of Baroda.
Immediately before the merger of the
State in the Province of Bombay, the State made a gift of the
Concern to the Baroda Municipality to provide it with a new source
of revenue as aid from the State might not be continued after the
merger.
Later in 1951, the workmen employed in the electricity
<lepartment demanded bonus and
the
dispute
was referred for
adjudication. The bonus was claimed on the basis that the electric Concern was a commercial concern, that it was making huge
profits and that the workmen were entitled to bonus as a share in
the profits.
The municipality resisted the demand, inter alia, on
the grounds that the earnings of one department could not be
treated as profits of the municipality, and that as a whole the
municipal budget for the relevant period was a deficit budget.
Held, that the workers employed in the electricity department
of the municipality were not entitled to the bonus claimed. According to the provisions of the Bombay Municipal Boroughs Act, 1925,
under which the municipality is
constituted
and
functions, the
earnings of one• department cannot be held to be gross profits in
the ordinary commercial or trading sense.
The mere fact that
separate accounts were kept of the electricity department did not
alter the position, as there was one budget for the municipality as
a whole and income from and expenses of all departments constituted the income and expenses of the municipality.
The different
activities
of the municipality
constituted one
integrated
whole,
1956
Karnani Ltd.
ProfJtrties
v.
Augustin
November 13
1956
Baroda Borouth
Munidpalit.J
v.
Its Workmtn
34
SUPREME COURT REPORTS
(1957]
and the activitias of the different departments were not distinct
or unconnected activities so . as to permit the isolation of one
department from another or of an earning department from a·
si)ending department.
It would be unfair to draw a distinction
bct,veen the workers of the earning department and the workers.
of · the spending department for the payment of bonus. Such a
distinction would, instead
of
promoting
peace
and
harmony
ainong the
employees of the
municipality, create
unrest and
discontent.
D. N. Banerji v. P. R. Mukherjee, [1953] S.C.R. 302 and Muir
Mills Co. Ltd. v. Suti Mills Mazdoor Union, Kanpur, [1955] 1 S.C.R.
991, referred to.
CML
APPELLATE
JURISDICTION :
Civil
Appeal
No. 182 of 1956.
Appeal by special leave from the judgment and order
dated November 23, 1955, of the Labour Appellate
Tribunal of India, Bombay, in Appeal No. 224 of 1953
arising out of an award (Part II) dated June 4, 1953,
of the Bombay Industrial Tribunal in Reference No.
(LT.A.) No. 18 of 1951.
M.
C.
Setalvad,
Attorney-General
for
India,
N. C. Chatterii, f. B. Dadachanii, S. N. Andley and
Rameshwar Nath of Raiinder Narain & Co., for the
appellant.
Purshottam
Tricumdas,
H.
R.
Gokhale,
K. R.
Choudhury and M. R. Rangaswamy, for the respondents.
1956. November 13. The Judgment of the Court
was delivered by
S. K. DAs J .-This is an appeal by special leave from a
decision of the Labour Appellate Tribunal at Bombay,
dated
November
23,
1955.
The
Baroda
Borough
· •
Municipality is the appellant, and the respondents are
the workmen employed in the electricity department of
the said Municipality represented mostly by the Baroda
State Electric Workers Union
(hereinafter called
the
respondent Union). The substantial question for determination in this appeal is if the respondents, wo

## Text

_Characters 0–39,846 of 42,452. This is a partial read: ask again with offset=39846 for what follows._

-
S.C.R.
SUPREME COURT REPORTS
33
must pay the costs of the respondents, one .set of hearing fee to be equally divided amongst th<! three respondents.
Appeal allowed in part.
BARODA BOROUGH MUNICIPALITY
v.
ITS WORKMEN
(BHAGWATI,
VENKATARAMA
AYYAR, s. K. DAS
and GoVINDA MENON JJ.]
Industrial Dispute-Bonus-One department of a municipality
Jiaving surplus earnings-Whether workers engaged in that department can claim bonus-Bombay Municipal Boroughs Act, 1925 (Bom.
Act XVlll of 1925).
The Baroda Electric Supply Concern was owned and managed
by the State· of Baroda.
Immediately before the merger of the
State in the Province of Bombay, the State made a gift of the
Concern to the Baroda Municipality to provide it with a new source
of revenue as aid from the State might not be continued after the
merger.
Later in 1951, the workmen employed in the electricity
<lepartment demanded bonus and
the
dispute
was referred for
adjudication. The bonus was claimed on the basis that the electric Concern was a commercial concern, that it was making huge
profits and that the workmen were entitled to bonus as a share in
the profits.
The municipality resisted the demand, inter alia, on
the grounds that the earnings of one department could not be
treated as profits of the municipality, and that as a whole the
municipal budget for the relevant period was a deficit budget.
Held, that the workers employed in the electricity department
of the municipality were not entitled to the bonus claimed. According to the provisions of the Bombay Municipal Boroughs Act, 1925,
under which the municipality is
constituted
and
functions, the
earnings of one• department cannot be held to be gross profits in
the ordinary commercial or trading sense.
The mere fact that
separate accounts were kept of the electricity department did not
alter the position, as there was one budget for the municipality as
a whole and income from and expenses of all departments constituted the income and expenses of the municipality.
The different
activities
of the municipality
constituted one
integrated
whole,
1956
Karnani Ltd.
ProfJtrties
v.
Augustin
November 13
1956
Baroda Borouth
Munidpalit.J
v.
Its Workmtn
34
SUPREME COURT REPORTS
(1957]
and the activitias of the different departments were not distinct
or unconnected activities so . as to permit the isolation of one
department from another or of an earning department from a·
si)ending department.
It would be unfair to draw a distinction
bct,veen the workers of the earning department and the workers.
of · the spending department for the payment of bonus. Such a
distinction would, instead
of
promoting
peace
and
harmony
ainong the
employees of the
municipality, create
unrest and
discontent.
D. N. Banerji v. P. R. Mukherjee, [1953] S.C.R. 302 and Muir
Mills Co. Ltd. v. Suti Mills Mazdoor Union, Kanpur, [1955] 1 S.C.R.
991, referred to.
CML
APPELLATE
JURISDICTION :
Civil
Appeal
No. 182 of 1956.
Appeal by special leave from the judgment and order
dated November 23, 1955, of the Labour Appellate
Tribunal of India, Bombay, in Appeal No. 224 of 1953
arising out of an award (Part II) dated June 4, 1953,
of the Bombay Industrial Tribunal in Reference No.
(LT.A.) No. 18 of 1951.
M.
C.
Setalvad,
Attorney-General
for
India,
N. C. Chatterii, f. B. Dadachanii, S. N. Andley and
Rameshwar Nath of Raiinder Narain & Co., for the
appellant.
Purshottam
Tricumdas,
H.
R.
Gokhale,
K. R.
Choudhury and M. R. Rangaswamy, for the respondents.
1956. November 13. The Judgment of the Court
was delivered by
S. K. DAs J .-This is an appeal by special leave from a
decision of the Labour Appellate Tribunal at Bombay,
dated
November
23,
1955.
The
Baroda
Borough
· •
Municipality is the appellant, and the respondents are
the workmen employed in the electricity department of
the said Municipality represented mostly by the Baroda
State Electric Workers Union
(hereinafter called
the
respondent Union). The substantial question for determination in this appeal is if the respondents, workers
in a municipal department engaged in the generation,
supply and sale of electric energy, are entitled to the
bonus claimed out of the surplus earnings of the said
department (called "profits" by the respondents) after
I
~.
'
,A-
•
S.C.R.
SUPREME COURT REPORTS
35
allowing for all outgoings including necessary expenditure of the department and deductions for all prior
charges. The question is a short one, but has an
importance and
consequences
reaching beyond
the
limits of the particular case in which it has arisen.
'Ve may first state the relevant facts. Before May 1,
1949, on which date the former State of Baroda was
merged in and integrated with the then Province of
"Bombay (now the Bombay State), the Baroda Electric
Supply Concern was owned and managed by the State
of Baroda. On April 19, 1949, the State Government
of Baroda decided to hand over the said Concern as a
gift to the Baroda Municipality and communicated an
order· to that effect in which it was
stated inter
alia :-
"It is likely that the
various types
of assistance,
£nancial or otherwise, which the Baroda Municipality
has been receiving up to now from the Baroda Government may not be continued to a similar extent after
integration. It is therefore very necessary to find out
new sources of revenue for the Municipality so that it
may continue to maintain a high st\!ldard of efficiency
as far as possible ......... With this object in view the
Baroda Government are pleased to hand over to the
Municipality as a gift the
Baroda Electric Supply
Concern which at present is a Government concern
including both the generation and distribution of electric power. With the transfer of the electric concern
to the Municipality the various funds of the electric
department like the Reserve Fund, the Depreciation
Fund etc. are also to be transferred to the Municipality with this specific understanding that these funds
should not be used for purposes other than those for
which they are intended ........ The .Baroda City Municipality will have to be issued licence for the generation and distribution of electricity as per Baroda Electricity Act and the Municipality should immediately
apply for such a licence for the supply of electric power
not only within the municipal limits but within a
twenty miles radius round Baroda. The Municipality
should continue the policy of the department to give
BarQda Borough
Munitipality
••
Its Workmtn
s. K. IJa.r J.
1956
Baroda
Boroug~
Municipalifl
v.
ltJ Workmen
S. K. Das J.
36
SUPREME COURT REPORTS
[1957)
electric energy at concessional rates for irrigation purposes in the villages, although this may not be profitable in -the beginning ...... The entire staff of the Baroda
Electric Supply Concern will be taken up by the Municipality without any reservation and the Municipality
is directed to bring into operation terms and conditions
of services as are prevalent under the Bombay Government and the officers and staff shoWd be given emoluments which they would have got had
they
joined
Bombay Government."
On April 29, 1949, a formal order of handing over
was made, subject to certain directions reserving the
rights of the employees in the matter of pension, gratuity, provident fund, continuity of service etc. In 1951,
there was an ii;i.dustrial dispute between the Baroda
Borough Municipality and the workmen employed in
the electric department with reference to a number of
demands made by the latter, and by consent of the
appellant Municipality and the respondent Union, the
dispute was referred to the Industrial Tribunal. Bombay,
for adjudication, by an order of the Government of
Bombay dated October 22, 1951. The disputes related to a
large number of items, one of which was "payment of
bonus equivalent to three months' wages (including dearness allowance) for the year 1949-50 to all employees of
the electric department including daily wage workers and
temporary workers." The dispute was settled by agreem.ent with regard to all other items except the item of
hon us; on that item the Industrial Tribunal heard the
parties and came to the conclusion that the resoondents were not entitled to the bonus claimed because-
(!) the Municipality was not a profit-making concern;
(2) the balanc-e of earnings over the outgoings of the
electric department of the
Municipality was not 'profit'
as that word is understood in the ordinary trading or
business sense; (3) the Municipality consisted of both
earning and spending departments and it was not permissible to create an invidious distinction between the
different employees of the Municipality by granting
bonus to the workmen in one department only; and
( 4) the respondents having been compensated by higher
·.-
S.C.R.
SUPREME COURT REPORTS
37
scales of salary on the municipalisation of the undertaking and having got other benefits and amenities
appertaining to municipal service were. not entitled to
claim such bonus as was granted to them during the
regime of the former State-owned company.
Against this decision of the Tribunal, there was an
appeal to the Labour Appellate Tribunal of India at
.Bombay. The Appellate Tribunal came to the conclusion that the respondents were entitled to claim bonus ;
it expressed the view that on the decision of this Court
in D. N. Banerji v. P. R. Mukherjee( 1 ) the expression
'industrial dispute' in the Industrial Disputes Act, 1947,
includes
disputes
between municipalities and
their
employees in branches of work that can be regarded
as analogous to the carrying on of a trade or business,
and if the undertaking resulted in profit during the
relevant trading period, the workmen were entitled to
claim bonus as of right. On the question whether the
excess of earnings over outlay of a municipal undertaking like the one under consideration here was profit
or not, the Appellate Tribunal relied on the circumstances stated below for its finding that the excess was
really profit :
(a) the very nature of the gift to the Baroda
Municipality by the State Government
of
Baroda
showed that the concern (or undertaking) made over
to the former was a profit-making concern;
(b) the concern was run separately and as it was
a trading concern by its very nature, the balance of
earnings derived from it after allowing for all outgoings
was pecuniary gain and it made no material difference
to the actual nature of the gain, whether it was called
surplus or profit; and
( c) no
distinction
could be made in principle
b_etween a municipal undertaking and an undertaking
by a private or public concern, if the conditions laid
down for the grant of bonus in Muir Mills Co. Ltd. v.
Suti Mills Mazdoor Union, Kanpur(I) were fulfilled.
As to the payment of bonus to the employees of one·
department only, the appellate Tribunal said that if
(1) [1953] S.C.R, 302,
(2) [1955] 1 S.C.R. 991.
1956
Baroda 8-u16
M11ni&ipality
v
Its
Workmt•
S. K. Das].
i95&
Bntia S-th
M.,.kipdlity
v.
lit Werkmtn
S.K. Das].
SUPREME COU~T REPORTS
[1957]
the profits were not sufficiently large to admit of bonus
to all employees, it was permissible to treat the profitmaking department as a separate unit for the purpose
of granting bonus, unless
there was some essential
nexus or connection between ·the profit-making department and other departments or some unity of purpose
or parallel or co-ordinate activity towards a common
goal in all the departments without which the undertaking could not be carried on to proper advantage.
The Appellate Tribunal pointed out that the accounts
of the electricity department of the Baroda Municipality
were separately kept and as the undertaking
carried on by the electricity department of the mumcipality differed
from other normal activities
of
the
Municipality, there being no common nexus between
them, it was open to the workmen of the electricity
department to claim bonus out of the profit made by
that department after making deductions for all prior
charges.
The Appellate Tribunal accordingly allowed
the appeal, set aside the decision of the Indmtrial Tribunal and remanded the case for decision. on merits
according to law.
It is now finally settled by the decision of this Court
in D. N.- Banerji v. P. R. Mukherjee
(supra) that a
municipal undertaking of the nature we have under
consideration here is an 'industry' within the meaning
of the definition of that word in s. Z(j) of the Industrial
Disputes Act, 1947, and that the expression 'industrial
dispute' in that Act includes disputes between municipalities and their employees in branches of work that
can be regarded as analogous to the carrying on of a
trade or business. The learned Attorney-General . who
appeared for the appellant made it clear at .the very
out set that the questions which he Wished us to consider in this case were different from those considered
and determined by the aforeSa.id decision.
The first contention which he placed in the forefront
of his argument is this : he invited attention to our
decision in Muir Mills Co. Ltd. v. Suti. Mills Mazdoor
U11ion, Kanpur (supra) and contended that having regard
tO the prihciples laid dowh therein for the gh!ht of
bonus, the respondents were not entitled to claim any
.S.C.R.
StJl>REME COURT REPORTS
39
bonus in this case because even though the undertaking
in question was an 'industry' within the meaning of
the Industrial Disputes Act, 1947, there was no profit
from the undertaking and the principles which govern
the o-rant of bonus out of profits, as explained in that
decision, were inapplicable to a municipal undertaking
of the nature under consideration before us.
II\ the Muir Mills case (supra) it was observed that
two conditions had to be satisfied before a demand for
bonus could be justified : one was that the wages of the
workmen fell short of the living standard and the other
was that the industry made profits to the earning of
which the workmen had contributed. The principle
for the grant of bonus was stated thus : "It is fair that
labour should "derive some benefit if there is a surplus
after meeting prior or necessary charges." The prior or
necessary charges were then explained as (1) provision
for depreciation, (2) reserves for
rehabilitation, (3) a
return of six per cent. on the paid up capital and ( 4)' a
returμ on the working capital at a lesser rate than the
return on paid up capital. Do those principles apply
in the case of a municipal undertaking of the kind in
'(}Uestio~ here ?
There can be no doubt that the respondents founded
their claim of bonus in this case on the availability of
profits after meeting prior or necessary charges. In
the statement of their claim they said, "The electric
concern was treated as a commercial concern. by the former Baroda State Government and it used to yield
huge profits to the State. Even after merger the
municipality is treating it as a commercial concern and
the concern·· is yielding huge profits to the municipality
too. It ·.is . submitted that all workers of the electric
department should be paid bonus equivalent to three
-months wages including D.A. The bonus should be paid
to all the employees including daily wage, temporary
and
semi-permanent
workmen.
The
workers
are
entitled to bonus both as share in profits and also as
deferred wages." It was decided in the Muir Mills
case (supra) that bontis was not def erred wage; so the
alternative claim of the respondents on the footing that
bonus was deferred wage had no real
basis, and their
1956
Barod4 B"'°"gh
Municipal ii)'
v.
Its Workmen
S.K. Das).
1956
BMOda Borouth
Munidpaliijy
v.
/Is Workmen
S. K. DasJ.
SUPREME COURT REPORTS
[1957)
claim of bonus as share in profits was the only claim
which merited consideration. In reply to that
claim,
the appellant said :
"This demand
is not
acceptable. Under former
Baroda
Government
Order
No. (R)
403/63 dated
19-4-49, after
serious
consideration into the
financial
position of the Municipality after the integration of the
Baroda · State with the Bombay Province and with a view
to find out new sources of revenue for the Municipality
so that it may continue to maintain its standard of
efficiency and to fulfil the obligations incumbent upon
the Municipality, the Government was pleased to hand
over to the Municipality the Baroda Electric Supplyconcern.
"The Municipality is experiencing great hardships
still in meeting all its obligations and covering the lost
sources of revenue. Even including the income of the·
Electric Supply Concern, the municipal budget is a
.deficit one. Due . to want of sufficient funds,
thcMunicipality has to give up certain schemes and works
or to postpone the same.
"Further, local authorities, like municipalities and
local boards, are public· utility institutions and
thcprolits derived from the working of the Electric Supply
Concern will all go to the Municipal treasury and city's
tax-payers in general, unlike other commercial organisations whose profits are distributed only among the.
investing public.''
It is clear to us that having regard to the provisions
of the Bombay Municipal Boroughs Act, 1925 (Bombay
Act XVIII of 1925), hereinafter called the Municipal
Act, under which the appellant Municipality is constituted and functions, the earnings of one department
of the Municipality cannot be held to be gross profits
in the <trdinary commercial or trading sense; nor can
the principles governing the grant of bonus out of such
profits after meeting necessary or prior charges
be
applied to the present case.
The relevant sections of the Municipal Act are ss. 58,
63, 65, 6Q, 68 and 71. We shall subsequently advert to.
s. 58 of the Municipal Act in connection with another
S.C.R.
SUPREME COURT REPORTS
41
contention of the learned Attorney-General; but it is
necessary to refer here to. ss. 63, 65, 66, 68 and 71 of
the Act. Section 63 lays down, inter alia, that all
property of the nature specified in clause~ (a) to (f) of
sub-s. (2) of the section shall be vested m and belong
t0 the
Municipality and shall, together
with
all
other property of whatever nature or kind which may
become vested in the municipality, be under its direction, management and control and shall be held and
applied by it as trustee, subject to the provisions and
for the purposes of the Act. Clauses (a) to ( £) of subs. (2) of the section relate to immoveable property and
permanent fixtures or
works
thereon.
Section
65,
which is more relevant for our purpose, states inter alia
that all moneys received by or on behalf of a municipality, all taxes, fines, penalties etc., all proceeds of
land or other property sold by the municipality and all
rents accruing from its land or property and all interest,
profits and other moneys accruing by gift or transfer
from the Government or private individuals or otherwise, shall constitute the municipal fund and shall be
held and dealt with in a manner similar to the property
specified in s.
63. Section 66 lays down that the
municipal fund and all property vested in the municipality shall be applied for purposes of the Act within
the limits of the municipal borough. Section 68 lays
down the duties of municipalities, one of which is the
lighting of public streets, places and buildings.
This
is an obligatory duty of the municipality. Section 71
states the discretional
functions
of the municipality
and one of such functions is the construction, maintenance, repairs, purchase of any works for the supply
of electrical energy (see cl. q 1). It is worthy of note
that cl. ( q 1) was inserted by an amending Act in 1951
(Bombay Act 44 of 1951). A similar amendment Was
made in the same year in s. 66 of the Municipal Act
and the effect of the amendment was that the municipality could
incur expenditure to supply electrical
energy not only for the use of the inhabitants of the
municipal borough but also for the benefit of any
person or buildings or lands in any place whether such
place was or was not within the limits of the said
1956
&rodtJ Borouglk
Municipolit.1
v.
ItsWorkmm
S. K. DtJS J~
1956
BtJfOl/a Borough
Munic•paiity
v.
.1.?s
W orktnt"a
S. K. Da.r J.
42
SUPREME COURT REPORTS
[1957]
borough.
A scrutiny of these provisions clearly establishes two propositions : one is that all municipal property, including moneys etc. received by way of gift,
is vested in the municipality and shall be held and
applied by it as trustee subject to the provisions and
for the purposes of the Municipal Act, and it is not
open to the municipality to treat some of its property
separately from other property and divert it for purposes other than those sanctioned by the Municipal
Act; the other
proposition
is that
there are
some
obligatory functions which
a municipality must perform, and one of these is the lighting of public streets,
places
and
buildings;
and there
are some
other
functions which the munkipality may at its discretion
perform either wholly or partly out of municipal property and fund, and one of these discretional functions
is the supply of electrical energy which is for the use of
the inhabitants of the municipal borough or for the
benefit of any person, buildings or lands in any place
whether such place is or is not within the limits of the
municipal borough.
The question now is whether, having regard to the
aforesaid provisions, .it was open to the Municipality
to treat its electricity department, the property thereof
and
the income therefrom, separately
from
other
departmel}ts and spend a part of the income for the
benefit of the employees of that department only,
treating it as profits of the particular department and
not as part of the entire municipal fund or pcoperty.
In our opinion, such a treatment ·of the income of one
department of the Municipality would be clearly against
the provisions of the Municipal Act. It is pertinent
to refer
here to Chapter XI of the Municipal Act
dealing with Municipal Accounts.
Under s.
209 a
complete account of all receipts and expenditure of
the municipality and a complete account of the actual
and expected receipts and expenditure, together with
a budget estimate of the income and expenditure of the
municipality, have to be prepared for each year and
these have to be prepared and laid before the municipality on or before a particular date. These budget
estimates have then
to be sanctioned at a special
.....
S.C.R.
SUPRF.ME COURT REPORTS
43
general meeting of the municipality. Learned
counsel
for the respondents stressed two points in this connection. He pointed out that as a matter of fact the
Baroda
Municipality
kept
separate
accounts
with
regard to its electrical undertaking, including a capital
account
showing
capital
expenditure
and
capital
receipts; separate accounts were
also
kept
of
the
reserve fund, depreciation fund, provident fund etc. It
was argued that the maintenance of these separate
accounts showed that the Baroda Municipality did treat
the income of the electricity department separately from
that of other departments, and the maintenance of such
accounts did not contravene any of the provisions of
the Municipal Act. The second point stressed was that
the distinction between the obligatory and discretional
functions of
the
municipality showed that in the
exercise of discretional functions the municipality might
engage in an undertaking with a profit-making motive.
Learned counsel for the respondents submitted before
us that if there was profit from the electricity department, which department was running an undertaking
in exercise of the discretional functions of the Baroda
Municipality, the workmen in that department would
be entitled to bonus as of right. In our . opinion, these
submissions are based on a misappreciation of the true
position in law. With regard to the first point, it is
worthy
of note that the maintenance of separate
accounts of a_ particular department by the Municipality does not alter the nature or quality of the
property or income therefrom. The property or income
is still municipal property within the meaning of ss. 63
and 65 of the Municipal Act, and it can be utilised only
for the purposes of the Act as laid down by s. 66.
Maintenance of a separate account for a particular
department is in the nature of an internal accounting
arrangement; it does not really alter the quality or
nature of the property or income, and for the purposes
of s. 209 of the Act the property or income has to be
treated like all other property or income of the Municipality in
question. In his book on Public Finance,
Mr. Findlay Shirras has pointed out that the classification of public revenue or income, both of the State. and
1956
Banda Borough
MunUipali!Y
v.
Its Workmen
S.K.D~J.
1956
~"Baroda Borough
Muniripality
v.
Its Workmen
.S. K. Das].
44
SUPREME COURT REPORTS
[1957]
of municipalities, has undergone considerable change in
recent years and non-tax revenue of the State may be
sub-divided into three main classes-(1) developmental
revenues from the public domain and from the public
undertakings, which include not only revenue from the
State domain but also from the municipal domain; (2)
administrative and miscellaneous revenues other than
loan revenues; and (3) loan revenues (sec Science of
Public Finance by Findlay Shirras, Vol. I, Book
III,
Chapter XIII, pages 211-212). At page 717 (Vol. II,
Book III, Chapter XXX), the learned author has posed
the following question with regard to State or municipal
concerns : "An important point in such concerns is
the keeping of strictly commercial accounts.
Interest
should be paid on capital. Provision should also be
made for depreciation of machinery and plant, for a
pension fund, rents for land, and income tax in order
to arrive at the true net profit. State concerns sometimes show a surplus, but the point is how much of this
is really profit ?" The learned author has posed the
question but given no answer. We are of opinion that
the answer has been very succinctly put in Dr. Paton's
Accountants' Handbook
(3rd edition, s.
24
dealing
with
Governmental
Accounting,
page
1277).
Says
Dr. Paton : "In private business the proprietary
or
residual equity usually
represents
the
ownership of
individuals-in the case of the corporation that of the
shareholders.
In Government
this
residual
element
reflects the equity of the continuing body of citizens as
a group, and in no sense belongs to particular members
of the group; it is not represe.nted by capital stock
and there are no shares with specific voting rights and
dividend expectations."
The legal position under
the
Municipal Act is the same. The income of one department is the income of the municipality as a whole and
that income is not 'profit' in the ordinary commercial
or trading sense of being income derived from capital
of particular individuals or shareholders ; it may even
he that the surplus of one department may dwindle
into a· deficit; when the entire income of the municipality is taken into consideration vis a vu Its
entire
expenditure. We have already pointed out that in the
-
S.C.R.
SUPREME COURT REPORTS
45
present case also, the claim of the Municipality was
that, even including the income of its electricity department, the municipal budget for the relevant year was
a deficit one. With regard to the second submission of
learned counsel for
the respondents, nothing turns
upon the distinction
between obligatory and
discretional functions of the municipality so far as the
nature or quality of municipal property or municipal
income is concerned. The distinction referred to above
does not entitle the municipality to treat the income
from one department as though it were not part of the
whole income of the Municipality. Moreover, in its
true nature or quality, such income is not profit in the
sense in which that expression has been held to be the
basis for the grant of bonus in the Muir Mills case
(supra) though the word "profits" occurs in s. 65 of
the Municipal Act and has been loosely used in connection with State or municipal undertakings.
This brings us to the other question whether the
principles laid down in the Muir Mills case (supra) for
the grant of bonus can be applied in the present case.
Learned counsel for the respondents submitted before
us that the gift made by the State Government of
Baroda
furnished
the
necessary
capital
for
the
municipal undertaking in question and as the reserve
fund, depreciation fond etc. had to be kept separate,
there was no difficulty in applying
the
principles
lain donwn in that decision to the facts of the present
{;ase.
The difficulties, however arise in the following
way.
Whatever was given by the State Government
of Baroda to the Baroda Municipality became municipal property or municipal fund under ss. 63 and 65 of
the Act and was not capital in the sense in which a
return on paid up or working capital is to be allowed
for in the matter of the grant of bonus in accordance
with the decision in the Muir Mills case (supra). Learned counsel referred us to the ordinary dictionary meaning of the work 'capital' and referred to Websted's New
International
Dictionary
(1937
edition,
page
397)
where one of the meanings of the word is stated
to be· "the amount of property owned by an individual
or corporation which is used for business purposes."
1956
Baroda Borough
Municipality
v.
Its Workmen
S. K. Das].
1956
l!oroda Barougla
Municipalif1
v.
11.s Workmtn
S. /(. Dos].
SUPREME COURT REPORTS
[195i'J
He submitted that what was given by the Baroda
State Government was capital within
that meaning.
In Palgrave's Dictionary of Political Economy, Vol. 1
(1925 edition) page 217, it has been stated that there
is probably no term in economics which has given rise
to so much controversy as 'capital'. The word 'capital'
is connected with caput and in mediaeval Latin meant
the principal sum as distinct from the interest. Originally, the term was confined to loans of money. In
the natural course of historical development, the term
'capitar received a wider meaning and capital came to
be considered primarily as a source of profit and in
ordinary thought capital is considered as wealth which
yields a revenue.
Later econqmic theories introduced
many refinements in the meaning of the word. We
are not concerned with those refinements and it is unnecessary to discuss them here. For our purpose it is
sufficient to state that what the Baroda Municipality
got from the State Government of Baroda merged in
and became municipal property
0r
municipal
fund
under the provisions of the Municipal Act an,d was not
capital on which a return had to be earned in accordance with the principles laid down in the Muir Mills
Case (supra). In our opinion, it is impossible to apply
these principles in the case of a municipal undertaking
of the nature we have under consideration here. The
argument of learned counsel for the respondents that
once it is found that there was capital and actual profit in the sense of excess of earnings over outgoings
from the undertaking' in question, no distinction can be
drawn
be_tween
private
enterprise
and
municipal
enterprise, cannot therefore be accepted. In the case
-before us, there was neither 'capital' nor 'profit' on
which the principles laid
down in Muir Mills case
(supra) could operate. We must make it clear that
the question is not merely one of terminology; that is,
whether the more appropriate word to use in connection with a municipal undertaking is surplus or profit;
;r i:, the nature or quality of the municipal property or
fund which must be determinative of the question at
issue, and it is on that basis that we have come to the
conclusion that in the present case there were no
S.C.R.
SUPREME COURT REPORTS
47
profits .of one single department of the municipality
out of which the respondents could claim a bonus.
In the course of arguments before us a reference was
made to certain observations contained in a Report of
the Committee on Profit-sharing set up by the Ministry
of Industry and Supply in 1948. With regard to the
question
how
Government
undertakings should
be
treated for purposes of profit-sharing, the
Committee
said : "The answer to this question is only of academic
interest, as there are no Government undertakings
in
the industries we have recommended for an experiment
in profit-sharing. On the general question, we think
that those business undertakings of Government, which
aim at making a profit, and which will ordinarily be
organised in the form of corporations, would automatically
come
under any law which governs private
undertakings of a similar nature."
We do not take
those observations as deciding any question of principle;
at best they express an opinion of the members of the
Committee-an opinion which is expressly confined to
undertakings organised
in
the form of corporations
with the aim of making a profit in the ordinary trading
or business sense.
Jn our opinion, those observations
have no apt application to a municipal undertaking
meant
for
the
purpose of augmenting municipal
revenues in order to meet the municipal service demands
and improve the amenities of the inhabitants of a
modern municipal borough.
We proceed now to consider the second argument of
the learned Attorney-General. This argument depends
on the provisions of s. 58 of . the Municipal Act. That
section deals with the rule-making power of the municipality and proviso (a) lays down that no rule or
alteration or rescission of a rule made sli.all have effect
unless and until it has been approved by the State
Government.
Our
attention
has
been
drawn
to
els. (c), (f) and (i) of s. 58 which enable the municipality
to make rules relating, inter a/.ia, to salaries and other
allowances of the staff of officers and servants employed
by
the municipality;
their pensions,
gratuities
m
compassionate allowances on retirement, and provident
4~75 S.C. India/59
1956
lhm4a B11rt1u11i
MNnicipali!Y
v.
111 Workmln
S.Jr. Das],
1956
-
11...Jo Borovg/i
Munidpa/i!:J
...
Its Workmen
S.K. DMJ.
48
SUPREME COURT :REPORTS
[1957]
fund etc. It was pointed out that under s. 58
the
Baroda Municipality had no power to make rules for
the payment of bonus to its employees, because the
word 'allowances' did not include bonus; and even if
such rules could be made, they required the sanction
of the State Government under proviso (a) referred to
above.
It was
further
submitted
by
the
learned
Attorney-General that there were no existing rules
With regard to the payment of bonus to a municipal
employee.
In view of these provisions
the
learned
Attorney-General argued that it was not open to a
Labour Court or Tribunal to direct the payment of
bonus to a municipal employee. We cannot accept
this argument as correct. The demand for bonus as .
an industrial claim is not dealt with by the Municipal
Act; it is dealt
with
by
the Industrial
Disputes
Act, 19.47. Therefore, it is not a relevant consideration
whether there are provisions in the Municipal Act with
regard to payment of bonus. The provisions of the
Municipal Act are relevant only for the purpose of
determining the quality or nature of the municipal
property or fund; those provisions cannot be stretched
beyond that limited purpose for defeating a claim of
bonus. We do not therefore think that the absence of
provisions in the Municipal Act for the payment of
bonus to municipal employees is a consideration which
is either determinative or conclusive of the question at
issue before us. If we had come to a different conclusion
as
respects the first contention of the learned
Attorney-General and his third contention to be referred
to presently, the absence of suitable provisions relating
to payment of bonus to municipal employees in the
Municipal Act would not have stood in the way of our
allowing the claim of the respondents for the payment
of bonus.
We now proceed to consider the third and last
contention
of
the
learned
Attorney-General.
This
contention centres round the question whether one
department of the municipality can be isolated and a
distinction made between the employees of that department and other departments in the matter of the
SUPREME COURT REPORTS
49
payment of bonus. We have already pointed out that
under the Municipal Act a municipality may perform
various functions, some
obligatory and some discretional. The activities may be of a composite nature :
some of
the
departments
may
be
mostly
earning
departments and some mostly spending departments.
For example, the department which collects municipal
taxes or other municipal
revenue, is essentially
an
earning department whereas the sanitary department
or other service department is
essentially a spending
department. There may indeed be departments where
the earning and spending may almost balance each
other. In spite of these distinctions in the internal
arrangement
of departments within a municipality,
the property or income of the municipality remains of
the same nature or quality, and it will be obviously
unfair to draw a distinction between the employees of
one department and the employees of another department for the payment of bonus. The result of such a
distinction will be that the staff of the spending departments will never be entitled to any bonus at all and
instead of promoting peace and harmony amongst the
employees of the municipality, a distinction like the
-one suggested by learned counsel for the respondents
will create unrest and discontent. Learned counsel for
the respondents submitted before us that beyond the
fact of single ownership, there was no other connection
between the electricity department of the Municipality
and its other departments. We do not think that this
submission is correct. Under the Municipal Act, the
total income and expenditure of the municipality form
one integrated whole; they are both for the purposes
of the Act; and if the workmen of a service or spending
department do not work efficiently with the result that
the expenses. on the obligatory functions of the municipality increase, that inefficiency is bound to affecteven to dwindle or wipe out-the surplus of an earning
department. For a true appreciation of the financial
position of a municipality, its total income and expenditure must be considered; we must look at the whole
picture, the part which is in shade as well as the part
1950
Baroda Borough
Municipality
v.
Its Workmen
S. K. Das
Barod11.
Borough
Municipal, ity
v
Its Workmen
G. K. Das J.
50
SUPREME COURT REPORTS
[1957]
which has caught the light for a correct appraisal of
the picture.
Learned counsel for the respondents referred us ro a
nnmbcr of decisions
of Labour Tribunals where . a
distinction was made between a parent concern and
subsidiary concerns, or even between different units of
the same concern, in the matter of payment of bonus :
Rohit Mills Ltd. v. Sri R. S.
Parmar(' ), Mackinnon
Mackenzie and Company's Indian Staff Organisation
v.
Mackin11011 Mackenzie and Company Ltd.('), Ahmedabad
Mfg. & Calico Ptg. Co. Ltd. v. Their Workmen('),
Shaparia Doc!( and Steel Company v. Their Workers( •),
and Minakshi
Mills
Ltd. v.
Their
Workmen( ").
Recently,
we
have
had occasion
to consider this
question
in Messrs. Burn & Co., Calcutta v.
Their
f;mployees(' ) where we pointed out the harmful consequences which might arise if an invidious distinction
were made amongst employees of the same industry.
Considering the question with reference to the facts of
the present case, it is clear to us that the different
activities of the Baroda Municipality constituted
one
integrated whole and the activities
of
the different
departments of the Municipality were not distinct or
unconnected activities so as to permit the isolation of
one department from another or of an earning department from a spending department. From this point
of view also, the claim of bonus was not maintainable.
Some decisions were brought to our notice in which
the question of the payment of bonus to their employees
by Electric Supply Companies, .