# • NATIONAL ENGINEERING INDUSTRIES LTD v. ITS WORKMEN

- **Citation:** [1968] 1 S.C.R. 779
- **Court:** Supreme Court of India
- **Decided:** 1967-10-06
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/national-engineering-industries-ltd-v-its-workmen-4288
- **Pages:** 26

## Headnote

•
NATIONAL ENGINEERING INDUSTRIES LTD.
A
v.
ITS WORKMEN
October 6, 1967
IJ. M. SHELAT AND V. BHARGAVA, JJ.J
Industrial Dispute-Bonus-Calculation of rehabilitation cost of
machinery-Use of multiplier whether necessary when relevant
quotations of price of machinery available-Item-wise and block-wise
estimate when desirable-Need of araduated divisor when machinery
installed over several years-Interest allowable on paid up capital,
rate may be adjusted reasonably-Life of machinery, estimate ofLaches may be taken into account in considering claim for bonus.
B
c
The workmen of the appellant company demanded bonus for
the years 1956-57 to 1959-60. The Tribunal disallowed the claim for
195&-57 on the ground that it was belated and allowed the demand
for the rest of the years 1957-58 to 1959-60. In working out the available surplus for distribution as bonus the Tribunal in general followed
the Full Bench formula evolved by the Labour Appellate Tribunal.
Against the Tribunal's award the company as well as the workmen D
appealed to the Supreme Court by special leave under Art. 136 of
the Constitution. Both sides raised contentions with regard to the
rehabilitation allowances in respect of plant and machinery for the
three years in question and the method followed by the Tribunal in
calculating them. The main question for decision arose out of the
company's contention that since it furnished quotations for all
machinery including the old machinery, the Tribunal ought to have E
accepted those quotations as equivalent to replacement cost as it
did in the case of new machinery instead of adopting the notional
method of working out multipliers and then arriving at replacement
cost by multiplying that multiplier with the estimated cost to the
sellers.
HELD: (i) The multiplier is at best an approximation arrived
at from the trend of price level during the ascertained intervening
period. But when the cost of replacement is ascertained from quota- F
tions of prices for the year of replacement ,such cost is more accurate than a notional one worked out from the multiplier. It is
therefore not always necessary to arrive at a multiplier for estimating the probable cost of replacement. (789 C-D].
In the present case since the Tribunal accepted the quotations
and worked out the multiplier in the case of new machinery by
dividing the quotations by the original cost it ought to have G
followed the same method in the case of old machinery as it had
before it the cost of the old machinery as new and the cost of replacement, both unchallenged by the Union. If the rehabilitation
cost was calculated in this manner there would be no available
surplus with the company and hence no bonus would be payable.
(787 H-788A; 787 A-B].
(ii) It is well established that in the case of old machinery the
employees cannot insist that such machinery should be replaced by B
old machinery. For working out the rehabilitation oost of such
machinery it is the cost of new machinery that is to replace the old
which has to be taken into consideration. (787 F-GJ.
(iii\ Whenever it is possible to estimate itemwise the probable
cost of machinery in the year of replacement such a method is not
only permissible but is more desirable. The blockwise estimate bas
779
780
SUPBBKil COUBT BllPOBTS
[1968] l s.c.B.
A to be resorted to when itemwise estimate is not possible as when
the industry owns several factories and the number of plant and
machinery is so large that it becomes difficult to make an estimate
of replacement cost itemwise. [789 B-C; 788 G-H].
(iv) The contention on behalf of the workmen that the replacement cost should be worked out on the basis of the price level during the bonus year could not be accepted. The test is the probable
B cost of replacement when rehabilitation becomes due. If the bonus
year and the year of rehabilitation coincide, the price level during
the bonus year would nci doubt pe the relevant basis. But when they
do not coincide and the due year of rehabilita

## Text

_Characters 0–39,966 of 67,166. This is a partial read: ask again with offset=39966 for what follows._

•
NATIONAL ENGINEERING INDUSTRIES LTD.
A
v.
ITS WORKMEN
October 6, 1967
IJ. M. SHELAT AND V. BHARGAVA, JJ.J
Industrial Dispute-Bonus-Calculation of rehabilitation cost of
machinery-Use of multiplier whether necessary when relevant
quotations of price of machinery available-Item-wise and block-wise
estimate when desirable-Need of araduated divisor when machinery
installed over several years-Interest allowable on paid up capital,
rate may be adjusted reasonably-Life of machinery, estimate ofLaches may be taken into account in considering claim for bonus.
B
c
The workmen of the appellant company demanded bonus for
the years 1956-57 to 1959-60. The Tribunal disallowed the claim for
195&-57 on the ground that it was belated and allowed the demand
for the rest of the years 1957-58 to 1959-60. In working out the available surplus for distribution as bonus the Tribunal in general followed
the Full Bench formula evolved by the Labour Appellate Tribunal.
Against the Tribunal's award the company as well as the workmen D
appealed to the Supreme Court by special leave under Art. 136 of
the Constitution. Both sides raised contentions with regard to the
rehabilitation allowances in respect of plant and machinery for the
three years in question and the method followed by the Tribunal in
calculating them. The main question for decision arose out of the
company's contention that since it furnished quotations for all
machinery including the old machinery, the Tribunal ought to have E
accepted those quotations as equivalent to replacement cost as it
did in the case of new machinery instead of adopting the notional
method of working out multipliers and then arriving at replacement
cost by multiplying that multiplier with the estimated cost to the
sellers.
HELD: (i) The multiplier is at best an approximation arrived
at from the trend of price level during the ascertained intervening
period. But when the cost of replacement is ascertained from quota- F
tions of prices for the year of replacement ,such cost is more accurate than a notional one worked out from the multiplier. It is
therefore not always necessary to arrive at a multiplier for estimating the probable cost of replacement. (789 C-D].
In the present case since the Tribunal accepted the quotations
and worked out the multiplier in the case of new machinery by
dividing the quotations by the original cost it ought to have G
followed the same method in the case of old machinery as it had
before it the cost of the old machinery as new and the cost of replacement, both unchallenged by the Union. If the rehabilitation
cost was calculated in this manner there would be no available
surplus with the company and hence no bonus would be payable.
(787 H-788A; 787 A-B].
(ii) It is well established that in the case of old machinery the
employees cannot insist that such machinery should be replaced by B
old machinery. For working out the rehabilitation oost of such
machinery it is the cost of new machinery that is to replace the old
which has to be taken into consideration. (787 F-GJ.
(iii\ Whenever it is possible to estimate itemwise the probable
cost of machinery in the year of replacement such a method is not
only permissible but is more desirable. The blockwise estimate bas
779
780
SUPBBKil COUBT BllPOBTS
[1968] l s.c.B.
A to be resorted to when itemwise estimate is not possible as when
the industry owns several factories and the number of plant and
machinery is so large that it becomes difficult to make an estimate
of replacement cost itemwise. [789 B-C; 788 G-H].
(iv) The contention on behalf of the workmen that the replacement cost should be worked out on the basis of the price level during the bonus year could not be accepted. The test is the probable
B cost of replacement when rehabilitation becomes due. If the bonus
year and the year of rehabilitation coincide, the price level during
the bonus year would nci doubt pe the relevant basis. But when they
do not coincide and the due year of rehabilitation is the year beyond
the bonus year that which is relevant is the probable cost of replacement during that year. [790 H; 791 A-B].
0
(v) Ordinarily, the Tribunal has to satisfy itself that no coat
of expansion is injected in the rehabilitation cost. In the present
case, however, it did not appear from the record that any questiOll
of expansion arose as the Union accented the quotations as equivalent to the replacement cost. [791 F-G].
D
(vi) The Tribunal was justified in taking the price rise in respect
of the machinery installed in the bonus years as zero. Though the
prices for such machinery in 1963-64 were available, ccinsidering that
its life was 15 years, it was too early to find out with any precision
the probable trend of prices during the intervening years. [793 EG].
(vii) The Tribunal was wrong in giving a uniform remainder
I life of 7 years to old machinery irrespective of the year of its installation. Taking the life of old machinery to be 10 years, the old
machinery purchased in 1950-5) would require replacement in 1960-61
and so on. In that case the remainder life in the bonus year 1957-68
of old machinery installed in 1900-51 would clearly be 3 years, of
old machinery installed in 1955-56 8 years, of machinery installed
in 1956-57 9 years and that installed in 1957-58 10 years. The divisor
p therefore could not be the uniform 7 for all the three years but a
graduated one on the basis that the estimated life of the old machinery was 10 years. [793 H; 794 B.]
(viii) The Tribunal was justified, in view of the decision of this
Court in the South India Millowners' Association'1 case, in taking
the whole cost of the old machinery as depreciation, but it made a
G mistake in deducting it twice over. [795 B-C].
(ix) The company not being an investment company, its investments in shares of other joint state coll)panles prima facie represented extra capit&l not required as workirig 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 trest the loss there.
JI from as trading expenditure. The· Tribunal at the- same time could
deduct this amount from the rehabilitation cost because that amount
was avaolable to meet the rehabilitation cost. [797 H; 798 A].
(x) Though the Full Bench formula provided for payment of
net interest at 6 per cent annum on paid up capital, that rate ls not
to be regarded as something inflexible. While awarding Interest if
NA1'TONAL ENGINEERING LTT!., V. WORKMEN (Shela!, J,)
781
the Tribunal were to find that if it were to grant 6 per cent interest A
on paid 1up capital. nothing or no appreciable amount would be left
for bonus, it can adjust the rate of interest so as to accommodate
reasonably the claim for bonus and thus must meet the demands of
both as reasonably as possible. [798 G: 799 B].
(xi• Jn fixing the life of machinery the principle that the Tribunal
has to bear in mind is that the life of machinery is the period
during which it is estimated to work with reasonable efficiency and B
not the period during which it has actually been operated, that is,
till it becomes too deteriorated for use. In the present case the
Tribunal fixed the ~eriod of 15 years after considering the evidence
and the nature of the industry. There was no reason why its determination should be interfered with. [799 G-H].
(xii) The Tribunal was right in not excludin11 the cost of spares
from the price of machinery for the purpose of calculating re- C
habilitation cost. In the case of imported machinery spares are
generally included in the purchase and their cost must be included'
in the purchase price, the reason being that in case of breakdown the
company would not have to wait for an indefinite period for ordering
and obtaining the .>-pares. [800 B].
(xiii) The statutory depreciation and development rebate allow- D
able under the Income-tax Act are not relevant for the purpose of
calcula\ing rehabili:tation requirement, Only the notional normal
depreciation need be deducted. [801 C-D].
(xiv) The claim for bonus in respect of 1956-57 was made more
than 18 months aftl!r the closure of accounts. Industrial adjudication
is bound to take in,to consideration delay and !aches before it calls I:
upon the other side to reopen its accounts closed long ago, The
Tribunal was therHore right in rejecting the claim on the ground
of !aches. [801 F-G J.
Millowners' As.sociation,
Bomba11
v.
Rashtriya Mill Mazd"oor
Sangh, Bombay (1950] L.L.J. 1247, Associated Cement Co. Ltd. v.
Its Workmen [1959] S.C.R. 925, Management of Raiendra Mills Ltd. F
v. Their Workmen [1960] I. L.L.J. 53, The Workmen v. The National
Tobacco Co. [1966] 2 L.L.J. 200, South India Millowners' Association
& Ors. v. Coimbatore District Te.rtile Workers' Union and Others
(1962] 1 L.L.L. 223, G. F. Mills v. Its WoT'kmen, A.I.R. 1958 S.C. 382,
South India Mil!owners' Association and Ors. v. Coimbatore District Textil~ Workers' Union and Ors., [!1962] Supp, 2 S.C.R. 926,
Pierce Leshe & Co. v. Its Workmen, [1960] 3 S.C.R. 194 and Bengal G
Kagazkar Mazdoor Union & Ors. v.
Titagarh Paper Mills Co, and
Ors. [1963] 2 L.L.J. 358, referred to.
C1v1L APPELi.ATE JURISDICTION: Civil Appeals Nos. 356 and
357 of 1966.
Appeals by !:pecial leave from the Award of the Industrial H
Tribunal. Rajasthan in Case No. 9 of 1961.
Niren De, Addi. Solicitor-General, Sobhag Mal Jain and
B. P. Maheshwari, for the appellant (in C. A. No. 356 of 1966)
and respondent (in C. A. No. 357 of 1966).
782
llUl'UJl]I COURT REPORTS.
(1968) I S.O.R.
A
M. K. Ramamurthi, Shyamala Pappu and Vineet Kumar, for
the appellants (in C. A. No. 357 of 1966) and respondents (in C.As.
No. 356 of 1966).
The Judgment of the Court was delivered by
B
Sllelat, J, These two appeals by special leave, one by the
appellant company and the other by its workmen ~ d!rected
against the award dated May 4, 1964 of the Industnal Tnbunal,
Ra jasthan to which reference was made under section 1 O(J)(d) of
the Industrial Disputes Act, 1947. The dispute referred to the
Tribunal rela.ted to the workmen's demand for bonus for the years
Cl 1956-57 to 1959-60. By the said award the Tribunal disallowed
the claim for 1956-57 on the ground that il was belated and allowed the' demand for the rest of the years 1957-58 to 1959-60.
In working out the available surplus for distn'bution as bonUI
D the Tribunal m general followed the Full Bench formula evolved
by the Labour Appellate Tribunal in Mil/owners' Association,
Bombay v. Rashtriya Mill Mazdoor Sangh, Bombay(') and approved by this Court in the Associated Cement Co. Ltd. v. Its
Workmen.(') The Tribunal worked out first the gross profits for
the said years and the prior charges deductable therefrom and
B arrived at the available surplus. For the year 1957-58 gross profits
found were Rs. 28.29 lacs, Rs. 25.36 lacs for 1958-59 and Rs. 34.92
lacs for 1959-60. There is no dispute about these figures. The
Tribunal then ascertained the prior charges deductible from the
gross profits. There is no dispute with regard to the figures for
depreciation, income-tax and wealth tax. As regards interest allowF able on paid up capital, the Tribunal allowed 6 % per annum tax
free interest for 1957-58 and 1958-59. For 1959-60 the Company
demanded interest at the rate of 8.57% by reason of a change in
the Income-tax law having been made during the year. The Union,
on the other hand, claimed that only 6 % interest should be allowed.
The Tribunal allowed a mean between the two, viz., 7! %. There
G was no question of interest on working capital as it was not the
Company's case thll't any reserve was utilised as working capital,
similarly, there is no dispute with regard to the rehabilitation
charge for buildings allowed by the Tribunal. Apart from the
question as to interest allowable on paid up capital for the year
1959-60, the main dispute in these appeals is with regard to the
H rehabilitation allowances in respect of plant and machinery for
the three years in question and the method followed
by the
Tribunal in calculating them.
(') [1950] L.L.J. 1247.
(') [1959] S.C.R. 925.
•
'·
-A -
;:,'
i'iATIONAL ENGINEERING LTD. V. WORKMEN (Shelat, J,)
783
The Company ever since its commencement has been pur·
chasing new and also old reconditioned machinery. As regards
new machinery the Company furnished, (a) cost to the Company,
A
(b) the current price during the year 1963-64 and (c) percentage in
the rise in prices. The Company also furnished in respect of reconditioned machinery (a) cost to the Company and (b) estimated
cost which its vendors would have p:1id if they had purchased it B
as new in the years in which the Company installed the old
machinery. In respect of the old machinery the cost to the Company and the estimated cost to the sellers according to the Company were as follows: -
Year
Coot to the
,Company
Eotlmaied oost to C
t.be 18llem
(In IOCB)
(In l&c1)
D
Upto 1952·53
13•37
20·QI!
1953-M to 1955-56
3•49
5•23
1968-57
1·40
2· 10
E
9157°58
1·77
2·e5
Total
20·03
30•03
F
The difference between the cost to the Company and the estimated
cost to the sellers thus come to 150 % . No old machinery was
purchased during 1958-59 and 1959-60. The Company also produced quotations of prices for equivalent machinery current in
year 1963-64. The Union did not dispute (a) the figures of cost to G
the Company of the new machinery as given in its statement Ex.
M2, (b) the figures of cost of old machinery to the Company and its
estimated cost to the sellers as given in Ex. M 3 and (c) the quotations of prices received by the Company in 1963-64 from manu·
facturers of these machines, both old and new, "except in the case
of machinery installed during the bonus years."
H
The Tr;bunal worked out the rehabilitation requirements for
the years 1957-58 to 1959-60 in a .Chart which is Ann.exure A to
the award. Since the controversy m these appeals mamly centres
round the figures of rehabilitation requirements allowed by the
Tribunal it is expedient to set out that Annexure:
Chart ANNEXURE A dated 31-3-1964
....
~
Period
Coot
Cool ..
KuliiTotal 1Bala.nae
Minus depreoia.tio•
.Bala.nee
Divisor Annual
llhown by
plier
brea.1<-
ltequireCo.
in
clown
ment
Ex.Mvalue5%
I
2
3
5
6
7
8
9
10
11
(Rupees in lakhs)
I
1950-51Total.ooet u MW & old
New
16·30
16•30
3·36
54·77
0-81
63·96
lllachy30·03 24-36
7
3·48
. "Old
13·37
20·05
67·37
Nil
67•37 Depre. written oJI' upto 31-3-57
1951-52New
1•43
1·43
1·87
2·67
0-07
2·60
48·83
2·60
8
0·32
n
1952-630
New
2·18
2·18
1·47
3·21
0·11
3-10
3·10
9
0•34
~
1953-54-
..
Ne"·
1·12
1·12
2•28
2·55
0·06
2·49 Investment as on 31·3-57
2·49
10
0•25
..
Old
1·24
1·86
2·28
4·24
4•24
18·22
4·24
7
0·61
..
1954-55i
New
3·71
3·71
1·86
6·90
0· 19
6·71 Total
96·98
6.-71
11
0·61
Old
1·95
2·93
1·86
5·4fi
Nil
5--45
5·45
7
0·78
1955-56New
6·93
6·93
2·18
15·11
0•35
14·76
14•76
12
1·23
Old
0-30
0•45
2·18
0·98
Nil
0·98
0•98
7
O·H
1956-57New
13·11
13•11
2·35
30·80
0•66
30·14
30·14
13
~-3!
Old
1·40
2·10
2·35
4•93
Nil
4•93
4•93
7
0•70
~
1957-58-
-
New
3·39
3·39
I
3·39
0· 17
3·22
3·22
14
0·23
.,
8l
Old
1·77
2·65
I
2·65
Nil
2·65
2·65
7
0·38
IJ ·39
~
1958-59-
-
New
12·95
12·95
12·95
0•65
12•30
12,30
14
0•88
12·27
"'
1959-60p
New
30•76
30·76
I
30•76
1•54
29·22
29·22
14
2•08
14·36
l"
NATIONAL ;:NG!li'EERING LTD. V, WORKMEN (S/1c!at, J.)
7R;
It will be observed from Annexure A that the Tribunal accept· A
ed as regards new machinery the Company's figures of cost and
quotations as cost of replacement and dividing the cost of replacement by the original cost to the Company worked out multipliers
for each year. This dispute, however, is with regard to the multi·
pliers arrived at by the Tribunal in respect of old machinery.
In Annexure A, the Tribunal adopted 3.36 multiplier in res- B
pect of old machinery installed in 1950-51, i.e .. the same multiplier
which it worked out in resp~ct nf new machinery inslallecl <luring
that year. For the years 1953-54 to 1957-58 the Tribunal accepted
the Company's figures which were agreed to by the Union, viz ..
of cost to the Company and the estimated cost to their vendors
if. the latter had purchased that machinery as new in the respec· C
tive years of installation. The C'ompany also produced quotations
from manufacturers of machinery itemwise in its Confi-Annex. 1
and 2. These quotations were for some machines for 1959-60, for
some for 1960-61 and the rest for 1961-62. It woald be safe to say
that the average cost of these machines was the cost prevalent in
1960-61. Though the average cost of the machinery was thus D
available, the Tribunal in the case of old machinery worked out
multiplier for each of these years and then arrived at the figure
of Rs. 85.62 lacs as the total replacement cost of that machinery
by multiplying the estimated cost to the seller with the multiplier.
The Company's contention was that since the Company had· fur·
nished quotations for all machinery including the old mi:chinery, E
the Tribunal ought to have accepted those quotations as equiva·
lent to replacement cost as it did in the case of new machinery
instead of adopting the notional method of working out multipliers
and then arriving at replacement cost by multiplying that multiplier with the estimated cost to the sellers.
A multiplier is the ratio between the original cost and the
cost of replacement. It is one of the methods of arriving at the
hypothetical cost of replacement at a future date. But where the
cost of replacement is available through quotations and
these
quotations are not disputed by the Union it would not be necessary
F
to resort to a hypothetical multiplier or if the multiplier must be G
ascertained it must be the ratio of the cost to the employer and
the estima.ted cost of replacement actually proved' through the
quotations. According to the Company in the case of old machinery
the multiplier so calculated would be1950-51
3.98
1953-54
7.83
B
1954-55
3.49
1955-56
2.47
1956-57
4.75
1957-58
2.29
S1ll'BSllll COURT l\ltl'()RTS
[1968) I s.o.a.
A The total cost of replacement of old machinery on the basis of
these multipliers or in the alternative on the basis of
the quotations would then come to Rs. 121.70 lacs mstead
Rs. 85.62 lacs, the difference being of Rs. 36.08 lacs. Therefore,
even if the divisor of 7 uniformly applied by the Tribunal in Annex.
A were to be accepted as correct, Rs. 36·08....,Rs. S.16 lacs would
7
B have to be added for rehabilitation requirement for each of the
bonus years. If that is done the entire available surplus found by
the Tribunal would be wiped out.
It will be seen from the Tribunal's Annex. A that so far as
new machinery is concerned the Tribunal accepted the figures of
c original cost and the quotations furnished by the Company and
worked. out multipliers for all the years from 1950-51 to 1959-60
by simply dividing the quotations by the original cost. The question is, should not the Tribunal have also followed the same
method in the case of old machinel')' when it had before it the
estimated cost to the seller, i.e., the cost of old machinery if purD chased as new in the year of installation and the quota1ions for
that machinery. If that were done there would be no necessity of
finding out a notional multiplier. In that event as seen above there
would be a difference of Rs. 36.08 lacs which would have to be
added to the figure of Rs. 85.62 lacs worked out by the Tribunal
as total rehabilitation cost in respect of old machinery.
II
Mr. Ramamurti however argued that though the Union had
not disputed the quotations those quotations were for the year
1963-64 when the Tribunal was adjudicating the dispute, that it
is always necessary to first find out the multiplier and then work
out the rehabilitation cost and that the cost of machinery in the
bonus year or years must be reflected while working out the rehaF bilitation cost even if the year of replacement worked out from
the average life of machinery is later. It is now well established
that in the case of old machinery the employees cannot insist that
such machinery should be replaced by old machinery. For working out rehabilitation cost of such machinery it is the cost of new
machinery that is to replace the old which has to be taken irito
G consideration. The Company as aforesaid produced two kinds of
figures both accepted by the Union and the Tribunal: (!) the estimated cost to the seller if he had purchased the old machinery as
new in the respective years of its installation and (2) quotations of
prices of machinery whic)l would replace it The Tribunal had
before it thus the cost of the machinery if it were new in the year
of installation and the cost of its replacement by new machinery.
B There was therefore no particular reason in distmguishing the old
from the new machinery for the figures of costs and replacements
in both the cases were on the footing that the old machinery was
new machinery. Therefore since the Tribunal accepted the quotations and worked out the multiplier in the case of new machinery
by dividing the quotations by the original cost it ought to have
XATIOXAT ••• ~UINEERING Lm. "· WORKMEN (She/at, J.)
7~7
followed the same method in the case of old machinery as it had A
before it the cost of the old machinery as new and the cost or replacement. both unchallenged by the Union.
The question still is whether the quotations can be the sole
criterion for working out rehabilitation cost. The principle accepted in the Full Bench formula and approved by this Court in the
case of Associated Cement Co. Ltd.,(') was that payment of bonus
B
is in recognition of the contribution of labour in the profits earned
-by the industry and tt> assist labour to overcome as far as possible
the difference between the actual wage and the living wage. The
Formula at the same time accepted the point of view of the industry that investment made by it must imply a legitimate expectation
of securing recurring returns and that could only be ensured by C
machinery being continuously kept in good working order. Such
maintenance. would necessarily be to the advantage of the labour.
for, the better the machinery the larger the earnings and the
brighter the chance of earning bonus. Tt is on this twin consideration that the amount necessary for rehabilitation is recognised as D ,
• prior charge on the gross profits when surplus profit for distribution as bonus is being worked out. It is true thnt rlqmrfotion is
allowed by the tax Jaws but that is only to the extent of a percentage on the written down value. The depreciation fund set apart
on that basis would obviously be insufficient for
rehabilitation
;•n•J therefore an extra amount would have to be annually s~t ~part E
notionally to make up the deficiency. That is the reason fo.- the
Full Bench formula having accepted the industry's claim to rehabilitation in addition to the admissible depreciation. While ascertaining the• claim of rehabilitation the Tribunal has first to ascer·
ta in the cost of the machinery to the employer and then to e~timate
its probable future
life.
It then becomes possible to anticipate
:ipproximately the year when the machinery would need replace-
.F
me~t ·and it is the probable price of such replacement at such
future date that ultimately decides the amount to which the industry is entitled by way of replacement cost. The question is how
to estimate the probable price of machinery at such future date?
As observed in \he Asiociated Cement Company's case(')
such
probable price can be considered itemwise where the industry 0
does not own too many factories and an itemwise study of ma.chine·
ry is reasonably possible. Tt is when the industry owns several
factories and the number of plant and machinery is so large that
it becomes difficult to make an estimate of replacement c<>st Itemwise that the estimate has to be block-wise.
In either case the
Tribunal has to estimate the probable cost of replacement at the
!;me when such replacement would become d•1e. Such ,~ e<timate H
ct.epends obviously on several uncertain factors. The estimate of
the probable life of machinery is itaelf a matter of anticipation and
(') (1959] S.C.R. 925.
J,/P(N)7SCl-ll
788
8UPBJDIB COUllT RBPOBTB
[1968) l B O.R.
A the estimate of the probable trend of price duriq the Intervening period is also tb a degree 81 matter ol cl>D}ec>
ture. However, the entire process
of ascertaining replacement cost is hypothetical depending largely on expert evidence.
It would appear therefore that whenever it is possible to estimate
itemwise the probable cost of machinery in the year of replace·
ment, such a method is not only permissible but is more desirable.
B The block-wise estimate has to be resorted to when item-wise esti·
mate is not possible. Where therefore there is clear evidence of
the probable price of each piece of machinery itemwise when replacement is to become due, it would be more accurate to proceed
on the basis of such price and it would not be necessary to find
out multipliers, such multipliers being after all the ratio between
c the cost and the probable cost of replacement ascertained from
the trend of prices during the intervening years. The multiplier
thus is at best an approximation arrived at from the trend of price
level during the intervening period. But where the cost of replacement is ascertained from quotations of prices for the year of replacement such cost is more a.ccurate than a notional one worked
n out from the multiplier. It is therefore not always necessary to
arrive at a multiplier for estimating the probable cost of replacement.
In the instant case the Tribunal estimated the life for old
machinery at 10 years and that for new machinery at 15 years
E after taking into consideration the fact that the machinery was
worked at least since 1955-56 on three shifts a da.y and the fact
that it is being used for manufacturing precision macilines. On
this basis the old machinery installed in 1950-51 became aue for
replacement in 1960-61 and the rest of it installed in succeeding
years would become due after 10 years from the respective years
F of its installation. It is in evidence that though the average life of
the old machinery was exhausted it was still being worked though
uneconomically. It was agreed that the entire machinery needed
immediate replacement and this fact was accepted by the Tribu·
nal. It is well estabished that an employer cannot be allowed to
postpone the date of replacement on the footing that he has opeG rated the machinery in fact beyond its average life and thus boost
the cost of replacement taking advantage of the rise in price
every year. In the instant case however that cannot be said to be
the position. As stated earlier, the quotations produced by the
Company represented an average price as near as possible prevailing during the period for replacement. Since they were not disputed by the Union they were the best available data. There was
B therefore all the more reason for the Tribunal to have worked out
the cost of replacement from these undisputed quotations instead
of working out the multipliers and then arriving at the total replacement cost. On the basis of these quotations even if the
multipliers were to be worked out the multipliers and the cost of
replacement of old ma.chinery would be as follows:---·
""""
NATIONAL ENGINEERING LTD. V. WORKMEN (8helat 0 J.)
789
A
Old machinery eati·
Repl&oement co1t
Multiplier
Year
mated ooat to the proved by
quot&-
seller if he had pur· tiona disputed
by
chased as new in the the Union
year of itl inataJ.la·
tion not di!puted by
...... TTnirm
B
(R;i, in la.mi.)
(R,.;. in li,r.i-;.)
1950.51
20·00
79·72
3•9R
1963.114
1•86
14·5?
7·83
19114-55
2•93
10·2i;
3•49
1956-56
0·45
I· II
2·47
1956-57
2·10
9•07
4.·7!)
c
1957-~8
2·85
6·08
2·29
30·04
121•70
The replacement cost thus arrived at would .be Rs. 121.70 lacs as
against Rs. 85.62 lacs as worked by the Tribunal. Indeed. where D
the cost of replacement is proved itemwise from price quotations
and they are undisputed it becomes difficult to appreciate how the
total cost of replacement can be Jess than the cost proved through
quotations.
Counsel for the Union, however, urged that while working E
out the replacement cost it is the cost during the bonus year which
is relevant and therefore though the Union had accepted the quotations they would not be the proper criterion and the price pre·
valent during each of the bonus years would be the relevant price.
He also argued that even if the quotations were to be accepted
as cost of replacement the prices of only those machines which are F
required for replacement and not for expansion which can be the
basis of estimation. As regards the first argument. a similar contention was raised in Associated Cement Co.'s case(')
and was
rejected. At p. 967 of the report the Court said :
"What the Tribunal has to do in determining such cost
(i.e .. probable cost of replacement) is to project the price
G
level into the future and this can be more satisfactorily
done if the price level which has to be projected in future
is determined not only in the light of the prices prevalent
d~ring the bonus year but also in the light of subsequent
prtce levels."
The submission that it is the price level during the bonus year
which is the criterion therefore is not correct. The test is the pro- H
bable cost of replacement when rehabilitation becomes due,
lf the bonus year and the year of rehabilitation coincide the price
(') [i959] S.C.R. 925.
I,1P(N)7RCl-1l(•)
790
llUPllllJOi COUBT ll:IPOB'l'S
[1968] I a.o.a.
A level dur;ng the bonus year would no doubt b~ the rdevnnt basis.
But where they do not coincide and the due year of rehabilitation
is the year beyond the bonus year that which is relevant is the
probable cost of replacement during that year and the Tribunal
therefore would ha.ve to consider all relevant evidence necessary
to estimate the cost during that future year. Where there is tangible evidence through quotations of prices for that year and llUCh
B quotations are not in dispute the -Tribunal does not have to conjecture what the trend of price level would be by taking into
consideration the price level during the intervening period which
would include the bonus year.
However this does not mean that the Tribunal must mechanically accept the quotations. The rehabilitation cost allowed under
C the Full Bench formula is the probable cost of rehabilitation which
..yhile including modernisation does not include expansion. But
the distinction between modernisation and expansion may in some
cases be subtle and not capable of clear distinction. The question
therefore would always be whether replacement of one machine
by a new one is the introduction of modern machinery or one
D which is an item of expansion. If it is an item of expansion its
cost naturally has to be excluded. The test is whether by the
introduction of the new
machinery the production capacity is
likely to be significantly augmented. If that is found the Tribunal
would have to apportion the cost on the basis that replacement is
partly modernisation and partly expansion. On the other hand,
B if the increased production is not significantly on the higher side
it would be a case of modernisation incidental to replacement. The
question is on whom is the burden of proving whether a given
replacement amounts to expansion or modernisation. It seems to
us that since it is the employer who seeks replacement cost. it is
for him to satisfy the Tribunal as to what will be the overall cost
F of replacement and in doing so it is he who must satisfy that the
cost is of replacement only and does not include any expansion of
machinery. Counsel for the Union was therefore right in saying
that the Tribunal has to satisfy itself that no cost of expansion is
injected in the rehabilitation cost. In the present case, however, it
does not a.ppear from the record that any question of expansion
G arose as the Union accepted the quotation as equivalent to the
replacement cost. Consequently, the Tribunal proceeded on the
footing that the entire machinery had become due for replacement
and the prices proved by quotations were of machines to be co.
placed in the process of replacement and modernisation and not
expansion. According to Rajendra Mills Ud(') the employer has ·
to discharge this burden by adducing proper evidence and giving
B the other party an opportunity to test the correctness of that
evidence by cross-examination ;md merely bringing on record
balance-sheets, for instance, woukl not be enough. (see also the
Workmen v. The Nationnl Tohacco Co.(').
(') (1960] I LL.J. 53.
(') [1966] II L L.J. 200.
NATIONAL ENGINEERING l/l'D, V. WORKMEN (She/at., J,)
791
But in the present case there is no question of the Company A
not having properly discharged the burden, for, it not only produced balance-sheets but also produced statements, quotations and
examined two expert witnesses, Jones and Desai. Theoe witnesses
were cross-examined on the statements relieo on by the Comp<lny
in regard to the cost to the Company, the estimated cost of replacement, the average life of machinery etc. The Union also inspected
the Confidential Annexs. I and 2 which showed itemwise the cost B
of replacement as proposed by the Company and 4uotation:; of
prices therefor. These Annexs. aiso indicated that where a machin~
was to be replaced not by the same kind but by a modern one it
was to be substituted for two oi: more of the old machines. This
was presumably done to avoid expansion. It is true that in respect
of the old ma.chinery installed in 1953-54 and 1956-57 the multiC
plier calculated on the basis of the quotations comes to 7.83 and
4.75 respectively while it ranges from 2.29 to 3.98 for tho rest cf
the years. At first sight the multiplier might suggest that there
might be an element of expansion in the case of those machines. But
it was pointed out that the prices of those particular machines had
gone unusually high and furthermore that in the process of replace- D
meat the modern machines which were to replace the old ones were
in the approximate proportion of one for two. It cannot therefore
be validly said that the Company had not placed sufficient materials to enable the Union to check up by cross-examination whether
this was a, case of expansion or not.
Mr. Ramamurti's contention next was that even though the E
quotations were not disputed by the Union, taking them as the
sole basis for estimating the replacement cost was not satisfactory
as the Union had qualified its acceptance by a reservation that it
did so except for machinery installed in the bonus . years.
This
argument does not appear to be tenable. Exhibit M2 shows that
so far as the bonus years are concerned old machinery was instal- F
led in 1956-57 and 1957-58 only. The cost of such machinery for
1956-57 was Rs. 1,39,871 and that for 1957-58 was Rs. J.76,730.
On the basis of the Union's reservation the Tribunal did not accept
the quotations for machinery installed in those years and fixed
the replacemeut cost on the basis of multipliers calculated by it
de hors the quotations. It is difficult to comprehend such an ap- G
proach by the Tribunal. The Tribunal accepted the quotations in
regard to the rest of the machinery and worked out the multiplier
on the basis of those quotations. The Union did not challenge
those quotations and the multiplier calculated therefrom. If the
quotations for the new machinery for all the years and for old
machinery for the years, except the bonus years, were accepted
by the Union and the Tribunal also. there is no reason why the H
quotati.ons. for the bonus years could be said to be unacceptable.
No ob1echon to the replacement cost of the new machinery was
taken even in regard to the bonus years. As
regards the old
machinery the Union accepted the Company's figures both as to
cost to the Company and the estimated cost to the seller if he had
7!)2
SUPREME COURT REPORTS
[1968] 1 s.c.B.
A purchased it as new. Even if a multiplier has to be calculated it
would be the ratio between the estimated seJJers cost and the
probable cost of repla.cement. So calculated both the old and new
machinery stand on ,the same footing because it is the seller's
estimated price if he had purchased it new in the year of its
installation that was taken by the Tribunal for arriving at the
multiplier. That being so, the multiplier in both the cases would
B be the ratio between the cost in the case of new machinery and
the estimated cost to the seller in the. case of old machillery and
the cost of replacement proved by the Company through quotations. If the quotations were acceptable to the Union in regard to
new machinery and the old machmery installed in the years except
the bonus years it is difficult to understand how. quotations for
C the old machinery installed in bonus years could be questioned
especially as the Union did not produce any data to prove them
incorrect. In these circumstances, we are of the view that the
multipliers arrived at by the Tribunal in the case of old machinery
were not correct. The Tribunal should have either calculated the
replacement cost from the quotations proved by the Company
D item.wise or if it had to work out the multiplier it should h&ve dooe
so by finding out the ratio between the estimated cost to the seller
accepted by the Union and the quotations proved by the Company.
The deficiency in following this method comes to Rs. 36 lacs and
odd .as stated earlier.
Regarding the new machinery purchased during the bonus
E years the Tribunal held that the price rise for such machinery
cannot be taken to be more than zero. In Ex. M2 the Company
has ~iven the quotations for this machinery and has worked out
therefrom the multiplier for each of the bonus years, viz., 2.35 for.
1956-57, 3.37 for 1957-58, 1.48 for 1958-59 and 1.66 for 1959-60.
Presumably the Tribunal thought that though the prices for this
F machinery in 1963-64 were availa.ble, considering that its life was
15 years it was too early to find out with any precision the trend
of prices during the intervening years. With the gradual growth
of indigenous production and corresponding availability of these
machines it would be difficult to say whether the same trend would
continue or not by the time the year for its repla.cement was
G reached. It is not possible to say therefore that the Tribunal's view
that the price rise of such machinery should be taken as zero was
unreasonable. In the case of machinery purchased in 1950.51 and
onward its period of replacement would commence from 1965 and
onwards. It was possible from the quotations produced by the
Company to predicate for such machinery the trend of price but
not so in the case of machinery purchased in very recent years.
H In their case the quotations may not be taken for granted as showing any definite trend in price level.
As stated earlier, the Tribunal has given in Annex. A a
uniform remainde:.,ft!d of 7 years to old machinery irrespective Of
the year of its ins
on. Thls, in our view, ii not correct. Tatlnf
NA'rlONAL ENGINEERING LTD. v. WORKMEN (Shelat, J .)
o\I:'.
the life ~old machinery to be 10 years, the old machinery pur- A
chased in 1950-51 would require replacement in 1960-61 and so
on. In that case the remainder life in the bonus year 11957-58 of
bid machinery installed in 1950-51 would dearly be 3 ycan, ol
old machinery installed in 1953-54, 6 years, of old machinery installed in 1955-56 8 years, of machinery installed in 1956-57 9 yeam
and that installed in 1957-58 10 years. The divisor Jhcrefme
could not be the uniform 7 for all these years but a grad1latcd one B
on the basis that the estimated life of old maclrlneJY. was JO yean.
In estimating the rehabilitation requirement of each year the graduated di visor should have been used.
The question which raises a serious comroversy is with regard
to the figure of Rs.