# Sheorey v. The State of

- **Citation:** [1959] 1 S.C.R. 925
- **Court:** Supreme Court of India
- **Decided:** 1959
- **Case number:** Civil Appeals Nos. 459 and 460 of 1957
- **Bench:** S. R. DAS c. J, N. H. Bhagwati, s. K. DAS, P. B. Gajendragadkar, K. N. Wanchoo
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/sheorey-v-the-state-of-1571
- **Pages:** 71

## Headnote

Industrial Dispute-Bonus-Available surplus-Determination
cf-Full Bench formula-Basis-Applicability-Revision if required
-Prior Charges-Mode of calculation-Gross profits, ascertainment
cf-Rehabilitation charges, how determined-Gratuity fund, whether
can be claimed as prior charge-Distribution of surplus-Overtime
payment, if can be taken into consideration in awarding bonus.
For the year 1953-54, the employers pai"- bonus to the
workmen equal to three months' wages, but the workmen
demanded bonus equivalent to seven months and six months
basic wages with dearness allowance. The employers contended
that after making deductions for the prior charges from the
gross profits in accordance with the formula evolved by the Full
Bench of the Labour Appellate Tribunal in Mill Owners Associa- .
tion, Bombay v. The Rashtriya Mill Mazdoor Sangh, (1950) L.L.J.'
•
. 1247, there was no available surplus left an4 consequently the
Kapur].
r959
May 5.
1959
~}1~· Associated
·Cement
Companies Ltd.
.. _.
•. v.
Its· Workmen
~ . J,'
..
•
•
926
SUPREME COURT REPORTS
[1959]
workmen could claim no bonus. The workmen countered that
the formula required revision as the employers were becoming
increasingly more rehabilitation conscious and their appetite
for the provision for rehabilitation was fast growing with the
result that in most cases, after allowing for rehabilitation, there
was no surplus left for the payment of bonus and the main
object of the formula was thus frustrated. The workmen further
contended that the whole of the rehabilitation expenses should
not be provided for out of trading profits and that the claim for
rehabilitation should be fixed at a reasonable amount and the
industry should be required to find the balance from other
sources :
Held, that though there may be some force in the plea
made for the revision of the Full Bench formula, the problem
raised by the said plea is of such a character that it can be
appropriately considered only by a high-powered commission
and not by this Court while hearing the present group of
appeals. Besides the Full Bench formula had on the whole
worked fairly satisfactorily in a large number of indu..tries all
over the country, and the claim for bonus should be decided by
Tribunals on the basis of this formula without attempting to
revise it. The formula was elastic enough to meet reasonably
the claims of the industry and labour for fair play and justice.
If the content of each item specified in the formula was determined objectively in the light of all relevant and material facts,
the Tribunals would generally find it possible to make reasonable adjustments between the rival claims and provide for a fair
distribution of the available surplus.
Muir Mills Co. Ltd. v. Suti Mills Mazdoor Union, Kanpur,
[1955] l S.C.R. 991, Baroda Borough Municipality v. Its Workmen,
[1957]S.C.R. 33, Sree Meenakshi Mills Ltd. v. Their Workmen,
[1958] S.C.R. 878 and The State of Mysore v. The Workers of
Kolar Gold Mines, [1959] S.C.R. 895, referred to.
The formula was based on two considerations: first, that
labour was entitled to claim a share in the trading profits of the
industry, because it had partially contributed to the same; and
second, that labour was entitled to claim that the gap between
its actual wage and the living wage should, within reasonable
limits, be filled up. In dealing with the claims for· bonus. the
two-fold basis of the formula must always be kept in mind.
Further, it was•not necessary that the workmen must actually
manufacture or produce the goods before they become entitled
to claim any bonus.
Burma Shell Oil Storage & Distributing Co. of India Ltd. v.
Their Workmen, (r953) 2 L.L.J. 246, applied.
The working of the formula begins with the figure of gross
0·profits, taken from the profit and loss account, which are arrived
at after payment Qf wages and dearness allowance to employees
•
S.C.R.
SUPREME COURT REPORTS
927
and other items of admissible expenditure. It would be open to
the Tribunal to exa

## Text

_Characters 0–39,952 of 161,049. This is a partial read: ask again with offset=39952 for what follows._

•
S.C.R.
SUPREME COURT REPORTS
925
In our opinion on the plain construction of the
words used ins. 116 of the amending Act, s. 342A is
available to the appellant. The High Court, it appears,
was misled into construing the words in clause (c) of
s. 116 i.e. "as if this Act had not been passed". The
High Court was therefore in error and the appellant is
entitled, in our view, as a competent witness for the
defence to testify in disproof of the charges made
against him or any other person charged together with
him at the same trial.
Anant Gopal
Sheorey
v.
The State of
Bombay
We would, therefore; allow this appeal,.set aside the
order of the courts below and hold that the application
made by the appellant to appear as a witness was
well-founded and should have been allowed.
•
Appeal allowed .
THE ASSOCIATED CEMENT COMPANIES LTD.,
DW ARKA CEMENT WORKS, DW ARKA
v.
ITS WORKMEN & ANOTHER
(S. R. DAS c. J., N. H. BHAGWATI, s. K. DAS,
P. B. GAJENDRAGADKAR and K. N. WANCHOO JJ.)
Industrial Dispute-Bonus-Available surplus-Determination
cf-Full Bench formula-Basis-Applicability-Revision if required
-Prior Charges-Mode of calculation-Gross profits, ascertainment
cf-Rehabilitation charges, how determined-Gratuity fund, whether
can be claimed as prior charge-Distribution of surplus-Overtime
payment, if can be taken into consideration in awarding bonus.
For the year 1953-54, the employers pai"- bonus to the
workmen equal to three months' wages, but the workmen
demanded bonus equivalent to seven months and six months
basic wages with dearness allowance. The employers contended
that after making deductions for the prior charges from the
gross profits in accordance with the formula evolved by the Full
Bench of the Labour Appellate Tribunal in Mill Owners Associa- .
tion, Bombay v. The Rashtriya Mill Mazdoor Sangh, (1950) L.L.J.'
•
. 1247, there was no available surplus left an4 consequently the
Kapur].
r959
May 5.
1959
~}1~· Associated
·Cement
Companies Ltd.
.. _.
•. v.
Its· Workmen
~ . J,'
..
•
•
926
SUPREME COURT REPORTS
[1959]
workmen could claim no bonus. The workmen countered that
the formula required revision as the employers were becoming
increasingly more rehabilitation conscious and their appetite
for the provision for rehabilitation was fast growing with the
result that in most cases, after allowing for rehabilitation, there
was no surplus left for the payment of bonus and the main
object of the formula was thus frustrated. The workmen further
contended that the whole of the rehabilitation expenses should
not be provided for out of trading profits and that the claim for
rehabilitation should be fixed at a reasonable amount and the
industry should be required to find the balance from other
sources :
Held, that though there may be some force in the plea
made for the revision of the Full Bench formula, the problem
raised by the said plea is of such a character that it can be
appropriately considered only by a high-powered commission
and not by this Court while hearing the present group of
appeals. Besides the Full Bench formula had on the whole
worked fairly satisfactorily in a large number of indu..tries all
over the country, and the claim for bonus should be decided by
Tribunals on the basis of this formula without attempting to
revise it. The formula was elastic enough to meet reasonably
the claims of the industry and labour for fair play and justice.
If the content of each item specified in the formula was determined objectively in the light of all relevant and material facts,
the Tribunals would generally find it possible to make reasonable adjustments between the rival claims and provide for a fair
distribution of the available surplus.
Muir Mills Co. Ltd. v. Suti Mills Mazdoor Union, Kanpur,
[1955] l S.C.R. 991, Baroda Borough Municipality v. Its Workmen,
[1957]S.C.R. 33, Sree Meenakshi Mills Ltd. v. Their Workmen,
[1958] S.C.R. 878 and The State of Mysore v. The Workers of
Kolar Gold Mines, [1959] S.C.R. 895, referred to.
The formula was based on two considerations: first, that
labour was entitled to claim a share in the trading profits of the
industry, because it had partially contributed to the same; and
second, that labour was entitled to claim that the gap between
its actual wage and the living wage should, within reasonable
limits, be filled up. In dealing with the claims for· bonus. the
two-fold basis of the formula must always be kept in mind.
Further, it was•not necessary that the workmen must actually
manufacture or produce the goods before they become entitled
to claim any bonus.
Burma Shell Oil Storage & Distributing Co. of India Ltd. v.
Their Workmen, (r953) 2 L.L.J. 246, applied.
The working of the formula begins with the figure of gross
0·profits, taken from the profit and loss account, which are arrived
at after payment Qf wages and dearness allowance to employees
•
S.C.R.
SUPREME COURT REPORTS
927
and other items of admissible expenditure. It would be open to
the Tribunal to examine the accounts and to disallow deliberate
and mala fide debit entries made to reduce the amount of gross
profits. It would likewise be open to the parties to claim the
exclusion of items, credit or debit, on the ground that they were
patently and obviously extraneous and entirely unrelated to the
. trading profits of the year. But the Tribunal must resist the
temptation of dissecting the balance-sheet too minutely or
attempting to reconstruct it.
]. K. Cotton Manufacturers Ltd., Kanpur v. Their Workmen,
(1954) L.A.C. 716, applied.
The formula deals with the claims for bonus on the basis
that the relevant year is a self-sufficient unit and the appropriate
accounts have to be made on the notional basis in respect of the
said year. Hence, the refund of excess profits and the adjustment of the previous year's depreciation and losses cannot be
made against the bonus year's profits.
Moo/,el Mills etc. Textile Mills, Nagpur v. The Rashtriya Mills
Mazdoor Sangh, (1955) l L,.L.J. 534; Bennett Coleman and Co. Ltd.
v. Their Workmen, (1955) 2 L.L.J. 60, referred to.
After ascertaining the amount of gross profits, the first item
of deduction therefrom relates to depreciation. The depreciation which has to be deducted from the gross profits should be
the notional normal depreciation as explained in the case of
Surat Electricity Co. Ltd., (1957) 2 L.L.J. 648, and should not
include the initial and additional depreciation allowable under
the Income-tax Act.
U. P. Electric Supply Co. Ltd. v. Their Workmen, (1955) 2
. L.L.J. 431; Surat Electricity Co's. Staff. Union v. Surat Electricity
Co. Ltd., (1957) 2 L.L.J. 648, referred. to.
The second item of deduction is on account of income-tax.
On the balance obtained after deducting the depreciation from
the gross profits the tribunal has to calculate the amount of
income-tax payable for the bonus year. In makirig this calculation it would not be reasonable to·allow the employer to claim
under the item of income-tax an additional amount in respect of
the two further depreciations which are expressly authorised
under s. rn(2)(vi) of the Income-tax Act.
Therefore the two
concessions thus given by the Income-tax Act should not be
taken into account in determining the amount" of income-tax
under the formula.
Sree Meenakshi Mills Ltd. v. Their Workmen, [1958] S.C.R.
878, explained and followed.
The third item of deduction under the formula relates to
r959
The Associated
Cement ·
Companies Ltd.
v •
Its Workmtn
the return on paid up capital as well as working capital. The,
formula provides generally for the payment of interest at 6%
•
II8
I959
The Associated
·Cement
Companies Ltd.
v.
Its Workmen
•
•
92S
SUPREME COURT REPORTS
[1959)
per annum on the paid up capital and at 2% on working capital.
These rates are not inflexible and will vary according to the
circumstances of each case.
Workmen of Assam Co. Ltd. v. Assam Co. Ltd., [r959] S.C.R.
327; Ruston and Hornsby (India) Ltd. v. Their Workmen, (r955):r
L.L.J. 73, Mill Owners Association, Bombay v. The Rashtriya Mill
Mazdoor Sangh, (r952) r L.L.J. 5r8, Tea and Coffee Workers Union.
v. Brooke Bond (India) (Private) Ltd., (r956) r L.L.J. 645, U. P.
Electric Supply Co. Ltd. v. Their Workmen, (r955) 2 L.L.J. 4r3,
referred to.
The fourth item of deduction is on account of rehabilitation
which inclndes replacement and modernisation but not expansion.
Rehabilitation has to be calculated for the plant and machinery
as well as the buildings.
The whole of the rehabilitation
charges have to come out of the trading profits as this guarantees
the continuance of the industry to the benefit both of the
employer and labour. The Tribunal has to .estimate the probable cost of replacement of plant and machinery at the time
when such replacement would become due. In determining such
cost, the Tribunal has to project the price level into the future,
determined not only in the light of the prices prevailing during
the bonus year, but also of subsequent price levels. The decision
on the question of the probable cost of rehabilitation is always
reached by adopting a suitable multiplier. This multiplier is
based on the ratio between the cost price of the plant and
machinery and the probable price which may have to be
paid for its rehabilitation, replacement or modernisation. As
there has been a continuous rise in the price of industrial plant
and machinery, the older the plant which needs rehabilitation,
the higher is the multiplier. If the employer has deliberately
or mala fide refrained from rehabilitating his old machinery
with a view to claim a higher multiplier, his conduct may be
taken into account in determining the multiplier and the amount
of rehabilitation payable to him. Once a proper multiplier is
adopted, the probable cost of rehabilitation can be easily determined by multiplying the original cost by the multiplier. At
this stage the divisor steps in. The total amount required for
rehabilitation has to be divided by a suitable divisor in order to
ascertain the annual requirement of the employer in that behalf
year by year.
Before awri.rding an appropriate amount in respect of
rehabilitation for the bonus year, deductions have to be made,
first on account of the break-down value of the plant and machinery which is usually calculated at the rate of 5% of the cost
price, secondly the depreciation and general liquid resources
available to the employer other than those earmarked for specific purposes, thirdly all the rehabilitation amounts which may
0have been allowed to the employers in the previous years, but
had remained un11,5ed in the meanwhile.
r
.. ..
•
S.C.R.
SUPREME COURT REPORTS
929
It is only after all the prior charges have thus been determined and deducted from the gross profits that the available
surplus can be ascertained for payment of bonus. The procedure
·adopted by some Tribunals of notionally working out the amount
of bonus and then giving it priority in the calculations before·
the determination of the income-tax payable inevitably lessens
the amount of tax proportionately, and should be deprecated.
Rehabilitation cannot be given priority before the income-tax
payable is ascertained and deducted from the gross profits.
No addition should be made to the list of prior charges recognised by the formula even with respect to the employers claim
for deductions on account of gratuity fund created for the benefit of the workmen. But the Tribunal ought to, when the avail-
. able surplus is determined, take into account such a claim and
reasonable amount of allowance should be definitely borne in
mind in finally fixing the amount of bonus.
M/s. Metro Motors v. Their Workmen, (1952) 2 L.L.J. 205,
referred to.
Wh;n the available surplus has been ascertained, three
parties are entitled to claim shares therein: labour's claim for
bonus, the industry's claim for the purpose of expansion and ·other
needs and the share-holders' claim for additional return on the
capital invested by them. The ratio of distribution would
obviously depend on several factors: such as the gap between the
actual wages and the living wages, the setting apart of a
gratuity fund by the employer and the amount thereof, the
extent of the available surplus, the dividends actually paid
by the employer and 'those paid by comparable concerns, the
probabilities of expansion, the general financial condition of
the employer and his necessity to meet urgent liabilities.
It would be wrong on principle to take overtime payment
into account in calculating the bonus payable to each workman.
Once the total amount payable as bonus is determined on the
principles as indicated, the question of overtime payment being
taken into account can no longer be a dispute between the
employer and his workmen but one hetween the workmen
inter se.
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos.
459 and 460 of 1957.
•
Appeals by special leave from the judgment and
order dated the 30th November, 1956, of the Industrial
Tribunal, Bombay, in Reference I. T. Nos. 10 and 13 of
1956 ..
I9.59
The Associated
Cement
Companies Ltd;
v.
Its Workmen
· R. H. Kolah, Dadachanji and S. N. Andley,. for the
~~~
.
.
I959
The Associated
•
930
SUPREME COURT REPORTS
[1959]
0. L. Dudhia and I. N. Shroff, for the respondents
in C. A. No. 459 of 1957.
Cemen•
• A. S. R. Chari and I. N. Shroff, for the respondents
Companies Ltd. in 0. A. No. 460 of 1957.
v.
Its Workmen
1959. May 5. The Judgment of the Court was
delivered by
·
Gajendragadkar ].
GAJENDRAGADKAR J.-These two appeals arise out
•
of a demand for bonus made against the appellants by
their workmen for the year 1953-54. The Associated
Cement Companies Ltd., Bombay, the Cement Marketing Company of India Ltd., Bombay and the Concrete
Association of India, Bombay, were faced with a
demand of their workmen employed in their offices at
Bombay for bonus equivalent to seven months' basic
wages with dearness allowance. The industrial dispute arising out of this demand was referred by the
Government of Bombay for adjudication before the
Industrial Tribunal, Bomb1ty, under s. 10 of the Industrial Disputes Act and it was numbered I. T. No. 10 of
1956.
The Associated Cement Companies Ltd., Dwarka Cement Works, Dwarka, was similarly faced with
a demand of its workmen for bonus equivalent to 50%
of total earnings or six months' total earnings. This
dispute was referred to the same tribunal and was
numbered I. T. No. 13of1956. By consent of parties
both the references were heard together and evidence
was recorded and documents tendBred in the first reference.
By its award delivered on November 30,
1956, the tribunal directed the companies to pay their
workmen drawing a basic pay or wages up to Rs. 500
per month bonus equivalent to 1/3 of their basic wages
or pay (less bonus already paid for the year 1953-54)
subject to the conditions specified in the award. It is
against this'award that the respective companies have
preferred the two appeals by special leave. In this
judgment the said companies will hereafter be described as the appellant and their workmen as respondents.
The A. C. C. is the principal.company concerned in
the dispute.
The Cement Marketing Company of
..
I,.
r
•
S.O.R.
SUPREME. COURT REPORTS
931
India Ltd.; (hereafter called the C. M. I.) has been
x959
separately registered under the Indian Companies Act The Associated
as a Joint Stock Company; but it is a hundred
Cement
per cent. subsidiary of the A. C. C.
The C. M. I. are companies Ltd.
the Sales Managers of the A. C. C. while the Concrete
v.
Association of India (hereafter called the C. A. I.) is
Its Workmen
merely a department of the C. M. I. As a result of .
-
the agreement which came into
operation from Ga;endragadkar J.
August 1, 1953, all financial transactions of the C. M. I.
in relation to sales now find a place in the accounts of
the A. C. C.
Similarly all of its fixed assets have been
taken over and appear in the balance-sheets of the
A. C. C.
All the three concerns have a common staff
in Bombay. The A. C. C. had already paid to its employees bonus equivalent to three months' basic wages
for t.he year 1953-54 and so had the C. M. I. to its
workmen. It appears that the C. M. I., including the
0. A. I., undertakes to pay ·to its employees the same
amount of bonus as has been paid or awarded to the
employees of the A. C. C.
There is no dispute that the A. 0. C. is the biggest
amongst the companies in India which manufacture
cement. It owns 15 cement factories at different
places in India and 2 in Pakistan. Out of the total
quantity of cement despatched by all the cement
factories in India in 1953-54 the A. C. C. despatched
55·46 o/o.
The A. C. C. came into existence in 1936 as
a result of the merger of four important groups of
companies engaged in the manufacture of cement.
These were F. E. Dinshaw, Tatas, Killick Nixon and
Khatau, groups. It appears that 11 companies in all
merged with the A. C. C.
Before the tribunal the case for the respondents was
that the appellant held a position of monopoly in the
cement industry and was easily in a {lOSition to pay
the bonus claimed by them. Their allegation was that
the appellant had inflated the capital invested by the
merging companies while taking them over in 1936 ; it
had set up new factories out of the profits earned by it
without raising fresh capital and thereby had used
profits for the purpose of expansion. In the year 1953- •
54 the appellant had capitalised . the full amount
l
•
932
SUPREME COURT. REPORTS
[1959]
r959
standing to the credit of the premium-on-shares
The Associated account and had transferred a part of the reserves for
Cement
taxation to the capital account thus increasing the
Companie.< Ltd. aggregate capital. The emoluments of the workers
v.
were inadequate and so they were entitled to the
Its Workmen
bonus claimed by them in order to fill up the gap
G . d-dk
1 between the actual wage paid to them and the living
a;en raga
ar
.
d
h
Th
d
wage ue- tot em.
e respondents also conten ed
that the claim made by the appellant for rehabilitation and replacement in the dispute for the year 195152 included not only the amount required for rehabilitation and replacement but also expansion ; and so,
according to them, the appellant was not entitled to
any amount for rehabilitation purposes in the year in
dispute. They also alleged that the appellant was
not entitled to claim interest at more than 4% on
paid-up capital and 2 % on working capital. Thus the
respondents urged that if all the relevant facts are
taken into account it would be found that the claim for
bonus made by them in the two respective references
was just and proper. In support of their case the respondents filed several statements which, they claimed,
had been prepared in accordance with the Full Bench
formula, and they also cross-examined Mr. Tongaonkar
who gave evidence on behalf of the appellant.
This claim was resisted by the appellant. It was
urged on its behalf that the points raised by the
respondents in the present references had been heard
and finally decided in the previous adjudication (Ref .
. I. T. No. 115 of 1953) which dealt with their claim for
bonus for the preceding year; and it was alleged that
the respondents were barred from raising the same
questions over again in the present adjudication. The
cement machinery, though heavy, is subject to rigours
of extremely tcrngh and heavy duties and the machinery has to run ceaselessly day and night throughout
the year.
The appellant contended that, having
regard to the special features of the cement industry,
the machinery had to be kept on the highest standards of ma,intenance and needed frequent replacement
, and rehabilitation. A cement factory is a very expensive industri~l proposition. The appellant denied that
'
I,.
f
•
S.C;R:
SUPREME COURT REPORTS
933
it was in a monopolistic position and pleaded that its
r959
object was to deliver cement as cheaply as possible
The Associated
to the consumers: The respondents' allegation that
Cement
there was" puffing up of block capital at the time of Companies Ltd.
the merger in 1936" was denied by the appellant and
v.
it was not admitted that ever since its inception it had
Its Workmen
steadily made huge profits. The appellant also denied G . d -dk 1
the allegation of the respondents that the profits a;en raga ar
.
coming out of the business had been used in expanding its factories. It had used all available resources
including premium on issue of shares and depreciation fund for replacement, rehabilitation and modernisation. It was not true that the appellant had built
huge reserves and that the wages paid by the appellant to its employees were inadequate; on the contrary .they compared very favourably with those in
other comparable industries. The appellant denied
the statement of the respondents that no plant
reinstatement reserve over and above the depreciation allowance was necessary in the current year and
it urged that the calculations made by the respondents alleged to be in terms of the Labour Appellate
Tribunal formula were inaccurate. In its turn the
appellant ·claimed more than 6% interest on paid-up
capital and more than 4% interest on working capital.
The appellant also emphasised that it had already
paid to the respondents bonus for three months though
the strict working out of the formula would show that
there was no available surplus for the relevant year
and so the respondents would not be. entitled to any
bonus at all.
In support of its case the appellant examined
Mr. G. R. Tongaonkar, its controller of planning and
development, and produced a statement (Ex. C-2) showing the original cost of the blocks to be •replaced and
the approximate replacement cost. It also produced
amongst other documents a statement (Ex. C-10) showing the cost of the assets of the merging companies on
July 31, 1936, as taken over by the appellant and the
statement (Ex. C-29) showing the capital expenditur(/
from 1936-37 to 1953-54 on expansion, modernisation, •
rehabilitation, replacement, simdry 'Capipal jobs, etc.
•
934
SUPREME COURT REPORTS
[1959]
z959
In addition a statement was filed by the· appellant
The Associoted (Ex. C-23) showing that the calculations made under
cement
the Full Bench formula would show a substantial
Companies Ltd. deficit and that would support its case that there was
v.
no available surplus for the relevant year from which
Its Workmen
any bonus could be claimed by the respondents.
.
Ex. C-2 is a statement prepared by Mr. Tongaonkar
Ga21ndragodkar J ·showing the original cost of the block to be replaced
and the approximate replacement cost.
This statement has been prepared on the basis that the approximate cost to the merging companies of their assets as
on 31-7-1936 was 5·73 crores. It is admitted that this
statement has lumped together all the properties of
the appellant including plant and machinery, as well
as buildings, roads, bridges and railway-sidings and
has classified them into four categories. The.statement contains 9 columns. The first column gives the
year or years of purchase of machinery. This column
classifies the four categories of the blocks according to
their respective years of purchase. The first category
consists of blocks purchased up to 1939, the second
purchased between 1940-44, the third purchased
between 1945-47 and the last purchased between
1949-54.
Column 2 gives the original cost o"f the said
categories as on 31-7-1954. Column 3 gives particulars
of such portions of the blocks as have been discarded,
scrapped or sold. In this column the years in which
the blocks were discarded, scrapped or sold are indicated and their original cost is mentioned. Columns 4
and 5 give the present approximate cost of rehabilitation according as the machinery in question is either
purchased or made by the appellant itself. The cost
of machinery which may have to be purchased is
shown in col. 4, while the cost of machinery which
may be prodl1Ced by the appellant is shown in col. 5.
The figures in col. 4 have been arrived at by multiplying the corresponding figures in col. 2 by a ratio,
which, according to Mr. 'l'ongaonkar, supplies an
appropriate multiplier.
Regarding the replacement
cost of 1939 block, the witness has applied the multi-
• plier 4·28, whereas in regard to the subsequent block
of 1940-44 ~e has utilised the multiplier of 2·8. The
I
•
S.C.R.
SUPREME COURT REPORTS
·935
figures mentioned in col. 5 for 1939 and 1940-44 blocks
r959
. have been arrived at by reducing the corresponding
The Associated
figures given in col. 4 by 20%. Column 6 gives the
Cement
approximate present life of the machinery and plant Companies Ltd.
mentioned in col. 4 ; col. 7 sets out the breakdown
v.
value of the machinery referred to in col. 4, whilst
Its Workmen
col. 8 gives the approximate cost of rehabilitation ofG . _,--.-dk
1
h.
h
.
l 5 l
b
kd
l
·
a;enuraga
ar
•
mac mery ass own in co.
ess rea
own va ue as
·
shown in col. 7.
The last column works out the
annual requirements of the appellant in respect o.f the
rehabilitation of the four categories of blocks.
The
figures in this column are arrived at by dividing the
amounts mentioned in col. 8 by the respective divisors
mentioned in col. 6.
The total annual requirement of
the appellant in respect of rehabilitation is shown as
of the prder of Rs. 3,29,61,752.
Ex. C-23 is a statement prepared by Mr. Tongaonkar
to show the deficiency in profits in relation to payment. of additional bonus claimed by the respondents
for the accounting year 1953-54. This statement has
been prepared alternatively on the basis of statutory
depreciation allowable by income-tax authorities and
also on the basis of straight computation at ordinary
rates. The first method results in a deficit of Rs.
107·20 lakhs, while the second in a deficit of Rs. 97·86
lakhs. In working out the provision for rehabilitation,
this statement first takes the replacement cost of
block up to 1939 as per Ex. C-2 to be Rs. 1601 ·19 lakhs.
From this amount the available reserve!:! as on
1-8-1953 which are of the order of Rs. 311 lakhs are
deducted, leaving a balance of Rs. 1290·i9 lakhs.
Then the replacement costs of the three remaining
categories of blocks are taken into account and all-the
said amounts are divided by the appropriate divisors
mentioned in col. 6 of Ex. C-2.
The res~lt is the sum
of Rs. 284·48 lakhs, and that is claimed by the appellant as the pFovision for rehabilitation under the
formula.
·
·
In his evidence Mr. Tongaonkar has given reasons
in support of the respective multipliers and divisors
adopted by him in making his calculations in' Ex. C-2: •
II9
•
936
SUPREME COURT REPORTS
[1959]
r959
He has also given several details on all the relevant
and material points in support of the appellant's case.
The As.sociafod
h
d
h
d
Cement
Naturally t e respon ents
ave cross-examine
him
Companfrs Ltd. at length. One of the questions in controversy between
v.
the parties in the present appeals centres round the
Its Workmen
appreciation of Mr. Tongaonkar's evidence and the
value to be attached to the statements prepared by
Gajendragadkat .J. him.
On the contentions raised by the parties before it
the tribunal framed ten issues for determination and it
has made its findings on them in the light of the
evidence adduced before it. It has held that the appellant had not inflated the capital invested by the
merging companies while taking them over in 1936.
It has allowed 6% interest on the entire paid-up
capital of Rs. 1267·59 lakhs, and 4% interes1i on the
working capital. In regard to the claim for depreciation the tribunal has held that it was normal depreciation calculated according to the straightline method
which should be allowed. On the question of incometax, the tribunal has allowed the same at 83·4 pies in
a rupee as claimed by the appellant on its net profits.
It has, however, rejected the appellant's case that the
income from investments in shares and securities
received by it should be excluded for the purpose of
bonus; while it has allowed the sum of Rs. 10 lakhs
provided by the appellant as annual contribution to
the reserve for gratuity, as also the expenditure on the
cost of dismantling buildings, prospecting expenses,
etc. It did not accept the respondents' case that the
bonus paid by the appellant to its officers should be
reduced or wholly disallowed for the purpose of
calculations under the formula; and, on the question
as to whether overtime payment should be included
in the payll1Jlnt of bonus, it has upheld the respondents' contention and allowed the inclusion of the
said payment.
.
Having disposed of these minor issues, the tribunal
examined at length the claim made by the appellant
in regard to the provision for rehabilitation, replace-
·ment antl modernisation. Indeed this was the most
'
controversial apd the most important issue raised
•
S.C.R.
SUPREME COURT REPORTS
937
before it.
The tribunal axamined the evidence of Mr.
r959
Tongaonkar as well as Ex. C-2 and .other documents The Associated
produced by him, and came to the conclusion that
Cement
" Ex. C-2 presents an incorrect and exaggerated Companies Ltd.
picture of the A.C.C.'s requirements of rehabilitation
v.
and replacement" and so it cannot be relied upon.
Its Workmen
Aceording to the tribunal the multiplier 4·28 adopted
. d -:Zk
J
by Mr. Tongaonkar was itself an inflationary figure ; Ga;en rag
ar
•
and it thought that" the consequence of applying it not
to the original price but to its increased price paid by
the A.C.C. would be to obtain an inflationary result. It
appears that the tribunal was inclined to hold that 2·7
was a fair multiplier representing the price increase over
the pre-war base. The tribunal was also not satisfied
with Mr. Tongaonkar's evidence in regard to the life
of planJ; and machinery; and so it held that the period
of life given in col. 6 of Ex. C-2 cannot be accepted as
correct. While dealing with the question about the
rise in prices, the tribunal has held that it was usual
to take the average level of prices prevailing in a
period of about five years in preference to the prices
prevailing in a particular year as was done by Mr.
Tongaonkar. The tribunal subjected Mr. Tongaonkar's
evidence on the question of replacement, rehabilitation
and modernisation to a close examination and held
that the method adopted by Mr. Tongaonkar in
distinguishing between modernisation and expansion
was of a purely subjective estimate "which does not
bear the scrutiny of an objective test". On the whole
the tribunal was not prepared to accept Mr~ Tongaonkar's evidence at its face value and it was not
prepared to treat Ex. C-2 and consequently Ex. C-23
as reliable. It is relevant to point out at this stage
that the tribunal has not made any finding about the
life of the machinery nor has it recorded any conclusion as to a proper divisor. In fact it has completely
left out of consideration Exs. C-2 and C-23 while
determining the amount which should be allowed for
the appellant's claim for rehabilitation for the relevant
year.
The tribunal then examined the principle 'underly-· •
ing the Full Bench formula and held j;hat •it was not
•
938
SUPREME COURT REPORTS
[1959]
'959
intended to be worked out as a rigid mathematical
formula. "We must make it", says the tribunal," as
The A ssociaJed
cement
flexible as possible so as to do justice to everybody oonCompanies Ltd. cerned in the earning of profits". The general question,
v.
which it has considered in this connection, is how far
Its Workmen
and to what extent profits of a concern should contribute
-
to the satisfaction of the claims of industry for replaoeGajrndragadkar .J. ment, rehabilitation and modernisation. · It was
impressed by the argument that, where the requirements under these items are so huge as to be out of
,•
tune with the profits, it would be open to an industrial
adjudicator to allow only a reasonable provision to be
made out of the profits for the said items and leave
the industry concerned to tap other resources to make
up the balance. In support of.this conclusion it has
referred to the observations made by ]'.R.M. de. Paula
in his " Principles of Auditing ", the report of the
Taxation Enquiry Commission and of the working
party for the Cotton Textile Industry. It has also
relied on a part of the speech delivered by Mr. J. R.D.
Tata in addressing the annual general meeting of the
shareholders of the Tata Iron and Steel Company in
August 1950.
.
In this connection the tribunal has expressed its
apprehension that lf all the money required for a continuous process of modernisation and expansion is to
come out of the profits made by the concern, labour
will rarely see a day when they will enjoy bonus grant-
"
ed to them out of profits; though it has hastened to
add that it was far from its mind that a progressive
concern like the A.C.C. should not keep pace with time
and modernise its machinery ; but it only wished that
it should give a fair deal to the workers in the distribution of the profits. Having held that, if the claims for
rehabilitatio11 turn out to be huge and out of tune with
the profits made by the industry, it would be open to
the-tribunal to grant.the claim of the industry in that
behalf only to the extent that it deems to be reasonable
and fair, it proceeded to consider how far and to what
extent the appellant's claim should be allowed in the
·present proceedings.
•
It is necessary to mention that in dealing with this
•.
·•
•
S.C.R.
SUPREME COURT REPORTS
939
question the tribunal was considerably influenced by
x959
the past conduct of the appellant . .It thought that for
The Associated
rehabilitation the appellant had claimed no more than
Cement
Rs. 192 or 193 lakhs in the previous adjudication procompanies Ltd.
ceedings where the dispute for bonus had reference to
v.
the year 1951-52. If the claim then made by the
Its Workmen
appellant was no more than Rs. 192 or 193 lakhs, the
.
-
present claim for Rs. 284 lakhs, the tribunal thought, Ga;endragadkar J.
was obviously inflated and
unr~al. Similarly the
tribunal emphasised the fact that the programme
earlier submitted by the appellant to the Tariff Commission was in turn more modest than the claim made
in the said adjudication proceedings. It appears that
in the said programme the appellant had made out a
case for the estimated expenditure of Rs. 18·36 crores
to be.spread over a period of ten years from 1-8-1952
to 31-7-1962 and that works out approximately at the
figure of Rs. 184 lakhs per year. It was on these
facts that the tribunal held that "if the A.C.O. estimated its annual requirements of rehabilitation, replacement and modernisation at Rs. 192 lakhs per year
during the period of ten years commencing from
1-8-1952; I do not think that it should be allowed to
depart from it now". In substance, according to the
tribunal, the present claim for rehabilitation was very
much inflated, it had no relation to realities, and so the
appellant should not be allowed to make such a claim.
That is why it did not think it necessary to record any
finding as to the proper divisor, and to determine, in
the light of Mr. Tongaonkar's evidence, what approximately would be a fair or reasonable amount for
rehabilitation under the formula.
It is thus clear that in making its final calculations
the tribunal has assumed that the claim made by the
appellant for rehabilitation, replacement and modernisation must be taken to be no more than Rs. 192 or
193 lakhs, and on that assumption it has considered
to what extent the claim should be allowed. Ultimately
the tribunal came to the conclusion that. in the
circumstances of the case it would be fair to allow the
appellant about Rs. 165 to 170 lakhs as annual provi- •
sion for the said ite.ms. In support 0,f this <;ion<;ilusion
•
940
SUPREME COURT REPORTS
[1959]
r959
the tribunal has relied on the fact that for the two
The Associated years 1952-53 and. 1953-54 the appellant had spent
Cement
about Rs. 339·76 lakhs for the purpose of rehabilitacompanies Ltd. tion, replacement 1and modernisation and that works
v.
at the average of Rs. 170 lakhs per year. The tribunal
Its Workmen
has then taken into account the fact that the appellan1;
. d-dk
had a plant reinstatement reserve of Rs. 235 lakhs
Ga;en raga
0
' J. and a general reserve of Rs. 76 lakhs in the beginning
of the year 1953-54. If these amounts which would be
available for rehabilitation are spread over the ten
year period of the tentative programme planned by
the appellant, the annual figure would come to Rs. 31
lakhs; and this amount would have to be deducted
from Rs. 165 lakhs which the tribunal was inclined to
grant in respect of the relevant item. That is how
the tribunal has made the appropriate calcul~tions
under the formula, and has shown that, even after the
payment of one month's additional bonus as directed
by it, the appellant would still be left with a surplus
of Rs. 23·48 lakhs. That in brief is the nature and
effect of the findings made by the tribunal.
Befo.re dealing with the merits of the points raised
in these appeals it would be convenient to refer to the
genesis and the terms of the formula which has been
evolved by the Full Bench of the Labour Appellate
Tribunal in the case of The Mill Owners Association,
Bornhay v. The Rashtriya
Mill Mazdoor
Sangh,
Bornhay (1) in 1950. It appears that from 1940 A. D.
onwards the claims for bonus made by the employees
against their employers in different industries were
dealt with on an ad-hoc basis from case to case.
Sometimes the employers voluntarily paid bonus
to their workmen; and where disputes arose they
were decided by the tribunals in the light of the
circumstances• of each case without relying on any
broad consideration of policy or without attempting to lay down any general principles.
In 1948
a bonus dispute arose between the Mill Owners
Association, Bombay and its employees, and it was
referred fQr adjudication to the Industrial Court. In
• considering this dispute the Industrial Court went
(r) (1950) 1;.L.J. 1247.
..
"
•
S.C.R.
SUPREME COURT REPORTS
941 /
elaborately into the matter, laid down certain princir959
ples and awarded to the workmen "bonus equivalent in
The Associated
amount to 3/8 of the total basic earnings of each workcement
man subject to certain conditions.
Companies Lii..
In the subsequent year a similar dispute arose. bev.
tween the same parties ; and it was again referred to
Its Workmen
the Industrial Court for adjudication. ·The Court Gajendragadkar J.
made its award on July 7, 1950, directing 55 mills of
the Association to pay to their workmen, whether
permanent or temporary, 1/6 of the basic earnings of
each of them as bonus. This award was challenged by
the Association before the Labour Appellate Tribunal.
It was urged on behalf of the Association that the wage
structure in the textile industry had been settled by
standardisation and so bonus must be regarded as a
gratuitous payment; and it was argued that at any
rate grant of bonus cannot be made for the purpose of
making up the deficiency between the actual and
living wages.
These contentions were rejected by the
Labour Appellate Tribunal and the question about the
grant of bonus was considered on general principles on
the basis of which a formula., often described as the
First Full Bench Formula, was ultimately evolved. "As
both capital and labour contribute to the earnings of
the industrial concern", observed the appellate tribunal, "it is fair that labour should derive some benefit
if there is a surplus after ·meeting prior or necessary
charges". The appellate tribunal was also of the
view that where the goal of living wages had been
attained, bonus, like profit sharing, would represent
more as the cash incentive to better efficiency and
production; but where the industry had not the capacity to pay a living wage bonus must be looked upon
as the temporary satisfaction wholly or in part of the
needs of the employee.