# SUPREME COURT REPORTS [1959] Supp. CROMPTON PARKINSON (WORKS) PRIVATE LTD., BOMBAY v. ITS WORKMEN AND OTHERS

- **Citation:** [1959] Supp. 2 S.C.R. 936
- **Court:** Supreme Court of India
- **Decided:** 1957-01-08
- **Bench:** S. R. Das, N. H. Bhagwati, s. K. DAS, P. B. Gajendragadkar, K. N. Wanohoo
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/supreme-court-reports-1959-supp-crompton-parkinson-works-private-ltd-bombay-v-1704
- **Pages:** 13

## Headnote

I nditstrial Dispute-Bonus-Gross Profits-E xpenditt<rc, when
may be disallowed-Service Fee-TFhether allowable expcnditureAvailable Surpl1's-Bon1ts, deducted as prior charge-Propriety of.
Initially the appellant was a roo% subsidiary of the British
company, Crompton Parkinson Ltd.
In 1947 an agreement
called " Technical Aid Agreement" was concluded between the
two companies under which the appellant agreed to pay to the
parent company 5% of the net value of its sales every year as
service fee for the use of their patterns, valuable designs, technical aid, benefit of research and ancillary services and facilities.
As the appellant obtained the benefit of the parent company's
technical kno\v1edge and research it did not maintain a separate
research establishment on which it \vould otherwise have had to
spend far more than the service fee it paid.
The agreement had
received the approval of the Govern1nent; the incon1e-tax authorities had, every year, allowed the service fee as legitimate
expenditure; and the remittances to the parent company had
been sanctioned by the Reserve Bank of India.
In the claim for
bonus by the workmen, the Tribunal, in calculating the gross
profits, pruned down the allowable expenditure on account of
the service fee to one fourth on the grounds that the amount of
service fee paid was excessive and beyond the requirements of
commercial necessity and that a large part of the pay1nent was
in the nature of capital expenditure. In calculating the available surplus the Tribunal deducted as a first charge 4! months
basic wages as bonus before deducting depreciation and incometax contrary to the terms of the l'ull Bench formula.
Held, that the entire amount of service fee paid ought to
have been allowed as proper expenditure. Unless• it was definitely
found that a purported expenditure was sham or had been made
with the express object ·of minimising the profits with a vie\v to
deprive the workmen of their bonus, the Tribunal could not
substitute its own judgment as to what was or was not commercially justified in place of that of the appellant and its directors.
1'he service fee was a genuine expenditure and represented a
binding contractual obligation which could legally be enforced
against the appellant and a breach thereof may have had serious
consequences affecting its business.
Held further, that the Tribunal acted wrongly in deducting
(2) S.C.R.
SUPREME COURT REPORTS
937
bonus as a prior charge even before the recognised items of prior
1959
charges. Such departures from the Full Bench Formula by
Tribunals were to be deprecated.
Crompton
·
d C
C
·
k
C
Parkinson (Works)
Associate
ement
ompanies Ltd. v. Its Wor men,
.A. Nos.
P .
1 d
459 4nd 460 of 1957, decided on 5-5-59, followed.
rBivaleb_t ' .
om ay
CIVIL
APPEI,LATE JURISDICTION:
Civil Appeals
v.
Nos. 756 & 757 of 1957.
Its Workmm
Appeal by special leave from the Award dated
January 8, 1957, of the Industrial Tribunal, Bombay,
in I. T. Ref. Nos. 109 and 147 of 1956.
0. K. Daphtary, Solicitor-General of India, N. A.
Palkhivala and S. N. Andley, for the appellant.
Rajani Patel and Janardan Sharma, for the respondents.
1959. May 6.
The Judgment of the Court was
delivered by
&· Others
DAS, C. J.-These are appeals by special leave filed
Das c. J.
by Crompton Parkinson (Works) Private Ltd. (hereinafter referred to as the company) against that part
of the award made in References (IT) Nos. 109 and 147
of 1956 by the Industrial Tribunal, Bombay, on
January 8, 1957, which concerns the demand of its
workmen for bonus for the company's financial year
1954-55. That award was published in the Bombay
Government Gazette of January 17, 1957, in Part IL
at pages 351-364.
The material facts and circumstances leading upto
the said award, as they appear from the evidence
placed on record before the Tribunal, may shortly be
stated as follows:- The company was incorporated
in India in the year 1937. The registered office of the
company is at Bombay. The authorised capital of t

## Text

r959
May 6.
936
SUPREME COURT REPORTS [1959] Supp.
CROMPTON PARKINSON (WORKS) PRIVATE
LTD., BOMBAY
v.
ITS WORKMEN AND OTHERS
(S. R. DAS, c. J., N. H. BHAGWATI, s. K. DAS,
P. B. GAJENDRAGADKAR and K. N. WANOHOO, .T.J.)
I nditstrial Dispute-Bonus-Gross Profits-E xpenditt<rc, when
may be disallowed-Service Fee-TFhether allowable expcnditureAvailable Surpl1's-Bon1ts, deducted as prior charge-Propriety of.
Initially the appellant was a roo% subsidiary of the British
company, Crompton Parkinson Ltd.
In 1947 an agreement
called " Technical Aid Agreement" was concluded between the
two companies under which the appellant agreed to pay to the
parent company 5% of the net value of its sales every year as
service fee for the use of their patterns, valuable designs, technical aid, benefit of research and ancillary services and facilities.
As the appellant obtained the benefit of the parent company's
technical kno\v1edge and research it did not maintain a separate
research establishment on which it \vould otherwise have had to
spend far more than the service fee it paid.
The agreement had
received the approval of the Govern1nent; the incon1e-tax authorities had, every year, allowed the service fee as legitimate
expenditure; and the remittances to the parent company had
been sanctioned by the Reserve Bank of India.
In the claim for
bonus by the workmen, the Tribunal, in calculating the gross
profits, pruned down the allowable expenditure on account of
the service fee to one fourth on the grounds that the amount of
service fee paid was excessive and beyond the requirements of
commercial necessity and that a large part of the pay1nent was
in the nature of capital expenditure. In calculating the available surplus the Tribunal deducted as a first charge 4! months
basic wages as bonus before deducting depreciation and incometax contrary to the terms of the l'ull Bench formula.
Held, that the entire amount of service fee paid ought to
have been allowed as proper expenditure. Unless• it was definitely
found that a purported expenditure was sham or had been made
with the express object ·of minimising the profits with a vie\v to
deprive the workmen of their bonus, the Tribunal could not
substitute its own judgment as to what was or was not commercially justified in place of that of the appellant and its directors.
1'he service fee was a genuine expenditure and represented a
binding contractual obligation which could legally be enforced
against the appellant and a breach thereof may have had serious
consequences affecting its business.
Held further, that the Tribunal acted wrongly in deducting
(2) S.C.R.
SUPREME COURT REPORTS
937
bonus as a prior charge even before the recognised items of prior
1959
charges. Such departures from the Full Bench Formula by
Tribunals were to be deprecated.
Crompton
·
d C
C
·
k
C
Parkinson (Works)
Associate
ement
ompanies Ltd. v. Its Wor men,
.A. Nos.
P .
1 d
459 4nd 460 of 1957, decided on 5-5-59, followed.
rBivaleb_t ' .
om ay
CIVIL
APPEI,LATE JURISDICTION:
Civil Appeals
v.
Nos. 756 & 757 of 1957.
Its Workmm
Appeal by special leave from the Award dated
January 8, 1957, of the Industrial Tribunal, Bombay,
in I. T. Ref. Nos. 109 and 147 of 1956.
0. K. Daphtary, Solicitor-General of India, N. A.
Palkhivala and S. N. Andley, for the appellant.
Rajani Patel and Janardan Sharma, for the respondents.
1959. May 6.
The Judgment of the Court was
delivered by
&· Others
DAS, C. J.-These are appeals by special leave filed
Das c. J.
by Crompton Parkinson (Works) Private Ltd. (hereinafter referred to as the company) against that part
of the award made in References (IT) Nos. 109 and 147
of 1956 by the Industrial Tribunal, Bombay, on
January 8, 1957, which concerns the demand of its
workmen for bonus for the company's financial year
1954-55. That award was published in the Bombay
Government Gazette of January 17, 1957, in Part IL
at pages 351-364.
The material facts and circumstances leading upto
the said award, as they appear from the evidence
placed on record before the Tribunal, may shortly be
stated as follows:- The company was incorporated
in India in the year 1937. The registered office of the
company is at Bombay. The authorised capital of the
company is Rs. 75 lacs divided into 75,000 ordinary
shares of the value of Rs. 100 each. Out of the authorised capital, shares of the value of Rs. 60 lacs have
been issued, subscribed and fully paid. At its inception the company was 100% subsidiary of the well
known British company named Crompton Parkinson
Ltd. (hereinafter called the ~arent company). In 1937
us
038
SUPREME COURT REPORTS [1959) Supp.
1 959
the company commenced its business which was and
is to manufacture electrical equipment such as transCrompton
.c
• h
Parkinrnn (Wo•ks) 1ormers, motors, fans, starters and sw1tc gears and to
Pdvate Ud,
sell the same in the market. All the goods, which the
11ombay
company manufactures, are manufactured wholly in
v.
accordance with patterns, designs, specifications and
n~n;;,;,:~·· technical processes developed by and belonging to the
Parent company which the latter makes available to
Das c. J.
the company. The company's products are sold under
the trade names and marks belonging to the Parent
company, namely, "Crompton Parkinson", "Crompton"," Parkinson" and" C. P. ". Between 1937 and
1947 the company's business is said to have been in a
stage of development and progress and it is admitted
that the Parent company made no charge for the
several services and facilities given by it to the company. fo the year 1947, after the company's business
had been. established on a firm footing, an agreement
wa.s concluded between the two companies in order to
provide, on a long term basis, for the continuance of
the technical assistance and service and other facilities afforded by the Parent company on which the
company was wholly dependent. That agreement,
which is said to be of a type commonly executed between the manufacturing and industrial concerns in
India· and their respective associates, parents or affiliates abroad and generally known as " Technical Aid
Agreements" is said to have received the approval of
the Government of India to promote the industrial
development of the country. That agreement was
actually executed on August 12, 1947, and provided
that for a period of 20 years the Parent company
would. render to the company various facilities and
services, including, amongst others, the following :-
( l) the use of the latest designs, manufacturing
information and production methods discovered and
developed by Crompton Parkinson Ltd . ;
(ii) the fullest information and ad vice as to the
most suitable machine tools and production machinery
and equipment and as to the correct operation and use
thereof;
(iii) the supply at cost of machinery, equipment,
(2) S.C.R. SUPREME COURT REPORTS
939
raw materials and manufacturing parts. Under this
r959
facility the appellants obtain the benefit of bulk purc
h
d
h• h C
p k'
Ltd
rompton
c ase terms un er w IC
rompton
at' mson
· Parl<insoii (Works)
purchase their raw materials;
Private Ltd.,
(iv) the benefit of the knowledge an<.1 experience
Bombay
of Crompton Parkinson Ltd.'s executive in all matters
v.
Its IV or Ii men
relating to technical, mechanical and financial manage-
& others
ment;
(v) the service of the Crompton Parkinson Ltd.'s
Das c. J.
experts and technical personnel ;
(vi) facilities for training of selected employees of
the petitioners in Crompton Parkinson Ltd.'s Works,
and
(vii) licence to use on the appellants' products the
world-famous trademarks, "Crompton Parkinson",
•· Crompton", "Parkinson" and "C. P." belonging to
Crompton Parkinson Limited.''
In lieu of all royalties, licence fees and other considerations usually allowed for services and facilities
of this kind, the company agreed to pay to the Parent
company service fee calculated at the rate of 5% of
the net value of the sales made by the company from
year to year. ]'or the year 1954-55 the company had
actually paid the amount of service fee and the same,
after deducting the Indian income-tax, had been
remitt_s1d to the Parent company. Shortly after the
execution of the aforesaid agreement, 26% of shares of
the company were acquired by Messrs .. Greaves Cotton
Co. Ltd., which is an Indian Company and the company ceased to be a 100% subsidiary of the Parent
company. It is said that when negotiations for the
aforesaid agreement were going on negotiations were
also in progress for the transfer of shares to the Indian
company and that the latter was apprised of the terms
of the proposed agreement and approved of the terms
of payment of 5% of the net value of sales.
On August 25, 1955, the General Engineering Employees Union representing the workmen who are respondents Nos. 1 and 2 submitted certain demands to
the company. No agreement having been arrived at,
the matter was referred to the Conciliation Officer. As
940
SUPREME COURT REPORTS [1959] Supp.
1959
no settlement was arrived at as a result of the conciliation proceedings, the Conciliation Otticer submitted
c,-on1pto11
h'
G
f B
b
Pa•ki,,son (Wo•ks)
IS report to the overnment o
om ay under sub-s. 4
l"ivat• Ud,
of s. 12 of the Industrial Disputes Act, 1947. The
Bombay
Government of Bombay, after considering the said
v.
report and in exercise of the powers conferred on it by
Its Wo•kmen
sub-s. 5 of s. 12 of the Industrial Disputes Act, 1947,
& Othets
made an order on August 6, 1956, referring the disDas c. J.
putes between the company and its workmen (other
than those of the Watch and Ward staff) over their
demands mentioned in the schedule to that order for
adjudication to the Tribunal from whose award the
present appeals have been filed.
This reference was
marked as (IT) No. 109 of 1956.
By another order
made on October 10, 1956, the Government of Bombay referred the disputes between the company and
its workmen belonging to the Watch and Ward staff
over the latter's demands mentioned in the schedule to
that order for adjudication to the same Tribunal.
That reference was marked as (IT) No. 147 of 1956.
On September 10, 1956, a statement of claim was
filed by the General Secretary, General Engineering
Employees Union, on behalf of the workmen (other than
those of the Watch and Ward staff) in Reference (IT)
No. 109 of 1956 claiming, inter alia, tbat all workmen
should be given bonus either (i) equivalent to 33?3%
of their earnings during 1954-55 or (ii) a pro-rata bonus
equivalent to their six months' basic wages, basic
wage being calculated at the daily rate of pay which
the workmen drew on June 30, 1955, and bonus being
given without atta.ching any conditions. In the statement of claim the Union contended: (i) that during
the year 1954-55 the company had made huge profits,
(ii) that the company's business had expanded by
leaps and bounds and production had mounted up
very much and the company had made huge profits
and (iii) that the wages paid to its employees fell
terribly short of the living wage standard and extremely out of any reasonable proportion to the tremeudously high salaries paid to the company's officers. The
Union requested the Tribunal to take into consideration the company's practice, inter alia, of writing off
(2) S.C.R.
SUPREME COURT REPOI~TS
941
of very substantial amounts' as service fees to the Par1959
ent company.
c ~
The company filed its written statement in reply to Patki1~:0: r;otk•)
the statement of claim filed by the Union in Reference
Private Ltd,,
No. (IT) 109 of 1956. While agreeing that .it had made
Bombay
reasonable progress, the company did not admit that
v.
the progress had been as rapid or phenomenal as the
Its Workmen
&- Others
Union had suggested. The company stated that it
had been able to accumulate only small reserves, that,
Das c. J.
in spite of its increased turnover, its profit for the year
in question was quite low on account of stiff competition, that the wages paid to the workmen compared
favourably with those paid by similar concerns, that
they paid to the Parent company a service fee as consideration for the use of their patterns, valuable designs,
technical aid, benefit of research and ancillary services
and facilities.
F'•r Lhe purposes of the reference, the
company filed a copy of its audited balance-sheet and
profit and loss account for the year 1954-55 as a
confidential exhibit. In the said profit and loss
account, service fee of 5% so paid for the year was
shown as an item of expenditure.
The Union on behalf of the workmen belonging to
the Watch and Ward staff filed a statement of claim
in Reference (IT) No. 147 of 1956 regarding certain
special claims of those workmen to which the company
replied by its written statement. It is not necessary
to refer to that statement of claim by the Union or the
company's written statement, for they are not relevant
to the question of bonus.
In the course of hearing of the References, which
were taken up together, the workmen, through their
counsel, submitted to the Tribunal, amongst other
things, that the payment of the said service foe
by the company was not justified and that the same
should be disallowed as an item of expenditure for the
purpose of calculating bonus payable to the workmen
for the year 1954-55. The Tribunal thereupon called
upon the company to bring on record by an affidavit
all relevant facts and circumstances relating to the
payment of service fee.
The company submitted that
it was not open to the workmen to question an item of
942
SUPREME COURT HEPORTS [1959) Supp.
• 95J
expenditure actually incurred and paid in the course
of business or to request that such an item already
Pa.k~;;~:''<~~o,ks) debited to the accounts, which had duly been audited
T>iva" Ltd,
and passed, should be disallowed. The company subJJombay
mitted that in any event the said payment was fully
v.
justified and reasonable.
However, in compliance
Its WMkmen
with the Tribunal's directions, the company on Decem-
& 01""'
ber 18, 1956, filed an affidavit affirmed on Decem her
Das c. 1.
14, 1956, by Shri V. V. Dhume, the Secretary to the
Company setting forth the relevant facts and circumstances relating to the payment of the said service fee.
At the further direction of the Tribunal, a copy of the
agreement dated August 12, 1947, was also filed by tho
company. Shri V. V. Dhume was examined before
the Tribunal and his oral testimony was also recorded.
The material provisions of the said agreement ha Ye
already been summarised above. Efom the affidavit
and the oral evidence of Shri V. V. Dhumo referred to
above, it is clear that all the goods which the company manufactures are manufactured wholly in accordance with the patterns, designs, specifications and
technical processes developed by and belonging to the
Parent company which it makes available to the company and that the company's products are sold exclusively under the trade names and marks belonging to
the Parent company. There can be and is no dispute
that the company has thus at its disposal the benefit
of the Parent company's accumulated knowledge and
experience, technical data and good will and the reputation attaching to its products. It is clear upon the
evidence on record that the manufacture of specialised electrical goods and equipment of the types produced by the company is a highly specialised business
of a very competitive nature requiring the use of the
most up to date technique. In order to keep abreast
with the latest development in the field of manufacture of this kind of equipment, the company will ordinarily have to maintain its own research laboratories
and specialised staff to develop new methods and
innovations and processes. The company, however, -
does not maintain a separate research establishment
of its own but obtains the benefit of the Parent
(2) s.c.tt. SUPREME COtJRT REl>OttTS
!}43
company's invaluable services under the said agreer959
ment. According to Shri V. V. Dhume the service fee
c
,
•
rompton
paid by the company to the Parent company const1- Parkinson (Works)
tutes, in a substantial measure, a mere reimbursement
Private Ltd.,
of expenses incurred by the latter in the maintenance
Bombay
and operation of its research department and rendering
v.
of facilities to the company. Shri V. V. Dhume fur11~
~~;:C~"'
ther stated that, had the company to maintain its
own research department to provide such service and
Das c. J.
facilities, the annual expense of the company would
have far exceeded the service fee actually paid by it to
the Parent company. It also appears from the affidavit of Shri V. V. Dhume that the independent shareholders of the company who had acquired 26% shares
of the company about the time when the "Technical
Aid Agreement" was executed had willingly accepted
that agreement. Apart from the fact that the agreement had received the approval of the Government of
India in the Ministry of Finance as well as in the
Ministry of Commerce and Industry, the income-tax
authorities have from year to year allowed the full
amount of the service fee paid by the company to the
Parent company as an expenditure incurred wholly
and exclusively for the purposes of the company's
business. Likewise every payment and remittance
made by the company representing the service fee to
the Parent company has been sanctioned by the
Reserve Bank of India ever since 1947. The payment
of the service fee no doubt represents a binding con-
, tractual obligation on the company which can be
legally enforced against it and a breach thereof on
the part of the company
may well lead to the
cancellation thereof by the Parent company as a result
whereof the company will be deprived of the services
and facilities obtained by it under the agreement and
may even be prevented from carrying on its business.
There was no serious cross-examination of Shri
V. V. Dhume regarding these matters by counsel
appearing for the workmen and no substantive evidence on these questions was led by the workmen.
The Tribunal made its award in both the References on January 8, 1957. As regards the service fee,
944
SUPREME COURT REPORTS
[1959] Supp.
r959
the Tribunal held (i) that the amount of service fee
C
Pt
paid by the company to the Parent company was
rom on
.
.
Parkinson (Works) excessive and beyond the reqmrements of commercial
Pduate Ltd.,
necessity and was allowable as an expense only as to
Bombay
one quarter thereof and (ii) that in any event even if
v.
the commercial necessity of the payment could not bo
11~
ri.;:;,:~•n
challenged, a large part of the payment was in the
nature of capital expenditure and that only the
Das c. J.
balance, being in fact a quarter thereof, was allowable
as revenue expense for the purpose of determining the
surplus available for the payment of bonus to the
workmen. Thus, as regards the service fee, the Tribunal in its award proceeded to "prune it down". In
the actual calculations made by the Tribunal for
determining the available surplus according to the
bonus formula appearing in what has been marked as
confidential exhibit T-1, the Tribunal ha.s allowed
only Rs. 2 lacs out of the total of Rs. 7•67 lacs
actually paid as service fee and added back Rs. 5·67
lacs to the profits. It will also be noticed from that
confidential exhibit T-1 that the Tribunal has deducted as a first charge 4~ months' basic wages as bonus
before depreciation as well as tax, on no better ground
than that, in the view taken by it, income-tax should
not be deducted as a prior charge on the gross profits
in preference to bonus. In so doing the Tribunal has
not, quite clearly, followed but has made variations
in that formula.
The bonus formula enjoins the Tribunals to arrive at the available surplus after providing for certain prior charges mentioned therein and
then to determine, after taking into consideration all
material circumstances, how that available surplus
should be distributed between the three interests,
namely, the industry, the shareholders and the workmen. To deduct bouus as a prior charge even before
the recognised itums of prior charges appears to us to
put the cart before the horse. Such a process is
certainly not giving effect to the bonus formula but
amounts to ad hoc determination which may vary
according to the length of the proverbial foot of the
Lord Chancellor and is bound to h~ad to chaos and
industrial unrest. The boi;rns formula was evolved by
(2) S.C.R.
SUPREME COURT REPORTS
945
the Labour Appellate Tribunal as far back as 1950
r959
and it has been generally approved by this Court in
c
more decisions than one and what is more it has Parki;s
0
;;;P~~orks)
worked fairly satisfactorily. In our judgment in the
Private Ltd.,
appeals of Associated Cement Companies Ltd. v. Its
Hombay
Workmen (1) we have deprecated such departure from
v.
the bonus formula by individual Tribunals, for clearly
Its Workmen
0- Others
such departure is not conducive to the harmonious
and peaceful relations between the workmen and
Das c. 1.
their employers.
The only other question which calls for our decision
is the correctness of the Tribunal's award as to the
service fees.
The conclusion of the Tribunal on that
point is founded on the ground that the test of "commercial necessity" applied by the income-tax authorities for determining whether the expenditure was
allowable under s. 10(2)(xv) of the Indian Income-tax
Act should also be applied by the Tribunal. The Tribunal evidently overlooked the fact that the incometax authorities are entitled to apply the test of commercial necessity by reason of the express provisions
of s. 10(2)(xv) which authorise them to arrive at the
taxable income, profits and gains after making allowance for expenditures laid out and expended wholly and
exclusively for the purpose of the business. There is
no such provision in the Industrial Disputes Act. In
the absenc~ of cogent and compelling evidence leading
to the definite conclusion and finding that a purported
expenditure was sham or had been made 'Yith the express object of minimising the profits with a view to
deprive the workmen of their bonus, it is no part of
the duty of an Industrial Tribunal to substitute its
own judgment as to what was or was not commercially justified in the place of the judgment exercised
by the company and its Directors in whom in law the
management of the company is confided. The Tribunal has completely overlooked the fact that the
company's accounts had been duly audited by its
auditors who were duly appointed by the company and that the said auditors had duly certified
(r) [1959] S.C.R 925.
u9
946
SUPREME COURT REPORTS [1959] Supp.
' 959
in the manner provided for by the Indian ComCrompton
panies Act, that the said accounts had been drawn
rarkinson (Works) up in conformity with the law and exhibited a true
I'rfoate Ltd.,
and correct view of the state of the company's
Bombay
affairs. The Tribunal has paid no attention to the
v.
fact, appearing in the evidence on record before him,
Its Workmen
& Others
that the income-tax department had allowed such
service fee as legitimate revenue expense and the
Das c. J.
entire amount of the service fee was allowed as a
deduction by income-tax authorities every year as a
revenue expenditure wholly and exclusively incurred
as a matter of commercial necessity of the company's
business. Nor does the Tribunal appear to have
adverted to the fact that the remittances to the Parent
company were allowed by the Reserve Bank which
always exercises close scrutiny on - every payment
made to non-residents with a view to prohibit payments which are not justified. Nor has the Tribunal
taken note of the fact that the Ministry of Finance
and the Ministry of Commerce and Industry have
approved of the payment of the service fee as provided in the agreement.
A conclusion drawn by the
Tribunal without adverting to the evidence before it
amounts to an error of law and cannot possibly be
sustained. Further, the Tribunal appears to have been
led away by three facts, namely, (i) that the company
did not pay any service fee during the period 1937-47,
(ii) that the agreement was executed on August 12,
1947, that is to say, three days before the attainment
of our independence and (iii) that at the date of the
agreement the company was a 100% subsidiary of the
Parent company. As regards the first reason, the
explanation may well be that during the period 1937
to 1947 the company was still in a stage of development and growth. In any case the fa_ct that no fees
had been charged during a particular period when the
company was 100% subsidiary of the Parent company
cannot reasonably be taken as a reason for not allowing them in future. It will be recalled that negotiations were going on for the acquisition of a considerable block of shares by an Indian company simultaneously with the negotiations for the execution of t]J.e
(2) S.C.R.
SUPREME COURT REPORTS
947
agreement and that in fact 26% of the shares were
r959
itcquirnd by Messrs. Greaves Cotton Co. Ltd. Further,
such service fee has been paid year after year from P
k~rompt(olVn k l
_
.
.
.
a1 inson
or s
1947 right up to the bonus year rn question. The
Private Ltd.,
second reason is equally unsustainable. The fact that
Bombay
a great constitutional change was envisaged may well
v.
and properly have been the reason for placing the
Its Workmen
legal relationship between the company and the
& Others
Parent company on a firmer and permanent legal
Das c. J.
footing.
The Tribunal seems to have overlooked the
fact stated by Shri V. V. Dhume, that "the payment
of the service fee for the services of this nature is
quite a common feature in India". The reasonableness
and legality of the payment of such fee is also supported by the fact that the income-tax authorities and the
Reserve Bank of India have not taken any exception
to such payment. The last reason adopted by the
Tribunal clearly overloo~s the fact that shortly after
the execution of the agreement about 26% of shares in
the company were acquired by an Indian company
and year after year ever since then these independent
shareholders of the Indian company had willingly
accepted the service agreement. Finally the award
does not disclose any basis on which the Tribunal has
purported to " prune it down" to one quarter of the
amount actually paid by the company.
After a careful consideration of the evidence on
record we have come to the conclusion that this part
of the award concerning disallowance of the major
portion of the service fees cannot be supported or
upheld. The Tribunal in the award itself has pointed
out, as alreadv stated, that in case the whole of this
service fee is to be allowed, as we think it should be,
then on that basis the available surplus would permit
the payment of bonus of one month's basic wag~ to
the workmen. The company has no objection to payment of bonus to the workmen amounting to one
month's basic wages, subject to the conditions laid
down in the award in this behalf and indeed it has
done so since the date of the award. The result, therefore, is that we allow these appeals to the extent that
the award of the Tribunal be varied and modified by
948
SUPREME COURT REPORTS [1959] Supp.
'959
n.llowing only one month's basic wages to its workmen
C
who are respondents to these appeals instead of 2i
rompton
th ' b .
"d d .
h
d
b •
Parkiuson (Wo>ks) mon s
as10 wages as prov1 e m t e awar , su Ject,
Private Ltd.,
of course, to the conditions laid down in the awn.rd. Be
Bombay
it noted here that the company has paid this bonus to
v.
the respondents and nothing remains due and payable
Its Workmen
for bonus for 1954-55. Considering all circumstances
& Others
of these appeals, we r.lirect each party to bear its own
Das c. J..
costs of these appeals.
'959
May 5.
Appeal allowed ·in part.
THE INDIAN HUME PIPE CO., LTD.,
v.
THEIR WORKMEN
(S. R. DAS, c. J., N. H. BHAGWATI, s. K. DAS,
P. B. GAJENDRAGADKAR and K. N. WANCHOO, JJ.)
Inditslrial Dispute-Boniis -Available Surplus -
Previous
losses written off-Expenditure on patents written off-Debenture
redemption reserve-If proper prior charges-Preference shares.
return on-Calcitlations 011 All-India basis, whether proper.
The appeliant manufactured hume pipes and had factories
in different parts of India, Pakistan and Ceylon. For determining the available surplus for the payment of bonus for the year
1954-55 the appellant claimed deductions as prior charges on
account of (i) losses suffered on the Lahore factory written off,
(ii) expenditure on patents written off, and (iii) debenture
redemption reserve.
It also claimed 6% retnrn on the preference
shares as return on paid up capital. The losses on the Lahore
factory had been incurred in the previous years which had been
carried forward from year to year and had been written
off ~s irrecoverable in the bonus year.
The amounts spent
on the purchase of the patents which had been worked off
in the previous years had also been written off in the bonus year.
The appellant had issued debentures in 1942-43 redeemable in
1962-63 and claimed Rs. 3,50,000 as the annual contribution
towards the redemption reserve. The appellant had issued preference shares on which the share-holders, under the terms of
the issue, were not entitled to more than 5%, but the appellant
claimed a return of 6% on these shares also as return on paid up