# THE INDIAN HUME PIPE CO., LTD v. THEIR WORKMEN

- **Citation:** [1959] Supp. 2 S.C.R. 948
- **Court:** Supreme Court of India
- **Decided:** 1957-01-14
- **Case number:** Civil Appeal No. 54 of 1958
- **Bench:** S. R. Das, N. H. Bhagwati, s. K. DAS, P. B. Gajendragadkar, K. N. Wanchoo
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/the-indian-hume-pipe-co-ltd-v-their-workmen-1708
- **Pages:** 16

## Headnote

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
(2) S.C.R.
SUPREME COURT REPORTS
949
capital as provided in the Full Bench formula. The dispute
1959
regarding bonus had been raised by the workmen of the \Vadala
factory alone, the workmen of other factories having settled The btdian Hume
the matter had been paid the agreed bonus. The respondents
Pipe Co., Ltd.,
claimed that the bonus calculations should not be made on the
v.
basis of All-India figures but on the basis of the actual amounts Their Workmen
paid or payable by the appellant under the settlements.
Held, that the losses on the Lahore factory and the patents
written off could not be allowed as prior charges as they were
merely debits in connection with the working of previous years.
Nor could the amount on account of the debenture redemption
reserve be allowed as a prior charge as no such charge was
envisaged by the Full Bench formula of the Labour Appellate
Tribunal ; but this amount could be taken into consideration
when distributing the available surplus among the various
interests entitled thereto. In determining the available surplus
the Full Bench formuta must be adhered to in its essential particulars as otherwise there would be no stability or uniformity of
practice.
A deduction of more than 5% return on the preference shares
could not be allowed as that was the maximum return which
the share-holders could get on these shares. Even though the
Full Bench formula mentioned 6% return on paid up capital it
was not to be literally construed and the Tribunal could, if
the circumstances warranted, increase or decrease the i;ate.
In calculating the actual amount of bonus to be paid calculations had to be made on the basis of All-India figures otherwise the respondents would have an advantage over those workmen with whom settlements had been made and would get larger
amounts of bonus merely by reason of the fact that the appellant had managed to settle the claims of those workmen at
lesser figures.

## Text

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
(2) S.C.R.
SUPREME COURT REPORTS
949
capital as provided in the Full Bench formula. The dispute
1959
regarding bonus had been raised by the workmen of the \Vadala
factory alone, the workmen of other factories having settled The btdian Hume
the matter had been paid the agreed bonus. The respondents
Pipe Co., Ltd.,
claimed that the bonus calculations should not be made on the
v.
basis of All-India figures but on the basis of the actual amounts Their Workmen
paid or payable by the appellant under the settlements.
Held, that the losses on the Lahore factory and the patents
written off could not be allowed as prior charges as they were
merely debits in connection with the working of previous years.
Nor could the amount on account of the debenture redemption
reserve be allowed as a prior charge as no such charge was
envisaged by the Full Bench formula of the Labour Appellate
Tribunal ; but this amount could be taken into consideration
when distributing the available surplus among the various
interests entitled thereto. In determining the available surplus
the Full Bench formuta must be adhered to in its essential particulars as otherwise there would be no stability or uniformity of
practice.
A deduction of more than 5% return on the preference shares
could not be allowed as that was the maximum return which
the share-holders could get on these shares. Even though the
Full Bench formula mentioned 6% return on paid up capital it
was not to be literally construed and the Tribunal could, if
the circumstances warranted, increase or decrease the i;ate.
In calculating the actual amount of bonus to be paid calculations had to be made on the basis of All-India figures otherwise the respondents would have an advantage over those workmen with whom settlements had been made and would get larger
amounts of bonus merely by reason of the fact that the appellant had managed to settle the claims of those workmen at
lesser figures.
CIVIL APPELLATE JURISDICTION:
Civil Appeal No.
54 of 1958.
Appeal by special leave from the Award dated
January 14, 1957, of the Industrial Tribunal at Bombay in Reference (I. T.) No. 75 of 1956.
M. 0. Setalvad, Attorney-General for India and J. N.
Shroff, for the appellants.
N. V. Phadke, T. S. Venkataraman, K. R. Sharma
and K. R. Ohaudhury, for respondent No. 1 and the
Intervener.
1959. May 5.
The Judgment of the Court was
delivered by
950
SUPREME COURT REPORTS [1959] Supp.
19~
BHAGWATI, J.-This appeal with special leave chalne 1,,dian llum.lenges the award made by the Industrial Tribunal,
Pipe co. Ltd .• Bombay, in lteference (IT) No. 75 of 1956 between the
v.
appellant and the respondents whereby the Industrial
Their Workmen Tribunal awarded to the respondents 4~ months' basic
wages as bonus for the year 1954-55 (year ending
lJhagwati J •
June 30, 1955).
The appellant is a subsidiary of the Premier Construction Co., Ltd., and manufactures Hume Pipes.
l t has factories in different parts of India, Pakistan
and Ceylon. The respondents are the workers employed in the appellant's factory at Antop Hill, Wadala,
Bombay.
In October 1955, respondent 1 who arc workmen
represented by the Engineering Mazdoor Sabha made
a <lemand for the payment of six-months' wages as
bonus for the year 1954.55. The matter was also
referred to the Conciliation Officer requesting him to
initiate Conciliation Proceedings. The Conciliation
Proceedings went on before the Conciliation Officer
upto March 23, 1956, on which date both the parties
arrived at and executed an Agreement to refer the
matter to an Industrial Tribunal for adjudication.
Accordingly, on April 30, 1956, both the parties drew
up and signed a joint-application for referring the dispute for adjudication to a Tribunal and the Government of Bombay thereupon in exercise of the powers
conferred by sub-s. (2) of s. 10 of the Industrial Disputes Act, 1947, by its order dated June 11, 1956,
referred the following dispute to the Tribunal :-
"DEMAND: Every
Workman (daily rated)
Hhould be paid bonus for the year 1954-55 (year ending 30th June, 1955) equivalent to six-months' wages
without attaching any condition thereto".
ltespondent No. 1 filed their statement of claim
before the Tribunal on June 29, 1956. They alleged
that the profits of the appellant during the year 195455 were higher than those during the year 1953-54 for
which year the appellant had paid four months' basic
wages as bonus.
They also alleged that the wages
paid to them by the appellant fell short of the living
wage and therefore the appellant should pay them six
months' basic wages as bonus for the relative year,
(2) S.C.R. SUPREME COURT REPORTS
951
The appellant filed its written statement in answer
r959
on August 14, 1956. The appellant submitted that, Tl
I -;;:- II
after providing. for " the prior charges" according t.o
;ipen ~;',' u~'~"
the formula laid down by the Labour Appellate Triv.
·
bunal the profits made during the year under conTheir Wmtanen
sideration did not leave any surplus and the respondents were not entitled'to any bonus. It denied that
Rhagwlfi J.
it had made huge profits during the year in question
and submitted that the profits made were not evqn
sufficient to provide for "the prior charges", etc.
The Tribunal after hearing the parties came to the
conclusion that even if payment of a bonus equal to
4! months' basic wages were made a fair surplus
would be left in the hands of the appellant to the
tune of Rs. 3·30 lacs and therefore awarded the same
subject to the following conditions :-
(a)
Any employee who has been dismissed for
misconduct resulting in financial loss to the company
shall not be entitled to bonus to the extent of the loss
caused.
(b)
Persons who are eligible for bonus but who
are no longer in the service of the company on the
date of the payment shall be paid the same provided
that they make a written application for the same
within three months of publication of this award. '
Such bonus shall be paid within one month of receipt
of application provided that no claim can be enforced
before six weeks from the date this award becomes
enforceable.
Being aggrieved by the said award of the Tribunal,
the appellant applied for and obtained from this
Court special leave to appeal against the same under
Art. 136 of the Constitution and hence this appeal.
The formula evolved by the Full Bench of the
Labour Appellate Tribunal in Millowners' Association,
Bombay v. Rashtreeya Mill Mazdoor Sangh, Bombay (1)
is based on this idea that "as both labour and capital
contribute to the earnings of the industrial concern, it
is fair that labour should derive some benefit, if there is
a surplus after meeting" prior or necessary charges".
The following were prescribed as the first charges on
(1) (1950) L.L.J. 1247.
952
SUPREME COURT REPORTS [1959] Supp.
r959
gross profits, viz., (1) Provision for depreciation ;
-.-
(2) reserves for rehabilitation; (3) a return at 6% on
The Indian Hume h
'd
· 1 (
k'
Pipe co., Ltd., t e pat
up capita ; 4) a return on the wor mg
v.
capital at a lesser rate than the return on paid up
Th•lr Wo•hmm capital and (5) an estimated. amount in respect of the
payment of income-tax. The surplus that remained
Bhagwati J.
after making the aforesaid deductfons would be available for distribution among the three sharers, viz., the
shareholders, the industry and the workmen
[See
Muif Mills Co., Ltd. v. Suti Mills Mazdoor Union,
Kanpur (1) and Sree Meenakshi Mills Ltd. v. Their
Workmen(')].
This Full Bench Formula has been working all
throughout the country since its enunciation as aforesaid and has been found to be, in the main, fairly
satisfactory. It is conducive to the benefit of both
labour and capital and even though certain variatiOns
have been attempted to be made therein from time to
time the main features thereof have not been substantially departed from. We feel that a formula which
has been thus adopted all throughout the country and
has so far worked fairly satisfactorily should be adhered; to, though there is scope for certain flexibility in
the working thereof in accordance with the exigencies
of the situation.
In the working of the said formula, however, regard
must be had both to the interests of capital and
labour. In any given industry there are three interests involved, viz., the shareholders, the Company and
the workmen and all these interests have got to get
their proper share in the surplus profits ascertained
after due provision is made for these "prior charges".
The shareholders may look to larg~r dividends commensurate with the prosperity of the industrial concern, the company would, apart from rehabilitaticm
and replacement of buildings, plant and machinery,
look forward to expansion and satisfaction of other
needs of the industry and the workmen would certainly be entitled to ask for a share in the surplus profits
with a view to bridge the gap between the wages earned by them and the living wages. _All those interests
(1) [1955] I S.C.R. 991, 998.
(2) S.C.R.
SUPREME COURT REPORTS
953
have, therefore, got to be duly and properly provided
r959
fordhaving regar
1
d to thefi princ~pl lebsl off soc
1
~al .Jb·us~ice The Indian Hum~
an
once surp us pro ts ava1 a e
or c istri ut10n
Pife co., Ltd.,
amongst these respective interests are determined
v.
after making due provision for the "prior charges" as Their Workmen
aforesaid the Industrial Tribunal adjudicating upon
the dispute would have a free hand in the distribution
Bha.gwati J.
of the same having regard, of course, to the considerations mentioned hereinabove. But so far as the
determination of the surplus profits is concerned the
formula must be adhered to in its essential particulars
as otherwise there would be no stability nor· uniformity
of practice in regard to the same.
It may be noted, however, that in regard to the
depreciation which is a prior charge on the gross profits earned by a concern there is always a difference in
the method of approach which is adopted by the
income-tax authorities and by the industrial tribunals.
It was pointed out by us in Sree Meenakshi Mills Ltd.
v. Their Workmen (1) that the whole of the depreciation
admissible under the Income-tax Act· was not allowable in determining the available surplus. The initial
depreciation and the additional depreciation were abnormal additions to the income-tax depreciation and
it would not be fai1· to the workmen if these depreciations were rated as prior charges before the available
surplus was ascertained.· Considerations on which the
grant of initial and additional depreciations might be
justified under the Income-tax Act were different from
considerations of social justice and fair apportionment
on which the Full Bench Formula in regard to the
payment of bonus to workmen was based. This was
the reason why we held in that case that only normal
depreciation including multiple shift depreciation, but
not initial or additional depreciation should rank as
prior charge. We approved of the decision of the
Labour Appellate Tribunal in U. P. Electric Supply
Go., Ltd. v. Their Workmen (2 ) in arriving at the above
conclusion and disallowed the claim of the company
there to deduct the initial or additional depreciation
as prior charge in bonus calculations.
(r) [r958] S.C.R. 878,
(2) (1955) L,A,C. 65g.
120
!J54
SUPREME COURT REPORTS [1959] Su1pp.
1959
When this decision was reached we had not before
Th
I -a· H
us the decision of the -Labour Appellate Tribunal in
e
n '""
ume S
El
· ·
C
' S ,/!I' U .
h S
Pipe co., Ltd.,
urat
ectricity ompany s
taJJ
nion v. T e urat
v.
Electricity Co., Ltd.(') where a Bench of the Labour
Their Workmen Appellate Tribunal had negatived the contention that
if only the "normal " depreciation allowed by the InBhagwati J.
come-tax law were allowed a company would be able
to recoup the original cost of the assets and observed
that:
"For the purpose of bonus formula the initial and
additional depreciation, which are disallowed by that
formula, must be ignored in fixing the written down
value and in determining the period over which the
normal depreciation will be allowed. The result will
be a notional amount of normal depreciation ; but, as
we have said repeatedly the bonus formula is a
notional formula."
We have already expressed in the judgment delivered by us in Associated Cement Co., Ltd. v. Its Workmen (2) that for the purpose of the bonus formula the
notional normal depreciation should be deducted from
the gross profits calculated on the basis adopted in
Surat Electric Supply Co. Staff Union v. Surat Electricity Co., Ltd.(') and not merely the normal depreciation
including multiple shift depreciation allowed by the
income-tax authorities as stated in U. P. Electric
Supply Co., Ltd. v. Their Workmen (3).
It is well settled that the actual income-tax payable
by the company on the basis of the full statutory
depreciation allowed by the income-tax authorities
for the relevant accounting year should be taken into
account as a prior charge irrespective of any set off
allowed by the Income-tax authorities for prior charges or any other considerations such as building up of
income-tax reserves for payment of enhanced liabilities of income-tax accruing in future. It is also well
settled that the calculations of the surplus available
for distribution should be made having regard to the
working of the industrial concern in the releyant
(1) (1956) L.A.C. 443.
(2) [1959] S.C.R. 925.
(3) (1955) L.A.C. 659.
•
(2) S.C.R.
SUPREME COURT REPORTS
955
accounting year without taking into consideration the
I959
credits or debits which are- referable to the working of 1.h
1 -d. H
.
f
f
e
n ian
ume
the previous years, e.g., the re undo excess profits tax Pipe co .. Ltd.,
paid in the past or loss of previous years carried forv.
ward but written off in the accounting year as also Their Workmen
any provision that may have to be made to meet
future liabilities, e.g., redemption of debenture stock,
Bhagwati f.
or provision for Provident Fund and Gratuity and
other benefits, etc., which, laowever, necessary they
may be, cannot be included in the category of prior
charges.
If regard be had to the principles enunciated above
it is clear that the items of Rs. 1·14 lacs representing
the Lahore factory balance written off, Rs. 0·34 lacs
being patents written off, and Rs. 0·09 lacs shown as
loss on sale of Tardeo property cannot be allowed as
proper deductions from the gross profits for the purposes of bonus calculations. The first two items represented debits in connection with the working of
previous years.
Loss of the Lahore factory had been
incurred during the three previous accounting years
and had been carried forward· from year to year and
the only thing which was done during the year under
consideration was that it was then written off as irrecoverable. The patents also had been worked off in
previous years and the amounts spent in the purchase
thereof were therefore to be written off bnt had reference to the working of the company during the previous years. The last item of Rs. 0·09 lacs was trivial
and was therefore not pressed with the result that all
these three items were rightly added back in the calculations of the gross profits of the appellant and the
figure of gross profits taken at Rs. 36·21 lacs was
correctly arrived at by the Tribunal.
The depreciation allowed by the Tribunal was
~s. 9.82 lacs which was the full statutory depreciation
allowed by the Income-tax authorities. That should
not have been done and the only depreciation allowed
should have been the notional normal depreciation
which was agreed between the parties before us at
Rs. 6·23 lacs.
Working the figure of income-tax deducted by the
956
SUPREME COURT REPORTS [1959] Supp.
x959
appellant on the basis adopted in Shree M eenakshi
7 h
I -d. H
Mills Ltd. v. 'l'heir Workmen (1) the income-tax on the
e
n, ian
unze
l'ipe co .. Ltd., gross profits of Rs. 36·21 la.cs less the statutory deprev.
ciation allowed by the income-tax authorities, viz.,
Thefr Workmen Rs. 9·82 lacs would be equivalent to 7 annas in the
rupee on Rs. 26'39 lacs, i.e., Rs. 11·55 lacs thus leavJ'Jhagwati 1 ·
ing a balance of Rs. 16·82 lacs from which the other
prior charges would have to be ·deducted in order to
ascertain the distributable surplus.
6% return on the ordinary share capital and 5%
return on the preference share capital would come to
Bs. 4·30 lacs. The appellant, however, claimed that even
on the preference shares 6% return should be allowed
and not 5% even though preference shareholders
were not entitled to anything beyond 5% under the
terms of issue.
The appellant obviously relied upon
the wording of the formula: "return· at 6% on the
paid up capital" and contended that the preference
shares also being paid up capital it would be entitled
to a return of 6% on the preference shares for the
purposes of the bonUli formula even though in fact it
would have to pay only 5% return on the same. "Ve
cannot accept this contention. Even though the
bonus formula is .a notional one we cannot ignore the
fact that in no event would the appellant be bound
to pay to the preference shareholders anythipg beyond 5% by way of return. The Full Bench Formula
cannot be so literally construed. There is bound to be
some flexibility therein, the 6% which is prescribed
there as th'e return on paid up capital is not inexorable, and the Tribunals could if the circumstances
warrant vary the rate of interest either by increasing
or decreasing the same. On the facts of this case however there is no warrant for allowing anything beyond
5% return on preference share capital and the amount
of Rs. 4•30 lacs should therefore be deducted ail
another prior charge from the grsos profits of the
appellant.
4% return on reserves used as working capital was
calculated merely at a figure of Rs. 0·29 lacs worked
out on a total figure of Rs, 7,42,139.
The Tribunal
(1) [195i) S.C.R. 878,
•
(2) S.C.R. SUPREME COURT REPOHTS
957
did not take into consideration another sum of
z959
Rs. 41,81,196 which represented the depreciation fund The Indi;;. llume
which according to the appellant had been used as Pipe co., Ltd.,
working capital during the year. If that had been
v.
allowed a further sum of Rs. 1.67 lacs should have Their Workmen
been added to Rs. 0·29 lacs and the total amount of
d
k.
• l
ld
Bhagwati ].
4% return on reserves use as wor mg capita wou
have amounted to Rs. 1·96 lacs.
Two arguments were advanced against this contention of the appellant. One was that there was nothing like a depreciation fund, that it merely represented a credit item introduced in the balance-sheet as
against the value of the fixed capital at its original
cost and would have disappeared as such if the proper
accounting basis had been adopted, viz., the fixed
block had been showed at its depreciated value after
deducting the amount of depreciation from the original cost.
Such book entries, it was contended, did not
convert that credit item into a depreciation fund
available to the company and there was therefore no
basis for the contention that such a depreciation fund
ever existed and could be used as working capital in
the business. The other waR that there was nothing
on the record to show that such a depreciation fund,
if any, had been, in fact, used as working capital in
the business during' that year.
The answer furnished by the appellant in regard to
both these contentions was that on a true reading of
the balance-sheet Rs. 41,81,196 were reserves used as
working capital, vide calculations in Exhibit C-12.
Provision for depreciation was Rs. 1,10,29,954 and the
paid up capital was Rs. 80,00,000 thus totalling to
Rs. 1,90,29,954. The total capital block as shown in
page 5 of the balance-sheet for the year ending June
30, 1955, was Rs. 1,48,48,758 and the working capital
therefore was Rs. 41,81,196. This was apart from
Rs. 7,42,139 which was the total of the three items at
page 4 of the balance-sheet: Rs. 98,405 capital
reserves, Rs. 4, 73, 734 other reserves and Rs. 1, 70,000
provision for doubtful debts as also the investments,
cash and bank balance. This being the true position
it follows on the facts of the present case that this
958
SUPREME COURT REPORTS [1959] Supp.
1959
amount was available for use as working capital and
The Indfon linme the balance-shee~ sh_owed that it w~.s in _fact so used.
Pipe co., Ltd., Moreover, no obiect10n was urged m this behalf nor
v.
was any finding to the contrary recorded by the Tri1.,1ei'r JVorkmen bunal.
We are, therefore, of the opinion that the reasoning
Hhagwati J.
adopted by the Tribunal was not correct and the
appellant was entitled to 4% return on the reserves
nsed
as working capital
including the
sum of
Rs. 41,81,196.
The appellant was thus entitled to
Rs. l ·96 lacs as the 4% return on reserves used as
working capital and not merely Rs. 0·29 lacs as allowed by the Tribunal.
The provision for rehabilitation had been claimed by
the appellant at Rs. 1·10 lacs on the basis of 10% of
the net profits relying upon para. 20 of the Report of
the Committee on Profit Sharing in which the Committee had proposed that 10% of the net profits should
compulsorily be set aside for reserves to meet emergencies as well as for rehabilitation, modernization and
reasonable expansion.
No evidence was at all led by
the appellant before the Tribunal showing the cost of
the machinery as purchased, the age of the machinery,
the estimate for replacement etc., in order to srlbstantiate this claim for rehabilitation and the appellant was
content merely to rely upon this recommendation of
the Committee on Profit-sharing. This was rightly
considered by the Tribunal as insufficient to support
the appellant's claim, though it allowed for rehabilitation, in addition to the statutory depreciation, the
amount for which the appellant had actually made
provision, viz., the sum by which the depreciation
written off for the year exceeded the statutory depreciation
(i. e., Rs. 10,00,000 minus Rs. 9,82,799Rs. 17,201). The amount was really small and did not
affect the bonus to be awarded. The Tribunal, in fact,
allowed the same, though it appears that in the
absence of evidence of the nature above referred to
even that sum of l~s. O·l 7 lacs ought not to have been
allowed. In this state of affairs it is really impossible
for us to allow the appellant's claim for rehabilitation
in anything beyond the sum of Rs. 0· 17 lacs actually
(2) S.C.R. SUPREME COURT RE:PORTS
. 959
allowed by the Tribunal and the claim of the appellant
x959
for any further provision for rehabilitation must be Th
1 -a· H
.
•
e
n ian
ume
disallowed for the purpose of the bonus calculat10ns
Pipe co., Ltd.,
for the year under consideration. It will however be
v.
open to the appellant to claim higher rehabilitation for Their Workmen
subsequent years if it can substantiate its claim by
adducing proper evidence.
Bhagwati J.
In addition to these various sums allowed to the
appellant by way of prior charges against the gross
profits earned during the accounting year the Tribunal
also allowed to the appellant Rs. 2·50 lacs by way of
provision for debenture redemption fund.
The claim
of the appellant was for a sum of Rs. 3·50 lacs for the
same and it arose under the following circumstances.
The. appellant had issued debentures of the value of
Rs. 30 lacs in the year 1942-43 and they were redeemable in the year 1962-63. No annual provision had ·
been made from profits for redemption of the same
inasmuch as until the year 1949 the appellant was not
working at a profit. Such provision was made only
thereafter. For the year 1950-51, the appellant made
a provision for Rs.
75,000 for debenture redemption fund, for 1951-52, Rs. 1,50,000, for 1952-53
Rs. 1,50,000, for 1953-54 Rs. 75,000 and further provision had to be made for redemption of debenturesin
a sum of Rs. 24,50,000. In so far as 7 more years
were left before the due date for redemption the appellant claimed Rs. 3,50,000 as the annual sum to be set
apart, though as a matter of fact in the balance-sheet
only a provision of Rs. 2,50,000 had been made by it
for debenture redemption reserve. The Tribunal
pointed out that when the appellant had in its accounts
appropriated Rs. 2,50,000 for the debenture redellj.ption fund the claim to have Rs. 3,50,000 for the purposPs of bonus formula was clearly untenable. It
however was of the opinion that a reasonable provision for redemption fund should be allowed as a prior
charge and actually allowed the sum of Rs. 2,50,000
which had been actually provided for the purpose in
the balance-sheet1 negativing the contention· of the
respondents that no provision should be allowed for
debenture redemption fund in the bonus formula;
960
SUPREME COURT REPORTS [1959] Supp.
'959
We are of the opinion that the Tribunal was not
I
-d. H
justified in allowing the sum of Rs. 2,50,000/- for
T" Jn •an
unie d b
· d
·
f
d
·
h
·
h
Pipe co .. Ltd.,
e enture re empt10n
un
as a pr10r c arge m t e
v.
bonus calculations. The Full Bench Formula does
Thefr Wo'1nnen not envisage any such prior charge. It is no doubt,
true that capital is shy and it would not be practicable
Bhagwati f.
for the industrial concern to raise large amounts by
way of fresh debentures when they become due. It is
also true that the debentures do not stand on a par
with other debts of a concern because the debentureholders would in a conceivable situation be able to
enforce their security by bringing the industry to a
stand-still by taking over charge of the whole concern.
It would therefore appear that the redemption of these
debentures would be one of the primary obligations of
the industrial concern and due provision has of necessity to be made for redemption thereof on due date.
This however does not mean that in the calculations
of the distributable surplus the provision for such
redemption should be given the status of a prior
charge, though of course that would be a relevant consideration while distributing the available surplus
between the various interests entitled thereto. We
are therefore of opinion that the Tribunal was wrong
in allowing Rs. 2,50,000/- as a prior charge in the
bonus calculations.
This disposes of all the contentions which have
been urged on behalf of both the parties and calculating the figure on that basis we arrive at the following:-
Gross Profit as per Tribunal's calculations
Less : Notional Normal Depreciation
Less: Tax @ 7 as. in a rupee
Rs.
Less: 6% return on ordinary share capital
in lacs.
36·21
6•23
29·98.
11·55
18·43
and 5% on preference share capital
4·30
14•13
(2) S.C.R. SUPREME COURT REPORTS
961
Less: 4% Return on reserves used as working capital:
7,42,139
·29
+ 41,81,196
1•67
1959
The Indian Hum6
Pipe Co., Lid.,
v.
49,23,335
l •96 Their Workmen
Less : Provision for Rehabilitation
12•17
0·17
Available Surplus
12·00
This would bring the available surplus for distribution to a sum of Rs. 12 lacs and this would be distributable amongst the shareholders, the company and
the workmen concerned.
It is not feasible to lay down any rigid formula as
to what the proportion of such distribution amongst
these various interests should be. The shareholders
as well as the company would both be naturally interested inter alia in providing the debenture redemption reserves as also meeting the needs of the industry
for further expansion. The workmen would no doubt
be interested in trying to bridge the gap between their
actual wage and the living wage to the extent feasible.
This surplus of Rs. 12 lacs would have to be distributed amongst them having regard to the facts and circumstances of the case, of course bearing in mind the
various considerations indicated above.
Before we arrive at the figure of the actual bonus
which it will be appropriate in the circumstances of
this case to allow to the workmen, we may advert to
one argument which was pressed before us on their
behalf and that was that the bonus calculations should
not be made on the basis of the All-India figures which
were adopted by the Tribunal but on the basis of the
actual amounts which the appellant had paid and
would have to pay to the workmen concerned. It was
pointed out that the respondents here were only the
workmen in the Wadala Factory of the appellant. The
appellant had, however, paid to the various workmen
elsewhere as and by way of bonus sums varying
between 4 % and 29% of the basic wages for the year
in question. The sum of Rs. 1,23,138/- only had been
121
Bhagwali J.
962
SUPREME COURT REPORTS [1959] Supp.
z959
paid in full and final settlement to t.he workmen in
T '
1 d--:-- II
some of the factories and the bonus calculations on an
'" " zan
"'"' AJ
d" b ·
Id h
Pipe co., Ltd.,
I-In ia as1s wou
t us work to the advantage of
v.
the a ppellaut in so far as they would result in saving
Their Workmen to the appellant of the difference between the amounts
to which those workmen would be entitled on the basis
Bhagwati f.
of the All-India figures adopted by the Tribunal and
the amounts actually paid to them as a result of agreements, conciliation or adjudication. It was therefore
contended that the calculations should be made after
taking into account the savings thus effected by the
appellant and only a sum of Rs. 1,23,138/- which was
the actual sum paid to those workmen should be taken
into account and no more. We are afraid, we cannot
accept this contention. If this contention was accepted the respondents before us would have an advantage
over those workmen with whom settlements have been
made and wonld get larger amounts by way of bonus
merely by reason of the fact that the appellant had
managed to settle the claims of those workmen at
lesser figures. If this contention of the respondents
was pushed to its logical extent it would also mean
that in the event of the non-fulfilment of the conditions imposed by the Tribunal in the award of bonus
herein bringing in savings in the hands of the appellant, the respondents would be entitled to take ad vantage of those savings also and should be awarded larger amounts by way of bonus, which would really be
the result of the claimants entitled to the same not
receiving it under certain circumstances-an event
which would be purely an cxtraneo~ one and unconnected with the contribution of the respondents towards the gross profits earned by the appellant. Tho
Tribunal was, therefore, right in calculating the bonus
on an All-India basis.
By our order dated April 12, 1957, the appellant was
ordered to pay to the respondents within a fortnight
from the date thereof bonus for the year 1954-55
equivalent to two months' basic wages; that amount
has already been paid and works out at Rs. 3·39 lacs
on an All-India basis.
'The only.question which therefore survives is what
further bonus, if any, would the respondents be entitled
(2) S.C.R.
SUPREME COURT REPORTS
963
to from the distributable surplus of Rs. 12 lacs. The
r959
sum of Rs. 3·50 lacs required for building up the
-
d b
d
.
.
ll
•
d The Indian Hume
e enture re empt10n reserve is an a -engrossmg nee
rp c
Ltd
of the appellant and that is a factor which must of
' e :.··
·•
necessity be taken into consideration while arriving at Their Worhinen
the ultimate figure, particularly because such redemption of the debentures would enure not only for the
Bhagwati J.
benefit of the Company and its shareholders but also
of the workmen employed therein.
Having regard to
all the circumstances of the case, we feel that an award
of four months' basic wages as aggregate bonus for
the year 1954-55 (which by the way was the bonus
awarded for the previous year 1953-54 also) would give
a fair share to the labour in the distributable surplus,
leaving to the shareholders and the company a balance
of Rs. 5·22 lacs to be utilised by them not only towards
building up of the debenture redemption reserve but
also for building up other reserves, which would be
utilised for various other purposes indicated above.
The appellant would no doubt get also the refund of
the income-tax on the bonus payments made by it.
This rebate would also go towards the fulfilment of
the very same objectives, which would ultimately
enure both for the benefit of the capital as well as
labour.
·we have, therefore, come to the conclusion that the
appellant should pay to the respondents, in addition
to the two months' basic wages already paid to them
in pursuance of this Court's order dated April 12,
1957, an additional sum equivalent to two months'
basic wages by way of bonus for the year 1954-55 subject to the same conditions as were laid down in the
award of the Tribunal above referred to, all the dates
mentioned therein being calculated from the ·date of
this judgment.
We accordingly allow the appeal, modify the award
of the Industrial Tribunal to the extent mentioned
above, but in the circumstances of the case we make
no order as to costs, each party bearing and paying
its own costs thereof.
-
Appeal allowed.