# THE STATE OF MYSORE v. THE WORKERS OF GOLD MINES

- **Citation:** [1959] 1 S.C.R. 895
- **Court:** Supreme Court of India
- **Decided:** 1956-11-24
- **Bench:** Gajendragadkar, A. K. Sarkar, Subba Rao, VIVIAN BosE
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/the-state-of-mysore-v-the-workers-of-gold-mines-1566
- **Pages:** 25

## Headnote

Industrial Dispute-Gold mining industry--Claim of bonus by
employees-Available surplus, Calculation of-Applicability of Full
Bench Formula-Duty of Industrial Tribunal.
This was an appeal against.an award of bonus to the workmen of the Mysore gold mining industries, then under company
management. A covenant in the lease executed in favour of the
companies permitted them to create a reserve fund to meet
depreciation and development expenditure by contributing 15%
of the revenue expenditure to it and deduct the same in calculating the net surplus.
The covenant imposed no obligation on
the lessees to create such a fund and was obviously intended to
provide a basis for the lessor's claim to royalties. It was contended on behalf of the employer companies that the formula
for determination of available surplus as evolved by the Full
Bench of the Labour Appellate Tribunal in Mill Owners Association, Bombay v. The Rashtriya Mill Mazdoor Sangh, Bombay, (1950)
L.L.J. 1247, was inapplicable to gold mining industries which
had special and distinguishing features of their own and that
the employers were entitled under the said covenant to deduct
15% of the revenue expenditure as a prior charge in calculating
the available surplus. It was their case that, th us calculated,
there was no available surplus out of which bonus could be
awarded. The Tribunal was not impressed by this argument,
disallowed the claim made on the basis of the covenant, applied
the formula, upheld the claim for depreciation but as there was
no evidence to show that any sums had actually been spent for
rehabilitation for the years in question, refused to make any
allowance on that head. It was further urged in appeal that
since the cmppanies were misled by previous awards passed
in their favour in not preferring any specific claim for rehabilitation, apart from the general claim under the covenant, they
should, in case their general claim was disallowed, be permitted
to do so :
•
Held, that the formula evolved by the Labour Appellate
Tribunal and generally approved by this Court and the categories
· of prior charges prescribed by it were comprehensive enough
to cover each individual case and there was no reason why it
should not apply to the gold mining industries as well.
Mill Owners Association, Bombay v. The Rashtriya Mill Maz-'
door Sangh, Bombay, (1950) L.L.J. 1247, discuss~d.
II4
May 22.
•
•
896
SUPR:mM:m COURT R:mPORTS
[1959]
z958
Muir Mills Co. Ltd., Kanpur v. Suti Mills Mazdoor Union,
The State of
Mysore
v.
The Workers of
Gold Mines
•
Kanpur, [r955] r S.C.R. 99r, referred to.
The covenant in the lease, apart from the question whether
it could bind the workmen, imposed no obligation on the
employees and could not preclude an investigation by the Tribunal as to the merits of each particular claim of expenditure in
order to ascertain the existence of any available surplus, and the
Tribunal was right in disallowing the claim made solely on the
basis of the covenant which could otherwise have been made
under the formula itself.
Held, further, that the concept of social and economic
justice on which the claim of bonus is founded apply equally to
gold mining industries as to any others and the formula, which
had for its purpose the ascertainment of the available surplus to
make an a\vard possible, O\.ved its origin to the san1e principles
of social and economic justice enshrined in the Directive
Principles of State Policy enunciated by Arts. 38 and 43 of the
Constitution.
•
It is for the Industrial Tribunal to determine in each particular case, on the evidence adduced by the employers and
having regard to the special requirements of the industry, which
items of expenditure should be admitted under each of the four
categories prescribed by the formula and in doing so they
should apply the principles laid down and discussed in decided
cases in a flexible manner suited to the requirements of each
case.
Ganesh Flour Mills Co. Ltd., Kanpur v. Ganesh Flour Mills
Staff Unio

## Text

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S.C.R.
SUPREME COURT REPORTS
895
THE STATE OF MYSORE
v.
THE WORKERS OF GOLD MINES
(GAJENDRAGADKAR, A. K. SARKAR, SUBBA RAO
and VIVIAN BosE JJ.)
Industrial Dispute-Gold mining industry--Claim of bonus by
employees-Available surplus, Calculation of-Applicability of Full
Bench Formula-Duty of Industrial Tribunal.
This was an appeal against.an award of bonus to the workmen of the Mysore gold mining industries, then under company
management. A covenant in the lease executed in favour of the
companies permitted them to create a reserve fund to meet
depreciation and development expenditure by contributing 15%
of the revenue expenditure to it and deduct the same in calculating the net surplus.
The covenant imposed no obligation on
the lessees to create such a fund and was obviously intended to
provide a basis for the lessor's claim to royalties. It was contended on behalf of the employer companies that the formula
for determination of available surplus as evolved by the Full
Bench of the Labour Appellate Tribunal in Mill Owners Association, Bombay v. The Rashtriya Mill Mazdoor Sangh, Bombay, (1950)
L.L.J. 1247, was inapplicable to gold mining industries which
had special and distinguishing features of their own and that
the employers were entitled under the said covenant to deduct
15% of the revenue expenditure as a prior charge in calculating
the available surplus. It was their case that, th us calculated,
there was no available surplus out of which bonus could be
awarded. The Tribunal was not impressed by this argument,
disallowed the claim made on the basis of the covenant, applied
the formula, upheld the claim for depreciation but as there was
no evidence to show that any sums had actually been spent for
rehabilitation for the years in question, refused to make any
allowance on that head. It was further urged in appeal that
since the cmppanies were misled by previous awards passed
in their favour in not preferring any specific claim for rehabilitation, apart from the general claim under the covenant, they
should, in case their general claim was disallowed, be permitted
to do so :
•
Held, that the formula evolved by the Labour Appellate
Tribunal and generally approved by this Court and the categories
· of prior charges prescribed by it were comprehensive enough
to cover each individual case and there was no reason why it
should not apply to the gold mining industries as well.
Mill Owners Association, Bombay v. The Rashtriya Mill Maz-'
door Sangh, Bombay, (1950) L.L.J. 1247, discuss~d.
II4
May 22.
•
•
896
SUPR:mM:m COURT R:mPORTS
[1959]
z958
Muir Mills Co. Ltd., Kanpur v. Suti Mills Mazdoor Union,
The State of
Mysore
v.
The Workers of
Gold Mines
•
Kanpur, [r955] r S.C.R. 99r, referred to.
The covenant in the lease, apart from the question whether
it could bind the workmen, imposed no obligation on the
employees and could not preclude an investigation by the Tribunal as to the merits of each particular claim of expenditure in
order to ascertain the existence of any available surplus, and the
Tribunal was right in disallowing the claim made solely on the
basis of the covenant which could otherwise have been made
under the formula itself.
Held, further, that the concept of social and economic
justice on which the claim of bonus is founded apply equally to
gold mining industries as to any others and the formula, which
had for its purpose the ascertainment of the available surplus to
make an a\vard possible, O\.ved its origin to the san1e principles
of social and economic justice enshrined in the Directive
Principles of State Policy enunciated by Arts. 38 and 43 of the
Constitution.
•
It is for the Industrial Tribunal to determine in each particular case, on the evidence adduced by the employers and
having regard to the special requirements of the industry, which
items of expenditure should be admitted under each of the four
categories prescribed by the formula and in doing so they
should apply the principles laid down and discussed in decided
cases in a flexible manner suited to the requirements of each
case.
Ganesh Flour Mills Co. Ltd., Kanpur v. Ganesh Flour Mills
Staff Union, (r952) L.A.C. r72, Trichinopol)' Mills Ltd., Ramjeenagar v. National Cotton Mills Workers Union, Ramjeenagar,
(1953) L.A.C. 672, The Mee-nakshi Mills Ltd., Madurai and Manapparai v. Their Workmen, (r954) L.A.C. r3r, The Rohtas Sugar Ltd.
v. Their Workmen, (r954) L.A.C. r68 and The Metiltr Inditstries Ltd., Metti<r Dam v. The Workers, (1957) L.A.C. 288,
referred to.
As in the present case, the employers were misled by the
previous awards, it was only proper that they shou.ld be allowed
an opportunity to prove their claim for rehabilitation apart from
the general claim under the covenant.
CIVIL APP~LLATE JURISDICTION : Civil Appeal No.
648of1957.
Appeal by special leave from the judgment and
order dated November 24, 1956, of the Central Govt.
Industrial Tribunal, Madras, in Industrial Dispute
·No. 1 of 1956 .
JI. N. Sa'!"yal, Additional Solicitor-General of India,
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S.C~R.
SUPREME COURT REPORTS
897
R. Ganapathy Iyer, T. Rangaswami Iyengar and T. M.
Sen, for the appellant.
Janardan Sharma, for respondents Nos. 1, 2 and 6.
L. K. Jha, B. R. L. Iyengar and· C. V. Ramachar,
for respondents Nos. 3 and 5 .
1958. May 22.
The Judgment of the Court was
delivered by
The State of
Mysore
. v.
The Workers of
Gold Mines
GAJENDRAGADKAR J.-This is an appeal
withGajendragadkar J .
special leave by the State of Mysore against the
award passed by the Central Government Industrial
Tribunal, Madras, on November 24, 1956, in Industrial
Dispute No. 1 of 1956 between the employers in
relation to the Gold Mines of the Kolar Gold Fields,
Myso1·e, and their workmen. The employers were the
Champion Reef Gold Mines of India (KGF) Ltd.,
Mysore State, the Mysore Gold Mining Company
(KG]') Ltd., Mysore State and the Nundydroog Mines
(KGF) Ltd., and their allied establishments the Central
Administration, the Kolar Gold ]'ields Electricity
Department, the Kolar Gold ]'ield Hospital and the
Kolar Gold Field Watch and vVard establishment.
The dispute between these employers and
their
workmen arose from the claim made by the workmen
for bonus for the calendar years 1953 and 1954. The
Unions representing the workmen alleged that the
employers had sufficient available surplus in their
hands from which they could and should be awarded
bonus for the two years in question. The Union representing the workmen in Mysore Gold Mining Co. Ltd.,
demanded four months wages and five months wages
as bonus for the years 1953 and 1954 respectively.
The Union on behalf of the Nundydroog Mines
demanded four months total wages • as bonus for
1953 and 1954 whereas the workmen in Champion
Reef Gold Mines demanded four months
wages
as bonus for the said two years. Th.e management
opposed these demands on the ground that there was
no available surplus for both the years in all the
mines and so no bonus can be awarded. In'substance
the tribunal has rejected the case made out by the •
•
898
SUPREME COURT REPORTS
[1959)
I958
management and has passed an award in favour of
the workmen .. Taking into consideration all relevant
Tire Stale of
l h
M)''°"
factors the tribuna
as awarded as bonus wages at
v.
the rate of I! months in i953 and three months in 1954
The Wo•·kers of to the workers of Champion Reef Mines Ltd;
Gold Min.s
2t months in 1953 and 3t months in 1954 to the
. --
workers of the Nundydroog Mines Ltd; and one
Ga1endragadtwr J. month's in 1953 and three months in 1954 to the
workers of the Mysore Gold ·Mines Co. Ltd. In
regard to the workmen employed in the
allied
establishments, the tribunal has awarded as bonus one
month's wages in the year 1953 and two months basic
wages in the year 1954.
It was urged before the tribunal by the management that it would be inappropriate to apply the Full
Bench formula evolved by the Labour Appellate
Tribunal in the Mill Owners Association, Bombay v.
The llashtriya
~Mill Mazdoor Sangh, Bombay (1)
without suitable modifications to the case of the mines.
The argument was that, unlike the textile industry,
gold mining is a wasting industry, and the adjustment
of the rival claims of the employer and the employee,
even on the basis of social justice, cannot be properly
made by the rigid application of the said formula.
In the case of gold mines it is of considerable
importance that the industry should invest a large
amount in search of new ore and higher expenditure
has to be incurred even for renewal and replacement
of machinery. The tribunal accepted the argument
that the special requirements of the gold mining
industry would have to be considered in dealing with
the workmen's claim for bonus, but nevertheless it
was inclined to take the view that the principles laid
down by the Labour Appellate Tribunal in arriving at
the Fnll Bench formula should be adhered to.
The next argument which was raised before the
tribunal was based on sub-para. (5) in the lease deed
executed in favour of the management on :February 20,
1949. The case for the management was that the
managem.ent was entitled to deduct 15% of the
• revenue expenditure as a prior charge in calculating
(1) (1950) L •• L. J. h47.
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S.C.R.
SUPREME COURT REPORTS
899
the available surplus. It was urged that the relevant
I958
clause in the lease deed required the management to
The State of
create a
reserve fund to meet depreciation and
Mysore
development expenditure of a capital nature and to prov.
vide for the search of new ore and it was urgedthat The Workers of
the amount debited by the management in pursuance
Gold Mines
of this clause should be treated as a prior charge.<. . d-dk
1
'b
1
·
d b
h"
l
,a;en raga ar
.
The tn una was not impresse
y t is argument.
t
held that a. separate fund for finding out new ore
and keeping the longevity of the industry was
absolutely necessary but it was not satisfied that the
covenant in the lease on which reliance was placed
by the management could bind the workmen and that
the amount in question could be treated as a prior
charge. The tribunal also found that no evidence
had 1'een adduced before it that any part of the
amount thus debited had been in fact used for any of
the purposes mentioned in the covenant. According
to the tribunal there was also no evidence that, in
addition to the statutory depreciation any further
allowance should be made for rehabilitation reserve
and it held that it was not shown that any amount
had in fact been spent for rehabilitation in the two
relevant years. On these findings the amount of
Rs. 20·26 lakhs on which the management relied was
not allowed by the tribunal because, in its opinion, the
said amount was a mixture of very many items
depending upon the options exercised by the management under the terms of the joint operation schemes.
Another point of dispute between the parties was in
respect of the contribution made by the management
to the Pension Fund scheme. The management claimed credit both for the initial and the annual contribution made by it in the relevant years. .The tribunal
held that, having regard to the circumstances under
which the pension fund was introduced by the companies and having regard to the fact that it was
intended only for the benefit of the covenanted staff
of the companies, it would be inequitable to allow
either the initial or the annual contributionS' to take·
precedence over the workmen's claim for bonus.
Therefore, the claim by the management for deduction
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900
SUPREME COURT REPORTS
[1959]
;958
of both 1.he initial and annual contributions was
The State of
rejected. It was also urged by the management that
Myso•c
the amount representing the bonus paid to the workv.
men for the year 1950 should be deducted in 1953
The W01·km of since it was actually debited to the workmen in that
Gold Min"
year. The tribunal held that this claim was inc . d -dh
1 admissible.
Lastly, the tribunal disallowed the claim
aJen raga
ar
, made by the management for interest at a higher rate
than 2% on reserve employed as working capital
during the relevant years. Having thus rejected
, most of the contentions raised by the management,
the tribunal applied the Full Bench formula and came
to the conclusion that there was enough available
surplus in the hands of the management for the years
1953 and 1954 and so it made an award in favour of
the workmen for payment of bonus as alread:Y' indicated. It is this award which has given rise to the
present a.ppeal.
Before dealing with the merits Of tho appeal, it
would be relevant to state the material facts in regard
to the working of the Gold Mines which has ultimately
brought the State of Mysore as the appellant in the
present appeal before us. :E'our Public Joint Stock Companies incorporated in the United Kingdom were operating the Gold Mines of the Kolar Gold Fields by virtue
of leases of mining rights obtained by them from the
Government of Mysore.
These companies were the
Mysore Gold Mining Co. Ltd., the Champion Reef Gold
.Mines of India Ltd., the Oorgaum Gold Mining Co.
Ltd., and the Nundydroog Mines Ltd.
The terms and
conditions of the leases obtained by these companies
were the same. After the second world war broke
out, the value of gold increased and so the Mysore
legidature pJtssed an act called the Mysore Duty on
Gold Act, 1940 (Mys. XIX of 1940) imposing duty on
gQld produced in the mines. This duty was in addition to the royalty, rent, cesses and taxes payable
under the lease deeds executed on Ma.rch 25, 1935. It
appears that the gold mining companies represented
·that the· imposition of gold duties meant hardship for
•
them and that it did not leave sufficient funds from
which provision could be made for depreciation and
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· S.C.R.
SUPREME COURT REPORTS
901
development so necessary for the longevity of the
r95B
mines. As a result of the negotiations, the Act · The State of
of 1940 ·was repealed in 1946 and a fresh agreeMysore
ment made under which contribution was levied
v.
by the State of Mysore against the companies.
The Workers of
Under this agreement rupee companies
had to
Gold Mines
be formed in India to take over the undertakings G . d -dk
.
.
K
a;en raga
at ].
and assets m Mysore of the Sterlmg or U.
. companies and the seat of management had to be transferred from the United Kingdom to India.
In
pursuance of this agreement four rupee companies
corresponding to the four Sterling or U. K. companies
were formed in India. Their names were the Mysore
Gold Mining Co. (KGF) Ltd., the Champion Reef Gold
Mines of India (KGF) Ltd., the Oorgaum Gold Mines
(KGF) Ltd., and the Nundydroog. Mines (KGF) Ltd.
All the shares in the rupee companies were held by
the corresponding Sterling or U. K. companies. The
assets in Mysore of the Sterling companies were
transferred to the corresponding K. G. ]'. companies
and the mining operations were carried on by these
companies from April 1, 1951, by conforming to the
terms and conditions embodied in the agreements
(copies of which are Exs. 1 and 2).
The four gold mining companies had for the purposes of convenience and economy common establishments called Central Administration, Medical Establishment and the Electricity Department. There
was also a private limited company named Kolar
Mines Power Station (K. G. F.) Private Ltd., all the
shares of which were held by the said gold mining
companies. This was only an ancillary company and
its object was to maintain a stand-by emergency plant
for generating electricity in case of emergency and to
distribute electric power to the gold minilig companies.
The gold mining companies were managed by the
same managing agents by name John Taylor & Sons
(Private) Ltd.
The Oorgaum mine soon · became an uneconomic
unit because it had reached such depths that.owing to.
technical difficulties ore could no longer be taken out •
of them. This company, therefore,· cea~ed mining
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902
SUPREME COURT REPORTS
[1959]
operations in 1953 and transferred its leases with the
The state of
· concurrence of the Mysore Government to the ChamMysore
pion Reef Gold Mines of India (K. G. F.) Ltd. Since
v.
then Oorgaum company has gone into liquidation.
The Workm of That is how in the year 1954 there \YGl'C only three
Gold Milles
operating mining companies and their allied estaGajendragadkar ]. blishments.
In 1956 the Mysore State nationalised the gold
mining industry by an act called the Kolar Gold
Mine Undertakings (Acquisition) Act, 1956 (Mys.
XXII of 1956).
According to the provisions of this
Act and the notification issued thereunder, the undertakings of the gold mining companies vested in the
State from November 29, 1956. In consequence, the
Government became liable to pay the bonus awarded
by the Central Government
Industrial Tribunal,
Madras. That is how the State of Mysore felt aggrieved by the said award and has preferred the present
appeal by special leave tu this Court.
The first point which calls for our decision is
whether the tribunal was justified in applying the
principles underlying the Fnll Bench formula in
determining the existence or otherwise of the available suplus in the hands of the appellant during the
relevant years. In The Mill Owners Association,
Bombay v. The Rashtriya }Ifill .Jvlazdoor Sangh, Bombay('), the Labour Appellate Tribunal was called
upon to consider the workmen's claim for bonus .. The
appellate tribunal held that bonus was not an exgratia payment even where wages had been standardised nor was it a matter of deferred wages.
The
recognition of the workmen's claim for bonus rests on
the view, which is now well established, that both
labour and capital contribute to the earnings of the
industrial concern and that social justice requires
that workmen should be allowed a reasonable share in
the profits made by the industry. In determining the
qnantum of the profit to which workmen as a whole
can be held to be entitled, the Labom Appellate
:rribunal·evolved a formula under which the amount
• of the available surplus in the hands of the employer
(1) (i950) L.L.J.° 1247.
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S.C.R.
SUPREME COURT REPORTS
.903
can be determined.
This formula takes the figure of
r95B
the gross profits made by the industry for the
The State of
relevant year and makes provisions for depreciaMysore
tion, for reserves, for rehabilitation, for return at 6%
v.
on the paid-up capital, for a return on the working The Workers of
capital at a lesser1rate than the return on the paid-up
Gold Mine.s
capital and for the payment of income-tax. TheseG . a -dk
1
.
.
,
aJen ra.ga
ar
.
items are treated as pr10r charges and the amount
determined after deducting the aggregate tota.l of
these items from the gross profits is deemed to be the
available surplus for the relevant year. It is in this
available surplus thus deduced that labour is entitled to
claim a reasonable share by way of bonus. It would
thus be clear that under this formula the existence of
an available surplus is a condition precedent for the
award"of bonus to workmen. The formula also postulates that the claim for bonus is made by workmen
who are not paid what may properly be regarded as
living ·wages.
The payment of bonus is thus intended
to attempt to fill up the gap, to the extent that is
reasonably possible, qetween the wages actually paid
to the WOl'kmen and the living wages which they
legitimately hope in due course to secure. This formula has received the general approval. of this Court
in Muir Mills Co. Ltd., Kanpur v. Suti Mills Mazdoor
Union, Kanpur (1). It is conceded before us that since
1950 the basis supplied by this formula has been
adopted by industrial adjudication all over the country
in dealing with the workmen's claim for bonus in
different kinds of industries.
It is, however, urged by Mr. Sanyal, for the appellant, that the appellant's industry is a wasting industry and it needs special consideration. Search
for new ore which is essential for
th~ prosperity
and longevity of this industry is its special feature
and the interests of the
industry itself .require
that proper and adequate provision for prospecting new ore must be made before the workmen's
claim for bonus can be awarded. Similairly a larger
provision may have to be made for depreciation or·
(1) [1955) Is. c. R. 991.
rr5
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904
SUPREME COURT REPORTS
[1959]
r~58
rehabilitation because of the special needs of this industry. It may he conceded that this industry has
The Stale of
Mysore
some special needs of its own ; but it cannot he denied
v.
that the principles of social justice on which a cl:tim
The Workers of for bonus is founded apply as much to this industry
Gold Mines
as to others. Social and economic justice have been
-
given a place of pride in our Constitution and one of
Gajendragadhar ]. th d"
t•
·
· 1
f St t
l"
h · d ·
e
irec ive prmmp es o
a e po wy ens rme m
Art. 38 requires that the State shall strive to promote
the welfare of the people by securing and protecting
as effectively as it may a social order in which justice
social, economic and political shall inform all the
institutions of national life.
Besides, Art. 43 enunciates another directive principle by providing that
the State shall endeavour to secure, by suitable legislation or economic organization or in any other way, to
all workers, agricultural, industrial or otherwise, work,
•
a living wage, conditions of work ensuring a decent
<
standard of life and full enjoyment of leisure and
social and cultural opportunities.
The concept of
social and economic justice is a living concept of
revolutionary import ; it gives sustenance to the rule
of law and meaning and significance to the ideal of a
welfare state. It is on this concept of social justice
that the formula in question has been founded and
experience in the matter of industrial adjudication
shows that, on the whole, the formula has attained a
fair amount of success. It is true that in industrial adjudication purely technical and legalistic considerations
which are apt to lead to rigidity or inflexibility would
not always he appropriate; nor is it desirable to allow
purely theoretical or academie considerations unrelated
to facts to influence industrial adjudication. In its
attempt to qo social justice, industrial adjudication
has to adjust rival claims of the employer and his
workmen in a fair and just manner and this object
can best he achieved by dealing with each problem as
it arises on its own facts and circumstances. Experience has shown that the formula in question is, in its
· application, elastic enough to meet the requirements
•
of individual cases, and so we do not think that the
appellant ii.as inade out a case for any addition to the
•
S.C.R.
SUPREME COURT REPORTS
905
existing categories of prior charges. It is clear that
the amounts which can be admitted under the said
existing categories would have to be determined in the
The State of
Mysore
light of the evidence adduced by the employer and
v.
having regard to the special requirements of the emThe Workers of
ployer's industry. In the present case the special
Gold Mines
features
of the
appellant's
industry on
which
.
-
Mr. Sanyal relies would have to be taken into account Ga;endragadkar J.
in determining the amounts which could be included
either under depreciation or under rehabilitation.
That is the approach adopted by the tribunal in the
present case and we do not think that any complaint
can be validly made against it.
The next point which has been urged by Mr. Sanyal
relates to the claim made by the appellant for the deduction of°l5% of the revenue expenditure under a special
covenant of the lease. Let us first refer to the relevant
terms of the lease on which this argument is founded.
The original lease which was executed in 1935 had,
under para. 3, imposed upon the lessees an obligation
that they shall, during the term of the lease, in the
best and the most effectual manner and without intermission, except when prevented by unavoidable
accident, search for all gold metals, metallic ores, precious stones, coal and other substances of a saleable or
mercantilable nature within or upon the mining block.
The second schedule to the lease purported to define
the expression 'adjusted annual profits of the lessee'
on which the lessor's claim for royalty was based.
The adjusted annual profits of the lessee had to be
ascertained under this schedule by reference to the
published annual accounts of the lessees and meant
the difference in any year between the gross income
of the lessees from all sources and the gro&is amount of
the sums mentioned in paras. 1 to 6 of the schedule.
Para. 5 to the schedule referred to a sum equal to 15%
of the aggregate amount of the expenses mentioned in
para. 4 of this part of the schedule. Thus it appears
that amongst the items which the lessee was entitled
to deduct from the gross revenue for the pllrpose of·
determining his adjusted annual profits was included
the amount mentioned in para. 5. Subsequ~ntly by an
•
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906
SUPREME COURT REPORTS
[1959]
r958
agreement and deed of variation executed in 1949 the
deductions '"hich the lessee was entitled to make from
The. Stale of
Myso"
the gross profits for the purpose of determining his
v.
adjusted surplus were stated in a modified form. Tho
The Wo•km of adjusted profit was now called the net surplus and the
Gold Mines
procedure to be adopted to determine this net surplus
--
has been mentioned in para. 5 of this document.
Gajendrngad!U<r ]. Cl
( ) f
5 , th
t
, l J
'th h' I
ause v o para.
1s
e ma cna cause w1
w 1c i
we are concerned. Under this clause a sum up to 15%
of the aggregate amount of the expenses of the lessees
shown as debit items in their published revenue
account or Income and Expenditure account shall be
reserved for depreciation and development expenditure
of a capital nature such as search for new ore, purchase
of machinery, etc., and for renewals and replac,ements
and shall be credited to a separate fund, provided,
however, that the accumulated balance in the said
fund less commitments does not exceed 25% of
the expenses of the lessee shown as debit items in their
published revenue account or Income and Expenditure
account as the case may be for the first year on which
the 15% was calculated or of the last preceding year
whichever shall be greater. It is on this clause that
the appellant claims to treat the amount of 15% as a
prior charge in the present proceedings. The argument
is that this is a valid contract, between the lessor and
the lessee and the lessee is entitled to claim the benefit
of the contract and to treat the amount as a prior
charge.
In dealing with this point we do not think it is
necessary to decide the larger academic question
as to whether such a contract would bind the
workmen. The tribunal has held that since the relevant covenant has the effect of withdrawing from the
gross profits a substantial amount, workmen are entitled to contend that the contract does not bind them
and the amount should not be treated as a prior
charge. In our opinion it would be possible to deal
with this question in a different way. The appellant's
, · argume1it assumes that the lessee is under an obligation to create a, reserve fund and to contribute to it an
amount equal to 15% as mentioned in the clause. This
•
S.C.R.
SUPREME COURT REPORTS
907
assumption is not justified by the clause itself. It is
1958
significant that the clause does not impose on the
l
The State of
appellant an obligation to create a reserve fund at al .
Mysore
The only obligation which the lease has imposed on
v.
the appellant is that the appellant shall make a search The Workers of
for all gold and metallic ores during the continuance of
Gala Mines
the lease. If, for carrying out this search the appellant
. d
dk
d
h
b
. l d
Go;e11 raga
ar ].
actually spen s any amount
e may
e entit e
to
claim credit for that amount ; but neither the lease
nor its annexures impose any obligation on the appellant to spend a particular amount in that behalf or to
create a special fund earmarked for that purpose. The
lessor has merely allowed the appellant to create a
specific fund as indicated in the relevant clause and
the l~ssor has agreed to allow 'the appellant to deduct
the amount thus put in the sai& reserve fund from year
to year from the gross receipts for the purpose of determining the appellant's net surplus. In other words,
for deciding the amount of net surplus on which the
lessor's claims such as that for royalties or cont.ribntions
may be based, the appellant is allowed to make
certain specified deductions; amongst these is the 15%
mentioned in para. 5, cl. (v).
Besides, the 15% of the
aggregate amonnt mentioned in the clause is the maximum limit which the contribution to the special fund
in any year is allowed to reach under this clause.
Prima facie it appears to be doubtful if the appellant's
failure to create a reserve fund or to make a contribu.
tion to the said fund from year to year would necessarily incur forfeiture of his lease .. However, apart
from this consideration there is no obligation imposed
on the appellant under this clause and any argument
based on the alleged obligation cannot, therefore, be
accepted.
•
There is also another consideration which must be
borne in mind. The fund contemplated by the relevant
clause is intended to meet depreciation and development expenditure and it is clear that the depreciation
and rehabilitation are included in the ]'ull Bench
formula amongst the items of prior charge 1n dealing •
with workmen's claim for bonus. If the appellant wants
to make a claim for depreciation and rehabilitation
•
908
SUPREME COURT REPORTS
[1959]
'958
it would be open to him to make such a claim
even under the Full Bench formula.
Indeed its claim
The State of
Mysm
for depreciation has been upheld by the present award.
v.
The fact that items of depreciation and rehabilitation
The Workers of are included in this clause shows that even if the
Gold Mines
amounts claimed by the appellant solely on the
Gajendragadkar J. strength of this clause are not allowed, it would
nevertheless be open to the appellant to make a claim
in respect of admissible items independently of the
clause and if he succeeds in proving this claim
there could be no injustice to the appellant. In
our opinion it would not be reasonable or fair to
allow the appellant's specific claim for 15% by
way of rehabilitation solely on the ground that the
clause allows it to debit up to 15% in a special.fund
without examining the question as to whether a claim
for depreciation and rehabilitation is justified, and if
yes, what should be the amount which should be
treated as a prior charge in the present proceeding.
Inclusion of these items in a separate fund allowed
under the relevant clause cannot preclude an investigation by the industrial tribunal into the merits of the
said items and that is what the appellant Reeks to do
by placing his claim in that behalf solely on the
relevant clause. We are, therefore, satisfied that the
tribunal was not in error in disallowing the claim made
by the appellant solely on the strength of this particular clause.
As we have already pointed out the tribunal has in
fact conceded that the appellant would be justified in
making a claim for prospecting new ore and thereby
helping the longevity of its industry ; but since no
material was placed before the tribunal on which the
tribunal could.determine the amount which the appellant can legitimately claim in that behalf, the tribunal
was unable to give the appellant any relief in this
matter. In this connection Mr. Sanyal referred us to
the entries in the extracts from the balance-sheets
which referred to the captial expenditure during the
• relevant years on buildings, machinery and plant and
sundries as well (IS on shaft sinking, etc. In regard to
the Mysore 0old Mining Co., for instance, the capital
•
•
•
•
S.C.R.
SUPREME COURT REPORTS
909
expenditure in question during the year ending Decemz95B
her 31, 1953, was shown as Rs. 3,30,729 (Ex. VIII-A).
The State of
·But the difficulty in accepting this figure as a prior
Mysore
charge either under depreciation or under rehabilitation
v.
arises from the fact that Mr. Rajagopal Srinivasan The Workers of
who was examined on behalf of the appellant was unGold Mines
able to explain how this total amount was made up. G . d-dk . .
The witness expressly admitted that the companies aJen raga
dr f.
•
had no record to show separately the amounts under
different heads. Mr. Sanyal fairly conceded that the
companies might have led better evidence in support
of their case.
As the evidence stands, however, it is
difficult to challenge the correctness of the view taken
by the tribunal that the amounts shown in the different extracts from the balance-sheets are a mixture of
very i:nany items depending upon the options exercised
by the management and that it would be impossible
to say which part of the said amounts can be legitimately treated as prior charge under the heading of
rehabilitation. That is why we do not think that
Mr. Sanyal can succeed in his argument that, on the
evidence as it stands, the appellant is entitled to any
particular amount under the heading of rehabilitation.
That takes us to the appellant's case in regard to
the annual contribution towards the pension fund
which has been disallowed by the tribunal. It appears
that the scheme of pension fund which was intended
for the benefit of the covenanted servants -of the sterling companies came into operation as from January 1,
1951, soon after the· rupee companies came into
existence. Certain rules appear to have been framed
in respect of this pension fund and a trust has apparently been created for the administration of the
fund.
Under these rules the companies.made the contribution which is called the initial contribution to the
fund as specified in para. l(c) of the rules. In addition
to this initial contribution, the companies had to pay
to the fund by half-yearly instalments on June 30 and
December 31 of each year an ordinary annual contribution at the rate specified in para. 6.
The'appellant •
makes a claim for the deduction of this annual contri·
bution as' a prior charge and his grie-iance is that this
•
910
SUPREME COURT REPORTS
[1959]
claim has been unreasonably disallowed by the tribuThe state of
nal. In regard to this fund the tribunal has made
Mysor<
certain findings of fact which cannot be challenged
v.
before us.
The tribunal has relied on the circumThe Woekm of stances under which this fond came into existence.
Gold~nes
Mr. Jha, for the respondents, has characterised this
Gajendeagadhae J. fund as a parting gift of tho Sterling companies to
their covenanted servants and it would appear as if the
tribunal was inclined to take a similar view about the
genesis of this fund.
The class of persons for whose
benefit this fund has been created consists of a very
small number of officers. It does not appear from the
record that these persons claimed this benefit or that
granting this benefit was otherwise necessary for the
successful operation of the affairs of the companies.
The officers who got the benefit of this fund were entitled to gratuity and during all the years of their
existence the Sterling companies had never thought
before of creating such a fund.
A claim for the initial
contribution to this fund has not been made before us;
but even in regard to the annual contribution the
tribunal was not satisfied that the amount was reason- ·
able and that the payment of this amount was otherwise
justified on the merits. As against these facts the
tribnnal referred to the cases of a larger number of
non-covenanted servants of the companies and other
employees for whom no such fund exists. Having
regard to all these circumstances the tribunal held
that it would not be fair or just to allow the appellant
to claim that the annual contribution to the pension
fund in question should be treated as a prior charge,
a.nd thereby reduce the gross profits which would
adversely affect the respondents' cla.im for bonus. In
our opinion, ivhether or not this particular a.mount
i,;hould be allowed as claimed by the appellant does
not raise any general question of law and the reasonableness of the claim has, therefore, to be judged in
the light of all relevant facts and circumstances. As
the tribunal has found against the appellant on this
point we do not think we would be justified in interfer-
• ing with the decision of the tribunal.
The neid; contention raised by Mr. Sanyal is iu,
..
•
S.C.R.
SUPREME COURT REPORTS
!HI
respect of the finding made by the tribunal in regard
r958
to the amount of bonus paid by the companies to their
k
£
h
Th
1
The State of
wor men or t e year 1950.
e emp oyer's case was
Mysore
that though this bonus had accrued for the year 1950
v.
it was actually paid in 1953 and so the amount of the The Workers of
bonus should be deducted from the gross profits for
Gold Mines
1953. This contention has been rejected by the tribu-
-
nal. The tribunal has observed that though the dis- Gajendragadkar J.
bursement of bonus for the year was actually made in
the early part of 1953 the amount was provided and debited in 1952. This can be seen from the income-tax assessment order to which the tribunal has referred. The
employer had claimed as an expenditure the amount
in respect of bonus relating to 1950 in the said incometax proceeding and so it was held that the said amount
eann(}t now be taken into consideration for the year
1953. We do not see any error of law .committed by
the tribunal in recording this finding. It is clear that
the respondents were found entitled to bonus for the
year 1950, because the companies held in their hands
sufficient available surplus from the trading profits of
that year. In the absence of satisfactory evidence,
normally the bonus paid to the respondents for the
year 1950 cannot be brought into accounting for a
subsequent year. We are, therefore, satisfied that the
appellant cannot successfully challenge the tribunal's
finding on this question.
It will now be material to refer to the two previous
awards between the companies and their workmen
because Mr. Sanyal has based an argument on these
awards and that argument yet remains to be examined. On January 5, 1953, Mr. V. N. Dikshitulu,
the sole member of the industrial tribunal made his
award in an industrial dispute between the Champion
Reef Gold Mines of India Ltd., and its ~orkmen. By
this award the tribunal held that the claim made by
the employer on the strength of the clause permitting
the creation of a reserve fund and an annual contribution to it up to 15% " cannot but be allowed
because niining operations can be performed only .
subject to the condition of making the said item of •
u6
•
912
SUPREME COURT REPORTS
[1959]
z95B
reserve as per the agreement and hence it. stands to
reason tha.t the reserve should be deducted from the
The State of
Mysore
gross profits to ascertain the available surplus". It is
v.
clear from the a ward that the tribunal did not con.
The Work"' of sider the effect of the terms contained in the clause
Gold Mines
after construing the relevant clauses and we see no
G . d --d
discussion about the merits of the rival contentions in
•J•n raga kar J. respect of this claim.
Apparently, the tribunal accepted the employer's case at its face value and
granted the relief to the employer without considering
all the relevant clauses of the lease and its annexures
and without examining the merits of the workmen's
case on the point. The next award was passed by
Mr. Dave on December 31, 1954, in Reference Nos. 6
and 7 of 1954. These two references arose from dis.-
putes between the 06rgaum Gold Mines and the
Champion Reef Gold Mines and their workmen. By
this award Mr.