Full Judgment Text
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PETITIONER:
THE NEW MANECK CHOWK SPINNING AND WEAVING CO., LTD.,
Vs.
RESPONDENT:
THE TEXTILE LABOUR ASSOCIATION,AHMEDABAD
DATE OF JUDGMENT:
07/12/1960
BENCH:
WANCHOO, K.N.
BENCH:
WANCHOO, K.N.
GAJENDRAGADKAR, P.B.
SARKAR, A.K.
SUBBARAO, K.
MUDHOLKAR, J.R.
CITATION:
1961 AIR 867 1961 SCR (3) 1
CITATOR INFO :
R 1961 SC 977 (7)
RF 1967 SC 691 (22,64)
R 1967 SC1450 (5)
RF 1972 SC1234 (19)
RF 1972 SC1436 (12)
RF 1972 SC2148 (22)
RF 1986 SC1486 (5)
ACT:
Industrial Dispute-Profit bonus-Agreement between Labour and
Mill-owners-Full Bench Formula, whether contravened by
Agreement-Tribunal’s competence to extend Agreement.
HEADNOTE:
The respondent, the Textile Labour Association at Ahmedabad,
entered into a five years pact with the Ahmedabad Mill-
Owners’ Association, representing the member mills, in
regard to payment of bonus to the employees of the mills for
the years 1953-57. The Labour Union demanded bonus for the
year 1958 on the basis of the pact, but the mill-owners
claimed that the pact was contrary to the formula evolved by
the Full Bench in Mill Owners’ Association, Bombay v. The
Rashtriya Mill Mazdoor Sangh, Bombay, [1950] 2 L.L.J. 247,
which was approved by the Supreme Court in The Associated
Cement Companies Ltd. v. Its Workmen, [1959] S.C.R. 925,
inasmuch as (1) rehabilitation provided in the Agreement
differed vitally from rehabilitation as explained in that
decision, (2) the Agreement provided for payment of a
minimum bonus even though there may be no available surplus
and even though the particular mill might have made actual
loss, and (3) while the Full Bench Formula, as approved by
the Supreme Court treated a particular year as a self-
sufficient unit, there was provision for set-off and set-on
in the Agreement. The Industrial Tribunal to which the
dispute was referred in the. form of sixty-six references,
one relating to each mill, took the view that the pact did
not in any way run counter to the law laid down by the
Supreme Court, and that the extension of the agreement for
one more year would help in promoting peace in the industry
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in Ahmedabad.
Held (Subba Rao, J.-dissenting) that the Agreement in
question departed from the Full Bench Formula in the matter
of bonus, in certain vital aspects and that the Tribunal
when it extended the Agreement for the year 1958 was
ignoring the law as laid down by the Supreme Court as, to
what profit, bonus,was and how it should be worked out.
2
The Tribunal had no power by extending the Agreement to make
it possible for payment of a minimum bonus for the year 1958
even when there was either insufficient available surplus to
pay bonus or no available surplus at all or even actual
loss.
The jurisdiction of the Tribunal was limited by its terms of
reference, which was not on industry-cum-region basis, but
one for each mill to consider the question of bonus for each
mill for the year 1958 and, consequently, it had no
jurisdiction to apply the principle of set-off and set-on to
be found in the Agreement in respect of payment of bonus or
take into account the profits of the industry as a whole in
Ahmedabad.
Per Gajendragadkar, Sarkar, Wanchoo and Mudholkar, JJ.It is
open to an industrial court in an appropriate case to impose
new obligations on the parties before it or modify contracts
in the interest of industrial peace or give awards which may
have the effect of extending Agreement or making new one,
but this power is conditioned by the subject matter with
which it is dealing and also by the existing industrial law
and it would,not be open to it while dealing with a
particular matter before it to overlook the industrial law
relating to that matter as laid down by the legislature or
by the Supreme Court.
Western India Automobile Association v. Industrial Tribunal,
Bombay, [1949] F.C.R. 321, Rohtas Industries Limited v.
Brijnandan Pandey, [1956] S.C.R. 800 and Patna Electricity
Supply Co.v. Patna Electric Supply Workers’ Union, [1959]
SUPP. 2 S.C.R. 761, relied on.
Per Subba Rao, J.-(1) The impugned five years pact was not
contrary to industrial law as laid down by the Supreme
Court. (2) The pact also did not infringe the principle that
bonus depends upon profits; but it applied the same by
evolving a formula of set-off and set-on to a complicated
situation of the entire industry in a particular area for a
number of years. (3) The Full Bench Formula in regard to
rehabilitation was not contravened by the pact. The
decisions of the Supreme Court did not preclude employers
and employees from agreeing to a particular valuation of the
block having regard to the circumstances obtaining at the
time of the agreement. (4) Neither the Full Bench Formula
nor the decisions of the Supreme Court affirming it
precluded the Tribunal from extending the terms of the pact
by another year if that was necessary to maintain industrial
peace.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 351-356 and
358-369 of 1960.
Appeals by special leave from the Award Part 1 of the
Industrial Court, Bombay, in References IC Nos. 261, 297,
238, 241, 248, 263, 266, 271, 301, 302, 257, 237 296: 299,
300, 283 and 284 of 1959.
3
N. A. Palkhivala, I. M. Nanavati, S. N. Andley J. B.
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Dadachanji, Rameshwar Nath and P. L. Vohra, for the
appellants in C. A. No. 351 of 1960.
N. A. Palkhivala, J. B. Mehta, S. N. Andley, J. B.
Dadachanji, Rameshwar Nath and P. L. Vohra, for the
appellant; in C.As. Nos. 352 and 358 of 1960.
R. J. Kolah, J. B. Mehta, S. N. Andley, J. B. Dadachanji,
Rameshwar Nath and P. L. Vohra, for the appellants in C.As.
Nos. 353 and 362 of 1960.
I. M. Nanavati, S. N. Andley, J. B. Dadachanji, Rameshwar
Nath and P. L. Vohra, for the appellants in C. As. Nos.
354, 356, 363-365, 367 and 369 of 1960.
J. B. Mehta, S. N. Andley, J. B. Dadachanji, Rameshwar
Nath and P. L. Vohra, for the appellants in C. As. Nos.
355, 359-361, 366 and 368 of 1960.
S. R. Vasavada, for the respondent in C. As. Nos. 351, 352,
355, 358, 360-364, and 368 of 1960.
N. H. Shaikh, for the respondent in C. As. Nos. 353
and 365 of 1960.
N. M. Barot, for the respondent in C. As. Nos. 354, 359
and 367 of 1960.
K. L. Hathi, for the respondent in C. As. Nos. 366 and
369 of 1960.
1960. December 7. The Judgment of Gajendragadkar, Sarkar,
Wanchoo and Mudholkar, JJ. was delivered by Wanchoo, J.
Subba Rao, J. delivered a separate Judgment.
WANCHOO, J.-These eighteen appeals by’ special leave raise a
common question and will be dealt with by this judgment.
The appellants are certain cotton textile mills in Ahmedabad
while the respondent in each appeal is the Textile Labour
Association, Ahmedabad, which is a representative union of
the cotton textile workers in Ahmedabad. The total number
of cotton textile mills in Ahmedabad is 66; therefore, 66
references under s. 73-A of the Bombay Industrial Relations
Act, No. XI of 1947 (hereinafter called the Act), were made
to the industrial court for arbitration of disputes arising
out of notices of change
4
given by the respondent making a demand for bonus for
employees of textile mills in Ahmedabad. It appears that
there was an agreement between the Textile Labour
Association and the Ahmedabad Mill-owners’ Association
representing the member-mills on June 27, 1955 (hereinafter
referred to as the Agreement), with respect to payment of
bonus by the mills to their employees. The Agreement was to
remain in force for a period of five years, beginning with
January 1, 1953, and ending with December 31, 1957, and
related to bonus for the five calendar years from 1953 to
1957 (both inclusive). When the Agreement came to an end
disputes arose about bonus for the year 1958. The Agreement
was not extended and a notice of change under s. 42 of the
Act was given by the Textile Labour Association to the
Ahmedabad Mill-owners’ Association on July 21, 1959,
claiming that all the employees employed during the year
1958 in the member-mills be paid an adequate amount of bonus
having regard to the volume of profits, if any, or some
bonus irrespective of profits to fill the gap between the
existing wage and the living wage so as to avoid unrest
among the employees. It further appears that notice in the
same terms was given to individual mills about the same
time. As no agreement was arrived at between the parties,
66 references with respect to the sixty-six mills were made
to the industrial court as already mentioned above. The
industrial court considered all the sixty-six references
together and came to the conclusion that the Agreement of
1955 had worked fairly to both sides and was substantially
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in accord with the long-standing practice in the industry in
Ahmedabad even before the Agreement and that its extension
for one year was essential for keeping industrial peace. It
therefore ordered the extension of the Agreement for the
year 1958 and directed the parties to file within six weeks
from the date of the award calculations of bonus payable for
the year 1958 in the light of the decision and thereafter
the court would proceed to award appropriate bonus in the
case of each individual mill. Thereupon there were fifty-
two applications for special leave to
5
appeal to this Court in which special leave was granted.
Thirty-four of the appeals arising out of the special leave
petitions have been withdrawn and only eighteen now remain
for decision. It appears that the remaining fourteen mills
accepted the decision of the industrial court, so that now
forty-eight mills are out of the picture and only eighteen
are before the Court.
The main contention of the appellants before the industrial
court was that in view of the law laid down as to bonus by
this Court in the Associated Cement Companies Ltd. v. The
Workmen (1), it was not open to it to extend the Agreement
for the year 1958 as that would be against the concept of
bonus as understood in industrial law. The same point is
being urged before us and the question that falls for
decision is whether the industrial court was right in law in
extending the Agreement for another year.
In order to appreciate the dispute between the parties with
respect to the extension of the Agreement we may refer to
the salient terms of the Agreement. Before we do so, we may
mention that the Agreement was "without renouncing the
general principles enunciated in decisions and awards of the
arbitration boards, the industrial court, the Labour
Appellate Tribunal and the Supreme Court in respect of bonus
or the rights and privileges created thereunder". It was
entered into only with a view to creating goodwill among
workers and for the purpose of maintaining peace in the
industry and without creating a precedent for the future.
The Agreement in the first place provided that the claim of
the employees for bonus would only arise if there is an
available surplus of profit after making provision for all
the prior charges. These prior charges were: (i) statutory
depreciation and the development rebate; (ii) taxes; (iii)
reserve for rehabilitation, replacement and modernisation of
block as calculated by the industrial court (basic year
1947); (iv) six per centum return on paid-up capital
including bonus shares; and (v) two per cent. return on
reserves employed as working capital. After the available
surplus was determined thus, a mill
(1) [1959] S.C.R. 925.
6
having an available surplus of profit had to pay to its
employees bonus which would in no case be less than an
amount equivalent to 4.8% of basic wages earned during the
year; nor was it to exceed an amount equivalent to 25% of
the basic wages earned during the year. It was also
provided that in case the available surplus was more than
sufficient for granting bonus at a higher figure than the
ceiling of twenty five per centum of basic wages earned
during the year and the maximum bonus of 25 per centum was
paid, such a mill would be deemed to have set aside a part
of the residue of available surplus after grant of maximum
bonus not exceeding 25 per cent. of the basic wages earned
during the year as a reserve for bonus for purposes of "set
on" (adjustment) in subsequent years. Secondly it was
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provided that where in the case of a mill, the available
surplus was not more than the ceiling of 25 per cent. of
basic wages fixed for bonus, the bonus would be fixed after
deducting at least Rs. 10,000 from the available surplus.
Further it was provided that if a mill had an available
surplus of profits which would suffice to pay bonus at a
rate lower than the minimum of 4.8 per cent. it would pay
the minimum and would be entitled to set off the excess
amount thus paid against the available surplus in a
subsequent year or years and there were provisions how this
set-off would be worked out. Lastly it was provided that if
the profits of a mill were not sufficient to provide for all
prior charges as mentioned above, though it had made
profits, or where the mill had actually suffered a loss,
such a mill would a& a special case for creating goodwill
among its workers and for continuing peace in the industry
but without creating a precedent pay to its employees the
minimum bonus equivalent to 4.8 per cent. of the basic wages
but would be entitled to set off this amount towards any
available surplus in any subsequent years, subject, however,
always to a payment of a minimum bonus at the rate of 4.8
per cent. of basic wages earned during the year.
It has been contended on behalf of the appellants that the
formula under the Agreement departs in
7
some vital aspects from what is known as the Full Bench
formula evolved by the Labour Appellate Tribunal in The
Mill-owners’ Association, Bombay v. The Bashtriya Mill
Mazdoor Sangh (1), which has been approved by this Court in
the Associated Cement Companies’ case (2) and is thus the
law of the land so far as bonus is concerned. It is urged
therefore that inasmuch as the formula under the Agreement
departs from the Full-Bench formula which is now the law of
the land, it was not open to the industrial court to extend
the Agreement in the face of the decision of this Court in
Associated Cement Companies’ case(1) and in so far as the
industrial court has done so it has gone against the law
relating to bonus and therefore the award should be set
aside.
Two questions immediately arise in this connection: the
first relates to the jurisdiction of the industrial court to
impose new obligations upon the parties and the second is
whether if the industrial court has jurisdiction to impose
new obligations it could do so in a matter of this kind
considering the concept of bonus as laid down by the
decisions of this Court.
So far as the first question is concerned (namely, the
general power of an industrial court to impose new
obligations upon the parties), the matter is now well-
settled by the decisions of the Federal Court and also of
this Court. It was held by the Federal Court in Western
India Automobile Association v. Industrial Tribunal, Bombay
and Others (3) that-
" adjudication does not in our opinion mean
adjudication according to the strict law of
master and servant. The award of the tribunal
may contain provisions for settlement of a
dispute which no court could order if it was
bound by ordinary law, but the tribunal is not
fettered in any way by these limitations."
The Federal Court also approved the view of
Ludwig Teller that-
"industrial arbitration may involve the
extension of an agreement or the making of a
new one, or in
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(1) [1950] 2 L.L.J. 1247. (2) [1959]
S.C.R. 925.
(3) [1949] F.C.R. 321.
8
general the creation of new obligations or
modification of old ones while commercial
arbitration generally concerns itself with
interpretation of existing obligations and
disputes relating to existing agreements (see
p. 345)."
This Court also in Rohtas Industries Ltd. v.
Brijnandan Pandey (1) held that-
" a court of law proceeds on the footing that
no power exists in the courts to make
contracts for the people; and the parties must
make their own contracts. The Courts reach
their limit of power when they enforce
contracts which the parties have made. An
industrial tribunal is not so fettered and may
create new obligations or modify contracts in
the interests of industrial peace, to protect
legitimate trade union activities and to
prevent unfair practice and/or victimisation
(see p. 810)."
In Patna Electric Supply Co. v. Patna Electric
Supply Workers’ Union (2), this Court held
that-
"there is no doubt that in appropriate cases
industrial adjudication may impose new
obligations on the employer in the interest of
social justice and with the object of securing
peace and harmony between the employer and his
workmen and full cooperation between them (see
p. 1038)."
and approved of the decision of the Federal Court in Western
India Automobile Association’s case (3). There is no doubt
therefore that it is open to an industrial court in an
appropriate case to impose new obligations on the parties
before it or modify contracts in the interest of industrial
peace or give awards which may have the effect of extending
existing agreement or making a new one. This, however, does
not mean than an industrial court can do anything and every-
thing when dealing with an industrial dispute. This power
is conditioned by the subject-matter with which it is
dealing and also by the existing industrial law and it would
not be open to it while dealing with a particular matter
before it to overlook the industrial
(1) [1956] S.C.R. 800. (2) [1959] SUPP. 2 S.C.R. 761.
(3) [1949] F.C.R. 32.
9
law relating to that matter as laid down by the legislature
or by this Court.
This brings us to the second question, which is the real
question in dispute in this case, namely, when dealing with
a bonus case, like the present, was it open to the
industrial court to overlook the law laid 7 down by this
Court in Associated Cement Companies’ case (1) and make an
award extending the Agreement for a further period of one
year?
In order to determine this question, we have to look at the
concept of bonus as evolved in the industrial law of this
country by industrial tribunals and now by the decision of
this Court. So far as we can see, there are four types of
bonus which have been evolved under the industrial law as
laid down by this Court. Firstly, there is what is called a
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production bonus or incentive wage (see Titaghur Paper Mills
V. Its Workmen (2) ); the second is bonus as an implied term
of contract between the parties (see Messrs. Ispahani Ltd.
v. Ispahani Employees’ Union (3)); the third is customary
bonus in connection with some festival (see The Graham
Trading Co. v. Its Workmen (4)) and the fourth is profit
bonus which was evolved by the Labour Appellate Tribunal in
The Mill-owners’ Association Bombay v. The Rashtriya Mill
Mazdoor Sangh, Bombay (5), and which has been considered by
this Court fully in two cases. We are in the present case
dealing with bonus of the fourth kind, namely, profit bonus
and what we say subsequently refers only to this kind of
bonus.
What is the concept of profit bonus with which we are
concerned in this case, for it is this concept which will
determine whether it was open to the industrial court in
this case to extend the Agreement for 1958? In Muir Mills
Co. Ltd. v. Suti Mills Mazdoor Union (6), this Court pointed
out that-
"There are two conditions, which have to be
satisfied before a demand for bonus can be
justified and
(1) [1959] S.C.R. 925.(2) [1959] SUPP. 2
S.C.R. 1012.
(3) [1960] 1 S.C.R. 24.(4) [1960] 1 S.C.R.
107.
(5) [1950] 2 L.L.J. 1247.(6) [1955] 1 S.C.R.
991.
2
10
they are: (1) when wages fall short of the
living standard, and (2) industry makes huge
profits part of which are due to the
contribution which the workmen make in
increasing production. The demand for bonus
becomes an industrial claim............
The basis for the claim is that labour and
capital both contribute to the earning of the
industrial concern and it is fair that labour
should’ derive some benefit, if there is a
surplus after meeting prior or necessary
charges............... The surplus that
remained after meeting the aforesaid prior
charges would be available for distribution as
bonus."
The matter was again considered by this Court in the
Associated Cement Companies’ case (1) where the Full Bench
formula evolved by the Labour Appellate Tribunal was gone
into at length. The workmen contended in that case that the
formula required revision as the employers were becoming
increasingly more rehabilitation-conscious and their
appetite for the provision for rehabilitation was fast
growing with the result that in most cases, after allowing
for rehabilitation, there was no surplus left for the
purpose of bonus and the main object of the formula was thus
frustrated. It was further contended for the workmen that
the whole of rehabilitation expenses should not be provided
for out of trading profits and that the claim for
rehabilitation should be fixed at a reasonable amount and
the industry should be required to find the balance from
other sources. It was there held that"though there may be
some force in the plea made for the revision of the Full
Bench formula, the problem raised by the said plea is of
such a character that it can appropriately be considered
only by a high-powered commission and not by this Court,
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while hearing the present group of appeals."This Court also
held that-
"the Full Bench formula had on the whole work-
ed fairly satisfactorily in a large number of
industries all over the country, and the claim
for bonus should be decided by the Tribunals
on the basis of this formula without
attempting to revise it. The
(1) [1959] S.C.R. 925.
11
formula was elastic enough to meet reasonably
the claims of the industry and labour for
fair-play and justice............ It was based
on two considerations: first, that labour was
entitled to claim a share in the trading
profits of the industry, because it had parti-
ally contributed to the same; and second, that
labour was entitled to claim that the gap
between its actual wage and the living wage
should within reasonable limits be filled up."
The Full Bench formula provided for arriving at the
available surplus after meeting prior charges, namely, (i)
depreciation, (ii) taxes, (iii) return on paid-up capital,
(iv) return on working capital and (v) rehabilitation. The
formula further dealt with the claim for bonus on the basis
that the relevant year is a selfsufficient unit and
appropriate accounts have to be made in respect of the said
year. Finally, it was pointed out that it was only after
all the prior charges had thus been determined and deducted
from the gross profits that the available surplus could be
ascertained for payment of bonus, and that when the
available surplus had been ascertained, there were three
parties entitled to claim shares therein, namely, (i)
labour’s claim for bonus, (ii) industry’s claim for the
purpose of expansion and other needs, and (iii) the
shareholders’ claim for additional return on the capital
invested by them; the ratio of distribution would neces-
sarily depend on several factors. It would thus be clear
that the essential concept of profit bonus is that there
should be an available surplus determined according to the
principles laid down in the cases mentioned above for
distribution. If there is no such available surplus for
distribution, there can be no case for payment of profit
bonus. This is the industrial law as laid down by this
Court with respect to this kind of bonus in Associated
Cement Companies’ case (1). It would in our opinion be not
open to an industrial court or tribunal to ignore this law
as to bonus and to extend an agreement for payment of bonus,
which is against the basic concept of bonus as laid down by
the decisions of this Court on the ground that an
(1) [1959] S.C.R. 925.
12
industrial court has power generally to extend agreements or
to create new obligations. As already pointed out, that
power has to be exercised keeping in view the subject-matter
before the tribunal and the law laid down by the legislature
or by the decisions of this Court, with respect to that
subject-matter. The industrial court in this case was not
unaware of this position, viz., that it *as departing from
the law laid down in the Associated Cement Companies’ case
(1) and other bonus cases; but it held that this Court was
dealing in those cases with individual units, and not with a
case where there were numerous concerns in an industry at
one centre, with its particular historical back-ground,
where previous awards had been on an industry-wise basis.
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It therefore held that the decisions of this Court could not
apply in their entirety to the dispute before it and that
this Court could not have intended that in a case where
there was the additional circumstance that the parties had
themselves voluntarily modified the bonus formula in some
respects by a long term agreement, that could not be
extended by an industrial court. It is the correctness of
this view which has been strongly disputed before us by the
appellants.
Before deal with this matter, we should like to point out
that the fact that there are numerous concerns in a
particular place can have no relevance in considering the
question whether the Full Bench formula can apply to cases
like the present. Even though this Court was dealing with
the case of one concern, namely, the Associated Cement
Companies, it pointed out that the Full Bench formula had
worked fairly satisfactorily all over the country and should
continue to be applied without revision till such time as a
high-powered commission went into the question. There is in
our opinion no question of industry-cum-region approach in
the matter of a bonus dispute of this kind. There is no
doubt that in many matters, like wages, conditions of
service, over-time allowance, dearness allowance, gratuity,
and so on, industry- cum-region approach has been made by
industrial courts
(1) [1959] S.C.R. 925.
13
in this country and, rightly so. But there is, in our
opinion, no scope for an approach of this kind in the case
of bonus, the basic concept of which is that payment depends
on surplus of profits available according to some formula in
the case of each industrial concern. Nor can it be said
that the Agreement in this case is dealing with bonus in
what is known as industry-cumregion basis. Its salient
terms as set out above will show that it deals with bonus
according to available surplus of each mill, so that bonus
paid by each mill depends on its own available surplus and
the sixty-six mills situate in Ahmedabad may pay different
amounts of bonus varying from a minimum of 4-8 per cent. of
the basic wages to 25 per cent. of the basic wages. Similar
differences will arise if the Full Bench formula is applied
to the sixty-six mills in Ahmedabad. Thus the Agreement
which has been extended, is not based on industry-cum-region
approach, as it is understood. That approach, say, with
respect to wages means that wages of all concerns situate in
a particular area engaged in a particular industry should be
the same. On that approach the bonus of all these sixty-six
mills should also be the same percentage for each mill in
that area; but that is not the basis on which the Agreement
was arrived at. The basis of the Agreement is that each
individual mill is treated as a separate unit and its
available surplus worked out according to the formula in the
Agreement itself. This is also the basis of the Full Bench
formula and the available surplus of each unit is worked out
according to that formula, though the result of the
application of the two formulae in each case may not be the
same. There is in our opinion therefore no justification
for the view that the Full Bench formula approved by this
Court in the Associated Cement Companies’ case (1) can have
no application where there are numerous concerns of one
nature at one centre. Some bonus awards were brought to our
notice to show that they were on industry-cum-region basis,
namely, The Sugar Mills of Bihar v. Their Workmen (2) and
The Sugar Mills, Uttar Pradesh v.
(1) [1959] S.C.R. 925.
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(2) [1951] I. L. L. J. 469.
14
Their Workmen(1). These awards related to sugar industry in
Uttar Pradesh and in Bihar. As we read these decisions, we
do not find real industry-cumregion approach which would
result in uniform bonus for all the mills dealt with by
these two awards. What we find is that a different formula
was worked out for awarding profit bonus linked with
production on the basis that there were profits; but when
the formula is worked for each mill the bonus would differ
from mill to mill according to its production. Further, we
find that in the Uttar Pradesh case there were certain
exemptions granted to certain factories, presumably on the
ground that they were not in a position to pay bonus for
want of sufficient profits. It is true that in the Bihar
case it was said that the question of bonus could be
considered on industry-wise and not on unit wise basis, but
that only meant that one formula was evolved for the whole
of Bihar and applied to every mill in that area. That is
what exactly the Full Bench formula also has done, for it is
the same formula which applies to all industrial concerns
all over the country now after the decision of this Court.
In the Bihar case, an argument was addressed to apply the
Full Bench formula, but that was not accepted on the ground
that balance sheets and profit and loss accounts were not
reliable and therefore bonus was linked with production. In
the Bihar case also some factories were exempted from paying
bonus presumably on the ground that they were unable to do
so not having made profits. These cases therefore are not
instances of real industry-cum-region approach. Reference
was also made to The, Textile Mills in Coimbatore District
v. Their Workmen (2) relating to Coimbatore textile mills.
In that case the industrial court considered whether bonus
at a flat rate for all the mills should be awarded or
whether a distinction should be made between mills and
mills. It held that the mills themselves when they paid
bonus observed or maintained no distinction; therefore in
the peculiar circumstances of that case a uniform rate of
33-1/3 per cent. was awarded for all the mills as specially
all the mills had
(1) [1952] 1 L. L. J. 615.
(2) [1950] 2 L. L. J. 203.
15
without exception ’made unique profits. As we have said
already the basic concept of profit bonus, as it appears
from the judgments of this Court, is that there should be an
available surplus of profits in a particular concern in a
particular year, to which the bonus relates and on this
basic concept there is no scope for an approach on the basis
of industry-cum-region in the matter of bonus in the sense
that every mill in a region should pay the same bonus.
There is therefore no question of industry- cum-region
approach in the present case, and even the formula in the
Agreement is not on a real industry-cum-region approach and
has to be worked out from mill to mill, which is like the
Full Bench formula. The reasons therefore which led the
industrial court in this case to distinguish and depart from
the decision of this Court in The Associated Cement
Companies’ case (1) do not appear to us to be substantial
and there was therefore no ground for departing from that
decision for those reasons.
This brings us to a consideration of the formula as provided
in the Agreement and the Full Bench formula as approved by
this Court. It was urged on behalf of the respondent that
the two formulae were basically the same; both provided for
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prior charges and in both bonus was to be paid on the
availability of surplus profits, though it was admitted that
in certain respects there were differences. Now if these
differences were merely of detail and did not affect some of
the vital aspects of the Full Bench formula it might be said
that there was no ignoring of the law as laid down by this
Court and therefore the tribunal was not unjustified in
extending the Agreement for a year. But a comparison of the
formula in the Agreement with the Full Bench formula shows
differences in three vital aspects. In the first place,
rehabilitation provided in the Agreement differs vitally
from rehabilitation as explained in The Associated Cement
Companies case (1). In the second place, the formula in the
Agreement provides for payment of a minimum bonus even
though there may be no available surplus and even though the
particular mill might have made actual
(1) [1959] S.C.R. 925.
16
loss. Thirdly, while the Full-Bench formula as approved by
this Court treats a particular year as a selfsufficient
unit, there is provision for set-off and set-on in the
formula in the Agreement. Can it therefore be said that the
formula in the Agreement which departs in these vital
particulars from the Full Bench formula in the matter of
bonus could be extended for another year by the industrial
court in the face of the decisions of this Court laying down
the law as to what profit bonus is and how it should be
worked out? The tribunal therefore when it extended the
formula in the Agreement which departed from the Full Bench
formula in certain vital aspects was undoubtedly ignoring
the industrial law as laid down by this Court and going
against it. It was its duty when dealing with the question
of profit bonus to apply the Full Bench formula, as approved
by this Court and then arrive at the quantum of bonus to be
awarded in the case of each mill. In particular by
extending the Agreement the tribunal made it possible for
payment of a minimum bonus even when there was either
insufficient available surplus to pay bonus or no available
surplus at all or even actual loss; the tribunal was thus
definitely going against the industrial law relating to
bonus as laid down by this Court. It had in our opinion no
power to do so and the reasons which it gave for departing
from the law laid down by this Court are unsubstantial and
do not commend themselves to us. In these circumstances the
order of the tribunal extending the Agreement for a year
cannot be upheld.
Further it was urged that in any case the Agreement
contemplates payment of bonus out of profits of the industry
at Ahmedabad as a whole and that is why it has provided for
set-off and set-on. Whatever may be said about this
provision on a long term basis, the tribunal’s jurisdiction
was limited by its terms of reference. There was not one
reference before the tribunal on industry-cum-region basis
but sixty-six separate references, one relating to each
mill. It was required to consider the question of bonus for
each mill for the year 1958 only and thus had nothing to
17
do with set-off and set-on or the profits of the industry as
a whole at Ahmedabad. The tribunal was only concerned with
1958 and no consideration as to what happened before that
year or what may happen after 1958 could enter into its
decision of the question of bonus for the year 1958. The
principle of set-off and set-on therefore to be found in the
Agreement could not convert payment of bonus for 1958, say,
by a loss making mill into profit bonus as laid down by the
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decisions of this Court. The tribunal’s award in this case
therefore would clearly be against the law as to bonus laid
down by this Court, for its jurisdiction was confined only
to the year 1958 and no more.
It was however urged on behalf of the respondent that there
is a fifth kind of bonus, namely, goodwill bonus and that
the Agreement when it provides for a minimum bonus
irrespective of availability of profits provides for such
bonus in the interest of industrial peace. It is enough to
say that so far as what is called goodwill bonus is
concerned it pre-supposes that it is given by the employer
out of his own free will without any compulsion by an
industrial court. As its very name implies it is a bonus
which is given by the employer out of his free consent in
order that there may be goodwill between him and his
workmen; but there can be no question of imposing a goodwill
bonus by industrial courts, as imposition of such a bonus is
a contradiction of its very concept. We have already
referred to four kinds of bonus which prevail in the
industrial law in India and which can in certain
circumstances be imposed by industrial tribunals; but there
can be no question of the imposition of the so-called
goodwill bonus, for that bonus depends upon the goodwill of
the parties and on their free consent. In the absence of
such free consent, there can be no question of any goodwill
bonus.
Before we part with these appeals, however, we must briefly
advert to the general considerations which have been pressed
before us very strongly by Mr. Vasavada for the respondents
and Mr. Ambekar for the intervening parties. It has been
urged before us
18
that we should be reluctant to interfere with the agreement
because it has worked satisfactorily in Ahmedabad, and the
reversal of the award under appeal may lead to discontent in
a very important centre of.textile industry in this country.
It has also been strenuously argued that the Agreement
offers a very reasonable solution to the vexed problem of
bonus and the pattern set by it has been copied in Bombay,
Madhya Pradesh and Coimbatore. If the pattern thus set for
determining the textile employees’ claim for bonus has been
adopted by a substantial part of the textile industry in
this country, the Court should desist from disturbing the
smooth working of the said pattern unless it is com-pelled
to do so. It may be conceded that some features of the
Agreement are undoubtedly very reasonable and in the
interest of the industry as a whole. The agreement has put
a ceiling on bonus and that is a term very much in favour of
the employer, because in some cases where the available
surplus is very large, then under the working of the Full
Bench formula the employees are tempted to claim, and
industrial tribunals are justified in awarding, a pro-
portionately substantial amount as bonus reaching or even
exceeding in some cases the level of basic wages of even 8
or 9 months. This trend has been controlled by the
Agreement. It is true that the Agreement requires the
payment of the minimum bonus but this provision is intended
to work as a part of the larger agreement spreading over
some years and the employer has agreed to pay the minimum
bonus even though in a particular year he may have no
available surplus, because he and his employees expect or
anticipate that the employer may have available surplus in
the succeeding year. The working of the Agreement is really
intended to spread over a number of years and the account
between the employers and the employees in that behalf is
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conceived as a continuing and running account. These
features of the Agreement may be regarded as commendable.
The problem of rehabilitation which has assumed a complex
form has also been attempted to be solved by the Agreement
in a practical way. The solution
19
adopted by the Agreement in that behalf, it is claimed, is
based on the historical and factual genesis of the original
formula evolved by the Full Bench of the Labour Appellate
Tribunal when it dealt with the problem of the textile
industry in Bombay. The argument is that until 1962, the
Agreement should be allowed to work when the position may be
reviewed at length. Since this Court delivered its judgment
in the case of The Associated Cement Companies (1) it has
come to our notice that in cases where the employer claims
an exaggerated amount for rehabilitation, or where a
reasonable claim made by the employer in that behalf is
unreasonably challenged by the employees, the dispute is
protracted. The trial of the issue tends to become
complicated, and that leads to bitterness between the
parties. It has been urged before us that time has now come
when the industrial courts will have to face the problem of
radically changing the formula. It is argued that modern
economic thought does not encourage the theory that the
whole of the rehabilitation amount must come from the
current profits of the industry, and it was stated before us
that Government may have gradually to step in to assist the
industry by advancing sufficient loans on reasonable terms
to enable the industry to meet the demand of its
rehabilitation. However, as we pointed out in our decision
in the case of The Associated Cement Companies (1) these
matters can be properly and effectively decided by an
industrial court if the major representative industries in
the country and their employees are brought before it with a
proper reference, or it can be tackled more appropriately by
a high-power commission appointed in that behalf. We were
told that the Government of India has taken a decision to
appoint such a commission, and that it would soon resolve
this problem on a more rational and scientific basis.
During the course of the hearing of these appeals we
suggested to the parties that in view of the pending
appointment of the commission, parties may settle the
present dispute amicably and that the appellant-mills may
fall in line with the rest
(1) [1959] S.C.R. 925.
20
of the mills in Ahmedabad, but despite their best efforts
the parties could not settle the dispute and wanted a
decision from this Court on the points of law raised in the
present appeals; that is why we have had to decide the
points of law, and in doing so inevitably general
considerations to which we have just adverted cannot play a
material part.
In the course of the argument reference was made by Mr.
Ambekar to the concept of goodwill bonus; that again is a
matter which may be evolved by agreement between the parties
or decided by a highpower commission. If the matter has to
be decided according to law as has been laid down by this
Court then the conclusion would be inevitable that on
essential points the Agreement departs from the Full Bench
formula, and however commendable it may be on the whole it
can continue only by agreement and cannot be enforced by
industrial adjudication against the will of any of the
parties; that is why we have come to the conclusion, though
not without regret, that the appeals must be allowed and the
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matter must be sent back to the tribunal for disposing of
the issue before it in accordance with law. We direct that
the tribunal should proceed to try the question whether any
bonus should be awarded to the employees of the eighteen
mills before us on the basis of the Full Bench formula as
interpreted by this Court in the case of The Associated
Cement Companies (1).
In the circumstances there will be no order as to costs.
SUBBA RAO, J.-I have had the advantage of perusing the
judgment prepared by my learned brother, Wanchoo, J. I
regret my inability to agree. As mine is a solitary
dissent, it may not serve any useful purpose to elaborate on
the question raised at great length. I would, therefore,
briefly refer to the relevant facts which have already been
fully stated by my learned brother and express my views
concisely on the question. presented before us.
These appeals raise a dispute between the Textile Labour
Association,, Ahmedabad, the representative
(1) [1959] S.C.R. 925.
21
union of the textile industry in Ahmedabad, and the various
textile mills in that area in respect of the bonus payable
for the year 1958. The said Labour Union entered into a
five-year pact with the Ahmedabad Mill-Owners’ Association,
representing the member mills, in regard to payment of bonus
for the years 1953 to 1957. The Labour Union demanded bonus
for the year 1958 on the basis of the said pact. The mill-
owners claimed that the said pact was contrary to the law
laid down by the decision of this Court in the case of The
Associated Cement Companies Ltd., Dwarka Cement Works,
Dwarka v. Its Workmen (1) and that, if the rehabilitation
cost was calculated on the basis of the principles laid down
therein, there would not be any "available surplus" to
sustain the claim for bonus. The Industrial Court to which
the dispute was referred elaborately. considered the
arguments advanced and came to the conclusion that the five-
year pact which originated in Ahmedabad was not only fair in
itself but also an important contribution to industrial
peace, and that it did not in any way run counter to the law
laid down by the Supreme Court. On that finding it extended
the operation of the pact for one more year and directed the
parties to file within six weeks from the date of the award
calculations in respect of the bonus payable for the year
1958, in the light of its decision and on the footing that
the five-year pact was for six years.
The main question in the appeals is whether the said pact
violates the law laid down by this Court. Before
considering this contention it would be convenient to notice
the terms of the said pact. The said pact is a lengthy
document, though precisely drawn, and to read it in full is
to unnecessarily burden the judgment. I shall, therefore,
briefly summarize its terms.
The contracting parties were the Textile Labour Association
of Ahmedabad, a representative union for the local area of
Ahmedabad on the one part, and the Ahmedabad Mill-Owners’
Association, Ahmedabad, representing its local member mills,
on the other part.
(1) [1959] S.C.R. 925.
22
It was executed on June 27, 1955, to cover a period of five
years from 1953 to 1957, inclusive of both years, for grant
of bonus to the employees of the Cotton Textile Mills of
Ahmedabad. The object of the agreement was to create good
will among the workers and for the purpose of maintaining
peace in the industry. The basis of the agreement was that
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it applied for the entire Ahmedabad Textile Industry and for
a period of five years. The "available surplus" of each
mill was ascertained in accordance with the Full Bench
Formula laid down by the Labour Appellate Tribunal in Mill-
Owners’ Association, Bombay v. The Rashtriya Mill Mazdoor
Sangh, Bombay (1). The maximum bonus payable by every mill
of the said area was fixed at 25 per cent. of the total
basic wages earned during the year, and the minimum was
fixed at 4.8 per cent. of the said basic wages. If in a
particular year a mill had an "available surplus" adequate
for granting bonus at a higher quantum than the ceiling of
25 per cent. of the basic wages. it would nationally set
aside the part of the residue of the "available surplus"
after the grant of the maximum bonus not exceeding an amount
equivalent to 25 per cent. of the basic wages earned during
that year as a reserve for bonus for the purpose of "set-on"
(adjustment) in subsequent years. If the "available
surplus" was adequate only to grant bonus at a rate lower
than the ceiling, the quantum of bonus would be fixed in
such a manner that there would remain with the mill at least
a minimum of Rs. 10,000. If in respect of any year a mill
had an "available surplus" adequate to pay bonus at a rate
lower than the minimum rate, it would be entitled to "set-
off" the excess amount of bonus that would be payable in a
subsequent year or years. In setting off the said amount of
bonus that, would be payable against subsequent year or
years, if the surplus was adequate only to grant bonus at a
rate lower than the maximum rate, the mill would first set
aside out of the "available surplus" an amount of Rs. 10,000
and, then out of the balance, it would further take out the
excess amount paid by it as bonus in the previous
(1) [1950] 2 L.L.J. 247.
23
year, and then it would distribute the remainder as bonus.
Even if a mill had made a loss in a particular year, it had
to pay the minimum bonus, but it would be entitled to "set-
off" the amount thus paid against the amount of bonus that
would be payable in the subsequent year or years, in the
same manner as in the case of a surplus adequate to grant
bonus only at a rate lower than 25 per cent. of the basic
wages. In short, when the surplus was adequate to pay bonus
at 25 per cent. of the basic wages earned during the year, a
mill had to pay the maximum of 25 per cent. of the basic
wages. When it was adequate only to grant bonus of less
than 25 per cent. of the basic wages, it would pay the said
bonus after reserving a sum of Rs. 10,000 for itself. If
there was loss, it would pay the minimum bonus. Whatever
amounts were paid were adjusted on the principle of "set-on"
and "set-off" in the subsequent years. There was also a
provision that after the prescribed period all the
outstanding liabilities under the formula of "set-on" and
"set-off" would come to an end. Three principles clearly
underlie the entire scheme, namely, (i) that though for the
purpose of ascertaining the surplus, the profits of a
particular mill were taken as the criterion, the position of
the entire Ahmedabad Textile Industry was taken into
consideration; (ii) that the beneficent features of the
scheme could be gathered only by its long term operation;
and (iii) that though in a particular year in the case of a
particular mill there might not be "available surplus", the
principles of "set-on" and "set-off" indicate that the bonus
was linked with profits. As reasonable men trying to settle
their disputes, both the parties, representing their
respective associations, adopted an optimistic attitude and
proceeded on the basis that the entire industry would make a
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profit and that every mill could be expected to make
reasonable profits in at least some of the five years,
though it might incur loss in other years. The validity of
the agreement should be judged on the basis adopted.
In the Ahmedabad Textile Industry, it is in evidence, the
average monthly wage for workers in 1957
24
was Rs. 54. Fifteen days’ basic wages, i.e., the minimum
bonus prescribed under the pact, would come to an average
total wages for 5 days; and 3 months’ basic wages would come
to 19 days’ total wages on the average. Prima facie the
bonus fixed is very reasonable and cannot be said to be
oppressive to the mill-owners.
The said bonus agreement, by its reasonableness and
beneficent effects on the industry, attracted the attention
of other mills throughout India. Exhibit U-2 shows the
particulars of other mills which have adopted the agreement.
The Bombay Textile Industry, The Madhya Bharat Mill-owners’
Association, The Modi Spinning & Weaving Mills, Modinagar,
and the cotton mills at Surendranagar (Saurashtra)’ Sidhpur,
Viramgam Nadiad and Petlad, Cambay Baroda, Surat adopted the
said scheme with suitable modifications. The silk industry
in Bombay and the plantation industry in Madras also
accepted the principles underlying the said agreement. We
are told that even the Coimbatore area has recently adopted
a similar agreement.
The fact that the said five year pact was followed by so
many other mills is a fair indication that it was basically
sound and capable of yielding good results. Experienced
members of the Industrial Courts spoke highly of the pact.
Late Shri S. H. Naik, a Member of the Industrial Court,
adopted the pact in a dispute between the Bombay Mill-
Owners’ Association and the Rashtriya Mill Mazdoor Sangh,
and in making an award in terms of a similar pact, made the
following observations:
"This award, based upon an agreement arrived
at as a result of persistent and continued
efforts on the part of both the parties,
keeping in view the prosperity of the
employers as well as the well-being of the
employees, will go down in history as a
significant landmark in collective bargaining.
It augurs well for the future of the industry,
as well as those employed therein,
particularly in view of the ambitious Second
Five Year Plan on which the country will
shortly launch. It also avoids, for
25
some time, and let us hope for all time to
come, the bonus dispute which cropped up every
year since 1947. I congratulate both the
parties and compliment them on the successful
termination of their efforts to bring peace to
the industry and set an example to the
employers and employees in the country."
The said weighty observations apply mutatis mutandis to the
agreement in question. Shri H. V. Divatia, another
experienced Member of the Industrial Court, in his award on
the bonus dispute of the Ahmedabad Textile Mills for 1952
observed:
"Ever since the former practice of taking all
the textile mills in one centre as one unit
for the purpose of determining the bonus was
given up, there has been dissatisfaction on
both sides on the bonus question every year
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and in my view this change as well as the
formula set up by the Labour Appellate
Tribunal have made the bonus issue a very
complicated one resulting in bitterness on
both the sides instead of promoting peace and
harmony between the employers and workers. I
hope the whole matter is reconsidered at the
highest level. If bonus is to be given, it
must be awarded in such a way that it does not
defeat its purpose."
The agreement did nothing more than reverting to the former
practice of taking all the textile mills in one centre as
one unit for the purpose of determining. the bonus, though
for ascertaining the quantum of bonus payable the balance-
sheets of individual units were taken into consideration.
In making the present award the Industrial Court on a
consideration of the entire material placed before it came
to a definite finding that on the. whole the five-year pact
had worked fairly for both the parties and that the
extension of the said agreement for one more year would help
in promoting peace in that industry in Ahmedabad and that
owing to the goodwill created by the five- year bonus pact,
the industry also benefited by schemes of rationalization.
It was also brought to our notice that in the textile
industry
4
26
in Ahmedabad area there were never any strike and the
disputes in the recent years were settled amicably across
the table.In such a situation this Court was asked under
Art. 136 of the Constitution to set aside the award and to
bring about chaos where peace existed and to introduce
unrest and disharmony where stability and harmony prevailed.
It was said that this Court had no option but to do so as
the agreement was contrary to law as laid down by this
Court. I shall now examine briefly the relevant decisions
laying down the principle governing bonus to ascertain
whether the impugned agreement is in any way inconsistent
with them.
In Muir Mills Co. Limited v. Suti Mills Mazdoor Union,
Kanpur (1) this Court defined the term "bonus" and laid down
the conditions which would give rise to the claim for bonus.
Bhagwati, J., after considering the relevant decisions and
text books on the subject, accepted the following definition
of "bonus" given by the Textile Labour Inquiry Committee:
"The term bonus is applied to a cash payment
made in addition to wages. It generally
represents the cash incentive given
conditionally on certain standards of
attendance and efficiency being attained."
The learned Judge then proceeded to state at
p. 998 thus:
"There are however two conditions which have
to be satisfied before a demand for bonus can
be justified and they are: (1) when wages fall
short of the living standard and (2) the
industry makes huge profits part of which are
due to the contribution which the workmen make
in increasing production. The demand for
bonus becomes an industrial claim when either
or both these conditions are satisfied."
The learned Judge then referred to the formula evolved by
the Full Bench of the Labour Appellate Tribunal in the Mill-
Owners’ Association, Bombay v. Rashtreeya Mill Mazdoor
Sangh, Bombay (2) and narrated the first charges on the
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gross profits as laid. down by
(1) [1955] 1 S.C.R. 991.
(2) [1950] 2 L.L.J. 247.
27
that decision. The learned Judge then expressed his view
thus at p. 999:
"It is therefore clear that the claim for
bonus can be made by the employees only if as
a result of the joint contribution of capital
and labour the industrial concern has earned
profits. If in any particular year the
working of the industrial concern has resulted
in loss there is no basis nor justification
for a demand for bonus. Bonus is not a
deferred wage."
This decision lays down in clear terms that the payment of
bonus is linked with profits. But this decision was given
in a dispute between one specified mill, namely, Muir Mills
Co. Limited and the Union, representing its employees. This
Court was not considering a case of a bonus claim on
industry-cum-region basis. The principle of the decision,
namely, that the claim for bonus is linked with profits, may
equally apply to such a case; but the working of the
principle must necessarily depend upon the peculiarities of
such a claim. Industrial law is in the process of evolution
and it cannot be put in a straight jacket, but must be
allowed to grow to meet varying situations that present
themselves to industrial tribunals, subject of course to the
statutory provisions and the general principles laid down by
courts. The application of the principles laid down by this
decision to a bonus claim on industry-cum-region basis
-would, to some extent, be different from its application to
a single unit. I shall consider this aspect at a later
stage of the judgment. It is unnecessary to consider the
other decisions on this subject except the recent decision
of this Court in The Associated Cement Companies Ltd.,
Dwarka Cement Works, Dwarka v. Its Workmen That decision
reviewed the entire law on the subject vis-a-vis the profit
bonus. It accepted the principles laid down by the said
Full Bench Formula and elaborately considered the mode of
application of the prin. ciples for ascertaining the
"available surplus." Gajendragadkar, J., who spoke for the
Court, referred to the earlier decision and restated the
basis for awarding bonus thus at p. 995:
(1) [1959] S.C.R. 925.
28
"We have already noticed that the formula for
awarding bonus to workmen is based on two
considerations: first, that labour is entitled
to claim a share in the trading profits of the
industry because it has partially contributed
to the same; and second, that labour is
entitled to claim that the gap between its
actual wage and the living wage should within
reasonable limits be filled up."
Then the learned Judge, after referring to the earlier
decisions, gave the various amounts that should be deducted
from the bonus-year’s profits and the ’manner in which they
should be done to ascertain the "available surplus."
According to the learned Judge the following items have to
be deducted:
"(1) Depreciation, which should be the
notional normal depreciation.
(2) Income-tax.
(3) A return on paid-up capital as well as
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working capital. Though the usual rates were
mentioned, it was made clear that the rates
were not inflexible but would vary according
to the circumstances of each case.
(4) Rehabilitation: For ascertaining the
amount necessary for rehabilitation, it was
pointed out that a multiplier and divisor
should be adopted; the former to ascertain the
probable price which may have to be paid for
the rehabilitation, replacement or
modernization of machinery, and the latter in
order to ascertain the annual requirement of
the employer in that behalf year by year."
Out of the balance, which was described as "available
surplus", it was stated that three parties, namely, the
labour, the industry and the shareholders, were entitled to
-claim shares. This is the broad picture drawn by that
decision for fixing the bonus. That decision, therefore,
restated the pre-existing law and reaffirmed the doctrine
that bonus is linked with profits and also the Full Bench
Formula for ascertaining the "available surplus". That
decision was also not concerned with a claim for bonus on
industry-cum-region basis, but only with a claim in regard
to a particular unit. It also did not lay down that
employer and
29
employee could not agree in regard to the distribution of
the available surplus or in respect of the amount required
for rehabilitation. It also did not purport to prevent the
parties from agreeing on the payment of bonus linked with
profits on industry-cum-region basis spread over a number of
years. Some of the observations in the judgment indicate
the consciousness of the court that the formula accepted or
the directions given therein could not meet every conceiv-
able situation that might arise in the complicated field of
industrial relations.
Does the impugned pact contravene the law laid down by this
Court? It is contended that it infringes the law mainly in
three respects, namely, (i) bonus was payable thereunder by
a mill incurring loss; (ii) the pact did not provide for
rehabilitation of the post-1947 block; and (iii) the
depreciation and the interest on the reserves allowed were
not in accordance with the formula.
The first objection appears to be plausible and has also
been upheld by my learned brethren. But, in my view, there
is a fallacy underlying it. The contention invokes the law
of bonus laid down in respect of an industrial claim for
bonus for a particular year made by the employees of a
single mill and seeks to apply it to a case of an agreement
evolving a scheme of bonus on the basis of industry-cum-
region spread over a reasonable period of time. Though the
fundamental principle, namely, that bonus is linked with
profits, applies to both, the application of the same to two
different situations must necessarily differ. The short
question is whether under the impugned agreement the claim
for bonus was not based on profits. The agreement was a
multilateral one involving mutual obligations. It was on
industry-cum-region basis, that is, it was entered into
between the employers of the entire industry and the
employees thereof. The basis of the agreement was that the
entire industry would make a profit. For the purpose of
convenient payment of bonus it was worked out on the unit
basis. All the parties to the agreement, the employers and
the
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employees of different mills in Ahmedabad, desired in-
dustrial peace in order to build up the textile industry.
The industry comprised many units with varying prospects and
different strata of financial stability and prosperity.
Some mills may earn profits throughout the period, some may
earn profits in some years and incur loss in other years and
under extremely unfortunate and unexpected circumstances, a
mill may incur loss throughout. Though a,particular mill
may earn abnormal profits, another mill may be just able to
make its both ends meet and another may have a narrow margin
of profits or even incur loss. But all of them were
sincerely interested in the general prosperity of the
industry as a whole in the said area which would have its
repercussions on individual units. A mill which earns large
profits may have to pay more than 25 per cent. of basic
wages for the year as bonus and a mill which incurs loss may
not have to pay bonus at all. The employees of a particular
mill may be entitled in a particular year, having regard to
the profits, to get bonus far in excess of 25 per cent. of
the basic wages. But in the general interest of all
concerned, they were all willing to make a little sacrifice
for the common good. Each mill undertook the liability to
pay bonus to its employees with a minimum and maximum limits
in consideration of a similar undertaking of liability by
other mills. So too, the employees, in consideration of a
minimum bonus being guaranteed to them, agreed not to claim
more than the maximum fixed and the mills as a whole
guaranteed payment of the minimum bonus. But what is
important to remember is that the entire scheme of payment
of bonus was linked with profits. It would be paid on the
basis of profits earned or to be earned by a mill. If a
mill did not make profits in a particular year, bonus would
be paid on account to be adjusted in subsequent years. The
formula of "set-on" and "set-off" emphasizes the integral
connection between bonus and profits, and the fact that the
total loss incurred by a particular mill during the entire
period may break that formula does not affect the basis of
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the agreement. In effect and substance, under the
agreement, each of the mills agreed for a consideration on
the happening of a contingency to treat certain amounts as
notional profits adequate to pay the minimum bonus with a
right to "set-off" in subsequent years against larger
profits, if any, earned by them. In the premises, it is not
correct to state that bonus is not linked with profits for
four reasons, namely, (i) the agreement was between the
employers and employees of the entire textile industry in
Ahmedabad; (ii) the basis of the agreement was that the
industry as a whole would make a profit; there is nothing
illegal in parties to the agreement, who had ,intimate
knowledge of the financial position of the entire industry,
from accepting that position; (iii) instead of the profits
of the entire industry being ascertained and bonus paid to
all the employees, under the agreement, each mill for a
consideration, namely, obligations undertaken by other
parties, agreed to pay bonus ranging between a maximum and a
minimum; and (iv) each mill also agreed for a consideration,
even if in fact it incurred a loss in a particular year., to
set apart a notional amount as profits adequate to pay the
minimum bonus with a right to readjust its bonus account in
subsequent years. In this view the impugned pact does not
contravene the law of the land for the simple reason that
there is no decision of this Court which prevents the making
of ouch agreements so long as the fundamental principle is
not violated; and in this case, for the reason given by me,
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I am of the view that the said principle, viz., that bonus
should be linked with profits has been adhered to in the
agreement.
Now let us see whether the Full Bench Formula in regard to
rehabilitation has been contravened by the impugned pact.
The main emphasis is on the want of a provision in the
agreement in regard to valuation of the block subsequent to
1947. In The Associated Cement Companies’ case (1) this
Court observed at p. 971 thus:
"it has also been observed by the Labour
Appellate Tribunal that if an appropriate
multiplier and
(1) [1959] S.C.R. 925.
32
divisor are determined they are generally used
because the tribunals take the view that the
reconsideration of the said multiplier and
divisor should not be hastily undertaken and
could be justified only on the basis of a
stable character extending or likely to extend
over a sufficient number of years so as to
make a definite and appreciable difference in
the cost of replacement."
The Industrial Court in the bonus. case of the textile
industry at Ahmedabad for the year 1949 fixed the cost of
replacement of the block of the entire industry at Ahmedabad
at Rs. 33.89 crores spread over 15 years from 1947. The
Industrial Court, on the material placed before it, fixed
the multiplier at 2.7 and the divisor at 15. The result is
that the cost of the machinery and building as it existed in
1947 was multiplied by 2.7 and after making the necessary
deduction therefrom, such as that of depreciation and
reserves available and the breakdown value of machinery,
divided the surplus by 15 years. Ordinarily, change in the
said multiplier and divisor, as laid down by this Court,
should not be hastily undertaken and could be justified only
on the basis of a substantial change of a stable character
extending or likely to extend over a sufficient number of
years. In the impugned pact the parties agreed to abide by
the said multiplier and divisor and they did not think fit
to revise the same. The decisions of this Court do not
preclude employers and employees from agreeing to a
particular valuation of the block or to their agreeing to a
particular multiplier and ’divisor having regard to the
circumstances obtaining at the time of the agreement.
Nor does the agreement infringe any of the principles laid
down by the Full Bench Formula in the matter of fixing the
prior charges. A perusal of paragraph 2(a) of the agreement
shows that the prior charges mentioned therein are only
those that are stated in the Full Bench Formula, though
there is certainly a difference in the particulars under
different heads, such as, interest, etc. Certainly the
decisions of this Court do not preclude the parties from
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agreeing to certain amounts or to certain rates under
different heads of prior charges.
As the agreement does not infringe the law laid down by this
Court, it cannot be contended that the Industrial Court
could not extend the said agreement, if it is necessary to
secure industrial peace for another year. In effect and
substance, the Industrial Court adopted the said agreement
as a part of the award by giving it a span of six years
instead of five years; with the result that the entire
formula of "set-on" and "set-off" would automatically apply
in the sixth year. Courts have held that Industrial Courts
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have power to extend agreements in appropriate circum-
stances.
The Federal Court of India in Western India Automobile
Association v. Industrial Tribunal, Bombay (1) explained the
scope of industrial adjudication and the functions of an
industrial tribunal in labour disputes thus at p. 345:
"Adjudication does not, in our opinion, mean
adjudication according to the strict law of
master and servant. The award of the Tribunal
may contain provisions for settlement of a
dispute which no Court could order if it was
bound by ordinary law, but the Tribunal is not
fettered in any way by these limitations. In
Volume 1 of ’Labour Disputes and Collectiv
e
Bargaining’ by Ludwig Teller, it is said at
page 536, ’that industrial arbitration may
involve the extension of an existing agreement
or the making of a new one, or in general the
creation of new obligations or modifications
of old ones, while commercial arbitration
generally concerns itself with interpretation
of existing obligations and disputes relating
to existing agreements’. In our opinion, it
is a true statement about the functions of an
Industrial Tribunal in labour disputes."
The same view in different phraseology has been expressed by
this Court in Bohtas Industries Limited v. Brijnandan Pandey
(2), S. K. Das, J., speaking for the Court, observed at p.
810 thus:
(1) [1949] F.C.R- 321. (2) [1956] S.C.R. 800.
5
34
"A Court of law proceeds on the footing that
no power exists in the courts to make
contracts for people; and the parties must
make their own contracts. The courts reach
their limit of power when they enforce
contracts which the parties have made. An
Industrial Tribunal is not so fettered and may
create new obligations or modify contracts in
the interests of industrial peace, to protect
legitimate trade union activities and to
prevent unfair practice or victimization. We
cannot, however, accept the extreme position
canvassed before us that an Industrial
Tribunal can ignore altogether an existing
agreement or existing obligations for no rhyme
or reason whatsoever."
This Court again reiterated the same principle in the case
of Patna Electricity Supply Co. Limited (1) thus at p. 1038:
"There is no doubt that in appropriate cases
industrial adjudication may impose new
obligations on the employer in the interest of
social justice and with the object of securing
peace and harmony between the employer and his
workmen and full cooperation between them.
This view about the jurisdiction and power of
Industrial Tribunals has been consistently
recognized in this country since the decision
of the Federal Court in Western India
Automobile Association v. Industrial Tribunal,
Bombay (2)".
These authorities clearly establish the proposition that an
Industrial Tribunal can extend an existing agreement or make
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a new one if, for good reasons, it comes to the conclusion
that such extension promotes industrial peace. If, as I
have held, the impugned pact was lawful and did not
contravene the law laid down by this Court, the Industrial
Court in the present case was certainly within its rights to
extend that pact for another year for the very good reasons
given by it for doing so.
I shall now state my view in the form of the following
propositions: (1) Neither the Full Bench Formula nor the
decisions of this Court affirming it preclude an
(1) [1959] SUPP. 2 S.C.R. 76r.
(2) [1949] F.C.R. 321.
35
Industrial Court in appropriate cases from extending the
terms of a pact by another year if that was necessary to
maintain industrial peace. (2) The law laid down by the
Federal Court and the Supreme Court recognizes such a power
in an Industrial Court. (3) The fact that the subsequent
block has not been valued does not affect the question, for
the parties can certainly agree, for various reasons, that
the value of the existing block should govern the situation
for a specified period. (4) The impugned five-year pact is
not contrary to industrial law as laid down by this Court;
indeed, it expressly followed the principles laid down in
the Full Bench Formula which was subsequently affirmed by
this Court in the case of Associated Cement Companies (1).
(5) The impugned pact also does not infringe the principle
that bonus depends upon profits; but it applied the same by
evolving a formula of "set-on" and "set-off" to a
complicated situation of the entire industry in a particular
area for a number of years.
For the foregoing reasons, and in view of the aforesaid
definite findings of the Industrial Court, I hold that this
is eminently a fit case for extending the agreement for the
bonus year 1958.
Before closing I must express my appreciation of the way in
which the impugned pact was brought about between the
parties. It is in the interest of both the employers and
the employees-while the employees of every mill are assured
of payment of a minimum bonus, the employers of every mill
also are assured protection against extravagant claims. The
agreement avoided complicated and acrimonious disputes in
courts every year in regard to bonus. The working of this
agreement certainly helped the mills to achieve the
introduction of schemes of rationalization. The agreement
has become a model one for other mills. Ironically the Full
Bench Formula, affirmed by this Court in the case of
Associated Cement Companies Limited (1), mainly evolved to
fix the amount required for rehabilitation in the interest
of industrial peace, turned out to be the sheet-anchor for
(1) [1959] S.C.R. 925.
36
the employers to depart from the path of negotiation and
agreement which they were following all these years and to
enter the arena of open fight with the employees. It may
be, though it may turn out to be wrong, that they are under
the belief that the Full Bench Formula, if strictly
followed, would not leave any surplus and that they need not
pay any bonus to the employees.
This attitude is neither reasonable nor in the interest of
industrial peace. I hope and trust that the parties, in
spite of the temporary success in these appeals, would see
better light and settle their disputes as they had been
doing all these years.
In the result, the appeals fail and are dismissed with
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costs.
By COURT : In accordance with the opinion of the majority,
the appeals are allowed and the matter sent back to the
Tribunal for disposing of the issue before it in accordance
with law. We direct that the Tribunal should proceed to try
the question whether any bonus should be awarded to the
employees of the eighteen mills before us on the basis of
the Full Bench Formula as interpreted by this Court in the
case of The Associated Cement Companies (1).
In the circumstances, there will be no order as to costs.
Appeals allowed.
Cases remanded to the Tribunal.
(1) [1959] S.C.R. 925.
37