Full Judgment Text
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PETITIONER:
JABALPUR BIJLIGHAR KARAMCHARIPANCHAYAT
Vs.
RESPONDENT:
JABALPUR ELECTRIC SUPPLY CO., LTD. & ANR.
DATE OF JUDGMENT09/08/1971
BENCH:
MITTER, G.K.
BENCH:
MITTER, G.K.
REDDY, P. JAGANMOHAN
CITATION:
1972 AIR 70 1972 SCR (1) 60
1971 SCC (2) 502
CITATOR INFO :
RF 1972 SC2195 (21)
RF 1973 SC2766 (9)
ACT:
Industrial Law-Bonus-Principles for awarding festival bonus-
Available surplus for distribution-Principles for
calculation of.
HEADNOTE:
The employees of the respondent claimed bonus on two counts
festival bonus at IO % of their total earnings as an implied
term of the contract of employment and as an established
practice of payment from 1940-41 without any break; and (2)
bonus out of the profits quantified at 50 % of the said
total earnings. The Industrial Tribunal rejected the
claims. In appeal to this Court,
HELD : (1) The criteria to be considered when a question of
customary or traditional bonus arises are: (a) whether the
payment was uniform and has been over an unbroken series of
years; (b) whether it has been for a sufficiently long
period, the length depending on the circumstances of each
case (the period may have to be longer to justify an
inference of traditional and customary festival bonus than
in the case when the claim for festival bonus is based on an
implied term of employment); (c) Whether it was connected
with a festival; and (d) it must be shown that the payment
was made even in a year of loss, that is, it was not a
bounty depending on the earning of profits. [67 G-H; 68A.
70F-G.]
In the present case, it was proved that the payment of bonus
was made at 10% for a large number of years and at 11% for
an intervening period. But the payment was not related
either to any festival or to an implied term of employment
between the parties. In fact, for tile years from 1940-41
to 1945-46 there was no claim for the payment of either
customary bonus or festival bonus. On the other hand, the
express claim was made for war bonus. The major part of the
entire period was covered by awards and excepting in one of
those awards there was no reference to any festival bonus.
The intervening period was covered by an express agreement
between the parties. Further, the rate was not uniform.
Consequently, the claim made by the employees that they
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should be paid 10% either as festival bonus or under an
implied term of employment could not be accepted. [71A-D]
lspahani Ltd. Calcutta v. Ispahani Employees Unions, [1960]1
S.C. R. 24, The Graha Trading Co. (India) Ltd v. Its
Workmen, [1960] 1 S.C.R. 107, M/s Tulsidas Khimji v. Their
Workmen, [1963] 1 S.C.R. 675, Vegetable Products Ltd v.
Their Workmen A I R 1966 S.C, 1449 and Management of
Churkutlam Tea Estate (P) Ltd. v. The Workmen [1969] 1
S.C.R. 930, followed.
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(2) The amount of bonus must be computed in terms of the
Full Bench formula as accepted by this Court in the case
of Associated Cements Co. Ltd. v. Its Workmen, [1959]
S.C.R. 925. [71 D-E]
(i) In the present case, in calculating the net profits the
Tribunal should have Included the following three items, in
the gross profits.
(a) The cost of coal and fuel shown in the ’summary of
technical and Financial Particulars’ for the year, prepared
under r. 26(3) of the Indian Electricity Rules, 1937 was
less than the figure shown by the respondent in its revenue
account. The respondent had failed to explain the
discrepancy. Therefore the amount of difference between the
two, figures should have been added to the gross profits in
the revenue account. [71 H,72A-B,H;73A-B]
(b) There was no proper explanation supported by accounts
for the large amount for repairs to furniture as shown in
the revenue account.. Therefore the much smaller amount
suggested in the oral evidence should alone have been taken
into account. The difference between the two figures should
also be added to the gross profits. [73F-H]
(c) Although the statutory contigency reserve fund
investments. are not to be taken into account in the
statement of surpluses and deficiercies of profits, the
interest earned was included by the respondent in the
statement of net profits for the calculation of the managing
agetns’ commission. If the managing agents were entitled to
claim a share of it the workers were equally entitled to
claim its inclusion in the revenue account. The result is
that the gross profits of the company would have to be
augmented by this sum also. [74D-G]
(ii) The employees’ contention regarding the following four
items should be rejected.
(a) The rebate to the consumers is not to be utilised by
the Electric supply company. Therefore if the respondent
could not have the benefit of it, neither could the
employees ask for a share and claim its. inclusion in the
gross profits. [75F-G]
(b) The respondent claimed that the normal depreciation for
the year as pet the assessment order of the Income-tax
Officer and double shift allowance should be allowed in
computing the net profits. The employees contended that it
was only the lesser amount towards depreciation shown in the
respondent’s profit and loss account that should be allowed.
But according to the formula propounded by the Full Bench of
the Labour Appellate Tribunal in U.P. Electricity Supply
Co.. Ltd. v. Their Workmen, [1955] 2 L.L.J. 431 and approved
in the Associated Cement Companies case and in T.T.E. Supply
Co. Ltd. v. Its Workmen, [1960] 3 S.C.R. 68 and in Ahmedabad
Miscellaneous Industrial Workers Union v. Ahmedabad
Electricity Supply Company Ltd., [1962] 2 S.C.R. 934 the
respondent’s claim should be upheld. [75G-H;76A-D E-G]
Hamdard Dawakhana Wakf v. Its Workmen, [1962] 2 L.L.J.
(S.C.) 772, followed.
(c) According to the Full Bench formula to arrive at the
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available surplus it is not the income-tax actually paid by
the respondent that
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should be deducted but the amount computed nationally at 45%
after making the appropriate deductions from the gross
profits. In the present case, the amount of income tax so
calculated would be greater than the amount allowed by the
Tribunal because the gross profits would be enhanced by
items (i), (a), (b) and (c). [77F-H]
(d) According to the Full Bench formula return at 6% of the
working capital should also be deducted to arrive at the
available surplus for distribution. The employees contended
that the working capital should be computed in accordance
with Schedule VII of the Electricity Supply Act. But
according to the T.T.E. Supply Company case, and the
Ahmedabad Miscellaneous Industrial Workers Union case even
with respect to an electric supply undertaking in the field
of industrial relations it is not proper to inject therein,
the provisions contained in the Seventh Schedule to the
Electric Supply Act. [78C,E-F;79,A-B]
In the result the amounts in item (i) (a), (b) and (c) had
to be added to the gross profits. The amount in item (ii)
as was not to be so added. Depreciation including double
shift allowance was to be deducted as also the notional
amount of income-tax at 45 % ’ after making the appropriate
deductions from gross profits. So far as rating on working
capital was concerned the computation should be in term of
the Full Bench Formula and not in accordance with Schedule
VII of the Electricity Supply Act. In the instant case even
ignoring the said section on working capital there was no
surplus left in terms of the Full Bench Formula. The
question of payment of bonus did not arise. [79E-H; 80 A-B]
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 752 of 1967.
Appeal by special leave from the Award dated January 30,
1967 of the Industrial Court, Madhya Pradesh, Indore in
Reference No. 6/MPIR/1961.
M. N. Phadke, Gulab Gupta and Vineet Kumar, fir the
appellant.
M. C. Chagla, D. N. Mukherjee and M. M. Sapre, for
respondent No. 1.
The Judgment of the Court was delivered by
Mitter, J. This appeal arises out of an award dated January
30, 1967 of the Industrial Court of Madhya Pradesh
(hereinafter referred to as the ’Tribunal’). The term of
reference to the Tribunal was:
"Whether the employees of Jabalpur Electric
Supply Company Ltd., have a case for payment
of bonus for the year 1960-61
and what should be its quantum and terms of
payment?"
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The claim for bonus was made under two heads : the first was
for bonus out of the profits quantified at 50 % of the total
earnings of the employees; and the second was for festival
bonus at 10 % of the said total earnings which was claimed
as an implied term of the contract of employment and as an
established practice, having been paid irrespective of
profits or losses before Diwali every year continuously from
1940-41 without any break. The Tribunal found itself unable
to hold in favour of the employees under either of the
heads. The appeal to this Court is by special leave.
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We propose to take the two heads under which bonus was
claimed in the order in which the arguments were advanced
before us. The first head of bonus canvassed for was the
second mentioned above i.e. at 1O % of the total earnings.
So far as this claim-is concerned, we are not on uncharted
seas as the question cropped up in the past in numerous
cases before this Court wherein certain well defined
principles were formulated. But before we apply the
principles, we have to take note of the relevant facts and
circumstances relating to this claim.
It cannot be disputed that the employees had been
receiving at least 10% of their earnings from the company
from 1940-41 onwards. This period can be conveniently split
up into several parts to mark off the claims made from time
to time and the settlements by mutual agreement or payments
under awards of industrial courts or even made voluntarily.
The first period relates to the years 1940-41 to 1944-45.
The Provincial Government made a reference arising out of a
dispute which led to the award of the Labour Commissioner of
C. P. and Berar in regard, inter alia, to (a) claim by the
employees to a bonus equal to three months’ wages for
the year ending 31st March, 1946, and (b) war bonus equal to
six months’ wages. The adjudicator decided that.
(1) The company should pay to each of its
employees 1/10th of his total earnings
including dear food allowance during the year
ending 31st March 1946 by way of bonus; and
(2) The Company should also pay to each of its
employees as bonus 1/10th of his total
earnings including dear
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food allowance in respect of each of the years
1940-41, 1941-42, 1942-43, 1943-44 and 1944-45
against the claim for War bonus."
It has to be noted that there was no mention of any festival
bonus at that time and so far as the years 1940-41 to 1944--
45 are concerned, it was given on the footing that it was a
War bonus.
The next period relates to the years 1946-47 to 1949 50.
Admittedly, the payment for these years was made under an
agreement between the parties as found by the Tribunal. The
finding of the Tribunal is that a consolidated amount of Rs.
74,850/- was paid by the company on 25th January 1951. The
Tribunal observed that there was
"abundant documentary evidence (Exs. D-1/A to
D-1/F wherein workers agreed to accept the
bonus offered as voluntary payment of bonus as
a compromise of their claim of 25 % of the
Company’s profits for the period ending 31st
March, 1951."
The claim for the years 1951 to 1956 was covered by an award
conveniently described as Mujumdar Award. The E opening
paragraphs of the award show that the employees had claimed
that payment of IO%. of their total earnings by way of bonus
had come to be included in their wages and had been paid for
about 12 years in the past, that there had been agreement
between the employees of the company to refer the dispute
regarding bonus to Government and thereafter for subsequent
years 10 per cent of their total earnings of the year was
accepted by the employees and finally on the failure of
negotiations and conciliations, following service of notice
under S. 32 of the Industrial Disputes Act, the matter had
been referred by the Government, the employees having
pressed for at least 33-1/8 per cent of their total earnings
for the year by way of bonus.
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The concluding paragraph of that award, a copy of which has
been placed before us, shows that in the view of the
Majumdar Tribunal :
"In addition to the 100% bonus already paid
the Party No. 1 (the company) can easily pay
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additional 20 %, of the earnings of the year
of each employee as bonus to him. Similarly
for the year 1951-52 Party No. 1 can pay
easily additional 10 per cent of the earnings
of the year as bonus to each of the employees.
For the year 1952-53 no surplus amount is left
with Party No. 1. According to the Full Bench
formula and the bonus already paid i.e. 10 per
cent of the annual earnings of each of the
employees was sufficient payment for that
year. For the year 1953-54 5 per cent of the
earnings of the year can easily be paid in
addition to the 10 per cent already paid. For
the year 1954-55 20 per cent of the annual
earnings can easily be paid to each of the
employee by way of bonus and for the year
1955-56 though I only have been able to get
the account for the first six months I have
absolutely no doubt that taking the average,
of all these years, the Party No. 1 could be
able to pay at least 10 per cent as additional
bonus."
The said Tribunal further recorded that as the employees had
not received even the 10 per cent usual bonus for 1955-56
the same should be paid in full before 31st October, 1956.
For the year 1956-57 payment was made under an interim award
of Mr. Kher, Judge, Industrial Court. For the years 1957-
58, 1958-59 and 1959-60 payment was first made under an
interim award of Justice Bhat who finally passed an award
accepting the claim of the Union for payment of Diwali
bonus. This award was the subject matter of an appeal
before this Court and on 11th March 1956 the parties to that
appeal arrived at a compromise and it was agreed without
prejudice to their respective contentions that the company
should pay to the employees one per cent in addition to the
bonus already paid by it for the years 1956-57, 1957-58 and
1958-59 but the company should not pay any additional bonus
for the year 1959-60. It was expressly recorded before this
Court that as the point of dispute between the parties which
had been decided by the said Tribunal had not been argued
before this Court it would be open to them to raise their
respective contentions in future should the occasion arise
66
The above statement of facts makes it amply clear that
although the employees received at least 10% of their total
earnings by way of bonus for the years 1940-41 to 1959-60
there was no consistency in the claim to bonus throughout
this period, nor was there any uniformity either in the
amounts paid or the grounds under which the several awards
of bonus came to be made. The only award which indicated
that the bonus was to be regarded ,as a Diwali bonus was
that of Justice Bhat for the period 1957-58 to 1959-60. For
the period 1940-41 to 1956-57 the Company never paid bonus
as a festival bonus on the occasion of the Diwali. The
amount was mostly paid under awards but in between the
awards there was a period when it was paid by express
agreement between the parties.
Strong reliance was placed on the fact of payment of at
least 10 per cent by way of bonus from the year 1940-41 to
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1959-60 by learned counsel for the appellant in support of
his argument that as payment had been made for this long
period, it had become an implied term of the contract of
employment and it was to be regarded as a festival bonus.
In our view, this contention cannot be accepted ,on the face
of a long series of decisions of this Court to some of which
alone we propose to refer.
In Isphani Ltd. Calcutta v. Isphani Employees’ Union(1)
this Court had to deal with the claim of the workmen to
puja bonus for the year 1953. Referring to The Mill-owners’
Association, Bombay v. The Rashtriya Mill Mazdoor Sangh,
Bombay(2) it was said that the claim for puja bonus in
Bengal could be based on either of two grounds. It may
either be a matter of implied agreement between the
employers and employees creating a term of employment for
payment of puja bonus, or, (secondly) even though no implied
agreement can be inferred it may be payable as a customary
bonus. On the facts it was found that "the workmen when
they were in the employ of Messrs M. M. Isphani Ltd. (the
predecessor-in-interest of the appellants) always used to
get puja bonus at the rate of one month’s wages. This was
asserted by the workmen in their written statement and the
company did not deny it in its reply.
(1) [1960] 1 S C.R. 24.
(2) [1950] L.L.J. 1247.
6 7
It was found as a fact that the appellant had been paying
bonus ever since it came into existence in 1948 up to 1952 v
without any break at the rate of one month’s wages and it
was paid even in the years when the company suffered loss.
It was observed by this Court :
"In the circumstances, it was established in
this case that (1) the payment was unbroken
and (2) it was not paid out of bounty due to
profits having arisen, for it was paid in some
years of loss also."
As to what would be a sufficiently long period to justify
the inference that it was an implied term of employment for
payment of bonus, this Court held that the appellant had
paid it continuously since its birth and therefore the facts
warranted the finding of an implied term of employment to
that effect.
A similar claim arose in the case of The Graham Trading Co.
(India) Ltd. v. Its Workmen(1). According to this Court the
practice of payment of bonus of the appellant "began in 1940
and was unbroken up to 1950. In between there was an
adjudication in 1948 in which the company was a party". In
regard to the year 1948 the, company had admitted before the
relevant tribunal of’ having paid bonus in the past and had
no intention of discontinuing the practice and thereupon the
Tribunal did not adjudicate on it. The payment was
continued from 1949 to 1951. In 1952 after some dispute
bonus was paid to all the workers. It was in this case that
the Court laid down certain criteria which the Industrial
Tribunals would have to consider when a question of
customary or traditional bonus arose, namely,
(i) whether the payment has been over an unbroken series of
years;
(ii) whether it has been for a sufficiently long period,
through the length of the period might depend on the
circumstances of each case; even so the period may normally
have to be longer to justify an inference of traditional and
customary puja bonus than may be the case with puja. bonus
based on an implied term of employment.
(1) [1960] 1 S.CR. 107.
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(iii) The circumstance that the payment depended upon
the earning of profits would have to be excluded an(]
therefore it must be shown that payment was made in the year
of loss.
After laying down the tests, the Court observed that
"In dealing with the question of custom, the
fact that the payment was called ex gratia by
the employer when it was made, would, however, make
no difference in this regard because of
proof of custom depends upon the effect of the
relevant factors enumerated by us; ... the
payment must have been at a uniform rate
throughout to justify an inference that the
payment at such and such rate had become
customary and traditional in the particular
concern."
In M/s. Tulsidas Khimji v. Their Workmen() the Union ,of
workmen claimed profit-sharing bonus at the rate of six
months’ wages and traditional or customary bonus at a rate
which was not clear but which might be said to be either
three months’ wages or one month’s wages plus dearness
allowance on the occasion of the Diwali festival. The claim
was rather nebulous as observed by this Court. According to
the Tribunal the workmen had proved that bonus had been paid
at a uniform rate of one month’s basic wages plus dearness
allowance on the occasion of the Diwali festival throughout
the period i.e. 15 years commencing from 1940-41 to 1956-57.
Referring to the argument advanced on behalf of the
appellant company that the four circumstances mentioned
above in Graham Trading Co.’s case had not established it
was remarked:
". . . what is more important to negative a
plea for customary bonus would be proof that
it was made ex gratia, and accepted as such,
or that it was unconnected with any such
occasion like a festival as laid down by this
Court in the case of B. N. Elias & Co. Ltd.
Employees Union v. B. N. Elias & Co. Ltd.
(2)."
(1) [1963] 1 S.C.R. 675.
(2) [1960] 3 S.C.R. 382.
69
In Vegetable Products Ltd. v. Their Workmen (1) "the case of
the workmen for payment of puja bonus was that it had become
either an implied term of employment between them and their
employer or customary". The Tribunal came to the conclusion
that payment of one month’s wages before puja as customary
bonus had been established through it apparently did not
accept the claim that payment of puja bonus as an implied
condition of service had been proved. The Tribunal further
found that the circumstances mentioned in Graham Trading
Co.’s case (2) had been satisfied. Examining
the evidence this Court found on the facts (see p. 1501)
that:
".....the Puja bonus was paid for the first
time on the eve of the Puja festival in 1964
at the rate of 10 days’ wages. In 1955 it was
paid at the rate of 20 days’ wages. From 1956
to 1961 the payment has been made before Puja
at 30 days’ wages. ... from 1956 to 1958
payment was made without any dispute and
without conditions. But in 1959 a dispute
arose as to payment of Puja bonus for that
year and was settled before the conciliation
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officer by a settlement between the appellant
and its workmen. The first term of that
settlement ... runs thus --
30 days’ wages will be paid as bonus (ex
gratia) for the accounting year 1957-58 to all
the workmen who will have completed 240 days’
work by the day of payment and will be on the
rolls of the company on that date."
It was observed that the payment for the 1959 was ex gratia
and accepted as such b, the workmen. According to this
Court:
"This is not a case where the employer made a
unilateral declaration that the payment was ex
gratia. This was a case where the appellant
said that the payment was ex gratia and the
workmen accepted the payment as ex gratia.
Besides there was a further condition that the
payment would be made to those workmen only
who had completed 240 days work by the day of
payment."
(1) A.I.R. 1965 S.C. 1499.
(2) [1960] 1 S.C.R, 107.
70
The evidence further showed that although for the year 1960
and 1961 payment had been made at the rate of 30 days’ wages
the workmen had given a receipt in terms which stated that
the payment was made as advance to be adjusted against
profit bonus for the previous year. In these circumstances,
this Court found itself unable to hold that there had been
payment for an unbroken series of years before the dispute
was referred to the tribunal and the finding of the tribunal
that payment of customary traditional bonus on the occasion
of the Puja festival was established was set aside.
Lastly, we may refer to Management of Churkulam, Tea Estate
(P) Ltd. v. The Workmen & another (1). In this case there
was at first an agreement in the year 1946 relating to bonus
for the years 1947, 1948 and 1949. The agreement was
extended also for the years 1950 and 1961. A fresh
agreement was entered into in 1955 for payment of bonus for
the years 1952, 1953 and 1954 and there were subsequent
agreement also. There was no controversy that the appellant
had paid bonus for nine years and it was not at a uniform
rate. So ’far as the year 1952 was concerned the
appellant’s case was that it had not paid any bonus as such,
but on the other hand it had made an ex gratia payment of
Rs. 3 to each worker; but the tribunal did not accept this
plea and held that the said payment must be treated as one
having been made towards bonus. This Court came to the
conclusion that the Tribunal was wrong in holding that an
inference could be drawn for payment of bonus as an implied
condition of service, in the circumstances of the case, when
the payment admittedly was not uniform and was not connected
with any festival. The Court also negatived the plea of the
workmen to treat the bonus as a customary or traditional
bonus because apart from the fact that it was not connected
with any festival, one of the essential ingredients viz.,
that the payment should have been at a uniform rate through
was admittedly lacking in the case.
The above decisions all go to negative the claim of the
appellant before us. The only fact about which there can be
no doubt is that payment was made at the rate of 10 per cent
for a large number of years with an
(1) [1969] 1 S.C.R. 930.
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intervening period when it was made at the rate of 11 per
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cent. The facts do not warrant any conclusion as to the
payment being related either to any festival or under an
implied terms of employment between the parties. It will be
noted that for the very first period i.e. the years from
1940-41 to 1945-46 there was no claim for the payment of
either customary bonus or a festival bonus. ’On the other
hand, the express, claim was made for War bonus. The major
part of the entire period was covered by awards and
excepting in one of these awards, there was no reference to
any festival bonus. There was an intervening period Which,
as already noted was covered by an express agreement between
the parties. The rate too, as already shown, was not
uniform. Consequently the claim made by the appellants that
they should be paid 10 per cent either as festival bonus or
under an implied term of employment cannot be accepted.
With regard to the second claim there is no dispute that
bonus must be computed in terms of the Full Bench formula as
accepted by this Court in the case of Associated Cement
Companies Ltd. v. Its Workmen (1). Learned counsel for the
appellant was prepared to accept the gross profits for the
adoption of the Full Bench formula as shown in the balance
of the revenue account for the year ending 31st March 1961
subject to certain exceptions. This figure as shown in
Schedule F to the profit and loss account was Rs.
8,88,598.29. This was however subject to the qualification
as to several figures of expenses incurred during the year.
The first related to the figure in the revenue account where
the cost of coal and fuel was shown by the company as Rs.
21,12,875.97. According to the appellant, the document Ex.
P-13 prepared by the Managing Agents of the company and
certified as correct by their chartered accountants on
September 28, 1961 showed that the fuel consumed was 54,962
tons at ’an average cost of Rs. 35 -68. This according to
the appellant was a solemn document inasmuch as it had to be
prepared and submitted under sub-rule (3) of Rule 26 of the
Indian Electricity Rules, 1937. The statement is headed
"Summary of Technical and Financial Particulars for the year
ended 3 1 St March, 1961." If the figures with regard to the
quantity of coal
(1) [1959] S.C.R. 925 6-M 1245 Sup CI/71
72
and the average cost in Ex-P-13 be taken into account,
instead of the figures Rs. 21,12,875-97 in the revenue
account the correct figure would be Rs. 19,55,447/- which
would swell up by the gross profits by the difference
between he two amount’s, viz., Rs. 1,57,4281-.
It was seriously contended before us by learned counsel for
the respondent that we should accept the figure given in the
balance sheet as the same is supported by certificates of
the same firm of chartered accountants, and their letters
addressed to the Managing Agents of the Company. According
to the letter Ex. D-28 dated 20th September 1961 the books
and records of the Jabalpur Electric Supply Company Ltd.,
for the period 1st April, 1960 to 3 1 St September, 1960
showed the average cost of coal delivered to bunkers during
the period to be Rs. 37.81 per ton or Rs. 37-21 per tonne
(metric). The letter Ex. D-29 which is similarly worded
shows that for the period 1st October 1960 to 31st March,
1961 the average cost of coal delivered to bunkers during
this period was Rs. 39 -09 per ton or Rs. 38.47per tonne.
These two figures were sought to be supported by the
certificates of the chartered accountants dated 18th April,
1963. The above will show that there was considerable
discrepancy as to the value of the coal consumed as reported
to the Government and as reported to the Managing Agents of
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the Company by the accountants. This was sought to be
explained in the oral evidence of one L. S. Mcleod who
stated that the statement prepared under the Electricity
Act was on the basis of the record maintained by the Head
Office but the total consumption of the coal during the year
was 54,962 tons and the average cost of coal per ton was Rs.
35 -58 per ton. Oral evidence was also adduced of one B.
Chatterjee, an Assistant in the Electricity Department of
Martin Burn Ltd. Calcutta who stated that the rate shown in
Ex. P-13 i.e. Rs. 35 -58 per ton was the estimated value of
coal received per ton and that this figure has been arrived
at the Power House Jabalpur purely on estimates and that the
estimate did not take into account certain liabilities i.e.
certain suppliers’ bills which were accounted for and
audited at the Head Office at Calcutta. In our view, the
attempted explanation cannot be accepted as Ex. P-13 was
made under the provisions of an Act. It was prepared in
Calcutta long after the period to which it related. It was
submitted some time
73
after the Directors’ reports to the shareholders dated 4th
September 1961 accompanying the balance sheet and the profit
and loss account. It was for the company to explain exactly
how the discrepancy arose and their failure to explain, in
our opinion, should lead to the grossing up of the amount of
difference already mentioned with the gross profits as per
the revenue account.
The next disputed item relates to the amount of Rs.
85,887 .63 as shown in the revenue account towards "
miscellaneous expenses." The item reads "miscellaneous
expenses including Rs. 3,025 -16 for wages and Rs. 4,128 -74
paid to Martin Burn Ltd. as guarantors’ commission." The
Company was asked to furnish particulars of the items which
added up-to Rs. 85,887 -63. According to Ex. P-18 the said
figure was made up of the following: Rs. 34,584.11 as cost
of printing, stationery and advertisement, Rs. 12,648 -18 as
travelling expenses, Rs. 7,207 -80 as general charges, Rs.
6,206 -57 bank charges, Rs. 4,128.74 as guarantors’
commission and Rs. 21,112 -23 as repairs to furniture etc.
It was this last figure which was challenged by the
appellant. Schedule E to the balance sheet for the relevant
year (fixed capital expenditure) shows that the original
cost of furniture and equipment up to 31st March 1960 was
Rs. 38,377 -78 and that additions, sales and adjustments
during the year was Rs. 5,498 -76 and the- total
depreciation written off to 3 1 st March 1961 was Rs.
29,915-23. It is difficult to appreciate how furniture the
total cost of acquisition of which was Rs. 43,876 54 as
shown in schedule E would require repairs to the extent of
Rs. 21,000 -00 in one year as shown in the particulars
supplied. Mr. L. S. Mcleod admitted that he could not trace
any expenditure having been shown in respect of repairs of
furniture in the summaries of receipts and monthly
expenditure and that his ’estimate of the amounts spent for
repairs would be less than Rs. 500/-. Mr. B. Chatterjee
said the amount also included the hire charges of the office
equipment. He did not refer to any books of account to
support the statement. In the absence of proper explanation
supported by the books of account of the company, the figure
of Rs. 21,112/- ought not to be accepted and taking into
account Rs. 5001- as stated by. Mr. Mcleod as having been
spent for repairs to furniture, a sum of Rs. 20,612/- should
be added to the gross profits.
74
The third item to be added-to the gross profits according
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to the appellant was the figure of interest RS. 16,645 53
shown in schedule F for computation of net profits in
accordance with S. 349 of the Companies Act, 1956 with
details of calculation of Managing Agents’ remuneration for
the year ended 31-3-1961. This amount according to the
appellant should have found a place in Ex. D- 11 being a
"Statement of surplus/deficiency of profits for the year
ended 31st March 1961" i. e. the working sheet compiled by
the company. This interest accrued to the company out of
the statutory investments as shown in Schedule to the
balance sheet. Schedule C gives the statutory contingencies
reserve fund investments, the book value thereof being Rs.
2,30,880 -37 quoted on the stock exchange, besides Rs.
50,031 -25 which was not so quoted, the total coming to Rs.
2,80,911.62. Although the statutory contingency reserve fund
investments are not to be taken into account in "the
statement of surpluses and deficiency of profits" it was
included in the statement of net profits for the calculation
of managing agents’ commission and we see no reason why the
same should be left out of, account in Ex. D-11. Mr. Chagla
contended that the workers had done nothing during the year
of account i.e. 1st April 1960 to 3 t St March 1961 which
entitled them to claim the benefit of this amount of
interest. While it is true that their claim cannot be
rested on any work done by them for the company during the
year of account there can be no question that the interest
accrued to the company out of the efforts of the workers in
the past which had not been taken into account in
calculating bonus. The managing agents had done nothing in
the year of account to entitle them to take into account the
amount of interest which accrued to the company during the
year of account. If they were entitled to claim a share of
it the workers were equally entitled to base their claim for
its inclusion in Ex. D- 11. The result is that the gross
profits of the company as shown in Ex.D- 11 would have to be
augmented by the sums of Rs. 1,57,428, Rs. 20,612 and Rs.
16,645 -53.
On behalf of the appellant dispute was also raised to the
deduction of several items in’ Ex. D-1 1 namely, (1)
rebate to consumers Rs. 17,046 00 (2) depreciation to the
extent of Rs. 3,55,755, as also double shift allowance of
Rs. 95,256 (3) income tax at 45% as per Finance Act i. e.
Rs. 1,07,052
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and (4) return of 6% on working capital which was quantified
at Rs. 8,25,243/-. According to the Tribunal, it was not
necessary to consider the other two items, return at 6 % on
other reserves employed in the business Rs. 55,38,296/- and
rehabilitation reserve of Rs. 30,15,202 as in his view even
without taking these two last figures the working sheet Ex.-
D-11 showed a negative balance, that is to say absence of
any surplus resulting out of which the workers could claim
anything by way of profit bonus.
With regard to rebate to consumers it was argued before the
Tribunal that it was never paid to the consumers as the
Sixth Schedule to the Electricity Supply Act, under
paragraph 11(1) went to show that:
"If the clear profit of a licensee in any year
of account is in excess of the amount of
reasonable return, one-third of such excess,
not exceeding five per cent of the amount of
reasonable return, shall be at the disposal of
the undertaking. Of the balance of the
excess, one half shall be appropriated to a
reserve which shall be called the Tariffs and
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Dividends Control Reserve and ’the remaining
half shall either be distributed in the form
of proportional rebate on the amounts
collected from the sale of electricity and
meter rentals or carried forward in the
accounts of the licensee for distribution to
the consumers in future, in such manner as-
the State Government may direct."
This goes to show that the rebate to the consumers is not to
be utilised by the company except for distribution to the
consumers as may be directed. If the company cannot have
the benefit of it, it stands to reason that the worker
cannot ask for a share and the claim of the appellant for
inclusion of this sum must be rejected.
It was next argued on behalf of the appellant that the
Tribunal should not have allowed depreciation in excess of
the figure which was shown in the profit and loss account of
the company, viz., Rs. 2,51,405 -80. The Tribunal accepted
the depreciation to the extent of Rs. 3,55,755 but
disallowed the claim with regard to double shift allowance.
The judgment of this Court in The Associated Cement
Companies’ (supra at P. 959) shows that this Court
76
accepted the formula propounded by the Full Bench of the
Labour Appellate Tribunal in U. P. Electric Supply Co.
Ltd., v. Their Workmen (1). In U. P. Electric Supply Co., s
case the Full Bench of the Labour Appellate Tribunal had
stated (see p. 440) that:
"Upon a careful consideration of the matter we
are of the view that only normal depreciation,
including multiple shift depreciation, but not
initial or additional depreciation, should
rank as a prior charge in applying our Full
Bench formula,"
This case came up for consideration again in T.T.E. Supply
Co., Ltd. v. Its Workmen (2) and The Ahmedabad Miscellaneous
Industrial Workers Union v. The Ahmedabad Electricity Co.
Ltd. (3) and was approved of in both. That Rs. 3,55,755/-
was the normal depreciation for the year is amply borne out
by the assessment order of the Income-tax Officer for the
relevant year which is Ex.D-20 in this case. The company
further filed statements of depreciation in respect of each
of the assets from 1948 to 1961 and the totals of the
figures add up to the exact sum of Rs. 3,55,755/-.
With regard to the claim of double shift allowance Mr. B.
Chatterjee, the Company’s witness, stated that the amount of
Rs. 95,256/- represented the double shift allowance but they
did not claim it in the income-tax assessment inasmuch as if
they had done so in the year of account, this would have
increased their burden of tax in the subsequent years and it
was to regulate the stability of profits that they did not
claim double shift in the income-tax returns. We see no
reason to reject the evidence of Mr. Chatterjee. The fact
that in the balance sheet the company showed only Rs.
2,51,405 -80 was not conclusive on the question. What
amount of depreciation the company will claim under the
Income-tax. Act in order to allow some profits to be
distributed among the shareholders is a concern entirely of
the company, so long as they do not claim anything more than
what the law allows. It is significant to note that this
Court pointed out in The Ahmedabad Miscellaneous Industrial
Workers’ Union case (supra) that the Income-tax Rules should
be applied in
(1) [1955] 2 L.L.J. 431.
(3) [1962] 2 S.C.R. 934.
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(2) [1960] 3 S.C.R. 68.
7 7
calculating depreciation under the Fall Beach Formula in
preference to the provisions of the Seventh Schedule to the
Electricity Supply Act as this would work for uniformity in
all industrial concerns. A contention similar to the one
put forward by the appellant in this case was rejected by
this Court in Hamdard Dawakhana Wakf v. Its Workmen The
notional normal depreciation there claimed by the employer
and which would be allowable under the Income-tax Act was
Rs. 2,22,867 but the Tribunal allowed only Rs. 1,06,785 as
this figure had been shown by the appellant in its profit
and loss account. This Court observed that:
" In the profit and loss account, it is the
actual depreciation that would be shown and
not the notional normal depreciation and so,
the fact that the former depreciation has been
shown in the profit and loss account can not
be held to be a factor against the appellant."
It was also remarked that the accountant of the appellant
had produced the figures of depreciation in various exhibits
and his statement had not been challenged in cross-
examination and therefore there was no reason to disallow
the claim of depreciation of Rs. 2,22,867/-.
On reasoning similar to the above it was argued on behalf of
the appellant that there was no justification for the
Tribunal’s disregarding the income-tax actually paid by the
company as per the assessment order, viz., Rs. 53,896 -80.
But this in our opinion cannot be accepted as the available
surplus has to be found out by working on the Full Bench
formula of the Labour Appellate Tribunal. There can be no
question that income-tax has to be nationally computed at 45
% after deduction from the gross profits, the expenses shown
in Ex. D- 11 ending with notional normal depreciation and
double shift depreciation. The Tribunal allowed Rs.
1,07,052 but the result of the addition to the gross profit
of Rs. 8,88,598 (1) the difference in the value of the coal
consumed, (2) the amount disallowed out of the furniture
repairs and (3) the interest amount of Rs. 16,645/- the
income tax to be allowed in the working sheet would be Rs.
1,94,435/- in place of Rs. 1,07,052/-.
(1) [1962] 2 L.L.J. 772.
78
The last item disputed by the appellant was the return on
working capital which was shown as Rs. 8,25,243/in Ex. D-
11. The evidence given on this head was that of Mr. B.
Chatterjee. He referred to various exhibits viz., D-22 to
D-27 in this connection. Ex. D-22 was a statement compiled
for showing reserves available as working capital. Exs. D-
24 and D-25 went to show that at the relevant period, the
company was borrowing moneys from the United Bank of India
Ltd. The Tribunal accepted the company’s case that Rs.
8,25,243/- should be taken to be the working capital of the
company for the relevant year and return at 6 per cent
should be deducted to arrive at the available surplus for
distribution. The evidence on this head was furnished by B.
Chatterjee who said that the sum had been calculated as
shown in Ex. D- 11 in accordance with clause xvii (e) of
the Sixth Schedule to the Electricity Act, and this sum
being the lesser of the two was incorporated in Ex. D- 1 1.
The details of the requirement of liquid funds to run the
undertaking was given in Ex. D-16. In his cross-
examination Chatterjee said that besides the item shown in
Ex. D-22 (statement of reserves) and other funds which had
been used as working capital, the company had to take the
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loan in spite of these reserves which were already employed
in the business as working capital.
Mr. Chagla contended that the working capital as computed in
accordance with Schedule VII of the Electricity Supply Act
being a statutory computation could be taken into account
even for the working out of the Full Bench Formula of the
Labour Appellate Tribunal. In our view, this is not the
correct position in law. In T. T. Supply Company’s case (1)
the question considered by this Court was whether the Full
Bench Formula should be applied to an electric supply
undertaking in preference to the provisions of the different
clauses of paragraph xvii of the Sixth Schedule to the
Electricity Supply Act and this Court concurred with the
view expressed by the Labour Appellate Tribunal that even in
such a case the Full Bench Formula should be applied. In
the Ahmedabad Miscellaneous Industrial Workers’ Union’s case
(2) where one of the questions before this Court was
whether. depreciation should be calculated according to the
provisions of the income-tax Act and the rules framed
thereunder or accord-
(1) [1960] 3 S.C.R. 68.
(2) [1962] 2 S.C.R. 934.
79
ing to the provisions contained in the Seventh Schedule the
Electricity Supply Act, it was held that the rates pre-
scribed under the rules framed under the Income -tax Act lay
down the proper measure of depreciation to be allowed as in
the view of this Court the field of industrial relations in
connection with which the Full Bench Formula was evolved, it
was not proper to inject therein the provisions contained in
the Seventh Schedule to the Electricity Supply Act.
There can be no dispute that a good portion of the reserves
must have been utilised in running the company inasmuch as
it was obliged to borrow moneys from the bank and pay
interest thereon. it is highly unlikely that a company which
had reserves as disclosed by its balance sheet and profit
and loss account would borrow moneys from a bank unless it
was utilising the reserves for some other and more’
remunerative purposes. The balance sheet and the profit and
loss account negative such a view and no evidence which
throws light on the question was recorded.
We are however not called upon in this case to come to a
finding as to how much of the reserves were utilised as
working capital in view of the fact that even without taking
this item into account, there is no available surplus left
in terms of the working sheet which forms the basis for
determining the available surplus.
The working sheet according to us should be altered as
follows: To the figure Rs. 6,88,905 shown as surplus in Ex.
D-11 after the deduction of various items of expenses should
be added three figures i.e. (1) coal and fuel Rs. 1,57,428/-
(2) furniture account Rs. 20,612 and (3) interest Rs.
16,545/- making a total of Rs. 8,83-490/- as gross profits.
From this will have to be deducted Rs. 4,51,011 being the
sum of notional normal depreciation of Rs. 3,55,755 and
double shift depreciation Rs. 95,256/-. This leaves a
balance of Rs. 4,32,479. From this will have to be deducted
the income-tax of 45 % which in view of the addition of the
items regarding coal, furniture and interest should be Rs.
1,94,615 in place of Rs. 1,07,052 as shown in Ex. D-1 1.
Deducting this from Rs. 4,32,479 the balance left is Rs.
2,37,864. From this has to be deducted the statutory
contingencies reserve and the s statutory development
reserve and 6 per cent on the share capital of Rs.
22,49,850/ there
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80
being no dispute as to these figures. The result is that
from the figure of Rs. 2,37,864 there has to be deducted a
sum of of Rs. 2,38,585 which leaves a negative balance of
Rs. 72 1. The case, of the appellant for showing an
available surplus for distribution therefore disappears.
In the result, the appeal fails both on the point of custo-
mary or festival bonus or implied term of the contract or
profit bonus, and will be dismissed with costs.
V.P.S. Appeal dismissed
81