PETITIONER: INDIAN LINK CHAIN MANUFACTURES LTD. Vs. RESPONDENT: THEIR WORKMEN DATE OF JUDGMENT17/09/1971 BENCH: REDDY, P. JAGANMOHAN BENCH: REDDY, P. JAGANMOHAN VAIDYIALINGAM, C.A. CITATION: 1972 AIR 343 1972 SCR (1) 790 1971 SCC (2) 759 CITATOR INFO : R 1972 SC2332 (62,63) RF 1977 SC2246 (16) R 1978 SC1113 (24) E 1980 SC 31 (13,19,25) RF 1980 SC2181 (135) R 1990 SC2047 (11) ACT: Payment of Bonus Act, 1965, ss. 2(p) and 19(2)--'Settlement' when terminated. Industrial Dispute-Settlement when terminated--Consolidated wages ,fixed by Tribunal without linking dearness allowance with living wage and without granting adjustments-Propriety- Bonus-Figures of depreciation and development rebate whether to be taken from income-tax assessment order or balance sheet-For determining return on reserves figures of reserves at beginning of year should be taken-Gratuity-Financial capacity How to be calculated when wage consolidated without indicating how much relates to dearness allowance--Scheme whether fair and reasonable. HEADNOTE: The appellant was registered as a public limited company in or about 1956 and commenced production in or about 1958. It employed approximately 170 persons of whom 156 were daily rated workers-the latter being respondents in the present appeal. In respect of certain demands raised by the workmen in 1962 there were conciliation proceedings in the course of which the parties arrived at an amicable settlement on April 5, 1963. Thereby they settled inter alia Demand No. 1 relating to wage scales and Demand No. 2 relating to Dearness Allowance. The parties also agreed to discuss, the existing production bonus scheme and to finalise the same by the end of June 1963. The settlement was signed on behalf of the parties and by the Conciliation Officer. However subsequently there were again disputes between the workmen and the employers and these were referred by the State Government to the Industrial Tribunal on December 27, 1965 under s. 10(A)(d) of the Industrial Disputes Act, 1947. Both the parties being dissatisfied with the Award of the Tribunal filed appeals by special leave in this Court. The questions that fell for consideration were : (i) whether in view of the absence of a notice of termination as contemplated in s. 19(2) of the Act the settlement dated August 5, 1963 continued to subsist and consequently whether the reference of the dispute to the Tribunal was incompetent, (ii) whether the tribunal was wrong in fixing consolidated wages without linking dearness allowance with cost of living or granting adjustments in the wage scale; (iii) whether in the matter of determining available surplus the Tribunal was justified in taking the figures of depreciation allowance and development rebate from the balance sheet and not from the income-tax assessment orders in which the figures were higher; (iv) whether for the purpose of determining the return on reserves the figures it the end of the year or the beginning of the year had to be taken; (v) whether the Tribunal was right in its conclusion that the financial position of the company justified the framing of a scheme of gratuity; (vi) whether in View of the fact that the Tribunal had prescribed a consolidated wage without indicating what portion of the wage was the basic wage and what portion the dearness allowance, the payment of gratuity based on an average of the basic wages of an employee exclusive of dearness allowance was impossible to implement; (vii) whether the gratuity scheme was incongruous because those who retired were given larger benefits than those who were retrenched. 791 HELD : (i) Reading s. 19 with the definition of 'settlement' in s. 2(p) of the Industrial Disputes Act it would appear that a settlement will ensure for the duration of the period for which it has been agreed to between the parties and if no period is agreed upon, for a period of six months from the date on which the memorandum of settlement of-dispute is signed by the parties and where it is put an end to by a notice in writing it will continue to be operative until the expiry of two months from the date of which the notice is given. It would appear that even where an agreement is for a fixed period it will not continue to be binding for the duration of the period of settlement but thereafter also until it is terminated by a notice in writing and even then it will continue for a period of two months from the date of such notice. While no doubt it is true that a notice must be in writing, such a notice can be inferred from correspondence between the parties. [798 A-C] In the present case the management had in a letter dated 20th March 1965 addressed to the Additional Commissioner of Labour, Bombay, admitted that no settlement or award was in existence, the reference, of the Industrial Disputes was made only after that. It was not a satisfactory explanation of that categorical statement that it was made under a mistake. The said letter must be deemed to be a notice of termination because it made a categorical statement that the settlement had 'been terminated on 31-12-64. The management was therefore estopped from now taking the stand that the settlement was not put an end to or that the reference was invalid. [800 G-801 E] Cochin State Power, Light Corporation Ltd. v. Its Workmen, [1964] 2 L.L.J. 100, Workmen of Western India Match Co. Ltd. v. Western India Match Co. Ltd., [1963] 2 S.C.R 27 Management of Bangalore Woollen, Cotton & Silk Mills Co. Ltd. v. Workmen & Anr., [1968] 1 S.C.R. 581, applied. Workmen of Continental Commercial Co. (P) Ltd. v. West Bengal & Ors., [1962] 1 L.L.J. 85, disapproved. (ii)The Tribunal considered the financial status of the company and the era of prosperous business which it could look forward to, as well as the wage structure prevailing in the relevant units of the industry and other wages. There was no justification for interfering with it on the ground that it bad not fixed a separate dearness allowance linked with, increase or decrease in the cost of living index or to link the consolidated wage itself with it. [803 H; 804 H] Hindustan Times Ltd. New Delhi v. Their Workmen & Vice Versa, [1964] 1 S.C.R. 234, French Motor Car Co. Ltd.v. Workmen, [1963] Supp. 2 S.C.R. 16 and Bengal Chemical & Pharmaceutical Works Ltd. v, Its Workmen, [1969] 2 S.C.R. 113, referred to. However this was a fit case in which wage adjustment should have been made. The Tribunal gave no reason for rejecting the claim altogether. Why some adjustment was not made taking into consideration the length of the service bad not been stated. There was no adjustment in the first wage structure which was the subject of a settlement as such and it would not be fair also not to fix the wages in the wage scales which in fact were those fixed for the first time by the award. From an analysis of the various categories of workers in each of the years it would appear that a larger majority of them had been employed between the years 1963 and 1965. If a direction was given that there should be one increment for every completed 3 years up to the date of reference namely 27-12-65, no 792 injustice would occur, nor will there be strain on the financial resources of the appellant which it could not bear. [Directions given. [805 B-E] (iii)A statement as per Income,-tax Assessment statement 'A' Ex. C-5 was filedby the company on 2-9-66. Similarly another statement of profit and lossaccount as per annual account of the company-Statement 'B' Ex. C6 was filed on the same date. In the former statement C-5 accord- ing to item 2, depreciation allowed by the Income-tax Officer for 1964 was shown as Rs. 1,81,054 while according to C-6 depreciation was shown as Rs. 80,190. Similarly development rebates under C-5 was shown as Rs. 5,822 while under C-6 it was shown as Rs. 3,917. There was no challenge to these figures as such, nor did the respondent dispute that these amounts were not as per the assessment orders. The Tribunal had accepted statement C-6 but ignored C-5 even though both the statements were prepared by the company in exactly the same circumstances, one from the assessment orders and the other from the balance sheet. There was no justification for the rejection of the company's claim that depreciation and development rebate' be allowed as per income-tax assessment. [806 F-H] (iv)The claim of the Respondent for return on reserves also must be allowed because under s. 6(d) read with item (1) (iii) of the Third Schedule to; the Bonus Act the Tribunal ought to have allowed 6% of the company's reserves shown in its balance-sheet as at the commencement of the accounting year including any profits carried forward from the previous accounting year. The Tribunal was wrong in taking into account the figures of reserves as at the end of the accounting year. [807 B-C] (v)In dealing with the financial capacity of an undertaking to bear the burden of a gratuity scheme it would not be appropriate to approach the question 'from an investors point of view. The overall picture of the soundness of the undertaking and its future prospects must be taken into account. [812 D-E] In the present case the financial position of the company was such that the implementation of the scheme of gratuity was not likely to place an undue or unconscionable burden upon the company. [812H] M/s. British Paints (India) Ltd. v. its Workmen [1966] 2 S.C.R. 523, Management of Wengar & Co. v. Workmen, [1963] Supp. 2 S.C.R. 962, Burlianpur Tapti Mills Ltd. v. B. T. Mills Mazdoor Sangh, [1965] 1 L.L.J. 453, Hindustan Antibiotics Ltd. v. The Workmen, [1967] 1 S.C.R. 652, Gramaphone Company Ltd. v. Its Workmen, [1964] 2 L.L.J. 131 and Bharatkhand Textile Mfg, Co. Ltd. v. Textile Labour Association, Ahmedabad, [1960] 3 S.C.R. 329, referred to. (vi)While no doubt the general rule is that gratuity must be related to the basic wage, in cases where the wages are not very high and a consolidated wage has been fixed taking into account the dearness allowance, the scheme of gratuity may be related to the consolidated wage, which will be the basic wage in the subsequent years. At any future date having regard to the price index, the claim of the workmen either for a rise in the wage based on the cost of living index or the grant of separate dearness allowance to neutralise that rise is bound to be considered and adjudicated. No difficulty in implementing the scheme could therefore arise because of the fact that the Tribunal had prescribed a consolidated wage without indicating what position of that wage was the basic wage and what position the dearness allowance. [815 E-F; 8 1 3 H-814 A] Management Ghaziabad Engineering Co. (P) Ltd. v. Its Workmen, [1970] 1 S.C.R. 622, Delhi Cloth & General Mills Co. Ltd. v. Workmen & 793 Ors. [1969] 2 S.C.R. 307, Remington Rand of India Ltd. v. The Workmen, [1968] 1 L.L.J. 542, referred to. (vii)The criticism that the scheme was unfair and incongruous because those that retire are given larger benefits than those who are retrenched was unwarranted. The difference between the gratuity payable to persons who resign or retire voluntarily and those whose services are terminated is that the latter will receive in addition to the gratuity the retrenchment compensation admissible to them under the Industrial Disputes Act, while in the case of the former he will not be entitled to it. The scheme was not only reasonable but fair. [815 G-816 B] JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 204 and
610 of 1967.
Appeals by special leave from the Award dated September 30,
1966 of the Industrial Tribunal, Maharashtra, Bombay in
Reference (IT) No. 468 of 1965.
I.N. Shroff, for the appellant (in C.A. No. 203 of 1967) and
Respondent No. 1 (in C.A. No. 610 of 1967).
Madan G. Phadnis and Janardan Sharma, for the respondents
(in C.A. No. 204 of 1967) and the appellants (in C.A. No.
610 of 1967).
The Judgment of the Court was delivered by
P.Jaganmohan Reddy, J. The Government of Maharashtra had
referred the dispute between the Appellant and its Workmen
to the Industrial Tribunal under the Industrial Disputes Act
1947 (hereinafter called ‘the Act’) in respect of Wage
scales, dearness allowance, bonus, gratuity and permanency.
The Award made by it is the subject matter of this appeal by
Special Leave (Civil Appeal No. 204 of 1967) in which the
dispute relating to wage scales and dearness allowance is
contended only on the ground that there was a settlement
between the workmen and the employers in a conciliation
proceedings and as that has not been terminated by either
party the Govt. has no jurisdiction to refer the dispute in
relation thereto to the Tribunal. If this plea is not
accepted the wage scales and dearness allowance as awarded
by the Tribunal is not challenged. The claim for bonus as
awarded is disputed as it often happens, on the manner and
method of computation of depreciation and development
rebate. It is the case of the employers that it has not the
financial capacity to bear the burden of the gratuity scheme
framed by the Tribunal for the workmen. Apart from this
certain incongruities in this scheme are pointed out to
which we shall refer and deal with at the appropriate place.
The fifth issue relating to permanency is not pressed.
The workman have also filed an Appeal, (Civil Appeal No. 610
of 1967) against the Award in which the omission by the
794
Tribunal to grant an adjustment in the wage scale by
directing a fitment of the wages of workmen in the said
scales in accordance with the length of their service is
assailed. It is also pointed out that the Tribunal did not
link the dearness allowance granted by it with the cost of
living index and lastly the award did not compute the return
on reserves in accordance with the schedule 3 of the Payment
of Bonus Act (hereinafter called ‘the Bonus Act).
A few facts may now be stated for a better appreciation of
the matters in controversy. The Appellant was registered as
a Public Limited Company in or about 1956 and commenced pro-
duction in or about 1958. It employs approximately 170 per-
sons of whom 155 are daily rated workers and it is the later
category who are the Respondents in this case. In October
’62 the General Secretary of the Mumbai Kamgar Union which
represents the workers of the Appellant (hereinafter
referred to as ‘the Union’) made certain demands on their
behalf relating inter-alia to wagescales and dearness
allowance. These disputes formed the subject matter of
conciliation proceedings in the course of which the parties
arrived at an amicable settlement on 5th April ’63, the
relevant terms of which pertaining to. the wage scale and
dearness allowance ire as under :
Demand No.1-Wage scales:
The workers drawing at present upto Rs. 30.30 np. per day
will be given an ad-hoc increment of 60 np. with effect from
1-1-1.963 and another increment of 40 np. with effect from
1-1-1964.
(b)Persons drawing more than Rs. 3.30 np. per day will be
given an adhoc increment of 50 np. with effect from 1-1-1963
and anotherincrement of 30 np. with effect from 1-1-
1964.
(c)The arrears of increment from 1-1-1963 till 31st March
will be paid on or before 20th April, 1963.
Demand No. 2-Dearness allowance:
As the wage, scale agreed to above are consolidated i.e. in-
cluding allowance, the Union has withdrawn the demand”.
The other two demands relating to Casual leave and paid
holidays are not before us and need not be noticed. The
parties also agreed to discuss the existing production bonus
scheme and to finalise the suggestion for revising the same
by the end of June ’63, in view of the instalment of new
machinery. This settlement was reduced to writing and
signed by the Chief Executive of the Appellant, the
Conciliation Officer and the General Secretary, Mumbai
Kamgar Union and was considered a ‘settlement’ as defined by
clause ‘p’ of Section 2 of the Act. It was averred
795
that as this settlement was binding upon the parties under
Section 19(2) of the Act for a period of six months from 5th
April ’63 and would continue to bind them after the expiry
of the said period until the expiry of two months from the
date on which a notice in writing of an intention to
terminate the settlement is given by one of the parties to
the other party or parties to the settlement and since the
settlement was not terminated in accordance with any of the
requirements set out above by a notice in writing given by
the Respondents, no dispute could be raised again relating
to the wage scale and dearness allowance and therefore the
reference made on 27th December ’65 under Sec. 10(A)(d) of
the Act for adjudication was incompetent. On the dispute
relating to the payment of bonus, the case of the Appellant
was that its profits for the year 1964 ‘before depreciation
was Rs. 4,11,176/- and that under the payment of Bonus Act
the available, surplus was Rs. 19,921/- out of which an
allocable surplus would amount to Rs. 11,977/-. The
Tribunal however, in arriving at its own computation of
available surplus aid allocable surplus disallowed the claim
of the Appellant for a sum of Rs. 1,81,054/- on account of
depreciation and Rs. 5,822/in respect of the development
rebate reserve and instead it allowed depreciation of RE.
80.190/- and development rebate of Rs. 3,917/- as shown in
the balance sheet. In respect of these items the reason
given by the Tribunal is that while it is true, that the
Company was entitled to deduct by way of depreciation an
amount admissible in accordance with Section 32(1) of the
Income tax Act by virtue of Sec. 6 (a) of the Bonus Act,
there was no material on record to show that the deduction
in respect of the aforesaid items was actually made by the
Appellant in accordance with tile relevant provisions of the
Income tax Act. In these circumstances it did not accept
the deduction claimed by the Company, which were admissible
under the Bonus Act.
On the question of gratuity the case of the Appellant was
that it has only been in existence for 8 years from 1958 and
that for the years 1958 to 1960 its working showed losses.
For 1961 there was a carry forward from prior years of a
loss of Rs. 2,19,948/- which when set off against the profit
of Rs. 93,062/in the year 1961 left a carry forward of loss
of Rs. 1,26,880′ In the year 1962 it earned profits of Rs.
84,837/- but the losses incurred in the earlier years could
not be wholly set off and the balance of the loss of Rs.
42,049/- had to be carried forward to the year 1963. After
setting off this carry forward of loss against the profit
for the year 1.963 there was only a profit of Rs. 65,323/-.
In these circumstances no dividend was paid to the
shareholders for the years 1958, to 1962. Dividends however
were paid for the year 1963,1964 and 1965 but the stand of
the Appellant was that notwithstanding the earning of
profits and declaration
96
be provided for fully in accordance with the Income tax Act.
Apart from this there were large foreign loans the payment
of which was made difficult by the further burden imposed
upon it on account of devaluation of the Rupee. To this was
also added the increase in the wage bill consequent on the
settlement entered into with the Union as well as the
increase of Rs. 20,869/- due to Interim wage relief
recommended by the Wage Board for Engineering Industry.
Taking all these factors into consideration the Company’s
case before the Tribunal was that it had not the financial
ability to sustain a scheme of gratuity, Apart from this
ground of attack, the Appellant also contested the scheme as
being vague, contradictory and impossible to implement. The
Tribunal it is said while it had prescribed a consolidated
wage, directed the payment of gratuity by reference to the
basic wage excluding the dearness allowances. It is
therefore contended that it is not possible to ascertain
which portion of the consolidated wage is the basic wage and
which portion the dearness allowance and consequently the
implementation of the scheme has become impossible. It is
also submitted that as the scheme stands it is incongruous
because a person who resigns or retires after 10 years gets
a larger gratuity than a person whose services are
terminated.
In so far as the claim for bonus is concerned the
Respondents in their Appeal have challenged the Award of the
Tribunal on the ground that it had worked out the return no
reserves not as they were shown in the balance sheet at the
beginning of the year viz. Rs. 2,70,497/- as required under
Schedule III of the Bonus Act but on the reserves appearing
at the end of the year amounting to Rs. 4,92,349/-. This
method of computation would reduce the return on the reserve
deductable as a prior charge by Rs. 14,000/and consequently
would increase the available and allocable surplus. We have
already stated that the Respondents in their Appeal have
further challenged the Award relating to the fixation of
wage scales and dearness allowance, the former on the ground
that the Tribunal gave no directions on the question of
adjustments or fitments notwithstanding the fact that the
issue was specifically referred for adjudication and the
latter by not linking it to the cost of living index
allegedly on the ground that “no change for worse is likely
to take place for some time to come”. It will be convenient
to examine these rival contentions in respect of each of the
items separately.
The question whether the settlement in Ex. C. 9 was in
force at the time when the Government made the reference of
the dispute to the Tribunal, will depend on whether the
provisions of Sec. 19(2) read with Sec. 2(p) of the Act were
complied with. There is no dispute that Ex. C9 would
amount to a settlement but on behalf of the workmen it is
contended that it only records an ad-
797
hoc settlement, the operative portion of which relates to
two increments one to be given from 1.1.63 and the other
from 1-1-64, and it is during this period that the dearness
allowance was given up. In these circumstances the
management, it is claimed, terminated the agreement by
making counter proposals to the workmen in the conciliation
proceedings Which terminated the settlement. This averment
is supported by the finding of the Tribunal to That effect,
namely, that there was a waiver of the requirement of a
written notice putting an end to the settlement. The
contention on behalf of the Appellant on the other hand is
that there could be no waiver of a statutory notice required
by the provisions of the Act to be in writing to put an end
to the settlement, and that the analogy of waiver of a
notice required to be given in suits against the Govt. under
Sec. 80 of the Civil Procedure Code is neither apt nor is it
applicable to cases where as a matter of public policy a
written notice is required to be given by one of the parties
to the other party to terminate the settlement. Section
2(p) of the Act defines `settlement’ as meaning :
” a settlement arrived at in the course of conciliation
proceeding and includes a written agreement between the
employer and workmen arrived at otherwise than in the course
of conciliation proceeding where such agreement has been
signed by the parties thereto in such manner as may be
prescribed and a copy thereof has been sent to an officer
authorised in this behalf by the appropriate Government and
the conciliation officer”
In so far as it is relevant, Section 19 is as follows
19(1) A settlement shall come into operation on such date as
is agreed upon by the parties to the dispute, and if no date
is agreed upon, on the date on which the memorandum of the
settlement is signed by the parties to the dispute.
(2) Such settlement shall be binding for such. period as is
agreed upon by the parties, and if no such period is agreed
upon, for a period of six months from the date on which the
memorandum, of settlement is signed by the parties to the
dispute, and shall continue to be binding on the parties
after the expiry of the period aforesaid, until the expiry
of two months from the date on which a notice in writing of
an intention to terminate the settlement is given by one of
the parties to the other party or parties to the settlement.
(3) No notice given under sub-section (2) of sub-section
(6) shall have effect, unless it is given by a party
representing the majority of persons’ bound by the
settlement or award, as the case may be.,,
798
Reading Sec. 19 with the definition in sec. 2(p) it would
appear that a settlement will enure for the duration of the
period for which it has been agreed to between the parties
and if no period is agreed upon for a period of six months
from the date on which the memorandum of settlement of
dispute is signed by the parties and where it is put an end
to by a notice in writing it will continue to be operative
until the expiry of two months from ;the date on which that
notice is given. It would appear that even where an
agreement is for a fixed period it will not only continue to
rebinding for the duration of the period of settlement but
thereafter also until it is terminated by a notice in
writing and even then it will continue for a period of two
months from the date of such notice. While no doubt it is
true that a notice must be in writing, such a notice can be
inferred from correspondence between the parties.
In Cochin, State Power, Light Corporation Ltd. v. Its Work-
men(1) a settlement between the employers and the employees
had been arrived at on 25th November 1954 and was to remain
in force for a period of five years from 1st October ’54
i.e., upto 30th September ’59. While this was so under
Section 19(2) of the Act it would continue to be in
operation till it was terminated by a notice in writing.
The case of the employers in that case was that the
settlement was never terminated by notice in writing, as
such it continued to be in force when the reference was
made, and since a reference of a dispute made during the
continuance of the settlement is bad, the Tribunal had no
jurisdiction to adjudicate the dispute relating to wage
fixation and dearness allowance. It however appeared that
the workmen had presented a charter of demands on 14th
October ’59 in which there was a reference to the settlement
and it was stated therein that the Union had on the 13th
October ’59 resolved to terminate the existing settlement
and submit the charter of demands to the management. Then
followed the charter of demands. It was contended that this
did not put an end to the settlement as required by Section
19(2) of the Act because there was no reference to the
termination of the settlement by that charter. The Court
however rejected this contention and held that as there was
a reference under the charter of demands to a resolution in
which a specific statement that the settlement was being
terminated thereby was made it was held that that was
sufficient notice as required under Section 19 (2) of the
Act and hence the reference in regard to items covered by
the settlement were valid. Wanchoo, J. at page 101 observed
“There is however no form prescribed for
terminating settlements under S. 19(2) of the
Act and all
(1) [1064] 2 L.L.J. 100.
799
that has to be seen is whether the provisions
of S. 10 (2) are complied with and in
substance a notice is given as required
X X
thereunder”.
The facts in the Workmen of Western India Match Co. Ltd. .
The Western India Match Co. Ltd.,(1) were that during the
pendency of negotiations the Union by a letter had asked the
Company to treat the charter of demands as notice under Sec.
19(2 ) of the Act without first terminating the earlier
settlement in an Award and the Company had agreed to refer
the matter in dispute to the adjudication of a Tribunal.
But nonetheless it was contended that when there was no
notice of termination of settlement in the charter of demand
the subsequent reference in a letter that it should be
terminated as from the charter of demand was not valid.
This contention was however negatived on the ground that a
formal notice under s. 19(2) of the Act was immaterial
inasmuch as the presentation of the charter of demands filed
by a letter amounted to a notice of termination of settle-
ment. In the Management of Bangalore Woollen, Cotton & Silk
Mills Co. Ltd., v. The Workmen & Anr.,(2), it was sought to
be contended that the case in the Workmen of Western India
Match Co. Ltd., supported the proposition that an inference
to terminate an award or settlement can be gathered from the
various correspondences that passed between the management
and the Union but one of us Vaidialingam, J. at page 586
pointed out that that decision “does not lend any support to
such a view”. It was ultimately held in that case that-
though no such formal notice was given in the earlier
correspondence the letter of April 8, 1957 written by the
Union could itself be construed as notice within the meaning
of Section 19(2) and therefore the Tribunal had jurisdiction
to adjudicate upon the claim as the reference was made by
the State Government long after the expiry of two months
from April 8, 1957. It is true that though a written notice
can be spelled out of the correspondence there must be a
certainly regarding the date on which such a written notice
can be construed to have been given because a settlement
notwithstanding such notice continues to be in force for a
period of two months from that date.
The tribunal drew support from the Workmen of Continental
Commercial Co. (Private) Ltd. v. Govt. of West Bengal and
Ors. ( 3 ) for holding that the charter of demands itself
constitute the notice as required under Section 19 (2) of
the, Act. It thought that that case was decided by this
Court. This however was a case decided by the Calcutta High
Court where it was held that the charter of demands was a
tacit representation by the workmen
(1) [1963]2 S.C.R. 27. (2) [1968]1 S.C.R. 581.
(3) [1962] 1 I.L.J. 85.
800
not to remain bound any more by a settlement arrived at in
conciliation proceedings but sub-.sec. (2) of Sec. 19
contemplates an express representation physical, in the form
of writing terminating the agreement. While holding so it
nonetheless observed that a notice under Sec., 19 (2) of
the. Act can also be waived by the party to whom the notice
is to be sent. This view of the Calcutta High Court is
opposed, to the view taken by this Court and must be
rejected as not good law because in our view there cannot be
any waiver by conduct or implication of the requirement of a
written notice which that Court had itself recognised must
not be a tacit representation but an express representation
in the form of writing terminating the settlement.
This being the legal position it is necessary to examine
what in fact took place in this case. The settlement in C.
9 would appear to be as contended by the Respondent’s
Advocate on an ad hoc basis because it provides even in
respect of the demand for wage scale that the, employees
will be given two ad hoc increments one with effect from
1-1-63 and another with effect from 1-1-64. Even in respect
of the bonus scheme which was not part ,of the settlement it
was agreed to finalise the suggestion for revising it by the
end of June ’63, in view of the instalment of new machinery.
Nonetheless Exh. C. 9 embodies a settlement and even if the
duration of that settlement is not fixed as contended, it
will continue to be in operation until a notice in writing
to terminate it is given, or from the correspondence such a
notice to terminate can be ascertained. The Company had in
its written statement taken up- the stand that Exh. C. 9
still subsists but the correspondence shows that the Company
had put an end to it before the charter of demands were
presented to it. It would appear that during the
proceedings in conciliation of the dispute that has given
rise to the reference which is the subject matter of this
appeal, the Additional Commissioner of Labour, Bombay, wrote
to the Manager on 26-1-65 before entering upon the conci-
liation asking him to give information as to whether there
is any agreement, settlement or an Award governing the
demand raised on behalf of the workmen in the present
dispute. The Company by its reply dated 20th March 1965
informed him that the agreement between itself and its
workmen had expired. It said :
“at present we do not have any
agreement/settlement or an Award covering the
demands raised on behalf of the Workmen in the
present dispute with the present Union. We
had an agreement with the previous Union M/s.
Mumbai Kam2ar Union, for two years, which has
expired on 31-12-1964. There are no demands
pending for adjudication”.
The stand taken by the company that there is, no settlement
in force covering the, demands raised by the workmen is
clear. In
Body text tQ34pe4-~
$-(#,&p{been remitted
during his life time he would certainly have been liable to
Body textunder the provUtQ34pe4-~
$-(#,&p{with regard to
matters sing out of the Administration of the, Act. Sub-s.
Body textides, the coUf tQ34pe4-~
$-(#,&p{with regard to
matters sing out of the Administration of the, Act. Sub-s.
(2) provides, the co
802
On behalf of the Union it is pointed out that by not
directing an adjustment in these wage scales a worker who
has been in the service of the Company for 8 years drawing
less than the initial start in each of the wage scales
according to the category in which he is placed will get the
same initial wage as a person who is taken into service at
or near the date of the claim of the enforcement of the
Award which is not in conformity with social justice. The
Tribunal it is said should have directed an ad hoc fitment
like that given in the case of The Hindustan Times Ltd., New
Delhi v. Their Workmen Vice Versa(1), or in French Motor Car
Co. Ltd. v. Workmen(2). The Tribunal in the case before us
pointed out that the demand of the Union for wage scales was
that all the workers should be classified in consultation
with the Union and to be fixed in the wage scales claimed by
it on a point to point basis with retrospective effect from
1-2-1965. It is these demands that were considered and the
Tribunal did not see its way in adopting either the scales
of wages claimed by it or fixing them in the wage awarded on
a point to point- basis. There is therefore no question of
the Tribunal not exercising a jurisdiction vested in it but
it must be taken as having been considered and rejected.
The question whether that rejection is valid or not Would
depend on the facts and circumstances of the case as can ,be
ascertained from the material placed before it. It is
contended by the Union that the material before the Tribunal
was such that it could have made fitments for instance, from
the statement of the dates of joining and the classification
and designation of the workmen as given in U-3 statement.
From this statement the, Tribunal could have ascertained the
length of service of each of the employees, his category,
his date of joining and the wage scales which he was
drawing on the date of the Award and could have formulated
and directed an ad hoc fitment. It is true that taking as
typical, a case of a semi-skilled operator who joined on 1-
12-1958, another in the same category who joined on 13-3-
1961 and one who joined on 19-3-1964, more nearer to the
date of the Award, it would appeal that as all of them would
be drawing less than the initial wage of Rs. 5.50 in their
old wage scales they will start with Rs. 5.50 in the new
wage scales fixed for semi-skilled workers even though the
first of them had on the date when the wage scales came into
operation 8 years service and the second of them 5 years and
the last of them only 2 years. In the French Motor Car Co.
Ltd.’s case (2) this Court after considering the several
instances where the Tribunal had granted fitments expressed
the view that general adjustments are granted when scales of
wages are fixed for the first time. At page 27-28 Wanchoo,
J. observed:
(1) [1964] 1 S.C.R. 234.
(2) [1963] Supp. 2 S.C.R.16.
801
the statement of claim the General Secretary of Sarva
Shramik Sangh representing the workmen said that the private
agreement between the Company and Mumbai Kamgar Union dated
5th April 1963 was duly terminated and thereafter a charter
of demands were presented on 4-2-1965. Thereafter the
Assistant Labour Commissioner tried to conciliate and in his
report Ex. U , 6 while stating that conciliation
proceedings have ended in a failure, relying upon the fetter
of the management, stated that there was no subsisting
settlement/agreement or Award presently in this dispute.
The admission by the management is said to be made under a
mistake. We do not think this is a satisfactory explanation
of a categorical statement. In our view the letter of 20th
March 1965 must at any rate be deemed to be a notice of
termination, because there, is a categorical statement that
the settlement has been terminated on 31-12-1964. Even if
there is no evidence of written notice terminating it on the
date specified, the letter which said that it had so
terminated must be taken as the requisite notice, if so, the
reference to adjudication under the Act has been made long
after the expiry of the two months i.e., on 27-12-1965. If
we view the matter slightly differently, the, result is the
same, because when both the parties to the dispute Proceeded
on the specific plea that there was no settlement binding on
either of them in respect of the wages and dearness allow-
ance even prior to conciliation, the Government had no
option, on a failure of the conciliation proceedings and on
being informed by the written representation of the
appellant that there was no settlement in force, but to
refer the dispute to the Tribunal. The management therefore
is estopped from now taking the stand that the settlement
was not put an end to or that the reference was invalid.
In view of this finding though the management does not
assail the wages and dearness allowance as awarded by the
Tribunal, as already noticed, this Award is challenged by
the Union on the ground that no adjustment in the wage scale
was granted and that the dearness allowance’ was not linked
with the cost of living index. It is also contended that
the Tribunal by not making an Award_ in respect of fitments
in the wage scale committed an error and ‘is not
adjudicating the dispute in respect thereof, ‘has failed to
exercise a jurisdiction vested in it. It is true that while
the Tribunal prescribed a consolidated wage scale of daily
wages, it did not direct fitments in those wage scales. The
scales that have been prescribed for the various categories
of workers are as follows
Unskilled………… Rs. 4 .50-0 .20-6 .50
Semi-skilled Rs. 5 .50-0 .25-8 .00
Skilled Rs. 7 -00-0 .35-10 .50
Highly skilled Rs. 8 .50-0 .50-12 .50
803
.lm15
“A review therefore of the cases cited on behalf of the
respondents shows that generally adjustments are granted
when scales of wages are fixed for the first time. But
there is nothing in law to prevent the Tribunal from
granting adjustment even in cases where previously pay
scales were in existence; but that has to be done sparingly
taking into consideration the facts and circumstances of
each case. The usual reason for granting adjustment even
where wage scales were formerly in existence is that wage
scales were particularly low and therefore justice required
that adjustment should ‘be granted a second time.”
This principle in our view recognises that the payment in a
graduated wage scale should reflect the years of service of
an employee in that grade. When the graduated wage scale is
first fixed and a fitment is made therein subsequent
revision in wage scales do not require any further fitment
because the original fitment will continue to give them the
advantage of their service. The case of Hindustan Times
Ltd. v. Their Workmen(1), is one where the Tribunal took
into consideration in deciding the question of adjustment
that it would be fair to give some relief to the existing
employees by means of an adjustment, while at the same time
not burdening the employer with higher rates of wages for
new incumbents. In the circumstances it has held that there
was no justification for interfering with the directions
given by the Tribunal in the matter of adjustments.
The decision referred to would clearly indicate, that in
each case depending on the facts and circumstances, the
question whether any fitments should be made at all or if
fitments are to be made, what adjustments should be
affected, will have to be considered. In this case while no
doubt the wage scales and dearness allowance demanded by the
Union which was said to be, prevalent in as many as 26
concerns engaged in the Engineering Industry in the region
of Bombay would place fairly heavy burden on the financial
resources of the Company, the Tribunal observed that there
was no material on record which would furnish a basis for
treating the concerns relied upon by the Union as comparable
concerns. It was also pointed out that there were about 21
concerns in the same unit of the industry which were paying
minimum consolidated daily wages of Rs. 5.08 to their
employees and therefore their wage structure would thus
represent a cross-section of the wage structure of the
employees working in Engineering concern and would be very
relevant for fixation of wage structure of employees in the
Company. In the end the Tribunal considering the financial
status of the Company and the era of prosperous business
which it can look forward to, as well as the wage-
(1) [1964] 1 S. C. R. 234.
804
structure prevailing in the relevant units of industry and
other relevant considerations, prescribed the consolidated
scales of wages. We must therefore reject the claim for
dearness allowance being linked with cost of living index.
The case of the Respondents is that the Tribunal had
misdirected itself by relying upon a recent award made by it
in the case of another Company where it was said that the
cost of. living had gone up to 70 points but that was not
taken into consideration because the Company was a
flourishing Company and as such the minimum consolidated
wage was fixed as being proper. The criticism against the
approach of the Tribunal is in our view not warranted be-
cause it specifically stated in respect of the Award which
it considered that that “award may not be taken as laying
down a standard minimum wage in the engineering unit of
industry, the award would have its own importance as a
contributory factor for determination of the wage-structure,
of the employees in the Company’. As we pointed out the
Tribunal considered several factors in fixing the wage
scale. Each case must be considered on its own merits and
what was awarded in the Hindustan Times Ltd. case(1) or in
the Bengal Chemical & Pharmaceutical Works Ltd. v. Its
Workmen ( 2 ) , cannot be a detemining factor in other
cases. The principles relating to the fixation of fair wage
including the payment of dearness allowance to provide for
adequate neutralisation, which should be taken into
consideration in industrial adjudication, were stated by one
of us, Vaidialingam J, at page 123 of which the two that are
relevant are as follows
“(1)
(2) The purpose of dearness allowance being
to neutralise a portion of the increase in the
cost of living, it should ordinarily be on a
sliding scale and provide for an increase on
the rise in the cost of living and a decrease
on a fall in the cost of living.
(3) (4)
(5) The additional financial burden which a
revision of the wage structure or dearness
allowance would impose upon an employer, and
his ability to bear such burden, are very
material and relevant factors to be taken into
account”.
In these circumstances we are satisfied that the Tribunal
after considering the various factors to which a reference
was made awarded a consolidated wage having regard to the
financial capacity of the industry and there is no
justification for interfering with it on the ground that it
had not fixed a separate dearness
(1) [1964] 1 S.C.R. 243.
(2) [1969] 2 S.C.R. 113.
805
allowance linked with increase or decrease in the cost of
living index or to link the consolidated wage itself with
it.
We are however satisfied that this is a fit case in which
wage adjustment should have been made. The Tribunal gave’
no reason for rejecting the claim altogether. We could have
understood the rejection of the claim of the Union that it
should be given the right to make the adjustment itself, but
why some adjustment was not made taking into consideration
the length of the service, has not been stated. There was
no adjustment in the first wage structure which was the
subject of a settlement as such and it would not be fair
also not to fix the wages in the wage scales which in fact
are those fixed for the first time by the away Besides we
find from an analysis of the various categories of workers
in each of the years that a larger majority of them have
been employed between the years 1963 and 1965. If we were
to direct one increment for every completed 3 years upon the
date of reference namely 17-12-1965, no injustice would
occur nor will there be a strain on the financial resources
of the Appellant which it cannot bear. It would appear that
of the 145 workers shown in the statement U-3 only about 43
Workers will have the benefit namely 9 employed in 1958, 7
in 1959, It in 1960, 5 in 1961 and 1 1 in 1962. Of these
only 16 will get two grade increments in the adjustment as
proposed. In this view we direct the fitments accordingly
subject however, that the other workers will start at the
initial wage in their respective categories and their next
increment as also the movement in respect of those who have
joined service between 1958 to 1962 after the aforesaid
fitment is made will be due to them on completion of each
year from the date of the enforcement of the Award.
On the computation of bonus the three items that have been
challenged are those in respect of depreciation, development
rebate, and return on reserves-the former two by the
Appellant and the latter by the Respondent in its appeal.
The computation of bonus as already noticed is governed
according to the Bonus Act. Under Section 23 of this Act
there is a presumption about the accuracy of balance-sheets
and profit and loss accounts of Corporations and Companies
and since the accuracy of the particulars contained in these
documents have not been challenged in this case, reliance
will have to be placed thereon. Taking the first two items
regarding which the management had objection, the Tribunal
had deducted a sum of Rs. 80,190/- on account of
depreciation and Rs. 3,917/- on account of development
rebate and rejected the claim of the Company to make the
deductions in respect of the aforesaid items in accordance
with the Income-tax Act as provided by Section 6 (a) of the
Bonus Act, by merely adopting the amount ‘as shown in the
balance-sheet and profit and
806
loss account. While the, Tribunal, no doubt recognised that
the Company was entitled to deduct amounts by way of
depreciation in accordance with Section 32(1) of the Income-
tax Act it rejected the claim because there was no material
on record to show that the, deduction as actually made by
the Company towards depreciation and development rebate were
in accordance with the relevant provisions of the Income-tax
Act. The figures for deduction on account of return on
reserves have been taken not on those shown in the balance-
sheet at the beginning of _the year, which is what the Bonus
Act prescribes but on the figures shown at the end of the
year. It is submitted by the Respondent’s advocate that the
Tribunal was right in disallowing the first two items
because the Company did not prove by satisfactory evidence
that the amounts claimed by them were true. This contention
must be rejected. There can be no doubt that the employer
is entitled to deduct from the gross profit,-, as computed
under Sec. 4, depreciation under Section 6(a) of the Bonus
Act in accordance with Section 32(1) of the Income-tax Act
and under Section 6(d) such further sums as are specified in
the Third Schedule to the aforesaid Bonus Act. The only
dispute is whether the Appellant has placed material before
the Tribunal from which it could make the computation as
required under the Income-tax Act. In our view the employer
has been claiming from the very beginning depreciation and
development rebate reserve under the Income-tax Act and had
produced a statement signed by the Company’s officials in
which these figures were shown as per the Income-tax
assessments for each of the year specified therein. Before
the conciliation officer a statement was filed in which
depreciation as per Income-tax was claimed as Rs. 1.80
lakhs. In the, statement of claim also this amount was
claimed. Apart from these averments a statement, as per
Income-tax assessment, statement ‘A’, Ex. C-5 was filed, by
the Company on 2-9-1966. Similarly another statement of
profit and loss account as per annual account of the
Company-Statement ‘B’ Ex. C-6 was filed on the same date.
In the former document C-5 according to item 2, depreciation
allowed by the Income-tax Officer for 1964 was, shown as Rs.
1,81,054/- while according to C-6 depreciation as per annual
account of the Company was shown as Rs. 80,190/-. Similarly
development rebate under C-5 was shown as Rs. 5,822/while
under C-6 it was shown as Rs. 3,917/-. It may be mentioned
that there was no challenge to these figures as such, nor
did the Respondent dispute that these amounts were not as
per the assessment orders. The Tribunal had accepted
statements in C-6 but ignored C-5 even though both the
statements were prepared by the Company in exactly similar
circumstances, one from the assessment orders and the other
from the balance-sheet. We find no justification whatever
in the reduction of the claim by
807
the Company. The claim of the Company for a deduction on
account of depreciation and development rebate of Rs.
1,61,054/and Rs. 5,822/- instead of Rs. 80,190/- and Rs.
3,970/- is therefore, accepted.
The claim of the Respondent for return on reserves also must
be allowed because under s. 6(d) read with item 1(iii) of
the Third Schedule of the Bonus Act the Tribunal ought to
have allowed 6% of the Company’s reserves shown in its
balancesheet as at the commencement of the accounting year
including any profits carried forward from the previous
accounting year. A reference to the balance-sheet for the
year ending 31-12-1964, would show that the 3 items of
reserves at the end of the previous year which will be the
beginning of the accounting year 1964 were (1) development
rebate reserve-Rs. 1,82,174/-, (2) general reserve-Rs.
60,000/-, and (3) profit and loss account Rs. 5,323/- which
together add to Rs. 2,47,497/-. A return of 6% on this
amount should have been taken into account but instead the
Tribunal allowed 6% on Rs. 4,92,349/- which were the
reserves at the end of the year comprised of Rs. 1,86,091/as
development rebate reserve, Rs. 30,000/- as General reserve
and Rs. 6,289/- profit and loss account. The computation
under the Bonus Act is as stated and not as the Tribunal has
calculated. It would make a difference of Rs. 14.000/- in
respect of this item. We have at the end of the arguments
asked both the learned Advocates to give us an agreed
statement on the lines indicated above in respect of
depreciation, development rebate and return on reserves. We
give below that statement:
“BONUS CALCULATION FOR THE YEAR 1964
(1-1-1964 to 31-12-1964)
Rs.
Gross profits of the year 1964 4,11,176.00
Add bonus paid for the year 1963 19,129.00
Deduct prior charges 4,30,304.00
(a) Less Depreciation as per Income-tax1,81,054.00
2,49,250.00
(b) Less Development Rebate Reserve5,822.00
2,43,428.00
(c) Less Income-tax as 5% and Surcharge 1,21,714.00
1,21,714.00
(d) Less Return on capital at 8-1/2 Y. on Rs. 8,50,000/-
72,250.00
49,464 .00
808
(e) Less Return at 6% on Reserve of Rs. 2,47,497/-
(Rs. 1,82,174+Rs. 60,000/-+Rs. 5,323/-) 14,849 .82-
Available Surplus 34,6118
Allocable surplus (60 Y. of Available Surplus)20,768.50
Annual Wage Bill during 1964 2,43,562.98
Therefore, Allocable Surplus of Rs. 20,768 .50″
According to this statement the available surplus will be
Rs. 34,614.18 and the allocable surplus which is 60% of the
available surplus amounts to Rs. 20,768.50. This will be the
amount which will be available for distribution as bonus
instead of Rs. 42,783/- as computed by the Tribunal. The
Award will have ‘to be accordingly modified.
The, item relating to gratuity is challenged by the
Appellant mainly on the ground that the Company’s financial
capacity is not such as to bear the burden of the increase
in the wage scale and dearness allowance.
A good deal of criticism was directed against the method
adopted by the Tribunal in laying emphasis on the fairly
heavy wage bill-which it was said the Company could bear and
by picking and choosing convenient passages from the
Director’s Reports to buttress the conclusion that the
financial position of the Company was sound. Some of these
are as follows
That the Company turned the profits received in the year
1963 into losses and very substantially reduced the profits
for the years 1961 to 1965; that the observations of the
Chairman of the Board of Directors in the Director’s Report
for the year ending 31st December 1965 had shown that the
loan was increasing and the capital was being raised and
that the import licences had been received, that orders for
principal equipment had been finalised and that production
of alloy steel chains will commence in the last quarter of
1966. The observation that this expansion project was
responsible for the foreign exchange loan of the Company;
that all these loans are payable in well-spaced instalments
and with the increasing business turnover and profits from
year to year, that the Company should not find itself in an
embarrassing financial position or that it is in a sound
financial position are, all it is said a mere speculation.
In our view this criticism is not justified because
everything that the Tribunal has pointed out as we shall
show presently is warranted by the material on record. The
Tribunal it may also be noticed did not prescribe a very
onerous or burdensome scheme either. After referring to the
decisions of this Court in M/s. British Paints
809
(India) Ltd. v. Its Workmen(1), Management of, Wenger & Co.
v. Their Workmen(2), Burhanpur Tapti Mills Ltd. v. B. T.
Mills Mazdoor Sangh(3), it had on the principles laid down
therein observed that it would be necessary and proper to
make a modest beginning by introducing a lower scheme of
gratuity consistently with the standing and business
potential of the Company.
In determining the financial capacity of an industry what
should be the approach of a Tribunal has been dealt with by
this Court in some of the Cases. In the Hindustan
Antibiotics Ltd. v. The Workmen & Ors. (4) Subba Rao, J. as
he then was held that :
“The Tribunal considered all the relevant
circumstances; the stability of the concern
the profits made by it in the past, its future
prospects and its capacity and came to ‘the
conclusion that in the concern in question,
the labour should be provided with a gratuity
scheme in addition to that of a provident fund
scheme. We see no justification to disturb
this conclusion.” (page 674)
It is pertinent to notice that gratuity and wages in
industrial adjudication are placed on the same footing and
have priority over Income-tax and other reserves, as such in
considering the financial soundness of an undertaking for
the purposes of introduction of a gratuity scheme the
profits that must be taken into account are those computed
prior to the deduction of depreciation and other reserves.
In the Gramophone Company Ltd. v. Its Workmen(“), the
introduction of a scheme for the benefit of only 72
employees who were non-factory workmen, working at the
Bombay Branch of the Company was contested on the ground
that the Company had already a provident fund ‘Scheme for
the benefit of the employees and’at the time when the Award
for the introduction of the scheme was made the percentage
of contribution to the provident fund had been increased
though that benefit was not given to a small number of non-
factory workmen at Calcutta and to the concerned workmen at
the Bombay Branch but was made available only to factory
workers. This contention was negatived on the ground that
the mere existence of a provident fund scheme is not by
itself a reason for reducing the gratuity scheme
particularly when a good part of the services of existing
workmen were not covered by the provident fund scheme. In
that case while considering the financial position of the
Company and the contention on behalf of the Company that
before the real profits for each year can be arrived at
amounts to
(1)[1966] 2 S.C.R. 523. (2) [1963]Supp. 2 S.C.R. 862.
(3) [1965] 1 L.L.J. 453. (4) [1967] 1 S.C.R. 652.
(5)[1964] (2) L.L.J. 131.
810
be provided for compensation and development reserves should
be deducted. Wanchoo J, as he then was observed at page 136
“When an industrial tribunal is considering
the question of wage structure’ and gratuity
which in our opinion stands nor or less on the
same footing as wage structure it has to look
at the profits made without considering
provision for taxation in the shape of income-
tax and for reserves. The provision for
income-tax and for reserves must in our
opinion take second place as compared to
provision for wage structure and gratuity,
which stands on the same footing as provident
fund which is also a retrial benefit, payment
towards provident fund and gratuity is expense
to be met by an employer like any other
expense including wages and if the financial
position shows that the burden of payment of
gratuity and provident fund can be met without
undue strain on the financial position of the
employer, that burden must be borne by the
employer. It will certainly result in some
reduction in profits but if the industry is in
a stable condition and the burden of provident
fund and gratuity does not result in loss to
the employer, that burden will have to be
borne by the employer like the burden of wage-
structure in the interest of social justice”.
On the facts of this case it may be mentioned that the
Tribunal did not award a separate basic wage and dearness
allowance but a consolidated wage. That apart while no
doubt the Company did not, from the years 1958 to 1962
declare any dividends as it had made losses, it began to
make profits increasingly each year from 1963 to 1965.
During this period not only did the capital which was in
1958 at Rs. 2,25,000/- increase to Rs. 1 1,00,000/in 1965
but the salaries and wage bill correspondingly increased
from Rs. 43,443/- to Rs. 5,42,609/-. The loans no doubt
also increased from Rs. 2,81,129/- to Rs. 8,29,343/- but
this by itself is not indicative of the financial insecurity
of the Appellant because we find that notwithstanding these
loans the Company steadily built up reserves from about Rs.
0.70 lakhs in 1958 to Rs. 6.16 lakhs in 1965. The losses
which continued upto 1962 from 1.05 lakhs in 1958 came to be
reduced to Rs. 0.42 lakhs in that year, no doubt mostly due
to the Appellant earning profits in 1961 and 1962 of 80 and
84 lakhs respectively. Thereafter the profits were on the
increase; which in 1963 were Rs. 1.81 lakhs, in 1964-Rs.
3.21 lakhs and in 1965-Rs. 2.80 lakhs. All these profits it
may be mentioned are computed after deducting depreciation
and this should be taken into account in considering the
desirability of formulating a gratuity scheme for the
811
Appellant. The gross block which consists of assets and
loans etc. has also progressively increased from Rs. 5.01
lakhs in 1958 to Rs. 20.00 lakhs in 1965. The two
statements one on behalf of the Appellant and the other on
behalf of the Respondents, the figures in which we have
checked up from the balance-sheets for the corresponding
years and with respect to which there is no dispute, are
given below
Statement of the Appellant
————————————————————
Year Capital LoanLoss/ProfitSalaries & Dividend
Wages
————————————————————-
Rs. Rs. Rs. Rs. Rs. 1958 2,25,000 81,129.001,05,283.8443,443.29Nil 2,00,000.00 1959 3,00,000 71,347.00 2,60,000.00 1,59,537.6888,801.01 Nil 1960 3,00,000 1,10,588.68
2,77,800.002,19,948.911,15,947.60Nil.
1961 4,20,000 85,786.491,26,886.451,42,090.43Nil 2,41,260.00 1962 8,50,000 2,04,720.00 3,99,535.67 42,049.801,56,805.23Nil 1963 8,50,000 81,626 -60
1,68,180.00 56,322.002,22,986.6951,000
3,77,500.00
1964 8,50,000 29,294 -00
1,31,640.00 74,289.003,21,242.0068,000
3,31,415 -00
1965 11,00,000 94,100.00
2,82,727.00 96,999.003,42,609.0093,767
4,52,516.00
—————————————————————-
Statement of the Respondent
—————————————————————-
All figures in lacs
—————————————————————–
1958 1959 1960 1961 1962 19631964 1965
—————————————————————–
Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Paid up capital 2.25 3.003.004.208.508.508.50 11.00 Reserves 0.700.820.92Nil 0.802.474.92 6.16 Loans 4.564 -11 5.24 3.276.046.254.928.29 Losses 1.051.592.191.26 0 -42- - Profits--- 0.80 0.841.813.21 2.80 Gross Block 5.016.39 7.07 7.7915.2716.7918.7820.00 Dividend--- - 6 P.C. 8 P.C.10 P.C.
—————————————————————–
Both the above statement$ would lead to the same conclusion
namely that the Company’s financial position was pro-
gressively getting better and stronger each year and that
from the year 1968 when the gratuity
812
scheme will be given effect to it would not be difficult for
the Appellant to bear the burden of its implementation. At
any rate there is nothing to indicate that the financial
position of the Appellant would not be further strengthened
as and from that year. Even the Appellant’s Advocate could
not contend that it will deteriorate. Nor has the Company
placed before us any other material from which we could
judge that the financial implication of the gratuity scheme
would place a heavy burden on the Company’s finances which
it will not be able to bear, nor are we in a position to
ascertain how the pressure of the implementation of the
scheme is distributed over the years because the employer
does not have to provide the gratuity for all its members at
once. The Tribunal has stated and in our view justifiably
so, having regard to the list of the employees and the years
in which they have joined the Company that they are
comparatively young and not likely to retire all at once.
In fact our own examination of the statement Ex. U-3
showing classification of the employees incline us to the
view taken by the Tribunal. The years in which the
employees have joined service were all staggered and even if
they retire by completion of their full service the pressure
on the Company’s financial resources is pretty well
uniformally spread out. In dealing with the financial
capacity of an undertaking to bear the burden it would not
be appropriate to approach its capacity to bear the burden
from an investors point of view. The overall picture of the
soundness of the Undertaking and its future prospects must
be taken into account. In’ this regard Gajendragadkar, J.
as he then was in the Bharatkhand Textile Mfg. Co. Ltd.&
Ors. v. The Textile Labour Association, Ahmedabad(1), said
at page 342-343
“It is not disputed that the benefit of
gratuity is in the nature of retiral benefit
and there can be no doubt that before framing
a scheme for gratuity industrial adjudication
has to take into account several relevant
facts; the financial condition of the
employer, his profit making capacity, the
profits earned by him in the past, the extent
of his reserves and the chances of his reple-
nishing them as well as the claim for capital
invested by him, these and other material
considerations may have to be borne in mind in
determining the terms of the gratuity scheme”.
In our view the financial position of the Company is such
that the implementation of the scheme of gratuity is not
likely to place an undue or unreasonable burden upon the
Company.
(1)[1960] 3 S.C.R. 329.
813
There is also in our view no validity in the criticism that
the scheme is difficult if not impossible to implement. It
is therefore necessary to examine the scheme proposed by the
Tribunal which is given below:
1.On the death of an employee while in
service of the Company or on his becoming
physically or mentally incapacitated for
further service in the Company, or on
voluntary retirement or resignation of an em-
ployee after ten years of continuous service
in the Company; he or his heirs, executors or
nominees as the case may be, shall be paid as
gratuity 21 days’ basic wages for each
completed year of service, subject to a
maximum of 390 days basic wages.
2.On termination of the services of an
employee by the Company after five years but
less than ten years of continuous service in
the Company, the employee shall be paid as
gratuity a sum equivalent to 13 days basic
wages for each completed year of service in
addition to retrenchment compensation that may
be admissible to him under the Industrial
Disputes Act, 1947.
3.On termination of the services of an
employee by the Company after ten years of
continuous service in the Company; the
employee shall be paid as gratuity a sum
equivalent to 17 days’ basic wages for each
completed year of service in addition to
retrenchment compensation that may be
admissible to him under the Industrial
Disputes Act, 1947.
4.An employee dismissed for misconduct
will not be disentitled to gratuity, but in
the case of an employee discharged or
dismissed for misconduct causing financial
loss to the Company, the losS most be deducted
and the balance shall be paid to the employee
towards gratuity.
5.The basic wages for the purpose of
gratuity shall be the average of the basic
wages of an employee exclusive of dearness
allowance during the period of twelve months
immediately preceding the event entitling him
to gratuity.
With reference to, clause 5 it is said that while the
Tribunal has prescribed a consolidated wage without
indicating what portion of that wage is the basic wage and
what portion the dearness allowance, the payment of gratuity
based on an average of the basic wages of an employee
exclusive of dearness allowance is
814
impossible to implement. In our view this contention is
misconceived for the reason that while the Tribunal has
awarded a consolidated wage without specifying what part of
it is the basic wage and what part dearness allowance, that
consolidated wage is the basic wage at a future date when
the scheme of gratuity comes into force namely in 1968. The
Tribunal when it formulated the scheme was fully aware of
the fact that there would only be a consolidated wage from
thence onwards till new wage scales are fixed when most
likely basic wage and harness allowance will ,be separately
fixed, having regard to the price index existing at that
time. We have not been referred to any decision of this
,Court laying down that a consolidated wage cannot be
treated ,as a basic wage in any subsequent year to the year
in which it has been prescribed. On the other hand there is
warrant for the proposition that gratuity can be fixed on
the basis of a consolidated wage. In Hindustan Antibiotics
Ltd. v. The Workmen & Ors.(1), it was observed that gratuity
is an additional form of relief for the workers to fall back
upon and it would depend on the facts of each case as to
whether the scheme, as prepared by the Tribunal was fair and
equitable.
The case of Management, Ghaziabad Engineering Co. (P) Ltd.
v. Its Workmen(2), has been cited to show that the quantum
,of gratuity is only related to the basic wage and not to
the consolidated wage but in our view this decision does not
support that contention. In that case what this Court was
considering was the gratuity applicable to the workmen who
are being paid wages consisting of two components-basic
wages and 5001,, of the basic wages as dearness allowance.
It also appears that prior to 1960 the Company used to make
a consolidated payment without specifying any basic salary
or dearness allowance but since 1960 in every appointment
letter it was expressly recited that the ,employees will get
a consolidated salary consisting of 2/3 of the salary as
basic wages and the balance as dearness allowance. In the
context of these facts the observations of Shah, J. as he
then was, at page 627 upon which reliance is being placed on
behalf of the Appellant in support of the proposition that
gratuity must be related to basic wage should be understood.
Shah J. said :
“There is no clear evidence on the record, and
precedents have been brought to our notice, to
justify a departure from the normal rule that
the quantum of gratuity is related not to the
consolidated wage packet but to the basic
wage”.
On the other hand the sentences that follows
immediately do not justify any rigid principle
relating gratuity to basic wage. It was
,observed
(1) [1967] 1 S.C.R. 652.
(2) [1970] 1 S.C.R. 622.
815
“A departure may be made from tile normal
rule, if there be some strong evidence or
precedent in the industry, or conduct of the
employer or other exceptional circumstances to
justify that course. In the absence of such
evidence,we are of the view that gratuity
should be related to the basic wage and not to
the consolidated wage packet”.
In that case as the basic wage and the, dearness allowance
was ascertainable because dearness allowance was prescribed
as a percentage of the basic wage there was no warrant for
relating gratuity to the consolidated wage.
In Delhi Cloth & General Mills Co. Ltd. v. Workmen & Ors.
etc.(1), Shah, J. after a review of the various cases in
which the claim of gratuity in relation either to the
consolidated wage or basic wage was considered, admitted
that it was not easy to extractany principle from these
cases, because they were conflicting. It was also pointed
out that in Hindustan Antibiotics Ltd. v.Their
Workmen(2), the Tribunal had awarded a scheme for gratuity
related to consolidated wages and that order was confirmed.
Even in Remington Band of India Ltd. v. The Workmen(3), the
claim for gratuity being based on consolidated wages though
challenged was accepted. It appears to us that a more
reasonable way of reconciling this conflict is, that while
no doubt the general rule is that gratuity must be related
to the basic wage, in cases where the wages are not very
high and a consolidated wage has been fixed taking into
account the dearness allowance, the schemes of gratuity may
be related to the consolidated wage, which will be the basic
wage in subsequent year. As we pointed out earlier the
consolidated wage will be the basic wage in subsequent years
and at any future date having regard to the price index, the
claim of the workmen either for a rise in the wage based on
the cost of living index or for the grant of separate
dearness allowance to neutralise that rise is bound to be
considered and adjudicated.
Lastly the scheme is challenged as unfair and incongruous
because those that retire are given larger benefits than
those who are retrenched. But this criticism is equally
unwarranted. In the first clause of the scheme a worker who
voluntarily retires or resigns after 10 years of continuous
service is to be paid as gratuity 21 days basic wages for
each completed year of service subject to a maximum of 390
days basic wages, while, under clause 3, on termination of
services of an employee after 10 years of continuous service
he shall be paid as gratuity a sum. equivalent to 17 days
basic wages for each completed year. The difference between
the gratuity payable to persons who resign
(1) [1969] 2 S.C.R. 307/.
(2) [1967] 1 S.C.R. 652.
(3) [1968] 1 L.L.J. 542
816
or retire voluntarily and those services are terminated is
that the latter will receive in addition to the gratuity the
retrenchment compensation admissible to him under the
Industrial Disputes Act, while in the case of the former he
will not be entitled to it. The scheme, itself in clause 3
makes this specific distinction. We do not think that there
is any justification for the several criticisms directed
against this scheme. In our view the scheme is not only
reasonable but fair having regard to the interests of the
workmen and the financial capacity of the industry.
In the result both the Appeals are partly allowed and the
Award is modified in respect of two items (1) that a payment
of bonus of Rs. 20,768/50 be made instead of Rs. 42,783/-
awarded by the Tribunal, and (2) subject to the directions
already given there shall be a fitment of the wages of the
workers in the new scales awarded by the Tribunal after
taking into account one increment for every three years of
completed service up to the date of the statement of claim
i.e., 15th January, 1966. In the circumstances the parties
will bear their own costs in each of the Appeals.
G.C.
Appeals partly allowed.
817