PETITIONER: JARDINE HENDERSON LTD. Vs. RESPONDENT: THE WORKMEN AND ANOTHER DATE OF JUDGMENT: 05/03/1962 BENCH: WANCHOO, K.N. BENCH: WANCHOO, K.N. GAJENDRAGADKAR, P.B. SARKAR, A.K. CITATION: 1963 AIR 474 1962 SCR Supl. (3) 582 CITATOR INFO : F 1969 SC 998 (17) RF 1976 SC1455 (20) ACT: Industrial Dispute--Bonus--Available Surplus--Determination of--Closing Bonus--Implied term of agreement or condition of service--Customary bonus. HEADNOTE: The appellant is a company carrying on business in Calcutta and had been paying a bonus called closing bonus to its workmen at the rate of one month's pay from 1948 to 1957, but as the profits of the appellant considerably fell in 1958, the quantum of closing bonus was reduced to half a month's pay; consequently, a reference was made to the tribunal for decision, whether the management was justified in reducing the quantum of closing bonus to half a month's pay in 1938. The workmen claimed that closing bonus had been paid at a uniform rate from 1948 to 1937 and had become an implied condition of service between the workmen and appellant ; in the alternative,. the claim was that the payment had acquired the character of customary bonus and was not dependent upon profits earned by the appellant. The tribunal held, that the payment of closing bonus had not become an implied condition of service and also held, that the bonus could not be held to be a customary bonus. It held that there was sufficient available surplus to warrant payment of one month's pay as profits bonus and ordered that half a month's basic salary, be further paid as profit bonus to the workmen for the year in dispute. Held, that the fact that a company declares dividend at more or less than six percentum is no reason for changing the rate of interest allowed under the Full Bench formula on paid-up capital. Held, further that customary bonus is always connected with some festival. As closing bonus is not connected with any festival it cannot be treated as customary bonus of the kind dealt with the Graham's case. Graham Trading Co. Ltd. v. Its workmen, (1960) 1 S. C. R. 107, B. N. Elias and Co. Ltd. Employee's Union v. B. N. Elias and Co, Limited. (1960) 3 S. C. R. 382 and Associated Cement Companies Ltd. V. Its Workmen, (1959) S. C. R. 925, referred to. In the present case during the whole of the period from 1948 to 1957 when closing bonus was paid there was no loss 583 incurred by the appellant. Further the bonus was paid only after the trading results of the year were known. Held, that taking all circumstances into account It appears that closing bonus had been paid on the basis of the trading results of the previous year and depended upon the profits earned in the previous year, and it could not be held, that one month's pay as closing bonus was payable as an implied condition of service irrespective of profit made by the appellant. M/s Isphani Ltd Calcutta v. Isphani Employees Union (1960) C. R. 24, referred to. JUDGMENT:
CIVIL APPELLATE JURISDICTION Civil Appeal No. 359 of 1961.
Appeal by special leave from the award dated April 18, 1960,
of the Third Industrial, Tribunal west Bengal, in case No.
VIII 153 of 1959.
B.Sen, Sukumar Ghose and B. N. Ghosh, for the appellant.
D. N. Mukherjee, for the respondent No.1.
1962. March 5. The Judgment of the court was delivered by
WANCHOO, J.-This appeal by special leave arises out of a
question of bonus referred by the Government of West Bengal
to the Third Industrial Tribunal. The appellant is a
company carrying on business in Calcutta and the dispute
relates to closing bonus for the year 1958. It appears that
the appellant had been paying, a, bonus which was called
closing bonus. to its workmen at the rate of one month’s pay
from 1948 to 1957. In 1958, however, as the profits of the
appellant fell consider. ably, the quantum of closing, bonus
was reduced to half a month’s pay. In consequence a dispute
was raised by the respondents workmen represented by two
unions and their claim was that they should have been paid
one month’s bonus as usual. Consequently reference was made
to the tribunal and the question for decision was whether
the management was
584
justified in reducing the quantum of closing bonus to half a
month’s pay in 1958.
The case of the workmen was that the appellant had been
paying two kinds of bonuses to its workmen each year,
namely, (1) Puja bonus which ,was paid usually before the
Puja festival, and (ii) closing bonus which was paid after
the close of the financial year ending on March 31st each
year. The workmen claimed that closing bonus had been paid
at a uniform rate from 1948 to 1957 and this payment had
therefore become an implied condition of service between the
workmen and the appellant ; in the alternative the claim was
that the payment had acquired the character of customary
bonus and was not dependent upon profits earned by the
appellant.
On the other band the contention of the appellant was that
the payment of closing bonus at a uniform rate of one
month’s pay for ten years previous to 1958 had not in fact
turned the payment into an implied condition of service as
this bonus was of the nature of profit bonus and its payment
depended upon the profits made by the appellant. It was
urged further that the very fact that this bonus was paid
after the accounts for the year were made up and the profit
ascertained showed that it was a bonus depending upon
profits ; the circumstance that it was paid at a uniform
rate for sometime was only fortuitous, particularly as the
appellant had increased the Puja bonus as its profits
increased in order to help the workmen at festival time. As
to the alternative case of customary bonus, the appellant
contended that this bonus had no connection with any
festival and was paid after the state of profits earned by
the appellant was known and therefore could not be demanded
as a customary bonus. Finally, appellant pleaded that if
closing bonus was treated as pro-fit bonus there was no
available surplus to justify the grant of
585
any further amount as bonus besides half a month’s pay which
the appellant had already given to the workmen.
The tribunal came to the conclusion that it had not been
proved that the payment of closing bonus had become an
implied condition of service and in that connection relied
on the decision of this Court in Messrs. Isprahani Limited
Calcutta v. Ispahani Employees Union. (1) Further, it held
that the bonus could not be held to be a customary bonus as
there was nothing to show that it had been paid even in a
year of loss. It therefore negative the case of the workmen
that closing bonus of one month’s pay was payable every year
after the accounts were closed either as an. implied
condition of service or as a customary bonus. The tribunal
then we,.it into the question whether any further amount
besides half a month’s pay which had already been paid by
the appellant as bonus could be awarded as profit bonus on
the basis of the Fall-Bench formula approved by this Court
in the Associated Cement Companies Limited v. Its Workmen
(2). It held that there sufficient available surplus to
warrant payment of one month’s pay as profits bonus and
therefore ordered that half a, month’s basic salary be
further paid as profit bonus to the workmen for the year in
dispute., It is this decision of the tribunal which has been
assailed before us by the appellant.
So far as profit bonus is concerned, the main contention on
behalf of the appellant is that the tribunal went wrong in
allowing 2 1/2 per centum interest on paid-up capital and
that it’shoud have allowed, 6 per interest, which is the
usual amount allowed under the Full-Bench formula. The
reason why the tribunal allowed 2 1/2 Per centum interest
was that the appellant, had paid dividend at 2 1/2 per
centum in that year as its
(1) [1960] 1 S.C.R. 24.
(2) [1959] S.C.R, 925.
586
profits bad show a considerable fall. We are of opinion
that the tribunal was wrong in allowing only 2 1/2 per
centum interest on paid-up capital on the ground that the
actual dividend declared by the appellant was only 2 1/2 per
centum for that year. The return on paid-up capital
provided in the Fall-Bench formula is not linked with actual
dividends that might be declared by a company. Many a time
companies declare dividends higher than six per centum. But
under the formula they are usually allowed six per centum
interest on paid-up capital. irrespective of the dividends
declared. It is only where a company can make out an
exceptional case for allowing more than six per centum
interest on paid-up capital that the tribunal can award
more. Similarly it is only when an exceptional case is made
out for allowing less than six per centum interest that the
tribunal would be justified in allowing less. We are of
opinion that the fact that a company declares dividend at
more or less than six per centum is no reason for changing
the rate of interest allowed tinder the Full-Bench formula
on paid-up capital. In the present case no reason has been
shown besides the fact that the dividend declared was less
than six per centum to reduce the usual rate of interest
from six per centum to 2 1/2 per centum We are therefore of
opinion that the tribunal should have allowed six per centum
interest on paid-up capital in this case and that would
increase the amount due under this head from Rs. 5 lacs to
Rs. 12 lacs. It is not disputed by learned counsel for the
respondents that if six per centum interest is allowed on
paid-up capital in this case as is usually done there will
be no justification for allowing more as profit bonus than
what the appellant has already given. In the result the
tribunal’s award of half a month’s further wages as bonus on
the ground that there is available surplus to justify it
must be set Aside.
587
Learned counsel for the respondents however submitted that
even though no further bonus could be allowed on the basis
of the Full-Bench formula, the workmen were entitled to one
month’s pay as closing bonus either as an implied condition
of service or as a customary bonus. So far as customary
bonus is concerned, it is enough to say that customary bonus
of the nature dealt with in Graham Trading Co. Ltd. v. Its
Workmen(1) is always connected with some festival. In the
present case it is not in dispute that the closing bonus is
not connected with any festival and therefore cannot be
treated as customary bonus of the kind dealt with in
Graham’s case. This was pointed out by this Court in B. N.
Elias & Co. Ltd.Employees’ Union v. B.N.Elias & Co. Limited,
(2) where it was observed that it was difficult to introduce
the payment of customary bonus between employer and em-
ployees where terms of service are governed by contract,
express or implied, except where the bonus may be connected
with a festival, whether puja in Bengal or some other
equally important festival in any other part of the country.
Therefore as closing bonus is admittedly not connected with
any festival it cannot be allowed as a customary bonus of
the type considered in Graham’s case(3).
Turning now to the question whether payment of one month’s
pay as closing bonus has become an implied condition of
service, the first point to be noticed is that closing bonus
was always paid after the trading results of the year were
known. Under these circumstances it would not be improper
to infer that closing bonus was dependent upon profits made
by the appellant, for it was paid only after profits for the
previous year had been ascertained. In the present case
during the whole of the period from 1948 to 1957 when the
closing bonus was paid
(1) [1960] 1 S.C.R. 107.
(2) [1960] 3 S.C.R. 382.
(3) [1960] 1 S.C.R. 107,
588
there was no loss incurred by the appellant. As was pointed
out in Ispahani’s case the fact that bonus was paid during a
year of loss also would be an important circumstance in
coming to the conclusion that payment was a matter of
obligation based on an implied agreement. In the present
case that important circumstance is absent. The absence of
this circumstance along with the fact that the bonus was
paid only after the trading results of the year were known
and therefore in all probability depended upon the profits
would show that it could not be a matter of obligation based
upon implied agreement.
Besides it appears that this company formerly belonged to
another owner and merged with the appellant in 1946. When
the former company was the owner it does not appear that it
paid any closing bonus as such from 1940 to 1945. Even
after the appellant took over no payment was made in 1946
and 1947. It was only from 1948 after the trading results
for the year ending on March 31, 1948 were known that one
month’s basic wages began to be paid as closing bonus in
addition to puja bonus which was originally paid at the
rat(, of one month’s basic wages but which was gradually in-
creased to two months’ basic wages from 1955. For the year
in dispute the appellant has paid two months’ puja bonus;
but it reduced the closing bonus from one month to half a
month’s basic wages because of the fall in profits which
fell from Rs. 27 lacs in 19,57 to a little over Rs. 15 lacs
in- 1958. It is clear therefore that the closing bonus has
not been paid from the beginning when the appellant took
over the business of the previous company, though it was
paid at a uniform rate from 1948 to 1957. It may be
mentioned that in 1959 when profits went up again the
appellant has paid one month’s pay as closing bonus. Taking
therefore all the circumstances into account it appears that
closing bonus has
589
been paid on the basis of the trading results of the
previous year and depended upon the profits earned in the
previous year. In the circumstances it cannot be held that
one months pay as closing bonus is payable as an implied
condition of service irrespective of the profit made by the
appellant. It seems to have been of the nature of profit
bonus, even though it may. have been paid at a uniform rate
for ten years.
We therefore allow the appeal, set aside the order of the
tribunal and reject the claim of the workmen for any closing
bonus over and above that paid by the appellant for the year
1958. In the circumstances we order the parties to bear
their own costs.
Appeal allowed.
