PETITIONER: NATIONAL ENGINEERING INDUSTRIES LTD. Vs. RESPONDENT: ITS WORKMEN DATE OF JUDGMENT: 06/10/1967 BENCH: SHELAT, J.M. BENCH: SHELAT, J.M. BHARGAVA, VISHISHTHA CITATION: 1968 AIR 538 1968 SCR (1) 779 CITATOR INFO : RF 1968 SC 963 (21) R 1971 SC2521 (18) RF 1971 SC2567 (1,10) RF 1972 SC1954 (16,18,20) F 1973 SC 353 (38) ACT: Industrial Dispute-Bonus-Calculation of rehabilitation cost of machinery-Use of multiplier whether necessary when relevant quotations of price of machinery available-Item- wise and block-wise estimate when desirable-Need of graduated divisor when machinery installed over several years-Interest allowable on paid up capital, rate may be adjusted reasonably-Life of machinery, estimate of--Laches may be taken into account in considering claim for bonus. HEADNOTE: The workmen of the appellant company demanded bonus for the years 1956-57 to 1959-60. The Tribunal disallowed the claim for 1956-57 on the ground that it was belated and allowed the demand for the rest of the years 1957-58 to 1959-60. In working out the available surplus for distribution as bonus the Tribunal in general followed the Full Bench formula evolved by the Labour Appellate Tribunal. Against the Tribunal's award the company as well as the workmen appealed to the Supreme Court by special leave under Art. 136 of the Constitution. Both sides raised contentions with regard to the rehabilitation allowances in respect of plant and machinery for the three years in question and the method followed by the Tribunal in calculating them. The main question for decision arose out of the company's contention that since it furnished quotations for all machinery including the old machinery, the Tribunal ought to have accepted those quotations as equivalent to replacement cost as it did in the case of new machinery instead of adopting the notional method of working out multipliers and then arriving at replacement cost by multiplying that multiplier with the estimated cost to the sellers. HELD: (i) The multiplier is at best an approximation arrived at from the trend of price level during the ascertained intervening period. But when the cost of replacement is ascertained from quotations of prices for the year of replacement such cost s more accurate than a notional one worked out from the multiplier. It is therefore not always necessary to arrive at a multiplier for estimating the probable cost of replacement. [789 C-D]. In the present case since the Tribunal accepted the quotations' and worked out the multiplier in the case of new machinery by dividing the quotations by the original cost it ought to have followed the same method in the case of old machinery as it had before it the cost of the old machinery as new and the cost of replacement, both unchallenged by the union. If the rehabilitation cost was calculated in this manner there would be no available surplus with the company and hence no bonus would be payable.' [787 H-788A; 787 A-B]. (ii) It is well established that in the case of old machinery the employees cannot insist that such machinery should be replaced by old machinery. For working out the rehabilitation cost of such. machinery it ' is the cost of new machinery that is to replace the old which has to be taken into consideration. [787 F-G]. (iii). Whenever it is possible to estimate itemwise the probable cost of machinery in the year of replacement such a method is not only permissible but is more desirable. The blockwise estimate has. 780 to be resorted to when itemwise estimate is not possible as when the industry owns several factories and the number of plant and machinery is so large that it becomes difficult to make an estimate of replacement cost itemwise. [789 B-C; 788 G-H]. (iv) The contention on behalf of the workmen that the replacement cost should be worked out on the basis of the price level during the bonus year could not be accepted. The test is the probable cost of replacement when rehabilitation becomes due. If the bonus year and the year of rehabilitation coincide, the price level during the bonus year would no doubt be the relevant basis. But when they do not coincide and the due year of rehabilitation is the year beyond the bonus year that which is relevant is the probable cost of replacement during that year. [790 H; 791 A-B]. (v) Ordinarily, the Tribunal has to satisfy itself that no cost of expansion is injected in the rehabilitation cost. In the present case, however, it did not appear from the record that any question of expansion arose as the Union accepted the quotations as equivalent to the replacement cost, [791 F-G]. (vi) The Tribunal was justified in taking the price rise in respect of the machinery installed in the bonus, years as zero. Though the prices for such machinery in 1963-64 were available, considering that its life was 15 years, it was too early to find out with any precision the probable trend of prices during the intervening years. [793 EG]. (vii) The Tribunal was wrong in giving a uniform remainder life of 7 years to old machinery irrespective of the year of its installation. Taking the life of old machinery to be 10 years, the old machinery purchased in 1950-51 would require replacement in 1960-61 and so on. In that case the remainder life in the bonus year 1957-58 of old machinery installed in 1950-51 would clearly be 3 years, of old machinery installed in 1955-56 8 years, of machinery installed in 1956-57 9 years and that installed in 1957-58 10 years. The divisor therefore could not be the uniform 7 for all the three years but a graduated one on the basis that the estimated life of the old machinery was 10 years. [793 H; 794 B.] (viii) The Tribunal was justified, in view of the decision of this Court in the South India Millowners' Association's case, in taking the whole cost of the old machinery as depreciation, but it made a mistake in deducting it twice over. [795 B-C]. (ix) The company not being an investment company, its investments in shares of other joint state companies prima facie represented extra capital not required as working' capital, for otherwise the company could not have spared this amount for investment in the stocks of other companies. The Tribunal was right in treating this Investment as a capital asset and in refusing to treat the loss therefrom as trading expenditure. The Tribunal at the same time could deduct this amount from the rehabilitation cost because that amount was avilable to meet the rehabilitation cost. [797 H; 798 A]. (x) Though the Full Bench formula provided for payment of net interest at 6 per cent annum on paid up capital. that rate is not to be regarded as something inflexible. While awarding interest if 781 the Tribunal were to find that if it were to grant 6 per cent interest on paid up capital. nothing or no appreciable amount would be left for bonus, it can adjust the rate of interest so as to accommodate reasonably the claim for bonus and thus must meet the demands of both as reasonably as possible. [798 G; 799 B]. (xi) In fixing the life of machinery the principle that the Tribunal has to bear in mind is that the life of machinery is the period during which it is estimated to work with reasonable efficiency and not the period during which it has actually been operated, that is, till it becomes too deteriorated for use. In the present case the Tribunal fixed the period of 15 years after considering the evidence and the nature of the industry. There was no reason why its determination should be interfered with. [799 G-H]. (xii) The Tribunal was right in not excluding the cost of spares from the price of machinery for the purpose of calculating rehabilitation cost. In the case of imported machinery spares are generally included in the purchase and their cost must be included in the purchase price, the reason being that in case of breakdown the company would not have to wait for an indefinite period for ordering and obtaining the spares. [800 B]. (xiii) The statutory depreciation and development rebate allowable under the Income-tax Act are not relevant for the purpose of calculating rehabilitation requirement. Only the notional normal depreciation need be deducted. [801 C-D]. (xiv) The claim for bonus in respect of 1956-57 was made more than 18 months after the closure of accounts. Industrial adjudication. ;Is bound to take into consideration delay and laches before it calls, upon the other side to reopen its accounts closed long ago. The Tribunal was therefore right in rejecting the claim on the- ground of laches. [801 F-G]. Millowners' Association. Bombay v. Rashtriya Mill Mazdoor, Sangh, Bombay [1950] L.L.J. 1247, Associated Cement Co: Ltd. v. Its Workmen [1959] S.C.R. 925, Management of Rajendra Mills Ltd. v. Their Workmen [1960] 1. L.L.J. 53, The Workmen v. The National Tobacco Co. [1966] 2 L.L.J. 200, South India Millowners' Association & Ors. v. Coimbatore District Textile Workers' Union and Others [1962] 1 L.L.L. 223, G. F. Mills v. Its Workmen., A.I.R. 1958 S.C. 382. South India Millowners' Association and Ors. v. Coimbatore District Textile Workers' Union and Or,,;.,, [1962] Supp. 2 S.C.R. 926, Pierce Leslie & Co. v. Its Workmen, [1960] 3 S.C.R. 194 and Bengai. Kagazkar Mazdoor Union & Ors. v. Titagarh Paper Mills Co. and Ors. [1963] 2 L.L.J. 358, referred to; JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 356 and 357
of 1966.
Appeals by special leave from the Award of the Industrial
Tribunal, Rajasthan in Case No. 9 of 1961.
Niren De, Addl. Solicitor-General, Sobhag Mal fain an( B.
P. Maheshwari, for the appellant (in C. A. No. 356 of 1966
and respondent (in C. A. No. 357 of 1966).
782
M. K. Ramamurthi, Shyamala Pappu and Vineet Kumar, for the
appellants (in C. A. No. 357 of 1966) and respondents (in
C.As. No. 356 of 1966).
The Judgment of the Court was delivered by,
Shelat, J. These two appeals by special leave, one by the
appellant company and the other by, its workmen are directed
against the award dated May 4, 1964 of the Industrial
Tribunal, Rajasthan to which reference was made under
section 10(1)(d) of the Industrial Disputes Act, 1947. The
dispute referred to the Tribunal related to the workmen’s
demand for bonus for the years 1956-57 to 1959-60. By the
said award the Tribunal disallowed the claim for 1956-57 on
the ground that it was belated and allowed the demand for
the rest of the years 1957-58 to 1959-60.
In working out the available surplus for distribution as
bonus the Tribunal in general followed the Full Bench
formula evolved by the Labour Appellate Tribunal in
Millowners’ Association, Bombay v. Radhtriya Mill Mazdoor
Sangh, Bombay(1) and approved by this Court in the
Associated Cement Co. Ltd. v. Its Workmen.(2) The Tribunal
worked out first the gross profits for the said years and
the prior charges deductible therefrom and arrived at the
available surplus. For the year 1957-58 gross profits found
were Rs. 28.29 lacs, Rs. 25.36 lacs for 1958-59 and Rs.
34.92 lacs for 1959-60. There is no dispute about these
figures. The Tribunal then ascertained the prior charges
deductible from the gross profits. There is no dispute with
regard to the figures for depreciation, income-tax and
wealth tax. As regards interest allowable on paid up
capital, the Tribunal allowed 6%. per annum tax free
interest for 1957-58 and 1958-59. For 1959-60 the Company
remanded interest at the rate of 8.57% by reason of a change
in he Income-tax law having been made during the year. The
Union, on the other hand, claimed that only 6 % interest
should be allowed. The Tribunal allowed a mean between the
two, viz., 7 1/4. There was no question of interest on
working ;capital as it was not the Company’s case that any
reserve was utilised as working capital similarly there is
no dispute with regard to the rehabilitation charge for
buildings allowed by the Tribunal. Apart from the question.
as to interest allowable on paid up capital for the year
959-60, the main dispute. in these appeals is with regard to
the rehabilitation allowances in respect of plant and
machinery for he three years in question and the method
followed by the Tribunal in calculating them.
(1) [1950] I.I.J. 1247.
(2) [1959] S.C.R 925.
783
The Company ever since its commencement has been purchasing
new and also old reconditioned machinery. As regards new
machinery the Company furnished, (a) cost to the Company,
(b) the current price during the year 1963-64 and (c)
percentage in the rise in prices. The Company also
furnished in respect of reconditioned machinery (a) cost to
the Company and (b) estimated cost which its vendors would
have paid if they had purchased it as new in the years in
which the Company installed the old machinery. In respect
of the old machinery the cost to the Company and the
estimated cost to the sellers according to the Company were
as follows:-
————————————————————
Year Cost to the Estimated cost to Company the sellers
————————————————————-
(In lacs) (In lacs) Upto 1952-53 13.87 20.05 1953-54 to 1955-56 3.49 5.23 1956-57 1-40 2.10 9157-58 1-77 2.65
————————————————————-
Total 20.03 30-03
————————————————————
The difference between the cost to the Company and the
estimated cost to the sellers thus come to 150%. No old
machinery was purchased during 1958-59 and 1959-60. The
Company also produced quotations of prices for equivalent
machinery current in year 1963-64. The Union did not
dispute (a) the figures of cost to the Company of the new
machinery as given in its statement Ex. M2, (b) the figures
of cost of old machinery to the Company and its estimated
cost to the sellers as given in Ex. M 3 and (c) the quota-
tions of prices received by the Company in 1963-64 from
manufacturers of these machines, both old and new, “except
in the case of machinery installed, during the bonus years.”
The Tribunal worked out the rehabilitation requirements for
the years 1957-58 to 1959-60 in a Chart which is Annexure A
to the award. Since the controversy in these appeals mainly
centers round the figures of rehabilitation requirements
allowed by the Tribunal it is expedient to set out that
Annexure:
784 784(a) Period Cost Cost as Multi- Total Less Balance shown by plier break- Co. in down EX. M. value 5% 1 2 3 4 5 6 7 1050-51- New 16.30 16.30 3.36 54.77 0.81 53.96 Old 13.37 20.05 67.37 Nil 67.37 1951-52- New 1.43 1.43 1.87 2.67 0.07 2.60 1952-53- New 2.18 2.18 1.47 3.21 0.11 3.10 1953-54- New 1.12 1.12 2.28 2.55 0.06 2.49 Old 1.24 1.86 2.28 4.24 . .. 4.24 1954-55- New 3.71 3.71 1.86 6.90 0.19 6.71 Old 1.95 2.93 1.86 5.45 Nil 5.45 1955-56- New 6.93 6.93 2.18 15.11 0.35 14.76 Old 0.30 0.45 2.18 0.98 Nil 0.98 1956-57- New 13.11 13.11 2.35 30.80 0.66 30.14 Old 1.40 2.10 2.35 4.93 Nil 4.93 1957-58- Now 3.39 3.39 1 3.39 0.17 3.22 Old 1.77 2.65 1 2.65 Nil 2.65 1958-59- New 12.95 12.95 1 12.95 0.65 12.30 1959-60- New 30.76 30.76 1 30.76 1.54 29.22 784(b) Minus deprociation Balance Divisor Annual Require- ment 8 9 10 11 (Rupees in lakhs) Total cost as new & old Machy30.03 24.35 7 3.48 Depre-written off upto 31-3-57 48.83 2.60 8 0.32 3.10 9 0.34 Investment as on 31-3-57 2.49 10 0.25 18.22 4.24 7 0.61 Total 96-98 6.71 11 0.61 .. 5.45 7 0.78 14.76 12 1.23 0.98 7 0.14 30.14 1 3 2.32 4.93 7 0.70 3.22 14 0.23 2.65 7 0.38 11.39 12.30 14 0.88 12.27 29.22 14 2.08 14.35 785
It will be observed from Annexure A that the Tribunal
accepted as regards new machinery the Company’s figures of
cost and quotations as cost of replacement and dividing the
cost of replacement by the original cost to the Company I
worked out multipliers for each year. This dispute,
however, is with regard to the multipliers arrived at by the
Tribunal in respect of old machinery.
In Annexure A, the Tribunal adopted 3.36 multiplier in res-
pect of old machinery installed in 1950-51, i.e., the same
multiplier which it worked out in respect of new machinery
installed during that year. For the years 1953-54 to 1957-
58 the Tribunal accepted the Company’s figures which were
agreed to by the Union, viz., of cost to the Company and the
estimated cost to their vendors if the latter had purchased
that machinery as new in the respective years of
installation. The Company also produced quotations from
manufacturers of machinery itemwise in its Confi-Annex. I
and 2. These quotations were for some machines for 1959-60,
for some for 1960-61 and the rest for 1961-62. It would be
safe to say that the average cost of these machines was the
cost prevalent in 1960-61. Though the average cost of the
machinery was thus available, the Tribunal in the case of
old machinery worked out multiplier for each of these years
and then arrived at the figure of Rs. 85.62 lacs as the
total replacement cost of that machinery by multiplying the
estimated cost to the seller with the multiplier. The
Company’s contention was that since the Company had fur-
nished quotations for all machinery including the old
machinery, the Tribunal ought to have accepted those
quotations as equivalent to replacement cost as it did in
the case of new machinery instead of adopting the notional
method of working out multipliers and then arriving at
replacement cost by multiplying that multiplier with the
estimated cost to the sellers.
A multiplier is the ratio between the original cost and the
cost of replacement. It is one of the methods of arriving
at the hypothetical cost of replacement at a future date.
But where the cost of replacement is available through
quotations and these quotations are not disputed by the
Union it would not be necessary to resort to a hypothetical
multiplier or if the multiplier must be ascertained it must
be the ratio of the cost to the employer and the estimated
cost of replacement actually proved through the quotations.
According to the Company in the case of old machinery the
multiplier so calculated would be-
1950-51 ....3.98
1953-54 ....7.83
1954-55 ....3.49
1955-56 ....2.47
1956-57 ....4.75
1957-58 ....2.29
786
The total cost of replacement of old machinery on the basis
of these multipliers or in the alternative on the basis of
the quotations would then come to Rs. 121.70 lacs instead
Rs. 85.62 lacs, the difference being of Rs. 36.08 lacs.
Therefore, even if the divisor of 7 uniformly_ applied by
the Tribunal in Annex.
A were to be accepted, as correct, Rs. 36.08/7=Rs. 5.16 lacs
would
have to be added for rehabilitation requirement for each of
the bonus years. If that is done the entire available
surplus found by the Tribunal would be wiped out.
It will be seen from the Tribunal’s Annex. A that so far as
new machinery is concerned the Tribunal accepted the figures
of original cost and the quotations furnished by the Company
and worked out multipliers for/all the years from 1950-51 to
1959-60 by simply dividing the quotations by the original
cost. The question is, should not the Tribunal have also
followed the same method in the case of old machinery when
it had before it the estimated cost to the seller, i.e., the
cost of old machinery if purchased as new in the year of
installation and the quotations for that machinery. If that
were done there would be no necessity of finding out a
notional multiplier. In that event as seen above there
would be a difference of Rs. 36.08 lacs which would have to
be added to the figure of Rs. 85.62 lacs worked out by the
Tribunal as total rehabilitation cost in respect of old
machinery.
Mr. Ramamurti however argued that though the Union had not
disputed the quotations those quotations were for the year
1963-64 when the Tribunal was adjudicating the dispute, that
it is always necessary to first find out the multiplier and
then work out the rehabilitation cost and that the cost of
machinery in the bonus year or years must be reflected while
working out the rehabilitation cost even if the year of
replacement worked out from the average life of machinery is
later. It is now well established that in the case of old
machinery the employees cannot insist that such machinery
should be replaced by old machinery. For working out
rehabilitation cost of such machinery it is the cost of new
machinery that is to replace the old which has to be taken
into consideration. The Company as aforesaid produced two
kinds of figures both accepted by the Union and the
Tribunal: (1) the estimated cost to the seller if he had
purchased the old machinery as new in the respective years
of its installation and (2) quotations of prices of
machinery which would replace it. The Tribunal had before
it thus the cost of the machinery if it were new in the year
of installation and the cost of its replacement by new
machinery. There was therefore no particular reason in
distinguishing the old from the new machinery for the
figures of costs and replacements in both the cases were on
the footing that the old machinery was new machinery.
Therefore since the Tribunal accepted the quotations and
worked out the multiplier in the case of new machinery by
dividing the quotations by the original ‘cost it ought to
have
787
followed the same method in the case of old machinery as it
had before it the cost of the old machinery as new and the
cost or replacement, both unchallenged by the Union.
The question still is whether the quotations can be the sole
criterion for working out rehabilitation cost. The
principle accepted in the Full Bench formula and approved by
this Court in the case of Associated Cement Co. Ltd (1) was
that payment of bonus is in recognition of the contribution
of labour in the profits earned by the industry and to
assist labour to overcome as far as possible the difference
between the actual wage and the living wage. The Formula at
the same time accepted the point of view of the industry
that investment made by it must imply a legitimate
expectation of securing recurring returns and that could
only be ensured by machinery being continuously kept in good
working order. Such maintenance would necessarily be to the
advantage of the labour, for, the better the machinery the
larger the earnings and the brighter the chance of earning
bonus. It is on this twin consideration that the amount
necessary for rehabilitation is recognised as a prior charge
on the gross profits when surplus profit for distribution as
bonus is being worked out. It is true that depreciation is
allowed by the tax laws but that is only to the extent of a
percentage on the written down value. The depreciation fund
set apart on that basis would obviously be insufficient for
rehabilitation and therefore an extra amount would have to
be annually set apart notionally to make up the deficiency.
That is the reason for the Full Bench formula having
accepted the industry’s claim to rehabilitation in addition
to the admissible depreciation. While ascertain in the
claim of rehabilitation the Tribunal has first to ascertain
the cost of the machinery to the employer and then to
estimate its probable future life. It then becomes possible
to anticipate approximately the year when the machinery
would need replacement and it is the probable price of such
replacement at such future date that ultimately decides the
amount to which the industry is entitled by way of
replacement cost. The question is how to estimate the
probable price of machinery at such future date? As
observed in the Associated Cement Company’s case(1) such
probable price can be considered itemwise where the industry
does not own too many factories and In itemwise study of
machinery is reasonably possible. It is when the industry
owns several factories and the number of plant and machinery
is so large that it becomes difficult to make an estimate of
replacement cost itemwise that the estimate has to be block-
wise. In either case the Tribunal has to estimate the
probable cost of replacement at the time when such
replacement would become due. Such in estimate depends
obviously on several uncertain factors. The estimate of the
probable life of machinery is itself a matter of
anticipation and
(1) [1959] S.C. R. 925.
L/p(N)7SCI-11
788
the estimate of the probable trend of price during the In-
tervening period is also to a degree a matter of conjecture.
However, the entire process of ascertaining replacement cost
is hypothetical depending largely on expert evidence. It
would appear therefore that whenever it is possible. to
estimate itemwise the probable cost of machinery in the year
of replacement, such a method is not only permissible but is
more desirable. The block-wise estimate has to be resorted
to when item-wise estimate is not possible. Where therefore
there is clear evidence of the probable price of each piece
of machinery itemwise when replacement is to become due, it
would be more accurate to proceed on the basis of such price
and it would not be necessary to find out multipliers, such
multipliers being after all the ratio between the: cost, and
the probable cost of replacement, ascertained from the trend
of prices during the intervening years. The multiplier thus
is at best an approximation arrived at from the trend of
price level during the intervening period. But where the
cost of replacement is ascertained from quotations of prices
for the year of replacement such cost is more accurate than
a notional one worked out from the multiplier. It is
therefore not always necessary to arrive at a multiplier for
estimating the probable cost of replacement.
In the instant case the Tribunal estimated the life for old
machinery at 10 years and that for new machinery at 15 years
after taking into consideration the fact that the machinery
was worked at least since 1955-56 on three shifts a day and
the fact that it is being used for manufacturing precision
machines. On this basis the old machinery installed in
1950-51 became due for replacement in 1960-61 and the rest
of it installed in succeeding years would become due after
10 years from the respective years of its installation. It
is in evidence that though the average life of the old
machinery was exhausted it was still being worked though
uneconomically. It was agreed that the entire machinery
needed immediate replacement and this fact was accepted by
the Tribunal. It is well established that an employer
cannot be allowed to postpone the date of replacement on the
footing that he has operated the machinery in fact beyond
its average life and thus boost the cost of replacement
taking advantage of the rise in price every year. In the
instant case however ‘that cannot be said to be the
position. As stated earlier, the quotations produced by the
Company represented an average price as near as possible
prevailing during the period for replacement. Since they
were not disputed by the Union they were the best available
data. There was therefore all the more reason for the
Tribunal to have worked out the cost of replacement from
these undisputed quotations instead of working: out the
multipliers and then arriving at the total re. placement
cost. On the basis of these quotations even if the
multipliers were to be worked out the multipliers and the
cost of replacement of old machinery would be as follows:
789
————————————————————
Old machinery esti- Replacement cost Multiplier
Year mated cost to the proved byquota-
seller if he had pur- tions disputedby
chased as new in the the Union
year of its installa-
tion not disputed by
the Union
————————————————————
(Rs. in lacs.) (Rs. in lacs)
1950-51 20.05 79.72 3.98
1953-54 1.86 14.57 7.83
1954-55 2.93 10.25 3.49
1955.56 0.45 1.11 2.47
1956-57 2.10 9.97 4.75
1957-58 2.65 6.08 2.29
———————————————————–
30.04 121.70
———————————————————–
The replacement cost thus arrived at would be Rs. 121.70
lacs as against Rs. 85.62 lacs as worked by the Tribunal.
Indeed, where the cost of replacement is proved itemwise
from price quotations and they are undisputed it becomes
difficult to appreciate how the total cost of replacement
can be less than the cost proved through quotations.
Counsel for the Union, however, urged that while working out
the replacement cost it is the cost during the bonus year
which is relevant and therefore though the Union had
accepted the quotations they would not be the proper
criterion and the price prevalent during each of the bonus
years would be the relevant price. He also argued that.
even if the quotations were to be accepted as cost of
replacement the prices of only those machines which are
required for replacement and not for expansion which can be
the basis of estimation. As regards the first argument, a
similar contention was raised in Associated Cement Co.’s
case(1) and was rejected. At p. 967 of the report the Court
said:
“What the Tribunal has to do in determining such cost (i.e.,
probable cost of replacements) is to project the price level
into the future and this can Be more satisfactorily done. if
the price level which has to be projected in future is
determined not only in the light of the prices prevalent
during the bonus year but also in the light of subsequent
price levels.”
The submission that it is the price level during the bonus
year which is the criterion therefore is not correct,. The
test is the probable cost of replacement when rehabilitation
becomes due, If the bonus year and the year of
rehabilitation coincide the price
(1) [1959] S.C.R. 925.
790
level during the bonus year would no doubt be the relevant
basis. But where they do not coincide and the due year of
rehabilitation is the year beyond the bonus year that which
is relevant is the probable cost of replacement during that
year and the Tribunal therefore would have to consider all
relevant evidence necessary to estimate the cost during that
future year. Where there is tangible evidence through
quotations of prices for that year and such quotations are
not in dispute the Tribunal does not have to conjecture what
the trend of price level would be by taking into
consideration the price level during the intervening period
which would include the bonus year.
However this does not mean that the Tribunal must mecha-
nically accept the quotations. The rehabilitation cost
allowed under C the Full Bench formula is the probable cost
of rehabilitation which while including modernization does
not include expansion. But the distinction between
modernization and expansion may in some cases be subtle and
not capable of clear distinction. The question therefore
would always be whether replacement of one machine by a new
one is the introduction of modem machinery or one which is
an item of expansion. If it is an item of expansion its
cost naturally has to be excluded. The test is whether by
the introduction of the new machinery the production
capacity is likely to be significantly augmented, If that is
found the Tribunal would have to apportion the cost on the
basis that replacement is partly modernization and partly
expansion. On the other hand, E if the increased production
is not significantly on the higher side it would be a case
of modernization incidental to replacement. The question is
on whom is the burden of proving whether a given replacement
amounts to.expansion,or modernization. It seems to us that
since it is the employer who seeks replacement cost, it is
for him to satisfy the Tribunal as to what will be the
overall cost of replacement and in doing so it is he who
must satisfy that the cost is of replacement only and does
not include any expansion of machinery. Counsel for the
Union was therefore right in saying that the Tribunal has to
satisfy itself that no cost of expansion is injected in the
rehabilitation cost. In the present case, however, it does
not appear from the record that any question of expansion
Garose as the Union accepted the quotation as equivalent to
the replacement cost. Consequently, the Tribunal proceeded
on the footing that the entire machinery had become due for
replacement and the prices proved by quotations were of
machines to be replaced in the process of replacement and
modernisation and not expansion. According to Rajendra
Mills Ltd(1) the employer has to discharge this burden by
adducing proper evidence and giving the other party an
opportunity to, test the correctness of that evidence by
cross-examination and merely bringing on record balance-
sheets, for instance, would not be enough. (see also the
Workmen v. The National Tobacco Co.(2).
(1) [1960] 1 L.L.J. 53.
(2) [1966] II L.L.J. 200.
791
But in the present case there is no question of the Company
not having properly discharged the burden, for, it not only
produced balance-sheets but also produced statements,
quotations and examined two expert witnesses, Jones and
Desai. These witnesses were cross-examined on the
statements relied on by the Company in regard to the cost to
the Company, the estimated cost of replacement, the average
life of machinery etc. The Union also the Confidential
Annexs. 1 and 2 which showed itemwise the cost of
replacement as proposed by the Company and quotations of
prices therefor. These Annexs. also indicated that where a
machine was to be replaced not by the same kind but by a
modern one it was to be substituted for two or more of the
old machines. This was presumably done to avoid expansion.
It is true that in respect of the old machinery installed in
1953-54 and 1956-57 the multiplier calculated on the basis
of the quotations comes to 7.83 and 4.75 respectively while
it ranges from 2.29 to 3.98 for the rest of the years. At
first sight the multiplier might suggest that there might be
an element of expansion in the case of those machines. But
it was pointed out that the prices of those particular
machines had gone unusually high and furthermore that in the
process of replacement the modern machines which were to
replace the old ones were in the approximate proportion of
one for two. It cannot therefore be validly said that the
Company had not placed sufficient materials to enable the
Union to check up by cross-examination whether this was a,
case of expansion or not.
Mr. Ramamurti’s contention next was that even though the
quotations were not disputed by the Union, taking them as
the sole basis for estimating the replacement cost was not
satisfactory as the Union had qualified its acceptance by a
reservation that it did so except for machinery installed in
the bonus 1 years. This argument does not appear to be
tenable. Exhibit M2 shows that so far as the bonus years
are concerned old machinery was installed in 1956-57 and
1957-58 only. The cost of such machinery for 1956-57 was
Rs. 1,39,871 and that for 1957-58 was Rs. 1,76,730. On the
basis of the Union’s reservation the Tribunal did not accept
the quotations for machinery installed in those years and
fixed the replacement cost on the basis of multipliers
calculated by it de hors the quotations. It is difficult to
comprehend such an approach by the Tribunal. The Tribunal
accepted the quotations in regard to the rest of the
machinery and worked out the multiplier on the basis of
those quotations. The Union did not challenge those
quotations and the multiplier calculated therefrom. If the
quotations for the new machinery for all the years and for
old machinery for the years, except the bonus years, were
accepted by the Union and the Tribunal also, there is no
reason why the quotations for the bonus years could be said
to be unacceptable., No objection to the replacement cost of
the new machinery was taken even in regard to the bonus
years. As regards the old. machinery the Union accepted the
Company’s figures both as to cost to the Company and the
estimated cost to the seller if he had
792
purchased it as new. Even if a multiplier has to be
calculated it would be the ratio between the estimated
sellers cost and the probable cost of replacement. So
calculated both the old and new machinery stand on the same
footing because it is the seller’s estimated price if he had
purchased it new in the year of its installation that was
taken by the Tribunal for arriving at the multiplier. That
being so, the multiplier in both the cases would he the
ratio between the cost in the case of new machinery and the
estimated cost to the seller in the case of old machinery
and the cost of replacement proved by the Company through
quotations. If the quotations were acceptable to the Union
in regard to new machinery and the old machinery installed
in the years except the bonus years it is difficult to
understand how quotations for the old machinery installed in
bonus years could be questioned especially as the Union did
not produce any data, to prove them incorrect., In these
circumstances, we are of the view that the multipliers
arrived at by the Tribunal in the case of old machinery
,were not correct. The Tribunal should have either
calculated the replacement cost from the quotations proved
by the Company itemwise or if it had to work out the
multiplier it should have done so by finding out the ratio
between the estimated cost to the seller accepted by the
Union and the quotations proved by the Company. The
deficiency in following this method comes to Rs. 36 lacs and
odd as stated earlier.
Regarding the new machinery purchased during the bonus years
the Tribunal held that the price rise for such machinery
cannot be taken to be more than zero. In Ex. M2 the
Company has given the quotations for this machinery and has
worked out therefrom the multiplier for each of the bonus
years, viz., 2.35 for 1956-57, 3.37 for 1957-58, 1.48 for
1958-59 and 1.66 for 1959-60. Presumably the Tribunal
thought that though the prices for this machinery in 1963-64
were available, considering that its life was 15 years it
was too early to find out with any precision the trend of
prices during the intervening years. With the gradual
growth of indigenous production and corresponding
availability of these machines it would be difficult to say
whether the same trend would continue or not by the time the
year for its replacement was reached. It is not possible to
say therefore that the Tribunal’s view that the price rise
of such machinery should be taken as zero was unreasonable.
In the case of machinery purchased in 1950-51 and onward its
period of replacement would commence from 1965 and onwards.
It was possible from the quotations produced by the Company
to predicate for such machinery the trend of price but not
so in the case of machinery purchased in very recent years.
In their case the quotations may not be taken for granted as
showing any definite trend in price level.
As stated earlier, the Tribunal has given in Annex. A a
uniform remainder life of 7 years to old machinery
irrespective of the year of its installation. This. in our
view, is not correct. Taking
793
the life of old machinery to be 10 years, the old, machinery
purchased in 1950-51 would require replacement in 1960-61
and so on. ‘In. that case the remainder life in the bonus
year 1957-58 of old machinery installed in 1950-51 would
clearly be 3 years, of old machinery installed in 1953-54, 6
years, of old machinery installed, in 1955-56 8 years, of
machinery installed in 1956-57 9 years and that installed in
1957-58 10 years. The divisor therefore could not be the
uniform 7 for all these years but a graduated one on the
basis that the estimated life of old machinery was 10 In
estimating the rehabilitation requirement of each year the
graduated divisor should have been used.
The question which raises a serious controversy is with
regard to the figure of Rs. 24.35 lacs found, by the
Tribunal as the total cost of rehabilitation in respect of
machinery both old and new installed in 1950-51. Dividing
this figure by 7 as the remainder life for both the types of
machinery the Tribunal allowed Rs. 3.48 lacs as the
rehabilitation requirement for that year. Counsel for the
Company objected to the Tribunal’s calculations on various
grounds. It will be seen from column 7 of Annex. A that
whereas the Tribunal accepted the Company’s quotations for
new machinery it did not do so in the case of old machinery
and calculated instead the replacement cost by means of a
multiplier. It is difficult to say on what principle the
multiplier 3.36 for old machinery was adopted except that
the Tribunal adopted the same multiplier which it calculated
in the case of new machinery by working out the ratio
between the cost to the Company and the price of replacement
as appearing from the quotations. Since the Tribunal
adopted that principle for new machinery it would be logical
that it should similarly do so in the case of old machinery
also as the basic cost adopted was the cost price to the
seller if he had bought that machinery as new in 1950-51.
The total cost of machinery old and new would in that case
be Rs. 54.77 lacs plus Rs. 75 lacs, i.e. Rs. 133.77 lacs
instead of Rs. 54.77 lacs less 5 % break down i.e., Rs.
53.96 lacs for new and Rs. 67.37 lacs for old machinery as
calculated by the Tribunal. The figure of Rs. 67.37 lacs
was arrived at by multiplying Rs. 20.05, the estimated cost
to the seller by the multiplier 3.36. According to the
Tribunal the gross replacement cost would be Rs. 121.33 lacs
instead Rs. 133.77 lacs. The figure of Rs. 121.33 lacs
arrived at by the Tribunal cannot be sustained as it was not
justified in calculating replacement cost for the new
machinery in one way and that for the old machinery in
another way.
The next miscalculation said to have been committed by the
Tribunal was in deducting the depreciation for the entire
old machinery installed during 1950-51 to 1957-58, i.e., Rs.
30 lacs from the total replacement cost for 1950-51. The
Tribunal took the whole of the cost of old machinery to the
seller, i.e., Rs. 30 lacs, as depreciation. For that the
Tribunal derived support from the
794
decision in South India Millowners’ Association and Ors. v.
Coimbatore District Textile Workers’, Union and Ors.(1)
where while dealing with old machinery. this Court has said
that where purchase price is determined but it is difficult
to ascertain the depreciation amount thereafter then at the
highest the whole of the purchase money would be taken as
depreciation amount.
Assuming that the Tribunal was entitled to treat the price
of the old machinery, viz., Rs. 30 lacs as depreciation it
was not correct on its part to deduct it from the
replacement cost. The reason is that it also deducted Rs.
48.8 3 lacs (to which we. shall presently refer to) which
amount includes depreciation of Rs. 30 lacs. The Tribunal
thus deducted Rs. 30 lacs as depreciation twice over. The
deduction of Rs. 30 lacs was thus clearly an error.
Counsel for the Company next objected to the sum of Rs.
48.83 lacs having been deducted from rehabilitation cost in
respect of machinery, old and new, installed in 1950-51.
The objection was two-fold: (1) that the Tribunal erred in
deducting the whole of this amount from the rehabilitation
cost in respect of 1950-51 machinery, and (2) that the said
amount represents total deprecation, i.e., the notional
Written down value of all machinery up to the year 1956-57
and is shown as such in the balance-sheet for 1956-57. It
was urged that, since this amount represents depreciation on
various kinds of assets, viz., bungalows, plants and
machinery, cars and trucks, furniture and tools and
implements, the whole of this amount should not be deducted
when calculating rehabilitation provision for the machinery
of 1950-51 and should be deducted only when calculating
rehabilitation provision for each item in respect of which
this depreciation has been included in the accounts. We do
not think that this submission can be accepted. No doubt,
the sum of Rs. 48.83 lacs represents depreciation up to
31-3-1957 in respect of plant, machinery, buildings, as well
as other items of property, but there is no principle which
requires that depreciation fund in respect of a particular
item must only be utilised in rehabilitating the same item.
The Tribunal held that the entire depreciation fund must be
utilised for rehabilitation of those items of property which
require rehabilitation at the earliest point of time, that
is the machinery of 1950-51 which needed replacement earlier
than the other items of property. We do not think that this
decision of the Tribunal was in any way unreasonable as
would justify interference.
As regards the second objection the principle is that while
arriving at the rehabilitation cost deduction should be made
of all available funds. It was argued that an amount which
is a notional depreciation mentioned in the accounts for the
purpose only of showing the true Value of fixed assets would
not be a reserve which in point of fact can be said to be
available for replacement, and that it is on account of this
that the decisions mention reserves including
(1) [1962] 1 L.L.J. 223.
765
depreciation reserve which, if available, are liable to be
deducted from rehabilitation cost. The contention is that
this amount being merely a notional depreciation is a mere
paper entry and does not represent any available reserve.
Reliance was placed on G. F. Mills v. Its Workmen(1) where
the Court set aside deduction of Rs. 30 lacs; the Company
had raised a debenture loan of Rs. 50 lacs on credits on the
ground that that amount was locked up in Pakistan and could
not be brought to India for the Company’s use. it was argued
that the principle thus is that the amount to be deducted
must in reality be available to the employer for
replacement.
As found by the Tribunal the Company’s fixed assets were of
the value of about Rs. 110 lacs. The Union’s contention was
that as against this amount the Company’s subscribed capital
was Rs. 60 lacs; the Company had raised a debenture loan of
Rs. 50 lacs on the security of its fixed assets and thus the
subscribed capital and the debenture loan were sufficient to
meet the whole cost of the fixed assets. On this basis the
Tribunal upheld the Union’s contention that Rs. 48.83 lacs
shown as depreciation were available towards replacement
cost as no part of it could have gone in the investment of
fixed assets. Counsel for the Company, however, pointed out
that the debenture loan was raised in’ 1958-59 and therfore
that amount cannot be said to be available at any rate
during the year 1956-57. But this fact taken in isolation
does not furnish a correct picture of the fund available to
the Company during the bonus years. The balance-sheets show
that besides the said loan of Rs. 50 lacs the Company had
obtained’a, secured loan of Rs. 6.50 lacs in 1956-57 and
another loan of Rs. 24.68 lacs in 1957-58. Except producing
the balance-sheets the Company led no evidence to show as to
how these loans had been utilised, whether as working
capital, or in acquiring fixed assets. Apart from this
fact, we do not see how the fact that the debenture loan was
raised in 1958-59 makes any difference. Though the life of
a large part of the machinery had run out the Company had
not replaced any of it and was carrying on its work with the
worn out machinery even though its working was uneconomical.
The Tribunal has found and the parties also were agreed that
the entire machinery required immediate replacement.
Therefore, the question was how much rehabilitation cost the
Company would require. In calculating such cost the
Tribunal was entitled to take note of the fact of Rs. 50
lacs having been raised as debenture loan on the security of
its fixed assets presumably because that loan was required
for rehabilitating the fixed assets. Even so, Counsel
argued, the question would still be whether Rs. 48.83 lacs
represented an available fund for rehabilitation or whether
they represented a mere paper entry for showing the true
value of machinery in 1956-57. In our view.. it is not
necessary for us to go into the question whether a sum shown
as notional depreciation without its being shown as reserve
can be treated or
(1) A.I.R. 1958 S.C. 382.
796
not as a fund available for rehabilitation nor whether
such depreciation is or is not deductible even if it is not
available as a fund. The Company produced, Ex. M-4 showing
the, amount which according to it was required for
rehabilitation for the bonus years. According to that
statement the Company would require Rs. 110.20 lacs, Rs.
127.06 lacs, Rs. 149.87 lacs and Rs. 155.91 lacs for the
four bonus years respectively. In working out these amounts
the Company itself deducted Rs. 48.25 lacs from the
rehabilitation requirement for the year 1956-57 and pointed
out in a footnote that that amount was comprised of an
investment of Rs. 18.22 lacs in stocks and shares and Rs.
30.03 lacs as depreciation, taking the entire estimated cost
to the seller of old machinery if such seller had purchased
it as new. In face of this admission it is difficult to
appreciate how the Tribunal can be said to have erred in
treating Rs. 48.83 lacs as available fund. We may also
mention that before the Tribunal the argument was not that
the amount of Rs. 30.03 lacs was merely a notional
depreciation and not a fund actually available to the
Company. The Company’s contention on the contrary was that
the whole of Rs. 48.83 lacs was utilised in fixed assets
and therefore was not available for replacement. The Tribu-
nal rejected that contention on the ground that except for
the balance-sheet which did not give precise information as
to how that amount-was deployed by it. the Company had not
produced. its accounts to show that that amount was utilised
towards acquiring fixed assets. Counsel argued that if that
was the view of the Tribunal the Company ought to have been
given an opportunity of showing its sources of fixed assets.
There is no merit in this contention. It was the Company
who had the necessary information. The onus was on the
Company to explain from its accounts and other data that the
amount of Rs. 30 lacs and odd was not available. As regards
Rs. 18.22 lacs the amount being an investment in liquid
assets it is difficult to say why the Tribunal was not
justified in treating it as available for rehabilitation.
But the Company’s contention was that the investment of Rs.
18.22 lacs in shares can either be treated as a, trading
transaction carried out in the ordinary course of business
or as a capital asset. If it was treated as a trading
transaction the Tribunal ought to have allowed Rs. 1.72 lacs
which was the loss in 1957-58 in these shares as trading
expenditure and the Tribunal ought not have added that
amount to the gross profits for that year. In doing so, the
Tribunal treated the investment as capital asset and it
could not therefore deduct Rs. 18.22 lacs as a fund
available for rehabilitation cost. We fail to see any
contradiction on the part of the Tribunal. The balance-
sheet for the year 1956-57 contains two Schedules-, Sche
dule A shows fixed assets and Schedule B shows trade
investments of the value of Rs. 18,21,571 /-. The Company
not being an investment Company the investment of Rs. 18.22
lacs in shares of other joint stock Companies prima facie
represents extra capital not required as working capital for
otherwise the Company could not have spared this amount for
investment in the stocks of other
797
companies. The Tribunal was right in treating this
investment as a capital asset and in refusing to treat the
loss therefrom as trading expenditure. The Tribunal at the
same time could deduct this amount from the rehabilitation
cost because that amount was available to meet the
rehabilitation cost. The investment in shares could easily,
if the Company was so minded, be converted into cash and
utilised for replacement of its worn out machinery. But it
was said that even if the amount of Rs. 18.22 lacs could be
held deductible that figure was not correct, for the value
of investment was ,Rs. 11.23 lacs at the close of the year
1957-58 as shown in the balance-sheet for that year. This
contention is not correct. What appears to have been done
in 1957-58 was that instead of showing the entire investment
of Rs. 18.22 lacs as trade investments as in the previous
year, the investments, were classified into investments and
current assets. The value of investments at the beginning
of the year is shown at, Rs. 18.22 lacs but at the close of
the year the shares of companies other than the National
Bearing Company (Jaipur) Ltd., a subsidiary of the appellant
company, were regrouped and shown as current assets and
their cost was shown at Rs. 6.57 lacs instead of Rs. 13.71
lacs as shown at the close of the preceding year. Except
producing the balance-sheet for 1957-58 the Company gave no
explanation before the Tribunal as to why these investments
were re-grouped and on what footing they were revalued.
Besides, the figure of Rs. 18.22 lacs does not appear to
have been disputed before the Tribunal and the Tribunal was
never told that the investments during that year were
reduced to ‘Rs. 11.23 lacs. It would not therefore be,
right to say that the Tribunal erred in taking Rs. 18.22
lacs as a, fund available for rehabilitation.
The next contention was as to 7 1/4 % interest allowed by
the Tribunal on paid up capital instead of 8.57% claimed by
the company. By the Finance Act of 1959 the provision in
the Income-tax Act that the Income-tax paid on dividend
distributed to the shareholders was deemed to have been paid
on behalf of the shareholders was abrogated. The contention
was that though the corporation tax was reduced in that year
from 51.5% to 45% the Company since 1959 had on the whole to
bear at larger burden of tax and therefore the Company would
not get a net tax free 6 % interest unless interest at 8.75%
was granted. It is true that the Full Bench formula,
provided for payment of net interest at 6% per annum on paid
up capital, but as pointed out in the Associated Cement
Co.’s cave(1) and subsequent decisions of the Tribunals the
rate of 6 % interest is not to be regarded as something
inflexible. In awarding- interest on paid up capital and
also on working capital the proper approach is that the
industry is entitled to a reasonable return on investments
made in establishing and running concerns it its risk. At
the same time the claim for bonus is no longer treated as an
ex-gratia payment. It is recognised on the consideration
that
(1) [1959] S.C.R. 925.
798
labour is entitled to claim a share in the trading profits
of the industry as it partially contributes to the same.
Since the industry and labour both contribute to the
ultimate trading profits both are entitled to a reasonable
share. While awarding interest if the Tribunal were to find
that if it were to grant 6 % interest on paid up capital,
nothing or no appreciable amount would be left for bonus, it
can adjust the rate of interest so as to accommodate reason-
ably the claim for bonus and thus meet the demands of both
as reasonably as possible. If the Tribunal were to award
interest at a rate lower than 6% after considering all the
relevant facts we do not think that the employer can
legitimately claim that it has erred in doing so. If the
Tribunal has exercised its discretion after consideration of
all the relevant facts this Court would not ordinarily
interfere with such exercise of its discretion.
These were all- the contentions raised by Counsel for the
Company in the Company’s appeal To the extent that we Accept
as hereinabove the Company’s contentions, Annexure A to the
award will have to be modified. These modifications are
shown in the charts thereto annexed and collectively “A”.
We now proceed to consider the Workmen’s appeal.
Counsel for the Union argued that the Tribunal ought to have
fixed the life of the Dew machinery at 25 years as is
usually done and not at 15 years. In some cases, it is true
that Tribunals have fixed 25 years as the machinery’s
average life. There can however no rigidity in fixing the
life of machinery, since it differs from industry to
industry. Consequently, there can be no hard and, fast rule
applicable to all sorts of machinery. (cf. The Millowners’
Association, Bombay(1) and South India Millowners’
Association(2). In the present case the Tribunal had before
it evidence showing that the industry required machinery of
special precision and was therefore not comparable with
machinery such as that in textile mills for which 25 years’
life was fixed. In suggesting the life of 25 years for this
machinery Counsel for the Union did not give any specific
reason except that 25 years of life has been fixed in some
cases. He could not also show any instance where in a
similar industry life of machinery was fixed for more than
15 years. The principle that the Tribunal has to bear in
mind is that the life of machinery is the period during
which it is estimated to work with reasonable efficiency and
not the period during which it has actually been operated,
that is, till it becomes too deteriorated for use. (Pierce
Leslie & Co. v. Its Workmen.)(3) Since the Tribunal fixed
the period of 15 years after considering the evidence and
the nature of industry there is no reason why its
determination need be interfered with.
(1) [1950] L.L.J. 1247. (2) [1962] Suppl, 2 S.C.R. 926.
(3) [1960] 3 S.C.R. 194 at 200.
799
Counsel’s next contention was that the Tribunal ought not to
have accepted the quotations which were for 1963-64 as the
basis for calculating the total rehabilitation cost. But
the quotations were never disputed by the Union. Even so.
argued Mr. Ramamurti, they contained the cost of spares
which at any rate ought to have been excluded. We confess
it is difficult to appreciate this part of the argument.
The machinery in question is in a large way imported
machinery. It is common knowledge that when such machinery
is purchased spares are generally included in such purchase
and their cost must be included in the purchase price, the
reason being that in case of breakdown the Company would not
have to wait for an indefinite period for ordering and
obtaining, the spares. It was then said that the new
machinery which would replace the old might well contain
items of expansion which the Tribunal ought to have reckoned
and excluded. While dealing with the Company’s appeal we
have already dealt with this aspect and for the reasons
stated there this argument must be rejected We must also
reject the argument that the Tribunal had disregarded the
increasing trend of indigenous manufacture of machinery. In
fact; Confidential Annexs. 1 and 2 produced by the Company
contain quotations wherever possible of a number of machines
of indigenous manufacture.
The next contention related to old machinery and the argu-
ment was that the Company had discarded machinery worth
about Rs. 18 lacs in respect of which the Company ought not
to get any rehabilitation cost. The argument appears at
first sight attractive but loses its force when the actual
position is ascertained. The balance-sheet for the year
1959-60 shows that machinery worth Rs. 17.62 lacs was
discarded during that year. Similarly tools and implements
of the value of Rs. 8.57 lacs were also discarded. To that
extent deductions were made in the total value of fixed
assets. In showing depreciation of plant and machinery Rs.
10.91 lacs. being the depreciation of these machines were
also deducted from the total depreciation so far shown in
the previous balance-sheets. The result was that the total
depreciation including depreciation for machinery added
during the year was brought down from Rs’ 48.37 lacs to Rs.
44.20 lacs. The evidence of Desai shows that the machines’
Ledger maintained by the Company shows only the list of
machines in actual operation-, which means that the discar-
ded ones are ‘not shown in that list. The machinery
discarded during this year was thus taken out from the fixed
assets as if it did not exist. The depreciation in respect
of it was also deducted from the total depreciation and
therefore no rehabilitation was in fact claimed for such
machinery.
Mr. Ramamurti next urged that the Tribunal ought to have
allowed only 30% of rehabilitation cost for old machinery as
was done in South India Millowners’ Associations’s Case(1).
That case
(1) [1962] Spp. 2 S.C.R. 926.
800
does not lay down any such rule. 30% only was allowed in
that case as an ad-hoc figure because the Association there
had failed to produce materials showing the original price
and subsequent depreciation and this Court refused to
interfere with that figure as the Tribunal had no other
alternative except to adopt an ad-hoc basis. The Court
however made it clear that in the case of old machinery the
cost price of such machinery must be ascertained and this
can be done by enquiring for how much the machinery could be
originally purchased when new. There is therefore no
warrant for saying that only 30% of the rehabilitation cost
can be allowed in the case of old machinery.
We cannot also agree with Mr. Ramamurti’s contention that
the Tribunal in calculating the rehabilitation requirement
for the bonus years was wrong in taking only the notional
normal depreciation and not the statutory depreciation
including development rebate permissible under the Income-
tax Act. In Associated Cement Co.’s Case(1) at p. 994, in
the Chart prepared by this Court only. the notional normal
depreciation was deducted while the rehabilitation
requirement. It was when the Court calculated the Income-
tax payable by the Company that it deducted the statutory
depreciation from the gross profits (see also Bengal
Kagazkal Mazdoor Union & Ors. v. Titagarh Paper Mills Co.
Ltd. & Ors.(2)
The last contention was that the Tribunal should not have
rejected the bonus claim for 1956-57. The balance-sheet for
the year 1956-57 was published in December 1957, the
Company’s accounts were closed and appropriations of profits
for that year were made latest by the end of 1957. The
claim for bonus was raised for the first time by the Union’s
resolution of July 24, 1959, that is, more than 18 months
after the closure of accounts. The claim for 1956-57 was
thus clearly belated and the Tribunal was right in refusing
to compel the Company to reopen its accounts and to readjust
appropriations made long before the demand was raised. It
has to be remembered that a claim, for bonus is not one for
deferred wages. Its recognition in industrial adjudication
is based on the desirability of a balance of adjustments of
the different interests concerned in the industrial
structure of a country in order to promote harmony amongst
them on an ethical and economic foundation. Industrial
adjudication therefore is bound to take into consideration
delay and laches before it calls upon the other side to
reopen its accounts closed long ago. We do not think that
the Tribunal was in any error in rejecting the claim on the
ground of laches. The principle that aches are fatal to
such a claim has long been accepted in a series of decisions
both by the Tribunals and by this Court.
(1) [1959] S.C.R. 925.
(2) [1963] II L.L.J. 358
801
Calculation of annual requirement for rehabilitation of old
machinery
801(a)
Period Cost Cost as Multi- Total Less Balance
shown by plier Break-
Co. in down
Ex. M. Value
5%
1 2 3 4 5 6 7
1950-51 13.37 20.05 3.97 79.72 1.00 78.72
1953-54 1.24 1.86 7.85 11.57 0.0914.48
1954-55 1.95 2.93 3.50 10.25 0.15 10.10
1955-56 0.30 .45 2.47 1.11 0.02 1.09
1956-57 1.40 2.10 4.75 9.97 .11 9.96
1957-58 1.77 2.65 2.29 6.08 .13 5.95
801(b)
Deductions Balance Divisor Annual
Require-
ment
8 9 10 11
(i) 48.83 Depreciation 11.67 3 3.89
(ii)18.22 Available
Resourcess
67.05
14.48 6 2.41
10.10 7 1.44
1.09 8 0.14
9.86 9 1.10
0.95 10
0.59
Total 9.57
802 (a)
Period Cost cost as Multi- Total Less Balance
shown by plier Break
Co.in down
Ex.M. value
5%
1 2 3 4 5 6 7
1950-51 16.30 16.30 3.36 54.77 0.81 53.96
1951-52 1.43 1.43 1.87 2.67 0.07 2.60
1952-53 2.18 2.18 1.47 3.21 0.11 3.10
1953-54 1.12 1.12 2.28 2.55 0.06 2.49
1954-55 3.71 3.71 1.96 6.90 0.19 6.71
1955.56 6.93 6.93 2.18 15.11 0.35 14.76
1956.57 13.11 13.11 2.35 30.80 0.66 30.14
1957-58 3.39 3.39 1 3.39 0.17 3.22
1958-59 12.95 12.95 1 12.95 0.65 12.30
1959-60 30.76 30.76 1 30.76 1.54 29.22
802(b)
Deductions Balance Divisor Annual
Require-
ment
8 9 10 11
53.96 8 6.75
2.60 9 0.29
3.10 10 0.31
2.49 11 0.23
6.71 12 0.56
14.76 13 1.14
30.14 14 2.15
3.22 15 0.21
12.30 15 0.82
29.22 15 1.95
802(c)
TOTAL ANNUAL, REQUIREMENT FOR OLD) AND NEW MACHINERY
Old New Total
1957-58…… 9.57 11.64 21.21
1958-59…… (additional) 0.82 22.03
1959-60….. (additional) 1.95 23.98
803(a)
Years Machinery Building
Total
1957-58 21.21 0.72 21.93
1958-59 22.03 0.77 22.80
1959-60 23.98 0.82 24.80
803(b)
(Figures in lacs)
National Normal Depre- Balance to be provided
ciation allowed during out of profits
the year to be deducted
9.10 12.83
9.00 13.80
10.83 13.97
803(c)
Detailed Calculations of available surplus for the three
bonus years
(Figures in lacs)
1957-58 1958-59 1959-60
Gross Profits 28.34 25.36 34.92
Less Notional Normlal Depreciation 9.10 9.00 10.83
19.24 16.36 24.09
Less Income tax 8.18 7.48 7.31
11.06 8.88 16.78
Less Wealth Tax 0.28 0.29 .. ..
10.78 8.59 16.78 Less return on paid up capital 3.60 3.60 4.35 7.18 4.99 12.43
Less additional provision for rehabilitation for plant,
machinery and buildings 12.8313-8013.97
vailable Surplus Nil Nil Nil
804
The, Chartst showing calculations of available surplus for
the A three bonus years show that in all these years no
surplus remains available for distribution of bonus after
making provision for rehabilitation. As a result, the
appeal by the Company must be allowed and the direction made
by the Tribunal for payment of bonus for these three years
has to be set aside. In the circumstances of this case, the
parties will bear their own costs. The appeal by the Union
is dismissed. There will be no order as to costs.
G.C. Appeal dismissed.
805