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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

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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

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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

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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.

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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.