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PETITIONER: BARODA BOROUGH MUNICIPALITY

       Vs.

RESPONDENT: ITS WORKMEN

DATE OF JUDGMENT: 13/11/1956

BENCH: DAS, S.K. BENCH: DAS, S.K. BHAGWATI, NATWARLAL H. AIYYAR, T.L. VENKATARAMA MENON, P. GOVINDA

CITATION:  1957 AIR  110            1957 SCR   33

ACT: Industrial  Dispute-Bonus-One department of  a  municipality having  surplus  earnings-Whether workers  engaged  in  that department  can claim bonus-Bombay Municipal  Boroughs  Act, 1925 (Bom. Act XVIII Of 1925).

HEADNOTE: The Baroda Electric Supply Concern was owned and managed  by the  State of Baroda.  Immediately before the merger of  the State  in the Province of Bombay, the State made a  gift  of the Concern to the Baroda Municipality to provide it with  a new  source of revenue as. aid from the State might  not  be continued  after  the merger.  Later in  1951,  the  workmen employed  in the electricity department demanded  bonus  and the  dispute was referred for adjudication.  The  bonus  was claimed  on  the  basis  that the  electric  Concern  was  a commerical  concern,  that it was making ’huge  profits  and that  the workmen were entitled to bonus as a share  in  the profits.  The municipality resisted the demand, inter  alia, on the grounds that the earnings of one department could not be  treated  as profits of the municipality, and that  as  a whole  the  muncipal budget for the relevant  period  was  a deficit budget. Held,   that  the  workers  employed  in   the   electricity department  of  the municipality were not  entitled  to  the bonus  claimed.  According to the provisions of  the  Bombay Municipal  Boroughs Act, 1925, under which the  municipality is constituted and functions, the earnings of one department cannot  be  held  to  be  gross  profits  in  the   ordinary commercial  or trading sense.  The mere fact  that  separate accounts  were  kept of the electricity department  did  not alter  the  position,  as  there  was  one  budget  for  the municipality as a whole and income from and expenses of  all departments  constituted  the  income and  expenses  of  the municipality.  The different activities of the  municipality constituted one integrated whole, 5 34 and  the  activities of the different departments  were  not distinct  or  unconnected  activities so as  to  permit  the

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isolation  of one  department from another or of  an earning department  from a spending department.  It would be  unfair to  draw  a distinction between the workers of  the  earning department  and the workers of the spending  department  for the payment of bonus.  Such a distinction would, instead  of promoting  peace  and  harmony among the  employees  of  the municipality, create unrest and discontent.  D.  N.  Banerji v. P. R. Mukherjee, [19531 S.C.R.  302  and Muir  Mills  Co. Ltd. v. Suti Mills Mazdoor  Union,  Kanpur, [1955] 1 S.C.R. 991 referred to.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 182 of 1956. Appeal  by special leave from the judgment and  order  dated November  23,  1955,  of the Labour  Appellate  Tribunal  of India, Bombay, in Appeal No. 224 of 1953 arising out -of  an award (Part II) dated June 4, 1953, of the Bombay Industrial Tribunal in Reference No. (I.T.A.)No. 18 of 1951. M. C. Setalvad,Attorney-General for India,N. C.   Chatterji, J.  B.  Dadachanji,  S.  N. Andley  and  Rameshwar  Nath  of Rajinder Narain & Co., for the appellant. Purshottam Tricumdas, H. R. Gokhale, K. R. Choudhury and  M. R. Rangaswamy, for the respondents. 1956.  November 13.  The Judgment of the Court was delivered by S.K.  DAS  J.-This  is an appeal by  special  leave  from  a decision  of the Labour Appellate Tribunal at Bombay,  dated November  23, 1955.  The Baroda Borough Municipality is  the appellant,  and the respondents are the workmen employed  in the   electricity  department  of  the   said   Municipality represented  mostly  by the Baroda  State  Electric  Workers Union  (hereinafter  called  the  respondent  Union).    The substantial question for determination in this appeal is  if the  respondents, workers in a municipal department  engaged in  the generation, supply and sale of electric energy,  are entitled to the bonus claimed out of the surplus earnings of the  said department (called "profits" by  the  respondents) after 35 allowing  for all outgoings including necessary  expenditure of  the  department and deductions for all  prior,  charges. The  question  is, a short one, but has  an  importance  and consequences  reaching beyond the limits of  the  particular case in which it has arisen. We may first state the relevant facts.  Before May 1,  1949, on  which date the former State of Baroda was merged in  and integrated with the then Province of Bombay (now the  Bombay State),  the  Baroda Electric Supply Concern was  owned  and managed  by  the State of Baroda.  On April 19,  -1949,  the State  Government  of Baroda decided to hand over  the  said Concern   as   a  gift  to  the  Baroda   Municipality   and communicated an order to that effect in which it was  stated inter alia:- It is likely that the various types of assistance, financial or  otherwise,  which  the  Baroda  Municipality  has   been receiving  up to now from the Baroda Government may  not  be continued  to  a similar extent after  integration.   It  is therefore very necessary to find out new sources of  revenue for  the Municipality so that it may continue to maintain  a high standard of efficiency as far as possible......... With this  object  in view the Baroda Government are  pleased  to hand over to the Municipality as a -gift the Baroda Electric Supply  Concern  which at present is  a  Government  concern

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including  both the generation and distribution of  electric power.   With  the transfer of the electric concern  to  the Municipality  the various funds of the, electric  department like the Reserve Fund the Depreciation Fund etc. are also to be  transferred  to  the  Municipality  with  this  specific understanding  that  these  funds should  not  be  used  for purposes    other   than   those   for   which   they    are intended......... The Baroda City Municipality will have  to be  issued  licence for the generation and  distribution  of electricity   as   per  Barods  Electricity  Act   and   the Municipality should immediately apply for such a licence for the  supply of electric power not only within the  municipal limits  but within a twenty miles radius round Baroda.   The Municipality  should continue the policy of the  department. to give 36 electric  energy at concessional rates for  irrigation  pur- poses  in the villages, although this may not be  profitable in  the  beginning......  The entire  staff  of  the  Baroda Electric Supply Concern will be taken up by the Municipality without  an reservation and the Municipality is directed  to bring into operation terms and conditions of services as are prevalent  under the Bombay Government and the officers  and staff  should be given emoluments which they would have  got had they joined Bombay Government." On April 29, 1949, -a formal order of handing over was made, subject  to certain directions reserving the rights  of  the employees  in  the matter of  pension,  gratuity,  provident fund,  continuity  of service etc.  In 1951,  there  was  an industrial  dispute between the Baroda Borough  Municipality and  the  workmen employed in the electric  department  with reference to a number of demands made by the latter, and  by consent  of  the appellant Municipality and  the  respondent Union, the dispute was referred to the Industrial  Tribunal, Bombay,  for adjudication, by an order of the Government  of Bombay dated October22,1951.  The dispute related to a large number  of  items,  one  of  which  was  "payment  of  bonus equivalent  to  three  months’  wages  (including   dearness allowance)  for  the year 1940-50 to all employee,%  of  the electric   department  including  daily  wage  workers   and temporary  workers."  The dispute was settled  by  agreement with regard to all other items except the item of bonus;  on that item the Industrial Tribunal heard the parties and came to the conclusion that the respondents were not entitled  to the bonus claimed because(1)  the  Municipality  was  not  a profit-making concern;(2)     the  balance of earnings  over the outgoings of the electric department of the Municipality was not ’profit’ as that word is understood in the  ordinary trading or business sense; (3) the Municipality consisted of both  earning and spending departments and it was  not  per- missible  to  create an invidious  distinction  between  the different employees of the Municipality by granting bonus to the workmen in one department only; and (4)  the respondents having been compensated by higher 37 scales of salary on the municipalisation of the  undertaking and having got other benefits and amenities appertaining  to municipal  service were not entitled to claim such bonus  as was  granted to them during the regime of the former  State- owned company. Against  this decision of the Tribunal, there was an  appeal to  the Labour Appellate Tribunal of India at  Bombay.   The Appellate   Tribunal  came  to  the  conclusion   that   the respondents  were entitled to claim bonus; it expressed  the view that on the decision of this Court in D. N. Banerji  v.

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P.  R. Mukherjee (1) the expression industrial  dispute’  in the Industrial Disputes Act, 1947, includes disputes between municipalities and their employees in branches of work  that can  be regarded as analogous to the carrying on of a  trade or  business,  and  if the undertaking  resulted  in  profit during  the  relevant  trading  period,  the  workmen   were entitled  to  claim  bonus as of  right.   On  the  question whether  the excess of earnings over outlay of  a  municipal undertaking like the one under consideration here was profit or  not, the Appellate Tribunal relied on the  circumstances stated  below  for its finding that the  excess  was  really profit: (a)  the very nature of the gift to the Baroda  Municipality by  the State Government of Baroda showed that  the  concern (or undertaking) made over to the former was a profit-making concern; (b)  the concern was run separately and as it was a  trading concern by its very nature,, the balance of earnings derived from it after allowing for all outgoings was pecuniary  gain and  it made no material difference to the actual nature  of the gain, whether it was called surplus or profit; and (c)  no  distinction  could be made in principle  between  a municipal  undertaking  and an undertaking by a  private  or public concern, if the conditions laid down for the grant of bonus  in Muir Mills Co. Ltd. v. Suti Mills  Mdzdoor  Union, Kanpur (2) were fulfilled. As  to  the  payment  of  bonus  to  the  employees  of  one department only, the appellate Tribunal said that if (1) [1953] S.C.R. 302. (2) [1955] 1 S.C.R. 991. 38 the profits were not sufficiently large to admit of bonus to all employees, it was permissible to treat the  profitmaking department  as a separate unit for the purpose  of  granting bonus,  unless there was some essential nexus or  connection between  the profit-making department and other  departments or some unity of purpose or parallel or co-ordinate activity towards  a common goal.in all the departments without  which the undertaking could not be carried on to proper advantage. The Appellate Tribunal. pointed out that the accounts of the electricity  department.  of the  Baroda  Municipality  were separately  kept  and as the undertaking carried on  by  the electricity  department of the municipality  differed.  from other normal activities of the Municipality, there being’ no common nexus between them, it was open to the workmen of the electricity department to claim bonus out of the profit made by  that  department after making deductions for  all  prior charges.   The  Appellate Tribunal accordingly  allowed  the appeal,  set aside the decision of the  Industrial  Tribunal and  remanded the case for decision on merits  according  to law. It  is now finally settled by the decision of this Court  in D.  N. Banerji v. P. R. Mukherjee (supra) that  a  municipal undertaking  of the nature we have under consideration  here is  an  ’industry’ within the meaning of the  definition  of that  word in s. 2(j) of the Industrial Disputes Act,  1947, and  that  the expression ’industrial dispute’ in  that  Act includes disputes between municipalities and their employees in branches of work that can be regarded as analogous to the carrying  on of a trade or business.  The learned  Attorney- General who appeared for the appellant made it clear at  the very out set that the questions which he wished us to consi- der  in this case were different from those  considered  and determined by the aforesaid decision. The first contention which he placed in the forefront of his

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argument  is this: he invited attention to our  decision  in Muir  Mills  Co. Ltd. v. Suti Mills  Mazdoor  Union,  Kanpur (Supra)  and contended that having regard to the  principles laid  down therein for the grant of bonus,  the  respondents were not entitled to claim any 39 bonus  in this case because even though the  undertaking  in question  was  an  ’industry’ within  the  meaning,  of  the Industial  Disputes Act, 1947, there was no profit from  the undertaking  and  the principles which govern the  grant  of bonus  out of profits, as explained in that  decision,  were inapplicable to a municipal undertaking of the nature  under consideration before us. In  the  Muir Mills case (supra) it was  observed  that  two conditions  had  to be satisfied before a demand  for  bonus could  be justified: one was that the wages of  the  workmen fell short of the living standard and the other was that the industry  made profits to the earning of which  the  workmen had  contributed.  The principle for the grant of bonus  was stated  thus: ’,’It is fair that labour should  derive  some benefit  if  there  is  a surplus  after  meeting  prior  or necessary charges." The prior or necessary charges were then explained  as (1) provision for depreciation,  (2)  reserves for  rehabilitation,  (3) a return of six per cent.  on  the paid up capital and (4) a return on the working capital at a lesser  rate than the return on paid up capital.   Do  those principles  apply in the case of a municipal undertaking  of the kind in question here ? There  can  be no doubt that the respondents  founded  their claim  of bonus in this case on the availability of  profits after meeting prior or necessary charges.  In the  statement of their claim they said, "The electric concern was  treated as   a  commercial  concern  by  the  former  Baroda   State Government  and it used to yield huge profits to the  State. Even  after  merger  the municipality is treating  it  as  a commercial concern and the concern is fielding huge  profits to  the municipality too.  It is submitted that all  workers of  the electric department should be paid bonus  equivalent to  three. months wages including D.A. The bonus  should  be paid  to all the employees including daily  wage,  temporary and  semi-permanent  workmen.  The workers are  entitled  to bonus both as share in profits and also &a deferred  wages." It was decided in the Muir Mills case (supra) that bonus was not   deferred  wage;  so  the  alternative  claim  of   the respondents on the footing that bonus was deferred wage  had no real basis, and their 40 claim of bonus as share in profits was the only claim  which merited   consideration.   In  reply  to  that  claim,   the appellant said: This   demand  is  not  acceptable.   Under  former   Baroda Government Order No. (R) 403/63 dated 19-4-49, after serious consideration   into   the   financial   position   of   the Municipality after the integration of the Baroda State  with the Bombay Province and with a view to find out new  sources of  revenue for the Municipality so that it may continue  to maintain  its  standard  of efficiency and  to  fulfill  the obligations incumbent upon the Municipality, the  Government was  pleased  to hand over to the  Municipality  the  Baroda Electric Supply concern. "The  Municipality is experiencing great hardships still  in meeting all its obligations and covering the lost sources of revenue.   Even including the income of the Electric  Supply Concern, the municipal budget is a deficit one.  Due to want of sufficient funds, the Municipality has to give up certain

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schemes and works or to postpone the same. "Further,  local authorities, like municipalities and  local boards,  are  public utility institutions  and  the  profits derived from the working of the Electric Supply Concern will all  go to the Municipal treasury and city’s  tax-payers  in general, unlike other commercial organisations whose profits are distributed only among the investing public."  It  is clear to us that having regard to the provisions  of the Bombay Municipal Boroughs Act, 1925 (Bombay Act XVIII of 1925), hereinafter called the Municipal Act, under which the appellant  Municipality  is constituted and  functions,  the earnings  of  one department of the Municipality  cannot  be held  to  be  gross profits in the  ordinary  commercial  or trading  sense; nor can, the principles governing the  grant of  bonus  out of such profits after  meeting  necessary  or prior charges be applied to the present case. The  relevant sections of the Municipal Act are ss. 58,  63, 65, 66, 68 and 71.  We shall subsequently advert to S. 58 of the Municipal Act in connection with another 41 contention  of  the  learned  Attorney-General;  but  it  is necessary to refer here to ss. 63, 65, 66, 68 and 71 of  the Act.  Section 63 lays down, inter alia, that all property of the nature specified in clauses (a) to (f) of sub-s. (2)  of the   section  shall  be  vested  in  and  belong   to   the Municipality and shall, together with all other property  of whatever  nature  or  kind which may become  vested  in  the municipality, be under its direction, management and control and  shall be held and applied by it as trustee, subject  to the provisions and for the purposes of the Act.  Clauses (a) to  (f)  of subs. (2) of the section  relate  to  immoveable property  and permanent fixtures or works thereon.   Section 65,  which  is more relevant for our purpose,  states  inter alia  that all moneys received by or on behalf of a  munici- pality,  all taxes, fines, penalties etc., all  proceeds  of land  or  other property sold by the  municipality  and  all rents  accruing from its land or property and all  interest, profits  and other moneys accruing by gift or transfer  from the  Government or private individuals or  otherwise,  shall constitute  the municipal fund and shall be held  and  dealt with in a manner similar to the property specified in a. 63. Section  66  lays  down  that the  municipal  fund  and  all property  vested  in the municipality shall be  applied  for purposes  of  the  Act within the limits  of  the  municipal borough.  Section 68 lays down the duties of municipalities, one  of which is the lighting of public streets, places  and buildings.  This is an obligatory duty of the  municipality. Section   71  states  the  discretional  functions  of   the municipality and one of such functions is the  construction, maintenance,  repairs, purchase of any works for the  supply of  electrical  energy (see el. ql).  It is worthy  of  note that  cl.  (q1)  was inserted by an  amending  Act  in  1951 (Bombay  Act 44 of 1951).  A similar amendment was  made  in the  same year in s. 66 of the Municipal Act and the  effect of  the  amendment  was that the  municipality  could  incur expenditure to supply electrical energy not only for the use of the inhabitants of the municipal borough but also for the benefit  of  any person or buildings or  lands  in  anyplace whether  such place was or was not within the limits of  the said 42 borough.  A scrutiny of these provisions clearly establishes two  propoisition:  one  is  that  all  municipal  property, including moneys etc. received by way of gift, is vested  in the  municipality  and shall be held and applied  by  it  as

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trustee  subject to the provisions and for the  purposes  of the Municipal Act, and it is not open to the municipality to treat  some of its property separately from  other  property and  divert it for purposes other than those  sanctioned  by the  Municipal Act; the other proposition is that there  are some obligatory functions which a municipality must perform, and  one of these is the lighting of public streets,  places and buildings; and there are some other functions which  the municipality may at it,% discretion perform either wholly or partly out of municipal property and fund, and one of  these discretionalfunctions  is  the supply of  electrical  energy which  is  for the use of the inhabitants of  the  municipal borough or for the benefit of any person, buildings or lands in  any  place whether such place is or is  not  within  the limits of the municipal borough. The question now is whether, having regard to the  aforesaid provisions,  it  was open to the Municipality to  treat  its electricity department, the property thereof and the  income therefrom,  separately  from other departments and  spend  a part of the income for the benefit of the employees of  that department  only, treating it as profits of  the  particular department  and not as part of the entire municipal fund  or property.  In our opinion, such a treatment of the income of one department of the Municipality would be clearly  against the  provisions  of the Municipal Act.  It is  pertinent  to refer  here to Chapter XI of the Municipal Act dealing  with Municipal Accounts.  Under s. 209 a complete account of  all receipts and expenditure of the municipality and a  complete account of the actual and expected receipts and expenditure, together   with  a  budget  estimate  of  the   income   and expenditure  of  the municipality, have to be  prepared  for each year and these have to be prepared and laid before  the municipality  on or before a particular date.  These  budget estimates have then to be sanctioned at a special 43 general  meeting of the municipality.  Learned  counsel  for the respondents stressed two points in this connection.   He pointed   out  that  as  a  matter  of  fact   the’   Baroda Municipality  kept  separate  accounts with  regard  to  its electrical undertaking, including a capital account  showing capital expenditure and capital receipts; separate  accounts were  also  kept  of the reserve  fund,  depreciation  fund, provident  fund etc.  It was argued that the maintenance  of these separate accounts showed that the Baroda  Municipality did   treat  the  income  of  the   electricity   department separately   from  that  of  other  departments,   and   the maintenance  of such accounts did not contravene any of  the provisions of the Municipal Act.  The second point  stressed was   that  the  distinction  between  the  obligatory   and discretional  functions of the municipality showed  that  in the  exercise  of discretional  functions  the  municipality might engage in an undertaking with a profit-making  motive. Learned counsel for the respondents submitted before us that if  there  was profit from the ’electricity  department  was running  an  undertaking  in exercise  of  the  discretional functions  of the Baroda Municipality, the workmen  in  that department  would be entitled to bonus as of right.  In  our opinion, these submissions are based on a misapprehension of the  true position in law.  With regard to the first  point, it  is  worthy  of note that  the  maintenance  of  separate accounts of a particular department by the Municipality does not  alter the nature or quality of the property  or  income therefrom.   The  property  or  income  is  still  municipal property  within  the  meaning  of ss.  63  and  65  of  the Municipal Act, and it can be utilised only for the  purposes

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of the Act as laid down by s. 66.  Maintenance of a separate account  for a particular department is in the nature of  an internal  accounting arrangement; it does not  really  alter the quality or nature of the property or income, and for the purposes of s. 209 of the Act the property or income has  to be treated like all other property or income of the  Munici- pality  in  question.  In his book on  Public  Finance,  Mr. Findlay  Shirras has pointed out that the classification  of public revenue or income, both of the State and 44 of  municipalities,  has undergone  considerable  change  in recent  years and non-tax revenue of the State may  be  sub- divided  into three main classes-(1) developmental  revenues from  the  public domain and from the  public  undertakings, which  include  not only revenue from the State  domain  but also  from  the  municipal domain;  (2)  administrative  and miscellaneous  revenues  other than loan revenues;  and  (3) loan  revenues  (see Science of Public  Finance  by  Findlay Shirras,  Vol.  I, Book III, Chapter XIII,  pages  211-212). At  page 717 (Vol.  II, Book III, Chapter XXX), the  learned author has posed the following question with regard to State or municipal concerns: "An important point in such  concerns is  the keeping of strictly commercial  accounts.   Interest should  be paid on capital.  Provision should also  be  made for depreciation of machinery and plant, for a pension fund, rents  for  land, and income tax in order to arrive  at  the true  net profit.  State concerns sometimes show a  surplus, but  the  point is how much of this is really  profit?"  The learned  author has posed the question but given no  answer. We  are of opinion that the answer has been very  succinctly put in Dr. Paton’s Accountants’ Handbook (3rd edition, s. 24 dealing with Governmental Accounting, page 1277).  Says  Dr. Paterson: " In private business the proprietary or  residual equity  usually represents the ownership  of  individuals-in the  case of the corporation that of the  shareholders.   In Government this residual element reflects the equity of  the continuing  body  of citizens as a group, and  in  no  sense belongs  to  particular  members of the group ;  it  is  not represented  by capital stock and there are no  shares  with specific voting rights and dividend expectations." The legal position under the Municipal Act is the same.  The income of one department is the income of the municipality as a whole. and  that income is not ’Profit’ in the ordinary  commercial or  trading  sense of being income derived from  capital  of particular individuals or shareholders; it may even be  that the  surplus of one department may dwindle into  a  deficit, when  the  entire income of the municipality is  taken  into consideration  Vis  a Vis its entire expenditure.   We  have already pointed out that in the 45 present  case also, the claim of the Municipality was  that, even including the income of its electricity department, the municipal  budget for the relevant year was a  deficit  one. With regard to the second submission of; learned counsel for the respondents, nothing turns upon the distinction  between obligatory and discretional functions of the municipality so far  as  the  nature or quality  of  municipal  property  or municipal income is concerned.  The distinction referred  to above does not entitle the municipality to treat the  income from one department as though it were not part of the  whole income of the Municipality.  Moreover, in its true nature or quality,  such  income is not profit in the sense  in  which that expression has been held to be the basis for the  grant of  bonus in the Muir Mills case (supra) though the  word  " profits " occurs in s. 65 of the Municipal Act and has  been

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loosely   used  in  connection  with  State   or   municipal undertakings. This brings us to the other question whether the  principles laid  down in the Muir Mills case (supra) for the  grant  of bonus  can be applied in the present case.  Learned  counsel for  the respondents submitted before us that the gift  made by  the State Government of Baroda furnished  the  necessary capital for the municipal undertaking in question and as the reserve  fund,  depreciation  fund  etc.  had  to  be   kept separate, there was no difficulty in applying the principles laid down in that decision to the facts of the present case. The  difficulties  however  arise  in  the  following   way. Whatever was given by the State Government of Baroda to  the Baroda  Municipality became municipal property or  municipal fund under ss. 63 and 65 of-’ the Act and was not capital in the sense in which a return on paid up or working capital is to  be allowed" for in the matter of the grant of  bonus  in accordance with the decision in the Muir Mills case (supra). Learned counsel referred us to the ordinary dictionary mean- ing  of  the word ’capital’ and referred  to  Webster’s  New International Dictionary (1937 edition, page 397) where  one of the meanings of the word is stated to be " the amount  of property owned by an individual or corporation which is used for business purposes." 46 He  submitted  that  what  was given  by  the  Baroda  State Government  was capital within that meaning.  In  Palgrave’s Dictionary of Political Economy, Vol. 1 (1925 edition)  page 217,  it has been stated that there is probably no  term  in economics  which  has given rise to so much  controversy  as ’capital.’ The word ’capital’ is connected with caput and in medieval Latin meant the principal sum as distinct from  the interest.   Originally,  the term was confined to  loans  of money.  In the natural course of historical development, the term ’capital’ received a wider meaning and capital came  to be  considered  primarily  as  a source  of  profit  and  in ordinary  thought  capital  is considered  as  wealth  which yields  a revenue.  Later economic theories introduced  many refinements in the meaning of the Word  We are not concerned with those refinements and it is unnecessary to discuss them here.   For our purpose it is sufficient to state that  what the  Baroda  Municipality got from the State  Government  of Baroda merged in and became municipal property or  municipal fund  under the provisions of the Municipal Act and was  not -capital  on which a return had to be earned  in  accordance with  the  principles  laid  down in  the  Muir  Mills  case (supra).   In our opinion, it is impossible to  apply  these principles  in  the case of a municipal undertaking  of  the nature  we have under consideration here.  The  argument  of learned  counsel for the respondents that once it  is  found that  there  was capital and actual profit in the  sense  of excess  of earnings over outgoings from the  undertaking  in question,  no  distinction  can be  ,drawn  between  private enterprise  and  municipal enterprise, cannot  therefore  be accepted.   In  the  -case ’before  us,  there  was  neither ’capital’ nor ’profit’ on which the principles laid down  in Muir  Mills  case (supra) could operate.  We  must  make  it clear  that the question is not merely one  of  terminology; that is, whether the more appropriate word to use in connec- tion  with a municipal undertaking is surplus or profit;  it is  the nature or quality of the municipal property or  fund which must be determinative of the question at issue, and it is on that basis that we have,come to the conclusion that in the present case there were no 47

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profits of one single department of the municipality out  of which the respondents could claim a bonus. In the course of arguments before us a reference was made to certain observations contained in a Report of the  Committee on  Profit-sharing  set up by the Ministry of  Industry  and Supply in 1948.  With regard to the question how  Government undertakings  should  be  treated for  purposes  of  profit- sharing,  the Committee said: " The answer to this  question is  only  of academic interest, as there are  no  Government undertakings  in the industries we have recommended  for  an experiment  in profit-sharing.  On the general question,  we think that those business undertakings of Government,  which aim  at  making  a  profit, and  which  will  ordinarily  be organised  in the form of corporations, would  automatically come  under any law which governs private undertakings of  a similar  nature."  We  do not  take  those  observations  as deciding any question of principle; at best they express  an opinion of the members of the Committee-an opinion which  is expressly confined to undertakings organised in the form  of corporations with the aim of making a profit in the ordinary trading   or   business  sense.   In  our   opinion,   those observations   have  no  apt  application  to  a   municipal undertaking  meant for the purpose of  augmenting  municipal revenues in order to meet the municipal service demands  and improve  the  amenities  of  the  inhabitants  of  a  modern municipal borough. We  proceed  now  to consider the  second  argument  of  the learned  Attorney-General.   This argument  depends  on  the provisions  of  s. 58 of the Municipal  Act.   That  section deals  with  the rule-making power of the  municipality  and proviso  (a)  lays  down  that  no  rule  or  alteration  or rescission of a rule made shall have effect unless and until it has been approved by the State Government.  Our attention has  been  drawn  to cls. (c), (f) and (1) of  s.  58  which enable the municipality to make rules relating, inter  alia, to  salaries and other allowances of the staff  of  officers and  servants employed by the municipality; their  pensions, gratuities  or compassionate allowances on  retirement,  and provident 48 fund  etc.  It was pointed out that under s. 58  the  Baroda Municipality  had no power to make rules for the payment  of bonus  to its employees, because the word ’ allowances’  did not  include  bonus; and even if such rules could  be  made, they  required  the sanction of the State  Government  under proviso (a) referred to above.  It was further submitted  by the  learned  Attorney-General that there were  no  existing rules  with  regard to the payment of bonus to  a  municipal employee.  In view of these provisions the learned Attorney- General  argued  that it was not open to a Labour  Court  or Tribunal  to  direct  the payment of bonus  to  a  municipal employee.   We cannot accept this argument as correct.   The demand for bonus as an industrial claim is not dealt with by the  Municipal  Act;  it is dealt  with  by  the  Industrial Disputes  Act,  1947.   Therefore,  it  is  not  a  relevant consideration whether there are provisions in the  Municipal Act with regard to payment of bonus.  The provisions of  the Municipal   Act  are  relevant  only  for  the  purpose   of determining the quality or nature of the municipal  property or  fund; those provisions cannot be stretched  beyond  that limited  purpose for defeating a claim of bonus.  We do  not therefore  think  that  the absence  of  provisions  in  the Municipal  Act  for  the  payment  of  bonus  to   municipal employees  is a consideration which is either  determinative or conclusive of the question at issue before us.  If we had

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come  to  a  different  conclusion  as  respects  the  first contention  of  the learned Attorney-General and  his  third contention  to  be  referred to presently,  the  absence  of suitable   provisions  relating  to  payment  of  bonus   to municipal  employees  in the Municipal Act  would  not  have stood  in  the  way  of  our  allowing  the  claim  of   the respondents for the payment of bonus. We now proceed to consider the third and last contention  of the learned Attorney-General.  This contention centres round the question whether one department of the municipality  can be isolated and a distinction made between the employees  of that department and other departments in the matter of the 49 payment  of bonus.  We have already pointed out  that  under the  Municipal  Act  a  municipality  may  perform   various functions,  some  obligatory  and  some  discretional.   The activities  may  be  of a composite  nature:’  some  of  the departments  may  be mostly  earning  departments  and  some mostly  spending  departments.For  example,  the  department which  collects municipal taxes or other municipal  revenue, is  essentially an earning department whereas  the  sanitary department  or  other service department  is  essentially  a spending department.  There may indeed be departments  where the earning and spending may almost balance each other.   In spite  of these distinctions in the internal arrangement  of departments within a municipality, the property or income of the municipality remains of the same nature or quality,  and it  will be obviously unfair to draw a  distinction  between the employees of one department and the employees of another department  for the payment of bonus.  The result of such  a distinction  will be that the staff of the spending  depart- ments will never be entitled to any bonus at all and instead of promoting peace and harmony amongst the employees of  the municipality,  a  distinction  like  the  one  suggested  by learned  counsel for the respondents will create unrest  and discontent.   Learned counsel for the respondents  submitted before  us that beyond the fact of single  ownership,  there was  no other connection between the electricity  department of  the Municipality and its other departments.  We  do  not think that this submission is correct.  Under the  Municipal Act  the  total income and expenditure of  the  municipality form one integrated whole; they are both for the purposes of the  Act;  and  if  the workmen of  a  service  or  spending department do not work efficiently with the result that  the expenses  on  the obligatory functions of  the  municipality increase,  that  inefficiency is bound  to  affect--even  to dwindle  or wipe out-the surplus of an  earning  department. For  a  true  appreciation of the financial  position  of  a municipality,  its  total  income and  expenditure  must  be considered;  we  must look at the whole  picture,  the  part which is in shade as well as the part 7 50 which has caught the light for a correct appraisal of the picture. Learned counsel for the respondents referred us to a  number of  decisions  of Labour Tribunals where a  distinction  was made  between a parent concern and subsidiary  concerns,  or even  between  different units of the same concern,  in  the matter  of payment of bonus: Rohit Mills Ltd. v. Sri  R.  S. Parmar(1),  Mackinnon Mackenzie and Company’s  Indian  Staff Organisation  v. Mackinnon Mackenzie and Company  Ltd.  (2), Ahmedabad  Mfg.  & Calico Ptg.  Co. Ltd.  V.  Their  Workmen (a), Shaparia Dock and Steel Company v. Their Workers(,) and Minakshi  Mills Ltd. v. Their Workmen Recently, we have  had

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occasion  to consider this question in Messrs.  Burn &  Co., Calcutta  v.  Their Employees (6) where we pointed  out  the harmful  consequences  which  might arise  if  an  invidious distinction   were  made  amongst  employees  of  the   same industry.   Considering the question with reference  to  the facts  of  the  present case, it is clear  to  us  that  the different activities of the Baroda Municipality  constituted one  integrated  whole and the activities of  the  different departments  of  the  Municipality  were  not  distinct   or unconnected activities so as to permit the isolation of  one department  from another or of an earning department from  a spending  department.   From this point of  view  also,  the claim of bonus was not maintainable. Some  decisions  were  brought to our notice  in  which  the question  of  the  payment of bonus to  their  employees  by Electric  Supply Companies, not run as a State or  municipal undertaking, was considered with reference to the provisions of the Electricity (Supply) Act, 1948, and one of the points which fell for consideration there was the interpretation of clause  XVII (2) (b) (xi) of Schedule VI of the  Electricity (Supply)  Act, 1948.  It is not necessary to consider  those decisions in the (1)  [1951] 1 L.L.J 463. (2)  [1955] 1 L.L.J. 154. (3)  [1951] 2 L.L.J. 765. (4)  [1954] 2 L.L.J. 208. (5)  [1953] 2 L.L.J. 520. (6)  C.A. 325 Of 1955, decided on October 11, 1956. 51 present case, because they have no bearing on the  questions which we have to consider in this case. For  the  reasons given above, we hold that  the  Industrial Tribunal  came to the correct decision that the  respondents employed  in  the  electricity  department  of  the   Baroda Municipality were not entitled to the bonus claimed, and the Labour  Appellate Tribunal came to an erroneous decision  on that  question  in its order dated November  23,  1955.   We accordingly allow the appeal and set aside the order of  the Labour  Appellate  Tribunal.  In the circumstances  of  this case,  we direct that the parties will bear their own  costs throughout. Appeal allowed.