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PETITIONER: KHANDESH SPG. & WVG.  MILLS CO.  LTD.

       Vs.

RESPONDENT: THE RASHTRIYA GIRNI KAMGAR SANGH,JALGAON

DATE OF JUDGMENT: 02/01/1960

BENCH: SUBBARAO, K. BENCH: SUBBARAO, K. GAJENDRAGADKAR, P.B. GUPTA, K.C. DAS

CITATION:  1960 AIR  571            1960 SCR  (2) 841  CITATOR INFO :  E          1960 SC1006  (5)  RF         1967 SC 122  (22)  RF         1968 SC 963  (34)  R          1969 SC 612  (8)  R          1972 SC 330  (10,11)  RF         1972 SC1954  (15)

ACT:        lndustrial  Dispute-Bonus-Full Bench  Formula--Rechaibilita-        tion -Reserves used as working capital-Mode of Proof.

HEADNOTE: In  ascertaining  the surplus available for the  payment  of bonus  according  to the Full Bench formula  the  Industrial Court  allowed the statutory depreciation but did  not  give any  credit  for  the rehabilitation  amount  claimed.   The Industrial   Court   estimated  the  amount   required   for rehabilitation  at  Rs.  60 lakhs; out  of  this  amount  it deducted  Rs.  51 lakhs representing the  reserves  and  the balance of Rs. 9 lakhs spread over a period Of 15 years gave the  figure of Rs. 6o,000 as the amount that should  be  set apart  for  the year in question for  rehabilitation.   This amount  being  less  than  the  statutory  depreciation  the Industrial Court held that the appellant was not entitled to any  deduction  on  account of  rehabilitation  as  a  prior charge.   The  appellant contended  that  the  balance-sheet disclosed that the entire reserves had been used as  working capital  and  consequently the said reserves should  not  be excluded from the amount claimed towards rehabilitation. Held,  that  the  appellant had failed  to  prove  that  the reserves  had  in fact been used as working capital  and  as such the amount was rightly deducted by the Industrial Court from the amount fixed for rehabilitation. The Associated Cement Companies Ltd. v. Its Workmen.  [1959] S.C.R. 925, referred to. In  view of the importance of the item of rehabilitation  in the  calculation of the available surplus it  was  necessary for tribunals to weigh with great care the evidence of  both parties  to ascertain every sub-item that went into  or  was subtracted  from  the item of  rehabilitation.   If  parties agreed, agreed figures could be accepted.  If they agreed to

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a decision on affidavits, that course could be adopted.  But in  the absence of agreement the procedure prescribed by  0. XIX,  Code  of  Civil Procedure had  to  be  followed.   The accounts,  the  balance-sheet and profit and  loss  accounts were prepared by the management and the labour -had no  hand in it.  When so much depended on this item it was  necessary that the Industrial Court insisted upon a clear proof of the item  of  rehabilitation and also gave a real  and  adequate opportunity  to  labour to canvass the  correctness  of  the particulars furnished by the employers. Indian  Hume Pipe Company, Ltd. v. Their Workmen.  [196o]  2 S.C.R. 32, Tata Oil Mills Company Ltd. v. Its Workmen [1960] 1  S.C.R  1.  and Anil Starch  Products  Ltd.  v.  Ahmedabad Chemical  Workers’  Union.   C.A.  No.  684  Of  I957   (not reported), referred to, 842

JUDGMENT:        CIVIL APPELATE JURISDICTION: Civil Appeal No.257 of 1958.        Appeal  by  special leave from the Award  dated  August  20,        1957, of the Industrial Court, Bombay, in Reference (IC) No.        197 of 1956.        C. K. Daphtary Solicitor - General of India.S. N. Andley, J.        B. Dadachanji and Rameshwar Nath,for the appellant.        B.   P. Maheshwari, for the respondent.        I.   N. Shroff, for Interveners Nos.  1 and 2.        The Intervener No. 3 did not appear.        1960 January 22, The Judgment of the Court was delivered by         SUBBA  RAO  J.-This appeal raises the question as  to  what        extent the reserves can be deducted from the amount required        for rehabilitation of plant and machinery and also as to the        manner by which the deductible reserves can be  ascertained.        It would be enough if we narrated only the facts relevant to        the  question raised.  The appellant, Khandesh Spinning  and        Weaving  Mills  Company Limited, is a textile mill  and  its        factory  is situate at Jalgaon.  The  respondent,  Rashtriya        Girni   Kamgar  Sangh,  represents  the  employees  of   the        appellant-Company.    The  respondent  on  behalf   of   the        employees issued a notice to the appellant under s. 42(2) of        the Bombay Industrial Relations Act, 1946, demanding payment        of  reasonable bonus for the period from January 1, 1955  to        -December  31,  1955.  Negotiations in  this  regard  having        failed,  the respondent made a reference to  the  Industrial        Court  under s. 73A of the said Act for arbitration  of  the        dispute arising out of the said notice.        The  arbitrator,  i.e. the Industrial Court,  following  the        "Fall Bench Formula", ascertained the surplus to be Rs. 2.20        lakhs  after  deducting  the prior charges  from  the  gross        profits  of the Company, but it did not give any  credit  to        the   rehabilitation   amount  apart  from   the   statutory        depreciation.  The Industrial Court disallowed this item for        the following reasons: It estimated the amount required  for        rehabilitation  at  Rs.  60 lakhs; out  of  this  amount  it        deducted  Rs.  51 lakhs representing tile reserves  and  the        balance of Rs. 9 lakhs spread over a period of 15 years gave        the        843        figure of Rs. 60,000 as the amount that should be set  apart        for  the  year  in  question  for  rehabilitation.   As  the        statutory  depreciation  was  Rs. 83,639, it  came  to   the        conclusion  that  the Company would not be entitled  to  any        allocation  as  a prior charge  for  rehabilitation.   After        excluding the said item of rehabilitation, it The fixed  the

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      surplus  in  a  sum of Rs. 2.20 lakbs  and  awarded  to  the        employees four months’ basic wages as bonus.        The learned Solicitor General contended that the  Industrial        Court  accepted the position that the reserves were used  as        working  capital,  but  deducted the said  amount  from  the        amount   required   for  rehabilitation  on  a   wrong   and        unjustified  assumption  that, as the  amounts  so  required        would be spent for rehabilitation over a course of 15  years        by  instalments,  the temporary user of  the  said  reserves        would  not affect the question as they would be released  in        part  or  in  whole in future years.  He  argued  that  this        assumption  was  contrary to the view expressed  in  decided        cases and also the principle governing the ascertainment  of        the amount for rehabilitation purposes.        On  the  contrary  the learned counsel  for  the  respondent        argued  that  the  Industrial Court only  assumed  that  the        reserves  had  been utilised as working capital, as  in  the        view  taken  by it did not in the least matter  whether  the        reserves were so utilised or not and that, even if that view        was wrong, the appellant could not succeed, unless it proved        by  relevant and acceptable evidence that the reserves  were        so utilised and that it did not place before the  Industrial        Court any such evidence to prove that fact.  The first ques-        tion, therefore, is, what is the scope of the finding of the        Industrial  Court in this regard ? The Industrial  Court  in        dealing  with  the  contentions of  the  parties  before  it        observed as follows:        "It  is true that until some amount is required to be  spent        for  rehabilitation, replacement or modernization,  reserves        must  be  used  as working  capital,  but  Shri  Vimadalal’s        argument overlooks that the amount required to be spent  for        rehabilitation over a course of 15 years is not required  to        be        844        spent all at once, but by installments over a long period."        These  observations did not record any finding  that     the        reserves  were  used  as working capital.  It  was  only  an        assumption    made    by   the   Industrial    Court,    as,        the view taken by it, it was immaterial whether the reserves        were  used as working capital or not.  We do not think  that        the  aforesaid opinion expressed by the Industrial Court  is        sound.   In  ascertaining  the surplus for  the  purpose  of        fixing the bonus for a particular year, the state of affairs        in that year is the guiding factor.  If in a subsequent year        any  part  of  the  reserves  used  as  working  capital  is        released, that amount will have to be taken into account  in        ascertaining  the  surplus  for  that year  and  so  on  for        subsequent  years: otherwise it will lead to the anomaly  of        the  reserves  being excluded from the amount  required  for        rehabilitation,  though  as  a matter  of  fact  the  entire        reserves  were  utilised as working capital, and  though  in        future  years they were expected to be released but in  fact        not  so released.  This would lead to a result  inconsistent        with  the decisions on the subject which have  clearly  laid        down  that  the  reserves which have been  used  as  working        capital  shall  not be deducted from the  amount  fixed  for        rehabilitation.        This  result  does  not advance the case  of  the  appellant        unless  it is able to prove by admissible evidence  that  it        has  used the reserves as working capital during  the  bonus        year  in question.  The principles governing the  "reserves"        in  this  context  are  well settled.   This  Court  in  The        Associated  Cement  Companies  Ltd.  v.  It,3  Workmen   (1)        restated the principle thus at p. 970:        "Before  actually awarding an appropriate amount in  respect

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      of  rehabilitation for the bonus year certain  .  deductions        have to be made.  The first deduction is made on account  of        the  breakdown  value of the plant and  machinery  which  is        usually  calculated at the rate of 50/ of the cost price  of        the  block in question.  Then the depreciation  and  general        liquid reserves available to the employer are deducted.  The        reserves which have already        (1)  [1959] S.C.R. 925.         845        been  reasonably  earmarked  for specific  purposes  of  the        industry  are,  however,  not taken  into  account  in  this        connection.  Last of all the rehabilitation amount which may        have  been allowed to the employer in previous  years  would        also  have to be deducted if it appears that the amount  was        avail  able at the time when it was awarded in the past  and        that it bad not been used for rehabilitation purposes in the        meanwhile.  These are the broad features of the steps  which        have  to  be  taken in deciding  the  employer’s  claim  for        rehabilitation under the working of the formula."        This  decision,  therefore,  lays  down, so  far  as  it  is        relevant  to  the present purpose, that two items  shall  be        deducted  from  the  rehabilitation  amount  ascertained  by        adopting  the  "Full  :Bench  .Formuula"   namely,(i)general        reserves available to the employer and (ii)  reserves  which        have  not  already been reasonably  earmarked  for  specific        purposes of the industry.  The question is whether the  mere        availability  of  reserves  or  the  simple  earmarking  for        specific  purposes  would be sufficient to  claim  the  said        amounts  as deductions.  We do not think that by  using  the        said  words  this  Court  meant to  depart  from  the  well-        recognized  principle that if the general reserves have  not        been  used as working capital, they cannot be deducted  from        the  rehabilitation  amount.   The reserves may  be  of  two        Kinds.  Moneys may be set apart by a company to meet  future        payments  which  the  company  is  under  a  contractual  or        statutory  obligation to meet, such as gratuity etc.   These        amounts  are set apart and tied down for a specific  purpose        and,  therefore, they are not available to the employer  for        rehabilitation purposes.  But the same thing cannot be  said        of  the  general reserves: they would be  available  to  the        employer  unless he his used them as Working  capital.   The        use  of the words "reasonably earmarked" is also  deliberate        and  significant.  The mere nominal allocation  for  binding        purposes,  such as gratuity etc., in the company’s books  is        Dot enough.  It must be ascertained by the Industrial  Court        on the material placed before it whether the said amount  is        far in excess of the requirements of the particular  purpose        for which        846        it is so earmarked and whether it is only a device to reduce        the  claim of the labour for bonus.  We do not suggest  that        it  is  the duty of the Industrial Court  to  ascertain  the        correct or exact figure required for a  particular  purpose;        but  it  is certainly its duty to is cover whether  the  so-        called  earmarking for a particular purpose is a  device  to        circumvent  the formula.  If it is satisfied that  there  is        such  a device, it shall deduct that figure  in  calculating        the  rehabilitation amount and if possible arrive at a  real        figure  for  that purpose.  So too, in the case  of  general        reserves  when  an employer claims that  a  specific  amount        reserved has been used as working capital, it is the duty of        the Industrial Court to arrive at a finding whether the said        reserves,  or  any part of them, have been used  as  working        capital  and, if so, to what extent during the  bonus  year.        Shortly  stated before a particular reserve can be  deducted

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      from  the rehabilitation amount it must be established  that        it  has been reasonably earmarked for a binding  purpose  or        the  whole or a part of it has been used as working  capital        and that only such part of the reserves coming under  either        of  the two heads can be deducted from the said amount.   To        illustrate,  take  a particular bonus year,  say  1955.   To        start  with, from the gross profits of that year only  items        specifically declared by this Court in The Associated Cement        Companies  Ltd. v. Its Workmen to have a prior  charge  over        the  bonus shall be deducted to arrive at the  surplus.   No        question of deducting any other amount reserved in regard to        the  profits  of  that year arises.   But  the  company  has        specifically earmarked certain amounts for specific  binding        purposes  in 1954 or earlier to meet future binding  obliga-        tions,  such as gratuity etc. ; or has reserved amounts  for        general  purposes  but  not  to  meet  any  contractual   or        statutory  obligations  and  has not utilised  the  same  as        working  capital.   In the former case the  amount  must  be        deemed  to have been utilised and, therefore, it  cannot  be        deducted  from the rehabilitation amount; but in the  latter        case, as the said amounts were not utilised by the  employer        as  working  capital,  they  shall  be  deducted  from   the        rehabilitation amount.        (1)  [1959] S.C.R. 925         847        What taken is the procedure to be followed for  ascertaining        the said facts ? The burden is obviously on the employer who        claims   the   exclusion   of   the      reserves   from the        rehabilitation  amount on the ground that they are  used  as        working  capital  or  reasonably earmarked  for  a  specific        purpose to establish the said facts and to prove the same by        relevant  and acceptable evidence.  The importance  of  this        question  in the context of fixing the amount  required  for        rehabilitation  cannot  be  over-estimated.   The  item   of        rehabilitation  is generally a major item that  enters  into        the calculations for the purpose of ascertaining the surplus        and,  therefore, the amount of bonus.  So, there would be  a        tendency on the part of the employer to inflate this  figure        and the employees to deflate it.  The accounts of a  company        are  prepared by the management.  The balance-sheet and  the        profit  and loss account are also prepared by the  company’s        officers.   The labour have no concern in it. When  so  much        depends  on this item, the principles of equity and  justice        demand  that an Industrial Court should insist upon a  clear        proof  of  the  same  and also  give  a  real  and  adequate        opportunity to the labour to canvass the correctness of  the        particulars furnished by the employer.        Cases  coming before us disclose that the Industrial  Courts        and Labour Tribunals are not bestowing so much attention  on        this  aspect  of  the  case as they  should.   Some  of  the        tribunals act oil affidavits and sometimes even on  balance-        sheets  and extracts of accounts without their being  proved        in accordance with law.        For the purpose of holding an enquiry or a proceeding  under        the  Bombay  Industrial Relations Act, 1946, s. 118  of  the        said Act confers on the Industrial Court the same powers  as        are  vested  in Courts in respect of-(a) proof of  facts  by        affidavits;  (b) summoning and enforcing the  attendance  of        any  person  and examining him on oath; (c)  compelling  the        production of documents; and (d) issuing commissions for the        examinations  of  witnesses.   In Courts facts  have  to  be        established  either  by  oral  evidence  or  by  documentary        evidence proved in the        108        848

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      manner  prescribed  by law.  But Order XTX of  the  Code  of        Civil Procedure empowers the Court, to have particular facts        proved by affidavits.  Under rule ‘thereof "any Court may at        any  time  for sufficient reason order that  any  particular        fact  or  facts  may be proved by  affidavit,  or  that  the        affidavit of any witness may be read at the hearing, on such        conditions  as  the  Court thinks  reasonable".  But  it  is        subject  to the proviso that where it appears to  the  Court        that  either  part%, bonafide desires the  production  of  a        witness for (cross-examination, and that such witness can be        produced,  an  order  shall  not  be  made  authorizing  the        evidence  of’ such witness to be given by affidavit.   Under        rule  2,  "upon  any application evidence may  be  given  by        affidavit,  but  the Court may, at the  instance  of  either        party,  order  the attendance for cross-examination  of  the        deponent ". A combined effect of the relevant provisions  is        that ordinarily fact has to be proved by oral evidence,, but        the  Courts,  subject to the conditions laid down  in  Order        XIX,  may  ask  a  particular fact or  facts  to  proved  by        affidavits.   Industrial Courts may conveniently follow  the        procedure.   In  view  of  the importance  of  the  item  of        rehabilitation in the matter of arriving at the surplus  for        fixing  the  bonus principles of equity and  justice  demand        that  tribunals  should weigh with great care  the  evidence        adduced  by  the  management as well as  by  the  labour  to        ascertain  every  sub-item that goes into or  is  subtracted        from the rehabilation.If the parties agree,agrred figure can        be  accepted.  If they agree to the decision  of  affidavits        that course may be followed. in the absence of an agreement,        the procedure prescribed in Order- XIX of the Code of  Civil        Procedure  may  usefully  be followed by  the  tribunals  so        tlitt,  both  the  parties  may  have  full  opportunity  to        (Establish their respective cases.        Recent decisions of this Court emphasize this aspect of  the        matter.   In lndian Hume Pipe Company Ltd v.  Their  workmen        (1), the balance-sheet was upon for proving that the amounts        were available for use as working capital and that the        (1)  [1959] S.C,R. 92,5        849        balance-sheet  showed  that  they  were  in  fact  so  used.        Bhagwati,  J.,  who  delivered the judgment  of  the  Court,        presumably to meet the contention that the balance-sheet had        not been proved, observed at p. 362 thus :        "  Moreover, no objection was urged in this behalf, nor  was        any finding to the contrary recorded by the tribunal."        In that case it was conceded that the reserves were in  fact        used  as working capital.  It is suggested that the  learned        Judge solely relied upon the relevant items in the  balance-        sheet  in  support  of  his conclusion  and  that  the  said        observation was only an additional ground given by him,  but        we  are  inclined  to think that the Court  would  not  have        accepted the items in the balance-sheet as proof of user  if        it  was  not satisfied that no objection was taken  in  that        behalf.  In Tata Oil Mills Company Ltd. v. Its Workmen  (1),        a  similar  question was raised.  It was  contended  by  the        labour  in that case that the depreciation reserve  was  Dot        used  as working capital and therefore no return  should  be        allowed  on the said reserve.  The Chief Accountant  of  the        Company made an affidavit on behalf of the Company that  the        said depreciation reserve, along with others, had been  used        as  working capital.  This Court accepted the affidavit  for        the  year in question, but made the  following  observations        for future guidance:        "It will, however, be open to the workmen in future to  show        by proper cross-examination of the company’s witnesses or by

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      proper  evidence that the amount shown as  the  depreciation        reserve was not available in whole or in part to be used  as        working capital and that whatever may be available was,  not        in  fact  so  used in the sense  explained  above.   In  the        present appeal, however,we must accept the affidavit of  the        chief accountant."        These observations also recognized the necessity to give  an        opportunity  to the workmen to cross-examine  the  witnesses        put  forward  by  the management to prove the  user  of  any        particular  reserve  as working capital.   This  Court  once        again dealt with the same        (1)  [1959] S.C.R, 924.        850        subject  in Anil Starch Products Ltd. v. Ahmedabad  Chemical        Workers  Union (1).  That appeal also raised   the  question        whether  return  should  be  allowed  on  the   depreciation        reserve  used as working capital.  It was contended for  the        labour in that case that the    depreciation reserve was not        used  as working  capital.  Rejecting  the  said contention,        Wanchoo, J., observed:        It is enough to say in that connection that an affidavit was        filed  by the manager of the company to the effect that  all        its  reserves including the depreciation fund had been  used        as  working capital.  The manager appeared as a witness  for        the company before the Tribunal and swore that the affidavit        made  by him was correct.  He was cross examined as  to  the        amount required for rehabilitation, which was also given  by        him  in  that affidavit; but no question was put to  him  to        challenge his statement that the entire depreciation reserve        had  been used as working capital In the  circumstances,  we        must  accept  the affidavit so far as the  present  year  is        concerned  and  hold  that the working capital  was  Rs.  34        lacs."        Notwithstanding  the  said finding, the learned  Judge  took        care  to  reserve  the rights of the workmen  in  future  by        making the following observations:        "It will, however, be open to the workmen in future to  show        by proper cross-examination of the company,s witnesses or by        proper  evidence  that  the  amount  shown  as  depreciation        reserve  was not available in whole or in part as  explained        above  to be used as working capital and that  whatever  was        available was not in fact so used."        This  judgment again reinforces the view of this Court  that        proper opportunity should be given to the labour to test the        correctness of the evidence given on affidavit on behalf  of        the  management  in regard to the user of  the  reserves  as        working capital.        What  is  the  position  in the present case  ?  It  is  not        suggested   that  there  is  any  reserve  which  has   been        reasonably earmarked to discharge a contractual or statutory        obligation.  We are only concerned with        (1)  Civil Appeal No. 684 Of 1957 (not reported)        851        general  reserves.  The learned Solicitor  General  contends        that  the balance-sheet discloses that the  entire  reserves        have  been used as working capital and that  the  respondent        did  not canvass this position in the statement filed by  it        before  the Industrial Court.  We have already  pointed  out        that  the  balance-sheet,   without its  being  proved  by a        person  competent to do so, cannot prove that  any  reserves        have  been  utilised as working capital.   In  the  written-        statement  filed  by  the appellant  before  the  Industrial        Court, no specific allegation is made that the reserves were        utilised  as  working capital, though in  its  statement  of        calculations  the said reserves were not excluded  from  the

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      amount  claimed  towards  rehabilitation.  As  there  is  no        specific  allegation, the respondent also in  its  statement        did  not  deny  the  said fact,  but  in  its  statement  of        calculations  it  did  not  deduct  the  reserves  from  the        rehabilitation amount.  Therefore, it must be held that  the        respondent  did  not accept the position  that  the  reserve        funds were utilised as working capital.  Strong reliance  is        placed  upon the evidence of the General  Superintendent  of        the  appellant-Company,  but  a  perusal  of  that  evidence        discloses  that  the said witness has not deposed  that  the        Company  used the reserves as working capital; nor does  the        said  witness seek to prove either the balancesheet  or  any        extract   taken  therefrom.   In  the   circumstances,   the        respondent  had  no  opportunity  to  cross-examine  him  in        respect  of  the  alleged user of  the  reserves.   For  the        aforesaid reasons, we have no option but to hold that Rs. 51        lakhs  representing  the reserves were not used  as  working        capital and, therefore, the said amount was rightly deducted        by  the  Industrial  Court from Rs. 60  lakhs  fixed  by  it        towards  rehabilitation.   As  the balance of  Rs.  9  lakhs        spread  over  15 years came to only Rs.  60,000  during  the        bonus year and as the statutory depreciation was Rs. 83,639,        the   Industrial   Court   rightly   excluded   the   entire        rehabilitation  amount from its calculations in arriving  at        the surplus.        No  other points were raised before us.  In the result,  the        appeal fails and is dismissed with costs.        Appeal dismissed.        852