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PETITIONER: PODAR PLASTICS(P) LTD

       Vs.

RESPONDENT: ITS WORKMEN

DATE OF JUDGMENT: 19/12/1963

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

CITATION:  1964 AIR 1040            1964 SCR  (6)  15

ACT: Industrial  Dispute-Bonus-Deduction according to Full  Bench Formula-What  principle to be  followed-Industrial  Disputes Act, 1947 (14 of 1947).

HEADNOTE: An  Industrial Dispute arose between the appellant  and  its workmen  in  respect  of  the  claim  made  by  the  workmen (respondents) for bonus for the year 1959.  The  respondents claimed  that they were entitled to get bonus equivalent  to three  months’  salary  including  dearness  allowance,  The appellant claimed deductions on the basis of the Full Bench 16 Formula.   The appellant claimed deduction of Rs. 60,000  by way of notional remuneration for Mr. K. R. Podar, one of the Directors of the company.  According to the appellant K.  R. Podar  devoted the whole of his time to the supervision  and management of the appellant concern, and so, he was entitled to  charge  remuneration at the rate of Rs. 5,000  a  month. The  appellant  also made a claim  for  rehabilitation.   On these  facts the Tribunal directed the appellant to  pay  to the  respondents  bonus at the rate of  half  month’s  basic wages  excluding allowances and overtime for the said  year. It is against this award that the appellant has come to this Court. Held:(i) that in a concern like the appellant’s if  one of the Directors spends his time in supervising and managing the affairs of the concern, he would be entitled to charge a reasonable remuneration.  But in the present case Mr.  Podar did  not actually charge any remuneration.  The  working  of the  Full  Bench  Formula  is  no  doubt  notional  in  some respects,  but it would not be permissible for the  employer to  make  it still more notional by introducing  claims  for prior  charges on purely hypothetical and  almost  fictional basis.  The Tribunal did not feel justified in allowing  the claim  for deduction made by the appellant in regard to  the notional  remuneration of Mr. Podar on the ground  that  Mr. Podar  had not been paid remuneration regularly and  it  had not been duly shown in the books of account. Gujarat  Engineering  Co.  v.  Ahmedabad  Misc.   Industrial Workers’ Union, (1961) 11 L.L.J. 660 and Kodaneri Estate  v. Its Work-men, (1960) 1 L.L.J. 273, relied on.

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(ii)It is not the correct legal position that a second hand machinery  should  be  rehabilitated  only  by  second  hand machinery.   But  in  the present case the  finding  of  the Tribunal in respect of the claim for rehabilitation is based on its appreciation of the evidence led by the appellant and that cannot be disturbed having regard to the material which is available on the record. SouthIndia    Millowners"Association   v.    Coimbatore District Textile Workers’Union,  (1962) 1  L.L.J.  223, relied on. (iii)It  would be erroneous to assume that  this  Court approved of or affirmedthe  ad  hoc basis adopted  by  the Tribunal in the case of South India Millowners’ Association. (iv)It  would  be  unreasonable  to  suggest  that  if  the employer does not adduce sufficient evidence to justify  his claim  for  rehabilitation and the Tribunal is  inclined  to reject  the  evidence which has been adduced,  the  Tribunal must  nevertheless  award some rehabilitation  on  a  purely hypothetical  and  imaginary ad hoc basis.  In  the  present case  the employer adduced evidence for  rehabilitation  and that was rejected by the Tribunal. (v)It  has  been consistently held by this Court  that  in bonus  calculations  the  employer is entitled  to  claim  a deduction  of the Income-tax as well as wealth tax;  but  in the present case, there is, no material 17 to  determine what the amount of wealth tax charged or  paid is,  and  so, no relief can be granted to the  appellant  on that account.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 496,of 1963. Appeal  by  special leave front the Award dated  August  26, 1961,  of the Industrial Tribunal, Maharashtra in  Reference (IT) No. 43 of 1961. S.V. Gupte, Additional Solicitor-General of India and -I. N. Shroff, for the appellant. K. R. Chaudhuri, for the respondents. December 19, 1963.-The Judgment of the Court was  ,delivered by:- GAJENDRAGADKAR  J.-This  appeal arises from  an,  Industrial dispute  between the appellant Podar Plastics (P)  Ltd.  and the  respondents, its workmen, and it has reference ,to  the claim  made by the respondents for bonus for the year  1959. The  respondents  claim  that for  the  relevant  year  they -should get bonus equivalent to three months’ salary includ- ing dearness allowance.  On hearing the parties and on  con- sidering  the  evidence adduced by them,  the  Tribunal  has ,directed  that the appellant shall pay to  the  respondents bonus  at  the rate of half month’s  basic  wages  excluding ,allowances  and overtime for the said year.  It is  against this  ,award  that the appellant has come to this  Court  by special leave. The  appellant  is  a private  company  and  its  registered ,office is situated at Podar Chambers, Parsee Bazar  Street, Fort,  Bombay.  It owns a factory at Supari Baug Road  where it  manufactures  plastic  products.   The  appellants  case before the Tribunal was that if proper accounts are made  in accordance  with the Full Bench Formula, it would  be  found that there is no available surplus from which any bonus  can be  paid  to  the  respondents.   On  the  other  hand,  the respondents urged that the working of the Formula would show a  substantial  available surplus from which  three  months’

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wages   as  bonus  can  be  easily  paid.   As  usual,   the controversy between the parties centered round prior charges which  the appellant claimed ought to be deducted  from  the gross profits.  One of the points of dispute between the 134-159 S.C.-2. 18 parties was whether depreciation which has to be deducted’as a prior charge should be statutory depreciation or  notional normal depreciation.  The figure of the profit was. admitted at   Rs.   2.70  lacs.   The   Tribunal   made   alternative calculations,  one on the basis that statutory  depreciation alone  should be deducted, while the other was  prepared  on the  basis that notional normal depreciation as  claimed  by the appellant should be deducted.  On the first  calculation the  available. surplus was found to be Rs. 0. 44  lac.   On the  alternative  calculation, it was found to be  Rs.  0.33 lac.   For  the purpose of this appeal we  will  accept  the latter  calculation  which  is made on the  basis  that  the notional normal depreciation has to be deducted. It  has  been  conceded  before  us  by  the  learned  Addl. Solicitor-General for the appellant that there are two  mis- takes  in this calculation.  The amount of  notional  normal depreciation which has been shown as Rs.  0. 78 lac ought to be Rs. 0. 7 3 lac.  Similarly the amount of income-tax which is shown as Rs. 0. 96 lac ought to be Rs. 0. 95 lac.   Thus, the  two mistakes accounting for nearly Rs. 6,000 have  been made  in favour of the appellant by the Tribunal  in  making this calculation, and that would make the available  surplus as Rs. 0.39 lac; that is one aspect of the matter which  has to be borne in mind in dealing with the appeal before us. The main point which has been urged before us by the learned Addl.   Solicitor-General relates to the claim made  by  the appellant for the deduction as a prior charge of Rs.  60,000 by way of notional remuneration for Mr. K. R. Podar, one  of the Directors of the Company.  We have already seen that the appellant  is  a  Private Ltd.  Co. and four  of  the  major shareholders are members of the Podar family; they are: R.A. Podar,  G.R.  Podar,  K.R. Podar and  B.J.  Podar;  the  5th shareholder is M /s.  Podar Trading Co. Private Ltd., 6th is Jay Agents Private Ltd., 7th is the National Traders Private Ltd.  and  the 8th is Ratilal B. Desai.   According  to  the appellant,  K.R. Podar devoted the whole of his time to  the supervision and management of the appellant concern, and so, he  was entitled to charge remuneration at the rate  of  Rs. 5,000 a month.  In sup- 19 port  of this claim, Mr. Gupta, the Manager of the  concern, made an affidavit and offered himself for cross-examination. He stated that Mr. Podar attends the factory from 9 A.M.  to 1 P.m. and 2-30 P.m. to 6-30 P.m. In his  cross-examination, it was brought out that when the previous Director was  paid Rs.  1000 per month as remuneration, a resolution  had  been passed by the Board of Directors in that behalf; but no such resolution has been passed in regard to the remuneration  of Mr.  K. R. Podar.  Besides, the appellant itself  has  urged that  Mr.  Podar did not actually  charge  any  remuneration because  it was thought that the financial position  of  the appellant  was  not  very satisfactory, and  so,  Mr.  Podar wanted  to save expenditure on account of his  remuneration. It may be conceded that in a concern like the appellant’s if one  of  the Directors spends his time  in  supervising  and managing the affairs of the concern, he would be entitled to charge  a  reasonable remuneration.  This position  has  not been and cannot be disputed in view of the decisions of this Court in Gujarat Engineering Company v. Ahmedabad      Misc.

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Industrial  Workers’  Union(1), and Kodaneri Estate  v.  Its Workmen  and  Another 2 Relying on these  decisions,  it  is urged  on behalf of the appellant that the Tribunal  was  in error   in  not  allowing  any  deduction  on   account   of remuneration to Mr. Podar. In our opinion, the appellant cannot seriously quarrel  with the finding of the Tribunal, because it is conceded that Mr. Podar in fact has not charged any remuneration.  The working of the Formula is no doubt notional in some respects, but we think  it would not be permissible for the employer to  make it  still  more  notional by introducing  claims  for  prior charges  on purely hypothetical and almost fictional  basis. If Mr. Podar had been paid remuneration regularly and it had been  duly  shown in the books of account, a claim  in  that behalf could have been made by the appellant, and subject to the scrutiny by the Industrial Tribunal as to reasonableness of  the said payment, such a claim would have been  allowed; but  if  for  any  reasons Mr.  Podar  did  not  charge  any remuneration,  it  would be unfair to allow a  deduction  on that account to be made notionally (1) [1961] 11 L.L.J. 660. (2)  [1960] 1 L.L.J. 273. 20 because the working of the Formula is sometimes described as notional.   The  inclusion of such an item  solely  for  the purpose  of depressing the available surplus cannot, in  our opinion, be allowed.  Besides, the Tribunal does not  appear to have accepted the evidence for Mr. Gupta and it has  made a  significant comment that Mr. K. R. Podar has himself  not stepped  into  the  witness-box  to make  a  claim  for  his remuneration.   Mr.  Gupta was asked whether Mr.  Podar  was going to give evidence, and he answered the question in  the negative.  Therefore, if in the circumstances proved in this case,  the Tribunal did not feel justified in  allowing  the claim  for deduction made by the appellant in regard to  the notional  remuneration  of Mr. Podar, the  appellant  cannot make a serious grievance. The other point in controversy is in regard to the direction of the Tribunal that the appellant was not entitled to  make any claim for rehabilitation.  It appears that the  Tribunal was  inclined to take the view that since the appellant  had begun  its business with second-hand machinery, it  was  not entitled to make a claim for rehabilitation on the basis  of replacement  of the said machinery by brand  new  machinery. In other words, the Tribunal seems to be of the opinion that in cases where an employer is carrying on his business  with second-hand  machinery, rehabilitation should be  calculated on  the basis that the said second-hand machinery  would  be replaced by second-hand machinery and not by new  machinery. This  view  has been rejected by this Court in the  case  of South  India Millowners’ Association and Ors. v.  Coimbatore District Textile Workers’ Union and Ors(1).  Therefore,  the appellant  is right in contending that the approach  adopted by   the   Tribunal  in  dealing  with   the   question   of rehabilitation is erroneous. That,  however, does not help the appellant because  in  the present case the Tribunal has considered the evidence  given by Mr. Dinshaw on behalf of the appellant In support of  its claim  that the rehabilitation requirement of the  appellant would be of the order of Rs. -8,84,629.  It is true that one of the reasons given by the Tribunal is that the (1)  [1962] 1.L.L.J. 223. 21 appellant is not justified in making a claim for rehabilita- tion  on the basis that new machinery would be purchased  by

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him  for rehabilitating his old one; but there  are  several other  reasons  which the Tribunal has discussed  and  these reasons  indicate that the Tribunal was not  satisfied  with the accuracy of the statements made by Mr. Dinshaw and their reliability.   Incidentally, it appears that  the  appellant made a novel claim for rehabilitating his dead stock as  one of the items under rehabilitation, and the Tribunal has  re- jected  that  claim.   In the result,  the  finding  of  the Tribunal is based on its appreciation of the evidence led by the appellant and that cannot be disturbed having regard  to the material which is available on the record.  The Tribunal has  taken  the precaution of adding that if  the  appellant leads   better   evidence   in   future,   its   claim   for rehabilitation would have to be judged on the merits and the present decision will not create any bar against it.  In our opinion, that is all that can be done in the present appeal. The learned Addl.  Solicitor-General, however, attempted  to argue that the Tribunal should have made some allowance  for rehabilitation  on  an ad hoc basis and in support  of  this contention,  he has referred us to some of the  observations made in the case of South India Millowners’ Association (1). It  appears that in that case, the appellant Mills  had  not adduced  relevant  evidence  about the  original  price  and subsequent  depreciation  of  the  machinery  prior  to  its purchase  by the appellant, and so, acting on  the  evidence available  on the record, the Tribunal adopted some (id  hoc basis.  No grievance was made about the ad hoc basis adopted by the Tribunal; the only grievance made was against certain observations  made  by  the Tribunal that  if  the  existing machinery is second hand. it should be rehabilitated only by second  hand  machinery, and this Court held that  the  said observations  did  not represent the true  position  in  the matter.   It  would, we think, be erroneous to  assume  that this Court approved of or affirmed the ad hoc basis  adopted by  the Tribunal in that particular case.  On what  material the  said  ad  hoc basis was adopted is not  known,  and  it would,  we  think, be unreasonable to suggest  that  if  the employer does not adduce sufficient evidence to (i)  [1962] 1 L.L.J. 223. 22 justify his claim for rehabilitation and the Tribunal is in- clined  to reject the evidence which has been  adduced,  the Tribunal  must nevertheless award some rehabilitation  on  a purely  hypothetical and imaginary ad hoc basis.  In such  a case all that the Tribunal can do is to safeguard the  posi- tion  of  the employer by giving him opportunity  to  adduce better evidence in future, and that is what the Tribunal has done in the present case. An  attempt was then made by the learned  Addl.   Solicitor- General to make a claim for the deduction of the wealth tax. It  has been consistently held by this Court that  in  bonus calculations  the employer is entitled to claim a  deduction of the income-tax as well as wealth tax; but, in the present case,  there is no material to determine what the amount  of wealth  tax  charged or paid is, and so, no  relief  can  be granted to the appellant on that account. In the result, the appeal fails and is dismissed with costs. Appeal dismissed.