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PETITIONER: THE INDIAN OXYGEN & ACETYLENE CO.,PRIVATE LTD., BOMBAY

       Vs.

RESPONDENT: ITS WORKMEN & ANOTHER

DATE OF JUDGMENT: 05/05/1959

BENCH: GAJENDRAGADKAR, P.B. BENCH: GAJENDRAGADKAR, P.B. DAS, SUDHI RANJAN (CJ) BHAGWATI, NATWARLAL H. DAS, S.K. WANCHOO, K.N.

CITATION:  1959 AIR 1114            1959 SCR  Supl. (2)1002

ACT: Industrial  Dispute-Bonnus-Full  Bench formula,  if  can  be disregarded-Rehabilitation,    claim    for-Average    life, calculation of -Method of Weighted Average-Exhausted Assets- whether can be taken into account.

HEADNOTE: The workmen claimed bonus for the years 1952-53 and 1953-54. The employers contended that on a proper working 1003 out  of  the  Full Bench formula  there  ’was  no  available surplus and so no bonus was payable.  The Tribunal held that the   formula  was  not  binding  on  it  and   on   genuine considerations  Of social justice it rejected the  claim  of the  employers for rehabilitation and awarded bonus  at  the rate  of and I/3 annual basic wages for 1952-53 and  1953-54 respectively.   Alternatively,  the Tribunal found  that  in case  the claim for rehabilitation had to be  allowed  there would  be  no available surplus in either  of  the  relevant years. Held that, the Tribunal was bound to give effect to the Full Bench formula and to allow the employer’s claim for  rehabi- litation. A.C.C.  Ltd.,  Bombay v. Their Workmen, [1959]  S.C.R.  925, followed. In the calculations made by the Tribunal on its  alternative finding it had acted on correct principles.  It had  rightly taken  into account the price level prevailing in  1956  and not  merely  that prevailing in the two  bonus  years.   The amount of rehabilitation allowed in previous years had to be brought  into account if it had not been used up but it  was not shown that had not been in the present case. In calculating the average life of the buildings, machinery, etc., the method of weighted average was scientifically more accurate and gave a more accurate and realistic result.  The rehabilitation  costs of those assets which had spent  their lives  and  were  exhausted was also  admissible  in  making calculations  under the weightage method if in the  relevant year such assets were in existence and use.

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JUDGMENT: CIVIL  APPELLATE,  JURISDICTION : Civil Appeal  No.  753  of 1957. Appeal  by Special Leave from the Judgment and  Order  dated the  6th October, 1956, of the Industrial Tribunal,  Bombay, in Reference (I.  T.) Nos. 40 & 44 of 1956. C.   K.   Daphtary,  Solicitor-General  of  India,   N.   A. Palkhivala,  J.  B.  Dadachanji and S. N.  Andley,  for  the appellant. D.   H. Buch and I. N. Shroff, for respondent No. 1. C.   L. Dudhia and I. N. Shroff, for respondent No. 2. Janardhan Sharma and B. P. Maheshwari, for the Intervener. 1959.  May 5. The Judgment of the Court was delivered by 1004 GAJENDRAGADKAR, J.-This appeal by special leave arises  from a  bonus dispute between the Indian Oxygen & Acetylene  Co., Private  Ltd.,  (hereafter  called the  appellant)  and  its workmen, the relevant years for the bonus claim being  1952- 53  and  1953-54.   This claim was made  separately  by  the workmen excluding the members of the clerical staff as  well as  by the clerical staff and the two claims thus made  were referred  by the Bombay Government to the Industrial  Tribu- nal  for its adjudication.  The claim raised by the  workmen excluding  clerical staff was numbered as Ref. (I.  T.)  No. 40  of  1956,  while that made by  the  clerical  staff  was numbered  as Ref. (1.  T.) No. 44 of 1956.  Both  categories of workmen will hereafter be described as the respondents in this judgment. The  appellant is a private limited company incorporated  in 1935  and it has its head office at Calcutta.  Its  business is  to manufacture and sell oxygen and acetylene.  It  is  a subsidiary  of  the British Oxygen Co. Ltd.   It  sells  its products  to  the hospitals and nursing homes and  in  large quantities  to industrial concerns for welding, cutting  and blasting operations.  It voluntarily paid bonus equal to two months’  basic wages for both the years in dispute; but  the respondents  were  not satisfied with the said  payment  and they  made a claim for 1/3 of their total earnings  for  the two respective years.  That is bow the dispute arose between the parties. It appears in evidence that all the shares of the  appellant (excepting  two or three held by nominee  shareholders)  are held  by  the British Oxygen Co. Ltd.  Evidence  also  shows that  the  appellant  has  been  prospering  and  has   been expanding at a rapid rate.  In has capitalised its  reserves in  1940,  1941, 1942, 1945, 1946, 1947 and  1949  with  the result  that the major portion of its capital is made up  of bonus shares.  It has made good profits for the year  ending September 30, 1953, as well as for the year ending September 30,  1954.  There is also no doubt that a large  gap  exists between  the actual wages paid by it to its workmen and  the living   wage.   It  is  on  these  allegations   that   the respondents  made  a claim for bonus of 1/3 of  their  total earnings. 1005 The  appellant pleaded that it was paying good wages to  the respondents and that under the formula the respondents  were not entitled to claim any additional bonus for the  relevant years.  In fact, according to the appellant, if the  formula was properly worked the bonus already voluntarily paid by it to the respondents could not have been claimed by them. The tribunal has, however, rejected the appellant’s case and

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has directed it to pay to the respondents bonus at the  rate of 1/4 of the annual basic wages for 1952-53 and 1/3 of  the said  wages  for 1953-54 (less the bonus  already  paid  for these years).  It has also directed that in calculating  the amount  of bonus overtime and dearness and other  allowances should be excluded.  This award has been made subject to the two  conditions specified by it.  It is the  correctness  of this award that is challenged by the appellant before us. The first point which the appellant has urged is against the finding of the tribunal that it was not bound to give effect to  the  Full Bench formula.  In determining  the  available surplus the Tribunal has taken the view that the formula was not  binding  on  it and that on  considerations  of  social justice to which it has referred it was open to it to reject the  claim  of  the  appellant  for  rehabilitation.    This question has been considered by us at length in the case  of A. C. C. Ltd., Bombay v. Their Workmen (1) and we have  held that  in dealing with claims for bonus industrial  tribunals must give effect to the formula.  We have also indicated how the  calculations under the formula should be made  in  such disputes.   In view of the said decision we must  hold  that the  Tribuual was in error is not granting to the  appellant its claim for rehabilitation. According to the calculations made by the Tribunal,  without providing  for any rehabilitation (Ex.  TA) it  has  reached the  conclusion  that the available ’surplus for  the  years 1952-53 and 1953-54 respectively would be Rs. 6,14,830/- and Rs.  12,16,120/-.   It  is on the basis  of  this  available surplus that the Tribunal has made its award.  However,  the Tribunal has found (1)  [1959] S.C.R. 925. 1006 alternatively that in case the claim for rehabilitation made by  the appellant has to be awarded, then there would be  no available  surplus  for both the relevant  years.   This  is shown by the calculations made by it under Ex.  TB.  Thus it would  be clear that on the alternative finding made by  the Tribunal the appellant would be entitled to succeed and  the award tinder appeal would have to be set aside. It is, however, urged before us by the respondents that  the calculations made by the Tribunal on its alternative finding are  not correct.  In other words, the respondents  seek  to support the final award passed by the Tribunal on the ground that  some  of the conclusions reached by  the  Tribunal  in making  its  calculations  on  the  alternative  basis   are erroneous.   The  first point which has been  urged  by  the respondents in this behalf is that the Tribunal was wrong in taking into account the price level prevailing in 1956.  The argument is that the price level prevailing in the two bonus years  alone should have been taken into account.   We  have considered  this  point in A. C. C.’s case (1) and  we  have held that it is inexpedient to confine the relevant decision of the Tribunal solely to the price level prevailing in  the bonus years.  Therefore the objection that the Tribunal  has committed an error in this matter must be rejected. Then  it  is  urged  that in  making  its  calculations  the tribunal  has not applied its mind to the fact that,  though the appellant has been allowed substantial amounts by way of rehabilitation  in  previous awards, those amounts  are  not brought   into  account  in  considering  its   claims   for rehabilitation.   It appears that the tribunal was  inclined to  take  the  view that once an allowance is  made  to  the employer by way of rehabilitation of plant and machinery, it is not open to the tribunal to enquire what he had done with the  said amount.  In the A. C. C.’s case (1) we  have  held

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that  if  an  amount for rehabilitation  is  allowed  to  an employer  and it appears that during the relevant  year  the said  amount was available to him then in  subsequent  years the said amount will have to be taken into account unless it is shown that in the meanwhile (1)  [1959] S.C.R. 925. 1007 it  had been used for the purpose of rehabilitation.  So  we would accept the respondents’ contention that the  appellant is  bound to take into consideration the  amount  previously allowed to it by way of rehabilitation. There is, however, one point which must be borne in mind  in considering this plea.  In the previous awards to which  our attention  was  drawn  by the respondents, 20%  of  the  net profits  appear to have been awarded to the appellant  on  a rough   and   ready   basis,  by  way   of   provision   for rehabilitation as well as expansion.  It is significant that the  award of the said amount expressly refers  to  repairs, replacement, modernization and reasonable expansion.  It  is now well settled that the employer is not entitled to  claim a  prior charge under the formula for any item of  expansion but  the awards previously passed between the appellant  and its  workmen seem to have allowed for a claim for  expansion as  a  prior  charge, and that fact  cannot  be  ignored  in dealing with the respondents’ present contention. But  apart from this aspect of the matter, it is clear  that the  appellant  has  brought into account  one-half  of  its general  reserve as on September 30,1953, and September  30, 1954,  respectively, and these amounts are Rs. 5,51,363  and Rs.  3,95,376.   In  view of this fact it  is  difficult  to accept  the  argument  that  the  amounts  allowed  to   the appellant by way of rehabilitation in the previous years had not  been brought into account.  We would like to  add  that this  point had not been taken before the tribunal, and  may be  could not be taken before it, because the  tribunal  has held  that  the employer could not be called upon  to  bring into account the said amount. Then  it  is  urged  that in  working  out  the  figures  of rehabilitation  the tribunal was in error in  accepting  the appellant’s  claim.  The award shows that the  tribunal  was very favorably impressed by the evidence given by Mr. Saigal and  Mr. Basak on behalf of the appellant.  It appears  that in arriving at the average life of the buildings, machinery, etc., Mr. Basak has adopted the method of weighted  average. " This method is a development of the concept of the 1008 ordinary  arithmetic  mean " (1).  Under  this  method,  "in general terms, a set of quantities ’X’ is given, to each  of which is attached a weight ’W’, and the weighted  arithmetic mean is obtained as the summation of ’ W’ x ’ X’ divided  by the summation of ’ W’’’.  There is no doubt that this method is  scientifically more accurate and gives a  more  accurate and realistic result in determining the average life of  the assets.  Let us illustrate this method by taking an  example given by the tribunal itself: Cost of Asset.  Life.      Annual replacement                      cost required. Rs...                             Rs. 5....           1 year             5 8....           2 years            4 300..           10 years           30 313..           13 years           39 The  average life calculated by Mr. Basak according  to  the weighted   average   method  is  8.02   years,   while   the arithmetical average of the figures in column two is 13/3  =

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4.33  years; this latter is an incorrect estimate,  for  the small items distort the average.  Within two years the first two items will go out and though the remaining machinery  is expected to last for 8 years more, the arithmetical  average would give it a remaining life of 2.33 years. The  respondents  do  not challenge  the  validity  of  this method; but they contend that in working out the method some calculations  have  been made which are open  to  objection. Before  dealing  with  these objections  it  may  be  stated generally  that when Mr. Saigal and Mr. Basak gave  evidence they  were  not asked any definite or precise  questions  on which  the  objections  urged before us are  based.   It  is desirable that in enquiries of this kind, when experts  give evidence  on behalf of the employer, workmen  should  cross- examine  them  on  all points which they  -propose  to  urge against  the employer’s claim in regard  to  rehabilitation. However, we would like to deal with the merits (1)  "  Statistics  for Economists " by R.G.D.  Allen,  1949 Ed., p. 96. 1009 of the said contentions in the light of such evidence as  is available on the record. The  first  contention is that the assets which  have  spent their  lives and are thus exhausted should not be  continued in  making  calculations under the weightage  method.   This objection  applies  to such assets as  leasehold  buildings, cars  and trucks.  We are inclined to think that the  method adopted by the appellant in making its calculations gives  a more  correct picture of the assets actually in use and  the rehabilitation  cost claimed in respect of them.  If in  the relevant year the asset is in existence and use, a claim for its rehabilitation would not become inadmissible.  The  same argument  is put in another form and it is urged that  where an  asset which has come to an end is taken into account  it would  be wrong to take into account in the same year a  new asset which has come into existence.  The suggestion is that by this method a double claim for rehabilitation creeps into the calculation.  We are not satisfied that even this  argu- ment  is  wellfounded.   Let us  examine  this  argument  by reference  to  one item.  The lease-hold  buildings  of  the appellant  include two buildings known as D. A.  and  Oxygen respectively  at Bombay (Ex.  C. 19).  As on  September  30, 1953, the estimated life of these buildings from October  1, 1953,  is  shown  to be one year and  the  annual  provision claimed  for rehabilitating them is shown as Rs. 97,468  and Rs. 30,590 respectively.  These claims have not been made in the  subsequent  year.  In the same year two  new  buildings called  D. A. and Oxygen respectively which were erected  in 1952  have  been  included  and  the  annual  provision  for rehabilitation  in respect of them is made at Rs. 6,474  and 6,972  respectively.  Now, if the respondents’  argument  is accepted  and  the calculations made in regard  to  the  new buildings  were excluded from the statements, the  appellant would  apparently  be entitled to claim  a  somewhat  higher amount.  It may be mentioned that in working out the figures for  rehabilitation in respect of new -buildings Ex.  C.  II has included this item of Rs. 13,000 and odd in the larger 127 1010 item of Rs. 4,58,316 mentioned against uncovered requirement for  rehabilitation and replacement in the year, whereas  in deducting Rs. 2,31,700 by way of normal depreciation for the said year an amount of Its. 22,000 and odd has been taken to be the normal depreciation in respect of the new  buildings; that  is  to say, as against a claim of Rs. 13,000  and  odd

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made for rehabilitation in respect of the said two buildings in Ex.  C. 19, a deduction by way of normal depreciation has been allowed to the extent of Rs. 22,000 and odd.  Therefore it  does not appear on the evidence as it stands,  that  the method  adopted by the appellant in making its  calculations has  introduced  any  serious  infirmity  or  has  given   a distorted   or  inflated  claim  about  the  provision   for rehabilitation. In this connection it is relevant to refer to the fact  that the  calculations  made by the appellant are based  upon  an item-wise  study  of  its plant and machinery,  and  such  a method,   it  is  conceded,  is  bound  to  lead   to   more satisfactory  results.  Mr. Basak produced Exs.  C. I to  C. 16  which  contained all the relevant  calculations  and  he stated  in  cross-examination that as a matter  of  business practice  a  businessman  has  to  think  of  replacing  his machines  even  though  they may have  been  bought  in  the relevant  year.   Of course, in considering  the  claim  for rehabilitation  in  respect of such an item  the  multiplier would  normally  be I and the divisor  would  represent  the total  future life of the said machines.  In regard  to  the exhausted  assets  the Witness stated that if they  are  not included in the schedule the final result on Exs.  C. 11 and C.  12  would be incorrect because in these  statements  the total  depreciation provided up to the opening of  the  year has  been  deducted  and  this  sum  includes  proportionate depreciation  also on the assets referred to.  He  has  also added that the total value of all fixed assets shown in Exs. C. 11 and C. 12 " have got to agree with the values shown in the  balance-sbects "; and he claimed that " his  method  of calculating weighted average of the remaining life of assets is  the most correct that can be employed ".  Similarly  Mr. Saigal was cross-examined about the Bangalore plant which 1011 had been installed in 1946.  He stated that theoretically it should  have  a life till 1968 but in effect the  plant  had become so unreliable that they had to instal new one and  to keep  the old one as a standby.  According to  this  witness actually the life of the machinery enumerated in Ex.  C.  20 works  out  to  less than 22 years  but  for  simplicity  in accounting  he  had taken the figure to be 22.  As  we  have already  mentioned  the  tribunal took  the  view  that  the evidence( given by the appellant’s witnesses in the  present proceedings  was satisfactory and we do not think  that  any material  has  been brought out in  cross-examination  which would justify the respondents’ contention that the  tribunal had  not  properly appreciated the said  evidence.   In  the result we hold that the respondents have failed to show that any of the conclusions reached by the tribunal in making its calculations under its alternative findidg are wrong. The appeal accordingly succeeds and must be allowed and  the award passed by the tribunal must be set aside.  In view  of the  fact that the principal point raised by the appeal  was one of some importance and it has been argued in a group  of appeals  before  us, we think that the parties  should  bear their own costs. Appeal allowed. 1012