http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 5  

PETITIONER: THE MANAGEMENT OF PRAGA INDUSTRIESLTD., COIMBATORE

       Vs.

RESPONDENT: THE WORKERS

DATE OF JUDGMENT: 08/05/1959

BENCH: GAJENDRAGADKAR, P.B. BENCH: GAJENDRAGADKAR, P.B. SINHA, BHUVNESHWAR P. WANCHOO, K.N.

CITATION:  1959 AIR 1194            1960 SCR  (1) 161

ACT: Industrial  Dispute-Award  by consent-lnterim  increment  Of wages  in lieu of fixation of wage structure-Such award,  if open  to  challenge-Wage structure  of  piece-rate  workmen- Whether   entitled  to  annual  increment-Machinery,   land, building     on     lease-Rehabilitation     charges,     if allowable-Bonus-Calculation of available surplus.

HEADNOTE: The appellant was the lessee under Praga Industries and took on lease buildings and machinery for five years with  option of renewal.  The subject matter of dispute for  adjudication was  with regard to the questions about (1) the  quantum  of bonus  payable  to the workmen for the year  1954,  and  (2) fixation of scale of wages with graded annual increments for different categories of workmen. In view of the fact that the lease in its favour was due  to expire shortly, the appellant had suggested to the  Tribunal that  the question of classifying the workmen  into  skilled and unskilled workmen and providing for systematic grades of pay with increments may conveniently be deferred to a future date; the 21 162 respondents agreed to this proposal and so both the  parties represented to the Tribunal that they would be satisfied  if an   interim order was made providing for the  increment  in the  wages   of  the  workmen.   Accordingly,  the  Tribunal refrained from fixing any wage structure, and as an  interim measure,  ordered  increment  of wages at 4  per  cent.  and directed the appellant to grant such an increment every year until the workmen were classified and their pay scales  were introduced to reach a particular maximum. The  above increment applied to the monthly, time and  piece rated workmen. The appellant challenged the propriety of the course adopted by the Tribunal and contended that the Tribunal was asked to fix  a wage structure, but instead it had passed  merely  an interim order which was irregular. The  appellant  also  contended  that  the  claim  for   the additional  bonus for the year 1954 by the workmen  was  not

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 5  

justified as the financial position of the appellant was not satisfactory, and it was in debts and had not even paid rent due to the lessor, and in fact, had ploughed back the amount of  rent  due  into the business as  working  capital.   The appellant  also resisted the direction for payment of  bonus on the ground that the award involved an unfair distribution of the available surplus and claimed rehabilitation  charges for  the leased property and machinery and interest  on  the amount of unpaid rent. Held,  that where the parties themselves represented to  the Tribunal  that the question of classifying respondents  into skilled  and unskilled workmen and providing for  systematic grades  of pay with increments may be conveniently  deferred to  a  future  date  and they  would  be  satisfied  with  a reasonable  interim  order providing for  increment  in  the wages  of  the workmen, it was not open to  the  parties  to challenge the award based on such representation at a  later stage. That  although  generally  a  wage  structure  with   annual increments was not provided for piece rate workers, who  are paid for the work they do, the rate of wages fixed for  such workers could legitimately be revised on a proper case being made out in that behalf. Held  further,  that where an amount earmarked  as  due  for payment  for  some  other purpose was  utilised  as  working capital,  it  should carry interest, even  though  shown  as liability in the profit and loss account and the same should be  taken  into consideration for arriving  at  the  surplus available for the purposes of bonus. That  no prior charges for rehabilitation could  be  allowed where  land, machinery and building for business were  taken on  lease.  Where new machinery was purchased the amount  of rehabilitation was covered by the depreciation allowed.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 226 of 1958. 163 Appeal  by special leave from the award dated May 30,  1957, of  the Labour Court, Coimbatore, in Industrial Dispute  No. 89 of 1955. A.   V.  Viswanatha Sastri and T. V. R. Tatachari,  for  the appellants. M. S. K. Sastri, for the respondents. 1959.  May 8. The Judgment of the Court was delivered by GAJENDRAGARKAR J.-This appeal by special leave arises out of an  industrial  dispute  between  the  Management  of  Praga Industries  (P) Ltd., (hereafter called the  appellant)  and its workmen (hereafter called the respondents).  The dispute which   was  referred  by  the  Government  of  Madras   for adjudication  to  tile  Industrial  Tribunal  at  Coimbatore covered four items.  Two of them were settled by  compromise between the parties and the remaining two were the  subject- matter  of  adjudication.  They are the question  about  the quantum  of  bonus payable to the respondents for  the  year 1954 and the question of fixing scales of wages with  graded annual  increments for different categories of  respondents. The  tribunal  has  ordered  the appellant  to  pay  to  the respondents  by  way  of bonus  three  months’  wages.   The appellant  had already paid one month’s bonus and so it  had been  directed to pay bonus for two months more.  In  regard to  the  fixation  of the wage structure  the  tribunal  has refrained  from fixing any wage structure at present and  as an interim measure it has ordered the appellant to grant all

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 5  

its workmen all increment at the rate of 4% and to  continue to  grant  such  an  increment every  year  until  they  are classified  and  their pay scale is introduced  to  reach  a particular maximum.  It is these two directions in the award which are challenged by the appellant in the present appeal. The  appellant is a private limited company carrying on  the business  of  manufacturing  nut  and  plastic  buttons   in Coimbatore  as a lessee under Praga Industries,  Coimbatore, which  is a partnership firm.  The appellant took  on  lease from the said firm land, buildings 164 and  machinery belonging to it under an indenture  of  lease executed  on  January 15, 1954.  Under this deed  a  monthly rental of Rs. 5,000 has to be paid by the appellant for five years;  the  lease  includes a clause by which  a  right  of renewal  is  given to the appellant for a  period  of  three years. The appellant’s case was that its financial position was not satisfactory;  that it had to borrow an overdraft  from  the Indian Bank Limited, Coimbatore, under an overdraft  account which  left the appellant a debtor to the said Bank  to  the extent  of Rs. 48,414 in 1954.  The appellant had  also  not paid the rent due to the lessor for the said year and had in fact  ploughed  back the said amount of rent of  Rs.  60,000 into  the  business  of the appellant  as  working  capital. According to the appellant, under the Full Bench formula the respondents’ claim for additional bonus was not justified. On  the other hand the respondents urged that the  appellant was making large profits and their claim for bonus was fully justified.   The respondents also alleged that it  was  high time that a proper wage structure was fixed by the  tribunal guaranteeing  to the respondents the payment of  fair  wages with  fair annual increments with a view to reach  specified maximums. On  behalf  of  the  appellant  Mr.  Viswanatha  Sastri  has challenged  the  propriety  of the  course  adopted  by  the tribunal in making an interim order about the increments  in wages of the appellant’s employees.  The tribunal was  asked to  fix a wage structure under issue No. 3. Instead  it  has come out with an interim order which is very irregular, says Mr.  Sastri.   In  our  opinion  this  argument  is   wholly untenable.   It is clear from the award that  the  appellant itself  suggested  to  the tribunal that the  lease  in  its favour  was due to expire within a year and a half and  that the question of classifying the respondents into skilled and unskilled workmen and providing for systematic grades of pay with  increments  may be conveniently deferred to  a  future date.   The respondents agreed to this suggestion, and  both parties  represented  to  the tribunal that  they  would  be satisfied if a reasonable interim order 165 was  made  providing  for  increment in  the  wages  of  the respondents.  That being so, it is not open to the appellant now  to contend that the tribunal should have fixed  a  wage structure and not passed an interim’ order. On the merits of the interim order the only objection  which has been raised by the appellant before us is in respect  of the  application of the said order;-to  piece-rate  workers. It  appears that on October 25, 1955, an agreement had  been reached  between. the appellant and the respondents  and  by cls. 5 and 6 of this agreement it was settled that an annual increment  of 4% of the basic pay for all the  monthly-rated and  time-rated  employees  should be given,  and  that  the revised wages should come into force from November 1,  1955. That  being  so, Mr. Sastri has not challenged  the  interim

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 5  

order passed by the tribunal in respect of the  monthlyrated and  the  daily-rated workmen.  His grievance  is  that  the tribunal was in error in making a similar order in regard to the piece-rated workmen. It is true that generally annual increments in the wages  of piece-rated  workers  are not provided.  These  workers  are paid  by the work which they do though the rates  fixed  for such payment relay be legitimately increased in proper cases usually  a  wage  structure with annual  increments  is  not provided for such piecerated workers.  It is on this  aspect of  the  matter  that  Mr.  Sastri  has  laid   considerable emphasis.   On the other hand, Mr. Joseph Nejedly  who  gave evidence for the appellant frankly admitted that  piece-rate wages  had  been fixed in 1947 and though  there  were  some changes  in them they were insignificant.  He also  conceded that  since  1947  the  cost  of  living  had  gone  up   in Coimbatore.  These statements make it clear that a case  for revising  the rates of wages payable to  piecerated  workers has been made out Asmuch as in the case of monthly-rated  or daily-rated workmen.  Therefore we think that the  appellant cannot  successfully challenge the direction issued  by  the tribunal  in  regard to the increment of 4% in the  case  of rates  of  wages fixed for piece-rated workers.   We  would, however,  like  to  modify the interim order  in  regard  to piece-rated 166 workers by directing that though their rates of wages should be  increased  at the rate of 4% they should  not  have  the benefit  of the annual increment at the said rate until  all the  workers  are  classified  and  their  pay  scales   are introduced.   In  other words, we confirm this part  of  the award   with  the  only  modification  that  future   annual Increment  at  the rate of 4% should not be granted  to  the piece-rated workers. The next contention raised by Mr. Sastri is in regard to the order  made by the award directing the appellant to pay  two months’ additional bonus to the respondents.  It is now well settled  that  the claim for bonus must be  decided  by  the application  of the Full Bench formula.  In the  application of  the formula, there are only two items which  have  given rise  to  a  controversy in the  present  proceedings.   The appellant  claimed that he should be allowed 4% interest  on Rs.  60,000 either on the basis that this interest would  be payable  to the lessor since default had been  committed  in the  payment of rent due to him ; or on the basis  that  the said  amount  had been utilised as working  capital  and  so should  carry 4% interest.  In our opinion the latter  claim is well founded and must be upheld.  There is no doubt  that the monthly rent of Rs. 5,000 payable to the lessor,  though shown as a liability in the profit and loss account, has  in fact not been paid to the lessor; and it is also clear  that the  whole of this amount has in fact been used  as  working capital  by  the  appellant.  Therefore its  claim  to  have interest  at  40% on this amount cannot be resisted  by  the respondents.   The  tribunal was inclined  to  dissect  this claim month by month and to consider the question of  return on  the amount month by month.  We do not think that  it  is necessary to adopt such a course in the present case. The  other  clam  made by the appellant  is  in  respect  of improvement   and  modernisation  of  its  machinery.    The appellant  claimed Rs. 20,000 under this head.   This  claim has been rejected by the tribunal, and we think rightly,  As we have already observed, the appellant has taken the  land, machinery  and buildings for its business as a  lessee  from the  Praga  Industries,  Coimbatore, and  so  the  appellant

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 5  

cannot claim to 167 rehabilitate  any of the said machinery and plant.   If  the appellant has purchased new machinery in 1954 the amount  of rehabilitation  which the appellant can claim in respect  of the  said machinery for 1954 is covered by the  depreciation allowed to the appellant., This position is not disputed  by Mr.  Sastri.  Therefore we are satisfied that the  appellant is  not entitled to claim Rs. 20,000 as a prior  charge  for rehabilitation. If  the  Full Bench formula is worked out in  the  light  of these  findings there can be no doubt that the tribunal  was justified in directing the appellant to pay additional bonus for  two months.  It is common ground that, taking  the  net profit at Rs. 42,726, if the depreciation and the bonus paid for 1953 are added back, the figure of gross profit would be Rs.  69,546.   From  this  figure  if  the  notional  normal depreciation,  income-tax, return at 6% on  paid-up  capital and  return  at  4% on working capital  of  Rs.  60,000  are deducted, it still leaves a balance of over Rs. 26,000.  The three  months’  bonus, including one month’s  bonus  already paid  by  the appellant; awarded by the tribunal is  in  the neighborhood of Rs. 22,000 but in respect of this bonus  the appellant would be entitled to a rebate of income-tax to the extent of Rs. 12,300.  That being so, it cannot be said that the  order  passed  by  the  tribunal  involves  an   unfair distribution of the available surplus. In  the result the appeal substantially fails and the  award passed by the tribunal is confirmed with the modification as to  the  future annual increments in regard  to  piece-rated workers.   In the circumstances of this case we direct  that the parties should bear their own costs. Appeal substantially dismissed; award partially modified. 168