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PETITIONER: THE  NEW  MANECK  CHOWK  SPINNING  AND  WEAVING  CO.,  LTD.,

       Vs.

RESPONDENT: THE TEXTILE LABOUR ASSOCIATION,AHMEDABAD

DATE OF JUDGMENT: 07/12/1960

BENCH: WANCHOO, K.N. BENCH: WANCHOO, K.N. GAJENDRAGADKAR, P.B. SARKAR, A.K. SUBBARAO, K. MUDHOLKAR, J.R.

CITATION:  1961 AIR  867            1961 SCR  (3)   1  CITATOR INFO :  R          1961 SC 977  (7)  RF         1967 SC 691  (22,64)  R          1967 SC1450  (5)  RF         1972 SC1234  (19)  RF         1972 SC1436  (12)  RF         1972 SC2148  (22)  RF         1986 SC1486  (5)

ACT: Industrial Dispute-Profit bonus-Agreement between Labour and Mill-owners-Full  Bench  Formula,  whether  contravened   by Agreement-Tribunal’s competence to extend Agreement.

HEADNOTE: The respondent, the Textile Labour Association at Ahmedabad, entered  into  a five years pact with  the  Ahmedabad  Mill- Owners’  Association,  representing  the  member  mills,  in regard to payment of bonus to the employees of the mills for the years 1953-57.  The Labour Union demanded bonus for  the year  1958  on the basis of the pact,  but  the  mill-owners claimed that the pact was contrary to the formula evolved by the  Full Bench in Mill Owners’ Association, Bombay  v.  The Rashtriya  Mill Mazdoor Sangh, Bombay, [1950] 2 L.L.J.  247, which  was approved by the Supreme Court in  The  Associated Cement  Companies  Ltd. v. Its Workmen, [1959]  S.C.R.  925, inasmuch  as  (1) rehabilitation provided in  the  Agreement differed  vitally from rehabilitation as explained  in  that decision,  (2)  the  Agreement provided  for  payment  of  a minimum bonus even though there may be no available  surplus and  even though the particular mill might have made  actual loss,  and (3) while the Full Bench Formula, as approved  by the  Supreme  Court  treated a particular year  as  a  self- sufficient unit, there was provision for set-off and  set-on in  the  Agreement.  The Industrial Tribunal  to  which  the dispute  was referred in the. form of sixty-six  references, one  relating to each mill, took the view that the pact  did not  in  any  way run counter to the law laid  down  by  the Supreme  Court, and that the extension of the agreement  for one more year would help in promoting peace in the  industry

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in Ahmedabad. Held  (Subba  Rao,  J.-dissenting)  that  the  Agreement  in question departed from the Full Bench Formula in the  matter of  bonus,  in certain vital aspects and that  the  Tribunal when  it  extended  the  Agreement for  the  year  1958  was ignoring  the law as laid down by the Supreme Court  as,  to what profit, bonus,was and how it should be worked out. 2 The Tribunal had no power by extending the Agreement to make it possible for payment of a minimum bonus for the year 1958 even when there was either insufficient available surplus to pay  bonus  or no available surplus at all  or  even  actual loss. The jurisdiction of the Tribunal was limited by its terms of reference,  which was not on industry-cum-region basis,  but one for each mill to consider the question of bonus for each mill  for  the  year  1958  and,  consequently,  it  had  no jurisdiction to apply the principle of set-off and set-on to be found in the Agreement in respect of payment of bonus  or take into account the profits of the industry as a whole  in Ahmedabad. Per Gajendragadkar, Sarkar, Wanchoo and Mudholkar, JJ.It  is open to an industrial court in an appropriate case to impose new obligations on the parties before it or modify contracts in the interest of industrial peace or give awards which may have  the effect of extending Agreement or making  new  one, but  this  power is conditioned by the subject  matter  with which it is dealing and also by the existing industrial  law and  it  would,not  be  open to  it  while  dealing  with  a particular  matter before it to overlook the industrial  law relating  to that matter as laid down by the legislature  or by the Supreme Court. Western India Automobile Association v. Industrial Tribunal, Bombay,  [1949]  F.C.R. 321, Rohtas  Industries  Limited  v. Brijnandan  Pandey, [1956] S.C.R. 800 and Patna  Electricity Supply Co.v.   Patna Electric Supply Workers’ Union,  [1959] SUPP. 2 S.C.R. 761, relied on. Per  Subba Rao, J.-(1) The impugned five years pact was  not contrary  to  industrial  law as laid down  by  the  Supreme Court. (2) The pact also did not infringe the principle that bonus  depends  upon  profits; but it applied  the  same  by evolving  a formula of set-off and set-on to  a  complicated situation of the entire industry in a particular area for  a number  of  years. (3) The Full Bench Formula in  regard  to rehabilitation  was  not  contravened  by  the  pact.    The decisions  of the Supreme Court did not  preclude  employers and employees from agreeing to a particular valuation of the block  having regard to the circumstances obtaining  at  the time  of the agreement. (4) Neither the Full  Bench  Formula nor  the  decisions  of  the  Supreme  Court  affirming   it precluded the Tribunal from extending the terms of the pact by another year if that was necessary to maintain industrial peace.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 351-356 and 358-369 of 1960. Appeals  by  special  leave from the Award  Part  1  of  the Industrial  Court, Bombay, in References IC Nos.  261,  297, 238,  241, 248, 263, 266, 271, 301, 302, 257, 237 296:  299, 300, 283 and 284 of 1959. 3 N.   A.  Palkhivala,  I.  M. Nanavati, S. N.  Andley  J.  B.

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Dadachanji,  Rameshwar  Nath  and  P.  L.  Vohra,  for   the appellants in C. A. No. 351 of 1960. N.   A.  Palkhivala,  J.  B.  Mehta, S.  N.  Andley,  J.  B. Dadachanji,  Rameshwar  Nath  and  P.  L.  Vohra,  for   the appellant; in C.As. Nos. 352 and 358 of 1960. R.   J. Kolah, J. B. Mehta, S. N. Andley, J. B.  Dadachanji, Rameshwar Nath and P. L. Vohra, for the appellants in  C.As. Nos. 353 and 362 of 1960. I.   M. Nanavati, S. N. Andley, J. B. Dadachanji,  Rameshwar Nath  and  P. L. Vohra, for the appellants in C.  As.   Nos. 354, 356, 363-365, 367 and 369 of 1960. J.   B.  Mehta,  S. N. Andley, J. B.  Dadachanji,  Rameshwar Nath  and  P. L. Vohra, for the appellants in C.  As.   Nos. 355, 359-361, 366 and 368 of 1960. S. R. Vasavada, for the respondent in C. As.  Nos. 351, 352, 355, 358, 360-364, and 368 of 1960. N.   H. Shaikh, for the respondent in C. As.  Nos. 353 and 365 of 1960. N.   M.  Barot, for the respondent in C. As.  Nos. 354,  359 and 367 of 1960. K.   L.  Hathi, for the respondent in C. As.  Nos.  366  and 369 of 1960. 1960.   December 7. The Judgment of Gajendragadkar,  Sarkar, Wanchoo  and  Mudholkar, JJ. was delivered  by  Wanchoo,  J. Subba Rao, J. delivered a separate Judgment. WANCHOO, J.-These eighteen appeals by’ special leave raise a common  question  and will be dealt with by  this  judgment. The appellants are certain cotton textile mills in Ahmedabad while  the respondent in each appeal is the  Textile  Labour Association,  Ahmedabad, which is a representative union  of the  cotton textile workers in Ahmedabad.  The total  number of  cotton textile mills in Ahmedabad is 66;  therefore,  66 references under s. 73-A of the Bombay Industrial  Relations Act, No. XI of 1947 (hereinafter called the Act), were  made to the industrial court for arbitration of disputes  arising out of notices of change                              4 given  by  the  respondent making a  demand  for  bonus  for employees  of textile mills in Ahmedabad.  It  appears  that there   was   an  agreement  between  the   Textile   Labour Association  and  the  Ahmedabad  Mill-owners’   Association representing the member-mills on June 27, 1955  (hereinafter referred  to as the Agreement), with respect to  payment  of bonus by the mills to their employees.  The Agreement was to remain  in force for a period of five years, beginning  with January  1,  1953, and ending with December  31,  1957,  and related  to bonus for the five calendar years from  1953  to 1957  (both inclusive).  When the Agreement came to  an  end disputes arose about bonus for the year 1958.  The Agreement was  not extended and a notice of change under s. 42 of  the Act  was  given  by the Textile Labour  Association  to  the Ahmedabad   Mill-owners’  Association  on  July  21,   1959, claiming  that  all the employees employed during  the  year 1958 in the member-mills be paid an adequate amount of bonus having  regard  to the volume of profits, if  any,  or  some bonus  irrespective of profits to fill the gap  between  the existing  wage  and the living wage so as  to  avoid  unrest among the employees.  It further appears that notice in  the same  terms  was given to individual mills  about  the  same time.   As no agreement was arrived at between the  parties, 66 references with respect to the sixty-six mills were  made to  the  industrial court as already mentioned  above.   The industrial  court  considered all the  sixty-six  references together  and came to the conclusion that the  Agreement  of 1955  had worked fairly to both sides and was  substantially

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in accord with the long-standing practice in the industry in Ahmedabad  even before the Agreement and that its  extension for one year was essential for keeping industrial peace.  It therefore  ordered  the extension of the Agreement  for  the year 1958 and directed the parties to file within six  weeks from the date of the award calculations of bonus payable for the  year 1958 in the light of the decision  and  thereafter the  court would proceed to award appropriate bonus  in  the case  of each individual mill.  Thereupon there were  fifty- two applications for special leave to 5 appeal  to  this Court in which special leave  was  granted. Thirty-four of the appeals arising out of the special  leave petitions  have been withdrawn and only eighteen now  remain for decision.  It appears that the remaining fourteen  mills accepted  the decision of the industrial court, so that  now forty-eight  mills are out of the picture and only  eighteen are before the Court. The main contention of the appellants before the  industrial court  was that in view of the law laid down as to bonus  by this  Court in the Associated Cement Companies Ltd.  v.  The Workmen  (1), it was not open to it to extend the  Agreement for  the year 1958 as that would be against the  concept  of bonus  as understood in industrial law.  The same  point  is being  urged  before  us and the  question  that  falls  for decision is whether the industrial court was right in law in extending the Agreement for another year. In order to appreciate the dispute between the parties  with respect  to the extension of the Agreement we may  refer  to the salient terms of the Agreement.  Before we do so, we may mention  that  the  Agreement was  "without  renouncing  the general principles enunciated in decisions and awards of the arbitration   boards,  the  industrial  court,  the   Labour Appellate Tribunal and the Supreme Court in respect of bonus or  the rights and privileges created thereunder".  It  was entered  into  only with a view to creating  goodwill  among workers  and  for the purpose of maintaining  peace  in  the industry  and without creating a precedent for  the  future. The Agreement in the first place provided that the claim  of the  employees  for bonus would only arise if  there  is  an available  surplus of profit after making provision for  all the prior charges.  These prior charges were: (i)  statutory depreciation  and the development rebate; (ii) taxes;  (iii) reserve for rehabilitation, replacement and modernisation of block  as  calculated by the industrial  court  (basic  year 1947);  (iv)  six  per  centum  return  on  paid-up  capital including  bonus  shares; and (v) two per  cent.  return  on reserves  employed as working capital.  After the  available surplus was determined thus, a mill (1)  [1959] S.C.R. 925. 6 having  an  available surplus of profit had to  pay  to  its employees  bonus  which  would in no case be  less  than  an amount  equivalent to 4.8% of basic wages earned during  the year;  nor was it to exceed an amount equivalent to  25%  of the  basic  wages  earned  during the  year.   It  was  also provided  that in case the available surplus was  more  than sufficient  for granting bonus at a higher figure  than  the ceiling  of  twenty five per centum of  basic  wages  earned during  the year and the maximum bonus of 25 per centum  was paid,  such a mill would be deemed to have set aside a  part of  the residue of available surplus after grant of  maximum bonus  not exceeding 25 per cent. of the basic wages  earned during the year as a reserve for bonus for purposes of  "set on"  (adjustment)  in  subsequent years.   Secondly  it  was

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provided  that  where in the case of a mill,  the  available surplus  was  not more than the ceiling of 25 per  cent.  of basic wages fixed for bonus, the bonus would be fixed  after deducting  at least Rs. 10,000 from the  available  surplus. Further  it  was provided that if a mill  had  an  available surplus  of  profits which would suffice to pay bonus  at  a rate  lower than the minimum of 4.8 per cent. it  would  pay the  minimum  and would be entitled to set  off  the  excess amount  thus  paid  against  the  available  surplus  in   a subsequent year or years and there were provisions how  this set-off would be worked out.  Lastly it was provided that if the profits of a mill were not sufficient to provide for all prior  charges  as  mentioned  above,  though  it  had  made profits,  or  where the mill had actually suffered  a  loss, such  a mill would a& a special case for  creating  goodwill among  its workers and for continuing peace in the  industry but  without creating a precedent pay to its  employees  the minimum bonus equivalent to 4.8 per cent. of the basic wages but  would  be entitled to set off this amount  towards  any available surplus in any subsequent years, subject, however, always  to a payment of a minimum bonus at the rate  of  4.8 per cent. of basic wages earned during the year. It  has been contended on behalf of the appellants that  the formula under the Agreement departs in 7 some  vital  aspects from what is known as  the  Full  Bench formula  evolved  by the Labour Appellate  Tribunal  in  The Mill-owners’  Association,  Bombay  v.  The  Bashtriya  Mill Mazdoor Sangh (1), which has been approved by this Court  in the  Associated Cement Companies’ case (2) and is  thus  the law  of the land so far as bonus is concerned.  It is  urged therefore  that inasmuch as the formula under the  Agreement departs from the Full-Bench formula which is now the law  of the land, it was not open to the industrial court to  extend the  Agreement in the face of the decision of this Court  in Associated  Cement  Companies’ case(1) and in so far  as  the industrial  court  has done so it has gone against  the  law relating  to  bonus and therefore the award  should  be  set aside. Two  questions  immediately arise in  this  connection:  the first relates to the jurisdiction of the industrial court to impose  new obligations upon the parties and the  second  is whether  if the industrial court has jurisdiction to  impose new  obligations  it could do so in a matter  of  this  kind considering  the  concept  of  bonus as  laid  down  by  the decisions of this Court. So  far  as  the first question is  concerned  (namely,  the general   power  of  an  industrial  court  to  impose   new obligations  upon  the  parties), the matter  is  now  well- settled  by the decisions of the Federal Court and  also  of this  Court.   It was held by the Federal Court  in  Western India Automobile Association v. Industrial Tribunal,  Bombay and Others (3) that-               "   adjudication does not in our opinion  mean               adjudication  according to the strict  law  of               master and servant.  The award of the tribunal               may  contain  provisions for settlement  of  a               dispute  which no court could order if it  was               bound by ordinary law, but the tribunal is not               fettered in any way by these limitations."               The  Federal Court also approved the  view  of               Ludwig Teller that-               "industrial   arbitration  may   involve   the               extension  of an agreement or the making of  a               new one, or in

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             (1)  [1950]  2  L.L.J.  1247.      (2)  [1959]               S.C.R. 925.                           (3) [1949] F.C.R. 321.               8               general  the  creation of new  obligations  or               modification  of  old  ones  while  commercial               arbitration  generally  concerns  itself  with               interpretation  of  existing  obligations  and               disputes relating to existing agreements  (see               p. 345)."               This  Court also in Rohtas Industries Ltd.  v.               Brijnandan Pandey (1) held that-               "  a court of law proceeds on the footing that               no   power  exists  in  the  courts  to   make                             contracts for the people; and the parties must               make  their own contracts.  The  Courts  reach               their   limit  of  power  when  they   enforce               contracts  which  the parties have  made.   An               industrial tribunal is not so fettered and may               create new obligations or modify contracts  in               the interests of industrial peace, to  protect               legitimate  trade  union  activities  and   to               prevent  unfair practice and/or  victimisation               (see p. 810)."               In Patna Electric Supply Co. v. Patna Electric               Supply  Workers’  Union (2), this  Court  held               that-               "there  is no doubt that in appropriate  cases               industrial   adjudication   may   impose   new               obligations on the employer in the interest of               social justice and with the object of securing               peace and harmony between the employer and his               workmen and full cooperation between them (see               p. 1038)." and approved of the decision of the Federal Court in Western India Automobile Association’s case (3).  There is no  doubt therefore  that  it  is open to an industrial  court  in  an appropriate  case to impose new obligations on  the  parties before it or modify contracts in the interest of  industrial peace or give awards which may have the effect of  extending existing agreement or making a new one.  This, however, does not mean than an industrial court can do anything and every- thing  when dealing with an industrial dispute.  This  power is  conditioned  by  the subject-matter  with  which  it  is dealing and also by the existing industrial law and it would not  be  open to it while dealing with a  particular  matter before it to overlook the industrial (1) [1956] S.C.R. 800.    (2) [1959] SUPP. 2 S.C.R. 761. (3)  [1949] F.C.R. 32. 9 law relating to that matter as laid down by the  legislature or by this Court. This  brings  us to the second question, which is  the  real question in dispute in this case, namely, when dealing  with a  bonus  case,  like  the  present,  was  it  open  to  the industrial  court  to overlook the law laid 7 down  by  this Court  in Associated Cement Companies’ case (1) and make  an award  extending the Agreement for a further period  of  one year? In order to determine this question, we have to look at  the concept  of bonus as evolved in the industrial law  of  this country  by industrial tribunals and now by the decision  of this  Court.  So far as we can see, there are four types  of bonus  which have been evolved under the industrial  law  as laid down by this Court.  Firstly, there is what is called a

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production bonus or incentive wage (see Titaghur Paper Mills V. Its Workmen (2) ); the second is bonus as an implied term of  contract between the parties (see Messrs. Ispahani  Ltd. v.  Ispahani Employees’ Union (3)); the third  is  customary bonus  in  connection  with some festival  (see  The  Graham Trading  Co.  v. Its Workmen (4)) and the fourth  is  profit bonus which was evolved by the Labour Appellate Tribunal  in The  Mill-owners’ Association Bombay v. The  Rashtriya  Mill Mazdoor Sangh, Bombay (5), and which has been considered  by this  Court fully in two cases.  We are in the present  case dealing with bonus of the fourth kind, namely, profit  bonus and  what  we say subsequently refers only to this  kind  of bonus. What  is  the  concept of profit bonus  with  which  we  are concerned  in this case, for it is this concept  which  will determine  whether  it was open to the industrial  court  in this  case to extend the Agreement for 1958?  In Muir  Mills Co. Ltd. v. Suti Mills Mazdoor Union (6), this Court pointed out that-               "There  are two conditions, which have  to  be               satisfied  before  a demand for bonus  can  be               justified and  (1)  [1959]  S.C.R. 925.(2)  [1959]  SUPP.  2               S.C.R. 1012.                (3)  [1960] 1 S.C.R. 24.(4) [1960]  1  S.C.R.               107.                (5) [1950] 2 L.L.J. 1247.(6) [1955] 1  S.C.R.               991.               2               10  they  are: (1) when wages fall short  of  the               living  standard, and (2) industry makes  huge               profits   part  of  which  are  due   to   the               contribution   which  the  workmen   make   in               increasing  production.  The demand for  bonus               becomes   an   industrial    claim............               The   basis  for the claim is that labour  and               capital both contribute to the earning of  the               industrial concern and it is fair that  labour               should’  derive  some benefit, if there  is  a               surplus  after  meeting  prior  or   necessary               charges...............   The   surplus    that               remained  after  meeting the  aforesaid  prior               charges would be available for distribution as               bonus." The  matter  was  again  considered by  this  Court  in  the Associated  Cement Companies’ case (1) where the Full  Bench formula  evolved by the Labour Appellate Tribunal  was  gone into at length.  The workmen contended in that case that the formula  required  revision as the employers  were  becoming increasingly   more   rehabilitation-conscious   and   their appetite  for  the  provision for  rehabilitation  was  fast growing  with the result that in most cases, after  allowing for  rehabilitation,  there  was no  surplus  left  for  the purpose of bonus and the main object of the formula was thus frustrated.   It was further contended for the workmen  that the whole of rehabilitation expenses should not be  provided for   out  of  trading  profits  and  that  the  claim   for rehabilitation  should be fixed at a reasonable  amount  and the  industry  should be required to find the  balance  from other  sources.  It was there held that"though there may  be some  force  in the plea made for the revision of  the  Full Bench  formula,  the problem raised by the said plea  is  of such  a  character that it can appropriately  be  considered only  by  a high-powered commission and not by  this  Court,

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while hearing the present group of appeals."This Court  also held that-               "the Full Bench formula had on the whole work-               ed fairly satisfactorily in a large number  of               industries all over the country, and the claim               for  bonus should be decided by the  Tribunals               on   the   basis  of  this   formula   without               attempting to revise it.  The               (1)   [1959] S.C.R. 925.               11               formula was elastic enough to meet  reasonably               the  claims  of the industry  and  labour  for               fair-play and justice............ It was based               on two considerations: first, that labour  was               entitled  to  claim  a share  in  the  trading               profits of the industry, because it had parti-               ally contributed to the same; and second, that               labour  was  entitled to claim  that  the  gap               between  its actual wage and the  living  wage               should within reasonable limits be filled up." The  Full  Bench  formula  provided  for  arriving  at   the available  surplus after meeting prior charges, namely,  (i) depreciation,  (ii) taxes, (iii) return on paid-up  capital, (iv) return on working capital and (v) rehabilitation.   The formula further dealt with the claim for bonus on the  basis that  the  relevant  year  is  a  selfsufficient  unit   and appropriate accounts have to be made in respect of the  said year.   Finally, it was pointed out that it was  only  after all the prior charges had thus been determined and  deducted from  the gross profits that the available surplus could  be ascertained  for  payment  of  bonus,  and  that  when   the available  surplus  had been ascertained, there  were  three parties  entitled  to  claim  shares  therein,  namely,  (i) labour’s  claim  for bonus, (ii) industry’s  claim  for  the purpose  of  expansion  and  other  needs,  and  (iii)   the shareholders’  claim  for additional return on  the  capital invested  by  them; the ratio of distribution  would  neces- sarily  depend on several factors.  It would thus  be  clear that  the  essential concept of profit bonus is  that  there should  be an available surplus determined according to  the principles  laid  down  in the  cases  mentioned  above  for distribution.   If  there is no such available  surplus  for distribution,  there  can be no case for payment  of  profit bonus.   This  is the industrial law as laid  down  by  this Court  with  respect  to this kind of  bonus  in  Associated Cement Companies’ case (1).  It would in our opinion be  not open  to an industrial court or tribunal to ignore this  law as to bonus and to extend an agreement for payment of bonus, which is against the basic concept of bonus as laid down  by the decisions of this Court on the ground that an (1)  [1959] S.C.R. 925. 12 industrial court has power generally to extend agreements or to  create  new obligations.  As already pointed  out,  that power has to be exercised keeping in view the subject-matter before the tribunal and the law laid down by the legislature or  by  the decisions of this Court, with  respect  to  that subject-matter.   The industrial court in this case was  not unaware  of this position, viz., that it *as departing  from the  law laid down in the Associated Cement Companies’  case (1)  and other bonus cases; but it held that this Court  was dealing in those cases with individual units, and not with a case  where there were numerous concerns in an  industry  at one  centre,  with its  particular  historical  back-ground, where  previous awards had been on an  industry-wise  basis.

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It therefore held that the decisions of this Court could not apply  in their entirety to the dispute before it  and  that this  Court  could not have intended that in  a  case  where there  was the additional circumstance that the parties  had themselves  voluntarily modified the bonus formula  in  some respects  by  a  long  term agreement,  that  could  not  be extended  by an industrial court.  It is the correctness  of this view which has been strongly disputed before us by  the appellants. Before  deal with this matter, we should like to  point  out that  the  fact  that  there  are  numerous  concerns  in  a particular  place can have no relevance in  considering  the question  whether the Full Bench formula can apply to  cases like  the present.  Even though this Court was dealing  with the  case  of  one concern, namely,  the  Associated  Cement Companies,  it pointed out that the Full Bench  formula  had worked fairly satisfactorily all over the country and should continue to be applied without revision till such time as  a high-powered commission went into the question.  There is in our  opinion no question of industry-cum-region approach  in the  matter  of a bonus dispute of this kind.  There  is  no doubt  that  in  many matters,  like  wages,  conditions  of service, over-time allowance, dearness allowance,  gratuity, and  so on, industry- cum-region approach has been  made  by industrial courts (1)  [1959] S.C.R. 925. 13 in  this  country  and, rightly so.  But there  is,  in  our opinion,  no scope for an approach of this kind in the  case of bonus, the basic concept of which is that payment depends on surplus of profits available according to some formula in the  case  of each industrial concern.  Nor can it  be  said that  the  Agreement in this case is dealing with  bonus  in what  is  known as industry-cumregion  basis.   Its  salient terms  as set out above will show that it deals  with  bonus according  to available surplus of each mill, so that  bonus paid  by each mill depends on its own available surplus  and the  sixty-six mills situate in Ahmedabad may pay  different amounts of bonus varying from a minimum of 4-8 per cent.  of the basic wages to 25 per cent. of the basic wages.  Similar differences will arise if the Full Bench formula is  applied to  the  sixty-six mills in Ahmedabad.  Thus  the  Agreement which has been extended, is not based on industry-cum-region approach,  as  it is understood.  That approach,  say,  with respect to wages means that wages of all concerns situate in a particular area engaged in a particular industry should be the same.  On that approach the bonus of all these sixty-six mills  should also be the same percentage for each  mill  in that area; but that is not the basis on which the  Agreement was  arrived  at. The basis of the Agreement  is  that  each individual  mill  is  treated as a  separate  unit  and  its available surplus worked out according to the formula in the Agreement itself.  This is also the basis of the Full  Bench formula and the available surplus of each unit is worked out according  to  that  formula,  though  the  result  of   the application of the two formulae in each case may not be  the same.   There is in our opinion therefore  no  justification for  the view that the Full Bench formula approved  by  this Court in the Associated Cement Companies’ case (1) can  have no  application  where there are numerous  concerns  of  one nature at one centre.  Some bonus awards were brought to our notice to show that they were on industry-cum-region  basis, namely,  The Sugar Mills of Bihar v. Their Workmen  (2)  and The Sugar Mills, Uttar Pradesh v. (1) [1959] S.C.R. 925.

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(2) [1951] I. L. L. J. 469. 14 Their Workmen(1).  These awards related to sugar industry in Uttar Pradesh and in Bihar.  As we read these decisions,  we do  not  find real industry-cumregion approach  which  would result  in  uniform bonus for all the mills  dealt  with  by these two awards.  What we find is that a different  formula was  worked  out  for  awarding  profit  bonus  linked  with production  on the basis that there were profits;  but  when the  formula is worked for each mill the bonus would  differ from mill to mill according to its production.  Further,  we find  that  in  the Uttar Pradesh case  there  were  certain exemptions  granted to certain factories, presumably on  the ground  that  they were not in a position to pay  bonus  for want  of sufficient profits.  It is true that in  the  Bihar case  it  was  said  that the question  of  bonus  could  be considered on industry-wise and not on unit wise basis,  but that  only meant that one formula was evolved for the  whole of  Bihar and applied to every mill in that area.   That  is what exactly the Full Bench formula also has done, for it is the  same formula which applies to all  industrial  concerns all  over the country now after the decision of this  Court. In  the Bihar case, an argument was addressed to  apply  the Full Bench formula, but that was not accepted on the  ground that  balance sheets and profit and loss accounts  were  not reliable and therefore bonus was linked with production.  In the Bihar case also some factories were exempted from paying bonus  presumably on the ground that they were unable to  do so  not having made profits.  These cases therefore are  not instances  of real industry-cum-region approach.   Reference was  also made to The, Textile Mills in Coimbatore  District v.  Their Workmen (2) relating to Coimbatore textile  mills. In  that case the industrial court considered whether  bonus at  a  flat  rate for all the mills  should  be  awarded  or whether  a  distinction  should be made  between  mills  and mills.   It  held that the mills themselves when  they  paid bonus  observed or maintained no distinction;  therefore  in the  peculiar circumstances of that case a uniform  rate  of 33-1/3 per cent. was awarded for all the mills as  specially all the mills had (1) [1952] 1 L. L. J. 615. (2) [1950] 2 L. L. J. 203. 15 without  exception  ’made unique profits.  As we  have  said already  the  basic concept of profit bonus, as  it  appears from the judgments of this Court, is that there should be an available  surplus of profits in a particular concern  in  a particular  year,  to which the bonus relates  and  on  this basic concept there is no scope for an approach on the basis of  industry-cum-region in the matter of bonus in the  sense that  every  mill  in a region should pay  the  same  bonus. There  is  therefore  no question  of  industry-  cum-region approach  in the present case, and even the formula  in  the Agreement is not on a real industry-cum-region approach  and has  to be worked out from mill to mill, which is  like  the Full  Bench  formula.  The reasons therefore which  led  the industrial court in this case to distinguish and depart from the  decision  of  this  Court  in  The  Associated   Cement Companies’  case (1) do not appear to us to  be  substantial and  there was therefore no ground for departing  from  that decision for those reasons. This brings us to a consideration of the formula as provided in  the Agreement and the Full Bench formula as approved  by this  Court.  It was urged on behalf of the respondent  that the two formulae were basically the same; both provided  for

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prior  charges  and  in both bonus was to  be  paid  on  the availability of surplus profits, though it was admitted that in  certain respects there were differences.  Now  if  these differences were merely of detail and did not affect some of the vital aspects of the Full Bench formula it might be said that  there was no ignoring of the law as laid down by  this Court  and  therefore the tribunal was  not  unjustified  in extending the Agreement for a year.  But a comparison of the formula  in the Agreement with the Full Bench formula  shows differences  in  three vital aspects.  In the  first  place, rehabilitation  provided  in the Agreement  differs  vitally from  rehabilitation as explained in The  Associated  Cement Companies case (1).  In the second place, the formula in the Agreement  provides  for  payment of a  minimum  bonus  even though there may be no available surplus and even though the particular mill might have made actual (1)  [1959] S.C.R. 925. 16 loss.  Thirdly, while the Full-Bench formula as approved  by this  Court  treats a particular year  as  a  selfsufficient unit,  there  is  provision for set-off and  set-on  in  the formula in the Agreement.  Can it therefore be said that the formula  in  the  Agreement which  departs  in  these  vital particulars  from  the Full Bench formula in the  matter  of bonus  could be extended for another year by the  industrial court in the face of the decisions of this Court laying down the  law  as to what profit bonus is and how  it  should  be worked  out?   The tribunal therefore when it  extended  the formula in the Agreement which departed from the Full  Bench formula  in certain vital aspects was  undoubtedly  ignoring the  industrial  law as laid down by this  Court  and  going against it.  It was its duty when dealing with the  question of profit bonus to apply the Full Bench formula, as approved by this Court and then arrive at the quantum of bonus to  be awarded  in  the  case  of  each  mill.   In  particular  by extending  the Agreement the tribunal made it  possible  for payment  of  a  minimum bonus even  when  there  was  either insufficient available surplus to pay bonus or no  available surplus  at all or even actual loss; the tribunal  was  thus definitely  going  against the industrial  law  relating  to bonus as laid down by this Court.  It had in our opinion  no power  to do so and the reasons which it gave for  departing from  the law laid down by this Court are unsubstantial  and do not commend themselves to us.  In these circumstances the order  of  the tribunal extending the Agreement for  a  year cannot be upheld. Further  it  was  urged  that  in  any  case  the  Agreement contemplates payment of bonus out of profits of the industry at Ahmedabad as a whole and that is why it has provided  for set-off  and  set-on.   Whatever  may  be  said  about  this provision on a long term basis, the tribunal’s  jurisdiction was  limited by its terms of reference.  There was  not  one reference  before the tribunal on industry-cum-region  basis but  sixty-six  separate references, one  relating  to  each mill.  It was required to consider the question of bonus for each mill for the year 1958 only and thus had nothing to 17 do with set-off and set-on or the profits of the industry as a whole at Ahmedabad.  The tribunal was only concerned  with 1958  and no consideration as to what happened  before  that year  or  what may happen after 1958 could  enter  into  its decision  of the question of bonus for the year  1958.   The principle of set-off and set-on therefore to be found in the Agreement could not convert payment of bonus for 1958,  say, by a loss making mill into profit bonus as laid down by  the

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decisions of this Court.  The tribunal’s award in this  case therefore would clearly be against the law as to bonus  laid down  by this Court, for its jurisdiction was confined  only to the year 1958 and no more. It was however urged on behalf of the respondent that  there is  a fifth kind of bonus, namely, goodwill bonus  and  that the   Agreement  when  it  provides  for  a  minimum   bonus irrespective  of availability of profits provides  for  such bonus in the interest of industrial peace.  It is enough  to say  that  so  far  as what  is  called  goodwill  bonus  is concerned  it pre-supposes that it is given by the  employer out  of  his  own free will without  any  compulsion  by  an industrial  court.  As its very name implies it is  a  bonus which  is given by the employer out of his free  consent  in order  that  there  may  be goodwill  between  him  and  his workmen; but there can be no question of imposing a goodwill bonus by industrial courts, as imposition of such a bonus is a  contradiction  of  its very  concept.   We  have  already referred  to  four  kinds  of bonus  which  prevail  in  the industrial   law   in  India  and  which  can   in   certain circumstances be imposed by industrial tribunals; but  there can  be  no  question of the  imposition  of  the  so-called goodwill bonus, for that bonus depends upon the goodwill  of the  parties and on their free consent.  In the  absence  of such free consent, there can be no question of any  goodwill bonus. Before we part with these appeals, however, we must  briefly advert to the general considerations which have been pressed before us very strongly by Mr. Vasavada for the  respondents and  Mr. Ambekar for the intervening parties.  It  has  been urged before us 18 that we should be reluctant to interfere with the  agreement because  it has worked satisfactorily in Ahmedabad, and  the reversal of the award under appeal may lead to discontent in a very important centre of.textile industry in this country. It  has  also  been strenuously argued  that  the  Agreement offers  a very reasonable solution to the vexed  problem  of bonus  and the pattern set by it has been copied in  Bombay, Madhya Pradesh and Coimbatore.  If the pattern thus set  for determining the textile employees’ claim for bonus has  been adopted  by  a substantial part of the textile  industry  in this  country, the Court should desist from  disturbing  the smooth  working of the said pattern unless it is  com-pelled to  do  so.  It may be conceded that some  features  of  the Agreement  are  undoubtedly  very  reasonable  and  in   the interest of the industry as a whole.  The agreement has  put a ceiling on bonus and that is a term very much in favour of the  employer,  because in some cases  where  the  available surplus  is very large, then under the working of  the  Full Bench  formula  the  employees are  tempted  to  claim,  and industrial  tribunals  are  justified in  awarding,  a  pro- portionately  substantial amount as bonus reaching  or  even exceeding  in some cases the level of basic wages of even  8 or  9  months.   This  trend  has  been  controlled  by  the Agreement.   It  is  true that the  Agreement  requires  the payment of the minimum bonus but this provision is  intended to  work  as a part of the larger agreement  spreading  over some  years and the employer has agreed to pay  the  minimum bonus  even  though  in a particular year  he  may  have  no available  surplus, because he and his employees  expect  or anticipate  that the employer may have available surplus  in the succeeding year.  The working of the Agreement is really intended  to spread over a number of years and  the  account between  the employers and the employees in that  behalf  is

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conceived  as  a  continuing  and  running  account.   These features of the Agreement may be regarded as commendable. The  problem of rehabilitation which has assumed  a  complex form  has also been attempted to be solved by the  Agreement in a practical way.  The solution 19 adopted  by the Agreement in that behalf, it is claimed,  is based on the historical and factual genesis of the  original formula  evolved by the Full Bench of the  Labour  Appellate Tribunal  when  it  dealt with the problem  of  the  textile industry  in Bombay.  The argument is that until  1962,  the Agreement should be allowed to work when the position may be reviewed at length.  Since this Court delivered its judgment in  the case of The Associated Cement Companies (1)  it  has come  to our notice that in cases where the employer  claims an  exaggerated  amount  for  rehabilitation,  or  where   a reasonable  claim  made by the employer in  that  behalf  is unreasonably  challenged  by the employees, the  dispute  is protracted.   The  trial  of  the  issue  tends  to   become complicated,  and  that  leads  to  bitterness  between  the parties.  It has been urged before us that time has now come when the industrial courts will have to face the problem  of radically  changing the formula.  It is argued  that  modern economic  thought  does not encourage the  theory  that  the whole  of  the  rehabilitation amount  must  come  from  the current profits of the industry, and it was stated before us that Government may have gradually to step in to assist  the industry  by advancing sufficient loans on reasonable  terms to   enable  the  industry  to  meet  the  demand   of   its rehabilitation.  However, as we pointed out in our  decision in  the  case of The Associated Cement Companies  (1)  these matters  can  be  properly and  effectively  decided  by  an industrial  court if the major representative industries  in the country and their employees are brought before it with a proper reference, or it can be tackled more appropriately by a  high-power commission appointed in that behalf.  We  were told  that the Government of India has taken a  decision  to appoint  such a commission, and that it would  soon  resolve this  problem  on  a more  rational  and  scientific  basis. During  the  course  of  the hearing  of  these  appeals  we suggested  to  the  parties  that in  view  of  the  pending appointment  of  the  commission,  parties  may  settle  the present  dispute amicably and that the  appellant-mills  may fall in line with the rest (1)  [1959] S.C.R. 925. 20 of  the mills in Ahmedabad, but despite their  best  efforts the  parties  could  not settle the  dispute  and  wanted  a decision from this Court on the points of law raised in  the present  appeals;  that  is why we have had  to  decide  the points   of  law,  and  in  doing  so   inevitably   general considerations to which we have just adverted cannot play  a material part. In  the  course of the argument reference was  made  by  Mr. Ambekar  to the concept of goodwill bonus; that again  is  a matter which may be evolved by agreement between the parties or decided by a highpower commission.  If the matter has  to be  decided according to law as has been laid down  by  this Court  then  the  conclusion would  be  inevitable  that  on essential  points the Agreement departs from the Full  Bench formula,  and however commendable it may be on the whole  it can  continue  only by agreement and cannot be  enforced  by industrial  adjudication  against  the will of  any  of  the parties; that is why we have come to the conclusion,  though not without regret, that the appeals must be allowed and the

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matter  must be sent back to the tribunal for  disposing  of the issue before it in accordance with law.  We direct  that the tribunal should proceed to try the question whether  any bonus  should  be awarded to the employees of  the  eighteen mills  before us on the basis of the Full Bench  formula  as interpreted  by  this Court in the case  of  The  Associated Cement Companies (1). In the circumstances there will be no order as to costs. SUBBA  RAO,  J.-I  have had the advantage  of  perusing  the judgment  prepared  by  my learned brother,  Wanchoo,  J.  I regret  my  inability  to  agree.  As  mine  is  a  solitary dissent, it may not serve any useful purpose to elaborate on the  question raised at great length.  I  would,  therefore, briefly refer to the relevant facts which have already  been fully  stated  by my learned brother and  express  my  views concisely on the question. presented before us. These  appeals  raise a dispute between the  Textile  Labour Association,, Ahmedabad, the representative (1)  [1959] S.C.R. 925. 21 union of the textile industry in Ahmedabad, and the  various textile  mills in that area in respect of the bonus  payable for  the  year 1958.  The said Labour Union entered  into  a five-year pact with the Ahmedabad Mill-Owners’  Association, representing the member mills, in regard to payment of bonus for the years 1953 to 1957.  The Labour Union demanded bonus for the year 1958 on the basis of the said pact.  The  mill- owners  claimed that the said pact was contrary to  the  law laid  down by the decision of this Court in the case of  The Associated  Cement  Companies  Ltd.,  Dwarka  Cement  Works, Dwarka  v. Its Workmen (1) and that, if  the  rehabilitation cost was calculated on the basis of the principles laid down therein,  there  would  not be any  "available  surplus"  to sustain the claim for bonus.  The Industrial Court to  which the   dispute  was  referred  elaborately.  considered   the arguments advanced and came to the conclusion that the five- year pact which originated in Ahmedabad was not only fair in itself  but  also an important  contribution  to  industrial peace, and that it did not in any way run counter to the law laid down by the Supreme Court.  On that finding it extended the operation of the pact for one more year and directed the parties to file within six weeks from the date of the  award calculations  in respect of the bonus payable for  the  year 1958,  in the light of its decision and on the footing  that the five-year pact was for six years. The  main question in the appeals is whether the  said  pact violates   the  law  laid  down  by  this   Court.    Before considering this contention it would be convenient to notice the  terms  of the said pact.  The said pact  is  a  lengthy document, though precisely drawn, and to read it in full  is to  unnecessarily burden the judgment.  I shall,  therefore, briefly summarize its terms. The contracting parties were the Textile Labour  Association of  Ahmedabad, a representative union for the local area  of Ahmedabad  on the one part, and the  Ahmedabad  Mill-Owners’ Association, Ahmedabad, representing its local member mills, on the other part. (1)  [1959] S.C.R. 925. 22 It was executed on June 27, 1955, to cover a period of  five years from 1953 to 1957, inclusive of both years, for  grant of  bonus  to the employees of the Cotton Textile  Mills  of Ahmedabad.   The object of the agreement was to create  good will  among the workers and for the purpose  of  maintaining peace in the industry.  The basis of the agreement was  that

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it applied for the entire Ahmedabad Textile Industry and for a  period  of five years.  The "available surplus"  of  each mill  was  ascertained  in accordance with  the  Full  Bench Formula laid down by the Labour Appellate Tribunal in  Mill- Owners’  Association, Bombay v. The Rashtriya  Mill  Mazdoor Sangh, Bombay (1).  The maximum bonus payable by every  mill of  the  said area was fixed at 25 per cent.  of  the  total basic  wages  earned during the year, and  the  minimum  was fixed  at  4.8 per cent. of the said basic wages.  If  in  a particular  year a mill had an "available surplus"  adequate for  granting bonus at a higher quantum than the ceiling  of 25  per  cent. of the basic wages. it would  nationally  set aside  the  part of the residue of the  "available  surplus" after the grant of the maximum bonus not exceeding an amount equivalent to 25 per cent. of the basic wages earned  during that year as a reserve for bonus for the purpose of "set-on" (adjustment)   in  subsequent  years.   If  the   "available surplus"  was adequate only to grant bonus at a  rate  lower than  the  ceiling, the quantum of bonus would be  fixed  in such a manner that there would remain with the mill at least a  minimum of Rs. 10,000.  If in respect of any year a  mill had  an "available surplus" adequate to pay bonus at a  rate lower  than the minimum rate, it would be entitled to  "set- off"  the excess amount of bonus that would be payable in  a subsequent year or years.  In setting off the said amount of bonus  that,  would be payable against  subsequent  year  or years, if the surplus was adequate only to grant bonus at  a rate  lower than the maximum rate, the mill would first  set aside out of the "available surplus" an amount of Rs. 10,000 and, then out of the balance, it would further take out  the excess amount paid by it as bonus in the previous (1)  [1950] 2 L.L.J. 247. 23 year,  and then it would distribute the remainder as  bonus. Even if a mill had made a loss in a particular year, it  had to pay the minimum bonus, but it would be entitled to  "set- off"  the amount thus paid against the amount of bonus  that would  be  payable in the subsequent year or years,  in  the same  manner as in the case of a surplus adequate  to  grant bonus  only at a rate lower than 25 per cent. of  the  basic wages.  In short, when the surplus was adequate to pay bonus at 25 per cent. of the basic wages earned during the year, a mill  had  to pay the maximum of 25 per cent. of  the  basic wages.   When  it was adequate only to grant bonus  of  less than 25 per cent. of the basic wages, it would pay the  said bonus  after reserving a sum of Rs. 10,000 for  itself.   If there  was loss, it would pay the minimum  bonus.   Whatever amounts were paid were adjusted on the principle of "set-on" and  "set-off"  in the subsequent years.  There was  also  a provision   that  after  the  prescribed  period   all   the outstanding  liabilities under the formula of  "set-on"  and "set-off"  would come to an end.  Three  principles  clearly underlie the entire scheme, namely, (i) that though for  the purpose  of  ascertaining  the surplus,  the  profits  of  a particular mill were taken as the criterion, the position of the  entire  Ahmedabad  Textile  Industry  was  taken   into consideration;  (ii)  that the beneficent  features  of  the scheme  could be gathered only by its long  term  operation; and (iii) that though in a particular year in the case of  a particular mill there might not be "available surplus",  the principles of "set-on" and "set-off" indicate that the bonus was linked with profits.  As reasonable men trying to settle their   disputes,  both  the  parties,  representing   their respective associations, adopted an optimistic attitude  and proceeded on the basis that the entire industry would make a

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profit  and  that  every  mill could  be  expected  to  make reasonable  profits  in  at least some of  the  five  years, though it might incur loss in other years.  The validity  of the agreement should be judged on the basis adopted. In  the Ahmedabad Textile Industry, it is in  evidence,  the average monthly wage for workers in 1957 24 was  Rs. 54.  Fifteen days’ basic wages, i.e.,  the  minimum bonus  prescribed under the pact, would come to  an  average total wages for 5 days; and 3 months’ basic wages would come to  19  days’ total wages on the average.  Prima  facie  the bonus  fixed  is very reasonable and cannot be  said  to  be oppressive to the mill-owners. The   said  bonus  agreement,  by  its  reasonableness   and beneficent effects on the industry, attracted the  attention of  other  mills throughout India.  Exhibit  U-2  shows  the particulars of other mills which have adopted the agreement. The Bombay Textile Industry, The Madhya Bharat  Mill-owners’ Association,  The Modi Spinning & Weaving Mills,  Modinagar, and the cotton mills at Surendranagar (Saurashtra)’ Sidhpur, Viramgam Nadiad and Petlad, Cambay Baroda, Surat adopted the said scheme with suitable modifications.  The silk  industry in  Bombay  and  the  plantation  industry  in  Madras  also accepted  the principles underlying the said agreement.   We are told that even the Coimbatore area has recently  adopted a similar agreement. The  fact  that the said five year pact was followed  by  so many other mills is a fair indication that it was  basically sound  and  capable of yielding good  results.   Experienced members  of the Industrial Courts spoke highly of the  pact. Late  Shri  S. H. Naik, a Member of  the  Industrial  Court, adopted  the  pact  in a dispute between  the  Bombay  Mill- Owners’  Association and the Rashtriya Mill  Mazdoor  Sangh, and in making an award in terms of a similar pact, made  the following observations:               "This  award, based upon an agreement  arrived               at  as  a result of persistent  and  continued               efforts  on  the  part of  both  the  parties,               keeping   in  view  the  prosperity   of   the               employers  as  well as the well-being  of  the               employees,  will  go  down  in  history  as  a               significant landmark in collective bargaining.               It augurs well for the future of the industry,               as    well   as   those   employed    therein,               particularly  in view of the ambitious  Second               Five  Year  Plan  on which  the  country  will               shortly launch.  It also avoids, for               25               some  time,  and let us hope for all  time  to               come, the bonus dispute which cropped up every               year  since  1947.  I  congratulate  both  the               parties and compliment them on the  successful               termination of their efforts to bring peace to               the  industry  and  set  an  example  to   the               employers and employees in the country." The said weighty observations apply mutatis mutandis to  the agreement   in  question.   Shri  H.  V.  Divatia,   another experienced Member of the Industrial Court, in his award  on the  bonus dispute of the Ahmedabad Textile Mills  for  1952 observed:               "Ever since the former practice of taking  all               the  textile mills in one centre as  one  unit               for  the purpose of determining the bonus  was               given  up, there has been  dissatisfaction  on               both  sides on the bonus question  every  year

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             and  in  my view this change as  well  as  the               formula   set  up  by  the  Labour   Appellate               Tribunal  have  made the bonus  issue  a  very               complicated  one  resulting in  bitterness  on               both the sides instead of promoting peace  and               harmony between the employers and workers.   I               hope  the whole matter is reconsidered at  the               highest  level.  If bonus is to be  given,  it               must be awarded in such a way that it does not               defeat its purpose." The agreement did nothing more than reverting to the  former practice  of taking all the textile mills in one  centre  as one  unit for the purpose of determining. the bonus,  though for  ascertaining the quantum of bonus payable the  balance- sheets of individual units were taken into consideration. In  making  the  present award the  Industrial  Court  on  a consideration  of the entire material placed before it  came to a definite finding that on the. whole the five-year  pact had  worked  fairly  for  both  the  parties  and  that  the extension of the said agreement for one more year would help in promoting peace in that industry in Ahmedabad and  that owing to the goodwill created by the five- year bonus  pact, the  industry also benefited by schemes of  rationalization. It  was  also  brought to our notice  that  in  the  textile industry 4 26 in  Ahmedabad  area  there were never  any  strike  and  the disputes  in the recent years were settled  amicably  across the  table.In  such a situation this Court was  asked  under Art.  136 of the Constitution to set aside the award and  to bring  about  chaos  where peace existed  and  to  introduce unrest and disharmony where stability and harmony prevailed. It  was said that this Court had no option but to do  so  as the  agreement  was  contrary to law as laid  down  by  this Court.   I shall now examine briefly the relevant  decisions laying  down  the  principle governing  bonus  to  ascertain whether  the impugned agreement is in any  way  inconsistent with them. In  Muir  Mills  Co. Limited v. Suti  Mills  Mazdoor  Union, Kanpur (1) this Court defined the term "bonus" and laid down the conditions which would give rise to the claim for bonus. Bhagwati,  J., after considering the relevant decisions  and text books on the subject, accepted the following definition of "bonus" given by the Textile Labour Inquiry Committee:               "The  term bonus is applied to a cash  payment               made  in  addition  to  wages.   It  generally               represents    the   cash    incentive    given               conditionally   on   certain   standards    of               attendance and efficiency being attained."               The  learned Judge then proceeded to state  at               p. 998 thus:               "There  are however two conditions which  have               to be satisfied before a demand for bonus  can               be justified and they are: (1) when wages fall               short  of  the  living standard  and  (2)  the               industry makes huge profits part of which  are               due to the contribution which the workmen make               in  increasing  production.   The  demand  for               bonus becomes an industrial claim when  either               or both these conditions are satisfied." The  learned Judge then referred to the formula  evolved  by the Full Bench of the Labour Appellate Tribunal in the Mill- Owners’  Association,  Bombay  v.  Rashtreeya  Mill  Mazdoor Sangh,  Bombay  (2) and narrated the first  charges  on  the

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gross profits as laid. down by (1) [1955] 1 S.C.R. 991. (2) [1950] 2 L.L.J. 247. 27 that  decision.  The learned Judge then expressed  his  view thus at p. 999:               "It  is  therefore clear that  the  claim  for               bonus can be made by the employees only if  as               a result of the joint contribution of  capital               and  labour the industrial concern has  earned               profits.   If  in  any  particular  year   the               working of the industrial concern has resulted               in  loss there is no basis  nor  justification               for  a  demand  for bonus.   Bonus  is  not  a               deferred wage." This  decision lays down in clear terms that the payment  of bonus  is linked with profits.  But this decision was  given in a dispute between one specified mill, namely, Muir  Mills Co. Limited and the Union, representing its employees.  This Court  was  not  considering  a case of  a  bonus  claim  on industry-cum-region  basis.  The principle of the  decision, namely, that the claim for bonus is linked with profits, may equally  apply  to  such  a case; but  the  working  of  the principle must necessarily depend upon the peculiarities  of such a claim.  Industrial law is in the process of evolution and  it  cannot  be put in a straight jacket,  but  must  be allowed  to  grow to meet varying  situations  that  present themselves to industrial tribunals, subject of course to the statutory provisions and the general principles laid down by courts.  The application of the principles laid down by this decision  to  a  bonus claim  on  industry-cum-region  basis -would, to some extent, be different from its application to a  single  unit.  I shall consider this aspect  at  a  later stage  of the judgment.  It is unnecessary to  consider  the other  decisions on this subject except the recent  decision of  this  Court  in The Associated  Cement  Companies  Ltd., Dwarka  Cement  Works, Dwarka v. Its Workmen  That  decision reviewed the entire law on the subject vis-a-vis the  profit bonus.   It  accepted the principles laid down by  the  said Full  Bench Formula and elaborately considered the  mode  of application  of  the  prin.  ciples  for  ascertaining   the "available  surplus." Gajendragadkar, J., who spoke for  the Court,  referred  to the earlier decision and  restated  the basis for awarding bonus thus at p. 995: (1)  [1959] S.C.R. 925. 28               "We have already noticed that the formula  for               awarding  bonus  to workmen is  based  on  two               considerations: first, that labour is entitled               to claim a share in the trading profits of the               industry because it has partially  contributed               to  the  same;  and  second,  that  labour  is               entitled  to  claim that the gap  between  its               actual wage and the living wage should  within                             reasonable limits be filled up." Then  the  learned  Judge, after referring  to  the  earlier decisions, gave the various amounts that should be  deducted from the bonus-year’s profits and the ’manner in which  they should  be  done  to ascertain the  "available  surplus." According  to the learned Judge the following items have  to be deducted:               "(1)   Depreciation,  which  should   be   the               notional normal depreciation.               (2)   Income-tax.               (3)   A  return on paid-up capital as well  as

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             working capital.  Though the usual rates  were               mentioned,  it was made clear that  the  rates               were  not inflexible but would vary  according               to the circumstances of each case.               (4)   Rehabilitation:  For  ascertaining   the               amount  necessary for rehabilitation,  it  was               pointed  out  that a  multiplier  and  divisor               should be adopted; the former to ascertain the               probable  price which may have to be paid  for               the     rehabilitation,     replacement     or               modernization of machinery, and the latter  in               order  to ascertain the annual requirement  of               the employer in that behalf year by year." Out  of  the  balance, which  was  described  as  "available surplus",  it  was stated that three  parties,  namely,  the labour, the industry and the shareholders, were entitled  to -claim  shares.   This is the broad picture  drawn  by  that decision  for fixing the bonus.  That  decision,  therefore, restated  the pre-existing law and reaffirmed  the  doctrine that  bonus is linked with profits and also the  Full  Bench Formula  for  ascertaining the  "available  surplus".   That decision  was also not concerned with a claim for  bonus  on industry-cum-region  basis, but only with a claim in  regard to  a  particular  unit.   It also did  not  lay  down  that employer and 29 employee  could not agree in regard to the  distribution  of the  available surplus or in respect of the amount  required for rehabilitation.  It also did not purport to prevent  the parties  from agreeing on the payment of bonus  linked  with profits on industry-cum-region basis spread over a number of years.   Some of the observations in the  judgment  indicate the consciousness of the court that the formula accepted  or the  directions given therein could not meet every  conceiv- able situation that might arise in the complicated field  of industrial relations. Does the impugned pact contravene the law laid down by  this Court?  It is contended that it infringes the law mainly  in three respects, namely, (i) bonus was payable thereunder  by a  mill  incurring loss; (ii) the pact did not  provide  for rehabilitation  of  the  post-1947  block;  and  (iii)   the depreciation  and the interest on the reserves allowed  were not in accordance with the formula. The  first  objection appears to be plausible and  has  also been upheld by my learned brethren.  But, in my view,  there is a fallacy underlying it.  The contention invokes the  law of  bonus  laid down in respect of an industrial  claim  for bonus  for  a  particular year made by the  employees  of  a single mill and seeks to apply it to a case of an  agreement evolving  a  scheme of bonus on the basis  of  industry-cum- region spread over a reasonable period of time.  Though  the fundamental  principle,  namely, that bonus is  linked  with profits, applies to both, the application of the same to two different  situations  must necessarily differ.   The  short question  is whether under the impugned agreement the  claim for  bonus  was not based on profits.  The agreement  was  a multilateral  one involving mutual obligations.  It  was  on industry-cum-region  basis,  that is, it  was  entered  into between  the  employers  of  the  entire  industry  and  the employees thereof.  The basis of the agreement was that  the entire  industry  would make a profit.  For the  purpose  of convenient  payment of bonus it was worked out on  the  unit basis.  All the parties to the agreement, the employers  and the 30

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employees  of  different  mills in  Ahmedabad,  desired  in- dustrial  peace in order to build up the  textile  industry. The industry comprised many units with varying prospects and different  strata  of financial  stability  and  prosperity. Some mills may earn profits throughout the period, some  may earn profits in some years and incur loss in other years and under extremely unfortunate and unexpected circumstances,  a mill  may incur loss throughout.  Though  a,particular  mill may earn abnormal profits, another mill may be just able  to make its both ends meet and another may have a narrow margin of  profits  or  even  incur loss.  But  all  of  them  were sincerely  interested  in  the  general  prosperity  of  the industry  as a whole in the said area which would  have  its repercussions on individual units.  A mill which earns large profits  may  have to pay more than 25 per  cent.  of  basic wages for the year as bonus and a mill which incurs loss may not have to pay bonus at all.  The employees of a particular mill may be entitled in a particular year, having regard  to the  profits, to get bonus far in excess of 25 per cent.  of the  basic  wages.   But  in the  general  interest  of  all concerned, they were all willing to make a little  sacrifice for  the common good.  Each mill undertook the liability  to pay bonus to its employees with a minimum and maximum limits in  consideration of a similar undertaking of  liability  by other  mills.  So too, the employees, in consideration of  a minimum bonus being guaranteed to them, agreed not to  claim more  than  the  maximum  fixed and the  mills  as  a  whole guaranteed  payment  of  the minimum  bonus.   But  what  is important  to remember is that the entire scheme of  payment of  bonus was linked with profits.  It would be paid on  the basis  of  profits earned or to be earned by a mill.   If  a mill did not make profits in a particular year, bonus  would be paid on account to be adjusted in subsequent years.   The formula  of "set-on" and "set-off" emphasizes  the  integral connection between bonus and profits, and the fact that  the total  loss incurred by a particular mill during the  entire period may break that formula does not affect the basis of 31 the   agreement.   In  effect  and  substance,   under   the agreement,  each of the mills agreed for a consideration  on the  happening of a contingency to treat certain amounts  as notional  profits adequate to pay the minimum bonus  with  a right  to  "set-off"  in  subsequent  years  against  larger profits, if any, earned by them.  In the premises, it is not correct  to state that bonus is not linked with profits  for four  reasons,  namely, (i) the agreement  was  between  the employers  and employees of the entire textile  industry  in Ahmedabad;  (ii)  the basis of the agreement  was  that  the industry  as a whole would make a profit; there  is  nothing illegal  in  parties  to the agreement,  who  had  ,intimate knowledge of the financial position of the entire  industry, from  accepting that position; (iii) instead of the  profits of  the entire industry being ascertained and bonus paid  to all  the  employees, under the agreement, each  mill  for  a consideration,  namely,  obligations  undertaken  by   other parties, agreed to pay bonus ranging between a maximum and a minimum; and (iv) each mill also agreed for a consideration, even if in fact it incurred a loss in a particular year., to set  apart a notional amount as profits adequate to pay  the minimum bonus with a right to readjust its bonus account  in subsequent  years.  In this view the impugned pact does  not contravene  the law of the land for the simple  reason  that there is no decision of this Court which prevents the making of  ouch agreements so long as the fundamental principle  is not violated; and in this case, for the reason given by  me,

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I  am of the view that the said principle, viz., that  bonus should  be  linked with profits has been adhered to  in  the agreement. Now  let us see whether the Full Bench Formula in regard  to rehabilitation  has been contravened by the  impugned  pact. The  main  emphasis  is on the want of a  provision  in  the agreement in regard to valuation of the block subsequent  to 1947.   In  The Associated Cement Companies’ case  (1)  this Court observed at p. 971 thus:               "it  has  also  been observed  by  the  Labour               Appellate  Tribunal  that  if  an  appropriate               multiplier and               (1)   [1959] S.C.R. 925.               32               divisor are determined they are generally used               because  the tribunals take the view that  the               reconsideration  of  the said  multiplier  and               divisor  should not be hastily undertaken  and               could  be  justified only on the  basis  of  a               stable character extending or likely to extend               over  a  sufficient number of years so  as  to               make a definite and appreciable difference  in               the cost of replacement." The  Industrial  Court  in the bonus. case  of  the  textile industry  at Ahmedabad for the year 1949 fixed the  cost  of replacement of the block of the entire industry at Ahmedabad at  Rs.  33.89 crores spread over 15 years from  1947.   The Industrial  Court, on the material placed before  it,  fixed the multiplier at 2.7 and the divisor at 15.  The result  is that the cost of the machinery and building as it existed in 1947  was multiplied by 2.7 and after making  the  necessary deduction  therefrom,  such  as  that  of  depreciation  and reserves  available  and the breakdown value  of  machinery, divided the surplus by 15 years.  Ordinarily, change in  the said  multiplier  and divisor, as laid down by  this  Court, should not be hastily undertaken and could be justified only on  the basis of a substantial change of a stable  character extending  or likely to extend over a sufficient  number  of years.  In the impugned pact the parties agreed to abide  by the  said multiplier and divisor and they did not think  fit to  revise  the same.  The decisions of this  Court  do  not preclude   employers  and  employees  from  agreeing  to   a particular valuation of the block or to their agreeing to  a particular  multiplier  and ’divisor having  regard  to  the circumstances obtaining at the time of the agreement. Nor  does the agreement infringe any of the principles  laid down  by the Full Bench Formula in the matter of fixing  the prior charges.  A perusal of paragraph 2(a) of the agreement shows  that  the prior charges mentioned  therein  are  only those  that  are stated in the Full  Bench  Formula,  though there  is  certainly a difference in the  particulars  under different  heads,  such as, interest,  etc.   Certainly  the decisions of this Court do not preclude the parties from 33 agreeing  to  certain  amounts or  to  certain  rates  under different heads of prior charges. As the agreement does not infringe the law laid down by this Court,  it  cannot be contended that  the  Industrial  Court could  not extend the said agreement, if it is necessary  to secure  industrial  peace for another year.  In  effect  and substance,  the Industrial Court adopted the said  agreement as  a  part of the award by giving it a span  of  six  years instead  of  five  years; with the result  that  the  entire formula of "set-on" and "set-off" would automatically  apply in the sixth year.  Courts have held that Industrial  Courts

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have  power  to  extend agreements  in  appropriate  circum- stances. The  Federal  Court  of India in  Western  India  Automobile Association v. Industrial Tribunal, Bombay (1) explained the scope  of  industrial adjudication and the functions  of  an industrial tribunal in labour disputes thus at p. 345:               "Adjudication  does not, in our opinion,  mean               adjudication  according to the strict  law  of               master and servant.  The award of the Tribunal               may  contain  provisions for settlement  of  a               dispute  which no Court could order if it  was               bound by ordinary law, but the Tribunal is not               fettered in any way by these limitations.   In                             Volume  1  of ’Labour Disputes  and  Collectiv e               Bargaining’  by Ludwig Teller, it is  said  at               page  536,  ’that industrial  arbitration  may               involve the extension of an existing agreement               or the making of a new one, or in general  the               creation  of new obligations or  modifications               of  old  ones,  while  commercial  arbitration               generally concerns itself with  interpretation               of existing obligations and disputes  relating               to  existing agreements’.  In our opinion,  it               is a true statement about the functions of  an               Industrial Tribunal in labour disputes." The same view in different phraseology has been expressed by this Court in Bohtas Industries Limited v. Brijnandan Pandey (2),  S. K. Das, J., speaking for the Court, observed at  p. 810 thus: (1) [1949] F.C.R- 321.       (2) [1956] S.C.R. 800. 5 34               "A  Court of law proceeds on the footing  that               no   power  exists  in  the  courts  to   make               contracts  for  people; and the  parties  must               make  their own contracts.  The  courts  reach               their   limit  of  power  when  they   enforce               contracts  which  the parties have  made.   An               Industrial Tribunal is not so fettered and may               create new obligations or modify contracts  in               the interests of industrial peace, to  protect               legitimate  trade  union  activities  and   to               prevent unfair practice or victimization.   We               cannot,  however, accept the extreme  position               canvassed   before  us  that   an   Industrial               Tribunal  can  ignore altogether  an  existing               agreement or existing obligations for no rhyme               or reason whatsoever." This  Court again reiterated the same principle in the  case of Patna Electricity Supply Co. Limited (1) thus at p. 1038:               "There  is no doubt that in appropriate  cases               industrial   adjudication   may   impose   new               obligations on the employer in the interest of               social justice and with the object of securing               peace and harmony between the employer and his               workmen  and  full cooperation  between  them.               This view about the jurisdiction and power  of               Industrial  Tribunals  has  been  consistently               recognized in this country since the  decision               of   the  Federal  Court  in   Western   India               Automobile Association v. Industrial Tribunal,               Bombay (2)". These authorities clearly establish the proposition that  an Industrial Tribunal can extend an existing agreement or make

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a  new one if, for good reasons, it comes to the  conclusion that  such  extension promotes industrial peace.  If,  as  I have  held,  the  impugned  pact  was  lawful  and  did  not contravene  the law laid down by this Court, the  Industrial Court in the present case was certainly within its rights to extend that pact for another year for the very good  reasons given by it for doing so. I  shall  now  state my view in the form  of  the  following propositions:  (1)  Neither the Full Bench Formula  nor  the decisions of this Court affirming it preclude an (1) [1959] SUPP. 2 S.C.R. 76r. (2) [1949] F.C.R. 321. 35 Industrial  Court  in appropriate cases from  extending  the terms  of  a pact by another year if that was  necessary  to maintain  industrial  peace. (2) The law laid  down  by  the Federal Court and the Supreme Court recognizes such a  power in  an  Industrial Court. (3) The fact that  the  subsequent block has not been valued does not affect the question,  for the  parties can certainly agree, for various reasons,  that the value of the existing block should govern the  situation for  a specified period. (4) The impugned five-year pact  is not  contrary to industrial law as laid down by this  Court; indeed,  it expressly followed the principles laid  down  in the  Full Bench Formula which was subsequently  affirmed  by this  Court in the case of Associated Cement Companies  (1). (5)  The impugned pact also does not infringe the  principle that bonus depends upon profits; but it applied the same  by evolving   a  formula  of  "set-on"  and  "set-off"   to   a complicated situation of the entire industry in a particular area for a number of years. For  the  foregoing reasons, and in view  of  the  aforesaid definite findings of the Industrial Court, I hold that  this is eminently a fit case for extending the agreement for  the bonus year 1958. Before closing I must express my appreciation of the way  in which  the  impugned  pact was  brought  about  between  the parties.   It is in the interest of both the  employers  and the employees-while the employees of every mill are  assured of  payment of a minimum bonus, the employers of every  mill also are assured protection against extravagant claims.  The agreement  avoided complicated and acrimonious  disputes  in courts  every year in regard to bonus.  The working of  this agreement   certainly  helped  the  mills  to  achieve   the introduction  of schemes of rationalization.  The  agreement has become a model one for other mills.  Ironically the Full Bench  Formula,  affirmed  by  this Court  in  the  case  of Associated  Cement Companies Limited (1), mainly evolved  to fix  the amount required for rehabilitation in the  interest of industrial peace, turned out to be the sheet-anchor for (1)  [1959] S.C.R. 925. 36 the  employers  to depart from the path of  negotiation  and agreement  which they were following all these years and  to enter  the arena of open fight with the employees.   It  may be, though it may turn out to be wrong, that they are  under the  belief  that  the  Full  Bench  Formula,  if   strictly followed, would not leave any surplus and that they need not pay any bonus to the employees. This  attitude is neither reasonable nor in the interest  of industrial  peace.   I hope and trust that the  parties,  in spite  of the temporary success in these appeals, would  see better  light  and settle their disputes as  they  had  been doing all these years. In  the  result,  the appeals fail and  are  dismissed  with

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costs. By  COURT : In accordance with the opinion of the  majority, the  appeals  are allowed and the matter sent  back  to  the Tribunal for disposing of the issue before it in  accordance with law.  We direct that the Tribunal should proceed to try the  question  whether any bonus should be  awarded  to  the employees  of the eighteen mills before us on the  basis  of the  Full Bench Formula as interpreted by this Court in  the case of The Associated Cement Companies (1). In the circumstances, there will be no order as to costs. Appeals allowed. Cases remanded to the Tribunal. (1) [1959] S.C.R. 925. 37