22 May 1958
Supreme Court
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THE STATE OF MYSORE Vs THE WORKERS OF GOLD MINES

Case number: Appeal (civil) 648 of 1957


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PETITIONER: THE STATE OF MYSORE

       Vs.

RESPONDENT: THE WORKERS OF GOLD MINES

DATE OF JUDGMENT: 22/05/1958

BENCH: GAJENDRAGADKAR, P.B. BENCH: GAJENDRAGADKAR, P.B. SARKAR, A.K. SUBBARAO, K. BOSE, VIVIAN

CITATION:  1958 AIR  923            1959 SCR  895

ACT: Industrial  Dispute-Gold mining industy -Claim of  bonus  by employees-Available surplus, Calculation of-Applicability of Full Bench Formula-Duty of Industrial Tribunal.

HEADNOTE: This was an appeal against an award of bonus to the  workmen of  the  Mysore gold mining industries, then  under  company management.   A covenant in the lease executed in favour  of the  companies  permitted them to create a reserve  fund  to meet    depreciation   and   development   expenditure    by contributing 150 of the revenue expenditure to it and deduct the  same  in  calculating the net  surplus.   The  covenant imposed  no obligation on the lessees to create such a  fund and  was  obviously  intended to provide  a  basis  for  the lessor’s claim to royalties.  It was contended on behalf  of the employer companies that the formula for determination of available surplus as evolved by the Full Bench of the Labour Appellate Tribunal in Mill Owners Association, Bombay v. The Rashtriya   Mill Mazdoor Sangh, Bombay, (1950) L.L.J.  1247, was inapplicable to gold mining industries which had special and  distinguishing  features  of their  own  and  that  the employers  were entitled under the said covenant  to  deduct 15%  of  the  revenue  expenditure  as  a  prior  charge  in calculating the available surplus.  It was their case  that, thus calculated, there was no available surplus out of which bonus  could be awarded.  The Tribunal was not impressed  by this argument, disallowed the claim made on the basis of the covenant,   applied  the  formula,  upheld  the  claim   for depreciation  but as there was no evidence to show that  any sums  had  actually been spent  for:rehabilitation  for  the years  in  question, refused to make any allowance  on  that head.   It  was  further  urged in  appeal  that  since  the companies  were  misled by previous awards passed  in  their favour  in not preferring any specific claim for  reliabili- tation,  apart  from the general claim under  the  covenant, they should, in case their general claim was disallowed,  be permitted to do so : Held,  that  the  formula evolved by  the  Labour  Appellate Tribunal  and  generally  approved by  this  Court  and  the

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categories   of   prior  charges  prescribed  by   it   were comprehensive enough to cover each individual case and there was  no  reason why it should not apply to the  gold  mining industries as well. Mill  Owners Association, Bombay v. The Rashtriya Mill  Maz- door Sangh, Bombay, (1950) L.L.J. 1247, discussed. 114 896 Muir  Mills  Co. Ltd., Kanpur v. Suti Mills  Mazdoor  Union, Kanpur, [1955] 1 S.C.R. 991, referred to. The  covenant in the lease, apart from the question  whether it  could  bind the workmen, imposed no  obligation  on  the employees  and  could not preclude an investigation  by  the Tribunal,  as  to  the merits of each  particular  claim  of expenditure  in  order  to ascertain the  existence  of  any available surplus, and the Tribunal was right in disallowing the  claim  made solely on the basis of the  covenant  which could otherwise have been made under the formula itself. Held,  further,  that  the concept of  social  and  economic justice on which the claim of bonus is founded apply equally to gold mining industries as to any others and the  formula, which had for its purpose the ascertainment of the available surplus  to make an award possible, owed its origin  to  the same principles of social and economic justice enshrined  in the Directive Principles of State Policy enunciated by Arts. 38 and 43 Of the Constitution. It  is  for  the Industrial Tribunal to  determine  in  each particular  case, on the evidence adduced by  the  employers and  having  regard  to  the  special  requirements  of  the industry,  which  items of expenditure  should  be  admitted under each of the four categories prescribed by the  formula and  in doing so they should apply the principles laid  down and  discussed in decided cases in a flexible manner  suited to the requirements of each case. Ganesh  Flour Mills Co. Ltd., Kanpur v. Ganesh  Flour  Mills Staff  Union,  (1952) L.A.C. 172, Trichinopoly  Mills  Ltd., Ramjeenagar   v.  National  Cotton  Mills  Workers;   Union, Ramjeenagar,  (1953) L.A.C. 672, The Meenakshi  Mills  Ltd., Madurai and Manapparai v. Their Workmen, (1954) L.A.C. 131‘, The  Rohtas Sugar Ltd. v. Their Workmen, (1954)  L.A.C.  168 and  The Mettuy lndustries Ltd., Mettur Dam V. The  Workers, (1957) L.A.C. 288, referred to. As  in  the present case, the employers were misled  by  the previous  awards,  it was only pro-per that they  should  be allowed   an   opportunity   to  prove   their   claim   for rehabilitation  apart  from  the  general  claim  under  the covenant.

JUDGMENT: CIVIL APPELLATE JURISDICTION Civil Appeal No. 648 of 1957. Appeal  by special leave from the judgment and  order  dated November   24,  1956,  of  the  Central  Govt.    Industrial Tribunal, Madras, in Industrial Dispute No. 1 of 1956. H.   N. Sanyal, Additional Solicitor-General of India,  897 R.   Ganapathy  Iyer, T. Rangaswami lyengar and T.  M.  Sen, for the appellant. Janardan Sharma, for respondents Nos. 1, 2 and 6. L.K.  Jha,  B.  R. L. Iyengar and C.  V.  Ramachar-,  for respondents Nos. 3 and 5. 1958.  May 22.  The Judgment of the Court was delivered by GAJENDRAGADKAR  J.-This is an appeal with special  leave  by the State of Mysore against the award passed by the  Central

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Government  Industrial  Tribunal, Madras,  on  November  24, 1956,  in  Industrial  Dispute No. 1  of  1956  between  the employers  in relation to the Gold Mines of the  Kolar  Gold Fields,  Mysore, and their workmen.  The employers were  the Champion Reef Gold Mines of India (KGF) Ltd., Mysore  State, the Mysore Gold Mining Company (KGF) Ltd., Mysore State  and the   Nundydroog   Mines  (KGF)  Ltd.,  and   their   allied establishments  the Central Administration, the  Kolar  Gold Fields Electricity Department, the Kolar Gold Field Hospital and the Kolar Gold Field Watch and Ward establishment.   The dispute between these employers and their workmen arose from the  claim  made by the workmen for bonus for  the  calendar years  1953 and 1954.  The Unions representing  the  workmen alleged that the employers had sufficient available  surplus in  their hands from which they could and should be  awarded bonus for the two years in question.  The Union representing the  working in Mysore Gold Mining Co. Ltd.,  demanded  four months  wages and five months wages as bonus for  the  years 1953  and  1954 respectively.  The Union on  behalf  of  the Nundydroog  Mines demanded four months total wages as  bonus for 1953 and 1954 whereas the workmen in Champion Reef  Gold Mines  demanded four months wages as bonus for the said  two years.   The management opposed these demands on the  ground that  there was no available surplus for both the  years  in all the mines and so no bonus can be awarded.  In  substance the tribunal has rejected the case made out by the 898 management and has passed an award in favour of the workmen. Taking into consideration all relevant factors the  tribunal has  awarded as bonus wages at the rate of 1-1/2  months  in 1953  and three months in 1954  to the workers of  Champion Ref Mines Ltd; 2-1/2 months in 1953 and 3-1/2 months in 1954 to the workers of the Nundydroog Mines Ltd; and one  month’s in  1953  and  three months in 1954 to the  workers  of  the Mysore  Gold  Mines  Co.  Ltd.  In  regard  to  the  workmen employed  in  the allied establishments,  the  tribunal  has awarded as bonus one month’s wages in the year 1953 and  two months basic wages in the year 1954. It  was urged before the tribunal by the management that  it would  be  inappropriate  to apply the  Full  Bench  formula evolved by the Labour Appellate Tribunal in the Mill  Owners Association,  Bombay  v. The Rashtriya Mill  Mazdoor  Sangh, Bombay (1) without suitable modifications to the case of the mines.  The argument was that, unlike the textile  industry, gold mining is a wasting industry, and the adjustment of the rival  claims of the employer and the employee, even on  the basis  of  social justice, cannot be properly  made  by  the rigid application of the said formula.  In the case of  gold mines  it  is of considerable importance that  the  industry should invest a large amount in search of new ore and higher expenditure  has  to  be  incurred  even  for  renewal   and replacement   of  machinery.   The  tribunal  accepted   the argument  that the special requirements of the  gold  mining industry  would  have to be considered in dealing  with  the workmen’s claim for bonus, but nevertheless it was  inclined to take the view that the principles laid down by the Labour Appellate  Tribunal  in arriving at the Full  Bench  formula -should be adhered to. The  next argument which was raised before the tribunal  was based on sub-para. (5) in the lease deed executed in  favour of  the management on February 20, 1949.  The case  for  the management  was that the management was entitled  to  deduct 15%  of  the  revenue  expenditure  as  a  prior  charge  in calculating (i)(1950) L. L. J. 1247.

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899 the  available surplus.  It Nil-as urged that  the  relevant clause in the lease deed required the management to create a reserve   fund   to  meet   depreciation   and   development expenditure  of  a  capital nature and to  provide  for  the search  of new ore and it was urged that the amount  debited by  the  management in pursuance of this  clause  should  be treated  as a prior charge.  The tribunal was not  impressed by this argument.  It held that a separate fund for  finding out  new ore and keeping the longevity of the  industry  was absolutely  necessary  but  it was not  satisfied  that  the covenant  in the lease on which reliance was placed  by  the management  could  bind the workmen and that the  amount  in question  could be treated as a prior charge.  The  tribunal also found that no evidence had been adduced before it  that any  part of the amount thus debited had been in  fact  used for  any  of’  the  purposes  mentioned  in  the   covenant. According  to the tribunal there was also no evidence  that, in  addition  to  the  statutory  depreciation  any  further allowance  should be made for rehabilitation reserve and  it held that it was not shown that any amount had in fact  been spent  for  rehabilitation in the two relevant  years.   Oil these  findings the amount of Rs. 20.26 lakhs oil which  the management  relied was not allowed by the tribunal  because, in  its opinion, the said amount was a mixture of very  many items depending upon the options exercised by the management under the terms of the joint operation schemes. Another point of dispute between the parties was in  respect of  the contribution made by the management to  the  Pension Fund  scheme.   The management claimed credit both  for  the initial  and  the  annual contribution made  by  it  in  the relevant  years.  The tribunal held that, having  regard  to the   circumstances  under  which  the  pension   fund   was introduced  by the companies and having regard to  the  fact that it was intended only for the benefit of the  covenanted staff  of  the companies, it would be inequitable  to  allow either  the  initial  or the annual  contributions  to  take precedence  over the workmen’s claim for bonus.   Therefore, the claim by the management for deduction 900 of  both the initial and annual contributions was  rejected. It  was  also  urged  by  the  management  that  the  amount representing the bonus paid to the workmen for the year 1950 should be deducted in 1958 since it was actually debited  to the workmen in that year.  The tribunal held that this claim was inadmissible.  Lastly, the tribunal disallowed the claim made by the management for interest at a higher rate than  2 % on reserve employed as working capital during the relevant years.  Having thus rejected most of the contentions  raised by  the  management,  the tribunal applied  the  Full  Bench formula  and  came to the conclusion that there  was  enough available  surplus  in the hands of the management  for  the years 1953 and 1954 and so it made an award in favour of the workmen  for payment of bonus as already indicated.   It  is this award which has given rise to the present appeal. Before  dealing with the merits of the appeal, it  would  be relevant  to  state  the material facts  in  regard  to  the working  of the Gold Mines which has ultimately brought  the State  of  Mysore  as the appellant in  the  present  appeal before us.  Four Public Joint, Stock Companies  incorporated in  the United Kingdom were operating the Gold Mines of  the Kolar  Gold  Fields  by virtue of leases  of  mining  rights obtained  by  them  from the Government  of  Mysore.   These companies  were  the  Mysore Gold Mining  (-Io.   Ltd.,  the Champion  Reef  Gold Mines of India Ltd., the  Oorgaum  Gold

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Mining Co. Ltd.,and the Nundydroog Mines Ltd.  The  termsand conditions  of the leases obtained by these  companies  were the  same.  After the second world war broke out, the  value of  gold increased and so the Mysore legislature  passed  an act  called the Mysore Duty on Gold Act, 1940 (Mys.  XIX  of 1940)  imposing  duty on gold produced in the  mines.   This duty was in addition to the royalty, rent, cesses and  taxes payable  under the lease deeds executed on March  25,  1935. It  appears that the gold mining companies represented  that the  imposition of gold duties meant hardship for  them  and that it did not leave sufficient funds from which  provision could be made for depreciation and 901 development so necessary for the longevity of the mines.  As a  result of the negotiations, the Act of 1940 was  repealed in 1946 and a fresh agreement made under which  contribution was  levied  by the State of Mysore against  the  companies. Under  this  agreement rupee companies had to be  formed  in India to take over the undertakings and assets in Mysore  of the  Sterling or U. K. companies and the seat of  management had to be transferred from the United Kingdom to India.   In pursuance   of   this   agreement   four   rupee   companies corresponding  to the four Sterling or U. K. companies  were formed  in India.  Their names were the Mysore  Gold  Mining Co. (KGF) Ltd., the Champion Reef Gold Mines of India  (KGF) Ltd., the Oorgaum Gold Mines (KGF) Ltd., and the  Nundydroog Mines (KGF) Ltd.  All the shares in the rupee companies were held by the corresponding Sterling or U. K. companies.   The assets in Mysore of the Sterling companies were  transferred to  the  corresponding  K. G. F. companies  and  the  mining operations were carried on by these companies from April  1, 1951, by conforming to the terms and conditions embodied  in the agreements (copies of which are Exs.  1 and 2). The  four  gold  mining companies had for  the  purposes  of convenience and economy common establishments called Central Administration,  Medical Establishment and  the  Electricity -Department.  There was also a private limited company named Kolar Mines Power Station (K.  G. F.) Private Ltd., all  the shares of which were held by the said gold mining companies. This  was  only an ancillary company and its object  was  to maintain   a   stand-by  emergency  plant   for   generating electricity in case of emergency and to distribute  electric power  to  the  gold  mining  companies.   The  gold  mining companies  were managed by the same managing agents by  name John Taylor & Sons (Private) Ltd. The  Oorgaum mine soon became an uneconomic unit because  it had reached such depths that owing to technical difficulties ore  could  no longer be taken out of them.   This  company, therefore, ceased mining 902 operations  in  1953  and transferred its  leases  with  the concurrence  of the Mysore Government to the  Champion  Reef Gold  Mines  of India (K.  G. F.) Ltd.  Since  then  Oorgaum company has gone into liquidation.  That is how in the  year 1954  there were only three operating, mining companies  and their allied establishments. In  1956  the  Mysore State  nationalised  the  gold  mining industry  by an act called the Kolar Gold Mine  Undertakings (Acquisition) Act, 1956 (Mys.  XXII of 1956).  According  to the  provisions  of  this Act and  the  notification  issued thereunder,  the undertakings of the gold  mining  companies vested in the State from November 29, 1956.  In consequence, the Government became liable to pay the bonus awarded by the Central Government Industrial Tribunal, Madras.  That is how

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the State of Mysore felt aggrieved by the said award and has preferred the present appeal by special leave to this Court. The first point which calls for our decision is whether  the tribunal was justified in applying the principles underlying the  Full  Bench  formula in determining  the  existence  or otherwise  of  the  available surplus in the  hands  of  the appellant  during  the relevant years.  In The  Mill  Owners Association,  Bombay  v. The Rashtriya Mill  Mazdoor  Sangh, Bombay(1), the Labour Appellate Tribunal was called upon  to consider  the  workmen’s  claim for  bonus.   The  appellate tribunal  held that bonus was not an exgratia  payment  even where  wages  had been standardised nor was it a  matter  of deferred wages.  The recognition of the workmen’s claim  for bonus rests on the view, which is now well established, that both  labour and capital contribute to the earnings  of  the industrial  concern and that social justice  requires  that, workmen should be allowed a reasonable share in the  profits made  by  the industry.  In determining the quantum  of  the profit  to  which  workmen as a whole (,an  be  held  to  be entitled,  the Labour Appellate Tribunal evolved  a  formula under which the amount of the available surplus in the hands of the employer (1)(1950) L.L.J. 1247. 903 can  be  determined.  This formula takes the figure  of  the gross profits made by the industry for the relevant year and makes   provisions  for  depreciation,  for  reserves,   for rehabilitation, for return at 6% on the paid-up capital, for a  return on the working capital at a lesser rate  than  the return on the paid-up capital and for the payment of income- tax.   These  items  are treated as prior  charges  and  the amount  determined after deducting the aggregrate  total  of these  items  from  the gross profits is deemed  to  be  the available  surplus  for the relevant year.  It  is  in  this available  surplus thus deduced that labour is  entitled  to claim a reasonable share by way of bonus.  It would thus  be clear that under this formula the existence of an  available surplus  is a condition precedent for the award of bonus  to workmen.   The  formula also postulates that the  claim  for bonus is made by workmen who are not paid what may  properly be  regard  as living wages.  The payment of bonus  is  thus intended to attempt to fill up the (Tap, to the extent  that is  reasonably possible, between the wages actually paid  to the  workmen  and the living wages which  they  legitimately hope in due course to secure.  This formula has received the general  approval  of  this Court in Muir  Mills  Co.  Ltd., Kanpur  v.  Suti  Mills Mazdoor Union, Kanpur  (1).   It  is conceded  before  us that since 1950 the basis  supplied  by this,  formula has been adopted by  industrial  adjudication all over the country in dealing with the workmen’s claim for bonus in different kinds of industries. It is, however, urged by Mr. Sanyal, for the appellant, that the appellant’s industry is a wasting industry and it  needs special   consideration.   Search  for  new  ore  which   is essential for the prosperity and longevity of this  industry is  its  special feature and the interests of  the  industry itself  require  that  proper  and  adequate  provision  for prospecting new ore must be made before the workmen’s, claim for bonus can be awarded.  Similarly a larger provision  may have to be made for depreciation or (1) [1955] 1 S. C. R. 991. I15 904 rehabilitation  because  of the special needs  of  this  in- dustry.   It  may  be conceded that this  inustry  has  some

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special needs of its own; but it cannot be -denied that  the principles of social justice oil which a claim for bonus  is founded apply as much to this industry as to others.  Social and economic justice have been given a place of pride in our Constitution  and one of the directive principles  of  State policy  enshrined in Art. 38 requires that the  State  shall strive to promote the welfare of the people by securing  and protecting as effectively as it may a social order in  which justice social, economic and political shall inform all  the institutions of national life.  Besides, Art. 43 enuiiciates another  directive  principle by providing  that  the  State shall  endeavour  to  secure,  by  suitable  legislation  or economic  organization or in any other way, to all  workers, agricultural, industrial or otherwise, work, a living  wage, conditions  of work ensuring a decent standard of  life  and full   enjoyment   of  leisure  and  social   and   cultural opportunities.   The concept of social and economic  justice is  a  living  concept of revolutionary import  ;  it  gives sustenance  to the rule of law and meaning and  significance to  the ideal of a welfare state.  It is on this concept  of social justice that the formula in question has been founded and  experience  in the matter  of  industrial  adjudication shows  that, on the whole, the formula has attained  a  fair amount  of  success.   It is true  that  in  industrial  ad- judication  purely techinical and legalistic  considerations which are apt to lead to rigidity or inflexibility would not always  be appropriate; nor is it desirable to allow  purely theoretical or academic considerations unrelated to facts to influence  industrial  adjudication.  In its attempt  to  do social justice, industrial adjudication has to adjust  rival claims  of the employer and his workmen in a fair  and  just manner and this object can best be achieved by dealing  with each   problem   as  it  arises  on  its   own   facts   and circumstances.   Experience  has shown that the  formula  in question is, in its application, elastic enough to meet  the requirements  of  individual cases, and so we do  not  think that  the appellant has made out a case for any addition  to the 905 existing categories of prior charges.  It is clear that  the amounts  which  can  be admitted  under  the  said  existing categories  would have to be determined in the light of  the evidence  adduced by the employer and having regard  to  the special  requirements  of the employer’s industry.   In  the present  case  the  special  features  of  the   appellant’s industry  on which Mr. Sanyal relies would have to be  taken into  account’  in determining the amounts  which  could  be included either under depreciation or under  rehabilitation. That is the approach adopted by the tribunal in the  present case  and we do not think that any complaint can be  validly made against it. The next point which has been urged by Mr. Sanval relates to the claim made by the appellant for the deduction of 15%  of the  revenue  expenditure under a special  covenant  of  the lease.   Let  us first refer to the relevant  terms  of  the lease on which this argument is founded.  The original lease which was executed in 1935 had, under para. 3, imposed  upon the  lessees an obligation that they shall, during the  term of the lease, in the best and the most effectual manner  and without  intermission, except when prevented by  unavoidable accident,  search for all gold metals, metallic  ores,  pre- cious  stones,  coal and other substances of a  saleable  or mercantilable  nature within or upon the mining block.   The second  schedule  to  the  lease  purported  to  define  the expression  adjusted annual profits of the lessee’ on  which

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the  lessor’s  claim for royalty was  based.   The  adjusted annual  profits  of the lessee had to be  ascertained  under this schedule by reference to the published annual  accounts of the lessees and meant the difference in any year  between the  gross  income of the lessees from all sources  and  the gross amount of the sums mentioned in paras.  1 to 6 of  the schedule.   Para. 5 to the schedule referred to a sum  equal to 15% of the aggregate amount of the expenses mentioned  in para. 4 of this part of the schedule.  Thus it appears  that amongst  the items which the lessee was entitled  to  deduct from  the gross revenue for the purpose of  determining  his adjusted annual profits was included the amount mentioned in para. 5. Subsequently by an 906 A agreement  and  deed  of  variation  executed  in  1949  the deductions  which the lessee was entitled to make  from  the gross  profits for the purpose of determining  his  adjusted surplus were stated in a modified form.  The adjusted profit was  now  called  the net surplus and the  procedure  to  be adopted to determine this net surplus has been mentioned  in para.  5  of this document.  Clause (v) of para.  5  is  the material  clause  with which we are concerned.   Under  this clause  a  sum  up to 15% of the  aggregate  amount  of  the expenses  of  the  lessees shown as  debit  items  in  their published revenue account or Income and Expenditure  account shall   be   reserved  for  depreciation   and   development expenditure of a capital nature such as search for new  ore, purchase   of   machinery,  etc.,  and  for   renewals   and replacements  and  shall  be credited to  a  separate  fund, provided, however, that the accumulated balance in the  said fund less commitments does not exceed 25% of the expenses of the  lessee shown as debit items in their published  revenue account or Income and Expenditure account as the case may be for the first year on which the 15% was calculated or of the last  preceding year whichever shall be greater.  It  is  on this clause that the appellant claims to treat the amount of 15%  as  a  prior charge in the  present  proceedings.   The argument is that this is a valid contract between the lessor and  the  lessee  and the lessee is entitled  to  claim  the benefit  of the contract and to treat the amount as a  prior charge. In  dealing with this point we do not think it is  necessary to decide the larger academic question as to whether such  a contract would bind the workmen.  The tribunal has hold that since  the relevant covenant has the effect  of  withdrawing from  the  gross profits a substantial amount,  workmen  are entitled to contend that the contract does not bind them and the amount should not be treated as a prior charge.  In  our opinion it would be possible to deal with this question in a different  way.  The appellant’s argument assumes  that  the lessee  is under an obligation to create a reserve fund  and to  contribute to it an amount equal to 15% as mentioned  in the clause.  This 907 assumption  is  not  justified by the clause  itself  It  is significant that the clause does not impose on the appellant an  obligation  to create a reserve fund at all.   The  only obligation  which the lease has imposed on the appellant  is that  the  appellant shall make a search for  all  gold  and metallic ores during the continuance of the lease.  If,  for carrying  out this search the appellant actually spends  any amount he may be entitled to claim credit for that amount  ; but   neither  the  lease  nor  its  annexures  impose   any obligation on the appellant to spend a particular amount  in

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that  behalf or to create a special fund earmarked for  that purpose.   The  lessor has merely allowed the  appellant  to create a specific fund as indicated in the relevant,  clause and  the lessor has agreed to allow the appellant to  deduct the  amount thus put in the said reserve fund from  year  to year from the gross receipts for the purpose of  determining the  appellant’s net surplus.  In other words, for  deciding the amount of net surplus on which the lessor’s claims  such as  that  for royalties or contributions may be  based,  the appellant  is allowed to make certain specified  deductions; amongst  these  is the 15% mentioned in para.  5,  cl.  (v). :Besides,  the 15% of the aggregate amount mentioned in  the clause  is the maximum limit which the contribution  to  the special  fund  in any year is allowed to  reach  under  this clause.   Prima  facie  it appears to  be  doubtful  if  the appellant’s  failure to create a reserve fund or to  make  a contribution to the said fund from year to year would neces- sarily  incur forfeiture of his lease.  However, apart  from this  consideration  there is no obligation imposed  on  the appellant  under this clause and any argument based  on  the alleged obligation cannot, therefore, be accepted. There  is also another consideration which must be borne  in mind.   The  fund  contemplated by the  relevant  clause  is intended  to meet depreciation and  development  expenditure and it is clear that the depreciation and rehabilitation are included  in  the Full Bench formula amongst  the  items  of prior charge in dealing with workmen’s claim for bonus.   If the  appellant  wants to make a claim for  depreciation  and rehabilitation 908 it would be open to him to make such a claim even under  the Full  Bench formula.  Indeed its claim for depreciation  has been  upheld by the present award.  The fact that  items  of depreciation and rehabilitation are included in this  clause shows  that  even if the amounts claimed  by  the  appellant solely  on the strength of this clause are not  allowed,  it would nevertheless be open to the appellant to make a  claim in  respect of admissible items independently of the  clause and  if he succeeds in proving this claim there could be  no injustice to the appellant.  In our opinion it would not  be reasonable  or fair to allow the appellant’s specific  claim for  15% by way of rehabilitation solely on the ground  that the  clause allows it to debit up to 15% in a  special  fund without  examining  the question as to whether a  claim  for depreciation  and rehabilitation is justified, and  if  yes, what should be the amount which should be treated as a prior charge in the present proceeding.  Inclusion of these  items in a separate fund allowed under the relevant clause  cannot preclude  an investigation by the industrial  tribunal  into the merits of the said items and that is what the  appellant seeks  to do by placing his claim in that behalf  solely  on the relevant clause.  We are, therefore, satisfied that  the tribunal  was not in error in disallowing the claim made  by the  appellant  solely on the strength  of  this  particular clause. As  we  have already pointed out the tribunal  has  in  fact conceded  that the appellant would be justified in making  a claim  for  prospecting  new ore  and  thereby  helping  the longevity of its industry ; but since no material was placed before  the tribunal on which the tribunal  could  determine the  amount  which the appellant can legitimately  claim  in that  behalf, the tribunal was unable to give the  appellant any  relief in this matter.  In this connection  Mr.  Sanyal referred us to the entries in the extracts from the balance- sheets which referred to the captial expenditure during  the

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relevant  years  on  buildings,  machinery  and  plant   and sundries as well as on shaft sinking, etc.  In regard to the Mysore Gold Mining Co., for instance, the capital 909 expenditure in question during the year ending December  31, 1953,  was  shown as Rs. 3,30,729 (Ex.   VIII-A).   But  the difficulty in accepting this figure as a prior charge either under  depreciation or under rehabilitation arises from  the fact  that  Mr.  Rajagopal Srinivasan who  was  examined  on behalf of the appellant was unable to explain how this total amount was made up.  The witness expressly admitted that the companies had no record to show separately the amounts under different  heads.   Mr.  Sanyal fairly  conceded  that  the, companies might have led better evidence in support of their case.   As the evidence stands, however, it is difficult  to challenge the correctness of the view taken by the  tribunal that  the amounts shown in the different extracts  from  the balance-sheets  are a mixture of very many  items  depending upon  the  options exercised by the management and  that  it would  be impossible to say which part of the  said  amounts can  be  legitimately  treated as  prior  charge  under  the heading of rehabilitation.  That is why we do not think that Mr. Sanyal can succeed in his argument that, on the evidence as  it stands, the appellant is entitled to  any  particular amount under the heading of rehabilitation. That  takes  us  to the appellant’s case in  regard  to  the annual contribution towards the pension fund which has  been disallowed  by the tribunal.  It appears that the scheme  of pension  fund  which  was intended for the  benefit  of  the covenanted  servants  of the sterling  companies  came  into operation  as  from January 1, 1951, soon  after  the  rupee companies came into existence.  Certain rules appear to have been framed in respect of this pension fund and a trust  has apparently been created for the administration of the  fund. Under these rules the companies made the contribution  which is called the initial contribution to the fund as  specified in  para.  1(c) of the rules.  In addition to  this  initial contribution, the companies had to pay to the fund by  half- yearly  instalments on June 30 and December 31 of each  year an  ordinary  annual contribution at the rate  specified  in para.  6. The appellant makes a claim for the  deduction  of this annual contribution as a prior charge and his grievance is that this 910 claim has been unreasonably disallowed by the tribunal.   In regard  to this fund the tribunal has made certain  findings of fact which cannot be challenged before us.  The  tribunal has  relied on the circumstances under which this fund  came into   existence.   Mr.  Jha,  for  the   respondents,   has characterised  this fund as a parting gift of  the  Sterling companies  to their covenanted servants and it would  appear as if the tribunal was inclined to take a similar view about the  genesis of this fund.  The class of persons  for  whose benefit this fund has been created consists of a very  small number of officers.  It does not appear from the record that these  persons  claimed this benefit or that  granting  this benefit was otherwise necessary for the successful operation of  the affairs of the companies.  The officers who got  the benefit  of this fund were entitled to gratuity  and  during all the years of their existence the Sterling companies  had never  thought before of creating such a fund.  A claim  for the  initial  contribution to this fund has  not  been  made before us; but even in regard to the annual contribution the tribunal  was not satisfied that the amount  was  reasonable and that the payment of this amount was otherwise  justified

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on the merits.  As against these facts the tribunal referred to  the cases of a larger number of non-covenanted  servants of  the companies and other employees for whom no such  fund exists.   Having  regard  to  all  these  circumstances  the tribunal held that it would not be fair or just to allow the appellant  to  claim  that the annual  contribution  to  the pension  fund  in  question should be  treated  as  a  prior charge,  and  thereby reduce the gross profits  which  would adversely  affect the respondents’ claim for bonus.  In  our opinion,  whether  or not this particular amount  should  be allowed  as  claimed  by the appellant does  not  raise  any general question of law and the reasonableness of the  claim has,  therefore, to be judged in the light of  all  relevant facts and circumstances.  As the tribunal has found  against the  appellant  on this point we do not think  we  would  be justified in interfering with the decision of the tribunal. The next contention raised by Mr. Sanyal is in 911 respect of the finding made by the tribunal in regard to the amount  of bonus paid by the companies to their workmen  for the  year  1950.  The employer’s case was that  though  this bonus had accrued for the year 1950 it was actually paid  in 1953 and so the amount of the bonus should be deducted  from the  gross  profits  for 1953.   This  contention  has  been rejected  by the tribunal.  The tribunal has  observed  that though  the disbursement of bonus for the year was  actually made  in the early part of 1953 the amount was provided  and debited  in 1952.  This can be seen from the income-tax  as- sessment  order  to which the tribunal  has  referred.   The employer had claimed as an expenditure the amount in respect of bonus relating to 1950 in the said income tax  proceeding and so it was held that the said amount cannot now be  taken into  consideration  for the year 1953.  We do not  see  any error  of  law committed by the tribunal in  recording  this finding.   It  is  clear that  the  respondents  were  found entitled  to bonus for the year 1950, because the  companies held  in their hands sufficient available surplus  from  the trading   profits   of  that  year.   In  the   absence   of satisfactory  evidence,  normally  the  bonus  paid  to  the respondents  for  the  year  1950  cannot  be  brought  into accounting  for  a  subsequent  year.   We  are,  therefore, satisfied  that the appellant cannot successfully  challenge the tribunal’s finding on this question. It will now be material to refer to the two previous  awards between  the companies and their workmen because Mr.  Sanyal has based an argument on these awards and that argument  yet remains  to  be  examined.  On January  5,1953,  Mr.  V.  N. Dikshitulu, the sole member of the industrial tribunal  made his award in an industrial dispute between the Champion Reef Gold  Mines of India Ltd., and its workmen.  By  this  award the tribunal held that the claim made by the employer on the strength of the clause permitting the creation of a  reserve fund and an annual contribution to it up to 15% "cannot  but be  allowed because mining operations can be performed  only subject to the condition of making the said item of 116 912 reserve  as per the agreement and hence it stands to  reason that  the reserve should be deducted from the gross  profits to  ascertain the available surplus".  It is clear from  the award  that the tribunal did not consider the effect of  the terms contained in the clause after construing the  relevant clauses  and  we see no discussion about the merits  of  the rival contentions in respect of this claim.  Apparently, the tribunal accepted the employer’s case at its face value  and

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granted  the relief to the employer without considering  all the  relevant  clauses of the lease and  its  annexures  and without  examining the merits of the workmen’s case  on  the point.   The next award was passed by Mr. Dave  on  December 31,  1954,  in Reference Nos. 6 and 7 of  1954.   These  two references arose from disputes between the Orgaum Gold Mines and the Champion Reef Gold Mines and their workmen.  By this award  Mr. Dave rejected the employer’s claim for  deducting 15% from the gross profits under the relevant clause because he was not satisfied that the maximum limit of 25% mentioned in  the clause had not been exceeded during the  year  1952. The  employer did not produce relevant books of account  and Mr. Dave took the view that the non-production of the  books showed  that  the employer was afraid that the  books  would indicate  that the maximum limit had already been  exceeded. On  that  view  Mr. Dave reached  the  conclusion  that  the employer  was not entitled to make any contribution  to  the fund  during  the relevant year.  In regard to  the  pension fund Mr. Dave disallowed the claim for initial  contribution but  allowed  the  claim for annual  contribution.   He  was inclined  to hold that the annual contribution was made  for services rendered during that year and should certainly form part  of  the expenses of that year.  This award  was  taken before the Labour Appellate Tribunal.  The Labour  Appellate Tribunal confirmed Mr. Dave’s decision both in regard to the initial  and  the annual contribution  towards  the  pension fund.   The Appellate Tribunal, however, different from  Mr. Dave in regard to the employer’s claim for the deduction  of 15% under the relevant clause.  It accepted 913 the finding of the tribunal that the employer had failed  to prove  that in a particular year the maximum of 15%  was  in fact  required  to  be  contributed  to  the  reserve  fund. However,  it  held  that  the  amount  of  Rs.  4.77   lakhs represented the actual expenditure incurred by the  employer during the year and so this amount was allowed to be treated as  a  prior  charge., It would no doubt appear  as  if  the Appellate  Tribunal’  took  the  relevant  figure  from  the balance-sheet  as  showing the actual  expenditure.   It  is unnecessary  for  us to consider whether  this  finding  was justified  or  not.   What is,  however,  relevant  for  the present  purpose  is the finding of the  tribunal  that  the company was not entitled to claim the full provision of  the rate  of 15% of the total revenue expenditure allowed  under the  clause in question. Mr.  Sainyal has referred to these two awards in support  of his contention that the companies did not think it necessary to make a specific claim for rehabilitation because - it was thought  that following the previous awards the  claim  made for 15% would be allowed.  His argument is that if the claim based  on the covenant is disallowed it would be  unfair  to his client not to allow any claim for rehabilitation at all. It  is clear that the claim for rehabilitation  which  could have  been  separately made by the company was not  so  made because  it was included in the claim for the  deduction  of 15%.   There  is also some force in  Mr.  Sanyal’s  argument that, having regard to the previous awards the companies may have thought that the said claim would be allowed.  Since we have  held  against the appellant in respect  of  the  major claim  made  on  the  said relevant  clause  of  15%  it  is necessary  to  consider  whether  the  appellant  should  be allowed  an  opportunity to make out a  specific  claim  for rehabilitation  and  lead evidence in support  of  the  said claim. Mr.  Jha, for the respondents, has resisted the  appellant’s

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request for a remand to enable it to put forward this  claim for   rehabilitation.    He  argues   that   the   companies deliberately   did   not   make   a   specific   claim   for rehabilitation and chose to rest their case on the  relevant terms of the contract because they knew that 914 a  claim for rehabilitation would not be sustained. ln  this connection Mr. Jha referred us to the principles adopted  by industrial  courts in determining the employer’s claims  for rehabilitation.  We are not impressed by this argument.   It seems  to us that, if the employer was partly misled by  the previous  awards  and did not in consequence put  forward  a specific  claim rehabilitation it would not be fair or  just that  he should be precluded from making such a  claim  even after  his  general  claim  for  the  deduction  of  15%  is disallowed.    After  all,  the  Full  Bench   formula   has recognised  the  existence of four items as  constituting  a prior charge on principles of social justice and if, in  the present  case, the employer failed to make out a  claim  for deduction  of one of the items substantially as a result  of the  previous  awards  passed in its favour,  he  cannot  be penalised  as  suggested by Mr. Jha.  We  would  accordingly allow  the  appellant to put forward before the  tribunal  a specific claim under the heading of rehabilitation and  lead evidence in support of the said claim. While  we  are  sending this case back for  the  purpose  of determining the appellant’s claim for rehabilitation and for deciding two other points which we would presently indicate, it  would be useful, if we briefly refer to  the  principles which   are   usually  adopted  by  industrial   courts   in adjudicating  upon the employer’s claim for  rehabilitation. It  is  not disputed before us that these  principles  would have to be borne in mind by the tribunal in determining  the validity  of the appellant’s claim for rehabilitation  which we  are now permitting it to make.  It has been observed  by the  Labour  Appellate Tribunal in Ganesh  Flour  Mills  Co. Ltd.,  Kanpur  v. Ganesh Flour Mills Staff  Union  (1)  that though the employer is entitled to claim deductions from the gross  profits in respect of rehabilitation as a  matter  of right  it  is  difficult  to  lay  down  any  general   rule applicable  to  each  and every  industry.  The  Full  Bench formula evolved in the case of The Mill Owners  Association, Bombay  (2), was not intended to lay down any hard and  fast rule in that behalf For (1) (1952) L.A.C. 172. (2) (1950) L. L. J. 1247. 915 the purpose of sustaining the claim for rehabilitation there must  be  evidence  to show the age of  the  machinery,  the period during which it requires the replacement, the cost of replacement,  the  amount standing in the  depreciation  and reserve fund and to what extent the funds at the disposal of the  company  would  meet  the  cost  of  replacement.    In Trichinopoly  Mills  Ltd., Ramjeenagar  v.  National  Cotton Mills Workers’ Union, Ramjeenagar (1) the appellate tribunal has observed that for determining the total amount  required for  rehabilitation it is the original cost that has  to  be multiplied by an appropriate multiple, for instance 2.7, for the  purpose  of ascertaining the replacement value  of  the machinery,  buildings  and  plant.   From  the  amount  thus obtained  5%  of  the original value is to  be  deducted  as breakdown  value.  The balance is treated as  sufficient  to complete  replacement of machinery and buildings.  Then  the amounts  in  hand under the head  of  depreciation,  general reserve  and  rehabilitation have to be  totalled  and  this

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total has to be deducted from the aforesaid balance which is required to complete replacement of machinery and buildings. It  is the balance thus drawn that has to be spread  over  a number  of  years, as for instance 15, for  the  purpose  of rehabilitation;  in  other  words, the  balance  has  to  be divided  by  15  and the amount thus determined  has  to  be treated as prior charge under the heading of  rehabilitation for  the  relevant  year. (Vide The  Meenakshi  Mills  Ltd., Madurai  and  Manapparai v. Their Workmen(1)  ;  The  Rohtas Sugar Ltd. v. Their Workmen (3) ; and The Mettur  Industries Ltd., Mettur Dam v. The Workers (4)).  Thus the  appellant’s claim  for  rehabilitation  would have to be  tried  by  the tribunal   in  the  light  of  these  decisions.    In   the application of the principles discussed in these  decisions, industrial adjudication cannot adopt an inflexible or  rigid approach; these principles will have to be applied with such modifications  and  adjustments as may be  found  necessary, just and expedient having regard to the evidence led by  the parties before the tribunal and (1)(1953) L.A.C. 672. (3)(1954) L.A.C. 168, 184. (2)(1954) L.A.C. 131. (4)(1957) L.A.C. 288. 916 having  reward to the special-needs and requirements of  the industry.   This position appears to be fully recognised  by the Labour Appellate Tribunal in these decisions themselves. There is another point on which Mr. Sanyal has requested  us to  call for a finding from the tribunal.  His case is  that the award of the tribunal in one material particular suffers from  an error apparent on the face of the record.   In  the award, the initial contribution to the pension fund and  the annual contribution to the pension fund have been added back for  both  the years in respect of all the  companies.   Mr. Sanyal contends that the amount added back under the heading " annual contribution to the pension fund " really  includes the  initial contribution to the said fund also, and  so  it was erroneous to have added back a separate amount under the heading " the initial contribution to the pension fund". -In other words, the grievance is that the amount of the initial contribution  has been added back twice.  Mr. Jha,  for  the respondents,  does not accept Mr. Sanyal’s  contention  that this  is  an error apparent on the face of the  record.   He disputes  the assumption made by Mr. Sanyal that the  annual contribution  to the pension fund in each case includes  the initial contribution as well.  We do not propose to  express any  opinion on the merits of this dispute.  We think it  is desirable that the tribunal should be requested to make  its finding on the question as to whether the amount of  initial contribution has been added back twice over as suggested  by the  appellant.  This is the second point which we  want  to remit for the consideration of the tribunal. The  third  point  which  we  -propose  to  remit  for   the consideration  of the tribunal has - been raised by Mr.  Jha for  the  respondents.   He argues  that  the  tribunal  has committed  an  obvious  error in  allowing  a  deduction  of statutory depreciation to each one of the companies for both the  years  in question and in support of  his  argument  he relies  on  the statements contained in the  report  of  the directors in each case.  As an illustration we should  refer to  the  report and accounts of the Nundydroog  Mines  (KGF) Ltd., for the 917 year  ended  December 31, 1953.  In this report,  under  the item  " capital expenditures, it is stated that the  sum  of

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Rs.  13,50,000  being depreciation for the period  April  1, 1951 to December 31, 1953 has now been written off.  Mr. Jha contends  that,  since this amount has been written  off  as depreciation,  in calculating the available surplus for  the year  no  amount  should be, allowed  by  way  of  statutory depreciation.   This  argument has been  considered  by  the tribunal  in  para.  20 of its award but Mr.  Jha  wants  to challenge  the correctness of the conclusion reached by  the tribunal.   We  would normally not have  allowed  Mr.  Jha’s request  for a reconsideration of this matter; but since  on two points raised by the appellant we are remanding the case to  the  tribunal and calling for its findings on  the  said points  we  think  it  right to  allow  the  respondents  an opportunity  to re-agitate this point.  In fairness  to  Mr. Sanyal  we  may add that he did not object  to  this  matter being  remitted  to the tribunal  for  reconsideration.   We would,  however, like to make it clear that in dealing  with this  point  it  would not be open  to  the  respondents  to contend  that  the  appellant  was  not  entitled  to  claim additional   depreciation  under  the  head   of   statutory depreciation.   This Court has held in Sree Meenakshi  Mills Ltd. v. Their Workmen (1) that additional depreciation which is admissible under s. 10(2) (vi) of the Income-tax Act need not   necessarily  be  allowed  by  industrial   courts   in determining  the  available  surplus under  the  Full  Bench formula.  We wish to make it clear that it would not be open to  the respondents to raise any contention on the  strength of this decision under the issue which is being remitted  to the tribunal at their request. It is somewhat unfortunate that, though we have held against the appellant on the main points urged by Mr. Sanyal  before us,  we cannot finally dispose of the appeal today.   It  is true  that  it is of the utmost importance  that  industrial adjudication  should  be  dealt with  speedily  and  without unnecessary  delay; but in the present case we have come  to the  conclusion that it would be fair and just to allow  the appellant to raise (1)[1958] S.C.R. 878. 918 the  two points mentioned in the judgment.  That is  why  we think it necessary that this case should be sent back to the tribunal  with the direction that the tribunal  should  make its findings on the issues remitted to it by this  judgment. The  three  issues  on  which we want  a  finding  from  the tribunal are: (1)In  addition to the statutory depreciation allowed,  is the appellant entitled to claim any deduction under the head of rehabilitation, and if yes, to what amount ? (2)Does  the  award  in substance  add  back  the  initial contribution  to  the  pension fund  twice  over  in  making calculations for ascertaining the available surplus ? (3)In allowing statutory depreciation to the appellant for the relevant years, has the award virtually allowed the said depreciation  twice  over having regard to the fact  that  a large  amount has been written off by the appellant  towards depreciation for the said period ? Parties  will  be  at liberty to  lead  additional  relevant evidence.  The tribunal should consider the evidence led  by the  parties,  hear  their learned advocates  and  make  its findings on these issues.  We would also direct the tribunal to  consider whether, as a result of its findings on any  of the said issues, any adjustment will have to be made in  its final award.  If, as a result of its findings, the amount of available  surplus is likely to be materially affected  then

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the  tribunal should indicate what the available surplus  in that  case would be in respect of each of the  companies  in regard  to each of the two years in question.  The  tribunal should  also  make a finding as to the amount  of  bonus  to which the respondents would, in its opinion, be entitled  on this altered finding as to available surplus. We desire that this appeal should be finally disposed of  as soon  as  possible; so we direct that  the  tribunal  should submit  its findings along with the evidence to be  recorded hereafter  to  this Court within three  months  from  today. Both  parties have stated to us that this matter has  to  be and would be dealt with by the Central Government Industrial Tribunal functioning 919 at Bangalore.  The proceedings will accordingly be  remitted to  the said tribunal.  The appellant will pay the  cost  of remand  in any event.  Costs of the present hearing  of  the appeal will be costs in the appeal. We  would  like to add that Mr. Sanyal  has  agreed  without prejudice  that  the appellant will pay to  the  respondents fifteen  days  basic  wage towards their  claim’  for  bonus during the relevant years. Case, remanded.