The Indian Oxygen & Acetylene Co.,
Private Ltd., Bombay Vs. Its Workmen & ANR  INSC 58 (5 May 1959)
DAS, SUDHI RANJAN (CJ) BHAGWATI, NATWARLAL H.
CITATION: 1959 AIR 1114 1959 SCR Supl.
Industrial Dispute-Bonnus-Full Bench formula,
if can be disregarded-Rehabilitation, claim for-Average life, calculation of
-Method of Weighted Average-Exhausted Assetswhether can be taken into account.
The workmen claimed bonus for the years
1952-53 and 1953-54.
The employers contended that on a proper
working 1003 out of the Full Bench formula there 'was no available surplus and
so no bonus was payable. The Tribunal held that the formula was not binding on
it and on genuine considerations Of social justice it rejected the claim of the
employers for rehabilitation and awarded bonus at the rate of and I/3 annual
basic wages for 1952-53 and 1953-54 respectively. Alternatively, the Tribunal
found that in case the claim for rehabilitation had to be allowed there would
be no available surplus in either of the relevant years.
Held that, the Tribunal was bound to give
effect to the Full Bench formula and to allow the employer's claim for rehabilitation.
A.C.C. Ltd., Bombay v. Their Workmen, 
S.C.R. 925, followed.
In the calculations made by the Tribunal on
its alternative finding it had acted on correct principles. It had rightly
taken into account the price level prevailing in 1956 and not merely that
prevailing in the two bonus years. The amount of rehabilitation allowed in
previous years had to be brought into account if it had not been used up but it
was not shown that had not been in the present case.
In calculating the average life of the
buildings, machinery, etc., the method of weighted average was scientifically
more accurate and gave a more accurate and realistic result. The rehabilitation
costs of those assets which had spent their lives and were exhausted was also
admissible in making calculations under the weight age method if in the
relevant year such assets were in existence and use.
CIVIL APPELLATE, JURISDICTION : Civil Appeal
No. 753 of 1957.
Appeal by Special Leave from the Judgment and
Order dated the 6th October, 1956, of the Industrial Tribunal, Bombay, in
Reference (I. T.) Nos. 40 & 44 of 1956.
C. K. Daphtary, Solicitor-General of India,
N. A. Palkhivala, J. B. Dadachanji and S. N. Andley, for the appellant.
D. H. Buch and I. N. Shroff, for respondent
C. L. Dudhia and I. N. Shroff, for respondent
Janardhan Sharma and B. P. Maheshwari, for
1959. May 5. The Judgment of the Court was
delivered by 1004 GAJENDRAGADKAR, J.-This appeal by special leave arises from a
bonus dispute between the Indian Oxygen & Acetylene Co., Private Ltd.,
(hereafter called the appellant) and its workmen, the relevant years for the
bonus claim being 195253 and 1953-54. This claim was made separately by the
workmen excluding the members of the clerical staff as well as by the clerical
staff and the two claims thus made were referred by the Bombay Government to
the Industrial Tribunal for its adjudication. The claim raised by the workmen
excluding clerical staff was numbered as Ref. (I. T.) No.
40 of 1956, while that made by the clerical
staff was numbered as Ref. (1. T.) No. 44 of 1956. Both categories of workmen
will hereafter be described as the respondents in this judgment.
The appellant is a private limited company
incorporated in 1935 and it has its head office at Calcutta. Its business is to
manufacture and sell oxygen and acetylene. It is a subsidiary of the British
Oxygen Co. Ltd. It sells its products to the hospitals and nursing homes and in
large quantities to industrial concerns for welding, cutting and blasting
operations. It voluntarily paid bonus equal to two months' basic wages for both
the years in dispute; but the respondents were not satisfied with the said
payment and they made a claim for 1/3 of their total earnings for the two
respective years. That is bow the dispute arose between the parties.
It appears in evidence that all the shares of
the appellant (excepting two or three held by nominee shareholders) are held by
the British Oxygen Co. Ltd. Evidence also shows that the appellant has been
prospering and has been expanding at a rapid rate. In has capitalised its
reserves in 1940, 1941, 1942, 1945, 1946, 1947 and 1949 with the result that
the major portion of its capital is made up of bonus shares. It has made good
profits for the year ending September 30, 1953, as well as for the year ending
September 30, 1954. There is also no doubt that a large gap exists between the
actual wages paid by it to its workmen and the living wage. It is on these
allegations that the respondents made a claim for bonus of 1/3 of their total
1005 The appellant pleaded that it was paying
good wages to the respondents and that under the formula the respondents were
not entitled to claim any additional bonus for the relevant years. In fact,
according to the appellant, if the formula was properly worked the bonus
already voluntarily paid by it to the respondents could not have been claimed
The tribunal has, however, rejected the
appellant's case and has directed it to pay to the respondents bonus at the
rate of 1/4 of the annual basic wages for 1952-53 and 1/3 of the said wages for
1953-54 (less the bonus already paid for these years). It has also directed
that in calculating the amount of bonus overtime and dearness and other
allowances should be excluded. This award has been made subject to the two
conditions specified by it. It is the correctness of this award that is
challenged by the appellant before us.
The first point which the appellant has urged
is against the finding of the tribunal that it was not bound to give effect to
the Full Bench formula. In determining the available surplus the Tribunal has
taken the view that the formula was not binding on it and that on
considerations of social justice to which it has referred it was open to it to
reject the claim of the appellant for rehabilitation. This question has been
considered by us at length in the case of A. C. C. Ltd., Bombay v. Their
Workmen (1) and we have held that in dealing with claims for bonus industrial
tribunals must give effect to the formula. We have also indicated how the
calculations under the formula should be made in such disputes. In view of the
said decision we must hold that the Tribuual was in error is not granting to
the appellant its claim for rehabilitation.
According to the calculations made by the
Tribunal, without providing for any rehabilitation (Ex. TA) it has reached the
conclusion that the available 'surplus for the years 1952-53 and 1953-54
respectively would be Rs. 6,14,830/and Rs. 12,16,120/-. It is on the basis of
this available surplus that the Tribunal has made its award. However, the
Tribunal has found (1)  S.C.R. 925.
1006 alternatively that in case the claim for
rehabilitation made by the appellant has to be awarded, then there would be no
available surplus for both the relevant years. This is shown by the
calculations made by it under Ex. TB. Thus it would be clear that on the
alternative finding made by the Tribunal the appellant would be entitled to
succeed and the award tinder appeal would have to be set aside.
It is, however, urged before us by the
respondents that the calculations made by the Tribunal on its alternative
finding are not correct. In other words, the respondents seek to support the
final award passed by the Tribunal on the ground that some of the conclusions
reached by the Tribunal in making its calculations on the alternative basis are
erroneous. The first point which has been urged by the respondents in this
behalf is that the Tribunal was wrong in taking into account the price level
prevailing in 1956. The argument is that the price level prevailing in the two
bonus years alone should have been taken into account. We have considered this
point in A. C. C.'s case (1) and we have held that it is inexpedient to confine
the relevant decision of the Tribunal solely to the price level prevailing in
the bonus years. Therefore the objection that the Tribunal has committed an
error in this matter must be rejected.
Then it is urged that in making its
calculations the tribunal has not applied its mind to the fact that, though the
appellant has been allowed substantial amounts by way of rehabilitation in
previous awards, those amounts are not brought into account in considering its
claims for rehabilitation. It appears that the tribunal was inclined to take the
view that once an allowance is made to the employer by way of rehabilitation of
plant and machinery, it is not open to the tribunal to enquire what he had done
with the said amount. In the A. C. C.'s case (1) we have held that if an amount
for rehabilitation is allowed to an employer and it appears that during the
relevant year the said amount was available to him then in subsequent years the
said amount will have to be taken into account unless it is shown that in the
meanwhile (1)  S.C.R. 925.
1007 it had been used for the purpose of
rehabilitation. So we would accept the respondents' contention that the
appellant is bound to take into consideration the amount previously allowed to
it by way of rehabilitation.
There is, however, one point which must be
borne in mind in considering this plea. In the previous awards to which our
attention was drawn by the respondents, 20% of the net profits appear to have
been awarded to the appellant on a rough and ready basis, by way of provision
for rehabilitation as well as expansion. It is significant that the award of
the said amount expressly refers to repairs, replacement, modernization and
reasonable expansion. It is now well settled that the employer is not entitled
to claim a prior charge under the formula for any item of expansion but the
awards previously passed between the appellant and its workmen seem to have
allowed for a claim for expansion as a prior charge, and that fact cannot be
ignored in dealing with the respondents' present contention.
But apart from this aspect of the matter, it
is clear that the appellant has brought into account one-half of its general
reserve as on September 30,1953, and September 30, 1954, respectively, and
these amounts are Rs. 5,51,363 and Rs. 3,95,376. In view of this fact it is
difficult to accept the argument that the amounts allowed to the appellant by
way of rehabilitation in the previous years had not been brought into account.
We would like to add that this point had not been taken before the tribunal,
and may be could not be taken before it, because the tribunal has held that the
employer could not be called upon to bring into account the said amount.
Then it is urged that in working out the
figures of rehabilitation the tribunal was in error in accepting the appellant's
claim. The award shows that the tribunal was very favorably impressed by the
evidence given by Mr. Saigal and Mr. Basak on behalf of the appellant. It
appears that in arriving at the average life of the buildings, machinery, etc.,
Mr. Basak has adopted the method of weighted average.
" This method is a development of the
concept of the 1008 ordinary arithmetic mean " (1). Under this method,
"in general terms, a set of quantities 'X' is given, to each of which is
attached a weight 'W', and the weighted arithmetic mean is obtained as the
summation of ' W' x ' X' divided by the summation of ' W'''. There is no doubt
that this method is scientifically more accurate and gives a more accurate and
realistic result in determining the average life of the assets. Let us
illustrate this method by taking an example given by the tribunal itself:
Cost of Asset. Life. Annual replacement cost
Rs... Rs. 5.... 1 year 5 8.... 2 years 4
300.. 10 years 30 313.. 13 years 39 The average life calculated by Mr. Basak
according to the weighted average method is 8.02 years, while the arithmetical
average of the figures in column two is 13/3 = 4.33 years; this latter is an
incorrect estimate, for the small items distort the average. Within two years
the first two items will go out and though the remaining machinery is expected
to last for 8 years more, the arithmetical average would give it a remaining
life of 2.33 years.
The respondents do not challenge the validity
of this method; but they contend that in working out the method some
calculations have been made which are open to objection.
Before dealing with these objections it may
be stated generally that when Mr. Saigal and Mr. Basak gave evidence they were
not asked any definite or precise questions on which the objections urged
before us are based. It is desirable that in enquiries of this kind, when
experts give evidence on behalf of the employer, workmen should cross examine
them on all points which they -propose to urge against the employer's claim in
regard to rehabilitation.
However, we would like to deal with the
merits (1) " Statistics for Economists " by R.G.D. Allen, 1949 Ed.,
1009 of the said contentions in the light of
such evidence as is available on the record.
The first contention is that the assets which
have spent their lives and are thus exhausted should not be continued in making
calculations under the weight age method. This objection applies to such assets
as leasehold buildings, cars and trucks. We are inclined to think that the method
adopted by the appellant in making its calculations gives a more correct
picture of the assets actually in use and the rehabilitation cost claimed in
respect of them. If in the relevant year the asset is in existence and use, a
claim for its rehabilitation would not become inadmissible. The same argument
is put in another form and it is urged that where an asset which has come to an
end is taken into account it would be wrong to take into account in the same
year a new asset which has come into existence. The suggestion is that by this
method a double claim for rehabilitation creeps into the calculation. We are
not satisfied that even this argument is well founded. Let us examine this
argument by reference to one item. The lease-hold buildings of the appellant
include two buildings known as D. A. and Oxygen respectively at Bombay (Ex. C.
19). As on September 30, 1953, the estimated life of these buildings from
October 1, 1953, is shown to be one year and the annual provision claimed for
rehabilitating them is shown as Rs. 97,468 and Rs. 30,590 respectively. These
claims have not been made in the subsequent year. In the same year two new
buildings called D. A. and Oxygen respectively which were erected in 1952 have
been included and the annual provision for rehabilitation in respect of them is
made at Rs. 6,474 and 6,972 respectively. Now, if the respondents' argument is
accepted and the calculations made in regard to the new buildings were excluded
from the statements, the appellant would apparently be entitled to claim a
somewhat higher amount. It may be mentioned that in working out the figures for
rehabilitation in respect of new -buildings Ex. C. II has included this item of
Rs. 13,000 and odd in the larger 127 1010 item of Rs. 4,58,316 mentioned against
uncovered requirement for rehabilitation and replacement in the year, whereas
in deducting Rs. 2,31,700 by way of normal depreciation for the said year an
amount of Its. 22,000 and odd has been taken to be the normal depreciation in
respect of the new buildings;
that is to say, as against a claim of Rs.
13,000 and odd made for rehabilitation in respect of the said two buildings in
Ex. C. 19, a deduction by way of normal depreciation has been allowed to the
extent of Rs. 22,000 and odd. Therefore it does not appear on the evidence as
it stands, that the method adopted by the appellant in making its calculations
has introduced any serious infirmity or has given a distorted or inflated claim
about the provision for rehabilitation.
In this connection it is relevant to refer to
the fact that the calculations made by the appellant are based upon an
item-wise study of its plant and machinery, and such a method, it is conceded,
is bound to lead to more satisfactory results. Mr. Basak produced Exs. C. I to
16 which contained all the relevant
calculations and he stated in cross-examination that as a matter of business
practice a businessman has to think of replacing his machines even though they
may have been bought in the relevant year. Of course, in considering the claim
for rehabilitation in respect of such an item the multiplier would normally be
I and the divisor would represent the total future life of the said machines.
In regard to the exhausted assets the Witness stated that if they are not
included in the schedule the final result on Exs. C. 11 and C. 12 would be
incorrect because in these statements the total depreciation provided up to the
opening of the year has been deducted and this sum includes proportionate
depreciation also on the assets referred to. He has also added that the total
value of all fixed assets shown in Exs. C. 11 and C. 12 " have got to
agree with the values shown in the balance-subjects "; and he claimed that
" his method of calculating weighted average of the remaining life of assets
is the most correct that can be employed ". Similarly Mr. Saigal was
cross-examined about the Bangalore plant which 1011 had been installed in 1946.
He stated that theoretically it should have a life till 1968 but in effect the
plant had become so unreliable that they had to install new one and to keep the
old one as a standby. According to this witness actually the life of the
machinery enumerated in Ex. C. 20 works out to less than 22 years but for
simplicity in accounting he had taken the figure to be 22. As we have already
mentioned the tribunal took the view that the evidence( given by the
appellant's witnesses in the present proceedings was satisfactory and we do not
think that any material has been brought out in cross-examination which would justify
the respondents' contention that the tribunal had not properly appreciated the
said evidence. In the result we hold that the respondents have failed to show
that any of the conclusions reached by the tribunal in making its calculations
under its alternative finding are wrong.
The appeal accordingly succeeds and must be
allowed and the award passed by the tribunal must be set aside. In view of the
fact that the principal point raised by the appeal was one of some importance
and it has been argued in a group of appeals before us, we think that the
parties should bear their own costs.