Podar Plastics(P) Ltd Vs. Its Workmen
 INSC 259 (19 December 1963)
19/12/1963 GAJENDRAGADKAR, P.B.
GUPTA, K.C. DAS
CITATION: 1964 AIR 1040 1964 SCR (6) 15
Industrial Dispute-Bonus-Deduction according
to Full Bench Formula-What principle to be followed-Industrial Disputes Act,
1947 (14 of 1947).
An Industrial Dispute arose between the
appellant and its workmen in respect of the claim made by the workmen
(respondents) for bonus for the year 1959. The respondents claimed that they
were entitled to get bonus equivalent to three months' salary including
dearness allowance, The appellant claimed deductions on the basis of the Full
Bench 16 Formula. The appellant claimed deduction of Rs. 60,000 by way of
notional remuneration for Mr. K. R. Podar, one of the Directors of the company.
According to the appellant K. R. Podar devoted the whole of his time to the
supervision and management of the appellant concern, and so, he was entitled to
charge remuneration at the rate of Rs. 5,000 a month.
The appellant also made a claim for
rehabilitation. On these facts the Tribunal directed the appellant to pay to
the respondents bonus at the rate of half month's basic wages excluding
allowances and overtime for the said year.
It is against this award that the appellant
has come to this Court.
Held:(i) that in a concern like the
appellant's if one of the Directors spends his time in supervising and managing
the affairs of the concern, he would be entitled to charge a reasonable remuneration.
But in the present case Mr. Podar did not actually charge any remuneration. The
working of the Full Bench Formula is no doubt notional in some respects, but it
would not be permissible for the employer to make it still more notional by
introducing claims for prior charges on purely hypothetical and almost
fictional basis. The Tribunal did not feel justified in allowing the claim for
deduction made by the appellant in regard to the notional remuneration of Mr.
Podar on the ground that Mr. Podar had not been paid remuneration regularly and
it had not been duly shown in the books of account.
Gujarat Engineering Co. v. Ahmedabad Misc.
Industrial Workers' Union, (1961) 11 L.L.J. 660 and Kodaneri Estate v. Its
Work-men, (1960) 1 L.L.J. 273, relied on.
(ii)It is not the correct legal position that
a second hand machinery should be rehabilitated only by second hand machinery.
But in the present case the finding of the Tribunal in respect of the claim for
rehabilitation is based on its appreciation of the evidence led by the
appellant and that cannot be disturbed having regard to the material which is
available on the record.
SouthIndia Millowners"Association v.
Coimbatore District Textile Workers'Union, (1962) 1 L.L.J. 223, relied on.
(iii)It would be erroneous to assume that
this Court approved of or affirmedthe ad hoc basis adopted by the Tribunal in
the case of South India Millowners' Association.
(iv)It would be unreasonable to suggest that
if the employer does not adduce sufficient evidence to justify his claim for
rehabilitation and the Tribunal is inclined to reject the evidence which has
been adduced, the Tribunal must nevertheless award some rehabilitation on a
purely hypothetical and imaginary ad hoc basis. In the present case the
employer adduced evidence for rehabilitation and that was rejected by the
(v)It has been consistently held by this
Court that in bonus calculations the employer is entitled to claim a deduction
of the Income-tax as well as wealth tax; but in the present case, there is, no
material 17 to determine what the amount of wealth tax charged or paid is, and
so, no relief can be granted to the appellant on that account.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 496,of 1963.
Appeal by special leave front the Award dated
August 26, 1961, of the Industrial Tribunal, Maharashtra in Reference (IT) No.
43 of 1961.
S.V. Gupte, Additional Solicitor-General of India and -I.
N. Shroff, for the appellant.
K. R. Chaudhuri, for the respondents.
December 19, 1963.-The Judgment of the Court
was ,delivered by:GAJENDRAGADKAR J.-This appeal arises from an, Industrial
dispute between the appellant Podar Plastics (P) Ltd. and the respondents, its
workmen, and it has reference ,to the claim made by the respondents for bonus for
the year 1959.
The respondents claim that for the relevant
year they -should get bonus equivalent to three months' salary including
dearness allowance. On hearing the parties and on considering the evidence
adduced by them, the Tribunal has ,directed that the appellant shall pay to the
respondents bonus at the rate of half month's basic wages excluding ,allowances
and overtime for the said year. It is against this ,award that the appellant
has come to this Court by special leave.
The appellant is a private company and its
registered ,office is situated at Podar Chambers, Parsee Bazar Street, Fort, Bombay. It owns a factory at Supari Baug Road where it manufactures plastic products. The
appellants case before the Tribunal was that if proper accounts are made in
accordance with the Full Bench Formula, it would be found that there is no
available surplus from which any bonus can be paid to the respondents. On the
other hand, the respondents urged that the working of the Formula would show a
substantial available surplus from which three months' wages as bonus can be
easily paid. As usual, the controversy between the parties centered round prior
charges which the appellant claimed ought to be deducted from the gross
profits. One of the points of dispute between the 134-159 S.C.-2.
18 parties was whether depreciation which has
to be deducted' as a prior charge should be statutory depreciation or notional
normal depreciation. The figure of the profit was. admitted at Rs. 2.70 lacs.
The Tribunal made alternative calculations, one on the basis that statutory
depreciation alone should be deducted, while the other was prepared on the
basis that notional normal depreciation as claimed by the appellant should be
deducted. On the first calculation the available. surplus was found to be Rs.
0. 44 lac. On the alternative calculation, it was found to be Rs. 0.33 lac. For
the purpose of this appeal we will accept the latter calculation which is made
on the basis that the notional normal depreciation has to be deducted.
It has been conceded before us by the learned
Addl. Solicitor-General for the appellant that there are two mistakes in this
calculation. The amount of notional normal depreciation which has been shown as
Rs. 0. 78 lac ought to be Rs. 0. 7 3 lac. Similarly the amount of income-tax
which is shown as Rs. 0. 96 lac ought to be Rs. 0. 95 lac. Thus, the two
mistakes accounting for nearly Rs. 6,000 have been made in favour of the
appellant by the Tribunal in making this calculation, and that would make the available
surplus as Rs. 0.39 lac; that is one aspect of the matter which has to be borne
in mind in dealing with the appeal before us.
The main point which has been urged before us
by the learned Addl. Solicitor-General relates to the claim made by the appellant
for the deduction as a prior charge of Rs. 60,000 by way of notional
remuneration for Mr. K. R. Podar, one of the Directors of the Company. We have
already seen that the appellant is a Private Ltd. Co. and four of the major
shareholders are members of the Podar family; they are: R.A.
Podar, G.R. Podar, K.R. Podar and B.J. Podar;
the 5th shareholder is M /s. Podar Trading Co. Private Ltd., 6th is Jay Agents
Private Ltd., 7th is the National Traders Private Ltd. and the 8th is Ratilal
B. Desai. According to the appellant, K.R. Podar devoted the whole of his time
to the supervision and management of the appellant concern, and so, he was
entitled to charge remuneration at the rate of Rs. 5,000 a month. In sup19 port
of this claim, Mr. Gupta, the Manager of the concern, made an affidavit and
offered himself for cross-examination.
He stated that Mr. Podar attends the factory
from 9 A.M. to 1 P.m. and 2-30 P.m. to 6-30 P.m. In his cross-examination, it
was brought out that when the previous Director was paid Rs. 1000 per month as
remuneration, a resolution had been passed by the Board of Directors in that
behalf; but no such resolution has been passed in regard to the remuneration of
Mr. K. R. Podar. Besides, the appellant itself has urged that Mr. Podar did not
actually charge any remuneration because it was thought that the financial
position of the appellant was not very satisfactory, and so, Mr. Podar wanted
to save expenditure on account of his remuneration.
It may be conceded that in a concern like the
appellant's if one of the Directors spends his time in supervising and managing
the affairs of the concern, he would be entitled to charge a reasonable
remuneration. This position has not been and cannot be disputed in view of the
decisions of this Court in Gujarat Engineering Company v. Ahmedabad Misc.
Industrial Workers' Union(1), and Kodaneri
Estate v. Its Workmen and Another 2 Relying on these decisions, it is urged on
behalf of the appellant that the Tribunal was in error in not allowing any
deduction on account of remuneration to Mr. Podar.
In our opinion, the appellant cannot
seriously quarrel with the finding of the Tribunal, because it is conceded that
Mr. Podar in fact has not charged any remuneration. The working of the Formula
is no doubt notional in some respects, but we think it would not be permissible
for the employer to make it still more notional by introducing claims for prior
charges on purely hypothetical and almost fictional basis.
If Mr. Podar had been paid remuneration
regularly and it had been duly shown in the books of account, a claim in that
behalf could have been made by the appellant, and subject to the scrutiny by
the Industrial Tribunal as to reasonableness of the said payment, such a claim
would have been allowed;
but if for any reasons Mr. Podar did not
charge any remuneration, it would be unfair to allow a deduction on that
account to be made notionally (1)  11 L.L.J. 660.
(2)  1 L.L.J. 273.
20 because the working of the Formula is
sometimes described as notional. The inclusion of such an item solely for the
purpose of depressing the available surplus cannot, in our opinion, be allowed.
Besides, the Tribunal does not appear to have accepted the evidence for Mr.
Gupta and it has made a significant comment that Mr. K. R. Podar has himself
not stepped into the witness-box to make a claim for his remuneration. Mr.
Gupta was asked whether Mr. Podar was going to give evidence, and he answered
the question in the negative. Therefore, if in the circumstances proved in this
case, the Tribunal did not feel justified in allowing the claim for deduction
made by the appellant in regard to the notional remuneration of Mr. Podar, the
appellant cannot make a serious grievance.
The other point in controversy is in regard
to the direction of the Tribunal that the appellant was not entitled to make
any claim for rehabilitation. It appears that the Tribunal was inclined to take
the view that since the appellant had begun its business with second-hand
machinery, it was not entitled to make a claim for rehabilitation on the basis
of replacement of the said machinery by brand new machinery.
In other words, the Tribunal seems to be of
the opinion that in cases where an employer is carrying on his business with
second-hand machinery, rehabilitation should be calculated on the basis that
the said second-hand machinery would be replaced by second-hand machinery and
not by new machinery.
This view has been rejected by this Court in
the case of South India Millowners' Association and Ors. v. Coimbatore District
Textile Workers' Union and Ors(1). Therefore, the appellant is right in
contending that the approach adopted by the Tribunal in dealing with the
question of rehabilitation is erroneous.
That, however, does not help the appellant because
in the present case the Tribunal has considered the evidence given by Mr.
Dinshaw on behalf of the appellant In support of its claim that the
rehabilitation requirement of the appellant would be of the order of Rs.
-8,84,629. It is true that one of the reasons given by the Tribunal is that the
(1)  1.L.L.J. 223.
21 appellant is not justified in making a
claim for rehabilitation on the basis that new machinery would be purchased by
him for rehabilitating his old one; but there are several other reasons which
the Tribunal has discussed and these reasons indicate that the Tribunal was not
satisfied with the accuracy of the statements made by Mr. Dinshaw and their
reliability. Incidentally, it appears that the appellant made a novel claim for
rehabilitating his dead stock as one of the items under rehabilitation, and the
Tribunal has rejected that claim. In the result, the finding of the Tribunal is
based on its appreciation of the evidence led by the appellant and that cannot
be disturbed having regard to the material which is available on the record.
The Tribunal has taken the precaution of adding that if the appellant leads
better evidence in future, its claim for rehabilitation would have to be judged
on the merits and the present decision will not create any bar against it. In
our opinion, that is all that can be done in the present appeal.
The learned Addl. Solicitor-General, however,
attempted to argue that the Tribunal should have made some allowance for
rehabilitation on an ad hoc basis and in support of this contention, he has
referred us to some of the observations made in the case of South India
Millowners' Association (1).
It appears that in that case, the appellant
Mills had not adduced relevant evidence about the original price and subsequent
depreciation of the machinery prior to its purchase by the appellant, and so,
acting on the evidence available on the record, the Tribunal adopted some (id
hoc basis. No grievance was made about the ad hoc basis adopted by the
Tribunal; the only grievance made was against certain observations made by the
Tribunal that if the existing machinery is second hand. it should be
rehabilitated only by second hand machinery, and this Court held that the said
observations did not represent the true position in the matter. It would, we
think, be erroneous to assume that this Court approved of or affirmed the ad
hoc basis adopted by the Tribunal in that particular case. On what material the
said ad hoc basis was adopted is not known, and it would, we think, be
unreasonable to suggest that if the employer does not adduce sufficient
evidence to (i)  1 L.L.J. 223.
22 justify his claim for rehabilitation and
the Tribunal is inclined to reject the evidence which has been adduced, the
Tribunal must nevertheless award some rehabilitation on a purely hypothetical
and imaginary ad hoc basis. In such a case all that the Tribunal can do is to
safeguard the position of the employer by giving him opportunity to adduce
better evidence in future, and that is what the Tribunal has done in the
An attempt was then made by the learned Addl.
Solicitor General to make a claim for the deduction of the wealth tax.
It has been consistently held by this Court
that in bonus calculations the employer is entitled to claim a deduction of the
income-tax as well as wealth tax; but, in the present case, there is no
material to determine what the amount of wealth tax charged or paid is, and so,
no relief can be granted to the appellant on that account.
In the result, the appeal fails and is
dismissed with costs.