Bareilly Electricity Supply Co. Ltd. Vs.
The Workmen & Ors  INSC 197 (16 August 1971)
REDDY, P. JAGANMOHAN REDDY, P. JAGANMOHAN
CITATION: 1972 AIR 330 1972 SCR (1) 241 1971
SCC (2) 617
RF 1973 SC2394 (15)
surplus-Full Bench formula--Documents filed before Industrial Tribunal whether
require formal proof-Depreciation for double shift-Allowances for income-tax,
computation of--Return on working capital-Amounts required for rehabilitation-Contingency
and Development reserves-Financial capacity.
The appellant was an electricity supply
company. The dispute between the appellant and its workmen relating to the
bonus payable for the year 1960-61 was referred to the Industrial Tribunal. The
case of the appellant was that after allowing for prior charges no available
surplus was left for the payment of bonus. The Tribunal however, computed the
available surplus at Rs. 1,29,248 and out of this awarded three months' bonus
amounting to Rs. 730,00 to the workmen. In appeal to this court it was
contended on behalf of the appellant that the Tribunal was in error in
disallowing (a) depreciation on account of double shift, (b) income-tax, (c)
return on working capital, (c) amounts required for rehabilitation, (e)
contingency reserve and (f) development reserve, the latter two of which were
statutory reserves which the undertaking had to provide under the schedule to
the Electricity Supply Act 1948. Inter alia the appellant contended that since
the Evidence Act as a whole was not applicable to industrial proceedings
certain documents such as balance sheet should have been accepted by the
Tribunal without formal proof.
HELD: (i) In earlier cases decided by this
Court in which the Full Bench formula of the Labour Appellate Tribunal had been
considered by this Court with reference to Electricity Undertakings and other
wise, the following principles were laid down for the purpose of working out
the available surplus: (1) first gross profits have to be ascertained and for
that purpose balance-sheet and the profit and losses count as required under
the Companies Act have to be looked into. If the entries are contested they
have to be proved like any other contested fact; (2) The relevant year for which
bonus is claimed is a self sufficient unit and the appropriate accounts have to
be made on the notional basis in respect of the said year; (3) The
ascertainment of depreciation is according to the Income-tax Act and what is
allowed as a prior charge is the annual notional normal depreciation and not
the actual depreciation which is in fact allowed. Apart from the notional
normal depreciation the depreciation allowable under Income-tax Act for
multiple shift is also allowable; (4) In calculating the income-tax for
deduction as a prior charge it is not the notional normal depreciation alone
that has to be deducted but the statutory -depreciation namely the concessions
given under the Income-tax Act to the employers which would include the
depreciation for multiple shifts, if -any, and thereafter the income-tax 242
will have to be calculated; (5) Return on paid up capital allowable for
deduction from the gross profits is 6%; a slightly higher percentage may be
allowed in risk undertakings like plantations; (b) In regard to return on
working capital, if it is, shown that the reserves were available and were
actually used as working capital, whether the reserves utilised were
depreciation reserves or any other, a return from 2% to 4% is allowable
according to the industry, taking into consideration any special circumstances
which may justify a claim for a higher interest; (7) Rehabilitation reserve has
to be provided for in order to keep the original capital of the business
intact. It is necessary in the interest of labour as well as capital to Provide
for depreciation of the assets yearly and also to provide for rise of prices.
For the determination of this receive it is suggested that the undertaking be
first divided into blocks such as 'plant and machinery' on the one band and
other assets like Road, Buildings, Railways, sidings etc. on the other. Then
the cost of these separate blocks has to be ascertained and their probable
future life has to be estimated. Once this estimate is made it becomes possible
to anticipate approximately the year when the plant or machinery will require
replacement; and it is the probable price of such replacement on a future date
that decides the amount to which the employer is entitled by way of replacement
The claim for rehabilitation includes the
claim for replacements and modernization. The probable cost is reached by
adopting a multiplier based on the ratio, between the cost price of the plant
and machinery and the probable price which may have to be paid for its
rehabilitation, replacement or modernization. After ascertaining the
multiplier, a divisor has to be adopted in respect of each block in order to
ascertain the annual requirement of the employer in that behalf year after
year; (8) In Mathura Parshad Srivastava's case the claim for contingency
reserve and development which have to be provided under the Electricity
(Supply) Act was upheld though these do not constitute prior charges like items
(3), (4), (5), (6) and (7) above. The Tribunal cannot fix such a high figure of
bonus as to leave insufficient funds in the bands of the company and make it
difficult to provide for these two statutory reserves. Various factors
including the financial capacity of the undertaking to pay, have to be taken
into account in fixing bonus. [251 C.-254 G] Mill Owners Association, Bombay v.
The Rashtriya Mazdoor Sargh, Bombay & Anr.,  L.L.J. 1247, Muir Mills
Co. Ltd., v. Suti Mill Mazdoor Union, Kanpur,  1 S.C.R.
991, U.P. Electricity Supply, Co. Ltd.,, v.
Their Workmen, (1952) 2 L.L.J. 43 1, Shree Meenakshi Mills Ltd. v. Their
Workmen,  S.C.R. 878, Tinavelly-Tuticorn Electric Supply Co. Ltd., v.
Their Workmen, , 3 S.C.R. 68 Ahmedabad Miscellaneous Industrial Workers
Ahmedabad Electricity Co. Ltd.,  2 S.C.R.
934, Associated Cement Companies Ltd., v. Its Workmen,  S.C.R. 925 Surat
Electricity Co. Ltd., Staff Union v. Surat Electricity Co. Ltd.,  2
L.L.J. 648, Hamdard Dawakhana Wakf v. Its Workmen & Ors.,  2 L.L.J.
772, Workmen v.
Hindustan Motors Ltd.,  2 S.C.R. 311
and Mathura Parshad Srivastava v. Sagour Electric Supply Co.  2 L.L.J.
307, referred to.
(ii) Even if all the technicalities of the
Evidence Act are not strictly applicable except so far as Section It of the Industrial
Disputes Act 1947 and the rules prescribed therein permit it, it is
inconceivable that 243 the Tribunal can act on what is not evidence such as
hearsay, nor can it justify the Tribunal in basing its award on copies of
documents when the originals which are in existence are not produced and proved
by one of the methods either by affidavit or by witnesses who have executed
them, if they are alive and can be produced. Again if a party wants an
inspection it is incumbent on the Tribunal to give inspection in so far as that
is relevant to the enquiry.
[259-D F] The application of the principle of
natural justice does not imply that what is not evidence can be acted upon. On
the other hand what it means is that no materials can be relied.
upon to establish a contested fact which are
not spoken to by persons who are competent to speak about them and are
subjected to cross-examination by the party against whom they are sought to be
used. [258 H] When the appellant in the present case produced the balance sheet
and profit and loss account of the company, it did not by its mere production
amount to proof of it or of the truth of the entries therein. If these entries
are challenged the appellant must, prove each of such entries by producing the
books and speaking from the entries made therein. If a letter or other document
is produced to establish some fact which is relevant to the enquiry the writer
must be produced or his affidavit in respect thereof be filed and opportunity
given to the opposite party who challenges this fact. [259 B-D] Indian Hume
Pipe Co. Ltd., v. Their Workmen,  2 L.L.J.
357 Khandesh Spinning and Wag. Mills Co.
Ltd., v. The Rashtriya Grin Kamgar Sangh Jalgaon,,2S.C.R.841,Anil Starch
Products Ltd.,v. Ahmedabad Chemical Workers Union Civil Appeal No. 684 of 1957,
Petlad Turkey Red Dye Works Ltd., v. Dves and Chemicals Workers Union, Petlad,
 2 S.C.R., 906, Management of Trichinopoly Mills Ltd. v.National Cotton Textiles
Mills Workers Union; Civil Appeal No. 309 of 1957, Bengal Kagazkal Mazdoor
Union v. Titaghur Paper Mills Co. Ltd.,  3 S.C.R. 38 and Union of India
v. Verma,  2 L.L.J. 259, referred to.
(iii) In view of the unsatisfactory oral and
documentary evidence the Tribunal was justified in rejecting the claim for
depreciation on the basis of double shift. It could not be assumed that in an
Electric Undertaking the boilers and turbines must be working throughout, at
any rate more that 8 hours. In view of disallowance the amount to be, allowed
as prior charge towards depreciation will have to be computed after allowing
for the notional depreciation. [260 F, 261B] (iv) The computation of income-tax
by the Tribunal after deducting the statutory depreciation was in accordance
with the decisions of this Court and could not be assailed. [262 C-D] Burm and
Co. Ltd., v. Its Workmen,  5 S.C.R. 82 referred to.
(v) In considering a claim for return on
working capital two questions must be kept in view; whether the reserve were
available and if they were, whether they were used as working capital and if
so, what is the amount. These are questions of fact and if the employer fails
to establish by satisfactory evidence the claim will have to be rejected.
244 In this case there was no proof that any
of the reserves had been utilised. The claim in this respect was therefore
rightly rejected by the Tribunal.
[263 D-E] (vi) The letters filed by the
appellant in support of the replacement cost had not been proved by any of the
persons who wrote them or any of the representatives of the firms whose letters
they were. There was no oral evidence of the precise requirement for
rehabilitation. The Tribunal was justified in holding that the appellant had
failed to prove the original cost of the machines, plant and machinery, its
age, the probable requirement for replacement, the multiplier and the divisor.
In these circumstances this claim also had been properly disallowed.
[264 C-G] (vii) The provision for contingency
reserve and development reserve has been made under the Electricity (Supply)
Act for a special purpose, namely to work out the charges to be recovered from
the consumers for the supply of Electricity but that does not mean that these
are not to be taken into consideration in declaring bonus though they have not
been treated as prior charges. In these circumstances the amount of Rs. 55,233
had to be provided for. Except for this amount the computation made by the
Tribunal for ascertaining the available surplus was justified. [265C-D] (viii)
The available surplus found by the Tribunal was Rs. 1,29,248.. If Rs. 55,233 is
to be provided for containenvy reserve and development reserve there will be
available surplus of Rs. 74,015. The Tribunal awarded three months bonus amount
to Rs. 73,000 which works to Rs. 24,333 per month. Having regard to the
financial capacity of this Undertaking one month's bonus which will leave a
surplus for the working of the Undertakings will meet the ends of justice. [265
CIVIL APPELLATE JURISDICTION : Civil Appeals
Nos. 1254 of 1966.
Appeal by special leave from the Award dated
November 15, 1965 of the Industrial Tribunal (111), Allahabad in Adjudication
Case No. 10 of 1962.
G. B. Pai and H. K. Puri, for the appellant.
J. P. Goyal and M. V. Goswami, for respondent
P. N. Tiwari, for respondent No. 2.
The Judgment of the Court was delivered by P.
Jaganmohan Reddy J.-The Appellant is an Electricity Supply Co., and in this
Appeal by Special Leave challenges the Award made against it, by the Industrial
Tribunal (111) at Allahabad on 15th November 1965. The dispute between the
Appellant and its Workmen is one relating to the bonus payable for the year
1960-61. As an amicable settlement could not be arrived at, the 245 State of U.
P. by its order dated 24-1-1962 referred the following dispute for adjudication
to the Tribunal:
"Should the employers be required to pay
bonus to their workmen for the year 1960-61 ? If so, at what rate and with what
details ?" The case of the Appellant was that after allowing for prior
charges no available surplus was left for the payment of bonus to workmen.
According to the Company a gross profit of Rs. 6,06,684/was earned for the year
ending 31st March, 1961, but the Tribunal added to it a sum of Rs. 9,949/as
representing extraneous income and consequently computed the gross profit at
Rs. 6,16,633/-. The following prior charges were claimed by the Appellant and
we have indicated as against each one of these in the opposite columns what the
Tribunal has awarded and disallowed:-----------------------------------------------------------Amount
Amount claimed by allowed by the Appellthe Tribunal ant
-------------------------------------------------------------Expenses as per
profit and Rs. Rs. loss account: 1,32,156 1,32,156 Depreciation:
Normal 2,02,814 Notional normal: 2,02,814.
Double shift. 28,413 Double shift:Nil.
2,31,227 2,31,227 Income Tax 1,09,485 1,04
4155 Contingency Reserve 32,900 Nil.
Development Reserve 22,333 Nil.
Return on share capital 48,000 48,000 Return
on working capital 60,540 Nil.
Rehabilitation requirement 15,66,497 Nil.
Total 22,03,138 4,87,385
-----------------------------------------------------------After making the
necessary allowance as aforesaid towards deductions claimed as priorcharges
from the gross, profit (Rs. 6,16,633/minus Rs. 4,87,385/-) the Tribunal
computed the available surplus at Rs. 1,29,248/-. Out of this amount of
available surplus three months bonus which amounts to Rs.
73,000/was awarded as bonus leaving
sufficient funds for the Company to run its undertaking.
246 On behalf of the Appellant it is
contended that the Tribunal was in error in disallowing depreciation on account
of (a) double shift, (b) Income-tax, (c) return on working capital, (d) amounts
required for rehabilitation, (e) contingency reserve and (f) development
reserve, the latter two of which were statutory reserves which the under taking
had to provide for, under the schedule to the Electricity (Supply) Act.
The reasons given by the Tribunal for
disallowing the double shift depreciation was that the Company did not produce
any documents to, show the total running hours of each boiler or turbine, that
in any case the evidence relating to the running of each of the boilers and turbines
does not justify the claim for depreciation for the double shift on the entire
plant and machinery; that the Company could only claim double shift allowance
with regard to certain specified machinery and that in the previous years it
had not claimed double shift allowance nor did it claim any deductions before
the Income-tax authorities for the year in question. For these reasons it held
that the Appellant was not entitled to claim the double shift depreciation
during the year in dispute. The contingency reserve and the development reserve
were disallowed as in the view of the Tribunal they were not a charge on the
profits. The rehabilitation requirements were rejected on the ground that the
Company had failed to prove the original cost of the plant and machinery; that
it had failed to show the actual amount spent on rehabilitation of plant and
machinery either in the year in dispute or in any subsequent year; that no
rehabilitation allowance was claimed in the previous year;
that the cost of the assets of the Company
had not been duly proved as engineers were not called and that the quotations
produced by the Company could not be relied upon. The return on working capital
was disallowed on two grounds;
namely that the calculation of the working
capital has been made on the basis of the assets and rehabilitation as they
stood on the closing day of the year 1960-61 namely on 31-361 Which is a
mistake because whatever may have been the assets and liabilities at the end of
the year they would not be the same at the beginning of the year nor could they
be applied as the working capital. The second ground is that on the evidence it
cannot be established that 247 any reserves were utilised as working capital,
nor was there any necessity to do so.
Before us the learned Advocate of the
Appellant has urged that the Tribunal was not justified in rejecting the
material placed before it, from which the several deductions claimed by it
ought to have been allowed in computing the available surplus. It will be
convenient to deal with each of the items separately but before doing so we
wish to set out several factors and certain essential features which have to be
taken into consideration in claims made by workmen for bonus. The basic
assumption which has been accepted by this Court approving the first and second
Full Benches of the Labour Appellate Tribunal is that the award of bonus is not
by way of an ex-gratia payment but in furtherance of social justice the claim
of capital and labour which contribute to the earnings of the industrial
concern, make it equitable to grant labour the benefit of their efforts if
there is a surplus. The first full Bench in the Mill Owners Association, Bombay
v. The Rashtriya Mazdoor Sangh, Bombay and Anr.(i), had laid down a general
formula applicable for determining the available suprplus of an Industrial
undertaking for the purposes of awarding bonus to its workmen. The first step
in this regard is the ascertainment of the gross profits of a concern, which
are arrived at after payment of wages and dearness allowances to the employees
and other items of expenditure. The next step is to ascertain what are the
prior charges which have to be deducted from the gross profits in order to
arrive at the available surplus.
The Full Bench formula concerns the claim of
capital -to prior charges which have to be taken into account to give a fair
return to the investor and also to keep the industry working efficiently which
in the long run will inure to the benefit of labour. The items considered as
prior charges are : (1) fair return on-(a) paid up capital; (b) working
capital; (c) reserves utilised as working capital which obviates the necessity
to borrow at higher rates of interest. (2) Amount of money required for
replacements rehabilitation and modernization of machinery. (3) Depreciation
allowed by the Income-tax authorities being only a percentage of the Written
down value, the fund set apart (1)  L.L.J. 1247.
17-M 1245 Sup. Cl/71 248 yearly for
depreciation and designated under that head would not be sufficient for these
purposes, so an extra amount would have to be annually set apart under the
heading reserves to make up the deficit. The question what is the ratio of the
available surplus which could be awarded as a bonus was also considered. The
Full Bench felt that the answer was not an easy one, but essentially the
quantum of bonus must depend upon the relative prosperity of the concern during
the year under review which is reflected in the amount of surplus; the needs of
labour at existing wages is also a consideration of importance. It observed in
"........ but we should make it plain
that these are not necessarily the only considerations; for instance no scheme
of allocation of bonus could be completed if the amount of which bonus is to be
paid is unrelated to the employees" efforts; and even when we have
mentioned all these considerations we must not be deemed to have exhausted the
This Court in Muir Mills Co. Ltd. v Suti Mill
Mazdoor Union, Kanpur(1), generally accepted as sound the view of the Full
Bench, that since labour and capital both contribute to the earnings they
should derive benefit, if there is a surplus after meeting the four prior or
necessary charges specified in the formula. However, neither the priority as
between the four prior charges and their relative acceptance nor the conditions
upon which they were allowed was examined by this Court, but it was
nevertheless held that bonus is neither a gratuity nor gift nor can it be
regarded as deferred payment. The principles enunciated by the First Full Bench
had been approved in U. P. Electricity Supply Co. Ltd. v.
Their Workmen(2) as being also applicable to
Electricity Undertakings. It was pointed out that in determining the available
surplus it is not the profits that have to be determined as required under the
Electricity (Supply) Act 54 of 1948, which had to be, considered but the gross
profits as computed from the balance sheet and profit and loss account to be
prepared under the Companies Act, subject to scrutiny if challenged. The reason
for (1)  (1) S.C.R. 991. (2) .(2) L.L.J.
249 non-applicability of the Electric
(Supply) Act according to this Full Bench was that the object of 'the Act being
to reduce the price of electricity which was affected by fixing a maximum above
which the profits of the concern shall not rise, the formula of the first Full
Bench which was intended to do social justice was at variance with the purpose
which the Electricity (Supply) Act was intended to subserve. The Tribunal said
at page 4381:
"There is therefore no basis between the
two for any convergence on the point of bonus as now understood; it is not
permissible to inject the Full Bench items into the Electricity (Supply) Act
and on the other hand the accounting under the Electricity (Supply) Act is at
variance with normal commercial practice under the Companies Act and with the
basis of our Full Bench decision. In the result we have come to the conclusion
that our Full Bench decision must reapplied as a whole for the ascertainment of
bonus of these concerns. This, however, does not preclude consideration of the
suggestions for clarification and modification.............." This
decision was approved by this Court in Shree, Meenakshi Mills Ltd. v. Their
Workmen(1) but that was not a case dealing with an Electricity undertaking. The
case which dealt directly with an Electricity Undertaking was
Tinavelly-Tuticorn Electric Supply Co. Ltd. (also referred to as T. T. E.
Supply Co.) v. Their Workmen.(2), In this case also this Court held that the
Full Bench formula was applicable to electrical undertakings and to the formula
relating to the statutory depreciation except for additional and initial
depreciation-though there was nothing in it which would indicate whether the
depreciation deductible was according to the Electricity (Supply) Act or the
Income-tax Act. There is however, no doubt that in the U. P.
Electricity case the Full Bench did in fact
apply the income-tax Rules for ascertaining depreciation. In Ahmedabad
Miscellaneous Industrial Workers Union v.
Ahmedabad Electricity Co. Ltd.(1) the Full
Rench formula applying the Income-tax Act rules to ascertain depreciation as a
prior charge was approved. It was also observed that it was not open to the
Appellant to raise the question that (1)  S.C.R. 87 (2) (3) S.C.R.
3  2 S.C.R. 934.
25 0 the provisions of the seventh schedule
to the Electricity (Supply) Act should be applied for purposes of calculating
depreciation in preference to the income-tax rules in working ,out the Full
Bench formula. Even on the assumption that the question was still open, because
as Wanchoo, J., -observed "it was never directly raised in this Court and
specifically decided" they were of opinion that the Incometax rules should
be applied in preference to the provisions of the Seventh Schedule to the
Electricity (Supply) Act.
The reasons for arriving at that conclusion
are given at pages 939-941. In Associated Cement Companies Ltd. v. Its
Workmen(1), Gajendra gadker, J., (as he then was) said at page 944 with
reference to Muir Mills Company case that:
"neither the propriety nor the order of
the priority as between the four prior charges and their relative importance
nor their content was examined by this Court in that case; and though the
formula has :subsequently been generally accepted by this Court in several
reported decisions...... the question about -the adequacy, propriety or
validity of its provisions has not been examined nor had the general problem
,as to whether the formula needs any variation, change ,,or addition been
argued and considered. It is for the first tinge since 1950 that in the present
appeals, we are ,called upon to examine the formula carefully and express our
decision on the merits of its specific provisions." Having examined the
several aspects of the formula in great ,detail and if we may say so with
respect with some thoroughness the various matters dealt with by the two
Tribunals -in respect of the prior charges relating to depreciation, income tax;
fair return on capital, fair return on reserves utilised -as working capital
and any amount required in excess ,of the depreciation for the purpose of
rehabilitation, replacement and modernization of machinery, the formula evolved
there in has been approved. In the application of the formula for determining
the available surplus, the balance sheet and profit and loss account of an
undertaking are important documents. At any rate the proof of the various prior
charges has to be given, after affording an (1) 1959 S.C.R. 925.
251 opportunity to the workmen, if need be,
by the cross -examination to contest it.
The formula of the Full Bench both in the Tex
til case and its application to the Electricity Undertakings as held in the U.
P. Electricity case has now been accepted by this Court in several cases with
further clarification and elucidation. We can therefore deduce the following
principles for ascertainment of the available surplus in respect of an
Industrial undertaking and/or an Electricity Undertaking:
(1)First gross profits have to be a
scertainad and for that purpose the balancesheet and the profit and loss
account as required under the Companies Act has to be looked into. If the
entries are contested then they have to be proved like any other contested
(2)The relevant year for which bonus is
claimed is a self sufficient unit and the appropriate accounts have to be made
on the notional basis in respect of the said year.
'Once the bonus year is taken as a Unit self
sufficient by itself the decision of the Labour Tribunal in regard to the
refund of excess profits tax and the adjustment of the previous years
depreci-ation and losses against the bonus year's profit must be treated as
logical and sound.' (3)The ascertainment of depreciation is according to the
Income-tax Act and what is allowed as a prior charge is the annual notional
normal depreciation and not the actual depreciation which is in fact allowed.
The formula of the Full Bench in the U.P. Electricity
case as explained and clarified in Surat Electricity"Co. Ltd. Staff Union
v. 'Surat Electricity Co. Ltd., (1) was approved in the Ahmedabad Miscellaneous
Industrial Workers Union case and in the case in Hamdard Dawakhana Wakf v. Its
Work-. men & Ors. (2) Apart from the notional normal depreciation the
depreciation allowable under Income-tax Act for multiple shift is also
(1)  (2) L..LJ. 648.
(2)  (2) L.L.J. 77225 2 (4)In
calculating the Income-tax for deduction as prior charge it is not the notional
normal depreciation alone that has to be deducted but the statutory
depreciation namely the concessions given under the Income-tax Act to the
employers which would include the depreciation for multiple shifts if any, and
thereafter the Income-tax will have to be calculated.
(5) Return on paid up capital allowable for
deduction from the gross profits is 6%. This 'is generally the formula adopted
by the Full Bench for Industrial Undertakings though it has been known to have
allowed a slightly higher percentage of return in risky undertakings like
(6) Return on working capital. This amount is
also allowed but at a lower rate. The formula as approved by this Court is that
if it is shown that the reserves were available and -were actually used as
working capital whether the reserves utilised were depreciation reserves or any
other, a return from 2% to 4% is allowable according to the industry, taking
into consideration any special circumstances which may justify a claim for a
higher interest. The utilisation of the reserves obviate the necessity to
borrow from outside sources and pay higher interest which will be to the
detriment of labour as the available surplus is likely to be less on this
account,Workmen v. Hindustan Motor Ltd.(1) (7)Rehabilitation reserve also has
to be provided for in order to keep the original capital of the business in
tact because assets of an Undertaking waste -and or lost by the end of a
particular period depending on the nature of the Undertaking and its asset. The
-only value of such assets at the end of the period is , the scrap value. It is
therefore necessary in the interest of labour as well as capital to provide for
depreciation of such assets yearly and also to take into account and provide
for the rise in prices after the war. The determination of this reserve poses
problems, but it was suggested that a reasonable method would be first to
divide the undertaking into (1)  (2) S.C.R. 311 340, 342, 344.
253 blocks such as "Plant and
machinery" on the one hand and other assets like Roads, Buildings, Railway
sidings etc. on the other.
Then the cost of these separate blocks has to
be ascertained and their probable future life has to be estimated. Once this
estimate is made it becomes possible to anticipate approximately the year when
the Plant or machinery would need replacement; and it is the probable' price of
such replacement on a future date that ultimately decides the amount to which
the employer is entitled by way of replacement cost. The claim for
rehabilitation includes also the claim for replacements and modernization. It
is quite conceivable that certain parts of machines, which constitute a block
may need rehabilitation though the block itself can carry on for a number of
years. This process of rehabilitation is a continued process and unlike
replacement, its date cannot always be fixed or anticipated. So with
modernization all these three items are included in the claim for
rehabilitation. It is therefore necessary for tribunals to exercise their discretion
in admitting all available evidence to determine this difficult question. For a
fuller discussion in see: The Associated Cement Companies case at pages
966-968. The probable cost is reached by adopting a multiplier based on the
rates between the cost price of the plant and machinery and the probable price
which may have to be paid for its rehabilitation, replacement or modernization.
The older the plant, the higher the multiplier and hence the area of conflict
between the employer and employees is larger, the former allowing the asset to
become older to get a higher multiplier and the latter feeling aggrieved
because of it as the provision made therefor reduces the available surplus in
the bonus year. After as curtaining the multiplier, a divisor has to be adopted
in respect of each block in order to ascertain the annual requirement of the
employer in that behalf year after year. As this provision constitutes a large
amount which eats into the gross profits and reduces the surplus the Tribunals
must call for all relevant material evidence from the employer and the
employees should be allowed to properly test it by cross-examination.
25 4 The deductions specified in items (5),
(6) and (7) like those in items (3) and (4) are prior charges.
(8)In Mathura Parshad Srivastava v. Sagour
Electric Supply Co (1)., at page 309 the claim for contingency reserve and
development reserve which have to be provided under the Electricity (Supply)
Act was upheld. It was observed that though these do not constitute a prior
charge they have to be taken into consideration, to arrive at the figure of
bonus after ascertaining the available surplus. The Tribunal cannot fix such a
high figure of bonus as to leave insufficient funds in the hands of the Company
and make it difficult to provide for these two statutory reserves. After taking
these into consideration the ratio of available surplus for distribution as
bonus would depend on a number of factors and is not susceptible to any general
formula. What these factors are were posed in the form of series of questions
by Gajendragadkar, J., at page 973-974 in the Associated Cement Co's case, such
as what are the wages paid, what is the extent of the gap betwe en the same and
a living wage, has the employer set apart any gratuity fund, what is the extent
of the available surplus, what is the general financial position of the
employer, what are the dividends paid and has the employer to meet any urgent
The fact that the employer would be entitled
to a rebate of Income-tax on the amount of bonus paid to his workmen has also
to be taken into account and in many cases it plays a significant part in the
It was also held that overtime payment ought
not to have been taken into account as part of the basic wage in calculating
This innovation would make an unreasonable
distinction between workmen and workmen on the basis thatG some have
contributed more and the others less to the earning of profits.
We now propose to examine each of the claims
of the Appellants in the light of our observations as to the formula applicable
in determining its validity or otherwise.
At the outset it may be noted that on behalf
of the Appellant (1)  (2) L.L.J. 307.
255 only a solitary witness, M. K. Ghosh a
Chartered Accountant of the Company who on his own admission had joined the
Company six months prior to his giving_ evidence was produced. Obviously this
witness could not speak about the relevant matters from his personal'
knowledge. Apart from this infirmity the Tribunal has characterised his
eividence as contradictory, evasive and not reliable.
Innumerable statements, letters, balance sheet,
profit and loss account and other documents called for or otherwise were filed
on behalf of the Appellants. It cannot be denied that the mere filing of any of
the aforementioned documents does not amount to proof of them and unless these
are either admitted by the Respondents. or proved they do not become evidence
in the case.
On this aspect it was observed in Associated
Cement Companies case at page 956:
"As a general rule the amount of gross
profits thus ascertained is accepted without submitting the, statement of the
profit and loss account to close scrutiny. If however, it appears that entries
have been made deliberately and Male-fide to reduce the amount of gross
profits, it would be open to the Tribunal to examine the question.......
The case of the Indian Hume Pipe Co., Ltd.,
v. Their Workmen (1) however seems to have given scope for the contention that
the balance-sheet could be relied upon for proving that certain amounts stated
therein were available for use as working capital and that it showed that they
wherein fact so used. In fact in that case it was conceded that the reserves
were in fact used as working capital. Bhagwati J., who delivered the Judgment
of the Court, presumably to meet the contention that the balance-sheet had not
been proved, observed at page 362 thus:
"Moreover, no objection was urged in
this behalf, nor was any finding to the contrary recorded by the
Tribunal." This case was considered in Khandesh Spinning & Wvg. Mills
Co. Ltd., v, the Rashtriya Girni KamgarSangh, Jalgaon, (2) it was pointed out
that the observation is made;
(1)  (2) L.L.J. 357.
(2)  (2), SC.R. 841.
25 6 by Bhagwati J, were not intended to lay
down the law that the balance-sheet by itself was good evidence to prove as ,
fact the actual utilisation of reserves as working capital Subba Rao J. (as he
then was) in that case, while dealing with the importance or rehabilitation
reserve in the calcula -tion of the available surplus pointed out that it was
necessary for Tribunals to weigh with great care the evidence -of both parties
to ascertain every sub-item that went into or subtracted, from the item of
If parties agreed figures could be accepted.
It they agreed to a decision of affidavits, that course could be adopted.
But in the absence of.agreement the procedure
prescribed by Order XIX, Code of Civil Procedure had to be followed. He said at
"The importance of this question in the
contestant 01 fixing the amount required for rehabilitation cannot be
over-estimated. The item of rehabilitation is generally a major item that
enters into the calculations for the purpose of ascertaining the surplus and
therefore, the amount of bonus. So, there would be a tendency on the part of
the employer to inflate this figure and the employees to deflate it. The accoun
ts of a Company are prepared by the management. The balance sheet and the
profit, and loss account are also prepared by the Company's officers.
The labour has no concern in it. When so much
depends on this item, the principles of equity and ,justice demand that an
Industrial Court should insist upon a clear proof of the same and also give a
real and adequate opportunity to the Labour to canvass the correctness of the
particulars furnished by the employer," At Pages 847-850, the Indian Hume
Pipe Co's case (citation given is incorrect--the -correct citation is 1959 (2)
LLJ given in the report incorrect) and Anil Strach Products Ltd.
v. Ahmedabad Chemical Workers Union, cases
(1) were referred to and discussed. It was pointed out that Anil Starch
Products Ltd., again reinforced the view of this Court that proper opportunity
should be given to the labour to test the correctness of the evidence given on
(1) Civil Appeal No. 684 of 1957.
257 affidavit on behalf of the management in
regard -to the use of the reserves as working capital.
In Petlad Turkey Red Dye Works Ltd., v. Dyes
& Chemical Workers Union, Petlad & Anr. (1)., the question whether the
balance-sheet can be taken as proof of claim as to a portion of the reserve
that has been used as working capital was again considered. The Khandesh
Spinning & & Wvg. Mills case as well as the Management of Trichinopoly
Mills Ltd. v.National Cotton Textile Mills Workers Union (2) were referred to
with approval. The contention that Indian Hume Pipe's case held otherwise was
pointed out to be not justified for "If it had been intended to state as a
matter of law that the balance-sheet itself was good evidence to prove the fact
of utilisation of a portion of the reserve as working capital it would have
been unnecessary to make the observations referred to at page 362.
In the Petlad Turkey Red Dye Works(1) case it
was pointed by reference to the Trichinopoly Mills (2) case that the question
as regards the sufficiency of the balance sheet itself to prove the fact of
utilisation of any reserve as working capital was also considered and it was
held "that the, balance sheet does not by itself prove any such fact and
that the law requires that such an important fact as the utilisation of a
portion of the reserve as working capital has to be proved by the employer by
evidence given on affidavit or otherwise and after giving an opportunity to the
workman to contest the correctness of such evidence by cross-examination".
In Bengal Kagazkal Mazdoor Union v. Titaghur
Paper Mills Co. Ltd. (3) Wanchoo J., (as he then was) observed at page 45 :
"It is now well settled that the
balance-sheet cannot be taken as proof of a claim to what portion of reserves
has actually been used as working capital and that the utilisation of a portion
'of the reserves as working capital has to be proved by the employer by
evidence on affidavit or otherwise after giving opportunity to the workmen to
contest the correctness of such evidence by crossexamination (1)
2S.C.R.906. (2)  2 L.L.J. (S.C.) 46.
(3)  3 S.C.R. 38.
258 (See Patlad Turkey Red Dye Works Ltd. v.
Dyes & Chemicals Workers' Union)".
An attempt is however made by the learned
Advocate for the Appellant to persuade us that as the Evidence Act does not
strictly apply the calling for of the several documents particularly after the
employees were given inspection and the reference to these by the witness Ghosh
in his evidence should be taken as proof thereof The observations of Venkatram
lyer J, in Union of India v. Varma, (1) to which our attention was invited do
not justify the submission that in labour matters where issues are seriously
contested and have to be established and proved the requirements relating to
proof can be dispensed with. The case referred to above was dealing with an
enquiry into the misconduct of the Public Servant in which he complained he was
not permitted to cross-examine. It however turned out that he was allowed to
put questions and that the evidence was recorded in his presence. No doubt the
procedure prescribed in the Evidence Act by first requiring his
chief-examination then to allow the delinquent to exercise his right to
crossexamine him was not followed, but that the Enquiry Officer, took upon
himself to cross-examine the witnesses from the very start.
It was contended that this method would
violate the well recognised rules of procedure. In these circumstances it was
observed at page 264:
"Now it is no doubt true that the
evidence of the Respondent and his witnesses was not taken in the mode
prescribed in the Evidence Act;
but that Act has no application to enquiries
conducted by Tribunal even though they may be judicial in character. The law
requires that such Tribunals should observe rules of natural justice in the
conduct of the enquiry and if they do so their decision is not liable to be
impeached on the ground that the procedure followed was not in accordance with
that which obtains in a Court of Law".
But the application of principle of natural
justice does not imply that what is not evidence can be acted upon. On the
other hand what it means is that no materials can be relied upon to establish a
contested fact which are not (1)  2 L.L.J. 259, 263-264.
259 spoken to by persons who are competent to
speak about them and are subjected to cross-examination by the party against
whom they are sought to be used. When a document is produced in a Court or a
Tribunal the questions that naturally arise is, is it a genuine document, what
are its contents and are the statements contained therein true.
When the Appellant produced the balance-sheet
and profit and loss account of the Company, it does not by its mere production
amount to a proof of it or of the truth of the entries therein. If these
entries are challenged the Appellant must prove each of such entries by
producing the books and speaking from the entries made therein. If a letter or
other document is produced to establish some fact which is relevant to the
enquiry the writer must be produced or his affidavit in respect thereof be
filed and opportunity afforded to the opposite party who challenges this fact.
This is both in accord with principles of
natural justice as also according to the procedure -under Order XIX Civil
Procedure Code and the Evidence Act both of which incorporate these general
principles. Even if all technicalities of the Evidence Act are not strictly
applicable except in so far as Section 11 of the Industrial Disputes Act 1947
and the rules prescribed therein permit it is inconceivable that the Tribunal can
act on what is not evidence such as hearsay, nor can it justify the Tribunal in
basing its award on copies of documents when the originals which are in
existence are not produced and proved by one of the methods either by affidavit
or by witnesses who have executed them, if they are alive and can be produced.
Again if a party wants an inspection, it is incumbent on the Tribunal to give
inspection in so far as that is relevant to the enquiry. The applicability of
these principles is well recognised and admit of no doubt.
We now propose to examine the claim under
each one ,of the heads, not-only those in respect of the prior charges but also
in respect of contingency and development reserves which have to be taken into
consideration for determining the amount of bonus to be declared out of the
The first claim is in respect of depreciation
on account of double shift. The Appellant did not claim any depreciation in
respect of electric cables. The only 2 6 0 was relating to plant and machinery
which comprises of boilers and turbines. Ghosh P. W. I stated that the plant
and machinery worked more than double shift. In support of his statement he
filed Exhibit E. 16 which he stated was correct as he had verified it from the
records. Exhibit E.16 is not a document prepared by the witness but appears to
have been prepared and signed by the Resident Engineer, according to which the
total number of hours which the four boilers and the four turbines had worked
during 1960-61. So far as boilers are concerned all of them are said to have
worked 21,327 hours the average of which for each boiler for the year was
computed at 5,331 8 hours. Similarly the turbines worked 21,629 hours which
works out to an average of 5412 -3 hours per turbine per year. If the year is
taken as 365 days the average for the boiler and turbine works out to 14.6 and
14.8 hours while if it is taken as 300 days it works at 17.77 and 18.04 hours
respectively. The Appellant contends that there is no cross-examination of
witness Ghosh nor have the employees challenged this statement.
Accordingly he submits that a sum of Rs.
28,413/should be allowed. It is however admitted that no claim was made before
the Income tax Officer nor has any amount been allowed in the Company's
assessment for the relevant year (see Ex.11). But even if the amount was not
claimed under the Income tax Act, that does not by itself preclude us from
allowing direction for double or multiple shifts but in this case the
difficulty is that there is no -proof as such of the plant and machinery
working double shift. We are asked to assume that any an Electricity
Undertaking the boilers and turbines must be working throughout at any rate
more than 8 hours. We however, do not know to what extent each of these were
working for how many days and how many hours each day. The Resident Engineer
was not produced nor was Ghosh in a position to speak to the facts of the statement
therein from his knowledge or in any a credible manner as to make his evidence
acceptable. The Tribunal said that the veracity of the statement Ex. 16 is also
doubtful because the employers have not produced anything before it to show the
total running hours of the boilers or turbines.
It further went on to say "The Statement
of M. K. Ghosh is self contradictory. He has said one thing at one time and
quite another at another place in 2 6 1.
respect of the same matter. The Tribunal had
to put to the witness scores of questions in order to clarify or in order to
ascertain which of the two statements made-, by the witness could be taken to
We think the Tribunal was justified, in
claim. In view of this disallowance the
amount to be, allowed as prior charge towards depreciation wil have to be
computed after allowing for the notional depreciation. In calculating the
amount deductible from gross profits. on account of Income-tax the learned
Advocate of the Appellant contends that the Tribunal's calculations were:
wrong. What the tribunal has done-is though it deducted the notional normal
depreciation of Rs. 2,02,814/from the gross profits it had for the purposes of
computation of' Incometax deducted the statutory depreciation of Rs. 2,52,442/and
on the balances of that figure namely Rs.. 2,32,035/computed Income-tax @ 45%
amounting to. Rs. 1,04,415/-. If the contention of the learned Advocate, for
the Appellant was accepted and only the notional nor-mal depreciation alone was
deducted for computing the Income-tax the Income-tax deductible would come to
Rs.. 1,26,748/-. It was again sought to be contended that the development
rebate on plant installed @ 25 % on, Rs. 1,28,513/amounting to Rs. 49,628/could
not form. part of the statutory reserve which together with the notional normal
depreciation came to Rs.
2,52,4421-. It was submitted that development
rebate is not one of the species of' depreciation; that it is a rebate for
development which is, dehors depreciation and has nothing to do with the
written down value of the asset for calculating depreciation. From the Tribunal's
order it would appear that there was no dispute with respect to the provision
for Income-tax or its. quantum because after deducting the amount of statutory
depreciation the amount as computed at 45 % is Rs. 1,04,415/which was the
amount claimed by it as statutory reserve as per Ex. E. 13. That the deduction
of statutory allowance for computing Income-tax is the true principle is borne
out by the decisions of this, Court. The contention that only notional normal
depreciation and not statutory, depreciation should be taken into account was
raised in Bengal Kagazkal Mazdoor Union. v. Titaghur peper Mills Co. Ltd.,
where Wanchoo J. (as he then was) at page:
2 6 2 44 negative it but nonetheless, because
the quantum of statutory depreciation was in controversy and it was not
possible to calculate the correct amount of Income'-tax to be calculated in the
absence of evidence, the case was remanded to the tribunal for further evidence
for arriving at the correct statutory depreciation to compute the Income Tax. Reference
was also made to the Meenakshi Mills case and the Associated Cement Companies
case. In the latter case it was held at page 962 that in calculating the amount
of tax payable for the bonus year the Tribunals should take into account the
concessions given by the Income-tax Act to the employers under the two more
depreciations allowed under S. 10 (2) (vi) of the Income-tax Act. In Burn &
co Ltd. v its Workmen(1) also it would -appear "that the Income-tax after
making the allowance for statutory depreciation and development rebate was
computed". Though it is said that no reasons were given ,this computation
is in consonance with the decisions of this Court. In this view the computation
of Income-tax by the Tribunal after deducting the statutory depreciation cannot
be assailed. The amount deductible on this account will be Rs. 1,04,415/-.
Two further items are sought to be deducted
as prior charges namely the return on working capital and the amounts required
for rehabilitation. The claim of the Appellant for return on working capital
was Rs. 40,360/which is 6 % on Rs.
10,09,000/said to have been employed in the
The Tribunal referred to Ex. E. 17 in which
details of the reserves used as the working capital have been given as also
another statement Ex. E. 18 which showed details of the approximate working
capital required for running the Undertaking. Ex. E. 6 is a statement. Showing
the annual wages and salaries and E. 7 shows ,deficiency of surplus of funds
for normal working of the Undertaking. The Tribunal attached no value to these
-statements as the calculations of working capital was arrived at on the basis
of assets of reserve as they stood on 31-3-61 i.e. on the closing day of the
year 1960-61. The ,learned Advocate for the Appellant had to concede that the
'Tribunal was right in rejecting this basis as the basis for working capital.
What he says should have been done ,was to have taken the amount at the
beginning of the year  5 S. C.R. 823.
263 namely 1st April 1960 and to add to this
amount the amount of reserve actually utilised during the bonus year as working
capital. The evidence of Ghosh in this as in other matters was of little
assistance to the Appellant. While he stated that Rs. 10,09,000/was the working
capital of the Company during the year, in cross-examination he admitted that
the consumers deposits have been used in the business as working capital. Later
on he sought to explain it by an application in which he said that what he
meant was that the consumers deposit had been invested in the business. The
Tribunal has carefully gone through this evidence and was of the view that
Ghosh has given contradictory and false statements in respect of the consumers
deposits not being used as working capital. This apart as already stated, he
has no personal knowledge. In any case the Tribunal has on an examination of
the Cash Book and profit and loss account Ex. W. 16 and E. I held that the
receipts of the concern are little more than two lacs a month which amount by
itself would be sufficient to meet its day-to-day expenses. In considering a
claim for return on working capital two questions must be kept in view; whether
'the reserves were available and if they were, whether they were used as
working capital and if so, what is that amount. These are questions of fact and
if the employer fails to establish by satisfactory evidence the claim will have
to be rejected.
In this case we may point out there is no
proof, that any of the reserves have been utilised.
Lastly the claim for rehabilitation has also
to be rejected on the same grounds. We have already discussed the approach that
has to be made in considering this claim. As rehabilitation reserve is a
substantial item which goes to reduce the available surplus and as a result,
effects the right of the employee to receive the bonus, the employer will have,
to place all relevant materials and the ,Tribunal will have to scrutinise these
carefully and be satisfied that the claim is justified At the same time it is
equitable also in the larger interest of the industry as well as of the
employees that proper rehabilitation reserve should be built up taking into
consideration the increase in prices in plant and machinery which has to be
replaced at a future date and by the determination of a multiplier and its
divisor. The case of the Appellant is that the requirement of the Undertaking
in this regard is Rs. 15,66,496/-.. The assets .
MI245 SupCI/71 26 4 required to be replaced
have been divided into three blocks -one upto 31-12-59, the second from
January, 1940 to December 1947 and the third from January 1948 to March 31,
1961. Certain statements were filed which were intended to show what the yearly
replacement cost as well as the original cost was, as also the life and the
yearly requirements of all the assets, the multiplier and divisor.
In support of the replacement cost, quotation
of prices Ex.E. 21 to E. 24 have been filed. These are from M/s. Martin Burn
Ltd., as Agents of M/s. C. A. Pearson & Co. Ltd., Babcocks & Willcox of
India (P) Ltd., -Indian Cable Co.
Ltd., representing British Insulated Calendar
Cables Ltd., and the Indian Iron & Steel Co. The first objection against
the admissibility of these letters is that they have not been proved by anyone
of the persons who have written these letters or any of the representatives of
the firms whose letters they are. As has been noticed Ghosh is the omnibus
witness and he has no knowledge whatever in respect of any of the matters stated
therein nor can he speak to the precise requirement for rehabilitation. It is
rather surprising that the employer who is making such a big claim have not
called any one as a witness who can speak with knowledge of the age, the,
requirements and the increase in the prices of replacements. The original cost
,of these blocks has been prepared by Shri Chatterji (Ex. E. 19 and Ex. 20).
But he has, not been produced and an ,attempt was made to prove them through
the evidence of Ghosh. The Tribunal states that a number of questions were put
to the witness to ascertain as to how he calculated the original cost and his
reply was that the same has been taken from the balance-sheet. The
balance-sheets for ,earlier years have also not been produced to show what the
original cost was.
The Tribunal has examined these matters and the
evidence relating thereto in great detail ,and we agree with it that the
Appellant has failed to prove the original cost of the machines, plant and
machinery, its age, the probable requirements for replacement, the multiplier
and the divisor. In these circumstances this claim also has been properly
There is then the claim for contingency
reserve and development reserve which it is not disputed has to be provided
under the Electricity (Supply) Act amounting to Rs. 32,900/and Rs. 22,333/respectively
in all Rs. 55,233/-.
265 The Tribunal, however, has disallowed
this claim on the round that since they have been created under the Electricity
(Supply) Act which according to its understanding of the legal position, could
not be deducted. These two reserves it may be stated have to be created under
the provisions of Clause V and Clauses V (a) of the Sixth Schedule of the Electricity
(Supply) Act, 1948. The Tribunal has gone into the reason for the creation of
these reserves, their use etc. We have already examined the legal position
earlier and have noticed that the provision for the said reserves has been made
under the statute for a special purpose namely to work out the charges to be
recovered from the consumers for the supply of Electricity but that does not
mean that these are not to be taken into consideration in declaring bonus
though they have not been treated as prior charges. We have referred to the
case of Mathura Prashad Srivastava as supporting this view. In these
circumstances the amount of Rs. 55,233 /has to be provided for. Except for this
amount the computation made by the Tribunal for ascertaining the available
surplus is in our view justified. The amount found by the Tribunal in this
regard is Rs. 1,29,248/and if Rs. 55,233/is to be provided there will be an
available surplus of Rs. 74,015/-.
The Tribunal as we / said awarded three
months bonus amounting to Rs. 73,000/which works out to Rs. 24,333/per month.
We think having regard to the financial capacity of this Undertaking one
month's bonus which will leave a surplus for the working of the Undertaking,
will meet the ends of justice. We accordingly order the payment of one month's
wages as bonus. Each party will bear their own costs in this Appeal.
G.C. Ordered accordingly.