U.P. Electricity Supply Co. Ltd. Vs.
Workmen & Ors  INSC 228 (1 September 1971)
REDDY, P. JAGANMOHAN
CITATION: 1971 AIR 2521 1971 SCR 381
acquisition of company pending reference-Dispute regarding past bonus-Dutty of
Tribunal to complete adjudication and make Award.
The State Government referred under s. 4K of
Industrial Disputes Act, 1947, the question
whether the appellants were to be required to pay bonus, to their workmen for
the years 1960 to 1961 and if so at what rate.
Pending the reference the undertakings of the
appellant were compulsorily acquired. The Tribunal however, continued the
proceedings and directed the employers to pay three months' basic wage as bonus
for the period. To the profits of the company as found by the tribunal for
working out the Labour Appellate Tribunal Full Bench Formula, the tribunal
added three claims made by the workmen, namely, (1) Excess debit to coal and
fuel consumption; (2) estimated revenue for one month and (3) notional revenue
on the basis of units produced but not accounted for. The Tribunal allowed the
expenses claimed by employers as prior charge as also the notional normal
depreciation. The Tribunal also allowed as prior charge 5 per cent of the share
capital while the management claimed it at six per cent.
In appeal to this Court against the Award of
he Tribunal the appellants also raised a preliminary point that after the
appellant taking was taken over the industrial dispute, if any, between it and
its workmen ceased to exist.
Allowing the appeal,
HELD : On the facts of the case, the Tribunal
went wrong in allowing any bonus to the workers.
(1)The broad proposition that as soon as a
particular industry ceases to function any adjudication in respect of a dispute
which had occurred prior thereto becomes abortive, cannot be accepted. If the
dispute is one which relates to the past working of the industry and in
particular where the claim of the workmen is for benefits which according to
their view had accrued to them in the past, it can hardly be said that the
adjudication is without any purpose. Where the dispute, as in the present case,
is over a claim of benefits by way of bonus for work done in the past it would
be the duty of the Tribunal to complete the adjudication and make its award. No
doubt the main object of the Act is to ensure industrial peace but equally
important is the purpose behind the Act that the workmen should not be deprived
of their legitimate share of profits made by the industry. [556 C, 562 C]
Pipraich Sugar Mills Ltd. v. Pipraich Sugar Mills Mazdoor Union,  S.C.R.
872, M/s. Burn & Co.Ltd. v. Their Workmen,  S.C.R. 781, The A.C.C.
Ltd. v. its Workmen,  S.C.R. 925 at 955, 554 Banaras Ice Factory Ltd. v.
Its Workmen,  S.C.R. 143 and Automobile Products of India Ltd. v. Rukinaji
Bala,  1 S.C.R. 1241, referred to.
Hariprasad Shivshankar Shukla v. A. D.
Divikar,  S.C.R. 121 and U.P. Electric Supply Co. Ltd. v. R. K. Shukla
(2)The Tribunal went wrong in adding back the
three amounts to the gross profits.
(a)Merely because a figure is to be found in
the audited balance sheet of the company, the industrial tribunal is not bound
to accept the said figure, if challenged. But when the figures for expenses
incurred in connection with fuel given in the balance-sheet are also deposed to
by a witness the Tribunal should not have discarded the evidence of the witness
on this point. The figure as shown in the balancesheet should have been
accepted by the Tribunal and there should have been no deduction on account of
excess debit to coal and fuel consumption. [564 A, C] (b), The non-inclusion of
one month's 'revenue in respect of hulk supplies etc. was bona fide caused by
switching over to a different basis of accounting which the employer could
lawfully have done and the Tribunal was not justified in adding back the amount
to the profits as it had done. [566 B] (c)In applying the Full Bench Formula
the employers cannot be charged with any notional profits which they should
have made, although the formula itself is notional. It has never been held by
this Court that if through the inefficiency in the working of the industry or
by reason of use of defective machinery of apparatus full profits are not
received with the result that nationally labour is deprived of a share thereof,
the Tribunal adjudicating on the question of bonus payable to labour for a
particular year should add back to the gross profits as shown in the
balance-sheet the amount of profit lost through the inefficiency or negligence
of the employers. [568G] The A.C.C. Ltd. v. Its Workmen,  S.C.R. 925 at
955 and M/s. J. K. Cotton Manufacturers Ltd. Kanpur v. Their Workmen, 1954
L.A.C. 716 at 745, referred to.
(3)This Court has held that a return of six
per cent is ordinarily considered to be a fair return on the capital invested
in the case of paid up capital and also that in a particular industry where the
risk in the business was great there would be a good cause for providing for
six per cent.
Deducting the amounts allowed by the Tribunal
as prior charge as also the notional normal depreciation and allowing a return
on the capital at six per cent the available surplus would not be enough to
meet the provisions for Statutory Contingency Reserve and Statutory Development
Reserve. While it is true that these amounts cannot be considered as prior
charges far the purpose of finding available surplus they have to be taken into
consideration when the question of distribution to the workers out of the
available surplus arises. [569 C-D] M/s Burn & Co. Ltd. v. Their Workmen,
 S.C.R. 781, Pierce Leslie & Co. Ltd., Kozhikode v. Workmen,  3
S.C.R. 194, National Engineering Industries Ltd. v. its Workmen,  1
S.C.R. 779, M/s. Bareilly Electricity Supply Co. Ltd. v. The Workmen,  2
S.C.R. 241 and Mathura Prasad Srivastava v. Saugor Electric Supply Co. Ltd.
 2 L.L.J. 307, referred to.
555 & CIVIL APPELLATE JURISDICTION :
Civil Appeals Nos. 1255 and 1256 of 1966.
Appeals by special leave from the Award dated
November 16, 1965 of the Industrial Tribunal (111), Allahabad in Adjudication
Cases Nos. 9 and 12 of 1962.
G. B. Pai, Harish Chandra, H. K. Puri and B.
Ramrakhiani, for the appellant (in both the appeals).
J.P. Goyal, for respondent No. 1 (in C.A. No.
1255 of 1966).
J.P. Goyal and M. V. Goswami, for respondent
no. 1 (in C.A. No. 1256 of 1966).
P.N. Tiwari, Secretary, INTUC, U.P. in
person, for respondent No. 3 (in both the appeals).
L.M. Singhvi, and O. P. Rana, for respondent
No. 4 (in both the appeals).
The Judgment of the Court was delivered by
Mitter, J. These two appeals by special leave arise out of an award of the
Industrial Tribunal Allahabad following two references dated 24th January, 1962
by the State of U.P.
tinder S. 4-K of the U.P. Industrial Disputes
The subject matter of both the references
was, whether the employers (the appellants before this Court) should be
required to pay bonus to their workmen for the year 1960-61, and if so, at what
The U.P. Electric Supply Co., Ltd. (the
appellants herein) had two electricity undertakings, one at Allahabad and the
other at Lucknow. It carried on the business of generation and distribution of
electricity under two licences one for Allahabad and the other for Lucknow
within the areas specified therein. In pursuance of the provisions of paragraph
12 of the said licences the U.P. Electricity Board compulsorily acquired the
said undertakings of the company including the business of generation and
distribution of electricity in the areas covered by the licences with effect
from 16th September, 1964. The Tribunal had however entered on the reference on
29th January 1962 and its proceedings continued down to 16th November, 1965
when a common award was made directing the employers to pay three months' basic
wages as bonus to all the workmen entitled thereto for the year 1960-61. These
appeals are against the said award.
On behalf of the appellant, a preliminary
point was raised, viz., that after the appellants' undertaking was taken over
in September, 1964 the industrial dispute, if any, between it and its workmen
ceased to exist. The reasoning behind the argument was 556 that if the industry
itself disappeared any adjudication with regard to a dispute which had arisen
in the past would be a fruitless errand and any award made on the reference
thereafter would be ineffective. Our attention was drawn to certain decisions
of this Court in support of the above reasoning. Before we proceed to do so, we
'think it will be proper to examine the question as if it were res-integra.
In our view, the broad proposition put
forward by counsel for the appellant that as soon as a particular industry
ceases to function any adjudication in respect of a dispute which had occurred
prior thereto becomes abortive cannot be accepted. It may be that an
adjudication which concerns only the future working of the industry becomes
redundant when the industry itself comes to an end. If the dispute is one which
relates to the past working of the industry and in particular where the claim
of the workmen is for benefits which according to their view had accrued to
them in the past, it can hardly be said that the adjudication is without any
purpose. If the workmen ask for better service conditions like the revision of
wage scales, dearness allowance, medical and other facilities, gratuity etc. it
would be useless for the Tribunal to complete the adjudication and award how
the service conditions etc. ought to be bettered or revised where as industry
Where however the dispute, as in this case,
is over a claim to benefits by way of bonus for work done in the past, it would
be the duty of the Tribunal to complete the adjudication and make its award. If
the Tribunal finds that because of the service rendered by the workers in the
past an industry reaped profits whereof a portion should go to the workmen it
should not lie in the mouth of the employers to say that inasmuch as they have
ceased to carry on business their obligation to pay for service rendered in the
past should be wiped out. There is ,no logic in the submission made on behalf
of the appellants that the ascertainment of the liability even with regard to
the working of the industry in the past can take place only during the
subsistence of the relationship of master and servant between the employers and
Counsel for the appellant referred to certain
provisions in Chapter V-A of the Industrial Disputes Act, 1947 as illustrative
of his argument that in cases where legislature felt it necessary to provide
for relief to workers even after the closure or transfer of ,an industry it
made express provisions therefore. In particular, reliance was made to S. 25-FF
and 25-FFF to show that by the first of the above provisions the legislature
had provided for compensation to certain workmen where the ownership or
management of an undertaking was transferred, whether voluntarily or by
operation of law. Similarly compensation had been provided for in S. 25-FFF for
workmen in cases where on the closing down of 557 an undertaking for any reason
whatever workmen were to be treated as having been retrenched thus giving them
the benefit of retrenchment compensation. Reference was also made to S. 33-C of
the Act under which a workman could approach the appropriate Government for
recovery of moneys due to him under a settlement or an award under the
provisions of Ch. V-A of the Act. In our view, by these provisions the
legislature sought to give redress to workmen in the contingencies mentioned in
the said sections which are of common occurrence. 'these sections do not lay
down that on the closure or transfer of an undertaking the employers were to be
relieved of all other obligations to or claims of the workers. The preamble to
the Industrial Disputes Act which expressly aims at preventing strikes and lockouts
is in pari materia to the U.P. Industrial Disputes Act i.e. "to make
provision for the investigation and settlement of industrial disputes, and for
certain other purposes" cannot be read down to mean that the statute was
being enacted only for the purpose of securing industrial peace so far as the
future working of the industry was concerned. No doubt the main object of the
Act is to ensure industrial peace but equally important is the purpose behind
the Act that the workmen should not be deprived of their legitimate share of
profits made by the industry. The central object of the Act is to preserve
industrial harmony which would be meaningless if the workers of a particular
industry were to be deprived of benefits of services rendered in the past.
The first decision of this Court which bears
on this point is the case of Pipraich Sugar Mills Ltd. v. Pipraich Sugar Mills
Mazdoor Union(1). The facts in that case were shortly as follows. Owing to
continued losses suffered by the appellant its management asked the State
Government either to increase its quota of sugarcane or to permit it to sell
the mills. In pursuance of the Government's permission to sell, the mills were
sold to a Madras party. As the crushing season was on at that time the
appellant obtained from the purchaser a lease of the mills for the then current
season agreeing to deliver possession of the mills on the termination of the
lease. There were negotiations between the appellant, and the Madras party for
the former dismantling the machinery and erecting it at Madras for a lump
consideration expecting to perform the contract through its own workmen. On coming
to know of this, the workmen assumed a hostile attitude to the whole
transaction and gave a notice of strike. There were negotiations between the
parties thereafter which averted the strike and the crushing went on till the
season came to an end. Thereafter the workmen refused to help in the
dismantling of the mills.
The Government however declined to interfere
with the sale of the machinery and (1)  S.C.R. 872.
558 the management discharged the workers. In
view of the inability of the appellant to take up the contract, the purchaser
entered into direct negotiations with the workmen and concluded an agreement
with them for dismantling the machinery.. The net result was that the appellant
lost the contract, on which as admitted by the respondent, it would have earned
a profit of at least Rs. 2 lakhs. The workers having taken the benefit of a
direct contract with the purchaser for dismantling the machinery, next turned
their ,attention to the appellant, and on the basis of certain earlier letters sent
a notice to it on 19th April, 1951 asking for distribution among the workers of
the 25% labourshare of the profits on sale of machinery. The State Government
referred to an Industrial Tribunal the dispute:
"Whether the services of workmen, if so
how many, were terminated by the concern without settlement of their due claims
and if so, to what relief are the workmen
concerned entitled ?" The Tribunal held the closure of the business and
the sale of the machinery to be bona fide, that the conduct of the workmen had
been throughout unfair and such as to disentitle them to compensation but that
the promise contained in certain letters of the company to pay 25 per cent
profits realised by the sale of the mills was binding on the management. It was
held that Rs. 45,000/was thus payable to the workmen. The appeal of the
management to the Labour Appellate Tribunal being rejected, the matter came to
this Court by special leave. One of the points urged on behalf of the
appellants was that it was a condition precedent to the exercise by the State
of its power under s. 3 of the U.P. Industrial Disputes Act that there could be
no industrial dispute unless there was a subsisting relationship of an employer
and an employee; and inasmuch as the appellant had sold its mills and
discharged the workmen on 21st March 1951 no question of any relationship of
employer and employee surviving thereafter could arise and the notification
under S. 3 of the Act on November 16, 1951 was incompetent.
It was pointed out by this Court that the
entire scheme of the Act assumed that there was in existence a dispute and
"the provisions of the Act relating to lock-out, strike, lay off,
retrenchment, conciliation and adjudication proceedings the period during which
the awards are to be in force have meaning only if they refer to an industry
which is running and not one which is closed." Reference was made to
Messrs Burn & Co. Ltd. v. Their Workmen(1) and the observation of this
Court that the object of all labour legislation was firstly to ensure fair
terms to the workmen, and secondly to (1)  S.C.R. 781.
559 prevent disputes between employers and
employees, so that production might not be adversely affected and the larger
interests of the public might not suffer. Both these objects can have their
fulfillment only in an existing industry and not a dead industry. The Court
observed that if the contention of the workmen that the management by their
letters dated January 3, 1951 and January 10, 1951 had agreed to make payments
to them was well founded, the dispute related to a claim which arose while the
industry was in existence and between persons who stood in the relationship of
employer and employees, and that would clearly be an industrial dispute as
defined in the Act. It was further remarked that section 3 "only requires,
apart from other conditions, with which we are not concerned, that there should
be an industrial dispute before there can be a reference, and we have held that
it would be an industrial dispute if it arises out of an existing industry. If
that condition is satisfied, the competence of the State for taking action
under that section is complete, and the fact that the industry has since been
closed can have, no effect on it." It :Is pertinent to note the Court's
observation that "if the contention of the appellant was correct there was
nothing to prevent an employer who. intended for good and commercial reasons to
close his business from indulging on a large-scale any unfair labour practices
in victimisation and in wrongful dismissals and escaping the consequences
thereof by closing down the Industry". The Court finally held that ".
. . . on a true construction of S. 3, the power of the State to make. a
reference under that section must be determined with reference not to the date
on which it is made but to the date on which the right which is the subjectmatter
of the dispute arises, and that the machinery provided under the Act would be
available for working out the rights which had accru ed prior to the
dissolution of the business." On the merits however this Court held
against the agreement put forward by the workmen and allowed the appeal setting
aside the award of compensation made by the Tribunal.
Turning to Burn & Company's case (supra)
which was decided by the same Bench of Judges it may be noted that one of the
disputes which led to the reference by the State Government was regarding bonus
claimed by the workers. With regard to this the Court observed that the reasons
for the grant of bonus was that the workers should share in the prosperity to
which they have contributed. In The Associated Cement Companies Ltd. v. Its
Workmen(1) it was said that grant of bonus to workmen was based on a two-fold
consideration i.e.(1) labour was entitled to (1)  S.C.R. 925 at 955.
560 a share of the profits because it had
partially contributed to the same and (2) it was entitled to claim that the gap
between actual wage and living wage shall within reasonable limits be filled
Banaras Ice Factory Ltd. v. Its Workmen(,)
referred to by the learned counsel for the appellant is clearly
distinguishable. There the question arose as to the applicability of ss. 22 and
23 of the Industrial Disputes (Appellate Tribunal) Act, 1950 and referring to
the Case of The Automobile Products of India Ltd. v. Rukmaji Bala (2) it was
pointed out that the object of s. 22 of the said Act was "to protect the
workmen concerned in disputes which formed the subject-matter of pending
proceedings against victimisation" and to ensure that proceedings in
connection with industrial disputes already pending should be brought to a
termination in a peaceful atmosphere and that no employer should during the
pendency of these proceedings take any action of the kind mentioned in the
sections which may give rise to fresh disputes likely to further exacerbate the
already strained relations between the employer and the workmen. Clearly these
objects_were capable of fulfillment in a running or continuing industry only
and not, in a dead industry.
In our view the decision of this Court in
Hariprasad Shivshankar Shukla v. A. D. Divikar ( 3 ) does not support the
appellant's contention. The facts in one of the appeals which was the subject matter
of that decision were that the Barsi Light Railway Company served a notice on
its workmen on November 11, 1953 intimating that as a result of the Government
of India's decision to terminate the contract of the railway company and take
over the railway from January 1, 1954 the services of all the workmen of the
railway company would be terminated with effect from the afternoon of December
31, 1953. The notice further showed that the Government of India intended to
employ such of the staff of the company as would be willing to serve the
railway on terms and conditions which would be notified later. These were
actually intimated by the Railway Board on December 15, 1953. In substance the
new terms and conditions as embodied in the letter and three specified forms
stated that the service of the staff employed by Government would be treated as
continuous for certain specific purposes only, such as contribution to
provident fund,, leave, passes and privilege ticket orders, educational and
medical facilities etc. But it was made clear that previous service under the
railway company would not count for the purpose of seniority. Soon thereafter
the President of the Railwaymens' Union filed a large number of application on
behalf of the erstwhile workmen (1)  S.C.R. 143.
(2)  1 S.C.R. 1241.
(3)  S.C.R. 121.
561 of the railway company under s. 15 of the
Payment of Wages Act, 1936 for payment of retrenchment compensation to the
said workmen under el. (b) of S. 25V of the Industrial Disputes Act, 1947. The
application were made to the Civil Judge of Madha, the authority under the. Payment
of Wages Act The issues framed by the Civil Judge were-(1) Whether the
authority under the Payment of Wages Act, 1936, had jurisdiction to deal with
and adjudicate on the claim of retrenchment compensation; (2) whether the
erstwhile workmen were entitled to claim compensation under el. (b) of S. 25F
of the Act; add (3) whether they had been retrenched by their former employer.
The Civil Judge found against the workmen on issue No. 1 but in their favour on
the other two issues. In writ petition before the High Court of Bombay the
parties agreed that-the matter should be decided on merits and not on the
question of jurisdiction. The High Court held that the workmen were entitled to
claim compensation under s. 25-F(b) of the Act and the railway company was
liable to pay such compensation. The main argument turned on the question as to
whether the definition clause regarding retrenchment i.e. s. 2(oo) of the Act,
covered the cases of closure of business when the closure was real and bona
fide. It was in these circumstances that the court observed that (p. 135)
"........ except perhaps S. 25FF (inserted in 1956...... ) which can be
said to bring a closed or dead industry within the purview of the Act the
provisions of the Act, almost in their entirely, deal with an existing or
continuing industry. All the provisions relating to lay off in ss. 25A to 25E
are also inappropriate. in a dead business." On the question, as to
whether on the death of an employer or on the reconstruction of a company the
former business carried on by the heirs or by the reconstructed company the
workmen would be entitled to retrenchment compensation though they continued in
service as before, this Court observed that there must be compelling reasons in
the words of the statute before it could be held that such was the intention of
In our view neither the observation in this
case nor in U.P.
Electric Supply Co. Ltd. v. R. K. Shukla and
Another(1) have any application to the facts in the case before us.
Retrenchment has been specially provided for
by the legislature and the questions of closure of an industry and the transfer
of an industry have been expressly provided for in the Industrial Disputes Act.
Although the main purpose of the Act is to provide for collective settlement of
disputes and maintenance of industrial peace we cannot hold (1) -1 S.C.R.
2-L3Sup.CI/72 562 that a tribunal which is
called upon to adjudicate on a dispute relating to a share of the profits
earned by the company in the past on behalf of the workmen becomes functus
offcio or that the dispute becomes incapable of determination under the Act
when the industry is closed.
The claim, as already pointed out is for
services rendered in the past and the dispute was a live one at the time when
the reference was made by the State Government and indeed continued so for more
than three years thereafter. It was only because of the protracted proceedings
of the tribunal that the award came to be made as late as November 1965.
The closure of the business long after the
rendering of the services by the workmen and the reference of the dispute to
the tribunal cannot wipe out the claim of the workmen or annul the adjudication
in respect thereof.
This brings us to the merits of the case. The
profits of the company for working out the Labour Appellate Tribunal Full Bench
formula as found by the Tribunal for the relevant year was Rs. 23,42,352/The
tribunal however added back thereto three claims made by the workmen, namely,
(1) excess debit to coal and fuel consumption. 67,817; (2) estimated revenue
for one month Rs. 1,85,519 and (3) notional revenue on the basis of units
produced but not accounted for Rs. 2,50,000/ which would raise the figure of
profits to Rs. 28,54,803. We find ourselves unable to accept any of the above
additions made by the tribunal referred to above.
The workmen submitted a number of
interrogatories for reply by the company and one of these related to the breakup
of Rs. 59,67,466 shown as coal and fuel in the revenue and profit and loss
account of the company. In their reply the company gave the following figures :
1. (a) Contractors bill for carting, stacking
and putting coal into hoppers Rs. 6,67,477-68 (b) Contractors bill for crushing
coal 18,986--39 (c) Miscellaneous charges (being charges for insurance, rent of
land for stacking coal etc.)8,001-50 (d) Proportionate wages to staff 9,063-24 ----------------7,03,528-81
(e) Price of coal consumed 52,63,938-85 --------------59,67,467-66 The
Company's witness M. Ghosh gave evidence on this and other subjects before the
tribunal. It-appears that his examination went on from 27th October 1964 to 10th
August 1965. In his examination-in-chief Ghosh referred to various accounts,
prepared from 563 the books of account and records of the company and audited
by a firm of well known chartered accountants. He gave the figures of coal
consumed both at Allahabad and Lucknow and the average price per metric ton :
these were 69,432.02 metric tops in Lucknow at Rs. 45-28 per ton ex-hopper and
60,673-03 metric tons at Allahabad at Rs. 45-42 per ton exhopper. He also said
that the cost of fuel oil was Rs.
67,950-02 for the two units. He was closely
cross-examined with regard to the statements produced by him and the revenue
ledgers disclosed by the company. He said in his cross-examination under date
21st January 1965 that the figure of Rs. 59,67,467-66 shown -at page 6 of the
profit and loss account included not only Rs. 52,63,938-85 mentioned in the
interrogatories but also the other following items:-A. Contractors bill for
carting stacking and putting coal into hoppers (including cost of fuel
amounting to Rs 67,950--01) Rs.6,67477-68 B. Contractors bill for crushing coal
18,986-39 C. Miscellaneous charges (being charges for insurance, rent of land
for stacking coal etc.) 8,001-50 D. Proportionate wages to staff 9,063-24 He
was closely examined with regard to the accounts and with respect to many
figures when he said that without looking into the journals he could not say
what was included in the sundry's account. There can belittle doubt that the
company was using a diesel engine for the generation of electricity the hire of
which alone cost the company Rs. 2,00,000 in the relevant year and mention is
made of the use of the diesel engine in the Directors' report dated 28th
This is also borne out by the answer to
interrogatory No. 4 submitted by the workmen to the employers. In his crossexamination
Ghosh said that the figure of Rs. 59,67,467-66 had been taken from the revenue
ledger of the head office, and without reference to the revenue account
statements he could not say whether the value shown against coal and fuel was
in respect of the coal consumed or was the amount spent for purchase of coal
during the month. According to him coal was purchased both at the units and
through the head office., The tribunal wrongly observed that it was for the first
time in his cross-examination that Ghosh had stated that the contractors' bill
of Rs. 6,67,477-68 included the cost of fuel amounting to Rs. 67,952-02. As
already noted-, Ghosh in his examination-in-chief had mentioned the cost of
fuel oil at Rs. 67,950-02. The Tribunal also observed that the company had not
produced any record and whatever they had stated in reply to the
interrogatories or in reply to the workmens' comments, after inspection, did
not corroborate the statement of Ghosh that out of the contractors' bill for
Rs. 6,67,477-68 a sum of Rs. 67,952-02 was in respect of the cost of fuel oil.
The tribunal went by the two certificates Exs. E-2 and E-3 issued by the
chartered accountants both dated 22nd December 1961 giving the figures of coal consumed
at the two 564 generating stations and their average price per metric ton and
on that basis reached the conclusion that the company had spent Rs.
58,99,650-90 on fuel for, the relevant year and,contrasting this figure with
Rs. 59,67,467-66 concluded that there was an excess expenditure on this item in
the sum of Rs. 67,817.
In our view the Tribunal's conclusion cannot
It was the same firm of chartered accountants
who issued Exs. E-2 and E-3 who were responsible for preparation of the balance
sheet and profit and loss account of the company which were accepted by the
income-tax department. While it is true that merely because a figure is to be
found in the audited balance sheet of the company an industrial tribunal is not
bound to accept' the said figure if challenged It must be said that when the
figures for expenses incurred in connection with fuel given in the balance
sheet are also deposed to by a witness who gives the break-up thereof and says
even in his examination-in-chief that the cost of fuel oil was Rs. 67,950-02
which is repeated in cross-examination and the witness is not asked in
particular as to how this figure was arrived at, although the witness was
examined for nearly 10 months, the tribunal should not have discarded his evidence
on this point. The break-up of the figure Rs.
59,67,467-66 was disclosed as early as 25th
August 1962 of which Rs. 7,03,528-81 accounted for (1) contractors bills for
carting, stacking and putting coal into hoppers, (2) contractors bill for
crushing coal, (3) miscellaneous charges (4) proportionate wages to staff and
(5) price of coal consumed and the books of account and records of the company
were made available for inspection to the workers.
In these circumstances the different figures
of the break-up should not have been disregarded by the tribunal : more so,
because the chartered accountants were giving certificates only in respect to
the expenses for coal delivered into the hoppers. in the accounting year. It
being undisputed that the company was using a diesel plant for generating
electricity it would be surprising if no expenses were incurred for purchasing
the diesel oil to run it with. It may be that in the different accounts of the
company cost of fuel oil was not separately recorded but was put under the
general head of raw material for running and working the turbines namely, coal.
Not one of the several witnesses examined on behalf of the workmen had made any
statement that fuel oil was not required by the company for the relevant year of
account. In our view, the figure of Rs. 59,67,467-66 as shown in the balance
sheet should have ,been accepted by the tribunal from which there should have
been no deduction of the figure Rs. 67,817.
The Tribunal added back a sum of Rs.
1,85,519/to the figure of profits on the ground that the company had included
only the revenue of II months and not of 12 months as it should 565 have done
for the working out of the Full Bench formula.
The preliminary objection of the workmen
before the examination of the witnesses was that the revenue on account of
light and power shown in the revenue account was much less than the real
revenue as it did not take into account various items of revenue. After
inspection of the accounts, the workmen filed a specific objection that one month’s
revenue amounting to Rs. 1,85,519-14 had not been accounted for and the profits
had been reduced to the said extent.
According to the appellant this discrepancy
is accounted for by the fact that it changed its system of accounting in February
1962 which was given effect to from the month of January 1962. One of the
witnesses for the workmen A. P. Saxena who was an old account clerk of the
company gave evidence to the effect that it was his duty to prepare bills of
all bulk supply consumers, temporary connections and sundry sales and that it
was also his duty to maintain bulk supply consumer ledgers and prepare its
summary every month.
He added that :
"In the disputed year through office
order No. 12 dated 23-2-61 the revenue on account of all bulk supply came to be
entered in the month subsequent to the month in which it had accrued. This
practice is still continuing.
This change came about in January 1961. Prior
to January 1961, the revenue was entered in the month in which it accrued. The
result of this change was that the revenue for March 1961 amounting to Its.
1,85,519-14 was taken as the revenue of the succeeding year and in the disputed
year revenue from bulk supply consumers was shown for only 11 months. In the
bulk supply ledger the income from bulk supply consumers for January 1961 is
shown asblank. In the consumer ledger summary for January 1961 also the entry
against bulk supply consumers is blank." In his cross-examination he
admitted that the bill on account of bulk supply consumed in January 1961 was
sent in February 1961. This is also borne out by two office orders dated 15th
February 1961 and 23rd February 1961. According to the first, the revenue
statistics for the month of March was to be sent by the latest by 3rd of April.
This was also emphasised on by the document dated 23rd February 1961 that bills
for bulk supply and cinema and other categories of consumers should be
completed by the third week of March 1961 and in order that this may be
facilitated the meter readings taken in the month of March or February should
be debited in the months of March or February notwithstanding that such meter
reading might relate to he consumption for the month of January. It is not as
if the company was depriving the workmen of the benefit of one month's revenue
566 as regards the bonus due to them. What really happened was that for the
year ending March 1961 only II months' revenue was taken into account and the
bill for the month of March for bulk supplies etc. was sent in April 1961. Whatever
income the company had for such supply in the month of March was taken into
account in the succeeding year. The noninclusion of one month's revenue in
respect of bulk supplies etc. was bonafide caused by the switching over to a
different basis of accounting which the employer could lawfully have done and
the tribunal was not justified in adding back the sum of Rs. 1,85,519-14 to the
profits as it had done.
With regard to the third item of Rs.
2,50,000/added back to the balance of profit and loss account by the tribunal,
it must be noted that the original claim of the workmen was that the employers
had failed to account for units of electricity generated of the value of Rs.
28,20,306-50 in the relevant year of account. After inspection of the records
by the company the, workmen stated that no less than 2,25,62,452 units of
energy had not been accounted for at Allahabad and Lucknow and the minimum
value of these units at 12 p. per unit came to Rs. 28,20,306-50 and the same
should be added back. The reply of the company was that the unaccounted for
units represented the loss in transmission, distribution and also loss of units
due to errors in meters and leakage in lines and this was a normal and
unavoidable feature in electricity supply undertakings. The workmen filed
statements Exs. W1 and W-2 showing the total number of units generated and
purchased by the employers from others as well as the total number of units
sold to consumers or otherwise used in power stations and auxiliaries besides
the number of units unaccounted for.
They also filed a statement Ex. W-3 showing
the revenue earned during the year. The tribunal found that Exs. W-1 and W-2
were in fact copies of some of the items contained in Ex. W-31. Ex. W-1 is a
chart showing (1) units generated at Allahabad and Lucknow; (2) units purchased
at Allahabad and Lucknow; (3) units used on power station and auxiliaries at
Allahabad and Lucknow; (4) units sold at Allahabad and Lucknow; and (5) units
unaccounted for at Allahabad and Lucknow. All the figures ate for the period
April 1960 to March 1961. It is worthy of note that both at Allahabad and at
Lucknow the figures for units unaccounted for were very high. At Allahabad the
highest figure was for the mouth of January 1961 viz., 2868847 units and at
Lucknow the highest figure was reachedin July 1960, viz., 1739855 units. The
lowest figure of units unaccounted for at Allahabad was reached in February
1961 viz., 138705 while that for Lucknow was also reached in the same mouth
The figures of units unaccounted for at both
places do not follow any particular pattern.
567 The figure next below 2868847 for January
1961 for Allahabad was 1291679 for Allahabad in March 1961, while at Lucknow
the units unaccounted for were well over a million in 6 months out of 12; at
Allahabad the million mark was crossed only on three occasions. The company's
witness, Ghosh, admitted that in January 1961 the unaccounted for units at
Allahabad were as high as 61.7 per cent of the total units generated and he
only ventured to guess that there was a heavy loss or waste of energy through
breakdown or unexpected leakages. The Tribunal was alive to the fact that a
certain amount of loss was bound to occur in transmission, distribution and
conversion but took the view that the same should not have exceeded 10 to 15
per cent of the electricity generated, and after allowing a margin of wastage
of about 8 lakhs units out of 28 lakhs unaccounted for the month of January
1961 at Allahabad he took the view that the value of 20 lakhs of units at the
minimum rate of 12 p. per unit i.e. Rs. 2,50,000 ought to be added back to the
profits. In our view, the tribunal's approach to the question was wholly
unwarranted. The loss of electric energy was fairly high in all the months both
at Allahabad and at Lucknow except for one or two months out of the year.
There was no suggestion on behalf of the
workmen that electric energy could have been surreptitiously dealt with by the
company either for depriving the workmen of their share of the profit or for
any other purpose. Electric energy as is well known cannot be transmitted
except through transmission lines and without any surreptitious manipulation of
the meter of which there was no allegation all energy produced at the power
station as also those supplied to consumers whether in bulk or otherwise would
be duly recorded in the meters. What was not so recorded could only be due to
loss in transmission or conversion. Unusually high wastage would certainly
indicate serious leakage and inefficient working unless it was explained by
some breakdown. But in applying the Full Bench formula the employers cannot be
charged with any notional profits which they should have made although the
formula itself is notional.
In The Associated Cement Companies' case(1)
it was pointed out by this Court :
"The working of the formula (the Full
Bench formula) begins with the figure of gross profits taken from the profit
and loss account which were arrived at after payment of wages and dearness
allowance to the employees and other items of expenditure. As a general rule
the amount of gross profits thus ascertained is accepted without submitting the
statement of the profit and loss account to a close scrutiny. If, however, it
appears that entries have been made on the debit side deliberately and mala,
fide to reduce the amount of gross profits, it would be open to the tribunal to
examine the 568 question and if it is satisfied that the impugned entries have
been made mala fide it may disallow them." Approving of the dictum in M/s.
J. K. Cotton Manufacturers Ltd., Kanpur v. Their Workmen(1) that "if
managing agents deliberately divert profits to the selling agents with a view
to deprive labour of their bonus and pay commission to the selling agents at
high rates then certainly the matter must be taken into consideration in the
determination of available surplus balance" this Court said that :
"It would likewise be open to the
parties to claim the exclusion of items either on the credit or on the debit
side on the ground that the impugned items are wholly extraneous and entirely
unrelated to, the trading profits of the year. In considering such a plea the
tribunal must resist the temptation of dissecting the balance-sheet too
minutely or of attempting to reconstruct it in any manner.
It is only glaring cases where the impugned
item may be patently and obviously extraneous that a plea for its exclusion
should be entertained. Where the employer makes profits in the course of
carrying on his trade or business, it would be unreasonable to inquire whether
each one of the items of the said profit is related to the contribution made.
by the labour. In such matters the tribunal must take an overall, practical and
common sense view. Thus it may be stated that as a rule the gross profits
appearing at the foot of the statement of the profit and loss account should be
taken as the basic figure while, working out the formula...... once it is
realised that in working out the formula the bonus year is 'taken as a unit
self-sufficient by itself, the decisions of the Labour Appellate Tribunal in
regard to the refund of excess profits tax and the adjustment of the previous
year's depreciation and losses against the bonus year's profits must be treated
as logical and sound." It has never been held by this Court that if
through the inefficiency in the working of the industry 'or by reason of use of
defective machinery or apparatus full profits are not received with the result
that nationally the labour is deprived of a share thereof, the tribunal adjudicating
the question of bonus payable to labour for a
particular year should add back to the gross profits as shown in the balance
sheet the amount of profit lost through the inefficiency or negligence of the
(1) (1954) L.A.C. 716 at 745.
569 The above remarks apply to the case of
adding back of Rs. 2,50,000 for unaccounted units of electrical energy as also
to the figure of Rs. 67,817 added back by the tribunal to the balance of gross
profits of Rs. 23,51,467/-.
If the said three amounts are not to be added
back to the profit according to the, balance sheet we have to start with the
figure of Rs. 23,51,467 in the working sheet. The tribunal allowed Rs. 5,83,520
as expenses claimed by the employers as prior charge out of the said figure as
also the notional ;normal depreciation of Rs. 13,16,804. This would leave a
surplus of Rs. 4,51,143/The next figure of prior charge which the Tribunal
allowed was. Rs. 2,80,000 at 5 per cent on the share capital while the management
claimed it at 6 per cent i.e. Rs. 3,36,000/As for back as 1960 in M/s. Pierce
Leslie & Co. Ltd. Kozhikode v. The Workmen(1) this Court held that a return
of 6% is ordinarily considered to be a fair return on the capital invested in
the case of paid up capital. The Court also said that in a particular industry
where the risk in the business was great there will be a good cause for
providing for 6 per cent.
Our attention was drawn to the case of
National Engineering Industries Ltd. v. Its Workmen ( 2 ). In this case it appears
that the Tribunal had. allowed 7-1/4 per cent on the paid up capital instead of
8.57 per cent claimed by the company. Referring to the Associated Cement
Company's case (supra) that although 6 per cent would be a fair provision for
payment of interest this Court observed that the rule was not to be regarded as
inflexible, and in awarding interest "if' the tribunal were to find that
it were to grant 6% interest on paid up capital, nothing or no appreciable
amount would be left for bonus, it can adjust the rate of interest so as to
accommodate reasonably the claim for bonus and thus meet the demands of both,
as reasonably as possible." The Tribunal awarded 5% interest basing its
conclusion on the fact that in the year 1960-61 the bank rate of interest was
4% and that-on an earlier occasion i.e. Adjudication Case No. 57/1958 5% had
been allowed. In our view, the addition of 2 to 3 per cent over the bank rate
is quite proper as formulated in M/s. Pierce Leslie Company's case and
provision, for 6% interest on paid up capital is normally quite appropriate. We
may in this connection mention that only very recently in the,' case of M/s
Bareilly Electricity Supply Co. Ltd. v. The Workmen(3) this Court had approved
of the computation of interest at 6% on the share capital and we see no reason
to depart there from.
It was urged on behalf of the workers that
the company had been a prosperous one, that it had built up large reserves and
was paying dividend to its shareholders and as such the proper figure, (1)
 3 S.C.R. 194.
(2)  1 S.C.R. 779.
(3) (1972) 2 S.C.R. 241.
570 for interest would be 5 % and not 6 %. In
view of the decisions of this Court we find ourselves unable to accede to this
argument. Allowing return on share capital at 6% we have to deduct Rs. 3,36,000
from the surplus balance already mentioned, namely, Rs. 4,51,143 which reduces
the balance to Rs. 1,15, 143/In this view of the matter it is not necessary to
go into the question as to whether and if so what amount should be provided for
as prior charges by way of return on working capital or rehabilitation
But what we cannot ignore is the statutory
contingency reserve and the statutory development reserve the figures for which
put forward by the company and accepted by the tribunal were Rs. 1,07,291 and
2,02,709 making a total of Rs. 3,10,000/'While it is true that these amounts
cannot be considered as prior ,charges for the purpose of finding out the
available surplus, they have to be taken into, consideration when the question
of distribution to the workers out of the available surplus arises : see
Mathura Prasad Srivastava v. Saugor Electric Supply Co. Ltd.(1).
In this case the tribunal awarded no less
than three months' basic wages by way of bonus. The monthly basic wage bill of
all the employees was between Rs. 74,000 and Rs. 75,000/-.
It was contended on behalf of the workers
that if Rs. 2,25,000/was to be paid as bonus the company would get a rebate of
45 % thereof by way of income-tax which would give the company an additional
sum of Rs. 1,01,250/Even so the available surplus together with this would not
be enough to meet the provision for statutory contingency reserve and statutory
development reserve. Even if we were to provide for one month's basic wages by
way ,of bonus, there. would not be enough money in the hands of the ,company to
make provision for the said reserves.
In the result, we must hold that the tribunal
went wrong in allowing any bonus to the workers, on the facts of this case. The
appeals must therefore be allowed and the provision for payment of bonus in the
award set aside. But in view of the divided success in the appeal, and
particularly in view of the preliminary point as to jurisdiction which was
canvassed at some length on behalf of the employers, the proper order for costs
would be to leave the parties to meet their own expenses. There will therefore
be no order as to costs.
K.B.N. Appeals allowed.
(1)  2 L.L.J. 307.