Bombay Industrial Relations Act, 1946 - Section 73A
1. This is a reference under S. 73A of the Bombay Industrial Relations Act, 1946, made by the Rashtriya Girni Kamgar Sangh, Jalgaon (East Khandesh), which is a registered union being a representative of the employees. The sangh gave a notice of change in form L to the second party, namely, the Khandesh Spinning Weaving Mills Company, Ltd., Jalgaon (East Khandesh), on 4 June, 1955, demanding an adequate bonus for the year, 1954, to be paid to all the employees including clerks and supervisory staff. Conciliation proceedings commenced but the second party was not agreeable to pay any bonus to the employees. The conciliator under the Bombay Industrial Relations Act issued a certificate on 7 November 1955 stating that the matter was not capable of being settled by conciliation.
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2. The dispute between the parties is confined only to two points - (1) allowance for rehabilitation and (2) return on reserves used as working capital. Sri Kulkarni stated that the mill was started in 1873, and that the major portion of the machinery was in immediate need of replacement. He stated that the machinery was purchased from different concerns and, therefore, the mill company has had to stock spare parts worth a very large amount. It is stated in the written statement that the mill company would require Rs. 60,00,000 for replacement of machinery. On the second point Sri Kulkarni urged that 6 per cent. return should be allowed on the reserves used as working capital. Sri Deshpande on behalf of the sangh has challenged both these points on the ground that the mill company has not proved that a particular amount would be required for rehabilitation. Sri Deshpande argued that merely stating in the written statement that a certain sum was necessary for rehabilitation and replacement of machinery is not enough. He referred me to the case of the Uttar Pradesh Electric Supply Company, Ltd. etc., Undertakings v. their workmen 1955 II L.L.J. 431. This case was decided by five Members of the Labour Appellate Tribunal. In Para. 27 of their lordships' decision we find the following observations (p. 440) :
'It must be remembered that no rehabilitation reserve is permissible unless its necessity is established, and even so only such amount is allowed as is in excess of depreciation of the year. As was observed by us in the case of Bombay Gas Company [appeal No. 320 of 1954 - 1955 II L.L.J. 151 ante] :
'The production of Ex. C. 3 (summary of calculations) by itself is no proof either as to the items which are to be renewed from year to year for the next ten years or as to the cost of these specific items, facts which are essential to a determination of this issue; and even after those particulars had been produced, the tribunal would have to decide whether the claim for rehabilitation charges has been supported by a sufficiency or quality of evidence to justify any additional amount beyond the annual depreciation.'
3. The mill company in the instant case has done nothing of the kind. Therefore, I cannot allow any sum for rehabilitation. But even if some rehabilitation allowance were to be granted it is to be noticed that the mill company has very large reserves in its hands, part of which can certainly be utilized for the purpose of rehabilitation. In this connexion my attention was drawn to the observations of Sri K. C. Sen in his decision in Ref. (I.C.) No. 10 of 1949 in Bombay Government Gazette, Part I-L, dated 2nd June, 1949, at p. 373. The relevant observations appear at p. 381. They are as follows.
'The only balance sheet which has been supplied in English is that of Khandesh Spinning and Weaving Mills, Ltd, for the year ending 31 March, 1948. That balance sheet shows the paid-up capital at Rs. 7,50,000 and a reserve fund already accumulated to the extent of Rs. 22,50,000. A further fund of Rs. 14,61,820 is shown as having been kept for 'extension of machinery and building fund.' For such extension the company was not entitled to make use of the existing profits but should have met the cost by issuing fresh shares. There are, besides, several funds like the insurance fund, the dividend equalization fund, the investment sinking fund, the workmen's welfare fund and the staff bonus fund. Several amounts have been shown, at different places of the balance sheet, as set apart or written off as depreciation. All these amounts total Rs. 38,23,000. If the extension of machinery and building fund be added to the reserve and the total so obtained be regarded, as in my opinion it should be regarded, as the total reserves, the total reserve and the depreciation fund come to about Rs. 75,35,000. The original cost of the building and machinery have been shown as about Rs. 8,52,000 and Rs. 31,96,000 plus Rs. 98,000 respectively. The total of all these amounts comes to Rs. 41,46,000. Taking the present value of the building and machinery as 2 1/2 times the original cost, we get the figure of Rs. 1,03,65,000. If this amount has to be replaced within, say, a period of 15 years from today, and if the total of the reserve and the depreciation fund amounts to Rs. 75,30,000 (sic), the balance, viz., Rs. 28,30,000 has to be made up in 15 years, i.e. at the rate of Rs. 1,88,666 per year. For this the mill should find no difficulty at all. The working of the mills for 1947-48 according to the directors' report shows a net profit of Rs. 1,45,165 after providing Rs. 60,533 for depreciation, the balance of the previous year being Rs. 49,124, bringing the total to Rs. 1,94,290. It seems that unusually large sums are being set apart and there can be no doubt that the finances of the Khandesh Spinning and Weaving Mills Company have been in a very satisfactory position.'
4. These observations show that the mill company has been in a prosperous condition and that it has large reserves which can be utilized for rehabilitation. No attempt was made to prove that the financial position of the mill company had deteriorated since 1949. One more point was urged by Sri Deshpande in this connexion, namely, that out of the Rs. 60,00,000 demanded by the mill company for rehabilitation the breakdown value of 5 per cent would have to be deducted. Whatever that may be, it appears to me that no rehabilitation allowance need be made in this case.
5. As regards return on reserves used as working capital I cannot agree with Sri Kulkarni that 6 per cent should be allowed. Sri Deshpande drew my attention to the fact that there has been an agreement between the textile mills at Ahmedabad and their workmen, which agreement is to remain in force for a period of five years, and that in that agreement it has been agreed that a return of only 2 per cent should be allowed on reserves used as working capital. Sri Deshpande also stated at the bar that the textile mills in Bombay have practically adopted all the clauses of the Ahmedabad agreement with a few changes and that the agreement between the Bombay mills and their employees is to be finalized within the next few days. There also, Sri Deshpande stated, a return of only 2 per cent has been agreed upon on reserves used as working capital. It cannot be disputed that in a large number of decisions of this Court a return of 2 per cent only has been allowed on reserves used as working capital. Therefore, I shall allow a return of only 2 per cent on such reserves.
6. The next point is, what is the amount of reserves used as working capital. Before the conciliator the mill company submitted a statement which is to be found at p. 17 of the conciliator's file of papers. In that statement Rs. 53,23,981 was shown as the amount of reserves used as working capital. Sri Deshpande on behalf of the sangh has, however, produced at Ex. U. 1 a statement which shows the items that should be deducted from the amount of Rs. 53,23,980. Sri Deshpande has argued that a return on reserves can be allowed only if the reserves are actually used as working capital. Amounts which are invested or advanced or deposited are not actually used as capital and therefore on such amounts no return is generally allowed. Now, from the audited balance sheet which is produced Ex. C. 1, the following amounts must be held to be not used as working capital :-
Rs. Book debts .. .. 57,058 Advance .. .. 4,59,929 Deposits .. .. 8,013 Investments .. .. 25,62,093 Cash box .. .. 4,99,771 ---------- 35,87,574 ----------
7. Sri Kulkarni urged that the mill company was entitled to a return on the amount that it has invested with the Madras Spinning and Weaving Mills Company, Ltd. That mill company has closed down. But that does not entitle the present mill company to claim any return. That amount of investment was not actually used as working capital and therefore, I agree with Sri Deshpande that the amount cannot be allowed any return. Deducting the amount which is not used as working capital we get a balance of Rs. 17,36,306. Then, Shri Deshpande has produced another statement at Ex. U. 2 prepared according to the Full Bench formula. All the figures in this statement are admitted to be arithmetically correct. In this statement Sri Deshpande had deducted bonus of 3 1/2 months' basic wages (including the wages of operatives, clerks and supervisor), on the basis of a monthly wage bill of Rs. 35,000. Return on working capital at 2 per cent is shown as Rs. 34,726 and after allowing bonus for 3 1/2 months a surplus of about Rs. 21,280 is shown. Sri Deshpande pointed out that in the Ahmedabad bonus agreement it has been agreed that a mill company should be allowed to have in its hand a surplus of not less than Rs. 10,000 and that the present mill company will be having a surplus of over Rs. 21,000 and that, therefore, a bonus equivalent to 3 1/2 months' basic wages should be allowed. Sri Deshpande very fairly conceded that in the Ahmedabad bonus agreement the maximum that a mill company is required to pay by way of bonus is an amount equivalent to three months' basic wages. But he stated that in that agreement there are several other concessions allowed to the parties which are not present in the instant case and that, therefore, there was no reason why bonus equivalent to more than three months' basic wages should not be allowed. I am, however, of the opinion that a surplus of only Rs. 21,000 would be a little too small for a mill company of this magnitude and that some more surplus should be allowed to remain in their hands. Therefore Shri Deshpande submitted one more statement at Ex. U. 4 in which he has calculated bonus equivalent to three months' basic wages and a surplus of Rs. 31,000 is shown. I am of the opinion that bonus equivalent to 1/4 of the annual basic wages of the workmen should be allowed and I direct accordingly. I am aware that this surplus of Rs. 31,000 will go up if we apply the modified Full Bench formula appearing in the case of the U.P. Electric Supply Company, Ltd., Undertakings, where their lordships have laid down that initial and additional depreciation should not rank as a prior charge in applying their Full Bench formula (Para. 26, p. 440, col. I). Page 14 of the balance sheet shows that the mill company has debited initial and extra depreciation over and above normal depreciation as also development rebate. Sri Deshpande did not admit the correctness of this item, but he took the figure as it was for the sake of argument and pointed out that even then the demand of the sangh could be met in full. I, therefore, award bonus to the employees equivalent to one fourth of the annual basic wages of the employees for the year 1 April 1954 to 31 March 1955 on the following terms and conditions.
(1) The bonus awarded herein shall be paid by the mill company within a month of this award becoming enforceable.
(2) In the case of women employees who have been on maternity leave during the year, the maternity allowance drawn by them shall be included in their earnings for the purpose of calculating bonus.
(3) Employees who have been dismissed on account of misconduct causing financial loss to the company will not be entitled to bonus to the extent of the loss caused.
(4) Persons who are eligible for bonus but who are not in the service of the employer shall be paid on their claims being submitted within three months of the publication of this award, within one month of the receipt of the claim, provided that no such claim can be enforced within two months of the publication.