1. During the pendency of an industrial dispute between the parties before the Deputy Labour Commissioner, Bangalore, relating to payment of bonus of the year 1974-75, an agreement between the concerned parties to refer the said industrial dispute for arbitration under S. 10A of the Industrial Disputes Act, 1947, was forwarded to the Government of Karnataka. The Government issued a notification under S. 10A(3A) of the Industrial Disputes Act. The specific matter in dispute between the parties was set out in the notification. That is the matter of reference. It is as follows :
(1) Are the workers of the N.G.E.F. represented by the N.G.E.F. Employees Association justified in demanding 20 per cent bonus as claimed by them under the Payment of Bonus Act, 1965, read with the Payment of Bonus Ordinance, 1975 as against the bonus of 9.4 per cent declared by the Management of the N.G.E.F. Limited for the company's accounting year 1974-75
(2) If not, at what rate has bonus to be paid to the workmen for the year 1974-75
(3) To what other relief or reliefs are the workmen entitled
2. It may be mentioned that all the members of the I party has agreed for the appointment of the Arbitrator. The parties were duly notified of the date of hearing and called upon to file their statements. The I party (a), namely, the N.G.E.F. Employees Association was represented by their counsel Sri M. C. Narasimhan and the other two unions, i.e. I party (b) and (c), namely, the N.G.E.F. Employees Union and the N.G.E.F. Workers Union respectively, were represented by their counsel Sri S. Krishnaiya. The II party management was represented by their counsel Sri P. P. Bopanna. I had the able the untiring assistance of the counsel in the conduct of the proceedings and also the hearty co-operation of the parties.
3. The I party have filed their statements of claim and II party have filed their reply. The parties have also filed other replies and rejoinders. On the basis of these pleadings and on the consent of parties, in addition to the specific matters of dispute mentioned in notification of the Government of Karnataka referred to above, the following issues were framed :
(1) Whether the second party is justified in changing the method of accounting for the year 1974-75 What is the reduction in profits and what is the net profit that should be taken into account to determine the bonus for the year 1974-75
(2) Whether the allocation of Rs. 68.09 lakhs to capital in profit and loss account is sufficient Or should it be more than Rs. 68.09 lakhs
(3) Whether the loss of Kempsons Foundry can be taken into account and whether the second party is justified in deducting Rs. 6.57 lakhs on this account
(4) Whether Rs. 23.40 lakhs should be back to profits (as dues from Government etc.)
(5) Whether the management is entitled to deduct Rs. 26.98 lakhs from allocable surplus towards set off for previous years Whether this claim of the second party is beyond the scope of the dispute Whether the said claim does not arise in view of the reference
(6) Whether the miscellaneous expenditure be added back
(7) Whether the management have assured payment of 16.66 per cent as bonus for the year 1974-75 and are they bound by the assurance
(8) Whether in view of S. 23 of the Payment of Bonus Act, the second party is liable to prove the correctness of the various items in the balance sheet and the profit and loss account which are relevant for the purposes of computation of bonus under the Act
(9) Whether the second party's calculation of bonus for 1974-75 at the rate of 9.4. per cent is justifiable on the facts and circumstances of the case
4. Sri M. C. Narasimhan, learned counsel for the I party (a) submitted on 29th April, 1976 that the 2nd and 3rd issues may be deleted but Sri S. Krishnaiya, the learned counsel for the I party (b) and (c) submitted that they may be retained. Therefore, all the issues remain for consideration and the parties were permitted to adduce whatever evidence they may deem necessary. The I party was permitted to inspect whatever documents they wanted and the II party was directed to allow them to do so. The II party has examined 4 witness and the I party have also examined 4 witnesses. Documents A to W have been marked. The parties addressed arguments on the merits of the case and they concluded on 18th June, 1976.
5. Before considering the arguments on the specific issues, I shall consider one or two submissions urged by Sri M. C. Narasimhan.
6. The learned counsel submitted that the amount involved in the note Ext. A1, extracted hereinafter, though a contingent right is capable of valuation and, therefore, can be taken into account as trading receipts in order to ascertain the true profits. Reliance for this proposition is placed on a decision of the Supreme Court in Metal Box of India Ltd. v. Their Workmen, [1969-II L.L.J. 785]; (7S. C.L.J 732), where the learned Judges observe that contingent rights if capable of valuation can be taken into account as trading receipts where it is necessary to do so, in order to ascertain true profits. This proposition is not contested by the II party. This aspect referred to by the I party does not arise for consideration as it is not the contingent character of the amount involved in Ext. A1 that is questioned but the change in the method of accounting which has occasioned the exclusion of the amount involved.
7. Sri Narasimhan invited my attention to the address of the Chairman of the Board of Management to the General Body and found at pages 4 and 5 of Ext. A. The Chairman has stated that the company during the year 1974-75 has been able to earn profit of Rs. 230.40 lakhs after providing for depreciation, interest charges, development rebate reserve and the accumulated loss which had reached Rs. 526 lakhs in the year 1970 has been entirely wiped out. That the company has achieved all round progress is evident and that it is very much due to the commendable performance of the officers, staff and workers of the company is undoubted. It is submitted that during the previous lean years the company has paid bonus at 10 per cent in the year 1970-71 and 12 1/3 percent in the years 1971-72, 1972-73 and 1973-74. Such being the case it is not proper on the part of the company to pay only 9.4 per cent during the current year when the profits are considerable. Sri Bopanna, submits that the payment during the previous years has no bearing on what is to be paid during the current year. The management has every right to claim that the bonus shall be fixed according to the statutory formula laid down under the payment of Bonus Act. What has been paid during the previous years cannot serve as a precedent for this year. Reliance is placed on a decision of the Supreme Court in Management of Consolidated Coffee Estate Limited v. Their Workmen, reported in [1970-II L.L.J., 576] : (7S. C.L.J. 49) and another decision by the same Court in Shri Ambica Mills Ltd., No. 1 v. Textile Labour Association. Ahmedabad, reported in [1973-I L.L.J. 102]. (10) S.C.L.J. 269, where the learned Judges observe as follows :
'We may refer to the decision in Consolidated Coffee Estates v. Their Workmen (supra) where it was held that even though the company was paying in the past by negotiating with its employees if it instated that for the year in question it would pay in accordance with the relevant law it could not be prevented from its liability for bonus determined accordingly.'
Therefore, it appears to me that there is no force in this contention of Sri Narasimhan.
8. The first issues consists of two parts, one relating to Price Variation Bills and the other to Duty Drawback and Cash Assistance and these arise on notes 8 and 9 in Schedule N of Ext. A, marked Ext. A1 and Ext. A2 respectively. They read as follows :
'8. There has been a change in the method of accounting this year in accounting Price Variation Bills, the bills being accounted on 'settlement' basis instead of on 'accrual' basis. The value of such bills withdrawn and outstanding as on 31st March, 1975 is Rs. 53.72 lakhs with a consequential reduction in profits to an extent of Rs. 53.72 lakhs.
9. There has been a change in the method of accounting this year in accounting Duty Drawback and Cash Assistance as these claims have been accounted on 'Receipts' basis instead of on 'Accrual' basis and here is consequential reduction in the profits to the extent of Rs. 37.31 lakhs. Further Duty Drawback and Cash Assistance of years earlier to 31st March, 1974 and still pending as at 31 March, 1975 amounting to Rs. 2.17 lakhs have also been withdrawn and shown under 'Unrealised Credits for Duty Drawback and Cash Assistance if prior years withdraws.'
9. As can be seen from the profit and loss account on page 26 of Ext. A the company is shown to have made a profit of Rs. 2,30,40,257. On account of the change in the method of accounting as stated in Ext. A1, there has been a consequential reduction in profits to the extent of Rs. 53.27 lakhs. I shall now first consider the contentions with reference to Ext. A1.
10. The contention is that the change in the method of accounting is not justified and is detrimental to workers interest and that it has no sanction in law and, therefore, a sum of Rs. 53.27 lakhs should be added back to the net profits of the company for the purpose of calculating the bonus payable to the employees. Accrual basis referred to in Ext. A1 is the cash or receipts system. The management submits that the change in the method of accounting was not made with a view to bring down the profits. The changes are permissible on well-settled accounting procedures and practices and these are made in the usual course of business of the second party. It was occasioned by the fact that on account of price variation in the bills the amount claimed as what is legally due in respect of the supply orders received by them from their customers would not be fully paid by the customers when actually the bills are settled and, therefore, there will be a variation between what is actually claimed and received and in order to avoid this anomaly the company was justified in adopting the change in the method accounting from the accrual basis to the settlement basis. Further in view of the presumption of accuracy of the statements and particulars contained in the balance sheet and profit and loss account arising under. S. 23 of the Payment of Bonus Act, and the fact that the computation of bonus is based thereon, the grant of bonus at 9.4. per cent is binding of the workmen and should be confirmed.
11. The contention of the first party is that excepting in regard to the price variation bills referred to in Ext. A1, in all other respects, the company has maintained its accounts adopting the mercantile system. The change in the method of accounting now adopted is unjustified for several reasons. It is undisputed that the company has all along maintained its account on the mercantile system and not on the receipt system.
12. Sri P. P. Bopanna, at the outset submits that the accounts of the company are maintained strictly in accordance with the provisions of the Companies Act and in particular Ss. 209, 210 and 211 thereof. The balance sheet is authenticated as provided in S. 215 of the Act. The profit and loss account is annexed to the balance sheet and the auditor's report is attached to it. Regarding the report of the Board of Directors, there is compliance with the provisions of 217 of the Act. The Companies Act does not prescribed any particular method of accounting.
13. The company is a Government company incorporated under the Companies Act. According to M.W. 1, as the company is a Government company the Controller and Auditor General of India also audits the Accounts in addition to the audit made by the statutory auditors. Their certificates are found at page 17 of Ext.A. In these circumstances the resumption arising under S. 23 of the Payment of Bonus Act will apply with greater force to the accuracy of the statements and particulars contained in the profit and loss account of the company. In this connection strong reliance is placed on the decision of the Supreme Court in Metal Box of India Ltd. v. Their Workmen (supra).
14. There is nothing in law prohibiting the change in the method of accounting if the circumstances warrant such a change. According to the II party, as deposed to by M.W. I, the change in the method of accounting was adopted for the following reasons :
1. Uncertainty in the settlement of price variation bills.
2. Outlow of cash in respect of sales tax.
3. The Outlow of cash in respect of royalty.
4. Business and commercial expediency.
15. The same considerations apply in respect of amount involved in Ext. A2 also. In view of the provisions of S. 23 of the Payment of Bonus Act and the circumstances set out above, it is contended for the management that the change in the method of accounting cannot be challenged as also the amount of reduction in profits resulting by such change. As against this submission, Sri M. C. Narasimhan contends that the change in the system of accounting adopted is only partial. Ignoring the principle that revenue and expenditure must match each other and to do so it is necessary that both revenue and expenditure should be on the mercantile basis. The revenue and expenditure incurred should be correlated and matched so that a complete picture is available. He relies on the observations found at page 43 of 'Advanced Accounts by Shukla and Grewal' that when an item of revenue is entered in the profit and loss account all the expenses (whether paid for or not) should be set down on the expenses side. It follows from this that when items of revenue are not entered on the profit and loss account the expenses incurred should not be set down on the expenses side. It is strongly contended that this principle is completely violated in the change effected as set out in Ext. A1. He also relies on the provisions of S. 211 of the Companies Act which enjoin that every balance sheet of the company shall give a true and fair view of the state of affairs of the company as at the end of the financial year. He also relies on the provisions of Ss. 209, 209A and 210 of the Companies Act. It is undoubted that the balance sheet and profit and loss account of the company are based on the day to-day accounts of the company pertaining to business activities. He also invites my attention to the observations found at page 5 of 'Advanced Accounts by Shukla and Grewal' where the authors say : 'The mercantile system is better normally since it takes into account the amounts that become due. This is necessary for preparing financial statements on proper lines.' Mr. Narasimhan drawn my attention to the evidence of M.W. 1 the Controller of Finance of the company M.W. 1, states in his evidence 'the method of accounting in Ext. A1 and Ext. A2 relate to the portion of the claims of the company adopted on cash basis. Items other than those referred to in Ext. A1 and Ext. A2 are accounted on accrual basis and not on cash basis. All the expenses charged in the profit and loss account are on an accrual basis. The sales tax for the year 1974-75, (i.e., the accounting year in question) has been remitted on the basis of accrual.' He also says that by profits of for the year is meant the profits earned during the year though not received. It is clear from his evidence that the claims made in the customer is on accrual basis. He is unable to say if any dispute have arisen between the company and the customer in respect of claims arising from Ext. A1 and Ext. A2. It is also clear from his evidence, that in the ledger books of the company up to the end of March, 1975 all accounts are entered on the accrual basis. In the Sales Journal maintained by the company the accrual basis is adopted. The prices of raw material is charged on accrual basis. Sales tax is paid on the same basis. Taking for instance the payment of sales tax on accrual basis. It would be clear that adopting the cash basis would result in omitting the value of sales effected being credit into the accounts while on the same sales there will be debited sales tax. This means that the benefit of the sales price is denied to the workmen while the detriment by way of payment of sales tax impinges on them. Another instances mentioned by sri Narasimhan, though comparatively of small magnitude, establishes the inequity of the change in the system of accounting. The wages due to the workmen for the month of March, 1975 is debited on accrual basis, though the actual expense is incurred in April. If the accrual system had not been adopted in this instances but cash system was adopted this item of debit would not find a place during the accounting year 1974-75. To this extent there would have been a benefit to the workmen.
16. It is admitted that until 28th July, 1975 the change in the method of accounting had not been contemplated. Some significant facts have been brought out in the evidence of M.W. 1 and the I party lays stress on them. For the year 1970-71, the profit was Rs. 15,86,505. The profit for the year 1971-72 was Rs. 47,09,389 as per Ext. G1. For the year 1972-73 the profit was Rs. 39,25,543. The profit for the year 1973-74 was Rs. 108,53,743. The profit for the year 1974-75 is Rs. 230,40,257 after deducting the amounts involved in Ext. A1 and Ext. A2. If these amounts are added, the profit for the accounting year in question being nearly 3 times that profit will aggregate to Rs. 3,21,40,257. It is suggested that of the previous year's profits, the management was not inclined to show such huge profits and, therefore, it was reduced by putting up notes Ext. A1 and Ext. A2. The witness M.W. I denies that it is for this reason that the change in the method of accounting was resorted to. I may mention that at no stage of the proceedings and in no pleading of the parties have they attributed mala fides or ulterior motives to the management. Keeping in view that the company is a public sector undertaking and the system of auditing provides for checks and balances, it appears to me that there is no questionable motive. The only matter that requires scrutiny is whether such exclusion as in Ext. A1 and Ext. A2 is justified on facts. Therefore, I shall proceed on the basis that the reduction area made quite bona fide. It is no doubt true that there has been a phenomenal increases in the profits of the current year compared to those of the previous years. But if the change in the method of accounting can be justified and consequently there is a reduction in profits there is no reason why such reduction should not be reason why such reduction should not be countenanced. The learned counsel for the I party do not challenge the figures in the balance sheet and the profit and loss account as also in Ext. A1 and Ext. A2 in view of the presumption under S. 23 of the Payment of Bonus Act, the system audit prevailing in the company and the decision of the Supreme Court in Metal Box of India case. What they state is that the items of deduction in respect of only a few items which are highly prejudicial to the interests of the workers are unjustified and unwarranted. Therefore, they say, those deductions should be disallowed and they should be added back. In justification of the contention that the accounts can be mercantile in some respects and cash in other respects. Sri Bopanna, learned counsel for the II party, invites my attention to three decisions reported in (1936 I.T.R. 71) Dhakeswar Prasad Narayan Singh v. Commissioner of Income Tax, Bihar and Orissa, (1936) I.T.R. 420, Sarupchand v. Commissioner of Income Tax. Bombay and (1971) 8 S.C.L.J. 607. U. P. Electricity supply Co. Ltd. v. The workmen and others, [1971-II L.L.J. 528]; The first two decisions relate to payment of Income tax. They have no bearing on the computation of bonus under the Payment of Bonus Act. Nor are they concerned with the question whether there can a change in the system of accounting pertaining to only one item. In fact, in Dhakeswar Prasad Narayan Singh v. Commissioner for Income Tax, Bihar and Orissa, (1936) I.T.R. 420, Beaumont, C.J., observes, 'it seems to me to be impossible to contend that an assessee is never at liberty to alter the regular method which he has once employed. What he must alter, however, is his regular method, that is to say, he must abandon what, up to that time, has been his regular method, and start a new regular method and not merely a new method for a casual period.' Adopting the same reasoning the change in the system of accounting cannot be with respect to some items which affect the question of computation of gross profit for ascertaining the quantum of bonus payable to workmen. The decision of the Supreme Court in U. P. Electricity Supply Co., Ltd. v. The Workmen and others, reported in [1971-II L.L.J. 528] supports the proportion that the employer can lawfully switch over to a different basis of accounting. But it is not clear whether the change in the system of accounting was in respect of one isolated item or not. The facts of the present case are different inasmuch as except in respect of price variation bills, referred to in Ext. A1, in regard to the rest, the account was all on mercantile basis.
17. The parties agree that a change in the system of accounting is permissible. But the contention of the I party is that the changes must be such that it should be in all items of revenue and expenditure, so that no party is prejudiced thereby. This is equitable, fair and sound. In the case on hand, the change being only respect of one aspect of a type of transaction, it is not equitable. Hence on the facts, this case does not permit the application of the decision cited above.
18. Sri Bopanna further submitted that even though the company adopted the mercantile system of accounting it is not precluded from excluding the amounts concerned from Ext. A1 from the computation of gross profits adopting the cash system. He placed reliance on a decision of the Gujarat High Court in Commissioner of Income Tax Gujarat II v. Western India Engineering Co., reported in (81) I.T.R., 712. It was a case of an assessee who was a contractor maintaining his account on the mercantile basis. The assessee credited the entire amount of the bills in respect of the works executed by him to the works account but transferred only a part of the total amount of these bills to the profit and loss account and retained the balance of the amount in the words account by way of a provision which is known between the parties as 'Kasar'. This is because the customers would not accept the rates adopted by him in the bills at the time of final settlement. Therefore, he made a provision for the deduction in the bills which he credited as 'Kasar' in his accounts. The department took the stand that the amount of 'Kasar' found in the works account of the assessee could not be deducted from his income because the assessee was maintaining his accounts on the mercantile system of accounting and therefore, the amount of the bills prepared by him and credited to the works account accrued to the assessee during the accounting year. This contention was not upheld by the Supreme Court. Therefore, it supports his stand that the accounts need not be mercantile in all respects and it can be a combination of both system which is also called the Hybrid system. Relying upon this decision, Sri Bopanna contends that the amounts in Ext. A1 pertaining to the price variation bills is to be excluded. In may view the decision above cited does not support him. In the said decision it is not the full amount of the bills that is sought to be excluded but only a part in regard to the realisation of which there is doubt Exclusion of 'Kasar' has been allowed during the prior years by the revenue. The action of the assessee was quite bona fide. Further it is clear that if the 'Kasar' amount is excluded during a particular year whatever amount is realised in respect of it would form part of income of the subsequent year and then assessable. The decision relates to income-tax payable by the assessee. This decision cannot have any bearing on the question of determination of bonus payable, where for earning the profits the workers have contributed their labour. In this case, for the profit to accrue to the extent of the amount mentioned in Ext. A1 the labour have contributed and therefore, it stand to reason that they must have the benefit of it.
19. I may refer to another aspect regarding the certainty of realising even the variation in the price variation bills. The evidence of M.W. 1 and M.W. 2 clearly indicate that the claims involved on the price variation bills are legally sustainable and there is no reasonable doubt as to their recovery. M.W. 1 states that most of the customers concerned in the price variation bills are Government or semi-Government institutions. M.W. 2 explains that there are two types of products, namely, standard products and tailor-made products manufactured by the company. Tailor-made products mean products manufactured according to the specifications of the customers. Standard products are those that are standard fixed by them. In the case of standard products price variations are effected in accordance with what is known as the Indian Electrical Manufactures Association formula, which has been accepted by all manufactures and by the majority of the customers. Regarding tailor-made products there are price escalation clauses in the agreements entered into with the customers. M.W. 2 further states that during the year 1974-75 all the customers of the company have accepted the I.E.M.A. formula. The claim of for Rs. 53.72 referred to in Ext. A1 is a just claim. The claim for Rs. 53.72 lakhs is realisable from the Government or semi-Government bodies. This evidence indicates that there being no doubt regarding realisability there is no justification for changing the accrual system to cash system.
20. M.W. 2 also states that in respect of the products involved in this sum of Rs. 53.72 lakhs wherever Excise duty is payable it has been paid. This Excise duty is paid during the year or a short time thereafter. It is clear from this evidence that the Excise duty on the goods concerned is included in the accounts of the current year. Further expenses incurred for the manufacture and sale of goods concerned in Ext. A1 have also been taken into the profit and loss account for the year 1974-75. I do not find any factual justification as in the case reported in (81) I.T.R. 712, i.e. the contractor's case to adopt the mercantile system. I have already mentioned that the action taken by the management in this regard is prejudicial to the interests of the workers particularly in regard to the computation of bonus payable to them. It stands to reason that they must have the benefit of it.
21. In view of the foregoing discussion, I am of the view that the amount of Rs. 53.72 lakhs should be added back to the gross profit computed under the payment of Bonus act as per Ext.C.
22. The next point that arises for consideration is the reduction in profits resulting from the note marked Ext. A2. Exhibit A2 has already been extracted in the early part of this award. It relates to duty draw back and cash basis instead of an accrual basis. The actual amount involved in this is Rs. 37,31,343. With reference to this question, the II party also made an application on 10th June, 1976 marked I A. 2. Deduction was claimed in respect on certain other items also. This application was opposed by the party. On hearing arguments an order was made allowing I A. 2. The II party was permitted to place as evidence the statements accompanying the I A and further examine M.W. 1 in this connection. This was on the condition that the I party would have an opportunity to place material contra. The II party further examined M.W. 1 in regard to this matters. The I party cross-examined the witness and also examined two witness. It may be stated that the II party did not press the question of gratuity referred to in I A. 2. The issues as they are particularly issue No. 1 and 9 and the matters under reference cover all the questions relating cash assistance and duty drawback. In any event, as the parties are fully appraised of the questions raised no prejudice is caused by not raising specific issues. The parties did not insist on any specific issue being framed. Therefore, I now proceed to consider the matter involved in the second part of the first issue. The reduction in Ext. A2 consists of two parties. One relates to cash assistance and other to duty drawback. Cash assistance also consists of two items :
(1) Cash assistance which has accrued and not taken into consideration.
(2) Cash assistance received during the accounting year included in the accounts of 1974-75 but which should be excluded.
23. Arguments in respect of these tow items are the same since both the items relate to cash assistance. According to statement No. 1 accompanying IA. 2 break-up of the figure of Rs. 35,06,878.46 have been given and also that of the duty drawback. It is not contended that the duty drawback of Rs. 2,24,464.21 should not be added back. Therefore, this sum should be added to the available surplus as computed in Ext. C. So the question remains whether the amounts pertaining to cash assistance should be added or not.
24. Under S. 4 of the Payment of Bonus Act gross profit derived by an employer from an establishment in respect of any accounting year should be calculated in the manner specifies in the First Schedule. The Second Schedule under the Payment of Bonus Act, 1965 is now the First Schedule under Payment of Bonus Act, 1976. In the Second Schedule of the Payment of Bonus Act, 1965 pertaining to computation of gross profit item 6 provides for certain deduction. Item 6(g) reads as follows :
'Subsidy, if any, received from Government or from any body corporate established by any law for the time being in force.' The same item according to the amended Schedule reads as follows : 'Cash subsidy, if any, given by the Government or by any body corporate established by any law for the item being in force or by any other agency through budgetary grants, whether given directly or through any agency for specified purposes and the proceeds of which are reserved for such purposes.'
The meaning of the word 'subsidy' has been considered by the Supreme Court in Shri Ambica Mills Ltd. No. 1 v. Textile Labour Association, Ahmedabad, reported [in 1973-I L.L.J. 102]; (10) S.C.L.J. 269. Sri Bopanna relies very strongly on this decision in support of his contention that the two items of cash assistance should be excluded in making computation of gross profits. The available surplus depends upon the gross profits. The allocable surplus is 60 per cent of the available surplus. Therefore, the question whether cash assistance is deductible under item 6(g) of the First Schedule of the Payment of Bonus Act, 1976 assumes importance.
25. Cash assistance is assistance given by the Government of India to the exporting company to encourage and facilitate exports under a scheme framed by the Government in respect of commodities manufactured by them. With the same object cash assistance is also made by the Government in respect of supplies made by companies like the II party to Indian projects aided by the I.D.A. (international Development Assistance) Credit. Cash assistance is claimed by the company on the basis of F.O.B. value of exports or the sale price of the supplies made depending on the customer. The company makes the applications to the Government claiming cash assistance. It takes about six months or a year before the cash assistance is actually received. Relating to the cash assistance claimed during the year 1974-75 the details are mentioned in statement No. 1 annexed to I.A. 2. In support of the entries made in the statement pertaining to a cash assistance, M.W. 1 has produced office copies of the applications to the Joint Chief Controller of Imports and Exports made in this regard and they are marked Exhibit S to Exhibit S. 11. It is clear from the evidence of M.W. 1 that the entry marked 1(a) in statement No. 1 related to cash assistance received in respect of regular exports. Entry 1(b) relates to supplies made to I.D.A. aided projects. Entry 1(c) relates to the balance amount of cash assistance due in respect of the period January, 1974 to March 1974. The entry marked 1(d) relates again to cash assistance made on I.D.A. aided projects. Analysing the applications made seeking cash assistance, it is found that Ext. S. 2 to Ext. S. 11 correspond to items found in statement No. 1 annexed to I.A. 2. There is no reason to doubt that during the year 1974-75 cash assistance to the extent if Rs. 35,06,878 has been claimed from the Government by the company. Though entries 1(d) and 1(c) relate to the period January, 1974 to March, 1974 claim is actually made in May, 1975 and February, 1975 respectively. There is no doubt that cash assistance is claimed on the basis of the relevant orders issued by the Government of India. The communications received by the company in this regard from the Government and placed before me make this clear.
26. As already mentioned, the Supreme court in Shri Ambika Mills Ltd., No. 1 v. Textile Labour Association, Ahmedabad, has considered in detail the meaning of the word 'subsidy' and has come to the conclusion that only cash payments made by the Joint Chief Controller of Imports and Export should be deemed to be subsidies and allowed this subsidy received from the Government as a deductible item. This decision is on all fours and supports the deduction claimed by the management in respect of Cash Assistance as detailed in statement No, 1 annexed to I.A. 2. Therefore, to the extent of this Cash Assistance claim of the I party for adding cannot be allowed.
27. The question that arises next for consideration is whether the sum of Rs. 12,70,049 which is alleged to be the cash sudsidy received for the Government during the accounting year should be deducted from the available surplus. In proof of this pleading the II party have adduced evidence. M.W. 1 has stated in his oral evidence that the sum of Rs. 12,70,049 consists of four items, namely, 1. Rs. 5,74,194; 2. Rs. 4,94,381; 3. Rs. 55,120; 4. Rs. 1,46,354. The first item relates to the period January to March, 1974 received on 12th December, 1974. The other items relate to the accounting period 1974-75. In support of this, the management produce Ext. T1 to Ext. T6. Exhibit 5 and Ext. 6 are counterfoils of receipts relating to the first two items and are dated 12th December. 1974 and 3rd February, 1975, respectively. Exhibit T 1 and Ext. T 2 relate to the sum of Rs. 55,120 and is dated 24th January, 1975. Exhibit T 3 and Ext. T 4 relate to the sum of Rs. 1,46,354 and is dated 25th November, 1974. This claim for deduction has been raised in I.A. 2. It is quite clear from the evidence that the claim is proved as a fact and in view of the statement of law in Shri Ambica Mills case (supra) the claim of the II party is leqally sustainable. No issue is, however, framed. But the parties were permitted to educe evidence in connection with this mater. In this connection Sri P. P. Bopanna relied on a decision of the Madras High Court in Kaleswarar Mills Limited v. Sakthivelu and others reported in 12 F.J.R. 279, where it is held that where the Industrial Tribunal has ascertained the real dispute between the parties and has examined the details of the dispute the omission to frame formal issues cannot by itself vitiate the order of the Tribunal if the Tribunal has dealt with all the contentions raised by the parties before it. Following this decision I am of the view that the omission to frame the issue does not prejudice the parties. In any event the parties did not ask for the framing of an issue. Further when the matter has reference to statutory provisions it is necessary to examine whether the deduction sought comes within the purview of Schedule I-item 6(g) of to Payment of Bonus Act. If it does it must necessarily be excluded. This view is supported by ruling of the Madras High Court in Premier Printers, Coimbatore v. Labour Court, Coimbatore and others, reported in [1970-II L.L.J. 88.]. When this inclusion of cash assistance in the current year in the profit and loss account is a patent error in view of the clear ruling of the Supreme Court in Sri Ambica Mills case (supra) it must be rectified.
29. From what I have stated above it follows that the II party is entitled to a deduction of Rs. 12,70,049 from the available surplus.
30. The second issue relates to the allocation of Rs. 68.09 lakhs to capital in the profit and loss account. It is contented by the unions, I party (b) and (c), that the capital expenditure exceeds Rs. 68.09 lakhs. This issue was given up by the Employees Association, the I party (a), but was pressed by the unions, I party (b) and (c). Sri S. Krishnaiya the learned counsel for the unions, who pressed this issue contended that a sum of Rs. 9,42,504 should have been added to the sum of Rs. 68,09,994. In the first place, Sri Bopanna, the learned counsel for the II party, contends that the figures given in the balance sheet should be presumed to be correct unless they are challenged in the manner contemplated under S. 23 of the Payment of Bonus Act which has not been done in this case. There is much force in this contention. The sum which the unions ask to be added is found in the profit and loss account. What is now claimed is that it is an item that should be treated on the same basis as Rs. 68,09,994, i.e. capital expenditure. On page 26 of Ext. A, in the profit and loss account of the company, corresponding to 'operating and other expenses' a sum of Rs. 5,32,98,347 is debited. The particulars of the amount is found on page 29 of Ext. A. It will be noticed that the sum of Rs. 9,42,504 has been included under the head repairs and maintenance. Examining the entries on page 26 it is clear that a sum of Rs. 9,42,504 is included while arriving at the balance profit carried down at Rs. 2,30,40,257. Sri S. Krishnaiya placed reliance on a statement of M.W. 1 to the effect that a sum of Rs. 9,42,504 stands on the same footing as the sum of Rs. 68,09,994 allocated to capital. This solitary, isolated and random statement cannot be of any help. A detailed examination indicates that the sum of Rs. 9,42,504 has been treated as expenditure for repairs and maintenance and the profits are calculated thereafter. Even in this respect, the presumption under S. 23 of the Payment of Bonus Act comes in the way of the contention of the learned counsel. No attack has been made against the correctness of the statements and particulars given in this regard in the profit and loss account. There is no material to hold that this is capital expenditure. In view of this finding of fact, the decision of the House of Lords in British Insulated and Helsby Cables, Limited v. Atherton, reported in 1926 App. Cases 205 is not of any help. Therefore, there is no substance in the contention of Sri Krishnaiya and the second issue is held against the I party. Though the contention is not in the pleadings, Sri S. Krishnaiya on the basis of his cross-examination of M.W. 1. After his further examination and the evidence adduced by the unions thereafter urged that the inclusion of a sum of Rs. 25,53,790 towards tools, jigs and fixtures is erroneous as that expenditure is in the nature of capital expenditure. Some evidence pertaining to their durability was adduced but they are of no evidentiary value. There is no evidentiary material to support the contention that tools, jigs and fixtures are of such enduring nature as to be classed under capital expenditure, Hence this argument is repelled.
31. The third issue relates to the loss of Kempsons Foundry. This has been added back while making the computation in Ext. C. Sri M. C. Narasimhan, learned counsel appearing for the I party (a) did not press this issue at the earlier stage and Sri S. Krishnaiya, learned counsel appearing for I party (b) and (c) did not press this issue at the stage of arguments. Therefore, this issue does not arise for consideration.
32. The fourth issue relates to the contention whether the sum of Rs. 23.40 lakhs should be added back. The entry relating to this sum is marked Ext. A5. This amount is debited in respect of disallowance and reduction of dues from Government and semi-Government bodies. Corresponding to this item, note No. 12 on page 33 of the balance sheet and marked Ext. A 6 is found. Further on page 31 of the balance sheet an entry pertaining to doubtful debts amounting to Rs. 13,59,796 is found and it is this figure that has been taken into account in the computation of gross profits under Ext. C and marked Ext. C2. The evidence of M.W. 1 in the connection is that sum of Rs. 13,59,796 is the actual provision for the year 1974-75 and, therefore, this has been added back in the computation of bonus. This entry is marked Ext. A7 in schedule L of the Profit and Loss Account. The sum of Rs. 23,40,173 as per Ext. A5 is that accumulated figure including the corresponding figures for the previous years. On page 20 of Schedule G annexed to the balance sheet of the year 1973-74 provision is made for a sum of Rs. 10,07,640 towards disallowance and reductions on dues from Government or semi-Government bodies. This pertains to the previous year. Note No. 12 marked Ext. A6 on page 33 of Ext. A makes it clear that the sum of Rs. 23,40,173 represents dues remaining uncovered for over 4 years. From out of this sum, if the provision is made in Ext. B regarding doubtful debts for the previous year, viz. Rs. 10,07,640 is deducted a sum of Rs. 13,32,533 is obtained. To this if a sum of Rs. 27,263, found on page 31 of Ext. A being doubtful debts is added, reductions and disallowances total to Rs. 13,59,796. It is this amount that has been added back. It would be unreasonable to contend that even the amounts pertaining to preceding years should also be deducted now. It must be appreciated that all these figures are taken from the profit and loss account in Ext. A. and Ext. B. Provision made for disallowance and reductions is the ordinary course of business. The figures cannot be challenged unless it be in accordance with the provisions of S. 23 of the Payment of Bonus Act. In the absence of any specific challenge in respect of these entries the presumtion under S. 23 of the payment of the Bonus Act relating to the accuracy of the figures arises and, therefore, this contention of the I party is rejected.
33. The next question relates to deduction of Rs. 26,98,235 from allocable surplus towards set off for previous years. This is the subject-matter of the fifth issue. It will be seen in Ext. C under the entry marked Ext. C3 that the aforesaid sum is adjusted towards set off for the years 1971-72 to 1973-74, under S. 15 of the Payment of Bonus Act. The details pertaining to bonus for the years 1971-72, 1972-73 and 1973-74 are detailed in Ext. C4. It will be seen that in 1971-72 and 1972-73 there was no allocable surplus. While in 1973-74, the allocates be surplus was Rs. 8,27,028. The deficit carried forward during the two earlier year is mentioned in the 4th column of Ext. C. 4. The total carry forward to deficit for the Year 1974-75, i.e. the item in dispute is mentioned. In his evidence M.W. 1 states that during the previous years in question computation of bonus is made on the basis of the provisions of the Payment of Bonus Act. 1965. The workers being entitled for the minimum bonus, as provided in the Act, it was given. In addition to the bonus, ex gratia payment was made to the employees for all the three years under agreements evidenced by Ext. F1 to F3. Sri Bopanna submits that under S. 15(2) of the Payment of Bonus Act it is provided that wherefor any accounting year there is no available surplus or allocable surplus in respect of that year falls short of the amount of minimum bonus payable to the employees in the establishment under S. 10 and there is no amount or sufficient amount carried forward and set on under sub-s. (2) which could be utilised for the payment of minimum bonus then such minimum or the deficiency as the case may be shall be carried forward for being set off in the succeeding accounting year and so on upto and inclusive of the fourth accounting year in the manner illustrated in the Fourth Schedule. Under the payment of Bonus Act. 1976, S. 15(2) reads the same way except that the fourth Schedule is read as the Third Schedule. Under S. 10(3) of the aforesaid amended Act, it is provided that for the purpose of this Section the allocable surplus shall be computed after taking into account the amount set on or set of in the three immediately preceding accounting years and in the accounting in respect of which bonus is payable in the manner illustrated in the Third Schedule. Following these provisions, for the accounting year 1974-75 in respect of which bonus is payable the set off is claimed. The Third Schedule incorporates the illustration to show how the set on and set off are to be worked. The I party have raised two objections for the claim of the management for set off. In the first place, they submit that S. 15 does not apply where for payment of bonus during the previous years no computation is made under the Act but bonus is paid on an ad hoc basis. Secondly, there is no proof to show that the figure of set off claimed is correct. It is contended that the presumption under S. 23 does not avail because it is no part of the balance sheet or the profit and loss account. Sri Narasimhan further contended that it is a four year cycle that is contemplated for calculating set on or set off. Starting from the year 1965-66, he says that the first cycle of four years ends with 1968-69 and the second cycle ends with 1972-73. Therefore, if at all, the claim of set off is admissible only in respect of the bonus paid during the year 1973-74. What would be liable to be set off is a very much smaller sum. At the outset, I may say that this argument does not appeal to me. Under S. 10(3) of the Payment of Bonus Act, 1976 set off is claimed by the II party for a period of 3 years prior to the accounting year in respect of which bonus is payable. There is no possibility of any cycle of four years implied in there provisions and hence this argument is unsustainable.
34. The question of set off has been raised by the I party in paragraph 6 of the additional reply filed by them on 2nd April 1976 and the issue is suggested by the I party in their draft issues filed by them. On the basis of these the fifth issue is framed. Another contention raised is that the consideration of the question of set off would amount to adjudication of bonus due for the previous years and this cannot come within the terms of reference. I am unable to accept this contention either because the set off now claimed requires consideration whether the claim made by the management is correct or not or what extent of the same is covered by the issue. In support of the statement Ext. C4 the management has produced two registers marked Ext. R1 and Ext. R2 Exhibit R2 shows the amount of allocable surplus during the 3 years in question. Exhibit R1 pertained to the set on and set off of allocable surplus under S. 15. It contains figures of bonus payable for the three years in question. The statement Ext. C4 also contains the details. The evidence of M.W. 1 further clarifies the position that Ext. C4 indicates minimum bonus payable under the Payment of Bonnus Act, 1965. It is not disputed that during the preceding years more than what is provided for as the minimum bonus payable has been paid. This is clear from Ext. F1 to Ext. F3. Exhibit F1 relates to the year 1970-71 with which we are really not concerned. Exhibit F3 is a memorandum of settlement under S. 12(3) of the Industrial Disputes Act relating to dispute in respect of bonus payable for the years 1971-72 and 1972-73. The relevant portion is Ext. F3 reads as follows :
'(1) In respect of the year 1971-72, the management has already paid minimum bonus at the rate of 8 1/3 per cent due under the Payment of Bonus Act. 1965. The management has also paid a sum of Rs. 150 as recorded in the proceedings of the Conciliation Officer. It is now agreed by the parties that for the said year, the management will pay an exgratia payment the difference between 4 percent of the annual earnings and Rs. 150 without such payment being treated as a precedent. It is agreed that such payment shall be received by the workmen in full and final settlement of all claims in respect of bonus for the year 1971-72.
(2) As regards the year 1972-73, the management has already paid the minimum statutory bonus at the rate of 8 1/3 per cent as laid down in the payment of Bonus Act. 1965. It is agreed that in addition to the said minimum bonus, the management will now pay additional ex gratia payment of 4 per cent of the annual earning in full and final settlement of all claims whatsoever for bonus in respect of the year 1972-73 without the same being treated as a precedent.
(4) The agreement and settlement reached above being fair and reasonable, all claims in respect of bonus for the years 1971-72 and 1972-73 stand completely disposed off by this settlement and it is distinctly understood that no further claim will be entertained by the second party.'
35. Exhibit F2 related to the year 1973-74 and the first paragraph of the terms of settlement reads as follows :
'(1) In respect of the year 1973-74, since the Management has already paid the bonus due under the Payment of Bonus Act, 1965, i.e., 8 1/3 per cent the management will pay an ex gratia amount equivalent to 4 per cent of the annual earnings of the workman during the said year. It is understood that this payment is being made purely ex gratia and that it shall not be treated as a precedent. It is further agreed that the said payment shall be received by the workman in full and final settlement of all claims in respect of bonus for the year 1973-74 and they shall not cite this ex gratia payment as a precedent in further years.'
36. It appears to me that the terms of settlement make it clear that the payments made by the management in the settlement of claim in respect of bonus for the concerned years consists of two parts :
(1) Payment of minimum bonus as provided under the Payment of Bonus Act.
(2) The ex gratia payment made by the management.
It cannot be said that the entire 12 1/3 per cent paid is an ad hoc payment. What is paid over and above the 8 1/3 per cent which is the minimum payable bonus can only be ex gratia. That is what has been stated in the terms of settlement also. Therefore, the contention that the entire payment is made ad hoc is not correct. What is payable as bonus strictly under law is to be taken for the purpose of set off and set on. In this connection, the counsel for the II party relied on a decision of the Supreme Court in Workmen of National Grindlays Bank Ltd. v. The National and Grindlays Bank Ltd. reported in , in which while dealing with the question of set on and set off under S. 15 of the Payment of Bonus Act, their Lordships Observe : 'It is clear from the scheme of the Act and the context in which this sub-section occurs following closely upon Ss. 4 to 10, that the basic condition for the applicability of this sub-section is that bonus is computed in accordance with the statutory formula provided in the preceding sections of the Act and as a result of such computation, it is found that the allocable surplus is more than sufficient to cover the maximum bonus payable under the Act and where such is the case, the sub-section provides that the excess over the amount of the maximum bonus shall to the extent of 20 per cent of the total wages or salary but carried forward and set on in the succeeding year. It is contended that this principle applies to set off also. Examining the terms of settlement as incorporated in Ext. F1 to Ext. F3, it is clear that the bonus payable is calculated first on the basis of the minimum provided under the Act and whatever has been paid over and above this is ex gratia and to that extent it is ad hoc Therefore, it appears to me that the deduction claimed by the management is permissible under the Payment of Bonus Act. Even though there is much force in the contention that the figure of set off does not find a place in the balance sheet and the profit and loss account and, therefore, the presumption under S. 23 of the Payment of Bonus Act, does not avail the management, it is of no consequence in view of the finding on a question of fact that minimum bonus has been paid during the preceding years in accordance with the Payment of Bonus Act and, therefore, deduction is climbable under S. 10(3) as has been done in Ext. C3. Therefore, my finding on the fifth issue is that the deduction is legal.
37. The next issue relates to miscellaneous expenditure. The miscellaneous expenditure deducted in the profit and loss account amounts to Rs. 41,97,864. The details are given in the reply statement filed by the II party. In paragraph 5 of the additional reply statement filed by the Association, i.e., I party (a) it is claimed that overheads, bank charges, excise duty on raw material and risks during guarantee are certain items in the miscellaneous expenditure which should be added back. The unions, i.e. I party (b) and (c) in paragraph 5 of their statement dated 2nd April, 1976 merely say that the I party do not admit the break-up figures with regard to miscellaneous expenditure and many items shown therein are to be added back. M.W. I states that these expense are wholly and exclusively incurred for business purposes of the company. The entry relating to this item is marked Ext. A8 on page 29 of Ext. A of Schedule I under the head 'Operating and other Expenses'. The I party have not challenged this entry in the accounts. From the break-up of the figures given by the II party in their reply statement it cannot be said that they are baseless or unjustified expenses. The I party has made no attempt to show that any of these items are unfounded. In the face of the evidence adduced by the II party and the absence of challenge of these account entries in the profit and loss account they must be presumed to be accurate and should be accepted. The contention that the miscellaneous expenditure should be added back cannot be countenanced. This issue is found against the I party.
38. The next contention which is covered by the seventh issue is that before the conciliation proceedings started and also subsequently and long before the matter came up for arbitration the management had assured the I party that they would pay 16 2/3 per cent as bonus for the year 1974-75. It is significant to note that in paragraph 4 of the claim statement filed by the I party (b) and (c) it is stated that in the talks before the conciliation proceedings the management agreed to pay 16 2/3 per cent as bonus for the accounting year. The parties demanded 20 per cent and the talks failed. The management in their rejoinder dated 16th March, 1976 stated that they do not admit having agreed to pay 16 2/3 per cent as bonus before the conciliation proceedings started between the parties. They further say that the figure of 16 2/3 per cent as bonus for the accounting year 1974-75 was tentatively arrived at on the basis of certain wrong assumptions as to the legal effect of the Payment of Bonus Ordinance and the management was advised that such assumptions of theirs would be against the provisions of the Companies Act and the Bonus Ordinance and hence the said tentative thinking was not implemented and they proceed to say that as per computation made in accordance with the Payment of Bonus Act as amended the workmen are entitled to only 9.4 per cent bonus for the year 1974-75. The Association i.e., the I party (a), however, in their statement dated 19th April, 1976 state as follows :
'The II party management by their letter dated 1st December, 1975 had assured the I party workmen that they would pay 16.66 per cent of the wages as bonus for the year 1974-75 if matter goes through conciliation. This letter was issued after the memo of calculation had been given to the I party Association in the month of December, 1975. The II party is bound by the said assurance and they cannot contend to the contrary.'
39. There is a variation between the averments made by the I party (a) Association and the I party (b) and (c) unions. One says that there was an agreement and the other says that there was a mere assurance. The issue only relates to assurance. On this point there is both documentary and oral evidence. The documentary evidence consists of correspondence between the parties and is marked Ext. E series and Ext. P series. The evidence of M.W. I on this point is that there was no commitment on the part of the management assuring payment of bonus at 16.66 per cent. In his cross-examination, the witness says that he has no personal knowledge regarding the alleged commitment on the part of the management to pay bonus at 16.66 per cent. The evidence of W.W. 1 who is the Secretary of the Employees Association is that the management offered on 23rd October, 1975 payment of 16.66 per cent as bonus for the concerned year. W.W. 2 speaking on behalf of the two unions states that the management refused to accede to the payment of 20 per cent bonus and said that they could pay not more than 16.66 per cent. He further says that they requested that an extra 8 1/3 per cent may be paid as bonus in addition to the 8 1/3 per cent already paid making the total of 16 2/3 per cent and that regarding what they are entitled too may be negotiated again and the management did not accede to this and therefore, the negotiations broke down. The evidence of W.W. 3 who is the Vice-President of the Workers Union is that the Technical Director said that bonus at 16.66 per cent will be paid. He explained the basis as addition of Rs. 91.03 lakhs to the profits. He further says that on that basis to bonus payable would exceed 16.66 per cent and, therefore, they demanded 20 per cent. The Technical Director refused to go beyond 16.66 per cent and said that the unions were at liberty to take any steps as they deem fit and, therefore, the negotiations failed. It is clear from the evidence of the W.Ws. That there was no agreement to pay 16.66 per cent not could it be said that it makes out the existence of an assurance either. In support of the allegation that the management agreed or held out an assurance, as mentioned already, there are several documents. Exhibit E1 is dated 10th December, 1975. It is a latter addressed to the Chairman and Managing Director of the II party by to Employees Union. It says :
'.... you have assured us to favorably consider to payment of 16 2/3 per cent as bonus payable under the Payment of Bonus Act as amended, after we pointed out certain appropriations in the audited balance sheet provided to us, as against our demand of 20 per cent for the year 1974-75. Though you have assured us to resume discussions so far steps have not been taken for further negotiations,' They demanded payment of bonus at 20 per cent in that letter. In the concluding part of the letter they called upon the II party to accept the demands failing which they would approach the Conciliation Authorities to take the matter in conciliation and refer the same for adjudication or for arbitration if all the parties are unanimous or agreeable for the same. The assurance in this letter is not regarding payment of 16 2/3 per cent but to favourably consider the payment of the same. Exhibit E2 does not throw any light on this question. Exhibit E3 is only a notice issued by the Deputy Labour Commissioner in connection with conciliation. Exhibit E4 dated 6th December, 1975. It is a letter addressed by the Employees. Union to the Deputy Labour Commissioner and Conciliation Officer. It states as follows : 'The management after protracted correspondent in one of these meetings have agreed to consider the payment of 16 2/3 per cent bonus instead of our demand for 20 per cent for the year 1974-75, when we have pointed out certain anamolies in the appropriation of the audited balance sheet for the year 1974-1975'.
This letter also does not speak of any agreement or any unconditional assurance but only contains an idea to consider the payment of bonus at 16 2/3 per cent.
40. In another communication of the same date marked Ext. E5, the Employees Union state as follows :
'The Executive Committee meeting held on 8th December, 1975 at 4-15 p.m. in the premises of Personal Office has after considering the various aspects of the said issues unanimously resolved to demand 20 per cent of the total earning including all allowances be paid as bonus for the year ending 1974-75 without attaching any condition.'
This letter rejects any offer or assurance for payment of 16 2/3 per cent as bonus. On 26 the November, 1975 the Employees Association addressed a letter marked Ext. E6 to the Technical Director with reference to the meeting of the 23rd October, 1975 in the following terms :
'It was the conclusion that if things go through the Conciliation Officer, Rs. 91 lakhs of accrued surplus can be added back for the purpose of payment of higher bonus, i.e., 16 2/3 per cent. But unfortunately he management was no able to refer he above matter for conciliation due to various legal aspects, which was not communicated us so far in writing.'
The Association requested the management to make necessary arrangements for the appointment of an arbitrator who can decide properly the issue at their earliest. Exhibit E7 is the reply of the II party, dated 1st December. 1975 referred to by the Association in its statement dated 19th April, 1976. This letter places the matter beyond doubt that there was no assurance as pleaded. Exhibit E8 is a letter of the Workers Union dated 25th October, 1975 addressed to the management of the N.G.E.F. It does not refer to any agreement or assurance. Exhibit E9 is a communication dated 13th November, 1975 by the Workers Union addressed to the Managing Director of the II party. It says that in the meeting of the 24th October, 1975 Sri S. S. Kakade (TD), Sri Narayana Setty (PAM), Sri Jinaraj Ajri (PO), Sri M. N. Krishna (A/c Controller) and Sri Gurudutt (Legal Officer) were present. So it is clear that M.W. I was present at the meeting and it is not correct to say that he has no personal knowledge of what transpired at that meeting. So what he says in regard to the alleged commitment is acceptable. The letter says that after discussions, the Technical Director clearly stated that the management was prepared to pay in addition to the bonus advance of 8.33 per cent already paid, another additional payment of bonus at 8.33 per cent but that payment can be agreed to only before the Conciliation Officer and at his instance and intervention. The letter concludes by saying that, 'we earnestly urge upon the management to pay immediately 8.33 per cent to all the eligible employees and agree for either adjudication or arbitration for the remaining 3.34 per cent to close the bonus issue for the year 1974-75.' This letter does not mention about any unconditional assurance much less any agreement. Exhibits P1, P2 and P3 are hand bills issued by the three unions. Exhibit P4 is a clarification issued by the management on 25th October, 1975 and Exts. P5, P6 and P7 are copies of representations sent by the unions to the Technical Director. Exhibit P is a notice regarding meeting with the Employees Union on 24th October, 1975. Exhibit P1 as already mentioned, is a hand bill issued by the Employees Association. The Employees have not taken the stand that there was any agreement to pay bonus at 16.66 per cent. To the extent that the hand bills are inconsistent with the letters marked Ext. E series already referred to, they are more reliable than these hand hills. In connection with the hand bills issued by the I party the II party issued a clarification marked Ext. P4 dated 25th October, 1975 stating that the hand bill gave a distorted version. Exhibit P5 is a letter dated 28th October, 1975 addressed to the Technical Director by the Employees Union. It joins issue with the management in regard to the memo of clarification. Ultimately, the management issued Ext. P8 on 10th December, 1975 in the following terms :
Further to circular No. TD/PAM/9-529/1975, dated 1st September, 1975, the Management is pleased to announce payment of bonus to the employees at the rate of 9.4 per cent for the year 1974-75.
The advance of 8 1/3 per cent of the annual earning for the year 1974-75 already paid to employees as per circular referred to above will be fully adjusted. The balance of 1.07 per cent will be adjusted towards the special festival advance paid as per circular No. TD/PL/10-663/1975 dated 30th October, 1975.'
41. W.W. 3 in his examination states the management agreed to pay 16 2/3 per cent orally and not in writing. He produced Ext. Q which is a copy of a memorandum of proposed agreement which was not actually filed. Therefore, no importance whatever can be attached to the said document which was actually at the fag end of the proceedings. Obviously the parties were not agreeable to the terms incorporated in it and therefore, it was not filed. Considering all these evidentiary material I came to the conclusion that there was no unequivocal assurance to pay 16 2/3 per cent bonus, much less an agreement.
42. In view of this finding, it would be unnecessary to consider the contention of Shri P. P. Bopanna that in view of S. 34 of the Payment of Bonus Act as amended it is only the provisions of the Act that can have effect and no agreement can be entered into. If no agreement can be entered into much less can an assurance be accepted. Sri Bopanna invited my attention to a decision of the Supreme Court in Management of the Consolidated Coffee Estate Limited v. Their Workmen, [1970-II L.L.J. 576]. In paragraph 3 of the judgment, it is observed : 'The company conceded that during negotiations between the parties an offer was made on its behalf to pay bonus equivalent to 6 months basic pay. The negotiations, however, failed and since the union went for conciliation proceedings the union lapsed. Any offer, therefore, made by the Managing Director during the said negotiations which was not accepted by the union cannot be said to constitute an agreement.' In that case there was a certain offer made by the management relating to Payment of Bonus but they were not accepted by the labour and took up to matter for conciliation. The Supreme Court observed, 'An offer made during negotiations is no more than an offer and unless it is accepted it cannot ripen into a completed contract binding on the company.'
43. It is clear from the facts on hand in the present case, that the I party refused to accept bonus at 16 2/3 per cent and demanded 20 per cent and wanted that the matter should be referred to adjudication to a Tribunal or to arbitration. In these circumstances, the I party is not entitled to place any reliance on what transpired prior to the conciliation or during conciliation proceeding or during the arbitration proceeding. In the present case it is not even an offer but a mere assurance that is put forward. A mere assurance does not furnish the basis for any legal claim. Therefore, I hold the 7th issue against the I party.
44. The 8th issue relates to the scope of S. 23 of the Payment of Bonus Act and I have discussed this matter during the course of this Award wherever the correctness of the balance sheet and the profit and loss account has arisen for consideration.
45. In view of my findings as stated above on the several issues in the case, the I party would be entitled to bonus computed in the manner indicated in Annexure 'A' to this Award.
46. I answer the reference as follows :
(1) The workers of the N.G.E.F. Limited are not justified in demanding 20 per cent bonus as against the bonus of 9.4 per cent declared by the management of the N.G.E.F. Limited, for the year 1974-75.
(2) They are entitled to be paid bonus at 14.08 per cent for the year 1974-75.