Skip to content

Workmen of D.B.R. Mills Ltd. Vs. D.B.R. Mills Ltd. - Court Judgment

LegalCrystal Citation
SubjectLabour and Industrial
CourtAndhra Pradesh High Court
Decided On
Reported in(1958)IILLJ507AP
AppellantWorkmen of D.B.R. Mills Ltd.
RespondentD.B.R. Mills Ltd.
- - 1247, as the formula has been disapproved by the supreme court and the calcutta high court also has held in 1955-ii l. 10,10,000. it is now well settled that only normal depreciation including multiple-shift depreciation, but not initial or additional depreciation, should rank as prior charge in applying the full bench formula. the formula provides for some elasticity in matters like return on capital so as to allow for differences in industries and concerns. this clearly leaves the above proposition intact. to my mind, had the alleged oral agreement been a fact, sri arjun rao could not have failed to mention it here......bonus of one month wages will also be paid; and that if the balance sheet does not show sufficient profit, bonus of one month wages will in any case be paid. arjun rao has filed ex. w. 1, to prove the agreement for bonus equal to half a month wages. relying on arjun rao's deposition and ex. w. 1, sanjeeva reddi has contended that the employer agred to pay half a month bonus and this was recorded in the minutes of the meeting on 6 february 1956; that the further oral promise was not recorded as dr. malkote had to go to a cabinet meeting; that this is evident from ex. w. 1 itself as it is recorded therein that dr. malkote directed that the agreed terms should be put down in writing, but that 'this was not done.' he, therefore, contends that the oral promise of bonus of a further half a.....

Mir Siadat Ali Khan, J.

1. By G.O. Ms. No. 464, dated 4 May 1957, the industrial dispute between the workmen and the employers of D.B.R. Mills, Hyderabad, has been duly referred for adjudication with the following issues:

(i) Whether the demand of the workmen for the payment of bonus for the year 1955-66 is Justified If so, what should be the quantum of bonus ?

(ii) Whether the demand of the workmen for increased number of dresses for watch and ward staff is justified.

2. The dispute was registered as No, 1 of 1957. Parties were summoned. Sri Sudarsan and Sri Arjun Rao claimed to be the office bearers of the registered trade union, but several workmen of the D.B.R. Mills, under the leadership of M.I.K. Qureshi, claimed that they were not their true representatives. After hearing argument, I held on 30 July 1957 that under Section 36 of the Industrial Disputes Act No. XIV of 1947 both of them can be parties to this dispute. Accordingly both filed claim statements to which the employer replied. All the parties adduced oral and documentary evidence.

3. I begin with the first issue on bonus. Mr. Madan Phadnis, a learned advocate of Bombay High Court, represented the other workmen of the D.B.R. Mills. He contended that as was held by the Industrial Tribunal, Bombay, in the Indian Oxygen and Acetylene Company case 1957 I.C.R. 466 an industrial tribunal is free to do justice between the parties and it can make a formula of its own for calculation of available surplus, and is not bound by the formula laid down by the Appellate Tribunal in the Bombay Textile Mills case 1950-II L.L.J. 1247, as the formula has been disapproved by the Supreme Court and the Calcutta High Court also has held in 1955-II L.L.J. 214 that the Labour Appellate Tribunal has no jurisdiction to lay down law. He has accordingly filed a statement (marked A) in which he has calculated the available surplus for bonus. According to him, there is enough surplus and in addition to Rs. 44,211 representing the 15 days' wages of the workers and the staff already paid to the workers as bonus, a sum of Rs. 32,556 representing 15 days' wages of the workmen of the D.B.R. Mill, excluding the staff can be paid, and there will still be left a sum of Rs. 34,016. As against this, a counter-statement (marked X) has been filed by Sri Seshu, the learned advocate of the employer, according to which there is a deficit Rs. 7,79,240 and, therefore, no bonus can be paid.

4. The basis of the employer's contention that there is no available surplus but rather a deficit of nearly 8 lakhs is note 1 of the 1955-56 balance sheet. There the auditor has observed that there have been substantial (sic) under provisions for depreciation on fixed assets for the past many years and under provision of about Rs. 6,50,000 this year. As Rs. 3,60,000 has been set apart for depreciation in 1955-56, the total amount of depreciation that is allowed under the Incometax Act is thus Rs. 10,10,000. Sri Madan Phadnis has contended that this note has not been proved: the author of the note, the Chartered Accountant concerned, has not come into the witness-box and, therefore, this statement is not evidence and cannot be taken into consideration. It should be noted that M.W. 1, Mr. Sundaram, the office manager of the employer's mill, has proved the balance sheet Ex. M. 1 by identifying the signature of the Chartered Accountant on it. He has deposed further that in. 1965-56 the sum required for depreciation is as indicated in the note, Rs. 10,10,000; but as this year the company had made a net profit of Rs. 2,549 only, full provision for depreciation could not be made and an amount of Rs. 3,60,000 only could be provided. Thus, I cannot agree that the note of the auditor is not evidence and the total amount of depreciation allowed under the Incometax Act for the year 1955-56 is not Rs. 10,10,000. It is now well settled that only normal depreciation including multiple-shift depreciation, but not initial or additional depreciation, should rank as prior charge in applying the Full Bench formula. Reference may be given to the latest Supreme Court decision of Meenakshi Mills 1958-I L.L.J. 239 a 244, col. 1, lines 4-6, where the proposition I have just stated is laid down. In Model Mills case 1955-I L.L.J. 534, it was observed and held as follows:

Opinion might differ as to the weight to be attached to the various components constituting the formula. The formula provides for some elasticity in matters like return on capital so as to allow for differences in industries and concerns. As to certain other charges the formula is so stated as not to be susceptible of deviations and one of such charges is normal statutory depreciation. In the circumstances, provision for full rate of statutory depreciation must be made in spite of the fact that the amount actually provided for by the employer as depreciation was less than such amount.

As Mr. Madan Phadnis has cited no authority to the contrary, really there is no escape from allowing full normal depreciation. The pronouncement in the Model Mills case just quoted has not been called in question in any decisions of the Supreme Court. Even in its latest case on bonus, viz., the Meenakshi Mills case 1958-I L.L.J. 239, the Model Mills case was referred to as regards its finding on disallowing provision of incometax for additional and initial depreciation, and the Supreme Court dip not differ even from this finding. And as regards allowing of full normal depreciation without the Initial and extra depreciations, the proposition stated in the Model Mills haft not been questioned. It should be noted that Sri Sundaram has proved Ex. M. 2; a perusal of this statement will show that it Includes only normal and shift depreciations. The workmen have not adduced any evidence to show that it includes initial or extra depreciation. I allow the normal depreciation of Rs. 10,10,000.

5. And in spite of copious references to cases by the learned advocate, Mr. Madan Phadnis, I cannot hold that the Supreme Court has discarded the Fall Bench formula. The farthest extent to which it has gone is that it has not committed itself to the formula in their entirety. This means that their lordships may have been thinking differently on some components of the formula but have not said what has passed in their minds. On the other hand, they have applied the formula in all the cases on bonus with approval. This will be seen from the Meenakshi Mills case 1958-I L.L.J. 239 itself, p. 241, col. 1, lines 1-6 as also from a host of other cases. Sri Meher, the Industrial Tribunal, Bombay, himself applied the formula, in the very case of 1957 I.C.R. 466 in which he expressed himself against the formula. I, have, therefore, no other recourse but to take the formula as the basis of my calculation of the available surplus. The first thing to do is to ascertain the gross profit. It is clear from the balance sheet that, as contended by Sri Madan Phadnis, there was a loss of Rs. 49,439 on the sale of 1,000 shares of of the Azamjahi Mills owing to value of the shares having gone down. The employer has, therefore, written down this amount and a further amount of Rs, 50,000 on the remaining 1,000 shares. As both these amounts are not trading losses, I cannot, for the purposes of the formula, deduct these amounts from the gross profits. Similarly, as I am concerned with the trading and gross profit of the year 1955-56, I cannot omit Rs. 8,010 from it, as it is shown to be the amount of the interest for a period earlier than the current year. For the same reason, the amount of Rs. 1,300 on donation and Rs. 20,632 on loss on canteen cannot be taken away from gross profit in the calculations of the formula. I will include them. There remains the big item of managing agents' commission of Rs. 2,32,642. It has been laid in the Model Mills case 1955-I L.L.J. 534 that the managing agency commission is an item of expenditure fixed by contract and therefore the full amount must be regarded as part of the expenditure of the year, so long as the amount of the managing agency commission does not exceed the limit allowed by law. A statement (marked B) has been filed by Mr. Madan Phadnis showing the huge amount of managing agents' commissions that have been allowed in the past few years. He has pointed out that even in a year (1949-50) when net profit has been the highest, viz., Rs. 3.38 lakhs, the managing agency commission was 1.53 lakhs, but in the year under consideration when the net profit has been only Rs. 2,549, the managing agency commission has been 2.33 lakhs. To this, it is replied that this is due to the fact that in several years the managing agent has foregone his commission either wholly or in part; that 2 1/2 per cent commission on the sales are allowed by the contract between the company and their managing agent and therefore, the amount of Rs. 2.33 lakhs should be allowed in its entirety. It should be noted that under the new Company Act No. 1 of 1956, no managing agent can sell the product of the mill of which he is the managing agent unless approved by a special resolution. It is said that two special resolutions have been passed authorizing the managing agent to sell the mill cloth. These resolutions have not been filed. It should also be noted that usually commission is allowed on net profit; but, in this case 2 1/2 per cent commission' is allowed on sales. According to Mr. Sundaram, the managing agent has a shop in Secunderabad for the last 40 years in which he sells the mill cloth along with other cloth. I therefore feel that for the purposes of the formula the managing agent's commission this year may not be taken to be 2.23 lakhs but may be allowed to the extent of Rs. 1,50,000 only.

6. The Full Bench formula allows any additional amount required in excess of depreciation for the purpose of rehabilitation, replacement and modernizing of machinery. The need for rehabilitation has to be proved strictly; otherwise no amount is allowed. Sri Sundaram has deposed that the company was floated in 1920; the machinery was purchased in 1922 as it bears that year engrossed on it: that in the statement Ex. M. 4 which he has filed, the cost of this machinery has been multiplied by 2.7, as the prices have gone up; some more machinery was purchased from 1949 and this is shown at cost. A perusal of Ex. M. 4 will show the cost of buildings erected in 1920 is multiplied by 2.5 and the buildings erected between 1949 and 1955 are shown at cost. Thus in Ex. M. 4 Mr. Sundaram has given the value of building block after allowing of depreciation to be Rs. 27,95,490 and spreading it over a period of 30 years, requires Rs. 93,183 every year for rehabilitation. Regarding machinery, the depreciated value is shown to be Rs. 87,98,822 and dividing it by 14 years of the life of machinery, a sum of not less than Rs. 6,28,487 per year is shown to be required for the rehabilitation of machinery.

7. A perusal of the balance sheet will show that Rs. 25,36,000 + Rs. 1,85,000=27,21,000 is the value of the building block; and Rs. 60,97,000 +Rs. 11,72,500 + Rs. 53,000 + Rs. 1,33,000 = 74,55,500 is the value of the machinery block. The age of the building is taken to be 55 years In the Jute Mill case of Bombay and that of machinery 12-15 years and in some cases even 25 years. Even ignoring that the buildings have been erected mostly 35 years ago and the machinery also for the most part is that much old and some machinery is about 7 years old, a sum of Rs. 47,653 per year for the building and a sum of Rs, 2,98,208 will be required for the rehabilitation of machinery. This is so before I have seen what funds are available for rehabilitation. These appear to be as follows: paid-up capital Rs. 18 lakhs, depreciation Rs. 35,51,500 and reserve fund Rs. 11,95,000 or in all Rs. 65,46,000. Deducting it from Rs. 1,01,76,500, the combined figure of the value of building and machinery block, a sum of Rs. 32,30,500 will be required for rehabilitation. Scrap value of 5 per cent of the value of machinery will come to Rupees 3,27,325. Deducting this Rs. 32,30,500 the sum required will be Rs, 28,03,196. As the ratio between the value of the block of building and machinery is 1:3 a sum of Rs. 7,00,794 will be required for building plus Rs. 20,02,381 for the machinery. As the building is already in existence for the last 35 years, we will have to divide the sum of Rs. 7,00,794 by 55 - 35 or 25 years and a sum of Rs. 28,032 per year will be required for the rehabilitation of building. Similarly, as the old machinery is more than 35 years old, it will have to be rehabilitated in toto : and as the rest of the machinery is in existence for about 7 years a sum of Rupees 1,11,243 will be required every year for the next 18 years for the rehabilitation of the machinery.

8. The above is an indication of the requirement of rehabilitation. Strictly speaking, the value of the machinery or the building has not been proved by primary evidence. No documentary evidence of the purchase of the machinery or expenditure on building has been filed. The plain truth appears to be that as Mr. Sundaram was sure that there can be no available surplus if full normal depreciation allowed by the Income-tax Act is allowed by me, he did not take pains to prove to the hilt the need of rehabilitation. He was content to depose to the age of the building and of the original machinery. As I cannot doubt this, I cannot refuse the need of rehabilitation altogether. I will, therefore, allow a modest sum of Rs. 50,000 for rehabilitation of both building and machinery.

9. There remains provision for incometax. As the net profit for 1955-56 is only Rs. 2,549, incometax at 7 annas in the rupee comes to Rs. 1,118 only. It was urged that as the company suffered a loss last year, and there is a huge amount of unabsorbed depreciation, no incometax will be payable. The three oases considered by the Supreme Court in the first column of p. 246 in 1958-1 L.L.J. 239 are against this proposition. In the second column of the said page the Supreme Court does not seem to differ from these three cases. The Supreme Court observed that in the said three cases industrial tribunal consistently took the view that incometax calculated on the trading profit for the relevant year must be deducted as a prior charge from the gross profit, even though the employer may be entitled to claim exemption under the Incometax Act in view of the fact that he had suffered losses during the previous year. The Supreme Court did not differ from this proposition, as it observed that

After all the calculations are made by reference to the financial position of the employer during the particular year only and in these calculations considerations relevant under the Incometax Act would ' not be allowed to enter.

After this, the Court stated expressly that for the purposes of the dispute before it, it is not necessary to consider the correctness of the above view and so it need not pursue the matter further. This clearly leaves the above proposition intact. In the following paragraph two cases have been overruled. They were on a different point, viz., of payment of income tax on the amounts of initial and extra depreciation, when they are added to the gross profit. The Supreme Court held that this cannot be done. Hence, I will have to include this amount of Rs. 1,118 ' also. The above calculation may be tabulated as follows :

Rs.Gross profit-Net profits as per profit and lossaccount ... 2,549Loss on sale of investment ... 49,439Investment written down ... 50,000Bonus paid ... 44,211 Interest paid for the previousyear ... 8,010Donation ... 1,300Agents' commission ... 2,32,642Loss on canteen ... 20,632Depreciation provided ... 3,60,000------------Total ... 7,68,783------------Prior charges-Depreciation allowed under the income tax ... 10,10,000----------Deficit ... -2,41,247Incometax at the rate of 7 annas in the rupee ... 1,118----------Deficit ... 2,42,335Fair return on capital at 6 per cent ... 1,08,000----------Deficit ... 3,50,335Return on reserves utilized as capital at 4 per cent ... 40,000----------Deficit ... 3,90,335Less bonus paid ... 44,211----------Prior charges-cont. Rs. Deficit ... 4,34,546 Less managing agency com-mission ... 1,50,000Deficit ... 5,84,546Less rehabilitation ... 50,000------------Deficit ... 6,34,546------------

Thus I am quite clear that on the record before me there is no available surplus from which the demand for bonus can be met.

10. Sri Sanjeeva Reddi, representative of the registered trade union of the D.B.R. Mills workers, contended that irrespective of profit, the workmen should be paid bonus as the employer had entered into an agreement to pay one month bonus whether he earned a profit or not. This agreement has been deposed to by W.W. 4, Arjun Rao, the general secretary of the said union. He has deposed that the union had demanded two months' bonus for the two years 1954-55 and 1955-56. There was a meeting at the bungalow of Dr. Malkote, the then Minister for Public Works Department and Labour, on 6 February 1956. There the employer stated that he could not pay bonus for 1954-55 as there has been a loss; but for the year 1955-56, as he hopes for a profit he will pay an interim bonus of 15 days, and after the balance sheet was out, bonus of one month wages will also be paid; and that if the balance sheet does not show sufficient profit, bonus of one month wages will in any case be paid. Arjun Rao has filed Ex. W. 1, to prove the agreement for bonus equal to half a month wages. Relying on Arjun Rao's deposition and Ex. W. 1, Sanjeeva Reddi has contended that the employer agred to pay half a month bonus and this was recorded in the minutes of the meeting on 6 February 1956; that the further oral promise was not recorded as Dr. Malkote had to go to a Cabinet meeting; that this is evident from Ex. W. 1 itself as it is recorded therein that Dr. Malkote directed that the agreed terms should be put down in writing, but that 'this was not done.' He, therefore, contends that the oral promise of bonus of a further half a month wages is fully proved; that where there is an agreement, the fact whether there is any profit or not is not looked into. He has relied on 1955-II L.L.J, 675, 1955-I L.L.J. 84, 1956-I L.L.J. 383 and 615 and 1956- II L.L.J. 72. These cases do not support him. For, what was held in 1955-II L.L.J. 678 is that the payment of customary bonus does not depend on there being 'surplus,' and it is held in 1956-I L.L.J. 383 that the past practice should be long and continuous. The other three cases also do not help him.

11. M.W. 1, Sundaram, has stoutly denied the abovementioned alleged agreement. He has deposed that he was present at the 6 February 1956 meeting along with the then deputy manager V.G. Mehta, and the alleged agreement was not reached. Thus here is oath against oath. In such circumstances, I can only rely on the other circumstances of the case to decide which version is the correct one. The learned advocate for the employer pointed out two such circumstances, viz., that in Para, (i) of the 22 June 1956, statement of claim, not only reference was given to the alleged agreement, but it was stated that the agreement was to pay bonus if the mills made profit. Similarly Exs. M. 5 and 6 are letters of the union of 7 July and 21 November 1956. In these letters also no reference is made to the alleged agreement. He has therefore, contended that as the agreement was not alleged it cannot be proved. I cannot deny the weight of these contentions and I feel that legally the learned advocate is right. I may however, say that in industrial disputes the wording of the claim statement is usually in faulty English. The Para. (1) speaks also of 'a certain agreement.' The two letters are also not only in faulty English, but are written with a view to put up the demand for 24 months: and it is contended that when bonus for 2 1/2 months was demanded where was the occasion to refer to the alleged agreement for half a month bonus. It will be seen that no reference is given to the half-month bonus which was already paid, and in spite of its payment the entire demand for 24 months' bonus was again reiterated. This will show that in this case too much stress cannot be laid on pleading and prior statements.

12. The following other circumstances of the case appear to be relevant. The mill had suffered a huge loss of nearly 10 lakhs in 1953-54. In the following year it made no. profit. It was necessary to improve the working of the mill and to effect economy. The four looms system was introduced. It effected a saving of Rs. 96,000 per month according to the exaggerated account of W.W. 1. M.W. 1 concedes that the saving comes to about Rs. 2,000 per month. The workload had increased; the workers, therefore, demanded bonus for 2 1/2 months. In the context the management agreed to pay half a month bonus and paid it. What weighs with me is the fact that in spite of most unfavourable trading position, and under the threat of a tools-down strike held out in Ex. M. 7, dated 16 February 1956, the management did pay half a month bonus: why? to make the workman bear the enhanced workload willingly, and to restore peace in the industry. The question is, do not these circumstances render the allegation of work-' men about a further half a month bonus more probable. After careful consideration, I think not. For, even in Ex. M. 7, dated 16 February 1956, by which the tools-down strike was called off, no mention is made of the alleged oral agreement. Sri Arjun Rao, W.W. 4, is himself the author of this letter, Ex. M. 7: There he writes :

in view of the management's promise to declare interim bonus of half a month's basic wages for 1955-56, pending final outcome of the balance sheet for the year under review and settlement on other issues such as ... the above tools-down strike has been called off.

To my mind, had the alleged oral agreement been a fact, Sri Arjun Rao could not have failed to mention it here. For, he has referred to half a month bonus, and if the promise was for a further half a month after the balance sheet was out, he would have said it. Usually when an agreement is referred to, it is referred to, in its entirety and not in halves. This omission clinches the matter: and I feel quite clear that the alleged agreement has not been proved. In the result, even on the ground of alleged oral agreement, I cannot direct payment of any bonus.

13. The second issue is on the grant of uniform. According to the depositions of M.W. 1 there are 60 watchmen and 4 gate-sergeants. The company is at present giving all of them two pants, two shirts and two turbans. In addition, the 4 sergeants are given 4 special coats. Out of the 60 watchmen, 12 take part in fire practices and as they get drenched they are supplied 1 pant, 1 shirt, and 1 turban more. The demand is that all the chowkidars and the sergeants should be given 1 pant, 1 shirt and 1 turban more. Though the eminently reasonable office manager, Mr. Sundaram, has resisted this demand on the ground that, having regard to the climatic conditions of Hyderabad, there is no reason to accede to the demand, yet, he has left this matter to me. After careful consideration, I think that the amount involved cannot be much and if 3 sets of uniform are given instead of two it will add to the dignified appearance of the mill watch men and the gate-sergeants. Such dignity of administration is really not without a return, as it creates a feeling of soundness and greatness of the concern in the mind of the customers and the workers themselves. Shoes are nowhere held to be part of the uniform. Similarly, the climatic conditions of Hyderabad do not require warm coat or rain-coat. With the exception of shoes and these coats I allow this demand.

14. In the result, the demand of the workmen for bonus for the year 1955-56 is rejected and that for supply of uniform is allowed as stated above. I may remark that the function of the tribunal is not only to decide disputes, taut to help to maintain industrial peace. I find that the workmen are not fully alive to the burdens on the employer's mill or the textile industry in general. I would advise them to pay more heed to this.

This is my award.

Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //