Sarjoo Prosad, C.J.
1. In this application under Article 226 of the Constitution, the petitioner prays for a writ of certiorari quashing the order of the Judge, Industrial Tribunal, Jaipur, dated 15 July 1958.
2. The facts giving rise to the application are that a reference was made to the said tribunal by the Government of Rajasthan under Notification No. D. 4136/F.-14 (18) Labour/55 dated 24 January 1956, for adjudication of an industrial dispute between the petitioner, the Pali Electricity Company, Ltd., Pali, and its workmen represented by the Power House Labour Union, Pali. The dispute referred to was whether the workmen of the Pali Electricity Company were entitled to get bonus for the years 1953-54 and 1954-55 and if so, what should be the quantity of such bonus.
3. The case of the union was that if the balance sheet is properly examined, the petitioner-company made a net profit of Rs. 13,301-3-0 in the year 1953-54 and Rs. 28,214-1-3 in the year 1954-55; the company was, therefore, liable to pay bonus to the workers. The union further claimed that the basic wage of the employees of the company was low and the dearness allowance payable inadequate and, therefore, a demand for bonus was justified.
4. The petitioner in its reply stated that there was no profit to the company in the year 1953-54; on the contrary there was a loss of Rs. 16,037-6-2 as shown in the balance sheet. As for the year 1954-55 there was only a profit of Rs. 12,176 11-1 which had to be otherwise utilized and it denied its liability to pay any bonus to the workers during the years in question.
5. A number of issues appear to have been struck by the tribunal which came to a decision that the company was not liable to pay any bonus in respect of the year 1953-54 since there was no surplus in the hands of the company. In regard to the year 1954-55 the tribunal found that there was a surplus of Rs. 4,746 available for distribution as bonus to the workers and, therefore, directed that bonus corresponding to 11/2 months' wages should be given to the workmen concerned.
6. The petitioner has moved against the said order on the ground that there have been apparent errors of law in adjudging the amount of surplus in the hands of the petitioner-company and, therefore, the order of the tribunal is fit to be quashed. The petitioner contends that if the law had been properly applied to the various amounts referred to in the order, there would be no surplus left for the payment of any bonus at all.
7. The contention before us is confined mainly to the Issues framed by the tribunal, which relate to the claim for commission and other allowances payable to the managing agents of the company and the costs actually incurred over the purchase of a new power plant. It may be observed at the outset that with a view to ensure the efficient working of electrical companies and at the same time to provide against any improper use of their finances, the law has devised certain checks and sefeguards. The tribunal had, therefore, to examine in the light of these provisions of the law whether the return of income and expenditure as shown by the management in its balance sheet was fair and reasonable, with a view to determine the actual profits, if any, in the hands of the company, for distribution as bonus to workmen during the relevant period.
8. We may first of all conveniently dispose of the point of appropriation claimed on account of agency charges. The tribunal has rightly held that the terms of the agreement of the managing agency stand modified by the provisions of Section 3 of the Electricity (Supply) Act, 1948 (Act 64 of 1948, hereinafter called the Act) in so far as they were inconsistent with the latter. Paragraph XIII of Schedule VI of the Act prescribes the remuneration payable to the managing agent. The paragraph may be reproduced at this stage;
XIII (1) Subject to the provision of Sub-para. (2) the ordinary remuneration of a managing agent excluding the office allowance mentioned in Sub-para. (3) but including purchasing commission, If any, shall be based on a percentage of net profit as defined in Section 87(c)(3) of the Indian Companies Act, 1913 (VII of 1913), and shall not exceed--
(a) in respect of the first Rs. 6 lakhs of such net profits--10 percent; and
(b) In respect of all net profits in excess of Rs. 5 lakhs--7 percent.
(2) The amount paid to a managing agent shall be subject to a minimum payment an account of ordinary remuneration not exceeding two rupees per annum for each complete thousand rupees of paid-up share and debenture capital provided that for purposes of computing the minimum payment, should the share and debenture capital be less than rupees five lakhs, it shall be taken as rupees five lakhs and should the said capital be greater than rupees one crore it shall be tak6n as rupees one crore.
(3) An office allowance drawn by a managing agent which shall include the salaries and wages of all persons employed in the office of the managing agent but not the salaries of the engineering staff employed for purposes of the undertaking, shall be a percentage of the operating expenditure and the expenditure during the year of account on capital works. The office allowance so drawn shall not exceed:
(a) In respect of the first Rs. 1 lakh of operating expenditure--8 per cent.
In respect of- the next Rs. 2 lakhs of operating expenditure--5 per cent.
In respect of the next Rs, 7 lakhs of operating expenditure--21/2 per cent.
In respect of all operating expenditure in excess of Rs. 10 lakhs--11/2 per cent.
(b) In respect of the first Rs. 1 lakh of capital expenditure incurred daring the year of account--4 per cent.
In respect of the next Rs. 2 lakhs of capital expenditure incurred during the year of account--3 per cent.
In respect of the next Rs. 7 lakhs of capital expenditure incurred during the year of account--2 per cent.
In respect of all capital expenditure in excess of Ra. 10 lakhs incurred during the year of account--1 per cent.
Operating expenditure for the purposes of Sub-para. (3)(a) above shall mean the sum of the items of expenditure as defined in Sub-para. (2) (b) of Para. XVII with the omission of those under Clause (1), (iv), (ix) and (x) thereof.
It is conceded by the learned Counsel for the petitioner that Sub-para. (1) has no application to the case. His contention, however, is that the petitioner Is entitled to the benefit of both Sub paras. (8) and (3) of the statute for the purpose of computing the remuneration payable to the managing agents. The tribunal has allowed the remuneration claimed under Sub-para. (2) of Para. XIII; but has refused to make any allowance to the petitioner in respect of the allowance mentioned under Sub-para. (3), The tribunal observed that it was for the company to prove that the office allowance was based on the scale prescribed in that sub-paragraph in respect of the staff employed by the managing agent for the undertaking in question; and since the company had not been able to clarify whether the amount shown in the balance sheet wan claimed as ordinary remuneration under the law or it was claimed as office allowance to which the managing agency was entitled under the agreement, the benefit of Sub-para. (3) could not be allowed to the petitioner. Apparently this observation of the tribunal seems to be inconsistent with what the tribunal itself found earlier, namely, that the petitioner was claiming the remuneration aforesaid not on the basis of any managing agency agreement but in conformity with the provisions of the Act; and the word 'bhatia' was an omnibus expression which should be held to cover, according to the case of the petitioner, whatever managing agency remuneration was payable under the law and not merely a particular variety of remuneration as contemplated by Sub-para. (2) of Para. XIII; On behalf of the union it has been contended by Sri Mridul that unless there was some evidence to show what expenses had been actually incurred on account of office allowance by the managing agency, no additional remuneration under Sub-para. (3) should be allowed on that account. Interpreting the paragraph as a whole, it seems to US that remuneration of the managing agency should include not only the payment of ordinary remuneration as provided in Sub-para. (2) but also the office allowance drawn by a managing agent as contemplated by Sub-para. (3). The managing agent may maintain a common office staff for the purpose of looking after the affairs of different companies and it may be difficult to allocate the expenditure incurred over that staff in respect of the work done by them for each of those companies looked after by the managing agents. The legislature, therefore, has provided certain office allowances for that purpose which the managing agents may draw irrespective of the actual expenditure incurred in the maintenance of that Staff. The language of Sub-para. (3) amply bears out the contention of the learned Counsel. The office allowance permissible thereunder is a fixed percentage of the operating expenditure and the expenditure during the year of account on capital works and would be exclusive of the salaries of the engineering staff employed for purposes of the undertaking. This percentage is not to exceed the various percentages mentioned in Clauses (a) and (b) of that sub-paragraph in proportion to the operating expenditure. The fixed percentage of office allowance that can be drawn by a managing agent on the authority of that paragraph is quite independent of the actual expenditure incurred. We are, therefore, unable to accept the contention of the, learned Counsel for the respondent that the percentage mentioned therein is only the maximum percentage and unless the actual expenditure is proved the office allowance should not be given. In respect of first Rs. 1 lakh of operating expenditure the percentage allowed is 8 per cent. This is a fixed percentage as mentioned in Sub-para. (3) and of course no allowance can be made beyond this percentage in respect of operating expenditure of Rs. 1 lakh. We see no reason why the above percentage should not have been allowed to the petitioner on the face of the above provision in the circumstances of the present case. In our opinion, the tribunal was clearly in error in disallowing that part of the remuneration on the ground that it was not dear whether the amount shown in the balance sheet was claimed as ordinary remuneration in accordance with the statute or merely office allowance in accordance with the terms of the managing agency. The petitioner does not claim the amount payable under the contract of managing agency; in fact the petitioner could not claim on the contract in view of the provisions of this paragraph. That being so, an allowance had to be made to the petitioner not only in respect of Rs. 1,000 but also in respect of a sum of Rs. 3,650 claimed on account of office allowance thereby making a total of Rs. 4,650 on account of remuneration for the managing agency. The word 'operating expenditure' as given in Sub-para. (3)(a) has been defined as a sum of the items of expenditure as detailed in Sub-para. (2)(6) of Para. XVII omitting those in Clause (1),(iv),(ix) and (x) thereof. There is no dispute on the point in the present case.
9. The next contention relates to the question of 'reasonable return.' 'Reasonable return' has been defined in item (9). Para. XVII, of Schedule VI of the Act as follows:--
reasonable return means....
in respect of any year of account, the sum of the following:
(a) that amount found by applying the standard rate to the capital base at the end of that year;
(b) the income derived from investments other than those made under Para. IV of this schedule;
(c) an amount equal to one half of one per centum on any loans advanced by the board under Sub-para. (2) of Para. I of Schedule I.
and 'standard rate' in item (10) means....
five per centum.
Now let us see what 'capital base' is Item (1) of Para. XVII defines 'capital base' to mean the sum of--
(a) the original cost of fixed assets, subject to the provision of Para. XII in respect of service lines;
(b) the cost of intangible assets;
(c) the original cost of works in progress;
(d) the amount of investments compulsorily made under Para. IV of the schedule, together with such investments made before or after the commencement of this Act from contributions towards depreciation as may be shown to the reasonable satisfaction of the authority as being amounts which could not be or could not have been utilized by the undertaking under Clauses (a) and (b) or this sub paragraph;
(e) an amount on account of working capital equal to the sum of--
(i) one-twelfth of the sum of the book cost of stores, materials and supplies including fuel on hand at the end of each month of the year of account;
(ii) one-twelfth of the sum of cash and bank balances and call and short term deposits at the end of each month of the year of account, not exceeding in the aggregate an amount equal to one quarter of the expenditure under 8ub-para. (2) (b) of this paragraph excluding Clauses (1), (iv) and (x);
(i) the amounts written on or set aside on account of depreciation of fixed assets and amounts written off in respect of intangible assets in the books of the undertaking before or after the commencement of this Act; and
(ii) the amount of any loans advanced by the board under the provisions of Sub-para. (2) of Para. 1 of Schedule I.
In order to determine the extent of profits and available surplus for the years 1954-65, the first tem which has been assailed in this connexion is computation of capital base. According to the petitioner's statements in Schedule. A of the petitioner's documents, the original cost of fixed assets comes to Rs. 4.42,000 which included an item of Rs. 29,988 (?) which was the cost of machinery installed during the year. The machinery is a generating set of 80 KW purchased by the power house. The tribunal has found that according to the directors' report this generating set was not put into operation until 22 August 1955; and, therefore, the tribunal disallowed the cost of this generating set in computing the cost of the fixed assets of the company because the year 1954-55 closed on 31 March 1955. The tribunal has accordingly reduced the total cost of fixed assets to a sum of Rs. 4,12,000 only. Learned Counsel for the petitioner contends that this is clearly a case in which the actual coat incurred on or over the purchase of this machinery should have been included in the fixed assets of the company.
The reason given by the tribunal for not including the cost of this machinery, according to the learned Counsel, is clearly erroneous, because even though it may not have been used during the period 1954-55, the machinery was undoubtedly purchased and was capable of use during the period. It was not an obsolete machinery, which could be discounted from the assets of the company. We have seen that ' capital base ' in item (1) of Para. XVII means and includes the sum of 'the original cost of fixed assets'; and 'original cost 'has been defined in item (6) of that paragraph to mean the cost of the asset to the licensee, including the cost of delivery and all charges properly incurred in erecting and bringing the asset into beneficial use. The argument for the respondent union is that the fact that the charges for erecting and bringing the asset into beneficial use are also included, shows that the asset in question must have been used by the company. That argument, in our opinion, cannot be accepted. If the machinery had been in use, then any charges incurred in erecting and bringing the machinery into use should also have been allowed but it is not the case of either party that the sum in question has been included. It is only the, cost of delivery, etc., that has been claimed by the petitioner and, therefore, that asset should have been included in calculating the capital base of the company. All that the law requires is that the asset should be available for use even though it may not have been actually put into use. By Section 27 of Act 101 of 1956 the provision has been amended and Clause (a) of Sub-para, (1) of Para. XVII has been worded as follows:
The original cost of fixed assets available for use and necessary for the purpose of the undertaking subject to the provisions of Para. XII in respect of service lines, and the excess amount referred to in the proviso to Sub-para. (2) of Para. VII in respect of any fixed asset which has ceased to be available for use.
The qualifying words 'available for use' in respect of the fixed assets merely clarify the position that the assets in question mail be capable of use before their original cost could be taken into account in the computation of the capital base. It is true that this amendment does not apply to the present case but the amendment, in our opinion, has simply clarified the intention of the law as it previously was. In other words, if the asset in question had ceased to be an asset or had become obsolete for the purposes of the company, then was could very well argue that the cost of any such asset which had become obsolete could not be computed in the 'capital base'; but that is nobody's case here. All that la contended is that the machinery had not been in use during the period 1954-55, although the machinery had been purchased during the period and was part of the fixed assets of the company. We are, therefore, of opinion that the learned Judge of the industrial tribunal was clearly in error in not making the allowance for this fixed asset of the company in the calculation of the capital base.
10. Then the other question is in respect of 'intangible assets' which under Clause (b) of Sub-para. (1) of Para. XVII have also to be Included in the computation of the 'capital base.' in the claim for intangible assets the company purported to include a sum of Rs. 4 476 on account of brokerage on shares in addition to licence fee of Rs. 500 and preliminary expenses of Ra. 7,500. The union disputed the inclusion of the licence fee as also the brokerage on shares but the learned Judge of the tribunal has allowed the licence fee and disallowed brokerage on shares on the ground that it was really part of the trading expenses and it should, therefore, have been excluded. Here again it appears that the learned Judge lost sight of Sub-para. (4) of Para. XVII of the Act. 'Intangible assets' means, according to that paragraph, under writer's commission and such preliminary and promotional expenditure shown as a debit in the capital account of the undertaking and has fairly arisen in promoting the business in electricity supply excluding any amount paid on account of goodwill. The learned Counsel for the petitioner submits that underwriter's commission or brokerage was for the purpose of promoting the business of the company, and, therefore, should have been included in the calculation of the capital base. The learned Judge was apparently in error in confusing it with the part of the trading expenses and preliminary and promotional expenditure shown as a debit in the capital account of the undertaking. These preliminary expenses have already been separately claimed by the petitioner and have been allowed by the learned Judge himself. This underwriter's commission or brokerage was in addition to those preliminary expenses and, therefore, should have been allowed by the learned Judge. Learned Counsel for the respondent has in this connexion drawn our attention to statement No. II of annexure V of the Indian Electricity Rules, 1956, which refers to the form for making a statement of capital expenditure for a particular year. In that, under 'intangible assets,' three sub-headings have been given:
1. Preliminary and promotional expenses.
2. Cost of licence.
3. Other expenses, e.g., expenses Incidental to conversion from D.C. to A.C. change of frequency, etc.
Learned Counsel for the respondent wanted to confine the words 'other expanses' to the expenses of the nature mentioned therein, namely, conversion from D.C. to A.C. or change of frequency, etc., and he submits that the sub-headings do not refer to any such underwriter's commission as is claimed by the company. Item 3 in that statement gives only a general heading of 'other expenses' and does not necessarily exclude the expenses Incurred over underwriter's commission. The instances are merely illustrative. In any case the statement has got to be read in the light of Sub-para. (4) of Para. XVII itself and could not be intended to control the specific language of Sub-para. (4) which includes the underwriter's commission in the intangible assets of the company. Here again, therefore, there was an error, apparent on the face of the record on the part of the learned Judge in not including that item as claimed by the petitioner in the intangible assets of the company. For all these reasons we are bound to hold that the decision of the tribunal is vitiated by apparent errors of record in the application of the provisions of the statte in computing the reasonable return or the remuneration of the managing agent of the company; and if these allowances claimed by the petitioner are taken into account, there appears to be no surplus left for distribution to the workers as bonus.
11. The learned Counsel for the petitioner further urges before us on the authority of the decision of the Supreme Court in Meenakshi Mills, Ltd. v. their workmen 1958-I L.L.J. 239 that the claim of bonus can be effectively made only if two conditions are satisfied, namely, that the wages paid to the workmen fell short of what can be properly described as living wages; and the industry must be shown to have made profits which are partly the result of the contribution made by the workmen in increasing production. He points out that there is no finding in the case on those points. It appears to us unnecessary to go into this question in view of what we have, said earlier. If those allowances are given which, in our opinion, appear to have been legitimately claimed by the petitioner, then, it is not disputed, there would be no surplus left for distribution as bonus to the workmen.
12. In the circumstances the application has to be allowed and the order of the tribunal has to be quashed. There will be no order for costs of this application.