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Management of the K.C.P. Ltd., Central Workshop, Madras 19 Vs. Secretary, K.C.P. Employees Asscn., Madras and ors. - Court Judgment

LegalCrystal Citation
SubjectLabour and Industrial
CourtChennai High Court
Decided On
Case NumberWrit Petn. No. 932 of 1967
Judge
Reported inAIR1969Mad370; [1969(18)FLR52]
ActsPayment of Bonus Act, 1965 - Sections 3; Companies Act, 1956 - Sections 211(2)
AppellantManagement of the K.C.P. Ltd., Central Workshop, Madras 19
RespondentSecretary, K.C.P. Employees Asscn., Madras and ors.
Appellant AdvocateV.K. Thiruvenkatachari and ;B. Kalyanasundaram, Advs.
Respondent AdvocateB.R. Dolia, Adv. of Ayyar and Dolia and ;G. Venkataraman, Adv.
Disposition Petition dismissed
Cases ReferredC) and Western India Match Co. v. Their Workmen.
Excerpt:
.....establishment out of general rule in section 3 establishment should come under proviso - where proviso not applicable all departments, undertakings or branches should be treated as parts of same establishment. - - from the third schedule to the act, it is seen that the act contemplates several categories of employers like company, other than a banking company, banking company, cooperative society, any other employer not falling under the categories mentioned above and any employer being a licensee within the meaning of the electricity supply act, 1948, as mentioned in item (6) of the third schedule. and for determining assets, several items like fixed assets, investments, current assets, loans and advances and miscellaneous expenditures are all taken into account......employer shall, in lieu of such minimum bonus, be bound to pay to every employee in the accounting year bonus which shall be amount in proportion to the salary or wage earned by the employee during the accounting year subject to a maximum of twenty per cent of such salary or wage. 'allocable surplus' is defined in relation to an employer being a company, as 67 per cent of the available surplus in an accounting year. thus, it will be seen that available surplus is determined by computing the gross profits under section 4 and deducting the items mentioned in section 5 including the sums mentioned in respect of the employer in the third schedule. the bonus is payable on the allocable surplus which in the case of a company is 67 per cent of the available surplus in an accounting year. thus,.....
Judgment:
ORDER

Kailasam, J.

1. This petition is filed by the management of K. C. P. Ltd., Central Workshop, Tiruvottiyur, for the issue of a Writ of Certiorari to call for the records of the Industrial Tribunal, Madras in I. D. No. 57 of 196 and to quash the award dated 16-2-1967 and published in the Fort St. George Gazette dated 22-3-1967.

2. The petitioner-company is a public limited company registered under the Indian Companies Act, 1913. In the year 1943, the Company purchased a sugar factory at Vuyyuru as a going concern. In 1955, the company started an engineering workshop known as the Central Workshop at Tiruvottiyur. In 1958, the company commissioned a cement factory all Macherla known as the Ramakrishna Cement Factory. According to the petitioner, the three undertakings of the company were always treated as different entities. The workmen of the three units were treated separately regarding the terms and conditions of service, the scales of pay, payment of bonus and other perquisites. It is also claimed that the company had been maintaining separate balance sheets and profit and loss accounts for the three undertakings ever since their inception in 1943, 1955 and 1958 respectively.

The present dispute relates to the quantum of bonus payable for the year 1964-65. The accounting year is between 1st July 1964 to 30th June 1965 and it is not disputed that the provisions of the Payment of Bonus Act, 1965 (Act 21 of 1965) (hereinafter referred to as the Act) are applicable. The contention of the management is that separate balance sheets and profit and loss accounts were prepared and maintained by the company, and that for computation of bonus under the. Act, the profit and loss account for each of the units should be taken into account. On the other hand, it was contended by the workmen that the Central Workshop cannot be treated as a separate entity and the consolidated balance sheet of the company should be taken as the basis for computation of bonus for the relevant year. The question, therefore, that arises in this Writ Petition, is whether, for the purpose of computation of bonus, the Central Workshop should be considered as a separate entity or the consolidated balance sheet of the company should be taken into account for the purpose of calculating the bonus.

3. According to the management, separate accounts are being maintained in the units, M. W. 1, a Chartered Accountant, stated that separate balance sheets and profit and loss accounts are prepared and finally consolidated. He filed Exhibit M-1 which is the consolidated balance sheet for the year ending 30th June 1965, Exhibit M. 2 is the separate balance sheet for the Central Workshop. It was also submitted on behalf of the company that the wages payable to the workmen of the sugar factory at Vuyyuru are governed by the recommendations of the Sugar Wage Board and that of the Cement Factory by the recommendations of the Cement Wage Board and that of the Central Workshop by the recommendations of the Engineering Wage Board and that the company was having separate agreements with the workmen in regard to the three undertakings.

It was further submitted that the: Income-tax Department had accepted separate balance sheets and profit and loss accounts submitted by the company for the three different units and Rave exemption to Ramakrishna Cements, Macherla, under Section 15-B of the Income-tax Act. Reliance was also placed on the (fact that the Government of Madras treated K. C. P. Ltd., Central Workshop, Tiruvottiyur and K. C. P. Ltd., Vuyyuru as separate and independent establishments and that the profits of the two concerns cannot be taken together for determining bonus,

4. On behalf of the labour, it was contended that before the commencement of the accounting year, the Central Workshop was treated by the Industrial Tribunal as part of one establishment for the purpose of computation of bonus, and therefore the company cannot come under the exemption provided by proviso to Section 3 of the Payment of Bonus Act, 1965. It was next contended that the balance sheets and profit and, loss accounts pressed into service by the management are not balance sheets and profit and loss accounts prepared and maintained in conformity with the principles of accountancy and the Payment of Bonus Act, 1965.

5. The Payment of Bonus Act, 1965 received the assent of the President on 25th September, 1965. It was enacted to provide for the payment of bonus to persons employed in certain establishments and for matters connected therewith. Section 3 is important for the purpose of determining the question whether the Central Workshop can be taken separately for the purpose of computing bonus, and is set out in full:

'Where an establishment consists of different departments or undertakings or has branches, whether situated in the same place or in different places, all such departments or undertakings or branches shall be treated as parts of the same establishment for the purpose of computation of bonus under this Act. Provided that where for any accounting year, a separate balance sheet and profit and loss account are prepared and maintained in respect of any such department or undertaking or branch, then, such department or undertaking or branch shall be treated as a separate establishment for the purpose of computation of bonus under this Act for that year, unless such department or undertaking or branch was, immediately before the commencement of that accounting year, treated as part of the establishment for the purpose of computation of bonus.'

The main part of the Section provides that where an establishment consists of different departments or undertakings or has branches, whether situated in the same place or in different places, all such departments or undertakings or branches shall be treated as parts of the same establishment for the purpose of computation of bonus under the Act. This part of the Section is very clear, and if it stands by itself, there can be no difficulty in holding that different departments or undertakings or branches should be construed as parts of the same establishment.

There is a proviso to this part of the Section which states that where for any accounting year a separate balance sheet and profit and loss account are prepared and maintained in respect of any such department or undertaking or branch, this undertaking or department or branch shall be treated as a separate establishment for the purpose of computation of bonus under the Act for that year. This proviso, if construed independently, would result in treating departments, undertakings or branches of an establishment, if, for any accounting year, a separate balance sheet and profit and loss account had been prepared and maintained in respect of such departments, undertakings or branches, as separate entities for the purpose of computation of bonus under the Act for that year. The crucial question that would fall for decision will be whether a separate balance sheet and profit and loss account can be prepared and maintained for a department or undertaking or branch of a company. This question will be dealt with in detail later.

The third part of the section is a proviso to the main proviso which states that the main proviso will not be applicable if the department or undertaking or branch was, immediately before the commencement of that accounting year, treated as part of the establishment for the purpose of computation of bonus.

Reading Section 3 as a whole, it will be seen that when an establishment consists of different departments, undertakings or branches, they shall be treated as parts of the same establishment for the purpose of computation of bonus. But an exemption to this rule is provided in the proviso to cases where such department or undertaking or branch prepared and maintained separate balance sheet and profit and loss account in respect of such department or undertaking or branch for any accounting year. But this exemption is taken away if such department or undertaking or branch, immediately before the commencement of the accounting year, was treated as part of the establishment for the purpose of computation of bonus.

6. The management relied on the separate balance sheets and profit and loss accounts treating the Central Workshop as a separate unit. The document relied on by the management is Exhibit M. 2. According to the learned Counsel for the labour, Exhibit M. 2 can only be considered as a Worksheet and cannot be treated as a proper balance sheet and profit and loss account for the purpose of computation of bonus. The K. C. P. Ltd., is a company consisting of three units, the sugar factory at Vuyyuru, the Cement factory at Macherla and the Central Workshop at Tiruvottiyur. Under the Companies Act, 1956 there can only be one balance sheet and profit and loss account, and there is no provision for having a balance sheet and profit and loss account for each unit.

The plea on behalf of the petitioner is that what was intended under Section 3 was a balance sheet and profit and loss account for the unit, and the section did not contemplate a balance sheet and profit and loss account as envisaged under the Companies Act, 1956, for if so construed, the section will become ineffective and that in respect of companies there can be no separate department, undertaking or branch, as under the Company Law, no separate balance sheet or profit and loss account can be filed. This contention leads to the consideration of the question as to the meaning that should be given in the case of a company to the words 'balance sheet and profit and loss account prepared and maintained' mentioned in the proviso to Section 3.

7. The provisions of the Payment of Bonus Act, 1965 are applicable to (a) every factory and (b) every other establishment in which twenty or more persons are employed on any day during an accounting year. An 'establishment in public sector' is defined and an 'establishment in private sector' is defined as any establishment other than an establishment in public sector. From the Third Schedule to the Act, it is seen that the Act contemplates several categories of employers like company, other than a banking company, banking company, cooperative society, any other employer not falling under the categories mentioned above and any employer being a licensee within the meaning of the Electricity Supply Act, 1948, as mentioned in item (6) of the Third Schedule.

The word 'company' under Section 2(9) of the Act means any company as defined in Section 3 of the Companies Act, 1956 and includes a foreign company within the meaning of Section 591 of that Act. Section 4 of the Act provides for the determination of gross profits derived by an employer from an establishment in respect of any accounting year. In the case of banking companies, the gross profits will have to be calculated in the manner provided in the First Schedule, and in other cases in the manner specified in the Second Schedule. The available surplus is calculated as provided by Section 5, that being the gross profits for that year after deducting therefrom the sums referred to in Section 6.

Among other items, the sums deductible under Section 6 are those specified in respect of the employer in the Third Schedule. Different kinds of employers are mentioned and in the case of companies, the sums to be deducted under the Third Schedule are (i) the dividends payable on its preference share capital for the accounting year calculated at the actual rate at which such dividends are payable, (ii) 8.5 per cent of its paid up equity share capital as at the commencement of the accounting year and (iii) 6 per cent of its reserves shown in its balance sheet as at the commencement of the accounting year, including any profits carried forward from the previous accounting year, subject to the proviso mentioned for Item (1).

Bonus is payable under Sections 10 and 11 of the Act. Section 10 provides for payment of minimum bonus, while Section 11 provides that if in respect of any accounting year, the allocable surplus exceeds the amount of minimum bonus payable to the employees under Section 10, the employer shall, in lieu of such minimum bonus, be bound to pay to every employee in the accounting year bonus which shall be amount in proportion to the salary or wage earned by the employee during the accounting year subject to a maximum of twenty per cent of such salary or wage. 'Allocable surplus' is defined in relation to an employer being a company, as 67 per cent of the available surplus in an accounting year.

Thus, it will be seen that available surplus is determined by computing the gross profits under Section 4 and deducting the items mentioned in Section 5 including the sums mentioned in respect of the employer in the Third Schedule. The bonus is payable on the allocable surplus which in the case of a company is 67 per cent of the available surplus in an accounting year. Thus, the scheme of the Act reveals that the Act has made elaborate provisions regarding the various kinds of employers and in the case of a company specific provisions are made for determination of the allocable surplus which forms the basis for determining the bonus.

8. With this background, the words 'balance sheet and the profit and loss account prepared and maintained' in the proviso to Section 3 of the Act may be considered. Under the Companies Act, 1956, Section 211 provides that every balance sheet of a company shall give a true and fair view of the state of affairs of the company as at the end of the financial year and shall, subject to the provisions of this Section, be in the form set out in Part I of Schedule VI. Schedule VI requires several particulars for fixing up the amounts of liabilities as share capital reserves and surplus secured loans, unsecured loans, current liabilities and provisions, etc. and for determining assets, several items like fixed assets, investments, current assets, loans and advances and miscellaneous expenditures are all taken into account.

It is common ground that under the Companies Act, 1956, the Balance Sheet can only be of the company and not of separate units. Section 211(2) of the Companies Act, provides that every profit and loss account of a company shall give a true and fair view of the profit or loss of the company for the financial year and shall comply with the requirements of Part II of Schedule VI. Part II of Schedule VI also relates to a company as a whole and not to separate units. If the meaning as is applicable to the Companies Act is given to the words 'balance sheet and profit and loss account', no department or undertaking or branch of a company can have a separate balance sheet or profit and loss account. This conclusion is not questioned by the learned Counsel appearing for the petitioner. But his submission is that if so construed, no department or undertaking or branch of a company will be entitled to the benefits of the proviso, and therefore should not be construed in that manner.

I am unable to accept this contention, for, the company is treated as a category of employer throughout the provisions of the Payment of Bonus Act, and as a general rule, the main part of Section 3 provides that all departments, undertakings and branches shall be treated as parts of the establishment, unless it comes under the proviso. To take an establishment out of the general rule in Section 3, the establishment should come under the proviso, and if the proviso is not applicable, all departments, undertakings or branches should be treated as parts of the same establishment. The company as a category of employer is throughout maintained in the Payment of Bonus Act, and there is no reason why the meaning that is given to the words 'Balance Sheet and Profit and Loss account' under the Companies Act should not be given to the said words in the proviso to Section 3. The consequence of giving such meaning may be that the departments, undertakings and branches of a company can never be treated as separate entities. But this appears to be the intention of the Payment of Bonus Act, 1965, for determining the allocable surplus which forms the basis for computing the bonus as required Under Section 11 of the Act, the sums to be deducted from the gross profits, amongst other items, are sums specified in respect of an employer in Third Schedule.

In the Third Schedule, the employer is divided into six categories and one such category is companies other than banking companies. The sums to be deducted are (i) the dividends payable on its preference share capital for the accounting year, (ii) 8.5 per cent of its paid up equity share capital and (iii) 6 per cent of its reserves shown in its balance sheet. As 'Company' is treated as a separate category of employer, the provisions relating to company alone should be taken into account for determining the available surplus. A department or undertaking or a branch of the company cannot come under any of the categories of 'employer' found in the Third Schedule.

As the determination of the available surplus requires the deduction of dividends payable to preference shares, the deduction of 8.5 per cent of its paid up equity share capital and the deduction of six per cent of its reserves shown in the balance sheet, these figures will have to be worked out, and it can be done only as regards to a company as a unit and not with regard to a department or undertaking or branch of the company, The allowable surplus in the case of a company being 67 per cent of the available surplus, and the available surplus in the case of a company can only be determined after deducting the items mentioned in Section 6, particularly those sums specified in Third Schedule from the gross profits, the conclusion is irresistible that the benefit of treating a department or undertaking or a branch of a company as a separate unit is not available to a company. The proviso can only be applicable to other categories o| employers.

In this view, it Is unnecessary to refer to the principles laid down by the Supreme Court in D. C. M. Chemical Works v. Its Workmen, 1962-1 Lab LJ 388 (SC) and Western India Match Co. v. Their Workmen. : (1963)IILLJ459SC for determination of the question whether a particular branch of a company is a separate unit or not After the Payment of Bonus Act, 1965, came into force, the provisions of the Act will have to be applied for determining the allocable surplus.

9. On behalf of the labour, it was contended that in any event Section 3 is not applicable as the branch was treated as part of the establishment for the purpose of computation of bonus immediately before the commencement of the accounting year. The concern was treated for the purpose of the Payment of Bonus Act as one unit in the previous year by the Industrial Tribunal. As the previous year's award was set aside on the ground that the Payment of Bonus Act was not applicable, I do not think much reliance can be placed on the findings in the award. But the Writ Petition will have to be dismissed on the ground that under the Payment of Bonus Act, the various units of a company cannot be treated as separate entities. The learned Counsel for the respondents brought to my notice the award of the Arbitrator In the bonus dispute with regard to Tube Investments of India, Limited, Madras, where the Arbitrator has also taken the same view,

10. In the result, the Writ Petition is dismissed with costs. Advocate's fee Rs. 250/-.


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