PETITIONER:
PODAR PLASTICS(P) LTD
Vs.
RESPONDENT:
ITS WORKMEN
DATE OF JUDGMENT:
19/12/1963
BENCH:
GAJENDRAGADKAR, P.B.
BENCH:
GAJENDRAGADKAR, P.B.
GUPTA, K.C. DAS
CITATION:
1964 AIR 1040 1964 SCR (6) 15
ACT:
Industrial Dispute-Bonus-Deduction according to Full Bench
Formula-What principle to be followed-Industrial Disputes
Act, 1947 (14 of 1947).
HEADNOTE:
An Industrial Dispute arose between the appellant and its
workmen in respect of the claim made by the workmen
(respondents) for bonus for the year 1959. The respondents
claimed that they were entitled to get bonus equivalent to
three months’ salary including dearness allowance, The
appellant claimed deductions on the basis of the Full Bench
16
Formula. The appellant claimed deduction of Rs. 60,000 by
way of notional remuneration for Mr. K. R. Podar, one of the
Directors of the company. According to the appellant K. R.
Podar devoted the whole of his time to the supervision and
management of the appellant concern, and so, he was entitled
to charge remuneration at the rate of Rs. 5,000 a month.
The appellant also made a claim for rehabilitation. On
these facts the Tribunal directed the appellant to pay to
the respondents bonus at the rate of half month’s basic
wages excluding allowances and overtime for the said year.
It is against this award that the appellant has come to this
Court.
Held:(i) that in a concern like the appellant’s if one
of the Directors spends his time in supervising and managing
the affairs of the concern, he would be entitled to charge a
reasonable remuneration. But in the present case Mr. Podar
did not actually charge any remuneration. The working of
the Full Bench Formula is no doubt notional in some
respects, but it would not be permissible for the employer
to make it still more notional by introducing claims for
prior charges on purely hypothetical and almost fictional
basis. The Tribunal did not feel justified in allowing the
claim for deduction made by the appellant in regard to the
notional remuneration of Mr. Podar on the ground that Mr.
Podar had not been paid remuneration regularly and it had
not been duly shown in the books of account.
Gujarat Engineering Co. v. Ahmedabad Misc. Industrial
Workers’ Union, (1961) 11 L.L.J. 660 and Kodaneri Estate v.
Its Work-men, (1960) 1 L.L.J. 273, relied on.
(ii)It is not the correct legal position that a second hand
machinery should be rehabilitated only by second hand
machinery. But in the present case the finding of the
Tribunal in respect of the claim for rehabilitation is based
on its appreciation of the evidence led by the appellant and
that cannot be disturbed having regard to the material which
is available on the record.
SouthIndia Millowners”Association v. Coimbatore
District Textile Workers’Union, (1962) 1 L.L.J. 223,
relied on.
(iii)It would be erroneous to assume that this Court
approved of or affirmedthe ad hoc basis adopted by the
Tribunal in the case of South India Millowners’ Association.
(iv)It would be unreasonable to suggest that if the
employer does not adduce sufficient evidence to justify his
claim for rehabilitation and the Tribunal is inclined to
reject the evidence which has been adduced, the Tribunal
must nevertheless award some rehabilitation on a purely
hypothetical and imaginary ad hoc basis. In the present
case the employer adduced evidence for rehabilitation and
that was rejected by the Tribunal.
(v)It has been consistently held by this Court that in
bonus calculations the employer is entitled to claim a
deduction of the Income-tax as well as wealth tax; but in
the present case, there is, no material
17
to determine what the amount of wealth tax charged or paid
is, and so, no relief can be granted to the appellant on
that account.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 496,of 1963.
Appeal by special leave front the Award dated August 26,
1961, of the Industrial Tribunal, Maharashtra in Reference
(IT) No. 43 of 1961.
S.V. Gupte, Additional Solicitor-General of India and -I.
N. Shroff, for the appellant.
K. R. Chaudhuri, for the respondents.
December 19, 1963.-The Judgment of the Court was ,delivered
by:-
GAJENDRAGADKAR J.-This appeal arises from an, Industrial
dispute between the appellant Podar Plastics (P) Ltd. and
the respondents, its workmen, and it has reference ,to the
claim made by the respondents for bonus for the year 1959.
The respondents claim that for the relevant year they
-should get bonus equivalent to three months’ salary includ-
ing dearness allowance. On hearing the parties and on con-
sidering the evidence adduced by them, the Tribunal has
,directed that the appellant shall pay to the respondents
bonus at the rate of half month’s basic wages excluding
,allowances and overtime for the said year. It is against
this ,award that the appellant has come to this Court by
special leave.
The appellant is a private company and its registered
,office is situated at Podar Chambers, Parsee Bazar Street,
Fort, Bombay. It owns a factory at Supari Baug Road where
it manufactures plastic products. The appellants case
before the Tribunal was that if proper accounts are made in
accordance with the Full Bench Formula, it would be found
that there is no available surplus from which any bonus can
be paid to the respondents. On the other hand, the
respondents urged that the working of the Formula would show
a substantial available surplus from which three months’
wages as bonus can be easily paid. As usual, the
controversy between the parties centered round prior charges
which the appellant claimed ought to be deducted from the
gross profits. One of the points of dispute between the
134-159 S.C.-2.
18
parties was whether depreciation which has to be deducted’as
a prior charge should be statutory depreciation or notional
normal depreciation. The figure of the profit was. admitted
at Rs. 2.70 lacs. The Tribunal made alternative
calculations, one on the basis that statutory depreciation
alone should be deducted, while the other was prepared on
the basis that notional normal depreciation as claimed by
the appellant should be deducted. On the first calculation
the available. surplus was found to be Rs. 0. 44 lac. On
the alternative calculation, it was found to be Rs. 0.33
lac. For the purpose of this appeal we will accept the
latter calculation which is made on the basis that the
notional normal depreciation has to be deducted.
It has been conceded before us by the learned Addl.
Solicitor-General for the appellant that there are two mis-
takes in this calculation. The amount of notional normal
depreciation which has been shown as Rs. 0. 78 lac ought to
be Rs. 0. 7 3 lac. Similarly the amount of income-tax which
is shown as Rs. 0. 96 lac ought to be Rs. 0. 95 lac. Thus,
the two mistakes accounting for nearly Rs. 6,000 have been
made in favour of the appellant by the Tribunal in making
this calculation, and that would make the available surplus
as Rs. 0.39 lac; that is one aspect of the matter which has
to be borne in mind in dealing with the appeal before us.
The main point which has been urged before us by the learned
Addl. Solicitor-General relates to the claim made by the
appellant for the deduction as a prior charge of Rs. 60,000
by way of notional remuneration for Mr. K. R. Podar, one of
the Directors of the Company. We have already seen that the
appellant is a Private Ltd. Co. and four of the major
shareholders are members of the Podar family; they are: R.A.
Podar, G.R. Podar, K.R. Podar and B.J. Podar; the 5th
shareholder is M /s. Podar Trading Co. Private Ltd., 6th is
Jay Agents Private Ltd., 7th is the National Traders Private
Ltd. and the 8th is Ratilal B. Desai. According to the
appellant, K.R. Podar devoted the whole of his time to the
supervision and management of the appellant concern, and so,
he was entitled to charge remuneration at the rate of Rs.
5,000 a month. In sup-
19
port of this claim, Mr. Gupta, the Manager of the concern,
made an affidavit and offered himself for cross-examination.
He stated that Mr. Podar attends the factory from 9 A.M. to
1 P.m. and 2-30 P.m. to 6-30 P.m. In his cross-examination,
it was brought out that when the previous Director was paid
Rs. 1000 per month as remuneration, a resolution had been
passed by the Board of Directors in that behalf; but no such
resolution has been passed in regard to the remuneration of
Mr. K. R. Podar. Besides, the appellant itself has urged
that Mr. Podar did not actually charge any remuneration
because it was thought that the financial position of the
appellant was not very satisfactory, and so, Mr. Podar
wanted to save expenditure on account of his remuneration.
It may be conceded that in a concern like the appellant’s if
one of the Directors spends his time in supervising and
managing the affairs of the concern, he would be entitled to
charge a reasonable remuneration. This position has not
been and cannot be disputed in view of the decisions of this
Court in Gujarat Engineering Company v. Ahmedabad Misc.
Industrial Workers’ Union(1), and Kodaneri Estate v. Its
Workmen and Another 2 Relying on these decisions, it is
urged on behalf of the appellant that the Tribunal was in
error in not allowing any deduction on account of
remuneration to Mr. Podar.
In our opinion, the appellant cannot seriously quarrel with
the finding of the Tribunal, because it is conceded that Mr.
Podar in fact has not charged any remuneration. The working
of the Formula is no doubt notional in some respects, but we
think it would not be permissible for the employer to make
it still more notional by introducing claims for prior
charges on purely hypothetical and almost fictional basis.
If Mr. Podar had been paid remuneration regularly and it had
been duly shown in the books of account, a claim in that
behalf could have been made by the appellant, and subject to
the scrutiny by the Industrial Tribunal as to reasonableness
of the said payment, such a claim would have been allowed;
but if for any reasons Mr. Podar did not charge any
remuneration, it would be unfair to allow a deduction on
that account to be made notionally
(1) [1961] 11 L.L.J. 660.
(2) [1960] 1 L.L.J. 273.
20
because the working of the Formula is sometimes described as
notional. The inclusion of such an item solely for the
purpose of depressing the available surplus cannot, in our
opinion, be allowed. Besides, the Tribunal does not appear
to have accepted the evidence for Mr. Gupta and it has made
a significant comment that Mr. K. R. Podar has himself not
stepped into the witness-box to make a claim for his
remuneration. Mr. Gupta was asked whether Mr. Podar was
going to give evidence, and he answered the question in the
negative. Therefore, if in the circumstances proved in this
case, the Tribunal did not feel justified in allowing the
claim for deduction made by the appellant in regard to the
notional remuneration of Mr. Podar, the appellant cannot
make a serious grievance.
The other point in controversy is in regard to the direction
of the Tribunal that the appellant was not entitled to make
any claim for rehabilitation. It appears that the Tribunal
was inclined to take the view that since the appellant had
begun its business with second-hand machinery, it was not
entitled to make a claim for rehabilitation on the basis of
replacement of the said machinery by brand new machinery.
In other words, the Tribunal seems to be of the opinion that
in cases where an employer is carrying on his business with
second-hand machinery, rehabilitation should be calculated
on the basis that the said second-hand machinery would be
replaced by second-hand machinery and not by new machinery.
This view has been rejected by this Court in the case of
South India Millowners’ Association and Ors. v. Coimbatore
District Textile Workers’ Union and Ors(1). Therefore, the
appellant is right in contending that the approach adopted
by the Tribunal in dealing with the question of
rehabilitation is erroneous.
That, however, does not help the appellant because in the
present case the Tribunal has considered the evidence given
by Mr. Dinshaw on behalf of the appellant In support of its
claim that the rehabilitation requirement of the appellant
would be of the order of Rs. -8,84,629. It is true that one
of the reasons given by the Tribunal is that the
(1) [1962] 1.L.L.J. 223.
21
appellant is not justified in making a claim for rehabilita-
tion on the basis that new machinery would be purchased by
him for rehabilitating his old one; but there are several
other reasons which the Tribunal has discussed and these
reasons indicate that the Tribunal was not satisfied with
the accuracy of the statements made by Mr. Dinshaw and their
reliability. Incidentally, it appears that the appellant
made a novel claim for rehabilitating his dead stock as one
of the items under rehabilitation, and the Tribunal has re-
jected that claim. In the result, the finding of the
Tribunal is based on its appreciation of the evidence led by
the appellant and that cannot be disturbed having regard to
the material which is available on the record. The Tribunal
has taken the precaution of adding that if the appellant
leads better evidence in future, its claim for
rehabilitation would have to be judged on the merits and the
present decision will not create any bar against it. In our
opinion, that is all that can be done in the present appeal.
The learned Addl. Solicitor-General, however, attempted to
argue that the Tribunal should have made some allowance for
rehabilitation on an ad hoc basis and in support of this
contention, he has referred us to some of the observations
made in the case of South India Millowners’ Association (1).
It appears that in that case, the appellant Mills had not
adduced relevant evidence about the original price and
subsequent depreciation of the machinery prior to its
purchase by the appellant, and so, acting on the evidence
available on the record, the Tribunal adopted some (id hoc
basis. No grievance was made about the ad hoc basis adopted
by the Tribunal; the only grievance made was against certain
observations made by the Tribunal that if the existing
machinery is second hand. it should be rehabilitated only by
second hand machinery, and this Court held that the said
observations did not represent the true position in the
matter. It would, we think, be erroneous to assume that
this Court approved of or affirmed the ad hoc basis adopted
by the Tribunal in that particular case. On what material
the said ad hoc basis was adopted is not known, and it
would, we think, be unreasonable to suggest that if the
employer does not adduce sufficient evidence to
(i) [1962] 1 L.L.J. 223.
22
justify his claim for rehabilitation and the Tribunal is in-
clined to reject the evidence which has been adduced, the
Tribunal must nevertheless award some rehabilitation on a
purely hypothetical and imaginary ad hoc basis. In such a
case all that the Tribunal can do is to safeguard the posi-
tion of the employer by giving him opportunity to adduce
better evidence in future, and that is what the Tribunal has
done in the present case.
An attempt was then made by the learned Addl. Solicitor-
General to make a claim for the deduction of the wealth tax.
It has been consistently held by this Court that in bonus
calculations the employer is entitled to claim a deduction
of the income-tax as well as wealth tax; but, in the present
case, there is no material to determine what the amount of
wealth tax charged or paid is, and so, no relief can be
granted to the appellant on that account.
In the result, the appeal fails and is dismissed with costs.
Appeal dismissed.