Workmen Of Assam Co vs Assam Co. Ltd

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 34 of 1957

Decision Date: 28 March 1958

Coram: KAPUR J.

In this case the Supreme Court of India heard an appeal titled Workmen of Assam Co. versus Assam Co. Ltd., decided on 28 March 1958. The petition was brought by the workmen of Assam Co. who claimed they were entitled to a bonus for the years 1950, 1951 and 1952. The respondents were the company known as Assam Co. Ltd., which operated a tea plantation in the State of Assam. The matter concerned the application of the Industrial Dispute Act to the calculation of bonus, particularly the formula used in the tea industry and the deductions that could be allowed for return on capital and reserves. The workmen asserted that they should receive a bonus equal to six months’ wages for each of the three years. The Industrial Tribunal that originally considered the dispute allowed a return on paid‑up capital of seven per cent and a return on reserves of five per cent, and it accepted the “unit scheme” of bonus payment that the company had employed since 1926. Under that scheme each workman was assigned units based on the importance of his job, his wages and his length of service, and the bonus was paid in proportion to the units credited to him. The Labour Appellate Tribunal later modified the award by increasing the return on reserves from five per cent to six per cent. The Supreme Court held that the formula laid down in Sree Meenakshi Mills v. Their Workmen could be applied to the tea industry with appropriate adjustments, that allowing a seven per cent return on capital was justified by the additional risks in tea cultivation, and that a five per cent return on reserves was reasonable, whereas raising it to six per cent was unsupported because the respondent’s written statement contained no claim for rehabilitation or any figures to justify that increase. The Court also concluded that the unit scheme was suitable for bonus payment and would promote fair distribution as well as improve the quality and quantity of work.

The appeal was filed as Civil Appeal No. 34 of 1957 in the civil appellate jurisdiction, challenging the order dated 31 August 1955 of the Labour Appellate Tribunal, Calcutta, in Appeal Nos. Cal‑187 and Cal‑188 of 1954. Those appeals arose from the award dated 15 May 1954 of the Industrial Tribunal, Assam, in Reference No. 20 of 1953, which had been published in the Assam Gazette on 16 June 1954. Counsel for the petitioners were identified as C. B. Aggarwala and K. P. Gupta, while the respondents were represented by P. K. Goswami, S. N. Mukherjee and B. N. Ghosh. The judgment was delivered on 31 March 1958 by Justice Kapur. In delivering the judgment, Justice Kapur explained that the formula from the earlier Sree Meenakshi Mills case could be suitably adapted for tea industry bonus calculations, that the higher return on capital reflected the sector’s risk profile, and that the return on reserves permitted by the Industrial Tribunal was adequate to protect the company’s interests. However, the increase to six per cent by the Appellate Tribunal lacked justification because the respondent’s written statement contained no request for rehabilitation or any data to compute such a rate. The Court affirmed that the unit scheme was appropriate for ensuring an equitable distribution of bonus and for encouraging better work performance.

In the proceedings dated August 31, 1955, the dispute between the parties was limited exclusively to the question of the calculation and payment of bonus. The appellants consisted of the workmen, which included members of the Indian staff as well as artisans who were employed by the respondent, Assam Co. Ltd., a company that was incorporated in the United Kingdom. The company carried on tea‑related industry in the State of Assam and was a major employer in the region. The appellants asserted that they were entitled to receive a bonus for the financial years 1950, 1951 and 1952 calculated at the rate of six months’ wages for each year. The respondent, on the other hand, offered a bonus to the Indian staff while excluding the artisans, proposing the sums of Rs 51,061 for 1950, Rs 48,140 for 1951 and Rs 15,493 for 1952. These amounts corresponded respectively to 2.3 percent of the net profit for 1950, 3.1 percent for 1951 and 3.9 percent for 1952. The disagreement was referred to the Industrial Tribunal by a notification issued by the Government of Assam on August 27, 1953. The Industrial Tribunal allowed depreciation in accordance with the figures shown in the company’s balance sheets for each of the three years. It also permitted a return on the paid‑up capital at the rate of seven per cent and a return on the reserves at the rate of five per cent. The Tribunal further held that the artisans were entitled to the same bonus as the other Indian staff members. For determining the mode of payment, the Tribunal accepted the “unit scheme”, a method that the company had been using for bonus payments since 1926. It expressed the view that the scheme was fair, rational and provided an incentive for industrial efficiency and production. Both the appellants and the respondent filed appeals against the Tribunal’s order; the appellants challenged the correctness of the accounts, the amount of the return on capital and reserves. They also questioned the validity of the unit scheme and continued to claim six months’ wages per year as bonus. The respondent contested the percentages that had been permitted on capital and reserves, claiming that a fair return should be ten per cent on capital and eight per cent on reserves. It also objected to the inclusion of artisans among the workers eligible for bonus and to the application of the so‑called Bombay formula to the tea industry. The Labour Appellate Tribunal modified the Tribunal’s award by allowing depreciation at the rate prescribed under the Indian Income‑Tax Act, confirming the seven per cent return on paid‑up capital. It also raised the return on reserves from five per cent to six per cent in order to accommodate the company’s claim for rehabilitation. That claim had not been made before the Industrial Tribunal but was raised before the Appellate Tribunal as a basis for increasing the return on reserves. When the matter reached this Court, the appellants again objected to the amount of depreciation, the returns on capital and reserves, and to the unit scheme. They indicated that they were prepared to limit their claim to a bonus equivalent to two months’ wages. Counsel for the respondent objected to the applicability of the formula to an industry such as tea, arguing that the circumstances and considerations relevant to the textile industry could not be transferred. These circumstances could not be applied to the tea industry, which is linked to agriculture and therefore subject to a variety of factors that must be taken into account in the determination of

In this case the Court discussed the matters of depreciation, return on capital and return on reserves. The Court recalled the principles it had earlier laid down for determining the surplus from which a bonus becomes calculable and distributable, principles that were set out in Sree Meenakshi Mills v. Their Workmen. The formula stated in that decision required that the distributable surplus be computed after deducting from the gross profits the following items: (1) depreciation, (2) rehabilitation, (3) a return of six per cent on the paid‑up capital, (4) a return on the working capital at a lower but reasonable rate, and (5) an estimated amount for the payment of income tax. The citation for that decision is 1958 S.C.R. 878. According to that formula, the depreciation that may be allowed in cases governed by the Industrial Disputes Act is the normal depreciation, which includes depreciation on plant and machinery. The Court observed that counsel for the respondent did not argue that the formula itself was wrong in principle; rather, the counsel suggested that the formula should be modified to reflect the special circumstances of the tea industry. However, the counsel did not specify any particular circumstances that would render the application of the formula unfair, nor did the counsel provide any figures or details that would justify varying the depreciation component. The Industrial Tribunal, acting on the facts before it, had permitted a return on capital of seven per cent, which was higher than the six per cent allowed by the formula. The Tribunal justified the higher rate by stating that the tea industry in the locality often faces adverse conditions that are more severe than those encountered by other industries, and that it therefore bears greater risk. The Tribunal also noted that the company involved in the present case was more than a century old, had performed well throughout its existence, and was financially sound, having accumulated a substantial reserve. The Labour Appellate Tribunal affirmed the Tribunal’s higher return on capital, attributing it to the industry’s exposure to greater risks such as weather fluctuations, pest attacks on the tea plants, and the gradual deterioration of soil, factors that are beyond human control. The appellate tribunal held that these agricultural risk factors justified a higher return on capital. Regarding the return on reserves, the Industrial Tribunal had fixed a rate of five per cent, reasoning that this rate was adequate to protect the company’s interests. The Labour Appellate Tribunal, however, increased the rate to six per cent in order to meet replacement and rehabilitation expenses, because the usual method of calculating those charges was not feasible in the present case. The appellate tribunal expressed the view that the industry must not suffer from a lack of funds for replacement and rehabilitation, and therefore such funds should be provided by allowing a higher return on the working capital. Finally, the Court noted that the respondent’s written statement did not contain any claim for rehabilitation nor did it provide any figures that could be used to determine the amount required for rehabilitation. In the absence of such a claim or figures, the Court found the additional one per cent increase to be unsupported.

The Court observed that the additional one percent sought by the appellant could not be justified and was therefore unsupportable. It emphasized that this was not a situation in which a claim could not have been made or where the necessary figures could not have been supplied at the appropriate stage; consequently, the Court held that the extra one percent could not be allowed. In the Court’s view, the reasons given by the Industrial Tribunal were sufficient to support the decision to fix a five percent return on reserves, especially when the particular risks faced by the tea industry—such as exposure to adverse weather, pests and soil deterioration—were taken into account. The Court found that the Industrial Tribunal had not acted unreasonably or in disregard of any accepted principles in arriving at the five percent rate, and therefore saw no convincing reason to vary that rate. The Court noted that, since 1926, the respondent had been paying a bonus to its employees under a scheme described as the “unit scheme.” According to the Industrial Tribunal, this scheme possessed the merit of being more rational and of providing an incentive for industrious habits, efficiency and greater production. Although the Labour Appellate Tribunal did not examine the merits of the scheme in detail, it ordered that the bonus be paid in accordance with it. Under the unit scheme, each workman was credited with units that reflected the importance of the job he performed, the wages he earned and the number of years he had served in that particular position. The value of the units therefore varied in proportion to considerations of efficiency and experience. The establishment was divided into twelve categories and the medical staff into three categories, each classification being based on the relative importance of the nature of the work performed. In descending order of importance, the categories were: Head Mohori; Head Clerk; Divisional Mohori; Land Mohori; Hazaria Mohori; Kamjari Mohori; Godown Mohori; second‑tea‑house Mohori, second Kerani, second Hazaria Mohori; second Godown Mohori; Gunti Mohori; third‑tea‑house Mohori; Mondal; and Apprentices. Units were awarded to workmen according to the category in which they were placed; the more qualified a worker was, the better his work and the higher his wage, and consequently the greater the number of units he would receive. The total amount available for distribution as bonus was divided by the aggregate number of units held by all the workmen participating in the scheme, and each worker was entitled to a multiple of the amount payable for one unit based on the units credited to him. The Court found that the Industrial Tribunal’s assessment of the suitability of the unit scheme was fully justified and that paying the bonus in accordance with this scheme would not only ensure a fair distribution of the bonus but also promote an improvement in both the quality and the quantity of work. The Court stressed that this scheme should not be confused with a production bonus, although it combined the equitable sharing of surplus with the maintenance of efficiency within the establishment. Using the figures based on the award made by the Industrial Tribunal, the Court calculated that the amount of Rs. 7,64,608 would be …

In this case, the Court noted that the surplus for the year 1950, the surplus for 1951 amounting to Rs. 77,823, and a deficit of Rs. 10,00,000 for the year 1952 resulted in a total sum available for the three‑year period of zero. On the basis of the claim presented by counsel for the appellant, which sought a bonus equal to two months’ wages, the Court calculated the bonus required for the staff members for each year as one sixth of the respective staff wage totals. Specifically, the Court found that one sixth of Rs. 4,63,095 for the year 1950, one sixth of Rs. 4,83,893 for 1951, and one sixth of Rs. 5,31,202 for 1952 translated into bonus amounts of Rs. 77,182 for 1950, Rs. 80,647 for 1951, and Rs. 88,533 for 1952. The Court further observed that the quantities required for the artisans would increase these amounts. While the calculations permitted the appellant to justify the claim for a two‑month bonus for the year 1950, the same justification could not be extended to the years 1951 and 1952 because the only surplus available for 1951 was Rs. 77,823 and the year 1952 showed a deficit of approximately Rs. 10,00,000. Considering all these figures, the Court expressed the opinion that the amounts awarded by the Industrial Tribunal were fair and proper. The Court held that the Labour Appellate Tribunal had allowed depreciation and rehabilitation on an erroneous basis, and therefore set aside the order of the Labour Appellate Tribunal. The Court restored the award of the Industrial Tribunal, with the modification that the respondent shall provide the additional amount necessary to pay the proportional bonus to the artisans. Accordingly, the appeal was allowed in this respect, the order of the Labour Appellate Tribunal was set aside, and the Industrial Tribunal’s award was reinstated with the added direction that the respondent shall also supply an additional amount for the three years to enable payment of a proportionate bonus to the artisans under the unit system. Since neither party succeeded in its principal contentions, the Court deemed that each party should bear its own costs throughout the proceedings.