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: Not extracted

Decision Date: 31 March 1958

Coram: A.K. Sarkar, J.L. Kapur

Workmen of Assam Co. versus Assam Co. Ltd. was decided on 31 March 1958 by the Supreme Court of India. The judgment was authored by Justice Kapur, who sat on a bench that also included Justice A. K. Sarkar. The case arose on special leave from an order of the Labour Appellate Tribunal, Calcutta, dated 31 August 1955. The dispute centered exclusively on the question of bonus payable to the workmen. The appellants comprised the workmen, including members of the Indian staff and artisans, who were employed by the respondent, Assam Company Ltd., a company incorporated in the United Kingdom and engaged in the tea industry in the State of Assam. The workmen claimed that they were entitled to a bonus for the years 1950, 1951 and 1952 at a rate of six months’ wages for each year. The respondent offered a lump‑sum bonus to the Indian staff, excluding the artisans, amounting to Rs 51,061 for 1950, Rs 48,140 for 1951 and Rs 15,493 for 1952. These amounts corresponded to percentages of the net profit of 2.3 % for 1950, 3.1 % for 1951 and 3.9 % for 1952. The controversy was originally referred to an Industrial Tribunal by a notification of the Assam Government dated 27 August 1953.

The Industrial Tribunal allowed depreciation as shown in the company’s balance‑sheets for the three years and permitted a return on the paid‑up capital of seven per cent and a return on the reserves of five per cent. It also held that the artisans were entitled to bonus. For the purpose of determining the mode of payment, the Tribunal accepted the “unit scheme” that the company had been using since 1926, describing the scheme as fair, rational and as an incentive to industrial efficiency and production. Both parties appealed the Tribunal’s order. The workmen challenged the correctness of the accounts, the amount of the return on capital and reserves, and the validity of the unit scheme, while maintaining their claim for six months’ wages per year as bonus. The respondent, on the other hand, contested the percentages allowed on capital and reserves, insisting 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 workmen eligible for bonus and argued that the so‑called Bombay formula should not be applied to the tea industry. The Labour Appellate Tribunal subsequently varied the Tribunal’s award: it permitted depreciation at the rate prescribed under the Indian Income‑Tax Act, confirmed the seven per cent return on paid‑up capital, and increased the return on reserves from five per cent to six per cent in order to accommodate the company’s claim for rehabilitation, a claim that had not been raised before the Industrial Tribunal but was introduced before the appellate tribunal. In the Supreme Court, the workmen reiterated their objections to the amount of depreciation, the returns on capital and reserves, and the unit scheme, but indicated that they were prepared to limit their claim to two months’ wages as bonus.

In this case, the respondent’s counsel objected to the application of the formula to the tea industry. He argued that the circumstances and considerations that applied to the textile industry could not be applied to tea, because tea was linked to agriculture and therefore was affected by a number of factors that had to be taken into account when determining depreciation, return on capital and return on reserves. The Court then referred to the principles laid down by it in Sree Meenakshi Mills v. Their Workmen, reported in the 1958 volume of the Supreme Court Reports. That decision established a formula for ascertaining the surplus on which a bonus became determinable and distributable. According to the formula, the distributable surplus had to be calculated after deducting from the gross profits the following items: depreciation; rehabilitation; a return of six per cent on the paid‑up capital; a return on the working capital at a lower but reasonable rate; and an estimated amount for payment of income tax.

Under the same formula, the depreciation that could be allowed in cases arising under the Industrial Disputes Act was ordinary depreciation, including shift depreciation. The Court did not perceive that the respondent’s counsel was challenging the principle of the formula itself; rather, he seemed to suggest that the formula should be adjusted to suit the specific circumstances of the tea industry. However, he did not provide any circumstances that would render the application of the formula unfair, nor did he furnish any figures or particulars that would justify varying the depreciation component. Consequently, the Court found no basis to modify the formula.

The Industrial Tribunal, nevertheless, had allowed a seven per cent return on capital, exceeding the six per cent permitted by the formula. Its reasoning was that the tea industry often faced adverse conditions that were more severe than those confronting other industries, and that it bore greater risks. The Tribunal also noted that the company involved was more than a century old, had remained prosperous and sound, and therefore possessed a substantial reserve, justifying a higher return. The Labour Appellate Tribunal affirmed this higher rate of return on capital, emphasizing that the tea industry, being agricultural, was exposed to additional risk factors such as weather, pests, and the gradual deterioration of soil, which were beyond human control. In the Court’s view, these risk factors were sufficient to warrant a higher rate of return on capital.

Regarding the return on reserves, the Industrial Tribunal had fixed it at five per cent, deviating from the four per cent recommended by the formula, on the ground that this rate was sufficient to protect the company’s interests. The Labour Appellate Tribunal subsequently raised the rate to six per cent to meet replacement and rehabilitation charges, reasoning that the usual method of calculating such charges was not feasible in the present case and that the industry should not suffer from a lack of replacement and rehabilitation funds. However, because the respondent’s written statement contained no claim for rehabilitation and no figures were provided to determine the amount, the Court held that the additional one per cent could not be supported. It concluded that the Industrial Tribunal’s reasons adequately justified a five per cent return on reserves, considering the inherent risks of the tea industry, and that the Tribunal had not acted unreasonably or contrary to accepted principles in setting that rate.

The Court observed that the method of calculating replacement and rehabilitation charges could not be applied in the present case. It therefore held that the industry must not be allowed to suffer because of a lack of such funds, and that the necessary funds should instead be provided by permitting a higher rate of return on the working capital. The Court noted that the respondent’s written statement contained no claim for rehabilitation and presented no figures that could be used to determine an amount for such charges. Consequently, the additional one‑percent increase in the rate of return was considered unsupported. The Court emphasized that this was not a situation where a claim could not have been made or figures could not have been supplied at the appropriate stage; therefore, the extra one percent could not be allowed. In its view, the reasons given by the Industrial Tribunal were sufficient to justify a five‑percent return on the reserves, taking into account the risks inherent in the tea industry, which is exposed to various adverse conditions and elements. The Court found that the Industrial Tribunal had not acted unreasonably nor disregarded any accepted principles in fixing the five‑percent rate on the reserves, and saw no convincing reason to alter that rate.

The Court also examined the bonus scheme that the respondent has been using since 1926, known as the “unit scheme.” The Industrial Tribunal had described this scheme as more rational because it provided an incentive for industrious habits and efficiency, leading to greater production. Although the Labour Appellate Tribunal did not assess the merits of the scheme, it ordered that payments be made according to it. Under the unit scheme, each workman receives units based on the importance of his job, his wages, and his years of service in that particular position. The value of the units varies according to considerations of efficiency and experience. The establishment is divided into twelve categories for the general staff and three categories for the medical staff, reflecting the relative importance of the work performed. In descending order of importance, the categories are: 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 are awarded to workmen according to the category to which they belong; a more qualified worker with higher wages and better performance receives a greater number of units. The total amount available for bonus distribution is divided by the aggregate number of units earned by all participating workmen, and each worker receives a multiple of the amount payable for one unit multiplied by the number of 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 payment of bonus in accordance with the scheme was appropriate.

In this case, the Court observed that the unit‑based scheme would not only ensure a just distribution of bonus but also promote higher quality and greater quantity of work. The Court clarified that the scheme should not be mistaken for a production bonus, although it combines equitable sharing of surplus with the maintenance of efficiency in the establishment. Using the figures supplied by the Industrial Tribunal, the Court calculated a surplus of Rs 7,64,608 for the year 1950, a surplus of Rs 77,823 for 1951, and a deficit of approximately Rs 10,00,000 for 1952. Consequently, the total amount available for distribution over the three‑year period summed to zero, leaving no surplus to be allocated across the workforce. Relying on the appellant’s claim for a bonus of two months’ wages, the Court held that bonus was one‑sixth of the salary for each year: Rs 4,63,095 for 1950, Rs 4,83,893 for 1951, and Rs 5,31,202 for 1952. Applying one‑sixth to those totals produced bonus amounts of Rs 77,182 for 1950, Rs 80,647 for 1951, and Rs 88,533 for 1952. The Court noted that the amounts required for artisans would increase the overall sums further, because artisans were also entitled to a proportionate share under the unit system. While the calculations allowed the appellant to justify a two‑month bonus for 1950, the Court found that the same justification could not be extended to 1951 and 1952 due to insufficient surplus. Specifically, the surplus available for 1951 amounted to only Rs 77,823, whereas 1952 presented a deficit of roughly Rs 10,00,000, rendering the claimed bonuses untenable for those years. Considering all these figures, the Court concluded that the awards made by the Industrial Tribunal were fair and proper, reflecting an equitable allocation based on the surplus and deficit calculations. The Court held that the Labour Appellate Tribunal had erred in allowing depreciation and rehabilitation, and therefore set aside its order. The Court restored the award of the Industrial Tribunal, with the modification that the respondent must provide the additional amount necessary to pay a proportional bonus to the artisans. Accordingly, the appeal was allowed in part and the Labour Appellate Tribunal’s order was set aside by the Court. The Industrial Tribunal’s award was reinstated with the added requirement that the respondent supply the extra sums for the three years to cover artisans’ proportionate bonuses under the unit system. Since neither party succeeded in its principal claim, the Court ordered that each party bear its own costs throughout the proceedings.