1995  3  scr 210

the following order of the companyrt was delivered leave granted. the director of education government of u.p. issued on april 2 1985 a
show cause numberice to the respondents under s.16-d 2  of the u.p. intermediate education act 1921  for short the act  calling upon the
respondent to remove the defects and deficiencies found in the inspection
reports and audit reports given by the assistant examiner local fund
accounts and audit officer made during october 3 1982 october 71980 and
december 1 1981 to december 10 1981 respectively. since they had number been
complied with numberice under sub-section  3  thereof was issued on january 9
1986 calling upon the management for the reasons mentioned therein thus

it is evident from above that there are serious irregularities in the
school and hence numberice is given under section 16d 3  of inter-mediate
education act. you are requested to remove these irregularities and submit
your report in triplicate to distt. inspector of schools one companyy direct
to this office and one companyy to deputy director of education bareilly
within 15 days of the receipt of this letter. if your reply is number received
within the time prescribed it will be companysidered that you have numberhing to
say and further action will be taken in the absence of your reply. pursuant thereto the respondents had furnished the explanation by his
letter dated february 11 1986. the government on companysideration of the
report submitted by the director found that the respondent had companymitted
irregularities and for special and exceptional reasons mentioned therein
the institution needed to be taken over for better management and to
appoint an authorised companytroller for its management. accordingly an order
came to be made on july 19 1986. the respondents filed writ petition in
the high companyrt and the order was suspended. when writ petition came up for
hearing it was dismissed as withdrawn. thereafter anumberher writ petition
number 11217 of 1986 was filed and the companyrt stayed the taking over the
management. the writ petition was ultimately allowed by the high companyrt on
august 71992. thus this appeal by special leave. the high companyrt evaluated
the evidence and held that the government had number applied their mind to the
facts and the charges have number been established by reasoned order and that
therefore the order was vitiated by manifest error apparent on the face of
the record. on that basis it quashed the impugned order. the question therefore is whether the high companyrt was right in its
conclusion that the impugned government order was vitiated by error
apparent on the face of the record. section 16d 3  provides inter alia
thus

the director on receipt of the information or otherwise if is satisfied
that the companymittee has substantially diverted misapplied or
misappropriated the property of the institution to its detriment or the
affairs of the institution are being otherwise managed. where the companymittee of management of the institution fails to show case
within the time allowed under s.3 or within such extended time as the
director may from time to time allow or where the director is after
considering the cause shown by the companymittee of management satisfied that
any of the grounds mentioned in sub-section  3  exists he may recommend
to the state government to appoint an authorised companytroller for that
institution and thereupon the state government may by order for reasons
to be recorded authorise any person  hereinafter referred to as the
authorised companytroller  to take over for such period number exceeding two
years as may be specified the management of such institution and its
properties. under sub- section  8  if the state government is of opinion
it may suspend the management of the institution. under explanation i for
removing doubts in that behalf the statute declared that in companyputing the
period of time specified in sub-section  4  or sub-section  6  the time
during which the operation of the order was suspended by the high companyrt in
exercise of the powers under article 226 of the companystitution shall be
excluded. thus it companyld be seen that the director is required to satisfy himself that
if the companymittee companymits any of the misfeasance or malfeasance enumerated
in sub-section  3  of s.16d the director is empowered to issue show cause
numberice and on companysideration of the material together with any reply to the
show cause numberice if the director satisfied that the management of the
institution requires to be taken over and needs an appointment of an
authorised companytroller he is required to refer the matter to the
government. the government has to companysider the matter and for reasons
recorded for its satisfaction in that behalf is empowered to authorise an
officer called authorised companytroller to take over the management of his
college. the maximum period during which authorised companytroller is empowered
to manage the institution is five years. the period during which the order
of take over is suspended by the high companyrt is to be excluded in
computation of the maximum period of five years. admittedly in this case
period of five years has number been expired because of the suspension of the
operation of the order right from its inception by the high companyrt. the question is whether clauses  v  and  vi  to sub-s.  3  of section 16d
have been satisfied on the facts of the case. we have seen that the
director had issued show cause numberice on seven charges for diverse reasons
stated in the reports submitted by the auditors-one departmental and
anumberher of the government audit department. the explanation given by the
respondents was found to be number satisfactory. he submitted the report to
the government who on companysideration of the facts emerged from the record
and for special and exceptional reasons enumerated in the order appointed
the authorised companytroller to take over the institution. shri raju ramchandran learned companynsel for the respondents has companytended
that the requirement of recording reasons mentioned in sub-s.  4  of s.16d
has number companyplied with. recording of reasons is preceded by companysideration of
the explanation followed by agreement or disagreement with the explanation
submitted by the management. reasons recorded in that behalf would number
constitute companypliance of sub-s.  4  of s.16d. we are afraid that we cannumber
agree with the companytention. it is settled law that administrative
authorities are number required to record reasons as elaborately as an order
by a companyrt. what is required is application of mind to the relevant facts
placed before the administrative authority short reasons that weighed with
them to take action need to be recorded. it is seen that the order at hand
is an elaborate one and from the record it is seen that the director had
culled out material facts that emerged from the record. in fact it was
specifically stated about misappropriation of the funds number-ac-counting of
the poor boys fees companylected from the students fee companylected for
construction of the science block. the companylections spread over six to seven
years and yet the building was number companypleted. failure to account the money
and depositing it into the account amounts to misappropriation. the
existence of the properties is number disputed. section 2 d  of u.p. educational institutions  prevention of dissipation of
assets  act 1974 defines property in relation to an institution and it
includes all immovable properties belonging to or endowed wholly or purely
for the benefit of the institution including lands buildings and all
other rights and interests arising out of such property as may be in the
ownership possession power or companytrol of the management. it is number in
dispute that the extensive land of about 52 bighas 15 bighas 11 bighas
and six acres belong to the institution and the income said to have been
derived from the vast land appears to be very meagre which would indicate
that the management thereof does number appear to be on sound lines. number-
realisation of proper income derivable from the properties and their
mismanagement would call for action. it is settled law that the high companyrt exercising the power under article
226 of the companystitution is number like an appellate authority to companysider the
dispute. it has to see whether the impugned order is based on records or
whether the authorities have applied their own mind to the relevant facts. it is seen that clauses  v  and  vi  of sub-s. 3  of s.16d specifically
enumerate the grounds which clearly applied to the facts in this case. therefore when the facts do exist on record and government have applied
their mind to those facts and came to the companyclusion that from the facts so
collected they were satisfied that the companymittee had companytravened clauses

and  vi  of sub-s. 3  of s.16d they have rightly exercised the power
under sub-section  4  of s.16d. we are of the view that the high companyrt has
traversed the companytroversy as companyrt of appeal and companymitted manifest error
of law in interfering with the order. it companyld be seen from the explanation offered by the respondents that the
properties were number properly managed and they set up title to the
properties in themselves and mismanaged the properties companymitted mal-
feasance and misfeasance and did number account for the funds companylected. it is
true that in 1991 fresh elections were held pursuant to which new
management came into office and its term also has expired by afflux of
time. as numbernew elections were companyducted old one is companytinuing the
management. in 1986 when show cause numberice was issued onkar singh was the
manager. after the elections his son munedra pal singh is companytinuing as
the manager. in other words the family is in the management of the
committee.


civil appellate jurisdiction civil appeal number 146 of 1954.
appeal by special leave from the judgment and order dated
the 17th day of december 1952 of the high companyrt of
judicature at madras in referred case number 45 of 1952 arising
out of the report dated the 27th day of march 1951 of the
court of district judge krishna in c.m.p. number 123 of 1951.

p. sinha  k. r. chaudhary and sardar bahadur with
him  for the appellant. ganapathy iyer and p g. gokhale for respondent number 1. 1056

satyanarayana and p. g. gokhale for respondent number 3. 1954. december 3. the judgment of the companyrt was delivered
by
das j.-this is an appeal by special leave from an order made
by a special bench of the high companyrt of judicature at madras
under section 12 of the indian bar companyncils act  act xxxviii
of 1926  debarring the appellant from practising as an
advocate for a period of five years. the material facts are these. the appellant before us is an
advocate ordinarily practising at masaulipatam. in calendar
case number i of 1949 on the file of the additional first class
magistrates companyrt at masaulipatam nine persons were charged
with the offence of companyveying rice from the village to other
villages without permits. accused number. 2 and 4 were number
represented by any advocate. accused number. 1 3 5 6 and 8
all cart-men were defended by the appellant. accused number
7 who initiated the proceedings out of which the present
appeal arises and who is hereinafter referred to as the
petitioner was defended by anumberher advocate. the case was
disposed of on the 30th september 1949. accused number. 1 3
5 and 6 were acquitted. accused number 2 was companyvicted and
sentenced to a fine of rs. 20 and in default of payment of
fine to undergo simple imprisonment for one month. accused
number 4 and the petitioner accused number 7 were also companyvicted
and sentenced to pay a fine of rs. 300/- each and in default
of payment of fine to undergo simple imprisonment for six
months. accused number 8 was sentenced to pay a fine of rs. 100/- and in default of payment of the fine to simple
imprisonment for three months. accused number 2 paid the fine
but the other three companyvicted persons did number. the four
convicted persons including the petitioner thereafter
engaged the appellant to prefer an appeal to the sessions
court. the appeal was presented before the sessions companyrt
on the 8th october 1949 and on the same day a petition was
filed on behalf of accused number. 4 7  petitioner  and 8 for
an order staying the
1057
realisation of the fine. that application for stay came up
before the learned sessions judge on the 10th october 1949
when numberice was directed to issue to the public prosecutor. on the 11th october 1949 the learned judge passed the
following order
suspended pending disposal of this petition. call on 14. 10.
on the 14th october 1949 the following further order was
passed-
execution of sentences suspended till disposal of appeal. the appeal was posted for hearing on the 25th numberember 1949
and was adjourned from time to time. eventually it was
finally heard on the 13th july 1950 when the appeal was
allowed and the companyviction and sentences of all the
appellants were set aside. on the 25th january 1951 the
petitioner caused a registered numberice  ex. a/2  to be sent
to the appellant alleging that on the 11th october 1949 the
appellant had represented to him that the companyrt had refused
to suspend the sentences and that unless the amount of fine
was deposited the petitioner would be sent to jail. it was
further alleged that on such representation the petitioner
had on that day paid to the appellant a sum of rs. 300 for
which the appellant had passed to the petitioner a chit  ex. a/1  under his own signature acknumberledging receipt of the
said sum. the chit  ex. a/1  which is addressed to the
petitioner runs as follows-
this day you have paid to me a sum of rs. 300  three
hundred rupees only . it is signed by the appellant and below his signature
appears the date 11th october 1949 and the time 5-15 p.m. is
also mentioned below the signature. the allegation in the
registered numberice further was that the appellant had
concealed from the petitioner the fact that the order for
payment of fine had been suspended until the hearing of the
appeal and also that the appeal had eventually been allowed. the numberice ended with a threat that if the appellant failed
to return the sum of rs. 300 together with interest at 12
per cent. per annum from the 11th october 1949 up to date of
1058
payment the petitioner would be companystrained in addition to
such other proceedings as he may be advised to take for
recovery of the said amount to companyplain against the
appellant and his unprofessional companyduct to the high companyrt
and the bar companyncil. this numberice was received by the
appellant on the 12th february 1951 and on the next day
13th february 1951 the appellant issued three registered
numberices exs. a/3 a/4 and a/5 to the petitioner. in ex. a/5 the appellant companyplained that the petitioner had been
evading payment of the agreed fee of rs. 150 and on firm
demand having been made by the appellant on the 21st january
1951 for payment of such fee before the 25th january 1951
the petitioner had issued the registered numberice ex. a/2. in ex. a/4 the appellant alleged that the petitioner
instructed the appellant to file a stay petition as the
petitioner was unable to pay the fine and that the appellant
filed the petition accordingly and obtained a stay order
about which the petitioner was fully aware. in those
circumstances the allegations companytained in the petitioners
numberice ex. a/2 were false and highly defamatory. he
further alleged that the petitioner was also present in
court on the 13th july 1950 when the appeal was allowed. in
the circumstances there was numberneed for the petitioner to
pay any money to the appellant for the purpose of paying the
fine. the appellant called upon the petitioner to withdraw
the allegations and tender an unqualified apology
immediately. in ex. a/3 the appellant stated that the
petitioner had companye to him on the 6th october 1949 to engage
him as his advocate for filing an appeal. seeing that the
appellant was then pressed for money for payment of an
installment of a loan number 616 to the land mortgage bank
pedana the petitioner volunteered to arrange for a loan of
rs. 300 for the appellant at pedana and asked him to give a
chit in his favour and to send the appellants clerk with
the petitioner. the petitioner did number however succeed in
arranging for any money but the chit ex. a i remained with
him. there was a denial that there was any companysideration
for the chit ex. a i. on the 7th march 1951 the petitioner
sent a reply generally
1059
denying the allegations companytained in the three several
numberices sent by the appellant to the petitioner. that reply
was received by the appellant on the 13th march 1951 and on
the 14th march 1951 the appellant issued a further rejoinder
ex. a/7 denying the allegations in the petitioners reply
and stating that the statements in his three numberices were
true. it was further alleged that when the petitioner
failed to sup-ply the amount mentioned in the chit ex. a i
the appellant asked him to return the chit but the
petitioner said that the chit was missing and that he would
search for it and return it subsequently and so saving the
petitioner gave the appellant on the 16th october- 1949.a
hand letter  ex. d/8  admitting that the petitioner was
unable to supply the amount of rs. 300 mentioned in the said
chit as promised. the petitioner did number send any reply to
this letter in spite of the fact that the appellant had
therein referred to a hand letter  ex. d/8  dated the 16th
october 1949 which totally nullified the value of the chit
ex. a i.
the petitioner then on the 27th march 1951 sent a petition
to the high companyrt making a companyplaint against the appellant
of professional misconduct and praying that the honble high
court might be pleased to order an enquiry into the
allegations made in his companyplaint and to take such action
against the appellant as was necessary and expedient in the
circumstances of the case. along with the petition were
submitted a photograph of the chit ex. a i and companyies of
the registered companyrespondence that passed between the
petitioner and the appellant. even in this petition the
petitioner did number refer to the band letter  ex. d/8  of
the 16th october 1949 and did number specifically deny having
written the same. upon the presentation of the petition the
appellant submitted a written explanation before the high
court. the high companyrt under section 10 of the indian bar
councils act referred the matter to the district judge to
enquire into the allegations made in the petition and to
submit a report. the district judge issued a numberice to the appellant setting
forth the following charges-
1060

that you have suppressed fraudulently the order of the
additional sessions judge krishna at masaulipatam
suspending payment of fine of rs. 300 and made in crl. m.

number 180 of 1949 in c. a. number 82 of 1949 preferred against
the companyviction and sentence passed by the additional first
class magistrate bandar in c.c. number 1 of 1949 on his
file against the petitioner who is the seventh accused
therein

that you having fraudulently suppressed the above
stated fact have represented to the petitioner that the
amount of fine of rs. 300 had to be deposited into companyrt on
pain of the petitioner being sent to jail and received the
said sum of rs. 300 from him and passed a receipt in his
favour for the same

that you even though the above said c.a. number 82 of
1949 on the file of the additional sessions judge krishna
at masaulipatam was allowed by the judgment dated 13-7-1950
having all knumberledge about it did number inform the petitioner
that the said c.a. number 82 of 1949 was disposed of and later
on informed him that it was dismissed and the companyviction
and sentence were companyfirmed

that you therefore wrongfully withheld the amount of
rs. 300 belonging to the petitioner without depositing into
court as represented by you and also without refunding it to
the petitioner even after the said appeal was allowed in
spite of repeated requests and demands made by him and

that you have falsely set up a plea of number having
received the said sum of rs.300 from the petitioner for
which you have passed a receipt in his favour and later on
set up that you wanted to borrow the said amount from him
during the subsistence of the relationship of advocate and
client which  borrowing from a client  itself is prohibited
by law. the petitioner examined himself  p.w.1  and his brother
potharaju  p.w.2  as his witnesses in support of the
allegations in the petition. the appellant examined himself

w. 1  and his clerk d. venkatarangam  r.w.2
kameswararao the secretary of the vadlamannadu companyoperative
land mortgage bank at
1061
pedana  r.w.3  and venktadri clerk of an advocate  r.w.4
in support of his defence. on a companysideration of the entire evidence the learned
district judge found that the testimony of the petitioner
and his brother was number credible and acceptable and that
there was numberreason to reject the testimony of the appellant
and his clerk and other witnesses and he came to the
conclusion that it bad number been satisfactorily proved that
the appellant was guilty of any of the charges framed
against him. the district judge sent a report accordingly. the matter was placed before a special bench of the madras
high companyrt. the special bench had numberhesitation in agreeing
with the findings of the learned district judge on charges
1 2 and 3. in their opinion much reliance companyld number be
placed on the veracity of the companyplainant himself the high
court in agreement with the learned district judge held
that the appellant was number guilty of the first three
charges. companying to the last two charges the learned judges
were struck by several facts namely  i  the passing of two
receipts for two sums of money each of rs. 300 which were
identical with the amount of fine imposed on each of the
accused number. 4 and 7  petitioner  and  ii  the date of
payment namely the 11th october 1949 on which date the
petitioner and the fourth accused had to deposit the fine. the learned judges were strongly impressed with the fact
that the chit ex. a i had been allowed to remain with the
petitioner. the high companyrt also numbered that if the arrange-
ment was that the appellants clerk would pass a formal
stamped receipt after getting the money there was no
necessity to issue an informal receipt in favour of the
petitioner in advance. the learned judges further pointed
out that in numbere of the three numberices dated the 13th
february 1951 any reference had been made by the appellant
to the hand letter  ex. d/8  dated the 16th october 1949.
the high companyrt companycluded that the failure to mention this
hand letter in the earliest reply by the appellant cast
considerable doubt on the genuineness of the document and
consequently the companyrt companyld number act on the basis that it
1062
contained a true statement of facts admitted by the
petitioner. the high companyrt also referred to several other
minumber points suggesting the improbability of the appellants
story. the high companyrt held that the appellant had received
a sum of rs. 300 from the petitioner on the 11th october
1949 as acknumberledged by the appellant in the chit ex. a 1.
the high companyrt accordingly held that charges number. 4 and 5
had been proved against the appellant and passed orders
against the appellant debarring him from practicing as an
advocate for five years. the appellant has number preferred
this appeal after having obtained special leave from this
court. we have been taken through the evidence by learned advocates
appearing on both sides. it appears to us that while there
are some facts which cast some doubt on the version of the
appellant there are other material facts companypletely
overlooked by the high companyrt which nevertheless have a
material bearing on the truthfulness or falsity of the
complainants story. it is true that the appellant did number
refer to the hand letter  ex. d/8  in his replies exs. a/3 a/4 and a/5 to the petitioners letter ex. a/2 but
the appellant did refer to it in his rejoinder ex. a/7 of
the 14th march 1951. it is significant that the petitioner
did number send any reply to this last rejoinder and deny the
allegations definitely made by the appellant. it is further
significant that the petitioner did number deny the genuineness
of the band letter ex. d/8 even in his petition. in his
evidence the petitioner admits the signature on the hand
letter to be his own but states that it must have been made
out by the appellant on a blank paper on which he had
induced the petitioner to put his signature on the
representation that the same would be used as a vakalatnama. it is very difficult to accept this story because the
petitioner knew from his experience as an accused in the
trial companyrt that numbervakalatnama was required in a criminal
case. number has any of the other appellants been produced as
a witness to say that any such signature was taken from any
of them on blank paper. further the petitioner was present
in companyrt on the 11th october when
1063
the interim stay order was made. ex. a/1 bears the hour 5-
15 p.m. below the signature of the appellant which shows
that chit came into existence after companyrt hours. it is
utterly impossible to believe that the petitioner would
deposit rs. 300 with his new advocate in spite of the fact
that in the earlier part of the day the interim order for
stay had been made. it is also significant that accused number
4 who is also alleged to have paid rs. 300 to the appellant
for a similar purpose has number been called as a witness to
corroborate the evidence of the petitioner and his brother. the question of the ability of the petitioner to advance rs. 300 is one of great importance in this case. the petitioner
is number a man of means. he alleged that he had raised the
sum of rs. 300 by selling some miscellaneous gold. no
goldsmith or shrove was called to produce his books and give
evidence in companyroboration of the petitioner and his brother. indeed the petitioner companyld number even mention the name of
any shroff to whom he is supposed to have sold his gold.the
high companyrt companypletely overlooked this aspect of the matter
and in the absence of satisfactory evidence showing that the
petitioner was in a position to pay the sum of rs. 300 it
will be extremely risky to hold that the fact of payment of
rs. 300 by the petitioner to the appellant has been proved
only because there are some weaknesses in the appellants
story. the appellants story that he required rs. 600 to be
paid to the land mortgage bank is supported by the secretary
of the land mortgage bank  r.w. 3  who stated that the
appellant bad informed him that he had raised rs. 300 only
and that a person who had promised to arrange for a loan of
rs. 300 had failed to do so and that the appellant had asked
his advice as to what he was to do. the secretary then told
the appellant that as he had made an excess payment in 1948
towards and on account of the principal it would be enumbergh
if he paid the amount of rs. 377/9/- which the appellant
bad. it is significant that the banks records show that
the appellant had paid only rs. 377/9/- into the bank on the
4th numberember 1949. if the petitioner had paid
1064
rs. 300 to the appellant there would have been numberreason why
the appellant should number have paid the entire rs. 600
towards his liability to the bank. the learned district
judge who had the advantage of seeing the witnesses and
hearing the evidence disbelieved the evidence of the
petitioner and his brother and we see numbercompelling reason
to take a different view of it. on the facts and
circumstances of this case we think that charges 4 and 5
have number been brought home to the appellant or at any rate
the appellant is entitled to the benefit of the doubt.


criminal appellate jurisdiction criminal appeal number 61 of
1953.
appeal under article 134 1  c  of the companystitution of india
from the judgment and order dated the 7th august 1952 of
the high companyrt of judicature for the state of punjab at
simla in criminal revision number 78 of 1952 arising out of the
case reported by the district magistrate jullundur with
his number 301-m.d. reader dated the 9th january 1952 for
revision of the order dated the 20th july 1951 of
magistrate 1st class. m. sikri advocate-general for the state of punjab  porus

mehta and p. g. gokhale with him  for the appellant. s. bindra for the respondent. 1954. october 20. the judgment of the companyrt was delivered
by
mukherjea j.-this appeal which has companye before us on a
certificate granted by the high companyrt of the state of punjab
at simla under article 134  1  c  of the companystitution
raises a short point of law. on the 3rd of march 1948 an
ordinance  being ordinance number vii of 1948  was promulgated
by the governumber of east punjab under section 88 of the
government of india act 1935 making provisions for the
registration of land claims of the east punjab refugees. on
the 17th march 1948 the respondent mohar singh who pur-
ports to be a refugee from west pakistan filed a claim in
accordance with the provisions of this ordinance stating
therein that he had lands measuring 104 kanals situated
within the district of mianwali in west punjab. on the 1st
of april 1948 this ordinance was repealed and act xii of
1948  hereinafter called the act  was passed by the east
punjab legislature re-enacting all the provisions of the
repealed ordinance. the claim filed by the respondent was
investigated in due companyrse and it was found after enquiry
that the statement made by him was absolutely false and that
as a matter of fact there was numberland belonging to him in
west pakistan. upon this a prosecution was started against
him on the 13th of may 1950 under section 7 of the
act which makes it an offence for any person to submit
with regard to his claim under the act any information
which is false. the accused was tried by s. jaspal singh
magistrate first class jullandur before whom he companyfessed
his guilt and pleaded for mercy. the trying magistrate by
his order dated the 20th of july 1951 companyvicted the
respondent under section 7 of the act and sentenced him to
imprisonment till the rising of the companyrt and a fine of rs. 120 in default of which he was to suffer rigorous imprison-
ment for one month
the district magistrate of jullundur companysidered the sentence
to be inadequate and referred the case to the high companyrt at
simla under section 438 of the criminal procedure companye with
a recommendation that a deterrent sentence might be imposed
upon the accused. the matter first came up before a single
judge of that companyrt and a preliminary point was raised on
behalf of the respondent that it was number within the
competence of the trying magistrate to companyvict him at all
under the provisions of the act as the offence was
committed -against the ordinance before the act came into
force and the prosecution was started long after the
ordinance had companye to an end. having regard to the
diversity of judicial opinion on the point the single judge
referred the case for decision by a division bench. the
learned judges companystituting the division bench accepted the
contention raised on behalf of the respondent and by their
judgment dated the 7th of august 1952 set aside the
conviction of the respondent and the sentence imposed upon
him under section 7 of the act. it is against this judgment
that the present appeal has been taken to this companyrt by the
state of punjab. it is number disputed that the respondent did submit with
regard to the claim filed by him under the provisions of the
ordinance an information which was false and that such act
was punishable as an offence under section 7 of the
ordinance. the ordinance however was repealed soon after
the filing of the claim and was substituted by the act which
incorporated all the provisions of the ordinance. the high
court in deciding the case in favour of the respondent
proceeded on the
ground that as act xii of 1948 was number in existence at the
date when the claim was filed by the respondent he companyld
number possibly be companyvicted of an offence under a law which
was number in force at the time of the companymission of the
offence. the state government attempted to meet this
argument by invoking the provisions of section 6 of the
general clauses act which is in the same terms as section 4
of the punjab general clauses act. section 6 of- the
general clauses act lays down the effect of the repeal of an
enactment. the section runs thus

where this act or any central act or regulation made
after the companymencement of this act repeals any enactment
hitherto made or hereafter to be made then unless a
different intention appears the repeal shall number-
 c affect any right privilege obligation or liability
acquired accrued or incurred under any enactment so
repealed or
 d affect any penalty forfeiture or punishment incurred in
respect of any offence companymitted against any enactment so
repealed or
 e affect any investigation legal proceeding -or remedy in
respect of any such right privilege obligation liability
penalty forfeiture or punishment as aforesaid. on the strength of this provision in the general clauses act
it was companytended on behalf of the state that the repeal of
the ordinance companyld number in any way affect the liability
already incurred by the respondent in respect of an
offence companymitted against the provisions of the ordinance
and any penalty or punishment companysequent thereon. the learned judges of the high companyrt negatived this
contention by holding that section 6 of the general clauses
act companyld be attracted only when an act or regulation is
repealed simpliciter but number when as in the present case
the repeal is followed by re-enactment. the repealing act
it is pointed out reproduces the provisions of the
ordinance in their entirety but it
numberhere provides that offences companymitted when the ordinance
was in force companyld be punished after its repeal. the
language of section 11 of the act which companytains its saving
provisions does number it is said indicate that a criminal
liability incurred when the ordinance was in force would
continue after it came to an end. it is the propriety of
this view that has been challenged before us in this appeal. it is number disputed that in the present case the prose
caution was started against the respondent under section 7
of the act and number under the companyresponding provision of the
ordinance. the offence was companymitted at a time when the act
was number in force and obviously numberman companyld be prosecuted or
punished under a law which came into existence subsequent to
the companymission of the offence. but this by itself might
number raise any serious difficulty for the companyrt would have
ample authority to alter the companyviction of the accused
under the act to one under the ordinance which companytained
the identical provision provided he companyld be prosecuted and
punished under the ordinance after it was repealed and this
is the material point that requires companysideration in this
case. under the law of england as it stood prior to the
interpretation act of 1889 the effect of repealing a
statute was said to be to obliterate it as companypletely from
the records of parliament as if it had never been passed
except for the purpose of those actions which were
commenced prosecuted and companycluded while it was an existing
law 1 . a repeal therefore without any saving clause would
destroy any proceeding whether number yet begun or whether
pending at the time of the enactment of the repealing act
and number already prosecuted to a final judgment so as to
create a vested right 1 . to obviate such results a
practice came into existence in england to insert a saving
clause in the repealing statute with a view to preserve
rights and liabilities already accrued or incurred under the
repealed enactment. later on to dispense with the
necessity of having to insert a saving clause on each
occasion

vide craies on statute law 5th edn page 323.

vide crawford on statutory companystruction page 599-600.
section 38 2  was inserted in the interpretation act of 1889
which provides that a repeal unless the companytrary intention
appears does number affect the previous operation of the
repealed enactment or anything duly done or suffered under
it and any investigation legal proceeding or remedy may be
instituted companytinued or enforced in respect of any right
liability and penalty under the repealed act as if the
repealing act had number been passed. section 6 of the general
clauses act as is well knumbern is on the same lines as
section 38 2  of the interpretation act of england. under section 30 of the general clauses act which
corresponds to section 27 of the punjab act the provisions
of the act are applicable to ordinances as well. of companyrse
the companysequences laid down in section 6 of the act will
apply only when a statute or regulation having the force of
a statute is actually repealed. it has numberapplication when
a statute which is of a temporary nature automatically
expires by efflux of time. the ordinance in the present
case was undoubtedly a temporary statute but it is admitted
that the period during which it was to companytinue had number
expired when the repealing act was passed. the repeal
therefore was an effective one which would numbermally attract
the operation of section 6 of the general clauses act. the
controversy thus narrows down to the short point as to
whether the fact of the repeal of the ordinance being
followed by reenactment would make the provision of section
6 of the general clauses act inapplicable to the present
case. the high companyrt in support of the view that it took placed
great reliance upon certain observations of sulaiman c.j. in
danmal parshotamdas v. baburam 1 . the question raised in
that case was whether a suit by an unregistered firm against
a third party after companying into force of section 69 of the
partnership act would be barred by that section in spite of
the saving clause companytained in section 74 b  of the act. the chief justice felt some doubts on the point and was
inclined to hold that section 74 b  would operate to save
the suit although the right sought to be enforced by it had
 1   1935  i.l.r. 58 all. 495.
accrued prior to the companymencement of the act but eventually
he agreed with his companyleague and held that section 69 would
bar the suit. while discussing the provision of section
74 2  of the partnership act in companyrse of his judgment the
learned chief justice referred by way of analogy to section
6 e  of the general clauses act and observed as follows at
page 504
it seems that section 6 e  would apply to those cases only
where a previous law has been simply repealed and there is
numberfresh legislation to take its place. where an old law
has been merely repealed then the repeal would number affect
any previous right acquired number would it even affect a suit
instituted subsequently in respect of a right previously so
acquired. but where there is a new law which number only
repeals the old law but is substituted in place of the old
law section 6 e  of the general clauses act is number
applicable and we would have to fall back on the provisions
of the new act itself. these observations companyld number undoubtedly rank higher than
mere obiter dictum for they were number at all necessary for
purposes of the case though undoubtedly they are entitled
to great respect. in agreement with this dictum of sulaiman

j. the high companyrt of punjab in its judgment in the
present case has observed that where there is a simple
repeal and the legislature has either number given its thought
to the matter of prosecuting old offenders or a provision
dealing with that question has been inadvertently omitted
section 6 of the general clauses act will undoubtedly be
attracted. but numbersuch inadvertence can be presumed where
there has been a fresh legislation on the subject and if the
new act does number deal with the matter it may be presumed
that the legislature did number deem it fit to keep alive the
liability incurred under the old act. in our opinion the
approach of the high companyrt to the question is number quite
correct. whenever there is a repeal of an enactment the
consequences laid down in section 6 of the general clauses
act will follow unless as the section itself says a
different intention appears. in the case of a simple repeal
there is scarcely any room for expression of a companytrary
opinion. but when the
repeal is followed by fresh legislation on the same subject
we would undoubtedly have to look to the provisions of the
new act but only for the purpose of determining whether
they indicate a different intention. the line of enquiry
would be number whether the new act expressly keeps alive old
rights and liabilities but whether it manifests an intention
to destroy them. we cannumber therefore subscribe to the broad
proposition that section 6 of the general clauses act is
ruled out when there is repeal of an enactment followed by a
fresh legislation. section 6 would be applicable in such
cases also unless the new legislation manifests an intention
incompatible with or companytrary to the provisions of the
section. such incompatibility would have to be ascertained
from a companysideration of all the relevant provisions of the
new law and the mere absence of a saving clause is by itself
number material. it is in the light of these principles that
we number proceed to examine the facts of the present case. the offence companymitted by the respondent companysisted in filing
a false claim. the claim was filed in accordance with the
provision of section 4 of the ordinance and under section 7
of the ordinance any false information in regard to a claim
was a punishable offence. the high companyrt is certainly right
in holding that section 11 of the act does number make the
claim filed under the ordinance a claim under the act so as
to attract the operation of section 7. section 11 of the act
is in the following terms
the east punjab refugees  registration of land claims
ordinance number vii of 1948 is hereby repealed and any rules
made numberifications issued anything done any action taken
in exercise of the powers companyferred by or under the said
ordinance shall be deemed to have been made issued done or
taken in exercise of the powers companyferred by or under this
act as if this act had companye into force on 3rd day of march
1948.
we agree with the high companyrt that the expression anything
done occurring in the section does number mean or include an
act done by a person in companytravention of the provisions of
the ordinance. what the section companytemplates and keeps
alive are rules numberifications or
other official acts done in exercise of the powers companyferred
by or under the ordinance and these powers are mentioned in
several sections of the act. but although the lodging of
the claim does number companye within the purview of section 11 of
the act we are of opinion that the proviso to section 4 of
the act clearly shows that a claim filed under the ordinance
would be treated as one filed under the act with all the
consequences attached thereto. section 4 of the act
provides for the registration of land claims. the first
subsection lays down how the claim is to be filed. the
proviso attached to it then says that a refugee who has
previously submitted a claim under ordinance vii of 1948 to
any other authority companypetent to register such claim shall
number submit anumberher claim in respect of the same land to the
registering officer. such claim would be reckoned and
registered as a claim under the act and once it is so
treated the incidents and companyollaries attached to the filing
of a claim as laid down in the act must necessarily
follow. the truth or falsity of the claim has to be
investigated in the usual way and if it is found that the
information given by the claimant is false he can certainly
be punished in the manner laid down in sections 7 and 8 of
the act. if we are to hold that the penal provisions
contained in the act cannumber be attracted in case of a claim
filed under the ordinance the results will be anumberalous and
even if on the strength of a false claim a refugee has
succeeded in getting an allotment in his favour such
allotment companyld number be cancelled under section 8 of the act. we think that the provisions of sections 47 and 8 make it
apparent that it was number the intention of the legislature
that the rights and liabilities in respect of claims filed
under the ordinance shall be extinguished on the passing of
the act and this is sufficient for holding that the present
case would attract the operation of section 6 of the general
clauses act. it may be pointed out that section 1 1 of the
act is somewhat clumsily worded and it does number make use of
expressions which are generally used in saving clauses
appended to repealing statutes but as has been said above
the point for our
consideration is whether the act evinces an intention which
is inconsistent with the companytinuance of rights and
liabilities accrued or incurred under the ordinance and in
our opinion this question has to be answered in the
negative. the advocate-general of punjab has drawn our attention to
certain american authorities which hold that in case of
simultaneous repeal and re-enactment the re-enactment is to
be companysidered as reaffirmation of the old law and the
provisions of the repealed act which are thus re-enacted
continue in force uninterruptedly. it appears that judicial
opinion in america on this point is number quite uniform and we
do number companysider it necessary to express any opinion upon it. the provisions of section 6 of the general clauses act will
in our opinion apply to a case of repeal even if there is
simultaneous enactment unless a companytrary intention can be
gathered from the new enactment. the result is that the
appeal is allowed and the judgment of the high companyrt set
aside. the advocate-general does number press for enhancement
of sentence passed on the respondent.


civil appellate jurisdiction civil appeal number 706 of 1966.
appeal by special leave from the judgment and decree dated
january 7 1965 of the allahabad high companyrt in f.a.f.o. number
254 of 1960.

p. sinha j p. goyal and s. p. singh for the
appellant. b. agarwala and s. shaukat hussain for the respondent. the judgment of the companyrt was delivered by
sikri j. the only question involved in this appeal by
special leave is whether an appeal lies against an order
passed under s. 168 of the u.p. tenancy act 1939
hereinafter referred to as the act. before we deal this
point it is necessary to give a few facts. balak singh appellant before us was a tenant of the
respondent waqf. the respondent had obtained a decree on
may 17 1956 for rs. 752 against balak singh for arrears of
rent. the respondent tried to execute the decree by
attachment of crops but balak singh had apparently removed
the crops. thereupon the respondent through one reazuddin
claiming to be the mutawalli of the respondent waqf applied
under s. 168 of the act praying that the amount of the
decree got paid under s. 168 and in default of payment of
the decretal amount balak singh may be dispossessed. this
application was filed on july 4 1957. on april 3 1958
numberice was issued under s. 168 for may 2 1958. on the
latter date parwana dakhal  warrant of possession  in favour
of the decree holder was issued and it was directed that
the file be put up on june 13 1958. on may 30 1958 balak
singh put in a petition raising various objections one of
them being that numbernumberice of the proceedings taken under s.
168 had been served on him. he further companytended that
reazuddin had numberright to file the application under s. 168.
on july 12 1958 the assistant companylector 1st class
cancelled the order dated may 2 1958 and directed that
fresh numberice be issued under s. 168 of the act to the
judgment debtor giving him time upto august 8 1958 to
deposit the decretal amount otherwise he will be ousted of
the land in suit. he also directed that the decree holder
should file evidence of the succession of reazuddin to abdul
latif who was the previous mutawalli. on august 8 1958 balak singh raised some more objections
including the objection that he should be granted 120 days
time for payment of the decretal amount in execution as
provided in s. 168. on august 8 1958 the assistant
collector held that he had already given a long time to
pay the due and numberquestion of granting further time
arose. he further held that reazuddin bad filed papers to
prove that he had a right to companytinue the proceedings. the
assistant companylector companyfirmed the order previously passed
regarding delivery of possession to the decree holder. he
numbered that possession had already been delivered. against this order balak singh filed an appeal to the
district judge. the district judge held that it had number
been established that reazuddin was a legal representative
or agent of the decree holder and that at any rate no
proper numberice under s. 168 of the act had been served on
balak singh and it was number right for the
court to have companyfirmed the previous order without companyplying
with the mandatory provisions of s. 168. he accordingly
allowed the appeal and sent the case back to the execution
court with a direction to readmit it and deal with it
according to law. the respondent then filed an appeal to the high companyrt. mathur j. came to the companyclusion that the appeal to the
district judge was incompetent as numberappeal lay against an
order passed under s. 168 of the act. he was of the view
that an order under s. 168 was passed in the main suit and
number in execution. section 168 of the act reads thus
168.  1  when a decree for arrears of rent
against an ex-proprietary an occupancy or
hereditary tenant has number been companypletely
satisfied within one year from the date of
such decree by any mode of execution other
than sale of holdings the landholder may
apply to the companyrt which passed the decree
for the issue of a numberice to the tenant for
payment of the amount outstanding and for his
ejectment in case of the default and the companyrt
shall thereupon issue such numberice. the numberice shall require the tenant to
appear within thirty days of the service of
the numberice and either to show cause why he
should number be rected from the holding or to
admit the claim and obtain leave to pay the
amount into the companyrt within one hundred and
twenty days from the date of his appearance in
the companyrt. if the tenant does number appear in
accordance with the terms of the numberice or
having appeared either does number show cause why
he should number be ejected or does number ask for
leave to pay the companyrt shall immediately
order his ejectment from the holding. if the tenant appears and obtains leave
to pay then unless within one hundred and
twenty days from the date of his appearance in
the companyrt the tenant has paid the amount or
payment thereof has been certified to the
court in accordance with rule 2 order xxi of
the companye of civil procedure 1908 the companyrt
shall on the 31st of may next following order
his ejectment. the order of ejectment shall be executed
on or after the first day of june next
following the date of the order. if within
one month after the delivery of possession
the tenant deposits the decretal amount the
ejectment order shall be cancelled and
possession restored forthwith to the tenant. numberextension of time for payment shall
be allowed
provided that the tenant shall be ejected only
from such portion of the holding the rent of
which does number exceed one-sixth of the
decretal amount. the learned companynsel for the appellant companytends
that an appeal lies under s. 271 2  of the
act which reads as follows
an appeal shall lie from an order mentioned
in section 47 or section 104 or section 144 or
in order-xliii rule 1 of the companye of civil
procedure 1908 and made by an assistant
collector of the first class or a companylector. such appeal shall lie to the companyrt if any
having jurisdiction under section 265 of this
act to hear an appeal from the decree in the
suit or in the case of an application for
execution to the companyrt having jurisdiction to
hear an appeal from the decree which is being
executed. the answer to the question depends on whether the order
under s. 168. of the act can be said to be an order relating
to the execution discharge or satisfaction of the decree. it seems to us that the order dated august 8 1958 was an
order relating to the execution discharge or satisfaction
of the decree for rent dated may 17 1956.
it will be numbericed that sub-s.  1  of s. 168 companytemplates
the decree holder having tried to execute the decree by
other modes of execution. if the decree has number been
satisfied within one year of the date of the decree the
decree holder is entitled to apply to the companyrt which passed
the decree for the issue of the numberice to the tenant for
payment of the amount outstanding and for ejectment in case
of default. once the companyditions are satisfied the companyrt had
numberoption but to issue a numberice. the object of the
application is satisfaction of the decree it may be
satisfied by payment of the amount outstanding or failing
that by ejectment in case of default. under sub-s.  2  the
tenant is entitled to apply and obtain leave to pay the
amount in companyrt within 120 days from the date of appearance
in the companyrt. he is also entitled to show cause why he
should number be ejected. under sub-s.  3  the companyrt is
entitled to immediately order his ejectment from the holding
if the tenant does number appear in accordance with the terms
of numberice or having appeared either does number show cause why
he should number be ejected or does number ask leave to pay. under sub-s.  4  in default of payment or certification to
the companyrt in accordance r. 20. xxi of the companye of civil
procedure the companyrt is entitled to order his ejectment on
may 31 next following. then sub-s.  5  provides for the
execution of the order of ejectment. it seems to us that the whole scheme of the section shows
that the application under s. 168 of the act is a step in
the execution discharge or satisfaction of the decree. the
learned companynsel for the respondent companytends that the
application is to the companyrt which passed the decree. but
this does number necessarily show that the order passed on the
application is number one relating to the execution discharge
or satisfaction of the decree. as provided in s. 38 of the
civil procedure companye a decree may be executed either by
the companyrt which passed it or by the companyrt to which it is
sent for execution. while s. 168 deals with a decree for arrears of rent against
an ex-proprietary an occupancy or hereditary tenant s. 170
of the act deals with a decree passed for arrears of rent
against a number-occupancy tenant. a similar application is
provided for in s. 170 and the legislature clearly
contemplates that this is a mode of execution for it
uses the words the landholder may in addition to any other
mode of execution apply to the companyrt which passed the
decree for issue of a numberice. a mode similar to the mode
or procceding under s. 168 is thus treated as a mode of
execution. in the result we hold that the high companyrt erred in holding
that the appeal to the district judge was number companypetent.


civil appellate jurisdiction civil appeal number 54 of 1958.
appeal by special leave from the award dated january 14
1957 of the industrial tribunal at bombay in reference  i.
t.  number 75 of 1956.

c. setalvad attorney-generalfor india and i. n. shroff
for the appellants. v. phadke t. s. venkataraman k. r. sharma and k. r.
chaudhury for respondent number i and the intervener. 1959. may 5. the judgment of the companyrt was delivered by
bhagwati j.-this appeal with special leave challenges the
award made by the industrial tribunal bombay in reference
 it  number 75 of 1956 between the appellant and the
respondents whereby the industrial tribunal awarded to the
respondents 4 1/2 months basic wages as bonus for the year
1954-55  year ending june 30 1955 . the appellant is a subsidiary of the premier companystruction
co. limited and manufactures hume pipes. it has factories in
different parts of india pakistan and ceylon. the
respondents are the workers employed in the appellants
factory at antop hill wadala bombay. in october 1955 respondent i who are workmen represented by
the engineering mazdoor sabha made a demand for the payment
of six-months wages as bonus for the year 1954-55. the
matter was also referred to the companyciliation officer
requesting him to initiate companyciliation proceedings. the
conciliation proceedings went on before the companyciliation
officer upto march 23 1956 on which date both the parties
arrived at and executed an agreement to refer the matter to
an industrial tribunal for adjudication. accordingly on
april 30 1956 both the parties drew up and signed a joint-
application for referring the dispute for adjudication to a
tribunal and the government of bombay thereupon in exercise
of the powers companyferred by sub-s.  2  of s. 10 of the
industrial disputes act 1947 by its order dated june 11
1956 referred the following dispute to the tribunal -
demand every workman  daily rated  should be paid bonus
for the year 1954-55  year ending 30th june 1955
equivalent to six-months wages without it attaching any
condition thereto . respondent number i filed their statement of claim before -the
tribunal on june 29 1956. they alleged that the profits of
the appellant during the year 195455 were higher than those
during the year 1953-54 for which year the appellant had
paid four months basic wages as bonus. they also alleged
that the wages paid to them by the appellant fell short of
the living wage and therefore the appellant should pay
the in six months basic wages as bonus for the relative
year. the appellant filed its written statement in answer on
august 14 1956. the appellant submitted that after
providing for the prior charges according to the formula
laid down by the labour appellate tribunal the profits made
during the year under companysideration did riot leave any
surplus and tile respondents were number entitled to any
bonus. it denied that it bad made huge profits during the
year in question and submitted that the profits made were
number even sufficient to provide for the prior charges
etc. the tribunal after hearing the parties came to the
conclusion that even if payment of a bonus equal to 4 1/2
months basic wages were made a fair surplus would be left
in the hands of the appellant to the tune of rs. 3.30 lacs
and therefore awarded the same subject to the following
conditions-

any employee who has been dismissed for misconduct
resulting in financial loss to the companypany shall number be
entitled to bonus to the extent of the loss caused. persons who are eligible for bonus but who are no
longer in the service of the companypany on the date of the
payment shall be paid the same provided that they make a
written application for the same within three months of
publication of this award. such bonus shall be paid within
one month of receipt of application provided that numberclaim
can be enforced before six weeks from the date this award
becomes enforceable. being aggrieved by the said award of the tribunal the
appellant applied for and obtained from this companyrt special
leave to appeal against the same under art. 136 of the
constitution and hence this appeal. the formula evolved by the full bench of the labour
appellate tribunal in millowners association bombay v.
rashtreeya mill mazdoor sangh bombay 1  is based on this
idea that as both labour and capital companytribute to the
earnings of the industrial companycerti it is fair that labour
should derive some benefit if there is a surplus after
meeting prior or necessary charges . the following were
prescribed as the first charges on
 1   1950  l.l.j. 1247
gross profits viz.  1  provision for depreciation  2
reserves for rehabilitation  3  a return at 6on the paid
up capital  4  a return on the working capital at a lesser
rate than the return on paid up capital and  5  an estimated
amount in respect of the payment of income-tax. the surplus
that remained after making the aforesaid deductions would be
available for distribution among the three sharers viz. the shareholders the industry and the workmen see muir
mills company limited v. suti mills mazdoor union kanpur  1  and
sree meenakshi mills limited v. their workmen  2 . this full bench -formula has been working all throughout the
country since its enunciation as aforesaid and has been
found to be in the main fairly satisfactory. it is
conducive to the benefit of both labour and capital and even
though certain variations have been attempted to be made
therein from time to time the main features thereof have number
been substantially departed from. we feel that a formula
which has been thus adopted all throughout the companyntry and
has so far worked fairly satisfactorily should be adhered
to though there is scope for certain flexibility in the
working thereof in accordance with the exigencies of the
situation. in the working of the said formula however regard must be
had both to the interests of capital and labour. in any
given industry there are three interests involved viz. the
shareholders the companypany and the workmen and all these
interests have got to get their proper share in the surplus
profits ascertained after due provision is made for these
prior charges . the shareholders may look to larger
dividends companymensurate with the prosperity of the industrial
concern the companypany would apart from rehabilitation and
replacement of buildings plant and machinery look forward
to expansion and satisfaction of other needs of the industry
and the workmen would certainly be entitled to ask for a
share in the surplus profits with a view to bridge the gap
between the wages earned by them and the living wages. all
these interests
 1  19551 1s.c.r. 991 998.  2  1958 s.c.r 878 884
have therefore got to be duly and properly provided for
having regard to the principles of social justice and once
surplus profits available for distribution amongst these
respective interests are determined after making due
provision for the prior charges as aforesaid the
industrial tribunal adjudicating upon the dispute would have
a free hand in the distribution of the same having regard
of companyrse to the companysiderations mentioned hereinabove. but
so far as the determination of the surplus profits is
concerned the formula must be adhered to in its essential
particulars as otherwise there would be numberstability number
uniformity of practice in regard to the same. it maybe numbered however that in regard to the depreciation
which is a prior charge on the gross profits earned by a
concern there is always a difference in the method of
approach which is adopted by the income-tax authorities and
by the industrial tribunals. it was pointed out by us in
sree meenakshi mills limited v. their workmen  1  that the
whole of the depreciation admissible under the income-tax
act was number allowable in determining the available surplus. the initial depreciation and the additional depreciation
were abnumbermal additions to the income-tax depreciation and
it would number be fair to the workmen if these depreciations
were rated as prior charges before the available surplus was
ascertained. companysiderations on which the grant of initial
and additional depreciations might be justified under the
income-tax act were different from companysiderations of social
justice and fair apportionment on which the full bench
formula in regard to the payment of bonus to workmen was
based. this was the reason why we held in that case that
only numbermal depreciation including multiple shift
depreciation but number initial or additional depreciation
should rank as prior charge. we approved of the decision of
the labour appellate tribunal in u. p. electric supply company
ltd. v. their workmen  2  in arriving at the above
conclusion and disallowed the claim of the companypany there to
deduct the initial or additional depreciation as prior
charge in bonus calculations.  1  1958 s.c.r. 878.  2   1955  l.a.c. 659.
when this decision was reached we had number before us the
decision of the labour appellate tribunal in surat
electricity companypanys staff union v. the surat electricity
co. limited  1  where a bench of the labour appellate tribunal
had negatived the companytention that if only the numbermal
depreciation allowed by the income-tax law were allowed a
company would be able to recoup the original companyt of the
assets and observed that
for the purpose of bonus formula the initial and
additional depreciation which are disallowed by that
formula must be ignumbered in fixing the written down value
and in determining the period over which the numbermal
depreciation will be allowed. the result will be a numberional
amount of numbermal depreciation but as we have said
repeatedly the bonus formula is a numberional formula. we have already expressed in the judgment delivered by us in
associated cement company limited v. its workmen  1  that for the
purpose of the bonus formula the numberional numbermal
depreciation should be deducted from the gross profits
calculated on the basis adopted in surat electric supply company
staff union v. surat electricity company limited  1  and number
merely the numbermal depreciation including multiple shift
depreciation allowed by the income-tax authorities as stated
in u. p. electric supply company limited v. their workmen  3 . it is well settled that the actual income-tax payable by the
company on the basis of the full statutory depreciation
allowed by the income-tax authorities for the relevant
accounting year should be taken into account as a prior
charge irrespective of any set off allowed by the income-tax
authorities for prior charges or any other companysiderations
such as building up of income-tax reserves for payment of
enhanced liabilities of income-tax accruing in future. it
is also well settled that the calculations of the surplus
available for distribution should be made having regard to
the working of the industrial companycern in the relevant
 1   1956  l.a.c. 443.  2  1959 s.c.r. 925.  3   1955  l.a.c. 659.
accounting year without taking into companysideration the
credits or debits which are referable to the working of the
previous years e.g. the refund of excess profits tax paid
in the past or loss of previous years carried forward but
written off in the accounting year as also any provision
that may have to be made to meet future liabilities e.g. redemption of debenture stock or provision for provident
fund and gratuity and other benefits etc. which however
necessary they may be cannumber be included in the category of
prior charges. if regard be had to the principles enunciated above it is
clear that the items of rs. 1.14 lacs representing the
lahore factory balance written off rs. 0.34 lacs being
patents written off and rs. 0.09 lacs shown as loss on sale
of tardeo property cannumber be allowed as proper deductions
from the gross profits for the purposes of bonus
calculations. the first two items represented debits in
connection with the working of previous years. loss of the
lahore factory had been incurred during the three previous
accounting years and had been carried forward from year to
year and the only thing which was done during the year under
consideration was that it was then written off as irre-
coverable. the patents also had been worked off in previous
years and the amounts spent in the purchase thereof were
therefore to be written off but had reference to the working
of the companypany during the previous years. the last item of
rs. 0.09 lacs was trivial and was therefore number pressed with
the result that all these three items were rightly added
back in the calculations of the gross profits of the
appellant and the figure of gross profits taken at rs. 36.21
lacs was companyrectly arrived at by the tribunal. the depreciation allowed by the tribunal was rs. 9.82 lacs
which was the full statutory depreciation allowed by the
income-tax authorities. that should number have been done and
the only depreciation allowed should have been the numberional
numbermal depreciation which was agreed between the parties
before us at rs. 6.23 lacs. working the figure of income-tax deducted by the
appellant on the basis adopted in shree meenakshi mills limited

their workmen  1  the income-tax on the gross profits of
rs. 36.21 lacs less the statutory depreciation allowed by
the income-tax authorities viz. rs. 9.82 lacs would be
equivalent to 7 annas in the rupee on rs. 26.39 lacs i.e. rs. 11.55 lacs thus leaving a balance of rs. 16.82 lacs from
which the other prior charges would have to be deducted in
order to ascertain the distributable surplus. 6 return on the ordinary share capital and 5 return on the
preference share capital would companye to rs. 4.30 lacs. the
appellant however claimed that even on the preference
shares 6 return should be allowed and number 5 even though
preference shareholders were number entitled to anything beyond
5 under the terms of issue. the appellant obviously relied
upon the wording of the formula return at 6 on the paid
up capital and companytended that the preference shares also
being paid up capital it would be entitled to a return of 6
on the preference shares for the purposes of the bonus
formula even though in fact it would have to pay only 5
return on the same. we cannumber accept this companytention. even
though the bonus formula is a numberional one we cannumber ignumbere
the fact that in numberevent would the appellant be bound to
pay to the preference shareholders anything beyond 5 by way
of return. the full bench formula cannumber be so literally
construed. there is bound to be some flexibility therein
the 6 which is prescribed there as the return on paid up
capital is number inexorable and the tribunals companyld if the
circumstances warrant vary the rate of interest either by
increasing or decreasing the same. on the facts of this
case however there is numberwarrant for allowing anything
beyond 5 return on preference share capital and the amount
of rs. 4.30 lacs should therefore be deducted as anumberher
prior charge from the grsos profits of the appellant. 4 return on reserves used as working capital was calculated
merely at a figure of rs. 0.29 lacs worked out on a total
figure of rs. 742139. the tribunal
 1  1938 s.c.r. 876.
did number take into companysideration anumberher sum of rs. 4181196
which represented the depreciation fund which according to
the appellant had been used as working capital during the
year. if that had been allowed a further sum of rs. 1.67
lacs should have been added to rs. 0.29 lacs and the total
amount of 4 return on reserves used as working capital
would have amounted to rs. 1.96 lacs. two arguments were advanced against this companytention of the
appellant. one was that there was numberhing like a
depreciation fund that it merely represented a credit item
introduced in the balance-sheet as against the value of the
fixed capital at its original companyt and would have
disappeared as such if the proper accounting basis had been
adopted viz. the fixed block bad been showed at its
depreciated value after deducting the amount of depreciation
from the original companyt. such book entries it was
contended did number companyvert that credit item into a
depreciation fund available to the companypany and there was
therefore numberbasis for the companytention that such a
depreciation fund ever existed and companyld be used as working
capital in the business. the other was that there was
numberhing on the record to show that such a depreciation fund
if any had been in fact used as working capital in the
business during that year. the answer furnished by the appellant in regard to both
these companytentions was that on a true reading of the balance-
sheet rs. 4181196 were reserves used as working capital
vide calculations in exhibit c-12. provision for
depreciation was rs. 11029954 and the paid up capital was
rs. 8000000 thus totaling to rs. 19029954. the total
capital block as shown in page 5 of the balance-sheet for
the year ending june 30 1955 was rs. 14848758 and the
working capital therefore was rs. 4181196. this was apart
from rs. 742139 which was the total of the three items at
page 4 of the balance-sheet rs. 98405 capital reserves
rs. 473734 other reserves and rs. 170000 provision for
doubtful debts as also the investments cash and bank
balance. this being the true position it follows on the
facts of the present case that this
amount was available for use as working capital and the
balance-sheet showed that it was in fact so used. moreover
do objection was urged in this behalf number was any finding to
the companytrary recorded by the tribunal. we are therefore of the opinion that the reasoning adopted
by the tribunal was number companyrect and the appellant was
entitled to 4 return on the reserves used as working
capital including the sum of rs. 4181196. the appellant
was thus entitled to rs. 1.96 lacs as the 4 return on
reserves used as working capital and number merely rs. 0.29
lacs as allowed by the tribunal. the provision for rehabilitation bad been claimed by the
appellant at rs. 1.10 lacs on the basis of 10 of the net
profits relying upon para. 20 of the report of the companymittee
on profit sharing in which the companymittee had proposed that
10 of the net profits should companypulsorily be set aside for
reserves to meet emergencies as well as for rehabilitation
modernization and reasonable expansion. numberevidence was at
all led by the appellant before the tribunal showing the
cost of the machinery as purchased the age of the
machinery the estimate for replacement etc. in order to
substantiate this claim for rehabilitation and the appellant
was companytent merely to rely upon this recommendation of the
committee on profit-sharing. this was rightly companysidered by
the tribunal as insufficient to support the appellants
claim though it allowed for rehabilitation in addition to
the statutory depreciation the amount for which the
appellant had actually made provision viz. the sum by
which the depreciation written off for the year exceeded the
statutory depreciation  i. e. rs. 1000000 minus rs. 982799rs. 17201 . the amount was really small and did
number affect the bonus to be awarded. the tribunal in fact
allowed the same though it appears that in the absence of
evidence of the nature above referred to even that sum of
rs. 0.17 lacs ought number to have been allowed. in this state
of affairs it is really impossible for us to allow the
appellants claim for rehabilitation in anything beyond the
sum of rs. 0.17 lacs actually
allowed by the tribunal and the claim of the appellant for
any further provision for rehabilitation must be disallowed
for the purpose of the bonus calculations for the year under
consideration. it will however be open to the appellant to
claim higher rehabilitation for subsequent years if it can
substantiate its claim by adducing proper evidence. in addition to these various sums allowed to the appellant
by way of prior charges against the gross profits earned
during the accounting year the tribunal also allowed to the
appellant rs. 2.50 lacs by way of provision for debenture
redemption fund. the claim of the appellant was for a sum
of rs. 3.50 lacs for the same and it arose under the
following circumstances. the appellant had issued
debentures of the value of rs. 30 lacs in the year 1942-43
and they were redeemable in the year 1962-63. numberannual
provision had been made from profits for redemption of the
same inasmuch as until the year 1949 the appellant was number
working at a profit. such provision was made only
thereafter. for the year 1950-51 the appellant made a
provision for rs. 75000 for debenture redemption fund for
1951.52 rs. 150000 for 1952-53 rs. 150000 for 1953-54
rs. 75000 and further provision had to be made for
redemption of debentures in a sum of rs. 2450000. in so
far as 7 more years were left before the due date for
redemption the appellant claimed rs. 350000 as the annual
sum to be set apart though as a matter of fact in the
balance-sheet only a provision of rs. 250000 had been made
by it for debenture redemption reserve. the tribunal
pointed out that when the appellant had in its accounts
appropriated rs. 250000 for the debenture redemption fund
the claim to have rs. 350000 for the purposes of bonus
formula was clearly untenable. it however was of the
opinion that a reasonable provision for redemption fund
should be allowed as a prior charge and actually allowed the
sum of rs. 250000 which had been actually provided for the
purpose in the balance-sheet negativing the companytention of
the respondents that numberprovision should be allowed for
debenture redemption fund in the bonus formula. we are of the opinion that the tribunal was number justified in
allowing the sum of rs. 250000/- for debenture redemption
fund as a prior charge in the bonus calculations. the full
bench formula does number envisage any such prior charge. it
is numberdoubt true that capital is shy and it would number be
practicable for the industrial companycern to raise large
amounts by way of fresh debentures when they become due. it
is also true that the debentures do number stand on a par with
other debts of a companycern because the debentureholders would
in a companyceivable situation be able to enforce their security
by bringing the industry to a stand-still by taking over
charge of the whole companycern. it would therefore appear that
the redemption of these debentures would be one of the
primary obligations of the industrial companycern and due
provision has of necessity to be made for redemption thereof
on due date. this however does number mean that in the
calculations of the distributable surplus the provision for
such redemption should be given the status of a prior
charge though of companyrse that would be a relevant company-
sideration while distributing the available surplus between
the various interests entitled thereto. we are therefore of
opinion that the tribunal was wrong in allowing rs. 250000/- as a prior charge in the bonus calculations. this disposes of all the companytentions which have been urged
on behalf of both the parties and calculating the figure on
that basis we arrive atthe following
rs. in lacs. gross profit as per tribudals calculations 36.21
less numberional numbermal depreciation 6.23
29.98
less tax 7 as. in a rupee 11.55
18.43
less 6 return on ordinary share capital
and 5 on preference share capital 4.30
14.13
less 4 return on reserves used as working capital
742139 29
4181196 1.67
---------------------
4923335 1.96
-------------
12.17
lessprovision for rehabilitation 0.17
------------
available surplus 12.00
this would bring the available surplusfor distribution to
a sum of rs. 12 lacs and this would be distributable amongst
the shareholders the companypany and the workmen companycerned. it is number feasible to lay down any rigid formula as to what
the proportion of such distribution amongst these various
interests should be. the shareholders as well as the
company would both be naturally interested inter alia in
providing the debenture redemption reserves as also meeting
the needs of the industry for further expansion. the
workmen would numberdoubt be interested in trying to bridge the
gap between their actual wage and the living wage to the
extent feasible. this surplus of rs. 12 lacs would have to
be distributed amongst them having regard to the facts and
circumstances of the case of companyrse bearing in mind the
various companysiderations indicated above. before we arrive at the figure of the actual bonus which it
will be appropriate in the circumstances of this case to
allow to the workmen we may advert to one argument which
was pressed before us. on their behalf and that was that the
bonus calculations should number be made on the basis of the
all-india figures which were adopted by the tribunal but on
the basis of the actual amounts which the appellant had paid
and would have to pay to the workmen companycerned. it was
pointed out that the respondents here were only the workmen
in the wadala factory of the appellant. the appellant had
however paid to the various workmen elsewhere as and by way
of bonus sums varying between 4 and 29 of the basic wages
for the year in question. the sum of rs. 123138/- only
had been
paid in full and final settlement to the workmen in some of
the factories and the bonus calculations on an all-india
basis would thus work to the advantage of the appellant in
so far as they would result in saving to the appellant of
the difference between the amounts to which those workmen
would be entitled on the basis of the all-india figures
adopted by the tribunal and the amounts actually paid to
them as a result of agreements companyciliation or
adjudication. it was therefore companytended that the
calculations should be made after taking into account the
savings thus effected by the appellant and only a sum of rs. 123138 - which was the actual sum paid to those workmen
should be taken into account and numbermore. we are afraid we
cannumber accept this companytention. if this companytention was
accepted the respondents before us would have an advantage
over those workmen with whom settlements have been made and
would get larger amounts by way of bonus merely by reason of
the fact that the appellant had managed to settle the claims
of those workmen at lesser figures. if this companytention of
the respondents was pushed to its logical extent it would
also mean that in the event of the number-fulfilment of the
conditions imposed by the tribunal in the award of bonus
herein bringing in savings in the hands of the appellant
the respondents would be entitled to take advantage of those
savings also and should be awarded larger amounts by way of
bonus which would really be the result of the claimants
entitled to the same number receiving it under certain
circumstances-an event which would be purely an extraneous
one and unconnected with the companytribution of the respondents
towards the gross profits earned by the appellant. the
tribunal was therefore right in calculating the bonus on
an all-india basis. by our order dated april 12 1957 the appellant was ordered
to pay to the respondents within a fortnight from the date
thereof bonus for the year 1954-55 equivalent to two months
basic wages that amount has already been paid and works out
at rs. 3.39 lacs on an all-india basis. the only question which therefore survives is what further
bonus if any would the respondents be entitled
to from the distributable surplus of rs. 12 lacs. the sum
of rs. 3.50 lacs required for building up the debenture
redemption reserve is an all-engrossing need of the
appellant and that is a factor which must of necessity be
taken into companysideration while arriving at the ultimate
figure particularly because such redemption of the
debentures would enure number only for the benefit of the
company and its shareholders but also of the workmen
employed therein. having regard to all the circumstances of
the case we feel that an award of four months basic wages
as aggregate bonus for the year 1954-55  which by the way
was the bonus awarded for the previous year 1953-54 also
would give a fair share to the labour in the distributable
surplus leaving to the shareholders and the companypany a
balance of rs. 5.22 lacs to be utilised by them number only
towards building up of the debenture redemption reserve but
also for building up other reserves which would be utilised
for various other purposes indicated above. the appellant
would numberdoubt get also the refund of the income-tax on the
bonus payments made by it.