PETITIONER: <ORG> Vs. RESPONDENT: ITS WORKMEN DATE OF JUDGMENT: 05/05/1959 BENCH: <NAME>, K.N. BENCH: <NAME>, K.N. DAS, SUDHI RANJAN (CJ) BHAGWATI, NATWARLAL H. DAS, S.K. GAJENDRAGADKAR, P.B. CITATION: 1959 AIR 1095 1959 SCR Supl. (2)1012 CITATOR INFO : R 1960 SC 896 (5) F 1960 SC 985 (12) RF 1961 SC 867 (8) R 1963 SC 325 (19,20) R 1963 SC1474 (9,12) F 1963 SC1480 (5) F 1964 SC 472 (3) E 1968 SC 963 (30) RF 1972 SC1436 (11) RF 1972 SC2148 (22) ACT: Industrial Dispute-Production Bonus, nature of-jurisdiction of <ORG> to revise production bonus scheme introduced by employer-Profit Bonus-If can be awarded in addition to Production bonus-Available surplus-Deduction for rehabilitation, how calculated. HEADNOTE: In 1949 the appellant framed a scheme called " Tonnage Pro- duction Bonus Scheme " whereunder the workmen were to get 13 days' basic wages by way of bonus on a production Of 30,000 tons and thereafter an additional one day's basic wage for every 46o tons produced upto a maximum Of 36,000. The scheme was accepted by the workmen. In 1953 the workmen raised industrial disputes claiming profit bonus for the years 1950-51 and 1951-52 in addition to the production bonus and asked for revision of the production bonus scheme. <ORG>, to which the disputes were referred, rejected both the claims. On appeal, <ORG> awarded profit bonus equal to one month's basic wage for 1951-52 but dismissed the claim for 1950-51 as having been made too late. It revised the production bonus scheme by providing for i day's basic wage for each increase Of 460 tons over 30,000 tons uPtO 36,000 tons and for 2 days, basic wage for each increase Of 46o tons in excess Of 36,000 tons. The appellant contended (i) that the <ORG> had no jurisdiction to vary the production bonus scheme ; (ii) that such a scheme could only be varied by agreement ; (iii) that no proper grounds had been made out for varying the scheme ; (iv) that profit bonus could not be awarded in addition' to production bonus ; (v) that the production bonus in this case was really profit bonus ; and (vi) that there was no available surplus out of which profit bonus could be paid. Held, that the <ORG> had jurisdiction to revise the pro- duction bonus scheme. Payment of production bonus was payment of further emoluments depending not upon extra profits, but, upon extra production, as an incentive to the workmen to put in more than the standard performance. Though it was discretionary with the appellants to introduce the scheme, once the scheme was introduced and put into operation, it became a term of employment of the workmen and any dispute with respect to such term of employment was an industrial dispute which could properly be referred to a <ORG>. The power of the <ORG> in considering the scheme 1013 was not confined to the question of mala fides etc. of the employer's action but it had power to vary the terms of the scheme if circumstances justified it. There was no justification for interfering with the scheme upto a production Of 36,000 tons in view of the agreement between the parties. But the scheme did not provide for production above 36,000 tons and as such there was no agreement with respect to this, and as the production had gone up beyond 36,000 tons it was necessary to provide for production bonus beyond this quantity. There were two reasons for increase in the rates of payment of production bonus, viz., (i) the intensification of the efforts of the workmen in increasing production, and (ii) the progressive going down of the labour cost of production per ton as production increased. The rates had to be increased progressively with production. Consequently, for each 46o tons increase in production the proper rates for payment of production bonus would be 1-1/4, 1-3/4 and 2 days' basic wages respectively or production between. 36,000 and 42,000 tons, 42,000 and 48,000 tons, 48,000 and 54,000 tons and 54,000 and 60,000 tons. The " Tonnage Production Bonus Scheme " introduced by the appellant was in fact also a production bonus scheme and not a profit bonus scheme. The fact that one of the terms of the scheme empowered the directors to cancel or reduce the payment of production bonus in case the gross profit was not sufficient to meet fixed dividends, interest, depreciation charges, taxation and 10% dividend to ordinary shareholders did not make it a profit bonus scheme as the circumstances mentioned are not the same that have to be taken into account in arriving at the available surplus according to the Full Bench formula. Nor was the position altered by the clause in the scheme which empowered the appellant to cancel or modify the scheme in case Government enforced by legislation any scheme for bonus or profit sharing as this did not mean that the scheme itself was for profit sharing or profit bonus. The other clauses of the scheme clearly indicated that it was for production bonus. If there was an available surplus of profits according to the Full Bench Formula the workmen were entitled to get profit bonus in addition to the production bonus. <CITATION> , A.I.R.  S.C. 899, distinguished. Held further, that there was available surplus of profits and the profit bonus equal to one month's basic wages was properly awarded by <ORG> for [1951-52. The claim for deduction for rehabilitation was made on a wrong basis by the appellant. In order to arrive at a realistic figure for rehabilitation the total block should be divided into three heads : (i) land,(ii)buildings, railway sidings and things of that nature which had a..much longer life and where no imports were needed, and (iii)machinery. In the case of land no replacement was necessary and no provision need be made for rehabilitation. In the 1014 case of buildings etc. the multiplier would be smaller while the divisor would be larger. Machinery bad again to be sub- divided according to when it was purchased so as to arrive at correct multipliers and divisors. As machinery purchased before the last war stood on one footing there would be a pre-1939 block. The second block may be of machinery purchased during the war and the third of that purchased after the war. The last two- were not rigid divisions. In the circumstances of the present case, the proper multipliers for these three bocks would be 4, 2 and 1 respectively. As both <ORG>s had accepted 10 as the divisor that may be accepted as. the divisor for the three blocks. Calculating on that basis the rehabilitation costs did not wipe out the entire gross profits as claimed by the appellants and there was an available surplus out of which profit bonus could be paid. The clerical staff, budli workers and temporary workers were not entitled to claim attendance bonus as they were differ- ent from other workmen. JUDGMENT:

CIVIL APPELLATE, JURISDICTION: Civil Appeals Nos. 450 & 451 of 1957.

Appeals by special leave from the judgment and order dated July 31, 1956, of <ORG>, Calcutta, in Appeals Nos. Cal. 282/55 and 6/56. C....<NAME>, Solicitor-General of India, <NAME>, Additional Solicitor-General of India, <NAME> and <NAME>, for the Appellant (In C.A. No. 450/57). A....<NAME> and <NAME>, for the respondent (In C. A. No. 450/57.) M....<NAME>, Attorney-General for India, C. <NAME>, Solicitor-General for India and <NAME>, Additional Solicitor-General of India, <NAME> and <NAME>, for the appellants (In C. A. No. 450/57). <NAME>, <NAME> and <NAME>, for the respondents (In C. A. No. 451/57).

<NAME>, <NAME> and <NAME>, for the appellant (In C. A. No. 451/57).

<NAME>

M....<NAME>, Attorney-<NAME>eneral for India, <NAME>, Additional Solicitor-<NAME>eneral of India, <NAME> and <NAME>, for the respondent (In C. A. No. 514/57). <NAME>....<NAME>, <NAME> for the Secretary, for the Intervener No. 1. Sadhan Chandra <NAME>upta and <NAME>, for Intervener No. 2.

1959. May 5. The Judgment of the Court was delivered by WANCHOO, J.-These are three appeals by special leave from the same decision of <ORG> and will be dealt with together. The first two appeals (Nos. 450 & 451) are by Messrs. <ORG>, and the third (No. 514) by its workmen. <ORG> (hereinafter called company) own two paper mills one at Titaghur (hereinafter called Mill No. 1) and the other at Kankinarah (hereinafter called <ORG>). It appears that there had been a dispute between the company and its workmen in 1948, which was referred to the adjudication of a tribunal. That was disposed of by the tribunal on November 5, 1949. Among the matters then referred was the question of profit bonus for the years 1945-46 and 1946-47. When that matter was under the consideration of the tribunal, the company put forward a scheme of production bonus on the basis of a minimum production of 30,000 tons of paper in a year in the two mills together. The basis of the scheme was that the workmen would get 13 days' basic wage (this being equivalent to half of one month's basic wage) by way of bonus on a production of 30,000 tons for both mills. Thereafter the workmen were to get an additional one day's basic wage for every 460 tons produced upto a maximum of 36,000 tons when the production bonus would come up to 26 days' basic wage (which would be equivalent to one month's basic wage including weekly holidays). The company in putting forward the scheme said that "as an admittedly rough basis for such a scheme something on the following lines might, we think, be equitable". It then gave the scheme mentioned above. The tribunal dealing with the question of profit bonus for the years 1945-46 and 1946- 47 observed that the scheme of production bonus put forward by the company had been accepted by the union as satisfactory and for the purpose of that proceeding it accepted the scheme as a measure for awarding profit bonus for the years 194546 and 1946-47. The actual bonus worked out to 17 days'- basic wage for 1945-46 and 19 days' basic wage for 1946-47 ; (see award of Sri <NAME>, in the publication of <ORG>, <ORG>, I Awards made by the <ORG>s for the quarter ending December, 1949 ", pp. 130_ 150). It further appears that the detailed scheme was later communicated to the union in July 1950 and as the principle had already been accepted by the union before <ORG> the scheme was put in operation from April 1, 1949,- and production bonus has all along been paid in accordance with it after that date. Disputes, however, arose between the company and its workmen in 1953. The workmen of <ORG> were the first to raise a dispute in August 1953, in which inter alia they demanded profit bonus for the years 1950-51 and 1951-52 and also prayed for certain changes in the production bonus scheme. The workmen of <ORG> also raised a dispute and presented a charter of demands to the company in October 1953. They also demanded profit bonus for the two years mentioned above and revision of the production bonus scheme. These disputes were referred by the <ORG> to <ORG>, West Bengal. There were two references, one relating to each mill. They were heard separately by <ORG> which gave two separate awards rejecting all the demands made by the workmen. Consequently, two appeals were preferred by the workmen before <ORG>. There the two appeals were heard together at the request of the parties and disposed of by the <ORG> by the same judgment on July 31, 1956.

<ORG> rejected the claim of the workmen for revision of the production bonus scheme and for grant of profit bonus for the years 1950-51 and 1951-52. It was of opinion that the claim for profit bonus for the two years was not maintainable as the workmen had been given production bonus and that met the profit bonus claim of the workmen for the two years and all claims for profit bonus for these two years must be taken to have been fully satisfied. The question of delay in making the profit bonus claim was also raised; but <ORG> was of the view that the profit bonus claim could not be defeated merely on the ground of delay. As to the revision of production bonus scheme, it held that scheme had been accepted by the union and no reason had been shown why the rate of one day's basic wage as production bonus for every increase of 460 tons over 30,000 tons should be disturbed. It was also of the view that increased production was not due to increased efforts on the part of the workmen but was due mainly to increase in labour strength as well as installation of new machinery.

On appeal <ORG> rejected the claim for profit bonus for the year 1950-51 on the ground that it was made too late. It, however, disagreed with the view of <ORG> that the production bonus scheme fully satisfied the claim of the workmen for profit bonus and therefore DO profit bonus should be given even for the year 1951-52, with regard to which it %-as of opinion that the claim was not belated. It, therefore, went into the figures of profits and arrived at the available surplus in accordance with the formula known as the Full Bench Formula evolved in <CITATION> (1). Having arrived at the available surplus it granted one month's profit bonus in addition to what. the workmen were entitled to under the production bonus scheme as revised by it. As to the production bonus scheme, it was of the view that there were reasons for revising it and therefore revised (1)  L.L.J. 1247.

<NAME>

it, providing for 112 days' basic wage for each increase of 460 tons over 30,000 tons up to the limit of 36,000 tons and two days' basic wage for each increase of 460 tons in excess of 36,000 tons. It may be mentioned, however, that the change in the production bonus scheme was not made retrospective and would therefore come into force from after the judgment of <ORG>. The appeals of the workmen were therefore allowed in these two respects, which have led to the two appeals by the company be-fore us. The workmen through their union have also filed an appeal against those portions of the decision of <ORG> which rejected their demands. In the two appeals by the company two matters relating to

(i) production bonus and (ii) profit bonus have been raised before us. We shall first take up these two matters and then come to the appeal by the workmen.

The main contentions on behalf of the company with respect to the production bonus scheme are threefold, namely, (1)The Industrial Tribunal has no jurisdiction to go into the question of production bonus scheme at all, for such a scheme by its very nature can only be a matter of agreement between the employer and the employees and cannot be imposed by a tribunal;

(2)Even where a production bonus scheme is in force, its terms cannot be varied by a tribunal and any variation can only be the outcome of an agreement between the employer and the employees, because initiation or introduction of such a scheme is what may be called a I management function'; and (3) Even if an industrial tribunal has the power to vary the production bonus scheme, no material was placed on the record in this case on the basis of which the tribunal could order a variation in the scheme in force in the company. As to the award of profit bonus for the year 1951-52 the attack was two-fold, namely, (4)It was not open to a tribunal to award both production bonus and profit bonus and in any case it could not be done in the present case as the production bonus here was nothing more than profit bonus; and (5) Even if both production bonus and profit bonus could be awarded, there was no available surplus in this case out of which profit bonus for that year could be paid. Re. (1).

Before we go into the question of jurisdiction of a tribunal under the Industrial Disputes Act , 1947, (hereinafter called the Act), we should like to consider what production bonus essentially is. The payment of production bonus depends upon production and is in addition to wages. In effect, it is an incentive to higher 'production and is in the nature of an incentive wage. -There are various plans prevalent in other countries for this purpose known as Incentive Wage Plans worked out on various bases, for example, Halsey Premium Plan, <ORG>, <ORG> and <ORG>; (see Labour Law by Smith, Second Edition, P. 723). The simplest of such plans is the straight piece-rate plan where payment is made according to each piece produced, subject in some cases to a guaranteed minimum wage for so many hours' work. But the straight piece-rate system cannot work where the finished product is the result of the co-operative effort of a large number of workers each doing a small part which contributes to the result. In such cases,, production bonus by tonnage produced, as in this case, is given. There is a base or standard above which extra payment is made for extra production in addition to the basic wage. Such a plan typically guarantees time wage up to the time represented by standard performance and gives workers a share in the savings represented by superior performance. But whatever may be the nature of the plan the payment in effect is an extra emoluments for extra effort put in by workmen over the standard that may be fixed. That is -the reason why all these plans are known as Incentive Wage Plans and generally speaking have little to do with profits. The extra -payment depends not on extra profits but on extra production. This extra payment calculated on the basis of extra production is in a case like the present where the payment is made after the annual production is known, in the nature of emoluments paid at the end of the year. Therefore generally speaking, payment of production bonus is nothing more nor less than a payment of further emoluments depending upon production as an incentive to the workmen to put in more than the standard performance. Production bonus in this case also is of this nature and is nothing more than additional emoluments paid as an incentive for higher production. We shall later consider the argument whether in this case the production bonus is anything other than profit bonus. It is enough to say at this stage that the bonus under the scheme in this case also depends essentially on production and therefore is in the nature of incentive wage.

Let us now turn to the question of jurisdiction of the tribunal under the Act to consider a production bonus scheme at all. The argument is that the introduction of a production bonus scheme is purely discretionary with the employer and no tribunal can impose such a scheme. Whether there should be increased production in a particular concern is a matter to be determined entirely by the employer and depends upon a consideration of so many complex factors, namely, the state of the market, the demand for the product, the range of prices, and so on. It is, therefore, entirely for the employer to introduce a production bonus scheme or not. There is good deal of force in the argument up to this point ; but the argument goes further and it is said that even after the scheme is introduced, it is for the same reasons in the discretion of the employer whether to continue it or not. Therefore, it is urged that the tribunal cannot have jurisdiction to consider a production bonus scheme at all, for the tribunal would then be doing something which the employer can set at naught by withdrawing the scheme or by nullifying the effect of the tribunal's order by so arranging that the production does not reach the level at which production bonus becomes payable, for example, by not providing enough raw material for the purpose. It is further urged that if it is entirely in the discretion of the employer to introduce or not to introduce a production bonus scheme, the fact that the employer introduces a scheme will not give jurisdiction to the tribunal to interfere with it in any way, for otherwise the tribunal would be compelling the employer in the guise of a revision of the scheme to do something which the tribunal could not initially do. Our attention in this connection was drawn to <ORG>, Howrah v. <NAME>; <ORG>, Shalimar, Howrah (1), where it was observed that though a production bonus scheme may be desirable in the interest of harmonious relationship between the employer and employees, there is no obligation on the part of the management to give production bonus and no decision had been brought to the notice of <ORG> holding that a scheme of production bonus was obligatory on the part of the company ; (see p. 504). We are-, however, not called upon to decide in this case whether a demand for the introduction of a production bonus scheme where there-was none before can be made a subject- matter of industrial dispute as defined in s. 2 (k) of the Act or whether a scheme of production bonus can for the first time be imposed on the employer by a tribunal under the Act. The problem that is before us is whether the tribunal tinder the Act will have jurisdiction to deal with a production bonus scheme in a concern where it has been introduced. The answer to this question depends upon the terms of the Act and not on the consideration whether the scheme can be initiated only by the employer in the first instance. In order that the tribunal may have jurisdiction all that is necessary is that an industrial dispute within the meaning of s. 2 (k) of the Act should exist or be apprehended and there should be a reference of such dispute by the appropriate government to the tribunal under s. 10 . Now ' industrial dispute' has been defined in very wide terms in s. 2 (k) and for our purpose it means any (1)..(1957) L.A.C. 496.

dispute or difference between the employers and workmen which is connected with the employment or non-employment or the terms of employment or with the conditions of labour, of any person. We have already held that the production bonus scheme in this case is an incentive wage plan and what is paid under the scheme over and above the basic wage is supplementary emolument depending upon annual production. A dispute arising about such an emolument clearly comes within the words " terms of employment ". As soon therefore as an employer introduces a production bonus scheme and the same is put in operation and the workmen accept it becomes a term of employment of the workmen working under him and any dispute with respect to such a term of employment is an industrial dispute and if it is referred to a tribunal under s. 10, as has been done in this case, it has jurisdiction under s. 15 to deal with it. The argument therefore on this head must be rejected and it must be held that the tribunal had jurisdiction under the Act to deal with the scheme of production bonus which had been introduced in this company and was in force at all material times.

Re. (2).

This brings us to the second question, namely, where a scheme of this kind is in force and there is a dispute with regard to its terms, what is the extent of the powers of a tribunal to deal with it. The argument is put in this way. The introduction and continuance of a production bonus scheme is one of the functions of management. Therefore, when a question of revision of such a scheme comes up before a tribunal, all that the tribunal should look into is whether this matter is an exclusive management function ? If it comes to the conclusion that it is an exclusive management function, it should not interfere with the details of the scheme, unless it also comes to the con- clusion that the employer is guilty of mala fides, victimization, fraud or unfair labour practice through the introduction or continuance of the scheme. It is said that even though the tribunal may have jurisdiction to consider such a scheme, it should refuse to interfere with it as soon as it comes to the conclusion that it is an exclusive management function and there is no question of mala fides, etc. We think it unnecessary for present purposes to embark on a discussion of what is and what is not an exclusive management function. Basically, everything connected with the management of an industrial concern is a management function, except the internal affairs of any union which may exist. The Act has made no distinction between what may be called exclusive management functions and others. It is also well settled that the tribunals tinder the Act have power to interfere with management functions falling within their purview in the interest of industrial peace and the Act was enacted with that object. Therefore, once it is conceded, as is the case here, that the tribunal has jurisdiction to entertain such an industrial dispute which comes within the terms of s. 2(k) we see no reason why the power of the tribunal to take into consideration an incentive wage plan like a production bonus scheme already introduced should be limited merely to the consideration of the question whether the employer's action is mala fide, etc. Where a production bonus scheme is in force and has become a term of employment, there is no reason why the tribunal should not have the power to vary its terms if circumstances justify it. Nor can the power of revision be denied to the tribunal in respect of a scheme actually introduced on the ground that the introduction of such a scheme was an exclusive management function and therefore it should be immune from being touched at all. Therefore, even assuming that the initiation of a production bonus scheme is an exclusive management function and the final decision with respect to its introduction rests initially with the manage- ment, the right of the tribunal to take into consideration such an initiated scheme (which has become a term of employment) and to revise it cannot for a moment be doubted under the Act. It is true that the tribunal will not lightly interfere with a scheme introduced by the management and accepted by the union. It is also true that the tribunal would only make a change in the rates for good and sufficient reasons. There can be no doubt, however, that the tribunal has jurisdiction under the Act to take into consideration a production bonus scheme which has been introduced and is in operation and in proper cases to revise it, and if necessary to change the rates and other conditions on which such bonus is payable. Our attention in this connection was drawn to <CITATION> (1), where the limits of the power of a tribunal to interfere with an order of dismissal were considered. That case is in our opinion of no help to the appellant. It was laid down there that undoubtedly the management of a concern had power to direct its own internal administration and discipline; but the power was not unlimited and when a dispute arose, <ORG> had the power to see whether the termination of services of a workman was justified and to give appropriate relief It was further laid down under what conditions <ORG> will interfere with the order of dismissal. On a parity of reasoning, <ORG> has the power under the Act to revise the production bonus scheme once it has been initiated. It will do so only for good and cogent reasons, such as a material change in method, product, tools, material, design, or production Conditions, or a saving in labour cost and the like, maintaining as far as possible the established relationship between earnings and effort and avoiding rates which will give results out of all proportion to the basic wage. We are therefore of opinion that the argument under this head must also be rejected.

Re. (3).

The main contention under this head is that there was no material before <ORG> to justify the increase in the rate which it ordered. We have already pointed out that the scheme put forward by the company was to pay a production bonus of 13 days' basic wage on a minimum production of 30,000 tons. Thereafter one day's basic wage was to (1)..[1958] S.C.R. 667.

be paid for every 460 tons produced up to the maximum of 36,000 tons, the rated capacity of the mills being then said to be over 36,000 tons. <ORG> has kept the minimum production at 30,000 tons with a bonus of 13 days' basic wage. Between 30,000 and 36,000 tons it has raised the rate to 1-1/2 days' basic wage for each increase-of 460 tons over 30,000 tons to the limit of 36,000 tons, and thereafter to two days' basic wage for each increase- of 460 tons in excess of 36,000 tons. It gave,, two reasons in support of this increase, namely, (i) that the great increase in production since the introduction of the scheme was attributable to a very considerable extent to the increase of efforts on the, part of labour and therefore a reasonable proportion of the increased _income on account of increased production should go to labour, and (ii) that one day's wage only as bonus for every 460 tons over 30,000 tons is not commensurate with the actual increase of income on that increased block of production. It is not clear to us what exactly <ORG> had in mind when it talked of the increase of income as a reason for increase in the rate. The question of increase in the rate has to be considered in two stages, namely, (i) the increase between 30,000 and 36,000 tons and (ii) the increase when production goes beyond 36,000 tons. It appears from what Mr. <NAME> said in his award of 1949 that the basic principle of the scheme, as it was put forward before him, was accepted by the union as satisfactory, meaning thereby that the union considered that 13 days' basic wage for a minimum production of 30,000 tons and one day's basic wage for every 460 tons beyond that upto 36,000 was fair to labour. It has been urged that there was no agreement between the workmen and the company in connection with this scheme. It does appear that all the terms, which were incorporated in the scheme communicated to labour in July 1950, were not initially evolved with the agreement of the union ; but so far as the rate of bonus was concerned that was accepted by the union as satisfactory. In the company's appeals, we are  concerned only with the rate. The question therefore is whether <ORG> was justified in changing this rate which was agreed to as satisfactory by the union up to a production of 36,000 tons. We are of opinion that in view of the agreement between the parties up to a production of 36,000 'tons there was no such material before <ORG> as would justify interference with the agreed rate. The intensification of labour must have been taken into account when the union agreed to the rate up to 36,000 tons, and there is nothing to show that since then there has been any change in the conditions to call for a change in the rate. The order of <ORG> so far as it relates to production up to 36,000 tons cannot be sustained, as no material was placed before it to warrant a change in that agreed rate.

Then we come to the rate after 36,000 tons. There the considerations in our view are different. The scheme only provided for a production of 36,000 tons. It is true that thereafter the production has gone up beyond 36,000, and the company has been paying the same flat rate of one day's basic wage for every 460 tons for the extra production and the workmen have been accepting that payment. At the same time there was no-collective acceptance by the union on behalf of the workmen of this rate being satisfactory or fair for production above 36,000 tons. Production went beyond 36,000 tons for the first time in 1951-52 and a dispute was raised in October 1953 by the workmen of <ORG> not very long after production for that year was known. There was no dispute as to the general revision of the rate by the workmen of Mill No. 2; but it was conceded on behalf of the company that the two mills must be treated on the same footing in this matter. The company therefore cannot say that <ORG> should not have interfered with the rate above 36,000 tons, because there was a collective agreement by the union on behalf of the Workmen and there was no material before it to change the rate even beyond 36,000 tons. Two reasons were given by <ORG> for the change it ordered. Of these the second is difficult to understand as it is not clearly or happily expressed, though the first reason, (namely, increased effort on the part of labour) would certainly apply when we consider production beyond 36,000 tons. It stands to reason that where the labour force is more or less the same, production beyond the original target of 36,000. tons would mean more intensification of effort by labour, for it is not in dispute that the working hours have remained the same. Other things being equal, the greater the production by the same labour force in the same space of time, there is bound to be more intensification of labour to achieve this result. This is certainly a matter which <ORG> could take into account in considering whether the rate after 36,000 tons should be raised. A comparison of figures of production and labour force employed between 1948 and 1952 (assuming other factors to be the same) would show that there must have been intensification of labour effort to got the increased production. In 1948, total labour force in the two mills was 5,860 (Exs. F & H). In 1952, it went up to 6,213, an increase of just over 6 per cent. Production on the other hand was 28,244 tons in 1948-49 while it was 37,738 tons in 1951-52, an increase of slightly above 33 per cent. So it is obvious that the increase in production is much more than the increase in labour force. It is true that in 1950 a new paper-making machine was substituted in one of the mills, and some bamboo-crushers and digesters were also added during this period and other large amounts spent on machinery, and that fact certainly accounts for a part of the increase. It is, however, not possible to ascertain, with anything like mathematical accuracy, as to how much of the increase in production is attributable to improved machinery and how much of it is referable to intensification of labour of the workmen. It-may nevertheless be taken as fairly certain that the increase in production is referable to a great extent to intensification of the efforts of the workmen, for there has been no appreciable increase in the labour force. We have not got the figures of labour force in the later years, though production has gone on increasing, till it is said it will reach 54,000 tons mark in 1958-59. It is apparent, therefore, that there must have been progressive intensification of labour as the production rose beyond 36,000 tons, and in the premises that was a circumstance which <ORG> was properly entitled to take into account when considering a change in the rate for production over 36,000 tons.

The second ground given by <ORG>, as we have said above, is not quite clear to us. Learned counsel for the workmen have, however, explained that what the <ORG> means is that as the production increases more and more the labour cost per ton goes down; and thus there is a saving in labour cost to the company and the workmen are entitled to share in this progressive saving of labour cost. The principle which is inherent in this explanation is in fact the basis of progressive increase in production bonus rates as production increases. This will be clear from an illustration, which we shall give just now. This illus- tration is based as nearly as possible on the conditions in these two mills with this difference that -we have taken round figures for facility of multiplication ; the result will be more or' less the same if actual figures are taken. For the purposes of this illustration, we shall assume that the labour force and other relevant factors remain constant. Let us start with a basic production of 30,000 tons with a labour force of 6,000 and an average wage of all kinds at Rs. 110/per menses (Ex. E). The total labour cost on this basis for 30,000 tons per year comes to 79.2 lacs, giving labour cost per ton as Rs. 264/-. Now, when production increases to 36,000 tons and a production bonus of Rs. 25/- per year (Ex. E) is added to the wage, labour cost for the extra production of 6000 tons comes to Rs. 1.5 lacs. The total labour cost, therefore, for 36,000 tons is 80.7 lacs, which works out to slightly above Rs. 224/- per ton. When production goes up to 42,000 tons, the labour cost increases by 3 lacs, giving a labour outlay of 82.2 lacs; this works out to just below Rs. 196 per ton. When production increases to 48,000 tons, the extra labour cost is 4.5 lacs, making a total of 83.7 lacs for 48,000 tons; thus the cost per ton is slightly above Rs. 174/-. When production goes up to 54,000 tons, labour cost increases by 6 lacs, giving a total cost of 85.2 lacs for 54,000 tons, which works out to just below Rs. 158/- per ton. When production reaches 60,000 tons, which is double the basic production, the additional sum paid to labour in bonus is 7.5 lacs and the total cost 86.7 lacs for 60,000 tons which works out to Rs. 144.5 per ton. This is on the basis of the production bonus above 36,000 tons being kept at the same rate at which it is provided in the scheme in this case. It will be clear, therefore, that as production increases (if other factors are the same, namely, labour force and machinery), there is a progressive increase in the saving of labour cost. This, in our opinion, makes out a clear case, where one is dealing with tonnage production bonus, for a progressive increase in the bonus. We know that in this case there has been an increase, but of a small order, in the labour force during the period of increased production; we also know that a new paper-making machine has been put in the place of an old one and new bamboo-crushers and digesters have been added ; and we know that during the period from April 1, 1948, to April 1, 1959, there has been a total outlay on machinery and plant, worth 223.94 lacs including the above. There is no doubt, therefore, that when production is expected to reach the figure of 54,000 tons in 1958.59, this outlay on machinery and plant must also have contributed to it. The increase in labour force, if any, after April 1, 1952, may also have made its contribution. But it appears to us that it is still valid to say that there is saving in labour cost which increases progressively as production goes up and labour can therefore legitimately claim a progressively higher rate. Therefore, though <ORG>'s second reason does not appear to have been clearly expressed, something like what we have said above must have been at the back of its mind when it decided to change the rate above 36,000 tons. There can be no doubt that the consideration we have set out above, will be valid to support the view taken by <ORG> that there should be a change in the rate, though it may not necessarily support the actual change ordered by it. We must not forget that there was no collective bargaining resulting in an agreement between the union and the company so far as production above 36,000 tons is concerned as was the case so far as production upto 36,000 tons went. A case has, therefore, been made out for a change in the rate when production goes above 36,000 tons. The next question is whether the flat rate of two days' basic wage for every 460 tons allowed by <ORG> can be supported. Usually, when tonnage production bonus is worked out, the rates progressively increase. We may in this connection refer to the illustration given in " Payment by Results " published by <ORG>, Geneva, at p. 102. We think, therefore, that though there is a case for increasing the rate when production goes above 36,000 tons, it should be on a progressively in- creasing system. The -present scheme, as we have pointed out earlier, was evolved as an admittedly rough basis which was thought to be equitable. Following the same rough basis and using the same block of 6,000 tons with slabs of 460 tons, we think that on the data available at present, it would be fair to give progressive rates for production from over 36,000 tons up to 60,000 tons. We need not go beyond this for the present, and if production increases beyond 60,000 tons, the matter can be gone into again. We consider, therefore, that the rate should be changed as follows for production over 36,000 tons:

1-1/4 days' basic wage on the same scale as is provided in the sebeme from 30,000 to 36,000 tons.1-1/2 days' basic wage on the same conditions as above. 1-3/4 days' basic wage -do-

(i) From over 36,000 tons to 42,000 tons.

(ii) From over 42,000 tons to 48,000 tons.

(iii) From over 48,000 tons to 54,000 tons.

(iv) From over 54,000 tons to 2 days' basic wage do 60,000 tons.

We therefore modify the change in the rate ordered by <ORG> as above.

Re. (4).

The contention under this head is that though this. scheme is called a production bonus scheme, in reality it is no more than a profit bonus scheme; and therefore, the workmen are not entitled to any profit bonus worked out on the Full Bench formula referred to above in addition to what they get under this production bonus scheme. In this connection reliance is placed particularly on clauses (14) and (18) of the scheme. Let us therefore determine the true nature of the scheme. The scheme is headed " Tonnage Production Bonus Scheme " and not a scheme for profit bonus based on the Full Bench formula. It is true that this nomenclature is not decisive but is nevertheless a factor which may properly be taken into consideration. The primary and basic object of the scheme, as given in el. (2), is to stimulate the interests and endeavors of the clerks and workers of the company in increasing the production of saleable paper and to ensure that the workers will get by way of incentive an increased return for their labour contributing to the benefits which would accrue from such increased productivity. This again shows that this is a production bonus scheme and nothing else. Then comes cl. (4), which lays down that upto a minimum of 30,000 tons the bonus would be 13 days' basic wage; thereafter there is increase of one day's basic wage for every 460 tons till the figure of 26 days' basic wage is reached for a total production of 36,000 tons. Here again there is no connection between profits and bonus that accrues under this clause. If, for example, pro- duction falls below the minimum of 30,000 tons, there will be no bonus at all under the scheme whatever may be the profits. This one circumstance clearly brings out the true nature of this scheme, namely, that it is a scheme of production bonus and not of profit bonus under the Full Bench formula. That formula had nothing to do with production. Bonus tinder that formula depended entirely on the available surplus of profits worked out in the manner provided therein. Then we come to clause (14). That clause lays down that the scheme will be subject to one most important general exception, namely, that the profit earning capacity of the company, irrespective of the volume of production of saleable paper, remains satisfactory during the financial year. Accordingly the clause prescribes that the directors may at their sole discretion either cancel altogether or reduce in scale of monetary payments the bonus in any one or more financial years in which the gross profit earned by the company over the whole financial year is not sufficient to meet fixed dividends and interest, depreciation charges and taxation and thereafter pay for the whole year dividend not less than 10 per cent. to the ordinary shareholders of the company. It is said that this makes the scheme a profit bonus scheme. We are unable to agree with this contention. It is true that the scale of payment is likely to go down or there may even be no payment of bonus at all in the circumstances mentioned in cl. (14). But the circumstances mentioned there are admittedly not the same which have to be taken into account in arriving at the available surplus according to the Full Bench Formula. Clause (14) appears to us to be just one condition upon which the payment of production bonus would depend, like some other clauses in the scheme. For example, cl. (5) seems to provide that workers who work for less than half the total number of working days in the financial year for which bonus is being paid, shall not get any bonus, for it only makes those workers who work for more than half the total number of working days, worked out according to other rules, entitled to bonus. Clause (6) says that certain kinds of workers will not be entitled to bonus, namely, Bungalow servants, Budli clerks or workers, temporary clerks or workers, casual workers or clerks. It also provides that any person guilty of any major misdemeanour may at the sole discretion of the Mill Manager or the Cost Accountant not be given this bonus either in part or in whole as a punishment, and that this would be done after taking proceedings in writing for the purpose. Clause (7) provides another condition as to what service will count towards earning bonus and what will not; for example, leave on full or part pay shall count as bonus service while leave without pay will not count as Qualifying service towards bonus. Again cl. (8) lays down that a worker will be entitled to the maximum bonus if he works for all the working days during the financial year, for which the bonus is declared. Clause (9) then provides how the maximum bonus can be reduced, if a worker does not work for all the working days. Clause (14) therefore is also another clause which may either lead to no payment of bonus or less payment than prescribed under cl. (4). Further the fact that this is not a profit bonus scheme but a production bonus scheme will also be clear from what cl. (14) actually provides. It says that if the conditions mentioned in it are not fulfilled, the workers would riot be entitled to bonus or may get less. This means that if the conditions are fulfilled, workers would be entitled to bonus. Now, suppose, that the gross profit in a year is sufficient to meet fixed dividends and interest, depreciation charges and taxation and 10 percent. dividend to the ordinary shareholders. Theereafter the balance of profit left is Only (let us say) Rs. 5/-. But as the conditions of cl. (14) are fulfilled, the workers would be entitled to production bonus, though the amount of Rs. 5/- which remains, cannot possibly meet the claim of bonus. It is clear therefore that this bonus scheme is not the same as the profit bonus worked out under the Full -Bench formula and it cannot be called a profit bonus scheme even other- wise. This is nothing more nor less than a pure production bonus scheme based on tonnage, depending on certain conditions one of which is related to profits also. The nature of this bonus, therefore, in our opinion, is entirely different from the nature of profit bonus under the Fall Bench formula and we do not see why if there is an available surplus of profits  according to the Pull Bench formula, the workmen should not get profit bonus in accordance with that formula. The two things, in our opinion, are different. Under the scheme what the workers get is a supplementary emolument worked out on certain basis. Under the Full Bench formula, what they get is something out of the profits, if there is an available surplus on the ground that both capital and labour contribute to the accrual of profits and it is only-fair that labour should get a part of it.

In this connection our attention was drawn to <CITATION> (1), where it was observed that " one of the categories of bonus is described as " incentive bonus ". The name indicates that it is given as a cash incentive to greater effort on the part of the labour. But the essential condition for the payment of incentive bonus just like any other kind of bonus, is that the industry concerned must earn profits part of which is due to the contribution which the workmen made in increasing production." That was not a case of production bonus at all. The bonus dealt with there was included in an agreement between the government and its contractors in a contract relating to clearing and transporting of imported foodgrains. It was provided that if the rate of discharge from a ship exceeded 1,500 tons per 24 hours and no shed demurrage was incurred, the government would pay to the contractors remuneration at the prescribed rates plus a bonus of <ORG> four per ton. The workmen employed by the contractors claimed that this bonus should be given to them. That claim was negatived on the ground that the workers could not claim, on the terms of the contract, that the bonus of <ORG> four-per ton was payable to them. These observations made in a different setting have therefore no relevance in the context of the production bonus scheme with which we are dealing here and which has become a term of employment of the workmen.

As for el. (18), it provides that if during the currency of three years for which the scheme was to (1)..A.I.R. 1958 S.C. 899.

remain in force in the first instance, the government en- forced by legislation any scheme or provision for bonus or profit sharing, the company may decide to cancel or modify the scheme in its entirety. It is urged that this shows that the scheme was one for profit sharing or profit bonus, because it was likely to be cancelled or modified if legislation was introduced with respect to these. It may be that the scheme might have been cancelled or modified if such legislation was passed. But that does not mean that the scheme itself provided for profit sharing or profit bonus. It is one thing to cancel or modify a scheme because the legislature steps in to provide for extra payment for workmen. But the nature of the provision of law, which was then expected, cannot be imposed on this scheme, which must be judged on its own terms; these leave no doubt that it is not a profit bonus scheme but an incentive wage plan depending upon production in the main. The contention therefore that the bonus under the scheme is a profit bonus and therefore the workmen are not entitled to the profit bonus under the Full Bench formula must fail. Re. (5).

The contention under this head is that even if profit bonus is payable in addition to production bonus, there was no available surplus of profits to justify <ORG> in granting one month's bonus. The workmen had asked for two month's bonus; but <ORG> after working out the available surplus on the basis of the Full Bench formula granted them one month's bonus. The Full Bench formula was evolved in 1950 in connection with a case relating to the textile industry and has been since then generally applied to many- other industries. The necessity for evolving that formula arose in this way: When prices. are stable or falling, there is no necessity of making further provision for rehabilitation for the usual depreciation, provided for the purposes of the Income-tax Act , is sufficient to build up a fund for replacement of plant and machinery when they are worn out; but when prices are rising the usual depreciation fund is not enough to replace plant and machinery which become useless. This was particularly so after the end of the last war, when the question of replacing machinery purchased before the war, i.e., before 1939, came up before the Full Bench of <ORG> in 1950. In order, therefore, to meet this particular situation arising out of a steep rise in prices, the Full Bench formula was evolved to provide for a further sum for rehabilitation out of the profits besides the statutory depreciation. This was on a notional basis and depended upon a multiplier which was used to find out the current prices of machinery to be replaced and a divisor based on the useful life of the machinery to find out what sum should be provided each year for what was called rehabilitation. In order, however, that this sum nationally provided for rehabilitation each year has a realistic connection with the amount in fact necessary for the purpose, it is, in our opinion, necessary that what is known as the total block of a concern including land, buildings, plant and machinery, should be properly sub-divided, as otherwise a flat multiplier at the same rate for the total block might not give an accurate amount to be provided for rehabilitation. It is, therefore, necessary in order to arrive at an approximately realistic figure for rehabilitation that the total block should be divided into three heads, namely, (i) land, (ii) buildings, railway sidings and things of that nature which have a much longer life and where imports are not needed, and (iii) machinery. In the case of land, no replacement is necessary and therefore nothing need be provided for rehabilitation under this head. Even where land is leasehold and the lease is expiring, any payment for renewal of lease will be an expense and need not enter into calculations for rehabilitation. Further if there are buildings belonging to the concern on leasehold land, their rehabilitation charge be will allowable under the head buildings. In the case of building,-,, railway sidings etc., the multiplier will be smaller while the divisor will be larger. As for machinery, there is again the necessity of further sub-division, according to when the machinery was purchased. The machinery purchased before the last war stands on one footing and thus there will be a block of machinery which may be know as pre-1939. The second block of machinery may well be that purchased during the war and the last block that purchased after the war. The last two are not rigid divisions; but they indicate that machinery has to be divided into blocks according to years of purchase to arrive at a correct multiplier and a correct divisor.

Bearing these principles in mind, let us see how the Full Bench formula works in this case. We may mention that there is no dispute in this case as to the components of the formula, the only dispute being confined to its actual application. The company claimed a multiplier of 4.5 and a divisor of 10, and on that basis gave a chart showing a deficit of 112 lacs in the amount required for rehabilitation for 1951-52. Another chart was also filed by the company in which the multiplier was taken as 3.5 and the divisor as 10, and the deficit was worked out at 65 lacs. What the company did was to take the total block consisting of land, buildings, railway sidings and machinery, valued at 468 lacs and multiply it by 4.5 or 3.5, making no distinction between land, buildings and railway sidings, and machinery. The divisor was also taken as 10, making no distinction again between these three categories, and further making no distinction between the machinery purchased before 1939, during the last war and after the last war. This, in our opinion, was a completely unrealistic way of working out the amount required for rehabilitation, and that is why the company was able to show in its charts such a large deficit.

<ORG> did not accept these charts. It left out of account land altogether, and rightly so. As for buildings, it applied a different multiplier and a different divisor, and so far as that is concerned no dispute has been raised before us. As for machinery, consisting of plant, machinery, bamboo forest block, furniture, flotilla and vehicles, it divided the block for this purpose into two parts, namely, the block as it existed on April 1, 1947, and the additions made between April 1, 1947, to March 31, 1951. It applied a multiplier of 3 so far as the block upto April 1, 1947, was concerned and took the block of additions after 1-4-1947 at cost price, thus using one as multiplier. It is not clear why <ORG> did not include the additions made in 1951-52. <ORG> also accepted the divisor 10 for all this plant, machinery, etc., and made no difference between the useful life of the machinery purchased at different times. Eventually, after making the relevant calculations, it came to the conclusion that there was an available surplus of profits amounting to 22 lacs. It, therefore, awarded one month's profit bonus on basic normal wage.

It is contended on behalf of the company that evidence had been produced on its behalf to show that the prices of machinery had appreciated 4-1/2 times as compared to the prices in 1939, and therefore, the multiplier of 4.5 should have been allowed at least on the block of machinery up to 1939. Thereafter it is claimed that some multiplier above one should be given for the block 1939-1947 and also for the block 1947-51. It is further contended that the additions made in 1951-52 should also have been taken into account. It may be mentioned that <ORG> which evolved the Full Bench formula in 1950 had used the multiplier 2.7 in that case for prewar block and that multiplier has been used since then in many other cases. it is, however, contended on behalf of the company that multiplier is not sacrosanct, and if in fact there has been a greater rise in price, there is no reason why a higher multiplier should not be used. It may be accepted that if an employer is able to prove that in fact there has been a greater rise in price, he should be given a higher multiplier. But there has to be good proof tendered by the employer for the multiplier which he claims. Let us see, therefore, what proof the company has tendered in this case for a multipler of 4.5 for the block upto April 1, 1939. In its written-statement the company said that it was a known fact that the price of plant and machinery had increased by 300 per cent. to 400 percent. since before the war. At that stage there was no claim that the price had increased 4-1/2 times after April 1, 1939. The company's claim, therefore, as put in the written-statement, was for a maximum multiplier of 4 for the block upto April 1, 1939. In the evidence of Mr. <NAME>, who appeared as a witness for the company, however, claim was made that prices had gone up by 4-1/2 times. This was based on Ex. D produced by the company which was compiled on the basis of inquiries about certain machinery from certain firms and copies of the correspondence with the firms were also produced. Nineteen items were mentioned in Ex. D and the average multiplier was worked out as 4.56. Among the items listed in Ex. D were motors, beaters, machine drive, paper-making machine, turbo-alternator, couch roll, bamboo-crushers, bamboo-digesters, boiler, circular tanks and three roaster smelter units. The total price of these items was 19 lacs, (we have converted pounds into rupees for this purpose). Besides these, there are other items, like steam piping., steam tee, galvanized bend and steam bends, which are probably required in large quantities and the price per foot or per piece has been mentioned. The correspondence which was attached to Ex. D consists of four letters, one of September 1954 and three of June 1955, relating to one paper-making machine similar to one installed in Mill No. 2, a turbo-alternator similar to one installed in Mill No. 1, a machine drive similar to one installed in Mill No. I and a boiler similar to one installed in Mill No. 1. Now, the cost of machinery block as at April 1, 1939, was of the order of 153 lacs while Ex. D only deals with machinery of the value of 19 lacs as mentioned above. Mr. <NAME> did not say in his evidence that Ex. D was a sample and that other machines were of the same type as mentioned in Ex. D or that the prices of other machinery bad gone up similarly or to the same extent. Exs. D- 1 to D-4 indicate that the price of one out of ten paper- making machines was ascertained and nothing was ascertained about nine others. Similarly prices of one turbo-alternator, one machine drive and one boiler of Mill No. I were ascertained. We do not know how many more such machines are in the two mills; nor do we know that the increase in prices of these types of machines is also four and a half times. In the circumstances, we feel that the company has failed to provide sufficient material on the basis of which it can claim 4.5 as the multiplier. It is the company which is claiming that a certain multiplier be used for calculating rehabilitation reserve, and it was its duty to produce good and sufficient evidence as to the correct multiplier if it wants that multiplier to be used. We cannot also forget that in its written-statement the company only claimed a rise of 300 per cent. to 400 per cent. on prewar price. In the circumstances, the tribunal was not unjustified in not giving the multiplier of 4.5. We also feel that in these circumstances we shall not be justified in giving the company a multiplier higher than 4, for that was the maximum claim it had put forward in its written-statement. We should, however, like to make it clear that though we are using the multiplier 4 for the block as at April 1, 1939, this should not be taken to be a precedent for future years, even for this company, and it will be open to either party to adduce proper evidence to show what the exact multiplier should be for this block, whether more than 4 or less.

Then we come to the block from April 1, 1939 to March 31, 1947. The <ORG> gave the multiplier 3 for this block also. But that was because it gave the same multiplier for the entire block as at 1947, including the prewar block. As, however, we are giving a multiplier of 4 for the prewar block, the multiplier 3 for the block April 1, 1939 to March 31, 1947, can only be justified, if the company has proved that was the rise in the prices after 1939. So far as that is concerned, the company did not produce any evidence before the Industrial <ORG>. It seems, however, that certain documents were produced before the Appellate <ORG> on June 12, 1956, when the appeals were ready for argument. The order-sheet of June 12, 1956, shows that the Appellate <ORG> allowed four statements regarding certain machines given by different, firms to be admitted into evidence. Learned counsel for the workmen object to our looking into these statements on the ground that they never knew that any such statements had been filed at the last moment before the Appellate <ORG> and nobody seems to have relied on these statements before the Appellate <ORG> and the judgment also makes no mention of them. There seems to be a good deal of force in these contentions. However, looking at these statements, which have been taken on record, we find that they relate to ten items. Four of them are of the years 1945-48 and the increase of price varies from 60 per cent. to 75 per cent. Two are of 1950 and the increase varies from 15 per cent. to 50 per cent., three are of 1951 and the increase varies from 99.5 per cent. to 116 per cent., and one is of 1954 and the increase is 60 per cent. The increased price is as of 1956. Even taking these documents into account, we feel that the company cannot ask for a multiplier higher than 2 for the block between 1939-1947. But even this will not be taken as a precedent for future and it will be open to either party to give better evidence in order to vary this multiplier one way or the other.

As for the block after 1947, it appears that the company added machinery to the tune of 87 lacs between April 1, 1949 and March 31, 1952, while the prices quoted for the years 1950 and 1951 in these documents were only of machines worth 5 lacs. We do not know whether this machinery is of the same kind as that mentioned in these documents. They cannot, therefore, be a guide for arriving at any multiplier higher than one for this period relating to this block of 87 lacs. Here again we should like to make it clear that if in future years better evidence is produced, the question of giving a multiplier higher than I for this block can be considered.

This disposes of the multipliers on the blocks of machines divided into three periods. We now come to the divisor. Both the <ORG> have accepted 10  as the divisor on the evidence of Mr. <NAME>. We must say that it looks odd to us that there should be the same divisor for pre 1939 machinery, and post-1939-but-pre-1947 machinery, and post-1947-but-pre1952 machinery. It stands to reason that newer the machinery the larger must be the divisor for the newer machinery would have a longer useful life. However, as both the <ORG> have accepted to as the divisor for the entire machinery in this case, we shall also have to accept it; but we should like to make it clear that this should also not be taken as a precedent for future years and it will be open to either party to show that the divisor should be different, whether more or less than 10, for various blocks of machinery relating to the three periods.

Let us now work out the figures on the basis of the above considerations. We have taken the basic figures as supplied to us by the learned counsel for the company : REHABILITATIONCOST In lacsIn lacs of.Rs.of Rs.

(a) Plant & machinery as153.43 x4 = 613.72 at 1-4-1939:

Machinery added between22.41 x2 = 44.82 1-4-1939 and 31-3-1947:

Additions between 87.27 x 1 = 87.27 1-4-1947 and 31-3-1952:

Total745.81 Less 5% breakdown value...13.15 Balance732.66 Less depreciation upto 31-3-1951176.03 Balance556.63 Less Reserves-

General Reserve25.49 Plant Replacement67.9893.47 Balance463.16 Dividing by 10.46.31

(b) Buildings:

Value of building 42.85 x 2.596.41 as at 31-3-47:

Additions between 21.1921.19 1-4-47 and 31-3-52:

Total 117.60 Less 5% breakdown 3.20 Balance 114.40 Less depreciation upto 47.21 31-3-1951:

Balance 67.19 Dividing by 27 2.48 Rehabilitation for- (a) Plant & Machinery 46.31 (b)Building 2.48 Total...48.79 Less depreciation for 1951-52. 16.50 Balance 32.29

Rehabilitation Amount for 1951-52:32.29 Rehabilitation amount for 1951-52 thus comes to 32.29 lacs. In the charts supplied by the company the net profits after deducting prior charges other than rehabilitation cost were worked out air 36.09 lacs. We find, however, that there is one mistake in this calculation inasmuch as 76.3 lacs have been included in working capital, though this 'was merely a book entry and there was no cash corresponding to it. 4 per cent. interest was allowed on working capital and this would mean that the net profits should increase by 3.05 lacs as that interest was allowed extra in the company's chart before <ORG>. Thus the amount of net profits available, before the allowance of rehabilitation charges, comes to 39.14 lacs (36.09 + 3.05). Deducting 32.29 lacs we arrive at the available surplus of profits amounting to 6.85 lacs (39.14-32.29), which is to be distributed equitably between the three sharers mentioned in the very decision of <ORG> which evolved the formula. The total cost of one month's bonus on basic wages allowed by <ORG> is about 3 lacs. Taking all the circumstances of this case into consideration we do not think that any case has been made out for interference with this order of <ORG>. We may point out that we have not taken into account bamboo- mills and grass-block for reasons given by <ORG>, which commend themselves to us. This brings us to the appeal by the workmen. Only three points have been urged before us out of the many taken in the grounds of appeal, and we shall deal only with these three. They are-

(i)..The minimum basic wage should have been raised from Rs. 30 to Rs. 35;

(ii).Clerical staff as well as <ORG> and temporary workers should have been included in the attendance bonus scheme; and

(iii).....Profit bonus should have been allowed at two months' basic wages for 1951-52 instead of one month's. Re. (i).

Both the Tribunals have rejected the claim for raising the basic wage on the principle of " Industrycum-Region Rate of Basic Wages ". The workmen relied on the wages paid in <ORG> at Raniganj, which is also a paper- making concern. The minimum basic wage there is Rs. 38-3, dearness allowance Rs. 35 and the incentive wage is said to work out to Rs. 7-5-6 per mensem, making the total Rs. 80-8-

6. In the present company, minimum basic wave is Rs. 30; dearness allowance is Rs. 35; house allowance is Rs. 2; attendance bonus works out to Rs. 8 and production bonus is about Rs. 3, making a total of Rs. 78. It will thus be seen that the difference is not great. Further, if the production bonus and incentive wage are not taken into account, the present company pays Rs. 75 per mensem while the Raniganj company pays Rs. 73-3. In the circumstances, we see no reason for interfering with the concurrent order of the two <ORG>.

Re. (ii).

The <ORG> rejected the claim for extending the attendance bonus scheme to clerical staff, budli workers and temporary workers. They were of the view that these workmen stand on a different footing. For the clerical staff the reason given was that they enjoyed the advantage of the incremental scales which were till then denied to other categories of mill hands for whose benefit the attendance bonus scheme was introduced. As for the budli and temporary workers, the <ORG> said that the scheme could not be applied to them on account of uncertainty of the tenure of their service. So far as the budli and temporary workers are concerned, the reason given by the <ORG> for treating them differently appears to us to justify their being excluded. As to clerical staff, it appears from the correspondence which ensued between the union and the company on the introduction of attendance bonus scheme that the scheme was introduced primarily in connection with the installation of a time keeping office. The clerks are obviously in a different category from the workmen engaged in actual production. In the circumstances, apart from the considerations which were considered by the two <ORG>, there is, in our opinion, justification for treating clerks in a different way from other workmen. The company also told the union that so far as they knew no scheme of attendance bonus had ever been applied to clerks, probably because absenteeism among clerks is not so great as among other workmen. We see no reason, therefore, to disturb the concurrent finding of the two <ORG> in this matter. Re. (iii).

We have already worked out above the available surplus of profits, from which profit bonus can be given, The amount of available surplus comes to 6.85 lacs and one month's basic wages, which have been allowed as profit bonus, come to about 3 lacs. The percentage therefore is already sufficiently high and if profit bonus is allowed at the rate of two months' basic wages it will come to about 6 lacs and would be more or less equal to the entire available surplus. It is well settled that the available surplus has to be divided in a fair manner between the industry, the shareholders and the workmen. We cannot forget that the workmen have also got production bonus for this Year. In the circumstances, there is no scope for grant of any further profit bonus beyond that allowed by <ORG>.

We, therefore, partly allow the appeals of the company and vary the production bonus rate in the <ORG> indicated above. We dismiss the appeals of the company with respect to profit bonus. We also dismiss the appeal of the workmen. In view of the fact that the parties have partly succeeded and partly failed, we order them to bear their own costs of this court in all the appeals.

Appeals Nos. 450 and 451 allowed in part.

Appeal No. 514 dismissed.


<NAME>, J.

1. On the 18th of September 1913, <ORG>, the plaintiffs in this suit, entered into a contract with <ORG>, for the purchase and sale of certain bales of yarn. <ORG>, the defendants in the suit, signed a memorandum of sale which contains a number of printed terms, while the number of bales, the price, the method and time of delivery are entered in manuscript. The memorandum of sale was confirmed on behalf of the plaintiffs by a letter of the same date signed by the agents No. 1 of the printed terms is as follows :-

We (i.e. the defendants) agree to pay for the bales in advance at the time of taking delivery order for the bales, and to take delivery of them from time to time as they are ready (the date of the bales that are ready to be ascertained by us by inquiring at the Company's office), but if we fan to take delivery of the bales as stipulated, we agree to pay interest at the rate of 12 annas percent per mensem, on the purchase money on such bales as are ready.

2. If we fail to take delivery of the bales at the stipulated time, we agree to pay rent to the Company for the bales lying on our account in the Company's godowns at the rate of one quarter anna per bale per day.

3. If we fail to take delivery of the bales as stipulated and if the Company wish to keep them no longer on their hands, they are at perfect liberty to resell them on our account and risk by public auction or by private sale, and we hereby agree to make good to the Company any loss that they may suffer by the resale. In case of such resale we further agree that the Company shall also have the right to annul the whole contract, or a part thereof respecting the remaining bales that are to be manufactured, and claim from us any damage whatever they may sustain.

2. The terms of delivery are in manuscript :

200 Bales No. 20s and 20 1/2s Ring October-November 1913 and 50 Bales No: 6 1/2s Mule yarn as manufactured.

3. I am not concerned with 50 bales 6 1/2s. But the plaintiffs claim in this suit that the defendants failed to take delivery of 34 bales of 20s and 58 bales of 20 1/2s so that they were compelled under Clause 3 to sell the bales by auction and they now sue for the difference between the contract price and the price realised at the auction.

4. The first question is as regards the construction of the contract. That is an extremely difficult matter as the printed terms do not tit in with the manuscript terms as far as 200 bales of 20s and 20 1/2s are concerned. It is in evidence that generally the <ORG> contract to sell goods as manufactured, and it appears that the printed terms had been framed only with reference to the contracts for sale of goods as manufactured. But even then the terms of the contract would seem to be uncertain. As there is no obligation on the <ORG> to manufacture goods for a particular purchaser, they might put him off to an indefinite time by saying they were manufacturing for somebody else. But it seems from the evidence that the usual practice is to have a number of contracts on hand if they can make them on favourable terms, and that the <ORG> continue to spin yarn according to their ordinary production, while the purchasers under their various contracts come and ask for delivery and delivery is given according to the stocks in hand at the time; and apparently, provided no crisis in the market intervenes, this somewhat nebulous practice is satisfactory to both the parties. When, as in this case, a particular month for giving delivery is mentioned in the contract, it seems obvious that difficulties may arise regarding the interpretation of the first three clauses of the contract. Usually when delivery is to be given for certain months on an instalment contract the contract states how many bales or what quantity is to be delivered in each month, and the purchaser may not come on the last day and demand delivery of all that he had contracted to purchase. I must take it that, looking at the plain meaning of the contract, the Court can only consider the parties to have intended, when they signed that contract, that delivery should be asked for and given during October-November of two-hundred bales, delivery being asked for of reasonable quantities at a time during the period of delivery. It has now been proved on the evidence for the plaintiffs that no delivery was asked for by the defendants during October-November and no goods were manufactured by the plaintiff's against this contract. It was not pleaded in the written statement that delivery had been asked for during October-November and that therefore the plaintiffs had committed a breach by not giving delivery. Therefore, I disallowed any evidence from the defendants to the effect that they had asked for delivery during Ootober-November. But it appears that, on the 3rd of December, five bales of 20s were delivered to the defendants. Those bales not being manufactured against the contract were delivered out of the stock at the <ORG>. Exhibit No. 3 is the daily report of 4th December 1913 and that shows that the plaintiffs were not spinning against the defendants' contract for the report merely records that they had no bales on hand on behalf of the defendants but shows a reduction of five bales in the column "Bales to be made" under the defendants' contract. And so from January until the beginning of July the defendants took delivery by small quantities at a time of sixty-six bales of 20s and 42 bales of 20 1/2s paying for them at the rates mentioned in the contract. Then I have no doubt that if ordinary circumstances had continued they would have gone on taking delivery of the remaining bales. But in July prices declined owing to the critical situation in Europe. Not only the defendants but also the other purchasers from the <ORG> practically stopped taking delivery. During August and September the <ORG> only delivered ten bales of 20s and no bales of 20 1/2s. On the 19th of January 1914 the plaintiffs had written to the defendants:

We regret to find that you have up to now taken delivery of only 10 bales of yarn from the above contract, though the term of the contract is for delivery October-November 1st. Kindly therefore arrange to take immediate delivery of same, failing which we shall be obliged to charge you interest, godown rent, and fire insurance on the number of bales that may be ready on your account of which please take note.

5. I will presume that when the plaintiffs asked the defendants to "arrange to take immediate delivery of same," they meant to say "arrange to continue taking delivery from time to time according to the usual practice," as the last part of the sentence shows admittedly that they were not prepared to give immediate delivery of the balance of the bales under the contract. On the 9th of July, they wrote to the defendants in very much the same terms asking them to arrange to take immediate delivery of ninety-two bales that were remaining. Unfortunately the defendants did not reply to either of those letters. Nothing further was done until the 6th of October 1914 when the plaintiffs through their solicitors told the defendants that though they were unwilling to press them hard in those difficult times to take delivery of the ninety-two bales which had been lying undelivered for a long time they could not wait indefinitely for their convenience, and therefore they insisted upon knowing when the defendants proposed to take delivery of them and in the meantime whether they were prepared to pay some margin in respect of the goods. There were no deliveries during August and September; so that by the 6th of October the plaintiffs had been running into stock and had sufficient bales on hand to complete their contract with the defendants. The defendants sent no reply to that letter. On the 18th of January 1915, the plaintiffs' solicitors gave notice that if they did not hear by the 25th they would resell the goods on defendants' account by public auction. On the 10th of February, the goods were sold by auction realising Rs. 9,951-1-6 against the contract price of Rs. 14,946-1-6 leaving a difference of Rs. 4,995. The plaintiffs made a demand for this difference together with interest from the 1st of September 1914 to the 10th of February 1915 and <ORG> and fire insurance making a total of Rs. 5,851-6-3 on the 16th of February 1915. On the 19th of February 1915 the defendants for the first time committed themselves to writing through their solicitors as follows:-

You are aware that the term of the contract was for delivery in October November 1913. Our clients were always ready and willing to take delivery of the bales, but as the goods were not ready your clients were not in a position bo give delivery to our clients. It was only when the yarn market went down on account of the war your clients thought fit to manufacture the goods and called upon our clients to take delivery. Our clients were not bound to do so and repudiate their liability in the matter.

6. Now the plaintiffs claim clearly proceeds on the basis that the contract of the 18th of September 1913 remained in existence although as a matter of fact nothing was done under it during the contract period. If that is correct the plaintiffs can only succeed if the terms of the contract had clearly been altered by mutual consent. There is no evidence to show that this was done. After the end of November they may have considered that the contract remained in existence as altered by them, but the <ORG> cannot say what was the altered contract. I think the proper view to take in this case is that this is a mercantile contract, and the <ORG> can only read it according to the plain intention of the words in the written contract. Then, as the parties did nothing under the contract within the contract period, the written contract thereby came to an end. It was open to the parties to make a new contract on the basis of the old one by extending the period. But then the terms of the new contract must be certain before the <ORG> can give any effect to them. It is impossible from the evidence for the <ORG> to decide what were the obligations of the parties after the end of November. Within what period was delivery to be taken? Were the plaintiffs bound to have goods ready so that the whole contract could be completed ? Were the defendants bound to ask for delivery ? To all these questions no answers can be derived from the evidence; and so I think it must be taken that whenever after the end of November the defendants asked for delivery it was optional to the plaintiffs to give them delivery, and if they chose to give them delivery at the rates mentioned in the previous contract, that was a separate transaction; and the <ORG> cannot imply from the plaintiffs having given delivery of five bales on the 3rd of December to the defendants, that the parties had entered into a new contract whereby the plaintiffs agreed to give delivery to the defendants of the remaining one hundred and ninety-five bales according as the defendants should choose to ask for them. Otherwise a very extraordinary state of affairs would result. Both parties would be sitting on the fence. If the market went against the defendants no one could say what their obligations as regards taking delivery were. If the market went against the plaintiffs no one could say what their obligations were as regards giving delivery. And I think one may be justified in saying that if after July the market had risen above the contract prices it would have been open to the plaintiffs to say that the contract was at an end just as now it is open to the defendants to say as the market has gone against them they are not obliged to proceed with taking further delivery. On the 9th of July, the plaintiffs had as a matter of fact only eighteen baies of 20 1/2s in stock, no bales of 20s. They had other contracts on hand for sale of yarn. If business had been good, they would not have run into stock as they did by the beginning of October, and as a matter of fact on account of prices going down they found themselves with sufficient yarn on hand to cover the balance of the two hundred bales. It would be very strange although the plaintiffs were not ready to fulfil their contract in July that they should be entitled to continue to spin yarn, not against any particular contract and not against the defendants contracts, but simply because they had to keep the spindles running; and then, after the further lapse of four months to sell these ninety-two bales by auction and call upon the defendants to pay the difference. In my opinion, therefore, the claim for damages must fail.

7. There was a further question whether the plaintiffs had appropriated the ninety-two bales before the auction sale. Evidence of the Mill Manager and godown-keeper has been given to show that instructions were given to the godown-keeper to separate the ninety-two bales before the auction, and it may be necessary for me to say that I cannot disbelieve that evidence. Although there is no written record of it, it certainly was advisable that the goods should be appropriated to the contract before the auction sale as otherwise it would be open for the plaintiffs to sell ninety-two bales out of the larger quantity which was stacked together in their godown. But, as I have already stated, I am really doubtful that in any event the <NAME> were justified in their foundation for a claim for damages if they could not prove these goods had been manufactured for the defendants. It hardly seems fair that they should be entitled to manufacture goods without appropriating them and be at liberty to sell them, according as it might be profitable to them to any purchaser up to the last moment, and then before the auction separate them, and say that those were the goods intended to be delivered to the defendants. In the alternative, if the plaintiffs' case had succeeded, it might be a question whether they would be entitled to the difference between the contract prices and the prices in July 1914 or prices in October. Again, there would be another question, whether they would be entitled to the difference on thirty-one bales which they had in their godown on the 9th of July, or on the total amount of ninety-two bales which they had in stock by the 6th of October. But under my findings on the issues, I do not think it is necessary for me to answer those questions. The defendants will get their costs of the action.


JUDGMENT <NAME>, J.

1. This is a vendors' suit in respect of fifty-two bales of yarn being the balance of one hundred bales sold to the defendants on the 13th September 1920, of which seventy-five were for ready and twenty-five for September delivery. The defendants pleaded that the plaintiffs were unable to give delivery of this balance, and that consequently the contracts were cancelled. This defence was abandoned at the trial, and the breach of contract admitted.

2. The only remaining question, therefore, is the measure of damages, but this gives rise to questions of some nicety which have been well argued on both sides.

3. Turning to the facts, in my judgment the property in the goods did not pass to the defendants. At the date of sale the plaintiffs had two hundred bales in their godown, and though one hundred were delivered the next day to another party, I think there was no appropriation of the suit fifty-two bales to the suit contract, and no assent by the defendants to any such appropriation. The case of <NAME> v. <NAME> [1919] 1 K.B. 459, on which the plaintiffs relied, is, I think, clearly distinguishable, for there a delivery order was sent and also a letter pointing out where the goods were. On the above finding, it follows that the plaintiffs cannot rely on the auction sale in March 1921.

4. Is then the date of breach in September or October as the defendants contend, or the 28th or 18th January as the plaintiffs contend ? Deliveries were taken and paid for by defendants as under :-

17th September, 24 bales, 4th October, 12 " 21st October, 12 " ________ Total 48 bales leaving a balance of fifty-two.

Letters calling upon the defendants to take delivery were sent by the plaintiffs on the 13th October, the 9th and 21st December, and the 12th and 25th January. The only written reply is that of the 18th January in which the defendants set up their false cancellation story. The plaintiffs account for the delay by saying that the time was extended at the express request of the defendants' broker <ORG>. But this they have not proved to my satisfaction. Such request is not pleaded. It is not mentioned in the correspondence. The plaintiffs' solicitors were not even told of it. <ORG> is not called; his authority is questionable : and the plaintiffs' witnesses appeared so vague in their recollection that I cannot place any real reliance on this part of the plaintiffs' case. At most, according to them, no definite period was fixed. Only "some time."

5. How then am I to regard the two deliveries in October, and to which of the two contracts-if in fact there are two and not one-are the deliveries to be appropriated ? I think that on the pleadings both parties regarded these October deliveries as being made under the suit contract or contracts, and not under some new contract for extension of time and so on. It is not proved, for instance, that any interest, godown rent, or insurance premium, as from the due date was paid as set forth in the letter of 13th October. Nor were any damages paid for the difference in price at the two dates. I am unable, therefore, to infer, as <ORG> and <ORG> were able to do in <NAME> v. <NAME> (1867) L.R. 2 Q.B. 275, that the understanding between the parties was that if the purchasers were ultimately unable to take delivery, the vendors would be entitled to go into the market and sell "at the then price" (see p. 284). <ORG> was the converse case of a vendor unable to give delivery at due date and a purchaser waiting, but I will assume in favour of the plaintiffs that there is no distinction in principle between the two. In the present case the plaintiffs' difficulty is, I think, with reference to "the then price." That there was some forbearance by the plaintiffs, I can understand, viz., what Mr. Justice <ORG> describes as waiting but not binding oneself to wait (see p. 282). On the other hand it is clear from <CITATION> (1912) I.L.R. 37 Mad. 412 that this right to sell at "the then price" is based on the express or implied consent of the purchaser (see p. 415), and that, in the absence of such consent, the measure of damages is the difference between the contract rate and the market rate at the due date for delivery under the original contract. In the present case I do not think that such express or implied consent is proved.

6. The defendants have relied on the unreported case of <CITATION> (1916) 24 Bom. L.R. 142, (since reported). That was a much stronger case than the present, for there the goods were to be manufactured by the <ORG> and nothing at all was done at the expiration of the due date. The Court there held that the plaintiffs could only succeed if the terms of the contract had clearly been altered by mutual consent, and as that was not shown, the original contract came to an end when nothing was done under it within the contract period. The judgment of <ORG> is particularly valuable in pointing out the necessity for certainty as to the terms of any new contract, and as to the difficulty of inferring from mere delivery after due date what the altered rights of the parties are to be with reference to the undelivered goods. That difficulty I have felt to the full here.

7. In the result, therefore, I hold that the date of breach was eight days from the 13th September as regards the ready goods and the 30th September as regards the other goods, and that the whole of the forty-eight bales of which delivery was taken must be taken to be appropriated to the ready contract, as indeed is done in the particulars Ex. D to the plaint.

8. I understand that the parties are agreed upon the September market rates. There will, therefore, be a decree for the plaintiffs for damages to be calculated on the above basis. There will be interest on judgment at six per cent, and the defendants will pay the costs of the suit. The latter have put forward a deliberately false story as to the inability of the plaintiffs to give delivery of the suit bales, and their <NAME> has only done his masters a disservice by going into the witness-box and repeating this false story.

9. I should perhaps mention that neither party relied on the words "as per usual <ORG> terms" in the two contracts of 13th September, nor was any evidence led to explain what those words actually mean in the present case. The case, therefore, proceeded as if those words were not in the contract, though it is possible that they may afford some clue as to why the plaintiffs demanded interest etc. in the correspondence (see for instance the contract in the Phoenix <ORG>s case).


JUDGMENT <NAME>, J.

1. The purchaser of the properties from the Official Receiver of one <NAME>'s estate is the petitioner before us. In I.A. No. 208 of 1928 one of the creditors filed an application before the Subordinate Judge of Coimbatore under Section 68 of the Provincial Insolvency Act to set aside the sale. This application was not pressed and was dismissed. Another creditor took this order in appeal before the learned District Judge under Section 75 , Clause (1) of the Act and the District Judge ordered that the application should be restored to file and enquired into by the Subordinate Judge. This Court directed the District Judge himself to go into the merits of the application and submit findings on two questions, <ORG>., (1) whether or no the withdrawal of the petition under Section 68 was collusive, and (2) whether the appeal under Section 75 of the Act to <ORG> was bona fide and not merely in the insolvent's interest. The District Judge has now submitted his findings that the withdrawal was collusive and that the appeal under Section 75 was a bona fide appeal. The correctness of these findings has not been challenged before us.

2. What is argued on behalf of the appellant is that the appeal to <ORG> by the creditor who filed the appeal was incompetent, inasmuch as he was not a party to the application under Section 68 filed before the Subordinate Judge and that since he was a stranger to that application he was not competent to prefer the appeal under Section 75 . This argument was pressed before the learned District Judge also. He overruled the argument. The question has to be decided with reference to the terms of Section 75 , Clause (1) of the Provincial Insolvency Act which are as follows:

The debtor, any creditor, the receiver or any other person aggrieved by a decision come to or an order made in the exercise of insolvency jurisdiction by a <ORG> subordinate to a District <ORG> may appeal to the District <ORG> and the order of the District <ORG> upon such appeal shall be final.

3. The terms of the section are very wide. Under this section any aggrieved person may prefer an appeal against an order passed by the Judge in Insolvency. It is not contended that the creditor who preferred the appeal before the District Judge having regard to the facts and the findings is not an "aggrieved person" within the meaning of the term, the only contention being, as we have said, that he was a stranger to the proceedings. In our opinion though the creditor who preferred the appeal was not a party to the proceedings, still having regard to the fact that he is aggrieved by the order appealed against, he would come within the terms of Section 75 and would be entitled to prefer the appeal.

4. Section 8 , Clause (2) of the Presidency Towns Insolvency Act gives a right to "any person aggrieved" to prefer an appeal against an order passed by the Judge in Insolvency. In this respect the language of that section is similar to the language used in Section 75 of the Provincial Insolvency Act. In a case in which that section had to be considered it was pointed out by the learned Judges of <ORG> in <CITATION> (1928) I.L.R. 56 C. 667 at 679 (F.B.) that the permission given to a person who is not a party to an order to prefer an appeal on the ground that he is an aggrieved person is a peculiarity of the Insolvency Act , inasmuch as proceedings in bankruptcy will affect not only parties thereto but also other people--see also the observations in <CITATION> (1926) I.L.R. 49 M. 794 : 50 M.L.J. 602.

5. We have no doubt that under Section 75 , Clause (1) of the Provincial Insolvency Act the 1st respondent in the present case was competent to prefer the appeal to <ORG>. In these circumstances we dismiss the Revision Petition with costs.