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SUPREME COURT OF INDIA
9th March 1960.
P.B. GAJENDRAGADKAR, K. SUBBA RAO AND K.C. DAS GUPTA, JJ.
M/s. Peirce Leslie and Co. Ltd. Kozhikode, Appellants
Versus
Their Workmen, Respondents.
Civil Appeal No. 209 of 1958.
Advocates appeared
M/s. G. B. Pai and Sardar Bahadur, Advocates, for Appellants; A. V. Viswanatha Sastri, Senior Advocate (Mr. M. S. K. Sastri, Advocate with him), for Respondents.
BONUS - Calculation of available surplus - Rehabilitation allowance - Replacement costs - Working capital - Distribution of bonus among different categories of workmen - Errors in calculation by Tribunal.
Fact of the Case:
The appellant company, Peirce Leslie & Co., Ltd., a private limited company engaged in various enterprises mainly in South India, voluntarily paid bonus to its employees, including monthly paid clerical staff, for the year 1954-55. The clerical staff, through their union, claimed additional bonus. The industrial dispute was referred to the Industrial Tribunal, which awarded bonus equivalent to five months' basic wages in addition to the three months' basic wages already paid by the company. The company appealed, challenging the Tribunal's findings on rehabilitation allowance, working capital, and distribution of bonus among different categories of workmen.
Finding of the Court:
1. The Tribunal was correct in rejecting the company's claim for higher return on paid-up capital and reserves used as working capital, as the evidence did not establish any unusual risk in the company's business. 2. The Tribunal erred in accepting the company's method of calculating replacement costs for rehabilitation allowance, which was based on the assumption that replacement costs at the date of replacement would be the same as on the present date. 3. The Tribunal was justified in disallowing two items claimed by the company as reserves employed as working capital, as the company failed to prove that these amounts had actually been used in the business. 4. The Tribunal erred in treating the available surplus as a matter only between the company and the present claimants, ignoring the fact that other workers in the company had contributed to the emergence of the surplus.
Issues: 1. Whether the Tribunal erred in rejecting the company's claim for higher return on paid-up capital and reserves used as working capital. 2. Whether the Tribunal erred in accepting the company's method of calculating replacement costs for rehabilitation allowance. 3. Whether the Tribunal erred in disallowing two items claimed by the company as reserves employed as working capital. 4. Whether the Tribunal erred in treating the available surplus as a matter only between the company and the present claimants.
Ratio Decidendi: 1. The Tribunal was correct in rejecting the company's claim for higher return on paid-up capital and reserves used as working capital, as the evidence did not establish any unusual risk in the company's business. The prevailing interest in the money market yielded by gilted-edged security is ordinarily taken to be a fair index of what should be considered reasonable as pure interest. For many years now, this figure has varied from 3 to 4 percent. If no risks were involved, this percentage should have been considered a fair return on invested capital. It is because most businesses contain an element of risk that an additional return of 2 to 3 percent is generally considered necessary to compensate for the risks. 2. The Tribunal erred in accepting the company's method of calculating replacement costs for rehabilitation allowance, which was based on the assumption that replacement costs at the date of replacement would be the same as on the present date. This method is not useful and cannot be safely relied upon. The basis of the prior charge for rehabilitation is the assumption that rehabilitation is a continuing process and so needs allotment from year to year. 3. The Tribunal was justified in disallowing two items claimed by the company as reserves employed as working capital, as the company failed to prove that these amounts had actually been used in the business. 4. The Tribunal erred in treating the available surplus as a matter only between the company and the present claimants, ignoring the fact that other workers in the company had contributed to the emergence of the surplus. The bonus of the workers is decided compartment-wise and not on the basis of the overall profits of the company.
Final Decision: The appeal was partly allowed. The award of the Industrial Tribunal was modified to award to the staff bonus equivalent to 3 months' basic wages in addition to the amount already voluntarily paid by the company.
Judgment
DAS GUPTA, J.: The appellant-M/s. Peirce Leslie & Co., Ltd., is a private limited company engaged in various enterprised mainly in South India. It started business in this country over a century ago and though it is registered in England almost all its activities appear to be carried on in this country. The principal activities that require mention are the business in cashew nuts which the Company sells after roasting raw cashew nuts purchased in this country and in Africa, and business in coir products and several other country produce like ginger, lemon grass oil etc. A large portion of the products in which it trades is exported to foreign countries. Apart from these trading activities the company is also engaged in agency business including working as managing agents of many companies. For many years the company as a whole had made good profits, though in some of its many lines losses were incurred. The company has on its pay roll a large number of employees and a part from superior officers in its covenanted and uncovenanted staff both Indian and European it employs in its various lines of business a large number of workmen including clerical staff. The clerical staff alone consists of 882 monthly paid employees. For many years the Company has voluntarily paid bonus to all its employees out of the surplus profits. To the monthly paid employees with whom we are concerned in the present appeal the company paid during the year 1954-55 a sum equivalent to three months basic wages as bonus. Not content with this these employees through their Union put forward a claim for additional bonus. The industrial dispute thus raised was referred by the Government to the Industrial Tribunal sitting at Coimbatore. Before the Tribunal the workmen claimed an additional bonus equal to seven months basic wages. The company s case was that the peculiar nature of its activities specially the fact that in its agency business very little capital was employed and the fact that in the cashew business and other produce business the element of risk was unusually great justify material alternation in the Full Bench Formula for ascertainment of the available surplus in several respects. The main alteration asked for before the Tribunal appears to have been that rates higher than 6 per cent of paid up capital and 4 per cent on reserves employed as working capital should be allowed in working the Full Bench Formula in view of the special risks in its business and the further fact that its agency business requires very little capital. These were rejected by the Tribunal. The Tribunal also accepted only partially the company s claims as regards rehabilitation allowances for the year and as regards actual amounts used as working capital. Having arrived on its calculations at the figure of L55,137 as the available surplus after meeting all prior and necessary charges the Tribunal awarded bonus equal to five months basic wages in addition to three months basic wages already voluntarily paid by the company. In making this distribution the Tribunal rejected the company s case that as this claim was raised by only a small percentage of the workmen the entire available surplus should not be treated as available in distributing bonus to these few workmen.
2. The first contention urged in appeal before us is that the Tribunal was wrong in rejecting the company s claim for higher return than usual on paid up capital and reserves used as working capital. The appellants counsel has taken us through the evidence, oral and documentary, as regards what he characterized as the heavy "fluctuations" in the price of raw cashew nuts which the company had to purchase and the price in the foreign market of the finished goods. That there is some amount of risk is undoubtedly true. We are not convinced however that the company s business whether in cashew nuts or in any other line is attended with such unusual risk as would justify the provision of more than the usual
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