The Full Bench Formula, as approved in Associated Cement Companies Ltd. v. Its Workmen (1959) SCR 925, should be applied to determine the surplus available for bonus distribution, considering factors such as rehabilitation, return on reserves, and extraneous income.

Headnote:
The Supreme Court of India's decision in Hindustan Motors Ltd. v. Workmen of Hindustan Motors Ltd. (1968) 3 SCR 963, addressed several issues related to the calculation of bonus payable to workers under the Full Bench Formula approved by the Court in Associated Cement Companies Ltd. v. Its Workmen (1959) SCR 925. The Court's primary legal principle was that the Full Bench Formula should be applied to determine the surplus available for bonus distribution, considering factors such as rehabilitation, return on reserves, and extraneous income.
Fact of the Case:

The Hindustan Motors Ltd. (Company) challenged the decision of the First Industrial Tribunal, West Bengal, which denied bonus to its workers for the year 1960-61. The Company argued that it had incurred a net loss of Rs. 833 per car on the Hindustan Landmaster model in 1956 and had been running at a loss for several years. The Tribunal had determined that no surplus was available for bonus distribution after considering rehabilitation requirements.
Finding of the Court:

The Supreme Court held that the Tribunal erred in applying the Full Bench Formula. It emphasized that the life of machinery should be determined based on evidence and not on artificial rules like the Income-tax Act. The Court also rejected the Company's claim that the machinery should be classified into precision and non-precision machinery with different life spans. The Court found that the average life of the Company's machinery was 15 years, considering that the machines were running in two shifts and would have a shorter life if operated in three shifts.
Issues: 1. Calculation of rehabilitation provision, including the life of machinery, multiplier, and deductions. 2. Return on reserves and other funds used as working capital. 3. Treatment of extraneous income, such as home delivery commission and interest on fixed deposits.
Ratio Decidendi: 1. Rehabilitation Provision: - The life of machinery should be determined based on evidence, not on artificial rules like the Income-tax Act. - The Court rejected the classification of machinery into precision and non-precision with different life spans. - The average life of the Company's machinery was determined to be 15 years, considering the two-shift operation. 2. Return on Reserves: - The Company failed to prove that all reserves were utilized as working capital. - The Court allowed a return on reserves of Rs. 120.68 lacs, which was the maximum amount that could have come from reserves after considering other sources of funds. 3. Extraneous Income: - Home delivery commission and interest on fixed deposits were excluded from the calculation of available surplus as they were earned without any contribution from the workmen.
Final Decision: The Supreme Court allowed the appeal, set aside the Tribunal's decision, and ordered the Company to pay a total bonus of Rs. 9.60 lacs, representing 20% of the annual wage of the workmen. The Court directed parties to bear their own costs of the appeal.

Judgement

BHARGAVA, J.:- This appeal by special leave has been filed by the workmen of Messrs. Hindustan Motors Ltd. against the decision of the First Industrial Tribunal, West Bengal, in a dispute relating to payment oh bonus for the year 1960-61. The respondent, M/s. Hindustan Motors Ltd., (hereinafter referred to as "the Company") was established in the year 1942 and, initially the work taken up by the Company was that of assembling or motor cars from components imported from foreign countries. Later on, manufacture of components of motor cars was started and gradually the Company developed this work of manufacture of components by increasing the number of components manufactured by it until at the present time, the Company is manufacturing more than 70 per cent of the components utilised in the cars put in the market by the Company. The work of manufacturing components was taken in hand for the first time in the year 1949, according to the reply of the Company filed on 10th January 1962, to the statement filed on behalf of the workmen before the Tribunal A, the initial stages of its existence, the Company was running at a loss and even, as late as the year 1956 the Tarrif Commission s Report on the Automobile Industry mentioned that this Company was making a loss of Rs. 833 per car on the Hindustan Landmaster which was the car put in the market by the Company at that time Even subsequently for several years, no profit was shown in the profit and loss account and, consequently no bonus was paid to the workmen until the dispute about it was raised for the first time in respect of the year 1959-60. We were informed that the dispute relating to the payment of bonus for the year 1959-60 is still pending before the Industrial Tribunal, while the dispute with respect to bonus for the next year 1960-61 has been decided and is now before us in this appeal. In this year 1960-61, the profit and loss account of the Company showed a net profit of Rs. 249.71 lacs. Out of this a sum of Rs. 59.59 lacs was allocated for payment of dividend on ordinary shares at 12 per cent and a sum of Rs. 27.55 lacs for dividend on preference shares at 8.57 per cent. The total amount allocated for payment of dividends was thus Rs. 87.08 lacs. In view of the fact that, in this year, the Company had earned a net profit of over Rs. 249 lacs, the workmen demanded bonus equivalent to six months wages. The monthly wage bill of the workmen is about Rs. 4 lacs, so that the total amount claimed towards bonus by the workmen came to Rs. 24 lacs. It was also stated on behalf of the workmen that, if this bonus to the extent of Rs. 24 lacs is awarded, the actual amount which the Company would have to pay will only be 55 per cent of this amount, because 45 per cent representing income-tax on this amount would be refundable to the Company from the Government.

2. Before the Tribunal, there was no dispute between the parties that, in order to find out whether any surplus was available for distribution of bonus, calculations must he made on the basis of the Full Bench Formula approved by this Court in Associated Cement Companies Ltd., Dwarka v. Its Workmen, 1959 SCR 925. The Tribunal, after making all other deductions from the surplus which have to be made in accordance with the Full Bench Formula and without taking into account provision for rehabilitation, arrived at a figure of Rs. 87.80 lacs as the amount of surplus available. Thereafter the Tribunal held that a sum of Rs. 373.62 lacs every year was needed for rehabilitation purposes and, since this amount very much exceeded the surplus otherwise available, there was no scope for granting any bonus at all. Consequently, the Tribunal decided the reference against the workmen and held that no bonus was payable for this year. The workmen have come up to this Court against this decision of the Tribunal

3. In this appeal also, there is no dispute that the principles to be applied for working out the surplus available for distr

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