1956 Supreme(SC) 96

SUPREME COURT OF INDIA
S.R. Das, C.J.I., P.N.Bhagwati, T.L.Venkatarama Ayyar, JJ.
Baroda Borough Municipality
Versus
Its Workmen
Case No. : 182 of 1956
Date of Decision : 11/13/56

Headnote:Baroda Municipal Borough-Workers in the department engaged in the generation, supply and sale of electric energyClaim. for bonus out of the surplus earnings of the departm.ent not m.aintainable- Whether the excess of earnings over outla.y in such a case was profit- Whether paym.ent of bonus to em.ployees of one departm.ent only perm.issible.

       The Baroda Borough Municipality was the appellant, and the respondents were the workmen employed in the electricity department of the said Municipality represented mostly by Baroda State Electric Workers Union. The substantial question for determination in this appeal was: If the respondents, workers in a municipal department engaged in the generation, supply and sale of electric energy, and entitled to the bonus claimed out of the surplus earnings of the said department (called profits by the respondents) after allowing for all out.goings including necessary expenditure of the department and deductions for all prior charges.

       1.Mi/lowners Association, Bombay v. Rashtreeya Mill Mazdoor Sangh, Bombay, (1950) 2 Lab. L. J. 1247 approved.

       2.Nizam Sugar Factory Ltd .• Hyderabad v. Their Workmen (1952) 1 Lab. L.J. 386; Textile Mills Madhya Pradesh v. Their Workmen (1952) 2 Lab. L.J. 625; Famous Cille L(lboratory v. Their Workmen (1953) 1 Lab. L.J. 466 approved. On reference of the industrial dispute between the Baroda Borough Municipality and the workmen, the Industrial Tribunal Bombay held that the respondents were not entitled to the bonus claimed because(I) the Municipality was not a profit making concern; (2) the balance of earnings over the out• goings of the electric department of the Municipality was not profit as that word is understood in the ordinary trading or business sense; (3) the Municipality consisted of both earning and spending departments and it was not permissible to create an invidious distinction between the different employees of the Municipality by granting bonus to the workmen in one department only; and (4) the respondents having been compensated by higher scales of salary on the municipaliiation of the undertaking and having got other benefits and, amenities appertaining to municipal• service were not entitled to claim such bonus as was granted to them during the regime of the former state-owned company. On appeal, the Appellate Tribunal came to the conclusion that the respondents were entitled to claim bonus. It expressed the view that on the decision of the Supreme Court.in D.N. Banerjee v. P.R. Mukerjee1 the expression industrial dispute in the Industrial Disputes Act, 1947, includes disputes between municipalities and their employees in branches of work that can be regarded as analogous to the carrying on of a trade or business, and if the undertaking resulted in profit during the relevant trading period the workmen were entitled to claim bonus as of right. The Appellate Tribunal also held: (I) The excess of earnings over outlay of a municipal undertaking like the one under consideration was profit; and (2) if the profits were not sufficiently large to admit of bonus to all employees, it was permissible to treat the profit-making department as a separate unit for the purpose of granting bonus, unless there was some essential nexus or connection between the profit-making department and other departments or some unity of purpose of parallel or co-ordinate activity towards a common goal in all the departments without which the undertaking could not be carried on to proper advantage. There was appeal from the decision of the Appellate Tribunal to the Supreme Court.

       Held: (allowing the appeal): (1) A municipal undertaking of the nature under consideration is an industry within the meaning of the definition of that word in S. 2 (j) of the Industrial Disputes Act, 1947 and the expression industrial dispute in that Act includes disputes between. municipalities and their employees in branches of work that can be regarded as analogous to the carrying on of a trade or business.2

       (2) Having regard to the provisions of the Bombay Municipal Boroughs Act, 1925 (Bombay Act XVIII of 1925), under which the appellant Municipality is constituted and functions, the earnings of one department of the municipality cannot be held to be gross profits in the ordinary commercial or trading sense; nor can the principles governing the grant of bonus out of such profits after meeting necessary or prior charges be applied to the present case.

       A scrutiny of Ss. 58,63,65,66,68 and 71 of the Bombay Municipal Boroughs Act clearly establishes two propositions: (1) that all municipal property, including moneys etc. received by way of gift, is vested in the municipality and shall be held and applied by it as trustee subject

       1.(1953) S.C,R. 302 : A.I.R. 1953 S.C. 58.

       2.D.N. Banerjee v. P.R. Mukerjee (1953) S.C,R. 302: A.I.R. 1953 S.C. 58 applied. to the provisions and for the purposes of the Municipal Act, and it is not open to the Municipality to treat some of its property separately and divert it for purposes other than those sanctioned by the Municipal Act; (2) there are some obligatory functions which a municipality must perform and one of these is the lighting of public streets, places and buildings; and there are some other functions which the n,unicipality may at its discretion perform either wholly or partly out of municipal property and fund and one of these discretional functions is the supply of electrical energy which is for the use of the inhabitants of the municipal bmough or for the benefit of any person, buildings or lands in ariy place, whether such place is or is not within the limits of the municipal borough.

       (3) Having regard to the afore-aid provisions it Vias not open to the Municipality to treat its electricity departmant, the property thereof and the income therefrom, separately from other departments and spend a part of the income for the benefit of the employees of that department only, treating it as profits of the particular department and not as part of the entire municipal fund or property. Such a treatment of the income of one department of the municipality would b~ clearly against the provisions of the Municipal Act. The maintenance of separate accounts of a particular department by the municipality does not alter the nature or quality of the property or income therefrom. The property or income is still municipal property within the meaning of Ss. 63 and 65 of the Municipal Act, and it can be utilised only for the purpose of the Act as laid down by section 66. Maintenance of a separate account for a particular department is in the nature of an internal accounting arrangement; it does not really alter the quality or nature of the property or income and for the purpose of S. 209 pf the Act, the property or income has to be treated like all other property or income of the municipality in question. The income of one department is the income of the municipality as a whole and that income is not profit in the ordinary commercial or trading sense of being income derived from capital of particular individuals or share-holders; it may even be that the surplus of one department may dwindle into a deficit, when the entire income of the municipality is taken into consideration visa a vis its entire expenditure.

       (4) Nothing turns upon the distinction between obligatory and discretional functions of the municipality so far as the nature or quality of municipal property or municipal income is concerned. The distinction referred to does not entitle the municipality to treat the income from one department as through it were not part of the whole income of the Municipality. Moreover in its true nature or quality, such income is not profit in the sense in which that expression has been held to be the basis for the grant of bonus in the Muir Mills case though the word "profits" occurs in S. 65 of the Municipal Act and has been loosely used in connection with State or municipal undertakings.

       (5) In the present case, there was neither capital nor profit on which the principles laid down in Muir Mills case could operate. Whatever was given by the State Government of Baroda to the Baroda Municipality became municipal property or municipal fund under Ss. 63 and 65 of the Act and was not capital in the sense in which a return On paid up or working capital is to be allowed for in the matter of the grant of bonus in accordance with the decision in the Muir Mills case. It cannot therefore be accepted that once it is found that there was capital and actual profit in the sense of excess of earnings over outgoings from the undertaking in question no distinction can be drawn between private enterprise and municipal enterprise. In the present case there was neither capital nor profit on which the principles laid down in Muir Mills case could operate. The question is not merely one of terminology; that is, whether the more appropriate word to use in connection with a municipal undertaking is surplus or profit; it is the nature or quality of the municipal property or fund which must be determinative of the question at issue, and it is on that basis in the present case that it must be held that there were rio profits of one single department of the municipality out of which the respondents could claim a bonus.

       (6) The observations in Report of the Committee on profit sharing set up by the Ministry of Industry and Supply in 1948, have no application to a municipal undertaking meant for the purpose of augumenting municipal revenues in order to meet the municipal service demands and improve the amenities of the inhabitants of a modern municipal borough.

       (7) The demand for bonus as an industrial claim is not dealt with by the Municipal Act: it is dealt with by Industrial Disputes Act, 1947. Therefore, it is not relevant consideration whether there are provisions in the Municipal Act with regard to payment of bonus. The provisions of the Municipal Act are relevant only for the purpose of determining the quality or nature of the municipal property or fund; these provisions cannot be stretched beyond that limited purpose for defeating a claim of bonus. The absence of provisions in the Municipal Act for the payment of bonus to municipal employees is therefore not a consideration which is either determinative or conclusive of the question in issue in the present case.

       (8) One department of the municipality cannot be isolated and a distinction made between the employees of that department and other departments in the matter of the payment of bonus. Under the Municipal Act a municipality may perform various functions, some obligatory and some discretional. The activities may be of a composite nature; some of the departments may be mostly earning departments and some mostly spending departments. Inspite of distinctions in the internal arrangement of departments within a municipality, the property or income of the municipality remains of the same nature or quality, and it will be obviously unfair to draw a distinction between the employees of one department and the employees of another department for the payment of bonus. The result of such a distinction will be that the staff of the spending departments will never be entitled to any bonus at all and instead of promoting peace and harmony amongst the employees of the municipality, a distinction like to one suggested on behalf of the respondents will create unrest and discontent. It is not correct that beyond the fact of single ownership there is no other connection between the electricity department of the municipality and its other departments. Under the Municipal Act, the total income and expenditure of the municipality form one integrated whole; they are both for the purposes of the Act, and if the workmen of a service or spending department do not work efficiently

       1..\.1uiT Mills Co. Ltd., v. Suti Mills MazdooT Union, KanpuT (1955) IS. C. R. 991: A.I.R. 1955 S.C. 170. with the result that the expenses on the obligatory functions of the municipality increase, that inefficiency is bound to affect even to dwindle or wipe out the surplus of an earning department. For a true apprecia_ tion of the financial position of a municipality, its total income and expenditure must be considered; we must look at the whole picture, the part which is in shade as well as the part which has caught the sun, for a correct appraisal of the picture. It is clear that the different activities of the Baroda Municipality constituted one integrated whole and the activities of the different departments of the municipality were not distinct or unconnected activities so as to permit the isolation of one department from another or of an earning department from a spending department.