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Workmen Of Assam Co. v. Assam Co. Ltd. .
Factual and Procedural Background
The dispute concerns claims for bonus by workmen (including Indian staff and artisans) employed by Assam Co. Ltd., a United-Kingdom incorporated company engaged in the tea industry in Assam. The employees sought bonus for the years 1950, 1951 and 1952 at six months’ wages per year. The company offered substantially lower sums, amounting to between 2.3% and 3.9% of its net profits for those years. The Assam Government referred the matter to an Industrial Tribunal on 27 August 1953.
The Industrial Tribunal adopted the “unit scheme” (in use since 1926) for distributing bonus, allowed depreciation as per the company’s balance sheets, and fixed returns of 7% on paid-up capital and 5% on reserves, declaring artisans also eligible for bonus. Both sides appealed to the Labour Appellate Tribunal (LAT). The LAT adjusted depreciation to the Indian Income-tax Act rates and increased return on reserves to 6% to cover rehabilitation, while sustaining the 7% return on capital and the unit scheme. The present appeal was brought to the Supreme Court by special leave, confined to the question of bonus.
Legal Issues Presented
- Whether the “Bombay formula” (as approved in Sree Meenakshi Mills) for calculating distributable surplus is applicable to the tea industry.
- The appropriate rates for (a) depreciation, (b) return on paid-up capital, and (c) return on reserves when computing surplus for bonus distribution.
- Whether artisans should be included among employees eligible for bonus.
- The propriety of distributing bonus through the company’s long-standing “unit scheme.”
Arguments of the Parties
Appellants (Workmen)
- Challenged the amounts allowed for depreciation, and the rates of return on capital and reserves adopted by both lower tribunals.
- Contended that the “unit scheme” was unfair; nonetheless, in the Supreme Court they limited their substantive claim to bonus equivalent to two months’ wages.
Respondent (Assam Co. Ltd.)
- Sought higher returns of 10% on capital and 8% on reserves, asserting the tea industry faces greater risks and requires larger rehabilitation funds.
- Opposed inclusion of artisans in the bonus pool.
- Argued that the textile-based bonus formula should not apply to the tea industry, which is influenced by agricultural uncertainties such as weather, pests and soil deterioration.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Sree Meenakshi Mills Ltd. v. Workmen, AIR 1958 SC 153 | Established the “Bombay formula” for determining distributable surplus: provide for depreciation, rehabilitation, 6% return on paid-up capital, return on working capital at a reasonable rate, and estimated income-tax. | The Supreme Court accepted the formula as generally sound and examined whether departures (higher returns or different depreciation) were justified for the tea industry. |
Court's Reasoning and Analysis
1. Applicability of the formula. The Court found no circumstances furnished by the company to warrant departure from the Sree Meenakshi Mills formula in respect of depreciation; therefore normal (including shift) depreciation should be allowed.
2. Return on paid-up capital. Recognising agricultural risks peculiar to tea—weather, pests, soil depletion—the Court upheld the 7% return granted by both lower tribunals, holding this higher rate over the standard 6% justified.
3. Return on reserves. The LAT’s increase to 6% was rejected. The company had neither pleaded nor proved specific rehabilitation figures at the appropriate stage; hence the Industrial Tribunal’s 5% rate, deemed reasonable for the industry’s risks, was restored.
4. The “unit scheme.” After detailing its operation—allocation of units based on job category, wages and service—the Court endorsed the Industrial Tribunal’s assessment that the scheme is rational, encourages efficiency, and fairly distributes surplus. Payment of bonus pursuant to this scheme was therefore approved.
5. Quantum of bonus. Applying the restored calculations, the Court determined surpluses of Rs 7,64,608 (1950), Rs 77,823 (1951) and a deficit of about Rs 10 lakhs (1952), rendering total distributable surplus nil for the three-year period. Although the two-month bonus could be justified for 1950 alone, the Court concluded that the Industrial Tribunal’s original awards were “fair and proper.” It ordered an additional amount to cover proportional bonus for artisans because of their confirmed eligibility.
Holding and Implications
ORDER: Appeal allowed in part; the Labour Appellate Tribunal’s order is set aside and the Industrial Tribunal’s award is restored, subject to the modification that the company shall provide additional funds for proportional bonus to artisans under the unit scheme. Each party will bear its own costs.
Implications: The decision re-affirms the continued applicability of the Sree Meenakshi Mills bonus formula across industries, allowing limited, fact-based adjustments (here, a higher return on capital for agricultural risk). It also validates incentive-based distribution schemes like the “unit scheme” when shown to be rational and equitable. No new precedent was expressly set, but the judgment clarifies that unsupported claims for enhanced rehabilitation allowances will be disallowed.
Kapur, J.— In this appeal brought by special leave against the order of the Labour Appellate Tribunal, Calcutta dated August 31-08-1955, the controversy between the parties is confined to the question of bonus. The appellants are the workmen including members of the Indian staff and artisans employed by the respondent, the Assam Co. Ltd., a company incorporated in the United Kingdom and engaged in tea industry in the State of Assam. The appellants claimed bonus for the years 1950, 1951 and 1952 at the rate of 6 months' wages per year. The respondent offered to the Indian staff excluding the artisans Rs 51,061 as bonus for 1950, Rs 48,140 for 1951 and Rs 15,493 for 1952 which works out at 2.3% of the net profit for the year 1950, 3.1% for the year 1951 and 3.9% for the year 1952. This dispute was referred to the Industrial Tribunal by a notification of the Assam Government dated 27-8-1953.
2. The Industrial Tribunal allowed depreciation as given in the Company's balance sheets for the three years and allowed as return on the paid up capital and on the reserve 7% and 5% respectively and held the artisans also to be entitled to bonus. For the purpose of mode of payment the Industrial Tribunal accepted the “unit scheme” under which the company had been paying bonus since the year 1926. It was of the opinion that the scheme was fair and rational and gave incentive to industrial efficiency and to production.
3. Both the appellants and the respondent appealed against this order, the former as to the correctness of the accounts, the amount of the return on capital and reserves and the “unit scheme” and again claimed six months' wages per year as bonus. The latter appealed against the percentages allowed on the capital and the reserves and claimed 10% and 8% respectively as a fair return. It objected to the inclusion of the artisans amongst the workmen eligible for bonus and also to the application of what is known as the Bombay formula to tea industry.
4. The Labour Appellate Tribunal varied the Tribunal's award and allowed depreciation at the rate allowable under the Indian Income Tax Act, confirmed 7% on the paid-up capital but raised the return on the reserves from 5% to 6% in order to meet the claim of the Company for rehabilitation which though not claimed before the Industrial Tribunal, was put forward before it as a basis for increase in return on reserves. In this Court the appellants again repeated their objection to the amount of depreciation, the return on capital and on reserves and to the “unit scheme” but were prepared to confine their claim to two months wages as bonus. Counsel for the respondent objected to the applicability of the formula to an industry like the tea industry, his contention being that circumstances and considerations applicable to the textile industry cannot apply to tea industry which, being connected with agriculture, is affected by various factors which must be taken into consideration in the matter of depreciation, return on capital and return on reserves.
5. The principles on which the ascertainment of the surplus on the basis of which bonus becomes determinable and distributable have been laid down by this Court in Sree Meenakshi Mills v. Workmen AIR 1958 SC 153. The formula there laid down is:
“Distributable surplus has to be ascertained after providing from the gross profits for (1) depreciation, (2) rehabilitation, (3) return at 6 per cent. on the paid- up capital (4) return on the working capital at a lesser but reasonable rate, and (5) for an estimated amount in respect of the payment of income tax.”
Under this formula the depreciation allowable in cases arising under the Industrial Disputes Act is the normal depreciation including shift depreciation. We did not understand counsel for the respondent to contend that there was anything in the formula which was wrong in principle but that it had to be adjusted to suit the circumstances of the tea industry. No circumstances, were however, given by him which would make it unfair to apply the formula nor were any figures or particulars furnished for varying it in regard to depreciation.
6. The Industrial Tribunal allowed 7% return on capital as against 6% held allowable under the formula. Its reasons for this increase were
“That the tea industry here may have often to face various adverse circumstances — more adverse than those that may come upon other industries and may have more risks than other industries. It may however be noted that the Company in the instant case — is more than a century old one fairing well all through and has thus been so far a prosperous one and on a sound footing and as such it is expected to have built up a substantial reserve.”
7. The Labour Appellate Tribunal maintained this higher rate of return on capital on the ground “of its being exposed to greater risks than any other industry... namely weather, pests in the plants and gradual deterioration of the soil over which no man has any control”. These additional risk factors are no doubt present in an industry connected with agriculture like, the tea industry and in our opinion they justify the giving of a higher rate of return on capital.
8. Instead of 4% allowed by the formula the Industrial Tribunal fixed the return on reserves at 5% on the ground of its “being sufficient to guard the interests of the company” but the Labour Appellate Tribunal increased it to 6% to meet replacements and rehabilitation charges since the “usual method of calculating these charges is not possible in the present case” and “we are to see that the industry does not suffer for want of replacement and rehabilitation funds and must provide such funds in some other way, namely, by allowing a return on the working capital at higher rates”. In the absence of any claim in the respondent's Written Statement for rehabilitation or any figures for determining this amount, this extra one per cent is insupportable. It is not a case where a claim could not be made or figures could not have been given at the proper stage. The additional one per cent cannot therefore be allowed. In our opinion the reasons given by the Industrial Tribunal sufficiently support the giving of 5% on the reserves as being fair considering the risks of the tea industry which is exposed to various adverse circumstances and elements. The Industrial Tribunal has not acted unreasonably nor in disregard of any accepted principles in calculating the return on reserves at 5% and we see no cogent reason for varying this rate.
9. The respondent has, since 1926, been paying bonus to its employees according to a scheme called the “unit scheme” which according to the Industrial Tribunal has the merit of being more rational and gives incentive to industrious habits and efficiency leading to more production. The Labour Appellate Tribunal did not go into the merits of the scheme but ordered payment according to it. Under this scheme units are credited to each workman, taking into consideration the importance of the job he holds, the wages he gets and the number of years he has been employed in that particular job. The value of units so awarded thus vary commensurate with considerations of efficiency and experience. The establishment is divided into twelve categories and the medical staff into three each based on the relative importance of the nature of work done by a workman. Thus in the descending order of their importance the jobs are classified as: 1. Head Mohori; 2. Head Clerk; 3. Divisional Mohori; 4. Land Mohori; Hazaria Mohori; 5. Kamjari Mohori; 6. Godown Mohori; 7. 2nd Tea House Mohori; 2nd Kerani; 2nd Hazaria Mohori; 8. 2nd Godown Mohori; 9. Gunti Mohori; 10. 3rd Tea House Mohori; 11. Mondal; 12. Apprentices;
10. Units would thus be awarded to workmen in the particular category they are in and the more qualified the worker the better his work and the higher his wage, the higher the number of units he would be entitled to. The amount available for distribution as bonus is divided by the aggregate number of units of all the workmen participating in the scheme and each worker would be entitled to a multiple of the amount payable on one unit and the units to his credit. It appears to us that the estimate of the Industrial Tribunal as to the suitability of the scheme was fully justified and payment of bonus in accordance with this scheme will not only result in fair distribution of bonus but would also lead to improvement in the quality and quantity of work. This scheme is not to be confused with production bonus though it has the merit of combining the fair distribution of the surplus available and the maintenance of efficiency in the establishment.
11. Taking the figures on the basis of the award made by the Industrial Tribunal we find that Rs 7,64,608 would be the surplus for the year 1950, Rs 77,823 for 1951 and a deficit of Rs 10 lakhs for the year 1952. The total sum available for three years will be nil. On the basis of the claim which counsel for the appellant has made before us i.e two months wages, we find that the amount of bonus required for the members of the staff for the year 1950 will be one sixth of Rs 4,63,095 and for the year 1951, one sixth of Rs 4,83,893 and for 1952 one sixth of Rs 5,31,202 which works out to Rs 77,182 for 1950, Rs 80,647 for 1951 and Rs 88,533 for 1952. The amounts required for the artisans further increase these figures. No doubt on the calculations which have now been made the appellant may justify the claim of two months' bonus for the year 1950 but the same cannot be said in regard to the claim for the years 1951 and 1952 because of the available surplus which is only Rs 77,823 for 1951 and there is a deficit of about 10 lakhs of rupees for the year 1952. Taking all these figures into consideration, we are of the opinion that the amounts awarded by the Industrial Tribunal are fair and proper. As the Labour Appellate Tribunal allowed depreciation and rehabilitation on an erroneous basis, we would set aside the order of the Labour Appellate Tribunal and would restore that of the Industrial Tribunal with this modification that the Respondent shall make available the additional amount required for payment of the proportional bonus to the artisans.
12. The appeal is, therefore, allowed to this extent, the order of the Labour Appellate Tribunal set aside and the award of the Industrial Tribunal restored with this modification that the respondent shall also provide an additional amount for these three years for payment to the artisans of proportionate bonus on the basis of the “Unit System”. As neither of the parties have succeeded in their main contentions, the fair order in regard to costs should be that the parties do bear their respective costs throughout.
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