1959 (5) TMI 53 - SC - Indian Laws

Summary

Issues Involved:
1. Demand for bonus by workmen for the financial year 1954-55.
2. Justification and allowance of service fee paid by the company to the Parent company.
3. Application of the bonus formula by the Tribunal.
4. Determination of commercial necessity for the service fee.

Issue-wise Detailed Analysis:

1. Demand for Bonus by Workmen for the Financial Year 1954-55:
The workmen, represented by the General Engineering Employees Union, demanded a bonus for the financial year 1954-55, either equivalent to 33 1/3 % of their earnings or a prorate bonus equivalent to six months' basic wages. They contended that the company had made huge profits and that the wages paid were insufficient compared to the high salaries of the company's officers.

2. Justification and Allowance of Service Fee Paid by the Company to the Parent Company:
The company had an agreement with its Parent company, Crompton Parkinson Ltd., to pay a service fee calculated at 5% of the net value of sales for technical assistance and other facilities. The Tribunal questioned the justification of this fee and decided to allow only one-quarter of the total amount as a legitimate expense, adding back the remaining three-quarters to the company's profits for the purpose of calculating the bonus. The Tribunal's decision was based on the view that the service fee was excessive and not entirely necessary for commercial purposes.

3. Application of the Bonus Formula by the Tribunal:
The Tribunal deviated from the established bonus formula by deducting bonus as a prior charge before recognized items like depreciation and tax. This deviation was criticized as it led to an ad hoc determination, contrary to the harmonious application of the bonus formula, which has been generally approved by the Supreme Court and has worked satisfactorily over the years.

4. Determination of Commercial Necessity for the Service Fee:
The Tribunal applied the test of "commercial necessity" similar to the one used by income-tax authorities under Section 10(2)(xv) of the Indian Income-tax Act. However, the Supreme Court noted that there is no provision in the Industrial Disputes Act authorizing such a test. The Tribunal overlooked several critical points, including the fact that the company's accounts were audited and certified, the service fee was allowed by income-tax authorities and the Reserve Bank of India, and the agreement had the approval of the Ministry of Finance and the Ministry of Commerce and Industry. The Supreme Court found that the Tribunal's decision lacked a factual basis and was not supported by evidence.

Conclusion:
The Supreme Court concluded that the Tribunal's disallowance of the major portion of the service fee was unsustainable. The Tribunal's award was modified to allow the payment of one month's basic wages as a bonus to the workmen, instead of the 2 1/2 months' basic wages initially awarded. The company had already complied with this payment, and thus, no further bonus was due for the year 1954-55. Each party was directed to bear its own costs of the appeals. The appeal was allowed in part.