Workmen of M/S. Hindustan Motors Ltd. Vs. M/S. Hindustan Motors, Ltd. & ANR [1967] INSC 263 (21 November 1967)
21/11/1967 BHARGAVA, VISHISHTHA BHARGAVA, VISHISHTHA HIDAYATULLAH, M.
VAIDYIALINGAM, C.A.
CITATION: 1968 AIR 963 1968 SCR (2) 311
CITATOR INFO:
R 1971 SC2567 (1,24,10) R 1972 SC 330 (8) R 1972 SC1954 (6,23) RF 1973 SC 353 (31) R 1973 SC2394 (18,10)
ACT:
Industrial Dispute-Bonus-Rehabilitation surplus calculation of Age machinery-Multiplier-Deductions to be made- Depreciation-Returns on working capital and paid up capital-Extraneous income-Interest on fixed deposits-Home delivery commission paid by foreign collaborator.
HEADNOTE:
The workmen of the respondent company raised an industrial dispute about bonus claimed by them for the year 1960-61.
The Industrial Tribunal applying the Full Bench Formula held that the sum needed for rehabilitation of machinery exceeded the surplus otherwise available and therefore no bonus was payable. Against this decision of the Tribunal the workmen appealed to this Court and raised various objections as to the manner in which the available surplus was calculated by the Tribunal.
HELD: (i) On the facts and the evidence produced in the case the life of the respondent company's machinery should be taken at an average of 15 years if the machinery is worked in two shifts. and 10 years if it is worked in three shifts.
The artificial rule laid down in the Income-tax Act for calculation of notional depreciation can provide no criterion at all for determining the life of the machinery, and the Tribunal committed an error in proceeding on that basis. [319 H] The life of machinery taken in other cases is also not a correct basis for fixing the life of machinery in a particular case. Various factory come in that affect the useful life of a machinery. Factors such as the quality of the material used in the machines, and the nature of the material on which the machines are to operate, very materially affect their life. Further the life of a machine will also depend on the manner in which it is handled in a particular factory. Consequently the correct principle is to determine the life of machinery in each case on the evidence adduced by the parties. [319 E--F; 320 D] Further what has to be determined is the useful life of the machinery rather than its economic life. In fact one of the very major considerations which should be taken into account is the actual practice of the manufacturers using the machinery and, if the evidence be available, to find out how long the manufacturers continue to use the machinery as a rule. [324 D--H] The fact that in the Full Bench Formula the breakdown value of machinery is taken at 5% is certainly an aspect to be taken into account. but it cannot be accepted that a machinery should be deemed to have useful life until it reaches the stage of having a breakdown value of 5% No such absolute rule can be inferred. [328 A] The Tribunal was wrong in not taking into account machinery installed during the bonus year itself for making provision for rehabilitation. If any machinery is installed in. the bonus year, the company would be 312 justified in claiming that it must immediately Start making provision for its rehabilitation, though the period for rehabilitation of that machinery would only start at the end of the bonus year. [330 A--C] ' (ii) The multipliers given by the company in the schedule originally submitted by the company which were not objected to by the workers were the correct basis for Calculation of the rehabilitation cost and the Tribunal should not have departed from them. There was no justification for taking an average of the multipliers submitted at first and those submitted thereafter in a second schedule. The Tribunal also was not justified in reducing the multipliers on the ground that the new machines which would be purchased to replace the original ones would necessarily have more' productive capacity. There was no material at all from which the Tribunal could justifiably have inferred that the increase in production would be so.
material as to, attract the principle of apportionment laid down by this Court in the case of the Associated Cement Companies Ltd. 1331 A--F; 332 (iii) In calculating the rehabilitation requirement for the machinery the depreciation provision made in accordance with the principles of commercial accounting has to be deducted from the amount that would be required to purchase the new machinery for replacement. The contention that deduction should be made only of depreciation reserves available to the employer cannot be accepted. Such an interpretation militates against the very purpose for which rehabilitation provision is allowed, namely, to enable the industry to cover the difference between the amount of depreciation which is recouped by making provision for it in accoromance with the, principles of commercial accounting and the amount that would be required to purchase the new machinery for replacement. Therefore, in the present case, the Tribunal erred when in calculating the provision for rehabilitation it took the entire price of the replacement machinery as required to be provided, entirely out of profits without reducing the price to the extent of the depreciation provided for in the accounts. [333 E--334 B--F] (iv) The claim of the workmen that the sum shown in the balance-sheet of the company as development rebate reserve should be deducted from the available surplus must be allowed. The mere statement of the General Manager on affidavit to. the effect that the reserves had been utilised as part of the working capital could not be accepted as evidence of the fact. When the balance-sheet itself showed that cash amounts in the form of fixed deposits were available which were far in excess of the development rebate reserve in question, there would be no. justification for holding that this development. rebate reserve was not available as a liquid asset and had been included by the company in the working capital. This development rebate reserve was a liquid asset available for rehabilitation and consequently liable to be deducted when calculating the rehabilitation requirement. [335 A--G] (v) If some. machines have fully run out their lives, they must necessarily be replaced out of resources available immediately and there would be no justification for keeping the available resources in reserve for future rehabilitation while not providing out of those available resources for immediate. replacement of machinery. There is also the aspect that an employer in order to claim more and, more rehabilitation provision will have a tendency to keep old blocks of machinery running and to avoid adoption of such a device it would be fair that he is required to utilise available resources at the very first opportunity when the old blocks of machinery require replacement and claim annual provision for future only in respect of that machinery which will require replacement later 313 on Consequently, in the present case the depreciation provision and the available development rebate reserve must be taken into account when calculating the annual provision for rehabilitation required for replacement of the earliest installed machinery until it was exhausted, where after 'the annual requirement for the remaining blocks of machinery would have to be calculated, ignoring these available resources. [336 G--H; 337 C--D] (vi) For the purpose of working 'out return on working capital in the year of bonus the origin of the fund used as working capital is immaterial and it cannot be said that the return must be allowed only on reserves used as working capital and not on any other funds used as such. However the fund must be available for investment before a claim can be made by the employer for a return on it. [340 E--F] But, the mere existence of reserves and funds at the beginning of the year, even taken together with their existence at the end of the year cannot lead to any inference that these reserves and funds must have formed part of the working capital during the year and could not form part of other items such as fixed deposits, investments etc. The affidavit filed by the company in this connection did not exclude the possibility that they were utilised for purposes other than that of working capital. in the balance- sheet the amounts which represented fixed assets, fixed deposits, investments and other loans and. advances could not be classified as part of the working capital. The items representing working capital were current assets, stock-in- trade, sundry debts, bank and cash. balances, certain loans and advances and insurance and other claims. The items representing working capital had a total value of Rs. 498.02 lacs. Deducting from this the sum of Rs. 377.34 lacs available from subscribed capital or other sources. there remained a balance of Rs. 120.68 lacs which must have necessarily come out of the various reserves including the depreciation, and this amount at least must be held to represent resources actually used as working capital during the year by the company. On this amount it would be fair to allow a 4% return to the company.
[344 F--H; 347 D--E] (vii) The company's claim that half the amount from the following sources, namely, (1) the profit in the profit and loss account worked out at the end of the year, (2) depreciation reserve for the year, (3) development rebate for the year, (4) value of discarded fixed. assets written off should be treated as 'a fund which was available during the bonus year for being available for being utilised as working capital, could not be accepted. There was nothing to show whether any of these amounts became available to the company during the year and if so when they came available.
[347 F] (viii) In allowing 6% return on paid-up capital in accordance with the Full Bench Formula no question could arise of deducting the amounts invested in subsidiary companies from the paid-up capital because the said investment had not been held to have come out of paid-up capital [348 [348 F] (ix) The income of the company from interest on fixed deposits was its extraneous income which accrued to the company without any contribution by the workmen. this income had therefore to be excluded in calculating the available surplus. At the same time the company could not on equitable grounds be permitted to claim the interest paid by it on its borrowings as business expenditure. Therefore the interest on fixed deposits was to be treated as extraneous income only after deducting from it the interest paid on the borrowings. [349 D--F] 314 (x) The income received by the company from its foreign collaborators as commission on sales effected by the said collaborators of their own cars in India was extraneous income to which the company's wOrkmen made no contribution. It was not therefore to be taken into account in calculating the available surplus. [349 C] (xi) Calculated in the above manner the available surplus came 10 Rs. 30.56 lacs. The Tribunal was not right in its decision that the company was not in a position to pay bonus at all. However, though the company had earned a large amount of profit in the year of bonus it had for quite a large number of years been running at a loss. The available surplus being only Rs. 30.56 lacs, the workmen's demand of bonus equivalent to six months' wages amounting to Rs. 24 lacs was too high. It would be just and proper to allow bonus at 20% of their annual wages which would come to Rs. 8.60 lacs. [352 A--E] Associated Cement Companies Ltd. Dwarka Cement Works, Dwarka v. Its Workmen & Anr. [1959] S.C.R. 925, Saxby & Farmer Mazdoor Union, Calcutta v. M/s. Saxby & Farmer (India) Ltd. [1955] L.A.C. 707, Workmen M/s. Saxby & Farmer (India) Pvt.. Ltd. v. M/s. Saxby & Farmer (India) Private Ltd. C.A. 152/64 dr. 12-4-1965, The Millowners' Association, Bombay v. The Rashuriya Mill Mazdoor Sangh, Bombay, [1950] L.L.J. 1247. The Honorary Secretary South India Millowners' Association & Ors. v. The Secretary, Coimbatore District Textile Workers' Union. [1962] 2 Supp. S.C.R. 926, National Engineering Industries Ltd. v. The Workmen & Vice Versa, [1968] 1 S.C.R. M/s. Titaghar Paper Mills Co.
Ltd. v. Its Workmen, [1959] Supp. 2 S.C.R. 1012, Millowners, Association, Bombay v. The Rashtriya Mill Mazdoor Sangh, [1952] 1 L.L.J. 518, Tata Oil Mills Co. Ltd. v. It's Workmen & Ors. [1960] 1 S.C.R. 1, Anil Starch Products Ltd. v. Ahmedabad Chemical Workers' Union & Ors., A.I.R. 1960 S.C. 1346, Khandesh Spg & Wvg. Mills Co. Ltd. v. The Rashtriya Girni Karogat Sangh, Jalgaon, [1960] 2 S.C.R. 841, Bengal Kagazkal Mazdoor Union & Ors. v. Titagarh Paper Mills Company, Ltd., [1963] II L.L.J. 358 and Voltas Limited v. Its Workmen, [1961] 3 S.C.R. 167, considered.
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 635 of 1965.
Appeal by special leave from the Award dated January 8.
1963 of the First Industrial Tribunal, West Bengal in Case No. VIH-354 of 1961.
B. Sen, Janardan Sharma, P.K. Ghosh and S.K. Nandy, for the appellants.
Niren De, Solicitor-General, M. Mukherjee and Sardar Bahadur. for respondent No. 1.
The JUdgment of the Court was delivered by 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 of bonus for the year 1960-61. The respondent, M/s Hindustan Motors Ltd., (hereinafter referred to as 315 "the Company") was established in the year 1942 and, initially, the work taken up by the Company was that of assembling of 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% of the components utilised in the cars put on 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. At the initial stages of its existence, the Company was running at a loss and even, as late as the year 1956. the Tariff 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 on 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 l 959-60 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. 59.53 lacs was allocated for payment of dividend on ordinary shares @ 12% and a sum of Rs. 27.55 lacs for dividend on preference shares @8.57%.
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% of this amount, because 45% representing income-tax on this amount would be refundable to the Company from the Government.
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 be made on the basis of the Full Bench Formula approved by this Court in The Associated Cement Companies Ltd., Dwarka Cement Works, Dwarka v. Its 316 Workmen & Another(1). 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.
In this appeal also, there is no dispute that the principles to be applied for working out the surplus available for distribution of bonus must be those approved by this Court in the case of Associated Cement Companies Ltd.(1). On behalf of the workmen, however, it was urged that the Tribunal committed an error in applying the Formula in respect of five different items involved in the calculation. These are:
(1) Rehabilitation, (2) Return on reserves used as working capital, (3) Return on paid-up capital, (4) Interest on fixed deposits, and (5) Home delivery commission.
Of these items, the most controversial is the first item of rehabilitation and that is also the most material one, because, if the figure of annual rehabilitation arrived at by the Tribunal is accepted, it is clear that no surplus can possibly remain out of the profits earned during the year for distribution of bonus. In the calculation of rehabilitation, various factors are involved which have been indicated by this Court in the case of Associated Cement Companies(1). The factors in calculation of rehabilitation accepted by the Tribunal which have been challenged by the workmen are:
(i) the divisor, which depends upon the life of the plant, machinery and buildings, the year of their installation or erection, and the residuary life which must be taken into account when working out the divisor, (ii) the calculation of the multiplier for arriving at the replacement cost of the old machinery which requires rehabilitation. and (1) [1959] S.C.R. 925.
317 WORKMEN V. HINDUSTAN MOTORS LTD. (Bhargava, 1.) 317 (iii) the deductions which should be made when working out the annual rehabilitation.
We shall now proceed to deal with these points.
When the dispute was taken up for adjudication by the Tribunal, the Company, on 3 l st May, 1962 filed statements showing calculations of rehabilitation provision required for rehabilitating the plant, machinery and buildings.
Amongst these statements was a statement described as Schedule IA (hereinafter referred to as "the first Schedule IA") and in that statement it was claimed on behalf of the Company that the average total life of its machinery was 6 years. On behalf of the workmen, it was urged that the life of the machinery should be taken to be 30 years and on this basis, ,after the arguments were over a rehabilitation cost calculation was filed on 21st November, 1962.
Thereafter, in the course of arguments on 22nd November, 1962, some fresh statements were filed by the Company.
These statements in respect of the machinery had two new Schedules, both marked as Schedule IA. In one of these Schedules IA filed on 22nd November. 1962, the multiplier taken for replacement of the machines installed in various years was higher than the multiplier in the first Schedule 1A. This Schedule shall be referred to. as "the second Schedule 1A". At the same time, as mentioned earlier, another Schedule IA was filed and, in this Schedule IA, the multipliers were the same as in the first Schedule 1A. This shall be referred to hereinafter as "the third Schedule 1A".
In none of these Schedules filed, either on behalf of the Company or on behalf of the workmen, was there any classification of plant and machinery into precision or non- precision machinery. Some statements for the purpose of calculation of rehabilitation were again filed on behalf of the Company on 28th December, 1962 under the directions of the Tribunal and it appears that, taking into account the evidence which had been led before the Tribunal, the Tribunal at this stage asked the Company to give separate Charts for precision machinery and non-precision machinery.
Consequently, the statements flied on 28th December. 1962 classified the machinery into precision and non-precision machinery. It seems that the Tribunal, in making this direction was also influenced by the circumstance that, under the Income-tax Law, the depreciation allowed in respect of precision and non-precision machinery is different, from which the Tribunal. inferred that precision machinery will have a shorter life than non-precision machinery. In fact, the Tribunal was of the view that the proportion between the life of precision and non-precision machinery can be safely taken to be the same as the proportion between the depreciation allowed in respect of the two. Proceeding on this basis, the Tribunal, in the statements prepared for and annexed as. part of the LISup.C.I./68--6 318 Award, classified the machinery into precision and non- precision machinery and worked out different life for the two kinds of machinery. In the course of arguments before us, it was urged on behalf of the workmen that the Company not having claimed that machinery classified as precision had a shorter life than machinery classified as non- precision either in the written statements or at the stage of filing the first Schedule 1A or even the second or third Schedule IA, there was no justification for the Tribunal to.
accept this. classification and work out different periods of life for different classes. of machinery. Mr.
Niren De, counsel appearing on behalf o.f the Company, in his argument before us also urged that the Company at no.
stage put forward the Case that the machinery should be classified into precision and non-precision machinery and different life should be attributed to the two classes of machinery. According to him, the Company's. case throughout has been that all machinery installed m the. factory of the Company has an economic life of 6 years only, so that the Company is not prepared to justify the decision given by the Tribunal on the basis of this classification. Since both parties before us challenge the adoption of this classification by the Tribunal, we consider that it will be right to ignore this. classification and to proceed on the basis that the total life of the machinery must be worked out on an average for all the machines installed in the factory of the Company, without making any distinction between precision machinery and non-precision machinery.
As we have mentioned earlier, the contention on behalf of the workmen was that the life of the whole machinery should be taken to be 30 years. Mr. B. Sen, counsel appearing on behalf of the workmen, drew our attention to a number of cases, in which the life of the machinery came up for consideration either before the Labour Appellate Tribunal or before this Court in connection with calculation of rehabilitation provision. The. first case brought to our notice was Saxby & Farmer Mazdoor Union, Calcutta v. M/s.
Saxby & Farmer (India) Ltd., Calcutta(1), in which, for purposes. of calculation of rehabilitation, the life of machinery was taken to be 30 years. Another case between the Workmen of M/s. Saxby & Farmer (India) Pvt. Ltd. v.
M/s. Saxby & Farmer (India) Private Ltd.(2) in respect of a subsequent year came up before this Court. In that case, the Tribunal, in its Award, fixed the life of the machinery at 20 years and on behalf of the, workmen it was urged that it should have been 30 years as accepted by the Labour.
Appellate Tribunal in respect of the earlier year in the of Saxby & Farmer Mazdoor Union, Calcutta(1). This Court held that the life of 30 years. had been taken at a time when (1) [1959] L.A.C. 707.
(2) Civil Appeal No. 152 of 1964 decided on 12-4-1965.
319 the machinery was. being worked in two, shifts, while, in the subsequent case, it was shown that the machinery was working in three shifts, so that it could not be said that the Tribunal was wrong in fixing the life in this subsequent case at 20 years. Relying on these cases, Mr. Sen urged that, in the present case also, we should take the life of the machinery to be 30 years. In The Millowners Association, Bombay v. The Rashtriya Mill Mazdoor Sangh,Bombay(1), the Full Bench of the Labour Appellate Tribunal, when laying down the formula that was later approved by this Court, appears to. have accepted the life of textile machinery as 25 years, while this Court, in the case of the Associated Cement Companies Ltd. (2), proceeded on the basis that the life of the machinery was 30 years.
In the Honorary Secretary, South India Millowners Association and Others v. The Secretary, Coimbatore District Textile Workers' Union(1), this Court confirmed the finding of the Tribunal that the estimated life of the textile machinery of the Company concerned in that case should be taken. to be 25 years. It is on the basis of these decisions that the claim was put forward that the life of the machinery in the present case should also. be taken to be 30 years or at least 25 years. In our opinion this argument proceeds on an entirely incorrect basis. The life of a machinery of one particular factory need not necessarily be the same as that of another factory. Various factors come in that affect the useful life of a machinery.
There is, first, the consideration of the quality of machinery installed. If the machinery is purchased from a country producing higher quality of machines, it will naturally have longer life, than the machinery purchased from another country where the quality of production is lower. Again, the articles on which the machinery operates may very markedly vary the life of a machine. If, for example, a machine is utilised for grinding of cement, the strain on the machine will necessarily not be the same as on a machine which operates on steel or iron. We are, therefore, unable to accept the suggestion that the: life of the machinery in the present case should have been fixed on the basis of the life accepted in other cases in which decisions were given on bonus disputes either by the Labour Appellate Tribunal or by this Court.
The Tribunal, in its decision, worked. out the life of the machinery on 'the basis of the percentage of depreciation allowed under the Income-tax Act. The application of this principle has been attacked before us by both the parties. It is urged that the artificial rule laid down in the Income-tax Act for calculation of notional depreciation can provide no criterion at all for determining the life of the machinery. We think that the parties are (1) [1950] L.L.J. 1247. (2) [1959] S.C.R. 925.
(3) [1962] 2 Supp. S.C.R. 926.
320 correct and that the Tribunal committed an error in proceeding on this basis.
Though, in the case of the Honorary Secretary, South India Millowners' Association(1), this Court, on the facts of that case, accepted the life of the textile machinery as 25 years; the Court also laid down the principle for finding out the life of machinery in the following words :-- "We are not prepared to accept either argument because, in our opinion, the life of the machinery in every case has to be.
determined in the light of evidence adduced by the parties." (p. 933) Obviously, this is the correct principle, because it is only when the life of machinery is determined in the light of evidence adduced by the parties in a particular case that the authority determining the life can take into account all the factors applicable to the particular machinery in question. As we have indicated earlier, when determining the life of a machinery, factors, such as the quality of the material used in the machines and the nature of the material on which the machines are to operate, very materially affect their life. Further, the life of a machine will also depend on the. manner in which it is handled in a particular factory. We, consequently, in this case proceed to examine the evidence given by the parties. in this behalf.
In order to prove the life of machinery, one method usually adopted by the Companies is to tender evidence of experts. In the. present case, the Company tendered in evidence the statement of an expert, Gerald Waplington, which was recorded earlier on 5th November, 1961 by the Fifth Industrial Tribunal in a dispute pending before it.
That dispute was also between this very Company and its workmen. In giving the life of machinery, Waplington first classified the machines into two classes--general purpose machine tools and special or single purpose machine tools--and expressed the opinion that a general purpose machine tool used for one single operation is likely to have a shorter economic life than special or single purpose machine tool. According to him, a general purpose machine carrying on work of high accuracy will have an economic life of the: order of 2 to 3 years only, while a special purpose machine doing similar work of high accuracy working 400 hours a month will have an economic life of 5 to 6 years.
If the work taken. from the machines is of less accuracy.
then, in his opinion, a general purpose machine may have an economic life up to 5 years, and a special purpose machine an econo evidence available in this case. It may however, be noted that (1) [1962] 2 Supp. S.C.R. 926.
321 tinction between economic life and useful life. He twice stated that economic life of a machine would be only 1/3rd of the useful life of the machine, so that if, on the basis of his evidence, the useful life of various classes of machines mentioned by him is to be worked out, the member of years given for each class by him above will have to be multiplied by 3. Thus, according to his evidence, the economic life of a machine will vary from 2 to 3 years as a minimum to 7 to 10 years at the maximum, and working out the useful life on the basis of his statement that economic life is only 1/3rd of the useful life, the machines would have a minimum of 6 to 9 years and a maximum of 21 to 30 years useful life. We shall consider what inferences can be drawn from his statement at a later stage when we have discussed the other evidence available in tiffs case. It may, however, be noted that Waplington is the only expert who can be held to. be entirely disinterested, because the other two experts examined are employed as Engineers by the Company itself.
This independent witness, Waplington, was not asked whether he had seen the various machines in the factory of the Company, nor was he at any tune requested to indicate how many different machines in the factory of the Company would fail in the various classifications mentioned by him for which he has given different periods in respect of economic life.
The Other two witnesses examined are Joseph Joyce, General Master Mechanic, and Girish Chandra Bansal, Master Mechanic, employed by the Company. Both of them have, in their statements given out their qualifications and experience which they. have in dealing with automobile manufacturing machinery. According to Joyce, the economic life of the machinery of the Company cannot go beyond 6 years, and this statement was. made on the basis of the machines working 16 hours a. day in two shifts of 8 hours each. Later on, he added that, applying American standard, the life of the machines can only be 6 to 10 years. In giving the life, he qualified that word with "economic" or "economic useful", so that he equated economic life with economic useful life and gave the figures on this basis. In cross-examination, he, however, admitted that useful life of a machine is longer than its economic life. Thus, if various, statements of his are taken into account and it is kept in view that he is. an employee. of the Company, it may be accepted that, according to him, the maximum ,economic life of the machinery of the Company will be between 6 to 10 years and the useful life will be longer how much longer, he has not indicated. If we were to assume that he is using the expressions "economic life" and "useful life" in the same: sense in which they were used by Waplington, economic life would be 1/3rd of the useful life, with the result that, on his evidence, useful life of the machinery of the Company would work out to be 322 anywhere between 18 to 30 years. The third witness, Girish Chandra Bansal, estimated the efficient economic life, based on 16 hours per day working, at 6 to 10 years, which Coincides with the' estimate by Joyce. In his case, however, no questions were put to. elicit from him whether he would make any distinction between efficient economic life and useful life, so. that his evidence does not appear to carry us any farther than the evidence of Joyce.
It may be added that both these witnesses in their evidence stated that the workmen employed by the Company were not very skilled workers and this was a factor that had to be taken into account in considering the life of' the machines in this company. It is obvious that, if a machine is handled by a more skilful worker, it will last longer and have a longer life. A Statement was also made by Joyce that machines running at high speed will have shorter life than those running at lower speeds; but this general statement made by him offers no assistance to us in this case, because he has not indicated in his evidence how many and which of the machines of the Company run at high speed and which at lower speed.
Apart from this evidence of experts, the Company has attempted to provide some other data which can be of assistance in assessing the life' of the machinery. In this connection, Mr. Niren De, arguing the case on behalf of the Company; drew our attention to the history of this Company which showed that, initially, this Company started the work of assembly of cars from parts imported from foreign countries. sometime in the year 1942-43, but, later, the policy was. altered and manufacture of components was taken up and progressively increased so as to minimise foreign.
import. He also pointed out that this policy of progressive production of indigenous parts was pressed Upon the Company by the Government and, for this purpose, drew our attention to the: first and the Second reports of the Tariff Commission in the years 1953 and 1956, as well as the report of the lid Hoc Committee on Automobile Industry known as the Report of the Jha Committee, because Sri L.K. Jha was its Chairman. This report came out in the year 1960. It was Urged by Mr. De that, due to. this policy of progressive increase in manufacture of new components, it was not possible for the Company to find money to rehabilitate old machinery and, consequently, the fact that the Company continued to use old machinery for a number of years should not be taken as indicating that machinery 'still had economic or useful life. It was argued. that the Company per force had to continue use of these 'old machines, because it was under pressure to expand its activities. by taking up manufacture of components and the Company was running at a loss. It has already been mentioned earlier' that in the second report of the Tariff Commission in 1956 it was clearly stated that this Company was selling cars at a loss of 323 Rs. 833 per car. It is in this background that the evidence given by the Company should be judged to find out what is the life of the machinery possessed by the Company. He also drew our attention to the principles laid down in this connection by the Full Bench of the Labour Appellate Tribunal in the Millowners' Association's case (1), and by this Court in the Associated Cement Companies' case(2). In the former case, when laying down the principle that provision should be' made for rehabilitation replacement and modernization of the machinery, the Tribunal held that:
"It is essential that the plant and machinery should be kept continuously in good working Order for the purpose of ensuring good return. and such maintenance of plant and machinery would also be to the advantage of labour, for. the better the machinery the larger the earnings, and the better the chance of securing a good bonus." In the latter case, this Court, when examining the scope of claim for rehabilitation. held that:
"this claim covers not only cases of replacement pure and Simple but of rehabilitation and modernisation. In the context, rehabilitation is distinguished from ordinary repairs which go into the working expenses of the industry. It is also distinguished from replacement. It is quite/conceivable that certain parts of machines which constitute a block may need rehabilitation though the block itself can carry on for a number of years; and this process of rehabilitation is in a sense a continual process. Unlike replacement, its date cannot always be fixed or anticipated.
So with modernisation and all these three items are included in the claim for rehabilitation. That is why we think it is necessary that the Tribunals should exercise their discretion in admitting all relevant evidence which would enable them to' determine this vexed question satisfactorily." Proceeding further to. distinguish between cases of replacement. modernisation and expansion, the Court held:
"If it appears fairly 'on the evidence that the introduction of the modern plant or machine is in substance an item of expansion of the industry, expenses incurred in that behalf have to be excluded. On the other hand, if the employer had to introduce the.
new plant essentially because the use of the old plant. though capable (1) [1950] L.L.J. 1247. (2) [1959] S.C.R. 925.
324 of giving service-was uneconomic and otherwise wholly inexpedient, it may be a case of modernisation. Similarly; if by the introduction of a modern plant or machine the production capacity of the industry has.
appreciably increased, it would be relevant for the Tribunal to consider in an appropriate case whether it would be possible to apportion expenses on the basis that it is a case of partial modernisation and partial expansion." It will thus. be seen that, when considering the question of rehabilitation, what is essentially to be taken into.
account is that the old plant, though capable of giving service, was uneconomic and otherwise wholly inexpedient when provision for its replacement and rehabilitation, even though it will include modernisation would be fully justified.
In this context, it may be worthwhile examining at this stage the difference between economic life and useful life on which emphasis has been laid by Mr. Sen on behalf of the workmen. We have already indicated earlier that even the expert examined behalf of the Company, Gerald Waplington, made a distinction between economic life of machinery and its useful life, Further, in giving the life, he applied American standards which may not be applicable in India.
This. Court, in various cases where the question of rehabilitation has been discussed, has laid emphasis on useful life rather than on economic life and, oven in the Associated Cement Companies' case(1) in the extract quoted above, the Court held that modernisation is justified when the use of the old plant becomes uneconomic and otherwise wholly inexpedient. Thus, two tests were laid down, first, that it should be uneconomic and, second, that it should be also otherwise wholly inexpedient. The economic life, as envisaged by Waplington, was not, therefore, considered the appropriate. test for determining when rehabilitation of the plant and machinery would be justified. In fact, one of the very major considerations, that should be taken into account is the actual practice of the manufacturers using the machinery and if evidence be available, to find out how long the manufacturers continue to use the machinery as a rule. It may be that, during the last few years of use, the machinery may be continued to. be utilised because of want of resources and compulsion to retain the machinery, because replacement is not possible at all. It is in the light of this. situation that we proceed to examine the evidence given by the Company about the behaviour of its machinery and the steps taken by the Company to have the old machinery rehabilitated.
(1) [1959] S.C.R. 925.
325 In this connection, two statements filed on behalf of the Company are of significance. One of these is a list of obsolete and/or discarded machines prepared on 26th October, 1962 and marked as Ext. 28. It is to be. noticed that, though 40 different machines were discarded by 26th October, 1962 when this statement was prepared, none of the machinery discarded was that installed up to. the year 1947-48. In fact, this situation is also borne out by the three Schedules IA which have been referred to earlier by us. In those Schedules 1 A, the machinery discarded and written off from books is shown as being worth Rs. 35,000/- out of machinery of the value of Rs. 89.75 lacs installed in the year 1947-48. Thus, the machinery of that year discarded was nominal in value. None of the machinery installed between 'the years 1948-49 to 1951-52 was discarded. Again, the machinery installed in 1952-53 was discarded to the extent of the nominal value of Rs. 39,000/- out of Rs. 11.06 lacs, and no machinery installed in 1953-54 was discarded.
The machinery discarded was primarily that installed in the years 1954-55 to 1957-58, and its value was in the region of Rs. 46 lacs. Thus, right up to 1962, the old machinery purchased up to the year 1954 was almost all continued in use and was not discarded, even though machinery installed in the next four years was considered unfit for further use and. was discarded or written off, The second statement is Ext. 21 which bears the heading "replacement programme condition of machine tools" and which was prepared in March, 1960 in order to claim foreign exchange from the Government for replacement of machinery.
That list contains more than 200 machines, but, again, the machines installed during the year 1947-48 or earlier included in it are only 5 in number, whereas the majority of machines. included in that list are those installed in later years,. Significance attaches to this factor, because the machines instailed in the year 1947-48 were of very large value, their cost being. in excess of Rs. 89 lakhs. In fact, that is the year in which the investment on installation of machinery was highest, barring the year of bonus and the year immediately preceding it. This statement thus shows that, even though the Company wanted replacement of a number of machines which had been installed even in the year 1949-50 and some machines installed in later years, the replacement of those machines was given preference over the replacement of machines installed earlier in the year 1947-
48. In this statement, in the remarks column,. it was mentioned that these machines are to be scrapped. but there was no statement that machines which had been installed in the year 1947-48 were also in such a condition that they required scrapping. Thus, these statements provide some indication of the life of machinery which point both ways.
The fact that old machinery of 1947-48, though of large value, was not 326 considered to be in such a condition as to require immediate replacement in preference to machinery installed later would point towards that machinery having a fairly long life. On the other hand, there is the factor that machinery installed in later years was actually scrapped or was sought to be scrapped, and this necessarily means that later machinery was considered as having shorter life.
In this connection, another statement of which notice may be taken is Ext. 29 which shows prices of certain machines originally purchased by. the Company which is to be rehabilitated, and the prices of the same machines, which were purchased in the two years preceding the time when Girish Chandra Bansal was examined before the Tribunal.
Girish Chandra Bansal's ,evidence was recorded on 14th November, 1962 'and in his statement before the Tribunal he stated that Ext. 29 was prepared to compare the prices of same machines in earlier years when they were purchased originally and again when similar machines were purchased a second time in the past two years. This statement has the significance that, though in the past two years the Company took the step of purchasing machines which would perform the identical functions which the old machines were performing, the Company chose to add these machines as new ones, as a part of its scheme of expansion rather than replace those old machines. In the year 1961-62, therefore, the Company was still of the opinion that it was preferable to add a new machine of the same type rather than replace an old machine doing the-same work, and an inference would necessarily follow that old machine must have been considered to be sufficiently serviceable. This is the view that the Company appears to have held in respect of machinery which was installed 14 or 15 years earlier.
On behalf of the Company, some statements were also.
filed to show that there were very frequent break-downs in the machinery of the Company and. as an illustration, our attention was drawn to the statement for the period January, 1960 to September, 1960. It is true that, if there are very frequent break-downs in machinery, this would give an indication of the condition of the machinery and lead to the inference that their useful life is coming to an end. There is, however, one great difficulty in drawing any conclusion from the statistics of number of break-downs of the machinery put forward on behalf of the Company. The Company has. no doubt, shown us statements that a number of machines had break-downs during the last few years preceding the year of bonus. but no material was brought to our notice-from which it might have been possible to compare how the same machinery was behaving in earlier years or within the first few years after it was installed. Unless it be possible to compare the number of 327 break-downs. when their life is claimed to be over with the number of break-downs when the machine was almost new' or 'was running its economic or Useful life, no assistance is available for assessing the. life of the machinery from a mere table showing the number of break-downs. Further, it was not possible from these statements' to find out which of the machines installed in which year were subject to the break-downs, nor did these statements give us any picture about the percentage of machines installed in different years which' were included in these 'statements.
Consequently, we have felt handicapped in drawing any inference from these statements.
Reliance was also placed on some statements showing that, for purposes of granting incentive bonus, a rated time was prescribed for various machines and progressively this rated time in respect of a large number of machines has had to be increased in order to enable the workmen to earn bonus, because the machines themselves are not working efficiently and. if the rated time is not increased, the workmen would fail to qualify for incentive bonus for no fault of their own and simply because the machines on which they were required to work had deteriorated in condition.It is true that the statement given of increase of rated time gives some indication that the condition of the machinery in this factory has been going down and though this. factor is relevant in determining the useful life of machinery, it cannot carry us very far, because there is no evidence' which would enable us to lay down a correlation between the increase in the rated time and the expiry of the useful life of the machinery. It is not possible on the evidence to discover how much the rated time is expected to increase before it can be said that the machinery has completely run out its useful life.
Mr. De also drew our attention to the statements of some of the witnesses who. deposed that machinery running at high speed has a shorter life than that running at low speed. This general statement, however, is of no assistance, because the Company did not attempt to classify its machines between high speed and low speed ones and' to give evidence in that behalf.
Lastly, it was urged by Mr. Sen on behalf of the workmen that another factor which should be taken into account is that, according to the Full Bench Formula, for calculation of rehabilitation the machinery is treated as scrapped when its value is reduced to 5%, because the break- down value of 5% is all that is deducted when calculating the requirements for rehabilitation. The argument was that the fact that the. break-down value is taken at 5% indicates that the machinery 'for purposes of rehabilitation is treated as still useful unless its value is reduced to that low figure.
328 This is, no doubt, another aspect that must be taken into.
account, though we are unable to accept the submission that a machinery should be deemed to have useful life until it reaches the stage of having a break-down value of 5%. No such absolute rule can be inferred.
In this case, the Tribunal, in fixing the life of the machinery, as we have mentioned earlier, proceeded to calculate it on the basis of the depreciation rate permitted under the Income-tax Act. That basis was not acceptable to either of the parties before us. On behalf of the workmen, it was urged that it was an entirely wrong principle of calculating the life, and even on behalf of the Company no attempt was made to support this method adopted by the Tribunal. In the Honorary Secretary, South India Millowners, Association's case(1), this Court also rejected the argument that the calculation of the life may be based on the depreciation rate permitted by the income-tax Act.
In these circumstances, we have to consider the cumulative effect of the various pieces of evidence and circumstances which we have discussed above and, on its basis, to estimate what should be considered to be the useful life of the machinery of this Company.. Reference may briefly be made to the various conclusions arrived at. The evidence of the independent expert and of the engineer employees of the Company gives a figure. for useful life. of machinery which may be anywhere between 6 years to. 30 years. The lower figures given by them cannot be, accepted as they relate to economic life in the strict sense of that expression and are based on American standards. At the same time, the maximum life worked out from their evidence is on the hypothesis that the useful life stated by Waplington to be three times that of economic life is also the useful life in the same proportion to economic life as given in the evidence of Joyce. Then, there is the evidence that this Company itself has been running its old machinery for quite a large number of years and even after 13 or 14 years of use, the Company in quite a large number of cases preferred, when buying similar machines, to utilise them for expansion rather than for rehabilitation. On the face of it, replacement of old machinery would have been preferred to expansion, if the old machinery had really completed its useful life. In some cases, however, machinery purchased in later years had to be rehabilitated after much shorter periods, but no detailed information is available. why such early replacement became necessary. No.' material was provided to show the comparative quality of machines which have been run for a long time and machines which were replaced or sought to be replaced after shorter periods of us. After tak- (1) [1962] 2 supp. S.C.R. 926.
329 ing into consideration the various factors mentioned by us above, and on the evidence before us, we think that in this case, it would. be appropriate to hold that the average life of the machinery of this. Company in respect of different kinds of machines obtained from different sources may be appropriately taken as 15 years. This life of 15 years arrived at by us, it may be mentioned is on the basis that the machines of the Company have been running during most of the. period, to which the evidence relates, in two shifts only. Girish Chandra Bansal, one of the Engineers of the Company, examined as a witness, stated that the machines in this Company were working in two shifts only, until, for the first time in 1959-60, the factory started to run round-the- clock, i.e., in three shifts. He added that the factory had been working in two shifts from the time it was founded.
It is also clear that; if the. factory had been working in only one shift, the life of the machinery would have been longer, and we think that in that case lit. would have been appropriate to take the life of the machinery as 25 years.
On the other hand, after the machines are being worked in three shifts, the Life of the machinery is bound to be lower and, consequently, if the machines be worked in three shifts, it would be appropriate to take the life of the machinery at 10 years. In the present case, however, we are accepting the; average life as 15 years for all the machines requiring rehabilitation, because the evidence, as mentioned above, shows that the machines have been. working in two shifts only from the time when the factory started functioning, with the exception that, in the first few years, they were worked in only one shift while, from the year preceding the year of bonus, they have been worked in three shifts. Consequently, it may be taken that, up to the year of bonus, the machines have been worked on the average, in two shifts. In working out the divisor, however, it will have to be kept in view that future life of the machinery will have to be calculated on the basis of three shifts and, consequently, on the basis of the figure of 10 years as the useful life of the machinery. We may also incidentally mention that this Court, in the case of National Engineering 'Industries Ltd. v. The Workmen & Vice Versa(1), accepted the life of the precision machinery of the Company concerned in that case as 15 years, so that the conclusion arrived at by us on the evidence in the present case happens to coincide with the figure of life accepted in that case.
In this connection, we-may also take notice of one point urged by Mr. De on behalf of the Company. It appears that, when working out the divisor and finding out what machinery required rehabilitation, the Tribunal did not take into account machinery installed during the bonus year itself for making provision for mic life of 7 to 10 years. In his evidence, further, he made a dis- (1) Civil Appeals Nos. 356-357 of 1966 decided on 6-10-1967.
330 any machinery is installed in bonus1 year, the Company would be justified in claiming that it must immediately start making provision for its rehabilitation, though the period for rehabilitation of that machinery would only start at the end of the bonus year. Once machinery has been installed and is in existence. in the bonus year, the Company is entitled.
to say that it will require= rehabilitation in future and that provision should be made for rehabilitation of that machinery also and the Company should start keeping reserves. for that purpose from the year of bonus itself.
Thus, in the present case, the machinery installed in the year 1960-61 should have been included in the rehabilitation statement, though the divisor in respect of that machinery will, on our decision given above, be 15 on the basis of two shifts and 10 on the basis. of three shifts, as the machines will still have a residuary life of 15 or 10 years, computing the period from the bonus year which is also the year of installation.
The second factor entering the calculation of rehabilitation requirement about which there was controversy between the parties is the multiplier. We have already mentioned the fact that, in the first and the third Schedules 1A, the Company gave one set of multipliers, while in' the second Schedule 1A higher multipliers were given.
The Tribunal took both sets of multipliers into. account and worked out the average and accepted that as the correct multiplier, representing the rise in the price: rate of the machinery requiring rehabilitation. Thereafter, the Tribunal held that the machinery which was to replace the old one would have a larger production and proceeded to work out figures for reducing the multipliers on that account.
The Tribunal held that it would be justified to reduce the average multipliers arrived at by 75 for machinery installed up to' 1951-52, by 55 for machinery installed during the years 1952-53 to 1955-56, and by 35 for that installed during the years 1956-57 to 1960-61. Before us, this method adopted by the Tribunal was criticised by counsel' for both parties. On behalf of the workmen, it was contended that there was no justification for the Tribunal to take the average of the multipliers in the first and the second Schedules IA and that the Tribunal should only have proceeded on the basis that the multipliers given in the first Schedule IA were proved and were correct ones. On behalf of the Company, it was urged that the Tribunal should have accepted the multipliers given in the second Schedule IA and should not have reduced them by taking into account those given in the first Schedule 1A, and, further, that there was no justification at all for the Tribunal to reduce the figures of the multipliers for the various blocks of machinery by 75, 55 or 35 on the ground that the machinery to be installed in replacement would have a higher production.
331 We were taken by learned counsel for parties into the evidence tendered on behalf of the Company to prove the multipliers. We have found that the correctness of the multipliers shown in the first Schedule 1A has been very satisfactorily proved. It appears that those figures were arrived at by comparing the prices of the old machinery installed in various years with similar machinery purchased in subsequent years. That comparison was contained m statement Ext. 29. The Company's witness Bansal not only proved this statement, but also clearly stated that the machines originally purchased and those purchased later shown in, that statement Ext. 29 were the same machines.
In cross-examination, he further specifically arrested that the production capacity of these new machines mentioned in Ext. 29 was very much the same as that of the original machines which were to be replaced when they were new. It is also, significant that these figures of multipliers included in the first Schedule IA. were not challenged on behalf of the workmen before the Tribunal. So far as the figures contained in the second Schedule 1 A are concerned, it was suggested on behalf of the Company that they were' based on subsequent quotations received for replacement machinery which formed part of a series Ext. 31. Learned counsel for the Company was, however, unable to point out any statement in the evidence of any witness which would show that the figures for multipliers incorporated in the second Schedule IA were actually calculated from the quotations contained in Ext. 31. In fact, no such evidence was possible, because the second Schedule IA was filed on behalf of the Company after the evidence of parties was over and that second Schedule IA not being a part of the record before the Tribunal when evidence was recorded, it was not possible for any witness to give evidence proving those figures for multipliers. In these circumstances, we must hold that the. Tribunal committed an error in taking into account the multipliers given in the second Schedule IA and that the only figures for multipliers that could have been and should be accepted are those in the first Schedule 1A.
At the same time, we must also accept 'the contention on behalf of the Company that the Tribunal had no.
justification fox reducing the multipliers by deducting 75, 55, and 35 in respect of the three blocks of machinery sought to be replaced. As we have indicated earlier, the Tribunal proceeded to hold that this deduction was justified on the ground that the new machines which had been purchased and which were being compared with the original machines sought to be replaced must necessarily have more productive capacity. We have not been able to find any evidence on the record of any witness which would support this conclusion.
It is true that the statements. made by Company witnesses, particularly Bansal show that the new machines were 332 more efficient and were likely to produce better quality goods. At. no stage, however, in the cross;examination of Bansal was any statement made admitting that' these new machines, whose. prices. were being compared with those of the old machines for rehabilitation, had a larger productive capacity than those original machines. In fact, as we have pointed out earlier, in his cross-examination Bansal made a definite statement that these new machines will produce exactly the same number of pieces as the original machines when they were new. This Court in the case of the Associated Cement Companies Ltd.(1) had indicated that it is only if, by the introduction of a modern plant or machine, the production capacity of the industry has appreciably increased that it would be relevant for the Tribunal to consider in an appropriate case whether it would be possible to apportion expenses on the basis that it is a case of partial modernisation and partial expansion. If, however, the increased production is not of a significant order. it may be regarded as incidental to replacement or modernisation and the question of apportionment may not arise (p. 969). It is, of course, possible that Bansal, in stating that the new machines, the prices of which formed the basis of calculation of multipliers, have exactly the same capacity as the original machines to be replaced, may not be quite correct; but there was no material at all from which 'the Tribunal could have justifiably inferred that the increase in production would be so material as to attract the principle 'for apportionment laid down by this Court in the case cited above and, consequently, the Tribunal fell into an error in reducing the multipliers merely on the assumption that the new machines must necessarily have a larger production capacity than the original machines. In these circumstances, we hold that the rehabilitation, provision should have been calculated by the Tribunal on the basis of th
