Decided on August 22,1961

JEEWANLAL (1929) LTD. Appellant


D.N.SINHA, J. - (1.) THE facts in this case are shortly as follows: The petitioner is a company incorporated under the Indian Companies Act, having its registered office at Calcutta. Its business consists of the manufacture and sale of aluminium utensils, for the manufacture of which it has a factory at Belur in Howrah and at other places. The said factory is commonly known as the 'Crown Aluminium Works.' At all material times prior to about the middle of 1951, the petitioner's issued and subscribed capital was Rs. 36,00,000 divided Into Rs. 3,60,000 ordinary shares of Rs. 10 each, fully paid up. At or about that time, the total assets of the company had a book value of about Rs. 72.00,000. All the shares were held by or on behalf of Aluminium, Limited, a company incorporated in Canada. In the year 1951, the Canadian company sold out all its shares to Indian shareholders, who had to pay the book value of the assets, namely, Rs. 72,00,000. In other words, these shares of the face value of Rs. 36,00,000 were purchased by the Indian shareholders upon actual payment to the Canadian shareholders of Rs. 72,00,000. What was done afterwards was to increase the capital to Rs. 72,00,000 by the issue of bonus shares, to the extent of one share for every share already held. In order to do this, permission had to be obtained from the Controller of Capital Issues, New Delhi, and such consent was given upon the condition that no dividend should be paid for 1951 or any future years until after a reserve of Rs. 14,40,000 had been built up, to replace a portion of the reserves utilized in the capitalization effected by the issue of bonus shares. In accordance with the said condition, the company set aside in reserve a sum of Rs. 8,00,000 out of the profits for the year 1951. For the year ending 31 December 1952, there was a loss of over fourteen lakhs of rupees. For the year ending 31 December 1953, there was a loss of over six lakhs of rupees. Between 1954 and there were profits, but the final position in 1958 was that a net loss of Rs. 1,69,656 had to be carried forward. The result was that in 1958, which is the relevant period for our consideration, not only the reserve of Rs. 8,00,000 was not increased, but was substantially depleted. The position is made clear in the directors' report, dated 18 May Clause (7) and which runs as follows: In conformity with the requirements of the Companies Act, 1956, the general reserve and the reserve for replacement of fixed capital assets, the two together amounting to Rs. 8,00,001 has been placed against the net deficit of Rs. 1,69,656 and only the net amount of Rs. 6,30,344 has been shown under the head ' reserves and surplus' on the liabilities side, for the purposes of the balance -sheet. However, the necessity still remains to build up a general reserve of Rs. 14,40,000 prescribed by the Central Government in Its order in 1951. The company, has thus, yet to wipe off the net carry forward of losses of Rs. 1,69,656 and add a further sum of Rs. 6,40,000 to the general reserve fund before it can distribute dividends in cash. In respect of this official condition to build up prescribed reserve, your directors expect to try with success to get it relaxed in some measure to speed up prospects of an earlier cash dividend.
(2.) AS a result of this state of affairs, the shareholders have received no dividends since 1951 up to date, upon their investment of Rs. 72,00,000. By an order, dated 10 July 1959, the Government of West Bengal made a reference to the fourth industrial tribunal of West Bengal, respondent 1 herein, of an industrial dispute existing between the 'Crown Aluminium Works, 31, Netaji Subhas Road, Calcutta -1 and their workmen represented by Bengal Aluminium Workers' Union.' The issue was the question of the payment of gratuity. The said tribunal, after considering the matter, has made an award, dated 26 December 1959, holding that gratuity was payable. The tribunal framed rules for the payment of gratuity. A copy of this award is Ex. J to the petition. This application is directed against the validity of this award.
(3.) SRI Ginwalla appearing on behalf of the petitioner, has taken several points which are as follows: The first point taken is that the order of reference is invalid because the employer of the workmen la not Grown Aluminium Works but the petitioner company. Further, there is no such business known as the 'Crown Aluminium Works' as stated above. The Belur factory of the petitioner is commonly known as the 'Crown Aluminium Works.' It is stated, therefore, that the reference was invalid as being a reference between the employees and someone who is not their employer. The second point taken is that before the order of reference was made, there were certain negotiations between the company and its workmen, and the company offered to make certain payment of gratuity, 'without prejudice.' These negotiations failed. The complaint is that questions were allowed to be put to the witnesses about the negotiations having taken place, although the tribunal disallowed questions relating to the terms of the said negotiations. According to Sri Ginwalla, the tribunal having informed itself that an offer has been made by the petitioner company, became prejudiced and was thus not competent to proceed to hear the reference. The third point taken is that there are errors of law on the face of the record. These errors may be specified as follows: (a) That in awarding gratuity at the end of five years' work, the tribunal violated the principles laid down by the Supreme Court. (b) That the tribunal erroneously held that the company had now almost reached the position of fully providing for the guaranteed reserves at Rs. 14,40,000 and it is expected that the shareholders would now earn dividends. (c) That the scheme as framed is on the face of it untenable. While a workman voluntarily retiring or resigning after five years would get fifteen days' basic salary for each completed year of service as gratuity, a workman whose service was terminated by the company after completion of five years' service would get ten days' basic pay for each completed year of service as gratuity, a state of things which is based on no rational standard. (d) The tribunal noticed certain decisions of the labour tribunal of Bombay, between the company and its workmen at Bombay, but while it followed the award of the original tribunal, it ignored altogether the fact that part of the award had been overruled by the Appellate Tribunal. With regard to the first point, it is not disputed that the 'Crown Aluminium Works' is merely the name of the factory of the petitioner company, and the intention was to make a reference of adjudication of an industrial dispute existing between the workmen and the petitioner company and not the factory. Now, although strictly speaking, no industrial dispute can exist between a factory and the workmen, this is an error which is not fatal. This point was dealt with in a decision of the Supreme Court - -S.K.G. Sugar, Limited v. Industrial Tribunal, Bihar (Ali Hassan, Chairman) 1959 - -I L.L. J. 420, There also, a reference under Section 10(1) of the Industrial Disputes Act was made of a dispute between a sugar factory owned by a company and its workmen. It was held that what was intended was that the management of the sugar factory, whoever the management may be, would be the party concerned in the reference. That the petitioner company was aware of the reference is not disputed. Indeed the business of the petitioner is known to the world as 'Crown Aluminium Works' and the brand 'Crown Aluminium' is well known in the market as the greatest asset of the petitioner. So, at no time was there any misapprehension in the minds of any person concerned as to who was the employer and who the employee, in connexion with the reference. It further appears that in the industrial adjudication by the omnibus industrial tribunal, resulting in its award passed in 1948, the 'Crown Aluminium Works, Belur' was a party to the reference and the award. This appears from annexure B to the petition. In view of these facts, the first point falls. With regard to the second point, it is true that negotiations were held 'without prejudice' but there is nothing to show that the tribunal ever considered anything as evidence which was made without prejudice. It was argued that before the tribunal, the learned Counsel for the workmen, in course of his argument disclosed the terms of the offer made by the company, which had only been made without prejudice, during negotiations for settlement in respect of the payment of gratuity, whereupon the company filed a petition objecting to the same, a copy whereof is Ex. H to the petition. Unfortunately, in the records of the tribunal there is nothing that indicates that such an objection was taken. The workmen have denied that any such thing happened or any such petition was moved before the tribunal. No such petition is found in the original record produced before me. In any event, it is difficult to understand how the tribunal lost jurisdiction to adjudicate upon the dispute simply because one party disclosed the factum of a negotiation, without disclosing the particulars thereof or even after it did disclose the particulars, there is nothing in the award to show that the tribunal was affected by it. This point is without substance and cannot be accepted. I now come to the third point, namely, the alleged errors which appear on the face of the proceedings. For this purpose, I must refer to the scheme that has been framed and described as 'Rules of gratuity.' The relevant part is as follows: (i) On the death of an employee, while in the service of the company, or on his becoming physically or mentally incapable of further service, fifteen days' basic wages for each completed year of service, subject to a maximum of fifteen months' basic wages, to be paid to the disabled employee or, if he had died, to his heirs, or legal representatives or assignees or nominees. (ii) On voluntary retirement or resignation of an employee after five years' continuous service, fifteen days' basic salary or wages for each completed year of service. (iii) On termination of employee's service by the company - - (a) after completion of service of five years but less than ten years - -ten days 'basic pay for each completed year of service....It will thus be seen that after five years' employment a workman may be entitled to gratuity even on voluntary retirement or resignation. This is what has been condemned by the Supreme Court in Express Newspapers (Private), Ltd. and Anr. v. Union of India and Ors. 1961 -I L.L.J. 339]. In that case a provision was made for the grant of a gratuity, upon voluntary resignation after three years service. Bhagwati, J., stated as follows: When we come, however, to the provision in regard to the payment of gratuity to working journalists who voluntarily resigned from services from newspaper establishments, we find that this was a provision which was not at all reasonable. A gratuity is a scheme of retirement benefit and the conditions for its being awarded have been thus laid down in the labour court decisions in this country. In the case of workmen employed under the Ahmedabad Municipal Corporation v. Ahmedabad Municipal Corporation (1955) L.A.C.155, it was observed at p. 158:The fundamental principle in allowing gratuity is that it is a retirement benefit, for long service, a provision for old age....;

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