Decided on March 09,1960

IR WORKMEN Respondents

Cited Judgements :-



DAS GUPTA - (1.), J.: The appellant-M/s. Peirce Leslie and Co., Ltd., is a private limited company engaged in various enterprised mainly in South India. It started business in this country over a century ago and though it is registered in England almost all its activities appear to be carried on in this country. The principal activities that require mention are the business in cashew nuts which the Company sells after roasting raw cashew nuts purchased in this country and in Africa, and business in coir products and several other country produce like ginger, lemon grass oil etc. A large portion of the products in which it trades is exported to foreign countries. Apart from these trading activities the company is also engaged in agency business including working as managing agents of many companies. For many years the company as a whole had made good profits, though in some of its many lines losses were incurred. The company has on its pay roll a large number of employees and a part from superior officers in its covenanted and uncovenanted staff both Indian and European it employs in its various lines of business a large number of workmen including clerical staff. The clerical staff alone consists of 882 monthly paid employees. For many years the Company has voluntarily paid bonus to all its employees out of the surplus profits. To the monthly paid employees with whom we are concerned in the present appeal the company paid during the year 1954-55 a sum equivalent to three months basic wages as bonus. Not content with this these employees through their Union put forward a claim for additional bonus. The industrial dispute thus raised was referred by the Government to the Industrial Tribunal sitting at Coimbatore. Before the Tribunal the workmen claimed an additional bonus equal to seven months' basic wages. The company's case was that the peculiar nature of its activities specially the fact that in its agency business very little capital was employed and the fact that in the cashew business and other produce business the element of risk was unusually great justify material alternation in the Full Bench Formula for ascertainment of the available surplus in several respects. The main alteration asked for before the Tribunal appears to have been that rates higher than 6 per cent of paid up capital and 4 per cent on reserves employed as working capital should be allowed in working the Full Bench Formula in view of the special risks in its business and the further fact that its agency business requires very little capital. These were rejected by the Tribunal. The Tribunal also accepted only partially the company's claims as regards rehabilitation allowances for the year and as regards actual amounts used as working capital. Having arrived on its calculations at the figure of L55,137 as the available surplus after meeting all prior and necessary charges the Tribunal awarded bonus equal to five months' basic wages in addition to three months' basic wages already voluntarily paid by the company. In making this distribution the Tribunal rejected the company's case that as this claim was raised by only a small percentage of the workmen the entire available surplus should not be treated as available in distributing bonus to these few workmen.
(2.)THE first contention urged in appeal before us is that the Tribunal was wrong in rejecting the company's claim for higher return than usual on paid up capital and reserves used as working capital. THE appellants' counsel has taken us through the evidence, oral and documentary, as regards what he characterized as the heavy "fluctuations" in the price of raw cashew nuts which the company had to purchase and the price in the foreign market of the finished goods. That there is some amount of risk is undoubtedly true. We are not convinced however that the company's business whether in cashew nuts or in any other line is attended with such unusual risk as would justify the provision of more than the usual rate of return. Return on invested capital has always to provide for pure interest plus compensation for the risks of the business. Prevailing interest in the money market yielded by giltedged security is ordinarily taken to be a fair index of what should be considered reasonable as pure interest. For many years now this figure has varied from 3 to 4 per cent. If no risks were involved, this percentage should have been considered a fair return on invested capital. It is because most businesses contain an element of risk-some more some less - because of fluctuations, on the one hand in the prices of raw material and on the other hand in the effective demand for the finished goods - apart from cyclical booms and depressions - that an additional return of 2 to 3 per cent is generally considered necessary to compensate for the risks. It is in view of this that a return of 6 per cent is ordinarily considered to be a fair return on the capital invested in the shape of paid up capital. In a particular industry where the risk is appreciably less than usual there will be good cause for providing less than 6 per cent. And similarly, in an industry where extraordinary risks are run more than 6 per cent should reasonably be provided for.
If therefore there was reason to think that the appellant company's contention that its business was attended with ususual risks was correct there would have been good reason to allow a higher rate than 6 per cent on the paid up capital and also a higher rate than 4 per cent on the reserves used a working capital. We are not however satisfied that any such unusual risk is run. There is no more speculation in buying raw nuts and roasting the same and selling them than there is, say, in buying raw cotton in the market, spinning yarn therefrom, making it into cloth and selling such cloth, or in buying raw jute, spinning yarn therefrom weaving it into gunny cloth and selling the same. No case for any higher return on the paid up capital or working capital has been made out by the evidence.

Nor can the fact that the agency business of the company does not require much in the way of capital be considered to be a reason for allowing a higher rate of return in those lines. If in the agency businesses considerable profits are earned with a small amount of capital the contribution to such earning by labour including both those at the top and those at the bottom is necessarily considerable. There is no justification for compensating the enterprenter for the fact that with a small amount of capital considerable profits are earned.

(3.)THIS brings us to the appellant's case about higher rehabilitation allowance than what has been allowed by the Tribunal. The company put its claim for rehabilitation allowance at the figure of 231,780 but the Tribunal accepted only a sum of L11,250 as the reasonable figure towards statutory depreciation and rehabilitation together. In support of its claim the Company produced a number of statements prepared by witnesses claimed to be experts showing the replacement value of buildings, machinery, furniture and sundry plants which constituted the fixed capital of the company. Statements are also produced showing the further expectation of life of each of these items. The services of a chartered accountant firm were also requisitioned and we have on the record a statement showing how the figures required for replacement have been worked out for the various items of buildings, machinery and furniture and sundry plants. According to Exhibit E-50, the statement on which great reliance was placed by the company, the total replacement value of its assets was Rs. 1,08,02,330 made up of Rs. 77,86,350 for buildings, Rs. 18,52,320 for plants and machinery, Rs. 3,63,550 for furniture and Rs. 8,00,110 for sundry plants. Different items of buildings and machinery are put in separate groups according as the replacement is necessary in view of the residual age, during 1955-60, 1960-65, 1965-70, 1970-75, 1975-80, 1980-85, 1985-90, 1990-95, 1995-2000, 2000-2005, 2005 is taken as the last year, as the residual age is calculated from 1955 and the maximum residual age is taken to be 50 years. Exhibit E-43 shows the detailed calculations on the basis how the sum of Rs. 77,86,335 was arrived at as the replacement cost of buildings. Exhibit E-46 is a similar statement in respect of replacement costs of plant and machinery. Ex. E-29A shows how after taking reserves for rehabilitation for the different groups of buildings into consideration, the rehabilitation charge for the season 1952-53 is worked out at Rs. 19,878 for buildings and the rehabilitation for plant and machinery is worked out as L5,435. Details are also given as regards the calculation of L4,744 as the rehabilitation costs to be provided for sundry plants and L1,723 as the rehabilitation costs for furniture in the year 1954-55.
The very fact that such care has been taken in furnishing details to the Court inclines on prima facie to accept the correctness of these figures without much scrutiny. Scrutiny is however very much needed before the figures and the calculations are accepted. Mention may first be made of the fact that though it was stated by the witness who is responsible for the preparation of the replacement costs of the machinery that he obtained quotations from different firms, no such quotation has been placed on record. That, as the Tribunal itself recognized affected very much the value of these figures. As however after mentioning the infirmities of the evidence the Tribunal decided to accept as a reasonably accurate statement this figure of Rs. 1,08,02,330 as the total replacement value we need not consider whether we ourselves would have been prepared to accept the evidence if the matter was being considered by us in the first instance.


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