1964 INSC 0112
Gramophone Company, Limited
v.
Its Workmen
(Supreme Court Of India)
HON'BLE MR. JUSTICE P. B. GAJENDRAGADKAR (CJI) HON'BLE MR.
JUSTICE K.N.WANCHOO HON'BLE MR. JUSTICE K.C.DAS GUPTA
Civil Appeal No. 495 And 498 Of 1963 | 31-03-1964

Wanchoo, J.

1. These two appeals by special leave arise out of the same award of the
industrial tribunal at Bombay and will be dealt with together. Appeal No. 495 is
by the employer (hereinafter referred to as the company) and Appeal No. 498 in
by the employees (hereinafter referred to as the workmen). A large number of
matters were referred to the tribunal for decision. The company's appeal is
confined to gratuity and Privilege leave. The workmen's appeal raises a large
number of points to which we shall refer when we deal with that appeal.

2. We shall first consider the contention of the company on the question of
gratuity. The company is a subsidiary or branch of the Gramophone Company,
Ltd., which is a private limited company incorporated in the United Kingdom.
The Indian branch was established over 50 years ago and is concerned mainly
with the manufacture and/or sale of gramophone records, gramophone
machines, needles, accessories, radio receivers, radiograms and record players.
The head office and the factory of the Indian branch is at Dum Dum in West
Bengal. While there is a branch office at Bombay with which the present
appeals are concerned. There are about 72 workmen both clerks and subordinate
staff employed in the Bombay office. On the other hand, there are about 1, 700
employees in the head office and factory at Dum Dum. The workmen at
Bombay asked for the introduction of a gratuity scheme for them. This was
opposed by the company and the main ground of such apposition was that the
company had no financial capacity to bear the burden of the scheme. The
tribunal went into the question of the financial capacity of the company and
came to the conclusion that its financial capacity justified the introduction of a
gratuity scheme in Bombay. But the scheme which the tribunal framed was a

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modest scheme as compared to the demand of the workmen. It is not necessary
to refer to the details of the scheme framed by the tribunal, for the company
does not question the detail. Its contention is that it has not the financial
capacity to bear the burden of any gratuity scheme. In this connexion it is
further contended that the tribunal went wrong not only in its appraisal of the
financial capacity of the company but also in overlooking certain other facts
which have an important bearing on the question. It is contended that the
tribunal failed to notice that there was already a provident fund scheme in force
for the employees of the company since 1950. It also ignored the effect which
the grant of gratuity to the Bombay workmen would have on the Dum Dum
employees where a large majority of the company's employees work. Lastly it is
contended that the tribunal ignored the fact that an earlier demand by the Dum
Dum employees for the introduction of a gratuity scheme was turned down by
the industrial tribunal in Bengal at the end of 1955 on the ground that the
company's financial position did not justify the introduction of a gratuity
scheme in addition to the provident fund scheme, which was already in
force.There is no doubt that the tribunal while dealing with the question of
gratuity has not referred to the existence of the provident fund scheme for the
employees of the company. It has also not considered the impact of the
introduction of the gratuity scheme in Bombay where only 72 workmen work
on the company's head office at Dum Dum where there are about 1, 700
employees. Nor has it adverted to the fact that in 1955 a tribunal in Calcutta had
turned down the prayer for the introduction of a gratuity scheme for the
employees at Dum Dum on the ground of lack of financial capacity. These
omissions of the tribunal have certainly introduced an infirmity in the award
relating to gratuity, and we have therefore heard learned counsel for the parties
at length on the question, particularly with regard to the financial capacity of the
company and its ability to bear the burden of a gratuity scheme.

3. Before we consider the financial capacity of the company we should like to
deal with the points which the tribunal failed to consider to see what effect they
can have on the introduction of a gratuity scheme for the workmen in Bombay.
The first fact to which reference may be made is that there is a provident fund
scheme in force since 1950 to which the company contributes at the rate of 6
1/4 per cent of the consolidated salary of a workman. It is however well-settled
now that the existence of a provident fund scheme is not a bar to the grant of a
second retrial benefit in the shape of a gratuity scheme, provided the employer
is able to bear the burden of two retrial benefits. That naturally depends on the
financial capacity of the employer which we shall consider later. But the mere

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existence of a provident fund scheme is not by itself a reason for refusing a
gratuity scheme, particularly when a good part of the services of the existing
workmen was not covered by the provident fund scheme.The next fact which
was not noticed by the tribunal was that the West Bengal industrial tribunal had
turned down the demand of the Dum Dum employees of the company for a
gratuity scheme at the end of 1955 on the ground of lack of financial capacity.
That also is no reason for refusing the introduction of a gratuity scheme for the
Bombay workmen, if the financial capacity of the Company has in the
meantime improved, and it is able to bear the burden of such a scheme. It may
be mentioned that the West Bengal tribunal looked at the position of the
company as it was up to 1954. Since then seven years had passed when the
present tribunal came to make its award, and it is the financial position of these
seven years which was not before the West Bengal tribunal that will have to be
considered in deciding whether the company is able to bear the burden now of a
gratuity scheme for the workmen in Bombay. The omission therefore of the
tribunal to consider the existence of the provident fund scheme and to take into
account the fact that the West Bengal tribunal had turned down the demand for
the introduction of a gratuity scheme in 1955 will not matter if we find on a
review of the financial capacity of the company that it is in a position to bear the
burden of a gratuity scheme for the Bombay workmen.

4. The last point which the tribunal omitted to consider was the impact of the
introduction of the gratuity scheme for the Bombay workmen who number only
72 on the financial capacity of the company with respect to about 1, 700
employees in Dum Dum. It is contended on behalf of the company that if a
gratuity scheme is introduced for the Bombay workmen it will not be possible
for it to resist the demand for the introduction of a similar scheme for the Dum
Dum workmen, and therefore in judging its financial capacity to bear the burden
of the introduction of the gratuity scheme the overall position should have been
taken into account and its capacity to bear the burden should be judged not
merely on the basis of 72 workmen at Bombay, for it may have to provide for a
similar scheme for its employees at Dum Dum. There is some force in this
contention of the company, and its financial capacity has to be judged on the
basis of the all-India position for it may not be able to resist the demand, for the
introduction of a gratuity scheme in Dum Dum, if it has to introduce a gratuity
scheme for the Bombay workmen. It appears from what counsel for the parties
have told us that since the award under appeal contribution to the provident
fund made by the company has been increased from 6 1/4 per cent to 8 per cent
in the case of the factory employees in Dum Dum. It is also stated by learned

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counsel for the workmen that the burden of this increase in the company's
contribution towards the provident fund of the factory employees in Dum Dum
to more or less the same as the burden that would be cast on it by the
introduction of a gratuity scheme like the one granted by the tribunal. Therefore,
it is urged that so far as the large majority of the factory employees in Dum
Dum are concerned, they have already got another benefit equal to the benefit
which the workmen in Bombay would get by the introduction of the gratuity
scheme and therefore they need not be taken into account in considering the
total burden cast on the company by the introduction of the gratuity scheme for
the Bombay workmen. It is only the non-factory workers who are a small
percentage of the total number of employees in Dum Dum who may not be
covered by the increase of the provident fund contribution who have to be taken
into account in according what further burden would he thrown on the company
by having to introduce a similar scheme for such employees as are not covered
by the increased provident fund contribution. It is not in dispute that in Bombay
the provident fund contribution has remained at 6 1/4 per centum as before as
the Bombay workmen are not factory workers to whom only the increase
applies. There is in our opinion force in this contention on behalf of the
workmen and the impact of the scheme in view of this fresh development with
respect to factory employees in Dum Dum would not be much with respect to a
small percentage of its employees not covered by the increase in the provident
fund contribution by the company in Dum Dum. We shall however bear in mind
the impact of this small majority of employees in Dum Dum in judging the
financial capacity of the company to bear the burden of this gratuity scheme for
the Bombay workmen.We turn now to a consideration of the financial capacity
of the company. In this connexion the company gave an estimate of the initial
fund required for a gratuity scheme, which, according to it, works out to about
between Rs. 33 and Rs. 34 lakhs on the basis of the demand of the workmen.
This figure will be roughly halved, for the workmen had demanded one month's
consolidated salary as gratuity for each year of service without any limit while
the tribunal has awarded half a month's basic salary for each year subject to a
maximum of fifteen months. Even so the figure would be in the region of Rs. 16
to Rs. 17 lakhs. If this was the real burden thrown on the company, at once a
question may arise whether it will be able to bear this burden or not. But, as
Was pointed out by this Court in Sone Valley Portland Cement Company v. Its
workmen [1962 - I L.L.J. 218] (Civil Appeal No. 586 of 1960 decided on 25
January 1962) there are two ways of looking at the burden thrown on an
employer by the introduction of a gratuity scheme. One way is to capitalize the
burden, and if that is done the burden would certainly appear very high and that
is what exactly the company has done in its estimate. But looking at it from a

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practical point of view, only 3 per cent to 4 Per cent of the workmen retire every
year, and provision has to be made each year for only these workmen and the
burden in the circumstances, assuming it to be Rs. 15 to Rs. 16 lakhs on the
basis on which the company has calculated it, would immediately be reduced to
about one lakh of rupees per year.

5. It is however said that in the company a large number of employees are older
men and the rate of retirement may be more than three to four Per centum. Even
so we think calculating in the practical way the burden will not be more than Rs.
1 1/2 lakhs per year for the entire 1, 700 employees or so. Further if we exclude
from this calculation the large number of factory workers at Dum Dum in
whose case the provident fund contribution has been increased from 6 1/4 to 8
per centum, the total burden per year would be very much less indeed. What we
have to see is whether the company is in a financial capacity to bear this burden
of the present gratuity scheme awarded by the tribunal.We therefore turn to the
financial position of the company after 1955 to see whether this burden can he
borne by the company. Balance sheets have been filed by the company for the
years 1956- 57 to 1960-61. The profits shown in these balance sheets for the
various years are as below :

Rupees Year in lakhs

1956-57 ... 7.6

1957-58 ... 7.2

1958-59 ... 1.6

1959-60 ... 1.49

1960-61 ... 6.04

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6. It is further contended on behalf of the company that before the real profit for
each year can be arrived at we should deduct amounts to be Provided for
taxation and for development rebate reserves and if that is done it will be found
that hardly any profit would be left and the financial position of the company
would show that in most of these years it suffered lose. We are of opinion that
this is not the correct way of judging the financial capacity of an employer,
assuming that the figures in the balance sheets are all accepted as they are.
When an industrial tribunal is considering the question of wage-structure and
gratuity which in our opinion stands more or less on the same footing as wage-
structure, it has to look at the profits made without considering provision for
taxation in the shape of incometax and for reserves. The provision for
incometax and for reserves must in our opinion take second place as compared
to provision for wage-structure and gratuity, which stands on the same footing
as provident fund which is also a retrial benefit. Payment towards provident
fund and gratuity is expense to be met by an employer like any other expense
including wages and if the financial position shows that the burden of payment
of gratuity and provident fund can be met without undue strain on the financial
position of the employer, that burden must be borne by the employer. It will
certainly result in some reduction in profits; but if the industry is in a stable
condition and the burden of provident fund and gratuity does not result in loss to
the employer, that burden will have to be borne by the employer like the burden
of wage-structure in the interest of social justice. While on the one hand casting
of this burden reduces the margin of profit, on the other hand it will result in the
reduction of taxation in the shape of income tax.

7. Thus, if the rate of tax is about 60 per cent as in the present case, the burden
on the employer will be reduced to the extent of 60 per cent by being passed on
in the shape of reduction of taxation and the real burden will only be to the
extent of 40 per cent of the entire burden. We cannot therefore accept the
contention on behalf of the company that provision for taxation and provision
for reserves should take precedence over provision for gratuity. Further, an we
have indicated, the practical burden on the company in the present case even
taking all the employees into account would be in the neighbourhood of Rs. 1,
50, 000 per year of which 63 per cent would be met by reduction in taxation. It
so, the real burden of gratuity scheme like the present on the company would be
about Rs. 60, 000 per year. We do not think on a consideration of the profits
made by the company in the five years already indicated that the company is not
in a position to bear this burden. The actual burden may be even less, if we
leave out of account the factory employees at Dum Dum in whose case there

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has been an increase in the provident fund contribution from 6 1/4 to 8 per cent,
and who therefore stand on a separate footing. Therefore, as we see the financial
position of the company in the five years ending 30 June 1961, we do not think
that it is such that it cannot bear the burden of the gratuity scheme as awarded
by the tribunal.It has however been contended that the future of the company is
not very bright and this should be taken into account in casting a further burden
of a permanent nature like a gratuity scheme.

8. In this connexion it is said that it is not possible to increase the price of the
records and that whenever the price was increased the sale of records in India
fell. There is no doubt that compared to 1946-47 the sale of records has fallen in
number. While it was over 38 lakhs in 1946-47, in the five years from 1956-57
to 1960-61, it has been about 25 lakhs. Though in one year it was over 27 lakhs.
Even so for all these five years the figure has remained steady and therefore it
cannot be said that the future is gloomy. It is true that the company has not been
able to increase the price since 1946-47, for its experiment in that direction
between 1947-53 showed that with the increase in price the sales fell in
numbers. But we find that there was a small increase in price in 1960-61 and
1961-62 without seriously affecting the sale of records in numbers. We cannot
therefore accept that there is any case for gloom about the future. It may be
mentioned that the company is practically a monopolist in the matter of
manufacture of gramophone records in this country and that is also a factor
which will be in favour of the Company so far as the future is concerned. In this
connexion it is urged on behalf of the workmen that we must not merely look at
the number of records sold, we must also consider the value of the records sold
and this shows that there has not been much variation in the five years from
1957 to 1961. In 1957 the value of total sales of all kinds of records, etc., was
Rs. 148 lakhs; in 1958, Rs. 158 lakhs; in 1959, Rs. 141 lakhs, in 1960, Rs. 148
lakhs and in 1961, Rs. 166 lakhs. This again shows that business for the last five
years before the award was more or less steady and there is therefore no reason
to suppose that it will go down in the foreseeable future.Then our attention was
drawn to the fact that exports had fallen since 1956-57. In 1956-57 the number
of records exported was 9.19 lakhs while it had gone down to 5.77 lakhs in
1960-61. It appears that there are two kinds of records which are made by the
company. There are firstly what are called 78 r.p.m. records which are cheaper
and secondly 45 r.p.m. records which cost almost three times as much. It
appears further that though the unit sales went down to a large extent the total
value of the sales did not go down as much. In 1957 the total value was Rs.

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13.04 lakhs while in 1961 it was Rs. 11.78 lakhs. The company's contention
therefore that its business is going down cannot be accepted.

9. Lastly reference was made to the fact that the company has had to borrow
larger and larger amounts each year to carry on its business. As to that, the
position seems to be that the company has no capital of its own, as it is a branch
of the English company. It further appears that its working capital is provided in
two ways : (firstly) the working capital is provided by the head office and other
branches of the English company, and (secondly) the company borrows money
in India for its working capital. Thus in 1956-57, the head office and the
Singapore branch had provided Rs. 37 lakhs as working capital and therefore
the company had to borrow about Rs. 4 lakhs in India in that year. In 1959-60,
the head office and the Singapore branch only provided Rs. 23 lakhs towards
capital and therefore the company had to borrow about Rs. 16 lakhs in India that
year. It seems therefore that the increase in borrowed money depends upon how
much working capital to provided by the parent company. When such working
capital is reduced by the parent company capital borrowing in India goes up.
The fact that borrowing in India has gone up in the last few years therefore is
not necessarily an indication that the financial position of the company has
deteriorated.On a careful consideration of all the factors as disclosed in the
balance sheets of the company we are of opinion that what-ever may have been
the position before 1955, the company has been making profits since 1956-57
and its financial position appears stable and it is in a position to bear the burden
of the gratuity scheme awarded by the tribunal to the Bombay workmen. Even if
we take into account the workmen in Dum Dum (excluding the factory workers
in whose case the provident fund contribution has been increased from 6 1/4 per
cent to 8 per cent and who therefore stand on a different footing) we see no
reason to interfere with the order of the tribunal introducing the gratuity scheme
for the company's workmen in Bombay.

10. Then we turn to the question of privilege leave. Before the award the
company was granting fifteen days a year an casual leave and 21 days per year
an privilege leave. In addition it used to grant sick leave of one month on full
pay and of two months on half pay per year, which could not be accumulated.
Privilege leave however used to be accumulated up to 42 days in accordance
with the provisions of the Bombay Shops and Establishments Act LXXIX of
1948. Casual leave could not naturally be accumulated. What the tribunal has
done is to increase privilege leave to 30 days per year subject to accumulation

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up to 42 days. The company contends that the total of privilege leave and casual
leave has been increased from 36 to 45 days while other comparable concerns
give much less leave usually between 7 and 10 days. It is therefore urged that
there was no reason to increase privilege leave to 30 days with accumulation up
to 42 days as before. In this connexion reliance is placed on a comparative chart
showing casual leave and privilege leave allowed in various comparable
concerns for this purpose. It does appear that the total of privilege leave and
casual leave as now provided by the award is higher than in the case of other
concerns. But some of these concerns allow accumulation of privilege leave for
more than 42 days, in some concerns it is 56 days, and in others 63 days. In
some concerns privilege leave is allowed for 28 days per year. If we leave out of
account sick leave, it is in our opinion impossible to interfere with award of the
tribunal in view of the varying patterns that are prevalent in the comparable
firms cited on behalf of the company. Further if we take sick leave into account
we find that though the appellant does not allow any accumulation of it, in
many concerns accumulation of sick leave up to 60 days or even 90 days is
allowed.

11. In view of these differences in detail in the matter of accumulation we do
not think that any interference is called for in the order of the tribunal in the
matter of privilege leave.Now we come to the appeal of the workmen. Their
main contention is that the wage-structure framed by the tribunal is low and
should be further increased. The tribunal has fixed new grades which are higher
than the old grades after comparison with other concerns in the region. The
grades fixed by the tribunal are what may be called intermediate grades; they
are lower than the highest and higher than the lowest grades in the region. No
cogent reasons have been put forward on behalf of the workmen to induce us to
interfere with the wage-structure fixed by the tribunal after full consideration of
the wage-structure prevalent in that region. Next it is urged that the tribunal
should have given more adjustment as demanded by the workmen. The
workmen demanded one to four increments depending upon the length of
service. The tribunal has however ordered that the workers should be fixed in
the awarded scale according to their present pay, and if it does not coincide with
any stage of the new scale, they should be stopped up to the nearest higher
stage. Thereafter the workmen who have completed three years' service should
be given one increment and those who have completed six years of service or
more, two increments. Considering the fact that some grades were in force in
this company before, we see no reason to interfere with the provision made by
the tribunal in the matter of adjustment.

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12. The next contention is with respect to special allowance for sepoys, who are
entrusted with the work of carrying money from the bank and who do
duplicating and filing work. The tribunal has refused this demand. It has pointed
out that the office of the company is situate in the heart of the city and not a
long distance from the bank, and the sepoys carrying money do not run any risk.
It has also pointed out that the duty of bringing money from the bank is not
more strenuous than any other duty usually allotted to sepoys. Further it has
pointed out that duplicating and filing work is not of such a nature as to call for
any special allowance. In view of these circumstances we see no reason to
interfere with the order of the tribunal rejecting special allowance for sepoys
who do this work.The next point is about increasing the rate of gratuity.
Learned counsel for the workmen however did not press this in view of the
provident fund scheme in force in the company.

13. Next the workmen contended that certain musicians should be made
permanent and given grade wage-scales. The company's contention is that
musicians only work part-time. Whenever there is a song to be recorded, and
have thus been treated as temporary workmen and have never been treated as
permanent. The first group consists of Nenkare. Nand Ram, Ebrahim and M. R.
Joshi, So far as these four are concerned, the tribunal held that no evidence had
been led on behalf of the workmen to show that the work of these musicians
was constant and regular in the same manner as the work of clerks and sepoys.
It therefore rejected the demand in respect of these four musicians. We see no
reason to interfere with this finding of the tribunal.

14. The other four musicians are : Kersi Mistry, Vaze, Alimohamad and
Mangeshkar. In their case the demand was that they should be Permitted to join
the provident fund. In their case the tribunal has stated that there was no
evidence from which it can be judged that the nature of their work was constant
or regular like the work of clerks and subordinate staff. The tribunal therefore
rejected this demand. Learned counsel for the workmen relies in this connexion
on the fact that these four have been given increments in the last few years. He
also relies on a letter addressed to one of them in which it was said they they
were not temporary musicians. But in the same letter the company said that the
musicians were treated as belonging to a separate category and could not be
considered permanent in the same sense as members of the clerical staff. This

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four was said as far back as 1950, and if it was the case of the workmen that
these musicians also worked constantly and regularly like the clerical staff,
evidence should have been led in that connexion. Prima facie, it is hardly likely
that a musician will work for all the working hours on all working days. They
are required only when there is recording of songs and evidence should have
been led to show that recording of songs was going on during all the working
hours for all the working days. In the absence of such evidence.

15. We see no reason to interfere with the award of the tribunal in this
connexion. The fact that they were given some increments for some years
would in our opinion make no difference in this position.The last contention on
behalf of the workmen was with respect to Reva Gopal, sweeper. The tribunal's
finding in that connexion was that Reva Gopal's, father used to work as sweeper
in the company. As that man was getting old, Reva Gopal was allowed to work
with him in order to learn work so that he could be appointed in his place when
the father retired. The tribunal therefore rejected the demand that Reva Gopal
had been working since 1947 as a regular member of the staff. It, however,
recommended that the company should put him in the proper grade after the
retirement of the father, when he was the only sweeper working for the
company. In view of the recommendation of the tribunal we see no reason to
interfere with the order of the tribunal in this behalf.

16. Both the appeals fail and are hereby dismissed. In the circumstances we pass
no order as to costs in both the appeals.

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