1965 INSC 0188
                                   Ahmedabad Mill Owners' Association Etc.

                                                           Vs

                                         The Textile Labour Association

                             Civil Appeals Nos. 167 to 173, 537 and 538 of 1965

                    (CJI P. B. Gajendragadkar, M. Hidayatullah, V. Ramaswami ­ I JJ)

                                                      10.08.1965

                                                    JUDGEMENT

GAJENDRAGADKAR, C.J.

This is a group of seven appeals which arise from an industrial dispute between the appellants, the
Ahmedabad Millowners' Association, and 67 employers on the one hand, and the respondent, the
Textile Labour Association, Ahmedabad on the other. This dispute was referred by the Government
of Gujarat to the industrial court, Gujarat, under Section 73 of the Bombay Industrial Relations Act,
1946 (No. XI of 1947) (hereinafter called the Act). In making the order of reference, the
Government stated that it was satisfied that the industrial dispute in question was not likely to be
settled by other means. The dispute itself consisted of three questions. These questions have been
thus stated in the reference :

                  "(1) Whether under the award of the Industrial Court, Bombay, dated 2 March 1950,
                  in Reference (IC) No. 189 of 1949 (as subsequently modified), read with award of
                  the industrial court, dated 27 April, 1948, in Revision Petition No. Misc. 1 of 1947,
                  the Ahmedabad Millowners' Association and the employers mentioned in the
                  annexure are bound to pay dearness allowance to their employees on the consumer
                  price index numbers for working class for Ahmedabad published by the State
                  Government since February 1964, by using the index numbers in the series for
                  Ahmedabad compiled by the Labour Bureau, Simla, and the linking factor of 3.17
                  adopted for linking that series to the State series with the old base.

                  (2) If not, whether the said Ahmedabad Millowners' Association and the employers
                  mentioned in the annexure should pay dearness allowance to their employees for
                  March 1964 and subsequent months in terms of the aforesaid awards, by treating the
                  index numbers for working class for Ahmedabad published by the State Government
                  since February 1964, as the index numbers in the State series complied on the basis
                  of the family budget survey made in 1926-27;

                  (3) If not, how the dearness allowance to the aforesaid employees for March 1964
                  and onwards should be paid on the index numbers for Ahmedabad published by the
                  State Government since February 1964."

The Industrial Court has answered the first question in favour of the appellants, whereas the two
remaining questions have been answered in favour of the respondent. In the result, the appellants
have been directed to pay dearness allowance to their employees for the month of March, 1964 and
for subsequent months on the consumer price index numbers for working class for Ahmedabad
published by the State Government since February 1964 (by using the index numbers in the series
for Ahmedabad compiled by the Labour Bureau, Simla, and the linking factor of 3.17 adopted for
linking that series to the State series with the old base) at the rate of 2.84 pies per day for rise of
each point in the cost of living index number over the pre-war figure 73. The industrial court has
further directed that as per the award in Miscellaneous Application (IC-G) No. 1 of 1960, 75 per
cent of the average dearness allowance of the first six months of 1959, i.e., Rs. 63-15-9 per month
of 26 working days, shall be consolidated with th

Before dealing with the points raised by the appellants in these appeals, it is necessary to set out
somewhat elaborately the previous history of the present dispute. The story about the payment of
dearness allowance to textile industrial employees at Ahmedabad takes us back to the time when the
Second World War broke out in September 1939. As is well-known, as a result of the said war the
cost of living shot up; and in consequence, the industrial employees at Ahmedabad who had
organized themselves as the Textile Labour Association, Ahmedabad, raised a demand for payment
of dearness allowance. This demand became the subject-matter of arbitration by the industrial court
at Bombay (Case No. 1 of 1940). The industrial court had to consider, inter alia, two major
questions; the first was as to what was the extent of the rise in the cost of living consequent upon the
Second World War; and the second was as to the extent and manner in which the said rise in the cost
of living should be neutralized by the payment o

Having reached this conclusion on the first question the industrial court examined the problem as to
the extent and method by which the rise in the cost of living should be neutralized. On this question,
its conclusion was that for 11 points rise (which is equivalent to a rise of 15 per cent) in the cost of
living for the month of December, a cash relief to the extent of 10 per cent of the average wage, i.e.
Rs. 3-8-0 per employee, should be awarded for the month of December and a similar relief
proportionately determined should be awarded for other months. It was urged before the industrial
court that relief could be granted to the employees in kind rather than in cash; but this contention
was negatived by the Court, though it expressed a hope that the employers should start cost price
grain shops at convenient centres for the benefit of the employees. That, in substance, is the result of
the proceedings in Case No. 1 of 1940. It is with the decision of this dispute that the story about the
payment of dearn -2/3 per cent neutralisation was allowed.

This award continued to be in operation till September 1941. On 12 August 1941, an agreement was
entered into between the appellants and the respondent by which it was resolved that the dearness
allowance to be paid to the employees in the member Mills of the appellant Association be raised by
45 per cent from the month of July 1941, and, in accordance with this agreement, an award was
made by the industrial court on 15 September 1941. As a result of this award, neutralisation came to
be effected to the extent of 96 per cent on the average wage over the pre-war cost of living index of
73 in August 1939, and to that extent the respondent gained. We have already noticed that the
neutralisation which was effected by the earlier award was 66-2/3 per cent.

Two years thereafter. the appellant association filed a petition (No. 1 of 1943) for a substantial
reduction in the quantum of dearness allowance. It urged that in the year 1943 the textile industry at
Ahmedabad had suffered considerable loss in its profits, and so, it was necessary that the dearness
allowance fixed by the consent award should be reduced. When the matter was considered by the
industrial court, it was discovered that the claim made by the appellant association was not
substantiated by sufficient or satisfactory data in the form of published balance sheets for the year
1943. The industrial court, therefore refused to interfere with the award, but permitted the appellant
Association to raise the same dispute in April 1944 if it thought necessary to do so. No such
application was, however, made by the appellant Association in 1944, with the result that the
consent award passed on 15 September 1941 continued to be in operation.

The said consent award had provided that the member mills were to pay the dearness allowance
prescribed by it till the termination of the Second World War; and so, as soon as the war came to an
end, the member mills stopped the payment of dearness allowance with effect from 8 May 1945.
The respondent then filed Petition No. 1 of 1945 before the industrial court asking for a direction
against the appellant Association for payment of the dearness allowance on the same scale as was
then prevailing for three months after 8 May 1945. This prayer was granted by the industrial court.
That is how matters stood as a result of the order passed on Petition No. 1 of 1945.

Meanwhile, the respondent gave a notice of change on 20 May 1945 and demanded continuance of
the payment dearness allowance until the working class cost of living index for Ahmedabad stood
above 73. It suggested that the quantum of dearness allowance should be related to the cost of living
index as awarded by the industrial court award dated 26 April 1940, and revised by the subsequent
award dated 15 September 1941. While making this demand, the respondent made it clear that this
demand was made without prejudice to the claim of the employees for a revision in the entire wage
structure. It appears that, during the course of these proceedings, it was urged before the industrial
court that the rise in the cost of living should be computed not with reference to the index figure of
73 in August 1939, but with reference to the figure of 100 in 1926-27. This contention was,
however, rejected by the industrial court. By its award, the industrial court directed that
neutralisation should be effected to the extent of

In 1946, the respondent moved for the revision of the said award (Revision Petition No. 1 of 1946).
By this revision petition, the respondent claimed that the rise in the cost of living should be
neutralized fully instead of 76 per cent, and this claim was based on the allegation that the profits of
the textile industry had maintained a high level and the reduction in the extent of neutralisation from
96 per cent to 76 per cent in the award of the previous year had adversely affected the employees
and they had in fact begun to leave the industry. It may be pointed out that on all these occasions,
the appellant association urged before the industrial court that the average monthly income and
expenditure of the textile employees in Ahmedabad left surplus with them and the need for
neutralizing the rise in the cost of living was not as much as was sought to be made out by the
respondent. This contention, however, been consistently rejected by the industrial court. Even so,
the claim made by the respondent for i

As soon as seven months expired, the respondent filed a Revision Petition (No. 1 of 1947) before
the industrial court on 8 March 1947. By this petition, the respondent renewed its claim for an
increase in the dearness allowance. Meanwhile, the minimum wage for textile employees in
Bombay had been fixed at Rs. 30 and dearness allowance was awarded to them with the object of
neutralizing the rise in the cost of living to the extent of 90 per cent on the minimum wage of Rs.
30. Taking advantage of the fact that the minimum wage for textile employees in Bombay had been
fixed at Rs. 30, the appellant association urged that there was no occasion to increase the rate of
dearness allowance because the wages of the employees had already been increased under the
standardization scheme which had been adopted in Ahmedabad. Alternatively, the appellant
Association contended that if the Court was inclined to revise the dearness allowance, it should
follow the same formula as in Bombay and provide for neutralisation at the

The appellant Association issued a notice on 31 October 1949, purporting to terminate this award
with effect from 1 January 1950. The ground for terminating the award set out by the appellant
Association in its notice was that the textile industry in Ahmedabad was passing through a crisis and
that certain mills were completely closed down while others were partially closing down. It appears
that about that time, the Central Government, acting in pursuance of the recommendations made by
the Tariff Board, directed a 4 per cent cut in ex-mill cloth prices; and that, according to the appellant
Association, led to a crisis in the financial affairs of the textile industry at Ahmedabad. It was also
alleged in the notice that though the prices fixed were uniform, the dearness allowance paid was not
uniform and the member mills of the appellant Association were paying Rs. 15-4-0 more per month
per employee in dearness allowance at Ahmedabad as compared to that paid to the textile employees
in Bombay. Arithmetical cal

Before the notice thus issued by the appellant Association came into force, the respondent gave a
notice of change to the mills to continue to pay the dearness allowance according to the existing
award; and since no settlement could be reached between the parties, a reference was made to the
industrial court. As a result of these proceedings, however, neither party scored a victory, and the
award directed that payment of the dearness allowance should be made in accordance with the
orders passed in Revision Petition No. 1 of 1947. Since the date when this order was made, the
terms of the award in Revision Petition No. 1 of 1947 have been in operation between the parties.

Mean while, the Central Wage Board for the Cotton Textile Industry was constituted. One of the
points which the wage board had to consider was the demand by the employees for consolidating a
part of the dearness allowance in the basic wage. The wage board recommended that 75 per cent of
the dearness allowance should be consolidated in the basic wage, and the remaining 25 per cent
should bear a flexible character. The board also made other recommendations which are not relevant
for our purpose. In consequence of the recommendation made by the board as to the consolidation
of the dearness allowance, an agreement was reached between the appellant-association and the
respondent, as a result of which a joint application (No. 1 of 1960) was made by both the parties
under Section 116A of the Act, and on this joint application an award by consent was passed
directing that 75 per cent of the average dearness allowance of the first six months of 1959 which is
Rs. 63-15-9 per month of twenty-six working days should be

It appears the about this time there was a growing feeling amongst both the employers and the
employees that the different series of consumer price index compiled and published in India were
not very satisfactory and some of them had become obsolete. In the Second Five- Year Plan, it was
therefore, recommended that it was desirable that steps should be taken simultaneously with the
undertaking of wage census to institute enquiries for the revision of the present series of cost of
living indices at different centres. According to the recommendation made by the Planning
Commission Report, the Labour Bureau, Simla, and the Central Statistical Organization of the
Government of India took steps to conduct fresh family living surveys among working class and
middle-class population respectively with a view to construct the new series of consumer price
index numbers. The working class surveys were conducted at fifty selected centres and the middle
class surveys at forty-five centres, eighteen centres being common to

It then appeared clear that there were several anomalies in regard to the collection of prices in the
State series. Some of the items which were specified in such series had ceased to exist, whereas
quotation for one major item, viz, house rent allowance, had been frozen for many years. After the
Government of India began to publish its new series, it advised the Government of Gujarat to stop
publishing its old series and publish the converted index in its place. The Government of India
thought the it would be unjust to the employees if the conversion were allowed to take place without
removing anomalies of the State series.

Faced with this problem, the Government of Gujarat set up an expert committee under the
chairmanship of Dr. M. B. Desai. The terms of reference of this committee were thus formulated :

                  "(1) to examine the validity of the submissions and representations made to
                  Government and to make recommendations as to whether any readjustment is
                  necessary in the existing series for Ahmedabad published by the State Government,
                  and if so, what readjustment should be made;

                  (2) to consider how the new series of consumer price index numbers for Ahmedabad
                  should be linked with the existing series, so readjusted if found necessary; and in so
                  to take into consideration the factor that the period of family budget enquiry on
                  which the new series for Ahmedabad is based is different from the base period for
                  the said new series."

The said Committee made fairly exhaustive investigation, and made two main recommendations.
The first recommendation involved an addition of 19 points in the overall price index in the State
series and the same was fixed at 317 instead of 298 as it stood when the new series and its base
period were decided upon. The other recommendation which it made was that the conversion or the
linking factor should be 3.17 as against 2.98 per point in the new series.

The Government of Gujarat accepted the first recommendation and revised the index number for the
month of November 1963, by adding 19 points to the figure originally released by it and stated that
its existing series would be adjusted month to month by the addition of 19 points for adjusting the
index for clothing and house rent groups as recommended by the expert committee. In regard to the
second recommendation, the Government took the view that it was necessary to continue
publication of the current series to permit industry and labour time to have necessary modifications
in the existing agreements, settlements and awards made to link up the dearness allowance with the
new series published by the Labour Bureau Simla. This decision was announced by the Government
by a press note on 31 January 1964.

When this decision of the Government of Gujarat was announced, the appellant association found
that it entailed considerable additional burden on the textile industry; even so, it advised its member
mills to pay the dearness allowance according to the adjusted consumer price index number by
adding 19 points fort the month of January 1964, under protest. This protest was expressed by the
president of the appellant Association by issuing a press communique criticizing the Government
for its unilateral and hasty decision in the matter.

On 29 February 1964, the Government of Gujarat issued another press note by which it accepted the
second recommendation made by the expert committee to take the linking factor at 317 instead of
298. The press note shows that this decision was reached by the Government of Gujarat in
accordance with the advice received from the Government of India. In consequence of this decision,
the Government of Gujarat discontinued publication of the cost of living index number of its 1926-
27 numbers from January 1964. This decision of the Government raised a storm of protest from the
appellant Association. A general meeting of the members of the appellant Association was held on
30 March 1964, and it passed a resolution to the effect that the discontinues of the publication of the
cost of living index by the Government of Gujarat made it impossible for the appellant-association
to comply with the terms of the existing award in respect of the payment of dearness allowance in
the manner prescribed by the award and so, the a was not prepared to accept that decision.

When the appellant Association adopted this attitude, the secretary of the respondent Association
expressed his profound sorrow at the decision of the appellant association, and by his letter
addressed to the appellant Association on 3 April, 1964, he requested the members of the appellant
association to pay dearness allowance to their employees according to the converted number
published by the Government of Gujarat. This letter was accompanied by a resolution passed by the
respondent association in which it set forth its version of the financial position of the members of
the appellant Association and the justice of the claim made by the employees for the payment of
dearness allowance in accordance with the decision of the Government of Gujarat. The appeal thus
made by the secretary of the respondent association did not, however, receive any sympathetic
response from the appellant Association; and that made it necessary for the Government of Gujarat
to refer the present dispute to the industrial court at G

At the hearing of the present reference before the Industrial Court, the appellants had urged a
preliminary objection against the competence of the present reference. They contended that the
reference under Section 73 of the Act was invalid, because, before making the reference, the
requirements of Section 42 of the Act had not been complied with. The argument was that, in
substance, the reference relates to a change in the terms of the award binding between the parties,
and for effecting such a change, the procedure prescribed by Section 42 and the other sections in
Chap. VIII of the Act has to be complied with. It is common ground that the said procedure has not
been followed and the Government of Gujarat has made the present reference in exercise of the
power conferred on it by Section 73. The industrial court has rejected the appellants' contention and
has held that the reference is valid. Sri Setalvad for the appellants has urged before us that the view
taken by the industrial court is not justified by

The Act was passed by the Bombay Legislature in 1947. It purports to regulate the relations of
employers and employees, to make provision for settlement of industrial disputes, and to provide for
certain other purposes. It is a comprehensive piece of legislation and it makes elaborate provisions
for the regulation of relations between employers and employees and for the settlement of disputes
between them. Section 42 of the Act provides for a notice of change. It is unnecessary to cite the
provisions of the said section, because for the purpose of dealing with the point raised by Sri
Setalvad, it would be enough if we state the sum and substance of Ss. 42(1) and 42(2). Section 42(1)
provides the if an employer intends to effect any change in respect of an industrial matter specified
in Sch. II, he will have to give notice of such intention in the prescribed form to the representative
of employees. similarly, Section 42(2) provides that if an employee desires a change in respect of an
industrial matter not sp

Let us then read Section 73; it reads thus :-

                  "Notwithstanding anything contained in this Act, the state Government may, at any
                  time, refer an industrial dispute to the arbitration of the industrial court, if on a report
                  made by the labour officer or otherwise it is satisfied that -

                  (1) by reason of the continuance of the dispute -

                  (a) a serious outbreak of disorder or a breach of the public peace is likely to occur :

                  (b) serious or prolonged hardship to a large section of the community is likely to be
                  caused : or

                  (c) the industry concerned is likely to be seriously affected or the prospects and scope
                  for employment therein curtailed; or

                  (2) the dispute is not likely to be settled by other means; or

                  (3) it is necessary in the public interest to do so."

On a fair reading of s. 73 it is plain that it deals with the powers of the state Government to make a
reference and as such, it is difficult to assume that the said powers of the State Government are
intended to be controlled by the provisions of s. 42. Section 42 prescribes the procedure which has
to be followed by the employer and the employee respectively if either of them wants a change to be
effected as contemplated by it. The scheme of Section 42 read along with the other provisions in
chap. VIII clearly shows that the said chapter can have no application to cases where the State
Government itself wants to make a reference. That is the first consideration which militates against
the construction which Mr. Setalvad suggests.

The opening clause in s. 73 also unambiguously indicates that the power of the State Government to
make a reference will not be controlled by any other provision contained in the Act. This clause
plainly repels the argument that the provisions of Section 42 should be read as controlling the
provisions of Section 73. The meaning of the non-obstante clause is clear and it would be idle to
urge that the requirements of Section 42 must be satisfied before the power under Section 73 can be
invoked by the State Government.

It is, however, urged that the power conferred on the State Government by s. 73 is the power to refer
an industrial dispute to the arbitration of the industrial court and there can be no industrial dispute
unless a notice of change has been given either by the employer or the employee. In other words,
the argument is the unless a notice of change is given as required by Section 42, no industrial
dispute can be said to arise between the employer and his employee, and that is how Section 42
governs Section 73. If it was the true legal position that there can be no industrial dispute between
an employer and his employee unless a notice of change is given by either of them, there would
have been some force in this contention; but the definition of the words "industrial dispute" does not
justify the assumption that it is only a notice of change that brings into existence an industrial
dispute. Section 3(17) of the Act defines an "industrial dispute" as meaning any dispute or
difference between an employer and emp

It is true that the power conferred on the State Government to make a reference is not absolute or
unqualified. It can be exercised only if one or the other of the conditions specified by Sub-sec. (1),
(2) or (3) of Section 73 is satisfied. But once the State Government comes to the conclusion that one
or the other of the said conditions is satisfied, its power to make a reference is not limited to cases
where notice of change has been given by the parties as required by Section 42. It is an overriding
power which is intended to be exercised to avoid anomalies or other serious consequences which
would flow in case the Government does not make an immediate reference. The requirements
prescribed by Sub-sec. (1), (2) and (3) of Section 73 indicate the types of cases which are intended
to be referred without requiring the parties to take recourse to Section 42. In the present case, the
Government of Gujarat was satisfied that the dispute was not likely to be settled by other means,
and so, it made the present re
On principle, the conferment of this power seems to be fully justified. If, as a result of a dispute
between the employer and his employees, a serious outbreak of disorder or a breach of the public
peace is likely to occur, or a serious or prolonged hardship to a large section of the community is
likely to be caused, or the industry concerned is likely to be affected adversely, it would be idle to
require that even in the face of such a serious danger, the procedure prescribed by Section 42 must
be followed before reference can be made under Section 73. The very nature of the conditions
prescribed by Sub- sec. (1), (2) and (3) of Section 73 emphasizes the fact that the said conditions
refer to categories of cases or types of occasions on which reference has to be made promptly and
immediately, and that explains the conferment of the wide powers on the State Government as
prescribed by Section 73. We are, therefore, satisfied that the industrial court was right in coming to
the conclusion that the preliminary

That takes us to the merits of the controversy between the parties in the present appeals. Let us
begin by briefly indicating the broad contentions raised by the appellants before the industrial court
and its findings on them which are relevant for the purpose of the present appeals. The first
contention which was urged before the industrial court was that the family living survey which was
conducted by the Labour Bureau, Simla, in 1958-59 was unreliable, because the sample survey on
which it was based was inadequate, and the interview method which was adopted in conducting it
was unsatisfactory. It was also contended that the linking factor at 3.17 which had been adopted by
the Government of Gujarat was unscientific and irrational and that the scientific and rational way to
deal with the problem presented by the new consumer price index recently adopted by the
Government of Gujarat would be to devise a scheme of dearness allowance afresh, taking the
present basic salary as a base, and relating it to the cha

The validity of these contentions was strenuously disputed by the respondent. It urged that the
sample survey was conducted on rational and scientific lines and it did not suffer from any infirmity
at all. It further argued that the attempt to construct a new wage structure by making the basic salary
with 75 per cent of the consolidated dearness allowance as the basis with 1960 = 100 as the base
year, would be beyond the terms of reference, and it would, besides, create many problems and
complications. According to the respondent, the basic salary still continues to be what it was before,
though for practical purposes 75 percent of the dearness allowance has been consolidated with it.
The respondent seriously challenged the appellants' case that the operation of the linking factor was
either unscientific, unreasonable or unjust; and the appellants' theory that the average rise in prices
should be determined after watching the behaviour of prices for two or three years, was
characterized by the respondent as

During the course of hearing before the Industrial Court, the appellants examined two experts, Sri
Gokhale and Sri Chokshi. They also led voluminous documentary evidence. The respondent filed
detailed statements disputing the correctness of the pleas taken by the appellants, and in support of
them, they filed several charts which were prepared from the balance sheets of the appellants
themselves. Both parties referred to the opinions expressed several writers on the subject of the
preparation of consumer price index and on other matters which became relevant for the decision of
the present dispute. Broadly stated, the industrial court has rejected all the contention raised by the
appellants. It has found that the recent survey was conducted under the advice and guidance of a
technical advisory committee of a high order and that the work of carrying on the survey had
scrupulously followed the relevant recommendations made by the International Labour Office and
the United Nations. The industrial court did not

In regard to the question of the linking factor on which both parties addressed the industrial court
elaborately, the Court considered the matter in the light of expert opinion cited before it and held
that the Government of India was justified in recommending a simple arithmetical method of
linking; it found that the said method had been accepted by the expert committee appointed by the
Government of Gujarat and had been recommended by the expert committee appointed by the
Government of Maharashtra as well. It, therefore, reached the conclusion that the said method based
on the application of the linking factor at 3.17 was the most suitable to adopt. In this connexion, it
rejected the appellants' suggestion that the dearness allowance should be paid at a flat rate and held
that flexible dearness allowance alone would meet the ends of justice and would lead to industrial
peace. It noticed the fact that now there was only one cost of living index existing in Ahmedabad
and that is based on the new series. The

The Industrial Court then considered the question about the paying capacity of the appellants. As a
matter of law, it rejected the respondent's argument that a wage structure once constructed by
industrial adjudication can never be revised to the detriment of workmen, and it held that if it was
shown that the financial position of the employer had substantially deteriorated and such
deterioration was likely to persist for some time, it would be open to industrial adjudication to make
a suitable revision of the wage structure, provided, of course, the wage structure does not represent
the wages at their basic minimum level. Considering the problem presented by the appellants' plea
of incapacity to bear the burden in the light of this legal position, the industrial court has found that,
in its opinion, the textile industry of Ahmedabad is in a sound financial position. It has also added
that "in any event, there has been no substantial deterioration in its condition so as to justify any
wage cut or abandonment

The first point which we must now consider is whether the appellants are justified in contending
that the industrial court erred in overruling their contention that the new survey suffered from two
major infirmities - inadequacy of the sample size, and impropriety of the method of interview
adopted by the investigators. In support of this plea the appellants examined Sri Gokhale as an
expert witness. Sri Gokhale who served in the Labour Office at Bombay from 1926 to 1937, was
directly associated with the family budget inquiries, compilation of cost of living index numbers,
and with the first general wage census conducted by the Labour Office in Bombay. He also worked
as assistant secretary of the Bombay Textile Labour Enquiry Committee. Later, he joined the
Millowners' Association, Bombay, as their labour officer on 1 January 1938 and served in that
capacity until he retired on 1 November, 1962. He was deputed on a study tour to Lancashire in
1951 and attended the International Labour Conference at Geneva. H

Mr. Gokhale was cross-examined by the respondent. It was put to him that this experience in the
matter of sample survey was somewhat limited and that the said experience had now become
antiquated in view of the great strides of progress which had been made in the science of sample
survey after 1926. He agreed that sampling technique involves knowledge of statistics and statistics
involves mathematics, and he did not make any claim to be an expert either in statistics or in
mathematics. In his examination-in-chief, Sri Gokhale appeared to criticize the extent of imputation
which was evident in the preparation of the new series; but in his cross-examination, he fairly
conceded that imputations have always got to be done in compiling consumer price index. It had
been done in the past, he said as also in the case of the present series. When he was asked whether
he knew what the percentage of imputation was in the compilation of the consumer price index of
1926-27, he admitted that he did not know. He was, howeve

The statements made by Mr. Gokhale in his affidavit were disputed by the respondent and the
accuracy and the validity of the views expressed by him were seriously challenged by Sri Vasavada
who filed a reply on behalf of the respondent (item 19). In his reply, Sri Vasavada referred to Cl. 14
of the resolution as reported at p. 403 of the International Labour Code - 1951, Vol. II; and
emphasized the fact that the main distinguishing feature of the new survey was that it was carried
out under the technical guidance of professional statisticians not only with adequate knowledge of
sampling theory but also with actual experience in sampling practice, and with the help of a
properly trained field and computing staff. This was the requirement laid down by the publications
issued by the I. L. O. and the United Nations as a very important test, and the impugned survey fully
satisfies the said test. Sri Vasavada also referred to the opinion expressed by Dr. Basu who is at
present the I. L. O. expert on the subject, t

Mr. Vasavada then questioned the accuracy of Sri Gokhale's statement that such a small percentage
of the universe had never been adopted before in any other inquiry. He urged that the present
techniques have advanced so far that a small sample size can achieve the best results; and he cited
the example of a survey carried out in the United Kingdom where the proportion of 13,000
households surveyed to the total households which constituted the universe came to 1 per cent. The
industrial court has considered the evidence given by Sri Gokhale and has taken into account the
arguments urged on behalf of the respondent, and it has held that the size of the sample selected for
the impugned survey cannot be said to introduce any infirmity in the survey. The question which we
have to decide is whether the Industrial Court was right in coming to this conclusion.

In dealing with this question, it is necessary to refer briefly to the genesis and growth of the science
of social survey. "In its broadest sense" says the Encyclopedia of the Social Sciences, "a social
survey is a first hand investigation, analysis and coordination of economic, sociological, and other
related aspects of a selected community or group. Such a survey may be undertaken primarily in
order to provide material scientifically gathered, upon which social theorists may base their
conclusions, or its chief purpose may be to formulate a programme of amelioration of the conditions
of life and work of a particular group or community." Wells defines a social survey as a "fact-
finding study dealing chiefly with working-class poverty and with the nature and problems of the
community." As Moser has, however, pointed out, "this definition might have covered the classical
community and poverty studies but would hardly be adequate, the first part at any rate, to the
modern forms of survey."

The history of social survey in England can be said to have begun with the publication of Mayhew's
book "London Life and the London Poor," published in 1851; and Booth made a very significant
contribution to the scientific development of social survey by publishing his book "Labour and Life
of the People of London" (1889-1902). Rowntree followed with his book "Poverty : A Study of
Town Life." Thereafter, a number of studies have been made by social scientists, and the subject of
the theory and practice of social surveys has been the subject- matter of valuable and extensive
literature all over the civilized world. During the First World War and thereafter, social scientists
devoted their attention to the problem of family living studies mainly from the point of view of the
impact of price changes on consumers economic situation. The development of reliable consumer
price indices naturally involved the use of weights that would properly reflect the consumption
expenditure of the population. This led to further

The Second World War and the conditions that flowed from it made it necessary to carry on
investigations on a wide range of inquiry relating to all aspects of living conditions e.g. nutrition,
health, education and employment. The whole question of family living survey came up for
consideration in the Seventh International Conference of Labour Statisticians in 1949. The
conference adopted a resolution defining the objectives of family living studies and setting new
international standards as regards the organization of enquiries and the analyses and presentation of
the results that flowed from it.

In India, a standardised statistical type of family living study was first initiated in Bombay in 1921.
Such enquiries were also conducted in Sholapur in 1925, in Ahmedabad in 1926 and in some
centres in Bihar in 1923. While reviewing the position of social surveys in India, the Royal
Commission on Labour pointed out the great paucity of statistical material in this country for
judging the standard of living of the workers and recommended conduct of socio-economic
enquiries of the type of family living surveys. This report naturally gave an impetus to the conduct
of family budget enquiries. In all the surveys that followed, sampling and interviewing techniques
were adopted, though, of course, not of a much advanced nature. A statistical analysis of the data
collected was also attempted.

The Second World War saw the appointment of the Rau Court of Enquiry constituted under the
trade Disputes Act, 1929. One of the recommendations made by the said Court was that the Central
Government should take up responsibility for maintaining up-to-date cost of living index numbers
for important areas and centres. The Government of India accepted this recommendation and set up
a special organization called 'the Directorate of Cost of Living Index Numbers' and family budget
enquiries among industrial workers were conducted at 28 centres during 1944-45 in the course of
which 2,700 budgets were collected. A remarkable feature of these enquiries was that for the first
time in this country, an attempt was made to conduct such enquiries simultaneously at a large
number of centres under more or less uniform techniques. During the same period, the Labour
Bureau of the Government of India and some of the organizations of state Governments continued
to conduct family budget enquiries from time to time at specific ar

It was in the background of these events that the Second Five Year Plan made a significant
recommendation. The plan said that :-

                  "The existing wage structure in the country comprise, in the main, a basic wage and a
                  dearness allowance. The later component in a majority of cases has relation to cost of
                  living indices at different industrial centres. These indices have not been built up on a
                  uniform basis; some of them are worked out on primary data collected about 20 to 25
                  years ago and are, therefore, not a true reflection on the present spending habits of
                  workers. Since one of the question which the Wage Commission will have to take
                  into account is the demand made by the workers' organizations for merging a part of
                  dearness allowance with the basic wage, evolving recommendations for such a
                  merger will not be sufficiently scientific if cost of living indices at different centres
                  do not have a uniform basis. Steps will therefore have to be taken simultaneously
                  with the undertaking of a wage census, to institute enquiries for the revision of the
                  present series of cost of living indices at different centres."

It is in pursuance of this recommendation that the impugned survey was made.

Let us now see on what principles and methods the impugned survey was made. It is necessary to
begin the discussion of this question with the observation "that the consumer price index number
measures nothing but changes in prices, as they affect a particular population group; and so it is
really a price index number as distinct from a cost of living index number. In fact, these indices used
to be termed as cost of living index numbers in the past, but in order to make their meaning clear, it
was decided by Government to change the name to consumer price index numbers in accordance
with international recommendations and growing practice in other countries. Most of the State
Governments compiling such index numbers have also adopted this usage." This index number is
intended to show over a period of time the average percentage change in the prices paid by the
consumers belonging to the population group proposed to be covered by the index for a fixed list of
goods and services consumed by them. The average per

The index does not purport to measure the absolute level of prices but only the average percentage
change in the price of a fixed basket of goods and services at different periods of time. There are
certain preliminary considerations which are relevant in the construction of consumer price index
numbers. The first consideration is the purpose which the index is intended to serve, and that
necessarily involves the definition of the group of consumer to which the index is intended to relate.
Then it is necessary to determine the consumption level and pattern of the population group at a
period of time which generally becomes the base-period of the index numbers. For that purpose, a
list of commodities and services has to be made. Usually, this list would contain items of food fuel
and light, clothing, and others; items of service such as barber charges, bus fare, doctor's fee, etc.,
have also to be selected. It is the combined total of the items of commodities and services that
constitute the basket. Then foll

Having determined the consumption level and the pattern of the population group, the next task to
attempt is to arrange for the regular collection of price data for the various qualities of commodities
and services which enter the basket. With this material, the consumer price index has to be complied
from month to month subsequent to the base-period. That, shortly stated, is the nature of the
preliminary considerations which have to be borne in mind while constructing the consumer price
index numbers.

We have just noticed the theory of weights on which weighing diagrams are prepared. Weights are
intended to indicate the importance attached to the percentage changes in the prices paid by
consumers for different items (commodities and services) of consumption. Accordingly, each item
in the index is given, what is called in technical language, a "weight" to represent the relative
importance of the price changes recorded for that item. This weight means nothing more than the
percentages of expenditure on each item of goods and services in relation to the total expenditure. It
will thus be seen that the main basis for determining the weights of respective commodities and
services is the investigation of the family budget; and that emphasizes the importance and
significance of a proper investigation. During the course of investigation, data are collected on all
items on which money has been defrayed by families; but only such items as involve consumption
expenditure are included in the average budget. Even so,

Having thus briefly reviewed the theoretical aspects of the factors that govern the construction of
consumer price index numbers, let us now proceed to see how the impugned inquiry was in fact
held. The material evidence which will assist us in this part of our inquiry is furnished by the Report
on Family Living Survey among Industrial Workers at Ahmedabad, 1958-59. From this report it
appears that the organization of the survey was based on the co-operation of several institutions. The
survey was sponsored by the Labour Bureau, Ministry of Labour and Employment, Government of
India; and its technical details were worked out under the guidance of a technical advisory
committee on cost of living index numbers consisting of the representatives of the Ministries of
Labour and Employment, Food and Agriculture, Finance, Planning Commission, the National
Sample Survey Directorate, the Department of Statistics (C.S.O.) the Indian Statistical Institute and
the Reserve Bank of India. The field work was entrusted to t
The first thing that the organization did was to define a "working class family," because this
definition determined the size of the universe. A working class family which was the basic unit of
the survey, was defined in terms of sociological and economic considerations as consisting of
persons :

                  (i) generally related by blood and marriage or adoption;

                  (ii) usually living together and/or served from the same kitchen; and

                  (iii) pooling a major part of their income and/or depending on a common pool of
                  income for a major part of their expenditure.

Then followed the delimitation of area. The geographical area to be covered during the survey was
decided in consultation with local organizations both official and non-official. At the Ahmedabad
centre 46 localities were selected for the purpose of the survey; they consisted of 16 Chawls, 21
Labour Colonies (Housing Societies) and 9 Villages. Before settling the ultimate units of the family
living survey, viz., the families two types of sampling methods were adopted; they were the
tenement sampling and pay-roll sampling. The sample size for a centre was determined on the basis
of the number of industrial workers, the type of sampling followed, the workload manageable by an
investigator and the required precision of weights to be derived from Sch. A for consumer price
index numbers. The sample size for Ahmedabad was 720 families to be canvassed for Sch. A. The
number of schedules finally collected and tabulated was 722 for Sch. A. The two samples drawn for
Schs. A and B were however, mutually exclusive, beca

The second stage unit for selection was a working class family. Each month, the investigator listed
all the families in the cluster allotted to that month by house-to-house visit and classified them as
working class families and others. While listing, information was also collected on the family size,
the expenditure class to which it belonged and the State of origin of the head of the family. This
information was utilized to arrange the working class families in the cluster, first by family size and
within these classes by expenditure class and within these by the State of origin. A simple
systematic sample of 20 working class families was drawn from this arranged list. Every fourth
family in this sample was contacted for filling Sch. B (on Level of Living) and the remaining three
were for Sch. A (on Family Budget). That is the nature of the procedure adopted in selecting the
families for sample survey and determining the size of the sample. The sample survey was designed
to cover a period of twelve months

The population of Ahmedabad is about 11.5 lakhs. The working class population in Ahmedabad was
reported to be concentrated in thirteen localities. The markets predominantly patronised by the
working class population in Ahmedabad were six and it is these markets that were selected for the
collection of retail prices for the new series of consumer price index number for Ahmedabad centre.

This summary of the report gives us a broad idea as to the manner in which and the method by
which the investigation was made which ultimately led to the construction of the consumer price
index number.

Reverting then to the abjections raised by the appellants that the size of the sample was inadequate
and the method of investigation was inappropriate, can it be said that the industrial court was in
error in holding that these objections were not valid ? In dealing with this question. it is necessary to
bear in mind that the size of the sample has to be determined in the light of the permissible margin
of error in the resulting series of consumer price index numbers. As Dr. Basu has observed : "In our
country, this permissible margin of error in the index has been broadly set at 2 per cent". and that is
not contradicted by the opinion of any other expert. The sample of consuming units has to be
selected by the application of scientific sampling techniques; and there is no doubt whatever that
during the last forty years, this branch of human knowledge has made remarkable progress. The
optimum sample design is now worked out by competent statisticians in the light of the available
material and requirements in

On the question about the adequacy of the sample size selected for investigation on the present
occasion, it would be material to refer to the opinion expressed by Moser on this subject. Says
Moser :-

                  "Most people who are unfamiliar with sampling probably overrate the importance of
                  sample size as such, taking the view that "as long as the sample is big enough, or a
                  large enough proportion of the population is included, all will be well." The fallacy
                  in this is clear as soon as one looks at any standard error formula, say (5.1) on p. 61
                  above. If the population is large, the finite population correction N-n/N-1 practically
                  vanishes and the precision of the sample result is seen to depend on n, the size of the
                  sample, not on n/N, the proportion of the population included in the sample. Only if
                  the sample represents a relatively high proportion of the population (say, 10 per cent
                  or more) need the population size enter into the estimate of the standard error."

Mr. Kolah for the appellants not cited before us the opinion of any expert to the contrary.

Considering the question from a common sense point of view, it seems to us reasonable to hold that
if the quality of investigation has improved and the method of working out sample survey has made
very great progress, then it would not be correct to say that because the size of the sample in the
present case was smaller as compared to the size of the sample taken in 1926-27, the inadequacy of
the size on the subsequent occasion introduces an infirmity in the investigation itself. That is the
view which the Industrial Court has taken, and we see no reason to differ from it.

At this stage, it would be interesting to consider the comparative contents of the basket as it was
devised in the two respective enquiries, one held in 1926-27, and the other in 1958-59. The former
enquiry reflects the consumption pattern of the working. class as it existed in 1926. The index
number then devised was composed of five groups, viz., (1) Food, (2) Fuel and Lighting, (3)
Clothing, (4) House rent and (5) Miscellaneous. The food group in its turn consisted of sixteen
items, the fuel and lighting group of four items the clothing group of seven items the house rent
group of the item of house rent, and the miscellaneous group of two items, viz., bidis and soap.
Thus, in all, 30 items were included. These items represent 82.32 per cent of the average monthly
expenditure and they were respectively assigned 58, 7, 10, 12 and 4 weights which together
aggregate to 91. At the time of this enquiry, the items included in the investigation totalled 49; out
of them, 30 were priced and 19 were unpriced; and in

The new series is based on the enquiry into 722 working class families conducted in 1958-59 when
the total population of the city was about 11 lakhs. The total working class families at this time were
estimated to be 51.5 thousand; and so, the percentage of the sample size in relation to the universe
of the working class families would come to about 1.4 and not less than 5 as appears to have been
assumed by Sri Gokhale. The weighting diagram for the new series is based on 110 articles divided
into the main groups of food, fuel and lighting, housing, clothing. and miscellaneous. The important
groups in this enquiry carried respectively the weights of 64.41, 6.22, 5.05, 9.08, and 15.24 which
aggregate to 100. The total number of items included in the basket was 239. Of these, 89 were
priced items and 150 unpriced, and in respect of the latter, the method of imputation was adopted. It
is true that in the new series, the unpriced items are considerably more than in the earlier one; but it
must be remembered that ms to total expenditure was 10.2 per cent. In the latter enquiry of 1958-59,
the total expenditure on all items was Rs. 139.06. Of this Rs. 124.91 was the expenditure on priced
items and Rs. 14.15 was the expenditure on non-priced items. In terms of percentage, the first
expenditure was 89.8 per cent and the second is 10.2 per cent. Thus, is clear that the expenditure on
unpriced items in the present enquiry is not larger than in the former enquiry at all. The fact that the
components of the basket have considerably increased, cannot be a matter of surprise, because with
the growth of Indian economy and the change in the standard of living of all citizens, the
requirements of the working class have also increased and the components of the basket which was
devised in 1926-27 have now become completely obsolete. It is in the light of this position that we
have to consider whether the appellants are justified in contending that the inadequacy of the size of
the sample vitiates the enquiry. In our opinion, the a

The next question to consider is whether the interview method is unscientific and its adoption makes
the enquiry itself defective and unreliable. In dealing with this question again, it is necessary to
remember that the interview method itself has made very great progress since 1926. The task of
investigation is in no sense merely mechanical; it is a constructive task the efficient discharge of
which requires a well-trained investigator. As Moser observes, the Investigators are expected to ask
all the applicable questions; to ask them in the order given and with no more elucidation and
probing than is explicitly allowed; and to make no unauthorised variations in the working (p. 188).
Interviewers, according to Moser, are not machines. Their voices, manner, pronunciations and
inflections differ as much as their looks, and no amount of instructions will bring about complete
uniformity in technique; and so interviewers have to be properly educated in the task of putting
questions to the families interviewed. Wh

It is true that in England the method of supplying account books to the families is adopted. Under
this method, the families are expected to fill in every detail in the account book, and the cost of
living is compiled from exact and correct information given by the persons who keep regular
accounts according to the directions issued. But, on the other hand, in countries like Canada and the
United States, the method of interview is preferred to that of the account books. It seems that,
according to Moser, the method of mail questionnaire, which corresponds in a sense with the
method of account-books, suffers from several infirmities; and so, he seems to prefer the method of
interview, provided, of course, this method is scientifically and efficiently adopted.

In our country where a majority of working class population still suffers from illiteracy, the method
of interview is obviously indicated. It would be impracticable to suggest that a written questionnaire
should be supplied to the members of the working class or account books should be given to them in
the expectation that they would furnish answers in return. Having regard it this special feature of the
life of the working class as it obtains in our country today, the method of interview is the only
method which can be adopted. Besides, as we have just indicated, even on the merits, expert opinion
seems to suggest that if the interview method is properly adopted, it gives better results than the
alternative method of account-books. Therefore, we are satisfied that the industrial court was right
in rejecting the appellants' contention that the impugned survey and the index constructed as a result
of it, suffer from the infirmity that investigation was conducted in this survey by the interview
method.
That takes us to the question about the propriety of the linking factor which has been upheld by the
industrial court. We have already noticed that the Government of Gujarat has adopted the linking
factor at 3.17, and the industrial court has taken the view that no case has been made out by the
appellants to interfere with the said decision of the Government of Gujarat. Sri Kolah contended
that if a linking factor has to be adopted, it would be more rational and scientific to watch the
behaviour of prices for two or three years and then devise a factor on the average rise in prices
during the period in question.

Mr. Vasavada, on the other hand, seriously disputed the correctness of Sri Kolah's contention. As
this case was being argued on 24 March 1965, the parties suggested that the question about the
proper procedure to be followed in determining the linking factor in such cases cases was a very
important question and that it would be better if we hear the views of associations or bodies which
would be interested in a proper solution of this problem. That is why on the said date we adjourned
the hearing of the appeals to enable such interested parties to appear before us. The parties furnished
a list of sixteen institutions or bodies which, according to them, would be interested in assisting us
with arguments on this issue. On 12 April 1965, a letter of request was accordingly sent to these
bodies indicating to them the nature of the question on which we wanted their assistance. In
response to the said letter, only four bodies have appeared, they are : The All-India Organization of
Industrial Employers; The All-Ind

The appeals were then set down for hearing before us on 2 August 1965, and we indicated to the
parties that having regard to the unsatisfactory response which our letter of request had received, we
did not think it would be appropriate that we should proceed to decide the larger issue raised by Sri
Kolah as to what would be a rational and satisfactory method evolving a linking factor. The Indian
National Trade Union Congress in its affidavit has urged that the method of linking of the new
series with the old by the simple arithmetical ratio at the base period is universally accepted. It
appears that the employers and the employees are not able to take a consistent stand on this issue
and their approach apparently differs from region to region and industry to industry, because
consideration of expediency and self-interest do not seem to dictate a uniform common approach to
be adopted in the present case. Besides, the issue is of a very technical character and any decision of
this Court on such an issue of pri

Reverting then to the narrow question as to whether the appellants are justified in attacking the
finding of the industrial court on this issue, let us mention a few relevant facts and considerations.
We have already noticed that at the request of the Government of India, the Government of Gujarat
discontinued the publication of the State series of the consumers price index; and so it became
necessary for the said Government to secure the advice of an expert committee as to how the new
series of consumer price index for Ahmedabad should be linked with State series after making such
adjustments therein as may be found necessary. The expert committee dealt with this problem of
arriving at the linking factor, so that when the new series is adopted and the State series is
discontinued the dearness allowance on the present scale can be computed even on the basis of the
new series. The Government of India had, in this connexion, indicated that 2.98 would be an
appropriate linking factor. This figure had been reach

A similar question was referred by the Government of Maharashtra to the Lakdawala Expert
Committee, and the said committee was inclined to take the same view. It no doubt observed that "in
spite of the fact a linking on the basis of a simple ratio corrects a series only in respect of one of its
dimensions, we recommend this course because we are of opinion that such a correction is adequate
for the requirements of our terms of reference and in any case, the only correction that we can
meaningfully carry our." It would thus be seen that in accepting the linking factor at 3.17, the
Government of Gujarat has adopted the conclusion of the Desai Expert Committee.

The question which arises is whether in upholding this view, the industrial court has committed any
error. As the industrial court has observed, two possibilities presented themselves in attacking this
problem. One was to work out an entirely new scale of basic wages founded not on the pre-war
level of 1939, but on the cost of living of 1960 as the base year of the new series and to award
dearness allowance thereafter. The industrial court thought that to adopt this course may
conceivably create a large number of problems which do not exist at present and in fact, it may tend
to destroy industrial peace. The industrial court thought that such a course might even be outside its
terms of reference. Even so, in its opinion, the result which would be achieved by adopting this
course may not in the end be very different. The other course is to link the State series The with the
new series to maintain continuity. It is this latter alternative which has been adopted by the
Government of Gujarat, and the industrial

As we have just indicated, the problem is a technical problems and it can be decided only in the
light of the opinion which experts may form on examining all the aspects pertaining to the problem
and after taking into account all the pros and cons which may be put before them by the respective
interested parties. The stand which the parties may take in regard to this controversy would differ
according as the change in the cost of living index in the respective States may help their interest
one way or the other. That explains why there is no unanimity in the approach adopted by the
different parties. This is made clear by the contentions raised by the respective parties before the
Lakdawala Expert Committee.

There is no doubt that on the material as it stands, it would be unreasonable, in expedient and in fact
impossible for this Court to attempt to resolve this controversy on the basis of the larger issue of law
raised by Sri Kolah before us. The decision of that question must, therefore, left to a committee of
experts if and when it is appointed. Meanwhile, this question will have to be dealt with on an ad hoc
basis in each industry, taking into account the particular facts and circumstances of each case.

Looking at the question from this narrow point of view, we do not think the appellants have placed
before the industrial court any material to justify their contention that for determining a linking
factor, the behaviour of prices for two or three years during the relevant period should and can be
studied. In fact, Sri Vasavada's contention is that a study of the behaviour of prices for such a period
and deducing the average therefrom would be inconsistent with the notion of evolving a linking
factor. He contends that we have to take one year by reference to which this problem must be
resolved. We express no opinion on this part of the controversy between the parties. In fact, the
award under appeal shows that the argument which Sri Kolah has urged before us was not placed in
this form, and in any case does not appear to have been pressed, before the industrial court. Even
assuming that it would have been open to the industrial court to consider this larger issue under the
terms of its reference, we do not s

The last question to consider is whether the Industrial Court was right in coming to the conclusion
that the additional burden which its award would impose upon the appellants would not be beyond
their financial capacity. In dealing with this question, there are two general considerations, which
cannot be ignored. The first consideration is that the task of constructing a wage structure of
industrial employees is a very responsible task and it presents several difficult and delicate
problems. The claim of the employees for a fair and higher wage is undoubtedly based on the
concept of social justice, and it inevitably plays a major part in the construction of a wage structure.
There can be little doubt that if the employees are paid a better wage which would enable them to
live in fair comfort and discharge their obligations to the members of their families in a reasonable
way, they would be encouraged to work whole-heartedly and their work would show appreciable
increase in efficiency.

On the other hand, in trying to recognize and give effect to the demand for a fair wage, including
the payment of dearness allowance to provide for adequate neutralisation against the everincreasing
rise in the cost of living, industrial adjudication must always take into account the problem of the
additional burden which such wage structure would impose upon the employer and ask itself
whether the employer can reasonably be called upon to bear such burden. The problem of
constructing a wage structure must be tackled on the basis that such wage structure should not be
changed from time to time. It is a long- range plan; and so, in dealing with this problem, the
financial position of the employer must be carefully examined. What has been the progress of the
industry in question; what are the prospects of the industry in future has the industry been making
profits; and if yes what is the extent of profits; what is the nature of demand which the industry
expects to secure; what would be the extent of the burden

The other aspect of the matter which cannot be ignored is that if a fair wage structure is constructed
by industrial adjudication, and in course of time experience shows that the employer cannot bear the
burden of such wage structure, industrial adjudication can, and in a proper case should, revise the
wage structure, though such revision may result in the reduction of the wages paid to the employees.
It is true that normally, once a wage structure is fixed, employees are reluctant to face a reduction in
the content of their wage packet; but like all major problems associated with industrial adjudication,
the decision of this problem must also be based on the major consideration that the conflicting
claims of labour and capital must be harmonized on a reasonable basis; and so, if it appears that the
employer cannot really bear the burden of the increasing wage bill, industrial adjudication, on
principle, cannot refuse to examine the employer's case and should not hesitate to give him relief if
it is satisfie

This principle, however, does not apply to cases where the wages paid to the employees are no
better than the basic minimum wage. If what the employer pays to his employees is just the basic
subsistence wage, then it would not be open to the employer to contend that even such a wage is
beyond his paying capacity. Industrial adjudication has consistently recognized and enforced the
principle that social justice requires that an industrial employer must be able to pay his employees a
wage structure which can be reasonably regarded as basic minimum wage. No employer can be
allowed to pay his employees wages which are below the basic minimum or the subsistence wage. It
is well-known that, in certain industries, minimum wages are fixed by the statute. Even where
minimum wages are not fixed by statute, industrial adjudication can easily determine whether, in a
given case, the wage paid is basic minimum or not. In either case. where the wage answers the
description of the basic minimum or subsistence wage, it has t

We have thought it necessary to refer to these two theoretical considerations at this stage, because if
they are borne in mind, we get a proper perspective of the problem raised by the appellants'
contention as to their financial capacity. In the present proceedings, the industrial court is not
constructing any wage structure for the first time, nor is it dealing with the question of determining
the quantum or the sliding scale of the dearness allowance to be paid to the textile employees at
Ahmedabad. These matters have been considered in the past on several occasions and they are
governed by consent awards passed between the parties. It is because of the new survey made in
1958-59 and the consequent change in the construction of the consumer price index made by the
series published by the Government of Gujarat that the present dispute has arisen; and so, while
dealing with the appellants' contention, it would be pertinent to enquire whether the appellants show
that a case has been made out for reduction of

In support of their contention that the textile industry at Ahmedabad cannot bear the burden which
would be imposed by the award, the appellants examined Sri Chokshi. Sri Chokshi is a chartered
accountant and a senior partner in the firm of C. C. Chokshi & Co. He has been practising as a
chartered accountant for about 24 years. He was a member of the Council of the Institute of
Chartered Accountants for eight years and its president for one year. It appears that the appellant
Association sent to him five statements and asked for his opinion on the financial position of the
textile industry at Ahmedabad. Sri Chokshi first filed an affidavit in which he set out his opinions
and then gave oral evidence. In his affidavit, Sri Chokshi referred to the respective statements on
which his opinion was based and he stated that the financial position of the textile industry at
Ahmedabad was, on the whole, not very satisfactory.

In appreciating the evidence given by Mr. Chokshi, it would, therefore, be material to indicate the
nature of the statements on which his opinion was based. The first statement shows the depreciation,
development rebate, and increase in gross block per year of the Ahmedabad cotton textile mill
industry for the years 1945 to 1963. The statement indicates that all these items have increased from
year to year; depreciation was Rs. 0.83 crore in 1945 and it rose to Rs. 6.68 crores in 1963;
development rebate was Rs. 0.05 crore in 1954 and it became Rs. 1.26 crores in 1963; gross block
rose from Rs. 20.25 crores in 1945 to Rs. 101.98 crores in 1963; and increase in gross block per
year for the same years was Rs. 1.31 and Rs. 9.77 crores.

The second statement shows the net worth and borrowings of the said industry during the same
period. The emphasis in this statement was on the ever-increasing borrowings. In 1945, the
borrowings, consisting of secured and unsecured loans and other deposits, were of the order of Rs.
9.58 crores, whereas in 1963, they rose to Rs. 47.76 crores. The third statement shows the working
capital and borrowings for the period in question. The fourth statement shows profits after tax as
percentage of net worth of the said industry for the same period. This statement refers to profits
before tax, loss, tax provisions, profits after tax, net worth, and the last column gives profits after
tax and indicates percentage of net worth. It is the last column on which Sri Chokshi relied when he
gave his opinion that the financial position of the Ahmedabad textile industry was not very
satisfactory. Whereas in 1945 the percentage of profits to net worth was 13.4 per cent, in 1963 it
was 3.3 per cent. The last statement shows divi

On the other hand, the respondent has filed several statements showing that the financial position of
the appellants has been consistently good, and the fear that the appellants would not be able to bear
the burden is entirely unjustified. Annexure II filed by the respondent along with its statement
shows the percentage of wages to total income in Ahmedabad cotton textile industry from 1939 to
1962. This percentage was 26 in 1939 and is 24 both in 1961 and 1962; for the intervening period, it
has risen to 28 in 1949 and fallen to 20 in 1943. Annexure III gives the statement showing the
growth of paid up capital by cash in the said industry for the same period. In 1939, the paid up
capital by cash was 407 lakhs, whereas in 1962 it was 770 lakhs. Annexure IV shows the growth of
total paid up capital including bonus shares for the same period. This statement shows a remarkable
growth of total paid up capital in this manner : In 1939, the total paid up capital was 442 lakhs,
whereas in 1962 it has reached the ma

The main comment which falls to be made on the opinion expressed by Mr. Chokshi is that he has
looked at the problem merely from the investor's point of view. In fact, he fairly stated that he had
made his analysis from the point of view of an investor. That explains why Sri Chokshi took the
view that absolute figures of mere gross profit or net profit from year to year would be misleading.
He did not agree that most of the textile mills in Ahmedabad are at present under- capitalized. He
conceded that in dealing with the problem of expanding business and increasing the wage bill, one
of two methods can be adopted by the industry; the industry can increase the capital or borrow
money. Very often, said Sri Chokshi, borrowing is preferred to the increase of capital in certain
market conditions. He was not certain whether borrowings had been resorted to by the textile
industry for the purpose of expansion. In dealing with the problem of the financial capacity of the
appellants to bear the burden, it would be inap

Mr. Kolah for the appellants has strongly relied upon certain statements made in the Reserve Bank
of India Bulletin issued in July 1964, in support of his argument that the financial position of the
appellants was not satisfactory. Dealing with the position of the cotton textile industry during the
period under review, the bulletin says that cotton textiles recorded a steep fall of Rs. 17.0 crores in
net profits as against a rise of Rs. 2.1 crores in the previous year. Applying the profitability ratio, the
bulletin goes on to say that cotton textiles, amongst others, showed declines in profitability. This test
is evolved by the ratio of gross profits to sales, and the return on capital, as measured by the ratio of
gross profits to total capital employed. According to the bulletin, the decline in the return on
shareholders' equity (ratio of profits after tax to net worth) was substantial in the case of cotton
textiles along with other named industries. Table 4 in the bulletin gives a comparative statement of

We do not think in considering the financial position of the appellants in the context of the dispute
before us, it would be appropriate to rely unduly on the profitability ratio which has been adopted
by the said bulletin. Indeed, in appreciating the effect of the several statements produced before the
industrial court by the parties in the present proceedings, it would be relevant to remember that
some of these single-purpose statements are likely to create confusion and should not ordinarily be
regarded as decisive. As Paton has observed : "Different groups for whom financial statements are
prepared are interested in varying degree in particular types of information; and so, it has been held
in some quarters that no one form of statement will satisfactorily serve all these purposes, that
separate single purpose statement should be prepared for each need or that the statements usually
prepared for general distribution should be expanded so as to include all the detail desired". Paton
cites the comment of W the tests evolved from such statements, whilst it is attempting the task of
deciding the financial capacity of the employer in the context of the wage problem. While we must
no doubt examine the position in detail, ultimately we must base our decision on a broad view
which emerges from a consideration of all the relevant factors.

What then is the broad picture which emerges from the evidence on the record in respect of the
financial position of the textile industry at Ahmedabad? The cotton textile industry at Ahmedabad
can legitimately claim to be the oldest organized industry in the country. It recently celebrated its
centenary in 1961. The story about the growth of this industry during this century is very
heartening. In its early stages, it no doubt made a small and modest beginning; but at the time when
the centenary celebrations were held, it had an installed capacity of about two million spindles and
42,000 looms and it employed 1,30,000 workmen. Statistics show that textile mills at Ahmedabad
account roughly for one-third of the total mill production in the country, and it would be no
exaggeration to say that some of the best varieties of cloth produced in the country are manufactured
at Ahmedabad.

The paid up capital by cash of the industry in 1939 was 4.07 crores and it became 7.70 crores in
1962. The total paid up capital including bonus shares was 4.42 crores in 1939 and in 1962 it rose to
21.29 crores. it would thus be seen that out of the total paid-up capital of 21.29 crores in 1962, the
capital collected by cash in 7.70 crores, whereas the balance of 13.59 crores is by way of bonus
shares. In other words, the cash capital is increased by 175 per cent because of capitalization of the
reserves. Similarly, the gross block in 1939 was 19.15 crores and in 1962 it rose to 93.41 crores.
Almost the same rate of progress is evidenced by the reserves. The reserves excluding depreciation
fund and other liability funds at the end of 1939 was 3.60 crores and they have gone to 25.18 crores
in 1962. The gross profits have registered a similar rise. In 1939, the gross profit including
Managing Agents' Commission and depreciation was 1.59 crores, whereas in 1962 it has reached the
magnitude of 12.96 crores. In

It is true that the textile industry at Ahmedabad has been leaning very heavily on borrowing; but that
may partly be due to the fact that the said industry has for several decades been under-capitalized.
Besides, the tendency to rely upon borrowing for expanding the business is noticeable throughout
this period of the life of textile industry at Ahmedabad and has been the subject-matter of comment
by several persons. In fact, sometimes it is treated as a peculiar feature of the development of the
textile industry at Ahmedabad; and so, the extent of borrowings cannot be pressed into service for
the purpose of showing that the financial position of the industry is unsatisfactory.

One remarkable feature of the textile industry at Ahmedabad is the harmonious relation which have
consistently subsisted between the employers and the employees. The employers, on the whole, are
enlightened and progressive in their outlook, and the trade union leadership of the employees is also
enlightened and progressive. Both the employers and employees realize that the progress of the
industry depends primarily on the co-operation between capital and labour; and the large number of
consent awards and agreements to which they have been parties over a period of several years, is a
standing tribute to the spirit of co-operation which inspires the textile industrial life in Ahmedabad.
As one looks back over the last hundred years of the life of the textile industry at Ahmedabad, one
is struck by the fact that the industrial life in that area has rarely been disturbed by bitterness, feuds
or general strikes. This spirit of co-operation, based on the willingness to give and take, alone can
ensure the economic

It is significant that as a result of the spirit of co-operation between capital and labour, the textile
industry at Ahmedabad has been able to enter into several agreements for rationalizing the industry
itself It is well-known that an attempt to rationalizing textile industry inevitably involves
retrenchment of a large number of employees, but the appellants and the respondent have entered
into agreements of rationalization after both of them agreed to three basic principles in that behalf.
These principles are :-

                  (a) Rationalisation to be effected without creating unemployment of the existing
                  workers;

                  (b) Gains of rationalization should be adequately shared between the management
                  and the workers; and

                  (c) The workload should not be increased in a manner which may jeopardize the
                  health of the workers.

The fact that a large number of agreements have been made between the parties by consent
concerning the vexed subject of rationalization also shows that the future of the textile industry at
Ahmedabad is bound to be as bright as it has been in the past. In this connexion, we may refer to the
tribute paid by the Central Wage Board to the cotton textile industry at Ahmedabad. Says the Board
:-

                  "The industry, however, is conscious of the need for rationalization and
                  modernization as the sine qua non of survival, the pace of which had been checked in
                  the past by the fear of unemployment; that fear has been allayed, and labour now
                  recognizes that its own welfare depends on rationalization and modernization; and it
                  has agreed upon the broad lines for their introduction. Some mills even today have
                  very modern and up-to-date machinery, and all mills which can manage to do so will
                  have to rationalise and modernise; for the nation is on the march, and this industry
                  must clothe the nation."

Let us then consider the question about the prospects of the demand for textile products in future
and increasing productivity of the industry. On this point again, it is difficult to share the pessimism
disclosed by the attitude adopted by the appellants. There is little doubt that the productivity of the
industry is increasing and that the demand for textile products will never be on the decrease in
future. Therefore, we do not see how we can differ from the conclusion of the industrial court that
the appellants have failed to substantiate their contention that the additional burden would be
beyond their capacity to pay. In this connexion, we ought to recall the fact that what the appellants
are required to prove is that the prospects of their financial position in future justify a reduction in
the wage which is being paid to the industrial employees during all these years; for that on the
ultimate analysis would be the result if their contention is accepted. The industrial court has made a
definite findin

It was conceded before us that our decision in civil Appeals Nos. 167- 173 of 1965 would govern
the decision of Civil Appeals Nos. 537-538 of 1965. So, the result is that all the said appeals fail and
are dismissed with costs. One set of hearing fee.

Appeals dismissed.

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