A) ABSTRACT / HEADNOTE

The Supreme Court in Khandesh Spinning & Weaving Mills Co. Ltd. v. Rashtriya Girni Kamgar Sangh, Jalgaon addressed the central question of how rehabilitation costs are to be calculated in bonus disputes under industrial law. It delved into the proper application of the Full Bench Formula, especially regarding the use of company reserves as working capital and their impact on bonus computation. The judgment scrutinised the deduction of general reserves from the rehabilitation amount and laid down the necessity of strict proof by employers when claiming that such reserves were used as working capital. The Court held that unless the employer definitively proves such utilisation, the reserves must be deducted from the rehabilitation amount. This ruling reiterates the obligation of industrial courts to adopt rigorous evidentiary procedures when deciding bonus claims and emphasises the rights of workmen to a fair opportunity to contest employer submissions.

Keywords: Rehabilitation Reserve, Bonus, Full Bench Formula, Working Capital, Industrial Court, Industrial Disputes, Supreme Court of India.

B) CASE DETAILS

i) Judgement Cause Title
Khandesh Spinning & Weaving Mills Co. Ltd. v. Rashtriya Girni Kamgar Sangh, Jalgaon

ii) Case Number
Civil Appeal No. 257 of 1958

iii) Judgement Date
22 January 1960

iv) Court
Supreme Court of India

v) Quorum
Hon’ble Justices P.B. Gajendragadkar, K. Subba Rao, and K.C. Das Gupta

vi) Author
Justice K. Subba Rao

vii) Citation
1960 (2) SCR 841

viii) Legal Provisions Involved

• Section 42(2) and Section 73A, Bombay Industrial Relations Act, 1946

• Order XIX, Code of Civil Procedure, 1908

ix) Judgments overruled by the Case
None

x) Case is Related to which Law Subjects

• Labour Law

• Industrial Dispute Resolution

• Bonus Claims

• Corporate Accounting in Industrial Disputes

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The case emerged from a bonus dispute raised by Rashtriya Girni Kamgar Sangh, the representative union of workers of Khandesh Spinning and Weaving Mills Co. Ltd., located in Jalgaon. The dispute focused on bonus payment for the period from January 1, 1955, to December 31, 1955. The trade union, invoking Section 42(2) of the Bombay Industrial Relations Act, 1946, demanded a reasonable bonus based on the company’s profits. Failed negotiations led to a reference to the Industrial Court under Section 73A for arbitration.

The Industrial Court applied the “Full Bench Formula” to determine bonus entitlements. This formula allows for deduction of prior charges such as statutory depreciation and permissible rehabilitation costs from gross profits to arrive at the available surplus for bonus distribution. The employer claimed that its entire reserves (Rs. 51 lakhs) had been used as working capital and thus should not be deducted from the Rs. 60 lakhs estimated rehabilitation amount. The Industrial Court disagreed, stating the reserves had not been proven to be used as working capital and thus should be deducted, resulting in a surplus of Rs. 2.20 lakhs, and awarding four months’ basic wages as bonus. Dissatisfied, the company appealed to the Supreme Court.

D) FACTS OF THE CASE

• The appellant is Khandesh Spinning & Weaving Mills Co. Ltd., a textile mill based in Jalgaon.

• The respondent is Rashtriya Girni Kamgar Sangh, the representative body of the mill workers.

• The dispute arose from a demand notice under Section 42(2) for a reasonable bonus for the calendar year 1955.

• After negotiations failed, the matter was referred to arbitration under Section 73A.

• The Industrial Court accepted a rehabilitation requirement of Rs. 60 lakhs, but deducted Rs. 51 lakhs as reserves, leaving Rs. 9 lakhs to be amortised over 15 years (Rs. 60,000 for the year).

• Since statutory depreciation was Rs. 83,639, the Industrial Court held that rehabilitation as a prior charge was unnecessary.

• The Court determined a surplus of Rs. 2.20 lakhs and awarded four months’ basic wages as bonus.

E) LEGAL ISSUES RAISED

i) Whether the reserves amounting to Rs. 51 lakhs were used as working capital and could thus be excluded from the deductible amount for rehabilitation under the Full Bench Formula.

ii) What standard of proof is required to establish the utilisation of reserves as working capital?

iii) Whether the Industrial Court erred in disallowing the employer’s claim for rehabilitation by deducting reserves.

F) PETITIONER/ APPELLANT’S ARGUMENTS

i) The counsels for Petitioner / Appellant submitted that:

• The entire reserves had been employed as working capital and therefore should not be deducted from the rehabilitation amount.

• The Industrial Court erred in assuming that since the rehabilitation cost was to be spent over 15 years, the reserves would be released in future, hence deductible.

• This assumption contradicted precedents laid down in The Associated Cement Companies Ltd. v. Its Workmen (1959) SCR 925 which mandated that reserves used as working capital should not be deducted.

• The Court should have accepted the balance-sheet entries as prima facie evidence of the use of reserves.

• Insufficient weight was given to management’s financial documents indicating utilisation of reserves in operations.

G) RESPONDENT’S ARGUMENTS

i) The counsels for Respondent submitted that:

• The employer failed to present clear, admissible evidence that the reserves were used as working capital.

• No affirmative assertion or documentary proof was made before the Industrial Court to prove utilisation.

• The Industrial Court made only an assumption and not a finding, reinforcing the requirement of strict proof from the employer.

• The balance-sheet was not proved or substantiated by any witness competent to do so.

• Without due procedure under Order XIX CPC, labour was denied opportunity to challenge financial claims, violating procedural fairness.

H) RELATED LEGAL PROVISIONS

i) Section 42(2) of the Bombay Industrial Relations Act, 1946
Relates to notice for change by employees or their union. Used here to demand bonus.

ii) Section 73A of the Bombay Industrial Relations Act, 1946
Provides for reference to Industrial Court in case of failure in settlement.

iii) Order XIX, Code of Civil Procedure, 1908
Governs proof of facts via affidavit and the right to cross-examination.

I) JUDGEMENT

a. RATIO DECIDENDI

i) The Supreme Court held that employers must prove by admissible evidence that reserves have been used as working capital to claim exclusion from rehabilitation deductions.

• The Court reiterated the ruling in Associated Cement Companies Ltd. v. Its Workmen that reserves used as working capital are not deductible from rehabilitation costs.

• It also ruled that unless reserves are reasonably earmarked for statutory or contractual obligations, they must be considered available and deducted.

• The failure to prove actual use of reserves rendered the Industrial Court’s decision correct.

• The balance-sheet alone cannot prove reserve utilisation unless validated through competent evidence and cross-examination.

b. OBITER DICTA 

i) The Court advised Industrial Tribunals to strictly follow Order XIX CPC when deciding financial issues with material impact on bonus computations.

• It expressed concern over casual reliance on balance-sheets and affidavits.

• It warned tribunals to give real opportunity to labour for contesting employer claims regarding finances.

c. GUIDELINES 

i) Tribunals must:

• Not rely solely on unauthenticated balance-sheets.

• Demand clear and proven evidence for working capital usage of reserves.

• Permit cross-examination of financial officers if affidavits are relied upon.

• Follow Order XIX CPC in the absence of agreement between parties.

• Ensure that rehabilitation figures are not inflated or manipulated.

J) CONCLUSION & COMMENTS

This case reinforces the principle that bonus entitlement calculations must rest on proven financial realities, not assumptions. The Court’s insistence on procedural rigor—particularly in proving use of reserves—protects the sanctity of labour rights. It strengthens the evidentiary thresholds for employers while upholding the relevance of judicial scrutiny in industrial arbitration. The ruling also bridges gaps in earlier inconsistent practices by some Industrial Courts. By affirming that rehabilitation claims require strict scrutiny, the Court fortifies the bonus jurisprudence under Indian labour law.

K) REFERENCES

a. Important Cases Referred

i) The Associated Cement Companies Ltd. v. Its Workmen, [1959] SCR 925
ii) Indian Hume Pipe Company Ltd. v. Their Workmen, [1960] 2 SCR 32
iii) Tata Oil Mills Company Ltd. v. Its Workmen, [1960] 1 SCR 1
iv) Anil Starch Products Ltd. v. Ahmedabad Chemical Workers’ Union, C.A. No. 684 of 1957 (not reported)

b. Important Statutes Referred

i) Bombay Industrial Relations Act, 1946, Sections 42(2), 73A
ii) Code of Civil Procedure, 1908, Order XIX
iii) Labour Jurisprudence – Full Bench Formula principles