Petlad Turkey Red Dye Works Ltd. v. Dyes & Chemical Workers’ Union, Petlad & Anr.

A) ABSTRACT / HEADNOTE

This case before the Hon’ble Supreme Court of India deals with an important issue concerning the quantum of bonus payable to workers by an industrial undertaking and more specifically, the permissibility of deducting a notional return on reserves and depreciation funds used as working capital. The appellant, Petlad Turkey Red Dye Works Ltd., contested the Industrial Tribunal’s award granting a month’s basic wage as bonus to employees. The crux of the dispute arose from the employer’s claim of a 4% return on ₹2,27,000 from the Depreciation Reserve Fund, which they alleged was deployed as working capital. The Industrial Tribunal rejected this claim, stating that such reserves—even if utilised—were not eligible for a return. The Supreme Court overruled this rationale and reaffirmed that reserves actually employed as working capital are eligible for a reasonable return, which must be treated as a prior charge under the Full Bench Formula. However, the Court held that the employer had failed to prove with evidence that the depreciation fund was used in such a manner. The balance sheet alone could not substantiate this claim. Therefore, the appeal was dismissed, and the bonus awarded to workers stood affirmed.

Keywords:

Bonus Distribution, Working Capital, Depreciation Reserve, Industrial Tribunal, Full Bench Formula

B) CASE DETAILS

i) Judgement Cause Title:
Petlad Turkey Red Dye Works Ltd. v. Dyes & Chemical Workers’ Union, Petlad & Anr.

ii) Case Number:
Civil Appeal No. 258 of 1958

iii) Judgement Date:
February 3, 1960

iv) Court:
Supreme Court of India

v) Quorum:
P.B. Gajendragadkar, K. Subba Rao, and K.C. Das Gupta, JJ.

vi) Author:
Justice K.C. Das Gupta

vii) Citation:
(1960) 2 SCR 906

viii) Legal Provisions Involved:

  • Industrial Disputes Act, 1947

  • Principles under Full Bench Formula on bonus computation

ix) Judgments Overruled by the Case (if any):
None specifically overruled

x) Case is Related to which Law Subjects:
Labour and Industrial Law

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The dispute emanated from a broader pattern of industrial adjudication over bonus entitlements under Indian Labour Law. In the post-independence industrial jurisprudence landscape, the Full Bench Formula, propounded in 1950, sought to rationalise bonus claims by employees in a scientific manner. This formula stipulated a structured approach for determining the “available surplus”, including deductibles like return on paid-up capital, working capital, reserves, etc., prior to calculating bonus. Petlad Turkey Red Dye Works Ltd., being an industrial concern, was party to an adjudicatory process where the workers demanded bonus based on their perceived share in profits. The management contended that if a return of ₹32,000 (4% on ₹2,27,000) from the Depreciation Reserve Fund was recognised as a prior charge, no surplus would remain for bonus distribution. The Tribunal refused this claim. The employer’s appeal to the Supreme Court questioned both the principle and evidentiary standards applied by the Tribunal in rejecting the said claim.

D) FACTS OF THE CASE

The appellant company claimed ₹32,000 as 4% interest on ₹8,00,000 worth of reserves allegedly used as working capital, part of which included a depreciation fund of ₹2,27,000. The Industrial Tribunal, while computing the bonus payable to workers under the Full Bench Formula, disallowed this claim. It reasoned that even if depreciation reserves were used as working capital, no return could be allowed. This directly influenced the computation of available surplus. The workmen, in rebuttal, submitted their own calculations reflecting lower capital utilisation, showing only ₹1,66,000 as employed from reserves, and allowed 4% deduction only on that amount. The employer did not present affirmative evidence, such as affidavits or cross-verifiable account records, to substantiate the actual deployment of the depreciation fund. Hence, the Tribunal declined to accept the amount as a legitimate prior charge. The matter thus escalated to the Supreme Court.

E) LEGAL ISSUES RAISED

i) Whether the employer is entitled to a notional return on depreciation reserves employed as working capital?
ii) Whether a balance sheet alone suffices as proof of such utilisation?
iii) Whether disallowance of such a return is legally sustainable under bonus computation norms?

F) PETITIONER/ APPELLANT’S ARGUMENTS

i) The counsels for Petitioner / Appellant submitted that:

They argued that ₹2,27,000 from the depreciation fund had been employed as working capital, making it eligible for a return of 4%, which was equivalent to ₹9,839—the exact bonus awarded to the workers. They asserted that if this deduction was recognised, no available surplus would remain, thereby invalidating the bonus order. They contended that the balance sheet itself clearly reflected this deployment, and no further evidence should be necessary. Moreover, they cited precedents such as Khandesh Spinning & Weaving Mills Co. Ltd. v. Rashtriya Girni Kamgar Sangh, Jalgaon, Civil Appeal No. 257 of 1958, arguing that return on capital employed from reserves has been previously allowed, irrespective of the fund’s character, provided it contributed to productive activity. They relied on the understanding that depreciation reserves, once unutilised, are fungible and can serve as working capital. They also submitted that no express challenge had been made to the accounting entries, and hence the Tribunal erred in not accepting them at face value.

G) RESPONDENT’S ARGUMENTS

i) The counsels for Respondent submitted that:

The workers denied that ₹2,27,000 from depreciation fund was ever utilised as working capital. They claimed that the employer failed to prove this assertion through admissible evidence. They argued that the balance sheet was not a conclusive proof, and cited Management of Trichinopoly Mills Ltd. v. National Cotton Textile Mills Workers Union, Civil Appeal No. 309 of 1957, where the Court held that balance sheets are not self-authenticating and must be proved through evidence. They emphasised that equity and fair opportunity must guide adjudication under labour law, and unless workmen had an opportunity to cross-examine or challenge the basis, such deductions could not be allowed. They submitted their own calculations (Exhibit U/3), admitting only ₹1,66,000 as working capital eligible for deduction. Hence, they urged that the bonus award should stand unaltered.

H) RELATED LEGAL PROVISIONS

i) Full Bench Formula: Governs bonus computation and specifies what constitutes “available surplus” and prior charges.
ii) Industrial Disputes Act, 1947 – Section 10 (reference of disputes), Section 11 (procedure and powers of Tribunal).
iii) Civil Procedure Code, 1908 – Affidavit and evidentiary requirements under Order XIX.
iv) Indian Evidence Act, 1872 – Sections 101 to 104 on burden of proof.
v) Relevant Case Law:

  • Indian Hume Pipe Co. Ltd. v. Their Workmen, (1959) II LLJ 357

  • Khandesh Spinning & Weaving Mills Co. Ltd. v. Rashtriya Girni Kamgar Sangh, Jalgaon, C.A. No. 257 of 1958

  • Management of Trichinopoly Mills Ltd. v. National Cotton Textile Mills Workers Union, C.A. No. 309 of 1957

I) JUDGEMENT

a. RATIO DECIDENDI

i) Any portion of a reserve (even depreciation reserves), when actually employed as working capital, is entitled to a reasonable return. This return is deductible as a prior charge under the Full Bench Formula. However, a balance sheet alone is not sufficient proof. The employer must prove by affidavit or evidence that such reserve was deployed in the accounting period. Without such proof, the claim cannot be accepted.

b. OBITER DICTA 

i) The Court warned that directors may have ulterior motives in financial statements and emphasised that courts must be cautious while accepting unauthenticated balance sheet entries as gospel truth.

c. GUIDELINES 

  • Return on reserves is allowable only if there is concrete proof of its use as working capital.

  • Balance sheets are not self-evident proof and need supporting evidence.

  • Industrial Tribunals must provide opportunity to workmen to challenge such claims.

  • Affidavits or oral testimony from competent officers must accompany such financial assertions.

  • No remand is warranted if parties failed to adduce evidence when opportunity was available.


J) CONCLUSION & COMMENTS

The Supreme Court in this judgment preserved the sanctity of evidentiary rules even in industrial adjudication, emphasizing that financial claims affecting worker entitlements must be clearly established. The Court recognised the principle that capital from reserves—when actually used—deserves return, but it also ensured that accounting entries must pass the test of proof. This judgment created a delicate but critical balance between management rights and employee entitlements, and set a firm precedent on financial transparency in bonus claims.

K) REFERENCES

a. Important Cases Referred

i) Indian Hume Pipe Co. Ltd. v. Their Workmen, (1959) II LLJ 357
ii) Khandesh Spg. & Weaving Mills Co. Ltd. v. The Rashtriya Girni Kamgar Sangh, Jalgaon, C.A. No. 257 of 1958
iii) Management of Trichinopoly Mills Ltd. v. National Cotton Textile Mills Workers Union, C.A. No. 309 of 1957

b. Important Statutes Referred

i) Industrial Disputes Act, 1947
ii) Indian Evidence Act, 1872
iii) Civil Procedure Code, 1908

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