These are two cross-appeals against an award of the learned Chairman, First West Pakistan Industrial Court, Karachi, dated 11th December 1968, whereby the learned Chairman granted 15 days' basic wages to the workers and bonus for the year 1967, 41; pro rata basis. The appellants in Appeal No. KAR-3 of 1969 (hereinafter called the Management) challenged the impugned order on the ground that there was no appreciable profits during the year 1967, so as to justify the award. On the other hand, the appellants in Appeal No. KAR-5 of 1969 (hereinafter called the Workers' Union', challenged the order of the Industrial Court on the ground that there was huge profit entitling the workmen to a bonus for two months' wages at pro rata basis for the year 1967. The facts giving rise to the appeals briefly put are these.
2. The Paris Mills Workers' Union gave a strike-notice to the Management in respect of one demand only, namely, "That till workmen should be paid bonus for the year 1967, at two months total wages at pro rata basis". The conciliation having failed, the Workers' Union made an application under section 6(8) of the West Pakistan Industrial Disputes Ordinance, 1968, for the adjudication and determination of the demand. The learned Industrial Court examined Mr. Muhammad Usman, a Weaver in the employment of the Mills, on behalf of the Workers' Union. On the other hand, the Management produced Mr. Abdul Waheed, Deputy Accountant in the Mill, who produced before the Court the Balance-Sheet, the Profit and Loss Account and the Profit and Loss Computation Account for the year 1967.
3. The learned Chairman of the Industrial Court on two grounds, which I would presently mention, came to the conclusion that the total available surplus was Rs. 39,752.35. The learned Court observed that it was just and proper if half of this amount was distributed amongst the workers as bonus and awarded 15 days' basic wages as bonus at pro rata basis for the year 1967.
4. The Court, in the first place, came to the conclusion that there was a discrepancy in the statement of Mr. Abdul Waheed in respect of net profit. According to Mr. Abdul Waheed, the net profit was Rs. 28,211.84. The income-tax payable, according to the witness, was Rs. 26,391.00. The learned Chairman observed that if this was the position the net profit would be only Rs. 1,820.54.
The income-tax payable on Rs. 28,211.84, comes to abc_~ Rs. 15,234.00 and not Rs. 26,391.00. The Court, there--fore, concluded that the net profit earned by the Mills would 1970 be Rs. 28,211.84 minus Rs. 15,234.00, which comes to Rs. 12,977.84.
5. In the second place, the learned Court came to the conclu--sion that the Management had deducted large amounts from the gross profits on flimsy grounds. He did not accept Rs. 16,561.50, as Miscellaneous expenses and reduced the expenses under the heads, (1) Newspapers, Periodicals and Subscriptions, (2) Office expenses, and (3) Garden expenses. Thus the learned Chairman worked out the available surplus for the purposes of bonus as under Rs.
(1) 12,978.00 Net Profit.
(2) 16,561.15 Disallowed Miscellaneous expenses.
(3)6,950.05 Half of Office expenses.
(4)1,491.00 Half of Garden expenses.
(5)1,771.25 Half of Newspaper, Periodi--cals and Subscriptions expenses.
39,752.35 TOTAL
6. Mr. S. P. Lodhi, for the Workers' Union, agrees that the Courts dealing with Labour Laws in Pakistan have approved the Full Bench Formula evolved by the Labour Appellate Tribunal in The Mills Owners' Association v. Rashtria Mills Mazdoor Union ((1952)2 FJR107), so far as bonus is concerned.
The Full Bench Formula provided for arriving at the available surplus after meeting prior charges, namely
(1) The depreciation,
(2) Taxes,
(3) Return on paid-up capital,
(4) Return of working capital, and
(5) Rehabilitation.
7. The Formula further dealt with the claim of bonus on the basis that the relevant year was sufficient unit and appropriate accounts have to be looked into in respect of the said year. I was further pointed out in that case that it was only after all the prior charges had been determined and deducted from the Gross Profits that the available surplus could be ascertained for payment of bonus and that when the available surplus had been ascertained, the three parties entitled to claim shares were, namely, Labour' claim for bonus, Industry's claim for the purposes of expansion and other needs, and shareholders' claim for return on the capital invested by them. It would thus be clear that the essential condition of bonus distribution is that there should be an available surplus determined according to the principles laid down in the Full Bench Formula.
8. The original ex gratis nature, of the payment of bonus has during recent years, owing to development of industry and Industrial and Labour Legislation come to mean a part of the legitimate remuneration, which the labour is entitled to look to as an additional compensation for their services. The underlying principle for the payment of bonus is that the employee has contributed by his labour to the earning of the profits made by the Company. The only just and equitable principle upon which the employer can be called upon to give bonus to the employees is to consider the amount of profit made by the employer in any given year and. the general financial condition of the concern and its capacity to bear this additional burden without impairing the efficiency or injuring the business.
9. The payment of bonus is dependent on, there being an available surplus. Applying the ordinary test as, to burden of proof, it would be on the party who would fail if no evidence was given. It is, therefore, the duty of the workmen, who claim bonus to cause evidence to be- produced about available surplus. It is true, the workmen do not have the requisite evidence in their possession to prove the profit made by the Company. The workmen, however, can through the Court summon the relevant documents, namely, Balance-Sheet and other documents, from the Company. In case, the Company fails to produce the c documents in its possession, the presumption can be drawn against it that if produced, it would have established the claim of the workmen. On the other hand, the, burden lies on the Company to establish its claim for depreciation, Rehabilitation Charges as Working Capital. In other words, the Company must establish its claim by cogent evidence-for prior charges; which can be deducted from the Gross Profit before the claim for bonus of the workmen cats be considered.
10. I would now, in the light of what; have observed, proceed to examine the grounds on which the learned Chairman of the Industrial Court came to the conclusion that there was a profit so as to entitle the workers to a bonus.
11. The Court, in the first place came to the conclusion that there was a discrepancy in the statement of Mr. Abdul Waheed as regards the net profit for- the year 1967. Mr. Waheed stated that the Company made a net profit of Rs. 28,211.84: He further stated that the income-tax payable on the profit came to Rs. 26,391.00. The Court, therefore, concluded that if income-tax of Rs. 26,391.00 was deducted from Rs. 28,211.84, the net profit could be Rs. 1,820.84. The confusion arose because Mr. Abdul Waheed was not asked to disclose the system under which the Manufacturing, Trading and Profit and Loss Account of the Company (Exh. R-2) was prepared. It is general knowledge that the Balance-Sheet, Manufacturing, Trading and Profit and Loss Account has to be prepared under the Companies Act of 1913. In this connection, it would be useful to reproduce subsection (3) of section 87-C of the Companies Act, 1913. It runs as under ---For the purposes of this section `net profits' means the profits of the company calculated after allowing for all the usual working charges, interest on-loans and advances, repairs and outgoings, depreciation, bounties or subsidies received from (any Government) or from a public body, profits by way, of premium on shares sold, profits on sale proceeds of forfeited shares, or profits from the sale of the whole or part of the undertaking of the company but without any deduction in respect of income-tax or super tax, or any other tax or duty on income or revenue or for expenditure by way of interest on debentures or otherwise on capital account or on account of any sum which may be set aside in each year out of the profits for reserve or any other special fund.---
12. It is clear from the above provision that the income-tax of Rs. 26,391.00, is included in the net profit of Rs. 28,211.84. Mr. Abdul Waheed stated that. "income-tax has not been deducted from-the net profit of Rs. 28,211.84" -It would, therefore, appear that the income-tax was included in the net profit. There is no discrepancy in the statement made-by Mr. Abdul Waheed, or any documents filed by him. I would hold that there is no ground for the conclusion that the Company made a profit of Rs. 12,978.00.
13. The next question is as to whether the learned Court was justified in not, accepting. the- miscellaneous expenses and reducing office expenses and expanses do Newspapers to half. In this connection, it would be useful to reproduce the observations of the learned Court; which run as- under:- "It has not been explained what were the so-called miscellaneous expenses for which the, respondent has claimed a large sum of R s. 16,561.15. It did not behove the Management to give any-amount byway of subscription when the workers were groaning under hardship. The expenditure on Office and the maintenance of the Garden also seem inflated. The respondent bas deducted large amounts from the gross profits on flimsy grounds. I am not inclined to accept the payment of the miscellaneous expenses, and will reduce the, payment in respect of Newspapers, etc., Office Expenses and Garden Expenses to one-half."
14. Mr. Lodhi had filed written arguments in the Industrial Court. The admitted position is, as would appear from Mr. Lodhi's written arguments supported by certain Indian Decisions.1 that the Auditor's Certificate on the Balance-Sheet and Manu--facturing, Trading and Profit and Loss Account is prima facie evidence of it being according to vouchers. -It is true, it is open to the Industrial Court to go into the propriety of the amounts spent on various items. This can only be gone into after the Court had-asked Mr. Abdul Waheed to give the details of the miscellaneous expenses and to produce the vouchers for the same. If Mr. Lodhi on behalf of the workmen doubted the propriety gf the expenditure incurred by the Company, Mr. Waheed should hive beers asked. to-place before-the Court the record disclosing the various items on which the money was spent.
At the Bar Mr. Ghulam Hassan, for the Management, stated that the sum of Rs. 16,500.00 was spent on loading a>id unloading of the goods, Iftar expenses of the workers, Special Duty Allowance to Drivers and Boons, Office Expenses and Washing Expenses of the Uniforms of Drivers and Peons. It would appear from the cross-examination of Mr. Waheed that the contents of the Balance-Sheet and other documents filed by the Company were not challenged by the Union. If the Company was required to produce the vouchers for various expenses incurred by the Company, it would have readily done so. The propriety, of the expenditure could be judged only after knowing the items on which it was spent. Similarly, there is no justification for reducing office expenses, Garden expenses and expenses on Newspapers by half without knowing the details of the items on which the money was spent. There could not be any justification for reducing the Garden expenses of Rs. 2,945.56, without knowing the expenditure on the Garden and knowing the number of Gardeners employed and the fertilizer used annually. The Garden is primarily meant it was stated at the Bar, for the workmen. The workmen in the interval B take their lunch on the lawn of the Garden and some of them lie down on it. In the result, I would hold that the miscellaneous expenses should not have been rejected and the other expenses reduced by half.
15. I would now proceed to examine the relevant arguments of Mr. S. P. Lodhi, the learned Representative for the Union. Mr. Lodhi contended that the Company advanced a large sum of money, namely, Rs. 9,66,719.74, to Directors. This, he contended, should not have been done. This amount on the other hand should have been utilized in the business of the Company. The factual position, as would appear from the Balance-Sheet Compu--tation (page 39 of the Industrial Court's record) is that the said amount was not advanced only to the Directors, but to the shareholders of the Company as well. An advance whether of small or large sum of money by the Company to its Directors and' shareholders was improper. The advance by the Company to it Directors or shareholders cannot be said to be in the course o the business or for the Management of the affairs of the Company. These advances are not, in any way, related to the business of the P Company. The Company had no business to take loan from Banks and then to advance it to its Directors any shareholders. The Directors and the shareholders must make good the loss of the Company. This can be done by adding to the profit the interest at the rate that the Company took money from Banks. Thus the profit would be enhanced for the purposes of bonus. There is no evidence as to what is the rate of interest at which the Company took loan from the Banks. The usual rate of Bank interest in 1967 was 6 %. The interest calculated on the sum advanced to the Directors and the shareholder at the rate of 6 per cent would be about Rs. 64,000.00. This should be added to the Gross Profit of Ra. 28,111.84, mentioned in the Balance-Sheet.
16. Mr. Lodhi contended that the Company has Bonus Vouchers which should have been sold and the profit made thereon should have been added to the Gross Profit. On the, other hand, it was submitted by Mr. Ghulam Hassan, the learned Representative for the Management, that the Company had purchased Bonus Vouchers to purchase machinery. The question of making profit on the Bonus Vouchers, therefore, did not arise. The Balance-- Sheet does not support the contention of Mr. Lodhi. I would accept the contention of Mr. Ghulam Hassan that the Bonus Vouchers were purchased for the purchase of machinery, otherwise there was no reason why the Company should not have disposed of the same and made profit.
17. According to the Full Bench Formula, the following charges are to be given priority over the claim of the workers for bonus
(1) Provision for depreciation.
(2) Reserve for Rehabilitation.
(3) Return at 6 % on the paid-up Capital.
(4) Return on the working capital.
(5) An estimated amount of income-tax.
If the formula was not strictly applied, the demand for bonus will rarely succeed. By strict application, I mean that wherever it is the duty of the Management to establish any of the items mentioned above, in order to claim priority over the claim of the workers for bonus, the Management must establish the same. I has been held in a number of Indian Decisions that there must be proof for claim of depreciation before the Industrial Court can grant it. It has been held in these cases that depreciation cannot be allowed as a matter of routine. The Company has not led any evidence, except the Balance-Sheet and Manufacturing, Trading and Profit and Loss Account, as to what should be the deprecia--tion. Th: Company has charged depreciation on some items 5 % and on others 10 to 20 %. The total value of the various items on which depreciation has been charged comes to Rs. 47,79,010.85. It would appear from the-statement of Mr. Abdul Waheed, Deputy Accountant of the Company that the industry was started in 1959. The Balance-Sheet discloses that up to 31st December 1966, the Company has charged a sum o Rs. 21,84,380.72, as depreciation. For the year 1967, i.e. up to 31st December 1967, the Company charged a sum of g Rs.
2,92,695.90, as depreciation. The Supreme Court of Pakistan, in the case of Zeal Pak Cement Company Limited (1) has held that depreciation is an absolute necessity in any modern industry. I consider, in view of the principle laid down by the Supreme Court of Pakistan, and in the circumstances of the present case, depreciation should be allowed at 5 % only. I would allow depreciation at the rate of 5 % on the total cost of the various items mentioned in the balance- Sheet, which comes to Rs. 47,70,745.85. The depreciation calculated at the rate of 5% over the total cost of the various items, on which depreciation has been claimed, comes to Rs. 2,38,950.00. Thus the Company has charged Rs. 53,745.00 more as Depreciation Allowance.
18. The Rule deduceable from Indian Decisions is that before a Company can be allowed any amount for Rehabilitation it must prove the same. In the present case, there is no proof as to the amount the Company would be entitled for Rehabilitation, (1) 1960PLC30 The Company has also not claimed any amount for Rehabilitation in its evidence. Mr. Abdul Waheed, who was the only witness for the Company, did not state as to what would be the amount for Rehabilitation.
19. In the absence of any evidence as to the Working Capital, I cannot allow any return on the same.
20. The paid-up capital of the Company is Rs. 9,90,000 00. 'Usually a return of 6 % is permissible on the paid-up capital. 4t would come to, calculated at that rate, Rs. 59,400.00.
21. In the result, a sum of its. 64,000.00 as interest on the amount advanced by the Company to the Directors and its share--holders has to be added to the profit made by the Company. A sum of Rs.
53,745.00 is-also charged by the Company in excess of what I have permitted as Depreciation Allowance. This is also to be added to the profit. Thus, the total which is to be added towards the profit made by the Company comes to Rs. 1,17,745-00. I have, however, though not claimed by the Company, allowed a return of Rs: 59;400.00 on the paid-up capital. This amount: has to be deducted from-the profit. After deducting this amount from Rs. '1,17,74-5.00, the profit will be Rs.
58,345.00. According to -the Company, the Net Profit was Rs. 1,820.00. This sum is to be added to Rs.
58,945.00. Thus the Net Profit available for consideration of bonus is Rs. 60,165.00.
22. Admittedly, there are three parties, who are entitled to claim share iii the profit; namely, (1)
Labour's claim for bonus, (2) Industry's claim for the purposes of expansion and other needs, and
(3) the shareholder's claim for additional return on the capital invested by them. It is not possible to lay down any hard and fast rule as to the ratio of distribution of the available surplus among the three parties. In the circumstances of the present case I consider that ends of social justice would be met if 1/3rd of the available surplus is distributed amongst the workmen. I would order that a sum of Rs. 20,003.00 be distributed as bonus to the workmen. The award of the learned Chairman of the Industrial Court stands modified to this extent, in Appeal No. KAR-5 of 1969 and Appeal No. KAR-3 of 1969, stands dismissed.