V.S. Aggarwal, J.
1. Under challenge is the award passed by the Presiding Officer, Labour Court, Ambala. By virtue of the impugned award dated 24.7.1997 the learned Presiding Officer, Labour Court held that M/s Hindustan Machine Tools Ltd. had earlier offered the bonus @ 16% and through a settlement arrived at between the parties had agreed to pay adjustable/recoverable advances of 1.5% in addition to 16% bonus for the year 1985-86. The bonus as per the agreement was to be calculated on the basis of productivity and the productivity does not include bad/doubtful debits/ advances. Therefore, it cannot be shown as expenditure in the profit and loss statement. The management was directed to recalculate the bonus after adding the amount of Inter Unit Transfer, contingencies and bad and doubtful debits and advances. The increased bonus was to be paid over and above the amount of 16%. If the amount after mathematical calculations comes to less than 17-1/2% which has already been paid to the workmen, it was held that it would not be proper to reduce the same below 17-1/2%.
2. Some of the relevant facts to crystalise the question in controversy can well be delineated.
3. M/s Hindustan Machine Tools Ltd. (for short 'the Company') manufactures machine tools/machinery and tractors at Pinjore. Respondent No. 2 is H.M.T. Karmik Sangh (for short 'the workmen'). The Government of Haryana had made a reference of the dispute between the company and the workmen as to at what rate/percentage the workmen at Pinjore were entitled to bonus for the year 1985-86 under the scheme of Annual Bonus Linked to Productivity under the terms of settlement dated 24.10.1980 under Section 12(3) of the Industrial Disputes Act. The demand of the workmen in this regard was manifold. But for purposes of the present writ petition, the demands in controversy were that the amount of Inter Unit Transfer disclosed in the balance sheet could not be treated as expense and the items of bad/doubtful debts/advances should not have been in the schedule forming part of the Profit and Loss advance. The same is stated to be the position qua contingencies and miscellaneous' expenses. The management opposed the case and submitted a reply. It was denied that balance sheet has incorrectly been prepared. The accounts of the company were alleged to be audited by the Government approved Chartered Accountant. It was stated that the Bonus had correctly been calculated in accordance with Section 31-A of the Payment of Bonus Act. The learned Tribunal as mentioned above though did not agree with the other demands except with respect to bad/doubtful/advances and Inter Unit Transfer but held that the same had to be calculated in the calculation while determining the bonus.
4. The petitioner's claim is that for marketing its products, the petitioner-company takes the services of M/s Machine Tools Marketing Division, Bangalore. For this the company pays commission to Machine Tools Marketing Division at Bangalore. This commission is an expense of the unit of the company at Pinjore and, therefore, is shown on debit side of Profit and Loss account. So far as tractors are concerned, the company has its own arrangement for marketing the same. Since, it was an expenses, therefore, it had rightly been deducted or in other words debited in the Profit and Loss account in Inter Unit Transfer. It has further been asserted that bonus to the employees of the management was to be computed on basis of productivity. The amount towards contingency and bad/doubtful debts was shown to be debited as expense and could not be added towards profits. Therefore, on these scores the award as such was challenged.
5. Needless to state that in the reply filed the workmen have contested the petition. It was stated that Marketing Division at Bangalore is part and parcel of the company. It is functioning as a division of the company. For marketing purposes, this division had been opened by the Company. It was denied that the said payment can be termed as commission. The employees of Marketing Division at Bangalore are transferable to Pinjore and for all intents and purposes, the marketing division is functioning for marketing of machines and tools of the company. The company was stated to be illegally showing the payment to the Marketing Division instead of profit to the petitioner-company. The Marketing Division was stated to be not a separate company. The head office of M/s Hindustan Machine Tools was stated to be at Bangalore. It had it's factory units including the one at Pinjore. The Marketing Division is common for all. In this process, the award was defended by stating that this could not be shown as expense under the heard 'Inter Unit Transfer'.
6. It is apparent from what has been reiterated above that the main controversy was about the Inter Unit Transfer with respect to debiting the expense towards the Marketing Unit as such. To appreciate the said controversy, reference can well be made to some of the relevant documents on the record. Annexure P-2 is the copy of the Memorandum of Settlement between the Executive Director of the petitioner-company and the representatives of the employees. The scheme for payment of annual bonus was linked to productivity in accordance with Section 31-A of the Payment of Bonus Act, 1965. It was with respect to the unit level. The relevant portion of the same reads:-
'A Scheme for payment of Annual Bonus linked to productivity under Section 31(A) of Payment of Bonus (Amendment) Act, 1976 was given to HMT Karmik Sangh by the Management as in Annexure. The scheme could either be discussed by Company Level Negotiating Body or at the Unit Level with the HMT Karmik Sangh and the parties arrived at a settlement as hereunder.
TERMS OF SETTLEMENT
1. The HMT Karmik Sangh agrees in principle to the introduction of the Scheme as referred above for payment of bonus linked with productivity in lieu of Bonus under the Act as contemplated under Section 31(A) of Payment of Bonus (Amendment) Act, 1976. Further details of the scheme would be discussed by Company Level Negotiating Body.
2. The amount of bonus payable to the employees under the scheme for the year 1975-76, which works out to 9.86% will be paid to the employees after adjusting the advance paid vide settlement dated 18.12.1976.
3. It is further agreed that as a gesture of goodwill employees will be paid 7% bonus (basic + DA) for the year 1976-77, subject to adjustment as per the audited balance sheet by the Statutory & Govt. Auditors. Payment for both the years i.e. 1975-76 and 1976-77 will be made within 15 days from the date of signing of the agreement.'
The fact that it was at unit level was further corroborated from the Sclieme of Annual Bonus Linked to Productivity under Section 31-A of the Payment of Bonus Act, 1965 dated 18.8.1977. Paragraphs 4, 6,8 and 10 of the same read:-
'4. All computations are based on the audited annual accounts of the divisions (Machine Tool Division and Tractor Division at present).
6. From the above, the value of material consumption is deducted to arrive at the value added.
8. Break-even value added is the total of all expenses (including interest) on the debit side of the Profit and Loss Account of each division, but excluding material consumption.
10. The break even value added as arrived at is the basis for computing the bonus percentage.'
The scheme for Annual Bonus Linked to productivity has been detailed copy of which is on the record and relevant extract as to how the same has to be measured reads :-
'1.1 The factor 'Production' should measure the total internal contribution of productivity resources employed in a unit/division. Such a measure is provided by VALUE ADDED. All the figures needed for computing Value Added can be derived from the annual accounting statements. The composition of Value Added is given in Fig.1.
--------------------------------------------------------------------------------------------------------------------------------------| Profit (before tax) | Value of Production Interest on Loans |Sales Revenue Operating Expenses Value Added + |Cash Assist. on export Salaries and benefits |+ Change in finished Depreciation |stock and Material consumed |work-in-progess Sub-Contracts || -------------------------------------------------------------------- Fig.1 Composition of Value Added
1.2 This Value Added
divided by the Number of employees,
in other words
the per-capita Value Added can be taken as a simplistic index of productivity for bonus purposes.'
The terms of settlement can also conveniently be relisted and are :-
'DEMAND NO.1 ANNUAL BONUS for the year 1979-80.
'Annual bonus will be payable as per the revised scheme according to which the Pinjore bonus comes to 13.88% rounded off to 13.90% and the other terms will be as per the Bangalore agreement.
The advance of Rs. 225/- will be as per the office order and its deductions will start from the salary payable in May, 1981.'
General
'1..............
2. This settlement shall be binding on the parties for a period of 3 years from the date of this settlement and during this period the workers shall not raise any demand involving any financial implications. However, the Productivity Linked Bonus Scheme will be enforced from the year 1979-80 to 1981-82, and thereafter till it is terminated by either party by giving two months notice.'
It is clear from aforesaid and also from terms of settlement that bonus has to be calculated as per the unit namely at Pinjore. The unit at Pinjore, therefore, has to calculate the bonus and it is linked with the unit/division only.
7. During the course of evidence Vivek Narang a witness was produced and cross-examined. He stated that whatever commission on the sale is given to the outsider, is a legitimate expense of the business activity. Similarly, Beant Singh Chatha had submitted an affidavit before the Tribunal and was cross-examined. He stated that there is an agreement for calculation of bonus in accordance with the Productivity Linked Scheme. The affidavit of Shri A.K. Dhar, Joint General Manager of the company had been filed. Attention of the Court was drawn towards his affidavit to show that there is a marketing division for various measures. It's head office is at Bangalore. The expenditure pertaining to Marketing Division is recovered through commissions paid on sale of machines which was shown as Inter Unit Account. In other words, it is clear from the evidence that the commission was being paid to be Marketing Division situated at Bangalore.
8. The argument of the petitioner's learned counsel proceeds on the premises that this is a payment paid for marketing. It is an expense and, therefore, the same had to be debited in the profit and loss account. On the contrary respondent's learned counsel urged that it is only an Inter Unit Transfer which is not permissible.
9. In this regard certain basic facts that emerge are that petitioner-company is only manufacturing machines, tools and tractors. It sells certain articles and except for tractors makes use of marketing division at Bangalore. It has no infrastructure for marketing. It depends on Machine Tools Marketing Division. The Machine Tools Marketing Division is a service department. It has an infrastructure to contact various customers. It obtains orders from customers through Machine Tools Marketing Division. The petitioner-company executes the sale directly on basis of the agreed terms. For the efforts which are made by the Machine Tools Marketing Division, the petitioner-company pays commission. The production is never transferred.
Sub-section (2) of Section 211 of the Companies Act reads :-
'S.211(2) Every profit and loss account of a company shall give a true and fair view of the profit or loss of the company for the financial year and shall, subject as aforesaid, comply with the requirements of Part II of Schedule VI, so far as they are applicable thereto:
Provided that nothing contained in this sub-section shall apply to any insurance or banking company (or any company engaged in the generation or supply of electricity), or to any other class of company for which a form of profit and loss account has been specified in or under the Act governing such class of company.'
Schedule VI Part II of the Companies Act further makes the position clear and relevant portion of paragraph 3 is to the following effect:-
'3. The profit and loss account shall set out the various items relating to the income and expenditure of the company arranged under the most convenient heads; and in particular, shall disclose the following information in respect of the period covered by the account -
(i)(a) The turnover, that is, the aggregate amount for which sales are effected by the company, giving the amount of sales in respect of each class of goods dealt with by the company, and indicating the quantities of such sales for each class separately.)
(b) Commission paid to sole selling agents within the meaning of Section 294 of the Act.
(c) Commission paid to other selling agent.
(d) Brokerage and discount on sales, other than the usual trade discount.)
(ii) (a) In the case of manufacturing companies-
(1) The value of the raw materials consumed, giving item-wise break-up and indicating the quantities thereof. In this break-up, as far as possible, all important basic raw materials shall be shown as separate items. The inter-mediates manufacturers may, if their list is too large to be included in the break-up, be grouped under suitable heading without mentioning the quantities provided all those items which in value individually account for 10 per cent or more of the total value of the raw material consumed shall be shown as separate and distinct items with quantities thereof in the break-up.'
It is clear from above that the commission that has to be paid to the selling agents, necessarily has to be debited. Since services were being rendered by the marketing unit, for said purpose debiting of the amount for the said service is correct. There appears to be nothing illegal in the Profit and Loss account.
10. Learned counsel for the respondent had drawn the attention of the Court towards the decision of the Supreme Court in the case of The Workmen of William Jacks and Co. Ltd. v. The Management of William Jacks and Co. Ltd. Madras, A.I.R. 1971 S.C. 1821. Amongst others, one of the controversy was about the interest charged by the London Office of the Company and the advances made to the London Office at Madras. The Supreme Court held that question of interest has to be examined from a different aspect. The payments were being made by a branch of the company to its head office. Such payment of interest could be justified only on basis that London office was creditor and Madras branch was debtors. The conclusions which were in favour of the workmen recorded are:-
'On the face of it, a Company cannot be a creditor and its own debtor simultaneously. No relationship of creditor and debtor can exist between two different offices of the same company. The interest paid merely amounts to money transferred by the Madras Branch to the Head Office and, similarly, advances made by the London Office to the Madras Branch are amounts which continue to be used by the Company for its business at a different place.'
The said decision patently distinguishable. As already pointed out above in the preceding paragraph, the bonus has to be given as per the unit. It has to be calculated as per unit at Pinjore. Some services are being rendered by the Marketing Unit at Bangalore. Since it renders services, for the same it charges commission. It is thus an expenditure borne by the petitioner-Company. Since it is a commission paid, in this regard it has to be debited in the Profit and Loss Account. Otherwise seemingly there would be contradiction in terms of the balance sheet. Not only that it would also create anomalous situation because certain payments that are being made for sale unit will have to be deleted which in fact were made. To this extent, therefore, what is being alleged by the petitioner can be ignored.
11. Before proceeding further reference can well be made to certain concepts pertaining to payment of bonus. In the case of The Mumbai Kamgar Sabha, Bombay v. Abdulbhai Faizullabhai and Ors., A.I.R. 1976 S.C. 1455 the Supreme Court held:-
' It is clear further from the long title of the Bonus Act of 1965 that it seeks to provide for bonus to persons employed 'in certain establishments' not in all establishments. Moreover, customary bonus does not require calculation of profits, available surplus because it is a payment founded on long usage and justified often by spending on festivals and the Act gives no guidance to fix the quantum of festival bonus; nor does it expressly wish such a usage. The conclusion seems to be fairly clear, unless we strain judicial sympathy contrariwise, that the Bonus Act dealt with only profit bonus and matters connected therewith and did not govern customary, traditional or contractual bonus.
The end product of our study of the anatomy and other related factors is that the Bonus Act spreads the canvas wide to exhaust profit-based bonus but beyond its frontiers is not void but other cousin claims bearing the caste name 'bonus' flourish-miniatures of other colours': the Act is neither proscriptive nor predicative of other existences.'
The right in this regard was further recognised in the case of Sanghvi Jeevaj Ghewar Chand and Ors. v. Secretary, Madras Chillies, Grains and Kirana Merchants Workers Union and Anr., A.I.R. 1969 S.C. 530. The Supreme Court subsequently in the case of Hukumchand Jute Mills Ltd. v. Second Industrial Tribunal, West Bangal and Ors., A.I.R. 1979 S.C. 876 referred to Section 31-A of the Payment of Bonus Act as :-
'We may straightway dispose of the argument based on S.31-A. That relates to bonus linked with production or productivity in lieu of bonus based on profits. We are not concerned with such a situation and we agree that in regard to productivity bonus Section 31-A shall have operation but it speaks nothing about the other kinds of bonus and cannot, therefore, be said to have the spin-off benefits claimed by the appellant.'
Section 31-A had been incorporated in the payment of Bonus Act, 1965 w.e.f. 29.5.1975 and reads:-
'31-A. Special provision with respect to payment of bonus linked with production or productivity. - Notwithstanding anything contained in this Act,-
(i) where an agreement or a settlement has been entered into by the employees with their employer before the commencement of the Payment of Bonus (Amendment) Act, 1976 (23 of 1976), or
(ii) where the employees enter into any agreement or settlement with their employer after such commencement, for payment of an annual bonus linked with production or productivity in lieu of bonus based on profits payable under this Act, then, such employees shall be entitled to receive bonus due to them under such agreement or settlement, as the case may be:
(Provided that any such agreement or settlement whereby the employees relinquish their right to receive the minimum bonus under Section 10 shall be null and void insofar as it purports to deprive them of such right:)
(Provided further that such employees shall not be entitled to be paid such bonus in excess of twenty per cent of the salary or wage earned by them during the relevant accounting year.)
It is crystal clear from aforesaid that agreement and settlement linked with production and productivity can be so arrived at. In the present case reference has already been made of such agreement and settlement. It was linked with productivity. The expense would include the commission paid. It is an actual payment that has been made for the services rendered. Necessarily, the same had to be debited in the Profit and Loss Account. Merely because it happens to be the unit will not make much difference because of the reason that bonus had to be paid as per different units of M/s Hindustan Machine Tools. To that extent the award in question cannot be sustained.
12. The other controversy was pertaining to bad/doubtful debts and advances. Vide the impugned award the same were also to be added in the gross profit. At the out set it may be mentioned that attention of the Court has not been drawn to any statement whereby the bad debts or doubtful debts have been dealt with separately. In other words, there is no bifurcation that had been effected. It becomes unnecessary to ponder further because the Supreme Court in the case of Indian Oxygen Ltd. etc. v. Their Workmen etc., A.I.R. 1972 S.C. 471 dealt with this question. It is true that in the cited case the bad debts and doubtful debts were dealt with separately. The argument advanced before the Supreme Court was that doubtful debts had to be added in the gross profit. The answer was that the doubtful debts were to be added in the gross profit. In paragraph 49 the Supreme Court held :-
' No doubt, this Court was considering the question on the basis of the Full Bench formula; but in our opinion that principle applies with equal force to the case on hand even under the Act. In fact the above decision also shows that creation of such an amount is really a reserve and not a provision, as contended by the appellant. Even apart from the above circumstances, there is a crucial fact that the appellant itself in its break up has distinguished bad debts from doubtful debts. The Tribunal had not added back the amount shown by the appellant in the break-up sheet under the heading 'bad debts.' We may also refer to the evidence of Mr. Banerji, W.W.I who was a Chartered Accountant. In chief examination he has stated that under the Act the amount chimed the appellant as doubtful debts has to be added back for ascertaining the gross-profits. He has further stated that under the Income-tax Act, Provision for doubtful debts cannot be deducted in computing the net profits. On this point, so far as we could see there is no cross-examination on behalf of the Company. The Tribunal was justified in holding that the appellant was not in order in deducting Rs. 55,127/- under the head 'doubtful debts' as an item of expenditure, It was perfectly justified in adding back this amount in computing the gross-profits.'
In the present case when no distinction between bad and doubtful debts had been shown, the entire amount therefore, has to be added in the gross profit. To that extent, therefore, the award of the Tribunal requires no interference.
13. Keeping in view the reasons stated above, the writ petition is allowed in part. The impugned award is quashed only to the extent that Inter Unit Transfer and the amount of payment that had been made was rightly debited in the profit and loss account of the company but rest of the award requires no interference.