Hindustan Lever Mazdoor Sabha Vs. Hindustan Lever Limited and ors. - Court Judgment

P.B. Sawant, J.

1. These three appeals are directed against a common decision of the learned Single Judge by which three writ petitions namely Writ Petition Nos. 864 of 1986, 865 of 1986 and 1224 of 1986, have been disposed of. Appeal No. 1606 of 1988 is filed by Hindustan Lever Mazdoor Sabha on behalf of the workmen working in its Head Office and Bombay Branch of the Company; whereas Appeal No. 1607 of 1988 is filed by Hindustan Lever Employees Union on behalf of the workers working in the Sewree Factory of the Company. Appeal No. 151 of 1988 is filed by the Company. The workmen involved in all these proceedings are the members of the clerical and technical staff. It has also to be mentioned that in view of an earlier settlement between the clerical and technical staff working in the Andheri Research Centre of the Company and the Company, the service conditions applicable to the staff in the Sewree Factory become automatically applicable to the staff in the Andheri Research Centre and hence the present proceedings would also indirectly cover the clerical and technical staff working in the Andheri Research Centre of the company. Thus the present proceedings concern about 500 workmen. Out of them about 200 belong to the clerical grades and 300 to the technical grades.

2. It is also necessary to state at the outset that both the clerical and technical staff of the Company is classified in four Categories each as C-1 to C-4 and T-1 to T-4 respectively and they carry different scales of pay. Although, both the clerical and the technical staff discharge more or less similar duties, the clerical staff works for 36 hours a week, whereas the technical staff so called works for 48 hours a week. This, we understand, is the only material difference between the two. The distinction between the two is not material for the decision in the present proceedings and we have mentioned it only to complete the record.

3. The present proceedings have arisen out of five references made to the Industrial Tribunal-three under section 10(2) and two under section 10(1)(d) of the Industrial Disputes Act (hereinafter referred to as 'the Act). Reference No. 123 of 1977 and Reference No. 215 of 1969 both under section 10(2) of the Act at the instance of the Union and Sabha respectively, included general demands, and also the demand of the Company for placing a ceiling on dearness allowance. Reference No. 91 of 1984, at the instance of the Union, which was also under section 10(2) of the Act, included demands of house rent allowance and leave travel allowance; whereas Reference No. 92 of 1984 under section 10(1)(d) of the act, again at the instance of the Union, included demands for special allowance, social security allowance and ad hoc allowance. Reference No. 43 of 198 under section 10(1)(d) of the Act and at the instance of the Sabha, included demands pertaining to house rent allowance, leave travel allowance, special allowance, social security allowance and ad hoc allowance.

4. We are in the present appeals concerned mainly with the Company's demand for placing a ceiling on dearness allowance which has been granted by the Tribunal and upheld by the learned Single Judge which is the major bone of contention between the parties. In addition, we have also to deal with (i) the workmen's demand for automatic promotion which was granted by the Tribunal, but negatived by the learned single Judge, who has instead granted stagnation increments, which was an additional demand of the workmen; (ii) the revision of wages which, according to the Union, was only partially granted by the Tribunal and upheld by the Single Judge; and (iii) the demand of the workman from the head office for housing loan, which is rejected both by the Tribunal and the learned Single Judge. In addition, we have also to deal with the Company's grievance against the grant of stagnation increments, and the grant of revision of wages.

5. Taking first the major dispute between the parties, namely that relating to the ceiling on dearness allowance, it is necessary to understand what was the demand of the Company in that behalf and what exactly the Tribunal had awarded by way of the new scheme.

6. Under the existing scheme, the fixed dearness allowance ('FDA') which was linked to the cost of living index 1450, Consumer Price Index ('CPI') Bombay (1934=100) was as follows :

(i) for the first Rs. 100 of the salary 635 per cent of basic wage(ii) for the second Rs. 100 of 284.25 per cent of basic wagethe salary, and(iii) for salaries above Rs. 200 251 per cent of basic pay

When the CPI rose above 1450, the variable dearness allowance (VDA) for every 10 points rise was as follows :

(i) for the first Rs. 100 of the salary 5 per cent of basic pay(ii) for the second Rs. 100 and 2.25 per cent of basic pay(iii) for salaries above Rs. 200/- 2 per cent of basic pay

7. The company's demand was as follows :

(a) The existing scheme of dearness allowance should apply to workmen whose basic salary plus dearness allowance did not exceed Rs. 1,500/- per month ;

(b) For those whose basic salary plus dearness allowance exceed Rs. 1,500/-

(i) the existing scheme of dearness allowance would continue up to Bombay CPI 1450,

(ii) for 10 points rise in CPI after 1450 for :

first Rs. 100 of salary 5 per cent of basic wage.Second Rs. 100 of salary 1 per cent of basic wage.andfor salary slab above Dearness allowance not toRs.200 be paid at any ate.

(iii) VDA payable should be subject to the maximum of dearness allowance as follows :

For staff in C-1 1310C-2 1535C-3 1725C-4 1900T-1 1385T-2 1600T-3 1775T-4 2025

8. The Tribunal granted the dearness allowance Scheme as follows;

The existing Scheme shall continue as it is subject, however, to the condition that the maximum dearness allowance payable to the workmen shall be the one that is payable to workmen drawing the basic salary of Rs. 500. In other words, the Tribunal has directed that those drawing salaries above Rs. 500/- per month will get the same dearness allowance as those who draw basic salary of Rs. 500 and that there shall be no variation in dearness allowance for salary slabs above Rs. 500/- per month. The Tribunal has further granted retrospective effect to its direction from October 1, 1979 and has also direct that those who received more dearness allowance from October 1, 1979 till December 30, 1985 (that is the date of the Award) should not be required to refund the excess amount. However, the said excess should be adjusted against the dearness allowance payable to such workmen after December 30, 1985 and till the full excess is recovered, it should be treated as personal pay for all purposes. The new dearness allowance scheme will immediately affect about 115 out of 500 employees involved in the reference since their monthly basic pay at present exceeds Rs. 500/-. The rest will be affected as and when their basic pay crosses Rs. 500/- limit.

9. It would thus be clear from the award of the Tribunal that there is no ceiling placed on dearness allowance in the sense either that the workmen drawing basic salaries above Rs. 500/- p.m. are disentitled to receive any dearness allowance or that they are disentitled to dearness allowance above a fixed amount. The Award has placed a ceiling on the variable rate at which the dearness allowance was payable under the existing system to those drawing salary above Rs. 500/- per month and has made the same variable rate of dearness allowance applicable to them at which it is payable to those who draw basic wage of Rs. 500/-. In other words, the dearness allowance payable to workmen who draw a basic wage of Rs. 500/- and above will be at the same rate which is applicable to those who draw salary of Rs. 500/- per month. There is thus a ceiling on the variable rate of dearness allowance payable and not on its quantum. Nor is any workman disentitled to receive the dearness allowance.

10. A question still remains as to whether even ceiling on the rate of variable dearness allowance for basic salaries above Rs. 500/- is justifiable, when it is sought to be placed for the first time thus taking away an existing benefit of the workmen. It is necessary to emphasise that the present is not a case where the dearness allowance is being introduced for the first time. The present is a case where the existing dearness allowance system is sought to be replaced by a new one which deprives the workmen of the available benefits. The question to be answered in the present case is not, therefore, whether one rather than the other system is more rational, scientific or realistic and in the general interests, but whether it should be made applicable in the present concern at this stage. Very different considerations apply to two situations. We are examining the matter from the latter and hence all that we have to find out is whether the company has established its case for the change within the parameters laid down by the courts so far.

The unions representing the workmen have vehemently contended that a change in the prevailing system of payment of dearness allowance is justifiable in the case of those drawing salaries above the subsistence level, only when the employer makes out a case either of financial incapacity or of over-neutralisation of the rise in the cost of living. In the present case, it is not the case of the company that it is financially incapable of bearing the burden of dearness allowance and the Tribunal has itself found that the existing system does not result in over-neutralisation as admitted by the company in an earlier adjudication proceeding. Yet the Tribunal has chosen to disturb the existing system which has been prevalent in the company for the last more than 32 years on the ground that the region-cum industry formula required that the total wage-packet should be reduced and that the existing system resulted in the subordinates getting total wage-packets more than those of their superiors. According to the unions, even these two grounds given by the Tribunal to disturb the existing system are factually untenable because the region-cum-industry formula would be inapplicable in the present case, since admittedly the company is a unique establishment manufacturing and selling simultaneously various products. There is no other establishment which is comparable with the company. Hence the industry part of the region-cum-industry formula is admittedly inapplicable to the facts of the present case. As regards the region part of the formula , there are many concerns in the region in which there is no ceiling on the payment of dearness allowance and the wages paid to the workmen in those concerns are comparable to the wages of the workmen of the company. According to the unions, further, the industry-cum-region formula is to be employed when the service conditions are to be fixed for the first time or are to be revised upwards on the demand of the workmen. It cannot be employed to slash the existing service conditions downward. There is also no substance, according to the unions, in the premise that the present dearness allowance system results in the payment of salaries to the subordinates higher than those received by their superiors. The company's contention in that behalf, according to the unions, is deceptive because the company compares the subordinates with long service with the newly appointed superiors. Secondly, while calculating the workmen's salaries, the company takes into account the overtime payable to them. Thirdly, according to the unions, in comparing the two wage-packets, the company does not take into account the value of the various perquisites available to the executives. Fourthly, the unions point out that a comparison between salaries bargainable and non-bargainable employees is itself irrational because the service conditions of the latter are not fixed by the same authority and by the same process. Whereas the service conditions of bargainable employees (that is the workmen covered by the Act) are either fixed by the adjudicating authorities or through negotiations, those of the non-bargainable employees (that is those who are outside the purview of the Act) are fixed arbitrarily by the company and it is always open for the company to revise their salaries at their sweet will which process is not controllable by the workmen. In support of their contentions, the unions rely upon the well-established principles laid down by the various expert-wage bodies, adjudicators, committees, commission and the courts.

11. As against the said contentions of the unions, the company relies upon certain judicial pronouncements which permit a downward revision of the service-conditions including wages and dearness allowance on grounds other than financial inability. According to the company, further the present dearness allowance system results in over-neutralisation of the rise in the cost of living as held by the learned Single Judge, and the Tribunal was no right in relying upon the statement of the company filed in the earlier adjudication proceedings, since the statement was erroneous. The company relies upon the statements filed in the present proceedings to show that there is an over-neutralisation of the rise in the cost of living on account of the present. Dearness Allowance System and hence there is an increase in the real wages of the workmen which is contrary to the object of dearness allowance. According to the company, further, the present system results in distortion of wage structure with the workmen recovering higher pay-packet than that paid to their superiors. This leads to discontent and indiscipline and therefore, however, long the duration of the prevalent system of dearness allowance, it has to be changed. The company also contends that even if the industry part of the region-cum-industry formula is not applicable in the present case, in order to maintain the parity of wages in the region, it is necessary to apply the region part of the said formula since the wages payable to the workmen in the company are very much out of line with those payable to the workmen in the best concerns in the region.

12. It is these rival contentions with regard to the proposed change that we have to deal with in the present case. It is unnecessary to emphasise that dearness allowance has been looked upon by the industrial Tribunals, Court and official panels as an indispensible device meant to.

(i) compensate changes in the cost of living or changes in purchasing power, and

(ii) protect to a greater or lesser extent the real income of wage and salary earners.

It is also now acknowledged on all hands that the rate at which the rise in the cost of living has to be neutralised may be uniform for all wage groups, but so far as the lowest paid workmen in any establishment is concerned, his wages have to be protected to the full extent if he is not to fall below the subsistence level, although the rates of neutralisation may differ and vary at a sliding scale as the incomes rise above the subsistence level. As the committee on Fair Wages has observed as early as in 1949:-

'For the lowest categories of wage earners, the target should obviously be compensation to the extent of 100% of the increase in the cost of living. For categories above the lowest, the lower rate of compensation is justifiable but the amount of compensation should be based on salary scale of slabs'

(See Report of the Committee on Fair Wages, Government of India Press, Simla, 1949, page 33).

13. This principle has been endorsed later by the Independent Body (Chaired by Mr. S.K. Dass) in 1964 and the Dearness Allowance Commission in 1969 both of which insisted on affording an adequate neutralisation to lowest paid Government employees. The connotation of the term 'full or adequacy' of neutralisation has, however, differed from 90% to 100% and the National Commission on Labour has recorded that they had, after full discussion, reached a consensus that neutralisation at the rate of 95% should be accorded to minimum wage earner in respect of any further rise in the cost of living. Hence, any system of dearness allowance has to ensure two things, namely that it neuteralises as nearly as possible the entire rise in the cost of living of the lowest paid workman, that the neutralisation rate varies on a tapering or a sliding scale as the incomes rise. The system has further to guarantee a cent per cent neutralisation rate as far as subsistence wage is concerned irrespective of whether the industry has the capacity to pay because that is the minimum wage in the industry or the unit, as the case may be, and no industrial establishment has a right to exist if it cannot pay the minimum wage. The minimum wage in contemplation in this context is further not the statutory minimum wage fixed under the Minimum Wages Act, but the minimum wage as fixed through industrial adjudication or settlements. (Refer page 242, para 16.47 of the Report of the National Commission on Labour). It is also necessary to remember in this connection that, according to the Report of the Committee on Fair Wages (C.F.W.) which generally guides the wage-fixing authorities, the lowest wage fixed in an establishment through adjudication or settlement may represent the lower limit of the fair wage or the level above it which is the higher level of fair wage. The highest level of fair wage constitutes the 'living wage' which is as yet 'a will of the wisp'. In other words, according to the C.F.W. the fair wage may still be the minimum wage which must provide not merely for bare sustenance of life but for the preservation of the efficiency of the worker. For this purpose the minimum wage must also provide for some measure of education, medical requirements and amenities. (Refer Report of C.F.W. page 15).

14. If this is so, then when there is a demand either for a rise or a reduction in the rate of neutralisation or for a ceiling on the dearness allowance paid, what is necessary first to find out in each case is whether the existing system gives less or more than cent percent neutralisation of the rise in the cost of living, and to what extent, more particularly in the case of the lowest paid employees in the establishment. Unfortunately, there is not much literature on the method or manner of finding out whether there is an under or over-neutralisation. Much of the debate which therefore took place before us centered round this question. The parties relied on their own ways of determining the rate of neutralisation, and for that purpose presented to us various tables of calculations. We had also an opportunity to refer in this connection to two Reports (1) one popularly known as Bhoothalingam Committee Reports (1978) and (2) Report prepared by Sub-Committee on the Study of Dearness Allowance in India formed by the Employers Federation of India (1978). These two Reports, and particularly the former one commend a method of finding out the uniform rate of dearness allowance at which, according to it, dearness allowance should be paid to all the employees. The latter report restricting the dearness allowance only those who draw salaries upto Rs. 700/- per month. According to both the reports, however, the cent percent neutralisation rate is to be arrived at by dividing the wage packet of the particular year by the cost of living index number of that year. For example, as shown in the Bhoothalingam Committee Report, the wage packet of Rs. 260/- per month in 1972 (of the lower Division Clerk in the Central Government) at the cost of living index of 200 of that year, would give the neutralisation rate of Rs. 1.30 per point rise above C.P.I. 200.

15. We may now deal with the different methods of arriving at the rate of neutralisation, as advocated by the parties:

(A) According to the company, since what has to be neutralised is only the rise in the cost of living over the base year, the variable dearness allowance payable to the employees should be calculated by taking into account only the dearness allowance paid in the base year, and the basic wage payable to the workmen in the base year should be ignored. Thus calculated the rate at which the further rise in the cost of living index would be neutralised would be the quotient of the amount of dearness allowance paid in the base year divided by the cost of living index of the same year. To illustrate----

Basic C.P.I. D.A. Total payPay----- ------- ------ ----------------100 1,000 1,000 Rs. 1,100/-Base -YearD.A. 1000------------ = Rate of neutralisation Rs. 1/-C.P.I. 1,000Therefore, for100 2,000 2,000 Rs. 2,100/-The above illustration would show that the dearness allowance of Rs. 1,000/- alone is divided by 1,000/- which is the cost of price index of the base year. Therefore, the rate of neutralisation comes to Re. 1/- per point increase in the C.P.I. Hence at C.P.I. 2,000/- the dearness allowance payable to the workmen would be Rs. 2,000/- and his total pay packet (i.e. basic + dearness allowance) would be Rs. 2,100/-.

Method (B) :

The second method is the one advocated by the Unions, according to whom the variable dearness allowance must protect the total wage packet (i.e. basic + dearness allowance) of the workmen in the base year against further increases in the cost of living. Hence the rate at which the increase in the cost of living index over the base year must be neutralised should be calculated by taking into account not only the dearness allowance but also the basic wage payable in the base year. Hence they suggest the following method to arrive at the rate of neutralisation :

Basic C.P.I. D.A. TotalPay Rs. Rs. Rs. Rs.--------- ------- ------- --------Base -Year100 1,000 1,000 Rs. 1,100/-Total Pay 1100 = Rs. 1.10 Ps.-------CPI 1,000Therefore for100 2,000 2,100 2,200Thus by this method the rate of neutralisation is determined by dividing the total wage packet of Rs. 1,100/- in the base year by 1,000/- which is the cost of living index of the base year. Hence the rate of neutralisation is Rs. 1.10 Ps. point rise in the C.P.I. The total wage packet of the workman at C.P.I. 2000 would, therefore, be (basic Rs. 100 + dearness allowance of Rs. 2,100/-) Rs. 2,200/-. According to the Union, further this method should be adopted to find out the rate of neutralisation of all the pay groups and hence the rate of neutralisation of each pay group would vary depending upon the basic wage of that group in the base year.

(C) The third method is the one suggested by both the Bhoothalingam Committee (1978) and the Sub-Committee formed by the Employers' Federation of India (1987) to which we have made a reference earlier. Third method is similar to the one suggested by the Unions with a vital difference. According to these Committees, the rate of neutralisation should be worked out on the basis of the total wage packet only of the lowest paid workman in the particular establishment and the variable dearness allowance should be paid at the said rate of neutralisation uniformly to all workmen irrespective of their income group. The latter Committee disfavours the payment of dearness allowance over a particular slab of salary viz. Rs. 700/-.

It may be mentioned here that, according to both methods (B) and (C), the rate of neutralisation will vary as and when there is a revision of the basic wage. To give an illustration, if the basic wage of Rs. 100/-, which we have taken as constant in the above illustrations both at C.P.I. 1,000/- and 2,000 were to vary, say at C.P.I. 2,000 and become Rs. 200/- then the rate of neutralisation would change at C.P.I. 2,000 since at that stage, it is the total wage packet of Rs. 2,300/-(i.e. Rs. 200 basic + Rs. 2,100 D.A.) and not Rs. 2,200/- will have to be divided by C.P.I. 2,000/-. That will give the neutralisation rate of Rs. 1.30 per point rise in the cost of living index.

(D) The last method is not pressed seriously by the Unions. They have however placed it before us to show the logical consequence of the concept of dearness allowance, and to emphasis that if the workmen are to be compensated fully against the erosion in their real income or purchasing power, the dearness allowance payable to them should increase by the same percentage as the increase in their basic wage. To illustrate :

Basic Pay C.P.I. D.A. Total wage packetRs. Rs.Base year100 1,000 1,000/- 1,100/-200 1,000 2,000/- 2,200/-200 2,000 4,000/- 4,200/-In other words, since the basket of goods consumed by the workman doubles (with the doubling of the basic wage), the cost of the original basket will also double and the dearness allowance payable to him will have accordingly to be doubled.

16. Before we proceed to comment upon the merits and demerits of the different methods of neutralising the rise in the cost of living, it is necessary to emphasis that we are undertaking this exercise with a good deal of apprehension in our mind since the path in not much lighted by a discussion on the point by many adjudicating authorities or the courts of law or the expert commission or committee. Our search for a guidance on the point did not yield much result since it appears that this question was hardly ever raised and specifically answered. The only exception to our aforesaid observation are the two reports, namely the Report of the Bhoothalingam Committee (1978) and Sub-Committee formed by the Employees Federation of India (1978) (supra) and some observations in the decision of the Supreme Court reported in : (1986)ILLJ520SC Monthly Rated Workmen of Indian Hume Pipe Co. Ltd. v. Indian Hume Pipe Co. Ltd., and of the Patna High Court reported in 1987(I) L.L.J. 725 Chhotanagar Chamber of Commerce, Singhbhum Chamber of Commerce and Industries & another v. State of Bihar & another . We are therefore, deeply aware of the limitation, and trade the path with a good deal of caution more so because it may have consequences beyond the parties before us. Our endeavour is to find out a formula which, while conforming to reality will also be consistent with the principles for the grant of dearness allowance to have been accepted over the years by the Courts and the expert Waged Boards. We must once again emphasises at the cost of repetition that the object of the formula that we are trying to evolve is only to find out whether there is over-neutralization under a given existing system of payment of dearness allowance. The object is not to prescribe the method of neutralization for all purposes. That is beyond our scope. Hence it should not be construed that the method we adopt here has to be followed for other purposes as well, such as when as dearness allowance system is sought to be introduced for the first time, or a system less beneficial to the workmen is sought to be replaced or a separate set of service conditions are sought to be prescribed for new entrants, if permissible in law, etc.

17. (i) As regards method 'A', its attraction to the employers lies undoubtedly in the fact that it is the least burdensome among the four methods. Its logic at first blush, appeals. Since it has all along been held that the purpose of dearness allowance is to off-set the rise in the cost of living, it is naive to suggest that the variable dearness allowance to be paid to the employees should maintain only the value of dearness allowance paid in the base year. This argument, however, ignores that the dearness allowance is paid in the base year to maintain the value of the basic wage of that year, the object of the dearness allowance being to protect the wage against the rise in the cost of living. The dearness allowance or the rate at which it is paid cannot be fixed and is not fixed independently of the basic wage. It is fixed on the basis of and in relation to it. Hence the dearness allowance cannot be divorced from the basic wage without making it unrealistic and negativing the very object for which it is paid. If, therefore, the dearness allowance is to serve its real purpose, the rate at which it is paid must constantly reflect the basic wage which it seeks to protect. The object is not achieved by this method, since it is designed only to protect the value of the dearness allowance paid in the base year. That is why, as the illustration given shows, as the cost of living index increases, it protects the basic wage in an inverse proportion. The method forgets that it is the basic wage and the dearness allowance taken together which protects the value of the basic wage in a given year.

(ii) Method 'B' avoids this error and also fulfils to a great extent the object of the dearness allowance. It constantly protects the value of the basic wage by taking into account not only the dearness allowance paid in the base year but also the basic wage. It has, therefore, the merit of maintaining the value of the total income constant in spite of the changes in the cost of living.

The criticism levelled on behalf of the employers against this method is that in its working it neutralises the rise in the cost of living which is neutralised earlier. The argument is that since the dearness allowance off-sets the rise in the cost of living and protects the basic wage in the base year, by protecting the basic wage again against a further rise in the cost of living, the method tends to neutralise what is already neutralised. We must confess that we are unable to appreciate this contention because it presumes that the dearness allowance paid in the base year takes care of the value of the basic wage in that year against all future increase in the cost of living. Thus it ignores that the basic wage has to be protected against all increases in the cost of living and not only against the increase in the base year. The dearness allowance paid at a particular cost of living index protects the value of the basic wage only at that cost of living index. We may illustrate this by pointing out that on the basis of the figures which we have already assumed earlier, if the basket of the goods and services consumed by the worker had cost him Rs. 1100/- in the base year, and if the price of that basket doubles, the C.P.I. having risen from 1,000 to 2,000, the worker will have spend Rs. 2,200/- to buy it. However, if, according to the contention of the employer, it is not method B, but method A is to be employed, then in spite of the doubling of the price of the basket the worker would get only Rs. 2100/- instead of Rs. 2,200/- thereby reducing the value of his basic wage by about 4.7 per cent. If, on the other hand the value of the basic wage of Rs. 100/- is to be maintained constant, the dearness allowance to be paid must protect the entire wage packet of Rs. 1,100/- which has to be taken as the basic emolument of the base year. If this is done, then as shown in the illustration of the second method earlier, Rs. 2,100/- will be payable as dearness allowance instead of Rs. 2,000/-( which latter amount only tries to protect the value of the dearness allowance, and not of the total wage packet), and the total wage packet will be Rs. 2,200/- which will maintain the value of the total wage packet of Rs. 1,100/- in the base year. This method, according to us, does not neutralise the rise in the cost of living which is already neutralised but protects the value of the entire wage packet of the base year. The criticism forgets that it is the total wage packet of the base year which needs to be protected and not merely the dearness allowance of that year.

The method can also be tested by the fact that the system of payment of dearness allowance as a separate component of wages is a special feature peculiar to this country and some Asian countries. As has been pointed out by the National Labour Commission, in the developed countries----

'Wages themselves are adjusted to the cost of living as and when necessary. Several wage agreements provide 'escalator clauses' or ' wage re-opening clauses' or provide for a review of wage rates when prices rise above a certain point. Escalator clauses which are somewhat similar to linking the total wage to the index are common in the U.S.A., Belgium, Denmark and Italy, whereas 'wage re-opening clauses' where all other clauses remain undisturbed expect the one which relates to wages which can be reopened even during the pendency of the contract, occurred in several wage agreements in Norway and Sweden and in some agreements in the U.S.A. during 1954-58. In several Asian countries, the situation is met more or less by arrangements similar to those obtaining in our country. In Ceylon, there are several allowances, such as cost of living allowance, rent allowance and special living allowance which have the same effect as our D.A. In Japan, wages include cost of living allowance and rent allowance. Thus, international experience shows that while some form of relationship between wage levels and cost of living increase is preferred, the form of relationship varies. While the predominant pattern appears to be the adjustment of wage as a whole, the practice of keeping the compensation for price increase as a separate element also exists; both arrangements have their own advantages and disadvantages. The main advantage claimed for the letter is its flexibility. It is argued that while wage rates cannot be brought down because of a fall in prices, the dearness allowance, if kept as a separate element, can. The system can also be designed to reduce the time lag between the price increase and payment of compensation therefore. The opposite view is that the way the system has operated all these years has resulted in a complete distortion of the wage structure with the dearness allowance portion in certain areas being several times the size of the basic wage. This may have an adverse repercussion on incentives and productivity. The system of D.A., as it has evolved in this country, may under certain circumstances add to the inflationary tendencies. We have considered these issues and feel that changes in money wages should be associated with corresponding changes in cost of living. Without such adjustment, real wages would be eroded. How such adjustment should be brought about, whether by keeping the D.A. as a separate item or by periodic revision of wages, is not so important.'Secondly, the demand for and grant of the merger of dearness allowance underlines the reality that in fact the dearness allowance is a component of basic wage and what is to be safeguarded against the rise in the cost of living is the value of the basic wage together with the dearness allowance paid in the given base year. Any rational dearness allowance formula has, therefore, to be related to the more recent salary base. To effect it, the traditional method has been to merge dearness allowance with pay at a point from which prices are not likely to fall. In a developing economy such as ours, such a point remains a dream.

What is stated above thus emphasises the need to evolve a rate of neutralisation which will protect the value of the total wage packet and not only of the dearness allowance, paid in the base year.

This method is not flawless. The first defect it suffers from is the same from which method 'C' i.e. the method suggested by the Boothalingam Committee may suffer. It presumes that the lowest wage in every establishment is a subsistence wage. It may or may not be so. It may be lower or higher than that. If it is lower, the payment of dearness allowance at the rate of neutralisation worked out on its basis will do injustice to the workman and if it is higher, the dearness allowance paid may neutralise the rise in prices of non-essentials. In the absence of a proper data and also in the absence of an agreed quantum of the subsistence wage, it is not possible to accept any particular quantum as a subsistence wage. The wages fixed under the Minimum Wages Act also cannot furnish us any guide in the matter, firstly, because they relate to the scheduled industries and secondly, they vary with categories of workman and from place to place and industry to industry. Thirdly, and this is the extended aspect of the first flaw, since the nature of the lowest paid wage cannot be so determined, the wages paid to the higher categories also defy description. Fourthly, the quantum of the subsistence wage does not remain static and keeps varying with the passage of time on account of several factors.

But inspite of these flaws, the method remains attractive because in the absence of a scientific data to determine the subsistence wage, any solution of the problem has to proceed on certain presumptions. The presumption underlying this method is that unless proved to the contrary, the lowest wage in the category/grade of the workman concerned, should be presumed to be the subsistence wage of that category/grade, and the percentage neutralisation of the rise in the cost of living should be worked out for the category/grade on that basis. Whether the existing system results in over or under neutralisation of the rise in the cost of living and to what extent should be determined accordingly. The method thus proceeds on practical considerations and does not, as indeed it cannot, claim to be scientific. What is more, now that even the Fourth Pay Commission and the High Power Pay Committee have accepted that basic salaries of the Central Government employees upto Rs. 3,500/- per month require 100% neutralisation, it is legitimate to presume that the range of subsistence wage extends atleast upto that level if not more and this method can be applied to find out if there is over or under-neutralization taking wages upto that level as a basic.

(iii) The third method seeks to do exactly what the second method intends. However, whereas the second method seeks to protect fully the base year total wage packet of all the income groups, this method seeks to protect fully the base-year total wage-packet only of the lowest paid workman in the establishment. It has the merit of evolving a uniform rate at which dearness allowance will be paid to all workmen irrespective of their level of income. It conforms to the principles on which dearness allowance is paid as laid down till recently by the courts, the Committees and the Commissions, since it tends to protect fully the value of the lowest paid workman and to off-set the increase in the cost of prices only of the essential goods and services for all income groups. To the extent further that it does not off-set the increase in the prices of non-essential goods and services which are presumed to be consumed by the higher income groups, it does not have the defect of setting in the chain process of wages and prices chasing each other at least as far as the non-essential goods and services are concerned. It has also the merit of a simple working, although it tends to narrow or abridge the wage differentials between the low and the high income groups. But as the National Commission of Labour has observed such abridgment 'is a result which ought not be resented when we have socialist society as our goal'.

(iv) Though presented by the Unions to us as one of the logical modes of calculating the neutralisation rate, it is not seriously pressed by them for obvious reason. The method is designed to protect the increasing standard of living of the workmen, and not of the base year alone. Secondly, it may have the effect of off-setting the increase in prices not only of the essential goods and services (the price increase of which alone the dearness allowance is designed to off-set according to the traditional views) but also of the non-essential goods and services if the increase in the basic wages is designed to cover the consumption of such goods and services. Thirdly, in the absence of a separate price index compiled to register the increases in the prices of non-essential goods and services, it tends to presume that the cost of price index which is accepted for measuring the increase in the prices of essential goods and services, would also indicate the rise in the price of non-essential goods and services as well Fourthly, it is presumed that the entire increase in the basic wages is expended on consumption, and no part of it is saved or spent for other purposes. Fifthly, in the absence of any data on the basis of which the basic wage is increased and in the absence of material showing whether the revised basic wage is at the lower, higher or the highest level of fair wage, or even beyond it, the adoption of this method cannot be prescribed as an universal formula. Lastly and this though a logical result of the method, is an important practical consideration, the employment of this method would result in increase in the dearness allowance and the total wage packet quite disproportionate to either the increase in the skill, responsibility, productivity, and the profits of the concern.

18. It will now be convenient to examine the validity of methods A, B and C in light of the views expressed by the Expert Wage Bodies, Committees and Commissions and the law laid down by the courts on the subject.

19. The National Labour Commission, while dealing with the linking of dearness allowance to an index with the common base period and the adoption in the many centres and industries of several indices having different base periods, has observed as follows :

'We hold that if the basic wage in all cases is adjusted to common base year, and the dearness allowance is linked to changes in the indices over such a base year, the wage pattern in different centres would achieve the desired measure of uniformity.'

(Chapter 16, para 16, 40).

In paragraph 16.41, the Commission has gone on to observe that since prices were not likely to settle below the level of 1968, there was a strong case for emerging dearness allowance with basic wage at the 1968 price level. The Commission has then observed as follows :

'The main function of any D.A. as we envisage it, ought to be to provide a desired neutralisation of a temporary or short-period rise in the cost of living. Whenever the latter turns out to be more or less permanent, the wage rate itself should be adjusted to it. We are, therefore, most anxious that the D.A. should be merged with the basic wage at a reasonable point of time........'

While dealing with the question of compensation against decline in the purchasing power on account of rise in the cost of living, the Commission has stated in paragraphs 16.41, 16.47 and 16.48 as follows :

'16.41. We have been informed that prices are not likely to settle below the level of 1968. Spokesmen of the Planning Commission and the Reserve Bank of India besides others, have been clear on this point. There can thus be a strong case for merging dearness allowance with basic wage at the 1968 price level. The main function of any D.A. as we envisage it, ought to be to provide a desired neutralization of a temporary or short period rise in the cost of living. Whenever the latter turns out to be more or less permanent, the wage rate itself should be adjusted to it. We are, therefore, most anxious that the D.A. should be merged with the basic wage at a reasonable point of time. We recognise that the merger is likely to have wide repercussion on industry and may require consideration of related wage issues on an extensive front. There is also the difficulty that in the absence of a price series related to the base year in which the two components of wages are merged, the workers might have a feeling that any future erosion of their real wages would not be adequately safeguarded. We have taken note elsewhere of the enquiries proposed in the year 1969 70 for measuring changes in workers levels of living and for providing a base for revising the price indices at different centres. It would, therefore, be more practical to merge D.A. with basic wage at the base year of the revised series in the interim, we recommend that (i) all future wage claims should be dealt with on the basis of the 1968 price level and (ii) the ground should be prepared for introducing a consolidated wage (basic + D.A.) as at the base period of the proposed revised series of consumer price index numbers. The aim of such merger should be to rationalise the existing wage structure and make basic wage more realistic than at present. It should not be construed to imply ipso facto any additional benefit. The piece rates would have to be adjusted to the merged wage in such a way that current differentials in the total wages are not unduly disturbed. No further adjustments are implied in our proposals.'

'16.47. It is obvious that unless money wages rise as fast as the consumer prices, it would result in an erosion of real wages. But the extent of its impact will depend on the margin of cushion available at different levels of income. The purpose behind the fixation of minimum wages itself is lost, if the wage so fixed is allowed to be eroded by price increases, exceptional circumstances apart. We are, therefore, of the view that on principle, those who get a minimum wage will be entitled to have full neutralisation rise in cost of living. There are, however, certain imponderable like natural calamities, famine and external relations which have to be taken into account in deciding what allowance should be made for them in working out full neutralisation. These are admittedly difficult of qualification. Some of us took the view that for reasons set out by the Dearness Allowance Commission in its report, its recommendation that neutralisation at the rate of 90 per cent should be allowed to those at the minimum should be accepted by us, while others though that the allowance for imponderables should be less. After full discussion a consensus was reached that neutralisation at the rate of 95 per cent should be afforded to minimum wage earner in respect of any future rise in the cost of living. We accordingly recommend that 95 per cent neutralisation should be granted against rise in the cost of living to those drawing minimum wage in non-scheduled employments.'

'16.48. As pointed out earlier, minimum wages in non-scheduled industries have been fixed as a result of collective bargaining, arbitration or adjudication. The percentage neutralisation of the rise in the cost of living in non-scheduled industries has been fixed by the same process. We are aware that in some non-scheduled industries and units, dearness allowance is paid to the worker on the basis of neutralising in full the rise in price in case of persons at the minimum level. Our recommendation of 95% neutralisation for minimum wage earners in non-scheduled industries should not be allowed to have any adverse effect on such agreements or on award rates of dearness allowance. The higher rates of neutralisation already achieved should be protected.'

16.49. A suggestion that has been before us is that only the quantum of D.A. permissible to the lowest paid employee should be paid to these at higher levels of wages/salaries to whom D.A. may be admissible. The justification for it is sought in its simplicity and in the argument that the principal aim of D.A. being to compensate only the increases in the prices of essentials, it should not vary with income level. On the other hand, some others argue that payment of a flat amount of D.A. is responsible for a substantial narrowing of wage differentials and such narrowing down acts as a disincentive to improve effort and affects production and productivity, particularly in the case of skilled workers. On this account, it is claimed that while percentage neutralisation may taper off beyond the minimum at higher levels it need not necessarily result in the payment of same amount of D.A. at all levels. This however, assumes that the current differentials are justifiable on grounds of productivity and that our commitment to a socialist pattern of society will not eventually abridge these distances. There is little justification for these assumptions According to our view, the only purpose of dearness allowance is to enable a worker in the event of a rise in cost of living to purchase the same amount of goods of basic necessity as before. This purpose would be served by an equal amount of dearness allowance to all employees irrespective of difference in their emoluments. But those employees, who are at present getting an amount of dearness allowance higher than what is admissible on the basis of our recommendations, will not be deprived of that, though for any additional increases in the cost of living, they will be entitled only to the same amount of dearness allowance as is given to persons receiving the minimum wage.'

21. As against the view taken by the National Labour Commission that 'the only purpose of dearness allowance is to enable a worker in the event of a rise. In cost of living to purchase the same amount of goods of basic necessity as before', the Third Pay Commission took the other view, viz. that dearness allowance is meant to neutralize the erosion of the real income of wage earners. The Commission expressed the said view as follows :

'It is, therefore, necessary that there should be a regular scheme for compensating the Government employees against erosion of their money income. We are of the view that the dearness allowance should be treated as a compensation to the wage earners and salaried employees against a possible rise in prices over the index level to which the pay structure devised by us is related.'

(Vol. IV, Part I, Chapter 55, para 5, p. 2)

The Fourth Pay Commission reiterated the same view in the following words :

'another, and a more important assurance to the employee should be that his emoluments will not erode by increases in the cost of living, and Government will make an effort to provide as much relief as possible when the degree of tolerance is exceeded. Failure to do so will give rise to a sense of insecurity in the employees for he will not know what the future has in store for him, by dint of factors and circumstances, and their interplay, over which he has no control, by way of inflation. To save him from that predicament, consumption has to be provided for not only in the present but also in the future ........'.

'6.17. In the Chapter dealing with the legal issues we have come to the conclusion that the employees on C.D.A. pattern are entitled to continue on that pattern. In this Chapter we have discussed the various aspects of the C.D.A. and I.D.A. patterns and their relative merits. On a consideration of all these aspects and the several views that have been expressed by various authorities on these aspects, we are more inclined towards the view that looks at D.A. not merely as an allowance to protect the purchasing capacity of those at the level of the minimum wage in relation to a certain basket of goods, but as an allowance that is meant to protect all categories of employees from an erosion of their wages and salaries due to price increases subsequent to a wage revision. Justice, of course, demands that the minimum wage should be protected from any ersion, whatsoever, after it is initially fixed. But considerations of enquity and the necessities of efficiency also demand that the difference that may have been established between different levels of wages and salaries after due consideration, should not be unduly disturbed after the initial fixation by an extraneous and, in this context, irrational factor such as inflation. We are not impressed by the argument of equality of sacrifice when it is applied to one category alone, namely the wage and salary earner. If there are other, more rational, ways of enforcing it than through the medium of inflation, which no one admits to have started and on one accepts to control. We are therefore, in favour of a D.A. that is based on a percentage of the pay. In view of the financial constraints and the inadequacies of the index used, the protection against erosion of real wages cannot be equal at all levels. For this reason the percentage neutralisation has to decrease as the pay increases .'

It will be clear from the aforesaid paragraph that the Court has merely referred to the nature of the statement filed in that case by the workmen. There is nothing in this paragraph to suggest that the Court had approved of the system adopted by the Union to work out the rate of neutralisation. It may be mentioned here that in their statement, the workmen had tried to compare the percentage of increase in the dearness allowance paid to the workmen as against the percentage of increase in the consumer price index over a particular index number of a base year, and to show how the percentage of increase in wages was lower than the percentage of increase in the C.P.I.

In Chatanagpur Chamber of Commerce case (supra) the Patna high Court was called upon to decide as to whether a Notification issued by the Government increasing the rate of the variable dearness allowance from 2 Ps. to 4 Ps. per point rise in the cost of living index per day under the Minimum Wages Act was valid. The Court was undoubtedly concerned there directly with the working out of the rate of neutralisation and as far as we know this is the only case of its kind so far. While doing so the Court adopted the following method. The Court compared the percentage increase in the consumer price index with the percentage increase of the variable dearness allowance to the total wages, and since it was found that on the basis of the said enhanced rate of 4 Ps. per point, the percentage increase in the variable dearness allowance (VDA) compared to total wages of the preceding period, exceeded the percentage increase in the consumer price index, it struck down the said Notification holding that there was over neutralisation of the cost of living index which in effect increased the real wages. Since that was not the object of the dearness allowance, the Notification was illegal, invalid and without jurisdiction. This method, though advocated by the Company is assailable and (on behalf of the Unions it is assailed) on the ground that what has to be compared with the percentage increase in the cot of living index, is the percentage increase in the total wage packet, and not the percentage increase of VDA over the total wage packet. Since the Court had compared the percentage increase in the C.P.I. with the percentage increase of VDA to the earlier wage packet, and not the percentage increase in the two total wage packets, it has fallen in the same error from which Method A discussed above suffers. For the consideration only of increase in dearness allowance de hors the total wage packet suffers from the basic error, namely it completely ignores the fact that basically dearness allowance is meant to protect the real value of the basic wage and it is the dearness allowance plus basic wage which together ensures such protection. To take into consideration only the increase in dearness allowance or its percentage is to ignore one part of the emoluments of the base year. Neither the basic wage nor the dearness allowance alone is capable or maintaining the real value of the basic wage paid to the workmen in the base year or the preceding year, as the case may be . With respect, therefore, we are unable to endorse the method adopted by the High Court in this case.

23. It will thus be seen that, in so far as method A does not protect the value of the wage packet of the base year but only tends to protect the dearness allowance paid in that year, it does not fulfil the object for which dearness allowance is paid. What remains, therefore, for consideration are methods B and C. We have discussed the merits and demerits of these two methods earlier. A comparison between the two is now necessary to choose one of the two. Method C, as stated earlier, has the merit of protecting fully the total wage packet of the lowest paid workmen in the establishment. It also ensures the off setting of the rise in the prices of essential goods and services for all income groups, low or high. It further conforms to the other principle of fixation of dearness allowance, namely that the dearness allowance should be paid on a declining scale as the income rises since the amount of dearness allowance paid goes on tapering in terms of its percentage to the wages, as the incomes rise. The only defect pointed out in this method is that since a uniform amount of dearness allowance is paid to all the income groups, as the C.P.I. rises it tends to narrow the wage differentials and such narrowing down of the differential acts as disincentive to improved efforts and affects production and productivity, particularly of the skilled workers. As has been pointed out earlier, the National Labour Commission has countered this criticism by observing that the criticism assumes that the current differentials are justifiable on the grounds of productivity, and that our commitment to socialist pattern of society will not eventually abridge these distances. There is little justification for this assumption.

24. There is no doubt that the system of uniform rate of dearness allowance is in the present circumstances an ideal one and as has been pointed out by Bhoothalingam Committee in paragraph 7.29 of Chapter VII of its report, this system is already prevalent in about 2/3rds of the public enterprises as also in cement and steel industries. However, the expert wage bodies and the courts have also held that if the system of payment of dearness allowance already prevalent in the establishment is more beneficial to the workmen, the same should not be disturbed unless there are compelling reason to do so. In this connection, we may first, once again refer to what the Labour Commission has stated in this behalf and particularly in the context of the discussion with regard to the uniform rate of dearness allowance. In paragraph 16.49, after repelling the criticism against such formula, the commission hastened to add as follows:-

'But those employees, who are at present getting an amount of dearness allowance higher than what is admissible on the basis of our recommendations, will not be deprived of that, though for any additional increases in the cost of living, they will be entitled only to the same amount of dearness allowance as is given to persons receiving the minimum wage.'

The Commission has, no doubt, stated that what is required to be protected is only the existing amount of dearness allowance, and not the dearness allowance to be paid on future rise in the cost of living index, and that the increase in the cost of living index can be neutralised by uniform rate. However, the Supreme Court in the case of the Indian Hume Pipe Co. Ltd. (supra) has in terms observed that there is no reason why the system that has existed for a long period of time should be stopped to the detriment of the workmen without compelling reasons. The Court in that case distinguished its earlier decision in Killick Nixon Limited : (1975)IILLJ53SC and has pointed out that-

'The Court had often times emphasised the need for a living wage to workmen instead of subsisting wage. It is indeed a matter of concern and mortification that even today the aspirations or a living wage for workmen remain a mirage and a distant dream. Nothing short of a living wage can be a fair wage. It should be the combined effort of all concerned, including the courts, to extend to workmen a helping hand so that they get a living wage which would keep them to some extent at least free from want. It is against this background that a claim by the employers to change the conditions of service of workmen to their detriment has to be considered and it is against this background that we have considered the award under review. We are not satisfied that a case has been made out on the facts available, for a change.'

The Court has then in paragraph 36 of the judgment observed as follows :

'36. The question is often asked as to whether it would be advisable for Tribunals and Courts to revise the wage structure of workmen to their prejudice when a dispute arises. Normally the answer would be in the negative tribunals and Courts can take judicial notice of one fact; and that is that the wages of workmen, except in exceptionally rare cases, fall within the category of mere 'subsisting wages'. That being so, it would be inadvisable to tinker with the wage structure of workmen except under compelling circumstances. Employers have seldom displayed a co-operative attitude where wage structure of workmen are devised. They have never showed a willingness for the involvement of the labour with the capital so as to engender a participative labour capital relationship. This is a reality that tribunals and Courts have to reckon with. That being so, Courts and tribunals have necessarily to keep their hands off from upsetting a wage structure that has satisfactorily worked for a long time. The sweat of the labour is never reflected in any balance sheet, although the latent force behind every successful industry is this sweat. With their present wage structure, the labour just exist. No one should try to deny them even this bare source of existence.'

The Court has then referred to its earlier decisions on the subject, and has pointed out that the slab system of the payment of dearness allowance is in existence in many industries. Dealing with the argument that the existing slab system should be replaced by a system whereby ceiling on the quantum of dearness allowance is placed, the Court in paragraph 89 of the judgment has observed as follows :

'39. The learned Counsel for the respondent made a strong plea for substitution of the existing system of dearness allowance with ceiling of the quantum of dearness allowance. We have already indicated that in the absence of compelling material a system that gives a benefit to the workmen cannot lightly be interfered with to their detriment. The theory of ceiling on the quantum of dearness allowance cannot be accepted since under the prevailing conditions there is not control over the prices of essential commodities and as such a ceiling would not give sufficient cushion when prices of essential commodities continuously rise.'

25. It may be mentioned here that in that case the Court has also observed that when the reference for change in the system for payment of dearness allowance is made at the instance of the employer, it is for him to justify the need for such a change. In the case it was also the case of the employer company that it has no capacity to pay dearness allowance at the existing rate which resulted in more than 100% neutralisation.

Hence the ratio of the decision is that when adjudicating bodies and the Courts are not called upon to introduce dearness allowance system for the first time but to replace the existing one by a new one, the Courts should not replace it by a system which would be less beneficial than the existing one.

26. The introduction of the uniform rate of dearness allowance worked out on the basis of the total wage packet of the lowest paid workman, that is the unskilled workman in the establishment or on the basis of the lowest paid workman in the categories with which we are concerned namely C-1 and T-1 is admittedly bound to affect adversely the workmen in the higher wage income groups since under the existing system they get more amount as dearness allowance. There is also, as we will point out a little later, no compelling reason made out by the company for introducing a less beneficial system to the workmen.

27. One of the grounds on which the learned Judge has justified the introduction of the new system is that the present system over-neutralises the rise in the cost of living. As pointed out earlier, the tribunal on this point has taken a contrary view and has held that on the admission of the Company made in the earlier adjudication proceedings, there was no such over neutralization effected by the existing system. The Company's contention is that admission was made erroneously and they are entitled to show that it was so. We have therefore, gone into the different calculations and tables produced by both the sides on this issue. For compiling the tables, year 1970 is taken as the base year by consent of the parties since the last meaningful revision of the wage structure was made by Chitale Award of 1974 with retrospective effect from 1970. Bhojwani Award which modified the maximum of the pay scales of each category as prescribed by Chitale Award was also made effective from 1979. Hence the following calculations are made with reference to the basic wage and the dearness allowance payable in 1970 and the cost of price index of that year. According to the Company's calculations, the existing system shows the following neutralisation :

Basic D.A. Total Basic D.A. Total wage Total wage NeturalisaGrade 1970 1970 wage 1989 packet in packet tion under Packet in 1989 CPI 1970 CPI 1989 under the the existing800 (CPI 800) 3912 at 100% existing system.at 100% Neturali- systemNetutali- sationzation. (CPI 3912)1. 2. 3. 4. 5. 6. 7. 8. 9.C-1 Min. 130 351 481 130 1716 1846 2252 121.93%Max. 385 672 1057 385 3286 3671 4473 121.84%C-2 Min. 175 413 588 175 2020 2195 2675 121.86%Max. 481 788 1269 481 3853 4334 5284 121.91%C-3 Min. 220 472 692 220 2308 2528 3079 121.79%Max. 560 884 1444 560 4323 4883 5952 121.89%C-4 Min. 260 521 781 260 2548 2808 3417 121.68%Max. 634 973 1607 634 4758 5392 6577 121.97%T-1 Min. 160 393 553 160 1922 2082 2534 121.70%Max. 415 708 1123 415 3462 3877 4727 121.92%T-2 Min. 200 448 648 200 2191 2391 2910 121.70%Max. 506 818 1324 506 4000 4506 5496 121.97%T-3 Min. 240 496 736 240 2425 2665 3248 121.87%Max. 580 908 1488 580 4440 5020 6121 121.93%T-4 Min. 310 581 891 310 2841 3151 3839 121.83%Max. 684 1034 1718 684 5056 5740 7000 121.95%C-1 Min. 130 351 481 130 2218.20 2348.20 2252 95.90%Max. 385 672 1057 385 4779.84 5164.84 4473 86.60%C-2 Min. 175 413 588 175 2684.76 2859.76 2675 98.54%Max. 481 788 1269 481 5736.08 6217.08 5284 84.99%C-3 Min. 220 472 692 220 3148.32 3368.32 3079 91.41%Max. 560 884 1444 560 6485.60 7045.60 5952 84.48%C-4 Min. 260 521 781 260 3570.76 3830.76 3417 89.20%Max. 634 973 1607 634 7228.12 7862.12 6577 83.65%T-1 Min. 160 393 553 160 2540.28 2700.28 2534 93.84%Max. 415 708 1123 415 5064.80 5479.80 4727 86.26%T-2 Min. 200 448 648 200 2968.72 3168.72 2910 91.83%Max. 506 818 1324 506 5952.80 6458.80 5496 85.096%T-3 Min. 240 496 736 240 3359.04 3599.04 3248 90.24%Max. 580 908 1488 580 6696.32 7276.32 6121 84.12%T-4 Min. 310 281 891 310 4035.32 4346.22 3840 88.37%Max. 684 1034 1718 684 7724.80 8408.80 7000 83.24%

It will thus be clear from the calculations produced by the two sides that whereas the company has calculated the rate of neutralisation by taking into account only the percentage increase in the dearness allowance over that paid in the base year, the Unions have calculated it by taking the percentage increase over the total wage packet paid in the base year. The company has thus used method A, while, the Unions have used method B discussed above. This, therefore, essentially is a difference in the methods of computing the neutralisation rate. Admittedly if method B is adopted, there is no over-neutralisation as shown in the Unions' calculations.

28. For reasons, which we have already already discussed earlier, method 'A' cannot be adopted to find out whether there is over-neutralisation or not, since the neutralisation rate worked out by that method is only on the basis of the amount of dearness allowance paid. Method 'C' again gives neutralisation rate only for the lowest wage packet in the establishment and cannot furnish a guideline to find out whether there is over-neutralisation of the wage packets of all the grades and categories of the workmen. We are then left with only Method 'B' which can furnish a true picture of neutralization, for this method works out neutralization for all grades and categories and shows us whether the existing system-over-or under neutralises the rise in the cost of living for each of them. The Union's calculations which are arrived at by this method give us the wage packets accordingly as compared to the one payable under the existing system and also the comparative neutralization of the cost of living under the existing system.

29. It will thus be seen from the above calculations that, according to Method 'B', wage packets of the workman should be more both at minimum and maximum level of each grade of both the categories with which we are concerned here than what they get under the existing dearness system. Hence there is no over-neutralization of the increase in the cost of living under the existing system.

30. It is further to be noted that the demand in the present case is not for replacing the existing dearness allowance system either by an uniform rate of neutralization or by the rate of neutralization worked out by Method 'B'. The original demand is as mentioned in paragraph 7 above. What is now defended by the company is the Uniform rate of neutralization for the workmen drawing a salary of Rs. 500/- and above as granted by the Tribunal. We have pointed out earlier that the award would effect in all 500 workmen and those who would be affected immediately would be 115. As against the total work force of 2.500 employees, the company seeks the introduction of the new system of payment of dearness allowance for this small section of its work force, because their basic salary exceeds Rs. 500/- per month.

31. It is now necessary to deal with the reasons which both the Tribunal and the learned Judge have given for replacing the existing system. As stated earlier, the Tribunal has negatived the contention of the company that the present system over-neutralises the cost of living, and in paragraph 33, it has observed that since the company had in its statement filed before the industrial Tribunal presided over by Shri Chitale had itself stated that the percentage of neutralization at the lowest category was 97.4% and at the highest at 86% there was no substance in the company's case of over-neutralization. We have already pointed out above that, according to method B, the rate of neutralization in the present case does not exceed 100% for any of the categories. We have also given reasons as to why method B in the proper method to be adopted to find out the rate of neutralization.

However, the learned Single Judge has come to the conclusion that there is an over-neutralisation effected by the present dearness allowance system . For this purpose he has relied on the company's statement showing the variations in the salary of the Metharu. That statement which is incorporated in the impugned judgement is, as the note shows, calculated by the method adopted by the Patna High Court in Chotanagpur case (Supra), which is more or less similar to method 'A' discussed above. We have already pointed out the fallacy of the said method since it ignores the value of the basic wage paid in the base year, and determines the neutralization rate only on the basis of the dearness allowance paid in the base year. This is clear from what is stated in the judgement itself. The learned Judge has negatived the contention of the unions that the rate of neutralisation should be calculated on the basis of the total wage packet of the base year and has accepted the company's contention that is should be calculated on the basis only of the dearness allowance paid in the base year. If we are right, then, with respect, this is an error from which the impugned judgment suffers. Hence the learned Judge's conclusion that the present system results in over-neutralisation of the cost of living is not correct.

32. Although the Tribunal has come to the conclusion that there is no over-neutralization at any level and that neutralization rate varied between 97.4 at the lowest to 86% at the highest level of income group, the Tribunal has held that the neutralization rate at 80% or more is considerably more than that can be 'generally granted at that stage'. Having arrived at that conclusion at the end of paragraph 34, the Tribunal has gone on to observe in paragraph 35 as follow:

'Apart from the fact that neutralization for the higher pay slabs say above Rs. 450/- or Rs. 500/- is more in the present dearness allowance scheme, the main justification which appeals to me for imposing some sort of ceiling on dearness allowance payable to the workmen is comparison of the existing scheme with those existing in other companies referred by the parties to the reference. '

It does, therefore, appear that one of the reasons which weighed with the Tribunal to replace the existing system is that it tends to neutralise the increase in the cost of living of the workmen in the pay slabs above Rs. 450/- 00 by more than 80% and that the said rate of neutralization-percentage is considerably higher. The Tribunal has not given any reason why it has chosen to call it higher. There is no dispute that under the existing system the percentage of neutralisation goes on declining with the increase in the salary slabs. The Tribunal itself has accepted this fact in paragraphs 33 and 34 of the award. But the Tribunal has concluded that the tapering is not on a sufficiently declining scale because the percentage of neutralization of the higher income groups in the comparable concerns compared to that in the company has a steeper fall. This is obvious from the Tribunal's discussion from paragraph 35 onwards. It is, therefore, necessary to examine the validity of this reasoning.

In this connection, it is necessary to remember that the Tribunal at the very inception has stated that there was no company either in the industry or in the region which was comparable with the company. There were some companies which manufactured only some of the consumer goods manufactured by the company and those companies were Godrej, Tata Oil Mills Limited ('TOMCO') and Lackme. But they were small compared to the company. The Tribunal has then referred to earlier Awards given by Shri Chitale and Shri Bhojwani and has pointed out that Chitale Award had accepted TOMCO, PHILIPS and JOHN WYETH as comparable concerns because they were in the industry since they manufactured some of the products produced by the company. The Tribunal has then stated that it would not only consider the dearness allowance schemes in these three concerns but also those prevailing in some other concerns in the region though they are not in the industry. The Tribunal has then listed in all 41 companies which are all non-comparable according to the tests of comparison laid down by the Supreme Court in William Sons (India) Private Ltd., Case 1962 (I) L.L.J.302. On its own showing, while in 24 of the companies there was some kind of ceiling on payment of dearness allowance in 17 of the companies there was no ceiling of any kind on dearness allowance. The latter companies include PHILIPS, JOHN WYETH, COMBO and GODREJ which are held to be in the industry because they manufacture some of the products manufactured by the company. In spite of this, the Tribunal has proceeded to justify the ceiling on the rate of dearness allowance payable to salary groups of Rs. 500 and above because the existing rate in the company is more than that prevailing in TOMCO, GODREJ and COLGATE. The table incorporated in the Award shows the following comparative position:

-----------------------------------------------------------------Salary H.L.L. TOMCO GODREJ COLGATE-----------------------------------------------------------------300 9.25 8.75 8.25 8.00400 11.25 10.00 9.25 9.00500 11.25 11.25 10.25 10.00600 15.25 12.50 11.25 11.00700 17.25 13.75 12.25 12.00-------------------------------------------------------------------

This comparison, according to us, is faulty. In the first instance, admittedly neither TOMCO nor GODREJ nor COLGATE are comparable because of their smaller size. COLGATE is admittedly not in the industry, Secondly, there is no ceiling on payment of dearness allowance either in TOMCO or GODREJ and, thirdly, the Tribunal has not compared the other service conditions of the employees in TOMCO, GODREJ and COLGATE with those in the company. It is not rational to pick up only one of the several service conditions to compare it in insolation. Nor is it permissible to compare different concerns for different service conditions. The comparison must be with the total benefits in a comparable concerns. The Tribunal has thus fallen in an obvious error.

33. The Tribunal has than relied on the so called trend of placing a ceiling on dearness allowance, and has for this purpose referred to the industrial awards in the case of Indian Huma Pipe Limited, Foto Engineering, Mazgaon Docks Limited, Hind Cycles and Voltas, Suffice it to point out that the Supreme Court has since reversed the award in Indian Huma Pipe Limited (Supra), and has made observations discouraging replacement of the existing system by a new system which deprives the workmen of the existing benefits, unless it is necessitated by compelling reason. The award in Mazgaon Docks Limited is in appeal. This is apart from the fact that neither of the concerns are comparable nor are the service conditions in them.

34. The Tribunal has also referred to the repercussions on other industries in region if the company's demand for placing the ceiling on dearness allowance was not conceded. It is difficult to share this concern. In the first instance, there is no material on record to voice such concern. Whether a mere absence of ceiling on dearness allowance paid to the workmen would have an adverse repercussion on other industries is a matter of speculation in which, in the absence of sufficient material on record, no adjudicating body should indulge. Secondly, on the Tribunal's own conclusion there was no other concern in the industry, much less comparable with the company. Thirdly, the Tribunal has lost sight of the fact that the existing system has worked in the company smoothly for over 50 years. The balance-sheet of the company shows that the wage bill of the company does not exceed 5% of its total expenses even with the existing system. The Tribunal was not introducing the dearness allowance for the first time but was replacing the existing system by a new one. Fourthly, we are sure that the Tribunal is not oblivious to the fact that the present company being incomparable, the other concerns cannot be obliged to follow the dearness allowance system in the company irrespective of their financial conditions. Lastly, although the system has been in vogue in the present company for about 50 years no such repercussions as feared by the tribunal have ensued.

35. The Tribunal has then rightly observed that the dearness allowance cannot be increased to approach the ideal of living wage. We are in complete agreement with these observations. The principles on which the wages are fixed are different from those on which dearness allowance is fixed, the purpose of the two being different. However, we wish the tribunal had kept this in mind, when at a latter stage in paragraph 47, it observed as follows:

'Besides once a ceiling is imposed on dearness allowance, the basic wages of the employees of H.L.L. can be suitably increased to bring in line with TOMCO. It cannot, therefore, be accepted that if a ceiling is imposed or if there is a reduction in the rate of dearness allowance payable to employees of H.L.L., there will be progressive reduction in the comparative wages of employees of H.L.L. vis-a-vis their counter parts in the comparable concerns with increase in cost of living. If the basic wages payable to the employees of H.L.L. are brought in line with TOMCO there would not be considerable difference in the total pay packets of employees of H.L.L. and TOMCO.''

In making these observations and justifying the placing of ceiling on the rate of dearness allowance on the ground that it was going to increase the basic wages, the Tribunal has obviously forgotten what it has stated earlier, namely that the principles of fixation of wages should not be mixed up with the principles of fixing the dearness allowance. The Tribunal has thus fallen in an error which is apparent on the face of the record. It has fixed the ceiling on the rate of dearness allowance on a ground impermissible in law.

36. As far as the learned Single Judge is concerned, we have shown above as to how there is no over-neutralisation of the cost of living index under the existing system and, therefore, the said reason given by the learned Single Judge for justifying the replacement of the present system by the new one is not tenable. The other reasons which has appealed to the learned Judge is that on account of the existing system the salaries of the workmen in the higher income slabs exceeded those of the junior executives. There is no doubt that in Killick Nixon : (1975)IILLJ53SC the Supreme Court has stated that the distortions in wage packets of the executives can be a consideration for placing a ceiling on dearness allowance. But that is one of the 14 tests (and by no means executive) laid down by the Court to examine the problem from various angles. Such distortions alone, irrespective of the other considerations, cannot therefore, justify the placing of ceiling on dearness allowance. What is further more often forgotten while urging this ground is that the service conditions of workmen and of the executive staff (are not fixed by the same authority and by the same process). Whereas the service conditions of the former are fixed either by the Wage Bodies or adjudicating machinery or through collective bargaining, the service conditions of the executives are more often than not fixed and dictated by the employer at his will. They can also be varied by him at will. In each case, therefore, the adjudicating authority has first to examine whether the service conditions and in particular the wage structure as obtains in the establishment at the relevant time, is fixed on some rational differentiation between the higher and the lower staff, which may not always be the case. Hence it is not fair merely to compare the service conditions of both as they obtain however irrational their basis. If the initial differentiation in wages is itself irrational, the distortions are bound to set in and when that happens, the remedy in most cases may be to up-grade the service conditions of the higher staff. But such distortion by itself may not be a ground for lowering the existing benefits of the workmen, which benefits often come to be earned through a long and arduous process, and sometimes even though struggle. If further the distortions in wages were to furnish the only ground for placing a ceiling on dearness allowance, the ground would almost always be available to the employer where he chooses to fix the salaries of the executives at low level. As has been observed by the Supreme Court in the case of the Indian Hume Pipe Limited (Supra), it is also not enough to show that the wage packets of the workmen exceed those of the non-workmen like executives. In most of the cases the initial salary of the executive is bound to be less than the total wage packet of his subordinate who has put in long years of service. There cannot, therefore, be any comparison between the wage packet of a senior workmen and the wage packet of a beginner executive. Unless, therefore, it is shown that a workmen with the same years of service gets salary more than an executive with the same number of years of service, it cannot be said that the case of distortions in wage structure is made out. Lastly, it is not enough that only the wage packets of the two are compared. The comparison has to be between the total service conditions of the two which should include also the value of the perquisites available to the executives. No such material was before the learned Judge, when he arrived at the said conclusion. It may be mentioned in this connection that the Tribunal has neither discussed the said ground nor has it placed the ceiling on dearness allowance on that ground.

37. Before us, for the first time, the company produced a statement showing the remuneration, gross and net, received by the junior executives as compared with that received by the clerical staff. In this connection, we may point out that the union had on July 7, 1978 made an application to the Tribunal for a direction for the company to produce, among other things, documents pertaining to service conditions such as remuneration, leave rules, travelling perquisites, medical benefits, retirement benefits available to supervisors/officers, management/director of the company. In support of this demand, the Union had in paragraph 7 of the application stated that there was a gap and disparity between the level of wages of the workmen on the one hand and the officers/supervisors and the management on the other and this can be proved from the record of the Company showing total amount paid annually to different classes of staff/personal. To this application, the company replied on August 1, 1978 objecting to produce any such information and documents. With reference to paragraph 7 of the application, the Company stated in its reply as follows :

'10. With reference to paragraph 7 of the application, the Company submits that the workmen employed by the Company are already highly paid. It is submitted that the workmen and the Officers are paid commensurate with their work and responsibility. It is submitted that the question of there being any gap or disparity between the wages of the workmen and the officers of the Company does not arise in that there cannot be any comparison between entirely different classes of employees who are paid remuneration on the basis of their respective work and responsibility.'

It will thus be apparent that the case of the Company before the Tribunal and the learned Judge (and since the same record was also before the learned Judge) was that the workmen and the officers were paid commensurate with their work and responsibility, and there was no question of compassion between the remuneration paid to the two. Hence the attempt now made before us to show that the wages of the clerical staff exceed those of the junior executive without producing the necessary documents to compare the total service conditions of the two, and without giving an opportunity to the workmen to test the said statement by cross-examination, is rightly objected to on behalf of the Unions and we must uphold the said objection.

But even on merits we find that the statement produced by the Company compares the salaries of a few of the workmen involved in the present reference with a few of the Junior Departmental Supervisors ('JDS') and Senior Departmental Supervisors ('SDS') only Admittedly these posts were created by the Company only after the Chitale Award of 1974. The JDS and SDS earlier belonged to T-4 category involved in the present reference. They are, therefore, in fact workmen though the Company has chosen to classify them as supervisors to take them out of the Industrial Disputes Act. They admittedly belong to non-managerial staff. They are, therefore, not synonymous with junior and senior Executives. There are no SDS and JDS in the Head Office of the Company. They are only in the factory. Further, the employees in T-4 category who are in the Andheri Establishment and to which the present Award is applicable consist also of scientists who cannot be said to be of a lower level than JDS and SDS. This is why the contention of the Unions that the Company has tried to compare the salaries of the workmen involved in the present reference with those only of the JDS and SDS and not of the other executives, assumes, importance. A legitimate inference can, therefore, be drawn that the wage packets of the workmen involved in the present reference do not exceed those of the executives properly so called in any case.

38. The third reason given by the learned Judge for upholding the ceiling on the rate of dearness allowance is that the Tribunal has granted other benefits while placing the ceiling. The other benefits to which the learned Judge has made reference are the revision of pay-scales, special allowance, social security allowance and ad hoc allowance, classification of workmen from T-2 to T-3 category, the extra wages for work on weekly or public holidays, meal allowance and dinner allowance etc. The learned Judge has also emphasised that tribunal has specifically mentioned that he had awarded these additional benefits keeping in view the fact that the he had put a ceiling on the dearness allowance.

With respect to the learned Judge and the Tribunal we must point out that the considerations on which these benefits are granted, have nothing to do with the principles on which the dearness allowance is fixed and to the extent that both the Tribunal and the learned Judge have mixed up the two, both have fallen in the same error. It is also necessary to analyse the nature of these benefits to find out if they have any relevance to the ceiling on dearness allowance. As far as the revision of pay scales are concerned, it is effected as follows:

Category Present scales Revised Scalesof pay of payRs. Rs.---------- ---------------- -----------------C-1 130-15-385 145-15-475C-2 175-18-481 190-18-550C-3 220-20-560 220-20-660C-4 260-22-634 260-22-788T-1 160-15-415 175-15-520T-2 200-18-506 218-18-614T-3 240-20-580 240-20-720T-4 310-22-684 310-22-838

It will be seen that as far as Categories C-3, C-4, T-3 and T-4 which are going to be affected immediately by the ceiling on dearness allowance, the Tribunal has revised only the maximum of the scale keeping the initial salary and the increments in tact. It has to be remembered in this connection that the ceiling on the rate of dearness allowance is to operate on salaries above Rs. 500/- and the revision of their maximum salary will give workmen benefit only when they reach the maximum at the fag-end of their service. But at that stage, they will also suffer a reduction in the dearness allowance which would have been available to them under the existing system. Thus what the Tribunal had done is to take away from one hand what it has given by the other and what is worse, what it has given is less than what the workmen would have got under the existing system with the existing pay scale. The benefits sought to be conferred on these workmen by the revised wage scale are thus not only illusory allowance viz. special allowance, social security allowance and ad-hoc already given to the subordinate staff in the head office and branch office under the settlement dated December 2, 1983. The service conditions of the subordinate staff and the service conditions of the workmen involved in the present reference, namely those belonging to C and T categories of monthly rated staff were always uniform and the parity between the service conditions of the two which was maintained throughout, was first disturbed by settlement effected in 1979 between the Company and the hourly rated subordinate staff working in the Sewree Factory of the Company. The second occasion on which it was disturbed was in 1983 by the Settlement referred to above. There was no good reason to deny the same to the present workmen. What is more interesting to note is that the Tribunal itself has observed in paragraph 115 of the impugned Award that all these allowances were granted in lieu of the increase in the basic wages to avoid proportionate rise in bonus and retirement benefits of the workmen. Thus the allowance are nothing but contrivances to avoid an increase in basic salary to which the workmen were entitled. The Company has in fact saved the burden of the other benefits which would otherwise be calculated on the basis of the increased basic wages. To the extent, therefore, that both the Tribunal and the learned Judge have taken these allowance also into consideration for imposing the ceiling on dearness allowance, they have indeed committed another error.

39. The learned Judge has then explained away the decision of the Supreme Court in Indian Hume Pipe Company Limited (supra) by observing that the wage structure or the workers in the Company was not a bare subsistence or a minimum wage and fell in a 'much higher category' and therefore, it was open to the Tribunal to impose the ceiling. The learned Judge has further observed that it is the entire wage packet, including the additional benefits given under the Award along with the fact that despite the imposition of the ceiling there was more than 100% neutralisation of the increase in the cost of living in the present case which distinguished the present case from the Indian Hume Pipe case (supra). We are afraid that it is not possible to support this reasoning. We have already pointed out above that there is no over-neutralisation under the existing system. We have also shown that the additional benefits granted to the workmen by way of revision of pay scales are illusory and the allowance concerned have in fact denied the workmen their legitimate dues. There is further no material to show that the workmen are earning more than the junior executives. What remains to be considering is whether the basic wages paid to the workmen are 'much higher' than the subsistence wage. In the first instance, no such contention seems to have been raised before the Tribunal. There is also no material on record to support this observation. In fact, with the material at our command it is difficult to hold that the basic wage paid to the workmen is so above the minimum or subsistence level as to deny the protection of its entire value against the rise in the cost of living. In any case, as has been observed by the Supreme Court in Indian Hume Pipe case (supra) :

'............this Court has, often times, emphasised the need for a living wage to workmen instead of subsisting wage. It is indeed a matter of concern and mortification that even today the aspiration of a living wage for workmen remain a mirage and a distant dream. Nothing short of a living wage can be a fair wage. It should be the combined effort of all concerned including the courts to extend to workmen a helping hand so that they get a living wage which would keep them to some extent at least free from want. It is against this background that a claim by employers to change the conditions of service of workmen to their detriment has to be considered and it is against this background that we have considered the award under review. We are not satisfied that case has been made out on the facts available, for a change.'

We have requoted these observations in this context to point out that assuming that there is material to show that the wages paid are much higher than the subsistence level, the are admittedly nowhere near the living wage. Hence all the reasons given by the learned Judge to justify the ceiling on the dearness allowance are insupportable both in law and on facts.

40. What is, with respect further forgotten both by the Tribunal and the learned Judge is that the existing system of dearness allowance was introduced by the Thakore Award on 1952 as a package deal. This is clear from paragraphs 62 to 64 of that award. The Company had offered new grades on the basis of the revised scale of dearness which it had offered, continuing. The Union had made counter proposals for basic wages also on the basis of the said scale of dearness allowance offered by the Company. The Tribunal accepted the Company's offer of wage scales since it came to the conclusion that if the scales were to be accepted they should be adopted as a whole. Thus the present dearness allowance system was the one which was offered by the Company as far back as in 1952 and was accepted by the Tribunal as a part of the package. Since then as pointed out elsewhere there has been little change in wage scales except the one introduced in 1974 by Chitale Award which was slightly modified in 1977 by the Bhojwani Award. This, therefore, is also a strong circumstance against replacing it.

41. It was contended that the workmen such as the present ones in the organised sector get wages out of proportion to those in unorganised sectors and particularly in the rural areas. There are also vast disparities in the incomes of the workmen in the organised sector itself depending upon the concerns they work in. The incomes of the workmen in concerns such as the present one are described as 'high island groups' and it was urged that in view of the low average earnings of the workmen all over the country high incomes to workmen of one or the other unit were not justified. This consideration should also weigh with the Court in upholding the ceiling on dearness allowance. The arguments ignores certain primary facts. In the first instance we are dealing here not with the basic wages but the dearness allowance which is meant to protect the basic wages. Even assuming that the basic wages paid are above the subsistence level, there is no data to show how much above they are and whether they are at the lower, middle or the higher level of the fair wage. The level of the basic wage at which the ceiling is sought to be fixed, viz. Rs. 500/- can hardly be described as high. The consideration may become relevant while revising the basic wage structure, if it is shown that the proposed structure is quite out of proportion with the general level of income. Secondly, in the absence of a national income policy, it is neither proper nor practicable for the Courts to curb incomes only in one or the other establishment. It should not be forgotten that wage and salary earners do not form a major section of the society nor do wages and salaries form a major portion of the national income. So long as therefore the other incomes are not controlled or disciplined there is no justification for controlling only the wages and salaries. Thirdly, the moneys saved by a concern on account of the denial to its workmen the higher wage packet due to him, do not flow to any national fund for levelling up the incomes of the lower income groups elsewhere. They only add up to the coffers of the employer. The acceptance of the contention therefore does not serve its underlying purpose, assuming that is its purpose.

In this connection it is necessary to remind that the Forth Pay Commission has accepted the need to protect the real incomes of the employees and has recommended 100% neutralization upto the basic pay of as high as Rs. 3,500/- per month, 75% neutralization to those between Rs. 3,501/- and Rs. 6000/- and 65% to those drawing salaries above Rs. 6,000/-. This was in June, 1986 and these recommendations have been implemented as pointed out earlier. The High Power Pay Committee, as stated earlier, has endorsed the said recommendations and has in terms observed that there is no justification for asking only the wage and salary earners to make sacrifices and that if equality of sacrifice is to be enforced for larger society purpose, there are other more rational ways of enforcing it than through the medium of inflation.

42. To sum up the present dearness allowance system, as shown above, does not result in over-neutralisation of the cost of living index at any level of the income group. It maintains a taperings scale though not a steeply declining one. The system also does not result in distortion of total incomes either of the workmen inter se or between the workmen and their superiors, namely, the executive staff. The Company does not plead any financial inability. The industry-cum-region formula does not warrant its replacement. There are no other compelling reasons why the existing system which is beneficial to the workmen should be replaced by the new one which is less beneficial to the them and which would result in steep decline in their incomes they would otherwise gain. It is well recognised principle of industrial adjudication that the Courts, Wage Bodies and the Industrial Adjudicators should not tinker with the existing benefit available to the workmen unless it becomes unavoidable and obligatory to do so. The Company has failed to make out any such case.

43. This takes us to the other disputes between the parties. The workmen had demand automatic promotions and stagnation increments on the ground that the pay scales in the company were such as stagnated employees for a number of years, after reaching the maximum of their scale. The demand of the workmen being Demand No. 24 in that behalf was as follows :

'(a) Each employee should have at least two automatic promotions after reaching maximum of his grade; and

(b) All the vacancies in the factory should be filled by promoting workmen from the workmen concerned on seniority basis.'

The Tribunal has granted automatic promotion on the ground that this benefit existed in the Company in the past but it was done away with at the time of the settlement in 1961 whereunder the scales of pay were merged and extended. The Tribunal has further held that a long time had elapsed since then and since in some other companies such as PHILIPS, JOHN WYETH, there was a practice of giving automatic promotions, the demand was justified in the present case also. The Tribunal has further held that the span of wage scales revised by the impugned Award was about 22 years and many employees would get at least one promotion in the course of their services. There would thus be very few employees who would reach the maximum of the pay scale and yet would not get any promotion. Hence such employees deserved one automatic promotion in the higher grade. The Tribunal has, therefore, granted the demand for one automatic promotion on reaching the maximum of scale only if the employee has not received any promotion in the course of his service. The Tribunal has further held that since the demand for automatic promotion was accepted by it, there was no justification for a demand for stagnation increment, the supporting reasons for which were the same.

The learned Judge has reserved the finding of the Tribunal and has held that the automatic promotion was not justified since it would undermine merit and lead to frustration amongst the meritorious workers. The learned Judge has, however, held that instead of automatic promotion what was justified was the stagnation increment, since grant of such increment did not suffer from the vice suffered by automatic promotion. Since the demand was made only on behalf of these from the head office specifically, by consent of the Company, the learned Judge has granted stagnation increment both to the workers from the head office as well as from the factory as per the demand quoted above.

While the Unions have made a grievance against the setting aside of the Tribunal's Award granted automatic promotion, the Company has made a grievance against the grant of stagnation increment. We are not inclined to interfere with the order of the learned Single Judge in that behalf for the following reasons. It is true that the practice of granting automatic promotion was prevalent in the Company prior to 1961 and it is also prevalent in some other concerns at present. We do not have enough material before is to know in what circumstances such promotion is granted in the other concerns. Besides, the practice was stopped under a settlement in 1961 because the pay scales were merged and also extended. It therefore appears to be a package deal. Secondly, on principle we can hardly find fault with the reasoning of the learned Judge. Promotions are normally granted on the basis of the performance. Automatic promotion would therefore undermine the very raison deter of promotion. There will be hardly any incentive left to put in good performance if the promotion are taken for granted, whatever the nature of the performance. Instead, what was in the circumstance necessary was a monetary compensation in the nature of increments which the learned Judge has rightly granted. The Company has made a grievance against it only because the workmen have challenged the rejection of their demand for automatic promotion. Even new pay scale which are granted by the Tribunal do not cover more than 22 years of the employee's service. Unless therefore, a workman is promoted to a higher grade in the meanwhile he is bound to stagnate for a number of years after reaching the maximum. This will undoubtedly have an unhealthy effect on his further performance. To remain at the same salary packet for a number of years, particularly at the advanced stage in life, when family commitments also increase, is not conducive to the good performance of the workman. It is, therefore, both in the interests of the welfare of the workmen as well as in the larger interests of the Company that some additional incentive in the form of stagnation increments is granted to the workmen. We, therefore, find no justification in the grievance of the Company in that behalf. Hence we maintain the order of the learned Single Judge rejecting the demand for automatic promotion and granting the demand of stagnation increment.

44. The other demand which is confined to the workmen working in the head officer is for housing loan. Both the Tribunal and the learned Judge have rejected this demand. The demand being demand No. 15 is as follows :

'The Company shall grant loan for the purchase of dwelling place to all needy employees upto a maximum of 30 months gross salary at 3% interest. The terms and conditions of this loan shall be the same as applicable to the management staff.'

The demand is sought to be justified on the ground that there was a paucity of housing accommodation and the prices of accommodation have been soaring out of proportion and that the loan facility was available to the management personal. The company opposed this demand on the ground that the service conditions of management personal cannot be taken into consideration while fixing the service conditions of the workmen. The Company also pointed out that even for the workmen involved in the reference, at present there is a facility of housing loan equal to the amount of gratuity of their credit.

Before us the workers have modified their demand. They state that they would be satisfied if the loan advanced to them for the purpose is equal to the gratuity on the modified scale which is admittedly more than the gratuity which was available to them when the earlier agreement with the Sabha, (i.e. one of the Unions involved), was entered into with regard to the housing loan. The Company tried to contend that when that agreement was entered into, it was so done because the gratuity amount at that time was less than what is payable today. We are unable to understand this argument, which can only be described as cussed. The loan amount is linked to the gratuity for an obvious reason. In any case, a workman would be entitled to gratuity on his retirement as a matter of right if he is otherwise not disqualified. The disqualification further extends only upto the amount of the loss caused to the employer. Hence what would be payable to him at the end of his service can be paid to the workman in advance as a loan with interest. If this facility is available today upto the amount equivalent to the gratuity on the old scale there is no reason why it should not be extended to cover the increased amount. Hence we set aside the Award as well as the order of the learned Judge, in so far as they have rejected the said demand and direct the Company to give housing loan to the workmen (in the head office whose behalf alone the demand is raised) equivalent to the gratuity payable to the workmen on the present scale or on he scale on which it may become payable from time to time on the same conditions on which it is given under the existing agreement.

45. That leaves us with the Company's appeal. On behalf of the Company two grievances were urged before us against the decision of the learned Judge. The first related to the allowances, viz, the social security allowance, the special allowance and the ad hoc allowance granted by the Tribunal and confirmed by the learned Judge. We have already discussed them in the context of the dearness allowance and have pointed out, as indeed the Tribunal has also done, that the workmen were entitled to them even otherwise since they were granted to the subordinate staff under the settlement of December 2, 1983. The service conditions of the subordinate staff and the workmen involved in the reference have always been uniform. The parity between them was disturbed for no reason in 1979 and 1983, and all that the Tribunal has done, by awarding the said allowances is to resote it. The more important aspect of these allowance is that they were granted in lie of the increase in the basic wages to save the financial burden on the Company resulting from the computation of other benefits on the basis of the basic wage, had an equivalent addition been made to the basic wages. The Company could not dispute this position. We are, therefore, unable to appreciate the resistance of the Company to these allowances.

46. The next grievance of the Company is against the revision of the wage scales. The contention is that in view of the existing total wage packet, when in fact there was a need for a ceiling on dearness allowance, the revision of the wage structure was unjustified. It was also submitted that the tribunal had not granted the entire demand of the company in respect of the dearness allowance. The Tribunal had conceded the demand only partially. It was further submitted that in any case the tribunal had granted the revision in wages because it had placed the ceiling on the rate of dearness allowance payable to workmen drawing basic salary above Rs. 500/- a month. If the ceiling introduced by the Tribunal is to be done away with at the instance of the workmen, there is no justification for retaining the revised wages. That would place the Company in a double jeopardy in that while it will lose whatever advantage it has gained due to the introduction of the ceiling on dearness allowance, the revised wage structure would entail further burden on it, under the existing system of dearness allowance.

47. We have already pointed out earlier the nature of the revision in pay scales granted by the Tribunal. The wage scales were first revised in 1974 by the Chitale Award. They were slightly revised in 1977 by the Bhojwani Award by increasing the maximum of the scale of each of the category. As the Tribunal has itself observed since 1977 the cost of living index had increase more than double from 1400 to 2900 in December, 1985 which is the date of the award. According to the Tribunal, the workmen were, therefore, justified in claiming the revision. The Tribunal has also then added as follows :

'Apart from that, I have fixed the ceiling on dearness allowance. As such also it is necessary to revise the basic wages payable to the workmen. The basic wages payable to workmen in TOMCO are more at least at the maximum and, it is, therefore, necessary to increase the maximum basic wage scale in each category of workmen.'

The Tribunal has given a third reason for increasing the basic wages in the same paragraph 53 of the award, when it has observed that besides the aforesaid two reasons, at least in some categories of hourly rated workmen, the Company had increased their basic wages either at the minimum or at the maximum level. The Tribunal has then gone on to observes as follows:

'I therefore, find that it would be just to increase the minimum wages of C-1, C-2 and T-1, T-2 by one increment. As the ceiling on dearness allowance is imposed at the basic salary of Rs. 500/-, any increase in basic wages above Rs. 500/- would not be saddled with a further increase in the dearness allowance. Considering all these facts. I revise the wage scales as follows.'

We have already held above that there is no case made out for changing the existing system of dearness allowance and if, therefore, the existing system of dearness allowance is to continue then it is not disputed that the revised wage scales would further add proportionately to the wage packets of all the workmen.

48. We have commented upon the approach of the Tribunal and the learned Judge by observing that to the extent that they have mixed-up the considerations for increasing the wage scale with those for fixing the dearness allowance, they have committed on error apparent on the face of the record. It cannot also be gainsaid that one of the main considerations, which has weighed with the Tribunal, while introducing the revised pay-scale is that it was introducing the ceiling on dearness allowance, for those earning salary above Rs. 500/- per month. In fact, as pointed out earlier what the Tribunal has done is to give by way of some increase in the maximum of the pay scale, particularly to those in category C-3, C-4 and T-3 and T-4, what it has taken away from them by reduction in dearness allowance. Thus both the revision of salary and introduction of the new dearness allowance system are interlinked. Since we are setting aside the award with regard to the dearness allowance and directing the continuation of the existing dearness allowance system, it is only fair that we remand the matter to the Tribunal to consider the case for revision of wage scales afresh independently and irrespective of the change in the dearness allowance system which was proposed by it. We are aware that this would involve prolongation of the litigation between the parties. But in the circumstance it is unavoidable. We, therefore, set aside the award with regard to the revision of wage scales and remand the demand of the workman for the revision of wage scales to the tribunal for fresh consideration in the light of what we have stated hereinabove.

49. Hence the following order :

All the appeals are partly allowed.

The impugned order of the learned Judge and the Award of the Tribunal relating to the dearness allowance is set aside and the existing system of dearness allowance is directed to be continued.

The impugned order of the learned Judge and the Award of the Tribunal relating to the housing loan is set aside and the company is directed to advance housing loan to the concerned workmen as stated hereinabove.

The impugned order of the learned Judge and the Award of the Tribunal relating to the revision of pay scales is set aside and the demand for the revision of wage scales is remanded to the Tribunal for fresh hearing and disposal according to law in the light of what is stated hereinabove. In view of the fact that the dispute between the parties has been pending for a long time, the Tribunal should try to dispose of the matter as expeditiously as possible.

In the circumstances, there will be no order as to costs.

The operation as to this order is stayed for a period of four weeks.

50. We cannot part with this matter without placing on record our sincere thanks to the Counsel on both sides who helped us in deciding the matter by conducting it more in the spirit of enquiry than as contending parties.