MANAGEMENT OF SHRI CHALTHAN VIBHAG KHAN UDYOG SAHAKARI MANDALI LTD. ETC . v. B. S. BAROT MEMBER, INDUSTRIAL COURT, GUJARAT, AND ANR. ETC (2)

Citation: [1980] 1 S.C.R. 509

Court: Supreme Court of India

Bench: S. MURTAZA FAZAL ALI, P.S. KAILASAM, A.P. SEN

Case summary

7 relates to claim for payment of retaining allowance for the uf! "(1) The impugned award is hereby quashe~ and set aside.

Judgment text

509 MANAGEMENT OF SHRI CHALTHAN VIBHAG ~HAN A . UDYOG SAHAKA"RI MANDALI LTD. ETC. ~. B. S. BAROT MEMBER, INDUSTRIAL COURT, GUJARAT, AND ANR. ETC. B September 4, 1979 [S. MURTAZA FAZAL ALI, P. S. KAILASAM AND A. P. SEN, JJ. ] LAbour law-Dearnes. s allowance to workers-Its nature-If could be given at 125% of incroose in the. cost of living-Depreciation, if should be a fir! t charg~ in arriving at . the capacity of the industry to pay wages. c The respondent workmen who were employees of Sugar mills in the State of Gujarat demanded grant of dearness allowance, among certain other benefits, mitigate the hardship of unemployment during the off season. [517A-B} 2. (a) Section 66(1) of the Gujarat Cooperative Societies Act lll61 requires . that taxes and depreciation should be deducted from gross profits for arriving 'at net profit. -That does not mean that wages and dearness allowance • could only be determined after the net profits are arrived at.

The sub-sectioa itself provides that contributions. towards provident fund and gratuity even of its employees should all'be deducted from the gross profits for arriving at the net profits. The provisibn for deducting depreciation occurs after providing • for contn"bution towards provident fund and gratuity. The determination of the net profits under the section is for different purpose, namely, for appro~ c prlation of the net profit as provided for in the Act and does not in any way support too contention of the appell! tnt. [518E-F1 (b) It is settled law that in fixing fatr wages or dearileliS allowance or for making contribution to provident fund or providing for gratuity the financial capacity of the industry to bea'r the additional burden will have to be takea into account On principle of social justice with the development of industrial D law it bas now been accepted that when the industry can bear the burden, provision should be made for provident fund and gratuity schemes.

In determining the financial capacity of an industry all relevant facts will have to be taken into account. The principles followed in arriving at . the profit and loss account for income-tax and other purposes may. not be conclusive. The claim of the employer to a reasonable profit, that of the shareholders for a fair divi- E dend the interest of consumer and other re~vant factors and circumstances will have to be taken into account. It is necessary to take into account all the facts and circumstances relating to the industry for determining the financiPl capacity of the industry to pay. [519D-Gl . A. hmedizbad Mill! Owneri Auociation etc. v, The Textile Labour . A. ssocill~ lion, [1966] 1 S. C. R 382, Gramophone Company Ltd. v. lt! Workmen, [1964] z LL. J. 131, Indian Link Chain Manufacturers Ud. v. Their Workmen, [1972] 1 F S. C. R. 790 and Bharatkhand Textile Mfg. Co. Ltd. and Ors. v. The Textile Lab011r Association, Ahmedabad, [1960] 3 S. C. R. 329; followed.

(c) The facts that have to be taken into account in determining an overall picture of the financial capacity are the financial condition of the employer his profit making capacity, the profits earned by him in the past. extent of the reserves and the chiances of his replenishing them as welt' as the claim for capital G invested by him. [521F-G] Hindustan Antibiotics Ltd. v. The Workmen and Ors. , [1961}1 S. C. R. 652. referred to. · (d) An employer claiming depreciation allowance is only entitled to ~e 1 • actoal or probable depreciation of the machinery etc. for the period ·due to D wear and tear. '! "he depr'eciation Cannot be computed on an acturial basis or on the ·profit and loss account i'urnisbed by the company. In the instant ca~e~, the accotintin& was for the PUI'pOie of min. i. mising· the profits to deprive the CHALTHAN VIBHAG v. INDUSTRIAL COURT (Kailasam, J. ) 511 workers their due. Such depreciation cannot be allowed.

If the inflated figures are left out of account the industy has/ the capacity to bear the additional burden. [524A-B, E]. (e) Even though the wage! were fixed on industry-cum-region basis it is open to industry to plead that it has not the financial capacity to bear the increased burden. When such a plea is specifically raised, it is the duty of the industrial court to determine whether the increased bnrd~n could be borne by B the particular industry. [525 F-G] · CiyiL ApPELLATE JURISDICTION: Civil Appeal No. 146/78. Appeal by Special Leave from the Award dated 22-2-77 of the . Industrial Court, Gujarat in Ref. lC. No. 53/75. c . 4. ND CIVIL APPEAL NOS. 322-324 OF 1979. Appeals. by special leave from the Order dated 18-10-1978 of the Gujarat High Court in SCA No. 1036/77. AND SPECIAL LEAVE PETITION (CIVIL) NO. 2939/79. From the Judgment and Order dated 30-1-1979 of the Gujarat High Co~rt in SCA No. 311/78. Dr. Anand Prakash, Lwcmi Anand Prakash, A run B. Desai and E H. K.

Puri for the Appellant in CA 146/78 and 323/79. F. S. Nariman, H. K. Puri, Anm B. Desai and Mrs. Laxmi Anand for the Appellants'in CA 322/79. · A. K. Sen, Arm~ B, pes(li, V. K. Behl, H. K. Puri and Mrs. Laxmi Anand for the Appellant in CA 324/79. F M. K. Ramamurthy and, Promod~ Swarup for the Respondents in C. A. 146/78 and C. A. 322/79. S. S. Khanduja and Miss Kusum Chowdhry for the Respondent in GA. 146/78 and 323-324/79.. G J. G. Shah (CA 322) M. K. Ramamurthi (SLP. 2939 and' CA ~22) and A. K. Srjvastava and Vineet Kumar for the Respondents in C. A. 322 and for the Petitioner in -5LP. 2939/79. The Judgment of the Court was delivered by l KAILASAM, J.. AJl. these appeals and special leave petition are by n t~e management of five cooperative sugar factories in Gujarat State. . The demand of the workmen of the factories in Gujarat was for pay-; . [ ', .. ·. ' . ' ~; . - 4 512 SUPREME COURT REPORTS {1980] 1S. C. R, / · A ment of the U. P.

Government 1-evised scales for sugar factories in U. P. regarding pay, dearness allowance and other benefits. The second Wage Board for the sugar industry gave its report in 1970. The Wage Board's report was due to expire on 31st October, 1974. The Government of U. P: on 31st October, 1974, issued the B U. P. Pattern Scales of Wages and Dearness Allowance for workmen employed in all sugar. factories working by vacuum Pan Manufacturing . Process. The Labour Minister gave the award and as a result of that award, an order was passed under section 3 sub-clause (b) of the U. P. Industrial Disputes Act, 1947. This order relating to U. P. Pattern of Pay, Graduated Dearness Allowance, Variable Dearness ~ Allowance came into force from 31st October, 1974 and effect was to be given to these pay-scales and dearness allowance from 1st October, 1974. As the sugar factories were seasonal factories a retention .

anowance for unskilled seasonal workmen for off-season at the rate of 10% of the basic wage and dearness allowance payable during the crushing year 1974-75 was also provided for. The demand put for- D ward by the workmen in all these appeals is for p~yment according to · the U. P. Pattern. The Industrial Court, Gujarat, -increased the graduated dearness allowance of the unskilled employees from Rs. 21 to Rs. 40. But this increase was not given at one stage but was spread ' over in three stages, the first stage being from 1st July, 1976 to 30th June, 1977~ the second stage being from 1st July, 1977 tp 30th June, 1978 and the third stage being from 1st July, 1978 to 30thJune, 1979 and onwards. The increased graduated dearness allowance for the first period would be Rs.. 32 per month; for the second period Rs. 36 per month and for the third period Rs. 40 per month. The existing basic wage for the unskilled employee is Rs. 110. The variable dearness allowance of Rs.

151 per month is being paid and the Court found that there was no dispute as raised in demand No. 2(c). Regarding variable dearness allowance demand Nos. 3, 4 and . 5 the Court revised the rates from 83 paise per point on the rise over 301 points of All India Average Consumer Price Index Number for Industrial Workers (Base G 1960=100) at Re. 1. 00 per point for skilled B operatives and for . clerks drawing upto Rs. 150 per month as aske'd for in demand 5 (i) (b) and from Re. 0. 95 toRe~ 1. 12 for All India Aver. age Consumer Price Index for other employees as per demand No. 5(i)(d). This increase was also spread over for a 'period of three years i. e. 7 paise 8 for the first period from 1st July, 1976 to 30th June, 1977; 5 paise for the second period from 1st July, 1977 to 30th June, 1978; and 5 paise for the third period f,rom ;1st July, 1978 to 30th June, 1979 and 1 CHALTHAN VffiHAG V. INDUSTRIAL COURT (Kailasam, J. ) 513 A: onwards. Regarding demand No.

7 relating to retaining allowance to be paid to the unskilled seasonal employees at the rate of ·10 per cent of the basic wage and dearness allowance payable during the crushing season 1974-75 and for subsequent years, the Court found that the demand was justified. The Court gave a retention allowance of 10%, as demanded, of the basic wage and dearness allowance payable B during the crushing season 1974-75 and also for the three subsequent years. On appeal the High Court passed an order on 18th October, 1978 as follows stating that reasons will be given later. "(1) The impugned award is hereby quashe~ and set aside. C (2) There is no justification for the phasing awarded by the Industrial Court and hence, the phasing is quashed . and set aside. (3) X X X (4) X X X X ( 5) The respective cooperative sugar societies will pay the costs of the other side. Costs quantified at Rs. 300/- in each matter. . RuJe is made absolute accordingly/in Special Civil Applications Nos.

1136 of 1977, 1148 of 1977, 602 of 1978 and 311 of E 1978, Special Civil Applications Nos. 1036 of 1977 . and 1505 of 1977 are dismissed. " By this order the Court quashed the award and set it aside. It also found that there was no justification for phasing as awarded by the Industrbl Court and therefore quashed it and set it aside. It confirmed with retrospective effect the award as given by the Industrial Court. The High Court also directed that U. P. Pattern will be given j_ full effect with retrospective effect from the da~e mentioned in the award. The reasons were given by the High Court by its judgment dated 30th January, 1979. G The judgment of the High Court is ·assaile : (3) [1964]1 s. c:R. 234. (4) [1967] 2 S. C. R. 463. (5) A. J. R. 1969 S. C. 36(), *Emphasis Supplied (6) [1973] l S. C. R. 277. . ~ 516 SUPREME COURT REPORTS [1980] 1 S. C. R. A 1 AUied Companies Employees Union( ) this Court after approvii!

g the propositions laid down in Bengal Chemical case (supra) proceeded to state at p. 467 : "There is, however, one thing which we must point out . , lest there should be some misqonception about it and that is that s. o far as the lowest paid emplo~s at or just above the subsistence level are concerned, they . are_ entitled to 100% or at any rate not less than ••95% neutralisation of the rise in the cost of living and hence there should be no ceiling on dearness allowance payable to employees within the slab of first Rs. 100, unless it can be shown by the. management that the rate of neutralisation in their case is more than . 100 per cent. Th~ decision is authority for the proposition that the rate of neutralisa· tion cannot be more th~n 100% even in the case of lowest paid empla. c y~s. The proposition laid down in the decision cited above were reiterated and followed in Shivraj Fine Art Litho Works v. State Industrial Court, Nagpur & Ors.

(') The law is thus clear that dearness allowance is intended to neut- D ralise a, portion of the increase in the cOst of living. Though 100% neutralisation is not advisable as it will lead to inflation, full neutralisa· tion may be permissible only in the case of theJ lowest class of employees. The management is entitled to complain if the n~utralisation is more · than 100%-. E The purpose of grant of dearness allowance is to neutralise the increase in the cost of living due to rise in prices. Neutralisation may be such as to neutralise fully the increase in cost of living or may be restricted to neutralise only a portion of the increase. Full or cent per cent neutralisation ca'n be achieved if the increase in the cost of living is fully compensated so that the pay of the worker is not adversely F affected. But ail award of more than 100% of an increase in the cost of living would be more than neutralisation and would in effect · • gives the· worker an increased wage.

The result would be the worker would be getting an increased wage packet whenever there is a prire rise a result which would not have been envisaged in making provision ·for grant of dearness allowance. Mr. M. K. Ramamurthi learned counsel for the respondents submit· ted that the permissible limit of 100% neutralisation is not applicable to cases where persons are seasonally employed. The learned counSel pointed out that the sugar industry does not function for the whole year and for months it is closed and the workers are left without employ- ( B ment during the off.. ,season. In order to give some relief to such sea~ (l) [1975] Supp. S. C. R. 453. (2) . [19781 3 S. C. R. 411. ~: :J . , '~- ~- :~: . • CHALTHAN VIBHAG V. INDUSTRIAL COURT (Kaifasam, J. ) 517 A. sonal workers he submitted, that the award of ~qualisation of more than 100% is ·justified. TI). is plea ca1,1not be accepted for the award of equalisation of more than 100% in these cases is not based on seasonal employment.

To mitigate the hardship of u'nemployment during the off-season a retention allowance bas been provid·~d for the seasonal workers. The plea that the neutralisation of more than 100% is based B on seasonal employment was not taken_ in the pleadings or raised before the courts below. Demand No. 7 relates to claim for payment of retaining allowance for the uf! sk. illed seasonal employees in the off-season at 'the rate of 10% of their basic wage and dearness allowance payable during the c crushing season 1974-75. The Industrial Court as regards demand No. 7 directed that the unskin~d seasonal employees be paid retaining allowance for the season 1975 at the rate of 10% of the basic wag~ atid dearness allowance payable during the crushing season 1974-75. The claim regarding the variabl·~ dearness allowance is demand No. 2(c) and 5(1) (a) (b) . There is no reference: in the proceedings before the D. Industrial Court or the High Court that the variable Societies Act, 1961, Act X of 1962.

Seetion 66(1) runs as .. ~· follows :- "A society earning profit, shall calculate its annual net profits by deducting from the gross profits for the year, all accrued interest·which is overdue for more than six months, B establishment charges, contributions, if any, towards the provident-fund and gratuity fund of its emplo~s, interest payable on loan and deposits, audit fees, working expe'nses including repairs, rents, taxes and depreciation, and after providing for or writing off bad debts and loss. ;:s not adjusted against any fund created out of profits. A society may, however, c add to the net profits for the year, interest accrued in lhe pre~ ,•': cedi'ng years, but actually recoveree during the yeat The ,. net profits thus arrived at, together with the amount of profits ~rought forward from the previous year shall be available for appropriation. " Relying .

on the provisions of the section which requires that taxes D and depreciation should be deducted from gross profits for arriving at net profits, it was submitted that in determining the financial capacity of the industry the 'net profits as prescribed in the section would have to be determined. We do not read the section as meaning that wages and dearness allowance could only be determined after the net profits , E are arrived at The sub-section itself provides that eontributions towards provident fund and gratuity fund of its employees should all be deducted from the gross profits for arriving at the net profits. The provi- -::sion for de f the company's claim for depreciation and development rebate and the same be allowed as p:;r income-tax assessment The Court allowed depreciation allowance and development rebate. In determining the financial position of the company the court obsefVt:;d that it would c not be appropriate to approach its capacity to bear the burden from .

-;3D investors point of view. The over-all picture of the soundness of the undertaking and its future prospects must be taken into account. * The Court adopted the principles laid down in the Bharatkha. nd Textile Mfg. Co. Ltd. & Ors. v. The Textile Labour Association, Ahmeda- D fJad(") which are as follows:- "It is not disputed that the benefit of gratuity is in the nature of retiral benefit ahd there can be no doubt that before framing a scheme for gratuity industrial adjudication has to take into a~ount several relevant facts; the fina. '1Cial condition oj the employer, his profit making capacity, the p;o{it3 earned E by him in the past, the extent of his reserves and the chances of his replenishing them as well as the claim for capital invested by him, these aYul other malfrial considerations may have to be borne in mind in determining the terms of the gratuity scheme. " (Emphasis supplied). FJ Thus the facts that have to be taken into account in determining an overall picture of.

the financial capacity are the financial condition of tbe employer his profit making capaCity the profits earned by him in ·the past, the extent of his reserves and the chances of his replenishing 'them as well as the claim for capital invested by him. After referring to the dec1sion in the Hindustan Antibiotics Ltd. v. The Workmen &: G 8 Ors. , ( ) at p. 809 the Court made the following observations :- "It is pertinent to notice that gratuity and wages in industrial adjudication are plac'ed on the same footing and have priority over Income-tax and other reserves, as such in consi- (1) [1972] I S. C. R. 790. H "'(Emphasis supplied) (2) [1960] 3 S. C. R. 329. (3) [1967] 1 S. C. R. 652. / :~ : 522 SUPREME COURT REPORTS {1980] 1 S. C. R. A dering the financial soudness of a'n undertaking for the purposes of. introduction of a gratuity scheme the profits that must be taken into account are those . comp1:1ted prior to the ·deduction_of depreciation and other reserves.

" As already pointed out in Gramophone Company's case there is no B reference to deduction of depreciation. In the case under consideration i. e. Indz'an Lin~ Chain Ltd. , the Court at p. 807 allowed the claim of the company for a deduction on accoun,t of depreciation and development rebate at Rs. 1,61,054 and Rs. 5,822 instead of Rs. 80,190 and Rs. 3,970. On the facts of the case it is found that the industry was in a position to bear the burden. c In Unichem Laboratories Ltd. v. The Workmen(') it was found that the average gross profits of the company exceeded Rs. 40 lakhs and the additional financ;;ial burden by the revision of the wage structure was 1b. 5. 55 lakhs. On the facts the court held that the Tribunal was justified i. il computing gross profits without deducting tax, de- D preciation and development rebate. The court accepted the plea oa behalf of lb-e company that the decision in Gramophone Company Ltd.

had no occasion to consider who~ther: depreciation reserve ean be deducted or not. Scr_utinising the figures given at p. 581 of the Reports the Court E . found that the average net profit worked out toRs. 13,84,691. 00. The depreciation that was claimed was Rs. 5,44,918 for 1965-66, Rs. 5,55,035 lor 1966-67, Rs. 7,84,824 for 1967-68, Rs. 11,11,775 for 1968-69 and Rs. 9,16,719 for 1969-70. On the facts the Court found that the company had the financial capacity. The inclusion or exclusion o~ the depreciation allowance would not have made any difference ~F to the capacity of the industry to bear the additional burden. The decisio'n may not be understood as laying d9wn a principle of law that iti no case the depreciation could be taken into account. It may be remembered that in Bharatkhand Textile Mfg. Co. Ltd.

- (s-upra) the guidelines that were indicated were that in determining the G capacity to pay by the industry the financial condition of the employer, his profit making capacity, the profits earned by him in the past, the extent of his reserves and the. chances of his replenishing them as well as the claim for capital invested by him*. these and other material consideration'S may have to be borne in mind. Thus the extent of the reserves the chances of replenishing them as well as the claim for capital . H (1) [19721 3 s. c. R. 567. ' •(Emphasis supplied) cl! ALTHAN VIBHAG V. TNDUSTRfAL COURT (Kai/asam, f. ) SZJ invested by him and as observed in Ahmedab~d i\. 1illowners' Association v. Textile Workers,(') will have to be taken into account.

The position of the industry shoul~ be ex~ned in detnit and the decision should be based on a ~road VIew which emerges from a consideration of all relevant factors such as whether the employcr can reasonably be called upon to bear the burden and wlwther the additional burden imposed on the consumer is justified wo~ld also have to be carefully examined. As pointed out in the Ahmedabad Millowners Association cac;e (supra) "It is a long-range plan and in dealing with the problem, which is difficult and ddicatc the financial position of the employer and ~· the future prospects of the indu~try and the additional burden which may be imposed on the consumer must be carcfuay examined. " c It may be that for prudent management of an industry it will be d-esirable to take into account to some extent the depreciation of the. machinery for otherwise aft~r lapse o[ years the machinery may get worn out and without provision for replacement the industry itself will come to a stop.

Whether provision for such depreciation should be made D and if so to what extent wi! l depend upon the facts of the case. Depreciation allowance to the extent of mak. i'ng out a loss need not be accepted btlt reasonable provision should be made. The three decisions of this Court referred to were giv~n on the particular facts of the case ·and may not be unJcrstootl as laying down that under no circull15tanccs E deduction for depreciation, reserves etc. cou! J be made. It is of utmost importance that t~ industry must be kept going as long as it could pay the minimum wages. · It may sometimes be necessary for the worker! to make some sacrifice to keep the induo;try going. It is not wise to . i kil! the ~oo5e that lays the golden eggs. The c:~pacity of the industry l to beur the burden will have to be taken into account in determining F " . whether provision couiJ be nwd1. 1 for . fixing a wage struct\Ire including . provision for contribution to provident fund, gmtuity etc. In d.

:t>~rmi? tng the Cap~Icity of the industry to bear the burden all relcv:mt facts Wlll have to be taken into account and actual state of atTain> d. :tcnnincd. ~c proced\11";! adopted by the industry to ddcrmine the financial capa- City for o1h~r purposes may not be rekvant. It cnnnot be taken as a G hard ti'nd fast rule th:~t provision for depreciation, provision f? r development rebate, tax liabilities should nc\-::r be allowed. While the preservation of the industry is paramount the attempts of the management 1 ? show that the company is running at a loss by boosting the dcpreciat~IJn allowanc~ etc. should not be permitted. In short the real capall City of the industry to bear the extra burdcn will have to be dcte~ined. (I) (l%5} t•S. C. R. 382. ---· SUPREME COURT REPORTS 524 l1980]I s. c. R. A An employer claiming depreciation allow~nce is only cntitt·~d to the actual or probable depreciation of the m~c~mery, tools etc. for the J period due to wear and tear.

The d•::precJatJon cannot be compirted . , on any. notional basis or o'n the profit and loss account furnished by the company. In the cases before use the mana~ement has claimed by way of depreciation the cost of purchase of m~chinery for e~pansion j . B ... of the manufacturing plant. In the matter relatmg to Chalthan Sugar Mill:; in the profit and loss account for the year ending June 30, 197S Rs. 1,07,56,523 is claimed by way of depreciation at the end of the year. The balan~ brought forward on this account from the pn. ·vious year is Rs. 79,11,066. During the year, an amount of Rs. 28,45,457 is added. In the profit and loss account for the year ending June 30, c 1976 the depreciation fund increased from Rs. 1,07,56,523 toRs. 1,30,24,742. In the profit and loss account for the year ending" June 30, 1977 an amount of Rs. 22,97,553 is added to the dcprcci;~ tion fund. The figures furnished by the other sugar factories follow ;.. the same pattern.

During the course of argum~nts the appellants ad- 0 mitted that the amount shown as depreciation actually represented th~ cost of purchase of new machinery and balance for expansion of the manufacturing units. These amounts relate to expansion of the industry and should be fihown in the capital account and cannot be claimed as deduction due to depreciation. Tho.! accounting of the sugar factories concerned is for the purpose of minimising the profits and show- E ing loss for the purpose of depriving the workers their due. Such depreciation cannot be allowed. But as pointed out by us the actual depreciation which should be deducted in the interest of the industry can 9e taken into account. In the 'case~ before us if the inflated figures \. should be left out of account we feel that the ·industry has the capacity . ,.. J. to bear the additional burden. · The High Court after referring to the decisions of this Court in Gramophone Co.

and Indian Link Chain Manufacturers and the Shiv· raj Lit! w Work. r (supra)· came to the conclusion that gross profits before allowance is made for depreciation has to be taken into account fo. r the purpose of considering the paying capacity o( the industry. The G 11 HJgh CotJrt added the amount of depreciation to the net profits ns sho"' . , In the balance 6h. eet and found that Iars.! profits were available ns gross I ~rolit~. . The HJgh C~urt was of the view that the position of the. fureC factoncs In South GuJarat, namely Gandcvi Bardoli nod Madhi IS not at all gloomy so fa th · fi • ' d 'fhe .... ,. . r as e1r mancJal prospects are coocerne · 1 (. ' tF Court found that though the price of sugarcane was fi. :ted fot n cldJvery nt the factory, it has pa. id the price to the growers ex-sugarcan. e fi·. : , thus bearing the h f . ~..... nng 1t t th f . c arges or cutt1'ng sugarcane and. for Caur. ·d 0 e actory prenuses from the field. This payment was unjustJn~ CHALTHAN VIBI-IAG V.

INDUSTRIAL COURT (Kailasam, J. ) 525 and was intended fo~ the b:ncfi. t ~f ~he members of the cooperative society and resulted m showtng of a Paper Loss'. We arc unable to agree with the conclusion of the High Court that thjs payment is unjustified and is for the purpose ~f benefiting its own members. It is subnitted on behalf of the factones that the sugar factories pay an extra amount to the growers to induce them to cultivate sugarcane for a B profit and thereby preventing them from cultivating other crops and reducing the area under sugarcane cultivation,. The finding of the High ~ourt that this extra payment is to benefit the members of the society itself is also not borne out as there are members who arc not I r . growers of sugarcane. The benefits by way of giving fertilisers at a -~ ' discount etc. will not profit members who arc not growers. The c High Court has not estimated the likely increase tn profits. due to incrcas.

;: l in the price of sugar levy along with the increase in expenditure due to· ' the revision of the wage structure which it has estimated at about Rs. 5 lakhs. . Further as pointed out by us earlier the High Court erred in adding back the depreciation and other reserves without determining as to what extent such allowances are permissible on the facts of the D case. For Lhe rcaso·ns stated we feel that the financial capacity of the ' industry has not been dctcrmincu in the manner in which it ought to ~ I. ha\'e been done. The wages arc normally fixcu on the basis of industry-cum-region. The U. P. Pattern was fi.. "t. :d by the Uttar Pradesh Government on an E 'ag:r~'Cmcnt bctwc<. :n the parties under section 3(b) of the U. P. Industrial Disputes Act, l947(U. P. Act No. 18 of 1947) . The order under sec. 3(b) is proYisional in character. Section 3(d) providcs for fixing the wages nfter proper adjudication. No such adjudication took place in U. P. afler th·!

passing of the order under sec. 3(b). Even F though normally the wages arc fixed on the industry-cum-region basis it is open to the industry to plead that it has not the financial capacity to bear the increased burden. When such a pica is 5pccificaJly raised it is the duty of the Industrial Court to determine whether the increased burden could be bor'ho by the particular industry. The reason given G by the JnJustrial Court and the Ifigh Court ! or following th6 U. P. Pattern i~ tiM it h:ts been accepted by various sugar factories in the southern region and a ntighbouting factory Kodinar Sugar Factory and hence there is no reason for not applying th•. } same rates to the appellant factories. On behalf of the appellant it was pleaded that it is not admitted that all the sugar factories in 1he southern region have accepted the B U. P. Pattern. It was submitted that the case of the Kodinar is different because it was established tong time ago and is a flourishing concern.

15 -~31SCi,'79 SUPREME COURT REPORTS 526 [1980]1 S. C. R, A Jn view of the order we pro~ose to m~ke we do'not. feel called upon to examine in detail the financial capacity of the vanous factories or to remit it to the Industrial Court for that purpose. We have found that the order of the Industrial Court and the High Court relating to the provision for variable dearness allowance of more than 100% neutralisation is no~ sustainable ih law and will have to be set aside. Regard. B ing the award relating to the retention allowance of the um;kllled workers at 10% of the basic wage and the dearness allowance payable during the crushing season, it was not chailcng~d before the High Courl Ute only question therefore which is in dispute is the increase of graded dearness allowance from Rs. 21 to Rs. 40 with effect from the date of the awan;l. We do not think that the increase in burden under this c head would be beyond the financial capacity of the factories especially I ....

I as we are satisfied that the claim for depreciation is highly exaggerated. Taking all the circumstances relating to the financial capacity of the factories we arc satisfied that the i:ncreaseo in the burden due to the increase in the graduated dearness allowance will be within the capacity D of the industry. We therefore find no reason for remitting the matter back to the Industrial Court. We set aside the award relating to the grant of graduated dearness allowance at more th:tn 100% but direct that it will be confined to 83 paise for increase of one point ie. limited to cent per cent neutralisation. So far as the increment of the graduated dearness allowance from Rs. 21 to Rs. 40 from the date of E the award and the retention a11owance at 10% of the basic wage and _.... _·... dearness allowance payable duri:ng the cru~hing sr. :ason to the unskilled workers is concerned, it is confirmed. . The appeals are disposed of accordingly.

Tile Appellant will pay costs of the rc~pontlents one set of Rs. 2000/- which will be divided F amongst the respondents. N. K. A ippea/s allowed partly.