SUPREME COURT REPORTS [1960]

one of the objects of the appellant bank is to carry on the general business of banking and therefore subject Bihar State h C S t' A t 't h t C P t .

B k to t e o-operat1ve ome ies c , I as o carry on o-o era ive an • • b k Lrd. its business in the manner that ordmary an s do. v.

It may be added that the various heads under s. 6 of Commissioner of the Income Tax Act and the provisions of that Act Income Tax applicable to these various heads are mutually exclu-

Kapur].

z960

February 22

sive. Section 12 is a residuary section and does not come into operation until the preceding heads are excluded. Commissioner of Income-tax v. Basant Rai Tak hat Singh (1 ).

In our opinion, the High Court was in error in treating interest derived from deposits as not arising from the business of the Bank and therefore not falling within the income exempted under the Notification. The appeal must therefore be allowed and the judgment and order of the High Court set aside. The appellant will have its costs in this Court and in the Court below.

Appeal allowed.

THE TINNEVELLY-TUTICORIN ELECTltIC

SUPPLY CO. LTD., v.

ITS WORKMEN

(P. B. GAJENDRAGADKAR, K. SUBBA RAO AND K. c. DAS GUPTA, JJ.) Industrial Dispute-Bonus~Full Bench formula-If applicable to workmen in electricity undcrtaking--Elcctric Supply Act. r948 (54 of r948). s. 57. Sixth Schedule, para, r7(2)(b)(xi).

Can the Full Bench •formula for calculation of bonus apply to a claim of bonus made by \.vorkmen engaged in electricity concerns and undertakings? That ¥.'as the question raised for decision in this appeal. A Special Bench of the Labour Appellate Tribunal held in the affirmative and the correctness of its decision was challenged in this appeal. It was contended on behalf of the appellant company that the Electricity Supply Act, 1948 (54 of

1948) was a self-contained code intended to regulate the business and affairs of electricity concerns and that Act and not the formula applied to a claim of bonus by the workmen in an electricity concern.

(r) (1933] I J.T.R, 197, 20I,

. ' ...

Held, that the Special Bench had taken a correct view of the matter and its decision must be upheld.

It is evident from the provisions of the Electricity Supply Act, 1948, and its schedules that the respective fields of operation of the Act and of the principles of industrial adjudication are • wholly different, and so there can be no conflict between them and their relevance and validity in their own spheres are beyond question. _., While the Full Bench formula seeks to ensure social justice to workmen by apportioning a share of the profits to them and thus minimise the gap between the actual and the living wages, the Act does not provide for wages at all. But it is improper to suggest on that basis that the workmen in electricty undertakings can be denied social justice. Just as the relevant industrial principles have to be applied for framing a wage structure for such workmen so also must the problem of bonus be solved in a like manner.

The working-sheet prepared under the method of accounting required by the Act can be no basis for calculation of the amount of bonus since it is not possible to ascertain the gross profit therefrom and the Full Bench Formula has to be applied on the basis of the profit and loss account which a company has to keep under the Companies Act.

Baroda Borough Municipality v. Its Workmen. [1957] S.C.R. 33, referred to.

Moreover, the intention of the Legislature in enacting cl. (vi) of paragraph 17(2)(b) of Sixth Schedule to the Act clearly 'was to 1' include a claim of bonus is within the expenses covered by it and it was to set at rest any possible doubt on that score that cl. (xiii) was added by a subsequent amendment. . CIVIL APPELLATE JURISDICTION: Civil Appeal No. 23 of 1958.

Appeal by special leave from the decision dated September 29, 1956, of the Labour Appellate Tribunal, Bombay, in Appeal (Mad.) No. 96 of 1956, arising m; it of the Award dated April 9, 1956, of the Industrial Tribunal, Madras, in I.D. No. 52of1954.

A. V. Viswanatha Sastri, and Naunit Lal, for the appellants.

T. S. Venkataraman and M. K. Ramamurthi, for the respondents.

1960. February, 22.

The Judgment of the Court was delivered by

T. T. E. Supply Co. Ltd. v.

Its Workmen

GAJENDRAGADKAR, J.-The appellant, the Tinne- GaJendragadkar j. velli-Tuticorin Electric Supply Co., Ltd., Tuticorin, is an electric supply undertaking, and it carries on its business as a licensee under the State Government of

Madras subject to the provisions oft.he Indian Electrircity Act, 1910 (Act 9 of 1910) and the Electric Supply T. T. E. supply Act, 1948 (Act 54 of 1948). This latter Act will

Co. Ltd. hereinafter be called the Act;.

The business of the v.

Its workmen appellant consists of buying electric supply from the State Hydro-electric Projects and of supplying the Gajendragadkor J. same to consumers within the areas specified in its licence; this area is in and around Tinnevelli and ...

Tuticorin Municipalities. The appellant's workmen (hereinafter called the respondents) made several demands in respect of their terms of employment.

These demands gave rise to an industrial dispute which was referred by the Madras Government to the Industrial Tribunal at Madurai for adjudication under s. lO(l)(c) of the Industrial Disputes Act, 1947 (XIV of " 1947). Amongst the items thus referred for adjudication was included the respondents' claim for additional bonus for the year 1952-53.

Without prejudice to its contention that the appellant was not liable to pay bonus it had in fact voluntarily paid two months' basic wages by way of bonus to the respondents. The respondents, however, claimed additibnal bonus and this claim was one of the items of dispute referred to ,. the tribunal for its adjudication.

Before the industrial tribunal the appellant contended that since it was working as a licensee under the Act no claim for bonus was admissible outside the provisions of the Act. Jn support of this plea the appellant relied on the scheme of the Act which restricted the profit-making of the electricity concerns to a prescribed limit with a possibility of a surplus only in cases of overcharging provided for in the rules. The appellant's case was that, having regard to the scheme, object and the background of the Act under which the appellant was carrying on its business, the respondent's claim for additional bonus was wholly misconceived. No claim for bonus can be entertained, it was urged on behalf of the appellant, without reference to the provisions of the Act which governs the business 0£ the appellant. The tribunal, however, rejected the appellant's contentions and held that the appellant was liable to pay two months' basic wages as additional bonus to

3 S.C.R.

SUPRE~IE COURT REPORTS 71 i the respondents. This award was passed on March 4, 1955. .

T. T. E. Supply Against this award the appellant preferred an co. Ltd. appeal, No. 56 of 1955, to the Labour Appellate v.

Tribunal, and contended that no additional bonus Its Workmen should have been awarded in the absence of proof of . d--d' 1 bl ,, . Ga; en raaa ,.ay ]. an excess of "c ear profi.ts over reasona e return ; 1t " was the appellant's case thaj; it was only from excess of clear profits over reasonable return as defined by the Act that bonus can be legitimately awarded to <i

the respondents. It appears that about this time a number of appeals raising the same question were pending before the Labour Appellate Tribunal, and decisions given. by the Labour Appellate Tribunal Y showed divergence of opinion on the question about the effect of the Act in respect of the claim for bonus made by employees of electricity concerns and undertakings. That is why the Chairman of the Labour Appellate Tribunal issued an administrative order that aH appeals which raised the said question should be grouped together and posted for hearing before a specially constituted fuller bench of five members.

The Chairman thought that a decision by a fuller bench would finally resolve the apparent conflict disclosed in several decisions pronounced thereto, and give proper guidance to the tribunals in future.

The special bench of the appellate tribunal then heard the group of appeals including the appeal preferred by the appellant. It held that bonus could be ordered to be paid notwithstanding the limitations of the Act, and that the quantum of bonus should be determined even in the case of electricity concerns or undertakings by the application of the Full Bench formula laid down in that behalf. Having decided the question of law in this manner, the appeals were remanded to .the respective benches of the Labour Appellate Tribunal for disposal in accordance with law. The appeal preferred by the appellant was in due course taken up by the Industrial Tribunal at Madras the Industrial Tribunal at Madurai having been in the meanwhile abolished and the appeals on its file .. transferred to the Industrial Tribunal at

Madra.s. This latter tribunal considered the merits

z960 of the contentions raised by the parties, applied the Full Bench formula, and ultimately passed an award T. T. E. supply on April 9, 1956, directing the appellant to pay an

Co.vtd. additional bonus of two months' basic wages to the

Its WOl'kmen respondents. .

Thereupon the appellant preferred another appeal Ga2endrngadkar J. to the Labour Appellate Tribunal, and it was numbered as Appeal (Madras) No. 96 of 1956. Certain y contentions were raised before the appellate tribunal

!> on the merits, and it was urged that the directi<:m to pay an additional bonus of two months' basic wages was improper and unjustified. The appellate tribunal negatived most of the contentions raised by the appellant, but it was satisfied that the calculation made by the tribunal in regard to the quantum of ¥ a vai!a ble surplus was erroneous, and so, after rectifying the said error, it held that the additional bonus which the appellant should pay to the respondents was one month's basic wage. It is against this decision of the appellate tribunal that the present appeal by special leave has been filed by the appellant before this Court. The main question which the appeal raises for our decision is whether the fuller bench of the Labour Appellate Tribunal was justified in holding that the Full Bench formula can and should be applied in adjudicating upon the respondents' claim for bonus against the appellant.

Incidentally, we may point out that the fuller bench of the Labour Appellate Tribunal in the case of

U. P. Electricity Supply Go. Ltd. & Ors. v. Their Workmen(') has decided two questions of law. The '" first was in regard to the applicability of the Full Bench formula to the employees' claim for bonus against their employers carrying on the business of the supply of electricity, and the second was in regard to the extent of the statutory depreciation allowed by the Full Bench formula. The question was whether it should not include initial depreciation and additional depreciation which are given for the purpose '- of allowing relief in the matter of taxation under s. 10(2) (vi-b) of the Income-tax Act. The fuller bench had decided that in allowing a prior charge in the

(1) (1955) L.A.C. 659.

-+ '

working of the formula it is only the normal incomez96o tax depreciation (including multiple shift dapreciation) that should be allowed. The correctness of this latter T. T. E. supply Co. Ltd. decision was challenged before this Court in Sree v.

Meenakshi Mills Ltd. v. Their Workmen (1) but the Its Workm1n challenge failed and the decision of the fuller bench - was confirmed. In the present appeal it is the Gajendragadkar f. correctness of the fuller bench decision on the first question which is challenged before us.

Let us being by stating briefly the appellant's contention. It is urged on behalf of the appellant that it is only where the "clear profits" are in excess of the " reasonable return " under the Act that a case for the payment of bonus can really arise in regard to the electricity concerns and undertakings. The Act is a self-contained code intended to regulate the business and affairs of electricity concerns including the claim of their employees for bonus, and as such an industrial dispute between such concerns and their employees in regard to bonus must be determined solely by reference to the provisions of the Act and and not by the application of the Full Bench formula.

As to the quantum of bonus which should be awarded it would depend upon the circumstances in each case; but it is urged that it may as an ad hoc measure be decided that I/4th of the excess between clear profits and the reasonable return may be taken as a fair quantum of bonus which electricity concerns should be ordered to pay to their employees. Before dealing with the validity of this argument it is necessary to examine the scheme of the Act.

Let us first consider some of the provisions in the Indian Electricity Act 9 of 1910 which may be relevant. Section 3(2)(d)(i) provides that the State Government may, on an application made in the prescribed form, and on payment of the prescribed fee (if any), grant, after consulting the State Electricity Board, a licence to any person, and that the said licence may prescribe such terms as to the limits within which, and conditions under which, the supply of energy is to be compulsory or permissive, and generally as to such matters as the State Govern-

<1> (1958] S. C.R. 878.

z96o ment may think fit.

Section 3(f) provides that the

T. T. E. Supply provisions.contained in the Schedule shall be deemed co. Ltd. to be incorporated with, and to form part of, every v. licence granted under this Part, except as in the Its Workmen manner therein described. Section 4(l)(b) empowers the State Government inter alia to revoke the licence Gajend.agadkar J. where the licensee breaks any of the terms or the conditions of his licence the breach of which is expressly declared by such licence to render it liable to revocation. Section 7(1) provides to the authorities specified in it option to purchase the undertaking.

Section II requires the licensee to prepare and render to the State Government or to such authority as the State Government may appoint in that behalf, on or before the prescribed date in each year an annual statement of account of his undertaking made up to such date, in such form and containing such particulars, as may be prescribed in that behalf. Section 22 imposes on the licensee obligation to supply energy subject to the conditions prescribed ; and s. 23 provides that a licensee shall not, in making any agreement for the supply of energy, show undue preference to any person. The licensee_ cannot also charge for such supply any rates higher than those permitted. The appropriate Government is authorised to fix the maximum charges, and by appropriate rules both the maximam and minimum charges have been prescribed. These are the relevant provisions of Act 9 of 1910.

Let us now refer to some of the relevant provisions of the Act. Section 57 provides the licensee's charges to consumers. According to it the provisions of the Sixth Schedule and the Seventh Schedule shall be deemed to be incorporated in the licence of every licensee, not being a local authority, in the manner specified by it. This section further provides inter alia that as from the specified date the licensee shall comply with the provisions of the said Schedules and not provisions of Act 9 of 1910, and the licence granted to him thereunder and of any other law, agreement or instrument applicable to the licensee shall, in relation to the licence, be void and of no effect in so far as they are inconsistent with the

provisions of s. 57 A and the said Sched1lles. Section x960 57 deals with the licensee's charges to the consumers and lays down provisions which shall have effect in T. T. E. Supply relation to the licence where the provisions of the Co. Ltd. v.

Sixth Schedule and the table appended to the Seventh Its Workmen Schedule are under sub-s. (1) deemed to be incorporated in the said licence. These provisions relate to the Gajendragadkar J. appointment of the Board and the rating committee.

Section 57 A prescribes the principles and the procedure which hQ.s to be followed by the rating committee in making its report to the State Government regarding the charges for electricity which the licensee may make to any class or classes of consumers.. This provision gives us an idea as to the object which the Legislature had in mind in ultimately fixing the minimum and maximum rates chargeable to the consumers. Sections 78 and 79 provide for power to make rules and regulations. Nine Schedules are attached to the Act. Schedule Six deals with the financial principles and their application; Schedule Seven deals with the depreciation of assets ; Schedule Eight provides for the determination of cost of production of electricity at generating stations ; and

Schedule Nine prescribes the method for allocation of costs of production at generating stations.

It is necessary at this stage to refer briefly to some of the provisions contained in the Sixth Schedule, because Mr. Viswanatha Sastri, for the appellant, has relied on the scheme of the said Schedule in support of his principal argument. These provisions prescribe the financial principles which have to be followed by the electricity concerns and undertakings covered by the Act. It is urged by the appellant that these principles along with the rest of the Schedules and the provisions of the Act constitute a self-contained code which govern the business and the financial affairs of electricity concerns, and as such even the claim of the appellant's employees for bonus must be dealt with in the light of these provisions. Paragraph 1 of Sixth Schedule provides :-'

"I. Notwithstanding anything contained in the Indian Electricity Act, 1910 (9 of 1910) (except sub-s. (2) of s. 22A), and the provisions in the

x960 licence of a licensee, the licensee shall so adjust his rates for the sale of electricity whether by enhanc- T. T. E. supply ing or reducing them that his clear profits in any Co. Ltd .. v. year of account shall not, as far as possible, exceed Its Workmen the amount of reasonable return;". - This provision is made subject to four provisos Gajendrogadfar J. -which it is unnecessary to mention.

Paragraph 2 reads thus:-

"II. (1) If the clear profit of a licensee in any year of account is in excess of the amount of reasonable return, one-third of such excess, not exceeding five per cent. of the amount of reasonable return, shall be at the disposal of the undertaking.

Of .the balance of the excess, one-half shall be appropriated to a reserve which shall be called the Tariffs and Dividends Control Reserve and the remaining half shall either be distributed in the form of a proportional rebate on the amounts collected from the sale of electricity and meter rentals or carried forward in the accounts of the licensee for distribution to the consumers in future, in such manner as the State Government may direct.

(2) The Tariffs and Dividend Control Reserve shall be available for disposal by the licensee only to the extent by which the clear profit is less than the reasonable return in any year of account.

(3) On the purchase of the undertaking under the terms of its licence any balance remaining in the Tariffs and Dividends Control Reserve shall be handed over to the purchaser and maintained as such Tariffs and Dividends Control Reserve." Paragraph 3 provides for the creation from existing reserve or from the revenue of the undertaking a reserve to be called Contingencies Reserve. Paragraph 4 prespribes the manner in which the licensee shall appropriate to Contingencies Reserve from the revenues of each year of account. Paragraph 6 directs that there shall be allowed in each year in respect of depreciation of fixed assets employed in the business of electricity supply such an amount as would if set aside annually throughout the prescribed period and accumulated at compound interest at 4 per

cent. per annum, produce by the end of the prescribed rg6o period amount equal to 90 per cent. of the original cost of the asset after taking into account the sums T. T. E. supply already written off or set aside in the books of the Co. Ltd. v. undertaking; annual interest on the accumulated Its Workmen balance will be allowed as expense from revenue as

well as the annual incremental deposit. Paragraph 7 Gajendragadkar J. deals with assets which have ceased to be avilable for

ue through obsolescence, inadequacy, superfluity or for any other reason, and it allows the licensee to describe the said assets as no longer in use, and no further depreciation in respect thereof shall be allowed as a charge against the revenue. Paragraph 8 prohibits any further depreciation where an asset has been written down in the books of the undertaking to 10 per cent. or less of its original cost. Under paragraph 9, where a fixed asset is sold for a price exceeding its written down cost, the excess has to be credited to the Contingencies Reserve. Paragraph 10 requires the consent of the State Government to carry sums to a reserve or to declare a dividend in excess of 3 per cent. on share capital or other matters specified there in. Paragraph 13 imposes limitations in respect of ordinary remunerations of managing agents; whereas paragraph 14 provides that the Board of Directors shall not contain more than 10 directors ; and paragraph 15 prescribes the way in which the licensee can make any capital expenditure which exceeds Rs. 25,000 or 2 per cent. of the capital base within three years before the next option of purchase under the licence arises.

Paragraph 16 contains an arbitration clause . . Paragraph 17 gives definitions for the purpose of this Schedule. Capital base is defined by paragraph 17(1); clear profit is defined by paragraph 17(2) as meaning the difference between the amount of income and the sum of expenditure plus specific appropriations made up in each case as prescribed in several sub-clauses of clauses (a}, (b) and (c). It is necessary to refer to two sub-clauses under clause (b) :-

"(xi) other expenses admissible under the law for the time being in force in the assessment of, Indian Income-tax and arising from and ancillary or incidental to the business of electricity supply;

:c960

T. T. E. Supply Co. Ltd. v.

Its Workmen

Gajendragadkar ].

(xii) contributions to Provident Fund, staff pension, gratuity and apprentice and other training schemes." Paragraph 17(9) defines a reasonable return as meaning:-

" in respect of any year of account, the sum of the following :

(a) the amount found by applying the standard rate to the capital base at the end of that year;

(b) the income derived from invesments than those made under paragraph IV of this Schedule;

(c) an amount equal to one half of one per centum on any loans advanced by the Board under subparagraph (2) of paragraph I of the First Schedule." One of the points which we have to decide in the present appeal is whether an amount of bonus paid by the employer to his employees is included under paragraph 17 (2) (b)(xi) of the Sixth Schdule.

It would thus be clear that the provisions of the Act in general and those of the Sixth Schedule in particular, are no doubt intended to control and regulate the rates chargeable to consumers and to provide the method and the machinery by which the electrical system of the country could be properly co-ordinated and integrated. The rates chargeable are fixed, so is a reasonable return provided for.

But it is not as if the Act intends to guarantee a minimum return to the undertaking. \Vhat it purports to do is to prohibit a return higher than the one specified. Appropriations permissible under revenue receipts are also defined and enumerated and a clear profit as contemplated by the Act is also prescribed and defined. Large powers have. been given to the Electricity Authority, Boards and Councils for the purpose of canalising the activities of the concerns as well as for adjusting their activities for changing conditions and circumstances. Just as the Act has made provision for the control of rates chargeable to consumers its policy also is to give a fair deal to the undertaking and persons engaged in the business of supplying electricity. It is with this twin object that a working-sheet is required to be prepared under the provisions of the Act. It is, however, clear that the working-sheet thus prescribed is essentially

different from the balance-sheet and profit and loss x960 account which companies keep under the provisions of the Companies Act. The determination of clear profits T. T. E. Supply on the basis of the working-sheet '.proceeds on the Co. Ltd. v. consideration of previous losses, contributions towards Its workmen the arrears of depreciation and several appropriations authorised by the tate Government, matters which Gajendragadkar J. have no relevance to commercial accounting. The principles of commercial accounting on which the balance-sheets are prepared and profit and loss account made are very different from_ the principles on which the working-sheet as specified in the Act is required to be prepared. The question which arises for our decision is whether the appellant is right in contending that the present dispute arising from the respondents' claim for bonus must be decided by the provisions of the Act alone and that the Full Bench formula is wholly inapplicable for the purpose.

In dealing with this contention it is necessary to bear in mind that the fields covered by the Full Bench formula and by the provisions of the Act are entirely different. , The Full Bench formula has been evolved by industrial adjudication for the purpose of doing social justice to workmen and it is now well-established that the workmen's claim for bonus is justified on the ground that they contribute to the employer's profit and are entitled to claim a share in the . said profit with a view to fill the gap between their actual wages and the living wage which they aspire to earn.

On the other hand, the Act does not purport to deal with this problem at all. It is significant that though . the Act makes detailed provisions in respect of matters intended to be covered by it, it does not refer to the wages which the employer may hve to pay to his employees. Can it be said that in fixing the wagestructure as between an electricity undertaking and its employees considerations of social justice would be irrelevant? In fixing such wage-structure none of the provisions of the Act can afford the slightest assistance to industrial tribunals. That task must be attempted by the tribunals in the light of principles of social justice and other relevant considerations such as the capacity of the employer to pay and the wages

x96o received by employees in comparable trades in the same region. Just as the problem of wage-structure T. T. E. Supply co. Ltd. has to be solved in the case of electricity concerns v. apart from the provisions of the Act and in the light of Its Workmen the relevant industrial principles, so must the problem of bonus be resolved in the like manner. There is Gajendragadkar J. really no conflict beween the Act and the principles of industrial adjudication. In fact they cover different fields and their relevance and validity is beyond question in their respective fields.

As we have just indicated the method of accounting required by the Act in preparing the working-sheet is substantially different from the commercial method of accounting which yields the gross profits in the form of profit and loss account. Determination of gross profit is the first step which industrial tribunals take , in applying the Full Bench formula. Such gross profit cannot be ascertained from the working-sheet prepared under the Act. It is not denied that the appellant has to keep accounts under the Companies Act on a commercial basis. That being so, in dealing with the respondents' claim for bonus, it is the balance-sheet and the profit and loss account prepared by the appellant thl<t must be taken as the basis in the present proceedings, and that is precisely what the tribunals below have done.

Therefore, we are satisfied that the Labour Appellate Tribunal was right in coming to the conclusion that the respondents' claim for bonus must be governed by the application of the Full Bench formula.

In this connection it may be useful to refer to the decision of this Court in the case of Baroda Borough Municipality v. Its Workmen (1).

One of the points raised on behalf of the Baroda Borough Municipality in resisting the claim for bonus by its workmen was that the scheme of the Bombay Municipal Boroughs Act 18 of 1925 by which the Municipality was governed did not permit the making of any claim for bonus : and so it was not open to the labour court or tribunal to direct payment of bonus to municipal. employees. This argument was rejected. "The demand for bonus as an industrial claim ", it wu.s

\I) LI957J S.C.R. 33

observed, "is not dealt with by the Municipal Act; r96o it is dealt with by the Industrial Disputes Act, 1947. T. T. E. supply.

Therefore, it is not a relevant consideration whether co. Ltd. there are provisions in the Municipal Act with regard v. to bonus. The provisions of the Municipal Act are Its Workmen relevant only for the purpose of determining the G . d-dk quality or the nature of the municipal property or a; e 11 raga ar f. fund ; those provisions cannot be stretched beyond their limited purpose for defeating a claim of bonus".

That is why this Court came to the conclusion that the absence of provisions in the Municipal Acts for payment of bonus to municipal employees was not a consideration which was either determinative or conclusive of the question at issue before it.

The next question which arises is whether a claim for bonus can be said to be included under paragraph 17 (2)(b)(xi). This provision includes under expenditure other expenses admissible under the law for the time being in force in the assessment of Indian Income-tax and arising from, and ancillary or incidental to, the business of electricity supply. It is admitted that bonus paid by an employer to his employees constitutes expenses admissible under section 10(2)(vi) of the Income-tax Act, but it .is urged that it is not an expense which can be said to arise from, and ancillary or incidental to, the business of electricity supply. The argument is that cl. (xi) lays down two tests, one of which is satisfied viz., that it is expense admissible under the Indian Income-tax Act, but the other is not satisfied, and so the clause is inapplicable to the amount paid by way of bonus.

The appellate tribunal has held that even the other test is satisfied and that the expenditure in question can be said to arise from, or to be ancillary or incidental to, the business of electricity supply. In our .

opi:r; i.ion, it is difficult to accept the appellant's argument that the construction placed by the appellate tribunal on the latter part of this cJaus!') is not reasonably possible. Besides, it may be relevant to point out that by a subsequent amendment made in 1957 cl. £xiii) has been added under paragraph 17(2)(b) of the Sixth Schedule. This clause which is numbered (xiii) reads thus : "Bonus paid to the employees

•96o of the imdertaking-(a) where any dispute regarding such bonus has been referred to any tribunal or other T. T. E. Supply authority under any law for the time being in force Co. Ltd. v. relating to industrial or labour disputes in accordance Its Workmen with the decision of such tribunal or authority ; (b) in - any other case, with the approval of the State Gajendragadkar J. Government". After the insertion of this clause there can be no doubt that the amount paid by the employer to his employees by way of bonus would definitely be admissible expenditure under paragraph 17(2)(b). In our opinion, the insertion of this clause can be more reasonably explained on the assumption that the Legislature has thereby clarified its original intention. Even when cl. (xi) was enacted the intention was to include claims of bonus under expenses covered by the said clause, but in order to remove any possible doubt the Legislature thought it better to provide specifically for bonus under a separate category. Otherwise, it is difficult to appreciate how contributions to Provident Fund were treated as admissible expenditure all the time since they were covered by cl. (xii) and bonus could not have been treated as admissible expenditure under

cl. (xi).

That is why we are on the whole prepared to agree with the construction put upon cl. (xi) by the appellate tribunal. If that be the true position then bonus has always been an admissible expenditure under the scheme of the Act, and as such there is no conflict between the scheme of the Act and the claim made by the respondents in the present case. Incidentally, we may add that this point appears to have been conceded by the appellant before the appellate tribunal. We must accordingly bold that the appellate tribunal was right in coming to the conclusion that the Full Bench formula applied in adjudicating upon the respondents' claim for bonus against the appellant in the present proceedings. As we have already indicated, before the fuller bench reached this decision there was a conflict of opinion in the decisions of the Labour Appellate Tribunals, but in view of our conclusion it is unnecessary to refer to the said earlier decisions.

That takes us to the merits of the award. The first r960 point is in regard to the appellant's claim for rehabilitation. Before the Labour Appellate Tribunal it T. T. E. Supply Co. Ltd. was fairly conceded by the respondents that at least v. income-tax at seven annas in a rupee on the gross Its Workmen profits less depreciation, and also a contingency . - reserve of Rs. 6,047 have to be allowed in arriving at Ga; endragadka• I the figure of net available surplus for the purpose of bonus payable to the respondents ; and that in regard to normal statutory depreciation the correct figure must be taken to be Rs. 99,038 instead of Rs. 90,393 as given by the industrial tribunal. Then, as to the rehabilitation the appellant has led no evidence at all and so the appellate tribunal refused to grant any sum by way of rehabilitation in addition to the total amount of Rs. 1,13,950. In our opinion, the appellate tribunal was right in holding that the adoption of a factor of 2·7 for all assets purchased before 1945 was not justified, and that the adoption of the figures of the estimated life of the assets from the Schedule to the Electric Supply Act without even deducting the respective portions of the life of the assets which had already expired was equally unjustified. In that view of the matter we do not see how the appellant can make any grievance against the finding of the appellate tribunal on the question of rehabilitation. The appellate tribunal has fairly observed that, in future if a dispute arises between the appellant and its employees, the appellant may substantiate its claim for rehabilitation by leading proper evidence.

The claim of the appell1J, nt for the triple shift allowance in respect of the mains has been allowed by the appellate tribunal and there is no dispute in respect of it; but it is urged that rule 8 of the Income. tax Rules justifies the appellant's claim in respect of a.ll its electric plant and machinery under Entry

IIIE (1).

Rule 8 provides that the allowance under s. IO (2) (vi) of the Act in respect of depreciation of buildings, machinery, plant or furniture shall be a percentage of the written down value or original cost, as the case may be, equal to one-twelfth the number shown in the corresponding entry in the second column of the following statement. There are two

x960 provisos to this rule which it is not necessary to set out. The appellant makes a claim under IIIE (1) T. T. E. supply which deals with electric plant, machinery and boilers,

Co.vtd. whereas, according to the respondents, the appellant's

Its Workmen case in this behalf falls under IIIO (4) and (5) which rcspectivilly deal with underground cables and wires Gajendragadkar]. and overhead cables and wires. The argument for the respondents is that in respect of these items the appellant's claim is inadmissible. In support of this argument the respondents rely upon the remark against item 3 on page 8 of the Rules. This remark would show that the benefit claimed by the appellant does not apply to an item of machinery or plant specifically excepted by the letters N, E, S, A being shown against it. These letters are the contraction of the expression " No Extra Shift Allowance ".

There is no doubt that these letters are to be found against items in IIIO (4) and (5).

Therefore, the point which arose for decision before the appellate tribunal was whether the appellant's claim falls under IIIE (1) or IIIC (4) and (5).

The appellate tribunal has observed that the appellant made no attempt to show that any such claim for shift depreciation in respect of its cables and wires had been put forward by it before the income-tax authorities, or that it was held to be admissible by them. It has also observed that if the appellant's case was true that the cables and wires foll under IIIE (I) it was difficult to understand why separate provision should have been made in respect of depreciation of cables and wires under IIIO (4) and (5).

Besides, the appellate tribunal was not satisfied that such cables and wires wonld depreciate in value to a materially greater extent when electrical energy is allowed to pass through them for more than one shift .. That is why, on the materials as they were available on the record, the appellate tribunal saw no reason why the appellant should be allowed any extra shift depreciation in respect of underground -a1ld overhead cables by way of a prior charge. The appellant's claim for the provision of Rs. 23,516 in that behalf was, therefore, rejected. It would thus be seen that the appellant seeks to claim this amount by way of prior charge;

...

' -

3 S.O.R. SUPREME OOlJRT REPORTS 85

and in substance this claim has been rejected by the i96o appellate tribunal on the ground that sufficient

materfal has not been placed before it by the appellant T. ~0~}.1~'.pzy on which the claim could be examined and grantedi v.

In such a case we do not see how we can interfere in Its Workmen • favour of the appellant.' The present decision will . -- not preclude the appellant from making a similar Ga1endragadkar J. claim in future and justifying it by leading proper evidence.

In the result the appeal fails and is dismissed with costs. -

Appeal dismissed.

THE BRIHAN MAHARASHTRA SUGAR

SYNDICATE LTD.

~ '

JANARDAN RAMOHANDRA KULKARNI

AND OTHERS

(S. K. DAS, A. K. SARKAR AND

M. HIDAYATULLAH, JJ.)

Company Law-Proceedings pending under the repealed Act-If and when could be continued-Indian Companies Act, I9IJ, (VII of I9I3) s. IS3-C-Companies Act, Ig56, (I of Ig56) ss. IO and 647.

The respondent had made an application under s. 153-C of the Companies Act, 19:1;3, with an alternative prayer for winding up against the appellant company, to the District Judge, Poona, who had been authorised under the Act to exercise jurisdiction.

While the application was pending the Companies Act, 1913, was repealed by the Companies Act, 1956. The appellant company thereupon applied to the District Judge to dismiss the application on the ground that he had ceased to have any jurisdiction to deal with the application on the repeal of the Companies Act or 1913.

Held, that s. 6 of the General Clauses Act preserved the jurisdiction of the District Judge to deal with the application under s. 153-C of the Indian Companies Act of 1913, notwithstanding therepeal of that Act.

Section 647 of the Companies Act, 1956 did not indicate any intention to affect the rights under the Indian Companies Act of 1913, for s. 658 of the Companies Act of 1956 made s. 6 of the General Clauses Act applicable notwithstanding anything contained in s. 647 of that Act.

r960

Bihar

s. 6

Section 12

THE TINNEVELLY-TUTICORIN ELECTRIC SUPPLY CO. LTD.,

ITS WORKMEN

P. B. GAJENDRAGADKAR

K. SUBBA RAO

K. c. DAS GUPTA, JJ.

s. 57

Sixth Schedule

Companies Act

Sixth Schedule to the Act

A. V. Viswanatha Sastri

Naunit Lal

T. S. Venkataraman

M. K. Ramamurthi

T. T. E. Supply Co. Ltd.

GAJENDRAGADKAR

Indian Electrircity Act, 1910

Gajendragadkor

Tinnevelli

Madras Government

Industrial Tribunal at Madurai

Industrial Disputes Act, 1947

March 4, 1955

Industrial Tribunal at Madras

s. 10(2)

Income-tax Act

Section 3(2)(d)(i)

Section 3(f)

Section 4(l)(b)

Gajend.agadkar

Section 7(1)

Section 22

s. 23

Section 57

Sixth Schedule

Seventh Schedule

s. 57

Sixth Schedule

Gajendragadkar

Section 57

Sections 78 and 79

Nine Schedules are attached to the Act

Sixth Schedule

Viswanatha Sastri

Sixth Schedule

s. 22A

Gajendrogadfar

First Schedule

Sixth Schedule

Companies Act

T. T. E. Supply co. Ltd.

Companies Act

Baroda Borough Municipality

Industrial Disputes Act, 1947

section 10(2)(vi)

Income-tax Act

Income-tax Act

Sixth Schedule

T. T. E. Supply Co. Ltd.

BRIHAN MAHARASHTRA SUGAR

SYNDICATE LTD

JANARDAN RAMOHANDRA KULKARNI

S. K. DAS

A. K. SARKAR

M. HIDAYATULLAH

Companies Act

Companies Act

s. 153

Companies Act

Companies Act, 1956

Companies Act

s. 6

General Clauses Act

s. 153

Companies Act

Section 647

Companies Act, 1956

Companies Act

s. 658

Companies Act

s. 6

General Clauses Act

s. 647


3 S.C.R.

SUPREME COURT REPORTS 713

All these cases turned on different facts, and it is not necessary to decide which of them in the special

Pingle Industries nrcumstances were correctly decided.

This enquiry Ltd., Secunderabad will hardly help in the solution of the case in hand.

We are, however, satisfied that in this case the asse~ see acquired by his long-term lease a right to win

tones, and the leases conveyed to him a part of land.

v. rommissioner of

Income-tax,

Hyderabad

The stones in situ were not his stock-in-trade 111 a Hidayatullah J. business sense . but a capital asset from which after extraction he converted the stones into his stock-intrade.

The payment, though periodic in fact, wa~ neither rent nor royalty but a lump payment in instalments for acquiring a capital asset of enduring benefit to his trade.

In this view of the matter, the High 1 Court was right in treating the outgoings as on capital account.

In the result, the appeal fails, and will be dismissed with costs.

BY CQUR'I': judgment of the costs.

In accordance with the majority Court, the appeal is dismissed with

Appeal dismissed.

THE PRINTERS (MYSORE) PRIVATE LTD.

/ v.

POTHAN JOSEPH. (P. B. GAJENDRAGADKAR, K. N. vVANCHOO and K. c. DAS GUPTA, JJ.) ' Arbitration Agreement:-Power of court to sty legal proceedings -Order by trial court refusing stay of proceedings affirmed in appeal -Supreme Court, if and when can interfere with concurrent exercise of discretion by the courts below-Arbitration Act, 1940 (x of 1940), s. 34-Constitution of India, Art. 136.

The respondent was the Editor of the Deccan Herald, owned and published by the appellant, and the two contracts executed by the parties contained an arbitration clause that if in the interpretation or applicatio.n of the contract any difference arose between the parties the same shall _ be referred to arbitration :ind the award shall be binding between the parties and also provided for, apart from his monthly salary, the payment of 10% of the profits to the respondent.

Upon the termination of his services by the appellant, the respondent brought a suit for accounts and payment of the profits found. due to him. The appellant by an

April 27.

Printers ( ft{J•sort')

Privatt' Ltd. v.

Pothan Jostjih

714 SUPREJVlE COURT REPORTS l l 9GOJ

application pleaded that the suit ought to be stayed under s. 34 of the Arbitration Act, 1940, and the dispute referred to arbitration in accordance with the agreement between the parties.

The trial Judge refused to exercise his discretion in favour of the appellant and refused to stay the suit.

On appeal the High Court confirmed the decision of the trial court. The appellant came up to this Court special leave under Art. 136 of the Constitution: Held, that the power conferred on the court by s. 34 of the Arbitration Act, 1940.., is discretionary and even though the conditions specified therein were fulfilled no party could claim thereunder a stay of legal proceedings instituted in a court as a matter of" right.

But the discretion vested in the court is a judicial discretion and must be exercised as such in the facts and circumstances of each case.

No inflexible rules can, therefore, be laid down for its exercise and the court has to act according to common sense and iusticc.

Gard11'1 v. Jay, (1885) 29 Ch. D. SO, referred to.

Where the discretion under the section has been properly and judiciously exercised by the trial court the appeallate court would not be justified in interferin? with sU:ch exercise_ of discretion n1crely on the ground that it would have taken a contrary decision if it had considered the matter at the trial stage.- But if it appears to the appellate court that the trial court has exercised its discretion unreasonably or capriciously or has ignored relevant facts or has approached the matter unjudiciou.sly, it would be its duty to intetfere.

Charles Osenton & Co. v. Jhanaton, (1942) A.C. 130, referred to.

The words "interpretation and application of the contract'', frequently used in arbitration clauses_, as they have been in the contracts in question cover not only disputes relating to the construction of the relevant terms of the contract but also their effect. and unless the context compels a contrary construction, a dispute relating to the working of the contract falls within such a clause.

But the Suoreme Court would not lightly interfere under Art. 136 of the Constitution with the concurrent exercise of discretion of the courts below under s. 34 of the Act.

Before it can justly do so, the appellant must satisfy the Court, on the relevant facts referred to bv the courts below, that thev exercised their discretion in a manifestly unreasonablt.: or prversc way which was likelv to defeat the ends of justice.

CIVIL APPELLATE JtrRJSDICTJON: Civil Appeal No. I 07 of 1960.

Appeal by special leave from the _iudgment and order datd September 21, 1959, .of the Mysore High Court, Bangalore, in Misc. Appeal No. 68 of 1959.

Pnrshottam Trikamdas, S: N.-, Andley, ].· Tl. Dadarhonji, Rames/wrar Nath and P. L. Vohra, for the appellant.

....

K. R. Karanth and Naunit Lal, for the respon-

,. ' . i dent.

1960. April 27. 'The Judgment of the Court was delivered by

GAJENDRAGADKAR, J.-The respondent, Pothan Joseph, who was working as the Editor of the Deccan Herald owned and published by the appellant.

The Printers (Mysore) Private Ltd., in Bangalore has Jiled a suit against the appellant op two contr:icts executed between the parties on April 1, 1948, and February 20, 195;1, respectively, ..and has claimed acc.ounts of the working of the Deccan Herald newspaper from April 1, 1948, to March 31, 1958, as well as payment of the amount that mav be found due to him from the appellant under the 'provisions of cs. 2(d) and l(d) of the said contracts.

The services of the respondent were termina_ted by the appellant by its letter dated September 28, 1957, in which the respondent was told that the termination would ta.ke. effect from March 31, 19.58. However, by a subsequent letter writt.en by the appellant to the respondent on March 17, 19.58, the respondent was told that his services had been terminated with immediate effect and he was asked to hand over charge to his success6r, Mr. T. S. Ramachandra Rao.

Thereafter on July 14,' 1958, the respondent filed the present stiit against the appellant.

The appellant contended that the two contracts on which the rspondent's claim was based were subject to an arbitration agreement, and so it was not open to the respondent to file the_ present suit .. against the appellant.

The appellant, therefore, requested the Court under s. 34 of the Indian Arbitration Act, i 940, (hereinafter called the Act), to stay the proceedings initiated by the respondent and refer the dispute to arbitration in accordance with the arbitration agreement between the parties.

The learned trial judge who heard the appellant's application, however, exercised his discretion against it and refused to stay the proceedings. in the respondent's suit.

Thereupon the appellant preferred an appeal in the Mysore High Court but his appeal failed and the High Court confirmed the orde~ passed "by •hp trial court though for different reasons. The -High

' l

Printas (A1jlsore)'

Private Ltd. v.

Pothan Joseph

Gajendragadkar J. ;

Printe.rs (Mjsore)

Private Lid. v.

Polhan :Joseph

Gajendragadkar J.

716 SlJPREME COURT REPORTS [1960]

Court, however, thought that the learned trial judge, in dealing with the appellant's application "had gone much further than he should have done, and hence it was desirable that the case should be tried by some other judge".

The respondent did not object, arid so the High Court directed that the suit may be transferred to the file of the Additional Civil Judge, Bangalore.

The appellant then applied to .the High Court for a certificate. His application was, however, rejected on the ground that the decision nnder appeal could not be considered as a judgment, decree or final order under Art. 133(1) of the, Constitution; on that view it was thought unnecessary to decide whether on the merits the case was fit to be taken in appeal to this Co1irt.

Then the appellant applied for and obtained special leave from this Court.

That is how this appeal has come before us; and the substantial point which arises for our decision is whether the courts pelow were in error in refusing to stay the suit filed by the respondent against the appellant in vie.w of the arbitration agreement between them.

Before we deal with the merits of the contentions r'1ised by the parties in this appeal it is necessary to set out briefly the relevant facts leading to the present litigation.

The appellant is a printing company and it owns and publishes the Deccan Herald in English and Prajavani in Kannada at Bangalore.

By a contract dated April 1, 1948, the appellant engaged the respondent as Editor of the Deccan Herald for a peri?d of five years on terms and conditions specified in the said contract.

As provided by cl. (.~) of the said contract the period of the respondent's employment was extended by another five years by a subsequent contract entered into between the parties on February 20, 1953.

As we have already mentioned the services of the respondent came to be terminated z, bruptly on March 17, I 9.~8.

Jt appears that by his letter dated October 16, 19.57, the respondent made certain claims against the appellant under the provisions of the \Vorking Journalists Act.

Besides, he demanded 1.110th of the profits made by the Deccan Herald from 1948 up to the elate of the termination of his . service under the two respective contracts.

This claim was

denied by the appellant.

Correspondence then ensued between the parties but since no common ground was

disco\'iered between them the respondent filed the present suit.

His case is that the two contracts entitled him to claim 1 /10th of the profits made by the Deccan Herald during the period of his employment, and so he claims an account of the said profits and' his due share in them.

The learned trial judge found that the respective contentions raised by the parties before him showed that there was no dispute as such between them which could attract the arbitration agreement. He also held that an attempt was made by the parties to settle their differences amicably through the. mediation of Mr. Behrarh Doctor but the said attempt failed because the appellant was not serious about it and was just trying "to protract, defeat and delay the plaintiff's moves".

According to the learned trial judge a plea of limitation would fall to be considered in the present suit and it was desirable that the said plea should be tried by a competent court .rather than by arbitrators.

He was, however, not impressed by the respondent's contention_ that his character had been impeached by the appellant and so he should be allowed to vindicate

his character in a trial before a court rather than before the arbitrators.

In dismissing th~ appellant's claim for stay of the suit the learned judge observed that if the accounts of the Deccan Herald had not been separately maintained it would be competent for a qualified accountant to allocate expenses and capital expenses among the different activities of the appellant and then very little would be left for arbitrators to decide.

He had no doubt that the contract by which the respondent was entitled to claim 1/10th 'share in the profits of the Deccan Herald necessarily postulated that the accounts of the Deccan Herald would be separately maintained.

On these considerations the trial judge refused to stay the suit . . W'hen the matter went in appeal the High Court held that .the dispute between the parties did not fall within the arbitration agreement.

The High Court

ci l<o considered the other points decided by the trial court: it held that Mr. Behram Doctor had not been

29 -6 SCI/ND/82

Printers (Mysore)

Private Ltd. v.

Pothan Joseph

Gajendragadkar J.

Printers (MJ,•sore)

Private Lta. v.

Pothart Joseph

appointed as an arbitrator between the parties and that the proceedings before him merely showed that the parties were exploring the possibility of having an arbitration.

It observed that the appellant company was a big concern and referred to the respondent's apprehension that it was in a position to dodge the Gajendmgadkar J. respondent's claim.

However, the High Court was rot impressed by these apprehensions, and it was not inclined to find fault with the conduct of the appellant in the trial court.

It was also not satisfied that the question of limitation which would arise in the suit as well as the question of interpreting the contracts could not be properly tried by arbitration.

It recognised that there had been a complete change of front on the pall of the appellant in regard to the pleas raised by the appelnt under the arbitration agreement when the matter was discussed before Mr. Behram Doctor, and when it reached the court in the form of the present suit.

The High Court then considered other facts which it thought were relevant.

It stated that there was great deal of bad blood between the parties and there was no meeting ground between them. The appellant's plea that recourse to arbitration may help an early disposal of the dispute did not appeal to the High Court as sound, and so, on the whole, the High Coiirt thought that the order passed by the trial court refusing to stay the proceedings in suit shou Id be confirmed.

The appellant contends that the reasons given by the High Court in refusing to stay the suit are not convincing and that the discretion vesting in the High Court in that behalf has not been properly or judiciously exercised.

Section 34 of the Act confers power on the court to stay legal proceedings where there is an arbitration agreement subject to the conditions specified in the section.

The conditions thus specified are satisfied in the present case, but the section clearly contemplate.; that, even though there is an arbitration agreement and the requisite conditioµs specified by it are satisfied, the court may nevertheless refuse to grant stay if it is satisfied that there are sufficient reasons why the matter should not be referred in accordance with th~ arbitration agreement.

In other word,, the power to

-,,

stay legal proceedings is discretionary, and so a party to an arbitration agreement against whom legal proceed ings have been commenced cannot by relying on the arbitration agreement claim the stay of legal proceed ings instituted in a court as a matter of right.

It is, however, clear that the discretion vested in the court must be properly and judicially exercised.

Ordinarily where a dispute between the parties has by agreemem

between them to be referred to the decision of a domestic tribunal the court would tlirect the parties to. go before the tribunal of their choice and stay the legal proceedings instituted before it by one of them.

As in. other matters of judicial discretion, so in the case of the discretion conferred on the court by s. 34 it would be difficult, and it is indeed inexpedient, to lay down any inflexible rules which should govern the exerci<e of the said discretion.

No test can indeed be laid down the automatic application of which will help the solution of the problem of the exercise of judicial discretion.

As was observed by Bowen, L. J., in Gardner v. jay (') "that discretion, like other judicial discretion, must be exercised according to corrunon sense and according to justice."

In exercising its discretion under s. 34 the court

hould not refuse to stay the legal proceedings merely because one of the parties to the arbitration agreement is unwilling to go before an arbitrator _and in effect wants to resile from the said agreement, nor can stay be refused merely on the ground that the relations between the parties to the dispute have been embittered or that the proceedings before the a1 bitrator may cause unnecessary delay as a result of the said relations. It may not always be reasonable or proper to refuse to stay legal proceedings merely because some questions of law would arise in resolving the dispute betwef'n the parties.

On the other hand, if fraud or dishonesty is alleged against a party it may he open to the party whose character is impeached to claim that it should be given an opportunity to vindicate its character in an open trial before the court rather than before the domestic tribunal, and in a proper case the court may consider that fact as relevant for deciding

(I) (1885) 29 Ch. D 50, 58,

Printlrs (Mysort)

Private Ltd; v.

Pothan Joseph

Gajendragadkar J;

Printers ( k(>•sore)

Private Ltd. v.

Pothan Joseph

Gajendragadkar J.

whether stay should be granted or not.

Jf there has been a long delay in making an application for stay and the said delay may reasonably be attributed to the fact that the parties may have abandoned the arbitration agreement the court may consider the delay as a relevant fact in deciding whether stay should be granted or not.

Similarly, if complicated questions of law or constitutional issues arise in the decision of the dispute and the court is satisfied that it would be inexpedient to leave the decision of such complex issues to the arbitrator, it may, in a proper case, refuse to grant stay on that ground; indeed, in such cases the arbitrator can and may state a special case for the opinion of the court under s.

J 3(b) of the Act.

Thus, the question as to whether legal proceedings should be stayed under s. 34 .must always be decider! by the court in a judicial manner having regard to the relevant facts and circumstances of each case.

Where the discretion vested in the court under s. 34 has been exercised by the trial court the appellate court should be slow to interfere with the exercise of the said discretion.

In dealing with the matter raised before it at the appellate stage the appellate court would normally not be justified in interfering with the exercise of discretion under appeal solely on the ground that if it had considered the matter at the trial stage it would have come to a contrary conclusion.

If the discretion has been exercised by the trial court reasonably and in a judicial manner the fact that the appellate court would have taken a ditferent view may not justify interference with the trial court's exercise of discretion. As is often said, it is ordinarily not open to the appellate court to substitute its own exercise of discretion for that of the trial judge; but if it appears to the appellate court that in exercising its discretion the trial court has acted unreasonably or capriciously or has ignored relevant facts and has adopted an unjudicial approach then it would certainly be open . to the appellate court-and in niany cases it may be its duty-to interfere with the trial court's exercise of discretion.

In cases falling under this class the exercise of discretion by the trial

' -

,..

conn is 111 law wrongful and improper and that would certainly justify and call for interference from the appellate court.

These principles are well established: but, as has been observed by Viscount Simon, L. C., in Chareles Osenton & Co. v. Johnston (1) "the law as to the. reversal by a court of appeal of an order made by a judge below in the exercise of his discretion is well established, and any difficulty that arises is due only to the application of well settled principles m an individual case".

In the present case there is one more fact which has to be borne in mind in dealing with the merits of the controversy before us.

The appellant has come to this Court by special leave under Art. 136; in other words the appellant is not entitled to challenge the correctness of the decision of the High Court as a matter of ri1?; ht.

It is only in the discretion of this Court that it can be permitted to dispute the correc.- ness or the propriety of the decision of the High Court,' and so in deciding whether or not this Court should interfere with the order under appeal it would be relevant for us to take into aocount the fact that the remedy sought for by the appellant is by an appeal which is a discretionary matter so far as this Court is concerned.

It is in the light of these principles that we must consider whether or. not the appellant's complaint agaimt the High Court's order can be upheld.

The first point which calls for a decision relates to the construction of the contracts between the parties.

As we have already stated two O?ntracts were executed between them but their terms are substantially the sarne and so we may deal with the subsequent; contract which. was executed on February 20, 1953 (P. 2). Under this contrac.t the respondent was engaged as the Editor of the Deccan Herald and his salary was fixed at Rs. l ,.IJOO per rnensern under paragraph 1 (a).

Paragraph l(b) and (c) deal with the other amenities to which the respondent was entitled: Clause (d) of paragraph l provides that when the newspaper shows a profit in the annual accounts the Editor shall be entitled to I/10th share of it; it is pn this clause that the respondent's claim in the present proceedings is

(I) [1942] A.C. 130, 138.

Printers ( .tlfysore)

Private Ltd., v.

Potluiii Joseph

Gajmdragadkar J.

1960 based. The terms on which the respondent had to re- -- main in the service of the appellant are specifiedinpara- Pri•ters (Mysore) h 2( ) d (b) p h 3 "d f" h 1 Private Ltd grap a an . aragrap prov1 es or t e renewa v. of the contract for a further period of five years if it is Po than Joseph found that such renewal is for the mutual advantage of . - the parties. This paragraph also provides that during Ga; endragadkar f. the continuance of his employment the respondent shall not directly or indirectly be interested in any other newspaper business than that of the appellant or any other journalistic activities in competition with that of the appellant. It also stipulates that if the contract is determined the respondent shall not for a period of three years thereafter be directly or indirectly interested in any newspaper business of the S'lme kind as is carried on by the appellant within the Mysore State. It would thus be seen that this paragraph shows the liability imposed on the respondent as a consideration for the benefit conferred on him by paragraph 1 in general and cl. (d) of the said paragraph in particular.

Paragraph 4 contains an arbitration agreement. It provides that if in the interpretation or application of the contract any difference of opinion arises between the parties the same shall be referred to arbitration.

The arbitrator can be named by both the parties but if they failed to choose the same person each side will choose an arbitrator and the two will elect another person to complete the panel. Their award shall be final and binding on both the parties.

The High Court has held that the present snit is outside the arbitration agreement because neither party disputes the applicability of the terms of the contract in the decision of the dispute. The High Court thought that in the context the words ' application of the contract' meant a dispute as to the applicability of the contract, and since the applicability of the contract was not in question and no dispute as to the interpretation of the contract arose, the High

Court held that paragraph 4 was inapplicable to the present suit. Mr. Purshottam, for the appellant, contends that the construction placed by the High Court on the word "application" is erroneous. According to him, any difference of opinion in regard to the application of the contract must in the context mea.n

•...

the working out of the Gontract or giving effect to its terms. In our opinion, this contention is well founded.

The words 'interpretation or application of the contract' are frequently used in arbitration agreements and they generally cover disputes between the parties in regard to the construction of .the relevant terms of the contract as well as their effect, and unless the context. compels a contrary construction, a dispute in regard to the working of the contract would generally fall within the clause in question.

It is not easy to appreciate what kind of dispute according to the High Court would have attracted paragraph 4 when it refers to a difference of opinion in the application of the contract.

Since both the parties have signed the c'cmtract the question about its applicability in that

forn~ e<ln hardly arise. Differences may, however, arise and in fact have arisen as to the manner in which the contract h'1s to be worked out and given eHect _to, and it is .precisely such differences that are covered by the arbitration agreement. \Ne would accordingly hold that the High Court was in error incoming to the conclusion that the present dispute between the parties was outside the scope of paragraph 4 of the contract. 1f the High Court had refused to stay the present proceedings only on this ground the appellant would no doubt have succeeded; but the High Court has based its decision not only, nor even mainly, on thr construction of the contract.

The tenor of the judgment suggests that the High Court considered the other relevant: facts to which its. attention '"'as invited and the material findings recorded by the trial judge. and though it differed from some of the findings of the trial judge, on the whole it felt no difficulty in coming to. the conclusion that there was no reason to interfere with the trial court's exercise of discretion under s. 34.

That is why, even though the appellant has succeeded before us on the question of the construction of the arbitration agreement, having regqrcl, to the limits which we generally impose on the exercise of the jurisdiction under Art.

I%, he must still satisfy us that we would be justified in interfering with the concurrent exercise of discretion by the two courts below, and that would inevitably depend upon the other

Printtrs ( A!6>sor•)

Privat• Ltd. v.

Pothat1 Joseph

Gajmdragadkar

Printers (Mysore)

Private Ltd.

Potka11 ,7ospk

Gajendragadknr J.

724 SUPREl\lE COURT REPORTS [ 1960]

relevant facts to which both -the courts have referred, and on which both of them have relied though m different ways.

what then are the broad features of the case on which the trial judge and the High Court have respect ively relied? It is clear that the present dispute is not the resuJt of an ordinary commercial transaction containing an arbitration clause. The contract in question is between a journalist and his employer by which the remuneration of the journalist has been fixed in a somewhat unusual manner by giving him a specified percentage in the profit which the Deccan Herald would make from year to year.

According to the respondent he was surprised when the General Manager of the paper informed him that 75% of the overall expenditure incurred in the several activities of the appellant: was being charged to the Deccan Herald, and that the capital liabilities were charged in the same proportion; he thought that this system of accounting adopted by the appellant was repugnant: to the material

provisions in his contract. Indeed bis case is that after he came to know about this system he protested to the Director, Mr.

Venkataswamy, who has been taking active part in the affairs of the appellant, and Mr.

Venkataswamy assured him that as from the beginning of 19ilii the accounts were being separately maintained.

It would appear that the information received by the respondent from the General Mana12:er disillusioned him and that appears to be the beginning of the present dispute, according to the respondent's letter of May 24.

19.55, (D. 1 ).

On February J 8, I 956, the respondent invoked the arbitration agreement and told Mr.

Venkataswamy that Mr. Behram Doctor had agreed to work as arbitrator and give his award ID. 2). \fr.

Venkataswamy who was addressed by the respondent as the l\'fana~!ing Director told him by his reply of March ~. I Y?>Ci, that he was not t:he Manap; ing Director and added that in his view it was not open to the respondent to invoke cl. 4 of the contract because he was aware that no monies were payable to the respondent under cl. 1 (d).

It would thus be seen that \fr. \'enkataswamy's immediate response to the respondent's request for arbitration was that the rcspon- .

dnt 'could not invoke, the arbitration clause (D. 3). It 1960 is tnie that o'n April 23, . 1956, Mr. Venkataswamy a_ttempted to explain this statement. by saying . that all Pr~~~~~AJ!tJre) that he intendJd to. s:uggest was that no occasion for v. irwoking the arbitratio1J. agreement had arisen.

That, Pothan Joseph

ltq1e\:er, .appears to , )Je an unsatisfactory explanation ... (J?, 10), Even so, Mr. Venkataswamy agreed to meet Gajendragadkar J; Mr. Bel)ram Doctor and so. on March 9, 1956, the

rspondent gave to Jvt; r. Venkataswamy the address of J\if r. Behram. Doctor and asked him to see him (D. S). fie informed Mr.

Bepram Doctor accor, dingly (D. 6).

Ii appears that subsequently Mr.

Behtam Doctor n1et both the respondent and Mr, Venkataswamy on M, ay _9. J 956. be. proceeding.s of , this meeting which have been kept by Mr. Behram Doc.tor and copies of which have been supplied by him to both the parties indicate that Mr. . Behram Doctor attempted to mediate between the parties and presumably te parties were

ageeable to secure the mediation of Mr.. Behram

D~Ktor to resolve dispute. v\Te ought to add . that the copy of. the said proceedings produced by the appellant contains a statement that Mr. Venk.ataswamy at the outset told Mr.

Behram Doctor that he had come 'oh an unofficial visit 'and was speaking without the consent. of the other directors.

This' statement is,' however, not tq. be found in the copy' supplied by Mr.

Behram Doctor to the. resporn:lent. . Prim:i facie it is mt easy to 1, mdersand why Mr.

Behram Doctor should have omitted this material statement in the copy SUp]; lied by him to the respondent.

Tht, however, isa matter which we do not propose)o pl.Ii-sue io the ptesent appeal.

It is thus clear that though Mr.

Behram Dottor was not appointed an arbitrator and no reference in ' writing was made to him an attempt. was mad~ by' th~ 'parties to settle the dispute with the assi&tance of Mr.

Behrarri Doctor, and that attempt faild.' Haying rega'rd 'to the facts which have come on the recqrd it may not be unreasonable to infer

tliat the appellaJ?t was not too kt; en, tq pinsue the rrfa ttcr on the lries originally' adopted by ' both the patties before Mr.· Behram Doctor.· · It' also appars th;; tt for some, years th~ accouts .of , flie' D'eccan Herald 1:had not been separately kept as'

30'-6 '.sCi-/ND/8.2.:

1960 ;

Printers ( k(}isore)

Private Ltd. v.

Pothan Joseph

Gajendragadkar J.

they should have been according to the respondent"s case.

The respondent alleges that they have not been kept separately throughout the ten years; but that is a matter which is yet to be investigated.

If the accounts are not separately kept the question of allocating expenditure would inevitably arise and that can be decided after adopting some ad hoc. principle in that behalf.

A plea of limitation has also been indicated by the appellant and it has ben suggested that the first contract having merged in the second it is only under the latter contract that the ffspondent may have a cause of action.

Thus the eflect of the two contracts considered together may have to be adjudged in dealing with the question of limitation. lt has also been suggested that the respondent , knew how the accounts were kept from year to year and in substance he may be deemed to have agreed with the method adopted in keeping the accounts.

If this point is raised by the appellant it may involve the decision of the question about the effect of the respondent's conduct on his present claim. The appellant has also suggested that the respondent has adopted an attitude of blackmailing the appellant and the respondent treats that as an aspersion on his charac- . ter. The relations between the parties have been very much embittered and the respondent apprehends that the appellant, being a powerful company, may delay and seek to defeat the respondent's claim by protracting the proceedings before the arbitrators.

It now looks impossible that the parties would agree to appoint one arbitrator, and so if the matter goes before the domestic tribunal the two arbitratots appointed hy the two parties respectivly may have to nominate a third one to complete the constitution of the domestic tribunal, and that it is , aid may easily lead to a deadlock.

In the trial court attempts were made to sett.le this unfortunate dispute but they failed and the respondent's grievance is that the appellant adopted an unhelpful and non-co-operative attitude.

It appea1s fairly clear that when the parties entered into the present contract and agreed that differences between them in regard to the interpretation and application of the contract should be referred to

. -

--· .

arbitration they did not anticipate the complications which have subsequently arisen.

That is why an arbitration agreement may have been introduced in the contract in question.

All these facts have been considered by both the courts, and though it is true that in their approach and final decisions in respect of these facts the two courts have differed in material particula1:s, they have in the result agreed with the conclusion that the discretion vested in them should be exercised in not granting stay as claimed by the appellant.

Under these circumstances we do not think we would be justified in substituting our discretion for that of the courts below.

It may be that if we were trying the appellant's application under s. 34 we might have come to a different conclusion; and also that we may have hesitated to confirm the order of the tnal court if we had been dealing with the matter as a court of first appeal; but the matter has now' come to us under Art. 136, and so we can justly interfere with the concurrent exercise of the discretion by the .courts below only if we feel that the said exercise of discretion is patently and manifestly unreasonable, capricious or perverse and that it may defeat the ends of justice. Having regard to all the circumstances and facts of this case we are not disposed to hold that a case for our interference has been made out by the appellant.

That is why we dismiss this appeal but make no order as to costs throughout.

Appeal dismissed.

COMMISSIONER OF INCOME-TAX,

AHMEDABAD v.

K:ARAMCHAND PREMCHAND LTD.,

AHMEDABAD. (S. K. DAS, J. L. KAPUR and

M. HIDAYADULLAH, JJ.) Income-tax-Set-off-Business loss in Indian State-Profits in British India-Applicability of the Act to business in Indian State- Business Profits Tax Act, 1947 (21 of 1947), ss. 2(3), 4, 5.

The assessee held the managing agency of a limited company in what was then called "British India" and had also a pharma-

Printers (Mysore)

Privale Ltd.

v ..

Pothan Joseph

Gajendragailkar J.

April 28.

Pingle Industries

Secunderabad

THE PRINTERS (MYSORE) PRIVATE LTD

POTHAN JOSEPH. (P. B. GAJENDRAGADKAR

K. c. DAS GUPTA, JJ.

Arbitration Act, 1940

s. 34

Constitution of India

Art. 136

Deccan Herald

s. 34

Arbitration Act, 1940

Art. 136

s. 34

Arbitration Act, 1940

Art. 136

s. 34

CIVIL APPELLATE JtrRJSDICTJON

Pnrshottam Trikamdas

P. L. Vohra

K. R. Karanth

Naunit Lal

GAJENDRAGADKAR

Pothan Joseph

Printers (Mysore) Private Ltd.

Bangalore

March 31, 19.58

March 17, 19.58

T. S. Ramachandra Rao

July 14,' 1958

s. 34

Mysore High Court

Gajendragadkar

Additional Civil Judge, Bangalore

Art. 133(1)

February 20, 1953

March 17, I 9.~8

October 16, 19.57

Vorking Journalists Act

Behrarh Doctor

Behram Doctor

Pothart Joseph

Gajendmgadkar

Section 34

s. 34

Bowen

s. 34

s. 34

s. 34

Viscount Simon

Art. 136

Joseph

Mysore

Purshottam

s. 34

Gajendragadknr

Venkataswamy

Venkataswamy

cl. 4

cl. 1

\'enkataswamy

Venkataswamy

Pothan Joseph

Bel)ram Doctor

Bepram Doctor

Behtam Doctor

Behram Doc.tor

Behram

D

Venk.ataswamy

Behram Doctor

Behram Dottor

Behrarri Doctor

s. 34

Art. 136

COMMISSIONER OF INCOME-TAX

ARAMCHAND PREMCHAND LTD

S. K. DAS

J. L. KAPUR

M. HIDAYADULLAH

ss. 2(3), 4, 5

Pothan Joseph

Gajendragailkar