J. N. SAKSt::lliA

\'.

STATE OF MADHYA PRADESH

January 30, I 967

(K. N. WANCHOO AND V. RAMASWAMI, JJ.j 8

Cons1i1utio1l of J11diu, 1950, Arts. 309 uucl 31 l-Stale Govtrunren .nie1norand11n1 raising age <>/ re1iren1c111 of its serva111s froin SS 10 58

years-Provision for earlier cornpulsory re1irc1ne111 of 'uu.r11itublc' r111ployees--Order of co1npu/sory re1ircn1ent co111ai11ing no cxpre.'iS unrds of .\tignJO-Stigma whether can be inferred /ro1n proVi!iiOns of 111en1orc111du:11 -Such conipulsory retirc1nc111 whether arnounts to re1no, al \\.'ilhin meaning Of Art. 311-Ru/es i11 1ne11rorandum whether rule_,. under Art. 309.

Madhya Pradesh Judicial Service (Clt1.lsi{icatio11, Recruitn•"!llt and Con dition.r of Service) Rules, 1955, r. 7(2)-R11/e whether makr.s All India Services (Death-cum-Retirement Benefits) Rules, 1958 app//cab/e to Di.<· trict Judges in Madhya Prade.rlt.

On February 28, 1963 the Government of Madhya PraJcsh mucd a memorandum whereby the age of retirement of its employees wa'i raised from 55 to 58 years. Clause 5 of the memorandum howcvzr said that th<: appointing authority may require a Government ser\ant to rc1irc after he .attained the age of SS years on three monThs' notice without giving any

reasons. The clau<e further said that this power was normally to he used to weed out unsuitable employees.

The appellant who wit~ o District and Sa.sions Judge in the service of the State Government would normally have retired at the age of 55 years in August 1963, but under 1he abcvc mem<>-

randum his servi= were extended beyond that date.

In September 1963 however. Government communicated to him an order that he was to retire on December 31, 1963.

On December 6, 1963, o notifica!ion was issued by the Sta\e Government amending rule 56 of the Fundamental Rules applicable to the State of Madhya Prade<; h.

By the amended F.R. 56 the age of retirement of Government servants was raised to SS ycaPi with effect from March I, 1963. All the provisiom of cl. 5 of the aforesaid mem<>- randum or February 28, 1963 were not incorporated into the new rule by this amendment. The appellant filed a writ petition in the High Coun challenging the order compulsorily retiring him on December 31. 1963. II

was rejcclcd and rhe appellant came. wilh certificate, to this Court.

The question• 1hat fell for consideration were: (i) Did the order compulsorily retiring the appellanl cast a stigma on him in view of the language of cl. 5 of the memorandum and if so whether Art. 311 of the Constitution

was attracled ? (ii) Was the Memorandum a rule under Art. 309 of the Constitution? (iii) If it was not a rule, would not the appellant be liable to retire in August 19557 (iv) Were the All India Services (Death-cum- Retirement Benefits) Rules. 1958 applicable tD the appellant by virtue of r. 7(2) of the Madhya Pradesh Judicial Service (Clos.<ification, Recruitment and Conditions of Service) Rules, 1955 7

HELD : (i) Where there are no express words in the order of compulsory retirement itself which would throw a stigma on the Government Krvant. the Court would not delve into Secretariat files to di'.tcovcr whether some kind of stigma could be inferred on such research.

Since in the present case there "'ere no words of stigma in the order compulsorily retir

A ing the appellant, there was no removal requiring action under Art. 311 of the Constitution. [501 E; 502 A)

Jngdish Mitter v. Union of India, A.I.R. 1964 S.C. 449 and State of U.P. v. M, M. Nngar (1967] 2 S.C.R. 333, distinguished.

(ii) The memorandum of February 28, 1963 contained merely executive instructions and was not a rule under Art. 309 of the Constitution. The only rule which the Government had made on the question of superannuation was by the notification of December 6, 1963. This rule would apply to the appellant and it did not empower the Government to retire Govern-. ment servants over the age of 55 years on three months' notice without assigning any reason. As this rule would apply to the appellant from the date it came into force, the notice which had been served retiring him from December 31, 1963 must fall. [504 B-C]

Shyam Lal v. Slate of U.P. [1955] 1 S.c:R. 26, distinguished.

(iii) Though ordinarily the power of Government lo extend the .services of Government servants, as contemplated by the then existing

P.R. 56 is to be exercised in individual case under individual o.rders, there is nothing to prevent the Government passing a general order if it decide• that all Government servants be retained up to a certain age. The memorandum of February 28, 1963 amounted to an order of Government under the then existing P.R. 56, retaining the services of all Go.vernment servants up to the age of 58 years subject to the conditions prescribed in the memorandum till an appropriate rule as to the age of superaQlluation was framed.

Therefore under this memorandum the appellant became entitled to continue in service beyond the age of SS years and consequently he did not have to retire in August 1963. [S04 F-S05 CJ

(iv) Rule 7(2) of the Madhya Pradesh Judicial Service Rules, 19S5 can only take in rules which applied to officers holding superior posts. in the cadre of the Indian Administrative Service on the date it came into force in 1956. The Rule does not say that all future :unendments to the rules relating to officers holding supenor posts in the cadre of the Indian Administrative Service would also apply to District Judges.

In these circumstances the respondent c<:!uld not .take advantage of the All India Service Rµles, 1958, particularly of a rule which came into force in

1963. (505 E-F]

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 670 of 1965.

Appeal from the judgment and order dated April 30, 1964 of the Madhya Pradesh High Court in Misc. Petition No. 132 of 1964.

Rameshwar Nath and Mahinder Narain, for the appellant.

B. Sen, M. N. Shroff an<!/. N. Shroff, for the respondent.

The Judgment of the Court was delivered by Wanchoo, J. This is an appeal on a certificate granted by the High Court of Madhya Pradesh and arises in the following circumstances. The appellant was in the service of the State of Madhya Pradesh as a District and Sessions Judge. He, was born on August

22, 1908 and would in the normal course have retired on comp- A leting the age of 55 years in August 1963. But on February 28, 1963, the Government of Madhya Pradesh issued a memorandum to all the Collectors in the State. Copy of this memorandum was also sent to the Registrar, High Court as well as the Finance Department and the Accountant General. The relevant part of this memorandum is as follows :- B

"The State Government have decided that the age of compulsory retirement of State Government's servants should be raised to 58 years subject to the following exceptions .................. .

Notwithstanding anything contained in the foregoing paragraphs, the appointing authority may require a Government servant to retire after he attains the age of 55 years on three months' notice without assigning any reasons ................ the power will normally be exercised to weed out unsuitable employees after they have attained the age of 55 years.

A Government servant may also after att:iining the age of 55 years voluntarily retire after giving three months' notice to th<.' appointing authority.

6. These orders will have effect from the I st March, 1963.

Necessary amendments to the State Civil Service Regulations will be issued in due course."

In consequence of this memorandum, the appellant who, would have otherwise retired in August 1963, continued in service.

On September 11, 1963 the Government sent an order to the appellant in the following terms :-

"In pursuance of the orders contained in General Administration Department memorandum No. 433-258-1 (iii)/63, dated the 28th February. 1963, the State Government have decided to retire you with effect from the after noon of the 31st December. 1963.''

This order was obviously in terms of the fifth paragraph of the memorandum which said thal ·111c appointing authority may require a Government servant to rtire after he attains the age of 55 years on. three month>° notice without assigning any reason.''

SAKSENA v. M.P. STATE (IVanchoo, J.) 499

On November 29, 1963 a notification was issued by the Finance Department which was published in the Madhya Pradesh Gazette dated December 6, 1963 in the following terms :-

"In exercise of the power conferred by the proviso to Article 309 of the Constitution, the Governor of Madhya .Pradesh hereby directs that the following further amendments shall be made in the Fundamental Rules applicable to the State of Madhya Pradesh namely :-

"All Rules in Chapter IX of the said Rules regarding Compulsory Retirement shall be deleted and the following shall be inserted as a new Rule 56, namely :-

"F. R. 56 :-The date of compulsory retirement of a Government servant, other than a Class IV employee, is the date on which he attains the age of 58 years. Only Scientific and Technical personnel may be retained in service after the age of compulsory retirement with the sanction of the competent authority subject to their fitness and suitability for work, but they should not ordinarily be retained beyond the age of 60

years.''

c'The date of retirement of a Class IV Government servant is the date on which he attains the age of 60 years.

"The rule has come into effect from !st March, 1963."

It will be seen that this amendment to the Rules did not include that part of the fifth paragraph which gave power to the appointing authority to require a Government servant to retire after he attains the age of 55 years on three months' notice without assigning any reason. Thereafter the appellant was retired. He then filed a writ petition on March 24, 1964 challenging the order retiring him.

His contention was two-fold, namely-(i) tjiat the rule as it stood after the amendment of November 29, 1963, published in the Gazette of December 6, 1963, contained no provision reserving power in Government to retire a Government servant after he attains the age of 55 years on three months' notice without assigning any reason. and therefore the appellant could not be retired on December 31, 1963 in the face of the rules, and (ii) that as the order of his retirement cast a stigma on him it amounted to his removal, and therefore action under Article 31 l of the Constitution was necessary, and that was admittedly not complied with.

H The application was opposed on behalf of the State Government, and their case was-(i) that the order in question cast no stigma on the appellant, . and therefore no action under Art. 311 M2Sup.Cl/67-3

500 SUPRJ!MB COURT lU!PORTS

[1967] 2 S.C.R.

was necessary, (ii) that the memorandum of February 28, 1963 was in itself a rule and therefore the appellant was rightly retired in view of paragraph 5 of that memorandum, (iii) that if the memo-

Tandum was not a rule the appellant must be deemed to have retired in August 1963 in view of the old rule which prescribed 55 years as the age of retirement, for he could not take advantage of the memorandum, and (iv) that in any case the appellant's case would be covered by the All India Services (Death-eum- Retirement Benefits) Rules, 1958, as amended in 1963 and the order retiring him on three months notice after the age of 55 years was therefore valid.

The High Court held that the order in question retiring the appellant cast no stigma on him. It further held that the memorandum of February 28, 1963 was in itself a rule under Art. 309 and therefore the appellant was rightly retired under that rule.

The High Court also held that if the memorandum was not a rule, the appellant could not have continued in service after August 1963 i11 view of the old rule and could not therefore get the benefit of the new rule raising the age of retirement to 58 years. In this view the High Court did not consider the question whether the All India Services (Death-cum-Retirement Benefits) Rules, 1958 would apply in the present case or not. In the result, the High Court dismissed the petition, but granted a certificate to the appellant as prayed by him, and that is how the matter has come before us.

The first point that the appellant has raised is that the order in question requiring him to retire cast a stigma on him and therefore it amounted to removing him from service and action under Art. 31 I was required. In this connection reliance has been placed on Jagdish Mitter v. the Union of India.(') In that case the order was in these terms : -

"Shri Jagdish Mitter, a temporary 2nd Division Clerk of this office having been found undesirable to be retained inGovernrnent service is hereby served with a month's notice of discharge with effect from November I, 1949." It was held that when the order referred to the fact that Jagdish Mitter was found undesirable to be retained in Government Service, it expressly cast a stigma on him, and in that sense must be held to be an order of dismissal and not a mere order of discharge. This case has been recently followed in the State of U.P.

v. M. M. Nagar.(2) There also the order in express terms contained words which cast a stigma on the Government servant who was compulsorily retired and it was held in those circumstances. that the order was in fact an order of removal from service. This Court

(I) A.!.R. 1964. S. C. 449.

has consistently held that where the order .directing compulsory retirement expressly contains words which cast a stigmaon a Government servant, the order is equivalent to an order of wmoval and action under Art. 311 is necessary. But we asked learned counsel for the appellant to point out any case of thisCourt where in the absence of any express words in the order itself casting stigma on a Government servant, this Court has held that the order of compulsory retirement amounts to removal. Learned counsel was unable to refer to any such case. But what he argues is that though the order in question in this case contains no words from which any stigma can be inferred to have been cast on the appellant, we should look to the memorandum,- which is referred to in the otder and then infer that a stigma was cast on the appellant because the memorandum at the end of paragraph 5 says that the power to retire will normally be exercised to weed out unsuitable employees after they attain

thi~ age of 55 years. It is urged that we should read those words in the order retiring the appellant from December 31, 1963.

We are not prepared to extend the decisions of this Court on this aspect of the matter in the manner contended for by the appellant.

Where an order requiring a Government servant to retire compulsorily contains express words from which a sti~ can be inferred, that order will amount to removal within the mean ing of Art. 311. But where there are no express words in the order itself which would throw any stigma on the Government servant, we cannot delve into Secretariat files to discover whether some kind of stigma can be inferred on such research. Besides, para 5 of the memorandum is obviously in two parts. The first part lays down that "notwithstanding anything contained in the foi'e" going paragraphs, the arpointing authority may require a Government servant to retire after he attains the age of 55 yearson three.

onths' notice without assigning any reason."· Ther~ is no stigma here. The second part to which the appellant refers is nothing more than a direction from Government to the appointing authority that it will not use the above power except to weed out unsuitable employees after they have attained the age of 55 years. When, therefore, the order in question refers to the memorandum it really refers to the first part of paragraph 5 wherein power is given to the appointing authority to retire a Government servant after he attains the age of 55 years on three months' notice without assigning any reason. It may be mentioned that the order assigns no reason.

In the circumstances we hold that as the order does not expressly contain any words from which any stigma can be inferred it cannot amount an order of removal. What the appellant wants us to hold is that the mere fact that a Government servant is_ compulsorily retired before he reaches the age of superannuation is in itself a stigma. But this is against the consistent view of the Court that if the order of compulsory retirement before the age

of superannuation contains no words of stigma it cannot be held to be a removal requiring action under Art. 311.

This brings us to the next question, viz., whether the memorandum itself amounts to a rule under Art. 309 of the Constitution as held by the High Court. The High Court seems to have relied in this connection on the judgmen\ of this Court in Shyam Lal v. theState of U.P.(1) where a Resolution of November 15, 1919 was held to be a rule by this Court, though later that Resolution was incorporated in the Civil Service Regulations in June 1920.

It is however clear that facts in that case with respect to the Resolution of November 15, 1919 were very different.

In the first place the Resolution was published in the Gazette of India while in the present case the memorandum which bas been treated by the High Court as amounting to rules made under Art. 309, has never been published in the Gazette. As already indicated, it is only in the form of a letter to the Collectors with copies to the High Court, the Finance Department and the Accountant General. Secondly, the Resolution of November 15, 1919 in terms said that it was announcing certain new rules relating to retiring pensions of certain officers in the services specified therein. The present memorandum is not in the form of rules.

Further it is said definitely in paragraph 7 of the memorandum that necessary amendments to the State Civil Service Regulations would be issued in due course. It is one thing to issue rules and thereafter incorporate them in the Civil Service Regulations, it is quite another thing to issue a memorandum of this nature which is merely a letter from Government to all the Collectors with the specific direction that necessary amendments to the State Civil Service Regulations will be issued in due course. It is true that the letter says that the order will have effect from March I, 1963, but that does not make the

memorandum of the State Government a rule issued under Art. 309, when it is said in the memorandum itself that r.ecessary amendments to the State Civil Service Regulations will be issued in due course. We hav~ already set out the relevant parts of the memorandum and the very first sentence shows that the memorandum is merely an executive direction and not a ruJ;!, for we cannot understand how a rule could be in the following words, namely- "The State Government have decided that the age of compulsory retirement of State Government's servants should be raised to 58 years." The very form of these words shows that it is conveying an executive decision of th~ State Government to Collectors to be followed by them and is not a rule issued under Art. 309 of the Constitution. The form in which a rule is issued under Art. 309 is clear from what happened on November 29, 1963 when the amendment was actually made.

We have set out that already, and the contrast in the language would show that the latter was

(I) (t9651 I S.C.R. 26.

a rule while the former was merely an executive instruction by Government to its Collectors with a copy to the High Court, the Finance Department and the Accountant General.

It is however urged that when the rule was framed in November 1963 it stated that it had come into effect from March 1, 1963, and that shows that the memorandum must amount to a rule. It is true that the rule said so. It is not necessary for us to decide whether a rule of this kind which was notified on December 6, 1963 could be made retrospectively. If it could be made retrospectively, the notification of December 6, 1963 itself would make it retrospective and one need not go to the memorandum for that purpose. If it could not be made retrospectively, the fact that the notification of December6, 1963 said that the rule had comeintoforcefromMarch l, 1963 would still nol make the memorandum a rule. As we shall show later the memorandum could be legitimately justified as an executive order of Government in view of F.R. 56 as it was up to February 28,

1963. We therefore see no reason to hold that this memorandum ofFebruary28, 1963, which was never published in the Gazette, which was in the form of a letter addressed to Collectors with a copy to the High Court, the Finance Department and the Accountant General and which itself said that necessary amendment to the State Civil Service Regulations will be issued in due course, was anything more than a mere executive instruction of Government.

If there was any doubt about the matter, it is in our opinion removed by what happened when the amendment to F.R. 56 was made and published on December 6, 1963.

That amendment has been set out by us above. It says nothing about what is contained in paragraph 5 of the memorandum. If it was the intention of Government that the first part of para 5 of the memorandum should also form a part of the rule, we fail to see why that was not inserted as a note, proviso or explanation to F.R. 56 when it was in terms amended on November 29, 1963and theamendment was published intheGazette of December 6, 1963. The omission of the first part of paragraph 5 from the notification is itself an indieation that the memorandum of February 28, 1963 contained mere executive instructions. It may be that later Government decided not to include the first part of paragraph 5 in the rule and therefore it did not find place in the amendment of November 29. The analogy that the High Court has drawn between the Resolution of November 15, 1919 which was discussed in Shyamlal' s case (1) does not therefore apply and we are of opinion that the memorandum of February 28, 1963 contained merely executive instructions.

The rule framed on the basjs of these executive instructions does H not contain the first part of paragraph .5.

Apparently the Government dropped the idea of retiring compulsorily Government ser-

(1) [l 955] l S. C.R. 26.

504 SUPllBMB COUllT llBPOllTS

[1967) 2 S.C.R.

vants after they had attained the age of 55 years on three months' notice; otherwise we do not see why this was not included in the amendment when it was published on December 6, 1963. We may

note in contrast that the contents of para 3 of the memorandum were incorporated in the rule.

We therefore hold that the memorandum of February 28, 1963 does not amount to rules under Art. 309; it contains merely executive instructions, and the only rule which the Government has made on the question of superannuation is by the notification of December 6, 1963. That rule would apply to the appellant and it does not empower the Government to retire Government servants over the age of 55 years on three months' notice without assigning any reason.

As this rule would apply to the appellant from the date it came into force, the notice which had been served retiring him from December 31, 1963 must fall in the face of the rule published on December 6, 1963. ·

Then it is urged that if the memorandum of February 28, 1963 does not amount to rules under Art. 309, the appellant would have to retire in August 1963 and therefore could not take advantage of the rule published on December 6, 1963 filling the age of retirement at 58. We are of'opinion that there is no force in this contention. Fundamental Rule 56, as it existed before March I, 1963, provided 55 years as the age of retirement. It further provided that a Government servant might bC retained in service after that date with the sanction of the local Government on public grounds which be~in~~he~be~~~~ age of 60 years except in very special circumstances. It is clear therefore that it was open to Government to extend the date of retirement of a Government servant under F.R. 56 (a) or 56 (aa), if it so desired. It is true that the extension contemplated by this role was generally for individuals and an individual order is passed in such a case. But we see nothing illegal if the Government came to the conclusion generally that services of all Government servants should be retained till the age of 58 in public interest. In such a case a general order would be enough and no individual orders need be passed. We are of opinion that the memorandum of February, 28, 1963 is merely in the nature of such a general order of extension of service by Government under F.R. 56 as it existed on that date.

It seems that the Government thought it proper in the public interest to retain all Government servants up to the age of 58 under F .R. 56 and these executive instructions must be taken to provide such retention till a proper rule, as envisaged in the memorandum, came to be made. As we have indicated already, we see nothing in F.R. 56 as it was which would in any way bar the Government from passing such a general order retaining the services of all Government servants up to the age of 58, though ordinarily one would expect an individual order in each individual case under that rule.

Even so, if the Government comes to the conclusion generally that

F >

services of all Government servants schould be retained up to the age of 58 years, we cannot see why the Government cannot pass a general order in anticipation of the relevant rule being amended raising the age of retirement in the public interest. We theerfore read the executive instructions contained in the memorandum as amounting to an order of Government retaining the services of all Government servants up to the age of 58 years subject to the conditions prescribed in the memorandum till an appropriate rule as to age of superannuation is framed. Therefore, the appellant would continue in service after he attained the age of 55 years in August 1963.

But when actually the rule came to be framed on November 29, 1963 it dropped the conditions mentioned in the memorandum; thereafter it is that rule which would apply to him after it was published on December 6, 1963, and as that rule contained no reservation of any power in Government to retire a Government servant on three months' notice without assigning any reason after the age of S5 years, the notice issued to the appellant must fall .

Lastly, it is urged that the appellant could be retired under the All India Services (Death-cum-Retirement Benefits) Rules, 1958.

It is urged that those rules apply to District Judges in view of the Madhya Pradesh Judicial Service (Classification, Recruitment and Conditions of Service) Rules, 1955. Rule 7(2) thereof provides that "the Rules and other provisions relating to pension and gratuity which apply to officers holding superior posts in the cadre of the Indian Administrative Service shall apply mutatis mutandis to District Judges also." We are ofopinion that this provision can only take in the rules which applied to officers holding superior posts in the cadre of the Indian Administrative Service on the date it came into force in 1956. The rule does not say that all future amendments to the Rules relating to officers holding superior posts in the cadre of the Indian Administrative Service shall also apply to District Judges appointed under the Madhya Pradesh Judicial Service (Classification, Recruitment and Conditions of Service) Rules, 1955. In these circumstances the respondent cannot take advantage of the All India Services (Death-cum-Retirement Benefits) Rules, 1958, particularly of a rule which came into force in 1963.

Our attention has also been drawn to the Madhya Pradesh New Pension Rules, 1951. But those rules do not apply to District Judges. Further in any case the provision with respect to retiring at the age of 55 years on three months' notice was introduced in those rules in August-September 1964, and the Government could not therefore take advantage of that rule at the time when the appellant was retired. .

We therefore allow the appeal, set aside the order of the High Court and quash the order of retirement passed in this case. The appellant will be deemed to have continued in the service

of the Government in spite of that order.

As however the appellant A attained the age of 58 years in August 1966. it is not possible now to direct that he should be put back in service.

But he will be entitled to such bcnefiL~ as may accrue now to him by virtue of the success of the writ petition. The appellant will get his costs from the State throughout.

G.C.

Appeal a/lo\\'ed.

STATE OF MADHYA PRADESH

K. N. WANCHOO

V. RAMASWAMI, JJ

Arts. 309

SS 10

Art. 311

Art. 309

Clause 5

cl. 5

cl. 5

Art. 311

Art. 309

Art. 311

(1967] 2 S.C.R. 333

February 28, 1963

Art. 309

Rameshwar Nath

Mahinder Narain

B. Sen

M. N. Shroff

Wanchoo

State of Madhya Pradesh

August

22, 1908

Government of Madhya Pradesh

September 11, 1963

November 29, 1963

Article 309

March 24, 1964

December 31, 1963

Article 31

Art. 311

Art. 309

Art. 31

Jagdish Mitter

November I, 1949

Art. 311

Art. 311

Art. 311

Art. 309

November 15, 1919

India

Art. 309

March I, 1963

Art. 309

Art. 309

Art. 309

March 1, 1963

December 6, 1963

December6, 1963

February 28,

1963

November 29, 1963and

Shyamlal

Art. 309

Art. 309

February, 28, 1963


MANEKLAL JINABHAJ KOT

I'.

STATE OF GUJARAT & ORS.

January 30, 1967

[M. HIDAYATULLAH, S. M. SJKRI AND C. A. VAIDIALINGAM, JJ.J

Factories Act, (63 of 1948) s. 101-Mancgef or occupier-When can be absolved from liability.

The appellant, who was the manager of a factory had iued notices warning the heads of various departments in the factory to strictly comply with the provisions o{ the Factories Act and also that there should be no double employment. Certain workers were found working in a third shift contrary to the notice of periods displayed in the factory. A com

plaint was filed against the appellant for contravention of s. 63 of the Act.

On receiving the summons, he filed in his tum a complaint under s. 101, impleading as accused the salesman and supervisor as actual offenders. The evidence showed that the appellant was not present when the offence was committed, that the salesman and oupervisor were incharge of the depart ment, that the appellant did not allow any worker to work in the third shift, on the material date, that he did not re.:eive any information from the salesman and the supervioor about their proposal to have a third shift on that date, that he came to know about the occurrence the next day, and that, immediately thereafter, he took action against the salesman and supervisor. The salesman and the supervisor pleaded guilty to the charge The trial Court held that the offence had taken place with the consent, knowledge or connivance of the appellant, from the fact that the wages were paid by the Mill to those workers, and convicted the appellant and discharged the salesman and supervisor.

The High Court confirmed the order of the trial Court.

Jn appeal to this Court :

HELD : The appellant should be discharged and the salesman and supervisor should be convicted.

Under s. 101, when the manager or occupier is charged \\'ith an offence~ he is entitled to make a complaint, in his own turn, to establish facts mentioned in the said section, viz,., (i) that he bas uoed due diligence to enforce the e<ecution of the Act, and (ii) that the alleged actual offenders committed the offence in question without his consent, knowledge or connivance. If he is able to establish that it was such other person, who has committed an offence, and satisfies the other requirements of the said section, the manager or occupier is absolved from all liability. [516 F-H;

517 DJ

The facts clearly established that the salesman and supervisor pleaded guilty to the oharge, that the appellant had used due diligence to enforce the execution of the Act, and that the offence was committed by the salesman and supervisor without the connivance,. knowledge or consent of the appellant.

State of Gujarat v. Koinsara Mani/al Bhik/wlal [1964] 7 S.C.R. 656, followed.

CRIMINAL APPELLATE JURISDICTION : Criminal Appeals Nos. 198-205 of 1964.

Appeals by special leave from the judgment and order dated February 4, 1964, of the Gujarat High Court in Criminal Appeals Nos. 135-138 of 1962 and Criminal Revision Applications 176-179 of 1963.

Purshottam Trlcwndas and R. Gopalakrishnan, for the appellant (in all the appeals).

Y. L. Teneja, S. P. Nayyar and R. H. Dhebar, for respondent No. I (in all the appeals).

The Judgment of the Court was delivered by

Vaidialingam, J. These appeals, by special leave, are directed against the judgment of the Gujarat High Court, confirming the conviction, by the City Magistrate, Ahmedabad, of the appellant of an offence under s. 92 of the Factories Act, 1948 (Act 63 of 1948) (hereinafter called the Act), for breach of s. 63 of the said Act, and cancelling a rule issued by it to respondents 2 and 3, herein, to show cause against the order of discharge passed by the trial Court.

The appellant was the Manager of the Saranpur Cotton Manufacturing Co. Ltd., Mill No. 2. The Inspector of Factories, Ahmedabad, found, on a visit to the factory concerned, at 3 a.m. on May 26, 1961, certain workers actually working in the stamping department, at that time. According to the register of workers, maintained by the factory, in the form of attendance register, those workers belonged to Group II, Relay II.

According to the notice of periods of work, displayed in the factory, the period of work for Group II, Relay II, was from 4 p.m. to 8 p.m., and from 8.30 p.m. to 1.00. a.m. According to the Inspector, the workers concerned were doing work at 3 a.m., on the said date, otherwise than in accordance with the notice of periods of work displayed in the factory and entries made in the register of adult workers and, therefore, there has been a contravention of the provisions of s. 63 of the Act, punishable under s. 92 thereof. Inasmuch as several workmen were concerned, the Inspector had filed a group of 4 complaints, against the appellant, on August 4, 1961, before the City Magistrate, Ahmcdabad.

On receiving summons from the Magistrate's Court, the appellant, who was, admittedly, the Manager of the Mill concerned, filed, on October 5, 1961, in his turn, a complaint before the Magistrate, under s. 92, read with s. IOI of the Act. To that complaint, responden.ts 2 and 3 were impleaded as accused.' According to the appellant, about 2,400 workers are employed in the Mill, of which he is the Manager; and the Mill consists of several departments, with competent heads, having been put in charge of each department. The appellant stated that the management had instructed all the departmental heads to comply with the

D -

MANl!KLAL v. GUJARAT (Vaidialingam, I.) 50 9

provisions of the Act. He referred to the fact that he had specifically warned the various heads of the departments against double employment. He also averred that the second respondent was the Salesman of the Mill, for about twelve years, and that he was in charge of some departments of the Mill, including the stamping department. Tht third respondent was a Supervisor in the stamping department and was in exclusive charge of the said department. The appellant further averred that the stamping department of the Mill was under the exclusive control of accused No. I, on May 26, 1961, and that it was in the sole charge of accused No. 2 at 3 a.m., onMay26, 1961. Therefore, he alleged, that respondents 2 and 3 were responsible for allowing the concerned workmen to work at 3 a.m. in the stan)ping department of the Mills, on May 26, 1961, contrary to the notice of periods of work displayed in the factory. Therefore, he averred that those two respondents were the actual offenders who had violated s. 63 and thus committed an offence under s. 92 of the Act, by so employing those workers, referred to in the Factory Inspector's report. The appellant further stated that he was not present in the Mills when the said offence was committed by respondents 2 and 3, and that he had used due diligence to enforce the execution of the Act; and that respondents 2 and 3, who were the accused in his cross-complaint, had committed the offences in question, without his knowledge, consent or connivance. Therefore he prayed for an inquiry into his allegations and to hold respondent~ 2 and 3 guilty of the offence of violation of the provisions of s. 63 of the Act.

Before we go into the further proceedings that took place before the Magistrate, it is desirable to refer to some of the material provisions of the Act, viz., ss. 63, 92 and IOI. Those sections are as follows :

"63. No adult worker shall be required or allowed to work in any factory otherwise than in accordance with the notice of periods of work for adults displayed in the factory and the entries made beforehand against his name in the register of adult workers of the factory.

92. Save as is otherwise expressly provided in this Act and subject to the provisions of section 93, if in, or in respect of, any factory there is any contravention of any of the provisions of this Act or of any rule made thereunder or of any order in writing given thereunder, the occupier and manager of the factory shall each be guilty of an offence and punishable with imprisonment for a term which may extend to three months or with fine which may extend to five hundred rupees or with both, and if the contravention is continued after conviction, with a further fine which may extend to seventy-five rupees for each day on which the contravention is so continued.

SUPREME COURT REPORTS [1967] 2 s.c.it.

10 I. Where the occupier or manager of a factory is A charged with an offence punishable under this Act, he shall be entitled. upon complaint duly made by him and on giving to the prosecutor not less than three clear days' notice in writing of his intention so to do, to have any other person whom he charges as the actual offender brought before the Court at the time appointed for hearing the B charge; and if, after the commission of the offence has been proved, the occupier or manager of the factory, as the case may be, proves to the satisfaction of the Court.

(a) that he has used due diligence to enforce the execution of this Act, and

(b) that the said other person committed the offence C in question without his knowledge, consent or connivance.- that other person shall be convicted of the offence and shall be liable to the like punishment as if he were the occupier or manager, of the factory, and the occupier or manager, as the case may be, shall be' discharged from any liability under this Act in respect of such offence; D Provided that in seeking to prove as aforesaid, the occupier or manager of the factory, as the case may be. may be examined on oath, and his evidence and that of any witness whom he calls in his support shall be subject to cross-examination on behalf of the person he charges as the actual offender and by the prosecutor.

" There is no controversy. in this case, that the appellant is the Manager of the factory concerned and he is the person who has been charged with having committed an offence punishableunderthe Act.

It was, when such a complaint was made against him that he, in turn, filed on October 5, 1961, the cross-complaint against res- II pondents 2 and 3, which has been referred to earlier. There is also no controversy that he ha~ complied with the requirement regarding the giving of notice, as contemplated under s. IOI.

In this case, it has also been admitted that the workers, refer red to in the complaint filed by the Factory Inspector, have been employed at 3 a.m., on May 26, 1961, in the stamping department G of this factory, contrary .to the provisions of s. 63 of the Act, and, therefore, the commission of the offence with which the appellant was charged, has also been proved. Under those 'circumstances, it is open to the Manager of the factory, in this case the appellant to have recourse to the provisions of s. IOI of the Act, by complaining against persons who, according to him are the actual offen- H ders and bring them before the Court. But, before a conviction of those persons, so brought before the Court, can be made for the offences concerned, the appellant will have to prove to the satisf

MANBKLAL v. GUJARAT (Vaitfr'alingam, !.) 511

faction of the Court (i) that he has used due diligence to enforce the execution of the provisions of the Act; and, (ii) that such other person committed the offence in question, without his knowledge, consent or connivance. It must also be noted that the appellant, in seeking to prove these circumstances, can be examined on oath and that he and any other witness, whom he places before the Court in his support, shall be subject to cross-examination, on behalf of the person he charges as the actual offender, and also by the Public Prosecutor. We are specially referring to this aspect because, we may have to consider the question as to whether, either respondents 2 and 3, whom the appellant charges as being the actual offenders. or, the prosecutor in this case, l'iz., the Factory Inspector has established, by cross-examination of the appellant that he has not proved the two essential conditions mentioned in clauses (a) and (b) of s. IOI.

Reverting to tne further proceedings before the Magistrate, summons were issued to respondents 2 and 3, on the cross-complaint filed by the appellant on October 5, 1961. On December, l, 1961, the appellant pleaded not guilty to the charge levelled against him by the Factory Inspector. He stated that he had not committed any breach of s. 63 of the Act, and he specifically requested that the complaint filed by him against respondents 2 and 3 herein, who are the Salesman and Supervisor, respectively, be enquired into by the Court.

The second respondent, Bachubhai, on the same day, in answer to the charge levelled against him, by the appellant, that he and the third respondent were liable for the breach of provisions of s. 63 of the Act for permitting the concerned workers to work at 3 a.m, on May 26; 1961, pleaded guilty before the Magistrate. On the same day, he had filed a written statement, pleading guilty to the allegations made against him in the cross-complaint, and expressing regret for having committed a breach of the Act. He also admitted that he was in exclusive charge of the stamping department, on May 26, 1961. He further averred that the 3rd respondent approached him, on May 25, 1961, and represented that it was quite necessary to work a third shift in the stamping department from 1 a.m., on May 26, 1961, in view of heavy accumulation of work. He further stated that he allowed the third respondent to work a third shift but by employing new workers, and that it was only on May 27, 1961, that he came to know that the third respondent had employed the same workers in the third shift also and that he took him to task.

He categorically stated that he had not informed the appellant about the proposed working of the third shift on May 26, and that it was without the knowledge, consent or connivance of the appellant, that this breach was committed. He admits that the appellant had specifically warned him against double employment.

Ultimately, he pleaded, for being let off, with a nominal fine.

Similarly, the third respondent, who apeared before the Court on the same day, in answer to the same charge, pleaded guilty; and he also filed a written statement. In the written statement, he stated that he was the Stamping Supervisor of the Mill, on the relevant date and that due to accumulation of work in the stamping department, it was found necessary by him, to have a third shift on the morning of May 26, 1961.

He states that the 2nd respondent permitted him to start a third shift after engaging new workers.

But, as new workers were not available on that date, the workers in the second shift were engaged by him; and he accepts that, by doing so, he has committed an offence, by mistake. He also categorically admits that he has not taken the pennission of the appellant, for starting "ne said third shift and that it was done without tl}e knowledge of the appellant. He also, ultimately, pleaded for being penalised, by imposing a small amount of fine.

On the same date, the Factory Inspector, has given evidence as P.W. I. He has spoken to the fact that at the time of his visit at 3 a.m., on May 26, 1961, he found, in the stamping department of the Mill, of which the appellant was the Manager, the concerned adult workmen working and that their employment was contrary to the hours of work prescribed for them in the notice put up in the factory.

He has further stated that the appellant was not present in the Mill at the time of his inspection and that, on the other hand respondent No. 3, the Supervisor, was there.

In cross-examination, he has referred to the fact that the Mill employs about 2,400 workers and that there are several departments in the Mill and that heads are appointed for each department.

Though he has stated that he does not know if the Manager has

given instructions to the heads of the departments to comply with the provisions of the Act, when the notices, Exhibits 9 to 12, were shown to him. he accepted that those notices had been given by the appellant.

He has also stated that, generally, t~ Salesman is the head of the Cloth department, including the Stamping Department. Pausing here for a minute, we may state that this answer of the witness will show that the second respondent, who was the Salesman, is the head of the Cloth Department, including the Stamping departmeut and that the statement of the appellant, in that regard, stands corroborated.

The appellant has given evidence, on December 6, 1961. In his evidence, he has referred to the fact that he attends to his duties from 11.30 a.m. to 6.30 p.m., and that there are about 2,400 workers employed in the Mill, which consists of several departments and for each of which a head had heen appointed, by the Management.

He has 1eferred to the fact that provision is made in the terms and conditions of appointment that the heads of departments are to abide by the provisions of the Act. He speaks to the fact that he has

MANEKLAL v. GUJARAT (Vaidialingam, /.) 513

given instructions to the heads of departments, from time to time, to follow the provisions of the Act and, in particular, he refers to Exhibits 9 to 12, beginning from January 30, 1957 and ending with November 30, 1960, insisting upon the heads of departments to comply strictly with the provisions of the Act and warning against double employment. He has deposed that the second respondent was in charge of the Cloth Department, of which the Stamping Department formed part. The third respondent, according to him, is the Supervisor of the Stamping Department; and that when he came to know about the breach alleged against him, on May 27, 1961, he enquired into the matter and suspended the third respon dent for 4 days and severely warned the second responder.t after receiving his explanation. He has also stated that he did not receive any information from either the 2nd respondent or the 3rd respondent, that there was to be a third shift on the morning of May 26, 1961, and that he had not allowed any worker to work in the third shift after they had worked in the second shift.

He has also stated that he did not give any consent to the working of those workers and he had no knowledge at all about it. In crossexamination he has stated that he goes round the entire mill, sometimes daily, and on some occasions, on the second or third day.

He has denied a suggestion that he was aware that the second respondent had asked the third respondent to make the same workers work during the third shift.

The point to be noted, in the evidence of the Factory Inspector, and of the appellant, is that the Inspector admits that the appellant was not present at the time of his inspection and that the third respondent was present and that the 2nd respondent is the Salesman and the 3rd, the Supervisor. He accepts that particular persons have been appointed in the Mill as heads of the various departments and that the Salesman is generally the head of the Cloth Department, including the Stamping Department. He also admits that the appellant has issued notices, exhibits 9 to 12, warning the. heads of departments to strictly comply with the provisions of the Act and also stating that there should be no double employment. The appellant's evidence, that the second respondent was incharge of the Cloth Department, at the material time, and that he has been warned against double employment on several occasions, and that he was not aware of the employment of the workers concerned, in the third shift, on the morning of May 26, 1961, have not been challenged. The answers given by the appellant that he did not give his consent to the working of those concerned workers and that he has no knowledge about their having worked at the material time is not also seriously challenged. More than that, there is absolutely no suggestion made to the appellant that there is any sort of collusion between him and resportdents 2 and 3, and that the latter are merely admitting the offence'in the cross-complaint filed by the appellant,

to oblige him. Respondent 2 and 3 have categorically admitted the offence mentioned against them in the cross-complaint; and the appellant has not heen cross-examined by them, as they are entitled to under the first proviso to s. 101.

We arc particularly referring to vme of these aspects, bccaue. in our opinion, those arc all matters which should have been properly taken into account, by the Magistrate and the High Court, for considering the question as to whether the appellant has proved, to the satisfaction of the Court the two essential matters dealt with by clauses (a) and (b) of s. 101 of the Act.

On this state of evidence, the learned Magistrate held that the appellant cannot be considered to have established either that he has used due diligence to enforce the execution of the Act as required under cl. (a) of s. 101, or that respondents 2 and 3 committed the offence, in question, without his knowledge, consent or connivance.

According to the trial Court, from the mere fact that respondents 2 and 3 have pleaded guilty, it cannot be said that thay have committed the breach without the connirnnce of the appellant. The Magistrate, while realising that there was no direct evidence of consent or knowledge on the part of the appellant, yet, from the fact that the wages were paid by the Mill to those workers, held that it could be safely inferred that the offence must have taken place on the material date with the consent, knowledge or connivance of the accused. On these findings, the Magistrate discharged respondents 2 and 3 and found the appellant guilty of having violated the provisions of s. 63 of the Act, and as such. convicted him under s. 92, and ordered him to pay a fine of Rs. 400/- or, in default, suffer simple imprisonment for 3 weeks.

Tb appellant filed appeals before the Gujar:.t High Court against the judgment of the Magistrate, challenging his conviction.

It is seen that the High Court issued notices to the 2nd and 3rd respondents, to show cause why the order of discharge passed by the Magistrate, for offences under ss. 63. 92 and 101 of the Act, should not be set aside; and those references have been numbered. in the High Court, as Criminal Revision Applications Nos. 176 to 179 of 1963.

All the matters were heard together and disposed of by a common judgment by the High Court. The learned Judges of the High Court have upheld the judgment of the Magistrate, holding the appellant guilty.

In view of this direction. the High Court discharged the rule issued to respondents 2 and 3.

The learned Judges arc also of the view that the appellant cannot be considered to have established that he had used due diligence to enforce the eecution of the Act. The relianc.c which has been placed by the appellant regarding the circulars issued by him, e, idcnced ~Y Exhibits 9 to 12, has not impressed the learned Judges. Though there is no separate and

MANBKLAL V. GUJARAT (Vaidialingam, I.) 515

independent discussion as to whether the appellant has been able to establish that respondents 2 and 3 have committed the offences, without his knowledge, consent or connivance, there is a general finding by the learned Judges that the fact that the appellant had specifically mentioned, in his circulars issued, about double employment and the fact that the wages for the workers concerned have been met by the factory, will lead to the inference that the employment of the workers, which is the subject of the charge, could not have been made without the knowledge, consent or, in any case, the co:mivance of the accused. There is, again, no separate consideration, by the learned Judges, about the plea of guilt made by respondents 2 and 3. Ultimately, holding that the appellant had not proved that he has used due diligence to enforce the execution of the Act and that respondents 2 and 3 have committed the offence without his knowledge, consent or connivance, the learned Judges

dismised the appeals filed by the appellant against his conviction and also cancelled the rule issued to respondents 2 and 3. This comprehensive order, passed by the High Court, confirming the order of the Magistrate convicting the appellant, and dischargi:--g the rule issued to respondents 2 and 3 in the criminal revisions and dismissing the said revisons, is the subject of attack in these proceedings.

Mr. Purshottam Tricumdas, learned counsel for the appellant, has urged that the entire approach made by both the Magistrate and the learned Judges of the High Court, for holding the appellant guilty of the offence, with which he was charged, is erroneous in law.

Counsel also urged, that, in this case, the appellant has Jet in unchallenged and uncontroverted evidence to establish the two essential matters referrred in els. (a) and (b) of s. IOI of the Act and these aspects have not been properly considered in Jaw. Counsel also pointed out that, without adverting to the material evidence on record, the inference drawn by the Court that the appellant has not proved those matte•-s, is totally opposed to the evidence adduced in the case. In fact, counsel pointed out, that the evidence adduced by the appellant to establish that he has used due diligence to enforce the execution of the Act and that respondents 2 and 3 committed the offence in question without his knowledge, nsent or connivance, apart from not being challenged in cross-examination, has really been supported by the evidence given by the Factory Inspector, as P.W. I, and the written statements filed by respondents 2 and 3.

In short, according to the counsel, s. IOI of the Act has not been properly applied.

On the other hand, Mr. Taneja, counsel for the State of Gujarat, has pointed out that the findings arrived at by both the Magistrate and the learned Judges of the High Court are, on facts, as against the appellant, which findings have been arrived at, after an appreciation of the material evidence adduced in the case.

M2Sup. CI/67-4

516 SUPRBMB COURT llBPOl.TS

(1967) 2 S.C.R.

We are not satisfied that there has been a correct legal approach made either by the Magistrate or the High Court, to a decision on the pica recorded by the appellant, especially with regard to matters refe1 red to in s. IOI of the Act. It is not necessary for us, in this case, to consider, in any great detail, the ingredients of an offence under s. 63 of the Act, because a violation of the said provision 1s admitted by the appellant, as well as by respondents 2 and 3. The appellant has invoked s. IOI.

In considering this provision, it is necessary to refer to the observations made, by this Court, in State of Gujarat v. Kansara Manila/ Blzikhala/(1) regarding the scope of s. IOI of the Act. In that case, the manager of a factory was charged with the violation of s. 63 of the Act. He raised several pleas in answer to that charge, but he Qid not have recourse to s.

IOI of the Act.

Ultimately, the manager was convicted, under s. 63 of the Act, read with s. 94. Hidayatullah, J., observed, with reference to s. IOI, as follows at page 662.

"Where an occupier or a manager is charged with an offence he is entitled to make a complaint in his own tum against any person who was the actual offender and on proof of the commission of the offence by such person the occupier or the manager is absolved from liability. This shows that compliance with the peremptory provisions of the Act is essential and unless the occupier or manager brings the real offender to book, he must bear the responsibility ...... It is not necessary that mens rea must always be established as has been said in some of the cases above referred to. The responsibility exists without a guilty mind.

An adequate safeguard, however cxi5ts ins. 101 analysed above and the occupier and manager can save themselves 1f they prove that they are not the real offenders but who, in fact, is. No such defence was offered here."

From the observations quoted above, it is clear that there is a duty cast, under the Act, upon the occupier or manager, to comply with the peremptory provisions of the Act: but, under s. IOI, when the manager or occupier is charged with an offence, he is entitled to make a complaint, in his own tum, to establish facts mentfonc<f in the said section; and, if he is able to establish that it was such other person, who has committed an offence, and satisfies the other requirements of the said section, the manager or occupier is absolved from all liability. It is also emphasized that an adequate safeguard has been provided, under s. IOI, under wliich, in circwilstances mentioned therein, the occupier or manager can save himself, if he proves that he is not the real offender, but some other person, charged by him, is.

(I\ (!96417 S. C.R. 65'.

MANEKLAL v. GUJARAT (Vaidlalingam, I.) 517

Applying the principles referred to above, the approach made by the trial Court, and by the High Court, in this case, in our opinion, is erroneous. We have already indicated that the employment of the workmen concerned, referred to in the complaint filed by ihe Factory Inspector, in the factory, and at the material time, is established; and that clearly shows that the commission of the offence, with which the appellant has been charged, has been proved.

Without anything else, the appellant will have to be found guilty.

But the only question is, whether 1:te has been able to save himself, by.establishing that he is not the real offender, and that respondents 2 and 3 have committed the offence. Even here, we have already indicated, with reference to the pleas raised by respondents 2 and 3, before the Magistrate, in answer to the cross-complaint against them and the written statements filed by them, that ihey have plead.ed guilty to the charge, Therefore, in our opinion, the appellant can also be considered to have established that the offence was committed by respondents 2 and 3. But, it is further necessary for the appellant to establish the two essential facts mentioned in s.

IOI of the Act, viz., (i) that he has used due diligence to enforce the execution of the Act and (ii) that espondents 2 and 3 committed the offence in question without his consent, knowledge or connivance.

With regard to the first, the question is as to whether the appellant has establishea that he has used due diligence to enforce the execution of the Act. The appellant has stated, in his evidence, that each department in tbe Mill has got a head appointed by the Manage1nent and each department has sections and there are heads for those sections also, and tliat they have been required to comply with the provisions of the Act. He has also stated that, on the material date, the 2nd respondent was a salesman, in-charge of the Stamping Department, which was part of t, he Cloth Department and that he had been directed to guard against double employment in the Mill. He has spoken to the fact that the third respondent was the Supervisor and was in exclusive charge of the Stamping Department at the material time. This evidence of the appellant has not been, in any manner controverted by the prosecution. There is no suggestion by the prosecution that the division of the various departments, is, in any manner, fictitious or a make-believe affair and that those heads of departments did not have effective control or check over the departments in their charge. On the other han~, the Factory Inspector has admitted, as P.W. I, that there are several departments in this Mill and that heads are appointed to be in charge of each department. He has also admitted that. the Salesman is the head of the Cloth Department, including the Stamping Department. Both respondents 2 and 3, have, in their statements stated that the 2nd respondent was in-charge of the department, at the material time. It is also in evidence, whichis not controverted, that the appellant has issued various circulars from time to

time, evidenced by Exhibits 9 to 12. to the various heads of departments, insisting upon the strict compliance with the provisions of the Act; aiid, in particular, he has also warned the departmental heads against double employment. Though the Factory Inspector pretended ignorance about the appellant having issued these circulars, ultimately, he has accepted, in his evidence, that these notices have been issued by the appellant. We do not find that either the trial Court, or the High Court, has disbelieved this evidence of the appellant, nor have they held that these circulars are only a make-believe affair. Under these circumstances, in our opinion, the proper conclusion to be drawn is that the appellant has used due diligence to enforce the execution of the Act, in which case, clause (a) of s.

10 I is satisfied.

We shall then consider the question as to whether the appellant has established that respondents 2 and 3 are the persons who committed the offence, in question, without his knowledge, consent or connivance. So far as that is concerned, we have already referred to the nature of the evidence given by the Factory Inspector, as well as the appellant; and we have also referred to the matters contained in the written statements filed by respondents 2 and 3. The Factory Inspector has accepted that the appellant was not in the Mill at the time of his inspection and that respondent 3 was there at that time.

The appellant ha~ given evidence to the effect that he did not allow any worker to work in the third shift, on the material date, and that he did not receive any information from respondents 2 and 3 about the proposal to have a third shift on that date. He has stated that he came to know about the occurrence only on May 27, 1961, and that, immediately thereafter, he took action against •::spondents 2 and 3. These answers have not been challenged in cross-examinat; on of the appellant. More than that, respondents 2 and 3, who are specifically charged by the appellant, in his crosscomplaint, of having committed the offence, did not cross-examine the appellant at all. On the other hand, they categorically admitted, in their pleas in answer to the charge before the Court, rs well as in the written statements filed by them, that they are guilty of the offence. Both of them have categorically admitted their guilt and they have stated that the appellant was not informed by either of them about the proposed working of the third shift on the morning of May 26, 1961. They have also stated that the working of the third shift was without the knowledge, consent or connivance of the appellant. Both of them have stated that the appellant had pec: fically warned them against double employment. These statements, made by respondents 2 and 3, aad the evidence given by the appellant which, as we have already referred to, have not been challenged by the prosecution and they, in our opinion, clearly establish that the offence was committed by respondents 2 and 3 without the knowledge and consent of the appellant. There is also no evidence

MANBKLAL v. GUJARAT (Vaidlalingam, I.) 519

from which it is possible to come to the conclusion that the offence has been committed by respondents 2 and 3, with the connivance of the appellant, in the sense of passive cooperation, by the appellant, as by consent or pretended ignorance in the wrong doing. Therefore, we are satisfied that the appellant has proved that respondents 2 and 3 committed the offence, in question, without his knowledge or consent and that they did so without his connivance either, in which case, cl. (b) of s.101, is also satisfied.

From what is stated above it follows that the conviction of the

appllant for an offence, under s. 92 of the Act, for breach of s. 63, cannot stand. We have already stated that the Magistrate discharged respondents 2 and 3; and that the High Court issued notices to them to show cause as to why the said order of discharge should not be set aside. These were numbered as Criminal Revision Applications Nos. 176 to 179 of 1963. In view of the fact that the appellant's conviction was being confirmed, the High Court discharged the rule, issued by it, to respondents 2 and 3.

But, in the view that we now take, these resp.ondents have to be convicted, in accordance with the provisions of s. 101 of the Act. The appellant has also filed appeals in this Court, impleading these two respondents as parties, challenging the order of discharge passed in their favour.

On the basis of our above findings, the appellant has to be discharged from any liability under the Act, in respect of the offence charged; and respondents 2 and 3 must be held to have committed the offence in quest\on, by violating the provisions of s. 63 of the Act. In

consuence, respondents 2 and 3 are found guilty of violating the provisions of s. 63 and are, accordingly, convicted under s. 92 of the Act; and each of them is sentenced to pay a fine of Rs. 100/-, in default to underao simple imprisonment for one week.

In the result, all the appeals are allowed and the conviction anJ sentence of the appellant are set aside and he is discharged from any liability under the Act, in respect of the offence with which he was charged. The order of discharge of respondents 2 and 3 is set aside and they are convicted and sentenced, as stated above. The fine if paid shall be refunded.

Y.P.

Appeals allowed.

MANEKLAL JINABHAJ KOT

STATE OF GUJARAT & ORS

January 30, 1967

M. HIDAYATULLAH

Factories Act

s. 101

Factories Act

s. 63

s. 101

s. 101

[1964] 7 S.C.R. 656

Purshottam Trlcwndas

R. Gopalakrishnan

Y. L. Teneja

S. P. Nayyar

R. H. Dhebar

Vaidialingam

s. 92

Factories Act, 1948

s. 63

Saranpur Cotton Manufacturing Co. Ltd.

Ahmedabad

May 26, 1961

s. 63

s. 92

City Magistrate, Ahmcdabad

October 5, 1961

s. 92

s. 63

s. 92

s. 63

ss. 63, 92

section 93

SUPREME COURT REPORTS [1967] 2 s.c.it

s. 63

December, l, 1961

s. 63

Bachubhai

s. 63

May 26; 1961

May 25, 1961

May 27, 1961

December 6, 1961

January 30, 1957

November 30, 1960

s. 101

s. 101

s. 101

s. 63

s. 92

ss. 63

MANBKLAL V. GUJARAT

Purshottam Tricumdas

Taneja

State of Gujarat

SUPRBMB COURT llBPOl.TS

(1967) 2 S.C.R.

s. 63

s. 63

s. 63

s. 94

Hidayatullah

s.

10

s. 92

s. 63

s. 101

s. 63

s. 63

s. 92


THE EMPLOYERS OF AZAM JAHI MlllS LTD.

THE WORKMEN

(January 30, 1967) [M. H!DAYATULLAH, V. BHARGAVA A~D G. K. M1nrn. JJ.]

lndustial Dispute-Bonus agreed to be paicl 011ly on availabi<· surplus -:--calcu/atron of sru J!fu$--Whe1IJ.!r gratuity and retrenchment co11Jpensat1on 10 be deducted "J one year or spread o'•er 1nore-Whe1her deduction of a1nount i11 respect of idle rnachinery from notional amount uf normal depreciation justified-Rehabilitation clrarges-Nllture of evidence rquir ed to illJtify deduction.

The appellanls and their workmen had entered into an agreement in February 1960 which provided that a claim for bonus would only arise tf there should be an available surplus after malting a provision for all lbc prior charges including a fair return on paid up capital and on reserves utilised towards the working capital in terms of the .Full Bench formula In a dispute between the appellants and their workmen relating to the paymenl of bonus for the years 1960-61 and 1961-62, the lnd11<trial Tribunal found lhat !here was an available surplus for the first year but none !or the second. and therefore directed payment of bonllS of one week's wages to all the workmen over and above the two weeks' bonus which fhe employees had agreed to pay irrespeclive of any profils made hy the company.

In lhe appeal before this Coun it was coniended, inter a/ia, on behalf of the appellants 1ha1 in the calculation of the oss profits, the entire amount in rcsct of gratuity and retrenchment paid by the company during lhe year 1960-61 should have been excluded as it had to be paid out of the profits of lhc company curing the relevant year and lhe Tribunal had wrongly de~ided that it should be spread over five years; that in calculaling prior charges, the Tribunal had wrongly deducted a sum Qf Rs. I.SO Jakhs in respect of idle machinery from the figure of notional normal depreciation ancl some of the olher prior charges were not dealt with in accordance with the terms of the agreement between the parties; and that if calculation~ were made on a correct basis there would be no available surplus.

HELD : On a recalculation of the gra<s profits and prior charges. that the Trib11nal was not right in finding that there wu an available surplus for calculation of bonus for the year I 960-61. [527 A-Bl Graluity would have to be paid year afler year to workmen who rellre or leave the company's service in term'\ of the scheme of gratuity and retrenchment compensation may have to be paid in any year if there be modemisalion of the plant or for any other reason which renders any workmen surplus. The Tribunal's decision that the amount on this aeeo11nt should be pread over five years was therefore erroneous and the ,.-ass profit as calculalcd by the appellants was the correct figure. [523 A-CJ

Britannia Engineering Co. V. Tlieir Workmen (1965] n L.L J. 144; ref'errcd to.

The depreciation taken into account bein!l. in accordance with well settled principlC", a nolional amount of normal depreciation, the Tribunal was not juslifled in deducting lherefrom a fllnher sum in respect of idle r.iachiner. [523 H; 524 C-D]

U.P. Electric Supply Co. Lta. v. Their Workmen [1955) II L.L.J. 431; Surat Electricity Compa11y's Staff Union v. Surat Electricity Co. Ltd. [1957) II L.L.J. 648; The Associated Cement Companies Ltd. v.

Its Workmen [1959] S.C.R. 925, 960; referred io.

On the facts, thore was sufficient evidence to show the need for rehabilitation and there was no force in the contention that there •.vas no. basis for calculation of the provision for rehabilitation because no rutperts were examined before the Tribunal. [526 CJ

MI s Peirce Ledie & Co. Ltd. Kozhikode v. Their Workmen [1960) :\ S.C.R. 194 Aluminium Corporation of India, Ltd. v. Their Workmen, (1963}-II L.L.J. 629, distinguished.

CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 971 and 972 of 1965.

Appeals by special leave from the Award dated December 21, 1963 of the Industrial Tribunal, Andhra Pradesh, Hyderabad in Industrial Dispute No. 28 of 1963.

A. K. Sen, R. V. Pillai and B. K. Seshu, for the appellant (in C.A. No. 971 of 1965) and the respondent (in C.A. No. 972 of 1965) M. K. Ramamurthi, for the respondent (in C.A. No. 971 of

1965) and the appellant (in C.A. No. 972of1965).

The Judgment of the Court was delivered by Mitter, J. This is an appeal against an award dated December 21, 1963 in Industrial Dispute No. 28 of 1963 of the Industrial Tribunal, Andhra Pradesh, Hyderabad on special leave granted by this Court.

The dispute which. was referred to the Industrial Tribunal related to the question of payment of bonus for the years 19.60-61 and 1961-62 demanded by the workers of Azam Jahi Mills, Warrangal. The Tribunal found that there was an available surplus for the first year but none for the second. It directed payment of bonus of one week's wages to all the workmen over and above the two weeks' bonus which the employers had agreed to pay irrespective of any profits made by the company. In appeallbefore us the appellants contend that as there was no available surplus, if properly quantified, the question of payment of borius in addition to that for the two weeks already agreed upon, does not arise.

It is to be noted that the parties had entered into a settlement on February 22, 1960 which was to be operative for a period of five years commencing on October I, 1958 and ending on September 30, 1963. By that settlement, it was provided that the claim for bonus would only arise if there should be an available surplus after making a provision for all the prior charges including a fair return on paid-up capital and on reserves utilised towards the working capital in terms of the Full Bench formula laid down by the Labour Appellate Tribunal in Mil/owners' Association v. Rashtriya Mills Mazdoor Sangh, Bombay. The agreement also provided that prior charges would include

(a) statutory depreciation and development rebate, (b) taxes, (c'

522 SUPllEMB COtJltT llEPOR.TS

[1967) 2 S.C.R.

reserve for rehabilitation, replacement and modernisation of Block as calculated by the Industrial Court (basic year 1947) and (d) a fair return at 6 % on paid up capital in cash or otherwise including bonus shares and 2 % on reserves employed as working capital.

It was also a term of the agreement that the amount of the total gross profits of the mill for the year shall be the amount of profits as disclosed in published balance sheets of the company without making a provision for depreciation and for bonus, but after deducting .from it the amount of extraneous income (like interest from investments, rent from property) which is unrelated to the efforts of the workers. With regard to statutory depreciation and development rebate, the parties agreed that if in any year the total of these two exceed the .amount of reserve for rehabilitation, the full amount of statutory depreciation and development rebate would be adoi; ed as a prior charge and noextra provision would be made for rehabilitation in that year. Further, in terms of the agreement, the workers would be entitled to an amount equivalent to I /24th of the basic wages if the mill had an available surplus of profits after providing for all prior charges on the basis of the Full Bench formula as described above, up to an amount equivalent to 2S % of the total basic wages earned during the year.

The contention of the appellanis before us is that in working out the available surplus the Tribunal went beyond the Full Bench formula and the settlement between the parties.

Our task was considerably lightened by counsel for the appellants handing over a table showing the figures for the working out of the Full Bench formula, as found by the Tribunal compared to those propounded by the Management and the workers. There is no dispute that the net profits as disclosed by the balance sheet for the year 1960-61 Wl!S Rs. 9,03,378/-. The only difference between the management and the Tribunal with regard to the calculation of gross profits relates to the figure Rs. 5,39,963/- for gratuity and retrenchment compensation paid by the company during the year in question. According to the Tribunal, this sum should be spread over five years while according to the company, this sum should not be included at all as it had to be paid out of the profits of the company during the relevant year.

Mr. Sen, counsel for the appellants, relied on s. 37(1) of the Income-tax Act, 1961 for the purpose of showing that any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended whoHy and exclusively for ihe pupose of ihe business or profession of the assesseo has to be allowed in computing the income chargeable under the head 'profits and gains of business or profession'. He argued that gratuity is to be paid every year to the workmen who retire and retrenchment compensation has to be paid as and when workmen are retrenched and that there could be little doubt that

these expenses were incurred exclusively for the purpose of the business of the company. He also drew our attention to a judgment of this Court in Britannia Engineering Co. v. Their Workmen() where it was laid down that the amount of provident fund contribution and gratuity payments were not to be added back to the net profits disclosed by the balance sheet of the company for fixing the amount of gross profits in working out the Full Bench formula.

The Tribunal apparently recognised the force of the contention of the employers but observed that the amount should be distramted over a number of years which it fixed as five in this case. This finding of the Tribunal is erroneous inasmuch as gratuity wi!l have to be paid year after year to workmen who retire or leave the company's services in terms of the scheme of gratuity and retrenchment compensation may have to be paid in any year if there be modernisation of the plant, 0r for any other reason which renders any workmen superfluous. It seems to us, therefore, that the gross profits as calculated by the employers at' Rs. 19,05,496/- is the correct figure.

Coming next to the ascertainment of prior charges, the material discrepancy between the figures adopted by the company and those by the Tribunal arises thus-we find that the notional normal de preciation has been taken to be Rs. 6,44,351 /· in both sets of charts but the Tribunal has deducted therefrom a sum of Rs. 1,50,000/· in respect of idle machinery. We are unable to accept this view of the Tribunal. It is well settled that depreciation allowed under the Income-tax Act after 1948 was to consist of the statutory normal depreciation as well as initial depreciation and additional depre ciation. The Full Bench formula of the Labour Appellate Tribunal decided in U.P. Electric Supply Co. Ltd. v. Their Workmen(2) that the depreciation which should be deducted from the gross profits in working the formula was normal depreciation including the multi pie shift depreciation but excluding the initial depreciation and additional depreciation allowable under the Income-tax Act.

This decision was followed by another Labour Appellate Tribunal of India in Surat Electricity Company's Sta.ff Union v. Surat Electricity Co. Ltd.(3).

There it was pointed out that the deduction allowed under the head of depreciation in the early years of the use of the machinezy was rather heavy under the provisions of the Indian Income-tax Act which would have the effect of unduly lessen ing the available surplus under the bonus formula to the prejudice of workers even in a year of prosperity and that is why the Full Bench postulated for a more even distribution of depreciation over a period of years. This accounted for the ignoring of the initial and additional depreciation in working out the bonus formula. The net result was that the depreciation to be taken into account for working out the bonus formula was a notional amount of normal

(1) (1965] Il L.L.J. 144.

(2) [1955] ll L.L.J. 431.

(3) [1957] II L.L.J. 648.

depreciation.

No objection can be taken to this because the bonus formula itself is theoretical one. Both these decisions were referred to in The Associated Cement Companies Ltd. v. Its Workr:ien('), and the latter decision was approved of by this Court (see at page 960).

We find by referring to Schedule E of the accounts of the company for the year 1960-61 that depreciation for the year was calculated at Rs. 16,03,149/-. This is also referred to in the Director's Report. Deducting therefrom the sum of Rs. 9,58, 798/- which is referred to in the profit and loss account for the year ended 30th September 1961 as balance provision for depreciation to comply with s. 205 of the Companies Act of 1956, we get the figure of Rs. 6,44,351/- which is to be found in the chart both under the table of figures adopted by the management as also by the Tribunal. The figure being a notional figure for working out the bonus fonnula, the Tribunal was not justified in deducting therefrom a further sum of Rs. 1,50,000/- in respect of machinery which was said to be idle.

In terms of the agreement between the panics, the prior charges must include the development rebate as well unless the statutory depreciation and development rebate added up to a higher figure than the figure for reserve and rehabilitation. It therefore itppears to us that the Tribunal was not justified in excluding the amount of the development rebate reserve. There is no dispute that the figure for income-tax should be Rs. 4,74,020/- or that for the return on raid-up capital should be Rs. 4,32,000/-. The workmen in their chart have calculated rhe return at 4% on Rs. 72 lakhs which is not justified. Both the Tribunal and the company calculated ·~<urn on reserves used as working capital at Rs. 49,678/-. This, in our view, is not justified as we find from a reference to schedule E, (fixed assets of the company for the year 1960-61) that a sum of !ts. 14,49,664/- was spent for addition of new plant and machinery. On a reference to schedules A, B. C and D for the year in question and the corresponding figures for the previous year, we find that the figure of reserves and surplus in schedule A has gone down by Rs. 1,00,000/-. The figure for secured loans in schedule C remains the same while the current liabilities as shown in schedule D has gone up by Rs. 3,50,()()(1/- in the year in question as compared to the previous year and loans secured from banks show a reduction of Rs.

13,22,000/-. Thus the liability in respect of the loans has been reduced approximetely by Rs. 10 lakhs. Setting off the diminution the overall liability was diminished by Rs. 9 lakhs. We also find from a reference to Schedules F, G, Hand I (of investments, current assets and loans by the company) that the total thereof has gone down hy Rs. 8 lakhs from the figure of the previous year. The net

(I) lt9l91 S. C.R. 925.

result seems to be that the reduction of liability when set off against the reduction in the value of the assets and investments gives a deficit of Rs. 1,00,000/-approximately. As the company has not incurred any fresh loans for the purpose of buying plant and machinery we can proceed on the basis that Rs. 14,49,6641and Rs. I lakh have come out of the working capital. Consequently, the reserves used as working capital should be approximately Rs. 24,83,000/- as shown by the company less Rs. 15,49,664/- i.e. Rs. 8,34,000/- and the return thereon at 2 % would be approximately Rs. 16,000/- in place of Rs. 49,678/-. Further, we find that the Tribunal was not right in including Rs. 1,07,992/- as gratuity and retrenchment compensation among its list of prior charges.

On the basis of the above, it seP.ms to us that deducting the prior charges from the gross profits irre>pective of the question of the amount to be deducted for rehabilitation, modernization etc., comes to the figure arrived at is Rs. 80,000/- vr there about only.

The.re was a good deal of controversy between the parties with reg\rd to the correct amount of the figure for rehabilitation. In this connection, our attention was drawn to the evidence on record.

The Chief Engineer of the Company stated before the Tribunal

tht the machinery had been purchased in 1932, that its condition was bad due to fatigue and that it was costing more and more every year for repairs even up to Rs. 2! lakhs. According to him, it required replacement, the average life of a textile mill being no more than 25 years. The witness also said that one half of the entire machinery had been purchased and installed between 1948 and 1952 and the cost in 1952 was five times that of the 1932 figure.

The other witness examined on behalf of the employers was the Secretary of the mill. He stated that the provision for rehabilitation was Rs. 93,30,000/-, tne working capital being Rs. 24,83,904/-.

He gave certain figures to show how the figure of Rs. 93,30,000/- was arrived at. He stated further that the company had approached the Government for a loan of Rs. 56 lakhs for replacement of the spinning machinery and part of the weaving machines. The application for loan is not in dispute before us. As a matter of fact, thP Tribunal accepted the evidence that the age of the textile mill machinery was about 25 years and more than ha!f the machinery had passed that age.

This justified the need for rehabilitation. The Tribunal referred to a letter of t1'e company to the Government dated October 10, 1963 according to which several experts had opined that the amount required for replacement of the old machinery was Rs. 56 lakhs.

The Tribunal added thereto the sum of Rs. 2 lakhs for replacement of the buildings and thus arrived at the total figure of rehabilitation of Rs. 58 lakhs. In our opinion, the figures arrived at by the Tribunal are acceptable but we have to deduct therefrom the amount. of the reserves of the company. According to us, as already shown,

the reserves which could he used as working capital were no more than Rs. 8,34,000/-. Thus the total for rehabilitation comes to Rs. 50 Iakhs approximately.

The Tribunal accepted the divisior 5 to give effect to the bonus formula on the basis that the cost of rehabilitation should be spread over five years.

In our opinion, the Tribunal proceeded on the right basis except on the figure of reserves which bas to be deducted.

Dividing Rs. 50 lakhs by five, we get a figure of Rs. 10 lakhs. In terms of the bonus formula therefore, there was no available surplus for the year 1960-61 hut there was a deficit.

We were not impressed by the argument on behalf of the respondents that as no experts were examined before the Tribunal, there was no basis for calculation of the provison for rehabilitation.

In this connection our attention was drawn to a judgment of this Court in M/s Peirce Leslie Co. Ltd. Kolizikode v. Their Workmen (1).

It appears that in support of its claim in that case the company produced a number of statements prepared by witnesses who claimed to be experts showing the replacement value of buildings, machinery, furniture etc.

We were also referred to the judgment of this Court in Aluminium Corporation of India, Ltd. v. Their Workme11(2).

On the facts of that case, it was observed by this Court that as there was no evidence adduced by the employer to substantiate its claim for the amount of rehabilitation, the same must be rejected. In our view, the Tribunal must consider all the evidence before it and then proceed u ascertain the figure to be adopted for rehabilitation purposes. If the company had no scheme for rehabilitation, then of course its claim on that bead must be rejected. Again, the claim made by the company cannot be accepted unless substantiated by evidence.

In this case, we find that half the machinery was o .er 25 years old, that it required over Rs. 2 lakhs every year for repairs according to the evidence of the Chief Engineer and that its effi- <:icncy had dwindled considerably. We also sec no reason to reject the evidence adduced before the Tribunal that the company had applied for a loan of Rs. 56 lakhs from the Government for rehabilitation purposes and we accordingly are of the view that the Tribunal proceeded on the correct basis so far as rehabilitation (; barges are concerned.

There remains the point about the working capital of the company. No case is here made that the reserves of the company were being used for any purpose other than the business of the company.

The accounts of the company show that its secured liability exceeded

Rs. 1,16,00,000/- and its unsecured loans exceed Rs. 28,00,000t-.

Unless therefore there is evidence to show that the reserves were H non-existent or they were being utilised for a purpose other than

Cl) J196~]J s.c.R:-i94.-- - (2l[I96JJ ll L.L.J. 629. .

AZAM JAID MILLS v. WORKMEN (Mitter, /.)

52T

the business of the company, it is reasonable to assume that the reserves were being utilised as working capital of the company.

In our view, therefore, the Tribunal was not right in finding that there was available surplus for calculation of bonus for the year 1960-61 and the appeal No. 971 of 1965 must be allowed and the award set aside.

The other appeal No. 972 of 1965 which is by the workmen for enhancement of the bonus consequently must be dismissed. The first appeal is therefore allowed with costs and the second appeal is dismissed, but, without any order as to costs.

R.K.P.S.

Appeal 972 of '65 dismissed.

Appeal 971 of '65 allowed.

THE EMPLOYERS OF AZAM JAHI MlllS LTD

THE WORKMEN

January 30, 1967

V. BHARGAVA

CIVIL APPELLATE JURISDICTION

A. K. Sen

R. V. Pillai

B. K. Seshu

M. K. Ramamurthi

Mitter

Azam Jahi Mills

Warrangal

February 22, 1960

September 30, 1963

Sen

s. 37(1)

Income-tax Act, 1961

sections 30 to 36

Income-tax Act

Income-tax Act

Income-tax Act

30th September 1961

s. 205

Companies Act

October 10, 1963