Holding

The Tribunal’s finding of neutralisation between 97.4% and 86% was correct, the ceiling on dearness allowance was justified, and the Division Bench’s reversal was erroneous, warranting set‑aside and remand for fresh wage‑revision consideration.

Summary

Hindustan Lever Ltd. sought to impose a ceiling on dearness allowance for workers earning above Rs 500 per month, arguing that the existing slab system caused over‑neutralisation of the cost‑of‑living index and distorted wage differentials, especially vis‑à‑vis junior executives. The Industrial Tribunal placed such a ceiling and also granted upward wage revisions and a stagnation‑increment scheme; the High Court Single Judge upheld the ceiling, but the Division Bench set it aside, holding there was no over‑neutralisation and that the ceiling was unjustified. The Supreme Court examined the methodology for calculating neutralisation, finding the company's method erroneous and confirming the Tribunal’s finding that neutralisation ranged from 97.4% to 86%, not exceeding 100%. It held that the Division Bench erred in overturning the ceiling and in remanding wage‑revision without proper analysis. Consequently, the Court set aside the Division Bench’s order, remanded the wage‑revision issue to the Tribunal, and allowed the special leave petitions limited to the grant of stagnation increments. The appeals by the company were dismissed, while the workers’ relief on stagnation increments was upheld.

Issues considered

The validity of imposing a ceiling on dearness allowance under the Industrial Disputes Act.
Whether the existing dearness allowance formula results in neutralisation exceeding 100%.
The correct method for calculating neutralisation percentages.
The jurisdiction of the High Court and Division Bench to interfere with the Tribunal’s award.
The necessity of upward revision of wages in light of the ceiling on dearness allowance.

Legislation cited

Constitution of Indias. Article 226, s. Article 227, s. Article 43
Industrial Disputes Act, 1947s. 10(1)(d), s. 10(2), s. 9A

Subjects

dearness allowanceneutralisationceilingIndustrial Disputes Actwage structurecost of living indexupward wage revisionstagnation incrementjurisdictionliving wage

Judgment

HINDUSTAN LEVER LTD. A
\'.

B.N. DONGRE AND ORS. ETC. ETC.

JULY 26, 1994

IA.M. AHMADI, K. RAMASWAMY AND R.M. SAHA!, JJ.j B

Industrial Disputes Act, 1947-Sections JO( l)(d) & 10(2)---lmposition
of ceiling on deamess allowance-Validity of-Slab system deamess fomtula
linked to wage and CPJ-Conipany's case of neutralization .exceeding
100%-Not correct-Method adopted in ca/culati11g 11eutralizatio11 percemage C
being 1vrong-Financial position of Conzpany was sound-Neutralization
varied from 97.4% to 86o/u-Present deamess fonnula being i11 vogue since
/011~Justificatio11 of placi11g ceili11g.

Labour Law-Wages-Deamess Allowa11ce-<:oncept of-Tapering or
sliding 11eutralizatio11 system with fixed maxima at different levels of pay D
belts-Upward revisio11 of wages or deamess a/lowa11ce--Effect of-Revision
of wage stnicture to prejudice of worknten-Not pennitted if wage structure
is of n1inin1unt wage leveJ-Systen1 of n1erger of dean1ess a_llowance in basic
parSalary structure must be cost effectiv,,.-Jmposition of Ceiling on dear-
ness allowance when justified. E
Co11stitution of btdia-Alticle 43-0bjective of 'living wage'-When
workers enjoying benefit under a scheme without a ceilin~Tribunal or Coult
should be slow to interfere.

Altic/es 226/227-Writ jurisdiction-Award of !11dustrial Tribunal-Writ F
petition challenging award-Maintainable-- Appeals under Letters Patent
against decision of Single Judge-Maintainability-Jurisdiction of Division
Bench under Letters Patent.

The appellant Company desired placement of a ceiling on dearness
allowance based on the premise that in the absence of such a ceiling the G
neutralization factor exceeded 100%. The Company had a slab system
dearness formula linked to basic wage and CPI. The management ~ub
mitted that the slab system of dearness allowance was unrealistic as it had
the effect of distorting the entire wage strncture. Five references arose out
of certain demands made by the workmen-employees of appellant company H
217
218 SUPREME COURT REPORTS [1994) SUPP. 2 S.C.R.

A as well as the management's Notice of Change under Section 9A of the
Industrial Disputes Act for the imposition of a ceiling on dearness al·
lowance.

The Industrial Tribunal by its Award conceded the demand of the
management for the placement of a ceiling on dearness allowance on basic
B
pay exceeding Rs. 500 p.m. Since the Company had a slab system dearness
allowance formula linked to basic wage and CPI, the Tribunal directed that
those workmen drawing a salary exceeding Rs. 500 per month will get the
same dearness allowance as admissible to those drawing a basic salary of
Rs. 500 p.m. without there being any variation in the dearness allowance
c for salary slabs exceeding Rs. 500 p.m. The Tribunal while placing a ceiling
on dearness allowance granted an upward revision in the wages and the
placement of a ceiling on dearness allowance had a direct nexus to the
tribunal revising the salary structure of employees. The Tribunal also
opted in favour of time bound automatic promotion. In taking that view
·' D the Tribunal.acted on the region-cum-industry basis. Taking-note of the
fact that 100% neutralization is ordinarily allowed to the lowest paid staff
and as the basic salary rises the percentage of neutralization slides down,
the Tribunal felt that the neutralization factor was very high at the higher
levels of salary and even at the highest and, therefore, it opted in favour
E of imposing a ceiling to balance the wage structure. The Tribunal pointed
out that the existing dearness allowance formula had been in vogue for
many years preceding 1976 when the company gave a Notice of Change u/s
9A of the Industrial Disputes Act, and the neutralization varied from
97.4% at the lower level to 86% at the highest point and concluded that
placement of a ceiling was imperative to eusure that the wage structure
F did not get destroyed and the disparity ratio between the wages paid by
the appellant company and by other comparable units in the region at the
level of employees drawing a basic salary of Rs. 500 and above remain
within reasonable bounds.

G The workmen and the company challenged the Award by filing Writ
Petitions. The workmen challenged the Tribunal's Award conceding the
management's demand for placement of a ceiling on dearness allowance.
The High Court upheld the order of the Industrial Tribunal placing a
ceiling on dearness allowance but modified the Award with regard to
H certain other demands. The Court while examining the impact of the
HINDUSTAN LEVER LTD. r. B.N. DONGRE 219

dearness allowance formula on the wage structure pointed out that the A
emoluments of workmen exceeded the emoluments received by the Junior
Executive Staff of the Company notwithstanding the fact that the latter
were promotion posts. Due to this reason workmen were un\\oilling to
accept promotions as that would result in a shrinkage in their total
emoluments. Such a situation, as held by the High Court, "·as not con- B
ducive to efficient working of the Company. the Court granted stagnation
increments as a substitute for the automatic promotion scheme introduced
by the Tribunal. Appeals "ue filed against the decision of Single Judge.
The Workmen Challenged the decision in regard to the placement of a
ceiling on dearness allowance which came to be affirmed by the Single C
Judge & demand for automatic promotion which was conceded by the
Tribunal but spurned by the Single Judge who substituted it by the grant
of stagnation increment. The management made a grievance in regard to
grant of stagnation increment and upward revision of wages. The Division
Bench rejected the management's plea against stagnation increment but D
made a remand in respect of wage revision while holding that time bound
automatic promotion \".QUld adversely affect merit and, therefore, upheld
its substitution by stagnation increment. It disapproved of the ceiling on
dearness allowance stating that the present dearness allowance system did
not result in over neutralization of the cost of living index at any level of
E
the income group, it maintained a tapering scale, though not a steeply
declining one; that the system also did not result in distortion of total
incomes either of the workmen inter se or between the workmen and their
superiors; that the Company did not plead any financial inability and there
were no other compelling reasons why the existing system which was
beneficial lo the workmen should be replaced by the new one which was
F
less beneficial to them and which would result in steep decline in their
incomes they would otherwise gain and that it is well recognised principle
of industrial adjudication that the Courts, Wage Bodies and the Industrial
Adjudicators should not tinker with the existing benefits available to the
workmen unless it becomes unavoidable and obligatory to do so. G

On remand, the Tribunal concluded that the financial position of the
company was sound and the Company was hr a position to bear an
additional financial burden and therefore, there was justification for the
. wage scales, as demanded by the workmen. Partly allowing the Reference, H
220 SUPREME COURT REPORTS [1994] SUPP. 2 S.C.R.

A the Tribunal revised the wage scales. Hence these special leave petitions.
Against the decision of the Division bench of the High Court the Company
filed appeal by special leave. The workmen complained that the company
had failed to implement the Award as modified by the Division Bench in
regard to grant of stagnation increment. The Tribunal held that the
B company had engaged in unfair trade practice and that it should desist
from doing so in future while directing the company to implement the
modified Award in relation to the grant of stagnation increment and to
work out the benefit on the wage scales existing on the date of the
Reference. The Company filed Special leave Petitions against the order of
the Tribunal which were dismissed.
c
The Company contended that the Tribunal as well as Single Judge
of the High Court had rightly appreciated the need for exercising control
by imposition of a ceiling at the appropriate salary level to ensure that
the neutralization did not exceed 100% and the wage differentials were not
D sci distorted as to make promotion to officers level unattractive, that the
dearness allowance formula based on the slab system was so unrealistic
that the employees of the Company constituted a privileged cla.ss, in that,
their total emoluments had risen to disproportionately high level as com-
pared to their counterparts in similar other industries in the same region,
thereby posing a threat to industrial peace in the region.
E
The workers urged that under Article 43 of the Constitution the
ultimate goal or objective is to secure a 'living wage and' and till that goal
Is reached, the court should not interfere in exercise of its extra-ordinary
jurisdiction; that though the emoluments paid to the workers were much
F higher than the subsistence level, they were far below the 'living wage'; that
there was in fact no over-neutralization and no distortion in the emolu-
ments drawn by the workers and executive officers and, therefore, on
region cum-industry basis also the plea for placement of a ceiling on VDA
in the higher pay bracket of Rs. 500 and above was not justified; that this
formula which has been in vogue since long did not permit cent percent
G neutralization even at the lowest level of basic pay not exceeding Rs. 100
p.m. , that there has been no merger of dearness allowance in basic wage
since the scheme was introduced in 1952 and hence the workers had
suffered and if the dearness allowance was frozen as per the Tribunal's
award it would be most unjust to the workers, and there had been no
H upward revision of the basic wage since 1972; that insofar as the vertical
HINDUSTAN LEVER LTD. v. B.N. DONGRE 221

relativity in the wages of workers and officers were not comparable and if A
any distortion in the differential resulted, the same could be corrected by
revising the salary structure of the officers but there would be no justifica·
• lion to control it by placing a ceiling on the dearness allowance admissible
to the workers under the extant sche1ne;

The appeDant Company contended that the Division Bench of the
B
High Court exceeded its jurisdiction in interfering with the concurrent
decisions of the Tribunal and the Single Judge of the High Court based
on appreciation of evidence on record and in particular with the decision
of the latter who held that under the prevailing formula the neutralization
exceeded 100% leading to a distortion in the wage structure; that the C
Tribunal Committed as error in holding that the neutralization varied
between 94.4.% at the lowest levels and 86% at the highest level; that the
Tribunal .rightly held that a ceiling at Rs. 500. and above was imperative
to ensure that wage differentials were not distorted; that this concurrent
view ought not to have been disturbed by the Division Bench on the premise D
that dearness allowance was meant to compensate the change in cost of
living and that the decision of the Division Bench was running counter to
the well recognised region-cum-Industry principle.

Disposing of the matter, this Court
E
Held : 1.1. Wages are among the major factors In the economic and
social life of the working classes. Workers and their families depend
almost entirely on wages to provide themselves with the three basic re·
qllirements of food, clothing and shelter. The other necessities of life like
children's education, medical expenses, etc., must also come out of the F
emoluments earned by the bread-winner. Workers are therefore concerned
with the purchasing power of the pay-packet he received for his toil. ffthe.
rise in the pay-packet does not keep place with the rise In prices of
essentials the purchasing power of the pay·packet fails r:educing the real
wages leaving the workers and their families worse off. Therefore, If on
account of inflation prices rise while the ·pay-packet remains frozen, real G
wages will fall sharply. This is what happens in periods of inflation; In
order to prevent such a fall in real wages different methqds are adopted
to provide for the rise in prices. In the cost-of-living sliding scale systems
the basic wages ·are automatically adjusted to price changes shown by the
cost-of-living index. In this way the purchasing power of worker's wages is H
222 SUPREME COURT REPORTS (1994) SUPP. 2 S.C.R.

A maintained to the extent possible and necessary. However, leap·frogging
must be avoided. [240·C to E)

While awarding dearness allowance cent percent neutralization of •
the price of cost of living should be avoided to check inDationary trends.
The whole purpose of granting dearness allowance to workmen being to
B neutralize the portion of the increase in the cost of living it should
ordinarily be on a sliding scale and provide for an increase when the cost
of living increases and a decrease when it falls. Normally full neutraliza·
tion is not given except to the lowest class of employees and that too on a
sliding scale. To the lowest paid employees who are near about subsistence
c level, full neutralization or thereabouts would be justified. It must be
realized that even at the lowest level since neutralization is related to basic
requirements of food, clothing aud shelter, several other requirements
remain unattended and workmen have to bear the brunt of the price rise
to satisfy such needs. At higher levels also because of the tapering
D neutralization allowed. employees suffer a sharp fall in their real earnings
over a period of time. Besides, the food basket which constitutes the major
item in the kity of basic necessities on which neutralization is determined,
differs at different levels and keeps changing with the passage of time even
for employees of the lowest level with the result that the new items remain
outside the admissible items for neutralization. All these factors con·
E tribute to the distortion in the real wages of the workmen. As a con-
comitant to the tapering neutralization system, maximum limits of the ''
quantum of dearness allowance at different pay belts is often insisted upon
so that lower level employees do not draw more. But as against that the
counter effect of the tapering or sliding neutralization system with fixed
maxima at different levels is that it completely distorts the pay structure
F
and erodes the real value of the wage. [240-F to H, 241-A to E]

The dearness allowance given to compensate the cost of living being
less than the cent percent increase ceases to make up for the ever widening
gap between wages and cost of living and an upward revision of wages or
G dearness allowance becomes imperative. The company can revise the wage
structure to the prejudice of its workmen In certain situations e.g., finan-
cial stringency, etc., but no such revision can be permitted if the wage
structure is of the minimum ·wage level. [241-G, 242-H, 243-A]

H Clerks of Calcutta Tramways v. Calcutta Tramways Co. Ltd., AIR
t
HINDUSTAN LEVER LTD. v. B.N. DONGRE 223

(1957) SC 781; Hindustan Times Ltd. v. Their workmen, AIR (1963) SC A
1332; Bengal Chemicals and Phannaceutica/s Works Ltd. v. Its Workmen,
AIR (1969) SC 360; Cha/than Vihag Khand Udyog Sahakari Manda/i Ltd.
v. G.S. Barot, Industrial Court, Gujarat, AIR (1980) SC 31; Kamani Metals
& Alloys Ltd. v. Their Workmen, [1967) 2 SCR 463; Killick Nixon Ltd. v.
Killick & Allied Companies Employees' Union, [1975) Supp. SCR 453 and B
Workmen v. Reptakos Brett & Co. Ltd., [1992) SCC 290, relied on.

1.2. Protection against price rise is limited to only those items
included in the basket and not to all items which a wage earner at the
lowest level consumer. For those items not included in the basket, the wage
earner at every level has to bear the brunt of inflation. While dietary habits c
change, the food items in the basket remain constant for want of periodical
revision with the result that the new items of food which are highly priced
do not count for neutralization. Again wage revision do not take place for
long spells. In certain wage plans upward revision of wages take place by
the merger of a portion of the dearness allowance in. the basic wage plus
an addition thereto to take care of the inflationary dents in the wage D
structure in respect of other items outside the basket. Under certain
dearness allowance schemes, neutralization is allowed on tapering per-
centages on the assumption that those in the higher wage groups have a
certain cushion to bear a part of the inflation. Such a scheme is in a ·vogue
in Central and State Government servant's salary plans. That cushion E
does not remain static and gets depleted as the prices rise and there comes
time when it b~comes necessary to inflate it once again by an upward
revision of the salary structure. But in certain industries merger of dear-
ness allowance in the basic wage does not take place at all as in the present
case and instead periodically increases are allowed In the basic wage to
nullify the adverse effect of inflation on items outside the basket. In the
F
case of employees belonging to high wage islands, their carry home pay
packets shrink on account of the deduction of income tax at source.
[251-G-H, 252-A-CJ
1.3. The appellant company was a big industrial establishment and G
there was no other similar establishment of that size in that region. The
company was financially sound and it was in a position to absorb any
additional financial burden that might be thrown, on it if all the demands
made by the employees were conceded. The extent dearness allowance
scheme had been in vogue since long before the Company gave the Notice
of Change. Ordinarily, when the workers are enjoying the benefit under a H
224 SUPREME COURT REPORTS (1994) SUPP. 2 S.C.R.

A scheme without a ceiling the Tribunal or the Court would be slow to inter-
fere with the scheme unless compelling reasons are shown. The salary
structure must be cost effective and merely because the company is finan-
cially sound and in a position to absorb the additional burden is no ground
to revise the emoluments upward. No industrial establishment can be ex-
pected to show such financial indulgence or indicipline as would distort the
B existing differentials, etc., merely because its financial condition is sound
enough to absorb additional financial burdens. This is for the reason that
irresponsible an unjustified upward revision of wage would create ripples
elsewhere and disturb the wage structure in the region. (243-C-D]

C 2.1. In the instant case, on the facts to the case, the Company's case
of the neutralization exceeding 100% did not seem to be correct. Under the
Company's dearness allowance scheme, the dearness allowance was pay-
able uniformly to all the workers and hence it was not likely to disturb the
internal differentials between the workers covered by the scheme. It was
nobody's case that when the scheme was introduced the company had
D permitted itself the indulgence of conceding more than cent percent
n~utralization to its employees. Nor was it the company's case that the
dearness allowance initially agreed upon exceeded 100% at any level.
Therefore, the Tribunal was right in concluding that the neutralization
varied from 97.4% to 86%. The Single Judge committed an error in setting
E aside the said finding in upholding the Company's case, the Division
Bench, as an appellate forum was justified in correcting the error crept in
because the method adopted by the Company in calculating the neutraliza-
tion percentage was wrong. (250-F, B, G]

F 2.2 The Company sought imposition of control or ceiling on dearness
allowance on ground that it distorted the vertical relativity, in that, clerks
received emoluments exceeding what was paid to junior executives and were,
therefore, disinclined to accept promotion. Since the basic pay of the
workers was as low they continued to be governed by the provisions of the
G Industrial Disputes Act whereas the junior executives did not belong to that
class and their salaries were differently determined. These workers, there-
fore, constituted a class by themselves. The process of determination of
salary of junior executives had nothing to do with the workers governed by
the Industrial Dispute Act. Executives enjoy a certain status and per-
quisites which the workers did not receive. The better way to overcome the
H difficulty was to make the junior executive grade more attractive rather
HINDUSTAN LEVER LTD. v. B.N. DONGRE 225

than to deny to the workers what they were receiving since Imig. [25l·A to DJ A

3. The decision of the Industrial Tribunal rendered under the In·
dustrial Disputes Act would be subject to review by the High Court under
Articles 226/227 of the Constitution. Since against" the decision of the
Industrial Tribunal no remedy was available under the provisions of the B
Act, the aggrieved party could only invoke the jurisdiction of the High
Court under Articles 226/227. Since both the Company and the workers
were aggrieved by the award, they preferred writ petition challenging the
award. All the three writ petitions, two on behalf of the workers by the
Sabha and the Union, and the third by the company, were heard together
and disposed of by a common judgment. Against the decision of the C
learned Single Judge, appeals under the Letters Patent were preferred once
again by the said three parties. The Company never questioned the juris-
diction of the High Court to hear and decide the writ petitions nor did it
question the jurisdiction of the Division Bench under the Letters Patent.
Even the Company had appealed against the learned· Single Judge's D
decision to the extent if was against it. No contention regarding the scope
and ambit of the jurisdiction of the Division Bench wa:s rai:;t:d in the
app_eal. If the jurisdiction of the learned Single Judge was not challenged
by the Company, the Company itself had invoked it, it is difficult to
comprehend how the Company can challenge the jurisdiction of the appel·
late court. If the Single Judge had jurisdiction to hear the writ petitions E
against the decision of the Industrial Tribunal, at any rate if his jurisdic·
lion was not question by the Company, the Company cannot challenge the
appellate jurisdiction of the Division Bench since that jurisdiction was
conferred by the letters patent. [246·D to HJ
F
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 4848-50
of 1989.

From the Judgment and Order dated 6.9.89 of the. Bombay High
Court in A.No. 151/89, 1606 & 1607 of 1988.
G
Kapil Sibal, P.K. Raile, P.N. Mongia, O.C. Mathur, Ms. Lekha
Mathur for JBD & Co. K.P. Menon, M.A. Krishnamoorthy, Mrs.
Ramamurthi, H.S. Manian, and Gopal Jain for the appearing parties.

The Judgment of the Court was delivered by H
226 SUPREME COURT REPORTS [1994] SUPP. 2 S.C.R.

A AHMADI, J. Special Leave granted in the aforesaid special leave
petitions.

Five references bearing Nos. (i) 123 of 1977, (ii) 215 of 1979, (iii) 91
of 1984, (iv) 92 of 1984 and (v) 43 of 1985, the first three under Section
B 10(2) and the remaining two under Section lO(l)(d) of the Industrial
Disputes Act, 1947, hereinafter called 'the I.D. Act', arose out of certain
demands made by the workmen- employees of Hindustan Lever Limited
as well as the management's Notice of Change for the imposition of a
ceiling on dearness allowance. These dispute concerned the demands made
C , by the monthly rated clerical and technical staff working at the Sewree
faCtory of the Company as well as the monthly rated C & T categories of
workmen employed at the company's head-office and branch office in
Bombay, the former represented by Hindustan Lever Employees Union,
hereinafter called 'the Union' and the latter represented by Hindustan
Lever Mazdoor Sabha, hereinafter called, 'the Sabha'. The company had
D desired placement of a ceiling on dearness allowance based on the premise
that in the absence of such a ceiling the neutralization factor exeeded
100%. ·It may here be mentioned that both the clerical and technical staff
of the company was, at all material times classified into four categories,
namely, C-1 to C-4 and T-1 to T-4 carrying different pay-scales. The
E clerical staff worked for 36 hours a week, whereas the technical staff
worked for 48 hours a week. It is not necessary for us to indicate the nature
of demands made by the workmen in the aforesaid references because we
are, in the present appeals, mainly concerned with the Company's demand
for placing a ceiling on dearness allowance. The Indiistrial Tribunal,
Maharashtra, by its award dated 18th December, 1985 conceded the
F demand of the management for the placement of a ceiling on dearness
allowance on basic pay exceeding Rs. 500 per month. The Tribunal also
granted certain demands of the workmen in regard to upward revision of
pay-scales, grant of special allowance, social security allowance, adhoc
allowance, automatic promotion scheme, etc., but since we are concerned
G with the limited question in regard to the placement of a ceiling on
dearness allowance ,as demanded by the management, it is unnecessary for
us to refer to the demands of the workmen which were not conceded by
the Tribunal and against which the workmen had approached the High
Court. The workmen had also challenged the Tribunal's Award conceding
H the management's demand for placement of a ceiling on dearness al-
lowance, The learned Single Judge who heard the Writ Petition upheld the
HINDUSTAN LEVER LTD. v. B.N. DONGRE [AHMADI,J.] 227

order of the Industrial Tribunal placing a ceiling on dearness allowance A
but modified the Award with regard to certain other demands. Against the
decision of the learned Single Judge appeals were carried to the Division
Bench of the High Court. In the said appeals the division Bench was called
upon to examine the Correctness of the view taken by the Industrial
Tribunal in regard to the placement of a ceiling on dearness allowance
which came to be affirmed by the learned Single Judge. In additional the
B
Division Bench was also invited to deal with the demand for automatic
promotion which was conceded by the Tribunal but spurned by the learned
Single Judge who substituted it by the grant of stagnation increment. The
management also made a grievance before the Division Bench in regard to
grant of stagnation increment and upward revision of wages. The Division C
Bench rejected. the management's plea against stagnation increment but
preferred to make a remand in respect of wage revision. The major issue
was, however, in regard to ceiling fixed on dearness allowance where basic
wage exceeded Rs. 500.
D
Under the extant scheme, the dearness allowance was linked to index
1450 of the Consumer Price Index (CPI), Bombay (1934 = 100) at 635%
of basic wage for the first Rs. 100, at 284.25% of basic wage for the second
Rs. 100 and at 251 % of basic wage where the salary exceeded Rs. 200 per
month. This was the Fixed Dearness Allowance (FDA) payable to the
workmen. However, on the CPI Index exceeding 1450, the Variable Dear- E
ness Allowance (VDA) was payable on every 10 points rise at 5% of basic
wage for the first ~s. 100, 2.25% of basic wage for the second Rs. 100 and
2% of basic wage on salary exceeding Rs. 200 per month. The Company's
demand was that the exiting scheme of dearness allowance should be
applicable to workmen whose basic salary, inclusive of dearness allowance, F
did not exceed Rs. 1500 per month. However, for those whose basic salary,
inclusive of dearness allowance, exceeded the said figure of Rs. 1500 per
month, it was contended that the existing scheme should continue upto
the CPI point of 1450 and for every 10 point rise above the same, 5% of
basic wage should be allowed for first Rs. 100 and 1% of basic wage for G
the second Rs. 100 and to those basic wage exceeded Rs. 200 the workmen
should not be paid any FDA. So far as VDA is concerned, it was contended
that it should be subject to a maximum of Rs. 1310 for C-1, Rs. 1535 for
C-2, Rs. 1725 for C-3, and Rs.1900 for C-4 categories of clerical employees
~~.~b~~h~b~h~bN~h~b
T-4 categories of technical employees. The Tribunal while continuing the H
228 SUPREME COURT REPORTS (1994] SUPP. 2 S.C.R.

A existing scheme directed that the maximum dearness allowance payable to
the workmen shall be that which is payable to a workman drawing a basic
salary of Rs. 500. To put it differently the Tribunal directed that those
workman drawing a salary exceeding Rs. 500 per month will get the same
dearness allowance as admissible to those drawing a basic salary of Rs. 500
per month without their being any variation in the dearness allowance for
B
salary slabs exceeding Rs.500 per month. This direction given by the
Tribunal was made retrospective from 1st October, 1979. Those workmen
who received dearness allowance in excess of the scheme worked by the
Tribunal between 1st October, 1979 and 30th December, 1985, the date of
the Award, were directed to refund the excess amount by adjusting the
C same against dearness allowance payable to them subsequent to 30th
December, 1985. Thus the dearness allowance scheme worked out by the
Tribunal immediately affected those workmen whose basic salary exceeded
Rs. 500 per month and was likely to affect those who crossed the Rs. 500
mark at ·a future date. The contention of the management before the
D Tribunal was that the slab system of dearness allowance was unrealistic as
it had the effect of distorting the entire wage structure as it exceeded the
100% neutralization factor which has always been the justification for the
intrnduction of the dearness allowance formula.

Indisputably the existing dearness allowance formula was in vogue
E for many years before the Company gave a Notice of Change under Section
9A of" the l.D. Act sometime in 1976. The company had entered into
settlements in 1979 and 1983 with a section of the workmen whereunder it
had agreed to continue the existing dearness allowance formula at certain
levels of salary. It is unnecessary to go into the details in regard to the said
F settlements but it would be sufficient to say that the extant scheme provided
neutralization at the lowest level varying between 95% and 100% whereas
for those drawing higher pay the neutralization was much more than
ordinarily granted to that class of employees. The main justification for
imposition of a ceiling on dearness allowance payable to workmen drawing
G a basic salary exceeding Rs. 500 per month was that it exceeded what other
comparable companies paid by way of dearness allowance to those whose
basic wage exceeded Rs. 500 per month. The Tribunal noted that in such
comparable companies, having no ceiling on VOA, the percentage of
dearness allowance was quite low and, therefore, it did not result in any
distortion in th: wage structure. The learned Single Judge while examining
H the impact of the dearness allowance formula on the wage structure
HINDUSTAN LEVER LTD. v. B.N. DONGRE [AHMADI,J.) 229

pointed out that the emoluments of workmen exceed the emoluments· A
received by the Junior Executive staff of the Company notwithstanding the
fact that the latter are promotion posts. Due to this reason workmen are
unwilling to accept promotions as that would result in a shrinkage in their
total emoluments. Such a situation, points out the learned Single Judge, is
not conducive to efficient working of the company. In this view of the
B
matter the learned Single Judge upheld the Award insofar as it placed a
ceiling on dearness allowance as explained earlier. It also upheld the
Tribunal's decision making the same retrospective w.e.f. 1.10.1979.

It may be mentioned that the Tribunal while placing a ceiling on
dearness allowance granted an upward revision in the wages. One of the c
Justifications for the upward revision of basic salary was the placement of
a ceiling on dearness allowance, vide paragraph 53 of the Award. The
second reason was that the basic wage paid to workmen in TOMCO was
higher at the maximum levels and, therefore, there was justification for
increasing the maxima of the scales applicable to each category of workmen D
of the Company. In that view of the matter the Tribunal revised the basic
wage of the workmen belonging to C-1 to C4 categories and T-1 to T-4
categories as is evident from paragraph 53 of the Award. The revised wage
structure was also brought into force from 1st october, 1979. It will thus be
seen that the placement of a ceiling on dearness allowance had a direct
E
nexus to the Tribunal revising the salary structure of the aforesaid
categories of employees. Secondly the Tribunal also opted in favour of time
bound automatic promotion. The other demands conceded by the Tribunal
have no direct bearing on the question of placement of a ceiling on
dearness allowance and, therefore, need not be adverted to. The learned
Single judge while affirming the Tribunal's decision in regard to placement F
of a ceiling on dearness allowance granted stagnation increment in lieu of
the Tribunal's formula in regard to time bound automatic promotion. It
will thus be seen that over and above the upward revision of the salaries
sanctioned by the Tribunal, the learned Single Judge granted stagnation
increment as a substitute for the automatic promotion scheme introduced G
by the Tribunal. The grant of stagnation increment, therefore, it is con-
tended has a direct nexus to the ceiling on dearness allowance.

The Division Bench of the High Court upheld the learned Single
Judge's .view that time bound automatic promotion would adversely affect H
SUPREME COURT REPORTS (1994) SUPP. 2 S.C.R.

A merit and, therefore, upheld its substitution by stagnation increment. It
disapproved of the ceiling on dearness allowance and summed up its
conclusion in that behalf in paragraph 42 of the Judgment as under :

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

E However, in regard to the upward revision of wages it felt that the issue
should go back to the Tribunal for a de nova consideration whether in view
of the rejection of the management's demand. for ~ ceiling on dearness
allowance, upward revision of wages was any rr.ore justified. This is how
the Division Bench concluded in paragraph 48 of its judgment :
F
"48. We have commented upon the approach of the Tribunal and
the leaned Judge by observing that to the extent that they have
mixed up the considerations for increasing the wage scale with
those for fixing the dearness allowance, they have committed an
error apparent on the face of the record. It cannot also be gainsaid
G that one of the main considerations, which has weighed with the
tribunal, while introducing the revised pay-scales is that it was
introducing the ceiling on dearness allowance, for those earning
salary above Rs. 500 per month. In fact, as pointed out earlier,
what the Tribunal has done is to give by way of some increase in
H the' maximum of the pay scale, particularly to those in category
HINDUSTAN LEVER Lffi. v. B.N. DONGRE[AHMADI,J.) 231

C-3, C-4 and T-3 and & T-4, what it has taken away from them A

- by reduction in dearness allowance. Thus both the revision of salary
and introduction of the new dearness allowance system are inter-
linked. Since we are setting aside the Award with regard to the
dearness allowance and directing the continuation of the existing
dearness allowance system, it is only fair that we remand the matter
to the Tribunal to consider the case for revision of wage scales
B
afresh independently and irrespective of the change in the dearness
allowance system which was proposed by it. We are aware that this
would involve prolongation of the litigation between the parties.
But in the circumstances it is unavoidable. We, therefore, set aside
the Award with regard to the revision of wage scales and remand C
the demand of the workmen for the revision of wage scales to the
Tribunal for fresh consideration, in the light of what we have stated
hereinabove. 11

The issue of upward revision of wages was, therefore, remanded to the
Tribunal in the aforestated circumstances. D
After the matter went back to the Tribunal, the Tribunal went into
the question whether or not an upward revision of wages for the clerical
and technical staff was called for. On the question of financial capacity of
the employer-company it rightly concluded that the financial position of E
the Company was sound and the Company was in a position to bear an
additional financial burden. On this point there was no controversy even
before us. Secondly it compared the extant wage structure with the wage
structure prevailing in comparable similar concerns and came to the con-
clusion in Paragraph 25 of its order dated 25th June, 1991 as under :
F
"25. To sum up, since 1970 there is no wage revision as such in
HLL Company in respect of the employees of C-1 to C-4 and T-1
to T-4 grades. As in 1970 there was a Reference, which has been
decided by the president, Shri Chitale in 1974 and Shri Bhojwani,
J. slightly modified it. Thus for allowing the period till today, there G
is no revision of wage scales. Admittedly the cost of living index
has increased from 1400 to 2900 and in September, 1990 it is 4524.
Considering this, it is clear that there is justification for the wage
scales, as demanded by the workmen."

Partly allowing the Reference the Tribunal revised the wage scales H
232 SUPREME COURT REPORTS [1994) SUPP. 2 S.C.R.

A w.e.f. 1st October, 1970 as under :

Clerical

C-1
Modified Demand

160-15-445
-
B C-2 211-18-553

C-3 220-20-620

C-4 260-22-700

c . Technical Grade
T-1 200-17-523
I
T-2 250-20-630

T-3 270-22-710
D
T-4 320-25-820."

It is against this order of the Tribunal in Reference No. 123/77 that Special
Leave Petition 14558-59 of 1991 came to be•preferred.

E Against the aforesaid decision of the Division Bench of the High
Court the Company approached this court seeking special leave to appeal·
under Article 136 of the Constitution. Pending grant of special leave an
ad-interim stay was granted against the implementation of the judgment of
the Division Bench. Ultimately this Court while granting special leave
F vacated the ad-interim stay of the judgment of the Division Bench. The
Company, therefore, became liable to implement the award as modified by
the Judgment & order of the Division Bench. Despite the same the
workmen 'complained that the Company had failed to implement the
Award as Modified by the Division Bench.in regard to grant of stagnation
increment to those employees who had reached the maxima in their •
G pay-scales and were entitled to stagnation increment every alternate year
of their se'rvice from 1st October, 1979 and that the Company had refused
to pay tlie dues under the modified Award to those employees who had in
the meantime retired or left service of the Company. Complaint was,
therefore, lodged with the Tribunal under Item No. 9 of Schedule IV of
H the MRTU & PULP Act. This complaint was contested by the Company.
HINDUSTAN LEVER LID. v. B.N. DONGRE [AHMADI, J.] 233

The Tribunal after considering the various contentions raised on behalf of A
the Company came to the conclusion that the Company had engaged in
unfair trade practice falling within the mischief of the said item and that it
should desist from doing so in future. ·The Company was directed to
implement the modified Award in relation to the grant of stagnation
increment and to work out the benefit on the wage scales existing on the B
date of the Reference and pay the monthly benefits unconditionally to the
retired workmen or those who left the service of the Company in the
meantime with interest at 12% per annum on the arrears. It is. against this
order of the Tribunal that the Company has approached this Court directly
by way of Special Leave Petitions Nos. 13327 and 13339 of 1990. Once this
Court vacated the interim stay in regard to the implementation of the C
modified Award while granting leave to appeal, one fails to understand
how the Company can refuse to implement the Award for the grant of
stagnation increment. To do so would be to refuse to comply with the High
Court's order in regard to which this Court refused to continue the interim
stay. Therefore the Tribunal was justified in directing the Company to D
implement the modified Award relating to the grant of stagnation incre-
ment and to work out the benefit on the existing wage structure. We,
therefore, do not see any merit in these two special leave petitions and
summarily dismiss the same.

From the resume of the facts it is evident that as a sequel to the E
Notice of Change give by the Company under Section 9A. of the I.D. Act
for placement of a ceiling in regard to the grant of dearness allowance, the
clerical and technical workmen belonging to the C-1 to C-4 and T-1 to T-4
categories working at Sewree factory and at the head office raised certain
demands for the revision of wages and grant of various allowances. Since F
the Company had a slab-system dearness allowance formula linked to basic
wage and CPI, the Tribunal imposed a ceiling by providing that the
workmen drawing a basic wage exceeding Rs. 500 per month shall be paid
the same amount by way of dearness alluwance as admissible to workmen
drawing a basic wage of Rs. 500 on every rise of ten points in the CPI. In G
taking that view the Tribunal acted on the region-cum- industry basis and
noticed that while other similarly situate industries in the region paid
dearness allowance calculated at 1.25% on the third Rs. 100 and above the
Company paid as high as 2% which exceeded the neutralisation of 86%
normally granted at the highest level of the salary structure. It rejected the H
234 SUPREME COURT REPORTS [1994) SUPP. 2 S.C.R.

A Company's extreme contention that the neutralisation factor exceeded
100% as well as the Union's contention that it did not exceed 80% (vide
paragraph 33 of the Tribunal's (Dongre) Award). It also found as a matter
of fact that the total emoluments of C-4 and T-4 employees exceed that
received by Supervisors and Junior Executives by Rs. 400 .to Rs. 600 per
B month. Taking note of the fact that 100% neutralization is ordinarily
allowed to the lowest paid staff and as the basic salary rises the percentage
of neutralization down, the Tribunal felt that the neutralisation factor was
very high at the higher levels of salary an even at the highest and, therefore,
it opted in favour of imposing a ceiling to balance the wage structure. Since
C it imposed a ceiling on dearness allowance it ruled in favour of an upward
revision in the wage structure. The Tribunal also granted certain allowan-
ces, including gratuity, with which we are not concerned. However, the
learned Single Judge in the High Court while affirming the Tribunal's
decision concluded that the neutralisation rose to 100% at the higher levels
D of salary since the percentage fixed for VDA was very high as compared
to other companies. In taking the said view the learned Judge placed
reliance on the decision reported in Chotanagpur Chamber of Commerce
Singhbhum Chamber of Commerce and Industries & Anr. v. The State of
Bihar & Another, (1987) 1 LLJ 275 distinguishing the ratio laid down in
Monthly-Rated Workmen at the Wadala Factory of the Indian Hume Pipe
E Company Ltd. v. Indian Hume Pipe Company Ltd., Bombay, (1986) 2 SCR
484. The Division Bench of the High Court, as pointed out earlier, came
to a definite conclusion that the neutralisation did not exceed 100% in any
of the categories of the concerned workmen: The Division Bench con-
sidered three. methods, AB & C, and opted for method B. Method a
F was convassed by the management, method B by the workmen and Method
c was advocated by the Boothlingam Committee (1978). These have been
explained in paragraph 15 of the judgment. The Division Bench rejects
method A on the ground that it fails to achieve the main objective of
protecting the real value of the basic wage. It points out that if the dearness ·
G allowance is to serve the real objective, the rate at which it is paid must
constantly reflect the basic wage which it seeks to protect. As regards
method B the Division Bench holds that it largely achieves the objective
since it avoids the drawback of method A and constantly protects the value
of the basic wage. Not that it does not have its drawbacks but on the whole
H it was found to be attractive. Method C though projected by the workmen
HINDUSTAN LEVER LTD. v. B.N. DONGRE \AHMADI. l.J 235

was not seriously pressed. Before the Division Bench the Company tried A
to make good its contention by calculating the neutralisation as under :

TABLE I

Grade Basic D.A. Tola I Basic D.A. Total Total '.\eutra-
1970 1970 wage 1989 1989 wage wage lisation B
CPI 800 Packet CPI Packet Packet under
in 1970 3912 at in 1989 unaer the
(CPI lOOo/o at the existing
800) neutra- 1007' exis1ing system
lisation Ncutra- system
lisation
(CPI
3912)
c
1 2 3 4 5 6 7 8 9

C-1
Min. 130 351 481 130 1716 1846 2552 121.93'7('
Max. 385 672 1057 385 3286 3671 4473 121.S4o/c

C-2 D
Min, 175 413 588 175 2020 2195 2675 121.86%
Max. 481 788 1269 481 3853 4334 5284 121.91 %

C-3
Min. 220 472 692 220 2308 2528 3079 121.79%
Max. 560 884 1444 560 4323 4883 5952 121.89%
C-4 E
Min. 260 521 781 260 2548 2808 3417 121.68%
Max. 634 973 1607 634 4758 5392 6577 121.97%
T-1
Min. 160 393 553 160 1922 2082 2534 121.70%
Max. 415 708 1123 415 3462 3877 4727 121.92%
T-2 F
Min. 200 448 648 200 2191 2391 2910 121.70%
Max. 506 818 1324 506 4000 4506 5496 121.97%
T-3
Min. 240 496 736 240 2425 2665 3248 121.87%
Max. 580 908 1488 580 4440 5020 6121 121.93%
T-4
Min. 310 581 891 310 2841 3151 3839 121.83%
G
Max. 684 1034 1718 684 5056 5740 7000 121.95%

The Company thus projected that under the existing scheme the neutralisa-
tion exceeds 100%. The Workmen, however, worked out the neutralisation
as under: H
236 SUPREME COURT REPORTS 11994] SUPP. 2 S.C.R.

A TABLE II
Grade Basic D.A. Total Basic D.A. Total Total Ncutra-
1970 1970 wage 1989 1989 wage wage lisation
CPI 800 Packet CPI Packet Packet on
in 1970 3912 at in 1989 under under
(CPI 100% at the the
800) neutra- 100o/o existing existing
B Jisation Neut id.- system system
. lisation
(CPI
3912)
1 2 3 4 5 6 7 8 9
C·l
c Min .• 130 351 481 130 2218.20 2348.20 2252 95.90%
Max. 385 672 1057 385 4779.84 5164.84 4473 86.60o/o
C-2
Min. 175 413 588 l75 2684.76 2859.76 2675 9354%
Max. 481 788 1269 481 5736.08 6217.08 5284 84.99%
C-3
D Min. 220 ' 472 692 220 3148.32 3368.32 3079 91.41%
Max. 560 884 1444 560 6485.60 7045.60 5952 84.48o/o
.
C-4
Min. 260 521 781 260 3570.76 3830.76 3417 89.20%
Max. 634 973 1607 634 7228.12 7862.12 6577 83.65%
T·l
Min. 160 393 553 160 2540.28 2700.28 2534 93.84%
E Max. 415 708 1123 415 5064.80 5479.80 4727 86.26%
T·2
'
Min. 200 448 648 200 2968.72 3168.72 2910 91.83%
Max. 506 \ 818 1324 506 5952.80 6458.80 5496 85.09%
T-3
Min. 240 496 736 240 3359.04 3599.04 3248 90.24o/o
F Max. 580 908 1488 580 6696.32 7276.32 6121 84.12%

T-4
Min. 310 581 891 310 4035.32 4345.32 3840 88.37o/o
Max. 684 1034 1718 684 7724.80 8408.80 7000 83.24%

Thus according to the workmen the neutralisation does not exceed
G . 100% as alleged by the Company. This difference is on account of the fact
that the Company has worked out the neutralisation by employing method
A whereas the workmen have relied on method B. Since method B com·
mended itself to the Division Bench it concluded that the neutralization did
not exceed 100%. and, therefore, rejected the Company's contention in that
H behalf.
HINDUSTAN LEVER LTD. v. B.N. DONGRE [AHMADI, J.) 237 ·

The concept of dearness allowance, the second most important ele- A
ment in a worker's wage-plan next to the basic wage, was introduced during
the second world war to meet the increase in the cost of living caused by
inflation. It was either linked to the cost of living index or was given by way
of flat increases. When linked to the former, it was granted to all the
income groups at a flat rate or was graded on a scale admissible to different
income groups diminishing with rise in income. Basically, the concept of B
dearness allowance was designed to combat inflation and protect real
wages aµd therefore it would appear that there should be cent percent
neutralisation. This is a concept peculiar to India, Ceylon, Pakistan and
Bangladesh. The National Commission of Labour (1969) recommended
95% neutralisation for minimum wage earners but it was reluctant to C
recommend the same rate for workers in higher wage groups for fear that
it may spark off inflationary trends. Normally such a dearness allowance
formula suffers from two drawbacks, (i) it has the pernicious effect of
distorting the wage-structure and (ii) it results in a sharp erosion of real
income, particularly of those in the higher wage groups. Generally speak-
ing, the distortion of the wage-structure takes place because employees in D
different pay scales are granted dearness allowance not at a uniform rate
but at a tapering rate, i.e., the workers in the lower scales getting a higher
neutralisation as compared to those in the higher pay brackets in whose
case the neutralisation percentage diminishes with the rise in basic wage.
That is because it is believed that those in the higher pay brackets have a
cushion to absorb the brunt of inflation. The Company's case, therefore, is E
that as a concomitant to the tapering neutralisation system built into the
extent formula, the maximum limit of the quantum of dearness allowance
at a certain point in the pay structure was imperative to maintain certain
differentials in the pay packets of employees so that the lower level
employees do not draw emoluments equal to or almost equal to those in F
the officers' scales. The Company therefore contends that the Tribunal as
well as the learned Single Judge had rightly appreciated the need for
exercising control by imposition of a ceiling at the appropriate salary level
to ensure that the neutralisation does not exceed 100% and the wage
differentials are not so distorted as to make promotion to· officer's level in
attractive. The contention urged on behalf of the Company before the G
Tribunal was that the dearness allowance formula based on the slab system
is so unrealistic that the employees of the Company constitute a privileged
class, in that, their total emoluments have risen to disproportionately high
levels as compared to their counterparts in similar other industries in the
same region, thereby posing a threat to industrial peace in the region.
H
238 SUPREME COURT REPORTS [1994] SUPP. 2 S.C.R.

A Dealing with the Company's case on the question of the percentage of
neutralisation the tribunal points out that the existing dearness allowance
formula had been in vogue for many years preceding 1976 when the
Company gave a Notice of Change under Section 9A of the I.D. Act, and
the neutralisation varied from 97.4% at the lowest level to 86% at the
highest point. It, however, felt that the percentage of neutralisation at the
B highest level was considerably higher than that granted to similarly situate
employees in other comparable units. According to the Tribunal the
neutralisation for higher pay-scales of Rs. 450 or Rs. 500 p.m. and above
is higher and that was thought to be enough justification for placement of
a ceiling on dearness allowance. But at the same time the Tribunal con-
ceded that there was no company of the size of the appellant - Company
c in the region, not even Godrej, Tata Oil Mills Company Ltd. (Tomco) or
lakme for that matter. In the absence of a comparable unit in the region,
the Tribunal felt that they could be treated as somewhat comparable as
they manufactured some of the goods manufactured by the appellant -
Company. The Tribunal noticed that in these units the variation percentage
D above the basic wage of Rs. 300 was very low. It was found that while the '
variation percentage above Rs. 300 was as low as lV4% in Godrej,
TOMCO, Colgate and other similar units, it was as high as 2% in the
appellant-Company. The dearness allowance variation was noticed as·
under: ' '
E Pay H.L.L. TOM CO Godrej Colgate
300 Rs. 9.25 Rs. 8.75 Rs. 8.25 Rs. 8.00
400 Rs. 11.25 R~. 10.00 Rs. 9.25 Rs. 9.00 ·
500 Rs 13.25 Rs: 11.25 Rs. 10.25 Rs. 10.00
600 Rs. 15.25 Rs. 12.50 Rs. 11.25 Rs. 11.00
F
700 Rs. 17.25 Rs. 13.75 Rs. 12.25 Rs. 12.00

From the above table the Tribunal held that the high variation percentage
in the scheme of the appellant - Company above the basic wage of Rs. 300,
caused a· marked difference in the total carry-home pay-packet of its
G employees vis-a-vis the employees of other comparable units resulting in a
distortion in the ·wage structure in the said region.· The Tribunal then
noticed the reports of certain bodies, the Boothlingarn Committee, the
National Commission on Labour, the Central Pay <Tummissions, etc., and
concluded that placement of a ceiling was imperative to ensure that the
H wage structure does not get distorted and the disparity ratio between the
HINDUStAN LEVER LTD. v. B.N. DONGRE [AHMADI, J.) 239

wages paid by the appellant - Company and the wages paid by other A
comparable units in the region at the level of employees drawing a basic
salary of Rs. 500 and above remains within reasonable bounds.

Against the award of the Tribunal (Dongre Award) both the Sabha
and the Union as well as the Company preferred Writ Petitions under
Articles 226/227 of the Constitution which were numbered as Writ Petitions B
Nos. 864, 865 and 1224 of 1986 respectively. They were heard together by
a learned Single Judge of the High Court. The learned Single Judge, after
coming to the conclusion that it was permissible for the Tribunal to fJX a
ceiling on dearness allowance admissible to workmen, found that the
neutralisation at the higher level of basic wage of Rs. 500 and above C
exceeded 100%. He also found as a fact that the total emoluments to which
workmen would be entitled under the extant dearness allowance formula
far exceeded the emoluments drawn by Junior Executives of the Company.
Since the posts of Junior Executives are promotional posts for C-3 and C-4
and T-3 and T-4 categories, experience had shown that these workmen D
were unwilling to accept promotions resulting in indiscipline which caused
an adverse effect on the Company's administration. After referring to the
case law in this behalf the learned Judge concluded as under :

'In our case the imposition of ceiling on dearness allowance has E
not been effected merely on the ground that the senior workers
may be earning more than the junior officers. The entire wage
package including additional benefits given under the award along
with the fact that despite the imposition of ceiling there is more
than 100% neutralisation are all taken into account while imposing
the ceiling. Hence the finding of the Tribunal on this issue cannot F
be faulted."

The learned Judge while noting that the placement ofthe ceiling will cause
disparity in the wage differential between C and T grades inter se observed
that that would be a necessary consequence· of the ceiling but merely on G
that account it may not be correct to refuse to place a ceiling as in the
higher slabs of wages the differeniials must be reduced. In this view of the
matter the award of the Tribunal in this behalf was sustained.

As stated earlier, appeals were prpferred against the decision of the
learned Single Judge bfing Appeals Nos.-1606 and 1607 of 1988 by the H
240 SUPREMECQURTREPORTS (1994JSUPP.2S.C.R.

A Sabha and the Union, respectively, and Appeal No. 151 of 1989 by the
Company against the grant of the stagnation increment, etc. The view taken
by tlie Division Bench has been indicated hereinbefore and we need not
re-state it.

B It is in the above background that we must consider the question of
placement of a ceiling on dearness allowance. As is so well • known, wages
are among the major factors in the economic and social life of the working
classes. Workers and their families depend almost entirely on wages to
provide themselves with the three basic requirements of food, clothing and
shelter. The other necessities of life like children's education, medical
C expenses, etc., must also come out of the· emoluments earned by the bread-
winner. Workers are therefore, concerned with the purchasing power of
the pay-pocket he receives for his toil. If the rise in the. pay-packet does
not keep place with the rise in prices of essentials the purchasing power
of the pay-packet falls reducing the real wages leaving the workers and
D their families worse off. Therefore, if on account of inflation prices rise
while the pay- packet remains frozen, real wages will fall sharply. This is
what happens in periods of inflation. In order to prevent such a fall in real
wages different methods are adopted to provide for the rise in prices. In
the cost-of-living sliding scale systems the basic wages are automatically
adjusted to price changes shown by the cost-of-living index. In this way the
E purchasing power of worker's wages is maintained to the extent possible
and necessary. However, leap-frogging must be avoided. This Court in
Clerks of Calcutta Tramways v. Calcutta Tramways Co. Ltd., AIR (1957) SC
781-(1956) 2 LLJ 450, held that while awarding dearness allowance cent
percent neutralisation of the price of cost of living should be avoided to
F check inflationary trends. That is why in Hindustan Times Ltd. v. Their
Workmen, AIR (1963) SC 1332= (1963) 1LLJ108, Das Gupta, J. observed
that the whole purpose of granting dearness allowance to workmen being
to neutralise the portion of the increase in the cost of li\'ing, it should
ordinarily be on a sliding scale and provide for an increase when the cost
G of living increases and a decrease when it falls. The same principle was
reiterated in Bengal Chemical and Pharmaceuticals Works Ltd. v. Its
Workmen AIR (1969) SC 360 = (1969) 1 LLJ 751 and Shri Cha/than Vibhag
Khand Udyog Sahakari Mandali Ltd. v. G.S. Barot, Industrial Court, Gujarat,
AIR (1980) SC 31 (1979) 2 LLJ 383 and it was emphasised that normally
full neutralisation is not given except to the lowest class of employees and
H that too on a sliding scale. To the lowest paid employees who are near
HINDUSTAN LEVER Lm. 1·. B.N. DONGRE [AHMADI, J.] 241

about the subsistence level, full neulralisation or thereabouts would be A
justified. It was, therefore, emphasised by the learned council for the
Company that in no case can the neutralisation exceed.cent percent, since
the purpose of granting dearness allowance is to enable the worker to tide
over the rise in lhe cost of living so 1ha1 ii does not affect his purchasing
power in relation to basic necessities of life. But it must be realised that B
even at the lowesl level since neutralisation is related to basic requirements
of food, clothing and shelter, several other requirements, remain unat-
tended workmen have to bear the brunt of the price rise to. satisfy such
needs. At higher levels also because of the tapering neutralisation allowed
employees suffer a sharp fall .in their real earnings over a period of time.
Besides, the food basket\vhich constitutes the major item in the kitty·of C
basic necessities on which neutralisation is determined, differs at different
levels and keeps changing with the passage of time even for employees of
the lowest level with the result that the new items remain outside the
admissible. items for neutralisation. All these factors contribute to the
distortion in the re.al wages of the workmen. As a concomitant to the D
tapering neutralisation system, maximum limits of the quantum of dearness
allowance at different pay belts is often insisted upon so that lower level
employees do not draw more. But as against that the counter effect. of the
tapering or sliding neutralisation system with fixed maxima at different .
levels is that it completely distorts the pay structure and erodes the real E
value of the wages. _To overcome such an effect on the pay structure the
Third Central Pay Commission had stipulated that should the price level
rise above the 12 monthly average of 272 (1960 = 100) points, the position
should be reviewed to remove the ceiling of Rs. 2400 p.m. That is why in
Kamani Metals & Alloyes Ltd. v. T7ieir Workmen, (1967) 2 SCR 463 ((1967) F
2 LU 55], Hidayatullah, J. remarked that the dearness allowance given to
compensate the cost of living being less than the cent percent increase
ceases to make up for the ever widening gap between wages and cost of
living and an upward revision of wages or dearness allowance becomes
imperative. In Killick Nixon Ltd. v. Killick & Allied Companies Employees'
Union, (1975) Supp. SCR 453 [(1975) 2 LU 53), the Company gave a G
Notice of Change on May 11, 1966 for placing a ceiling on dearness
allowance already in vogue at the figure of Rs. 325 on account of the steep
rise in dearness allowance linked with the cost of living index in Bombay.
The workmen resisted the same and by consent referonce was made in
June, 1966 to the Industrial Tribunal which removed the ceiling. The award H
242 SUPREME COURT REPORTS [1994] SUPP. 2 S.C.R.

A was challenged in this Court. The employers contended that the scheme of
dearness allowance linked to the cost of li\ing index as well as to the basic
wage by way of slabs necessitated a ceiling for otherwise it ceased to be
compensation for rise in cost of li,ing but jn fact amounted to additional
remuneration no related to the rise in the cost of living. The stand of the
employees was that there should be no ceiling on dearness allowance till
B the level of living wage was achieved. In the Bombay region, it was pointed
out that there were a number of concerns having a slab system of dearness
allowance without a ceiling and there were. others \vith a ceiling as well.
Taking note of the ceiling applicable in the case of Central Government
employees, this Court observed that imposition of ceiling was not a totally
c alien phenomenon, though it could not be said to be a generally prevalent
practice. The Court rejected the idea of imposition of ceiling at the lowest
level but observed that the removal of ceiling on dearness allowance would
not be justified, even though the Company was prosperous and consumer
price index was soaring, because (i) the rise in CPI produces a steep rise
D in dearness .allowance (ii) the absence of a ceiling may result in clerical
staff getting more than junior executives and (iii) a general problem such ,
as this cannot be treated on a statistical burden relating to only 265 of 1142
workmen. This Court held that those at the subsistence level would be
entitled to 100% neutralisation without a ceiling but for those in higher
slabs, the Tribunal was required to consider, having regard to principles
E laid down therein, at what level the ceiling should be imposed. Consider-
able reliance was placed on this decision.

However, we may take not of the recent decision of this Court in
Workmen v. Reptakos Brett & Company Ltd., (1992] 1 SCC 290. In that case,
F the Company first introduced the slab- system of dearness allowance in
1959 which was liberalised in 1964 by the addition of VOA with a limit, ..
which limit was later removed in 1969., Thereafter, when the Company
attempted to restructure the scheme on the pica that the slab-system had
resulted in· over- neutralization thereby placing the workmen in the high
wage island the same was resisted by the workmen on the plea that what
G they were ,paid was not even need-based wage. The Tribunal upheld the
Company's plea for placing a ceiling on dearness allowance but this Court
disapproved of the same on the ground that there was nothing on record ·
to show that what was paid was higher than what would be required to be
paid on the concept of need-based wage. This Court conceded that the
H Company can revise the wage structure to the prejudice of its workmen in
HINDUSTAN LEVER Lill. v. B.N. DONG RE !AHMADI. 1.J 243

certain situations e.g., financial stringency, etc.; but held that no such A
revision can be permitted if the wage structure is at the minimum-\vage
level. This decision was pressed into service by counsel for the workers
before us to buttress his submission that merely because the total emolu-
ments drawn by the workers of the appellant - Company compare
favourable with that paid to workers of TOMCO, Godrej, Colgate, etc.,
that by itself is not sufficient reason to slice down the emoluments of the
B
former by placing a ceiling on dearness allowance at the Rs. 500 and above
wage level.

From the above discussion it clearly emerges that the appellant -
Company is a big industrial establishment and there is no other similar c
establishment of that size in that region. The volume of business of the
appellant - Company is many many times more than companies like
Godrej, TOMCO, Philips, Colgate, etc,, which have been treated as com-
parable units in the absence of a really comparable unit in that area. The
other units though tiny in size and with a low volume of business as D
compared to the appellant Company were treated as comparable only
because they manufactured some of the items manufactured by the latter.
Otherwise, truly they are not comparable. Secondly, the appellant - Com-
pany is financially sound and there is no dispute, indeed none was raised
at any stage of the present proceedings, that it is in a position to absorb
any additional financial burden that may be thrown on it if all the demands E
made by the employees are conceded. Thirdly, the extant dearness ai-.
lowance scheme has been in vogue since long before the company gave the
Notice of Change. Ordinarily, when the workers are enjoying the benefit
under a scheme without a ceiling the Tribunal or the Court would be slow
to interfere with the scheme unless compelling reasons are shown. Fourth- F
ly, there is no dispute that the salary structure must be cost-effective and
merely because the Company is financially sound and in a position to
absorb the additional burden is no ground to revise the emoluments
upward. There can be no doubt that no industrial establishment can be
expected to show such financial indulgence or indiscipline as would distort G
the existing differentials, etc., merely because its financial condition in
sound enough to absorb additional financial burdens. That is for the
obvious reason that irresponsible and unjustified upward revision of wages
would create ripples elsewhere and disturb the wage structure in the
region. However, it must be realised that under Article 43 of the Constitu-
tion the ultimate goal or objective is to secure a 'living wage' and therefore, H
244 SUPREME COURT REPORTS (1994] SUPP. 2 S.C.R.

A contends the learned counsel for the workers, till that goal is reached, the
court should refuse to interfere in such cases. It was, therefore, strongly
urged by the learned counsel for the workers that this Court should not
interfere in exercise of its extra-ordinary jurisdiction. Lastly, it was said that
the passage of time also would justify non-interference.

B
On behalf of the appellant it was contended that the Division Bench
exceeded its jurisdiction in interfering with the concurrent decisions of the
Tribunal (Dongra Award) and the learned Single Judge based on apprecia-
tion of evidence on record and in particular with the decision of the latter
who held that under the prevailing formula the neutralisation exceeded
c 100% leading to a distortion in the wage structure. It was pointed out that
the Tribunal committed an error in holding that the neutralisation varied
between 94.4% at the lowest level. and 86% at the highest level and the
learned Single Judge was, therefore, right in correcting the error and
recording a finding that the existing formula provided for neutralisation
which at certain levels exceeded 100%. It was further pointed out that
D
notwithstanding the above error in working out the neutralisation percent-
age, the Tribunal rightly held in paragraphs 36 and 37 of his Award that
since under the existing scheme employees in pay brackets of basic Rs.
500 and above were entitled to VDA at 2% flat for every ten points rise
in the CPI, the dearness allowance payable to them was excessive com-
E pared to 1 to 1V4% admissible to workers in comparable units and hence
a ceiling at Rs. 500 and above was imperative to ensure that the wage
differentials were not distorted. Contended Counsel that this finding of the
Tribunal was rightly affirmed by the learned Single Judge following the
decision of this Court Killick Nixon Ltd. (supra) distingui~hing Hume Pipe
F Company's case on facts. Counsel submitted that this concurrent view
ought not to have been disturbed by the Division Bench on the totally
erroneous premise that dearness allowance was meani to compensate the
change in cost of living when it was fairly well settled by a catena of
decisions of this Court that it was meant to protect the purchasing power
G of the employees in respect of the items constituting the basket of essential .
commodities and not to compensate for rise in prices of non-essentials.
Proceeding on yet another erroneous basis that the neutralisation formula
can very depending on the purpose to which it is applied, counsel con-
tended that the entire approach of the Division Bench was misconceived
and the confusion created thereby is worst confounded by the assumption
H that the parties .consented to 1970 being the base yeair, when it was not so,
HINDUSTAN LEVER LTD. v. B.N. DONGRE [AHMADI,J.] 245

and in relying on the tables reproduced earlier prepared on that base/year. A
It was pointed out that the tables were constructed taking 1970 as the base
year as that was the desire of the learned Judges constituting the Division
Bench but that was never conceded as acceptable by the management.
Lastly, it was said that the decision of the Division Bench runs counter to
ihe well recognised region-cum-industry principle.
B
On behalf of the employees, counsel submitted, that even if it is
assumed that the material on record indicated that the emoluments paid
to the workers were much higher than the subsistence level, they were
indisputably far below the living wage' promised by Article 43 of the
Constitution and hence there was no justification to put a ceiling on c
dearness allowance. It is submitted that as rightly held by the Division
Bench there is in fact no over-neutralisation and no distortion in the
emoluments drawn by workers and executive officers and, therefore, on
region-cum-industry basis also the plea for placement of a ceiling on VOA
in the higher pay bracket of Rs. 500 and above is not justified. It is pointed D
out that the prevailing slab-system dearness allowance scheme is related to
180 points (1934~ 100} and therefore upto that level no dearness allowance
is admissible to workers. It is only after that level that dearness allowance
become payable on the cycle of ten points rise. This formula which has
been in vogue since long does not permit cent percent neutralisation even
at the lowest level of basic pay not exceeding Rs. 100 per month. This works E
out to a variation of 5% at the lowest level and then tapers down 2.25%
and 2% for the s.econd and the third Rs. 100 rise which reduces the
neutralisation much below 90%. That is why the Dongre Award also
conceded that the neutralisation does not exceed 100% at any level of the
wage structure. It is further pointed out that there has been no merger of F
dearness allowance in basic wage since the scheme was introduced in 1952
and hence the workers have suffered and if the dearness allowance is
frozen as per the Tribunal's award it would be most unjust to the workers.
It is further pointed out that there had been no upward revision of the basic
wage since 1972. Insofar as the vertical relativity in the wages of workers
and officers just above the workers is concerned, it is contended that G
workers and officers are not comparable, the former are covered under the
I.D. Act while the latter are not, the wage structure of the former is
determined by hard bargaining which is not the case with the latter and
hence the comparison is wholly misplaced. Besides the benefits which
officers derive under the terms and conditions applicable to them offsets H
246 SUPREME COURT REPORTS [1994] SUPP. 2 S.C.R.

A the apparent, though not real, difference, if at all, in the emoluments. lastly,
it was said that if any such distortion in differential troubles the Company,
the same can be corrected by revising the salary structure of the officers
by there would be no justification to control it but placing a ceiling on the
dearness allowance admissible to the workers under the extant scheme.

B
We may first answer the contention whether the Division Bench
acted without jurisdiction and contrary to well established principle for the
exercise of jurisdiction under Article 226 of the Constitution in reversing
the decision of the Tribunal as well as the learned Single Judge placing a
ceiling on dearness allowance at the level of basic pay of Rs. 500 per month
c and above. It must be remembered that the jurisdiction of the Industrial
Tribunal under the I.D. Act was invoked both by the management as well
•
as the workers. It is well settled that the decision of the Tribunal rendered
under the I.D. Act would be subject to review by the High Court under
Articles 226/227 of the Constitution. Since against the decision of the
D Industrial Tribunal no remedy was available under the provisions of the
I.D. Act, the aggrieved party could only invoke the jurisdiction of the Court
under the aforesaid articles. Since both the Company and the workers were
aggrieved by the award, to the extent it went against them, they preferred
writ petitions challenging the award. All the three writ petitions, two on
behalf of the workers by the Sabha and the Union, and the third by the
E Company, were. heard together and disposed of by a common judgment.
Against the decision of the learned Single Judge, appeals under the
Letters Patent were preferred once again_ by the said.three parties. The
Company never question the jurisdiction of the High Court to hear and
decide the writ petitions nor did it question the jurisdiction of the Division
F Bench under the Letters Patent. Even the company had appealed against
the learned Single Judge's decision to the extent it was against it. No
contention regarding the scope and ambit of the jurisdiction of the Division
Bench was raised in the appeal. If the jurisdiction of the learned Single
Jndge was not challenged by the Company, the company itself had invoked
it, it is difficult to comprehend how the Company can challenge the
G jurisdiction of the appellate court. If the learned Single Judge had jurisdic-
tion to hear the writ petitions against the decision of the Industrial
Tribunal, at any rate if his jurisdiction was not questioned by the Company,
it cannot lie in the mouth of the Company to challenge the appellate
jurisdiction of the Division Bench since that jurisdiction is conferred by the
H Letters Patent. We are, therefore, of the view that this contention belatedly
HINDUSTAN LEVER LTD. v. B.N.DONGRE[AHMADI,J.) 247

raised before us cannot and should not be entertained. We reject it. A

We now come to the main issue. We have indicated in detail the
nature, scope and ambit of the controversy. The contesting parties have
updated the tables on which they relied before the Tribunal and the High
Court and have also presented fresh calculations - the company endeavour-
ing to show that the percentage of neutralisation soars above 100% and
B
hence the need to impose a ceiling so that the existing differentials between
the emoluments drawn by the workers in the higher pay breakers do not
exceed those drawn by the junior executives immediately above them; the
workers on the other hand refuting the contention that there is over-
neutralisation and the need to impose a ceiling. In fact an attempt has been c
made to point out that those in the higher pay brackets are scientists and
section-heads doing highly skilled work and it is wrong to think that they
are in any manner inferior to junior executives. The workers have tried to
emphasise that as the record stands it is not possible to say whether the
wage structure is at the subsistence level, need- based level, fair-wage level
or living-wage level to enable this Court to decide whether or not a case D
for imposition of ceiling is made out. It is also contended that the company
has tried, time and again, to the cloud the facts and has falsely alleged that
the 1970 base was not adopted by consent. Since that was the year in which
the last revision had taken place under the Chitale/Bhojwani Awards, 1970
was taken as the base year by consent. It. is, therefore, contended by the
workers that the Company has tried to shift its stand from stage to stage
E
of the litigation to suit its purpose in the fond hope the.I it may be able to
persuade this Court to its point of view. The respondents, therefore, have
requested us not to look into these revised and misleading statements.

We have, however, carefully examined the various statements placed F
on recorded to prove the rival points of view. The principal question is
whether the Company's case of over- neutralisation is well-founded and, if
yes, whelher there is need to impose a ceiling on dearness allowance as
advocated by the Tribunal and affirmed by the learned Single Judge. Now
it is established that the present dearnes:s allowance formula has been in G
vogue since long. It is also not in dispute that after the Chitale/ Bhojwani
Awards the company had entered into settlements in 1979 and 1983 with
the sub-clerical and hourly-rated employees in the Sewree factory and
continued the existing formula. Before the Tribunal the company produced
statements to show that the neutralisation was as high as 204% at the
minimum of C-1 grade tapering to 132.4% at the maximum of C-4 grade. H
248 SUPREMB COURT REPORTS [1994] SUPP. 2 S.C.R.

A As against that the workers contended that the percentage of neutralisation
was 80% and 46% respectively. The Tribunal held that the calculations
made by both sides were incorrect. Referring to the Chitale Award the
Tribunal points out that the Company's own statement showed that the
neutralisation was 97.4% at the !Qwest and tapered to 86% at the highest.
It, however, felt that 86% neutralisation was on the higher side. It was for
B this reason that the Tribunal opted for placement of a ceiling. However,
the Tribunal did not determine the ·percentage of neutralisation on the
basis of calculations submitted to it. The learned Single Judge in the High
Court, however, placed reliance on the following statement :
Wages Wages Wages Wages Wages %age rise %age %age
as of pay as pay on pay as pay on in Ind. rise in Neutra-
c Oct. 85 per lmpl. per ImpI. May 88 DA lisation
at CU settle of Award or over over (')
2886 dt. Award at CU Award Sept. 85 same
(without 20.11.85 No. 85 3765 w/o (May period
revised at CU at CU (May ceiling Index for
LTN 2837 2837 88) on DA July Payt.
HRA) at CU & Sept.
D 3765 Index for
Nov. Payt.
EARNINGS
BASIC 540 580 700 720 720 m.11% 135.05% 101.76%
D.A. 3796 3937 3514 4746 6319
25 25 0 0 0

E HRA - 350 350 350 350
LTA. 13 100 100 100 100
Spl. Allowance - 0 110 110 110
SOC-SEC
Allowance - 0 60 60 60
AD HOC
Allowance - 0 60 60 60
F S.D. Allowance - 25 25 25 25
Personal Pay - 0 423 0 0
TOTAL 4374 5017 5342 6171 7744

DIFFERENCE BEIWEEN COLUMN I AND 3 = 968 (•) The neutralisation is
DIFFERENCE BETWEEN COLUMN 1 AND 4=1797 calculated by the n1cthod
DIFFERENCE BETWEEN COLUMN 3 AND 4 = 829 adopted in a judgment of
G DIFFERENCE BETWEEN COLUMN 4 AND 5=1573 Patna High Court reported
in 1987 IUJ Page 275.

and concluded that the percentage worked out to 101.76%. This Calcula-
tion was based on the Chotanagpur Chamber of Commerce case method.
The calculation statement placed by the Company before the Division
H Bench showed that the neutralisation was as high as 121 % or thereabouts.
HINDUSTAN LEVER LTD. 1·. B.N. DONGRE (AHMADI, J.l 249

The Statement produced before this Court shows the neutralisation varying A
between 133% at the minimum level and 125% at the maximum level. The
Company has also produced a statement showing the total emoluments
dra\\'ll by C-3 and C-4 category \vorkers vis-a-vis junior executives and T-3
and T-4 category employees \is·a-vis JDSand SDS (executives). It shows at
when the CPI stood at 6229 points, C-3 received Rs. 10908 and C-4 Rs.
B
12006 whereas junior executive officers such as, Sales Accounting Of·
ficer/Law Officer/Export Officer drew Rs. 8492. Similarly T-3 category
received Rs: 12168 and T-4 Rs. 13677 as against JDS getting Rs. 8043 and
SOS getting Rs. 9242. This was to bring out the disparity in earnings
between the earnings of workers in high wage brackets as against those of
the executives of the company. We may say that the statements produced C
by both the sides have not helped us in clearing the queer pitch.

Let" us first understand the company's dearness allowance scheme. It
is in two parts. Under the scheme FDA was linked to cost of living index
1450, CPI (Bombay), (1934 = 100) whereunder dearness allowance was
admissible as under : D

(i) For the FIRST Rs. 100 635% of Basic Wage,

(ii) For the SECOND Rs. 100, 284.25% of Basic Wage

(iii) For Salaries above Rs. 200 251 % of Basic Wage. E

On the CPI rising above 1450 points, VOA for every ten points rise
became admissible as under :

(i) For the FIRST Rs. 100, 5% of Basic Wage
F
(ii) For the SECOND Rs. 100, 2.25% of Basic Wage

(iii) For salaries above Rs. 200 2% of Basic Wage

It immediately strikes one that the dearness allowance is payable unifor-
mally to all the workers and although it may at first blush appear to be on G
a sliding scale, in actual application it is not so and hence it is not likely
to disturb the internal differentials between the workers covered by the
scheme. That is because all the workers regardless of their basic salaries
would be paid uniformly, in the sense, that all the workers would be paid
at 635% of basic wage for the first hundred rupees, at 284.25 for the next H
250 SUPREME COURT ~EPORTS (1994) SUPP. 2 S.C.R.

A hundred rupees and above Rs. 200 at the rate of 251 %. So also in the case
of VDA. Now these percentages were worked out long back on the basis
of the neutralisation to be allowed to the workers in different salary groups.
It is nobody's case that when the scheme was introduced the company had
permitted itself the indulgence of conceding more than cent percent
neutralisation to its employees. It is, therefore, difficult to assume that
B when the scheme was introduced workers belonging to any wage group
were allowed more than 100% neutralisation. Nor is it the company's case
that the dearness allowance initially agreed upon exceeded 100% at any
level even if FDA and VDA were taken together. In fact as per the table
supplied by the Company, no VDA was paid upto 180 points rise, as is
c evident from the following extract :

Upto and Upto and
Bombay On the balance
including Rs . including Rs.
. Working Class of Basic Salary
100 basic salary 101-200 basic
CPI %
% salary%
D 105-180
.
NIL NIL NIL
181-190 5 .75 NIL
191-200 10 3.00 1
200-210 15 5.25 3
E Variation 5% 2.25% 2%

It would seem extremely doubtful that the Company would agree to pay
FDA or VDA at a rate higher than the perceniage required to neutralise
the impact of price rise as reflected by the CPI. Therefqre, on first
F principles it would seem that the company's case of the neutralisation
exceeding 100% does not seem to be correct. We are, therefore, inclined
to think that the Tribunal was right in concluding that the neutralisation
varied from 97.4% to 86%. The learned Single Judge in the High Court
committed an error in setting aside the said finding in 6pholding the
company's contention in this behalf. The Division Bench, as an appellate
G forum, was justified in correcting the error by pointing out that it had crept
in because the method adopted by the company in calculating the
neutralisation percentage was wrong and that the error which would dis-
appear if the correct method 'B' is employed.

H The second group on which the company sought imposition of con-
HINDUSTAN LEVER LTD. v. B.N. DONGRE [AHMADI, J.) 251

trot or ceiling on dearness allowance is that it distorts the vertical relativity, A
in that, clerks receive emoluments exceeding what is paid to junior execu-
tives and are, therefore, disinclined to accept promotion. Since the basic
pay of the workers belonging to the C-1 to C-4 and T-1 to T-4 categories
is low they continue to be governed by the provisions of the l.D. Act
whereas the junior executives are not governed by the said statute. The B
wages of the former would be determined either by settlements or by
awards made on reference under the said statute. These workers, therefore,
constitute a class by themselves and their wage determination is under the
provisions of the l.D. Act. But the junior executives do not belong to that
class and their salaries are differently determined The process of deter-
mination of their salary plan has nothing to do with the workers governed C
by the l.D. Act. How to make the promotional post attractive is for the ·
company ·to decide but it may not be by denying the worker-s of a part of
their dearness allowance for pegging down their emoluments. Besides it is
well known that executives enjoy a certain status and perquisites which the
workers do not receive. We think the better way to overcome the difficulty D
is make the junior executive grade attractive rather than deny to the
workers what they are receiving since long.

Next, we have pointed out earlier the relation- between wages and
prices of food, clothing and other necessities of life which even the lowest
wage earner purchases month after month. If the prices of these com- E
modities rise and the basic wage remains constant, real wage actually falls
creating a problem for survival for the lowest wage corner. And it is
common knowledge that this frequently happens during periods of inflation
as is reflected from how rapidly the index rose from 313 points in 1950 to
6229 points by August, 1993. To prevent the real wages from falling with F
the rise in CPI, some allowance had to be paid to the workers which gave
rise to the introduction of the dearness allowance scheme. Be.sides, it must
be realised that the protection against price rise is limited to only those
items included in the basket and not to all items which a wage earner at
the lowest level consumes. For those items not included in the basket, the
wage earner at every _level has to bear the brunt of inflation. It must also G
be remembered that while dietary habits change, the food items in the
basket remain constant for want of periodical revision with the result that
the new items of food which are highly priced do not count for neutralisa-
tion. Again wage revisions do not take place for long spells. In certain wage
p Jans upward revision of wages take place by the merger of a portion of H
252 SUPREME COURTREPORT5 [1994] SUPP. 2 S.CR.
'

A the dearness allowance in the basic wage plus an addition thereto to take
care of the inflationary dents in the wage structure in respect of other items
outside the basket. Under certain dearness allowance schemes, neutralisa-
tion is allowed on tapering percentage on the assumption that those in the
higher wage groups have a certain cushion to bear a part of the inflation.
Such a scheme is in vogue in Central and State Government servant's salary
B plans. That cushion does not remain static and gets depleted as the prices
rise and there comes a time when ii becomes necessary to inflate it once
again by an upward revision of the salary structure. But in certain industries
merger of dearness allowance in the basic wage does not take place at all
as in the present case and instead periodically increases are allowed in the
C basic wage to nullify the adverse effect of inflation on items outside the
basket. It must, however, be remembered that the case of employees
belonging to high wage islands, their carry home pay. packets shrink on
account of the deduction of inconie tax at source.

LCt us now notice the movement of basic wage :
D
'
Table

Pre-Dongre Revised Dongre Deshpande
Category
E Scales Rs. Scales Rs. Award Rs.
Cl 130-15-385 145-15-475 160-15-445
C2 175-18-481 190-18-550 211-18-553
C3 220-20-560 220-20-660 220-20-620
C4 260-22-634 260-22-788 260-22-700
F .·
Tl 160-15-415 175-15-520 200-17-523
T2 200-18-506 218-18-614 250-20-630
n 240-20-580 240-20-720 270-22-710
T4 310-22-684 310-22-838 320-25-820
G
It may be mentioned that the scales fixed under the Chitale Award
were revised by the Bhojwani Award by raising the maxima only without
altering the minima and the annual increments. The pre- dongre scales are
the Bhojwani Scales fored in 1977 when the CPI was at 1400 points. Since
H then there was no revision. ·
HIND USTAN LEVER LTD. v. B.N. DONGRE [AHMADI, J.] 253

It will be seen from the above table that except in Cl-CZ and Tl- T2 A
categories for with the Dongre Award raised the minimum, retaining the
annual increments at the same. figures, in the other categories the minimum
as well as the annual increments remained unchanged giving no benefit to
those at the minimum of the scales. Under the Dongie scheme the maxima
·were raised upv:ards but since ihere was no increase in the increments, the B
real effect was mere elongation of the scales. To the Cl-C2 and Tl T2
categories while the Dongre Award granted one increment at the minimum
of the seale, Deshpande wageplan has given two or more increments at the
starting point while retaining the annual increments at the same level. Jn
the Cl-C2 category the maxima is marginally revised, in that, in the Cl, C3
and C4 categories the maxima ,is slightly reduced whereas in the C2 C
category it is slightly increased. The annual increments' have not been
revised in Cl to C4 categories but that is not the case with Tl to T4
categories. In the Tl-T2 categories the scale has been substantially revised
upwards both at the minima and the maxima but in the T-3 T4 categories
while the minima has been slightly raised at the maxima there is a slight D
reduction. With the rise in annual increments in the technical categories,
the span of scales stood reduced whereas in the clerical categories it stood
enlarged. It may also be mentioned that employees in the clerical cadres
were required to work for 36 hours in a week unlike those belonging to the
technical cadres who are required to work for 48 hours in a week. That
provides the justification for higher scales to the technical staff. E

The Deshpande Tribunal could have revised the wage-structure on
certain well-settled principles for pay determination or on comparative
method on region-cum-industry principle. It chose to follow the latter
course and considered the salary structures of TOMCO, Philips, etc., but F
placed considerable reliance on the wage-structure of TOMCO. The
Tribunal after considering the rival contentions concluded in paragraph 22
as under:

"In my considered op1n1on, other benefits both of H.L.L.
Company's employees and TOMCO Company's employees, should
G
not be taken into account, while considering the wage scales
revision, what we have compared is.wage scales only. It-is pertinent
to note that this Reference is remanded back to this Court only to
consider the wage scales revisions, and there is no mention of other
benefits, which are receivable by H.L.L. employees or the H
254 SUPREME COURT REPORTS (1994] SUPP. 2 S.C.R.

A employees of TOM CO or other company. Therefore, in my con-
sidered opinion, while considering the wage scales revision, only
wage scales and dearness allowance payable in H.L.L., TOMCO
and Philips companies, should be considered, and other benefits
receivable either by the employees of H.L.L. or the employees of
other comparable_ company, should not be considered. "
B
It is obvious from the above observations that while determining the
question of revision of pay scales, the Tribunal considered the basic salary
and dearness allowance plans of other companies and not the total emolu-
ment_s inclusive of all allowan~es.
c The Tribunal then concluded in paragraph 26 as follows :

"So far as the scales of revision wage scales is concerned it is clear
that it must be brought into par with the wage scales of comparable
concern i.e. TOMCO and in that respect statements furnished by
D Shri Menon, Advocate for the Union, appear to be correct. Hence,
I agree with a modified revision of wage scales, as demanded by
the workmen."

The learned counsel for the Company took serious exception to the
upward revision of the scales above those recommended by the Dongre
E Award. His objection runs thus: the workers were·not aggrieved by the
revised wage structure granted under the Dongre Award and had stated
so in no uncertain terms in their writ petitions in the High Court in the
following words :

"The Petitioner says that the petitioner is not challenging the
F entirety of the Award, but is limiting the attack on the Award,
insofar as it relates to (a) Dearness Allowance, (b) Classification,
(c) Automatic Promotion and· Stagnation Increment (d) Housing
Loan and (e) Provident Fund.'

G This averment is not denied.

It was the Company which had challenged the revised wage structure
prepared under the Dongre Award. The learned Single judge spurned the
Company's challenge. The Division Bench found it necessary to remit the
matter to the Tribunal for reconsidering the question regarding revision of
H pay scales as in its view the Dongre Award had considered the revision
)
I-
HINDUSTAN LEVER LID. v. B.N.DONGRE[AHMADl,J.) 255

necessary as a package formula since it had placed a control on dearness A
allowance, which control the Division Bench had lifted. Counsel, therefore,
vehemently contended that there was no question of a further upward
revision beyond what was allowed under the Dongre Award. Counsel
submitted that the Deshpande Award whereunder higher pay scales have
been granted is wholly unsustainable. We see merit this line of reasoning.
B
The learned Single Judge in paragraph 8 of his judgment points out
that the Tribunal had while making the Award "awarded a package deal to
the workers" and had allowed various other benefits since he had placed a
ceiling on dearness allowance. He has granted revision of pay scales,
special allowances, etc. However, in paragraph 11 there is a mention that C
counsel for the workers had raised the contention that the salary structure
of TOMCO was higher, the entire wage packet was in fact better, and since
it was a comparable industrial unit the workers of the company were
entitled to the same. In fact the learned Single Judge notes that he had
enquired of the management if it would be willing to grant the entire pay
packet of TOMCO to the workers of the company and the manag~ment D
after taking time showed its willingness to do so but the workers did not
agree. Thus although the learned Single Judge explored the possibility of
. the management giving the TOMCO pay-packet to the workers of the
company when the workers backed out on second thought he did not
interfere with the Dongre Award in that behalf in view of the aforesaid E
statement.

_The Division Bench noticed the submission made on behalf of the
company in paragraph 46 of its judgment and conceded in paragraph 48:
'It cannot be gainsaid that one of the main considerations, which was
weighed with the Tribunal, while introducing the revised payscales is that F
it was introducing the ceiling on dearness allowance, for those earning
salary above Rs. 500 per month' which accords with what counsel for the
company has urged. It was on this consideration that the Division Bench
concluded that both the revision of salary and introduction of the new
dearness allowance system were interlinked and since the ceiling on the G
letter was lifted, the Division Bench considered it 'only fair' to remand the
matter to the Tribunal 'to consider the case for revision of wage scales
afresh independently and irrespective of the change in the dearness al-
lowance system which was proposed by it. The observations of the Division
Bench had to be understood in the backdrop of the fact that the workers
were content with the revised pay scales worked out under the Dongre H
256 SUPREME COURT REPORTS [1994] SUPP. 2 S.C.R.

A Award and had therefore not questioned that part of the award. Since the
learned Single Judge had not interfered with it, there was no question of
their getting higher pay-scales. When the Division Bench remitted the
matter in this background the Tribunal should have realised that the
remand was necessitated because the factum of imposition of a ceiling on
dearness allowance was the reason which had impelled the Tribunal to
B increase the pay-scales and since the ceiling was lifted it was necessary to
consider whether upward revision of the pay-scales was at all necessary in
the changed circumstances and, if yes, whether the revision ordered under
the Dongre Award was justified. There was no question of the pay:scales
being revised above the Dongre Award stipulations. Besides, we are also
C not happy with the approach of the Tribunal. It is not correct to say that
the Division Bench had imposed any limitation of the type r~ad by the
Tribunal as evidenced by the recital in paragraph 22 of its order extracted
earlier. V'fe also fmd that the Tribunal has merely set out the rival conten-
tions and the data in support thereof and has, without analysing the same,
D concluded that the modified revision of pay-scales suggested by the
workers was justified. This approach is far from satisfactory. The need for
stagnation increment would again depend on the time span in each scale
in the revised pay structure. If the length of the pay scale is sufficient not
to result. in stagnation there would be no need for stagnation increment.
We would, therefore, like the Tribunal to consider that question but if it
E comes io the conclusion that it is necessary to revise the pay sc.ales and
that·the revised scales may cause some workers to stagnate at the maxima
of the scale, it may opt in favour of retention of the stagnation increase but
if it does not see any scope for its retention it may for reasons to be stated
do away with it.
F
In .the result Civil appeal Nos. 4848 to 4850 of 1989 challenging the
order of the Division Bench are dismissed. Civil Appeals arising from SLP
(C) Nos. 14558-59 of 1991 directed against the Deshpande Award are
allowed and the said Award is set aside. The issue whether in view of there
being no ceiling on dearness allowance, there is any need for upward
G revision of the wages, and, if yes, whether upto the level of Dongre Award
or less will have to be redetermined by the Tribunal on the existing material
on record. In doing so the Tribunal will also keep_ in view the level at which
the present wage structure stands, i.e., whether it is above the subsistence,
level and, if yes, whether it is at the need-based, fair wage or living wage
H level and then determine the question of revision of wages. Since the
HINDUSTAN LEVER LTD. v. B.N. DONGRE [AHMADI, J.] 257

dispute is pending since long, the Tribunal will decide the question on the A
material already on record after hearing oral submissions at an early date,
preferably within six months from the date of receipt of this Court's order.
Consequently the Civil Appeals arising from SLP(C) Nos. 13327 and 1339
of 1990 will stand allowed limited to the grant of stagnation increments on
condition that the payments already made towards stagnation increments
B
by the thrust of the orders impugned herein will not be recalled and those
who are allowed stagnation allowance will continue to receive the same till
the Tribunal makes a fresh Award. In that sense the remand will operate
prospectively only but will be subject to orders of the Tribunal from the
date it makes a fresh Award. The equities, if any will be adjusted by the
Tribunal. Since those who may become entitled to stagnation allowance c
hereafter will have to wait till the Tribunal makes its fresh Award we do
hope that the tribunal will abide by the time limit.

H.-~ng regard to the extent of success and failure, we make no order
as to cost in all the aforesaid appeals.
D
R.A. Appeals disposed of.