In this complaint filed more than 31 years ago under Section 10(a)(iii) of the Monopolies and Restrictive Trade Practices Act, 1969 (for short, ‘the Act’), the Registrar, Restrictive Trade Agreements has prayed that an enquiry be held into the restrictive trade practices indulged by the respondent and appropriate order be passed against it.
2. The respondent is engaged in the manufacture of various pharmaceuticals and non-pharmaceuticals products. Its pharmaceutical products include liquid antiseptic (Dettol), antiseptic cream (Dettol), Soluble Analgesic Tablet (Disprin) etc. The Non-pharmaceutical products manufactured by the respondent include Ultramarine Blue (Robin Blue), Polishes and Compositions (Cherry Blossom Shoe Polish and Brasso) and Bath Soap (Dettol). All these products are consumer items of daily use and people purchase them without asking for any substitute.
3. For the purpose of sale and distribution of its products, the respondent appointed a number of distributors all over India and executed agreements with them. One type of agreements were executed with the distributors of pharmaceuticals products and another type of agreements were executed with the distributors of non-pharmaceuticals products. Both the agreements were presented for registration under Section 35 of the Act. On receipt of the agreements, the Registrar, Restrictive Trade Agreements filed the present complaint with the following assertions:—
“5. That under the terms and conditions of the agreements, the respondent requires its distributors to sell its products in the area allotted to them under Clause 1(Preamble) of the agreements. Under Clause 5(c) the respondent further requires its distributors to refrain from encroaching other areas and directs them to confine themselves to the allotted area. In case of any breach of any of the terms of the agreements, the respondent has the right to terminate its agreement with the distributors. The trade practice carried on by the respondent in requiring its distributors to confine their selling operations only to the areas allotted to them and prohibiting them from selling the products, purchased from the respondent, in any place outside the area allotted to them results in distortion, restriction and prevention of competition as the distributors are debarred from selling the products in the areas other than the one allotted to them. It adversely affects inter se competition among the distributors of the respondent and also with the distributors of other competitors in other areas, particularly in the areas bordering the allocated territories. The buyers/consumer from outside the area/territory allocated to the distributors, especially from the adjoining areas cannot get the supply from them. It thereby restricts/may restrict the flow of goods in the market and subject the consumers to unjustified costs and restrictions. This trade practice of the respondent attracts the provisions of Clause (g) of Section 33(1) read with Section 2(o) of the Act.
6. That by virtue of Clause 5(a) of the aforesaid agreements the distributors are required to buy from the respondent and maintain such stocks of its products as the respondent considers adequate. The trade practice flowing from this clause denies distributors of their freedom to purchase the items which are required by them for resale depending on the market conditions. The question of stocks to be maintained and items to be purchased by the distributors is decided by the respondent. It amounts to interference in the matter of ‘material management’ of the distributors' by the respondent. Moreover, the rationale for determining what items ae to be purchased and what stocks are adequate has not been spelt out in the agreements. It provides/may provide opportunity to the respondent to arbitrarily force the distributors to maintain stocks at an uneconomic level and dump such items which may not be in demand. This trade practice increases or may increase the ‘carrying cost’ of the distributors which may ultimately lead to unjustified cost to the consumers. It also results/may result in undue strain on the financial resources of the distributors and in turn impose unjustified costs and restrictions on the consumers. It constitutes restrictive trade practice of tie up sales/full line forcing within the meaning of Clause (b) of Section 33(1) read with Section 2(o) of the Act.
7. That the above trade practices constitute restrictive trade practices within the meaning of Section 2(o) of the Act as they have or may have the effect of preventing, distorting or restricting competition and tend to bring about manipulation of prices and conditions of delivery and affect the flow of supplies of the aforesaid products in the market in such manner as to impose on the consumers unjustified costs and restrictions.”
4. For the sake of reference, the proforma of two types of agreements executed by the respondent, which have been placed on record as Annexure ‘A’ and ‘B’ are reproduced below:
“Annexure ‘A’
Reckitt & Colman of India Limited.
41, Chowringhee Road,
Calcutta-700 071
703/SAI:bg
Dear Sirs,
We are pleased to advise you that effective from_____we hereby appoint you as our distributor in respect of our Pharmaceutical products in the undermentioned area:
2. Our pharmaceutical products will be sold to you at the wholesale prices which are, for the time being, in force as set out in our price list as amended from time to time and upon the terms hereinafter contained.
3. All documents of title, together with invoices relating to the goods despatched will be sent to you against payment or these will be sent to you along with a Hundi payable on sight either by VPP or through a Bank nominated by us. If the documents of title are sent by VPP, you will, on receipt of the same, remit to us forthwith the full invoice value. If they are sent through Bank, you will retire the documents on payment of the full invoice value against presentation of the documents by the Bank. You will be liable not only to demurrage and clearing charges but also to indemnify us against all losses, damage or expenses which we may suffer or incur on account of your breach to retire the documents or clear the products.
4. Discount on our pharmaceuticals products which are covered by the Drugs (Prices Control) Order, 1970 will be as provided in the said Order, which is in force at the time of delivery by us of such products.
5. You are required to:
a) buy and maintain such stocks of the products as we may consider adequate.
b) promote the sale of the products in the said area in consultation with us and render all assistance and service we may require.
c) refrain from encroaching on other areas and confine yourselves to the said area.
6. All orders for the products placed by you on us are subject to our acceptance. If an order is accepted, we may deliver the products comprised in such order by such mode of transport at such time and in such lots and quantities as we may, in our discretion, decide. We shall have the right to cancel wholly or in part any order after our acceptance.
7. The property in the products will pass to you on the despatch of the products from our premises. The products will be at your risk from the time of despatch thereof from our premises so that any loss or damage to or deterioration of the products from whatever cause arising shall be borne by you.
8. Each consignment of the products will be invoiced at the price and on the terms ruling at the time of the despatch of the products. All Sales Tax (Central or State), Octroi, Terminal Entry and Other taxes, levies and impositions will be charged extra.
9. We shall not entertain your claim for any damage to the products as a result of negligent warehousing of the same by you.
10. We shall not be liable for any loss or damage if we are unable to deliver the products due to strikes, lockouts, acts or Government civil commotion, riots or any cause beyond our control.
11. (a) You shall maintain such records of the products purchased from us and sold by you as may, from time to time, be prescribed by us. The records maintained by you shall be kept confidential and shall be open to inspection by our representative who will be entitled to make copies of or take extracts from such records.
(b) You shall provide access to our representative to godowns and other places where the products will be kept, for inspection.
12. The terms set out herein are in addition to the terms which may, from time to time, be specified in our price list or pricelists.
13. Notwithstanding anything herein contained, we reserve the right to sell the products to any party in the said area on such terms as we may determine and also the right to appoint agent or other distributors in respect of the products in the said area.
14. The relationship between yourselves and ourselves under this agreement will be that of principal to principal and no other relationship is implied or intended. It should be clearly understood that this agreement confers no authority on you to use our name or to make any commitment or representation on our behalf or to describe yourselves as our agents.
15. This agreement will continue in force until terminated by either party by giving not less than one month's notice in writing to the other party.
16. Without prejudice to paragraph 15 hereof, we shall have the right to terminate this agreement if—
a) You commit any breach of any of the terms of this agreement or
b) You cease to carry on your business or
c) Your firm is dissolved
d) You are adjudicated insolvent
e) You are wound up voluntarily or by the Court.
17. All suits and proceedings in respect of any matter herein contained shall be instituted in the Court of competent jurisdiction where this agreement is entered into by us.
18. This agreement supersedes all agreements in respect of the products between yourselves and ourselves as from the aforesaid date.
Would you please get the duplicate copy of this letter duly stamped and signed by the sole or all the joint proprietors of your organisation by all the present partners of your firm/by all the Directors of your Company and return it to us in token of your acceptance of the above terms.
Yours faithfully,
RECKITT & COLMAN of INDIA LTD.
MANAGER
We accept the above terms and conditions:
……………………………………………………………………………………………………………………
……………………………………………………………………………………………………………………
……………………………………………………………………………………………………………………
……………………………………………………………………………………………………………………
Dated:____________
Witness: ……………………………………………………………….”
“Annexure ‘B’
Reckitt & Colman of India Limited.
41, Chowringhee Road,
Calcutta-700071
Messrs.
Dear Sirs,
We are pleased to advise you that effective from …………………… we hereby appoint you as our Distributors in respect of our products in the undermentioned area:
2. Our products will be sold to you at the wholesale prices which are for the time being in force as set out in our price list as amended from time to time and upon the terms hereinafter contained.
3. All documents of title together with invoices relating to the goods despatched will be sent to you against payment or these will be sent to you along with a hundi payable on sight either by VPP or through a bank, nominated by us. If the documents of title are sent by VPP you will on receipt of the same remit to us forthwith the full invoice value. If they are sent through a bank, you will retire the documents on payment of the full invoice value against presentation of the documents by the Bank. You will be liable not only to demurrage and clearing charges but also to indemnify us against all losses, damages or expenses which we may suffer or incur on account of your breach to retire the document or clear the products.
4. A discount on the wholesale prices of our products will be allowed at the rates specified hereunder:
a) for items classified in the list under the heading ’Main Lines'
4% of the wholesale price
b) for items classified in the price list under the heading ’Specialities'
5% of the wholesale price
Discount on our products which are covered by the Drugs (Prices Control) Order, 1970 will be as provided in the said Order which is in force at the time of delivery by us of such products.
5. You are required to:
(a) buy and maintain such stocks of the products as we may consider adequate.
(b) promote the sale of the products in the said are in consultation with us and render all assistance and service we may require.
(c) refrain from encroaching other areas and confine yourselves to the said areas.
6. All orders for the products placed by you on us are subject to our comprised in such in such order by such mode of transport at such time and in such lots and quantities as we may in our discretion decide. We shall have the right to cancel wholly or in part any order after our acceptance.
7. The property in the products will pass to you on the despatch of the products from our premises. The products will be at your risk from the time of despatch thereof from our premises so that any loss or damage to or deterioration of the products from whatever cause arising shall be borne by you.
8. Each consignment of the products will be invoiced at the price and on the terms ruling at the time of the despatch of the products. All Sales Tax (Central or State), Octroi, Terminal Entry and Other taxes, levies and impositions will be charged extra.
9. We shall not entertain your claim for any damage to the products as a result of negligent warehousing of the same by you.
10. We shall not be liable for any loss or damage if we are unable to deliver the products due to strikes, lockouts, acts or Government civil commotion, riots or any cause beyond our control.
11.(a) You shall maintain such records of the products purchasedfrom us and sold by you as may from time to time be prescribed by us. The records maintained by you shall be kept confidential and shall be open to inspection by our representative who will be entitled to make copies of or take extracts from such records.
(b) You shall provide access to our representative to godowns and other places where the products will be kept, for inspection.
12. The terms set out herein are in addition, to the terms which may from time to time be specified in our price list or price lists.
13. Notwithstanding anything herein contained, we reserve the right to sell the products to any party in the said area on such terms as we may determine and also the right to appoint agents or other distributors in respect of the products in the said area.
14. The relationship between yourselves and ourselves under this agreement will be that of principal to principal and no other relationship is implied or intended. It should be clearly understood that this agreement confers no authority on you to use our name or to make any commitment or representation on our behalf or to describe yourselves as our agents.
15. This agreement will continue in force until terminated by either party by giving not less than one month's notice in writing to the other party.
16. Without prejudice to paragraph 15 hereof we shall have the right to terminate this agreement if—
a) You commit any breach of any of the terms of this agreement, or
b) You cease to carry on your business, or
c) Your firm is dissolved,
d) You are adjudicated insolvent,
e) You are wound up voluntarily or by the Court.
17. All suits and proceedings in respect of any matter herein contained shall be instituted in the Court of competent jurisdiction where this agreement is entered into by us.
18. This agreement supersedes all agreements in respect of the products between yourselves and ourselves as from the aforesaid date.
Would you please get the duplicate and triplicate copies of this letter duly stamped and signed by the sole or all the joint proprietors of your organisation/by all the present partners of your firm/by all the Directors of your Company and return it to us in token of your acceptance of the above terms.
Yours faithfully,
RECKITT & COLMAN of INDIA LTD.
Secretary
We accept the above terms and conditions:
……………………………………………………………………………………………………………………
……………………………………………………………………………………………………………………
……………………………………………………………………………………………………………………
……………………………………………………………………………………………………………………
Dated ……………………………………………………………………………………………………………………
Witness:”
5. After considering the allegations contained in the complaint, the erstwhile Monopolies and Restrictive Trade Practices Commission (in short, ‘the Commission’) decided to hold an inquiry under Section 10(a)(iii) read with Section 37 of the Act and Regulation 58 of the Monopolies and Restrictive Trade Practices Commission Regulations, 1974. Accordingly, notice dated 19th July, 1984 was issued by the Commission. Another notice was issued on 28th July, 1984 indicating the following points on which inquiry was proposed to be made:
“(a) the respondent abovementioned has been and/or is indulging in the trade practices as alleged;
(b) the said trade practices have or may have the effect of preventing/distorting or restricting competition;
(c) the said trade practices have or may have the effect of imposing unjustified costs or restrictions on the consumers; and
(d) such trade practices are prejudicial to public interest.”
6. In response to the notice issued by the Commission, the respondent filed reply dated 26.09.1984, paragraphs 2 and 3 of which are reproduced below:
“2. The respondent manufactures both pharmaceutical and non-pharmaceutical products. For the purpose of sale of such products, the respondent has appointed distributors covering the entire territory of India. The respondent enters into agreements with such distributors, in the form of Annexure “A” and “B” to the application dated 30th May 1984. Such distributors are wholesalers and sell only to retailers who sell to the ultimate consumers. Such distributors are free to deal in the goods of the respondent's competitors______ keeping the distributors to their own zone in the matter of selling the respondent's products is beneficial, and regulates promotes competition rather than stifles it. Each distributor can develop his own territory without fear of interference from others, thus achieving economy and efficiency. The requirement that distributors maintain adequate stocks is also beneficial to the ultimate consumers and ensures a ready and regular supply of the respondent's goods to such consumers. Such term has always been construed by the respondent as being intended for the above purpose. The respondent has never misused such terms for its own advantage, and although the agreements have been in force for a number of years no distributor has ever complained of such misuse.
3. Assuming that the trade practice complained of are restrictive trade practices, which is denied, the same are not prejudicial to the public interest. In regard to the territorial restriction of distributor's activities, the respondent relies on the provisions of Section 38(1)(h) of the Monopolies and Restrictive Trade Practices Act, 1969. In regard to the requirement of distributors maintaining adequate stocks, the respondent relies on Section 38(1)(b) of the Act. The respondent repeats the statements contained in paragraph 2 hereof by way of particulars. Further, the restriction is not unreasonable having regard to the balance between the above circumstances and the detriment (if any, which is denied) to the public or to purchasers, consumers or users of the said goods.”
7. By an order dated 07.11.1984, the Commission framed the following issues:
“1) Whether the Respondent is indulging in the alleged trade practices?
2) If answer to Issue No. 1 is in the affirmative, does this trade practice constitute restrictive trade practice within the meaning of Section 2(o) of the MRTP Act?
3) If answer to Issue No. 2 is in the affirmative, is action of the Respondent protected under Section 38 of the MRTP Act?
4) To what reliefs are the parties entitled?”
8. Thereafter, the Commission gave an opportunity to the parties to lead evidence, but counsel appearing on their behalf gave out that they do not want to examine any witnesses. During the course of hearing held on 18.03.1985, the Commission again asked the learned counsel to indicate whether or not they would like to lead evidence. In reply, the advocate appearing for the Additional Director General (Investigation and Registration) made a statement that he does not want to examine witnesses. However, the respondent decided to adduce oral evidence and examined two witnesses. The counsel appearing for both the parties also produced some documents, which were marked as Exhibits A-1 to A-5 and B-1 to B-3.
9. The arguments were heard by the Commission on 28.05.1985 and the order was reserved. However, by another order dated 10.06.1985, the Commission directed that the matter be reopened and posted the same on 29.07.1985 for recording of evidence on behalf of the Director General.
10. At that stage, the respondent filed a writ petition being C.O. No. 10960(W) of 1985 in the Calcutta High Court for quashing of the proceedings of RTPE 52/1985 pending before the Commission. An application was also filed for stay of the pending inquiry. A learned Single Judge of the High Court issued notice and directed that hearing may go on before the Commission but final order shall not be passed.
11. On being informed about the stay order passed by the Calcutta High Court, the Commission adjourned the hearing of the complaint and that position continued for next seven years. Thereafter, by an order dated 22.04.1992, the Commission adjourned the proceedings of the complaint sine die with liberty to the parties to seek revival of the matter as and when the stay order passed by the High Court is vacated.
12. From 1992 to 2013, neither the counsel for the parties nor the officials of the Registry of the Commission bothered to find out the status of the writ petition pending before the Calcutta High Court. Even after enforcement of Section 66 of the Competition Act, 2002, which resulted in the repeal of the Act and transfer of the pending matters to the Tribunal w.e.f. 01.09.2009, no effort was made to find out whether or not writ petition filed before the Calcutta High Court in 1985 has been finally disposed of In October 2013, the Registry of the Tribunal sent query dated 23.10.2013 to the office of the Director General to apprise it of the present statusof the writ petition. In reply, Deputy Director General (I & R) stated that the file is not traceable in his office. Thereupon, a copy of the paper book was supplied to the office of the Director General. However, the latter did not do anything to find out the fate of the case pending before the High Court.
13. In July 2015, the Registry of the Tribunal was instructed to list all the cases in which the proceedings of the complaint etc. had been adjourned sine die many years ago. In compliance of that directive, notices were issued to the parties and the cases were listed before the Tribunal.
14. So far as this complaint is concerned, the office report shows that notice issued to the respondent has been returned undelivered from the postal authorities with the remark ‘LEFT’.
15. At the hearing, Shri Rakesh Vashist, Deputy Director General in the office of the Director General stated that he does not have the file of the case and he is not in a position to apprise the Tribunal about the status of the case pending before the Calcutta High Court. He then made a request for adjournment to contact the concerned functionary of the Calcutta High Court to find out whether or not the writ petition filed by the respondent has been disposed of.
16. In the context of the request made by Shri Vashist, the Tribunal enquired from him as to what efforts have been made by the office of the Director General in last 23 years and four months to find out the position of the writ petition. In reply, Shri Vashist expressed his inability to give details of the steps taken by his office to contact the Registry of the Calcutta High Court to ascertain the position of the writ petition and simply stated that the record of correspondence, if any, made with the Registry of the Calcutta High Court is not available in his office.
17. Notwithstanding the above laxity on the part of the complainant, we may have granted an opportunity to Shri Vashist to find out the present status of the writ petition filed by the respondent almost 30 years ago but keeping in view the fact that the issue similar to the one raised in the complaint has been decided by the Supreme Court in Tata Engineering and Locomotive Co. Ltd. v. The Registrar of the Restrictive Trade Agreements, (1977) 2 SCC 55 and Voltas Limited, Bombay v. Union of India, 1995 Supp (2) SCC 498, wo do not consider it necessary to adjourn the case, which, as mentioned above, has become 31 years old.
18. In Tata Engineering and Locomotive Co. v. The Registrar of the Restrictive Trade Agreements, the proceedings had been initiated by the erstwhile Commission on the basis of an application filed by Registrar, Restrictive Trade Agreements under Section 10(a)(iii) of the Act. After holding an enquiry under Section 37, the Commission held that the agreements entered into between the appellant and its dealers, which provided for territorial restriction for allocation of area or market, Clauses 6 and 13, which provided for resale price maintenance and Clause 14, which provided for exclusive dealership constitute restrictive trade practice. On that premise, Clauses 1 and 3 of the agreement were declared void and the company was restrained from continuing or repeating the practice. The three Judge Bench of the Supreme Court referred to various provisions of the Act and made the following observations:
“29. The definition of restrictive trade practice is an exhaustive and not an inclusive one. The decision whether trade practice is restrictive or not has to be arrived at by applying the Rule of reason and not on the doctrine that any restriction as to area or price will per se be a restrictive trade practice. Every trade agreement restrains or binds persons or places or prices. The question is whether the restraint is such as regulates and thereby promotes competition or whether it is such as may suppress or even destroy competition. To determine this question three matters are to be considered. First, what facts are peculiar to the business to which the restraint is applied. Second, what was the condition before and after the restraint is imposed. Third, what is the nature of the restraint and what is its actual and probable effect.
49. The exclusive dealings do no impede competition but promote it. Such dealings lead to specialisation and improvement in after-sales service. The exclusive dealership agreements do not restrict distribution in any area or prevent competition. The customer has the choice of buying any make he likes. The advantage of exclusive dealership is that a dealer specialises in his own type of vehicles with all the attending advantages of trained personnel, special service stations, workshops and spare parts. Each set of special tools costs approximately Rs. 55,000. The set is suitable for servicing one vehicle at a time. Some dealers like United Motors (P) Ltd. Bombay have four sets at Colaba, Wadi Bunder, Jogeshwari and Chembur. The investment of United Motors is approximately Rs. 24 lakhs. It is estimated that one service station with special tools of Telco and workshop equipment will cost as much as rupees five lakhs.
50. It is by specialising in each make of vehicle and providing the best possible service that the competition between the various makes is enhanced. It is practically not possible for the same dealer to have parallel lines of service stations, workshops, spare parts, trained personnel for different makes. It is also not practical for the dealer to maintain different and competent standards laid down by different companies which may differ from manufacturer to manufacturer. If a dealer has more than one franchise, the competition between the various makes will be reduced. It will be difficult for the manufacturer to make the dealer responsible for his make and concentrate on it. There may be conflicts between his responsibility for after-sales-service.
53. By making its dealers exclusive to Telco, there cannot be said to be any prevention, distortion or restriction of competition in the territory in which a dealer operates, either between manufacturers of the same type of vehicles or between dealers in these vehicles. Any manufacturer of vehicles such as those of Telco may manufacture and sell its vehicles in a territory in which Telco's dealers operate. Any other manufacturer of vehicles similar to those of Telco is also free to appoint dealers of its choice in the same territory covered by Telco's dealers. The channels for outlet for vehicles have not been blocked by the fact that the dealers appointed by Telco are exclusive to Telco nor can it be said that Telco has by its exclusive arrangement with its dealers affected the flow of supplies of vehicles into the market. If Telco sold themselves in each territory, it could not be said that Telco was pursuing any restrictive trade practice. Would the position change if Telco asked their dealers not to sell Telco bus chassis outside the dealer's territory? Just as Telco could not compete with itself similarly dealers would not compete with one another.
54. The competition would be between Telco products and the products of the other manufacturers Premier, Hindustan and Leyland. Restrictive trade practice is based on reason embodied in Section 2(o) of the Act. When trucks are in short supply and dealers are restrained from selling at above the maximum price they cannot sell below the maximum price and compete with one another. Dealers of the same manufacturer do not compete with one another in every case irrespective of the market conditions or the character of the product sold.
55. Competition between dealers appointed by the same manufacturer can be reduced when there is a practical possibility of such competition as for example, when the goods are in abundance. When there is an acute scarcity of goods and there is no possibility of dealers selling the product at less than the permissible price, it would be irrational to talk of territorial limits restricting competition. Restriction on competition postulates the existence or the possibility of competition. On the facts proved in the present case the only competition possible is between the dealers and the manufacturers. The territorial restriction promotes competition between the four manufacturers in every part of India while it has no effect of any theoretical competition between the dealers because such competition between dealers does not and cannot exist.
56. The question of competition cannot be considered in vacuo or in a doctrinaire spirit. The concept of competition is to be understood in a commercial sense. Territorial restriction will promote competition whereas the removal of territorial restriction would reduce competition. As a result of territorial restriction there is in each part of India open competition among the four manufacturers. If the territorial restriction is removed there will be pockets without any competition in certain parts of India. If the dealer in Kashmir is allowed to sell anywhere in India wealthy cities like Delhi, Bombay, Calcutta will buy up trucks allocated for Kashmir and the buyer in Kashmir will not be able to get the trucks. The other three manufacturers whose trucks are not in equal demand will have Kashmir as an open field to them without competition by Telco. Therefore, competition will be reduced in Kashmir by the successful competitor being put out of the field.
57. The real reason for exclusive dealership is that instead of diminishing competition between four manufacturers each dealer tries to do his best for his own trucks, bus and thus reduce keen competition among the four manufacturers. If one dealer deals in trucks of one or more manufacturers one cannot be expected to compete with itself. It is, therefore, clear that exclusive dealership promotes instead of retarding competition.
58. Clauses 1 and 3 are in the interest of the consumer and ensure an equal distribution as far as possible of the goods at a fair price. These provisions do not tend to obstruct the flow of capital or resources into the stream of production or to bring about manipulation of prices or conditions of delivery or to affect the flow of supplies in the market relating to goods or services in such manner as to impose on the consumers unjustified costs or restrictions.
59. In the present case the restriction imposed by Telco on dealers not to sell bus and chassis outside their territories does not restrict competition for the foregoing reasons.
60. The other term of exclusive dealership in clauses 6 and 14 of the agreement between Telco and the dealers that the dealer will not sell commercial vehicles of other manufacturers, does not amount to a restriction in competition because other manufacturers can appoint other persons to deal in their commercial vehicles. It is also in public interest to see that vehicles of other manufacturers are sold in the same territory by other dealers. Therefore, there will be competition between the manufacturers of different commercial vehicles and as far as exclusive dealership of Telco commercial vehicles is concerned, it will be in public interest and not be a restriction in competition.
61. The two terms of restriction on dealers, namely, sale being confined within the territory and the other being confined to dealing in only Telco vehicles are not prejudicial to public interest. The Commission found that exclusive nature of dealership of being confined to Telco vehicles goods is not prejudicial to public interest. The territorial restriction is also in public interest and the Commission was in error in thinking that it is not so.”
[Emphasis supplied]
19. In Voltas Limited, Bombay v. Union of India, the Supreme Court again interpreted the provisions of the Act in the backdrop of the fact that the appellant had entered into an agreement with large number of companies in respect of distribution of different machineries and equipment in different territories within India. The appellant was appointed as buyer of different types of machines and instruments manufactured by the companies. In November, 1986, notices were issued to the appellant under Section 10(a)(iii) read with Section 37 of the Act that the agreements entered with the companies contain conditions which amount to restrictive trade practices under clauses (a) and (c) of Section 33(1) of the Act. The appellant contested the notice and pleaded that none of the agreements contained any clause which may be construed as restrictive trade practice. The Commission did not accept the appellant's stand and directed it to discontinue the restrictive trade practices mentioned in the notice of enquiry and not to repeat the same in future. The Commission also directed the appellant to delete the offensive conditions.
20. Supreme Court referred to the notice issued by the Commission, Sections 2(o), 33 (un-amended and amended) as also Section 37 and observed:
“8. The effect of a statute containing a legal fiction is by now well settled. The legislature by a statute may create a legal fiction saying that something shall be deemed to have been done which in fact and truth has not been done, but even then Court has to give full effect to such statutory fiction after examining and ascertaining as to for what purpose and between what parties such statutory fiction has been resorted to. In the well known case of East End Dwellings Co. Ltd. v. Finsbury Borough Council, Lord Asquith has said:
“If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it. …The statute says that you must imagine a certain state of affairs. It does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs.”
This Court in the cases of State of Bombay v. Pandurang Vinayak; Chief Inspector of Mines v. Karam Chand Thapar; J.K. Cotton Spg. And Wvg. Mills Ltd. v. Union of India; M. Venugopal v. Divisional Manager, LIC and recently in the case of Harish Tandon v. Addl. District Magistrate has dealt with in detail the effect of a statutory fiction and the limitation of the court to ignore the mandate of the legislature, unless it is violative of any of the provisions of the Constitution. So far as sub-section (1) of Section 33 is concerned, it mandates that agreements covered under different clauses of sub-section (1) of Section 33 shall be deemed for the purposes of the Act to be agreements relating to restrictive trade practices. By the deeming clause one is not required to treat any imaginary state of affairs as real but to treat the agreements specified and enumerated in subsection (1) of Section 33 as agreements relating to restrictive trade practices. It can be said that Parliament after having examined different trade practices, has identified such trade practices which have to be held as restrictive trade practices for the purposes of the Act. To keep such trade practices beyond controversy in any proceeding, a deeming clause has been introduced in sub-section (1) of Section 33 saying that they shall be deemed to be restrictive trade practices. In this background, according to us, there is not much scope for argument that although a particular agreement is covered by one or the other clauses of sub-section (1) of Section 33, still it shall not amount to an agreement containing conditions which can be held to be restrictive trade practices within the meaning of the Act.
10. But now with the amendment of main part of sub-section (1) of Section 33 with a statutory fiction the situation has changed. It can be said that clauses (a) to (l) of sub-section (1) of Section 33 provide statutory illustrations of restrictive trade practices. The framers of the Act have now in clear and unambiguous words said that every agreement falling within one or more of the categories specified in clauses (a) to (l) of sub-section (1) of Section 33, shall be deemed for the purposes of the said Act, to be an agreement relating to restrictive trade practices and shall be subject to registration in accordance with the provisions of Chapter V. Now it is no more open to the Commission or to this Court to test and examine any of the trade practices mentioned in clauses (a) to (l) of sub-section (1) of Section 33 in the light of Section 2(o) of the Act, for the purpose of recording a finding as to whether those types of trade practices shall be restrictive trade practices within the meaning of Section 2(o) of the Act. This exercise has to be done only in respect of such trade practices which have not been enumerated in any of the clauses from (a) to (l). Only such trade practices have to be examined in the light of Section 2(o) of the Act, as to whether they amounted to restrictive trade practices. It need not be pointed out that both judgments aforesaid of this Court interpreted the scope of sub-section (1) of Section 33, as it stood prior to the amendment by Act 30 of 1984. But after the amendment of sub-section (1) of Section 33 if an agreement falls within one of the clauses of the said sub-section, specifying a restrictive trade practice, then it is no more open to the Commission or to the Court to say that it shall not amount to restrictive trade practice. Trade practices enumerated in clauses (a) to (l) of subsection (1) of Section 33 shall be deemed to have now been statutorily determined and specified as restrictive trade practices. Neither the Commission nor the Court can question the wisdom of Parliament for having statutorily determined certain trade practices as restrictive trade practices unless in this process there is contravention of any of the provisions of the Constitution. In this background, if any agreement contains a trade practice which falls in any of the clauses of sub-section (1) of Section 33 then such trade practice shall be deemed to be restrictive trade practice and such agreement has to be registered.
12. On behalf of the appellant, it was pointed out that Section 37 contemplates and conceives inquiry in respect of any restrictive trade practice relating to an agreement which has been registered under Section 35 as well as an agreement which has not been so registered. As such persons who have got their agreements registered on their own in order to escape prosecution, although in such agreements there may not be any clause relating to restrictive trade practices, cannot urge before the Commission, after having got the agreements registered, that they do not contain any clause relating to any restrictive trade practice. On the other hand, persons who for one reason or other have not got their agreements registered under Section 35, will be in an advantageous position inasmuch as in respect of their agreements, Commission will have to examine both aspects (i) whether the agreement relates to any restrictive trade practice (ii) even if it relates to restrictive trade practice, whether the said practice is prejudicial to the public interest. It is true that under Section 37, the Commission has been vested with the power to inquire in respect of agreements which have been registered under Section 35 as well as those which have not been registered. But the fact remains that once the Commission is satisfied that a particular agreement which has not been registered under Section 35, falls within any of the clauses from (a) to (l) of sub-section (1) of Section 33, then no further inquiry is to be done, as to whether such agreement relates to restrictive trade practices or not. The statutory fiction incorporated in sub-section (1) of Section 33 shall also be applicable in respect of such agreements apart from the penalty provided under Section 48 of the Act. As such there is not much scope for discrimination between persons who have got their agreements registered and those who have not got their agreements registered.
13. It was also urged that while amending sub-section (1) of Section 33, Section 2(o) was not deleted or substituted and that has left an apparent conflict between Section 2(o) and Section 33(1) of the Act. According to us, there is no conflict between Sections 2(o) and 33(1). clauses (a) to (l) of sub-section (1) of Section 33 specify such trade practices which have been statutorily recognised as restrictive trade practices. But there may be other trade practices, not covered by clauses (a) to (l) of sub-section (1) of Section 33, which can be examined by the Commission in the light of Section 2(o).”
21. The Supreme Court then referred to Section 38(1)(h) and held:—
“17. According to us, the Commission was required to go deeper into the matter and to record findings in respect of different agreements whether the objectionable clauses of the registered agreements were prejudicial to the public interest. It need not be impressed that any finding recorded by the Commission under Section 37 and direction given in terms of clauses (a) and (b) of sub-section (1) of Section 37 has a far-reaching effect. As such every aspect of the matter is required to be examined in the light of the provisions of Sections 37 and 38 of the Act before an order to “cease and desist” is passed by the Commission.”
22. If agreements Annexures “A” and “B” executed by the respondent are examinedin the light of the law laid down in Tata Engineering Locomotives Co. v. The Registrar of the Restrictive Trade Agreements and Voltas Limited, Bombay v. Union of India (supra), it becomes clear that the conditions incorporated therein are not restrictive in nature. By fixing the price of pharmaceutical and non-pharmaceutical products and specifying the percentage of discount, the respondent had tried to ensure that the consumers are not fleeced by the distributors and dealers. The other provisions like maintenance of stock of products, promotion of sale and restriction on the area of operation are intended to enhance efficiency and competition and by no stretch of imagination, it can be said that the agreements have the effect of preventing, distorting or restricting competition or the same have the tendency to obstruct the flow of capital or resources into the stream of production or bring about manipulation of prices or conditions of delivery or adversely affect the flow of supplies of the product in the market. Thus, none of the ingredients which may constitute restrictive trade practice as defined in Section 2(o) are present in this case.
23. We also find that agreements Annexures “A” and “B” are substantially similar to those entered by Tata Engineering and Locomotive Co. with their dealers. Therefore, by applying the ratio of the judgement of the Supreme Court, we hold that the disputed agreements do not constitute restrictive trade practice within the meaning of Section 2(o) of the Act.
24. In the result, the complaint is dismissed.