Electronics & Electricals & Anr Vs. Union
of India & Anr  Insc 139 (9 March 2004)
Reddi & S.H. Kapadia. P. Venkatarama Reddi, J.
is an appeal under Section 55 of the Monopolies and Restrictive Trade Practices
Act, 1969 (referred to hereinafter as 'the Act') against the order of the
Commission in R.T.P. Enquiry No. 1616 of 1987. The Commission, having held that
the appellant indulged in certain restrictive trade practices prejudicial to
public interest, directed the appellant to desist from indulging in such
practices in future and to amend the offending clause in the dealership
Commission further directed the appellant not to give effect to the termination
of dealership of the complainant (2nd respondent herein) and to ensure the
supply of Philips products "at least to the extent of the supply made in
the year 1986" subject to the placement of necessary orders by the
factual background leading to the filing of the complaint is as follows:
appellant Company manufactures and sells certain audio products. It has a vast
network of dealersabout 1800 throughout the country who are appointed on
principal to principal basis. In Gwalior, the appellant had a dealer by name M/s. Evergreen operating since long
from its shop at Sarafa Bazar. In the year 1985, the appellant appointed the
2nd respondent (hereinafter referred to as 'R-2' or 'complainant') having its
place of business at Gwalior as another dealer. An agreement
dated 15.11.1985 which, it is not in dispute, is in standard form was entered
into. Clause 29 of the Agreement provided for termination of agreement by
either party by giving to the other 30 days notice in writing. In terms of this
clause, the appellant by its notice dated 23.9.1987 gave 30 days notice to R-2,
terminated the dealership on expiry of the notice period. According to the
appellant, such a step was taken as it was not satisfied with the performance
of R-2. R-2 then filed a complaint before the Commission. The complainant
alleged that the appellant felt aggrieved by some of the letters addressed by
the complainant pointing out preferential treatment to the old dealer M/s.
Evergreen to the detriment of R-2. Certain instances of restrictive trade
practices were enumerated in the complaint. The complainant prayed for the
issuance of 'cease and desist order' and a direction to restore the dealership
and resume supplies of Philips products. The Commission decided to hold an
enquiry. Accordingly, a notice of enquiry was sent to the appellant on
21.1.1988. In the said notice, as many as five restrictive trade practices
alleged to have been committed by the appellant were set out. They are as
The respondents prohibited the complainant from dealing in or selling the same
type of products of the competitors.
practice is restrictive trade practice within the meaning of Section 33(1)(c)
of the MRTP Act;
The respondents supplied to the complainant all types of goods irrespective of
its order. For instance supply of 252 pcs of infra lamps was made to the
complainant on 31st
December, 1985 even
though the complainant had not placed any order for them. Thus the respondent
in a trade practice of full line forcing/ dumping unwanted goods and also
delaying with holding the supply of wanted and ordered goods. It is a
restrictive trade practice within the meaning of Section 2(o) and Section 33(1)(b)
of the Act. The practice is a restrictive trade practice within the meaning of
Section 339(1)(b) of the MRTP Act.
The complainant was allocated a particular territory to which its dealership
was confined. The practice of allocating a territory is a restrictive trade
practice within the meaning of Section 33(1)(g) of the MRTP Act.
The respondent fixed the prices at which their products were to be sold without
giving liberty to the complainant to sell at prices lower to its customers. The
practice is a restrictive trade practice within the meaning of Section 33(1)(f)
of the MRTP Act.
The respondent discriminated against the complainant and gave a favoured
treatment to their other dealer, viz.
Sarafa Bazar, Gwalior in making supplies of Philip
products. The practice is a restrictive trade practice within the meaning of
Section 2(o)(ii) of the MRTP Act.
appears that during the pendency of the inquiry, the Commission issued an order
of ad interim injunction.
it was stayed by the Bombay High Court on a writ petition filed by the
appellant while denying the charges took the stand that the complainant was not
conducting the business properly inasmuch as the sales dropped considerably
during the period January, 1987 to September, 1987, that the complainant
delayed retirement of documents on more than one occasion and even issued a cheque
which was dishonoured by the Bank. The appellant pleaded that the power
reserved to it under Clause 29 of the Agreement was bona fide exercised in its
business interest. The Commission came to the conclusion that the allegations 3
and 5 (supra) stood proved and the other allegations were not established.
while discussing charge No.2, the Commission having held that the allegation of
dumping of unwanted products has not been proved and that the refusal to send
supplies as per the orders of the complainant was quite justified having regard
to the defaults on the part of the dealer, declared that Clause 7 of the
Agreement per se amounted to restrictive trade practice and therefore the
respondent shall take action to purge the same.
Tribunal recorded its findings that the restrictive trade practices indulged in
by R-2 had an adverse effect on engendering competition, that the 'gateway'
pleaded by him in terms of Clause (h) of Section 38(1) did not come to his aid
and that the restrictive trade practices in question were prejudicial to public
interest per se.
now indicate the contentions advanced by the learned Counsel for the appellant.
The findings of the Commission with reference to charges (iii) & (v) are
legally unsupportable as the Commission arrived at the findings arbitrarily
without regard to the evidence on record. The conclusions are perverse.
The Commission exceeded its jurisdiction and acted in violation of principles
of natural justice in giving a direction to delete Clause 7. The validity of
Clauses in the Agreement should not have been considered at all by the
Commission when the Agreement itself stood terminated.
The direction to restore the dealership and the supplies is beyond the scope of
powers of the Commission.
The Commission failed to give a finding that the alleged restrictive trade
practice is prejudicial to public interest before passing a 'cease and desist'
Contention No.1 [Charges (iii) & (v)] We shall first deal with the contention
of the learned counsel for the appellant that the findings recorded by the
Commission in regard to charges (iii) & (v) are without basis and
unsupported by the evidence on record.
No. (iii) In the context of Charge No.(iii), we may notice that under Clause 27
of the Agreement, "the Dealer shall be free to sell the goods to customers
from any part of India".
observed by the Commission, the said clause by itself "neither gives
territorial freedom nor imposes any territorial restriction". However, the
Commission, after discussing the evidence, recorded its conclusion that the
'third charge has been proved in terms of Section 33(1)(g)'. Section 33(1)(g)
speaks of an agreement to limit, restrict or withhold the output or supply of
any goods or allocate any areas or market for the disposal of the goods. Though
the Agreement does not place any restriction of the type envisaged by Clause(g)
of Section 33(1), there is a clear finding supported by evidence that the
appellant did resort to restrictive trade practice by imposing a restriction on
the complainant from selling the products from Sarafa Bazar shop of the
complainant. In this context, the affidavit of the complainant's witness and
the repeated letters addressed by the complainant have been referred to by the
Commission took note of the fact that the appellant sent no reply to these
letters and at no point of time, made it clear to the complainant that it had
no objection to the products being sold from Sarafa Bazar complex. The
Commission observed that even if the complainant had occasionally sold some
products from Sarafa Bazar, it does not demolish the complainant's case that it
was not allowed to sell from Sarafa Bazar where the other dealer was having his
showroom. We cannot interfere with this finding of fact.
that be so, the act of the appellant falls within the ambit of restrictive
trade practice. By virtue of Section 33, read with Clause (g), an agreement to
allocate any area or market for the disposal of the goods is deemed to be an
agreement relating to restrictive trade practice. The appellant cannot take the
plea that in the absence of any such restriction in the Agreement itself, he is
free to impose such restriction in the course of dealings with the complainant.
The considerations set out in various clauses of Section 33(1) would be equally
relevant in deciding the question whether the restrictions imposed in actual
practice amount to restrictive trade practices within the meaning of the Act.
Incidentally, we may observe that the allocation of a particular area or market
for the disposal of the goods is likely to hamper or restrict the competition
as held by the Tribunal and in that sense, even the opening part of the
definition in Clause (o) of Section 2 gets attracted. Though we feel that the
phraseology used in charge No.3 viz., "allocation of a territory to which
the dealership was confined" is inappropriate, the Commission's finding
cannot be set aside merely for that reason. The substance of the charge was well
understood by the appellant and the complainant put in its defence accordingly.
No.(v) As per the charge, the appellant gave a favourable treatment to the
other dealer, namely, M/s Evergreen in making supplies of Philips products and
thus the appellant discriminated against the complainant. In the context of
this allegation, the real grievance made out by the complainant is that fast
moving and popular products were being supplied to M/s Evergreen, whereas the
complainant was mostly getting slow moving items. It was further alleged that
M/s Evergreen was free to sell the Philips products from their showroom at Sarafa
Bazar to any non Philips products dealers not only at Gwalior but also in four other Districts
whereas the same facility was denied to the complainant.
charge of discrimination was held established only on the ground that M/s
Evergreen was given freedom to sell the appellant's products from Sarafa
Bazaar, but the complainant was not allowed to sell from its Sarafa Bazaar
shop. This, according to the Commission, has resulted in discriminatory
treatment against the complainant, attracting Section 2(o)(ii) of the Act. It
may be recalled that the Commission recorded the same finding while dealing
with charge No.(iii) i.e., area restriction. To the extent that the area
restriction was placed on the complainant but not on M/s Evergreen, it will be
an instance of discrimination and the finding of the Commission to this extent
cannot be faulted. However, the Commission did not record any finding with
reference to the allegation that there was discrimination in the matter of
supply of goods. Not a word is said about it.
pointing out this particular aspect for the reason that charge No.(v) held to
have been proved by the Commission is widely couched and it speaks of favourable
treatment to M/s Evergreen in regard to supply of goods. There is no finding of
the Commission on this aspect of the case. Yet, the Commission proceeded on the
basis that the charge as a whole was proved. Be that as it may, there is a
formidable difficulty in sustaining this charge. The Commission held that the
act of discrimination, as found by it, is a restrictive trade practice within
the meaning of Section 2(o)(ii)? of the Act.
said provision reads:
"restrictive trade practice" means a trade practice which has, or may
have the effect of preventing, distorting or restricting, competition in any
manner and in particular (i) x x x x x (ii) which tends 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.
Clause (ii) has to be applied, there must be a further finding that the
impugned trade practice has the effect of imposing on the consumers unjustified
costs or restrictions.
the same provision, this Court in the case of (Investigation &
Registration) & Anr. [(2001) 2 SCC 474] observed thus:
the plain reading of the said definition itself discloses, and also as rightly
understood by the Commission in issuing the notice, there are two parts to the
definitionone is which relates to carrying on of such trade practice which has
or may have the effect of preventing, distorting or restricting competition in
any manner and secondly, the carrying on of such trade practice which inter alia
has the effect of imposing unjustified costs or restrictions on the
consumers." It was then held in the next paragraph "but what we have
to see is as to whether the appellant has been guilty of preventing, distorting
and restricting competition amongst the dealers which was the allegation
leveled against it. In the absence of such a finding and there not being even a
whisper in the order that any action of the appellant had the effect of
imposing unjustified costs or restrictions on the consumers, the Commission
fell in error in passing the order against the appellant." The same is the
situation here. There is no finding whatsoever with respect to one of the
crucial ingredients of Section 2(o)(ii). Moreover, we find nothing in the
evidence to enable the Commission to arrive at a finding on the question
whether the act of the appellant in disallowing the complainant from effecting
the sales from its second shop at Sarafa Bazaar had resulted in or likely to
result in the imposition of unjustified burden on the consumers. We are
therefore of the view that the Commission's finding under charge No.(v) that
the appellant resorted to restrictive trade practice within the meaning of
Section 2(o)(ii) is legally erroneous and is liable to be set aside.
Contention No.2 (Clause 7 of Agreement) Clause 7 of the Agreement reads as
The Company gives no guarantee or undertaking that it will supply the Dealer's
requirements of the Company's products against its orders and in any event can
accept no responsibility or liability for its failure or refusal to give supply
or delay in effecting supply, for any reason whatsoever.
to the Commission, Clause 7, in its present form, has the potential of bringing
about a restrictive trade practice and therefore it should be amended. We are
inclined to endorse the view of the Commission on this point. Clause 7 with its
sweeping phraseology, is heavily weighted in favour of the appellant. Taking
umbrage under the latter part of clause 7, the appellant can arbitrarily
withhold or delay the supply of goods without assigning any reason and yet
disown its responsibility or liability arising out of its arbitrary action. The
Commission is justified in holding that it is per se a restrictive trade
practice. An agreement to limit, restrict or withhold the output or supply of
any goods falls within the mischief of clause (g) of Section 33(1) and
therefore it must be deemed to be an agreement relating to restrictive trade
practice as per the mandate of Section 33(1). When once it is held that any
clause of the Agreement comes within the sweep of Clauses (a) to (l) of
sub-Section (1) of Section 33, no further enquiry is required to find out
whether it falls within the parameters of Section 2(o). This legal position has
been settled by a three Judge Bench of this Court in the case of Voltas
Limited, Bombay This Court observed "Trade practices enumerated in clauses
(a) to (l) of sub-Section (1) of Section 33 shall be deemed to have now been
statutorily determined and specified as restrictive trade practices. It cannot,
therefore, be urged that although a particular agreement is covered by one or
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.
* * *
Now it is no more open to the Commission or to the Supreme 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. " Again it was
clarified in paragraph 12 "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 those who
have got their agreements registered and those who have not got their
to the case of Mahindra and Mahindra Ltd. has been placed by the appellant's
counsel in the present case, the three Judge Bench made it clear in Voltas case that the situation has changed
with the introduction of a statutory fiction in the main part of sub-Section
(1) of Section 33. It was observed that Clauses (a) to (l) of sub- Section (1)
of Section 33 are in the nature of statutory illustrations of restrictive trade
practices. Faced with this difficulty, the learned counsel for the appellant
harped on the argument that the offensive nature of Clause 7 was not the
subject-matter of charge and enquiry and therefore no direction should have
been given by the Commission for the deletion/amendment of Clause 7, especially
when charge No.(ii) has not been sustained. We find it difficult to accept this
contention, though plausible it is.
in the notice of inquiry, the Commission did not specifically refer to the
invalidity of Clause 7, we find from the pleadings and the order of the
Commission that this issue did crop up for consideration and the parties did
advance arguments on this point at length. It may be noticed that in the
rejoinder the complainant while referring to the averments in para 5 of the reply,
challenged the appellant's version that there were restrictive provisions in
the Agreement "giving arbitrary discretion to the Company in meeting with
the dealer's requirement". It is not in dispute that arguments were
advanced on this aspect as well. It is obvious that the Commission need not
confine itself to the points raised in the complaint. Under Section 10 of the
Act, the Commission is invested with the power to enquire into any restrictive
or monopolistic trade practice upon its own knowledge or information. In other
words, the Commission can suo motu enquire into such trade practices and take
necessary follow-up action. The knowledge or information can as well be derived
from the facts disclosed in the complaint petition, the pleadings or from the
material adduced in the case. The Commission will be failing in its duty if it
does not take note of restrictive trade practices that come to its notice in
the course of enquiry into a complaint. In our considered view, the omission to
record a formal proceeding framing an issue or the point for suo motu
consideration does not by itself vitiate the decision of the Commission.
However, it is implicit in the exercise of such power that adequate opportunity
ought to be given to the affected party to meet the point which is the subject
matter of suo motu enquiry. There is no bar to the combination of an enquiry
into the allegations made by the complainant and the suo motu enquiry into a
matter coming to its notice. In testing the validity of the action taken by the
Commission from the procedural angle, the approach of the Court should be such
as to promote the objectives of the Act. A narrow or pedantic approach ought to
from this angle, we are unable to hold that the Commission out-stepped its
limits in testing the legality of Clause 7 or that the appellant was
handicapped in meeting its case on account of non-framing of 'charge' relating
to Clause 7 of the Agreement.
next question is whether in view of termination of Agreement, the Commission
was precluded from probing into the validity of the relevant clause in the
Agreement. It is not in dispute that the clause of this nature is incorporated
in all the Agreements entered into with the dealers. In other words, the
Agreement is in a standard form. As held by the Commission, apart from the fact
that Clause 7 per se is a restrictive trade practice, it has the potential of
giving rise to restrictive trade practices in future. Therefore, the
Commission, in exercise of its power under Clause (b) of Section 37(1),
directed that the clause should be suitably amended so as to remove the
offensive sting in it. Having regard to our decision on Contention No.3, the
Commission's directive cannot be implemented in so far as the present Agreement
is concerned. At the same time, the appellant shall not be allowed to
perpetuate the unfair trade practice inherent in Clause 7 of the standard form
Agreement. We, therefore, consider it just and proper to modify the order of
Commission by directing that the appellant should take steps to purge the
restrictive trade practice by suitably amending Clause 7 or identical clause
wherever it occurs in all the Agreements with its dealers and file a report to
the Commission accordingly.
Contention No.3 (Termination of Agreement) The next ground of attack is on the
order of the Commission restraining the appellant from acting on letter of
termination of dealership and further directing the supply of Philips products
"atleast to the extent of supply made in the year 1986". It is
contended that the contract having been terminated, the Commission had no power
and jurisdiction to keep the contract alive. To buttress this argument, the
learned counsel for the appellant has referred to the provisions of Sections 14
and 41 of the Specific Relief Act and contended that the contract, which is in
its nature terminable, cannot be specifically enforced and no injunction can be
granted on the ground of breach of contract.
has been drawn to Clause 29 of the Agreement under which the contract has been
agreement shall remain in force until terminated by either party by giving to
the other 30 days' notice in writing." As against this, it is the
contention of the learned counsel for R-2 that the termination was not bona
fide but it was done only with a view to perpetuate the restrictive trade
practices against which R-2 was always protesting. If the appellant- Company
felt that R-2, as a dealer, acted in a manner contrary to the interests of the
Company or committed breach of any of the terms of the Agreement, Clause 28
should have been invoked and R-2 should have been put on notice regarding the
alleged grounds of termination.
under Clause 29 was resorted to for extraneous reasons. In regard to the power
of the Commission to pass such an order, it is submitted that the termination
of dealership was a sequel to and in aid of the restrictive trade practices of
the appellant. According to the learned senior counsel for R-2 the termination
of dealership had a direct and inextricable connection with the restrictive
trade practices adopted by the appellant and in such circumstances the
Commission was well within its power to direct the restoration of the contract
and the supplies.
find it difficult to accept the contention of the learned counsel for R-2.
Normally, the Commission is not empowered to probe into the question whether
the contract was validly terminated under one Clause or the other of the
Agreement. The Commission cannot assume the role of the civil Court in this
regard. True, as contended by the learned counsel for the appellant the
Commission has incidental and ancillary power to consider whether the
termination of the dealership was a device to perpetuate the objectionable
trade practices and whether such termination is closely inter-linked with the
continuance of restrictive trade practice. But, we search in vain for a
specific finding by the Commission in this regard. The Commission did not hold
that the termination under Clause 29 which undoubtedly gives a right to either
party to the Agreement to put an end to it by giving 30 days' notice would per
se give rise to restrictive trade practices or that the termination under
Clause 29 is a cloak to circumvent Clause 28 in order to go ahead with the
restrictive trade practices. In fact, some of the findings of the Commission,
which we have already adverted to, indicate that there was some justification
to feel dissatisfied with the manner of conducting business by R-2. The fact
also remains that a number of letters which R-2 had been writing to the
appellant protesting against alleged unfairness and discriminatory treatment,
evoked no response from the appellant. Thus, when there is much to be said on
both sides, the Commission should have recorded a specific finding on the lines
indicated above. No reason, whatsoever, has been given as to why the contract
which was terminated ostensibly in exercise of the right reserved under the
Agreement should be revived. Obviously, the direction of this nature cannot be
construed to be one made with a view to compensate the loss to the complainant.
As far as the compensation for the loss is concerned, it is Section 12 A which
is applicable and an application has already been filed under that provision.
Of course, it is open to the Commission to pass suitable orders on that
application; but, the direction not to give effect to the termination letter,
thereby reviving the contract goes clearly beyond the powers of the Commission,
especially for the reason that the Commission did not record a finding that the
termination of the contract was in the teeth of the provisions of the Act and
was resorted to only with a view to perpetuate the restrictive trade practices.
Consequently, the direction to resume supplies of Philips products is equally
Contention No.4 (Legality of 'cease and desist' order) It is contended that the
'cease and desist' order under Section 37(a) should not have been passed unless
the Commission finds that the restrictive trade practice is prejudicial to
public interest. By virtue of Section 38(1)(h), the restrictive trade practice
would not be treated as contrary to public interest if "the restrictive
trade practice does not directly or indirectly restrict or discourage
competition to any material degree in the relevant trade or industry and is not
likely to do so". It is contended that the alleged restrictions imposed on
a single dealerR-2 cannot affect competition to any material degree, more so
when the audio products are not short-supply items. On the other hand it is
contended by the learned counsel for the 2nd respondent that there is a
presumption under Section 38 that a restrictive trade practice is prejudicial
to public interest and therefore the burden is on the appellant to make out a
case under Clause (h) of Section 38(1) and such burden has not been discharged
by the appellant. Moreover, it is pointed out that there is a specific finding
in this regard by the Commission that the 'gateway' pleaded by the appellant by
taking recourse to Clause (h) cannot be sustained. It is submitted that the
Commission has given certain reasons such as the trade scenario in Gwalior and
those reasons cannot be said to be irrelevant. Though there is considerable
force in the argument of respondent's counsel, there is no need to express an
opinion in this regard for the reason that the order to discontinue the
restrictive trade practice covered by charge No.3 becomes otiose in view of our
finding that the dealership agreement which has been terminated, cannot be
revived at this stage.
discussion of the question whether the cease and desist order under Clause 37(1)(a)
could be passed in relation to the restrictive trade practice held proved against
the appellant therefore becomes academic.
conclusions we have reached are summed up as follows:
finding of the Tribunal on charge No.iii is upheld.
finding in respect of the charge No.v is unsustainable.
Commission is justified in holding that Clause 7 of the Agreement is a
restrictive trade practice within the meaning of Clause (g) of Section 33(1) of
M.R.T.P. Act and it has the effect of distorting or restricting competition.
The direction of the Commission to amend Clause 7 suitably is correct.
Irrespective of the termination of the Agreement between appellant and R-2, the
appellant should take steps to amend a similar clause existing in other
agreements of similar nature with the dealers.
Commission exceeded its jurisdiction in giving a direction not to give effect
to the letter terminating the Agreement and to restore the supplies to the
complainant. Such a direction cannot be sustained in the absence of a finding
that the termination of Agreement was contrary to the provisions of the Act or
it is a device to circumvent the provisions of the Act so as to perpetuate the
restrictive trade practice.
'cease and desist' order passed under Section 37(1)(a) becomes otiose and
inoperative in view of the fact that the contract stands terminated. The remedy
of the complainant (R-2) is to pursue his claim for compensation under Section
12-B for the loss suffered by him on account of the restrictive trade practice
covered by charge No.iii.
appeal is disposed of accordingly without costs.