Systems (Cleveland) Inc Vs. M/S. Indian MRI Dia. & Res. Ltd. & Ors.
 INSC 1659 (29 September 2008)
IN THE SUPREME COURT
OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 2461 OF 2006 M/s.
Philips Medical Systems (Cleveland) Inc. .. Appellant -versus- M/s. Indian MRI
Diagnostic & Research Ltd & Anr. .. Respondents [with C.A. 5889 /2008 @
SLP(Civil) No. 6325 of 2006]
Markandey Katju, J.
appeals have been filed against the judgment and final order dated 29.11.2005
passed by the Monopolies and Restrictive Trade Practices Commission, New Delhi
in Restrictive Trade Practices Enquiry No. 172 of 1995 and Compensation
Application No. 258 of 1994.
learned counsel for the parties and perused the record.
appellant is a company incorporated in accordance with the laws of the State of
New York, USA which is engaged in the business, inter alia, of manufacturing
and selling of various medical diagnostic equipment, including whole body CT
Scanner. Respondent No. 1 wanted to purchase a whole body Whole Body CT Scanner
and held negotiations for the same with the appellant and respondent No. 3,
M/s. UB Picker Ltd. It is alleged that on 10.4.1989, the appellant sent its
proforma invoice No. PMS/S/CT/001/89 (hereinafter referred to as the `First
Offer') for the supply of a new CT Scanner (Picker Synerview 1200 SX Whole Body
Computer Tomography Scanner, 4th Generation Stationary Detector Technology
system) including spares and accessories at a price of US $ 1,282,500.00 (US
Dollar one million two hundred eighty two thousand five hundred 3 only). This
First Offer was a comprehensive and composite offer and could not be split and
/or partly accepted.
relevant terms of the First Offer were, inter-alia, as follows :- " a) The
system offered was `Picker Synerview 1200 SX Whole Body CT Scanner 4th
Generation Stationary Detector Technology' consisting of Module A, C, J3, K1,
M, Q, 02, B, including spares/Savs System/B.M.
Package/Xenon Blood Flow Package/Dynamic Scanning/IOR-II.
a) The total System
Price was US $ 1, 282,500.00 b) The price quoted was CIF Madras;
c) The prices were
valid for 90 days;
d) The payment was to
be made in US Dollars by irrevocable and confirmed Letter of Credit (L/C) in
favour of the appellant;
e) Delivery was to be
within 3-4 months ex-factory after the receipt of confirmed order with
irrevocable Letter of Credit.
is alleged that respondent No. 1 neither communicated any acceptance of the
First Offer nor opened an L/C for the sum of US $ 1, 282,500.00 within the
aforesaid validity period of 90 days. It is an admitted fact that respondent
No. 1 never opened an L/C for the sum of US $ 1,282,500.00. The appellant was
required under the applicable US laws to obtain an export licence from the US
Authorities for exporting the equipment to India. In order to apply for the
necessary export licence, the 4 appellant was required to attach a copy of an
import licence from the Indian Government. The said import licence was to be
procured by respondent No. 1. The appellant could not apply for the export
licence since respondent No. 1 did not forward the Indian Import licence to the
appellant within the aforesaid validity period of 90 days. As a result, the
First Offer dated 10.4.1989 lapsed without being accepted on the expiry of 90
days from 10.4.1989. Towards the end of 1989, respondent Nos. 1 and 2 began
fresh discussions with the appellant for purchase of a refurbished CT Scanner.
The appellant offered
to sell to respondent Nos. 1 & 2 a refurbished CT Scanner Model 1200 SX
Solid State CT System for US $ 595,000.00 (US Dollar five hundred ninety five
thousand only) vide its quotation No. QR/4896/90 dated 03.1.1990 (hereinafter
referred to as the `Second Quotation'). The relevant terms of the Second
Quotation were, inter alia, as follows:
"a) The Second
Quotation was for a refurbished 1200 SX Solid State CT System, including, inter
alia, Split Operator/Viewing Console;
b) The lead time for
supply of the system was to be 90 days after receipt of L/C. The lead time was
also dependant upon the timely receipt of Indian Import Certificate and US
Export licence and was likely to be extended if documentation of the Government
of India or USA was not available within the time period.
c) The system was to
be sent from USA to India by `Ocean Freight'"
negotiations, the Second Quotation was duly accepted by respondent No. 1 with
the condition that the total system price would be US $ 570,000.00 (US Dollar
five hundred seventy thousand only) and this would include shipment of the
system `by Air' instead of by `ocean freight', which was one of the terms of
the Second Quotation. The break-up of the total system price was US $
560,000.00 (US Dollar five hundred sixty thousand only) for the system and US $
10,000.00 (US Dollar ten thousand only) towards the cost of the shipment `by
Air'. This was duly endorsed by respondent No. 2, on 16/23-01.1990. At the
relevant time, respondent No. 2 was the Chairman of the Board of Directors of
respondent No. 1.
Respondent No. 1
opened an L/C dated 24.02.1990 in the amount of US $ 700,000.00 (US Dollar
seven hundred thousand only).
is alleged that the appellant was surprised to find that the L/C had been
opened for a sum of US$ 700,000.00(US Dollar seven hundred thousand only)
instead of the agreed price of US $ 570,000.00 (US Dollar five hundred seventy
thousand only) and also that respondent No. 1 had referred to the old proforma
invoice No. PMS/B/CT/001/89 dated April 10, 6 1989 instead of the duly
accepted Second Quotation, being Quotation No. QR/4896/90 dated 03.01.1990.
is alleged that the said L/C could not have related to the First Offer dated
10.04.1989 as the validity of the same had expired after 90 days of the date of
the First Offer without the same having been accepted.
is further alleged that the fact that the Second Quotation was duly accepted
and was in contemplation of the parties is further borne out of the
correspondence exchanged between the parties, and more particularly respondent
No. 1's letter dated 11.04.1990, two letters both dated 20.04.1990 and
appellant's letters dated 30.04.1990 and 01.05.1990.
appellant alleged that it asked respondent No. 1 to amend the L/C so as to
bring it in conformity with the Second Quotation. Respondent No. 2 refused to
amend the L/C and wanted the appellant to falsify the shipping documents and
show that a new CT Scanner was being supplied instead of a refurbished system.
Respondent No. 2 wanted the appellant to draw down the entire amount of US
$700,00.00 and to repay the excess amount of US $ 130,000.00( US Dollar one
hundred thirty thousand only) to him in 7 Malaysia. The appellant did not
agree to any of the proposals of respondent No. 2.
the production of the refurbished CT Scanner was also taking some time as there
was some delay in procuring all the components required for producing the
refurbished CT Scanner as the production of the same had been phased out in
March, 1990. This fact was not known in January, 1990 when the parties had
agreed on the terms and conditions of the Second Quotation dated 03.01.1990.
However, it is alleged that respondent No. 1 in total breach of its
obligations, refused, failed and neglected to amend the L/C to bring it in
conformity with the Second Quotation. Respondent No. 1 did not obtain an Indian
Import Certificate as per the terms of the Second Quotation, nor did it ever
apply for the same as admitted in its evidence as recorded during
cross-examination. The L/C was never encashed by the appellant and was returned
to respondent No. 1.
Respondent No. 1 was
in breach of its obligations that were to be performed by respondent No. 1
before the appellant could perform or could be called upon to perform its
obligations. Consequently, the occasion for supply of the CT Scanner by the
appellant to respondent No. 1 never arose.
respondent Nos. 1 & 2 filed a complaint before the MRTP Commission against
the appellant and respondent Nos. 3 to 5, being RTP Enquiry No. 172 of 1995
making therein various allegations including the allegation that appellant and
respondent Nos. 3 to 5 had falsely represented to respondent No. 1 about the
production and quality of the goods and services and it induced respondent Nos.
1 & 2 into entering into an agreement with them, although they had
knowledge that the CT Scanner ordered by respondent No. 1 was not in
is alleged that in these circumstances, respondent Nos. 1 & 2 was left with
no option but to procure the CT Scanner from Hitachi, Japan. It is also alleged
that respondent Nos. 1 & 2 thereby suffered a huge loss of Rs. 32,31,885/-,
which should be paid to them as damages.
the aforesaid complaint, the MRTP Commission issued a notice dated 28.6.1995 to
the appellant and respondent Nos. 3 to 5 calling upon them to file a reply. The
appellant filed its reply on 6.2.1996 and submitted that no unfair and
restrictive trade practice was committed by the appellant and the appellant is
not liable to pay any compensation.
the impugned judgment dated 29.11.2005, the MRTP Commission allowed the
complaint and has held the appellant guilty of unfair trade practice. The
Commission has passed an order restraining the appellant in indulging in the
aforesaid alleged restrictive trade practice and directing it to pay
compensation of Rs.5,71,439/- with interest @ 9% per annum to the respondent.
submissions have been made by Shri A.N. Haksar, learned senior counsel for the
appellant, but it is not necessary to deal with all of them since we are of the
opinion that these appeals deserve to be allowed on the first submission.
legal question involved in the first submission is whether a party can be held
guilty of unfair trade practice as referred to in Section 36A of the MRTP Act,
although he did not supply any goods at all.
36A which was inserted in 1984 and amended in 1991 now reads as follows :-
OF UNFAIR TRADE PRACTICE.
In this Part, unless
the context otherwise requires "unfair trade 10 practice" means a
trade practice which, for the purpose of promoting the sale, use or supply of
any goods or for the provisions of any services, adopts any unfair method or
unfair or deceptive practice including any of the following practices, namely:-
(1) the practice of making any statement, whether orally or in writing or by
visible representation which,- (i) falsely represents that the goods are of a
particular standard, quality, quantity, grade, composition, style or model;
represents that the services are of a particular standard, quality or grade;
represents any re-built, second-hand, renovated, reconditioned or old goods as
(iv) represents that
the goods or services have sponsorships, approval, performance,
characteristics, accessories, uses or benefits which such goods or services do
(v) represents that
the seller or the supplier has a sponsorship or approval or affiliation which
such seller or supplier does not have;
(vi) makes a false or
misleading representation concerning the need for, or the usefulness of, any
goods or services;
(vii) gives to the
public any warranty or guarantee of the performance, efficacy or length of life
of a product or of any goods that is not based on an adequate or proper test
Provided that where a
defence is raised to the effect that such warranty or guarantee is based on
adequate or 11 proper test, the burden of proof of such defence shall lie on
the person raising such defence;
(viii) makes to the
public a representation in a form that purports to be -- (i) a warranty or
guarantee of a product or of any goods or services; or (ii) a promise to
replace, maintain or repair an article or any part thereof or to repeat or
continue a service until it has achieved a specified result, if such purported
warranty or guarantee or promise is materially misleading or if there is no
reasonable prospect that such warranty, guarantee or promise will be carried
misleading the public concerning the price at which a product or like products
or goods or services, have been, or are, ordinarily sold or provided, and, for
this purpose, a representation as to price shall be deemed to refer to the
price at which the product or goods or services has or have been sold by
sellers or provided by suppliers generally in the relevant market unless it is
clearly specified to be the price at which the product has been sold or services
have been provided by the person by whom or on whose behalf the representation
(x) gives false or
misleading facts disparaging the goods, services or trade of another person.
Explanation : For the
purposes of clause (1), a statement that is -- (a) expressed on an article
offered or displayed for sale, or on its wrapper or container; or 12 (b)
expressed on anything attached to, inserted in, or accompanying, an article
offered or displayed for sale, or on anything on which the article is mounted
for display or sale; or (c) contained in or on anything that is sold, sent,
delivered, transmitted or in any other manner whatsoever made available to a
member of the public, shall be deemed to be a statement made to the public by,
and only by, the person who had caused the statement to be so expressed, made
(2) permits the
publication of any advertisement whether in any newspaper or otherwise, for the
sale or supply at a bargain price, of goods or services that are not intended
to be offered for sale or supply at the bargain price, or for a period that is,
and in quantities that are, reasonable, having regard to the nature of the
market in which the business is carried on, the nature and size of business,
and the nature of the advertisement.
Explanation : For the
purpose of clause (2), "bargain price"
means - (a) a price
that is stated in any advertisement to be a bargain price, by reference to an
ordinary price or otherwise, or (b) a price that a person who reads, hears, or
sees the advertisement, would reasonably understand to be a bargain price
having regard to the prices at which the product advertised or like products
are ordinarily sold;
(3) permits -- (a)
the offering of gifts, prizes or other items with the 13 intention of not
providing them as offered or creating the impression that something is being
given or offered free of charge when it is fully or partly covered by the
amount charged in the transaction as a whole, (b) the conduct of any contest,
lottery, game of chance or skill, for the purpose of promoting, directly or
indirectly, the sale, use or supply of any product or any business interest;
(4) permits the sale
or supply of goods intended to be used, or are of a kind likely to be used by
consumers, knowing or having reason to believe that the goods do not comply
with the standards prescribed by competent authority relating to performance,
composition, contents, design, constructions, finishing or packaging as are
necessary to prevent or reduce the risk of injury to the person using the
(5) permits the
hoarding or destruction of goods, or refuses to sell the goods or to make them
available for sale, or to provide any service, if such hoarding or destruction
or refusal raises or tends to raise or is intended to raise, the cost of those
or other similar goods or services."
this connection it may be mentioned that as originally enacted the MRTP Act
1969 was made with the object of ensuring that the operation of the economic
system does not result in a concentration of economic power to the common
detriment, for the control of monopolies, and for the prohibition of
monopolistic and restrictive trade practices.
was no provision like Section 36A in the original Act.
However, it was later
felt that there was need for some modification of the Act. In the original Act
there was no specific provision for regulating unfair trade practices like
misleading advertisements, bargain selling, etc. It was realized that the
consumer needs to be protected not only from the effects of restrictive trade
practices, but also from practices which are resorted to by certain
unscrupulous businessmen who mislead or dupe the consumers.
Hence, the MRTP Act
was amended in 1984 and the Statement of Objects and Reasons of the amendment
has given the reasons as to why this amendment was necessary.
1984 amendment was in pursuance of the recommendations of the Sachar Committee.
This committee expressed the view that the Act contained no provision for the
protection of the consumers from false or misleading advertisements or other
similar unfair trade practices, and that the provisions of the Act directed
against restrictive or monopolistic trade practices proceeded on the assumption
that if the manufacturer, producers or dealer can be prevented from distorting
competition, the consumer would automatically get a fair deal. Since this was
found to be only partly true, the committee was of the opinion that the
consumer need to be protected not 15 only from the effects of restrictive
trade practices, but also from the practices which are resorted to by some
businessmen to mislead or dupe the consumers. The object of the amendment was
broadly to prevent false or misleading advertisements, or false representations
claiming that the goods sold are of a certain standard or have certain
qualities, which, in fact, they do not possess.
the very object of the 1984 amendment was to ensure that the persons buying
certain goods were not duped or misled by a representation or advertisement
which stated that these goods have certain features or qualities which, in
fact, they do not possess. Thus the amendment had nothing to do with a
situation where goods are not sold at all.
the original Section 36A which was introduced by 1984 amendment, it was
necessary to attract the provision that some injury or the unfair trade
practice should have caused some loss to the consumer. By the 1991 amendment to
Section 36A, the requirement to establish loss or injury to the consumer has
been deleted. Also, another change brought out by the 1991 amendment was that
while the original Section 36A had adopted an 16 exhaustive definition of
unfair trade practice, the 1991 amendment has given an inclusive and not an
exhaustive definition of unfair trade practice.
we are of the opinion that principles of ejusdem generis and noscitur a sociis
will apply to the interpretation of Section 36A as amended in 1991. Applying these
well-known principles of interpretation we are of the opinion that Section 36A
does not apply in a situation where goods are not sold at all. It only applies
where goods in fact are sold.
is a settled principle of interpretation that when an amendment is made to an
Act, or when a new enactment is made, Heydon's mischief rule is often utilized
in interpreting the same. Applying this principle we are of the opinion that
Section 36A was inserted in the MRTP Act because there was no provision therein
for protection of consumers against false or misleading advertisement or other
similar unfair trade practices. It is well- known that in a trade suppliers
often have a dominant bargaining position, and the bargaining power in the
market is often weighed against the consumer. In this situation, it was
realized by Parliament in its wisdom when it inserted Section 36A that the
public must be prevented from being made victims of false representations about
the products sold, even though it may have no adverse effect on competition.
The purpose of Section 36A 17 was to prevent frauds against the consumers who
may be falsely induced to buy goods which do not possess the qualities which
they are given out to have by advertisement or other representations.
the above object of Section 36A into account it is obvious that Section 36A was
never meant to deal with a situation where goods are not sold at all. Section
36A was really meant to protect consumers against defective goods or goods sold
which do not have features or qualities which they were represented to have.
Since the appellant did not sell the CT Scanner at all to the respondent, we
fail to understand how Section 36A was attracted at all.
doubt by the 1991 amendment the definition of unfair trade practice was made
inclusive and not exhaustive, but this does not mean that when interpreting the
amended Section 36A we should disregard the object for which Section 36A was
enacted. Thus in Hemens (Valuation Officer) vs. Whitsbury Farm and Stud Ltd (1988)
1 All ER 72 (HL), in construing Section 2(3) of the Rating Act, 1971 which
defines `Livestock' to include any mammal or bird kept for the production of
food or wool or for the purpose of its use in the farming of land, the word
livestock was not given the wide meaning (in contradiction to deadstock) to
include any animal 18 whatsoever and was held not to extend to thorough bred
horses not kept for use in the farming of land.
in South Gujarat Roofing Tile Manufacturers Association vs. State of Gujarat
AIR 1977 SC 90 (vide pp 93-94) and Hindustan Aluminium Corporation vs. State of
U.P. AIR 1981 SC 1649, the inclusive definition was given a restrictive
meaning. As observed by Wanchoo, J. in Vanguard Fire and General Insurance Co.
Ltd., Madras vs. Fraser & Ross AIR 1960 SC 971, the Court has not only to
look at the words but also to look at the context, the collocation and the
object of such words relating to such matter and interpret the meaning intended
to be conveyed by the use of the words under the circumstances. No doubt,
because of the inclusive definition the meaning of the expression `unfair trade
practice' goes beyond the specific clauses mentioned in Section 36A, but that
does not mean that the meaning will go beyond the very object of Section 36A.
view of the above discussion, we are of the opinion that the impugned judgment
and order dated 29.11.2005 passed by the MRTP Commission cannot be sustained
and it is hereby set aside. The appeals are allowed. There shall be no order as
Katju) New Delhi;
September 29, 2008
20 IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL
NO.2461 OF 2006 M/s Philips Medical Systems (Cleveland)Inc. ...Appellant M/s
Indian MRI Diagnostic & Research Ltd. & Anr. ...Respondents With Civil
Appeal No. of 2008 (@ S.L.P.(C) No.6325 of 2006
1. Having had an
opportunity of going through the draft judgment prepared by my learned brother,
while I generally agree with the same, I would like to add a few words of my
own with regard to the interpretation of Section 36-A of the Monopolies and
Restrictive Trade Practices Act, 1969, (hereinafter referred to as `the 1969
Act') which has been introduced in the Act by way of amendment in 1984 and
further amendment in 1991.
2. As was submitted
by Mr. A.N. Haksar, learned Senior Advocate for the appellant, the 1969 Act, as
originally enacted, lacked definition of the term `unfair trade practice'.
While `trade practice' was defined in Section 2(u) of the original enactment in
the following terms:
Definitions-In this Act, unless the context otherwise requires,- (u)
"trade practice" means any practice relating to the carrying on of
any trade, and includes - (i) anything done by any person which controls or
affects the price charge by, or the method of trading of, any trader or any
class of traders.
21 (ii) A single or
isolated action of any person in relation to any trade."
the term `restrictive
trade practice' was also defined in Section 2(o) in the following terms:
Definitions-In this Act, unless the context otherwise requires,- (o)
`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) which tends to obstruct the flow of capital or resources
into the stream of production, or (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;
"retailer," in relation to the sale of any goods, includes every
person other than a wholesaler, who sells the goods to any other person, and in
respect of the sale of goods by a wholesaler, to any person for any purpose
other than re- sale, includes that wholesaler."
3. The expression
"unfair trade practice" was not defined in the 1969 Act, as
originally enacted. The said defining was removed by the amendment effected in
1984 by introducing Section 36-A which has been fully reproduced by my learned
brother in his judgment. In paragraph 18 of the judgment my learned brother has
formulated the following question:
question involved in the first submission is whether a party can be held guilty
of unfair trade practice as referred to in Section 36A of the MRTP Act,
although he did not supply any goods at all."
4. My learned brother
has interpreted the provisions of Section 36-A of the 1969 Act as amended in
the context of the question formulated by him. After having analysed the object
and reasons for the enactment of the 1969 Act, my learned brother has indicated
that the very object of the 1991 Amendment was to prevent a person from doing
certain acts such as publishing false or misleading advertisements, or false
representations, claiming that the goods sold are of a certain standard or have
certain qualities, which, in fact, they do not possess. My learned brother,
therefore, was of the view that the Amendment had nothing to do in a situation
where goods were not sold at all. While also observing that by the 1991
amendment Section 36-A was given an inclusive and not an exhaustive definition
of unfair trade practice, my learned brother was also of the opinion that the
principles of ejusdem generis and noscitur a sociis will apply to Section 36-A
as amended in 1991 and applying the said principles the High Court was of the
opinion that Section 36-A would not apply in a situation where goods are not
sold at all.
5. The said view has
been reiterated throughout the latter part of my learned brother's judgment,
but I am of the view that such an interpretation is too rigid and situations may
arise, which though falling under the wider concept of unfair trade practice,
may not strictly be covered by Section 36-A of the 1969 Act. In my view, there
may be situations where a promise to supply a particular good, which the
supplier knew that he was in no position to supply, with a motive of promoting
of some other model, as has happened in the instant case, could occur.
In such a case a
customer may be forced to obtain the same material from some other party and
suffer losses in the process. In my view, even without actual sale of goods,
such an act on the part of the supplier could also amount to `unfair trade
practice' and Section 36-A cannot in absolute terms be said not to apply to a
situation where goods may not have been sold at all. In fact, such a situation
may also be covered even by the provisions of Sub-clause (ii) or (vi) of
sub-section (1) of Section 36-A of the above Act.
6. I, however, agree
with my learned brother that the judgment of the MRTP Commission cannot be
sustained and is required to be set aside. I would, therefore, also allow the
appeal, but without any order as to costs.