Hindustan Lever Ltd., Bombay Vs. The
Monopolies & Restrictive Trade Practices  INSC 124 (17 April 1977)
BEG, M. HAMEEDULLAH (CJ) BEG, M. HAMEEDULLAH
(CJ) GUPTA, A.C.
CITATION: 1977 AIR 1285 1977 SCR (3) 455 1977
SCC (3) 227
Monopolies & Restrictive Trade Practices
,Act 1969 s. 2(o) and 2(u)--Scope of--Stipulation in the agreement that the
stockist "shall purchase and accept from the company such stock as the
company at its discretion send" and as to the quantity of goods to be purchased
by the stockist--If amounts to restrictive trade practice. Complaint to the
Commission--Who could lodge.
According to s. 2(0) of the Monopolies &
Restrictive Trade Practices Act a "restrictive trade practice" means
inter alia a trade practice which has, or may have, the effect of preventing,
distorting or restricting competition in any manner.
The appellant, who was a manufacturer of
consumer goods such as soaps and toilet preparations, entered into agreements
with redistribution stockists for the wholesale distribution of its products.
Clause 5 of the agreement, inter alia, provides that a stockist shall keep and
maintain adequate stocks and shall carry out instructions and directions given
by the appellant. He is prohibited from charging anything more than the
stipulated maximum resale price.
The last part of the clause provides
that-"the redistribution stockist shall purchase and accept from the
company such stock as the company shall, at its discretion, send to the
redistribution stockist for fulfilling its obligations under this
agreement". Clause 9 prohibits the redistribution stockist from re-booking
or in any way conveying, transporting or dispatching parts of stocks of the
products received by him outside the town except when he was so expressly
directed in writing by the appellant. He shall also, whenever so required by
the appellant, make available from the stocks such part as the appellant
directs him to do.
On a complaint made to the Monopolies &
Restrictive Trade Practices Commission by one of the stockists the Commission,
after examining cls. 5 and 9 of the impugned agreement, held that the practice
of resale price maintenance and full line forcing to which the original el. 5
related, shall be discontinued and shall not be repeated.
It directed deletion of the last sentence of
cl. 5 and declared cl. 9 as void.
Dismissing the appeal to this Court.
HELD: The Commission was right in reframing
cl. 5 in the way it did. Deletion of the last sentence of cl. 5 was essential to
prevent possible misuse of the appellant's power so as to regulate the prices
contrary to the express provisions in the clause. [465 B; G] 1 (a) The last
part of cl. 5 placed the redistribution stockist at the mercy of the appellant
which could dictate to him what amounts of various commodities he "shall
purchase and accept from the company". It also empowered the appellant to
allocate send to the redistribution stockist only what it "shall, at its
discretion, send to the redistribution stockist for fulfilling its obligations"
under the agreement. [464 G] (b) The word "shall" used in the clause
did not bind down the exercise of the appellant's discretion by reference to
any requirements of the consumers in a particular area in which the stockist might
sell. The stockist was bound to accept and carry out the appellant's decisions.
[464 H] 2(a) The contention that though the
clauses gave power to the appellant to regulate trade, in practice they did not
operate as restrictions, is not well-founded. It is not possible to isolate the
terms of a contract from the practice. The appellant did not intend that the
clauses in the agreement would be treated as 456 dead letters. Although the
practice of imposing restrictions under such clauses and the practice of
introducing such clauses are separate practices, introduction of a clause like
cl. 5 is itself a trade practice. Moreover, even if the power given in such
wide terms was not meant to be exercised unreasonably, its presence in the
agreement was a needless surplus age which could be used to impede freedom of
competition and trade and this made it objectionable. [465 A] (b) Inasmuch as
the introduction of clauses in an agreement taken by itself, is a practice it
would be specious reasoning to separate the clauses in the agreement from
action under the agreement and then urge that the clauses are innocuous and
should not be modified. [460 H;
3. From the definition of "restrictive
trade practice" it is clear that if the introduction of the clause in itself
is a trade practice and could be used to prevent, distort or restrict
competition "in any manner", it could be struck down. The definition
of "trade practice" is wide enough to include any "trade
practice" if it is in relation to the carrying on of a trade. If the
result of introduction of a clause is to restrict trade it would be struck by
the provisions of the Act. [461 E-G] 4(a) Each type of business has its
peculiarities, its own mode of operation, the special features relating to the
market for it and the requirements of distribution of particular goods, to
secure a just and equitable distribution consistently with the maintenance of
freedom of competition so that prices are not artificially pushed up. [462 G]
(b) The Telco case is distinguishable from the present on the ground that in
that case the manufacturer who had the monopoly of special quality trucks, had
to provide specially trained and skilled personnel with special equipment and
tools for their maintenance and running. Therefore, the agreements did not
restrict trade or curtail competition. [462 H] (c) In the instant case, the
appellant could compel the stockist to buy the goods manufactured by it
irrespective of whether the stockist wanted the goods or not. The appellant was
under no obligation to render any service for the maintenance of the goods
supplied. Secondly, the present is not a case in which the terms of the
agreement were required to be explained by the facts to which they were meant
to be applied. [463 C-D] Tata Engineering & Locomotive Co., Ltd. v. The
Registrar of Restrictive Trade Agreements  2 S.C.R. 685 distinguished.
5. If it was clear from the agreement that
prices lower than the "maximum re-sale price stipulated" might be
charged by the stockist, then, there was no reason why it was necessary to
clarify by circulars, what the stockist was free to do under the agreement.
Even if the appellant's practice of issuing circulars was established, it did
not justify retention of cl. 5 in a form which could be used to compel the
stockist to act at the appellant's behests.
[465 F] 6(a) The last part of cl. 5 made it
necessary for the stockist to purchase such goods and in such combination as
the appellant might decide. Hence it would be struck by s. 33(1)(b) of the Act.
[465 C] (b) Inasmuch as. the original el. 5 gave the stockist the discretion to
sell at lower than maximum resale prices the agreement was not struck by s. 33
(1 ) (b). But, the deletion of the sentence was essential to prevent possible
misuse of the appellant's power by resort to it. [465 G] The Commission was
justified in declaring cl. 9 as void and inoperative. [465 H] 7(a) The power to
impose restrictions falling under s.
38 had to be justified by the appellant by
actual proof of public interest which could not be better served without it
(b) Clause 9 gave the appellant an
unreasonably wide power of deciding what is actually fair and equitable
distribution which is more a part of the duty of governmental authorities
entrusted with powers of rationing such consumer goods in public interest.
Before any question of reasonableness of a power to 457 ration any goods is
entrusted to any person or authority those goods must be shown to be scarce or
in short supply and evidence establishing such a need has not been shown to
exist in this case. [466 F-G] (c) The appellant was wrong in its contention
that in holding cl. 9 to be invalid, the purpose of "equitable
distribution" was overlooked by the Commission. This supposed limitation
did not restrict the appellant's power to decide what to distribute. The
appellant was left to itself to decide what is "equitable
distribution". The clause conferred too wide a power and is unreasonable.
9. Under s. 55 an appeal lies to the Supreme
Court only on one of the grounds mentioned in s. 100, C.P.C. It is necessary
for the parties to formulate questions of law that arise for decision. [467 A]
10(a) The plea against use of "per se" rule referred to by the
appellant means that on the assumption that a restriction is illegal in itself
should not be made without examining its impact upon the particular trade
involved. On the other hand the "rule of reason" envisages
consideration of facts of each case so as to determine the context in which the
restraint was imposed. [468 C] Board of Trade of the City of Chicago v. United
States of America 62 Law Ed 231.
(b) In Telco case this Court accepted the
correctness of the approach that no bald or simple test should be adopted in
judging the legality of a restraint upon trade.
Such a view has nothing to do with rules
_relating to interpretation of documents used in finding out the effect and
intent of words used in a document. Whenever a court determines the meaning and
effect of the words of a rule or a clause in an agreement it does not adopt
what is termed as "per se" rule. All that the court does in such a
case is to interpret the clause, the effect of which may become obvious on a
bare determination of the meaning or may be seen from other evidence. Where
that effect is not obvious, evidence may be led to show how the language used
is actually applied to the facts to which it was meant to apply. [468 D-F] In
the instant case, the Commission has correctly arrived at the conclusion that
the clauses were unreasonable and illegal after taking into account the
relevant factors. The rules of reason applicable to a case like the present are
(i) the meaning of the impugned clause or clauses in an agreement must be
determined according to law and (ii) the possible effects of such a clause upon
competition in the trade to be regulated must be determined.
[469 B-C] (c) Consideration of extraneous
evidence is not required at all when the practice complained of is the
introduction of clauses conferring wide powers, Which may be used to impose
restrictions contrary to the Act. In such a case the introduction of clauses
constitute restrictive practice.
Evidence of what is actually practised could
only be relevant for purposes other than a determination of the meaning and the
effect which follows logically or reasonably from such determination. [469 F-G]
(d) No oral evidence could be led to adduce the meaning of the clauses in the
agreement in view of ss. 91 and 92 of the Evidence Act. Section 92 proviso (6)
is not applicable to the present case. [464 C] (e) It is unnecessary to admit
extraneous evidence as to the absence of distortion of competition. The
probability of the effect is only part of the rule of reason to be applied
where extraneous evidence is admissible. [470 B] (f) It is not possible to
assume public benefit from a mere declaration of intention to exercise a power
so as to benefit the public. On the evidence adduced it was not shown that this
power was necessary so as to benefit the public. [470 D] (g) Actual benefit to
the public is a question of fact on which findings cannot be reopened unless
some error of law is revealed. No error of law in assessing evidence was
disclosed. [470. E] 458 (h) The confusion which may be created by using such
terms as "per rule which could be applied to describe practices developed
in other countries with different statutory provisions, should be avoided. [469
10. Proceedings before the Commission' are
maintainable at the instance of a complainant whose motives in making the
complaint are quite irrelevant. All that the Commission, and, on appeal, this
Court, has to examine is whether a practice by a company of introducing clauses
complained of in the agreements with the stockists, amounted to a restrictive
trade practice. [460 D]
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 680 of 1976.
From the Judgment and Order dated the 17th
March, 1976 of the Monopolies and Restrictive Trade Practices Commission, New
Delhi in R.T.P. Enquiry No. 11 of 1974.
L.M. Singhvi, Ravinder Narain, Talat Ansari
and Shri Narain for the Appellant.
L.N. Sinha, Sol. General, B. Datta and Girish
Chandra for Respondents Nos. 1 and 2.
G.A. Shah and N. Nettar for Respondent No. 13
The Judgment of the Court was delivered by-C.J.--This is an appeal under
section 55 of the Monopolies & Restrictive Trade Practices Act, 1969
(hereinafter referred to as 'the Act') against the order and judgment of the
Monopolies & Restrictive Trade Practices Commission, New Delhi (hereinafter
referred to as the 'Commission'), in proceedings started under section 10(a)
(iv) of the Act against the appellant M/s. Hindustan Lever Ltd. (hereinafter
referred to as 'the Company'), upon information furnished by Bhogilal Manilal
Shah of M/s. Shah Manilal Motichand & Sons of Poona (hereinafter referred
to as the 'informant').
The informant was a redistribution stockist
of the appellant company carrying on business regulated by the terms of an
agreement, known as the redistribution stockists agreement of the company,
found in a standard printed form, entered into with each stockist. The
agreement has 23 terms or clauses in it. The clauses complained of are 5 and 9,
which may be reproduced here:
"5. The Redistribution Stockist shall
use his best endeavours to maintain and increase the trade of the Products in
the said town and for this purpose he shall at all times keep and 'maintain
adequate stocks of the Products in all its packings and he shall carry. out all
instructions and directions including those as to the maximum resale price
which may from time to time be given by the Company or by the Company's
accredited representatives in respect of the sale or resale or disposal by the
Redistribution Stockist of stocks of the Products supplied to him in pursuance
of this Agreement. The Redistribution Stockist is prohibited from charging in
excess of the maximum resale prices stipulated by the Company, but he may, at
his discretion, charge prices lower than the said maximum resale prices. The
Redistribution 459 Stockist shall purchase and accept from the Company such
stock as the Company shall at its discretion send to the Redistribution
Stockist for fulfilling its obligations under this Agreement." "9. In
order to ensure equitable and reasonable distribution of stocks at fair prices,
the Redistribution Stockist shall not rebook or in any way convey, transport or
despatch parts of stocks of the products received by him outside the aforesaid
town except when he is so expressly directed in writing by the Company. He shall
also whenever so required by the Company make available from the stocks of
Company's merchandise purchased by him such part as the Company directs him. to
do for purposes of resale on his behalf by the Company's employee." It is
alleged that the two clauses, set out above found in identical agreements
entered into by the Company with its stockists, whose number is quite large,
constitute or authorise restrictions which are unreasonable and .illegal.
Hence, it was submitted by the respondents
that it must be struck down or modified so as to make the business and trade of
the appellant company and its stockists conform to the requirements of law.
The Commission had accepted the case brought
to its notice by the informant and made the following order :-"(1). Clause
5 of the Agreement (Exhibit F) shall stand modified so that the following shall
be substituted in place thereof:
"5. The Redistribution Stockists shall
use his best endeavours to maintain and increase the trade of the products in
the said town and for this purpose he shah at all times keep and maintain
adequate stocks of the products in all its packings and he shall carry out the
instructions and directions including those as to maximum resale price which
may from time to time be given by the Company or by the Company's accredited
representatives in respect of the sale or resale or disposal by the
Redistribution Stockist of stocks of the products supplied to him in pursuance
of this Agreement. The Redistribution Stockist is prohibited from charging in
excess of the maximum resale prices stipulated by the Company but he may at his
discretion charge prices lower than the said maximum resale prices".
"(2). The practices of resale price
maintenance and full line forcing to which original clause 5 of the agreement
related, shall be discontinued and shall not be repeated.
(3) Clause 9 of the Agreement (Exhibit F)
shall be void.
(4) The practice of area allocation to which
clause 9 of the Agreement (Exhibit F) related, shall be discontinued and shall
not be repeated.
460 (5) In all future price circulars or
lists to be issued by the Respondents, it shall be clearly stated that the
prices therein mentioned are maximum prices and that prices lower than these
prices may be charged.
(6) This order shall come into force with
effect from 1st July, 1976. On or before the said date, the Respondents shall
intimate all Redistribution Stockists of the modifications in Clauses 5 of the
Agreement (Exhibit F) and the voidity of clause 9 of the Agreement (Exhibit
There was some argument before us on the
question whether proceedings before the Commission were maintainable at the
instance of a "complainant" who had reasons to nurse.
a grievance. against the Company and whose
motives could be questioned. It was pointed out that the agreement of the
company with the informant had been terminated. The version of the informant
was that this had been done because his firm had sold Vanaspati at the rate of
Rs. 127/per tin which was below the price of Rs. 129.05 per tin fixed by the
Company. The informant stockist said that the price had to be reduced by him to
remove public discontent. We think that the motives of the informant are quite
irrelevant in such a case. All that the Commission, and, on appeal, this Court
has to examine is whether what would undoubtedly be a "practice" by
the appellant company, of introducing the two clauses complained of, in its
agreements with its stockists, amounted to a restrictive trade practice.
The distinction sought to be made .,on behalf
of the appellant, between a practice and clauses in a contract which give a
company the power to regulate trade in a manner which may constitute a
restriction, appears to be inconsequential here. We do not think that we can isolate
the terms of a contract from the actual practice of the company.
It is not the case of the company anywhere
that the clauses in its agreement with its stockists are to be treated as
deadletter. Its case is that they do not operate as restrictions. The
introduction of such clauses in so many agreements meant to regulate relations,
either between a principal and an agent or the seller and the stockist who
acquires complete proprietary rights in the stock of goods purchased, is itself
a trade practice. The simple question before us is: Can powers conferred upon
the company under such clauses be exercised in such a way as to constitute
restrictive trade practices? It is true that the practice of imposing
restrictions under such clauses is one thing and the practice of introducing
such clauses is quite another thing. Both may constitute separate practices.
Nevertheless, the introduction of such clauses into an agreement between the
manufacturer and the seller who purchases and stocks his goods is in itself
something practised. It is immaterial that the use of powers under such clauses
may constitute another set of practices which depend upon the existence of
'such clauses as sources or springs. Inasmuch as the introduction of clauses in
such an agreement is a practice, taken by itself, the question whether such a
practice amounts to a restrictive trade practice or not could only be decided
by considering 461 whether the clauses could be so used as to unjustifiably
restrict trade? It would be specious reasoning, in such a case, to separate the
clauses in the agreement from. action under the agreement and then to urge
that, as evidence of action under the clauses is meagre or even absent, the
clauses are innocuous and should not be modified or struck down because we are
only concerned with what is actually being practised under them or with the use
that is being made of such clauses and not with what is permissible or possible
under the clauses of the agreement of the kind before us. This argument seems
to us to overlook the definition of "restrictive trade practice"
contained in section 2(0) of the Act which lays down:
"(0) "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." 0 It is clear from a bare
perusal of the above-mentioned definition that it is not only the actual
practice of a restriction under a clause which is struck by the provisions of
the Act, but also a "trade practice" which "may have" the
effect of restrictions falling within the mischief" provided for. In other
words, if the introduction of the clause in itself is a trade practice and could
be used to prevent, distort or restrict competition "in any manner"
it may be struck down. A trade practice is defined by section 2(u) of the Act
as follows :"(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 charged by, or the method of trading of, any
trader or any class of traders.
(ii) a single or isolated action of any
person in relation to any trade".
This definition is wide enough to include any
"trade practice" if it is in relation to the carrying on of a trade.
It cannot be argued that the introduction of the clauses complained of does not
amount to an action which relates to the carrying on of a trade. If the result
of that action or what could reasonably flow from it is to restrict trade in
the manner indicated, it will, undoubtedly, be struck by the provisions of the
Reliance was sought to. be placed by learned
counsel for the appellant company on a recent decision of this Court in Tata
Engineering & Locomotive Co. Ltd. v. The Registrar of the Restrictive
3--502 SCI/77 462 Trade Agreements, New Delhi(1) (hereinafter referred to as
the "Telco" case) where it was held:
"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 was imposed. Third, what is the nature of the
restraint and what is its actual or probable effect".
It was also held there: "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 competition being put out of the field".
It is evident that in the Telco case this
Court was considering the territorial restrictions placed upon the stockists of
Telco in the Light of the special facts and circumstances of that particular
case. Each type of business has, undoubtedly, its peculiarities, its own mode
of operation, the special features relating to the market for it, and the
requirements of distribution of particular goods which may be the subject
matter of an agreement so as to secure a just and equitable distribution consistently
with maintenance of freedom of competition so that prices are not artificially
pushed up. In the Telco case, the subject matter of the agreement was sale of
trucks of a type in which the Telco had a monopoly inasmuch as no other firm
produced trucks which were of such special quality and specifications. Hence,
there was great demand for these trucks, which were in short supply. Again, for
the maintenance and running of those especially designed trucks the
manufacturer had to provide especially trained and skilled personnel and
special equipment and tools so as to enable stockists to service and repair
trucks distributed. Unless the manufacturers were able to impose restrictions
upon sales outside the areas in which they had (1)  2 S.C.R. 685.
463 established their stockist-cum-servicing
suppliers, they could not at all render the kind of service they were giving in
addition to selling. In other words, it was a mixed practice for purchase of
trucks and provision of specialised service to the consumers, through the
stockists. On the peculiar facts and circumstances of that case, it was found
that the agreements did not, on the whole, result in restricting trade or
The facts of the case before us are entirely
We are concerned here with a manufacturer of
mixed consumer goods of different varieties. The appellant company produces
dehydrogenated oil (known in the market as "Vanaspati"), toilet
preparations of various kinds such as soaps, shaving creams, toothpastes, and
baby milk powder, and animal feeds. The soaps manufactured by it are
undoubtedly the main type of goods supplied. But, it manufactures other type of
goods too. It can, therefore, compel stockists to by them, whether stockists
want these other goods or not, if the terms of the agreement are to be held to
be binding and enforceable. The manufacturer is under no obligation to render
any service in relation to maintenance of the goods supplied. The whole trade
is completely unlike that of manufacture and sale of motor trucks for which the
stockists, selling to the actual consumers, had to, as already pointed out,
also have the services of the manufacturer's trained personnel for the purposes
of maintenance and repair of the vehicles supplied. It would amount to an
application of the law in a thoroughly doctrinaire fashion if we were to deduce
some general principles, from the very different facts of the Telco case and
attempt to apply them to those of the case now before us. Thus, the contention
advanced on behalf of the appellant, against a doctrinaire approach in such
cases, really weighs against the appellant company.
In the Telco case, the agreement could not be
understood without reference to the actual facts to which they were sought to
be applied. Those facts explained the nature of the special agreements for
restriction or distribution of areas. In the case before us, the problem
entirely different. This is not a case in which certain terms of the agreement
require to be explained by the facts to which they were meant to be applied. It
is a Clear case in which the meanings of the clauses are decisive. If these
clauses are capable of being so used, on the meanings which appear
unambiguously from them, as to undoubtedly restrict trade, the intention to so
use them to restrict trade could reasonably be inferred without any difficulty.
Otherwise, why have them ? No oral evidence could be led to deduce their
meaning or to vary it in view of the provisions of sections 91 and 92 of the
Evidence Act. the principles of which were.
we think. rightly applied by the Commission.
The Telco case, on the other hand, was one in which extraneous evidence could
be led under section 92. proviso (6)of the Evidence Act which may be set out
here with Section 92:
"92. When the terms of any such
contract, grant or other disposition of property or any matter required by law
to be reduced to the form of a document, have been proved 464 according to the
last section, no evidence of any oral agreement or statement shah be admitted,
as between the parties to any such instrument or their
representatives-in-interest, for the purpose of contradicting, varying, adding
to or subtracting from, its terms:
Proviso (6)--Any fact may be proved which
shows in what manner the language of a document is related to existing
The principle embodied in s. 92(6) of the
Evidence Act, which was applicable in Telco case (supra), is not, for the
reasons given above, applicable in the case now before us.
Indeed, no attempt has been made by reference
to any case law apart from the Telco case '(supra), which we have distinguished
above, to show that extraneous evidence could have been led herein order to
apply s. 92 proviso (6) of the Evidence Act. In the Telco case this provision
was not directly referred to, but, we think, that it could have been applied
there. Thus, we think that the basic difficulty, placed before us by learned
counsel for the appellant, in the way of examining the plain meaning and effect
of clauses 5 and 9 of the Distribution Stockists agreement, does not exist at
all in the case now under consideration. We must, therefore, proceed to examine
the meanings of these clauses from the point of view of what could be done by
the Company under them. If what may be done under these clauses could be a
restrictive practice as defined by the Act, it was enough to vitiate them. A
clause having been introduced in an agreement entered into, as a part of the
settled practice of the company, could be struck by the provisions of s. 2(0)
of the Act, set out above, quite apart from what is actually done under it. We
do not think that any other question is really relevant or need be considered
by us at all in such a case. It is not a case in which we could be taken
through the oral evidence, as has been attempted to be done, because that is
shut out by an application of provisions of ss. 91 and 92 of the Evidence Act
if all we need do is to interpret the agreement. We are unable to see why these
provisions do not apply here.
Not much argument appears to us to be needed
to demonstrate that the last sentence in paragraph 5 of the above mentioned
clause places the redistribution stockist at the mercy of the company which can
dictate to him what amounts of various commodities he "shall purchase and
accept from the company" in the form of a total lot supplied to him.
The company need only send to the
redistribution stockists what it "shah at its discretion send to the
Redistribution Stockists for fulfilling its obligations under this Agreement".
The meaning and effect are obvious here. The introduction of the word
"shall" does not bind down the exercise of the discretion by
reference to any requirements of the consumers in a particular area which the
stockists may convey to the company. Hence, if the stockists want to remain on
the list of the redistribution stockists of the company. the stockist is bound
to accept and carry out the decision of the company. Even if. in view of some
other practice adopted by the company465 a power given in such wide terms was
not meant to be exercised unreasonably, its presence in the agreement would be
a needless surplusage which could, whenever the company wanted it, be used to
impede freedom of competition and trade.
This result was enough to make it quite
objectionable. We, therefore, think that the Commission was quite right in
reframing clause 5 in the way it did. We are unable to find any flaw in the
detailed reasons given by the Commission for doing that.
The Commission rightly points out that, among
agreements the registration of which is compulsory according to the provisions
of Chapter V of the Act is, under section 33(1)(b) is "any agreement
requiring a purchaser of goods, as a condition of such purchase, to purchase
some other goods". The last part of clause 5, as we have observed, clearly
makes it necessary ,for the stockist to purchase such goods and in such
combination as the company may decide. Hence, it would be struck by section
33(1)(b) of the Act. It has not been shown to have been registered under the
It is also submitted on behalf of the
respondent that clause 5 of the agreement infringes s. 33(1)(f) of the Act
which requires registration of .
"any agreement to sell goods on condition
that the prices to be charged on resale by the purchaser shall be the prices
stipulated by the seller unless it is clearly stated that prices lower than
those prices may be charged".
0 The Commission held that clause 5 of the
agreement meant provision for "prices stipulated" and that it had
been so treated by the company in its circulars stating that prices lower than
the "maximum resale price stipulated" by the company may be charged.
If that was clear, there was no reason why the company should have attempted to
clarify by means of its circulars what, according to it, the stockist is free
to do under the agreement. Even if the practice of the company by issuing
circulars is established, it does not justify the retention of clause 5 in a
form which can be used to compel stockists to act on the company's behests
whether reasonable or not. On the other hand, it justifies its clarification by
an alteration of it in the manner directed by the Commission so as to make the
clause covering price regulation also very clear. The order of the Commission
modifying clause 5 only makes the position crystal clear. Inasmuch as clause 5,
even before deletion of the last sentence of it by the Commission, expressly
gives the stockist the discretion to sell at lower than maximum resale prices
stipulated, the agreement was not struck by s.
33(1)(b) of the Act. But, the deletion of the
last sentence was essential to prevent possible misuse of the company's powers,
by resort to it, so as to even regulate prices contrary to express provisions
found earlier in the clause.
Turning now to clause 9 of the agreement, we
think that the Commission was right in rejecting the argument that evidence led
on behalf of the company was enough to establish that clause 9 fell within one
466 of the "gateways" provided by section 38 of the Act. A power to
impose restrictions falling under this provision had to be justified by the
company by actual proof of a public interest which could not be better served
The submission that section 38 could be
applied here amounts at least to a concession that a clause conferring such
wide power upon the manufacturer may be so used as to amount to a restrictive
practice. It is the practice of putting in such a clause which has to be
The power given to the company under clause 9
is very wide. The manufacturer can compel the redistribution stockists to make
available to the company any stocks purchased by the stockist. It also compels
the stockist to take the permission of the company for conveying, transporting,
or despatching parts of stocks of the products received by him outside a
specified town except when he is so expressly directed in writing by the
company. It directly prevents him from doing so without the company's
permission. If the stockist violates this condition the whole agreement can be
revoked by the company so that the stockist loses his right to carry on
business under the agreement. If what had to be justified is not how this power
is actually used, but the practice of conferring such powers upon the company
by placing the stockist at the mercy of the company, the evidence of facts
showing how the power is exercised could be relevant only very indirectly.
However, if it could be shown that some facts did exist which make it
imperative to confer such a power on the company for the benefit of' the
public, that may be relevant to establish the existence of a
"gateway" under s. 38. But, it could certainly not be used to
determine the meaning of a clause for which it is not necessary here to go
beyond the language of the clause involved. We are primarily concerned in this
case, as we have repeatedly emphasized, with the clear meanings of the two
As the Commission pointed out, it is
immaterial that a purchaser from outside may be able to get round clause 9 by
purchasing across the counter from the stockist inside a town. The clause
itself, however, gives to the company an unreasonably wide power of deciding
what is actually fair and equitable distribution. The Commission very rightly
points out that this is more properly a part of the duty of governmental
authorities which may be entrusted with powers of rationing such consumers'
goods if this is found to be necessary in public interest. However, before any
question of reasonableness of a power to ration any goods is entrusted by any
method to any person or authority those goods must be shown to be scarce or in
Short supply. That was the position in the Telco case (supra). Evidence
establishing such a need has not been shown to exist. And, in any case, it has
to be a very exceptional set of facts indeed which could justify lodging of
such a power in the manufacturer. The Commission has dealt with a good deal of
evidence to justify its conclusion that the need to justify the lodging of such
a power in the company has not been established. We see no reason to disturb
Under the provisions of section 55 of the
Act, an appeal lies to this Court only on one of the grounds mentioned in
section 100 of the 467 Code of Civil Procedure. It is, therefore, necessary in
all such cases for counsel to clearly formulate and direct our attention to
only questions of law which arise so that these may be decided. It is not
permissible to go over the whole range of evidence led as was attempted before
Learned counsel for the appellant when asked
by us to formulate the questions of law which arise mentioned the following
Firstly, whether the Commission was right in
applying what he described as the "per se" rule as opposed to
"the rule of reason". It was submitted that the correct rule which
should have been applied is stated in Board of Trade of the City of Chicago v.
United States of America, as follows (at p. 237):
"Every agreement concerning trade, every
regulation of trade, restrains. To bind to restrain, is of their very essence.
The true test of legality is whether the restraint imposed is such as merely
regulates and perhaps thereby promotes competition, or whether it is such as
may suppress or even destroy competition. To determine that question the Court
must ordinarily consider the facts peculiar to the business to which the restraint
is applied; its condition before and after the restraint was imposed; the
nature of the restraint, and its effect, actual or probable. The history of the
restraint, the evil believed to exist, the reason for adopting the particular
remedy, the purpose or end sought to be attained, are all relevant facts.
This is not because a good intention will
save an otherwise objectionable regulation, or the reverse; but because
knowledge of intent may help the court to interpret facts and to predict
We find no objection whatsoever in adopting
the rule indicated above in cases to which it applies. That was a case in which
a rule adopted by the Board of Trade of the City of Chicago (supra) prohibiting
offers to purchase during the period between the close of the call and the
opening of the session on the next business day for sales of wheat, corn, oats,
or rye at a price other than at the closing bid, was challenged. Hence,
questions relating to effects of the rule arose so as to determine its
reasonableness. Such questions could not be determined without examining
evidence of facts to which the rule was meant to apply and findings as to how
it operated. The issue was whether the rule, having regard to the facts to
which it was to be applied, offended against the Anti-trust laws. The
Government's case was thus stated by Mr. Justice Brandeis (at p. 237) :-"The
Government proved the existence of the rule and described its application and
the change in business practice involved. It made no attempt to show that the
rule was designed to or that it had the effect of limiting the amount of (1) 62
Law. Ed. p. 231.
468 grain shipped to Chicago; or of retarding
or accelerating shipment; or of raising or depressing prices; or of
discriminating against any part of the public; or that it resulted in hardship
to anyone. The case was rested upon the bald proposition that a rule or
agreement by which men occupying positions of strength in any branch of trade
fixed prices at which they could buy or sell during an important part of the
business day is an illegal restraint of trade under the Anti-trust Law. But the
legality of an agreement or regulation cannot be determined by so simple a test
as whether it restrains competition".
0 Apparently, Dr. Singhvi means, by his plea
against the use of a "per se rule", nothing more than an assumption,
that a restriction is illegal in itself, should not be made without examining
its impact upon the particular trade involved. As contrasted with any such
assumption what the learned counsel describes as "the rule of reason"
was stated in the earlier passage quoted above giving the nature of facts to be
considered so as to determine the context in which the restraint was imposed.
This Court accepted the correctness, in the Telco case (supra), of the approach
that no bald or simple test, divorced from the context or surrounding
circumstances, should be adopted in judging the legality of a restraint upon
trade. Such a view, applicable to actual restrictions imposed, has really
nothing to do with the rules relating to interpretation of documents which are
used in finding out the effect and intent of words used in a document. It is after
a difficulty of interpretation, if any, is resolved and a rule or a clause in
an agreement is found to have either a clear meaning or to be ambiguous that
its effect can be considered. No doubt that effect has to be examined to
determine how a restraint actually imposed affects trade. It is one thing to
say that the impact of the restraint imposed on trade should be considered with
reference to the nature of the trade or business to be regulated.
It is quite another to say that the effect
cannot be gauged, sometimes, even by a bare examination of the meaning of a
clause giving power to impose restraints apart from other evidence of what its
actual effects are or may be. In some cases, the effect itself is given
primarily by the clear meaning of the language used in the clause which is
alleged to infringe the law We do not think that any "per se rule",
if we may use this somewhat quaint expression is adopted whenever a Court
determines the meaning and effects of the words of a rule or a clause in an
agreement. All that the Court does in such a case is simply to interpret the
clause, the effect of which may become obvious on a bare determination of the
meaning or may be seen from other evidence too.
Where that effect is not obvious, as we have
already indicated, evidence may be led to show how the language used is
actually applied to the facts to which it was meant to apply. That is also a
recognised rule of interpretation. It is the function Of Courts to indicate and
explain the varying facts and circumstances to which different rules of
interpretation may apply. Where meaning and intent of language used is given by
the words used nothing more is needed.
469 Furthermore, the Commission held that,
taking into account the nature of goods or the business to be regulated by the
agreement under consideration, the clauses, as they stood, were not
permissible. It had applied the rule of reason in arriving at the conclusion
that, upon the facts of a business in commonly used consumer goods of several
varieties, Which are not shown to be scarce, clauses under consideration having
the obvious meaning and effect which their language carried with them, are
unreasonable and illegal. We are unable to see how any law laid down in
American decisions, dealing with Anti-trust laws, or in English cases, dealing
with agreements in restraint of trade, lay down rules of reason at variance
with the ones we are applying here. The rules of reason applicable to a case
like the one before us may be simply stated as follows: Firstly, the meaning of
the impugned clause or clauses in an agreement said to offend the law must be
determined according to law;
secondly, the possible effects of such a
clause upon competition in the trade to be regulated must be determined. We think
that the Commission had rightly applied these rules and found the clauses to be
capable of misuse. We think that this was enough to vitiate the impugned
We would like to make it clear that we are
really concerned only with the law as we find it in our own statute and can
only examine evidence in the light of our own law of evidence. We think that
the confusion which may be created by using terms--such as "per se"
rule---which could perhaps be more usefully applied to indicate doctrines or to
describe practices developed under very different sets of circumstances in
other countries with statutory provisions couched in language which differs
from that before us, should be avoided so far as possible.
Secondly, it was submitted that we should
look at evidence of what takes place in the trade under consideration rather
than clauses 5 and 9 of the agreement we have considered. We have already
indicated the correct procedure in 'such cases as the one before us. Indeed, we
think that a consideration of extraneous evidence is not required at all when
the practice complained of is the introduction of clauses conferring wide
powers which may be used to impose restrictions contrary to the Act. In such a
case, the introduction of clauses constitutes the restrictive practice. Hence,
their interpretation is all that we are really concerned with here in
accordance with our law. Evidence of what is actually practised could only be
relevant 1or purposes other than a determination of the meaning and the effect
which follows logically or reasonably from such determination.
Thirdly, it was submitted that, in holding
clause 9 to be invalid, the purpose of "equitable distribution",
which imposes a limit on the powers of the company, was overlooked by the Commission.
For the reasons already given, we do not think that this supposed limitation
reasonably restricts the company's power to decide what to distribute. The
company is left entirely to itself to decide what is "equitable distribution".
An interpretation of a document, according to well established rules, cannot be
dispensed with by labelling it as an application of a "per se"
doctrine. We think that the clause, as it stands, 470 confers too wide a power
and has to be struck down wholly as unreasonable on that ground.
Fourthly, our attention was sought to be
drawn to the absence of evidence of distortion of competition and the presence
of evidence that competition prevails in the market despite these clauses. We
have already held such oral evidence to really unnecessary for judging the
possible effects of the clauses. The probability of the effect is only part of
the rule of reason to be applied where extraneous evidence is admissible. In
the instant case we are only, as already indicated above, concerned with a
reasonable and natural interpretation of the clauses of the agreement and their
reasonably possible effects.
Fifthly, it was submitted that there was
clear evidence of public benefit from an equitable distribution in actual
practice so that the requirements of a "gateway" under s. 38 were
satisfied. We cannot assume public benefit from a mere declaration of intention
to exercise a power so as to benefit the public. We are not satisfied, on the
evidence actually adduced and placed before us, that this power was necessary
so as to benefit the public.
Furtherfore, we cannot reassess evidence.
Actual benefit to the public is a question of fact on which findings cannot be
reopened unless some error of law is revealed. No error of law in assessing
evidence is disclosed.
This is an additional reason for not
disturbing the findings of fact recorded by the Commission.
Sixthly, it was submitted that the Commission
had ignored the last sentence of clause 9 in interpreting it.
We have, however, considered it and find
that, far from making clause 9 more acceptable and reasonable; the last part of
it makes it more objectionable and unreasonable inasmuch as it enhances the
powers of the Company.
Learned counsel for the appellant company has
pointed out that the order of the Commission was to come into force from 1 July
1976,' so that the appellant company had nearly four months to rewrite the
agreements which are over four thousands in number. He prays for extension of
time for six months from today for executing fresh agreements. It is not really
necessary for us to fix any particular time within which the company will print
or get new agreements executed on freshly printed forms in accordance with law.
That is a matter for parties themselves to each agreement to decide and work
out.' All that we need make clear is that all agreements which are operative
and binding between parties will be so interpreted now as if clause 9 was not
there at all and clause 5 was there only in the ,modified form which omits the
last sentence from clause 5 as it originally stood. However, if the company
wants, to complete any formalities for bringing each individual agreement into
line with the law as declared by this Court it may do .so; and, it will file,
within six months from today an affidavit showing that it has done this. The
requirement to file 471 such an affidavit showing compliance will ensure that
the company has taken due steps to inform each stockist of the correct legal
position. The time given for doing this wilt not, however, authorise it to act
under those parts of the agreement which this Court has declared to be illegal.
Subject to the observations made above we uphold the Commissionís order and
dismiss this appeal with costs.
P.B.R. Appeal dismissed.