Tata Engineering & Locomotive Co.
Ltd., Bombay Vs. The Registrar of the Restrictive Trade Agreement, New Delhi
 INSC 26 (21 January 1977)
RAY, A.N. (CJ) RAY, A.N. (CJ) BEG, M.
HAMEEDULLAH SINGH, JASWANT
CITATION: 1977 AIR 973 1977 SCR (2) 685 1977
SCC (2) 55
D 1977 SC1285 (26) R 1979 SC 798
Monopolies & Restrictive Trade Practices
Act, 1969--ss. 2(0) and 33--Scope of.
Agreement--If amounts to a restrictive trade
practice--Tests for deciding.
Section 2(o) of the Restrictive Trade
Practices Act, 1969 defines "restrictive trade practice" to be a
trade practice 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. Section 33 provides that any agreement relating to a restrictive
trade practice falling within one or more of the categories (a) to (I)
specified in sub-s.(1) thereof shall be registered. Section 37 enacts that the
Monopolies and Restrictive Trade Practices Commission may inquire into any
restrictive trade practice, whether the agreement relating thereto had been
registered under s. 35 or not.
Under section 38 when the Commission finds
that such restrictions are necessary or justified, in the circumstances
mentioned in the section, it may permit such restrictions.
The appellant is a manufacturer of heavy and
medium commercial vehicles. The appellant enters into an agreement with dealers
in regard to sale of its vehicles. Clause 1 (a) of the agreement provides that
a dealer shall buy from the Regional Sales Office of the company a new Tata
diesel truck for resale within the territory described in accordance with the
provisions of the agreement. Clause (b) provides that the agreement shall not
preclude the company from entering into any dealership agreement with any other
person or persons within the said territory. Clause 3 prohibits the dealer from
selling the vehicles either directly or indirectly to any person outside the
Clause 6(a) provides that the dealer shall
maintain an organisation for the sale of the vehicles in accordance with the
directions of the appellant. Clause 14 prohibits the dealer from handling or
selling vehicles manufactured or supplied by any other company.
In a petition under s. 10(a)(iii) of the Act,
the Registrar of the Restrictive Trade Practices alleged that cls. (1) and (3)
of the agreement between the appellant and its dealers provided for territorial
restrictions or allocation of areas or market, cl. (6) provided for resale
price maintenance, cl. 14 provided for exclusive dealership and all these
clauses of the agreement showed that the appellant was indulging in
restrictive' trade practices relating to allocation of territories or areas
among its dealers and that the appellant was not willing to abandon the
restrictive trade practices.
The Commission held inter alia. that cls. (1)
and (3) of the agreement. constituted restrictive trade practices and,
It was contended on behalf of the respondent
that irrespective of the injurious or beneficial consequences of a trade
practice which may restrict competition, an agreement may fall within the
definition of that term in s. 2(0) of the Act. An injurious or beneficial
result Of the restriction is relevant only for purposes of s. 37 and s. 38 and
not for the purposes of s. 33.
Allowing the appeal,
HELD: The agreement in the present case was
not within the vice of restrictive trade practice and was not registrable.
686 (1) An agreement will be registrable when
it will have both the effect of restricting competition within the meaning of
s. 2(0) and also deal with the subject matter described in ss. 33(1)(a) to (I).
A practice which is not restrictive under s. 2(0) of the Act cannot be a
restrictive 'trade practice only because of cls. (a) to (1) of s.
33(1). Section 33 does not provide statutory
illustrations to s. 2(0) of the Act but only enumerates some types of trade
practices which, if they are restrictive within s. 2(0), require registration.
[693 F-G] (2) The definition of restrictive
trade practice is an exhaustive and not an inclusive one. The decision whether
a trade practice is restrictive or not has to be arrived at by applying the
rule of reason and not on doctrine that any restriction as to area or price
will per se be a restrictive trade practice. The question in each case is
whether the restraint is such as regulates and thereby promotes competition or
whether it is such may suppress or even destroy competition. To determine this
question three matters are to be considered, namely, (1) what facts are
peculiar to the business to which the restraint is applied, (2) what was the
condition before and after the restraint was imposed, and (3) what was the
nature of the restraint and what was its actual and probable effect. [693 D-F]
(3) When the authorities under the Act want to challenge any agreement or any
practice as a restrictive trade practice, it has to be established that it is a
restrictive trade practice within the definition of s. 2(0). If it is found
that it is a restrictive trade practice, it has to be registered under s 33. It
is only after an agreement had been registered that there is an enquiry under
Chapter VI of the Act. This enquiry under s. 37 is to find out whether a
restrictive trade 'practice is prejudicial to the public interest. [692 H, 693
A] (4) The two terms of restriction on dealers, namely, one confining sales
within the territory and .the other confining dealers to dealing in only the
appellant's vehicles are not prejudicial to public interest. The territorial restriction
is also in public interest and the Commission was in error in thinking that it
was not so. [701 C-D] In the instant case, the supply of commercial vehicles is
far below the demand and the gap between supply and demand is growing. The
vehicles of the appellant were in great demand not only in the country but
outside the country as well. Clauses relating to territorial restriction do not
constitute 'restrictive trade practice because the domestic market is spread
all over the country, to meet the needs of the users of vehicles the appellant
has a countrywide network of dealers who maintain service stations, workshops,
requisite equipment, machinery and trained personnel. The appellant ensures
that the vehicles are only sold by dealers who have the requisite facilities
and organisation to give after sales service. The appellant gives a warranty in
respect of the vehicles. A geographical network is natural to the industry
which the appellant has set up. The appellant has zonal offices throughout the
country. If the territorial restriction is removed, there will be a tendency for
person to book orders in all areas thus starving the consumers of a particular
area of their equitable share and disrupting the flow of vehicles in both
areas. If the dealer is not assumed of a steady demand in his territory he may
have no incentive or may not find it economic to organise proper after
sales-service. Some of the dealers have even maintained mobile service vans.
[694 H, 695 A] The exclusive dealings of the appellant do not impede
competition but promote it. Such dealings lead to specialisation and
improvement in after-sales service. The exclusive dealership agreements do not
restrict distribution in any area or prevent competition. By making its dealers
exclusive, it cannot be said that there is prevention, distortion or
restriction of competition in the territory in which the dealer operates. Any
manufacturer of vehicles similar to those of the appellant is also free to
appoint dealers of its choice in the Same territory covered by the appellant's
dealers. The channels for outlet for vehicles have not been blocked. [699 F-G]
687 When there is acute scarcity of the goods and there is no possibility of
dealers selling the product at less than the permissible price, it would be
irrational to talk of territorial limits restricting competition. Territorial
restriction promotes competition between the different manufacturers in every
part of India. [700 B-C] Clauses (1) and (3) are in the interest of the
consumer and ensure an equal distribution as far as possible of the goods at a
fair price. Clauses (6) and (14) do not amount to a restriction in competition
because other manufacturers could appoint other persons to deal in their
commercial vehicles. It is also in public interest to see that vehicles of
other manufacturers are sold in the same territory by other dealers. [701 B-C]
CIVIL APPELLATE JURISDICTION:Civil Appeal No.
1117(NCM) of 1976.
(From the Judgment dated the 25.7.1975 of the
Monopolies & Restrictive Trade Practices Commissioner New Delhi in R.T.P.E.
No. 1 of 1974) N.A. Palkhivala, F.S. Nariman, Ashok H. Desai, Ravinder Narain,
B. Dadachanji, O.C. Mathur, S. Swarup, Talat Ansari, Shri Narain, John and D.N.
Mishra, for the Appellant.
Lal Narain Sinha, Mrs. Shayamla Pappu, G.A.
Shah, R.N. Sachthey, Girish Chandra and B.B. Sawhney, for the Respondent.
R. Narain, J B. Dadachanji, O.C. Mathur, S.
Swarup, Talat Ansari, Interveners for M/s. Hindust*an Livers Ltd., Ashok
Leyland Ltd. Escorts Ltd.
K. J. John, for M/s.
Hindustan Livers Ltd.
Anil B. Divan, R. Narain, LB.
Dadachani, O.C. Mathur, S.
Swarup, Talat Ansari, S. Narain, Interveners
for CIBA Geigy of India Ltd.
Ashok, M. Desai R. Narain J. B. Dadachanji,
O.C. Mathur, Talat Ansari, S. Swarup & D.N. Mishra, Interveners for
Batliboi & Co. (P) Ltd.
The Judgment of the Court was delivered by
RAY, C.J.--This appeal is under Section 55 of the Monopolies and
RestrictiveTrade Practices Act, 1969 (referred to as the Act) against 688 the
judgment and order of the Monopolies and Restrictive Trade Practices Commission
(referred to as the Commission) dated 25 July, 1975.
The principal question for consideration in
this appeal is whether the agreement between the appellant referred to as Telco
and its dealers allocating territories to its dealers within which only the
dealers can sell bus and truck chassis referred to as the vehicles produced by
the company constitute a "restrictive trade practice".
Section 2(o) of the Act defines
"restrictive trade practice" to be 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 or 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.
Section 33 of the Act provides that any
agreement relating to a restrictive trade practice falling within one or more
of the categories (a) to (1) specified in sub2section(1) thereof shall be
subject to registration.
Section 37 of the Act provides that the
Commission may enquire into any restrictive trade practice, whether the
agreement, if any, relating thereto has been registered under Section 35 or not
which may come before its enquiry, and if, after such enquiry it is of opinion
that the practice is prejudicial to the public interest the Commission may, by
order direct that (a) the practice shall be discontinued or shall not be
repeated; (b) the agreement relating thereto shall be void in respect of such
restrictive trade practice or shall stand modified in respect thereof in such
manner as may be specified in the order.
Section 38 of the Act provides that a
restrictive trade practice shall be deemed to be prejudicial to the public
interest unless the Commission is satisfied of any one or more circumstances
mentioned in that section. The circumstances mentioned inter alia are these.
The restriction is reasonably necessary having regard to the character of the
goods to which it applies to protect the public against injury in connection
with the consumption, or installation or use of these goods. The removal of the
restriction would deny to the public. as purchasers, consumers or users of any
goods, other specific and substantial benefits or advantages enjoyed or likely
to be enjoyed by them as such, whether by virtue of the restriction itself or
of any arrangements for operations resulting therefrom. The restriction is
reasonably necessary to counteract measure taken by any one person not party to
the agreement with a view to preventing or restricting competition in or in
relation to the trade or business in which the persons thereto are engaged. The
restriction is reasonably required for purposes in connection with the
maintenance of any other restriction accepted by the parties whether under the
same 'agreement or' 689 under any other agreement between them, being a
restriction which is found by the Commission not to be contrary to the public
interest upon other grounds other than specified in this paragraph. The
restriction does not directly or indirectly restrict or discourage competition
to any material degree in any relevant trade or industry and is not likely to
do so. The Commission is also to be satisfied that the restriction is
reasonable having regard to the balance between the circumstances and any
detriment to the public or to persons not parties to the agreement being
purchasers, consumers or users of goods produced or-sold by such parties or
persons engaged or seeking to become engaged in the trade or business of
selling such goods or of producing or selling similar goods resulting or likely
to result from the operations of restriction.
The expressions purchasers, consumers and
users include persons purchasing, consuming or using for the purpose or in
course of trade or business or for public purposes.
Section 38 of the Act is described in the
phraseology of restrictive trade practices as providing "gateways" to
trade. The essence of the section is that when it is found by the Commission
that such restrictions are necessary or justified in the circumstances
mentioned in the section restrictions are permitted. Again the balancing clause
after clause (h) in section 38 of the Act, indicates when the restriction is
not unreasonable having regard to the balance between the circumstances
mentioned in the section and detriment to the public resulting from the
operation of the restriction.
Telco is a public limited company and is a
leading manufacturer of heavy and medium commercial vehicles. The capital
investment required for a new factory in this trade is of a high order. At
present there are only four principal manufacturers of commercial vehicles.
These are The Hindustan Motors Ltd., Premier Automobiles Ltd. and Ashok Leyland
Ltd. and Telco.
The supply of commercial vehicles is said to
be below the demand. The scarcity of supply is particularly accentuated in the
case of Telco's vehicles as they are in great demand all over the country and
abroad. The export of Telco was over 80% of the total exports of commercial
vehicles from the country during the year 1974-75. The marked consumer
preference for Telco's vehicles has been maintained because of the high quality
if its products and also because of elaborate and comprehensive net work of
after-sales service provided by Telco's dealers. Telco has of its own
initiative introduced. certain procedures for a fair and wide geographical
distribution of its vehicles which seek to ensure that the new vehicles are
supplied not only to the urban areas of the country where there is a high
demand' but also to the remote areas such as Tripura, Nagaland, Himachal
Pradesh etc. Telco has notified to its dealers the maximum price for each model
of vehicle which they could charge to consumers. In May, 1972 Telco introduced
a procedure to regulate the booking of 690 orders by its dealers and effecting
the delivery of vehicles against such orders with a view to ensuring
distribution of its vehicles in the chronological order in which orders had
been registered with the dealers.
When Telco sells vehicles it has the
responsibility of providing facilities for servicing and repairing the vehicles
marketed by it. It is essential that in the interest of the consumers such
facilities are widely distributed throughout the country. Even in remote areas
where the demand of new vehicles is less, it is necessary to provide facilities
for after-sales service in order to enable the owners of the vehicles to keep
them in operation.
These facilities are provided by Telco
through all India net work of 68 dealers, 69 service centres of sub-dealers and
13 zonal offices of Telco. Each dealer has to maintain premises for a show-room
and' a service station and to keep special tools as well as a comprehensive
range of spare parts supplied by Telco. Further a dealer has also to employ
technically qualified personnel some of whom have been trained by Telco in its
Apprentice School at Jamshedpur. In addition Telco maintains its own staff of
trained engineers and mobile vans in each of its zonal offices.
The Registrar, Restrictive Trade Agreements
made an application under Section 10(a) (iii) of this Act before the Commission
for enquiry under Section 37 of the Act into restrictive trade practices
alleged therein. The allegations in the petition were these. Clauses (1) and
(3) of the agreement between Telco and its dealers provide for territorial
restriction or allocation of area or market and clauses 6 and 13 provide for
resale price maintenance and clause 14 provides for exclusive dealership. The
Registrar submitted that Clauses 1, 3, 6 and 14 show that the company is indulging
in restrictive trade practices inter alia relating to allotment of
territories/areas among its dealers and exclusive dealings and Telco is not
willing to abandon the restrictive trade practices. It is significant to notice
that no 'particulars of such alleged restrictive trade practices were set out
in the application.
Clauses 1, 3, 6 and 14 in so far as they are
appropriate to the present appeal are as follows :-"1. (a) The Dealer
agrees to buy from the Regional Sales Office of the Company regularly from time
to time on principal to principal basis all such new Tata diesel truck and bus
chassis with or without cab and/or body (hereinafter referred to as "the
said vehicles", for resale within the territory described hereunder
(hereinafter called "the said territory") in accordance with the
provisions of this. Agreement.
(b) This Agreement shall not preclude the
Company from entering into or continuing any dealership agreement or agreements
with any other person or persons within the said territory for sale of the said
vehicles and resale by 691 that person thereof in the said territory, this
Agreement with the Dealer does not constitute him a selling agent of the
Company in the said territory, much less a sole selling agent.
3. The Dealer shah not, either directly or
indirectly and. either alone or in conjunction with others, promote the sale of
or sell any of the said vehicles to any person or party outside the said
territory, nor shall' he sell the same to any person within the said territory
if the said vehicles are intended to be used outside the said territory.
6. (a) The Dealer shah, at his own expense,
maintain within the said territory such organisation for the sale of the said
vehicles as may, in the opinion of the Company which shall be binding, be
deemed to be necessary to adequately cover the said territory and ensure the
best possible results.
14. Except with the written permission of the
Company first obtained, the Dealer shall not during the pendency of this
Agreement either directly or indirectly engage in or promote the sale of or
use, handle or sell any truck or bus chassis, which is not manufactured or
supplied by the Company." Telco denied that any of the alleged clauses
amounted to restrictive trade practices. Telco submitted as follows:
First, though alleged clauses imposed
restrictions on the dealers these did not amount to restrictive trade practices
within the meaning of the Act.
Second, Clauses 1 and 3 which deal with
certain defined territories allocated to the dealers are intended to avoid
unequal and unfair distribution of the vehicles among the customers.
Third, any restriction as to maximunm price
at which goods can be resold to the Telco's dealers particularly when Clause 6
(1) (ii) specifies what is implicit therein, namely, that the dealer may sell
below the maximum price fixed by Telco cannot possibly amount to restrictive
Fourth, Clause 14 which prohibits a
distributor from dealing in products of other manufacturers would normally not
be restrictive trade practice unless there are special circumstances which
exist and indicate that the agreement has the effect of preventing, distorting
or restricting competition.
Telco finally submits that none of the
restrictions imposed in Clauses 1,3,6, and 14 are unreasonable having regard to
the balance between the circumstances set out in section 38 of the Act and any
alleged detriment to the customers of Telco and or the competitors of Telco
allegedly resulting or likely to result from the operation of these
10--112SC1/77 692 The Commission held that
the moment an agreement contained a trade practice falling within any of the
clauses in Section 33(1) of the Act, the trade practice must be regarded as a
restrictive trade practice. The Commission held that all the clauses alleged in
the petition of the Registrar amounted to restrictive trade practices. The
Commission further said that in regard to Clauses 6 and 13 in the light of the
assurance given by Telco that in its future price lists it would specifically
state that the dealer is free to charge on the resale of Telco's vehicles,
prices lower than the maximum prices fixed by Telco, no order was required to
be passed regarding the alleged practice of maintenance of minimum resale
The Commission further held that although the
contractual term that the dealers, could deal only in Telco's vehicles was a
restrictive trade practice, it was not against public interest as it fell
within subclauses (a), (b) and.
(h) and the balancing clause of Section 38(1)
of the Act.
The Commisssion however held that the
practice of allocation of territories to Telco's dealers was not justified.
In the result the Commission declared that
Clauses 1 and 3 of the Agreements in so far as they related to allocation of
any territory or area or market to any of the dealers for the distribution of
the vehicles constituted restrictive trade practice and, therefore, void and
restrained Telco from continuing or repeating the practice.
Before the Commission Telco contended that
the application of the Registrar was not in accordance with Regulation 55 of
the Monopolies and Restrictive Trade Practices .Commission Regulations, 1974,
referred to as Regulations.
Under the Regulations an application under
section 10(a)(iii) of the Act must contain facts which, in the Registrar's
opinion, constitute a restrictive trade practice and, if it is in relation to
any agreement, set out, such portions of the agreement as may be necessary to
bring out the facts complained of. It has to be stated that in the present case
Telco is right in contending that beyond making mere references to clauses of
the agreement and bald allegations that the clauses constitute restrictive
trade practice, no facts or features are set out in the petition to show or
establish as to how the alleged clauses constitute restrictive trade practice
in the context of facts.
The Solicitor General contended as follows.
First, the definition of restrictive trade practice includes all trade
practices permissible or forbidden provided they restrict competition or even
tend to restrict competition. The instances set forth in the definition of
restrictive trade practice emphasize the factors which go to establish a
restrictive trade practice. Clauses (i) and (ii) in Section 2(0) of the Act
afford graver instances of restrictive trade practice.
Second, Section 33 of the Act requires an
agreement falling within the Clauses thereof to be registered. In short an
agreement which amounts to a restrictive trade practice will be first
registered and then 693 an enquiry will be made under Chapter VI of the Act as
to whether the restrictive trade practice is prejudicial to the public
interest. Irrespective of the injurious or beneficial consequence of a trade
practice which restricts or may restrict competition, it may fall within the
definition. Injurious or beneficial result of the restriction is relevant only
for purposes of Sections 37 and 38 of the Act.
Section 33 of the Act states that any
agreement relating to a restrictive trade practice falling within one or more
of the categories mentioned therein shall be subject to registration in
accordance with the provisions of Chapter V of the Act. Clauses (a) and (d) in
subsection (1 ) of Section 33 are relevant in the present case. These are,
inter alia, (a) any agreement which restricts or is likely to restrict by any
method the persons or clauses of persons to whom goods are sold or from whom
goods 'are bought and (d) any agreement to purchase or sell goods or to tender
for the sale or purchase of goods only at prices or on terms or conditions
agreed upon between the sellers or purchasers.
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 that doctrine that any restriction as to area or price will per se be a
restrictive trade practice. Every trade agreement restrains or binds persons or
places or prices. The question is whether the restraint is such as regulates
and thereby promotes competition or whether it is such as may suppress or even
destroy competition. To determine this question three matters are to be
considered. First, what facts are peculiar to the business to which the
restraint is applied.
Second, what was the condition before and
after the restraint is imposed. Third' what is the nature of the restraint and
what is its actual and! probable effect.
Section 33(1) of the Act deals with
registration of certain types of restrictive trade practices which have the
subject matter described in categories mentioned in clauses (a) to (1) of
Section 33(1) of the Act. An agreement will be registrable, when it will have
both the effect of restricting competition within the meaning of Section 2(0)
of the Act and also deal with the subject matter described in Clauses, (a) to
(1) of sub-section (1) of Section 33 of the Act. 'Clauses (a) to (1) aforesaid
describe some species of agreement which require registration. if they .are
within the genus of restrictive trade practice defined in Section 2(0) of the
Act. A practice which is not restrictive under section 2 (0) of the Act cannot
be restrictive trade practice only because 0f Clauses (a) to (1) of sub-section
(1) of Section 33 of the Act. Section 33 does not provide statutory
illustrations to Section 2(0) of the Act but only enumerates some types of
trade practices which. if they are restrictive within Section 2(0) of the Act
Section 33 fixes categories of restrictive
trade practices. Section 33 states that any agreement relating to a restrictive
trade practice falling within one or more of the categories mentioned therein
shall 694 be subject to registration. Therefore, before an agreement becomes
registrable it has to be a restrictive trade practice in accordance with the
definition of Section 2(0) of the Act. At the threshold it has to be found out
whether an agreement constitutes a restrictive trade practice. In Section 33 it
is stated, for example, that any agreement which restricts, or is likely to
restrict, by any method the persons or clauses of persons to whom goods are
sold or from whom goods are bought is one of the categories of a registrable
restrictive trade practice. In the present case it has to be found out first
whether the agreement of exclusive dealership between Telco and the dealers
containing the restriction on the dealer not to sell the commercial vehicles of
Telco in other territories falls within the vice: of a restrictive trade
Under the Act, action can be taken against a
restrictive. trade practice. Therefore, when the authorities under the Act want
to challenge any agreement or any practice as a restrictive trade, practice, it
has t0 be established that it is a restrictive trade practice within the
definition of the Act. If it is found to. be a restrictive trade practice, the
next stage is to register agreements relating to a restrictive trade practice.
Section 33 states that any agreement relating to a restrictive trade practice
failing within one or more of the categories mentioned.
therein shall be subject to registration. The
authorities have to examine the agreement and find out whether it fails within
the vice of a restrictive trade practice before the authorities can ask that
the agreement be registered under Chapter V of the Act.
It is only after an agreement has been
registered that there is an enquiry under Chapter VI of the Act. This enquiry
under Section 37 0f the Act is to find out whether a restrictive trade practice
is prejudicial to the public interest. Section 38 of the Act lays down the
circumstances under which a restrictive trade practice is presumed to be in the
public interest and not to be deemed to be prejudicial to the public interest.
In the present case the question is whether
the dealership agreement between Telco and the dealers whereby the dealers are
not permitted to sell the commercial vehicles outside their zones amounts to a
restrictive trade practice.
The questions posed are: Does it prevent
distort or restrict competition in any manner; Does it affect the flow of supplies
in the market relating to goods or service in such manner as to impose on the
consumers unjustified costs or restrictions.
The evidence about the features of the trade
The medium, and heavy vehicles in the trade
are restricted to those licensed by Government for manufacture in the country.
The capital investment required for a new factory is of a very high order,
namely, almost Rs. 100 crores.
At present the only manufacturers of
commercial vehicles are Telco which produces Tats Vehicles, Hindustan Motors
Ltd., which produces Hindustan Vehicles, Premier Automobiles, which produces
Premier Vehicles and Ashok Leyland Ltd., which produces Leyland vehicles. The
supply of commercial vehicles is far below 695 the requirement of the industry.
The gap between the demand and the supply is increasing with the passage of
time as the trade is developing at a faster pace than the growth in the number
of vehicles produced. The Government of India estimated during the year 1974-75
the production of 56,300' medium and heavy vehicles. The production, however,
is now likely to be of the order of 35,000. The Fifth Five Year Plan for the
production is said to be increased to 80,1.0,0.
It is said that against this target the
installation capacity today is 46,300 vehicles. Even if the expansion programme
is fully implemented the installed capacity by the end of the Fifth Five Year
Plan will be only 66,975 vehicles per year.
The scarcity which is a feature of this trade
is accentuated in the case of Telco's vehicles because they are in great demand
all over the country and even in the export market. ]n 1974. it is said that
Telco exported vehicles amounting to 86% of the total export from the country.
The export earnings are said to be Rs. 7.29 crores for 1101 vehicles. At the
time of arguments it was suggested that Telco exports now vehicles worth Rs. 10
The clauses relating to territorial
restriction in the present case do not constitute restrictive trade practice
for the following reasons:
The domestic market in India is spread over
this vast sub-continent with very divers conditions of roads, population and
demand. It is essential for the community, the consumer and the manufacturer to
have an equitable geographical distribution of his vehicles. Vehicles may be
required for operation in any part of India and public interest requires that
the channels of communication should be open throughout the country. These
vehicles should ply even in the remotest areas like Ladakh, Nagaland, etc.
A user of Telco vehicles expects to get all
over the country the service of a high standard enjoined by Telco upon its
dealers. Telco on its part also needs a countrywide network of dealers so that
sales take place and the dealers can maintain the service stations, spare part
stocks and workshops with the requisite equipment, machinery and trained
personnel all over the country. This also enables the consumers to rely on Telco's
vehicles since they in turn can expect services, repairs and spare parts all
Telco has thus to ensure an all India network
of dealers, including those which will serve remote areas.
It is evidence that commercial vehicles is a
highly complex mechanical product. When Telco sells a vehicle it also. has a
responsibility that the vehicle is kept running and maintained in the optimum
condition Telco must preserve its reputation and ensure that the vehicles are
only sold by dealers who have the requisite facilities and organisation to give
the proper after-sales service. Unlike most consumer products, a commercial
vehicle involves a continuous relationship between a dealer and a consumer. The
consumer looks to the dealer, for keeping the vehicle running and for all attendant
facilities like 696 service stations, workshops and spare parts. Reliability
and repair of a vehicle, which represents a substantial investment for the
consumer, is vital also to the public as a whole and there must be constantly
available throughout the country a network of dealers with adequate repair and
maintenance service. Even before the delivery of a commercial vehicle to the
consumer, there is a meticulous pre-delivery inspection and service by the
dealer. After delivery, Telco gives three free services. Telco also gives a warranty
for a period of six months from the date of registration or 12 months from the
date of delivery of vehicle from the factory or for a period in which the
vehicle has run for a distance of 32,0.00 kilometers, whichever expires
There are outstanding distinctions between a
car dealer and a commercial vehicle dealer. The peculiar characteristics of
dealers' in commercial vehicles are these purchase of a car in India rarely
represents the substantial or the bulk of the investment of a purchaser. The
purchase of a commercial vehicle, however, represents the substantial and often
the only capital investment of the owner. A chassis manufactured by Telco is
sold to the customer at almost a lakh of rupees and the body costs him about
Rs. 15,000/for a truck and about Rs. 40,000/for a bus. Over 80% of persons
owning trucks are individual owners having not more than two trucks and mostly
only one truck. The vehicle is normally constantly on the road and is put to
the maximum possible use with often more than one driver plying it.
Thus a vehicle plies on an average over a
lakh of kilometers per year. The heavy investment also makes it necessary that
a vehicle should be constantly on the move. The owner can ill-afford to waste
time and requires easily accessible and prompt Service Stations, Workshops and
stocks of spares.
The purchaser regards the .truck as a
The purchaser looks to the dealer for prompt after-sales
service and repairs. Since 80% of truck operators are individual operators and
often have scant mechanical knowledge, they have to depend upon the dealer for
keeping the truck moving with the necessary trained personnel, workshop,
service stations and stocks of spares. As a result of these characteristics,
the relationship between a dealer and the truck purchaser is much more constant
than with the car purchaser. The standard of service he expects is more
vigorous and prompt.
Vehicles of Telco are in keen demand, both
because of their quality as also because of the assurance of efficient
after-sales service, by the network of Telco dealers. These requirements cannot
be met unless there is a network of dealers with specific territories. It is
essential from the angle of the consumer, Telco and the public that there
should be widest and equitable geographical distribution of the vehicles of
Telco. Public interest itself requires that the vehicles should not be
concentrated in metro centers or urban areas where there is a high demand for
them, to the determent of the remote, areas or sami-urban areas. The consumer
also plies trucks all over the country and expects that where-ever he goes,
whether to Kerala or Assam, there should be a dealer, a service station, a
workshop, trained personnel and spare parts which can attend to Telco trucks.
697 Urban area centres like Bombay, Delhi and
Calcutta, have a very large demand as compared to the rest of the country.
But at the same time Telco. has to ensure
sales in places like Kashmir, Nagaland. and Tripura, where the demand is much
less. In fact, in some of these areas, there are no alternative means of
communication and transport like railways and the life of the community is
largely dependent upon road transport. Even where the demand is less, there has
to be a dealer with the necessary facilities and organisation for
after-sales-service Telco appoints dealers. for different territories in India.
The geographical network is natural to the industry itself. The purchaser will
purchase and get his vehicle serviced in his own territory. The purchaser looks
to a dealer in his own territory with whom he has relationship and who will
give him credit facilities, who will render after-sales-service and from whom
he can purchase spares, who will handle warranty claims and with 'whOm he can
have constant relationship for purchases in future. Unless a 'dealer is assured
of customers in his own area and zones;
he will not have the necessary incentive to
maintain the optimum level of service stations, workshops and spare part
stocks, nor can the dealer plan his resources including technical personnel,
capital equipment and financial resources for his future commitment.
Telco regards after-sales service of crucial
importance to serve its consumers. It is natural and cheaper for a purchaser to
buy and service his vehicles in his own territory. After-sales-service of Telco
is fairly elaborate and complex and it is because of the standard of this
service that Telco has been 'able to maintain the reputation. Each, dealer is
required to provide one premises for show-room, service station, workshop,
spare parts, shop, canteen and also (a) rest house for drivers; (b) equipment
and machinery for maintenance and repairs; (c) set or sets of special tools
specially designed for carrying out repairs to Telco's vehicle; (d) Technical
personnel including personnel trained by the appellant at its factory in
Jamshedpur and. (e) adequate stock of spare parts to meet the potential demand
in the territory.
Telco has set up 13 zonal offices throughout
India at New Delhi, Kanpur, Ahmedabad, Indore, Bombay, Bangalore, Madras,
Vijyawada, Bhubaneshwar, Jamshedpur, Gauhati Jull under and Jaipur. If the
territorial restriction is removed, there will be a tendency for persons to
book orders in areas thus starving the consumers of that area of their
equitable share and disrupting the flow of vehicles in both areas. This will
create pockets of artificial scarcity and dislocate the network. If the dealer
is not assured of a steady demand in his territory, he may have no incentive or
may not find it economic to organise proper after-salesservice. This would also
result in dealers diverting their supplies to metro centres starving the
semi-urban and rural areas.
Network of dealers and service stations has a
direct relation with the territorial assurances given to each dealer. It is as
a result of such assurances that a dealer is able to maintain the whole chain
of dealership network, service stations, stocks of spare parts, trained per698
sonnel, equipment, special tool kits and given the optimum service as laid down
by Telco to its vehicles. Some of the dealers have even maintained mobile
service vans. The dealer has to invest a large amount in providing all these
facilities. The dealer is familiar with his territory and in view of the
potential sales, takes steps to improve his organisation. If these clauses are
omitted, the dealer would not make investment and would neglect the service facilities
to the detriment of the consumer.
In the light of scarcity in the supply of
vehicle's and the need to distribute Vehicles to all the dealers in India,
Telco makes equitable distribution of its products by taking into account these
factors: (a) Population of commercial vehicles in the dealer's territory; (b)
Orders from customers pending with the dealer; (c) Preference for Tata diesel
vehicles as against other makes in the territory of the dealer (d) Past sales
performance of the dealer; (e) Effective after-sales-service provided by the
dealers; (f) Special requirements of the territory during the erection of
Government Projects such as steel plants, construction of dams etc.; (g)
Emergency requirements of the territory on account of drought, flood relief
etc; (h) Government recommendations for meeting certain specific requirements;
(i) Dependence of the particular territory on road transport and (j)
Requirements of State Government and nationalised transport undertakings which
are procured through dealers.
The demand for the vehicles has always
exceeded the supply making it imperative for Telco to ensure equitable
distribution of the vehicles to the various parts of the country. There are
many commercial agreements under which the territories are divided among
distributors and 'such agreements do not constitute restrictive trade practice,
where the whole object is to ensure fair, efficient and even distribution
particularly of a commodity which is in short supply and in great demand. If
these were not done and it was permitted for one dealer to encroach on the
territory of another this would affect the flow of vehicles into the market
leaving some territories unsupplied. In order to prevent this undesirable
position that dealers were appointed for different territories and care was
taken consistently to see that all parts of the country are treated equally and
The exclusive dealings do not impede
competition but promote it. Such dealings lead to specialisation and improvement
in after-sales-service. The exclusive dealership agreements do not restrict
distribution in any area or prevent competition. The customer has the choice of
buying any make he likes. The advantage of exclusive dealership is that a
dealer specialises in his own type of vehicle with all the attending advantages
of trained personnel, special service stations, workshops and spare parts. Each
set of special tools costs approximately Rs. 55,000. The set is suitable for
servicing one vehicle at a time. Some dealers like the United Motors Pvt. Ltd.,
Bombay have four sets at Colaba, Wadi Bunder, Jogeshwari and Chembur. The
investment of United Motors is approximately Rs. 24 lakhs. It is estimated that
one service station with special tools of Telco-and workshop equipment will
cost as much as Rupees five lakhs.
699 It is by specialising in each make of
vehicle and providing the best possible service that the competition between
the various makes is enhanced. It is practically not possible for the same
dealer to have parallel lines of service stations, workshops, spare parts,
trained personnel for different makes. It is also not practical for the dealer
to maintain different and competitive standards laid down by different
companies which may differ from manufacturer to manufacturer. If a dealer has
more than one franchise, the competition between the various makes will be
reduced. It will be difficult for the manufacturer to make the dealer
responsible for his make and concentrate on it.
There may be conflicts between his
responsibility for after-sales service.
Telco commenced appointing dealers in 1954.
At that time 25 or 26 dealer's were appointed. The number increased to 68.
There are also sub-dealers. Each dealer is required to make a security deposit
varying from Rs. 1 lakh to Rs. 6 lakhs. Telco pays interest ,on deposits and
security deposits. A dealer has to invest a minimum of Rs. 5 lakhs in his
establishment. The range of investment would vary from Rs. 5 lakhs to Rs. 50
lakhs depending upon the largeness of the place.
Dealer Apprentices are trained by Telco in
its factory at Jamshedpur. Telco also trains Trade Apprentices. The dealer also
pays the apprentice stipend. If territorial restrictions are removed, there
will be unequal distribution of vehicles in various territories. While there
'will be shortage in some territories, there will be larger supplies in others.
Vehicles are supplied by Telco according to territorial requirements. Various
factors are taken into consideration in assessing the requirements of territories.
By making it's dealers exclusive to Telco,
there cannot be said to be any prevention, distortion or restriction of
competition in the territory in which a dealer operates, either between
manufacturers of the same type of vehicles or between dealers in these vehicle.
Any manufacturer of vehicles such as those of Telco may manufacture and sell
its vehicles in a territory in which Telco's dealers operate.
Any other manufacturer of vehicles 'similar
to those of Talco is also free to appoint dealers of its choice in the same
territory covered by Telco's dealers. The channels for outlet for vehicles have
not been blocked by the fact that the dealers appointed by Telco are exclusive
to Telco nor it can be said that Telco has by its exclusive arrangement with
its dealers affected the flow of supplies of vehicles into the market. If Telco
Sold themselves in each territory it could not be said that Telco was pursuing
any restrictive trade practice. Would the position change if Telco asked their dealers
not to sell Telco bus chassis outside the dealer's territory? Just as Telco
could not complete with itself similarly dealers would not compete with one
The competition would be between Telco
products and the products of the other manufacturers Premier, Hindustan and
Leyland. 'Restrictive trade practice is based on reason embodied in Section
2(0) of the Act. When trucks are in short supply and dealers are 700 restrained
from selling at above the maximum price they cannot sell below the maximum
price and compete with one another. Dealers of the same manufacturer do not
compete with one another in every case irrespective of the market conditions or
the character of the product sold.
Competition between dealers appointed by the
same manufacturer can be reduced when there is a practical possibility. of such
competition as for example, When the goods are in abundance. When there is an
acute scarcity of goods and there is no possibility of dealers selling the
product at less than the permissible price, it would be irrational to talk of
territorial limits restricting competition. Restriction on competition
postulates the existence or the possibility of competition. On the facts proved
in the present case the only competition possible is between the ,dealers and
the manufacturer's. The territorial restriction promotes competition between
the four manufacturers in every part of India while it has no effect of any
theoretical competition between the dealers because such competition between
dealers does not and cannot exist.
The question of competition cannot be
considered in vacuo or in a doctrinaire spirit. The concept of competition is
to be understood in a commercial sense. Territorial restriction will promote
competition whereas the removal of territorial restriction would reduce
competition. As a result of territorial restriction there is in each part of
India open competition among the four manufacturers. If the territorial
restriction is removed there will be pockets without any competition in certain
parts of India. If the dealer in Kashmir is allowed to sell anywhere in India
wealthy cities like Delhi, Bombay, Calcutta will buy up trucks allocated for
Kashmir and the buyer in Kashmir will not be able to get the trucks. The other
three manufacturers whose trucks are not in equal demand will have Kashmir as
an open field to them without competition by Telco.
Therefore, competition will be reduced in
Kashmir by the successful competitor being put out of the field.
The real reason for exclusive dealership is
that instead of diminishing competition between four manufacturers each dealer
tries to do his best for his own trucks, bus and thus reduce keen competition
among the four manufacturers. If one dealer deals in trucks of one or more manufacturers
one cannot be expected to compete with itself it is, therefore, clear that
exclusive dealership promotes instead of retarding competition.
Clauses 1 and 3 are in the interest of the
consumer and ensure equal distribution as far as possible of the goods at a
fair price. These provisions do not tend to obstruct the flow of capital or
resources into the stream of production or to bring about manipulation of
prices or conditions of delivery or to affect the flow of supplies in the
market relating to goods or services in such manner as to impose on the
consumers unjustified costs or restrictions.
701 In the present case the restriction
imposed by Telco on dealers not to sell bus and chassis outside their territories
does not restrict competition for the foregoing reasons.
The other term of exclusive dealership in
clauses 6 and 14 of the agreement between Telco and the dealers that the dealer
will not sell commercial vehicles of other manufacturers, does not amount to a
restriction in competition because other manufacturers can appoint other
persons to deal in their commercial vehicles. It is also in public interest to
see that vehicles of other manufacturers are sold in the same territory by
other dealers. Therefore, there will be competition between the manufacturers
of different commercial vehicles and as far as exclusive dealership of Telco
commercial vehicles is concerned, it will be in public interest' and not be a
restriction in competition.
The two terms of restriction on dealers, namely,
'sale being confined within the territory and the other being confined to
dealing in only Telco vehicles are not prejudicial to public interest. The
Commission found that exclusive nature of dealership of being confined to Telco
vehicles is not prejudicial to public interest. The territorial restriction is
also. in public interest and the Commission was in error in thinking that it is
For the foregoing reasons the appeal is
accepted. The decision of the Commission is set aside. We hold that the
agreement in the present case is not within the vice of restrictive trade
practice and is, therefore, not registrable. We make it clear that in a given
case sale of commodities being confined to a territory may amount to a restrictive
trade practice. In the special features and facts and circumstances of the
exclusive dealership agreement between Telco and the dealers the territorial
restriction imposed on the sellers not to sell vehicles outside their
territories is not a restrictive trade practice. Parties will pay and bear
their own costs.