1. On 30th August, 1972, the Registrar of Restrictive Trade Agreements (hereinafter for the sake of brevity referred to as " the Registrar ") made an application to this Commission under Section 10(a)(iii) of the Monopolies and Restrictive Trade Practices Act, 1969 (hereinafter for the sake of brevity referred to as " the Act "), stating that Bengal Potteries Ltd. of Calcutta, the respondent No. 2, had by an agreement dated 1st April, 1971, appointed Allied Distributors and Company, respondent No. 1, a firm of Delhi, as " sole selling agents " for distribution of its entire production in crockery and insulators for a period of five years with effect from 2nd April, 1971, on terms and conditions set out in the said agreement. Paragraph 3 of the agreement contains the terms of appointment in respect of crockery and para. 4 contains the terms of appointment with regird to insulators. There is substantial difference between the terms with regard to these two products. Some of these terms have been set out in the application of the Registrar. The Registrar has contended in the application that in respect of crockery although the respondent No. 1 is described as " sole selling agent " of respondent No. 2, it is clear from the terms and conditions that the relationship between the respondents is that of principal to principal. The Registrar has further contended that some of the terms with regard to crockery constituted restrictive trade practices. No complaint was made in respect of insulators. The Registrar also complained that some of the other agreements of respondent No. 1 with Kishori Puria Brothers and Patna Glass House also contained restrictive trade practices. He also contended that respondent No. 1 had also appointed agents/dealers for sale of crockery, but the terms of the said appointments were not reduced to writing. The terms have, however, been tabulated in charts furnished to the Registrar by respondent No. J, copies of which are annexed to the Registrar's application as annexure " IV". The Registrar has stated that such oral agreements were entered into with 786 dealers and that the terms and conditions of the said charts provided for allocation of markets, for the supply and disposal of goods, exclusive dealings and grant of concessions or benefits including allowances, discounts, rebates or credits in connection with or by reason of dealings and fixation of resale prices. The Registrar has contended that the agreements of respondent No. 1 with Kishori Puria Brothers, Patna Glass House and the 786 dealers also contained restrictive trade practices.
He has further contended that all the aforesaid restrictive trade practices were prejudicial to public interest. He prayed that the Commission may enquire into these restrictive trade practices under Section 37 of the Act and pass such orders as the Commission deems fit under the Act.
2. We might mention here that the parties to the Registrar's application are respondents Nos. 1 and 2 who are parties to the agreement dated 1st April, 1971. Neither Kishori Puria Brothers nor Patna Glass House nor the 786 dealers or their representatives have been joined as parties to the applicaiion and they are not before us today. There could have been no difficulty in joining Kishori Puria Brothers and Patna Glass House as the agreements with them were bilateral agreements. The difficulty with regard to the 786 dealers could have been got over by joining some of them as representative-respondents under the provisions of regulation 64 of the Monopolies and Restrictive Trade Practices Commission Regulations, 1974, and Order 1, Rule 8 of the Civil Procedure Code, if the terms with them were common. This has, however, not been done. The result is that these parties are not before us and we find it difficult to come to any finding with regard to the agreements with them in their absence. We think that their non-joinder is a material defect and no order with regard to them should be passed. The Registrar, however, applies to us under the provisions of Order 23, Rule 1, of the Code of Civil Procedure, that leave be granted to him to withdraw the application with regard to these parties and these agreements with liberty to take fresh proceedings against them with regard thereto. We grant the permission to the Registrar to withdraw that part of the application with liberty to institute fresh proceedings with regard to these matters.
3. The respondents have filed their statements of the case. The Registrar has filed answer, dated 28th February, 1973, to the statement of the case. In para. 13 of the answer, it has been stated by the Registrar that the managing director and some other directors of respondent No. 2 have interest in the partnership firm of respondent No. 1 and that the arrangement of " sole selling agency " is designed to help the interested directors to siphon off the profits of respondent No. 2 to their personal advantage. It is alleged that this arrangement has the effect of keeping resale prices higher than the prices that are likely to obtain in the absence of such arrangement.
Respondent No. 2 has filed its reply, dated 20th April, 1973, to the Registrar's answer. In para. 24 of the reply, respondent No. 2 has denied that its managing director has any interest in respondent No. 1 as alleged. It is further denied that any director of respondent No. 2 has any personal interest in respondent No. 1. The Registrar has filed a further pleading, dated 4th July, 1974, in which he has reiterated that some of the directors of respondent No. 2 were partners of the firm of respondent No. 1 and that there was obvious siphoning off of profits of respondent No. 2 in favour of respondent No. 1 and that while respondent No. 2 was suffering losses, respondent No. 1 was making substantial profits.
4. At the hearing of the application for directions, it was agreed between the parties that the following issues be heard and decided as preliminary issues: 1. Whether the agreement dated the 1st April, 1971, does not relate to the restrictive trade practices within the meaning of Section 2(o) of the Monopolies and Restrictive Trade Practices Act 2. Whether the said agreement falls within any of the categories mentioned in Section 33(1) of the said Act 3. Whether the provisions of Section 33(1) of the Act are attracted to any of the clauses of the agreements objected to by the applicant 4. Whether the trade practices specified in Section 33(1) of the Monopolies and Restrictive Trade Practices Act are not restrictive trade practices within the meaning of Section 2(o) of the Act 5. Whether the agreement dated 1st April, 1971, does not require registration under Section 35 read with Section 33 of the said Act 6. Whether the Commission has jurisdiction to determine issue No. 5 7. What is the nature of legal relationship between the two respondents under the agreement dated 1st April, 1971.
8. Whether the said agreement is in accordance with the trade practice which is expressly authorised by the Companies Act, 1956, and if so, whether an order can be made in respect of the said agreement under Section 37(3) of the Act 10. If the answer to issue No. 9 is in the affirmative, whether the restrictions imposed on respondent No. 1 by respondent No. 2 come within the scope of the Monopolies and Restrictive Trade Practices Act 5. After hearing the learned counsel for the parties fully, by our order dated 6th September, 1974, we gave the following answers to the above issues: Clauses (a), (b) and (i) of para. 3 and the whole of para. 8 of the agreement did relate to restrictive trade practices within the meaning of Section 2(o), firstly, because they fell under Section 33(1)(a), (f), (g) and (c) and, secondly, because independently they fell under the definition of restrictive trade practice in Section 2(o) being trade practices which restricted competition relating to crockery and were intended to and resulted in bringing about manipulation of conditions of delivery and affected the flow of supplies in the market relating to pottery in such manner as to impose on the consumers unjustified costs as well as restrictions.
Clauses (a), (b) and (i) of para. 3 and the whole of para. 8 of the agreement fell within the categories mentioned in Section 33(1) of the Act.
In the affirmative. The trade practices specified in Section 33(1) of the Act are per se restrictive trade practices falling within the definition of section 2(o) of the Act being statutory illustrations of restrictive trade practices provided by the legislature.
In respect of crockery, the true, nature of the legal relationship between the parties under the agreement dated 1st April, 1971, is that respondent No. 1 is the buyer of goods from respondent No. 2 and the dealings are on principal to principal basis. In respect of resale of crockery, respondent No. 1 is not the agent of respondent No. 2.
The agreement of 1st April, 1971, is not expressly authorised by the Companies Act, 1956, and an order can be made in respect of the said agreement under Section 37(1) notwithstanding the provisions of Section 33(3) of the Act.
After the above order was made, respondent No. 2 filed a writ petition in the Calcutta High Court against the above order and an earlier order dated 18th July, 1974, to which we shall refer later. The Calcutta High Court issued a rule on the said petition. The said petition was heard and disposed of by a judgment of the hon'ble Mr. Justice A.K. Mukherjee delivered on 3rd October, 1975, whereby the learne 1 judge discharged the rule. The judgment is reported as Bengal Potteries Ltd. v. M.R.T.P.Commission [1975] 45 Comp Cas 697 (Cal).
6. The result of answering Issue No. 1 holding that certain clauses of para. 3 and the whole of para. 8 constituted restrictive trade practices is that by virtue of the provisions of Section 38(1) of the Act, the said clauses shall be deemed to be prejudicial to public interest, unless the Commission was satisfied of any one or more of the circumstances set out in Section 38(1)(a) to (h) and the balancing Clause thereof.
7. We, therefore, fixed this matter for hearing on 21st November, 1975, to enable the respondents to establish the circumstances under Section 38(1) of the Act. Neither the respondents nor their advocates on record appeared on the day fixed for the hearing. We, however, adjourned the matter to 5th December, 1975, and sent a fresh intimation to both the respondents. On that day also, neither the advocates on record nor any of the parties appeared. The Commission had, however, received a communication from advocates on record as well as the respondents wherein the advocates had stated that they were no longer in touch with their clients and that all communications should be addressed to the clients directly. The parties in their communications applied for adjournment, respondent No. 1 by letter and respondent No. 2 by a telegram. Neither of them appeared at the hearing. For reasons recorded in our order dated 5th December, 1975, we found that there was no sufficient ground for adjournment and we dismissed the applications for adjournment and fixed the matter for ex parte hearing on 12th December, 1975. On 12th December, 1975, also the parties were absent. We, however, adjourned the matter to 15th December, 1975, as the Registrar stated that he wanted to file certain affidavits by way of evidence under the provisions of Order 19, Rule 1, Civil Procedure Code. We granted him leave to file the said affidavits.
8. The Registrar has filed two affidavits, one dated 11th December, 1975, of Shri S.D. Batra, Assistant Registrar, and the other dated 12th December, 1975, of Shri B.M. Jain, Assistant Registrar. Shri Jain has stated that respondent No. 1 which is a partnership firm with its registered office at D.C.M. Premises, Bira Hindu Rao Road, Delhi, is engaged in the sale, marketing and distribution of crockery, insulators and enamelware products manufactured by respondent No. 2. Respondent No. 2 is a company. The partners of respondent No. 1 are ; Shri Jain, has further stated that the directors of respondent No. 2 are : He has further stated that at the relevant time, Bharat Ram was the chairman both of respondent No. 1 and respondent No. 2 and that G.K.Bhagat was the managing director of respondent No. 2 and a director of respondent No. 1. He has also stated that Shri Dhar and B.N. Bhagat were common directors of the two concerns.
9. The suggestion following from the pleadings as well as the affidavit of Shri B.M. Jain is that respondents Nos. 1 and 2 are inter-connected and the intention of respondent No. 2 in giving the " sole selling agency" to respondent No. 1 is to siphon off profits of respondent No.2 in favour of respondent No. 1. While respondent No. 2 was suffering losses, respondent No. 1 was making substantial profits. The insinuation appears to be that the profits of respondent No. 1 ultimately came into the pockets of some of the shareholders and directors of respondent No. 2. This may be for the purpose of avoiding income-tax or for any other purpose. As no issue has been framed on this point, we consider it unnecessary to go into this question.
10. Today when the matter was called out, respondents and their advocates on record were absent. However, Mr. Vinoo Bhagat, advocate, appeared before us and stated that although he was not an advocate on record and had not heen instructed to appear by the advocates on record, he had received a telephonic message from the managing director of respondent No. 2 assuring him that the said managing director would come to Delhi this evening and authorise Mr. Bhagat to appear and apply for adjournment on the ground that Mr. Samar Sen, the senior counsel for the respondents, was out of India and that, on that ground, the matter be adjourned. We, however, did not consider this a sufficient ground for adjourning the matter. By our order dated 5th December, 1975, we have already refused an application for adjournment on the ground of Mr. Samar Sen being out of India for reasons recorded in the said order. As regards Mr. Vinoo Bhagat, we might say that he appeared before us on 20th September, 1974, and applied for adjournment of the proceedings for that day on the ground that the Calcutta High Court had granted stay. Mr. Bhagat was unable to state what the stay was about.
The advocates on record were Messrs. Fox and Mandal, solicitors of Calcutta. Mr. Bhagat stated that he was not instructed by the solicitors on record. He had also no authority in writing from anybody to appear and apply for adjournment. He stated that he had oral authority of Mr. G.K. Bhagat, managing director of respondent No. 2.
Such authority was not sufficient under Order 3, Rule 4(1), Civil Procedure Code. Although there was no proper application before us for adjournment on that day, in view of the fact that a statement was made by an advocate that some stay has been granted by the Calcutta High Court, we adjourned the proceedings to Monday, the 23rd September, 1974, to enable the respondents to produce before us a copy of their petition or other proceedings in which a stay has been granted, a copy of the stay order and other sufficient information. This appears from our order dated 20th September, 1974. Our order also records that "we hope that Mr. Bhagat will convey to the respondents to have themselves represented by a properly instructed advocate and to attend on 23rd September, 1974 ". When the matter was called out on 23rd September, 1974, the respondents and their advocates were absent. Mr. Vinoo Bhagat had also not taken any steps to have a proper authority in writing or vakalatnama authorising him to appear on 20th September, 1975, in this Commission. We had granted the adjournment on 20th September, 1974, on the assurance of Mr. Bhagat that he would convey the contents of the orders to the respondents and advise them to have themselves represented by a properly instructed advocate to attend. What actually happened on 23rd September, 1974, was that no one attended, not even Mr. Vinoo Bhagat. When this was pointed out to Mr. Vinoo Bhagat today he stated before us that he had conveyed the contents of our order of 20th September, 1974, to his clients but they did not give him any authority in writing to file in the Commission. In view of this, we are afraid that we will not be justified in adjourning the matter--even if grounds for such adjournment had otherwise existed--on the assurance of Mr. Vinoo Bhagat about the managing director of the respondent No. 2 later authorising him to appear.
11. Mr. Bhagat also stated before us that he had no instructions today with regard to the merits of the matter and all that he was in a position to say is that he has been assured that if the matter was adjourned, the managing director would come to Delhi this evening and authorise him to appea'r before us and apply for adjournment on the ground. Mr. Samar Sen, the senior counsel for the respondent, is out of India. The net result of the above discussion is that today also, the respondents and advocates are absent and we must proceed ex parte.
12. We might perhaps mention that on 11th March, 1974, the respondents had applied for an order under Section 37(2) of the Act. By our order dated 18th July, 1974, we had held that the said application was premature and the proper stage for considering the said application of the respondent was after we had come to the conclusion that any of the clauses of the agreement contained restrictive trade practices and that the said practices were prejudicial to public interest. The writ petition filed in the Calcutta High Court by respondent No. 2 was against the said order also. By the judgment, dated 3rd October, 1975 [Bengal Potteries Ltd. v. M.R.T.P. Commission [1975] 45 Comp Cas 697 (Cal)] the Calcutta High Court upheld the order of the Commission dated 18th July, 1974 [Registrar of Restrictive Trade Agreements v. Allied Distributors & Co. [1975] 45 Comp Cas 664 (MRTPC)]. As the respondents are absent and the proceedings are ex parte, the application dated llth March, 1974, is dismissed with costs fixed at Rs. 300.
13. Clauses of the agreement dated 1st April, 1971, between the two respondents, which were held by us by our judgment dated 6th September, 1974, to relate to restrictive trade practices read as under: 3(a) The Company shall sell to the agents and the agents shall buy from the company for purposes of resale its entire production of crockery. The Company, however, reserves to itself the right to make direct petty sale and sale against export orders.
(b) The Company shall formulate its manufacturing programme for crockery in respect of volume and composition in consultation with the agents. One month's time will normally be given by the agents to the company to make what has been decided at the Joint Consultation except in exceptional cases where the time to be given by the agents to the company may have to be longer.
(i) Except in case of sale from their own depots, the agents shall so fix their resale prices (hereinafter referred to as wagon-load prices) for the goods purchased by them from the company and that the difference between the said wagon-load prices and the purchase price of the agents does not exceed 11% of the wagon-load prices.
In case of sale from their depots, the agents shall be entitled to mark the wagon-load prices by local taxes and 10% of the wagon-load prices, excise duty and other taxes. In case the agents despatch the goods from their depots to other stations, they shall be entitled to charge packing and freight extra.
8. During the subsistence of this agreement, the agents shall not normally deal in or be concerned with the disposal of competing products manufactured by other manufacturers, provided, however, that if the company is unable to meet the requirements of the agents in respect of any or all of the items of its production either by reason of fall in production or otherwise, the agents shall by not giving less than one month's notice in writing to the company be entitled to engage in the marketing of such items and products produced by other manufacturers.
Under Section 38(1) of the Act, these practices are deemed to be prejudicial to public interest. Otherwise also there is no material on record which would entitle the respondents to pass through the gateways set out in any of the clauses of Section 38(1).
14. Under the provisions of Sections 37(1) and 13(1) of the Act, we direct and make our order as under : (1) That Clauses (a), (b) and (i) of para. 3 and the whole of para.
8 of the agreement between the two respondents shall be void.
(2) The practices to which Clauses (a), (b) and (i) of para. 3 and the whole of para. 8 of the agreement dated 1st April, 1971, between respondents Nos. 1 and 2 relate, shall be discontinued and shall not be repeated.
(3) The respondent No. 2 is hereby restrained and prohibited from entering into any agreement which restricts or is likely to restrict by any method the persons or classes of persons to whom the goods manufactured by it are sold. (4) The respondent No. 2 is hereby restrained and prohibited from entering into any. agreement restricting in any manner the purchaser of goods manufactured by it in the course of the trade of such purchaser from acquiring or otherwise dealing in any goods other than those manufactured by respondent No. 2.
(5) The respondent No. 2 is hereby restrained and prohibited from entering into any agreement to limit, restrict or withhold the production, output or supply of goods, which it manufactures.
(6) The respondent No. 2 shall not enter into any agreement to sell goods on the condition that the prices to be charged on resale by the purchaser shall be the prices stipulated by respondent No. 2 unless respondent No. 2 clearly states that the said prices are maximum prices and that prices lower than those prices may be charged.
(7) In any price lists that respondent No. 2 may issue hereafter, it shall state on the front page or the first page that the prices therein mentioned are maximum prices and that the prices lower than those may be charged.
(8) The respondent shall within 30 days from the date of this order formulate the terms and conditions for the sale of its products to all buyers without discrimination and file a copy thereof with this Commission on affidavit within the said period. Any change in the terms and conditions during a period of 3 years from the date of this order must be similarly communicated to the Commission.
(9) The respondent No. 2 shall maintain a register of orders. In such register, respondent No. 2 shall enter all orders received by it in chronological order.
(10) Except as otherwise provided in the Clause immediately next following respondent No. 2 shall not execute in any quarter, any order placed by any party which exceeds 10% in value in terms of its production in any quarter of any year. Such quarters shall end on 31st March, 30ch June, 30th September and 31st December of each year.
(11) The respondent No. 2 will entertain orders every quarter for the production of the next quarter. These orders shall be entertained up to and inclusive of 15th March, 15th June, 15th September and 15th December of each year. No party shall be supplied goods in excess of 10% in terms of value of the total production of the respondent No. 2 in that quarter except when the total of the orders received amount to less than the total expected production of the next quarter. In this latter case, priority will be given to all orders up to and including 10% of the value of the expected quarterly production and, only after executing these, shall any party be sold a quantity exceeding 10% in value of the quarterly output.
(12) The respondent No. 2 shall within 30 days of filing of terms and conditions with the Commission under para. 8 hereinabove of this order publish in the Times of India, Statesman, Hindu and Indian Express (all editions) an announcement inviting orders to be placed quarterly for their products on the uniform terms and conditions of sale filed with the Commission. Such advertisement shall in the same manner and in the same papers be repeated in January of 1977 and 1978.
(13) The respondents and the Registrar shall be entitled to apply to the Commission under Section 13(2) for amendment or revocation of this order at any time in case of change of circumstances or any other sufficient cause.
(14) The respondent No. 2 shall twice in a year on 30th June and 31st December of each year file an affidavit before the Commission setting out the manner in which the provisions of this order have been carried out. A copy of this affidavit will be furnished to the Registrar. This shall be done for a period of three years from the date of this order.
(15) Except as otherwise provided in this order, the rest of this order shall come into force with effect from 1st January, 1976.
(16) The respondents shall pay to the Registrar costs of proceedings subsequent to the discharge of the rule by the Calcutta High Court fixed at Rs. 1,800.