Judgment:
1. This shall dispose of a notice of enquiry issued by the Commission on February 1, 1993, alleging that the agreement between Vadilal Enterprises Limited ("respondent No. 1" hereafter) and Vitran ("respondent No. 2" hereafter) contains certain clauses which constitute restrictive trade practices falling within the provisions of Section 33(1)(a) and Section 33(1)(g) of the MRTP Act, 1969. Respondent No. 1 is engaged, inter alia, in the business of manufacture and marketing of Vadilal ice-cream. Respondent No. 2 was appointed by respondent No. 1 as a stockist to cater to the needs of Jabalpur region.
2. The respondents entered into an agreement on September 10, 1989, in which the following two clauses appear : "1. All appointments and terminations of retail dealers should have company's approval and shall be executed by its sales executives and sales representatives.
2. Your territory will be assigned an annual target. You have to co-operate fully in order to achieve the same." 3. The notice of enquiry dated February 1, 1993, alleges that the first of the two clauses extracted above, restricts the persons or classes of persons to whom goods arc sold and thereby constitutes a restrictive trade practice under Section 33(1)(a) of the Act. It further alleges that the second of the two clauses extracted above, allocates an area or market for the disposal of goods and fixes an annual target unilaterally and thereby constitutes a restrictive trade practice under Section 33(1)(g) of the Act.
4. On the notice of enquiry being communicated to the respondents, respondent No. 2 furnished its reply of date March 29, 1993, and respondent No. 1 furnished its reply of date April 21, 1993. The notice of enquiry had specified the returnable date as April 2, 1993. Thus, while respondent No. 2's reply was received in time before the returnable date, respondent No. 1's reply was received late, well after the returnable date. When the Commission had its hearing on the returnable date, namely, April 2, 1993, as respondent No. 1 had not put in its appearance, proceedings were ordered ex parte against it.
However, for the purposes of this adjudication, respondent No. 1's reply, though belatedly received, has been taken into consideration in the interest of justice. A summary of the replies of respondent No. 1 and respondent No. 2 is as under : It is respondent No. 2 which had originally filed the complaint which has led to this enquiry. The said complaint petition of respondent No. 2 has not alleged that the two clauses of the agreement extracted in the notice of enquiry, constitute restrictive trade practices. The enquiry thus "is not legal and proper". Without prejudice to this contention, the first of the two clauses extracted does not constitute a restrictive trade practice under Section 33(1)(a) of the Act, as the appointment of retail dealers is made by respondent No. 1 on the recommendation of respondent No. 2. There is no restriction imposed on the stockist, respondent No. 2. While appointing retail dealers, respondent No. 1 needs to examine various aspects such as experience, and capacity of the former and also his location. Respondent No. 1 is therefore selective in appointing retail dealers. Ultimately, however, it is respondent No. 1 which directly appoints a retail dealer and thus there is no restriction upon stockists like respondent. No. 2.
5. In so far as the second of the clauses extracted in the notice of enquiry is concerned, it does not trench upon Section 33(1)(g) of the Act, as the said clause does not restrict or withhold output or supply of goods. On the contrary, by assigning annual targets for sale, supply stands increased.
Respondent No. 1 has been irregular in honouring its commitments under the terms and conditions agreed upon between the two respondents, causing financial loss to respondent No. 2. Respondent No. 2 was left with no alternative except to terminate the stockistship agreement. It was agreed that respondent No. 1 would liquidate claims and payments due to respondent No. 2 but respondent No. 1 avoided and failed to do so. Respondent No. 2 has claimed from respondent No. 1 an amount of about Rs. 1,9 lakhs plus interest and costs of these proceedings.
Respondent No. 2 in its reply has not responded to the specific charges in the notice of enquiry, as apparently it considers this enquiry as targeted against respondent No. 1 and as the notice of enquiry is an offshoot of its own complaint against respondent No.6. It has been noted earlier that respondent No. 1 has been set ex parte. After perusal of the pleadings, the following issues were framed : 1. Whether respondent No. 1 has indulged in the restrictive trade practice as per the allegation made in the notice of enquiry 2. If answer to question No. 1 is in the affirmative, whether the said trade practice is not prejudicial to public interest 7. The Director-General of Investigation and Registration ("DG" for brief) relied on only documentary evidence, namely, the agreement between respondent No. 1 and respondent No. 2, the complaint petition of respondent No. 2 addressed to the Director-General through a letter from its advocate, Shri G.C. Jain, and the receipt of respondent No. 1 for Rs. 60,000 paid by respondent No. 2 towards stockistship deposit.
They were admitted and marked as exhibits "A-l", "A-2" and "A-3", respectively. Respondent No. 2 furnished the affidavit of Shri Yogesh Kumar Agarwal, its partner, by way of evidence. We gave a hearing to Ms. Renu Sehgal, advocate, for the Director-General and Shri B.S.Banthia, advocate, for respondent No. 2.
8. The first of the two clauses of the impugned agreement extracted in the notice of enquiry needs to be dropped as the appointment of retail dealers is by respondent No. 1 and not by respondent No. 2. In other words, appointments and terminations of retail dealers are done by respondent No. 1 itself and thus there is no restriction on stockists like respondent No. 2. It can never be disputed that Vadilal Enterprises Limited, namely, respondent No. 1 in its capacity as a manufacturer should have the complete right to appoint its retail dealers. If a stockist like respondent No. 2 were to appoint its retail dealers and if respondent No. 1 states that respondent No. 2's right will be restricted in the sense that respondent No. 1's approval or concurrence is required, then it might constitute a restriction and thus a restrictive trade practice under Section 33(1)(a) of the Act. In the instant case, respondent No. 1 appoints the retail dealers and thus there is no restriction on respondent No. 2. In proof of this, respondent No. 1 has annexed the dealership appointment letter to its reply to the notice of enquiry. The first charge therefore fails.
9. In so far as the second charge is concerned, the second clause of the agreement extracted in the notice of enquiry clearly declares that there is a territory assigned for the stockists besides annual targets.
This clearly attracts Section 33(1)(g) of the Act, as the said provision of law deems any agreement which allocates any area or market for the disposal of goods as a restrictive trade practice. Furthermore, there is nothing in the reply of respondent No. 1, which defends this trade practice of territorial limitation from any standpoint. Its reply on the other hand deals with the absence of any restriction on the supply or output of goods which is not the charge. The charge relates to territorial restriction.
10. In the premises, the second charge stands established. Respondent No. 1 is, therefore, guilty of the restrictive trade practice under Section 33(1)(g) of the Act. The first issue is answered in the affirmative. The second issue is answered in the negative as the aforesaid restrictive trade practice is clearly prejudicial to public interest as allocation of territory has pejorative consequences on competition qua consumers.
11. Respondent No. 1 is therefore directed to cease the restrictive trade practice indulged in by it in terms of Section 33(1)(g) of the Act and desist from indulging in the same in future. Respondent No. 1 is further directed to suitably amend the clause in the agreement which we have held as attracting Section 33(1)(g) of the Act so that the restrictive trade practice in question is removed. Respondent No. 1 shall file an affidavit of compliance within four weeks of the date of this order.
12. There is a separate compensation application filed by respondent No. 2 against respondent No. 1. Respondent No. 2 has been directed to file a fresh application as the earlier application needs to be amended for technical reasons. The amended application will be listed for consideration after it is filed.