| SooperKanoon Citation | sooperkanoon.com/53079 |
| Court | Monopolies and Restrictive Trade Practices Commission MRTPC |
| Decided On | Apr-08-1986 |
| Judge | G Luthra, S Manchanda, D Aggarwal |
| Reported in | (1987)62CompCas382NULL |
| Appellant | Director-general of |
| Respondent | India Cements Limited |
2. The respondent is a company registered under the Companies Act and is engaged in the manufacture and sale of cement. The price and distribution of cement to the extent of 67% of the production is controlled by the Central Government and the said cement is called "levy cement". There is no difficulty in respect of that "levy cement".
The remaining 33% of the cement produced by the respondent is known as "non-levy cement" and is saleable in the open market. The respondent sells "non-levy "cement mainly in the territories of Tamil Nadu, Kerala and to a limited extent in Karnataka and Andhra Pradesh.
3. For the purpose of sale and distribution of its non-levy cement, the respondent has appointed a large number of stockists on the terms and conditions as contained in a standard form of agreement and also "standard terms and conditions". According to the applicant, i.e., Director-General (Investigation and Registration), the respondent is indulging in the following restrictive trade practices as are ascertainable from the different terms of the agreement as well as the standard terms and conditions as are being mentioned hereunder : (i) According to Clause 2 of the standard terms and conditions, the area of operation of a stockist is confined and he cannot sell the cement in an area other than the one which has been specified. This is also the restriction contained in Clauses 1 and 6 of the standard agreement. This is a restrictive trade practice within the meaning of Clause (g) of Sub-section (1) of Section 33 which, inter alia, says that any agreement allocating an area or market for the disposal of goods is a restrictive trade practice.
(ii) According to Clause 5 of the standard terms and conditions, the cement will be sold at the price recommended by the company. This is a restrictive trade practice within the meaning of Clause (f) of Sub-section (1) of Section 33 which reads as under : "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." No doubt it is stated in Clause 10 of the standard agreement that the stockist shall not sell cement at prices higher than those authorised from time to time which means that maximum and not minimum price has been fixed. Yet, when the said clause is taken along with Clause 5 of the standard terms and conditions, the effect is that the directions of the respondent are that cement (non-levy) be sold at a particular specified price.
(iii) Clause 11 of the standard agreement prohibits the sale of and dealing in of any cement, whether foreign or Indian, other than the cement marketed by the respondent company. This is a restrictive trade practice within the meaning of Section 33(1)(c) of the Monopolies and Restrictive Trade Practices Act which reads as under : "any agreement restricting in any manner the purchaser in the course of his trade from acquiring or otherwise dealing in any goods other than those of the seller or any other person." (iv) Clause 16 of the agreement requires that a stockist can appoint dealers only with the prior approval of the respondent. This trade practice takes away the liberty of the stockists in respect of appointment of dealers and selling cement to persons of their choice. It is a restrictive trade practice within the meaning of Clause (a) of Sub-section (1) of Section 33 of the Monopolies and Restrictive Trade Practices Act which reads as under : "any agreement which restricts, or is likely to restrict, by any method the persons or classes of persons to whom goods are sold or from whom goods are bought." 4. The respondent contested. It stated that the restrictions on the stockists to the effect that they could not sell the cement in an area other than the one which was allocated to them was reasonable and justified because otherwise all the stockists would try to sell in the urban areas only where cement was in biggest demand with the result that the rural areas situated far off from the central places would have been totally deprived of supply of cement. It stated that the aforesaid restriction was with a view to ensure that the consumer could get cement at a fair and competitive price.
5. It admitted the existence of various clauses of the agreement but stated that there was no bar on the stockists to charge lesser price than that specified by the former and that actually lesser prices were being charged. It also denied the existence of other restrictive trade practices. It was pleaded that for a trade practice to be deemed as a restrictive trade practice, it was necessary that the same must come within the four corners of the definition of Section 2(o) of the Act and that Section 33 of the Monopolies and Restrictive Trade Practices Act neither illustrated nor defined any restrictive trade practice and that, therefore, any trade practice, even if it fell squarely within the provisions of Sub-section (1) of Section 33, it was not a restrictive trade practice.
"1. Whether the enquiry is not maintainable for the preliminary grounds alleged by the respondent in its reply dated August 8, 1985, to the notice of enquiry 2. Whether the respondent has been indulging in the trade practices as mentioned in the notice of enquiry dated July 9, 1985 3. If the answer to issue No. 2 is in the affirmative, then whether the said trade practices are restrictive trade practices within the meaning of Section 2(o) and Clauses (a), (c), (f) and (g) of Section 33(1) of the Monopolies and Restrictive Trade Practices Act 4. If the answer to issue No. 3 is in the affirmative, then whether the said respondent is entitled to avail of the gateways provided under Section 38(1) (a), (b), (d), (h) and (k) or under the balancing clause in the latter part of Section 38(1) of the Monopolies and Restrictive Trade Practices Act 7. Issue No. 1: It appears that the present issue was framed on account of some misunderstanding. The issue refers to taking up of some preliminary grounds by the respondent in its reply dated August 8, 1985. However, no preliminary ground or objection is mentioned as such in the said reply. However, at the time of arguments, learned counsel for the respondent contended that the Monopolies and Restrictive Trade Practices Act contemplated and designated such trade practices as restrictive trade practices only which came within the purview of the definition given in Section 2(o) of the said Act and that the trade practices mentioned in Sub-section (1) of Section 33 of that Act did not amount to restrictive trade practices. For understanding the submission of the learned counsel, it is necessary to reproduce the opening part of Sub-section (1) of Section 33, which reads as under : "Every agreement falling within one or more of the following categories shall be deemed, for the purposes of this Act, to be an agreement relating to restrictive trade practices and shall be subject to registration in accordance with the provisions of this Chapter, namely :--" 8. Learned counsel for the respondent laid emphasis on the words "relating to restrictive trade practices". He submitted that these words clearly indicated that the trade practices which were detailed in Sub-section (1) of Section 33 were to be taken as such only for the purpose of registration of the agreement and Section 33 did not enumerate any of such practices. The learned counsel contended that as in the present case none of the alleged restrictive trade practices fell within the definition of such practice as given in Section 2(o), the respondent could not be held to be indulging in any restrictive trade practice on the mere ground that such practice fell within the purview of Sub-section (1) of Section 33.
9. In our opinion, the aforesaid argument is fallacious and does not carry any conviction. The words "shall be deemed for the purposes of this Act" carry great significance. These words clearly indicate that for the purposes of the Monopolies and Restrictive Trade Practices Act, it is to be deemed or in other words taken for granted that the practices mentioned in Sub-section (1) of Section 33 are restrictive trade practices. The words "shall be deemed" have been the subject of judicial interpretation and it is well established that they mean that it must be taken for granted by the court that whatever is stated to be "deemed" actually and in reality exists. Some of the authorities in this respect are :Consolidated Coffee Ltd. v. Coffee Board, Bangalore [1980] 46 STC 164 ; AIR 1980 SC 1468.State of Bombay v. Pandurang Vinayak, AIR 10. In this respect it is very important to mention that the present opening words of Sub-section (1) of Section 33 came into existence on account of an amendment of the Monopolies and Restrictive Trade Practices Act. That amendment came into force with effect from August 1, 1984. Previously such words read as under : "Any agreement relating to a restrictive trade practice falling within one or more of the following categories shall be subject to registration in accordance with the provisions of this Chapter, namely :--" 11. In respect of the previous Section 33, it was held by the Supreme Court that Section 33 by itself neither enumerated nor illustrated any restrictive trade practice and that for a trade practice to be termed as restrictive one, the same must fall within the definition of restrictive trade practice as given in Section 2(o) of the Monopolies and Restrictive Trade Practices Act. The following observations were made by the Supreme Court in Mahindra and Mahindra Ltd. v. Union of India [1979] 49 Comp Cas 419 ; AIR 1979 SC 798, which occurred in paragraph 20 of the judgment (at page 437 of 49 Comp Cas) : "We have already pointed out that, according to the decision in Telco's case [1977] 47 Comp Cas 520 (SC), a trade practice does not become a restrictive trade practice merely because it falls within one or the other clause of Section 33(1), but it must also satisfy the definition of ' restrictive trade practice' contained in Section 2(o) and it is only then that the agreement relating to it would require to be registered under Section 33(1). It is, with the greatest respect to the learned Chief Justics, not correct to say that a particular clause in an agreement is struck by one or the other clauses of Section 33(1). It is not Section 33(1) which invalidates a clause in an agreement relating to a trade practice, but it is the restrictive nature of the trade practice as set out in Section 2(o) which makes it void. The view taken by the learned Chief Justice on this point cannot, therefore, be accepted." 12. It appears that it was on account of the aforesaid judgment of the Supreme Court that the amendment was brought about in the opening words of Section 33(1). The words "shall be deemed, for the purpose of this Act" were designedly incorporated so as to override the observations made by the Supreme Court. The Legislature wanted to make it clear that every trade practice mentioned in Sub-section (1) of Section 33 of the Monopolies and Restrictive Trade Practices Act was a restrictive one simply because it fell within one or the other clauses of that sub-section. Hence, it is wrong on the part of learned counsel for the respondent to suggest that whatever trade practices which were mentioned in Sub-section (1) of Section 33 were alone to be taken as restrictive trade practices for the limited purpose of finding out the registrable nature of the agreement, clauses of which contained such trade practices and that those trade practices were not to be taken as restrictive ones for any other purpose.
13. With the above observations, we decide the issue against the respondent and find that the application of the Director-General (Investigation and Registration) is legally maintainable.
14. Issues Nos. 2 and 3 : The respondent does not contest that the agreement between it on the one hand and the stockists on the other hand consists of a standard agreement and also standard terms and conditions as alleged by the Director-General. There is also no contest that different clauses of the standard agreement and standard terms and conditions contravene the provisions of Sub-section (1) of Section 33 of the Monopolies and Restrictive Trade Practices Act as has been stated in paragraph 3 of this judgment. The only contention raised was that the trade practices mentioned in Section 33(1) do not amount to restrictive trade practices. The case of the respondent, during the evidence, has been that although the aforesaid practices are contained in the standard agreement and the terms and conditions, yet in practice the same were not being adhered to. A number of witnesses were produced by the parties. It was on these lines that the cross-examination of the witnesses produced by the Director-General and the examination-in-chief of the witnesses produced by the respondent proceeded. The statements are being mentioned briefly in this respect.
15. Shri G. Baby (AW-2) is a managing partner of M/s. George Sons and Co., Kerala. He stated that he was working as a stockist of the respondent since 1974 under the standard terms and conditions and the standard agreement. The standard agreement and standard terms and conditions have been marked as exhibits A1-B and A1-A. He added that the agreement did not restrict him from selling any other brand of cement even though Clause 10 of the standard terms and conditions provided that he should not deal with any other brand of cement. In cross-examination, he added that his firm used to give priority for supplies to the old customers in the territory specified by the respondent but that if the stock then happened to be surplus, the same used to be sold outside their territory. He also deposed, in cross-examination, that although the company had recommended a selling price, sometimes cement was sold at lesser price also in the event of lesser demand.
16. Shri K.V. Thankachan (AW-3) is proprietor of a business known as K.V. Hardware. He is one of the stockists of the cement manufactured and supplied by the respondent. His statement is more or less on the same lines as AW-2.
17. Shri Chalapan Chettiya (AW-4) is also one of the stockists of Shankar Cement manufactured and supplied by the respondent. In cross-examination, he stated that he was normally selling the cement at the price recommended by the respondent and that there had been no occasion to sell the cement at a price lower than the recommended one.
His statement supports the contention of the Director-General that even in practice cement supplied by the respondent is being sold at a particular price and could not be sold at a price lower than that, thereby violating Section 33(1)(f).
18. Shri M. Shankarappa (AW-5) is the chief marketing officer of Panyam Cements and Minerals Industries Ltd. That company, as was stated by AW-5, was manufacturing and selling cement in the States of Andhra Pradesh and some other States. He deposed that the dealers of his company could deal in any brand. His statement was to indicate that the restriction of selling cement of one brand only was confined to the cement manufactured by the respondent and not to the dealers of other manufacturers.
19. The respondent produced Shri N. Ramakrishnan (RW-1). He stated that he was acting as sales manager and that he was looking after the execution of the agreements relating to the sale of cement by the various stockists, that the maximum price for the sale of cement used to be fixed from time to time and that the stockists were at liberty to sell the cement at any price they liked. He added that he had 1,200 stockists in Tamil Nadu and Kerala where their cement was being sold to the maximum extent. According to him, the maximum price of the cement used to be fixed while the stockists were at liberty to sell the cement at any price lower than the maximum price.
20. We have already dealt with the contention of the respondent that Section 33 does not by itself enumerate what are the restrictive trade practices and that for a trade practice to be designated as restrictive one, it must pass through the test of definition of such practice as in Section 2(o) of the Monopolies and Restrictive Trade Practices Act. We have already dealt with the said contention and have found it to be having no force. When the respondent does not dispute that the impugned trade practices fall within the provision of Section 33 of the Monopolies and Restrictive Trade Practices Act, the only conclusion is that the respondent is indulging in restrictive trade practices as alleged by the Director-General. The issues, therefore, are decided in favour of the Director-General and against the respondent.
21. Issue No. 4 : Sub-section (1) of Section 37 of the Monopolies and Restrictive Trade Practices Act, which reads as under, prescribes as to what is to be done if there is indulging in a restrictive trade practice : "The commission may inquire into any restrictive trade practice, whether the agreement, if any, relating thereto has been registered under Section 35 or not, which may come before it for inquiry and, if, after such inquiry it is of opinion that the practice is prejudicial to the public interest, the Commission may, by order, direct that- (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." 22. It is apparent from the aforesaid provision that before any action can be taken against a person indulging in a restrictive trade practice, it is necessary that the said practice should be prejudicial to the public interest. Section 38 of the Monopolies and Restrictive Trade Practices Act embodies a presumption to the effect that a restrictive trade practice is prejudicial to the public interest. But at the same time that very Section 38 narrates certain circumstances under which a restrictive trade practice should be held to be not prejudicial to public interest. It is on some of those circumstances given in Clauses (a), (b), (d), (h) and (k) of Sub-section (1) of Section 38, reliance is being placed by the respondent. Clause (a) reads as under : "that the restriction is reasonably necessary, having regard to the character of the goods to which it applies, to protect the public against injury (whether to persons or to premises) in connection with the consumption, installation or use of those goods." 23. The aforesaid clause is applicable in the present case as far as the restriction placed on the dealers to the effect that they should not deal in any brand of cement other than that of the respondent.
Obviously, that restriction is reasonably necessary, otherwise there could be possibility of mixing up and the consumer getting either a mixture of two brands or a different brand of cement. Hence such restriction is necessary to protect the public from getting cement other than the one desired.
24. The real basis of banning the monopolistic and restrictive trade practices is to ensure competition among private business enterprises.
The object to be achieved is unrestrained interaction of competitive forces so that there should be lowest possible prices, the highest quality and the greatest material progress.
25. If we look at the restrictive trade practice of not allowing the stockists to keep a different brand of cement from the aforesaid point of view, such practice cannot be prejudicial to the public interest.
The other brands of cement can be and are generally kept by other stockists and healthy competition goes on between the stockists of the cement manufactured by the respondent as well as that manufactured by other concerns. Therefore, this type of restrictive trade practice, having regard to the nature of the commodity of cement involved which can be easily mixed up with or passed off for another brand of cement, and the restriction imposed by the respondent is reasonable and should not be directed to be struck off.
26. Now, we have to examine, if Clause 16 of the standard agreement requiring that stockists can appoint dealers only with the prior approval of the respondent is prejudicial to the public interest or not. In this respect, it may be emphasised that the restriction is not in respect of sale of cement to all the persons of choice by the stockists appointed by the respondent. The restriction is confined to appointment of dealers only and there is no prohibition either to the stockists or to the dealers to sell the cement to anyone they liked.
The case of the respondent is that such restriction is necessary so that undesirable dealers are not appointed by the stockists, because such dealers might indulge in malpractices of selling cement adulterated with some other substances like sand or they might sell lesser quantity than declared by way of pilferage of cement from the bags. This apprehension on the part of the respondent is testified by Shri N. Ramakrishnan (RW-1). Relevant portion of his statement reads as under : "We are anxious to ensure that the brand of the company is not tarnished through the appointment of undesirable sub-dealers. " 27. The aforesaid malpractices can tarnish the image of the manufacturers, i.e., the respondent. The aforesaid consideration of maintaining the restriction is covered by Clause (a) of Sub-section (1) of Section 38 which has already been reproduced. The restriction is reasonably necessary having regard to the nature of the goods, i.e., cement to protect the public against injury of getting adulterated cement or lesser quantity than what is declared.
28. The aforesaid observations also stand covered by Clause (b) of Sub-section (1) of Section 38 which reads as under ; "that 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 or operations resulting therefrom." 29. The removal of the restriction (of approval by the respondent of the appointment of sub-dealer by the stockists) can have the effect of denial of substantial benefit to the consumers or users of cement because if that restriction is removed, as already mentioned, consumers of cement manufactured by the respondent, can be deprived of the purity and full commodity by an undesirable dealer indulging in the aforesaid malpractices.
30. None of the clauses of Sub-section (1) of Section 38, however, tone down or take out the sting of being prejudicial to public interest from the restrictive trade practice of selling the cement on a recommended or fixed price. Learned counsel for the respondent also could not urge anything in this respect. It has come in evidence that a price lower than the one recommended by the respondent is being charged in practice, when demand of cement is less. But there is no provision in the agreement that prices lower than the ones fixed by the respondent can be charged. Hence, inspite of charging of lower price in some cases, in actual practice, Clause 5 of the standard terms and conditions will have to be declared void. However, Clause 10 of the standard agreement does escape such treatment and cannot be declared void because it only fixed a maximum and not a minimum price. But it is necessary that it is made clear in that clause that a price less than that indicated can be charged.
31. The restrictive trade practice of making the stockists confine their sales within the specified area, is saved by Clause (k) of Sub-section (1) of Section 38 of the Act which reads as under : "that the restriction is necessary to ensure the maintenance of supply of goods and services essential to the community." 32. The contention of the respondent is that if such restriction is not imposed, all the stockists will sell their stocks in urban areas where the demand is huge because in that way they will be recovering their investments and profits with ease and speed with the result that they will ignore the needs of far-flung rural areas within the territory allocated to them. This contention is obviously very convincing. It is necessary that the consumers in far-flung areas should also have satisfaction of their requirements of cement and their share should not pass on to more affluent localities where the demand is more. In this way keeping up of such restriction is necessary to ensure the maintenance of supply of goods to the entire community including the people living in far-flung and remotely situated rural areas.
33. Issue is decided to this extent that Clause 5 of the standard terms and conditions will have to be declared void and that Clause 10 will have to be redrafted, so as to include the words that prices lower than the recommended price may be charged from the consumers.
34. Issue No. 5 : The net result is that the application succeeds to this extent that Clause 5 of the standard terms and conditions is hereby declared void and it is also directed that as far as Clause 10 of the standard agreement is concerned, the same should be redrafted with a view to include the words that prices lower than the price recommended or price fixed by India Cements Limited can be charged from the consumers by the stockists. Affidavit of compliance be filed by the respondent within two months.