Monopolies and Restrictive Trade Practices Commission
Registrar Of Restrictive Trade ... vs Bata India Ltd. on 5 May, 1975
Equivalent citations: [1976]46COMPCAS441(NULL)
ORDER
1. On 23rd February, 1974, the Registrar of Restrictive Trade Agreements (hereinafter for the sake of brevity referred to as "the Registrar") filed against Bata India Ltd. (hereinafter for the sake of brevity referred to as "the respondent") an application under Sections 10(a)(iii) and 37 of the Monopolies and Restrictive Trade Practices Act, 1969 (hereinafter for the sake of brevity referred to as "the Act"), alleging that the respondent had entered into several agreements in the standard form with its wholesalers, etc., for marketing its merchandise. It is stated that the respondent is engaged in the manufacture of leather and rubber/canvas footwears and also buys footwears manufactured by small scale entrepreneurs and markets the same through its own retail and wholesale outlets under its own brand names and in addition has entered into arrangements with some manufacturers of PVC footwear. It is further stated that the footwear sold by the respondent through its retail shops bears the brand name of BATA and that sold to wholesalers is marketed with the brand name of BSC, although there is no difference in quality of these two brands of the products. This application was allowed to be amended by the Commission's order dated 5th September, 1974. The amendment alleged that the respondent had entered into/arrived at the agreements including arrangement/understanding with different, manufacturers whose products are purchased and marketed by the respondent under its own brand name "BATA" or "BSC". In the said original application, the Registrar alleged (1) that the respondent has sales organisation throughout India and uniform sale prices are fixed by it for sale throughout the country and that it has provided that the sale would be at prices fixed by it. It is stated that the price list circulated by the respondent to its wholesalers, dealers, etc., contained wholesale price per pair and retail price per pair for each type of footwear and the retail prices are also embossed on the footwear, and (2) that the agreements with the wholesalers, etc., contain the following objectionable clauses:
"With reference to our discussions regarding the terms and conditions of your offer in contracting to buy from us in wholesale, at listed wholesale prices, in the normal course of wholesale trade...pairs of footwear of different varieties of "BSC" mark only (although any particular variety of footwear is exactly the same whether marked 'BSC' or 'BATA') of a total gross value of Rs....to be delivered to you within six months from the date...the whole contracted supply to be delivered in thirteen fortnights divided more or less equally in each fortnight, we have pleasure in contracting to sell you the above quantity of footwear in wholesale, at listed wholesale prices, on the following terms and conditions :
1. (a) During the period mentioned above, you contract to buy from us in wholesale...pairs of 'BSC' footwear of different varieties of the total gross value of Rs.......at our listed wholesale prices, to be delivered to you ex our depot at......
(e) You may buy from us more than the contracted quantity in pairs and rupees and we shall supply these to you if we are able to do so.
3. On purchases made by you the following trade discount will be allowed on wholesale prices :
A. (a) 8.25 per cent. for leather, chappal and hawai wedge categories.
(b) 8.50 per cent. for other categories.
B. (a) At the rate of 1 per cent. of your total turnover for the period concerned.
(b) Should your total turnover for the period concerned exceed Rs....an extra one per cent. will be paid on so much of the said turnover as is in excess of the said sum of Rs....
(c) This trade discount will be calculated and paid at the end of the period concerned.
This discount as in (B) above will be payable provided each of the following conditions is fulfilled:
(i) During - the period of six months mentioned above you have taken delivery from us of a minimum of 90 per cent. of the quantity mentioned in para 1 (a) above both in pairs and in rupees.
(ii) During the first six fortnights of the said six-month period you have taken delivery from us, in all, of a minimum of 80 per cent. of the total mutually agreed quantities in pairs and rupees for the said six fortnights.
(iii) In the event of credit facilities having been approved for you, your total outstandings against credit not having exceeded the sanctioned credit amount at any time and each credit invoice has been paid for within the prescribed time.
(iv) In the event of documents giving you a right to delivery of goods having been negotiated through the bank, such documents have been retired by you from the bank against payment within 18 days of the date of invoice."
The Registrar alleged that the said practice amounted to and these clauses of the agreement related to restrictive trade practices inasmuch as they imposed restrictions on the wholesalers and the retailers to whom the goods are sold by the respondent and, inter alia, provided for full-line forcing. payment of discount bonus, resale price maintenance and thereby attract Clauses (a), (b), (e) and (f) of Section 33(1) of the Act.
2. The Registrar has further alleged that the agreements including arrangements/understanding entered/arrived at between the respondent and different manufacturers whose products are purchased and marketed by the respondent under its brand name "BATA" or "BSC" reveal that the respondent is indulging in the following restrictive trade practices :
10(a). 1. Requiring the manufacturers to manufacture footwear only according to the requirements and specifications of the respondent.
2. Prohibiting the manufacturers from purchasing raw materials and other components from parties other than those approved by the respondent.
3. Prescribing the number of moulds to be procured by manufacturers according to the respondent's specifications.
4. Reserving the right for selection of moulds to be used by the manufacturers.
5. Prohibiting the manufacturers from procuring or using moulds other than those approved by the respondent.
6. Requiring the manufacturers to use the moulds exclusively for the purpose of manufacturing footwear for supply to the respondent.
7. Preventing the manufacturers from enlarging their production capacity without the approval/consent of the respondent.
8. Reserving the right to decide on the type of machines to be installed by manufacturers in the event of enlargement of their capacity.
9. Binding the manufacturers to enter into a fresh agreement in the event of enhancement of their production capacity.
10. Preventing and restricting the manufacturers from selling their additional production arising out of the enhanced capacity to a party other than the respondent.
11. Requiring the manufacturers to sell the quantity of footwear surplus to the respondent's requirements only to persons approved by the respondent.
12. Restricting the use of premises for a purpose other than that agreed upon.
13. Requiring the manufacturers to utilise their full production capacity only for production of footwear for the respondent.
14. Restricting the manufacturers from selling footwear to parties other than the respondent.
15. Reserving right for purchase of moulds after their cost has been depreciated.
16. Binding the manufacturers to sell all the moulds to the respondent in the event of termination of the agreement.
17. Claiming absolute ownership of the moulds in the event of termination of the agreement.
18. Requiring the manufacturers to sell such quantity of footwear as may be surplus to the requirement of the respondent only at prices approved by the respondent.
The Registrar alleged that the above restrictive trade practices indulged in by the respondent amounted to (1) restricting the persons or classes of persons to whom goods are sold or from whom goods are bought; (2) limiting, restricting and withholding the output or the supply of goods and allocating markets for the disposal of the goods ; (3) restricting the employment of methods, machinery and process in the manufacture of goods ; and (4) selling goods at prices as have the effect of eliminating competition and competitors.
3. The Registrar alleged that the restrictive trade practices as set out above and indulged in by the respondent have the effect of preventing, distorting and restricting competition and, in particular, obstructing the flow of capital and resources into the stream of production and bring about manipulation of prices and conditions of delivery and affect the flow of supply in the market in a manner as to maximise profits and to impose unjustified costs and restrictions on the consumers. It is also alleged that the restrictive trade practices referred to above indulged in by the respondent are prejudicial to public interest. Therefore, he prayed that the Commission may enquire into these restrictive trade practices and pass appropriate orders under Section 37 of the Act.
4. The respondent filed its statement of case on 29th May, 1974, and the Registrar filed his rejoinder on 24th July, 1974. On 29th August, 1974, the Registrar made an application for amendment of his application by inserting therein paragraphs 10(a) and 10(b). This amendment was allowed by us by our order dated 5th September, 1974. The respondent filed its further statement of case on 29th October, 1974, and the Registrar filed his rejoinder on 12th November, 1974. In the statement of the case, the respondent denied that it is practising resale price maintenance and that the impugned clauses of the agreement with the wholesalers, etc., did not relate to restrictive trade practices. In the further statement of the case, the respondent denied that any agreement or arrangement or understanding entered into or arrived at between the respondent and the different manufacturers whose products are purchased and marketed by it under its brand name "BATA" or "BSC" involves any restrictive trade practices and that all the allegations made relating to these agreements or arrangement or understanding are directed against the previous agreements between the respondent and the manufacturers under which the products of the said different manufacturers were purchased and marketed by it, all of which have expired and/or have been terminated and that the said agreements are no longer in force. With regard to items 8, 9, 11, 13, 14, 15, 16 and 17, the respondent has claimed that they are only for the purpose of protecting the registered designs of the respondent under the Patent and Designs Act, 1911, and/or the Designs Act, 1911, and as such they did not amount to restrictive trade practices. It is stated that there are now two types of new agreements (which are annexed to the further statement of case) and apart from these two types of agreements there is no other type of agreement which is now in force. The respondent has submitted that assuming that the said provisions of the Act are attracted in the present case, it will rely on the provisions of Clauses (a), (b), (c), (e), (f), (g) and (h) of Section 38(1) and the balancing clause in the said section.
5. On the above pleadings, the following issues were framed on 14th February, 1975 :
(1) whether the terms and conditions of-
(a) the standard contract referred to in paragraphs 9 and 10, and
(b) the agreements/arrangement/understanding between the respondent and the manufacturers whose products are purchased/marketed by the respondent as referred to in paragraphs 10(a) and 10(b) of the Registrar's application relate to the restrictive trade practices ?
(2) If the answer to the issue No. (1) is in the affirmative whether the respondent is entitled to the benefits of Clauses (a), (b), (c), (d), (f), (g) and (h) of Sub-section (1) of Section 38 of the Act or any of these clauses ?
(3) To what reliefs, if any, is the applicant entitled ?
6. The Registrar applied today for amendment of issue No. 1 so as to add thereto the following clause :
"(c) the trade practice as stated in paragraph 5 ". We have amended issue No. 1 accordingly.
7. At the hearing of the application on 21st April, 1975, Dr. L.M. Singhvi appearing on behalf of the respondent stated before us that except with regard to Clause 3B of the standard agreement with its wholesalers, etc., the respondent will submit to such orders under Section 37 as the Commission may pass on the assumption that the conditions for passing such orders existed. Dr. Singhvi further stated that it may also be assumed that Clause 3B of the standard agreement with wholesalers, etc., related to the restrictive trade practice ; but he submitted that the restriction imposed by this trade practice did not directly or indirectly restrict or discourage competition to any material degree in the trade and that the said restriction was not unreasonable having regard to the circumstances of the case.
8. Both the parties stated that they did not desire to lead any evidence.
9. We may first consider whether the terms and conditions specified in Clause 3B of the standard agreement with wholesalers, etc., pass through the gateway mentioned in Clause (h) of Section 38(1) and satisfy the balancing test of Section 38(1).
10. The respondent gives a uniform discount of 8.25% for leather, chappal and hawai wedge categories and 8.50% for other categories and gives a further discount of 1% on the total contracted turnover provided certain conditions are fulfilled. For eligibility to earn this discount no minimum turnover in terms of value or quantity is prescribed and it is given irrespective of the volume of the contracted turnover. It is in the nature of incentive for the due performance of the contract. The respondent also gives an extra discount of 1% on so much of the turnover as is in excess of the specified value provided certain conditions are fulfilled. This is provided in Clause 3B(b) of the agreement. It is this extra discount which results in price discrimination between the large buyers and the small buyers. The respondent has filed an affidavit and justifies the practice of giving this extra discount of 1% as follows:
"The respondent company gives a further discount of extra 1% to the wholesalers provided he achieves a target of over 90% of the contracted turnover. The said cases of 1% discount are considered only when the wholesalers had also fulfilled certain conditions laid down by the respondent company as follows :
(a) At least 90% of the agreed quantity is lifted by the wholsalers during the agreed period.
(b) During the first six fortnights of the agreed period 80% of the agreed quantity is lifted by the wholesalers.
(c) In case the wholesaler enjoys credit facility, his outstandings never can be beyond the sanctioned credit and each credit invoice is paid within the prescribed time.
(d) In case the wholesaler is negotiating with the respondent company on documents through bank the wholesaler retires the documents against payment within 18 days of the date of invoice.
11. I say that the aforesaid discounts based on the aforesaid conditions are granted by the respondent in view of the considerable savings in cost resulting from the due fulfilment of the aforesaid conditions. Retirement of documents and payments of invoices within time results in savings of considerable amounts on account of interest to the respondent company. Lifting of stocks within time prevents accumulation of stocks with the respondent company and there is smooth flow of the goods manufactured by the respondent company resulting in increased productivity and better production planning. Further, the lifting of the 80% of the agreed quantity in the first six fortnights results in added economies of production and smooth flow of goods manufactured by the respondent company. Having regard to the savings resulting to the respondent company, the granting of the extra 1% discount to the wholesalers really amounts to the passing on of a part of the savings by the respondent to the wholesalers."
12. We see considerable force in this justification. The rate of extra discount given on the basis of turnover of the specified value is 1% and it is uniform. The respondent has shown that it represents cost saving being passed on to the purchasers. This being the case we are of the view that the extra discount based on turnover of the specified value allowed by the respondent in this case is such as will not affect competition in any material degree and considering the fact that it represents costs saving being passed on to the purchaser we think on balance that the practice is not unreasonable on the facts of this case. Therefore, in respect of Clause 3B(b) of the standard agreement with the wholesalers, etc., no order under Section 37(1) need be passed.
13. Paragraph 1(a) of the standard agreement with the wholesalers, etc., provides that "during the period mentioned above you contract to buy from us in wholesale...pairs of BSC footwear of different varieties of the total gross value of Rs.... at our listed wholesale prices to be delivered to you ex our depot at...." It is alleged that this amounts to the restrictive trade practice of full-line-forcing. It is stated on behalf of the respondent that this clause of the agreement does not amount to full-line forcing for the wholesaler is free to choose any number of pairs of footwear of different varieties and place an order therefor, and in the contract, "only the total number of pairs of footwear of different varieties and the total amount payable in respect thereof is recorded", the contract thus being based entirely on the orders placed by the wholesalers, etc. However, on the assumption that it relates to the restrictive trade practice of full-line-forcing, it is stated on behalf of the respondent that this clause of the agreement would be modified so as to add after the words "different varieties", the words "in respect of which you have placed orders" or "as ordered by you". We are satisfied that if Clause 1(a) is so modified as suggested it would cease to relate to the restrictive trade practice of full-line-forcing. In addition to this we think that it should also be made clear in this clause that the total gross value to be stated therein should be merely a computation of the value of the footwear of different varieties for which the order is placed by the wholesalers, etc. We are, therefore, of the view that this clause of the agreement be modified accordingly.
14. It is alleged in paragraph 5 of the application that the respondent has sales organisation throughout India and uniform sale prices are fixed by it. It is further stated that the price lists circulated by the respondent to its wholesalers, dealers, etc, contain wholesale price per pair and retail price per pair for each type of footwear and the retail prices are also embossed on the footwear. The respondents deny that they indulge in the practice of resale price maintenance. However, it is stated on behalf of the respondent that it may be assumed that the respondent is indulging in the said restrictive trade practice. It is further submitted on behalf of the respondent that it would conspicuously mention in the price list issued by it that "the dealers are free to charge prices lower than these prices " and that it would agree to any suggestion as to the manner in which the price should be embossed on the footwear so far as it is practicable. We are of the view that the trade practice of resale price maintenance as complained of in the application will cease if the respondent conspicuously states on the price lists issued by it that the wholesalers and retailers are free to charge prices lower than those specified therein and if it embosses on the footwear the words and figures: "price not to exceed Rs......."
15. With regard to the restrictive trade practices as alleged in paragraph 10(a) of the application it is stated that they are revealed from the agreements including arrangement/understanding entered into/arrived at between the respondent and different manufacturers whose products are purchased and marketed by the respondent. No copy of such agreement has been filed with the Commission and consequently we proreed on the basis that they are only matters of practice. The respondent does not deny existence of these trade practices. On the contrary it has stated that all these allegations related to previous agreements or arrangements all of which have either expired or been terminated. It is submitted on behalf of the respondent that the respondent will submit to such orders under Section 37(1) of the Act as the Commission may pass on the assumption that practices mentioned at items 2, 7, 8, 9, 10, 12 and 13 constitute restrictive trade practices. However, with regard to the trade practices mentioned at items 11, 14 and 18 of paragraph 10(a) of the application, it is stated on behalf of the respondent that they relate only to what is done on respondent's account and the "persons approved" only mean Bata dealers. We do not agree with this contention. The trade practices mentioned at items 11, 14 and 18 have wider ramifications and they are not confined to what is done on respondent's account and "persons approved" would not necessarily mean Bata dealers only. On a careful consideration of the scope and ambit of these trade practices, we are of the view that they amount, to restrictive trade practices. They have the effect of preventing and restricting competition between such manufacturers and the respondent and enable the respondent to eliminate price competition in these products. The respondent has not shown how they can pass through any of the gateways mentioned in Section 38(1). We, therefore, hold that these trade practices are restrictive trade practices and it has not been shown that they are not prejudicial to the public interest.
16. With regard to the trade practices mentioned at items 1, 3, 4, 5, 6, 15, 16 and 17, it is submitted on behalf of the respondent that although their language is unduly wide and may give an appearance of practice of restrictive trade practices, in practice they are not followed in their literal meaning. It is stated on behalf of the respondent that the respondent would agree to modify such clauses in the agreement or the practices by way of arrangement or understanding, as the case may be, in the following manner :
Item 1 : The respondent agrees to confine the operation of this restriction to orders placed by the respondent only.
Item 3 : The respondent agrees to substitute the word "number" by the word "type" and confine its operation to manufacturing of footwear for Bata only.
Items 4 and 5 : The respondent agrees to modify so as to confine the operation of these restrictions only in respect of Bata patented moulds, to manufacturers of only such Bata patented moulds and to Bata patented moulds supplied by Bata for manufacturing footwear for supply to Bata.
Items 6, 15, 16 and 17 : The respondent agrees to confine the operation of this restriction only to Bata pa tended moulds.
17. The Registrar has no objection to the modification of these clauses or the practices, as the case may be, in the manner directed by the Commission. We are of the view that the modifications to the said clauses of the agreement or the practices, as the case may be, as hereinafter directed, would make those restrictions no longer prejudicial to the public interest. The respondent is, therefore, directed to take necessary steps to carry out these modifications as indicated hereinafter in the relevant clauses of the agreement or the trade practices, as the case may be, and report the same to the Commission on or before 30th June, 1975.
18. The answers to the issues therefore are :
1(a):--The terms and conditions of the standard contract specified in the preamble, Clause 1(a) and 3B(b) relate to restrictive trade practices. The preamble and Clause 1(a) shall be modified by adding the words in "respect of which you place orders", after the words "different varieties" and by substituting the words "of the total gross value of", by the words "and the total gross value of which is ...... ".
Issue No. 1(a) will be answered accordingly.
1(b):--The terms and conditions of the agreements/arrangements/ understandings between the respondent and the manufacturers whose products are purchased/marketed by the respondent as mentioned at items 2, 7, 8, 9, 10, 11, 12, 13, 14 and 18 relate to or amount to, as the case may be, restrictive trade practices. Answer to issue No. 1(b) is in the affirmative. In respect of items 1, 3, 4, 5, 6, 15, 16 and 17 mentioned above, the respondent is directed to modify them in the manner hereinafter appearing.
1(c). The trade practice of resale price maintenance mentioned in paragraph 5 of the application amounts to restrictive trade practice. The answer to issue. No. 1(c) is in the affirmative.
(2) The respondent is not entitled to the benefit of the provisions of Section 38(1) in respect of the trade practice of full-line forcing provided in the preamble and Clause 1(a) of the standard agreement with the wholesalers, etc., the trade practices mentioned at items 2, 7, 8, 9, 10, 11, 12, 13, 14 and 18 of paragraph 10(a) of the application, and the trade practice of resale price maintenance mentioned in paragraph 5 of the application. It is entitled to the benefit of Section 38(1)(h) and the balancing clause thereof in respect of Clause 3B(b) of the standard agreement with the wholesalers, etc. Issue No. 2 will be answered accordingly.
19. In the result we make the following order :
(1) We direct that Clause 1(a) read with the preamble of the standard agreement entered into by the respondent with its wholesalers, etc., shall stand modified ay follows :
" During the period mentioned above, you contract to buy from us in wholesale......pairs of BSC footwear, of different varieties in respect of which you place orders and the total gross value of which is Rs....... at our listed wholesale price to be delivered to you ex our depot at......"
(2) We direct that the restrictive trade practice of full-line forcing as provided in Clause 1(a) read with the preamble of the standard agreement with the wholesalers, etc., of resale price maintenance as mentioned in paragraph 5 of the application and other restrictive trade practices as mentioned at items 2, 7, 8, 9, 10, 11, 12, 13, 14 and 18 of paragraph 10(a) of the application shall be discontinued and shall not be repeated. We further by this order restrain and prohibit the respondent from repeating the said practices and from inserting the said clauses or clauses similar thereto or incorporating the said practices or practices similar thereto in the agreement with the wholesalers, other dealers and different manufacturers whose products are purchased and marketed by the respondent under its brand name "BATA" or "BSC", as the case may be. The respondent is further directed to conspicuously mention in the price lists that "the dealers are free to charge prices lower than these prices" and emboss on the footwear "price not to exceed Rs....."
(3) We direct that the clauses of the agreement or the trade practices mentioned at items 1, 3, 4, 5, 6, 15, 16 and 17 shall be so modified as to have or may have the effect of :
Item 1:--Requiring the manufacturers to manufacture footwear according to the requirements and specifications of Bata in respect of orders placed by Bata.
Item 3 :--Prescribing the type of moulds to be procured by manufacturers according to Data's specifications for manufacturing footwear for Bata.
Item 4 :--Reserving the right for selection of Bata patented moulds to be used by the manufacturers only for manufacturing footwear for Bata.
Item 5 :--Prohibiting the manufacturers from procuring or using Bata patented moulds other than from those manufacturing such Bata patented moulds or from Bata itself for manufacture of footwear for Bata.
Item 6:--Requiring the manufacturers to use the Bata patented moulds exclusively for the purpose of manufacturing footwear for supply to Bata.
Items 15 and 16:--Binding the manufacturers to sell all the Bata patented moulds to Bata in the event of the termination of the agreement or otherwise when such moulds have fallen into disuse, at prices to be agreed upon or, failing such agreement, to be fixed by arbitration of two arbitrators, one appointed by each party. The Arbitration Act, 1940, shall apply to the arbitration.
Item 17:--Claiming absolute ownership of the Bata patented moulds supplied by Bata free of charge in the event of termination of the agreement.
20. We further direct the respondent to report to the Commission on or before 30th June, 1975, the manner and extent to which these modifications in the agreements and/or practices have been carried out or effected.