Monopolies and Restrictive Trade Practices Commission
Director-General Of Investigation And ... vs Investwell Publishers (P.) Ltd. on 5 October, 1988
Equivalent citations: [1990]69COMPCAS516(NULL)
ORDER
S.D. Manchanda, Member
1. This enquiry has been instituted on the basis of an application filed by the Director-General of Investigation and Registration under Section 36B(c) of the Monopolies and Restrictive Trade Practices Act, 1969.
2. In its reply to the notice of enquiry, the respondent has, apart from contesting the allegations on merits, challenged the jurisdiction of the Commission to go into the matter and the maintainability of the enquiry. The Commission, therefore, framed the following preliminary issue : --
"Has the Monopolies and Restrictive Trade Practices Commission no jurisdiction to hear and decide the application of the Director-General and is that application not legally maintainable for reasons stated in the preliminary objections contained in the reply of the respondent ?"
3. Arguments on the preliminary issue were heard from time to time and were concluded on August 19, 1988.
4. The respondent is a company incorporated under the Companies Act, 1956, and is carrying on the business of printing and publishing a fortnightly magazine Capital Market. The allegation against the respondent is that in its regular feature entitled "New issue monitor", it is giving "issue rating" giving a numerical rating in respect of each new public issue of shares by companies and that such "issue rating" is neither objective nor scientific as claimed by the respondent and sometimes degenerates into disparaging comments. The Director-General has given instances of such adverse or partial "issue rating", which have been spelt out in great detail in a complaint dated January 13, 1987, addressed by one Shri G. A. Bidara-halli of New Delhi. It is on the basis of these instances that the Director-General has come to the conclusion that the respondent has been indulging in unfair trade practices within the meaning of Clauses (i), (vi) and (x) of Sub-section (1) of Section 36A of the Monopolies and Restrictive Trade Practices Act.
5. We find that the respondent has challenged the jurisdiction of the Commission and maintainability of the enquiry proceedings on the following three grounds : --
(i) "Issue rating" is not a trade as defined in Section 2(s) of the Monopolies and Restrictive Trade Practices Act.
(ii) "Issue rating" is not an unfair trade practice within the meaning of Section 36A of the Monopolies and Restrictive Trade Practices Act.
(iii) Any order of "cease and desist" that might be passed would directly infringe the respondent's right to freedom of speech and expression granted under Article 19(1) (a) of the Constitution of India.
6. The proposition covered by the first preliminary objection does not commend itself to us. We are of the view that by publishing the magazine Capital Market, including the feature "Issue rating", is a trade as defined in Section 2(s) of the Monopolies and Restrictive Trade Practices Act. The word "trade" as defined in Section 2(s) of the Monopolies and Restrictive Trade Practices Act includes the provision of any services. The word "service" as defined in Section 2(r) of the Monopolies and Restrictive Trade Practices Act means service of any description made available to potential users and includes "the purveying of news or other information". In the present case, there is a "purveying of news and information" in the magazine in the shape of an article "issue rating", etc. The services rendered by the respondent are not free of charge or under a contract of personal service and thus do not fall within the exemption provided in Section 2(r). Hence, the publishing of the magazine Capital Market including "issue rating" is a service within the meaning of Section 2(r) of the Monopolies and Restrictive Trade Practices Act. This was so held in a judgment of the Bombay High Court in the case of Union of India v. Bennett Coleman and Co. Ltd. [1988] 63 Comp Cas 504. The magazine itself is "goods" as defined in Section 2(e) of the Monopolies and Restrictive Trade Practices Act and its sale is a trade as defined in Section 2(s) of the said Act. We may also state that during the course of his arguments, Shri A. B. Divan, learned counsel for the respondent, did not seriously challenge the proposition that the respondent, by publishing a journal, was rendering "service" within the meaning of Section 2(r) of the Monopolies and Restrictive Trade Practices Act.
7. The second preliminary objection taken by the respondent is that the necessary ingredients of unfair trade practice as defined in Section 36A of the Monopolies and Restrictive Trade Practices Act and particularly in Clauses (i), (vi) and (x) of Sub-section (1) of the aforesaid section are missing in the publication of "issue rating" in the respondent's magazine. For ready reference, these provisions are reproduced below :
"36A. In this part, unless the context otherwise requires, 'unfair trade practice' means a trade practice which, for the purpose of promoting the sale, use or supply of any goods or for the provision of any services, adopts one or more of the following practices and thereby causes loss "or injury to the consumers of such goods or services, whether by eliminating or restricting competition or otherwise, namely : --
(1) the practice of making any statement whether orally or in writing or by visible representation which -
(i) falsely represents that the goods are of a particular standard, quality, grade, composition, style or model ....
(vi) makes a false or misleading representation concerning the need for, or the usefulness of, any goods or services ....
(x) gives false or misleading facts disparaging the goods, services or trade of another person ".
8. A plain reading of the aforesaid provisions indicates that there are the following five necessary ingredients of an unfair trade practice as defined above :
(i) There must be a trade practice (within the meaning of Section 2(u) of the Monopolies and Restrictive Trade Practices Act).
(ii) The trade practice must be employed for the purpose of promoting the sale, use or supply of any goods or the provision of any services.
(iii) The trade practice should fall within the ambit of one or more of the categories enumerated in Clauses (1) to (5) of Section 36A.
(iv) The trade practice should cause loss or injury to the consumers of goods or services.
(v) The trade practice under Clause (1) should involve making a "statement" whether orally or in writing or by visible representation.
9. The respondent's case is that none of the ingredients is present in the publication of "issue rating". The "issue rating" is a part of a regular feature of the magazine brought out by the respondent and cannot be treated as a trade practice. The point was, however, not pressed before us as it flows from the misconception that the respondent is not engaged in a trade. The word "trade practice" is defined in Section 2(u) of the Monopolies and Restrictive Trade Practices Act and the same means any practice relating to the carrying on of any trade. Thus, the publishing and sale of the magazine Capital Market and writing of the article "issue rating" relate to trade and is a trade practice.
10. The second ingredient of unfair trade practice, namely, that the trade practice should be for the purpose of promoting the sale, use or supply of any goods or for the provisions of any services is not present. The respondent has argued this point in its reply to the notice for injunction, in the following words : --
"It is submitted that by giving an issue rating of a prospective public issue, the respondents are not promoting the sale, use or supply of any goods. As will be set out hereinbelow in detail, the issue rating, based on certain criteria adopted by the respondents, is essentially an opinion and a value judgment, albeit based on objective criteria, regarding the worth of a prospective public issue. Neither the issue rating nor the column containing it promotes the proposed public issue of shares. Secondly, it is submitted that the column 'New issue monitor' as also the 'Issue rating' itself deals with a proposed issue of shares and it is well-settled that shares prior to their actual allotment are not goods either within the meaning of Section 2(7) of the Sale of Goods Act, 1930, or within the meaning of Section 2(e) of the Monopolies and Restrictive Trade Practices Act. I crave leave to refer to and rely upon the judgment of the Hon'ble Supreme Court of India in Sri Gopal Jalan and Co. v. Calcutta Stock Exchange Association Ltd., AIR 1964 SC 250 ; [1963] 33 Comp Cas 862. I say that this Hon'ble Commission in the case of Consumer Education and Research Centre v. T. T. K. Pharma Ltd., since reported in (1990] 68 Comp Cas 89 (MRTPC), has held that shares before their actual allotment are not goods within the meaning of Section 2(7) of the Sale of Goods Act, 1930, read with Section 2(e) of the Monopolies and Restrictive Trade Practices Act. It is thus abundantly clear that the publication of an issue rating of a proposed share issue cannot be for the purpose of promoting the sale, use or supply of goods as no goods are in existence at the relevant time."
11. We accept that "issue rating" involves comments on the worth of a prospective value of a public issue. We also accept the proposition that shares, prior to their actual allotment, are not goods within the meaning of Section 2(e) of the Monopolies and Restrictive Trade Practices Act. But what we are concerned with in determining the presence of the second ingredient of unfair trade practice, is not whether "issue rating" is for the promotion of sale and supply of goods but whether it is for the purpose of promoting the sale of goods which is the magazine Capital Market or for the purpose of the services it provides in purveying news and views about Capital Market, particularly about prospective issue of shares and it is here that we find the second ingredient absent. We have carefully gone through Shri Bidarahalli's complaint and the Director-General's applications and we find that these documents are solely directed against the bias in "issue rating" and deficiencies therein. Let us take the complaint first. It is full of adverse comments on the methodology adopted for issue rating, and on the actual rating given to certain specific public issues.
12. The tone of the complaint is set in the very first paragraph in the following words : --
"Investwell Publishers (P.) Ltd., as is known, is a company owned or controlled by J. M. Financial and Consultancy Services Pvt. Ltd. JM professes to be merchant bankers and have been in business of financial consultancy and management of issue of securities by public limited companies. Through some of their associated concerns, they also undertake the business of stock-broking and miscellaneous other financial services and are represented on the governing board of the Bombay Stock Exchange. While on the one hand, it is well-understood that they have means of collecting information on various public limited companies and the issue of securities to the public by such companies and, therefore, are perfectly placed to undertake publication of a magazine providing information necessarily required by investors to inculcate the habit of savings and investment in the general public, thereby performing a noble service of directing personal savings to productive channels. It is on the other hand, the method and the practices adopted in the dissemination of information which, if questionable in ethics, fair play, objectivity and sincerity turns into a devastingly damaging tool creating fear psychosis and shuns away investors from the capital market. . . . ,"
13. The complainant then goes on to describe how faulty is the methodology adopted by the respondent in giving "issue rating" and how arbitrarily are the actual ratings given. Relevant paragraphs are reproduced below:
"(i) In Issue No. 2, dated 18th April, 1986, as well as Issue No. 3, dated 2nd May, the magazine has published 'Criteria for issue rating' reiterating that the same has also been published in their first issue, dated 4th April, 1986. This criteria for issue rating takes into account 40 different facets divided into 6 major groups. The 'criteria for issue rating' in 6 groups and 40 different facets does not provide any insight into the weight-age that each of the different groups or facets is given in the issue rating or how 40 facets could give rise to a 100-point scale. It has not suggested what the cut-off point in rating is at which an issue can be considered good, bad or indifferent.
(ii) A total of 163 'issue ratings' have appeared in Capital Market between Issues Nos. 2 and 19. A statistical classification of ratings shows that the distribution of issue rating is as under :
Should the investor pass-mark of 'issue rating' be a nominal 40%, the public issue of 141 companies out of 163 would represent a very healthy state of capital market with 86.5 % of public issues having investor appeal. Whereas if the pass-mark is way above at more than 70%, the capital market does not exist in India and all regulatory bodies should bid adieu and pack up, lock, stock and barrel.
This classification features 'Nil' rating for just one company; (Dynamatic Forgings India Ltd.) (Volume I, No. 16) and the maximum rating of 80 given again to only one company (Reliance Industries Ltd.) (Volume 1, No. 18).
(iii) This rating pattern also shows that out of a total of 163 ratings given, only 72 were below the mid-way line of 50. Should this be understood to be the pass test, certainly these 72 issues should suffer some nonconformity with the criteria for issue rating set for itself by the Capital Market magazine and, if so, the magazine becomes duty-bound to let the investing public know the reasons which led the magazine to underrate an issue. In the following instances, despite glowing comments published by the magazine, the issue rating has remained below 50. .... On the other hand, despite providing the gloomiest picture of the issue, the following issues have all been rated without providing the provocation to do so..... Quite contrary and very surprisingly, the following issues have been given above 50 rating despite adverse comments on various counts:-- ....
Adding on their own recommendation for investment by the investors has not been done uniformly in all cases and the following issues were so bestowed despite variance in ratings given (such practice could become a source of income not necessarily due). Within the same industry group, differential rating has been applied without reasoning out apparent distinctions between each of the unit rates : --
Inconsistencies in reporting abound on numerous matters. Take for example, the case of equity debenture issues :
Wide variation in the format of providing information on rated companies does have no bearing on assurances of the editor as narrated in para (ix). Inter-firm comparison, inclusion of past profitability statements, future projections, status of the industry and in effect all the various 40 facets selected by the magazine as their criteria for issue rating are differently reported (or not reported) as per convenience (or inconvenience), in bold, in block, in full page or more or less or half-a-dozen elongated format, etc. Difference of perception in rating and reviewing a company in the feature analysing promises made in prospectus and performance, etc., are all unfair practices, and such examples can be cited to no end on each of the features carried by Capital Market.
Decipher, if you can, the following comments of Capital Market in issue rating, for Home Video India Ltd. (Volume 1, No. 3, page 20). Issue rating 42 ... The magazine has dealt with the new issue of Dynamic Forg-ings India Ltd. (Volume 1, No. 16, page 4) in a unique way and have singled out this company for a vitriolic attack full of vengeance not once but thrice (Issues Nos. 17 and 19)
14. The complainant has also relied on the following extracts from Shree Profit, another contemporary weekly, to show "how good are ratings", particularly about nil rating given to Dynamic Forgings :
"How good are the ratings. -- When recently a 'scientific investment magazine' awarded a zero merit rating to a rather large new issue of equity shares by a private company that was going public, not only did it create a sort of sensation but evoked sharp criticism from a number of serious investors who saw in the whole affair a veiled attempt to blackmail the issuing company. The magazine is apparently owned by an independent publishing company."
15. The complainant has devoted 5 pages of his report to the applicability of Sections 2(o), 33(1)(c), 33(1)(a) and Sub-clauses (i), (vi) and (x) of Sub-section (1) of Section 36A of the Monopolies and Restrictive Trade Practices Act without even hinting that the trade practice of "issue rating" has been adopted for the promotion of the sale of the magazine Capital Market. The whole complaint boils down to the charge that both the methodology of "issue rating" and the manner in which it has been applied to various public issue of shares are defective, unscientific and motivated.
16. The Director-General has relied almost solely on the complaint filed by Shri G. A. Bidarahalli. It is no doubt true that the Director-General has .
referred to the respondent's claim of adopting a scientific approach in determining "issue rating" and charged that this claim is falsified by the arbitrariness and bias that have been injected into "issue rating" in practice. But even if we accept that the respondent has not lived up to the methodology explained in the first issue of the magazine Capital Market, it does not automatically follow that the practice of "issue rating" has been adopted for the purpose of promoting the sale of the magazine Capital Market. The attack, however, is concentrated on how the respondent has adopted a motivated approach to what is essentially "a scientific exercise of generating index numbers based on statistical analysis not only of the particular parameters of a corporate entity, but all the encompassing forces that have any bearing on economic activity". The Director-General has summed up the position in paras 8, 9 and 10 of his application. Paragraph 8 refers to the falsity of the claim regarding scientific approach on the basis of what the complainant had to say about "issue rating" given to certain public issue of shares. Conclusions arrived at by the Director-General in paragraphs 9 and 10 of his application are reproduced below :
"(9) Not providing full justification for the practice of 'issue rating', the alleged trade practice can only lead to drawing of an adverse inference against the magazine and its owners and editors and from the various facts presented herein, it will be difficult to resist the conclusion that such practice of issue rating was arbitrary to say the least, and what commenced as a legitimate kind of trade practice has already perceptibly passed over from the stage of useful service to that of abuse and even illegality.
(10) In the light of the above, it is most respectfully submitted that the respondent, through the publication of the magazine, Capital Market, is indulging in unfair trade practice by arbitrarily highlighting some public issues which are managed by J. M. and by low-lighting those issues which are not managed by the same. The respondent is also destabilising competition and misguiding the public by these trade practices as the respondent in its tetter dated 7th March, 1987, has mentioned: "Capital Market publishes issue ratings only to serve as a guidance tool in decision making." Such a "tool" has been used more than once so as to disparage certain companies' public issues."
17. The final charge of the Director-General is that the unfair trade practices referred to in paragraph 7(A) to (c) and para 8 attract Sections 136A(1)(i), (vi) and 36A(1)(x) of the Monopolies and Restrictive Trade Practices Act, 1969.
18. The dominant impression that we get from the perusal and scrutiny of the complaint and the Director-General's applications is that the trade practice of "issue rating" was allegedly designed as a tool to enable the respondent to favour public issue of shares in which the respondent was interested and to malign those public issues which it did not like and thus acquire power over the corporate sector ; the tool has been introduced as a scientific instrument stamped with objectivity but the garb of respectability is too thin to conceal the ugly reality. There is not a direct or indirect hint or indication that trade practice of "issue rating" has been adopted to promote the sale of the magazine brought out by the respondent or to promote the services rendered in the form of "issue rating". In this context, we are inclined towards the view that the second ingredient of an unfair trade practice is absent in the present situation and therefore it cannot be said that the respondent has indulged in any unfair trade practice whether under Clause (i) or (vi) or (x) of Sub-section (1) of Section 36A of the Monopolies and Restrictive Trade Practices Act as alleged by the Director -General. It is, therefore, not necessary for us to examine whether the trade practice as alleged by the Director-General contains the other ingredients of an unfair trade practice as spelt out in para 7 of this order. For the same reason, it is not necessary for us to deal with the third proposition which has been advanced by the respondent to establish the non-maintainability of the enquiry proceedings, namely, that such an enquiry directly infringes the respondent's right to freedom of speech and expression guaranteed under Article 19(1)(a) of the Constitution of India. We must, however, state that Shri A. B. Divan, senior advocate for the respondent, laid great stress on this proposition relying heavily on the judgment of the Division Bench of the Bombay High Court in the case of Union of India v. Bennett Coleman and Co. Ltd. [1988] 63 Comp Cas 504 and forcefully argued that the Commission should proceed on the well-established proposition that if a legislation can be saved from constitutional challenge by a process of reading down, then the court should adopt such a procedure. We may also state that Shri 0. P. Dua tried his best to meet Shri Dey's arguments regarding the right to freedom of speech enshrined in Article 19(1)(a) of the Constitution of India.
19. To sum up, we decide the preliminary issue in favour of the respondent and drop further proceedings.
20. The enquiry stands disposed of.