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Monopolies and Restrictive Trade Practices Commission

Director-General Of Investigation And ... vs Hindustan Lever Limited on 4 August, 1987

Equivalent citations: [1989]66COMPCAS51(NULL)

ORDER

S.D. Manchanda, Member

1. The respondent is a public limited company engaged in the production of consumer goods such as detergent cakes, bathing soaps, chemicals etc. It has been alleged in the notice of enquiry that the respondent has been indulging in the following trade practices :

"(i) Tie-up sales of soaps and detergents, manufactured by the company, which are in demand ;

(ii) Area restriction on re-distribution stockists;

(iii) Re-sale price maintenance ;

(iv) Refusal to deal or supply ;

(v) Obtaining interest-free and discriminatory security deposits/advance from dealers;

(vi) Discriminatory dealing with dealers;

2. The allegations were contested by the respondent in its reply to the notice of enquiry. Following issues were framed in consultation with the parties. "

(i) Whether the enquiry is not maintainable for the grounds alleged by the respondent in their reply dated May 28, 1984, to the notice of enquiry dated December 28, 1983 ;

(ii) Whether the respondent has been indulging in the trade practices mentioned in the notice of enquiry dated December 28, 1983 ;

(iii) If the answer to issue No. (ii) is in the affirmative, then whether the said trade practices are restrictive trade practices within the meaning of Section 2(o) of the Monopolies and Restrictive Trade Practices Act, 1969 ;

(iv) If answer to issue No. (iii) is in the affirmative, then whether the respondent is entitled to avail of the gateways provided under Section 38(1)(a), (b) and (h) read with the balancing clause;

(v) To what relief are the parties entitled ?

3. The Director-General examined seven witnesses, namely, S/Shri S. N. Aggarwal of Director-General Technical Development, Uttam Chand Chawla, Amritsar, Chetan Prashad, Riwari, Suresh Gangey, Khandwa, Satpal Bajaj, Faridkot, Dilbag Rai Jain, Pulsudhar and Girdhari Lal, Punhanan.

4. The respondent filed affidavit of Shri Atul Tandon, its marketing manager (soaps), and also produced him for cross-examination by the Director-General.

5. We have gone through the material available on record and heard the arguments of learned counsel for the Director-General and the respondent at great length and we now proceed to answer the issues settled for the enquiry. The first issue as to whether the enquiry is not maintainable on the grounds spelt out by the respondent in their reply to the notice of enquiry, has not been pressed at the time of hearing. We also don't find any substance in the grounds raised by the respondent and, therefore, the first issue is decided against the respondent. Issues Nos. 2 and 3 are taken up together as these are interconnected and could be compressed into one issue, namely, whether the respondent has been indulging in the restrictive trade practices alleged in the notice of enquiry.

6. We find that of the six restrictive trade practices mentioned in the notice of enquiry, arguments have been confined only to the restrictive trade practices of tie-up sales and refusal to deal/supply and, therefore, the second and third issues are confined to the aforesaid two restrictive trade practices.

Before taking up the alleged restrictive trade practice of tie-up sales we consider it necessary to understand the peculiar distribution system and sales organization of the respondent company. The soaps and detergents which are involved in the two aforesaid restrictive trade practices are manufactured in five factories situated at Bombay, Calcutta, Rajpura, Jammu and Chindwara, the last factory having been commissioned only in 1984. The goods first move from the factories to over 40 Clearing and Forwarding Agents (C & FAs) which arrange for their storage and despatch to Re-distribution Stockists (RS) on the basis of latter's orders. The Re-distribution Stockists in turn have their own retail network. The company has its own Sales Organisation headed by a Vice-President, Marketing and General Sales Manager. The company has four branches in Bombay, Delhi, Calcutta and Madras. The Sales Wing of a branch consists of Branch Sales Managers, Area Sales Managers, Sales Officers and Territory Sales Incharge (TSI) formerly known as company's, salesman. The respondent has in all 20 Area Sales Managers, 32 Sales Officers and 233 TSIs. Every TSI has a permanent journey plan (PJP) for visits to RSs in his territory or area. It is on these visits that he obtains orders from RSs. The details of the orders are recorded in a Stock Central Statement which is a comprehensive form for recording numerous other details. On his visits to an RS, the TSI visits some retail outlets in the area.

7. It would also be useful to specify the various brands produced by the respondent under the three broad categories namely toilet soaps, laundry soaps and detergents. Toilet soaps cover such brands as Lifebuoy, Lux, Rexona, Liril, Pears, etc., whereas the important brands named under laundry soaps are Sunlight and Sunlight bar. The famous brand names in the category of "detergents" are Surf and Rin. The tie-up alleged is that of detergents like Surf, Rin and laundry soaps which are slow moving items with toilet soaps like Lux, Rexona and Liril which are in great demand. The Director-General relies heavily on the statements of the six witnesses who are either ex-Re-distribution Stockists or retailers of the respondent's product, and the documents produced by them. We will therefore, proceed to examine the statements and evidence produced by the aforesaid witnesses.

8. The first witness (A. W. 1) Sri Satpal Bajaj, partner of M/s. Hiralal Bajaj and Sons., Farikot whose re-distribution stockist-ship was terminated in June, 1982. The witness has produced 37 documents exhibited as A.W. 1/1 to A.W. 1/37 which show that he has been in correspondence with the Monopolies and Restrictive Trade Practices Commission and the respondent since 1981. The witnesses has made many allegations besides the two allegations namely tie-up and refusal to deal which are now under enquiry before the Commission. Exhibit A. 1/32 is a letter dated 9th March, 1981 written by the witness to the Area Sales Manager of the respondent making the following arrangement on this letter :

"This is to bring to your kind notice that this time soap and Surf has not been despatched to us according to our order. Lifebuoy has been despatched 125 CLDs instead of 85. Lux and Rexona has not been despatched along with it and without Lux and Rexona, Lifebuoy and other items cannot be sold in the market."

9. Similarly in his letter dated 26th February, 1980 (exhibit A.W. 1/30} addressed to the respondent, it has been complained that the consignment of soap and Surf despatched by respondents C & F Agents, on February 25, 1980 contains 45 CLDs of Lifebuoy Personal and 50 CLDs of Surf 1000 G which were sent "without our order, consent and prior intimation ". The following two paragraphs of this letter are reproduced to show how slow-moving products were being sent to the RSs.:

"1. That 45 (forty-five) CLDs of LBP were sent to us January, 1980 under allocation. Only twenty-four CLDs were sold in launching them on 29, 30 and 31 January, 1980, and the balance twenty cases are still lying with us out of that consignment. In our view, off-take of this product in the market is not more than 18%. So, the consignment of 45 CLDs of LBP sent by your C & FAs on February 25, 1980 is unwanted and cannot be cleared off within this year.

2. That 35 (Thirty-five) CLDs of Surf, 1000 G. were sent by your C & F Agents, Khanna on February 8, 1980 under allocation from your office which are yet to be sold by your Sales Representative under Trade load. The stock of 50 CLDs of Surf, 1000 G. It offer is blockage of our amount as we cannot sell it till the old stock of 35 CLDs is not cleared off by your Sales Representative under Trade load."

10. Exhibit A.W. 1/14 is a letter dated October 20, 1983 addressed by the witness to the then Director of Investigation where, besides making other allegations, it has been alleged that "M/s. Hindustan Lever Limited used to send stocks in excess of our orders and also without orders" and that "in this connection their practice was to set annual targets and we were obliged to place orders accordingly".

11. It may be pointed out at this stage that during the cross-examination of this Witness, no question was put about the allegations of tie-up. The entire cross-examination was confined to the disputes regarding irregularities in payments, and other matters which, according to the respondent, were responsible for the termination of his stockistship.

12. The next witness is another ex-RS of the respondent, namely, Shri Dilbag Rai Jain General Stores, Pulsudhar, Ludhiana. Following extract from his statement on oath throws light on the actual working of the marketing system of the respondent.

"The respondent company's sales representative used to come to our shop and we used to give our requirements to him. He used to fill our requirements in his own control sheet, which used to be signed by us. However, the goods which were despatched to us used to be different from what we have ordered as per the control sheet and G.R. sheets. The G.R. sheet with which we used to receive the goods would contain a note saying that the stock despatched was under the instructions of somebody. For example, against control sheet order dated December 13, 1981 which contained our order, we receive the G.R. for something very different. The G.R. is dated December 31, 1981. I have brought with me the carbon copy of the control sheet order dated December 13, 1981 which was delivered to me and the GR in relation thereto and I am producing the same. These are exhibits AW-6/3 and exhibit AW-6/4, respectively. After this delivery, we received another consignment in a truck on June 12, 1982, with GR No. 3363. We told the truck driver that we will take delivery of only such goods as were ordered by us and not as has been sent. The truck driver told us that he would not give us delivery on that basis and returned with the entire goods and took the goods back. According to the practice adopted by the respondent, they take signed blank cheque from us and when they send the goods they fill the cheque for the amount of the goods despatched and send the same for collection to our bankers. In the case of the goods sent by truck, of which I have mentioned, they had similarly prepared a cheque out of the blank cheques given by us to them and sent it to the bankers. Even though we were not delivered the goods we still thought that the cheque was honoured and they received payment for the same."

13. We have gone through the exibits AW-6/3 and AW-6/4 to which witness Shri Dilbagh Rai Jain has referred in his statement. Exhibit AW-6/3 is the Control Statement in which order was recorded and exhibit AW-6/4 is the G.R. under which the goods ordered vide the aforesaid Control Statement were supplied. We 6nd that whereas no order had been placed for any variety of Surf, the respondent received 16 nos. of three varieties thereof. We also find that as against four numbers of LBP (Lifebuoy Personal) the respondent was supplied 20 nos. of the aforesaid soap. No toilet soap was supplied although the respondent had ordered various numbers Of Liril, Lux and Rexona brands of soap which are fast moving items. The Control Statement is duly signed by the company's salesman (Sh. J.L. Kapoor) on December 13, 1981, The G.R. carries the following note :

"The stock despatched under the Instructions of Mr. B. Bhat-nagar (ASM), (ASM stands in the aforesaid note for Area Sales Manager of the company.)

14. The exhibit A.W. 6/4 does not indicate that the goods delivered thereunder are in respect of order as per exhibit A.W. 6/3 but the witness has affirmed the position in his statement as extracted above but this aspect has not been questioned in cross-examination. In any case, the aforementioned note on exhibit A.W. 6/4 at least proves one thing i.e., that goods were sometimes sent by the company under instructions from its officers without a regular order.

15. We may also refer to the witness's letter dated July 13, 1982, addressed to Area Sales Manager (exhibit A.W. 6/4) which confirms what the witness has stated about the despatch of unordered goods by truck. It is stated therein that goods brought by the truck "were not according to our demand as per order no nil dated May 31, 1982, and the driver forced as to have all the goods to be unloaded. The letter also reiterates witness's request for supply of orders as per his demands.

16. The thjrd re-distribution stockist examined by Director-General is Shri Girdhari Lal of Punhnan in Gurgaon. The statement of this witness relates to the allegations of refusal to deal and will therefore be taken up when we come to discuss the aforesaid allegation.

17. The Director-General has also produced three retail dealers namely S/Shri Chetan Prasad, Suresh Gangey and Shri Uttam Chand Chawla. Shri Chetan Prasad during his cross-examination has clearly affirmed that it was the saleman of the respondent company who used to come and take orders. We reproduce below the following extract:

" The stockist Khem Ram Devi Sahai does not have any salesman of his own. Rameshwar Dass, proprietor of the stockist firm, and salesman of the respondent company himself comes to us. The documents exhibits A.W. 4/3 to A.W. 4/10 are prepared by the proprietor of M/s Khem Ram Devi Sahai. I never went to the premises of Khem Ram Devi Sahai to place orders. I never wrote any complaint to the respondent company against Khem Ram Devi Sahai but only complaint was made to the saleman of the respondent company. Even when the proprietor of Khem Ram Devi Sahai at times comes to us unaccompanied by the salesman to collect the order we refused to place the order with him except through the salesman... ...The stockist acts according to the directions of the salesman of the company, in the matter of supplying goods to us and also sending the bills. The company has given cards to the stockist. The salesman does not give to us any copy of the order which we place with him on any prescribed form but after collecting the orders from us he makes entries thereof on the card with the stockist. The salesman also enters the requirements in the card not entirely according to our wishes or requirments but on his own. The goods as entered in the card by the salesman are then supplied by the stockist.........It is incorrect to suggest that in reality the orders are taken by the stockist. In fact, the orders are placed through the salesman and the entries are made on the card by the salesman in his own hand. It is correct that salesman is accompanied by the stockist for the purpose of obtaining orders."

18. This witness has also produced his letter dated May 21, 1982, addressed to the Commission (exhibit A.W. 4/1) in which it has been complained that "the salesman of this company visiting the market compels the dealers to accept unpopular brands with the running or popular brands." It is also stated in the letter that Lux and Pears Soap are such brands which are sold at prices higher than the company's prices. It is also stated in the letter that "in this way if some dealer wants to take Lux from them they first gave Lifebuoy soap." It is further stated in the letter that "If we place our difficulties before their Sales Supervisors, they clearly state that if one wants to take goods, one should take otherwise there is no way out and we will supply goods in this very way ". The witness has also produced a letter dated September 8, 1983, addressed to the Director (Research) attached to the Commission (exhibit A.W. 4/2) with which he has enclosed photocopies of some bills to show how Rin and Surf was being dumped on him whereas Lux, Liril and Rexona and Pears soap were supplied in small quantities. These bills can be seen as exhibit AW 4/3 to A.W. 4/10. Exhibit A.W. 4/3 shows that Lux worth Rs. 866.88 were supplied along with Surf worth Rs. 889.60. According to A.W. 4/4, as against supply of Lifebuoy worth Rs. 3888, the Lux worth Rs. 578.88 only was supplied. According to A.W. 4/5, the fast moving soaps accounted for only Rs. 1484 out of the total bill of Rs. 5347, the balance being slow-moving items. Exhibit A.W. 4/7 is a bill for Rs. 2504 and it is entirely for slow-moving items. We may point out that neither the witness's statement about tie-up of fast moving soaps with slow moving detergents nor the documents produced by him particularly of exhibit A.W. 4/3 to A.W. 4/10 have been questioned in the cross-examination. The attempt of learned counsel for the respondent in cross-examination of this witness has only been to try to make out the case that the sales were made to the witness by his re-distribution stockist and the respondent has nothing to do with these sales made by re-distribution stockist.

19. The next retailer examined by Director-General is Shri Suresh Gangey, Proprietor of M/s. Rai Chand Gulab Chand Jain. Following extract from his statement shows tie up of sales made by the redistribution stockist and the role played by the salesman of the respondent company :

" The salesman of the redistribution stockist comes to take orders every week on Tuesday, during the first three Tuesdays. In the fourth week, the company salesman comes with the said salesman for the purpose". When the salesman comes I tell him my requirements. Suppose I need 2 boxes of 24 dozens of Lux or Rexona I request him to supply the same, but he says that he does not have enough stock of this soap but that if I agree to take Surf, Rin, Wheel, then he will supply me the toilet soaps required by me of the quantity I need. If I don't accept Surf etc., and want supplies of the toilet soaps only, they will give me small quantity otherwise I will have to take the other stuff also."

20. During his cross-examination, the witness did show some weakness but he stuck to the allegation of tie up by stating in response to a specific question on the subject that his "grievance in the clubbing of items was absolutely true". When it was put to him that the supplies of respondent's product was a matter strictly between redistribution stockist and the dealer, he emphatically stated that he was getting the supply from the redistribution stockist under the instructions of the company.

21. Let us now have a look at the documentary evidence produced by Shri Suresh Gangey exhibit A.W. 5/1 is a letter dated May 21, 1982, addressed to the Commission. He has complained against the company's policy of tie-up of sales in the following words :

" That the company through its redistribution stockists, compels the retailers to purchase their detergents and detergent cakes with every purchase of bathing soaps. Retailers are compelled to take Surf, Wheel or Rin and on refusal of such detergent, the supply of bathing soaps is also denied. It has been happening with me since June, 1981, in every weekly round. When I was packed to my capacity with the stock of detergents on January 19, 1982, they refused to supply bathing soaps. "

22. Exhibit A.W. 5/2 is his letter dated May 10, 1983, addressed to the then Director of Investigation in response to the latter's letter dated April 28, 1983, wherein he has complained of the tie-up sales. In this very letter he has referred to a number of bills to support his allegation of tie-up of sales. The relevant extract from this letter is reproduced below:

"We have already submitted the total bills of purchase of every weekly round and they are on the file of Commission which shows that when we accepted the slow moving-items we were given Lux and other bathing soaps as much as we demanded and when we demanded only bathing soap either we were refused to be supplied or meagre three dozen were supplied which may be perused from the photostat copy of bill No. 3319 of January 12, 1982 in which we were supplied equal amount of slow-moving items with bathing soap. Again in the bill No. 1186 of September 22, 1981 when I refused to accept other products, they offered us 3 dozens Lux worth Rs. 70.64 in the next round. Under pressure we had to purchase other laundry product worth Rs. 1213 against the bathing soaps worth Rs. 633 in bill No. 1354 dated September 27, 1981. In the round of October 10, 1981, after a gap of 11 days we have been supplied with 6 dozens Lux and Rexona worth Rs. 142.11 vide bill No. 1712 dated October 10, 1981. Again in the round of October 17, 1981 and October 24, 1981 nothing was given to us in spite of our demand. Ultimately we had to accept compulsorily bathing soap worth Rs. 627 laundry soap worth Rs. 3,464 vide bill No. 1981 dated November 11, 1981. Again on the false promise of supply of Lux, Rexona and Liril in the next two three days, they dumped laundry soap worth Rs. 1483.49 vide bill No. 2631 dated December 8, 1981. But on the round of December 15, 1981 they offered us only 3 dozens of Lux worth Rs. 70.68 betraying us completely vide bill No. 2749 dated December 15, 1981. On the round of December 22, 1981 we were forced to take Wheel detergent bar worth Rs.639.34 for securing 12 dozens Lux worth Rs. 282.12 vide bill No. 2852 dated December 24, 1981."

23. Photocopies of the bills referred to in the above extract have been enclosed with the letter of the witness and have been collectively exhibited as annexures to exhibit AW 5/2.

24. This witness has also produced a bunch of letters addressed to the respondent between February 13, 1982 and May 24, 1982 collectively marked as exhibit AW 5/3. The main complaint is spelt out in the following words in his letter dated April 28, 1982 :

"I had made a complaint to your goodself on February 13, 1982 regarding your Khandwa R.S. and salesman policy of clubbing of bathing soaps with Surf and Lifebuoy personal, i.e., any dealer who wants to purchase Lux, Liril or Rexona will have to purchase the quantity prescribed by your salesman and your RS of Lifebuoy personal and Surf. Under this compulsion we were made to pile the stocks of Surf with us and when it had gone beyond our capacity, we protested and put the complaint to your honour. We complained to your honour only to know from you authentically that this is Hindustan Lever's policy and not the highhandedness of your salesman and the RS. But your honour have shunted the same to the Sales Director thus avoiding the main answer. And the learned Sales Director have shunted the complaint to the Branch Sales Manager who has kept it in the waste paper basket."

25. It must be said in fairness to the respondent that in its reply to the witness, i.e., letter dated May 21, 1982 (annexure to exhibit AW-5/4), it was stated that as explained to the witness, "it is not the company's policy to club sale of any of our products with that of others". However, not satisfied with the explanation, he took up the matter with the Commission. In his statement he has averred that thereafter neither the salesman of the redistribution stockist nor the salesman of the respondent company came to his shop.

26. The third witness, Shri Uttam Chand Chawla, President of Uttar Bharat Parchun Kiryana Sangh (an institution of Parchun Shopkeepers of Punjab, Haryana, Rajasthan, Jammu, Kashmir, Chandigarh and Himachal) produced a copy of his complaint dated December 21, 1977 addressed to the Commission (exhibit AW 3/1) the relevant extract of which reads as hereunder :

"I came to know through conversant and substantial sources that big companies of the country particularly Hindustan Lever are making unfair trade practice with the dealers,........They send unwanted goods to the dealers without any order. Thus in disguise retailers are compelled to supply unwanted goods to the consumers."

27. It is true that he admitted during the course of examination that he was not a stockist of the respondent company. It is also true that in response to the question as to whether the respondent ever sent him unwanted goods he conceded that he has "no personal experience or knowledge of this matter." But at the same time he asserted that he had written the letter in his capacity as the President of Uttar Bharat Parchun Kiryana Sangh. At this point we may also state that although during cross-examination Shri Ashok Desai was able to get an admission from the witness Shri Uttam Chand Chawla that his sons were involved in infringement of respondent's trade marks but this aspect does not reflect on the evidence of Shri Uttam Chand Chawla because he made the complaint to the Commission in 1977 whereas his sons started business in soaps and detergents in 1982. In this context, therefore, this dispute of the sons of Shri Uttam Chand Chawla and respondent in regard to violation of latter's trade mark is not relevant to the issue :

28. Let us now examine the respondent's view of Director-General's averments and evidence, as set out in its reply to the notice of enquiry, the affidavit of Shri Atul Tandon, its marketing manager (soaps) and the documentary evidence produced by him. This view seems to be based on three propositions. The first proposition is that the company's sales are on a principal to principal basis as per. contract entered into between the respondent and its redistribution stockists. Our attention has been drawn to clause No. 2 of the standard redistribution stockist agreement (exhibit AW 1/3) which reads as hereunder:

" The relation between the company and the redistribution stockist shall be that of seller and buyer and not that of principal and agent".

29. It follows from these premises that the evidence of the three retail dealers, whatever its worth, is irrelevant to the charge of tie-up of sales. As far as the respondent is concerned, at worst, their complaint is against the RSs and it is the RSs who are answerable on this score.

30. The theoretical premises of the first proposition cannot be challenged in view of the aforementioned Clause 2 of the standard RSs' agreement. But if we pierce through the veil of formal agreement, we find that the ground realities are somewhat different from theoretical perceptions. It is seen that the respondent ha s a vast net work of sales organisation of its own which can be, and is actually, used to control the transactions of the RSs. The respondent has one branch in Bombay, Delhi, Calcutta and Madras and each branch has a well-staffed salts wing. The sales wings of all the branches taken together have 20 area sales managers, 32 sales officers, and 233 Territory Sales Incharges (TSIs), formerly known as salesman. It is the TSI who is the king pin of the sales organisation. According to the affidavit of Shri Atul Tandon, Marketing Manager-Soaps of the respondent "the company's TSIs carry out distribution in a geographical area as defined in their respective permanent journey plan (PJP) by booking orders from the RSs and arranging for despatches to them". It is only the TSI who obtains orders from the RSs, and it therefore follows that through their permanent journey plan, the TSI himself services every redistribution stockist. It is not denied by the respondent that TSI also visits retail dealers. The respondent's case however is that it is well nigh impossible for a team of about 230 TSIs to take care of RSs and retailers considering that there are about 3000 RSs, and about 3 lakh retail outlets. The TSI can service every RSs in his territory but he is in no position to control his sales to such a large number of retailers. His visit to retail dealers are bound to be few and far between and therefore, his presence in the retail market is transitory and negligible. In this context, so run the arguments, it can be safely presumed that in the normal course retailers get their requirements from the RSs directly without the intervention of TSI.

31. We, however, don't think that the control of the TSI on sales operation of the RSs is either transitory or negligible in practice. Even with a contingent of about 230 TSIs, the respondent can control the sales of about 3000 RSs to retail dealers numbering about 3 lakhs. A professionally managed business organisation like the respondent, could, on the basis of Pareto's law of " vital few and trivial many" order its large team of TSIs to so schedule their permanent journey plans to take care of the vital RSs and their vital retail outlets and this would give the respondent control over a large segment of the sales operations of its products both at its own level and at the level of its RSs. In fact some of the RSs may need a monthly visit by TSI whereas others may need a fortnightly visit and there will be still others where TSIs may have to visit once a week. Similarly large number of retail outlets in moffusil areas, would be constituting a very limited proportion of the total sales and could be left alone.

32. We also find that the so-called order form in which the TSI writes the details of the order placed by the RSs is not a simple form confined only to the details of the order but a very comprehensive form which enables TSI to maintain a firm grip on the transactions with the RS. It gives a clear idea of the stock position on the day of the visit and the details of pending orders. Two columns of great significance to the issue under consideration are the columns indicating TSIs targets i.e., " JC Tgt. THIS TOWN " and " TERR. Tgt, this JC ". The existence of these two columns coupled with the fact that the company has slow moving detergents which face tough competition from comparatively cheap but reasonably good varieties of detergents manufactured by other parties make it a realistic inference that to achieve a target in respect of each variety of soap and detergent manufactured by the respondent, a TSI would be straining every nerve to ensure that slow moving items are also distributed to the RS, irrespective of the latter's requirements.

33. The inferences drawn by us in the preceding paragraphs, i.e., that through its vast and parallel network of sales organisation with TSIs as its field operators, the respondent can and does have a firm grip over the purchase and sales operations of its RSs and thereby ensures that its slow moving products are offloaded right till the retailers along with its fast moving products irrespective of their requirements, find considerable support from the oral and documentary evidence of three retailers examined by the Director General. Shri Chetan Prasad of Cheap General Stores has stated that his stockist did not have any salesman of his own and the salesman of the respondent company (TSI) came to him for taking orders. He has also stated that the stockist acts according to the directions of the salesman of the company. In response to a specific question by the respondent's advocate during cross-examination he affirmed that it was incorrect to suggest that in reality the orders were taken by the stockist. The other retailer, namely, Shri Suresh Gangey, of M/s. Raichand Gulabhand Jain, Khandwa, deposed that whereas the salesman of the redistribution stockist came to him once a week in the first three weeks, the respondent's salesman came to him in the fourth week. But this fact need not weaken the Director General's case because one visit a month by the company salesman may be sufficient to ensure that Shri Suresh Gangey accepts slow-moving stocks alongwith the fast moving products if not on all the four occasions, at least once, in a monthly cycle. Both these witnesses produced a large number of bills to show how the slow moving items were thrust on them whereas they were starved of the fast-moving items.

34. The third witness no doubt admitted that there was no question of placing orders directly with the respondent and that he had no personal experience or knowledge of being sent any unwanted goods. But it has to be noted that he had made the complaint as President of Uttar Bharat Parchun Kiryana Sangh and not as an individual. The mere fact that this witness had disputes with the respondent company for infringement of trade mark should not detract from the credibility of his evidence particularly because this dispute arose long after he had made the complaint and related to the businesses carried on by his sons.

35. Having dealt with the respondent's first proposition about the irrelevance of the evidence of retailers to the charge of tie-up sales against the company, we will now deal with the second proposition which relates to the evidence of the respondent's RSs. It is the respondent's case that the two RSs on whose evidence the Director General relies, namely, S/Shri Satpal Bajaj and Dilbagh Rai Jain, are either demonstrably unreliable or have given very few instances of allegedly tied-up sales which are mere drops in the ocean. Shri Satpal Bajaj is stated to be an unreliable witness whose stockistship was terminated on charges of serious misconduct. Following three instances of misconduct have been set out in the affidavit of respondent's witness Shri Atul Tandon :

(1) On or about March 17, 1981, the respondent's TSI Mr. A. K. Kapoor, visited the premises of this witness in the normal course of his PJP. For the purpose of filling up the column titled "cheque follow up" in the Stock Control Statement he went through respondent's pass book and on the basis of information obtained therefrom he noted in the aforesaid column that cheque No. 221258 dated Mach 6, 1981, had been debited on March 16, 1981. However, on March 30, 1981, the respondent received a letter dated March 27, 1981, from the witness (exhibit R-2) making the following statement in regard to the aforesaid cheque :

"We have come to know from our bankers that the cheque No. 221258 dated March 6, 1981 for Rs. 35,569.05 utilized by your company has not so far been presented to our banks for payment, so we are enclosing herewith a bank draft No. CLI/112702/5/81 dated March 27, 1981, for Rs. 35,569 payable to you at par at Punjab and Sind Bank, M Block, Connaught Place, against the aforesaid cheque No. 221258. We have also advised our bankers to stop payment of the above said cheque No. 221258 dated March 6, 1981."

This letter is obviously at variance with what the company's TSI Mr. Kapoor had recorded in the aforesaid Stock Control Statement. According to Shri Atul Tandon, in order to investigate the matter, the Area Sales Manager visited Faridkot on July 1, 1981, and requested the witness to produce his bank pass book. The witness did not show the pass book. Mr. Atul Tandon goes on to say 'the RS did not visit the Delhi office until two months later. When he eventually came to the company's office at Delhi, he brought along with him a duplicate pass book and not the original and that this copy did not contain any reference to the cheque."

(ii) According to Shri Atul Tandon "these investigations also brought out the fact that the RS has changed his bank account from Punjab and Sind Bank, Faridkot branch, to Punjab and Sind Bank, Machakaikalan branch " and that " while the Faridkot branch was on clearing house facility, the Machakaikalan branch was not covered by this facility ". According to Shri Atul Tandon, " this obviously implied an attempt on the part of RS to delay payment to the company through his personal contacts and influence at the branch not covered by the clearing house facility which would have been otherwise not possible with a branch which was on clearing house facility."

(iii) The witness was responsible for misappropriating goods which were despatched to M/s CONSTOFED's sub-office located at Faridkot. This charge of misappropriation has been explained by Shri Atul Tandon in the following words in his affidavit:

" I say that on December 18, 1981, ten boxes of LB (Lifebuoy Soap) and ten boxes of SL (Sunlight Soap) were sent to the Faridkot sub-office of Constofed vide GR No. 1851. The stocks were unloaded at the RS's shop since the vehicle carrying the stocks reached Faridkot township after the Coostofed's sub-office had closed. The delivery challan (exhibit R-6) covering the aforesaid consignment of LB and SL bears the signature duly signed by a representative of the RS. The company utilised cheque No. 212542 for Rs. 3402 kept with it by Constofed towards the sale proceeds of the aforesaid consignment...Meanwhile the Constofed's head office at Chandigarh wrote to the company on March 1, April 30 and May 12, intimating thattheir cheque No. 1542 (wrongly referred to as 212842 in the said correspondence) had been for Rs, 3,402 but they were unable to identify the supplies effected against the same...On June 7, 1982, the company wrote to the RS (exhibit AW-1/26) to ascertain why the stocks meant for Constofed sub-office delivered to them by the, carrier had not been handed over to Constofed's sub-office. By their letter dated June 9, 1982 (exhibit AW-1/13), the RS wrote to the company that the said consignment, in fact, had been delivered on December 28, 1-981, He also attached a photocopy of the receipt issued by Constofed bearing the same date. This receipt was however, not on Contofed's letterhead...The following facts ascertained by the Company's sales officer from the records of Constofed indicated that stocks which were claimed by RS to have been delivered on December 28, 1981, were in fact delivered only on June 9, 1982:

(a) The stock register of Constofed/Faridkot maintained in the normal course of business carried,

(i) an entry of ten CLDs of SL vide invoice No. DK-62 in the stock register on June 9, 1982 (page 37 of the stock register),

(ii) an entry for ten CLDs of LB vide invoice No. DK-62 in the stock register on June 9, 1982 (page 44 of the stock register).

(b) Octroi and cartage receipt issued by the RS for the amount charged to Constofed against octroi and cartage in delivering the above consignment was also issued on June 9, 1982, by the RS (exhibit R-7).

(c) Constofed's general voucher pertaining to the octroi and cartage payment to the RS had been prepared on June 9, 1982.

(d) Credit for Rs. 3,402 vide the aforesaid cheque had been shown in the records of Constofed in the month of June, 1982.

(e) Mr. Jagwant Singh, local representative of Constofed, also gave a written statement on Constofed's letter-head confirming to the company that the consignment of ten CLDs each of SL and LB against invoice No. DK-62 was received by their office only on June 9, 1982 (exhibit R-8)".

36. The witness was cross-examined on the three charges made in Atul Tandon's affidavit at length. He had an explanation to offer but the documentary evidence produced by Shri Atul Tandon above does leave us with the impression that the conduct of this witness vis-avis the respondent had not been strictly above board though a full scale investigation is needed to come to a definite finding. We may, however, add that the witness had no worthwhile explanation for the charge that it changed its bankers from a clearing branch to a non-clearing branch which was bound to delay encashment of cheques much to the detriment of the respondent. But even if we may hold that the witness has a score to settle with the respondent and, therefore, his evidence could be considered as motivated, we have to deal with the documentary evidence produced by this witness in respect of the charge of tied-up sale on merits.

37. Shri Desai, however, asserts that even on merits, his documentary evidence does not prove the charge. He has referred to the instance of despatch of 45 CLDs of LBP (Lifebuoy Personal) sometime in January, 1980, without a specific order from the witness and has explained that the respondent had written in advance to the witness in its letter dated December 1, 1979 (exhibit AW-1/18), that the respondent was marketing LBP and the allocation to his town was 45 CLDs. It was made clear in this letter that " if you do not wish to accept the said stocks or wish to accept lesser stock please let us know telegraphically on receipt, of this circular to enable us to advise the depot accordingly". Similarly, in regard to the instance of despatch of 35 CLDs of Surf 1000 gram without orders, Shri Desai referred to the respondent's letter dated January 24, 1980 (exhibit AW-19), wherein it was stated that a new scheme was being introduced for Surf and, therefore, 35 CLDs of Surf 1000 grams were being despatched. It was made clear in the aforesaid letter that " if you did not wish to accept the above stocks or wish to accept lesser stocks, please let us know telegraphically on receipt of this letter to enable us to advise the depot accordingly ". In both these cases the witness did not respond to the respondent's letter and, therefore the respondent despatched the two consignments. Shri Ashok Desai has also stated that in the format of GR under which products are despatched to the RSs there is the declaration by the company that "the goods are despatched subject to your acceptance". In the circumstances, therefore, thus argued Shri Desai, it could not be said that the company off loaded unwanted goods on the RSs.

38. We do not entirely agree with Shri Desai's argument. In the two aforesaid instances, the products could have been dispatched after obtaining the requirements of these products from the RSs. As things stand, the dispatches were imposed on the RSs and the mere fact that the products were new or formed part of a new scheme only softens the blow of imposed supplies. The respondent's request for telegraphic reply and the aforesaid declaration on the GR appear to us to be for the purpose of record and are ineffective safeguards against the burden of unordered goods particularly when the. respondent is in a position to dictate terms.

39. Reverting to the dispatch of 45 CLDs of LBP and 35 CLDs of 1000 gm. Surf, even if there may be some justification therefor, there was no justification for sending another consigment of 45 CLDs of LBP as well as 50 CLDs of Surf 1000 gm. to which reference has been made in the letter addressed by the witness to the respondent on February 26, 1980 (exhibit AW 1/30). This letter clearly shows that only 24 of the earlier consignment of 45 CLDs of LBP could be sold and the balance 20 cases were still lying with them out of that consignment. Similarly the aforesaid letter also shows that the 35 CLDs of Surf 1000 gm. sent under the new scheme were yet to be sold and, therefore, the subsequent supply of 50 CLDs of the same product would merely block the amount. Similarly there is no explanation for the despatch of 125 CLDs of LB soap as against 60 CLDs as ordered and for non-compliance with the witness's order for Lux and Rexona soaps as referred to in the witness's letter dated March 9, 1981, addressed to the Area Sales Manager of the respondent. Even at the cost of repetition we would reproduce the following extract from the aforesaid letter:

"This is to bring to your kind notice that this time soap and Surf has not been despatched to us according to our order. Lifebuoy has been despatched 125 CLDs instead of 85. Lux and Rexona has not been despatched along with it and without Lux and Rexona, Lifebuoy and other items cannot be sold in the market".

40. We now examine the third proposition which' has been put forth by Shri Ashok Desai in the respondent's defence. It is argued that considering the large and complex distribution network through which the stream of soaps and detergents manufactured by the respondent flows, involving despatch from different factories to a large number of clearing and forwarding agents, onward to thousands of RSs and lastly to a much larger number of retailers, a few stray examples of slow, moving goods having been foisted on a couple of dealers along with fast-moving products cannot amount to a restrictive trade practice. It cannot be inferred from the stray examples that the respondent has been deliberately following restrictive trade practice as a matter of policy. The company's policy, it is urged, is to ensure smooth flow of goods to consumers and the complex distribution system which has been evolved during about 50 years of the respondent's operation has well served this policy. We are afraid that we are not impressed by this argument. A policy violative of law is neither announced from house tops nor communicated through written words in the form of circulars/documents. In fact care is taken to see that re-distribution stockist agreement does not contain any restrictive clause and documents show that goods are despatched subject to acceptance. To avoid exposure, such a policy remains unexpressed but it is implemented quietly and unobtrusively. The company has on its pay roll a large team of TSIs and area sales managers which can and does cover practically the entire country through Permanent Journey Plans with the purpose of securing orders from RSs and to some extent even retailers, in a manner which absorbs the entire production of slow-moving as well as fast-moving items. We may at this stage mention that earlier, the respondent's RS agreement did contain a clause (clause No. 5) which required the Rs to always "keep and maintain adequate stocks of the products in all its packings," and that "the RS shall purchase and accept from the company such stock as the company shall at its discretion send to its RS for fulfilling its obligation under the agreement". This clause was struck down by the Commission. In compliance with the Commission's order which was upheld by the Supreme Court in Hindustan Lever Ltd. v. MRTPC [1977] 47 Comp Cas 581, the impugned part of Clause 5 of the agreement was deleted. In its judgment the Supreme Court held that the last sentence in Clause 5 placed the redistribution stockist at the mercy of the company which could dictate to him what amounts of various commodities he shall purchase and accept from the company in the form of total lot supplied to him."

41. We may take this opportunity of reproducing paragraph 17 of the aforesaid judgment of the Supreme Court which, though stated in the context of the existence of the impugned clause, is very relevant to the issue as even though the aforesaid clause has been deleted, the position in regard to supply of goods remains unchanged.

"The last part of clause 5 as we have observed clearly makes it necessary for the stockist to purchase such goods and in such combination as the company may decide. Hence it would be struck by Section 33(1)(b) of the Act."

42. The old agreement through its impugned Clause 5 was an open announcement of the respondent's policy of tying up sales hit by Section 33(1)(b). When viewed in this context, we are inclined to the view that this policy still continues in practice covertly.

43. We now take the last contentious aspect of the issue under consideration, i.e., the inferences to be drawn from the statistical tables prepared by the Director General generally on the basis of information supplied by the respondent. These tables were set out in the Director General's FIR which was supplied to the respondent in response to the latter's demand for better particulars.

44. The first table (P. B. 25) contains figures of production and sale of various varieties of laundry and non-laundry soaps during 1981 and 1982 whereas the second table (P. B. 26) contains similar figures in respect of detergents. These tables, according to Shri Watel, show that the production of detergents has been more than sales. We don't think this table can be of any assistance to the Director General, because firstly the pattern is not uniform in respect of every variety of detergent soap produced :

Surf 250/700 gm.

Surf 200 gm.

Surf 40 gm.

Surf loose being less than sales, and secondly it will be hazardous to base any conclusions in regard to the restrictive trade practices on such figures.

Secondly, there are tables showing variation in sale of toilet/ laundry soaps and detergents in December quarter over June quarter in 1981 and 1982 (P. B. 27, 28). These tables show that while the sale of laundry soaps and toilet soaps had declined considerably in December quarter 1981-82, compared to the June quarter, and this is as it should be because of the change in weather, but the reverse is the position in respect of detergents thereby indicating that detergents which are slow moving items are being off-loaded in excess of demand. We however, find that there are departures from this pattern in respect of a couple of categories of detergents, i.e. Surf 700 gms. and Surf (loose). These tables generated a lot of controversy. Shri Atul Tandon explained that consumption of high quality detergents goes up in winter since woollen are taken out, washed and worn whereas it was Shri Watel's contention that woollens are dry cleaned and not washed. These are general arguments and not based on any scientific survey. It is difficult to rebut Shri Atul Tandon's explanation firstly because he is expected to have expert knowledge and secondly these figures covered the entire country and weather varies from one region to the other and month to month within the same quarter. We are reluctant to base our conclusions on these statistical tables which have been prepared on macro-economic level and may not reflect regional variations.

Thirdly, there are statistical tables (P.B. 36 and 37) which show that supply of detergents and washing soaps for three fortnights April 10, 1981 to April 23, 1981, October 2, 1981 to October 15, 1981 and October 1, 1981 to October 14, 1981) to C & FAs has been much more than their advice/order requirements for Delhi, Khanna and Kundli. We do not know on what basis these particular C & FAs and specific fortnights have been chosen. Further we find that the pattern is not uniform and in some instances advice has been more than supply.

Fourthly, there are statistical tables showing orders from and supplies to RSs in Delhi, Rewari, Khanna and Faridkot (P.B. 38-39). Shri Watel wants us to draw the inference from these tables that supply to the RSs in these areas has been more than the orders placed in respect of detergents. We, however, find that the pattern is not uniform and in respect of certain varieties of detergents supply has been less than the order.

Lastly, Shri Watel has asserted on the basis of the statistical tables of production and sale referred to earlier that with the intention of making toilet soaps scarce and using the said scarcity as a lever to push their sales of detergents and washing soaps, in the year 1982 the respondent reduced the supply of toilet soaps when compared with earlier two years. He stated that this fact was evident from the figures stated in the better particulars at page 25 (volume I).

45. The said figures show :

(a) that the respondent sold more toilet soaps than were manufactured during the years 1980 and 1981,

(b) that in 1982, the respondent manufactured much less quantity of toilet soaps than was manufactured in 1980 and 1981, and;

(c) that nevertheless in 1982, the respondent sold less quantity of toilet soaps than was actually manufactured."

We find this inference too far-fetched and too laboured to be acceptable.

46. On an overall evaluation of the oral and documentary evidence of witnesses produced by the parties, we are inclined to the view that the respondent has been indulging in the trade practice of thrusting slow-moving items alongwith fast-moving items to its RSs directly and on the retailers both directly through its TSIs and indirectly through its RSs. In other words, the respondent could dictate to its RSs amounts of various products they will purchase and accept from the company. The Supreme Court has held in the case of the respondent itself, Hindustan Lever Ltd. v. MRTPC [1977] 47 Comp Cas 581, that where the stockists can be dictated to purchase such goods and in such combination as the company may decide, Section 33(1)(b) of Monopolies Restrictive and Trade Practices Act comes into operation. The question whether this practice is a restrictive trade practice within the meaning of Section 2(o) of the Monopolies Restrictive and Trade Practices Act still remains to be examined. Tying up arrangements are considered restrictive trade practices practically in all countries where antitrust legislation is in operation. How a tying arrangement I agreement affects competition has been explained by the Supreme Court of United States [1949] 3374 US 293, 93 L. Ed. 1371 in the following words:

"Tying agreements serve hardly any purpose beyond the suppression of competition...... By conditioning his sale of one commodity on the purchase of another, a seller coerces the abdication of buyers' independent judgment as to the 'tied' product's merits and insulates it from the competitive stresses of the open market. Intrinsic superiority of the 'tied' product, if there be any, would convince freely choosing buyers to select it over others, anyway. The effect of the tying device on competing sellers attempting to rival the 'tied' product is indeed drastic as it enables the seller adopting the tying arrangement to enjoy.market control while other existing and potential sellers are foreclosed from offering their goods to a free competitive judgment through being effectively excluded from fair market dealings."

47. These words aptly fit in the constellation of the economic facts of the present case. Admittedly, the respondent is one of the leading manufacturers of soaps and detergents. According to the information collected by the DG (I & R) from the DGTD, Government of India had set out in the PIR a copy of which was furnished to the respondent, its share in the production of synthetic detergents, laundry soaps and toilet soaps in 1981 is as hereunder :

Synthetic detergents 54.28% Laundry soaps 21.20% Toilet soaps 70.56%

48. With such a market power at its command the respondent is well equipped to ensure that all the three varieties of its products are lifted by its RSs in the manner it chooses and not necessarily in response to market demand. It is also a fact known to all householders in India that Surf, the main detergent manufactured by the respondent is too highly priced to compete successfully with cheaper brands of competitive detergents manufactured by the small and medium sector. In the context of these facts, i.e., the market power of the respondent and incompetitive price of its detergents, it does not need an elaborate exercise or survey to see how the anti-competitive thrust of tying is heightened. The respondent has great market power in the tying product which places it in a position of great advantage in marketing the tied products. The leverage concept which has been at the heart of judicial pronouncement on the impact of tying arrangement in competition in U.S.A. is perceptibly in operation in the present case. In this connection we may refer to United Shoe Machinery Corporation v. United States 258 US 451, 42 S.Ct. 363, 66, L.Ed. 708 (1922), wherein the court ruled the tying arrangement to be unlawful under Section 3 of the Clayton Act, It based its decision on the proposition that "where a manufacturer with substantial power in one market seeks, through a tie, to extend that power to another market, there is necessarily an adverse competitive effect." (Words in quotation have been taken from the book titled "Anti-Trust" by Lawrence Anthony Southern Horn Book Series-page 435).

49. We may also refer to the case of United States v. Loew's Inc. 371 U.S. 38, 83 S. Ct. 979 L.Ed. 2nd II (1962), wherein "block booking" whereby copyrighted movies were licensed to T. V. stations only in packages so that for example to get "Casablanca", a station would also have to take Nany Drew, Trouble shooter and others, was held to violate Section 1 of the Sherman Act. The court said that power to appreciably restrain competition is " presumed when the tying product is patented or copyrighted " and when there is no patent or copyright power can be shown by evidence of " the tying product's desirability to consumers or from uniqueness in its attributes." In Partner Enterprise Inc. v. U.S. Steel Corporation 394 U.S. 495, 89 S.Ct. 1252, 22 L.Ed. 2d 495 (1969), the court made the following observations as to the showing which had "to be made regarding . power in the tying product.

"Decisions rejecting the need for proof of truly dominant power over the tying product have all been based on a recognition that because tying arrangements generally serve no legitimate purpose that cannot be achieved in some less restrictive way, the presence of any appreciable restraint on competition provides sufficient reason for invalidating the tie. Such appreciable restraint exists whenever the seller can exert some power over some of the buyers in the market, even if his power is not complete over them."

50. We are of the view that the rationale of the aforesaid decisions of the courts in the U.S. is applicable to the economic facts of this case.

51. There is hardly any economic fact relevant to the situation with which we are concerned, which could show that the restraint placed by tying arrangements on respondent's RSs either regulates trade. It is merely a case of use of one's market power to dispose of products which do not have a genuine competitive edge over similar products manufactured by other industrialists and such a practice is-bound to distort competition.

52. In the circumstances, we hold that the tying up arrangements practised by the respondent under which the RSs can be dictated to purchase such goods and in such combination as the respondent may decide are restrictive trade practices within the meaning of Section 2(o) of the Act.

53. The second alleged restrictive trade practice pressed at the time of hearing is the respondent's refusal to deal with its redistribution stockist.

54. Before dealing with this issue we may state as to what according to us, is the legal position in regard to a trader's right to select its customers or to refuse to deal with a particular customer. We are of the view that every trader has a right to select his customer or to refuse to deal with a particular customer, if such a right is exercised on the basis of business considerations such as credit-worthiness and integrity. However, the Commission can intervene if such a right is exercised to thwart or distort competition or to perpetuate a restrictive trade practice. In taking this view, we are supported by the following extracts from American Jurisprudence: Vol. 54, 2nd edition, section 76.

" In the absence of any purpose to create or maintain a monopoly, the Sherman Act does not restrict the right of a trader or manufacturer, engaged in an entirely private business, to freely exercise his own independent discretion as to parties with whom he will deal. Moreover, he may announce in advance the circumstances under which he will refuse to sell. Consequently, an individual's refusal to sell, without more, does not become unlawful conduct or agreement, or conceived in monopolistic purpose or market control, even an individual's refusal to deal may violate the statute."

55. In the enquiry under consideration it is common ground that the respondent has terminated the stockistship of its three RSs, namely, M/s. Ram Prasad Hardwari Lal, Punhana, Gurgoan, Jain General Stores, Pulsudhar, Ludhiana and Hiralal Bajaj & Sons, Faridkot.

56. We now proceed to examine in the context of the position of law as stated by us in the immediately preceding paragraph whether the termination of the stockistship of the 3 RSs was conditioned by considerations of business expediency as argued by Shri Desai or it was a punishment for their refusal to fall in line with.the restrictive trade practice of tying up sales in which the respondent was covertly indulging, as urged by Shri Watel.

57. The respondent's explanation for the termination of stockistship Of the first two of the three aforementioned RSs namely, M/s. Ram Prasad Hardwari Lal of Punhana, Gurgaon and M/s. Jain General Stores of Pulsudhar, Ludhiana is that it becomes uneconomical to service RSs working in small towns and therefore, a scheme of rationalisation was evolved under which about 10 to 12 RSs in Punjab and Haryana including the two aforesaid RSs lost their stockistship.

58. Shri Girdhari Lal of M/s. Ram Prasad Hardwari Lal has supported the respondent's case, though rather indirectly, in the course of his cross-examination in the following words :

" Our firm was a redistribution stockist of the respondent since 1982. They have now stopped giving us goods since December 1, 1983......... The respondent have established a depot at Roska near Sohna District Gurgoan. This depot is given the JK Agency. There were 10/12 dealers like us who had been supplied goods directly...... but after the appointment of JK Agency............they have stopped supplying goods to them also." Daring cross-examination he admitted that 'It is correct that the number of stockists has been reduced'."

59. An additional ground for termination has also been offered by Shri Atul Tandon in his affidavit in the following words :

" This party committed default in submitting sales-tax declaration forms for supplies effected to him in December, 1982--March, 1983. The party eventually gave sales-tax declaration forms in August, 1984, after the sales-tax assessments in respect of sales effected to him has already been completed and the company has been obliged to bear additional tax liability on account of non-submission of declaration forms."

60. Of course, Shri Girdhari Lal contested the latter charge but the respondent did produce six such forms which showed that whereas the "Cash memo or bill issued by the selling regularised dealer" was March 1, 1983; the date of issue of the form was November 21, 1983.

61. It is worth noting that this RS has not charged the respondent with the restrictive trade practice of tying up sales. This fact coupled with his admission that there were 10 or 12 dealers like him who were earlier supplied goods directly but the direct supplies were stoppe4 after the appointment of JK agency and establishment of a new depot makes us believe the respondent's explanation that stockistship of this RS as well as about 12 others was discontinued as part of the scheme of rationalisation. In other words, the termination of the stockistship of this RS, namely, M/s. Ram Prasad Haradwari Lal was conditioned by considerations of business expediency and does not amount to a restrictive trade practice.

62. We now take up the case of the second RS namely M/s. Jain General Stores of Pulsudhar, Ludhiana, whose stockistship, according to the respondent, was terminated on account of reorganisation of outlets in Punjab area. Neither during his examination-in-chief nor during his cross-examination this witness shows any awareness of the scheme of rationalisation under which his stockistship was terminated around September, 1982. In his letter dated 12th November, 1984. addressed to the respondent (exhibit AW 6/2) this RS has stated that " we have no idea whatsoever as to why you have suddenly stopped supplying your goods to us when we on our part had been fulfilling the conditions laid by you from time to time including depositing full cheque books duly signed by us and drawn in favour of the company and whatever stocks that you cared to send us from time to time completely at your--discretion without any advice from us ". It is also significant that the respondent's letter dated September 6, 1982 (exhibit AW 6/5) which was a notice of termination of this KS did not refer to any scheme of rationalization. Even during his cross-examination, this RS stated that he did not know whether the respondent reduced its number of redistribution stockists in September, 1982.

63. We may also add that this RS has complained of the respondent's practice of sending unordered goods. It is not a pure coincidence that instances of such practice relate to the period prior to the date of termination of his stockistship. This aspect of the case has been dealt with at some length in this order.

64. The respondent has also made a grievance of the conduct of the RS in dishonouring the cheque meant for payment of a consignment dispatched to him on September 7, 1982. It is however, admitted that the cheque was dishonoured after this RS had received intimation about termination of the stockistship. The amount payable was Rs. 23,693 and the RS paid Rs. 22,400 in December, 1983. He eventually cleared the outstanding only in February, 1983.

65. Shri Desai has placed reliance on the evidence of this RS which shows that no one has been appointed in his place at Pulsudhar and that he is getting his goods from the neighbouring RS and continues to serve his outlets he was serving earlier. This is only an indirect evidence of the respondent's explanation for termination of this stockistship.

66. In the context of the facts of the case of this RS, we think that even if the respondent did carry its scheme of rationalisation of distribution system to reduce uneconomic outlets, there is preponderance of probability that he was covered by this scheme mainly because he was protesting against the respondent's practice of sending more slow-moving goods and less of fast-moving goods. We, therefore, hold that as far as this RS is concerned, the respondent's refusal to deal with him was a restrictive trade practice.

67. Let us now take up the case of third RS, namely, Shri Hiralal Bajaj & Sons. This RS has a history of troubled relations with the respondent. The starting point perhaps is the despatch by the respondent C & F of a consignment of soap (45 CLDs of LBP and Surf (45 CLDs of Surf 1000 gm.) on February 26, 1980. These products, according to the RS's letter dated February 26, 1980 (exhibit AW 1/30), "have been sent to us without our order, consent and prior intimation " although supplies of these products made earlier were still in stock with the RS. The RS used some harsh language as hereunder :

" We are not ready to accept the consignment of LBP 45 CLDs ......and the same is lying with us under your risk and cost. We are also advising out bankers to stop payment of cheque to be utilised by you against this consignment. The balance amount after deducting the cost of LBP 45 CLDs is being sent to you through bank draft." Immediately thereafter another incident occurred which further exacerbaied their relations. In the first week of March, 1980, some supplies were made to the RS against blank signed cheque but it appears that the respondent's depot did not adhere to the despatch instructions given on the order and sent the stock much earlier. The respondent in its letter dated March 10, 1980 (exhibit AW 1/16) did say that it was sorry that the depot did not adhere to despatch instructions given on the order and sent the stocks much earlier but at the same time it expressed its displeasure at the RS's attitude in the following words:

"Whilst we are taking up this matter separately with the depot we do not appreciate your action of stopping payment of this cheque which is neither in your interest nor ours as one of our old RS as we expect a little more co-operation from you. If the cheque has already been, returned, please send us this amount of Rs. 33,321.65 by demand draft immediately. "

68. There is a subsequent letter addressed by the respondent on May 27, 1980, to its C& FA directing them "to arrange to execute the pending order of this RS within the amount of Rs. 45,000 for which a demand draft has been received from him" (exhibit AW-1/23). Subsequently by its letter dated June 8, 1980 (exhibit AW-1/29), the RS explained that in view of the long unblemished record " there is no justification for taking our concern as the one to which goods should be supplied on draft basis instead of the cheque basis." In its reply dated June 12, 1980 (exhibit AW-1/22) the respondent told the RS rather bluntly that "you will find that we have never been happy with your working" and took the stand it was "not bound to specific dates" later vide its letter dated July 8, 1980, the RS was told by the respondent " that you have been put back on cheque system..." (exhibit AW-1/24). The relationship suffered another setback when the RS in his two letters bearing the same date i.e., March 9, 1981 (exhibits AW-1/31 and AW-1/32) protested against being supplied Dalda which is priced higher than prices of competing brands and of not being supplied soap and Surf " according to our order". It appears thereafter that either supplies were completely stopped or were irregular. We have on record this RS's letter dated August 21, 1981, (exhibit AW-1/8) wherein the RS complained that "your salesman has not visited our shop since a long time for booking of orders of your company's products". In this very letter the RS placed an order for soaps and detergents (LB, Lux, Rexona, Liril, Surf, Rin). When the supply was not received against this order, the RS wrote to the respondent again on November 27, 1981 (exhibit AW-1/34) reminding the respondent of the pending order; a copy of this letter was also endorsed to this Commission. This letter was duly acknowledged by the respondent vide its letter dated December 2, 1981 (exhibit R-3). The relevant extract from this letter is reproduced below :

"At the outset we would like to inform you that we do not seem to have received your letter of September, 1981, referred to in your letter. We would, however, like to inform you that since your cheque has bounced, we are unable to supply you the material unless you send us a demand draft for the balance amount of Rs. 49,444.30 so as to enable us to send you the material. This is after adjusting the amount of Rs. 17,000 lying with us as advance against supplies."

69. The RS explained the whole position in his letter dated January 12, 1982 in which the so-called bouncing of the cheque to which we will refer later when we deal with respondent's version of its strained relations with the Rs was explained and a reference was also made to a demand draft of Rs. 50,000 dated August 31, 1981 sent to the respondent as against supplies but was returned by you without assigning any reason and attaching any forwarding letter thereto as you were bent upon having a resignation from the undersigned firm". The RS also offered to make payment by demand draft if respondent was not willing to supply goods against cheques. The respondent addressed a letter on January 12, 1982 (exhibit AW-1/12) (in response to his letter dated December 31, 1981, which is not on record) denying the RS allegations. Thereafter the respondent wrote a letter to the RS on February 23, 1982 (in response to letter dated February 12, 1982 which is not exhibited) stating that "we will be too happy to supply you stocks of our products but as explained to you in our earlier letter supply of stocks would be made only against demand drafts". We don't know whether supplies were resumed but we have on record the respondent's letter dated June 22, 1982 (exhibit AW-1/4) which gave 30 days notice of termination of stockistship to the RS.

70. The respondent's case is that what really weighed with it in deciding to stop dealings with the RS are three instances of misconduct/misbehaviour. The first instance relates to the fate of a cheque issued by the RS on March 6, 1981 for Rs. 35,569. According to the entries made by respondent's TSI in the Stock Control Statement on the basis of scrutiny of RS's bank pass book, this cheque had been debited on March 16, 1981, whereas according to the RS, vide his letter dated March 27, 1981 (exhibit R-2) as this cheque had not been till then presented to the bank, he advised its banker to stop payment and instead sent a demand draft dated March 27, 1981. The RS's story is corroborated by the duplicate bank pass book he produced before the Area Sales Manager in Delhi some two months later. Why did this RS not dispute the entries made by TSI in the Stock Control Statement a copy of which was left with him ? Where was the original bank pass book ? These pertinent questions remain unanswered raising some doubts about the bona fides of the RS.

71. The second instant is changing by the RS of its banker from Faridkot branch to Machakalan branch. This move which was bound to delay clearing of cheques as the latter branch was not covered by clearing house facility, came to light when the first instance of misconduct was being investigated. It was also noticed that Faridkot branch was located within one km, of the RS's shop whereas the Machakalan branch was about 8 km. outside Faridkot town.

72. The third incident which gave a painful twist to the already strained relations occurred on December 18, 1981, when ten boxes of Lifebuoy soaps and ten boxes of Sunlight soaps which were meant for Faridkot sub-office of Constofed were unloaded at the RS's shop since the Faridkot sub-office had closed by the time the truck carrying the consignment reached Faridkot. Enquiries made by the respondent revealed that these stocks were actually delivered to Constofed some time in June, 1982, although on being enquired into, the RS in its letter dated July 6, 1982 (exhibit AW-1/13), stated that the consignment "was handed over to the Constofed, Faridkot on December 28, 1981, as and when the Constofed people made an approach on us for the delivery of the same." A photocopy of the receipt issued by the Constofed Faridkot dated December 28, 1981 was enclosed with this letter but it was on a plain paper and not under Constofed's letter-head casting some doubts about its genuineness particularly when there was sufficient documentary evidence to show that the consignment was actually accounted for in Constofed's books around June, 1982; this evidence has been spelt out in paragraph 28(iii) of this order.

73. From the tangled web of charges and counter charges it may be difficult to come to a definite finding as to what really weighed with the respondent in deciding to terminate the stockistship of M/s. Hira-lal Bajaj and Sons but it will be difficult to hold that it was because of the protest of the RS against supplies of certain products which could not be sold that the stockistship was terminated. The relations between ES and the respondent must have started souring because of these protests which began sometime in February, 1980 but it is seen that the stockistship agreement was terminated in June, 1982 whereas the three incidents of alleged misconduct occurred between March, 1981, and December, 1981. The RS may have some explanation to offer for two of these incidents, namely, the fate of the cheque issued by the RS on March 6, 1981 and misappropriation of goods meant for Faridkot branch of Constofed. But there is no explanation for the change of its bankers from Faridkot branch to Machakalan branch which was not covered by clearing house facilities and even the explanation for the other two incidents leave some room for doubts and suspicion. In these circumstances, it will not be unreasonable to hold that there was sufficient justification for the respondent to form the impression that the conduct of RS was not above board. In this view of the matter, the refusal to deal did not constitute a restrictive trade practice.

74. We have already stated what in our view is the legal position in regard to a trader's right to select its customers/stockists. To reiterate, we are of the view that the Commission can intervene only if such a right is exercised with a view to perpetuate a restrictive trade practice. In the present case, we have held that only in the case of one stockist, namely, M/s Jain General Stores, Pulsudhar, Ludhiana, the termination of stockistship was resorted to as a punishment for his protest against the respondent's practice of supplying such goods and in such combination as it chose. Such a practice has been held to be a restrictive trade practice by us earlier in this order. In these circumstances, we hold that the termination of the stockist-ship of M/s. Jain General Stores, Pulsudhar, Ludhiana is a restrictive trade practice within the meaning of Section 2(o) of the Act.

75. Now we take the fourth issue, namely whether the respondent is entitled to avail of the gateways provided under Section 38(1)(a), (b) and (h) read with the balancing clause in respect of the two restrictive trade practices of which the respondent has been held to be guilty, i.e., tying up sales of detergents with washing soaps and refusal to deal with a redistribution stockist.

76. We do not see how Clause (a) of Sub-section (1) of Section 38 of the Act helps the respondent, i.e., how the restrictions are 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.

77. It has not been shown to us if that there is any injury resulting from the consumption and use of the goods (detergents and toilet soaps) manufactured by the respondent, against which the aforesaid restrictive trade practices afford protection to the public.

78. Similarly we do not think that the respondent can derive any comfort from Clause (b) of Sub-section (1) of Section 38 of the Act. There are no "other specific and substantial benefits or advantages" which will be denied to the public if the respondent is restrained from the restrictive trade practice of which it has been held to be guilty. In this connection, the respondent has claimed that these restrictions have benefited the public by ensuring the satisfactory working of the network of distribution of goods which the respondent has buil.t " over the last 50 years in such a manner as to ensure prompt, adequate and equitable distribution of the goods throughout India and subject to the maximum price ". We, however, think that the system does not need the crutches of such restrictions.

79. The protection afforded by Clause (h) of Sub-section (1) of Section 38 is patently not available to the respondent as far as the tying arrangements are concerned. We have already seen that the respondent enjoys a monopolistic position in the production of toilet soaps and synthetic detergents commanding 70.56% and 54.28% share of the total production in the organised sector during 1981. A distribution network involving over 3000 RSs and about 3 lakhs retail outlets can give an idea of the devastating impact of the restrictive trade practice of tying up, on competition in the present case. In the context of the commanding position of the respondent, it is difficult to accept the respondent's claim that the aforesaid restrictive trade practice " does not directly or indirectly restrict or discourage competition to any material degree."

80. However, as far as the second restrictive trade practice of termination of stockistship of one stockist and resultant refusal to deal with him is concerned, it could be argued that having affected only one of the 3,000 RSs, it can have no material impact on competition. But let us not forget that this single instance of termination of stockistship has occurred in the process of carrying on of the restrictive trade practice of tying up and to that extent it shares of the latter's effect on competition and on that score the benefit of Clause (h) of Sub-section (1) of Section 38 would not be available to the respondent even in respect of the aforesaid second restrictive trade practice. But even if the benefit of the aforesaid provision were available to the particular restrictive trade practice, we have to be further satisfied that the aforesaid restriction is not unreasonable under the balancing clause. We have examined the issue from the point of view of the balancing clause and we are not satisfied that " the restriction is not unreasonable having regard to the balance between those circumstances and any detriment to the public or to persons not parties to the agreement (being purchaser, consumers or users of goods produced or sold by such parties, or persons engaged or seeking to become engaged in the trade or business- of selling such goods or producing or selling similar goods) resulting or likely to result from the operation of the restriction. "

81. We are of the view that the termination of stockistship even of a single RS has a great potential for mischief and if allowed to be repeated it will only strengthen the vicious grip of the respondent over its RSs and add to its power to indulge in the restrictive trade practice of tie-up. In this view of the matter, the termination of even one stockist is positively detrimental to the public interest.

82. In view of what we have stated in the preceding paragraph in regard to the applicability of Clauses (a), (b) and (h) read with the balancing clause of Sub-section (1) of Section 38 of the Act, we decide the fourth issue against the respondent, and hold that the respondent has not been able to rebut the presumption that the restrictive trade practices indulged in by it are prejudicial to public interest.

83. Having held that the respondent has been indulging in the restrictive trade practices of (1) tying up sales of its slow-moving with fast-moving products and dictating to its RSs to purchase such gooods and in such combination as the respondent may decide, and (2) terminating the stockistship of its stockists resulting in refusal to deal with him, and having held that the presumption in regard to such restrictive trade practices being prejudicial to public interest has not been rebutted, we now proceed under Section 37(1) and direct that the aforesaid restrictive trade practices shall be discontinued and shall not be repeated by the respondent. It logically follows that the respondent shall restore the stockistship of M/s Jain General Stores, Pulsudhar, the affected RS and resume dealings with him.

84. Having regard to the protracted proceedings consisting of a large number of hearings in this case, we direct that the respondent shall pay a sum of Rs. 10,000 as costs to the Director-General of Investigation and Registration within 60 days from today. The respondent will file an affidavit of compliance within 60 days from the date of this order.

85. Announced in the open court on this the 4th day of the month of August 1987.