Monopolies and Restrictive Trade Practices Commission
Director-General (Investigation And ... vs All India Organisation Of Chemists And ... on 18 November, 1991
Equivalent citations: [1992]73COMPCAS668(NULL)
ORDER
R. A. Jahagirdar, Chairman
1. This enquiry has been started pursuant to an application made by the Director-General (Investigation and Registration) (hereinafter referred to as "the Director-General") under Section 10(a)(iii) of the Monopolies and Restrictive Trade Practices Act, 1969 (hereinafter referred to as "the Act"), against the respondents. Respondents Nos. 1 to 4 are associations of traders in pharmaceutical products. Respondent No. 5 is engaged in the manufacture of certain pharmaceutical products. On May 6, 1983, the respondents entered into an agreement under which certain obligations were imposed by respondents Nos. 1 to 4 upon respondent No. 5. This agreement has been impugned by the Director-General on the ground that some of the clauses contained restrictive trade practices as defined. under the Act. In particular, the Director-General has taken objection to Clauses 11(a), 11(b) and 12 of the agreement. Clause 11(a) says that respondent No. 1 is in agreement with respondent No. 5 appointing one stockist in each geographical district where no stockists are in existence. Clause 11(b) stipulates that, in places where respondent No. 5 wishes to appoint any additional stockists, it will be done only after prior and mutual discussions and concurrence of the respective District/State association. Clause 12 of the agreement fixes the trade commission to be paid by respondent No. 5 to the stockists. The Director-General contends that these clauses are restrictive trade practices within the meaning of Clauses (g), (a) and (d), respectively, of Section 33(1) of the Act. A notice of enquiry was, accordingly, issued to the respondents.
2. Respondents Nos. 1 to 4 have filed a common reply to the notice of enquiry. In this reply, certain objections have been taken to the jurisdiction of the Commission to entertain the application of the Director-General. It is not necessary to refer to these objections because, during the course of the hearing, no arguments have been advanced on behalf of respondents Nos. 1 to 4 on this question. Thereafter, respondents Nos. 1 to 4 have contended that the clauses impugned by the Director-General do not contain any restrictive trade practices. In particular, it has been stated that the agreement generally is for the interests not only of traders and manufacturers but also of the consumers. It is further submitted on behalf of respondents Nos. 1 to 4 that Clauses 11(a) and 11(b) are in public interest. According to the respondents, unrestricted liberty to a manufacturer to appoint any number of stockists according to its whims and fancies in excess of the requirements of the locality would result in making the business of the existing stockists totally uneconomical forcing them to close dawn their business leading to nonavailability of the products in the market. It is sufficient to note that this is an anti-competitive argument which cannot be upheld in the light of the provisions contained in the Act. As far as clause 12 of the agreement is concerned, it has been stated that the said clause is not a restrictive trade practice within the meaning of Section 33(1)(d) of the Act.
3. Respondent No. 5, in its reply, generally adopted the contentions of respondents Nos. 1 to 4. It has further contended that it was driven into agreeing to the terms laid down by respondents Nos. 1 to 4. This was so because of the threatened boycott of the products of respondent No. 5 by respondents Nos. 1 to 4. In other words, it is the case of respondent No. 5 that it entered into the agreement in question under coercion of respondents Nos. 1 to 4.
4. On the basis of these pleadings, issues were framed on February 9, 1989, as follows :
(i) Has the Commission no jurisdiction to entertain and decide the application of the Director-General ?
(ii) Did respondents Nos. 1 to 4 indulge in restrictive trade practices as alleged in the application of the Director-General and notice of enquiry ?
(iii) If issue No. 2 is decided in favour of the Director-General, are the restrictive trade practices not prejudicial to public interest ?
(iv) Relief.
5. The Director-General tendered the impugned agreement as exhibit A-1 in evidence. The Director-General also filed the affidavit of one Kishore K. Sardal who was the company secretary of respondent No. 5. In this affidavit, Kishore K. Sardal has stated that he was one of the signatories to the impugned agreement. He has further stated that, before the said agreement was signed, respondents Nos. 1 to 4 have been pressing for certain terms and conditions of sale failing which it was threatened that the products of respondent No, 5 would face boycott or non-co-operation movement. In fact, this threat was put into effect prior to the signing of the agreement. Proceeding further, he has stated that, in view of the fact that respondent No. 5 is engaged in the production of vital drugs and pharmaceuticals, it was deemed expedient to execute the agreement so that the consumers would not be deprived of such products. The witness was presented for cross-examination. Mr. Mariarputham, the learned advocate for respondents No. 1 to 4, cross-examined this witness. During the course of the cross-examination, the witness admitted that respondent No. 5 had intimated to respondents Nos. 1 to 4 regarding appointment of the stockists. An admission has been extracted from him that none of the respondents had raised any objection regarding the appointment of stockists. Referring to Clause 11(b) of the agreement, the witness stated that sometimes some of the respondents asked respondent No. 5 to appoint stockists in areas where there are no stockists. He agreed with the suggestion that the terms of the agreement are mutually beneficial to the parties to the agreement. The respondents themselves did not lead any evidence.
6. Shri O. P. Dua, learned counsel for the Director-General, has analysed Clauses 11(a) and 11(b) and has contended, rightly in my opinion, that the said clauses of the agreement contain restrictive trade practices within the meaning of Sections 33(1)(g) and 33(1)(a) of the Act. An agreement between respondent No. 1 and respondent No. 5 permitting respondent No. 5 to appoint one stockist in each geographical district necessarily means that that stockist will confine his operations within the limits of a particular geographical district. There is no other meaning which can be spelt out from Clause 11(a) of the agreement. Shri Gangoli, learned counsel for respondents Nos. 1 to 4, has, however, contended that that is not the clear meaning of Clause 11(a) of the agreement. According to him, this particular clause does not prohibit respondent No. 5 from appointing the same stockists in different geographical districts. If this is so, then it cannot be stated that a particular stockist has been allocated to a particular geographical area. It has not been possible for me to accept this interpretation given by Shri Gangoli on this clause. The clause is not capable of being interpreted in the manner suggested by Shri Gangoli. I have no hesitation in agreeing with Shri Dua that this clause permits respondent No. 5 to appoint one stockist and such a stockist is required to confine his operations within a particular geographical district for which he has been appointed.
7. Similarly, I have no hesitation in agreeing with Mr. Dua when he states that Clause 11(b) restricts the persons to whom the goods shall be sold and, therefore, it is a restrictive trade practice within the meaning of Section 33(1)(a) of the Act. Clause 11(b), as already noted above, stipulates that whenever respondent No. 5 wishes to appoint any additional stockists, it will be done only after prior and mutual discussion and concurrence of the respective district/State associations. This means that the appointment of any additional stockists by respondent No. 5 cannot be made without the consent of the respective district or State associations. In other words, this agreement restricts the sale of products of respondent No. 5 to the existing stockists unless of course the respective district or State associations agree to the appointment of an additional stockist by respondent No. 5. Shri Gangoli, however, states that this clause must be read in the manner in which it was understood by the signatories to the agreement. It only provides for a prior and mutual discussion between respondent No. 5 and the respective district or State associations. It does not give any veto power to these associations over the appointment of additional stockists by respondent No. 5. In this connection, Shri Gangoli drew my attention to the admission made by Kishbre Sardal wherein it has been stated by the said witness that none of the respondents had raised any objection regarding the appointment of stockists by respondent No. 5 when respondent No. 5 intimated to the other respondents regarding the appointment of stockists. This practice is consistent with the provisions in Clause 11(b) of the agreement. It may be true as suggested by Shri Gangoli, that, in practice, no objection has been taken by respondents Nos. 1 to 4, for the appointment of additional stockists by respondent No. 5 but that itself does not mean that the right of respondent No. 5 to appoint additional stockists is uncontrolled. The clear language of Clause 11(b) shows that the appointment of any additional stockists by respondent No. 5 requires the concurrence of the respective district or State associations. This requirement of concurrence by the respective district or State associations is not rendered superfluous mainly by the fact that, before this concurrence, there are mutual discussions. It is clear to me, therefore, that Clause 11(b) restricts the persons to. whom respondent No. 5 can sell its goods and is thus a restrictive trade practice as mentioned in Section 33(1)(a) of the Act.
8. Clause 12 of the agreement which fixes the trade commission to be paid by respondent No. 5 to the stockists has been impugned by Shri Dua on the ground that it is a restrictive trade practice within the meaning of Section 33(1)(d) of the Act. This argument of Shri Dua is not acceptable. From what has been already stated earlier, and it is clear from the agreement itself, the impugned agreement is an agreement between the manufacturer of pharma-ceuticals pn the one hand and the sellers of the said products on the other. The said agreement is not one contemplated by Section 33(1)(d) of the Act. Indeed, this question is no longer res integra. This question has been examined by a Bench of which I was a Member in RTPE No. 369 of 1987 decided on August 16, 1991, Director-General of Investigation and Registration v. Indian Drugs Manufacturers Association, p. 663, supra. In that case, it was noted that the language of Section 33(1)(d) shows that it deals with an agreement between sellers or an agreement between buyers. It does not deal with an agreement between sellers and purchasers. Proceeding further, it was held as follows. An agreement among sellers to sell goods or to tender for sale the goods only at prices or on terms or conditions agreed between them is covered by Clause (d) of Section 33(1) of the Act. Similarly, an agreement among the purchasers to purchase, or to tender for purchase, of goods only at prices and on terms and conditions agreed among the purchasers is covered by Clause (d) of Section 33(1). The rationale behind this provision is to prevent the sellers acting in concert to sell goods at particular " prices. Similarly, the said provision is also meant to prevent the purchasers from acting in concert to purchase goods at particular prices. Since the agreement impugned in this enquiry is an agreement between the purchasers on the one hand and the seller on the other, it cannot be said to be an agreement which is contemplated under Section 33(1)(d) of the Act. Shri Dua, however, insists that Clause 12 is a provision which has been forced down the throat of respondent No. 5 by respondents Nos. 1 to 4. According to him, the other provisions of the agreement show that there was, prior to this agreement, non-co-operation on the part of respondents Nos. 1 to 4 in respect of the products of respondent No. 5. The said non-co-operation was withdrawn only after this agreement was signed. Mr. Dua suggests that, prior to this agreement, there was another agreement among respondents Nos. 1 to 4 to force respondent No. 5 to agree to the unfair terms mentioned in Clause 12 of the agreement.
9. It is not necessary to decide whether there was prior concert or conspiracy on the part of respondents Nos. 1 to 4 before they entered into the impugned agreement with respondent No. 5, It is not necessary because that alleged prior agreement has not been impugned in this "enquiry. It has not been impugned either in the application made by the Director-General. It has not been mentioned in the notice of enquiry. The parties also did not go to the contest in respect of the said alleged prior agreement. No issue has been framed in respect of the alleged prior agreement. Therefore, I refrain from expressing my opinion on the same.
10. Shri Gangoli states that, if Clauses 11(a) and 11(b) are held to contain restrictive trade practices, then it should be held that they pass through the gateway mentioned in Section 38(1)(a) of the Act. The provisions referred to save the agreement if the restriction contained in the agreement is reasonably necessary, having regard to the character of the goods to which it applies, to protect the public against injury in connection with the consumption, installation or use of those goods. According to Shri Gangoli, Clauses 11(a) and 11(b) of the impugned agreement assure a proper supply of pharmaceuticals to the consumers at large and, therefore, it should be held that these clauses are necessary to protect the consumers against injury, injury being understood in the meaning of non-availability of pharmaceutical products. It is impossible to agree with Shri Gangoli. In the first place, no evidence has been led on behalf of the respondents in support of their contention that the gateway -mentioned in Section 38(1)(a) of the Act is available. Assuming that the respondents can rely upon the terms of the agreement itself and the evidence led by the Director-General in support of their contention, even then it is impossible to hold that the restrictions contained in Clauses 11(a) and 11(b) of the impugned agreement are reasonably necessary to protect the public against injury. The gateway mentioned in Section 38(1)(a) relates to a restriction which is necessary to protect the public against injury (whether to persons or to premises) in connection with the consumption of the goods involved. If a restriction is incorporated in an agreement against free distribution of the goods, that restriction can by no stretch of imagination be said to be necessary to protect members of the public against injury. It is only when the goods are sold and it is necessary to impose some restriction in the use of those goods so that persons using the same are protected against a possible injury that the restriction can be said to be covered by Section 38(1)(a) of the Act. In the instant case, the restriction cannot be said to be necessary for this purpose.
11. Mr. Pithawala, learned counsel for respondent No. 5, has generally adopted the arguments of Mr. Gangoli. I am not accepting these arguments for the same reasons for which I am rejecting the arguments of Mr. Gangoli. Mr. Pithawala then argued that no "cease and desist" order should be passed against respondent No. 5 because respondent No. 5 has signed the agreement under coercion or compulsion by respondents Nos. 1 to 4 and has not freely and willingly entered into the impugned agreement.
12. Normally, every party to an agreement incorporating restrictive trade practices will have to be restrained. However, in this case, the issue has been framed on whether respondents Nos. 1 to 4 have indulged in restrictive trade practices. There is no issue as to whether respondent No. 5 has indulged in restrictive trade practices. In view of this, I am not recording a finding that respondent No. 5 has indulged in restrictive trade practices. Therefore, no "cease and desist" order can be passed against respondent No. 5; Thereafter, it has been mentioned by both Mr. Gangoli and Mr. Pithawala that the impugned agreement has come to end and, therefore, no "cease and desist" order could be passed. This argument is also unacceptable because the expiry of an agreement containing restrictive trade practices does not take away the jurisdiction of this Commission to issue an appropriate order restraining the parties from indulging in restrictive trade practices in future.
13. Consistent with the findings recorded by me arid with the reasoning adopted by me, the issues are answered as follows. Issue No. 1 is answered in the negative ; issue No. 2 is answered in the affirmative in so far as Clauses 11(a) and 11(b) of the agreement are concerned ; and issue No. 3 is answered in the negative against the respondents.
14. Looking to the facts and circumstances of this case, I am also of the opinion that respondents Nos. 1 to 4, and not respondent No. 5, should be directed to pay the costs to the Director-General. Hence the following order.
15. Respondents Nos. 1 to 4 are hereby directed to "cease and desist" from indulging in the restrictive trade practices contained in clauses ll(a) and ll(b) of the agreement, dated May 6, 1983, entered into among them. Respondents Nos. 1 to 4, jointly and severally, shall pay Rs. 5,000 as costs to the Director-General within eight weeks from today.