Monopolies and Restrictive Trade Practices Commission
Director-General (I & R) vs Nogi And Co. Pvt. Ltd. And Anr. on 4 May, 1993
Equivalent citations: [1994]80COMPCAS449(NULL)
ORDER
Sardar Ali, Member
1. This enquiry has been instituted under Section 10(a){iii) read with Section 37 of the Monopolies and Restrictive Trade Practices Act, 1969 (hereinafter referred to as "the Act"), on the basis of an application made by the Director-General of Investigation and Registration (hereinafter referred to as "the D.G.") against Nogi and Co. P. Ltd. (respondent No. 1) and Nogi Sales Corporation (respondent No. 2). Respondent No. 1 is engaged in the business of manufacturing and sale of tooth powder and hair oils, whereas respondent No. 2 is being appointed as sole selling agent by respondent No. 1 in terms of an agreement as renewed from time to time and the latest one is of dated December 24, 1986.
2. The Director-General in its application, referred to above, has submitted that respondent No. 1 had furnished the agreement relating to its marketing arrangements to the office of the Director-General and along with the agreement he has also submitted the price list. The Director-General has taken exception to Clause (3) of the said agreement. According to the Director-General, this agreement had imposed a condition on respondent No. 1 itself that it would not appoint any agent/sub-agent other than respondent No. 2 for the purpose of sale and distribution of its products, which is a restrictive trade practice within the meaning of Section 33(1)(a) of the Act. The second allegation against the respondent, the Director-General has disclosed in its application is that the price list dated October 15, 1987, issued by respondent No. 2 did not stipulate that the dealers/retailers are at liberty to sell the products at a price lower than those indicated in the price list which is a restrictive trade practice and falls within the mischief of Clause (f) of Section 33(1) of the Act. The Director-General, lastly, alleged that the price lists dated October 15, 1987, issued by respondent No. 2 stipulates different prices of tooth powder and hair oil for different areas/territories, which is a restrictive trade practice within the meaning of Clause (e) of Section 33(1) of the Act.
3. On the basis of the aforesaid application, the Monopolies and Restrictive Trade Practices Commission (hereinafter referred to as "the Commission") issued a notice of enquiry dated March 30, 1988. The respondents filed their reply dated October 5, 1988. The respondents in their reply, besides controverting the allegation of the Director-General of indulging in a restrictive trade practice, has also taken certain preliminary objections on the question of maintainability of the enquiry itself. Thereafter, the rejoinder dated December 12, 1988, was filed and after completing the pleadings the following issues were framed by the Commission on December 13, 1988, as follows :
1. Is the enquiry not maintainable on the basis of preliminary grounds pleaded by the respondent in its reply to the notice of enquiry ?
2. Did the respondents indulge in restrictive trade practices, as alleged by the Director-General, and as mentioned in the notice of enquiry?
3. In case issue No. 2 is decided against the respondent, are they entitled to gateways under Clauses (e), (g) and (h) of Section 38{1) as pleaded by them ?
4. Relief.
4. The Director-General has placed on record three documents admitted by the respondents and closed his evidence. These documents were exhibited as exhibits A-1 to A-3. Exhibit A-1 is an agreement dated December 24, 1986, entered between respondent No. 2 through its partners, Mrs. Tara Padmakar Bole, Dr. Mrs. Sindhu Rameshchandra Pandit and Smt. Saraswatibai Ganesh Vader and respondent No. 1, which is a private limited company. Exhibit A-2 is a price list dated October 15, 1987, issued by respondent No. 2, which is applicable for out of Maharashtra State only. It has, inter alia, stated the wholesale price of 100 bottles and maximum price per bottle of the various products of the respondents. Exhibit A-3 is a price list dated October 15, 1987, issued by respondent No. 2 again and is applicable only for the Maharashtra State only. It has also, inter alia, stated the wholesale price of 100 bottles and maximum price per bottle of the various products of the respondents.
5. On the other hand, the respondents have produced two witnesses, of which they had filed the affidavits under Order XIX of the Civil Procedure Code, read with Section 12{l)(c) of the Act and were treated as examination-in-chief. The statement of both the witnesses, namely, Shri M. S. Ambardekar and Shri N. R. Nimkar, were completed on November 2,1989. Shri M. S. Ambardekar at the time of examination has also produced certain documents, which were exhibited as exhibits A-4 to A-12. Thereafter, the case was fixed for hearing the arguments which were initially concluded on December 4, 1991. As certain points need further clarification, the Commission again put up the case for arguments in regard to requisite clarifications. Finally, the arguments were concluded on March 2, 1993, and the case was reserved for orders.
Issue No. 1 :
6. The first issue questions the maintainability of enquiry on the preliminary grounds urged by the respondents in their reply to the notice of enquiry. The respondents have taken the preliminary objection that the appointment of sole selling agent for respondent No. 1 of respondent No. 2 has the approval of the Company Law Board, Department of Company Affairs, Government of India, under Section 294AA of the Companies Act, 1956. According to the respondents, the Central Government makes a detailed and thorough enquiry in accordance with the administrative guidelines not only in regard to the genuineness of the agreement with the sole selling agent, the terms and conditions mentioned therein including the necessity of appointing a sole selling agent for the purpose of the sale of the products of the respondent, but also considers as to whether the appointment of a sole selling agent or arrangement is or is not prejudicial to the interest of the company. According to the respondents, with this comprehensive legislation and the implementation thereof by the Central Government, it is hardly necessary to supplant and/or supplement the same with another enquiry under the Monopolies Restrictive and Trade Practices Act. The respondents have also stated that the sole selling agreement has the approval of the Central Government and, therefore, covered under the exemption under Sub-section (3) of Section 33 of the Act. It is neither registrable with the Director-General nor is it amenable to an enquiry under Section 37 read with Section 33 of the Act as it is an agency agreement only, which cannot and does not have any adverse effect on competition by the sale of the principal's own products by its own agent.
7. According to us, the objections taken by the respondents, as aforesaid, are not tenable in law and particularly in view of the points decided by the Commission on earlier occasion in RRTA v. Allied Distributor and Co. (RTPE No. 6 of 1972, decided on September 6, 1974) ; [1993] 1 CTJ 129 (MRTPC) and Sandvik Asia Ltd., In re (RTPE No. 27 of 1984, decided on March 6, 1985). (Company Law Digest, Volume XV, No. III, page 37). In the latter case, it has been observed that "the mere fact that an agreement has been approved by the Central Government does not mean that the trade practice(s) flowing from such an agreement is/are expressly authorised by any law for the time being". Otherwise also para 3 of the approval under sub-section (2) of Section 294AA of the Companies Act, 1956, for reappointment of the sole selling agents dated December 9, 1986, exhibit A-6, which is the document of the respondent is subject to condition/obligation, which is as under :
"3. This approval of the Company Law Board is without prejudice to the obligations, if any, on the part of the company to obtain the approval/ consent or to register the said document with any authority under any other statutory provisions as may be applicable in this behalf."
8. The agreement dated December 24, 1986 (exhibit A-1), has been voluntarily submitted by the respondent through its letter dated December 21, 1987, as stated in para 2 of the application of the Director-General under Section 10(a)(iii) of the Act for registration to the Director-General. The intent in the act of submission of the agreement for registration to the Director-General amounts to an admission on the part of the respondent that it requires registration. Thus, at this later stage, in. view of the position explained above, it is not open to the respondent to allege that the impugned agreement is not registrable under the Act.
9. In view of the above assertions, we decide the issue, under discussion, against the respondent.
Issues Nos. 2 and 3 :
10. In these issues, we have to determine whether the respondents have indulged in the three restrictive trade practices mentioned in the application under Section 10(a)(iii) of the Director-General and notice of enquiry. The first alleged trade practice is that the impugned agreement had imposed a condition on respondent No. 1 itself that it shall not appoint in India agent or sub-agent other than respondent No. 2 for the purpose of sale and distribution of the products manufactured or to be manufactured by it, which is a restrictive trade practice within the meaning of Section 33(1)(a) of the Act. The contention of the respondent regarding this allegation is of three-fold. Firstly, according to him, Section 33(1)(a) is not attracted because the section relates to refusal to supply or refusal to purchase, etc., such as cases of boycotts, etc. Secondly, the arrangement being an agency agreement, the provisions are inapplicable and, lastly, the choice of distributor and number of channels of distribution are the sole discretion of the manufacturer. In this connection, the respondents have submitted that the purpose of appointing the sole selling agent is that there should only be one channel of distribution at the highest level of marketing functions so that the maximum possible efficiency and professional control is achieved resulting in pushing up the sale of the products almost completely divorced from the problems of production. It has been stated that respondent No. 2 is the marketing organisation manned by professionalised sales personnel having long experience in the line of marketing of the products. It is also submitted that respondent No. 2 was initially a manufacturer of tooth powder in the early twenties (1920). At that time, Shri G. B. Vader was running the business and in 1957 his two daughters were introduced as partners and gained experience mostly on the sales side. In the year 1963, Shri Vader died leaving his two daughters as partners of the firm. After the death of Shri Vader the manufacturing activity was separated and for this purpose a private limited company (respondent No. 1) was formed in the year 1967. The trade mark of the business which was owned by the two daughters also assigned to respondent No. 1 for a consideration of Rs. 10,000 without the goodwill of the business with implied terms that respondent No. 1 appoints respondent No. 2 as their permanent sole selling agent. Since then respondent No. 2 has been acting as the sole selling agent of respondent No. 1 and the Department of Company Affairs has been renewing the approval granted under Section 294AA of the Companies Act from time to time. The sale of respondent No. 1 has stated to have been increased due to the efforts of respondent No, 2, who is rendering all services which are incidental to the increasing of sales of the products of respondent No. 1. This helps respondent No. 1 to plan production and keep respondent No. 2 up to date with the market requirement and also helps in the inventory control and saving cost. Thus, the appointment of sole selling agent of respondent No. 2 has been instrumental in the continued growth and prosperity of both the respondents apart from being beneficial to the consumers in meeting their vital needs of daily consumption.
11. The respondents have submitted that reading the various clauses of the agreement and the evidence on record it is clear that there is no principal to principal relationship between the respondents with regard to the transactions covered by the agreement. It is also stated that the agent is not an identity separate from the principal and the option of a manufacturer to deal with a particular person of his choice in the matter of his business cannot be curtailed. The respondents have stated that the impugned agreement is purely an agency agreement and cannot be considered as an infringement of Section 33(1)(a) read with Section 2(o) of the Act and as such is outside the purview of the Commission for the purpose of an enquiry under Section 37(1) of the Act. For this purpose, reliance has been placed by the respondent on the three orders passed by the Commission : (i) Sandvik Asia Ltd., In re (RTPE No. 27 of 1984, order dated March 6, 1985), (ii) Director-General v. Veeraj Brushes (RTPE No. 1200 of 1987, order dated February 22, 1989), and (iii) Ballarpur Industries, In re (RTPE No. 119 of 1984, order dated October 22, 1984).
12. The Director-General has not disputed the fact that "genuine" agency agreements are outside the purview of Section 33(1)(a) of the Act. However, in order to determine whether an agency agreement is genuine or not, one has to look into the various clauses of the agreement, whether after going through the various clauses one may determine that the tenor and thrust of the agreement is on principal to principal basis or it is the relationship of principal and an agent. On behalf of the Director-General, Clauses (3), (4), (5)(d), (8) and (9) are referred, which indicate that the transactions between the two respondents are on principal to principal basis. In terms of Clause (4), according to the Director-General, respondent No. 1 can sell the goods to the dealers and wholesellers at any terms it desires so long as the prices fixed by respondent No. 2 do not exceed the maximum price fixed by respondent No. 1, means thereby that respondent No. 1 cannot control the prices at which respondent No. 2 will sell goods to the dealers, wholesellers and retailers. This shows that in the matter of supply of products by respondent No. 1 to respondent No. 2 the property in goods passes from respondent No. 1 to respondent No. 2 and as such the relationship between the two respondents is that of principal to principal and not of an agency. Similarly, the same inference can be drawn from Clause (5)(d), which provides that respondent No. 2 can pledge, hypothecate or otherwise give the security of the goods of respondent No. 1 after making payment for the same to respondent No. 1. For the purpose of showing the impugned agreement as of principal to principal basis, the Director-General has also relied upon the statement of respondents witnesses, viz., N. R. Nimkar and M. S. Ambardekar and according to the Director-General all this clearly shows that the relationship between respondent No. 1 and "respondent No. 2 is that of principal to principal and not that of agency. As such the clauses in the agreement imposing a restriction on respondent No. 1 to appoint any other agent or dealer, in other words, restricting the channel of distribution only through respondent No. 2 is a restrictive clause and is a restrictive trade practice within the meaning of Section 33(1)(a) read with Section 2(o) of the Act, which is prejudicial to public interest.
13. According to the Director-General, the contention of the respondents that the sales have gone up from Rs. 24.88 lakhs in 1968 to Rs. 156.96 lakhs in 1986, on account of the efforts of respondent No. 2 is nothing but it is only money value of the goods that has gone up 10 times from 1968 to 1988 and there is no increase in real terms.
14. No doubt, we are of the firm opinion, in view of what has been stated above, that the tenor and thrust of the impugned agreement and the transaction between the two respondents are on principal to principal basis. Yet keeping in view the past history and relationship of the two respondents and particularly of respondent No. 2, which started its business in 1920, continuance of the sole selling agency agreement, as renewed from time to time by the Central Government since 1967 and practically no substantial increase of sale volume-wise, we are of the view that the agreement is one of sole selling agency in the present case ; particularly after going through the various exhibits, we find that the partners of respondent No. 2 and managing directors of respondent No. 1 have some close relationship. Thus, it is not possible for us to foresee any adverse effect on competition in the relevant trade in pursuance of the appointment of respondent No. 2 as the sole selling agent of respondent No. 1.
15. The second allegation that the price lists dated October 15, 1987, exhibits A-2 and A-3 issued by respondent No. 2 stipulated different wholesale prices of tooth powder and hair oil for different areas/territories, is a restrictive trade practice under Section 33(1)(e) of the Act. It was the contention of the respondent that the prices are wholesale prices and maximum prices and the difference of prices in and out of Maharashtra is only due to local sales tax at 8 per cent, levied in Maharashtra. The prices for Maharashtra are inclusive of safes tax at 8 per cent, and the rate of central sales tax differ in the case of registered and non-registered dealers with the sales tax department. The respondents submitted that as far as the maximum price is concerned, there are no different prices for consumers in different areas/territories in India. According to rule 6 of the Standard of Weights and Measures (Packaged Commodities) Rules, 1977, maximum prices are required to be printed on cartons and according to rule 23(2) of the said Rules, no dealers can charge prices exceeding the price mentioned on the containers. According to the respondents, the difference in wholesale price is purely and wholly on account of the statutory requirement and incidence of levy of central sales tax and not on account of any invidious distinction or discrimination on the part of the respondents and the allegation under Section 33(1)(e) in the notice of enquiry is misdirected and misplaced. The respondents, in this connection, has also relied upon a decision dated May 22, 1987, of the Commission in Director-General II and R) v. Hindustan Gas and Industries Ltd. (RTPE No, 114 of 1985, dated May 22, 1987). Wherein the Commission regarded a measure which is primarily intended to compensate partially the higher incidence of sales tax and thereby maintain more or less a uniform consumer price, is generally in the public interest.
16. The close scrutiny of the two price lists dated October 15, 1987, issued by respondent No. 2, exhibits A-2 and A-3, reveals that the respondent has mentioned the wholesale prices per 100 bottles of tooth powder and hair oil and maximum prices per bottle of the said products. Exhibit A-2 is the price list for out of the Maharashtra State and it is specifically mentioned that CST and local tax extra as far as whole prices are concerned and local taxes extra and CST included with regard to the maximum price of the product is concerned. With regard to the price of the Maharashtra State only, as given in the price list, exhibit A-3, it is specifically mentioned that sales tax included and local taxes extra with regard to both the prices, i.e., wholesale prices and maximum price. No doubt, the maximum price given in both the price lists, exhibit A-2 and exhibit A-3, are the same for the Maharashtra State as well as for out of the Maharashtra State. We find that this is obligatory on the part of the respondent under Clause (r) of rule 2 of the Standards of Weights and Measures (Packaged Commodities) Rules, 1977, wherein it is stipulated that retail prices means the maximum price at which the commodity in packaged form may be sold to the ultimate consumer, inclusive of all taxes, transport charges and other dues. Thus, there is no quarrel as far as the maximum price of the products under the price lists are concerned because it is the same all over India.
17. With regard to the difference in wholesale prices within the Maharashtra State and out of Maharashtra State, we have to see whether the difference in two price lists pertaining to wholesale prices will adversely affect the competition and can be termed to be prejudicial to the public interest. In the facts and circumstances of the case, we are unable to convince ourselves how the difference in wholesale prices which are only applicable to dealers adversely affect the competition and how the same is prejudicial to the public interest as long as the respondents maintain a maximum price equal throughout the country, though it is mandatory under the relevant Act. Thus, we are of the view that though the aforesaid trade practice has a taint of restrictive trade practice, yet it cannot be said that it adversely affects the competition and is prejudicial to the public interest, particularly when the respondents showed that the so-called difference in wholesale prices in the two price lists, exhibit A-2 and exhibit A-3, is more or less on account of difference in central sales tax, etc. Accordingly, we decide this allegation under Section 33(1)(e) of the Act.
18. With regard to the last allegation of not stipulating in the price list, exhibit A-1 and exhibit A-2, that the dealers/retailers are at liberty to sell the products at a price lower than those indicated in the price list, is a restrictive trade practice under Section 33(1)(f) of the Act, the respondents have drawn the attention of the Commission to Clause (4) of the impugned agreement, exhibit A-1, whereby the selling agents have been given an option of selling at prices lower than those fixed by respondent No. 1. The respondents have stated that they have never prohibited the distributors/ dealers/retailers from selling the products at lower rates'and the indication of the maximum price carries within itself the inference that lower rates of prices may be charged by them and in fact the respondents further stated that lower rates are frequently charged by respondent No. 1 from respondent No. 2, by respondent No. 2 from the distributors, by the distributors from the dealers, by the dealers from the retailers, etc., in order to make the market response to the products to maximise the output and to face the competition from the products of other manufacturers. However, the respondents have pointed out that respondent No. 2 has already started printing and using the price lists with the stipulation that the dealers can charge rates lower than those indicated in the price list and in support of his contention he has also submitted some price lists indicating "that the dealer can charge the rates lower than those indicated in the price lists". We think that since the respondent has already taken a corrective step of complying with Section 33(1)(f) of its own, the only direction which requires is that the respondent should not discontinue the latter practice of mentioning in the price lists that the dealer can charge rates lower than those indicated in the price list. Accordingly, we decide this allegation against the respondent.
19. In the premises, we, therefore, direct that the respondents shall refrain from reverting to the price list as was effective from October 15, 1987 (exhibit A-2 and exhibit A-3), where liberty was not given to dealers to charge rates lower than those indicated in the price lists. In the facts and circumstances of the case, no cease and desist order is called for against the respondents.
20. There will be no order as to costs.