Monopolies and Restrictive Trade Practices Commission
Director-General Of Investigation And ... vs Inter-Shoppe on 21 January, 1987
JUDGMENT
D.C. Aggarwal, Member
1. This is an enquiry under Section 36D read with Section 36A/36B(d) of the Monopolies and Restrictive Trade Practices Act, 1969, against M/s. Inter-Shoppe (hereinafter referred to as " the respondent"). The respondent deals in textile goods, such as shirts, T-shirts, jeans, etc. On September 12, 1984, the respondent issued an advertisement in Hindustan Times (exhibit A-1) announcing a sale "Up to 50% off" from September 11, 1984, to September 16, 1984. The advertisement described the sale as " high fashion at half price ". Vide order dated October 29, 1984, the Commission directed that an investigation shall be made by the Director-General with a view to examining whether the trade practice of promoting sales by the advertisement in question is in any way an unfair trade practice prejudicial to the public interest or to the interest of the consumers generally within the meaning of Section 36A of the Monopolies and Restrictive Trade Practices Act. Mr. G. Saran, Additional Director-General of Investigation and Registration, prepared the preliminary investigation report dated June 25, 1985. He suggested that a notice of enquiry be issued to the respondent inasmuch as the advertisement was violative of the provisions of Section 36A of the Act. Thus, notice of enquiry dated August 26, 1985, was issued. A copy of the preliminary investigation report was attached thereto Additionally, the notice of enquiry purports to dub the alleged discount sale to be a restrictive trade practice as it is likely to distort competition, inter se, the dealers.
2. The respondent filed a reply to the notice of enquiry and challenged that the advertisement in any way violated Section 36A of the Act or that the discount sales pursuant thereto was a restrictive trade practice within the meaning of Section 2(o) of the Monopolies and Restrictive Trade Practices Act. Inter alia, the respondent pleaded that the notice of enquiry is deficient in regard to the necessary particulars of the trade practice alleged to be unfair and restrictive. According to the respondent, the notice of enquiry is, therefore, vague and ambiguous. Further, it is stated that there were no facts before the Commission to give rise to an inference that this trade practice causes loss or injury to the consumer. A plea has also been made that the Commission is bereft of jurisdiction to initiate the enquiry in the absence of material facts and that the P.I.R. falls short of disclosing any cause of action.
3. As to the price " up to 50% off", the respondent pleaded that it did not imply that 50% cut was being offered on all the items. It is contended that the advertisement is clear and unambiguous as no prudent man could construe it to be suggestive of 50% reduction in price on all the items on sale. In this way, the respondent denied that no real discount was offered to the consumers during the sale period. As regards the allegation of restrictive trade practice, it is submitted that even if it be so within the meaning of Section 2(o) of the Act, it came under the gateway of Clause (h) of Section 38(1).
4. The Director-General refuted the reply to the notice of enquiry in a rejoinder dated October 15, 1985. On the basis of the reply to the notice of enquiry, the following issues were framed :
(1) Is the enquiry not legally maintainable ? (OPR) (2) Did the respondent indulge in the restrictive trade practice as alleged in the notice of enquiry ? (OPDG) (3) Did the respondent indulge in the unfair trade practice as alleged in the notice of enquiry ? (OPDG) (4) If issue No. (2) is decided against the respondent, is the said restrictive trade practice not prejudicial to the public interest in view of Section 38(1)(h) of the Monopolies and Restrictive Trade Practices Act? (OPR) (5) If issue No. (3) is decided against the respondent, is the said unfair trade practice prejudicial to the public interest ? (OPDG) (6) Relief.
5. Issue No. (1):
Practically, no arguments were addressed on the basis of the objections raised in para 1 of the reply. It may not be out of place to say that the objections with respect to the maintainability of the enquiry merely relate to the notice of enquiry allegedly being deficient in material particulars which should constitute an unfair trade practice or a restrictive trade practice. In this respect, it may be mentioned that the enquiry was not instituted on whimsical grounds as is sought to be made out. In the course of the preliminary investigation, it was found that 50% discount was given only on a minuscule range of items and also that this sale was meant to clear off garments left over after the season. On the face of it, the advertisement makes no mention that it was an " off-season clearance sale " and that the maximum discount would be available only on a few items. In order to initiate an enquiry, what is required is that there should be a prima facie case calling for an enquiry into the unfair or restrictive trade practice. In the course of enquiry, under the Regulations, the respondent is allowed full opportunity to meet the notice of enquiry. This being so, it cannot be said that the enquiry is not maintainable. This issue is, therefore, decided against the respondent.
6. Issues Nos. (2) and (3) :
On the basis of exhibit A-3, exhibits A-4/2, A-4/3, A-4/5 and A-4/6, the details of sale as follows came to notice :
7. It unmistakably shows that during the short period of 6 days from September 11, 1984, to September 16, 1984, the sale proceeds came to Rs. 5,67,874, making out the average daily sale to be Rs. 94,662. In the year 1982, the average daily sale was in the sum of Rs. 79,483 while in the year 1983, the average daily sale was in the sum of Rs. 55,560. So, it cannot be gainsaid that the allurement of 50% discount or as described by the respondent " up to 50% off " had its due effect on the consumers. The advertisement duly served its purpose to clear off items which could not be sold away during the season. It is admitted by RW-1, Shri Rakesh Mehta, Marketing Manager, that the sale was organised for the purpose of disposing of garments left over at the end of the season. The respondent normally organises two sales in a, year, first one in February or March and the second one in August or September, that is, at the end of the winter season and at the end of summer. The finding as per the P.I.R., a copy of which was attached with the notice of enquiry, that 50% discount was given only on three counters out of as many as eight counters remains unrebutted. As per letter dated January 18, 1985 (exhibit A-3), there were set up eight counters for the clearance sale, namely :--
8. 50% discount was given on three counters, details of which are as follows:
9. The total number of these items is only 249 pieces whereon 50% discount has been given. Though the value of these items has not been indicated, yet considering the aggregate amount representing discount sale to be Rs. 5,67,874, it can be said that the amount as against 50% discount sale bears a small proportion (only) to the aggregate amount. Without any indication in the advertisement that the discount would be available only on a few counters and in that the maximum discount would be on a few pieces, the advertisement cannot but be regarded as suppressing material information which otherwise required to be disclosed to the prospective customer.
10. On behalf of the Director-General, there have been produced in evidence photostats of cash-receipts, viz., exhibit AS-1, dated August 3, 1984, exhibit A5-2 dated August 3, 1984, exhibit A5-3 dated September 9, 1984, exhibit A6-1 (without date), exhibit A6-2 dated September 15, 1984, exhibit A6-3 dated September 15, 1984, exhibit A6-4 dated September 15, 1984, exhibit A7-1 dated September 12, 1984, exhibit A7-3 dated August 31, 1984, exhibit A7-4 dated August 15, 1984, exhibit A8-1 dated September 11, 1984, exhibit A8-2 dated September 11, 1984, exhibit A9-1 dated September 13, 1984 and exhibit A9-2 dated September 15, 1984. It is only in the cash memo (exhibit A6-1) that for a skirt of the value of Rs. 65, discount at 50% has been shown. On none of the other cash receipts, is there any indication of the pre-discount price. The respondent has produced counterfoils of cash receipts (exhibit RW2-1 to exhibit RW2-35). Therein, some of the cash memos show discounts having been given on the pre-discount price in the range of 20% to 50%. Mr. Rakesh Mehta, Marketing Manager, during the cross-examination admitted that in cash memos (exhibit A5-1 dated Augusts, 1984, exhibit A5-2 dated Augusts, 1984, and exhibit A5-3 dated September 15, 1984), the sale price of Rs. 45 per piece was charged for tops. In this way, it is shown that even on September 15, 1984, the tops were being sold on the pre-discount price. Mr. Rakesh Mehta took pains to emphasize that there could be a wide price range for items of same nomenclature and, therefore, even where discount is given, it is possible that ex facie, the price should appear to be identical. However, even on examining these three cash memos, the witness was not able to show if the tops sold, vide cash memo, exhibit A5-3 dated September 15, 1984, was of a category superior to tops sold on August 3, 1984, vide cash receipts, exhibit A5-1 and exhibit A5-2. Mr. Rakesh Mehta admitted that the cash memos, issued during the discount-sale period, September 11, 1984 to September 16, 1984, do not always indicate the pre-discount price. According to him, the pre-discount price could not be indicated due to rush of work; but every item had a price tag attached to it. We feel that it is an untenable excuse to say that the pre-discount price could not be indicated in the cash receipts due to rush of work. Needless to say that it is such-like excuse that provides a handle to exploit the customer and manipulate the price. RW-2, A. K. Saksana, who is an accountant with the respondent company, says that the cash memos are examined at the head office and then transferred to the appropriate files. In the course of cross-examination, he stated that while checking the cash memos, they would, examine the selling price, the discounted price and the style number. When he was shown a few cash memos, like exhibit A5-3 issued during the discount sale period, he could not say what the pre-discount price was. Thus, the checking made at the head office of the company with respect to the discount actually given is anything but effective and real. In the premises, there is ample scope to exploit gullible customers on the basis of the advertisement and the fact that neither at the stage of preliminary investigation nor during the enquiry the respondent took to disclosing the pre-discount value which, by reason of discount, fetched an amount of Rs. 5,67,874.20. In the P. I. R., Mr. G. Saran, Addl. Director-General, inferred that as per the letter dated January 18, 1985, exhibit A-3, the amount of Rs. 5,67,874.20 may be the value of the items on pre-discount basis, a fact which has been repudiated by the respondent in their reply to the notice of enquiry. No doubt, a decisive view in this respect is not possible to arrive at, yet in order to justify the representation in the advertisement, exhibit A-1, "up to 50% off", it was incumbent upon the respondent to have shown that discount in the range of 50% or thereabouts had been allowed on a substantial part of the sales. When one speaks of discount "up to 50%", there cannot be two views that the impression created on the customers generally would be that, by and large the discount will range substantially in the range of about 50%, not that only a few items will carry discount in this range. It is to be noticed that discount at 20% also appears to have been given, for instance, vide cash receipts, exhibit RW2-23, dated September 14, 1984, and RW2-24 dated September 14, 1984. In reply to the interrogatory, rather it is admitted that discount between 10% and 50% on the list price was offered. This being so, the advertisement cannot be said to be free from misrepresentation.
11. The advertisement does not show as to goods of what quality would carry the maximum discount of 50% or thereabouts. If the maximum discount goods were not defective as stated by Mr. Rakesh Mehta, RW-1, the advertisement is silent as to on what kind of goods or on what particular items only, the half-price was to be charged. It cannot occur to a customer that when he actually picks up an item of garment, he will be confronted with the disappointing revelation that the discount would be only 10%. It is a situation like this where a customer having been tempted to visit the store is made to purchase an item of his choice not at the expected discount price, but on a higher price ; and thus not only does he suffer despair in mind but also monetarily because he is required to spend more than what he wanted to spend when he starts from his home. It is, thus, that such a trade practice of holding out tempting discounts causes loss or injury to the consumer.
12. The notice of enquiry also indicts that the quality and quantity of goods offered on discount are not stated in the advertisement. So far as the period of sale is concerned, it is stated, but it may be said to be not adequate having regard to the quantum of business. Primarily, the objection relates to whether the intending customer gets an idea as to what kind of goods these would be, which the advertisement purports to offer at around 50% discount. The prominently displayed word "sale" is embellished by a diagonally placed strip containing the words " Hi fashion at half price"! What impression do these words purport to create on the customer-mind ! that the items put on sale in design, texture, fashion and workmanship match the best in the market, not that these are off-season remnants which could not be sold away during the season for any reason. Mr. Rakesh Metha, RW-1, though denying that these goods were, in any way inferior in quality, stated that these were left-over garments at the end of the season. The left-over garments may either be due to being part of the surplus stock which were never brought into the store or they may have failed to attract the choice of the customer. When a discount, in so wide a range as 10% to 50% is contemplated under the outward cloak "up to 50% off", there must be some reason for such a variation ; it may imply that there is otherwise little demand in the market for items carrying the maximum discount or, thereabouts, or that they suffer from some sort of defect, and whereas items carrying only 10% discount may be of such quality or texture or category that the customer will prefer to pick them up even on a small concession. As the advertisement is silent with respect to the distinguishing features which attract the tempting discount of 50%, it has to be said that it is misleading with respect to those items which would catch the customer's eye as preferable choice, but to his surprise the discount may not be more than 10% or 20%. It is herein that the bargain price to be true and effective should carry with it requisite information on allied aspects.
13. Sub-section (2) of Section 36A reads :
"(2) Permits the publication of any advertisement whether in any newspaper or otherwise, for the sale or supply at a bargain price, of goods or services that are not intended to be offered for sale or supply at the bargain price, or for a period that is, and in quantities that are, reasonable, having regard to the nature of the market in which the business is carried on, the nature and size of business, and the nature of the advertisement.
Explanation.--For the purpose of Clause (2), 'bargain price' means-
(a) a price 'that is stated in any advertisement to be a bargain price, by reference to an ordinary price or otherwise, or
(b) a price that a person who reads, hears, or sees the advertisement, would reasonably understand to be a bargain price having regard to the prices at which the product advertised or like products are ordinarily sold."
14. The Explanation, as above reproduced, goes to show that the bargain price is meaningless without reference to the ordinary price. It is only in relation to the ordinary price that one can appreciate if the price he is going to pay for a particular item is in fact a bargain price. The customer who reads the advertisement should reasonably understand the advantage or disadvantage of going in for purchase by weighing bargain price in relation to the price at which the products advertised or like products are ordinarily sold. The advertisement in question gives no indication of the ordinary price and the bargain price much less of the assortment of garments subjected to varying rates of discount. In this way, the trade practice of advertising goods by employing embellishments like " Hi fashion at half price " though in actual practice the discount does not exceed 10 to 20% on a large assortment of goods and that too without indicating their ordinary prices cannot but be an unfair trade practice within the meaning of Sub-section (2) of Section 36A of the Act.
15. As regards whether it is also a restrictive trade practice, in our view the distortion of competition as an ingredient of restrictive trade practice is an off-shoot of the unfair trade practice of issuing advertisements promising bargain price but in actual practice, the bargain price as promised is either not given or the customer has to pay more than the price outwardly indicated. Therefore, the said trade practice has to be tackled primarily as an unfair trade practice rather than a restrictive trade practice because it will be stripped of its potentiality to distort competition or to manipulate the price in a way as to subject the customer to unjustified cost as soon as the element of unfairness within the contemplation of Sub-section (2) of Section 36A is taken out. So, our answer on issue No. 2 is against its being a restrictive trade practice. For the matter of that, no discussion is called for on issue No. 4 as regards whether the applicability of Section 38(l)(h) is or not attracted to this trade practice.
16. Issue No. 5:
We have come to the conclusion that the advertisement in question (exhibit A1) makes out a case of unfair trade practice as defined in Sub-section (2) of Section 36A. It hardly requires any elaborate discussion to say that under the premises as stated supra, it operates to the detriment of the consumer's interest. The gradually but consistently developing socio-economic milieu buttressed by advance of education through the length and breadth of this country has had its impact in no small a measure on our concept of fairness in business and in particular on consumers awakening as to their rights. Interaction between business fairness and consumer awareness must, as it did, accentuate the consumer sensitivities of right and wrong. The business gimmicks which a decade or two ago were slurred over as normal business practices under the notion caveat emptor are latterly becoming intolerant for their potentially exploitative character. The consumer wants not only quality, durability and due service of the goods he purchases but also straightforwardness and outsppkenness in dealings and fairness in price, divorced from attempt at concealment; and where it is found to be lacking, it hurts him apart from occasioning monetary loss. It is within this socio-consumer milieu that the notion of what is prejudicial or detrimental to public or consumer interest is to be construed in its application to and appraisal of the advertisement and trade practice flowing therefrom. The trade practice which promotes the business interests by suppressing requisite information with respect to the exact bargain price on at least a broad assortment of goods cannot but be regarded as detrimental to public or consumer interest.
17. Relief:
In the result, we hereby direct that the respondent shall " cease and desist" from indulging in the unfair trade practice for the promotion of sale or of business interests and for the due observance thereof we direct as hereunder:--
(a) Instead of promising " up to 50% off " or any other discount figure, the respondent shall disclose the different ranges of discounts available on the goods or different categories of goods;
(b) If the goods are not defective but are intended to be cleared off as stated by the respondent at the close of the winter and summer season, it be invariably stated " off-season clearance sale ";
(c) Where it is not too expensive considering the quantum of business, the ordinary price ranges of the representative items along with the bargain prices or rates of discount therefor be indicated in the advertisement ;
(d) If any discount is determined by reason of quality of the goods, the same be indicated ; and
(e) having regard to the quantum of business, the period of discount sale be not less than 10 days in the first instance, though it can be extended for a further period, if required.
18. Further, under regulation 17 of the Monopolies and Restrictive Trade Practices Commission Regulations, 1974, we consider it befitting to allow the Director-General (I & R) costs in the cause and direct that the respondent shall pay Rs. 5,000 to the Director-General (I & R) within 15 days' time.
19. Pronounced.