Monopolies and Restrictive Trade Practices Commission
In Re: Avon Cycles P. Ltd. vs Unknown on 10 September, 1986
Equivalent citations: [1986]60COMPCAS1036(NULL)
ORDER M. Satyapal, J.
1. This enquiry was initiated in the wake of an advertisement appearing in the Indian Express on October 2, 1984, by Avon Cycles P. Ltd. According to this advertisement, Avon Cycles P. Ltd. had organised a scheme offering bumper lucky prizes to the persons who purchase Avon Cycles during the period August 5, 1984, to October 15, 1984. The lucky prizes will be determined by draw of lots. As this advertisement appeared to attract the provisions of Section 36A of the Monopolies and Restrictive Trade Practices Act, 1969, a preliminary investigation was ordered to be conducted by the Director (Research) Taking into account the findings of the preliminary investigation report the Commission issued a notice of enquiry to M/s. Avon Cycles P. Ltd., the respondent, under Sections 36A, 36B(d) and 36D of the Monopolies and Restrictive Trade Practices Act on February 27, 1985.
2. The respondent filed a reply to the notice of enquiry denying the allegations. This was followed by a rejoinder by the Director-General. Interrogatories were thereafter delivered by the Director-General and were replied to by the respondent. The following issues were framed:
(i) Whether the respondent has been indulging in the trade practice as alleged in the notice of enquiry ?
(ii) If the reply to issue No. 1 is in the affirmative, whether the said trade practice is an unfair trade practice within the meaning of Section 36A of the Monopolies and Restrictive Trade Practices Act ?
(iii) If the reply to issue No. 2 is in the affirmative, whether the said unfair trade practice is prejudicial to the public interest or to the interest of consumer ?
3. The evidence of the Director-General was confined to the written documents which were admitted by the respondent. Three witnesses were examined on behalf of the respondent. The arguments were heard on April 11, 1986. The Director-General was represented by learned counsel, Shri Vijay Mehta, while learned counsel, Shri S.S. Kumar, argued the case on behalf of the respondent.
4. The respondent is a company incorporated under the Companies Act, 1956, and is engaged in manufacturing cycles and cycle parts. Its factory and registered office are situated at Ludhiana. Its products are sold under the brand name " avon ".
5. The respondent advertised in the Indian Express dated October 2, 1984, a scheme offering bumper prizes on the basis of a lucky draw. The scheme, valid for residents of Delhi, entitled any one who buys any model of avon cycle from any of the company's authorised dealers in Delhi between August 5, 1984, and October 15, 1984, to a coupon, which along with the cash memo, was to be forwarded to the company's Delhi office. The coupons were in three series " A ", " B " and " C ". Each series had ] 4 prizes consisting of the following :
(i) 1st prize: one Kelvinator refrigerator
(ii) 2nd prize: two Televisions
(iii) 3rd prize: three Ovens
(iv) 4th prize : three Bicycles
(v) 5th prize ; five Nelco-Transistors.
There was in all a total of 42 prizes in the three series.
6. The findings of the preliminary investigation is that the company had increased the prices of bicycles on July 16, 1984, and October 5, 1984. The period of the contest being August 5, 1984, to October 15, 1984, the first price increase was effected just before the contest period and the second a little before the close of the contest period. In the notice of enquiry, it is alleged that the respondent conducted a scheme by way of lottery for the purpose of promoting directly or indirectly the sale of its products and the respondent had increased the prices of bicycles prior to and during the period of contest thereby covering the cost of prizes either partially or fully and thus indulged in an unfair trade practice causing injury and loss to the consumer.
7. The respondent has denied the allegations in reply to the notice of enquiry. The conduct of a lottery in order to promote the sale of its product is admitted by the respondent. But it is submitted that it has not caused any loss to the consumer. The prizes were given away from the resources of the respondent and of its dealers and their cost has not been recovered from the consumers. It is further submitted that the increase in the prices of the cycles twice during the course of a few months in July and October become necessary as a consequence of an increase in the steel price and there was no nexus between the price increase of bicycles and the lottery scheme. It is further submitted that other manufacturers of cycles had also made similar increases during this period including the National Bicycle Corporation of India, a public sector company. Further, it is stated that the conduct of a lottery in 1984 was nothing new as it has been a regular feature of the respondent's sales programme for several years, being a method of promoting sales during the rainy season when sales are otherwise very sluggish. As there was no loss to the consumer as a result of the scheme, the charge of unfair trade practice did not subsist.
8. There is no disagreement between the Director-General and the respondent on the basic facts of the case. The respondent has owned up the advertisement and has also admitted having conducted a lottery in the form of lucky draw for the promotion of sales. There is also no dispute in regard to the prices of the bicycles having been increased during and prior to the conduct of the lucky draw scheme. It is also agreed that there has been an increase in the price of steel with effect from June 22, 1984.
9. Issue No. 1 is whether the respondent has been indulging in the trade practices as alleged in the notice of enquiry. The respondent has admitted that it has conducted the lottery as advertised. As such, the answer to this issue is in the affirmative.
10. For the sake of convenience, issues No. 2 and No. 3 are taken together. These issues are whether the said trade practice is an unfair trade practice within the meaning of Section 36A of the Monopolies and Restrictive Trade Practices Act, and if so, whether it is prejudicial to public interest or to the interest of the consumer. According to Shri Vijay Mehta, learned counsel for the Director-General, the respondent by conducting the lottery in the form of a lucky draw and by having effected increase in prices of bicycles during and prior to the conduct of the lucky draw scheme, has indulged in a trade practice which is hit by Sections 36A(3)(a) and 36A(3)(b) of the Monopolies and Restrictive Trade Practices Act. According to Section 36A(3)(a), offering of gifts, prizes or other items with the intention of not providing them as offered or creating an impression that something is being given or offered free of charge when it is fully or partly covered by the amount charged in the transaction as a whole is an unfair trade practice. It is the contention of the Director-General that the two price increases of bicycles were intended to finance partly or fully the prizes offered in the scheme and thereby Section 36A(3)(a) of the Monopolies and Restrictive Trade Practices Act was attracted. In terms of Section 36A(3)(b), the conduct of any contest, lottery, game of chance or skill for the purpose of promoting, directly or indirectly the sale, use or supply of any product or any business interest, is an unfair trade practice. As the respondent has admitted of having conducted a lottery for the purpose of promoting the sales of bicycles, the trade practice is also hit, according to the Director-General, by Section 36A(3)(b) of the Monopolies and Restrictive Trade Practices Act. On the other hand, it is the contention of Shri S.S. Kumar, learned counsel for the respondent, that the mere conduct of the lottery is not an unfair trade practice and, therefore, not a wrong under the Monopolies and Restrictive Trade Practices Act, It is necessary for the Director-General to establish direct loss to the consumer or indirect loss through distortion of competition. No evidence has been advanced by the Director-General to establish such a loss. There was no nexus between price increases of bicycles and the lottery scheme. The price increases were the result of an increase in the price of steel and would have been effected irrespective of whether the lottery was conducted or not. The respondent has for long been conducting such lottery every year to promote the sale of bicycles during the sluggish rainy season. It was a mere coincidence that the steel prices were increased about the same time as the conduct of the lottery, necessitating increase in the price of bicycles. RW-2 and RW-3 have clearly stated that there has been no complaint on the conduct of the scheme, and this was proof enough to show that no consumer had suffered as a result of the conduct of the lottery. Hence, according to learned counsel, Shri Kumar, the charge of unfair trade practice has not been established.
11. We have given careful consideration to the arguments advanced by both sides. The first question to be considered is whether the cost of providing prizes under the scheme has been fully or partially financed by increasing the prices of bicycles. While the fact of two price increases is admitted, it is the contention of the respondent that these had become necessary as a result of an increase in the price of steel. RW-1 corroborated this assertion in oral evidence. Farther, according to the statements of RW-2 and RW-3, other bicycle manufacturers had also increased their prices for the same reason around the same time. It has thus not been possible to establish clearly that the increases in the prices of bicycles effected by the respondent during and immediately prior to the period of lottery were related to the prize scheme. In the absence of anything to the contrary, we are, therefore, inclined to consider that the price increases could be attributed to the increases in the price of steel and unrelated to the lucky prize scheme. In this view, we do not consider that the trade practice is hit by Section 36A(3) of the Monopolies and Restrictive Trade Practices Act.
12. It, however, still falls well within the ambit of Section 36A(3)(b) inasmuch as the respondent has admitted of having conducted a lottery. However, in terms of the first paragraph of Section 36A, a condition to be met in declaring a trade practice as an unfair trade practice is that it should cause loss or injury to the consumer whether by eliminating or restricting competition or otherwise. We have come to the conclusion that the price increases cannot be attributed directly to the prize scheme. As such, there is no proof of any direct loss to the consumer on that account.
13. However, the question of loss or injury to the consumer by reason of impairment of competition or otherwise and prejudice to public interest or to the interest of the consumers in general (as embodied in issue No. 3) has to be determined not from a narrow or limited point of view but from broader considerations governing our economic policy. In this context, it is not merely a matter as to how the prize scheme was actually financed; by cutting into the profits of the company or through an increase in the prices of bicycles. While this question is undoubtedly relevant, a more fundamental issue is, whether the trade practice of resorting to contests, lotteries and similar methods, which are increasingly being adopted by industry and trade, is in the right direction from the point of view of the healthy development of marketing techniques in this country, particularly in relation to promoting consumer and public interest.
14. In this context, several important matters need to be considered. India is a poor country and the purchasing power of the majority of the people is low. An objective of the economic policy, in so far as it pertains to consumer interest, is to ensure that the prices of products, particularly of those which are required by the common man, are kept within reasonable limits and that the quality of the products is steadily improved in order to increase consumer satisfaction. The touchstone of healthy trade practice will be to what extent it is able to make available products of consistently high quality at lower prices. In other words, market should be annexed on the strength of the quality and price of the products, which in the ultimate analysis are the sure indicators of consumer benefit. The methods and strategies adopted for sales promotion should clearly keep this in view and any practice which detracts from this basic consideration should be regarded as prejudicial to consumer interest and public interest.
15. The conduct of lotteries, contests, etc., tends to induce consumers to buy products on considerations other than quality and price. When the essential considerations of quality and price are lost sight of, consumer and public interest suffers. The conduct of lotteries and contests is thus inconsistent with the basic principles of sound market development.
16. The fact that these prizes are being offered out of the profits of the company and not by increasing the prices of the product is of little consolation from a larger economic point of view. The real issue is as to whether the resources that are deployed for the purpose of prizes cannot be more optimally utilised for maximising consumer satisfaction through a general reduction in prices or better services to the consumers at large. The award of prizes benefits only a minuscule number of consumers. Discriminatory benefit of this kind to a select few without any corresponding benefit to or, as often happens, at expense of the bulk of the consumers is obviously not in the overall interest of the consumers. On the other hand, the same amount if utilised for the purpose of reducing prices or providing better services to the consumers in general will enhance consumer satisfaction.
17. Secondly, the practice of offering prizes by lottery tends to encourage the gambling instinct leading to unnecessary, avoidable and excessive purchases by consumers for the purpose of gaining entry into the lottery. Such avoidable and excessive purchases are a real loss to the consumer. As only a few ultimately win prizes, the bulk of the consumers end up, as in every gamble, suffering losses. The gain of the few is, therefore, at the expense of many. Instead of protecting consumer interest, lotteries and contests, therefore, clearly act in a prejudicial manner in regard to consumer and public interest.
18. Finally, it has a deleterious impact on competition inasmuch as extraneous considerations other than quality and price tend to determine consumer preferences and purchases thereby distorting competition. Better products tend to be obscured and inferior products gain preference in consumer choice merely because of the opportunity the latter provide to enter a contest. Interfering with healthy competition, contests and lotteries ultimately result in loss to the consumer.
19. For these considerations, irrespective of whether the scheme is being financed through price increase or the profits of the company, the conduct of contests, lotteries, etc., for the purpose of promoting the sale of goods will have to be regarded generally as an unfair trade practice.
20. Assuming loss or injury is an ingredient of unfair trade practice under Section 36A(3)(b) in the matter of giving away prizes by contests, lottery or game of chance or skill, it is to be noted that consumer interest is integral to any socio-economic order especially under the Monopolies and Restrictive Trade Practices Act and, therefore, what deprives the consumers as a body or a fairly large number of them of the benefits from market affluence and competition must be regarded as injurious to the consumer. Considered from that angle too, the price contest during the lean season as a bait designed to promote sales cannot but be an unfair trade practice.
21. Within the general principles enunciated above, the particular case under consideration will have to be considered in the background of the circumstances that are attendant on it. While prima facie the conduct of lottery distorts competition and inflicts loss to the consumer, the extent of such loss will have to be assessed in the background of the specific facts pertaining to this particular case. Unfortunately, full facts have not emerged during the course of the investigation and enquiry. What is, however, on record is that the conduct of the lottery has resulted in an expenditure of a little over rupees one lakh by way of cost of prizes and advertisement charges. The number of cycles sold under the scheme was approximately 9,000. The average expenditure per cycle sold was thus Rs. 10 to 11. Granting that the purpose of the scheme was to promote sales during the sluggish period, the public interest and consumer interest would have been served better by a general reduction in the price of cycles during the relevant period by Rs. 10 to 11 (which amounts to a almost 3% reduction in cycle price) thus benefiting the general community of cycle purchasers rather than extending the benefit of a prize scheme to a mere 42 prize winners. It is shown that this trade practice is resorted to during the rainy season in order to promote sale, when otherwise the demand is low. Obviously, the objective of enhancing the sale can be achieved by reduction in prices. This will benefit a larger number of customers, a situation which will readily redound to public good. It is true that in terms of the quantum of sales and the expenditure incurred, the prize scheme has not been on a scale as to distort competition to a great extent. However, the potential mischief of the scheme in preventing the emergence of an environment of healthy competition is great. On these broader considerations, we, therefore, regard the conduct of the lottery by the respondent as an unfair trade practice prejudicial to the public interest.
22. This finding calls for a " cease and desist" order under Section 36D(1) of the Monopolies and Restrictive Trade Practices Act. We accordingly, direct that the respondent shall not conduct in future the unfair trade practice of organising contests or lotteries for the promotion of the sale of its products.
23. There will be no order as to costs.