Monopolies and Restrictive Trade Practices Commission
Director-General Of Investigation And ... vs Universal-Luggage Manufacturing Co. ... on 29 January, 1987
Equivalent citations: [1987]62COMPCAS184(NULL)
ORDER
S.D. Manchanda, Member
1. This is an application filed by the Director-General (Investigation and Registration) under Section 12A of the Monopolies and Restrictive Trade Practices Act, 1969, read with Order 39 of the Civil Procedure Code for grant of temporary injunction against M/s Universal Luggage Manufacturing Co, Ltd., the respondent. The Director-General has also filed an application under Section 36B(c) of the Monopolies and Restrictive Trade Practices Act against the respondent.
2. The respondent is a company registered under the Companies Act, 1956, as a private limited company but later converted into a public limited company. The respondent is engaged in the manufacture and marketing of moulded luggage under such brand names as Oscar, Champion, Aristocrat, etc. The respondent has obtained the consent of the Controller of Capital Issues for the issue of 18 lakh equity shares of Rs. 10 each linked to 3,60,000 15% secured redeemable non-convertible debentures of Rs. 100 each. The public issue is to open on February 2, 1987. The respondent has been issuing advertisements about the public issue of debenture-linked shares in various newspapers. The Director-General has furnished a copy of one such advertisement which appeared in the Times of India on January 19, 1987. The respondent has also issued a prospectus, a printed copy of which has also been furnished by the Director-General with its applications.
3. It is the Director-General's case that the respondent has made misrepresentations in the advertisement and prospectus about the performance of the company and the attractiveness of the proposed issue of shares. The Director-General has taken exception to the following assertions in the advertisement :
" (i) From Rs. 40 crores today to Rs. 100 crores by 1989 ; THAT's Growth.
(ii) Gross fixed assets have increased to Rs. 9.38 crores
(iii) Net worth has increased to Rs. 4.02 crores."
4. Regarding the first assertion, the Director-General has referred to the past performance of the company which shows that the turnover has increased only marginally from Rs. 25.17 crores for the year 1983-84 to Rs. 25.40 crores for the year 1984-85. There is no doubt a substantial increase from Rs. 25.40 crores for the year 1984-85 to Rs. 39.25 crores in 1985-86 but this factor alone is not enough to justify the overoptimistic figures of increase in turnover projected by the respondent in its advertisement.
5. The figures of gross fixed assets (9.38 crores) and net worth (4.02 crores) are based on the accounts for the year ended May 31, 1986, as presented on page 10 of the prospectus. What makes these figures contentious are the numerous changes made in the method of accounting for such items as bonus, sales tax, valuation of stocks, provision for depreciation, method of capitalising expenses, etc. These changes have been indicated by the auditors in Notes Nos. 6 to 15 appended to the statement of accounts for the year ended May 31, 1986. The Director-General has taken exception to the aforesaid adjustments and changes in the accounting methods which are only cosmetic devices designed to paint a rosy picture of the company's performance.
6. The Director-General has also taken exception to the claim made by the respondent on the cover page of the prospectus that it is an "established dividend-paying company". How misleading is this claim is indicated by the figures of dividend declared during the five preceding years. It is seen that no dividend was declared in the first three years and it was only in the last two years that a dividend at 20% was declared. We have carefully gone through the Director-General's applications under Sections 12A and 36B(c) of the Monopolies and Restrictive Trade Practices Act and we are of the view that prima facie the aforesaid assertions and claims made by the respondent in the advertisement and the prospectus, are unrealistic, factually incorrect and, therefore, misleading. The projection of growth of turnover from Rs. 40 crores to Rs. 100 crores by 1989 is unrealistic. Figures of fixed assets and net worth given in the advertisement are inflated in view of the contentious accounting changes made during the year ending May 31, 1986, which have the effect of inflating profits. These misrepresentations amount to unfair trade practices within the meaning of Sub-clauses (i), (ii), (iv), (vi) and (viii) of Clause 1 of Section 36A of the Monopolies and Restrictive Trade Practices Act. We are also of the view that these unfair trade practices are likely to be prejudicial to public interest in so far as a large number of investors will be lured into parting with their hard earned money in subscribing to the issue which, without these misrepresentations, may not have attracted their attention. It is, therefore, a fit case for issue of a temporary injunction against the respondent under Section 12A of the Monopolies and Restrictive Trade Practices Act. We also accept the Director-General's plea for issue of ex parte injunction. According to Rule 3, Order 39, of the Civil Procedure Code, an ex parte injunction can be issued in circumstances where any delay in doing so will defeat its very purpose. Since the public issue of equity shares linked with debentures is opening on February 2, 1987, and is being advertised from day-to-day, it is necessary that an ex parte injunction is issued without any delay to safeguard the investing public.
7. Before proceeding to pass an ex parte injunction, we have to take note of the caveat filed by the respondent under Section 148A of the Code of Civil Procedure, 1908. Section 148A(3) reads as hereunder :
"Where, after a caveat has been lodged under Sub-section (1), any application is filed, in any suit or proceeding, the court shall serve a notice of the application on the caveator."
8. Thus, the respondent seeks a notice of the application made by the Director-General under Section 12A of the Monopolies and Restrictive Trade Practices Act before the Commission decides the question of granting temporary injunction. We are, however, of the view that the Commission's power to issue ex parte ad interim injunction is not fettered by Sub-section (3) of Section 148A of the Civil Procedure Code for the reasons furnished in the succeeding paragraphs.
9. Section 12A of the Monopolies and Restrictive Practices Act prescribes as to under what circumstances an injunction can be issued and also lays down the procedure in that respect. Sub-section (2) of Section 12A says that all the provisions of Rules 2A to 5 of Order XXXIX, Civil Procedure Code, shall apply in the matter of issue of injunction. Rule 3 of Order XXXIX says that an ex parte injunction can be issued if the delay in issuing the injunction shall defeat the very purpose of the same, provided reasons are given for issuing ex parte injunction. That means that the power of issuing an ex parte injunction has been given to the Commission under the provisions of the Monopolies and Restrictive Trade Practices Act, (i.e., Sub-section (2) of Section 12A). It is a fundamental principle of law that when a certain statute creates any authority like the Commission created by the Monopolies and Restrictive Trade Practices Act, the provisions of those statutes have overriding effect against all other laws in the matter of exercise of functions and powers by the said authority in accordance with the law creating it. So, in this case, the Commission has to follow the Monopolies and Restrictive Trade Practices Act as against all inconsistent provisions of the Civil Procedure Code like Section 148A. That being so, ex parte injunction can be issued in accordance with Rule 3 of Order XXXIX, Civil Procedure Code, read with Sub-section (2) of Section 12A. Further, it may also be mentioned that the provisions of the Civil Procedure Code have been applied only to some extent by Section 12(1) of the Monopolies and Restrictive Trade Practices Act. Section 148A is not included in those provisions. However, the Commission applied the provisions of the Civil Procedure Code, vide Regulation 15(2) of the Monopolies and Restrictive Trade Practices Commission Regulations, 1974, which were framed under Section 18 of the Monopolies and Restrictive Trade Practices Act. In Regulation 15(2), it has been clearly stated that the provisions of the Civil Procedure Code will apply only where there is no specific provision in these regulations. That means the Civil Procedure Code cannot override the regulation's and obviously it cannot override the parent statute, i.e., the Monopolies and Restrictive Trade Practices Act, under which the regulations have been framed.
10. In view of what we have stated in the preceding paragraphs, we proceed to issue ex parte ad interim injunction restraining the respondent from making the misrepresentation as alleged by the Director-General in its future advertisements and publicity. In the modified advertisement, the respondent can project a reasonable estimate of the growth of sales. It can also refer to the figures of "gross fixed assets and net worth" as on May 31, 1986, subject to the remarks that these figures have been arrived at after making certain accounting changes for the year ending May 31, 1986, as spelt out on page 10 of the prospectus. The respondent is also restrained from stating in the prospectus that it is an "established dividend-paying company" but it can state the factual position in regard to the payment of the dividend in the past.
11. In view of Rule 3 of Order XXXIX, Civil Procedure Code, a copy of this injunction order and a copy of the application for issue of injunction as well as copy of the application under Section 36B(c) shall be sent by registered post by the Director-General by tomorrow to the respondent and an affidavit of doing so shall be filed. A notice of the application for issue of injunction, the application under Section 36B(c) as well as the injunction order should be communicated to the respondent by the office of the Commission itself.
12. We would like to clarify that what has been stated in this order will not prejudice the merits of the respondent's case in the main unfair trade practice enquiry.
13. This matter will be taken up in February, 1987. Pronounced in the open court on January 29, 1987.