Monopolies and Restrictive Trade Practices Commission
Narang Store vs T.T. Krishnamachari And Co. on 14 January, 1999
JUDGMENT
S. Chakravarthy, Member
1. This is a common order in the two cases, namely, R.T.P.E, No. 18 of 1986 and C. A No. 2230 of 1988, as the cause of action is the same and as both the cases have been heard together for convenience. Furthermore, it has been recorded by the Commission at its hearing on December 20, 1991, in file C. A. No. 2230 of 1988 that evidence in the main enquiry would be read as evidence in the compensation application.
2. The three respondents in the main enquiry are T. T. Krishnamachari and Co. ("respondent No. 1" hereafter), T. T. Cardboards and Paper Mills Limited ("respondent No. 2" hereafter) and Karnatak Chemicals Limited ("respondent No. 3" hereafter). They belong to the T. T. K. group of companies and are engaged in the manufacture/marketing of many products including rubber condoms.
3. This Commission ordered an investigation by the Director-General (Investigation and Registration) ("the DG" for brief) into certain trade practices on the part of the respondents. The order was given on January 30, 1986. The Director-General submitted a detailed report which was treated as information, on the basis of which the Commission issued a notice of enquiry (NOE) against the respondents charging them with having indulged in certain restrictive trade practices. Respondent No. 1 was charged with having indulged in restrictive trade practices-discriminatory pricing, resale price maintenance, exclusive dealings, refusal to deal and area restriction-and the other two respondents, respondent No. 2 and respondent No. 3, were charged with having indulged in restrictive trade practices of discriminatory pricing and resale price maintenance. The supporting data were supplied to the respondents in the form of an annexure to the NOE. At the request of the respondents, they were provided with copies of certain circulars and letters referred to in the NOE and in the annexure to enable them to furnish their defence against the charges.
4. Narang Stores ("the complainant/applicant" hereafter) a dealer of respondent No. 1 has filed an application under Section 12B of the Monopolies and Restrictive Trade Practices Act, 1969 ("the Act" for brief) claiming compensation for the loss and damage suffered by it as a consequence of the aforesaid restrictive trade practices indulged in by respondent No. 1.
(In the compensation application, respondent No. 1's address is different from what is indicated in the notice of enquiry. However, as the respondents belong to the T. T. K. group of companies, the difference in address is overlooked).
5. The notice of enquiry has been issued, on information available to the Commission, under Section 10(a)(iv) of the Act. The respondents in the main enquiry and respondent No. 1 in the C. A, have furnished their detailed replies to the NOE and the compensation application. A summary of the pleadings is made in the following paragraphs.
6. Essentially, the first charge against the respondents relates to discriminatory pricing in which different dealers have been required to make security deposits in different amounts, allowing them different cash discounts. For instance, Narang Stores (complainant/applicant) a dealer of respondent No. 1 has been allowed only 1 per cent, discount instead of 2 per cent., which is normally allowed to dealers by the said respondent. Furthermore, respondent No. 1 is alleged to be resorting to discriminatory credit policy by allowing different intervals of credits to different dealers. These constitute restrictive trade practices under Section 33(1)(e) of the Act.
7. The second essential charge is that respondent No. 1 is indulging in resale price maintenance. The price lists given by respondent No. 1 to the dealers do not indicate that the latter were free to resell the goods at prices lower than those indicated in the price lists. This attracts Section 33(1)(a) and Section 33(1)(f) of the Act being restrictive in nature.
8. The third charge relates to the exclusive dealing indulged in by respondent No. 1. Respondent No. 1 is alleged to have pressurised its dealers exclusively in its products, on pain of suffering termination of dealership or non-supply of goods. This attracts Section 33(1)(c) of the Act.
9. Likewise, respondent No. 1 is alleged to have refused to deal with the complainant/applicant and arbitrarily terminated its dealership.
10. Area restriction is another charge against respondent No. 1 that it did not allow the dealers to operate in the market or area desired by the latter thus attracting Section 33(1)(g) of the Act.
11. Dumping of goods by respondent No. 1 on the dealers when there is no demand is another charge listed in the NOE attracting Section 2(o)(ii) of the Act. Likewise, quantity off-take discount offered by respondent No. 1 to the dealers attracts Section 33(1)(e) of the Act.
12. Respondent No. 2 and respondent No. 3 are alleged to have indulged in discriminatory pricing and resale price maintenance attracting Section 33(1)(e), Section 33(1)(a) and Section 33(1)(f) of the Act.
Reply of respondent No. 1 to the NOE :
Preliminary objections :
The Commission has not furnished the investigation report of the Director-General and thus all the relevant particulars of the allegations have not been made available to respondent No. 1 to enable a proper defence to be put up.
13. The NOE does not spell out the facts and features of the charges to enable respondent No. 1 to meet them fully and properly.
Defence on the merits :
Respondent No. 1 has not insisted on security deposits from its dealers. Security deposits are not relatable to the value of sales made by the dealers. On such deposits, the dealers are given interest at the rate of 15 per cent, per annum as against the usual rate of 6 per cent, in the case of trade deposits. Different percentages of cash discounts will not constitute a restrictive trade practice, unless there is discrimination. Respondent No. 1 allows different rates of discounts depending upon the product. The complainant/applicant was allowed 1 per cent, discount on Savorit Noodles, which is the same for all the parties. Furthermore, respondent No. 1 is not resorting to any discriminatory credit policy as alleged. The credit period depends upon the location of the market and other commercial factors. The only basis for the charge is the statement made by an officer of respondent No. 1 that the normal credit period is only one month. According to the circumstances, like location and demand, the period is different for different dealers.
14. Regarding the charge of resale price maintenance, every carton of each product of respondent No. 1 contains the inscription about the maximum price at which the product can be ultimately sold to the consumers. Thus, it is implied that the dealers have the liberty to sell below the maximum indicated prices. The absence of mention of such liberty cannot constitute a restrictive trade practice.
15. No instance or illustration of the allegation of exclusive dealing has been given in the NOE. Dealerships are terminated only when an authorised dealer does not make payments in time, does not issue the necessary sales tax forms in time, delays in executing market orders, overcharges or sells spurious goods or other products against orders booked by respondent No. 1's sales representatives. The dealership of the complainant/applicant was terminated for commercial reasons and business considerations and not for its refusal to sell exclusively only respondent No. 1's products. The complainant/applicant was never pressurised by respondent No. 1 to deal exclusively in respondent No. 1's products on pain of suffering termination of its dealership or non-supply of goods.
16. Respondent No. 1's refusal to deal with the complainant/applicant was a direct consequence of the termination of its dealership. The dealership was terminated due to business considerations. In terms of the law, the manufacturer has the right to decide as to how many and which particular dealers it would like to appoint or retain, having regard to business considerations. The Commission cannot interfere in such decisions of manufacturers like respondent No. 1.
17. In so far as the area restriction charge is concerned, the representatives of respondent No, 1 do the leg work for the dealers and supplement their efforts. There is no restriction on the dealers in covering the market. It is open to the dealers to canvass orders from the market in the presence of respondent No. 1's representatives and it has been stressed on them to cover the market especially during the absence of respondent No. 1's representatives.
18. There has been no dumping of goods as alleged. In the case of complainant/applicant when the invoice was cancelled, the goods were returned by the complainant/applicant to respondent No. 1. The returned goods were accepted by respondent No. 1. Even otherwise, it is the responsibility of the dealers to make efforts to increase the sale of respondent No. 1's products. The dealers cannot leave this job to respondent No. 1's representatives.
19. The various incentive schemes for bulk purchasers were designed to help the dealers to liquidate their stocks and earn their monies thereon. Such schemes were designed for those retailers who lifted respondent No. 1's stocks and helped to liquidate the stocks with its authorised dealers. The complainant/applicant was not entitled to the benefits of such schemes, as it did not satisfy the requirements to earn the same.
20. Respondent No. 1 is entitled to gateways under Clauses (b) and (h) of Section 38(1) of the Act as the restrictions do not directly or indirectly discourage competition to any material degree.
Replies of respondent No. 2 and respondent No, 3 to the NOE :
Respondent No. 2 and respondent No, 3 have raised the same preliminary objections as respondent No, 1. In addition, they have contended that regarding the charge of discriminatory pricing they have not accepted any security deposit and that they sell only one product on which a uniform discount is given to all authorised dealers. Regarding the charge of resale price maintenance, they have taken the same defence as respondent No. 1. They have also pleaded gateways under Clauses (b) and (h) of Section 38(1) of the Act.
Reply of respondent No. 1 to the compensation application :
Respondent No. 1 initially furnished its preliminary reply to the compensation application but later it furnished its detailed reply. Its detailed reply is more or less on the same lines as its reply to the NOE in the main enquiry RTPE No. 18 of 1986. In addition, respondent No. 1 has emphasised that the termination of the dealership of the complainant/applicant was on genuine business considerations such as lack of interest on the latter's part in booking orders for its products, failure to canvass for the same, holding back substantial amounts due to respondent No. 1 for months together, insistence on full payment by retailers in spite of the fact they offered ST-1 form which entitled them to sales tax exemption, over charging for the products and delay or refusal to supply the products to retailers in spite of adequate supply by respondent No. 1, etc. It has also stated categorically that there was no dealership agreement of a formal nature between it and the complainant/applicant and that what has been brought on record is only a photocopy of the agreement, that too unexecuted. Respondent No. 1, apart from reiterating its defence against the various charges already covered in its reply to the NOE in the main enquiry has prayed that the compensation application may be dismissed.
21. The following issues were framed in the main enquiry on November 5, 1986 :
1. Whether the enquiry is bad in law as alleged in the preliminary objections ? If so, to what effect ?
2. Whether the respondent indulged in the restrictive trade practices as alleged in the notice of enquiry ?
3. If the answer to issue No. 2 is in the affirmative, whether the said restrictive trade practices are not prejudicial to public interest under Section 38 of the MRTP Act as contended ?
4. Reliefs.
22. On behalf of the Director-General, Parkash Chander (AW1), partner of Narang Stores (complainant/applicant) was examined. His cross examination spread over four days namely March 30, 1987, November 23, 1987, July 29, 1988, and January 2, 1989. On behalf of the respondents, the following witnesses were examined :
Shri Harish Malik on September 11, 1989 (RW1), Shri Ram Vilas on September 11, 1989 (RW2), Shri Ashok Aneja on January 22, 1990 (RW3), Shri Arun Kumar Gupta on December 20, 1991 (RW4), Shri Parveen Gupta on December 20, 1991 August 16, 1993, and October 18, 1993 (RW5), Shri I. S. Garewal on August 17, 1993 (RW6).
23. We gave a hearing to O.P. Dua, senior advocate for the Director-General, Jitender Chawla, advocate for the applicant in the CA and S. S. Kumar, advocate for the respondents.
24. An objection raised by S. S. Kumar, advocate for the respondents at the initial stages of the arguments is that none of the documents produced by the Director-General has been proved or admitted and in particular the dealership agreement, exhibit A-5, between the complainant/applicant and respondent No. 1. He referred to the docket order dated February 2, 1987, to demonstrate that, on that day a direction was given by the Commission that the documents of the Director-General should be admitted or denied on behalf of the respondents but that it was never done then or subsequently. O. P. Dua, senior advocate for the Director-General rebutted this by arguing that during the recording of deposition of Parkash Chander, his witness, a number of documents were marked including the agreement between the complainant/applicant and respondent No. 1. We note that the deposition recorded of Parkash Chander, AW1, makes a reference to a member of documents which have been marked as exhibits. In view of this, those documents which were marked as exhibits during the deposition of Parkash Chander, AW1, shall be read in evidence and those documents which were produced by the Director-General but not marked as exhibits will not be read in evidence.
25. The first issue during the arguments was enlarged in its scope by S. S. Kumar, advocate for the respondents in the light of a ruling of the Supreme Court in 1995 to which, we will presently make a reference. When the issues were framed, way back in November 5. 1986, the said Supreme Court's ruling was not available and, subsequently, the Commission dealt with the various features of the said ruling in a few cases. All these cases were referred to by S. S. Kumar, advocate for the respondents, when he enlarged the scope of the first issue during the arguments.
26. S. S. Kumar, advocate for the respondents, articulating his arguments on the first issue stated that the notice of enquiry does not spell out the facts and features of the charges and in as much as all the relevant particulars of the allegations have not been made available, the enquiry itself is bad in law. He added that in the light of the Supreme Court's ruling in Voltas Limited v. Union of India [1995] 83 Comp Cas 228 ; [1995] 3 CTJ 49 (SC), in the case of agreements not registered under Section 35 of the Act, it is imperative for the Commission to arrive at the satisfaction that the alleged restrictive trade practices fall under Sub-section (1) of Section 33 of the Act. If such satisfaction has not been arrived at, ran his submission, then it is the responsibility of the Director-General to establish and prove the charges.
27. O.P. Dua, senior advocate for the Director-General, controverted the aforesaid arguments of S. S. Kumar, advocate for the respondents by stating that the NOE is itself satisfaction on the part of the Commission, that the alleged restrictive trade practices fall under Sub-section (1) of Section 33 of the Act. He maintained that there is no further need for the Director-General or the Commission to further go into the question as to whether the allegations constitute restrictive trade practices under Sub-section (1) of Section 33 of the Act in terms of the Supreme Court's ruling in Voltas' case [1995] 83 Comp Cas 228 (SC) : [1995] 3 CTJ 49.
28. The Supreme Court in Voltas' case [1995] 83 Comp Cas 228, 241 (SC) ; [1995] 3 CT] 49 had categorically ruled that ". . . . once the Commission is satisfied that a particular agreement which has not been registered under Section 35, falls within any of the clauses from (a) to (1) of Sub-section (1) of Section 33, then no further enquiry is to be done, as to whether such agreement relates to restrictive trade practices or not". (emphasis1 added) This ruling was referred to by this Commission in three cases, wherein the satisfaction on the part of the Commission has been discussed in detail.
29. In the case of Director-General (I & R) v. All India Organisation of Chemists and Druggists [1996] 87 Comp Cas 544, 549 (MRTPC) the Commission observed as follows :
"The Commission, according to the ruling of the apex court, stands admonished to examine in every case falling under Section 33(1) of the Act, whether the agreement relates to any restrictive trade practice and whether the said practice is prejudicial to public interest. But once the Commission is satisfied that a particular agreement falls within the mischief of any of the clauses from (a) to (l) of Section 33(1), then no further enquiry needs to be done as to whether such agreement relates to restrictive trade practices or not." (emphasis' added)
30. In the second case, namely Director-General (I & R) v. Kothari Electronics and Industries Limited [1997) 5 CTJ 89 (MRTPC), the Commission concluded that a NOE is essentially a charge-sheet instituting an enquiry and that to conclude that by issuance of a NOE, the allegations fall under Section 33(1) of the Act would not subserve the principles of natural justice. The Commission further observed that if the NOE spells out such satisfaction in clear and unambiguous terms that the allegations fall under Section 33(1) of the Act then the inference of satisfaction of the Commission may be deemed to obtain, in which case the ruling of the Supreme Court in Voltas' case [1995] 83 Comp Cas 228 ; [1995] 3 CTJ 49, will automatically apply. If such satisfaction is not clearly spelt out in the NOE, it would be fatal to the principles of natural justice to indict an errant party by way of inference of having been guilty of the restrictive trade practices outlined in Section 33(1) of the Act.
31. In the third case, namely Director-General (I & R) v. German Remedies Limited [1997] 5 Comp LJ 594 ; [1998] CTJ 209 (MRTPC), the Commission once again ruled that it has to be satisfied that the respondent has perpetrated certain restrictive trade practices falling within Section 33(1) of the MRTP Act and that such satisfaction does not obtain by mere issuance of the notice of enquiry, (emphasis1 added)
32. The upshot of the ruling of the apex court in Voltas' case [1995] 83 Comp Cas 228 (SC) ; [1995] 3 CTJ 49, and the Commission's observations in the three cases referred to above namely the Director-General (I & R) v. All India Organisation of Chemists and Druggists [1996] 87 Comp Cas 544 (MRTPC), Director-General (I & R) v. Kothari Electronics and Industries Limited [1997] 5 CTJ 89 (MRTPC) and Director-General (I & R) v. German Remedies Limited [1998] CTJ 209 (MRTPC), is that the mere issuance of a NOE does not constitute satisfaction regarding the charges that they fall under Section 33(1) of the Act. Furthermore, the Commission has to record its satisfaction in line with the ruling of the Supreme Court in the Voltas' case [1995] 83 Comp Cas 228 (SC) ; [1995] 3 CTJ 49 clearly and unambiguously in order to obviate the Director-General's onus to prove the charges. In other words, if the Commission has not recorded its satisfaction that the alleged trade practices on the part of the respondents fall under one or other of the provisions of Section 33(1) of the Act, then the onus is on the Director-General to establish the charges to enable the Commission to come to a conclusion that Section 33(1) of the Act is attracted.
33. We have gone through the NOE very carefully. Mr. O. P. Dua, senior advocate for the Director-General, would have us believe that satisfaction is indicated in page 3 thereof wherein it is recorded that "the Commission has information" that the respondents are indulging in certain trade practices. But what has been omitted by O. P. Dua, senior advocate for the Director-General, is that the NOE itself categorically states at page 3 thereof as follows :
"And, whereas, it appears to the Commission that the above trade practices are restrictive trade practices and, therefore, an enquiry as contemplated by the MRTP Act is called for". In the subsequent paragraph, the Commission states that an enquiry shall be instituted to enquire as to whether the respondents are or have been indulging in the alleged restrictive trade practices. It is, therefore, clear from a reading of the NOE that there is no unambiguous satisfaction that the alleged restrictive trade practices fall under Section 33(1) of the Act. All that has been said by the Commission is that it will enquire into the same. Therefore, applying the ruling of the Supreme Court in Voltas' case [1995] 83 Comp Cas 228 (SC) : [1995] 3 CTJ 49 and in accordance with the three decisions of the Commission referred to above, we are inclined to agree with Mr. S. S. Kumar, advocate for the respondents, that no such satisfaction obtains in the NOE or has been recorded by the Commission that the alleged trade practices on the part of the respondents fall under any of the provisions of Section 33(1) of the Act.
Mr. O. P. Dua, senior advocate for the Director-General, brought to our attention a decision of the Delhi High Court in Brindavan Agro Industries Limited v. Union of India [1998] CTJ 169 (Delhi) (MRTP), in which the issue regarding when the Commission's jurisdiction to determine the nature of trade practice ends. We have gone through the said decision of the Delhi High Court and note that in para. 22 thereof, this is what has been observed :
"After amendment of Sub-section (1) of Section 33, as aforesaid, the Commission has no jurisdiction to determine the nature of trade practice, being restrictive, if covered by Clauses (a) to (l) of Section 33(1) but otherwise the function of the Commission does not come to an end. If a complaint is made before it or otherwise, in case an enquiry contemplated under Section 37 of the Act is proposed to be held, it is obliged to make such enquiry under Section 37 of the Act and before passing appropriate order, the person concerned will be entitled to show that his case comes under any of the exceptions provided in Clauses (a) to (k) of Sub-section (1) of Section 38 of the Act". (emphasis1 added)
34. It is, therefore, clear that even in the aforesaid ruling of the Delhi High Court, the Commission's jurisdiction gets extinguished to determine the nature of trade practices being restrictive, if covered by Clauses (a) to (1) of Section 33(1), Thus, the Delhi High Court's ruling is in line with what the Commission has observed in the three cases referred to, following the Supreme Court ruling in Voltas' case [1995] 83 Comp Cas 228 ; [19951 3 CT] 49. The Commission needs to be satisfied that the alleged trade practices fall within one or other of the provisions of Section 33(1) of the Act. If such satisfaction obtains, there is no further jurisdiction for the Commission to go into the nature of the trade practices whether they are restrictive in nature in terms of Section 33(1) of the Act. This implies that there has to be a categorical satisfaction that the alleged trade practices on the part of the respondents constitute one or more of the restrictive trade practices adum brated in Section 33(1) of the Act. In this case, as noted earlier, the NOE does not spell out such satisfaction and all that it says is that the allegations require to be enquired into. In this view of the matter, we are inclined to agree with Mr. S. S. Kumar, advocate for the respondents that the Director-General has to discharge his onus of establishing the charges.
35. Mr. S. S. Kumar, advocate for the respondents, cited a ruling of this Com mission in Raymond Woollen Mills Ltd. (J. K. Engineering Files Division). In re [1976] 46 Comp Cas 395 (MRTPC), to emphasise his argument that the allegations of restrictive trade practices are only allegations and that there can be no implication of misconduct or moral turpitude in such practices.
36. Another argument advanced by Mr. S. S. Kumar, advocate for the respondents, is that satisfaction on the part of the Commission will have to be grounded on materials which are of rationally probative value. He cited a ruling of the Privy Council in Emperor v. Sibnath Banerji, AIR 1945 PC 156, and a decision of the Federal Court in Machindar Shivaji v. King, AIR 1950 FC 129, in which it had been observed that a condition precedent to the exercise of power is satisfaction even if it is subjective and that where such satisfaction is not based on relevant and sufficient material such satisfaction is bad in law. (These are referred to in the Supreme Court's judgment in Barium Chemicals limited v. CLB [1966] 36 Comp Cas 639 ; AIR 1967 SC 295).
37. Another ruling cited by Mr. S. S. Kumar, advocate for the respondents, is that of the Supreme Court in Rohtas Industries Ltd. v. S. D. Agarwal [1969] 39 Comp Cas 781 (SC) in which it was observed that the discretionary power must be exercised honestly and that the authority concerned must form the requisite opinion honestly and after applying its mind to the relevant materials having regard to the given circumstances before it.
38. In this view of the matter, we are of the view that the NOE does not constitute satisfaction that the alleged restrictive trade practices on the part of the respondents fall within any of the provisions of Section 33(1) of the Act.
39. The main preliminary objection advanced by Mr. S. S. Kumar, advocate for the respondents, as noted earlier, is that the NOE does not spell out the facts and features of the allegations and that, therefore, the enquiry is bad in law. We are not inclined to agree with him on this, as the various letters and circulars indicated in the NOE and in the annexure thereto, were furnished to the respondents by a specific direction of the Commission on July 8, 1986.
40. In view of this, the first issue is answered in the negative in the sense that the enquiry is not bad in law for the preliminary objections taken by the respondents. However, as noted in the analysis above, the respondents are entitled to put up their defence in respect of the charges of trade practices with the onus on the Director-General to establish them as restrictive in nature.
41. The second issue for adjudication is whether the respondents have indulged in the alleged restrictive trade practices. We will deal with this issue chargewise.
Discriminatory pricing :
Under this charge, unequal security deposits from different dealers, differential cash discounts and discriminatory pricing policy constitute the allegations.
42. The first component of this charge is that unequal security deposits have been taken from different dealers. Mr. O. P. Dua, senior advocate for the Director-General drew our attention to the deposition of I. S. Garewal, (RW6) an employee and branch manager of respondent No. 1 that there were no criteria for accepting security deposits and that respondent No. 1 used to have a nominal deposit from the dealers ranging between Rs. 5,000 and Rs. 10,000. Furthermore, the witness had deposed that the said respondent had a system of security deposits from its stockists at the relevant period.
43. Mr. S. S. Kumar, advocate for the respondents, argued that these deposits were voluntary in nature, that the dealers were given 15 per cent, interest thereon and that the respondents never insisted on security deposits even though many dealers kept such deposits with respondent No. 1. He pointed out to the deposition of the Director-General's witness, Parkash Chander (AW1), who admitted having given a security deposit of Rs. 5,000 and added that he received interest on the same for the particular period from September 11, 1980, to March 31, 1981. Regarding the interest for the further period, the witness could not give any categorical answer as he stated that he would be able to say anything positive only after perusing the records. He also deposed that he did not remember as to whether he received the interest amount for certain periods. On the other hand, Ram Vilas, RW2, a dealer of respondent No. 1 and its sister concerns stated that he had a kept a deposit of Rs. 10,000 with respondent No. 1 and received interest and that the interest amount had been received regularly. The said witness had no information on the security deposit amount charged from others. Another witness of the respondents, Ashok Aneja, an authorised wholesale dealer of respondent No. 1 also deposed that he had kept an amount of Rs. 5,000 as security deposit with respondent No. 1 and that he was getting interest. He added that despite the increase in the sale, he was never asked to deposit any additional amounts towards security.
44. Mr. S. S. Kumar, advocate for the respondents stressed that the security deposit amount was not relatable to the value of sales made by the dealers. In as much as the complainant/applicant had received interest on the security deposit for a particular period from September 11, 1980, to March 31, 1981, and was rather vague and unambiguous regarding interest for the further periods and as he could not establish that he was compelled to tender a larger deposit than the other dealers, it is not possible to hold the charge as proved. On the other hand, the dealers of respondent No. 1 and other respondents have categorically stated that they were receiving interest on the security deposit and even quantified the amounts of deposit that were kept with the respondents concerned. There is no evidence brought by the Director-General through his witness, namely, the complainant/applicant that there was any insistence by respondent No. 1 that the complainant/ applicant should give an additional deposit and that failure to comply with the requirement would result in termination of its dealership. On the other hand, according to respondent No. 1, termination of dealership was for a number of business considerations particularly relating to inadequate performance on the part of the complainant/applicant.
45. As long as there is no compulsion on the dealers to tender a particular amount of security deposit, as has been made out by the respondents through their witnesses, it will not be appropriate to indict the respondents on the ground of unequal security deposits. Shri Parkash Chander, DG's witness (AW1) has himself stated on oath that "There is no letter from the company asking us to deposit the security amount". The witness, however, added that at a meeting of the stockists they were asked to deposit the security with the company but there again there is no indication in his deposition that he was asked to deposit only an amount of Rs. 5,000 whereas others were asked to deposit larger or smaller amounts. There is no evidence to establish this charge.
46. The next limb of the charge is differential cash discounts to different dealers. The complainant/applicant has alleged that it was only given one per cent, discount instead of two per cent, in support of which invoice No. 49 dated January 31, 1985, was produced. Respondent No. 1's defence is that discounts are allowed on an uniform basis to all dealers but that the rates of discounts vary from product to product. Referring to invoice No. 49, dated January 31, 1985, respondent No. 1 has contended that it relates to the supply of Savorit Noodles for which only one per cent, discount was allowed. Regarding respondent No. 2 and respondent No. 3 they sell only one product each and their contention is that they allow an uniform discount in respect of those products to all their authorised wholesale dealers.
47. Shri O. P. Dua, senior advocate for the DG, brought to our attention the statement made by Shri I. S. Garewal, (RW6), an employee of respondent No. 1 and its branch manager that "such cash discounts can marginally vary between one per cent, to two per cent, depending upon the product". Shri O. P. Dua, sought to demonstrate that the branch manager of respondent No. 1 himself has admitted that cash discounts differ from dealer to dealer, but we are unable to read such a construction in the said statement of the witness as his point is that the cash discounts vary between product and product and not dealer and dealer. As a matter of fact, the witness categorically stated that respondent No. 1 did not discriminate between the complainant/applicant and the other stockists. The witnesses of the respondents like Shri Ram Vilas (RW2), Shri Ashok Aneja (RW3) and Shri Parveen Gupta (RW5) have all deposed that they were getting the discounts and one of them Shri Parveen Gupta, said that the respondents allowed uniform discounts to the dealers. They also made a point about the difference between trade discount and cash discount, which is distinguishable in normal business parlance. Cash discount is given if payment is made within a particular period but trade discount is an incentive given to the dealers to sell the products.
48. As noted earlier, even the one invoice which was tendered in evidence does not appear to establish the charge of discriminatory discounts, as the discount percentage on Savorit Noodles was only one per cent, and the complainant/applicant cannot expect a discount of two per cent, on that product. Furthermore, Shri Parkash Chander (AW1) DG's witness, was asked pointedly about cash discounts and we do not see anything in his deposition which establishes the charge of differential discounts to different dealers. This charge, therefore, falls.
49. The third limb of the charge is discriminatory credit policy. The foundation, on which this charge has been made is the statement of one Shri Pichumani, respondent No. 1's deputy general manager, to the effect that the normal credit period is one month but it is varied depending upon location, demand and competition in the market. Respondent No. 1's defence articulated by Shri S. S. Kumar, its advocate, is that it does not allow differential credit periods for different dealers. The actual realisation of invoice amounts varies from party to party in various centres in the country. The allegation that the complainant/applicant was allowed only a credit interval of two to three weeks whereas the other dealers were getting up to a maximum of three months was refuted by Shri Parveen Gupta, (RW5) that all the stockists were uniformly allowed a credit period of 21 days and that the complainant/applicant in not having remitted the payments within that said time limit, had nevertheless been let off by respondent No. 1 which did not charge any interest in respect of late payments. Nor did respondent No. 1 reduce the rate of discount as applicable to the complainant/applicant. During the deposition of Shri Parkash Chander (AW1), DG's witness, he said that one D.L. and Co., Sadar Bazar, Delhi, was given a longer period of credit and that the said party informed that it was receiving credit for a period of four months. But neither D. L. and Co., Sadar Bazar, Delhi, was asked to appear through its representative as a witness by the DG nor any affidavit in this regard was filed. It will be totally unjust to rely on hearsay information and indict respondent No. 1 and the other respondents. When the DG's witness was confronted with a number of invoices, he did not give any reply to the question as to when he made payments against them, on the ground that he does not have the records with him. In the absence of any foundation or evidence, it is inappropriate to indict the respondents.
Resale price maintenance :
The charge is that the respondents have not indicated in their price lists and circulars that the dealers are at liberty to sell the products at prices below the maximum recommended prices. The response of the respondent is that every carton of each product contains the inscription about the maximum price at which the product can ultimately be sold to the consumers. Thus, it is implied that the dealers have the liberty to sell below the maximum indicated prices. The DG's witness, Shri Parkash Chander, (AW1) demonstrated that according to the price lists, no liberty had been given to the dealers to sell at lower prices thus attracting Section 33(1)(f) of the Act. We are of the view that in line with the wording of Section 33(1)(f) of the Act, there is a legal requirement that prices charged on resale may be lower than the prices stipulated and that, therefore, in the absence of satisfaction of the legal requirement this charge stands established against all the three respondents. Shri S. S. Kumar, advocate for the respondents made a further point that the price lists have been issued only to distributors and not to retailers. Inasmuch as the distributors were also getting a discount, it is well within the discretion of the distributors to part with a portion of the discount when they pass on the products to the retailers for ultimate sate to the consumers. This argument of Shri S. S. Kumar, however, does not clinch the defence of the respondents.
Exclusive dealings :
The allegation in this case is founded on the statement of Shri V. Krishnamurthy, respondent No. 1's regional manager, to the effect that the said respondent terminates the dealership when a dealer sells the products of others. The further allegations is that respondent No. 1 pressurises its dealers to deal exclusively in its products on pain of suffering termination of dealership or non-supply of goods attracting Section 33(1)(c) of the Act.
50. Shri S. S. Kumar, advocate for the respondents, stated that dealerships are terminated when they do not make payments in time, do not issue necessary sales tax forms in time, delay in executing market orders, over charge for the products and sell spurious goods or other products against orders booked by respondent No. 1's sales representatives. The DG did not adduce the evidence of Shri V. Krishamurthy, whose statement seems to be the only evidence in support of the charge. On the other hand, the explanation given by the respondents is that only when a dealer sells spurious goods or other products against orders booked by its sales representatives, dealership is terminated. This is totally different from termination of dealership because of sale of others' products. The underlying point in Shri S. S. Kumar's argument is that if an order is booked by respondent No. 1's sales representatives and against that order a dealer sells the products of others, then it tantamounts to an unethical business practice which leads to termination of dealership. We are inclined to agree with Shri S. S. Kumar. There is no evidence whatsoever from the DG's side to establish the charge under adjudication. The charge is dropped.
Refusal to deal and arbitrary termination of dealership :
This charge is based on the allegation of the complainant/applicant that its dealership was terminated arbitrarily. Shri Parkash Chander (AW1) DG's witness, deposed that respondent No. 1 introduced a new product, namely, noodles and that the complainant/applicant did not want to sell that product. Respondent No. 1 appears to have forced the said product and cancelled its dealership, when it requested for return of the said goods to respondent No. 1. During his deposition, the witness was asked a number of questions but a close reading of the same shows that there was no nexus between cancellation of the dealership of the complainant/applicant and its inability to sell noodles. In any case, in such matters, the manufacturer-dealer relationship rests on the performance of the dealer qua the manufacturer's products. Even if the so called agreement exhibit A-5 (unsigned and unexecuted according to respondent No. 1) is a kind of contract, any breach of the same cannot automatically constitute a restrictive trade practice unless it is established that the contract or the agreement attracts one of the Sub-sections of Section 33(1) of the Act. Shri S. S. Kumar, advocate for the respondents, cited a decision of this Commission Phipson & Company Limited. In re [1993] 1 CTJ 167 (MRTPC) in which it was observed that the Monopolies and Restrictive Trade Practices Act will come into play not as a legislation superordinary or supererogatory to the relevant law". Shri Kumar cited another decision of this Commission Bombay Footwear (P) Limited, In re Company Law Digest, Volume XV No. 1, dated March 19, 1985, that the policy of appointing one or two wholesalers in a particular area for marketing the goods is not hit by the provisions of Section 33(1) of the Act. Dealing with the breach of contract, Shri S. S. Kumar, brought to our attention another decision of the Commission Kalu Ram Mahadeo Prasad, In re [1984] 3 Comp LJ 283, 285 (MRTPC) in which the Commission had observed that "breach of agreement...... if at all there may be, would be a matter to be agitated in the civil court; but so far as this Commission is concerned, it can assume jurisdiction to redress the grievance only where a clear case of restrictive trade practice is made out."
51. Dealing with the product noodles and market strategy, Shri S. S. Kumar, advocate for the respondents, referred to the decisions of this Commission in Masvi Fabrics v. Arvind Mills Limited [19931 1 CTJ 454 (MRTPC) and Andhra Pradesh Paper Mills Limited, In re [1995] 3 CTJ 256 (MRTPC) and argued that a company has the right to devise its market policies and modus operandi in such a way as to be able to compete effectively with other manufacturers and that it may not be in its interest to supply the goods to whosoever wants it in the capacity of a dealer, the result of which may be that, in the long run, it would lose the market in competition with other brands. Furthermore, the manufacturer should have the right to devise its own market policies and strategies and it would not be appropriate for any dealer to impugn the same and contend that it is prejudicial to public interest. In yet another decision of this Commission in Indian Shaving Products Limited, In re [1997] 5 CTJ 217 (MRTPC) the Commission observed that it can only intervene if the action of the manufacturer is exercised to thwart or distort competition or perpetuate a restrictive trade practice. In the instant case, relating to the current charge under adjudication, there is no proof that there has been any arbitrary termination of dealership of the complainant/applicant. Shri O. P. Dua, senior advocate for the DG, read out the deposition of Shri Arun Kumar Gupta (RW4) to the effect that he had not written the letter dated July 25, 1985, which is in favour of the respondents but was persuaded to write it by a representative of the respondents. But this again is a statement which is not backed by any proof as to who persuaded him. In fact the witness stated that he did not remember the name of the person who persuaded him. In our view, it is not correct to indict respondent No. 1 on such vague statements as made by Shri Arun Kumar Gupta, (RW4).
52. On the other hand, Shri I. S. Garewal (RW6) and branch manager of respondent No. 1 categorically deposed that the dealership of the complainant applicant was cancelled in October, 1985, because a number of complaints were received about its improper and wrong working. He added that after termination of the dealership of the complainant/applicant, respondent No. 1 appointed three different parties in that area and its sales improved by almost 60 per cent. As noted earlier, the business strategies and policies of a manufacturer have to be those of the manufacturer and none else. After all the manufacturer has to subserve its own interest and towards that end it must have the flexibility and discretion to appoint dealers and ensure their good performance. In the event good performance is not forthcoming from a dealer, it should have the discretion to terminate the dealership. Such termination cannot be styled a restrictive trade practice so as to attract Section 33(1) of the Act.
53. Inasmuch as termination of the dealership of the complainant/applicant was for a number of business considerations and as the manufacturer must have flexibility and discretion to appoint, retain or terminate the services of dealers which is a part of its business strategies and policies, it will be inappropriate for the Commission to intervene merely because a particular dealership has been terminated. Mere termination of a dealership cannot and will not constitute a restrictive trade practice unless it is established that any one of the provisions of Section 33(1) of the Act is attracted. In this case we find no such establishment. A point made by Shri O. P. Dua, senior advocate for the DG, was that the complainant/applicant had informed respondent No. 1 to take the ST-1 forms from it but that the latter did not collect the forms. The non-furnishing of the ST-1 forms has been held against the complainant/applicant for terminating its dealership. The witness for the respondent Shri Parveen Gupta (RW5) testified that no debit was raised against the complainant/applicant for non supply of ST-1 forms in view of their long association. This was buttressed by Shri I. S. Garewal, an employee and branch manager of respondent No. 1 that respondent No. 1 did not raise any debit note against the complainant/ applicant and that such forms can be submitted to the tax authorities up to the date of assessment. In the light of this evidence, we are unable to appreciate the allegation of the complainant/applicant that its dealership was terminated arbitrarily. Shri I. S. Garewal (RW6) made a statement that respondent No. 1 did not raise any debit note even after termination of the dealership of the complainant/applicant. In the circumstances, this charge also does not survive.
Area restriction :
On this charge of area restriction, the respondents' defence is that their representatives do the leg work for the dealers and supplement their efforts and that there is no restriction on the latter covering the market. Their reply further states that the dealers are allowed to canvass orders even in the presence of the respondents, representatives, but the emphasis is that they should canvass orders during the absence of the respondents' representatives. Shri Ram Vilas-(RW2) in his deposition mentioned that his operations were in and around Karol Bagh, Rajinder Nagar, Connaught Place, Khan Market, Sunder Nagar, Corporation Stores, etc. Shri Parveen Gupta, (RW5) deposed that he was able to sell and book orders from the retailers falling within the area of the complainant/applicant. Shri I. S. Garewal (RW6) stated on oath that three different parties were appointed as stockists in place of the complainant/applicant after its dealership was terminated. But all the three witnesses on behalf of the respondents, however, stated that the wholesale dealers/stockists distributors were having some area limitation and could not operate beyond their respective areas. For instance, Shri I. S. Garewal (RW6) stated that respondent No. 1 had recommended the wholesale dealers/stockists not to operate beyond their respective areas. This charge of area restriction attracts Section 33(1)(g) of the Act and the evidence of the respondents noted above establishes it.
Dumping of goods :
This allegation of dumping does not appear to have any sting in the context of the fact that the goods in question were returned by the complainant/applicant and respondent No. 1 accepted the same. The depositions of Shri Ram Vilas (RW2), Shri Ashok Aneja (RW3) and Shri Parveen Gupta (RW5) show that the respondents take back products which are supplied but not sold-by the dealers. Shri Parveen Gupta (RW5) in his deposition complained that the complainant/applicant made no request to respondent No. 1 to take back the supplies of some products. Shri I. S. Garewal (RW6) an employee and branch manager of respondent No. 1 refuted a suggestion that respondent No. 1 did not take back the stocks from the complainant/applicant and on the other hand stated that while cancelling its stockistship, the stocks were taken back, This charge, therefore, does not survive. Dumping of goods has not been established.
Quantity offtake discount :
Respondent No. 1 categorically refuted the charge by stating that there has been no sale target fixed on the dealers and the stockists for any of the items. There were only incentive schemes to help the dealers to liquidate their stocks. The DG has not established through oral or documentary evidence, the charge relating to quantity offtake discount. Even the circulars produced in support relate only to gifts/incentives and not discounts. This charge is also not held established.
54. In view of the aforesaid analysis, the resale price maintenance charge is held established against all the three respondents and the area restriction charge additionally against respondent No. 1. All the other charges against the respondents do not survive.
This leads us to the third issue relating to gateways :
Shri S. S. Kumar, advocate for the respondents, referring to Section 38(1)(b) of the Act argued that the removal of the restrictions may result in the consumers being denied the benefits and advantages enjoyed by them by virtue of the restrictions and that in terms of Section 38(1)(h) of the Act, the NOE deserves to be dismissed as the restrictions do not discourage competition to any material degree. Shri 0, P. Dua, senior advocate for the DG, observed that no evidence has been adduced by the respondents in support of the aforesaid gateways under Sections 38(1)(b) and 38(1)(h) of the Act and that vague pleadings should not be allowed to act as a safety valve to protect the respondents. We have gone through the pleadings and agree with Shri O. P. Dua. We are unable to appreciate how resale price maintenance or area restriction would subserve the interest of the consumers and benefit them.
55. In this view of the matter, the second issue is decided against the respondents to the extent of area restriction charge against respondent No. 1 and of the resale price maintenance charge against respondent No. 1, respondent No. 2 and respondent No. 3. The third issue is answered in the negative. We hold that the restrictive trade practices of area restriction and resale price maintenance are prejudicial to public interest.
56. We, therefore, direct the respondents to cease the restrictive trade practices named against them and desist from indulging in the same in future. They shall furnish an affidavit of compliance within six weeks from the date of this order.
C. A. No. 2230 of 1988 :
The claim of the complainant/applicant has been made under five categories and is directed against respondent No. 1.
Category A :
This claim is towards the commission due to the complainant/applicant from respondent No. 1. No evidence was adduced by either party on this claim. It is for both the parties to settle the matter mutually or in a civil court. This claim does not arise out of the restrictive trade practices of area restriction or resale price maintenance.
Category B :
This claim is grounded on the charge that respondent No. 1 had arbitrarily cancelled the dealership of the complainant/applicant and arbitrarily reduced the area of operation. In the analysis in the main enquiry, nothing has been established that there was any arbitrariness on the part of respondent No. 1 in having cancelled the dealership of the complainant/ applicant or for that matter in reducing its area of operation. In fact, no evidence was advanced by the complainant/applicant that its area of operation was reduced at any particular point of time during the currency of its dealership. The claim in this category has been worked out by the claimant applicant in its application as if the area had been reduced by two-thirds. But neither oral evidence nor documentary evidence was adduced by the complainant/applicant to establish any reduction in the area of operation. It would have been another matter if the claim had been grounded on area stipulation per se and not on area reduction. But the loss, if any, was because of area stipulation. On the other hand, the claim is grounded on area reduction, which has not been proved through oral or documentary evidence. This claim, therefore, cannot be allowed (emphasis' supplied).
Category C :
This claim is basically in respect of Eagle Flask Kiwi and Waterman Ink. This once again is not a consequence of the two restrictive trade practices established against respondent No. 1, namely, area restriction and resale price maintenance. If the complainant/applicant is entitled to benefits under any incentive scheme in respect of the said products it is for the said party to file a civil suit, if so advised, to claim the same. The Commission can give relief only if the loss or damage occurs as a consequence of the restrictive trade practices which stand established. The failure, if any, on the part of respondent No. 1 to make available the benefits of an incentive scheme has not flowed out of the two restrictive trade practices established in this case.
Category D :
The complainant/applicant has sought compensation for the loss incurred by it because of the termination of its dealership arbitrarily by respondent No. 1. We have noted earlier that the charge of arbitrary termination of its dealership has not been established. As the loss, if any, suffered by the complainant/applicant is not a consequence of the said charge, this claim cannot be allowed.
Category E :
This is only an aggregation of the claims under categories A to D. Section 12B of the Act provides for a claimant to seek compensation if he/she has suffered any loss or damage as a result of a monopolistic, restrictive or unfair trade practice. No claim under the said Section can be entertained, if the loss or damage is due to reasons other than any monopolistic, restrictive or unfair trade practice. In this case, there are only two restrictive trade practices held against respondent No. 1, namely, area restriction and resale price maintenance. We have also noted and concluded in our analysis earlier that the loss or damage to the complainant/applicant has not been as a consequence of the said two restrictive trade practices. In this view of the matter, it is not possible to entertain the claim of the complainant/applicant for compensation as made out in its application under Section 12B of the Act. We would like to add that the complainant/applicant has the liberty to move any appropriate court or forum to recover its dues, if any, from respondent No. 1, if so advised. The compensation application is dismissed with the above observations.
57. There shall be no order as to costs.