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Observations in Hindustan Lever Ltd. v. M.R.T.P. [1977] 3 SCR 455; disapproved.

(d) In a case where a clause in agreement does not by- itself impose any restraint but empowers the manufacturer or supplier to take some action which may be restrictive of competition, the mere possibility of action being taken, which may be restrictive of competition, would not in all cases affect the legality of the clause. What is required to be considered for determining the legality of the clause is whether there is a real probability that the presence of the clause itself would be likely to restrict competition. This is basically a question of market effect and cannot be determined by adopting a doctrainaire approach. Each case would have to be examined on its own facts from a business and commonsense point of view. It cannot, therefore, be said that in every case where the clause is theoretically capable of being so utilised as to unjustifiably restrict competition it would constitute a restrictive trade practice. [1081 E-H] 6(a). The order dated 14th May 1976 was clearly vitiated by an error of law apparent on the face of the record inasmuch as it contained only the final and operative order without giving any reasons in support of it. [1083 E]

It is now settled law as a result of the decision of this Court in the Telco case that every trade practice which is in restraint of trade is not necessarily a restrictive trade practice. The definition of restrictive trade practice given in section 2(o) is a pragmatic and result oriented definition. It defines 'restrictive trade practice' to mean a trade practice which has or may have the effected of preventing, distorting or restricting competition in any manner and in clauses (i) and (ii) particularises two specific instances of trade practices which fall within the category of restrictive trade practice. It is clear from the definition that it is only where a trade practice has the effect, actual or probable, of restricting, lessening or destroying competition that it is liable to be regarded as a restrictive trade practice. If a trade practice merely regulates and thereby promotes competition, it would not fall within the definition of restrictive trade practice, even though it may be, to some extent, in restraint of trade. Whenever, therefore, a question arises before the Commission or the Court as to whether a certain trade practice is restrictive or not, it has to be decided not on any theoretical or a priori reasoning, but by inquiring whether the trade practice has or may have the effect of preventing, distorting or restricting competition. This inquiry obviously cannot be in vacuo but it must append on the existing constellation of economic facts and circumstances relating to the particular trade. The peculiar facts and features of the trade would, be very much relevant in determining whether a particular trade practice has the actual or probable effect of diminishing or preventing competition and in the absence of any material showing these facts or features, it is difficult to see how a decision can be reached by the Commission that the particular trade practice is a restrictive trade practice It is true that on the subject of restrictive trade practices, the law in the United States has to be approached with great caution, but it is interesting to note that the definition of "restrictive trade practice" in our Act echoes to some extent the 'rule of reason' evolved by the American Courts while interpreting section 1 of the Sherman Act. That section provides that "every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce is hereby declared to be illegal" and literally applied,, it would outlaw every conceivable contract which could be made concerning trade or commerce or the subjects of such commerce. The Supreme Court of United States, therefore, read a 'rule of reason' in this section in the leading decision in Standard Oil Company v. United States. It was held by the Court as a 'rule of reason' that the term "restraint of trade" means that it meant at common law and in the law of the United States when the Sherman Act was passed and it covered only those acts or contracts or agreements or combinations which prejudice public interest by unduly restricting competition or unduly obstructing the due course of trade or which injuriously restrain trade either because of their inherent nature of effect or because of their evident purpose. Vide also United States v. American Tobacco Co. It was pointed out that the 'rule of reason' does not freeze the meaning of "restraint of trade"

ing the restraint is unduly restrictive of competition so as to constitute 'restraint of trade'. The language of the definition of "restrictive trade practice" in our Act suggests, that in enacting the definition, our legislature drew upon the concept and rationale underlying the 'rule of reason'. That is why this Court pointed out in the Telco case in words almost bodily lifted from the judgment of Mr. Justice Brandeis:

"The decision whether trade practice is restrictive or not has to be arrived at by applying the rule of reason and not on that doctrine that any restriction as to area or price will per se be a restrictive trade practice. Every trade agreement restrains or binds persons or places or prices. The question is whether the restraint is such as regulates and thereby promotes competition or whether it is such as may suppress or even destroy competition. To determine this question three matters are to be considered. First, what facts are peculiar to the business to which the restraint is applied. Second, what was the condition before and after the restraint is imposed. Third, what is the nature of the restraint and what is its actual and probable effect." These various facts and features set out in the Judgment of Mr. Justice Brandeis and reiterated in the decision of this Court in the Telco case would, therefore, have to be considered before a decision can be reached whether a particular trade practice is restrictive or not. It is possible that a trade practice which may prevent or diminish competition in a given constellation of economic facts and circumstances may, in a different constellation of economic facts and circumstances, be found to promote competition. It cannot be said that every restraint imposed by a trade practice necessarily prevents, distorts or restricts competition and is, therefore, a restrictive trade practice. Whether it is so or not would depend upon the various considerations to which we have just referred. Of course, it must be pointed out that there may be trade practices which are such that by their inherent nature and inevitable effect they necessarily impair competition and in case of such trade practices, it would not be necessary to consider any other facts or circumstances, for they would be per se restrictive trade practices. Such would be the position in case of those trade practices which of necessity produce the prohibited effect in such an overwhelming proportion of cases that minute inquiry in every instance would be wasteful of judicial and administrative resources. Even in the United States a similar doctrine of per se illegality has been evolved in the interpretation of section 1 of the Sherman Act and it has been held that certain restraints of trade are unreasonable per se and "because of their pernicious effect on competition and lack of any redeeming virtue" they are "conclusively presumed to be unreasonable, and, therefore; illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use". In such cases "illegality does not depend on a showing of the unreasonableness of the practice and it is unnecessary to have a trial to show the nature, extent and degree of its market effect." Vide American Jurisprudence 2d. volume 54, p. 687, Art. 32. We are concerned in the present appeal with clauses of the distributorship agreement imposing restriction as to territory, area or market and providing for exclusive dealership and according to the decision of this Court in the Telco case, such trade practices are not per se restrictive trade practices. Whether such trade practices constitute restrictive trade practices or not in a given case would depend on the particular facts and features of the trade and other relevant considerations discussed above which would show the actual or probable effect of such trade practices on competition. It was, therefore, absolutely necessary to produce the necessary material before tho Commission to show that the impugned trade practices had the actual or probable effect of diminishing or destroying competition and were therefore, restrictive trade practices. The burden was clearly on the Registrar for it was the Registrar who wanted the Commission to strike down these trade practices as restrictive. The Registrar, however, did Dot produce any material at all before the Commission and the Order dated 14th May, 1976 had no basis at all on which it could be sustained.

Then there may be a clause which may be perfectly innocent and innocuous such as a clause providing that the dealer will carry out all directions given by the manufacturer or supplier from time to time. Such a broad and general clause cannot be faulted as restrictive of competition, for it cannot he assumed that the manufacturer or supplier will abuse the power conferred by the clause by giving directions unduly restricting trade. So much indeed was conceded by the learned Additional Solicitor General appearing on behalf of the respondents. But a genuine difficulty may arise where a clause in an agreement does not by itself impose any restraint but empowers the manufacturer or supplier to take some action which may be restrictive of competition. Ordinarily, in such a case, it may not be possible to say that the mere presence of such a clause, apart from any action which may be taken under it, has or may have the prohibited anti-competitive effect. The manufacturer or supplier may take action under the clause or he may not, and even if he takes action, it may be in conformity with the provisions of the Act and may not be restrictive of competition. The mere possibilities of action being taken which may be restrictive of competition would not in all cases effect the legality on the clause. In fact, a consistent course of conduct adopted by the manufacturer or supplier in acting under The clause in a lawful manner may tend to show that The clause is not reasonably likely to produce the prohibited statutory effect. What is required to be considered for determining The legality of the clause is hot mere theoretical possibility that the clause may be utilised for taking action which is restrictive of competition, for it does not necessarily follow from the existence of such possibility that actual or probable effect of the clause would be anti-competitive. The material question to consider is whether there is a real probability that the presence of the clause itself would be likely to restrict competition. This is basically a question of market effect and it cannot be determined by adopting a doctrinaire approach. There can be no hard and fast rule and each case would have to be examined on its own facts from a business and commonsense point of view for the purpose Or determining whether the clause has the actual or probable effect of unduly, restricting come petition. We cannot accept the proposition that in every case where the clause is theoretically capable of being so utilised as to unjustifiably restrict competition, it would constitute a restrictive trade practice.