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Registrar of Restrictive Trade Vs. Carona Sahu Ltd. - Court Judgment

LegalCrystal Citation
CourtMonopolies and Restrictive Trade Practices Commission MRTPC
Decided On
Judge
Reported in(1976)46CompCas431NULL
AppellantRegistrar of Restrictive Trade
RespondentCarona Sahu Ltd.
Excerpt:
.....the respondent), an application under sections 10(a)(iii) and 37 of the monopolies and restrictive trade practices act, 1969 (hereinafter for the sake of brevity referred to as "the act") alleging that the respondent had entered into several agreements in two standard forms--one standard form pertaining to wholesale dealers and the other standard form pertaining to dealers. in the said application the registrar alleged that, the agreements with the wholesale dealers contained the following objectionable clauses : "2. the wholesale dealers hereby agree and bind themselves to purchase from the company in wholesale footwears offered and/or supplied by the company during the existence of this agreement. 5(c) the wholesale dealers shall sell the company's goods at the prices fixed by the.....
Judgment:
1. On 16th February, 1974, the Registrar of Restrictive Trade Agreements (hereinafter for the sake of brevity referred to as the Registrar) filed against Carona Sahu Co. Ltd. (hereinafter for the sake of brevity referred to as the respondent), an application under Sections 10(a)(iii) and 37 of the Monopolies and Restrictive Trade Practices Act, 1969 (hereinafter for the sake of brevity referred to as "the Act") alleging that the respondent had entered into several agreements in two standard forms--one standard form pertaining to wholesale dealers and the other standard form pertaining to dealers. In the said application the Registrar alleged that, the agreements with the wholesale dealers contained the following objectionable clauses : "2. The wholesale dealers hereby agree and bind themselves to purchase from the company in wholesale footwears offered and/or supplied by the company during the existence of this agreement.

5(c) The wholesale dealers shall sell the company's goods at the prices fixed by the company and in the area allotted to the wholesale dealers. The company's officers will have a right to examine the invoices issued by the wholesale dealers and check the accounts in respect of the sales by them, 7. The wholesale dealers shall be entitled to a further trade discount by way of bonus on the following basis which will be credited to their account at the end of the company's financial year. The wholesale dealers will be entitled for the above bonus only if the payments for the purchases are made within the stipulated period. Bonus:........." 2. The Registrar alleged that these clauses related to restrictive trade practices of full-line forcing, allocation of areas/markets for the disposal of the goods, re-sale price maintenance and payment of discriminatory discount/bonus.

3. The Registrar also alleged that the agreement with the dealers contained the following clauses : "2. The dealers hereby agree and bind themselves to purchase from the company in wholesale footwears offered and/or supplied by the company during the existence of this agreement.

5(c) The dealers shall sell the company's goods at the prices fixed by the company. The company's officers will have a right to examine the bills/ cash memos issued by the dealers and check the accounts in respect of the sales by them.......

7. The dealers shall be entitled to a further trade discount by way of bonus at the rate of 1.2% on their purchases during each financial year a minimum quantity of...............pairs of footwear from the company and such amount shall be credited by the company to the account of the dealers after the close of the financial year of the company." 4. The Registrar alleged that the above clauses in the dealers agreement related to full-line forcing, resale price maintenance and payment of discriminatory discount/bonus.

5. The Registrar alleged that the restrictive trade practices to which the two agreements related were prejudicial to public interest and, therefore, prayed that the Commission may inquire into these restrictive trade practices and pass appropriate orders under Section 37 of the Act.

6. It will be noticed that the clauses in the standard forms reproduced hereinabove do not give particulars of the discriminatory discount/bonus mentioned in the two agreements. During the course of the proceedings in answer to interrogatories delivered by the Registrar the following particulars of the discriminatory discount/bonus were furnished by the respondent.

"15. Yes. A trade discount is allowed to every wholesale dealer as well as to a dealer. In addition the wholesale dealers and dealers having agreement with the company and purchasing a minimum quantity are given an incentive bonus. The total trade discount paid to the wholesale dealer/dealers for the financial years 1971-72, 1972-73 and 1973-74 were as follows: The rate of incentive bonus to the wholesale dealers is based on the average monthly off-take of : Incentive bonus to the dealers is uniform at the rate of 1/2% subject to the minimum off-take of 3,000 pairs in smaller towns and 6,000 pairs in bigger towns." "16(a) Discount is uniform throughout the country except in Bombay and Ahmedabad where higher discount is allowed on account of proximity to production centre resulting in saving in freight, octroi and other charges." "16(b) Bonus is based on the magnitude of the off-take as stated above." 7. The respondent filed its reply on 18th April, 1974, to which the Registrar filed a rejoinder dated 23rd August, 1974. In the reply the respondent contended that the impugned clause of the two agreements did not relate to restrictive trade practices and that these clauses had not been put into practice. The respondent further contended that it was entitled to the benefit of Section 38(1), Clauses (a), (b), (c), (d) and (h) and that in any case the impugned clauses were not unreasonable having regard to the balance between the circumstances set out in Section 38(1) and the detriment, if any, to public interest.

"(1) Whether the terms and conditions of the agreement referred to in para. 3 of the application under Section 10(a)(iii) relate to restrictive trade practices (2) Whether the said terms and conditions referred to in issue No. (1) or any of them have not been put into practice as alleged by the respondent in his statement of the case (3) If the answer to issue No. (1) is in the affirmative and the answer to issue No. (2) is in the negative, whether the respondent is entitled to the benefit of any of the Clauses (a), (b), (c), (d) and (h) of Sub-section (1) of Section 38 of the Monopolies and Restrictive Trade Practices Act (4) Whether the terms and conditions referred to in the issue No. (1) or any of them are not unreasonable having regard to the balance between the circumstances set out in the respective clauses of Section 38(1) and any deteriment to the public or to persons not parties to the agreement being purchasers, consumers, or users of goods produced or sold by such parties or persons engaged or seeking to become engaged in the trade or business of selling such goods ?" 9. At the hearing of the application on 6th February, 1975, Mr. B. Sen appealing on behalf of the respondent stated before us that with regard to Clauses 2 and 5(c) of the two agreements the respondent will submit to such orders under Section 37(1) of the Act as the Commission may pass on the assumption that the conditions for passing such orders existed. Mr. B. Sen further stated that the respondent did not concede that para. 7 of the two agreements constituted a restrictive trade practice. The matter was then adjourned to 3rd March, 1975, for hearing and final orders on the whole application. At the hearing before us on 4th March, 1975, both the parties stated that they did not desire to lead any evidence. It would thus appear that the only issue in controversy before us is as to whether payment of discriminatory or differential discount/bonus paid to wholesale dealers and dealers based on quantity of goods sold constituted a restrictive trade practice within the definition of that expression in Section 2(o) of the Act. We have held in out judgment dated 6th September, 1974, in R.T.P. Enquiry No. 6 of 1972 (Registrar of Restrictive Trade Agreements v. Allied Distributors & Co., Decision of the MRTP CommissionRegistrar of RTA v. Allied Distributors & Co. and Bengal Potteries Ltd. (RTP Enq. No. 6 of 1972--6-9-74) was affirmed by the Calcutta High Court in Bengal Potteries Ltd. v. MRTP Commission and the High Court decision is reported in [1975] 45 Comp Cas 697) that the trade practices specified in the various clauses of Section 33(1) of the Act were per se restrictive trade practices falling within the definition under Section 2(o) of the Act. Therefore, another aspect of the controversy is whether the discriminatory or differential incentive discount falls within Section 33(1)(e) being a discount in connection with or by reason of dealings.

10. It would appear from the particulars of the incentive bonus furnished by the respondent that the respondent pays a normal trade discount on the turnover of the wholesale dealer or dealers. We are informed that this is at the flat rate of 7 1/2%. In addition to the normal trade discount incentive bonus is given at the uniform rate of 1/2% to dealers whose minimum off-take is 3,000 pairs of footwear in smaller towns and 6,000 pairs of footwear in bigger towns. In case of wholesale dealers the incentive bonus varies from 1% to 4% depending on the monthly average turnover of each wholesale dealer, namely, 1% on annual turnover of 1,500 to 2,999 pairs and rising to 4% on monthly average turnover of 12,000 pairs and above. The giving of this differential trade discount clearly amounts to charging different prices for different quantities of turnover by giving to the wholesale dealers a quantity discount. The higher rates of discount are not given in respect of the quantities purchased at any one time but in respect of monthly purchases averaged for a year. The suggestion on behalf of the Registrar was that as a result of the differential discount the wholesale dealers with larger turnover could sell the footwear to the dealers at a price below that at which smaller wholesale dealers could sell to the dealers. This would reduce the competitive opportunities of the smaller wholesale dealers and would hamper competition. It was further suggested that the danger to competition may simply be deduced from the fact of discrimination and did not require any evidence in view of the definition of "restrictive trade practice" in Section 2(o) of the Act which states that restrictive trade practice means a trade practice which has or " may have" the effect of preventing, distorting or restricting competition in any manner.

11. In our opinion, the practice of allowing discriminatory to differential incentive bonuses based on larger turnover both in case of wholesale dealers as well as dealers is a trade practice within the meaning of Section 2(u) of the Act as it relates to carrying on of the respondent's trade and further it affects the price charged by the wholesale dealers or dealers and the method of trading by them. Section 2(o) of the Act defines a "restrictive trade practice" as a practice which not only has but also in the alternative "may have" the effect of preventing, distorting or restricting competition in any manner. We think the expression "may have" may relate to the present or to future.

If the allegation of the Registrar had been that this practice "has" the effect of preventing, distorting or restricting competition it would have required evidence of the effect of the practice. It would appear that the words "may have" involve an element of prediction, of assessing what the effect on competition would be if the impugned practices were allowed to continue. This takes us to the realm of reasonable probability or likelihood of injury to competition. It appears to us to be obvious that a differential or discriminatory incentive discount based on quantities would reduce the opportunities of smaller wholesale dealers in being able to compete with the bigger ones and that this "may have" the effect of preventing or at any rate distorting and reducing competition between them. This, in our opinion, would fall squarely within the definition of "restrictive trade practice" in Section 2(o) of the Act. We, accordingly, hold that Clause 7 of the two agreements and the practice of allowing differential or discriminatory incentive bonus based on quantities given by the respondent and set out hereinabove is a restrictive trade practice.

This practice also amounts to granting a concession, benefit, allowance, discount or rebate in connection with or by reason of dealings within the meaning of Section 33(1)(e) of the Act. Clause 7 of the two agreements would, therefore, also fall under Section 33(1) of the Act.

12. We are further of the view that this restriction constitutes the larger wholesale dealers as a privileged class of purchasers entitled to buy footwear at a lower price than the dealers and the smaller wholesale dealers. To the extent that the reduction in price exceeds any saving in manufacturing or distribution cost incidental to sales to larger wholesale dealers, it must either be met out of the manufacturer's profits or, what is more likely, be reflected in an increased price to the dealers and smaller wholesale dealers.

13. There was considerable discussion before us on the effect of our judgment dated 6th September, 1974, in R.T.P. Enquiry No. 6 of 1972 in the case of Registrar of Restrictive Trade Agreements v. Allied Distributors & Co. In that case the relevant matter in controversy was whether para. 5 which provided for incentive discounts was hit by Section 33(1)(e) as suggested by the Registrar. In that case we negatived the contention of the Registrar on the peculiar facts of that case. In that case the respondent No. 2, M/s. Bengal Potteries Ltd., were the producers of pottery and the respondent No. 1--Allied Distributors & Co.--were their sole selling agents for the whole of India. Clause 5 of the sole selling agency agreement provided as follows: "5. Subject to the approval of its board of directors, the company (respondent No. 2) may from time to time allow the agents (respondent No. 1) such incentive discounts as it considers necessary to increase the sale of any special item of production. " 14. It would at once appear as obvious that as the respondent No. 1 in that case was a sole selling agent and there was no other agent at all in India there could be no question of the trade practice of giving incentive bonus preventing, distorting or restricting competition.

Competition requires at least two agents. There being only one sole selling agent for the whole country the question of competition could not arise in that case and Section 2(o) would have had no application.

Further, it is also obvious that Clause 5 reproduced hereinabove does not indicate any concluded agreement. All that it provides is that if the producer considered it necessary to increase the sale of any special items of its production it may subject to the approval of its board of directors from time to ti


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