Skip to content


Registrar of Restrictive Trade Vs. Tata Engineering and Locomotive - Court Judgment

LegalCrystal Citation
CourtMonopolies and Restrictive Trade Practices Commission MRTPC
Decided On
Judge
Reported in(1976)46CompCas470NULL
AppellantRegistrar of Restrictive Trade
RespondentTata Engineering and Locomotive
Excerpt:
1. this is an application by the registrar of restrictive trade agreements (hereinafter for the sake of brevity referred to as "the registrar") against tata engineering & locomotive co. ltd., a company incorporated under the companies act, 1 of 1956, and having its registered office in bombay (hereinafter for the sake of brevity referred to as "the respondent") under section 10(a)(iii) of the monopolies and restrictive trade practices act, 54 of 1969 (hereinafter for the sake of brevity referred to as "the act"). the allegation of the registrar is that the respondent is engaged in the manufacture of tata diesel vehicles including trucks and bus chassis and some other products. the registrar has further alleged that the respondent had entered into certain agreements with its dealers,.....
Judgment:
1. This is an application by the Registrar of Restrictive Trade Agreements (hereinafter for the sake of brevity referred to as "the Registrar") against Tata Engineering & Locomotive Co. Ltd., a company incorporated under the Companies Act, 1 of 1956, and having its registered office in Bombay (hereinafter for the sake of brevity referred to as "the respondent") under Section 10(a)(iii) of the Monopolies and Restrictive Trade Practices Act, 54 of 1969 (hereinafter for the sake of brevity referred to as "the Act"). The allegation of the Registrar is that the respondent is engaged in the manufacture of Tata Diesel vehicles including trucks and bus chassis and some other products. The Registrar has further alleged that the respondent had entered into certain agreements with its dealers, known as standard agreements, a copy whereof is annexed to the application and marked annexure I. Later, in pursuance of a notice under Section 42(i) of the Act, the company furnished to the Registrar the particulars of the standard agreements (annexure I) along with a copy of the revised agreement which is annexure II to the application. Neither of these agreements was lodged by the respondent with the Registrar for registration under Section 35 of the Act. It appears, the contention of the respondent was that neither of these agreements fell under Section 33 of the Act.

2. The Registrar has alleged that Clauses 1 and 3 of the aforesaid standard agreements (annexure I to the application) provided for territorial restriction or allocation of area or market, Clauses 6 and 13 provided for resale price maintenance and Clause 14 provided for exclusive dealership. The Registrar has stated in the application that he was not aware whether the revised agreement (annexure II to the application) had been put into effect. He has stated that even Clauses 1, 3, 6 and 14 of the revised agreement (annexure II) related to allotment of territories or areas among its dealers and exclusive dealership. The Registrar has alleged that the respondent is not willing to abandon these restrictive trade practices. The Registrar has prayed that the Commission may inquire into the restrictions contained in the two agreements under Section 37 of the Act and pass necessary orders.

3. We might mention here that Clauses 1 and 3 of the two agreements provide that the respondent agreed to sell and deliver to the dealer, with whom such agreement was entered into, certain commercial vehicles for resale in a certain territory or area. The respondent was not precluded from entering into or continuing any dealership agreement or agreements with any other person in the said territory or area. Clause 2 provides that the dealers would promote sales of the said vehicles within the said territory. Clause 3 provides the restriction that the dealers shall not either directly or indirectly and either alone or in conjunction with others, promote the sale of or sell any of the said vehicles to any person or party outside the said territory, nor shall he sell the same to any person within the said territory if the said vehicles are intended to be used outside the said territory. In the event of any of the said vehicles being deemed by the respondent to have been sold for use outside the said territory, the respondent shall be entitled, without prejudice to its any other rights and remedies, to recover from the dealer and the dealer shall be liable to pay to the respondent an amount equivalent to 4% of the price charged by the respondent to the dealer for the said vehicle or such other amount as may be fixed by the respondent from time to time provided that such amount shall not exceed the difference between the retail prices and the net dealers' prices defined under the agreement for such vehicles.

It is alleged by the Registrar that these provisions amount to restrictive trade practices of allocation of an area or market for the disposal of the goods.

4. Clause 6(b)(ii) of the agreement (annexure I) provides that the dealers shall distribute the said vehicles supplied by the respondent "at such prices as may be fixed by the company from time to time".

Clause 13 provides that the dealers shall not resell any of the said vehicles at a price exceeding the retail price established by the company and in effect on the date of delivery or despatch of the vehicle from the regional sales office plus sales tax, any other tax, duty or octroi and transportation charges. The case of the Registrar is that these provisions constitute restrictive trade practice of resale price maintenance. In the revised agreement (annexure II to the application), the following words have been added which would appear to comply with the provisions of Section 33(1)(f) of the Act--"the resale pieces of the said vehicles shall not exceed the maximum retail prices established by the company from time to time and the dealer shall be free to resell the said vehicles at prices lower than such maximum retail prices established by the company". Similarly, in Clause 13 of the revised agreement, the following words have been added : "The dealer shall be free to resell the said vehicles at prices lower than the maximum retail prices established by the company from time to time".

5. Clause 14 of the two agreements (annexures I and II) is in the same terms and provides "that except with the written permission of the respondent first obtained, the dealer shall not, during the pendency of the agreement, either directly or indirectly engage in or promote the sale of or use, handle or sell any truck or bus chassis which is not manufactured or supplied by the company". The allegation of the Registrar is that exclusive dealership constitutes the restrictive trade practice of restricting the purchaser in the course of his trade from acquiring or otherwise dealing in goods other than those of the respondent.

6. We might perhaps mention that implicit in the allegation of the Registrar that the Clauses referred to hereinabove amount to "restrictive trade practices" is the allegation that such practices have or may have the effect of preventing, distorting or restricting competition in any manner within the meaning of that expression in Section 2(o) of the Act.

7. The respondent filed a reply dated the 6th August, 1974, to the registrar's application. In this reply, the respondent has stated that the revised dealership agreement (annexure II to the application) had been put into effect. It has denied that Clauses 1, 3, 6 and 14 of the revised agreement showed that the respondent was indulging in the restrictive trade practices as alleged in the application relating, inter alia, to allotment of territories/areas among its dealers or exclusive dealings or any other restrictive trade practice. The respondent has also stated that although Clauses 6(b)(ii) and 13 of the dealership agreement (annexure I to the Registrar's application) were in fact intended to prevent the dealers from reselling the vehicles at prices exceeding those established by the respondent, only with a view to avoiding controversy, the respondent was prepared to provide for a stipulation that the dealer may charge prices lower than those established. The respondent has admitted that the Registrar had issued to it a notice under Section 42(1) of the Act. In the opinion of the respondent, the agreements were not subject to registration under Section 35 of the Act and, therefore, the respondent was not willing to register the same but was willing to go to the appropriate court on a case stated or to file a high prerogative writ to determine whether the concerned clauses of the agreement amounted to restrictive trade practices. The respondent has submitted that none of the provisions of Clauses 1, 3, 6 and 14 amounted to restrictive trade practices within the meaning of that expression as defined in Section 2(o) of the Act as none of those clauses had or may have the effect of preventing, distorting or restricting competition in any manner. The respondent has submitted that on the contrary Clauses 1, 3, 6 and 14 are in the interest of the consumer and ensure an equal distribution as far as possible of the respondent's vehicles at a fair price. The respondent has submitted that the manner of interpreting Sections 2(o) and 33 of the Act by the Registrar was not correct and that before an agreement can be said to be registrable under Section 35 of the Act, the agreement must firstly be one which falls within the definition of "restrictive trade practice" in Section 2(o) of the Act, and, secondly, it must be an agreement which falls within one of the clauses of Section 33(1) of the Act. The respondent has further submitted that Clauses 1, 3, 6 and 14, though imposing restrictions on its dealers, do not amount to restrictive trade practices. It has further submitted that Clauses 1 and 3 were intended to avoid the unequal and unfair distribution of the vehicles among the customers. With regard to Clause 6(b)(ii), the respondent has stated that in deference to the Registrar's request the clause was amended by the respondent to provide that the resale prices of the respondent's vehicles will not exceed the maximum retail prices established by the respondent from time to time, hut the dealers would be free to resell at prices lower than such maximum retail prices. The respondent has also submitted that Clause 14 of the agreement which prohibited a distributor from dealing in products of other manufacturers will not normally be a restriction unless there are special circumstances which existed and indicated that the agreement had the effect of preventing, distorting or restricting competition. It has submitted that exclusive dealership was a pattern common to the trade and the respondent's dealers were selected after scrutiny of their past performance and record and the clause did not, therefore, establish any system of preferred buyers. The respondent has also staled that it wanted to provide high quality after-sale service and this was not possible without exclusive dealership.

8. The Registrar filed a rejoinder dated 19th September to the respondent's reply.

9. On the above pleadings, the following issues were framed by consent of parties : "1. Whether the application of the Registrar is not maintainable, in view of the objections contained in paragraphs 8, 11 and 23 of the respondent's reply dated 6th August, 1974 2. Whether the terms and conditions of the Standard Agreement and the Revised Agreement referred to in paragraphs 4 and 6 of the Registrar's application dated 23rd January, 1974, relate to restrictive trade practices 3. If the answer to issue No, (2) above is in the affirmative, whether the respondent is entitled to the benefits of any one of the Clauses (a), (b) and (h) and of the balancing clause of Section 38(1) of the Monopolies and Restrictive Trade Practices Act, 1969 10. The respondent has examined Mr. D. Shankaranarayanan, its director and general sales manager, as a witness. He has filed an affidavit dated February 21, 1975, which was treated as examination-in-chief. Mr.

Shankaranarayanan was tendered for cross-examination and was cross-examined on behalf of the Registrar. The respondent produced copies of 49 documents which were put into evidence and marked exhibits 1-49, respectively. A compilation of these documents was subsequently put in. The Registrar led evidence of Mr. Binoy Chandra Mukherjee, Deputy Director (Transport), Delhi Administration, and Shri P.R.Subramanyam, Chief Mechanical Engineer of Delhi Transport Undertaking.

We shall refer to the evidence at the proper stage. Here, we might further add that the Registrar also examined one Shri Shiv Darshan Kumar, Controller of Stores and Purchase in Delhi Transport undertaking. After this witness was partly cross examined, Mr. G.A.Shah on behalf of the Registrar stated that he did not propose to rely on the evidence of this witness. Thereupon Mr. A.H. Desai, on behalf of the respondent, agreed to discontinue the cross-examination of this witness. In view of this we have not considered or referred to the evidence of Mr. Kumar.

11. It will be seen that the Registrar has alleged three kinds of restrictive trade practices against the respondent, viz., (1) area allocation, i.e., allocating to the dealers an exclusive territory, area or market for the disposal of the respondent's goods; (2) resale price maintenance, i.e., selling trucks to the dealers en condition that the prices to be charged on resale shall be the prices stipulated by the respondent; and (3) exclusive dealership, i.e., restricting the dealers as purchasers of the respondent's trucks in the course of trade of the dealers from acquiring or otherwise dealing in trucks other than those manufactured by the respondent. The respondent has relented with regard to the second restrictive trade practice alleged against it and in the revised agreement (annexure 11 to the Registrar's application) necessary amendments have been made so as to abandon this practice.

With regard to the remaining two restrictive trade practices alleged by the Registrar, the respondent has persisted in contending that these practices did not fall under the definition of restrictive trade practice in Section 2(o) of the Act. The controversy actually appears to have started in September, 1972, as appears from the correspondence (exhibits A and B to the respondent's reply). In his letter of 29th September, 1972, to the respondent, the Registrar pointed out all the three restrictive trade practices and stated that these fell under Section 33(1) of the Act and that the agreement relating thereto, viz., annexure 1 to the Registrar's application, was registrable under Section 35 read with Section 33(1) of the Act. The respondent replied, vide its letter of 26th October, 1972, in which it contended that before an agreement could be said to be registrable under Section 35 of the Act, two conditions were required to be satisfied ; first, the agreement must be one which fell within the definition of restrictive trade practice in Section 2(o) of the Act, and, secondly, it must be an agreement which fell within one of the clauses of Section 33(1) of the Act. The respondent further contended that exclusive dealership would normally not be restrictive trade practice unless there were special circumstances which existed and indicated that the agreement had or may have the effect of preventing, distorting or restricting competition.

The respondent contended that based upon the company's awareness of the efforts involved in the maintenance of first class and up-to-date sales and service centres, it was considered desirable to require the dealer to concentrate himself on endeavours to sell and provide after-sales-service only for the respondent's vehicles and it was with that intention that the dealer was required to handle business only in the respondent's vehicles in the given territory. With regard to the restrictive trade practice of area allocation, the respondent contended that a certain defined territory was allotted to its dealers and was principally intended to avoid unequal distribution among the consumers by the dealers and to ensure that the dealers did not resell the vehicles in the area which is earmarked for some other dealer. With regard to the two practices of exclusive dealership and area allocation, the respondent was relying upon its good intentions to take the agreement out of the definition of Section 2(o) and declined to get the agreement registered. Ultimately, the Registrar had to use his powers under Section 42(1) of the Act to call upon the respondent to produce the agreement and thereafter the Registrar made an order registering the said agreement.

12. Even before us, Mr. Palkhivala, appearing for the respondent, contended that the two agreements (annexures I and II to the Registrar's application) did not require registration under Section 35 of the Act because although the clauses with regard to area allocation, resale price maintenance and exclusive dealership fell under the several categories in Section 33(1) of the Act, they were not restrictive trade practices in the case of the respondent as these practices did not have and were not likely to have the effect of preventing, distorting or restricting competition. He contended that without Section 2(o) being satisfied, mere inclusion in the agreements of clauses that fell under the several categories of Section 33(1) of the Act were neither restrictive nor were the agreements containing such clause liable to be registered under Section 35 of the Act.

13. It appears from the correspondence (exhibit A to the application) that right from 1972 the Registrar has contended that the categories mentioned in Section 33(1) of the Act are statutory examples of restrictive trade practices regarding which the legislature was satisfied that they fell within the definition of Section 2(o) of the Act and that these practices were per se restrictive trade practices.

We have upheld this contention of the Registrar in our judgment dated 6th September, 1974, in R.T.P. Enquiry No. 6 of 1972 (Registrar of Restrictive Trade Agreements v. Allied Distributors & Co. and Bengal Potteries, *Decision of the MRTP Commission was affirmed by the Calcutta High Court in Bengal Potteries Ltd. v. MRTP Commission [1975] 45 Comp Cas 697.) and in our judgment dated 21st March, 1975, in R.T.P.Enquiry No. 2 of 1974 (Registrar of Restrictive Trade Agreements v.Carona Sahu Ltd., [1976] 46 Comp Cas 431 (MRTPC)). Mr. Palkhivala argued before us that the matter of Bengal Potteries Ltd. was decided on certain concessions made by the learned counsel who appeared for the respondent in that matter and did not bind him. However, it is not contended that the matter of Carona Sahu Company Ltd. was decided on any concession and that sets the matter at rest. As has been observed by the Supreme Court in the case of Mamleshwar Prasad v. Kanahaiya Lal, AIR 1975 SC 907, that certainty of the laws, consistency of Rule, etc., converge to the conclusion that a decision once rendered must later bind like cases. However, in exceptional cases where a statutory provision or obligatory authority running counter to the reasoning and the result has been omitted, the decision can be revised as per incuriam. Mr. Palkhivala claimed that he would give us instances which fell within several categories in Section 33(1) of the Act but did not have the effect or likely effect of preventing, distorting or restricting competition and, therefore, did not satisfy the definition of restrictive trade practice in Section 2(o) of the Act. As this is new legislation and we expressed willingness to revise our previous decision in case we were demonstrably wrong, Mr. Palkhivala in effect reargued the matter on the interpretation and inter-relationship of Sections 33(1) and 2(o) of the Act.

14. Mr. Palkhivala also argued that although area allocation and exclusive dealership were trade practices which imposed certain restrictions on the dealers, they did not have the effect of preventing, distorting or restricting competition within the meaning of Section 2(o) of the Act as by these restrictions it was sought to secure fair distribution of the trucks manufactured by the respondent, which were in short supply and very much in demand and first class after-sales-service which was necessary not only for the benefit of the user of the truck but also for maintenance of the reputation of the respondent. He argued that the definition of restrictive trade practice in Section 2(o) of the Act was exhaustive because it used the word "means" and not "includes". He also contended that the definition was result oriented and depended upon the actual or likely effect of the restriction on competition. He said that it had nothing to do with any theory or ideology. He contended that the provisions with regard to the registration of the agreement in Chapter V of the Act were independent provisions and had nothing to do with enquiries. Section 37 of the Act permitted the Commission to inquire into any practice, whether the agreement, if any, relating thereto had been registered under Section 35 or not, and that the Commission could even inquire into oral arrangements. We are in complete agreement with this argument of Mr.

Palkhivala and in this view of the matter it would really not be necessary for us to consider whether the agreements (annexures I and II to the Registrar's application) did or did not fall under Section 33(1). But we have gone into this question because the Registrar has consistently contended and he has also so contended in the present matter that the practices alleged against the respondent were restrictive trade practices also because they fell under Section 33(1) of the Act.

15. We have also no hesitation in accepting the argument of Mr.

Palkhivala that the definition of restrictive trade practice under Section 2(o) of the Act is exhaustive and not inclusive and is result-oriented, i.e., the restriction must have the actual or likely effect of restricting, distorting or preventing competition But, in our opinion, the definition does take us to the realm of reasonable probability or likelihood of injury to competition. In this connection we like to quote ourselves from the judgment dated 21st March, 1975, in R. T. P, Enquiry No. 2 of 1974 (Registrar of Restrictive Trade Agreements v. Carona Sahu Ltd, "In our opinion the practice of allowing discriminatory or 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 the 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." 16. Before we deal with the illustrations given by Mr. Palkhivala to show that a practice may fall under one of the categories in Section 33(1) and not have the effect or likely effect of preventing, distorting or restricting competition, we might discuss some provisions of law having a bearing on this matter, 17. Usually there are two issues or points that come up for determination in an inquiry under Section 37(1): firstly, there is the establishment of the existence of a restrictive trade practice. Once such a practice is established, Section 38(1) provides that such a restrictive trade practice shall be deemed to be prejudicial to public interest unless the commission is satisfied as to any of the circumstances set out in Section 38(1). The effect of such deeming provision has been adjudicated upon in Commissioner of Income-tax v.Bombay Trust Corporation Ltd., AIR 1930 PC 54, St. Aubyn v.Attorney-General, [1952] AC 15, 63 ; 3 EDC 292 (HL) and Chipping and Painting Employers Association Pvt. Ltd. v. A. T. Zambre, [1969] 37 FJR 555; AIR 1969 Bom 274, 281--Paras 23 & 24. Secondly, there is a chance of getting out of the deeming provision in case circumstances set out in Clauses (a) to (h) of Section 38(1) are established. These clauses are intended to indicate that the detriment caused by injury to the competition is outweighed by public good flowing from compensatory or countervailing circumstances. These two points or issues, viz., the issue of existence of a restrictive trade practice, and, secondly, the issue of its not being against public interest, are clearly demarcated and there is no room for one issue overlapping the other. There is no chance whatever of the first point being confused with the second, because the intervening deeming provision clearly separates the first from the second. Even Clause 38(1)(h), which refers to competition not being affected in a material decree, itself presupposes that competition is in fact impaired and the existence of a restrictive trade practice has been established and the deeming provision has come into effect. In respect of Section 38(1)(h) there can be no dispute about the existence of a restrictive trade practice and the injury to competition, however slight. The two issues or points are, therefore, clear-cut and any inquiry under Section 37(1) has to deal with the two issues or points separately and in proper order. Considerations which are relevant for the first issue are not relevant for the second and vice versa. It is not permissible to import considerations of public interest while adjudicating upon the existence of a restrictive trade practice. Similarly, it is not permissible to consider the effect on competition as such while adjudicating upon the injury to public interest except that under Section 38(1)(h) the extent of injury to competition falls for determination. While adjudicating on the first issue or point, it will have to be decided whether the trade practice has or is likely to have injurious effect on competition. While deciding the second point one has to be concerned with the effect on public interest of such restrictive trade practice. We might again emphasise that the first issue will be concerned with the effect on competition and not with public interest and the second issue will be concerned with public interest and not with the effect on competition except that under Section 38(1)(h) the extent of injury has to be determined.

18. The argument of Mr. Palkhivala does not appear to be correct because it introduces the element of public interest while deciding the existence of a restrictive trade practice itself. In the first issue, the controversy is as to whether the restrictive trade practice has or is likely to have detrimental effect on competition. This is a requirement of Section 2(o) of the Act which has to be satisfied because the trade practice can be accepted as a restrictive trade practice, only if it is shown that the trade practice has or is likely to have injurious effect on competition. It is not necessary to go into the question of public interest at that stage. Simple, direct impact on competition is the criterion by which the restrictive nature of the trade practice is to be judged. The impact may be actual. If it is actual, there is no difficulty at all. But the impact can also be reasonably anticipated on grounds of probability and this anticipation on the grounds of probability can only be on the basis of facts and circumstances against which the trade practice is sought to be perpetrated. The Commission must be satisfied that, on the facts and circumstances of the case, the trade practice in all probability would result in injury to competition. This does not necessarily involve the minute economic analysis of the circumstances against which the trade practice is set but it does enjoin on the Commission the necessity of having broad features of the situation relating to the particular trade in mind.

19. The competitive effect may be between the producers, one of whom is charged with the practice or it may be competition between the intermediate agencies with whom the producers are dealing. But so long as competition in any relevant area or the economy is affected, Section 2(o) will come into operation and a trade practice in question will be classified as a restrictive trade practice.

20. In the light of these considerations, the trade practice to which Clauses 1 and 3 of the agreements (annexures I and II to the Registrar's application) relate, are clearly restrictive trade practices. According to these clauses, a dealer is prohibited either directly or indirectly and either alone or in conjunction with others from promoting the sale or from selling any of the vehicles to any person or party outside the allocated territory. He was also prohibited from selling the same to any person within the allocated territory if the vehicles are intended to be used outside the allocated territory.

On violation of this condition of the contract, the dealer was liable to pay to the company 4% of the price charged by the company to the dealer or such other amount as may be fixed by the respondent provided that the amount was not to exceed the difference between the retail price and the net dealers' price. The respondent was also entitled to terminate the agreement if the dealer failed to observe the terms and conditions stipulated in this behalf. It may be pointed out that under the contract the company was free to sell its vehicles in the territory allocated to the dealer and it was also free to appoint any other dealer in the same territory. This, however, does not relax the restriction on the existing dealer that he shall not sell to a person if the vehicle is intended to be used outside his territory, original or reallocated.

21. In our opinion the trade practices to which Clauses 1 and 3 of the two agreements relate, are clearly restrictive trade practices in that they do or may have the effect of preventing competition. There is no question here of competition between the different producers of commercial vehicles. There is also no question of competition between dealers of different makes of commercial vehicles. The question is confined to competition between dealers dealing in commercial vehicles produced by the respondent. The question is confined to "intra-brand and intra-dealer competition". From this point of view there can be no doubt that the territorial allocation had prevented competition between the dealers. Whether the secondary effect of such a limitation was beneficial to the public interest, is a question which is not germane to the question of existence of a restrictive trade practice. If the competition were free, customers would be attracted to the most efficient dealer who might pass on the benefit to them either in terms of price reduction, however small, or in terms of more efficient pre-sale and after-sales-service. To that extent, therefore, the competition was clearly limited and the clauses in question did come within the mischief of Section 2(o). Once Clauses 1 and 3 relate to restrictive trade practices within the meaning of Section 2(o), there arises a clear presumption by the deeming provision of law in Section 38(1) that such restrictive trade practices are against public interest. In order to get out of this deeming presumption, the respondent is entitled to point out the benefits that accrue to the general public as a result of these restrictions and also to the socially undesirable consequences that would flow if the restrictions were removed.

22. Similarly, with regard to exclusive dealership, the agreement restricts the dealers as purchasers of the respondent's goods in the course of their trade from acquiring or otherwise dealing in vehicles other than those manufactured by the respondent. This, in our opinion, will have or in any case may have the effect of preventing competition between dealers wishing to sell the respondent's goods. In some areas there are dealers in commercial vehicles who have good sales organisation and reputation. If these are monopolised by one producer, the other producers may be at a disadvantage in having their vehicles promoted or sold by such efficient organisation. This inevitably leads to restriction in competition between manufacturers within the meaning of Section 2(o) of the Act.

23. The first illustration given by Mr. Palkhivala is that of a hypothetical agreement entered into by a truck manufacturer with its dealer stipulating that he will not sell any truck or bus chassis to a convicted smuggler. Mr. Palkhivala contended that such stipulation may fall under Section 33(1)(a) as an agreement which restricts or is likely to restrict the persons or class of persons to whom the goods are sold but it would not fall under the definition of restrictive trade practice in Section 2(o) as the stipulation will be beneficial to public interest and, therefore, it will not have and is not likely to have the effect of preventing, distorting or restricting competition.

We are afraid we are unable to accept the argument that such a restriction will not have or is Dot likely to have the effect of preventing, distorting or restricting competition. The number of convicted smugglers in India may be very small. Therefore, the effect of distorting competition may be negligible and discouragement of competition may not be of any material degree and may, therefore, pass under the gateway in Section 38(1)(h). But, in our opinion, it cannot be said that such an agreement will not have the effect of discouraging or distorting competition. There is another vice from which this argument suffers. If the law in this country, as provided in Section 2(o) of the Act, makes any restriction on competition bad under Section 37, leading to a presumption of prejudice to the public interest under Section 38, it may not be permissible to a citizen to prescribe rules of morality and administer them on its own. Selling a truck to a convicted smuggler would be such an onerous task taken by a citizen upon himself. If such a course is allowed, there is a danger of the citizen enlarging the restrictions. One of the well-known ways of refuting an argument in logic is through the process of reductio ad absurdum. If an agreement preventing the sale of vehicles to a convicted smuggler were permissible, a producer of scarce commodity may enlarge the prohibited class by making an agreement with the dealer that he shall not sell a bus or truck chassis to a convicted traffic offender or to a person who is convicted of transporting stolen goods in a vehicle or having used the vehicle for kidnapping persons. It cannot be said that this will not eliminate a class of buyers and reduce competition. A person who has been convicted of smuggling may also be carrying on legitimate business which may be larger than his smuggling activities. A person importing goods into India or exporting goods outside India under an invalid import/ export licence may also technically be called a smuggler and be convicted of it. If such a person wishes to acquire a vehicle for his legitimate business or to donate a bus chassis to a hospital to be used as an ambulance, he cannot be told that he is a convicted smuggler and no bus chassis can be sold to him. He is entitled to reform himself and has a right to live and carry on legitimate business and earn his livelihood. There is an inherent danger in persons appointing themselves moral censors for the community and indulging in trade practices which obviously fall under the definition of restrictive trade practice under Section 2(o).

In line with this, Mr. Palkhivala also gave the example of an agreement whereunder a producer requires a dealer not to sell vehicles except to an actual user. Even such an agreement will, in our opinion, restrict a class of buyers and will fall both under Section 33(1)(a) and Section 2(o). If such an agreement were permitted, it will be open for the producer to define the actual user so as to exclude a large section of buyers and reduce competition. Mr. Palkhivala argued that a person who takes this onerous task upon himself and refuses to register an agreement under Section 35 of the Act, ultimately takes the risk of being prosecuted under Section 48 of the Act if he is held to be wrong.

Even this argument does not appeal to us. Unless persons who enter into agreements of the kind enumerated in Section 33 are compelled to register them without appointing themselves censors of public morals, no agreements may be produced for registration, no restrictive trade practices may come to light and prosecutions under Section 48 may never be filed. The very purpose of compelling registration of such agreements is to expose such agreements, firstly, to the scrutiny of the Registrar, and, secondly, to the scrutiny of the public who are entitled to have a look at them or at least to restrictive clauses by taking a search and inspection in the office of the Registrar.

24. The second illustration given by Mr. Palkhivala was that of an agreement requiring a purchaser of a truck or bus chassis as a condition of such a purchase to purchase repair or tool kit. He argued that such a compulsion will not have the effect of preventing, distorting or restricting competition because it is both in the interest of a buyer of a truck or bus chassis as well as in the interest of the respondent that repair or tool kit be bought. He stated that it is not in the interest of a buyer of a truck to get stranded on the road without necessary repair or tool kit and correspondingly it would affect the reputation of the respondent if a truck or bus bearing its name was found stranded on the road. We think that, as long as repair or tool kit is not a part of a truck or bus chassis, it is unfair to compel a buyer to purchase it. He is the best judge of what is good for him and we do not think that the reputation of the respondent is involved if its truck is found stranded on the road for want of a tool or repair kit. Such compulsion would be a practice falling under Section 33(1)(b) and is also likely to have the effect of restricting competition under Section 2(o) because a purchaser of a truck may like to buy his repair or tool kit from a competing manufacturer. Such practice would also lead to manipulation of prices of repair and tool kit and manipulation of conditions of delivery of the truck, etc., and would impose on the consumer unjustified costs or restrictions within the meaning of Section 2(o). Such a practice does not even have a redeeming feature under any clause of Section 38(1).

25. The third illustration given by Mr. Palkhivala is a common agreement between the producers of petrol with petrol pumps under which the pumps are prevented from dealing in petrol of other producers. This is undoubtedly a practice falling under Section 33(1)(c) and such a restriction would, in our opinion, have an adverse effect on competition in the sale of petrol. When, however, taking into consideration the cost of establishing a petrol pump, the investment required for it and the other circumstances under Section 38(1), it may be argued that it is justified. Whether competition in the sale of petrol is feasible or not does not fall for oar determination in this case and we do not express any opinion on that question.

26. Under Section 33(1)(d) Mr. Palkhivala gave the illustration of fixation of (a) maximum prices, (b) standard prices and (c) minimum prices. In our opinion, as at present advised, Section 33(1)(d) hits only the fixation of standard or fixed prices. This would undoubtedly have the effect of eliminating price competition. Fixation of maximum or minimum prices is not covered by Clause (d).

27. Under Section 33(1)(e) Mr. Palkhivala argued that if a producer agrees to grant to a dealer a concession of giving him goods on credit for a particular period, it will not have the effect of reducing competition. We have had occasion to interpret Clause (e) in our judgment dated September 6, 1974, in RTP Enquiry No. 6 of 1972 (Registrar of Restrictive Trade Agreements v. Allied Distributors and Bengal Potteries Ltd., Registrar of RTA v. Allied Distributors & Co.

and Bengal Potteries Ltd. affirmed by the Calcutta High Court in Bengal Potteries Ltd. v. MRTP Commission [1975] 45 Comp Cas 697), In our opinion, if goods are sold on credit for a customary or reasonable period, it may not have the effect of reducing competition unless the credit is given in connection with or by reason of dealings only. In reply, an illustration can be given of a loan to a dealer free of interest by reason of dealings alone. This would undoubtedly have the effect of preventing, distorting or restricting competition.

28. Under Section 33(1)(f) Mr. Palkhivala gave the example of manufacturers of standard cloth being required by the Government to mark fixed prices which are very low on every yard of standard cloth.

Whether this would attract provisions of Section 33(1)(f) appears to be doubtful. In our opinion, standard prices are required to be marked by law for the purpose of registration. Such an agreement between a producer and a dealer would be outside the scope of law under Section 33(3) for the purpose of registration and under Section 37(3) for the purpose of an inquiry.

29. Under Section 33(1)(g) Mr. Palkhivala contended that in the case of the respondent itself if there is no area allocation, persons in backward areas will not be able to gets bus and truck chassis manufactured by the respondent and, secondly, the rates of commission allowed to the dealers are so low that there was no scope for competition from dealers in other areas in the country. We are afraid, this is not an independent illustration and we have to examine hereinafter whether the restriction of area allocation will pass through any other gateways in Section 38(1)(a), (b) & (h) and the balancing Clause. It cannot, however, be said that area allocation by itself does not or may not have the effect of preventing, distorting or restricting competition. If areas are not allocated to dealers, there will be competition between the dealers of the respondent itself and they would try to compete with other dealers of the respondent in parting with a part of their commission or in giving other facilities or benefits to the buyers.

30. Under Section 33(1)(h) Mr. Palkhivala contended that if a producer of raw materials sold it to a processor on the condition that he must use a particular process in the manufacture of a finished product, it would not be a restrictive trade practice. We are afraid, this argument does not appeal to us as correct. Any agreement not to employ or restricting the employment of any method, machinery or process in the manufacture of goods is per se restriction and instances are not unknown where manufacturers of goods by obsolete process have bought out new patents and put them into disuse so that their own machinery may not become obsolete. This definitely eliminates competition from a newer and better method, machinery or process of manufacture and is per se harmful to the public. Later, Mr. Palkhivala modified the illustration to the case of a producer like the respondent imposing conditions on one of its ancillaries to produce parts under its own Telco brand names by a particular process. We are afraid this would be a production for the purpose and on behalf of the respondent and under the licence of the respondent for the use of its brand name. We are afraid this is not an appropriate illustration of Section 33(1)(h), 31. Under Section 33(1)(i) Mr. Palkhivala gave an instance of an association of importers excluding from its membership, a bona fide importer, who is also a smuggler. According to him, this would not have the effect of preventing, distorting or restricting competition. This argument loses sight of the fact that what Section 33(1)(i) seeks to prevent is the exclusion of a person carrying on or intending to carry on "in good faith" the trade in relation to which a trade association is formed. A person, a part of whose business is smuggling, is not carrying on the business of importing "in good faith". Smuggling is by definition the business of import but it is not a business carried on "in good faith " ; it is carried on illegally. We are afraid, this is not an apt illustration of Clause (i). It is obvious that under Section 2(o), exclusion of any person from a trade or trade association prevents, distorts or restricts competition. In several cases Central and State Governments give facilities or quotas to members of certain trade associations. Examples of this could be multiplied. Sometimes imported steel is distributed through members of a trade association.

No one can exclude from the membership of such a trade association a person carrying on or intending to carry on "in good faith" that business. Such a restriction would undoubtedly fall under Section 2(o).

32. At this stage we might perhaps mention that when dealing with the hypothetical illustrations given by Mr. Palkhivala we do not purport to express any opinion on whether those illustrations would or would not constitute restrictive trade practices. Such questions can only be decided when they arise. Anything that may appear to be an expression of opinion is purely tentative and for the purpose of argument only.

33. We have hereinabove examined several illustrations given by Mr.

Palkhivala which, according to him, are agreements falling under the several clauses of Section 33(1) of the Act but would not satisfy the definition of restrictive trade practice in Section 2(o). We are afraid, Mr. Palkhivala has not succeeded in his attempt to make us change our decision in the judgment dated 18th July, 1974, in Restrictive Trade Practice Enquiry No. 6 of 1972 (Registrar of Restrictive Trade Agreements v. Allied Distributors and Bengal Potteries, [1975] 45 Comp Cas 664 (MRTPC)) and our judgment dated 21st March, 1975, in Restrictive Trade Practices Enquiry No. 2 of 1975 (Registrar of Restrictive Trade Agreements v. Carona Sahu Ltd., [1976] 46 Comp Cas 431 (MRTPC)). We see no reason to doubt the correctness of our decision in these cases.

34. Mr. Palkhivala also gave us the instance of another concern of Tata group, viz., Tata Chemicals telling its dealers to sell its scarce products only to actual consumers in order to obviate cornering of certain scarce commodities by black marketeers Here again, it cannot be said that Tata Chemicals' enjoining on its dealers to sit in judgment and decide who is and who is not an actual user or consumer is not a restrictive trade practice. It does prevent, distort or restrict competition by eliminating buyers whom dealers consider not to be actual users or consumers. Whether in such cases, the agreement passes under any of the gateways of Section 38, is a question of fact which has no bearing on deciding whether the agreement relates or does not relate to a restrictive trade practice. Mr. Palkhivala laid great stress on the right of industry to regulate itself and after it came to the conclusion that the restriction on competition was for good cause it was not to register an agreement under Section 35. He said this would present administrative difficulty and make it unnecessary for the Registrar to register thousands of agreements and to scrutinise them.

This argument does not appeal to us for the simple reason that the State cannot delegate to a party to an agreement the function of deciding whether he will or will not register the agreement. There are honest parties but there are also dishonest parties to such agreements.

If an agreement attracts the provisions of Sections 33 and 35, it must be registered. Such registration will serve a two-fold useful purpose; it will give an opportunity to the Registrar to examine it and it will give an opportunity to the public to make a search in the office of the Registrar, and to scrutinise such agreements. As a result of such scrutiny, the agreement can be brought to the notice of the Commission by the Registrar or by a consumers' association or even by an individual consumer and the Commission may decide to take notice of it suo motu under Section 10(a)(iv).

35. The remaining arguments made by Mr. Palkhivala in support of his contention that the categories in Section 33(1) are not instances of restrictive trade practices were the same as we have dealt with in the cases of Bengal Potteries and Carona Sahu and we need not deal with them separately in this judgment.

36. Dr. Singhvi, appearing for the Registrar, cited before us a number of judgments. These were cases where on dissolution of partnership between partners, certain restraints on trade were imposed and the question was whether such a restriction was in public interest. We do not consider it necessary to deal with these cases. However, for the purpose of record, we may mention that the cases cited by. him were : Vancouver Malt and Sake Brewing Co. Ltd. v. Vancouver Breweries Ltd., AIR 1934 PC 101, 104 Connors Bros. Ltd. v. Bernard Connors, AIR 1941 PC 75, 84 Niranjan Shankar Golikari v. Century Spg. and Mfg. Co. Ltd., AIR 1967 SC 1098 Dr. Singhvi also drew our attention to a number of cases decided in the United States under the anti-trust laws of that country.

The cases cited were : U. S. v. Trans-Missouri Freight Association, [1897] 166 US 290, U. S. v. Trenton Potteries Co., [1927] 273 US 392; Socony Vacuum Oil Co. v. U. S., [1940] 310 US 150, Kiefer-Steward Co.

v. Joseph E. Seagram & Sons, [1951] 340 US 211, Northern Pacific Rly.

v. U. S., [1958] 356 US 1, Atlantic Refining Co. v. Federal Trade Commission, [1965] 381 US 357, U. S. v. Arnold Shwinn & Co., [1967] 388 US 365, Fashion Organiser's Guild of America v. Federal Trade Commission, [1945] 312 US 457, U. S. v. General Motors Corporation, [1666] 384 US 127, Klor's v. Broadway Hale Stores, [1959] 359 US 207.

Dr. Singhvi also relied upon our previous decisions in the cases of Bengal Potteries, M. R. T. P. Commission's judgment affirmed by the Calcutta High Court and reported in [1975] 45 Comp Cas 697 and. Carona Sahu . With regard to the illustrations given by Mr. Palkhivala, his reasoning was on the same lines as we have indicated hereinabove.

37. Before we deal with the question whether the respondent is entitled to the benefit of any of the clauses of Section 38(1) of the Act, we may indicate the nature of the business in the production and sale of bus and truck chassis in India. There are only four manufacturers of commercial truck and bus chassis in India, viz., the respondent, Hindustan Motors Ltd., Premier Automobiles Ltd. and Ashok Leyland Ltd. The capital investment required for a new factory is over Rs. 100 crores. There is no indication of a fifth manufacturer of such vehicles coming into the field in the near future. Supply of such vehicles is far below the demand and there is no prospect of the supply catching up with the demand in the near future.

38. We may now deal with the question whether the respondent is entitled to the benefit of any of the Clauses (a), (b) and (h) and the balancing clause of Section 38(1) of the Act, and we have to observe as follows: 39. With regard to exclusive dealership, the respondent has contended that the domestic market in India is spread over a vast sub-continent with diverse conditions of roads, population and demand. It, is, therefore, essential for the community, the consumer and the manufacturer to have a wide geographical distribution of its vehicles.

The company has thus to ensure an All-India network of dealers including those which will serve remote areas. Unlike most consumer products a commercial vehicle involves a continuous relationship between a dealer and a consumer. A chassis manufactured by the respondent is sold to the customer at almost a lakh of rupees and a body costs him about Rs. 15,000 per truck and about Rs. 40,000 for a bus. Over 80% of the persons owning trucks are individual owners having not more than two trucks and mostly own only one truck. Because of the cost the vehicle is normally constantly on the road and is put to the maximum possible use. A vehicle plies on an average over a lakh of kilometres per year. The heavy investment also makes it necessary that the vehicle should be constantly on the move. According to the respondent exclusivity in dealings in the context of commercial vehicle trade in India does not impede competition ; it promotes it and it also leads to specialisation and improvement in after-sales-service. The respondent also contends that all the four manufacturers of commercial vehicles in the country had their own national net work of dealers. The customer has the choice of baying any make he likes and his choice is enhanced, not reduced, by four competing dealers. Thus, in each area in India there is competition between the dealers of four vehicles. Every manufacturer through its dealers tries to increase the sale in his area and the exclusivity encourages competition. The advantage of exclusive dealership is that a dealer specialises in his own type of vehicle with all the attendant advantages of trained personnel, specialised service stations, workshop and spare parts. Each dealer is provided with complete set of tools designed for carrying out repairs to the respondent's vehicles. The respondent has stated that it has a list of special tools and the price of each set is approximately Rs. 55,000.

According to the respondent its dealers have an investment varying from Rs. 5 lakhs to Rs. 50 lakhs each. The respondent claims that if a dealer has more than one franchise, the competition between the various makes will be reduced and the dealer may have a tendency to tie up the sales so that the sales of fast moving vehicles might be tied up with those of slow moving. Multiplicity of franchises may lead to restrictive trade practices of the dealer pushing vehicles on which he is paid a higher commission. The respondent claims that the margin of its dealers is the lowest and in multiplicity of franchises the dealers may not have an interest in pushing the sale of their vehicles. It may induce the respondent to pay higher commission and reduce the standard maintained by it without any countervailing advantage.

40. The current price of heavy vehicles manufactured by the respondent is about Rs. 84,000 each. The respondent claims that the maximum difference between the net dealers' price and the retail price is about Rs. 2,090 on a truck chassis and Rs. 2,150 on a bus chassis. In 1956, the Tariff Commission recommended that each dealer should get 7 1/2% on the net dealers' prices. In the case of the respondent, the gross margin to the dealer at present is less than 3%. The dealers have made a representation to the respondent that they are making a low margin.

They have stated in the representation that after defraying expenses they get about Rs. 100 on each vehicle. According to the respondent they get about Rs. 800 per vehicle.

41. During the year 1973, the respondent had 68 dealers who serviced and/ or repaired about 1,81,000 vehicles of the manufacture of the respondent According to the respondent there are today about 2,75,000 vehicles produced by it on the roads in India. Out of these a large percentage has been supplied to Defence, Director-General of Border Roads, Nationalised Transport Undertakings, Government projects, PWD, etc. 68 dealers have about 69 branches and sub-dealers. On an average each establishment services and/or repairs about 80 vehicles in a month. The dealers of the respondent are not prevented from servicing vehicles manufactured by others but they are required to give preference to the vehicles of the respondent's manufacture. On the facts presented to us, it appears that the margin available to the dealers of the respondent is small. No data are before us about the margin available on competing vehicles. It is not, therefore, clear what effect the abolition of exclusivity would have on the relative incentive to dealers in selling the respondent s vehicles as against competing vehicles. As no data were furnished to us by the respondent about the economics of dealership, it is not possible to go into the question whether the abolition of exclusive dealership would affect the financial position of the dealers. The respondent has pointed out that the dealers have to make a considerable investment in providing facilities and keeping tools and accessories. The implication of this may well be that if there is no exclusive dealership and the dealer can deal in more than one make of vehicles, and thus handles a larger number of vehicles, his facilities, etc., will be more intensively utilised and this may lead to some gain for the consumer.

42. At the same time, it is clear that in the market for commercial vehicles as it is organised in India at present, each major manufacturer has his own exclusive channel in almost all the areas. No potential consumer or purchaser is thus left without access to all the makes of commercial vehicles which are available in the country.

Exclusive dealership ensures that the dealer has specialised knowledge about the particular vehicle and is in a good position to bring out its special advantages when dealing with the customer. He can also be a useful effective channel of feed-back information to the manufacturer of the vehicles, in this case the respondent, regarding the experience and reaction of customers to the various facets of the vehicle. Taking into account all these factors, it appears to us that exclusivity in the sale of commercial vehicles, in the present stage of the market, does not directly or indirectly restrict or discourage competition to any material degree. The respondent is, therefore, entitled to the benefit of Section 38(1)(h) of the Act. We are, therefore, satisfied that the restrictive trade practice of exclusive dealership in this case is not unreasonable having regard to the balance between the negligible deterrent to competition and the resulting advantages under the prevailing market conditions.

43. We might also point out that a finding of this nature is inevitably the result of market conditions prevailing at a particular time and under Section 13(2) a decision can always be reconsidered if and when there is a material change in the circumstances.

44. It was argued on behalf of the respondent that in the trade of selling commercial vehicles in the organised way each manufacturer had a net work of exclusive dealership and that we could not invalidate the exclusivity clause in the agreement of the respondent without simultaneously invalidating it in the agreements of all the four manufacturers as such a course would put only the respondent at a disadvantage and give an advantage to the other manufacturers. We are of the opinion that if we were to strike down the exclusivity clause in the agreement of the respondent we should be willing to commence proceedings against the other manufacturers if similar clauses in their agreements came to our notice. In the present state of the market, however, we think that striking down the exclusivity clause in the agreements of truck manufacturers is neither necessary nor advisable.

45. We now proceed to deal with the arguments made by the respondent in favour of area allocation.

46. The first argument is that the domestic market in India consists of a vast sub-continent with diverse conditions of demand and it is necessary to have a wide geographical distribution of vehicles and vehicles should not be concentrated in a few centres where there is a high demand for them to the detriment of the remote areas. Areas which have no alternative means of communication should receive a fair supply of vehicles. Respondent claims to make equitable distribution of vehicles by taking into account various factors, namely, (a) population of commercial vehicles in a dealer's territory, (b) orders from customers pending with the dealer, (c) preference for Telco Diesel Vehicles as against other makes in the territory of a dealer, (d) past sales performance of the dealer concerned, (e) effective after-sales-service provided by the dealer, (f) special requirements of the territory during erection of Government projects, such as steel plants, construction of dams, etc., (g) emergency requirements of the territory on account of drought, flood relief, etc., (h) Government recommendations for meeting certain specific requirements, (i) dependence of the particular territory on road transport, and (j) requirements of State Governments and nationalised transport undertakings which are procured through dealers.

47. On behalf of the Registrar it has been pointed out that the respondent has not led any evidence to substantiate the claim of fair distribution among the areas. It was also pointed out that the area allocation has not ensured equitable supply of vehicles to all areas.

There is a great deal to be said for these contentions. Although the respondent has indicated a number of factors as governing its allocation of vehicles to different areas no data have been supplied to show what weightage these different factors have been given in the allocation of vehicles. The only data supplied about allocation of vehicles is that provided in exhibit 25. We have made a study of the supply of vehicles among the different territories. The figures are mentioned in Tables 1, 2 and 3 annexed to this judgment. Table 1 compares the number of vehicles for which orders were registered as on 31st March, 1973, and the number of vehicles for which orders were pending as on 31st March, 1973, with the number of vehicles supplied to different dealers in 1973-74. It will be seen that there is no clear relationship between either the orders registered or the orders pending and the number of vehicles supplied. While in some areas the supply was less than 30% of the orders registered, in other areas the supply was much larger, and in two areas even exceeded the number of orders registered. Table 2 shows the comparison of vehicles supplied in 1972-73 and 1973-74 with the area of different territories and their population according to 1971 census. Here also we find that there is no clear uniform relationship between either area or population on the one side and vehicles supplied on the other. The respondent has also claimed that it further takes into account factors like demand of commercial vehicles in the dealers' territory, preference for Tata vehicles as against others, past sales performance of the dealer, special requirements of the territory, emergency requirements of the territory, Government recommendations, dependence of the particular territory on road transport, etc. No data have been provided by the respondent to show how these factors come to bear on the allocation of vehicles. One cannot only rely on the statements of the respondent that these factors are taken into account and that they constitute the basis of the allocation. Effective after-sales-service provided by the dealer is said to be another factor. In Table 3, the average number of vehicles supplied per dealer and dealer-point are shown. It will again be seen that there is little uniformity about the number of vehicles either per dealer or per dealer-point, i.e., servicing units. It is thus obvious that on the data supplied by the respondent it has not at all been proved that the respondent has a system of vehicles distribution which ensures a fair allocation of vehicles among the different areas based on certain objective criteria. This point stressed by it in its favour has, in our opinion, not been proved.

48. Assuming that the allocation among areas and territories is a fair one on the basis of some objective criteria the territorial restrictions imposed by the agreement would have to be justified if it could be shown that these restrictions actually succeeded in maintaining a distribution of vehicles among different areas of the country over a period of time. But even for this no evidence is available. As a matter of fact it appears from the evidence of Mr. B.C.Mukherjee that purchase of vehicle in one area does not debar the vehicle from operating in other arc-as. A vehicle registered, say in Delhi, can operate outside Delhi by obtaining a permit from the transport authority in Delhi and the transport authority of the other area concerned. The migration of a vehicle registered in Delhi to another area is also possible provided the State Transport authority in Delhi issues a no objection certificate ; and no objection certificate cannot be refused so long as no dues are owing to the local administration and no penal action is pending against the owner.

Therefore, even if initial allocation is assumed to be a fair one helping different areas of the country and especially the less urban and less well-to-do areas obtaining a fair share, there is nothing to prevent persons from other areas--richer and more prosperous--from buying these vehicles in one area and transferring them for use in other areas of the country. All that may be involved in such operation is that some one who has a local address will have to register the order for the vehicle in his name in a remote area like Simla or Kohima and then after taking delivery of the vehicle there he can transfer its ownership to some one, say in Delhi, Calcutta or Bombay. There was at one time Government restriction on transfer of ownership within a particular period but this restriction was short-lived and is no longer in force. Under the area restriction imposed by the respondent the only advantage that a backward area may get is that certain payments may be made to persons who have an address in those areas. No data have been put forward by the respondent to show that the actual distribution of vehicle population is influenced to any significant extent by the initial allocation. A question was specifically put by the Commission about this matter to Mr. Narayanan, witness for the respondent. His answer was that " we have been trying to get information as to how these supplies compared with the actual distribution of vehicle population in those areas. We are getting information about the total vehicle population in different areas but there is no facility for dividing this into vehicles of different makes. The vehicle population in Maharashtra area has increased considerably. We have not made any analysis to find out if the subsequent population pattern of our vehicles turn out to be different from the original distribution of our vehicles amongst territories ".

49. Thus, the claim of the respondent that the territorial restriction is necessary for the purpose of ensuring fair distribution of vehicles among different areas of the country is not substantiated. They have neither proved that the initial allocation is fair by any objective criteria nor have they been able to prove that the initial allocation combined with territorial restrictions helps maintain fair distribution of vehicle population among different areas of the country.

50. The second argument given by the respondent in favour of territorial restrictions is that " the company needs a countrywide net of dealers so that its sales take place and the dealers can maintain the service stations, spare parts, stocks and workshops all over the country. AH India net work of dealers is necessary so that service, repairs, spare parts, etc , are available all over the country. Unless a dealer is assured of customers in his own area he will not have the necessary incentive to maintain the optimum level of service stations, workshops and spare parts stocks. The company regards after-sales-service of crucial importance to serve its consumers and maintain the reputation of its vehicles." One can accept the plea that the respondent would like to have dealers who make after-sales-service in different parts of the country so as to ensure that the buyers of its vehicles have the repair and service facilities available even in remote areas. The question is whether the maintenance of such a net work is justified in terms of public interest if it is done at the cost of the consumer. As Mr. Narayanan pointed out in his evidence, the dealers are finding this business less and less attractive. " Our dealership used to be coveted, but it is not now. It may be that the dealers find that the investment required is large and remuneration is not adequate," and further " some of these establishments find it difficult to survive and they have made representation that they do not get sufficient remuneration to be able to maintain the vehicles. We are considering the question of increasing their supplies." It is clear from these statements and the other parts of the evidence of Mr.

Narayanan that territorial restrictions are really meant to enable dealers in different parts of the country to make a living. Of course, this aspect of the argument has aho been left inadequately supported by evidence. Mr. Narayanan said that " generally speaking, a dealer must sell 10-15 vehicles per month to be able to maintain such service.

Normally, minimum monthly expenditure to a dealer for maintaining such services would be about Rs. 30,000." When it was put to him that there are dealers who sell as few as 90 vehicles per annum, he agreed that this was too small and pointed out that " where income from sale of vehicles is insufficient to maintain the services/the establishment makes up to some extent by sale of spare parts, repairs and servicing." He, however, admitted that " in the past we have not made a study of the cost to a dealer of maintaining, repair and lubricating services.

Such a study is being made now." This is not a satisfactory reply from the respondent which claims the maintenance of a widespread net work of dealerships for effective after-sales-service as one of the most important and valuable aspects of its organisation. Except to state that the income of a dealer comprises roughly of 50% from the sale of vehicles and 50% from the sale of spare parts, repairs and servicing, no evidence whatsoever about the economics of a dealership was presented by the respondent. It cannot, therefore, be said that assuming that the maintenance of the kind of net work of dealers that is maintained is necessary for effective after-sales-service, that such a net work cannot be maintained unless the present territorial restrictions are continued. The respondent has failed to support such conclusion by cogent evidence.

51. One point emphasised in favour of the territorial restrictions is the importance of ensuring that after-sales-service of an appropriate standard is available in various parts of the country. It is even stated that "a commercial vehicle involves a continuous relationship between a dealer and a consumer. The consumer looks to the dealer for keeping the vehicle running and for all attendant facilities like service stations, workshops and spare parts. Reliability and repair of a vehicle, which represents a substantial investment for the consumer is vital also to the public as a whole and there must be constantly available throughout the country a net work of dealers with adequate repairs and maintenance service." It has been further pointed out by Mr. Narayanan that because a commercial vehicle involves substantial investment it is necessary that the vehicles should be constantly in use. This requires easily accessible and prompt service stations. " Since 80 per cent, truck operators are individual operators and often have scant mechanical knowledge, they have to depend upon the dealer for getting the truck moving, with the necessary trained personnel, workshops, service stations, and slocks of spares." Further, " unless a dealer is assured of customers in his own area who will come to him for purchases, after-sales-service and spare parts, he will not have the necessary incentive to maintain the optimum level of service stations, workshops and spare parts stocks ; nor can the dealer plan his resources including technical personnel, capital equipment and financial resources for his future commitment." Mr. Narayanan went on to explain the after-sales organisation and has given details about what each dealer is expected to provide. It has been stated, " the dealer must have an economic turnover to enable him to maintain the said organisation. If the territorial restriction is removed, there will be a tendency for persons to book orders in areas where the demand may be relatively less, thus starving consumers of the area of their equitable share... This will create pockets of artificial scarcity and dislocate the net work, If the dealer is not assured of a steady demand in his territory, he may have no incentive or may not find it economic to organise proper after-sales-service.

52. We are afraid that no evidence has been furnished by the respondents about the economics of dealership or service points. We have also seen that the number of vehicles sold per dealer or at service points showed a large variation. In cross-examination, Mr.

Narayanan admitted that there were dealers who found it difficult to meet the expenditure from the decreasing margins on sale of vehicles.

His general statement that the dealer " must be assured of a steady customer which is generated in his territory so that he can make substantial investment and plan for expansion" cannot be considered to be sufficient. The respondent should have provided more data to substantiate this argument.

53. It was admitted by Mr. Narayanan in cross-examination that a substantial portion of the servicing of Telco vehicles was being done by persons other than dealers appointed by the respondent. Even assuming that not all the free services offered on new vehicles are iaken advantage of and also assuming that every vehicle is not serviced regularly it is still quite clear that the vast majority of Telco vehicles on the roads are not being regularly serviced by Telco dealers. There may be some validity in the statement made by Mr, Narayanan that the vehicle owners may go to the Telco dealers only for specialised service and repairs where expertise is required and that may be a reason why the actual number of services and repairs carried out by the Telco dealers is so small as compared to the total number of services likely to be required by the total number of Telco vehicles on the road. These data provide facts to refute the argument of a permanent relationship between the dealer and the vehicle owner and the necessity to ensure the maintenance of a vast net work of dealers which can be sustained only through territorial restrictions.

54. The third point put forward by the respondent in favour of territorial restrictions is that the rates of sales tax in different States being different, if territorial restrictions are removed "there would be a tendency for purchasers to gravitate to States with lesser sales tax which, apart from loss of revenue, will distort the pattern of supply and distribution ". We are afraid that there is no duty on the respondent to see that a consumer pays higher sales tax in his own State even if it is legally possible for him to purchase a vehicle elsewhere and pay lower sales tax. A person is entitled to minimise his taxes in a legitimate way. It is for the States to make sales tax uniform if they find that higher rates of sales tax turn away business from their States. Regarding the distorting pattern of supply and distribution, there is no evidence beyond the bald statement. The respondent has stated that substantial investment has to be made by a dealer for providing facilities for servicing, repair, maintenance and storage of spare parts. The respondent's own estimate is that one service station with special tools of the company and workshop equipment would cost between Rs. 5 lakhs to Rs. 50 lakhs depending upon the size of the establishment. In addition to minimum requirements such as having 4 bays--two for repairs and two for servicing--dealers are also expected to provide rest house and a canteen for drivers. With these large investments and considerable workshop spare parts storage and other facilities one would naturally expect that economics of sale would be involved in the operation of such facilities. This implies that if a dealer was able to handle a larger number of vehicles he would be able to use his facilities more intensively and thus make cost savings. This is what one would normally expect unless some evidence to the contrary is available which is not the case here Such cost savings through larger turnover in terms of the number of vehicles handled would make it possible for the dealer to offer some inducement to a potential customer to deal with him rather than with another dealer located somewhere else. He would be in a position to offer some inducement to the potential purchaser of a vehicle because that would increase his turnover and, therefore, lead to cost saving. What would be the degree of cost saving and, therefore, what would be the inducement that he would be able to offer, whether it would take the form of a small cut in price or some extra facilities is more than one can say on the evidence available. But the point is that, on the basis of general experience regarding the operation of competition one can expect normally that it territorial restrictions did not exist, competition amongst dealers would be intensified and this would result in some additional advantage to the vehicle owner. The vehicle owner would have not only a choice between different brands of vehicles bat also of buying the same vehicle from different dealers located in different areas. The removal of territorial restrictions would thus increase competition or rather, under the conditions of scarcity prevailing now, it would introduce some competition where perhaps none exists. This would be of special significance in view of the fact that the respondent's production constitutes about 66% of the total production of commercial vehicles in the country. To introduce at least some competition in such a situation is very much in keeping with the objectives of the Act. No evidence or arguments have been put forward to suggest that the restrictions can be considered to be in public interest. In our view these restrictions, therefore, do not pass through one of the gateways claimed for it and we are afraid that these restrictions must go.

55. We now come to the practice of" resale price maintenance. Any agreement to sell goods on condition that the prices to be charged on resale by the purchaser shall be prices stipulated by the seller is, in our opinion, per se restrictive not only because it falls under Section 33(1)(f) of the Act but also because in terms of Section 2(o) it will have the effect of preventing or restricting competition. It is well known that dealers in big cities have high overhead costs and the dealers in smaller places have lower overhead costs. Similarly, it is well known that in case of most commodities if not in tiucks and buses the paying capacity of the consumer in the big cites is higher than the paying capacity of the consumer in rural areas. Any stipulation of fixed re-sale price between a producer and a dealer prevents the dealer who is in a position to cut into his commission from competing and passing on the benefit to the consumer. Even in case of trucks, dealers with lower overheads may part with a part of their commission unless they are prevented by agreements with the producer from doing so. But if maximum prices are fixed and it. is clearly stated that the prices lower than those prices may be charged, it leaves the dealer free to part with a portion of his commission. This introduces an element of competition. Clause 6(b)(ii) of annexure 1 provides that the dealer shall distribute the vehicles "at such prices as may be fixed by the company from time to time ". Clause 13 provides that the dealer shall not resell any of the vehicles at a price exceeding the retail price.

It will be seen that Clause 6(b)(ii) is clearly restrictive inasmuch as it imposes a condition that the price to be charged on re-sale by the dealer shall be the one fixed by the company. Clause 13 thus suggests that the price so fixed is the maximum price. But it does not clearly state that prices lower than that price may be charged. In our opinion, Clause 6(b)(ii) is clearly restrictive, and Clause 13 although it is suggestive of a maximum price is not clear enough to take it out of the mischief of re-sale price maintenance. We appreciate that the respondent has realised that Clauses 6(b)(ii) and 13 of annexure I were restrictive. Therefore, in case of annexure II these Clauses have been changed. Now, Clause 6(b)(ii) provides that the sale price of the vehicles shall not exceed the maximum retail price established by the company from time to time and the dealer shall be free to sell the said vehicles at prices lower than such maximum retail prices established by the company. This has also been repeated in Clause 13 of annexure II.We are, therefore, of the view that Clauses 6(b)(ii) and 13 of annexure II do not offend the law against resale price maintenance. Mr.

Narayanan, the witness on behalf of the respondent, has stated that annexure I has been terminated and is not in force with any dealer and that from August, 1974, it is only annexure II which is in force with the dealers. The present application was filed by the Registrar on 23rd January, 1974. He had, therefore, good cause to come to the Commission in respect of Clauses in annexure I which pertain to resale price maintenance. However, the practice, in so far as the agreement is concerned, appears to have been abandoned by the respondent. There is no complaint on the part of the Registrar about any practice de hors the agreement. We, therefore, think it unnecessary to make any order with regard to re-sale price maintenance. The respondent has been issuing price lists from time to time. It is admitted that the price lists issued so far do not clearly state that the dealer is free to charge prices lower than those indicated in the price lists. But we have been assured in the course of the arguments by the learned counsel for the respondent that in any future price lists issued the fact that the prices so fixed by the company are maximum prices and the dealer will be free to charge prices lower than that will be clearly brought out. In view of this assurance and also in view of the fact that the application of the Registrar does not complain of any practice de hors the agreement, we propose to make no order in respect of re-sale price maintenance.

Issue No. 1.--The answer will be in the negative. The application of the Registrar is maintainable.

Issue No. 2.--Clauses 1, 3, 6(b)(ii), 13 and 14 of annexure I and Clauses 1, 3 and 14 of annexnre II relate to restrictive trade practices. The answer to the issue is, therefore, in the affirmative.

Issue No. 3.--The respondent is entitled to the benefit of Clauses (a), (b) and (h) and of the balancing Clause of Section 38(1) of the Act in respect of the restrictive trade practice of exclusive dealership contained in Clauses 3 and 14 of annexure I and Clauses 3 and 14 of annexure II. The respondent is not entitled to such benefit in respect of area allocation contained in Clauses 1 and 3 of annexure I and Clauses 1 and 3 of annexure II.57. All the practices alleged by the Registrar, namely, the practice of area allocation, exclusive dealership and resale price maintenance with regard to annexure I and the practices of area allocation and exclusive dealership with regard to annexure II have been held by us to be restrictive trade practices. With regard to exclusive dealership, we have held that it passes through some of the gateways in Section 38 and the practice of resale price maintenance has been abandoned by the respondent after the making of the application. We have also held that it has not been established that the practice of area allocation is not prejudicial to the public interest. This practice must be discontinued and prohibited and the agreement, therefore, relating thereto be declared void. We think the respondent ought to pay to the Registrar costs of the proceedings. We know that the amount of costs we propose to award will not meet completely the costs actually incurred by the Registrar. But it will on the whole meet the justice of the case.

1. I have gone through the order proposed to be passed. I agree broadly with the conclusions indicated therein subject to the qualifications set out hereunder.

2. In regard to Clause 14 of the agreement, with respect I endorse the ultimate decision. In my view, however, the decision should be reinforced by taking the view that the trade practice to which the Clause related was not restrictive trade practice within the meaning of Section 2(o). In his application the Registrar has contented himself by referring merely to Clause 14 without indicating in any manner as to how it tended to limit, restrict or distort competition as required under Section 2(o). In his rejoinder to the reply given by the respondent he has relied on Section 33(l)(c) and also contended that the trade practice flowing from the Clause was per se restrictive trade practice falling within the scope of Section 2(o) of the Act. Further, according to the Registrar, in the interest of the consumers it would have been better if they were given the choice to obtain the facilities from the dealer of their own choice. It is clear the Registrar relies apart from Section 33(1)(c) only on the provision of the Clause itself to allege that the trade practice to which it relates was a restrictive trade practice. I will refer to the provision of Section 33(1)(c) in a subsequent paragraph. But apart from that it was not possible to accept the contention of the Registrar that Clause 14 related to any practice which was per se restrictive trade practice. The restrictive nature of the trade practice has to be determined by reference to its effect on competition, i.e., on the relevant area of competition. The competition by reference to which the restrictive nature of the trade practice is to be decided has to be competition in force in a particular trade. It cannot be competition in utopia or an idealised state but competition actually obtaining in the particular trade. It will be pertinent to quote the following observations of Mr. Justice Brandeis of the U.S.Supreme Court in Chicago Board of Trade v. United States, [1918] 246 US 231, 238; 62 L Ed 683, 687 : " Every agreement concerning trade, every regulation of trade, restrains. To bind, to restrain, is of their very essence. The true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition. To determine that question the court must ordinarily consider the facts peculiar to the business to which the restraint is applied ; its condition; before and after the restraint was imposed ; the nature of the restraint and its effect, actual or probable. The history of the restraint, the evil believed to exist, the reason for adopting the particular remedy, the purpose or end sought to be attained, are all relevant facts." 3. These observations were made in a case where there was an allegation of price fixing and where there would be prima facie case for injury to competition, and yet analysis of the nature described in the quoted paragraph was prescribed. I am quite mindful of the fact that there is distinction between the U.S. scheme and the Indian scheme against anti-competitive practices but the methodology prescribed for gauging the effect on competition cannot in principle be different. Applying this method, if the trade was existing before the trade practice was resorted to, comparison has to be made between the trade before the trade practice was introduced and the trade after the trade practice was introduced to find out the competitive situation before and after the introduction of the trade practice. If the trade practice started along with the trade a comparative model had to be imagined for the trade without the trade practice to find out ou the broad probabilities whether the competitive situation in such a model would be better or worse than the competitive situation actually prevailing after the trade practice by reason of the trade practice. In the latter case, no doubt some kind of induction would be necessary, but both in the first and the second cases, the basic realities of the situation could not be ignored. Following up this method, the basic features of the trade in commercial vehicles are that there are only four manufacturers of commercial vehicles, that for starting of a new industry the manufacturer requires immense capital of more than 100 crores, that both starting and expansion of manufacture were subject to licensing and regulation by the Government, that demand for the commercial vehicles in the country far outstripped the available supply and that this position was likely to prevail for the foreseeable future, It is against this background that we have to see whether the effect of Clause 14 would be to limit, restrict or distort competition, whether between the producers or between the dealers. It must be pointed out that the exclusiveness in the present case is confined only to the sale and not to the servicing of the vehicles although the dealers had instructions to give preference to the respondent's vehicles over the vehicles of the competitors. Further, the obligation of exclusiveness was only on the dealers arid there was no corresponding obligation on the respondent. The respondent could appoint any other dealer in the same territory and it can also sell directly to the customer operating in the territories of the dealers. Against this background there was no evidence to establish the allegation made by the Registrar that the Clause in question had or might have the effect of preventing, restricting or distorting competition. In a situation where the demand was far in excess of the supply the question of any producer being deprived of the market did not arise. There was ho question of foreclosure of any part of the market by any of the producers, let alone foreclosure by reason of the provision of exclusive dealing. The question of foreclosure would be important if the supplies were more than the demand in respect of a commodity. When the supply is in excess of demand, if producer A has access to the large part of a market, to that extent producer B would be shut out from the market and a part of his production would not be sold. But, whereas in the present case, demand is far in excess of the supply, when producer A has access to a large part of the market, producer B can still be sure of disposing of his goods, because the demand is such that it would cover the supply of producer A but also of the other producers. This part of the situation is very much relevant to the consideration of the effect of the practice on competition because it changes the whole complexion of the trade practice when the situation is one of scarcity of supply. There was also no barrier to the new entrants by reason of the exclusive dealings, because there was an uncovered area of demand which could always be met by new-comers if they had the necessary capital and the necessary approval of the Government. As a matter of fact, by reason of the Government regulation the question of foreclosure of the market became redundant because the Government would not permit any existing producer to increase its production or any new producer to start production unless there was adequate demand to cover the additional production. This fact of regulation of Government also cannot possibly be ignored while assessing the effect of trade practice on competition.

On the other hand, in a situation like the one prevailing in the commercial vehicle industry exclusive dealing intensified and made more effective competition between producers, firstly, by emphasising the distinctiveness of their products and, secondly, by ensuring specialised after-sales-services, repairs and supply of spare parts.

From this point of view, in the context of the situation prevailing in the industry, there could be no distinction between a producer having its own outlets and a producer having its exclusive dealers as its outlets.

4. There was also no possibility of restriction in competition between the dealers of different brands of commercial vehicles. The investment required for setting up as a dealer for one brand itself was considerable and there was no question of a dealer of one make impinging upon the market of the other because the available market was much bigger than the supplies available with all the dealers and of all the brands taken together. There was no reasonable possibility of Tata seller wanting to sell other brands or other brand dealer wanting to sell Tata trucks. At any rate there was no evidence to suggest this possibility either by reference to the other producers or by reference to the dealers or by reference to the dealers of the respondent's vehicles. From the point of view of the consumer also there was no indication of any detriment and there could not possibly be one because the competition between the producers of different brands and competition between dealers of different brands was completely unaffected by the clause. In the circumstances, I am inclined to the view that the Registrar failed in this case to discharge the burden that lay on him to establish that the trade practice to which Clause 14 related was a restrictive trade practice by reason of the fact that it has or may have the effect of preventing, distorting or restricting competition in any manner.

5. In regard to the provisions of Section 33(1) and the argument based on those provisions advanced by both the sides, the case of Bengal Potteries, Decision of MRTP Commission was affirmed by the Calcutta High Court in Bengal Potteries Ltd. v. MRTP Commission [1975] 45 Comp Cas 697, to the decision in which the learned Chairman and my learned Brother Dr. Paranjape were parties, was a case in which there was a registered agreement and the question, whether by reason of the registration of the agreement the trade practice to which the agreement related, could be classified as restrictive trade practices, was pertinent and the Commission did take the view that an agreement relating to a trade practice which fell under any of the categories under Section 33(1) was an agreement relating to a restrictive trade practice as defined under Section 2(o). In the case of Carona Sahu, to which I was a party, the question arose, inter alia, and the issue was decided primarily on the consideration of Section 2(o). In the present case the agreement was not registered but the Registrar in his rejoinder had laid great store by the provisions of Section 33(1). Both the learned counsel were at considerable pains to canvass their respective points of view by reference to the provisions of Section 33(1). With respect I consider myself bound in the present case by the decision in. Bengal Potteries as I considered myself bound in the case of Carona Sahu. I would, therefore, refrain from dilating on the merits of the contentions raised by the learned counsel on both sides in this matter in the present case. The final upshot is that even in the case of Clause 14 of the two agreements, it must be held that it related to a restrictive trade practice.

6. Subject to the qualifications set out in the earlier paragraphs I agree broadly with the conclusions of my learned colleagues.

ORDER OF THE COMMISSION : In the result there will be the following order under Section 37(1) of the Act.

(1) Clauses 1 and 3 of the agreements, annexures I and II to the application, iu so far as they relate to allocation of any territory or area or market to any of the dealers of the respondent for the disposal of the bus and truck chassis manufactured by the respondent shall be void in respect of such restrictive trade practice.

(2) The respondent is by this order restrained and prohibited from continuing or repeating the practice of allocation of any territory, area or market to any dealer for the disposal of the bus and truck chassis produced by the respondent.

(3) The respondent shall pay to the Registrar costs of these proceedings fixed at Rs 2,500.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //