Skip to content


Registrar of Restrictive Trade Vs. Usha Sales Private Ltd. - Court Judgment

LegalCrystal Citation
CourtMonopolies and Restrictive Trade Practices Commission MRTPC
Decided On
Judge
AppellantRegistrar of Restrictive Trade
RespondentUsha Sales Private Ltd.
Excerpt:
1. the registrar of restrictive trade agreements, new delhi (hereinafter referred to as the " registrar "), made an application dated the 19th june, 1974, under section 10(a)(iii) of the monopolies and restrictive trade practices act, 1969 (hereinafter referred to as " the act"), to the commission for an enquiry into the alleged restrictive trade practices emanating from certain clauses of an agreement entered into by messrs. usha sales private ltd. of 19, kasturba gandhi marg, new delhi (hereinafter referred to as "the respondents") with their dealers. the respondents are a private limited company engaged in the sale of sewing machines, fans, water coolers and diesel engines. formerly, they were doing business in pressure cookers also but they have discontinued that business and the.....
Judgment:
1. The Registrar of Restrictive Trade Agreements, New Delhi (hereinafter referred to as the " Registrar "), made an application dated the 19th June, 1974, under Section 10(a)(iii) of the Monopolies and Restrictive Trade Practices Act, 1969 (hereinafter referred to as " the Act"), to the Commission for an enquiry into the alleged restrictive trade practices emanating from certain clauses of an agreement entered into by Messrs. Usha Sales Private Ltd. of 19, Kasturba Gandhi Marg, New Delhi (hereinafter referred to as "the respondents") with their dealers. The respondents are a private limited company engaged in the sale of sewing machines, fans, water coolers and diesel engines. Formerly, they were doing business in pressure cookers also but they have discontinued that business and the enquiry was, therefore, not concerned with the pressure cookers. The respondents had one type of agreement with its dealers which was registered with the Registrar under Section 35 read with Section 33 of the Act and after correspondence with the Registrar they revised this agreement and even the revised agreement was registered with the Registrar under the Act.

It is the trade practices emanating from the revised agreement which are the subject-matter of the present enquiry. The clauses complained about read as under : This agreement applies to sale of the agreement products only from a selling point at....." You will not deal directly or indirectly in the sale of any competing brands of the agreement products." 2. The Commission issued the notice of enquiry to the respondents on 24th June, 1974, based on the application by the Registrar. The respondents thereupon filed their memorandum of appearance authorising Messrs, J.B. Dadachanji & Co., advocates, to appear on their behalf.

They filed their reply on or about the 5th September, 1974. In this reply it was contended that the application filed by the Registrar was not in accordance with the mandatory requirements either of regulation 6 of the Restrictive Trade Practices Enquiry Regulations, 1970, or of regulation 55 of the Monopolies and Restrictive Trade Practices Commission Regulations, 1974 ; that it did not disclose any cause of action and that it was not properly verified as required under regulation 6 read with regulation 4 of the Restrictive Trade Practices Regulations, 1970, and/or regulation 55 read with regulation 57 of the Monopolies and Restrictive Trade Practices Commission Regulations, 1974 (hereinafter for the sake of brevity referred to as " Regulations ").

It was also contended that the clauses of the agreement referred to by the Registrar in his application did not relate to any restrictive trade practices ; and that, in any event, the aforesaid impugned Clauses 2 and 5 of the agreement fell within the gateways provided for under Section 38(1)(a), (b), (c), (d), (e), (g) and (h) and the tail-piece.

3. The Registrar filed his rejoinder dated the 11th December, 1974, wherein he contended that the Clauses 2 and 5 of the agreement did constitute restrictive trade practices within the meaning of Section 33(1) read with Section 2(o) of the Act, inasmuch as they related to territorial restrictions and exclusive dealings in respect of the sale of the respondents' products. It was also contended that the instances enumerated under Section 33(1) of the Act were well-established statutory illustrations of restrictive trade practices within the meaning of Section 2(o) of the Act. It was submitted that the Registrar's application as required under regulation 55 of the Regulations did contain the facts and matters constituting restrictive trade practices complained of by him and the application was properly verified in terms of regulation 57 of the Regulations read with Rule 15 of Order 6 of the Code of Civil Procedure.

4. By an order dated the 31st March, 1975, on the pleadings of the parties, the following issues were framed : "(1) Whether the application under Section 10(a)(iii) is not maintainable for reasons stated in paragraphs 1 to 3 of the preliminary objections in the reply (2) Whether the terms and conditions of the agreement referred to in para. 6 of the application under Section 10(a)(iii) or any of them relate to restrictive trade practices (3) If the answer to issue No. (1) is in the affirmative, whether the respondent is entitled to the benefit of any of the Clauses (a), (b), (c), (d), (e), (g) and (h) read with the balancing Clause of Sub-section (1) of Section 38 of the Monopolies and Restrictive Trade Practices Act in respect of such restrictive trade practices 5. Thereafter, affidavits were filed on behalf of the respondents for further and better particulars asked for by the Registrar and in respect of interrogatories delivered by the Registrar. At the time of the hearing, commencing from 25th August, 1975, an affidavit of Shri N.R. Dongre, executive director and marketing manager of the respondents was filed and the same was treated as examination-in-chief.

Shri Dongre was cross-examined by Shri O.N. Mohindroo on behalf of the Registrar. Learned counsel on both sides were heard in detail.

6. Coming to the issues, the first issue need not detain us at all. On a consideration of the contentions put forward on both sides it has necessarily to be answered in the negative and in favour of the Registrar. The application as made by the Registrar is sufficiently explicit about the facts which constitute according to him the restrictive trade practices alleged by him. He has in terms referred to two clauses in the agreement to which he has taken exception and these clauses are self-explanatory. The respondents, apart from making a complaint about the vagueness and about the lack of cause of action have not asked for further and better particulars which they could have asked for as provided by the Regulations if they really had a grievance. As the record stands the Registrar has made his case abundantly clear and the merits of his case will be judged on the facts relied upon by him. As far as the verification is concerned, no specific infirmity has been pointed out even at the time of hearing which would invalidate the application. We are, therefore, of the view that the answer to the first issue has to be that the application of the Registrar under Section 10{a)(iii) was clearly maintainable and that there was no merit in the reasons given by the respondents in paragraphs 1 to 3 of the preliminary objections in their reply.

7. The second issue will have to be considered separately in respect of each of the two clauses impugned in the application. As far as Clause 2 is concerned, the Registrar has alleged that it results or is likely to result in territorial restriction, and that in view of Section 33(1)(g) it seeks to allocate area or market for the disposal of the goods and as such is restrictive in character. He has also alleged that it has the effect of preventing, distorting or restricting competition. The learned counsel for the Registrar emphasised the word " only " in Clause 2 and contended that the dealer could dispose of his goods only from a specified selling point and from no other. She stated that mere specification of selling point would not be a restrictive practice provided the dealer was free to have other selling points. According to her the specification of selling point in the agreement clearly implied that the dealer could not dispose of his goods from other selling points and, therefore, the prescription of area was implicit in the provision. She argued that the area of operations of the dealer was determined by the shop from which the goods could be disposed of.

Taking the example of Delhi, she contended that the inhabitants of New Delhi residing outside the area easily accessible to the selling point were denied the facility of buying from a selling point. According to her, if a dealer is allowed to open selling points at different places his expertise and his economies of scale would bring down the cost of distribution and benefit the customer. She strongly relied on the decision in In re Newspaper Proprietors' Association Ltd. and the National Federation of Retail Newsagents, Booksellers and Stationers Agreement [1961] 3 All ER 428 and contended that, according to the ratio of that decision, fixing of selling points constituted a restriction.

8. The learned counsel for the respondents on the other hand contended that the specification of selling points did not come within the mischief of Section 33(1)(g), that there was no allocation of area or market according to Clause 2 of the agreement and that accordingly the trade practice in question could not be treated as restrictive by virtue of Section 33(1)(g). According to him the dealer was free to sell and dispose of the goods to a customer from any area and in any market; the respondents never objected to any sale made by the dealer of any of the products to any customer whether he was from the nearby locality or from a distant place and the dealer was free to sell the products to any person even if he belonged to a place outside the city or State in which the specified selling point of the dealer was located. Moreover, there were a number of localities where there were several authorised dealers, e.g., in Chandnichowk in Delhi, there were 12 authorised dealers of sewing machines and fans. There were no definite areas or territories for the purpose of sale and under the agreement only a selling point was specified. He referred to the dictionary meaning of the word " allocate " and pointed out that according to the dictionary, the word meant " to set apart for a special purpose or person ", " to fix the locality ", " to apportion " " to distribute ", etc. According to him in the word " allocate " there was clear implication of the definition of territory and it was singularly absent from Clause 2 of the agreement. He then went on to contend that apart from referring to provisions of Section 33(1) the Registrar had not made out any case for treating the trading practice to which Clause 2 related to be restrictive under Section 2(o). He referred in this connection to the decision of the Commission in Telco's case (R.T.P. Enquiry No. 1/1974--Registrar of Restrictive Trade Agreements v. Tata Engineering & Locomotive Co. Ltd. [1976] 46 Comp Cas 470, 482 (MRTPC) and to the following observations in that judgment in particular : '' 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." 9. He also pointed out that the Regulations also required the Registrar to give facts which constituted a practice and in this particular case the Registrar apart from referring to the clauses had not relied on any other facts. He then referred to the decision in In re Newspaper Proprietors' Association Ltd. and the National Federation of Retail Newsagents, Booksellers and Stationers Agreement [1961] 3 All ER 428 ; LR 2 RP 453 and contended that the decision turned on the U.K.provisions of law and also on the peculiar facts of the case. He particularly emphasised the fact that that was a case in which there was a collective agreement between the newspaper proprietors and the retail newsagents and that almost automatically restricted competition both between the producers and between the retail agents. Without prejudice to those arguments he pointed out that the specification of selling points facilitated checking and supervision by the respondents on the dealers from time to time to ensure that they complied with the obligations under the agreement and provided the various facilities to the customers that the dealers were required to give under the agreement. It was also necessary to specify the selling point to enable the customer to obtain service from a particular point. Moreover, the specification avoided concentration of selling points only in metro cities and helped the respondents ensure that the selling points were spread over remoter areas. ' 10. In our view, specification of selling point in Clause 2 of the impugned agreement did not relate to any restrictive trade practice of territorial allocation. Section 33(1)(g) covered agreements to allocate any area or market for the disposal of the goods. This clearly required definition of area or market territory within which the goods could be sold by the dealer. There was no such restriction contemplated in Clause 2 of the agreement. Clause 2 only specified the selling point and although the word " only " limited the operations of the dealer to the selling point it did not purport to limit the area or market for the disposal of the goods. We are unable to accept the interpretation canvassed for by the learned counsel for the Registrar, viz.. that specification of the shop from which the dealer could operate for the disposal of the goods would come within the restriction of area envisaged under Section 33(1)(g). Such a reading goes against the natural meaning of the word "allocate" and also against the words " for the disposal of the goods ". The word " area " itself gives the idea of a territory and to construe it so as to confine it to the area of the shop would mean going against its natural meaning and also against the context. Moreover, the word " area" is used in juxtaposition with the word " market " and both the terms indicate possibilities of apportionment of the market whether area-wise or customer-wise. Clause 2 of the agreement, therefore, cannot be impugned as a restriction by reference to the provisions of Section 33(1)(g).

11. Apart from Section 33(1)(g) it is open to the Registrar to support his claim by reference to Section 2(o). It is true that apart from referring to Clause 2 of the agreement the Registrar has not relied on any other facts and circumstances to advance his plea that the Clause in question related to any restrictive trade practice. The learned counsel for the Registrar very fairly stated that she relied on the legal implications of the clause itself for invoking Section 2(o) of the Act and that allowing for all the facts stated by the respondents as correct, still the Clause as it stood had or may have the effect of preventing, distorting or restricting competition in any manner. The objection of the learned counsel for the respondents, therefore, that the Registrar had failed to set out any facts or circumstances indicating any restrictive trade practice is somewhat misconceived in regard to Clause 2. We have to examine the claim of the Registrar as a pure proposition of law by reference only to Clause 2 in the agreement in the light of Section 2(o). Examining that Clause in that light, however, we are unable to uphold the Registrar's claim. The provision as it stands is completely innocuous as far as its effects on competition are concerned. There can be no suggestion of its having any effect on competition between the respondents and their competitors, that is to say, on interbrand competition. Clause 2 has no relevance at all to the competition between the respondents and their competitors.

But even in regard to competition between the respondents' own dealers the effect of Clause 2 is completely neutral. A dealer at one selling point is not precluded from competing with a dealer at another point.

Nor is the first dealer immune from competition of the other dealer.

There is evidence to show that a dealer at one place had sold goods to customers belonging to Another place or coming from another place.

There is also evidence to show that in the same area or territory there were several dealers competing with each other. Even in respect of areas where there was only one dealer each, there would be free competition on the borderline between the two areas. If the customers of one area prefer one selling point to a more distant selling point the blame cannot be put at the door of Clause 2. As it stands, therefore, Clause 2 cannot be said to relate to a trade practice which is restrictive in character. It is necessary before concluding this part of the discussion to refer to the decision in In re Newspaper Proprietors' Association and the National Federation of Retail Newsagents, Booksellers and Stationers Agreement, [1961] 3 All ER 428 ; LR 2 RP 453 since considerable stress was laid on that case by the learned counsel for the Registrar. In that case the agreement between the Newspaper Proprietors' Association and the National Federation of Retail Newsagents, Booksellers and Stationers provided that London daily newspapers should only be sold at or from the places at which they were sold in June, 1944, or at places authorised by the Association. All those desirous of establishing new selling points for newspapers had to obtain a permit from special committees, and the case proceeded on the assumption that restriction regarding selling point was a restriction to which the Restrictive Trade Practices Act of 1956 of U.K. applied. It is, however, necessary to remember that the provision of law in U.K. and India are not comparable and before taking any guidance from any decision under the U.K. law, the special provisions of law and the special circumstances of any case have necessarily to be borne in mind. In the U.K. law a Clause in an agreement becomes restrictive if it relates to terms or conditions on or subject to which goods are to be supplied. There is no need in that provision to gauge the effect of the Clause on competition in the trade. In the Indian scheme effect on competition is the touchstone under Section 2(o) and unless there is impact on competition, the Clause is innocuous from the point of view of Section 2(o). In point of fact the U.K. case is concerned with a collective agreement between producers of newspapers on the one hand and the retailers thereof. Ipso facto there was a limitation of competition between the producers on the one hand and between the retailers on the other. Moreover, the restriction related to entry of new persons in the trade of newspaper retailers. There was a clear restriction of competition both at the level of producers and at the level of retailers and the producers agreed not to increase the selling points and the retailers were guaranteed that there would be no further competition from new selling points. The position in the present case is quite different. There is no question here of any collusion or concert between producers. There is similarly no concert or collusion between the dealers. There is a business arrangement between one producer and his dealers which leaves the doors of competition open both vis-a-vis the other producers in the line and between the dealers of the same producers inter se. The ratio of the decision in the Newspapers case [1961] 3 All ER 428 ; LR 2 RP 453 is, therefore, clearly not applicable to the present case.

12. Coming to Clause 5 it is common ground that the dealers of the respondents are prohibited from dealing in products of their competitors. The Clause will, therefore, be covered by Sections 33(1)(a) and 33(1)(c). The Clause clearly restricts the persons or classes of persons from whom the goods can be bought by the dealers.

The dealers can buy their requirements only from the respondents and from none of their competitiors. Similarly, the Clause clearly restricts the dealers from acquiring or otherwise dealing in any goods other than those of the respondents. The clause, therefore, clearly comes within the ambit of Sections 33(1)(a) and 33(1)(c). In view of the decisions of the Commission in Registrar of Restrictive Trade Agreements v. Allied Distributors and Bengal Potteries (R.T.P.E. No. 6 of 1972), Registrar of Restrictive Trade Agreements v. Carona Sahu Ltd. [1976] 46 Comp Cas 431 (MRTPC) (R.T.P.E. No. 2/3974) and Registrar of Restrictive Trade Agreements v. Tata Engineering & Locomotive Co. Ltd. [1976] 46 Comp Cas 470 (MRTPC) (R.T.P.E. No. 1/1974), Clause 5 must be taken to relate to restrictive trade practice of exclusive dealing. In this view of the matter the question whether Clause 5 relates to a restrictive trade practice regardless of Sections 33(1)(a) and 33(1)(c) becomes somewhat academic. The Registrar has not given any facts either in his application or in his rejoinder nor has the learned counsel for the Registrar referred to any facts in support of the plea that even without the aid of Sections 33(1)(a) and 33(1)(c) Clause 5 would relate to a restrictive trade practice. The answer to issue No. 2 will, therefore, be that the impugned Clause 2 of the agreement did not relate to any restrictive trade practice while Clause 5 did relate to restrictive trade practice of exclusive dealing.

13. The next issue is whether the respondents are entitled to the benefit of any of the clauses, viz., (a), (b), (c), (d), (e), (g) and (h) of Section 38(1) read with the balancing clause. This question is relevant only to Clause (5) of the agreement, since Clause (2) is held by us not to be restrictive, in character. The controversy before the Commission was confined to Sections 38(1)(b) and 38(1)(h) and to a certain extent to Sections 38(1)(a) and 38(1)(c). Section 38(1)(a) is clearly not applicable to the facts of the case because in none of the categories of goods handled by the respondents, viz., fans, sewing machines, water coolers and diesel engines, there is any considerable danger of injury whether to persons or to premises of the users in connection with the consumption, installation or use of the goods. As is pointed out in In re Chemists' Federation Agreement, (No. 2) [1958] 3 All ER 448 ; LR 1 RP 75, before this gateway can be pleaded the danger of injuries to the persons or premises must be real and substantial and the counter-acting effect of the restriction must be sizeable. In none of the categories of the goods handled by the respondents the danger of injury is recognisable and, therefore, gateway of Section 38(1)(a) is. not available to the respondents.

14. Similarly, gateway under Section 38(1)(c) is also not available to the respondents. That gateway is very much restricted in its scope. It pre-supposes that any one person not party to the agreement undertakes measures with a view to preventing or restricting competition in or in relation to the trade or business in which the parties to the agreement are engaged. The emphasis is on " any one person " and, if we may say so, the most crucial word is "one "in this phrase. Section 38(2) explains the reference to " any one person " and according to Section 38(2) this reference includes any two or more persons being inter-connected undertaking or, individuals carrying on business in partnership with each other. This clearly shows that the measures have to be taken by one person and only in special circumstances, e.g., inter-connected undertakings or partners in a business are to be treated as one person. Whether in actual fact or by fiction of law it is only one person that is to be taken into account. This matter is put beyond doubt by the decision in Registrar of Restrictive Trade Agreements v. Schweppes Ltd. (No. 2) [1969] LR 7 RP 336 (Ch D), where it is held in a similar context, in U.K. law, that what is contemplated is counting of the heads. In other words, what is important is that only one head should be left in the field. It, therefore, followed that Section 38(1)(c) is concerned only with defensive measures against a single monopolist. If any of the commodities dealt in by the respondents was also dealt in by a monopolist, then and only then any restrictive trade practice followed by the respondents to counteract the policies of the monopolist would have escaped through the gateway in Section 38(1)(c). The mere fact that other manufacturers or distributors in the line were also following the trade practice of exclusive dealing would not qualify the respondents for claiming the escape through the gateway under Section 38(1)(c). This aspect may be relevant while considering whether the practice does or does not restrict competition to any material degree in the trade when gateway under Section 38(1)(h) was being considered. That aspect of the matter will be considered in a paragraph below but as far as Section 38(1)(c) is concerned, the same is not available to the respondents. Similarly, and if anything, on stronger grounds, Section 38(1)(d) is also not available to the respondents. Section 38(1)(d) contemplates a monopolist or a monopolist as a supplier or a customer of the persons who are parties to the impugned agreement. Ordinarily, this Clause would apply to collective agreements of producers, intermediaries, retailers or customers. Even assuming that it may have application to bilateral agreements the occasion would arise only if there is a combination of producers or retailers or intermediaries or a dominating figure in any of these three categories whose actions are meant to be withstood by restriction which qualifies for the gateway under Section 38(1)(d). There is no occasion indicated in the material on record which would justify this stand. The gateway under Section 38(1)(d) is, therefore, not available to the respondents. Similarly, there is no material on record to suggest that the gateway under Section 38(1)(e) is available to the respondents. Although this gateway was pleaded in the reply by the respondents, no facts or circumstances were indicated by reference to the working of Clause 5 either in the reply or in the course of the hearing which would support the respondents' claims under Section 38(1)(e). Similarly, the gateway under Section 38(1)(g) is also not available to the respondents although it was invoked in their reply to the notice. No attempt has been made to link the restrictive trade practice of exclusive dealing with any other trade practice, with the exception of practice of ensuring charging of prices below maximum recommended. The latter practice is not a convincing justification for exclusive dealing. As discussed earlier, the only practice considered by the Commission is that relating to specification of selling points and we have found that it is not a rectrictive trade practice in effect but there is no link between the specification of selling points and the practice of exclusive dealings and the question of applying Section 38(1)(g), therefore, did not arise.

15. That leaves only two gateways, viz., (i) under Section 38(1)(b) and (ii) under Section 38(1)(h). Section 38(1)(b) has no doubt to be considered with the balancing Clause or tail-piece while in the case of Section 38(lXh) the question is essentially a matter of degree and ordinarily there is no occasion for balancing the detriments caused by the practices with the plus points. It will be convenient to consider gateways under Section 38(1)(b) and Section 38(1)(h) separately for the different commodities dealt in by the respondents because each has its own characteristics.

16. Taking the sewing machines first, the learned counsel for the respondents drew our attention to the peculiar features of the trade in sewing machines. Sewing machines are manufactured in India by five organised factories operating on an All-India level and also by hundreds of assemblers in the unorganised sector. There is considerable difference in the quality and workmanship in the sewing machines sold in the organised sector on the one hand and those sold by the unorganised sector. All the manufacturers of sewing machines in the organised sector have their respective outlet arrangements and the customer is in a position to conveniently choose from the sewing machines of competing brands if he so desires before purchasing a machine and if a producer has an exclusive dealer the latter is able to keep full range of models to enable the consumer to choose from the full range manufactured by that producer. If a dealer is permitted to stock different brands, he would not like to keep a complete range of models of each producer's products ; he would keep only such models as would give him more profit and, therefore, be more to his interest than to that of his customer. This would result in reducing the choice of models to the customer and the customer would lose the benefit of choosing from the complete range of the respondents' products.

Moreover, the dealer was likely to ignore the sale of superior products manufactured by the respondents and the inferior goods manufactured by others would be sold to the consumers merely because the dealer would get a higher profit in respect thereof. There would also be a tendency to pass off sub-standard machines manufactured in the unorganised sector to customers who may not be in a position to find out the difference in standard, performance and quality. What applies to the full range of machines would apply to the spare parts also and there would be a tendency to pass off spurious and sub-standard parts as parts of Usha sewing machines and this could only be effectively checked if the dealeis are not permitted to stock or sell any other similar products. Moreover, at the time of selling sewing machines manufactured by the respondents, the customer is given a guarantee under which the authorised dealer is required to replace defective parts/product and, if be is required to do so, he is entitled to obtain replacement thereof from the company. According to the learned counsel for the respondents, in the absence of exclusive franchise it would be difficult, if not impossible, to extend the guarantee benefit to the customers and withdrawing of such benefits would harm the interest of the customers. The sewing machines require pre-sale adjustment and testing, careful checking at the time of sale and also after-sales-service for which requisite equipment, parts and mechanics are necessary. The respondents have undertaken training schemes and refresher courses to train service mechanics of authorised dealers for which the respondents do not charge anything to the dealer and incur the entire expenses in respect thereof. Even in cases of newly-weds and persons liable to transfer where sales are made from one selling point and the machines are used at another place away from the selling point, the dealers are obliged to service Usha sewing machines wherever presented even though, they may have been purchased from another selling point. Further, the respondents arrange from time to time that customers who have purchased Usha sewing machines may get the same serviced free of cost from any authorised dealer even though the guarantee period in respect thereof may have expired. The respondents have also organised through their authorised dealers sewing schools to popularise home sewing and to educate the public in sewing and tailoring techniques. The respondents have also provided sewing machines on hire purchase basis with the active assistance of their authorised dealers. For this purpose the dealer himself is not required to make any capital investment and the financing facility is extended to him by the respondents inasmuch as they in turn permit the dealer to pay for the machines in instalments as and when the same are recovered by the dealer from the customers. This hire purchase scheme operates even on transferable basis, i.e., from one dealer to another. If a hirer is transferred from one place to another, his account can also be transferred at his convenience to another dealer who may be available at the nearest place. The investment of the respondents on the amount due to them on account of machines sold on hire purchase basis was in excess of Rs. 25 lakhs per annum in the past and was likely to touch about 50 lakhs in the immediate future. The essence of the case for the respondents, as stated by the learned counsel, was that, far from impeding competition in any manner, exclusive dealing arrangements were making the competition in sewing machines more effective and several facilities and safeguards extended to the customers were made possible and, at any rate, were made more effective by reason of the exclusive arrangements. He also relied on the decision of the Commission in Registrar of Restrictive Trade Agreements v. Tata Engineering & Locomotive Co. Ltd. (R.T.P.E. No. 1 of 1974) [1976] 46 Comp Cas 470 (MRTPC).

17. The learned counsel for the Registrar, Mrs. Pappu, on the other hand, contended that the respondents were selling agents of a manufacturer which was dominating the industry; that the exclusive dealing arrangements foreclose the outlets for smaller competitors; that the arrangement was not a condition precedent for the after-sales-service and other facilities and that these facilities could be secured without the exclusive arrangement. She emphasised that the consumer's choice or interest was the ultimate determinant under the scheme of the Act and that from that point of view exclusivity was not at all necessary. She went on to contend that the so-called benefits dilated upon by the respondents and the learned counsel were not meant for the consumers but for the respondents and that they were in the nature of sales promotion entailing considerable cost to the consumer. She referred to the decision in In re Chemists' Federation Agreement (No. 2) [1958] 3 All ER 428; [1958] LR 1 RP 75 (which we have referred to earlier) and also to certain passages from the report of the U. K. Monopolies and Restrictive Practices Commission on collective discrimination and contended that exclusive arrangements were not at all necessary for the benefit of the consumer.

18. We have carefully considered the contentions on both sides and we are inclined to the view that the respondents are entitled to the benefit of the gateways under Sections 38(1)(b) and 38(1)(h) in regard to exclusive dealing arrangements for the sewing machines. The share of the respondents in the market for the goods manufactured by the organised sector is less than 40% and they have to reckon with competition from a foreign company which markets the goods under its brand name although it gets the machines manufactured from the local manufacturers. Moreover, if the sales in the unorganised sector are taken into account, the share of the respondents in the market is less than 25% approximately. There is, therefore, no possibility of foreclosure of any part of the market. It appears that the other major competitor of the respondents has exclusive arrangements covering different parts of the country. If at all the adverse impact on the competition in the market would be negligible and the respondents would, therefore, be entitled to the benefit undtr Section 38(1)(h). In regard to the benefits of after-sales-service and hire purchase, it seems to us that while these benefits might be possible without exclusive arrangements, they become more effective from the point of view of the customer if there are exclusive arrangements. This is particularly so when the benefits are transferable from one dealer to another when the owner of the machine shifts the machine from the place of purchase to another place whether on account of customer's transfer or on account of marriage or any other change. The same consideration would apply to the guaranteed services during the guarantee period and the extension of free services after the guarantee period. Proper training of mechanics and securing of genuine spare parts and accessories definitely becomes easier if the dealer is an exclusive dealer. Replacement of the whole machines or parts, if defects are found, becomes easier if the dealer is an exclusive dealer. Moreover, from the point of view of the respondents and from the point of view of the customers, the exclusive dealing arrangement eliminates the possibilities both of spurious machines and parts being passed off as genuine Usha machines and parts and also preference being given by the dealers to inferior machines over the quality machines manufactured by the respondents. In effect the exclusive dealing arrangement, no doubt, enhances the chances of the respondents in the competition by emphasising the distinctive nature of the product and also by highlighting the facilities and adequate supply of genuine parts and accessories. We are unable to accept the contention of the learned counsel for the Registrar that all the benefits could be secured without the exclusive arrangement. The authorities referred to by her were not strictly applicable to the facts of the case ; the report of the U.K. Monopolies Commission on collective discrimination was concerned with collective arrangements: it referred to exclusive arrangement not between a manufacturer and his dealer but between a group of manufacturers and a group of approved dealers. The considerations which weighed with the Commission in that report were not relevant from the point of view of the present case. The decision in RTF 1 p. 75 was also not strictly relevant in that the case was concerned with the arrangement between two groups and the aspects regarding the services at the time of sales were of a minor character.

It is possible to visualise a situation in which a non-exclusive dealer may give facilities but human nature being what it is, the quality and consistency of such service will definitely be affected if the arrangement is non-exclusive. It is true that some of the arrangements were in the nature of sales promotion as for example the sewing schools and free service after the guarantee period but the fact remains that simultaneously they did help the consumer to exercise his choice and also offered a commercial consideration for preferring one brand to another. Moreover, the nature of the commodity being what it is, the consumers' decision would not depend on examination of the machine in the shop, it would really be an investment decision based on considerations such as different aspects of each brand, viz., price, credit facilities, life, the different uses, etc., and it is only from the point of view of making this decision effective that the utility of the exclusive arrangement is to be judged. From this point of view we have no doubt at all that the arrangement also passed through the gateway under Section 38(1)(b).

19. The second commodity is the diesel engines. According to the learned counsel for the respondents, the diesel engines dealt in by them were high speed vertical engines used mostly for irrigation purposes and for agricultural pumping sets. 90% of the customers purchased these machines by taking loans from approved financial institutions like commercial banks, land mortgage banks, agro-industrial corporation, etc. The period of loan ranged from 3-10 years The amount of loan is paid direct to the dealer supplying the diesel engines and not to the farmer. The respondents, at the insistence of the lending institutions, enter into a general indemnity bond for the purpose of ensuring that their authorised dealer fulfils these obligations with regard to supply of diesel engines as well as for rendering after-sales service. The diesel engines of the type that are sold by the respondents are manufactured in India by six manufacturers who operate on an all-India basis and about a dozen other manufacturers who operate on regional basis. Apart from these, there are 400 other manufacturers and assemblers in the unorganised sector who produce diesel engines. These do not conform to any standards. The brands of diesel engines approved by the banks and financial institutions are selected usually out of those which conform to ISI specifications and are tested by recognised testing institutions. In the agreement with the financial institutions the respondents have to undertake that in the event of the farmer failing to pay the balance instalment of the loan and if the lending institution decides to take over the diesel engine from the farmer on account of default, then such engine would be taken over by the respondents and the respondents would be bound to pay to the financial institution the balance of instalments payable in respect of that engine in respect of which the default was made by the farmer. For this purpose a closer contact and supervision with regard to the account of each farmer, to whom the engine is supplied, has to be kept by the respondents, and this can be ensured only through exclusive authorised dealers who concentrate on the respondents' products. The nature of the commodity being what it was, it was necessary to arrange demonstrations for the use of the engines to induce the farmers to purchase the same and the respondents had a fleet of 20 jeeps fully equipped with arrangements for after-sales-service and trailers in which pumping sets of Usha diesel engines are fitted and taken to country side for demonstration purposes. The respondents have also given loans to dealers for the purpose of 15 jeeps for demonstration purposes. Such a scheme of demonstration can be effective only if it is arranged through or by exclusive dealers. It is also necessary, to arrange for quick repair or replacement of parts in case of any difficulty because farmers have their fixed periods for taking the canal water and even otherwise in crops like wheat there are peak periods when the farmers have to put their pump to non-stop use. Prompt attention to repair is, therefore, imperative and it is possible only through exclusive dealers who arrange to send mechanics without any delay. Some mechanics appointed by the dealers are also provided with motor-cycles and the respondents provide loans to the authorised dealers to enable them to purchase motor-cycles. Just as in the case of sewing machines, the respondents also make arrangements for free service in different areas even if the period of guarantee has expired. The learned counsel for the Registrar reiterated her objections in regard to diesel engines on the same lines as she had done in the case of sewing machines.

20. Even in regard to diesel engines the respondents were entitled to the benefit of the two gateways, viz., Sections 38(1)(b) and 38(1)(h).

The diesel engines of the type that are ssld by the respondents are manufactured in India by six manufacturers who operate on All-India basis and about a dozen other manufacturers who operate only on a regional basis. Only these manufacturers produce diesel engines which conform to ISI specification and, therefore, as far as comparable market is concerned, they constitute the supply sources. All the producers have more or less the same distribution arrangements as the respondents and at least one of them has clearly exclusive arrangements. It has also been pointed out that at all places there are various dealers dealing in all brands of engines as well as the engines of respondents and as a matter of fact the various dealers deal' ing in other brands at every place are more than those dealing in respondents' Usha engines. The adverse impact of exclusive arrangements resorted to by the respondents will be negligible if at all and the case of the respondents would be clearly covered by Section 38(1)(h). Moreover, considering the nature of the commodity concerned and the need for ancillary services like after-sales-service, facility for hire purchase, indemnity to the banks, prompt need for repairs and replacement of spare parts and the effective implementation of the guarantee make exclusive arrangement not only desirable from the point of view of efficient carrying out of these facilities but also as a weapon of competition, vis-a-vis, the other brands. Moreover, this is not a commodity which can be sold from a shop window; it requires persuasion of farmers by demonstration of its utility on the site of action. This is not only necessary for the sales promotion of the respondents but also the education of the consumer and making his choice more meaningful. In the absence of exclusive arrangement, while some of the facilities might be possible, their efficiency and the range would be definitely limited. Ultimately, while evaluating the effect of exclusive dealings on competition, it is necessary to find out whether it is more desirable that dealers of different brands should compete between themselves for the consumer or whether producers of different brands should compete between themselves for securing the patronage of the dealer. This will depend on several circumstances, viz., the market structure, the state of demand and supply, the nature of the commodity: whether it requires service on long term finance, etc. In a commodity where demand is potentially there but has to be articulated where after-sales-service is necessary, where long-term finance arrangements are also unavoidable and where all the producers are equally organised, the exclusive dealing arrangement would pass through both the gateways, viz., Sections 38(1)(b) and 38(1)(h). In the present case, we have no doubt that giving up of the system would involve considerable weakening of the hire-purchase system and considerable neglect of after-sales-service. On the other hand, exclusive association of dealer with one brand will sharpen the competition between different brands and make the choice of the farmers more varied and effective The respondents were, therefore, entitled to the gateways under Sections 38(1)(b) and 38(1)(h).

21. In regard to water coolers, apart from the respondents' company there are five other companies selling such water coolers in India. The general pattern of trade in this commodity is that the sales are mainly done by the respective companies through their own staff. The price range of water coolers available is between Rs, 4,000 and 14,000, In the case of the respondent company only about 15% of its sales are made through its dealers while the remaining 85% are made directly. Even with regard to sales through dealers, active assistance of the respondent's sales staff is necessary and given. Water coolers are generally purchased by people trained in purchasing goods like the purchase officers and they examine the technical literature in respect of each type of water coolers to find out which model would suit their requirement. This is once again not an item for a shop window but for a cool investment decision by the purchase officer on the basis of his information derived either from catalogues or from other sources. The respondents have appointed dealers generally at places where they do not have any servicing arrangements. The dealers undertake to instal water coolers at the premises of the customers and assist in rendering after-sales-service and to immediately attend to urgent complaints of the customers from time to time. In order to give effective and quick repair and after-sales-service it is necessary for the dealer to maintain ready stock of spare parts required for the repair and maintenance of the water coolers. Moreover, the exclusive dealers are required to give four routine checks for the water coolers supplied through them within the guarantee period of one year.

22. With regard to water coolers, exclusive dealership would hardly have any impact on the competitive situation. The respondents are competing with five other producers, some of them are even as big, if not bigger than, the respondents. Moreover, the exclusive dealership covers only 15% of the respondents' own sales and that is confined only to places where they do not have their own servicing arrangements. The nature of the commodity being what it is, the customer would take a decision on careful weighing of all the pros and cons of each brand and each brand would ordinarily be retailed by the producer itself. The mere fact that a small portion of the market was covered by exclusive dealers of the respondents would not preclude their competitors from influencing the customers which is either by direct sales or through their exclusive dealers. Even the quality and frequency of after-sales-service and the replacement of spare parts and accessories would be more effective with exclusive dealers than without them. On the material on record, however, the advantage flowing from it is not such as would entitle the respondents to escape through the gateway under Section 38(1)(b). The gateway under Section 38(1)(h), on the other hand, is clearly available to them.

23. Coming, to the last item dealt in by the respondents, viz., fans, the sales of the respondents through exclusive dealers account for only 1/5th of their total sales, the remaining 4/5ths being through dealers who are non-exclusive and who keep fans of competing brands. The respondents have, however, considered it necessary to appoint some dealers on exclusive basis, according to them in order to give better service facility to the public and to promote competition. They have a wide range of 40 models of the fans including ceiling fans, table fans, pedestal fans, wall and cabin fans and exhaust fans. They are available in different sizes, sweeps and designs. In order to make available this wide range of choice to the customers it was necessary, according to the respondents, to have exclusive dealers who would maintain stocks of a large number of varieties of their fans. The non-exclusive dealer has a tendency to keep only a few models of each brand which are more in demand and it is not possible for him to maintain the large variety of models of each brand. When a customer wants to make a choice between fans of different brands, he prefers to go to a non-exclusive dealer but when he has made up his mind about the Usha brand or any other brand and wants to select a most convenient model, from their range, he goes to the exclusive dealer. The exclusive dealers also render more efficient after-sales-service to the customers and the respondents were in a position to keep a better check and supervision in respect of exclusive dealers to ensure that the service to the customers given by them is of acceptable standards. There is also no danger of the dealer palming off spurious models or parts or inducing the customer to prefer another brand model just because it is cheaper. The exclusive dealers also maintain sufficient stocks of spare parts to cater to the needs of the customers whereas the non-exclusive dealer may not necessarily do so. In times of acute demand, the existence of exclusive dealers ensures charging of prices below the maximum prices.

24. The learned counsel for the Registrar reiterated her arguments against exclusive dealings in respect of the fans which she had advanced in the case of the other commodities.

25. In respect of the fans, while we do appreciate that after-sales-service and replacement of parts and accessories may be more effective with exclusive dealers than with non-exclusive dealers, it does not seem to us to be a decisive consideration to enable the respondents to pass through the gateway under Section 38(1)(b). If exclusive dealing was essential for securing these benefits, the proportion of sales through exclusive dealers would have been much higher. But this very pattern of trade does show that the impact of exclusive dealership on competition is marginal except in small markets where the respondents' exclusive dealer is either the sole dealer of fans or is at any rate a dominant dealer. In all other areas or markets the exclusive dealing arrangement, far from limiting or restricting competition, would make it more effective by emphasising the respondents' after-sales-service, genuine spare parts, larger range of models and the safeguard of price being charged below the maximum at all times. In regard to the areas where the competition is restricted, i.e., in areas where the respondents' exclusive dealer is either the sole dealer or the dominant dealer the position would be different in that the very existence of an exclusive dealer of the respondents would deter competition in that in such areas new dealers may be discouraged from entering and weak dealers among the existing ones will be forced out. It appears to us that such a situation is likely to prevail in small towns or rural areas. In large towns, the number of effective competing dealers is likely to be large.

26. After some discussion at the Bar the learned counsel for the respondents, after taking instructions from his clients, stated that the respondents undertake to do away with the system of exclusive dealers in fans in all towns with population of one lakh and less according to latest census figures. In our view this safeguard would remove the one major impediment to competition which exclusive dealings in fans was likely to create. To put the matter beyond doubt, we hold that exclusive dealership arrangements in fans pass through the gateway under Section 38(1)(h) only in so far as they cover towns having population of more than one lakh.

27. Our decision, therefore, on issue No. 3 is that the exclusive dealing arrangements in respect of sewing machines and diesel engines pass through the gateways under Sections 38(1)(b) and 38(1)(h), that exclusive arrangement for the water coolers passes through the gateway under Section 38(1)(h) and the exclusive dealing arrangement for fans passes through the gateway under Section 38(1)(h) only in so far as it covers towns with a population of more than one lakh.

(1) We order and direct that the practice of appointing or having exclusive dealers for sale of fans in all towns in India with a population of one lakh and less shall be discontinued and shall not be repeated. With regard to the existing exclusive dealers in towns with a population of one lakh and less, the respondents shall terminate their exclusive appointment or or before 30th June, 1976.

(2) The respondents shall on or before 31st July, 1976, file an affidavit with the Commission reporting compliance with the above order.

(3) The respondents shall pay to the Registrar costs of these proceedings fixed at Rs. 2,000.


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