1. The Registrar of Restrictive Trade Agreements applied to the Commission under Section 10(a)(iii) read with Section 37 of the Monopolies & Restrictive Trade Practices Act, 1969 (hereinafter for the sake of brevity referred to as "the Act"), on June 29, 1974, praying that the Commission may inquire into the restrictive trade practices alleged to be indulged in by M/s. Centron Industrial Alliance Private Ltd. (hereinafter referred to as the respondent) having its office at Industrial Assurance Building, Churchgate, Bombay-20. The respondent is doing business in the manufacture of blades and blade making machinery.
According to the Registrar, the respondent had entered into three agreements, viz., one with M/s. Home Products Marketing Agency of Ballard Estate, Bombay, second with M/s. R. C. H. Barar & Co. of Abdul Rehman Street, Bombay, and the third with M/s. Union Carbide India Ltd., 1 Middleton Street, Calcutta-16. These agreements will, hereinafter, be referred to, for the sake of brevity, as " Home Products Agreement", " Barar Agreement " and "Union Carbide Agreement ", respectively. The agreements were entered into on 29th November, 1969, 25th July, 1969, and 29th May, 1970, respectively.
2. In regard to the " Home Products Agreement", the Registrar objected to the following clauses : "The company shall not sell the said products or any products relating to shaving field under the brand names of " Swish " and " Platinex" through any other distribution or selling agents in India except as otherwise stated in Clause 11 below." " The selling agents undertake to receive the said products from the company exclusively and will not deal with or sell such reputed products or spurious products of any kind from any other source. The selling agents undertake not to deal directly or indirectly in similar products of any other company. " "The selling agents will be responsible for advertising and promoting the said products of the company either directly themselves or through the advertising agents appointed by the company. For this purpose, the company will fix each year a promotion budget for each of the said products and it will be the responsibility of the selling agents to restrict the expenses to within the budget fixed and this budget may be revised upwards or downwards by mutual consent. The budget will cover expenses on press advertising, cinema slides and films, radio, point of purchase and display materials, field promotion programmes, special discount to main dealers over and above the normal main dealers' discount, sampling and expenses incurred on any other form of advertising and promotion and on shop audit and market research. The bills of the advertising agents for expenses on advertising and promotion authorised by the selling agents will be paid by the company directly to the advertising agents. The advertising and promotion expenses incurred by the selling agents themselves and not through the advertising agents, such as additional discounts to main dealers and expenses on field promotions will be deducted by the selling agents from the remittance to the company each month. However, upon termination of this agreement for any reason whatsoever, if the selling agents have committed themselves to incur advertising and promotional expenses, then the commitment of these expenses will be, as far as possible, cancelled by the selling agents, but those commitments for incurring the expenses which cannot be cancelled will be borne by the company." " In respect of sales of the said products of the Canteen Stores Department any tender issued by any Government, railway, municipality, port trusts or any other public body or where in the nature of things by reason of competition or otherwise, it is necessary to give the lowest rates for securing the business irfespective of whether the same is located in the said territory, the company shall be at liberty to fill in such tenders and/or secure and execute such business at its own cost and risk and will pay to the selling agents an overriding commission of 5% of the sales made under this clause. These sales will be notified to the selling agents by the company within ten days of the despatch of the goods. Sales for the purpose of this clause shall mean the value of sales of the said products at the rates quoted in the tender by the company excluding duties and taxes on such sales. No expenses incurred by the company for obtaining and executing such business shall be deductible from the rates. Payment of this overriding commission shall be made within ten days of the company receiving the actual payment from purchaser under this clause." In regard to " Barar Agreement", the Registrar objected to Clause 12 which read as under ; " That the purchaser shall not purchase from any other party blades for sale in India." In regard to " Union Carbide Agreement", the Registrar objected to Clause 21 which read as under : " The company shall not directly or indirectly make investments or installation of manufacturing facilities for the manufacture of razor blades during the currency of this agreement without six months' notice in writing to the supplier." 3. The Registrar alleged that the clauses impugned by him resulted in restrictive trade practices of the following nature attracting the provisions of Sections 33(1)(a), (c) and (g) of the Act : (i) restricting the persons to whom goods may be sold or from whom goods may be purchased ; (ii) restricting the agents from dealing in the products of the respondent's competitors; (iii) restricting the party concerned to make investments or instal manufacturing facilities for the manufacture of razor blades in the country. He also alleged that the restrictive trade practices indulged in by the respondent limited, restricted and distorted competition, imposed unjustified costs on the consumers and obstructed the flow of capital and resources into the stream of production and that the restrictive trade practices emanating from the aforesaid agreements were prejudicial to public interest.
4. Notice dated 6th July, 1974, was issued by the commission in exercise of the powers conferred on it under Section 37 of the Act informing the respondent that the commission proposed to hold an inquiry into the alleged restrictive trade practices complained of by the Registrar.
5. After receipt of the notice from the commission, the respondent filed a statement of case dated 2nd September, 1974, purporting to be under Regulation 16 of the Restrictive Trade Practices (Enquiry) Regulations, 1970. The Registrar filed rejoinder dated 15th October, 1974, purporting to be a rejoinder under Regulation 69 of the MRTPC Regulations, 1974. The respondent also filed a supplementary statement of the case dated January 1, 1975, purporting to be under Regulation 16 of the Restrictive Trade Practices (Enquiry) Regulations, 1970, read with Regulation 67 of the MRTPC Regulations, 1974. It also filed an application dated 6th January, 1975, praying that it be permitted to amend its statement of the case. Sometimes thereafter it filed an application for directions under Regulation 78 of the MRTPC Regulations, 1974. In that application it prayed that in the interest of justice and equity, the inquiry may be dropped or in the alternative, stayed or deferred for at least a period of 5 years. On 17th January, 1975, it filed a statement of case incorporating the amendments. On that day, i.e., on 17th January, 1975, the commission granted leave to the respondent to amend its statement of the case in terms of amendments set out in the application to amend.
6. By an order dated May 9, 1975, the commission, after hearing the parties, settled the following issues as arising out of the pleadings in the case : 1. Whether the Registrar's application under Section 10(a)(iii) of the Act is not maintainable in view of the objections set out in para. 8 of the amended statement of case filed by the respondent on 17th January, 1975 ; 2. Whether the clauses of the three agreements set out in para. 3 of the Registrar's application under Section 10(a)(iii) of the Act constitute restrictive trade practices as alleged in para. 4 of the said application of the Registrar; 3. If answer to Issue No. 2 is in the affirmative whether the respondent is entitled to the benefit of any of the provisions of Clauses (b), (c), (d), (e), (g) and (h) of Section 38(1) of the Act as well as the balancing clause under Section 38(1) of the Act; 7. The respondent filed an affidavit of Shri Nigudkar dated 11th August, 1975, as part of the evidence it wanted to lead in support of its claim. This affidavit was treated as examination-in-chief by the Commission at the hearing of the case on 18th August, 1975. Shri Nigudkar was thereafter cross-examined by Shri Mohindroo, learned counsel for the Registrar. After the cross-examination of Shri Nigudkar, the respondent closed its case and the learned counsel for the Registrar stated that he did not wish to lead any evidence.
Arguments on behalf of the parties were heard on 22nd, 24th and 26th December, 1975.
8. It will be convenient to deal with the inquiry issue-wise. The first issue relates to the objections set out in para. 8 of the amended statement of case filed by the, respondent on 17th January, 1975. Bulk of these paragraphs relate to objections which will have to be considered by reference to the second issue, viz., whether certain impugned clauses of the three agreements constituted restrictive trade practices as alleged in paragraph 4 of the application of the Registrar.
9. In regard to the maintainability of the application the learned counsel for the respondent made two points. His first contention was that all the three agreements had been terminated, that agreement with Home Products was terminated with effect from 30th September, 1972, by consent of parties, that the Barar. agreement was terminated with effect from 25th July, 1974, by efflux of time as provided in the agreement itself and that the Union Carbide Agreement was terminated with effect from 1st November, 1974, by consent of parties. It was pointed out that the notice of enquiry in the present case was issued only on 7th July, 1974, so that by that time at least Home Products Agreement had been terminated while the Barar agreement was terminated after 18 days from the issue of the notice. The contention of the learned counsel for the respondent was that the Commission had no jurisdiction to conduct an inquiry in respect of agreements which had been terminated by consent of parties or which had expired by efflux of time, and according to him, this objection was most valid in respect of agreements which had been terminated before the inquiry was started at all. He referred to Section 37(1) and particularly to the portion which includes the words "the practice is prejudicial to the public interest". He also referred to Section 37(2) and the portion which included the words " to ensure that the trade practice is no longer prejudicial to the public interest". He also referred to Section 37(4) and particularly the words "finds that the monopolistic undertaking is indulging in restrictive trade practices ". According to him, the tenor of Sections 37(1), (2) and (4) clearly showed that inquiry under Section 37 is concerned with a restrictive trade practice in presenti and that it was not concerned with any practice which had already come to an end. He also referred to provisions of Section 38(1) and pointed out that all the clauses including the tail-piece of that sub-section relate to a practice in presenti and that Clauses (e) and (f) in terms refer to the existence of the practice at the time of application. He also referred to Sections 2(o), 2(r), 2(n), 2(v), 14, 32 and 35(2) and pointed out that even these sections underline the fact that the scheme of the Act was concerned only with practices in presenti. He very fairly referred to the decision of the House of Lords in In re Newspaper Proprietors' Agreement,  L.R. 4 R.P. 361 and contended that although prima facie the decision appeared to be against his contention, if the case was examined in depth, the ratio of that decision turned on the peculiar provisions of Sections 1(2) and 20(1) of the R.T.P. Act, 1956, of U.K. He submitted that in the U.K. scheme once an agreement was registered the Registrar was bound to approach the court for adjudication and whether the agreement was terminated after the Registrar's application or not, the inquiry had to go on.
According to him, in view of these statutory provisions the courts had no other alternative but to uphold the contentiotis put forward on behalf of the Registrar and the inquiry had to be under way. He went on to contend that in the Indian scheme, registration and inquiry had been separated completely and the jurisdiction of the Commission to conduct the inquiry rested on the existence of a restrictive trade practice at least at the time of application by the Registrar. He then pointed out that the application of the Registrar was based entirely on certain clauses of the agreements and he referred in this connection to paragraph 4 of the Registrar's application which alleged that certain clauses in the agreement resulted in restrictive trade practices of a certain nature. Paragraph 5 of the application stated that the restrictive trade practices as set out earlier prevented, distorted and restricted competition. He then referred to paragraph 5 of the respondent's reply wherein it was clearly pointed out that all the three agreements had been terminated and that the Home Products Agreement was terminated nearly two years before the inquiry was started. He pointed out that the only grievance of the Registrar was that the respondent had not filed intimations regarding terminations of these agreements as required under the Act. He also pointed out that issue No. 2 as settled by the Commission also confined itself to certain clauses of the impugned agreements. According to him, there had been no dispute between parties in respect of the present arrangements and that the charge in the course of the inquiry had been confined to the past agreements.
10. The learned counsel for the respondent also pointed out--and that was his second objection against the maintainability of the application--that there was no allegation in the application about the operation of the agreements and the circumstances resulting therefrom.
According to him, before the Commission could take cognizance of the application under Section 10(a)(iii) of the Act, it must contain facts which constitute the alleged restrictive trade practice, and if the alleged trade practice related to the clauses of the, agreement it was incumbent on the Registrar to set out the facts relating to the operation of the various clauses of the agreement and the circumstances resulting therefrom. He submitted that in the absence of any such averments, the application was liable to be rejected and in any event could not be said to contain facts which constituted restrictive trade practices so as to justify an inquiry.
11. The learned counsel for the Registrar contended that no plea was taken on behalf of the respondent that the maintainability of the application should be considered as a preliminary issue before any question of merits was discussed. He pointed out that in the first reply of the respondent dated September 2, 1974, no plea for any disposal of any preliminary issue was raised. He referred to Order 7, Rule 11 of the Code of Civil procedure and to decisions in In re Kalavati Devi v. Chandra Prakash, AIR 1959 All 37 In re T. N. Indrani Devi v. Municipal Board, Imphal, AIR 1958 Manipur 27 and In re Naga Hills Tea Co. v. Stale of Assam, AIR 1962 Assam 132, and contended that it was too late in the day to contend that the Commission had no jurisdiction to inquire into the restrictive trade practices to which the impugned clauses in the three agreements related. He also referred to Maxwell, 1969 edition, pp. 9 & 41, and also to the decision of the Court of Appeal in In re Newspaper Proprietors' Agreement,  LR 3 RP 360 and contended that on the assumption of the learned counsel for the respondent the inquiry could be defeated by giving a notice of discontinuance of the practice either before the notice was issued or even after the notice was issued and that could not have been the intention of the legislature. He went on to contend that it was not so much the three agreements which were impugned but certain restrictive trade practices emanating from certain clauses of the agreements which were impugned. He emphasised that no evidence was led to establish that these restrictive trade practices had been done away with even though such evidence would be in the power and possession of the respondent.
He relied on Section 114 of the Evidence Act, according to which the court may presume the existence of any fact which it thinks is likely to have happened regard being had to the common course of natural events, human conduct and public and private business in their relation to facts of the particular case. He particularly referred to illustration (G) under Section 114 according to which the court may presume that the evidence which could be and is not produced, would, if produced, be unfavourable to the person who withholds it. According to him, if the practice of exclusive dealing emanating from the Home Products Agreement was given up in the subsequent arrangements by the respondent either with Muller and Phips or with Solvista, the respondent could have easily produced these agreements with these parties to prove that there was no exclusive arrangement embodied in these agreements. He also pointed out that Section 37(1)(a) clearly provided for an order by the Commission directing that the restrictive trade practice shall not be repeated and this provision was made to cover not only cases where the restrictive trade practice was in existence at the time of inquiry but also restrictive trade practice which had been terminated.
12. We do not find any merit in the contentions raised on behalf of the respondent against the maintainability of the application by the Registrar. While Section 37(2) proceeds on the assumption that the restrictive trade practice is continuing, Section 37(1) has a wider ambit and it covers both the restrictive trade practices which were in existence at the time of the application of the Registrar and those which were discontinued before that date. In Section 37(1) the inquiry of the Commission is on the possible impact of the trade practice on public interest if it were in existence. It is an exercise in examination of probabilities. Section 2(o) contemplates several categories of restrictive trade practices, effects of some of which are in evidence and effects of some of which are to be judicially predicted. The judicial prediction can only be done on the assumption that the restrictive trade practice will be carried out. The position is no different in case of restrictive trade practices which are terminated. All that the Commission has to do is to ascertain the possible consequences in case of their continuance and record its findings. Any other interpretation would completely render the provisions of the Act nugatory by the parties resorting to restrictive trade practice notifying to the Commission that they have discontinued the trade practice and resorting again to the practice merrily after the Cora-mission has dropped the proceedings.
13. It is this aspect of the matter which weighed with the House of Lords in the decision quoted by the learned counsel for the Registrar.
It is true that the scheme of the UK Act made it clear that all agreements which were registered could be brought before the court even though some of them were terminated before the Registrar moved the court. On the other hand, the courts in that case were also confronted with the same difficulties of the language of the Act; Section 38(1) of the Indian Act is a replica of Section 21(1) of the UK Act and the provisions in the Indian Act empowering the Commission to direct the party not to repeat the restrictive trade practice is comparable to the provisions in the UK Act empowering the court to make an order restraining the party from making any other agreement to the like effect. As pointed out by Lord Evershed in  LR 4 RP 391 ".....it was the intention of Parliament to prevent what might otherwise be a simple means of evading the Act, i.e., by cancelling any relevant agreement as soon as there was any threat or .likelihood of it being brought before the court, then reviving it immediately after any proceedings had ended, and so on ad infinitum". Similarly, the following observation of Lord Devlin in the same case on page 394 is also significant: " The legal determination of an agreement does not necessarily mean that the parties have made up their minds for ever to abandon the restrictive practices embodied in it. After all, they will have entered into the agreement knowing it to be prohibited unless justifiable under Section 21 ; and so it is cot surprising, if, when they bring it to an end without waiting to justify it. Parliament wants to look below the surface. Therefore, the Act is designed to put their real intentions to the test. " 14. On the same lines are the following observations of Lord Pearce on page 396 : " Plainly the Act was intending to bring to light and stop all unjustifiably restrictive agreements. Since three months is allowed for registration, it would be easy, if dead agreements need not be registered or scrutinised, to evade its purpose by constantly determining and remaking restrictive agreements or by making them intermittently from time to time for a short period to meet a particular purpose as, for instance, by agreeing for the necessary week, or even day, to restrict the price of tenders for some big undertakings. Thus, an agreement could by death (or even perhaps by 'downy sleep, death's counterfeit') escape the scrutiny of the court. If, however, the court has power to scrutinise dead agreements and to forbid any similar agreements in future, it may prevent such evasion. The power of injunction thus gives an effective purpose to the making of a posthumous adjudication in the light of present circumstances. The duty of the court under Section 21 is to answer the question whether the dead agreement would, if revived, be contrary to the public interest under present circumstances. If it would, then the court will prevent its revival by injunction." 15. It is significant that Maxwell in his " The Interpretation of Statutes ", 12th edition, page 41, quotes with approval the following extract from the judgment of Lord Denning M.R. in this very case, i.e., In re: Newspaper Proprietors' Agreement  LR 3 RP 360: " It is natural enough for the Act to speak in terms of existing agreements which are brought before the court, because those were the ones principally in mind, but there is no insuperable difficulty in applying its provisions to agreements which have expired or been determined before being brought to court. And when I bear in mind the mischief which it was intended to remedy, and the remedy which it has provided (by restraining agreements (in the future) to the like effect), I think that it should be construed so as to apply to agreements that have expired or been determined." 16. These principles would hold good for application of Sections 37(1) and 38. More so because in the Indian scheme registration and inquiry are delinked and the inquiry is not confined to agreements, whether registered or not, but to restrictive trade practices, whether they are embodied in an agreement or they are without an agreement. What can be done for an agreement to avoid an inquiry can be more easily done for an inquiry in respect of a trade practice and it could not have been the intention of the legislature to frustrate an inquiry by an act of discontinuance at the practitioner's sweet will. We are, therefore, unable to accept the contention put forward on behalf of the respondent that inquiry by the Commission has to be confined to restrictive trade practices actually continuing at the time of the inquiry or at any rate at the time the application is made by the Registrar.
17. The question of competence of the Commission to enquire into a restrictive trade practice which is not continuing in presenti does not, really speaking, arise in the circumstances of the present case.
Out of the three agreements, two were admittedly in force on the date the Registrar applied for inquiry and also when the Commission issued notice for the inquiry. Moreover, the subject matter of the inquiry was not the agreements or for that matter some of the clauses of the agreements but restrictive trade practices to which they related. The termination of the agreements or the clauses would not result ipso facto in the termination of the restrictive trade practices. Once the restrictive trade practices have taken off from the launching pad of the restrictive clauses of the agreement, they are there, so to speak, on their own, and it was for the respondent to establish that not only the agreements and the clauses but also the trade practices emanating therefrom had ceased to operate. Section 114 of the Indian Evidence Act becomes very relevant in this connection because it enjoins on the courts to presume the existence of any fact which it thinks likely to have happened regard being had to the common course of natural events, human conduct and public and private business in their relation to the facts of the particular case. The statutory illustration given at (g) refers to the presumption that evidence which could be and is not produced would, if produced, be unfavourable to the person who withholds it.
18. In the present case, the impugned clauses of the first agreement relate to the restrictive trade practice of exclusive dealings. If it was the case of the respondent that these exclusive dealings were done away with along with the clauses of the impugned agreement, nothing could have been easier than furnishing of the details of the arrangement which was being operated by the respondent after the old arrangement was done away with. This could have shown that not only was the new arrangement different from the old one but also that the trade practice of exclusive dealing was not a part of the new arrangement. It has been brought out in evidence that after the termination of Home Products Agreement the respondent had first arrangement with Mueller and Phips and later arrangement with Solvista. The agreements with these parties have not been brought on record and no attempt has been made to establish that exclusive dealing was not a part of the arrangement with these parties. The inference was, therefore, obvious that the respondents wanted to keep back the essential features of the new arrangement and it must, therefore, be presumed that the trade practice of exclusive dealings was continued although the old agreement with Home Products was terminated. As was held by the Privy Council in Murugesam Pillai v. M.D.G.S. Pandara Sannadhi  LR 44 IA 98 with regard to the parties to a suit it was an inversion of sound practice for those desiring to rely upon a state of facts to withhold from the court the written evidence in their possession which would throw light upon the issue. This principle was approved by the Supreme Court in Hiralal v. Badkulal, AIR 1953 SC 225 and Gopalkrishnaji v. Md. Haji, AIR 1968 SC 1413. Applying these principles, we do not see any warrant for the proposition sought to be advanced by the learned counsel for the respondent that the impugned agreement had come to an end and, therefore, the restrictive trade practices to which the clauses of the agreement related had also come to an end. The respondent has not rebutted the presumption as to the continuation of the restrictive trade practices started by the agreements.
19. We must also reject the contention advanced by the learned counsel for the respondent that the application of the Registrar for the inquiry was not maintainable because he had failed to set out facts constituting the restrictive trade practices. The application of the Registrar had clearly spelt out four restrictive trade practices set out in the earlier paragraph and he had given reference to impugned paragraphs in the three agreements which related to these practices. It will be our endeavour to examine these allegations and see if any of them are sustained but there is no ground at the outset to reject the application on the mere ground that facts or circumstances had not been set out which would indicate the existence of any restrictive trade practices. If the respondent thought that the particulars contained in the application of the Registrar were insufficient, it could have applied for further and better particulars. The very fact that the respondent did not do so indicates that the respondent was not embarrassed by the insufficiency of particulars. Our decision on the first issue is, therefore, against the respondent and to the effect that the application filed by the Registrar was clearly maintainable.
20. In regard to the second issue, it will be necessary to consider the three agreements separately. The most important of these agreements is the first agreement which we are referring to as the " Home Products Agreement". This agreement was between Messrs. Hind Razor and Blade Company Pvt. Ltd., predecessor of the respondent, and the Home Products Marketing Agency, a Division of Sarabhai Sons Pvt. Ltd., carrying on business, among other places, at 13, Walchand Hirachand Marg, Ballard Estate, Bombay-1. The first question to be determined is whether the transactions between the respondent and the Home Products were on the principal to principal basis or whether Home Products were just agents of the respondent. To start with the learned counsel for the Registrar took up the position that to all intents and purposes. Home Products was the purchaser of goods from the respondent but in the course of the hearing he veered round to the position that Home Products were the agents of the respondent but the agreement between the respondent and the Home Products none the less gave rise to restrictive trade practices. Before we go to examine the restrictive nature of the trade practices, we would state that on going through the agreement we are satisfied that Home Products was essentially an agent of the respondent. The Home Products had exclusive rights for the distribution and the sale of the respondent's products under the brand name of "Swish" and " Platinex ". Clause 2 makes it clear that the respondent were not to sell the said products under the brand names " Swish " and "Platinex" through any other distributor or selling agents in India.
Clause 3 made it clear that Home Products were to receive the stocks at their premises on consignment account for sale on behalf of the company. According to Clause 4, the legal title to the products in the godowns of the Home Products was at all times to remain vested in the respondent. Clause 7 provided that Home Products were to be responsible for advertising and promoting the sales of the said products but the promotion budget was to be fixed by the respondent. The advertising and promotion expenses incurred by the Home Products by themselves were to be deducted by them from the remittances to the respondent. Home Products were to sell the products at such prices only as were fixed by the respondent from time to time and were not to offer the products for sale at any other price unless specifically authorised by the respondent in this behalf. There was provision for direct sales by the respondent to Government departments but Home Products were entitled to overall commission of 5% on these sales. The premium for insurance on the stocks lying with the Home Products was to be charged to the respondent. Home Products were to submit to the respondent each month a statement of stocks on hand, sales made and any expenses incurred. On termination of the agreement, the Home Products were to return to the respondent the goods in consignment stocks remaining unsold with them.
21. Reading the agreement as a whole with particular reference to these provisions, we are of the view that Home Products were really the selling agents of the respondent and that the property in the goods sent to Home Products on consignment basis remained with the respondent till the goods were sold and delivery was given by Home Products to the customer.
22. The next question that arises is whether in respect of an agreement between the respondent and its selling agent, any restrictive trade practices could be said to arise. Clauses impugned in these agreements have been reproduced earlier. The question is whether any of the clauses could relate to any restrictive trade practice arising out of the arrangement between the respondent and the selling agent, i.e., between the principal and the agent. The learned counsel for the Registrar referred to the provisions of Sections 33(1)(a), 33(1)(c) and 33(1)(f) but the last two of these clauses would not apply to the transactions covered by the clauses in the agreement while in a somewhat indirect manner Section 33(1)(a) would be attracted. The agreement clearly does not restrict persons or class of persons to whom goods are sold by the respondent. Clause 2 of the agreement only restricts the agency through which the goods can be sold. However, Clause 5 does restrict the persons or class of persons from whom goods are bought. Home Products are not buying any goods from the respondent but, according to Clause 5 of the agreement they undertook not to deal directly or indirectly with similar products of any other company. This would include an undertaking not to purchase directly or indirectly similar goods of any other company. To this extent Clause 5 is restrictive in nature under Section 33(1)(a). Section 33(1)(c) is clearly not applicable because the agreement is not concerned with a purchaser at all and the application of Section 33(1)(c) would not, therefore, arise. The contention of the learned counsel for the Registrar that Section 33(1)(c) should be broadly interpreted, cannot be accepted in view of the clear terms of the sub-section. Similarly, Section 33(1)(f) would also not apply because there is no sale of any goods under the agreement and, therefore, there is no occasion for resale of goods and it is only in the case of resale of goods that Section 33(1)(f) can come into operation. Under Section 33(1), therefore, Clause 5 could be treated as restrictive in character. In view of the decision of the Commission in the cases of Bengal Potteries--R.T.P. Enquiry 6 of 1972, M.R.T.P.C. Order dated 6-4-1974 and Telco--R. T. P. Enquiry 1 of 1974, M.R.T.P.C. Order dated 25-7-1975 (See 46 Comp Cas 470)--the trade practice to which Clause 5 related, would become restrictive even under Section 2(o).
23. The learned counsel for the Registrar next contended that apart from Section 33(1) the trade practices to which the impugned clauses related, were restrictive under the provisions of Section 2(o) itself.
According to him, the practice of appointing sole selling agent with whom the respondent had exclusive dealings, had the effect of preventing, distorting or restricting competition. According to him, if there were more than one agent, there would be competition between them and this competition would lead to lessening of prices which would ultimately benefit the consumer. Secondly, according to him, if the agents were allowed to handle goods of other companies, the agents would be able to play off one manufacturer against the other and thereby force all of them to reduce the prices. He went on to contend that there was no bar in law to one person being an agent of several principals.
24. The learned counsel for the respondent, on the other hand, contended that there was no possibility of any price reduction by the agent because, according to Clause 8 of the agreement, the selling agent could sell the products only at such prices as may be fixed by the respondent from time to time and it could not offer the respondent's products for sale at any other price unless specifically authorised by the respondent in writing to do so. He also contended that the respondent had to conduct its business in the face of opposition from a monopolistic group known as Malhotra Group who dominated the industry and controlled about 80% of the Indian market of the safety razor blades. Another competitor, viz., M/s. Sharp Edge Limited, was an associate of a big conglomerate called Hindustan Lever which had at its disposal the marketing organization of that group. To hold its own against these two giants and to make any headway, the respondent had necessarily to avail of a marketing organisation with exclusive interest in the respondent's products. He pointed out that when the agreement was entered into the respondent's share in the market was only 5% while even in 1974, it was only about 9%. The share of the Malhotras was much more than 75% while even that of Sharp Edge was more than that of the respondents. In this context, according to the learned counsel for the respondents there was no danger whatsoever of limitation, restriction or distortion of competition from the side of the respondents by reason of the exclusive arrangements with Home Products. On the contrary, according to him, the arrangement made the competition more effective by making the agent concentrate on the products of a manufacturer whose share in the market was quite low. Any other arrangement without exclusiveness would have clearly weighed in favour of the larger manufacturers and would have limited, restricted or distorted competition. In regard to the selling agent being the sole selling agent the learned counsel contended that the selling agent was an agent only and he could not change the price at which the products were to be sold. There was, therefore, no possibility of competition being affected by reason of the fact that there was only one agent. He also pointed out that in U.K., selling agency agreements were not frowned upon and even in U.S.A., where the law was stricter than in U.K., the practices arising out of agency agreements were not looked askance at.
25. Although as stated earlier, Clause 5 of the Home Products Agreement was restrictive from the point of view of Section 33(1)(a), we consider it necessary to examine whether any of the clauses of the Home Products Agreement was restrictive in the light of the provisions of Section 2(o). It is now common ground that the agreement was essentially an agency agreement but the tests laid down in Section 2(o) have to be applied even to agency agreements. It is true that under the U.K. law, i.e., Section 8(3) of the 1956 U.K. Act, agency agreements would be outside the ambit of the U.K. law. "As a matter of fact, that provision is much wider and covers many bilateral agreements. It is also true that in certain respects U.S. decisions have excluded agency agreements from the rigours of anti-trust law. We are also aware that in the European Community Law the transactions with commercial agents have been kept out of the anti-trust net. But we have to examine the implications of the Indian law as it stands today and, in the light of that law, we have to see whether the agency agreements affected competition.
26. Applying that test we have to analyse the agreement before us from two angles. Firstly, because it is a sole selling agency agreement and, secondly, because it is an exclusive selling agency agreement. As far as the sole agency part is concerned the impact on competition would depend on the terms of a particular agreement. If, for instance, the agent is a complete agent without any discretion about price or terms of trade the impact on competition would be nil because whether there is one agent or there are many agents, the effect on prices and terms of trade would be nil. If as the learned counsel for the respondent contended, Clause 8 of the agreement bound down the agent to sell the goods at prices fixed by the respondent, there would be merit in his contention that the effect on competition could be ignored. But as we read the agreement, Clause 9 of the agreement provided that the selling agent" could allow the main dealers discount up to 5% on prices fixed by the respondent. Clause 7 of the agreement also provided for special additional discounts to the main dealers over and above the normal discounts. This leaves the selling agent room for manoeuvre not only up to 5% of the price but even more. If instead of one selling agent there were two or more selling agents it was quite on cards that competition between them would increase the discount up to 50% while if there was only one selling agent the discount would be as much below 5% as the conditions of market would permit. The number of selling agents would; therefore, affect, albeit to a limited extent, intrabrand, i.e., competition in respect of goods manufactured by the respondent.
27. In regard to the exclusive aspect of the selling agency we are inclined to agree with the learned counsel for the respondent that apart from reference to Section 33(1)(c) no facts or circumstances are indicated by the Registrar which would give grounds for the inference that the arrangements did or were likely to limit, restrict or distort competition in the. industry as a whole. On the other hand, the basic features of the industry, as pointed out by the learned counsel, clearly show that for a concern of the respondent's size, whose production did not exceed 10% of the supplies to the market, pitted against a dominant undertaking having more than 75% share of the market and a giant conglomerate having as large, if not larger, share of the market than the respondent, an exclusive arrangement was an imperative requirement for the survival of the respondent and for keeping the embers of competition burning in the industry. There was also the stark fact of large quantities of foreign blades being smuggled into the country which made the competition more difficult for the respondent.
It is true that on evidence on record, the respondent had not established that Malhotras had any exclusive arrangements with their distributors. But the fact remained that these distributors were inter-connected undertakings and considering the dominant and even commanding position of the group in the industry, there can be no danger to their competitive capacity by reason of any arrangement of the respondent. On the other hand the danger from this group to the respondent's capacity to survive was quite clear and an unmistakable indication thereof was given by the manner in which Malhotras defeated the plans of the respondents to have collaboration with Permashar, Australia. We are also unable to accept the contention of the learned counsel for the Registrar that the goods manufactured by the respondent could be distinguished from the goods manufactured by Malhotras or Sharp Edge. The market for the blades was a common and unified market and the choice of the consumers was determined by the quality of the blades which included the nature of services given by the blades and duration of that service. Subject to the variations of the quality, blades manufactured by all the manufacturers constituted a common market and the competition in the light of which the arrangements had to be examined was competition in the market for blades as a whole. It is on this basis that we are inclined to accept the contention of the learned counsel for the respondent that the exclusive aspect bf the arrangement did not limit, restrict or distort competition in the blade industry.
28. Coming to the "Barar Agreement", Clause 12 of the agreement, which has been reproduced earlier, was clearly restrictive in character. The learned counsel for the Registrar contended that it came clearly under the provisions of Sections 33(1)(a) and 33(1)(c) and that apart from these provisions it clearly limited, restricted or distorted competition by prohibiting Barar from buying blades from any source other than the respondent. From the respondent it could secure specified quantities of blades to be sold under the name "Morning Star" but it could not sell blades even under other brands because it cannot secure them from any other source. The other suppliers of blades would be denied that outlet and accordingly there was clear limitation, restriction or distortion of competition. The learned counsel for the respondent contended that the agreement was essentially a manufacturing agreement; that the respondent wanted to concentrate on production undisturbed by the problems of marketing of these products; that it had to ensure that its production would be lifted according to schedule ; that in order to ensure this it had to insist that Barar fulfilled certain conditions and did not look to other sources of supply. At this stage we are not concerned with the advantages, if any, of the arrangement between the respondent and Barar. All we are concerned is the effect on competition in the trade and from that point of view we have no doubt at all that the arrangement was restrictive in character not only in the light of the provisions of Sections 33(1)(a) and 33(1)(c), but also from the point of view of Section 2(o).
29. Coming to the Union Carbide Agreement reliance has been placed by the Registration Clause 21 of the agreement which has been reproduced earlier. It has been the allegation of the Registrar that provisions restricted Union Carbide from making investment or installing manufacturing facilities for the manufacture of razor blades in the country. The idea probably was to bring the arrangement within the provisions of Section 33(1)(g) or Section 33(1)(h). The learned counsel for the respondent, on the other hand, pointed out that there was no restriction embodied in the- impugned clauses; that it was only for giving advance notice to the respondent so that they could adjust their plan of production accordingly, that the clause implied clearly that Union Carbide was well within its rights to make any investment or install manufacturing facilities for razor blades; that before doing so, it should give only advance notice to the respondent and that such a condition could not be considered as resulting in any restrictive trade practice.
30. We are inclined to uphold the contentions put forward by the learned counsel for the respondent in regard to the Union Carbide Agreement. Reading the agreement as a whole and Clause 21 as an integral part of it, we are unable to see in it any restrictive provision. All that clause requires is that if and when Union Carbide wanted to start production of their own, they should give the respondent six months' notice. The period of notice was also extremely reasonable having regard to the time required for gearing up the respondent's own production plans to the requirements of Union Carbide or for reversing and readjusting its plans in the event of Union Carbide ceasing to patronise it. Moreover there is no suggestion whatsoever in the provisions for any prohibition or outright ban or even any limited ban on Union Carbide starting the production of blades. Ail-that was insisted upon was prior notice of the intention of Union Carbide to start production so that the respondent could either reduce their production or look for any other customer. This provision would not come within the mischief of Section 33(1)(g) or Section 33(1)(h) nor did it, as it stood, limit, restrict or distort competition in the industry. We are, therefore, unable to uphold the contention put forward on behalf of the Registrar, that the clause in question related to any restrictive trade practice.
31. Our decision on issue No. 2 is, therefore, that Clauses 2 and 5 of the Home Products Agreement related to restrictive trade practices; that Clause 12 of the "Barar Agreement" also related to restrictive trade practice and that Clause 21 of the Union Carbide Agreement did not relate to any restrictive trade practice.
32. Coming to issue No. 3it will be convenient to take Clause 5 of the Home Products Agreement first. We have held that it is hit by Section 33(1)(a) but we have also held that considering the salient features of the blade industry, the exclusive dealing arrangement between the respondent and Home Products did not in any manner limit, restrict or distort competition. We must also emphasise that the respondent was free to distribute brands other than Platinex and Swish as it liked and as a matter of fact it contracted to supply large quantities of blades to other brand holders. Moreover the exclusive arrangement was confined only to an intermediate outlet and not to any final outlet to the consumers. The respondent would, therefore, be entitled to the protection of Section 38(1)(h) because the restriction, if any, did not directly or indirectly restrict or discourage competition to any material degree in the relevant trade and was not likely to do so, so long as the pattern of trade remained the same.
33. We are, however, unable to uphold the contention of the learned counsel for the respondent that it is entitled to the protection of Clauses 36(1)(b), (c), (d), (e) or (g). No doubt, due to the exclusive arrangement with Home Products, the respondent was sure to have a steady market for a large part of its product and this security enabled it to concentrate on research and development, improve the quality of the product, introduce new methods of production like the sputtering process and even to start manufacture of blade making machinery. These advantages would in the long run benefit the industry and also the consumer, but on the material available on record, it was not possible to ascertain the exact degree of advantages relatable to the restriction or the degree of advantages enjoyed by the consumers by reference to the restrictions. Much less is it possible to say that the benefits are either specific or substantial. Section 38(1)(b), therefore, will not be available to the respondent. In regard to Section 38(1)(c), while we have no doubt taken note of the dominant position of Malhotras and the necessity for the respondent for exclusive dealing while determining the impact on competition in the trade as a whole, we are unable to extend the protection of Section 38(1)(c) because there is no evidence about the specific measures taken by Malhotra Group to which exclusive arrangement entered into by the respondent, could be related. The protection under Section 38(1)(c) calls for a precise relationship between the measures taken by a monopolist in the trade and the restrictive trade practice adopted as a defensive measure by the party claiming the protection of Section 38(1)(c). In the absence of such a precise relationship protection under Section 38(1)(c) cannot be given although the general layout of the market structure would enable, as it has enabled in the present case, the claimant to have the protection of Section 38(1)(h). In regard to Section 38(1)(d), the reference by the respondent to that section seems to be misconceived. There is no occasion for the respondent negotiating with a preponderant supplier or with a preponderant buyer. The question of granting protection of Section 38(1)(d) to the respondent, therefore, did not arise. In regard to Section 38(1)(e) the respondent has made a reference to its employment potential at Aurangabad in the Marathwada District of the State of Maharashtra in which its factory is situated. But the protection under Section 38(1)(e) is available only if the restriction has the effect on general level of unemployment in an area in which substantial proportion of the trade is situated. Moreover, the restriction imposed should be responsible for avoiding serious and persistent adverse effect on the level of unemployment. In the present case it is nobody's case that in Marathwada a substantial propartion of the blade industry is located. As a matter of fact it is the respondent's own case that it is responsible for less than 10% of the total production of blades.
There is also no material to indicate that the removal of restriction could have a serious and persistent adverse effect. The respondent is, therefore, not entitled to the protection of Section 38(1)(e). Same is the position regarding Section 38(1)(f) because admittedly the volume of exports effected by the respondent was not substantial either in relation to the whole export business of India or in relation to the whole business including export business of the blade industry. The respondent is, therefore, entitled only to the protection of Section 38(1)(h) in respect of Clause 5.
34. In regard to Clause 2, the same is confined to intrabrand competition. The considerations which weighed with us for holding that intrabrand competition would not be affected by the exclusive dealings, would apply also in case of intrabrand competition vis-a-vis the sole selling agency. As pointed out earlier, the range of price in which the selling agents could compete, was only 5% and the total turnover for the respondent's products was only 9% of the total turnover of the blade industry. The range of price within which the competition could be contained could be very limited and the extent of the trade in blades, which would be affected, would be negligible. The respondent would, therefore, be entitled to the protection of Section 38(1)(h) even in respect of Clause 2 of the Home Products agreement.
35. In regard to Barar Agreement, we are not at all satisfied that the respondent is entitled to protection under any of the clauses under Section 38(1). The reasons which weighed with us in rejecting the respondent's claim for protection under Section 38(1)(b), (c), (d), (e) and (f) in respect of the Home Products agreement hold good also in respect of the Barar Agreement. As a matter of fact Clause 2 of the Barar Agreement guaranteed to the respondent that Barar would lift certain specified quantities of blades from the respondent for a period of five years. Even increase or decrease in the quantities was permissible subject to mutual consent of the parties. All the advantages as claimed from Clause 12 would have accrued to it by virtue of Clause 2. On the other hand Clause 12 forbade Barar from making purchase of blades from any other party, whether for brand name ' Morning Star' or for other brand names. They, shut them out from canvassing custom of other producers and there was no adequate justification for this restriction. Apart from the fact that it was not necessary for securing to the respondent the advantages that they claimed, the restriction foreclosed the outlet for other producers. The restriction was, therefore, not confined to the production of the respondent but to the production of other manufacturers to the extent that they could hot channelise their sales through. Barar, Moreover, this was essentially a manufacturing agreement so that the grounds which justified exclusive arrangement of the respondent with their selling agents, viz., Home Products could not be pressed in service to defend the Barar Agreement. This is particularly, so because as far as the lifting of specified quantities was concerned, the same was guaranteed by Clause 2 of the agreement. We are, therefore, unable to extend to Clause 12 of the Barar Agreement the protection of any of the Sub-clauses of Section 38(1).
36. Our decision on issue No. 3 is, therefore, that Clauses 2 and 5 of the Home Products Agreement are entitled to the benefit of Section 38(1)(h) only and that Clause 12 of the Barar Agreement is not entitled to protection of any of the clauses of Section 38(1).
1. We declare and direct that Clause 12 of the agreement entered into by the respondent with Barar & Co. shall be void in respect of the restrictive trade practice therein contained and we direct that such practice shall not be repeated.
2. The respondent shall pay to the Registrar costs of these proceedings fixed at Rs. 1,000.