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Registrar of Restrictive Trade Vs. Rallis India Ltd. and anr. - Court Judgment

LegalCrystal Citation
CourtMonopolies and Restrictive Trade Practices Commission MRTPC
Decided On
Judge
AppellantRegistrar of Restrictive Trade
RespondentRallis India Ltd. and anr.
Excerpt:
.....a manner as to impose on the consumers unjustified costs and restrictions." 5. on the basis of the registrar's application, a notice of enquiry was issued to the respondents referring, inter alia, to the allegations made in the application. the respondents thereafter filed memorandum of appearance on 19th november, 1974. both the respondents filed their replies, which they described as written statements, on 30th january, 1975. the registrar filed his rejoinder on 13th march, 1975, and thereafter applied for directions to the respondents. the commission by its order dated the 18th april, 1975, gave directions to the respondents for furnishing certain further and better particulars and permitting the registrar to deliver interrogatories to respondent no.2. the respondents were also.....
Judgment:
1. These are applications by the respondents praying that some of the issues framed in the inquiry by the Commission's order dated the 26th March, 1976, should be treated as preliminary issues and disposed of without taking any evidence, as pure questions of law. It is stated that on a true construction of the provisions of the Monopolies and Restrictive Trade Practices Act and/or the Companies Act, 1956, an arrangement between a holding company and a subsidiary company cannot constitute a restrictive trade practice at all, and that, in any event, an arrangement whereby a holding company siphons off the profits of its subsidiary or reaps the profits of its subsidiary could not, even if the said allegation is true, constitute a restrictive trade practice.

It is contended that in the circumstances an inquiry into the allegations contained in paragraph 10 of the application by the Registrar of Restrictive Trade Agreements (hereinafter referred to as " the Registrar ") was beyond the jurisdiction of the Commission and that the said allegations should be struck off. In the alternative, it is prayed that the question whether or not the allegations contained in paragraph 10 or the allegations contained in the first part of the sentence in paragraph 10 can constitute a restrictive trade practice in law should be determined as a preliminary issue.

2. Respondent No. 1 is a public limited company doing, inter alia, business as distributors. Respondent No. 2 is the manufacturer of portable electric tools, valve refacers and stands, etc. (collectively known as " wolf " industrial equipment). Respondent No. 2 is a subsidiary of respondent No. 1, who holds 60% of the equity capital of respondent No. 2. The balance of 40% of the equity capital is held by Wolf Electric Tools (Holdings) Ltd., U.K.3. By an application dated the 13th September, 1974, the Registrar made two sets of allegations. One set of allegations related to the agreement between respondent No. 1 and some of its distributors. The other set of allegations related to the appointment by respondent No. 2 of respondent No. 1 as sole distributors of its products for the Union of India and Nepal. We are not concerned in these proceedings with the first set of allegations because the Commission has already passed an order relating thereto on 20th February, 1976. In regard to the second set of allegations with which we are concerned in these proceedings, the Registrar particularly drew attention to clauses 2, 3, 4, 5 and 6 of the agreement, which read as under : "Clause 2: The manufacturer will sell to the distributor the electric tools manufactured as aforesaid at such prices, less discounts and other usual terms as may be mutually agreed upon from time to time. The distributor shall be at liberty to sell the products to the dealers at any prices fixed by the distributor.

Clause 3: The distributor will during the continuance of this arrangement use its best endeavours to sell or secure buyers within the territory for the products.

Clause 4: The distributor does not undertake to absorb the full output of the manufacturer's factory. The manufacturer shall be entitled to appoint alternative or additional distributors for the whole or any part of the territory if the distributor is not absorbing a satisfactory portion of the manufacturer's output.

Similarly, the manufacturer may appoint alternative or additional distributors for the whole or any part of the territory in the event of the distributor relinquishing its distributorship over any portion of the territory.

Clause 5 : The distributor shall take delivery of the electric tools sold to them within such period as may be mutually agreed and shall pay for the same within 30 days of the date of actual delivery of the electric tools to or to the order of the distributor.

Clause 6: The distributor shall be responsible for advertising and publicity." 4. The Registrar made the following allegations in paragraph 10 of his application: " That having regard to the holding-subsidiary relationship between respondent No. 1 (Rallis India Ltd.) and respondent No. 2 (Ralliwolf Ltd.). the arrangement entered into between these parties for sale/distribution of the products of respondent No. 2 by respondent No. 1 is an arrangement to siphon off the profits of respondent No. 2 and is a device to reap the profits by respondent No. 1. The arrangement is a restrictive trade practice and has the effect of keeping the resale price higher than the prices that are likely to obtain in the absence of such arrangement and it also brings about/tends to bring about manipulation of prices and conditions of delivery and affects the flow of supplies in the market in a manner as to impose on the consumers unjustified costs and restrictions." 5. On the basis of the Registrar's application, a notice of enquiry was issued to the respondents referring, inter alia, to the allegations made in the application. The respondents thereafter filed memorandum of appearance on 19th November, 1974. Both the respondents filed their replies, which they described as written statements, on 30th January, 1975. The Registrar filed his rejoinder On 13th March, 1975, and thereafter applied for directions to the respondents. The Commission by its order dated the 18th April, 1975, gave directions to the respondents for furnishing certain further and better particulars and permitting the Registrar to deliver interrogatories to respondent No.2. The respondents were also directed to make and file affidavits of documents in terms of Order 11, Rule 13, of the Code of Civil Procedure. Thereafter, respondent No. 1 applied on 8th October, 1975, to the Commission for amendment of its reply and the Commission by its order dated the 20th October, 1975, granted leave to respondent No. 1 to amend its reply, inter alia, by adding paragraph 2-A to its original reply. The new paragraph " 2-A ", added to the reply, read as under : " Without prejudice to the foregoing submissions this respondent states that admittedly the second respondent is a subsidiary of this respondent within the meaning of the expression used in the Companies Act, 1956. The second respondent is also controlled by this respondent within the meaning of the expression in the Companies Act, 1956. This respondent submits that several provisions of the said Act and the Companies Act, 1956, provide for piercing the corporate veil, and the ascertainment of economic realities, and this respondent craves leave to refer to the same. The said provisions treat a holding company and a subsidiary company as constituting one economic entity. The said . provisions treat relations between and transactions between a holding company and a subsidiary company differently as compared to the treatment of the relations and transactions between wholly unconnected entities. It is, therefore, submitted that the respondents are in law for the purposes of this Act one economic entity or enterprise and/or should be deemed to be one economic entity or enterprise and no agreement or arrangement between the respondents can constitute an agreement or arrangement between undertakings or an agreement or arrangement which can effect competition in any manner whatever within the meaning of the said Act. This respondent, therefore, submits that, assuming whilst denying that the allegations in paragraph 10 of the said application are correct, the same cannot constitute a restrictive trade practice within the meaning of this Act. It is further submitted that the Commission is not entitled to and has no jurisdiction to hold an inquiry under section 10 or 37 of the said Act unless the respondents are carrying on a trade practice which is a restrictive trade practice within the meaning of the said Act and a finding to that effect is a condition precedent to the holding of an inquiry or exercising any powers under either of the said sections. It is submitted that the allegations contained in paragraph 10 of the said application are entirely beyond the jurisdiction of the Commission and/or the provisions or scope of the said Act and the same ought, therefore, to be struck off." 6. The Registrar filed supplementary rejoinder dated the 10th March, 1976. He applied on 15th March, 1976, for further directions praying, inter alia, for delivery of supplementary interrogatories and requesting that the respondent be ordered to make discovery of certain documents. By its order dated the 26th March, 1976, the Commission issued directions as per the prayers of the Registrar. It also framed the following issues with the consent of the parties : "(1) Whether the inquiry is incompetent or without jurisdiction for the reasons alleged in paragraph 1 or 2(A) of the amended written statement of the first respondent (2) Whether the arrangement referred to in paragraph 10 of the application is an arrangement to siphon off or to reap the profits of the second respondent (3) Whether the arrangement referred to in paragraph 10 of the application has the effect of keeping the resale price higher than the price likely to be obtained in the absence of such an arrangement (4) Whether the arrangement referred to in paragraph 10 of the application brings about or tends to bring about manipulation of prices (5) Whether the arrangement referred to in paragraph 10 of the application brings about or tends to bring about manipulation of conditions of delivery (6) Whether the arrangement referred to in paragraph 10 of the application affects the flow of supplies in the market (7) Whether the arrangement referred to in paragraph 10 of the application imposes on the consumers unjustified costs and restrictions (8) Whether the arrangement alleged in paragraph 10 of the application constitutes a restrictive trade practice in law or in fact (a) Whether the said arrangement is reasonably necessary to protect the public against injury in connection with the consumption, installation or use of the goods and is not an unreasonable restriction within the meaning of section 38(1)(a) of the Act (b) Whether the removal of the said restriction would deny to the public as purchasers, consumers and users of the said machine tools specific and substantial benefits and advantages referred to in para. 33 of the reply and whether the said restriction is not unreasonable within the meaning of section 38(1)(b) of the said Act? (c) Whether the restriction does not directly or indirectly restrict or discourage competition to any material degree and is not likely to do so and is not unreasonable within the meaning of Section 38(1)(h) of the said Act 7. The respondents thereupon filed the applications under consideration and the learned counsel for the respondents in support of their applications contended that either the allegations contained in paragraph of the Registrar's application should be completely ignored or struck off as provided for under Order 7, Rule 11 of the Code of Civil Procedure, since they did not show any cause of action or, in the alternative, that issues relating thereto should be disposed of as preliminary issues as provided for in Order 14, Rule 2 of the Code of Civil Procedure. He pointed out that under the latter rule an issue could be disposed of as a preliminary issue even if it could resolve only part of the dispute. He referred to Pratap Singh Kairon v. Gurmej Singh, AIR 1958 Punj 409 and Patel Premji Jivraj v. Patel Shantilal Kanji [1966] 7 GLR 931, to contend that the provisions of Order 14, Rule 2, of the Code of Civil Procedure, were mandatory once the conditions laid down were satisfied. He also contended that the issues referred to in the respondents applications and relating to paragraph 10 of the Registrar's application were pure issues of law, that in the event of issues being decided in favour of the respondents the whole inquiry can be disposed of, that there will be no prejudice to either party or the Commission since in any case the issues will have to be adjudicated upon some time or the other and that by deciding the issues as preliminary issues considerable effort, expenditure and hardship could be avoided to the respondents. He accepted that the order of the Commission was appealable to the Supreme Court but pointed out that almost all civil matters were appealable to higher courts and the mere fact that the order was appealable would not preclude hearing of certain issues as preliminary issues. He also submitted that the issue raised being an important one it should be disposed of by a full Commission and not by its Bench. He made it clear that he did not dispute the authority of the Bench to decide the matter but pleaded that in view of the importance of the issue a larger Bench should dispose it of.

8. The learned counsel for the Registrar submitted that the Bench was properly constituted and there was, therefore, no justification for postponing the decision of the issue on the ground submitted by the learned counsel for the respondents. She then referred to Regulation 77 and contended that while that regulation made provisions of Orders 11, 12, 13, 17, 18, 19 and 26 of the CPC applicable to the proceedings under Chap. 9 of the Regulations, it deliberately omitted Order 14 on which the learned counsel for the respondents relied. According to her Order 14, Rule 2, was not applicable to the proceedings before the Commission. When her attention was drawn to Regulation 15 which makes the provisions contained in the Code of Civil Procedure applicable mutatis mutandis to the proceedings before the Commission in so far as such provisions were not inconsistent with any of the provisions made in the Act or in the Regula ng to legal implications will be decided as a preliminary issue. It may be pointed out that in the Nylon [1976] 46 Comp Cas 357 (MRTPC) and the Graphite [1976] 46 Comp Cas 422 (MRTPC) cases, referred to earlier, similar situation prevailed and still the Commission thought it proper to dispose of the legal aspets of the issues as preliminary issues. In regard to her objection that the respondents had not accepted the allegations made in paragraphs 10 and 12 it will be seen that the issues as formulated are confined to undisputed facts. These facts are that respondent No. 1 is a holding company, that respondent No. 2 is its 60% subsidiary and that there is an arrangement between the two whereby some profits are earned by respondent No. 1, which but for the arrangement would have accrued to respondent No. 2. The respondents have made it clear in their applications that the last allegation is denied, the question as proposed by them can, therefore, be formulated only on the assumption that the allegation is true and it is on that assumption alone that question No. 2 is treated as a preliminary issue of law.

22. The following issues will, therefore, be heard as preliminary issues in this inquiry: (i) Whether on a true construction of the provisions of the MRTP Act and/or the Companies Act, 1956, an arrangement between a holding company and a subsidiary company cannot constitute a restrictive trade practice at all (ii) Whether an arrangement whereby a holding company siphons off profits of a subsidiary company or reaps the profits of a subsidiary could not in any case constitute a restrictive trade practice 23. After the decision on these issues, the affidavit on behalf of the respondents dated April 19, 1976, relating to interrogatories, will be considered for directions. The case is adjourned to January 17, 1977, for hearing on preliminary issues. I am unable to accede to the prayer of the learned counsel for the respondents that the hearing of the issues be postponed till a bigger Bench is constituted. There are no circumstances of the case which would justify such a postponement. The issues will be heard by the Bench as constituted on that date, i.e., January 17, 1977.


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