Case: M/S Voltas Limited, Bombay Vs. Union Of India &amp; Ors

to the public interest. 14. At this stage it shall be proper to refer to Section 38 of the Act. Sub-section 1 of Section 38 also contains a statutory fiction because it says that for purposes of any proceedings before the Commission under Section 37, a restrictive trade practice shall be deemed to be prejudicial to the public interest unless the Commission is satisfied of any or more of the circumstances specified in clauses (a to (k) of sub-section 1 of Section 38. The scheme of the Act appears to be that first it specifies some trade practices, under sub-section 1 of Section 33, as restrictive trade practices. Then it has prescribed a forum under Section 37, to inquire as to whether any such trade practice is prejudicial to the public interest. This question has to be examined in the light of Section 38 which in many judgments have been described as gateways. In other words, inspite of a finding that a particular agreement contains a clause which is related to a restrictive trade practice, if the Commission is satisfied in respect of the existence of any of the circumstances specified in clauses (a) to (k) of sub-section 1 of Section 38, no order under Section 37 is to be passed to desist or discontinue such practice or to declare any part of the agreement as void. One of the circumstances specified in clause (h) of sub-section 1 of Section 38 is:- "38.(1)(h ) that the restriction does not directly or indirectly restrict or discourage competition to any material degree in any relevant trade or industry and is not likely to do so;If the Com mission is satisfied that any practice which has been held to be restrictive trade practice does not directly or indirectly restrict or discourage competition to any material degree in any relevant trade or industry then it can resist passing any order under Section 37 directing the per son concerned to desist or to discontinue the practice. It may be mentioned that in connection with old sub-section 1 of Section 33 in the case of Tata Engg. and Locomotive Co. (supra) this Court point ed out that the exclusive dealings do not impede competition but promote it. It was said:-"The exclusive dealings do no impede competition but promote it. Such dealings lead to specialisation and improvement in after-sales service. The exclusive dealership agreements do not restrict distribution in any area or prevent competition. The customer has the choice of buying any make he like s. The advantage of exclusive dealership is that a dealer specialises in his own type of vehicles with all the attending advantages of trained personnel. special service stations, workshops and spare parts." * It was also said that by specialising in each make of vehicle and providing the best possible service that the competition between the various makes is enhanced. In that connection it was also said:- "By making its dealers exclusive to Telco, there cannot be said to be any prevention, distortion or restriction of competition in the territory in which a dealer operates, either between manufacturers of the same type of vehicles or between dealers in these vehicles. Any manufacturer of vehicles such as those of Telco may manufacture and sell its vehicles in a territory in which Telcos dealers operate. Any other manufacturer of vehicles similar to those of Telco is also free to appoint dealers of its choice in the same territory covered by Telco, dealers.The channels for outlet for vehicles have not been blocked by the fact that the dealers appointed by Telco arc exclusive to Telco nor it can be said that Telco has by its exclusive arrangement with its dealers affected the flow of supplies of vehicles into the market." * Again in the case of Mahindra and Mahindra Ltd. v. Union of India (supra), it was said that after the Commission is satisfied in respect o f restrictive trade practices then it has to proceed to consider whether any of the gateways provided in Section 38(1) exist so that the trade practice, though found restrictive, is deemed not to be prejudicial to the public interest.15.In the light of what has been said above, if the order of the Commission is examined, it shall appear that the Commission has set out briefly the facts of 15 cases. Then the Commission has pointed out that the Director General in support of his case has tendered the various agreements. Thereafter reference has been made to the affidavits file on behalf of the appellant and other documents. The real discussion is only in para 40 of the Order under appeal which is as follows: "We have gone through voluminous records and pleadings pertaining to these enquiries, evidence produced by the parties, oral arguments, written submissions and cases referred to by the p arties and are of the view that no case for gateways under Section 38(1), as pleaded, has been made out by the Voltas in these proceedings. Likewise the manufacturer Simtools Limited in RTP Enquiry No.483 of 1987 has also failed to make out any case for the gateways. Therefore, we hold that the respondents have indulged into the restrictive trade practices, as alleged in t he Notice of Enquiry, and those practices arc prejudicial to the public interest in each of the 15 enquiries." * 16. According to us, the Commission was required to go deeper into the matter and to record findings in respect of different agreements whether the objectionable clauses of the registered agreements were prejudicial to the public interest. It need not be impressed that any finding recorded by the Commission under Section 37 and direction given in terms of clauses (a) and (b) of sub-section 1 of Section 37 has a far reaching effect. As such every aspect of the matter is required to be examined in the light of the provisions of Sections 37 and 38 of the Act before an order to cease and desist is passed by the Commission.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]From the facts of that case, it will appear that Tata Engg. and Locomotive Co. (hereinafter referred to as the TELCO) used to sell vehicles and had of its own initiative introduced certain procedures for distribution of its vehicles. It had notified to its dealers the maximum price for each model of vehicle which they can charge from consumers. When the vehicles were sold it was the responsibility of TELCO to provide facilities for servicing and repairing of the vehicles marketed by it. For that, after sale services had been provided for in different parts of the country It had a net work of dealers service centres and zonal offices. An application was filed by the Registrar, Restrictive Trade Agreements, under Section 10(a)(iii) of the Act before the Commission, for inquiry under Section 37 of the Act into restrictive trade practices alleged therein. Special grievance in respect of territorial restriction and allocation of area or market for exclusive dealership was made. It was pointed out to the Commission by the Registrar, Restrictive Trade Agreements, who had then the power to file an application before the Commission under Section 10(a)(iii) that some of the clauses of the dealership agreement, imposed restriction on the dealers in respect of territories, the maximum price at which goods could be resold, and in respect of dealing in products of other manufacturers which amounted to restrictive tradeCommission held that the practice of allocation of territories to Telcos dealers was not justified.But now with the amendment of man part of sub-section 1 of Section 33 with a statutory fiction the situation has changed. It can be said that clauses (a) to (1) of Sub-Section 1 of Section 33 provide statutory illustrations of restrictive trade practices. The framers of the Act have now in clear and unambiguous words said that every agreement falling within one or more of the categories specified in clauses (a) to (1) of sub-section 1 of Section 33, shall be deemed for the purposes of the said Act, to be an agreement relating to restrictive trade practices and shall be subject to registration in accordance with the provisions of Chapter V. Now it is no more open to the Commission or to this Court to test and examine any of the trade practices mentioned in clauses (a) to (1) of sub-section 1 of Section 33 in the light of Section 2(o) of the Act, for the purpose of recording a finding as to whether those types of trade practices shall be restrictive trade practices within the meaning of Section 2(o) of the Act. This exercise has to be done only in respect of such trade practices which have not been enumerated in any of the clauses from (a) to (1). Only such trade practices have to be examined in the light of Section 2(o) of the Act, as to whether they amounted to restrictive trade practices. It need not be pointed out that both judgments aforesaid of this Court interpreted the scope of sub-section 1 of Section 33, as it stood prior to the amendment by Act 30 of 1984. But after the amendment of sub-section 1 of Section 33 if an agreement falls within one of the clauses of the said sub-section, specifying a restrictive trade practice, then it is no more open to the Commission or to the Court to say that it shall not amount to restrictive trade practice. Trade practices enumerated in clauses (a) to (1) of sub-section (1) of Section 33 shall be deemed to have now been statutorily determined and specified as restrictive trade Practices. Neither the Commission nor the Court can question the wisdom of the Parliament for having statutorily determined certain trade practices as restrictive trade practices unless in this process there is contravention of any of the provisions of the Constitution. In this background, if any agreement contains a trade practice which falls in any of the clauses of sub-section 1 of Section 33 then such trade practice shall be deemed to be restrictive trade practice and such agreement has to besuch persons who have got their agreements registered on their own in order to escape prosecution, although in such agreements there may not be any clause relating to restrictive trade practices, cannot urge before the Commission, after having got the agreements registered, that they do not contain any clause relating to any restrictive trade practice. On the other hand, persons who for one reason or other have not got their agreements registered under Section 35, will be in an advantageous position inasmuch as in respect of their agreements, Commission will have to examine both aspects (i) whether the agreement relates to any restrictive trade practice (ii) even if it relates to restrictive trade practice, whether the said practice is prejudicial to the public interest. It is true that under Section 37, the Commission has been vested with the power to inquire in respect of agreements which have been registered under Section 35 as well as those which have not been registered. But the fact remains that once the Commission is satisfied that a particular agreement which has not been registered under Section 35, falls within any of the clauses from (a) to (1) of subsection 1 of Section 33, then no further inquiry is to be done, as to whether such agreement relates to restrictive trade practices or not. The statutory fiction incorporated in sub-section 1 of Section 33 shall also be applicable in respect of such agreements apart from the penalty provided under Section 48 of the Act. As such there is not much scope for discrimination between persons who have got their agreements registered and those who have no t got their agreementsto us, there is no conflict between Sections 2(o) and 33(1). Clauses (a) to (1) of sub-section 1 of Section 33 specify such trade practices which have been statutorily recognised as restrictive trade practices. But there may be other trade practices, not covered by clauses (a) to (1) of sub-section 1 of Section 33, which can be examined by the Commission in the light of Sectionto us, in this respect a decision has to be taken by the person who is a party to the said agreement whether to get such agreement registered under Section 35. But once he gets the agreement registered, then he is debarred from questioning whether contains any clause relating to a restrictive trade practice. Sub-section 1 of Section 33 specifies in different clauses various types of trade practices, which have now been recognised as restrictive trade practices. Any person who is a party to any agreement has to examine the agreement in light of those clauses. If according to such person, the agreement in question does not contain any clause relating to any of the restrictive trade practices specified in clauses (a) to (1), such person need not get the agreement registered under Section 35. He will be at liberty to satisfy the Commission on that question. But once the agreement is registered, then such agreement cannot be inquired into by the Commission, for the purpose as to whether it relates to any restrictive trade practice; of course inspite of registration of the agreement, the person concerned can satisfy the Commission that such practice is not prejudicial to the publicinterest.15.In the light of what has been said above, if the order of the Commission is examined, it shall appear that the Commission has set out briefly the facts of 15 cases. Then the Commission has pointed out that the Director General in support of his case has tendered the various agreements. Thereafter reference has been made to the affidavits file on behalf of the appellant and other documents. The real discussion is only in para 40 of the Order under appeal which is ashave gone through voluminous records and pleadings pertaining to these enquiries, evidence produced by the parties, oral arguments, written submissions and cases referred to by the p arties and are of the view that no case for gateways under Section 38(1), as pleaded, has been made out by the Voltas in these proceedings. Likewise the manufacturer Simtools Limited in RTP Enquiry No.483 of 1987 has also failed to make out any case for the gateways. Therefore, we hold that the respondents have indulged into the restrictive trade practices, as alleged in t he Notice of Enquiry, and those practices arc prejudicial to the public interest in each of the 15 enquiries."According to us, the Commission was required to go deeper into the matter and to record findings in respect of different agreements whether the objectionable clauses of the registered agreements were prejudicial to the public interest. It need not be impressed that any finding recorded by the Commission under Section 37 and direction given in terms of clauses (a) and (b) of sub-section 1 of Section 37 has a far reaching effect. As such every aspect of the matter is required to be examined in the light of the provisions of Sections 37 and 38 of the Act before an order to cease and desist is passed by the Commission.