Case: Mahindra &amp; Mahindra Ltd Vs. Union Of India &amp; Anr

constitute a restrictive trade practice.There is also another infirmity invalidating the order dated 14th May, 1976. We have already pointed out and that is clear from the decision of this court in the Telcos case [1977] 47 Comp Cas 520 (SC) that in an inquiry under s. 37 the Commission has first to be satisfied that the trade practice complained of in the application is a restrictive trade practice within the meaning of that expression as defined in s. 2(o) and it is only after the Commission is so satisfied, that it can proceed to consider whether any of the " gateways " provided in s. 38(1) exists so that the trade practice, though found restrictive, is deemed not to be prejudicial to the public interest and if no such " gateways " are established, then only it can proceed to make an order directing that the trade practice complained of shall be discontinued or shall not be repeated. There are thus two conditions precedent which must be satisfied before a cease and desist order can be made by the Commission in regard to any trade practice complained of before it. One is that the Commission must find that the trade practice complained of is a restrictive trade practice and the other is that where such finding is reached, the Commission must further be satisfied that none of the gateways pleaded in answer to the complaint exists. Here, in the present case, the appellant did not appear at the hearing of the inquiry and no " gateways " were pleaded by it in the manner provided in the Regulations, and, hence, the question of the Commission arriving at a satisfaction in regard to the " gateways " did not arise. But the Commission was certainly required to be satisfied that the trade practices complained of by the Registrar were restrictive trade practices before it could validly make a cease and desist order. The order dated 14th May, 1976, did not contain any discussion or recital showing that the Commission had reached the requisite satisfaction in regard to the offending trade practices. But we can legitimately presume that the Commission must have applied its mind to the offending clauses of the distributorship agreement and come to the conclusion that the trade practices referred to in those clauses were restrictive trade practices before it made the order dated 14th May, 1976. There is in fact inherent evidence to show that the Commission did apply its mind to the clauses impugned in the application of the Registrar, because it struck down only a few out of those clauses and did not invalidate the rest. This circumstance clearly shows that the Commission considered with reference to each impugned clause whether it related to restrictive trade practice and made the order dated 14th May, 1976, only in respect of those clauses where it was satisfied that the trade practices were restrictive. The charge that the order dated 14th May, 1976, suffered from non-application of mind on the part of the Commission cannot, therefore, be sustained. But the order dated 14th May, 1976, was clearly bad inasmuch as it did not disclose the reasons which weighed with the Commission in directing the appellant to cease and desist from the trade practices set out in the order. The order dated 14th May, 1976, was a non-speaking order. It consisted merely of bald directions given by the Commission and did not set out any reasons whatsoever why the Commission had decided to issue those directions. It had a sphinx-like face, which goes ill with the judicial process. It is true that the order dated 14th May, 1976, was an ex parte order, but the ex parte character of the order did not absolve the Commission from the obligation to give reasons in support of the order. Even though the order dated 14th May, 1976, was ex parte, the appellant would have been entitled to prefer an appeal against it under s. 55 and it is difficult to see how the appellant could have possibly attacked the order in the appeal, when the order did not disclose the reasons on which it was based. It is now settled law that where an authority makes an order in exercise of a quasi-judicial function, it must record its reasons in support of the order it makes. Every quasi-judicial order must be supported by reasons. That is the minimal requirement of law laid down by a long line of decisions of this court ending with N. M. Desai v. Testiles Ltd. (C.A. 245 of 1970, decided on 17th Dec., 1975) and Siemens Engg. & Mfg. Co. of India Ltd. v. Union of India [1976] Supp. SCR 489 ; AIR 1976 SC 1785 . The order dated 14th May, 1976, was, therefore, clearly vitiated by an error of law apparent on the face of the record inasmuch as it contained only the final and operative order made by the Commission and did not record any reasons whatsoever in support of it and the appellant was, in the circumstances, entitled to claim that the order should be revoked by the Commission.This view taken by us renders it unnecessary to consider whether there was any material change in the relevant circumstances justifying invocation of the power under s. 13(2) and, hence, we do not propose to deal with the same. The Commission has devoted a part of the order impugned in the present appeal to a consideration of this question and taken the view that there was no material change in the relevant circumstances subsequent to the making of the order dated 14th May, 1976. We no not wish to express any opinion on the correctness of this view taken by the Commission, since we are setting aside the impugned order made by the Commission and also revoking the order dated 14th May, 1976, and sending the matter back so that the application of the Registrar under s. 10(a)(iii) may be disposed of afresh. 9.

Court's decision (1 = petition accepted / positive for appellant, 0 = rejected / negative): 1

Reasoning from the judgment:
1[ds]It is true that a clause in an agreement may embody a trade practice and such trade practice may have the actual or probable effect of restricting, lessening or destroying competition and hence it may constitute a restrictive trade practice and the clause may be voided, but it is difficult to see how the introduction of such a clause in the agreement, as distinguished from the trade practice embodied in the clause itself, can be a restrictive trade practice. It is not the introduction of such a clause, but the trade practice embodied in the clause, which has or is reasonably likely to have the prescribede effect. Therefore, whenever a question of restrictive trade practice arises in relation to a clause in an agreement, it is the trade practice embodied in the clause that has to be examined for the purpose of determining its actual or probable effect on competition. Now, a clause in an agreement may proprio vigore on its own terms, impose a restraint such as allocating a territory, area or market to a dealer or prohibiting a dealer from using machinery or selling goods of any other manufacturer, supplier or requiring the dealer to purchase whatever machinery or goods in the particular line of business are needed by him from the manufacturer or supplier entering into the agreement. Where such restraint produces or is reasonably likely to produce the prohibited statutory effectand that would depend on the various considerations referred to by us earlierit would clearly constitute a restrictive trade practice and the clause would be bad. In such a case, it would be no answer to say that the clause is not being enforced by the manufacturer or supplier. The very presence of the clause would have a restraining influence on the dealer, for the dealer would be expected to carry out his obligations under the clause and he would not know that the clause is not going to be enforced against him. This is precisely what was pointed out by Mr. Justice Day in United Shoe Machinery Corporation v. United States (258 US 708 ; 66 L Ed 451), where the question was whether thee andy clauses in certain lease agreements ofy were struck by the provisions of s. 3 of the Clayton Act : " The power to enforce them ", that is, the impugned clauses " is omnipresent and their restraining influence constantly operates upon competitors and lessees. The fact that the lessor, in many instances, forbore to enforce these provisions, does not make them any less agreements within the condemnation of the Clayton Act. " There could be no difficulty in such a case in applying the definition of restrictive trade practice in accordance with the law laid down in the Telcos case [1977] 47 Comp Cas 520 (SC) as explained by us in this judgment.Then there may be a clause which may be perfectly innocent and innocuous such as a clause providing that the dealer will carry out all directions given by the manufacturer or supplier from time to time. Such a broad and general clause cannot be faulted as restrictive of competition for it cannot be assumed that the manufacturer or supplier will abuse the power conferred by the clause by giving directions unduly restricting trade. So much indeed was conceded by the learned Additionall appearing on behalf of the respondents. But a genuine difficulty may arise where a clause in an agreement does not by itself impose any restraint but empowers the manufacturer or supplier to take some action which may be restrictive of competition. Ordinarily, in such a case, it may not be possible to say that the mere presence of such a clause, apart from any action which may be taken under it, has or may have the prohibitede effect. The manufacturer or supplier may take action under the clause or he may not, and even if he takes action, it may be in conformity with the provisions of the Act and may not be restrictive of competition. The mere possibility of action being taken which may be restrictive of competition would not in all cases affect the legality of the clause. In fact, a consistent course of conduct adopted by the manufacturer or supplier in acting under the clause in a lawful manner may tend to show that the clause is not reasonably likely to produce the prohibited statutory effect. What is required to be considered for determining the legality of the clause is not mere theoretical possibility that the clause may be utilised for taking action which is restrictive of competition, for it does not necessarily follow from the existence of such possibility that the actual or probable effect of the clause would be. The material question to consider is whether there is a real probability that the presence of the clause itself would be likely to restrict competition. This is basically a question of market effect and it cannot be determined by adopting a doctrinaire approach. There can be no hard and fastruleandeach case would have to be examined on its own facts from a businessandcommonsense point of view for the purpose of determining whether the clause has the actual or probable effect of unduly restricting competition. We cannot accept the proposition that in every case where the clause is theoretically capable of being so utilised as to unjustifiably restrict competition, it would constitute a restrictive trade practice.There is also another infirmity invalidating the order dated 14th May, 1976. We have already pointed outandthat is clear from the decision of this court in the Telcos case [1977] 47 Comp Cas 520 (SC) that in an inquiry under s. 37 the Commission has first to be satisfied that the trade practice complained of in the application is a restrictive trade practice within the meaning of that expression as defined in s. 2(o)andit is only after the Commission is so satisfied, that it can proceed to consider whether any of the " gateways " provided in s. 38(1) exists so that the trade practice, though found restrictive, is deemed not to be prejudicial to the public interestandif no such " gateways " are established, then only it can proceed to make an order directing that the trade practice complained of shall be discontinued or shall not be repeated. There are thus two conditions precedent which must be satisfied before aceaseanddesist order can be made by the Commission in regard to any trade practice complained of before it. One is that the Commission must find that the trade practice complained of is a restrictive tradepracticeandthe other is that where such finding is reached, the Commission must further be satisfied that none of the gateways pleaded in answer to the complaint exists. Here, in the present case, the appellant did not appear at the hearing of the inquiryandno " gateways " were pleaded by it in the manner provided in the Regulations,, hence, the question of the Commission arriving at a satisfaction in regard to the " gateways " did not arise. But the Commission was certainly required to be satisfied that the trades complained of by the Registrar were restrictive trades before it could validly make aceaseanddesist order. The order dated 14th May, 1976, did not contain any discussion or recital showing that the Commission had reached the requisite satisfaction in regard to the offending trade. But we can legitimately presume that the Commission must have applied its mind to the offending clauses of the distributorship agreementandcome to the conclusion that the trades referred to in those clauses were restrictive trades before it made the order dated 14th May, 1976. There is in fact inherent evidence to show that the Commission did apply its mind to the clauses impugned in the application of the Registrar, because it struck down only a few out of those clausesanddid not invalidate the rest. This circumstance clearly shows that the Commission considered with reference to each impugned clause whether it related to restrictive tradepracticeandmade the order dated 14th May, 1976, only in respect of those clauses where it was satisfied that the trades were restrictive. The charge that the order dated 14th May, 1976, suffered fromn of mind on the part of the Commission cannot, therefore, be sustained. But the order dated 14th May, 1976, was clearly bad inasmuch as it did not disclose the reasons which weighed with the Commission in directing the appellant toceaseanddesist from the trades set out in the order. The order dated 14th May, 1976, was ag order. It consisted merely of bald directions given by the Commissionanddid not set out any reasons whatsoever why the Commission had decided to issue those directions. It had ae face, which goes ill with the judicial process. It is true that the order dated 14th May, 1976, was an ex parte order, but the ex parte character of the order did not absolve the Commission from the obligation to give reasons in support of the order. Even though the order dated 14th May, 1976, was ex parte, the appellant would have been entitled to prefer an appeal against it under s. 55andit is difficult to see how the appellant could have possibly attacked the order in the appeal, when the order did not disclose the reasons on which it was based. It is now settled law that where an authority makes an order in exercise of al function, it must record its reasons in support of the order it makes. Everyl order must be supported by reasons. That is the minimal requirement of law laid down by a long line of decisions of this court ending with N. M. Desai v. Testiles Ltd. (C.A. 245 of 1970, decided on 17th Dec., 1975)andSiemens Engg. & Mfg. Co. of India Ltd. v. Union of India [1976] Supp. SCR 489 ; AIR 1976 SC 1785  . The order dated 14th May, 1976, was, therefore, clearly vitiated by an error of law apparent on the face of the record inasmuch as it contained only the finalandoperative order made by the Commissionanddid not record any reasons whatsoever in support of itandthe appellant was, in the circumstances, entitled to claim that the order should be revoked by the Commission.This view taken by us renders it unnecessary to consider whether there was any material change in the relevant circumstances justifying invocation of the power under s. 13(2), hence, we do not propose to deal with the same. The Commission has devoted a part of the order impugned in the present appeal to a consideration of this questionandtaken the view that there was no material change in the relevant circumstances subsequent to the making of the order dated 14th May, 1976. We no not wish to express any opinion on the correctness of this view taken by the Commission, since we are setting aside the impugned order made by the Commissionandalso revoking the order dated 14th May, 1976,andsending the matter back so that the application of the Registrar under s. 10(a)(iii) may be disposed of afresh.