Case: Hindustan Lever Ltd., Bombay Vs. The Monopolies &amp; Restrictive Trade Practices

This is an appeal under section 55 of the Monopolies & Restrictive Trade Practices Act, 1969 (hereinafter referred to as " the Act "), against the order and judgment of the Monopolies & Restrictive Trade Practices Commission, New Delhi (hereinafter referred to as " the Commission "), in proceedings started under section 10(a)(iv) of the Act against the appellant, M/s. Hindustan Lever Ltd. (hereinafter referred to as " the Company "), upon information furnished by Bhogilal Manilal Shah of M/s. Shah Manilal Motichand & Sons of Poona (hereinafter referred to as the " informant "). The informant was a redistribution stockist of the appellant-company carrying on business regulated by the terms of an agreement, known as the redistribution stockists agreement of the company, found in a standard printed form, entered into with each stockist. The agreement has 23 terms or clauses in it.

Reasoning: We do not think that we can isolate the terms of a contract from the actual practice of the company. It is not the case of the company anywhere that the clauses in its agreement with its stockists are to be treated as dead-letter. Its case is that they do not operate as restrictions. The introduction of such clauses in so many agreements meant to regulate relations, either between a principal and an agent or the seller and the stockist who acquires complete proprietary rights in the stock of goods purchased, is itself a trade practiceIt is true that the practice of imposing restrictions under such clauses is one thing and the practice of introducing such clauses is quite another thing. Both may constitute separate practices. Nevertheless, the introduction of such clauses into an agreement between the manufacturer and the seller who purchases and stocks his goods is in itself something practised. It is immaterial that the use of powers under such clauses may constitute another set of practices which depend upon the existence of such clauses as sources or springsIt would be specious reasoning, in such a case, to separate the clauses in the agreement from action under the agreement and then to urge that, as evidence of action under the clauses is meagre or even absent, the clauses are innocuous and should not be modified or struck down because we are only concerned with what is actually being practised under them or with the use that is being made of such clauses and not with what is permissible or possible under the clauses of the agreement of the kind before us. This argument seems to us to overlook the definition of " restrictive trade practice " contained in section 2(o) of the ActIt is clear from a bare perusal of the above-mentioned definition that it is not only the actual practice of a restriction under a clause which is struck by the provisions of the Act, but also a " trade practice " which " may have " the effect of restrictions falling within the mischief provided for. In other words, if the introduction of the clause in itself is a trade practice and could be used to prevent, distort or restrict competition " in any manner " it may be struck downThis definition is wide enough to include any " trade practice " if it is in relation to the carrying on of a trade. It cannot be argued that the introduction of the clauses complained of does not amount to an action which relates to the carrying on of a trade. If the result of that action or what could reasonably flow from it is to restrict trade in the manner indicated, it will, undoubtedly, be struck by the provisions of the ActThe facts of the case before us are entirely different. We are concerned here with a manufacturer of mixed consumer goods of different varieties. The appellant-company produces dehydrogenated oil (known in the market as " Vanaspati "), toilet preparations of various kinds such as soaps, shaving creams, toothpastes and baby milk powder, and animal feeds. The soaps manufactured by it are undoubtedly the main type of goods supplied. But, it manufactures other types of goods too. It can, therefore, compel stockists to buy them, whether stockists want these other goods or not, if the terms of the agreement are to be held to be binding and enforceable. The manufacturer is under no obligation to render any service in relation to maintenance of the goods supplied. The whole trade is completely unlike that of manufacture and sale of motor trucks for which the stockists, selling to the actual consumers, had to, as already pointed out, also have the services of the manufacturers trained personnel for the purposes of maintenance and repair of the vehicles supplied. It would amount to an application of the law in a thoroughly doctrinaire fashion if we were to deduce some general principles, from the very different facts of the Telcos case [1977] 47 Comp Cas 520 (SC) and attempt to apply them to those of the case now before usThus, the contention advanced on behalf of the appellant against a doctrinaire approach in such cases really weighs against the appellant-company. In the case before us, the problem is entirely different. This is not a case in which certain terms of the agreement require to be explained by the facts to which they were meant to be applied. It is a clear case in which the meanings of the clauses are decisiveNo oral evidence could be led to deduce their meaning or to vary it in view of the provisions of sections 91 and 92 of the Evidence Act, the principles of which were, we think, rightly applied by the CommissionThe principle embodied in section 92(6) of the Evidence Act, which was applicable in Telcos case [1977] 47 Comp Cas 520 (SC) is not, for the reasons given above, applicable in the case now before us. Indeed, no attempt has been made by reference to any case law apart from the Telcos case [1977] 47 Comp Cas 520 (SC), which we have distinguished above, to show that extraneous evidence could have been led here in order to apply section 92, proviso (6), of the Evidence Act. In the Telcos case [1977] 47 Comp Cas 520 (SC), this provision was not directly referred to, but, we think, that it could have been applied there. Thus, we think that the basic difficulty, placed before us by learned counsel for the appellant, in the way of examining the plain meaning and effect of clauses 5 and 9 of the distribution stockists agreement does not exist at all in the case now under consideration. We must, therefore, proceed to examine the meanings of these clauses from the point of view of what could be done by the company under them. If what may be done under these clauses could be a restrictive practice, as defined by the Act, it was enough to vitiate them. A clause having been introduced in an agreement entered into, as a part of the settled practice of the company, could be struck by the provisions of section 2(o) of the Act, set out above, quite apart from what is actually done under it. We do not think that any other question is really relevant or need be considered by us at all in such a case. It is not a case in which we could be taken through the oral evidence, as has been attempted to be done, because that is shut out by an application of the provisions of sections 91 and 92 of the Evidence Act if all we need do is to interpret the agreement. We are unable to see why those provisions do not apply here.Not much argument appears to us to be needed to demonstrate that the last sentence in paragraph 5 of the above mentioned clause places the redistribution stockist at the mercy of the company which can dictate to him what amounts of various commodities he " shall purchase and accept from the company " in the form of a total lot supplied to him. The company need only send to the redistribution stockists what it " shall at its discretion send to the redistribution stockists for fulfilling its obligations under this agreement ".The Commission rightly points out that, among agreements the registration of which is compulsory according to the provisions of Chapter V of the Act, under section 33(1)(b) is " any agreement requiring a purchaser of goods, as a condition of such purchase to purchase some other goods ". The last part of clause 5, as we have observed, clearly makes it necessary for the stockist to purchase such goods and in such combination as the company may decide. Hence, it would be struck by section 33(1)(b) of the Act. It has not been shown to have been registered under the ActIf that was so clear, there was no reason why the company should have attempted to clarify by means of its circulars what, according to it, the stockist is free to do under the agreement. Even if the practice of the company by issuing circulars is established, it does not justify the retention of clause 5 in a form which can be used to compel stockists to act on the companys behests, whether reasonable or not. On the other hand, it justifies its clarification by an alteration of it in the manner directed by the Commission so as to make the clause covering price regulation also very clear. The order of the Commission modifying clause 5 only makes the position crystal clear. Inasmuch as clause 5, even before deletion of the last sentence of it by the Commission, expressly gives the stockist the discretion to sell at lower than maximum resale prices stipulated, the agreement was not struck by section 33(1)(b) of the Act. But the deletion of the last sentence was essential to prevent possible misuse of the companys powers, by resort to it, so as to even regulate prices contrary to express provisions found earlier in the clause.Turning now to clause 9 of the agreement, we think that the Commission was right in rejecting the argument that evidence led on behalf of the company was enough to establish that clause 9 fell within one of the de " gateways " provided by section 38 of the Act. A power to impose restrictions falling under this provision had to be justified by the company by actual proof of a public interest which could not be better served without it. The submission that section 38 could be applied here amounts at least to a concession that a clause conferring such wide power upon the manufacturer may be so used as to amount to a restrictive practice. It is the practice of putting in such a clause which has to be justifiedWe are primarily concerned in this case, as we have repeatedly emphasized, with the clear meanings of the two clauses.As the Commission pointed out, it is immaterial that a purchaser from outside may be able to get round clause 9 by purchasing across the counter from the stockist inside a town. The clause itself, however, gives to the company an unreasonably wide power of deciding what is actually fair and equitable distribution. The Commission very rightly points out that this is more properly a part of the duty of governmental authorities which may be entrusted with powers of rationing such consumers goods if this is found to be necessary in public interest. However, before any question of reasonableness of a power to ration any goods is entrusted by any method to any person or authority those goods must be shown to be scarce or in short supply. That was the position in the Telcos case [1977] 47 Comp Cas 520 (SC). Evidence establishing such a need has not been shown to exist. And, in any case, it has to be a very exceptional set of facts indeed which could justify lodging of such a power in the manufacturer. The Commission has dealt with a good deal of evidence to justify its conclusion that the need to justify the lodging of such a power in the company has not been established. We see no reason to disturb itUnder the provisions of section 55 of the Act, an appeal lies to this court only on one of the grounds mentioned in section 100 of the Code of Civil Procedure. It is, therefore, necessary in all such cases for counsel to clearly formulate and direct our attention to only questions of law which arise so that these may be decided. It is not permissible to go over the whole range of evidence led as was attempted before usWe find no objection whatsoever in adopting the rule indicated above in cases to which it appliesWe are unable to see how any law laid down in American decisions, dealing with Anti-trust laws, or in English cases, dealing with agreements in restraint of trade, lay down rules of reason at variance with the ones we are applying here. The rules of reason applicable to a case like the one before us may be simply statedas follows :Firstly, the meaning of the impugned clause or clauses in an agreement said to offend the law must be determined according to law; secondly, the possible effects of such a clause upon competition in the trade to be regulated must be determined. We think that the Commission had rightly applied these rules and found the clauses to be capable of misuse. We think that this was enough to vitiate the impugned clausesWe would like to make it clear that we are really concerned only with the law as we find it in our own statute and can only examine evidence in the light of our own law of evidence. We think that the confusion which may be created by using terms-such as " per se " rule-which could perhaps be more usefully applied to indicate doctrines or to describe practices developed under very different sets of circumstances in other countries with statutory provisions couched in language which differs from that before us, should be avoided as far as, it was submitted that we should look at evidence of what takes place in the trade under consideration rather than clauses 5 and 9 of the agreement we haveconsidered.We have already indicated the correct procedure in such cases as the one before us. Indeed, we think that a consideration of extraneous evidence is not required at all when the practice complained of is the introduction of clauses conferring wide powers which may be used to impose restrictions contrary to the Act. In such a case, the introduction of clauses constitutes the restrictive practice. Hence, their interpretation is all that we are really concerned with here in accordance with our law. Evidence of what is actually practised could only be relevant for purposes other than a determination of the meaning and the effect which follows logically or reasonably from such determinationThirdly, it was submitted that, in holding clause 9 to be invalid, the purpose of "equitable distribution ", which imposes a limit on the powers of the company, was overlooked by theCommission.For the reasons already given, we do not think that this supposed limitation reasonably restricts the companys power to decide what to distribute. The company is left entirely to itself to decide what is " equitable distribution ". An interpretation of a document, according to well-established rules, cannot be dispensed with by labelling it as an application of a " per se " doctrine. We think that the clause, as it stands, confers too wide a power and has to be struck down wholly as unreasonable on that groundFourthly, our attention was sought to be drawn to the absence of evidence of distortion of competition and the presence of evidence that competition prevails in the market despite theseclauses.We have already held such oral evidence to be really unnecessary for judging the possible effects of theclauses.The probability of the effect is only part of the rule of reason to be applied where extraneous evidence is admissible. In the instant case we are only, as already indicated above, concerned with a reasonable and natural interpretation of the clauses of the agreement and their reasonably possible, it was submitted that there was clear evidence of public benefit from an equitable distribution in actual practice so that the requirements of a "gate-way " under section 38were. We cannot assume public benefit from a mere declaration of intention to exercise a power so as to benefit the public. We are not satisfied, on the evidence actually adduced and placed before us, that this power was necessary so as to benefit the publicSixthly, it was submitted that the Commission had ignored the last sentence of clause 9 in interpretingit. Wehave, however, considered it and find that, far from making clause 9 more acceptable and reasonable, the last part of it makes it more objectionable and unreasonable inasmuch as it enhances the powers of the companyIt is not really necessary for us to fix any particular time within which the company will print or get new agreements executed on freshly printed forms in accordance with law. That is a matter for parties themselves to each agreement to decide and work out. All that we need make clear is that all agreements which are operative and binding between parties will be so interpreted now as if clause 9 was not there at all and clause 5 was there only in the modified form which omits the last sentence from clause 5 as it originally stood. However, if the company wants to complete any formalities for bringing each individual agreement into line with the law as declared by this court it may do so ; and, it will file, within six months from today an affidavit showing that it has done this. The requirement to file such an affidavit showing compliance will ensure that the company has taken due steps to inform each stockist of the correct legal position. The time given for doing this will not, however, authorise it to act under those parts of the agreement which this court has declared to be illegalWe have already indicated the correct procedure in such cases as the one before us. Indeed, we think that a consideration of extraneous evidence is not required at all when the practice complained of is the introduction of clauses conferring wide powers which may be used to impose restrictions contrary to the Act. In such a case, the introduction of clauses constitutes the restrictive practice. Hence, their interpretation is all that we are really concerned with here in accordance with our law. Evidence of what is actually practised could only be relevant for purposes other than a determination of the meaning and the effect which follows logically or reasonably from such determinationFor the reasons already given, we do not think that this supposed limitation reasonably restricts the companys power to decide what to distribute. The company is left entirely to itself to decide what is " equitable distribution ". An interpretation of a document, according tod rules, cannot be dispensed with by labelling it as an application of a " per se " doctrine. We think that the clause, as it stands, confers too wide a power and has to be struck down wholly as unreasonable on that groundWe have already held such oral evidence to be really unnecessary for judging the possible effects of theclauses.We cannot assume public benefit from a mere declaration of intention to exercise a power so as to benefit the public. We are not satisfied, on the evidence actually adduced and placed before us, that this power was necessary so as to benefit the publichave, however, considered it and find that, far from making clause 9 more acceptable and reasonable, the last part of it makes it more objectionable and unreasonable inasmuch as it enhances the powers of the companyIt is not really necessary for us to fix any particular time within which the company will print or get new agreements executed on freshly printed forms in accordance with law. That is a matter for parties themselves to each agreement to decide and work out. All that we need make clear is that all agreements which are operative and binding between parties will be so interpreted now as if clause 9 was not there at all and clause 5 was there only in the modified form which omits the last sentence from clause 5 as it originally stood. However, if the company wants to complete any formalities for bringing each individual agreement into line with the law as declared by this court it may do so ; and, it will file, within six months from today an affidavit showing that it has done this. The requirement to file such an affidavit showing compliance will ensure that the company has taken due steps to inform each stockist of the correct legal position. The time given for doing this will not, however, authorise it to act under those parts of the agreement which this court has declared to be