Case: Bajaj Auto Ltd.  Vs. Director General (I and R) and Ors.

2. Brief facts which are necessary to dispose of this appeal are recapitulated as under:The Director General (Investigation & Registration) under Section 10(a)(iii) of the Monopolies & Restrictive Trade Practices Act, 1969 (hereinafter referred to as the Act) sent an application that an enquiry be instituted against Bajaj Auto Limited (hereinafter referred to as the `appellant) for indulging in restrictive trade practice within the meaning of Section 33 of the Act.3. The Notice of Enquiry was issued on 18.11.1996 in pursuance of which the appellant filed its reply refuting the allegations levelled against it. According to the appellant, the agreement between the appellant and the dealers contain certain clauses which are restrictive in nature, squarely falling under Section 33 of the Act. These relate to restrictions of the territory in which the dealer is to operate, the tie-up agreement by fixing targets and maintaining the resale price. The appointment letter of the dealer dated 11.5.1994 indicates that it is restricted to `Rajkot alone which is restriction of an area within the terms of Section 33(1)(g) of the Act. Section 33(1)(g) is reproduced as under:33. Registrable agreements relating to restrictive trade practices. - (1) Every agreement falling within one or more of the following categories shall be deemed, for the purposes of this Act, to be an agreement relating to restrictive trade practices and shall be subject to registration in accordance with the provisions of this Chapter, namely:X X X(g) any agreement to limit, restrict or withhold the output or supply of any goods or allocate any areas or market for the disposal of the goods;4. It is further alleged against the appellant that it fixed the sales targets in respect of various products and imposed a restriction on the dealer to purchase one or more products as a condition is covered under Section 33(1)(b) of the Act. Section 33(1)(b) is reproduced as under:X X X(b) any agreement requiring a purchaser of goods, as a condition of such purchase, to purchase some other goods;5. It is further alleged that the fixation of prices of the products as per Clause DD of letter dated 7.9.1994 brings the case within the purview of Section 33(1)(f) of the Act. Section 33(1)(f) is reproduced as under:X X X(f) any agreement to sell goods on condition that the prices to be charged on re-sale by the purchaser shall be the prices stipulated by the seller unless it is clearly stated that prices lower than those prices may be charged.6. The appellant submitted a comprehensive reply denying all the charges levelled against it. It was submitted on behalf of the appellant as a preliminary objection that practices as alleged do not fall under Section 2(o) of the Act which is a pre- requisite condition before the action can be taken against the appellant. Section 2(o) of the Act reads as under:2(o) restrictive trade practice means a trade practice which has, or may have the effect of preventing, distorting or restricting competition in any manner and in particular, -(i) which tends to obstruct the flow of capital or resources into the stream of production, or(ii) which tends to bring about manipulation of prices, or conditions of delivery or to affect the flow of supplies in the market relating to goods or services in such manner as to impose on the consumers unjustified costs or restrictions;7. In reply, it was also contended that the dealers appointment at Rajkot neither prescribes any territorial limit nor does it restrain it to sell goods outside Rajkot. In absence of any such restraint, the statement in the Preamble and the Appointment Letter cannot be construed to mean an agreement allocating area or market for disposal of goods in question. The identification of a place is for the purpose of establishing necessary facilities, infrastructure for after sales and maintenance of services. The relevant portion of the letter which has been sent to a dealer at Rajkot reads as under:We have pleasure in appointing you as our dealer at Rajkot8. In the reply, it was also contended that the product-wise and total sales targets for the year read with next para of the letter clarify that it is only indicative of expectation on the part of the appellant. It neither compels nor obliges the dealer to buy one or the other Bajaj products. Non achievement of targets in no way affects the dealership. As regards price fixation, Clause DD of letter dated 7.9.1994 has to be read with Clause Q of the dealership agreement. In the face of clear specification that the dealer is at liberty to sell the goods at lower than the recommended retail prices, question of invoking the provision of Section 33(1)(f) does not arise. These clauses in no way distort or impair the competition. Therefore, the Notice of Enquiry needs to be discharged.9. The Commission framed the following issues:1. Whether the Notice of Enquiry (NOE) is not maintainable for the preliminary objection taken by the appellant in its reply to the NOE?2. Whether the appellant has indulged in or is indulging in the alleged restrictive trade practices?3. Whether the alleged restrictive trade practices are not prejudicial to public interest?4. Relief10. Both the parties led documentary as well as oral evidence. The Commission did not find any merit in the preliminary objection taken by the appellant that Section 2(o) of the Act is not attracted.11. In the impugned judgment, pertaining to the charge of territorial restriction, the Commission came to the conclusion that the preamble read with the appointment letter speaks of the dealership at Rajkot. Apparently, the use of the word `at as against `for is capable of bringing two constructions. It can refer to place from where the activities are carried on or the territory to which it confines to. Intention of the parties has not been clearly conveyed by the `unhappy expression used both in the dealership agreement as well as in the letter of appointment. If there is any oral understanding that the dealer is free to sell the goods outside the territory, the same has not been shown either by direct or circumstantial evidence. Absence of transparency in the clause can lead to manipulation of clause at the end of the parties. Such practices of territorial restrictions impair the competition in the market as it limits the choice of the consumer to a particular dealer who may not indulge in unfair dealings. This is certainly not in public interest.12. According to the Commission, the alleged restrictive trade practice is covered under Section 33(1)(g) of the Act and as such being prejudicial to public interest. The Commission directed appellant No. 1 to cease the aforesaid practice if continued at present and desist from repeating the same in future.13. Regarding fixation of sales target, the Commission observed that the quantity of product to be purchased not by reason of market demand but on account of target fixed by the appellant would certainly amount to tie-up of one product with another attracting Clause (b) of Section 33(1) of the Act.14. Regarding dealership agreement, the Commission observed that it fairly laid down that the dealer is free to sell at a lower price than the recommended retail price. Clause DD, on the other hand, refers to the revised prices which have been made effective from 1.10.1994. As per this clause, the vehicles already in stock as on 1.10.1994 are to be sold at the old prices. This is clearly beneficial to the consumer or consumers at large and is in public interest. It refers to fair dealing on the part of the appellant and prevents any unjustified cost being imposed on the consumer. In the circumstances, we are of the considered view that the charge as levelled does not fall under Clause (f) of Section 33(1) of the Act.15. While disposing of the complaint, the Commission directed the appellant to give effect to this order within six weeks from the date of receipt of the order and file an affidavit of compliance within four weeks thereafter.

Court's reasoning:
28. In the instant case, neither the notice nor the application even allege that the appellant has ever indulged in or that the alleged trade practice has or may have the effect of preventing, distorting or restricting competition in any manner and in particular it, inter-alia, tends to obstruct the flow of capital or resource into the stream of production or tends to bring about manipulation of prices or conditions of delivery or to affect flow of supplies into the market in such a manner so as to impose unjustified costs and/or restrictions on the consumers of goods in question and therefore ex facie neither notice nor the application are maintainable.29. Before parting with this case, we deem it appropriate to observe that the Commission must be extremely careful before issuing notices to the parties because it has serious consequences on the reputation and credibility to the activities of those parties. Frivolous notices breed long drawn avoidable litigation before various forums.