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PETITIONER:

M/S VOLTAS LIMITED, BOMBAY.

Vs.

RESPONDENT:

UNION OF INDIA & ORS.

DATE OF JUDGMENT07/02/1995

BENCH:

SINGH N.P. (J)

BENCH:

SINGH N.P. (J)

AHMADI A.M. (CJ)

MOHAN, S. (J)

CITATION:

1995 AIR 1881 1995 SCC Supl. (2) 498

JT 1995 (2) 261 1995 SCALE (1)455

ACT:

HEADNOTE:

JUDGMENT:

1. These appeals have been filed under Section 55 of the

Monopolies and Restrictive Trade Practices Act, 1969 (here-

inafter referred to as 'the Act') against the judgment and

order of the Monopolies and Restrictive Trade Practices

Commission (hereinafter referred to as 'the Commission').

2.The appellant had entered into agreements with large

number of companies, who are respondents in different ap-

peals, in respect of distribution of different machineries

and equipments within different territories of India. The

companies,

264

who are respondents, to the different appeals have been

manufacturing different types of machines and instruments,

which under the terms of the agreements are to be

distributed by the appellant as the Marketing Company. The

appellant has been appointed as Buyer (Sole Importer) on

the .terms and conditions mentioned in different agreements.

3. On 26.11.1986, notices were issued under Section

10(a)(iii) read with Section 37 of the Act, informing the

appellant that the agreements between the appellant and the

different companies, some of which have their Head Offices

in foreign countries contain conditions which amount to

restrictive trade practices under clauses (a) and (c) of

Section 33(1) of the Act. In the notices aforesaid, the

terms and conditions in different agreements which are

alleged to be violative of Section 33(1)(a) and (c) of the

Act were reproduced. Pursuant to the notices aforesaid,

show cause was filed in different cases initiated by the

Commission against the appellant. Documents and affidavits

were also filed on behalf of the appellant in support of its

stand that none of the agreements referred to in the notices

issued to the appellant related to restrictive trade

practices, calling for any action under the Act. The

Commission, however, by the impugned judgment and order

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directed the appellant in respect of each of the 15

enquiries to discontinue the restrictive trade practices as

mentioned in the Notice of Enquiry, and not to repeat the

same in future. It was also directed that the objectionable

clauses, as mentioned in the Notices be deleted from the

respective agreements, within 8 weeks of the receipt of the

said order.

4. All the appeals were heard together, since the

controversy, which has been raised, is more or less similar

in all the appeals, and as such facts are being referred to

from Civil Appeal No. 2252 of 1994, which was heard as the

leading case. It appears that the agreement in that case

had been entered into between the appellant and Respondent

No.4 M/s. Societe Genevoise D, Instruments De Physique,

Geneve. through its Secretary, on 29.11.1956. The Director

General of Investigation and Registration (hereinafter

referred to as the 'DG') took objection in respect of three

of the clauses of the agreement and on his application being

filed before the Commission, notice was issued to the

appellant on 26.11.1986 saying that the following terms of

the agreement amounted to restrictive trade practices,

within the meaning of the Act:

"2. The Buyer shall not sell the goods of the

Seller to any person who is not residing or

carrying on business within the Territory nor

to any person residing or carrying on business

within the Territory for the purpose of resale

by such person outside the Territory."

"3. The Buyer shall use his best endeavours to

promote the interests of the Seller and

specifically shall not deal in or sell goods

which could compete with those of the Seller."

"6. For the consideration aforesaid the Seller

agrees not to sell any goods as mentioned

before to any individual or firm within the

territory other than the Buyer and all

enquiries and orders received by the Seller

from the Territory shall be referred to the

Buyer. The Seller shall further not quote for

not deliver his goods to any firm outside the

Territory for import into the Territory except

with the previous consent of the Buyer and at

terms agreed upon with the Buyer."

5. It is proper to refer to some of the provisions of the

Act.

5A. Section 2(o) defines "restrictive trade practice":

(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

effect 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;"

In view of Section 10, the Commission may inquire into any

restrictive trade practice (i) upon receiving a complaint of

facts from any trade association or from any consumer or

(ii) upon a reference made to it by the Central Government

or a State government, or (ill) upon an application made to

it by the Director General, or (iv) upon its own knowledge

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or information. Subsection (1) of Section 33 which is

relevant is as follows:-

"33. Registerable agreements relating to

restrictive trade practices.- (1) Every

agreement failing 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 -

(a) any agreement which restricts, or is

likely to restrict, by any method the persons

or classes of persons to whom goods are sold

or from whom goods are bought;

(b)any agreement requiring a purchaser of

goods, as a condition of such purchase, to

purchase some other goods;

(c)any agreement restricting in any manner the

purchaser in the course of his trade from

acquiring or otherwise dealing in any goods

other than those of the seller or any other

person;

(d)any agreement restricting in any manner the

purchaser in the course of his trade from

acquiring or otherwise dealing in any goods

other than those of the seller or any other

person;

(e)any agreement to grant or allow concessions

or benefits, including allowances, discount,

rebates or credit in connection with, or by

reason of, dealings;

(f)any agreement to sell goods on condition

that the prices to be charged on resale 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;

(g)any agreement to limit, restrict or

withhold the output or supply of any goods or

allocate any area or market for the disposal

of the goods;

(h)any agreement not to employ or restrict the

employment of any method, machinery or process

in the manufacture of goods;

(i)any agreement for the exclusion from any

trade association of any person carrying on or

intending to carry on, in good faith the

trade in relation to which the trade

association is formed;

(j) any agreement to sell goods at

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such prices as would have the effect of

eliminating competition or a competitor;

(ja) any agreement restricting in any manner,

the class or number of wholesalers, producers

or suppliers from whom any goods may be

bought;

(jb) any agreement as to the bids which any of

the parties thereto may offer at an auction

for the sale of goods or any agreement whereby

any party thereto agrees to abstain from

bidding at any auction for the sale of goods;

(k) any agreement not hereinbefore referred

to in this section which the Central

Government may, by notification specify for

the time being as being one relating to

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restrictive trade practice within the meaning

of this sub-section pursuant to any

recommendation made by the Commission in this

behalf,

(i) any agreement to enforce the carrying

out of any such agreement as is referred to in

this subsection."

Clauses (a) to (1) of Section 33(1) specify different types

of agreements, which shall be deemed for the purposes of the

Act, to be agreements relating to restrictive trade

practices and shall be subject to registration, in

accordance with the provisions of Chapter V of the said Act.

Section 35 requires the Central Government to specify a day

by notification in the Official Gazette on and from which

every agreement falling within Section 33 shall become

Registerable under the Act. Section 37 vests power in the

Commission to inquire into any restrictive trade practice,

the relevant part whereof is as follows:-

"37. Investigation into restrictive trade

practices by Commission.-(1) The Commission

may inquire into any restrictive trade

practice, whether the agreement, if any,

relating thereto has been registered under

Section 35 or not, which may come before it

for inquiry and, if, after such inquiry it is

of opinion that the practice is prejudicial to

the public interest, the Commission may, by

order, direct that -

(a) the practice shall be discontinued or

shall not be repeated,

(b) the agreement relating thereto shall be

void in respect of such restrictive trade

practice or shall stand modified in respect

thereof in such manner as may be specified in

the order."

The Commission may inquire into any restrictive trade

practice in connection with any agreement which has been

registered under Section 35 or not. If after such inquiry,

the Commission is of the opinion that the practice is

prejudicial to the public interest, the Commission may

direct that the practice shall be discontinued or shall not

be repeated and the agreement relating to any such

restrictive trade practice shall be void and shall stand

modified in respect thereof. In view of Section 38(1) the

restrictive trade practice shall be deemed to be prejudicial

to the public interest unless the Commission is satisfied

about the existence of the circumstances specified in

clauses (a) to (k) in the said sub-section 1 of Section 38

and is further satisfied that restriction is not unreason-

able having regard to the balance between those

circumstances and any detriment to the public.

6. It may be pointed out that originally the main part of

sub-section (1) of Section 33 said:

"33.Registerable agreements relating to

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restrictive trade practices.-(1) Any agreement

relating to a restrictive trade practice

falling within one or more of the following

categories shall be subject to registration in

accordance with the provisions of this

Chapter,namely:-"

By Act No.30 of 1984 that part was substituted w.e.f

1.8.1984:

"33. Registerable agreements relating to

restrictive trade practices - (1) Every

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agreement failing 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

(emphasis supplied)

In the substituted sub-section (1) of Section 33 a deeming

clause has been introduced by the Parliament saying that

every agreement failing within one or more of the categories

mentioned in the said subsection (1) shall be deemed, for

the purposes of the Act, to be an agreement relating to

restrictive trade practices. While amending and

substituting that part of subsection (1) of Section 33, the

Parliament determined and specified that agreements falling

within one or more of the categories mentioned in clauses

(a) to (1) to subsection (1) of Section 33, shall be deemed,

for the purposes of the Act, to be the agreements relating

to restrictive trade practices. This was not the position

in the original sub-section (1) of Section 33.

7. The effect of a statute containing a legal fiction is

by now well settled. The Legislature by a statute may

create a legal fiction saying that something shall be deemed

to have been done which in fact and truth has not been done,

but even then Court has to give full effect to such statu-

tory fiction after examining and ascertaining as to for what

purpose and between what parties such statutory fiction has

been resorted to. In the well known case of East End

Dwellngs Co.Ltd. v. Finsbury Borough Council, (1952) A. C.

109(B), Lord Asquith has said:-

"If you are bidden to treat an imaginary state

of affairs as real, you must surely, unless

prohibited from doing so, also imagine as real

the consequences and incidents which, if the

putative, state of affairs had in fact

existed, must inevitably have flowed from or

accompanied it..... The statute says that you

must imagine a certain state of affairs; it

does not say that having done so, you must

cause or permit your imagination to boggle

when it comes to the inevitable corollaries of

that state of affairs."

This Court in the cases of State of Bombay v. Pandurang

Vinayak and others, AIR 1953 SC 244 = 1953 SCR 773, Chief

Inspector of Mines, and another etc. v. Karam Chand Thapar

etc. AIR 1961 SC 838 = 1962(1) SCR 9, M/s J.K. Cotton

Spinning and Weaving A-fills Ltd. and another v. Union of

India and others, AIR 1988 SC 191 = 1988(1) SCR 700, M.

Venugopal v. The Divisional Manager, Life Insurance

Corporation of India, Machilipatnam,Andhra Pradesh & Anr.

JT 1994(1) SC 281 = 1994(2) SCC 323 and recently in the case

of Harish Tandon v. The Addl.District Magistrate, Allahabad,

JT 1995(1) SC 291, has dealt with in detail the effect of a

statutory fiction and the- limitation of the Court to ignore

the mandate of the Legislature, unless it is violative of

any of the provisions of the, Constitution. So far sub-

section (1) of Section 33 is concerned, it mandates that

agree-

268

ments covered under different clauses of sub-section (1) of

Section 33 shall be deemed for the purposes of the Act to be

agreements relating to restrictive trade practices. By the

deeming clause one is not required to treat any imaginary

state of affairs as real but to treat the agreements

specified and enumerated in sub-section 1 of Section 33 as

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agreements relating to restrictive trade practices. It can

be said that Parliament after having examined different

trade practices, has identified such trade practices which

have to be held as restrictive trade practices for the

purposes of the Act. To keep such trade practices beyond

controversy in any proceeding, a deeming clause has been

introduced in subsection (1) of Section 33 saying that they

shall be deemed to be restrictive trade practices. In this

background, according to us, there is not much scope for

argument that although a particular agreement, is covered by

one or the other clause of subsection 1 of Section 33, still

it shall not amount to an agreement containing conditions

which can be held to be restrictive trade practices within

the meaning of the Act.

8. According to Mr. Desai, the learned counsel, who

appeared on behalf of the appellant, inspite of the

amendment in subsection 1 of Section 33 , the power of the

Commission or of this Court has in no way been curtailed or

abridged and the Commission or this Court, can examine an

agreement for recording a finding as to whether any of the

clauses of such agreement relates to restrictive trade

practices. He pointed out that Section 37 which vests power

in the Commission to examine and investigate any agreement

relating to restrictive trade practices is in two parts, (i)

the Commission is required to examine and ascertain as to

whether any of the terms of a particular agreement relates

to restrictive trade practices (ii) if such agreement

relates to restrictive trade practices whether it is

prejudicial to the public interest. Unless the finding is

recorded in respect of the agreement in question on both

counts, no order under Section 37 of the Act can be passed.

In other words, first it has to be examined as to whether

the agreement relates to any of the restrictive trade prac-

tices and if the Commission is satisfied that it relates to

one or more restrictive trade practices within the meaning

of Section 2(o) of the Act, then the Commission has to

examine as to whether such agreement is prejudicial to the

public interest. The Commission can direct that the prac-

tice be discontinued or should not be repeated or the

agreement or part thereof shall be void, only after the

Commission is satisfied that any of the clauses of the

agreement relates to any restrictive trade practice, within

the meaning of Section 2(o) of the Act and such restrictive

trade practice is prejudicial to public interest. In this

connection, reliance was placed on the judgment of this

Court, in the case of Tata Engg. and Locomotive Co. v. Reg-

istrar, (1977) 2 SCC 55. 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

269

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 re-

spect of territorial restriction and allocation of area or

market for exclusive' dealership was made. It was pointed

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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 restric-

tive trade practice. The Commission held that the practice

of allocation of territories to Telco's dealers was not

justified. But this Court said--

"The decision whether trade practice is

restrictive or not has to be arrived at by

applying the rule of reason and not on the

doctrine that any restriction as to area or

price will per se be a restrictive trade

practice. Every trade agreement restrains or

binds person or places or prices. The

question is whether the restraint is, such as

regulates and thereby promotes competition or

whether it is such as may suppressor even

destroy competition. TO determine this

question three matters are to be considered.

First, what facts are peculiar to the business

to which the restraint is applied. Second,

what was the condition before and after the

restraint is imposed. Third, what is the

nature of the restraint and what is its actual

and probable effect."

It was further said in respect of sub-section 1 of Section

33 as it stood then that it deals with registration of

certain types of restrictive trade practices, which had been

prescribed in categories mentioned in clauses (a) to (1) of

sub-section 1 of Section 33 of the Act. It was then said:-

"An agreement will be Registerable, when it

will have both the effect of restricting

competition within the meaning of Section 2(o)

of the Act and also deal with the subject

matter described in Clauses (a) to (1) of sub-

section (1) of Section 33 of the Act. Clauses

(a) to (1) aforesaid describe some species of

agreement which require registration if they

are within the genus of restrictive trade

practice defined in Section 2(o) of the Act.

A practice which is not restrictive under Sec-

tion 2(o) of the Act cannot be restrictive

trade practice only because of Clauses (a) to

(1) of sub-section (1) of Section 33 of the

Act. Section 33 does not provide statutory

illustrations to Section 2(o) of the Act but

only enumerates some types of trade practices

which, if they are restrictive within Section

2(o) of the Act require registration."

Court in the aforesaid judgment on basis of sub-section 1 of

Section 33 as it was then held that a practice which is not

restrictive trade practice under Section 2(o) of the Act,

cannot be held to be restrictive trade practice, only

because of clauses (a) to (1) of sub-section 1 of Section

33 of the Act. Again in the case of Mahindra and Mahindra

Ltd. v Union of India, (1979) 2 SCC 529, after making

reference to the aforesaid case of Tata Engg. and Locomotive

Co. (supra) it was said:-

"It is now settled law as a result of the

decision of this Court in the Telco case that

every trade practice which is in restraint of

trade is not necessarily a restrictive trade

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practice. The definition of

270

restrictive trade practice given in Section

2(o) is a pragmatic and result-oriented

definition. It defines 'restrictive trade

practice' to mean a trade practice which has

or may have the effect of preventing,

distorting or restricting competition in any

manner and in clauses (i) and (ii),

particularises two specific instances of trade

practices which fall within the category of

restrictive trade practice. It is clear from

the definition that it is only where a trade

practice has the effect, actual or probable,

of restricting, lessening or destroying

competition that it is liable to be regarded

as a restrictive trade practice. If a trade

practice merely regulates and thereby promotes

competition, it would not fall within the

definition of. restrictive trade practice,

even though it may be, to some extent, in

restraint of trade. Whenever, therefore, a

question arises before the Commission or the

Court as to whether a certain trade practice

is restrictive or not, it has to be decided

not on any theoretical or a priori reasoning,

but by inquiring whether the trade practice

has or may have the effect of preventing,

distorting or restricting competition. This

inquiry obviously cannot be in vacuo but it

must depend on the existing constellation of

economic facts and circumstances relating to

the particular trade. The peculiar facts and

features of the trade would be very much

relevant in determining whether a particular

trade practice has the actual or probable

effect of diminishing or preventing

competition and in the absence of any material

showing these facts or features, it is

difficult to see how a decision can be reached

by the Commission that the particular trade

practice is a restrictive trade practice."

9. 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

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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

Par-

271

liament 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 be registered.

10.Now the question which still remains to be answered is as

to whether after the amendment in sub-section 1 of Section

33 and after registration of an agreement, the scope of

inquiry by the Commission under Section 37 in respect of the

agreement, has been curtailed and the Commission has now to

examine only one question as to whether such practice is

prejudicial to the public interest.

ll. On behalf of the appellant, it was pointed out that

Section 37 contemplates and conceives inquiry in respect of

any restrictive trade practice relating to an agreement

which has been registered under Section 35 as well as an

agreement which has not been so registered. As such per-

sons 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

not got their agreements registered.

12.It was also urged that while amending sub-section 1 of

Section 33, Section 2(o) was not deleted or substituted and

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that has left an apparent conflict between Section 2(o) and

Section 33(1) of the Act. According to 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 Section 2(o).

13.It was pointed out on behalf of the appellant that after

the amendment of sub-

272

section 1 of Section 33, there is no forum where a person

can show that although at a first look, it may appear that

any of the clauses of the agreement, relates to a re-

strictive trade practice specified in clauses (a) to (1) of

sub-section 1 of Section 33, but such clauses cannot be held

to be covered by any of the clauses. According to 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 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

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competition to any material degree in any

relevant trade or industry and is not likely

to do so;

If the Commission 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 Lo-

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comotive Co. (supra) this Court pointed 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 likes. 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 Telco's

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 of 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 Com-

mission 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 dis-

cussion is only in para 40 of the Order under appeal which

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 12

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 parties 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 the

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

774

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.

17. Accordingly, the appeals are allowed. The impugned

order passed in the 15 enquiries by the Commission is set

aside and the Commission is directed to examine the

questions involved afresh on the basis of the material

produced on behalf of the parties. It will be open to the

Commission to require any of the parties to adduce further

evidence, oral or documentary, in order to enable it to come

to the conclusion one way or the other. In the facts and

circumstances of the cases, there shall be no orders as to

cost.

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