2008 (5) TMI 414 - SC - Companies Law

Whether the alleged restrictive trade practice is prejudicial to public interest within the meaning of section 38 of the MRTP Act? Held that - Appeal allowed. In the instant case, the complainant/informant had requested for refund of the security amount and, therefore, it was refunded. It was really not a case of termination of dealership . There was no charge or allegation of termination of dealership in the notice of enquiry, therefore, the Commission was not justified in passing the order based on termination of dealership . Even otherwise also, the termination of single dealership cannot affect competition to any material degree in the relevant trade or industry within the meaning of clause (h) of section 38(1) of the MRTP Act.

Issues Involved:
1. Allegation of restrictive trade practice under sections 2(o)(ii) and 33(1)(b) of the MRTP Act.
2. Validity of the complaint under section 10(a)(i) and (iv) of the MRTP Act.
3. Establishment of a "tie-up" sales practice.
4. Impact of alleged restrictive trade practice on competition and public interest.
5. Termination of dealership and its implications.

Issue-Wise Detailed Analysis:

1. Allegation of Restrictive Trade Practice:
The appellants were issued a Notice of Enquiry under sections 10(a)(iv) and 37 of the MRTP Act, alleging that they indulged in restrictive trade practices as defined under sections 2(o)(ii) and 33(1)(b). Specifically, it was alleged that the appellants imposed a condition requiring the purchase of trousers to obtain other garments like blazers, suits, and safaris.

2. Validity of the Complaint:
The appellants contended that a complaint under section 10(a)(i) could not be entertained from a retail dealer who was not a consumer. However, the Commission treated the complaint as "information" under section 10(a)(iv) and initiated a suo motu enquiry.

3. Establishment of a "Tie-up" Sales Practice:
The complainant, M/s. Roop Milan, alleged that their dealership was terminated when they refused to place substantial orders for trousers. Evidence presented by the respondent included letters and a refund memo. The Commission concluded that the appellants compelled the complainant to purchase trousers to get other garments, thus establishing a "tie-up" sales practice.

The appellants argued that the evidence did not support the allegation of a "tie-up" sales practice. They claimed that all garments, including trousers, were in high demand and short supply, negating the need for a tie-up. The Sales Manager of appellant No. 2 testified that orders were fulfilled based on stock availability, not tied sales.

4. Impact on Competition and Public Interest:
The Commission held that the appellants' practices restricted competition and were prejudicial to public interest. The termination of the dealership reduced the number of retail dealers, thus affecting competition in the local market. However, the appellants argued that their market share was negligible and did not materially affect competition. They cited precedents from Tata Engineering & Locomotive Co. Ltd. v. Registrar of the Restrictive Trade Agreement and Mahindra & Mahindra Ltd. v. Union of India to support their position.

The court emphasized that for an order under section 37, it must be shown that the restrictive trade practice materially affected competition. The appellants' evidence indicated that competition was not materially affected, as there were several manufacturers in the market.

5. Termination of Dealership:
The Commission's finding that the dealership termination constituted a restrictive trade practice was contested by the appellants. They argued that the complainant had requested the return of their security deposit, which was refunded, and thus, there was no termination. The court agreed, noting that the Notice of Enquiry did not allege dealership termination, and even if it did, it would not materially affect competition.

Conclusion:
The Supreme Court found that the evidence did not establish a "tie-up" sales practice. The court held that the restrictive trade practice alleged did not materially affect competition and was not prejudicial to public interest. The termination of the dealership was not proven and did not impact competition. Consequently, the appeal was allowed, the Commission's order was set aside, and the Notice of Enquiry was discharged.

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