1977 (4) TMI 182 - SC - Indian Laws

Summary

Issues Involved:
1. Legality of Clauses 5 and 9 of the Redistribution Stockists Agreement.
2. Definition and application of "restrictive trade practice" under the Monopolies & Restrictive Trade Practices Act, 1969.
3. Relevance of motives of the informant in proceedings before the Commission.
4. Applicability of the "per se rule" versus the "rule of reason."
5. Justification of powers under Clause 9 through public interest (section 38 of the Act).
6. Necessity of extraneous evidence in interpreting the clauses.

Issue-wise Detailed Analysis:

1. Legality of Clauses 5 and 9 of the Redistribution Stockists Agreement:
Clause 5 required stockists to maintain adequate stocks and follow the company's instructions, including maximum resale prices. Clause 9 restricted stockists from conveying stocks outside specified towns without the company's written permission. The Commission found these clauses to constitute unreasonable and illegal restrictions. Clause 5 was modified to remove the company's discretion in sending stock to stockists, and Clause 9 was declared void.

2. Definition and Application of "Restrictive Trade Practice":
The Court examined whether the clauses amounted to restrictive trade practices under section 2(o) of the Act, which includes practices that prevent, distort, or restrict competition. The Court held that the introduction of such clauses itself constituted a trade practice that could restrict competition, thus falling within the definition of restrictive trade practice.

3. Relevance of Motives of the Informant:
The Court deemed the motives of the informant irrelevant. The focus was on whether the clauses in the agreements amounted to restrictive trade practices, not on the informant's reasons for filing the complaint.

4. Applicability of the "Per Se Rule" versus the "Rule of Reason":
The appellant argued for the application of the "rule of reason" as opposed to the "per se rule," citing the Telco case. The Court clarified that the rule of reason involves considering the facts peculiar to the business, the condition before and after the restraint, and the nature and probable effect of the restraint. The Court found that the clauses in question, by their plain meaning, imposed unreasonable restrictions and did not require further extraneous evidence.

5. Justification of Powers under Clause 9 through Public Interest (Section 38 of the Act):
The appellant failed to justify the wide powers conferred by Clause 9 as serving public interest under section 38 of the Act. The Commission and the Court found no evidence to justify such powers, which were deemed unreasonable and restrictive.

6. Necessity of Extraneous Evidence in Interpreting the Clauses:
The Court held that extraneous evidence was unnecessary for interpreting the clauses, as their meanings and effects were clear from the language used. The introduction of such clauses was itself a restrictive practice, and their potential misuse justified their modification or removal.

Conclusion:
The Supreme Court upheld the Commission's order, modifying Clause 5 and voiding Clause 9 of the Redistribution Stockists Agreement. The appeal was dismissed with costs, and the company was directed to comply with the modifications within six months. The judgment emphasized the importance of interpreting contractual clauses in light of their potential to restrict trade, without necessarily relying on extraneous evidence.