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TMI Blog2004 (3) TMI 435X X X X Extracts X X X X X X X X Extracts X X X X ..... he supply of Philips products "at least to the extent of the supply made in the year 1986" subject to the placement of necessary orders by the complainant. 2. The factual background leading to the filing of the complaint is as follows: The appellant Company manufactures and sells certain audio products. It has a vast network of dealers-about 1800 throughout the country who are appointed on principal to principal basis. In Gwalior, the appellant had a dealer by name M/s. Evergreen operating since long from its shop at Sarafa Bazar. In the year 1985, the appellant appointed the 2nd respondent (hereinafter referred to as 'R-2' or 'complainant') having its place of business at Gwalior as another dealer. An agreement dated 15-11-1985 which, it is not in dispute, is in standard form was entered into. Clause 29 of the Agreement provided for termination of agreement by either party by giving to the other 30 days notice in writing. In terms of this clause, the appellant by its notice dated 23-9-1987 gave 30 days notice to R-2, terminated the dealership on expiry of the notice period. According to the appellant, such a step was taken as it was not satisfied with the performance of R-2, R-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he inquiry, the Commission issued an order of ad interim injunction. However, it was stayed by the Bombay High Court on a writ petition filed by the appellant. 3. The appellant while denying the charges took the stand that the complainant was not conducting the business properly inasmuch as the sales dropped considerably during the period January, 1987 to September, 1987, that the complainant delayed retirement of documents on more than one occasion and even issued a cheque which was dishonoured by the Bank. The appellant pleaded that the power reserved to it under Clause 29 of the Agreement was bona fide exercised in its business interest. The Commission came to the conclusion that the allegations 3 and 5 (supra) stood proved and the other allegations were not established. However, while discussing charge No. 2, the Commission having held that the allegation of dumping of unwanted products has not been proved and that the refusal to send supplies as per the orders of the complainant was quite justified having regard to the defaults on the part of the dealer, declared that Clause 7 of the Agreement per se amounted to restrictive trade practice and therefore the respondent shall ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the complainant from selling the products from Sarafa Bazar shop of the complainant. In this context, the affidavit of the complainant's witness and the repeated letters addressed by the complainant have been referred to by the Commission. The Commission took note of the fact that the appellant sent no reply to these letters and at no point of time, made it clear to the complainant that it had no objection to the products being sold from Sarafa Bazar complex. The Commission observed that even if the complainant had occasionally sold some products from Sarafa Bazar, it does not demolish the complainant's case that it was not allowed to sell from Sarafa Bazar where the other dealer was having his showroom. We cannot interfere with this finding of fact. If that be so, the act of the appellant falls within the ambit of restrictive trade practice. By virtue of section 33, read with Clause (g) an agreement to allocate any area or market for the disposal of the goods is deemed to be an agreement relating to restrictive trade practice. The appellant cannot take the plea that in the absence of any such restriction in the Agreement itself, he is free to impose such restriction in the cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was discrimination in the matter of supply of goods. Not a word is said about it. We are pointing out this particular aspect for the reason that charge No. (v) held to have been proved by the Commission is widely couched and it speaks of favourable treatment to M/s. Evergreen in regard to supply of goods. There is no finding of the Commission on this aspect of the case. Yet, the Commission proceeded on the basis that the charge as a whole was proved. Be that as it may, there is a formidable difficulty in sustaining this charge. The Commission held that the act of discrimination, as found by it, is a restrictive trade practice within the meaning of section 2(o)( ii) of the Act. The said provision reads : "(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)****** (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;" If Clause (ii) has to be applied, there must be a fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Commission, Clause 7, in its present form, has the potential of bringing about a restrictive trade practice and therefore it should be amended. We are inclined to endorse the view of the Commission on this point. Clause 7 with its sweeping phraseology, is heavily weighted in favour of the appellant. Taking umbrage under the later part of clause 7, the appellant can arbitrarily withhold or delay the supply of goods without assigning any reason and yet disown its responsibility or liability arising out of its arbitrary action. The Commission is justified in holding that it is per se a restrictive trade practice. An agreement to limit, restrict or withhold the output or supply of any goods falls within the mischief of clause (g) of section 33(1) and therefore it must be deemed to be an agreement relating to restrictive trade practice as per the mandate of section 33(1). When once it is held that any clause of the Agreement comes within the sweep of Clauses (a) to (l) of sub-section (1) of section 33, no further enquiry is required to find out whether it falls within the parameters of section 2(o). This legal position has been settled by a three Judge Bench of this Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 33 are in the nature of statutory illustrations of restrictive trade practices. Faced with this difficulty, the learned counsel for the appellant harped on the argument that the offensive nature of Clause 7 was not the subject-matter of charge and enquiry and therefore no direction should have been given by the Commission for the deletion/amendment of Clause 7, especially when charge No. (ii) has not been sustained. We find it difficult to accept this contention, though plausible it is. 11. Though in the notice of inquiry, the Commission did not specifically refer to the invalidity of Clause 7, we find from the pleadings and the order of the Commission that this issue did crop up for consideration and the parties did advance arguments on this point at length. It may be noticed that in the rejoinder the complainant while referring to the averments in para 5 of the reply, challenged the appellant's version that there were restrictive provisions in the Agreement "giving arbitrary discretion to the Company in meeting with the dealer's requirement". It is not in dispute that arguments were advanced on this aspect as well. It is obvious that the Commission need not confine itself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontention No. 3, the Commission's directive cannot be implemented in so far as the present Agreement is concerned. At the same time, the appellant shall not be allowed to perpetuate the unfair trade practice inherent in clause 7 of the standard form Agreement. We, therefore, consider it just and proper to modify the order of Commission by directing that the appellant should take steps to purge the restrictive trade practice by suitably amending clause 7 or identical clause wherever it occurs in all the Agreements with its dealers and file a report to the Commission accordingly. Re : Contention No. 3 (Termination of Agreement) 13. The next ground of attack is on the order of the Commission restraining the appellant from acting on letter of termination of dealership and further directing the supply of Philips products "at least to the extent of supply made in the year 1986." It is contended that the contract having been terminated, the Commission had no power and jurisdiction to keep the contract alive. To buttress this argument, the learned counsel for the appellant has referred to the provisions of sections 14 and 41 of the Specific Relief Act and contended that the contract, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se to restrictive trade practices or that the termination under clause 29 is a cloak to circumvent clause 28 in order to go ahead with the restrictive trade practices. In fact, some of the findings of the Commission, which we have already adverted to, indicate that there was some justification to feel dissatisfied with the manner of conducting business by R-2. The fact also remains that a number of letters which R-2 had been writing to the appellant protesting against alleged unfairness and discriminatory treatment, evoked no response from the appellant. Thus, when there is much to be said on both sides, the Commission should have recorded a specific finding on the lines indicated above. No reason, whatsoever, has been given as to why the contract which was terminated ostensibly in exercise of the right reserved under the Agreement should be revived. Obviously, the direction of this nature cannot be construed to be one made with a view to compensate the loss to the complainant. As far as the compensation for the loss is concerned it is section 12A which is applicable and an application has already been filed under that provision. Of course, it is open to the Commission to pass suit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1)(a) could be passed in relation to the restrictive trade practice held proved against the appellant therefore becomes academic. 16. The conclusions we have reached are summed up as follows : 1.The finding of the Tribunal on charge No. III is upheld. 2.The finding in respect of the charge No. V is unsustainable. 3.The Commission is justified in holding that clause 7 of the Agreement is a restrictive trade practice within the meaning of clause (g) of section 33(1) of M.R.T.P. Act and it has the effect of distorting or restricting competition. The direction of the Commission to amend clause 7 suitably is correct. Irrespective of the termination of the Agreement between appellant and R-2, the appellant should take steps to amend a similar clause existing in other agreements of similar nature with the dealers. 4.The Commission exceeded its jurisdiction in giving a direction no to give effect to the letter terminating the Agreement and to restore the supplies to the complainant. Such a direction cannot be sustained in the absence of a finding that the termination of Agreement was contrary to the provisions of the Act or it is a device to circumvent the provisions of the Act so as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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