9911796707
TMI Blog1977 (1) TMI 169X X X X Extracts X X X X X X X X Extracts X X X X ..... orting 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. 4. Section 33 of the Act provides that any agreement relating to a restrictive trade practice falling within one or more of the categories (a) to (1) specified in Subsection (1) thereof shall be subject to registration. 5 . Section 37 of the Act provides that the Commission may enquire into any restrictive trade practice, whether the agreement, if any, relating thereto has been registered under Section 35 or not which may come before its enquiry, and if, after such enquiry 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ys" to trade. The essence of the section is that when it is found by the Commission that such restrictions are necessary or justified in the circumstances mentioned in the section restrictions are permitted. Again the balancing clause after Clause (h) in Section 38 of the Act, indicates when the restriction is not unreasonable having regard to the balance between the circumstances mentioned in the section and detriment to the public resulting from the operation of the restriction. 9. Telco is a public limited company and is a leading manufacturer of heavy and medium commercial vehicles. The capital investment required for a new factory in this trade is of a high order. At present there are only four principal manufacturers of commercial vehicles. These are The Hindustan Motors Ltd., Premier Automobiles Ltd. and Ashok leyland Ltd. and Telco. 10. The supply of commercial vehicles is said to be below the demand. The scarcity of supply is particularly accentuated in the case of Telco's vehicles as they are in great demand all over the country and abroad. The export of Telco was over 80% of the total exports of commercial vehicles from the country during the year 1974-75. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provide for re sale price maintenance and Clause 14 provides for exclusive dealership. The Registrar submitted that Clauses 1, 3, 6 and 14 show that the company is indulging in restrictive trade practices inter alia relating to allotment of territories/areas among its dealers and exclusive dealings and Telco is not willing to abandon the restrictive trade practices. It is significant to notice that no particulars of such alleged restrictive trade practices were set out in the application. 14. Clauses 1, 3, 6 and 14 in so far as they are appropriate to the present appeal are as follows: 1 . (a) The Dealer agrees to buy from the Regional Sales Office of the Company regularly from time to time on principal to principal basis all such new Tata diesel truck and bus chassis with or without cab and/or body (hereinafter referred to as "the said vehicles") for resale within the territory described hereunder (hereinafter called "the said territory") in accordance with the provisions of this Agreement (b) This Agreement shall not, preclude the Company from entering into or continuing any dealership agreement or agreements with any other person or persons within the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set out in Section 38 of the Act and any alleged detriment to the customers of Telco and/or the competitors of Telco allegedly resulting or likely to result from the operation of these restrictions. 17. The Commission held that the moment an agreement contained a trade practice falling within any of the clauses in Section 33(1) of the Act, the trade practice must be regarded as a restrictive trade practice. The Commission held that all the clauses alleged in the petition of the Registrar amounted to restrictive trade practices. The Commission further said that in regard to Clauses 6 and 13 in the light of the assurance given by Telco that in its future price lists it would specifically state that the dealer is free to charge on the resale of Telco's vehicles, prices lower than the maximum prices fixed by Telco, no order was required to be passed regarding the alleged practice of maintenance of minimum resale prices. 18. The Commission further held that although the contractual term that the dealers could deal only in Telco's vehicles was a restrictive trade practice, it was not against public interest as it fell within Sub-clauses (a), (b) and (h) and the balancing clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or beneficial result of the restriction is relevant only for purposes of Sections 37 and 38 of the Act. 23. Section 33 of the Act states that any agreement relating to a restrictive trade practice falling within one or more of the categories mentioned therein shall be subject to registration in accordance with the provisions of Chapter V of the Act Clauses (a) and (d) in Sub-section (1) of Section 33 are relevant in the present case. These are, inter alia, (a) any agreement which restricts or is likely to restrict by any method the per sons or classes of persons to whom goods are sold or from whom goods am bought and (d) any agreement to purchase or sell goods or to tender for the sale or purchase of goods only at prices or on terms or conditions agreed upon between the sellers or purchasers. 24. The definition of restrictive trade practice is an exhaustive and not an inclusive one. The decision whether a 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 persons or places or prices. The ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alers containing the restriction on the dealer not to sell the commercial vehicles of Telco in other territories falls within the vice of a restrictive trade practice. 27. Under the Act, action can be taken against a restrictive trade practice. Therefore, when the authorities under the Act want to challenge any agreement or any practice as a restrictive trade practice, it has to be established that it is a restrictive trade practice within the definition of the Act. If it is found to be a restrictive trade practice the next stage is to register agreements relating to a restrictive trade practice. Section 33 states that any agreement relating to a restrictive trade practice falling within one or more of the categories mentioned therein shall be subject to registration, The authorities have to examine the agreement and find out whether it falls within the vice of a restrictive trade practice before the authorities can ask that the agreement be registered under Chapter V of the Act. 28. It is only after an agreement has been registered that there is an enquiry under Chapter VI of the Act. This enquiry under Section 38 of the Act is to find out whether a restrictive trade practice is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime of arguments it was suggested that Telco exports now vehicles worth ₹ 10 crores. 32. The clauses relating to territorial restriction in the present case do not constitute, restrictive trade practice for the following reasons: 33. The domestic market in India is spread over this vast sub-continent with very diverse conditions of roads, population and demand. It is essential for the community, the consumer and the manufacturer to have- an equitable geographical distribution of his vehicles. Vehicles may be required for operation in any part of India and public interest requires that the channels of communication should be open throughout the country. These vehicles should ply even in the remotest areas like Ladakh, Nagaland, etc. 34. A user of Telco vehicles expects to get all over the country the service of a high standard enjoined by Telco upon its dealers. Telco on its part also needs a countrywide network of dealers so that sales take place and the dealers can maintain the service stations, spare part stocks and workshops with the requisite equipment, machinery and trained personnel all over the country. This also enables the consumers to rely on Telco's vehicles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus a vehicle plies on an average over a lakh of kilometers per year, The heavy investment also makes it necessary that a vehicle should be constantly on the move. The owner can ill-afford to waste time and requires easily accessible and prompt Service Stations, Workshops and stocks of spares. The purchaser regards the truck as a life-time in vestment. The purchaser looks to the dealer for prompt after-sales service and repairs. Since 80% of truck operators are individual operators and often have scant mechanical knowledge, they have to depend upon the dealer for keeping the truck moving with the necessary trained personnel, workshops, service stations and stocks of spares, As a result of these characteristics, the relationship between a dealer and the truck purchaser is much more constant than with the car purchaser. The standard of service he expects is more vigorous and prompt. 37. Vehicles of Telco are in keen demand, both because of their quality as also because of the assurance of efficient after- sales service by the network of Telco dealers. These requirements cannot be met unless there is a network of dealers with specific territories. It is essential from the angle of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parts, shop, canteen and also (a) rest house for drivers; (b) equipment and machinery for maintenance and repairs; (c) Set or sets of special tools specially designed for carrying out repairs to Telco's vehicles; (d) Technical personnel including personnel trained by the appellant at its factory in Jamshedpur and (e) Adequate stock of spare parts to meet the potential demand in the territory. 40. Telco has set up 13 zonal offices throughout India at New Delhi, Kanpur, Ahmedabad, Indore, Bombay, Bangalore, Madras, Vijyawada, Bhubanashwar,Jamshedpur, Gauhati, Jullunder and Jaipur. If territorial restriction is removed, there will be a tendency for persons to book orders in (other?) areas thus starving the consumers of that area of their equitable share and disrupting the flow of vehicles in both areas. This will create pockets of artificial scarcity and dislocate the network. If the dealer is not assured of a steady demand in his territory, he may have no incentive or may not find it economic to organise proper after-sales-service. This would also result in dealers diverting their supplies to metro cent res starving the semi-urban and rural areas. 41. Network of dealers and se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto the market leaving some territories unsupplied. In order to pre vent this undesirable position dealers were appointed for different territories and care was taken consistently to see that all parts of the country are treated equally and fairly. 44. The exclusive dealings do not 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 vehicle with all the attending advantages of trained personnel; special service stations, workshops and spare parts. Each set of special tools costs approximately ₹ 55,000. The set is suitable for servicing one vehicle at a time. Some dealers like the United Motors Pvt. Ltd., Bombay have four sets at Colaba, Wadi Bunder, Jogeshwari and Chembur. The investment of United Motors is approximately ₹ 24 lakhs. It is estimated that one service station with special tools of Telco and workshop equipment will cost as much as Rupees five lakhs 45. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n blocked by the fact that the dealers appointed by Telco are 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. If Telco sold themselves in each territory it could not be said that Telco was pursuing any restrictive trade practice, Would the position change if Telco asked their dealers not to sell Telco bus chassis outside the dealer's territory? Just as Telco could not compete with itself similarly dealers would not compete with one another. 49. The competition would be between Telco products and the products of the other manufacturers Premier, Hindustan and Leyland. Restrictive trade practice is based on reason, embodied in Section 2(o) of the Act. When trucks are in short supply and dealers are restrained from selling at above the maximum price they cannot sell below the maximum price and compete with one an-other. Dealers of the same manufacturer do not compete with one another in every case irrespective of the market conditions or the character of the product sold. 50. Competition between dealers appointed by the same manufacturer can be reduced when there is a pra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... production or to bring about manipulation of prices or conditions of delivery or to affect the flow of supplies in like market relating to goods or services in such manner as to impose on the consumers unjustified costs or restrictions. 54. In the present case the restriction imposed by Telco on dealers not to sell bus and chassis outside their territories does not restrict competition for the foregoing reasons. 55. The other term of exclusive dealership in Clauses 6 and 14 of the agreement between Teloo and the dealers that the dealer will not sell commercial vehicles of other manufacturers, does not amount to a restriction in competition because other manufacturers can appoint other persons to deal in their commercial vehicles. It is also in public interest to see that vehicles of other manufacturers are sold in the same territory by other dealers. Therefore, there will be competition between the manufacturers of different commercial vehicles and as far as exclusive dealership of Telco commercial vehicles is concerned, it will be in public interest and not be a restriction in competition. 56. The two terms of restriction on; dealers, namely, sale being confined within; the te ..... X X X X Extracts X X X X X X X X Extracts X X X X
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