TMI Blog1979 (1) TMI 194X X X X Extracts X X X X X X X X Extracts X X X X ..... . N. Haksar and Shri Narain for the Appellant. Soli J. Sorabjee, R. B. Datar and Girish Chandra for the Respondent. JUDGMENT Bhagwati, J. This appeal under section 55 of the Monopolies and Restrictive Trade Practices Act, 1969 (hereinafter referred to as "the Act"). raises interesting questions of law relating to the interpretation and application of certain provisions of the Act. The facts giving rise to the appeal are for the most part undisputed and they may be briefly stated as follows : The appellant is a public limited company engaged in manufacture and sale of jeep motor vehicles and their spare parts and accessories. Since 1947, the appellant was marketing and distributing jeep motor vehicles and it had set up a large and complex network of dealers, who were described as distributors, for marketing and after-sale service of such vehicles. In or about 1956 the appellant started manufacturing its own jeep motor vehicles and since then it has been manufacturing such vehicles and distributing and marketing the same through its net work of distributors. The appellant has appointed these distributors for marketing and sale of jeep motor vehicles on certa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... like shall in no event be considered as a reduction in price.......... Section (17): Care of owner and customer relations Distributor agrees . ( e )To refrain from selling or offering for sale any competing product. The Company shall be the sole judge as to whether a product is competing or not". The appellant by its letter dated 27th January, 1971, submitted to the Registrar of Restrictive Trade Agreements (hereinafter referred to as "the Registrar") certified copies of agreements entered into by the appellant with the distributors for registration, since in the opinion of the appellant, they were registrable under the provisions of Chap. V of the Act. The appellant also submitted to the Registrar along with its letter dated 19th May, 1972, four copies of the standard distributorship agreement for registration in terms of clause ( ii ) of rule 12 of the Monopolies and Restrictive Trade Practices Rules, 1970 (hereinafter referred to as "the Rules"), and the standard distributorship agreement was registered by the Registrar under section 35 of the Act. On 17th December, 1975, the Registrar made an application to the Monopolies and Restrictive Trade Practices Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... requirements of regulations 65 and 67 failing which the Commission would proceed with the inquiry in the absence of the respondent. The appellant, by its letter dated 3rd February 1976, ackowledged receipt of the notice and intimated to the Commission that it did not wish to be heard in the proceedings before the Commission but put forward its submissions in regard to the restrictive trade practices alleged by the Registrar in his application. The appellant pointed out that the clauses of the standard distributorship agreement complained of by the Registrar did not constitute restrictive trade practices for the reasons explained in the letter and requested the Deputy Secretary to place their submissions before the Commission at the enquiry to be held by it. The letter was purported to be submitted in terms of regulation 36(3), but the reference to this regulation was obviously under some misapprehension because this regulation occurred in Chap. V which provided the procedure for reference under Chaps. III and IV and it had no application in case of an inquiry under section 37 of the Act. The Joint Secretary (Legal) of the Commission pointed out to the appellant by his letter dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces stipulated by the respondent unless it is clearly stated that prices lower than those prices may be charged. The respondent is hereby directed that in all future price lists it must state on the cover or on the front page that the prices if any indicated therein as resale prices are maximum prices and that the prices lower than those prices may be charged. (4)The respondent is hereby restrained and prohibited from allocating any area or market to any distributor or dealer for the disposal of the respondent's goods. (5)The respondent is hereby restrained and prohibited from prevent-ing any distributor from appointing any dealer of its own choice on such terms and conditions as may be mutually agreed upon between distributors and dealers in cases where the respondent does not undertake any obligation, liability or responsibility in respect of the dealers. (6)The clauses in the agreements relating to the above restrictive trade practices are hereby declared to be void. The practices arising therefrom shall be discontinued and shall not be repeated. (7)The respondent shall within 3 months from the date of service of this order on it make and file an affidavit before the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmission by its order dated 7th December, 1976, directed that the revised distributorship agreement should be filed by the appellant by 31st March, 1977. Now, it appears that subsequent to the order of the Commission dated 7th December, 1976, an important decision was given by this court in Tata Engineering Locomotive Co. Ltd. v. Registrar of Restrictive Trade Agreements [1977] 2 SCR 685 ; 47 Comp. Cas. 520 (SC), relating to the interpretation of some of the relevant provisions of the Act bearing on restrictive trade practices. This decision was given in an appeal preferred by Tata Engineering Locomotive Co. Ltd. (hereinafter referred to as "the Telco") against an order made by the Commission in an enquiry under section 37 and it reversed the view taken by the Commission in several important respects. Though this decision was given on 21st January, 1977, it was not fully reported until March, 1977, and on reading it, the appellant felt that the order of the Commission dated 14th May, 1976, required reconsideration, as it was contrary to the law laid down in this decision. The appellant accordingly made an application to the Commission on 31st March, 1977, where, besides a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which was a highly competitive product was another material change in the relevant circumstances which justified the revocation, amendment or modification of the order dated 14th May, 1976. This application for amendment was opposed by the Registrar on the ground that it was made at a very late stage of the proceeding. The Commission did not pass any order on this application for amendment and kept it pending and proceeded to dispose of the main application by an order dated 28th February, 1978, by which it rejected the main application with costs and added a short order on the same day stating that, in view of the order on the main application, there would be no order on the application for amendment. The appellant thereupon preferred the present appeal in this court under section 55 challenging the validity of the order made by the Commission rejecting the application of the appellant. Before we set out the rival contentions of the parties in the appeal, it would be convenient at this stage to refer to the relevant provisions of the Act and the Regulations. Section 2 is the definition section and clause ( u ) of this section defines "trade practice "to mean, "any practice r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. We fail to see any reason why the Central Government could not make the necessary appointments and properly constitute the Commission in accordance with the requirements of the Act. It is difficult to believe that legal and judicial talent in the country had become so impoverished that the Central Government could not find a suitable person to fill the vacancy of chairman for a year and a half. Moreover, it must be remembered that the appointments, after all, have to be made from whatever legal and judicial talent is available and the situation is not going to improve by waiting for a year or two : a new star is not going to appear in the legal firmament within such a short time and the appointments cannot be held up indefinitely. Indeed, it is highly undesirable that important quasi-judicial or administrative posts should remain vacant for long periods of time, because apart from impairing the efficiency of the functioning of the statutory authority or the administration, inexplicable delay may shake the confidence of the public in the integrity of the appointments when made. Turning back to the provisions of the Act, we find that section 10( a )( iii ) empowers the Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r satisfied, after balancing the competing considerations, that the restriction is not unreasonable. These circumstances specified in sub-section (1) of section 38 render a trade practice permissible even though it is restrictive and provide what have been picturesquely described in the English law as "gateways "out of the prohibition of restrictive trade practices. Section 55 is the next relevant section and it provides that any person aggrieved by any order made by the Central Government under Chap. III or Chap. IV or, as the case may be, of the Commission under section 13 or section 37 may, within 60 days from the date of the order, prefer an appeal to the Supreme Court on one or more of the grounds specified in section 100 of the Code of Civil Procedure, 1908" This is the section under which the present appeal has been preferred by the appellant. The last section to which we must refer is section 66 which confers power on the Commission to make regulations for the efficient performance of its functions under the Act. The Commission has, in exercise of the power conferred by this section, made the regulations of which three are material, namely, regulations 65, 67 and 85. These ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strar on which the order dated 14th May, 1976, was made did not set out any facts or features showing how the trade practices referred to in the application were restrictive of competition so as to constitute restrictive trade practices and merely contain a bald recital of the impugned clauses and mechanical reproduction of the language of the relevant sections without anything more. The application of the Registrar was thus not in accordance with the law laid down in the decision of this court in Telco's case [1977] 47 Comp. Cas. 520 (SC) and no order could be made upon it by the Commission. It was also urged that there was no material placed before the Commission by the Registrar on the basis of which the Commission could possibly come to the conclusion that the trade practices referred to in the application were restrictive trade practices. Even if the Commission was justified in proceeding ex parte against the appellant, the highest that could be assumed in favour of the Registrar was that the facts set out in the application and the supporting affidavit of the Assistant Registrar would be deemed to be admitted, but, apart from the impugned clauses, no other facts were set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt only on a substantial question of law and since the contentions raised on behalf of the appellant did not raise any substantial question of law, the appeal was not maintainable. The respondents also urged that on a proper construction of section 13(2) read with regulation 85, the Commission could revoke or amend the order dated 14th May, 1976, only if there was a material change in the relevant circumstances since the making of the order or any of the grounds specified in Order XLVII, rule 1, of the Code of Civil Procedure, 1908, was available to the appellant. The second and third grounds specified in Order XLVII, rule 1, obviously did not exist in the present case and the claim of the appellant for exercise of the power under section 13(2) could, if at all, rest only on the first ground, namely, error of law apparent on the face of the record. But, said the respondents, there was no error of law apparent on the face of the record so far as the order dated 14th May, 1976, was concerned, nor was there any material change in the relevant circumstances subsequent to the making of the order and hence section 13(2) was not attracted The respondents contended that what the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s set out in the then existing section 100, there can be no doubt that an appeal would lie to this court under section 55 on a question of law. But subsequent to the enactment of section 55, section 100 of the Code of Civil Procedure was substituted by a new section by section 37 of the Code of Civil Procedure (Amendment) Act, 1976, with effect from 1st February, 1977, and the new section 100 provides that a second appeal shall lie to the High Court only if the High Court is satisfied that the case involves a substantial question of law. The three grounds on which a second appeal could lie under the former section 100 were abrogated and in their place only one ground was substituted which was a highly stringent ground, namely, that there should be a substantial question of law. This was the new section 100 which was in force on the date when the present appeal was preferred by the appellant and the argument of the respondents was that the maintainability of the appeal was, therefore, required to be judged by reference to the ground specified in the new section 100 and the appeal could be entertained only if there was a substantial question of law. The respondents leaned heavily on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in which it is transposed and thereafter there is no need to refer to the statute from which the incorporation is made and any subsequent amendment made in it has no effect on the incorporating statute. Lord Esher M.R., while dealing with legislation by incorporation in In re Wood's Estate [1886] 31 Ch D 607 (CA), pointed out at page 615 : "If a subsequent Act brings into itself by reference some of the clauses of a former Act, the legal effect of that, as has often been held, is to write those sections into the new Act just as if they had been actually written in it with the pen, or printed in it, and, the moment you have those clauses in the later Act, you have no occasion to refer to the former Act at all." Lord Justice Brett also observed to the same effect in Clarke v. Brad-laugh [1881] 8 QBD 63 (CA) at page 69 : " there is a rule of construction that, where a statute is incorporated by reference into a second statute, the repeal of the first statute by a third statute does not affect the second." This was the rule applied by the Judicial Committee of the Privy Council in Secretary of State for India in Council v. Hindustan Co-operative Insurance Society Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate of Orissa [1975] 2 SCR 138; AIR 1975 SC 17, also proceeded on the same principle. There the question arose in regard to the interpretation of section 2( c ) of the Bihar and Orissa Motor Vehicles Taxation Act, 1939 (hereinafter referred to as the "Taxation Act"). This section when enacted adopted the definition of "motor vehicle" contained in section 2(18) of the Motor Vehicles Act, 1939. Subsequently, section 2(18) was amended by Act 100 of 1956, but no corresponding amendment was made in the definition contained in section 2( c ) of the Taxation Act. The argument advanced before the court was that the definition in section 2(c) of the Taxation Act was not a definition by incorporation but only a definition by reference and the meaning of "motor vehicle" in section 2( c ) must, therefore, be taken to be the same as defined from time to time in section 2(18) of the Motor Vehicles Act, 1939. This argument was negatived by the court and it was held that this was a case of incorporation and not reference and the definition in section 2(18) of the Motor Vehicles Act, 1939, as then existing, was incorporated in section 2(c) of the Taxation Act and neither the repeal of the Motor Ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n section 100 must be automatically read into section 55. It must be remembered that the Act is a self-contained code dealing with monopolies and restrictive trade practices and it is not possible to believe that the legislature could have made the right of appeal under such a code dependent on the vicissitudes through which a section in another statute might pass from time to time. The scope and ambit of the appeal could not have been intended to fluctuate or vary with every change in the grounds set out in section 100. Apart from the absence of any rational justification for doing so, such an indissoluble linking of section 55 with section 100 could conceivably lead to a rather absurd and startling result. Take for example a situation where section 100 might be repealed altogether by the legislature a situation which cannot be regarded as wholly unthinkable. If the construction contended for on behalf of the respondents were accepted, section 55 would in such a case be reduced to futility and the right of appeal would be wholly gone, because then there would be no grounds on which an appeal could lie. Could such a consequence ever have been contemplated by the legislature ? The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revoked at any time in the manner in which it was made" The words "in the manner in which it was made" merely indicate the procedure to be followed by the Commission in amending or revoking an order. They have no bearing on the content of the power granted under section 13(2) or on its scope and ambit. That has to be determined on an interpretation of section 13(2) in the light of the context or setting in which it occurs and having regard to the object and purpose of its enactment. Now, one thing is clear that the power conferred under section 13(2) is a corrective or rectificatory power and it is conferred in terms of widest amplitude. There are no fetters placed by the legislature to inhibit the width and amplitude of the power and in this respect it is unlike section 22 of the English Restrictive Trade Practices Act, 1956, which limits the power of the court under that section to discharge a previous order made by it by providing in terms clear and explicit that leave to make an application for discharging the previous order shall not be granted except on prima facie evidence of material change in the relevant circumstances. This provision is markedly absent in section 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de in a mere inter partes proceeding having effect limited only to the parties to the proceeding. Not only in its radiating potencies, but also by its express terms, it affects other parties such as the whole network of distributors or dealers who are not before the Commission. It also affects the entire trade in the product including consumers, dealers and manufacturers in the same line. The provisions of the Act are infected with public interest and considerations of public interest permeate every proceeding under the Act. Hence, it is necessary to ensure that if, by reason of inaptitude or negligence of a party to the proceeding or on account of any other reason, an erroneous order has been made, it should be possible to correct it, lest it may, instead of promoting competition, produce an anti-competitive effect or may turn out to be prejudicial to public interest. It is also possible that there may be some fact or circumstance which may not have been brought to the attention of the Commission, though having a crucial bearing on the determination of the inquiry, and which, if taken into account, may result in a different order being made, or some ,fact or circumstance may arise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... do not exclude altogether scope for exercise of residuary discretion in exceptional cases. But we do not think that even broad parameters for exercise of the power under section 13(2) are laid down in regulation 85. That regulation is in two parts. The first part provides that an application under section 13(2) "shall be supported by evidence on affidavit of the material change in the relevant circumstances or any other fact or circumstances on which the applicant relies". This is a procedural provision which prescribes that if the applicant relies on any material change in the relevant circumstances or on any other facts or circumstances in support of the application, he must produce the necessary evidence in proof of the same by affidavits. This provision merely lays down a rule of procedure and it has nothing to do with the grounds on which an application under section 13(2) may be maintained and it is difficult to see how it can be pressed into service on behalf of the respondents. The second part states that unless the Commission otherwise directs "notice of the application together with copies of the affidavits in support thereof, shall be served on every party who appeared a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to interfere in the exercise of its power under section 13(2). These examples given by us are merely illustrative and they serve to show that regln. 85 does not in any manner limit the power under section 13(2). Before we proceed to consider whether any case has been made out by the appellant for the exercise of the power under section 13(2), we may briefly dispose of the contention of the respondents based on acquiescence and estoppel. The argument of the respondents was that the appellant, by his subsequent conduct, acquiesced in the making of the order dated 14th May, 1976, and was, in any event, estopped from challenging the same. We find it difficult to appreciate this argument. We do not see anything in the conduct of the appellant which would amount to acquiescence or raise any estoppel against it. It is obvious that the appellant did not wish to be heard in the proceeding before the Commission because the decision of the Commission in the Telco's case [1976] 46 Comp. Cas. 470 (MRTPC) held the field at that time and it was directly against the appellant. Otherwise, there is no reason why the appellant should not have entered an appearance under regln. 65 and filed a pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant to prefer an appeal cannot be construed as acquiescence on its part. The appellant undoubtedly asked for extension of time from the . Commission for the purpose of implementing the order dated 14th May, 1976, but that also cannot amount to acquiescence because until the decision of the Commission in the Telco's case [1976] 46 Comp. Cas. 470 (MRTPC) was reversed in appeal by this court, the appellant had no reason to believe that the order dated 14th May, 1976, was erroneous and as soon as the appellant came to know about the decision of this court reversing the view taken by the Commission, the appellant immediately pointed out to the Commission that it was moving an application for amendment or revocation of the order dated 14th May, 1976, under section 13(2). The appellant did not at any time accept the order dated 14th May, 1976, knowing that it was erroneous and it is elementary that there can be no acquiescence without knowledge of the right to repudiate or challenge. Moreover, it may be noted that the appellant did not, right up to the time it made the application under section 13(2), implement the order dated 14th May, 1976, by entering into revised distributorsh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which would go to establish the restrictive nature of the trade practices complained of by him and if the Registrar did so, the defect in the application would not be of much consequence But unfortunately, in the present case, the only material produced by the Registrar was the affidavit of the Assistant Registrar which did nothing more than just reproduce the impugned clauses of the distributorship agreement and the words of the relevant sections of the Act. There was no material at all produced by the Registrar before the Commission which would show how, having regard to the facts or features of the trade of the appellant, the trade practices set out in the offending clauses of the distributorship agreement were restrictive trade practices. The order dated 14th May, 1976, was, therefore, in the submission of the appellant, based on no material at all and was accordingly vitiated by an error of law. The respondents, however, contended that it was not necessary to produce any material before the Commission in support of the claim of the Registrar, because the trade practices referred to in the offending clauses were per se restrictive trade practices and, in any event, even if an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... practice. It is true that on the subject of restrictive trade practices, the law in the United States has to be approached with great caution, but it is interesting to note that the definition of "restrictive trade practice" in our Act echoes to some extent the "rule of reason" evolved by the American courts while interpreting section 1 of the Sherman Act. That section provides that "every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce is hereby declared to be illegal"and literally applied, it would outlaw every conceivable contract which could be made concerning trade or commerce or the subjects of such commerce. The Supreme Court of the United States, therefore, read a "rule of reason" in this section in the leading decision in Standard Oil Company v. United States (221 US 1 ; 55 L Ed 609). It was held by the court as a "rule of reason" that the term "restraint of trade" means what it meant at common law and in the law of the United States when the Sherman Act was passed and it covered only those acts or contracts or agreements or combinations which prejudice public interest by unduly restricting competition or und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was imposed; the nature of the restraint, and its effect, actual or probable. The history of the restraint, the evil believed to exist, the reason for adopting the particular remedy, the purpose or end sought to be attained, are all relevant facts. This is not because a good intention will save an otherwise objectionable regulation, or the reverse, but because knowledge of intent may help the court to interpret facts and to predict consequences." It will thus be seen that the "rule of reason" normally requires an ascertainment of the facts or features peculiar to the particular business ; its condition before and after the restraint was imposed; the nature of the restraint and its effect, actual or probable; the history of the restraint and the evil believed to exist, the reason for adopting the particular restraint and the purpose or end sought to be attained and it is only on a consideration of these factors that it can be decided whether a particular act, contract or agreement, imposing the restraint is unduly restrictive of competition so as to constitute "restraint of trade". The language of the definition of "restrictive trade practice" in our Act suggests that, in enactin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judicial and administrative resources. Even in the United States a similar doctrine of per se illegality has been evolved in the interpretation of section 1 of the Sherman Act and it has been held that certain restraints of trade are unreasonable per se and "because of their pernicious effect on competition and lack of any redeeming virtue " they are "conclusively presumed to be unreasonable, and, therefore, illegal without elaborated inquiry as to the precise harm they have caused or the business excuse for their use". In such cases "illegality does not depend on a showing of the unreasonableness of the practice and it is unnecessary to have a trial to show the nature, extent and degree of its market effect" Vide American Jurisprudence, 2d, volume 54, p. 687, art. 32. We are concerned in the present appeal with clauses of the distributorship agreement imposing restriction as to territory, area or market and providing for exclusive dealership and according to the decision of this court in the Telco's case [1977] 47 Comp. Cas. 520 (SC), such trade practices are not per se restrictive trade practices. Whether such trade practices constitute restrictive trade practices or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p. Cas. 470 (MRTPC), namely, that the moment an agreement contains a trade practice falling within any of the clauses of section 33(1), the trade practice must irrespective of whether it falls within the definition in section 2( o ) or not, be regarded as a restrictive trade practice and the agreement must be registered and on that view, the appellant might have submitted the distributorship agreement for registration. The submission of the distributorship agreement for registration cannot, therefore, possibly be construed as admission on the part of the appellant that the particular clauses of the distributorship agreement faulted by the Commission constituted restrictive trade practices. There was, accordingly, no admission of the appellant on which the Commission could rely for the purpose of making the order dated 14th May, 1976. We must, in the circumstances, hold that, since there was no material at all on the basis of which the Commission could find that the trade practices referred in the offending clauses of the distributorship agreement were restrictive trade practices, the order dated 14th May, 1976, was contrary to law. This clearly attracted the exercise of the power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dgment seem to strike a slightly different note and hence it is necessary to examine it in some detail. Two clauses of the re-distribution stockists' agreement were assailed in this case as constituting restrictive trade practices. One was clause 5 which in its last portion provided that the re-distribution stockists shall purchase and accept from the company such stock as the company shall at its discretion send to the redistribution stockist for fulfilling its obligations under the agreement and the other was clause 9 which imposed a restriction as to area or market by providing that the re-distribution stockist shall not re-book or in any way convey transport or despatch parts of stocks of the products received by him outside the town for which he was appointed re-distribution stockist. The Commission held, following the view taken by it earlier in the Telco's case [1976] 46 Comp. Cas. 470 (MRTPC), that the last part of clause 5 as well as clause 9 constituted restrictive trade practices and declared them void. This view was affirmed by Beg CJ. in the appeal ([1977] 47 Comp. Cas. 581 (SC)) preferred by Hindustan Lever Ltd. We are not concerned with the merits of the question w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f determining the actual or probable effect of the trade practice referred to in the particular clause. The reliance placed by the learned Chief Justice on sections 91 and 92 was, therefore, quite inappropriate and unjustified and we do not think that the learned Chief Justice was right in shutting out oral evidence to determine the actual or probable effect of the trade practices impugned in the case before him. It may be pointed out that the decision in the Telco's case [1977] 47 Comp. Cas. 520 (SC) did not proceed on an application of the principle embodied in section 92, clause (6), of the Evidence Act and with the greatest respect, the learned Chief Justice was in error in distinguishing that decision on the ground that extraneous evidence was considered in that case in view of the principle underlying section 92, clause 6, while in the case before him that principle was not applicable and hence extraneous evidence was not admissible. The learned Chief Justice was bound by the ratio of the decision in the Telco's case [1977] 47 Comp. Cas. 520 (SC). Secondly, the learned Chief Justice seemed to take the view in his judgment at page 465 of the report ([1977] 3 SCR) that if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of that action or what could reasonably flow from it is to restrict trade in the manner indicated, it will, undoubtedly, be struck by the provisions of the Act." The interpretation placed by the learned Chief Justice was that if a clause in an agreement is capable of being used to prevent, distort or restrict competition in any manner, it would be liable to be struck down as a restrictive trade practice, regardless of what is actually done under it, for it is not the action taken under a clause, but the clause itself which permits action to be taken which is unduly restrictive of competition, that is material for determining whether there is a restrictive trade practice. The learned Chief Justice emphasised that if a clause in an agreement confers power to act in a manner which would unduly restrict trade, the clause would be illegal and it would be no answer to say that the clause is in fact being implemented in a lawful manner. This view taken by the learned Chief justice cannot, with the utmost respect, be accepted as wholly correct. It is true that a clause in an agreement may embody a trade practice and such trade practice may have the actual or probable effect of restricti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m any less agreements within the condemnation of the Clayton Act" There could be no difficulty in such a case in applying the definition of restrictive trade practice in accordance with the law laid down in the Telco's case [1977] 47 Comp. Cas. 520 (SC) as explained by us in this judgment. Then there may be a clause which may be perfectly innocent and innocuous such as a clause providing that the dealer will carry out all directions given by the manufacturer or supplier from time to time. Such a broad and general clause cannot be faulted as restrictive of competition for it cannot be assumed that the manufacturer or supplier will abuse the power conferred by the clause by giving directions unduly restricting trade. So much indeed was conceded by the learned Additional Solicitor-General appearing on behalf of the respondents. But a genuine difficulty may arise where a clause in an agreement does not by itself impose any restraint but empowers the manufacturer or supplier to take some action which may be restrictive of competition. Ordinarily, in suck a case, it may not be possible to say that the mere presence of such a clause, apart from any action which may be taken under it, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest and if no such "gateways "are established, then only it can proceed to make an order directing that the trade practice complained of shall be discontinued or shall not be repeated. There are thus two conditions precedent which must be satisfied before a cease and desist order can be made by the Commission in regard to any trade practice complained of before it. One is that the Commission must find that the trade practice complained of is a restrictive trade practice and the other is that where such finding is reached, the Commission must further be satisfied that none of the gateways pleaded in answer to the complaint exists. Here, in the present case, the appellant did not appear at the hearing of the inquiry and no "gateways "were pleaded by it in the manner provided in the Regulations, and, hence, the question of the Commission arriving at a satisfaction in regard to the "gateways" did not arise. But the Commission was certainly required to be satisfied that the trade practices complained of by the Registrar were restrictive trade practices before it could validly make a cease and desist order. The order dated 14th May, 1976, did not contain any discussion or recital showin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cisions of this court ending with N. M. Desai v. Testiles Ltd. (C.A. 245 of 1970, decided on 17th Dec, 1975) and Siemens Engg. Mfg. Co. of India Ltd. v. Union of India [1976] Supp. SCR 489 ; AIR 19.76 SC 1785 The order dated 14th May, 1976, was, therefore, clearly vitiated by an error of law apparent on the face of the record inasmuch as it contained only the final and operative order made by the Commission and did not record any reasons whatsoever in support of it and the appellant was, in the circumstances, entitled to claim that the order should be revoked by the Commission. This view taken by us renders it unnecessary to consider whether there was any material change in the relevant circumstances justifying invocation of the power under section 13(2) and, hence, we do not propose to deal with the same. The Commission has devoted a part of the order impugned in the present appeal to a consideration of this question and taken the view that there was no material change in the relevant circumstances subsequent to the making of the order dated 14th May, 1976. We no not wish to express any opinion on the correctness of this view taken by the Commission, since we are setti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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