Bajaj Auto Ltd vs Director General (I&R) & Anr

Practices Act, 1969 (hereinafter referred to as "the Act") sent

an application that an enquiry be instituted against Bajaj Auto

Limited (hereinafter referred to as the `appellant') for indulging

in restrictive trade practice within the meaning of Section 33

of the Act.

3. The Notice of Enquiry was issued on 18.11.1996 in

pursuance of which the appellant filed its reply refuting the

allegations levelled against it. According to the appellant, the

agreement between the appellant and the dealers contain

certain clauses which are restrictive in nature, squarely falling

under Section 33 of the Act. These relate to restrictions of the

territory in which the dealer is to operate, the tie-up

agreement by fixing targets and maintaining the resale price.

The appointment letter of the dealer dated 11.5.1994 indicates

that it is restricted to `Rajkot' alone which is restriction of an 3

area within the terms of Section 33(1)(g) of the Act. Section 33

(1)(g) is reproduced as under:-

"33. Registrable agreements relating to restrictive trade practices. - (1) Every agreement falling within one or more of the following categories shall be deemed, for the purposes of this Act, to be an agreement relating to restrictive trade practices and shall be subject to registration in accordance with the provisions of this Chapter, namely:-

xxx xxx xxx xxx

xxx xxx xxx xxx

(g) any agreement to limit, restrict or withhold the output or supply of any goods or allocate any areas or market for the disposal of the goods;"

4. It is further alleged against the appellant that it fixed the

sales targets in respect of various products and imposed a

restriction on the dealer to purchase one or more products as

a condition is covered under Section 33(1)(b) of the Act.

Section 33(1)(b) is reproduced as under:-

"33.(1) xxxx xxxx xxxx

(b) any agreement requiring a purchaser of goods, as a condition of such purchase, to purchase some other goods;"

5. It is further alleged that the fixation of prices of the

products as per clause DD of letter dated 7.9.1994 brings the 4

case within the purview of Section 33(1)(f) of the Act. Section

33(1)(f) is reproduced as under:-

"33.(1) xxxx xxxx xxxx

(f) any agreement to sell goods on condition that the prices to be charged on re-sale by the purchaser shall be the prices stipulated by the seller unless it is clearly stated that prices lower than those prices may be charged."

6. The appellant submitted a comprehensive reply denying

all the charges levelled against it. It was submitted on behalf

of the appellant as a preliminary objection that practices as

alleged do not fall under Section 2(o) of the Act which is a pre-

requisite condition before the action can be taken against the

appellant. Section 2(o) of the Act reads as under:-

"2(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) 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;"

5 7. In reply, it was also contended that the dealers'

appointment at Rajkot neither prescribes any territorial limit

nor does it restrain it to sell goods outside Rajkot. In absence

of any such restraint, the statement in the Preamble and the

Appointment Letter cannot be construed to mean an

agreement allocating area or market for disposal of goods in

question. The identification of a place is for the purpose of

establishing necessary facilities, infrastructure for after sales

and maintenance of services. The relevant portion of the letter

which has been sent to a dealer at Rajkot reads as under:-

"We have pleasure in appointing you as our dealer at Rajkot"

8. In the reply, it was also contended that the product-wise

and total sales targets for the year read with next para of the

letter clarify that it is only indicative of expectation on the part

of the appellant. It neither compels nor obliges the dealer to

buy one or the other Bajaj products. Non achievement of

targets in no way affects the dealership. As regards price

fixation, clause DD of letter dated 7.9.1994 has to be read

with clause Q of the dealership agreement. In the face of clear 6

specification that the dealer is at liberty to sell the goods at

lower than the recommended retail prices, question of

invoking the provision of Section 33(1)(f) does not arise. These

clauses in no way distort or impair the competition.

Therefore, the Notice of Enquiry needs to be discharged.

9. The Commission framed the following issues:-

1. Whether the Notice of Enquiry (NOE) is not maintainable for the preliminary objection taken by the appellant in its reply to the NOE?

2. Whether the appellant has indulged in or is indulging in the alleged restrictive trade practices?

3. Whether the alleged restrictive trade practices are not prejudicial to public interest?

4. Relief

10. Both the parties led documentary as well as oral

evidence. The Commission did not find any merit in the

preliminary objection taken by the appellant that Section 2(o)

of the Act is not attracted.

11. In the impugned judgment, pertaining to the charge of

territorial restriction, the Commission came to the conclusion

that the preamble read with the appointment letter speaks of 7

the dealership at "Rajkot". Apparently, the use of the word `at'

as against `for' is capable of bringing two constructions. It can

refer to place from where the activities are carried on or the

territory to which it confines to. Intention of the parties has

not been clearly conveyed by the `unhappy expression' used

both in the dealership agreement as well as in the letter of

appointment. If there is any oral understanding that the

dealer is free to sell the goods outside the territory, the same

has not been shown either by direct or circumstantial

evidence. Absence of transparency in the clause can lead to

manipulation of clause at the end of the parties. Such

practices of territorial restrictions impair the competition in

the market as it limits the choice of the consumer to a

particular dealer who may not indulge in unfair dealings.

This is certainly not in public interest.

12. According to the Commission, the alleged restrictive

trade practice is covered under Section 33(1)(g) of the Act and

as such being prejudicial to public interest. The Commission

directed appellant no. 1 to cease the aforesaid practice if 8

continued at present and desist from repeating the same in

future.

13. Regarding fixation of sales target, the Commission

observed that the quantity of product to be purchased not by

reason of market demand but on account of target fixed by the

appellant would certainly amount to tie-up of one product

with another attracting clause (b) of Section 33(1) of the Act.

14. Regarding dealership agreement, the Commission

observed that it fairly laid down that the dealer is free to sell

at a lower price than the recommended retail price. Clause

DD, on the other hand, refers to the revised prices which have

been made effective from 1.10.1994. As per this clause, the

vehicles already in stock as on 1.10.1994 are to be sold at the

old prices. This is clearly beneficial to the consumer or

consumers at large and is in public interest. It refers to fair

dealing on the part of the appellant and prevents any

unjustified cost being imposed on the consumer. In the

circumstances, we are of the considered view that the charge 9

as levelled does not fall under clause (f) of Section 33(1) of the

Act.

15. While disposing of the complaint, the Commission

directed the appellant to give effect to this order within six

weeks from the date of receipt of the order and file an affidavit

of compliance within four weeks thereafter.

16. The appellant (who was the respondent before the

Commission) filed a comprehensive reply. In the reply, it was

mentioned that the MRTP Act is a result oriented Act. It is

designed to be applied to practical situation, and, therefore,

unless all the facts and circumstances including the facts

constituting restrict trade practice within the meaning of

Section 33(1)(b), (f) and (g) read with Section 2(o) of the MRTP

Act, particularly the fact as to how the competition is

prevented, distorted or restricted and in particular which

tends to, inter-alia, bring about manipulation of prices or

conditions of delivery or to affect the flow of supplies in the

market relating to goods in question in such a manner as to

impose on the consumers unjustified cost or restriction, are

set out in the notice and the application, neither the notice 10

nor the application meets the aforesaid requirement of law

and in view thereof the notice is without jurisdiction and not

maintainable in law.

17. The appellant asserted before the Commission that the

existence of a restrictive trade practice as defined under

Section 2(o) of the MRTP Act is a condition precedent to the

exercise of the jurisdiction by the Commission. The appellant

submitted that none of the trade practices alleged in the

notice, as would be evident from the facts set out hereinafter,

constitute restrictive trade practice and, therefore, the notice

is misconceived and not maintainable in law.

18. It is incorporated in the reply that the jurisdictional facts

for applicability of Section 33(1)(b) (f) and (g) of the MRTP Act

are lacking on the facts set out in the notice and the

application and, therefore, the application is not maintainable

and the notice is liable to be set aside.

19. It is also incorporated in the reply that the appointment

letter only states that the appointment is a Dealer at Rajkot.

It neither prescribes any territory nor does it restrict in any 11

way the dealer to any territory or area for disposal of goods in

question and, therefore, in the absence of any such restraint,

the statement in the preamble in the appointment letter

cannot be construed or interpreted as an agreement allocating

area or market for disposal of the goods in question. It was

further submitted on behalf of the appellant that it is pre-

requisite for and an essential ingredient of the restrictive trade

practice referred in Section 33(1(g) of the Act, the

jurisdictional facts for applicability are not present and,

therefore, Section 33(1)(g) of the MRTP Act has no application.

The purpose of indicating `at Rajkot' only means the

identification of place which is necessary as the dealer has to

establish at Rajkot necessary facilities and infrastructure for

after-sales maintenance and service including warranty

services of the scooters and other vehicles. In the reply, it was

further submitted that the jurisdictional facts for application

of Section 33(1)(b) are lacking inasmuch as the said letter

dated 11.5.1994 neither obliges nor compels the dealer to

purchase all the goods as a condition of purchase of other

goods nor does it oblige the dealer as a condition of purchaser

of any of them to purchase any other goods. The said letter 12

only sets targets, requesting the dealer to "gear up" for "their

achievement" and answering their expectation and, therefore,

the jurisdictional facts for application of Section 33(1)(b) of the

MRTP Act are lacking and both the notice and the application

are not maintainable in this behalf.

20. The appellant submitted that the jurisdictional facts for

applicability of Section 33(1)(f) are lacking inasmuch as the

letter dated 7.9.1994 cannot be read in isolation but has to be

read with the appointment letter. The relevant portion of

Clause `Q' of the Dealership Agreement reads as under:

"You shall not sell our vehicles at higher than our recommended retail prices. You will, however, be free to sell at lower than the recommended retail prices. Taxes and Octroi whenever applicable, may be charged extra."

(emphasis supplied)

21. The appellant, Bajaj Auto Ltd. on its own initiative for a

fair and wide geographical distribution of Bajaj products and

availability of adequate after-sales-service appointed dealers

for its products all over the country so as to ensure that Bajaj

products and adequate after-sales-service are available

throughout the country. It is submitted on behalf of the

appellant that there is no territorial restriction or restraint on 13

allocation of geographical area to the dealer. The

appointment of dealer at a specific geographical location is to

ensure that their services are made available to the

consumers.

22. It was also submitted on behalf of the appellant that if

the dealer is not appointed at a specific geographical location,

the dealer would not be obliged to have in that geographical

area the showroom, workshop, service facility and stock of

spares. The absence of such facilities etc. would not be and is

not in public interest. Appointing a dealer at a geographical

location in no way restricts, prevents or distorts competition in

any manner, as a customer has a choice of buying any makes

he likes or going to any person he likes for servicing or repair

of his vehicle. Such appointment also ensures that the dealer

who is selling the Bajaj products in a particular geographical

location is responsible for adequate after-sales-services to the

customers of the vehicle sold by it and to keep them running

and in good condition.

23. The appellant also submitted before the Commission that

to motivate the dealers for increasing sales, the appellant fixes 14

sales target for the year. Fixing of sales targets do not and

cannot mean that the dealer is required or compelled to buy

one or the other Bajaj products. The appellant submitted that

the setting of target as outlined in the said letter dated

11.5.1994 is not a process of performance appraisal, but is a

condition imposed in the agreement, the gateway laid down in

clause h of Section 38(1) of the MRTP Act is squarely

applicable as the condition does not directly or indirectly

restrict or discourage competition in the two and three

wheeler market to any extent at all.

24. It is submitted that, by no stretch of imagination, the

appellant has indulged in restrictive trade practice and the

provisions of clauses (b), (f) and (g) of Section 33(1) of the

MRTP Act are not attracted.

25. The appellant company placed reliance on the case of

Mahindra and Mahindra Ltd. v. Union of India (1979) 2

SCC 529, wherein it was held that it is only where a trade

practice has the effect, actual or probable, or restricting,

lessening or destroying competition that it is liable to be

regarded as a restrictive trade practice and in order to arrive 15

at a decision that a trade practice is a restrictive trade

practice, the same cannot be decided on any theoretical or a

prior reasoning, but by inquiring whether the trade practice

has or may have the effect of preventing, distorting or

restricting competition.

26. Reliance has also been placed on the case of Paras

Brothers [(1994) 4 Comp. Law Journal 395], wherein it was

held that a restrictive trade practice must have the following

elements:

"i. It should be a trade practice defined in section 2(o) of the Act.

ii. it should have an actual or probable effect of preventing, distorting or restricting competition in some manner.

iii. the competition necessarily envisages the same or a similar situation.

iv. there should be manipulation of prices.

v. there should be unjustified costs or restriction as a result of such manipulation."

27. Reliance has also been placed on the case of L. C.

Malhotra v. Rahul Bajaj (1995) 1 Comp. Law Journal 421, in 16

which it was held that even isolated acts should be viewed in

the context of the practice of the respondent in relation to the

question as to whether the respondent had manipulated the

conditions of delivery.

28. In the instant case, neither the notice nor the application

even allege that the appellant has ever indulged in or that the

alleged trade practice has or may have the effect of preventing,

distorting or restricting competition in any manner and in

particular it, inter-alia, tends to obstruct the flow of capital or

resource into the stream of production or tends to bring about

manipulation of prices or conditions of delivery or to affect

flow of supplies into the market in such a manner so as to

impose unjustified costs and/or restrictions on the consumers

of goods in question and therefore ex facie neither notice nor

the application are maintainable.

29. Before parting with this case, we deem it appropriate to

observe that the Commission must be extremely careful before

issuing notices to the parties because it has serious

consequences on the reputation and credibility to the 17

activities of those parties. Frivolous notices breed long drawn

avoidable litigation before various forums.

30. Consequently, the appeal filed by the appellant is

allowed with costs and the impugned judgment passed by the

Monopolies and Restrictive Trade Practices Commission in

RTP Enquiry No.159 of 1996 dated 27th October, 2000 is set

aside.

..............................J. (Tarun Chatterjee)

..............................J. (Dalveer Bhandari)

New Delhi;

May 12, 2008.