PETITIONER:
HINDUSTAN LEVER LTD., BOMBAY
Vs.
RESPONDENT:
THE MONOPOLIES & RESTRICTIVE TRADE PRACTICES
DATE OF JUDGMENT17/04/1977
BENCH:
BEG, M. HAMEEDULLAH (CJ)
GUPTA, A.C.
CITATION:
1977 AIR 1285 1977 SCR (3) 455
1977 SCC (3) 227
ACT
Monopolies & Restrictive Trade Practices ,Act 1969
s. 2(o) and 2(u)--Scope of--Stipulation in the agreement
that the stockist "shall purchase and accept from the
company such stock as the company at its discretion send"
and as to the quantity of goods to be purchased by the
stockist--If amounts to restrictive trade practice. Com-
plaint to the Commission--Who could lodge.
HEADNOTE
According to s. 2(0) of the Monopolies & Restric-
tive Trade Practices Act a "restrictive trade practice"
means inter alia a trade practice which has, or may have,
the effect of preventing, distorting or restricting competi-
tion in any manner.
The appellant, who was a manufacturer of consumer
goods such as soaps and toilet preparations, entered into
agreements with redistribution stockists for the wholesale
distribution of its products. Clause 5 of the agreement,
inter alia, provides that a stockist shall keep and maintain
adequate stocks and shall carry out instructions and direc-
tions given by the appellant. He is prohibited from charg-
ing anything more than the stipulated maximum resale price.
The last part of the clause provides that-"the redistribu-
tion stockist 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 this agreement". Clause 9 prohibits the redistribution
stockist from re-booking or in any way conveying, transport-
ing or despatching parts of stocks of the products received
by him outside the town except when he was so expressly
directed in writing by the appellant. He shall also, when-
ever so required by the appellant, make available from the
stocks such part as the appellant directs him to do.
On a complaint made to the Monopolies & Restric-
tive Trade Practices Commission by one of the stockists the
Commission, after examining cls. 5 and 9 of the impugned
agreement, held that the practice of resale price mainte-
nance and full line forcing to which the original el. 5
related, shall be discontinued and shall not be repeated.
It directed deletion of the last sentence of cl. 5 and
declared cl. 9 as void.
Dismissing the appeal to this Court.
HELD: The Commission was right in reframing cl. 5
in the way it did. Deletion of the last sentence of cl. 5
was essential to prevent possible misuse of the appellant’s
power so as to regulate the prices contrary to the express
provisions in the clause. [465 B; G]
1 (a) The last part of cl. 5 placed the redistri-
bution stockist at the mercy of the appellant which could
dictate to him what amounts of various commodities
he "shall purchase and accept from the company". It also
empowered the appellant to allocate send to the redistri-
bution stockist only what it "shall, at its discretion, send
to the redistribution stockist for fulfilling its obliga-
tions" under the agreement. [464 G]
(b) The word "shall" used in the clause did not
bind down the exercise of the appellant’s discretion by
reference to any requirements of the consumers in a particu-
lar area in which the stockist might sell. The stockist was
bound to accept and carry out the appellant’s decisions.
[464 H]
2(a) The contention that though the clauses gave
power to the appellant to regulate trade, in practice they
did not operate as restrictions, is not well-founded. It is
not possible to isolate the terms of a contract from the
practice. The appellant did not intend that the clauses in
the agreement would be treated as
456
dead letter. Although the practice of imposing restrictions
under such clauses and the practice of introducing such
clauses are separate practices, introduction of a clause
like cl. 5 is itself a trade practice. Moreover, even if
the power given in such wide terms was not meant to be
exercised unreasonably, its presence in the agreement was a
needless surplusage which could be used to impede freedom of
competition and trade and this made it objectionable. [465
A]
(b) Inasmuch as the introduction of clauses in an agree-
ment taken by itself, is a practice it would be specious
reasoning to separate the clauses in the agreement from
action under the agreement and then urge that the
clauses are innocuous and should not be modified. [460 H;
461 A]
3. From the definition of "restrictive trade practice"
it is clear that if the introduction of the clause in
itself is a trade practice and could be used to prevent,
distort or restrict competition "in any manner", it could be
struck down. The definition of "trade practice" is wide
enough to include any "trade practice" if it is in relation
to the carrying on of a trade. If the result of introduc-
tion of a clause is to restrict trade it would be struck
by the provisions of the Act. [461 E-G]
4(a) Each type of business has its peculiarities, its
own mode of operation, the special features relating to the
market for it and the requirements of distribution of par-
ticular goods, to secure a just and equitable distribution
consistently with the maintenance of freedom of competition
so that prices are not artificially pushed up. [462 G]
(b) The Telco case is distinguishable from the present
on the ground that in that case the manufacturer who had the
monopoly of special quality trucks, had to provide specially
trained and skilled personnel with special equipment and
tools for their maintenance and running. Therefore, the
agreements did not restrict trade or curtail competi-
tion. [462 H]
(c) In the instant case, the appellant could compel the
stockist to buy the goods manufactured by it irrespective
of whether the stockist wanted the goods or not. The appel-
lant was under no obligation to render any service for the
maintenance of the goods supplied. Secondly, the present is
not a case in which the terms of the agreement were required
to be explained by the facts to which they were meant to be
applied. [463 C-D]
Tata Engineering & Locomotive Co., Ltd. v. The Registrar
of Restrictive Trade Agreements [1977] 2 S.C.R. 685 distin-
guished.
5. If it was clear from the agreement that prices lower
than the "maximum re-sale price stipulated" might be charged
by the stockist, then, there was no reason why it was
necessary to clarify by circulars, what the stockist was
free to do under the agreement. Even if the appellant’s
practice of issuing circulars was established, it did not
justify retention of cl. 5 in a form which could be used
to compel the stockist to act at the appellant’s behests.
[465 F]
6(a) The last part of cl. 5 made it necessary for the
stockist to purchase such goods and in such combination as
the appellant might decide. Hence it would be struck by s.
33(1)(b) of the Act. [465 C]
(b) Inasmuch as. the original el. 5 gave the stockist
the discretion to sell at lower than maximum resale prices
the agreement was not struck by s. 33 (1 ) (b). But, the
deletion of the sentence was essential to prevent possible
misuse of the appellant’s power by resort to it. [465 G]
The Commission was justified in declaring cl. 9 as
void and inoperative. [465 H]
7(a) The power to impose restrictions falling under s.
38 had to be justified by the appellant by actual proof of
public interest which could not be better served without
it [466 A].
(b) Clause 9 gave the appellant an unreasonably wide
power of deciding what is actually fair and equitable
distribution which is more a part of the duty of governmen-
tal authorities entrusted with powers of rationing such
consumer goods in public interest. Before any question of
reasonableness of a power to
457
ration any goods is entrusted to any person or authority
those goods must be shown to be scarce or in short supply
and evidence establishing such a need has not been shown to
exist in this case. [466 F-G]
(c) The appellant was wrong in its contention that in
holding cl. 9 to be invalid, the purpose of "equitable
distribution" was overlooked by the Commission. This sup-
posed limitation did not restrict the appellant’s power to
decide what to distribute. The appellant was left to itself
to decide what is "equitable distribution". The clause
conferred too wide a power and is unreasonable.
[469 H]
9. Under s. 55 an appeal lies to the Supreme Court only
on one of the grounds mentioned in s. 100, C.P.C. It is
necessary for the parties to formulate questions of law that
arise for decision. [467 A]
10(a) The plea against use of "per se" rule referred to
by the appellant means that on the assumption that a
restriction is illegal in itself should not be made without
examining its impact upon the particular trade involved. On
the other hand the "rule of reason" envisages consideration
of facts of each case so as to determine the context in
which the restraint was imposed. [468 C]
Board of Trade of the City of Chicago v. United States
of America 62 Law Ed 231.
(b) In Telco case this Court accepted the correctness
of the approach that no bald or simple test should be
adopted in judging the legality of a restraint upon trade.
Such a view has nothing to do with rules _relating to inter-
pretation of documents used in finding out the effect and
intent of words used in a document. Whenever a court deter-
mines the meaning and effect of the words of a rule or a
clause in an agreement it does not adopt what is termed as
"per se" rule. All that the court does in such a case is to
interpret the clause, the effect of which may become obvious
on a bare determination of the meaning or may be seen from
other evidence. Where that effect is not obvious, evidence
may be led to show how the language used is actually applied
to the facts to which it was meant to apply. [468 D-F]
In the instant case, the Commission has correctly ar-
rived at the conclusion that the clauses were unreasonable
and illegal after taking into account the relevant fac-
tors. The rules of reason applicable to a case like the
present are (i) the meaning of the impugned clause or
clauses in an agreement must be determined according to
law and (ii) the possible effects of such a clause upon
competition in the trade to be regulated must be determined.
[469 B-C]
(c) Consideration of extraneous evidence is not required
at all when the practice complained of is the introduction
of clauses conferring wide powers, Which may be used to
impose restrictions contrary to the Act. In such a case the
introduction of clauses constitute restrictive practice.
Evidence of what is actually practised could only be rele-
vant for purposes other than a determination of the meaning
and the effect which follows logically or reasonably from
such determination. [469 F-G]
(d) No oral evidence could be led to adduce the meaning
of the clauses in the agreement in view of ss. 91 and 92 of
the Evidence Act. Section 92 proviso (6) is not applicable
to the present case. [464 C]
(e) It is unnecessary to admit extraneous evidence as to
the absence of distortion of competition. The probability
of the effect is only part of the rule of reason to be
applied where extraneous evidence is admissible. [470 B]
(f) It is not possible to assume public benefit from a
mere declaration of intention to exercise a power so as to
benefit the public. On the evidence adduced it was not
shown that this power was necessary so as to benefit the
public. [470 D]
(g) Actual benefit to the public is a question of fact
on which findings cannot be reopened unless some error of
law is revealed. No error of law in assessing evidence was
disclosed. [470. E]
458
(h) The confusion which may be created by using such
terms as "per rule which could be applied to describe prac-
tices developed in other countries with different statutory
provisions, should be avoided. [469 D-E]
10. Proceedings before the Commission’ are maintainable
at the instance of a complainant whose motives in making the
complaint are quite irrelevant. All that the Commission,
and, on appeal, this Court, has to examine is whether a
practice by a company of introducing clauses complained of
in the agreements with the stockists, amounted to a restric-
tive trade practice. [460 D]
JUDGMENT
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 680 of 1976.
From the Judgment and Order dated the 17th March, 1976
of the Monopolies and Restrictive Trade Practices Commis-
sion, New Delhi in R.T.P. Enquiry No. 11 of 1974.
L.M. Singhvi, Ravinder Narain, Talat Ansari and Shri
Narain for the Appellant.
L.N. Sinha, Sol. General, B. Datta and Girish Chandra
for Respondents Nos. 1 and 2.
G.A. Shah and N. Nettar for Respondent No. 13
The Judgment of the Court was delivered by--
C.J.--This is an appeal under section 55 of the Monop-
olies & Restrictive Trade Practices Act, 1969 (hereinafter
referred to as ’the Act’) against the order and judgment of
the Monopolies & Restrictive Trade Practices Commission, New
Delhi (hereinafter referred to as the ’Commission’), in
proceedings started under section 10(a) (iv) of the Act
against the appellant M/s. Hindustan Lever Ltd. (hereinafter
referred to as ’the Company’), upon information furnished by
Bhogilal Manilal Shah of M/s. Shah Manilal Motichand & Sons
of Poona (hereinafter referred to as the ’informant’).
The informant was a redistribution stockist of the
appellant company carrying on business regulated by the
terms of an agreement, known as the redistribution stockists
agreement of the company, found in a standard printed form,
entered into with each stockist. The agreement has 23 terms
or clauses in it. The clauses complained of are 5 and 9,
which may be reproduced here:
"5. The Redistribution Stockist shall
use his best endeavours to maintain and in-
crease the trade of the Products in the said
town and for this purpose he shall at all
times keep and ’maintain adequate stocks of
the Products in all its packings and he shall
carry. out all instructions and directions
including those as to the maximum resale price
which may from time to time be given by the
Company or by the Company’s accredited repre-
sentatives in respect of the sale or resale or
disposal by the Redistribution Stockist of
stocks of the Products supplied to him in
pursuance of this Agreement. The Redistribu-
tion Stockist is prohibited from charging in
excess of the maximum resale prices stipulated
by the Company, but he may, at his discretion,
charge prices lower than the said maximum
resale prices. The Redistribution
459
Stockist 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 this
Agreement."
"9. In order to ensure equitable and
reasonable distribution of stocks at fair
prices, the Redistribution Stockist shall not
rebook or in any way convey, transport or
despatch parts of stocks of the products
received by him outside the aforesaid town
except when he is so expressly directed in
writing by the Company. He shall also whenev-
er so required by the Company make available
from the stocks of Company’s merchandise
purchased by him such part as the Company
directs him. to do for purposes of resale on
his behalf by the Company’s employee."
It is alleged that the two clauses, set out above found
in identical agreements entered into by the Company with its
stockists, whose number is quite large, constitute or autho-
rise restrictions which are unreasonable and .illegal.
Hence, it was submitted by the respondents that it must be
struck down or modified so as to make the business and trade
of the appellant company and its stockists conform to the
requirements of law.
The Commission had accepted the case brought to its
notice by the informant and made the following order :--
"(1). Clause 5 of the Agreement (Exhib-
it F) shall stand modified so that the follow-
ing shall be substituted in place thereof:
"5. The Redistribution Stockists shall
use his best endeavours to maintain and in-
crease the trade of the products in the said
town and for this purpose he shah at all times
keep and maintain adequate stocks of the
products in all its packings and he shall
carry out the instructions and directions
including those as to maximum resale price
which may from time to time be given by the
Company or by the Company’s accredited repre-
sentatives in respect of the sale or resale or
disposal by the Redistribution Stockist of
stocks of the products supplied to him in
pursuance of this Agreement. The Redistribu-
tion Stockist is prohibited from charging in
excess of the maximum resale prices stipulated
by the Company but he may at his discretion
charge prices lower than the said maximum
resale prices".
"(2). The practices of resale price
maintenance and full line forcing to which
original clause 5 of the agreement related,
shall be discontinued and shall not be repeat-
ed.
(3) Clause 9 of the Agreement (Exhibit
F) shall be void.
(4) The practice of area allocation to
which clause 9 of the Agreement (Exhibit F)
related, shall be discontinued and shall not
be repeated.
460
(5) In all future price circulars or
lists to be issued by the Respondents, it
shall be clearly stated that the prices there-
in mentioned are maximum prices and that
prices lower than these prices may be charged.
(6) This order shall come into force
with effect from 1st July, 1976. On or before
the said date, the Respondents shall intimate
all Redistribution Stockists of the modifica-
tions in Clauses 5 of the Agreement (Exhibit
F) and the voidity of clause 9 of the Agree-
ment (Exhibit F)".
There was some argument before us on the question
whether proceedings before the Commission were maintainable
at the instance of a "complainant" who had reasons to nurse.
a grievance. against the Company and whose motives could be
questioned. It was pointed out that the agreement of the
company with the informant had been terminated. The version
of the informant was that this had been done because his
firm had sold Vanaspati at the rate of Rs. 127/- per tin
which was below the price of Rs. 129.05 per tin fixed by the
Company. The informant stockist said that the price had to
be reduced by him to remove public discontent. We think
that the motives of the informant are quite irrelevant in
such a case. All that the Commission, and, on appeal, this
Court has to examine is whether what would undoubtedly be a
"practice" by the appellant company, of introducing the two
clauses complained of, in its agreements with its stockists,
amounted to a restrictive trade practice.
The distinction sought to be made .,on behalf of the
appellant, between a practice and clauses in a contract
which give a company the power to regulate trade in a manner
which may constitute a restriction, appears to be inconse-
quential here. We do not think that we can isolate the
terms of a contract from the actual practice of the company.
It is not the case of the company anywhere that the clauses
in its agreement with its stockists are to be treated as
deadletter. Its case is that they do not operate as re-
strictions. The introduction of such clauses in so many
agreements meant to regulate relations, either between a
principal and an agent or the seller and the stockist who
acquires complete proprietary rights in the stock of goods
purchased, is itself a trade practice. The simple question
before us is: Can powers conferred upon the company under
such clauses be exercised in such a way as to constitute
restrictive trade practices?
It is true that the practice of imposing restrictions
under such clauses is one thing and the practice of intro-
ducing such clauses is quite another thing. Both may con-
stitute separate practices. Nevertheless, the introduction
of such clauses into an agreement between the manufacturer
and the seller who purchases and stocks his goods is in
itself something practised. It is immaterial that the use
of powers under such clauses may constitute another set of
practices which depend upon the existence of ’such clauses
as sources or springs. Inasmuch as the introduction of
clauses in such an agreement is a practice, taken by itself,
the question whether such a practice amounts to a restric-
tive trade practice or not could only be decided by consid-
ering
461
whether the clauses could be so used as to unjustifiably
restrict trade? It would be specious reasoning, in such a
case, to separate the clauses in the agreement from. action
under the agreement and then to urge that, as evidence of
action under the clauses is meagre or even absent, the
clauses are innocuous and should not be modified or struck
down because we are only concerned with what is actually
being practised under them or with the use that is being
made of such clauses and not with what is permissible or
possible under the clauses of the agreement of the kind
before us. This argument seems to us to overlook the defi-
nition of "restrictive trade practice" contained in section
2(0) of the Act which lays down:
"(0) "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 pro-
duction, or
(ii) which tends to bring about manipula-
tion 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."
0
It is clear from a bare perusal of the above-mentioned
definition that it is not only the actual practice of a
restriction under a clause which is struck by the provisions
of the Act, but also a "trade practice" which "may have" the
effect of restrictions falling within the mischief" provided
for. In other words, if the introduction of the clause in
itself is a trade practice and could be used to prevent,
distort or restrict competition "in any manner" it may be
struck down. A trade practice is defined by section 2(u) of
the Act as follows :-
"(u) "trade practice" means any
practice relating to the carrying on of any
trade, and includes-
(i) anything done by any person which
controls or affects the price charged by, or
the method of trading of, any trader or any
class of traders.
(ii) a single or isolated action of any
person in relation to any trade".
This definition is wide enough to include any "trade
practice" if it is in relation to the carrying on of a
trade. It cannot be argued that the introduction of the
clauses complained of does not amount to an action which
relates to the carrying on of a trade. If the result of
that action or what could reasonably flow from it is to
restrict trade in the manner indicated, it will, undoubted-
ly, be struck by the provisions of the Act.
Reliance was sought to. be placed by learned counsel
for the appellant company on a recent decision of this Court
in Tata Engineering & Locomotive Co. Ltd. v. The Registrar
of the Restrictive
3--502 SCI/77
462
Trade Agreements, New Delhi(1) (hereinafter referred to as
the "Telco" case) where it was held:
"The definition of restrictive trade
practice iS an exhaustive and not, an inclu-
sive one. The decision whether 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-
tion is whether the restraint is such as
regulates and thereby promotes competition or
whether it is such as may suppress or even
destroy competition. To determine this ques-
tion three matters are to be considered.
First, what facts are peculiar to the business
to which the restraint is applied. Second,
what was the condition before and after the
restraint was imposed. Third, what is the
nature of the restraint and what is its actual
or probable effect".
It was also held there: "The question of competition
cannot be considered in vacuo or in a doctrinaire spirit.
The concept of competition is to be understood in a commer-
cial sense. Territorial restriction will promote competi-
tion whereas the removal of territorial restriction would
reduce competition. As a result of territorial restriction
there is in each part of India open competition among the
four manufacturers. If the territorial restriction is
removed there will be pockets without any competition in
certain parts of India. If the dealer in Kashmir is allowed
to sell anywhere in India wealthy cities like Delhi, Bombay,
Calcutta will buy up trucks allocated for Kashmir and the
buyer in Kashmir will not be able to get the trucks. The
other three manufacturers whose trucks are not in equal
demand will have Kashmir as an open field to them without
competition by Telco. Therefore, competition will be re-
duced in Kashmir by the successful competition being put out
of the field".
It is evident that in the Telco case this Court was
considering the territorial restrictions placed upon the
stockists of Telco in the Light of the special facts and
circumstances of that particular case. Each type of busi-
ness has, undoubtedly, its peculiarities, its own mode of
operation, the special features relating to the market for
it, and the requirements of distribution of particular goods
which may be the subject matter of an agreement so as to
secure a just and equitable distribution consistently with
maintenance of freedom of competition so that prices are not
artificially pushed up. In the Telco case, the subject
matter of the agreement was sale of trucks of a type in
which the Telco had a monopoly inasmuch as no other firm
produced trucks which were of such special quality and
specifications. Hence, there was great demand for these
trucks, which were in short supply. Again, for the mainte-
nance and running of those especially designed trucks the
manufacturer had to provide especially trained and skilled
personnel and special equipment and tools so as to enable
stockists to service and repair trucks distributed. Unless
the manufacturers were able to impose restrictions upon
sales outside the areas in which they had
(1) [1977] 2 S.C.R. 685.
463
established their stockist-cum-servicing suppliers, they
could not at all render the kind of service they were giving
in addition to selling. In other words, it was a mixed
practice for purchase of trucks and provision of specialised
service to the consumers, through the stockists. On the
peculiar facts and circumstances of that case, it was found
that the agreements did not, on the whole, result in re-
stricting trade or curtailing competition.
The facts of the case before us are entirely different.
We are concerned here with a manufacturer of mixed consumer
goods of different varieties. The appellant company pro-
duces dehydrogenated oil (known in the market as "Vanas-
pati"), toilet preparations of various kinds such as soaps,
shaving creams, toothpastes, and baby milk powder, and
animal feeds. The soaps manufactured by it are undoubtedly
the main type of goods supplied. But, it manufactures other
type of goods too. It can, therefore, compel stockists to
by them, whether stockists want these other goods or not, if
the terms of the agreement are to be held to be binding and
enforceable. The manufacturer is under no obligation to
render any service in relation to maintenance of the goods
supplied. The whole trade is completely unlike that of
manufacture and sale of motor trucks for which the stock-
ists, selling to the actual consumers, had to, as already
pointed out, also have the services of the manufacturer’s
trained personnel for the purposes of maintenance and repair
of the vehicles supplied. It would mount to an application
of the law in a thoroughly doctrinaire fashion if we were to
deduce some general principles, from the very different
facts of the Telco case and attempt to apply them to those
of the case now before us. Thus, the contention advanced on
behalf of the appellant, against a doctrinaire approach in
such cases, really weighs against the appellant company.
In the Telco case, the agreement could not be understood
without reference to the actual facts to which they were
sought to be applied. Those facts explained the nature of
the special agreements for restriction or distribution of
areas. In the case before us, the problem entirely differ-
ent. This is not a case in which certain terms of the
agreement require to be explained by the facts to which they
were meant to be applied. It is a Clear case in which the
meanings of the clauses are decisive. If these clauses are
capable of being so used, on the meanings which appear
unambiguously from them, as to undoubtedly restrict trade,
the intention to so use them to restrict trade could reason-
ably be inferred without any difficulty. Otherwise, why
have them ? No oral evidence could be led to deduce their
meaning or to vary it in view of the provisions of sections
91 and 92 of the Evidence Act. the principles of which were.
we think. rightly applied by the Commission. The Telco
case, on the other hand, was one in which extraneous evi-
dence could be led under section 92. proviso (6)of the
Evidence Act which may be set out here with Section 92:
"92. When the terms of any such
contract, grant or other disposition of
property or any matter required by law to be
reduced to the form of a document, have been
proved
464
according to the last section, no evidence of
any oral agreement or statement shah be admit-
ted, as between the parties to any such in-
strument or their representatives-in-interest,
for the purpose of contradicting, varying,
adding to or subtracting from, its terms:
Proviso (6)--Any fact may be proved
which shows in what manner the language of a
document is related to existing fact".
The principle embodied in s. 92(6) of the Evidence Act,
which was applicable in Telco case (supra), is not, for the
reasons given above, applicable in the case now before us.
Indeed, no attempt has been made by reference to any case
law apart from the Telco case ’(supra), which we have dis-
tinguished above, to show that extraneous evidence could
have been led herein order to apply s. 92 proviso (6) of the
Evidence Act. In the Telco case this provision was not
directly referred to, but, we think, that it could have been
applied there. Thus, we think that the basic difficulty,
placed before us by learned counsel for the appellant, in
the way of examining the plain meaning and effect of clauses
5 and 9 of the Distribution Stockists agreement, does not
exist at all in the case now under consideration. We must,
therefore, proceed to examine the meanings of these clauses
from the point of view of what could be done by the Company
under them. If what may be done under these clauses could be
a restrictive practice as defined by the Act, it was enough
to vitiate them. A clause having been introduced in an
agreement entered into, as a part of the settled practice
of the company, could be struck by the provisions of s. 2(0)
of the Act, set out above, quite apart from what is actually
done under it. We do not think that any other question is
really relevant or need be considered by us at all in such a
case. It is not a case in which we could be taken through
the oral evidence, as has been attempted to be done, because
that is shut out by an application of provisions of ss. 91
and 92 of the Evidence Act if all we need do is to interpret
the agreement. We are unable to see why these provisions do
not apply here.
Not much argument appears to us to be needed to demon-
strate that the last sentence in paragraph 5 of the above
mentioned clause places the redistribution stockist at the
mercy of the company which can dictate to him what amounts
of various commodities he "shall purchase and accept from
the company" in the form of a total lot supplied to him.
The company need only send to the redistribution stockists
what it "shah at its discretion send to the Redistribution
Stockists for fulfilling its obligations under this Agree-
ment". The meaning and effect are obvious here. The intro-
duction of the word "shall" does not bind down the exercise
of the discretion by reference to any requirements of the
consumers in a particular area which the stockists may
convey to the company. Hence, if the stockists want to
remain on the list of the redistribution stockists of the
company. the stockist is bound to accept and carry out the
decision of the company. Even if. in view of some other
practice adopted by the company-
465
a power given in such wide terms was not meant to be exer-
cised unreasonably, its presence in the agreement would be a
needless surplusage which could, whenever the company wanted
it, be used to impede freedom of competition and trade.
This result was enough to make it quite objectionable. We,
therefore, think that the Commission was quite right in
reframing clause 5 in the way it did. We are unable to find
any flaw in the detailed reasons given by the Commission for
doing that.
The Commission rightly points out that, among agreements
the registration of which is compulsory according to the
provisions of Chapter V of the Act is, under section
33(1)(b) is "any agreement requiring a purchaser of goods,
as a condition of such purchase, to purchase some other
goods". The last part of clause 5, as we have observed,
clearly makes it necessary ,for the stockist to purchase
such goods and in such combination as the company may de-
cide. Hence, it would be struck by section 33(1)(b) of the
Act. It has not been shown to have been registered under
the Act.
It is also submitted on behalf of the respondent that
clause 5 of the agreement infringes s. 33(1)(f) of the Act
which requires registration of .
"any agreement to sell goods on condi-
tion that the prices to be charged on resale
by the purchaser shall be the prices stipulat-
ed by the seller unless it is clearly stated
that prices lower than those prices may be
charged".
0
The Commission held that clause 5 of the agreement meant
provision for "prices stipulated" and that it had been so
treated by the company in its circulars stating that prices
lower than the "maximum resale price stipulated" by the
company may be charged. If that was clear, there was no
reason why the company should have attempted to clarify by
means of its circulars what, according to it, the stockist
is free to do under the agreement. Even if the practice of
the company by issuing circulars is established, it does not
justify the retention of clause 5 in a form which can be
used to compel stockists to act on the company’s behests
whether reasonable or not. On the other hand, it justifies
its clarification by an alteration of it in the manner
directed by the Commission so as to make the clause covering
price regulation also very clear. The order of the Commis-
sion modifying clause 5 only makes the position crystal
clear. Inasmuch as clause 5, even before deletion of the
last sentence of it by the Commission, expressly gives the
stockist the discretion to sell at lower than maximum resale
prices stipulated, the agreement was not struck by s.
33(1)(b) of the Act. But, the deletion of the last sentence
was essential to prevent possible misuse of the company’s
powers, by resort to it, so as to even regulate prices
contrary to express provisions found earlier in the clause.
Turning now to clause 9 of the agreement, we think that
the Commission was right in rejecting the argument that
evidence led on behalf of the company was enough to estab-
lish that clause 9 fell within one
466
of the "gateways" provided by section 38 of the Act. A
power to impose restrictions falling under this provision
had to be justified by the company by actual proof of a
public interest which could not be better served without it.
The submission that section 38 could be applied here amounts
at least to a concession that a clause conferring such wide
power upon the manufacturer may be so used as to amount to a
restrictive practice. It is the practice of putting in such
a clause which has to be justified.
The power given to the company under clause 9 is very
wide. The manufacturer can compel the redistribution stock-
ists to make available to the company any stocks purchased
by the stockist. It also compels the stockist to take the
permission of the company for conveying, transporting, or
despatching parts of stocks of the products received by him
outside a specified town except when he is so expressly
directed in writing by the company. It directly prevents
him from doing so without the company’s permission. If the
stockist violates this condition the whole agreement can be
revoked by the company so that the stockist loses his right
to carry on business under the agreement. If what had to be
justified is not how this power is actually used, but the
practice of conferring such powers upon the company by
placing the stockist at the mercy of the company, the evi-
dence of facts showing how the power is exercised could be
relevant only very indirectly. However, if it could be
shown that some facts did exist which make it imperative to
confer such a power on the company for the benefit of’ the
public, that may be relevant to establish the existence
of a "gateway" under s. 38. But, it could certainly not be
used to determine the meaning of a clause for which it is
not necessary here to go beyond the language of the clause
involved. We are primarily concerned in this case, as we
have repeatedly emphasized, with the clear meanings of the
two clauses.
As the Commission pointed out, it is immaterial that a
purchaser from outside may be able to get round clause 9 by
purchasing across the counter from the stockist inside a
town. The clause itself, however, gives to the company an
unreasonably wide power of deciding what is actually fair
and equitable distribution. The Commission very rightly
points out that this is more properly a part of the duty of
governmental authorities which may be entrusted with
powers of rationing such consumers’ goods if this is found
to be necessary in public interest. However, before any
question of reasonableness of a power to ration any goods is
entrusted by any method to any person or authority those
goods must be shown to be scarce or in Short supply. That
was the position in the Telco case (supra). Evidence
establishing such a need has not been shown to exist. And,
in any case, it has to be a very exceptional set of facts
indeed which could justify lodging of such a power in the
manufacturer. The Commission has dealt with a good deal of
evidence to justify its conclusion that the need to justify
the lodging of such a power in the company has not been
established. We see no reason to disturb it.
Under the provisions of section 55 of the Act, an appeal
lies to this Court only on one of the grounds mentioned in
section 100 of the
467
Code of Civil Procedure. It is, therefore, necessary in all
such cases for counsel to clearly formulate and direct our
attention to only questions of law which arise so that these
may be decided. It is not permissible to go over the whole
range of evidence led as was attempted before us.
Learned counsel for the appellant when asked by us to
formulate the questions of law which arise mentioned the
following questions:
Firstly, whether the Commission was right in applying
what he described as the "per se" rule as opposed to "the
rule of reason". It was submitted that the correct rule
which should have been applied is stated in Board of Trade
of the City of Chicago v. United States of America, as
follows (at p. 237):
"Every agreement concerning trade, every
regulation of trade, restrains. To bind to
restrain, is of their very essence. The true
test of legality is whether the restraint
imposed is such as merely regulates and per-
haps thereby promotes competition, or whether
it is such as may suppress or even destroy
competition. To determine that question the
Court must ordinarily consider the facts
peculiar to the business to which the re-
straint is applied; 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, the
evil believed to exist, the reason for adopt-
ing 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".
We find no objection whatsoever in adopting the rule indi-
cated above in cases to which it applies. That was a case
in which a rule adopted by the Board of Trade of the City of
Chicago (supra) prohibiting offers to purchase during the
period between the close of the call and the opening of the
session on the next business day for sales of wheat, corn,
oats, or rye at a price other than at the closing bid, was
challenged. Hence, questions relating to effects of the
rule arose so as to determine its reasonableness. Such
questions could not be determined without examining evidence
of facts to which the rule was meant to apply and findings
as to how it operated. The issue was whether the rule,
having regard to the facts to which it was to be applied,
offended against the Anti-trust laws. The Government’s case
was thus stated by Mr. Justice Brandeis (at p. 237) :--
"The Government proved the existence of
the rule and described its application and the
change in business practice involved. It made
no attempt to show that the rule was designed
to or that it had the effect of limiting the
amount of
(1) 62 Law. Ed. p. 231.
468
grain shipped to Chicago; or of retarding
or accelerating shipment; or of raising or
depressing prices; or of discriminating
against any part of the public; or that it
resulted in hardship to anyone. The case was
rested upon the bald proposition that a rule
or agreement by which men occupying positions
of strength in any branch of trade fixed
prices at which they could buy or sell
during an important part of the business day
is an illegal restraint of trade under the
Anti-trust Law. But the legality of an agree-
ment or regulation cannot be determined by so
simple a test as whether it restrains competi-
tion".
0
Apparently, Dr. Singhvi means, by his plea against the
use of a "per se rule", nothing more than an assumption,
that a restriction is illegal in itself, should not be made
without examining its impact upon the particular trade
involved. As contrasted with any such assumption what the
learned counsel describes as "the rule of reason" was stated
in the earlier passage quoted above giving the nature of
facts to be considered so aS to determine the context in
which the restraint was imposed. This Court accepted the
correctness, in the Telco case (supra), of the approach that
no bald or simple test, divorced from the context or sur-
rounding circumstances, should be adopted in judging the
legality of a restraint upon trade. Such a view, applicable
to actual restrictions imposed, has really nothing to do
with the rules relating to interpretation of documents which
are used in finding out the effect and intent of words used
in a document. It is after a difficulty of interpretation,
if any, is resolved and a rule or a clause in an agreement
is found to have either a clear meaning or to be ambiguous
that its effect can be considered. No doubt that effect has
to be examined to determine how a restraint actually imposed
affects trade. It is one thing to say that the impact of the
restraint imposed on trade should be considered with refer-
ence to the nature of the trade or business to be regulated.
It is quite another to say that the effect cannot be gauged,
sometimes, even by a bare examination of the meaning of a
clause giving power to impose restraints apart from other
evidence of what its actual effects are or may be. In some
cases, the effect itself is given primarily by the clear
meaning of the language used in the clause which is alleged
to infringe the law We do not think that any "per se rule",
if we may use this somewhat quaint expression is adopted
whenever a Court determines the meaning and effects of the
words of a rule or a clause in an agreement. All that the
Court does in such a case is simply to interpret the clause,
the effect of which may become obvious on a bare determina-
tion of the meaning or may be seen from other evidence too.
Where that effect is not obvious, as we have already indi-
cated, evidence may be led to show how the language used is
actually applied to the facts to which it was meant to
apply. That is also a recognised rule of interpretation. It
is the function Of Courts to indicate and explain the vary-
ing facts and circumstances to which different rules of
interpretation may apply. Where meaning and intent of lan-
guage used is given by the words used nothing more is need-
ed.
469
Furthermore, the Commission held that, taking into
account the nature of goods or the business to be regulated
by the agreement under consideration, the clauses, as they
stood, were not permissible. It had applied the rule of
reason in arriving at the conclusion that, upon the facts of
a business in commonly used consumer goods of several varie-
ties, Which are not shown to be scarce, clauses under con-
sideration having the obvious meaning and effect which their
language carried with them, are unreasonable and illegal. We
are unable to see how any law laid down in American deci-
sions, dealing with Anti-trust laws, or in English cases,
dealing with agreements in restraint of trade, lay down
rules of reason at variance with the ones we are applying
here. The rules of reason applicable to a case like the one
before us may be simply stated as follows: Firstly, the
meaning of the impugned clause or clauses in an agreement
said to offend the law must be determined according to law;
secondly, the possible effects of such a clause upon compe-
tition in the trade to be regulated must be determined. We
think that the Commission had rightly applied these rules
and found the clauses to be capable of misuse. We think
that this was enough to vitiate the impugned clauses.
We would like to make it clear that we are really con-
cerned only with the law as we find it in our own statute
and can only examine evidence in the light of our own law of
evidence. We think that the confusion which may be created
by using terms--such as "per se" rule---which could perhaps
be more usefully applied to indicate doctrines or to de-
scribe practices developed under very different sets of
circumstances in other countries with statutory provisions
couched in language which differs from that before us,
should be avoided so far as possible.
Secondly, it was submitted that we should look at evi-
dence of what takes place in the trade under consideration
rather than clauses 5 and 9 of the agreement we have consid-
ered. We have already indicated the correct procedure in
’such cases as the one before us. Indeed, we think that a
consideration of extraneous evidence is not required at all
when the practice complained of is the introduction of
clauses conferring wide powers which may be used to impose
restrictions contrary to the Act. In such a case, the
introduction of clauses constitutes the restrictive prac-
tice. Hence, their interpretation is all that we are really
concerned with here in accordance with our law. Evidence of
what is actually practised could only be relevant 1or pur-
poses other than a determination of the meaning and the
effect which follows logically or reasonably from such
determination.
Thirdly, it was submitted that, in holding clause 9 to
be invalid, the purpose of "equitable distribution", which
imposes a limit on the powers of the company, was overlooked
by the Commission. For the reasons already given, we do not
think that this supposed limitation reasonably restricts the
company’s power to decide what to distribute. The company is
left entirely to itself to decide what is "equitable distri-
bution". An interpretation of a document, according to well
established rules, cannot be dispensed with by labelling it
as an application of a "per se" doctrine. We think that the
clause, as it stands,
470
confers too wide a power and has to be struck down wholly as
unreasonable on that ground.
Fourthly, our attention was sought to be drawn to the
absence of evidence of distortion of competition and the
presence of evidence that competition prevails in the market
despite these clauses. We have already held such oral
evidence to to really unnecessary for judging the possible
effects of the clauses. The probability of the effect is
only part of the rule of reason to be applied where extrane-
ous evidence is admissible. In the instant case we are only,
as already indicated above, concerned with a reasonable and
natural interpretation of the clauses of the agreement and
their reasonably possible effects.
Fifthly, it was submitted that there was clear evidence
of public benefit from an equitable distribution in actual
practice so that the requirements of a "gateway" under s. 38
were satisfied. We cannot assume public benefit from a mere
declaration of intention to exercise a power so as to bene-
fit the public. We are not satisfied, on the evidence
actually adduced and placed before us, that this power was
necessary so as to benefit the public.
Furtherfore, we cannot reassess evidence. Actual
benefit to the public is a question of fact on which find-
ings cannot be reopened unless some error of law is re-
vealed. No error of law in assessing evidence is disclosed.
This is an additional reason for not disturbing the findings
of fact recorded by the Commission.
Sixthly, it was submitted that the Commission had
ignored the last sentence of clause 9 in interpreting it.
We have, however, considered it and find that, far from
making clause 9 more acceptable and reasonable, the last
part of it makes it more objectionable and unreasonable
inasmuch as it enhances the powers of the Company.
Learned counsel for the appellant company has pointed
out that the order of the Commission was to come into force
from 1 July 1976,’ so that the appellant company had nearly
four months to rewrite the agreements which are over four
thousands in number. He prays for extension of time for six
months from today for executing fresh agreements. It is not
really necessary for us to fix any particular time within
which the company will print or get new agreements executed
on freshly printed forms in accordance with law. That is a
matter for parties themselves to each agreement to decide
and work out.’ All that we need make clear is that all
agreements which are operative and binding between parties
will be so interpreted now as if clause 9 was not there at
all and clause 5 was there only in the ,modified form which
omits the last sentence from clause 5 as it originally
stood. However, if the company wants, to complete any for-
malities for bringing each individual agreement into line
with the law as declared by this Court it may do .so; and,
it will file, within six months from today an affidavit
showing that it has done this. The requirement to file
471
such an affidavit showing compliance will ensure that the
company has taken due steps to inform each stockist of the
correct legal position. The time given for doing this wilt
not, however, authorise it to act under those parts of the
agreement which this Court has declared to be illegal.-
Subject to the observations made above we uphold the
Commissions order and dismiss this appeal with costs.
P.B.R. Appeal dismissed.
472