ORDER
R.L. Sudhir, Member
1. M/s. Jain Hardware & Mill Store, Ajmer filed a complaint against M/s. Raymond Woollen Mills Ltd. and M/s. V.K. Hardware Store, the respondent Nos. 1 and 2 respectively. The Director General (Investigation and Registration) (DG in short), investigated the matter and submitted a Preliminary Investigation Report (FIR) and later a supplementary FIR on direction given by the Commission. A prima facie case having been made out, the Commission issued a Notice of Enquiry (NOE) to the respondents under Section 10(a)(iv) read with Section 37 of the Monopolies and Restrictive Trade Practices Act, 1969 (referred to as the MRTP Act, hereafter).
2. In the NOE, it has been alleged that respondent No. 1, in association with respondent No. 2, has been indulging in the following restrictive trade practices :
(a) Respondent No. 1 was marketing its product 2 years back through various dealers in Ajmer District. Subsequently, it stopped supplying goods to all local dealers of Ajmer except M/s. V.K. Hardware Store. Respondent No. 1 is giving a trade discount of 45% to respondent No. 2. The other local dealers are now making purchases from respondent No. 2. Respondent No. 2 is selling product to other local dealers by parting with trade discount of 35% to 42%. By appointing respondent No. 2 as sole distributor, the inter-se competition between various dealers of Ajmer District has been prevented, distorted and thereby attracting Section 2(o) of the MRTP Act;
(b) The retail price lists issued by respondent No. 1 do not envisage that the dealers are at liberty to sell the product at price lower than the. maximum recommended price and thus it is not compliance with the requirement of Section 33(1)(f) of the MRTP Act; and
(c) Clause 6 of the agreement entered into by the respondent with various dealers envisage that no appointment and cancellation of dealers will be done without any prior consent in writing and thus hit by Section 33(1) of the MRTP Act, 1969.
3. Briefly, the facts of the case are that the respondent No. 1 namely, M/s. Raymond Woollen Mills Limited, which is engaged in the manufacture of Engineers Steel Files and Rasps has adopted a marketing system which envisages appointment of Indenting Agents on State basis and appointment of authorized dealers at various places in the country on the selective basis. The Indenting Agents book indents only from these dealers and get the same executed. For the State of Rajasthan, a partnership firm called M/s. Satya Narayan Goyal & Sons was appointed the Indenting Agent. This firm was later converted into a Sole Proprietory concern called M/s. Goyal Enterprises. In its letter dated 2nd April, 1987, the respondent No. 1 confirmed the appointment of M/s. Goyal Enterprises as their Indenting Agent for the territory of Rajasthan and also outlined its functions and responsibilities as Indenting Agent.
4. For Ajmer district, to which the dispute relates, M/s. V.K. Hardware Store, the respondent No. 2 was appointed the authorized dealer and after its appointment supplies are stated to have been made only to respondent No. 2 and not to the other local dealers of Ajmer, who earlier enjoyed the privilege of getting goods directly from respondent No. 1.
5. The respondents filed their respective replies to the NOE and on completion of pleadings, the following issues were framed :
(i) Whether the Notice of Enquiry is not maintainable for the reasons stated in the written replies filed by the respondents ?
(ii) Whether the respondents or any of them have indulged in the restrictive trade practice as alleged ?
(iii) If issue No. 2 is decided in the affirmative, whether the said restrictive trade practice is not prejudicial to the public interest on the ground stated in the written replies ?
(iv) Relief.
6. By way of evidence, affidavits along
with supporting documents were filed by the
DG and the two respondents. DG produced Shri
S.K. Jain, the complainant himself, for cross-
examination.. The respondent Nos. 1 and 2
produced Shri R.S. Choudhary and Shri
Vasudev Madhani respectively, for cross-
examination. Arguments were heard on
29.4.2002.
7. Learned Counsel for the DG, Ms. Renu Sehgal, pleaded that as stated in the NOE, the respondent No. 1 in collusion with respondent No. 2, has adopted trade practices Which attract the provisions of Section 33(1)(a) and (f) of the MRTP Act. She invited our attention to the Commission’s order dated 5th April, 2002 which states that the respondent No. 1 has taken corrective action in respect of the allegation pertaining to resale price maintenance’ as contemplated in Section 33(1)(f) of the MRTP Act. She however, contended that no such action has been taken in respect of other allegations. She reiterated that restricting of supplies to respondent No. 2 alone and refusing the same to the other dealers in Ajmer is nothing but refusal to deal’ and hence a restrictive trade practice within the meaning of Section 33(1)(a) of the MRTP Act. In support of her contention, she referred to the written instructions dated 8.4.1987 issued by the Indenting Agent namely, M/s Goyal Enterprises.
8. Learned Counsel for the respondent No. Mr. Aditya Narain, stated that as far as respondent No. 1 is concerned, it never refused to supply goods to the other dealers of Ajmer. In fact, these dealers never came, forward to place orders with respondent No. 1. In this connection, he referred to the cross-examination of DG’s witness Shri S.K. jain, in which it is admitted that he had not approached respondent No. 1 directly. He also referred to the cross-examination of respondent No. 1, Shri R.S. Choudhary, which says that respondent No. 1 has always been willing to supply goods directly to any dealer. He further stated that these dealers preferred to get their supplies from respondent No. 2, firstly, because it accepted small orders and secondly because it offered credit facilities. In support of his arguments, he relied on the ruling of this Commission in M/s. Sandvik Asia Ltd., Pune and another reported in 1985 Tax L.R. 2169.
9. Learned Counsel Mr. Dalip Goswamy pleaded innocence and submitted that in the NOE no specific allegation has been made out against the respondent No. 2. He argued that in view of this, inpleading of respondent No, 2 as a party to the dispute in unjustified and illegal. He further submitted that the respondent No. 2 was not the sole distributor for Ajmer but an authorized dealer appointed by respondent No. 1. He pleaded that since no case of restrictive trade practices is made out against respondent No. 2, the respondent may-be discharged.
10. There is no gainsaying the fact that the trade practices falling within the ambit of Clauses (a) to (1) of Sub-section (1) of Section 33 of the MRTP Act are deemed restrictive trade practices and they do not have to be tested on the touch-stone of the definition given in Section 2(o) of the MRTP Act. The point at issue is whether the alleged trade practices are restrictive trade practices within the moaning of Section 33(1)(a) and (f) of the MRTP Act, as alleged in the NOE.
11. The allegation relating to re-sale price maintenance which falls within the purview of Section 53 (1)(f) of the MRTP Act,, does not require any further discussion in view of the Commission’s observations made in the order dated 5.4.2002. In the aforesaid order, it has been stated that the respondent No. I has taken corrective action in the light of the judgment of Hon’ble Supreme Court in M/s. Raymond Woollen Mills Limited v. MRTPC, reported in (1993) 2 SCC 550, pursuant to which the price list of the respondent now clearly mentions that the dealers are free to charge a price lower than the maximum retail price. With the corrective action thus taken, the allegation of re-sale price maintenance under Section 33(1)(f) of the MRTP Act, stands disposed of.
12. The limited question left for consideration is whether the other trade practices of the respondents can be construed as ‘refusal to deal’ as contemplated in Section 33(1)(a) of the MRTP Act, which reads as follows :
“Section 33. Registerable 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–
(a) any agreement which restricts, or is likely to restrict, by any method the persons or classes of persons to whom goods are sold or from whom goods are bought.”
13. It is an admitted fact that before the appointment of respondent No. 2 as the authorized dealer, the dealers of Ajmer, used to buy steel files directly from respondent No. 1 and avail of a trade discount of 45%. It is also admittedly true that after the appointment of respondent No. 2 as authorized dealer for Ajmer, the other local dealers did not make any purchases directly from respondent No. 1. Instead, they purchased the same from respondent No. 2 who gave them trade discount at a reduced rate ranging from 35% to 42%.
14. The question is, why ? The contention of respondent No. 1 is that these dealers stopped buying directly from respondent No. 1 out of their own free will and that they preferred to buy goods from respondent No. 2 because of the incentives offered by respondent No. 2. DG has stoutly refuted this contention and has stated that there were acts of omission and commission on the part of the respondent No. 1 which amount to ‘refusal to deal’. This necessitates a closer scrutiny of the facts.
15. The respondent No. 1 has pleaded innocence by stating that it was always willing to supply goods directly to the other dealers in Ajmer but they never approached respondent No. 1. A close scruity of the facts makes this claim doubtful. The letter dated 8th April, 1987 written by the Indenting Agent of respondent No. 1, namely M/s. Goyal Enterprises, reveals the hidden part of the story. Relevant portion of this letter is reproduced below :
“……. As a matter of fact it is the policy of our Principals who are committed with one of the dealers of Ajmer, not to book Indents from any other party from Aimer but (from) one i.e.. M/s. V.K. Hardware Mart to whom they have allotted Ajmer District as Sole Distributors…..”
16. The instructions given above, though
issued by the Indenting Agent, have to be
deemed to have been issued on behalf of
respondent No. 1 in view of the powers given
to the Indenting Agent in terms of the letter
dated 2nd April, 1987 which inter-alia, states as
follows:
‘You will represent our J.K. Engineers’ Steel Files Division for sale of Steel Files and Rasps.’
17. A combined reading of the two references cited above, shows that in terms of the policy of the principals, the Indenting Agent was authorised to book indents only from respondent No. 2 and from no other party in Ajmer. In our view, these instructions are nothing short, of ‘refusal to deal’ as contemplated in Section 33(1)(a) of the MRTP Act. The instructions issued by the Indenting Agent, further go to explain the reason why the dealers of Ajmer did not place orders directly on respondent No. 1. The other fact that further tears the veil of innocence is the representation that the dealers of Ajmer made to the Chairman of respondent No. 1 against the aforesaid instructions issued by the Indenting Agent. The letter dated 3rd July, 1990 is a proof of the fact that this representation had been received by respondent No. 1. But surprisingly, no corrective action was taken by respondent No. 1. If the respondent No. 1 seriously meant to supply goods directly to other dealers of Ajmer as has been pleaded by the learned Counsel for respondent No. 1, it should have issued a clarification, controverting the instructions given by the Indenting Agent. But this was not done, nor were the impugned instructions withdrawn. This clearly shows that the respondent No. 1 refused to supply goods directly to the other dealers of Ajmer and the plea that it was Willing to supply mem directly is a palpable He. In view of the foregoing discussion, the aforementioned trade practice of the respondent No. 1 is nothing but ‘refusal to deal’ and it squarely falls within the purview of Section 33(1)(a) of the MRTP Act
18. The other plea of respondent No. 1 that the dealers of Ajmer switched over to respondent No. 2, because of the incentives offered by it, is equally untenable. We find nothing so substantial or so overwhelming in the package of the respondent No. 2 that could motivate the dealers to stop buying from respondent No. 1 and forego a trade discount of 45% and opt for a lesser discount paid by respondent No. 2. This was done out of compulsion. With the availability of trade discount at a reduced rate from respondent No. 2, the other dealers of Ajmer were obviously no longer in a position to combat competition in the market. In view of this, we accept the contention of DG that with lesser discount available, the local dealers of Ajmer were not able to compete with respondent No. 2. This led to distortion of competition which is prejudicial to the interests of the consumers.
19. The theory that respondent No. 2 accepted small orders and hence the dealers preferred to buy from it, again has no substance in it. There is no denying the fact that earlier the same dealers used to buy their requirement; directly from respondent No. 1. How can their orders suddenly become so small that they will be acceptable only to respondent No. 2. Hence, this plea of the respondent No. 1 is also unacceptable.
20. The ruling relied upon by the learned Counsel for the respondent No. 1 is of no avail in this case as the facts and circumstances of this case are entirely different. Although, the respondent No. 1 has referred to Section 38(1)(h) of the MRTP Act, in its reply, the said gateway was neither pressed, nor any evidence led in supply thereof. In our considered view the respondents cannot pass through the said gateway because in the instant case the territory is confined to Ajmer.
21. In the light of the facts and circumstances discussed above, we hold that the impugned trade practice of the respondent No. 1 is a restrictive trade practice within the meaning of Section 33(1)(a) of the MRTP Act and it calls for issuance of a cease and desist order. Accordingly, the respondent No. 1 is directed to cease the said trade practice and to refrain from repeating the same in future.