ORDER
R.L. Sudhir, Member
1. The fate of these three enquiries namely, R.T.P.E. No. 76/ 1992, R.T.P.E. No. 295/1995 and R.T.P.E. No. 296/1995, hinges mainly on the interpretation of restrictive trade practice as defined in Section 2(o) of the Monopolies and Restrictive Trade Practices Act, 1969 [the MRTP Act in short] with particular reference to Clauses (i) and (ii) of the said definition. Since the subject-matter and the legal issues involved in these enquiries are identical, they shall be disposed of by a common order.
2. These enquiries started with the filing a Preliminary Investigation Report (PIR) dated 11.2.1993 in R.T.P.E. 76/1992, The Director General (Investigation and Registration) v. Hindustan Lever Ltd. There being a prima facie case, a Notice of Enquiry (NOE) and subsequently an amended NOE was issued to the respondent. During the
pendency of the case, it was felt that an isolated study of the respondent’s pricing pattern and behaviour alone may not be enough to reach the correct conclusion. DG was, therefore, ordered to carry out a comprehensive study so as to examine the behaviour of other competitors in the market. Relevant part of the Commission’s order dated 25.1.1995 is reproduced below :
“The learned Counsel for the respondent is, however, right in contending that in view of what has been stated in the internal noting of the JD (L) dated 11.5.1992, it would be desirable to examine the behaviour of respondent’s competitors such as Colgate, Lakme, Godrej, Ponds etc. also. It is true that an isolated study of the respondent’s pricing pattern and behaviour alone discovered from those of its rivals may not be effective solution to the problem which has been highlighted in the PIR. A comprehensive study may, therefore, also be unertaken.
We accordingly direct the DG (I&R) to conduct an investigation into the affairs of the respondent’s competitors on the same lines as the charges framed against by the respondent in the NOE. The additional PIR may be submitted within 2 months. After the PIR if received, the same may be placed on record of this case also. The respondent may submit its reply within 6 weeks thereafter.”
3. In pursuance of the above order, DG investigated the pricing pattern of M/s. Colgate Palmolive (India) Ltd. and M/s. Ponds India Ltd., which subsequently merged with M/s. Hindustan Lever Ltd., and submitted the PIRs in respect thereto. No reports were submitted with regard to other competitors.
4. We need not burden the order with the facts of each case. Suffice it to say that the conclusions arrived at and allegations made by the DG in all these cases are similar. The respondents filed their respective replies in which they have denied the allegation of monopolistic/restrictive trade practices. It has also been pointed out that DG did not fully comply with the Commission’s order dated 25.1.1995 inasmuch as a comprehensive study covering all the competitors has not been carried out. It has been further stated that while questioning the pricing of products, DG has not gone into the constellation of economic factors which determine the prices in the market and that it has drawn its conclusions incorrectly on the basis of surmises and inadequate information. The respondents have also contended that the alleged trade practices are neither prejudicial to public interest nor do they have the effect of preventing, distorting or restricting competition.
5. After the completion of pleadings, the following issues were framed :
RTPE 76/1992:
(i) Is the respondent guilty of adoption of and indulgence in monopolistic and/or restrictive trade practices as mentioned in the PIR ? (ii) Is the complaint in the light of the PIR maintainable in law ? (iii) If the answer to Issue No. 1 is in the affirmative, are such trade practices detrimental to public interests ? (iv) If the anwser to Issue No. 1 is in the affirmative, is the respondent entitled to exemption from passing an order on the basis of gateways pleaded in the reply ? (v) What final order is required to be passd in this case ? RTPE 295/1995 : (i) Is the respondent guilty of adoption of and indulgence in monopolistic and/or restrictive trade practices as mentioned in the PIR ? (ii) Is the complaint in the light of the PIR maintainable in law ? (iii) If the answer to Issue No. 1 is in the affirmative, are such trade practices detriment to public interests ? (iv) If the answer to Issue No. 1 is in the affirmative, is the respondent entitled to exemption from passing an order on the basis of gateways pleaded in the reply ? (v) What final order is required to be passed in this case ? RTPE 296/1995: (i) Whether the respondent is or has been indulging in the restrictive/ monopolistic trade practices as alleged in the Notice of Enquiry ? (ii) If so, whether the same restrictive/ monopolistic trade practices are prejudicial to public interest ? (iii) Relief. 6. Although the parties were given the liberty to file their respective affidavits of evidence, lists of witnesses and supporting documents, no affidavits of evidence have been filed nor have they filed any documents worth the name in support of their respective contentions. 7. We have carefully considered the submissions made by the learned Counsel for the parties and have also perused the pleadings on record and the case law cited by them in support of their respective contentions.
8. DG has alleged that the trade practices adopted by the respondents are both monopolistic and restrictive in character. They are monopolistic because the alleged trade practices attract the provisions of Clauses (i), (ii), (iv) and (v) of Sction 2(i) of the MRTP Act. However, but for the averments made in the PIRs, DG has not filed any evidence to substantiate this allegation. Although DG has indicated the market share of the respondents, it is admittedly not based on any reliable data. Therefore, it will be difficult for us to subscribe to the view that the respondents were in a position to hold the prices at an unreasonable level. DG has also failed to demonstrate the respondents’ monopoly in the market which could possibly be exploited to dictate their terms as far as the prices were concerned. Commission’s observation in the order dated 25.1.1995 is quite germane to this issue as it shows the existence of other competitors in the market working independently of each other. There is also no proof of any overt action on the part of the respondents which could render them liable for monopolistic trade practices.
9. DG seems to have over emphasized the disproportionate increase in prices and profits and has thereby drawn conclusions which are legally untenable. It is settled law that mere high prices and high-profits are not enough to sustain the charge of monopolistic trade pratices. Highly profitable ventures are not always a bane to the Society, they can be a bliss from the point of their positive contribution to employment and the State revenues. For a trade practice to be condemned as a monopolistic trade practice, it has to satisfy the requirements of various sub-clauses of Section 2(i) of the MRTP Act which DG has failed to establish in these cases.
10. The respondents have rightly stated that pricing of products is a complex phenomenon of not merely demand and supply but a constellation of other economic factors. DG does not seem to have done any in-depth analysis on this score. As regards the reasonability of prices, it cannot be related merely to the cost of inputs. Other factors like demand and supply and the behaviour of competitors in the market, are just as relevant. From the respondents’ replies, it appears that the prices prevailing in the market were the natural consequence of the market forces work at that point of time. By no means do they seem to have been manipulated and the respondents have not been shown to have acted on concert with each other to control the prices. In this view of the matter, the alleged trade practices do not partake the character of monopolistic trade practices as contemplated in the MRTP Act.
11. The other allegation which has in fact been pleaded more forcefully is the allegation pertaining to restrictive trade practices. Learned Counsel for the DG Mr. V.T. Korde forcefully contended that the trade practices stated in Sub-
clauses (i) and (ii) of Section 2(o) are restrictive ‘ trade practices without having to satisfy the test of their adverse impact on competition. Mr. Korde referred to the judgment of the Hon’ble Supreme Court in Hindustan Lever Ltd. v. Director General (I&R), reported in I (2001) SLT 529=2001 CTJ 41 (Supreme Court) (MRTP), and asserted that this judgment has overruled the earlier judgment of the Hon’ble Supreme Court in Rajasthan Housing Board v. Smt. Parvati Devi etc., reported in III (2000) CPJ 9 (SC)=VII (2000) SLT 50=2000 CTJ 165 (Supreme Court) (MRTP), in this behalf. He also stressed the point that the judgment in the Hindustan Lever’s case was delivered by a Larger Bench.
12. Mr. Korde invited our attention to paragraph 11 of the judgment in the Hindustan Lever Ltd.’s case which is reproduced below :
“11. As the plain reading of the said definition itself discloses, and also as rightly understood by the Commission in issuing the notice, there are two parts to the definition — one is which relates to carrying on of such trade practice which has or may have the effect of preventing, distorting or restricting competition in any manner and secondly the carrying on of such trade practice which inter alia has the effect of imposing unjustified costs or restrictions on the consumers.”
13. To bring his point home, he compared the above paragraph with paragraph 9 of the judgment in Rajasthan Housing Board v. Smt. Parvati Devi (supra), which is reproduced below :
“9. It appears that Commission has considered that the acts of the Board would be covered by Clause (ii) particularly last portion of the said clause namey, “services in such manner as to impose on the consumers unjustified costs”. In our view, the Commission ought to have read the said part along with the main ingredient which requires that a trade practice which has or may have the effect of preventing, distorting or restricting competition in any manner would be restrictive trade practice and in particular which inter alia, tends to bring about manipulation of services in such manner as to impose on the consumers unjustified costs. For this purpose no case is made out by the respondents that the Board has prevented or restricted competition in any manner which affects the services in such a manner as to impose on consumers unjustified costs or restrictinos. Section 2(o) will not be applicable in case where a trade practice has no effect, actual or probable of preventing, distorting or restricting competition, in any manner.”
14. Going into the generis of restrictive trade practices, Mr. Korde referred to the MRTP Bill, 1965 drafted by the Monopolies Enquiry Commission (MIC) and invited our attention to the observation made by the MIC at page 127 of its Report which is reproduced below :
“In several countries (e.g. New Zealand Phillipines and France) hoarding and cornering with a view to create, artificial scarcity and thus to force up prices are also regarded as restrictive practices. We think this is a step in the right direction. We have no doubt in our minds, that the words “restrictive practice” in our terms of reference have been used in the comprehensive sense to include not only the conventional practice to restrain competition mentioned earlier and similar practices but also the practice of hoarding and cornering.”
15. He also referred to paragraphs 3.70 -3.71 on Section 2(o)(ii) of the MRTP Act from the book “The Law of MRTP in India” by (late) Shri H.M. Jhala, which is reproduced below :
“3.70. The latter portion of Section 2(o) gives broad illustrations of restrictive trade practices. It does not narrow down the ambit of the first portion. The Legislature was anxious to pinpoint two sets of cases as restrictive trade practices on the basis of the recommendations of the Monopolies Inquiry Commission and these are contained in the latter portion. The question that comes up is whether the latter portion enlarges the definition of restrictive trade practice or in other words whether it adds to the categories of restrictive trade practices. The question may seem to be somewhat academic but in odd cases it may be relevant. Profiteering by a single trader, whether due to his monopolistic position or special location or differentialised product, may not be itself injure competition. Practice follows the damage to competition and is not the cause of it. But it may involve manipulation of prices or supply of goods. Similarly it is possible to conceive of a monopoly which has developed without any design or plan and after it is an established fact it may not do anything to injure competition as such. But it may manipulate prices or supply of goods. The question is whether such cases can be accused of resorting to restrictive trade practices under Section 2(o)(ii). One view is that the latter portion of Section 2(o) would be a mere surplusage if it did not add to the categories of restictive trade practices. According to this view words “in particular” turn the definition into an inclusive definition. The other view would stress the use of the conjunction “and” after the first portion. It would read the words “in particular” according to their plain natural meaning. According to this view if the Legislature wanted to lay down the categories of restrictive trade practices it would have given three altenative clauses, each covering a broad category. The whole structure of the clause suggested that the genus of restrictive trade practice was given in the first portion and the two special species were set out in the second portion. This is the approach of the commentators on Article 85 of the Treaty of Rome, which as stated earlier, foreshadowed the pattern of Section 2(o) in the Indian law.
3.71. A third view which may appear somewhat far-fetched is the view that the second portion of Section 2(o) qualifies even the first portion and a trade practice in order to be restrictive must satisfy two conditions, namely, that it should restrict, limit or distort competition and in addition it should have either of the effects set out in Section 2(o)(i) or 2(o)(ii). This view would, however, require ignoring of the words “in particular”. These words are unambiguous and can only mean that the portion that followed refers only to illustrations of categories mentioned in the earlier portion and did not refer to additional conditions which these categories had to satisfy.”
16. The specific question to be answered is whether Sub-clauses (i) and (ii) of Section 2(o) of the MRTP Act are to be read independently of or in conjunction with the main ingredients of restrictive trade practice spelt out in the substantive clause of the said section which requires a restrictive trade practice to have the effect of preventing, distorting or restricting competition. The Commission has resolved this controversy in its order dated 2.5.2001 in The Director General (Investigation and Registration) v. Heinz India Limited, reported in 2001 CTJ 205 (MRTP). However, in view of the above submissions, we consider it necessary to restate the position of law.
17. Let it first be clarified that when it comes to interpretation of law, the Hon’hle Supreme Court is the final arbiter in the matter and the Supreme Court decisions are binding on the Commission. The source materials mentioned by the Counsel for the DG are helpful in interpreting the law only when, the Supreme Court decisions are not available, in respect thereto.
18. Before we refer to these decisions, we may as well have look at the definition of restrictive trade practice as given in Section 2(o) which reads as follows :
“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 effect 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.”
19. We do not agree with the view vehemently advocated by the DG’s Counsel that the trade practices mentioned in Sub-clauses (i) and (ii) of the above section do not have to satisfy the requirement of proving their adverse impact on competition. In Rajasthan Housing Board v. Smt. Parvati Devi (supra), the Commission’s order passed in RTPE 100/1994 was quashed and set aside on the ground that the Commission failed to read the Sub-clause (ii) of Section 2(o) with the main ingredient which required a restrictive trade practice to have the effect of preventing, distorting or restricting competition in any manner. Para 9 of the aforesaid judgment which has already been reproduced in para 13 of this order may be referred to in this regard. In para 10 of the aforesaid judgment which is reproduced below, some of the other cases decided by the Hon’ble Supreme Court have also been referred to :
“10. This question is considered in detail by this Court in Mahindra and Mahindra Ltd. v. Union of India, (1993) 1 CTJ 182 (SC) (MRTP) = (1979) 2 SCC 529. In this case the Court observed that:
“It is now settled law as a result of the decision of this Court in the TELCO’s case [Tata Engineering and Locomotive Co. Ltd., Bombay v. Registrar, Restrictive Trade Agreement, New Delhi, (1977) 2 SCC 55], that every trade practice which is in restrain of trade is not necessarily a restrictive trade practice. The definition of restrictive trade practice given in Section 2(o) is a pragmatic and result-oriented definition. It defines “restrictive trade practice’ to mean a trade practice which has or may have the effect of preventing, distorting or restricting competition, in any manner and in Clauses (i) and (ii), particularises two specific instances of trade practices which fall within the category of restrictive trade practice. It is clear from the definition that it is only where a trade practice has the effect, actual and probable, of restricting, lessening or destroying competition that it is liable to be regarded as a restrictive trade practice. If a trade practice merely regulates and thereby promotes competition, it would not fall within the definition of restrictive trade practice, even though it may be to some extent, in restraint of trade. Whenever, therefore, a question arises before the Commission or the Court as to whether a certain trade practice is restrictive or not, it has to be decided not on any theoretical or a priori reasoning, but by inquiring whether the trade practice has or may have the effect of preventing, distorting or restricting competition. This inquiry obviously cannot be in vacuo but it must depend on the existing constellation of economic facts and circumstances relating to the particular trade. The peculiar facts and features of the trade would be very much relevant in determining whether a particular trade practice has the actual or probable effect of diminishing or preventing competition and in the absence of any material showing these facts or features, it is difficult to see how a decision can be reached by the Commission that the particular trade practice is a restrictive trade practice.”
20. The Hon’ble Supreme Court has thus consistently held the view that a trade practice can be regarded as a restrictive trade practice only if it has the effect, actual or probable, of preventing, distorting or restricting competition. In our humble opinion, the Hon’ble
Supreme Court has reiterated the same view in its latest judgment in Hinditstan Lever’s case also. To best of our understanding, the same thread of opinion runs through all the judgments of the Hon’ble Supreme Court from TELCO to Hindustan Lever.
21. We do not agree with the view that the judgment of the Hon’ble Supreme Court in Hindustan Lever, has overruled the earlier judgment in Rajasthan Housing Board’s case, for two reasons. Firstly, because the judgment in the Hindustan Lever makes no reference to the Rajasthan Housing Board’s case nor does it seem to have been brought to the notice of the Hon’ble Supreme Court and secondly, because in the Hindustan Lever’s case, the Hon’ble Supreme Court merely observes that “there are two parts to the definition — one is which relates to carrying on of such trade practice which has or may have the effect of preventing, distorting or restricting competition in any manner and secondly, the carrying on of such trade practice which, inter alia, has the effect of imposing unjustified costs or restrictions on the consumers”. The judgment does not say that the second part of the definition is independent of the first or that it does not have to satisfy the requirement of proving adverse impact on competition. If the DG still has some reservations, he will be well-advised to seek clarifications from the Hon’ble Supreme Court in this regard.
22. Further, the issue in question whether Sub-clauses (i) and (ii) of Section 2(o) are to be read independently or in conjunction with the substantive part of the definition has been specifically dealt with by the Hon’ble Supreme Court in Rajasthan Housing Board case (supra).
23. DG has also not produced any evidence to substantiate the charge that the impugned trade practices had the effect of preventing, distorting or restricting competition. The PIRs merely state that the respondents spent huge amounts of money on advertising, which prevented the newcomers from entering the market. This is a fallacious argument. A consumer is attracted not merely by advertisements but also by the prices and quality of the products offered. What matters most is the qualitative strength and price of the product. If the newcomers could offer similar products at lesser prices, they could perhaps capture the market despite heavy expenditure on avertisements by the respondents provided they ensured the quality of their products.
24. In this view of the matter, no case of monopolistic or restrictive trade practices is made out against any of the respondents. The Notices of Enquiry are discharged with no order as to costs. A copy of this order may be placed on each file.