JUDGMENT
N.C. Gupta, Member
1. The respondent above named is a limited company engaged in the business of lead pigments and stabilizers for P.V.C., etc. For the purpose of sale and distribution of the aforesaid products, the respondent has appointed several persons as its consignees/ stockists on the terms and conditions contained in the agreement entered into between the respondent and such stockists. One of the clauses of such agreement states “prices below prevailing selling prices are allowed to some customers to meet competition. This concession in most cases varies between “Rs. 100 to Rs. 300 per metric tonne”. The Director-General (Investigation and Registration) after investigation has filed an application under Section 10(a)(iii) of the Monopolies and Restrictive Trade Practices Act, 1969, before the Commission stating that the aforesaid clause of the agreement is covered by Clause (a) of Section 33(1) of the Act and the same shall be deemed to be a restrictive trade practice. It has been prayed that the enquiry shall be held by the Commission in the aforesaid restrictive trade practice and a cease and desist order should be passed against the respondent prohibiting it from indulging in such restrictive trade practice and also award costs of the proceedings to the applicant.
2. The respondent in its written reply to this application denied and disputed the contention that the aforesaid clause contained a restrictive trade practice within the meaning of Clause (e) of Section 33(1) of the Act. It was further pleaded that the practice as envisaged in the impugned clause of the agreement is not restrictive in nature and in any case not prejudicial to the public interest or interest of the consumers ; that such a stipulation is in fact intended to give benefit to the consumer and has the effect of increasing competition rather than affecting it; that, even otherwise, the concession envisaged therein is of a nominal amount, nearly one per cent. of the price of the product and the same is given on a selective basis at the discretion of the respondent rather than to a given class of customers. It was stated that the notice of enquiry may be withdrawn and the proceedings dropped against the respondent.
3. After a rejoinder was filed on behalf of the Director-General, the following issues were framed in this case :
“(1) Whether the respondent indulged or is indulging in the restrictive trade practices as alleged ?
(2) If the answer to issue No. 1 be in the affirmative, then whether any gateway under Section 38 of the Monopolies and Restrictive Trade Practices Act is available for the said trade practice?
(3) Relief.
4. After having gone through the evidence on record and considered the arguments on behalf of the parties; we proceed to decide the issues as under:
Issue No. 1.–The impugned clause in the registrable agreement reads as under:
“Prices below prevailing selling prices are allowed to some customers to meet competition. This concession in most cases varies between Rs. 100 and Rs. 300 per metric tonne.”
5. Ex facie the clause stipulates a rebate in price to some customers with a view to meet competition varying between Rs. 100 to Rs. 300 per metric tonne at the discretion of the respondent. Clause (e) of Section 33(1) of the Act covers “any agreement to grant or allow concessions or benefits, including allowances, discount, rebates or credit in connection with, or by reason of dealings’ and such an agreement is deemed to be an agreement relating to restrictive trade practice within the meaning of the Act. Learned counsel for the respondent was at pains to emphasise the fact that the concession envisaged in this clause is not uniform and is intended to benefit the ultimate consumers and this is not covered by Clause (e) of Section 33(1) of the Act. The detailed defence of the respondent is disclosed in paragraph 2 of the written reply and for facility of reference the same is reproduced verbatim as under:
“Such rebates and concessions are granted on the basis of the consideration of individual cases. It gives a benefit to the consumer and in fact has the effect of increasing competition rather than averting it. The said concessions enable the consumer to obtain products of the respondent or similar products at prices lower than that which he would have had to pay otherwise. The concessions are invariably of a nominal amount and almost always below 1% of the price and is generally granted only after an approach is made by a consumer for consideration of his particular case for grant of concession and/or rebate. The respondent has entered into innumerable such agreements as the one dated November 2, 1987, contained in annexure “A” to the application. The respondent has invariably had such agreements registered under the Act and no objection has ever been raised
by any person in regard to the same. The respondent would crave reference to such registered agreements, if necessary. In the case of the agents or dealers of the respondent, the respondent cannot prevent, in any case, any dealer or agent to give discounts or concessions.”
6. We have carefully considered the aforesaid submissions of the respondent but are unable to agree that the impugned clause is not covered by Section 33 of the Act. Apart from the plea that the concession in question is about 1% of the price of the product and as such may be exempted under Section 38 of the Act–a plea which will be considered while discussing issue No. 2, there is nothing to indicate that the concession in question is not a rebate in price allowed to some favoured customers by the respondent. The fact that the rate of such rebate is in the discretion of the respondent and may vary from customer to customer as per the discretion of the respondent does not in any way detract from the prohibitive or restrictive nature of this concession which is amply covered by Clause (e) of Section 33(1) of the Act, The fact that the concession enables the ultimate consumer to obtain the respondent’s products or similar products at prices lower than he would have to pay otherwise is not relevant. Apparently, when a discriminative concession or rebate is allowed to a stockist or retailer, he would automatically have the capacity to pass on the full or part of such concession to the ultimate consumer. All the same, it does” affect competition adversely amongst such stockists which would ultimately be prejudicial to the public interest. Again, the contention that the rate of rebate is not fixed but variable depending upon the discretion of the respondent does not detract from the discriminatory nature of this concession which is bound to have an adverse effect on competition between those who get these concessions and those who do not. Finally, the fact that the respondent entered into innumerable agreements as the one in question dated November 2, 1987, appearing at annexure ‘A’ to the application and no such objection was earlier raised in this behalf does not mean that the objection cannot be raised at this stage. May be, the Director-General did not raise the objection earlier because the deeming provision in Section 33(1) of the Act which was introduced in 1984 was not available and as such it was not very easy to prove the prejudicial nature of the impugned practice or even otherwise it might have escaped the critical eye of the Director-General’s office. The legally objectionable nature of the practice in question as appearing in the impugned clause of the agreement does not cease to be objectionable simply because earlier the objection was not taken and pursued to prove it to be in conformity with the prevailing legislative directions in this behalf.
7. The Commission, in its order dated January 10, 1986, in the case of Registrar of Restrictive Trade Agreements v. Kores India Ltd. [1988] 63 Comp Cas 102 held that allowing discriminatory discount/rebate to authorised dealers and the accredited dealers will be restrictive trade practice within the meaning of Section 33(1) of the Act. It was pointed out therein that, in some cases, including cases of a larger turnover, the authorised dealer was allowed bonus at a much larger rate of 1% or 2% than the accredited dealer and such discriminatory treatment of discount or bonus (or called by any other name) will be a restrictive trade practice.
8. The respondent’s feeble attempt to contend that the concession was meant to the consumers and not to the retailers or stockists is totally belied by a clear assertion in the impugned clause that it was intended to increase competition–apparently competition among the stockists and not among the ultimate consumers. Issue No. 1 is accordingly decided in the affirmative.
9. Issue No. 2.–Learned counsel for the respondent has strenuously argued that, in any case, the restriction in question, namely, the concession allowed to customers to the extent of Rs. 100 to Rs. 300 per metric tonne at the discretion of the respondent cannot be said to be prejudicial to the public interest since the same does not, directly or indirectly, discourage competition to any material degree in this trade and is not likely to do so. In other words, he relies on the gateway enumerated in Clause (h) of Section 38(1) of the Act. In support of this contention, it has been pleaded that, at the maximum, this concession or rebate does work out to about 1% of the price of the product and, in support thereof, reliance has been placed on the details supplied in annexure ‘A’ annexed to the affidavit of Shri Amitava Mallick, General Manager (Commercial) and secretary of the respondent’s company. These figures were supplied in response to the interrogatories filed on behalf of the Director-General and they fully support the plea that the maximum concession works out to about 1% of the price of the product in question. It is not disputed that the aforesaid concession allowed in the impugned clause at its maximum works out to 1% of the product price. It is not unusual for the producers or sole distributors of products to allow selective maximum discount/rebate to customers based on the quantum of trade to boost the sale of a particular item or for personal considerations. Such a small discount or rebate is not likely to restrict or discourage competition to any material degree among the customers and, for this reason, the law has made an exemption in favour of such discount/rebate under Clause (h) of Section 38(1) of the Act. There are a number of rulings
allowing this type of concession to remain out of the mischief of Section 33(1)(e) of the Act. In Registrar of Restrictive Trade Agreements v. Tata Oil Ltd, [1977] 47 Comp Cas 287 (MRTPC), it was held that the discount being only 1% on the value of goods and a small amount like Rs. 857 and Rs. 741 being paid, besides the uniform rebate/discount, will be exempted under Section 38(1)(h) of the Act since such a restriction being negligible will not, directly or indirectly, affect or discourage competition materially. In another case, Director-General (Investigation and Registration) v. Drillco Metal Carbides Ltd. [19901 3 Comp 13 173 (MRTPC), it was held that even a discriminatory discount based upon quantity off-take to the extent of 5% will not discourage competition to any material degree. In that case, turnover discount starting with 2% was increased to 5% in three different slabs and the effective discount in respect of a given quantity-based slab was about 1%. Thus, we are fortified in our conclusion by the previous decisions of the Commission that a discount/rebate (by whatsoever name called) up to about 1% of the price, unless shown to the contrary, is considered not to restrict or discourage competition to any material degree in terms of Clause (h) of Section 38(1) of the Act. The issue is, accordingly, decided in favour of the respondent.
10. In view of our findings on issue No. 2, the impugned clause in question cannot be said to be prejudicial to the public interest and, therefore, no order under Section 37(1) of the Act is called for. The enquiry is closed.
11. There shall be no order as to costs.