ORDER
N.C. Gupta, Member
1. The respondent, abovenamed, is engaged in the manufacture and marketing of drugs and pharmaceuticals under the ayurvedic system of medicine on a fairly large scale. It has appointed stockists all over the country under standard agreements executed between the parties. The respondent issued a standard price list which contained particulars of the standard products marketed by the respondent and the retail prices thereof. The relevant details thereof will appear in the later part of this order. However, in terms thereof, distributors were allowed concessions or rebates in the listed price of various products in the form of certain quantity or percentage as mentioned therein as free of charge to the distributors. The Director-General (Investigation and Registration), after examining the said terms of distribution of these products, came to the prima facie view that the respondent had indulged in a restrictive trade practice in terms of Clause (e) of Section 33(1) of the Monopolies and Restrictive Trade Practices Act, 1969 (for short “the Act”). It was further opined by the Director-General that the absence of any clause in the price list which expressly authorised the distributors to further sell these products at prices lower than those mentioned in the list, it was violative of Clause (f) of Section 33(1) of the Act. Accordingly, the Director-General made an application under Section 10(a)(iii) of the Act with the request that an enquiry may be instituted against the respondent and appropriate orders may be passed against the respondent in terms of Section 37(1) of the Act.
2. A notice of enquiry was accordingly issued against the respondent on the basis of the allegations contained in the aforesaid complaint. The respondent has filed a detailed reply justifying the aforesaid terms of the distribution arrangement. It has been, inter alia, pleaded that the terms in question do not constitute restrictive trade practices in terms of the aforesaid legal provisions, that even if the impugned clauses of the agreement technically attract the aforesaid provisions of Section 33(1) of the Act yet the same cannot be said an objectionable trade practice to justify any order under Section 37(1) of the Act, that such discount/rebate is widely prevalent in the trade and even bigger companies well established in this trade are offering similar discounts, that the market share of the respondent is comparatively small and the discount/rebate as offered by the respondent does not and is not likely to have any effect on competition and that the price list in question has been revised subsequently and in any case there is no objection by the respondent to mention as a footnote thereto that “the prices mentioned in the list are prices at which the goods are sold by the respondent and distributors are at liberty to sell these goods at a price lower than those mentioned in the list.” The respondent has also annexed the price list of its products as annexure I to the written reply.
3. After the rejoinder was filed on behalf of the Director-General, the following issues were framed in this case :
1. Whether the respondent is indulging in the restrictive trade practice as alleged in the Director-General’s application under Section 10(a)(iii) and the notice of enquiry issued pursuant thereto ?
2. Relief.
4. The Director-General in this case has produced the detailed list of the discount scheme and the price list by way of evidence to show that ex facie the entries in these documents constitute restrictive trade practices in terms of Clauses (e) and (f) of Section 33(1) of the Act. The respondent, on the other hand, has produced eight witnesses in support of the pleas taken in the written statement and various documents to show that the incentive/discount allowed to the retailers and distributors under the scheme are uniform in character without causing any prejudice to a particular person and that the in-built mechanism of the scheme ensures the benefits of discount percolating to the ultimate consumers. As already stated, the respondent has sought to avail of certain gateways in terms of Section 38 of the Act in case the scheme in question is otherwise held to be a restrictive trade practice. We will shortly advert to the testimony of the witnesses produced by the respondent and the documents on record to assess the validity of the respective pleas taken by the parties. The respondent’s counsel during the course of arguments has referred to the various decisions of the Commission in support of the plea that in any case the scheme cannot be said to be prejudicial to public interest and, therefore, no restraint order can be passed against the respondent. Before we embark upon the assessment of evidence in this behalf, it may be made clear that issue No. 1 as framed does not in terms refer to the gateways as pleaded on behalf of the respondent. It was, however, agreed that the same can be considered for the purpose of granting or refusing relief as prayed for on behalf of the Director-General without framing a specific issue on this point.
5. The major bone of contention between the parties is the validity of the scheme as detailed in the annexure ‘A’ to the complaint filed by the Director-General. The same is as under :
“FREE SCHEMES
On an order of ANY ONE ITEM OF ANY ONE PACKING AT A TIME, you will get FREE as mentioned in Free Schemes :
*Free stainless steel spoon with every 450 gms. pack of Kesari Jivan.
6. The question arises whether this sort of scheme would attract the provisions of clauses (e) and (f) of Section 33(1) of the Act which reads as under :
“33(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 :– . ..
(e) any agreement to grant or allow concessions or benefits including allowances, discount, rebates or credit in connection with, or by reasons of dealings ;
(f) any agreement to sell goods on condition that the prices to be charged on resale to the purchaser shall be the prices stipulated by the sellers unless it is clearly stated that prices lower than those prices may be charged”.
7. In this connection it may also be relevant to note that under Section 37 of the Act, the Commission can pass the restraint order or hold the impugned provision of the agreement to be void only if it is of the opinion that the practice complained of is prejudicial to public interest and not otherwise. Further, Section 38 of the Act provides that for the purpose of the proceedings before the Commission under Section 37, a restrictive trade practice shall be deemed to be prejudicial to public interest unless the Commission is satisfied of any one or more of the circumstances mentioned therein. In other words, if any of those circumstances exists, the impugned practice cannot be said to be prejudicial to public interest under Section 37 of the Act. It is in this background that we proceed to examine the nature of the impugned scheme and evaluate the evidence on record.
8. The examination of the scheme as above leaves no one in doubt that any stockist purchasing a given quantity of various types of drugs or formulations will be allowed a small percentage of that quantity free of charge, thereby allowing discount to the purchaser in the given ratio as mentioned in the scheme. It is further clear that this discount will be available to everybody without any discrimination and in the same ratio as mentioned in the scheme. This ratio of discount varies between 3 and 6 per cent. in respect of various items. It is in evidence that this discount in the form of a specified quantity being free of charge is the only discount available to the stockists/dealers and the same is generally being passed on to the consumers in order to meet competition by other similar competing products of other manufacturers. RW-1, Shri Kulbhushan Gupta, is a partner of Indraprastha Ayurvedic Store who deals in the wholesale and retail ayurvedic and unani medicines. He states that his firm stocks products of various reputed companies like Zandu, Dabur, Baidyanath, Gurukul Kangri Pharmacy, etc. He further states that business in ayurvedic and unani medicines is highly competitive and it is not possible to sell medicines of a particular brand unless they are sold with substantial discounts matching the effective prices of similar medicines of other brands. In his affidavit he has given the details of certain products of the respondent along with the offer of free discount and stated that he has to offer similar discounts in the shape of free bottles to the customers. In support of the statement he produced various bills in respect of the sales effected by him. The same are exhibits Nos. 1 to 4. In support of the fact that other manufacturers of such ayurvedic drugs also have similar schemes, he has produced on record the price list of the products issued by other manufacturers showing that similar schemes are in operation in respect of the products sold by other manufacturers. In the cross-examination, this witness has stated that the free discount is made available by his firm to the retailers as also to actual consumers in the same manner. His aforesaid assertions are further corroborated by documentary evidence by way of sale vouchers and bills filed along with the affidavit.
9. Shri K. M. Bhatt (RW-2), apart from corroborating the statements made by RW-1 has deposed that the market share of the respondent is less than 1 per cent. of the all India pharmaceutical market and 6.25 per cent. of the all India ayurvedic market. He has further stated that market leader in these products is “Dabur” having 35 per cent. in the field of ayurvedic drugs and formulations. He has also filed the original price list issued by the respondent dated October 15, 1990, and the revised price-list dated September 11, 1991, issued by the respondent, vide exhibit I and exhibit RW-2/1 respectively. In the cross-examination, he has asserted that every invoice issued by the respondent would indicate the free quantity of the product given to the stockists and by the stockists to the ultimate purchaser. He has been subjected to a thorough cross-examination but he stood to his statement as made in the affidavit He has denied the suggestion that the respondent compels any stockist to maintain a particular minimum standard of inventory in order to enable him to avail of the benefit of the aforesaid discount. He has further deposed in cross-examination that normally stocks equivalent to one or one and a half month offtake would be the inventory in order to ensure the free availability of the product in the market.
10. Shri K. M. Divan (RW-3) has supported the version of the earlier two witnesses and has further stated that the said discount scheme helps in effecting economies of scale and also enables the respondent to save on the high cost of processing invoices. In the cross-examination he has given some figures to substantiate his general statement as to how savings are effected in the cost under the scheme. His statement in the cross-examination has supported the aforesaid assertions as made in the affidavit. Shri Vijay P. Dhqkakia (RW-4) has further corroborated the statement earlier made by the aforesaid witnesses. In the cross examination he deposed that the stockists, big or small, have availed of the benefits of the scheme and further that even without the said scheme, a stockist would normally have purchased the same quantity of the product as under the scheme entitles him to avail of free discount in the shape of supply of certain products free of cost. He being an important functionary of the respondent’s firm has given various figures in the cross-examination in support of his statement. He has confirmed that on inspection of invoices of stockists and retailers made by the respondent, it was found that the benefit of the scheme had been passed on to the customers. His affidavit which was treated as an examination-in-chief is accompanied by true copies of the invoices and record in support of his assertion. Shri K. P. Trivedi (RW-5), Shri S. S. Sonth (RW-6), Shri A. K. Jain (RW-7) and Shri Dasthapur (RW-8) have in substance corroborated the statements as made by the aforesaid earlier witnesses. Shri Sonth in particular has stated that free products as under the scheme are given by the respondent to all on transaction to transaction basis, apparently meaning that it is not a discriminatory discount which varies according to the offtake quantum of the products by big stockists as against the small stockists who can pick up a smaller quantity at a given time. This witness has been dealing as a wholesaler for a very long time. He has also filed copies of certain similar schemes offered by manufacturers of other brands of these medicines and who are the respondent’s competitors. In the face of his overwhelming evidence and without any rebuttal worth the name, it is not necessary to discuss the testimony of these witnesses in further detail. Shri S. Gupta, Joint Director-General, has filed the counter-affidavit. In one of his counter-affidavits, he has raised one small point to contend that the witness, Shri Anil K. Jain, in his affidavit, did not mention the selling price of the product “Kesari Jivan” to the retailer and, therefore, it was not possible to ascertain as to how a benefit equivalent to 10 per cent. approximately was passed on to the customers when under the scheme a benefit to the retailers would work out to 6.5 per cent. approximately. This omission in the affidavit of the witness cannot be made much of.
11. It simply shows, at worst, that the stockists had passed on greater discount to the retailers as against his benefit under the scheme. Even if it is so, it re-establishes the fact that the stockists as a matter of course were passing on the benefit of free discount to the retailers and they were free to pass on even greater discount or benefit to the retailers to increase their volume of sales.
12. The question is whether the above facts attract the vice of Clauses (e) and (f) of Section 33(1) of the Act or not. The second question is whether the alleged practice is prejudicial to public interest in terms of Section 37(1) of the Act. Shri H. D. Pethawala, learned counsel for the respondent, contended that Clause (e) of Section 33(1) is not to be interpreted literally. Ex facie, every agreement which grants or allows any type of benefit or concession, discount, rebate or credit will be covered by the phraseology of this clause. However, that could not be the intention of the Legislature, nor in fact is it so. He illustrated the point by saying that sales on credit is the normal mode in many industries and it is customary to allow specified credit for payment of price for a specific period, say, two weeks to four weeks. According to him, every transaction where the goods are sold on credit cannot be termed as restrictive trade practice. Further, it is also common knowledge that cash credit is normally given by wholesalers to the retailers/customers and the same cannot be treated as restrictive trade practice. He has emphasised that the idea behind this clause is to restrain and prohibit discriminatory discounts, allowances, rebates, etc., which are likely to confirm discriminatory advantage on dealers/ customers to whom they are allowed, as against those to whom they are not allowed. He supported this argument by putting emphasis on the phrase “in connection with, or by reason of, dealings” appearing in the said clause. It is only discriminatory discounts, rebates or other benefits which are likely to restrict, prohibit or distort competition in the trade. In the alternative, it was argued that in any case the scheme of the respondent in this case is entitled to have the benefit of the gateways under Section 38 of the Act. In this connection, emphasis has been placed on the fad that the market share of the respondent is just less than 7 per cent.; that the amount of rebate or discount is negligible and the doctrine of de minimis would apply to the facts of the case. It was further pleaded that since similar discounts are normally allowed by the various competitors of the respondent, including Dabur Ltd., who is the market leader, the case will be fully covered by Clause (c) of Section 38 of the Act.
13. Reliance in this connection has been placed on certain cases already decided by the Commission. Photocopies of those decisions are available on record. It was, inter alia, held in RRTA v. Allied Distributors and Bengal Potteries (decided on September 6, 1974) ; [1976] Tax LR 1280 that every practice of giving discount is not covered by Clause (e) of Section 33(1) of the Act and there should be no objection to a purchaser being given discounts based on the extent of sale of goods brought about by him. In Trinity Pharmaceuticals (I.) P. Ltd., In re (RTF No. 187 of 1988), it was, inter alia, held that a scheme under which one free bottle was being given on purchase of 24 bottles would not attract Clause (e) of Section 33(1). It was further held that where the scheme is intended to effect savings by the company in packing and forwarding, allowances given to the dealers on that account will not be objectionable trade practice. The present case is fully covered by the ratio of that judgment. Again, in Alkem Laboratories P. Ltd., In re (RTPE No. 432 of 1988), it was held that where the benefit of discount was passed on to the consumers and the market share of the respondent is very little, there can be no question of any restrictive trade practice to be forbidden by a “cease and desist” order. A number of other cases have also been cited but we do not consider it necessary to refer to all of them because the case is fully covered by the decisions referred to above. When the practice of giving such discount is so prevalent in the market, any restraint on the respondent to discontinue this practice would, in effect, prevent or restrict competition. We are fully satisfied that the scheme in question does not directly or indirectly restrict or discourage competition to any material degree in the relevant trade and is not likely to do so. The case is fully covered by Clauses (c) and (h) of Section 38 of the Act. This position has not been disputed on behalf of the Director-General at the time of arguments.
14. As regards the objection to the price list issued by the respondent, an affidavit has been filed by Shri D. M. Parikh, the vice-president of the respondent, stating that the earlier price list has been amended subsequently incorporating a specific term therein which expressly stipulates that its dealers would be at liberty to charge prices lower than those mentioned in the price list. A printed copy of the revised price list dated December 15, 1992, has also been annexed to the said affidavit along with the undertaking that in future also the respondent shall expressly state in every price list that its dealers would be at liberty to charge prices lower than those mentioned in the price list. This is the requirement of Clause (f) of Section 33(1) of the Act. In view of the clear undertaking given by the respondent in this behalf, the Director-General did not press the point any further.
15. In the above premises, the issue is decided in the negative. However, we would direct the respondent to be bound by the aforesaid undertaking and it would be obliged to make an express stipulation in the future price lists stating that the dealers, are at liberty to charge prices lower than those mentioned in the price list from the customers. With this direction, the enquiry is disposed of.
15. There shall be no order as to costs.