JUDGMENT
S.D. Manchanda, Member
1. This enquiry has been instituted under Section 10(a)(iv) of the Monopolies and Restrictive Trade Practices Act, 1969 (hereinafter referred to as ” the Act “), on the basis of investigations carried out by the officers of the Research Wing into the allegations made by the Food Corporation of India (hereinafter referred to as ” the FCI “) in their letter dated February 12, 1985.
2. The respondents are three major manufacturers of aluminium phosphide, a fumigant which is used in the storage of foodgrains. The allegation against the respondents is that they had ” quoted identical or near identical rates” in response to tenders floated by the FCI and “had reduced the rates by an identical amount” during negotiations with the FCI and had thus indulged in the restrictive trade practice of collusive tendering.
3. The respondents, contested the allegation in their replies to the notice of enquiry. The respondents filed replies to interrogatories and also made discovery of documents on affidavit. The following issues were framed :
1. Are the respondents indulging in restrictive trade practices, as stated in the notice of enquiry dated August 8, 1985 ?
2. If issue No. 1 is decided against the respondents, are the respondents entitled to avail of any of the gateways provided in Section 38(1) of the Act ?
3. Reliefs.
4. The following witnesses appeared before the Commission for examination-in-chief, cross-examination and production of documents :
1. Shri S. Gupta, DDG,
2. Shri George Kuruvilla, Manager (Purchase), FCI,
3. Shri D.K. Sethi, Dy. Manager (Purchase),
4. Shri Kirti Kumar, Under Secretary (Chemicals), Department of Chemicals and Petrochemicals,
5. Shri B.K. Mehta, Desk Attache, Department of Chemicals and Petrochemicals.
6. Shri R.D. Shroff, Managing Director of the limited company of which respondent No. 2 is a subsidiary.
5. Arguments were heard from time to time and have since been concluded. Learned counsel for the respondents have also filed synopses of their arguments.
6. It is seen that the allegation of collusive tendering relates to two tenders notified on October 21, 1982, and November 24, 1983, respectively. In response to tender dated October 21, 1982, the respondents offered to supply 30 tonnes each at the identical price of Rs. 90 per kg. as against a quantity of 90 tonnes asked for by the FCI. In response to tender dated November 24, 1983, the common rate quoted by the three respondents was Rs. 102 per kg. which was reduced to Rs. 101 per kg. after negotiations. It is the Director-General’s case that when three different parties quoted identical rates in two tenders and when the same parties reduced the quotation by the same margin in one of the two tenders and do not agree to any reduction in another, there is preponderance of probability in favour of the conclusion that the parties have so acted out of a common understanding arrived at either before offering the quotation or during the course of negotiations. A relevant factor on which learned counsel for the Director-General heavily relies is the difference in cost of production as indicated by the three respondents themselves. Information regarding cost of production was supplied by the respondents in reply to the Director-General’s interrogatories and is indicated below:
7. The Director-General also relies on the history of joint representations made by the three respondents in the meetings held by the Ministry of Chemicals and Fertilisers in the last quarter of 1976. Shri R.D. Shroff of respondent No. 2 has referred extensively to the minutes of these meetings and also had produced copies thereof in evidence. We will refer to these meetings and subsequent negotiations later in this judgment when we examine the arguments advanced on behalf of the respondent in so far as they relate to and/or are based on the minutes of these meetings. The point to be noted at this stage is that the respondents have evolved a common approach as a result of these joint meetings and discussion with the Department of Chemicals and Fertilisers and Food Corporation of India, and it could be argued that there was a meeting of minds behind the uniformity of rates quoted in response to two tenders floated by the FCI which are the subject matter of the present enquiry.
8. It is no doubt true that all the three respondents have, in their replies to the notice of enquiry, denied that they had quoted identical or near identical rates as a result of any understanding reached between them. For example, respondent No. 2 has stated that ” It is specifically denied that the three respondents have in any manner quoted collusively to strengthen their negotiation powers or to eliminate competition and exert their joint power through identical prices. ” But, at the time of arguments, the emphasis has shifted from denial of the allegation of collusive tendering to the rationale behind, and justification of, the practice of offering identical rates.
9. It has been urged that the peculiar facts of this case have brought the three respondents and the FCI together necessitating closer co-operation amongst the respondents in their dealings with the FCI. The first peculiar fact is that the respondents are the three major manufacturers of aluminium phosphide, a fumigant; there is also another manufacturer, namely, Agrosynth Chemicals, Bangalore, but it produced only a small quantity. The second peculiar factor is that the FCI, the complainant, purchases over 70% of the total quantity manufactured in India and can, therefore, be considered as a monopoly purchaser. The third factor is that none of the four manufacturers can on its own meet the entire requirements of the FCI fully and, therefore, the tendered quantities had to be distributed amongst the manufacturers.
10. Learned counsel for the respondents have dwelt at length on the history of joint meetings, exchange of data and negotiations with the Government of India and the FCI to show how these historical developments culminated in the phenomenon of identical rates being quoted by the respondents. These developments begin with a meeting held by the Ministry of Agriculture and Irrigation on September 8, 1976, to review the requirements of fumigants and their availability in the country. This meeting was also attended by a representative from the FCI. Our attention has been particularly drawn to the following observations from the minutes of the aforesaid meeting (Exhibit RW 4/1-A):
” However, it has been reported to the Department of Food by the Food Corporation that the manufacturing firms were quoting different rates for supply of aluminium phosphide ranging from Rs. 60 per kg. to Rs. 75 per kg. Shri Shastri said that due to increased utilisation of the capacity and consequent economies of scale, the manufacturers should be asked to reduce the prices instead of creating artificial shortages by increasing the prices. In view of the requirements of ALP for a national cause, i.e., maintaining the buffer stocks free from damages, it was the responsibility of the industry to bring down the prices of their products to the minimum. He suggested that the manufacturers of ALP might have a dialogue with CWC, FCI and SGC officers on the price of the chemical and also the requirement, delivery time of the chemical at different places, etc., so that there could be synchronisation between the requirements and supply. ”
(CWC stands for Central Warehousing Corporation and SGC stands for State Government Corporations which purchase fumigants for storing foodgrains, etc.)
11. In fact, almost the entire case of the respondents rests on these observations. Three strands of thought emerged from the aforesaid observations in the minutes of the meeting. Firstly, the FCI did not relish that manufacturers should quote different rates for the supply of aluminium phosphide. Secondly, the Government suggested that manufacturers of aluminium phosphide, i. e., the respondents, should have a dialogue with the FCI and other Central and State Government organisations on such matters as price and requirements of the product. Thirdly, the manufacturer should reduce the prices in national interest.
12. The second meeting to which reference has been made by the respondents was held on October 19, 1976, in the board room of FCI and was presided over by Shri A.K. Dutta, Managing Director, FCI. The following extract from the minutes of this meeting (exhibit RW 4/2) shows how the aforementioned strands of thought dominated the meeting:
” At the outset the managing director of FCI pointed out that in the earlier two meetings held in the Department of Food, it was stressed that the manufacturers of aluminium phosphide in the country should reduce the price of the fumigant and remove the wide disparity in the rates quoted by different firms.
They were also asked to increase their production capacity with a view to increase the increasing demands from the FCI, CWC and other Government agencies.
The manufacturers were also required to submit a detailed costing of the fumigant to the Ministry of Chemicals and Fertilisers for their scrutiny and further action in the matter in order to bring about a price discipline. ”
13. The minutes of the aforesaid meeting further indicate that till the Ministry of Chemicals and Fertilisers fixed a price after scrutiny of the costing data of the manufacturers, ” the firms would continue to offer their fumigant to FCI at the current rates of Rs. 60, Rs. 67 and Rs. 68 per kg. by M/s. Excel Industries, M/s. Inventa Corporation and M/s. Swadeshi Chemicals (P.) Ltd., respectively.”
14. The plea that the manufacturers should furnish the cost data to the Government was reiterated in another meeting which the Ministry of Chemicals and Fertilisers had with the representatives of manufacturers on November 19, 1976. The minutes of this meeting are exhibit RW-4/3A. These minutes were forwarded to respondent No. 2 (and presumably other respondents), vide letter dated December 7, 1976, addressed by the Government of India, Ministry of Chemicals and Fertilisers. The relevant extract from the minutes of the aforesaid meeting is reproduced below :
” In order to plan their production and utilising their capacities to the full, the industry was keen to know the procurement plan of the users. Dr. Krishnamurthy was requested that the total requirements of the FCI and the Warehousing Corporations should be intimated to the industry together with a schedule of supply so that difficulties may not arise at a later date and the industry also gets adequate notice. Dr. Krishnamurthy agreed to take up the matter with the Food Corporation of India. He, however, requested that the manufacturers should submit their cost structure soon so that the pricing of this product could be gone into to ensure that the Food Corporation of India gets the product at a reasonable price.”
15. It is stated by the respondents that they did supply costing data to the Ministry of Chemicals and Fertilisers and that pursuant to the supply of the cost data, meetings were held by the Ministry wherein each manufacturer justified its costing data and requested the Ministry to fix a reasonable price for the supply of aluminium phosphide to the FCI. In this connection, respondent No. 2 has placed on record a copy of its letter dated August 11, 1980 (exhibit RW-1/6), along with a self-contained note with regard to the fixation of the price of aluminium phosphide which was in the following words :
“I am sending herewith a self-contained note with regard to price fixation of aluminium phosphide. We had supplied to the Ministry of Chemicals and Fertilisers in 1977, cost data. Data and documents relating to the increase of raw material cost is already in your files (copies of both these are annexed to this note). We have also informed the FCI that any of their technical or financial officers are welcome to visit our factory and ascertain the facts.”
16. Going back to the story of joint representations and consultations amongst the three respondents, we would refer to a telex sent by all the three respondents to the FCI on October 4, 1977 (exhibit RW-1/1). It was stated in the telex message, that whereas to meet the increased demand of aluminium phosphide indicated at the rate of 75 tonnes per month from January, 1977, in the meetings held with the Ministry of Chemicals and Fertilisers, they had expanded their production capacity “as requested by the Ministry “, the FCI had purchased only 225 tonnes from all the manufacturers to date and no further orders were placed from April, 1977, and “as such the manufacturing units are lying idle”. The joint approach is indicated in the following paragraph from the aforesaid telex message :
” In this context, we had a meeting with Mrs. Lata Singh, Director (Pesticides), Ministry of Fertilisers and Chemicals, on September 27, and after discussions we handed over a memorandum to her. We have also submitted a memorandum to the Hon’ble Minister of Agriculture, Shri S.S. Barnala. Copies of the said memorandum are posted to you under separate cover since you were out of station. We would also like to discuss this matter with you and as such request you to give us a suitable appointment.”
17. Reliance is also placed on a letter addressed by respondent No. 2 to Shri S.S. Garewal, Chairman, FCI, on January 2, 1978 (exhibit RW-1/2). After referring to the contradictory stand taken by the FCI and the absence of orders during 1977, respondent No. 2 asked for a clear and unambiguous reply in regard to the quantity of aluminium phosphide that FCI had programmed for consumption during each quarter of 1978.
18. Our attention has been particularly drawn to the following, paragraphs from this letter:
” As FCI happens to be the major consumer of this product, it is essential that there should be full and complete mutual understanding by the consumer and producer of the problems faced by them so that this industry, involving sophisticated technology and of vital concern to the agricultural community, may remain healthy. These are matters which we wish to discuss and settle in meetings in which the Department of Food and the Ministry of Chemicals and Fertilisers should also participate.”
19. It appears that the FCI, after suspending orders in April, 1977, resumed floating tenders at least from February, 1978, onwards. We have on record the copy of a tender dated March 3, 1978, sent by respondent No. 2 to FCI (exhibit RW-1/3) which shows that the aforesaid respon-dent had offered to deliver 170 M.T. from April, 1978, to January, 1979, at the price of Rs. 66 per kg. We presume that the other two respondents also responded to the tender floated by the FCI in more or less the same manner. However, there is evidence to show that all the three respondents responded to the FCI’s earlier tender dated January 1, 1980. All the three respondents offered to supply aluminium phosphide at Rs. 80 per kg. It appears that the FCI was not satisfied with the quoted price of Rs. 80 per kg. and, therefore, it entered into discussions with the respondents. In this connection, respondent No. 2 has placed on record a letter dated April 12, 1980, received from FCI requesting the aforesaid respondent to intimate the reasons for quoting high price with full details (exhibit RW-4/4). It further appears that there were negotiations between the FCI and the three respondents which led to reduction in the rate of Rs. 79 per kg. This is supported by a letter dated May 26, 1980 (exhibit RW-1/4), addressed by respondent No. 2 to FCI. The relevant extract from this letter is reproduced below :
” Thank you for the courtesy extended to us today when we came for negotiation of price to your office along with M/s. Excel Industries Ltd. and M/s. Swadeshi Chemicals Pvt. Ltd. We have explained to you all the points regarding the increase in cost of production of aluminium phosphide.
We very much appreciate your views and suggestions and in spite of our increasing cost, we are now ready to offer you aluminium phosphide at Rs. 79,000 per tonne free delivery to your FCI godown in Bombay.”
20. It appears that orders were finally placed in July, 1980, on the basis of the reduced price of Rs. 79 per kg. and supplies on that basis continued till April, 1981. There is thus evidence to show that there were negotiations between FCI and the three respondents in respect of the price of aluminium phosphide quoted by the respondents in response to FCI’s tender dated January 1, 1980.
21. The statement of Shri R.D. Shroff, witness of respondent No. 2, shows that after 1980, the next tender was floated by the FCI in 1982 and this brings us to the two tenders which are the subject-matter of the present enquiry, namely, tenders dated October 21, 1972, and November 24, 1983. The respondents claim that even in respect of these two tenders, the story of negotiations continued and have placed on record a copy of the joint representation (exhibit RW-1/7) made by all the three respondents to the Chairman, FCI (handed over personally to the addressee on August 25, 1983).
22. Before we proceed to sum up our impressions in regard to the documentary evidence placed on record by the respondents and referred to above, we would like to refer to a letter dated July 5, 1980, addressed by respondent No. 2 to the FCI (exhibit RW-1/5) which has been produced in support of their claims (i) that their negotiations with the Department of Chemicals and Fertilisers and FCI about determination of a fair price proved abortive, (ii) that the idea of having a common price originated from the FCI, (iii) they increased their capacities in response to anticipated requirements of FCI which did not materialize, and (iv) the price ultimately accepted by them in regard to the tender floated in 1980 was reasonable in the context of rising prices. The relevant extract from the aforesaid letter is reproduced below :
” Also the Bureau of Industrial Costs and Prices went into the question of the price and the manufacturers were invited for discussions with the Department of Chemicals and Fertilisers about the price recommended by the BICP; however, the price discussions were inconclusive.
You also know that FCI’s actual requirement turned out to be very much less than what was anticipated and to meet which, the manufacturers had to invest substantial sums in machinery and equipment. Food Corporation of India being the major consumer of the product, all the manufacturers were put into serious difficulties when FCI’s orders were withheld for long periods.
It was only because FCI thought in terms of a common price negotiated with the manufacturers with the assistance of the Government that the manufacturers had to think of a common price. Similarly it is only because, at the instance of FCI, of the great cost, that it was necessary that the FCI order should be distributed amongst all the three manufacturers rather than placed with only one of them.
With regard to the price, it is not unknown that costs are all going up and we have also submitted to you actual evidence with regard to the extent to which the costs have actually increased. Taking into account the previous supply price of Rs. 66 and the extra cost for which evidence has been supplied to you, the price for this supply should have been Rs. 81.25 per kg. but we have finally accepted the price of Rs. 79. ”
23. It will be seen from what has been stated in the preceding paragraphs that at least on three occasions between 1980 and 1983, the respondents quoted similar rates, i.e., Rs. 80, Rs. 90 and Rs. 102 in respect of tenders dated January 1, 1980, October 21, 1982 and November 24, 1983, respectively, and that the quotations were reduced by an identical price of Re. 1 both in respect of the first and the third of the aforementioned three tenders. There is also strong circumstantial evidence to justify the inference that there was agreement amongst the three respondents both to quote identical prices and to reduce original quotations by identical margin. Ever since 1976, the respondents have tendered to evolve a common approach in respect of the prices that they should quote in response to tenders floated by the FCI. It may be argued that this course of action, i.e., quotation of identical prices and reduction of quotations by identical margins was a justified response to the peculiar conditions prevailing in the market. It may also be argued that there is no direct evidence to indicate that the respondents had met somewhere to discuss and decide upon a common price to be quoted for supply of aluminium phosphide to FCI. We are however, of the view that the first argument, i.e., justification of quotation of identical prices, is a matter to be considered as a mitigating circumstance coming within one or more of the gateways under Section 38 in case we hold that the respondents have indulged in the restrictive trade practice of collusive tendering. As far as the absence of direct evidence of meeting of minds is concerned, the omission has been made up by the copious circumstantial evidence furnished by the respondents themselves in the form of minutes of the joint meetings held by them with the authorities concerned, namely, FCI and the Department of Chemicals and Fertilisers, copies of joint representations made by the respondents to the FCI and references to joint discussions and negotiations with the FCI which go to show that quotations of identical prices was not a matter of a mere fortuitous coincidence but represented the outcome of concerted action. No doubt, the onus was initially on the Director-General to show that there was an agreement amongst the respondents to offer identical rates. But this onus has been discharged by sufficient circumstantial evidence. In taking this view, we rely on the authority of the Supreme Court in the case of Collector of Customs, Madras v. Bhoormull, AIR 1974 SC 859. The relevant observations of the Supreme Court are reproduced below (at page 867):
” The broad effect of the application of the basic principle underlying Section 106, Evidence Act, to cases under Section 167(8) of the Act, is that the Department would be deemed to have discharged its burden if it adduces only so much evidence, circumstantial or direct, as is sufficient
to raise a presumption in its favour with regard to the existence of the facts sought to be proved. ”
24. According to their Lordships, it is a fundamental rule that the burden of proving the guilt in criminal and quasi-criminal proceedings would be on the Department but in appreciating its scope and the nature of the onus cast by it, due regard to the other kindred principles is as much required … one of them is that the prosecution or the Department is not required to prove its case with mathematical precision to a demonstrable degree.
25. In the circumstances, therefore, we hold that the respondents had entered into an agreement to quote uniform prices for supply of their product to the FCI and the aforesaid agreement is hit by Section 33(1)(d) of the Act, The restrictive trade practice envisaged under the aforesaid provisions of the Act also attracts the provisions of Section 2(o) of the Act as it has adversely affected competition. In the absence of the agreement, the respondents would have competed with each other in respect of the price they were required to quote, depending upon their cost of production, the margin of profit and other market considerations. We, therefore, answer the issue in the affirmative and hold that the respondents have indulged in the restrictive trade practice as stated in the notice of enquiry.
26. The next issue for decision is whether the respondents are entitled to avail of any one or more of the gateways provided in Section 38(1) of the Act. A perusal of their replies to the notice of enquiry reveals that the respondents have pleaded that the yare entitled to the gateways available under Clauses (b), (e) and (h) as well as the balancing clause of Section 38. However, at the time of arguments, they have relied on Clauses (d) and (h) and the balancing clause of Section 38 of the Act. The aforesaid provisions of the Act are set out below :
” For the purposes of any proceedings before the Commission under Section 37, a restrictive trade practice shall be deemed to be prejudicial to the public interest unless the Commission is satisfied of any one or more of the following circumstances, that is to say …
(d) that the restriction is reasonably necessary to enable the persons party to the agreement to negotiate fair terms for the supply of goods to, or the acquisition of goods from, any one person not party thereto who controls a preponderant part of the trade or business of acquiring or supplying such goods, or for the supply of goods to any person not party to the agreement and not carrying on such a trade or business who, either alone or in combination with any other such persons, controls a preponderant part of the market for such goods ; …
(h) that the restriction does not directly or indirectly restrict or discourage competition to any material degree in any relevant trade, or industry and is not likely to do so ; …
and is further satisfied (in any such case) that the restriction is not unreasonable having regard to the balance between those circumstances and any detriment to the public or to persons not parties to the agreement (being purchasers, consumers or users of goods produced or sold by such parties, or persons engaged or seeking to become engaged in the trade or business of selling such goods or of producing or selling similar goods) resulting or likely to result from the operation of the restriction. ”
27. We will first take up Clause (d) of Section 38(1) of the Act. It is submitted that if the respondents have got together, it is only to negotiate for fair terms from the FCI who control the preponderant part of the market for the product concerned, namely, aluminium phosphide. The keywords in Section 38(1)(d) are ” preponderant ” and ” fair terms “. In Water Tube Boiler Makers’ Associations Agreement’s case [1959] LR 1 RP 285, the court refrained from attempting any definition of the term ” preponderant ” and held that:
” it must be a question of fact in all the circumstances of each particular case as to whether or not a particular purchaser can be so described “.
In National Sulphuric Acid Association’s Agreement [1963] LR 4 RP 169, the court did not define the phrase ” preponderant part “, but commented that while the relative size of the part is clearly important, the respondent had not necessarily to show that it exceeded 50%. We may also take the help of the dictionary in understanding the key word “preponderant”. According to Chambers’ Twentieth Century Dictionary, the term ” preponderant ” means ” to weigh more ; to turn the balance ; to prevail or exceed in number, quantity, importance, influence or force”. It appears to us that Section 38(1)(d) refers to the negotiation with a purchaser who is in a position to dictate terms by virtue of the extent of market it controls in respect of the particular product vis-a-vis other purchasers of the same product.
28. We find that there is evidence on record to show that the FCI can be considered as such a dominant purchaser of aluminium phosphide which is manufactured mainly by the three respondents. The product is a poisonous fumigant and is required only by State agencies which have to store huge quantities of food stock. In this context, our attention has been drawn to the minutes of the meeting held on September 18, 1976, in the committee room of the Department of Food (exhibit RW 4/1-A).
29. The minutes show that, according to its representative, the FCI “would require about 600 tonnes of aluminium phosphide per year which would go up to 900 M.T. in the ensuing years “. According to the minutes, the Central Warehousing Corporation would require about 100 M.T. per year while the ” Save Grain Campaign ” and State Governments would each require 100 M.T. per year. In addition, the Directorate of Plant Protection, Quarantine and Storage, would require another 125 tonnes a year. Thus, the total annual requirement would be 925 M.T. which according to the minutes of the aforesaid meeting could be met if the manufacturing capacities of the different firms were utilised properly. Thus, out of a total estimated requirement of 925 M.T., the FCI would require 600 tonnes and this would give the FCI a commanding position in the market. This was the position in 1976 and with passage of time, as the operations of the FCI increased, its requirements of fumigants were also bound to increase. It is true that the manufacturers of aluminium phosphide could also look to foreign markets as will be seen from what Shri Suresh Chandra, the then Under-Secretary to the Government of India, Ministry of Chemicals and Fertilisers had to say in his letter dated December 7, 1976, addressed to respondent No. 2 (exhibit RW 4/3) as will be seen from the following extract therefrom :
“It was also noted in this meeting that alumium phosphide has a fair export market and that in the absence of a firm demand and schedule of procurement by the Fertilizer Corporation of India, etc., the manufacturer should be encouraged to export their excess production. ”
30. There is another document on record, namely, minutes of the meeting held by the FCI with manufacturers of aluminium phosphide on October 19, 1976 (exhibit RW 4/2), wherein it is stated that ” the manufacturers will continue their efforts to promote export of aluminium phosphide and earn foreign exchange for the country and that in view of the higher margin of profit accruing out of export, it should be possible to lower the rate of this fumigant for internal consumption. ” However, even if we may keep the possibility of the export in mind, it cannot be gainsaid that the FCI had a commanding position as a purchaser of aluminium phosphide.
31. We may, in all fairness, point out that the figures furnished by the respondents in response to interrogatories do not confirm the impression that we have formed on the basis of figures of the existing and projected requirements of the FCI referred to in the immediately preceding paragraph. We give below the figures of total production of aluminium phosphide and supplies made to organisations other than the FCI.
32. These figures include exports and, therefore, may not clearly give an idea of the position in the Indian market. Further, the figures of respondent No. 2 are in respect of calendar years, i.e., 1983, 1984 and 1985, whereas figures for other respondents may be for the financial years, i.e., 1982-83, 1983-84 and 1984-85. Moreover, besides the respondents, there is one more manufacturer, namely Agrosynth Chemicals Pvt. Ltd., which had offered 90 M.T. to the FCI in response to tender dated November 24, 1983. In any case, even if parties other than the FCI may have together purchased more than what the FCI had purchased, it cannot be denied that the FCI is the single largest purchaser and its purchases are substantial. Thus, keeping all the factors under consideration, it would not be unreasonable to hold that the FCI is a preponderant purchaser of aluminium phosphide within the meaning of Section 38(1)(d) of the Act.
33. We are fortified in taking the view about the preponderant character of the FCI as a purchaser of aluminium phosphide, by the fact that the three manufacturers have been at the beck and call of the FCI as will be seen from the history of joint consultations that the respondents had had with the FCI and the Department of Chemicals and Fertilisers beginning towards the end of 1976, We would only refer to one of the decisions taken in the meeting which the FCI had with the respondents on October 19, 1976. This decision is reproduced below (extract from the minutes of the aforesaid meeting, exhibit RW 4/2):
” The firms were asked to submit the details of the costing for manufacture of aluminium phosphide to the Ministry of Chemicals and Fertilisers for their scrutiny and fixing a realistic price. Till such prices are fixed by the Ministry of Chemicals and Fertilisers, the firms will continue to offer this fumigant to the FCI at the current rates, viz., Rs. 60, Rs. 67 and Rs. 68 per kg. by M/s. Excel Industries, M/s. Inventa Corporation and M/s. Chemicost respectively “.
34. We may further add that the respondents did send the details of the costing to the Ministry of Chemicals and Fertilisers and the Bureau of Industrial Costs and Prices did go into the question of the price of aluminium phosphide but the price discussions were inconclusive. It is also seen that the respondents abided by the particular decision about the prices offered to the FCI till January, 1980, when the quotation was jointly raised to Rs. 80 per kg.
35. The other set of key words in Section 38(1)(d) is “fair terms”. According to us, fair price is the most important ingredient of the concept of ” fair terms “. It is also axiomatic that fair price should cover not only costs but also a reasonable profit. In the present case, this price factor has been the main subject-matter of discussions and negotiations between the FCI and the manufacturer, as would be seen from the minutes of the meetings they had had with each other and the correspondence exchanged between them beginning with October, 1976. It was only in respect of the FCI’s tender floated in January, 1980, that the respondents were able to quote figures higher than those which they had been compelled to quote in the earlier tenders. It is only after the respondent had agreed to reduce the price by Re. 1 per kg. as a result of negotiations that the Food Corporation placed the orders. In fact, it is seen that the FCI in its letter addressed to respondent No. 2 dated April 2, 1980 (exhibit RW 4/4), had asked for the reasons for the increase in quotations from Rs. 66 to Rs. 80 per kg. It is also seen that the three respondents in a joint letter dated April 8, 1986 (exhibit RW 1/6(v)), had explained the justification for increase in quotations “an average of all the three units “. It has further to be noted that the increased prices quoted in respect of the tender in January, 1980, as well as the two tenders under consideration, i.e., tenders floated in October, 1982, and November, 1983, compared favourably with the prices quoted/charged from other purchasers. In the context of these facts it would not be unreasonable to presume that it was to negotiate fair terms that the respondents came together in the negotiations with the FCI.
36. It will be seen from the discussions in the preceding paragraphs that the respondents come within the gateways provided in Section 38(1)(b) of the Act. But this does not end our exercise in respect of respondent’s claim for gateways under Section 38(1) of the Act. The respondents have to reckon with what is commonly described as the “balancing clause”. The scheme of Section 38(1) involves two stages. In the first stage, the respondents have to satisfy the Commission that one or more of the circumstances set out under various clauses therein exist. In the second stage, the Commission must be further satisfied that the restriction is not unreasonable having regard to the balance between the aforesaid circumstance(s) and any detriment to the public resulting from such restriction. We are afraid that in the present case the balancing clause thwarts the attempt of the respondents to escape through the gateways under Section 38(1) of the Act. We think that the FCI, even though a preponderant purchaser, is entrusted with one of the most nationally important jobs, namely, procurement, storage and transportation of food-grains. The FCI feeds the Public Distribution System under which food-grains are sold to the vulnerable sections of the society through a chain of fair price shops at concessional rates. In the context of the vital role thus played by the FCI in feeding the teeming millions of the country, we would be very reluctant to reduce its bargaining power in the matter of purchases to meet its requirements by validating the formation of cartels of suppliers. In the circumstances, therefore, we hold that, in view of the detriment to the public likely to result from the concerted action by the respondents in negotiating terms with the FCI, the respondents are not entitled to the gateways under Clause (d) or any other clause of Section 38(1) of the Act.
37. Before parting with the order in so far as the issues are concerned, we would like to deal with the argument urged on behalf of the respondents that the FCI cannot approbate and reprobate at the same time. In the first instance, it reports to the Department of Food that the respondents were ” quoting different rates for the supply of aluminium phosphide ” ranging from Rs. 60 per kg. to Rs. 75 per kg. “(minutes of the meeting held on July 18, 1976–RW 4/1-A) and the second instance, it complains to the Commission that the respondents “usually quote their rates together when tenders are invited”. (FCI’s letter dated February 12, 1985–exhibit A-1). The respondents’ counsel has drawn our attention to the following extract from the judgment of the Supreme Court reported at page 593 of AIR 1956 (Nagubai Ammal v. B. Shama Rao), which elucidates this equitable doctrine of law (at page 601):
” The ground of the decision is that when on the same facts, a person has the right to claim one of two beliefs and with full knowledge he elects to claim one and obtains it, it is not open to him thereafter to go back on his election and claim the alternative relief. ”
38. We do not think that this doctrine of law helps the respondents considering that in the present enquiry we are concerned with the restrictive trade practice of concerted action by respondents in quoting uniform prices irrespective of the stand of FCI. We are also doubtful if the FCI even, in the first instance, wanted the respondents to quote a uniform price. We also think that conditions had not remained static since the FCI brought it to the notice of the Government that the respondents were quoting different rates. When that complaint was made in 1976, no single manufacturer was in a position to supply the requirements of the FCI and, therefore, distribution of the quantity amongst the three manufacturers created problems. Later, when the respondents had increased their capacities and any one of them could meet the bulk of the requirements of the FCI, this problem did not arise and what really hurt the FCI was the uniformity of prices quoted by the respondents in concert. Moreover, a fourth manufacturer had appeared on the scene around 1982.
39. In view of what has been stated in the preceding paragraphs, we hold that the respondents have indulged in the restrictive trade practice as alleged in the notice of enquiry, i.e., forming a cartel in the matter of quotations to FCI and that the aforesaid restrictive trade practice is not saved from the taint of being prejudicial to public interest by Section 38(1) of the Act. We, therefore, proceed under Section 37(1) and direct the respondents to cease the practice and not to repeat it in future.
40. There will be no order as to costs. The enquiry stands disposed of.