ORDER
D.C. Aggarvval, Member
1. This is an enquiry under Section 10(a)(iii)/37 of the Monopolies and Restrictive Trade Practices Act, 1969, instituted in the wake of an application dated April 27, 1983, moved by the Registrar, Restrictive Trade Agreements, as he was then designated (hereinafter referred to as “the applicant”). M/s. Kores India Ltd. (hereinafter referred to as “the respondent”) is carrying on the business of manufacture and sale of carbon paper, stencil, duplicating paper, ink, etc., and it is averred that the products of the respondent enjoy buyers’ preference
in the market. For the purpose of marketing its products, the respondent has appointed authorised dealers and accredited dealers.
2. The seventeen accredited dealers are located in eight cities, namely, Agra 1, Aligarh 1, Ghaziabad 1, Faridabad 1, Delhi 1, Bombay 7, Pune 1 and Nagpur 4. The accredited dealers are allowed special discount varying from 3% to 6% irrespective of the quantum of their sales. The authorised dealers other than the accredited ones are allowed annual bonus. It is alleged that the trade practices of allowing special discount to the 17 dealers and differential annual bonus to others amounts to
%
discriminatory dealings inasmuch as some of the dealers enjoy advantageous position and others do not. This discrimination restricts or distorts competition amongst the two categories of dealers in the market. Besides this, it leads to a tendency to manipulate the prices and affect the flow of supplies in the market in such a manner as to impose unjustified costs on the consumers.
3. It is further stated that the respondent allows to its dealers discounts on some products at the rate of 25% and on some other products at the rate of 30% on the retail price as per the price list circulated from time to time.
4. On the basis of this application, a notice of enquiry dated October 31, 1984, was issued for enquiring into the restrictive trade practices, namely :
(1) allowing discounts to its dealers on some products at 25% and on some other products at 30% on the retail price as per the price list issued from time to time ;
(2) allowing annual bonus to dealers except 17 dealers and the turnover slabs as also the rate of discount thereon which differs from place to place;
(3) allowing special discounts varying from 3% to 6% to its selected 17 dealers irrespective of the quantum of their sales;
It may be mentioned at the outset that learned counsel, Shri 0. P. Dua, advocate, submitted on behalf of the Director-General that he would not press the trade practices mentioned above in serial No. 1 and also the trade practice of prescribing turnover slabs and the discounts varying from place to place thereon as mentioned in the latter part under serial No. 2. This being so, the trade practice which relates to giving annual bonus to dealers and discounts varying from 3% to 6% to 1-7 accredited dealers only survives for adjudication.
5. The respondent opposed the notice of enquiry in this respect saying that there is no material distinction between these 17 accredited dealers
and others who are authorised dealers except that they are issued certificates as such in the specimen, exhibit R-2 and exhibit R-3, respectively. These 17 dealers are given discount rather than the annual bonus because of their past connection of long standing with the respondent company. It is further stated that the respondent tries to maintain as far as possible a uniform sale price throughout the country. With that end in view, it has established 27 branch offices including 17 depots and 10 sales offices. It has over 3,000 dealers. The relationship between the respondent company and its dealers is on principal to principal basis and they sell the production their own terms and conditions but subject to the restriction that the resale prices should not exceed the maximum price fixed by the company.
6. In justification of giving discounts in the range of 3% to 6% to the 17 accredited dealers, it is stated that some of them in the past were importing their requirements from Kore Vienna and at that time they were getting discounts between 5% and 15%. Some of the dealers are cooperative stores while others do not purchase these products under the respondent’s brand but market the same under their own brand name. It is on account of these considerations that these 17 dealers have ” been designated as accredited dealers and are given discounts varying from 3% to 6% and not any annual bonus. According to the respondent, there is no adverse effect on competition nor does it impose an unjustified cost or restriction on the consumer ; alternatively the said trade practice, if at all a restrictive ” one, is covered under Clauses (b) and (h) of Sub-section (1) of Section 38 of the Monopolies and Restrictive Trade Practices Act.
7. In the course of the enquiry, interrogatories were delivered to the respondent and discovery of documents was also sought. In reply to the interrogatories, it is submitted that there are about 30 large scale manufacturers in the country and that these 17 dealers are associated with the respondent for 30 to 50 years. On the pleadings of the parties, the following issues were framed :
(1) Whether in the circumstances stated by the respondent in para 1 of his reply to the interrogatories, there is no justification for the Commission to enquire into the matter ?
(2) Is the respondent indulging in or has the respondent indulged in the trade practices alleged ?
(3) If so, whether these trade practices amount to restrictive trade practices within the meaning of Section 2(o) of the Monopolies and Restrictive Trade Practices Act, 1969 ?
(4) If answers to issues Nos. 2 and 3 are in the positive, is the respondent entitled to any of the gateways envisaged under Section 38 of the Monopolies and Restrictive Trade Practices Act, 1969 ?
(5). To what reliefs are the parties entitled ?
Issue No. 1.
So far as issue No. 1 is concerned, no arguments were addressed at the Bar and as such this issue is decided against the respondent.
Issues Nos. 2, 3 and 4
There is no denying the fact that 17 accredited dealers are being given discount ranging from 3% to 6% while other dealers are given annual borfus. In the memorandum, exhibit A-2(a), the names of the 17 accredited dealers and the rates of discount given to them are stated as under:
There are other dealers designated as authorised dealers in Agra, Aligarh, Faridabad, Delhi, Bombay, Pune and Nagpur. As per statement, exhibit A-3, the total number of such dealers is around 224, though RW-1, Laxmi Narayan Khanna, Vice-President (Sales) of the respondent company, puts the figure at 2,500 saying ” we have more than 2,500 dealers in the country. ” It may be mentioned that an idea of the difference between the discount rate and the bonus rate can be had from the figures given in the statement, exhibit A-3. The percentage of discount and bonus by way of specimen in respect of a few dealers selected at random therefrom is as follows:
The figures as above will show that the accredited dealers are doubtlessly placed in an advantageous position qua their counterparts designated as authorised dealers. In Nagpur, one authorised dealer, C. P. Paper and Stationery House, receives benefit in the form of bonus only at 1’99% while the accredited dealers receive as much as 3.72% to 4% in the shape of discount. The turnover of C P Paper and Stationery House amounted to Rs. 97,768 and is better than that of some accredited dealers in the city of Nagpur. Though the turnover of Satya Parkash Supply Agency is in the sum of Rs. 1,70,233, yet the percentage of bonus even in his case is far less than the percentage of discount allowed to the accredited dealer.
8. In Bombay, the bonus in the case of some dealers is as low as 0’95% and 1.79%. Similar is the position in Faridabad where bonus comes to 1.16% and in Pune where the lowest range is 0.94%. Not only is there a difference between the discount and the bonus percentages but there is vast variation even in the bonus range itself. Of course, in this case, we are concerned with the discrimination only between the accredited dealers’ who are allowed discount at the time of sale itself and the authorised dealers who receive bonus at the end of the year. Needless to say that this is nothing but allowing benefits in connection with or by reason of dealings. The agreement or understanding in this respect relates as it does to a restrictive trade practice within the meaning of Section 33 of the Monopolies and Restrictive Trade Practices Act, it is also restrictive or distorting of competition, or has the potential of bringing about an adverse effect on competition. Under Section 38 of the Monopolies and Restrictive Trade Practices Act, the restrictive trade practice is to be presumed to be prejudicial to public interest unless the Commission is satisfied of the existence of any one or more of the circumstances detailed in Clauses (a) to (k) of Sub-section (1) of Section 38 of the Monopolies and Restrictive Trade Practices Act. In this connection, in the first instance, it may be pertinent to see to the respondent’s commercial position in the country.
9. It is stated on behalf of the applicant that the products manufactured and/or marketed by the respondent are widely known and enjoy buyers’ preference throughout the country. Letter dated October 22, 1983 (exhibit A-7), from the office of the Director-General of Technical Development addressed to the Dy. Registrar read with the enclosure, exhibit A-7a shows that two major units in the organized sector engaged in the manufacture of carbon paper and stencil paper are M/s. Kores India Ltd. and another M/s. Bharat Carbon and Ribbon Manufacturing Co. Ltd. The annual capacity of the respondent as respects carbon paper is 50,14,100 boxes of 100 sheets, of stencil paper it is 22,59,000 quires and of T. P. rolls it is 4,43,500. The annual capacity of M/s. Bharat Carbon and Ribbon Manufacturing Co. Ltd. for carbon paper is only 13.79 lakh boxes of 100 sheets, and of stencil paper 1.07 lakh quires. The quantity of T. P. rolls is 3.51 lakhs.
10. RW-1, Laxmi Narayan Khanna, stated that there are 10 or 12 manufacturers of carbon paper in the organised sector who also manufacture teleprinter rolls. But it is evident from exhibit A-7a that the respondents are the biggest unit in this respect in the organized sector. The respondent has also produced a zone-wise list of manufacturers of stencils, duplicating ink, carbon papers, (T/W ribbons, T.P. Rolls, etc. (exhibit R-l), according to which there are 23 manufacturers in Western India, 17 manufacturers in Northern India, 11 manufacturers in Southern India
and 24 manufacturers in Eastern India. A perusal of exhibit R-l would show that so many of them are manufacturing just one or two items such as duplicating ink or computer ribbons or typewriter ribbons only. A few of them manufacture carbon papers or stencils only. Most of these manufacturers are somewhat unknown and their products do not appear to enjoy country wide reputation or buyer’s preference. According to Laxmi Narayan Khanna, RW-1, the information of the Director-General of Technical Development with respect to the two manufacturers in the organized sector, vide exhibit A-7a is not correct, inasmuch as three or four big manufacturers are not mentioned thereunder. It is not possible to agree that the information supplied by the Director-General of Technical Development be regarded as incorrect. Apart from this, we have the production figures of the respondent as given in statement, exhibit A-1(b). For the year ending June 30, 1980, the figures are extracted as hereunder:
This shows that the respondent occupies a competitive position to reckon with in the production of various items as shown above. As is evident from the figures given hereinabove, the turnover of the dealers appointed by the respondent in some cases runs into lakhs of rupees.
11. The respondent’s learned counsel took pains to show that the discriminatory dealing even if it be considered to be restrictive trade practice is duly covered by Clauses (b) and (h) of Section 38 of the Monopolies and Restrictive Trade Practices Act. In fact, under Clause (b)of Section 38(1), the respondent’s claim, therefore, is that the removal of the restriction, and for the matter of that the distinction, would deny to the public as consumers other specific and substantial benefits or advantages enjoyed by them as a result of these two kinds of concessions to the dealers. We are unable to see any benefit to the consumers or to the public as purchasers arising from these more advantageous terms allowed to the accredited dealers and relatively less advantageous terms to a large number of dealers designated as authorised dealers. The resultant benefit to the consumers might be better if all the dealers had the advantage of approximately 4% discount given in the bill itself.
12. As regards the applicability of Clause (h) of Section 38 of the Monopolies and Restrictive Trade Practices Act, it is to be seen whether the respondent has been able to show that the restriction does not directly or indirectly restrict or discourage competition to any material degree and is not likely to do so. That this discriminatory dealing may pass through the gateway under Clause (h), it is further required to be shown that it is not unreasonable having regard to the balance between those circumstances which according to the respondent necessitated higher benefit to the 17 accredited dealers and the possible detriment to the public from the operation of this discrimination. We have given hereinabove turnover figures of accredited dealers enjoying discount at 4% or thereabouts and the turnover figure of ordinary dealers at the end of the year on slab basis of their turnover. It will be seen that on account of the lower concession in the form of bonus, it is rare that an authorised dealer is able to compete with an accredited dealer in the matter of his turnover. The turnover of most of the authorised dealers individually is less than that of the accredited dealers in the same town. Where an authorised dealer has been able to show better turnover, the total benefit in the shape of bonus is-far less than the discount earned by an accredited dealer. This being so, the discriminatory dealings between one kind of dealer and another affects the competitive capacity of one as against the other and it may ultimately reflect upon the cost that the consumer may have to pay for the product. Even if for the sake of argument, for the time being, it may be assumed that higher benefit to the accredited dealers/does not restrict competition to any material degree, it would certainly discourage competition and is likely to do so because once this discriminatory dealing is upheld by the Commission to be permissible, it would tend to give licence to the respondent to perpetuate or even augment this discriminatory trade dealing.
13. Even this is not enough. It is further to be seen that the restriction or in other words ” discriminatory dealings ” is not unreasonable having regard to the circumstances which according to the respondent necessitate it and detriment is likely to result from the operation thereof. The respondent has endeavoured to defend this trade practice on the reasoning:
(1) that the 17 accredited dealers do not get any annual bonus at all and that some of these dealers were getting their requirement from Kores, Vienna at discount in the range of 5% to 15% ;
(2) that some of the dealers are co-operative stores ;
(3) that some amongst them do not purchase the products in the respondent’s brand name but market them under their own brand ;
(4) that these accredited dealers have had dealings with the respondent extending over long years and the special discount given to them earlier has rather been gradually reduced ; and
(5) that the said ” restriction has enabled him to set up an all India market and supply quality stationery throughout the country at uniform prices and promptly, thus assuring the public the advantage of prompt and good marketing which would be otherwise denied to them ” .
(6) Mr. Harihar Nath Misra, RW-2, says that these 17 accredited dealers have been given this extra benefit because they are making special efforts to increase the sale of the respondent company’s products. According to him, some of them go to the mofussil places outside the town to popularise these products and some are even carrying on advertisements which normally other dealers would not be doing. Not only that, some dealers have engaged their own sales staff for canvassing the products of the company with the consumers as well as with the retailers. He had to admit in cross-examination that there is no written agreement with these favourite dealers for their making special efforts to augment the sales of the respondent company’s products. He goes on to say that now, these 17 dealers are no linger designated as accredited dealers and they fall in the general category of dealers. But as we see the statement exhibit A-3, the averment of Mr. Harihar Nath Misra is to be taken to be far from true particularly as he cannot deny the existence of a special category of dealers allegedly for their making special efforts to augment the sales of the respondent company. Laxmi Narayan Khanna, RW-1, goes further to say that the special discount of these 17 accredited dealers is given for the extra expenditure incurred by them on pushing up the sales. There was no valid explanation for the difference in benefit given to Messrs Quality Products and Messrs. Mahavir Agencies of Bombay inasmuch as though Messrs Mahavir Agencies gave a turnover of Rs. 16,92,480 they earned bonus amounting to Rs. 45,645 only while Messrs Quality Products on a turnover of Rs. 14,78,443 earned a discount in the sum of Rs. 59,179. Both these firms are operating in the same locality, namely, Abdul Rehman Street. Similar is the position with C. P. Paper and Stationery House, an authorised dealer and S.M. Kothari & Sons of Nagpur. It is not necessary to discuss in detail the difference in the earnings of various authorised dealers vis-a-vis the accredited dealers in the same town as it is evident from the figures reproduced hereinabove. Suffice it to say that the higher turnover of the ordinary dealers in some cases vis-a-vis its counterpart, the accredited dealer, goes to belie the contention that special efforts are being made by the accredited dealers to augment sales.
It is further pleaded that due to sales tax and octroi, etc., the dealers had to be wooed by allowing discount rather than annual bonus; for instance, the dealers in Ghaziabad and Faridabad, because of getting their requirements from Delhi, had to pay central sales tax at 4%. In this respect, it may be mentioned that so far as Ghaziabad is concerned, there is only one dealer, namely, Ghaziabad Stationery Mart, and he is getting discount. There is no other dealer there. But this plea does not hold good so far as Faridabad is concerned because there is one accredited dealer receiving discount at 3.74% and there is one authorised dealer who is paid bonus only at 1.16%. Thus, on a turnover of Rs. 45,843, he was paid bonus in the sum of Rs. 530 only. As regards co-operative stores, of course, the consideration would be different and we would advert to it later.
The other points in defence of the discriminatory dealings, as given in the written reply and summarised in para 15A above, are mere excuses for the perpetuation of the illegality or an apology for the claim of gateway under Section 38(1) of the Monopolies and Restrictive Trade Practices Act. Barring the co-operative stores, namely, Super Bazar in Delhi and Student Stationery Mart of Aligarh, there is no justification for discriminatory benefits or concessions as have been acceded to others neither on economic considerations nor on social constraints. The argument that University Typewriter Exchange of Pune is also canvassing among students, that Western India Typewriter Company and M/s. Copy Neat of Bombay are buying ribbons and carbons in their own brand names, WITCO and COPY NEAT, respectively, and that S. M. Kothari and Sons of Nagpur were distributors for M/s. Kores India for 40 years and their distributorship was converted into dealership does not furnish a valid defence to indulge in a trade practice not permissible under the law. It may be pertinent to say that in the USA, quantity discounts have been viewed with disfavour except where it could be justified by reason of the seller’s diminished cost due to quantity manufacture, delivery or sale or by reason of > seller good faith effort to meet a competitor’s equally low price. In Federal Trade Commission v. Berten Salt Co. [1948] 334 US 37, the judges observed that the legislative history of the Robinson Patman Act makes it abundantly clear that the Congress considered it to be an evil that a large buyer could secure a competitive advantage over a small buyer solely because of the large buyer’s quantity purchasing ability. This is what we perceive in this device of the respondent in conceding higher benefits to the 17 accre dited dealers than that allowed to other dealers in the same town,
14.
In the premises, we are satisfied that the respondent has failed to show that the discriminatory dealing is not likely directly or indirectly to restrict or discourage competition and further that it is not unreasonable having regard to the balance between the circumstances, as discussed above, which, according to them, require the special discount for the 17 dealers and the detriment to the purchasers and consumers likely to result therefrom.
15. So, all these issues are decided against the respondent.
Relief:
As has already been discussed supra, the special discount given in Aligarh and Delhi is for co-operative stores, namely, Students Stationery Mart and Super Bazar. Since the retail stores run by co-operative societies are service-oriented and are for the benefit of the consumers rather than for making profit, a higher concession on their purchases allowed to them is to be deemed to be in public interest as it would enable them to compete in the market with the rival retailers. This view of ours is in conformity with the ratio laid down in In re Rallis India Ltd. (RTPE No. 5 of 1982 decided on December 29, 1983) where lower prices for supplies ” to the State Governments were held to be in public interest.
In other cases, the discriminatory dealings between the so called accredited dealers and the authorised dealers is difficult to be upheld inasmuch as it cannot be defended by any economic reason or market conditions.
16. So, we order that the respondent shall desist from the trade practice of discriminatory dealings between one dealer and the other and shall not repeat it in future. With that end in view, we direct that either the discount given to the abovesaid dealers in towns other than Aligarh and Delhi shall be abolished or all the dealers shall be given the advantage of discount at a rate that does not distort parity amongst them. This shall be introduced from the next financial year and affidavit of compliance of this order shall be filed before this Commission within four months’ time.
17. In the circumstances of the case, there shall be no order as to costs.
18. Pronounced.