Supreme Court of India
BAJAJ AUTO LTD.versusDIRECTOR GENERAL (I & R) & ANR.
- Citation
- 2008 INSC 642
- Decided
- 12 May 2008
- Disposal
- Appeal(s) allowed
- Bench
- TARUN CHATTERJEE
Holding
A notice of enquiry is not maintainable unless it expressly alleges that the respondent has engaged in a practice that has or may have the effect of preventing, distorting or restricting competition as defined in Section 2(o) of the MRTP Act.
Summary
Bajaj Auto Ltd. challenged a Notice of Enquiry issued by the Monopolies and Restrictive Trade Practices (MRTP) Commission alleging that its dealer agreements involved restrictive trade practices under Section 33 of the MRTP Act. The appellant argued that the alleged clauses—territorial appointment, sales targets, and price fixation—did not fall within the definition of a restrictive trade practice under Section 2(o) because they neither prevented, distorted nor restricted competition. The Commission held that the practices were covered by Sections 33(1)(g), (b) and (f) and ordered Bajaj to cease them. The Supreme Court examined whether the notice and the Commission's application sufficiently alleged a violation of Section 2(o) and found that they did not. It held that without a showing of actual or probable anti‑competitive effect, the notice was ultra vires and set aside the Commission’s order. The Court emphasized the need for the Commission to exercise caution before issuing notices, as frivolous notices cause reputational damage and unnecessary litigation. The appeal was allowed and the impugned order was vacated.
Issues considered
- Whether the Notice of Enquiry and the Commission's application are maintainable in the absence of a prima facie allegation that the appellant engaged in a restrictive trade practice as defined under Section 2(o) of the MRTP Act.
- Whether the dealer appointment, sales‑target and price‑fixation clauses fall within the ambit of Sections 33(1)(g), (b) and (f) of the MRTP Act.
- Whether the alleged practices are prejudicial to public interest and constitute a violation of competition principles.
Legislation cited
- Monopolies and Restrictive Trade Practices Act, 1969s. 10(a)(iii), s. 2(o), s. 33(1)(b), s. 33(1)(f), s. 33(1)(g)
Subjects
restrictive trade practicecompetition lawMRTP ActSection 33Section 2(o)dealer agreementterritorial restrictionprice fixationpublic interestnotice of enquiry
Judgment
[2008] 8 S.C.R. 337
BAJAJ AUTO LTD. A
v.
DIRECTOR GENERAL (I & R) & ANR.
(Civil Appeal No.1709 Of 2001)
MAY 12, 2008
B
[TARUN CHATTERJEE AND DALVEER BHANDARI,
JJ.]
Monopolies and Restrictive Trade Practices Act, 1969 -
s.33(1)(g) - Notice of enquiry issued alleging involvement of c
appellant in restrictive trade practice within the meaning of s. 33
- Commission held that alleged trade practice was covered
under s.33(1)(g) of the Act and as such prejudicial to public
interest and directed appellant to cease such practice - On
appeal, Held: Neither notice nor application allege that the
D
.... -4- appellant ever indulged in or that alleged trade practice has
or may have the effect of preventing, distorting or restricting
competition in any manner - Therefore, neither notice nor the
application maintainable - Frivolous notices breed long drawn
avoidable litigation before various forums - Commission di-
reefed to be extremely careful before issuing notices to the
E
parties because it has serious consequences on the reputa-
tion and credibility to the activities of those parties.
_, A Notice of Enquiry was issued alleging the involve-
)' ment of appellant in certain restrictive trade practices F
within the meaning of s.33 of Monopolies and Restrictive
Trade Practices Act, 1969.
The Commission held that the alleged trade practice
was covered under s.33(1 )(g) of the Act and as such preju-
dicial to public interest and directed appellant to cease G
,. such practice.
+
In appeal to this Court, appellant contended that
none of the trade practices alleged in the notice, consti-
337 H
338 SUPREME COURT REPORTS [2008] 8 S.C.R.
A tuted restrictive trade practice and, therefore, the notice
was misconceived and not maintainable in law.
Allowing the appeal, the Court
HELD: 1. Neither the notice nor the application al-
B lege that the appellant has ever indulged in or that the
alleged trade practice has or may have the effect of pre-
venting, distorting or restricting competition in any man-
ner and in particular it tends to obstruct the flow of capital
or resource into the stream of production or tends to bring
c about manipulation of prices or conditions of delivery or
to affect flow of supplies into the market in such a manner
so as to impose unjustified costs and/or restrictions on the
consumers of goods in question and therefore ex facie
neither notice nor the application is maintainable. The im-
D pugned judgment passed by the MRTP Commission is set
aside. [Para 28 and 30] [347-F-H; 348-C]
2. The Commission must be extremely careful before
issuing notices to the parties because it has serious conse-
quences on the reputation and credibility to the activities of
E those parties. Frivolous notices breed long drawn avoidable
litigation before various forums. [Para 29] [348-A-B]
Mahindra and Mahindra Ltd. v. Union of India (1979) 2
SCC 529; Paras Brothers (1994) 4 Comp. Law Journal 395
and L. C Malhotra v. Rahul Bajaj (1995) 1 Comp. Law Jour- ~
F nal 421 - referred to. -.
CIVILAPPELLATE JURISDICTION: Civil Appeal No. 1709
of 2001
From the final Judgment and Order dated 27.10.2000 of
G the Monopolies and Restrictive Trade Practices Commission
New Delhi in RTP Enquiry No. 139 of 1996
t "
Joseph Vellapally, Shailendra Swarup, Neha Khatter and
Debarshi Bhadra for the Appellant.
H T.S. Doabia, Manpreet Singh Doabia and Shreekant N.
BAJAJ AUTO LTD. V. DIRECTOR GENERAL 339
(I & R) & ANR. [DALVEER BHANDARI, J.]
,;.
Terdal for the Respondents. A
The Judgment of the Court was delivered by
DALVEER BHANDARI, J. 1. This appeal is directed
against the judgment delivered by the Monopolies and Restric-
tive Trade Practices Commission (hereinafter referred to as the B
'Commission') in Restrictive Trade Practices Enquiry No.159
of 199') dated 271h October, 2000.
2. Brief facts which are necessary to dispose of this ap-
peal are recapitulated as under:-
c
The Director General (Investigation & Registration) under
Section 10 (a)(iii) of the Monopolies & Restrictive Trade Prac-
tices Act, 1969 (hereinafter referred to as "the Act") sent an ap-
plication that an enquiry be instituted against Bajaj Auto Lim~
ited (hereinafter referred to as the 'appellant') for indulging in ·u
- ... restrictive trade practice within the meaning of Section 33 of
the Act.
3. The Notice of Enquiry was issued on 18.11.1996 in pur-
suance of which the appellant filed its reply refuting the allega-
lions levelled against it. According to the appellant, the agree- E
ment between the appellant and the dealers contain certain
clauses which are restrictive in nature, squarely falling under
Section 33 of the Act. These relate to restrictions of the territory
,,,... in which the dealer is to operate, the tie-up agreement by fixing
r targets and maintaining the resale price. The appointment let- F
ter of the dealer dated 11.5.1994 indicates that it is restricted
to 'Rajkot' alone which is restriction of an area within the terms
of Section 33(1)(g) of the Act. Section 33(1)(g) is reproduced
as under:-
"33. Registrable agreements relating to restrictive G
trade practices. - (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 H
340 SUPREME COURT REPORTS [2008] 8 S.C.R.
A Chapter, namely:-
)()()( )()()( )()()( )()()(
)()()( )()()( )()()( )()()(
(g) any agreement to limit, restrict or withhold the output or
B supply of any goods or allocate any areas or market for
the disposal of the goods;"
4. It is further alleged against the appellant that it fixed the
sales targets in respect of various products and imposed a re-
c striction on the dealer to purchase one or more products as a
condition is covered under Section 33(1 )(b) of the Act. Section
33(1 )(b) is reproduced as under:-
"33.(1) xxxx xxxx xxxx
(b) any agreement requiring a purchaser of goods, as a
D
condition of such purchase, to purchase some other
goods;"
. .
5. It is further alleged that the fixation of prices of the prod-
ucts as per clause DD of letter dated 7.9.1994 brings the case
E within the purview of Section 33(1 )(f) of the Act. Section 33(1 )(f)
is reproduced as under:-
"33.(1) xxxx xxxx xxxx
(f) any agreement to sell goods on condition that the prices
F to be charged on re-sale by the purchaser shall be the i
prices stipulated by the seller unless it is clearly stated
that prices lower than those prices may be charged."
6. The appellant submitted a comprehensive reply deny-
ing all the charges levelled against it. It was submitted on behalf
G of the appellant as a preliminary objection that practices as al-
leged do not fall under Section 2(o) of the Act which is a pre- t •
requisite condition before the action can be taken against the
appellant. Section 2(o) of the Act reads ~under:-
"2(o) "restrictive trade practice" means a trade practice
H
BAJAJ AUTO LTD. V. DIRECTOR GENERAL 341
(I & R) & ANR. [DALVEER BHANDARI, J.]
~
which has, or may have the effect of preventing, distorting A
or restricting competition in any manner and in particular,-
(i) which tends to obstruct the flow of capital or
resources into the stream of production, or
(ii) which tends to bring about manipulation of B
prices, or conditions of delivery or to affect the
flow of supplies in the market relating to goods
or services in such manner as to impose on the
consumers unjustified costs or restrictions;"
7. In reply, it was also contended that the dealers' appoint- c
ment at Rajkot neither prescribes any territorial limit nor does it
restrain it to sell goods outside Rajkot. In absence of any such
restraint, the statement in the .Preamble and the Appointment
Letter cannot be construed to mean an agreement allocating
area or market for disposal of goods in question. The identifi- D
- ~
cation of a place is for the purpose of establishing necessary
facilities, infrastructure for after sales and maintenance of ser-
vices. The relevant portion of the letter which has been sent to a
dealer at Rajkot reads as under:-
"We have pleasure in appointing you as our dealer at E
Rajkot"
8. In the reply, it was also contended that the product-wise
and total sales targets for the year read with next para of the
,. letter clarify that it is only indicative of expectation on the part of F
the appellant. It neither compels nor obliges the dealer to buy
one or the other Bajaj products. Non achievement of targets in
no way affects the dealership. As regards price fixation, clause
DD of letter dated 7.9.1994 has to be read with clause Q of the
dealership agreement. In the face of clear specification that the
G
dealer is at liberty to sell the goods at lower than the recom-
• ~ - mended retail prices, question of invoking the provision of Sec-
tion 33(1 )(f) does not arise. These clauses in no way distort or
impair the competition. Therefore, the Notice of Enquiry needs
to be discharged.
H
342 SUPREME COURT REPORTS [2008] 8 S.C.R.
:,.
A 9. The Commission framed the following issues:-
1. Whether the Notice of Enquiry (NOE) is not
maintainable for the preliminary objection taken
by the appellant in its reply to the NOE?
·e 2. Whether the appellant has indulged in or is
indulging in the alleged restrictive trade
practices?
3. Whether the alleged restrictive trade practices
are not prejudicial to public interest?
c
4. Relief
10. Both the parties led documentary as well as oral evi-
dence. The Commission did not find any merit in the prelimi-
nary objection taken by the appellant that Section 2(o) of the
D Act is not attracted.
11. In the impugned judgment, pertaining to the charge of
territorial restriction, the Commission came to the conclusion
that the preamble read with the appointment letter speaks of
the dealership at "Rajkot". Apparently, the use of the word 'at'
E as against 'for' is capable of bringing two constructions. It can
refer to place from where the activities are carried on or the
territory to which it confines to. Intention of the parties has not
been clearly conveyed by the 'unhappy expression' used both
in the dealership agreement as well as in the letter of appoint-
F ment. If there is any oral understanding that the dealer is free to
sell the goods outside the territory, the same has not been shown
either by direct or circumstantial evidence. Absence of trans-
parency in the clause can lead to manipulation of clause at the
end of the parties. Such practices of territorial restrictions im-
G pair the competition in the market as it limits the choice of the
consumer to a particular dealer who may not indulge in unfair
dealings. This is certainly not in public interest.
12. According to the Commission, the alleged restrictive
H trade practice is covered under Section 33(1 )(g) of the Act and
BAJAJ AUTO LTD. V. DIRECTOR GENERAL 343
(I & R) & ANR. [DALVEER BHANDARI, J.]
... as such being prejudicial to public interest. The Commission A
directed appellant no. 1 to cease the aforesaid practice if con·
tinued at present and desist from repeating the same in future.
13. Regarding fixation of sales target, the Commission
observed that the quantity of product to be purchased not by
reason of market demand but on account of target fixed by the B
appellant would certainly amount to tie-up of one product with
another attracting clause (b) of Section 33(1) of the Act.
14. Regarding dealership agreement, the Commission ob-
served that it fairly laid down that the dealer is free to sell at a c
lower price than the recommended retail price. Clause DD, on
the other hand, refers to the revised prices which have been
made effective from 1.10.1994. As per this clause, the vehicles
already in stock as on 1.10.1994 are to be sold at the old prices.
This is clearly beneficial to the consumer or consumers at large
D
~ and is in public interest. It refers to fair dealing on the part of the
appellant and prevents any unjustiiied cost being imposed on
the consumer. In the circumstances, we are of the considered
view that the charge as levelled does not fall under clause (f) of
Section 33( 1) of the Act.
E
15. While disposing of the complaint, the Commission di-
rected the appellant to give effect to this order within six weeks
from the date of receipt of the order and file an affidavit of com-
pliance within four weeks thereafter.
r 16. The appellant (who was the respondent before the F
Commission) filed a comprehensive reply. In the reply, it was
mentioned that the MRTP Act is a result oriented Act. It is de-
signed to be applied to practical situation, and, therefore, un-
less all the facts and circumstances including the facts consti-
tuting restrict trade practice within the meaning of Section G
33(1)(b), (f) and (g) read with Section 2(o) of the MRTP Act,
... "+
particularly the fact as to how the competition is prevented, dis-
torted or restricted and in particular which tends to, inter-alia,
bring about manipulation of prices or conditions of delivery or
to affect the flow of supplies in the market relating to goods in H
344 SUPREME COURT REPORTS [2008] 8 S.C.R.
A question in such a manner as to impose on the consumers un-
justified cost or restriction, are set out in the notice and the ap-
plication, neither the notice nor the application meets the afore-
said requirement of law and in view thereof the notice is without
jurisdiction and not maintainable in law.
B 17. The appellant asserted before the Commission that
the existence of a restrictive trade practice as defined under
Section 2(o) of the MRTP Act is a condition precedent to the
exercise of the jurisdiction by the Commission. The appellant
submitted that none of the trade practices alleged in the notice,
c as would be evident from the facts set out hereinafter, consti-
tute restrictive trade practice and, therefore, the notice is mis-
conceived and not maintainable in law.
18. It is incorporated in the reply that the jurisdictional facts
for applicability of Section 33( 1)(b) (f) and (g) of the MRTP Act
D
are lacking on the facts set out in the notice and the application
and, therefore, the application is not maintainable and the no-
•
tice is liable to be set aside.
19. It is also incorporated in the reply that the appointment
E letter only states that the appointment is a Dealer at Rajkot. It
neither prescribes any territory nor does it restrict in any way
the dealer to any territory or area for disposal of goods in ques-
tion and, therefore, in the absence of any such restraint, the state-
ment in the preamble in the appointment letter cannot be con-
F strued or interpreted as an agreement allocating area or mar- ...
ket for disposal of the goods in question. It was further submit-
ted on behalf of the appellant that it is pre-requisite for and an
essential ingredient of the restrictive trade practice referred in
Section 33(1 (g) of the Act, the jurisdictional facts for applicabil-
ity are not present and, therefore, Section 33(1 )(g) of the MRTP
G
Act has no application. The purpose of indicating 'at Rajkot'
only means the identification of place which is necessary as the
dealer has to establish at Rajkot necessary facilities and infra-
• .._
structure for after-sales maintenance and service including war-
ranty services of the scooters and other vehicles. In the reply, it
H
BAJAJ AUTO LTD. V. DIRECTOR GENERAL 345
(I & R) & ANR. [DALVEER BHANDARI, J.]
was further submitted that the jurisdictional facts for application A
of Section 33(1 )(b) are lacking inasmuch as the said letter dated
11.5.1994 neither obliges nor compels the dealer to purchase
all the goods as a condition of purchase of other goods nor
does it oblige the dealer as a condition of purchaser of any of
them to purchase any other goods. The said letter only sets tar- B
gets, requesting the dealer to "gear up" for "their achievement"
,. and answering their expectation and, therefore, t~e jurisdictional
facts for application of Section 33(1)(b) of the MRTP Act are
lacking and both the notice and the application are not main-
tainable in this behalf. c
20. The appellant submitted that the jurisdictional facts for
·.applicability of Section-33(1 )(f) are lacking inasmuch as the_ let-
ter dated 7 .9.1994 cannot be read in isolation but has to be
read with the appointment letter. The relevant portion of Clause
'Q' of the Dealership Agreement reads as under: D
-~
"You shall not sell our vehicles at higher than. our
recommended retail prices. You will, however, be free to
sell at lower than the recommended retail prices. Taxes
and Octroi whenever applicable, may be charged extra."
E
(emphasis supplied)
21. The appellant, Bajaj Auto Ltd. on its own initiative for a
fair and wide geographical distribution of Bajaj products and
availability of adequate after-sales-service appointed dealers
r for its products all over the country so as to ensure that Bajaj F
products and adequate after-sales-service are available.
throughout the country. It is submitted on behalf of the appellant
that there is no territorial restriction or restraint on allocation of
geographical area to the dealer. The appointment of dealer at
a specific geographical location is to ensure that their services G
are made available to the consumers.
~
22. It was also submitted on behalf of the appellant that if
the dealer is not appointed at a specific geographical location,
the dealer would not be obliged to have in that geographical
H
346 SUPREME COURT REPORTS [2008] 8 S.C.R.
A area the showroom, workshop, service facility and stock of "
spares. The absence of such facilities etc. would not be and is
not in public interest. Appointing a dealer at a geographical lo-
cation in no way restricts, prevents or distorts competition in
any manner, as a customer has a choice of buying any makes
B he likes or going to any person he likes for servicing or repair of
his vehicle. Such appointment also ensures that the dealer who
is selling the Bajaj products in a particular geographical loca- ....
tion is responsible for adequate after-sales-services to the cus-
tomers of the vehicle sold by it and to keep them running and in
c good condition.
23. The appellant also submitted before the Commission
that to motivate the dealers for increasing sales, the appellant
fixes sales target for the year. Fixing of sales targets do not and
cannot mean that the dealer is required or compelled to buy
D one or the other Bajaj products. The appellant submitted that
the setting of target as outlined ir the said letter dated 11.5.1994
is not a process of performance appraisal, but is a conditi~n
imposed in the agreement, the gateway laid down in clause h
of Section 38(1) of the MRTP Act is squarely applicable as the
E condition does not directly or indirectly restrict or discourage
competition in the two and three wheeler market to any extent
at all.
24. It is submitted that, by no stretch of imagination, the
appellant has indulged in restrictive trade practice and the pro-
F visions of clauses (b), (f) and (g) of Section 33(1) of the MRTP 1
Act are not attracted.
25. The appellant company placed reliance on the case of
Mahindra and Mahindra Ltd. v. Union of India (1979) 2 SCC
529, wherein it was held that it is only where a trade practice
G
has the effect, actual or probable, or restricting, lessening or
destroying competition that it is liable to be regarded as a re- -\-
strictive trade practice and in order to arrive at a decision that a
trade practice is a restrictive trade practice. the same cannot
be decided on any theoretical or a prior reasoning. but by in-
H
BAJAJ AUTO LTD. V. DIRECTOR GENERAL 347
(I & R) & ANR. [DALVEER BHANDARI, J.]
quiring whether the trade practice has or may have the effect of A
preventing, distorting or restricting competition.
26. Reliance has also been placed on the case of Paras
Brothers [(1994) 4 Comp. Law Journal 395], wherein it was
held that a restrictive trade practice must have the following el-
ements: B
"i. It should be a trade practice defined in section
2(o) of the Act.
ii. it should have an actual or probable effect of
preventing, distorting or restricting competition C
in some manner.
iii. the competition necessarily envisages the
same or a similar situation.
iv. there should be manipulation of prices. D
v. there should be unjustified costs or restriction
as a result of such manipulation."
27. Reliance has also been placed on the case of L. C.
Malhotra v. Rahul Bajaj (1995) 1 Comp. Law Journal 421, in E
which it was held that even isolated acts should be viewed in
the context of the practice of the respondent in relation to the
question as to whether the respondent had manipulated the
conditions of delivery.
28. In the instant case, neither the notice nor the applica- F
tion even allege that the appellant has ever indulged in or that
the alleged trade practice has or may have the effect of pre-
venting, distorting or restricting competition in any manner and
in particular it, inter-alia, tends to obstruct the flow of capital or
resource into the stream of production or tends to bring about G
manipulation of prices or conditions of delivery or to affect flow
of supplies into the market in such a manner so as to impose
unjustified costs and/or restrictions on the consumers of goods
in question and therefore ex facie neither notice nor the appli-
cation is maintainable. H
348 SUPREME COURT REPORTS [2008] 8 S.C.R.
A 29. Before parting with this case, we deem it appropriate
to observe that the Commission must be extremely careful be-
fore issuing notices to the parties because it has serious con-
sequences on the reputation and credibility to the activities of
those parties. Frivolous notices breed long drawn avoidable
B litigation before various forums.
30. Consequently, the appeal filed by the appellant is al-
lowed with costs and the impugned judgment passed by the
Monopolies and Restrictive Trade Practices Commission in
RTP Enquiry No.159 of 1996 dated 27th October, 2000 is set
C aside.
D.G. Appeal allowed.
•
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