Holding

The Supreme Court held that no tie‑up of sales was established, competition was not affected to a material degree, and therefore the Commission’s order under the MRTP Act was unsustainable.

Summary

The appellants, Raymond Woollen Mills Ltd. and its subsidiary, were accused by a retail dealer of tying the sale of readymade trousers to the supply of other garments and of terminating the dealer's dealership when the dealer refused large trouser orders. The MRTP Commission held that a restrictive trade practice existed under the Monopolies and Restrictive Trade Practices Act, 1969, and ordered the appellants to cease the practice. On appeal, the Supreme Court examined whether a "tie‑up" was proved, whether the conduct amounted to a restrictive trade practice under s.2(o) of the Act, and whether competition was affected to a material degree under s.38(1)(h). The Court found that all garments were in short supply, there was no agreement or condition tying trouser sales to other garments, the appellants had a negligible market share, and the termination of a single dealer did not affect competition materially. Consequently, the Commission’s order was set aside and the notice of enquiry discharged.

Issues considered

Whether the alleged requirement to purchase trousers as a condition for other garments constitutes a "tie‑up" under s.33(1)(b) of the MRTP Act.
Whether the conduct amounts to a restrictive trade practice under s.2(o) of the MRTP Act.
Whether competition was affected to a material degree in the relevant trade under s.38(1)(h) of the MRTP Act.
Whether termination of a single dealership can be treated as a restrictive trade practice.
Whether the Commission could pass a cease‑and‑desist order without proper evidentiary support, including the admissibility of the preliminary investigation report.

Legislation cited

Monopolies and Restrictive Trade Practices Act, 1969s. 10(a)(iv), s. 11, s. 2(o)(ii), s. 33(1)(b), s. 37, s. 38(1)(h)

Subjects

tie‑up salesrestrictive trade practicecompetitionmaterial degreeMRTP Actcease and desist ordertermination of dealershipmarket share

Judgment

,.

[2008] 8 S.C.R. 1002

,I
A RAYMOND WOOLLEN MILLS LTD. (NOW KNOWN !
AS M/S RAYMOND LTD.) AND ANR. '"
II.
DIRECTOR GENERAL (INVESTIGATION &
REGISTRATION), AND ANR.
B (Civil Appeal No.1120 Of 2001) "'l
MAY 15, 2008
•
[TARUN CHATTERJEE AND DALVEER BHANDARI,
JJ.]
c
Monopolies and Restrictive Trade Practices Act, 1969:
ss.10(a)(iv), 33,37 and 38- Tie up sales -Allegation of
,,,.,,
tie up of sales of trousers with other garments - Held: Since
all garments including trousers are in short supply and have .
~M

D great demand hence allegation that supply of trousers had ~
been tied up with any other garment is without basis.
s.38(i)(h) -Restriction of competition to material degree
- A/legation of - Held: Negligible market share of appellants
in relevant trade - Hence it cannot be alleged that competi-
E tion was affected to material degree - .There was no charge or
a/legation of termination of dealership in the notice of enquiry,
therefore, the Commission was not justified in passing the or-
der based on "termination of dealership" - Even otherwise also,
the termination of single dealership cannot affect competition J
F to any "material degree" in the relevant trade or industry within
the meaning of clause (h) of s.38(1) of the Act.
A Notice of Enquiry under s.1 O(a)(iv) and s.37 of the
Monopolies and Restrictive Trade PracticesAct, 1969 was
issued to the appellants wherein it was alleged that the
G
appellants had indulged in restrictive trade practice within
the meaning of s.2(o)(ii) and s.33(1)(b) of the Act.
The complainant/informant complained that it was ap-
pointed as a retail dealer on 19.4.1982 and that it was get-
H 1002
RAYMOND WOOLLEN MILLS LTD. (NOW KNOWN AS M/S 1003
RAYMOND LTD.) v. DIR. GEN. (INVES. & REG.) [BHANDARI, J.]

ting regular supplies of blazers, suits, safaris and trou- A
sers till December 1986 when the appellants stipulated
that blazers, suits and safaris would be supplied only if
substantial orders were placed for readymade trousers.
The Commission, after evaluating the evidence, ob-
served that there was pressure on the dealers to accept 8
higher quantity of trousers than required and when he
showed his unwillingness to accept the large quantity of
trousers, his dealership was terminated and the security
deposit was refunded to him, thus the allegation of tie-up
of sales of trousers with other garments supplied by ap- C
pellant no. 2 appeared to have been fully established; that
the termination of the dealership or appellants' refusal to
deal with a well established retailer was bound to have
an adverse effect and impact on competition in so far as
it would reduce the number of retail dealers in the local D
market and thus would have the effect of restricting and
lessening of the competition in the sale and supply of
readymade garments and, therefore, would also be preju-
dicial to public interest; and that by restricting and reduc-
ing the supply of ready to wear garments would also at- E
tract the provisions of s.2(o)(ii) of the Act. The Commis-
sion directed the appellants to cease the aforementioned
restrictive trade practice forthwith and furnish an under-
taking that they shall not repeat or indulge in same or simi-
lar trade practices in future. Hence the present appeal. F
Allowing the appeal, the Court
HELD: 1.1. The evidence of the sole witness pro-
duced by the respondent, the complainant retail dealer,
would show that the allegation of 'tie up" of sales of "trou- G
sers" as a condition for sale of "other garments" like blaz-
ers, coats, safaris, suits has not been established. On
the contrary, the evidence of the said witness establishes
that there was no "tie up", as alleg·ed. In fact, the evidence
shows that all readymade garments manufactured by H
1004 SUPREME COURT REPORTS [2008] 8 S.C.R.

;
A appellant no. 2 were in short supply since it could not ....t
expand its manufacturing capacity due to licensing con-
trols. When all items are in demand and are in short sup-
ply, there cannot be any question of "tie up" of sales,
which is resorted to for the purpose of selling an un-
B wanted item along with an item having high demand.
[Para 20] [1011-C,D,E]
• )'
1.2. The evidence of witness on behalf of appellant
no.2 reveals that all garments including trousers were in
short supply and had great demand. Therefore, the alle-
c gation that the supply of trousers had been tied up with
any other garment for sale is without any basis. There is
no allegation of any "Agreement" entered into between
the parties, either oral or in writing under which any prac-
tice of "tie-up" sales was specified. As such, s.33 of MRTP
D Act has no relevance. [Paras 23, 34] [1012-C, 1015-F]
Tata Engineering and Locomotive Company Ltd.,
"•
Bombay v. Registrar of the Restrictive Trade Agreement, New
Delhi (1977) 2 SCC 55; Mahindra and Ma:-.indra Ltd. v. Union
-of India & Another (1979) 2 SCC 529 - referred to.
E
2. Clause (h) of s.38(1) of the MRTP Act provides that
it is only when the restriction directly or indirectly discour-
ages compE!tition to any 'material degree' in any relevant
trade or industry that such restriction would be consid-
F ered as "prejudicial to public interest". In a case where the
alleged restrictive trade practice does .not have the impact
of restricting competition to any 'material degree' in any
relevant trade or industry, such trade practice cannot be
considered as "prejudicial to public interest" and no order
of "cease and desist" can be passed under s.37 of the Act.
G
Similarly, for invoking s.38(1)(h) ·of the MRTP Act to show
-;.,
that in any event, it could not be said that competition was
affected to any "material degree" iri the relevant trade or )

industry, the appellants' witness has clarified in the affida-
vit of evidence that in view of the negligible market share
H
RAYMOND WOOLLEN MILLS LTD. (NOW KNOWN AS M/3005
RAYMOND LTD.) v. DIR. GEN. (INVES. & REG.)
' ;J.
l

of the appellants in the relevant trade, it cannot be even A
alleged that the competition was affected to any "material
degree". When the evidence on behalf of the appellants
clearly shows that there are several manufacturers includ-
ing small scale manufactures, the little share of the com-
plainant/informant does not affect the competition in the B
relevant trade or industry and, accordingly, in these circum-
-ll
stances, to pass any order under s.38(1)(h) cannot be jus-
tified. [Paras 30,31,45] [1014-E,H, 1015-A, 1018-G]
3. The preliminary investigation report cannot be
taken into consideration as it is not produced in evidence. c
It is only a report submitted in terms of s.11 of the MRTP
Act for initiating the enquiry. Only those facts contained
therein, which are proved on record by evidence, can be
looked into. [Para 36] [1016-B,C]
:\<-
D
.. Mis. Lakhanpa/ National Ltd. v. MRTP Commission and
Anr. (1989) 3 SCC 251 -referred to.
4. The complainant/informant had requested for re-
'I
fund of the security amount and, therefore, it was re-
funded. It was really not a case of "termination of dealer- E
ship". There was no charge or allegation of termination
of dealership in the notice of enquiry, therefore, the Com-
mission was not justified in passing the order based on
• "termination of dealership". Even otherwise also, the ter-
mination of single dealership cannot affect competition F
to any "material degree" in the relevant trade or industry
within the meaning of clause (h) of s.38(1) of the MRTP
Act. [Para 46] [1019-A,B]
CIVIL APPELLATE JURISDICTION: Civil Appeal No.
1120 of 2001 G
....
From the final Judgment and Order dated 12.10.2000 of
the Monopolis and Restrictive Trade Practices Commission,
New Delhi in R.T. P. Enquiry No. 204 of 1988
H
1006 SUPREME COURT REPORTS [2008] 8 S.C.R.

A Ravinder Narain, Subrat Deb, Nupur Singh and Rajan
.
~
;

Narain for the Appellants.
T.S. Doa~ia,V.S. Mahahan, M.S. Doabia, P. Parmeshwaran,
B.K. Prasad and Shreekant, N. Terdal for the Respondents.
B DALVEER BHANDARI, J. 1. This appeal is directed
against the judgment/order dated 12.10.2000 passed by the
Monopolies and Restrictive Trade Practices Commission (here-
inafter referred to as "the Commission") in R.T.P. Enquiry No.
204of1988.
C 2. Brief facts which are necessary to dispose of this ap-
peal are as under:
A Notice of Enquiry under section 10 (a)(iv) and section
37 of the Monopolies and Restrictive Trade Practices Act, 1969
(hereinafter referred to as the 'MRTP Act') was issued to the
0
appellants wherein it was alleged that the appellants had in-
dulged in restrictive trade practice within the meaning of sec-
tion 2(o)(ii) and section 33(1 )(b} and of the MRTP Act.
3. In order to comprehend the controversy involved in this
E case properly, sections 2{o){ii) and 33 (1)(b) of the MRTP Act
are reproduced as under:
"2. In this Act, unless the context otherwise requires -
xxx xxx xxx
F xxx xxx xxx
(o) "restrictive trade practice" means a trade practice which
has, or may have, the effect of preventing, distorting or
restricting competition in any manner and in particular,-
G (i)
(ii) which tends to bring about manipulation of 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
H
RAYMOND WOOLLEN MILLS LTD. (NOW KNOWN AS MIS 1007
RAYMOND LTD.) v. DIR. GEN. (INVES. & REG.) [BHANDARI, J.]

cost or restrictions." A
33. Registrable agreements relating to restrictive
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 B
Ai- registration in accordance with the provisions of this
-' Chapter, namely:-

(a) ............ .

(b) any agreement requiring a purchaser of goods, as a C
condition of such purchase to purchase some other
goods;
)()()( )()()( xxi.'
4. The appellants herein denied the allegations made in D
the Notice of Enquiry and it was categorically stated that it r.ei-
ther manufactured nor sold any garments and such allegations
of restrictive trade practice made against it was without any
foundation.
5. The Commission directed respondent no. 1 [Director E
General (l&R)] to furnish a copy of the Preliminary Investigation
Report on the basis of which the Notice of Enquiry was issued
to the appellants.

6. Respondent no.1 in evidence produced one Viren Shah, F
partner of M/s Roop Milan, Bombay and his examination-in-chief
and the cross-examination was recorded. In his evidence, he
referred the following documents:

i) Letter dated 23.7.87
G
ii) Letter dated 15.1.88
iii) Letter dated 12.9.87
iv) Refund Memo dated 28.9.87.

7. The appellants filed the affidavit of evidence of Pradeep H
1008 SUPREME COURT REPORTS [2008] 8 S.C.R

A H. Paranandan, Sales Manager of appellant no. 2. The said !- '
witness was also cross-examined on behalf of the Director
General (l&R).
8. The complainant/informant M/s Roop Milan complained
that it was appointed as a retail dealer on 19.4.1982 and that it
B was getting regular supplies of blazers, suits, safaris and trou-
sers till December 1986 when the appellants stipulated that blaz- )I
ers, suits and safaris would be supplied only if substantial or- ·•
ders were placed for readymade trousers. From the informa-
tion furnished by the complainant/informant, it transpired that
c out of 139 items supplied by the appellants, 119 were trousers
and the balance 20 were blazers and suits. <>V'

9. The complainant in his statement further stated that his
dealings with the appellants came to an end in July 1987 when
appellant no. 2 compelled him to place an order for trousers
D 'f
along with order for blazers, safaris and suits.
~

10. Pradeep H. Hiranandani appeared as a witness on
. behalf of appellant no. 2 herein .. .He stated that the readymade
garments including trousers manufactured and .marketed by
E appellant no. 2 enjoyed good demand in the market and the
supply of garments was made to the dealers on the basis of
order placed by them and subject to availability of stock. It was
also stated by him that the manufacture of readymade garments
was reserved for the small scale sector and the appellants had
F a negligible market share.
11. The Commission, after evaluating the evidence, ob-
served that 133 trousers were supplied to the complainant/in-
formant in the year 1985-86. However, no record of the order
placed with the appellants could be produced, but the complain-
G ant/informant stated that he was compelled by the appellants to
place substantial order for trousers in order to get supplies of
blazers, safaris and suits. The invoices which were produced
as part of evidence revealed the quantity of garm~nts supplied ,,.._
by the appellants and undoubtedly, the quantity of trousers was
H substantial. It was further observed that there was pressure on
RAYMOND WOOLLEN MILLS LTD. (NOW KNOWN AS M/S 1009
RAYMOND LTD.) v. DIR. GEN. (INVES. & REG.) [BHANDARI, J.]
~ the dealers to accept higher quantity of trousers than required A
and when he showed his unwillingness to accept the large quan-
tity of trousers, his dealership was terminated and the security
deposit was refunded to him. The Commission arrived at the
conclusion that the allegation of tie-up of sales of trousers with
other garments supplied by appellant no. 2 appeared to have 8
been fully established.
~
~ 12. On the basis of the aforementioned complaint, the Com-
mission arrived at the conclusion that the appellants had indulged
in restrictive trade practice within the meaning of sections 2(o)(ii)
and 33(1 )(b) of the MRTP Act. c
13. The Commission further observed that the termination
of the dealership or appellants' refusal to deal with a well estab-
lished retailer was bound to have an adverse effect and impact
on competition in so far as it would reduce the number of retail
.y D
dealers in the local market and thus would have the effect of
• restricting and lessening of the competition in the sale and sup-
ply of readymade garments and, therefore, would also be preju-
dicial to public interest. It was further observed that by restrict-
ing and reducing the supply of ready to wear garments would
also attract the provisions of section 2(o)(ii) of the MRTP Act. E

14. The Commission directed the appellants to cease the
aforementioned restrictive trade practice forthwith and furnish
an undertaking that they shall not repeat or indulge in same or
similar trade practices in future. The Commission further directed F
the appellants to file an affidavit of compliance within six weeks
of the pronouncement of the order.
15. The appellants, aggrieved by the said order of the
Commission, preferred this appeal. The appellants submitted
that the complaint filed by the retail dealer cannot be dealt with G
~ under section 1O(a)(i) of the MRTP Act since a complaint there-
under could not be entertained from a retail dealer who was not
a consumer.
16. Section 1O(a) (i) &(iv) of the MRTP Act reads as under:
H
1010 SUPREME COURT REPORTS [2008] 8 S.C.R.

;
•.,_
A "10. Inquiry into monopolistic or restrictive trade
practices by Commission.-
The Commission may enquire into -
(a) any restrictive trade practice -
B (i) upon receiving a complaint of facts which
constitute such practice from any trade ...
association or from any consumer or a
registered consumers' association, whether
such consumer is a member of that consumers'
c association or not or
(ii) .........
(iii)

D (iv) upon its own knowledge or information." -;
17. It was submitted on behalf of the appellants that a com- ~

plaint under the said provisions could only be filed by any trade
association, or from any consumer or a registered consumers'
association, the ·l
said complaint
.
was treated as "information"
.
E and dealt with by the Commission under section 1O(a)(iv) "upon
its own knowledge or information" and a suo motu enquiry was
initiated in respect of the aforesaid allegation of "tie-up" of sales.
18. According to the appellants, the allegation of "tie up"
of sales is to be considered in the light of the above provisions
F of the MRTP Act, before any order directing that "such practice
shall be discontinued and shall not be repeated," can be passed.
Such an order is also referred to as a "cease and desist order''.
For passing such an order under section 37 of the MRTP Act,
the followings have to be established:
G
(i) That the evidence clearly establishes that a practice ill'
of "tie up" of sales of "trousers" as a condition of
sales and supply of "other garments" like blazers,
coats, safaris, suits was insisted upon.
H (ii) That the aforesaid trade practice, in fact, had the
RAYMOND WOOLLEN MILLS LTD. (NOW KNOWN AS MIS 1011
RAYMOND LTD.) v. DIR. GEN. (INVES. & REG.) [BHANDARI, J.]
' J.
effect of restricting or distorting competition within A
the meaning of section 2(o) of the MRTP Act.
(iii) That such competition is affected to a material degree
in the relevant trade and industry.
According to the appellants, It is only when the above as- B
pects have been established that an order of "cease and de-
·'f sist" can be passed under section 37 of the MRTP Act.
;

19.According to the appellants, on the basis of the record,
none of the above conditions is satisfied in the present case.
c
20. The evidence of the sole witness produced by the re-
spondent, being Viren Shah, partner of M/s Roop Milan, the com-
plainant retail dealer, would show that even the allegation of 'tie
up" of sales of "trousers" as a condition for sale of "other gar-
~· ments" like blazers, coats, safaris, suits has not been established.
~ D
On the contrary, the evidence of the said witness establishes that .
there was no "tie up", as alleged. In fact, the evidence shows that
all readymade garments manufactured by appellant no. 2 were
in short supply since it could not expand its manufacturing ca-
pacity due to licensing controls. When all items are in demand
and are in short supply, there cannot be any question of "tie up" of E
sales, which is resorted to for the purpose of selling an unwanted
item along with an item having high demand.
1 21. The appellants submitted that the sole witness pro-
duced by respondent no. 1 who had the carriage of proceed- F
ings in a suo motu enquiry under section 10(a)(iv), it is clear
that trousers were supplied as ordered. The supply of trousers
was not tied-up with the supply of "other garments" like blazers,
suits etc. As such, there is no justification for any finding of"tie-
up" of sales.
G
22. The appellants referred to the evidence produced by
P. H. Hiranandani, Sales Manager. It was stated as under:
"It may be clarified that the manufacture of readymade
garments is reserved for the small scale sector in India
H
1012 SUPREME COURT REPORTS [2008] 8 S.C.R.

A and accordingly the second respondent is not in a position
1 •
to meet the market demand for its readymade garments
including trousers. All the readymade garments including
the trousers manufactured and marketed by the second
respondent enjoyed a good demand in the market. Dealers
B placed Oider and supplies of goods are made by the
second respondent to the dealers depending upon the
orders subject to availability of stocks. In the circumstances, --r
the question of any alleged tie-up sale of trousers with
•
other garments like blazers, coats, safaris, cannot and
c does not arise."

23. The evidence of P.H. Hirananaani reveals that all gar-
ments including: trousers were in short supply and had great
demand. Therefore, the allegation that the supply of trousers
had been tied up with any other garment for sale is without any
D basis. 'f
1
.
24. Ti-1e appellants also submitted that the allegation of
"tie up" of sales is not established, in any event, it is submitted
. that section 2(o) of the MRTP Ad relating to the existence of·
restrictive trade practice can only be invoked when as a result
E of the alleged practice, competition is in fact restricted or af-
fected. In the absence of any such proof of competition having
been restricted, no allegation of restrictive trade practice can
be established.

-
r 25. In support of thair submissions, the. appellants have
placed reliance on the judgment of this court in Tata Engineer-
ing and Locomotive Company Ltd.. Bombay v. Registrar of
the Restrictive Trade Agreement, New Delhi (1977) 2 sec
55. In this case, the scope of restrictive trade practice, as de-
fined under section 2(o) of the MRTP Act, has been considered
G
by this court. The practice of imposing territorial restriction and Jr ...
exclusive dealings in the agreements with dealers were consid-
ered in the context of section 2(o) of the MRTPAct. It was al-
leged that the restriction not to deal outside the prescribed terri-
tory and not to deal with competing products was a restriction
H
RAYMOND WOOLLEN MILLS LTD. (NOW KNOWN AS M/S 1013
RAYMOND LTD.) v. DIR. GEN. (INVES. & REG.) [BHANDARI, J.]

which affected and restricted competition within the meaning of A
section 2(o) of the MRTPAct. This court, while dealing with these
allegations applied the "rule of reason" while dealing with the
scope of section 2(o) of the MRTP Act and not the doctrine that
any restriction as to area will "per se" be a "Restrictive Trade
Practice". The relevant portion of para 29 reads as under: B
"Every trade agreement restrains or binds persons or
places or prices. The question is whether the restraint is
such as regulates and thereby promotes competition or
whether it is such as may suppress or even destroy
competition. To determine this question three matters are C
to be considered. First, what facts are peculiar to the
business to which the restraint is applied. Second, what
was the condition before and after the restraint is imposed.
Third, what is the nature of the restraint and what is its
actual and probable effect." D
26. In para 37 of the said judgment, it was held that the
area restriction did not constitute "Restrictive Trade Practice".
In para 56 it was observed as under:
'The question of competition cann~t be considered in E
vacuo or in a doctrinaire spirit. The concept of competition
is to be understood in a commercial sense. Territorial
restriction will promote competition whereas the removal
of territorial restriction would reduce competition"
It was further observed in para 59 "that: F
"In the present case the restriction imposed by Telco on
dealers not to sell bus and chassis outside their territories
does not restrict competition for the foregoing reasons."
27. With regard to "exclusive dealings", this court further G
.,. observed in para 60 as under:

"The other term of exclusive dealership in Clauses 6 and
14 of the agreemerit between Telco and the dealers that
the dealer will not sell commercial vehicles of other
H
1014 SUPREME COURT. REPORTS [2008] 8 S.C.R.

A manufacturers, does not amount to a restriction in 1 •
competition because other manufacturers can appoint
other persons to deal in their commercial vehicles. It is
also in public interest to see that vehicles of other
manufacturers are sold in the same territory by other
8 dealers. Therefore, there will be competition between the
manufacturers of different commercial vehicles and as far
as exclusive dealership of Telco commercial vehicles is 'l"
concerned, it will be in public interest and not be a restriction ·I

in competition."
c 28. With regard to "territorial restriction" and "exclusive deal-
ings", this court held iri para 61 that these conditions were not
"prejudicial to public interest" and that both these restrictions
were in public interest.
29. The appellants have also relied upon the judgment of
D ~
this court in the case of Mahindra and Mahindra Ltd. v. Union
. of India & Another ((1979) 2 SCC 529] and laid stress on paras ..
14 and 15 of the said judgment. ·
30. Clause (h) of section 38(1) of the MRTP Act provides
E that it is only when the restriction directly or indirectly restricts or
discourages competition to any 'material degree' in any relevant
trade or industry that such restriction would be considered as
"prejudicial to public interest". ln a case where the alleged re-
strictive trade practice does not have the impact of restricting
competition to any 'material degree' in any relevant trade or
t
F
industry, such trade practice cannot be considered as "prejudi-
cial to public interest" and no order of "cease and desist" can
be passed under section 37 of the Act.
31. Similarly, for invoking section 38(1)(h) of the MRTP
G Act to show that in any event, it could not be said that competi-
tion was affected to any "material degree" in the relevant trade ~

or industry, the appellants' witness Pradeep H. Hiranandani has
clarified in para 8 of the affidavit of evidence that in view of the
negligible market share of the appellants in the relevant trade, it
H cannot be even alleged that the competition was affected to
RAYMOND WOOLLEN MILLS LTD. (NOW KNOWN AS M/S 1015
RAYMOND LTD.) v. DIR. GEN. (INVES. & REG.) [BHANDARI, J.]
~
.;. any "material degree". A
32. The relevant portion of the evidence of Pradeep H.
Hiranandani reads as under:
"I say and submit that there are several manufacturers of
readymade garments in India including several small scale B

,,
.l
manufacturers ... "
"in the circumstances, the market share of the second
respondent is very negligible in the relevant trade in India
and accordingly circumstances exist within the meaning
of section 38(1 )(h) of the Act. ... " c
33. The appellants submitted that the Commission did not
even consider the aforesaid aspect that in the present case
competition was not affected to any "material degree" and as
such it could not be held that the alleged "Restrictive Trade Prac-
¥ D
tice" was "prejudicial to public interest", keeping in view clause
(h) of section 38( 1) of the MRTP Act. The gateway contemplated
under clause (h) was specifically pleaded by the appellants and
was supported by positive evidence, but the said evidence was
not even considered in lhe impugned order. This itself vitiates
the order. Reference to section 38(1 )(h) was necessary in or- E
der to arrive at the finding relating to the practice being "preju-
dicial to public interest".
34. The learned senior counsel appearing for the respon-
dents referred to section 33(1)(b) of the MRTPAct. Section 33 F
only deals with "Agreements relating to Restrictive Trade Prac-
tices". In the present case, there is no allegation of any "Agree-
ment" entered into between the parties, either oral or in writing
under which any practice of "tie-up" sales was specified. As
such, section 33 has no relevance to the present case.
G
;ii.. 35. The appellants further submitted that even in cases
where section 33 may be invoked, before passing an order of
"cease and desist" under section 37, it would still be necessary
to determine whether the alleged "restrictive trade practice" is
"prejudicial to public interest" within the meaning of section 38 H
1016 SUPREME COURT REPORTS [2008] 8 S.C.R.

A of the MRTPAct. In a case where the alleged "restrictive trade ·,\. •
practice" does not restrict competition to any "material degree"
in the relevant trade or industry, it could not be considered as
"prejudicial to public interest" and no order under section 37
can be passed.
B 36. The learned senior counsel for the respondents re-
ferred to the "preliminary investigation report" submitted by the
"1·
Director General (l&R). The preliminary investigation report can- ~

not be taken into consideration as it is not produced in evidence.
It is only a report submitted in terms of Section 11 of the MRTP
c Act for initiating the enquiry. Only those facts contained therein,
which are proved on record by evidence, can be looked inio.
The preliminary investigation report, as such, is not evidence
on record. As such, any reference to the contents thereof, which
have not been put in evidence and subjected to cross examina-
D tion, cannot be looked into. This is without prejudice to the con- .....
tention that there is nothing stated in the preliminary investiga- ..
tion report, which in any way establishes that any competition
was affected within ihe meaning of section 2(o) of the Act and
that competition was affected to any "rpaterial degree" in the
E relevant trade or industry, as contemplated under clause (h) of
section 38( 1) of the Act.
- 37. The appellants submitted that the findings given by the
Commission that the dealership of the complainant was "termi-
nated" by the appellants herein and held it to be a "restrictive ·r-
F trade practice'', was wholly uncalled for and untenable.

38. The appellants submitted that no finding with regard to
termination of dealership could be made since there was no
such charge or allegation made in the Notice of Enquiry. A ref-
erence has been maae to the case of Mis. LakhanpaJ National
G
Ltd. v. MRTP Commission and Another [(1989) 3 SCC 251].
This court in para 9 of the said judgment observed as under:
"The argument was rightly repelled on behalf cf the
appellant on the ground that this aspect cannot be
H examined in the pr~sent case in view of the limited scope
RAYMOND WOOLLEN MILLS LTD. (NOW KNOWN AS M/S 1017
RAYMOND LTD.) v. DIR. GEN. (INVES. & REG.) [BHANDARI, J.]

of the charges as mentioned in the Show Cause Notice A
quoted above."
39. The appellants contended that since there was no al-
legation of "restrictive trade practice" on account of the alleged
termination of the agreement, no order in respect thereof could
be passed by the Commission. The order passed in respect of 8
the same is clearly illegal and without jurisdiction.

40. The appellants further contended that, in any event,
the evidence in the present case clearly establishes that the
complainant firm M/s Roop Milan had itself asked for return of c
its security deposit from appellant no. 2. which was duly returned
and thereafter, there was no dealing between the parties. As
such, there can be no case of termination of dealership. The
said complainant firm was mainly dealing with the products of
other manufacturers and out of its total turnover of Rs.25 lakhs D
per annum, its purchases from appellant no. 2 was only to the
• extent of Rs.50,000 per annum. In these circumstances, the
said complainant firm did not desire to continue to deal with the
appellants' products and as such sought refund of its security
deposit, which was duly made. The relevant extract in this be- E
half from the evidence of Viren Singh, partner of the complain-
ant firm is reproduced as under:
"It is correct that in our letter we had asked a refund of the
security deposit which was refunded to us by the
respondent no. 2 along with their aforesaid letter dated F
28.9.1987. In fact we received the refund as per memo
dated 28.9.1987. It is not a letter as such and this is Exh.
AW1/R-18."
41. The appellants submitted that, in any event, mere ter-
mination of dealership agreement does not affect competition G
within the meaning of section 2(o) of the MRTP Act and cannot
be treated as a "Restrictive Trade Practice". Further, the termi-
nation, if any, of a single retail dealer cannot affect competition
to any "material degree" in the relevant trade or industry. within
the meaning of clause (h) of section 38(1) of the Act H
1018 SUPREME COURT REPORTS [2008] 8 S.C.R.

A 42. The appellants submitted that the Commission was
not justified in passing any order regarding termination of deal-
-~ "
ership. The appellants also submitted that appellant no.1 is only
a holding company of which appellant no. 2 is a subsidiary com-
pany. There is no transaction of sale or dealing by appellant no. ~

(!!!!l

B 1. No manufa<;:turing or selling activity is carried out by appel-
lant no. 1 and as such, no "tie-up" of sales could be resorted to
by appellant no. 1. Therefore, the Commission was not justified .....,,

in passing any order against appellant no. 1. The appellants
submitted thatthe impugned order of the Commission ought to
c be set aside and the notice of enquiry be discharged:
43. We have carefully gone through the entire record in
this case and heard the learned counsel for the parties at length.
From the proper analysis of the entire evidence on record, we ~~--

reach to an irresistible conclusion that no "tie-up" of sales of
D trousers as a condition has_been established. Therefore, the "1
Commission's passing any consequential order on the basis . •
of tie-up is wholly untenable and unsustainable in law.
~
44. The court would be justified in passing the order on
alleged restrictive trade practice only when it is "prejudicial to
E .. public interest" under clause (h) of section 38(1) of the MRTP
Act. The pre-condition for passing such an order is that the
restriction as imposed directly or indirectly when restricts or dis-
courages competition to any "material degree" in any trade.or
industry, then only it would be considered as "prejudicial to pub- t
F lie interest". The court should not pass an order of "cease and
desist" where the alleged restrictive trade practice does not
have the impact on restricting competition to any material de-
gree.
45. When the evidence on behalf of the appellants clearly
G
shows that there are several manufacturers including small scale
manufactures, the little share of the complainant/informant does
not affect the competition in the relevant trade or industry and,
accordingly, in these circumstances, to pass any order under
section 38(1 )(h) cannot be justified. '~:

H /
RAYMOND WOOLLEN MILLS LTD. (NOW KNOWN AS M/S 1019
RAYMOND LTD.) v. DIR GEN. (INVES. & REG.) [BHANDARI, J.]
I
+ 46. In the instant case, the complainant/informant had re- A
quested for refund of the security amount and, therefore, it was
refunded. It was really not a case of "termination of dealership".
inere was no charge or allegation of termination of dealership
in the notice of enquiry, therefore, the Commission was not jus-
tified in passing the order based on "termination of dealership". B
Even otherwise also, the termination of single dealership can-
not affect competition to any "material degree" in the relevant
trade or industry within the meaning of clause (h) of section 38(1)
of the MRTP Act.
47. On consideration of the totality of the facts and circum- C
stances, the appeal is allowed and the impugned order passed
by the Commission is accordingly set aside. The Notice of
Enquiry is also discharged. In the facts and circumstances of
the case, the parties are directed to bear their own costs.

• D.G. Appeal allowed.