# HINDUSTAN LEVER LTD., BOMBAY v. " THE MONOPOLIES & RESTRICTIVE TRADE PRACTICES COMMISSION, NEW DELHI & ORS

- **Citation:** [1977] 3 S.C.R. 455
- **Court:** Supreme Court of India
- **Decided:** 1977-04-07
- **Case number:** Civil Appeal No. 680 of 1976
- **Bench:** M. H. Beg C.J, A. C. Gupta
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/hindustan-lever-ltd-bombay-v-the-monopolies-restrictive-trade-practices-7167
- **Pages:** 17

## Headnote

AfonopoTies & Restrictive Trade Practices Act, 1969 s. 2(o) and 2(u)-Scope
of-Stipulation in tht• agree1nent that the stockist "shall purchase and .accept
frotn the contpany such stock as the co1npa11y at its discretion send" and as to
1he quantity of goods to be purchased by the stockist-If amounts to restrictive
trade practice.
Complaint to the Commission-Who could lodge.
B
According to s. 2(o) of the ~fonopolies & Restrictive Trade Practices Act a
C
"restrictive trade practice" means inter alia a trade practice which has, or may
have, the effect of preventing, distorting or restricting competition in any manner.
The appellant, who was a manufacturer of consumer goods such as soaps and
toilet preparations, entered into agreements with redistribution stockists for the
·wholesale distribution of its products. Clause 5 of the agreement, inter alia,
provides that a stockist shall keep and maintain adequate stocks and shall carry
out instructions and directions given by the appellant. He is prohibited from
charging anything more than the stipulated maximum resale price. 'rhe last
part of the clause provides that "the redistribution stockist shal1 purchase and
accept from the company such stock as the company shall, at its discretion, send
to the redistribution st1)ckist for fulfilling its obligations under this agreement".
Clause 9 prohibits the redistribution stockist from re-booking or in any way conveying, transporting or despatching parts of stocks of the products received by
him outside the town except when he was so expressly directed in writing by the
appellant. He shall also, whenever so required by the appeJlant, make available
from the stocks such part as the appellant directs him to do.
D
E
. ''"! ,
On a complaint made to the Monopolies & Restrictive Trade Practices Com-
)
mission by one of the stockists the Commission, after examining els. 5 and 9 of
the impugned agreement, held that the practice of resale price n1aintenance and
full line forcing to \vhic:h the origin'al cl, 5 related, shall be discontinued and
shall not be repeated. It directed deletion of the last sentence of cl. 5 and
declared cl. 9 as void.
Dismissing the appeal to this Court.
HELD : The Commission was right in reframin.e: cl. 5 in the way it did.
Deletion of the ]ast sentence of cl. 5 was essential to prevent possible misuse of
the appe1Iant's power so as to regulate the prices contrary to the express provisions in the clause. [465 B; G]
1 (a) The last part of cl. 5 placed the redistribution stockist at the mercy of
the appellant which could dictate to him what amounts of various commodities
he "shaH purchase and accept from the company". It also empowered the
appellant to allocate send to the redistribution stockist only what it "shall, at
its discretion, send to the redistribution stockist for fulfilling its obligations"
under the agreement. [464 GJ
(b) The word "shall" used in the clause did not bind down the exercise of
the appellant's discretion by reference to any requirements of the consumers in
a particular area in which .the stockist might sell. The stockist was bound to
accept and carry out the appellant's decisions. [464 H]
2(a) The contention that though the clauses gave power to the appellant to
regulate trade. in practice they did not operate as restrictions is not well-founded.
It is not possible to isolate the terms of a contract from ' the practice. The
appellant did not intend that the clauses in the agreement would be treated as
F
G
A
B
c
D
E
F
G
456
SUPREME COURT REPORTS
(1977] 3 S.C.R.
dead letter. Although the practice of imposing restrictions under such clauses
and the practice of introducing such clauses are separate practices, introduction
of a clause like cl. 5 is itself a trade ptactice.
Moreover, even if the power
given in such wide terms was not meant to be exercised unreasonably, its presence in the agreement was a needless surplusage which could be used to impede
freedom of competition and trade and this made it ob

## Text

_Characters 0–39,859 of 52,912. This is a partial read: ask again with offset=39859 for what follows._

455
HINDUSTAN LEVER LTD., BOMBAY
A
v.
"
THE
MONOPOLIES &
RESTRICTIVE TRADE
PRACTICES
COMMISSION, NEW DELHI & ORS.
April 7, 1977
[M. H. BEG C.J., AND A. C. GUPTA J.)
AfonopoTies & Restrictive Trade Practices Act, 1969 s. 2(o) and 2(u)-Scope
of-Stipulation in tht• agree1nent that the stockist "shall purchase and .accept
frotn the contpany such stock as the co1npa11y at its discretion send" and as to
1he quantity of goods to be purchased by the stockist-If amounts to restrictive
trade practice.
Complaint to the Commission-Who could lodge.
B
According to s. 2(o) of the ~fonopolies & Restrictive Trade Practices Act a
C
"restrictive trade practice" means inter alia a trade practice which has, or may
have, the effect of preventing, distorting or restricting competition in any manner.
The appellant, who was a manufacturer of consumer goods such as soaps and
toilet preparations, entered into agreements with redistribution stockists for the
·wholesale distribution of its products. Clause 5 of the agreement, inter alia,
provides that a stockist shall keep and maintain adequate stocks and shall carry
out instructions and directions given by the appellant. He is prohibited from
charging anything more than the stipulated maximum resale price. 'rhe last
part of the clause provides that "the redistribution stockist shal1 purchase and
accept from the company such stock as the company shall, at its discretion, send
to the redistribution st1)ckist for fulfilling its obligations under this agreement".
Clause 9 prohibits the redistribution stockist from re-booking or in any way conveying, transporting or despatching parts of stocks of the products received by
him outside the town except when he was so expressly directed in writing by the
appellant. He shall also, whenever so required by the appeJlant, make available
from the stocks such part as the appellant directs him to do.
D
E
. ''"! ,
On a complaint made to the Monopolies & Restrictive Trade Practices Com-
)
mission by one of the stockists the Commission, after examining els. 5 and 9 of
the impugned agreement, held that the practice of resale price n1aintenance and
full line forcing to \vhic:h the origin'al cl, 5 related, shall be discontinued and
shall not be repeated. It directed deletion of the last sentence of cl. 5 and
declared cl. 9 as void.
Dismissing the appeal to this Court.
HELD : The Commission was right in reframin.e: cl. 5 in the way it did.
Deletion of the ]ast sentence of cl. 5 was essential to prevent possible misuse of
the appe1Iant's power so as to regulate the prices contrary to the express provisions in the clause. [465 B; G]
1 (a) The last part of cl. 5 placed the redistribution stockist at the mercy of
the appellant which could dictate to him what amounts of various commodities
he "shaH purchase and accept from the company". It also empowered the
appellant to allocate send to the redistribution stockist only what it "shall, at
its discretion, send to the redistribution stockist for fulfilling its obligations"
under the agreement. [464 GJ
(b) The word "shall" used in the clause did not bind down the exercise of
the appellant's discretion by reference to any requirements of the consumers in
a particular area in which .the stockist might sell. The stockist was bound to
accept and carry out the appellant's decisions. [464 H]
2(a) The contention that though the clauses gave power to the appellant to
regulate trade. in practice they did not operate as restrictions is not well-founded.
It is not possible to isolate the terms of a contract from ' the practice. The
appellant did not intend that the clauses in the agreement would be treated as
F
G
A
B
c
D
E
F
G
456
SUPREME COURT REPORTS
(1977] 3 S.C.R.
dead letter. Although the practice of imposing restrictions under such clauses
and the practice of introducing such clauses are separate practices, introduction
of a clause like cl. 5 is itself a trade ptactice.
Moreover, even if the power
given in such wide terms was not meant to be exercised unreasonably, its presence in the agreement was a needless surplusage which could be used to impede
freedom of competition and trade and this made it objectionable. [465 A]
(b) Inasmuch as the introduction of clauses in an agreement, taken by itself.
is a practice it would be specious reasoning to separate the clauses in the agreement from action under the agreement and then urge that the clauses are
innocuous and should not be modified. {460 H; 461 A]
3. From the definition of "restrictive trade practice" it is clear that if the
introduction of the clause in itself is a trade practice and could be used to
prevent, distort or restrict competition "in any manner'', it could be struck down.
The definition of "trade practice·· is wide enough to include any "trade practice··
if it is in relation to the carrying on of a trade. If the result of introduction of
a clause is to restrict trade it would be struck by lhe provisions of the Act.
[461 E-G]
4(a) Each type of business has its peculiarities, its own mode of operation,
the special features relating to the market for it and the requirements of distribution of particular goods, to secure a just ancl equitable distribution consistently with the maintenance of freedom of competition so that prices are not
artificially pushed up. [ 462 G]
(b) The Te/co case is distinguishable. from the present on the ground that in
that case the manufacturer who had the monopoly of special quality trucks, had
to provide specially trained and skilled personnel with special equipment
and
tools for their maintenance and running. Therefore, the agreements did not
restrict trade or curtail competition. [462 H]
( c) In the instant case, the appellant couJd compel the stockist to buy the
goods manufactured by it irrespective of whether the stockist wanted the goods
or not. The appellant was under no obligation to render any service for the
maintenance of the goods supplied.
Secondly, the present is not a case in which
the terms of the agreement were required to be explained by the facts to which
they were meant to be applied. [ 463 C-D]
Tata Engineering & Locon1ot1\'e Co., Ltd. v. The Registrar of Restrlctive
Trade ARree111e111s [1977] 2 S.C.R. 685 distinguished.
5. If it was clear fron1 the agreement that prices lower than the "maximum
re-sale price stipulated"' might be charged by the stockist, then, there was
no
reason why it \Vas necessary to clarify by circulars, what the stockist was free to
do under the agreement.
Even if the appellant's practice of issuing circulars
was established, it did not justify retention of cl. 5 in a form which could be
used to compel the stockist to act at the appellant's behests. [ 46.5 F]
6(a) The last part of cl. 5 made it necessary for the stockist to purchase
such goods and in such combination as the appellant might decide.
Hence it
would be struck bys. 33(1)(b) of the Act. [465 C]
(b) Inasmuch as the original cl. 5 gave the stockist the discretion to sell at
lower than maximum resale prices the agreement was not struck bys. 33(1)(b).
But, the deletion of the sentence. was essential to prevent possible misuse of the
~ppellant's power by resort to it. [465 G]
The Co1nn1ission was justified in declaring cl. 9 as void and inoperative.
[465 HJ
7(a) The power to impose restrictions falling under s. 38 had to be justified
by the appellant by actual proof of public interest which could not be better
served without it [466 A].
H
(b) Clause 9 gave the appellant an unreasonably wide power of deciding
what is actually fair and equitable distribution \Vhich is more a part of the duty
of governmental authorities entrusted with powers of rationing such consumer
goods in public interest.
Before any question of reasonableness of a power to
J
•
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HINDUSTAN LEVER LTD. v. M.R.T.P. COMMISSION (Beg, C.J.) 457
ration any goods is entrusted to any person ~r authority ~ho~e goods must be
A
shown to be scarce or in short supply and evidence estabhshrng such a need has
not been shown to exist in this case. [466 F-G]
(c) The appellant was wrong in its contention that in holdin£ cl. 9 to be
invalid, the purpose of "equitable distribution" was overlooked by the COlt:IJl!iSsion.
This supposed limitation did not restrict the appellant's power to decide
what to distribute. The appellant was left to itself to decide what is "equitable
distribution". The clause conferred too wide a power and is unreasonable.
B
-
[469 HJ
9. Under s. 55 an appeal lies to the Supreme Court only on one of the
grounds mentioned in s. JOO, C.P.C. It is n~cessary for the parties to formulate
questions of law that arise for decision. [467 A]
JO(a) The plea against use of "per s,e" rule referred to by the appellant
means that on the assumption that a restriction is illegal in itself should not be
made without examining its impact upon the particular trade involved. On the
C
other hand the "rule of reason" envisages consideration of facti of each case so
as to determine the context in which the restraint was imposed. [468 C]
Board of Trade of .1/ie City of Chica{:o v. United States of A1nerica 62 Law
Ed 231.
(b) Jn Telco case this Court accepted the correctness of the approach that
no bald or simple test should be adopted in judging the legality of a ri;straint
upon trade. Such a view has nothing to do with rules Jelating to interpretation
of documents used in finding out the effect and intent of words used in a docu~
ment. \Vhenever a court d~termines the meaning and effect of the words of a
D
rule or a clause in an agreement it does not adopt what is termed as "per se"
rule. All that the court does in such a case is to interpret the clause, the effect
of which may become obvious on a bare determinatiOn of the meaning or may
be seen from- other evidence. Where that effect is not obvious, evidence may
be Jed to show how the language used is actually applied to the facts to which
it was meant to apply. [ 468 D-F]
In the instant case, the Commission has correctly arrived at the conclusion
that the clauses were unreasonable and illegal after taking into account the
relevant factors.
The rules of reason applicable to a case like the present are
(i) the meaning of the impugned clause or clauses in an agreement must be
determined according to law and (ii) the possible effects of such a clause upon
competition in the trade to be regulated must be determined. [469 B-C]
( c) Consideration of extraneous evidence is not required at all
when
the
practice complained of is the introduction of clauses conferring wide
powers,
which may be ·used to irnpose restrictions contrary to the Act. In Such a case
the introduction of clauses constitute restrictive practice. Evidence of what is
actually practised could only be relevant for purposes other than a determination
of the meaning and the effect which follows logically or reasonably from such
determination. [469 F-G]
(d) No oral evidence could be led to adduce the me;tning of the clauses in
the agreement in view of ss. 91 and 92 of the Evidence Act. Section 92 proviso (6) is not a.-pplicable to the present case. [464 CJ
(e) It is unnecessary to admit extraneous evidence as to the absence of distortion of competition. The probability of the effect is only part of the rule of
reason to be applied where extraneous evidence is admissible. [470 B]
(f) It is not possible to assume public benefit from a mere declaration of
intention to exercise a power so as to benefit the
public.
On
the evidence
adduced it was not shown that this power was necessary so as to benefit the
public. [470 DJ
(g) Actual benefit to the public is a question of fact on which findinos cannot be reopened unless some error of law is revealed. No error of law i; assessing evidence was disclosfd. [470 E]
E
F
G
H
458
SUPREME COURT REPORTS
(1977] 3 S.C.R.
A
(h) The confusion which may be created by using such terms as "per se"
B
c
D
E
F
G
H
rule which could be applied to describe practices developed in other countries
\Vith different statutory provisions, should be avoided. [469 D-E]
10. Proceedings before the Commission- are maititainable at the instance of
a complainant 'vhose motives in making the complaint are quite irrelevant
All
that the Commission, and, on appeal, this Court, has·-to examine is whether a
practice by a company of introducing clauses complained of in the agr~ements
\vith the stockists, an1ounted to a restrictive trade practice. [460 D]
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 680 of 1976.
From the Judgment and Order dated the 17th March, 1976 of
the Mouopolies and Restrictive Trade Practices Commission, New
Delhi in R.T.P. Enquiry No. 11 of 1974.
L. M. Singhvi, Ravinder Narain, Talat Ansari and Shri Narain
for the Appellant.
L. N. Sinha, Sol. General, B. Datta and Gb'ish Chandra for Respondents Nos. 1 and 2.
G. A. Shali and N. Netlar for Respondent No. 13
The Judgment of the Court was delivered byBEG, C. J.-This is an appeal under section 55 of the Monopolies
. & Restrictive Trade Practices Act, 1969 (hereinafter referred to as
'the Act') against the order and judgment of the Monopolies & Restrictive Trade Practices Commission, New Delhi (hereinafter referred
to as the 'Commission'), in proceedings started under section lO(a)
(iv) of the Act against the appellant M/s. Hindustan Lever Ltd.
(hereinafter referred to as 'the Company'), upqn information furnished by Bhogilal Manila! Shah of M/s. Shah Manila! Motichand &
Sons of Poona (hereinafter referred to as the 'informant').
The informant was a redistribution stockist of the appellant company carrying on business regulated by the terms of an agreement,
known as the redistribution stockists'
agreement of the
company,
found in a standard printed form, entered into with each stockist. Ti1e
agreement has 23 terms or clauses in it.
The clauses complained of
are 5 a,id 9, which may be reproduced here :
"5. The Redistribution Stockist shall use his best endeavours to maintain and increase the trade of the Products
in the said town and for this purpose he shall at all times
keep and maintain adequate stocks of the Products in all
its packings and he shall carry out all instructions and directions including those as to the maximum r,,,;a]e price which
may from time to time be given by the Company or by the
Company's accredited representatives in respect of the sale
or resale or disposal by the Redistribution Stockist of stocks
of the Products supplied to him in pursuance of this Agreement.
The Redistribution Stockist is prohibited from charging in excess of the maximum resale prices slipulated by the
Company, but he may, at his discretion, charge prices lower
than the said maximum resale prices.
The Redistribution
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HINDUSTAN LEVER LTD. V. M.R.T.P. COMMISSION (Beg, C.J.) 4 59
Stockist shall purchase and accept from the Company such
A
stock as the Compa,ny shall at its discretion send to the Redistribution Stockist for fulfilling its obligations under this
Ageement."
"9. In order to ensure equitable and reasonable distribution of stocks at fair prices, the Redistribution Stockist
shall not rebook or in any way convey, transport or despatch
B
parts of stocks of the products received by him o_utside the aforesaid town
except when he is so
expressly
directed ~n writing by the Company.
He shall also whenever so required by the Company make available from the
stocks of Company's merchandise purchased by him such
part as the Company directs him to do for purposes of resale on his behalf by the Company's employee."
c
It is alleged that I.he two clauses, set out above found in identical
agreements entered into by the Company with its
stockists, whose
number is quite large, constitute or authorise restrictions which are
·unreasonable and illegal.
He,nce, it was submitted by the respondents that it must be struck down or modified so as to make the business and trade of the appellant company and its stockists conform to
the requirements of law.
D
The Commission had accepted the case brought to its notice
by
the informant and made the following order :-
"(1). Clause 5 of the
Agreement (Exhibit F) shall
sta,nd modified so that the following shall be substituted in
place thereof :
"5. The Redistribution Stockists shall use his best endeavours to maintain and increase the trade of the products
in the said town and for this purpose he shall at all times
keep and maintain adequate stocks of the products in al! its
packings and he shall carry out the instructions and directions including those as to maximum resale price which may
from time to time be given by the Company or by the Company's accredited representatives in respect of the sale or
resale or disposal by the Redistribution Stockist of stocks
of the products supplied to him in pursuance of this Agreement.
The Redistribution Stockist is prohibited from charging in excess of the maximum resale prices stipulated by the
Company but he may at his discretion charge prices lower
than the said maximum resale prices".
"(2). The practices of resale price maintenance and full
line forcing to which original clause 5 of the agreement related, shall be discontinued and shall not be repeated.
(3) Clause 9 of the
Agreement (Exhibit F) shall be
void.
E
F
G
( 4) The practice of area allocation to which clause 9
H
of the Agreement (Exhibit F) related, shall be discontinued
and shall not be repeated.
460
SUPREME COURT REPORTS
[1977) 3 S.C.R,
A
(5) In all future price circulars or lists to be issued by
the Resp~ndents, it shall be clearly stated that the prices
therein mentioned are maximum prices and that prices lower
than those prices may be charged.
c
D
( 6) This order shall come into force with effect from
1st July, 1976.
On or before the said date, the Respondents shall intimate all Redistribution Stockists of the modifications in Clauses 5 of the Agreement (Exhibit F) and
the voidity of clause 9 of the Agreement (Exhibit F) ''.
There was some argument before us on the question whether proceedi1ngs before the Commission were maintainable at the instance of
a "complainant" who had reasons to nurse a grievance against the
Company and whose motives could be questioned.
It was pointed
out that the agreement of the company with the informant had been
terminated.
The version of the informant was that this had been done
because his firm had sold Vanaspati at the rate of Rs. 127/- per tin
which was below the price of Rs. 129.05 per tin fixed by the Company.
The informant stockist said that the price, had to be reduced
by him to remove public discontent.
We think that the motives of
the informant are quite irrelevant in such a case.
All that the Commission, and, on appeal, this Court has to examine is whether what
would undoubtedly be a "practice" by the appellant company, of
introducing the two clauses complained of, in its agreements with its
stockists, amounted to a restrictive trade practice.
The distinction sought to be made on behalf of the
appellant,
between a practice and clauses in a contract which give a company
E
the power to regulate trade in a manner which may constitute a restriction, appears to be inconsequential here.
We do not think that
we can isolate the terms of a contract from the actual practice of the
company. It is not the case of the company
anywhere that the
clauses in its agreement with its stockists are to be treated as deadletter.
Its case is that they do not operate as restrictions.
The introduction of such clauses in so many agreements meant to regulate
F
relations, either between a principal and an agent or the seller and
the stockist who
acquires complete proprietary rights in the stock
of goods purchased, is itself a trade practice.
The simple question
before us is :
Can powers conferred upon the company under such
clauses be exercised in such a way as to constitute restrictive trade
practices?
G
H
It is true that the practice of imposing restrictions u,nder such
clauses is one thing and the practice of introducing such clause• is
quite another thing.
Both may constitute separate practices. Nevertheless, the introduction of such c1auses into an agreement between
the manufacturer and the seller who purchases and stocks his goods
is in itself something practised.
It is immaterial that the use of powers
under such clauses may constitute another set of practices which depend upon the existence of such clauses as sources or springs. Inasmuch as the introduction of clauses in 5uch an agreement is a practice,
taken by itself, the question whether such a practice amounts to a
restrictive trade practice or not could only be decided by considering
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)
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HINDUSTAN LEVER LTD. v. M.R.T.P. COMMISSION (Beg, C.J.) 461
whether the clauses could be so used as to unjustifiably restrict trade?
A
It would be specious reasoning, in such a case, to separate the clauses
in the agreement from action under the agreement and then to urge
that, as evidence of action under the clauses is meagre or even absent,
the clauses are i,n:nocuous and shou;d not be modified or struck down
because we are only concerned with what is actually being practised
under them or with the use that is being made of such clauses and
not with what is permissible or possible under the clauses of the agreeB
ment of the kind before us.
This argnment seems to us to overlook
the definition of "restrictive trade practice" contained in section 2 ( o)
of the Act which lays down :
" ( o) "restrictive trade practice" mea,ns a trade practice
which has, or may have, the
effect of preventing
distorting 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 prices,
or conditions of delivery or to affect the tlow of
supplies in the market relating to goods or services
in such manner as to
impose on the
consumers
unjustified costs or restrictions."
It is clear from a bare perusal of the abov<>-mentioned definition
that it is not only the actual practice of a restriction under a clause
which is struck by the provisions of the Act, but also a "trade practice"
which "may have" the effect of restrictions falling within the mi'schief
provided for.
In other words, if the introduction of the clause in itself
is a trade practice and could be used to prevent, distort or restrict
competition "in any manner" it may be struck down. A trade practice
is defined by section 2(u) of the Act as follows :-
·
"(u) "trade practice" means any practice relating to
the carrying on of any trade, and includes-
(i) anything done by any person which controls or affects
the price charged by, or the method of trading of, any
trader or any class of traders.
(ii) a single or isolated action of any person in relation
to any trade".
c
D
E
F
This definition is wide enough to include any "trade practice" if it
G
is in relation to the carrying on of a trade. It cannot be argned that
the introduction of the clauses complained of does not amount to an
action ~hich relates to the carrying on of a trade. If the result of
that action or what could reasonably flow from it is to re8trict trade
i~ the manner indicated, it will, undoubtedly, be struck by the provisions of the Act.
Reliance was sought to be placed by learned counsel for the
appe~ant company ?n a recent decision of this Court in Tata Engineering & Locomotive Co. Ltd. v. The Registrar of the Restrictive
3-502 SCI /77
H
462
. SUPREME COURT REPORTS
[1977] 3 S.C.R •
A
Tr(]de Agreements, New Delhi(1 )
(hereinafter referred to as
the
"Telco" ease) where it was held :
B
c
D
E
F
G
H
"The definition of restrictive. trade practice is an exhaustive and not an inclusive one. The decision whether trade .
practice is restrictive or not has to be arrived at by applying
the rule of reason and not on the doctrine that any restriction
as to area or price will per se be a restrictive trade practice.
Every trade agreement restrains or binds persons or plac~
or prices. The question is whether the restraint is such as
regulates ·and thereby promotes competition or whether it fa
such as may suppress or even destroy competition. To determine this question three matters are 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 was imposed. Third, what is the nature of the
restraint and what is its actual or probable effect".
It was also held there : • "The question of competition cannot be
considered in 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. As a result of territorial restriction there is in each part of India open competition among the
four manufacturers. If the territorial restriction is removed there will
be pockets without any competition in certain parts of India. If. the
dealer in Kashmir is allowed to sell anywhere in India wealthy cities
like Delhi, Bombay,. Calcutta will buy up trucks allocated for Kashmir
and the buyer in Kashmir will not be able to get the trucks. The other
three manufacturers whose trucks are not in equal demand will have
Kashmir as an open field to them without
competition by Telco.
Therefore, competition will be reduced in Kashmir by the successful
competitO( being put out of the field".
It is evident that in the Telco ease this Court was considering the
territorial restrictions placed upon the stockists of Telco in the light
of the special facts and circumstances of that particular case. Each
type of business has, undoubtedly, its peculiarities, its own mode of
operation, the special features relating to the market for it, and the
requirements of distribution of particular goods which may be the
-~ subject matter of an agreement so as to seciire a just and equitable
distribution consistently with maintenance of freedom of competition
so that prices are not artificially pushed up. In the TeJco ease, the
·subject matter of the agreement was sale of trucks of a type in which
the Telco had a monopoly inasmuch as no other firm produced trucks
which were of such special quality and specifications.
Hence, there
was great demand for these trucks, which were in short supply. Again,
· for the maintenance and running of those especially desil!Iled trucks
the manufacturer had to provide especially trained and skilled personnel and snecial equipment and tools so as to enable stockists to service
and repair trucks distributed. Unless the manufacturers were able to
impose restrictions upon sales outside the areas in which they had
{I) (1977] 2 S.C.R. 685.
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IIINDUSTAN LEVER LTD. v. M.R.T.P. COMMISSION (Beg, CJ.) 463
established their stockist-cum-servicing suppliers, they could not at all
render the kind· of service they were giving in _addition to selling.
In other words, it was a mixed practice for purchase of trucks and
provision of specialised service to the consumers, through the stockists.
On the peculiar facts and circumstances of that case, it was found that
the agreements did not, on the whole, result in restricting trade or.
curtailing competition.
The facts of the case before us are entirely diff~rent. We are con- ·
cerned here with a manufacturer of mixed consumer goods of different
varieties.
The appellant
company produces
dehydrogenated
oil
(known in the market as "Vanaspati"), toilet preparations of various
kinds such as. soaps, shaving creams, . toothpastes, and baby milk
powder, and animal feeds.
The soaps manufactured by it are undoubtedly the main type of goods supplied. But, it manufactures other
type· of gocds too.
It can, therefore, compel stockists to by them,
whether .stockists want these other goods or not, if the terms of the
agreement are to be held to be binding and enforceable. The manufacturer is under no obligation to render any service in relation to
maintenance of the goods supplied. · The whole trade is completely
unlike that of manufacture anJ sale of motor trucks for which the
stockists, sellin~ to the actual consumers, had to, as already pointed
. out, also have the services of the manufacturer's trained personnel for
the purpa·scs cf maintenance' and repair of the vehicles supplied. It
wculd amount to an application of the law in a thoroughly doctrinaire
fashion if we were to deduce some general principles, from the very
di!Terent facts of the Telco case and attempt to apply them to those
of the case now before us.
Thus, the contention advanced on behalf
of the a·ppellant, against a doctrinaire approach in such cases, really
weighs against the appellant comp:iny.
In the Telco case, the agreement could not be understood without
reference· to the actual facts to which they were sought to be ann'ied.
Those facts explained the nature of the spec;al agreements for re«riction or distribution of areas.
In the case before us. the nrf"blern is
entirely different.
This is. not a ce>e in which certain terms rf the
agreement require to be explained by the facts to which they were
mennt to be anolied. It is a clear case in which the me"n;nos of the
clauses are decisive.
If these clauses are caoable of being so used,
on the meanings which aooear unambiguously from them. as to undoubtedly restrict trade, the intention to so use them to restrict trade
could reasonably be inferred without any difficu1tv.
Otherwise. why
have them ? No oral evidence c0uld be led to deduce their rnc"nin~
·or to vary it in view of the. provisions oi sections 91 anrl CJ2 rf the
Evidence Act. the princinles nf \Vhich \Vere. \Ve think. ricrhtlv ~nn1ied
bv the Commission. The Telco case. on •he other hand, was one in
\Vhi_ch cxfr:'lne('!u·s eviclence coulrl he led uncler ~ectinn_ Q?... nrnvic;:n (6)
of the Evidence Act which may be set out here with Section 92
"92. When the terms of anv such contract, grant or
0ther disnnc:ition f\f Uff\oertv or anv matter reauired bv la\V
to be reduced to the form of a document, have been proved
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SUPREME COURT REPORTS
[1977] 3 s.c.R.
according to the last section, no evidence of any oral agreement or statement shall be admitted, as between the parties
to any such instrument or their representatives-in-interest,
for the purpose of contradicting, varying, adding to or subtracting from, its terms :
Proviso (6)-Any fact may be proved which shows in
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The principle embodied in s. 92(6) of the Evidence Act, which
was applicable in Telco case (supra), is not, for the reasons given
above, applicable in the case now before us.
Indeed, no attempt
has been made by reference to any case law apart from the Telco case
(supra), which we have distinguished above, to show that extraneous
evidence could have been led here in order to apply s. 92 proviso (6)
of the Evidence Act. In the Telco case this provision was not directly
referred to, but, we think, that it could have been applied there. Thus,
we think that the basic difficulty, placed before us by learned counsel
for the appellant, in the way of examining the plain meaning and effect
of clauses 5 and 9 of the Distribution Stockists' agreement, does not
exist at all in the case now under consideration. We must, therefore,
proceed to examine the meanings of these clauses from the point of
view of what could be done by the Company under them. If what may
be done under these clauses could be a restrictive practice as defined
by the Act, it was enough to vitiate them. A clause having been introduced in an agreement entered into, as a part of the settled practice
of the company, could be struck by the provisions of s. 2 ( o) of the
Act, set out above, quite apart from what is actually done under it.
We ilo not think that any other question is really relevant or need be
considered by us at all in 'such a case. It is not a case in which we
could be taken through the oral evidence, as has been attempted to
be done, because that is shut out by an application of provisions of ss.
91 and 92 of the Evidence Act if all we need do is to interpret the
agreement. We are unable to see why these provisions do not apply
here.
Not much argument appears to n's to be needed ~o demonstrate
that the last sentence in paragraph 5 of the above mentioned clause
places the redistribution stockist at the mercy of the company which
can dictate to him what amounts of various commodities he "shall
purchase and accept from the company" in the form of a total Jot
supplied to him.
The company need only send to the redistribution
stockist's what it "shall at its discretion send to the Redistribution
Stockists for fulfilling its obligations under this
Agreement".
The
meaning and effect are obvious here.
The introduction of the word
"shall" does not bind down the exercise of the discretion by reference
to any requirements of the consnmers in a particular area which the
stockists may convey to the company.
Hence, if the stockists want
to remain on the list of the redistribution stockists of the company.
the stockist is bound to accept and carry out the decision of the company. Even if, in view of some other practice adopted by the company.
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IIINDUSTAN LEVER LTD. v. M.R.T.P. COMMISSION (Beg, C.J.)
465
a power given in such wide terms was not meant to be exercised unreasonably, ifs presence in the agreement would be a needless surplusage which could, whenever the company wanted it, be used to
impede freedom of competition and trade.
This result was enough
to make it quite objectionable. We, therefore, think that the Commission was quite right in reframing clause 5 in the way it did. We
are unable to find any flaw in the detailed reasons given by the Commission for doing th_at.
·
. The Commission rightly points out that, among agreements the
registration of which is compulsory according to the provisions of
ChaJ?t~r V of the Act is, under section 33 ( ! )(b) is "any agreement
requmng a purchaser of goods, as a condihon of such purchase, to
purchase some_ other goods". : The last part of clause 5, as we have
observed, clearly makes it necessary for the stockist to purchase such
goods and in such combination as the company may decide. Hence,
it would be struck by section 33(1) (b) of the Act. It has not been
shown to have been registered under the Act.
It is also submitted on behalf of the respondent that clause 5 of
the agreement infringes s. 33(l)(f) of the Act which require·s registration of :
"any agreement to sell goods on condition that the prices
to be charged on resale by the purchaser shall be the prices
stipulated by the seller unless it is clearly stated that prices
lower than those prices may be charged".
The C~mmis"sion held· that cl~use 5 of the agreement meant provision for "prices stipulated" and that it had been so treated. by the
company in its circulars stating that prices lower than the "maximum
resale price stipulated" by the company may be charged. If that was
so clear, there was no reason why the company should have attempted
to clarify by means of its circulars what, according to it, the stockist
is free to do under the agreement. Even if the practice of the company
by issuing circulars is established, .it does not justify the retention of
clause 5 in a form which can be· used to compel stockists to act on
the company's behests whether reasonable or not. On the other hand,
it justifies its clarification by an alteration of it in the manner directed
by the Commission so as to make the clause covering price rel!lllation
also very clear.
The order of the Commission modifying clause. 5
only makes the position crystal clear.
Inasmuch as clause 5, even
before deletion of the last sentence of it by the Commission, expressly
gives the stockist the discretion to sell at lower than maximum resale
prices stipulated, the agreement was not struck by s .. 33(1) (b). of
the Act. But, the deletion of the last sentence was essential to prevent
possible misuse of the company's powers, by resort to it, so as to even .
regulate prices contrary to express provisions found earlier in the
clause.
Turning now to clause 9 of the agreement, we" think that the Commission was right in reiecting the arrumenl that evidence led on behalf
of the company was enough to establish that .clause 9 fell within one
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466
SUPREME COURT REPORTS
[1977) 3 S.C.R.
of the "gateways" provided by section 38 of the Act.
A power to,
impose restrictions falling under this provision had to be justified by
the company by actual proof of a public interest which could not be
better served without it.
The submission that section 38 could be
applied here amounts at least to a concession that a clause conferring
such wide power upon the manufacturer may be so used as to amount
to a restrictive practice. It is the practice of putting in such a clause
which has to be justified.
The power given to the company under clause 9 is very wide. The
manufacturer can compel the redistribution stockists to make available
to the company any stocks purchased by the stocki'st. It also compels
the stockist to take .the permission of. the company for conveying,
transporting, or despatching parts of stocks of the products received
by him outside a specified town except when he is so expre'ssly directed
in writing by the company. It directly prevents him from doing so
without the company's permission. If the stockist violates this cond:-
tion the whole agreement can be revoked by the company so that the
stockist loses his right to carry on business under the agreement. lf
what had to be justified is not how this power is actually used, but the
practice of conferring such powers upon the company by placing the
stockist ~t the mercy of the company, the evidence of facts showing
how the power is exercised could be relevant only very
indirectly.
However,.if it could be shown that 'some facts did exist which make it
imperative to confer such a power on the company for the benefit of
the
public, that may be relevant to
establish the existence of a
"gateway" under s. 38. But, it could certainly not be used to determine the meaning of a clause for which it is not necessary here to go
beyond the language of the clause involved.
We are primarily concerned in this case, as we have repeatedly emphasized, with the clear
meanings of the two clause's.
As the Commission pointed out, it is immaterial that a purchaser
from outside may be able to get round clause 9 by purchasing across
the counter from the stockist inside a town. The clause itself, however.
gives to the company an unrca'sonably wide power of deciding what
is actually fair and equitable distribution.
The
Commission very
rightly points out that th;s is more properly a part of the duty of
governmental authorities
which may be entrusted with powers of
rationing such consumers' goods if this is found to be necessary in
public interest.
However, before any auestion of reasonableness of a
power to ration any goods is entrusted by any method to any person
or authority those goods must be shown to be scarce or in short supply.
That was the position in the Telco case (supra).
Evidence
establishing such a need has not been shown to exist.
And, in any
case. it hc·s to be a very exceptional set of facts indeed which could
justify lo•hng of such a power in the manufacturer. The Commi'ssion
has dooll with a good deal of evidence to iustify its conclusion that the
need to iustify the lodging of such a power in the company has
not
been established. We see no reason to disturb it.
Under the provisions of section 55 of the Act, an appeal lies to
this Court only on one of the grounds mentioned in section 100 of the
HINDUSTAN LEVER LTD. v. M.R.T.P. COMMISSION (Beg, C.J.) 467
Code of Civil Procedure.