# TATA ENGINEERING & LOCOMOTIVE CO. LTD.,. BOMBAY v. THE REGISTRAR OF THE RESTRICTIVE TRADE AGREEMENT, ·NEW DELHI

- **Citation:** [1977] 2 S.C.R. 685
- **Court:** Supreme Court of India
- **Decided:** 1977-01-21
- **Bench:** A. N. Ray, C.J.; M. H. Beg, Jaswant Singh
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/tata-engineering-locomotive-co-ltd-bombay-v-the-registrar-of-the-restrictive-7095
- **Pages:** 17

## Headnote

Monopolies & Restrictive Trade Practices Act,
1969-ss. 2(o)
and· 33Scope of.
·
Agree111~11t-lf amounts to a restrictive trade practice-Tests for deciding.
Section 2(o) of the Restrictive Trade Practices Act, 1969 defines "restrictive
trade practice" to be a trade practice which tends to bring about manipulation
of prices or conditions of dt;_livery 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.
Section 33 provides that any agreement relating
to a restrictive trade practice falling within one or more of the categories (a)
to (1) specified in sub-s.(1) thereof shall be registered.
Section
37
enacts
that the Monopolies and Restrictive Trade Practices Commission may inquire
into any restrictive trade practice, whether the agreement relating thereto had
been registered under s. 35 or not.
Under section 38 when the Commission
finds that such restrictions are necessary or justified, in the circumstances mentioned in the section, it may permit such restrictions.
The appellant is a manufacturer of heavy and medium commercial vehicles.
The appellant enters into an agreement with dealers in regard to sale of its
vehicles.
Clause 1 (a) of the agreement provides that a dealer shall buy from
the Regional Sales Office of the company a new Tata diesel truck for resale
within the territory described in accordance with the provisions of the
agreement.
Clause (b) provides that the agreement shall not preclude the company
from entering into any dealership agreement with. any other person or persons
within the said territory.
Clause 3 prohibits the dealer from selling the vehicles
either directly or indirectly to any person outside the territory.
Clause 6(a)
provides that the dealer shall maintain an organisation for the
sale
of the
vehicles in accordance with the directions of the appellant. Clause 14 prohibits
the dealer from handling or selling vehicles manufactured or supplied by any
other company.
In a petition under s. !O(a) (iii) of the Act, the Registrar of the Restrictive
Trade Practices alleged that els. (l) and (3) of the· agreement between the
appellant and its dealers provided for territorial restrictions or allocation
of
areas or market, cl. (6) provided for resale price maintenance, cl. 14 provided
for exclusive dealership and all these clauses of the agreement showed that the
appellant was indulging in restrictive· trade practices relating to alloc~ti:;" of
territories or areas among its dealel·s and that the appellant was not w11lmg to
abandon the restrictive trade practices.
The Commission held inter alia that els. (1) and (3) of the agreement
constituted restrictive trade practiees and, therefore, void.
It was contended on behalf of the respondent that irrespective of the injurious or beneficial consequences of a trade practice which may restrict competition, an al'reement may fall 'Yithin the _difinition o\ t~at t_erm in s. 2( o) of the
Act.
An injurious or beneficrnl result of the restnctton is relevant only
for
purposes of s. 37 and s. 38 and not for the purposes of s. 33.
.
Allowing the appeal,
HELD : The agreement in the present case was not within the vice of restrictive trade practice and was not registrable.
c
686
SUPREME COURT REPORTS
[1977] 2 $.C.R.
.A
( 1) An agreement will be registrable when it will have both the e!l'ect of
restricting competition within the meaning of s. 2(o) and also deal with the
subject matter described in ss. 33(1)(a) to (I). A practice which is not restrictive under s. 2 ( o) of the Act cannot be a restrictive trade practice only
because of els. (a) to (I) of s. 33(1). Section 33 does not provide statutory
illustratiqns to s. 2 ( o) of the Act but only enumerates some types of trade
practices which, if they are. restrictive within s. 2 ( o), require regiitration.
B
E
F
G
[693 F-G]
(2) The definition of restrictive trade practice is an exhaustive and not an
inclusive one. The decision

## Text

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,....
\ .,
685
TATA ENGINEERING & LOCOMOTIVE CO. LTD.,. BOMBAY
v.
THE REGISTRAR OF THE RESTRICTIVE TRADE
AGREEMENT, ·NEW DELHI
January 21, 1977
[A. N. RAY, C.J.; M. H. BEG AND JASWANT SINGH, JJ.]
Monopolies & Restrictive Trade Practices Act,
1969-ss. 2(o)
and· 33Scope of.
·
Agree111~11t-lf amounts to a restrictive trade practice-Tests for deciding.
Section 2(o) of the Restrictive Trade Practices Act, 1969 defines "restrictive
trade practice" to be a trade practice which tends to bring about manipulation
of prices or conditions of dt;_livery 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.
Section 33 provides that any agreement relating
to a restrictive trade practice falling within one or more of the categories (a)
to (1) specified in sub-s.(1) thereof shall be registered.
Section
37
enacts
that the Monopolies and Restrictive Trade Practices Commission may inquire
into any restrictive trade practice, whether the agreement relating thereto had
been registered under s. 35 or not.
Under section 38 when the Commission
finds that such restrictions are necessary or justified, in the circumstances mentioned in the section, it may permit such restrictions.
The appellant is a manufacturer of heavy and medium commercial vehicles.
The appellant enters into an agreement with dealers in regard to sale of its
vehicles.
Clause 1 (a) of the agreement provides that a dealer shall buy from
the Regional Sales Office of the company a new Tata diesel truck for resale
within the territory described in accordance with the provisions of the
agreement.
Clause (b) provides that the agreement shall not preclude the company
from entering into any dealership agreement with. any other person or persons
within the said territory.
Clause 3 prohibits the dealer from selling the vehicles
either directly or indirectly to any person outside the territory.
Clause 6(a)
provides that the dealer shall maintain an organisation for the
sale
of the
vehicles in accordance with the directions of the appellant. Clause 14 prohibits
the dealer from handling or selling vehicles manufactured or supplied by any
other company.
In a petition under s. !O(a) (iii) of the Act, the Registrar of the Restrictive
Trade Practices alleged that els. (l) and (3) of the· agreement between the
appellant and its dealers provided for territorial restrictions or allocation
of
areas or market, cl. (6) provided for resale price maintenance, cl. 14 provided
for exclusive dealership and all these clauses of the agreement showed that the
appellant was indulging in restrictive· trade practices relating to alloc~ti:;" of
territories or areas among its dealel·s and that the appellant was not w11lmg to
abandon the restrictive trade practices.
The Commission held inter alia that els. (1) and (3) of the agreement
constituted restrictive trade practiees and, therefore, void.
It was contended on behalf of the respondent that irrespective of the injurious or beneficial consequences of a trade practice which may restrict competition, an al'reement may fall 'Yithin the _difinition o\ t~at t_erm in s. 2( o) of the
Act.
An injurious or beneficrnl result of the restnctton is relevant only
for
purposes of s. 37 and s. 38 and not for the purposes of s. 33.
.
Allowing the appeal,
HELD : The agreement in the present case was not within the vice of restrictive trade practice and was not registrable.
c
686
SUPREME COURT REPORTS
[1977] 2 $.C.R.
.A
( 1) An agreement will be registrable when it will have both the e!l'ect of
restricting competition within the meaning of s. 2(o) and also deal with the
subject matter described in ss. 33(1)(a) to (I). A practice which is not restrictive under s. 2 ( o) of the Act cannot be a restrictive trade practice only
because of els. (a) to (I) of s. 33(1). Section 33 does not provide statutory
illustratiqns to s. 2 ( o) of the Act but only enumerates some types of trade
practices which, if they are. restrictive within s. 2 ( o), require regiitration.
B
E
F
G
[693 F-G]
(2) The definition of restrictive trade practice is an exhaustive and not an
inclusive one. The decision whether a trade practice is restrictive or not has
to be arrived at by applying the rule of reason and not on doctrine that any
restriction as to area or price will per se be a restrictive trade practice. The
question in each case is whether the restraint is such as regulates and thereby
promotes competition or whether it is such may suppress or even destroy
competition. To determine this question three matters are to be considered,
namely, (I) what facts are peculiar to the business to which the restraint is
applied, (2) what was the condition before and after the restraint was imposed,
and (3) what was the nature of the restraint and what was its actual and probable effect.
[693 D-FJ
(3) When the authorities under the Act want to challenge any agreement
or any practice as a restrictive trade practice, it has to be established that it is
a restrictive trade practice within the definition of s. 2(o). If it is found that
it is a restrictive trade practice, it has to be registered under s 33. It is only
after an agreement had been registered that there is an enquiry under Chapter
VI of the Act. This enquiry under s. 37 is to find out whether a restrictive
trade practis.e is prejudicial to the public interest.
[692 H, 693 A]
( 4) The two terms of restriction on dealers, namely, one confining sales
within the territory and the other confining dealers to dealing in only the appellant's vehicles are not prejudicial to public interest. The territorfol restriction
is also in public interest and the Commission was in error in thinking that it
was not so.
[701 C-D]
In the instant case, the supply of commercial vehicles is
far below
the
demand and the gap between supply and demand is growing.
The vehicles of
the appellant were in great demand not only in the country but outside the
country as well.
Clauses relating to territorial restriction do
not constitute
'restrictive trade practice because the domestic market is spread all over the
country, to meet the needs of the users of vehicles the appellant has a counhywide network of dealers who maintain service stations, workshops,
requisite
equipment, machinery and trai.ned personnel. The appellant ensures that the
vehicles arc only sold by dealers who have the requisite facilities and or~ani
sation to give after sales service. The appellant gives a warranty in respect of
the vehicles. A geographical network is natural to the
industry which the
appellant has set up.
The appellant· has zonal offices throu~hout the country.
If tte territorial restriction is removed, there will be a tendency for person to
book orders in all areas thus starving the consumers of a particular area of
their equitable share and disrupting the flow of vehicles in both areas. If the
dealer is not assumed of a steady demand in his territory he may have no
incentive or may .. t10t find it economic to organise proper after sales-service.
Some of the dealers have even maintained mobile service vans. [694 H, 695 A]
The exclusive dealings of the appellant dQ. not impecje
competition but
promote it.
Such dealings lead to specialisation and improvement in after-salesservice.
The exclusive dealership agreements do not restrict distribution in any
area or prevent competition.
By making its dealers exclusive, it cannot be
said that there is preyention, distortion Qr restriction of competition in the territory in which the dealer operates.
Any manufacturer of vehicles similar !o
those of the appellant is also free to appoint dealers of its c,hoice in the ·sam.e
territory covered by the appellant's dealers.
The channels for outlet for veht-
;c1es have not been blocked.
f699 F-Gl
( <
,/
TATA ENG. v. REGISTRAR (Ray, C.J.)
687
When there is acute scarcity of the goods and there is no possibility of
A
dealers selling the product at less than the permissible price, it would be irrational to talk of territorial limits restricting competition. Territorial restriction
promotes competition between the different manufacturers in every part of
India. [700 B-C]
Clauses (1) and (3) are in the interest of the consumer and ensure an
equal distributi9n as far as possible of the goods at a fair price. Clauses (6)
and (14) do not amount to a restriction in competition because other manufacB
turers could appoint other persons to deal in their commercial vehicles. It is
also in public interest to §ee that vehicles of other manufacturers are sold in
the same territory by other dealers.
[701 B-C]
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1117(NCM)
of 1976.
(From the Judgment dated the 25.7.1975 of the Monopolies &
C
Restrictive Trade Practices Commissioner New Delhi in R.T.P.E. No. 1
of 1974)
N. A. Palkhivala, F. S. Nariman, Ashok H. Desai, Ravinder Narain,
J. B. Dadachanji, 0. C. Mathur, S. Swarup, Talat Ansari, Shri Narain,
K. J. John and D. N. Mishra, for the Appellant.
Lal Narain Sinha, Mrs. Shayamla Pappu, G. A. Shah, R. N. Sachthey, Girish Chandra and B. B. Sawhney, for the Respondent.
R. Narain, J. B. Dadachanji,
0. C. Mathur, S. Swarup, Talat
Ansari, Interveners for M/s. Hindusran Livers Ltd., Ashok Layland
Ltd. Escorts Ltd.
K. J. John, for M/s.
Hindustan Livers Ltd.
Anil B. Divan, R. Narain, J. B.
D
E
F
·"-\
Dadachi~ni, 0. C. Mathur, S.
Swarup, Talat Ansari, S. Narain, Interveners for CIBA Geigy of
India Ltd.
Ashok, M. Desai R. Narain
J. B. Dadachanji, 0. C. Mathur,
Ta~1!t Ansari, S. Swarup &
D. N. Mishra, Interveners for Batliboi & Co. (P) Ltd.
The Judgment of the Court was delivered by
RAY, C.J.-This appeal is under Section 55 of the Monopolies and
Restrictive.Trade Practices Act, 19691, (referred to as the Aci) against
G
H
688
SUPREME COURT REPORTS
(1977) 2 S.C.R.
''~
the judgment and order of the MonopoVes and
Restrictive Trade
Practices Commission
(referred to as the Commission) dated 25
July, 1975.
The principal question for consideration in this appeal is whether
the agreement between the appellant referred to as Telco and its
dealers allocating territories to its dealers within which only
the
·B
dealers can sell bus and truck chassis referred to as the vehicles pro"
duced by the company constitute a "restrictive trade practice".
Section 2 ( o) of the Act defines "restrictive trade practice" to be
a trade practice which has, or may have, the effect of preventing,
distorting or restricting competition in any manner and in particular
(i) whith tends to obstruct the flow of capital or resources into the
•C
stream of production or (ii) which tends to bring about manipulation
of prices, or conditions or 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 restr;'ctions.
:n
H
Section 33 of the Act provides that any agreement relating to a
restrictive trade practice falling within one or more of the categories
(a) to ( 1) specified in sub-section ( 1) thereof shall be subject to
registration.
Section 37 of the Act provides that the Commi;ssion may enquire
into any restrictive trade practice, whether the agreement,
if any,
relating thereto has1 been registered under Section 35 or not which
may come before its enquiry, and if, after such enquiry it is of opinion
that the1 practice is prejudicial to the public interest the Commission
may, by order direct that (a) the parctice shall be discont:•nued or
shall not be repeated; (b) the agreement relating thereto shall be
void in respect of such restrictive trade practice or shall stand modi-'
fied in respect thereof in such manner as may be specified in the
order.
Section 3 8 of the Act provides that a restrictiv~ trade practice
shall be deemed to be prejudicial to the public interest unless
the Commitssion js satisfied of any one or more circumstances mentioned in that section.
The circumstances mentioned inter alia are
these.
The restriction is rea_sonably necessary havin_g regard to the
character of the goods. to whi'ch: it applies to protect the public against
injury in connection with the consumption, or installation or use of
these goods.
The removal of the restriction would deny to1 the public
as purchasers, consumers or users of any goods, other specific and
substantial benefits or advantages enjoyed or likely to be enjoyed by
them as such, whether by virtue of the restriction itself or of any
arrangements for operations resulti!ng therefrom.
The restriction is
reasonably necessary to counteract measure taken by any one per~on
not party to the agreement with a view to preventing or restricting
competition in or in relation to the trade or business in which the
persons tpereto are engaged.
The restriction is reasonably required
for purposes in connectiton with the maintenance of any other restriction accepted by the parties whether under the same agreement or
(
\~
'
••
TATA ENG. V. REGISTRAR (Ray, C.J.)
689.
under any other agreement between them, being a restriction which
is found by the Commission not to be contrary to the public interest
upon other grounds other than
specified in this
paragraph.
The
restriction does not directly or ind~rectly restrict or discourage competition to any material degree in any relevant trade or industry and
is not likely to do so. The Commission is also to be satisfied that the
restriction is reasonable having regard to the balance between the
citrcumstances and any detriment to the public or to persons not
parties to the agreement being purchasers, consumers or users of goods
produced. or sold by such parties or persons engaged or seeking to
become engaged in the trade or business of selling such goods or of
producing or selling similar goods resulting orlikely to result from the
operations of restriction.
-
The expressions purchase!'.S, consumers and users include persons
purchasing, consuming or using for the purpose or in course of trade
or business or for public purposes.
Section 38 of the Act is, described in the phraseology of restrictive
.trade practices as providing "gateways" to trade.
The essence of the
section is that when it is found by the Commission that such restrictions are necessary or justified in the circumstances mentioned in the
section restrictions are permitted. Again the balancing clause after
clause (h) in section 38 of the Act, indicates when the restriction is
not unreasonable having regard to the balance between the circumstances mentioned in the section and detriment to .the publi'c resulting
from the operation of the restriction.
•
Telco is a public limited company and is a leading !llanufacturer;
of heavy and medi!um commercial vehicles.
The capital investment
required for a new factory in this trade is of a high order.
At present
there are only four principal manufacturers of commercial vehicles.
These are The Hindustan Motors Ltd., Premier Automobiles Ltd.
and Ashok Leyland Ltd. and Telco.
The supply of commercial vehicles is said to be below the demand.
The scarcity of supply is particularly accentuated i'Il the case of Telco's
vehicles as they are in great demand all over the country and abroad.
The export of Telco was over 80% of the total exports of commercial
vehicles from the country during the year 197 4-7 5.
The marked
A
B
c
D
E
F
consumer preference for Telco's vehicles has been maintained because
G
·of
the
high
quality if
its
products
and
also
because
· ·of elaborate and comprehensive net work of after-sales service pro-"
vided by Telco's dealers.
Telco has of its own initi'ative introduced
certain procedures for a fair and wide geographical distribution of its
vehicles which seek to ensure that the new vehicles are supplied not
only to the urban areas of the country where them is a high demand1
but also to the remote areas such as Tripura, Nagaland, Hi•machal
H
Pradesh etc.
Telco has notified to its dealers the
maximum price
for each model of vehicle whi'ch they could charne to consumers. In
May, 19'72 Telco introduced a procedure to regulate, the booking of
-
-'"'-
-- -- -
lLL -
A
B
c
D
E
F
G
H
690
SUPREME COURT REPORTS
[1977) 2 S.C.R.
orders by its dealers and effecting the delivery of vehicles against such
orders with a view to ensuring distribution of its vehicles in the chronological order in which orders had been registered with the dealers.
When Telco sells vehicles it has the responsibility of provi'ding faci~
lities for servicing and repairing the vehicles marketed by it.
It is
essential that in the interest of the consumers such facilities are widely
distributed throughout the country. Even in remote areas where the
demand of new vehicles is less, it is necessary to provide faci.Lties for
after-sales service in order to enable the owners of the vehicles to
keep them in operation.
These facilities are provided by Telco through all India net work
'
of 68 dealers, 69 service centres of sub-dealers and 13 zonal offices
• --\
of Telco. Each dealer has to mai•ntain premises for a show-room and
a service station and to keep special tools as well a_s a comprehensive
,
range of spare! parts supplied by Telco. Further a dealer has also
to employ technically qualified personnel some of whom have been
trained by Telco in its Apprentice School at Jamshedpur.
In addition Telco maintains its own staff of trained engineers and mobile
vans in each of iits zonal offices.
The Registrar, Restrictive Trade Agreements made an application
under Section lO(a') (iii) of this Act before the Commission for enquiry under Section 37 of the Act into restrictive trade practi'ces
alleged therei'n.
The allegations in the petition were these. Clauses
(1) and (3) of the,agreement between Telco and its dealers provide
for territorial restriction or allocation of area or market and clauses
6 and 13 provide for resale price maintenance and clause 14 provides
for exclusive dealership.
The Registrar submitted that Clauses 1, 3,
6 and 14 show that the company is indulging in restrictive trade
practices inter alia relating to allotment of territories/areas among its
dealers_ and exclusive dealings and Telco is not willing to abandon
the restrictive trade practices. It its
signi~cant to notice
that no
particulars of such alleged restrictive trade practices were set out in
the application.
Clauses 1, 3, 6 and 14 in so far as they are appropriate to the
present appeal are as follows :-
"l. (a)
(b)
The Dealer agrees to buy from the Regional Sales Office
of the Company regularly from time to time on principal
to principal basil> all such new Tata diesel truck and bus
chassis with or without cab and/or body (hereinafter
refered to as "the said vehicles", for resale within the
territory described hereunder (hereinafter called "the said
territory") in
accordence with the
provisions of this
Agreement.
This Agreement shall not preclude the Company from
entering into or continuing any dealer~hip agreement or
agreements with any other person or persons within the
saitl territory for sale of the said vehicles and resale by
r
i
TATA ENG. v. REGISTRAR (Ray, C.J.)
691
that person thereof in the said territory, this Agreement
with the Dealer does not constitute him a selling agent
of the Company in the said territory, much less a sole
selling agent.
3. The Dealer shall not, either directly or indirectly and
either alone or in conjunction wi'th others, promote the
sale of or sell any of the said vehicles to any person or
party outside the said territory, nor shall he sell the same
to any person within the said territory if the said vehicles
are intended to be used outside the said territory.
6. (a) The Dealer shall, at hO> own expense, maintain within
the said territory such organisation for the sale of the said
vehicles as .may, in the opinion of the Company which
shall be binding, be deemed to be necessary to adequately
cover the said territory and
ensure the best possible
results.
14. Except with the written permission of the Company first
obtai•ned, the Dealer shall not during the
pendency of
this Agreement either directly or indirectly engage in or
promote the salS'. of or use, handle or sell any truck or
. bus chassis, which is not manufactured or supplied by
the Company."
Telco denied that any of the alleged clauses amounted to restrictive
trade practices.
Telco submitted as follows :
A
B
c
D
First, though alleged clauses imposed restrictions on the dealers
E
these did not amount to restrictive trade practices within the meaning
of the Act.
Second, Clauses 1 and 3 which deal with certain defined territories allocated to the dealers are intended to avoid unequal and unfair
distribution of the vehicles among the customers.
Third, any restriction as to maximum price at which goods can be
resold to the Telco's dealers particularly when Clause 6
(1)
(ii)
specifies what is implicit therein, namely, that the
dealer may sell
below the maximum price fixed by Telco cannot possibly amount to
restrictive trade practice.
.
Fourth, Clause 14 which prohibits a distributor from dealing :n
products of other manufacturers would normally not be
restrictive
trade practice unless there are special circumstances which exist and
indicate that the agreement has the effect of preventing, di.storting or
restricti'ng competition.
Telco finally submits that none of the restrictions
imposed in
Clauses 1,3,6, and 14 are unreasonable having regard to the balance
between the circumstances set out in section 38 of the Act and any
alleged detriment to the customers of Telco and or the competitors
of Telco allegedly resulting or likely to result from the operation of
these restrictions.
10-l 12SCI/77
F
G
H
A
B
c
692
SUPREME COURT REPORTS
[1977) 2 S.C.R.
The Commission held· that the moment an agreemtmt conta;•aed
a trade practice falling within any of the clauses in Section 33 (1)
of the Act, the trade practice must be regarded as a restrictive trade
practice.
The Commission held that all the clauses alleged in the
pet.'tion of the Registrar amounted to restrictive trade practices.
The
Commission further said that in regard to Clauses 6 and 13 in the
light of the assurance given by Telco that in its future price lists it
would specifically state that the dealer is free to charge on the resale
of Telco's vehicles, prices lower than the maximum pr;'Ces fixed by
Telco, no order was required to be passed
regard;ng the alleged
practice of maintenance of minimum resale prices.
The Commission further held that although the contractual term
that the dealers could deal only in Telco's vehicles was a restrictive
trade practice, it was not against public interest as it fell withi•n subclauses (a), (b) and (h) and the balancing clause of Section 38(1)
of the Act.
The Commisssion however held that the practice of allocation of
territories to Telco's dealers was not justified. 1n the result the Commi•>sion declared that Clauses 1 and 3 of the Agreements in so far as
D
they related to allocation of any territory or area or market to any of
the dealers for the distribution of the vehicles constituted restrictive
trade practice and, therefore, void and restrained Telco from continuing or repeating the practice.
Before the Commission Telco contended that the applicat;•on of
the Registrar was not in accordance with Regulation 55 of the MonoE
polies and Restrictive Trade Practices Commission Regulations, 1974,
referred to as Regulations.
Under the Regulations an application under secti•on lO(a) (iii) of
the Act must contain facts which, in the Registrar's opinion, constitute a restrictive trade practice and, if it is in relation to any agreement, set out, such portitons of the agreement as may be necessary to
J
\
\
F
bring out the facts complained .of. It has to be stated that in the pre-
.-
sent case Telco is right in contending that beyond making mere
,.,,,
references to clauses of the agreement and bald aHegations that the
G
clauses constitute restrictive trade practice, no facts or features arc
set out in the petition to show or establish as to how the alleged
clauses constitute restrictive trade practice in the context of facts.
The Solicitor General contended as follows. First, the definition
of restrictive trade practice i•ncludes all trade practices permissible or
forbidden provided they restrict competititon or even tend to restrict
competition.
The instances set forth in the definition of restrictive
trade practice emphasize the factors which go to establish a restrictive trade practice.
Clauses (i') and (ii) in Section 2 ( o) of the Act
afford graver instances of restrictive trade practice.
H
Second, Section 33 of the Act requires an agreement falling within the Clauses thereof to be registered. 1n short an agreement which
amounts to a restrictive trade practice will be first registered and then
i
< .
' •
1
•
--~
TATA ENG. V. REGISTRAR (Ray, C.J.)
693
an enquiry w~ll be made under Chapter VI of the Act as to whether
A
the restrictive
trade practice is prejudicial to the public interest.
Irrespective of the injurious or
beneficial
consequence of a trade
practice which restricts or may restrict competition, i•t may fall within
the definition.
Injurious or beneficial result of the restriction is relevant only for purposes of Sections 37 and 38 of the Act.
Section 33 of the Act states that any agreement relating to a
B
restrictive trade practic~ falli'ng within one or more of the categories
mentioned therein shall be subject to registration in accordance with
the provisions of Chapter: V_ of the Act.
Clauses (a) and (d) in subsection (1) of Section 3 3 are relevant in the present case.
These are,
inter alia, (a) any agreement which restricts or is likely to restrict by
any method the persons or clauses of persons to whom goods are
sold or from whom goods are bought and ( d) any agreement to purC
chase or sell goods or to tender for the sale or purchase of goods only
at prices or on terms or conditions agreed upon between the sellers
or purchasers.
The definitAm of restrictive trade practice is an exhaustive and
not an inclusive one.
The decision whether trade practice i•s restrictive or not has to be arrived at by applyingi the rule of reason and not
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on that doctrine thoat any restriction as to area or price will per se be
a restrictive trade practice.
Every trade agreement restrains or binds
oersons or places or prices.
The questi'on 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 to be considered.
First, what facts
are peculiar to the business to which the restraint is applied. Second,
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what was the conditi•on before and after the
restraint is imposed .
Third, what is the nature of the restraint and what is its actual andl
probable effect.
Section 33 ( 1) of the Act deals with registration of certain types
of restrictive trade practices which have the subject matter described
in categories mentioned in clauses (a) to (I) of Section 3 3 (J ) of the
Act.
An agreement will be registrable,
when it will have both the
effect of restricting competition within the meaning of Section 2 ( o)
of the Act and also deal with the subject matter described in Clauses,
(a) to (1) of sub-section (l) of Secti'on 33 of the Act.
Clauses (a)
to (I) aforesaid describe some species of agreement which requ:•re
registration if they. are within the genus of restrictive trade practice
defined in Section 2 ( o) of the Act.
A practice which is not restrict:•ve under section 2 ( o) of the Act cannot be restrictive trade practice
only because on Clauses (a) to (1 ) of sub-section ( 1) of Section 3 3
of the Act.
Section 33 does not provide statutory illustrations to
Section 2 ( o) of the Act but only enumerates some types of trade
practices which. if they are restrictive within Section 2(o) of the Act
require registration.
Section 33 fixes categori'es of restrictive trade practices.
Section
3 3 states that any agreement relating to a restrictive trade practice
falling within one or more of the categories mentioned therein shall
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be .subiect .to registration.
Therefore, before ;m agreement becomes
reg1strablei 1t has to be a restrictive trade practice in accordance w,tth
the definition of Section 2 ( o) of the Act.
At the threshold it has
to b~ found out wheth<ir an agreement constitutes a restrictive trade
practice. In Section 33 it is stated, for example, that any agreement
which restricts, or is likely to restrict, by any method the persons or
clauses of persons to whom goods are sold or from whom goods are
bought is one of the categories of a registrable restrictive trade practice.
In the present case it has to be found out first whether the
agreement of exclusive dealership
between Telco and the
dealers
containing the restriction on the dealer not to sell the commercial
vehicles of Telco in other territories falls within the vice of a restrictive trade practice.
Under the Act, action can be taken against a restrictive trade
practice. Therefore, when the authorities under the Act want to
challenge any agreement or any practice as a restrictive trade· practice,
it has to be established that it is a restrit:tive trade practice within the
definition of the Act. If it is found to be a n_:strictive trade practice
the next stage is to register agreements relating to a restrictive trade
practice.
Section 33 states that any agreement relating to a restrittive
trade practice falling within one or more of the categories mentioned
therein shall be subject to registration.
The authorities have
to
examine the agreement and find out whether it falls within the vice
of a restrictive trade practice before the authorities can ask th•at the
agreement be registered under Chapter V of the Act.
It is only after an agreement has been registered that there is an
enquiry under Chapter VI of the Act.
This enquiry under Section
37 o~ the Act is to find out whether a restrictive trade practice is prejudicial to the public interest.
Section 38 of the Act lays down the
circumstances under which a restrictive trade practice is presumed to
be in the public interest and not to be deemed to be prejudicial to
the public interest.
In the present case the question is whether the dealershi•p agreement between Telco and the dealers whereby the dealers are not permitted to sell the commercial vehicles outside their zones amounts to a
restrictive trade practice. The questions posed are : Does it prevent
distort or restrict competition in any manner ; Does it affect the flow
of supplies :•n the market relating to goods or service in such manner
as to impose on the consumers unjustified costs or restrictions.
The evidence about the features of the trade is this.
The medium
and heavy vehicles in the trade are restricted to those licensed by
Government for manufacture in the country. The capital investment
required for a new factory is of a very high order, namely, almost
Rs. l 00 crores.
At present the only manufacturers of commercial
vehicles are Telco which produces Tata Vehicles, Hindustan Rotors
Ltd., which produces Hindustan Vehit!es, Premier Automobiles, which
produces Premier Vehicles and Ashok Leyland Ltd., which produces
Leyland vehicles.
The supply of commercial vehicles is far below
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TATA ENG. v. REGISTRAR (Ray, C.J.)
695
the requirement of the industry.
The gap between the demand and
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the supply is increasing with the passage of time as the trade is developing at a faster pace than the growth in the number of vehi'Cles produced.
The Government of India estimated during the year 1974-75
the production of 56,300 medium and heavy vehicles.
The productioμ, however, is now likely to be of the order of 35,000.
The
Filfth Five Year Plan for the production is said to be increased to
80, WO.
It its said that against this target the installation capacity
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today is 46,300 vehicles.
Even if the expansion programme is fully
implemented the installed capacity by the end of the Fifth Five Year
Plan will be only 66,975 vehicles per year.
The scarcity which is a feature of this trade is accentuated in the
case of Telco's vehicles because they are iin great demand all over
the country and even in the export market. In 197 4 it is said that
Telco exported vehicles amounting to 86% of the total export from
the country.
The export earnings are said to be Rs. 7.29 crores for:
1101 vehicles. At the time of arguments it was suggested that Telco
exports now vehicles worth Rs. 10 crores.
The clauses relating to territorial restriction in the present case do
not const\ttute restrictive trade practice for the following reasons :
The dQmestic market in India i•s spread over this vast sub-continent with very divers conditions of roads, population and damand.
It is essential for the community, the consumer and the manufacturer
to have an equitable geographical di<stribution of his vehicles. Vehicles
may be required for operation in any part of I;idia and public interest
requires that the channels of communication should be open throughout the country.
These vehicles should ply even in the remotest areas
like Ladakh, Nagaland, etc.
A user of Telco vehicles expects to get all over the country the
service of a high standard enjoined by Telco upon its dealers.
Telco
on its part also needs a country-wide network of dealers so that sales
take place and the dealers can maintain the service stations, spare
part stocks and workshops with the requisite equipment, machinery
and trained personnel all over the country.
This also
enables
the
consumers to rely on Telco's vehicles since they in turn can expect
services, repairs and spare parts all over India.
Telco has thus to
ensure an all India network of dealers, including those which will
serve remote areas.
· It is evidence that commercial
vehicles is a
highly
complex
. mechanical product.
When Telco sells a vehit:le it also has a responsibility that the vehicle is kept running and maintained in the optic
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mum condition Telco must preserve its reputation and ensure that the
vehicles are only sold by dealers who have the requisite facilities and:
organisation to give the proper after-sales service.
Unlike most conH
sumer praducts, a commercial vehicle involves a continuous relationship
between a dealer and a consumer.
The consumer looks to the dealer.
for keeping the vehicle running and for all attendent faciE'ties like
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service stations, workshops and spare parts. Reliability and repair of
a vehicle, which represents a substantial investment for the consumer,
is vital also to the, public a~ a whole and there must be constantly
available throughout the country a network of dealers with adequate
repair and maintenance service. Even before the delivery of a commercial vehicle to the consumer, there is a meticulous pre-delivery
inspection and service by the dealer.
After delivery,
Telco gives.
three free services.
Telco also gives a ~arranty for a period of six
months from the date of registration or 12 months from the date of
delivery of vehicle from the
factory or for a period ;•n which the
vehicle has run for a distance of 32,000 kilometers, whichever expires.
earlier.
There are outstanding distinctions between a car dealer and a.
commercial vehicle dealer. The peculiar characteristics of dealers in
commercial vehicles are these : The purchase of a car in India rarely
represents the substantial or the bulk of the investment of a purchaser ..
The1 puchase of a commercial vehicle, however, represents the substantial and oft~ tqe only capital investment of the owner.
A chassis
manufactured by Telco is sold\ to the customer at almost a lakh of
rupees and the body costs him about Rs. 15,000/- for a truck and
about Rs. 40,000/- for a bus. Over 80% of persons owning trucks.
are individual owners having not more than two trucks and mostly
only one truck.
The vehicle is normally constantly on the road and
is put to the maxi•mum possible use with often more than one driver
plying it.
Thus a1 vehicle plies on an average over a lakh of kilometers per year.
The heavy investment also makes it necessary that
a, vehicle should be constantly on the move. The owner can ill-afford
to waste time and requires easily
a_£cessible and prompt Service
Stations, Workshops and stocks of spares.
The purchaser regards the
truck! as a life-time investment.
The purchaser looks to the dealer
for prompt after-sales servit:e and
repairs.
Since 80% of truck
operators are individual operators and often have scant mechanical
knowledge, they have to depend upon the dealer for keeping the truck
moving with the necessary trained personnel,
workshop,
servite·
stations and stocks of spares.
As a result of these characteristics, the
relationship between a dealer and the truck purchaser is much more·
constant than with the car purchaser. The s~andard of service he
expects is more vigorous and prompt.
Vehicles of Telco are in keen
demand, both
because of their
quality as also because of the assurance of effic:•ent after-sales service
by the network of Telco dealers.
These requirements cannot be met
unless there is a network of dealers with specific territories.
It is
essential from the angle of the consumer, Telco and the public that
there should be widest and equitable geographical distribution of the
vehicles of Telco.
Public interest itself requires that
the
vehicles
should not be concentrated in metro centres or urban areas where
there is a high demand for them, to the deteriment of the remote, areas
~or sami-urban areas.
The consumer also plies trucks all over the
country and expects that where-ever he goes, whether to Kerala or
Assam, there should be a dealer, a service
station, a workshop,
trained personnel and spare parts which can attend to Telco trucks.
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TATA ENG. V. REGISTRAR (Ray, C.J.)
697
Urban area centres like Bombay, Delhi and Calcutta, have a very
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large demand as compared to the ~est of th~ country .. But at the
same time Telco has to ensure sales m places hke Kashmir, Nagaland:
and Tripura, where the demand is .much less.
In fact, _in ~ome of
these areas, there are no alternative means of commumcat10n and1
transport like railways and the life of the community is largely dependent upon road transport.
Even where the demand is less, there
has to be a: dealer with the necessary facilities and organisation for
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after-sales-service.
Telco appoints dealers for di•fferent . territories in India.
The
geographical network is
natural to the industry
itself.
The purchaser will purchase and get his vehicle serviced in his own territory.
The purchaser looks to a de_aler in his own territory with whom he
has relationship and who• wili give him credit facilities, · who will c
render after-sales-service and from whom he can purchase spares,
who will handle warranty claims and with whom he can have constant
relationship for purchases in future.
Unless a dealer is
assured of
customers in his own area .. and zones, he will not have the necessary
incentive to maintain the optimum lavel of service stations, workshops
and spare part stocks, nor can the dealer plan his resources including
technical personnel, capital equipment and financial
resources for
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Telco regards after-sales service of crucial importance to serve
its consumers.
It is natural and cheaper for a purchaser to buy and
service his vehicles in his own territory.
After-sales-service of Telco
is fairly elaborate a1'd complex and it is because of the standard of
this service that Telco has been able to maintain the reputation.