Tata Engineering and Locomotive Co. Ltd v. Registrar of Restrictive Trade Practices Agreement

In the Supreme Court of India

Name of the case Tata Engineering and Locomotive Co. Ltd v. Registrar of Restrictive Trade Practices Agreement
Citation 1977 AIR 973, 1977 SCR (2) 685
Year of the case1977
AppellantTata Engineering and Locomotive Co. Ltd, Bombay 
Respondent Registrar of Restrictive Trade Practices Agreement, New Delhi 
Bench/JudgesA.N. Ray, C.J, M.H. Beg, Jaswant Singh,JJ
Acts involvedMonopolies and Restrictive Trade Practices Act, 1969 
Important Sections Sections 2(o), 33, 35, 37, 38

Abstract

Vehicles of TELCO are in great demand both because of their quality and also because of the assurance of efficient after sale services by the network of TELCO dealers. 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 detriment of the remote areas or semi-urban areas. 

Introduction 

TELCO is a public restricted organization and is a main producer of hefty and medium business vehicles. The capital venture required for the new factory in this exchange is of a high order. At present, there are just four principal producers of business vehicles. They are The Hindustan Motors Ltd., Premier Automobiles Ltd. furthermore, Ashok Leyland Ltd. and TELCO. The supply of business vehicles is supposed to be beneath the interest. The shortage of supply is especially prominent because of TELCO’s vehicles as they are in great demand everywhere in the nation and abroad. The export of TELCO was over 80% of the total export of business vehicles from the nation during the year 1974-75. 

The market buyer preference for TELCOs vehicles has been kept up in light of the high calibre of its items and furthermore because of the detailed and complete network of after sales services given by TELCOs dealers. TELCO has its own drive presented. 

Certain methods for a fair and wide geographical  conveyance of its vehicles which seek to guarantee that the new vehicles are provided not exclusively to the metropolitan territories of the nation where there is a popularity’ yet in addition to the distant zones, for example, Tripura, Nagaland, Himachal Pradesh and so on. 

TELCO has advised to its dealers the maximum cost for each model of vehicle which they could charge to consumers. In May 1972, TELCO introduced a method to control the booking of orders by its sellers and affecting the conveyance of vehicles against such orders with the end goal of guaranteeing distribution of its vehicles in the chronological order in which orders are to be registered with the dealers. 

At the point when TELCO sells vehicles, it has the duty of giving facilities for servicing and fixing the vehicles promoted by it. It is essential that in light of a legitimate concern for the buyers such facilities be circulated all through the nation. Indeed, even in far off zones where the interest of new vehicles is less, it is important to provide facilities for after sales services to empower the owners of the vehicles to keep them in operation. TELCO gives these services through an all India network of 68 dealers, 69 service centres of sub-dealers and 13 zonal workplaces of TELCO. Every dealer needs to keep up premises for a showroom and a service station and to keep special tools as well as spare parts provided by TELCO. 

Background 

The Registrar, Restrictive Trade Agreements made an application before the commission for enquiry under Section 37 regarding restrictive trade practices. It submitted that Clauses 1, 3, 6 and 14 of the agreement between TELCO and its dealers, shows that the company is indulging in restrictive trade practices and is not ready to desert the prohibitive trade practices. 

TELCO in its reply denied any of the alleged clauses amounted to restrictive trade practice. In its reply, it said that the clauses imposing restriction on the dealers, did not amount to prohibitive trade practices within the meaning of the act.

Facts 

  • The supply of commercial vehicles in the case of TELCO 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. 
  • To meet the needs of the users of vehicles the appellant has a countrywide network of dealers who maintain service stations, workshops, requisite equipment, machinery and trained personnel.  
  • The appellant ensures that dealers, who have the requisite facilities and organisation to give after sale services, only sell the vehicles. 
  • The registrar made allegations against the TELCO Company under section 10 (a) (iii) for enquiry under section 37 with regard to the clauses 1, 3, 6 and 14 in the agreement, that the company is indulging in restrictive trade practices. 
  • In its reply, TELCO denied any of the clauses amounting to restrictive trade practices. 
  • At last, the Supreme Court of India held that the agreement in the present case was not within the realm of restrictive trade practices and was not registrable. 

Issues

Under Section 10(a)(iii) of this Act, the registrar, restrictive trade agreement made an application before the commission for enquiry under Section 37 of the Act into restrictive trade practices. 

The accusations in the petition were as follows: 

  • The clauses (1) and (3) of the agreements provide for territorial restriction or allocation of area or market between TELCO and its dealers. 
  • Provisions regarding resale price maintenance have been given under clauses (6) and (13). 
  • In addition, provision regarding exclusive dealership is contained in clause (14).
  • Clauses 1, 3, 6 and 14 display that the company is indulging in restrictive trade practices, relating to allotment of territories among its dealers and exclusive dealings and TELCO is not willing to forsake the prohibitive trade practices as set forth by the registrar  

 The application filed by the Registrar of Restrictive Trade Agreements under clauses 1, 3, 6 and 14 as regards to the case are as follows: 

  1. a)  From time to time, principle-to-principle basis the dealer agrees to buy from the Regional states office of the company regularly, bus chassis and Tata diesel truck with or without cab and/or body for resale within the territory in accordance with the provisions of this agreement.

b) The company shall not be prevented from getting into or continuing any dealership agreement with other person or persons within the said territory for sales of the said vehicles and resale by that person within the said territory. This does not  constitute the dealer within the agreement as a seller of the company within the said territory, much less a sole seller.

   3.  Either directly or indirectly, either alone or in concurrence with others, the dealer shall not sell any of the said vehicles to any party or persons or promote the sale of outside the said territory, nor shall sell the same to any person within the aforementioned territory, if the said vehicles are used outside the said territory.

6. (a) The dealer shall maintain at his own expenses, organisation for the sale of the said vehicles within the aforementioned territory. In the opinion of the company which shall be deemed to be necessary to adequately cover the said territory, which shall be binding and ensure the best possible results. 

14. The dealer shall not during the pendency of this agreement without the written permission of the company, either directly or indirectly promote or engage in the sale of or use, sell or handle any bus chassis, which is not supplied or produced by the company. 

TELCO in its reply denied any of the alleged clauses amounted to restrictive trade practice. 

TELCO set forth its reply as follows: 

Firstly, the clauses imposing restriction on the dealers, did not amount to prohibitive trade practices within the meaning of the act. Secondly, clauses 1 and 3 dealing with certain defined territories allocated are intended to avoid unfair and unequal distribution of the vehicles among the customers. Thirdly, clause 6 (1) (ii) which provides for reselling of goods below the maximum price fixed by TELCO cannot possibly result in restrictive trade practice. Fourthly clause 14 that restricts a distributor from dealing in products of other manufactures, would not amount to restrictive trade practices unless it has the effect of distorting, preventing, or restricting competition. 

TELCO finally says that none of the restrictions imposed in clause 1, 3, 6, and 14 are unreasonable. 

The question is whether the dealership agreement between TELCO and dealers whereby the dealers are not allowed to sell the commercial vehicles outside their zones, results in distorting or restricting competition in any manner; or does it 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. 

Related provisions 

Section 2(o) defines “restrictive trade practice” as a trade practice, which has, or may have, the effect of preventing, distorting or restricting competition in any manner. Specifically, which tends to hinder the flow of capital or resources into the stream of production. alternatively a trade practice, which brings about manipulation of costs, or conditions of delivery or to affect the flow of supplies within the market concerning goods or services in such manner as to impose on the consumers unjustified prices or prohibitions.

Clauses (a) and (d) in sub-section (1) of Section 33 (which talks about registrable agreements concerning restrictive trade practices) says that any agreement which restricts, or is probably going to limit , by any method the persons or classes of persons to whom goods are sold or from whom goods are brought and any agreement to get or sell goods or to tender for the sale or purchase of products only at prices or on terms or conditions prescribed between the sellers or purchasers. These clauses are relevant in the present case. 

Section 37 of act lays out that the commission may enquire into any prohibitive exchange practice, regardless of whether the agreement if any relating thereto has been enlisted under section 35 or not which may precede its enquiry and if after such enquiry it is of opinion that the practice is biased to the public interest, the commission may by order direct 

(a) The training will be ceased or will not be redone, 

(b) The agreement relating thereto will be void in regard of such prohibitive exchange practice or will stand changed in regard thereof in such way as might be determined in the order. 

Section 38 of the act provides that a prohibitive exchange practice will be esteemed as to be biased to the public interest except if the commission is contended of any at least one conditions referenced in that section. 

The circumstances referenced inter alia are these: 

  • The limitation is sensibly important with respect to the character of the products to which it applies to secure people in general against injury with regard to the consumption, or installation or use of the goods. 
  • The expulsion of the limitation would deny to people in general, as purchasers, consumers, or users of any goods, other explicit and generous advantages or favourable circumstances enjoyed or likely to be enjoyed by them as such, whether by virtue of the limitation itself or of any plans for activities coming about accordingly. 
  • The limitation is reasonably important to balance measure taken by any one individual not party to the agreement with the end goal of preventing or confining competition in or relation to the exchange or business in which the people thereto are engaged. 
  • The limitation is sensibly required for purposes in connection with the maintenance of some other limitation acknowledged by the party whether under the equivalent ‘agreement or’ under some other agreement between them, being a limitation which is discovered by the Commission not to be in opposition to the public interest upon different grounds other than determined in this paragraph. 
  • The limitation does not straightforwardly or by implication confine or discourage competition to any material degree in any applicable exchange or industry and is not probably going to do as such. 
  • The Commission is likewise to be satisfied,  as the limitation is sensible having respect to the balance between the circumstances and any hindrance to people in general or to people not party to the agreement being purchasers, buyers or users of products created or sold by such parties or people connected with or looking to get occupied with the exchange or business of selling such goods or of delivering or selling comparable products resulting or likely to result from the activities of limitation.

Judgement 

The commission said the exclusive nature of dealerships being confined to TELCO vehicles are not prejudicial to public interest. 

The Supreme Court of India, after considering and hearing all the facts and points of debates, held that the agreement in the present case was not within the realm of restrictive trade practices and was not registrable and in a given case sale of commodities being confined to a territory amounted to a prohibitive trade practice. However, in the special features, facts and circumstances of the exclusive dealership agreement between the TELCO and the dealers, the territorial restriction imposed on the sellers not to sell vehicles outside their territories is not a restrictive trade practice. 

Concepts highlighted 

  • An agreement will be registrable when it will have both the effect of restricting competition within the meaning of section 2(0) and also deal with the subject matter described in Sections 33(1)(a) to (l).
  • A practice which is not restrictive under section 2(0) of the act cannot be a restrictive ‘trade practice’ only because of clauses (a) to (l) of section 33 (1) 
  • The definition of restrictive trade practice is an exhaustive and not an inclusive one. 
  • The understanding whether a trade practice is prohibitive or not has to be found out by applying the rule of reason and not on doctrine that any restriction as to area or price will intrinsically be restrictive trade practice. 

Frequently Asked Questions 

  1. How does section 2(o) define restrictive trade practices?

 Section 2(o) defines “restrictive trade practice” as a trade practice, which has, or may have, the effect of preventing, distorting or restricting competition in any manner. Specifically, which tends to hinder the flow of capital or resources into the stream of production. alternatively a trade practice, which brings about manipulation of costs, or conditions of delivery or to affect the flow of supplies within the market concerning goods or services in such manner as to impose on the consumers unjustified prices or prohibitions.

  1. What does section 33 of the act provide? 

Section 33 of the act says that any agreement connected to a restrictive trade practice falling within one or more of the categories (a) to (l) shall be provided in sub-section (1) thereof shall be subject to registration.

  1. What is TELCO?

TELCO also known as Tata Engineering & Locomotive Co. Ltd, is a public limited company. It is a leading producer of heavy and medium commercial vehicles.

Reference

http://www.scconline.com/

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