M/S VOLTAS LTD BOMBAY VS UNION OF INDIA &ORS

M/S VOLTAS LTD BOMBAY VS UNION OF INDIA &ORS

M/S VOLTAS LTD BOMBAY VS UNION OF INDIA &ORS

Author- Stuti Agarwal, School of Law, Christ (Deemed to be University)

Court- Supreme Court of India

Case No 2252 of 1994

Appellant – Voltas Limited, Bombay

Respondents – Union of India (UOI) & Ors.

Equivalent Citation – 1995 AIR 1881, 1995 SCC Sulp. (2) 498

Honourable Judges / Coram – A.M. Ahmadi, S. Mohan and N.P Singh, J.J

Introduction

The monopolies and Restrictive Trade Practices (MRTP) Act was passed by the Parliament on 18 December 1969 and came into force on June 1, 1970.  However, currently, this Act is not in force as it has been replaced by the Competition Act 2002 with effect from September 1, 2009. The Monopolies and Restrictive Trade Commission was replaced by the Competition Commission of India.

The MRTP Act was enacted on the recommendation of the Dutt Committee and extended to the whole of India except Jammu and Kashmir. The aim behind the enactment of this act was to check the concentration of economic power in the hands of few affluent people. The act helped to control monopolies and to prevent monopolistic and restrictive trade practices. 

This act is not applicable to companies or undertakings owned by the Government, any company established by any Central or State Act, trade unions, companies that are taken over by the Government, the companies which are registered as a cooperative society, or any financial institutions.

In the case of M/S Voltas Ltd, Bombay V Union of India, the court examined the practices which amount to ‘restrictive trade practices and also which are prejudicial to the public interest.

Facts of the case:

 In the case of M/S Voltas ltd V Union of India, the appeal was filed under Section 55 of the Monopolies and Restrictive Trade Practises Act, 1969 (further referred to as the Act) against the judgment passed by Monopolies and Restrictive Trade Practices Commission. The appellants had entered into the agreement with the respondents which are different companies regarding the distribution of different types of machinery and equipment within different parts of the territory of India.  The respondents which are different companies are engaged with manufacturing machinery and equipments, which under the specific terms and conditions of the agreements are to be distributed by the appellant as the Marketing Company. The appellant had been appointed as the sole importer of the machinery and equipment manufactured by the respondents.

On the 26th November 1986, the appellants were intimated through the issuance of a notice that some of the clauses of the agreement entered into by the appellants and the respondents contain conditions that amount to restrictive trade practices under clauses (a) and (c) of Section 33(1) of the Act. The notice issued under Section 10 (a) (iii) read with Section 37 of the Act mentioned that the terms and conditions of the agreement were violative of Section (1) (a) and (c) of the Act and its amounts to restrictive trade practices. The commission had directed the appellant to discontinue the restrictive trade practices as been mentioned in Notice of Enquiry and not to repeat the same act in the future. The commission further directed the appellant the objectionable clauses as mentioned in the notice to be removed within 8 weeks of receipt of the order.

The notice issued to the appellant on 26.11.1986 mentioned that the terms and conditions amounted to restrictive trade practices according to the Act-

  1. The goods of the seller shall not be sold by the buyer to any individual who is not residing or carrying on business within the territory, not to any individual who is residing or carrying on his business within the territory for the purpose of resale the goods by any individual outside the territory.
  2. The buyer of the said goods shall attempt to make his best efforts to promote the interests of the seller and specifically not deal in or sell goods that could compete with the goods of the seller.
  3. The seller agrees not to sell goods as has been mentioned before to any individual or any firm other than to the buyer within the territory and all the enquires and the orders shall be directed to the buyer. The seller shall not quote or not deliver the goods to any firm outside the territory for the purpose of import into the territory except with the consent of the buyer or terms agreed upon by the buyer.

Question before the court

  • Whether the terms and conditions of the agreement entered into by the respondents and appellants amounted to restrictive trade practice and was violative of Section  33 (1) of the Monopolies and Restrictive Trade Practices Act 1969?
  • Whether the terms and conditions of the Act were prejudicial to the interest of the public?

Laws involved

1) Section 2(o) of the Act defines restrictive trade practices.  It states that ‘restrictive trade practices’ means a trade practice that has or may have the effect of distorting, preventing, or restricting competition in any manner and in particular

  1. Which tends to obstruct the flow of capital or resources into the flow of production.
  2. Which tends to bring forth manipulation of prices or any condition of delivery or to hinder the flow of supply of goods into the market in a manner so as to impose unjustified costs onto the consumers or restriction.

2) Section 10 vests power with the Commission to inquire into restrictive trade practices

  1. Upon receiving any complaint of facts from any trade associations or consumers.
  2. Upon a reference made by the Central Government or any State government(s).
  3. Upon an application made by the Director-General.
  4. Upon its own knowledge or information.

3)  Section 33 of the Act mentions about registrable agreement regarding the restrictive trade practices (1) every agreement falling under one or more of the following categories shall fall under ‘restrictive trade practices’ and shall require registration under the said chapter namely:-

  (a) Any agreement which restricts or is likely to restrict by any means any individual or class of persons from whom goods are brought or to whom goods are sold.

 (b) Any agreement which imposes a condition on the purchaser of goods to purchase some other goods.

  (c)  Any agreement which restricts the purchaser in any manner during the course of his trade in any manner from acquiring or dealing in goods other than that of the seller or any person.

   (d) Any agreement which restricts the purchaser in any manner during the course of his trade in any manner from acquiring or dealing in goods other than that of the seller or any person.

     (e) Any agreement to grant or exercise any kinds of benefits or concessions including allowances, discount, credit, or rebates in connection with or by reason of its dealing.

     (f) Any agreement which imposes a condition on the purchaser that he shall sell the goods at a price stipulated by the seller or else it is explicitly stated that the price lower than the price stated can be charged

    (g) Any agreement which imposes a limit, restricts or withholds output or supply of goods, or specifically allocates any area or market for the disposal of goods.

    (h) Any agreement which restricts the employment or mentions not to employ any method, machinery, or process in the manufacture of goods.

    (i) Any agreement which mentions the dissociation of a person from any trade association who is carrying on or intends to carry on in bona fide faith the trade, in relation to which the trade association is formed.

    (j) Any agreement which states that the goods should be sold at a price which helps in eliminating competition.

    (ja) Any agreement which imposes restriction in any manner on the class or on the number of wholesalers, producers, or suppliers from whom the goods are to be purchased.

    (jb) Any agreement which mentions about the bids that any of the parties may offer at the auction for the sale of goods or  any agreement where any of the parties may abstain from bidding at nay auction for the sale of goods.

    (k) Any agreement where the Central Government may be notification states that a particular activity is considered as ‘restrictive trade practice’ within the ambit of Section 38.

    (l) Any agreement which enables in enforcing of carrying out of any agreement as mentioned in this sub section.

Clauses (a) to (l) of Section 38 mentions the agreements which amount to ‘restrictive trade practices’ and require registration according to the provisions of Chapter Ⅴ of the said Act.

4) Section 35 requires the Central Government to notify a day in the Official Gazette on and from which every agreement falling within the category of ‘restrictive trade practice’ shall become registerable.

5) Section 37 mentions that the Commission has the power to carry out an investigation into the ‘restrictive trade practices’- (1) It states that the Commission can investigate into any ‘restrictive trade practices’ whether or not it is registered under Section 35, if after the inquiry the commission is satisfied that agreement is prejudicial to the public interest, it may direct that the practice –

             (a) The practise shall be discontinued and shall not be repeated.

              (b) The agreement relating to ‘restrictive trade practice’ shall be void and shall stand modified in the manner stated in the order.

(6) Sub Section (1) of Section 33 has been substituted wherein a deeming clause has been inserted by the Parliament mentioning that every agreement which falls within one or more categories of said section (1) shall amount to an agreement related to ‘restrictive trade practices. While amending sub-section (1) of Section 33, the Parliament clarified that any agreement falling under the categories of clauses (a) to (l) of Section 33 shall be considered as agreements relating to restrictive trade practices. However, this was not the scenario before the amendment.

Judgement of the Court in brief:

The Supreme Court after scrutinizing the voluminous records and pleadings pertaining to the enquires, evidence produced by the parties, oral arguments and written submissions, and cases that are referred to by the parties are of the opinion that no case of the gateway as pleaded by the appellant (Voltas) under Section 38(1) has been made out. Further, the court stated that it is of the opinion that the respondents have indulged in ‘restrictive trade practices’ has been alleged in the Notice of Enquiry and those practices are clearly prejudicial to the public interest.

The Supreme Court was also of the opinion that the Commission should have gone deeper into the matter to examine whether the objectionable agreements were prejudicial to the public interest. The Supreme Court mentioned that the findings recorded by the Commission under the Section 37 and the directions which were issued under clauses (a) and (b) of Subsection (1) of Section 37 have a far standing effect. The Court said that every dimension of the matter has to be examined in the light of Section 37 and Section 38 before any order of ‘cease and desist’ is passed by the commission.

Therefore, the order passed by the Commission was set aside and the Court directed the Commission to examine the questions involved freshly on the basis of the material produced on the behalf of the parties. The court further stated that the Commission is to open to ask either of the parties to produce further evidence or oral documentary in order to enable it to come to a rightful conclusion.

Analysis of the Judgement

In this case, the Court has shed light on the agreements which amount to ‘restrictive trade practices and are prejudicial to the public interest.

In the following case, the counsel for appellants argued that in spite of the amendment in Sub Section 1 of Section 33, the power of the Commission or of the Court to investigate into the agreements which amount to ‘ restrictive trade practice’ cannot be curtailed. Section 37 of the Act vests power in the Commission to examine agreements relating to ‘restrictive trade practices. Firstly, the commission has to investigate that whether the objectionable agreement relates to ‘restrictive trade practices’ or not and if the commission is satisfied that that agreement falls with the ambit of Section 2(o) of the Act which defines ‘restrictive trade practices and is prejudicial to the public interest, it can direct that the practice shall be discontinued and shall not be repeated under any circumstance. Additionally, that objectionable part of the agreement shall be void.

The appellants majorly relied on two cases. Firstly, Tata Engg. Locomotive Co V Registrar (1977) 2 SCR 685, the judgment stated that exclusive dealership does not impede competition but promotes it. Secondly, Mahindra and Mahindra Ltd V Union of India (1979) 2 SCR 1038, the judgment helped in providing clarity regarding ‘restrictive trade practices’. It stated that once the Commission is satisfied regarding the ‘ restrictive trade practices’, further it has to consider whether any of the gateways mentioned in Section 38(1) exist so that even if a particular trade practice is found to be restrictive is deemed not be considered as prejudicial to the public interest.

In the case of M/S Voltas Ltd, Bombay V Union of India, the court held that the defendants engaged in trade practices that were restrictive as well as were prejudicial to the public interest.

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