Hindustan Lever LTD. , Bombay vs Monopolies And Restrictive Trade Practices Commission, New Delhi

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

1977 Supreme(SC) 181

SUPREME COURT OF INDIA
M.H. BEG, C.J.I. AND A.C. GUPTA, J.
M/s. Hindustan Lever Ltd., Bombay, Appellant
Versus
The Monopolies and Restrictive Trade Practices Commission, New Delhi and others, Respondents.
Civil Appeal No. 680 of 1976,
D/- 7-4-1977.
Advocates Appeared
Mr. L. M. Singhvi, Sr. Advocate (Mr. Ravinder Narain, Mr. Talat Ansari and Mr. Shir Narain, Advocates with him), for Appellant; Mr. L. N. Sinha, Sol, General, (M/s. B. Datta and Girish Chandra, Advocates with him) (for Nos. 1 & 2) and M/s. G. A. Shah and N. Nettar, Advocates (for No. 3), for Respondents.

Advocates:
B.DUTTA, G.A.SHAH, GIRISH CHANDRA, L.M.SINGHVI, L.N.Sinha, M.NATESAN, Ravindra Narayan, Shri Narain, Talat Ansari

Headnote:it is not only the actual practice of restriction which is struck by the act but also in the alternative a trade practice which may have the effect of preventing, distorting or restricting competition in any manner - agreement between re-distribution stockist and a manufacturer — clauses of such agreement whether amount to restrictive trade practice — applicability of sections 33(1)(6) and 38 of the act discussed - the definition of trade practice is wide enough to include any practice if it is in relation to the carrying on of a trade - vanaspati sold below the price fixed by the company — the stockist’s plea that the price had to be reduced to remove public discontent — held that motives of the stockist are quite irrelevant — manufacturer terminated the agreement because of reduction of price — so complaint by the stockist against the manufacturer - restrictive trade practice — categories mentioned in sections 33(1) are not statutory examples of restrictive trade practice - appeal under the provisions of this section — duty of counsel

Judgement Key Points

Certainly. Here are the key points from the provided legal document:

The appeal was filed under section 55 of the Monopolies & Restrictive Trade Practices Act, challenging the order of the Monopolies & Restrictive Trade Practices Commission regarding certain clauses in agreements with stockists (!) .
The core issue involved clauses in standard agreements between the manufacturer and its stockists, specifically clauses 5 and 9, which regulated resale prices and restrictions on distribution outside specified areas (!) (!) (!) .
The Commission modified clause 5 to clarify that stockists could charge prices lower than the maximum resale price and discontinued practices related to resale price maintenance and full-line forcing. Clause 9 was declared void, and restrictions on area distribution were to be discontinued (!) (!) (!) (!) (!) .
The Court emphasized that motives of the complainant (such as public discontent or personal reasons) are irrelevant; the focus is on whether the clauses or practices amount to restrictive trade practices under the law (!) .
It was held that the clauses in the agreements are trade practices themselves and, when capable of being used to unjustifiably restrict trade, they fall within the scope of restrictive trade practices (!) .
The definition of a restrictive trade practice is broad, including any practice that prevents, distorts, or restricts competition, whether directly or indirectly, and whether or not such practices are actually exercised (!) (!) .
The introduction of clauses conferring wide powers on the manufacturer to control trade, such as restricting the sale outside designated areas or dictating purchase and resale conditions, is a trade practice that can be inherently restrictive (!) (!) .
The Court applied a "rule of reason" approach, examining whether the clauses could be used to unjustifiably restrict trade, rather than applying a per se rule that any restriction is automatically illegal (!) (!) (!) .
The Court rejected the reliance on extraneous evidence of actual trade practices, emphasizing that the interpretation of the clauses and their potential to restrict trade is sufficient for legal analysis (!) .
The Court found that the wide powers granted by clauses 5 and 9 were unreasonable and could be misused to impede competition, thus justifying their invalidation or modification (!) (!) .
The order of the Commission was upheld, with the Court directing the appellant to amend existing agreements within a specified timeframe to remove or modify the illegal clauses, and to file an affidavit confirming compliance (!) .
The appeal was ultimately dismissed with costs, affirming the validity of the Commission’s order and emphasizing the importance of preventing restrictive trade practices in agreements (!) (!) .
The Court clarified that the operative agreements should be interpreted as if the illegal clauses were not included, and the company should take steps to inform all stockists of the correct legal position within the given timeframe (!) .

Please let me know if you need further analysis or specific legal advice based on these points.

Judgment

M .H. BEG, C.J.I. :- This is an appeal under S. 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 S. 10 (a) (iv) of the Act against the appellant M/s. Hindustan Lever Ltd. (hereinafter referred to as the Company), upon information furnished by Bhogilal Manilal Shah of M/s. Shah Manilal Motichand & Sons of Poona (hereinafter referred to as the informant).

2. 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. The agreement has 23 terms or clauses in it. The clauses complained of are 5 and 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 resale price which may from time to time be given by the Company or by the Companys 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. The Redistribution Stockist shall purchase and accept from the Company such stock as the Company shall at its discretion send to the Redistribution Stockist for fulfilling its obligations under this Agreement."

"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 parts of stocks of the products received by him outside the aforesaid town except when he is so expressly directed in writing by the Company. He shall also whenever so required by the Company make available from the stocks of Companys merchandise purchased by him such part as the Company directs him to do for purposes of resale on his behalf by the Companys employees".

3. It is alleged that the 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. Hence, 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.

4. 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 stand modified so that the following shall be substituted in place thereof:

"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 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 Companys 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 prac