Supreme Court of India
HINDUSTAN LEVER LIMITEDversusDIRECTOR GENERAL (INVESTIGATION AND REGISTRATION), NEW DELHI AND ANR.
- Citation
- 2001 INSC 18
- Decided
- 10 January 2001
- Disposal
- Appeal(s) allowed
- Bench
- B N KIRPAL
Holding
The MRTP Commission’s cease‑and‑desist order is void for violating the principles of natural justice as the appellant was not given a proper notice of the specific allegation concerning the termination of its agreement with Jain General Stores.
Summary
Hindustan Lever Ltd (the appellant) challenged a cease‑and‑desist order issued by the Monopolies and Restrictive Trade Practices (MRTP) Commission. The Commission had received complaints from former stockists alleging that the appellant engaged in restrictive trade practices such as tie‑ups, area restrictions and refusal to deal, and it issued a suo‑moto show‑cause notice under Sections 10(a)(iv) and 37 of the MRTP Act. The notice, however, did not disclose the material on which it was based nor specifically allege the termination of the appellant’s agreement with Jain General Stores. The appellant argued that this breach of the principles of natural justice rendered the order invalid. The Supreme Court held that the Commission failed to give a proper notice of the specific allegation concerning Jain General Stores, violating natural‑justice requirements, and therefore the order was contrary to law. The appeal was allowed and the Commission’s order was set aside.
Issues considered
- Whether the MRTP Commission complied with the principles of natural justice by providing a sufficient show‑cause notice specifying the allegation of termination of the appellant’s agreement with Jain General Stores.
- Whether the alleged practices constitute a ‘restrictive trade practice’ within the meaning of Section 2(o) of the MRTP Act, 1969.
- Whether a cease‑and‑desist order can be passed without giving the appellant an opportunity to meet the case against it.
Legislation cited
- Monopolies and Restrictive Trade Practices Act, 1969s. 10(a)(iv), s. 2(o), s. 37
Subjects
Restrictive trade practiceNatural justiceShow cause noticeMRTP ActCease and desist orderTermination of agreementCompetition law
Judgment
A HINDUSTAN LEVER LIMITED
v.
y -
DIRECTOR GENERAL (INVESTIGATION AND
REGISTRATION), NEW DELHI AND ANR.
JANUARY JO, 2001
B
[B.N. KIRPAL, RUMA PAL AND BRIJESH KUMAR, JJ.]
Monopolies and Restrictive Trade Practices Act, 1969: Sections 2(0),
JO(a)(iv) and 37.
c
Restrictive Trade Practice-Determination of-Cease and desist order-
.;:--
Principle ofnatural j11Stice-Applicability-Commission received complaints.from -.J
the erstwhile stockists of the manufacturer-After preliminary enquiry
Commission suo moto issued notice under S.JO(a)(iv) and S.37-No
information and material which formed the basis of the notice had been
D furnished to the manufacturer-Commission found manufacturer indulged in
restrictive trade practice and wrongly terminated its agreement with a
stockist-Correctness of-Held: Termination of agreement with the stockist
A
not mentioned in the show cause notice-Therefore, manufacturer not called
upon to meet any allegation in connection therewith-Principles of natural
E justice require that manufacturer is entitled to know the case it has to meet-
Where civil consequences are likely to result, principles of natural justice
have to be followed-The manufacturer should have been put to notice
thereof-Hence, the order of the Commission is contrary to law and set aside.
Wordv and Phrases:
......
F
"Restrictive Trade Practice"-Meaning of-Jn the context of S.2(o) of
the Monopolies and Restrictive Trade Practices Act, 1969.
The Monopolies and Restrictive Trade Practices Commission received
certain complaints from the erstwhile stockist of the appellant. After
G
preliminary enquiry the Commission issued suo moto notice under Section
10(a)(iv) and Section 37 of the Monopolies and Restrictive Trade Practices
Act, 1969 read with Regulation 58 of the Monopolies and Restrictive Trade
Practices Commission Regulations, 1974. The appellant contended before
the Commission that the information and material, which formed the basis
H 318
11.L.LTDv. DIR.GEN. INVESTIGATION AND REGISTRATION 319
- of the notice, had not been furnished to the appellant. The commission found
that the appellant had been indulging in restrictive trade practice with its
re-distribution stockists and that it wrongly terminated its agreement with
A
one J. Hence, this appeal.
Allowing the appeal, the Court
B
HELD: I. As the plain readinQ of the definition of"restrictive trade
'Y practice" occurring in Section 2(o) of the Monopolies and Restrictive Trade
Practices Act, I 969 itself discloses, and also as rightly understood by the
Commission in issuing the notice, there are two parts to the definition-one
which relates to carrying on of such trade practice which has or may have
the effect of preventing, distorting or restricting competition in any manner C
and secondly the carrying on of such trade practice which inter alia has the
e'rfect of imposing unjustified costs or restrictions on the consumers.
(323-E-FI
2. Neither in the show cause notice nor in the additional particulars, D
which were supplied to the appellant, was there any mention of termination
by the appellant of its stockist's agreement with J. The appellant was not,
therefore, called upon to meet any allegation in connection therewith. The
)!., particulars, which were supplied to the appellant, did inter alia relate to the
termination of other stockists' agreements. It is with respect to them that
in the reply filed by the appellant it gave reasons for the termination of the E
agreements and the Commission came to the conclusion that the termination
of agreement with those stockists was justified. (324-B-C(
3. Principles of natural justice would require that the appellant against
~ whom an order of cease and desist could be passed under the provisions of
the M.R.T.P. Act is entitled to know the case which it has to meet. Passing F
of an order like the present one results in civil consequences and it is now
well settled that in such an event principles of natural justice have to be
followed, It is for this reason that the Act and the Regulations required a
notice to show cause to be issued. The notice, which is issued, either itself
must provide, or an accompanying or subsequent document must indicate, to G
the person to whom notice is served, the case, which is required to be met.
It does appear that there was a complaint by J, which had been filed, with the
Commission and ifthe Commission wanted to take that allegation/complaint
into consideration, then the least, which could have been expected, was that
the appellant should have been put to notice thereof. This was not done. On
this ground alone, therefore, no order could be passed against the appellant H
320 SUPREME COURT REPORTS [2001) I S.C.R.
A in relation to the termination of its agreement with J.1324-F-G-H; 325-A-BI
';r -
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2457 of
1987.
From the Judgment and Order dated 4.8.1987 passed by the M.R.T.P.
B Commission, New Delhi in Enquiry No. 48 of 1983.
N.N. Goswami, Aditya Narain, Manish Misra, Brijesh Kalappa, C.V.
Subba Rao and P. Parmeswaran for the appearing parties.
The Judgment of the Court was delivered by
C KIRPAL, J. The challenge in this appeal is to a cease and desist order
passed by the Monopolies and Restrictive Trade Practices Commission (for
short "the Commission") against the appellant herein.
It seems that certain complaints by erstwhile stockists of the appellant
were received by the Commission. These stockists used to sell detergents,
D soaps, chemicals, etc., manufactured by the appellant and their grievance had
arisen by reason of their agreements having been terminated by the appellant.
A preliminary inquiry was conducted by the Director General of
Investigation & Registration whereupon a Restrictive Trade Practices Inquiry )t:
Notice No. 48/1983 dated 28th December, 1983 was issued to the appellant.
E This notice was issued by the Commission acting SU<( moto and in exercise
of the powers conferred on it under Section I O(a)(iv) and Section 37 of the
Monopolies and Restrictive Trade Practices Act, 1969 read with Regulation
58 of the Monopolies and Restrictive Trade Practices Commission Regulations,
1974. The relevant part of the said notice is as follows :
F "WHEREAS the Respondent above mentioned (Mis. Hindustan Lever
Limited) is the manufacturer of detergents, detergent cakes, chemicals,
bathing soaps, foods etc.;
AND WHEREAS it has come to the notice of the Commission that the
Respondent has been indulging in the following trade practices :-
G (i) Tie-up sales of soaps and detergents, manufactured by the
Company wliich are in demand;
(ii) Area restriction on redistribution stockists;
(iii) Re-sale Price Maintenance;
H (iv) Refusal to deal or supply;
H.L.L TDv. DIR. GEN.INVESTIGATION AND REGISTRATION [KIRPAL,.I.] 321
(v) Obtaining interest free and discriminatory security· deposits/ A
advance from dealers;
(vi) Discriminatory dealings with Dealers;
AND WHEREAS it appears to the Commission that the said trade
practices· have or may have the effect of preventing, distorting or B
restricting competition amongst the dealers and may have the effect
of imposing unjustified costs or restrictions on the consumers;
AND, THEREFORE, in exercise of powers conferred upon it by Section
IO(a)(iv) and Section 37 of the Monopolies and restrictive Trade
Practices Act, 1969, the Commission has ordered that an inquiry be C
instituted against the respondent above mentioned at its office at New
Delhi to enquiry into as to whether:-
(a) The Respondent above mentioned has been and/or is indulging
in the trade practices as alleged;
(b) the sa_id trade practices have or may have the effect of D
preventingldistorting or restricting competition;
(c) the said trade practices have or may have the effect of imposing
unjustified costs or restrictions on the consumers; and
(d) such trade practices are prejur;licial to public interest."
E
The appellant was required to inform the Commission if it wished to be
heard, failing which the Commission would proceed with the inquiry. The said
notice does not indicate that any document or complaint or report was
furnished to the appellant along with the said notice. According to the
appellant, and there does not appear to be any serious dispute about it, it
requested the Commission to supply to it the material or report on the basis F
of which the show cause notice had been issued. Along with an affidavit
dated 8th October, 2000, the appellant has placed on record in this Court a
... document containing further and better particulars which were supplied to the
appellant.
G
On the receipt of the said particulars, reply was filed by the appellant
to the show cause notice denying the allegations and the charge levelled
against it. In particular, it stated in the said reply that there had been a denial
of principles of natural justice because all information and material which was
available with the Commission on the basis of which the notice had been
issued had not been furnished to the appellant. H
322 SUPREME COURT REPORTS [2001) I S.C.R.
A Evidence was led, both oral and documentary, before the Commission
on the following issues which had been framed:
"(i) Whether the enquiry is not maintainable for the grounds alleged
,. -
by the Respondent in their reply dated 28.5.1984 to the Notice of
Enquiry dated 28th December, 1983;
B
(ii) Whether the respondent has been indulging in the Trade Practices
mentioned in the Notice of Inquiry dated 28th December, 1983;
(iii) If the answer to Issue No. (ii) is in the affirmative, then whether
the said trade practices are Restrictive Trade Practices within the
c meaning of Section 2(o) of the MRTP Act, 1969;
(iv) If answer to Issue No. (iii) is in the affirmative, then whether the
respondent is entitled to avai I of the gateways provided under Section ~
38(1) (a)(b) and (h) read with the balancing clause."
D By order dated 4th August, 1987, the Commission held as follows :
"74. Having held that the respondent has been indulging in the
restrictive trade practices of (1) tying up sales of its slow-moving
with fast-moving products and dictating its RSs to purchase such
goods and in such combination as the respondent may decide, and
E (2) terminating the stockist-ship of its stockists resulting in refusal to
deal with him, and having held that the presumption in regard to such
restrictive trade practices being prejudicial to public interest has not
been rebutted, we now proceed under Section 37(1) and direct the
respondent that the aforesaid restrictive trade practices shall be
discontinued and shall not be repeated. It logically follows that the
F
respondent shall restore the stockists ship of Mis. Jain General Stores,
Pulsudhar, the affected R.S. and resume dealings with him."
In the appeal which had been filed against the said decision of the
Commission, it has been contended by the learned counsel for the appellant
G that the said order of the Commission was not justified. On the contrary, Shri
N.N. Goswami, learned senior counsel for the Commission and Shri Sanjay
Parikh appearing for Mis. Jain General Stores contended that on the facts
found by the Commission the order was justified and no question of law really
arises for consideration by this Court.
H As we have indicated hereinabove, there were two reasons given by the
II.LL TD v. OIR. GEN. INVESTIGATION AND REGISTRATION [KIRPAL,.1.] 323
Commission for passing the order against the appellant. The sf.low cause A
notice mentions the trade practices which were alleged to have been followed
. by the appellant like tie-up sales of soaps and detergents, refusal to deal or
supply, etc., and then alleges that these trade practices appeared to the
Commission to have or may have the effect of preventing, distorting or
restricting competition amongst the dealers and may have the effect of B
imposing unjustified costs or restrictions on the consumers.
The aforesaid charge has been formulated in terms of the definition of
"restrictive trade practice" occurring in Section 2(o) of the M.R.T.P. Act
which, at the relevant time, was as under:
"(o) "restrictive trade practice" means a trade practice which has, or C
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
D
(ii) which tends to bring about manipulation of prices, or conditions
of 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 restrictions."
As the plain reading .of the said definition itself discloses, and also as E
rightly understood by the Commission in issuing the notice, there are two
parts to the definition-one is which relates to carrying on of such trade
practice which has or may have the effect of preventing, distorting or restricting
competition in any manner and secondly the carrying on of such trade
practice which inter alia has the effect of imposing unjustified costs or
restrictions on the consumers. F
The charge which the appellant was called upon to meet was that its
trade practices resulted in preventing, distorting or restricting competition
amongst the dealers and may have the effect of imposing unjustified costs
or restrictions on the consumers. Even though oral evidence had been led, G
the order of the Commission does not record any categorical finding to the
effect that the trade practices alleged to have been carried on by the appellant
had resulted in preventing, distorting or restricting competition amongst the
dealers. We need not go into the question whether terminating the agreements
of the dealers would result in the attraction of the provisions of Section 2(o),
but what we have to see is as to whether the appellant has been guilty of H
324 SUPREME COURT REPORTS [200 I] I S.C.R.
A preventing, distorting and restricting competiiion amongst the dealers which
was the allegation levelled against it. In the absence of such a finding and
there not being even a whisper in the order that any action of the appellant
had the effect of imposing unjustified costs or restrictions on the consumers,
the Commission fell in error in passing the order against the appellant.
B Furthermore, we find that neither in the show cause notice nor in the
additional particulars which were supplied to the appellant was there any
mention of termination by the appellant of its stockist's agreement with Jain
General Stores. The appellant was not, therefore, called upon to meet any
allegation in connection therewith. The particulars which were supplied to
C the appellant did inter a/ia relate to termination of other stockists' agreements
including that of M/s. Hiralal Bajaj and Sons. It is with respect to them that
in the· reply filed by the appellant it gave reasons for the tennination of the
agreements and the Commission came to the conclusion that the termination ...;
of agreement with said Bajajs was justified. It, however, found that the
agreement of Jain General Store was wrongly terminated and in respect
D thereof it observed as follows :
"5 8. In the context of the facts of the case of this RS we think that
even if the respondent did carry its scheme of rationalisation of
distribution system to reduce uneconomic outlets, there is
E preponderan~e of probability that he was covered by this scheme
mainly because he was protesting against the respondent's practice
of sending more slow moving goods and less of fast moving goods.
We, therefc.re, hold that as far as this RS is concerned, the respondent's
refusal to deal with him was a restrictive trade practice."
F Apart from the fact that the evidence on record does not show that
there was any protest by Jain General Stores to the appellant against the so-
called practice of sending more slow moving goods and less of fast moving
goods, we find that neither in the show cause notice nor in the additional
particulars was there any mention with regard to Jain General Stores. Principles
G of natural justice would require that the appellant against whom an order of
cease and desist could be passed under the provisions of the M.R.T.P. Act
is entitled to know the case which it has to meet. Passing of an order like
the present one results in civil consequences and it is now well settled that
in such an event principles of natural justice have to be followed. It is for
this reason that the Act and the Regulations required a notice to show cause
H to be issued. We would expect that the notice which is issued either itself
H.L.L TD v. DIR. GEN. INVESTIGATION AND REGISTRATION [KIRPAL,.l.) 325
must provide or an accompanying or subsequent document must indicate to A
the person to whom notice is served the case which is required to be met.
It does appear that there was a complaint by Jain General Stores which had
been filed with the Commission and if the Commission wanted to take that
allegation/complaint into consideration, then the least which could have been
expected was that the appellant should have been put to notice thereof. This B
was not done. On this ground alone, therefore, no order could be passed
against the appellant in relation to the termination of its agreement with Jain
General Stores.
For the aforesaid reasons, we are of the opinion that the order of the
Commission is contrary to law. We, accordingly, allow this appeal and set C
aside the said order.
Parties to bear their own costs.
v.s.s. Appeal allowed.
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