Decided on June 10,1996



S. Chakravarthy, Member - (1.) UPON an application preferred by the Director-General of Investigation and Registration under Section 10(a)(iii) of the Monopolies and Restrictive Trade Practices Act, 1969, the Commission issued a notice of enquiry (NOE) on April 6, 1988, charging the respondent, UB-MEC Batteries Ltd., of having indulged in certain restrictive trade practices within the meaning of Section 2(o) and Section 33 of the Act. The facts of the case as reported by the Director-General of Investigation and Registration (DG) are summarised herein below : UB-MEC Batteries Ltd., the respondent company, is engaged in the business of automotive and traction batteries, train lighting and cells. The respondent-company as a part of its marketing arrangement introduced a "discount system" for its wholesalers. In terms of the system, a flat discount of 25% is allowed on the list price to all the wholesalers except to Economy Agencies, Bombay and Surat, which is allowed a discount of 30 per cent. The system offers a turnover discount of 2 per cent. on six monthly targets and an additional discount of 1 per cent., if the wholesalers achieve "both the six monthly targets". The Director-General stated that allowing target linked discounts and allowing different rates of discount to different parties are restrictive trade practices falling within the mischief of Clause (e) of Section 33(1) of the Act. He has also stated that the price Mst issued on February 16, 1987, by the respondent does not stipulate that the goods can be sold at prices lower than those stipulated therein, thus, attracting Clause (f) of Section 33(1) of the Act.
(2.) The application of the Director-General is the basis on which the notice of enquiry was issued to the respondent on April 6, 1988, indicting the respondent of having indulged in restrictive trade practices within the meaning of Section 2(o) and Section 33(1) of the Act. The respondent on receipt of the notice of enquiry furnished its detailed reply in the Commission. It has made the following averments in its reply : (1) The discount system and price list referred to by the Director-General apply only to the wholesalers and not dealers and retailers. Thus, a mere declaration of discounts and prices applicable to the wholesalers without any obligation on the wholesalers to enforce the same on the dealers, retailers and consumers does not constitute any restrictive trade practice. (2) The price list in footnote 7 permits the wholesalers/dealers to sell batteries at prices lower than the suggested maximum retail prices and, therefore, does not attract the MRTP Act. (3) The application of the Director-General does not spell out the facts and features pertaining to the alleged restrictive trade practices and is, therefore, liable to be dismissed. (4) The respondent-company has been subject to "acute financial difficulties" and has been facing liquidation. A scheme was devised to reconstruct the company and the Industrial Reconstruction Bank of India (IRBI) as the lead institution provided financial assistance to meet its short-term working capital requirements and to tide over the "immediate and pressing difficulties", United Breweries Limited Company purchased the shares of the respondent. Thereupon, the company became a subsidiary of the United Breweries Ltd. (5) The company has been declared by the State Government as a relief undertaking. (6) The company has been facing "stiff competition" from well established manufacturers of batteries like Chloride, Amco, Standard,. Willard, etc., and also from the small manufacturers in the unorganised sector. (7) The discount scheme in question has resulted in improving the sale of the respondent's products considerably allowing it to make "marginal cash profits". (8) Under the discount scheme, all the dealers are allowed a uniform discount of 25%. In addition, the scheme allows a turnover discount of 2% linked to six monthly targets and an additional discount of 1% on achieving "both the six monthly targets". Thus, all dealers who achieve the turnover are uniformly entitled to receive the turnover discount of 3%. (9) Economy Agencies is allowed the additional 3% discount in advance since "the said dealer has been achieving the prescribed target in the past". However, if the said dealer, Economy Agencies fails to achieve the target, it will not be entitled to the additional discount. (10) A further discount of 2% is allowed to Economy Agencies as the batteries are sent to the said dealer in an "unpacked condition". The cost of packing saved by the respondent is, thus, passed on to the said dealer. In respect of the other dealers, the batteries are sent in "packed condition". (11) The respondent's share in the replacement battery market is only 1.45% in the organised sector according to the All India Automotive Batteries Market Survey for the year 1987-88. Its share in the organised as well as the unorganised sector is not more than 3%. Thus, the discount scheme is only to promote healthy competition and does not constitute a restrictive trade practice. (12) If the discount system is discontinued, the dealers will find it uneconomical to deal with the respondent's products and the respondent is not in a position to take up direct sales as it does not have the "necessary infrastructure". (13) There is a large work force with the respondent and unless the discount scheme is operated and the sales are good, the company cannot survive. Thus, the respondent is entitled to gateways provided in Section 38(1)(b) and (e) of the Act. (14) The restrictive trade practice, if at all it exists, does not directly or indirectly affect competition to any material degree, thus entitling the respondent to the gateway under Section 38(1)(h) of the Act.
(3.) THE respondent has prayed that on the grounds of preliminary objections (1, 2 and 3 above) and on its reply on the merits, the notice of enquiry may be discharged.;

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