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Appeal No. 1117(NCM) of 1976.
(From the Judgment dated the 25.7.1975 of the Monopolies & Restrictive Trade Practices Commissioner New Delhi in R.T.P.E. No. 1 of 1974) N.A. Palkhivala, F.S. Nariman, Ashok H. Desai, Ravinder Narain, B. Dadachanji, O.C. Mathur, section Swarup, Talat Ansari, Shri Narain, John and D.N. Mishra, for the Appellant.
Lal Narain Sinha, Mrs. Shayamla Pappu, G.A. Shah, R.N. Sachthey, Girish Chandra and B.B. Sawhney, for the Respond ent.
R. Narain, J B. Dadachanji, O.C. Mathur, section Swarup, Talat Ansari, Interveners for M/s. Hindust*an Livers Ltd., Ashok Leyland Ltd. Escorts Ltd. K. J. John, for M/s. Hindustan Livers Ltd. Anil B. Divan, R. Narain, LB.
Dadachani, O.C. Mathur, section Swarup, Talat Ansari, section Narain, Interveners for CIBA Geigy of India Ltd. Ashok, M. Desai R. Narain J.
B. Dadachanji, O.C. Mathur, Talat Ansari, section Swarup & D.N. Mishra, Interveners for Batliboi & Co. (P) Ltd. The Judgment of the Court was delivered by RAY, C.J. This appeal is under Section 55 of the Monop olies and RestrictiveTrade Practices Act, 1969 (referred to as the Act) against 688 the judgment and order of the Monopolies and Restrictive Trade Practices Commission (referred to as the Commission) dated 25 July, 1975.
The principal question for consideration in this appeal is whether the agreement between the appellant referred to as Telco and its dealers allocating territories to its deal ers within which only the dealers can sell bus and truck chassis referred to as the vehicles produced by the company constitute a "restrictive trade practice".
Section 2(o) of the Act defines "restrictive trade prac tice" to be a trade practice which has, or 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 produc tion or (ii) which tends to bring about manipulation of prices, or conditions or 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.
Section 33 of the Act provides that any agreement relat ing to a restrictive trade practice falling within one or more of the categories (a) to (1) specified in sub 2section(1) thereof shall be subject to registration.
Section 37 of the Act provides that the Commission may enquire into any restrictive trade practice, whether the agreement, if any, relating thereto has been registered under Section 35 or not which may come before its enquiry, and if, after such enquiry it is of opinion that the prac tice is prejudicial to the public interest the Commission may, by order direct that (a) the practice shall be discon tinued or shall not be repeated; (b) the agreement relating thereto shall be void in respect of such restrictive trade practice or shall stand modified in respect thereof in such manner as may be specified in the order.
Section 38 of the Act provides that a restrictive trade practice shall be deemed to be prejudicial to the public interest unless the Commission is satisfied of any one or more circumstances mentioned in that section.
The circum stances mentioned inter alia are these.
The restriction is reasonably necessary having regard to the character of the goods to which it applies to protect the public against injury in connection with the consumption, or installation or use of these goods.
The removal of the restriction would deny to the public.
as purchasers, consumers or users of any goods, other specific and substantial benefits or advantages enjoyed or likely to be enjoyed by them as such, whether by virtue of the restriction itself or of any arrangements for operations resulting therefrom.
The restriction is reasona bly necessary to counteract measure taken by any one person not party to the agreement with a view to preventing or restricting competition in or in relation to the trade or business in which the persons thereto are engaged.
The restriction is reasonably required for purposes in connec tion with the maintenance of any other restriction accepted by the parties whether under the same 'agreement or ' 689 under any other agreement between them, being a restriction which is found by the Commission not to be contrary to the public interest upon other grounds other than specified in this paragraph.
The restriction does not directly or indirectly restrict or discourage competition to any materi al degree in any relevant trade or industry and is not likely to do so.
The Commission is also to be satisfied that the restriction is reasonable having regard to the balance between the circumstances and any detriment to the public or to persons not parties to the agreement being purchas ers, consumers or users of goods produced or sold by such parties or persons engaged or seeking to become engaged in the trade or business of selling such goods or of producing or selling similar goods resulting or likely to result from the operations of restriction.
The expressions purchasers, consumers and users include persons purchasing, consuming or using for the purpose or in course of trade or business or for public purposes.
Section 38 of the Act is described in the phraseology of restrictive trade practices as providing "gateways" to trade.
The essence of the section is that when it is found by the Commission that such restrictions are necessary or justified in the circumstances mentioned in the section restrictions are permitted.
Again the balancing clause after clause (h) in section 38 of the Act, indicates when the restriction is not unreasonable having regard to the balance between the circumstances mentioned in the section and detriment to the public resulting from the operation of the restriction.
Telco is a public limited company and is a leading manufacturer of heavy and medium commercial vehicles.
The capital investment required for a new factory in this trade is of a high order.
At present there are only four princi pal manufacturers of commercial vehicles.
These are The Hindustan Motors Ltd., Premier Automobiles Ltd. and Ashok Leyland Ltd. and Telco.
The supply of commercial vehicles is said to be below the demand.
The scarcity of supply is particularly accentu ated in the case of Telco 's vehicles as they are in great demand all over the country and abroad.
The export of Telco was over 80% of the total exports of commercial vehicles from the country during the year 1974 75.
The marked consumer preference for Telco 's vehicles has been maintained because of the high quality if its products and also because of elaborate and comprehensive net work of after sales service provided by Telco 's dealers.
Telco has of its own initiative introduced.
certain procedures for a fair and wide geographical distribution of its vehicles which seek to ensure that the new vehicles are supplied not only to the urban areas of the country where there is a high demand ' but also to the remote areas such as Tripura, Naga land, Himachal Pradesh etc.
Telco has notified to its dealers the maximum price for each model of vehicle which they could charge to consumers.
In May, 1972 Telco intro duced a procedure to regulate the booking of 690 orders by its dealers and effecting the delivery of vehicles against such orders with a view to ensuring distribution of its vehicles in the chronological order in which orders had been registered with the dealers.
When Telco sells vehicles it has the responsibility of providing facilities for servicing and repairing the vehi cles marketed by it.
It is essential that in the interest of the consumers such facilities are widely distributed throughout the country.
Even in remote areas where the demand of new vehicles is less, it is necessary to provide facilities for after sales service in order to enable the owners of the vehicles to keep them in operation.
These facilities are provided by Telco through all India net work of 68 dealers, 69 service centres of sub dealers and 13 zonal offices of Telco.
Each dealer has to maintain premises for a show room and ' a service station and to keep special tools as welt as a comprehensive range of spare parts supplied by Telco.
Further a dealer has also to employ technically qualified personnel some of whom have been trained by Telco in its Apprentice School at Jamshedpur.
In addition Telco maintains its own staff of trained engineers and mobile vans in each of its zonal offices.
The Registrar, Restrictive Trade Agreements made an application under Section 10(a) (iii) of this Act before the Commission for enquiry under Section 37 of the Act into restrictive trade practices alleged therein.
The allega tions in the petition were these.
Clauses (1) and (3) of the agreement between Telco and its dealers provide for territo rial restriction or allocation of area or market and clauses 6 and 13 provide for resale price maintenance and clause 14 provides for exclusive dealership.
The Registrar submitted that Clauses 1, 3, 6 and 14 show that the company is in dulging in restrictive trade practices inter alia relating to allotment of territories/areas among its dealers and exclusive dealings and Telco is not willing to abandon the restrictive trade practices.
It is significant to notice that no 'particulars of such alleged restrictive trade practices were set out in the application.
Clauses 1, 3, 6 and 14 in so far as they are appropriate to the present appeal are as follows : "1.
(a) The Dealer agrees to buy from the Regional Sales Office of the Company regularly from time to time on principal to principal basis all such new Tata diesel truck and bus chassis with or without cab and/or body (hereinafter referred to as "the said vehi cles", for resale within the territory de scribed hereunder (hereinafter called "the said territory") in accordence with the provisions of this.
Agreement.
(b) This Agreement shall not preclude the Company from entering into or continuing any dealership agreement or agreements with any other person or persons within the said terri tory for sale of the said vehicles and resale by 691 that person thereof in the said territory, this Agreement with the Dealer does not con stitute him a selling agent of the Company in the said territory, much less a sole selling agent.
The Dealer shah not, either directly or indirectly and.
either alone or in conjunction with others, promote the sale of or sell any of the said vehicles to any person or party outside the said territory, nor shall ' he sell the same to any person within the said terri tory if the said vehicles are intended to be used outside the said territory.
(a) The Dealer shaH, at his own expense, maintain within the said territory such organ isation for the sale of the said vehicles as may, in the opinion of the Company which shall be binding, be deemed to be necessary to adequately cover the said territory and ensure the best possible results.
Except with the written permission of the Company first obtained, the Dealer shall not during the pendency of this Agreement either directly or indirectly engage in or promote the sale of or use, handle or sell any truck or bus chassis, which is not manufactured or supplied by the Company.
" Telco denied that any of the alleged clauses amounted to restrictive trade practices.
Telco submitted as follows: First, though alleged clauses imposed restrictions on the dealers these did not amount to restrictive trade prac tices within the meaning of the Act.
Second, Clauses 1 and 3 which deal with certain defined territories allocated to the dealers are intended to avoid unequal and unfair distribution of the vehicles among the customers.
Third, any restriction as to maximunm price at which goods can be resold to the Telco 's dealers particularly when Clause 6 (1) (ii) specifies what is implicit therein, namely, that the dealer may sell below the maximum price fixed by Telco cannot possibly amount to restrictive trade practice.
Fourth, Clause 14 which prohibits a distributor from dealing in products of other manufacturers would normally not be restrictive trade practice unless there are special circumstances which exist and indicate that the agreement has the effect of preventing, distorting or restricting competition.
Telco finally submits that none of the restrictions imposed in Clauses 1,3,6, and 14 are unreasonable having regard to the balance between the circumstances set out in section 38 of the Act and any alleged detriment to the customers of Telco and or the competitors of Telco allegedly resulting or likely to result from the operation of these restrictions.
10 112SC1/77 692 The Commission held that the moment an agreement con tained a trade practice falling within any of the clauses in Section 33(1) of the Act, the trade practice must be regard ed as a restrictive trade practice.
The Commission held that all the clauses alleged in the petition of the Regis trar amounted to restrictive trade practices.
The Commis sion further said that in regard to Clauses 6 and 13 in the light of the assurance given by Telco that in its future price lists it would specifically state that the dealer is free to charge on the resale of Telco 's vehicles, prices lower than the maximum prices fixed by Telco, no order was required to be passed regarding the alleged practice of maintenance of minimum resale prices.
The Commission further held that although the contractu al term that the dealers, could deal only in Telco 's vehi cles was a restrictive trade practice, it was not against public interest as it fell within subclauses (a), (b) and.
(h) and the balancing clause of Section 38(1) of the Act.
The Commisssion however held that the practice of allo cation of territories to Telco 's dealers was not justified.
In the result the Commission declared that Clauses 1 and 3 of the Agreements in so far as they related to allocation of any territory or area or market to any of the dealers for the distribution of the vehicles constituted restrictive trade practice and, therefore, void and restrained Telco from continuing or repeating the practice.
Before the Commission Telco contended that the applica tion of the Registrar was not in accordance with Regulation 55 of the Monopolies and Restrictive Trade Practices .Com mission Regulations, 1974, referred to as Regulations.
Under the Regulations an application under section 10(a)(iii) of the Act must contain facts which, in the Registrar 's opinion, constitute a restrictive trade practice and, if it is in relation to any agreement, set out, such portions of the agreement as may be necessary to bring out the facts complained of.
It has to be stated that in the present case Telco is right in contending that beyond making mere references to clauses of the agreement and bald allegations that the clauses constitute restrictive trade practice, no facts or features are set out in the petition to show or establish as to how the alleged clauses consti tute restrictive trade practice in the context of facts.
The Solicitor General contended as follows.
First, the definition of restrictive trade practice includes all trade practices permissible or forbidden provided they restrict competition or even tend to restrict competition.
The instances set forth in the definition of restrictive trade practice emphasize the factors which go to establish a restrictive trade practice.
Clauses (i) and (ii) in Section 2(0) of the Act afford graver instances of restrictive trade practice.
Second, Section 33 of the Act requires an agreement falling within the Clauses thereof to be registered.
In short an agreement which amounts to a restrictive trade practice will be first registered and then 693 an enquiry will be made under Chapter VI of the Act as to whether the restrictive trade practice is prejudicial to the public interest.
Irrespective of the injurious or beneficial consequence of a trade practice which restricts or may restrict competition, it may fall within the defini tion.
Injurious or beneficial result of the restriction is relevant only for purposes of Sections 37 and 38 of the Act.
Section 33 of the Act states that any agreement relat ing to a restrictive trade practice falling within one or more of the categories mentioned therein shall be subject to registration in accordance with the provisions of Chapter V of the Act.
Clauses (a) and (d) in subsection (1 ) of Section 33 are relevant in the present case.
These are, inter alia, (a) any agreement which restricts or is likely to restrict by any method the persons or clauses of persons to whom goods are sold or from whom goods 'are bought and (d) any agreement to purchase or sell goods or to tender for the sale or purchase of goods only at prices or on terms or conditions agreed upon between the sellers or purchasers.
The definition of restrictive trade practice is an exhaustive and not an inclusive one.
The decision whether trade practice is restrictive or not has to be arrived at by applying the rule of reason and not on that doctrine that any restriction as to area or price will per se be a re strictive trade practice.
Every trade agreement restrains or binds persons or places or prices.
The question is whether the restraint is such as regulates and thereby promotes competition or whether it is such as may suppress or even destroy competition.
To determine this question three matters are to be considered.
First, what facts are peculiar to the business to which the restraint is applied.
Second, what was the condition before and after the re straint is imposed.
Third ' what is the nature of the re straint and what is its actual and! probable effect.
Section 33(1) of the Act deals with registration of certain types of restrictive trade practices which have the subject matter described in categories mentioned in clauses (a) to (1) of Section 33(1) of the Act.
An agreement will be registrable, when it will have both the effect of re stricting competition within the meaning of Section 2(0) of the Act and also deal with the subject matter described in Clauses, (a) to (1) of sub section (1) of Section 33 of the Act. 'Clauses (a) to (1) aforesaid describe some species of agreement which require registration.
if they .are within the genus of restrictive trade practice defined in Section 2(0) of the Act.
A practice which is not restrictive under section 2 (0) of the Act cannot be restrictive trade prac tice only because 0f Clauses (a) to (1) of sub section (1) of Section 33 of the Act.
Section 33 does not provide statutory illustrations to Section 2(0) of the Act but only enumerates some types of trade practices which.
if they are restrictive within Section 2(0) of the Act require registra tion.
Section 33 fixes categories of restrictive trade prac tices.
Section 33 states that any agreement relating to a restrictive trade practice falling within one or more of the categories mentioned therein shall 694 be subject to registration.
Therefore, before an agreement becomes registrable it has to be a restrictive trade prac tice in accordance with the definition of Section 2(0) of the Act.
At the threshold it has to be found out whether an agreement constitutes a restrictive trade practice.
In Section 33 it is stated, for example, that any agreement which restricts, or is likely to restrict, by any method the persons or clauses of persons to whom goods are sold or from whom goods are bought is one of the categories of a regis trable restrictive trade practice.
In the present case it has to be found out first whether the agreement of exclusive dealership between Telco and the dealers containing the restriction on the dealer not to sell the commercial vehi cles of Telco in other territories falls within the vice: of a restrictive trade practice.
Under the Act, action can be taken against a restric tive.
trade practice.
Therefore, when the authorities under the Act want to challenge any agreement or any prac tice as a restrictive trade, practice, it has t0 be estab lished that it is a restrictive trade practice within the definition of the Act.
If it is found to.
be a restrictive trade practice, the next stage is to register agreements relating to a restrictive trade practice.
Section 33 states that any agreement relating to a restrictive trade practice failing within one or more of the categories mentioned.
therein shall be subject to registration.
The authorities have to examine the agreement and find out whether it fails within the vice of a restrictive trade practice before the authorities can ask that the agreement be registered under Chapter V of the Act.
It is only after an agreement has been registered that there is an enquiry under Chapter VI of the Act.
This enquiry under Section 37 0f the Act is to find out whether a restrictive trade practice is prejudicial to the public interest.
Section 38 of the Act lays down the circumstances under which a restrictive trade practice is presumed to be in the public interest and not to be deemed to be prejudi cial to the public interest.
In the present case the question is whether the dealer ship agreement between Telco and the dealers whereby the dealers are not permitted to sell the commercial vehicles outside their zones amounts to a restrictive trade practice.
The questions posed are: Does it prevent distort or restrict competition in any manner; Does it affect the flow of sup plies in the market relating to goods or service in such manner as to impose on the consumers unjustified costs or restrictions.
The evidence about the features of the trade is this.
The medium, and heavy vehicles in the trade are restricted to those licensed by Government for manufacture in the country.
The capital investment required for a new factory is of a very high order, namely, almost Rs. 100 crores.
At present the only manufacturers of commercial vehicles are Telco which produces Tats Vehicles, Hindustan Motors Ltd., which produces Hindustan Vehicles, Premier Automobiles, which produces Premier Vehicles and Ashok Leyland Ltd., which produces Leyland vehicles.
The supply of commercial vehicles is far below 695 the requirement of the industry.
The gap between the demand and the supply is increasing with the passage of time as the trade is developing at a faster pace than the growth in the number of vehicles produced.
The Government of India esti mated during the year 1974 75 the production of 56,300 ' medium and heavy vehicles.
The production, however, is now likely to be of the order of 35,000.
The Fifth Five Year Plan for the production is said to be increased to 80,1.0,0.
It is said that against this target the installation capaci ty today is 46,300 vehicles.
Even if the expansion pro gramme is fully implemented the installed capacity by the end of the Fifth Five Year Plan will be only 66,975 vehicles per year.
The scarcity which is a feature of this trade is accen tuated in the case of Telco 's vehicles because they are in great demand all over the country and even in the export market. ]n 1974.
it is said that Telco exported vehicles amounting to 86% of the total export from the country.
The export earnings are said to be Rs. 7.29 crores for 1101 vehicles.
At the time of arguments it was suggested that Telco exports now vehicles worth Rs. 10 crores.
The clauses relating to territorial restriction in the present case do not constitute restrictive trade practice for the following reasons: The domestic market in India is spread over this vast sub continent with very divers conditions of roads, popula tion and demand.
It is essential for the community, the consumer and the manufacturer to have an equitable geograph ical distribution of his vehicles.
Vehicles may be required for operation in any part of India and public interest requires that the channels of communication should be open throughout the country.
These vehicles should ply even in the remotest areas like Ladakh, Nagaland, etc.
A user of Telco vehicles expects to get all over the country the service of a high standard enjoined by Telco upon its dealers.
Telco on its part also needs a country wide network of dealers so that sales take place and the dealers can maintain the service stations, spare part stocks and workshops with the requisite equipment, machinery and trained personnel all over the country.
This also enables the consumers to rely on Telco 's vehicles since they in turn can expect services, repairs and spare parts all over India.
Telco has thus to ensure an all India network of dealers, including those which will serve remote areas.
It is evidence that commercial vehicles is a highly complex mechanical product.
When Telco sells a vehicle it also.
has a responsibility that the vehicle is kept running and maintained in the optimum condition Telco must preserve its reputation and ensure that the vehicles are only sold by dealers who have the requisite facilities and organisation to give the proper after sales service.
Unlike most consum er products, a commercial vehicle involves a continuous relationship between a dealer and a consumer.
The consumer looks to the dealer, for keeping the vehicle running and for all attendent facilities like 696 service stations, workshops and spare parts.
Reliability and repair of a vehicle, which represents a substantial invest ment for the consumer, is vital also to the public as a whole and there must be constantly available throughout the country a network of dealers with adequate repair and main tenance service.
Even before the delivery of a commercial vehicle to the consumer, there is a meticulous pre delivery inspection and service by the dealer.
After delivery, Telco gives three free services.
Telco also gives a war ranty for a period of six months from the date of registra tion or 12 months from the date of delivery of vehicle from the factory or for a period in which the vehicle has run for a distance of 32,0.00 kilometers, whichever expires earlier.
There are outstanding distinctions between a car dealer and a commercial vehicle dealer.
The peculiar characteris tics of dealers ' in commercial vehicles are these:The pur chase of a car in India rarely represents the substantial or the bulk of the investment of a purchaser.
The purchase of a commercial vehicle, however, represents the substantial and often the only capital investment of the owner.
A chassis manufactured by Telco is sold to the customer at almost a lakh of rupees and the body costs him about Rs. 15,000/ for a truck and about Rs. 40,000/ for a bus.
Over 80% of per sons owning trucks are individual owners having not more than two trucks and mostly only one truck.
The vehicle is normally constantly on the road and is put to the maximum possible use with often more than one driver plying it.
Thus a vehicle plies on an average over a lakh of kilometers per year.
The heavy investment also makes it necessary that a vehicle should be constantly on the move.
The owner can ill afford to waste time and requires easily accessible and prompt Service Stations, Workshops and stocks of spares.
The purchaser regards the .truck as a life time investment.
The purchaser looks to the dealer for prompt after sales service and repairs.
Since 80% of truck operators are individual operators and often have scant mechanical knowl edge, they have to depend upon the dealer for keeping the truck moving with the necessary trained personnel, work shop, service stations and stocks of spares.
As a result of these characteristics, the relationship between a dealer and the truck purchaser is much more constant than with the car purchaser.
The standard of service he expects is more vigorous and prompt.
Vehicles of Telco are in keen demand, both because of their quality as also because of the assurance of efficient after sales service, by the network of Telco dealers.
These requirements cannot be met unless there is a network of dealers with specific territories.
It is essential from the angle of the consumer, Telco and the public that there should be widest and equitable geographical distribution of the vehicles of Telco.
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 determent of the remote, areas or sami urban areas.
The consumer also plies trucks all over the country and expects that where ever he goes, whether to Kerala or Assam, there should be a dealer, a service station, a workshop, trained personnel and spare parts which can attend to Telco trucks.
697 Urban area centres like Bombay, Delhi and Calcutta, have a very large demand as compared to the rest of the country.
But at the same time Telco.
has to ensure sales in places like Kashmir, Nagaland.
and Tripura, where the demand is much less.
In fact, in some of these areas, there are no alternative means of communication and transport like rail ways and the life of the community is largely dependent upon road transport.
Even where the demand is less, there has to be a dealer with the necessary facilities and organisation for after sales service Telco appoints dealers.
for different territories in India.
The geographical network is natural to the industry itself.
The purchaser will purchase and get his vehicle serviced in his own territory.
The purchaser looks to a dealer in his own territory with whom he has relationship and who will give him credit facilities, who will render after sales service and from whom he can purchase spares, who will handle warranty claims and with 'whOm he can have constant relationship for purchases in future.
Unless a 'dealer is assured of customers in his own area and zones; he will not have the necessary incentive to maintain the optimum level of service stations, workshops and spare part stocks, nor can the dealer plan his resources including technical personnel, capital equipment and financial resources for his future commitment.
Telco regards after sales service of crucial importance to serve its consumers.
It is natural and cheaper for a purchaser to buy and service his vehicles in his own terri tory.
After sales service of Telco is fairly elaborate and complex and it is because of the standard of this service that Telco has been 'able to maintain the reputation.
Each, dealer is required to provide one premises for show room, service station, workshop, spare parts, shop, canteen and also (a) rest house for drivers; (b) equipment and machinery for maintenance and repairs; (c) set or sets of special tools specially designed for carrying out repairs to Telco 's vehicle; (d) Technical personnel including person nel trained by the appellant at its factory in Jamshedpur and.
(e) adequate stock of spare parts to meet the potential demand in the territory.
Telco has set up 13 zonal offices throughout India at New Delhi, Kanpur, Ahmedabad, Indore, Bombay, Bangalore, Madras, Vijyawada, Bhubaneshwar, Jamshedpur, Gauhati, Jul lunder and Jaipur.
If the territorial restriction is re moved, there will be a tendency for persons to book orders in areas thus starving the consumers of that area of their equitable share and disrupting the flow of vehicles in both areas.
This will create pockets of artificial scarcity and dislocate the network.
If the dealer is not assured of a steady demand in his territory, he may have no incentive or may not find it economic to organise proper after sales service.
This would also result in dealers diverting their supplies to metro centres starving the semi urban and rural areas.
Network of dealers and service stations has a direct relation with the territorial assurances given to each dealer.
It is as a result of such assurances that a dealer is able to maintain the whole chain of dealership network, service stations, stocks of spare parts, trained per 698 sonnel, equipment, special tool kits and given the optimum service as laid down by Telco to its vehicles.
Some of the dealers have even maintained mobile service vans.
The dealer has to invest a large amount in providing all these facilities.
The dealer is familiar with his territory and in view of the potential sales, takes steps to improve his organisation.
If these clauses are omitted, the dealer would not make investment and would neglect the service facilities to the detriment of the consumer.
In the light of scarcity in the supply of vehicle 's and the need to distribute Vehicles to all the dealers in India, Telco makes equitable distribution of its products by taking into account these factors: (a) Population of commercial vehicles in the dealer 's territory; (b) Orders from customers pending with the dealer; (c) Preference for Tata diesel vehicles as against other makes in the territory of the dealer (d) Past sales performance of the dealer; (e) Effective after sales service provided by the dealers; (f) Special requirements of the territory during the erection of Government Projects such as steel plants, construction of dams etc.
; (g) Emergency requirements of the territory on account of drought, flood relief etc; (h) Government recom mendations for meeting certain specific requirements; (i) Dependence of the particular territory on road transport and (j) Requirements of State Government and nationalised trans port undertakings which are procured through dealers.
The demand for the vehicles has always exceeded the supply making it imperative for Telco to ensure equitable distribution of the vehicles to the various parts of the country.
There are many commercial agreements under which the territories are divided among distributors and 'such agreements do not constitute restrictive trade practice, where the whole object is to ensure fair, efficient and even distribution particularly of a commodity which is in short supply and in great demand.
If these were not done and it was permitted for one dealer to encroach on the territory of another this would affect the flow of vehicles into the market leaving some territories unsupplied.
In order to prevent this undesirable position that dealers were appointed for different territories and care was taken consistently to see that all parts of the country are treat ed equally and fairly.
The exclusive dealings do not impede competition but promote it.
Such dealings lead to specialisation and im provement in after sales service.
The exclusive dealership agreements do not restrict distribution in any area or prevent competition.
The customer has the choice of buying any make he likes.
The advantage of exclusive dealership is that a dealer specialises in his own type of vehicle with all the attending advantages of trained personnel, special service stations, workshops and spare parts.
Each set of special tools costs approximately Rs. 55,000.
The set is suitable for servicing one vehicle at a time.
Some dealers like the United Motors Pvt. Ltd., Bombay have four sets at Colaba, Wadi Bunder, Jogeshwari and Chembur.
The invest ment of United Motors is approximately Rs. 24 lakhs.
It is estimated that one service station with special tools of Telco and workshop equipment will cost as much as Rupees five lakhs.
699 It is by specialising in each make of vehicle and pro viding the best possible service that the competition between the various makes is enhanced.
It is practically not possible for the same dealer to have parallel lines of service stations, workshops, spare parts, trained personnel for different makes.
It is also not practical for the dealer to maintain different and competitive standards laid down by different companies which may differ from manufac turer to manufacturer.
If a dealer has more than one fran chise, the competition between the various makes will be reduced.
It will be difficult for the manufacturer to make the dealer responsible for his make and concentrate on it.
There may be conflicts between his responsibility for after sales service.
Telco commenced appointing dealers in 1954.
At that time 25 or 26 dealer 's were appointed.
The number increased to 68.
There are also sub dealers.
Each dealer is required to make a security deposit varying from Rs. 1 lakh to Rs. 6 lakhs.
Telco pays interest ,on deposits and security depos its.
A dealer has to invest a minimum of Rs. 5 lakhs in his establishment.
The range of investment would vary from Rs. 5 lakhs to Rs. 50 lakhs depending upon the largeness of the place.
Dealer Apprentices are trained by Telco in its factory at Jamshedpur.
Telco also trains Trade Apprentices.
The dealer also pays the apprentice stipend.
If territorial restrictions are removed, there will be unequal distribu tion of vehicles in various territories.
While there 'will be shortage in some territories, there will be larger sup plies in others.
Vehicles are supplied by Telco according to territorial requirements.
Various factors are taken into consideration in assessing the requirements of territo ries.
By making it 's dealers exclusive to Telco, there cannot be said to be any prevention, distortion or restriction of competition in the territory in which a dealer operates, either between manufacturers of the same type of vehicles or between dealers in these vehicle.
Any manufacturer of vehicles such as those of Telco may manufacture and sell its vehicles in a territory in which Telco 's dealers operate.
Any other manufacturer of vehicles 'similar to those of Talco is also free to appoint dealers of its choice in the same territory covered by Telco 's dealers.
The channels for outlet for vehicles have not been blocked by the fact that the dealers appointed by Telco are exclusive to Telco nor it can be said that Telco has by its exclusive arrange ment with its dealers affected the flow of supplies of vehicles into the market.
If Telco Sold themselves in each territory it could not be said that Telco was pursuing any restrictive trade practice.
Would the position change if Telco asked their dealers not to sell Telco bus chassis outside the dealer 's territory? Just as Telco could not complete with itself similarly dealers would not compete with one another.
The competition would be between Telco products and the products of the other manufacturers Premier, Hindustan and Leyland. 'Restrictive trade practice is based on reason embodied in Section 2(0) of the Act.
When trucks are in short supply and dealers are 700 restrained from selling at above the maximum price they cannot sell below the maximum price and compete with one another.
Dealers of the same manufacturer do not compete with one another in every case irrespective of the market conditions or the character of the product sold.
Competition between dealers appointed by the same manu facturer can be reduced when there is a practical possibili ty. of such competition as for example, When the goods are in abundance.
When there is an acute scarcity of goods and there is no possibility of dealers selling the product at less than the permissible price, it would be irrational to talk of territorial limits restricting competition.
Restric tion on competition postulates the existence or the possi bility of competition.
On the facts proved in the present case the only competition possible is between the ,dealers and the manufacturer 'section The territorial restriction pro motes competition between the four manufacturers in every part of India while it has no effect of any theoretical competition between the dealers because such competition between dealers does not and cannot exist.
The question of competition cannot be considered in vacuo or in a doctrinaire spirit.
The concept of competi tion is to be understood in a commercial sense.
Territorial restriction will promote competition whereas the removal of territorial restriction would reduce competition.
As a result of territorial restriction there is in each part of India open competition among the four manufacturers.
If the territorial restriction is removed there will be pockets without any competition in certain parts of India.
If the dealer in Kashmir is allowed to sell anywhere in India wealthy cities like Delhi, Bombay, Calcutta will buy up trucks allocated for Kashmir and the buyer in Kashmir will not be able to get the trucks.
The other three manufactur ers whose trucks are not in equal demand will have Kashmir as an open field to them without competition by Telco.
Therefore, competition will be reduced in Kashmir by the successful competitor being put out of the field.
The real reason for exclusive dealership is that instead of diminishing competition between four manufacturers each dealer tries to do his best for his own trucks, bus and thus reduce keen competition among the four manufacturers.
If one dealer deals in trucks of one or more manufacturers one cannot be expected to compete with itself it is, therefore, clear that exclusive dealership promotes instead of re tarding competition.
Clauses 1 and 3 are in the interest of the consumer and ensure equal distribution as far as possible of the goods at a fair price.
These provisions do not tend to obstruct the flow of capital or resources into the stream of production or 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.
701 In the present case the restriction imposed by Telco on dealers not to sell bus and chassis outside their territo ries does not restrict competition for the foregoing rea sons.
The other term of exclusive dealership in clauses 6 and 14 of the agreement between Telco and the dealers that the dealer will not sell commercial vehicles of other manufac turers, does not amount to a restriction in competition because other manufacturers can appoint other persons to deal in their commercial vehicles.
It is also in public interest to see that vehicles of other manufacturers are sold in the same territory by other dealers.
Therefore, there will be competition between the manufacturers of different commercial vehicles and as far as exclusive dealership of Telco commercial vehicles is concerned, it will be in public interest ' and not be a restriction in competition.
The two terms of restriction on dealers, namely, 'sale being confined within the territory and the other being confined to dealing in only Telco vehicles are not prejudi cial to public interest.
The Commission found that exclu sive nature of dealership of being confined to Telco vehi cles is not prejudicial to public interest.
The territorial restriction is also.
in public interest and the Commission was in error in thinking that it is not so.
For the foregoing reasons the appeal is accepted.
The decision of the Commission is set aside.
We hold that the agreement in the present case is not within the vice of restrictive trade practice and is, therefore, not registra ble.
We make it clear that in a given case sale of commodi ties being confined to a territory may amount to a restric tive trade practice.
In the special features and facts and circumstances of the exclusive dealership agreement between Telco and the dealers the territorial restriction imposed on the sellers not to sell vehicles outside their territories is not a restrictive trade practice.
Parties will pay and bear their own costs.
P.B.R. Appeal allowed.

Output:
Section 2(o) of the Restrictive Trade Practices Act, 1969 defines "restrictive trade practice" to be a trade practice 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 re strictions.
Section 33 provides that any agreement relating to a restrictive trade practice falling within one or more of the categories (a) to (I) specified in sub s.(1) thereof shall be registered.
Section 37 enacts that the Monopo lies and Restrictive Trade Practices Commission may inquire into any restrictive trade practice, whether the agreement relating thereto had been registered under section 35 or not.
Under section 38 when the Commission finds that such re strictions are necessary or justified, in the circumstances mentioned in the section, it may permit such restrictions.
The appellant is a manufacturer of heavy and medium commercial vehicles.
The appellant enters into an agreement with dealers in regard to sale of its vehicles.
Clause 1 (a) of the agreement provides that a dealer shall buy from the Regional Sales Office of the company a new Tata diesel truck for resale within the territory described in accord ance with the provisions of the agreement.
Clause (b) provides that the agreement shall not preclude the company from entering into any dealership agreement with any other person or persons within the said territory.
Clause 3 prohibits the dealer from selling the vehicles either di rectly or indirectly to any person outside the territory.
Clause 6(a) provides that the dealer shall maintain an organisation for the sale of the vehicles in accordance with the directions of the appellant.
Clause 14 prohibits the dealer from handling or selling vehicles manufactured or supplied by any other company.
In a petition under section 10(a)(iii) of the Act, the Regis trar of the Restrictive Trade Practices alleged that cls.
(1) and (3) of the agreement between the appellant and its dealers provided for territorial restrictions or allocation of areas or market, cl.
(6) provided for resale price main tenance, cl. 14 provided for exclusive dealership and all these clauses of the agreement showed that the appellant was indulging in restrictive ' trade practices relating to allo cation of territories or areas among its dealers and that the appellant was not willing to abandon the restrictive trade practices.
The Commission held inter alia.
that cls.
(1) and (3) of the agreement.
constituted restrictive trade practices and, therefore, void.
It was contended on behalf of the respondent that irrespec tive of the injurious or beneficial consequences of a trade practice which may restrict competition, an agreement may fall within the definition of that term in section 2(0) of the Act.
An injurious or beneficial result Of the restriction is relevant only for purposes of section 37 and section 38 and not for the purposes of section 33.
Allowing the appeal, HELD: The agreement in the present case was not within the vice of restrictive trade practice and was not registra ble.
686 (1) 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 (I).
A practice which is not restrictive under section 2(0) of the Act cannot be a restrictive 'trade practice only because of cls.
(a) to (1) of section 33(1).
Section 33 does not provide statutory illustrations to section 2(0) of the Act but only enumerates some types of trade practices which, if they are restrictive within section 2(0), require registration.
[693 F G] (2) The definition of restrictive trade practice is an exhaustive and not an inclusive one.
The decision whether a trade practice is restrictive or not has to be arrived at by applying the rule of reason and not on doctrine that any restriction as to area or price will per se be a restrictive trade practice.
The question in each case is whether the restraint is such as regulates and thereby promotes competi tion or whether it is such may suppress or even destroy competition.
To determine this question three matters are to be considered, namely, (1) what facts are peculiar to the business to which the restraint is applied, (2) what was the condition before and after the restraint was imposed, and (3) what was the nature of the restraint and what was its actual and probable effect.
[693 D F] (3) When the authorities under the Act want to challenge any agreement or any practice as a restrictive trade prac tice, it has to be established that it is a restrictive trade practice within the definition of section 2(0).
If it is found that it is a restrictive trade practice, it has to be registered under s 33.
It is only after an agreement had been registered that there is an enquiry under Chapter VI of the Act.
This enquiry under section 37 is to find out whether a restrictive trade 'practice is prejudicial to the public interest.
[692 H, 693 A] (4) The two terms of restriction on dealers, namely, one confining sales within the territory and .t_he other confin ing dealers to dealing in only the appellant 's vehicles are not prejudicial to public interest.
The territorial re striction is also in public interest and the Commission was in error in thinking that it was not so.
[701 C D] In the instant case, the supply of commercial vehicles 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.
Clauses relating to territorial restric tion do not constitute 'restrictive trade practice because the domestic market is spread all over the country, to meet the needs of the users of vehicles the appellant has a countrywide network of dealers who maintain service sta tions, workshops, requisite equipment, machinery and trained personnel.
The appellant ensures that the vehicles are only sold by dealers who have the requisite facilities and organisation to give after sales service.
The appellant gives a warranty in respect of the vehicles.
A geographical network is natural to the industry which the appellant has set up.
The appellant has zonal offices throughout the country.
If the territorial restriction is removed, there will be a tendency for person to book orders in all areas thus starving the consumers of a particular area of their equitable share and disrupting the flow of vehicles in both areas.
If the dealer is not assumed of a steady demand in his territory he may have no incentive or may not find it economic to organise proper after sales service.
Some of the dealers have even maintained mobile service vans.
[694 H, 695 A] The exclusive dealings of the appellant do not impede competition but promote it.
Such dealings lead to special isation and improvement in after salesservice.
The exclu sive dealership agreements do not restrict distribution in any area or prevent competition.
By making its dealers exclusive, it cannot be said that there is prevention, distortion or restriction of competition in the territory in which the dealer operates.
Any manufacturer of vehicles similar to those of the appellant is also free to appoint dealers of its choice in the Same territory covered by the appellant 's dealers.
The channels for outlet for vehicles have not been blocked.
[699 F G] 687 When there is acute scarcity of the goods and there is no possibility of dealers selling the product at less than the permissible price, it would be irrational to talk of territorial limits restricting competition.
Territorial restriction promotes competition between the different manufacturers in every part of India.
[700 B C] Clauses (1) and (3) are in the interest of the consumer and ensure an equal distribution as far as possible of the goods at a fair price.
Clauses (6) and (14) do not amount to a restriction in competition because other manufacturers could appoint other persons to deal in their commercial vehicles.
It is also in public interest to see that vehi cles of other manufacturers are sold in the same territory by other dealers.
[701 B C]


Input:
: Criminal Appeal No. 8 18 of 1979.
From the Judgment & Order dated the 27.10.1979 of the Madras High Court in Crl.
A. No. 4 of 1977.
A.S. Nambiar and K.R. Nambiar for the Appellant.
V. Krishnamurthy for the Respondent.
The Judgment of the Court was delivered by FATHIMA BEEVI, J.
This appeal is directed against the judgment dated 27.10.1979 of the High Court of Madras con firming the conviction of the appellant under section 161, I .P.C. and under section 336 5(2) read with section 5(1)(d) of the Prevention of Corrup tion Act.
The appellant had been sentenced to undergo R.I. for 15 months under section 5(2) read with section 5(1)(d) of the Prevention of Corruption Act with no separate sen tence under section 161 I.P.C.
The brief facts of the case are as under.
The appellant, Sunderamoorthy was an Accountant cum Headclerk in the Tamil Nadu Forest Training School at Vaigai Dam.
He took charge of the office on 6.10.1975 and had been residing in a house opposite the training school.
PW 3, the Principal of the training school issued exhibit P 2 show cause notice to the PW 1, Venkataswamy, the canteen contractor, as to why his licence for running the canteen should not be cancelled.
This was on the basis of a complaint made by the appellant that the food served in the canteen was substand ard.
The appellant had taken food in the canteen for two days and being dissatisfied discontinued the practice before the notice was issued.
The prosecution case is that the accused thereafter sent for PW 1, informed him that he would help him in restoring the licence and demanded a bribe of Rs. 100.
On 21.10.1975, the appellant is stated to have pressed the demand to PW 1.
The latter made a complaint to PW 6 who thereupon arranged a trap.
As instructed, PW 1 was ready with ten rupees currency notes.
PW 6 after drawing up a mahazar in the presence of PW 2, Jaganathan, Assistant of the Office of the Special Tehsildar, Usilampatti directed PW 1 to give the notes to the appellant.
PW 1 handed over the money to the appellant who received the same.
When PW 1 emerged, PW 6 along with PW 2 confronted the appellant.
The appellant produced the currency notes.
PW 6 conducted the phenolphthalein test with reference to the fingers of the appellant.
The test was positive, the currency notes were seized and the appellant arrested.
PW 3, the Principal produced the concerned file relating to show cause notice, from the house of the appellant on the same day.
Finally, the appellant was chargesheeted.
At the trial, the prosecution witnesses supported the case.
PW 1 affirmed the fact that the appellant made the demand and had also received the amount on 22.10.
The recovery of the currency notes from the appellant was not challenged.
The plea of the appellant was that PW 1 had returned the amount due to him and there had been no demand for a bribe as there had been no occasion for doing so.
The Trial Court accepted the prosecution evidence, rejected the plea of the appellant and recorded the conviction.
Before the High Court, the .contentions of the appellant were that there was no independent evidence regarding the demand, the messenger who had contacted PW 1 at the 337 behest of the appellant had not been examined, the solitary evidence of PW 1 is insufficient, the explanation offered by the appellant was probable and there is no conclusive evi dence to hold that the appellant.
was guilty.
It was also urged that the appellant being new in the office could exert little influence on the Principal and the whole story is, therefore improbable.
These contentions did not find favour with the High Court.
It took the view that the evidence of PW 1 find corroboration in the testimony of PW 2 and 6 and the contemporary records.
The recovery of the currency notes from the appellant proves the guilty conduct of the appel lant in view of the presumption arising under section 4(1) of the Prevention of Corruption Act which has not been rebutted.
The decisions of the Court in State of Rajasthan vs Mohamed Habeeb, ; C.I. Ernden vs State of Uttar Pradesh; , and Lohana Kantilal vs State, AIR 1954 Saurashtra 12 1 were referred to.
The High Court thought that though the conviction under section 161 I.P.C. and section 5(2) of the Prevention of Corruption Act is to be maintained, no separate sentence need be award ed under section 161 I.P.C.
The appellant has reiterated the contentions before us.
The learned counsel appearing for the appellant, however, maintained that the appellant had a consistent case even from the earliest opportunity that the currency notes found in his possession was the money returned by PW 1, the cir cumstances of the case would probabalise this case of the appellant and the presumption, if any, arising under section 4 is rebutted and the conviction cannot therefore be sus tained.
PW 6 has stated at the time of the seizure the explanation offered by the appellant was that PW 1 had returned the loan and that he had given the money for the Dipawali.
The case that has been developed in the course of the trial is not that of a loan transaction but payment of an advance of Rs. 125 in the canteen when the appellant started to take food there.
The case of Dipawali gift or return of a loan given to PW 1 has not been even suggested.
It cannot, therefore, be said that there had been consistent explanation for the appellant.
PW 3, the Principal has averred in unequivocal terms that Ex.
P 2 memo had been issued on the basis of the complaint received from the appellant that on getting the explanation from PW 1 he on 18.10.1975 itself passed orders and closed the file.
The order made was not disclosed to PW 1 and till 22.10.1975, the file itself was kept by the appellant in his personal custody.
He had thereafter received the amount of Rs. 100 from PW 1.
This conduct of the appellant is clearly incon sistent with the transaction of loan or return of money by PW 1. 338 This Court observed in Dhanvantrai Balwantrai Desai vs State of Maharashtra, AIR 1964 SC 575 as under: "Where any gratification (other than legal gratification) or any valuable thing is proved to have been received by an accused person the court is required to draw a presumption that the person received that thing as a motive of reward such as is mentioned in section 161, I.P.C. Therefore, the Court has no choice in the matter, once it is established that the accused person has received a sum of money which was not due to him as a legal remuneration.
Of course, it is open to that person to show that though that money was not due to him as legal remuneration it was legally due to him in some other manner or that he had received it under a transaction or an arrangement which was lawful.
The burden resting on the accused person in such a case would not be as light as it is where a presumption is raised under section 114 of Evidence Act and cannot be held to be discharged merely by reason of the fact that the explanation offered by the accused is reasonable and probable.
it must further be shown that the explanation is a true one.
The words 'unless the contrary is proved ' which occur in this provision make it clear that the presumption has to be rebutted by 'proof ' and not by a bare explanation which is merely plausible.
A fact is said to be proved when its existence is directly established or when upon the material before it the Court finds its existence to be so probable that a reasonable man would act on the supposition that it exists.
Unless, there fore, the explanation is supported by proof, the presumption created by the provision cannot be said to be rebutted.
" On a careful consideration of the facts and circum stances, we are not satisfied that the appellant had even by preponderance of probability succeeded in rebutting the presumption.
The argument that clause (d) of section 5(1) of the Prevention of Corruption Act is not attracted on the proved facts is also not impressive.
We find no merit in the appeal.
It is accordingly dismissed.
N.V.K. Appeal dismissed.

Output:
The appellant was an Accountant cum Headclerk in the Forest Training School, PW 3 the Principal of the training school, and PW I the canteen contractor.
The prosecution alleged that on the basis of a complaint made by the appel lant that the food served in the canteen was substandard, PW 3 issued a show cause notice to PW I, as to why the licence for the canteen should not be cancelled and that thereafter the appellant sent for PW I and demanded a bribe of Rs. I00.
As the appellant pressed the demand from PW 1, the latter made a complaint to PW 6, the inspector, who arranged a trap.
The trap was arranged.
PW I handed over the money to the appellant, who received the same.
PW 6 conducted the phe nolphthalein test with reference to the fingers of the appellant.
The test was positive.
The currency notes were seized, and the appellant arrested chargesheeted.
The Trial Judge accepted the prosecution evidence, rejected the pleas of the appellant that PW 1 had returned the amount of Rs. 100 due to him, that there had been no demand for a bribe as there had been no occasion for doing so, and recorded conviction.
The appellant appealed to the High Court and contended that there was no independent evidence regarding the demand, the messenger who had contacted PW 1 at the behest of the appellant had not been examined, the solitary evidence of PW I is insufficient and that the explanation offered by the appellant was probable and that there is no conclusive evidence to hold that the appellant was guilty.
The High Court took the view that the recovery of the currency notes from the appellant prove his guilty conduct, in view of the presumption arising under section 4(1) 01 ' the Prevention of Corruption Act and that the same has not been rebutted and held that though the conviction under 335 section 161 I.P.C. and section 5(2) of the Prevention of Corruption Act, 1947 is to be maintained, no separate sen tence need be awarded under section 161 I.P.C. It, accord ingly, confirmed the conviction of the appellant and sen tenced him to undergo rigorous imprisonment for 15 months.
In the appeal to this court, it was contended that the appellant had a consistent case even from the earliest opportunity, that the currency notes found in his possession was the money returned by PW I, and that the presumption, if any, arising under section 4 was rebutted, and the convic tion cannot therefore be sustained.
Dismissing the appeal, this Court HELD: 1.
The appellant has not even by preponderance of probability succeeded in rebutting the presumption under section 4(1) of the Prevention of Corruption Act.
[338C] 2.
The Court has no choice once it is established that the accused person has received a sum of money which was not due to him as a legal remuneration, but to draw a presump tion that the person received the money as a motive of reward.
However, it is open to that person to show that though that money was not due to him as legal remuneration, it was legally due to him in some other manner or that he received it under a transaction or an arrangement which was lawful.
The explanation offered by the person should be a true one and not one which is merely plausible.
[339B C; F] Dhanvantrai Balwantrai Desai vs State of Maharashtra, AIR 1964 SC 575, referred to.


Input:
Appeal No. 130 of 1966.
Appeal from the judgment and decree dated December 13, 1961 of the Allahabad High Court in Special Appeal No. 217 of 1958.
C. K. Daphtary, B. Sen, J, P, Goyal and A. Banerjee, for the appellants.
C. B. Agarwala and O. P. Rana, for respondents Nos. 1, 2, 3 and 8.
T. A. Ramachandran and R. N. Sachthey, for respondent No. 4.
M. C. Chagla, G. D. Srivastava, B. Datta and J. B. Pada chanji, for respondents Nos. 5 and 6.
The Judgment of the Court was delivered by Shah, J.
The Padrauna Rajkrishna Sugar Works Ltd.hereinafter called 'the Company carried on the business of manufacture and sale of sugar and supply of electricity.
The Company was in financial difficulties in 1954 and was unable to meet its obligations.
The principal liabilities of the Company in July 1955 were Rs. 81,821 2 0 due as income tax provisionally assessed for the assessment year 1952 53 in respect of which an order for recovery was made under section 46(2) of the Income tax Act, 1922; Rs. 5,64,301 14 9 due as sugarcane cess under section 29 of the Sugar Factories Control Act, 1938, for the years 1952 53 to, 1954 55: and Rs. 1,92,053 12 3 due by the Company to the Co operative Development Union Ltd. as arrears of cane price for the year 1954 55. 470 By order dated July 14, 1954, issued under the Essential Supplies (Temporary Powers) Act, the Government of U.P. appointed the Collector, Deoria as the Authorised Controller of the Company.
On August 8, 1955 the Land Reforms Commis sioner sanctioned the proposal submitted by the Collector, Deoria, to sell the holdings and the property of the Company for realizing Rs. 8,38,176 13 0.
Sardar Jagjit Singh, Chief Engineer, Indian Institute of Sugar Technology, Kanpur, valued the movables belonging to the Company i.e. tools and workshop plant, mill stores, spare parts and furniture at Rs. 7 , 64,817/ ,and the lands and the factory at Rs. 23,75,000/ .
Thereafter a sale proclamation was issued on October 4, 1955, for recovery of the total amount of Rs. 8,38,176 13 0.
The sale was fixed for November 8, 1955.
In the first instance only the movables were put up for sale by the Collector, Deoria, but the highest bid offered was Rs. 2,75,000/ .
The Collector then put up for sale the immov able property for which a bid of Rs. 13,50,000/ was made and accepted.
The movables were then put up for sale, and the highest bid for Rs. 2,75,000/ was accepted.
The purchasers of both the lots were the Cawnpore Sugar Works Ltd., through their managing agent Tulsidas Mundra respondent No. 7 in this appeal.
On December 6, 1955, the Company moved an application before the Commissioner, Gorakhpur Division, under r. 285 1 of the U.P. Zamindari Abolition and Land Reforms Rules praying that the sale be set aside.
The Commissioner rejected the peti tion, observing that an application under r. 285 1 of the U.P. Zamindari Abolition and Land Reforms Rules, 1952, to set aside a sale on the ground of material irregularity or mistake in publishing or conducting a sale may be granted only if the applicant proves to the satisfaction of the Commissioner that he has sustained substantial injury by reason of such irregularity or mistake, and that no material irregularity or mistake was proved to be committed in publishing or conducting the sale, far less, a mistake or irregularity which could have caused substantial injury to the applicant.
The sale was confirmed by order dated July 2, 1956, by the Land Reforms Commissioner.
On, July 30, a petition was moved by the Company in the High Court of Allahabad for a writ in the nature of certiorari quashing the order dated June 25, 1956, of the Commissioner, Gorakhpur Division.
The petition was dismissed by Oak, J.
In appeal under the Letters Patent the order was confirmed by the High Court.
Mukherji, J., was of the view that section 286 of the U.P. Zamindari Abolition and Land Reforms Act did not oblige the Collector to exhaust the processes prescribed by, cls.
(a) to (e) in section 279 of that Act before resorting to the sale of immovable property of the Company and that it was not proved that 471 there was any material irregularity or mistake_ in publishing or conducting the sale or that any substantial injury had resulted to the Company., Jagadish Sahai, J., was of the view that section 2861(2) of the U.P. Zamindari Abolition and Land Reforms Act provides that where an amount is recoverable as arrears of land revenue, the Collector has first to attempt under cls.
(a) to (e) of s.279 to recover the amount due, and if he is unable to recover the amount,, he may proceed to sell the immovable property of the defaulter.
But the learned Judge was of the opinion that the provision was merely directory and not.
mandatory.
He observed: ". . the provision relating to the exhaustion of the processes contemplated by clauses (a) to (e) of section 279 of the Act is merely directory.
In view of the provisions of the various Acts which make the realization of sums becoming due under those Acts as arrears of land revenue and in view of the provisions of the Act the, Collector has got a duty and a statutory obligation to realise those sums.
He has no discretion in the matter.
Consequently I read the words "may realise the same from the interest of the defaulter in any immovable property" in sub section (1) or "may be recovered from any immovable property of the defaulter" in sub section (2) as meaning that if the Collector does not succeed in recovering the amount by having recourse to the processes mentioned in clauses (a) to (e) of section 279 of the Act he shall sell immovable property of the defaulter.
" The learned Judge also observed that the Collector acted inviolation of the statutory provision contained in section 286(2) of the Act in selling the immovable property before selling the movable property, but the sale could not be set aside, because substantial injury was not shown to have been caused.
The Company has appealed to this Court against the order passed by the 'High Court confirming the order passed by Oak, J.
In this appeal, it is urged in the first instance, that the Company possessed stocks of sugar of value exceeding the liability for payment of Rs. 8,38,000/ odd.
But the stocks of sugar were not mentioned in the Collector 's report to the Land Reforms Commissioner : they were not included in the sale proclamation as property put up for sale, nor were they valued in the report of Sardar Jagjit Singh.
The Company asserted in the petition ,before the High Court that it possessed stocks of sugar worth Rs. 9 lakhs.
which had not been, attached earlier, but no such.
contention was advanced in support of the application for setting.
472 aside the sale before the Commissioner, nor was any argument advanced before the High Court.
It appears that the stocks of sugar were mortgaged separately and the amount for which they were mortgaged was not included in the claim, made for which the property of the Company was to be put up for sale.
It was then urged that under section 286(2) of Act 1 of 1951, the Collector, was bound in the first instance to exhaust, the processes for recovery of arrears prescribed by cls.
(a) to (e) of section 279 of the Act and he could not attach and sell immovable property of the Company until those processes were exhausted.
It was urged that section 286(2) of the Act was mandatory and the Collector not having sold the movables in the first instance, the sale must be declared void.
The amount for the recovery of which the sale of the assets of the Company was held, included income tax dues, sugarcane cess and the amount due for cane supplied to the Company.
This amount was recoverable as arrears of land revenue because of the provisions of the Indian Income tax Act, 1922, the U.P. Sugar Factories Control Act, 1938, and the .
Section 286(2) of the U.P. Zamindari Abolition and Land Reforms Act provides: "Sums of money recoverable as arrears of land revenue, but not due in respect of any specific land, may be recovered by process under this section from any immovable property of the defaulter." Though the amount for which the property was put up for sale was recoverable as arrears of land revenue, no part of it was due in respect of any specific land.
The amount could prima facie be recovered from the immovable property of the defaulter.
But relying upon the expression "under this section" in section 286(2) of Act 1 of 1951 it was contended that the immovable property of the Company could be attached and sold only after the processes prescribed in section 279 cls.
(a) to (e) were resorted to and the Collector was unable to recover the dues.
It was urged that this is the true effect of section 286(1) and section 279 of Act 1 of 1951.
Section 286(1) provides : "It any arrears of land revenue cannot be recovered by any of the processes mentioned in clauses (a) to (e) of Section 279, the Collector may realize the same by attachment and sale of the interest of the defaulter in any other immovable property of the defaulter." Section 279 of the Act set , out the procedure for recovery of land revenue.
The section as it stood at the.
date of We provided 473 An arrear of land revenue may be recovered by any one or more of the following processes : (a) by serving a writ of demand or a citation to appear on any defaulter, (b) by arrest and detention of his person,.
(c) by attachment and sale of his movable property including produce, (d) by attachment of the holding in respect of which the arrear is due, (e) by sale of the holding in respect of which the arrear is due.
(f) by attachment and sale of other immovable property of the defaulter.
" Section 280 deals with the mode of recovery prescribed by cl.
(a) of section 279; section 281 with the mode prescribed by cl.
(b) i.e. by arrest and detention; and section 282 with the mode prescribed by cl.
(c) i.e. by attachment and sale of the movable property including produce.
Section 284 sets out the procedure for sale of the holding in respect of which the arrear was due and section 286(1) deals with the power to proceed.
against the interest of the defaulter in other immovable property.
For recovery of arrears of land revenue, the Collector is bound to resort to one or more of the processes mentioned in section 279 read with sections 280, 282, 284 & 285 of the Act, before he attaches and sells the immovable property of the defaulter, other than the holding in respect of which the land revenue is due.
That clearly follows from the terms of sub section
(1) of section 286.
Subsection (2) of section 286 makes the same process applicable for recovery of sums of money which are recoverable as arrears of land revenue.
But the liability to pay the amount so recoverable arises by virtue of the provisions of other Acts and is not due in respect of any holding of the defaulter.
It is only recoverable as arrears of, land revenue by virtue of the provisions of the Act under which the liability has arisen.
Since U.P. Act 1 of 1951 provides by section 286(2) that sums of money recoverable as arrears of land revenue may be recovered from any immovable property of the defaulter, the procedure prescribed by the Act applies to such recovery.
Because of the use ' of the expression "under this section" in sub section
(2) of section 286 it is not intended that the Collector must resort in the first instance to the processes prescribed by cls.
(a) to (e) before he resorts to cl.
(f), of section 279.
(d) & (e) of section 279 have no application, where income tax dues and sugarcane cess or cane price are recoverable from the defaulter : and cl.
(b) is inapplicable where the defaulter is an artificial person like a Company.
Power to recover arrears of land reve 414 nue from a defaulter is governed by the processes mentioned in section 279 cls.
(a) to (e), and section 286(1) places certain restrictions upon the power of the Collector to recover land revenue by attachment and sale of lands other than the holding in respect of which the land revenue is due.
But the restrictions on the power of the Collector operate only when land revenue is in arrears.
Restrictions if any upon the power of the Collector to recover dues under other statutes, as arrears of land revenue arise from the statute which is the source of the liability and not from Act 1 of 1951 which merely sets out the processes for recovery of the dues.
To hold that sub section
(2) of section 286 requires the Collector in the first instance to recover out of the movable property or by arrest and detention of the defaulter before immovable property of the defaulter is attached and sold is to amend the substantive provisions of the Acts under which the liability for money due is recoverable as land revenue.
For instance , under section 46 (2) of the Indian Income tax Act, 1922, it is provided "The Income tax Officer may forward /to the Collector a certificate ' under his signature specifying the amount of arrears due from an assessee, and the Collector, on receipt of such certificate, shall proceed to recover from such assessee the amount specified therein as if it were an arrear of land revenue.
: Provided that without prejudice to any other powers of the Collector in this behalf, he shall for the purpose of recovering the said amount have the powers which under the Code of Civil Procedure, 1908 (V of 1908), a Civil Court has for the purpose of the recovery of aim amount due under a decree.
The power exercisable, by the Collector in recovering arrears of income tax which are recoverable as arrears of land revenue are, it is clear, not restricted to the Land Revenue Code: the Collector is entitled to exercise all the powers of a Civil Court for the purpose of recovery of an amount due under a decree under the Code of Civil Procedure, and the Code of Civil Procedure imposes no obligation to recover the dues by sale of movables or by arrest and detention of the defaulter before, immovable property may be attached.
Section 51 of the Code of Civil Procedure provides: "Subject to such conditions and limitations as may be prescribed, the Court may, on the application of the decree holder, order execution of the decree (a) by delivery of any property specifically decreed; (b) by attachment and sale or by sale without attachment of any property; 475 (c) by arrest and detention in prison; (d) in such other manner as the nature of 'the relief granted may require Provided. . . .
By virtue of 0. 2 1 r. 30(e) of the Code of Civil Procedure simultaneous execution both against the property and person of the judgment debtor is allowed.
To hold, therefore, that in seeking to recover income tax dues the Collector is in the first instance, by virtue of sub section
(2) of section 286, restricted to the recovery of arrears by attachment and sale of movables or by arrest and detention in prison of the defaulter and it he cannot recover the amount then and then only to have recourse to the immovable property of the judgment debtor is to seek to amend both the, Income tax Act, 1922, as well as the Code of Civil Procedure.
The U .
P. Legislature is competent to alter the provisions of the Income tax Act.
We are, therefore, unable to agree with the opinion expressed by jagadish Sahai, section, that the use of the words "under this ,section" points to the applicability of the whole section i.e. subsection (1) in the recovery dues recoverable under sub section (2) of section 286, and "that the two sub sections have got to be read together and the effect of sub section (2) is that even in connection with the recovery of miscellaneous dues as arrears of land revenue it is permissible to sell immovable property of the defaulter but subject to what is provided for in sub section (1)".
We are also unable to agree with the observations made by the learned Judge that ". . if sub section (2) of section 286 of the Act were to be read in isolation and detached from subsection (1) it would become impossible to administer the same.
Sub section (2) only provides that the arrears of miscellaneous dues may be recovered from any immovable property of the defaulter without specifying the manner in which they are to be recovered, that is to say, without indicating whether it would be recovered from the usufruct of the property or by its sale or by mortgage or lease.
" The provisions of the Act which authorise recovery of sums of money as arrears of land revenue do not require the Collector to follow any sequence of the processes for recovery: it is competent to the Collector to 'resort to any process prescribed by section 279 in aid of recovery of the dues which are recoverable as arrears of land revenue.
It is unnecessary in the circumstances to 476 consider whether the provisions of section 286(1) are mandatory or directory.
It was urged in the alternative that after selling the immovable property which realized more than Rs. 23,50,000/ the Collector should not have sold the movable property, for the claim for which the properties of the Company were put up for sale, was only Rs. 8,38,176 13 0.
At first blush there is force in this argument.
Why the Collector thought it necessary to sell the movables after the immovable property was knocked down to the Cawnpore Sugar Works Ltd. for Rs. 23,50,000/ was never explained.
After the immovable property belonging to the Company was knocked down to the purchasers for an amount of Rs. 23,50,000/ it was apparently not necessary to hold the auction for sale of movables valued at Rs. 7,64,817/ and to accept a bid of only Rs. 2,75,000/ .
The argument that the movables were of no use to any person other than the purchaser of immovable property is without substance.
The movables sold we 're the tools and workshop plant, mill stores, spare parts and furniture, and it is difficult to accept the contention that these movables were of no value except to the purchaser.
But the Company raised no contention in this behalf before the Commissioner, nor in the petition before the High Court.
The question was also not argued before the High Court in that form.
We cannot at this stage investigate the reasons why movables valued at Rs. 7,64,817/ were put up for sale and sold when it was not necessary to sell them to realise the dues.
It was then urged that the Income tax Officer had, by intimation dated December 11, 1954, asked the Collector to stay the sale proceeding for recovery of income tax dues amounting to Rs. 81,821 2 0.
For some reason, which is not clear from the record, the Collector ignored the intimation given by the Income tax Officer and proceeded to put the property to sale.
He included the amount in the sale proclamation, overruling the protests of the Company, and sold the properties for recovery of a consolidated amount which included Rs. 81,821 2 0 due as income tax.
But on that account the sale is not illegal or irregular.
An amount exceeding Rs. 7 lakhs was recoverable for the sugarcane cess and the cane price and the immovable property of the Company could have been put up for sale for recovery of those dues.
The sale is not proved to be vitiated on the ground of any material irregularity or mistake in publishing or conducting it, and it is therefore not liable to be set aside.
It was finally con that the Company was prevented from exercising its right under r. 285 H of the rules framed under U.P. Act 1 of 1951, because the purchaser at the sale was appointed, by order of the Central Government, Authoriged Con 477 troller of the factory of the Company, and all the properties of the 'Company were put in +.he possession of the purchaser, and that the Company was unable to raise the requisite amount to be deposited under r. 285 H. Under r. 285 H any person whose holding or other immovable property has been sold under the Act may, at any time within thirty days from the date of sale, apply to have the sale set aside on his depositing in the Collector 's office (a) for payment to the purchaser, a sum equal to 5 per cent.
of the purchase money; and (b) for payment on account of the arrear, the amount specified in the proclamation in Z.A. Form 74 as that for the recovery of which the sale was ordered, less any amount which may, since the date of such proclamation of sale, have been paid on that account; and (c) the cost of the sale.
If the deposit is made, the Collector shall pass an order setting aside the sale.
It was open to the Company under r. 285 H even after the bids were accepted to deposit 5 per cent.
of the sum realised by sale of the immovable property and to pay the amount due for the recovery of which the sale was ordered and the cost of the sale.
But no attempt was made to deposit the amounts mentioned in cls.
(a), (b) & (c) of r. 285 H.
The contention that the Company was unable to make the deposit under Rule 285 H because the purchaser was appointed Authorised Controller was also not raised before the Commissioner and the High Court.
The argument that if the movable property had not been sold, the Company may have raised the amount liable to be deposited under cls.
(a), (b) & (c), but by sale of those properties and purchase of the same by a person who was shortly after the purchase appointed the Authorised Controller prevented the Company from exercising the right under r. 285 H is hypothetical.
Again even that argument was not raised before the Commis sioner, nor in the petition, nor in the arguments before the High Court.
Evidently, the Company was required to comply with the provisions of r. 285 H for having the sale set aside to deposit an amount of Rs. 9,50,000/ besides the cost of the sale.
Even if the movables had not been sold, and assuming that they were of the value of Rs. 7,64,817/ the movables were not sufficient to enable the Company to raise the amount required for deposit under r. 285 H. The contentions raised by the Company fail and the appeal is dismissed.
We are, however, of the view, especially because of the action of the Collector in putting the movables to sale even Sup CI/69 12 478 after the immovable property realised an amount very much in excess of the dues, and ignoring the intimation sent by the Income tax Officer to stay the sale proceeding, which has involved the Company in loss of property of substantial value, that the parties should bear their own costs throughout.
Y.P. Appeal dismissed.

Output:
The amount of dues under the Indian Income tax Act, 1922 the U.P. Sugar Factories Control Act.
1938 and the were recoverable as arrears of land revenue.
Section 286(1) of the U.P. Zamindari Abolition & Land Reforms Act provides that if any arrears of land revenue could not be recovered by any of the processes mentioned in cls.
(a) to (e) of section 279, the Collector may realise the same by attachment and sale of the interests of the defaulter in any other immovable property of the defaulter, and section 286(2) provided that money recoverable as arrears of I" revenue, may be recovered by process "under this section" from any immovable property of the defaulter.
As the appellant company was unable to meet its liabilities in respect of income tax dues, sugar cess and the amount due for cane supplied to it, the immovable property of the company were sold to meet the dues.
The appelant challenged the sale contending that (i) the immovable prop" of the company would be attached and sold only after the processes prescribed in cls.
(a) to (a) of a. 279 ie.
by the age of movable properties were resorted to; (ii) the sale was illegal or irregular as the Collector ignored the intimation of the Income tax Officer staying the sale for recovery of income tax; and (iii) the appellant was prevented from raising funds for making the deposit as provided by r. 285H (of the rules framed under the Act) for setting aside the sale as the purchaser was appointed as the Authorised Controller and put in possession of all the properties of the appellant.
Dismissing the appeal this Court, HELD : (i) Power to recover arrears of land revenue from a defaulter is governed by the processes mentioned in cls.
(a) to (e) of section 279 of the Act and section 286(1) places certain restrictions upon the power of the Collector to recover land revenue by attachment and sale of lands other than the holding in respect of which the land revenue is due.
But the restrictions on the power of the Collector operated only when land revenue is in arrears.
Restrictions, if any, upon the p ower of the Collector to recover dues under statutes, as arrears of land revenue arise, from the statute which is the source of the liability and not from the U.P. Zamindari Abolition & Land Reforms Act, which merely sets out the processes for recovery of the dues.
To hold that sub section
(2) of section 286 requires the Collector in the first instance to recover out of the movable property or by arrest and detention of the defaulter before immovable property of the defaulter is attached and sold is to amend the substantive provisions of the Acts under which the liability for money due is recoverable as land revenue.
For instance, under a. 46 of the Income tax Act, 1922, the powers exercisable by the Collector in recovering arrears of income tax, which are recoverable as arrears of land revenue are not restricted to the Land Revenue Code; the Collector is entitled to exercise all the powers of ' a Civil Court for the purpose of recovery of an amount due under a decree under the Code of Civil Procedure, an the Code, of Civil procedure im 469 poses no obligations to recover the dues by sale of movables or by arrest and detention of the defaulter before immovable property may be attached.
The provisions of the Act, which authorise recovery of sums of money as arrears of land revenue, do not require the Collector to follow any sequence of the processes for recovery; it is competent to the Collector to resort to any process prescribed by section 279 in aid of recovery of the dues which are recoverable as arrears of land revenue, [473 H 474 D; 475 H] (ii) The sale was not illegal or irregular for the reason that the Collector ignored the intimation of the Income tax Officer staying the sale for recovery of income tax dues.
The immovable property could have been put up for sale for recovery of sugar cane cess and the cane price which were many times more than the income tax dues.
[476 G] (iii) There was no force in the contention that the appellant was unable to raise funds and make the deposit under r. 285H because the purchaser was appointed the Authorised Controller, who took possession of all the properties of the Company.
The appellant could not comply with the provision of r. 285H for having the sale set aside as the movables were not sufficient to enable the appellant to raise the amount required for deposit under r. 285H. [476 H]