Supreme Court of India
Tata Eng & Locomotive Co.Ltd vs Director(Research)O/B Deepak … on 7 September, 2015Author: …………………………………….J.

Bench: Vikramajit Sen, Shiva Kirti Singh





Tata Engineering and …..Appellant
Locomotive Company Ltd.


The Director (Research) …..Respondents
for and on behalf of Deepak Khanna & Ors.



This is an appeal under Section 55 of the Monopolies and Restrictive Trade
Practices Act, 1969 (for brevity hereinafter referred to as ‘the Act’). The
appellant is a company engaged in manufacture and sale of automobiles. It
is aggrieved by the impugned order dated 28.2.2006 passed by the Monopolies
and Restrictive Trade Practices Commission (for brevity ‘the Commission’)
in U.T.P. Enquiry nos. 86/99, 87/99 and 90/99 whereby the Commission has
directed the appellant to cease and desist from continuing with the
practices complained of and not to repeat the same in future.
Since there is no dispute on facts, the case of the parties on facts is
common and to the following effect:
The practice under scrutiny is of the year 1999 when the appellant was to
begin the manufacture and delivery of newly introduced Tata Indica cars
into the market with effect from February 1999, with the installed capacity
of approximately 60,000 cars in a year. The appellant invited the
prospective customers to book the car through dealers. The booking amount
demanded by the appellant was quite high and close to the estimated price
finally payable which would include excise duty, sales tax and
transportation charges. The terms and conditions for booking of order for
purchase of Tata Indica cars were mentioned in detail indicating the model
wise price depending upon the city of booking. It was indicated that the
price of vehicle as well as taxes, duties and cess will be as applicable on
the date of delivery. Those making valid booking were to be supplied the
vehicle as per priority numbers generated and allocated by a computerized
technique, for the first 10,000 bookings only. The terms also provided that
the payments against the remaining bookings will be refunded to the
customers, without interest, at the earliest but in any case within a month
from the closing of the booking. For refunds after a month, interest will
be paid at the rate of 10% per annum. The order booking form mentioned in
Clause 7 that the person concerned had carefully read the terms and
conditions of the bookings and agreed to the same.
Although the initial allotment was confined only to 10,000 cars, the
appellant received as many as 1,13,768 booking applications along with
stipulated amount which aggregated to Rs.3,216.44 crores. The appellant
gave an option to prospective customers to opt for a second phase of 50,000
vehicles likely to be delivered from April-May 1999 to March 2000. It
refunded the balance amounts to those who desired for refund, along with
interest as represented. No complaint was made to the Commission by any of
the persons who made the booking and thereafter either purchased the car or
withdrew the deposits with or without interest, as the case may be.
However three complaints were made before the Commission by persons who
claimed that they had intentions to make the booking but were dissuaded by
the high quantum of deposit required for the purpose. Their specific
objection was that the demanded amount exceeded the basic price of the car
if cess, taxes and transportation cost were left out. According to the
complainants the appellant had indulged in Unfair Trade Practice (UTP) by
demanding an excessive amount for bookings of Indica cars and by including
the likely taxes, cess and transportation cost.
Since the defence taken by the appellant was also not disputed on facts, it
would be relevant to note the same. When the Commission received the three
complaints, it sent them to the Director (Research) for investigation. The
Director submitted Preliminary Investigation Reports (PIR) in all the three
matters and three cases were registered as per numbers noted earlier. The
Notices of Enquiry under Sections 36-B (d), 37, 36-D of the Act and under
Regulation 51 were issued to the appellant who contested the complaints.
The appellant filed its reply to the Notice of Enquiry in which it also
raised a preliminary objection that the allegations of the restrictive
trade practice were vague and not permissible by law. Their further defence
was that there are no facts and material to show that the alleged practice
is prejudicial to the public interest requiring an enquiry under Section 37
of the Act and that no facts were disclosed in the Notice of Enquiry to
show prejudice to the public interest. On merits some of the allegations
were denied as incorrect. It was pointed out that none of the complainants
had applied for the booking of Tata Indica vehicle and hence they lacked
locus standi to file the complaints in the capacity of consumers. On merits
the appellant also took the defence that there was no false and misleading
statement made by the appellant for inviting booking of Tata Indica cars,
the applicants made the bookings with open eyes being aware about the
stipulation for payment of interest. According to appellant by letter dated
6.2.1999 the successful applicants were intimated of the priority number
allotted to them and the unsuccessful applicants were also informed that
they had an option to be considered for the second phase of 50,000 cars and
such optees would be entitled to receive interest at the rate of 11% per
annum with effect from 1.2.1999 till the date of delivery. Those who did
not opt for the second phase deliveries were refunded their booking amounts
along with 10% interest.
The appellant explained their practice by pleadings which are not
controverted, that their past experience as automobile manufacturer was
limited to heavy vehicles and hence in their initial venture into the car
segment, they were not sure of public response and they had decided to plan
their production schedule on the basis of reality test of car’s demand in
the market. For this speculative bookings were required to be discouraged
and the same was sought to be achieved by demanding an amount closer to the
anticipated price which the customer would be required to pay. According to
submissions, such practice could not have promoted the sale of their
vehicle rather it was discouraging. The large response shows peoples’ faith
in the products of the appellant and also that the interest rate offered by
the appellants was appreciable and fair.
Learned Senior Counsel Mr. Ashok H. Desai highlighted the definition of
Unfair Trade Practice as indicated in Section 36A of the Act. Since the
Notice of Enquiry alleged that the appellant had indulged in unfair trade
practices falling under Section 36A (1) (i), (ii), (iv) and (vi) of the
Act, the aforesaid provisions need to be noticed. They read as follows:

1 “36A. Definition of unfair trade practice – In this Part, unless the
context otherwise requires “unfair trade practice” means a trade practice
which, for the purpose of promoting the sale, use or supply of any goods or
for the provisions of any services, adopts any unfair method or unfair or
deceptive practice including any of the following practices, namely :-

(1) the practice of making any statement, whether orally or in writing or
by visible representation which,–

(i) falsely represents that the goods are of a particular standard,
quality, quantity, grade, composition, style or mode;

(ii) falsely represents that the services are of a particular standard,
quality or grade;

(iii) xxxxxxxxx

(iv) represents that the goods or services have sponsorships, approval,
performance, characteristics, accessories, uses or benefits which such
goods or services do not have;

(v) xxxxxxxxxx

(vi) makes a false or misleading representation concerning the need for, or
the usefulness of, any goods or services;”

According to Mr. Desai the allegations against the appellant do not attract
any of the practices mentioned in the Notice of Enquiry and contained in
the definition noted above.
The second limb of arguments also flows from the definition in Section 36A
of the Act. By placing reliance upon judgment of this Court in the case of
Rajasthan Housing Board vs. Parvati Devi (Smt) (2000) 6 SCC 104, it was
contended that when supplier and consumer have entered into an agreement
then the Commission, in order to hold the supplier guilty of unfair trade
practice on the basis of allegations made against it, is required to go
into the terms and conditions agreed between the parties for finding out
whether there was unfair trade practice so as to require further action on
the basis of complaints. In support of this proposition reliance was placed
mainly on paragraph 14 of the judgment which is as follows:
“14. For deciding such question, the Commission has to find out whether a
particular act can be condemned as an unfair trade practice; whether
representation contained a false statement and was misleading and what was
the effect of such a representation made to the common man. The issue
cannot be resolved by merely holding that representation was made to hand
over the possession within the stipulated period and the same is not
complied with or some lesser constructed area is given after the
construction of the building. The Commission has to find out whether the
representation, complained of, contains the element of misleading the buyer
and whether buyers are misled or they are informed in advance that there is
likelihood of delay in delivering the possession of constructed building
and also increase in the cost. For this purpose, terms and conditions of
the agreement are required to be examined by the Commission. Not only this,
the Commission is required to consider whether the Board has adopted unfair
method or deceptive practice for the purpose of promoting the sale, use or
supply of any goods or for the provisions of any services. Unless there is
a finding on this issue, the appellant Board cannot be penalised for unfair
trade practice.”

On behalf of appellant reliance was also placed upon judgment of this Court
in the case of M/s Lakhanpal National Limited vs. M.R.T.P. Commission and
Another (1989) 3 SCC 251, particularly paragraph 7 and 9 thereof. In
paragraph 7 it was held that the definition of “Unfair Trade Practice” in
Section 36A is not inclusive or flexible, but specific and limited in its
contents. The Court also considered the object of this provision with a
view to resolve the issue as to whether particular acts can be condemned as
unfair practice or not. We are in full agreement with the view expressed by
L. M. Sharma, J., as he then was and hence it would be more appropriate to
extract para 7 which runs thus:
“7. However, the question in controversy has to be answered by construing
the relevant provisions of the Act. The definition of “unfair trade
practice” in Section 36-A mentioned above is not inclusive or flexible, but
specific and limited in its contents. The object is to bring honesty and
truth in the relationship between the manufacturer and the consumer. When a
problem arises as to whether a particular act can be condemned as an unfair
trade practice or not, the key to the solution would be to examine whether
it contains a false statement and is misleading and further what is the
effect of such a representation made by the manufacturer on the common man?
Does it lead a reasonable person in the position of a buyer to a wrong
conclusion? The issue cannot be resolved by merely examining whether the
representation is correct or incorrect in the literal sense. A
representation containing a statement apparently correct in the technical
sense may have the effect of misleading the buyer by using tricky language.
Similarly a statement, which may be inaccurate in the technical literal
sense can convey the truth and sometimes more effectively than a literally
correct statement. It is, therefore, necessary to examine whether the
representation, complained of, contains the element of misleading the
buyer. Does a reasonable man on reading the advertisement form a belief
different from what the truth is? The position will have to be viewed with
objectivity, in an impersonal manner. It is stated in Halsbury’s Laws of
England (4th Edn., paras 1044 and 1045) that a representation will be
deemed to be false if it is false in substance and in fact; and the test by
which the representation is to be judged is to see whether the discrepancy
between the fact as represented and the actual fact is such as would be
considered material by a reasonable representee. “Another way of stating
the rule is to say that substantial falsity is, on the one hand, necessary,
and, on the other, adequate, to establish a misrepresentation” and “that
where the entire representation is a faithful picture or transcript of the
essential facts, no falsity is established, even though there may have been
any number of inaccuracies in unimportant details. Conversely, if the
general impression conveyed is false, the most punctilious and scrupulous
accuracy in immaterial minutiae will not render the representation true”;
Let us examine the relevant facts of this case in this background.”

In reply Mr. A.K. Sanghi, Senior Advocate defended the impugned order of
the respondent Commission. According to him the Commission acted fairly in
entertaining the complaints from three persons who found the booking amount
very high and therefore did not deposit the same. According to him once a
Preliminary Investigation Report dated 15.2.2000 was available with
conclusion and recommendation to the effect that only the basic price of
the car ought to have been collected from the public and not further amount
which can cover only excise duties and sales tax that goes to the
Government and that such amount should not have been retained by
manufacturing units for a long period of time, the Commission although did
not find the appellant guilty of any of the four specific provisions of
Section 36-A (1) but still it felt compelled to conclude against the
appellant and resultantly pass a cease and desist order under powers
conferred upon the Commission by Section 36-D (1) (a) of the Act.
Mr. Sanghi also sought to support the finding of the Commission on issue
number one that the appellant has indulged in unfair trade practice by
referring to certain narratives in the Preliminary Investigation Report
(PIR). As per his submission the Commission had not only communicated the
precise allegations in terms of Section 36-A but had also enclosed with the
Notice of Enquiry a copy of PIR and therefore findings cannot be criticized
on the ground that the allegations were not precisely communicated through
the Notice of Enquiry. We find no merit in these contentions. The
Commission could not have travelled beyond the specific allegations in the
Notice of Enquiry because such a course would violate rules of fairness and
natural justice. The scope of enquiry could have been enlarged only after
serving further notice with necessary details of allegations and supporting
facts. This was clearly not done by the Commission. It is a flagrant
violation of audi alteram partem rule. It renders the impugned order
invalid and bad in law. The order is also bad for non application of mind
to requirement of law as stipulated in Section 36A(1) of the Act and the
relevant facts.
We have gone through the Preliminary Investigation Report, the Notice of
Enquiry as well as the Order under appeal. We do not find any material or
even allegation in the PIR which could satisfy any of the four unfair trade
practices covered by various Clauses such as Clause (i), (ii), (iv) and
(vi) of Section 36-A (1) of the Act. A careful perusal of the Notice of
Enquiry dated 25.9.2000 reveals that no doubt a copy of the PIR was
enclosed but the notice made it clear itself that the Commission came to a
considered opinion that the Director (Research) had found the appellant
indulging in unfair trade practices falling precisely and only under
clauses (i), (ii), (iv) and (vi) of Section 36A(1) of the Act. The enquiry,
as per the notice, was to cover:- (a) whether the respondent has been
indulging in the above said unfair trade practice(s) and (b) whether the
said unfair trade practice(s) is/are prejudicial to public interest.
A scrutiny of the judgment under appeal discloses that the Commission
failed to keep in mind the precise allegations against the appellant with a
view to find out whether the facts could satisfy the definition of Unfair
Trade Practice(s) as alleged against the appellant in the Notice of
Enquiry. The Commission was apparently misled by the Preliminary
Investigation Report also which claimed to deal with reply received from
the appellant in course of the preliminary enquiry but patently failed even
to notice the stipulation as regards payment of interest on the booking
amount although this fact was obvious from the terms and conditions of the
booking and was reportedly relied upon by the appellant in its reply even
at the stage of preliminary investigation. The Commission noticed the
relevant facts including provision for interest while narrating the facts,
but failed to take note of this crucial aspect while discussing the
relevant materials for the purpose of arriving at its conclusions. Such
consideration and discussion begins from paragraph 32 onwards but without
ever indicating that the booking amounts had to be refunded within a short
time or else it was to carry interest at the rate of 10% per annum.
The order of the Commission appears to be largely influenced by a
conclusion that the appellant should not have asked for deposit of an
amount above the basic price because in the opinion of the Commission it
was unfair for the appellants to keep excise and sales tax with itself for
any period of time. Such conclusion of the Commission is based only upon
subjective considerations of fairness and do not pass the objective test of
law as per precise definitions under Section 36A of the Act. The
submissions and contentions of Mr. Desai merit acceptance.
Even after stretching the allegations and facts to a considerable extent in
favour of respondent Commission, we are unable to sustain the Commission’s
conclusions that the allegations and materials against the appellant make
out a case of unfair trade practice against the appellant. Nor there is
any scope to pass order under Section 36-D(1) of the Act when no case of
any unfair trade practice is made out. Hence, we are left with no option
but to set aside the order under appeal. We order accordingly. As a result
the appeal stands allowed. However, there shall be no order as to costs.

New Delhi.
September 7, 2015.



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