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C.A.No. 2069/06.

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 2069 OF 2006

Tata Engineering and        …..Appellant Locomotive Company Ltd.

Versus

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

J U D G M E N T

SHIVA KIRTI SINGH, J.

1. 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.  

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2. Since there is no dispute on facts, the case of the parties on

facts is common and to the following effect:

(i) 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

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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.

(ii) 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.  

(iii) 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

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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.

3. 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

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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.  

4. 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

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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.

5. 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:

“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 :-

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(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;”

6. 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.

7. 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

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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.”

8. 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

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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

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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.”

9. 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

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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.

10. 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

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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.  

11. 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.

12. A scrutiny of the judgment under appeal discloses that the

Commission failed to keep in mind the precise allegations against

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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.

13. 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

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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.

14. 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.

     …………………………………….J.       [VIKRAMAJIT SEN]

      ……………………………………..J.                         [SHIVA KIRTI SINGH]

New Delhi. September 7, 2015.

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