1999-(004)-CLJ -0267 -DEL Companies Act Judgements

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1999-(004)-CLJ -0267 -DEL

PENNWALT (I) LTD. AND ANOTHER v. MONOPOLIES AND RESTRICTIVE TRADE PRACTICES COMMISSION AND OTHERS.

CWP Nos. 4121, 4122 and 4387/95, decided on July 10, 1998.

JUDGMENT

D. K. JAIN, J. – The short but interesting question raised in these writ petitions, under Article 226 of the Constitution of India, is whether a preliminary investigation, as envisaged in section 11 or section 36C of the Monopolies and Restrictive Trade Practices Act, 1969 (for short the Act) is a condition precedent to the issue of process requiring the owner of an undertaking or any other person to show cause as to why an order directing payment of compensation for the loss or damage caused as a result of monopolistic or restrictive or unfair trade practice carried on by him be not made.

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2. Since the question involved is common in all the three matters, these are being disposed of by this common judgment.

3. To appreciate the controversy, we shall treat the facts in Civil Writ No. 4121/95 as illustrative.

4. The petitioner company, engaged in the business of supply and erection of refinery plants, etc., installed for respondent No. 2, the claimant, a 50 m.t. capacity edible oil refinery plant. According to the petitioner, the plant was duly commissioned; but the said respondent did not comply with their obligations; did not supply the raw material, electricity, etc., to conduct continuous testing for running of plant; obstructed its service personnel, with the result that the defects in the plant, if any, could not be rectified. It is alleged that without taking recourse to the arbitration proceedings under the arbitration clause, contained in the contract, in order to exert unwarranted pressure on the petitioner, the said respondent filed an application under section 12B read with section 36A of the Act, alleging that the petitioner had supplied defective, under-capacity plant and machinery of a make different from the one approved and ordered by the respondent, had thus, indulged in unfair trade practice within the meaning of section 36A(i), (ii), (iv), (vii) and (viii) and as a consequence thereof claimed a compensation of Rs. 110.48 lakhs, for the alleged loss suffered by them. On receipt of the application, the impugned show cause notice was issued by the Monopolies and Restrictive Trade Practices Commission (hereinafter referred to as the Commission), to the petitioner which led to the filing of the present petition, seeking quashing of the notice and setting aside of the proceedings in pursuance thereof. The impugned notice is primarily challenged in the writ petition on the ground that the Commission issuing it has no jurisdiction to entertain such an application or issue notice thereon without having the matter investigated by the Director General under section 11 or section 36C of the Act, which, it is claimed, is a condition precedent to the Commission issuing notice to the defaulting party.

5. On being served with the notice of motion alongwith ex parte ad interim injunction, restraining the Commission from proceeding further in respondent No. 2’s application, the said respondent filed their counter affidavit, opposing the writ petition, inter alia’ on the grounds that no substantial question of law pertaining to the inherent jurisdiction of the Commission arises warranting interference by this court; the Commission, like any other court or authority, is competent to decide the question relating to its own jurisdiction; the allegations in the application before the Commission ex facie attract the provisions of section 36A read with section 12B of the Act and it will be open to petitioner to urge all the points raised in the petition before the Commission including that of lack of jurisdiction of the Commission, which issue could be decided as a preliminary issue and the Commission is not obligated to have the matter investigated by the Director General by making a reference either under section 11 or section 36C of the Act, which, it is claimed, is not a condition precedent to the Commission issuing notice to the person from whom compensation under section 12B of the Act is claimed.

6. We have heard Mr. P. B. Aggarwal, Advocate, for the petitioners and Mr. Sudhir Nandarajog, Advocate, for M/s Aggarwal Chemical Industries – respondent No. 2 in CWP No. 4387/95. The other respondents remain unrepresented. However, written submissions have been filed on behalf of M/s Greaves Ltd.; one of the respondents’ in CWP No. 4122/95, who are stated to have entered into contract with the claimant for supply of diesel generating sets. We have taken into consideration the written submissions.

7. Challenging the legality and validity of the show cause notice issued by the Commission, Mr. Aggarwal has primarily urged three contentions :

(a) unless a finding is arrived at after a due inquiry under section 10 and/or section 36B of the Act that a party has indulged in monopolistic or restrictive or unfair trade practice, application under section 12B (for award of compensation) is not maintainable;

(b) causing of preliminary investigation by Director General under section 36C prior to issue of notice under section 12B, read with section 36B, of the Act, being a condition precedent, and in any case, not granting a pre-notice hearing to the petitioner to satisfy the Commission that the application was not maintainable, the issue of impugned notice is illegal, and

(c) none of the factors, as pleaded in the application by the claimants, constitute unfair trade practice within the meaning of section 36A of the Act, the Commission lacked inherent jurisdiction to entertain it.

8. An additional ground urged in Civil Writ Petition No. 4122/95 is that there was no privity of contract between the petitioner and the applicant/claimant as the equipment in question was to be supplied by respondent No. 3 – M/s Greaves Limited, and, therefore, the petitioner could not be proceeded against in the application by the claimant.

9. On the other hand, Mr. Nandarajog, appearing on behalf of the claimant in one of the writ petitions, while asserting that a pre-notice inquiry or hearing is not postulated under section 36B or section 12B of the Act and that the allegations in the claim petition clearly make out a case of unfair trade practice has, inter alia, submitted that the writ petition is misconceived inasmuch as the petitioner has not challenged the inherent lack of jurisdiction of the Commission in taking cognizance of petition filed by the claimant under section 12B of the Act, but is only aggrieved of the procedure adopted by the Commission, and the challenge herein being to a mere issue of a show cause notice, which is neither shown to be ex facie null and void, nor totally without jurisdiction, the writ petitions do not lie. In support, reliance is placed on a decision of the Supreme Court in Executive Engineer, Bihar State Electricity Board v. Ramesh Kumar Singh and others AIR 1996 SC 691, wherein, in the absence of any attack against the vires of a statutory provision or allegation of infringement of any fundamental right guaranteed by the Constitution, the action of the High Court in entertaining a writ petition under Article 226 of the Constitution against a show cause notice issued by a competent statutory authority was disapproved. Learned counsel has also contended that section 12B of the Act is a complete code by itself, which clothes within itself the inquiry and the grant of compensation, and in any case before proceeding to determine the compensation, the Commission will have to arrive at the finding of unfair trade practice.

10. Before examining the rival contentions it will be appropriate to notice the scheme of the Act and some of its relevant provisions.

11. The Act was enacted to ensure that the operation of the economic system does not result in concentration of economic power to the common detriment, for the control of monopolies, for the prohibition of monopolistic and restrictive trade practices and for matters connected therewith or incidental thereto. It comprises of nine Chapters. Chapter I deals with preliminary matters, like definitions, etc.; the other relevant Chapters are Chapters II and V. Chapter II (sections 5 to section 19) deals with the establishment and constitution of the Commission, the terms of office of its members and their removal, the appointment of Director General, etc. Sections 10 to section 19 deal with jurisdiction, the powers and the procedure of the Commission.

12. Section 10 of the Act empowers the Commission to enquire into monopolistic and restrictive trade practices. Section 11 of the Act provides that the Commission may, before issuing any process requiring the attendance of the person against whom any inquiry (other than an inquiry upon an application by the Director General) may be made under section 10, by an order, require the Director General to make, or cause to be made, a preliminary investigation in such manner as it may direct and submit a report to the Commission to enable it to satisfy itself as to whether or not the matter requires to be inquired into.

13. Chapter V has two parts : Part A (section 33 to section 36) provide for compulsory registration of certain agreements relating to ‘restrictive trade practices’, specified in section 33, by the Director General, to be entered in a register to be maintained by him.

14. The Act was amended by Amendment Act No. 30 of 1984 and apart from other amendments, Part B, relating to ‘unfair trade practices’, was inserted in Chapter V, with effect from 1 August, 1984. Section 36A of the Act, falling in the said Chapter, defined ‘unfair trade practices’. The section was again amended by Amendment Act No. 58 of 1991 on 27 September, 1991, further amplifying the definition.

15. Section 36B of the Act is akin to section 10. Both empower the Commission to hold inquiry under section 10 on receipt of a complaint of monopolistic or restrictive trade practice and under section 36B on receipt of complaint of unfair trade practice. Section 36C is pari materia to section 11 (1) of the Act. Both provide for investigation by Director General. Under section 66 of the Act, the Commission has the power to make regulations for the efficient performance of its functions under the Act. Chapter 11 of the Monopolistic and Restrictive Trade Practices Commission Regulations, 1991, deals with the preliminary investigation. Regulation 17 is as follows :

“17. Order of investigation and its effect. – (1) The Commission may, on receipt of a complaint, reference, application or information, or as the case may be, on its own knowledge in the matter of restrictive or unfair trade practice under clause (a) of section 10 or section 36B order a preliminary investigation by the Director General or by an officer not below the rank of Assistant Director.

Explanation. – Whenever the Commission directs a preliminary investigation into any complaint under sub-clause (1) of clause (a) of section 10 or a preliminary investigation is compulsorily required under section 36C in respect of a complaint by any association, such investigation shall be made by the Director General.

(2) Order of investigation by the Commission under sub-regulation (1) shall be deemed to be the commencement of inquiry under the Act.”

16. From the aforesaid provisions of the Act and regulation 17, it is evident that on receipt of a complaint either for alleged monopolistic or restrictive or unfair trade practice, the Commission, before issuing the process against the person against whom the inquiry is demanded, may require the Director General to make preliminary investigation to enable it to satisfy itself as to whether or not the complaint requires to be inquired into. The use of the term ‘may’ in sub-section (1) of section 11 of the Act implies that it is an enabling provision, and not an obligatory provision for the Commission to have a preliminary investigation caused by the Director General on receipt of a complaint either under section 10 or section 36B of the Act. The discretion in this behalf rests with the Commission, and it is axiomatic that the same is to be exercised judiciously by the Commission having regard to the facts of each case, but there is no legislative mandate as such on the Commission that it must invariably, as a matter of law, require a preliminary investigation being held by the Director General in every case.

17. At this stage, we may now notice the provisions of section 12B of the Act, which is material for the instant case. It, inter alia, provides for enquiry for unfair trade practice and the claim for loss/damages suffered by the complainant. Relevant portion of the section reads as under :

“12B. Power of the Commission to award compensation. – (1) Where, as a result of the monopolistic or restrictive, or unfair, trade practice, carried on by any under-taking or any person, any loss or damage is caused to the Central Government, or any State Government or any trader or class of traders or any consumer, such Government or, as the case may be, trader or class of traders or consumer, may without prejudice to the right of such Government, trader or class of traders or consumer to institute a suit for the recovery of any compensation for the loss or damage so caused, make an application to the Commission for an order for the recovery from that undertaking or owner thereof or, as the case may be, from such person, of such amount as the Commission may determine, as compensation for the loss or damage so caused.

(2) * * *  *

(3) The Commission may, after an inquiry made into the allegations made in the application filed under sub-section (1), make an order directing the owner of the undertaking or other person to make payment, to the applicant, of the amount determined by it as realisable from the undertaking or the owner thereof, or, as the case may be, from the other person, as compensation for the loss or damage caused to the applicant by reason of any monopolistic or restrictive, or unfair, trade practice carried on by such undertaking or other person.”

18. section 12B of the Act, thus, empowers the Commission to award compensation to any person, trader or class of traders and/or consumer, etc., when such person or body has sustained loss or damage, as a result of indulgence by any undertaking or any person in monopolistic or restrictive or unfair trade practice. Unlike section 11 and section 36C of the Act, there is no provision in section 12B for preliminary investigation by the Director General into the allegations levelled in the claim petition. It is evident from the language of sub-section (1) of section 12B, namely, ‘…. as a result of monopolistic or restrictive or unfair trade practice …’ that an applicant under section 12B has not only to prove the quantum of compensation on account of loss and damage but is also required to prove the indulgence by the undertaking or any person in monopolistic or restrictive or unfair trade practice. Sub-section (3) of section 12B envisages an inquiry by the Commission into the allegations made in the application filed under sub-section (1) before awarding compensation to the claimant. Except for an inquiry under sub-section (3), the section does not postulate an independent inquiry as stipulated either in section 10 or section 36B of the Act as is sought to be pleaded by the petitioner.

19. Thus, we have no hesitation in coming to the conclusion that the proceedings under section 12B of the Act are not dependent on proceedings under section 10 or section 36B of the Act and a preliminary inquiry as envisaged in section 11 or section section 36C is not a condition precedent to the maintainability of a claim under section 12B of the Act.

20. That being so, the other question which remains to be considered as such is whether the notice issued to the petitioner by the Commission could be held to be bad and liable to be quashed for non-compliance of the rule of audi alteram partem for want of some sort of preliminary hearing to the petitioner before the Commission decides to take cognizance of the application for compensation.

21. It is well settled that the rule of audi alteram partem is not attracted unless the impugned order is shown to have deprived a person of his liberty or his property. The application of the said rule can be excluded where nothing unfair can be inferred for want of an opportunity of being heard. In Maneka Gandhi v. Union of India AIR 1978 SC 597, while elaborately dealing with the rule of audi alteram partem, [the Supreme Court] observed as follows :

“Now it is not true that since the right to prior notice and opportunity of hearing arises only by implication from the duty to act fairly, or to use the words of Lord Morris of Borth-y-Gest, from ‘fair play in action’, it may equally be excluded where, having regard to the nature of the action to be taken, its object and purpose and the scheme of the relevant statutory provision, fairness in action does not demand its implication and even warrants its exclusion.”

22. From the above extracted observations, it is clear that there could be certain situations where application of rule of audi alteram partem is not attracted. Applying the above principle and bearing in mind the scheme of the statutory provisions contained in section 12B of the Act, we are of the view that the rule of audi alteram partem does not superimpose an obligation on the Commission to issue a prior notice to the party against whom a claim is lodged; hear him and then decide whether to proceed with the claim preferred under the said section. After all, the show cause notice only requires the party to answer the allegations in the claimant’s application. After the party responds to the notice, a full-fledged inquiry has necessarily to be conducted under sub-section (3) of section 12B before a final order under the section is passed. It will be the final order under the said section, which may entail civil consequences and not the mere issue of a show cause notice under the said sections.

23. Thus, we reject petitioner’s this argument as well. Furthermore, as observed by the Supreme Court in Ramesh Kumar Singh’s case [Executive Engineer, Bihar State Electricity Board v. Ramesh Kumar Singh and others AIR 1996 SC 691], supra, the petitioners, in answer to the show cause notice, can take up the objection regarding the jurisdiction of the Commission also, and in the event of an adverse decision on the said objection, it will be open to them to assail the same in appropriate proceedings and we feel that it is not the proper stage to entertain the writ petitions against a show cause notice issued by a competent statutory authority.

24. For the view we have taken, it is unnecessary to deal with other contentions urged by learned counsel for the parties on the merits of the claim preferred, as adjudication on these ‘issues would not only involve disputed questions of fact, requiring inquiry by the Commission, but any observation thereon may prejudice the case of either of the parties in the final inquiry under

section 12B of the Act.

25. For the aforesaid reasons, we do not find any merit in the writ petitions. The same are accordingly dismissed, the rule is discharged, and interim order is hereby vacated. But, in the circumstances, there will be no order as to costs.

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