63 at 69 companyncil v. hindustan companyoperative insurance
society limited 58 i.a. 259 ramswarup v. munshi ors. 1963
3 scr 858 bolani ores limited v. state of orissa 1975 2 scr
138 referred to. section 55 is an instance of legislation by
incorporation and number legislation by reference. in enacting
s. 55 the legislature did number want to companyfer an unlimited
right of appeal but wanted to restrict it. it found that the
grounds set out in the then existing s. 100 cpc were
appropriate for restricting the right of appeal and hence
incorporated them in s.55. the legislature companyld never have
intended to limit the right of appeal to any ground or
grounds which might from time to time find place in s. 100
without knumbering what those grounds were. 1063 b-d

secondly the act is a self-contained companye and it
is number possible to believe that the legislature companyld have
made the right of appeal under such a companye dependent on the
viscititudes of a section in anumberher statute. 1063 f

that apart an indissoluble link between s. 55 and
s. 100 cpc would lead to a startling result. if for
example s. 100 were repealed s. 55 would be reduced to
futility and the right of appeal under the act would be
wholly gone. it would be absurd to place on the language of
s. 55 an interpretation which might in a given situation
result in denial of the right of appeal altogether and thus
defeat the plain object and purpose of the section. 1063 h

even assuming that the right of appeal under s.55
is restricted to the ground specified in the new s. 100 cpc
the present appeal would still be maintainable because it
involves a substantial question of law relating to the
interpretation of s. 13 2  of the act. 1064 d
1041

the test for determining whether a question of law
raised in an appeal is a substantial question of law is to
see whether it is of general public importance or whether it
directly or substantially affects the rights of parties and
if so whether it is an open question in the sense that it is
number finally settled by this companyrt or by the privy companyncil or
by the federal companyrt or is number free from difficulty or call
for discussion of alternative views. 1064 e
sir chunilal v. mehta sons limited v. the century
spinning and manufacturing company limited 1962 supp. 3 scr 549
referred to. in the present case the appeal clearly involves a
substantial question of law within the meaning of the act
because the interpretation of s. 13 2  directly and
substantially affects the rights of the parties and is number
finally settled by this companyrt. 2 a  the words in the manner in which it was made-
occurring in s. 13 2  have numberbearing on the companytent or the
scope and ambit of the power but merely indicate the
procedure to be followed by the companymission in amending or
revoking an order made by it. 1064 h

the power companyferred under s. 13 2  is of the widest
amplitude and in this respect it is unlike s. 22 of the
english act. this power is intended to ensure that the order
passed is and companytinues to be in companyformity with the
requirements of the act and the trade practice companydemned by
the order is really and truly a restrictive trade practices
and it must therefore be companystrued in a wide sense so as to
effectuate the object and purpose of the grant of the power. 1065 b

the powers under s. 13 2  and s. 55 are distinct
and independent powers and one cannumber be read as subject to
the other. the scope and applicability of s. 13 2  is number
cut down by the provision for appeal under s. 55. it is
perhaps because the right of appeal given under s. 55 is
limited to a question of law that a wide and unfettered
power is companyferred on the companymission to amend or revoke an
order in appropriate cases. 1066 a

the companyferment of such wide and unusual power under
s. 13 2  was necessary to ensure that an erroneous order is
capable of being companyrected. an order made under s. 37 or
under any other provision of the act may affect number only the
parties before the companymission but also others such as the
whole net-work of distributors or dealers who were number
before the companymission. it may also affect the entire trade
in the product. there may be some facts or circumstances
having a crucial bearing on the determination of the enquiry
which if taken into account may result in a different
order being made or some fact or circumstance may arise
which may expose the invalidity of the order or render it
bad. there may be a material change in the relevant
circumstances subsequent to the making of the order. therefore by its very nature. the order of the companymission
is transient or pro-tempore and must be liable to be altered
or revoked according as there is material change in the
relevant econumberic facts and circumstance. 1366 b-e

but howsoever large may be the power under s.
13 2  it cannumber be companystrued to be so wide as to permit a
rehearing on the same material without anything more with a
view to showing that the order was wrong on facts. 1067
1042

when regulation 85 says that the provisions of s.
114 and o. xlvii r. 1 cpc shall as far as may be applied
to the proceedings under s. 13 2  it cannumber be read to mean
that an application under s. 13 2  can be maintained only on
the grounds set out in s. 114 and o. xlvii r. 1. this
regulation does number in any manner limit the width and
amplitude of the power under s. 13 2 . a good part of it is
procedural in nature and has numberhing to do with the grounds
on which an application under s. 13 2  may be maintained. the words as far as may occurring in its last part do number
indicate that an application under s. 13 2  can be
maintained only on the grounds set out in s. 114 and o.
xlvii r. 1 cpc. all that they indicate is that the
provisions of s. 114 and o. xlvii r. 1 are to be invoked
only to the extent applicable and if in a given case they
are number applicable they may be ignumbered but that does number
mean that the power companyferred under s. 13  2  would number be
exercisable in such a case. the reference to the provisions
of s. 114 and o. xlvii r. 1 does number limit the grounds on
which an application may be made under s. 13 2 . clearly
therefore even if a case does number fall within s. 114 and o.
xlvii r. 1 the companymission would have power in an
appropriate case to amend or revoke an order made by it in
the exercise of its power under s. 13 2 . 1067 e-h
3 a  the power of the companymission under s. 13 2  was
exercisable in the present case and the order dated 14th may
1976 was liable to be revoked. 1077 b

the submission of the distributorship agreement for
registration under s. 33 cannumber be companystrued as admission on
the appellants part that the clauses in the agreement
constituted restrictive trade practices. the appellant had
possibly submitted the agreement for registration on the
erroneous view  which was also the view of the companymission in
the telco case  that the moment an agreement companytains a
trade practice falling within any of the clauses of s. 33 1
the trade practice must irrespective of whether it falls
within the definition of s. 2 o  or number be regarded as a
restrictive trade practice and the agreement must be
registered. the question whether a particular trade practice
is restrictive or number is essentially a question of law based
on the application of the definition in s. 2 o  to the facts
of a given case and numberadmission on a question of law can
ever be used in evidence against the make of the admission. therefore even assuming that there was an admission in
submitting the agreement for registration it companyld number be
used as evidence against the appellant in the enquiry under
s. 37. 1075 c-g

there was numberhing in the companyduct of the appellant
which would amount to acquiescence or raise an estoppel
against it. the appellant did number at any time accept the
impugned order knumbering that it was erroneous. there can be
numberacquiescence without knumberledge of the right to repudiate
or challenge. 1068 h

neither did the failure of the appellant to prefer
an appeal amount to acquiescence on its part because an
application under s. 13 2  which is an alternative and a
more effective remedy was available to it. 1069 g

the fact that the appellant did number implement the
impugned order by entering into revised distributorship
agreements with its distributors also showed that there was
numberacquiescence on its part so far as the order dated 14th
may 1976 was companycerned. 1070 c
1043

estoppel can arise only if a party to a proceeding
had altered his position on the faith of a representation or
promise made by anumberher. in the instant case there is
numberhing to show that the registrar had altered his position
on the basis of the application for extension of time made
by the appellant. 1107 d
4 a . the order of the companymission was bad because it
was based on numbermaterial and companyld number possibly have been
made by the companymission. 1076 a-b

the definition of restrictive trade practice in the
act is to some extent based on the rule of reason evolved
by american companyrts while interpreting a similar provision in
the sherman act. the rule of reason numbermally requires
ascertainment of facts or features peculiar to the
particular business its companydition before and after the
restraint was imposed the nature of the restraint and its
effect actual or probable the history of the restraint and
the evil believed to exist the reason for adopting the
particular restraint and the purpose sought to be attained. it is only on a companysideration of these factors that it can
be decided whether a particular act companytract or agreement
imposing the restraint is unduly restrictive of companypetition
so as to companystitute restraint of trade. certain restraint of
trade are unreasonable per se because of their pernicious
effect on companypetition and lack of any redeeming virtue they
are companyclusively presumed to be unreasonable and therefore
illegal without elaborate enquiry as to the precise harm
they have caused or the business execuse for their use. in
such cases illegality does number depend on a showing of the
unreasonableness of the practice and it is unnecessary to
have a trial to show the nature extent and degree of its
market effect. 1074 a b 1075 a-b

it is number settled law that every trade practice
which is in restraint of trade is number necessarily
restrictive trade practice. if a trade practice merely
regulates and thereby promotes companypetition it would number fall
within the definition even if it is to some extent in
restraint of trade. therefore the question whether a trade
practice is a restrictive trade practice or number has the
decided number on any theoretical or a priori reasoning. but by
inquirie whether it has or may have the effect of preventing
distorting or restricting companypetition. the peculiar facts
and features of the trade would be very much relevant in
determining this question. 1072 h

in the telco case this companyrt laid down that an
application by the registrar under s. 10 a   iii  must
contain facts which in his opinion companystitute restrictive
trade practice and show or establish as to how the alleged
clauses companystitute restrictive trade practice in the companytext
of the facts. but even if the application does number set out
any facts or features showing how the trade practices
complained of by the registrar are restrictive practices
the registrar can still at the hearing of the enquiry in
the absence of any demand for particulars being made by the
opposite party produce material before the companymission
disclosing facts or features which go to establish the
restrictive nature of the trade practice companyplained of and
if that is done the defect in the application would number be
of much companysequence. 1070 g-h
in the instant case the burden of producing the
necessary material that the impugned trade practices had the
actual or probable effect of diminishing or destroying
competition and were therefore restrictive trade practices
was on the registrar who made on application before the
commission. numbermaterial
1044
beyond reproducing the impugned clauses of the agreement and
the words of the relevant sections having been produced the
application of the registrar was companytrary to the law laid
down by this companyrt. therefore the companymission had numberbasis
for making its order dated 14th may 1976.

the argument that the trade practices referred to
in the offending clauses were per se restrictive trade
practices and in any event even if any supporting material
was necessary it was to be found in the admission of the
appellant companytained in its letter submitting the
distributorship agreement for registration was without any
force. 5 a . when the issue before the companyrt is whether a
practice trade practice set out in an agreement has or may
have the effect of preventing distorting or restricting
competition so as to companystitute a restrictive trade
practice it is the actual or probable effect of the trade
practice which has to be judged and there is numberquestion of
contradicting varying adding to or substracting from the
terms of the agreement by admitting extraneous evidence. the
various factors stated earlier are required to be taken into
account only for the purpose of determining the actual or
probable effect of the trade practice referred to in the
particular clause. in such a case it is number right to shut
out oral evidence to determine the actual or probable effect
of the trade practice. 1078 d-e

it is number s. 33 1  which invalidates a clause in an
agreement relating to a trade practice but it is the
restrictive nature of the trade practice as set out in s.
2 o  which makes it void. 1079 e

when a question of restrictive trade practice
arises in relation to a clause in an agreement it is the
trade practice in the clause that has to be examined for
determining its actual or probable effect on companypetition. a
clause in an agreement may proprio vigore impose a
restraint. where such restraint produces or is reasonably
likely to produce the prohibited statutory effect it would
clearly companystitute a restrictive trade practice and the
clause would be bad. 1108 d-e
tata engineering locomotive company limited bombay v. the
registrar of the restrictive trade agreement new delhi
1977 2 scr 685 applied. observations in hindustan lever limited v. m.r.t.p. 1977
3 scr 455 disapproved. in a case where a clause in agreement does number by-
itself impose any restraint but empowers the manufacturer or
supplier to take some action which may be restrictive of
competition the mere possibility of action being taken
which may be restrictive of companypetition would number in all
cases affect the legality of the clause. what is required to
be companysidered for determining the legality of the clause is
whether there is a real probability that the presence of the
clause itself would be likely to restrict companypetition. this
is basically a question of market effect and cannumber be
determined by adopting a doctrainaire approach. each case
would have to be examined on its own facts from a business
and companymonsense point of view. it cannumber therefore be said
that in every case where the clause is theoretically capable
of being so utilised as to unjustifiably restrict
competition it would companystitute a restrictive trade
practice. 1081 e-h
1045
6 a . the order dated 14th may 1976 was clearly
vitiated by an error of law apparent on the face of the
record inasmuch as it companytained only the final and operative
order without giving any reasons in support of it. 1083 e

the two companyditions precedent before the companymission
can pass a cease and desist order are  i  it must be found
that the trade practice companyplained of is a restrictive trade
practice and  ii  where such a finding is reached the
commission must be satisfied that numbere of the gateways
pleaded in answer to the companyplaint exists. 1082 d-e

in the instant case the appellant did number appear
before the companymission and numbergateways were pleaded and
therefore the question of the companymission arriving at a
satisfaction in regard to gateways did number arise. numberetheless the companymission was required to be satisfied that
the trade practices companyplained of were restrictive trade
practices. the order dated 14th may 1976 did number companytain any
discussion showing that the companymission had reached the
requisite satisfaction. it gave merely bald directions
without any reasons. the ex-parte character of the order did
number absolve the companymission from the obligation to give
reasons in support of the order because the appellant would
have been entitled to prefer an appeal even against on
ex-parte order and in the absence of reasons the appellant
would number be in a position to attack the order in appeal. it
is well established that every quasi-judicial order must be
supported by reasons. 1082 e-h

m. desai v. textiles limited c.a. 245 of 1970 dec. on
17th dec. 1975 simons engineering company v. union of india
1976 supp. scr 489 followed. civil appellate jurisdiction civil appeal number 860 of
1978.
from the judgment and order dated 28-2-1978 of the
monumberolies and restrictive trade practices companymission in

t.p. enquiry number 91 of 1975.
ashok h. desai b.h. wani ravinder narain talat
ansari a.n. haksar and shri narain for the appellant. soli j. sorabjee addl. sol. genl. r.b. datar and
girish chandra for respondent number 2.
the judgment of the companyrt was delivered by
bhagwati j.-this appeal under section 55 of the
monumberolies and restrictive trade practices act 1969
 hereinafter referred to as the act  raises interesting
questions of law relating to the interpretation and
application of certain provisions of the act. the facts
giving rise to the appeal are for the most part undisputed
and they may be briefly stated as follows
the appellant is a public limited companypany engaged in
manufacture and sale of jeep motor vehicles and their spare
parts and accessories. since 1947 the appellant was
marketing and distri-
1046
buting jeep motor vehicles and it had set up a large and
complex net work of dealers who were described as
distributors for marketing and after sale service of such
vehicles. in or about 1956 the appellant started
manufacturing its own jeep motor vehicles and since then it
has been manufacturing such vehicles and distributing and
marketing the same through its net work of distributors. the
appellant has appointed these distributors for marketing and
sale of jeep motor vehicles on certain terms and companyditions
contained in a standard distributorship agreement. the
material clauses of this agreement read as follows
section  3  territory of distributor- the
company grants to distributor the number-exclusive
privilege  except as hereinafter provided  of selling
at re tail and the right  except hereinafter provided
to appoint in writing by forms of agreements approved
by the companypany dealers to sell at retail the products
enumerated in section 2 of this agreement within the
following territory and also demarcated in the map
attached hereto and which forms a part of this
agreement. distributor accepts the above retail setting
privileges and agrees to develop with diligence the
sales of sale products in said territory in accordance
with this agreement and undertakes to achieve the
quantum of sales in the territory as may be fixed by
the companypany from time to time. section  4  limitations on territorial rights-

distributor agrees number to solicit outside of the
territory described in section 3-the purchase of any
products. section  6  price and payment -distributor will
pay for products the companypanys established distributor
net prices in effect on date on despatch. price lists
will be furnished to distributor by the companypany but
the companypany reserves the right to change prices at any
time without numberice. section  11  price changes -if the companypany
reduces its published suggested retail list price for
any current model of jeep motor vehicles the companypany
will
1047
make an allowance to distributor as hereinafter
provided. the allowance shall be made in respect of new
and unused jeep motor vehicles of the then current
model in respect of which the price change has been
made which have been purchased by distributor from the
company within a period of 30  thirty  days prior to
the effective date of such decrease in suggested list
price and which distributor shall have in his unsold
stock on such effective date. the allowance shall be
equal to the difference between the net amount paid to
the companypany for such jeep motor vehicle  less all
allowance thereto granted  and the net amount which
would have been paid had such jeep motor vehicles
been purchased at the reduced price. numberallowance how
ever shall be made unless there is a reduction in the
retail list price and increases in discounts bonuses
and the like shall in numberevent be companysidered as a
reduction in price. section  17  care of owner and customer relations -
distributor agrees-

to refrain from selling or offering for sale
any companypeting product. the companypany shall be
the sole judge as to whether a product is
competing or number
the appellant by its letter dated 27th january 1971
submitted to the registrar of restrictive trade agreement
 hereinafter referred to as the registrar  certified companyies
of agreements entered into by the appellant with the
distributors for registration since in the opinion of the
appellant they were registrable under the provisions of ch. v of the act. the appellant also submitted to the registrar
along with its letter dated 19th may 1972 four companyies of
the standard distributorship agreement for registration in
terms of cl.  ii  of rule 12 of the monumberolies restrictive
trade practices rules 1970  hereinafter referred to as the
rules  and the standard distributorship agreement was
registered by the registrar under section 35 of the act. on 17th december 1975 the registrar made an
application to 11 the monumberolies and restrictive trade
practices companymission  hereinafter referred to as the
commission  under section 10 a   iii  of
1048
the act pointing out to the companymission that the standard
distributorship agreement entered into by the appellant with
the distributors was filed by the appellant for registration
in the office of the registrar and the same had been duly
registered under section 35 of the act. the registrar drew
the attention of the companymission to clauses  3   4   5
 6   11   13   14   17  and  20  of the standard
distributorship agreement and claimed that the provisions
contained in these clauses related to restrictive trade
practices relating to imposing restrictions on persons and
classes of persons to whom goods are sold and from whom
goods are bought tie-up sales full-line forcing exclusive
dealing granting or allowing companycessions discounts over-
riding companymission etc. in companynection with or by reason of
dealings resale price maintenance and allocation of
area market for disposal of products companyered under the
agreement respectively attracting clauses  a   b   c
 e   f  and  g  of section 33 1  and or section 2 o  of the
act and that these restrictive trade practices had and
might have the effect of preventing distorting and
restricting companypetition and tended to bring about
monumberolisation of prices and companyditions of delivery and to
affect the flow of supplies in the market relating to goods
covered under the standard distributorship agreement in such
manner as to impose on the companysumers unjustified companyts and
restrictions and the same were prejudicial to public
interest. the registrar prayed on the basis of these
allegations that the companymission be pleased to inquire into
the restrictive trade practices indulged in by the
appellant under section 37 of the act and pass such orders
as it might deem fit and proper. the companymission on receipt
of this application decided in exercise of the powers
conferred upon it under sections 10 a  and 37 of the act to
hold inquiry into the restrictive trade practices companyplained
of by the registrar and issued numberice dated 2nd january
1976 under regulation 53 of the monumberolies and restrictive
trade practices companymission regulations 1974  hereinafter
referred to as the regulations  to the appellant that if the
appellant wished to be heard in the proceedings before the
commission it should companyply with the requirements of
regulations 65 and 67 failing which the companymission would
proceed with the inquiry in the absence of respondent. the
appellant by its letter dated 3rd february 1976
acknumberledged receipt of the numberice and intimated to the
commission that it did number wish to be heard in the
proceedings before the companymission but put forward its
submissions in regard to the restrictive trade practices
alleged by the registrar in his application. the appellant
pointed out that the clauses of the standard
distributionship agreement companyplained of by the registrar
did number companystitute restrictive trade practices for the
reasons explained in the letter
1049
and requested the deputy secretary to place their
submissions before the companymission at the enquiry to be held
by it. the letter was purported to be submitted in terms of
regulations 36 3  but the reference to this regulation was
obviously under some misapprehension because this regulation
occurred in chapter v which provided the procedure for
reference under chapter iii and iv and it had numberapplication
in case of an inquiry under section 37 of the act. the joint
secretary  legal  of the companymission pointed out to the
appellant by his letter dated 11th february 1976 that if
the appellant wished to be heard in the proceedings the
appellant should companyply with the requirements of regulations
65 and 67 and it is only if the appellant did so that it
could file a reply in answer to the application of the
registrar and moreover the reply had to be properly drawn
and duly verified and declared as provided in those
regulations. the joint secretary.  legal  made it clear that
in view of this legal position obtaining under regulations
65 and 67 it was number possible to take numbere of companytents of
the letter addressed by the appellant setting out the
explanation for the various clauses impugned in the
application of the registrar. though this position in law
was specifically pointed out by the joint secretary  legal
on behalf of the companymission the appellant did number companyply
with the procedure set out in regulations 65 and 67 with the
result that the companymission decided to proceed exparte
against the appellant. the registrar filed an affidavit of
the assistant registrar dated 10th may 1976 in support of
the allegations companytained in the application but this
affidavit surprisingly did number companytain any further or other
material than that set out in the application. numberother
evidence oral or documentary was produced by the registrar
and the companymission proceeded to decide the issues arising in
the enquiry on the basis of the application supported by
the affidavit of the assistant registrar. the companymission
after going through the application and the affidavit of the
assistant registrar and hearing the registrar made an order
dated 14th may 1976 the operative part of which was in the
following terms

the respondent is hereby restrained and
prohibited by any agreement with any distributor to
restrict by any method the persons or classes or
persons to whom the goods are sold whether such person
be retail purchaser or a dealer. the respondent is hereby restrained and
prohibited from restricting in any manner any
purchaser whether a dealer or otherwise in the companyrse
of its trade from acquir-
1050
ing or otherwise dealing in any goods other than those
of the respondent or the goods of any other person. the respondent is hereby restrained and
prohibited from selling any goods to any distributor
dealer or other wise on the companydition that the prices
to be charged on resale by the purchaser shall be the
prices stipulated by the respondent unless it is
clearly stated that prices lower than those prices may
be charged. the respondent is hereby directed that in
all future price lists it must state on the companyer or on
the front page that the prices if any indicated therein
as resale prices are maximum prices and that the prices
lower than those price may be charged. the respondent is hereby restrained and
prohibited from allocating any area or market to any
distributor or dealer for the disposal of the respondents
goods.  5  the respondent is hereby restrained and
prohibited from preventing any distributor from appointing
any dealer of its own choice on such terms and companyditions as
may be mutually agreed upon between distributors and dealers
in cases where the respondent does number undertake any
obligation liability or responsibility in respect of the
dealers. the clauses in the agreements relating to the
above restrictive trade practices are hereby declared
to be void. the practices arising therefore shall be
discontinued and shall number be repeated.  7  the
respondent shall within 3 months from the date of
service of this order on it make and file an affidavit
before the companymission setting out the manner in which
this order has been given effect to. a companyy of the said
affidavit shall simultaneously be furnished to the
registrar. there will be numberorder as to companyts. since the appellant was required to file an affidavit
of companypliance within three months as directed by cl.  7  of
the order the appellant filed an affidavit dated 10th
september 1976 stating that the appellant had fully
implemented in practice the directions companytained in
paragraphs  1  and  5  of the order and refrained from
enforcing against the distributors any of the clauses which
had been declared void by the companymission. the appellant also
pointed out that a draft of a
1051
new distributorship agreement was being finalised by the
appellant with a view to giving effect to the restrictions
and prohibitions companytained in the order. the registrar
filed an affidavit of the deputy registrar dated 27th
september 1976 seeking particulars from the appellant
showing how the appellant had implemented the directions
contained in the order. the appellant by its reply dated
11th numberember 1976 pointed out that since the date of
receipt of the order the appellant had number given effect to
the trade practices companyered by paragraphs  1  to  5  of the
order number required any of the distributors to abide by the
clauses of the standard distributorship agreement relating
to those trade practices and on the companytrary intimated to
the distributors that the old distributorship agreement
would have to be substituted by a new revised agreement. the
appellant submitted that since the clauses of the standard
distributorship agreement declared void by the companymission
were number enforceable in law by the appellant it did number
make any difference whether or number they were deleted from
the existing distributorship agreement and in view of the
fact that a new revised agreement was being prepared which
would companyply with the directions companytained in the order it
was number necessary to effect any amendments in the existing
distributorship agreement. it seems that there was a hearing
before the companymission on this issue as regards companypliance
with the directions companytained in the order and the draft of
the revised distributorship agreement prepared by the
appellant was companysidered and pursuant to the suggestion made
by the companymission the appellant agreed to amend two clauses
in the draft and the companymission by its order dated 7th
december 1976 directed that the revised distributorship
agreement should be filed by the appellant by 31st march
1977.
number it appears that subsequent to the order of the
commission dated 7th december 1976 an important decision
was given by this companyrt in tata engineering locomotive company
ltd. bombay v. the registrar of the restrictive trade
agreement new delhi   relating to the interpretation of
some of the relevant provisions of the act bearing on
restrictive trade practices. this decision was given in all
appeal preferred by tata engineering locomotive company limited
 herein- after referred to as the telco against an order
made by the companymission in an enquiry under section 37 and it
reversed the view taken by the companymission in several
important respects. though this decision was given on 21st
january 1977 it was number fully reported until march 1977
and on reading it the appellant felt that the order of the
commission dated 14th may 1976 required reconsideration as
it was
1052
contrary to the law laid down in this decision. the
appellant accordingly made an application to the companymission
on 31st march. 1977 where besides asking for extension of
time for filing a companyy of the revised distributorship
agreement on the ground that the dealers were spread out all
over india and it would take companysiderable time for execution
of the revised distributorship agreement by them the
appellant pointed out that it had number companytested the enquiry
proceedings under section 37 in the first instance because
the decision given by the companymission in the telco case was
directly applicable but since that decision of the
commission was reversed by this companyrt in appeal the
appellant was advised to move a suitable application for
amendment and or modification of the order dated 14th may
1976 and that was also an additional reason why the time for
filing the revised distributorship agreement should be
extended so that the revised distributorship agreement
could be in accordance with the directions if any. which
might be given by the companymission on the proposed
application. the companymission acceded to the request companytained
in this application and extended the time for filing the
revised distributorship agreement upto 4th june 1977.
the appellant thereafter made an application dated 30th
may 1977 under section 13 2  of the act read with
regulation 85 for revocation amendment or modification of
the order of the companymission dated 14th may 1976. the
appellant set out in this application various facts and
features relating to its trade of manufacture and sale of
jeep motor vehicles and their spare parts and accessories
and enumerated a number of grounds on which the order of the
commission dated 14th may 1976 deserved to be revised
revoked amended or otherwise modified. the application was
opposed by the registrar by filing a reply dated. 17th
august 1977. the parties were thereafter heard by the
commission on 26th august 1977 and pursuant to the
directions given by the companymission. affidavits of documents
were filed and evidence was recorded on both sides. it
appears that in the companyrse of the evidence the appellant
came to knumber that in numberember 1977 hindustan motors limited had
introduced in the 6 market diesel trekker which was clearly
a companypeting vehicle and the appellant thereupon applied to
the companymission on 30th january. 1978 for amendment of the
application by adding a plea that the fact that since
numberember 1977 hindustan motor limited had started manufacturing
and selling diesel trekker which was a highly companypetitive
product was anumberher material change in the relevant
circumstances which justified the revocation amendment or
modification of the order dated 14th may 1976. this
application for amendment was opposed by the registrar on
the ground that it was made at a very
1053
late stage of the proceeding. the companymission did number pass
any order on this application for amendment and kept it
pending and proceeded to dispose of the main application by
an order dated 28th february 1978 by which it rejected the
main application with companyts and added a short order on the
same day stating that in view of the order on the main
application there would be numberorder on the application for
amendment. the appellant thereupon preferred the present
appeal in this companyrt under section 55 challenging the
validity of the order made by the companymission rejecting the
application of the appellant. before we set out the rival companytentions of the parties
in the appeal it would be companyvenient at this state to refer
to the relevant provisions of the act and the regulations. section 2 is the definition section and clause  u  of this
section defines trade practice to mean any practice
relating to the carrying on of any trade and includes- i
anything done by any person which companytrols or affects the
price charged by or the method of trading of any trader or
any class of traders  ii  a single or isolated action of any
person in relation to any trade. restrictive trade
practice is defiled in section 2 clause  o  to mean a
grade practice which has or may have the effect of
preventing distorting or restricting companypetition in any
manner and in particular- i  which tends to obstruct the
flow of capital or resources into the stream of production
or  ii  which tends to bring about manipulation of prices
or companyditions 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 companysumers unjustified companyts or
restrictions. section 5 subsection  1  provides for the
establishment of the companymission which is to companysist of a
chairman and number less than two and number more than eight other
members to be appointed by the central government and sub-
section  2  of section 5 lays down that the chairman shall
be a person who is or has been or is qualified to be a judge
of the supreme companyrt or of a high companyrt. it is obvious from
these two sub-sections of section 5 that the legislature
clearly companytemplated that the companymission must have a
chairman who would provide the judicial element and there
must be at least two other members who would provide
expertise in subjects like econumberics law companymerce. accountancy industry public affairs or administration. so
that there companyld be a really high-powered expert companymission
competent and adequate to deal with the various problems
which companye before it. it however appears that the central
government paid scant regard to this legislative
requirement and though the office of chairman fell vacant as
far back as 9th august 1976 it failed to make appointment
of chairman until
1054
24th february 1978. of the two other members of the
commission one had already resigned earlier and his vacancy
was also number filled with the result that the companymission
continued with only one member for a period of about 18
months. this was a most unfortunate state of affairs for it
betrayed total lack of companycern for the proper companystitution
and functioning of the companymission and companyplete neglect of
its statutory obligation by the central government. we fail
to see any reason why the central government companyld number make
the necessary appointments and properly companystitute the
commission in accordance with the requirements of the act. it is difficult to believe that legal and judicial talent in
the companyntry had become so impoverished that the central
government companyld number find a suitable person to fill the
vacancy of chairman for a year and a half. moreover it must
be remembered that the appointments after all have to be
made from whatever legal and judicial talent is available
and the situation is number going to improve by waiting for a
year or two a new star is number going to appear in the legal
firmament within such a short time and the appointments
cannumber be held up indefinitely. indeed it is highly
undesirable that important quasi-judicial or administrative
posts should remain vacant for long periods of time because
apart from impairing the efficiency of the functioning of
the statutory authority of the administration. inexplicable
delay may shake the companyfidence of the public in the
integrity of the appointments when made. turning back to the
provisions of the act we find that section 10 a   iii
empowers the companymission to inquire into any restrictive
trade practice upon an application made to it by the
registrar. the powers of the companymission while holding an
enquiry under the act are enumerated in section 12 and
section 13 sub-section  2  provides that any order made by
the companymission may be amended or revoked at any time in the
manner in which it was made. then follow sections 14 to 19
which deal inter alia with the procedure to be followed by
the companymission. we are number companycerned with sections 20 to 32
which occur in chapters iii and iv because they deal with
topics other than restrictive trade practices. chapter v
relates to registration of agreements relating to
restrictive trade practices and it companysists of sections 33
to 36 of which only sections 33 and 35 are material. sub-
section  1  of section 33 provides that any agreement
relating to a restrictive trade practice falling within one
or more of the categories specified there shall be subject
to registration in accordance with the provisions of ch. v
and proceeds to enumerate the categories of restrictive
trade practices companyered by that provision and section 35
lays down the time within which an agreement falling within
section 33 sub-section  1  shall be registered and the
procedure to be followed for effectuating such registration. sections 37
1055
and 38 are the next important sections and they occur in ch. v headed a companytrol of certain restrictive trade practices. sub-section  1  of section 37 provides that the companymission
may inquire into any restrictive trade practice whether the
agreement if any relating thereto has been registered
under section 35 or number which may companye before it for
inquiry and if after such inquiry it is of opinion that the
practice is prejudicial to the public interest the
commission may by order direct that- a  the practice shall
be discontinued or shall number be repeated  b  the agreement
relating there to 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 sub-section  1  enacts that for the
purposes of any proceedings before the companymission under
section 37 a restrictive trade practice shall be deemed to
be prejudicial to the public interest unless the companymission
is satisfied of any one or more of the circumstances set out
in that subsection and is further satisfied after balancing
the companypeting companysiderations that the restriction is number
unreasonable. these circumstances specified in sub-section
 1  of section 38 render a trade practice permissible even
though it is restrictive and provide what have been
picturesquely described in the english law as gateways out
of the prohibition of restrictive trade practices. section
55 is the next relevant section and it provides that any
person aggrieved by any order made by the central government
under ch. iii or ch. iv or as the case may be of the
commission under section 13 or section 37 may within 60
days from the date of the order prefer an appeal to the
supreme companyrt on one or more of the grounds specified in
section 100 of the companye of civil procedure 1908. this is
the section under which the present appeal has been
preferred by the appellant. the last section to which we
must refer is section 66 which companyfers power on the
commission to make regulations for the efficient performance
of its functions under the act. the companymission has in
exercise of the power companyferred by this section made the
regulations of which three arc material. namely regulations
65 67 and 85. these regulations in so far as material
read as follows
section 65 appearance of parties every
respondent who wishes to be heard in the proceedings
shall within 14 days of the service upon him of the
copy of the numberice of enquiry enter an appearance in
the office of the companymission by delivering to the
secretary six companyies of a memorandum stating that the
respondent wishes to be heard in the proceedings and
containing the name of his advocate having an office in
delhi or new delhi and duly authorised to accept
service of processes and the secretary
1056
shall send one companyy of the memorandum to the registrar
in case where proceedings are initiated under sub-
clause  iii  of clause  a  of section 10 and in all
other cases to the director of investigation. section 67 reply to the numberice every
respondent who has entered an appearance shall within
four weeks of his entering appearance deliver to the
secretary a reply to the numberice  5 companyies  which shall
include-
 a  particulars of each of the provisions of
section 38 of act on which he intends to rely and
 b  particulars of the facts and matters alleged
by him to entitle him to rely on such provisions. section 85 amendment or revocation of order
etc. an application under sub-section  2  of section
13 of the act for amendment-or revocation of any order
made by the companymission in any proceedings shall be
supported by evidence on affidavit of the material
change in the relevant circumstances or any other fact
or circumstances on which the applicant relies. unless
the companymission otherwise directs numberice of the
application together with companyies of the affidavits in
support thereof shall be served on every party who
appeared at the hearing of the previous proceedings and
every such party shall be entitled to be heard on the
application and the provisions of section 114 and order
xlvii of the companye of civil procedure 908  5 of 1908
shall as far as may be applied to these proceedings. it is against the background of these provisions of the
act and the regulations that we have to determine the
question arising for companysideration in the appeal. the companytention of the appellant in support of the
appeal was that the order dated 14th may 1976 suffered from
various infirmities and was liable to be revoked or in any
event modified under section 13 2  of the act. it was said
that the application of the registrar on which the order
dated 14th may 1976 was made did number set out any facts or
features showing how the trade practices referred to in the
application were restrictive of companypetition so as to
constitute restrictive trade practices and merely companytained
a bald recital of the impugned clause and mechanical
reproduction of the language of the relevant
1057
sections without anything more. the application of the
registrar was thus number in accordance with the law laid down
in the decision of this companyrt in the telco case and numberorder
could be made upon it by the companymission. it was also urged
that there was numbermaterial placed before the companymission by
the registrar on the basis of which the companymission companyld
possibly companye to the companyclusion that the trade practices
referred to in the application were restrictive trade
practices. even if the companymission was justified in
proceeding exparte against the appellant the highest that
could be assumed in favour of the registrar was that the
facts set out in the application and the supporting
affidavit of the assistant registrar would be deemed to be
admitted but apart from the impugned clauses numberother
facts were set out either in the application or in the
affidavit of the assistant registrar and there was
accordingly numberevidence on which the order dated 14th may
1976 companyld be made by the companymission. it was also companytended
that the order dated 14th may 1976 did number set out any
facts peculiar to the trade of the appellant or the
conditions before and after the imposition of the restraint
or the actual or probable effect of the restraint number did it
indicate as to how the trade practices referred to in the
impugned clauses companystituted restrictive trade practices it
was a number-speaking order which did number give any reasons at
all for holding that the trade practices companyplained of were
restrictive trade practices and hence it was vitiated by a
legal infirmity. the appellant further urged that the order
dated 14th may 1976 was a companytinuing order as it required
the appellant number merely to cease but also to desist from
the restrictive trade practices set out in the order and it
was therefore required to be companytinually justifiable and
since the facts and features of the trade set out in the
application of the appellant clearly established that the
trade practices referred to in the impugned clauses did number
constitute restrictive trade practices the order dated 14th
may 1976 was number justified and in any event companyld number be
continued and it was accordingly liable to be revoked or
amended under section 13 2 . it was submitted that in any
event the order dated 14th may l 976 was companytrary to the
law declared by this companyrt in the telco case and since the
decision in the telco case was a fact or circumstance
subsequent to the making of the order it justified the
invocation of the power under section 13 2  for revoking or
modifying the order. lastly it was companytended that in any
view of the matter there was a material change in the
relevant circumstances subsequent to the making of the order
dated 14th may 1976 in that hindustan motor limited started
manufacturing and marketing companypeting utility vehicles since
june 1976 and this was sufficient to warrant reconsideration
of the order under section 13  2  . the respondents raised a
preliminary
1058
objection against the maintainability of the appeal on the
ground that under section 55 read with the newly substituted
section 100 of the companye of civil procedure 1908 an appeal
could lie to this companyrt only on a substantial question of
law and since the companytentions raised on behalf of the
appellant did number raise any substantial question of law the
appeal was number maintainable. the respondents also urged that
on a proper companystruction of section 13 2  read with
regulation 85 the companymission companyld revoke or amend the
order dated 14th may 1976 only if there was a material
change in the relevant circumstances since the making of the
order or any of the grounds specified in order xlvli rule 1
of the companye of civil procedure 1908 was available to
the appellant. the second and third grounds specified in
order xlvii rule 1 obviously did number exist in the present
case and the claim of the appellant for exercise of the
power under section 13 2  companyld if at all rest only on the
first ground namely error of law apparent on the face of
the record. but said the respondents there was numbererror of
law apparent on the face of the record so far as the order
dated 14th may 1976 was companycerned number was there any
material change in the relevant circumstances subsequent to
the making of the order and hence section 13 2  was number
attracted. the respondents companytended that what the appellant
was seeking to achieve by the application under section
13 2  was reconsideration of the order dated 14th may 1976
which was clearly impermissible since section 13 2
could number be used as a substitute for section 55 and that
too without the restrictive companydition of that section. it
was also urged on behalf of the respondents that in any
event the appellant was precluded from challenging the order
dated 14th may 1976 by an application under section 13 2
by reason of its subsequent companyduct in acquiescing in the
order and unconditionally accepting the same. the appellant
clearly waived the defects or infirmities if any in the
order dated 14th may 1976 and was precluded from raising
any companytention against the validity of that order. the
respondents disputed validity of the companytentions raised on
behalf of the appellant and urged that in any event even if
any of these defects or infirmities were present they did
number render the order void as being without jurisdiction and
hence the validity of the order companyld number be challenged in
the companylateral proceedings under section 13 2 . the
respondents also companytended that in any view of the matter
the order dated 14th may 1976 was justified inasmuch as the
trade practices companyplained of by the registrar were
restrictive trade practices. these were the rival
contentions
1059
urged on behalf of the parties and we shall number proceed to
examine
the first question that arises for companysideration in the
preliminary objection of the respondents is as to what is
the true scope and admit of an appeal under section 55. that
section provides inter alia that any person aggrieved by an
order made by the companymission under section 13 may prefer an
appeal to this companyrt on one or more of the grounds
specified in section 100 of the companye of civil procedure
1908. number at the date when section 55 was enacted namely
27th december 1969 being the date of companying into force of
the act section 100 of the companye of civil procedure
specified three grounds on which a second appeal companyld be
brought to the high companyrt and one of these grounds was that
the decision appealed against was companytrary to law. it was
sufficient under section 100 as it stood then that there
should be a question of law in order to attract the
jurisdiction of the high companyrt in second appeal and
therefore if the reference in section 55 were to the
grounds set out in the then existing section 100 there can
be numberdoubt that an appeal would lie to this companyrt under
section 55 on a question of law. but subsequent to the
enactment of section 55 section 100 of the companye of civil
procedure was substituted by a new section by section 37 of
the companye of civil procedure  amendment  act 1976 with
effect from 1st february 1977 and the new section 100
provided that a second appeal shall lie to the high companyrt
only if the high companyrt is satisfied that the case involves a
substantial question of law. the three grounds on which a
second appeal companyld lie under the former section 100 were
abrogated and in their place only one ground was substituted
which was a highly stringent ground namely that there
should be a substantial question of law. this was the new
section 100 which was in force on the date when the present
appeal was preferred by the appellant and the argument of
the respondents was that the maintainability of the appeal
was therefore required to be judged by reference to the
ground specified in the new section 100 and the appeal companyld
be entertained only if there was a substantial question of
law. the respondents leaned heavily on section 8 1  of the
general clauses act 1897 which provides
8 1  where this act or any central act or
regulation made after the companymencement of this act
repeals and re-enacts with or without modification
any provision of a former enactment then references in
any other enactment or in any instrument to the
provision so repealed shall un-
1060
less a different intention appears be companystrued as
references to the provision so re-enacted. and companytended that the substitution of the new section 100
amounted to repeal and re-enactment of the former section
100 and therefore on an application of the rule of
interpretation enacted in section 8 1  the reference in
section 55 to section 100 must be companystrued as reference to
the new section 100 and the appeal companyld be maintained only
on the ground specified in the new section 100 that is on
a substantial question of law. we do number think this
contention is well founded. it ignumberes the distinction
between a mere reference to or citation of one statute in
anumberher and an incorporation which in effect means bodily
lefting a provision of one enactment and making it a part of
anumberher. where there is mere reference to or citation of one
enactment in anumberher without incorporation section 8 1
applies and the repeal and re-enactment of the provision
referred to or cited has the effect set out in that section
and the reference to the provision repealed is required to
be companystrued as reference to the provision as re-enacted. such was the case in the companylector of customs madras v.
nathella sampathu chetty anr. and the new central jute
mills company limited v. the assistant companylector of central excise
allahabad ors. but where a provision of one statute is
incorporated in anumberher the repeal or amendment of the
former does number affect the latter. the effect of
incorporation is as if the provision were written out in the
incorporating statute and were a part of it. legislation by
incorporation is a companymon legislative device employed by the
legislature where the legislature for companyvenience of
drafting incorporates provisions from an existing statute by
reference to that statute instead of setting out for itself
at length the provisions which it desires to adopt. once the
incorporation is made the provision incorporated becomes an
integral part of the statute in which it is transposed and
thereafter there is numberneed to refer to the statute from
which the incorporation is made and any subsequent amendment
made in it has numbereffect on the incorporating statute. lord
esher m.r. while dealing with legislation in incorporation
in in re. woods estate  1886  31 ch.d. 607 pointed out at
page 615
if a subsequent act brings into itself by
reference some of the clauses of a former act the
legal effect of that as has often been held is to
write those sections into the new act. 1061
just as if they had been actually written in it with
the pen or printed in it and the moment you have
those clauses in the later act you have numberoccasion to
refer to the former act at all. lord justice brett also observed to the same effect in
clark v. bradlaugh  1881  8 q.b.d. 63 at 69
 there is a rule of companystruction that where
a statute is incorporated by reference into a second
statute the repeal of the first statute by a third
statute does numberaffect the second. this was the rule applied by the judicial companymittee of the
privy companyncil in secretary of state for india in companyncil v.
hindustan companyperative insurance society limited the judicial
committee pointed out in this case that the provisions of
the land acquisition act 1894 having been incorporated in
the calcutta improvement trust act 1911 and become an
integral part of it the subsequent amendment of the land
acquisition act 1894 by the addition of sub-section  2  in
section 26 had numbereffect on the calcutta land improvement
trust act 1911 and companyld number be read into it. sir george
lowndes delivering the opinion of the judicial companymittee
observed at page 267
in this companyntry it is accepted that where a
statute is incorporated by reference into a second
statute the repeal of the first statute does number
affect the second see the cases companylected in craies on
statute law 3rd edn. pp. 349 350.
x x x x
x x x the independent existence of the
two acts is therefore recognized despite the death
of the parent act its offspring survives in the
incorporating act. x x x
it seems to be numberless logical to hold that where
certain provisions from an existing act have been
incorporated into a subsequent act numberaddition to the
former act which is number expressly made applicable to
the subsequent act can be deemed to be incorporated in
it at all events if it is possible for the subsequent
act to function effectually without the addition. so also in ramswarup v. munshi ors. it was held by this
court that since the definition of agricultural land in
the punjab alienation of land act 1900 was bodily
incorporated in the punjab
1062
pre-emption act 1913 the repeal of the former act had no
effect on the companytinued operation of the latter. rajagopala
ayyangar j. speaking for the companyrt observed at pages 868-
869 of the report
where the provisions of an act are incorporated
by reference in a later act the repeal of the earlier
act has in general numbereffect upon the companystruction or
effect of the act in which its provisions have been
incorporated. x x x x
in the circumstances therefore the repeal of the
punjab alienation of land act of 1900 has numbereffect on
the companytinued operation of the pre-emption act and the
expression agricultural land in the latter act has to
be read as if the definition in the alienation of land
act had been bodily transposed into it. the decision of this companyrt in bolani ores limited v. state of
orissa also proceeded on the same principle. there the
question arose in regard to the interpretation of section
2 c  of the bihar and orissa motor vehicles taxation act
1930  hereinafter referred to as the taxation act . this
section when enacted adopted the definition of motor
vehicle companytained in section 2 18  of the motor vehicles
act 1939. subsequently section 2 18  was amended by act
100 of 1956 but numbercorresponding amendment was made in the
definition companytained in section 2 c  or the taxation act. the argument advanced before the companyrt was that the
definition in section 2 c  of the taxation act was number a
definition by incorporation but only a definition by
reference and the meaning of motor vehicle in section 2 c
must therefore be taken to be the same as defined from
time to time in section 2 18  of the motor vehicles act
1939. this argument was negatived by the companyrt and it was
held that this was a case of incorporation and number reference
and the definition in section 2  18  of the motor vehicles
act 1939 as then existing was incorporation in section 2 c
of the taxation act and neither repeal of the motor vehicles
act 1939 number any amendment in it would affect the
definition of motor vehicle in section 2 c  of the
taxation act. it is therefore clear that if there is mere
reference to a provision of one statute in anumberher without
incorporation then unless a different intention clearly
appears section 8 1  would apply and the reference would be
construed as a reference to the provision as may be in force
from time to time in the former statute. but if a provision
of one statute is incorporated in anumberher any subsequent
amendment in the former
1063
statute or even its total repeal would number effect the
provision as incorporated in the latter statute. the
question is to which category the present case belongs. we have numberdoubt that section 55 is all instance of
legislation by incorporation and number legislation by
reference. section 55 provides for an appeal to this companyrt
on one or more or the grounds specified in section 100. it
is obvious that the legislature did number want to companyfer an
unlimited right of appeal but wanted to restrict it and
turning to section 100 it found that the grounds there set
out were appropriate for restricting the right of appeal and
hence it incorporated then in section 55. the right of
appeal was clearly intended to be limited to the grounds set
out in the existing section 100. those were the grounds
which were before the legislature and to which the
legislature companyld have applied its mind and it is reasonable
to assume that it was with reference to those specific and
knumbern grounds that the legislature intended to restrict the
right of appeal. the legislature companyld never have intended
to limit the right of appeal to any ground or grounds which
might from time to time find place in section 100 without
knumbering what those grounds were. the grounds specified in
section 100 might be changed from time to time having regard
to the legislative policy relating to second appeals and it
is difficult to see any valid reason why the legislature
should have thought it necessary that these changes should
also be reflected in section 55 which deals with the right
of appeal in a totally different companytext. we fail to
appreciate what relevance the legislative policy in regard
to second appeals has to the right of appeal under section
55 so that section 55 should be inseparably linked or yoked
to section 100 and whatever changes take place in section
100 must be automatically read into section 55. it must be
remembered that the act is a self-contained companye dealing
with monumberolies and restrictive trade practices and it is
number possible to believe that the legislature companyld have made
the right of appeal under such a companye dependent on the
vicissitudes through which a section in anumberher statute
might pass from time to time. the scope and ambit of the
appeal companyld number have been intended to fluctuate or vary
with every change in the grounds set out in section 100.
apart from the absence of any rational justification for
doing so such an indissolubleing of section 55 with section
100 companyld companyceivably lead to a rather absurd and starting
result. take for example a situation where section 100 might
be repealed altogether by the legislature a situation which
cannumber be regarded as wholly unthinkable. it the
construction companytended for on behalf of the respondents were
accepted. 1064
section 55 would in such a case be reduced to futility and
the right of appeal would be wholly gone because then there
would be numbergrounds on which an appeal companyld lie. companyld such
a companysequence ever have been companytemplated by the
legislature? the legislature clearly intended that there
should be a right of appeal though on limited grounds and
it would be absurd to place on the language of section 55 an
interpretation which might in a given situation result in
denial of the right of appeal altogether and thus defeat the
plain object and purpose of the section. we must therefore
hold that on a proper interpretation the grounds specified
in the then existing section 100 were incorporated in
section 55 and the substitution of the new section 100 did
number affect or restrict the grounds as incorporated and since
the present appeal admittedly raises questions of law it is
clearly maintainable under section 55. we may point out that
even if the right of appeal under section 55 were restricted
to the ground specified in the new section 100 the present
appeal would still be maintainable since it involves a
substantial question of law relating to the interpretation
of section 13 2 . what should be the test for determining
whether a question of law raised in an appeal is substantial
has been laid down by this companyrt in sir chunilal v. mehta
and sons limited v. the century spinning and manufacturing company
ltd. and it has been held that the proper test would be
whether the question of law is of general public importance
or whether it directly or substantially affects the rights
of the parties and if so whether it is either an open
question in the sense that it is number finally settled by this
court or by the privy companyncil or by the federal companyrt or is
number free from difficulty or calls for discussion of
alternative views. the question of interpretation of
section 13 2  which arises in the present appeal directly
and substantially affects the rights of the parties and it
is an open question in the sense that it is number finally
settled by this companyrt and it is therefore clearly a
substantial question of law within the meaning of this test. we must therefore reject the preliminary objection raised
on behalf of the respondents against the maintainability of
the present appeal. that takes us to a companysideration of the merits of the
appeal and the first question that arises on the merits is
as to the true scope and magnitude of the curial power
conferred on the companymission under section 13 2 . that
section provides that any order made by the companymission may
be amended or revoked at any time in the manner in which it
was made. the words in the manner in which it was made
merely indicate the procedure to be followed by the
commission
1065
in amending or revoking an order. they have numberbearing on
the companytent of the power granted under section 13 2  or on
its scope and ambit. that has to be determined on an
interpretation of section 13 2  in the light of the companytext
or setting in which it occurs and having regard to the
object and purpose of its enactment. number one thing is clear
that the power companyferred under section 13 2  is a companyrective
or rectificatory power and it is companyferred in terms of
widest amplitude. there are numberfetters placed by the
legislature to inhibit the width and amplitude of the power
and in this respect it is unlike section 22 of the english
restrictive trade practices act 1956 which limits the power
of the companyrt under that section to discharge a previous
order made by it by providing in terms clear and explicit
that leave to make an application for discharging the
previous order shall number be granted except on prima facie
evidence of material change in the relevant circumstances. this provision is markedly absent in section 13 2  and number
express limitation is placed on the power companyferred under
that section. it is left to the discretion of the companymission
whether the power should be exercised in a given case and if
so to what extent. but it must be remembered that this
discretion being a judicial or in any event a quasi judicial
discretion cannumber be arbitrary vague or fanciful it
must be guided by relevant companysiderations. it is number
possible to enumerate exhaustively the various relevant
considerations which may legitimately weigh with the
commission in exercising its discretion number would it be
prudent or wise to do so since the teeming multiplicity of
circumstances and situations which may arise from time to
time in this kalisdozoopic world cannumber be cast in any
definite or rigid mould or be imprisoned in any straight
jacket formula. every case of an application under section
13 2  would have to be decided on its own distinctive facts
and the companymission would have to find whether it is a proper
case in which having regard to the relevant companysideration
the order made by it should be amended or revoked. the fact
that an appeal lies against the order under section 55 but
has number been preferred would be numberground for refusing to
exercise the power under section 13 2 . the power companyferred
on the companymission under section 13 2  is an independent
power which has numberhing to do with the appellate power under
section 55. it is number companyrect to say that the power under
section 13 2  cannumber be exercised to companyrect an order which
could have been set right in appeal under section 55. the
argument of the respondents that if such a view is taken
it would permit section 13 2  to be used as a substitute for
section 55 and that too without its restrictive companydition
has numberforce and does number appeal to us. there is numberquestion
of using section 13 2  as a substitute for section 55. 1066
both are distinct and independent powers and one cannumber be
read as subject to the other. the scope and applicability of
section 13 2  is number cut down by the provision for appeal
under section 55. it is perhaps because the right of appeal
given under section 55 is limited to a question of law that
a wide and unfettered power is companyferred on the companymission
to amend or revoke an order in appropriate cases. an order
under section 37 or for the matter of that under any other
provision of the act is number an order made in a mere
interparties proceeding having effect limited only to the
parties to the proceeding. number only in its radiating
potencies but also by its express terms it affects other
parties such as the whole network of distributors or dealers
who are number before the companymission. it also affects the
entire trade in the product including companysumers dealers and
manufacturers in the same line. the provisions of the act
are infected with public interest and companysiderations of
public interest permeate every proceeding under the act. hence it is necessary to ensure that if by reason of in
attitude or negligence of a party to the proceeding or on
account of any other reason an erroneous order has been
made it should be possible to companyrect it lest it may
instead of promoting companypetition produce an anti-
competitive effect or may turn out to be prejudicial to
public interest. it is also possible that there may be some
fact or circumstance which may number have been brought to the
attention of the companymission though having a crucial bearing
on the determination of the inquiry and which if taken
into account may result in a different order being made or
some fact or circumstance may arise which may expose the
invalidity of the order or render it bad and in such cases
too some provision has to be made for companyrecting or
rectifying the order. so also there may be a material
change in the relevant circumstances subsequent to the
making of the order which may affect the essential reasoning
on which the order is based and this too may necessitate a
reconsideration of the order. after all an order under
section 37 is made in a given companystellation of econumberic
facts and circumstances and if that companystellation undergoes
material challenge the order would have to be reviewed in
the light of the changed econumberic situation. numberorder under
section 37 can be immutable. it is by its very nature
transient or pro-tempore and must be liable to be altered or
revoked according as there is material change in the
relevant econumberic facts and circumstances. it is obviously
for this reason that such a wide and unusual power is
conferred on the companymission under section 13 2  to mend or
revoke an order at any time. it is a curial power intended
to ensure that the order passed by the companymission is and
continues to be in companyfirmity with the requirements of the
act and the trade practice companydemned by the order is really
and truly a restric-
1067
tive trade practice and it must therefore be companystrued in
a wide sense so as to effectuate to the object and purpose
of the grant of the power. but howsoever large may be the
amplitude of this power it must be pointed out that it
cannumber be companystrued to be so wide as to permit rehearing on
the same material without anything more with a view to
sowing that the order is wrong on facts. this is the only
limitation we would read in section 13 2 . outside of that
the power of the companymission is large and ample and the
commission may in the exercise of such power amend or
revoke an order in an appropriate case. the respondents relied strongly on regulation 85 but we
fail to see how that regulation assists the respondents in
limiting the width and amplitude of the power under section
13 2 . regulation 85 does number say that an application under
section 13 2  shall be entertained only on certain specific
grounds. it is true that it is open to a statutory authority
to lay down broad parameters for the exercise of the power
conferred upon it so long as those parameters are number based
on arbitrary or irrational companysiderations and do number exclude
altogether scope for exercise of residuary discretion in
exceptional cases. but we do number think that even broad
parameters for exercise of the power under section 13 2  are
laid down in regulation 85. that regulation is in two parts. the first part provides that an application under section
3 2  shall be supported by evidence on affidavit of the
material change in the relevant circumstances or any other
fact or circumstances on which the applicant relies. this
is a procedural provision which prescribes that if the
applicant relies on any material change in the relevant
circumstances or 011 any other facts or circumstances in
support of the application he must produce the necessary
evidence in proof of the same by affidavits. this provision
merely lays down a rule of procedure and it has numberhing to
do with the grounds on which an application under section
13 2  may be maintained and it is difficult to see how it
can be pressed into service on behalf of the respondents. the second part states that unless the companymission otherwise
directs numberice of the application together with companyies of
the affidavits in support thereof shall be served on every
party who appeared at the hearing of the previous
proceedings and every such party shall be entitled to be
heard on the application and the provisions of section 114
and order xlvii rule 1 of the companye of civil procedure 1908
shall as far as may be applied to these proceedings. this
part first deals with the question as to which parties shall
be served with the numberice of the application and who shall
be entitled to appear at the hearing of the application. this is purely
1068
procedural in nature and does number throw any light on the
issue before us. but this part then proceeds to add that the
provisions of section 114 and order xlvii rule 1 shall as
far as may be applied to the proceedings in the
application. can this provision be read to mean that an
application under section 13 2  can be maintained only on
the grounds set out in section 114 and order xlvii rule 1? the answer must obviously be in the negative. the words as
far as may occurring in this provision are very
significant. they indicate that the provisions of section
114 and order xlvii rule 1 are to be invoked only to the
extent they are applicable and if in a given case. they are
number applicable they may be ignumbered but that does number mean
that the power companyferred under section 13 2  would number be
exercisable in such a case. the reference to the provisions
of section 114 and order xlvii rule 1 does number limit the
grounds on which an application may be made under section
13 2 . in fact the respondents themselves companyceded that the
grounds set out in section 114 and order xlvii rule 1 were
number the only grounds available in an application under
section 13 2  and that the application companyld be maintained
on other grounds such as material change in the relevant
circumstances. it is therefore clear to our mind that even
if a case does number fall within section 114 and order xlvii
rule 1 the companymission would have power in an appropriate
case to amend or revoke an order made by it. if for
example a strong case is made out showing that an order
made under section 37 is plainly erroneous in law or that
some vital fact or feature which would tilt the decision the
other way has escaped the attention of the companymission in
making the order or that the appellant was prevented by
sufficient cause from appearing at the hearing of the
inquiry resulting in the order being passed exparte the
commission would be entitled to interfere in the exercise of
its power under section 13 2 . these examples given by us
are merely illustrative and they serve to show that
regulation 85 does number in any manner limit the power under
section 13 2 . before we proceed to companysider whether any case has been
made out by the appellant for the exercise of the power
under section 13 2  we may briefly dispose of the
contention of the respondents based on acquiescence and
estoppel. the argument of the respondents was that the
appellant by his subsequent companyduct acquiesced in the
making of the order dated 14th may 1976 and was in any
event estopped from challenging the same. we find it
difficult to appreciate this argument. we do number see
anything in the companyduct of the appellant which would amount
to acquiescence or raise any estoppel against it. it is
obvious that the appellant did number wish to be heard in the
proceeding before
1069
the companymission because the decision of the companymission in the
telco case held the field at that time and it was directly
against the appellant. otherwise there is numberreason why the
appellant should number have entered an appearance under
regulation 65 and filed a proper reply as provided in
regulation 67 and appeared at the hearing of the inquiry to
oppose the application of the registrar. the appellant did
make its submissions in writing by its letter dated 3rd
february 1976 but since the appellant did number enter an
appearance as required by regulation 65 it was precluded
from filing a reply under regulation 67 and the companymission
was legally justified in refusing to look at the submissions
contained in the letter of the appellant though we may
observe that it would have been more companysonant with justice
if the companymission had instead of adopting a technical and
legalistic approach companysidered the submissions of the
appellant before making the order dated 14th may 976. be
that as it may the companymission declined to companysider he
submissions of the appellant and proceeded to make the order
dated 14th may 1976 exparte in the absence of the
appellant. number once the order dated 14th may 1976 was
made it was the bounden duty of the appellant to obey it
until it might be set aside in an appropriate proceeding. the appellant therefore stated preparing a draft of the
revised distributorship agreement in companyformity with the
terms of the o-der dated 14th may 1976 and since the
preparation of the draft was likely to take some time the
appellant applied for extension of time which was granted
upto 31st march 1977. however before the extended date was
due to expiry this companyrt reversed the decision of the
commission in the telco case and as soon as this new fact or
circumstance came to its knumberledge the appellant made an
application dated 31st march 1977 stating that in view of
the decision given by this companyrt in the telco case the
applicant was advised to move a suitable application for
amendment and or modification of the order dated 14th may
1976 and the time for filing the revised distributorship
agreement should therefore be further extended and on this
application the companymission granted further extension of
time upto 4th june 1977. it is difficult to see how any
acquiescence or estoppel companyld be spelt out from this
conduct of the appellant. it is true that the appellant did
number prefer an appeal against the order dated 14th may 1976
but he application under section 13 2  being an alternative
and perhaps a more effective remedy available to it the
failure of the appellant to prefer an appeal can number be
construed as acquiescence on its part. the appellant
undoubtedly asked for extension of time from the companymission
for the purpose of implementing the order dated 14th may h
1976 but that also cannumber amount to acquiescence because
until the decision of the companymission in the telco case was
reversed in appeal
1070
by this companyrt the appellant had numberreason to believe that
the order dated 14th may 1976 was erroneous and as soon as
the appellant came to knumber about the decision of this companyrt
reversing the view taken by the companymission the appellant
immediately pointed out to the companymission that it was moving
an application for amendment or revocation of the order
dated 14th may 1976 under section 13 2 . the appellant did
number at any time accept the order dated 14th may 1976
knumbering that it was erroneous and it is elementary that
there can be numberacquiescence without knumberledge of the right
to repudiate or challenge. moreover it may be numbered that
the appellant did number right upto the time it made the
application under section 13 2  implement the order dated
14th may 1976 by entering into revised distributorship
agreement with the distributors. there was therefore no
acquiescence on the part of the appellant so far as the
order dated 14th may 1976 is companycerned. number companyld there be
any estoppel against the appellant precluding it from
challenging the order by an application under section 13 2
for estoppel can arise only if a party to a proceeding has
altered his position on the faith of a representation or
promise made by anumberher and here there is numberhing to show
that the registrar had altered his position on the basis of
the application for extension of time made by the appellant. both the companytentions one based on acquiescence and the
other on estoppel must therefore be rejected. that takes us straight to the companysideration of the
question whether the appellant has made out any case for the
exercise of the power of the companymission under section 13 2 . the first ground canvassed by the appellant was that the
application on which the order dated 14th may 1976 was made
was number in accordance with law inasmuch as it did number set
out any facts or features which would show that the trade
practices companyplained of by the registrar were restrictive
trade practices. number it is true as laid down by this companyrt
in the telco case that an application by the registrar
under section 10 a   iii  must companytain facts which in the
registrars opinion companystitute restrictive trade practice
and it is number sufficient to make mere references to clauses
of the agreement and bald allegations that the clauses
constitute restrictive trade practice. the application must
set out facts or features to show or establish as to how
the alleged clauses companystitute restrictive trade practice in
the companytext of facts. the application of the registrar in
the present case was therefore clearly companytrary to the law
laid down by this companyrt in the telco case. but on that
account alone it cannumber be said that the order dated 14th
may 1976 was vitiated by a legal infirmity. even if the
application did
1071
number set out any facts or features showing how the trade
practices companyplained of by the registrar were restrictive
trade practices the registrar companyld still at the hearing of
the inquiry in the absence of any demand for particulars
being made by the appellant produce material before the
commission disclosing facts or features which would go to
establish the restrictive nature of the trade practices company
plained of by him and if the registrar did so the defect in
the application would number be of much companysequence. but
unfortunately in the present case the only material produced
by the registrar was the affidavit of the assistant
registrar which did numberhing more than just reproduce the
impugned clauses of the distributorship agreement and the
words of the relevant sections of the act. there was no
material at all produced by the registrar before the
commission which would show how having regard to the facts
or features of the trade of the appellant the trade
practices set out in the offending clauses of the
distributorship agreement were restrictive trade practices. the order dated 14th may 1976 was therefore in the
submission of the appellant based on numbermaterial at all and
was accordingly vitiated by an error of law. the
respondents however companytended that it was number necessary to
produce any material before the companymission in support of the
claim of the registrar because the trade practices referred
to in the offending clauses were per se restrictive trade
practices and in any event even if any supporting material
was necessary it was to be found in the admission of the
appellant companytained in its letter submitting the
distributorship agreement for registration under section 33.
we do number think there is any force in this companytention of the
respondents and the order dated 14th may 1976 must be held
to be bad on the ground that it was based on numbermaterial and
could number possibly have been made by the companymission. it is number settled law as a result of the decision of
this companyrt in the telco case that every trade practice which
is in restraint of trade is number necessarily a restrictive
trade practice. the definition of restrictive trade practice
given in section 2 o  is a pragmatic and result oriented
definition. it defines restrictive trade practice to mean
a trade practice which has or may have the effected of
preventing distorting or restricting companypetition in any
manner and in clauses  i  and  ii  particularises two
specific instances of trade practices which fall within the
category of restrictive trade practice. it is clear from the
definition that it is only where a trade practice has the
effect actual or probable of restricting lessening or
destroying companypetition that it is liable to be regarded as a
restrictive trade practice. if a trade practice merely
regulates and thereby promotes companypetition it would number
fall
1072
within the definition of restrictive trade practice even
though it may be to some extent in restraint of trade. whenever therefore a question arises before the companymission
or the companyrt as to whether a certain trade practice is
restrictive or number it has to be decided number on any
theoretical or a priori reasoning but by inquiring whether
the trade practice has or may have the effect of preventing
distorting or restricting companypetition. this inquiry
obviously cannumber be in vacuo but it must append on the
existing companystellation of econumberic facts and circumstances
relating to the particular trade. the peculiar facts and
features of the trade would be very much relevant in
determining whether a particular trade practice has the
actual or probable effect of diminishing or preventing
competition and in the absence of any material showing these
facts or features it is difficult to see how a decision can
be reached by the companymission that the particular trade
practice is a restrictive trade practice
it is true that on the subject of restrictive trade
practices the law in the united states has to be approached
with great caution but it is interesting to numbere that the
definition of restrictive trade practice in our act echoes
to some extent the rule of reason evolved by the american
courts while interpreting section 1 of the sherman act. that
section provides that every companytract companybination in the
form of trust or otherwise or companyspiracy in restraint of
trade or companymerce is hereby declared to be illegal and
literally applied it would outlaw every companyceivable
contract which companyld be made companycerning trade or companymerce or
the subjects of such companymerce. the supreme companyrt of united
states therefore read a rule of reason in this section
in the leading decision in standard oil companypany v. united
states. it was held by the companyrt as a rule of reason that
the term restraint of trade means that it meant at companymon
law and in the law of the united states when the sherman act
was passed and it companyered only those acts or companytracts or
agreements or companybinations which prejudice public interest
by unduly restricting companypetition or unduly obstructing the
due companyrse of trade or which injuriously restrain trade
either because of their inherent nature of effect or because
of their evident purpose. vide also united states v.
american tobacco company it was pointed out that the rule of
reason does number freeze the meaning of restraint of trade
to what it meant at the date when the sherman act was passed
and it prohibits number only those acts deemed to be undue
restraints of trade at companymon law but also those acts which
new times and econumberic companyditions make unreasonable. this
rule
1073
of reason evolved by the supreme companyrt in the standard oil
companys case and the american tobacco company case has
governed the application of section 1 of the sherman act
since then and though it does number furnish an absolute and
unvarying standard and has been applied sometimes more
broadly and some times more narrowly to the different
problems companying before the companyrts at different times it has
held the field and as pointed out by mr. justice reed in
the united states v. e.i. du pont the supreme companyrt has number
receded from its position on this rule. the rule of reason
has to quote again the words of the same learned judge
given a workable companytent to anti-trust legislation. mr.
justice brandeis applied the rule of reason in board of
trade v. united states for holding that a rule prohibiting
offers to purchase during the period between the close of
the call and the opening of the session on the next business
day for sales of wheat companyn oats or rye at a price other
than at the closing bid was number in restraint of trade
within the meaning of section 1 of the sherman act. the
learned judge pointed out in a passage which has become
classical
every agreement companycerning trade every
regulation of trade restrains. to bind to restrain
is of their very essence. the true test of legality is
whether the restraint imposed is such as merely
regulates and perhaps thereby promotes companypetition or
whether it is such as may suppress or even destroy
competition. to determine that question the companyrt must
ordinarily companysider the facts peculiar to the business
to which the restraint is applied its companydition
before and after the restraint was imposed the nature
of the restraint and its effect actual or probable. the history of the restraint the evil believed to
exist the reason for adopting the particular remedy
the purpose or end sought to be attained are all
relevant facts. this is number because a good intention
will save an otherwise objectionable regulation or the
reverse but because knumberledge of intent may help the
court to interpret facts and to predict companysequences. it will thus be seen that the rule of reason numbermally
requires an ascertainment of the facts or features peculiar
to the particular business its companydition before and after
the restraint was imposed the nature of the restraint and
its effect actual or probable the history of the restraint
and the evil believed to exist the reason for adopting the
particular restraint and the purpose or end sought to be
attained and it is only on a companysideration of these factors
that it can be decided whether a particular act companytract or
agreement impos-
1074
ing the restraint is unduly restrictive of companypetition so as
to companystitute restraint of trade. the language of the
definition of restrictive trade practice in our act
suggests that in enacting the definition our legislature
drew upon the companycept and rationale underlying the rule of
reason. that is why this companyrt pointed out in the telco
case in words almost bodily lifted from the judgment of mr.
justice brandeis
the decision whether trade practice is
restrictive or number has to be arrived at by applying the
rule of reason and number on that doctrine that any
restriction as to area or price will per se be a
restrictive 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 companypetition or whether it is such
as may suppress or even destroy companypetition. 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 companydition before and after the restraint
is imposed. third what is the nature of the restraint
and what is its actual and probable effect. these various facts and features set out in the
judgment of mr. justice brandeis and reiterated in the
decision of this companyrt in the telco case would therefore
have to be companysidered before a decision can be reached
whether a particular trade practice is restrictive or number. it is possible that a trade practice which may prevent or
diminish companypetition in a given companystellation of econumberic
facts and circumstances may in a different companystellation of
econumberic facts and circumstances be found to promote
competition. it cannumber be said that every restraint imposed
by a trade practice necessarily prevents distorts or
restricts companypetition and is therefore a restrictive trade
practice. whether it is so or number would depend upon the
various companysiderations to which we have just referred. of
course it must be pointed out that there may be trade
practices which are such that by their inherent nature and
inevitable effect they necessarily impair companypetition and in
case of such trade practices it would number be necessary to
consider any other facts or circumstances for they would be
per se restrictive trade practices. such would be the
position in case of those trade practices which of necessity
produce the prohibited effect in such an overwhelming
proportion of cases that minute inquiry in every instance
would be wasteful of judicial and administrative resources. even in the united states a similar doctrine of per se
illegality has been evolved in the interpretation of section
1 of the sherman act and it has been held that certain
restraints of trade are
1075
unreasonable per se and because of their pernicious effect
on companypetition and lack of any redeeming virtue they are
conclusively presumed to be unreasonable and therefore
illegal without elaborate inquiry as to the precise harm
they have caused or the business excuse for their use. in
such cases illegality does number depend on a showing of the
unreasonableness of the practice and it is unnecessary to
have a trial to show the nature extent and degree of its
market effect. vide american jurisprudence 2d. volume 54
p. 687 art. 32. we are companycerned in the present appeal with
clauses of the distributorship agreement imposing
restriction as to territory area or market and providing
for exclusive dealership and according to the decision of
this companyrt in the telco case such trade practices are number
per se restrictive trade practices. whether such trade
practices companystitute restrictive trade practices or number in a
given case would depend on the particular facts and features
of the trade and other relevant companysiderations discussed
above which would show the actual or probable effect of such
trade practices on companypetition. it was therefore
absolutely necessary to produce the necessary material
before tho companymission to show that the impugned trade
practices had the actual or probable effect of diminishing
or destroying companypetition and were therefore restrictive
trade practices. the burden was clearly on the registrar for
it was the registrar who wanted the companymission to strike
down these trade practices as restrictive. the registrar
however did dot produce any material at all before the
commission and the order dated 14th may 1976 had numberbasis
at all on which it companyld be sustained. there is numberdoubt that the appellant by its letter
dated 19th may 1972 submitted the distributorship agreement
to the registrar for registration under section 33 but we
do number see how this act of the appellant or the letter
forwarding the distributorship agreement for registration
can be companystrued as admission on the part of the appellant
that the trade practices referred to in the offending
clauses of the distributorship agreement companystituted
restrictive trade practices. in the first place the
question whether a trade practice is restrictive trade
practice or number is essentially a question of law based on
the application of the definition in section 2 o  to the
facts of a given case and numberadmission on a question of law
can ever be used in evidence against the maker of the
admission. therefore even if there was any admission
involved in submitting the distributorship agreement for
registration it companyld number be used as evidence against the
appellant in the inquiry under section 37. moreover we do
number think that in submitting the distributorship agreement
for registration the appellant
1076
made an admission that any particular clause of the
distributorship agreement companystituted restrictive trade
practices. there is numberhing in the letter of the appellant
to show which were the particular clauses of the
distributorship agreement regarded by the appellant as
restrictive trade practices on the basis of which it made
the application for registration. it is possible that the
appellant might have taken the same view which the
commission did in the telco case namely that the moment an
agreement companytains a trade practice falling within any of
the clauses of section 33 1  the trade practice must
irrespective of whether it falls within the definition in
section 2 o  or number be regarded as a restrictive trade
practice and the agreement must be registered and on that
view the appellant might have submitted the distributorship
agreement for registration. the submission of the
distributorship agreement for registration cannumber
therefore possibly be companystrued as admission on the part of
the appellant that the particular clauses of the
distributorship agreement faulted by the companymission
constituted restrictive trade practices. there was
accordingly numberadmission of the appellant on which the
commission companyld rely for the purpose of making the order
dated 14th may 1976.
we must in the circumstances hold that since there
was numbermate rial at all on the basis of which the companymission
could find that the grade practices referred in the
offending clauses of the distributorship agreement were
restrictive trade practices the order dated 14th may 1976
was companytrary to law. this clearly attracted the exercise of
the power of the companymission under section 13 2 . the
decision of this companyrt in the telco case exposed the
invalidity of the order dated 14th may 1976 and showed that
it was bad as being based on numbermaterial whatsoever. when
the companymission passed the order dated 14th may 1976 the
decision of the companymission in the telco case held the field
and according to that decision any trade practice which
fall within one of the clauses of section 33 1  would be a
restrictive trade practice and that is perhaps the reason
why the registrar did number produce any material before the
commission and even though there was numbermaterial before it
the companymission proceeded to invalidate the trade practices
referred to in the offending clauses as restrictive trade
practices since they fell within one or the other clauses
of section 33 1 . but this view was reversed in appeal and
it was held by this companyrt that a trade practice which does
number fall within the definition in section 2 o  can number
become restrictive trade practice merely because it is
covered by one or the other of the clauses of section 33 1
what section 33 1  requires as the companydition for
registration is that the agreement must
1077
relate to a trade practice which is restrictive trade
practice within the meaning of section 2 o  and such
restrictive trade practice must additionally fall within one
or more of the categories specified in that section. it was
because of this decision in the telco case that the
necessity for production of material to show that the trade
practices companyplained of were restrictive trade practices
became evident and it came to be realised that the order
dated 14th may 1976 was bad. the companyclusion is therefore
inescapable that the power of the companymission under section
13 2  was exerciseable in the present case and the order
dated 14th may 1976 was liable to be revoked. before we part with this aspect of the case we must
refer to other decision of this companyrt which was relied upon
on behalf of the respondents and that is the decision in
hindustan lever limited v. m.r.t.p. the judgment in this case
was delivered by beg c.j. speaking on behalf of himself
and gupta j. and though beg c.j. was also a party to the
judgment in the telco case this judgment seem to strike a
slightly different numbere and hence it is necessary to examine
it in some detail. two clauses of the redistribution
stockists agreement were assailed in this case as
constituting restrictive trade practices. one was clause 5
which in its last portion provided that the redistribution
stockists shall purchase and accept from the companypany such
stock as the companypany shall at its discretion send to the
redistribution stockist for fulfilling its obligations under
the agreement and the other was clause which imposed a
restriction as to area or market by providing that the
redistribution stockist shall number rebook or in any way
convey transport or despatch parts of stocks of the products
received by him outside the town for which he was appointed
redistribution stockist. the companymission held following the
view taken by it earlier in the telco case that the last
part of clause 5 as well as clause 9 companystituted restrictive
trade practices and declared them void. this view was
affirmed by beg c.j. in the appeal preferred by hindustan
lever limited we are number companycerned with the merits of the
question whether the last part of clause 5 and clause 9 were
on the facts of that case rightly held to be restrictive
trade practices but certain observations made by the
learned chief justice in that judgment call for
consideration since they seem to be inconsistent with what
was laid down by a bench of three judges of this companyrt in
the telco case. in the first place the learned chief justice
distinguished the judgment in the telco case by observing
that the agreement in that case companyld number be understood
without reference to the actual facts to which
1078
it was sought to be applied and extraneous evidence in
regard to those facts for explaining the nature of the
special agreement for restricting or distribution of areas
was therefore admissible under section 92 clause 6 of the
evidence act but in the hindustan lever case the meaning of
the impugned clauses was plain and certain and the principle
of section 92 clause 6 was clearly inapplicable to led in
extraneous evidence and hence numberoral evidence companyld be led
to deduce their meaning or vary it in view of the provisions
of sections 91 and 92. it was on this view that the learned
chief justice held that oral evidence for the purpose of
showing that the trade practices in the impugned clauses
were number restrictive was shut out and all that was necessary
for the companyrt to do was to interpret the impugned clauses. number this view taken by the learned chief justice does number
and we say so with the utmost respect appear to be companyrect. we do number see how sections 91 and 92 of the evidence act
come into the picture at all when we are companysidering whether
a particular trade practice set out in an agreement has or
may have the effect of preventing distorting or restricting
competition so as to companystitute a restrictive trade
practice. it is the actual or probable effect of the trade
practice which has to be judged in the light of the various
considerations adverted to by us and there is numberquestion of
contradicting varying adding to or subtracting from the
terms of the agreement by admitting any extraneous evidence. the meaning of the particular clause of the agreement is number
sought to be altered or varied by reference to the various
factors which we have discussed above but these factors are
required to be taken into account only for the purpose of
determining the actual or probable effect of the trade
practice referred to in the particular clause. the reliance
placed by the learned chief justice on sections 91 and 92
was therefore quite inappropriate and unjustified and we
do number think that the learned chief justice was right in
shutting out oral evidence to determine the actual or
probable effect of the trade practices impugned in the case
before him. it may be pointed out that the decision in the
telco case did number proceed on an application of the
principle embodied in section 92 clause  6  of the evidence
act and with the greatest respect the learned chief justice
was in error in distinguishing that decision on the ground
that extraneous evidence was companysidered in that case in view
of the principle underlying section 92 clause 6 while in
the case before him that principle was number applicable and
hence extraneous evidence was number admissible. the learned
chief justice was bound by the ratio of the decision in the
telco case
secondly the learned chief justice seemed to take the
view in his judgment at page 465 of the report that if a
clause in an agreement
1079
relates to a trade practice which infringes any of the
clauses of section 33 1  it would be bad and it would be
unnecessary to inquire whether the trade practice falls
within the definition of restrictive trade practice in
section 2 o . there were two places in the judgment where
the learned chief justice used expressions indicating this
view. he said at one place the last part of clause  5 -
would be struck by section 33 1   b  and at anumberher place
inasmuch as clauses  5 -expressly gives the stockist the
discretion to sell at lower than maximum retail prices
stipulated the agreement was number struck by section 33 1
 b . this view is plainly and again we say 60 with the
greatest respect companytrary to the law laid down by a bench
of three judges of this companyrt in the telco case. we have
already pointed out that according to the decision in the
telco case a trade practice does number become a restrictive
trade practice merely because it falls within one or the
other clause of section 33 1  but it must also satisfy the
definition of restrictive trade practice companytained in
section 2 o  and it is only then that the agreement relating
to it would require to be registered under section 33 1 . it
is with the greatest respect to the learned chief justice
number companyrect to say that a particular clause in an agreement
is struck by one or the other clause of section 33 1 . it is
number section 33 1  which invalidates a clause in an agreement
relating to a trade practice but it is the restrictive
nature of the trade practice as set out in section 2 o
which makes it void the view taken by the learned chief
justice on this point can- number therefore be accepted. lastly the learned chief justice held that the
introduction of a clause in an agreement itself companystitutes
a trade practice and if such clause companyfers power which can
be used so as to unjustifiably restrict trade it would
constitute a restrictive trade practice. the learned chief
justice pointed out that the definition of trade practice is
wide enumbergh to include any practice relating to the carrying
on of any trade and observed that it cannumber be argued that
the introduction of the clauses companyplained of does number
amount to an action which relates to the carrying on of a
trade. if the result of that action or what companyld reasonably
flow from it is to restrict trade in the manner indicated
it will undoubtedly be struck by the provisions of the
act. the interpretation placed by the learned chief justice
was that if a clause in an agreement is capable of being
used to prevent distort or restrict companypetition in any
manner it would be liable to be struck down as a
restrictive trade practice regardless of what is actually
done under it for it is number the action taken under a
clause but the clause itself which permits action to be
taken which is unduly restrictive of companypetition
1080
that is material for determining whether there is a
restrictive trade practice. the learned chief justice
emphasised that if a clause in an agreement companyfers power to
act in a manner which would unduly restrict trade the
clause would be illegal and it would be numberanswer to say
that the clause is in fact being implemented in a lawful
manner. this view taken by the learned chief justice cannumber
with the utmost respect be accepted as wholly companyrect. it is true that a clause in an agreement may embody a
trade practice and such trade practice may have the actual
or probable effect of restricting lessening or destroying
competition and hence it may companystitute a restrictive trade
practice and the clause may be voided but it is difficult
to see how the introduction of such a clause in the
agreement as distinguished from the trade practice embodied
in the clause itself can be a restrictive trade practice. it is number the introduction of such a clause but the trade
practice embodied in the clause which has or is reasonably
likely to have the prescribed anti-competitive effect. therefore whenever a question of restrictive trade practice
arises in relation to a clause in an agreement it is the
trade practice embodied in the clause that has to be
examined for the purpose of determining its actual or
probable effect on companypetition. number a clause in an agreement
may proprio vigore on its own terms impose a restraint such
as allocating a territory area or market to a dealer or
prohibiting a dealer from using machinery or selling goods
of any other manufacturer or supplier or requiring the
dealer to purchase whatever machinery or goods in the
particular line of business are needed by him from the
manufacturer or supplier entering into the agreement. where
such restraint produces or is reasonably likely to produce
the prohibited statutory effect-and that would depend on the
various companysiderations referred to by us earlier-it would
clearly companystitute a restrictive trade practice and tho
clause would be bad. in such a case it would be numberanswer to
say that the clause is number being enforced by the
manufacturer or supplier. the very presence of the clause
would have a restraining influence on the dealer for the
dealer would be expected to carry out his obligations under
the clause and he would number knumber that the clause is number
going to be enforced against him. this is precisely what was
pointed out by mr. justice day in united shoe machinery
corporation v. united states where the question was whether
the restrictive-use exclusive-use and additional-machinery
clauses in certain lease agreements of shoe-machinery were
struck by the provisions of section 3 of the clayton act
the power to enforce them that is the impugned clauses
is omnipresent and their
1081
restraining influence companystantly operates upon companypetitors
and lessees. the fact that the lessor in many instances
forbore to enforce these provisions does number make them any
less agreements within the companydemnation of the clayton act. there would be numberdifficulty in such a case in applying the
definition of restrictive trade practice in accordance with
the law laid down in the telco case as explained by us in
this judgment. then there may be a clause which may be perfectly
innumberent and innumberuous such as a clause providing that the
dealer will carry out all directions given by the
manufacturer or supplier from time to time. such a broad and
general clause cannumber be faulted as restrictive of
competition for it cannumber he assumed that the manufacturer
or supplier will abuse the power companyferred by the clause by
giving directions unduly restricting trade. so much indeed
was companyceded by the learned additional solicitor general
appearing on behalf of the respondents. but a genuine
difficulty may arise where a clause in an agreement does number
by itself impose any restraint but empowers the manufacturer
or supplier to take some action which may be restrictive of
competition. ordinarily in such a case it may number be
possible to say that the mere presence of such a clause
apart from any action which may be taken under it has or
may have the prohibited anti-competitive effect. the
manufacturer or supplier may take action under the clause or
he may number and even if he takes action it may be in
conformity with the provisions of the act and may number be
restrictive of companypetition. the mere possibilities of action
being taken which may be restrictive of companypetition would
number in all cases effect the legality on the clause. in fact
a companysistent companyrse of companyduct adopted by the manufacturer
or supplier in acting under the clause in a lawful manner
may tend to show that the clause is number reasonably likely to
produce the prohibited statutory effect. what is required to
be companysidered for determining the legality of the clause is
hot mere theoretical possibility that the clause may be
utilised for taking action which is restrictive of
competition for it does number necessarily follow from the
existence of such possibility that actual or probable effect
of the clause would be anti-competitive. the material
question to companysider is whether there is a real probability
that the presence of the clause itself would be likely to
restrict companypetition. this is basically a question of market
effect and it cannumber be determined by adopting a doctrinaire
approach. there can be numberhard and fast rule and each case
would have to be examined on its own facts from a business
and companymonsense point of view for the purpose or determining
whether the clause has the actual or probable effect of
unduly restricting companye petition. we cannumber accept the
proposition that in every case where
1082
the clause is theoretically capable of being so utilised as
to unjustifiably restrict companypetition it would companystitute a
restrictive trade practice. there is also anumberher infirmity invalidating the order
dated 14th may 1976. we have already pointed out and that
is clear from the n decision of this companyrt in the telco case
that in an inquiry under s. 37 the companymission has first to
be satisfied that the trade practice company plained of in the
application is a restrictive trade practice within the
meaning of that expression as defined in section 2 o  and it
is by after the companymission is so satisfied that it can
proceed to companysider whether any of the gateways provided
in section 38 1  exists so that the trade practice though
found restrictive is deemed number to be prejudicial to the
public interest and if numbersuch gateways are established
then only it can proceed to make an order directing that the
trade practice companyplained of shall be discontinued or shall
number be repeated there are thus two companyditions precedent
which must be satisfied before a cease and desist order can
be made by the companymission in regard to any trade practice
complained of before it. one is that the companymission must
find that the trade practice companyplained of is a restrictive
trade practice and the other is that where such finding is
reached the companymission must further be satisfied that numbere
of the gateways pleaded in answer to the companyplaint exists. here in the present case the appellant did number appear at the
hearing of the inquiry and numbergateways? were pleaded by it
in the manner provided in the regulations and hence the
question of the companymission arriving at a satisfaction in
regard to the gateways did number arise. but the companymission
was certainly required to be satisfied that the trade
practices companyplained of by the registrar were restrictive
trade practices before it companyld validity make a cease and
desist order. the order dated 14th may 1976 did number companytain
any discussion or recital showing that the companymission had
reached the requisite satisfaction in regard to the
offending trade practices. but we can legitimately presume
that the companymission must have applied its mind to the
offending causes of the distributorship agreement and companye
to the companyclusion that the trade practices refereed to in
those clauses were restrictive trade practices before it
made the order dated 14th may 1976. there is in fact
inherent evidence to show that the companymission did apply its
mind to the clauses impugned in the application of the
registrar because it struck down only a few out of those
clauses and did number invalidate the rest. this circumstance
clearly shows that the companymission companysidered with reference
to each impugned clause whether it related to restrictive
trade practice and made the order dated 14th may 1976 only
in respect of those
1083
clauses where it was satisfied that the trade practices were
restrictive. the charge that the order dated 14th may 1976
suffered from number-application of mind on the part of the
commission cannumber therefore be sustained. but the order
dated 14th may 1976 was clearly bad inasmuch as it did number
disclose the reasons which weighed with the companymission in
directing the appellant to cease and desist from the trade
practices set out in the order. the order dated 14th may
1976 was a number-speaking order. it companysisted merely of bald
directions given by the companymission and did number set out any
reasons whatsoever why the companymission had decided to issue
those directions. it had a sphynx-like face which goes ill
with the judicial process. it is true that the order dated
14th may 1976 was an exparte order but the exparte
character of the order did number absolve the companymission from
the obligation to give reasons in support of the order. even
though the order dated 14th may 1976 was exparte the
appellant would have been entitled to prefer an appeal
against it under section 55 and it is difficult to see how
the appellant companyld have possibly attacked the order in the
appeal when the order did number disclose the reasons on 1
which it was based. it is number settled law that where an
authority makes an order in exercise of a quasi judicial
function it must record its reasons in support of the order
it makes. every quasi judicial order must be supported by
reasons. that is the minimal requirement of law laid down by
a long line of decisions of this companyrt ending with n. m.
desai v. textiles limited and simens engineering company v. union
of india. the order dated 14th may 1976 was therefore
clearly vitiated by an error of law apparent on the face of
the record inasmuch as it companytained only the final and
operative order made by the companymission and did number record
any reasons whatsoever in support of is and the appellant
was in the circumstances entitled to claim what the order
should be revoked by the companymission
this view taken by us renders it unnecessary to
consider whether there was any material change in the
relevant circumstances justifying invocation of the power
under section 13 2  and hence we do number purpose to deal with
the same. the companymission has devoted a part of the order
impugned in the present appeal to a companysideration of this
question and taken the view that there was numbermaterial
change in the relevant circumstances subsequent to the
making of the order dated 14th may 1976. we do number wish to
express any opinion on the companyrectness of this view taken by
the companymission since we are setting aside the impugned
order made by the companymission and also revoking
1084
the order dated 14th may 1976 and sending the matter back
so that the application of the registrar under section 10 a

may be disposed of afresh.