COMPETITION APPELLATE TRIBUNAL
DIC Coatings Ltd.
RTPE 44 of 2006
AUGUST 21, 2012
1. This is a complaint by the Director General against M/s. DIC Coatings Ltd. There was a preliminary investigation taken up for studying the market arrangement made by the respondent for sale of its products and accordingly, a probe letter dated 30th November 2004 to collect the necessary details and documents was issued. The respondent furnished its reply vide their letter dated 4th January 2005 giving certain details of its constitution and marketing arrangements for its sale and industrial coatings manufactured by it. In their reply, the respondent contended that they were marketing their product through the authorized dealers and that they were offering annual commission to their dealers on slab basis. The respondent was also offering discounts and special discounts at uniform rates to the dealers. The details were sought over this statement made by the respondent and by their reply dated 22nd March 2006, the respondent furnished the details of the annual commission to its dealers. The complainant goes on to say that from the table given, the dealers have been classified into different categories for the purpose of allowing annual commission on the basis of turnover achieved by them and, therefore, it was evident that the authorized dealers who achieve higher sales are entitled to annual commission at a higher percentage as compared to the authorized dealer who achieve a lower volume of sale. As a sequel, big authorized dealers would be in a position to sell the product of the respondent at a price lower than the price of the authorized dealers who are allowed a lower rate of annual commission due to lower volume of sale achieved by them. According to the Director General, the bigger authorized dealers would be selling coatings at a lesser price as compared to the smaller authorized dealers. The Director General, therefore, complained that this trade practice comes within the mischief of Section 33(1)(e) of the Act. The Director General also further says that this trade practice is also prejudicial to the public interest under Section 38(1) of the Act as the consumers would be subjected to unjustified costs and restrictions due to distortion of competition between small authorized dealers and large authorized dealers.
2. A detailed reply has been given by the respondent and in their reply, they specifically contended that their practice of allowing discounts, special discounts and annual commissions was being practised uniformly and that there was no discrimination between dealer to dealer and those dealers who attained specified level of sales were entitled to those discounts, special discounts and annual commission. In their affidavit also, the respondent very specifically urged that nothing depended upon the off-take of the dealer and the said discounts were given strictly on the lines effected by the dealers to the consumers. During the debate, it was reiterated by the respondent that there was a specific policy framed by the respondent in respect of these payments of annual commission and discounts. The respondent were required by this Tribunal to put on record the documents in support of the formulation of such a policy. Accordingly, the respondent put on record the circulars dated 16th March 2005 and 20th December 2005 suggesting the way in which the respondent would treat and the way their discounts, special discounts and annual discounts were to be granted. On looking at the circular dated 16th March 2005, it suggests that “Considering the changes in the prevailing business scenario, it is hereby decided that the existing system and slab of payment of Annual commission is being replaced with the system of payment of commission on an uniform basis based on the turnover slabs.” Similar is the language of the circular dated 20th December 2005 wherein it is stated “Considering the changes in the prevailing business scenario, it is hereby decided that with effect from 1st January 2006, payment of Social Discount to the Authorized Dealers of the Company be at a fixed rate @ 3%.” On behalf of the respondent, one Shri Chatterjee had been cross-examined on the basis of its affidavit of evidence. We have gone through the affidavit of evidence and also the cross-examination at the behest of the Director General. The Director General, however, remained content with the replies given by the respondent to the queries as also the copies at the latest supplied by the respondent along with its reply to the notice of enquiry. We have perused the same.
3. Shri Makheeja contended that there was a discrimination between authorized dealers inasmuch as the authorized dealers who sell more would be getting the discount of higher annual commission in comparison to the authorized dealer who could not or did not annually sell more and could not cross the standard bench mark given by the respondent for payment of the discount, special discount and annual commission and in that competition suffered and this was a restrictive trade practice covered by Section 33(1)(e) of the MRTP Act. Shri Makheeja further contended that there was thus a discrimination between the small authorized dealers and big authorized dealers. As against this, Shri Ranganathan appearing on behalf of the respondent, pointed out that the respondent was at no point of time discriminating between the dealers and traders in the sense that all the dealers crossing the bench marks given by the respondent were entitled to the said discounts, special discounts and annual commission without any exception. He pointed out that there was a total uniformity in the terms given by the respondent to the dealers. The learned counsel also pointed out and very heavily relied on the Judgment of this Tribunal reported in RTPE No.15/1984 in the matter of DG(I&R) v. Usha International Ltd. and more particularly, in para – 13 of the Judgment which runs as under:
“The fifth and the last restrictive trade practice alleged in the notice of enquiry is that the respondent had allowed quantitative discount to its dealers and also allowed discriminatory ‘Target Achievement Bonus’ during 1982 and 1983 which have the effect of distorting competition and imposing unjustified costs on the consumers. The DG has placed on record circulars issued by the respondent on a number of occasions launching short-term Discount Schemes and Target Achievement Bonus Scheme. These have been marked Ex. A-11 to A-16. It is admitted that Customer Discount Scheme has no element of discrimination. It is a straight -across-the-board offer to customers of a special discount comprising contributions from the respondent as well as the dealers and this discount is not related to quantities. Let us now examine the Target Achievement Bonus scheme. We find that under this scheme, every dealer was given a target in terms of the number of sewing machines to be sold during the period of the operation of the scheme and on the achievement of this target, the dealer would get a credit note varying with the model of the machine sold. Thus respondent’s case is spelt out in the following words in its reply to the notice of enquiry.”
“It may be mentioned that certain discounts and target achievement bonus are given from time to time, in order to promote the sales of the products of the company. These are generally fixed keeping into consideration the previous off-take of a particular dealer. The purpose of such discounts is to give an incentive to those dealers who increase their off-take as compared to their past off-take. This helps in promoting the products of the company and increases inter-brand competition. Discounts of this nature are essential since the products in which the respondent deals arc highly competitive and it is necessary to fix discounts and bonus in such a way that there is sufficient inducement for the dealer to promote the products of the respondent as against the products of the respondent’s competitors.”
4. The question, therefore, is as to whether this grant of concessions, commissions, discounts, etc. really amount to a restrictive trade practice as covered in Section 33(1)(e) of the MRTP Act.
5. Section 33(1)(e) is in the following terms:-
“any agreement to grant or allow concessions or benefits, including allowances, discount, rebates or credit in connection with, or by reason of, dealings”
6. Considering the Section and its language plainly, it is apparent that the agreement to allow concessions and benefits including allowances, discounts, rebates or credit have to have a nexus with the dealings of the respondent. The said dealings would not cover a uniform policy by the respondent to sell its product. We agree with Shri Makheeja when he says that if there is a discrimination between authorized dealers inter se, it would amount to a restrictive trade practice but in that case, it will be that the dealing of the respondent with a particular dealer was discriminatory in comparison to its dealing with another dealer. Such is not the case here. If it is a uniform practice of offering the discounts, etc. That will be a business requirement of the respondent and obviously to increase its sales, that would be quite natural because every manufacturer has a right to increase his sales and increase its market share in view of the competition that it faces from the other manufacturers. The question is how it is achieved. If it is achieved by the legal ways, there is nothing wrong in doing so, but if in doing that the respondent breaches some of the provisions and adopts restrictive trade practice or unfair trade practice, then this Commission would have the jurisdiction to deal with this. What we find here is the uniform practice of granting the concessions, discounts, special discounts and the annual commission on a principled basis. We do not find anything wrong with that. The contention raised on behalf of the DG is that those who are not achieving a particular slab are discriminated against those who are achieving. The contention is incorrect. There has to be a comparison between equals. A dealer who does not reach a particular target cannot be compared with a dealer who attains a particular target. These two dealers fall in different categories and cannot be compared. We do not find that there is any case against the respondent. Much less of the restrictive trade practice under Section 33(1)(e).
7. We must appreciate one thing that the respondent has started a uniform practice of 3% of special discount and slab by the annual discounts. Shri Ranganathan reiterated that this policy is being continued.