DIRECTOR GENERAL OF INVESTIGATION And REGISTRATION vs Hero Honda Motors Ltd.

THIS enquiry commenced on an application filed by the Director General of Investigation and Registration [DG for brief] under Section 36B(c) of the MRTP Act, 1969 alleging that the respondents named above namely Hero Honda Motors Limited (R-1), Venkateshwara Motors (R-2), Lakshmi Motors (R-3) and Mody Motors (R-4) have indulged in certain unfair trade practices attracting the provisions of Section 36A(1)(iv) and (vi) and Section 36A(3)(b) of the Act. The averments in the application of the Director General are summarised herein below.

HERO Honda Motors Limited, R-l, is a company incorporated under the Companies Act, 1956 and is engaged in the manufacture and sale of HERO Honda Motor Cycles. R-2, R-3 and R-4 are the dealers of R-l in the territory of Hyderabad and Secunderabad in the State of Andhra Pradesh and are engaged in the business of dealing in HERO Honda Motor Cycles. In order to promote the sale of HERO Honda Motor Cycles, the respondents launched a Scheme under the caption: "ON A HERO HONDA ZOOM TOWARDS EXCITEMENT FABULOUS PRIZES EVEN A NEW MARUTI 800 THE NO COMPARISON BIKE"

The Scheme details were advertised in the newspapers and one such advertisement was published in the Deccan Chronicle, Hyderabad of dateline 19th January, 1993. In terms of the scheme, those who purchased Hero Honda Motor Cycles from the dealers R-2, R-3 and R-4, were to get each an "instant free gift". In addition, a mini draw was to be held "for every 50 vehicles sold at each of the dealers"/ the lucky winner getting "a whopping Rs. 5025/- worth of State Bank of India Gift cheques". Furthermore, every coupon holder (including the winners of the mini draw) was eligible for the bumper draw to be held at the end of the scheme, the prize for the winner being a new Maruti 800. The offer under the scheme was indicated as "open for a limited period on all the models of Hero Honda".

The Director General has pointed out in his application that the impugned scheme in the advertisement of the respondents did not indicate the specific duration of the scheme and that it was also deceptive because it was not clear whether every dealer would offer a Maruti car and whether the draw itself would be held for the purchasers from all the three dealers R-2, R-3 and R-4. The Director General has opined that the impugned scheme amounts to a game of chance or lottery and is misleading.

ON the basis of the application of the Director General, a Notice of Enquiry (NOE) was issued on 8th October, 1993 summarising the charges against the respondents and indicating that the trade practice indulged in by the respondents constitutes unfair trade practices in terms of Section 36A(l)(iv) and (vi) and Section 36A(3)(b)of the Act. To the NOE, a detailed reply was submitted by Hero Honda Motors Limited (R-l) and a separate detailed reply was submitted by the three dealers (R-2, R-3 and R-4). The said replies are summarised herein below : Reply of R-l 1. R-l has not in any way either financially or otherwise participated in the impugned scheme. The advertisement does not show that R-l was a party to the scheme. 2. R-l has been wrongly arrayed as a party to the present proceedings. 3. No unfair trade practice had been indulged in by R-l. 4. There is no iota of evidence in support of the allegation that Rl was concerned with or had participated in the scheme. 5. R-l had not given free gifts, gift cheques or the price of a new Maruti 800 car. 6. NOE has been wrongly issued to R-1.

R-l sells its motor cycles to its dealers on a principal to principal basis and does not concern itself with schemes or other promotional activities carried on by the latter, on their own initiative at their own cost or expense. Reply of R-2, R-3 and R-4 1. The existence of an unfair trade practice as defined in Section 36A of the Act is a condition precedent to the exercise of jurisdiction by the Commission. The trade practices alleged against the respondents cannot and does not constitute any unfair trade practice. 2. The NOE does not set out any facts or features of the alleged unfair trade practices, whereby any loss or injury has been caused to the consumers. 3. The allegations contained in the NOE are vague and ambiguous and do not contain the necessary material particulars. 4. R-l is not a party to the impugned scheme. 5. There is no deception in the advertisement of the impugned scheme as the offer had been made "open for a limited period". 6. The mini draw is with reference to each of the dealers but the bumper draw is with reference to all the dealers. There is no deception in the advertisement. 7. Neither Section 36A(1)(iv) nor Section 36A(1)(vi) is attracted in terms of the specific wording in the said sections. Nor Section 36A(3)(b) is attracted.

A motor cycle is a consumer durable with a high price of the order of Rs. 30,000/-and no consumer will purchase one because of the alleged allurement of the scheme. In any case, consumers who purchase motor-cycles are not gullible. R-2, R-3 and R-4 purchase motor cycles from R-l on a principal to principal basis. R-l recommends prices for sale to the consumers and the respondent dealers can charge a price below the recommended price. In giving free gifts, the respondent dealers forego a part of their margin. The answering respondents have given State Bank of India gift cheques of Rs. 5025/- for every winner of the mini draw.

THE scheme ''ran for over a period of 5 months'' and the winner of the bumper draw got a Maruti car. As the advertisement had indicated that the scheme was for a limited period, there was no need to mention any specific period therein.

A game of chance or lottery is not prohibited per se by Section 36A of the Act but stands prohibited only if it causes loss and injury to the consumers or eliminates or restricts competition and is prejudicial to public interest. Such elements are absent in the scheme. After the pleadings were completed the following issues were framed. 1. Whether the respondents jointly or severally have indulged in the unfair trade practices in terms of Clause 3(b) of Section 36A of the MRTP Act? 2. If answer to issue No. 1 is in the affirmative, whether the trade practice as alleged is prejudicial to public interest, interest of the consumer or consumers generally ? 3. Whether the respondent No. 1 is in any way concerned with the issue of impugned advertisement in question 4. Whether the Notice is not maintainable against respondent Nos. 2 to 4 for the reasons stated in the written reply filed on their behalf ? 7. The DG tendered seven documents, all of which were admitted by the respective respondents. Essentially, the said documents comprise the probe letter of the DG addressed to the respondents, his reminders and letters and replies received from the respondents besides a copy of the impugned advertisement published in the Deccan Chronicle, Hyderabad of dateline 19th January, 1993. 8. On behalf of R-2, R-3 and R-4 Shri Bipin Pandya, Manager of R-4 filed his affidavit in evidence with the authority letters of R-2 and R3. The said witness was cross examined by the Director General with reference to his affidavit. A supplementary affidavit was filed by Shri Bipin Pandya furnishing certain documents pursuant to the direction of this Commission. We gave a hearing to Mr. S.P. Pahwa, Advocate for the Director General and Mr. P.A.S. Rao, Advocate for the respondents. 9. We will take up the third issue first namely, whether Hero Honda Motors Limited (R-l) is in any way concerned with the issue of the advertisement of the impugned scheme in question.

R-1 has categorically contended in its reply that it had nothing to do with the scheme and that it had not issued any advertisement in respect of the impugned scheme. Even the reply of the respondent dealers R-2, R-3 and R-4 has categorically mentioned that R-l was not a party to the scheme. In his affidavit in evidence Shri Bipin Pandya, Manager of R-4, deposing on behalf of the three respondent dealers R-2, R-3 and R-4 has stated that the expenses incurred on this scheme were incurred by respondent Nos. 2 to 4 out of their sales promotion and advertising budget and the same has been borne by the 3 respondents. He has also stated during his examination-in-chief that the impugned scheme was operated by R-2, R-3 and R-4 but not by R-1. Nothing was brought out by the Director General during the cross-examination of the witness or otherwise, that R-1 was a party to the scheme. Even during the arguments all that Mr. Pahwa, Advocate for the DG said was that on the face of the facts of the case, it was improbable that the dealers had been conducting the impugned scheme without the knowledge of R-l. Mr. Pahwa added that because of the close connection of R-l with its dealers R-2, R-3 and R-4, it would be correct to infer that R-l had been concerned with the alleged unfair trade practices and with the impugned scheme. We are afraid, we cannot accept this logic or inference, without any shred of evidence. Even the respondent dealers have categorically owned that they had floated the scheme and not R-l. The dealers have also stated through Shri Bipin Pandya, their witness, that the expenses incurred under the scheme were borne by them. In this view of the matter, the third issue is answered in the negative in favour of R-l. The NOE shall stand discharged insofar as R-l is concerned. 11. We will now take up issue No. 4 as to whether the enquiry is not maintainable against R-2 to R-4, for the reasons stated in their written reply to the NOE. The maintainability of the enquiry has been questioned mainly on one ground that nothing has been alleged that because of the impugned scheme any loss or injury had been caused to any consumer. Obviously, the three answering respondent dealers have overlooked the fact that causing loss or injury is not a pre-requisite in terms of Section 36A as it stands now. Prior to an amendment to the said Section in 1991, an unfair trade practice was defined as: ''a trade practice which, for the purpose of promoting the sale, use or supply of any goods or for the provision of any services, adopts one or more of the following practices and thereby causes loss and injury to the consumers of such goods or services, whether by eliminating or restricting competition or otherwise''. After the amendment in 1991 which came into effect from 27th September, 1991 an unfair trade practice is defined as: ''a trade practice which, for the purpose of promoting the sale, use or supply of any goods or for the provision of any services, adopts any unfair method or unfair or deceptive practice''.

Thus there is a significant change in the definition of unfair trade practice after the amendment in 1991. Previously, there was a requirement that the unfair trade practice should cause loss and injury to the consumers whether by eliminating or restricting competition or otherwise. That requirement has now been given up consequent on the amendment. In this view of the matter, the said objection on the maintainability of the enquiry has no force.

THE other preliminary objections in the reply of the respondent dealers to the NOE, are routine in nature. On a perusal of the same, we find that there is no substance in the said objections, nor were they pressed at the time of arguments by the Advocate for the said respondents. We, therefore, decide the issue No. 4 in the negative against the respondent dealers R-2, R3 and R-4. THE enquiry is maintainable. We now proceed to issue No. 1 whether the respondents jointly or severally have indulged in the alleged unfair trade practice in terms of Section 36A(3)(b) of the Act. It requires to be noticed here at this stage, that even though the NOE, prima facie, indicts the respondents of unfair trade practices in terms of Section 36A(1)(iv)and (vi) of the Act, the first issue does not mention these provisions. Further, on a perusal of the pleadings, it is amply manifest that the impugned scheme has nowhere mentioned by way of any false representation that the Hero Honda Motor Cycles have certain performance, characteristics, uses or benefits which they do not have. Even the application of the Director General does not bring out any such misrepresentation to invite the application of Section 36A(l)(iv) of the Act. Nor has there been any false or misleading representation on the part of the respondent dealers R-2, R-3 and R-4 concerning the need for or usefulness of the Hero Honda Motor Cycles inviting the application of Section 36A(1)(iv) of the Act. This is the reason why when Issue No. 1 was framed, the aforesaid provisions namely. Section 36A(1)(iv) and (vi) of the Act were left out. Issue No. 1 mentions only Section 36A(3)(b) of the Act. and no other section. In any case, we are clearly of the view that the said left out sections are not attracted in the light of the averments made by the Director General in his complaint application against the respondents.

WHAT survives, therefore, is the issue whether respondent dealers have offended Section 36A(3)(b) of the Act. It has been held by this Commission in a large number of cases that the wording of Section 36A(3)(b) of the Act will render the conduct of any contest, lottery, game of chance or skill for the purpose of promoting, directly or indirectly, the sale, use or supply of any product or any business interest, an unfair trade practice. In this case, there is a game of chance/lottery in terms of the mini draw. The impugned scheme is, therefore, a clear case of an unfair trade practice (For e.g. In Re : Lakhanpal National Limited, Baroda - UTPE 45/95 dated 29th May, 1997). The definitional Section 36A(3)(b) of the Act having clearly rendered the impugned scheme as an unfair trade practice, the first issue is decided in the affirmative against R-2, K-3 and R-4. This brings us to the second issue, the only one left to be decided. The issue is whether the impugned scheme is prejudicial to public interest, the interest of the consumer or consumers generally. The Commission has held on more than one occasion that prejudice to public interest will have to be affirmatively proved before any cease or desist order can be passed by it. This is an independent requirement of law. Prejudice cannot be presumed to exist in the unfair trade practice itself. Such a presumption cannot be raised in the absence of specific words to that effect. (In Re : Arora Contractors and Builders Pvt. Ltd,. reported in 1994-2-CTJ-64 MRTPC and In Re : Indian Tobacco Company (ITC) Ltd. reported in 1995-3-CTJ-344 MRTPC).

MR. P.A.S. Rao, Advocate for the respondent dealers stated that when the impugned scheme was in operation, there was an all-round recession particularly in the automobile industry and that as a result there was a fall in the sale of two-wheelers including the motor cycles manufactured by R-l. He added that the sales of Hero Honda motor cycles during the period of the impugned scheme were less by about 30% as compared to the corresponding period in the previous year. He used this argument to contend that the choice of the customers had not got deflected, as otherwise, the sales would have registered an increase and not a decrease. While we are inclined to accept the logic of MR. P.A.S. Rao, Advocate for the respondent dealers, it is intriguing that the impugned scheme does not mention its duration in the advertisement. All that it says is that the offer is open for a limited period. In our view, this constitutes prejudice to public interest as prospective purchasers of Hero Honda Motor Cycles have the right to know the details of the scheme including its duration in order to enable them to avail of the offer under the scheme. There is also another infirmity that the advertisement does not indicate that the bumper draw is a common draw or a collective draw in respect of purchases of Hero Honda Motor Cycles from all the dealers put together. While for the mini draw, it is specified that it will relate to each of the dealers, there is no categorical representation in respect of the bumper draw.

THUS there is an inherent unfair or deceptive practice in the representation contained in the advertisement of the impugned scheme. In this view of the matter, there is prejudice to public interest. Reading Section 36A(3)(b) and Section 36D(1) of the Act, together we hold that the respondent dealers R-2, R-3 and R-4 have indulged in the unfair trade practice of conducting the game of chance/lottery in the form of the draw in the impugned scheme, causing prejudice to public interest, the purchasers and potential purchasers of Hero Honda Motor Cycles. We, therefore, direct that the said respondents R-2, R-3 and R-4 shall not indulge in the aforesaid unfair trade practices and not repeat the same in future. They shall file an affidavit in compliance within four weeks of the date of this order. No order as to costs. Application disposed of. _____________