Supreme Court finds Phillips not guilty of unfair practice

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In M/s Phillips Medical Systems (Cleveland) Inc v M/s Indian MRI Diagnostic & Research Ltd & Anr, the construction of Section 36A of the Monopolies and Restrictive Trade Practices Act, 1969, relating to unfair trade practice was examined by Supreme Court of India. The legal question involved whether a party could be held guilty of an unfair trade practice even if it didn’t supply any goods.

MRI, an Indian company, ordered a whole body CT scanner from US manufacturer Phillips. The US corporation required licences from the respective governments which did not arrive in time. As a result, the offer lapsed and the deal fell through. Fresh negotiations began between the companies, but these were apparently for a refurbished machine at a higher price. MRI subsequently called off the talks and imported a similar scanner from Japan. It also approached the Monopolies and Restrictive Trade Practices Commission, alleging that Phillips had engaged in restrictive trade practices and seeking compensation for its losses. The commission held Phillips guilty of both unfair and restrictive trade practices and awarded compensation. In response, Phillips appealed to the Supreme Court, where it succeeded in setting aside the commission’s order.

After examining the issue at length, the court held that the original act of 1969 did not contain the phrase “unfair trade practice”. The law only targeted restrictive and monopolistic practices. However, it was later felt that the act required some modifications. In the original act there was no specific provision for the regulation of unfair trade practices, such as misleading advertisements, bargain selling, etc.

MonopolyIt was acknowledged that consumers required protection not only from the effects of restrictive trade practices, but also from practices which were resorted to by unscrupulous businessmen intending to mislead consumers. Therefore, the concept of unfair trade practice was introduced in 1984 through an amendment recommended by the Sachar Committee. In the original section 36A, introduced by the 1984 amendment, any injury or unfair trade practice had to have caused some loss to the consumer. However, in a 1991 amendment to section 36A, the requirement to establish loss or injury to the consumer was deleted. The 1991 amendment thus provided an inclusive definition of unfair trade practice rather than an exhaustive one, as was the case in the 1984 amendment.

The Supreme Court held that the principles of the rule of law would apply to the interpretation of section 36A, as amended in 1991. It maintained that Section 36A only applied in a situation where goods had been sold and therefore ruled in favour of Phillips, setting aside the judgment passed by the Monopolies and Restrictive Trade Practices Commission.

The update of court judgments is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at [email protected], [email protected] or [email protected] Readers should not act on the basis of this information without seeking professional legal advice.