Supreme Court clarifies “Unfair Trade Practice” under MRTP Act: KLM Royal Dutch Airlines Case (October 3, 2008)

Date of the Judgment: October 3, 2008
Citation: Civil Appeal Nos. 815-816 of 2002
Judges: Tarun Chatterjee, J., Dr. Mukundakam Sharma, J.

What constitutes an unfair trade practice under the Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act)? The Supreme Court addressed this question in a case involving KLM Royal Dutch Airlines and a complaint regarding deficiency in service. The court examined whether a deficiency in service automatically qualifies as an unfair trade practice, emphasizing the need for false or misleading representation. The judgment was delivered by a two-judge bench comprising Justice Tarun Chatterjee and Justice Dr. Mukundakam Sharma, with the opinion authored by Justice Dr. Mukundakam Sharma.

Case Background

M/s. Maharajah & Co. booked a consignment with KLM Royal Dutch Airlines on September 21, 1995. The consignment consisted of three parcels containing badges and crests intended for specific tournaments, meetings, and conferences. The shipment was to be transported from New Delhi to New Orleans, USA.

On September 26, 1995, the airline informed M/s. Maharajah & Co. that two of the three parcels were missing. A subsequent message on October 3, 1995, indicated that the missing baggage could not be found, and the airline suggested filing a claim with underwriters if the shipment was insured. The airline also requested necessary documents to process the claim.

Around the same time, the airline located the two missing parcels and informed M/s. Maharajah & Co. on October 24, 1995, that the parcels had been traced and forwarded to the destination on October 20, 1995. M/s. Maharajah & Co. argued that the delayed delivery rendered the parcels useless, resulting in a loss of goodwill. They claimed Rs. 6 lakh from the airline for negligence and deficiency in service. A separate complaint was also filed before the Delhi State Consumer Redressal Forum under the Consumer Protection Act, 1986, which remains pending.

Timeline

Course of Proceedings

Upon receiving the complaint from M/s. Maharajah & Co., the Director General issued a notice to KLM Royal Dutch Airlines on January 22, 1996, requesting comments and information. The airline responded, citing the Carriage by Air Act, 1972, and the Warsaw Convention, 1929, which govern liability for loss, damage, or delay in international air transportation.

The Director General, a statutory authority, concluded that the airline had failed to provide expected services, constituting an unfair trade practice under clauses (ii), (iv), and (vi) of Section 36A (1) of the MRTP Act. Consequently, an application for registration and investigation was filed before the MRTP Commission under Section 36(B) of the MRTP Act.

The MRTP Commission, after considering the application and hearing the parties, found KLM Royal Dutch Airlines guilty of adopting unfair trade practices due to deficiency in service. The Commission directed the airline to cease the practice and file an affidavit stating its commitment to refrain from such practices in the future. KLM Royal Dutch Airlines then appealed the MRTP Commission’s order under Section 55 of the MRTP Act.

Legal Framework

The Supreme Court examined the relevant provisions of the Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act), to determine whether the airline’s actions constituted an unfair trade practice. The key provision under consideration was Section 36A, which defines “unfair trade practice.”

Section 36A of the MRTP Act defines “unfair trade practice” 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 including any of the following practices, namely:-
(1) the practice of making any statement, whether orally or in writing or by visible representation which,-
(ii) falsely represents that the services are of a particular standard, quality or grade;
(iv) represents that the goods or services have sponsorship, approval, performance, characteristics, accessories, uses or benefits which such goods or services do not have;
(vi) makes a false or misleading representation concerning the need for, or the usefulness of, any goods or services;”

The court also noted Section 36B, which outlines the process for inquiries into unfair trade practices by the Commission, particularly based on applications by the Director General. Additionally, Section 36D details the powers of the Commission when inquiring into an unfair trade practice, allowing it to direct the discontinuation of the practice or modification of related agreements.

The Court also referred to Section 48C of the MRTP Act, which prescribes penalties for contravention of orders made by the Commission relating to unfair trade practices, including imprisonment and fines.

Arguments

Arguments by the Appellant (KLM Royal Dutch Airlines):

• The senior counsel for the appellant, Mr. A.K. Ganguly, argued that the MRTP Commission’s order was illegal and without jurisdiction. He contended that there was no allegation of fraudulent representation on the part of the appellant.
• He submitted that none of the sub-clauses of Section 36A of the MRTP Act were applicable in the present case.
• The appellant emphasized that mere deficiency in service does not automatically equate to an unfair trade practice under the MRTP Act.

Arguments by the Respondent (Director General of Investigation and Registration):

• The senior counsel for the respondent, Mr. V. Shekhar, vehemently supported the order passed by the MRTP Commission.
• He drew attention to the complaint filed by the Director General before the MRTP Commission, arguing that it demonstrated the airline’s guilt in unfair trade practices.
• The Director General contended that the airline’s actions fell under clauses (ii), (iv), and (vi) of Section 36A (1) of the MRTP Act, as the airline failed to provide services of the expected standard and quality.

Issues Framed by the Supreme Court

1. Whether the actions of KLM Royal Dutch Airlines constituted an “unfair trade practice” as defined under Section 36A of the Monopolies and Restrictive Trade Practices Act, 1969, specifically under clauses (ii), (iv), and (vi) of Section 36A (1).

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

How each authority was viewed by the Court?

• Lakhanpal National Ltd. v. M.R.T.P. Commission [(1989) 3 SCC 251]: The Court used this authority to emphasize the need for a false or misleading statement to establish an unfair trade practice.
• Rajasthan Housing Board v. Parvati Devi [(2000) 6 SCC 10]: The Court cited this case to reinforce the principle that the Commission must determine whether the representation contained a false statement and was misleading.
• Colgate Palmolive (India) Ltd. v. MRTP Commission [(2003) 1 SCC 129]: The Court referred to this case to outline the essential ingredients that must be established before a trade practice can be deemed unfair.
• Man Roland Druckimachinen Ag v. Multi colour Offset Ltd. [(2004) 7 SCC 447]: The Court cited this case to emphasize that the focus is on a false representation or misleading advertisement.

What weighed in the mind of the Court?

The Supreme Court’s decision in the KLM Royal Dutch Airlines case was primarily influenced by the absence of any allegation or evidence of false or misleading representation on the part of the airline. The Court emphasized that while there may have been a deficiency in service, this alone does not constitute an unfair trade practice under Section 36A of the MRTP Act. The Court’s reasoning focused on the necessity of proving that the airline made false statements or misleading representations to promote their services, which was not established in this case.

Logical Reasoning:

The Supreme Court reasoned that the essential ingredient for establishing an unfair trade practice is the presence of a false or misleading statement or representation. The Court found that neither the complaint filed by M/s Maharajah and Co. nor the application filed by the Director General contained any allegation of false or misleading representation. The Court emphasized that the MRTP Commission’s findings did not include any determination that the airline made any false statements or misrepresentations regarding their services.

The Court quoted from the judgment:

“In the findings recorded by the MRTP Commission there is not even a single finding that there is any such false representation or misstatement by the appellant airlines regarding their services.”

The Court also highlighted the stringent penalties under Section 48C of the MRTP Act for contravention of orders made under Section 36D, which includes imprisonment and fines. The Court emphasized the need for the Commission to examine allegations with due care and caution and to ensure that the essential ingredients of Section 36A are met before passing an order.

Key Takeaways

• ✓ A mere deficiency in service does not automatically constitute an unfair trade practice under Section 36A of the MRTP Act.
• ✓ To establish an unfair trade practice, there must be an allegation and evidence of false or misleading representation by the service provider.
• ✓ The MRTP Commission must exercise due care and caution when examining allegations of unfair trade practices, considering the stringent penalties involved.

Development of Law

The ratio decidendi of this case is that a deficiency in service, by itself, is not sufficient to establish an unfair trade practice under Section 36A of the MRTP Act. The judgment reinforces the requirement that there must be a false or misleading representation by the service provider to constitute an unfair trade practice. This clarifies the scope and application of Section 36A, ensuring that it is not broadly applied to every instance of service deficiency.

Conclusion

In conclusion, the Supreme Court allowed the appeals, setting aside the order of the MRTP Commission. The Court held that KLM Royal Dutch Airlines was not guilty of unfair trade practices, as there was no evidence of false or misleading representation. The judgment clarifies that a deficiency in service alone is insufficient to establish an unfair trade practice under Section 36A of the MRTP Act.