A REPORT ON MRTP ACT SUBJECT: LEGAL ASPECT OF BUSINESS SUBMITTED TO: PROF.

NARESH SHAH SUBMITTED BY: RAMCHANDRA CHOTALIA(1510) TAJESH PATEL(1533) NIKUNJ KANZARIYA(1518) VIVEK VAGHELA(1553) JAYDIP KARAGATHARA(1519) GHANSHYAM RATHOD(1537) GOPESH BAROT(1504) MAYUR PARMAR(1526) NISHA JADAV(1524) MEET DADHANIYA(1511)

INDEX Sr.no. Particular Page No. 3 3 5 5 7 8 9 10 10

1 2 3 4 5 6 7 8 9 10

Introduction Need of MRTP Act Objectives Amendments In 1991 And Shift In Emphasis Restrictive Trade Practice Unfair Trade Practices Monopolistic Trade Practice Procedure of action on complaint Experience in the last three decades

Difference between MRTP Act & COMPETITION Act 12

INTRODUCTION:
Since attaining Independence in 1947, India, for the better part of half a century thereafter, adopted and followed policies comprising what are known as Command -andControl laws, rules, regulations and executive orders. The competition law of India, namely, the Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act, for brief) was one such. It was in 1991 that widespread economic reforms were undertaken and consequently the march from Command-and-Control economy to an economy based more on free market principles commenced its stride. As is true of many countries, economic liberalisation has taken root in India and the need for an effective competition regime has also been recognised. (For a history of evolution of competition policy in several countries, see Ewing, 2003). In the context of the new economic policy paradigm, India has chosen to enact a new competition law called the Competition Act, 2002 (Act, for brief). The MRTP Act has metamorphosed into the new law, Competition Act, 2002. The new law is designed to repeal the extant MRTP Act. As of now, only a few provisions of the new law have been brought into force and the process of constituting the regulatory authority, namely, the Competition Commission of India under the new Act, is on. The remaining provisions of the new law will be brought into force in a phased manner. For the present, the outgoing law, MRTP Act, 1969 and the new law, Competition Act, 2002 are concurrently in force, though as mentioned above, only some provisions of the new law have been brought into force.

NEED OF MRTP ACT:

Three areas informed till 1991 (when the MRTP Act was amended) the regulatory provisions of the MRTP Act, namely, concentration of economic power, competition law and consumer protection. A criticism is often voiced that the statute was designed to

prohibit growth. This is fallacious and erroneous. The statute, till 1991 regulated growth but did not prohibit it. Even in its regulatory capacity, it controlled the growth only if it was detrimental to the common good. In terms of competition law and consumer protection, the objective of the MRTP Act is to curb Monopolistic, Restrictive and Unfair Trade Practices which disturb competition in the trade and industry and which adversely affect the consumer interest (Monopolistic, Restrictive and Unfair Trade Practices are described later in this paper). A parallel legislation known as the Consumer Protection Act, 1986 has also come into being, which prevails essentially in the realm of Unfair Trade Practices.

One could argue that the consumers need no special protection as they can be left to the market forces. But a perfectly competitive market is just an utopia and the consumer

sovereignty a myth. Products are of great variety, many of them are complex and the consumer has imperfect product knowledge. The supplier often has a dominant position vis-vis the buyer who has little or no bargaining power in the market. There has been a growing realisation for not depending on the old doctrine of Caveat Emptor let the buyer beware. The consumer, therefore, needs and deserves legal protection against certain trade practices, business methods and unscrupulous forces. In many countries and in particular developing countries like India, a large number of consumers are illiterate and ill-informed and possess limited purchasing power in an environment, where there is shortage of goods. Very often, one witnesses the spectacle of a large number of non-essential, sub-standard, adulterated, unsafe and less useful products being pushed through by unscrupulous traders by means of Unfair Trade Practices and deceptive methods. Subtle deception, half truths and misleading omissions inundate the advertisement media and instead of the consumer being provided with correct, meaningful and useful information on the products, they often get exposed to fictitious information which tends to their making wrong buying decisions. Transparent information is missing and needs to be a goal to be chased. The regulatory provisions in the MRTP Act apply to almost every area of business production, distribution, pricing, investment, purchasing, packaging, advertising, sales promotion, mergers, amalgamations and take over of undertakings (provisions relating to mergers, amalgamations and take-overs were deleted in the MRTP Act by the 1991 amendments to it). They seek to afford protection and support to consuming public by reducing if not eliminating from the market Monopolistic, Restrictive and Unfair Trade Practices. One of the main goals of the MRTP Act is to encourage fair play and fair deal in the market besides promoting healthy competition. Under the MRTP Act, a Regulatory Authority called the MRTP Commission (briefly, Commission) has been set up to deal with offences falling under the statute.

OBJECTIVES

The principal objectives sought to be achieved through the MRTP Act are: i) ii) iii) iv) v) prevention of concentration of economic power to the common detriment; control of monopolies; prohibition of Monopolistic Trade Practices (MTP); prohibition of Restrictive Trade Practices (RTP); prohibition of Unfair Trade Practices (UTP).

AMENDMENTS IN 1991 AND SHIFT IN EMPHASIS

The MRTP Act, 1969 was amended in 1991 as a part of the new economic reforms set in motion by the Government of that day. The amendments reset the objectives enshrined in the original statute of 1969. Out of the five objectives aforesaid in the previous paragraph, the first two have been de-emphasized, after the 1991 amendments to the MRTP Act. The emphasis has not only shifted to the three last mentioned objectives but they have been reemphasised. In the context of the objective (ii) above, to the extent monopolies tend to bring about Monopolistic Trade Practices, the MRTP Act continues to exercise surveillance which existed prior to the 1991 amendments. This is because a Monopolistic Trade Practice is understood to be synonymous with anti-competitive practice. Anything, which distorts

competition, can lead to a monopoly situation. Anything, which is likely to prevent or distort competition, is regulated by the statute. Tersely, the MRTP Act is designed against different aspects of market imperfections. For instance, before the 1991 amendments to the MRTP Act, a merger which increased the dominance of the combine or resulted in a large share in the market could be looked at in terms of the provisions thereof and the objectives governing them. Monopoly is a concept of power which manifests itself in ones power to:i) ii) control production, supply, etc control prices

iii) iv) v) vi)

prevent, reduce or eliminate competition limit technical development retard capital investment Impair the quality of goods.

The MRTP Act, before the 1991 amendments sought to curb such power arising out of a monopoly. Prior to the 1991 amendments, the MRTP Act essentially was implemented in terms of regulating the growth of big size companies called the monopoly companies. In other words, there were pre-entry restrictions therein requiring undertakings and companies with assets of more than Rs.100 crores (about US $22 million) to seek approval of Government for setting up new undertakings, for expansion of existing undertakings, etc.

Restrictive Trade Practice

A Restrictive Trade Practice (RTP) is generally one which has the effect of preventing, distorting or restricting competition. In particular, a practice, which tends to obstruct the flow of capital or resources into the stream of production, is a RTP. Likewise, manipulation of prices, conditions of delivery or flow of supply in the market which may have the effect of imposing on the consumer unjustified costs or restrictions is regarded as Restrictive Trade Practice. Certain common types of Restrictive Trade Practices enumerated in the MRTP Act are: i) ii) iii) iv) v) vi) vii) Refusal to deal Tie-up sales Full line forcing Exclusive dealings Price discrimination Re-sale price maintenance Area restriction

All Restrictive Trade Practices under the MRTP Act are deemed legally to be prejudicial to public interest. The onus is, therefore, on the entity, body or undertaking charged with the perpetration of the Restrictive Trace Practice to plead for gateways provided in the MRTP Act itself to avoid being indicted.

If the gateways are satisfactory to the Commission and if it is further satisfied that the restriction is not unreasonable having regard to the balance between those circumstances and any detriment to the public interest or consumers likely to result from the operation of the restriction, the Commission may arrive at the conclusion that the RTP is not prejudicial to public interest and discharge the enquiry against the charged party. Furthermore, if a trade practice is expressly authorised by any law for the time being in force, the Commission is barred from passing any order against the charged party.

Prior to 1984, the MRTP Act contained no provisions for protection of consumers against false or misleading advertisements or other similar unfair trade practices and a need was felt to protect them from practices, resorted to by the trade and industry, to mislead or dupe them (Sachar Committee, 1978). To quote the Sachar Committee: Advertisement and sales promotion have become well established modes of modern business techniques. That advertisement and representation to the consumers should not become deceptive has always been one of the points of conflicts between business and consumer. The Sachar Committee therefore recommended that a separate Chapter should be added to the MRTP Act defining various Unfair Trade Practices so that the consumer, the manufacturer, the supplier, the trader and other persons in the market can conveniently identify the practices, which are prohibited. Essentially

UNFAIR TRADE PRACTICES

Unfair Trade Practices (UTP) falling under the following categories were introduced in 1984 in the MRTP Act :-

(i) (ii) (iii)

Misleading advertisement and false representation. Bargain sale, bait and switch selling. Offering of gifts or prizes with the intention of not providing them and conducting promotional contests. Product safety standards. Hoarding or destruction of goods.

(iv) (v)

Making false or misleading representation of facts disparaging the goods, services or trade of another person is also a prohibited trade practice under the Indian law.

MONOPOLISTIC TRADE PRACTICE (MTP)

The Monopolistic Trade Practice (MTP) came into the statute by an amendment to the Act in 1984. An MTP is a trade practice which has or is likely to have the effect of:

i)

Maintaining the prices of goods or charges for the services at an unreasonable level by limiting, reducing or otherwise controlling the production, supply or distribution of goods or the supply of any services or in any other manner; Unreasonably preventing or lessening competition in the supply or distribution of any goods or in the supply of any services; Limiting technical development or capital investment to the detriment or allowing the quality of any goods produced, supplied or any services rendered, in India, to deteriorate; Increasing unreasonably:The cost of production of any goods; or Charges for the provision, or maintenance, of any services; Increasing unreasonably:The prices at which goods are, or may be, sold or re-sold, or the charges at which the services are, or may be, provided; or The profits which are, or may be, derived by the production, supply or distribution (including the sale or purchase of any goods) or in the provision or maintenance of any goods or by the provision of any services; Preventing or lessening competition in the production, supply or distribution of any goods or in the provision or maintenance of any services by the adoption of unfair methods or unfair or deceptive practices.

ii)

iii)

iv) a) b) v) a)

b)

vi)

The MRTP Act is administered by the MRTP Commission, which is assisted by the Director General of Investigation and Registration for carrying out investigations, for maintaining register of agreements and for undertaking carriage of proceedings during the enquiry before the MRTP Commission. The powers of the Commission include the power vested in a Civil Court and include further power: -

i)

To direct an errant undertaking to discontinue a trade practice and not to repeat the same; To pass a cease and desist order; To grant temporary injunction, restraining an errant undertaking from continuing an alleged trade practice; To award compensation for loss suffered or injury sustained on account of RTP, UTP or MTP; To direct parties to agreements containing restrictive clauses to modify the same; To direct parties to issue corrective advertisement; To recommend to the Central Government, division of undertakings or severance of inter-connection between undertakings, if their working is prejudicial to public interest or has led or is leading to MTP or RTP.

ii) iii)

iv)

v) vi) vii)

PROCEDURE OF ACTION ON COMPLAINT:

Inquiry may be initiated through a complaint by an individual or registered consumer organisation. Fact finding investigation is carried on by the Director General. If no prima facie case is made, the complaint is dismissed, else an order is passed to that effect.

The commission may restrain the party concerned from carrying on the trade practices by granting temporary injunction. Final order is passed. Compensation may be granted to the complainant.

EXPERIENCE

IN THE LAST THREE DECADES :

During the administration of the MRTP Act over three decades since its inception in 1969, many difficulties were encountered, particularly in regard to interpretations of expressions and provisions therein. There has been a large number of binding rulings of the Supreme Court of India and also Bench decisions of the MRTP Commission. These decisions have interpreted the various provisions of the MRTP Act from time to time and have constituted precedents for the future. Thus, where the wording of the existing law has been considered

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inadequate by judicial pronouncements, it became necessary to redraft the law to inhere the spirit of the law and the intention of the lawmakers. A perusal of the MRTP Act will show that there is neither definition nor even a mention of certain offending trade practices which are restrictive in character. Some illustrations of these are: Abuse of Dominance

Cartels, Collusion and Price Fixing Bid Rigging Boycotts and Refusal to Deal Predatory pricing Often an argument has been advanced that one particular general provision [Section 2(o)] of the MRTP Act may cover all anti-competition practices, as it defines an RTP as a trade practice which prevents, distorts or restricts competition and that therefore there is no need for a new law. While complaints relating to anti-competition practices could be tried under the generic definition of restrictive trade practice (which prevents, distorts or restricts competition), the absence of specification of identifiable anti-competition practices gave room to different interpretations by different Courts of Law, with the result that the spirit of the law often escaped being captured and enforced. While a generic definition might be necessary and might form the substantive foundation of the law, it was considered necessary to identify specific anti-competition practices and define them so that the scope for a valve or opening on technical grounds for the offending parties to escape indictment would not obtain. Hence, the need for a new and better law was recognised, which gave birth to the Competition Act, 2002. Furthermore, some of the anti-competition practices like cartels, predatory pricing, bid rigging etc. are not specifically mentioned in the MRTP Act but the MRTP Commission, over the years, had attempted to fit such offences under one or more of its sections by way of interpretation of the language used therein. Another dimension that marked the thinking of the Government particularly after the 1991 economic reforms was the dynamic context of International trade and market as well as the domestic trade and market. When the MRTP Act was drafted in 1969, the economic and trade milieu prevalent at that time constituted the premise for its various provisions. There has been

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subsequently a sea change in the milieu with considerable movement towards liberalisation, privatisation and globalisation. The law needed to yield to the changed and changing scenario on the economic and trade front. This was one important reason why a new competition law had to be framed. Many countries like the U.K., Canada, Australia and the European Community have, in line with this thinking, enacted new competition laws and repealed their earlier laws governing fair-trading, etc. The experience in administering the MRTP Act, for about three decades since 1969, the deficiencies noted in the said Act, the difficulties that arose out of different interpretations and judgments of the MRTP Commission and the superior Courts of Law and the new and changing economic milieu spurred by the LPG paradigm and the economic reforms of 1991 (and thereafter) impelled the need for a new competition law.

Difference between MRTP Act and COMPETITION Act:

MRTP ACT, 1969 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Based on the pre-reforms scenario Based on size as a factor Competition offences implicit or not defined Complex in arrangement and language 14 per se offences negating the principles of natural justice Frowns upon dominance Registration of agreements compulsory No combinations regulation Competition Commission appointed by the Government Very little administrative and financial autonomy for the Competition Commission No competition advocacy role for the Competition Commission No penalties for offences Reactive and rigid Unfair trade practices covered

COMPETITION ACT, 2002 Based on the post-reforms scenario Based on structure as a factor Competition offences explicit and defined Simple in arrangement and language and easily comprehensible 4 per se offences and all the rest subjected to rule of reason. Frowns upon abuse of dominance No requirement of registration of agreements Combinations regulated beyond a high threshold limit. Competition Commission selected by a Collegium (search committee) Relatively more autonomy for the Competition Commission Competition Commission has competition advocacy role Penalties for offences Proactive and flexible Unfair trade practices omitted (consumer fora will deal with them)

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