716 Unfair Trade Practice

CERTIFICATE

I, Nadirshaw .K. Dhondy, Advocate Supreme court, have examined the thesis of Mr. RAVIRAJ SURESH WADE who is enrolled in M.I.M.R.(Mumbai institute of management and research) for the academic years 2008- 2010 in the Masters of Management Studies programme. His unique roll no. is 716. The Thesis is in part fulfillment of the university programme for the subject Indian Ethos in Management. He has been rated to receive _____ marks out of 40. Dated this _______ day of October 2008

Signature

Name: RAVRAJ WADE DHONDY

Signature

MR. NADIRSHAW K.

1

ACKNOWLEDGEMENT

I sincerely thank Prof. Nadirshaw .k. Dhondy for giving me an opportunity to compile this project and also for providing necessary information which helped me in completing this project in a better manner. I will be looking for such types of projects in near future and do our best. I would also like to thank DR. R. K. SINGH for support provided. We are eagerly waiting for fruitful comments and constructive suggestions.

2

UNFAIR & RESTRICTIVE TRADE PRACICES IMPACTS INDUSTRIES REPUTATION

• INTRODUCTION In the new corporate and business world today where there is cut throat competition the business persons daringly use unfair trade practices to edge over the other. This may give them advantage for short term but in long run it affects the organization and eventually the entire industry. There is always been confusion regarding the correct definition for unfair and restrictive trade practices, also the about which practices to be considered as unfair. Let us first define the term and the practices to be included. DEFINITION OF UNFAIR TRADE PRACTICE.

In this Part, unless the context otherwise requires "unfair trade practice" means a trade practice which, for the purpose of promoting the sale, use or supply of any goods or for the provisions 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, -

3

(i) falsely represents that the goods are of a particular standard, quality, quantity, grade, composition, style or model;

(ii) Falsely represents that the services are of a particular standard, quality or grade; (iii) falsely represents any re-built, second-hand, renovated, reconditioned or old goods as new goods; (iv) represents that the goods or services have sponsorships, approval, performance, characteristics, accessories, uses or benefits which such goods or services do not have; (v) represents that the seller or the supplier has a sponsorship or approval or affiliation which such seller or supplier does not have; (vi) makes a false or misleading representation concerning the need for, or the usefulness of, any goods or services; (vii) gives to the public any warranty or guarantee of the performance, efficacy or length of life of a product or of any goods that is not based on an adequate or proper test thereof : Provided that where a defense is raised to the effect that such warranty or guarantee is based on adequate or proper test, the burden of proof of such defense shall lie on the person raising such defense; (viii) makes to the public a representation in a form that purports to be (i) a warranty or guarantee of a product or of any goods or services; or (ii) a promise to replace, maintain or repair an article or any part thereof or to repeat or continue a service until it has achieved a

4

specified result. if such purported warranty or guarantee or promise is materially misleading or if there is no reasonable prospect that such warranty, guarantee or promise will be carried out; (ix) materially misleading the public concerning the price at which a product or like products or goods or services, have been, or are,

Ordinarily sold or provided, and, for this purpose, a representation as to price shall be deemed to refer to the price at which the product or goods or services has or have been sold by sellers or provided by suppliers generally in the relevant market unless it is clearly specified to be the price at which the product has been sold or services have been provided by the person by whom or on whose behalf the representation is made; (x) gives false or misleading facts disparaging the goods, services or trade of another person. Explanation : For the purposes of clause (1), a statement that is (a) expressed on an article offered or displayed for sale, or on its wrapper or container; or (b) expressed on anything attached to, inserted in, or accompanying, an article offered or displayed for sale, or on anything on which the article is mounted for display or sale; or (c) contained in or on anything that is sold, sent, delivered, transmitted or in any other manner whatsoever made available to a member of the public, shall be deemed to be a statement made to the public by, and only by, the person who had caused the statement to be so expressed, made or contained; (2) permits the publication of any advertisement whether in any

5

newspaper or otherwise, for the sale or supply at a bargain price, of goods or services that are not intended to be offered for sale or supply at the bargain price, or for a period that is, and in quantities that are, reasonable, having regard to the nature of the market in which the business is carried on, the nature and size of business, and the nature of the advertisement. Explanation: For the purpose of clause (2), "bargain price" means (a) a price that is stated in any advertisement to be a bargain price, by reference to an ordinary price or otherwise, or

(b) a price that a person who reads, hears, or sees the advertisement, would reasonably understand to be a bargain price having regard to the prices at which the product advertised or like products are ordinarily sold; (3) permits (a) the offering of gifts, prizes or other items with the intention of not providing them as offered or creating the impression that something is being given or offered free of charge when it is fully or partly covered by the amount charged in the transaction as a whole. (b) 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; (4) permits the sale or supply of goods intended to be used, or are of a kind likely to be used by consumers, knowing or having reason to believe that the goods do not comply with the standards prescribed by competent authority relating to performance, composition, contents, design, constructions, finishing or packaging as are necessary to prevent or reduce the risk of injury to the person using the goods; (5) permits the hoarding or destruction of goods, or refuses to sell

6

the goods or to make them available for sale, or to provide any service, if such hoarding or destruction or refusal raises or tends to raise or is Intended to raise, the cost of those or other similar goods or services.

1. FALSE REPRESENTATION The practice of making any oral or written statement or representation which: •

Falsely suggests that the goods are of a particular standard quality, quantity, grade, composition, style or model;

•

Falsely suggests that the services are of a particular standard, quantity or grade;

•

Falsely suggests any re-built, second-hand renovated, reconditioned or old goods as new goods;

•

Represents that the goods or services have sponsorship, approval, performance, characteristics, accessories, uses or benefits which they do not have;

7

•

Represents that the seller or the supplier has a sponsorship or approval or affiliation which he does not have;

•

Makes a false or misleading representation concerning the need for, or the usefulness of, any goods or services;

•

Gives any warranty or guarantee of the performance, efficacy or length of life of the goods, that is not based on an adequate or proper test;

•

Makes to the public a representation in the form that purports to bea. a warranty or guarantee of the goods or services, b. a promise to replace, maintain or repair the goods until it has achieved a specified result, If such representation is materially misleading or there is no reasonable prospect that such warranty, guarantee or promise will be fulfilled

•

Materially misleads about the prices at which such goods or services are available in the market; or

•

Gives false or misleading facts disparaging the goods, services or trade of another person.

2. FALSE OFFER OF BARGAIN PRICEWhere an advertisement is published in a newspaper or otherwise, whereby goods or services are offered at a bargain price when in fact there is no intention that the same may be offered at that price, for a reasonable period or reasonable quantity, it shall amount to an unfair trade practice. The ‘bargain price’, for this purpose meansa. the price stated in the advertisement in such manner as suggests that it is lesser than the ordinary price, or b. The price which any person coming across the advertisement would believe to be better than the price at which such goods are ordinarily sold. FREE GIFTS OFFER AND PRIZE SCHEMES The unfair trade practices under this category are:

8

•

Offering any gifts, prizes or other items along with the goods when the real intention is different, or

•

Creating impression that something is being offered free along with the goods, when in fact the price is wholly or partly covered by the price of the article sold, or

•

Offering some prizes to the buyers by the conduct of any contest, lottery or game of chance or skill, with real intention to promote sales or business.

4. NON-COMPLIANCE OF PRESCRIBED STANDARDS

Any sale or supply of goods, for use by consumers, knowing or having reason to believe that the goods do not comply with the standards prescribed by some competent authority, in relation to their performance, composition, contents, design, construction, finishing or packing, as are necessary to prevent or reduce the risk of injury to the person using such goods, shall amount to an unfair trade practice. 5. HOARDING, DESTRUCTION, ETC. Any practice that permits the hoarding or destruction of goods, or refusal to sell the goods or provide any services, with an intention to raise the cost of those or other similar goods or services, shall be an unfair trade practice. INQUIRY INTO UNFAIR TRADE PRACTICES The Commission may inquire into Any unfair trade practice •

Upon receiving a complaint from any trade association, consumer or a registered consumer association, or

•

Upon reference made to it by the Central Government or State Government Upon an application to it by the Director General or Upon its own knowledge or information.

• •

RELIEF AVAILABLE

9

After making an inquiry into the unfair trade practices if the Commission is of the opinion that the practice is prejudicial to the pubic interest, or to the interest of any consumer it may direct that – • • •

•

The practice shall be discontinued or shall not be repeated; The agreement relating thereto shall be void in respect of such unfair trade practice or shall stand modified. Any information, statement or advertisement relating to such unfair trade practice shall be disclosed, issued or published as may be specified The Commission may permit the party to carry on any trade practice to take steps to ensure that it is no longer prejudicial to the public interest or to the interest of the consumer.

However no order shall be made in respect a trade practice which is expressly authorized by any law in force. The Commission is empowered to direct publication of corrective advertisement and disclosure of additional information while passing orders relating to unfair trade practices.

MONOPOLISTIC TRADE PRACTICES A monopolistic trade practice is one, 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 services;

10

ii. iii. iv. v.

unreasonably preventing or lessening competition in the production, supply or distribution of any goods or services whether or not by adopting unfair method or fair or deceptive practices; limiting technical development or capital investment to the common detriment; deteriorating the quality of any goods produced, supplied or distribute; and increasing unreasonably a. the cost of production of any good; or b. charges for the provision, or maintenance, of any services; or c. the prices for sale or resale of goods; or d. The profits derived from the production, supply or distribution of any goods or services.

A monopolistic trade practice is deemed to be prejudicial to the public interest, unless it is expressly authorized under any law or the Central Government permits to carry on any such practice. INQUIRY INTO MONOPOLISTIC TRADE PRACTICES The Commission may inquire into Any monopolistic trade practice, • • •

Upon a reference made to it by the Central Government or Upon an application made to it by the Director General or Upon it own knowledge or information

RELIEF AVAILABLE a. Where the inquiry by the Commission reveals that the trade practice inquired into operates or is likely to operate against public interest, the Central Government may pass such orders as it thinks fit to remedy or present any mischief resulting from such trade practice. b. On an inquiry report of the Commission, the Central Government mayi. Prohibit the owner(s) of the concerned undertaking(s) from continuing to indulge in a monopolistic trade practice; or ii. Prohibit the owner of any class of undertakings or undertakings generally, from continuing to indulge in any monopolistic trade practice in relation to the goods or services. c. The Central Government may also make an order:

11

i. ii. iii. iv. v. vi. vii.

Regulating the production, storage, supply, distribution, or control of any goods or services by an undertaking and fixing the terms of their sale (including prices) or supply; Prohibit any act or practice or commercial policy which prevents or lessens competition in the production, storage, supply or distribution of any goods or services; Fixing standards for the goods used or produced by an undertaking; Declaring unlawful the making or carrying out of the specified agreement; Requiring any party to the specified agreement to determine the agreement within the specified time, either wholly or to specified extent; Regulating the profits which may be derived from the production, storage, supply, distribution or control of any goods or services; or Regulating the quality of any goods or services so that their standard does not deteriorate.

POWERS OF THE COMMISSION The MRTP Commission has the following powers: 1. Power of Civil Court under the Code of Civil Procedure, with respect to: a. Summoning and enforcing the attendance of any witness and examining him on oath; b. Discovery and production of any document or other material object producible as evidence; c. Reception of evidence on affidavits; d. Requisition of any public record from any court or office. e. Issuing any commission for examination of witness; and f. Appearance of parties and consequence of non-appearance. 2. Proceedings before the commission are deemed as judicial proceedings with in the meaning of sections 193 and 228 of the Indian Penal Code. 3. To require any person to produce before it and to examine and keep any books of accounts or other documents relating to the trade practice, in its custody. 4. To require any person to furnish such information as respects the trade practice as may be required or such other information as may be in his possession in relation to the trade carried on by any other person. 5. To authorize any of its officers to enter and search any undertaking or seize any books or papers, relating to an undertaking, in relation to 12

which the inquiry is being made, if the commission suspects tat such books or papers are being or may be destroyed, mutilated, altered, falsified or secreted. PRELIMINARY INVESTIGATION Before making an inquiry, the Commission may order the Director General to make a preliminary investigation into the complaint, so as to satisfy itself that the complaint is genuine and deserves to be inquired into.

REMEDIES UNDER THE ACT The remedies available under this act are TEMPORARY INJUNCTION Where, during any inquiry, the commission is satisfied that any undertaking or any person is carrying on, or is about to carry on, any monopolistic, restrictive or unfair trade practice, which is a pre-judicial to the public interest or the interest of any trader or class of traders generally, or of any consumer or class of consumers, or consumers generally, the commission may grant a temporary injunction restraining such undertaking or person form carrying on such practice until the conclusion of inquiry or until further orders. COMPENSATION Where any monopolistic, restrictive or unfair trade practice has caused damage to any Government, or trader or consumer, an application may be made to the Commission asking for compensation, and the Commission may award appropriate compensation. Where any such loss or damage is caused to a number of persons having the same interest, compensation can be claimed with the permission of the commission, by any of them on behalf of all of them.

13

All unfair trade practices are restrictive but all restrictive trade prices are not unfair. Unfair trade practice is illegal but restrictive trade practice could be extra legal which means that it could have sanction under extra ordinary/special provisions of the law. Like Ambulances, Fire Engines, police vehicles have right to enter no entry area or one way streets from wrong end under special provisions of the law. Eg of Restrictive Trade Practices 1. Coca Cola stopping its vendors from keeping the soft drinks of its rival brands. 2. M/s TELCO ordering vehicle maintenance firm near Lonavla Ghats to refuse service of vehicles other than TATA. TELCO won the case on the ground that the technicians had only been trained for maintenance of TATA vehicles. Agreements in restriction of the trade are void. A bond indicating payment of penalty in case of employee quitting the job where in there is no training involved is void. However, if there is training imported to the employee, and then the bond is fully valid. If a bond states a time frame against joining a rival company within specified period of leaving the job by the employee, it is valid only if the next location is within 5 KM radius by crow flight. If a person joins another rival company which is more than 5 Km from his previous job location, the bond does not apply on him. There are 3 types of notices 1. Simple Notice – Could be verbal or written 2. Constructive Notice – Like No thorough fare, Tress passers will 14

be prosecuted” 3. Legal Notice – Has to be replied within 21 days mandatorily else it is deemed that the facts stated in the notice have been accepted by the person. Following is the list of restricted trade practices (Not comprehensive). 1. Vertical Integration 2. Horizontal Integration 3. Territorial Restrictions 4. Max Retail Pricing 5. Market Survey 6. Price Fixation (Cartel Formation) 7. Tying Arrangements 8. Requirement Contracts 9. Collective Market Sharing 10. Advertisements 11. Trade Tariffs A business practice developed and regularized by the people and the govt is legal practice. As per the law, the consumer is to be serviced at minimum cost and while profits are the soul of the businesses, it should not turn into profiteering. Mahatma Gandhi had said, “There is enough in this world to meet every man’s need but not enough to satisfy one man’s greed. Display of Wealth is a necessity for a man’s ego. But it is wrong to convert that ego into class struggle. Profit is not a dirty word, but Profiteering is. Profits as defined by the law 1 – 50% - Normal Profit 51-100% - Good Profit 101 – 400 - Very Good Profit 400 – 800 > 800% - Obscene Profit (Restrictive Trade Practice) 15

As on date there are 6 companies in India who are raking obscene profits.

Explanations. Vertical Integration. Vertical Integration is defined as usurping of peripheral activities of a core business which are normally done by smaller businesses. Eg. A car manufacturer is expected to produce Chassis, Engine, Gear Box and other critical car components. But as a practice, tyres, shock absorbers, lights, upholstery, Wind Screen, etc are outsourced to smaller manufacturer. If a car company starts to manufacturer even these ancillaries, the ancillary units will go out of production. There, such vertical integration is not allowed by law. Horizontal Integration. When a company tries to enter businesses not directly related to its core business, it is called as Horizontal Integration. For eg. A petrol pump starting to provide services like Lub Oils, servicing of vehicles, air, and puncture repair, etc are legal form of activities which are direct offshoots of his core business that is fuelling of vehicles. But services such as running of One stop shop, Insurance shop, ATM, RTO Agent Shop, Fast Food, Medical Store owned by the same business is not allowed, however, these facilities can still exist under his roof as businesses being operated by people having hired the premises. Territorial Restrictions. This prohibition actually bars manufacturers from stopping their distributors from selling their product in any area. While the companies are allowed to market their products in the area of their choice but there after if the dealer chooses to send the product to other reasons, he can not be restricted by the company. Case Study. A celebrated case in this regard is of Kissan Vs Dipys products. Kissed brand was then owned by Mr Vitthal Mallya under the name of company as Herbertsons. Kissan was being sold all over India with manufacturing base located at Mumbai. The company was making good profits, but suddenly it

16

experienced a plato in profits. Then Mr Mallya, bought out Dipys brand which was very popular in south India, to kill competition. But profits platoed again after temporary rise. Mr Vithal Mallya, owner of Herbertson Co, manufacturer of Kissan brand was manufacturing the sauce in Mumbai and marketing in North India. When the sales growth stalled, Mr Mallya got the taste of Dipys brand modified gradually to Kissan’s taste over a period of 18 months. Thereafter, he started marketing the sauce sourced from the same factory on two brand names. Thereby, he started saving on transportation and octrai etc and profits grew. This practice was observed by Kalvert and complaint was made. However, Dipys won the case narrowly. Jute, Cement and Iron & Steel are exempted from this law due to bulkiness and weight and cost involvement in transportation. Trade Tariffs. Trade tariffs are fixed in conjunction with Trade associations and Govt. Govt trade tariffs are legal. Simla Apples Farming and Merchandising Association had imposed trade tariffs (reduced the price of apples) to counter the cheap imports from New Zealand. It was considered illegal. Regional trading blocks apply this tactic to deny market to other countries, like European Economic Community, USA and Mexico. Max Retail Pricing. Differential Retail Pricing within the same city (Say Colaba and Govandi) is not permitted. However, MRP can vary between Mumbai and Pune or Delhi. This is done to avoid differentiation as per economic segregation in areas. In pharmaceutical industry, there is drug price control order. It means that drug prices are controlled by the Govt. Any other price which is not regulated is at option of manufacturer and the market forces. Essential Commodities Act provides for regulation of price and this is critically important because it has also concept of MRP. Market Survey. Market survey for fixing differential MRP is illegal. Price Fixation (Cartel Formation). Price fixation ie. Dropping of prices by the existing manufacturer to the disadvantages of the new entrant is constituted to be illegal. WTO has no clause regarding Cartel formation. No international law exists against Cartel formation. That is how OPEC is existing. There are Gold and Silver trading cartels.

17

Tying Arrangements. Two parties can not have a tie-up to the disadvantage of a third party. Case Study. Great Eastern Railways Vs Fingoll (Lawyer for Truckers). Great Eastern Railways operated for 7 years with loss and decided to close operations. However they were persuaded to continued by a gentleman who promised a turn around in one year. He then offered the spare railway land on sides of the railway line to farmers with a understanding that they would transport the excess produce (approx 40% of the total) through the railways. Farmers were delighted at the proposal and ended up transporting whole produce by railways only. Truckers suffered loss and therefore complained. Case was lost by the railways. Requirement Contract. A contract which mandates a party to the contract to divulge information which is more than pure data is illegal. For example, Indian merchants Chamber asking its members to divulge company’s future plans. Collective Market Sharing. A company can not usurp a part of the market for its exclusive use. Case Study. BMW had entered into an exclusivity contract with a service station for service of BMW vehicles in a Germany town. BMW had lost the case. TELCO Vs Registrar of Restrictive Trade Practices. In this particular case TATA had tied up with a service station near Lonavla Ghats for repair of only TATA vehicles. The case was won by TATAs. Advertisements. Surrogate advertisements are illegal. Case Study. Mr Ahuja, who was manufacturing wines wanted advertisement of his product. He was told by the Ad Agencies that advertisement of alcoholic beverages is not permitted by the law. However, one Mr Spark agreed to place the Ad. He made arrangements with BEST for painting of buses with four houses and 4 glasses along with a statement “ Stallion comes to town”. No mention was made of the company, of product. Sales went up. This kind of Ad is called surrogate Ad. Ads placed by organisations like SAHMAT against certain political parties and in favour of other parties, falls in this category. Ads which are violative of moral standards of the society are also illegal.

18

LAWS TO RESTRICT UNFAIR TRADE PRACICES

SECURITIES AND EXCHANGE BOARD OF INDIA (PROHIBITION OF FRAUDULENT AND UNFAIR TRADE PRACTICES RELATING TO SECURITIES MARKET) REGULATIONS, 2003

S.O. 816 (E) In exercise of the powers conferred by section 30 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Board hereby makes the following regulations, namely:-

CHAPTER I PRELIMINARY 19

Short title and commencement 1.

(1) These regulations may be called the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations, 2003.

(2) They shall come into force on the date of their publication in the Official Gazette. Definitions 2.

(1) In these regulations, unless the context otherwise requires,-

(a)

"Act" means the Securities and Exchange Board of India Act, 1992 (15 of 1992);

(b) "dealing in securities" includes an act of buying, selling or subscribing pursuant to any issue of any security or agreeing to buy, sell or subscribe to any issue of any security or otherwise transacting in any way in any security by any person as principal, agent or intermediary referred to in section 12 of the Act.

(c) "fraud" includes any act, expression, omission or concealment committed whether in a deceitful manner or not by a person or by any other person with his connivance or by his agent while dealing in securities in order to induce another 20

person or his agent to deal in securities, whether or not there is any wrongful gain or avoidance of any loss, and shall also include-

(1)

A knowing misrepresentation of the truth or concealment of material fact in order that another person may act to his detriment;

(2)

A suggestion as to a fact which is not true by one who does not believe it to be true;

(3)

An active concealment of a fact by a person having knowledge or belief of the fact;

(4)

A promise made without any intention of performing it;

(5)

A representation made in a reckless and careless manner whether it is true or false;

(6)

Any such act or omission as any other law specifically declares to be fraudulent,

(7)

deceptive behaviour by a person depriving another of informed consent or full participation,

21

(8)

a false statement made without reasonable ground for believing it to be true.

(9)

The act of an issuer of securities giving out misinformation that affects the market price of the security, resulting in investors being effectively misled eventhough they did not rely on the statement itself or anything derived from it other than the market price.

And "fraudulent" shall be construed accordingly; Nothing contained in this clause shall apply to any general comments made in good faith in regard to –

(a) The economic policy of the government (b) The economic situation of the country (c) Trends in the securities market or (d) Any other matter of a like nature

Whether such comments are made in public or in private.

(d) "Investigating Authority" means any officer of the Board not below the rank of 22

Division Chief, authorized by the Board to undertake investigation under Section 11C of the Act;

(e) "securities" means securities as defined in section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956).

(2) Words and expressions used and not defined in these regulations, but defined in the Act or in the rules or regulations made thereunder, shall have the meanings respectively assigned to them in the Act or rules or regulations made thereunder, as the case may be.

CHAPTER II PROHIBITION OF FRAUDULENT AND UNFAIR TRADE PRACTICES RELATING TO THE SECURITIES MARKET

3.

Prohibition of certain dealings in securities

No person shall directly or indirectly(a)

buy, sell or otherwise deal in securities in a fraudulent manner;

(b)

use or employ, in connection with issue, purchase or sale of any security listed or 23

proposed to be listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made there under;

4.

(c)

employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange;

(d)

engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made there under.

Prohibition of manipulative, fraudulent and unfair trade practices

(1) Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an unfair trade practice in securities.

(2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and may include all or any of the following, namely:-

24

(a) indulging in an act which creates false or misleading appearance of trading in the securities market;

(b) dealing in a security not intended to effect transfer of beneficial ownership but intended to operate only as a device to inflate, depress or cause fluctuations in the price of such security for wrongful gain or avoidance of loss; (c) advancing or agreeing to advance any money to any person thereby inducing any other person to offer to buy any security in any issue only with the intention of securing the minimum subscription to such issue;

(d) paying, offering or agreeing to pay or offer, directly or indirectly, to any person any money or money’s worth for inducing such person for dealing in any security with the object of inflating, depressing, maintaining or causing fluctuation in the price of such security;

(e) any act or omission amounting to manipulation of the price of a security;

(f) publishing or causing to publish or reporting or causing to report by a person dealing in securities any information which is not true or which he does not believe to be true prior to or in the course of dealing in securities;

25

(g) entering into a transaction in securities without intention of performing it or without intention of change of ownership of such security;

(h) selling, dealing or pledging of stolen or counterfeit security whether in physical or dematerialized form;

(i) an intermediary promising a certain price in respect of buying or selling of a security to a client and waiting till a discrepancy arises in the price of such security and retaining the difference in prices as profit for himself;

(j) an intermediary providing his clients with such information relating to a security as cannot be verified by the clients before their dealing in such security;

(k) an advertisement that is misleading or that contains information in a distorted manner and which may influence the decision of the investors;

(l) an intermediary reporting trading transactions to his clients entered into on their behalf in an inflated manner in order to increase his commission and brokerage;

26

(m) an intermediary not disclosing to his client transactions entered into on his behalf including taking an option position;

(n) circular transactions in respect of a security entered into between intermediaries in order to increase commission to provide a false appearance of trading in such security or to inflate, depress or cause fluctuations in the price of such security;

(o) encouraging the clients by an intermediary to deal in securities solely with the object of enhancing his brokerage or commission.

(p) an intermediary predating or otherwise falsifying records such as contract notes.

(q) an intermediary buying or selling securities in advance of a substantial client order or whereby a futures or option position is taken about an impending transaction in the same or related futures or options contract.

(r) planting false or misleading news which may induce sale or purchase of securities.

CHAPTER III

27

INVESTIGATION Power of the Board to order investigation

5.

Where the Board, the Chairman, the member or the Executive Director (hereinafter referred to as “appointing authority”) has reasonable ground to believe that -

(a) the transactions in securities are being dealt with in a manner detrimental to the investors or the securities market in violation of these regulations; (b) any intermediary or any person associated with the securities market has violated any of the provisions of the Act or the rules or the regulations,

it may, at any time by order in writing, direct any officer not below the rank of Division Chief (hereinafter referred to as the “Investigating Authority”) specified in the order to investigate the affairs of such intermediary or persons associated with the securities market or any other person and to report thereon to the Board in the manner provided in section 11C of the Act.

Powers of Investigating Authority

6.

Without prejudice to the powers conferred under the Act, the Investigating Authority shall

28

have the following powers for the conduct of investigation, namely:-

(1) to call for information or records from any person specified in section 11(2)(i) of the Act;

(2) to undertake inspection of any book, or register, or other document or record of any listed public company or a public company (not being intermediaries referred to in section 12 of the Act) which intends to get its securities listed on any recognized stock exchange where the Investigating Authority has reasonable grounds to believe that such company has been conducting in violation of these regulations;

(3) to require any intermediary or any person associated with securities market in any manner to furnish such information to, or produce such books, or registers, or other documents, or record before him or any person authorized by him in this behalf as he may consider necessary if the furnishing of such information or the production of such books, or registers, or other documents, or record is relevant or necessary for the purposes of the investigation;

(4) to keep in his custody any books, registers, other documents and record produced under this regulation for a maximum period of one month which may be extended upto a period of six months by the Board:

29

Provided that the Investigating Authority may call for any book, register, other document or record if the same is needed again:

Provided further that if the person on whose behalf the books, registers, other documents and record are produced requires certified copies of the books, registers, other documents and record produced before the Investigating Authority, he shall give certified copies of such books, registers, other documents and record to such person or on whose behalf the books, registers, other documents and record were produced;

(5) to examine orally and to record the statement of the person concerned or any director, partner, member or employee of such person and to take notes of such oral examination to be used as an evidence against such person:

Provided that the said notes shall be read over to, or by, and signed by, the person so examined;

(6) to examine on oath any manager, managing director, officer or other employee of any intermediary or any person associated with securities market in any manner in relation to the affairs of his business and may administer an oath accordingly and for that purpose may require any of those persons to appear before him personally.

30

Power of the Investigating Authority to be exercised with prior approval

7.

The Investigating Authority may, after obtaining specific approval from the Chairman or Member also exercise all or any of the following powers, namely:-

(a) to call for information and record from any bank or any other authority or board or corporation established or constituted by or under any Central, State or Provincial Act in respect of any transaction in securities which are under investigation;

(b) to make an application to the Judicial Magistrate of the first class having jurisdiction for an order for the seizure of any books, registers, other documents and record, if in the course of investigation, the Investigating Authority has reasonable ground to believe that such books, registers, other documents and record of, or relating to, any intermediary or any person associated with securities market in any manner may be destroyed, mutilated, altered, falsified or secreted;

(c) to keep in his custody the books, registers, other documents and record seized under these regulations for such period not later than the conclusion of the investigation as he considers necessary and thereafter to return the same to the person, the company or the other body 31

corporate, or, as the case may be, to the managing director or the manager or any other person from whose custody or power they were seized:

Provided that the Investigating Authority may, before returning such books, registers, other documents and record as aforesaid, place identification marks on them or any part thereof ;

(d) Save as otherwise provided in this regulation, every search or seizure made under this regulation shall be carried out in accordance with the provisions of the Code of Criminal Procedure, 1973 (2 of 1974) relating to searches or seizures made under that Code.

Duty to co-operate, etc.

8.

(1) It shall be the duty of every person in respect of whom an investigation has been ordered under regulation 7-

(a) to produce to the Investigating Authority or any person authorized by him such books, accounts and other documents and record in his custody or control and to furnish such statements and information as the Investigation Authority or the person so authorized by him may reasonably require for the purposes of the investigation; 32

(b) to appear before the Investigation Authority personally when required to do so by him under regulation 6 or regulation 7 to answer any question which is put to him by the Investigation Authority in pursuance of the powers under the said regulations.

(2) Without prejudice to the provisions of sections 235 to 241 of the Companies Act, 1956 (1 of 1956), it shall be the duty of every manager, managing director, officer and other employee of the company and every intermediary referred to in section 12 of the Act or every person associated with the securities market to preserve and to produce to the Investigating Authority or any person authorized by him in this behalf, all the books, registers, other documents and record of, or relating to, the company or, as the case may be, of or relating to, the intermediary or such person, which are in their custody or power.

(3) Without prejudice to the generality of the provisions of sub-regulations (1) and (2), such person shall -

(a) allow the Investigating Authority to have access to the premises occupied by such person at all reasonable times for the purpose of investigation;

33

(b) extend to the Investigating Authority reasonable facilities for examining any books, accounts and other documents in his custody or control (whether kept manually or in computer or in any other form) reasonably required for the purposes of the investigation;

(c) provide to such Investigating Authority any such books, accounts and records which, in the opinion of the Investigating Authority, are relevant to the investigation or, as the case may be, allow him to take out computer out-prints thereof.

Submission of report to the Board 9.

The Investigating Authority shall, on completion of investigation, after taking into account all relevant facts, submit a report to the appointing authority:

Provided that the Investigating Authority may submit an interim report pending completion of investigations if he considers necessary in the interest of investors and the securities market or as directed by the appointing authority.

Enforcement by the Board

10.

The Board may, after consideration of the report referred to in regulation 9, if satisfied that there is a violation of these regulations and after 34

giving a reasonable opportunity of hearing to the persons concerned, issue such directions or take such action as mentioned in regulation 11and regulation 12:

Provided that the Board may, in the interest of investors and the securities market, pending the receipt of the report of the investigating authority referred to in regulation 9, issue directions under regulation 11:

Provided further that the Board may, in the interest of investors and securities market, dispense with the opportunity of pre-decisional hearing by recording reasons in writing and shall give an opportunity of post-decisional hearing to the persons concerned as expeditiously as possible.

11.

(1) The Board may, without prejudice to the provisions contained in sub-sections (1), (2), (2A) and (3) of section 11 and section 11B of the Act, by an order, for reasons to be recorded in writing, in the interests of investors and securities market, issue or take any of the following actions or directions, either pending investigation or enquiry or on completion of such investigation or enquiry, namely:(a) suspend the trading of the security found to be or prima-facie found to be involved in fraudulent and unfair trade practice in a recognized stock exchange; (b) restrain persons from accessing the securities market and prohibit any person

35

associated with securities market to buy, sell or deal in securities; (c)

suspend any office-bearer of any stock exchange or self-regulatory organization from holding such position;

(d) impound and retain the proceeds or securities in respect of any transaction which is in violation or prima facie in violation of these regulations; (e) direct any intermediary or any person associated with the securities market in any manner not to dispose of or alienate an asset forming part of a fraudulent and unfair transaction:

(f)

require the person concerned to call upon any of its officers, other employees or representatives to refrain from dealing in securities in any particular manner;

(g) prohibit the person concerned from disposing of any of the securities acquired in contravention of these regulations;

(h) direct the person concerned to dispose of any such securities acquired in contravention of these regulations, in such manner as the Board may deem fit, for restoring the statusquo ante; (2) The Board shall issue a press release in respect of any final order passed under sub36

regulation (1) in atleast two newspapers of which one shall have nationwide circulation and shall also put the order on the website of the Board. Suspension or cancellation of registration

12.

(1) The Board may, without prejudice to the provisions contained in sub-sections (1), (2), (2A) and (3) of section 11 and section 11B of the Act, by an order, for reasons to be recorded in writing, in the interests of investors and securities market take the following action against an intermediary:

(a) Issue a warning or censure (b) suspend the registration of the intermediary; or (c) cancel of the registration of the intermediary

Provided that no final order of suspension or cancellation of an intermediary for violation of these regulations shall be passed unless the procedure specified in the regulations applicable to such intermediary under the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 is complied with.

Repeal and savings

37

13.

(1) The Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 is hereby repealed.

(2) Notwithstanding repeal of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995, any violation of regulations 3, 4, 5 and 6 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 shall be investigated and proceeded against in accordance with the procedure laid down in these regulations.

(3) Notwithstanding repeal of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995, any investigation pending, at the commencement of these regulations shall be continued and disposed of in accordance with the procedure laid down in these regulations.

38

Are unfair trade practices only relevant to consumers? Most certainly not. Businesses are also big losers when it comes to unfair trade practices. Firstly responsible businesses will lose sales to disreputable businesses that engage in UTPs because the disreputable firms: • unfairly increase their sales to the detriment of responsible businesses; and • reduce their costs of purchase or manufacture. Secondly UTPs can damage consumer confidence to the extent that overall growth in the market is affected. This can happen when consumers get overly wary about trying new products/services or new businesses.

CONCLUSION This is true that UTP is an inseparable part of the business but it is not the fair part of business. It may give you benefits for short time period but in long run it has an notable impact on business. It has a direct impact not only on that particular company but also on entire market. The impact of UTP can effect the reputation of industry, country and the employee working in that organization. Therefore companies should not concentrate on the shortcut ways and get involve in UTP.

39

BIBLIOGRAPHY 1) Dealing with Unfair Trade Practices Carl Buik Addis Ababa 2) CHAPTER – IV THE MONOPOLIES AND RESTRICTIVE TRADE PRACTICES ACT, 1969 : 3) business standard.

40