Mrtp Act

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THE MONOPOLES & RESTRiCTiVE TRADE PRACTICES ACT, 1969. The law is based on the well established hypothesis that free competition is always a desirable goal, and that tendencies towards monopoly must be resisted, even at the cost of state intervention, which may become necessary to protect small but numerous business units from unfair competition with their gigantic counter parts. In India, the seeds of anti-trust legislation can be said to be sown by our Constitution (Articles 38 and 39 of our Constitution contain certain Directive principles of State Policy, which form the basis of the MRTP Act. Thus Article 39(b) provides that the State shall strive to secure that the ownership and control of the material resources of the community are so distributed as best to subserve the common good. Likewise, Article 39(c) requires the State to ensure that the operation of the economic system does not result in the concentration of wealth and the means of production to the common detriment. Also relevant is the Industrial Policy Resolution of 1956, which declares as follows: “Equally it is urgent to reduce disparities in income and wealth which exist today, to prevent private monopolies and the concentration of economic power in different fields under the hands of a small number of individuals.” With a view to make a further investigation into the matter, in April 1964, the Govt. of India appointed a Commission of five members, known as Monopolies Inquiry Commission (MIC) to inquire into the extent and effect of concentration of economic power in private hands and the prevalence of monopolistic and restrictive trade practices in important sectors of economic activity. The MIC submitted its Report on 31st Oct 1965 and recommended a new piece of economic legislation-to be called the Monopolies & Restrictive Trade Practices (MRTP) Act-which would set up a permanent independent Commission to inquire into monopolistic and restrictive trade practices, mergers, amalgamations and expansions of undertakings, etc. The MRTP Act extends to the whole of India, except the State of Jammu and Kashmir. The Preamble to the Act indicates that the object of the Act is to meet the triple evils of (i) Concentration of economic power to the common detriment, (ii) control of restrictive trade practices, and of course (iii) for incidental and connected matters. Commenting on the objectives of the MRTP Act, the Gujarat High Court has (in Ahmedabad Manufacturing & Calico Printing Co. Ltd. V/s Bank of India (1972) 42 Co. Cases 493) observed as follows:The MRTP Act, 1969, which appears to have been enacted to give effect to the Directive Principles of State Policy as enunciated in Article 39(c) of the Constitution, seeks to achieve a very laudable object, namely, to arrest development of huge monopolies having an adverse effect on the market, and to prevent the concentration of economic power in hands of a few to the detriment of many. Therefore, an attempt must be made to give full effect to the provisions of the Act, and when any attempt is made to bypass such an Act, the Court must put its foot down upon such an attempt. DEFINITIONS (s.2) S.2 of the Act contains several definitions of terms used in the MRTP Act, which are discussed below:-

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(1)

“Agreement” [S.2(a)] – is defined to include any arrangement or understanding, whether or not it is intended that such agreement shall be enforceable (apart from any provision of the Act) by legal proceedings. It ill be seen that the above definition (which is based on S.6(3) of the UK restrictive Trade Practices Act, 1956) is very wide and covers not only agreements and contracts (as understood by a lawyer), but also arrangements and understandings or what may be called gentlemen’s agreements. In one English case, it was observed that all that is required to constitute an arrangement is that the parties should have communicated with one another in some way, and then, as a result of the communication, each must have aroused in the other, an expectation that he will act in a certain way. (In Re British Basic Siag LTD.’ Agreements – 1962 3 A.E.R. 249)

(2)

“Licensed capacity” [S. 2(gg)] - is defined to mean the licensed or productive capacity of an undertaking in accordance with the certificate of registration, licence, letter of intent or permission granted to it under the Industries Act, and the expression also covers any increase in such capacity as may be approved by the Govt. under that Act.

(3)

“Member” [S.2(h)] – means a member of the MRTP Commission.

(4)

“Monopolistic trade practice” [S.2(I)] - means a trade practice which has, or is likely to have, the effect of -

I.

maintaining prices of goods or charges for services at an unreasonable level, by limiting, reducing or otherwise controlling the production, supply or distribution of any goods, or the supply of any services, or in any other manner;

II.

unreasonably preventing or lessening competition in the production, supplying or distribution of any goods, or in the supply of any services, or

III.

limiting technical development or capital investment to the common detriment, or allowing the quality of any goods produced, supplied, or distributed, or any service rendered, in India to deteriorate; or

IV.

increasing unreasonably -

a)

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

b)

the profits which are, or may be, derived by the production, supply or distribution (including the sale or purchase) of any goods or by the provision of any services;

V.

increasing unreasonably – a) the cost of production of any goods; or b) charges for the provision, or maintenance, of any services;

VI.

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. In the words of the MIC Report, “every monopolistic practice is, on the face of it, a restrictive practice.” Sections 31 and 32 of the Act deal with inquires into any monopolistic trade practices carried on by

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monopolistic undertaking. Although the definition of a monopolistic trade practice differs from that of a restrictive trade practice, the following are the three points of similarity between the two : a)

Both aim at control of prices;

b)

Both prevent or restrict competition in one way or another; and

c)

Both seek to limit production, by controlling capital investments, technical improvement, etc.

(5)

“Restrictive trade practice” [S.2(0)] - means a trade practice which has or may have the effect of preventing, distorting, or restricting competition in any manner, and in particular –

I.

which tends to obstruct the flow of capital or resources into the stream of production, or

II.

which tends to bring about manipulation of prices, or conditions of delivery, or to affect the flow or supplies in the market relating to goods or services, in such manner as to impose unjustified costs or restrictions on the consumers. The use of the words “may have” in the definition of the term indicates that even a mere possibility of preventing,

destorting or

restricting competition is enough to characterise the trade practice as restrictive. ESTABLISHMENT AND CONSTITUTION OF THE MRTP COMMISSION TERMS OF OFFICE AND REMOVAL OF ITS MEMBERS, ETC. (Ss. 5, 6, 7 & 9) S.5 of the Act provides for the establishment by the Central Govt. of a Commission to be known as the MRTP Commission. This commission is to consist of a chairman and not less than two, and not more than eight other members, all of whom are to be appointed by the Central Govt. Before appointing any person as a member of the Commission, the Central Govt. must be satisfied that such a person does not have and that he will not have, any financial or other interest which may prejudicially affect his functions as a member. The Chairman of the MRTP Commission should be a person who is, or has been, or is qualified to be, a judge of the Supreme Court or of the High Court. The members of the Commission are to be persons of ability, integrity and standing, who have adequate knowledge and experience in problems relating to economics, law commerce, accountancy, industry, public affairs or administration. Members of the Commission hold office for such periods as may be prescribed, not exceeding five years, and are eligible for re-appointment. However, a member cannot hold office for a total period exceeding ten years, or after he has attained the age of 65 yr., whichever is earlier. After a member ceases to hold office, he cannot, for a period of five yr., hold any appointment in, or be connected with the management or administration of, any industry or undertaking to which the MRTP Act applies [S. 6(8)]. This is to ensure that a member can effectively discharge his functions without any temptation of a job being made available to him immediately after he relinquishes his office. As the Minister of Industry observed the Joint Committee sittings of Parliament. If a member of the Monopolies Commission wants to practice homeopathy, we do not have any objection. But, if he wants to practice in accountancy, or income-tax or any allied subject, then we have objection. However, it is interesting to note that a contravention of S. 6(8) is not made punishable under the Act. The Central Govt. may also remove a member from office in the following five circumstances:a) if he has been adjudged an insolvent, or

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b) if he has been convicted of an offence which, in the opinion of the Central Govt. involves moral turpitude; or c) if he has become physically or mentally incapable of acting as such member; or d) if he has acquired such financial or other interest as is likely to prejudicially affect his functions as a member; or e) if he has so abused his position as to render his continuance in office prejudicial to the public interest. JURISDICTION, POWERS AND PROCEDURE OF THE MRTP COMMISSION ( S. 8, 10-12C, & 16-19) S.10 authorises the MRTP Commission to inquire into any restrictive trade practice in following four circumstances, namely, I.

on receipt of a complaint of facts which constitute a restrictive trade practice from 25 (or more) consumers, or from any association having a membership of at least 25 persons; or

II.

on a reference made to it by the Central Govt. or by a State Govt.; or

III.

on an application made to the Commission by the Director-General; or

IV.

suo moto, i.e., upon its own knowledge or information (as for instance, on the basis of a Press Report, or a representation by a single member of the public, etc.) If any complaint is made as regards a restrictive trade practice under clause (I) above, the Commission must have a preliminary investigation made by the Director-General (who is to be appointed under S.8 of the Act) for the purpose of satisfying itself that the complaint should be inquired into. Likewise, the commission may also inquire into any monopolistic trade practice under the following two circumstances, namely, (1) on a reference made to the commission by the Central Govt., or (2) suo motu i.e. upon its own knowledge or information.

The MRTP Commission has held that the suo motu clause confers independent jurisdiction on the commission to start a suo motu inquiry on information recd by it from any source whatsoever, even if it be on the complaint of a single consumer. The powers of the MRTP Commission are specifically outlined in S. 12 of the Act, and it is provided that for the purpose of any inquiry under the Act, the MRTP Commission has the same powers as are vested in a Civil Court under the Civil procedure Code while trying a suit in respect of the following five matters, namely :I.

the summoning and enforcing the attendance of any witness and examining him on oath.

II.

The discovery and production of any document or other material object producible as evidence;

III.

The reception of evidence on affidavit;

IV.

Requisitioning any public record from any court of office; and

V.

The issuing of any commission for the examining of witnesses.

The 1984 Amendment has conferred three new powers on the MRTP Commission as follows:-

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I.

During an inquiry before the commission, the Commission May, if so satisfied, grant a temporary injunction restraining the person or undertaking against whom the inquiry is instituted from carrying on any monopolistic, restrictive or unfair trade practice until the conclusion of such inquiry, or until further orders.

II.

Commission is empowered to award compensation as it may determine, if it is proved that as a result of a monopolistic or restrictive or unfair trade practice, any loss or damage is caused to the Govt., any trader, or class of traders or consumers.

III.

Any order of the Commission can be enforced by the Commission in the same manner as it if is a decree or order of a court in a suit pending between the parties. In case the Commission is unable to execute such an order, it can also send it to another competent court for execution. The MRTP Commission Normally sits in Delhi, but it may also sit at other places where it may

be convenient for it to exercise its powers and discharge its functions under the Act. Further, the powers and functions of the Commission may be exercised or discharged by Benches formed by the Chairman from amongst the members of the Commission. Agreements which are required to be registered. The agreements which require to be registered are enumerated in S. 33 of the Act, which provides that any agreement falling within any of the categories mentioned in S. 33 is to be registered under the Act. Any agreement which restricts, or I likely to restrict, by any method, the persons or classes of persons to whom goods are sold or from whom goods are bought. Thus, an agreement whereby X agrees to buy all his requirements of cotton from Y, or an agreement under which Y agrees to sell all the cotton manufactured by him to X, would fall under this clause. A)

Any agreement requiring a purchaser of a goods as a condition of such purchase, to purchase some other goods.

Such agreements are also known as tie-in (or tie-up)

agreements or full-line forcing. This would happen when, for instance, a manufacturer of ball pens (Which have a good sale in the market) sells his ball pens only to those wholesalers who also buy his fountain pens (which do not sell well in the market). In other words, the wholesaler who wished to buy his ball pens is forced to buy fountain pens also, which he does not require. Such sales are also called clubbed sales, as the sale of a slow-moving item is clubbed with a popular or fast-moving commodity. Such agreements result in tied-markets which adversely affect competition. B)

Any agreement restricting, in any manner, the purchaser, in the course of his trade from acquiring or otherwise dealing in any goods other than those of the seller or another person. These are agreements which relate to exclusive dealings. Such a Agreement can be harmful to the public interest, and whether or not it is so, has to determined in each case, having regard to the economic consequences of that particular agreement.

C)

Any agreement to purchase or sell goods or to tender for the sale or purchase of goods, only at prices or on terms or conditions agreed upon between the sellers or purchasers. It may be

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noted that this clause refers to an agreement between sellers inter se, or between buyers inter se, and not between sellers on one side and buyers on the other. It contemplates an agreement, where for instance all the tube-light manufacturers agree (amongst themselves) not to sell any tube-lights would have to pay that amount (or more), irrespective of the manufacturer whom he approaches, or go without a tube-light. D)

Any agreement to grant or allow concessions or benefits, including allowances, discount, rebates or credit in connection with, or by reasons of dealings.

E)

Any agreement to sell goods on condition that the prices to be charged on resale by the purchaser shall be the prices stipulated by the seller, unless it is clearly stated that prices lower than those prices may be charged.

F)

Any agreement to limit, restrict or withhold the output or supply of any goods, or allocate any area or market for the disposal of the goods.

G)

Any agreement not to employ or restrict the employment of any method, machinery process in the manufacture of goods.

H)

Any agreement for the exclusion from any trade association of any person carrying on or intending to carry on, in good faith, the trade in relation to which the trade association if formed.

I)

Any agreement to sell goods at such prices as would have the effect of eliminating, competition or a competitor. [J(a)]

Any agreement restricting in any manner, the class or number of wholesalers,

producers or suppliers from whom any goods may be brought. [J(b)] Any agreement as to the bids which the parties to the agreement may make at an auction or any agreement where a party agrees not to bid at an auction. J)

Any agreement not referred to above, which the Central Govt. may specify as being one relating to a restrictive trade practice.

K)

Any agreement to enforce the carrying out of any such agreement as is referred to in any of the above categories.

UNFAIR TRADE PRACTICES (UTP) The concept of UTP was introduced into the Act by the 1984 Amendment in the shape of sections 36A to 36E. The provisions are heavily borrowed from the corresponding law in Australia, Canada and the U.S. The expression “UTP” is defined by S. 36A. An analysis of this definition shows that before a practice can be labelled as an UTP, the following four requirements must be fulfilled:a) It should be a “trade practice” (as the term is defined in S.2(u) of the Act. b) Such trade practice must be indulged in for promoting the sale, use or supply of any goods or the provision of any services. c) The trade practice must adopt any of the five broad categories of practices specified in S. 36A. d) As a result of such trade practice, loss or injury must be caused to the consumers of the goods or services in question, whether by eliminating or restricting competition or in any other manner. The five broad categories of UTP referred to in S. 36A are :-

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1. The practice of making any statement (orally or in writing or by visible representation) which – I.

falsely represents that the goods are of a particular std., quality grade, composition, style or model,

II.

falsely represents that the services are of particular std., quality 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 sponsorship, 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, (If a defence is raised to the effect that such warranty or guarantee is based on a adequate or proper test, the burden of proof of such defence will lie on the person raising such a defence)

VIII.

makes to the public a representation in a form that purports to be a) a warranty or guarantee of product or of any goods or services or b) 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 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 misleads the public concerning the price at which a product or like products or goods or services, have been or are, ordinarily sold or provided;

X.

gives false or misleading fact disparaging the goods, services or trade of another person.

2. Permitting the publication of any advt in any 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 the business, and the nature of the advt. For the above purpose, the term “bargain price” means – a) a price that is stated in any advt 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 advt, 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. Permitting –

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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 amt 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. From the above, it will be seen that if a gift or prize is genuinely offered or given, it is not an unfair trade practice. However, any contest or game for promoting the products is directly covered by clause (b) above. 4. Permitting the sale or supply of goods intended to be used or of a kind likely to be used, by consumers, knowing of 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 packing as are necessary to present or reduce the risk of injury to the person using the goods. 5. Permitting the hoarding or destruction of goods, or refusal to sell the goods or to make them available for sale, or to provide any service, if such hoarding or refusal raised or tends o raise or is intended to raise, the cost of those or other similar goods or services. S.36B (which is similar to S. 10 of the Act) then provides that the MRTP Commission can enquire into an unfair trade practice in the following four circumstances :a) on receiving a complaint from 25 consumers or from a consumers’ association which has a membership of 25 or more persons; or b) on a reference made by the Central or State Govt; or c) on an application made by the Director-General or “suo motu, i.e. on its own knowledge or information.