The Monopolies and Restrictive Trade Practices
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The Monopolies and Restrictive Trade Practices Act, 1969, aims to prevent concentration of economic power to the common detriment, provide for control of monopolies and probation of monopolistic, restrictive and unfair tradepractice, and protect consumer interest. Monopolistic trade practice is that which represents abuse of market power in the production
and marketing of goods and services by eliminating potential competitors from market and taking advantage of the control over the market by charging unreasonably high prices, preventing or reducing competition, limiting technical development, deteriorating product quality or by adopting unfair ordeceptive trade practices.
MRTP Act repealed and is replaced by the Competition Act, 2002, with effect from September 1, 2009 The Ministry of Corporate Affairs, Government of India has issued a Notification dated 28th August 2009, whereby the most controversial the Monopolies and Restrictive Trade Practices Act, 1969 (“the MRTP Act”) stands repealed and is replaced by the Competition Act, 2002, with effect from September 1, 2009. As you would recall, the MRTP Act was a grim reminder of the “licence-quota- permit-raj” of 1970’s & 1980’s. The Act had become redundant post July 1991 when the new economic policy was announced and Chapter III of the MRTP Act dealing with restrictions on M&A activities was made inoperative. The MRTP Commission will continue to handle all the old cases filed prior to September 1, 2009 for a period of 2 years. It will, however, not entertain any new cases from now onwards.
I wish to clarify that the provisions relating to M&A transactions (Sections 5 & 6 of the new Competition Act dealing with regulation of combinations) are yet to be notified. As of now, there is no clarity as to when these provisions would be made effective. It is also not clear whether these new provisions will be applicable in cases where definitive agreements have been signed before the notification but closing of the transaction has not happened. It would, therefore, be advisable to put a clause in all M&A transaction documents executed from now onwards that the closing of the transaction would be subject to any prior clearance that may be required from the Competition Commission of India under the provisions of the Competition Act, 2002, if applicable. We are giving below details of the transitional provisions:- Date: September 1, 2009
Subject Transitional Provisions – the MRTP Act, 1969 to the Competition Act, 2002 w.e.f. September 1, 2009) The Ministry of Corporate Affairs, Government of India has issued a Notification dated 28th August 2009, whereby the most controversial the Monopolies and Restrictive Trade Practices Act, 1969 (“the MRTP Act”) stands repealed and is replaced by the Competition Act, 2002, with effect from September 1, 2009. The following transitional provisions would apply as provided in Section 66 of the Competition Act, 2002:-
1. MRTP Commission
a) The MRTP Commission will continue to exercise jurisdiction and power under the repealed MRTP Act in respect of any case or proceeding filed before 1 September 2009, for a period of two years. It will not, however entertain any new case arising under the MRTP Act on or after 1 September 2009. b) Upon the expiry of the specified two year period, the MRTP Commission shall stand dissolved. 2. Transfer of pending cases
Upon the expiry of two years from 1 September 2009, cases pending before the MRTP Commission will be transferred as follows:- a) Monopolistic or restrictive trade practice cases: All pending cases pertaining to monopolistic or restrictive trade practices, including cases having an element of unfair trade practice, shall stand transferred to the Competition Appellate Tribunal, which shall adjudicate such cases in accordance with the provisions of the repealed MRTP Act. b) Unfair trade practice cases: All pending cases relating solely to unfair trade practices shall stand transferred to the National Commission as constituted under the Consumer Protection Act, 1986, which may in turn transfer such cases to a State Commission constituted under the said Act under circumstances it deems appropriate.
These cases will be dealt with by them in accordance with the provisions of the Consumer Protection Act. c) Cases relating to giving false or misleading facts disparaging the goods, services or trade of another person under the MRTP Act: All such pending cases shall be transferred to the Competition Appellate Tribunal which will be dealt in accordance with the provisions of repealed MRTP Act. 3. Investigations/proceedings undertaken by the Director General under the MRTP Act With effect from 1 September 2009, all pending investigations and proceedings by the Director General relating to:- a) Monopolistic/ restrictive trade practices will be transferred to the Competition Commission of India (CCI), who may conduct such investigations/ proceedings in any manner it deems appropriate. b) Unfair trade practices will be transferred to the National Commission under the Consumer Protection) Act 1986. c) Cases giving false or misleading facts disparaging the goods, services or trade.
1. nMaintaining 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; 2. 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
3. Limiting technical development or capital investment to the common detriment 4. The profits derived from the production, supply or distribution of any goods or services 5. Then they take advantage of their monopoly and charge unreasonably high prices. They also deteriorate the product quality, limit technical development, prevent competition and adopt unfair trade practices.
As markets get extremely competitive and consumers difficult targets to convert, many a company is tempted consciously or unconsciously to have trade practices which give them a natural advantage over its competitors. One of the first things, a company needs to check incase of evolving and practicing is to see if they are on the right side of law. This article attempts to give you an overview of the Monopolies and Restrictive Trade Practices Act, 1969 (“MRTP Act”) that governs such practices in India and the various tenets of the Act in brief. This way, while concluding any agreement or transaction pertaining to the sale of goods or provision of services, the companies concerned can examine the same for any violation of the MRTP Act. In many cases, depending on the structure of the transaction, territorial restrictions, exclusivity, non-compete, price control mechanisms, freebies, lotteries, discounts, the agreement or practice could mean a violation of the MRTP Act.
However, I must add here that there is a proposal currently to replace the MRTP Act with a new legislation called the Draft Competition Regulation Bill (“Bill”). Before I move onto the act and its tenets, let me emphasize here that though the MRTP Act can be said to be the Competition law of India, as it defines a restrictive trade practice to mean “a trade practice, which has, or may have the effect of preventing, distorting or restricting competition in any manner”, it can be said that the same is inadequate for boosting healthy competition and regulating anti-competitive practices.
The MRTP Act regulates three types of prohibited trade practices; 1.Restrictive Trade Practice, 2.Unfair Trade Practice and 3.Monopolistic Trade Practice. Allow me to explain these in detail. Restrictive Trade Practice (RTP) – A restrictive trade practice is a trade practice, which prevents, distorts or restricts competition in any manner; or Obstructs the flow of capital or resources into the stream of production; or Which tends to bring about manipulation of prices or conditions of delivery or which affects the flow of supplies in the market of any goods or services, imposing on the consumers unjustified cost or restrictions.
Further, it should also be noted that agreements that would fall within one or more of the following categories and so far as may be, in relation to agreements making provision for services as they apply in relation to agreements, connected with the production, storage, supply, distribution orcontrol of goods.-are deemed to be an agreement relating to restrictive trade practices and are subject to registration:
1. any agreement which restricts, or is likely to restrict, by any method the persons or classes of persons to whom goods are sold or from whom goods are bought;
2. any agreement requiring a purchaser of goods, as a condition of such purchase, to purchase some other goods;
3. 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 any other person;
4. 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;
5. any agreement to grant or allow concessions or benefits, including allowances, discounts, rebates or credit in connection with, or by reason of, dealings;
6. any agreement to sell goods on condition that the prices to be charged on re-sale 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;
7. 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;
8. any agreement not to employ or restrict the employment of any method, machinery or process in the manufacture of goods;
9. 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 is formed;
10. any agreement to sell goods at such prices as would have the effect of eliminating competition or a competitor;
11. any agreement restricting in any manner, the class or number of wholesalers, producers or suppliers from whom any goods may be bought;
12. any agreement as to the bids which any of the parties thereto may offer at an auction for the sale of goods or any agreement whereby any party thereto agrees to abstain from bidding at any auction for the sale of goods;
13. any agreement not referred to above which the Central Government may, by notification, specify for the time being as being one relating to a restrictive trade practice pursuant to any recommendation made by the Commission in this behalf;
14. any agreement to enforce the carrying out of any such agreement as is referred above.
Generally speaking, non-compete clauses, exclusivity clauses or clauses that tend to restrict the territorial application of agreements would constitute RTP unless such exclusivity or restriction is reasonable in nature. The reasonableness of the non-competition, exclusivity or restriction would be determined on a case-by-case basis and one could determine the same by applying the rule of reason. Failure to register such an agreement, without any reasonable excuse, shall be punishable with imprisonment for a term which may extend upto three years, or with fine which may extend upto five thousand rupees or with both, and where the offence is a continuing one, with a further fine which may extend to five hundred rupees for every day, after the first, during which such failure continues. Notwithstanding the above, pursuant to making an inquiry, if the MRTP is of the view 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 restrictive trade practice or shall stand modified. The Commission may permit the party to any restrictive trade practice to take steps so that it is no longer prejudicial to the public interest. However no order shall be made in respect of: any agreement between buyers relating to goods, which are bought, by the buyers for consumption and not for ultimate resale; a trade practice which is expressly authorized by any law in force.
Unfair Trade Practice (UTP) – An unfair trade practice means a trade practice, which, for the purpose of promoting any sale, use or supply of any goods or services, adopts unfair method, or unfair or deceptive practice: Unfair Trade Practices can be broadly classified into
5 categories: False Representations, Bargain price, Freebies, Non compliance of standards and Hoarding Destruction. Allow me to explain each in brief.
A. False Representations: The practice of making any statement, whether orally or in writing or by visible representation which – falsely represents that the goods are of a particular standard, quality, quantity, grade, composition, style or model; falsely represents that the services are of a particular standard, quality or grade; falsely represents 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 such goods or services do not have; represents that the seller or the supplier has a sponsorship or approval or affiliation which such seller or supplier does not have; makes a false or misleading representation concerning the need for, or the usefulness of, any goods or services; 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;
makes to the public a representation in a form that purports to be-a warranty or guarantee of a product or of any goods or services, 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 or 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, 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 or gives false or misleading facts disparaging the goods, services or trade of another person.
It should be noted that a statement which is either expressed on an article offered or displayed for sale, or on its wrapper or container; or 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 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, would be deemed to a statement made to the public by, and only by, the person who had caused the statement to-be so expressed, made or contained;
B. Bargain Price – The publication of any advertisement whether 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 such 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. The MRTP Act defines “bargain price” to mean: a price that is stated in any advertisement to be a bargain price, by reference to an ordinary price or otherwise; or 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;
Therefore, in order to ensure that the bargain does not constitute an UTP, an organisation should ensure that the bargain price as advertised is actually offered to consumers for the period and in such quantities as advertised.
C. Freebies: 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 or 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;
For the offer not to constitute a UTP, an organisation that is offering free gifts, prizes, etc. should ensure that the cost of such gift, prize, etc is
not included in the price of the product as sold and that the gift or prize is in its true sense, free and that the consumer does not have the avail of a price reduction in lieu of the gift or prize.
D. Non compliance of standards: 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;
E. Hoarding or Destruction of Goods: The hoarding or destruction of goods, or refuses to sell 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.
Pursuant to an inquiry into the UTP, if the MRTP commission is of the view that the practice is prejudicial to the pubic interest, or to the interest of any consumer it may direct that –
1. The practice shall be discontinued or shall not be repeated;
2. The agreement relating thereto shall be void in respect of such unfair trade practice or shall stand modified.
3. Any information, statement or advertisement relating to such unfair trade practice shall be disclosed, issued or published as may be specified
4. 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 to a trade practice which is expressly authorised by any law in force.
That covers the essentials of Restrictive Trade Practice and Unfair Trade Practice. In the next part we will be covering Monopolistic Trade Practice.