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Friday, February 21, 2014
The MRTP Act, of 1969 is an important piece of socio-economic legislation. It has a significant impact on the industrial structure and marketing practices of business firms in India. Though the act is relatively a small enactment, yet it is considered to be a complex one, and has far reaching consequences for the firms.
The Principal objectives of this Act as spelt out in the preamble were:
i) Prevention of concentration of economic power to the common detriment
ii) For the control of monopolies
iii) For the prohibition of monopolistic trade practices
iv) Prohibition of restrictive trade practices
Chapter 1 of the MRTP Act, besides containing definitions of the relevant terms deals with other preliminary provisions relating to the extent and the applicability of the act. The main provisions are:
i) Regulating expansions, mergers and amalgamations and appointment of directors in respect of ‘dominant undertakings' having assets of rupees one crore and more and of undertakings which by themselves or with inter-connected undertakings have assets of not less than Rs. 20 crores in value.
ii) Regulating the standing of new undertakings which would become inter-connected undertakings of such existing undertakings the total assets of which exceed Rs. 20 crores.
iii) Control over and prohibition of monopolistic and restrictive trade practices as are found to be prejudicial to public interest.
Section 3 of the MRTP Act, 1969 provides that unless the central government by notification, otherwise directs, this act shall not apply to:
a) any undertaking owned or controlled by a Government company.
b) any undertaking owned or controlled by a Government.
c) any undertaking owned or controlled by a corporation (not being a company) established by or under and Central, Provincial or State Act.
d) any trade union or other association of Workmen or employees formed for their own reasonable protection as such workmen or employees.
e) any undertaking engaged in an industry, the management of which has been taken over by any person or body of persons in pursuance of any authorisation made by the Central Government under any law for the time being in force.
f) any undertaking owned by a co-operative society formed and registered under any Central Provincial or State Act relating to co-operative societies.
g) any financial institution.
The act assumes paramount importance in the areas of product, pricing, promotional and distribution channels from the marketers point of view.
Regulation of Monopolistic Trade Practices
The Act prohibits monopolistic trade practices of companies covered by it if they are found to be prejudicial to the public interest.
We shall now define what is meant by ‘monopolistic trade practice' and also when it is deemed to be prejudicial to public interest'.
Section 2(h) of the Act defines monopolistic trade practice as a trade practice which has, or is likely to have, the effect of:
· maintaining prices at an unreasonable level by limiting, reducing or otherwise controlling the production, supply or distribution of goods of any description, or the supply of any services, or in any other manner;
· unreasonably preventing or lessening competition in the production, supply or distribution of any goods or in the supply of any services;
· 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;.
· increasing unreasonably: -
a) the cost of production of any goods; or
b) charges for the provision, or maintenance, of any services;
· increasing unreasonably -
a) the prices at which goods are, or may be, sold or resold, 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;
· preventing or lessening completion in the production, supply or distribution of any goods or in the provision or maintenance of any services by the adoption of unfair methods of unfair or deceptive practices.
According to Section 32 of the Act, a monopolistic trade practice is deemed to be prejudicial to public interest if its effect is or would be:
· to increase unreasonably the cost relating to the production, supply or distribution of goods of the performance of any service;
· to increase unreasonably the prices at which goods are sold, or the profits derived from the production, supply or distribution of goods or from the performance of any service;
· to reduce or limit unreasonable competition in the production, supply or distribution of any goods (including their sale or purchase) or the provision of any service;
· to limit or prevent unreasonably the supply of goods to consumers, or the provision of any service;
· to result in a deterioration in the quality of any goods or in the performance of any service.
In order to determine whether the practice is prejudicial to public interest, the Central Government may ask the MRTP Commission to inquire into and report about it. Where the MRTP Commission on inquiry finds that such a trade practice operates or is likely in operate against the public interest, the Central Government may pass an order Section 3(3) for:.
a) regulating the (production, storage, supply,) distribution or control of any goods by the undertaking or the control or supply of any service by it and fixing the terms of sale (including prices) or supply thereof;
b) prohibiting the undertaking from resorting to any act of practice or from pursuing any commercial policy which prevents or lessens, or is likely to prevent or lessen, competition in the (production, storage, supply) or distribution of any goods or provision of any services;
c) fixing standards for the goods used or produced by the undertaking;
d) declaring unlawful, except to such extent and in such circumstances as may be provided by or under the order, the making or carrying out of any such agreement as may be specified or described in the order;
e) requiring any party to any such agreement as may be so specified or described to determine the agreement within such time as may be so specified, either wholly or to such extent as may be so specified;
f) regulating the profits which may be derived from the production, storage, supply, distribution or control of goods or' from the provision of any service;
g) regulating the quality of any goods or the provision of any service so that the standards thereof may not deteriorate.
Restrictive Trade Practices
Every trade practice which is in restraint of trade is not necessarily a restrictive trade practice. It is only where a trade practice has the effect, action or probable, of restricting, lessening or destroying competition that is liable to be regarded as a restrictive trade practice. If a trade practice merely regulates and thereby promotes competition, it would not fall within the definition of restrictive trade practice even though it may be, to some extent, in the restraint of trade.
Regulation of Restrictive Trade Practice
The Act also prohibits restrictive trade practices of companies which are covered by it if these are found to be prejudicial to the public interest on an inquiry by the MRTP Commission or otherwise "restrictive trade practice” 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 effect the flow of supplies in the market relating to goods or services in such manner as to impose on the consumers unjustified costs or restrictions.
The essential feature of such a practice is that it is calculated to hinder competition. Limiting output and manipulating prices or supplies are characteristics of such a practice. It may either actually have the effect of adversely effecting competition or it may have such a potentiality. In either case it is characterized as a restrictive trade practice.
You should, however, note that the definition of ‘restrictive trade practice’' given in the Act is in general terms. In other words, it describes the effect or possible effect of the trade practice on competition. The illustrative examples of well-known restrictive trade practices have, however, been provided by Section 33 of the Act, which we explain next. These examples relate to not only decision making in the area of product but also in the areas of price and channels.
Registration of Agreements Relating to Restrictive Trade Practices
Not all restrictive trade practices are Prohibited by the Act. The Act prohibits only those practices which are prejudicial to the public interest.
Section 33 of the Act lists agreement relating to restrictive trade practices which require registration and are prohibited under the Act. Such practices are as under:
a) any agreement which restricts, or is likely to restrict, by any method the persons or classes or persons to whom goods are sold or from whom goods are bought;
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 any other person;
c) any agreement restricting in any manner the purchaser in the course of his trade from acquiring or otherwise dealing any goods other than those of the seller or any other person;
d) 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;
e) any agreement to grant or allow concessions or benefits, including allowances, discount, rebates or credit in connection with, or by reason of, dealings;
f) 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;
g) 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;
h) any agreement not to employ or restrict the employment of any method , machinery or process in the manufacture of goods;
i) 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;
j) any agreement to sell goods at such prices as would have the effect of eliminating competition or a competitor;
a. any agreement restricting in any manner, the class or number of wholesalers, producers or suppliers from whom any goods may be bought;
b. 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.
k) any agreement not hereinbefore referred to in this section which the Central Government may be notification specify for the time being as being one relating to restrictive trade practice within the meaning of this sub-section pursuant to any recommendation made by the Commission in this behalf;
l) any agreement to enforce the carrying out of any such agreement as is referred above.
The above provisions shall apply in respect of goods as well as services.
Whenever any activity is found to be prejudicial to public interest, the MRTP Commission may ask the company to cease and desist from carrying on such agreements or suitably amend them as directed.