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 Signature

Name: RAVRAJ WADE MR. NADIRSHAW K.

DHONDY

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 be-

a. 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 PRICE-

Where 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 means-

a. 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. 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;
iii. limiting technical development or capital investment to the
common detriment;
iv. deteriorating the quality of any goods produced, supplied or
distribute; and
v. 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
may-
i. 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. 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;
ii. 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;
iii. Fixing standards for the goods used or produced by an
undertaking;
iv. Declaring unlawful the making or carrying out of the specified
agreement;
v. Requiring any party to the specified agreement to determine
the agreement within the specified time, either wholly or to
specified extent;
vi. Regulating the profits which may be derived from the
production, storage, supply, distribution or control of any goods
or services; or
vii. 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.

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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)

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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;

(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.

4. 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 status-
quo ante;

(2) The Board shall issue a press release in

respect of any final order passed under sub-

36
 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.

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