The Monopolistic and Restrictive Trade Practices Act, 1969 and the New Competition Bill (2001)

The Monopolistic and Restrictive Trade Practices Act, 1969, was enacted
• To ensure that the operation of the economic system does not result in the
concentration of economic power in hands of few,
• To provide for the control of monopolies, and
• To prohibit monopolistic and restrictive trade practices.
The MRTP Act extends to the whole of India
except Jammu and Kashmir.
Unless the Central Government otherwise directs, this act shall not apply to:
a. Any undertaking owned, controlled and managed by the Government directly or
indirectly or a company established by or under any Central, Provincial or State
Act, Any trade union or other association of workmen or employees formed for
their own reasonable protection as such workmen or employees, co-operative
society and Any financial institution

The MRTP act has seen many amendments significantly in the years 1982,1984, 1985,
and 1991.
1982- Dominant Undertaking and monopolistic undertaking defined.
1984- consumer protection under the purview of MRTP
1985- asset limit increased to 100 crores from 20 crores for attracting the provisions of
MRTP
1991- MRTP pruned drastically and only the regulation of RTP and UTP remain under
its purview.

The MRTP Act sought to eliminate three types of trade practices

Restrictive Trade Practice

Unfair Trade Practice
Monopolistic Trade Practices

RESTRICTIVE TRADE PRACTICE

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
effected the flow of supplies in the market of any goods or services, imposing on
the consumers unjustified cost or restrictions.

Examples of RTP
• Concert or collusion/cartel
• Price discrimination
 • Predatory pricing
• Tie-up sales
• Full-line forcing
• Exclusive dealing
• Area restriction
• Resale price maintenance

WHAT IS UNFAIR TRADE PRACTICE ?

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 practices may be categorised as under:
1.FALSE REPRESENTATION
The practice of making any oral or written statement or representation which:
• Falsely suggests that the goods and services are of a particular standard
quality, quantity, grade, composition, style or model;
• 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;
• 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:
• 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
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.

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;
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;

PARLIAMENT is all set to consider the Draft Competition Regulation Bill shortly. From a
regime of over-regulation we have moved to the opposite extreme of unregulated
competition among national and multinational corporations. Clearances had to be
obtained for expansion, and capacity licences were issued under a control system.
Even agreements for the import of foreign technology required approval of the
Government. Labour laws came in the way of closure of unviable units. All this has
changed. 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. The MRTP Act is now sought to be buried. It owes its
inspiration to Articles 38 and 39 of the Constitution which enjoins that the State should
strive to promote public welfare by securing and protecting a social order in which socio-
economic justice shall inform all institutions of national life, and ensure that the
ownership and control of material resources are so distributed as to subserve the
common good.
The operation of the economic system should not result in the concentration of wealth
and means of production to the common detriment. The Act was amended in 1991 and
the Government realised that pre-entry restrictions under the MRTP Act on the
investment decision of the corporate sector outlived its utility, and became a hindrance
to the speedy implementation of industrial projects.
The Act was restructured with focus on curbing monopolistic restrictive and unfair trade
practices. Ten years after this amendment, the Government understood that the whole
set up had become an anachronism, and a committee was set up to suggest ways and
means to promote competition. On the basis of the S. V. S Raghavan Committee report,
the Government came out with a new tax law styled the Trade Related Competition Bill.
At a philosophical level, the thinking behind the bill represents a fundamental change in
the way the interaction between the Government and business interests is perceived.
When enacted by Parliament, the new competition law will replace the Monopolies and
Restrictive Trade Practices Act (MRTP) of 1969. Naturally the report had to take
cognizance both of global trends and circumstances special to India. Needless to point
out, in a globalising economy issues such as competition cannot be confined to the
geographical borders of a country.
The big change, however, lies in the official perception of business interests. In the
1960s and 1970s (and earlier) the belief in a command economy and the dominance of
the state in economic matters dominated Indian economic thinking. Through a system of
licensing and numerous other controls business groups were kept in fetters. It is
questionable whether the MRTP regime checked the abuse flowing from monopoly
positions. For the Indian consumer, the problem has been one of coping with lack of
choice and often even with scarcity, which a system based on licensing helped foster.
The MRTP legislation has been a necessary adjunct to the economic beliefs of those
times.
The proposed competition law, in contrast, recognises the fact that business groups can
and do work for the betterment of their own interests as well as those of their several
stakeholders. In the new thinking the size of the firm and its market share are not by
themselves a threat to the consumer.
It is only when a firm that has acquired a dominant position and uses its dominance
against consumers' interests should the regulators step in. It is not the potential to
exploit but the actual commitment of a rapacious act that would bring in the enforcement
machinery of the new competition set up. This concept of abuse of dominance rather
than just acquiring a dominant position has become the central point of the new
legislation and probably its most distinguishing feature.
Elaborating the point further, under the MRTP Act all restrictive practices are presumed
to be anti-competitive. The draft competition bill adopts a radically different approach:
not all agreements between business groups (for expanding, consolidating) are prima
facie anti-competitive. Only when they impact adversely on competition do they become
anti-competitive, enabling the new regulator, the Competition Commission, to step in.
This feature of the bill which would determine anti-competition on the basis of specific
acts and not by the potential to carry out such acts has uniformly been praised.
Several other advantages have been claimed for the new dispensation. It will be more
flexible than the MRTP Act. While the MRTP Act listed out 14 offences the new law
recognizes just four. Unlike the MRTC, the new Competition Commission can start suo
motu proceedings. Competition advocacy is enshrined in the new law for which purpose
a new competition fund will be put in place.
The new law does not consider the firm's dominance per se inimical to competition. The
MRTP Act frowned upon dominance and laid down an arithmetical test. The proposed
law frowns only upon abuse of dominance. It seeks to regulate agreements that control
production, supply, markets, technical developments or investment in provision of
services. All such agreements are considered anti-competitive and penalty can be
levied. The recent experience with cement cartels is an example of price-rigging under
agreements to share markets. Sources of production by way of geographical allocation
of market will be considered anti-competitive.
The Draft Law prohibits agreements arrived at between enterprises that directly result in
bid rigging or collusive tendering. The Bill also defines bid rigging as agreements
between enterprises or persons engaged in identical or similar manufacturing, trading or
provision of service that has the effect of eliminating or reducing competition for bids, or
adversely affecting/manipulating bidding. Apart from these guidelines, other restrictive
trade practices will fall under the rule of reason test before the Competition Commission
of India (CCI).
An important difference lies in the fact that the new law leaves unfair trade practices to
consumer fora and not to the CCI. The MRTP Act had no proper definition of unfair
trade practices. But the new law will take care of cartelisation that imposes unjustified
cost on the consumers. The new law dispenses with the requirement of pre-merger
notifications. There will be a separate Bench of the CCI styled as the Merger
Commission to deal with mergers. This part of the Law requires disposal of the case
within 90 days. If there is no order, it will be presumed the merger has been approved.

The proposed Law provides for an adjudicating relief machinery by way of

establishing the Competition Commission of India (CCI) which would be a Quasi-
Judicial Body. CCI will have a Chairperson and not less than two and not more than ten
other Members, as may be specified by the Central Govenrment.
The CCI will have the following powers:
 To issue "Cease and Desist" Orders
To grant such interim relief as would be necessary in each case
To award compensation
To impose fines on the guilty
To order division of dominant undertaking
Power to order de-merger
Power to order costs for frivolous complaints
In addition to the adjudication function, the CCI will have the roles of advocacy,
investigation, prosecution and merger control.
The Statutory Regulatory Authorities can make reference to CCI for advice.

MRTP 2001 Vs Competition Bill 2001

Based on philosophy of “command On Free market economy

Economy”
Pre-Liberalization
Focus on curbing monopolies
Recognizes that business groups work for
themselves hence monopolistic tendencies
must be curbed( limit size)
Size as a factor
under the MRTP Law dominance is bad
MRTP had “cease and desist” powers
i
Post-Liberalization
Focus on promoting competition
Recognizes that business groups work for
themselves and also for betterment of
consumers
Structure as a factor
Under the new Law, dominance per se is not bad but
only the abuse of dominance is considered bad
Competition Law contains punitive provisions
i
Prepared for class discussion and internal use. No part of this article may be reproduced in any from without the
permission of the author.
Bilal Mustafa Khan March 30, 2002.