Shortcomings of MRTP Act
From Advocatespedia, The Law Encyclopedia
The act defines the Monopolistic Trade Practice as “Such practice indicates misuse of one’s power to abuse the market in terms of production and sales of goods and services.
• Firms involved in monopolistic trade practice tries to eliminate competition from the market.
• 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”
Definition of Unfair Trade Practice
The act defines Unfair Trade Practice as:
• False representation and misleading advertisement of goods and services.
• Falsely representing second-hand goods as new.
• Misleading representation regarding usefulness, need, quality, standard, style etc of goods and services.
• False claims or representation regarding price of goods and services.
• Giving false facts regarding sponsorship, affiliation etc. of goods and services.
• Giving false guarantee or warranty on goods and services without adequate tests.
Definition of Restrictive Trade Practice
The act defines Restrictive Trade Practice as “The traders, in order to maximize their profits and to gain power in the market, often indulge in activities that tend to block the flow of capital into production. Such traders also bring in conditions of delivery to affect the flow of supplies leading to unjustified costs.”
What is MRTP Company?
The firms with assets of Rs. 25 Crore or more were put under the obligation of taking permission from the government of India and they were called MRTP companies. This upper limit of Rs. 25 Crore was known as MRTP limit. It was later relaxed to Rs. 50 crore in 1980, Rs. 100 Crore in 1985 and in 1991 this limit was removed. Now only companies having more than 25% market share were called Monopolies.
Monopolies and Restrictive Trade Practices Commission
Monopolies and Restrictive Trade Practices Commission (MRTPC) was set up under section 5 of the Monopolies and Restrictive Trade Practices Act, 1969. The MRTPC is an organ of Department of Company Affairs, Ministry of Company Affairs, Government of India.
• MRTPC was a quasi-judicial body.
• Major function of the MRTP Commission is to enquire into and take appropriate action in respect of unfair trade practices and restrictive trade practices.
• In regard to monopolistic trade practices the Commission is empowered to inquire into such practices
• Upon a reference made to it by the Central Government
• Upon its own knowledge or information and submit its findings to Central Government for further action.
The Government adopted the Monopolies and Restrictive Trade Practices (MRTP) Act in 1969 and accordingly the MRTP Commission was set up in 1970. The Commission was set up to investigate the effects of such practices, case by case, on the public interest and to recommend suitable corrective measures.
The preamble to the MRTP Act described it as “An Act to provide that the operation of the economic system does not result in the concentration of economic power to the common detriment for the control of monopolies, for the prohibition of monopolistic and restrictive trade practices and matters connected therewith or incidental thereto.”
The MRTP Act has made distention between monopolistic and restrictive trade practices. Accordingly, the monopolistic trade practices was described as “dominant firm practices”, i.e., a firm or a oligopolistic group of three firms, after attaining a dominant position has been “able to control the market by regulating prices or output or eliminating competition.”
Restrictive trade practices include concerted action undertaken by a group of two or more firms so as to avoid competition from the market irrespective of their market share. These types of practices are “deemed to be prejudicial to public interests.”
In order to make necessary review of the working of MRTP Act and to make necessary recommendation for streamlining its activity, the Government appointed a Sachar Committee in 1977. On the basis of the recommendations made by this committee, the Government made necessary amendments in Act in 1980 and also in 1984. In 1991, a significant amendment was made where chapter (III) on Monopolies was dropped.
India adopted its first competition law way back in 1969 in the form of Monopolies and Restrictive Trade Practices Act (MRTP). The Monopolies and Restrictive Trade Practices Bill was introduced in the Parliament in the year 1967 and the same was referred to the Joint Select Committee. The MRTP Act, 1969 came into force, with effect from, 1 June, 1970. However, with the changing nature of business, market, economy on the whole within and outside India, there was felt a necessity to replace the obsolete law by the new competition law and hence the MRTP Act was replaced with the Competition Act of 2002.
The enactment of MRTP Act, 1969 was based on the socio – economic philosophy enshrined in the Directive Principles of State Policy contained in the Constitution of India. The MRTP Act, 1969 underwent amendments in 1974, 1980, 1982, 1984, 1986, 1988 and 1991. The amendments introduced in the year 1982 and 1984 were based on the recommendations of the Sachar Committee, which was constituted by the Govt. of India under the Chairmanship of Justice Rajinder Sachar in the year 1977.
The Sachar Committee pointed out that advertisements and sales promotions having become well established modes of modern business techniques, representations through such advertisements to the consumer should not become deceptive. The Committee also noted that fictitious bargain was another common form of deception and many devices were used to lure buyers into believing that they were getting something for nothing or at a nominal value for their money. The Committee recommended that an obligation is to be cast on the seller to speak the truth when he advertises and also to avoid half truth, the purpose being preventing false or misleading advertisements.
However, as the times changed, the need was felt for a new competition law. With introduction of new economic policy and opening up of the Indian market to the world, there was a need to shift focus from curbing monopolies to promoting competition in the Indian market.
Following are the shortcomings of the MRTP Act
a) Anti-Welfaristic Results
Though the MRTP was enforced with the aim of distribution of resources and leveraging of competition in the market, the desired results could not be obtained. Rather, the market conditions turned out to be hostile for the consumer, and small-businesses and big-businesses alike, were subjected to excessive control. The heightened governmental control, where new undertakings and ventures were severely restrained by complex procedures, created conditions wherein the firms, existing and new, found it difficult to survive and thus, could not give back any benefits to the consumer.
b) Stringent Provisions
The Act aimed at abolishing all acts which were anti-competition. The Act, over the years became very active in taking on firms head-on to make them stand in line with the provisions of the Act. The provisions, though aimed at benefitting the consumers and the industrial growth, often played out tough- and the stringent provisions did not benefit anyone.
For instance, the concept of 'Predatory Pricing', which is still a marketing policy adopted by companies to have an edge over their competitors, was handed down heavily by the MRTP Commission. Predatory Pricing is defined as pricing a good or service below the cost of production of the good or service, with the objective of driving a competitor out of trade or to discipline him and thereby achieve elimination of competition. This is a means for a firm with strong market power to eliminate other competitors and then, dominate the market.
This is effectively an anti-competitive mechanism, however, it can also be used to drive competition i.e. it can be effectively used to establish a strong competitive market. Examples are ripe in the current market where there are strong competitive conditions for the firms- they have to dole out quality at the best price to keep themselves established in the market, otherwise other competitive firms will drive them out of business. Examples being:
A) Tide, a detergent that was introduced in the Indian market in 2000 was successful in breaking into a market which was strongly held by Surf (so much so, that households used to use 'Surf' as a generic term for any kind of detergent). Tide used strong pricing, backed by its robust parent company, predatory in nature, to quickly grab a large market share for itself. It offered quality detergent at a price than the other existing detergents. This in turn made the other companies lower their price and offer better quality. Hence, the consumer emerged the winner from this competitive trend between the detergent makers.
B) Tata Docomo, a mobile service provider that rolled out only 2 years back in the Indian market, entered at a time when there were established players in the market like Airtel, Reliance and state-run BSNL. But Docomo with its pricing policy which was unlike the prevailing market conditions, offered calling rates which changed the pulse. The market prior to the arrival of Docomo was based on per/minute charges, but Docomo came up with a per/second policy- thus, forcing other established players to also offer similar rates. Though such strategy was predatory in nature, but it helped in establishing a more competitive market which only went onto help the customers. Thus, the point that the researcher is trying to drive home is that such predatory pricing is not necessarily anti-competitive but rather an agent to bring about better options for the consumer. Hence, this is more beneficial in terms of consumers' welfare. However, the MRTP Commission took up a strong case against such pricing and though it aimed at benefitting the market by ensuring fair competition, it instead closed down on the benefits to the customers. Hence, what was then required is a strong, case-by-case basis of handling and not absolute ban on predatory pricing.
c) Ambiguity in Law
The MRTP Act, 1969 contained only one particular section, Section 2(o) to cover all anti-competition practices- defining Restrictive Trade Practice as a trade practice which prevents, distorts or restricts competition and thus, by defining it in such broad terms that it was then believed that there is no need for a new specific law or provision to govern such practices. While complaints relating to anti-competition practices could be tried under the generic definition of restrictive trade practice, the absence of specific identifiable anti-competition practices gave room to different interpretations by different Courts of Law which resulted in the true meaning getting lost. While a generic definition might be necessary and might form the substantive foundation of the law, it is of great essence that there be a stronger specific legislation to cover all possible aspects of abuse of market position.
Furthermore, some of the anti-competition practices like cartels, bid rigging and other practices are not specifically mentioned in the MRTP Act but the MRTP Commission, over the years, had attempted to fit such offences under one or more of its sections by way of interpretation of the language used therein.
d) International Norms
Post 1991 and the WTO Regime, the MRTP was exposed to lack the resources to handle the incoming international investments or to meet the trade requirements of the WTO. The Act was amended in many ways to accommodate for the New Policy Reforms of 1991 however such amendments could not bring it at par with the other anti-competition regimes in the World. Hence, the MRTP Act, 1969 was lacking and deficient in certain ways and thus, need for a new, comprehensive law was recognized which gave birth to the Competition Act, 2002 which is discussed in the next chapter. Famous case laws:
a) Shyam Gas Company Case
This was a case where the supply of cooking gas cylinders was in short supply, which led to unfair exploitation of the situation. Shyam Gas Co. was the sole distributor of BPCL for cooking gas cylinder at Hathras (U.P.) which was allegedly engaging in the following restrictive practices: giving gas connections to the customer only when he purchased a gas stove or a hot plate from the company; and charging customers twice the price for supply of fittings and appliances. The MRTP Commission held that the company was indulging in a restrictive trade practice that was prejudicial to the interest of the consumers.
b) Bal Krishna Khurana Case
This was the first case where a sales promotion organizer was charged under unfair trade practices. The respondent, Bal Krishna was famous all over North India for his selling 'export quality' hosiery at extremely low prices wherein he sold goods worth Rs. 210/- for as low as Rs. 15/- The Commission received complaints from consumers who reported that they were being cheated into buying sub-standard goods. The Commission then put a restraining order against Bal Krishna from organizing any such promotion ventures. In addition, the Commission also advised newspapers against carrying any such misleading advertisements.
4) The MRTP Act.