Working Group on the Interaction between Trade and Competition Policy
The following communication, dated 26 June 1998, has been received from the Permanent Mission of India with the request that it be circulated to Members.
Antitrust legislation is now an integral part of economic life all the world over. It is present not only in the developed countries but also in the developing countries. The Indian Law on the subject, known as the Monopolies and Restrictive Trade Practices Act (MRTP Act), was originally brought on the statute book in 1969, drawing its inspiration from the mandate given in the Directive Principles of State Policy in the Indian Constitution. The said Principles aim at securing social justice with economic growth. In terms of competition law and consumer protection, the objective of the Act is to curb monopolistic, restrictive and unfair trade practices which curtail competition in trade and industry and which adversely affect consumer interests. A parallel legislation known as the Consumer Protection Act, 1986 has also come into being which prevails in the realm of unfair trade practices.
It is often argued that consumers need no special protection as market forces would take care of them. But a perfectly competitive market is just a pipe dream and consumer sovereignty a myth. Products are of great variety, many of them are complex and the consumer has imperfect product knowledge. The supplier often has a dominant position vis-à-vis the buyer who has little or no bargaining power in the market. The consumer, therefore, needs and deserves legal protection against certain trade practices, business methods and unscrupulous forces.
In many markets, a large number of consumers are illiterate and ill-informed, possess limited purchasing power in an environment where there is a shortage of goods and where growth with social justice guides the thinking of planners, the legislature and the executive. Very often, one witnesses the spectacle of a large number of non-essential, sub-standard, adulterated, unsafe and less useful products being pushed through by unscrupulous traders by means of unfair trade practices and deceptive methods. Subtle deception, half truths and misleading omissions inundate the advertisement media and instead of the consumer being provided with correct, meaningful and useful information on the products, they often get exposed to fictitious information which result in their making wrong buying decisions. Transparency in the dissemination of information is conspicuous by its absence.
The principal objectives sought to be achieved through the MRTP Act are:
prevention of concentration of economic power to the common detriment;
control of monopolies;
prohibition of monopolistic trade practices;
prohibition of restrictive trade practices;
prohibition of unfair trade practices.
Out of these five, the first two have been de-emphasized, after the 1991 amendment to the Act. The emphasis has not only shifted to the three last mentioned objectives but they have been re-emphasized. Yet to the extent that monopolies tend to bring about monopolistic trade practices, the Act provides for their surveillance. Briefly, the Act is designed to guard against different aspects of market imperfections. For instance, a merger, which can increase the dominance of the combine or has resulted in a large share in the market can be looked at in terms of the provisions of the Act and the objectives governing them.
A restrictive trade practice is generally one which has the effect of preventing, distorting or restricting competition. In particular, a practice which tends to obstruct the flow of capital or resources into the stream of production is an RTP. Likewise, manipulation of prices, conditions of delivery or flow of supply in the market which may have the effect of imposing on the consumer unjustified costs or restrictions are regarded as restrictive trade practices. But competition is not always a necessary touchstone on which a trade practice is judged if it is a RTP.
Certain common types of restrictive trade practices enumerated in the Act which do not have an element of competition are:
- refusal to deal;
- tie-up sales;
- full line forcing;
- exclusive dealings;
- concert or collusion-cartel;
- price discrimination;
- re-sale price maintenance;
- area restriction;
- predatory pricing.
- All restrictive trade practices under the Act as mentioned above are deemed legally to be prejudicial to public interest. The onus is, therefore, on the entity, body or undertaking charged with the perpetration of the restrictive trade practice to plead for gateways provided in the Act itself. For instance in the following circumstances gateways can be pleaded:
- that the restriction is reasonably necessary, having regard to the character of the goods to which it applies, to protect the public against injury (whether to persons or to premises) in connection with the consumption, installation or use of those goods;
- that the removal of the restriction would deny to the public, as purchasers, consumers or users of any goods, other specific and substantial benefits of advantages enjoyed or likely to be enjoyed by them as such whether by virtue of the restriction itself or of any arrangements or operations resulting therefrom;
- that the restriction is reasonably necessary to counteract measures taken by any one person not party to the agreement with a view to preventing or restricting competition in or in relation to the trade or business in which the persons party thereto are engaged;
- that the restriction is reasonably necessary to enable the persons party to the agreement to negotiate fair terms for the supply of goods to, or the acquisition of goods from, any one person not party thereto who controls a preponderant part of the trade or business or acquiring or supplying such goods, or for the supply of goods to any person not party to the agreement and not carrying on such a trade or business who, either alone or in combination with any other such persons, controls a preponderant part of the market for such goods;
- that, having regard to the conditions actually obtaining, or reasonably foreseen at the time of the application, the removal of the restriction would be likely to have a serious and persistent adverse effect on the general level of employment in an area taken together, in which a substantial proportion of the trade, or industry to which the agreement relates is situated;
- that, having regard to the conditions actually obtaining, or reasonably foreseen at the time of the application, the removal of the restriction would be likely to cause a reduction in the volume or earnings to the whole export business of India or in relation to the whole business (including export business) of the said trade or industry;
- that the restriction is reasonably required for purposes in connection with the maintenance of any other restriction accepted by the parties, whether under the same agreement or under any other agreement between them, being a restriction which is found by the Commission not to be contrary to the public interest upon grounds other than those specified in this paragraph, or has been so found in previous proceedings before the Commission;
- that the restriction does not directly or indirectly restrict or discourage competition to any material degree in any relevant trade or industry and is not likely to do so;
- that such restriction has been expressly authorized and approved by the Central Government;
- that such restriction is necessary to meet the requirements of the defence of India or any part thereof, or for the security of the State; or
- that the restriction is necessary to ensure the maintenance of supply of goods and services essential to the community.
- If the gateways are satisfactory to the MRTP Commission and if it is further satisfied that the restriction is not unreasonable having regard to the balance between those circumstances and any detriment to the public interest or consumers likely to result from the operation of the restriction, the Commission may arrive at the conclusion that the RTP is not prejudicial to public interest and discharge the enquiry against the charged party.
- , if a trade practice is expressly authorized by any law for the time being in force, the MRTP Commission is barred from passing any order against the charged party.
- Unfair trade practices (UTPs)
- Essentially unfair trade practices fall under the following categories in Indian law:
- misleading advertisement and false representation;
- bargain sale, bait and switch selling;
- offering of gifts or prizes with the intention of not providing them and conducting promotional contests;
- product safety standards;
- hoarding or destruction of goods.
- Making false or misleading representation of facts disparaging the goods, services or trade of another person is also a restrictive trade practice under Indian law.
- Monopolistic trade practices (MTPs)
- An MTP is a trade practice which has or is likely to have the effect of:
- 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 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 services rendered, in India to deteriorate;
- increasing unreasonably:
- the cost of production of any goods; or
- charges for the provision, or maintenance of any services
- increasing unreasonably:
- the prices at which goods are, or may be, sold or re-sold, or the charges at which the services are, or may be, provided; or
- the profits which are, or may be, derived by the production, supply or distribution (including the sale or purchase) of any goods or in the provision or maintenance of any goods or by the provision of any services;
- preventing or lessening competition in the production, supply or distribution of any goods or in the provision or maintenance of any services by the adoption of unfair methods or unfair or deceptive practices.
In the Indian law, the basis of determining dominance is whether an undertaking has a share of one fourth or more in the production, supply, distribution or control of goods or services. There are other finer distinctions in the law but they are outside the scope of the general treatment warranted in this paper. When mergers or amalgamations come up for examination by the MRTP Commission, one of its important responsibilities is to evaluate the post merger/amalgamation dominance in the market with reference to the common good and public interest. If the merger/amalgamation leads to unilateral price fixation on the part of such dominant undertakings without any reference to the market and tends to extinguish smaller units and undertakings and douse competition, the Commission has the power to stop it.
Under the MRTP Act, a Commission has been established, the Chairman of which is always a person who is or has been or is qualified to be a judge of the Supreme Court or of High Court (of a State). The members of the Commission are persons of ability, integrity and standing who have adequate knowledge or experience of, or have shown capacity in dealing with, problems relating to economics, law, commerce, accountancy, industry, public affairs or administration. The Commission is assisted by the Director General of Investigation & Registration (DG) for carrying out investigations, or maintaining a register of agreements and for undertaking carriage of proceedings during the enquiry before the MRTP Commission. The powers of the Commission include the power vested in a Civil Court and include further power:
- to direct an errant undertaking to discontinue a trade practice and not to repeat the same;
- to pass a cease and desist order;
- to grant temporary injunction, restraining an errant undertaking from continuing an alleged trade practice;
- to award compensation for loss suffered or injury sustained on account of RTP, UTP or MTP;
- to direct parties to agreements containing restrictive clauses to modify the same;
- to direct parties to issue corrective advertisements;
- to recommend to the Central Government division of undertakings or severance of interconnection between undertakings if their working is prejudicial to public interest or has led or is leading to MTP or RTP.
The MRTP Commission can be approached with a complaint on restrictive or unfair trade practices by:
- an individual consumer;
- a registered association of consumers; and
- a trade association.
The Commission can be moved by an application from the Director General (DG) or by a reference by the Central or State Government. The law provides for suo motu action on the part of the Commission, if it receives information from any source or on its own knowledge.
The procedure followed by the Commission is that, on receipt of a complaint, the matter is in many cases referred to the DG for investigation and report. More often than not, the person complained against is called upon to give his/her comments on the complaints received. Experience shows that in a large number of cases the issue of letter of investigation or enquiry by the DG or the Commission results in the relief being provided to complainant. This has been noticed in cases relating to refunds in respect of repair or replacement of refrigerators, TV sets, replacement of defective parts during the warranty period and the like. Similarly, there have been cases of successful interventions relating to property disputes. The law provides for a temporary injunction against the continuance of alleged monopolistic, restrictive or unfair trade practices pending enquiry by the Commission.
A salutary provision in the Act is the power of the Commission to award compensation for loss or damage suffered by a consumer, trader, class of traders or government as a result of any monopolistic/restrictive/unfair trade practice indulged in by any undertaking or person.
The concentration of economic power may result from a merger, an amalgamation or take-over. The MRTP Act does not prohibit mergers, amalgamations or take-overs but seeks to ensure that the arrangement serves the public interest. Before the 1991 amendment, the Act frowned upon expansion of giant undertakings so as not to permit them to acquire power to put a stranglehold both on the market as well as on consumers and further industrial expansion of the country. After the 1991 amendment, the Act has been restructured and pre-entry restrictions with regard to prior approval of the Government for amalgamation, merger or take-over have been removed. But in relation to concentration of economic power, the law retains provisions relating to the power of the Government to direct division of an undertaking and severance of interconnection between undertakings if the working of an undertaking is prejudicial to public interest or is likely to lead to the adoption of any monopolistic or restrictive trade practices. While the power to conduct an enquiry in this regard is vested with the MRTP Commission, the order for division of undertaking or severance of interconnection can be passed only by the Government. Thus, the role of the Commission is advisory.
The Consumer Protection Act, 1986 (CPA) providing for the protection of interests of consumers has provisions for the establishment of consumer councils and other authorities for the settlement of consumer disputes and matters connected therewith. The consumers council essentially seeks to promote and protect the rights of consumers such as:
- the right to be protected against marketing of goods hazardous to life and property;
- the right to be informed about the quality, quantity, potency, purity, standard and price of goods for their protection against UTP;
- the right to be assured access to a variety of goods at competitive prices;
- the right to be heard and to be assured that consumers’ interests will receive due consideration in appropriate fora;
- the right to seek redress against UTP or unscrupulous exploitation of consumers; and
- the right to consumer education.
- Quasi-judicial machinery has been set up at the District, State and Central levels empowered to give relief to the consumers and to award compensation for loss or injury suffered by them. For non-compliance of the order given by the quasi-judicial body, the CPA provides for penalties. Thus the Act has two approaches, the first to provide consumer education and the other to provide for a simplified, inexpensive and speedy remedy for redress of grievances of consumers.
- The quasi-judicial bodies are empowered to direct the guilty party:
- to remove a defect in the goods in question;
- to replace the goods with new goods of similar description, free from any defect;
- to return to the complainant the price or charges paid by him/her; and
- to pay such amount as may be awarded as compensation for the loss or injury suffered by the consumer due to the negligence of the guilty party.
Both the MRTP Act and the Consumer Protection Act have similar provisions particularly in the areas of unfair trade practices. Where the area of jurisdiction overlaps, the complainant has the option to choose the appropriate fora for seeking redress of his/her grievances.
The objective of the MRTP Act and the Consumer Protection Act is to engender competition. The concept of public interest which includes consumer interest permeates the regulatory framework provided for the prohibition of monopolistic, restrictive and unfair trade practices in both the statutes.