This Article has been written by Abhinav Khadikar, from NMIMS Kirit P Mehta School of Law, Mumbai.

Introduction:

The primary competition law right now is governed by the Competition Act, 2002. Its purpose is to promote and sustain competition in the markets, ensure freedom of trade, and protect interests of consumers. This Act repealed and replaced the previous primary competition law named The Monopolies and Restrictive Trade Practices Act, 1969 (Hereinafter “MRTP” or “The Act”).

Its primary objective was to prevent the accumulation of economic power in the hands of few firms. It was considered that such an accumulation not only threatens growth in the economy but also threatens political liberty. If such an accumulation was accepted, then firms would have been capable of influencing government regulations, decisions, and would also be able to largely mould public views. This proved to be a threat that had to be countered. This article delves into the activities that were governed under MRTP and its scope.

Scope of MRTP:

The major scope of MRTP is to restrict concentration of economic powers to a common detriment or in simpler words, in the hands of very few firms, enterprises, or persons or associations thereof. Competition is not explicitly mentioned in the objects of the MRTP but the effect of the Act certainly promoted competition and wished to prevent and restrict anti-competitive activities and practices. It promoted competition to such an extent that if a firm somehow manages to create a monopoly, it would be considered detrimental to public interest. The Act attempted to fulfil its primary objective by restricting Monopolistic, restrictive, and unfair Trade Practices. However, as per section 3, the Act was not applicable on any undertaking owned or controlled by the government, government company, an industry managed by a person or body of persons authorised by the government, and a co-operative society.

It was also not applicable on any trade unions or association of workmen or employees or any financial institution or any undertaking owned or controlled by a corporation (which is not a company) established under any central, provincial, or state Act for which the shares held by a financial institution shall not be taken into account. There was no real application of the Act outside India as well. Considering liberalisation happened at the later stages of the governance of MRTP, it is not too surprising that the Act covered activities within India.

Monopolistic Trade Practices:

Defined under section 2(i) of the MRTP, a monopolistic trade practice is that trade practice that has or likely has the effect of

1. Unreasonably controlling price of goods or provision of services by limiting or controlling production, supply, or distribution of goods or provision of services;
2. Preventing or limiting competition by way of unfair methods or deceptive practices or unreasonably preventing competition in any case;
3. Limiting technical development or capital investment to the common detriment or allowing deterioration of quality of goods and services;
4. Unreasonably increasing cost of production of goods or rendering or provision or maintenance of services;
5. Unreasonably increasing sale price of goods or services or profits that may be derived by production, supply, or distribution of goods or rendering of services.

As per section 32 of the Act, every monopolistic trade practice is deemed prejudicial to public interest unless it is expressly authorised by law to be not be prejudicial to public interest, or the Central government deems such a trade practice necessary for defence purposes or security of state, for maintenance of essential goods and services, or to give effect to terms of agreement to which the central government is a party. Such trade practices are allowed through a written order. In the case of every other monopolistic trade practice, the central government may pass any order as it may deem fit to restrict and prevent such trade practices.

Restrictive Trade Practices:

Defined under section 2(o) of the Act, restrictive trade practice is any trade practice that has the effect or may have the effect of preventing or restricting competition or tends to obstruct the flow of capital or resources into the stream of production or manipulate prices or delivery of services or affect flow of goods or supplies in such a manner that imposes an unjustified cost or restrictions on the consumers. Section 33 of the Act lists certain categories. An agreement shall be deemed to be related to restrictive trade practice if it falls under one or more of the categories. No agreement falls under the section which is expressly authorised by any law in force or if it has been approved by the central government or if the government is a party to such agreement.

If the Monopolies and Restrictive Trade Practices Commission (Hereinafter “Commission”), finds that the restrictive trade practice is prejudicial to public interest, then as per section 37 of the Act, the commission may order the parties to discontinue from engaging in such practices or declare the agreement to be void or order modifications to the agreement. Such an order is not to be made if the trade practice is expressly authorised by any law in force or if the agreement relates to a buyer who buys goods for consumption and not for re-sale. A restrictive trade practice is always presumed to be prejudicial to public interest unless it falls under one or more of the eleven different circumstances mentioned in section 38 of the Act. It was clarified in the case of Re: Maegaware Computers that the burden of proving that the restrictive trade practice is not prejudicial to public interest lies on the respondent.

Per Se vs Rule of Reason:

These are rules that were used in case laws to determine whether an agreement is in contravention of the provisions or not. Both are essentially derived from the Sherman Anti-Trust Act, 1890, a legislation from the United States of America. First is the per se rule. It limits the scope of interpretation. Under this rule, if an agreement clearly falls under the specific clauses of the provisions, then it is a restrictive trade practice, period. No other facts or circumstances would be entertained. For a large part, it forces a literal interpretation of the provisions and the agreement. Under MRTP, the per se rule was used. In the case of Director-General (Investigation and Registration) vs Voltas, it was held that if an agreement falls within any of the categories mentioned in section 33(1) of the Act, then they are per se restricted trade practices.

The rule of reason approach encourages a broader and more purposive interpretation. It encourages an in-depth inquiry so much so that the burden of proving a restrictive trade practice would even fall on the plaintiff. It would require the commission to look in-depth into the facts and circumstances of each case. While the per se rule was expected to be followed during proceedings, there were a few instances where the judiciary was rather suggesting that rule of reason should be applied.

This rule was applied first in the TELCO case where the plaintiff had an agreement with dealers that the dealers would not be allowed to sell vehicles beyond their fixed allocated locations. Such an agreement would per se constitute a restrictive trade practice. However, the Supreme Court in this case held that a restrictive trade practice does not exist as the special facts and circumstances of the case show that the agreement has a potential to increase competition in the market of commercial vehicles. After this case and a few others, an amendment came in 1984 to the Act which forced the proceedings to work under per se rule. However, in the case of Voltas Ltd Bombay vs Union of India, it was held that if an agreement related to trade practice does not fall under the categories mentioned in section 33(1) of the Act, it can still be investigated by the commission to check whether it constitutes a restrictive trade practice under section 2(o) of the Act.

Unfair Trade Practices:

Through an amendment to the Act in 1984, the scope of the Act was widened to govern unfair trade practices. Under section 36A of MRTP, these are trade practices which promote the sale, use, supply of goods or provision of services through unfair methods or deceptive practices. These practices are mentioned under the same section and they are –

1. False or Misleading representations;
2. Permitting False or Misleading advertisements with no intention to offer the exact terms and conditions offered in the advertisements;
3. Permitting offerings of gift, prizes, or other items with no intention to provide them or if they are being provided on the impression that they are free of charge but in reality, they are being covered by the transaction as a whole or permitting the conduct of contests, lotteries, or games of chance or skill for promotion of sale or use of any product or business interest;
4. Sale of goods not in conformity with safety standards provided by the law;
5. Hoarding or destruction of goods or refusal to sell goods.

The commission has the power to inquire into matters of unfair trade practices under section 36B of the Act, and if the commission finds the trade practice to be prejudicial to public interest, an order shall be passed as per section 36D of the Act unless the trade practice is expressly authorised by any law at the time being in force.

The Horlicks Hidden Wealth Prize Offer case is important for determination of unfair trade practices. In this case, Horlicks had run a promotional scheme that consumers who buy Horlicks have the chance of winning exclusive prizes. The commission found this to be an unfair trade practice in 1989 as they held such a scheme to come under purview of lottery. They contended that such a scheme has been made solely to allure customers away from Bournvita. The matter was appealed in the Supreme Court eventually and in 1998 the Supreme Court declared that the scheme was not a lottery scheme. Reasoning given was that consumers are not entitled to a prize. It was held that an unfair trade practice only occurs if there is loss or injury to the consumer.

Conclusion:

The MRTP clearly had a lot of restrictions. These restrictions need not necessarily have the effect of posing a threat to other entities by way of restricting competition. It was more focused on the fact that there should not be an accumulation or concentration of economic power with few firms or entities. The Act was majorly functional at a time when India was economically rather closed off to the world. It was clear that the Act would be very ineffective post liberalisation. It was functional during a time when competition was low and the government had a mindset to force competition within the nation. Now, we live in such a competitive environment that forcing competition is not a priority. Preserving competition is the priority and the Act does serve as a solid foundation to the Competition Act, 2002. It can be said that the MRTP although defunct still plays a role in some way or other as a few provisions in competition Act are clearly derived from MRTP.

References:

• Akhileshwar Pathak, “Legal Responses to Economic Liberalization: The Case of Unfair Trade Practices” 29(03) Vikalpa 59-69 (2004).
• Director-General (Investigation and Registration) vs Voltas, 1994 79 CompCas 274.
• Hmm Ltd. vs Director General, AIR 1998 SC 2691.
• Jaivir Singh, “Monopolistic Trade Practices and Concentration of Economic Power: Some Conceptual Problems in MRTP Act” 35(50) Economic and Political Weekly 4437-4444 (2000).
• M/S Voltas Limited, Bombay vs Union Of India, 1995 AIR 1881.
• Narayana Rao Rampilla, “A Developing Judicial Perspective to India’s Monopolies and Restrictive Trade Practices Act of 1969” 34(03) The Antitrust Bulletin 655-682 (1989).
• Re: Maegaware Computers, 1994 79 CompCas 84.
• Sherman Anti-Trust Act, 1890 (United States of America)
• Tata Engineering and Locomotive Co. Ltd vs. Registrar of Restrictive Trade Practices Agreement, 1977 AIR 973.
• The Competition Act, 2002 (Act 12 of 2003).
• The Monopolies and Restrictive Trade Practices Act, 1969 (Act 54 of 1969).
• Yash Vyas, “The Constitutional Basis for Government Regulation of Concentration of Economic Power, Monopolies and Restrictive Trade Practices: The Indian Case” 25(01) Verfassung Und Recht in Übersee 37-66 (1992).
• Yash Vyas, “The Monopolies and Restricted Trade Practices Act and the Rule of Reason: A Comment on the Supreme Court Approach” 34(03) Journal of the Indian Law Institute 365-384 (1992).