MRTP ACT METAMORPHOSES INTO COMPETITION ACT
Dr. S CHAKRAVARTHY*
Prefatory
Since attaining Independence in 1947, India, for the better part of half a century thereafter, adopted and followed policies comprising what are known as “Command-and-Control” laws, rules, regulations and executive orders. The competition law of India, namely, the Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act, for brief) was one such. It was in 1991 that widespread economic reforms were undertaken and consequently the march from “Command-and-Control” economy to an economy based more on free market principles commenced its stride. As is true of many countries, economic liberalisation has taken root in India and the need for an effective competition regime has also been recognised. (For a history of evolution of competition policy in several countries, see Ewing, 2003).
In the context of the new economic policy paradigm, India has chosen to enact a new competition law called the Competition Act, 2002 (Act, for brief). The MRTP Act has metamorphosed into the new law, Competition Act, 2002. The new law is designed to repeal the extant MRTP Act. As of now, only a few provisions of the new law have been brought into force and the process of constituting the regulatory authority, namely, the Competition Commission of India under the new Act, is on. The remaining provisions of the new law will be brought into force in a phased manner. For the present, the outgoing law, MRTP Act, 1969 and the new law, Competition Act, 2002 are concurrently in force, though as mentioned above, only some provisions of the new law have been brought into force.
This paper, therefore, addresses both the enactments and also outlines the logic behind the metamorphosis.
Trigger Cause
Competition Law for India was triggered by Articles 38 and 39 of the Constitution of India. These Articles are a part of the Directive Principles of State Policy. Pegging on the Directive Principles, the first Indian competition law was enacted in 1969 and was christened the MONOPOLIES AND RESTRICTIVE TRADE PRACTICES ACT, 1969 (MRTP Act). Articles 38 and 39 of the Constitution of India mandate, inter alia, that the State shall strive to promote the welfare of the people by securing and protecting as effectively, as it may, a
social order in which justice – social, economic and political – shall inform all the institutions of the national life, and the State shall, in particular, direct its policy towards securing
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* Dr.S.Chakravarthy is a civil servant by profession and a Member of the Indian Bar. He was Member, Monopolies and Restrictive Trade Practices Commission and Member, High Level Committee on Competition Policy and Law, Dept. of Company Affairs, Govt. of India and also on the Committee to draft a new Competition Law for India. Till recently, he was Advisor/Consultant to Govt of India on Competition Policy and Law. The views expressed are his own and not those of the Commission, Committee or the Govt. He is presently Consultant on Competition Policy and Law.
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1. that the ownership and control of material resources of the community are so
distributed as best to subserve the common good; and
2. that the operation of the economic system does not result in the concentration of
wealth and means of production to the common detriment.
In line with the Antitrust legislation being an integral part of the economic life in many countries, India’s outgoing law, namely, the MRTP Act is regarded as the competition law of
India, because it defines a restrictive trade practice to mean a trade practice, which has, or may have the effect of preventing, distorting or restricting competition in any manner. But the MRTP Act, in comparison with competition laws of many countries, is inadequate for fostering competition in the market and trade and for reducing, if not eliminating, anti-competitive practices in the country’s domestic and international trade.
The MRTP Act drew heavily upon the laws embodied in the Sherman Act and the Clayton Act of the United States of America, the Monopolies and Restrictive Trade Practices (Inquiry and Control) Act, 1948, the Resale Prices Act, 1964 and the Restrictive Trade Practices Act, 1964 of the United Kingdom and also those enacted in Japan, Canada and Germany. The U.S. Federal Trade Commission Act, 1914 as amended in 1938 and the Combines Investigation Act, 1910 of Canada also influenced the drafting of the MRTP Act.
Premises on which the MRTP Act rests are unrestrained interaction of competitive forces, maximum material progress through rational allocation of economic resources, availability of goods and services of quality at reasonable prices and finally a just and fair deal to the consumers. An interesting feature of the statute is that it envelops within its ambit, fields of production and distribution of both goods and services.
Thrust Areas
Three areas informed till 1991 (when the MRTP Act was amended) the regulatory provisions of the MRTP Act, namely, concentration of economic power, competition law and consumer protection. A criticism is often voiced that the statute was designed to prohibit growth. This is fallacious and erroneous. The statute, till 1991 regulated growth but did not prohibit it. Even in its regulatory capacity, it controlled the growth only if it was detrimental to the common good. In terms of competition law and consumer protection, the objective of the MRTP Act is to curb Monopolistic, Restrictive and Unfair Trade Practices which disturb competition in the trade and industry and which adversely affect the consumer interest (Monopolistic, Restrictive and Unfair Trade Practices are described later in this paper). A parallel legislation known as the Consumer Protection Act, 1986 has also come into being, which prevails essentially in the realm of Unfair Trade Practices.
One could argue that the consumers need no special protection as they can be left to the market forces. But a perfectly competitive market is just an utopia and the 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. There has been a growing realisation for not depending on the old doctrine of Caveat Emptor – “let the buyer beware”. The consumer, therefore, needs and deserves legal protection against certain trade practices, business methods and unscrupulous forces.
In many countries and in particular developing countries like India, a large number of consumers are illiterate and ill-informed and possess limited purchasing power in an environment, where there is shortage of goods. 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 tends to their making wrong buying decisions. Transparent information is missing and needs to be a goal to be chased.
The regulatory provisions in the MRTP Act apply to almost every area of business – production, distribution, pricing, investment, purchasing, packaging, advertising, sales promotion, mergers, amalgamations and take over of undertakings (provisions relating to mergers, amalgamations and take-overs were deleted in the MRTP Act by the 1991 amendments to it). They seek to afford protection and support to consuming public by reducing if not eliminating from the market Monopolistic, Restrictive and Unfair Trade Practices. One of the main goals of the MRTP Act is to encourage fair play and fair deal in the market besides promoting healthy competition. Under the MRTP Act, a Regulatory Authority called the MRTP Commission (briefly, Commission) has been set up to deal with offences falling under the statute.
Objectives
The principal objectives sought to be achieved through the MRTP Act are:
i)prevention of concentration of economic power to the common detriment;
ii)control of monopolies;
iii)prohibition of Monopolistic Trade Practices (MTP);
iv)prohibition of Restrictive Trade Practices (RTP);
v)prohibition of Unfair Trade Practices (UTP).
Amendments In 1991 And Shift In Emphasis
The MRTP Act, 1969 was amended in 1991 as a part of the new economic reforms set in motion by the Government of that day. The amendments reset the objectives enshrined in the original statute of 1969. Out of the five objectives aforesaid in the previous paragraph, the first two have been de-emphasized, after the 1991 amendments to the MRTP Act. The emphasis has not only shifted to the three last mentioned objectives but they have been re-emphasised. In the context of the objective (ii) above, to the extent monopolies tend to bring about Monopolistic Trade Practices, the MRTP Act continues to exercise surveillance which existed prior to the 1991 amendments. This is because a Monopolistic Trade Practice is understood to be synonymous with anti-competitive practice. Anything, which distorts competition, can lead to a monopoly situation. Anything, which is likely to prevent or distort competition, is regulated by the statute. Tersely, the MRTP Act is designed against different aspects of market imperfections. For instance, before the 1991 amendments to the MRTP Act, a merger which increased the dominance of the combine or resulted in a large share in the market could be looked at in terms of the provisions thereof and the objectives governing them.
Monopoly is a concept of power which manifests itself in one’s power to:-
i)control production, supply, etc
ii)control prices
iii)prevent, reduce or eliminate competition
iv)limit technical development
v)retard capital investment
vi)impair the quality of goods.
The MRTP Act, before the 1991 amendments sought to curb such power arising out of a monopoly.
Prior to the 1991 amendments, the MRTP Act essentially was implemented in terms of regulating the growth of big size companies called the monopoly companies. In other words, there were pre-entry restrictions therein requiring undertakings and companies with assets of more than Rs.100 crores (about US $22 million) to seek approval of Government for setting up new undertakings, for expansion of existing undertakings, etc.
Major amendments were effected to the MRTP Act in 1991. Provisions relating to concentration of economic power and pre-entry restrictions with regard to prior approval of the Central Government for establishing a new undertaking, expanding an existing undertaking, amalgamations, mergers and take-overs of undertakings were all deleted from the statute through the amendments. The causal thinking in support of the 1991 amendments is contained in the Statement of Objects and Reasons appended to the 1991 Amendment Bill in the Parliament, extract in part of which, runs as follows:
“With the growing complexity of industrial structure and the need for achieving economies of scale for ensuring higher productivity and competitive advantage in the international market, the thrust of the industrial policy has shifted to controlling and regulating the monopolistic, restrictive and unfair trade practices rather than making it necessary for certain undertakings to obtain prior approval of the Central Government for expansion, establishment of new undertakings, merger, amalgamation, take over and appointment of Directors. It has been the experience of the Government that pre-entry restriction under the MRTP Act on the investment decision of the corporate sector has outlived its utility and has become a hindrance to the speedy implementation of industrial projects. By eliminating the requirement of time-consuming procedures and prior approval of the Government, it would be possible for all productive sections of the society to participate in efforts for maximisation of production. ………..
The criteria for determining dominance, ………… is proposed to be determined only on the basis of market share of 25% of the total goods produced, supplied, distributed or services rendered in India or substantial part thereof.”
With the restructuring of the MRTP Act through the 1991 amendments, the thrust thereof is on curbing Monopolistic, Restrictive and Unfair Trade Practices with a view to preserving competition in the economy and safeguarding the interest of consumers by providing them protection against false or misleading advertisements and/or deceptive trade practices. Size as a factor, to discourage concentration of economic power, has been, in a manner of speaking, given up.
Doctrine Guiding The Act
Behavioural and reformist doctrines inform the MRTP Act. In terms of the behavioural doctrine, the conduct of the entities, undertakings and bodies which indulge in trade practices in such a manner as to be detrimental to public interest is examined with reference to whether the said practices constitute any Monopolistic, Restrictive or Unfair Trade Practice. In terms of the reformist doctrine, the provisions of the MRTP Act provide that if the MRTP Commission, on enquiry comes to a conclusion that an errant undertaking has indulged either in Restrictive or Unfair Trade Practice, it can direct such undertakings to discontinue or not to repeat the undesirable trade practice. The MRTP Act also provides for the acceptance of an assurance from an errant undertaking that it has taken steps to ensure that prejudicial effect of trade practice no more exists. The veneer of the MRTP Act is essentially based on an advisory or reformist approach. There is no deterrence by punishment.
With this backdrop, some of the important provisions of the MRTP Act are listed in the narrative that follows, wherein the dimensions relating to Restrictive Trade Practices, Unfair Trade Practices, Monopolistic Trade Practices, Goods and Dominance are covered.
A Restrictive Trade Practice (RTP) 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 a 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 is regarded as Restrictive Trade Practice. Certain common types of Restrictive Trade Practices enumerated in the MRTP Act are:
i)Refusal to deal
ii)Tie-up sales
iii)Full line forcing
iv)Exclusive dealings
v)Price discrimination
vi)Re-sale price maintenance
vii)Area restriction
All Restrictive Trade Practices under the MRTP Act 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 Trace Practice to plead for gateways provided in the MRTP Act itself to avoid being indicted.
If the gateways are satisfactory to the 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. Furthermore, if a trade practice is expressly authorised by any law for the time being in force, the Commission is barred from passing any order against the charged party.
Prior to 1984, the MRTP Act contained no provisions for protection of consumers against false or misleading advertisements or other similar unfair trade practices and a need was felt to protect them from practices, resorted to by the trade and industry, to mislead or dupe them (Sachar Committee, 1978). To quote the Sachar Committee: “Advertisement and sales promotion have become well established modes of modern business techniques. That advertisement and representation to the consumers should not become deceptive has always been one of the points of conflicts between business and consumer”. The Sachar Committee therefore recommended that a separate Chapter should be added to the MRTP Act defining various Unfair Trade Practices so that the consumer, the manufacturer, the supplier, the trader and other persons in the market can conveniently identify the practices, which are prohibited. Essentially Unfair Trade Practices (UTP) falling under the following categories were introduced in 1984 in the MRTP Act :-
(i).Misleading advertisement and false representation.
(ii).Bargain sale, bait and switch selling.
(iii). Offering of gifts or prizes with the intention of not providing
them and conducting promotional contests.
(iv)Product safety standards.
(v)Hoarding or destruction of goods.
Making false or misleading representation of facts disparaging the goods, services or trade of another person is also a prohibited trade practice under the Indian law.
The Monopolistic Trade Practice (MTP) came into the statute by an amendment to the Act in 1984. An MTP is a trade practice which has or is likely to have the effect of: