An Outline on Monopolistic and Restrictive Trade Practices Act, 1969

Article submitted by Vahini, SASTRA Deemed to be University

Introduction:

The Act received presidential assent on December 27th, 1969 and came into force on 1st June, 1970. The sole purpose of the law was to achieve the highest possible production with least damage to people at large while securing maximum benefit. The Act was enacted to provide for the control of monopolies, to prohibit monopolistic, restrictive trade practices, and most importantly to ensure that concentration of economic power with a set of individuals or businessmen. . The act was to prohibit and restrict the unfair trade practices. The Act extended throughout India except for Jammu and Kashmir.

The Competition commission replaced MRTP commission of India. The act is not applicable unless the central government otherwise directs. This Act shall not apply to workers union that are formed for their protection, any industry taken over by persons under power of central government, companies owned by cooperative societies.

Background of MRTP Act:

The government appointed few committees that aimed at formulating mechanism to check the concentration of power in few hands. These committees helped in shaping the MRTP Act of 1969.

The Hazari Committee of 1951, was formulated to study the licensing procedure under Industrial Policy under the chairmanship of Mr. Hazari. The committee reported that many businesses have succeeded in foiling the regulations to meet their personal interests.

The Subimal Dutt Committee, was formed to study the pattern work of various businesses and the report of the company found that around 56% of the economy was controlled by 73 business houses. Thus, leading to the introduction of MRTP Bill.

The Mahanbolis Committee: This committee like other committees found a concentration of wealth and power in the hands of a few business entities. Also, the committee observed that the economic model was planned to support only those business entities.

The Monopolies Inquiry Commission,1965: The committee found a high concentration of power in private industries.. There were no laws and regulations to govern the prevailing market. Thus, monopolistic and restrictive trade practices bill was drafted by the MIC. This bill gave rise to the MRTP Act of 1969.

Provisions under MRTP Act:

Monopolistic trade practice act:

The act defines monopolistic trade as“such practices indicate misuse of one’s power to abuse the market in terms of production and sale of goods and services. The monopolistic trade practicing firms eliminate the competition from the market and take advantage of their monopoly(the exclusive possession or control of the supply of or trade in a commodity or service) and charge high prices. These firms then show decline in the product quality, prevent competition and adopt unfair trade practices.

Unfair Trade practices:

Unfair trade practices as per the act is defined as false representation and misleading advertisement of goods and services, false representation of second hand goods to be new, false claims on the description of products such as quality, price, standard etc.

Restrictive Trade practices:

The traders, in order to maximize their profit and gain power in the market, indulge in activities that tend to block the flow of capital. Also, they impose conditions of delivery that affect the flow of supplies leading to unjustifiable cost.

Monopolistic and Restrictive Trade and Practices Company:

The firms with assets of 25 crore or more were required take permission from the government of India and they were the MRTP companies. The upper limit of 25 crore was the MRTP limit and in 1980, it was relaxed to 50 Crore. In 1991, it was further relaxed to companies with upper limit of 100 Crore. The current status includes only those companies having more than 25% market share.

MRTP Commission:

Monopolies and Restrictive Trade Practices Commission was set up under section 5 of the act. An organ of Department of company Affairs, Ministry of Company Affairs. It was a quasi-judicial body. The major function of the commission is to enquire and take appropriate action in matters of unfair trade and restrictive practices. As stated in section 12 of MRTP Act,1969, the commission is granted certain powers which are as follows:

• An undertaking to discontinue the trade practices;

• To grant temporary injunction restraining an undertaking from discontinuing any trade practice;

• To award compensation:

• To direct parties to issue corrective advertisement;

• To pass a cease and decease order.

Amendments to the MRTP ACT:

i) 1984 Amendment:

The Act which was enacted in 1970 was successfully regulating the competition in the Indian market. But in 1984, certain amendments were made to the act according to the change in the market. The report recommended that a separate chapter was required to be added in the act which will provide the essentials in the interest of consumers. The recommendations for the amendment was by the Sachar Committee. Section 36A was added to the MRTP Act which provided to protect the consumer against unfair trade practices and provided protection for the same. Advertisements and representations displayed to the consumers should not be deceptive but must be Transparent.

(i) 1991 Amendment:

This act was extended to the public sector and the government companies also. Post the amendment, the private companies no longer required any special approvals or permission from the government before carrying out any business. This act came into light after the new economic policy which lead to the opening of the Indian Economy. The Industrial policy of

July 24th, 1991 brought a drastic change to the MRTP Act. License Raj was abolished thereon. Provisions pertaining to the concentration of economic power which included the investment limits were repealed. The provisions of the MRTP Act created a lot of negative impact on the competition. But the act ceased to be in force with effect from September 1, 2009, and was replaced by competition act

Reasons that led to failure of the Act:

Excessive government control on small and big businesses. Government approval was necessary for every enterprise before carrying out any activity. But these complex procedures made it difficult for the enterprises to survive. Delays in replacing members of the commission and unwillingness of government to appoint new members were the main reasons for inefficient functioning.

The laws under the MRTP Act were vague and ambiguous, Sec2(o) of the act defined restrictive trade practices but there was no provision defining the term anti-competitive practices that would amount to offence under the act. This section was interpreted by different courts in different ways, and therefore lost its essence.

Post the liberalisation of the Indian economy, there was a need to remove the entry barriers and other restraints related to setting up of large-scale foreign enterprises in India. The MRTP Act acted as a barrier to the entry of such foreign enterprises and disturbed the healthy competition among different business entities in the Indian market. The Act was applicable only inside the territory of India, but not applicable to even undertakings outside India even if their anti-competitive conduct had a detrimental to the Indian market, unless one party had Indian Origin. The MRTP Act was incompetent when it came to activities such as international cartels.

There were no penalties charged for the offences committed. Section 12 of the Act provided for the powers and orders which the commission could grant, but the commission did not have powers to impose strict penalties or fines, it could only issue cease or desist orders.

Conclusion:

It cannot be concluded that the act failed completely, it was successful to a great extent. However, due to scarcity of resources, undefined procedures and vague laws, the Act was not efficient. The MRTP Act reduced the ability of companies to grow and blunted global competitiveness. Therefore, the Act was removed from being in force, and it was replaced with the Competition Act of 2002.