MONOPOLIES ND RESTRICTIVE TRADE PRACTICES

In the pre-1991 period the declared policy of the government was to curb and
restrict the growth of monopoly power in the country for this purpose, the
government imposed restrictions on the entry of large business houses in a
number of industries, set up a large number of industries in the public sector,
and undertook various measure s to encourage small and medium industries. The
most important in this phase was passing of the MRTP Act (Monopolies and
Restrictive Trade Practices Act) in 1969 and the setting up of the MRTP
Commission in 1970. Since 1991, the focus has shifted from controlling
monopolies to promoting competition.

Objective

The Monopolies and Restrictive Trade Practices were adopted by the government
in 1969 and the MRTP Commission was set up in 1970.
The Act extended to the whole of India excepting Jammu and Kashmir.
It sought to achieve the following principal objectives:

1. Prevention of concentration of economic power to the common detriment,

control of monopolies, and
2. Prohibition of monopolistic and restrictive and unfair trade practices.

Inter Connected and Dominant Undertaking

In 1977, the government appointed the Sa char Committee to review the working
of MRTP and make recommendations.
The Committee made a number of recommendations and on their basis, the
government introduced amendments in the Act in 1980 and 1984.
The MRTP Act covered two types of undertakings viz., national monopolies
and product monopolies. National monopolies were covered by section 20(a)
of the Act and were either single large undert akings or groups of inter-connected
undertakings which had assets of at least Rs. 100crore (prior to 1985, this limit
was 20crore). Product monopolies covered under Section 20(b) and called
Dominant undertakings were those which controlled at least one-fourth of
production or market of a product and had assets of at least Rs. 3crore
(earlier this limit was Rs.1crore)
Inter Connected Undertaking

The definition of inter-connected undertakings was flawed and enabled

many companies which were under the shadow of the same industrial house or
the same corporate decision-making authority to escape from the clutches of the
Act. Section 2(g) of the MRTP Act had defined inter-connected undertakings as
two or more undertakings which are inter-connected with each other in any of
the following ways:

1. If one owns or controls the other.

2. Where the undertakings are owned by firms, if such firms have one or more
common partners.

3. Where the undertakings are owned by the bodies corporate :

(a) if one body corporate manages the other body corporate, or
(b) if one body corporate is the subsidiary of the other body corporate,
(c)If the bodies corporate are under the same management,
(d) if one body corporate exercise control over the other body corporate in
any other manner;

4. Where one undertaking is owned by a body corporate and the other is owned
by a firm, if one or more partners of the firm may hold, directly
or indirectly, not less than 50% of the shares whether as directors or
otherwise, over the body corporate;

5. If one is owned by a body corporate and the other is owned by a firm

having bodies corporate as its partners, if such bodies corporate are under
the same management;

6. If the undertakings are owned or controlled by the same group; and

7. If one is connected with the other, or through any number of undertakings

which are inter-connected within the meaning of the one or more of the
foregoing sub-clauses.

B y the end of March 1990, 1,854 undertakings were registered under the
MRTP Act. Of these 1,787 belonged to large industrial houses and the
remaining 67 were dominant undertakings.The New Industrial Policy, 1991
has now scrapped the assets limit for MRTP companies. This means doing
away with the requirement of prior approval from Central Government for
 establishing new undertakings, expansions, mergers, amalgamations and
take over sand appointment of directors.

PURVIEW OF MRTP ACT

A large number of agreements were specified in the MRTP Act which fell under
its purview. Each one of these was required to be duly registered with the
Registrar of Restrictive Trade Practices including the names of parties to the
agreement. Registered undertakings were subject to the following control on
their industrial activities:

1. If it was proposed to expand substantially the activities of the undertaking

by issuing fresh capital pr by installation of new machinery or in any
manner, notice to the Central Government was required to be given and
approval taken (Section 21)
2. If it was proposed to establish a new undertaking the prior permission of
the Central Government was required to be obtained (Section 22); and3. If
it was proposed to acquire or merge or amalgamate with another
undertaking the sanction of the Central Government was
required to be taken (Section 23).

Monopolistic Trade Practices

Sections 31 and 32 of the MRTP Act relate to monopolistic trade practices.

Monopolistic trade practice means a trade practice which has, or is likely to
have, the effect of

1. Maintaining the price of goods or charges for the services at an

unreasonable level by limiting , reducing or otherwise controlling,
production, supply or distribution of goods of any description or supply of
any services or in any other manner;
2. Unreasonably preventing or lessening competition in the production,
supply or distribution of any of goods produced, supplied or distributed or
any services rendered in India.
3. Limiting technical development or capital investment to the common
detriment or allowing the quality or maintenance, of any services.
4. Increasing unreasonably-(a) the cost of production of any goods; or (b)
charges for the provision, or maintenance, of any services;
5. Increasing unreasonably-(a) the prices at which goods are or may be, sold
or resold, or the charges at which the services are, or may be, provided;
(b) the profits which are, or maybe derived by the production, supply or
distribution of any goods or by the provision of any services.
6. 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.

Restrictive Trade Practices

According to the MRTP Act, a restrictive trade practice means a trade

practice which has, or may have the effect of preventing, distorting or
restricting competition in any manner and in particular:

1. Which tends to obstruct the flow of capital or resources into the stream
of production, or
2. Which tends to bring about manipulation of prices or conditions of
delivery or to affect the flow of supplies in the market relating to
goods or services in such manner as to impose on the consumers
unjustified costs or restrictions. A trade practice which has or may
have the effect of preventing, distorting or restricting competition in
any manner, is a restrictive trade practice.

Unfair trade practice

Unfair trade practice means a trade practice which, for the purpose of
promoting the sale, use or supply of any goods or for the provision of
any services, adopts one or more of the following practices and thereby
causes loss or injury to the customers-

1. Making false representations and misleading advertisements

regarding the goods or services.

2. Publications of any advertisement for the sale or supply at a bargain

price, of goods or services that are not intended to be offered for
sale or supply at the bargain price.

3. Offering of gifts or prizes or other items with the intention of not

providing them as offered or creating the impression that something
 is being given free of charge whereas it is fully or partly covered in
the cost itself; and/or the conduct of any contest, lottery, game of
chance or skill for the promoting of the product.

4. Selling or supplying sub-standard, unsafe or hazardous products.

5. Hoarding, destroying or refusing to sell in order to push up the price

level.

Competition Act, 2002

With the economic reforms program in 1991, MRTP Act lost its
relevance in the new liberalized and global competitive scenario.
There was a shift of focus from curbing monopolies to promoting
competition.
The government thus appointed Raghavan Committee examine the
whole issue accordingly, the government decided to enact a law on
competition. Competition bill, 2001was introduced in Parliament and
passed in December 2002. This Act is called Competition Act, 2002.

It has been enacted to provide for the establishment of a Commission

to prevent practices having adverse effect on competition, to promote
and sustain competition in market, to protect the interest of consumers
at large and to ensure freedom of trade carried on by other participants
in markets in India, and for matters connected with or incidental
thereto Competition Act, 2002, is designed for the following purposes:

1. Prohibition of anti-competitive agreements;

2. Prohibition of abuse of dominant position; and
3. Regulation of combinations