Restrictive Trade Practices in India

Restrictive Trade Practices

Raj Dhakan

• Introduction:

Before the liberalization of India in 1971, we had ‘license Raj’ in India which gave exclusive trading and business rights to some companies, mostly the richer ones who could afford buying the license and then doing the business. But after the oil disaster of OPEC and increasing debt of Indian economy, the government abolished the ‘license Raj’ and liberalized India, meaning the market was open for everyone to participate creating a healthy competition.

        Since the market is now open for healthy competition, government had to take steps to regulate the market for protecting the interests of the minors and preventing the big players from dominating the market on the basis of their position. Hence, on the basis of recommendation of Dutt Committee, Monopolistic and Restrictive Trade Practices Act (MRTP Act) was enacted in 1969 to regulate the concentration of power in hands of rich. The act prohibited all the practices which were monopolistic in nature and trade practice which would harm the competition. It is applicable to entire India except the state of J&K. The objective of this act was to check that the economic and political environment of India doesn’t concentrate the power in the hands of rich and result in monopolistic practices. Let us look what they actually mean:

Monopolistic Trade Practices: In such practices the powerful use their power to abuse the market.

• They try to eliminate competition from the market.
• They charge unreasonably high prices and take the advantage of monopoly.
• They deteriorate the product quality, try to limit technical development and prevent competition.

Unfair Trade Practices: These practices would be of the following type:

• Misleading advertisement of goods and services which leads to false representation.
• Declaring second hand goods as brand new ones.
• Wrong representation of usefulness, need, quality, standard, style etc.
• Claiming the price of goods and services falsely.
• Providing false facts about sponsorship, affiliation etc. of goods and services.
• Providing false guarantee and warranty.

Restrictive Trade Practice: Restrictive Trade Practices are the ones in which the traders tend to enter into activities which block the flow of capital into production, help them gain power and maximize their profits. They may also create conditions which affect flow of supplies and leads to unjustified costs.

The MRTP act was limited only to the problems falling under the above definitions. Given the fact that the world economy and trading norms have gone under vast changes, the MRTP act fell short of addressing the issues and hence Government constituted a High Level Committee on Competition Policy and Law under the Chairmanship of Mr. S.V.S. Raghavan, to propose a legislative framework which would not only regulate competition but also regulate mergers and demergers taking place between and within companies. The Committee submitted its report on 22nd May 2000. The Competition Bill was introduced into the parliament after a review by the Government and the taking into consideration the suggestions given by various committees and the public. The 13th President of India gave assent to the bill and it became an Act 13th January 2003. All the sections of the Act have already come into force by virtue of separate Government notifications. This act is applicable and enforceable across entire India except the state of J&K.

The focus of Competition Law is towards the following areas:

• Under the act any and all the agreements which are found to be anti-competitive in nature, meaning tie in arrangements, excusive trade etc. are declared void.
• Prohibition of abuse of dominant position.
• Adverse effect on competition in India caused or likely to be caused due to combination of regulations are also declared as void.

• Anti-Competitive Agreements:

After going through the above definitions, I start with Anti-Competitive agreements. While doing a business in India, if you enter into any agreements within India which have Appreciable Adverse Effect on Competition (AAEC) then such agreements are declared as void by the Competition Commission of India (CCI). However, agreements entered outside India which have potential chances of AAEC may also be enquired by CCI. CCI also considers the IPR act and restrictions imposed by the owner of the intellectual property.

Under section 3(1) of the Act a general prohibition is implemented on the following to enter into agreements which causes or is likely to cause an AAEC in India:

1. Between an Enterprise and an enterprise;
2. Between an Enterprise and an association of enterprises;
3. Between Two associations of enterprises;
4. Between Two persons;
5. Between a Person and an association of some persons;
6. Between two association of persons;
7. Between a Person and an trading enterprise;
8. Between a Person and an association of an enterprise;
9. Association of persons and enterprises;
10. Association of persons and association of enterprises

If it is found that an agreement entered by any of the above would be declared as void under the Act if it is found that they have AAEC in India. While deciding so, each agreement would be evaluated on the basis of rule of reason on a case to case basis. The discretion that whether the agreement is anti-competitive or not depends on the extent of AAEC of that agreement in India.

Under Section 3(3) provides it is stated that an agreement would have AAEC if it has a practice that is carried on, or a decision that has been taken, between any of the parties mentioned above, including cartels, engaged in identical or similar trade of goods or provision of services, that can either:

1. Determining the purchase or sale prices of goods and services directly or indirectly;
2. Trying to limit or control production or supply or markets or technical development, or investment or provision of services;
3. Sharing the market or sharing the source of production or provision of any of the services by allocation of geographical area of market, or by the type of goods or services, or the number of customers in the market or any other similar way possible;
4. Results in the process of bid rigging or collusive bidding directly or indirectly.

However, This section provision of exceptions to the joint ventures entered into by any of the above mentioned parties if it results into increasing the efficiency of production, supply, distribution, storage, acquisition or control of goods or provisions of services. For horizontal agreements the section 3(3) cannot be invoked independently and has to be mandatorily. For vertical agreements the invoked along with section 3(1). For vertical agreements section 3(4) has to be invoked along with section 3(1). Vertical agreements are the agreements done between parties at different stages of the business chain. AAEC is evaluated on the basis of the rule of reason the check the impact. In order to check whether an agreement is falling under section 3(4) along with the section 3(1) of the Act, the following key pointers of section 3(4) need to be satisfied: