Friday, August 10, 2012

Business Environment: MRTP Act

The monopolies and Restrictive Trade Practices Act, 1969, brought into force from Ist June 1970, was a very controversial piece of legislation. The principal objectives of the MRTP Act which extends to the whole of India except to the state of Jammu and Kashmir, viz.:
a)      Prevention of concentration of economic power to the common detriment.
b)      Control of monopolistic, restrictive and unfair trade practices which are prejudicial to public interest.
The MRTP Act was significantly amended in 1982, 1984, 1985 and 1991. After the amendments the first objective has become irrelevant as the relevant provisions to achieve the objective have been deleted. The objectives now are:
a)      Controlling monopolistic trade practices.
b)      Regulating restrictive and unfair trade practices.

Monopolistic Trade Practices (MTP’S):
A monopolistic trade practice is essentially a trade practice which represents the abuse of the market power in the production or marketing of goods, or in the provision of services, by charging unreasonably high prices, preventing or reducing competition, limiting technical development, deteriorating product quality, or by adopting unfair or deceptive practices. Two tests will determine whether a trade practice is an MTP or not:
i)        abuse of market power, and
ii)       Unreasonableness in any practice.
Thus, the following are MTPs:
1.       Maintaining the prices of goods or charges for any services at an unreasonable level.
2.       Limiting technical development or capital investment to the common detriment.
3.       Unreasonably preventing or lessening competition.
4.       Allowing quality of goods produced, supplied or distributed or any service rendered to deteriorate.
5.       Increasing unreasonably the cost of production of any goods or charges for provision or maintenance of services.
6.       Increasing unreasonably the selling price of goods, or charges at which the services may be provided.
7.       Increasing unreasonably the profits that are derived from the production, supply or distribution of any goods or the provision of any services.
8.       Preventing or lessening competition in the production, supply or distribution of any goods or in the provision or maintenance of any services by adopting unfair methods of unfair practices.

Restrictive Trade Practices (RTP):
A trade practice which restricts or reduces competition may be termed as restrictive trade practice. The following are the RTPs as described by section 33(1) of the MRTP Act:
(a) Refusal to deal with persons or classes of persons: Any agreement which restricts or it likely to restrict by any methods, the persons or classes of persons to whom goods are sold or from whom goods are bought.
(b) Tie-in sales or full line forcing: Any agreement requiring purchaser of goods, as a condition of such purchase, to purchase some other goods.
(c) Exclusive dealing agreement: Any agreement restricting in any manner the purchaser in the course of his trade from acquiring or otherwise dealing in any goods other than those of seller or any other goods.
(d) Collective price fixation and tendering: Any agreement to purchase or sell goods or to tender for the sale or purchase of goods only at prices or terms and conditions agreed upon between the sellers or purchaser.
(e) Discriminatory Dealings : Any agreement to grant or allow concession or benefits, including allowances, discounts, rebate or credit, in connection with or by reason of dealings.
(f) Re-sale price maintenance: Any agreement to sell goods on condition that the prices to be charged on resale by the purchaser shall be the prices stipulated by the seller unless it is clearly stated that prices lower than those prices may be charged.
(g) Restriction on output or supply of goods: Exclusive distributorship, territorial restriction and market sharing.
(h) Control of manufacturing process.
(i) Price control arrangements.
(j) Governmental recognition of practice as restriction.
(k) Residual restriction trade practices: Any agreement to enforce the carrying out of any such agreement as is referred to in the foregoing classes.

Differences between MTPs and RTPs
1. Market power is sought to be misused.  Stress is on abusing market power.
1. Competition is sought to be curbed. Stress is on preventing competition from its free play.

2. Commission can conduct enquiry on either reference from the Central Government, or On its own knowledge or information.
2. Commission can conduct enquiry on any of five bases :
a)         a complaint from 25 or more consumers or dealers,
b)         reference from Central Government,
c)          reference from the State Government,
d)         the application of the Director General or
e)         On its own knowledge of information.
3. Commission’s role is advisory. It can only conduct enquiry.
3. Commission has the power of passing final order which is subject to appeal only to Supreme Court.

4. Commission submits report about the findings to the Central Government. The power of making final order rests with the Central Government.
4. Commission itself can pass final order after enquiry.
5. Agreements relating to MTPs need not be registered.
5. All agreements relating to specified restrictive trade practices are required to be furnished for registration to the Director-General.
6. Consequences of indulging in an MTP are more serious. Apart from the order to prohibit the person concerned from indulging in an MTP the Central Govt is empowered to pass orders to remedy or prevent any mischief resulting from the practice.
6. Consequences of indulging in an RTP are not very serious. A cease and desist order is passed and he relevant clauses of the RTP agreement are declared void.


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