Monopolistic and Restrictive Trade Practices ( MRTP Act 1969)

Monopolistic and Restrictive Trade Practices: The idea of consumer welfare serves as the foundation for competition rules. According to the consumer welfare criterion, while evaluating an alleged anti-competitive activity, competition regulators should take economic efficiency and total consumer welfare into account.

Therefore, to ensure a level playing field in the market, regulations should be implemented that govern how enterprises behave themselves. Therefore, the fundamental goal is competition based on merit rather than with the help of anti-competitive activity or agreements. Read this article to find out more.

Monopolistic and Restrictive Trade Practices Act

Background of Monopolistic and Restrictive Trade Practices

The principle law in India to deal with competition was the Monopolies and Restrictive Trade Practices Act, 1969.

● Adopted by Parliament on December 18, 1969

● Effective date: June 1, 1970

● As advised by the Dutt Committee

● Relevant to all of India, with the exception of Jammu and Kashmir

● changed significantly in 1982, 1984, 1985, and 1991.

MRTP Act

1969 saw the implementation of the Monopolistic and Restrictive Trade Practices Legislation (MRTP). The purpose of this law is to prevent the concentration of economic power in the hands of a small number of people through the operation of the economic system.

OBJECTIVES OF THE MRTP Act

● Prevention of concentration of economic power to common detriment

● control of monopolistic, unfair, and restrictive trade practices that are prejudicial to the public interest.

MRTP COMMISSION

● The Indian government established the MRTP Commission in compliance with the Act’s provisions. This commission was given the authority to look into unfair and restrictive commercial practices.

● The MRTP Act is a law, and the MRTP Commission is an enforcement body.

● The central government was given the authority to regulate the prohibited acts by the MRTP Act.

PROVISIONS OF THE MRTP ACT

Monopolistic Trade Practices (MTPs)

● Monopolistic trade practices are any actions that suggest abusing one’s position of authority to gain an unfair advantage in the production and distribution of goods and services.

● The goal of these tactics is to monopolize, destroy competition, and impose exorbitant prices.

Restrictive Trade Practices (RTPs)

● RTPs are actions that obstruct the market’s ability to transfer money or profits. Certain businesses typically limit production or manage delivery in order to manage the market’s supply of commodities and products. RTPs are discouraged and prevented from occurring by MRTP for the firms. 

Unfair Trade Practices (UTPs)

● Monopolistic trade practices are not the same as unfair trade practices. False representation and deceptive advertising of goods and services constitute unfair trade practices.

● It also involves misrepresenting second-hand goods as brand new and making false claims about the functionality, standard, style, quality, and other attributes of products and services.

Major Amendments

MRTP was successfully regulating the competition in the Indian market. However, by 1984, certain amendments were required to update the act as per the needs of society. Following are the major amendments made to the MRTP.

● 1984 Amendment

The Sachar Committee’s recommendations served as the foundation for the 1984 amendment. In order to enable effective action against unfair trade practices, the amendment included Section 36A of the Act, protecting final consumers from such practices. Therefore, the Act covered lawsuits against deceptive representations of goods, false ads, and false assurances.

● 1991 Amendment

This modification made it possible to apply the MRTP Act to government-owned businesses as well as the public sector. Following this change, the government’s specific clearances or permissions were no longer needed for the private companies operating in the market to carry out any corporate reconstruction. In light of the New Economic Policy, which paved the way for the opening of the Indian economy, this MRTPA amendment went into effect. Thus, the License Raj was lifted, which hindered the expansion of the Indian economy.

Note: Notably, the MRTP Act still had numerous loopholes that contributed to its repeal even after the aforementioned revisions were made to address its shortcomings.

Reasons for the Failure of MRTP

1. Excessive Govt. Control

Both large and small companies were subject to undue government influence under the MRTP Act. Obtaining government approval was a prerequisite for any corporate reorganization or takeover that the businesses had to follow. Because of these intricate processes, it was difficult for many businesses to thrive, which had an impact on end users.

2. Vague and Ambiguous Law

The phrase “restrictive trade practices” was defined in Section 2(o) of the MRTP Act to include any actions that impeded, distorted, or restricted competition. The several types of anti-competitive behavior that would be classified as offenses under the Act were not specifically stated in any section. Anti-competitive behaviors like price-fixing, predatory pricing, abuse of dominance, bid-rigging, cartels, and collusion were not defined.

3. Inefficiency of the MRTP Commission

• The MRTP Commission was set up to regulate anti-competitive practices in the country. However, even though MRTPC had both administrative and judicial functions, the members of the commission were appointed by the government itself, which cast doubt on the independence of its functioning. Moreover, the Commission was not able to perform its functions efficiently and effectively due to
• Unnecessary delays in replacing the members of the Commission.
• The unwillingness of the government to appoint members promptly or to open new branch offices

4. A Policy of Voluntary Disclosure

Lacking an institution capable of continuously monitoring market control and corporate structuring, the MRTPA apparatus heavily relied on the voluntary disclosures provided by businesses. As a result, the firms were given a great deal of latitude, which occasionally resulted in late or nonexistent registration of changes to their organizational structure. By doing this, the business was able to avoid falling under the Act’s control.

5. Export promotion at all costs.

According to Section 38 of the MRTP Act, a project enterprise with a high potential for exports in the future would have all of its Act applications approved without question, regardless of any potential monopolistic or anti-competitive implications. Because it placed an undue emphasis on exports, it disregarded any potential negative aspects of a project. It frequently resulted in higher expenses than the foreign exchange received from exports.

6. Per se Rule instead of Rule of Reason

The MRTP Act included up to 14 offenses that were deemed unlawful by definition. There was no application of the Rule of Reason notion. Even though the Rule of Reason was acknowledged by the Supreme Court in the Telco case, the regrettable 1984 Amendment, which required that all specified RTPs under Section 33 be deemed illegal by definition, again hampered this progress.

7. Dominance per se

Regardless of whether a party has misused their position, dominance was deemed bad under the MRTP Act. Dominance, or the endeavor to have 25% or more control over the market share of goods or services, was calculated mathematically. The catch was that a company was not regarded as dominant if it attained 20% or 23% of the market share at a specific point in time.

MRTP ACT Replaced By Competition ACT

A committee on “Competition Policy and Law” was established by the Indian government in 1999, and Sri SVS Raghavan served as its chairman.

This committee turned in its report in 2009. As a result, the Competition Act of 2002 was drafted and approved based on the committee’s recommendations.

All of India is covered under the Competition Act, with the exception of Jammu and Kashmir.

Current Status

Since the Competition Act of 2002 took effect on September 1, 2009, this statute has been abolished and is no longer in effect in India. The MRTP commission was consequently taken over by the Competition Commission of India.

Conclusion

A fresh, updated competition law policy was required after problems with the MRTP Act of 1969 were discovered. But there was disagreement about whether the MRTP Act needed to be changed or if a whole new law needed to be drafted. This prompted the formation of numerous committees. Of all the committees, the one headed by S.V.S. Raghavan is the most important.

FAQ’s on Monopolistic and Restrictive Trade Practices

1. What was the reason for the failure of the MRTP Act?

Due to the inherent non-dynamic nature and vagueness of these provisions, coupled with the efflux of time and globalization, privatization, etc., the need of the hour was better, more suitable legislation so as to cater to an ever-changing economic and market scenario.

2. What are the loopholes in the MRTP Act?

Claims against fake and misleading advertisements, wrong representations of goods, and false guarantees came under this Act. 1991 Amendment This amendment permitted the MRTP Act to be extended to the public sector and government-owned companies.

3. What are the objectives of the MRTP Act?

The objective of the MRTP Act and the Consumer Protection Act is to engender competition. The concept of public interest, which includes consumer interest, permeates the regulatory framework provided for the prohibition of monopolistic, restrictive, and unfair trade practices in both statutes.