Monopolies and Restrictive Trade Practices Act, 1970

The British East India Company ruled India for almost 200 years. They exploited India’s resources for their own selfish purposes and ruined the indigenous industries prevailing in India at that point of time – handicrafts, etc. Prior to Independence, there was no competition regime existing in India. There were only policies and resolutions made by the government that aimed at just and equitable distribution of resources[1]. However, the World Wars that took place led to the initial industrialization of the Indian economy. Although India did not actively participate in the wars it was the major source for the supply of arms and ammunition to the British army. This led to the formation of large Business Houses – Tata’s, Birla’s, etc. Initially this was seen as a positive sign for the blooming Indian economy[2].

Post Independence, India adopted a centralized planning system – 5 year plans that laid down how the resources of the country were to be used in the coming 5 years. During the initial 5 year plans, the primary focus was on achieving the Industrial and Economic development. In 1956, Industrial Policy Resolution was passed wherein all the industries of the country were classified into 3 categories – Schedule A; Schedule B and Schedule C industries. The government was primarily responsible for the pattern of industrial development. Most of the laws and policies that were passed during that time were based on the Principle of Command-and-Control[3].

There was high scale of government intervention in the affairs of the private industries and businesses. The thrust was to promote the public sector of the county which only could lead to the growth of the economy. This era is also termed by many as the period of License Raj wherein, the Private Industries were required to take approval licenses from the government in order to function; there were high tariffs and quotas imposed on the import of goods[4].

The government used to support the Big Business Houses as they largely contributed to the growth of the economy. For them, obtaining licenses and permissions became a cakewalk. Soon it led to concentration of economic power in the hands of few. These monopolistic industrialists started indulging anti-competitive activities which were detrimental to the general public interest. It was also against the sacred principles that governed the formation of the Indian Constitution, the bible of the Independent India[5].

This scenario ultimately led to the formation of the Monopolies and Restrictive Trade Practices Act, 1969 [MRTP, Act].

Constitutional Background

The introduction of Competition Law in India has been inspired by the Directive Principles of State Policy [DPSPs] that form the Part IV of the Indian Constitution. Articles 38 and 39 of the Constitution, inter alia state that the State shall strive to promote the welfare of its people and shall secure social, economic and political justice for its people. The state shall ensure that –

1. The nation’s resources are distributed judicially and effectively in a manner that best serves the interest of the people.
2. The operation of economic system should not result in the concentration of wealth in the hands of the few, leading to the common detriment.[6]

Objective of this Project

This research article aims at the critical analysis of the MRTP, Act from various aspects. The article studies the performance and the reasons for its failure which ultimately led to the formation of Competition Act, 2002. The researcher has also taken the help of various case laws to chart down the loopholes that emerged in the MRTP, Act which made the legislation redundant in the current Indian scenario.

Overview of MRTP, Act, 1969

During the reign of Indira Gandhi, there was a reign of socialism that ran through the country. Big Businesses began to be treated with suspicion. The government therefore appointed a series of committees all aimed at formulating a mechanism to check the concentration of power in the hands of few[7]. Let us take the brief background of committees that helped in shaping the MRTP Act, 1969 –

1. Hazari Committee (1951) – This committee was appointed under the Chairmanship of Mr. Hazari to study the licensing procedure under the Industrial Policy. In its report, the committee found that Big Businessmen have succeeded in thwarting the Industrial Policy regulations to meet their own selfish interests. Further, the States have become biased in granting Industrial Licenses to Big Business Houses.[8]
2. Subimal Dutt Committee – This committee was appointed to study the institutional design and the pattern of work of various Business Houses. The committee in its report found that 73 business houses were controlling around 56% of the economy; it therefore suggested introduction of MRTP Bill.[9]
3. Mahanlobis Committeeon the Distribution of Income and Levels of Living (1964) – This committee headed by PC Mahanlobis also found concentration of wealth and power in the hands of few wealthy entrepreneurs. It was further observed that the economic model of the country was planned in such a manner that only supported the wealthy few and the same should be reformed.[10]
4. Monopolies Inquiry Commission [MIC] (1965) – This committee was headed by Justice K.C Das Gupta. It found that there was high concentration of power in private hands and the industrial licensing policy as well as IPR was not effective in addressing the same. Moreover, there was also not any law to govern and regulate the irregularities that were prevailing in the market. MIC therefore drafted a bill to curb the monopolistic and restrictive trade practices. This Bill later became the MRTP Act, 1969.[11]

The new MRTP Act was greatly influenced by its foreign counterparts such as Sherman Act and Clayton Act of USA, the MRTP (Inquiry and Control) Act, 1948 and the Resale Prices Act, 1964 of the UK, etc. Following are some salient features of MRTP Act, 1969.

Salient features of MRTP, Act, 1969

As has been explained earlier, this research is aimed at the critical analysis of the MRTP Act, 1969. However, we cannot correctly analyze a particular legislation without understanding the principles that run at its core. Therefore it is important here to analyze in brief, the salient features of the Act.

Primary Aim

MRTP Act came into force on 1 June 1970. The law was enacted with the sole purpose of –

“Achieving the highest possible production with least damage to people at large while securing maximum benefit”[12]

Concepts Addressed under the Act

It is important to first understand the salient features that govern the Act in order to truly understand the scope of their applicability and the practical difficulties that arose in their implementation. Following are the concepts addressed under the Act –

• Command and Control Approach – The Act made it mandatory for enterprises having assets exceeding Rs. 20 crores to take approval of the Central Government before any kind of corporate restructuring or takeover. The criterion for identifying the dominant undertakings was also fixed. Enterprises having assets of more than Rs. 1 crore were automatically considered as dominant.[13]
• Monopolistic Trade Practices – MTPs as covered under the Chapter IV of the MRTP Act are the activities undertaken by Big Business Houses by abusing their market position that hamper or eliminate healthy competition in the market. Such practices are anti-consumer-welfare.
• Restrictive Trade Practices– RTPs are activities that block the flow of capital or profits in the market. Some firms tend to control the supply of goods or products in the market either by restricting production or controlling the delivery. MRTPA discourages and prevents the firms from indulging in RTPs.[14]
• Unfair Trade Practices– UTP is basically an act of false, deceptive, misleading or distorted representation of facts pertaining to goods and services by the firms. Section 36-A of the MRTPA prohibits firms from indulging in Unfair Trade Practices (UTPs). This provision was inserted by the landmark 1984 Amendment to the MRTPA.[15]

MRTPA also provided for the establishment of MRTP Commission which shall be a regulatory authority to deal with the offences under the MRTPA. At the time of its enactment, the MRTPA being the first legislation addressing the competition law issues in India seemed to be a perfect law to catch the defaulters. However, with the passage of time, the wave of globalization that entered the country changed the whole scenario[16]. There arose a need for modifications in the existing MRTP Act in order to keep it at pace with the changing economic scenario. There were many loopholes that arose in the law. Some of them have been briefly discussed below.

MRTP, Act: A Damaged Legislation in Need of Repair

Uptil 1984, 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 the society. Following are the major amendments made to the MRTPA –

• 1984 Amendment – This amendment was based on the recommendations of the Sachar Committee. The amendment inserted Section 36A to the Act to protect the final consumers against the unfair trade practices so that an effective action can be taken against them. Thus, claims against false advertisements, deceptive representation of goods, false guarantees came under the purview of the Act[17].
• 1991 Amendment – This amendment allowed the MRTP Act to be extended to the public sector and the government owned companies also. After this amendment, the private players functioning in the market were no longer required to take special approvals or permission from the government before carrying out any corporate reconstruction. This amendment to the MRTPA came to effect in the light of the New Economic Policy which led to the opening of Indian economy. The License Raj which restricted the growth of the Indian economy was thus abolished[18].

It should be noted here that despite the above amendments to remedy the shortfalls of the MRTP Act, there were many loopholes left which catalyzed its repeal. Let us have a brief discussion on the same.

Why did it fail? Researcher’s Critical Assessment of the MRTP, Act, 1969

Following are the reasons that led to the failure of MRTP Act, 1969 –

1. Excessive Government Control – Under the MRTP Act, both small and big businesses were subjected to excessive government control. It was mandatory for the enterprises to take approvals from the government before carrying out any kind of corporate restructuring or takeover. The presence of such complex procedures, many firms found it difficult to survive, thereby affecting the final consumers.[19]
2. Vague and ambiguous law – Section 2(o) of the MRTP Act defined the term ‘restrictive trade practices’ which covered any activity that prevented, distorted or restricted competition. There was no specific provision that defined the various kinds of anti-competitive activities that would be termed as offences under the Act. Anti – competitive practices such as cartels, bid rigging, abuse of dominance, collusion, price-fixing, predatory pricing etc were nowhere defined[20]. Section 2(o) thus included all types of possible offences within its ambit thereby leading to a large variety of interpretations by various courts wherein the core essence of the law was lost.
3. Per serule instead of Rule of Reason – In the MRTP Act there were as much as 14 offences that were considered as per se illegal. The concept of Rule of Reason was not applied. Though the Supreme Court in the Telco case[21] recognized the Rule of Reason, but this development was again frustrated by the passage of the unfortunate 1984 Amendment which mandated that all listed RTPs under Section 33 shall be treated as per se illegal.
4. Dominance per se bad– Under the MRTP Act, dominance was in itself considered as bad, it didn’t matter whether the party has abused it or not. There was a mathematical formula for determining dominance i.e, the undertaking as to have 25% or more control over market share of goods or services. However, the catch here was that that if a firm acquired 20% or 23% of the market share at a particular time; the same was not considered as dominant.[22]
5. Promotion of exports at any cost – Under Section 38 of MRTP Act, if any project enterprise had a high potential for exports in future, it would cause the authority to simply blindly approve all its applications under the Act without considering the any anti-competitive or monopolistic shadow that it might have. Due to its excessive stress on exports, it ignored all possible drawbacks that a project might have. In many cases, it led to more costs being incurred than the foreign exchange earned through exports. [23]
6. A Policy of Voluntary Disclosure– The MRTPA machinery was highly depended upon voluntary disclosures made the enterprises as there was no agency that could keep a 24*7 check on the market control and structuring of the companies. This proved as a big leeway to the companies leading to late registrations or sometimes no-registration of any change in the company structure. This acted as a means to keep the company out of the purview of the Act.[24]
7. Inefficiency of the MRTP Commission– MRTP Commission was set up to regulate the 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 created a doubt upon 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.
• Unwillingness of the government to appoint members promptly or in opening new branch offices.

Also, the government had the final say on a proposition and it was on the discretion of the government whether it wanted to refer the matter to the Commission. It happened that most of the time the government unilaterally used to pass the decisions without seeking the consultation of the special expertise body of MRTPC constructed for this purpose. All this led to the body becoming redundant.[25]

1. Obsolescence– With the dynamic movement of the Indian trade market towards an open and more globalised economy, especially after the New Economic Policy Reforms, led to the MRTP Act soon becoming obsolete. It could not stand the tests of time which required an overhauling of the competition law policies in India in consonance with the new issues arising due to the entry of the large scale foreign firms in India.[26]
2. No Extraterritorial Application –The MRTP Act, had no extraterritorial application i.e, it could not be applied to business undertakings outside India even if their anti-competitive conduct had a detrimental effect o the Indian market, unless one of the parties were of Indian origin. Thus, when it came to activities such as international cartels, MRTP Act was impotent.[27]
3. No penalties for offences– Section 12 of the MRTP Act dealt with the powers of MRTP Commission and the types of orders that it can issue in case of taking place of any anti-competitive activities. On a plain reading of the provision, we can infer that the Commission did not have the power to impose harsh penalties or fines on the defaulters. The best it can do is to issue ‘cease and desist’ orders or charge nominal fines. Jail terms, though provided for, were rarely imposed.[28]
4. Concurrent Jurisdiction under Consumer Protection Act –Post 1984 Amendment, Section 36A was inserted in the Act with the aim to protect the customers from UTPs. As a result, the Commission was soon piled up with consumer complaints for defective goods and inefficient services which were already provided for in the Consumer Protection Act. The consumers were thus left with an option whether to approach the Consumer Court or the MRTP Commission as they both had concurrent jurisdiction. The majority of the time of the Commission was spend resolving consumer disputes while in reality the primary purpose for which the Commission was set up was to regulate anti-competitive practices. A backlog of these cases was subsequently transferred to CCI.[29]

Thus it was clear that MRTP Act, 1969 failed in fulfilling the object for which it was created in the first place. The Commission did not have many powers and was most engaged in consumer cases. Moreover, the various amendments that took place weakened and liberalized the government’s attitude towards monopolistic and anti-competitive practices, rather than strengthening it.

Judicial Attitude towards MRTP Act: A Study of Important MRTP Cases

In order to understand the true context of the limitations of MRTP Act, 1969 that led to its abolishment, we need to study these landmark cases that exhibit the judicial attitude towards these loopholes –

Tata Engineering and Locomotive Co. Ltd vs. Registrar of Restrictive Trade Practices Agreement[30]

Facts – In this case, TELCO entered into an agreement with its dealers wherein the dealers were assigned certain fixed territories within which they had to sell Tata’s vehicles. This territorial restriction was challenged to be a ‘restrictive trade practice’.

Held – Supreme Court in this case for the first time in India applied the Rule of Reason and held that such territorial restriction was not an anti-competitive practice as it was meant for equal distribution of goods throughout the country. The positive effect of this judgment was undermined by the 1984 Amendment, Section 33 of which made territorial allocation a per se RTP.

Director General of Investigation and Registration [DG (IR)] vs. Modi Alkali and Chemicals Ltd[31]

Facts – The Commission received an anonymous complaint that some enterprises have formed a cartel to create virtual scarcity of goods and the prices of chlorine gas and hydrochloric acid have risen by 200% in last 4 months. After investigation, DG reported that there was no case of cartel and no action should be taken. MRTPC then conducted further enquiry.

Held – Even though the term ‘Cartel’ was not defined under the MRTP Act, it was laid down that “cartel is an association of producers who by an agreement among themselves attempt to control production, sale and prices of the product to obtain a monopoly in any particular industry or commodity”. Although in this particular there was not enough evidence to hold anyone liable so the case was dismissed. However, this case brought into light an important category of anti-competitive agreements which were till now not even identified in India.

Sirmur Truck Operator’s Case[32]

Facts – In this case, the company fixed high freight rates for non-member truck operators while the rates were much lower for the members. This thus increased the cost of transportation for non-members. They alleged that this was an RTP.

Held – It was held that this was indeed an RTP under Section 2(o) of the Act. The MRTPC issued ‘cease and desist’ orders. This case however brought into light the fact that the Commission did not have powers to impose penalty or high monetary fines. The best it could do was to issue cease and desist orders.

A merican Natural Soda Ash Corporation (ANSAC) vs. Alkali Manufacturers Association of India (AMAI) and others[33]

Facts – ANSAC were trying to export soda ash consignments to India. AMAI filed a complaint with MRTPC to prevent these cartelized consignments from being shipped into Indian Territory.

Held – SC held that MRTPC cannot exercise extraterritorial jurisdiction and therefore it cannot take any action against foreign cartels unless the anti-competitive agreement involves an Indian party. This case thus highlighted another loophole in the MRTP Act.

Thus, it can be very well inferred from these cases that the shortfalls of the MRTP Act were inescapable even from the eyes of Indian Judiciary. This is what ultimately led to the formation of the Current Competition Law.

Conclusion and Recommendations

When problems arose in the functioning of MRTP Act, 1969 there arose a need for a new, revised competition law policy. However, the question that arose was that whether we need to amend the MRTP Act itself or there was a need to create an altogether new legislation. For this purpose, many committees were set up. The most important among them is the Committee headed by S.V.S Raghavan.

Raghavan Committee Report, 1999[34]

Raghavan Committee was set up to suggest changes in the Competition Policy in India. It gave the following recommendations –

1. Setting up of CCI and winding up of MRTPC.
2. Bring Government monopolies, foreign companies under the ambit of Competition Law.

• Setting up of new limits and rules governing mergers, predatory pricing and abuse of dominance.

1. Transfer of all pending MRTPC cases to CCI

Enactment of Competition Law, 2002

Competition Law, 2002 was announced by the then Finance Minister of India in his budgetary speech of 1999. The new law covers all the major loopholes that were present in the old MRTP Act. The Competition Act, 2002 primarily deals with these aspects –

• Anti – Competition Agreements
• Abuse of Dominance
• Combinations Regulation.
• Competition Advocacy

The new Act also provided for establishment of a quasi-judicial body called Competition Commission of India (CCI) for registering of all the complaints and also a Competition Appellate Tribunal (COMPAT) to hear the appeal cases against CCI orders.[35]

Brahm Dutt v Union of India[36]

In this case, the constitutional validity of the appointments made under newly enacted Competition Law, 2002 were challenged. It was contended that since CCI had adjudicatory functions as well, then the Chairman of CCI should be a retired judge of Supreme Court or High Court and not an expert in any field as provided for under the Act.

It was held by the Supreme Court that the practice of appointing an expert as the Chairman of the Committee was a set practice across many jurisdictions. Moreover, the Competition Act also provided for an appellate body – COMPAT which was presided over by a retired judge. So in case a party is not satisfied with the orders of CCI, they can approach the appellate tribunal. The writ petition was thus dismissed.

Future Scope and Recommendations

As has been rightly said the positive effects of any law can only be realized when it is effectively enforced. A weak enforcement of law would be no different than not having the law itself. The same applies for the newly enacted Competition law whose jurisprudence is currently at its very nascent stage. However, as a researcher, I would like to give some of my own suggestions –

1. CCI should try to focus more on the competition law violations that affect the common majority of people. Most of the cases that this authority has decided till now involve niche markets that are mostly controlled by the richest 10% of the country.
2. It should also strongly deal with anti-competitive activities of the firms located abroad and the ill effects it has on the Indian market.

Thus we can conclude that we need a good competition policy and an efficient and effective competition law in order to confidently face the challenges posed by globalization in Indian markets.

[1] Amit Kapoor, Competition Regulation-history, Insights and Issues for the Way Forward, 2009 Manupatra (2009).

[2] Aditya Bhattacharjea, India’s New Antitrust Regime: The First Two Years of Enforcement, 57 Antitrust Bull. 449 (2012).

[3] Dorothy Shapiro, A Competition Act by India, for India: The First Three Years of Enforcement under the New Competition Act, 5 Indian J. Int’l Econ. L. 59 (2012).

[4] S. Chakravarthy, India’s New Competition Act 2002 – A Work Still in Progress, 5 Bus. L. Int’l 240 (2004).

[5]UK Essays, MRTP Act: Rise Fall and Need for Change: Eco Legal Analysis, November 2013.

[6] Leela Kumar, MRTP COMMISSION and COMPETITION COMMISSION of INDIA, SSRN Publicaions .

[7] Dr. S. Chakravarthy, Why India Adopted New Competition Law, 2008 CUTS Int’l (2008).

[8] R.K Hazari, Industrial Planning and Licensing policy Report, Government of India, Planning Commission, 1951.

[9] INDIA, & DUTT, S. (1969). Report of the Industrial Licensing Policy Inquiry Committee. [New Delhi], Dept. of Industrial Development.

[10] INDIA, & MAHALANOBIS, P. C. (1964). Report of the Committee on Distribution of Income and Levels of Living. New Delhi, Government of India, Planning Commission.

[11]Kulshreshtha, V. D. “REPORT OF THE MONOPOLIES INQUIRY COMMISSION: AN EVALUATION.” Journal of the Indian Law Institute, vol. 8, no. 3, 1966, pp. 413–427. JSTOR, JSTOR, www.jstor.org/stable/43949911.

[12] Preamble, Object and Reasons, Monopolies and Restrictive Trade Practices Act, 1970

[13]Mohammad Asad Mahmood, Critical Analysis of Competition Law in India, Latestlaws.com.

[14]R. Shyam Khemani, India’s Competition Policy Reforms, 30 Int’l Bus. Law. 7 (2002).

[15]Shiju Varghese Mazhuvanchery, The Indian Competition Act: A Historical and Developmental Perspective, 3 Law & Dev. Rev. 241 (2010).

[16] CUTS International, National Law University, Jodhpur & , Study of Cartel Case Laws in Select Jurisdictions – Learnings for the Competition Commission of India, COMPETITION COMMISSION of INDIA, Apr. 25, 2008.

[17]Narayana Rao Rampilla, Developing Judicial Perspective to India’s Monopolies and Restrictive Trade Practices Act of 1969, A , 34 Antitrust Bull. 655 (1989).

[18]Sarbapriya Ray; Ishita Aditya Ray, Emergence and Applicability of Competition Act, 2002 in India’s New Competitive Regime: An Overview, 1 J.L. Pol’y & Globalization 15 (2011).

[19]Sahil Parikh, Background and Basics of Competition Law, S.H. Bathiya & Associates, Sept. 21, 2012.

[20]Haridas Exports v All India Foat Glass Manufacturers Association (2002) 6 SCC 600.

[21]Telco v. Registrar of Restrictive Trade Agreements 1977 AIR 973, 1977 SCR (2) 685; Mahindra & Mahindra Limited v/s Union of India 1984 (16) ELT 76 Bom, 1982 138 ITR 670 a Bom; Continental T.V. v GTE Sylvania; Voltas Ltd v/s Union of India 433 U.S. 36 (1977).

[22] Ministry of Human Resources and Development (MHRD), Evolution of Competition Law and Policy in India, E-Pathshala .

[23]Rahul Singh, Shifting Paradigms, Changing Contexts: Need for a New Competition Law in India, 8 J. Corp. L. Stud. 143 (2008).

[24] Vijay Kumar Singh, Competition Law and Policy in India: The Journey in a Decade, 4 NUJS L. Rev. 523 (2011).

[25] S. Chakravarthy, India’s New Competition Act 2002 – A Work Still in Progress, 5 Bus. L. Int’l 240 (2004).

[26] Dorothy Shapiro, A Competition Act by India, for India: The First Three Years of Enforcement under the New Competition Act, 5 Indian J. Int’l Econ. L. 59 (2012).

[27] Aditya Bhattacharjea, India’s New Antitrust Regime: The First Two Years of Enforcement, 57 Antitrust Bull. 449 (2012).

[28]Amit Kapoor, Competition Regulation-history, Insights and Issues for the Way Forward, 2009 Manupatra (2009).

[29]UK Essays, MRTP Act: Rise Fall and Need for Change: Eco Legal Analysis, November 2013.

[30] 1977 AIR 973, 1977 SCR (2) 685.

[31]2002, CTJ 459 (MRTP).

[32](1995) 3 CTJ 332 (MRTPC) 74 Truck Operators Union vs. Mr. S.C. Gupta & Mr. Sardar AIR 1986 SC 991 (1995) 3 CTJ 70 (MRTPC).

[33](1998) 3 CompLJ 152 MRTPC.

[34]Report of ‘The High Level Committee on Competition Policy and Law’ – Dept. of Company Affairs, Govt. of India, New Delhi, 2000.

[35]Preamble, Statement of Objects and Reasons, Competition Act, 2002.

[36](2005) 2 SCC 431; MANU/SC/0054/2005.