Evolution of Competition

Law in India
 Post- Independence Planning
The Constitution of lndia, in its quest for building up a just and humane society, has mandated the State to direct its policy
towards securing the end of equitable development. Articles 38 and 39 of the Constitution, which are a part of the
Directive Principles of State Policy mandate, inter alia, that the State shall strive to promote the welfare of the people by
securing and protecting as effectively as it may be , a social order in which social, economic and political justice shall
inform all the institutions of the national life, and the State shall in particular, direct its policy towards securing the
following:

b That, the ownership and control of material resources of the community are so distributed as best to sub serve the
common good; and

h That, the operation of the economic system does not result In the concentration of wealth and means of production to the
common detriment.

The MRTP Act, 1969 was brought into force for realizing the explicit mandate set out in the Directive Principles envisaged
in Part-IV of the Constitution of India, namely, prevention of concentration of economic power.
India adopted the strategy of planned economic development since the early 1950’s.
Focus was on growth, social justice and self reliance.

Government intervention and control pervaded almost all areas of economic activity in
the country. Hence, there was no contestable and competitive market. Government
determined plant sizes, location of the plants, prices in a number of sectors and,
allocation of scarce financial resources. The licensing policy of the Govrnment favoured
big business houses for they were in a better position to raise large amount of capital
and had managerial skills to run the industry.
Licensing authorities were naturally inclined to prefer men who had proved their ability by
success in big business ventures in the past to men who had still to prove their ability.All
this led to preempting of licences by a few business houses, leading to concentration of
wealth in a few hands.

Thus, the system of controls in the shape of industrial licensing restricted the freedom of
entry into industry, apart from concentration of economic power in a few individuals or
group of business houses.
There are essentially three enquiries/studies which led to the enactment of the MRTP Act,
1969.

The first study was by a Committee headed by Dr. R. K, Hazari, studied the Industrial
Licensing procedure under the Industries (Development and Regulation) Act 1951. The
Committee concluded that the working of the licensing system had resulted in
disproportionate growth of some big business houses in India. The Committee concluded
that this was inconsistent with the goals laid down under the DPSPs.
The second study was by a Committee set up in October 1960, under the chairmanship of Professor
Mahalanobis to study the distribution and levels of income in the county. The Committee noted that big
business houses were emerging because of the "Planned economy" model practiced by the Government
and suggested the need to collect comprehensive information pertaining to the various aspects of
concentration of economic power.
The third study was known as the Monopolies Inquiry Commission (MIC), appointed by the Government
in April, 1964 under the chairmanship of Mr. DasGupta.

The Committee was appointed to enquire into the extent and effect of concentration of economic power in
private hands and the prevalence of Monopolistic and Restrictive Trade Practices in important sectors of
economic activity, except in agriculture.

The Committee presented its report in October, 1965, highlighting therein that there was concentration of
economic power in the form of product wise and industry wise concentration. It also noted that a few
industrial houses were controlling a large number of companies and that there existed Restrictive and
Monopolistic Trade Practices in the country.

As a corollary to its finding, the MIC drafted the Monopolies and Trade Practices Bill to ensure that the
operation of economic system doesn't result in the concentration of economic power to the common
detriment. The Bill also provided for the control of monopolies and prohibition of Monopolistic and
Restrictive Trade practices which are prejudicial to public interest.
The focal areas of the MRTP Act were:

• The prevention of concentration of economic power to the common detriment;

• The control of monopolies;

• The prohibition of Monopolistic and Restrictive trade practices;

• The prohibition of unfair trade practices,

The MRTP Act, encompassed within its ambit, essentially three types of prohibited trade
practices, namely- restrictive, unfair and monopolistic.

The core of such trade practices are briefly touched upon hereunder.
RESTRICTIVE TRADE PRACTICES

A Restrictive trade practice is one has the effect of preventing, distorting or restricting competition. In particular,
any practice which tends to obstruct the flow of capital or resources into the stream of production is a restrictive
trade practice. Likewise, manipulation of prices, conditions of delivery or flow of supply in the market which
may have the effect imposing on the consumer unjustified costs or restrictions is deemed as a restrictive trade
practice. Certain types listed under the Act are:

1. Refusal to deal

2. Tie-upsales

3. Exclusive dealings

4.Concerted practice

5. Price discrimination

6. Re-sale price maintenance

7. Area restriction

8. Discriminatory pricing
Section 37 to 40 of Chapter IV of the MRTP Act, 1969 provided for the control of certain
'Restrictive 'Trade Practices'.

The Act required registration of RTPs. The MRTP Commission had to examine every RTP -
while all TRPs were deemed prejudicial to public interest and therefore, illegal, the onus was
on the undertaking charged with indulgence of RTP to plead “gateways” enumerated under the
Act.

If the restrictive trade practice falls in any one or more of gateways and the Commission is
satisfied that the restriction is not untenable having regard to the balance between those
circumstances and any detriment to the public interest or consumers likely to result from the
operation of the restriction, then the Commission may arrive at the conclusion that the
restrictive trade practice is not detrimental to public interest and discharge the inquiry against
the charged party.
MONOPOLISTIC TRADE PRACTICES

The MRTP Commission could either, suo moto or on the application of the Director
General of Investigation and Registration or on a reference from the Central Government,
make an inquiry into whether a monopolistic trade practice was being practiced by any
undertaking, or if such a practice was prevalent in respect of any goods or services. If the
Commission found that the monopolistic trade practice was likely to operate against the
public interest, it would report that finding to the Central Government. The Central
Government may pas such orders as it thinks fit to remedy or prevent any mischief which
resulted or could result from the monopolistic trade practice.
A Monopolistic Trade Practice was deemed to be prejudicial to public interest, except where it
is proved otherwise by the party charged with such allegation.

The exceptions were :

(a)the trade practice was expressly authorized by any enactment for the time being in force;
OR

(b)the Central Government, on being satisfied that the trade practice is very expedient, allows
the owner to continue the practice. Here, the Central Government had to be satisfied that the
trade practice was necessary (a) to meet the requirement of defense of India, or any part of
India or for the security of the State (b) to ensure the maintenance of supply of goods and
services essential to the community; (c) to give effect to the terms of any ageement to which
the Central Government was a party.
UNFAIR TRADE PRACTICE

Consumers need to be protectcd against false, untruthful and misleading advertisements.

Such advertisements not only affect the interests of consumers but also influence their
buying choices.

The MRTP Act provided for the following UTPs:

1. Misleading advertisements and false representations.

2. Bargain sales, bait and switch selling.

3. Offering of gifts or prizes with the intention of not giving them

4. Product safety standards.

5. Hoarding or destruction of goods.

ECONOMIC REFORMS AND IMPACT ON THE MRTP ACT

The 1991 economic reforms rendered the MRTP Act obsolete. When the MRTP Act was drafted in 1969, the economic and trade milieu
prevalent at that time constituted the premise for its various provisions. There has been subsequently a sea change in the environment, with
considerable movement towards LPG. The law was forced to yield to the changed and changing scenario on the economic and trade front.

The reforms ushered an era wherein :

• Industrial policy licensing was abolished except in six industries.

• The policy of reservation of sectors for the Public Sector was abolished- except for industries involving security and strategic concerns.

• Price and quality control for a number of items was relaxed.

• With regard to imports, the list of prohibited items was pruned and tariffs were reduced in a phased manner.

• Foreign Investment regime was liberalised.

• Financial sector was deregulated.

Apart from being rendered obsolete due to the context, the MRTP Act also contained
certain deficiencies:

A perusal of the MRTP Act will show that there is neither definition nor even a mention
of certain offending trade practices, which are restrictive in character. Some illustrations
of these are: Abuse of Dominance; Cartels, Collusion and Price Fixing; Bid Rigging; and
Predatory Pricing.

Nor did the Act contain sufficient teeth to enforce compliance- the MRTP Commissioner
was empowered only to pass cease-and-desist orders. He was not empowered to penalise
the offenders.

It provided for a blanket exclusion of all IPR

It did not contain any provisions for combination regulation.

It did not have extra-territorial operation.

NEED FOR A LAW THAT PROMOTED COMPETITION

Raghavan Committee report on Competition Policy and Competition Law observed as

follows: -

“The MRTP Act has become obsolete in certain areas in the light of international economic
developments relating to competition laws. We need to shift our focus from curbing
monopolies to promoting competition. The Government has decided to appoint a committee
to examine the range of issues, and propose a modern competition law suitable for our
conditions”
“...The absence of domestic competition, along with the unconditional protection from
imports provided to domestic industry together with the other aspects of the licensing
regime discussed above, fostered a high cost industrial structure which was domestically
inefficient in the utilization of resources and not competitive abroad. In addition to the
static mis-allocation and inefficient utilization of recourses, the system was also
dynamically inefficient insofar as it was not likely to encourage technical change. On the
other hand, a competitive market structure with ‘right‘ prices would have promoted a
dynamic, efficient, productive and competitive industrial sector. Competitive financial
sectors ensure better utilization of scare financial resources and have had a positive
impact on the productivity of industrial sector”
Based on the recommendations of the Raghavan Committee, the rubric of the new law,
Competition Act, 2002 (Act, for brief) contained:

• Anti-Competitive Agreements;

• Abuse of Dominance;

• Combinations Regulation; and

• Competition Advocacy.
MRTP Act v Competition Act

COMPETITION ACT,
MRTP ACT, 1969
2002

Based on pre-reforms Based on pre-reforms

command and control command and control

regime regime

Based on Based on conduct as a

size/structure as factor factor

Competition offences
Competition offences
implicit and not
explicit and defined
defined

Frowns upon Acts upon abuse of

dominance dominance
Registration of business
agreements, such as No requirement of
marketing etc registration of agreements

compulsory

Combination
No combinations regulations
regulations beyond a
(post-1991 amendment)
high threshold limit

No competition advocacy CCI has competition

role for the MRTPC advocacy role
No penalties. Only
cease-and-desist Penalties for offences
orders
Omitted (now dealt
Unfair trade Practices
with under the CPA,
covered
1986)
Rule of law RUle of reason
Blanket exclusion of
No blanket exemption
IPR