Legal Aspects of
Business
Management
DR. SHIVANGI SINHA
(PHD, LLM, BBA LLB)
SPECIALIZED IN CORPORATE LAWS & DISPUTE RESOLUTION
Context:-
MRTP/Competition Act: Monopolistic Trade
Practices,
Concentration of Economic Power,
Unfair trade practices,
Offences and protection,
Cartelization
MRTP/Competition Act: Monopolistic
Trade Practices:-
The MRTP Act, 1969 has its genesis in the Directive Principles of State
Policy embodied in the Constitution of India.
Clauses (b) and (c) of Article 39 of the Constitution lay down that the
State shall direct its policy towards ensuring:
(i) that the ownership and control of material resources of the
community are so distributed as to best serve the common good; and
(ii) that the operation of the economic system does not result in the
concentration of wealth and means of production to the common
detriment.
Continued:-
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.
Let us take the brief background of committees that helped in shaping the MRTP Act,
1969 –
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.
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.
Continued:-
Mahanlobis Committee on 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.
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
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.
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.
Concentration of Economic Power:-
"Concentration of economic power in India" refers to a situation where
a small number of large business houses, often controlled by a few
families, wield significant control over the Indian economy, leading to
potential issues like limited competition, market dominance, and
unequal distribution of wealth, often attributed to factors like
government policies, financial institutions, and business practices of
these large corporations.
Key points about concentration of economic power in India:
Dominant players- A few large business groups, sometimes called
"industrial houses," hold considerable market share across various
sectors, leading to a concentrated economic landscape.
Continued:-
Causes:
Government policies: Past licensing regimes and preferential treatment
given to large firms in the planned economy era.
Financial institutions: Easier access to loans and funding for large
businesses.
Business practices: Large firms leveraging economies of scale and
market power to stifle competition.
Foreign collaborations: Access to advanced technology and market
networks through foreign partnerships
Continued:-
Concerns:
Reduced competition: Limited choices for consumers and potential for price
manipulation due to fewer market players.
Barriers to entry: Difficulty for small businesses to compete with established large
firms.
Income inequality: Wealth concentrated in the hands of a few, leading to widening
gap between rich and poor.
Efforts to address the issue:
Competition Commission of India (CCI): Regulatory body established to monitor and
curb anti-competitive practices
Policy reforms: Promoting small and medium enterprises (SMEs), simplifying
business regulations, and addressing market access issues
Unfair Trade Practices:-
Unfair trade practices are deceptive, fraudulent, or unethical business practices that
harm consumers or gain an advantage over competitors.
Examples of unfair trade practices
Deceptive advertising: Making false or misleading claims about a product or service
Refusal to license: Withholding a license for an intellectual property right (IPR)
Resale price maintenance: Fixing prices that resellers must charge for goods
Trademark infringement: Using a trademark without permission
Trade secret misappropriation: Stealing a competitor's trade secrets
Unfairly refusing a transaction: Unlawfully denying a deal or interfering with a
competitor's business
Hoarding or destruction of goods: Withholding goods or services to increase prices
Continued:-
Unfair trade practices in India
The Consumer Protection Act of 1986 deems unfair trade practices unlawful
A consumer can file a complaint about unfair trade practices with a District
Forum, State Commission, or National Commission
What is considered unfair?
An act is considered unfair if it:
Causes substantial harm to consumers
Cannot be reasonably avoided by consumers
Is not outweighed by benefits to consumers or competitors
Continued:-
Cases on Unfair Trade Practices:
In re Hindustan Export Corporation [UTP Enquiry no. 29/1985]: The
respondent company offered free gift with every rupees fifty purchase
except wool. It also announced discount sale up to 40% on all winter
needs. It was held to be an UTP.
In re Vijay International Products [UTP Enquiry No. 11/1984]: In this
case, the respondents were manufacturing and marketing stoves under
the brand name ‘Nutan’. The stoves were designed by Indian Oil
Corporation. They were sold without competent authority’s inspection
and clearance. The stoves that marketed were sub-standard. It was
held to be an UTP.
Offences and Protection :-
The Competition Act of 2002 allows the Competition Commission of India (CCI) to
impose penalties for a variety of offenses, including cartels, abuse of dominant
position, and failure to comply with orders.
Offenses
Cartels: An agreement between producers, sellers, or other parties to limit or
control production, distribution, or prices
Abuse of dominant position: When a company misuses its dominant position to
harm competition
Contravention of orders: When a company or individual ignores the CCI's orders or
instructions
Making false statements: When a company or individual makes a false statement
or omits to provide material information
Continued:-
Penalties
Penalties for cartels: Up to three times the company's profit for each year of
the cartel, or 10% of its turnover for each year, whichever is higher
Penalties for contravention of orders: Up to 1 lakh rupees for each day of
non-compliance
Penalties for making false statements: Up to 1 crore rupees
Penalties for individuals: Up to 10% of their average income over the
previous three financial years
The CCI can also order the discontinuance of practices that harm
competition, or modify agreements to reduce their adverse effect.
The CCI can appeal to the National Company Law Appellate Tribunal
(NCLAT).
Applicable Section- 27, 28, 31, 32, 33, 42A, and 43A of the Competition Act
2002.
Cartelization:-
Cartelization is an anti-competitive agreement between businesses to limit or
control competition. It's illegal in India under the Competition Act, 2002.
How cartels work ?
Cartels can involve price fixing, market sharing, or bid rigging
They can also involve limiting production, distribution, or supply
Cartels can be horizontal, between businesses in the same line of business, or
vertical, between businesses at different stages of production
Penalties for cartels :-
The Competition Act prohibits agreements that harm competition
The Competition Act prescribes fines and penalties for cartels
The Competition Commission of India (CCI) can reduce penalties for companies
that report cartel activities
Continued:-
How the CCI enforces cartel laws ?
The CCI can investigate cartels
The CCI can issue orders against cartels
The CCI can use leniency programs to encourage companies to report
cartels
Recent developments :-
The Competition (Amendment) Act 2023 presumes that non-competing
entities are part of a cartel if they participate in a horizontal
anticompetitive agreement
Continued:-
In U.O.I & Others v. Hindustan Development Corporation and Others,
[1994] the Supreme Court identified three important ingredients for
cartel i.e. equal price, mutual action regarding conspiracy and control
revelry but the charges of cartel could not be acknowledged.
In DGIR v. Modi Alkali and Chemicals Ltd and others,[2008] In this case,
an unknown complaint taken by the Commission regarding cartel and
increased prices of products but informant could not prove intention
among players therefore the charge was dropped.
Thank You..!!
