7 Main Recommendations of MRTP Act

The following points highlight the seven main recommendations of MRTP Act. The recommendations are: 1. Authorities under the Act 2. Concentration of Economic Power 3. Restrictive Trade Practices 4. Monopolistic Trade Practices 5. ‘Unfair Trade Practices’—A new concept in­troduced by the MRTP (Amendment) Act, 1984 6. Comments on MRTP Act 7. MRTP Amendment Ordinance 1991.

Recommendation # 1.

Authorities under the Act:

The main administrative body under the Act is the MRTP Commission. The MRTP Act lays down provisions detailing the terms of office, conditions of service of members, and the appointment of di­rectors. The Commission is a quasi-judicial body, and investigates complaints into monopolistic and restrictive trade practices.

Recommendation # 2.

Concentration of Economic Power:

The scheme of the Act to prevent the concentra­tion of economic power is to make compulsory the registration of all enterprises which are of a cer­tain size and those which have more than a certain share of the market. The idea behind registration is that this makes it impossible for registered con­cerns to make any further expansion without per­mission from the Central Government.

Under the law as at present, companies (along with their sub­sidiaries and associates) having assets more than Rs. 100 crores, have to register compulsorily with Government and obtain permission for any substan­tial expansion of their units. Similarly, units enjoy­ing one-fourth or more of the market share of a product or service, and having assets of Rs. 1 crore or more, are also subject to the same restrictions.

Such registered companies cannot promote new un­dertakings or amalgamate with others without Government clearance. The rationale behind this is that an economically powerful enterprise, which already controls a major portion of the market, should not, unless there are compelling reasons, be allowed to increase their dominance of the market.

Investment companies have also been covered under the Act by an amendment made in 1984.

Recommendation # 3.

Restrictive Trade Practices:

Other key concepts in the MRTP Act are restric­tive trade practices, monopolistic trade practices and unfair trade practices. In order to control these trade practices, the prime instrument is the regis­tration of agreements relating to restrictive trade practices. Section 33 details 12 particular types of agreement which are, by definition, restrictive such as Resale Price Maintenance, Price Fixing Agreements etc.

Any agreement which contains characteristics of these agreements will have to be registered with the authorities, the rationale be­hind registration being that companies will not want to lose goodwill-by having such unethical agreements on public display, and so will avoid getting into such agreements.

Only if the company can show that certain good results will follow from restrictive trade practices, which outweigh the harm from the practice, will the restrictive trade practice be allowed. These “good results” are de­tailed in Section 38.

Recommendation # 4.

Monopolistic Trade Practices:

The MRTP Act provides that where some under­takings are indulging in monopolistic trade practic­es, it may refer the matter to the MRTP Commis­sion for investigation.

The MRTP Commission is then supposed to make a thorough investigation into the matter and recommend to the Government what steps should be taken to discontinue the prac­tice. The Government may make any order which, in effect, eliminates the monopolistic trade prac­tice.

The amendment of 1984 gives the Government power to break-up an undertaking and even acquire the broken-up shares.

The Amending Act, which seeks to amend the Monopolies and Restrictive Trade Practices Act, 1969, and the Companies Act, 1956, was brought before the house in pursuance of the recommendations made by the Sachar Commit­tee, to plug certain loopholes in the Act which had been pointed out by the court.

Recommendation # 5.

‘Unfair Trade Practices’—A new concept in­troduced by the MRTP (Amendment) Act, 1984:

Section 36A lists a number of activities, like misleading advertisements etc., as unfair trade practice, into which the MRTP Commission may enquire and, if thought fit, pass suitable orders to stop such practice. The Commission has been given power to issue ‘interim injunctions’ also, in order to make its orders effective.

Recommendation # 6.

Comments on MRTP Act:

The main objective of the MRTP Act is to protect the interest of the consumers and small business firms so as to make the economic environment of the country more healthy. But the Act should not be a constraint for the growth and diversification of big business.

The Act attempts to amend monopolies in line with the requirements of economic growth and social justice — the twin goals of our planning pro­cess. The main criterion for regulating monopolies should be the ultimate interest of the consumer.

If the break-up of large houses into small firms re­sults in loss of efficiency and low quality product, the interest of the consumer is unlikely to be served. Any anti-monopoly legislation in India should take note of this reality. An increase in the number of firms is no guarantee of efficiency.

Recommendation # 7.

MRTP Amendment Ordinance 1991:

On September 27,1991, the Government amend­ed the MRTP Act, 1969 through a Presidential Or­dinance which substantially changed the entire character of the original Act. The Ordinance re­moved all pre-entry restrictions on the setting up of new undertakings and expansion of the existing ones.

The following are the main changes intro­duced by the Ordinance:

The Main Amendments to MRTP Act:

1. The Ordinance removes all pre-entry restric­tions regarding prior approval by the Government for new undertakings, expansions, amalgamations, mergers, takeovers, appointments of Directors and registration of undertakings, under Section 20 to 26 of the MRTP Act.

2. The Government, however, retains the power to direct division of an undertaking and severance of inter-connection between undertakings if it is of the opinion that the working of an undertaking, is prejudicial to the public interest, or has led or is leading to emergence of any monopolistic or restric­tive trade practice.

3. The outlining restrictions on acquisition or transfer of share, have been reverted back to the Companies Act, 1956, as Sections 108-A to 108-1. [These sections were removed from the Companies Act in 1984.]

4. The Ordinance seeks to enlarge the scope of inquiry by the MRTP Commission to enable it to take effective steps to curb and regulate unfair business practices. It also provides for deferent punishment for contravention of the orders passed by the Commission.

5. The definition of ‘goods’ has been enlarged by including issue of shares before allotment. Accord­ing to the new definition, ‘service’ now covers chit funds and real estate also. This implies that any monopolistic or restrictive practice in respect of real estate (land) or share allotments etc., will now come under Monopoly Commission surveil­lance.

6. The Government feels that there is no longer any justification for continuing the exemptions available to Government companies and coopera­tive societies, especially in view of the removal of the pre-entry restrictions under the Act. The Act will accordingly be applicable to Government un­dertakings and departments also. This would bring the railways, airlines, electricity boards, banks and financial institutions under the purview of the MRTP Commission.

7. However, the Act will not apply to undertak­ings, which are owned or controlled by a Govern­ment company or the Government, and are engaged in the production of arms and ammunition and al­lied items of defence equipment, defence aircraft and warships, atomic energy, minerals specified in the schedule to the Atomic Energy (Control of pro­duction and use) Order 1953, and industrial units under the currency and coinage division, Ministry of Finance, Department of Economic Affairs.

Comments on the New Amendment:

1. The decision to remove the pre-entry restric­tions on establishment of new undertakings, amalgamation and merger are welcome as these would help companies in achieving economies of scale and enable them to reduce cost of production and become more competi­tive in the international markets.

However, the transfer of provisions (Sections 30A to 30G) as sections 108A to 108 of the Companies Act, is a retrograde step. Section 30A to 30G place restrictions on the acquisition and transfer of shares in cer­tain cases.

These, inter alia, provide for prior approval of the Central Government in respect of even transfer of shares from the constituent within a ‘group’ to another in the same ‘group’.

As such, these sections should have been altogether abolished, as transfer of shares within the group does not lead to any further concentration of economic power of that group, as no increase on the holding of the group is involved and hence there should be no need for permission from the Govern­ment.

2. Further in the present context, there is a need for an orderly growth of the capital market and that shares are freely negotiable and transferable. Such restrictions have also now lost relevance as foreigners have been allowed to float subsidiaries in India with 51 per cent equity.

3. There has also been no attempt to amend some of the unrealistic definitions given to certain relevant terms under the Act like ‘Inter­connection’, ‘Dominant Undertakings’, ‘Group’, ‘Assets’, etc. These definitions need to be re­-examined and recast in practical terms if the Act has to be restructured more realistically.

4. Moreover, the Government still retains its dis­cretionary power to direct division of an un­dertaking and severance of inter-connection between undertakings. This seems to be anach­ronistic and is not in tune with the liberal thinking envisaged in the New Industrial Pol­icy, 1991.