CHAPTER 2

S A L IE N T FEATURES OF MRTP ACT

AND METHODOLOGY
 CHAPTER 2

SALIENT FEATURES OF MRTP ACT AMD METHODOLOGY

s a l TENT FEATURES OF MRTP ACT

h a r t in w?v -igs1
3 and camB into force on 1st 3une
The MRTP Act was enacted in Ilay ivo- anu

1969. The Monopolies and Restrictive Trade Practices Commission was

established in 3une 1970. Department of Company Affairs in the Ministry

of Law, 3ustice and Company Affairs administers the MRTP Act. The act xs

j . , r. j ovnrant the state of 3ammu & Kashmir. Some of

applicable to whole of Indxa except m e

the major definitions in the MRTP Act are as follows*.

1. Dominant Undertakings; It is an undertaking whxchs

«i) produces, supplies, distributes or otherwise controls not less

than one-third of the total goods of any description that are
produced, supplied or distributed in India or any substantial

part thereof, or

ii) provides or otherwise controls not less than one-third of any

services that are rendered in India or any substantial part

thereof”.

2. Mnnnnnl istlc Trade Practices!, means a trade practice which has, or

is likely to have, the effect ofs-

"i) maintaining prices at an unreasonable level by limiting reducing

or otherwise controlling the production, supply or distributxon
of goods' of any description or the supply of any services or in

any other manner,

ii) unreasonably preventing or lessening competition in the produc­
tion, supply or distribution of any goods or in the supply of

any services,

iii) limiting technical development or capital investment to the

oommon detriment or allowing the quality of any goods produced,
supplied or distributed, or any service rendered, in India to

deteriorate".

Mnnonolistir. Undertaking:, means

»i) a dominant undertaking which, or

ii) an undertaking which, together with not mors than two other

independent undertakings

a) produces, supplies, distributes or otherwise controls not

less than one-half of the total goods of any description
that are produced, supplifd or distributed in India or any

substantial part thereof, or

b) provides or otherwise controls not loss than one-half of

the services that aro rendered in India or any substantial

part .thereof".

Raot.rir.ti vs Trade Practices!, means a trade practice which has, or

may have, the effect of preventing, distorting or restricting com­

petition in any manner and in particular,-

"i) which tend® to obstruct the flow of capital or resources into

the stream of production, or

Ii) which tends to bring about manipulation of prices, or conditions

of delivery or to effect the flow of supplies in the market
. relating to goods or services in such manner as to impose on
the consumers unjustified costs or restrictions .
 42

THE POWERS OF COMMISSION IN -RELATION TO ENQUIRY INTO MONOPOLISTIC

OR RESTRICTIVE TRADE PRACTICES

The Commission may inquire into-

J*a) any restrict!ys trade practice—

i) Upon receiving a complaint of facts which constitute and practice

from any trade or consumers' association having a membership of
not less than twenty-five persons or from twenty-five or more

consumers, or

ii) Upon a reference made to it by the Central Government or a State

Government, or -

iii) Upon an application made to it by the Registrar, or

iv) Upon its own knowledge or information!

b) any monopolistic trade practice, upon a reference made to it by the

Central Government or upon its own knowledge or information.

Thus, in addition to receiving applications from the Registrar of

Restrictive Trade Agreements (RRTA), from Central or State Government/s,

from Association of Consumers, MRTPC on its own (.Suo Mo.tu) can initiate

enquiries in case of Restrictive Trade Practices. However, in case of

Monopolistic Trade Practices, the MRTPC has powers to recommend to the

Government only. In addition to the clause mentioned above regarding

initiation of Monopolistic Trade Practice enquiries, the Commission can

while investigating Restrictive Trade Practices also enquire into the

Monopolistic Trade Practices being indulged in by the companies.

 Monopolistic Trade Practices are deemed to bo prejudicial to Public

Interest when the effect of such practice is or would be-

«a ) to increase unreasonably the cost relating to the production,

supply or distribution of goods or the performance of any

service;

b) to increase unreasonably-

i) the prices at which goods ere sold, or

ii) the profits derived from the production, supply or distri­

bution of goods or from the performance of any service;

c) to reduce or limit unreasonably competition in the production,

supply or distribution of any goods (including their sale or

purchase) or the provision of any service;

d) to limit or prevent unreasonably the supply of goods to consumers

or the provision of any service^

e) to result in a deterioration in the quality of any goods or in

the performance of any service •

Reqjstorable Agreements

Section 33 defines the rogistarabls agreements related to Restrictive

Trade Practices. Any agreement relating to a trade practice falling with­
in one or more of the following categories is subject to registration
with the Registrar of Restrictive Trade Agreements (RRTft)s

"a) any agreement which restricts, or is likely to restrict, by any

method the persons or classes of persons to whom goods are sold

or from whom goods are bought;

 44
b) any agreement requiring a purchaser of goods, as a condition of
such purchase, to purchase some ether goods?

c) any agreement restricting in any manner the purchaser in the

course of his trade from acquiring or otherwise dealing in any
goods other than those of the se_lor or any other person,

d) any agreement to purchase or sell goods or to tender for the

sale or purchase of goods only as prices or on terms or con­
ditions agreed upon between the sellers or purchasers?

e) any agreement to grant or allow concessions or benefits, includ­

ing allowances, discount, rebates or credit in connection with,

or by reason of, dealings?

f) any agreement to sell goods on condition that the prices to be

charged on re-sale by the purchaser shall be the prices stipulated
by the seller unless it is clearly stated that prices lower than

those prices may be charged?

g) any agreement to limit, restrict or withhold the output or supply

of any goods or allocate any area or market for the disposal of

the goods?

h) any agreement not to etrploy or restrict the employment of any

method, machinery or process in the manufacture of goods?

i) any agreement for the exclusion from any trade association of any
person carrying on or intending to carry on, in good faith the
trade in relation to which the trade association is formed;

j) any agreement to sell goods at such prices as would have the

effect of eliminating competition or a competitor;
 45

k) any agreem ent n o t h e r e i n b e f o r e r e f e r r e d to i n t h i s s e c t i o n which

th e C e n t r a l Government may, by n o t i f i c a t i o n i n th e O f f i c i a l
G a z e t t e , s p e c i f y f o r t h e tim e b e i n g as b s i n g one r e l a t i n g t o
a r e s t r i c t i v e t r a d e p r a c t i c e w i t o i n th e meaning o f t h i s s u b - s e c ­
t i o n p u r s u a n t t o any recommendation made by t h e Commission

in t h i s b e h a l f ,

l5 any agreem ent t o e n f o r c e t h e c a r r y i n g o u t of any such a g r e e ­

ment a s i s r e f e r r e d t o i n t h i s s u b - s e c t i o n .

However, S e c tio n 3 3 ( 3 ) o f t h e Act exem pts such a g re e m e n ts from r e g i s t -

- a tio n i f i t i s e x p r e s s l y a u t h o r i z e d by o r u n d e r any law f o r t h e tim e

t .-vF 4-h o Government o r i f 1* th o
38ing i n f o r c e o r has t h e a p p r o v a l o f t h e - a n t r a l

lovernraent i s a p a r t y to such a g r e e m e n ts .

Dublin Interest Gateway^

Four d i f f e r e n t uaya o f i n i t i a t i o n t h a R a a t r i c t W a T rade P r e c t i c o en­

q u i r i e s ( RTP e n q u i r i e s ) haue been m e n t i o m d in e a r l i o r p a r a g r a p h s . For

I . to t h e MRT3C, a r e s t r i c t i v e t r a d e p r a c t i c e
th e purpose o f p ro ceed in g s b e fo re th e
. r.n th B o u b l i c i n t e r e s t u n l e s s t h e Com mission
i s rlaRrnari t o b e p r e j u d i c i a l t o t h e pU D ii,c_ i-------------

i s s a t i s f i e d o f one o r more o f t h e f o l l o w i n g c i r c u m s t a n c e s .

«a ) t h a t t h e r e s t r i c t i o n i s r e a s o n a b ly n e c e s s a r y , h a v in g r e g a r d
t o t h e c h a r a c t e r o f t h e goods t o which i t a p p l i e s , t o p r o t e c t
t h e p u b l i c a g a i n s t i n j u r y ( w h e th e r t o p a r s o n s o r t o p r e m is e s )
in c o n n e c tio n w ith t h e c o n su m p tio n , i n s t a l l a t i o n o r use o

t h o s e goods?
 46
b) that the removal of the restriction would deny to the public as
purchasers, consumers or users of any goods, other specific and
substantial benefits or advantages onjoyod or likely to be enjoy­
ed by thorn as such, whether by virtue of the restriction itself
or of any arrangements or operations resulting therefrom",

c) that tho restriction is reasonably necessary to counteract

measures taken by any one persor not party to the agreement
with a view to preventing or restricting competition in or
in relation to the trade or business in which the persons

party thereto are engaged?

d) that the restriction is reasonably necessary to enable the

persons party to the agreement to negotiate fair terms for the
supply of goods to, or the acquisition of goods from, any one per­
son not party thereto who controls a preponderant part of the
trade or business of acquiring or supplying such goods, or for
the supply of goods to any person not party to the agree­
ment and not carrying on such a trade or business who, eithor
alone or in combination with any other such persons,
controls a preponderant part of the market for such goods?

b ) that, having regard to the conditions actually obtaining or

reasonably foreseen at the time of the application, the removal
of the restriction would be likely to havt* a serious and per­
sistent adverse effect on the conera! level of unemploy­
ment in an area, or in areas token together in which a substantial
proportion of the trade, or incustry to which the agreement

relates is situated?

f) that, having regard to the conditions actually obtaining or

reasonably foreseen at the time of the application, the removal
of "he restriction would be likely to cause a reduction in tho
volume or earnings of tho export business which is substantial
 47

either in relation to the whole export business of India or In

relation to the whole business (including export business) of

the said trade or industry!

g) that the restriction is reasonably required for purposes xn

connection with the maintenance of any other restriction accepted
by the parties, whether under the same agreement or under any
other agreement between them, being arestriction which is found
by the Commission not to be contrary to the public interest upon
grounds other than those specified in this paragraph, or has
been so found in previous proceedings before the Commission! or

h) that the restriction does not directly or indirectly restrict or

discourage competition to any material degree in any relevant
trade or industry and is not lively to do so.

Thus the respondent in a RTP enquiry has to prove that one or more

of the above conditions exist, otherwise tie restrictive trade clauses are

not allowed to bs retained in the agreements by the Commission. It may bo

noted that the "public interest gateways" mentioned above from (a) to (h)

are oxactly the samo as given in the Monopolies and Trade Practice Enquiry

Act, UK. The Commission has to be satisfied that the rostnction/s are

not unreasonable having regard to the bnlence. between those circumstances

and in detriment to the public or the parties to the agreement.

in case of monopolistic trade practices enquiries, after receiving

findings from MRTPC, the Central Government may pass any order including

tho followings
 48

"a) r e g u l a t i n g t h e p r o d u c t i o n , sup p ly d i s t r i b u t i o n o r c o n t r o l o f
any goods by t h e u n d e r t a k i n g o r t h e c o n t r o l o r s u p p ly o f any
s e r v i c e by i t and f i x i n g t h e term s o f s a l e ( i n c l u d i n g p r i c e s )

o r s u p p ly t h e r e o f ;

b) p r o h i b i t i n g t h e u n d e r t a k i n g from r e s o r t i n g t o any a c t o r p r a c t i c e
o r from p u r s u i n g any com m ercial p o l i c y which p r e v e n t s o r l e s s e n s ,
o r i s l i k e l y to p re v e n t o r le s s e n , c o m p etitio n in th e p ro d u c tio n ,
s u p p ly o r d i s t r i b u t i o n o f any goods o r p r o v i s i o n o f any s e r v i c e s ;

c) f i x i n g s t a n d a r d s f o r t h e goods used o r p roduced by t h e u n d e r­

ta k in g ;

d) d e c l a r i n g u n l a w f u l , e x c e p t t o such e x t e n t and i n such c ir c u m s ­

t a n c e s as may be p r o v id e d by o r u n d e r t h e o r d e r , t h e making o r
c a r r y i n g o u t o f any such a g f e e m s s t as may be s p e c i f i e d o r d e s c r „ b

ed i n t h e o r d e r ;

0) r e q u i r i n g any p a r t y t o any such agrsam ent a s may be so s p e c i f i e d

o r d e s c r i b e d t o d e te r m in e t h e agreem ent w ith in such tim e as may
be so s p e c i f i e d , e i t h o r w holly c r t o such e x t e n t as may bo so
s p e c i f i e d ."

CONCENTRATION OF ECONOMIC POUJER

C h a p te r I I I o f MRTP Act r e l a t e s t o C o n c e n t r a t i o n o f Economic Power.

P a r t A o f th o c h a p t e r d e f i n e s t h e u n d e r t a k i n g s which a re r e q u i r e d t o ta k e

p e r m i s s i o n o f t h e Government f o r s u b s t a n t i a l e x p a n s io n ( S e c t i o n 2 1 ) , e s t a b ­

li s h m e n t o f new u n d e r t a k i n g s ( S e c t i o n 2 2 ) , m e rg e r/a m a lg a m a tio n ( S e c t i o n

2 3 (2 ) ) and a c q u i s i t i o n / t a k e o v e r ( S e c t i o n s 2 3 (4 ) and 2 3 (8 ) ) . Under­

t a k i n g s to which C h a p te r I I I o f IWIP Act i s a p p l i c a b l e a re d e f i n o d as*.

 49.

»a) an undertaking if the total value of—

i) Its own assets, or

il) its own assets together with theasssts of its intar-connected

undertakings,
is not less than twenty crores of rupaosf

b) a dominant undertaking-

i) where it is a single undertaking, the value of its assets,

or

ii) where it consists of more than one undertaking, the sum

total of the value of the assets of all the inter-connected
undertakings constituting the dominant undertaking,

La not less than one crore of rupees.rt

Undertakings to which the above definitions apply have to rogister

under Section 26 of the PIRTP Act. All the proposals of such undertakings

for expansion (more than 25%) as defined in Section 21, establishment of

new undertakings (as defined in Section 22), merger/amalgamation (as defined

in Section 23(2), acquisition/takeover (as defined in Section 23(4) and

23(8) have to obtain approval of bhs Central Government before implementing

their proposals. If the Central Government is of tha opinion that no such

approval can be made without further enquiry it may refer the matter to

RRTPC, which after such hearings as it thinks fit report to the Central

Government its recommendations. Thus the Central Government (Department

of Company Affairs in the ministry of Law, Justice and Company Affairs

which administers the Act) may or may not refer the proposals for rsccmmen-

dations of MRTPC.
 50

DIVISION OF UNDERTAKINGS.

If the Central Government is of the opinion that the working of an

undertaking roistered under MRTP Act is prejudicial to the public interest,

or has led, or is leading, or is likely to lead, to the adoption of any

monopolistic or restrictive trade practice, refer the matter to the Com­

mission for an enquiry (Section 27 of the Act) as to whether it is expedient

in the public interest to make an order,-

"a) for the division of any trade of the undertaking by the sale of
any part of the undertaking ror assets thereof, or

b) for the division of any undertaking or inter-connected under­

takings into such number of undertakings as the circumstances

of the case may justify.

If the Commission so recommends the Government may direct the division

of any trade of the undertaking or of its inter-connoeted undertakings.

MATTERSTO BE CONSIDERED BY THE CENTRAL GOVERNMENT BEFORE ACCORDING APPROVAL

In exercising its powers for the approvals mentioned above for subs­

tantial expansion, establishment of new undertakings, merger/amalgnmation,

acquisiticn/takeover and division of undertakings, the Central Government

or as the case may bo, the MRTPC shall have to take, among other things,

following matters into account consistent with tho general economic

position of the country.

 51

"a) to achieve the production, supply and distribution, by most

officiant and economical means, of goods of such types and
qualities, in such volume and at such prices as will bast
meet the requirements of the defence of India, and home and

overseas markets|

b) to have the trade organised in such a way that its efficiency

is progressively increased?

c) toi ensure the best use and distribution of men, materials and

industrial capacity in India,

d) to effect technical and technological improvements in trade and

expansion of existing markets and the opening up of new markets;

e) to encourage new enterprises as a countervailing force to the

concentration of economic power to the common detriment;

f) to regulate the control of the material resources of the com­

munity to subservo the common good; and

g) to reduce disparities in development between different regions

and more especially in relation to areas which have remained

markedly backward.

It may be noted that the above principles for examining the proposals relat­

ed to concentration-of economic power are also straightaway lifted from the

U.K. Monopolies (inquiry and Control )Act, 1948. It is on the basis

of above principles mentioned in the Act itself that the government as well

as MRTP Commission have to enquire into the cases related to concentration

of economic power.
P r n n e r l u r e f o ^ D i s p o s a l o f to D l i c a t i o n s _ j m O S L ^ 2 ± I l 2 I L ^

All undertakings to which provisions of chapter III (Concentration

of Economic Power) o f MRTP Act are applicable have to register under the

MRTP Act,

After the Act came into force, an inter-Ministerial Advisory Committee

(mAC) was constituted in the Department of Company Affairs to oonsi

applications under Section 21 (Substantial Expansion) and Section 22

(Establishment-of new undertakings) of the Act. If'IAC was entrusted with

the function of considering the proposals and advising the Government

whether * reference may be made to the MRTPC and whether the proposals

should be approved or rejected without such a reference. In cases where

the proposal# was referred to the MRTPC and after the commission

had submitted a report, the Central Government gave an opportunity to

the applicant to be heard before passing a final order.

The final orders were issued after approval by the Cabinet Com­

mittee on Economic Policy and Co-ordination except in cases where the

proposal was to be rejected, and the Administrative Ministry concerned

concurred in the decision of the Department of Company Affairs to reject.

T h e m a t t e r was p li a c e dj b e f o r e t-ho
t n e TMAC
i i w u ad fut se tr t h e concerned M in i s tr ie s

including the Department of Economic Affairs, the Department of Banking,

DGTD, DCSSI and Planning Commission had given their views on the proposal,

in cases uhere the I (D*R) Act was applicable, the application had to be

routed through tho Licensing Committee.

 53

Procedure aftST iMoVGfnb^r '19*73

Aftor 1st November 1973, a now procedure for simultaneous pro­

cessing of applications under the l(D&R) Act and MRTP Act was brought

into force. On the basis of suggestions of a Committee to look into

the streamlining of licensing procedures, a secretariat for Industrial

Approvals (SIA) was established in the Department of Industrial Deve­

lopment. In the case of undertakings registered under MRTP Act (MRTP

undertakings), simultaneous applications under the MRTP Act and l(D&R)

Act are made to the Department of Company Affairs and SIA. The applications

are considered by the Licensing-cum-MRTP Committee or the Project Approval

Board. For the applications under MRTP Act, the Licensing-cum-MRTP

Committee discharges the function of IMAC. In cases where l(D&R) Act is

not applicable, the procedure of IMAC considering these applications

continues. Regarding the final approval, as far as applications under

MRTP Act are considered, the matter is finally approved by the Minister of

Law, Tustioe and Company Affairs and is not required to be cleared by the

Cabinet Committee on Economic Policy and Coordination.

Data Sources and Sample

Basic data sources for accomplishing the research objectives

were considered and it was decided to analyse the orders of the Government

in relation to substantial expansion, establishment of new undertakings,

merger/amalgamation and aeguisition/takeover. The Department of Company

Affairs was approached to got copies of the Government Orders and reports

of the MRTP Commission. Since the cooperation from Department of

 54

Company Affairs was not forthcoming, it was decided to analyse the orders

available in the official publication of the Department of Company

Affairs, namely, Company News & Notes. For the judgements of MRTP Commis­

sion in'Restrictive Trade Practices enquiries, the Commission's office was

approached and all the orders passed by the flRTP Commission till August

1976 were obtained.

The orders of government in relation to the proposals for substantial

expansion, establishment o f ‘new undertakings, marger/amalgamation, acquisx-

tion/takeover passed'sines the inception of WRTP Act till August 1977 were

collected for analysis. 156 Government Orders for substantial expansion,

125 orders for establishment of new undertakings, 24 orders for acquisition/

takeover and 12 orders for merg.er/amalgamation were available for analysis.

The Central Government since tho inception of MRTP Act till November 1976

had passed 272 orders' for substantial expansion, 125 orders for estab­

lishment of new undertakings, 37 orders for acquisition/takeover and 24

orders for merger/r.malgamation. Thus the sample of orders available for

the present study was a fair share of the total number of orders passed

by the Government.

The information available in these orders was coded in the follow­

ing manners

1. The house affiliation of the applicant

2. Whether tho undertaking was Indian or had Foreign majority

shareholding, and whether the applicant belonged to ’Large'

1dominant!
 55

3. The investment involved in the proposal

4„ Th -3 p r o d u c t c a t e g o r y f o r uihich t h e p r o p o s a l has made

5. The industrial classification of the item involved in proposal,

coded according to the list of "scheduled industries" and the

list of industries "OPEN" to large houses

6. Date of application and date of order

7. Whether the proposal was referred to flRTP Commission by Govern­

ment, date of reference to MRTPC, date of oxriers of MRTPC and

the recommendations of MRTPC.

B. Tne order of the Government and the date of order. Orders of

Government was coded as approved without conditions, approved
with conditions, partially approved with conditions, and reject­

ed. Similar coding was done for the orders of MRTPC.

9. The arguments of the applicants for approval of the proposals were

coded from 1 to 29. The analysis/arguments of government for

approval wore also coded on the same basis from 1 to 29.

10. The arguments for rejection by Government were coded from 1 to 16

for substantial expansion and from 1 to 20 for establishment of

new undertakings. Similar coding uas done for reasons for

recommending by MRTPC.

11. Conditions of Government Order subject to which approvals were

granted were coded from 1 to 44.

12. The arguments of MRTPC for approval.rejection and the conditions

of MRTPC subject to which the approval was recommended were

coded similarly.

All the Orders passed by MRTP Commission for Restrictive Trade

Practices Enquiries since the inception of MRTP Act till August
1976 wore obtained. There ware 102 such orders available.
 56

The judgements of I»1RTPC in relation to Restrictive Trade Practices’

enquiries were coded in the following manners

1. The applicant classification - Registrar of Restrictive Trade

Agreementss Suo flotu by flRTPC, the dealer association, con­
sumers association, Central Government/State Government/s.

2. The respondent classification — individual manufacturer, group of

manufacturers, a manufacturer and dealer/s, group of dealers/

dealers' associations, marketer and contractual producer.

3. The Restrictive Trade Practices alleged in the complaintswera

coded in five major classifications - price related restrictions,
product related restrictions, distributor related restrictions
and restrictions related to manufacture and' any other restrictions.

Each one of these categories of restrictions were further sub­

divided. For example, restrictions on price, u- ere further
classified as minimum resale price, specific resale price, price

' fixing by collusion, discriminatory prices, etc.

4. The items manufactured/marketed by the respondents as industrial,

consumer durable, and consumer non-durablo.

5. The orders passed by the P1RTPC wore categorised, e.g. order

requiting cessation of alleged practices, order allowing
continuation of alleged restrictive trade practices, etc.

6. The orders of F1RTPC were classified as to whether the case

was contested or the respondent accepted consent orders.

To seek opinions'and comments of respondents involved in thejftRTP Ji!

Cv+Sl. T&tXWrL , ,
Gases trade practices casess a questionaire u/as sent to the Chairman/

Managing Directors of various companies. About 100 questxonaires were

sent* Inspite of repeated reminders and requests^ only one filled—up

quostionaire yas sent by respondents* Further field work xn relation to

 57

to restrictive trade practices enquiries' which was intended to be done

after receipt of questionaires could not there^be attempted.

Thus, the analysis done in this study is based on copies of Orders

passed by Central Government in relation to concentration of economic

power and judgements passed by MRTPC in case of Restrictive Trade Practices

enquiries.

Potential errors

Regarding affiliation of applicants to various houses, in majority

of cases, the Government order specifies the house affiliation of applicant.

In cases, the affiliation was not available from Government orders, list

of undertakings conprised in various houses were •hocked from reports of

Dr. Hazari and Monopolies Enquiry Commission and oral inquiries wore made

to doubly ensure the accuracy of affiliation. However, there could be

possibilities of a potential error in this regard. Similar possibilities

could exist in terms of foreign majority affiliation.