LEGAL ENVIRONMENT OF BUSINESS With special reference to Indian Acts
MRTP ActThe Directive Principles of Indian constitution suggest that ownership and control of material resources should be widely distributed and there should be no concentration of wealth and means of production. With this in mind, the Monopolistic and Restrictive Trade Practice Act, 1969, was enacted so as to:
ensure that the operation of the economic system does not result in concentration of economic power to the common mans detriment, control the power of monopolies, prohibit monopolistic and restrictive trade practices.
The Act was amended in 1974,1980,1984,1988 and in 1991. The Act placed many restrictions on companies having assets of more than Rs. 100 crores in respect of new projects, expansion, diversification, mergers, and even in the appointment of directors.
Before the 1991 amendment, the MRTP law sought to control the concentration of economic power by requiring undertakings that had assets over Rs. 100 crores and/or were dominant undertakings to register themselves with the Monopolies and Restrictive Trade Practices Commission. If such an undertaking wishes to expand and enter a new line of production or to participate in mergers, amalgamations and takeovers, it had to seek permission from the government.
Pre-entry restriction on MRTP companies hindered the rapid growth of industry and in turn of the economy. For rapid industrialization, the Act was amended in September 1991 and all entry restrictions on MRTP companies i.e. companies having group assets of over Rs. 100 crores were removed. Now the MRTP Act concentrates only on controlling and regulating the monopolistic, restrictive and unfair trade practices and concentration of economic power to a limited extent.
Monopolistic Trade Practice is one that hasor is likely to have any of following effects: Limiting or controlling production, supply or distribution of goods or services and thereby maintaining price of goods or charge or service at an unreasonable price. Unreasonably preventing or lessening competition.
Limiting technical development or capital investment or allowing quality of goods or services to deteriorate. Unreasonably increasing prices of goods or services. Unreasonably increasing the cost of production or charges for any services.
Unreasonably raising the profits on production, supply or distribution of goods or services. Adopting unfair or deceptive methods to reduce or prevent competition in goods or services.
Restrictive Trade Practice (RTP)A Restrictive Trade Practice is one which has, or may have, the effect of preventing, distorting or restricting competition in any manner and in particular: which tends to or obstructs flow of capital or resources for production, which tends to impose unjustified costs or restrictions on consumers, relating to goods and services by manipulation of prices, or by conditions of delivery or to affect supplies in market.
The deemed RTPs are as follows:Restrictions on buying / selling: This means restricting person or persons to whom goods may be sold or from whom to be bought. Such as Trade Associations that asks their members not to deal in goods of a particular manufacturer. A Manufacturers restricting its distributor to appoint a
sub-distributor or dealer without prior permission.A manufacturer restricting its dealers/distributors to supply goods to particular institutions or consumers.Distributors selling goods to third party without prior permission of the manufacturer, etc.
Tie in Sales or Full Line Forcing: This means requiring a person to purchase something else compulsorily, along with goods he wants to purchase. Such as forcing dealers to purchase orange drinks with cola drinks, or forcing purchase of gas stoves with gas connections, requiring dealers to maintain a minimum level of stock of the full range of products of the manufacturer, schools making it mandatory to buy uniforms and books only from their own shop, etc.
Exclusive Dealing Agreement: It is about forcing not to deal with goods other than those of the seller. For instance dealers not to deal with similar type of products of the competitor, or buyers force manufacturers not to manufacture identical goods for any other buyer without consent of the particular buyer, producers enter into a long term contract with an artist prohibiting him from giving performances anywhere else, agreements wherein a distributor will purchase goods only from the manufacturer or from some other as may be nominated by him.
Collective Price Fixation and Tendering: This is a collective agreement to purchase or sell or to tender only at agreed prices or terms. This is called cartel. It is also called the Knock Out Agreement. For instance when tyre or cement manufacturers, or some trade associations increase prices or restrict supply uniformly and simultaneously, by mutual agreement.
Discriminatory Dealing: Giving concessions or benefits on the basis of turnover or giving huge discount to large buyers will be considered as RTP, if such discounts are injurious to competition. However, discounts are very common in business and many discounts are not considered as discriminatory as cash discount on prompt payment, discount to different classes of customers as government and private customer, incentive to increase sales, newspapers charging different rates for different pages of newspaper, etc.
Resale Price Maintenance:This means not allowing resale below a certain price or not to sell above a particular price. If maximum price is indicated, the dealer should be free to charge below the indicated price.
Restriction on Output or Supply: This means an agreement to limit, withhold or restrict the output or supply or any goods or allocate any market or areas for disposal of goods.Restriction on Manufacturing Process: This means an agreement not to use a particular method, machinery or process in the manufacture of goods.
Price Control Arrangement: This means an agreement to sell goods with a view to eliminate competition or any competitor.Restriction on Buying: To restrict the class or number of wholesalers, producers or suppliers for whom goods may be bought is an restrictive trade practices.
Collective Bidding: This means an agreement among the contenders for bid to be offered at auction or not to be bid at auction.Agreement Declared by government to be restrictive:The government has powers to declare any agreement as restrictive on the recommendation of the Commission.
Besides all these, many others are treated as RTP. Such as Dumping of goods, deficiency in insurance services, insisting on collection of gas cylinders from shop, accepting deposits for supply without any . possibility of supply, not providing a house as promised, failure to refund deposits, wide variations in prices in different regions, etc., are treated as restrictive trade practices.
Unfair Trade PracticeThe practices which are Unfair Trade Practices as per the act are:
False representation False Offer or Bargain Price Offering gifts, prizes etc. and conducting promotional contests with the intention of not providing them Not complying to Product Safety Standards Hoarding or Destruction of Goods
Governing Body MRTP Commission It is the commission that governs the MRTP Act Director General of Investigation and Registration.
CONSUMER PROTECTION ACT 1986In the Indian scenario the following factors can said to be reasons for the rise of the consumer protection movement :
Consumer Information Gap: The consumer who is buying a television is not an electronic engineer. Similarly, a person buying the services of doctor or advocate does not know whether he is receiving the right service or not. He comes to know their worth only after communing the product or availing of the services. These things exit because of a lack in consumer information. They also do not have the time, interest, capacity, and competence to acquire authentic information and to make the informed decisions.
Pattern of Communication: The impact of alternation patterns of communication which include advertising through mass media like the radio, television, newspapers and cinema, have actually towards widening on increasing the information gap. The media, which provides for information is easily manipulated by marketing experts and business stalwarts. This results in consumer exploitation, which. is extenuated by the increasing impersonalization of communication structures and through the development of new technologies. In such a scenario, the consumer lands in utter confusion that increases his distress.
Performance Gap: Being influenced by the communication provided by the company, the consumer purchases products and services with certain expectations. In many cases, the quality provided and the promises made in communication or while selling do not meet his expectations. The consumer has to live with of product failure almost everyday. Since the problem is manifold and arises almost daily, it is difficult for an Indian consumers to move to the court for redressal of his problems. This has also given rise to the demand for better protection to the consumers all around.
Absence of informed Participation:The absence of consultation with the consumer or of their representatives in policy formulation often results in implementation of certain decisions that adversely affect consumers. In most cases, undertakings and institutions are seen avoiding the . The absence of a clear doctrine in this regards has generated strong dissatisfaction among consumers and has created an environment in which consumerism thrives.
Budget Squeeze and Inflation: There are two factors, that contribute to the budget squeeze. The first one is increased income and the sociological forces, which have created expectations for a better lifestyle. This in turn, demands new producers requiring new expenditure for products and services. Secondly, inflation absorbs a major portion of increased income resulting in retarding peoples ability to buy. It has a direct impact on the cost of living.
Poverty of Consumers: The Poor and illiterate people are widespread in India and they suffer the most from frauds, excessive prices, exorbitant credit charges, and poor quality of merchandise and services. They lack education, consumer education in particular, and are unable to improve their purchase decisions.
Consumer RightsEvery year, March 15 is observed as "World Consumer Right Day". Its significance is that in 1962 on this day John Fitzgerald Kennedy, the then president of the US declared four consumer rights. Later, International Organization of Consumers Union (IOCU) added three more rights to the Ii t. The government of India too included these rights in its 20-point programme. These have also been incorporated in the United Nations Charter of Human Rights. These are:
Right to Safety Right to be Informed Right to Choose Right to be Heard Right to Redress Right to Healthy Environment Right to Consumer Education
The foremost objective of the Consumer Protection Bill is to provide for better protection of the interest of the consumer and for that purpose, make provisions for the establishment of Consumer Protection Councils and other authorities for the settlement of consumer disputes and for matters connected therewith.
The term consumer is defined in Section 2(d) of the Consumer Protection Act, 1986 in two parts. One is a consumer who purchases goods The other is a person who hires services
The Act is intended to protect followingrights of the consumers [under Section 6]: The right to be protected against marketing of goods, which are hazardous to life and property. The right to be informed about the quality, quantity, potency, purity, standard and price of goods to protect against unfair trade practices.
The right to be assured, and wherever possible, access to a variety of goods at competitive prices. The right to be heard and to be assured that consumers interests will receive due consideration at appropriate forums. The right to seek redressal against unfair trade practices or unscrupulous exploitation of consumers. The right to consumer education.
Grounds for Appeal for the Jurisdiction to Redressal Forums False representation False Offer or Bargain Price Offering gifts, prizes etc. and conducting promotional contests with the intention of not providing them Not complying to Product Safety Standards Hoarding or Destruction of Goods
Who can file a complaint Consumer himself Legal representative, heirs of the consumer Any voluntary organization Central or state government