This article is written by KAMAL, Faculty of Law, University of DELHI, LL.B-3rd year during his internship at LeDroit India
Following its independence, India enacted and implemented policies that included “Laws, rules, regulations, and executive directives that “command and control” One such instance of a command and control economy was the MRTP Act. However, significant economic changes were implemented, and as a result, the march from “The 1991 modifications to the Monopolies and Restrictive Trade Practices Act signaled the start of the transition from a command-and-control economy to one that was more based on free market principles.
Objectives of The MRTP Act
The MRTP Act was passed into law in December 1969 after a protracted discussion of the Bill. The MRTP Commission was established in August of the same year as it entered into force in June of that year. Prior to the Competition Act of 2002, the MRTP Act of 1969 substantially included the competition legislation. The Act addresses the idea of monopolistic and constrictive business practices, and then unfair business practices. It takes its cues from Articles 38 and 39 of the Constitution, which mandate that the State work to advance public welfare by securing and protecting a social order in which socio-economic justice informs all institutions of national life, ensures that ownership and control of material resources are distributed in a way that serves the common good, and bases the functioning of the economic system in a way that does not lead to concentrated poverty.
The Act was primarily founded on four guiding principles:
(1) Social justice with economic progress;
(2) Welfare state;
(3) Regulating the concentration of economic power to the detriment of the public interest; and
(4) Controlling monopolistic, unjust, and restrictive trade practices.
DRAWBACKS OF MRTP ACT
- EXTREME GOVERNMENT REGULATION
The MRTP Act imposed an excessive level of government control on all firms, no matter how big or little. Before engaging in any kind of corporate restructuring, businesses were required to get approval from the central government. Many companies deemed it arbitrary and refused to follow the lengthy, difficult process, which would have prevented their company from surviving. Such a clause hinders the free movement of diverse market participants, contradicting the fundamental aim of the law and also having an impact on the end user.
2.A VAGUE LAW
Activities that hindered, blocked, or hampered competition in any manner were considered “restrictive trade practices,” as defined in Section 2(o) of the MRTP. The definition that would have helped decide whether a certain behaviour would be limiting and so be considered an offence under the Act was omitted, nevertheless. There are other key terminologies for anti-competitive behaviour as well, including cartels, price fixing, collusion, predatory pricing, abuse of dominance, etc. The fact that Section 2(o) covered all potential offences resulted in a wide range of interpretations by different courts, rendering the law’s essential provisions ineffective.
3. PER SE RULE INSTEAD OF THE “RULE OF REASON,
” the MRTP Act’s many offences were all viewed as being unlawful per se. Despite being acknowledged by the Apex Court in the case of Telco v. Registrar of Restrictive Trade Agreements, the rule of reason that was formed over the process of this Act was not applied in this law. The rule of reason was made useless in light of the 1984 Amendment, and the per se rule reappeared.
4. DOMINANCE IS BAD IN WHOLE
In the MRTP Act, dominance was regarded as negative per se if it was established, regardless of whether a party had misused it or not. An company would be deemed dominant if it controlled more than 25% of the market share for either products or services, according to a rigid mathematical standard that was once employed to make this determination. This, however, was flawed since if a company controlled, say, 24% of the market, it would not be regarded as dominating. This was unjust and a colossally high price to pay for the additional 1%.
5. EXCESSIVE EXPORT PROMOTION
Section 38 of the MRTP provided that if any business undertaking had the potential to produce high exports in the future, they had a pass from all authorities and that all anti-competitive practises would be monitored. This was done to facilitate an increase in foreign exchange. Just to make money in foreign currency, there was no thought given to the negative effects or problems it can cause on the market. The main issue was that, more often than not, it would result in more spending than in foreign cash being generated.
6. VOLUNTARY DISCLOSURE POLICY
Because there was no body that kept an eye on or controlled the same, the MRTP Act essentially relied on the voluntary disclosure given by businesses. As there was basically no means to keep an eye on it, many firms would frequently register themselves later or not at all. This might occasionally be counterproductive. Businesses would also find it advantageous since it would keep them off the authorities’ radar.
7. INEFFECTIVE MRTP COMMISSION
The Act called for the creation of an MRTP Commission to serve as the country’s administrative and judicial authority, regulating and adjudicating anti-competitive acts. Although it was primarily a judicial body, there were a number of concerns about its independence because the members were chosen by the government, in addition to other administrative flaws that adversely affected the body’s effectiveness and efficiency, such as protracted delays in member appointment and replacement, reluctance to open new branches or appoint new members, etc.
Another oddity that hindered the Commission’s efficient operation was the fact that the Government would ultimately determine whether or not to submit a certain issue to the Commission. The Government also used to make judgments regarding the same issues on its own, without even consulting the experts chosen to the Commission, negating the fundamental purpose of its creation. The MRTP Commission’s viewpoint was no longer necessary.
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