Restrictive Trade Practices Policy in India

Author(s): P. V. Krishna Rao and K. P. Sastry

Source: The Journal of Industrial Economics, Vol. 37, No. 4 (Jun., 1989), pp. 427-435
Published by: Wiley
Stable URL: http://www.jstor.org/stable/2098377
Accessed: 24-08-2017 04:18 UTC

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide
range of content in a trusted digital archive. We use information technology and tools to increase productivity and
facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.

Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at
http://about.jstor.org/terms

Wiley is collaborating with JSTOR to digitize, preserve and extend access to The Journal of
Industrial Economics

This content downloaded from 27.251.83.10 on Thu, 24 Aug 2017 04:18:19 UTC
All use subject to http://about.jstor.org/terms
THE JOURNAL OF INDUSTRIAL ECONOMICS 0028-1821 $2.00
Volume XXXVII June 1989 No. 4

RESTRICTIVE TRADE PRACTICES POLICY

IN INDIA*

P. V. KRiSHNA RAO AND K. P. SASRY**

The Paper describes the restrictive trade practices policy in India. This is of
recent origin, and is broadly similar to that of the UK. The registration of
agreements under this legislation has provided valuable insight into the
extent of restrictive trade practices. It is suggested that the failure of the Act
lies rather in the administration than in the provisions of the Act, and its
future effectiveness will depend upon the degree to which detection and
enforcement are pursued.

I. INTRODUCTION

THE POLICY towards restrictive trade practices is of only recent origin in In

was not until 1964 that the Indian Government appointed a Monopolies
Inquiry Commission. While this was mainly to inquire into the extent and effects
of concentration of economic power in private hands and suggest measures to
control it, the Commission was also asked to inquire into the prevalence of
restrictive trade practices in important sectors of economic activity and suggest
measures for curbing such practices. The Commission made a very
comprehensive study on the concentration of economic power but could not
make such a detailed study on restrictive trade practices. Indeed no attempt was
made even to ascertain the extent of these practices. However, on the basis of
field studies conducted in important cities and data collected from
manufacturers, the Commission concluded that restrictive trade practices are
widely pursued in India. It made particular mention of horizontal fixing of
prices, exclusive dealing, resale price maintenance, price discrimination and tie-
up arrangements. The Commission found that the 'existing powers of the
Government had not been able to check the growth of concentration of
economic power in private hands, or to eliminate the evils of monopolistic and
restrictive trade practices', and recommended the passing of comprehensive
legislation to correct this state of affairs. It also recommended setting up an
independent agency called the Monopolies and Restrictive Trade Practices
Commission (MRTP Commission), to investigate restrictive trade practices
and to pass necessary orders to control them. Accepting the recommendations
of the Commission, the Government of India enacted the Monopolies and
Restrictive Trade Practices Act which came into force on June 1, 1970. The

* We are grateful to the two referees for their useful comments on the earlier draft of the paper.
** With regret, we must record the death on 12 August 1988 of Dr P. V. Krishna Rao, M.Com.,
Ph.D., Reader in Commerce and Business Administration, Nagarjuna University, Nagarjuna
Nagar, Andhra Pradesh, India.

427

This content downloaded from 27.251.83.10 on Thu, 24 Aug 2017 04:18:19 UTC
All use subject to http://about.jstor.org/terms
428 P. V. KRISHNA RAO AND K. P. SASTRY

present paper examines the provisions of the Indian an

against restrictive trade practices and how it was imp
1970-84. In Sectison II the provisions are briefly discu
the efficacy of the registration provision; an assessm
practice inquiries conducted by the Indian Monopolies Commission is made in
Section IV; Section V discusses the 'gateways'; and a summary and conclusions
are made in Section VI.

I. RESTRICTIVE TRADE PRACTICES AN) THE MRTP ACT

The MRTP Act defined a 'restrictive trade practice' as one 'which has o
have the effect of preventing, distorting or restricting competition in a
and in particular which tends to obstruct the flow of capital or resourc
stream of production, or which tends to bring about manipulation of
conditions of delivery or to affect the flow of supplies in the market
goods or services in such a manner as to impose on the consumers unju
costs or restrictions'.' The Act adopted a system of registration of r
trade agreements and specified various categories including -refusal to
in sales, exclusive dealing, collusive price fixing, price discrimination, resale
price maintenance, allocation of an area or market, control of manufacturing
process, boycott from trade association membership, agreements on price
fixation, collective discrimination and collective bidding.2
The MRTP Commission is an independent body created under the Act, and is
empowered to inquire into restrictive trade practices upon receiving (1) a
complaint from any trade association, or from any consumer, or a registered
consumers? association, (2) a reference received from the Central Government or
State Government, (3) an application from the Director General of
Investigation and Registration, or (4) on the basis of its own knowledge or
information.3 If the Commission finds after inquiry that the practice is
prejudicial to public interest, it can pass 'cease and desist' orders or declare the
restrictive agreement void or direct that the agreement may be mod-ified.4 The
Act has conferred powers- on the Commission to grant an interim injunction
restraining any person from engaging in or continuing with the restrictive trade
practice.5 The Act also empowered the Commission to award compensation to
the affected parties.6
All the restrictive agreements are presumed to be against the public interest
unless the Commission upholds the following conditions.7 Firstly, the

1 MRTP Act, Section 2(0).

2 MRTP Act, Section 33.
3 MRTP Act, Section 10(a).
4 MRTP Act, Section 37.
5MR-TP Act, Section 12A.
6 MRTP Act, Section 12B.
7MRTP Act, Section 38.

This content downloaded from 27.251.83.10 on Thu, 24 Aug 2017 04:18:19 UTC
All use subject to http://about.jstor.org/terms
 RESTRICTIVE TRADE PRACTICES POLICY IN INDIA 429

agreement has to fulfil at least one of eleven8 'gateways' (to be enumerated

below), and secondly, the Commission must also be satisfied that 'theTrestriction
is not unreasonable, having regard to the balance between those circumstances
and any detriment to the public or to persons not party to the
agreement... resulting or likely to result from the operation of the restri
The Act prohibits outright the establishment or enforcement of minimum
resale price.9 The Act also makes it unlawful to withhold supplies from a dealer
on the grounds -that he is likely to sell the goods at cut prices.'0 However,
suppliers are permitted to withhold supplies from dealers who have been using
the goods as 'loss leaders'. " The MRTP Commission is empowered to exempt
particular classes of goods from the general prohibition of resale price
maintenance on one or more of the following specified grounds: (1) abolition of
price maintenance would reduce the quality or the variety of goods available; (2)
abolition would lead in general to higher prices in the long run; and (3) abolition
would interfere with the pre-sales or post-sales services.'2

Im. REGISTRATION PROVISION: AN EVALUATION

The system of registration of agreements is an important element in the sch

and has two purposes. Firstly, it provides a census of restrictive trade
agreements in operation in the country and forms a basis for the selection of
agreements by the Director General- for detailed enquiry before the MRTP
Commission. Secondly, it provides a salutaryform of publicity which will enable
informed opinion to draw its own conclusions on the effect of restrictive trade
agreements and thus, possibly, influence business people to withdraw or modify
such practices.
Table I shows annual andcumulative numbers ofrestrictive trade agreements
registered with the Director General of Investigation and Reg-istration. As
shown, the number of registered agreements each year declined steadily, with
one exception, between 1971 and 1977 and then drastically in 1978. This decline
in 1978, and-the similarly low figures for 1978-82 was mainly due to the Supreme
Court's Judgement in the- TELCO case.'-3 The figures jumped -up remarkably

8The last three 'gateways' were added in 1984 on the recommendations made by the Expert
Committee on Companies and MRTP Acts.
9 MRTP Act, Section 39.
10 MRTP Act, Section 40(3).
l Ibid.
12 MRTP Act, Section 41.
13The Supreme Court in 1977 held that Section 33 of the Act merely lists out-some types of trade
agreements, and these agreements have to be registered with the Director General of Investigation
and-Registration only when they are restrictive within the meaning of Section 2(0) of the Act. This
judgement gave scope for evading registration of large number of agreements as it is very difficult for
the Director General to prove that the agreement will in fact restrict competition in the relevant
market. However, in 1984 the Act was amended providing clearly that every agreement mentioned
in Section 33(1) shall be deemed to be an agreement relating to restrictive trade practice and shall be
registered.

This content downloaded from 27.251.83.10 on Thu, 24 Aug 2017 04:18:19 UTC
All use subject to http://about.jstor.org/terms
430 P. V. KRISHNA RAO AND K. P. SASTRY

TABLE I
REsTRiClTvE TRADE PRACTICES AGREMENTS UNDER THE MRTP ACT, 1969

Agreemnents
Agreements registered Agreements
Year registered (cumulative) inforce

1970-71 7050 7050 NA

1972 3844 10894 NA
1973 2032 12926 NA
1974 2643 15569 NA
1975 2363 17932 NA
1976 1787 19719 NA
1977 1354 21073 NA
1978 501 21574 5716
1979 578 22152 6289
1980 585 22737 6874
1981 520 23257 NA
1982 478 23735 7872
1983 1019 24754 8891
1984 2787 27541 11678

Source: Annual Reports pertaining to the execution of the provisions of the MRTP
Act, 1970-84.

in 1983-84 due to the fact that greater awareness among the members of the
Corporate Sector was created by the Commission by organising tours of its
members to different State Capitals and also to the institutes that advise the
Corporate Sector. The media were extensively used to publicise the nature and
the evil consequences of restrictive trade practices in India.
A noticeable impact of the registration, provision is reflected in the large
number of registered agreements which have been terminated. By 31 December
1984, 15 863 or 57.6 per cent of the total agreements registered had disappeared
from the register leaving 11 678 agreements in force as on that date. The
possible reasons for the termination of the agreements are: (i) the natural
expiry of the agreement with the passage of time; (ii) the voluntary termination
of the agreement; (iii) complete revision of the agreement; (iv) removal of the
agreement from the Register as of no economic significance and (v) termination
of the agreement in compliance with the orders of the MRTP Commission
passed during the course of the inquiry. Apart from these, a large number of
agreements were estimated to have been abandoned in order to escape the
requirement of registration.
At present the list of registrable agreements does not cover all anti-
competitive agreements or arrangements. In particular, it excludes agreements
imposing standardisation of products, agreements for sharing price
information (open price agreements), agreements for sharing of patented
processes or technical co-operation, exchange of information and
recommendations of the trade associations to their members. Another proble
is that the staff and financial resources provided to the Director General are no
adequate either to ensure effective scrutiny of very large numbers of agreem

This content downloaded from 27.251.83.10 on Thu, 24 Aug 2017 04:18:19 UTC
All use subject to http://about.jstor.org/terms
 RESTRICTIVE TRADE PRACTICES POLICY IN INDIA 431

registered or to conduct market surveys for unearthing unregistered

agreements. The staff of the Commission consists of only 90 officers, most of
whom are deputed. This is woefully inadequate in view of the extensive nature of
the work. The DGIR is not even able to maintain an index of agreements
classified by the industries in which they occur. Unlike in the UK, there is no
statutory power to make an unregistered agreement null and void once
discovered.

IV. INQUIRIES CONDUCTED BY THE MRTP COMMISSION: AN ASSESSMENT

From its inception in August 1970 to 31 December 1984 the MRTP

Commission instituted 627 restrictive trade practice inquiries of which 499 had
been processed at the time of writing. The bulk of the inquiries was based on
either applications- by the Director General (211) or the Commission's own
knowledge or information (388). A mere 26 inquiries were instituted on the basis
of complaints received from consumers or consumers' associations, and only
two inquiries on the basis of references made by the Central Government. The
lack of complaints from consumers suggests that the consumer movement is not
well developed in India. It may also be due to lack of publicity for the provisions
to protect the consumer. The primary reason for the lack of interest in
Government appears to be the ignorance ofthe legal provisions, particularly the
procedural aspects of making a formal reference to the Commission.
Considering the large number of agreements registered with the Director
General, the number of applications filed for inquiry before the Commission was
indeed very small,'4 (0.76 per cent of the total registered agreements). This is due
to the inadequate staff and resources provided to the Director General for the
scrutiny of the registered agreements. Moreover, the number of applications
filed by the Director General declined considerably after 1976 owing to the
Supreme Court's Judgement in the TELCO case. In this case the Court
indicated that the Director General should have considered certain matters
relating to the effects of the practice on competition, even before filing an
application before the MRTP Commission. This has created a difficulty for the
Director General, for the Act does not give him any authority to collect the data
necessaryforfiling the cases before the Commission as,indicated by the Supreme
Court. Therefore, the Commission had to depend upon its 'own knowledge or
information' for instituting the majority of the inquiries.
The nature of restrictive trade practices alleged in the 499 cases decided by the
Commission are presented in Table II. They include horizontal arrangements
of different types and vertical arrangements. Other categories include those
relating to discrimination among users according to their previous off-take,
deliberately denying supplies by monopolistic producers to their potential or

14 In India it is not obligatory on the part of the Director General to refer every agreement to the
Commission for enquiry.

This content downloaded from 27.251.83.10 on Thu, 24 Aug 2017 04:18:19 UTC
All use subject to http://about.jstor.org/terms
432 P. V. KRISHNA RAO AND K. P. SASTRY

TABLE II
NATURE OF RESTRIcTIvE TRADE PRACTICES ALLEGED IN CASES DECIDED BY THE
COMMISSION DURING THE PERIOD 1970-84

No. of
S. No. Nature of restrictive trade practice cases

1 Collusive price fixing practices 107

2 Tie-in sales/full-line forcing 139
3 Exclusive dealing 122
4 Price discrimination 169
5 Resale price maintenance 146
6 Limiting, restricting or withholding output or supply 48
7 Allocation of area or market for the disposal of goods 136
8 Control of manufacturing process etc. 17
9 Exclusion from or boycott of trade association's membership
10 Other categories 55

existing competitors and tying down producers of spare parts. The practices
of resale price maintenance, price discrimination, and tie-in sales are widely
prevalent in India as they were cited in a large number of cases. Many
companies imposed several restrictions on dealers/stockists and included
them in one and the same agreement. For example, allocation of an area
and exclusive dealing were jointly cited in every case. The product-wise
distribution of cases decided by the MRTP Commission does not suggest any
discernible pattern of industry-wise prevalence of the restrictive trade
practices in India.
In the majority of the cases decided by the Commission, orders have been
passed directing the respondents to 'cease and desist' from all alleged restrictive
trade practices. In some cases the Commission ordered modifications of the
agreements removing their restrictive clauses. Analysis suggests that once a
restrictive trade practice inquiry is launched by the MRTP Commission, almost
invariably the Company is unable to defend the practice, at least in its original
form.
277 of the 499 inquiries were processed within a year of the institution of the
inquiry itself. However, there are many cases where preliminary investigations
and legal proceedings took much longer. The analysis of the time taken by the
DGIR and DGR for conducting the investigation and the final disposal reveals
that the cases that were referred to the Director of Investigation took two years
on an average for completion and submission of a preliminary report for the
initiation of the notice of enquiry. Further, it took another one year for the
disposal of the cases by the Registrar of Restrictive Trade Agreements.

V. GATEWAYS AND JUSTIFIABILITY

As explained earlier, in judging whether a restrictive trade practice is or is

against the public interest, the Commission should assess the case against
'gateways'. These are as follows:

This content downloaded from 27.251.83.10 on Thu, 24 Aug 2017 04:18:19 UTC
All use subject to http://about.jstor.org/terms
 RESTRICTIVE TRADE PRACTICES POLICY IN INDIA 433

i) that the restriction is necessary to protect the public

goods requires special knowledge or skill;
ii) that the removal of the restriction would deprive buyers and users of
substantial benefits;
iii) that the restriction is a necessary defensive measure against other restraints
imposed on the trade by persons outside it;
iv) that the restriction is a necessary- defensive measure against an outside
monopoly;
v) that the removal of the restriction is likely to have an adverse effect on the
general level of employment in some areas;
vi) that the removal of the restriction is likely to cause a substantial reduction
in the export trade of India;
vii) that the restriction is necessary to maintain another restriction which the
Commission finds to be not contrary to the public interest;
viii) that the restriction does not directly or indirectly restrict or discourage
competition;
ix) that the restriction has been expressly authorised and approved by the
Central Government;
x) that the restriction is necessary to meet the requirements of the defence of
India or any part thereof or for the security of the State; a-nd
xi) that the restriction is necessary to ensure the maintenlance of supply of the
goods and services essential to the community.

In fact, the gateways have been argued by respondents in only. 16 of the 499
cases resolved by 1984. The use of gateways in such a low proportion of cases
must be either because the companies think that they will not be in a position to
defend the alleged restrictive trade practices, or that the companies do not wish
to disclose confidential market information.
The trade practices sought to be defended are of six different types: price
discrimination (six cases), exclusive dealing (four), territory restrictions (two)
and tie-in sales, collusive price agreement, and sale of technical know-how
(one case each). The practices of exclusive dealing and territorial restrictions
were jointly sought to be defended in one case.
Almost all the respondents employed gateway (viii) to defend their
restrictive trade practices. The next major gateway employed was (ii) (eleven
cases). Among others gateways, (i) was claimed in five cases, (iii) and (vi) in
two cases each and (iv), (v) and (vii) in three each.
In thirteen of the sixteen cases, respondents succeeded in defending their
practices. Of these, three involved defences under gateways (ii) and (viii)
together (exclusive dealing in two cases and horizontal fixation in one case),
and in another ten cases under (viii) alone (price discrimination in six cases,
exclusive dealing in three cases and territorial restrictions in one case). In the
remaining three cases relating to the practices of area allocation, restrictive
clauses in the sale of know-how and tie-in sales, the respondents were not
successful.

This content downloaded from 27.251.83.10 on Thu, 24 Aug 2017 04:18:19 UTC
All use subject to http://about.jstor.org/terms
434 P. V. KRISHNA RAO AND K. P. SASTRY

One might argue that since the gateways have not been used in many cases,
they are not necessary. On the other hand, one cannot rule out their use in
suitable future cases and the flexibility of the legislation might be seriously
impaired if they were removed. There is however a strong case for making a
change in the case of export gateway (vi). It seems illogical to deal only with the
promotion of exports and not to recognise that the import substitution can be
equally important to the balance of payments.

VI. SUMMARY AND CONCLUSIONS

The general basis of Indian restrictive trade practices policy is the belief that
an efficient economic performance can best be secured by promoting and
maintaining effective competition among business enterprises. The approach
to control restrictive trade practices and arrangements in India is similar to
that of the UK. In essence, there is a system of registration of agreements. An
agreement can be justified on passing through one or more of eleven
'gateways' and a 'tailpiece' test.
The system of registration has provided an important insight into the extent
of restrictive practices in India. The system should now be improved by
including all anticompetitive agreements in the list of registrable agreements
and by strengthening the office of the Director General of Investigation and
Registration to ensure effective scrutiny of the registered agreements.
Provisions making an unregistered agreement void and unlawful should also be
incorporated in the Act.
A large number of inquiries have been conducted by the Indian Monopolies
Commission and as a result of these inquiries orders have been issued which
ensure that certain restrictive trade practices are not pursued any longer
either by modifying the agreements or by 'cease and desist' orders. The
Commission generally found that agreements relating to collusive price
fixing, tie-in sales/full-line forcing, resale price maintenance are restrictive in
character, and so prejudicial to public interest. In regard to exclusive dealing
and discriminatory discounts the MRTPC found that in some cases they were
in the public interest while in others they were not.
The 'gateways' have been used only to a very limited extent in India. Most of
the very few agreements which have been successfully defended have been
upheld under Section 38(1)(h) of the Act i.e., on the basis that the restriction does
not directly or indirectly curtail or discourage competition in any material
degree relevant to trade or industry. The future effectiveness of the legislation
will depend upon the degree to which detection and enforcement are pursued.

P. V. KRISHNA RAO AND K. P. SASTRY, ACCEPTED NOVEMBER 1988

Department of Commerce,
Nagarjuna University,
Nagarjuna Nagar 522 510,
A.P., India.

This content downloaded from 27.251.83.10 on Thu, 24 Aug 2017 04:18:19 UTC
All use subject to http://about.jstor.org/terms
 RESTRICTIVE TRADE PRACTICES POLICY IN INDIA 435

REFERENCES

Government of India, Report of the Committee on Distribution of Income and Levels of

Living, Part-I (Mahalanobis Committee Report), Planning Commission, February 1964.
Government of India, Department of Company Affairs, Report of the Monopolies
Inquiry Commission Part I & II, 1965.
Government of India, Report of the Industrial Licensing Policy Inquiry Committee (Main
Report), Ministry of Industrial Development, Internal Trade and Company Affairs,
Department of Industrial Development, July 1969.
Government of India, Department of Company Affairs, Annual Administrative Reports
on the working of the MRTP Commission, 1970-84.
Government of India, Department of Company Affairs, Annual Reports pertaining to the
Execution of the Provisions of the MRTP Act, 1969, 1970-84.
Government of India, Department of Company Affairs, Restrictive Trade Practices in
India, Orders/Judgements passed by the MRTP Commission. Vol. 1, 11 and III, 1978.
Government of India, MRTP Commission, Restrictive Trade Practices in India,
Orders/Judgements passed by the MRTP Commission, 1978 to 1984.
Government of India, Department of Company Affairs, Report of the High Powered
Expert Committee on Companies and MRTP Acts, 1978.
Indian Economic Conference, 1967, Monopolies and their regulation in India, papers read
at India Economic Conference, (Popular Prakashan, Bombay).

This content downloaded from 27.251.83.10 on Thu, 24 Aug 2017 04:18:19 UTC
All use subject to http://about.jstor.org/terms