Legal Environment of Business

LEGAL ENVIRONMENT
OF BUSINESS
With special reference to Indian
Acts
MRTP Act
The 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 man's 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 has

or 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 Practice

The 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 1986
In 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 people's 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 Rights
Every 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 following

rights 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

Legal Environment of Business

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LEGAL ENVIRONMENT

ensure that the operation of the

The Act was amended in

Before the 1991 amendment, the MRTP law

Pre-entry restriction on MRTP companies

Monopolistic Trade Practice is one that has

Limiting or controlling production, supply

Limiting technical development or capital

Unreasonably raising the profits on

Restrictive Trade Practice (RTP)

The deemed RTPs are as follows:

sub-distributor or dealer without prior

Tie in Sales or Full Line Forcing:

Exclusive Dealing Agreement:

Collective Price Fixation and Tendering:

Resale Price Maintenance:

Restriction on Output or Supply:

Price Control Arrangement:

Besides all these, many others are treated

Unfair Trade Practice

Director General of Investigation and

Consumer Information Gap:

Absence of informed Participation:

Budget Squeeze and Inflation:

The foremost objective of the Consumer

The term 'consumer' is defined in Section

One is a consumer who purchases goods

The Act is intended to protect following

The right to be protected against

The right to be assured, and wherever

Grounds for Appeal for the Jurisdiction

Who can file a complaint

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