COMPETITION, FAIR TRADE PRACTICE, AND SHOPS & ESTABLISHMENT

COMPETITION
Competition law is the law that promotes or maintains market competition by regulating anticompetitive conduct by companies.
Competition is the rivalry among sellers trying to achieve such goals as increasing profits,
market share and sales volume by varying the elements of the marketing mix: price, product,
distribution, and promotion.
In economic theory, perfect competition describes markets such that no participant is large
enough to have market power to set the price of a homogeneous product. Absolutely perfect
markets are rare as the conditions are strict. Perfect competition requires infinite number of
buyers and sellers, zero entry and exit barriers, perfect factor mobility, homogeneous products,
and rational buyers.
Competition is a state which produces gains for the whole economy, through protecting
consumer sovereignty. A practice is anti-competitive if it is deemed to unfairly distort free and
effective competition in the marketplace, for ex: cartelization and predatory pricing.
The protection of international competition was governed by General Agreement on Tariffs and
Trade (GATT) from 1947 to 1994, and it was replaced by the World Trade Organization (WTO)
in 1995.
In India, competition was protected by Monopolies and Restrictive Trade Practices Act 1969
(MRTP Act 1969). However it led to several problems, one of which was the focus on the size of
a company rather than competitive factors. For ex: undertakings with assets over Rs 100 cr. and
which were dominant undertakings were required to take government permission to expand,
enter new areas, and enter into mergers and acquisitions.
The Competition Act, 2002 has replaced the Monopolies and Restrictive Trade Practices
(MRTP) Act, 1969. The Competition Act extends to the whole of India and has the following
objectives:
i.
To prevent practices having adverse effect on competition;
ii.
To promote and sustain competition in the market;
iii.
To protect the interest of consumers; and
iv.
To ensure freedom of trade carried on by other participants in markets in India.
The Central Government has appointed the Competition Commission of India (CCI).
Anti-competitive Agreements
Sec. 3 provides for prohibition of entering into anti-competitive agreements. It shall not be
lawful for any enterprise or association of enterprises or person or association of persons to enter
into an agreement in respect of production, supply, storage, distribution, acquisition or control of
goods or provision of service which causes or is likely to cause an appreciable adverse effect on
competition within India. All such agreements entered into in contravention of this prohibition
shall be void.

COMPETITION, FAIR TRADE PRACTICE, AND SHOPS & ESTABLISHMENT

Adverse effect on competition may be caused by
i. Directly or indirectly determines purchase or sale prices;
ii. Limits or controls production, supply, markets, technical development, investment or
provision of services;
iii. Shares the market or source of production or provision of services by way of allocation of
geographical area of market, or type of goods or services, or number of customers in the
market or any other similar way;
iv. Directly or indirectly results in bid rigging or collusive bidding.
An agreement which causes or is likely to cause an appreciable adverse effect on competition,
includes the following agreements also:
i. tie-in arrangement;
ii. exclusive supply agreement;
iii. exclusive distribution agreement;
iv. refusal to deal;
v. resale price maintenance.
Abuse of Dominant Position
Sec. 4 prohibits abuse of dominant position by any enterprise or group. According to it, there
shall be an abuse of dominant position, if an enterprise or group
a. directly or indirectly, imposes unfair or discriminatory
condition in purchase or sale of goods or services; or
price in purchase or sale (including predatory pricing) of goods or service; or
b. limits or restricts
production of goods or provision of services or market therefore; or
technical or scientific development relating to goods or services to the prejudice of the
consumers; or
c. indulges in practice or practices resulting in denial of market access; or
d. makes conclusion of contracts subject to acceptance by other parties of supplementary
obligations which, by their nature or according to commercial usage, have no connection
with the subject of such contacts; or
e. uses its dominant position in one relevant market to enter into, or protect, other relevant
market.
Dominant position: it means a position of strength, enjoyed by an enterprise or group, in the
relevant market, whether in India or outside India, which enables it to
operate independently of competitive forces prevailing in the relevant market; or
affect its competitors or consumers or the relevant market in its favour.
Predatory pricing: It means the sale of goods or provision of service, at a price which is below
the cost, as may be determined by regulations, of production of the goods or provision of
services, with a view to reduce competition or eliminate the competitors.

COMPETITION, FAIR TRADE PRACTICE, AND SHOPS & ESTABLISHMENT

Regulation of Combination
Sec. 5 deals with combination of enterprises and persons; acquisition of one or more enterprises
by one or more persons or acquiring of control or merger or amalgamation of enterprises under
certain circumstances specified shall be construed as combination. Sec. 6 further provides that no
person or enterprise shall enter into a combination which is likely to cause or causes an
appreciable adverse effect on competition within the relevant market in India. It further provides
exemption from the provisions of Sec. 5 to certain institutions.
The acquisition of one or more enterprises by one or more persons or merger or amalgamation of
enterprises shall be a combination of such enterprises and persons or enterprises, if certain
conditions are fulfilled:
Acquisition of control, shares, voting rights or assets
Acquisition of control over production, distribution or trading
Merger or amalgamation
No person or enterprise shall enter into a combination which causes or is likely to cause an
appreciable adverse effect on competition within the relevant market in India and such a
combination shall be void. The Competition Commission of India may provide exemption from
this on consideration of an application by the enterprise or person.
FAIR TRADE PRACTICE
The provisions of Unfair Trade Practices were introduced in 1984, by amending the Monopolies
and Restrictive Trade Practices Act (MRTP Act). The practices of firms often raise questions
about truthfulness and fairness in the representation of the products and services, in
advertisements and schemes and modalities used for the promotion of the products and services
etc.
The changing context of liberalization and globalization required better regulation and the
strengthening of institutional support. The MRTP Act, in its interpretation and working, has been
inadequate in dealing with the holding of contests and schemes for the promotion of goods and
services, and with comparative advertising. Even the limited regulation being provided through
the MRTP Act has been transferred to the Consumer Protection Act. At the same time, a
Competition Act has been brought in to regulate monopolies and anti-competitive or restrictive
trade practices.
The working of two particular dimensions of unfair trade practices have been most interesting
holding of games and contests and disparaging goods of competitors.
Holding of Games and Contests
The following practices are considered unfair:
The offering of gifts, prizes or other items, with the intention of not providing them as
offered or creating the impression that something is being given or offered free of charge
when it is fully or partly covered by the amount charged in the transaction as a whole.

COMPETITION, FAIR TRADE PRACTICE, AND SHOPS & ESTABLISHMENT

The conduct of any contest, lottery, game of chance or skill, for the purpose of promoting,
directly or indirectly, the sale, use or supply of any product or any business interest.

The MRTP Commissions position had been that nay campaign which had an element of chance
through a contest, draw of lots or game of skill, attracted the provision.
Case: Oswal Agro Mills Ltd. had introduced a campaign where a person could buy 2 soaps and
enter into a contest which would make him eligible for prizes through a draw. This was held to
be a contest.
Case: British Airways advertised a scheme where students who were flying to the U.S. could
write 50 words on how studies in the U.S. would help the student. A panel of judges selected the
best piece. The prize included free air tickets. This was held to be a contest.
Case: HMM Ltd. in 1985 advertised a Hidden Wealth Offer Prize for buyers of Horlicks in
Delhi. A lucky purchase could find a coupon inside a bottle of Horlicks which indicated a prize
CTVs, gift vouchers etc. MRTP Commission held this to be an unfair practice. According to the
Commission, only a small fraction of buyers could get the benefit of the scheme, and most got
nothing. However, the Supreme Court in a judgment in 1988, commented that this was not a
lottery in the ordinary sense of the word as there was no draw of lots and no price was charged
from the participants to take part on the contest.
The Commission followed the judgment of the Supreme Court in such cases. Thus now the
interpretation of the law has left the field effectively without any regulation.
Disparaging Products of Competitors
In a competitive economy, every representation of a product or service, it is about what others
are not. This makes comparative advertisement or representation an interesting theme. The
provision on comparative advertising is as follows: The practice of making any statement,
whether orally or in writing or by visible representation which gives false or misleading facts
disparaging the goods, services or trade of another person.
When a problem arises as to whether a particular act can be condemned as an unfair trade
practice or not, the key to the solution would be to examine whether it contains a false statement
and is misleading and further what is the effect of such a representation made by the
manufacturer on the common man? Does it lead a reasonable person in the position of a buyer to
a wrong conclusion?
Case: A television advertisement promoting Ujala Liquid Blue showed that 2-3 drops of Ujala
were adequate to bring about striking whiteness in clothes, while several spoons of other brands
were required. A lady, holding a bottle of Ujala was looking down on another bottle and saying
chi, chi, chi. The manufacturer of Regaul, a competitor product, approached the Commission
who gave the judgment that this was not a case of disparaging rival products as the bottle did not
carry a label. The principal that emerged was that a case of disparagement happens only when
the product in question is identifiable.

COMPETITION, FAIR TRADE PRACTICE, AND SHOPS & ESTABLISHMENT

SHOPS AND ESTABLISHMENT ACT
Shop and Establishment Act is to provide statutory obligation and rights to employees and
employers in the unorganized sector of employment, i.e., shops and establishments.
According to the National Commission for Enterprises, Govt. of India, an unorganized sector
comprises all unincorporated private enterprises owned by individuals or households engaged in
the sale or production of goods and services operated on a proprietary or partnership basis and
with less than 10 workers.
Scope and Coverage
A state legislation; each state has framed its own rules for the Act.
Applicable to all persons employed in an establishment with or without wages, except the
members of the employer's family.
State government can exempt, either permanently or for a specified period, any
establishments from all or any provisions of this Act.
Main Provisions
Compulsory registration of shop/establishment within thirty days of commencement of
work.
Communications of closure of the establishment within 15 days from the closing of the
establishment.
Lays down the hours of work per day and week.
Lays down guidelines for spread-over, rest interval, opening and closing hours, closed
days, national and religious holidays, and overtime work.
Rules for employment of children, young persons and women
Rules for annual leave, maternity leave, sickness and casual leave, etc.
Rules for employment and termination of service.
Maintenance of registers and records and display of notices.
Obligations of employers.
Obligations of employees.
Shops & Establishment Act is a State Act.