Group IV

Unfair & Restrictive Trade Practices

A customer is the most importantvisitor on our premises, he is not dependent on us. We are dependent on him. He is not an interruption in our work.He is the purpose of it. He is not an outsider in our business.He is part of it. We are not doing him a favor by

serving him. He is doing us a favor by giving us an opportunity to do so.

TopicsUnfair Trade PracticeVarious types of Unfair Trade Practices Inquires and InvestigationOrder of Commission Restrictive Trade PracticePrice, Goods, ServiceRegistration of AgreementsPresumption as to the public interest Conclusion

With the liberalisation and globalisation of the Indian economy, as could be expected, firms have been aggressively and vigorously promoting their products and services. These practices raise questions about truthfulness and fairness of representation of products and services. Not only the consumers but even the firms need adequate law against unfair trade practices to have some ‘rules of the game’ for competing among themselves. In a competitive environment, every representation of a product or service, is about what ‘others are not’.

Unfair Trade PracticeNeed

In the new corporate and business world today where there is cut throat competition the business persons daringly use unfair trade practices to edge over the other. This may give them advantage for short term but in long run it affects the organization and eventually the entire industry.

Unfair Trade PracticeNeed

Unfair Trade PracticeMeaning

A trade practice, which for the purpose of promoting the sale, use or supply of any goods or for the provision of any services, adopts any unfair method or unfair or deceptive practice is an unfair trade practice.

Trade means any trade, business, industry, profession or occupation relating to the production, supply, distribution or control of goods and includes the provisions of any services

Unfair Trade PracticeTypes of Unfair Trade Practice

False representation or statementsMisleading Advertisement Offer of gift or prizeOffer of contestSale of sub standard goodsHoarding or destruction of goods

Unfair Trade Practice False representation or statements

Adopting misrepresentation of facts to promote sale, use or supply of goods or services, e.g.

Misleading buyers about another’s goods or services. Eg. Pepsodent whitens teeth twice as effectively as Colgate.

Falsely claiming a sponsorship, approval or affiliation. Eg. Our software is tested & approved by Microsoft.

Offering misleading warranty or guarantee. Eg. A computer with 3 yrs warranty requires entering into an AMC from the beginning

Unfair Trade Practice Misleading Advertisements

A trade practices which permits the publication of any advertisement whether in any newspaper or otherwise, for the sale or supply at a bargain price, of goods or services that are not intended to be offered for sale or supply at the bargain price, or for a period that is, and in quantities that are, reasonable, having regard to the nature of the market in which the business is carried on, the nature and size of business, and the nature if the advertisement.

Pepsodent, which, in its advertisements, claimed, “New Pepsodent is 102% better than the leading toothpaste.”

The ad showed two boys being asked the name of the toothpaste brand that they used. One happily exclaims Pepsodent, while the other’s disgruntled response, though muted, clearly points cynically towards Colgate (especially as a background jingle similar to the one in Colgate’s ads is used quite appropriately).

At that time, Colgate toothpaste ruled the market with a massive 59% market share.

Expectedly, Colgate took HLL (which owns Pepsodent) to court under Unfair Trade Practice

HLL had to withdraw its ads.

Case Law New Pepsodent v/s Colgate Case

In June, 1998, Colgate introduced its toothpaste as Colgate Dental Cream- Double Protection. (CDC-DP). It gave wide publicity through print and television that the toothpaste was 2.5 times superior to any ordinary toothpaste in fighting germs. Hindustan Lever Ltd. moved the Commission alleging that the advertisements disparaged toothpastes manufactured by it under various brand names. It contended that a reference to ‘ordinary’ toothpaste was to all other bands than Colgate.

The Commission took the position that the claim of 2.5 times superiority of CDC-DP over any ordinary toothpaste did not refer to any identifiable product or any identifiable manufacturer. As a result, it could not be a case of disparagement of goods. It should be noted that ‘disparagement’ is not the only ground for an advertisement to be an unfair trade practice.

The same advertisement could still be contested as an unfair trade practice under Section 36A(1)(a) on the grounds of misrepresenting quality. But this would be a different issue.

As a matter of fact, the Commission took the view that there was nothing called an ‘ordinary’ toothpaste. Thus, a claim of 2.5 times superiority was misleading and ordered the advertisement to be stopped.

Case Law Colgate Dental Cream- Double Protection Case

Unfair Trade PracticeOffer of gift or prize

A trade practice which permits 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. Offering, then with holding gifts/prizes. False claim of offering gifts/services when cost is

included partly in the price.

Case Law Horlicks Hidden Wealth Prize Offer

The HMM Ltd. manufactured and marketed Horlicks. In September 1985, it advertised a scheme called the ‘Hidden Wealth Prize Offer’ for the buyers in Delhi. A lucky purchaser of a bottle of Horlicks could find a coupon inside the bottle. The coupons indicated the prizes. The prizes were to be claimed by January 15, 1986. The advertisements stated that even if the buyers’ coupon did not carry a winning message, he/she had “several more chances to try

The Commission had held this to be an unfair trade practice as the system of getting coupon was nothing but a lottery. It was also of the view that such schemes did not benefit the general run of consumers as only a small fraction of the buyers of Horlicks got the benefit of the said scheme. The prizes were many times costlier than the price of a bottle of Horlicks.

The Commission gave its judgement in 1989. In the light of its own experiences, it was never an issue that schemes like this were not a ‘contest, lottery, game of chance’ for ‘direct or indirect’ promotion of sales. As the case was for a period prior to 1991 amendment, what was to be emphasized was that it caused loss or injury to the consumers. The Supreme Court, in its short judgement in 1998, commented that this was not a case of lottery as there was: no draw of lots or that a price was charged for participation in the draw. The fact that some bottles of Horlicks contained a slip of paper which entitled the buyer to a prize is not a lottery in the ordinary sense of the word.

Unfair Trade PracticeOffer of contest

A trade practice which permits 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.

Examples : Shirt prices slashed by two third 50 % discount clearance sale Buy fans at 30% discount Motors at 40% discount

A trade practice which permits the sale or supply or goods intended to be used by consumers, do not comply with the standards prescribed by complete authority relating to performance, compositions , content, designs, constructions, finishing or packaging.

Examples :Medicines not manufactured according to IP standards Electrical items not manufactured as per standards Food purity not as required

Unfair Trade PracticeSale of sub standard goods

Unfair Trade PracticeHoarding or destruction of goods

A trade practices which permits the hoarding or destruction of goods, Or refuses to sell the goods or to make them available for sale, or to provide any services, if such hoarding or destruction or refusal raises or tends to raise or is intended to raises or tends to raise or is intended to raise, the cost of those or other similar goods or services.

Inquiries & Investigations by Commission Upon receiving a complaint of facts which constitutes

such practice from any trace association or from any consumer or a registered consumers’ association, whether such consumer is a member of that consumers’ association or not; or

Upon reference made to it by the Central Government or a State Government;

Upon an application made to it by the Director General; or

Upon its own knowledge or information.

Order of Commission

If, after inquiry, Commission is of the opinion that the practices is prejudicial to the public interest, or to the interest of any consumer or consumers generally, it may, by order direct that

The practices shall be discontinued or shall not be repeated;

Any information or advertisement relating to such unfair trade practice shall be disclosed, issued or published in such manner as may be specified in the order.

The company has to be given an opportunity to prove its case that it did not commit unfair trade practice

Restrictive Trade PracticeTrade Practice

Trade means any trade, business, industry, profession or occupation relating to the production, supply, distribution or control of goods and includes the provision of any services.

Restrictive Trade PracticeMeaning

A restrictive trade practice means a trade practice which has or may have the effect of preventing, distorting or restricting competition in any manner and in particular-

Which tends to obstruct the flow of capital or resources into the stream of production; or

Which tends to bring about manipulation of process or conditions of delivery or to affect the flow of supplies in the market relating to goods or services in such manner or to impose on the consumer’s unjustified costs or restrictions?

A restrictive trade practice shall be deemed to be prejudicial to the public interest.

Restrictive Trade PracticeMeaning

There are two parts to the definition of restrictive trade practice.

1.To carrying on of such trade practice which has or may have the effect of preventing, distorting or restricting competition in any manner

2.Carrying on of such trade practice which interalia has the effect on imposing unjustified costs or restrictions on consumers

Restrictive Trade Practice Price

Price in relation to sale of any goods or to the performance of any services includes every valuable consideration, whether direct or indirect and includes any consideration which in effect relates tot the sake of any goods or to the performance of any services although ostensibly relating to any other matter or thing.

Restrictive Trade Practice Goods

Specific goods : Goods identified and agreed upon at the time of contract of sale is made.

Unascertained or generic goods are indicated by description and are not separately identified

Future goods : to be manufactured or purchased or acquired be the seller after the making of the contract of sale. These goods do not exist at the time of contract of sale but subsequently come into existence.

The following are also included Products manufactured, processed or mined in India; Shares and stocks, including issue of shares before

allotment; Goods imported into India wherever reference is made

to goods supplied.

Even things like goodwill, copyright, trademark, patent etc. are all goods. Gas and electricity have also been held to be goods. Current, money is not goods. Real estate transactions are not covered by the meaning of the term ‘goods’. Till the shares are actually issued, they are not goods;

Restrictive Trade Practice Goods

Restrictive Trade Practice ServiceService means service which is made available to

potential users and includes the provision of facilities in connection with banking, financing, insurance, chit fund, real estate, transport, processing, supply of electrical or other energy, boarding or lodging or both, entertainment, amusement or the purveying of news or other information.

Service does not include the rendering of any service free of charge or under a contract of personal service.

Restrictive Trade Practice Registration of Agreements

Any agreement relating to production, storage, supply, distribution or control of goods or for performance of any services, which restricts seller or buyer of goods or services in any manner, is an agreement relating to restrictive trade practice.

Restrictive Trade Practice Presumptions as to the public interest

Under section 37, a restrictive trade practice shall be deemed to be prejudicial to the public interest unless the Commission is satisfied of any one or more of the following circumstances, that is to say-

to protect the public against injury during consumption, installation or use of those goods; that the removal of the restriction would deny to the public as purchasers, consumers or users of any goods, other specific and substantial benefits

or advantages enjoyed or likely to be enjoyed by them as such, whether by virtue of the restriction itself or of any arrangements or operations resulting there from;

(c) that the restriction is reasonable necessary to counteract measures taken by any one person not party to the agreement with a view to preventing or restricting competition in or in relation to the trade or business in which the persons party thereto are engaged;

(d) that the restriction is reasonably necessary to enable the persons party to the agreement to negotiate fair terms for the supply of goods to, or the acquisition of goods from, any one person not party thereto who controls a preponderant part of the trade or business of acquiring or supplying such goods, or for the supply of goods to any person not party to the agreement and not carrying on such a trade or business who, either alone or in combination with any other such persons, controls a preponderant part of the market for such goods;

(e) that, having regard to the conditions actually obtaining or reasonably foreseen at the time of the application, the removal of the restriction would be likely to have a serious and persistent adverse effect on the general level of unemployment in an area, or in areas taken together, in which a substantial proportion of the trade, or industry to which the agreement relates is situated;

(f) that, having regard to the conditions actually obtaining or reasonably foreseen at the time of the application, the removal of the restriction would be likely to cause a reduction in the volume or earnings of the export business which is substantial either in relation to the whole export business of India or in relation to the whole business (including export business) of the said trade or industry;

(g) that the restriction is reasonably required for purposes in connection with the maintenance of any other restriction accepted by the parties, whether under the same agreement or under any other agreement between them, being a restriction which is found by the Commission not to be contrary to the public interest upon grounds other than those specified in this paragraph or has been so found in previous proceedings before the Commission; 50[* * *]

(h) that the restriction does not directly or indirectly restrict or discourage competition to any material degree in any relevant trade or industry and is not likely to do so;

10[(i) that such restriction has been expressly authorized and approved by the Central Government; (j) that such restriction is necessary to meet the requirements of the defense of India or any part thereof, or for the security of

the State; or (k) that the restriction is necessary to ensure the maintenance of supply of goods and services essential to the community,]

Conclusion

This is true that Unfair Trade Practice is an inseparable part of the business but it is not the fair part of business. It may give you benefits for short time period but in long run it has a notable impact on business.

It has a direct impact not only on that particular company but also on entire market.

The impact of Unfair Trade Practice can effect the reputation of industry, country and the employee working in that organization. Therefore companies should not concentrate on the shortcut ways and get involve in Unfair Trade Practice.

Conclusion

The Restrictive Trade Practice, besides adversely affecting economic growth, blunted Indian companies’ ability to grow, consolidate and improve competitiveness. This has had a very dampening effect on their global competitiveness.

The objective of the Restrictive and Unfair Trade Practice Act is to engender competition. The concept of public interest which includes consumer interest permeates the regulatory framework provided for the prohibition of monopolistic, restrictive and unfair trade practices in both the statutes.

A Joint Effort By:THE TEAM

Komal Salla Sayed Gazanffar Abbas Nida Shaikh Shilpa Shinde Prashant Saraf