UNFAIR TRADE PRACTICES IN INDIA- AN ANALYSES

Report
Unfair Trade Practices and
Institutional Challenges
in India: An Analysis
GIZ STAKEHOLDER CONSULTATION
WORKSHOP
April 1-2, 2013; New Delhi
Presentation Outline
 Terms of Reference
 Unfair Trade Practices: Definitions
 Why are UTPs Bad?
 Legal and Institutional Framework of UTP in India
 Analyses of Regulatory Structure
 Legal and Institutional Framework – Globally
 Learning’s from International Experience
 Challenges and Recommendations
 Way Forward
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Terms of Reference
Objective
Scope of
Study
Challenge
Analyse treatment of UTPs under Indian law to highlight
institutional challenges faced and suggest an efficient approach to
address the identified challenges

Identify the nature of UTPs currently existing in India

Determine institutional challenges

Propose recommendations on how UTPs can be effectively
addressed based on national and international experience
The study was completed in 6 week’s time and is mainly based on
desk research and interviews of relevant stakeholders, that
included regulators, research institutions, subject expert, lawyers,
etc.
3
Definitions
UTP broadly refers to any fraudulent, deceptive or dishonest trade practice; or business
misrepresentation of the products or services that are being sold; which is prohibited by a statute or
has been recognised as actionable under law by a judgment of the court
World Bank
and OECD
Model
Competition
Law
Under the Model Competition Law, the following trade practices are termed unfair:
1. distribution of false or misleading information capable of harming business interests of
another firm;
2. distribution of false or misleading information to consumers;
3. false or misleading comparison of goods in the process of advertising;
4. fraudulent use of another’s trade mark, firm name, or product labelling or packaging; and
5. unauthorised receipt, use or dissemination of confidential scientific, technical, production,
business or trade information.
The Convention prohibits the following components of unfair competition:
Paris
Convention
1. acts creating confusion with the establishment, the goods, or the industrial or commercial
activities, of a competitor;
2. false allegations in the course of trade so as to discredit the establishment, the goods, or the
industrial or commercial activities, of a competitor; and
3. indications or allegations the use of which in the course of trade is liable to mislead the
public as to the nature, the manufacturing process, the characteristics, the suitability for their
purpose, or the quantity, of the goods.
4
Definitions: India
In India Section 2(1)(r) of the Consumer Protection Act, 1986 defines UTP to mean a trade
practice which, for the purpose of promoting the sale, use or supply of any goods or for the
provision of any service, adopts any unfair method or unfair or deceptive practice, and includes,
inter alia, the following:
 making any statement, whether orally or in writing or by visible representation which:
• falsely represents about goods or services relating to its standard, quality, price, value,
nature, etc.;
• gives false or misleading facts disparaging the goods, services or trade of another
person;
 permitting the publication of any advertisement for the sale or supply at a bargain price of
goods or services not intended to be so offered;
 permitting the offering of gifts, prizes or other items with the intention of not providing
them as offered;
 withholding from the participants of any scheme offering gifts, prizes or other items free of
charge, on its closure the information about final results of the scheme;
 permitting the hoarding or destruction of goods; and
 manufacturing spurious goods or offering such goods for sale or adoption of deceptive
practices in the provision of services.
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Why are UTPs Bad…..
 Frequent and widespread incidences of UTPs in India due to:
• Introduction of globalisation;
• Technological innovations;
• Lack of consumer awareness
 UTPs found in almost all the sectors, including:
• Pharmaceutical sector
• Education sector
• Food sector
 Misleading advertisements most common form of UTP practiced across
all the sectors (study by CUTS CART)
 UTPs in a market may have the following effects
• Impact on price and quality of goods and services
• Impact on micro, small and medium enterprises
• Impact on Consumer Confidence and trust
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Legal Framework - India
MRTP Act, 1969
• Till 1984 no provisions for protection against UTPs
• Amendment in the MRTP Act in 1984, pursuant to Sachar Committee, to include UTP provisions
• 1984 amendment also introduced the position of DGIR which worked along with MRTPC, with
power to take suo motu actions
• Repealed upon introduction of Competition Act, 2002
• Upon introduction of the Competition Act, the UTP provisions transferred from the MRTP Act
into the COPRA
Consumer
Protection Act, 1986 • Victims of UTP entitled to take recourse of the three-tier quasi-judicial bodies under COPRA
• Introduced pursuant to Raghavan Committee’s recommendations
Competition Act,
2002
• Competition Commission of India established with effect from October 14, 2003, including
Director General for Investigation
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Institutional Framework - India
COPRA has created a three-tier quasi-judicial system to deal with the consumer related issues, i.e.
the District Forums, the State Commission or the National Commission with final appeal lying
before the Supreme Court of India.
National Commission
Original Jurisdiction:
Rs. 1 Crore and above
Appellate Jurisdiction
State Commission (35 in number)
Original Jurisdiction:
between Rs. 20 Lakhs to Rs. 1 Crore
Appellate Jurisdiction
District Forums(629 in number and expanding)
Original Jurisdiction: below Rs. 20 Lakhs
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Institutional Framework - India
In addition to COPRA the following institutional mechanism also exists:
 Sectoral Regulations/Guidelines
Each of the sector specific regulations/guidelines make provisions for specific
machinery to manage UTPs in that sector:
• Single specialised agencies for Insurance sector, Securities sector, Food
Processing sector
• Detailed legislations laid down for the pharmaceutical sector
• Education sector is a still developing sector and new policies are in
pipeline.
• Real Estate Sector and also Intellectual Property Right (Trademarks)
 Lok Adalats
Throughout the year, the consumer forums hold a Lok Adalat every Friday or
Saturday for amicable settlement of cases
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Analysis of Institutional Framework: Challenges
Consumer ability to represent

Provides consumer the freedom to approach any of the forum on its own without being
represented by any advocate and without getting involved in unnecessary legal papers’ hassle.
Inordinate delays in delivery of justice



Provision for summary proceedings, with COPRA laying down the time schedule for disposal
of cases.
However, still a number of cases are pending in the forums taking away the right of speedy
justice.
The total number of consumer complaints filed/disposed since inception under COPRA and
the number of complaints pending as on March 6, 2013 are:
Name of Agency
Cases filed since
inception
Cases disposed of
since inception
Cases Pending
% Disposal
National Commission
80014
69253
10761
86.55
State Commissions
600097
504834
95263
84.13
District Forums
3242324
2994256
248068
92.35
TOTAL
3922435
3568343
354092
90.97
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Analysis of Regulatory Structure
Sectoral Regulators vis-à-vis Consumer Forums
 Under Indian law various sector specific law such as Drugs and Cosmetics Act, 1940, Food Safety
and Standards Act, 2006, IRDA Act, 1999 and several other regulations co-exist along with
COPRA to deal with UTPs.
 Roles of sector-specific regulators and the consumer forums overlap but remain quite distinct.
Sector-Specific Regulator
Consumer Forums
Tells businesses “what to do” and “how to price Tells businesses “what not to do”
products”
Focuses upon specific sectors of the economy
Focuses upon the entire economy and interest of
the consumer in the market
Ex ante - addresses behavioral issues before Ex post
- Compensatory; has powers of
problems arise
injunction but not been used
Focuses upon orderly development of a sector Focuses upon consumer welfare
that would presumably trickle down through that
sector, ensuring consumer welfare
 CUTS believes that though Sectoral regulators may coexist with the consumer forums in India,
the consumer forums must be given precedence over the sector specific regulators
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Legal and Institutional Framework- Globally
COUNTRIES
LEGAL FRAMEWORK
China
The Law of the People’s
Republic of China against
Unfair Competition, 1993
South Africa
United States of
America
The Consumer Affairs (Unfair
Business Practices) Act, 1988



Federal
Trade
Commission Act, 1914
All States have unfair
competition laws
Law against Sale of
Products - Stolen or
Misappropriated
INSTITUTIONAL
SET-UP

State Administration for
Industry & Commerce
(SAIC) - formed in 1953

Local Administration for
Industry & Commerce
(AIC)

Consumer
Affairs
Committee – established
in 1988

Unfair Contract Terms
Committee – established
in 1995
Federal Trade Commission –
established in 1914
RELEVANCE FOR
INDIA
Specific law to look after UTP
cases only
AICs are free from the
control of local government.
The
Consumer
Affairs
Committee has powers to
initiate
and
conduct
investigations
However, it lacks teeth since
the discretionary power to
pass a cease and desist order
upon existence of UTP lies
with the Ministers
Several specific laws have
been developed to deal with
UTPs
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Cont..
COUNTRIES
Israel
LEGAL
FRAMEWORK
Consumer
Law, 1981
Protection
INSTITUTIONAL SET-UP

Commissioner of Consumer
Protection

Israel Consumer Council

Consumer Protection and Fair
Trade Authority (CPFTA) -
RELEVANCE FOR
INDIA
Well developed and well
equipped consumer law
created in 2006
Brazil
Russia

Industrial Property
Law, 9279/1996

Consumer Protection and
Defence Department (DPDC)

Brazil’s Consumer
Defence
Code,
8078/1990

State and local consumer
protection agencies (Procons)

non-governmental consumer
organisations (NGCOs)
Russian
Federation
Federal
Law
on
Protection
of
Competition, 2006
Federal Anti-Monopoly Service
(FAS) – established in 2004
Well developed and well
equipped consumer law
UTPs
covered
Competition Law
in
the
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Learning from International Experience
Accountability
Power of Consumer Agency
Additional
institutional
arrangements under the Swedish
Marketing Practices Act, 2008, to
hold
the
consumer
agency
accountable to its mandate.
In Bulgaria, Poland the consumer
agencies are designated with broad
mandate and powers to impose
sanctions, fines and cease-and desist
orders.
Sectoral laws vis-a-vis Consumer
Law
The “Spring Board Function” under
the Swedish Marketing Practices Act,
2008.
Business to Business Disputes
Swedish Marketing Practices Act,
2008 deal with both B2C as well as
B2B disputes.
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Challenges
 Business to business disputes not covered under COPRA
 No power with consumer authorities under COPRA to take up a case suo motu
 COPRA mainly a compensatory legislation
 Lack of investigatory powers under COPRA to deal with UTP issues
 Confusion due to presence of sectoral regulations along with COPRA which may
also lead to forum shopping
 Cross-Border disputes not covered in COPRA
 Lack of infrastructure and qualified personnel in the consumer forums especially
at the local level
 Dominance of Judge’s opinion over other members of the consumer forum
(Interview with stakeholders)
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Recommendations
Three options may be adopted to meet the mentioned challenges:
Option A: An independent and specialised Consumer Protection
Agency (Finance Ministry had turned down the Proposal)
Option B: UTP under the ambit of Competition Commission of
India as prevalent in large number of countries
Option C: Amendment of COPRA to provide for investigative
and injunctive powers
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Competition Commission of India
 PROS
• Humanises competition law enforcement and reminds investigators that
importance of competition is consumer welfare
• Consumer protection generates public buy-in
• Consumer investigations occur more frequently and are less resource intensive
• Competition Authorities are better resourced than Consumer Protection
Authorities
• Consumers can file information to CCI, as against in the Consumer Protection
Act
 CONS
• Geographical limitations: CCI is located in Delhi
• Overburden of CCI by UTP related cases, as compared to RTPs
• Limited resources to devote to UTP, RTP, Advocacy, etc
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Amendment of COPRA
 More efficient to strengthen the institutional set-up already in place by amending
the existing institutional set-up to fill the gaps found in the same
 Steps needed for fortification of the existing set-up:
 Provide investigative powers (MRTPC) to begin with at the National
Commission and select State Commissions (big States)
 Grant the Commission with the power to order reasonable penalties other
than just compensation
 Establish a separate investigatory body on the lines of DGIR (MRTPC and
CCI)
 Co-ordination between the consumer law and other sectoral laws, by inclusion
of a “spring board” mechanism like in Sweden, etc.
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Way Forward
 Need for:
 a balanced regulatory framework catering to interests of all the
stakeholders
 incentives to be created for those actors who have legitimate
interest in the enforcement of the law
 CUTS advocates the option of strengthening of the already established
institutional set-up under COPRA as the most efficient and easy way
forward.
 Finally whichever option is adopted by the Ministry of Consumer
Affairs after careful consideration, the new regime must be brought
slowly, cautiously and after thorough discussion
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THANK YOU
CUTS TEAM:
Rajeev Mathur, Executive Director, [email protected]
Udai S. Mehta, Associate Director, [email protected]
Tanushree Bhatnagar, Executive Assistant to the Secretary General, CUTS
[email protected]
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