Unfair Trade Practices in Competition Law

In a free market economy, competition plays a vital role in ensuring the availability of quality goods and services at competitive prices. It encourages innovation, efficiency, and consumer welfare. However, when businesses adopt deceptive, dishonest, or exclusionary tactics to suppress competition or mislead consumers, it results in what is known as unfair trade practices.

Unfair trade practices not only harm consumers but also small businesses and the overall market ecosystem. This article examines the concept of unfair trade practices under Indian competition law, primarily focusing on the Competition Act, 2002, along with relevant examples, legal provisions, and enforcement mechanisms.

Meaning of Unfair Trade Practices

Unfair trade practices refer to deceptive, misleading, or unethical methods employed by businesses to gain an unfair advantage in the market. These practices affect both the sale and supply of goods and services and often damage consumer interests and competition.

Earlier, unfair trade practices were addressed under the Monopolistic and Restrictive Trade Practices (MRTP) Act, 1969. This Act aimed to prevent monopolies and protect consumers from unfair trade. However, with changing market dynamics and the need for a stronger competition framework, the MRTP Act was repealed in 2009 and replaced by the Competition Act, 2002.

Today, consumer protection against unfair trade practices is governed primarily by the Consumer Protection Act, 2019, while the Competition Act, 2002 focuses on preserving fair competition by regulating anti-competitive agreements and abuse of dominant positions.

Types of Unfair Trade Practices

Although the Competition Act, 2002 does not explicitly define “unfair trade practices,” many such practices are regulated through its provisions against anti-competitive agreements and abuse of dominance. The Consumer Protection Act, 2019 provides a more detailed list of unfair trade practices.

False and Misleading Representations

This involves making false or deceptive claims regarding goods or services, such as:

• Claiming a product has a particular quality or grade which it does not possess.
• Selling second-hand, refurbished, or old goods as new.
• Claiming approvals or warranties without proper basis.
• Misrepresenting the use, benefits, or performance of a product or service.

False Offer of Bargain Price

Advertising goods or services at a bargain price without the intention or ability to sell them at that price for a reasonable quantity or period constitutes an unfair trade practice. It misleads consumers to believe they are getting a better deal than actually available.

Bait Selling, Gifts, and Contests

This includes:

• Offering gifts or prizes without genuine intention.
• Inflating the price of the main product to recover the cost of “free” gifts.
• Running contests or lotteries mainly to promote sales, without real chances for consumers to win.

Non-Compliance with Safety Standards

Selling goods or services that do not conform to prescribed safety standards, thereby risking consumer safety, is also an unfair trade practice.

Hoarding and Destruction of Goods

When dominant firms hoard or deliberately destroy goods to create artificial scarcity, leading to price hikes and exclusion of competitors, it amounts to unfair trade practice and abuse of dominance.

Competition Act, 2002: Addressing Unfair Trade Practices

The Competition Act, 2002 primarily targets anti-competitive agreements and abuse of dominant position, which often encompass unfair trade practices affecting competition.

Anti-Competitive Agreements (Section 3)

Section 3 prohibits agreements that appreciably reduce competition in the market. Such agreements include:

• Price-fixing among competitors.
• Market-sharing or customer allocation.
• Collusive bidding or bid rigging.
• Restricting production or supply.

These agreements can distort fair market conditions and harm consumer welfare.

Abuse of Dominant Position (Section 4)

A firm holds a dominant position when it can operate independently of competitive pressures. Abuse of such a position includes:

• Predatory pricing – selling goods or services below cost to eliminate competition.
• Imposing unfair or discriminatory conditions.
• Limiting production or market access to competitors.
• Denying market access without reasonable cause.

These actions suppress competition and harm consumers in the long run.

Predatory Pricing: An Illustrative Example

To better understand unfair trade practices in competition law, consider the case of Mehak versus Khushboo shampoo:

• Mehak, a small village business, manufactured a low-priced shampoo liked by villagers.
• Khushboo, a large company, lowered its prices below cost to push Mehak out of business.
• Mehak could not sustain losses and shut down.
• After eliminating competition, Khushboo raised its prices.

This is a classic case of predatory pricing, where a dominant player temporarily incurs losses to eliminate competition, later exploiting its monopoly position.

Under Section 4(2)(a)(ii) of the Competition Act, such pricing is prohibited as it harms competition and consumer welfare.

The Role of the Competition Commission of India (CCI)

Establishment and Mandate

The Competition Commission of India was established in 2003 and became fully operational in 2009. Its primary role is to enforce the Competition Act, promote fair competition, and prevent practices that adversely affect competition.

Powers and Functions

• Investigation: CCI can initiate investigations suo motu or on complaints regarding anti-competitive conduct.
• Adjudication: It holds hearings and passes orders to cease anti-competitive practices.
• Penalties: Can impose fines up to 10% of the offending company’s average turnover.
• Advocacy: Promotes awareness about the importance of competition and healthy business practices.

Procedure for Addressing Unfair Trade Practices

Filing a Complaint

Any person, company, or association can file a complaint with the CCI if they believe a trade practice is unfair and anti-competitive.

Preliminary Assessment

The CCI examines whether the complaint discloses a prima facie case of anti-competitive conduct.

Investigation by Director General

If needed, the Director General conducts an in-depth investigation, collecting evidence and statements.

Hearing and Final Order

CCI conducts hearings, allows parties to present their case, and then issues a reasoned order. The order may direct cessation of anti-competitive conduct, impose penalties, or mandate corrective actions.

Appeals

Orders passed by CCI can be appealed before the National Company Law Appellate Tribunal (NCLAT) and subsequently before the Supreme Court.

Intersection with Consumer Protection Law

While the Competition Act addresses market-wide competition issues, the Consumer Protection Act, 2019 offers direct remedies to consumers suffering from unfair trade practices.

Consumers can approach consumer forums for compensation or redressal against deceptive trade practices. Meanwhile, CCI ensures that market conditions remain conducive to fair competition.

Conclusion

Unfair trade practices, if unchecked, distort markets, harm consumers, and stifle innovation. The Competition Act, 2002, supported by the Competition Commission of India, provides a strong legal framework to detect, prevent, and penalise such practices in India.

While consumer protection laws provide relief at the individual level, competition law ensures the market remains fair, efficient, and competitive for all players.