This article on ‘Unfair Trade Practices in India: Legal Framework’ was written by Shriharshini Balachandar, an intern at Legal Upanishad.
Unfair trade practices refer to activities or practices that are deceptive, fraudulent, or unfair in nature and carried out by businesses or individuals to gain an unfair advantage over their competitors. These practices can cause harm to consumers, competitors, or the market as a whole. In India, various laws govern unfair trade practices, including the Consumer Protection Act, 2019, the Competition Act, 2002, and the Indian Contract Act, 1872. We will discuss the legal framework for unfair trade practices in India and analyze some significant case laws related to the topic. This article deals with the concept and laws regulating Unfair trade practices in India.
Unfair Trade Practices: Definition
The term “unfair trade practise” (UTP) broadly refers to a trade practise that adopts any unfair method or unfair or deceptive practise that is prohibited by a statute or has been recognised as actionable under law or by a court judgement in order to promote the sale, use, supply of any goods or the provision of any service.
LEGAL FRAMEWORK IN INDIA
The Consumer Protection Act, 2019
The Consumer Protection Act, 2019 (CPA) is a comprehensive legislation that aims to protect the interests of consumers in India. The Act defines unfair trade practices as any deceptive or unfair practice that is made by a seller in connection with the promotion, sale, or supply of any goods or services. It also provides for the establishment of the Central Consumer Protection Authority (CCPA) which has the power to investigate and prosecute unfair trade practices. Furthermore, the CPA has also introduced strict penalties for violations of consumer rights.
The Act provides for imprisonment and hefty fines for entities found guilty of engaging in unfair trade practices. This has significantly deterred market players from engaging in such practices and has helped in promoting fair competition in the market.
In the case of Hindustan Unilever Ltd. v. State of Rajasthan, the Supreme Court of India held that the promotion of a product by claiming that it has a unique or special property without any scientific basis is a deceptive trade practice. In this case, Hindustan Unilever promoted its product, “Pepsodent Germicheck,” by claiming that it was “102% better” than other toothpaste brands, without providing any scientific evidence to support the claim. The Court held that such a claim was misleading and amounted to an unfair trade practice.
Another important case that dealt with unfair trade practices under the CPA is the case of Cadila Healthcare Ltd. v. Dr. Reddy’s Laboratories Ltd. In this case, Cadila Healthcare had challenged the marketing practices of Dr. Reddy’s Laboratories, alleging that the latter had engaged in unfair and deceptive trade practices by making false and misleading claims about the efficacy of its product. The Court held that such claims were in violation of the CPA and directed Dr. Reddy’s Laboratories to withdraw the advertisement and pay compensation to Cadila Healthcare.
The Competition Act, 2002
The Competition Act, 2002 (CA) is another important legislation that deals with unfair trade practices in India. The Act aims to promote competition in the market by prohibiting anti-competitive practices. The act aims to promote and sustain competition in the market and protect the interests of consumers. The Competition Commission of India (CCI) is responsible for enforcing the provisions of the act and has been given the power to investigate and penalize entities that engage in anti-competitive practices. Under the CA, unfair trade practices are defined as those practices that distort competition in the market or are likely to do so.
In the case of Maruti Suzuki India Ltd. v. Competition Commission of India, the Delhi High Court held that an agreement between two car manufacturers to fix the prices of their spare parts was an unfair trade practice. The Court held that such an agreement was anti-competitive in nature and violated the provisions of the CA.
Another important case that dealt with unfair trade practices under the CA is the case of Pfizer Ltd. v. Union of India. In this case, Pfizer had challenged the decision of the National Pharmaceutical Pricing Authority (NPPA) to cap the prices of its drug. The Supreme Court of India held that Pfizer had engaged in an unfair trade practice by charging exorbitant prices for its drug, which was essential for the treatment of a life-threatening disease. The Court held that such a practice was exploitative and went against the public interest.
The Indian Contract Act, 1872
The Indian Contract Act, 1872 (ICA) deals with the formation and enforcement of contracts in India. the Indian Contract Act, 1872 plays a significant role in promoting fair and ethical business practices in India. The act provides for the requirement of free consent, the performance and discharge of contracts, and the enforceability of contracts. The effective implementation of the act would require the active participation of all stakeholders, including consumers, market players, and the authorities responsible for enforcing the law. Under the ICA, a contract that involves fraud or misrepresentation is voidable at the option of the aggrieved party. Therefore, any unfair trade practice that involves fraud or misrepresentation can be challenged under the ICA.
In the case of A.V. Fernandez v. State of Kerala, the Supreme Court of India held that a seller who conceals material information about a product while selling it to a buyer is guilty of unfair trade practice. In this case, A.V. Fernandez had sold a car to the complainant without disclosing that the car had met with an accident in the past. The Court held that such a practice was fraudulent and amounted to an unfair trade practice.
Another important case that dealt with unfair trade practices under the ICA is the case of Indian Oil Corporation Ltd. v. Amritsar Gas Service. In this case, Indian Oil Corporation terminated the dealership agreement with Amritsar Gas Service on the ground that the latter had engaged in malpractices and had indulged in black marketing of LPG cylinders. The Court held that the termination of the agreement without any prior notice or opportunity of being heard was an unfair trade practice and went against the principles of natural justice.
Other relevant legislation
Apart from the above-mentioned legislations, various other laws in India address specific unfair trade practices. For instance, the Drugs and Cosmetics Act, of 1940 prohibits misleading advertisements for drugs and cosmetics. The Securities and Exchange Board of India (SEBI) has also issued regulations to curb insider trading and other unfair trade practices in the securities market.
- The government and regulatory bodies should work to increase awareness among consumers and businesses about the legal framework regarding unfair trade practices in India. This can be done through various mediums like seminars, workshops, and social media campaigns.
- There should be stricter enforcement of the existing laws, and the government should ensure that the regulatory authorities have the necessary resources to carry out their duties effectively. This will act as a deterrent to businesses engaging in unfair trade practices.
- The complaint filing process should be simplified and made more accessible to consumers. This will encourage more people to come forward and report instances of unfair trade practices.
Unfair trade practices are a menace that can harm consumers, competitors, and the market as a whole. Therefore, it is essential to have a robust legal framework to deal with such practices. These laws provide stringent penalties and compensation mechanisms to deter businesses from engaging in such practices.
Through the case laws discussed above, we can see that the courts in India have been vigilant in enforcing these laws and protecting the interests of consumers and competitors. It is essential for businesses to be aware of their obligations under these laws and to ensure that they do not engage in any unfair trade practices. In conclusion, the legal framework for unfair trade practices in India is robust, and the courts have been proactive in enforcing these laws to ensure a fair and competitive market.
- Yash Agrawal, Unfair Trade Practices in India: A Comparative Analysis Between the Competition and Consumer Laws, SSRN, 4 June 2020, available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3619075
- Study of Unfair Trade Practices in India, Lex Peeps, 17 July 2021, available at: https://lexpeeps.in/study-of-unfair-trade-practices-in-india/
- Raj Karn, Unfair Trade Practices, 4(3) International Journal of Law Management and Humanities (2021)