Frequent stories of big brands indulging in false advertising should be no surprise, as there is no law to check it

Photo: PTI

Photo: PTI

There is effectively no law in India against false advertising and unfair trade practices. The frequent news stories of big brands indulging in false advertising should be no surprise. As there is no law, businesses are free to be uninhibited in advertising. Whereas businesses do not have “rules of the game” to engage in fair competition, the end loser is the consumer, left in a web of false claims and half truths. Curiously, we started out with a law protecting against unfair trade practices during the “licence permit raj”, and then dropped it when the economy liberalized and competition came in.

How have we come to this stage? The answer will guide in developing a response against unfair trade practices. By the 1980s, there was proliferation of advertising, including false advertising. To regulate advertising, in 1984, Parliament inserted a chapter on unfair trade practices in the Monopolies and Restrictive Trade Practices Act, 1969 (MRTP).

Under the MRTP Act, any person or trader (business entity) could approach the MRTP Commission against an unfair trade practice. If a trader suffered losses due to an unfair trade practice by another trader, he could claim damages. The MRTP Commission could also, on its own knowledge, take up a case of an unfair trade practice. While the MRTP Commission had only one office in New Delhi, it took up a large number of cases of unfair trade practices. Companies approached the MRTP Commission with complaints against other companies, the most famous being the Colgate-Pepsodent advertisement rivalry.

The Consumer Protection Act (CPA) was enacted two years later. The CPA intended to give protection to consumers against unfair trade practices. Towards this, it borrowed the definition of unfair trade practices from the MRTP Act. Thus, another platform emerged for a remedy against an unfair trade practice.

However, for reasons we note later, the remedy under the CPA has remained dormant. At the turn of the century, following changes worldwide, need was felt for a comprehensive law against monopolies and anti-competition business activities.

The central government appointed a committee to study the subject and draft a new law. The committee prepared a report and a draft bill. It excluded unfair trade practices from the draft bill as it did not want to dilute the thrust of the law from anti-competition activities.

The justification given by the committee for the exclusion was that the CPA provided adequate redressal against unfair trade practices. Following recommendations of the committee, the Competition Act, 2002 was enacted, repealing the MRTP Act, 1969. There is no argument against the committee seeking to focus exclusively on fostering competition in drafting competition law. However, the committee should have recommended a separate legislation for (un)fair trade practices.

The justification of the committee, that the CPA provided adequate redressal against unfair trade practices, did not have a basis. Only a consumer can approach a consumer forum for a remedy. A company is not a consumer and thus cannot approach a consumer forum complaining of unfair trade practices.

Further, even a natural person can become a consumer only on entering in a contract for buying goods or availing of services. In most cases, a manufacturer advertises its products, but the consumer contracts with the retailer, not the manufacturer.

Thus, effectively, a person who comes across an unfair trade practice has no remedy. For these reasons, the CPA has almost no relevance in regulating unfair trade practices. The MRTP Act alone was the effective law against unfair trade practices.

The Consumer Protection Bill, 2015 provides redressal against unfair trade practices. However, like the existing CPA, only consumers, that is, natural persons who have entered in a contract, can seek remedy from a consumer forum. The bill is proposing to create an additional body, the Central Consumer Protection Authority. Again, only a consumer can seek remedy from the Authority. That is how it should be.

Since the focus of the law is consumer protection, it should confine itself to benefiting consumers only and not open itself up to business entities seeking remedy. Opening up the authority to all will crowd it with disputes among business entities. However, the bill allows any person to bring an unfair trade practice to the notice of the authority.

Thus, a business entity can draw the attention of the authority to an unfair trade practice. But this is only incidental. A business entity must be provided protection against unfair trade practices and a mechanism to claim remedies.

As law has evolved, the subject of unfair trade practices has fallen in the gap between the competition law and consumer protection. A separate legislation and a statutory body like the Competition Commission are imperative to foster fair trade practices in the economy.

Prof. Akhileshwar Pathak teaches Business Policy at IIM-Ahmedabad. His current interests are in the field of law, liberalization and globalization.