Unfair Trade Practices and Institutional Challenges in India: An

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 2

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 Competitio n 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. 5

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 6

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 7

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 State Commission Appellate(35 in number) Jurisdiction 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 8

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 9

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 10

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 injunction problems arise but not been used Focuses upon orderly development of a sector that Focuses upon consumer welfare 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 11

Legal and Institutional FrameworkGlobally 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 12

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 13

Experience Accountability Additional institutional arrangements under the Swedish Marketing Practices Act, 2008, to hold the consumer agency accountable to its mandate. Sectoral laws vis-a-vis Consumer Law The “Spring Board Function” under the Swedish Marketing Practices Act, 2008. Power of Consumer Agency In Bulgaria, Poland the consumer agencies are designated with broad mandate and powers to impose sanctions, fines and cease-and desist orders. Business to Business Disputes Swedish Marketing Practices Act, 2008 deal with both B2C as well as B2B disputes. 14

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) 15

Recommendations Three options may be mentioned challenges: adopted to meet the 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 16

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 17

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. 18

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 19

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] 20