18187078 716 Unfair Trade Practice

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CERTIFICATE

I, Nadirshaw .K. Dhondy, Advocate Supreme court, have examined the thesis of Mr.

RAVIRAJ SURESH WADE who is enrolled in M.I.M.R.(Mumbai institute ofmanagement and research) for the academic years 2008- 2010 in the Masters of

Management Studies programme. His unique roll no. is 716. The Thesis is in part

fulfillment of the university programme for the subject Indian Ethos inManagement. He has been rated to receive _____ marks out of 40.

Dated this _______ day of October 2008

Signature Signature

Name: RAVRAJ WADE MR. NADIRSHAW K.DHONDY

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ACKNOWLEDGEMENTACKNOWLEDGEMENT

I sincerely thank Prof. Nadirshaw .k. Dhondy for giving me an opportunity to

compile this project and also for providing necessary information which helped me

in completing this project in a better manner.

I will be looking for such types of projects in near future and do our best.I would also like to thank DR. R. K. SINGH for support provided.

We are eagerly waiting for fruitful comments and constructive suggestions.

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UNFAIR & RESTRICTIVE TRADE PRACICES

IMPACTS INDUSTRIES

REPUTATION

INTRODUCTION

In the new corporate and business world today where there is cut throat

competition the business persons daringly use unfair trade practices to edgeover the other. This may give them advantage for short term but in long run

it affects the organization and eventually the entire industry.

There is always been confusion regarding the correct definition for unfair and

restrictive trade practices, also the about which practices to be considered as unfair.Let us first define the term and the practices to be included.

DEFINITION OF UNFAIR TRADE PRACTICE.

In this Part, unless the context otherwise requires "unfair trade practice" means a

trade practice which, for the purpose of promoting the sale, use or supply of anygoods or for the provisions of any services, adopts any unfair method or unfair or

deceptive practice including any of the following practices, namely :-

(1) The practice of making any statement, whether orally or in writing or by visible

representation which, -

(i) falsely represents that the goods are of a particular standard, quality, quantity,

grade, composition, style or model;

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(ii) Falsely represents that the services are of a particular standard, quality or grade;

(iii) falsely represents any re-built, second-hand, renovated, reconditioned or oldgoods as new goods;

(iv) represents that the goods or services have sponsorships, approval, performance,

characteristics, accessories, uses or benefits which such goods or services do nothave;

(v) represents that the seller or the supplier has a sponsorship or approval or

affiliation which such seller or supplier does not have;

(vi) makes a false or misleading representation concerning the need for, or the

usefulness of, any goods or services;

(vii) gives to the public any warranty or guarantee of the performance, efficacy or

length of life of a product or of any goods that is not based on an adequate or propertest thereof :

Provided that where a defense is raised to the effect that such warranty or guarantee

is based on adequate or proper test, the burden of proof of such defense shall lie onthe person raising such defense;

(viii) makes to the public a representation in a form that purports to be -

(i) a warranty or guarantee of a product or of any goods or services; or

(ii) a promise to replace, maintain or repair an article or any part thereof or to repeat

or continue a service until it has achieved a specified result.

if such purported warranty or guarantee or promise is materially misleading or ifthere is no reasonable prospect that such warranty, guarantee or promise will be

carried out;

(ix) materially misleading the public concerning the price at which a product or like

products or goods or services, have been, or are,

Ordinarily sold or provided, and, for this purpose, a representation as to price shall

be deemed to refer to the price at which the product or

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goods or services has or have been sold by sellers or provided by suppliers generallyin the relevant market unless it is clearly specified to be the price at which the

product has been sold or services have been provided by the person by whom or on

whose behalf the representation is made;

(x) gives false or misleading facts disparaging the goods, services or trade of anotherperson.

Explanation : For the purposes of clause (1), a statement that is -

(a) expressed on an article offered or displayed for sale, or on its wrapper or

container; or

(b) expressed on anything attached to, inserted in, or accompanying, an articleoffered or displayed for sale, or on anything on which the article is mounted for

display or sale; or

(c) contained in or on anything that is sold, sent, delivered, transmitted or in any

other manner whatsoever made available to a member of the public,

shall be deemed to be a statement made to the public by, and only by, the person

who had caused the statement to be so expressed, made or contained;

(2) permits the publication of any advertisement whether in any newspaper orotherwise, for the sale or supply at a bargain price, of goods or services that are not

intended to be offered for sale or supply at the bargain price, or for a period that is,

and in quantities that are, reasonable, having regard to the nature of the market inwhich the business is carried on, the nature and size of business, and the nature of

the advertisement.

Explanation: For the purpose of clause (2), "bargain price" means -

(a) a price that is stated in any advertisement to be a bargain price, by reference to

an ordinary price or otherwise, or

(b) a price that a person who reads, hears, or sees the advertisement, would

reasonably understand to be a bargain price having regard to the prices at which theproduct advertised or like products are ordinarily sold;

(3) permits -

(a) the offering of gifts, prizes or other items with the intention of not providing

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them as offered or creating the impression that something is being given or offeredfree of charge when it is fully or partly covered by the amount charged in the

transaction as a whole.

(b) the conduct of any contest, lottery, game of chance or skill, for the purpose of

promoting, directly or indirectly, the sale, use or supply of any product or anybusiness interest;

(4) permits the sale or supply of goods intended to be used, or are of a kind likely to

be used by consumers, knowing or having reason to believe that the goods do notcomply with the standards prescribed by competent authority relating to

performance, composition, contents, design, constructions, finishing or packaging as

are necessary to prevent or reduce the risk of injury to the person using the goods;

(5) permits the hoarding or destruction of goods, or refuses to sell the goods or to

make them available for sale, or to provide any service, if such hoarding or

destruction or refusal raises or tends to raise or isIntended to raise, the cost of those or other similar goods or services.

1. FALSE REPRESENTATION

The practice of making any oral or written statement or representation which:

Falsely suggests that the goods are of a particularstandard quality,

quantity, grade, composition, style or model;

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Falsely suggests that the services are of a particularstandard, quantity or

grade;

Falsely suggests any re-built, second-hand renovated, reconditioned oroldgoods as new goods;

Represents that the goods or services have sponsorship, approval,performance, characteristics, accessories, uses or benefits which they do not

have;

Represents that the seller or the supplier has a sponsorship or approval or

affiliation which he does not have;

Makes a false or misleading representation concerning the need for, or the

usefulness of, any goods or services;

Gives any warranty orguarantee of the performance, efficacy or length oflife of the goods, that is not based on an adequate or proper test;

Makes to the public a representation in the form that purports to be-a. a warranty or guarantee of the goods or services,

b. a promise to replace, maintain or repair the goods until it has

achieved a specified result,

If such representation is materially misleading or there is no reasonableprospect that such warranty, guarantee or promise will be fulfilled

Materially misleads about the prices at which such goods or services areavailable in the market; or

Gives false or misleading facts disparaging the goods, services or trade ofanother person.

2. FALSE OFFER OF BARGAIN PRICE-

Where an advertisement is published in a newspaper or otherwise, whereby goods or

services are offered at a bargain price when in fact there is no intention that the same

may be offered at that price, for a reasonable period or reasonable quantity, it shall

amount to an unfair trade practice.

The bargain price, for this purpose means-

a. the price stated in the advertisement in such manner as suggests that it is

lesser than the ordinary price, or

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b. The price which any person coming across the advertisement would believeto be better than the price at which such goods are ordinarily sold.

FREE GIFTS OFFER AND PRIZE SCHEMES

The unfair trade practices under this category are:

Offering any gifts, prizes or other items along with the goods when the real

intention is different, or

Creating impression that something is being offered free along with the

goods, when in fact the price is wholly or partly covered by the price of the

article sold, or

Offering some prizes to the buyers by the conduct of any contest, lottery orgame of chance or skill, with real intention to promote sales or business.

4. NON-COMPLIANCE OF PRESCRIBED STANDARDS

Any sale or supply of goods, for use by consumers, knowing or having reason to

believe that the goods do not comply with the standards prescribed by somecompetent authority, in relation to their performance, composition, contents, design,

construction, finishing or packing, as are necessary to prevent or reduce the risk of

injury to the person using such goods, shall amount to an unfair trade practice.

5. HOARDING, DESTRUCTION, ETC.

Any practice that permits the hoarding or destruction of goods, or refusal to sell the

goods or provide any services, with an intention to raise the cost of those or other

similar goods or services, shall be an unfair trade practice.

INQUIRY INTO UNFAIR TRADE PRACTICES

The Commission may inquire into

Any unfair trade practice

Upon receiving a complaint from any trade association, consumer or a

registered consumer association, or

Upon reference made to it by the Central Government or State Government

Upon an application to it by the Director General or

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Upon its own knowledge or information.

RELIEF AVAILABLE

After making an inquiry into the unfair trade practices if the Commission is of the

opinion that the practice is prejudicial to the pubic interest, or to the interest of anyconsumer it may direct that

The practice shall be discontinued or shall not be repeated; The agreement relating thereto shall be void in respect of such unfair trade

practice or shall stand modified.

Any information, statement or advertisement relating to such unfair tradepractice shall be disclosed, issued or published as may be specified

The Commission may permit the party to carry on any trade practice to take

steps to ensure that it is no longer prejudicial to the public interest or to theinterest of the consumer.

However no order shall be made in respect a trade practice which is expressly

authorized by any law in force.

The Commission is empowered to direct publication of corrective advertisement and

disclosure of additional information while passing orders relating to unfair tradepractices.

MONOPOLISTIC TRADE PRACTICES

A monopolistic trade practice is one, which has or is likely to have the effect of:

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i. maintaining the prices of goods or charges for the services at an

unreasonable levelby limiting, reducing or otherwise controlling the

production, supply or distribution of goods or services;

ii. unreasonably preventing or lessening competition in the production,supply or distribution of any goods or services whether or not by adopting

unfair method or fair or deceptive practices;iii. limiting technical development orcapital investment to the commondetriment;

iv. deteriorating the quality of any goods produced, supplied or distribute; and

v. increasing unreasonably -a. the cost of production of any good; or

b. charges for the provision, or maintenance, of any services; or

c. the prices for sale or resale of goods; or

d. The profits derived from the production, supply or distribution of anygoods or services.

A monopolistic trade practice is deemed to be prejudicial to the public interest,unless it is expressly authorized under any law or the Central Government permits to

carry on any such practice.

INQUIRY INTO MONOPOLISTIC TRADE PRACTICES

The Commission may inquire into

Any monopolistic trade practice,

Upon a reference made to it by the Central Government or

Upon an application made to it by the Director General or Upon it own knowledge or information

RELIEF AVAILABLE

a. Where the inquiry by the Commission reveals that the trade practice inquired

into operates or is likely to operate against public interest, the Central

Government may pass such orders as it thinks fit to remedy or present anymischief resulting from such trade practice.

b. On an inquiry report of the Commission, the Central Government may-

i. Prohibit the owner(s) of the concerned undertaking(s) fromcontinuing to indulge in a monopolistic trade practice; or

ii. Prohibit the owner of any class of undertakings or undertakings

generally, from continuing to indulge in any monopolistic tradepractice in relation to the goods or services.

c. The Central Government may also make an order:

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i. Regulating the production, storage, supply, distribution, or control ofany goods or services by an undertaking and fixing the terms of their

sale (including prices) or supply;

ii. Prohibit any act or practice or commercial policy which prevents orlessens competition in the production, storage, supply or distribution

of any goods or services;iii. Fixing standards for the goods used or produced by an undertaking;iv. Declaring unlawful the making or carrying out of the specified

agreement;

v. Requiring any party to the specified agreement to determine theagreement within the specified time, either wholly or to specified

extent;

vi. Regulating the profits which may be derived from the production,

storage, supply, distribution or control of any goods or services; orvii. Regulating the quality of any goods or services so that their standard

does not deteriorate.

POWERS OF THE COMMISSION

The MRTP Commission has the following powers:

1. Power of Civil Court under the Code of Civil Procedure, with respect to:

a. Summoning and enforcing the attendance of any witness andexamining him on oath;

b. Discovery and production of any document or other material object

producible as evidence;c. Reception of evidence on affidavits;

d. Requisition of any public record from any court or office.e. Issuing any commission for examination of witness; andf. Appearance of parties and consequence of non-appearance.

2. Proceedings before the commission are deemed as judicial proceedings with

in the meaning of sections 193 and 228 of the Indian Penal Code.3. To require any person to produce before it and to examine and keep any

books of accounts or other documents relating to the trade practice, in its

custody.

4. To require any person to furnish such information as respects the tradepractice as may be required or such other information as may be in his

possession in relation to the trade carried on by any other person.

5. To authorize any of its officers to enter and search any undertaking or seizeany books or papers, relating to an undertaking, in relation to which the

inquiry is being made, if the commission suspects tat such books or papers

are being or may be destroyed, mutilated, altered, falsified or secreted.

PRELIMINARY INVESTIGATION

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Before making an inquiry, the Commission may order the Director General to makea preliminary investigation into the complaint, so as to satisfy itself that the

complaint is genuine and deserves to be inquired into.

REMEDIES UNDER THE ACT

The remedies available under this act are -

TEMPORARY INJUNCTION

Where, during any inquiry, the commission is satisfied that any undertaking or anyperson is carrying on, or is about to carry on, any monopolistic, restrictive or unfair

trade practice, which is a pre-judicial to the public interest or the interest of any

trader or class of traders generally, or of any consumer or class of consumers, orconsumers generally, the commission may grant a temporary injunction restraining

such undertaking or person form carrying on such practice until the conclusion of

inquiry or until further orders.

COMPENSATION

Where any monopolistic, restrictive or unfair trade practice has caused damage toany Government, or trader or consumer, an application may be made to the

Commission asking for compensation, and the Commission may award appropriate

compensation.

Where any such loss or damage is caused to a number of persons having the sameinterest, compensation can be claimed with the permission of the commission, by

any of them on behalf of all of them.

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All unfair trade practices are restrictive but all restrictive trade prices are not unfair.

Unfair trade practice is illegal but restrictive trade practice could be extra legal

which means that it could have sanction under extra ordinary/special provisions of

the law. Like Ambulances, Fire Engines, police vehicles have right to enter no entry

area or one way streets from wrong end under special provisions of the law.

Eg of Restrictive Trade Practices

1. Coca Cola stopping its vendors from keeping the soft drinks of its rival brands.

2. M/s TELCO ordering vehicle maintenance firm near Lonavla Ghats to refuse

service of vehicles other than TATA. TELCO won the case on the ground that thetechnicians had only been trained for maintenance of TATA vehicles.

Agreements in restriction of the trade are void.

A bond indicating payment of penalty in case of employee quitting the job where in

there is no training involved is void. However, if there is training imported to the

employee, and then the bond is fully valid.

If a bond states a time frame against joining a rival company within specified period

of leaving the job by the employee, it is valid only if the next location is within 5

KM radius by crow flight. If a person joins another rival company which is more

than 5 Km from his previous job location, the bond does not apply on him.

There are 3 types of notices

1. Simple Notice Could be verbal or written

2. Constructive Notice Like No thorough fare, Tress passers will be prosecuted

3. Legal Notice Has to be replied within 21 days mandatorily else it is deemed thatthe facts stated in the notice have been accepted by the person.

Following is the list of restricted trade practices (Not comprehensive).

1. Vertical Integration

2. Horizontal Integration

3. Territorial Restrictions

4. Max Retail Pricing5. Market Survey

6. Price Fixation (Cartel Formation)7. Tying Arrangements

8. Requirement Contracts

9. Collective Market Sharing10. Advertisements

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11. Trade Tariffs

A business practice developed and regularized by the people and the govt is legal

practice.

As per the law, the consumer is to be serviced at minimum cost and while profits arethe soul of the businesses, it should not turn into profiteering.

Mahatma Gandhi had said, There is enough in this world to meet every mans need

but not enough to satisfy one mans greed.

Display of Wealth is a necessity for a mans ego. But it is wrong to convert that egointo class struggle.

Profit is not a dirty word, but Profiteering is.

Profits as defined by the law

1 50% - Normal Profit

51-100% - Good Profit101 400 - Very Good Profit

400 800 -

> 800% - Obscene Profit (Restrictive Trade Practice)

As on date there are 6 companies in India who are raking obscene profits.

Explanations.

Vertical Integration. Vertical Integration is defined as usurping of peripheral

activities of a core business which are normally done by smaller businesses. Eg. Acar manufacturer is expected to produce Chassis, Engine, Gear Box and other

critical car components. But as a practice, tyres, shock absorbers, lights, upholstery,Wind Screen, etc are outsourced to smaller manufacturer. If a car company starts to

manufacturer even these ancillaries, the ancillary units will go out of production.There, such vertical integration is not allowed by law.

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Horizontal Integration. When a company tries to enter businesses not directly relatedto its core business, it is called as Horizontal Integration. For eg. A petrol pump

starting to provide services like Lub Oils, servicing of vehicles, air, and puncture

repair, etc are legal form of activities which are direct offshoots of his core businessthat is fuelling of vehicles. But services such as running of One stop shop, Insurance

shop, ATM, RTO Agent Shop, Fast Food, Medical Store owned by the samebusiness is not allowed, however, these facilities can still exist under his roof asbusinesses being operated by people having hired the premises.

Territorial Restrictions. This prohibition actually bars manufacturers from stopping

their distributors from selling their product in any area. While the companies are

allowed to market their products in the area of their choice but there after if thedealer chooses to send the product to other reasons, he can not be restricted by the

company. Case Study. A celebrated case in this regard is of Kissan Vs Dipys

products. Kissed brand was then owned by Mr Vitthal Mallya under the name ofcompany as Herbertsons. Kissan was being sold all over India with manufacturing

base located at Mumbai. The company was making good profits, but suddenly itexperienced a plato in profits. Then Mr Mallya, bought out Dipys brand which was

very popular in south India, to kill competition. But profits platoed again aftertemporary rise. Mr Vithal Mallya, owner of Herbertson Co, manufacturer of Kissan

brand was manufacturing the sauce in Mumbai and marketing in North India. When

the sales growth stalled, Mr Mallya got the taste of Dipys brand modified graduallyto Kissans taste over a period of 18 months. Thereafter, he started marketing the

sauce sourced from the same factory on two brand names. Thereby, he started

saving on transportation and octrai etc and profits grew. This practice was observedby Kalvert and complaint was made. However, Dipys won the case narrowly.

Jute, Cement and Iron & Steel are exempted from this law due to bulkiness and

weight and cost involvement in transportation.

Trade Tariffs. Trade tariffs are fixed in conjunction with Trade associations and

Govt. Govt trade tariffs are legal. Simla Apples Farming and MerchandisingAssociation had imposed trade tariffs (reduced the price of apples) to counter the

cheap imports from New Zealand. It was considered illegal. Regional trading blocks

apply this tactic to deny market to other countries, like European EconomicCommunity, USA and Mexico.

Max Retail Pricing. Differential Retail Pricing within the same city (Say Colaba and

Govandi) is not permitted. However, MRP can vary between Mumbai and Pune or

Delhi. This is done to avoid differentiation as per economic segregation in areas. Inpharmaceutical industry, there is drug price control order. It means that drug prices

are controlled by the Govt. Any other price which is not regulated is at option of

manufacturer and the market forces. Essential Commodities Act provides forregulation of price and this is critically important because it has also concept of

MRP.

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Market Survey. Market survey for fixing differential MRP is illegal.

Price Fixation (Cartel Formation). Price fixation ie. Dropping of prices by the

existing manufacturer to the disadvantages of the new entrant is constituted to be

illegal. WTO has no clause regarding Cartel formation. No international law exists

against Cartel formation. That is how OPEC is existing. There are Gold and Silvertrading cartels.

Tying Arrangements. Two parties can not have a tie-up to the disadvantage of a

third party. Case Study. Great Eastern Railways Vs Fingoll (Lawyer for Truckers).Great Eastern Railways operated for 7 years with loss and decided to close

operations. However they were persuaded to continued by a gentleman who

promised a turn around in one year. He then offered the spare railway land on sides

of the railway line to farmers with a understanding that they would transport theexcess produce (approx 40% of the total) through the railways. Farmers were

delighted at the proposal and ended up transporting whole produce by railways only.

Truckers suffered loss and therefore complained. Case was lost by the railways.

Requirement Contract. A contract which mandates a party to the contract to divulge

information which is more than pure data is illegal. For example, Indian merchants

Chamber asking its members to divulge companys future plans.

Collective Market Sharing. A company can not usurp a part of the market for itsexclusive use. Case Study. BMW had entered into an exclusivity contract with a

service station for service of BMW vehicles in a Germany town. BMW had lost the

case. TELCO Vs Registrar of Restrictive Trade Practices. In this particular case

TATA had tied up with a service station near Lonavla Ghats for repair of only

TATA vehicles. The case was won by TATAs.

Advertisements. Surrogate advertisements are illegal. Case Study. Mr Ahuja, who

was manufacturing wines wanted advertisement of his product. He was told by theAd Agencies that advertisement of alcoholic beverages is not permitted by the law.

However, one Mr Spark agreed to place the Ad. He made arrangements with BEST

for painting of buses with four houses and 4 glasses along with a statement

Stallion comes to town. No mention was made of the company, of product. Saleswent up. This kind of Ad is called surrogate Ad. Ads placed by organisations like

SAHMAT against certain political parties and in favour of other parties, falls in this

category. Ads which are violative of moral standards of the society are also illegal.

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LAWS TO RESTRICT UNFAIR TRADE PRACICES

SECURITIES AND EXCHANGE BOARD OF INDIA (PROHIBITION

OF FRAUDULENT AND UNFAIR TRADE PRACTICES RELATING

TO SECURITIES MARKET) REGULATIONS, 2003

S.O. 816 (E) In exercise of the powers conferred by section30 of the Securities and Exchange Board of India Act, 1992

(15 of 1992), the Board hereby makes the following

regulations, namely:-

CHAPTER I

PRELIMINARY

Short title and commencement

1. (1) These regulations may be called the Securities and

Exchange Board of India (Prohibition of Fraudulent andUnfair Trade Practices relating to Securities Markets)

Regulations, 2003.

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(2) They shall come into force on the date of their publication

in the Official Gazette.

Definitions

2. (1) In these regulations, unless the context otherwise

requires,-

(a) "Act" means the Securities and Exchange Board

of India Act, 1992 (15 of 1992);

(b) "dealing in securities" includes an act of buying,selling or subscribing pursuant to any issue of any

security or agreeing to buy, sell or subscribe to any

issue of any security or otherwise transacting in anyway in any security by any person as principal, agent

or intermediary referred to in section 12 of the Act.

(c) "fraud" includes any act, expression, omission or

concealmentcommitted whether in a deceitful manneror not by a person or by any other person with his

connivance or by his agent while dealing in securities

inorderto induce another person or his agent to dealin securities, whether or not there is any wrongful gain

or avoidance of any loss, and shall also include-

(1) A knowing misrepresentation of

the truth or concealment of material

fact in order that another person mayact to his detriment;

(2) A suggestion as to a fact which isnot true by one who does not believe it

to be true;

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(3) An active concealment of a fact bya person having knowledge or belief

of the fact;

(4) A promise made without any

intention of performing it;

(5) A representation made in a

reckless and careless manner whether it

is true or false;

(6) Any such act or omission as anyother law specifically declares to be

fraudulent,

(7) deceptive behaviour by a person

depriving another of informed consentor full participation,

(8) a false statement made without

reasonable ground for believing it to be

true.

(9) The act of an issuer of securities

giving out misinformation that affects

the market price of the security,resulting in investors being effectively

misled eventhough they did not rely onthe statement itself or anything derived

from it other than the market price.

And "fraudulent" shall be construed

accordingly;

Nothing contained in this clause shall apply to any

general comments made in good faith in regard to

(a) The economic policy of the government

(b) The economic situation of the country

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(c) Trends in the securities market or

(d) Any other matter of a like nature

Whether such comments are made in public or in

private.

(d) "Investigating Authority" means any officer of theBoard not below the rank of Division Chief,

authorized by the Board to undertake investigation

under Section 11C of the Act;

(e) "securities" means securities as defined in section

2 of the Securities Contracts (Regulation) Act, 1956

(42 of 1956).

(2) Words and expressions used and not defined in theseregulations, but defined in the Act or in the rules or

regulations made thereunder, shall have the meanings

respectively assigned to them in the Act or rules orregulations made thereunder, as the case may be.

CHAPTER II

PROHIBITION OF FRAUDULENT AND UNFAIR TRADEPRACTICES

RELATING TO THE SECURITIES MARKET

3. Prohibition of certain dealings in securities

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No person shall directly or indirectly-

(a) buy, sell or otherwise deal in securities in a fraudulent

manner;

(b) use or employ, in connection with issue, purchase or

sale of any security listed or proposed to be listed in arecognized stock exchange, any manipulative or

deceptive device or contrivance in contravention of the

provisions of the Act or the rules or the regulations madethere under;

(c) employ any device, scheme or artifice to defraud in

connection with dealing in or issue of securities which

are listed or proposed to be listed on a recognized stockexchange;

(d) engage in any act, practice, course of business which

operates or would operate as fraud or deceit upon any

person in connection with any dealing in or issue ofsecurities which are listed or proposed to be listed on a

recognized stock exchange in contravention of the

provisions of the Act or the rules and the regulationsmade there under.

4. Prohibition of manipulative, fraudulent and unfair trade

practices

(1) Without prejudice to the provisions of regulation 3, no

person shall indulge in a fraudulent or an unfair trade

practice in securities.

(2) Dealing in securities shall be deemed to be a fraudulentor an unfair trade practice if it involves fraud and may

include all or any of the following, namely:-

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(a) indulging in an act which creates false or misleadingappearance of trading in the securities market;

(b) dealing in a security not intended to effect transfer ofbeneficial ownership but intended to operate only as adevice to inflate, depress or cause fluctuations in the price

of such security for wrongful gain or avoidance of loss;

(c) advancing or agreeing to advance any money to any

person thereby inducing any other person to offer to buyany security in any issue only with the intention of

securing the minimum subscription to such issue;

(d) paying, offering or agreeing to pay or offer, directly

or indirectly, to any person any money or moneys worth

for inducing such person for dealing in any security withthe object of inflating, depressing, maintaining or causing

fluctuation in the price of such security;

(e) any act or omission amounting to manipulation of the price of a security;

(f) publishing or causing to publish or reporting or

causing to report by a person dealing in securities anyinformation which is not true or which he does not believe

to be true prior to or in the course of dealing in securities;

(g) entering into a transaction in securities without

intention of performing it or without intention of change

of ownership of such security;

(h) selling, dealing or pledging of stolen or counterfeit

security whether in physical or dematerialized form;

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(i) an intermediary promising a certain price in respect of

buying or selling of a security to a client and waiting till a

discrepancy arises in the price of such security and

retaining the difference in prices as profit for himself;

(j) an intermediary providing his clients with such

information relating to a security as cannot be verified by

the clients before their dealing in such security;

(k) an advertisement that is misleading or that contains

information in a distorted manner and which mayinfluence the decision of the investors;

(l) an intermediary reporting trading transactions to his

clients entered into on their behalf in an inflated manner

in order to increase his commission and brokerage;

(m) an intermediary not disclosing to his clienttransactions entered into on his behalf including taking an

option position;

(n) circular transactions in respect of a security enteredinto between intermediaries in order to increase

commission to provide a false appearance of trading in

such security or to inflate, depress or cause fluctuations in

the price of such security;

(o) encouraging the clients by an intermediary to deal in

securities solely with the object of enhancing his

brokerage or commission.

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(p) an intermediary predating or otherwise falsifying

records such as contract notes.

(q) an intermediary buying or selling securities in advance

of a substantial client order or whereby a futures or optionposition is taken about an impending transaction in the

same or related futures or options contract.

(r) planting false or misleading news which may inducesale or purchase of securities.

CHAPTER III

INVESTIGATION

Power of the Board to order investigation

5. Where the Board, the Chairman, the member or the ExecutiveDirector (hereinafter referred to as appointing authority)

has reasonable ground to believe that -

(a) the transactions in securities are being dealt with in amanner detrimental to the investors or the securities

market in violation of these regulations;

(b) any intermediary or any person associated with the

securities market has violated any of the provisions of theAct or the rules or the regulations,

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it may, at any time by order in writing, direct any officer notbelow the rank of Division Chief (hereinafter referred to as

the Investigating Authority) specified in the order to

investigate the affairs of such intermediary or personsassociated with the securities market or any other person and

to report thereon to the Board in the manner provided insection 11C of the Act.

Powers of Investigating Authority

6. Without prejudice to the powers conferred under the Act, the

Investigating Authority shall have the following powers for

the conduct of investigation, namely:-

(1) to call for information or records from any person

specified in section 11(2)(i) of the Act;

(2) to undertake inspection of any book, or register, or otherdocument or record of any listed public company or a public

company (not being intermediaries referred to in section 12 ofthe Act) which intends to get its securities listed on any

recognized stock exchange where the Investigating Authorityhas reasonable grounds to believe that such company has

been conducting in violation of these regulations;

(3) to require any intermediary or any person associated withsecurities market in any manner to furnish such information

to, or produce such books, or registers, or other documents, or

record before him or any person authorized by him in thisbehalf as he may consider necessary if the furnishing of such

information or the production of such books, or registers, or

other documents, or record is relevant or necessary for the

purposes of the investigation;

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(4) to keep in his custody any books, registers, otherdocuments and record produced under this regulation for a

maximum period of one month which may be extended upto a

period of six months by the Board:

Provided that the Investigating Authority may call for any

book, register, other document or record if the same is needed

again:

Provided further that if the person on whose behalf the books,

registers, other documents and record are produced requires

certified copies of the books, registers, other documents and

record produced before the Investigating Authority, he shallgive certified copies of such books, registers, other documents

and record to such person or on whose behalf the books,

registers, other documents and record were produced;

(5) to examine orally and to record the statement of the

person concerned or any director, partner, member or

employee of such person and to take notes of such oralexamination to be used as an evidence against such person:

Provided that the said notes shall be read over to, or by, and

signed by, the person so examined;

(6) to examine on oath any manager, managing director,officer or other employee of any intermediary or any person

associated with securities market in any manner in relation to

the affairs of his business and may administer an oathaccordingly and for that purpose may require any of those

persons to appear before him personally.

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Power of the Investigating Authority to be exercised withprior approval

7. The Investigating Authority may, after obtaining specificapproval from the Chairman or Member also exercise all orany of the following powers, namely:-

(a) to call for information and record from any bank or any

other authority or board or corporation established orconstituted by or under any Central, State or Provincial Act in

respect of any transaction in securities which are under

investigation;

(b) to make an application to the Judicial Magistrate of thefirst class having jurisdiction for an order for the seizure of

any books, registers, other documents and record, if in the

course of investigation, the Investigating Authority hasreasonable ground to believe that such books, registers, other

documents and record of, or relating to, any intermediary or

any person associated with securities market in any mannermay be destroyed, mutilated, altered, falsified or secreted;

(c) to keep in his custody the books, registers, other

documents and record seized under these regulations for such

period not later than the conclusion of the investigation as heconsiders necessary and thereafter to return the same to the

person, the company or the other body corporate, or, as the

case may be, to the managing director or the manager or anyother person from whose custody or power they were seized:

Provided that the Investigating Authority may, before

returning such books, registers, other documents and record

as aforesaid, place identification marks on them or any partthereof ;

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(d) Save as otherwise provided in this regulation, every search

or seizure made under this regulation shall be carried out in

accordance with the provisions of the Code of Criminal

Procedure, 1973 (2 of 1974) relating to searches or seizuresmade under that Code.

Duty to co-operate, etc.

8. (1) It shall be the duty of every person in respect of whom aninvestigation has been ordered under regulation 7-

(a) to produce to the Investigating Authority or any

person authorized by him such books, accounts andother documents and record in his custody or control

and to furnish such statements and information as the

Investigation Authority or the person so authorized by

him may reasonably require for the purposes of theinvestigation;

(b) to appear before the Investigation Authority

personally when required to do so by him underregulation 6 or regulation 7 to answer any question

which is put to him by the Investigation Authority in

pursuance of the powers under the said regulations.

(2) Without prejudice to the provisions of sections 235 to 241

of the Companies Act, 1956 (1 of 1956), it shall be the dutyof every manager, managing director, officer and other

employee of the company and every intermediary referred toin section 12 of the Act or every person associated with the

securities market to preserve and to produce to the

Investigating Authority or any person authorized by him inthis behalf, all the books, registers, other documents and

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record of, or relating to, the company or, as the case may be,of or relating to, the intermediary or such person, which are in

their custody or power.

(3) Without prejudice to the generality of the provisions ofsub-regulations (1) and (2), such person shall -

(a) allow the Investigating Authority to have access to

the premises occupied by such person at all reasonabletimes for the purpose of investigation;

(b) extend to the Investigating Authority reasonable

facilities for examining any books, accounts and other

documents in his custody or control (whether keptmanually or in computer or in any other form)

reasonably required for the purposes of the

investigation;

(c) provide to such Investigating Authority any such

books, accounts and records which, in the opinion ofthe Investigating Authority, are relevant to the

investigation or, as the case may be, allow him to takeout computer out-prints thereof.

Submission of report to the Board

9. The Investigating Authority shall, on completion of

investigation, after taking into account all relevant facts,

submit a report to the appointing authority:

Provided that the Investigating Authority may submit an

interim report pending completion of investigations if he

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considers necessary in the interest of investors and thesecurities market or as directed by the appointing authority.

Enforcement by the Board

10. The Board may, after consideration of the report referred to inregulation 9, if satisfied that there is a violation of these

regulations and after giving a reasonable opportunity of

hearing to the persons concerned, issue such directions or takesuch action as mentioned in regulation 11and regulation 12:

Provided that the Board may, in the interest of investors and the securities

market, pending the receipt of the report of the investigating authority referred to

in regulation 9, issue directions under regulation 11:

Provided further that the Board may, in the interest of

investors and securities market, dispense with the opportunity

of pre-decisional hearing by recording reasons in writing andshall give an opportunity of post-decisional hearing to the

persons concerned as expeditiously as possible.

11. (1) The Board may, without prejudice to the provisions

contained in sub-sections (1), (2), (2A) and (3) of section 11and section 11B of the Act, by an order, for reasons to be

recorded in writing, in the interests of investors and securities

market, issue or take any of the following actions ordirections, either pending investigation or enquiry or on

completion of such investigation or enquiry, namely:-

(a) suspend the trading of the security found to be orprima-

facie found to be involved in fraudulent and unfair tradepractice in a recognized stock exchange;

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(b) restrain persons from accessing the securities market andprohibit any person associated with securities market to

buy, sell or deal in securities;

(c) suspend any office-bearer of any stock exchange or self-regulatory organization from holding such position;

(d) impound and retain the proceeds or securities in respect

of any transaction which is in violation orprima facie in

violation of these regulations;

(e) direct any intermediary or any person associated with the

securities market in any manner not to dispose of or

alienate an asset forming part of a fraudulent and unfair

transaction:

(f) require the person concerned to call upon any of its

officers, other employees or representatives to refrain

from dealing in securities in any particular manner;

(g) prohibit the person concerned from disposing of any of

the securities acquired in contravention of theseregulations;

(h) direct the person concerned to dispose of any suchsecurities acquired in contravention of these regulations,

in such manner as the Board may deem fit, for restoring

thestatus-quo ante;

(2) The Board shall issue a press release in respect of any

final order passed under sub-regulation (1) in atleast twonewspapers of which one shall have nationwide circulation

and shall also put the order on the website of the Board.

Suspension or cancellation of registration

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12. (1) The Board may, without prejudice to the provisionscontained in sub-sections (1), (2), (2A) and (3) of section 11

and section 11B of the Act, by an order, for reasons to be

recorded in writing, in the interests of investors and securitiesmarket take the following action against an intermediary:

(a) Issue a warning or censure

(b) suspend the registration of the intermediary; or

(c) cancel of the registration of the intermediary

Providedthat no final order of suspension or cancellation ofan intermediary for violation of these regulations shall be

passed unless the procedure specified in the regulations

applicable to such intermediary under the Securities andExchange Board of India (Procedure for Holding Enquiry by

Enquiry Officer and Imposing Penalty) Regulations, 2002 is

complied with.

Repeal and savings

13. (1) The Securities and Exchange Board of India (Prohibition

of Fraudulent and Unfair Trade Practices relating to Securities

Market) Regulations, 1995 is hereby repealed.

(2) Notwithstanding repeal of the Securities and Exchange

Board of India (Prohibition of Fraudulent and Unfair Trade

Practices relating to Securities Market) Regulations, 1995,any violation of regulations 3, 4, 5 and 6 of the SEBI

(Prohibition of Fraudulent and Unfair Trade Practices

Relating to Securities Market) Regulations, 1995 shall be

investigated and proceeded against in accordance with theprocedure laid down in these regulations.

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(3) Notwithstanding repeal of the Securities and ExchangeBoard of India (Prohibition of Fraudulent and Unfair Trade

Practices relating to Securities Market) Regulations, 1995,

any investigation pending, at the commencement of theseregulations shall be continued and disposed of in accordance

with the procedure laid down in these regulations.

Are unfair trade practices only relevant to consumers?Most certainly not. Businesses are also big losers when it comes to unfair tradepractices. Firstly responsible businesses will lose sales to disreputable businesses that

engage in UTPs because the disreputable firms: unfairly increase their sales to the detriment of responsible businesses; and

reduce their costs of purchase or manufacture.

Secondly UTPs can damage consumer confidence to the extent that overall growth in

the market is affected. This can happen when consumers get overly wary about tryingnew products/services or new businesses.

CONCLUSIONThis is true that UTP is an inseparable part of the business but it is not the fair partof business. It may give you benefits for short time period but in long run it has an

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notable impact on business. It has a direct impact not only on that particularcompany but also on entire market. The impact of UTP can effect the reputation of

industry, country and the employee working in that organization. Therefore

companies should not concentrate on the shortcut ways and get involve in UTP.

BIBLIOGRAPHY

1)Dealing with Unfair Trade Practices

Carl Buik

Addis Ababa

2)CHAPTER IVTHE MONOPOLIES AND RESTRICTIVE TRADEPRACTICES ACT, 1969 :

3) business standard.

Date post:	08-Apr-2018
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18187078 716 Unfair Trade Practice

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