Hello everyone, in the previous topic we were talking about Memorandum of Association, Article of Association, and Partnership. Today we are going to talk about Monopolies and Restrictive Trade Practices (MRTP) and the Board of Industrial and Financial Reconstruction (BIFR).

Monopolies and Restrictive Trade Practices (MRTP)

The Monopolies and Restrictive Trade Practices (MRTP) Act 1969, brought into force from 1st June 1970, was a very controversial piece of legislation.  This law was enacted with the sole aim of achieving the largest possible production with the least damage to people at large whilst securing maximum benefit.

This Act was enacted to ensure that the operation of the economic system does not result in the concentration of economic power in hands of few, to provide for the control of monopolies, and to prohibit monopolistic and restrictive trade practices.

There are two objectives of the MRTP Act, they are-

1.  Controlling monopolistic trade practices.
2. Regulating restrictive and unfair trade practices.

Features of MRTP Act

Here are the features of the Monopolies and Restrictive Trade Practices (MRTP) Act –

• It includes the prevention of concentration of economic power to the common detriment.
• The Control of monopolies.
• The Prohibition of Monopolistic Trade Practices (MTP).
• The Prohibition of Restrictive Trade Practices (RTP).
• The Prohibition of Unfair Trade Practices (UTP).

What is Monopolistic Trade Practices (MTP)?

A Monopolistic trade practice is essentially a trade practice that represents the abuse of the market power in the production or marketing of goods, or in the provision of services, by charging unreasonably high prices, preventing or reducing competition, limiting technical development, deteriorating product quality, or by adopting unfair or deceptive practices. These two tests determine whether a trade practice is an MTP or not –

• Abuse of market power,
• Unreasonableness in any practice.

The MTP includes the following things-

1. Maintaining the prices of goods or charges for any services at an unreasonable level.
2. Limiting technical development or capital investment to the common detriment.
3. Unreasonably preventing or lessening competition.
4. Allowing quality of goods produced, supplied, or distributed or any service rendered to deteriorate.
5. Increasing unreasonably the cost of production of any goods or charges for provision or maintenance of services.
6. Increasing unreasonably the selling price of goods or charges at which the services may be provided.
7. Increasing unreasonably the profits that are derived from the production, supply, or distribution of any goods or the provision of any services.
8. Preventing or lessening competition in the production, supply, or distribution of any goods or in the provision or maintenance of any services by adopting unfair methods of unfair practices.

What is Restrictive Trade Practices (RTP)?

A trade practice that restricts or reduces competition can be termed as Restrictive trade practice.

The RTP includes the following things-

• Refusal to deal with persons or classes of persons.
• Exclusive dealing agreement.
• Collective price fixation and tendering.
• Tie-in sales or full-line forcing.
• Re-sale price maintenance.
• Discriminatory Dealings.
• Restriction on output or supply of goods.
• Control of manufacturing process.
• Price control arrangements.
• Residual restriction trade practices.
• Governmental recognition of practice as a restriction.

Board of Industrial and Financial Reconstruction (BIFR)

The full form of BIFR is the Board of Industrial and Financial Reconstruction. BIFR was an agency of the Government of India and a division of the Department of Financial Services of the Ministry of Finance which were created under the Sick Industrial Companies Act (SICA), 1985. This board was set up in January 1987 and became functional as of 15 May 1987.

Purpose of BIFR

The purpose of BIFR is given below-

• It was created to reshape and recover sick undertakings and to shut down.
• It liquidates the ability of sick performances to grow or occur in the future or the long term.

Objective of BIFR

The objective of BIFR are as follow-

1. The BIFR consists of a chairperson, as well as two to fourteen other representatives.
2. The prerequisite for all members to be elected as judges of the High Court is because otherwise, they should have essential professional experience of at least 15 years.
3. The Board organizes and oversees only large or medium-sized sick industrial enterprises where vast amounts have been destroyed.

Role of BIFR

The role of BIFR as envisaged in the Sick Industrial Companies Act (Special Provision) is-Securing the timely detection of sick and potentially sick companies, Speedy determination by a group of experts of the various measures to be taken in respect of the sick company, and Expeditious enforcement of such measures.

As we know that BIFR has a Chairman and may have a maximum of 14 members in various fields, including banking, labor, accountancy, economics, etc. It has function as a court and has constituted these benches.

Following is the role of BIFR-

1. Reporting to BIFR

The Board of Directors of a sick unit is required to report the sickness to the BIFR within 60 days of finalization of the audited account. BIFR has a prescribed format for this report. Any other interested person or party can also report the facts of the sickness of the unit to BIFR. Such interested parties may be from a bank or financial institution that has lent a loan to the company.

The BIFR has prescribed a different format for the report to be submitted by such interested parties.

When a company has been financed by a group of banks, it is the lead bank that should report to BIFR about the sickness under information to other contributing banks.

2. Inquiry by the BIFR

When a case is reported to BIFR, it is verified by the Registrar of BIFR as to whether the case falls under the provisions of the Sick Industrial Companies (Special Provisions) Act 1985. If so, the BIFR accepts the case and notices a date for a hearing.

BIFR then invites the representatives of the sick unit, the representatives of concerned financial institutions or banks, central or state governments, trade unions, etc for the hearing. After the hearing, the BIFR itself may conduct a study or assigned the work to an authorized agency to determine the facts.

The inquiry should be completed within 60 days. Based on the inquiry report, BIFR declares whether the unit is sick or not.

3. Viability of Sick Units

A sick unit may be considered viable, if it would be in a position, after implementing a relief package spread over a period not exceeding five years from the commencement of the package from banks, financial institutions, Government (central/state), and other concerned agencies, as may be necessary, to continue to service its repayment obligations as agreed upon including those forming part of the package, without the help of the concessions after the aforesaid period.

The repayment period of restructured debts should not exceed seven years from the date of implementation of the package. In the case of small decentralized sector units, the period of relief and repayment period of restructured debts will be two years and three years respectively.

Based on the norms specialized above, it is for the banks or financial institutions to decide whether a sick unit is potentially viable or not.

The viability study of the unit should be carried out and decisions on rehabilitation or otherwise should be taken expeditiously on receipt of complete information on all relevant aspects from the management of the unit. It is of utmost importance to take measures to ensure that sickness is arrested at the initial stage itself.

The management of the units should be advised about their primary responsibility to inform the banks or financial institutions if they face problems that could lead to sickness and also to restore the units to normal health.

The branch officials who are familiar with the day-to-day operations in the borrowable accounts should also identify the early warning signals by making visits to the units and initiate corrective steps promptly. 

So, that is all for today guys see you in our next blog. If you like our article please doesn’t forget to share with others & follow our Instagram page for your daily dose of Motivation.

Thank You,

Regards

Grooming Urban

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