Restrictive and Unfair Trade Practices

In one minute

A restrictive trade practice manipulates prices or the flow of supplies and imposes unjustified costs on consumers. An unfair trade practice uses an unfair or deceptive method to promote sale, use or supply of goods or services. An unfair contract has terms that cause a significant change in the consumer's rights.

In exams, this topic is asked as "define unfair trade practice and list its forms", and as a problem on a false claim, a bargain price or a lucky draw. The trap is to mix the three terms and to forget that a bill must be issued.

Legal provision

• Section 2(41): restrictive trade practice.
• Section 2(46): unfair contract.
• Section 2(47): unfair trade practice.
• Section 2(6)(i): a complaint may allege that an unfair contract or unfair trade practice or restrictive trade practice has been adopted by a trader or service provider.
• Section 39(1)(g): the Commission may order the opposite party to discontinue the unfair or restrictive trade practice and not to repeat it.
• Sections 18, 21 and 22: the Central Authority prevents unfair trade practices, and can issue directions, impose penalties and conduct search and seizure.
• Section 94: measures to prevent unfair trade practices in e-commerce and direct selling.

Meaning and definition

A restrictive trade practice is a trade practice that tends to manipulate price or its conditions of delivery, or to affect the flow of supplies in the market relating to goods or services. It does so in a way that imposes unjustified costs or restrictions on consumers.

An unfair trade practice is a trade practice which, to promote the sale, use or supply of goods or the provision of a service, adopts any unfair method or unfair or deceptive practice.

An unfair contract is a contract between a manufacturer, trader or service provider on one side and a consumer on the other, with terms that cause a significant change in the rights of the consumer.

Detailed explanation

Step 1: Restrictive trade practices (section 2(41))

• Delay beyond the agreed period in supplying goods or providing services that has led, or is likely to lead, to a rise in price.
• Any trade practice that requires a consumer to buy, hire or avail of any goods or services as a condition for buying other goods or services (tie-in sale).

Step 2: Unfair contracts (section 2(46))

• Requiring manifestly excessive security deposits.
• Imposing a penalty for breach that is wholly disproportionate to the loss.
• Refusing to accept early repayment of debts on payment of the applicable penalty.
• Entitling a party to terminate the contract unilaterally without reasonable cause.
• Permitting one party to assign the contract to the detriment of the consumer without his consent.
• Imposing on the consumer any unreasonable charge, obligation or condition that puts him at a disadvantage.
• Complaints against unfair contracts lie to the State Commission (up to Rs 10 crore) and the National Commission (above Rs 10 crore).

Step 3: Unfair trade practices: false statements (section 2(47)(i))

Making a statement, orally, in writing or by electronic record, that:

• falsely represents that the goods are of a particular standard, quality, quantity, grade, composition, style or model;
• falsely represents that services are of a particular standard, quality or grade;
• falsely represents re-built, second-hand, renovated, reconditioned or old goods as new;
• represents that goods or services have sponsorship, approval, performance, characteristics, accessories, uses or benefits that they do not have;
• represents that the seller has a sponsorship, approval or affiliation that he does not have;
• makes a false or misleading representation about the need for, or the usefulness of, goods or services;
• gives a warranty or guarantee that is not based on an adequate or proper test (the burden of proving the test is on the person who raises the defence);
• makes a materially misleading warranty, guarantee or promise to replace, maintain or repair, or one that has no reasonable prospect of being carried out;
• materially misleads the public about the price at which a product is ordinarily sold;
• gives false or misleading facts disparaging the goods, services or trade of another person.

Step 4: Other unfair trade practices (section 2(47)(ii) to (ix))

• Bargain price advertisements for goods that are not intended to be offered at that price, or not for a reasonable period or in reasonable quantities.
• Gifts, prizes and contests: offering gifts with the intention of not providing them, or giving the impression that something is free when its cost is covered by the price. Running a contest or lottery to promote sales, except as prescribed. Withholding from participants the final results of a scheme.
• Unsafe goods: selling goods knowing or having reason to believe that they do not meet prescribed safety standards.
• Hoarding or destruction of goods, or refusing to sell, if it raises or tends to raise the cost.
• Spurious goods: manufacturing or offering them for sale, or deceptive practices in services.
• Not issuing a bill, cash memo or receipt in the prescribed manner.
• Refusing to take back defective goods or withdraw deficient services and refund the price within the period in the bill, or 30 days if none is stated.
• Disclosing personal information given in confidence by the consumer, except as the law allows.

Step 5: Remedies and enforcement

• A complaint to the Commission, where the order may require the practice to be discontinued and not repeated, with compensation (section 39).
• The Central Authority can investigate, order discontinuation or modification of a false advertisement, and impose penalties (sections 18 to 22).
• Misleading advertisements are punishable under sections 21 and 89.
• Spurious goods and adulteration are punishable under sections 90 and 91.

Step 6: Tort and contract background

These practices correspond to old torts and contract rules, such as deceit, injurious falsehood and passing off, and to unconscionable terms. The Act gives a simple route to relief without the need to prove those torts in a civil suit.

• Unfair conduct against consumers
  • Restrictive trade practice, section 2(41)
    • Delay raising prices
    • Tie-in sale
  • Unfair trade practice, section 2(47)
    • False statements and misleading warranties
    • Bargain ads, gifts, hoarding, no bill, no refund
  • Unfair contract, section 2(46)
    • Excessive deposits, one-sided termination

Don't confuse: restrictive trade practice and unfair trade practice

Point	Restrictive trade practice	Unfair trade practice
Section	2(41)	2(47)
Core idea	Manipulating price or supply	Unfair or deceptive method to promote sales
Examples	Delay that raises prices; tie-in sale	False claims, bargain ads, no bill
Effect on consumer	Unjustified costs and restrictions	Deception and loss

Common mistakes

• Mixing the three terms. Each has its own definition.
• Forgetting that a tie-in sale is a restrictive trade practice.
• Forgetting that not issuing a bill is an unfair trade practice.
• Forgetting the 30-day default period for taking back defective goods.
• Forgetting that unfair contract complaints go to the State and National Commissions.

Apply it

Leading case laws

• L.I.C. of India v. Consumer Education & Research Centre (1995)

  Facts. LIC's Table 58 policy was sold only to Government employees and persons in reputed firms.

  Principle. A clause shutting out the self-employed was arbitrary under Article 14 and could be struck down.

  Significance. Courts can strike down an unfair term in a contract between unequal parties.

• Mogul Steamship Co. Ltd. v. McGregor, Gow & Co. (1891)

  Facts. Shipowners cut freights and gave rebates to shut out a rival.

  Principle. Lawful competition did not make an actionable conspiracy.

  Significance. The Act now gives consumers a remedy against practices that manipulate price or supply to their cost.

How to write this answer in the exam

Key points to remember

• Restrictive: manipulating price or supply (section 2(41)). Tie-in sale is an example.
• Unfair: unfair or deceptive method to promote sales (section 2(47)).
• Unfair contract: significant change in consumer's rights (section 2(46)).
• Not issuing a bill and refusing to take back defective goods are unfair trade practices.
• Remedy: order to discontinue and not repeat, with compensation.

Quick self-test

Related topics

• Central Consumer Protection Authority (CCPA): establishment, composition and powers
• Remedies
• Penalties for misleading advertisement