Learn From These Mistakes Before You Learn Unfair Trade Practices In India

Introduction To Unfair Trade Practices

Oxford dictionary defines the word ‘unfair’ as something that is not fair or just. Similarly, the term ‘Unfair trade practices’ encompasses a broad range of torts carried out by acts of deception or wrongful conduct. Unfair trade practices can happen in any line of business but it is found mostly in cases of intellectual property. Examples include trade secret misappropriation, unfair competition, false and misleading advertisements, dilution and disparagement.

The World Bank and the Organisation for Economic Cooperation and Development (OECD) Model Law, enumerate the following to be unfair trade practices –

a) Firstly, the distribution of false and misleading information that can potentially harm the business interests of another firm.

b) Secondly, the distribution of false or misleading information to consumers, which includes distribution of information lacking a reasonable basis, related to the price, character, method or place of production, properties, and suitability for use, or quality of goods; false or misleading comparison of goods in the process of advertising.

c) Thirdly, fraudulent use of a trademark, firm name, labeling of product or packaging.

d) Fourthly, unauthorized receipt and leak of confidential information related to business or trade.

Position Of Unfair Trade Practices in India

In India, the term ‘unfair trade practice’ has been defined under Section 2(1)(r) of the Consumer Protection Act, 1986. It reads as –

“unfair trade practice” means 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 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;

it refers to the false representation that goods possess a standard quality, quantity, grade, style or model.

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

it refers to the false representation that services contain a particular standard, quality or a grade.

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

it refers to the false representation of old goods as new goods.

(iv) represents that the goods or services have sponsor­ship, approval, performance, characteristics, accesso­ries, uses or benefits which such goods or services do not have;

it refers to the representation of goods or services have benefits which in reality such goods or services do not have.

(v) represents that the seller or the supplier has a spon­sorship or approval or affiliation which such seller or supplier does not have;

the representation that the seller or the supplier has sponsorship, approval or affiliation which the seller or the supplier does not have.

(vi) makes a false or misleading representation concern­ing the need for, or the usefulness of, any goods or services;

it refers to the false or misleading representation relating to the usefulness of 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 are not based on an adequate or proper test thereof;

it refers to assuring the public any kind of warranty or guarantee related to the performance, efficiency or life of a product or of any goods that aren’t based on an adequate or proper examination.

In 1969, the Monopolies and Restrictive Trade Practices Act, 1969 came into effect. The main motive behind this legislation was to categories ‘unfair trade practices’ into fixed categories. Section 36A of the Act deems the following to be unfair –

 36 A (1): False representation of products or services, including false description, guarantee, warranty or performance of a product or service.
36 A (2): The Advertisement of false bargain price.
36 A (3): Contests, lotteries, games of chance or skill for promotion of the sale.
36 A (4): Selling goods not in conformity with the law.
36 A (5): Hoarding, destruction, refusal to sell the goods. 

Also, unfair trade practice must cause some “loss or injury” to the consumer.

The problem with these fixed, water-tight compartments of unfair trade practices was that it was too narrow and not enough to curb the human minds who could invent new methods of unfair trade via scientific and technological advancement.

Due to this, in the case of Society for Civic Rights v. Colgate Palmolive India (Pvt.) Ltd., the apex court was of the view that the phrase “and thereby causes loss or injury to the consumers of such goods and services” is of an implied nature and it is not mandatory for actual loss or damage to happen. Mere unfair trade practice as outlined under Section 36A is enough to prove injury or loss.

Conclusion

Carrying out trade or business is one’s fundamental right to freedom as envisaged under Article 19 of the Constitution of India. However, trade and business must be a fair game and hence must be open to all. No business must infringe the rights of another by any means as mentioned above in the two acts.

5 Ugly Truth About Legal Agreements A Start-up Can’t Ignore

21st Century is technology-driven and every day new start-ups are coming up and getting themselves registered. But amidst this process, some of the important legal agreements that should not be ignored are-

1. Employee appointment contract

This is a formal agreement or understanding that determines the states the connection between an employee and a business including pay scale and desires of the business. Likewise alluded to as work contracts, they are regularly executed for a predefined timeframe of work.

In simpler terms, it is an understanding between a business and an employee at the time of hiring the employee. It is a blueprint of the correct idea of their business relationship. It particularly concentrates on what remuneration the representative will get in return for particular work performed. A business contract causes the start-up to draw in and hold key representatives.

Read Also: The 2018 Amendment to The Companies Act, 2013

2. Rent Agreement

A lease understanding is controlled by the Rent Control Act. The company can approach the court in case of any misunderstanding or dispute. What the civilities give to the occupant can’t be disturbed or pulled back even on an inability to pay the lease. The Rent Control Act is thought to be firmly for the benefit of both parties.

Segment 105 of the Transfer of Property Act, 1882 characterizes rent to be an assertion drafted if there should arise an occurrence of leasing property. Normally leasing property suggests that the proprietor has given his rights to make the most of his property to the inhabitant for a specific timeframe, and the occupant can appreciate the said property without obstruction. The interests of the property are exchanged to the inhabitant. The inhabitant can protect his rights over the property as his own particular since an exchange of intrigue has occurred. The understanding arrives at an end in light of the terms and states of the agreement. Rent is both transferable and inheritable since the intrigue lies with the occupant.

3. Trademark deed

Section 38 stipulates that Trademarks are frequently either allocated completely or transmitted mostly, with or without the generosity of the business. All transmissions or assignments ought to be enlisted with the Registrar of TradeMarks on article 23 or 24 of the Trade Marks. This deed helps in saving the rights of the business. No other person or company can copy the rights of business.  

4. Franchise Agreement

The Franchise Agreement is a lawful official understanding which diagrams the franchisor’s terms and conditions for the franchise. It likewise diagrams the commitments of the franchisor and the commitments of the franchise. The establishment understanding is marked at the time an individual settles on the choice to enter the establishment framework.

5. Business Non-disclosure Agreement

To keep the functioning of the business in line, it is important to utilize a Non-Disclosure Agreement (NDA) to secure the company’s restrictive data. Having an NDA frame secures the company licensed innovation, similar to the competitive innovations, from getting into the wrong hands. This agreement protects the company from any disclosure of secrets.

6. Memorandum Of Understanding (MOU)

A Memorandum of Understanding or MOU is a formal assertion between at least two partners. Organizations and associations can utilize MOUs to build up official organizations. MOUs are prevalent in worldwide relations of companies. MOUs may likewise be utilized to alter existing legitimate arrangements between partners and/or companies.

7. Bank Account Opening Resolution Agreement

This Agreement is framed after a proper board meeting, approving certain people to open and work with the Bank record of a company. As a company is a different legitimate organization; the board determination for the opening bank account is required to be handled by certain people for financial purposes. In the event that the Company wishes to have Bank accounts with different banks, at that point, isolate Board Resolutions must be executed for each of the banks in which account is to be opened.

Read Also: An Overview To Indian Contract Act 1872

8. Social Media Policy Agreement

An online networking approach which can be saved with the Social Media Policy Agreement is a corporate set of accepted rules that gives rights to workers who post content on the Internet either as an aspect of their responsibilities or as a private individual. This Agreement has all the conditions regarding the data or messages posted on the internet or social media.  It can be consolidated into a representative handbook or utilized as a solitary strategy report. This Standard Document has incorporated notes with imperative informative and drafting tips.

The Shocking Revelation of Section 185 Of The Companies Act, 2013

Through the Companies (Amendment) Act, 2017 the existing Section 185 of the Companies Act 2013, the old Section 295 of the Companies Act, 1956, Section 86 D of the Indian Companies Act, 1913 and Section190 of the English Companies Act, 1948 which provides for loans to directors have been replaced.

The substituted Section 185 deals with the restrictions on the part of the Companies in advancing any type of loan or providing any security or giving any guarantee and to those whom a Company can provide such loan or security or guarantee subject to compliances under the Companies Act. Also, the section provides relaxation for Individuals and Entities subject to certain conditions. It also provides a penalty for its contravention.

This article aims to bring a clear vision of the newly substituted provisions of Section 185 and the practical issues prevailing thereon.

Read Also: Contents of Articles of Association

What is the term ‘Loan’?

The term ‘Loan’ is not defined anywhere in the Companies Act, 2013. A loan as defined by the Oxford English Dictionary is ” a thing lent; something the use of which is allowed for a time, on the understanding that it shall be returned or an equivalent given, a sum of money lent on these conditions and usually with interest.

The rationale behind the substitution of Section 185

Section 185 was substituted with the new provision through the Amendment Act, 2017. The Amendment Act was based on the suggestions of the Companies Law Committee, which was constituted by the Ministry of Corporate Affairs (MCA).  In its report dated 1st February 2016, with the aim to strengthen corporate governance and ease doing business in the country recommendations for the amendment along with the reasons, were clearly reported.

Provisions as per the Companies Amendment Act, 2017

Section 185 of the Amendment Act is divided into four parts:

S. 185 (1) states that a Company whether it is Private or Public shall not directly or indirectly, advance any loan which includes loan represented by a Book debt or provide any security or give any guarantee in connection with any loan taken by:

Any director of its holding company; or

Any director of the company; or

Any partner of any such director; or

Any relative of any such director;

Any firm in which any such director is a partner; or

Any firm in which the relative of any such director is a partner.

Here, it is pertinent to note that the term “any Such”  mean in reference to the director of the lending company and/ or in relation to the director of its holding company.

This subsection strictly prohibits providing Loan or Security or Guarantee to the aforesaid Individuals and firms.

S.185 (2) talks about a situation in which a Company can advance any loan which will include Book debt or provide any security or give any guarantee in connection with any loan taken by:

any private company of which any such director is a director or member;

any body corporate at a general meeting of which not less than 25% of the total voting power may be exercised or controlled by

any such director, or

by two or more such directors, together; or

anybody corporate, the Board of directors, managing director or manager, whereof is accustomed to act in accordance with the directions or instructions of the

Board; or

any director or directors, of the lending company.

However, the above provisions are subject to certain conditions, which are:

Special resolution- passed by the Company in general meeting; and

Loans- utilized by the borrowing company for its principal business activities.

Subsection 2 earlier prohibited companies to provide loan/ security/ guarantee to other Companies/body corporates, but now it is relaxed, subject to certain conditions.

As per Section 185 (3), the following entities and individuals are exempted from complying with subsection 1 & 2 again, which are subject to certain conditions:

giving of any loan to a managing or whole-time director –

as a part of the conditions of service extended by the company to all its employees; or

pursuant to any scheme approved by way of a special resolution;

A company which in the ordinary course of its business provides loans or securities or gives guarantees for the due repayment of any loan.

E.g. Banking Companies and Loan NBFCs.

In respect of such loans, interest shall be charged at a rate not less than the rate of prevailing yield of 1 year, 3 years, 5 years or 10 years Government security closest to the tenor of the loan;

any loan made by a holding company to its wholly-owned subsidiary company or security or any guarantee given provided by a holding company in respect of any loan made to its wholly-owned subsidiary company, in case of WOS there is complete relaxation from S. 185:

any security provided or guarantee given by a holding company in respect of a loan made by any bank or financial institution to its subsidiary company. Unlike class ‘C’ which includes WOS only securities and guarantee provided for a loan made by any bank or financial institution are allowed for a subsidiary company.

Provided that the loans made under clauses (c) and (d) are utilized by the subsidiary company for its principal business activities.

In order to ensure that the companies or the body corporates do not take advantage of the relief, the provision ensure that there is no siphoning of funds received by the companies, as the amount received under this section should be utilized by the borrower for its principal business activities and not for further investment or grant of loan.

‘Principal business activity’ has not been defined under the Act, but it generally includes all those activities which are provided as the main objects of the MOA.

Section185 (4) is a penalty provision. It states that where any loan advanced or a guarantee or security given or provided or utilized in contravention of this provision.

Lending Company: In the case of the lending company, any contravention is punishable with fine which shall not be less than Rs. 5 lakh but which may extend to Rs. 25 lakh.

Officer in default: In case of Officer in default, any contravention is punishable with imprisonment for a term which may extend to 6 months or with fine which shall not be less than Rs. 5 lakh but which may extend to Rs. 25 lakh.

Recipient Director/ Entity: In case of Recipient Director/ Entity any contravention is punishable with imprisonment which may extend to 6 months or with fine which shall not be less than Rs. 5 lakh but which may extend to Rs. 25 lakh, or with both.

Conclusion

The amended Section 185 of the Companies Act is somewhat a middle way between section 185 of the 2013 Act and section 295 of the earlier 1956 Act. The amendment mandates a final approval from the shareholders and also makes it compulsory to disclose all the related documents to them, before sanctioning the loan. The amendment is beneficial to the private sector as it is less restrictive than the previous norms. The current section 185 is legislated
according to the guidelines of the Companies Law Committee and is in accordance with the rules of ease of doing business in India.