Some of the Mountech rear derailleurs had an upper pulley design that was almost guaranteed to drop the chain. The only way to fix it is to replace the derailleur. IMO, any long-cage derailleur made in the last 20 years will work far better, and new lower-line Shimano derailleurs are pretty cheap. Since your shifting isn't indexed, your shifters will work with any derailleur.
See if you can identify it:
http://www.disraeligears.co.uk/Site/...railleurs.html
http://www.disraeligears.co.uk/Site/...284900%29.html
http://www.disraeligears.co.uk/Site/...285500%29.html
http://www.disraeligears.co.uk/Site/...erailleur.html