Competition LawRulings

CCI states that Competition law is a special law with a mandate overarching across all sectors

Madhya Pradesh Chemists and Distributors Federation vs. Madhya Pradesh Chemists and Druggist Association

This information has been filed by Madhya Pradesh Chemists and Distribution Federation (MPCDF) under Section 19(1)(a) of the Competition Act, 2002 alleging contravention of the provisions of Section 3 of the Act by Madhya Pradesh Chemists and Druggist Association (MPCDA/OP-1), Bhopal Chemist Association (BCA/OP-2), District Gwalior Chemist Association (DGCA/OP-3), Apex Laboratories Private Limited (Apex Laboratories/OP-4), Win Medicare Private Limited (Win Medicare/ OP-5), Fourrts India Limited (Fourrts/ OP-6), Meyer Organics (Meyer/ OP-7), Cipla Pharmaceuticals Limited (Cipla/ OP-8), Eris Lifesciences (Eris/ OP-9) and Mankind Pharma Limited (Mankind/ OP-10). During investigation, Indore Chemist Association (ICA/ OP-11) was impleaded by the Commission. Later, after consideration of the investigation reports, Himalaya Drug Company (Himalaya/ OP-12), Torrent Pharmaceuticals Limited (Torrent Pharma/ OP-13), Intas Pharmaceuticals Limited (Intas/ OP-14) and Jabalpur Chemist and Druggist Association (JCDA/ OP-15).

MPCDF comprises of entities involved in pharmaceutical trade and is affiliated to All India Chemist and Distributors Federation (AICDF), which is a registered organisation of the chemists and distributors in the state of Madhya Pradesh. MPCDA is a registered state level association of wholesalers and retailers of pharmaceutical companies in Madhya Pradesh since 1976. BCA and DGCA are district level associations of chemists and druggists affiliated to MPCDA in Bhopal and Gwalior respectively. OP -11 and OP – 15 are also district level chemist associations affiliated to MPCDA to carry their activities at Indore and Jabalpur respectively. OP-4 to OP-10 are pharmaceutical companies named by MPCDF in the information and OP-12 to OP-14 are also pharmaceutical companies subsequently impleaded by the Commission. These companies carry on their business through their appointed Clearing and Forwarding agents or distributors in Madhya Pradesh.

This information was based on the complaint on the one of the members of MPCDF M/s Pharma Agencies, a proprietorship firm run by Mr. Gopal Gupta, dealing in pharmaceutical products at Gwalior. MPCDF has alleged that Mr. Gopal Gupta had approached C&F agents of various pharmaceutical companies i.e. OP-4 to OP-10, seeking supply of their products, for which he made advance payments to them in the form of cheques/DDs. However, these cheques/DDs were returned and he was denied supply of pharmaceutical products by the said companies without assigning any reasons. It is alleged that in this regard OP-1 to OP-3 issue No Objection Certificate/Letter of Consent on the basis of which appointment of the stockist is made by pharmaceutical companies and this practice of mandating NOC/LOC is stifling competition in the market by limiting access of consumers to various pharmaceutical products and controlling the supply of drugs in the market by ensuring that only those distributors which are favoured by OP-1 to OP-3 are eventually selected by the pharmaceutical companies to do business with them. It is also alleged that OP-4 to OP-10 are also active participants in the anti-competitive practices carried out by OP-1 to OP-3 since they willingly adhere to the directives of these OPs and refuse to appoint fresh distributors until OP-1 to OP-3 give their consent for such appointment, as a result of which supply of drugs to the consumer is restricted. It is also averred by MPCDF that on account of the Commission’s orders passed in certain previous cases, the OPs have stopped corresponding in writing with pharmaceutical companies to appoint stockists, which are favoured by OP-1 to OP-3.

Based on the material available and oral submissions made by the MPCDF, the Commission prima facie found merit in the allegations of MPCDF. Hence, the Commission vide order dated 29th December 2014, passed under Section 26(1) of the Act directed the Director General to cause an investigation into the matter and submit its investigation report.

Director General in its report stated that Clause 28(a) of the Drugs (Price Control) Order, 2013 creates an obligation on pharmaceutical company/distributor to sell drugs/medicines unless there is a ‘good and sufficient reason’ to refuse.

Director General in its report also stated that with respect to Bhopal Chemist Association (OP-2) and District Gwalior Chemist Association (OP-3), the Director General could not find any direct evidence of their involvement in the anti-competitive conduct as alleged by the MPCDF.

An application was filed by Apex Laboratories Pvt. Ltd. (OP-4) to terminate the proceedings as there was no evidence against it in the information filed before the Commission. Commission observed that since the matter is already under investigation by the Director General and if nothing is found to contravene the provisions of the Act, then the matter will be closed against it. Hence, the Commission observed that there was no infirmity in the prima facie order that warranted recall and thereby rejected the said application vide order dated 28th June 2016. Aggrieved by the abovementioned order of the Commission, OP-4 filed a petition before the Hon’ble High Court of Delhi which vide order dated 25th July 2016 refused to terminate the proceedings.

After analysing the evidences and looking at the relevant documents, Director General found no case of contravention against OP-5 to OP-10. Further, Director General did not come across any evidence of alleged practice of NOC/LOC being followed by OP-2 and OP-3. Therefore, no case of contravention was made out against OP-2 to OP-10. Director General also observed that member of MPCDF used to send indent along with DD/cheque without having been appointed as a stockist. Instead of following the due procedure, he indulged in threatening the pharmaceutical companies, issuing reminders within very short gap and sending letters at wrong addresses and not enclosing the DDs while claiming in the covering letters that these have been etc. which appeared to be unreasonable. Director General noted that mere possession of the required documents and sending cheque or DDs would not entitle M/s Pharma Agencies to be appointed as a stockist, unless the concerned pharmaceutical company appoints the said agency as its stockist after due diligence.

With regard to the allegation against the MPCDA (OP-1) and Indore Chemist Association (OP-11), Director General relied upon the evidences to establish that they were carrying on the anti-competitive practice of requirement of NOC/LOC prior to appointment of stockists in Madhya Pradesh. Director General concluded that despite being a circular dated 3rd May 2013 in place against the practice of seeking and providing NOC/LOC prior to appointment of new stockists/distributors during 2014 and 2015. Therefore, OP-1 and OP-11 indulged in the practices to limit and control supplied of pharma products in Madhya Pradesh, thereby contravening provisions of Section 3(3)(b) read with Section 3(1) of the Act.

Commission considered the Main Investigation Report in the meeting held on 7th December 2016 and noted that the said report contained certain communications between OP-1/OP-11 and some pharmaceutical companies viz. Himalaya, Torrent and Intas, who were not arraigned as OPs in the Information filed. The Commission observed that the evidence collected by the Director General with regard to the said pharmaceutical companies, was prima facie, indicative of their involvement in the impugned anti-competitive practices. Hence, Himalaya, Torrent and Intas were impleaded as OP-12, OP-13 and OP-14, respectively. Therefore, Commission directed Director General to carry out further investigation for ascertaining the role of pharmaceutical companies in perpetrating the anti-competitive conduct of seeking NOC/LOC mandatorily prior to appointment of stockists.

Pursuant to the directions of the further enquiry, Director General submitted the following in its Supplementary Investigation Report on 27th November 2017 –

Director General found that the statement of President of OP-1 did not address the specific allegations which were duly corroborated by evidence. Director General found OP-12 to have forced the applicant stockist to procure clearance from Jabalpur Chemist and Druggist Association, an affiliate of OP-1. Therefore, Director General found that OP-12 was acting in concert with OP-1 and its district association, in creating entry barriers in appointment of new stockist was anti-competitive and in clear violation of Section 3(1) of the Act.

In the absence of any cogent justification by OP-13 and OP-1, Director General inferred that OP-13 was actively engaged in creating entry barriers by its several concerted acts with complicity of OP-1 in contravention of the provisions of Section 3(1) of the Act.

With regard to the role of OP-14, Director General found multiple emails related to appointment of new stockists by OP-14 in Madhya Pradesh during 2014 to 2016. Director General on the basis of these emails concluded that OP-14 acted in concert with OP-1 and its district association i.e. OP-11 in creating entry barriers in appointment of stockists by requiring clearances in violation of Section 3(1) of the Act.

Director General also observed that OP-1 and OP-11 were aware of the order dated 19th February 2013, passed by the Commission in M/s Santuka Associates Pvt. Ltd v All India Organisation of Chemists and Druggists, and OP-1 has in fact issued circular dated 3rd May 2013 endorsing the circular dated 18th April 2013 of AIOCD to its district chemists and druggist associations.

Director General further analysed the conduct of the associations and pharmaceutical companies in the light of the factors enumerated under Section 19(3) of the Act to assess whether there was any appreciable adverse effect on competition. It was also noted by the Director General that the understanding between the associations (OP-1 and OP-11) and the pharmaceutical companies (OP-12, OP-13 and OP-14) had restricted appointment of stockists and had led to limiting and controlling the supply of drugs in Madhya Pradesh. Even though it should have been prerogative of the companies to appoint their authorised stockists, the same was being driven by OP-1 and OP-11 who gave NOC/LOC, thereby instructing pharmaceutical companies, as to whom the said companies may appoint as their authorised stockists. Director General also observed that as per Section 3(3) and Section 3(1) read with Section 19(3) of the Act, horizontal agreements carried presumptions of AAEC, and as such no further evidence needed to be adduced to establish AAEC. Thus, apart from finding MPCDA (OP-1) and ICA (OP-11) in contravention of the provisions of Section 3(3)(b) read with Section 3(1), Director General found OP-12, OP-13 and OP-14 acting in violation of Section 3(1) of the Act.

Commission considered the Supplementary Investigation Report in its meeting held on 25th January 2018 where it was observed that said report also brought out the role of Jabalpur Chemist and Druggist Association in the impugned anti-competitive conduct. Accordingly, Commission decided to implead JCDA as OP-15.

MPCDA, through written and oral submissions, stated that they were falsely arrayed as OP by MPCDF as it had no role to play between the distributors/stockists and the pharmaceutical companies. MPCDA went on to state that Director General failed to establish the allegation of seeking NOC/LOC by the pharmaceutical companies for appointment of stockist were on account of diktats of OP-1 and even otherwise, the same could not be considered as an agreement within the meaning of Section 2(b) of the Act since an agreement requires free will. There was no evidence to suggest any agreement between OP-1 and/or OP-11 and the pharmaceutical companies within the meaning of Section 3(1) of the Act, which is a pre-requisite to hold the OPs liable under the provisions of the Act. MPCDA while denying all the allegations against them went on to say that Director General failed to prove any AAEC in the market of provisions of medicines. Director General failed to establish that there was any restriction on the quantity of stock that could be supplied by a manufacturer to existing/already appointed stockist. Hence, there was no evidence to prove that on account of non-appointment of additional stockist due to non-issue of NOC/LOC or otherwise, any retailer or customer was unable to get supply of medicines. Moreover, NOC/LOC acted more like a benchmark to ensure that adequate quantity of drugs were available in the market and quality thereof was not compromised.

OP-11 also reiterated the submissions of OP-1 and stated that Mashelkar Committee Report which states non-applicability of Section 3(3)(b) of the Act, non-existence of agreement within the meaning of Section 2(b) of the Act and non-existence of prima facie based on the information filed by MPCDF.

OP-12 in its submission stated that as per the judgment of Supreme Court of India in CCI v Bharati Airtel Limited Commission does not have jurisdiction to look into the alleged contravention and State Drugs Control Department is the only competent statutory authority to take cognizance of the matter of alleged non-supply of essential medicines/drugs.  It was also alleged that Director General has violated principles of natural justice. While denying the charges, OP-12 also states that Director General has failed to discharge the burden to establish AAEC.

OP-13 also rejected the findings of Director General and stated that they should have been given an opportunity before referring the matter to the Director General under Section 26(8) of the Act for further investigation to explain the context of communication with OP-1. Also, it was stated that under Section 26(8) of the Act, Director General is not authorized to conduct investigation as it empowers the Commission to enquire. Hence, the order dated 7th December 2016 was without jurisdiction. OP-13 went on to state that Director General has failed to establish any ‘agreement’ between OP-13 and OP-1 and has presumed the existence of such agreement. Further, these is no AAEC or likelihood of causing AAEC as OP-13 has neither the incentive nor the ability to cause foreclosure in the market of supply of pharmaceutical products. Director General has failed to prove the existence of an ‘agreement’ under Section 2(b) of the Act.

OP-14, through its written and oral submissions, contended that ingredients of Section 3(1) and Section 3(3)(b) of the Act are not satisfied and there is nothing in the Investigation Reports to show that OP-14 denied distributorship to any person on the grounds of non-availability of clearance from OP-1/OP-11. OP-14 also relied on the judgment of COMPAT in M/s Alkem Laboratories Ltd. v Competition Commission of India and others where it was held that where NOCs are being made a requirement as a result of diktats being issued by Trade Association, no violation of section 3(1) can be said to have been committed.

OP-15, in its objections to the Investigation Reports dated 10th August 2018, denied the findings of Director General and contended that it was wrongly arrayed as an OP in the matter without any findings or conclusion against OP-15 in either Main Investigation Report or the Supplementary Investigation Report. Further, it was stated that there is no evidence or finding placed on record to prove that the alleged acts of OP-15 restricted or limited supply of medicines or that there were insufficient stockist in the market or that the manufacturers had any difficulty in distributing their products. It was also averred that Director General failed to note the recommendations of the Raghvan Committee Report on Horizontal Agreements are agreements between two or more enterprises that are at same stage of the production chain and in the same market and has failed to carry out any economic analysis in respect of the relevant market or any anti-competitive agreement in the report and there is no evidence showing existence of any agreement between the members of OP-15 and the pharmaceutical company (OP-12).

After examining the Main Investigation Report, Supplementary Investigation Report, record of cross-examinations, replies/objections filed by the parties, submissions made by them during the oral hearings held in the matter and upon consideration of other material available on record, the Commission raised the following issues –

  1. Whether the allegations, regarding practice being carried on with respect to the requirement of NOC/LOC prior to appointment of stockists by pharmaceutical companies against OP-1, OP11 and OP-15 are substantiated by evidences, and if so, the provisions of the Act contravened?
  2. Whether the allegations regarding non-appointment of stockists/non-supply of pharmaceutical products by OP-4 to OP-10 as well as the newly impleaded OP-12 to OP-14 on the ground of inability to produce NOC/LOC from the Associations are substantiated by facts and evidences and if so, the provisions of the Act contravened?
  3. Identification of role of opposite parties who have been found to have contravened the provisions of the Act, if any, and the respective officers/office bearers/persons/individuals liable under the provisions of Section 48 of the Act.

Before diving into these abovementioned issues, Commission decided to consider the objections raised by OPs.

With respect to the jurisdiction of Commission, Commission states that Competition law is a special law with a mandate overarching across all sectors. While the sectoral regulators define ex-ante rules to regulate the day to day functioning of the market participants in their respective sectors, the Commission acts more as an ex-post regulator which only intervenes when such players disturb the fair functioning of the markets. Thus, both the regulators and the laws complement each other and can be interpreted harmoniously, rather than being interpreted as mutually exclusive. In view of the above, the Commission rejects the objection of the OPs with regard to its jurisdiction in the present matter.

Further with respect to the applicability of Section 26(8) of the Act, Commission pointed that objection of the OPs raised with regard to applicability of Section 26(8) of the Act as a mere technical façade to unnecessarily object to the process adopted by the Commission, without being adversely affected by the same in any manner. Hence, rejected those contentions without any merits.

Then, on the non-applicability of Section 3(3)(b) of the Act Commission stated that since the decisions taken by association of persons engaged in identical or similar trade of goods or provision of services under Section 3(3) of the Act and the past decisions of the Commission, the objection raised by the OPs is found to be rather frivolous.

On the issue of no opportunity to cross-examine, Commission rejected the arguments and observed that OPs had never sought cross-examination of any witness at any stage of investigation or thereafter and hence the question of not granting an opportunity to cross-examine does not arise.

It was also argued by the OPs that in the actual information there was no grievance against them and Director General had exceeded its jurisdiction and indulged in a fishing and roving enquiry where it investigated their respective roles regarding indulgence in alleged anti-competitive upon failure to find any evidence against the opposite parties arraigned as OP-2 to OP-10. Commission observed that when Commission gets evidence of other parties who are involved in anti-competitive conduct, it is their duty to have the conduct of such party investigated. Commission also observed that that as per the directions given in the prima facie order, it is expressly stated that “Nothing stated in this order shall tantamount to a final expression of opinion on merit of the case and the DG shall conduct investigation without being swayed in any manner whatsoever by the observations made herein”. Therefore, order under Section 26(1) was directory in nature and does not bind Director General with the observation of the Commission at the prima facie stage. While referring to Alis Medical Agency and ors. v. Federation of Gujrat Chemists and Druggists Association and ors.  held that there is no infirmity in the investigation being directed by the Commission against OP-11 to OP-15.

Then discussing the issue of OPs acting as per the directions of Mashelkar Committee, observed that the recommendations of the Mashelkar Committee were found to be aimed at combating the distribution of spurious, counterfeit and questionable quality drugs. The Commission agreed to the previous judgment of M & Ors and All Kerala Chemists and Druggist Association where Commission had observed that these recommendations did not appear to suggest that the associations could undertake the task of mandating NOC/LOC prior to appointment of stockists.

After analysing these objections, Commission went on to discuss the Issues raised. For the Issue 1, Commission observed after analysing the evidences that OP-1 was involved in practices of promoting anti-competitive activities which were violative of Section 3 of the Act. Further, Commission also finds OP-11 acting in contravention of the provisions of Section 3(3)(b) read with Section 3(1) of the Act. However, Commission opined that in the absence of any evidence establishing OP-15 in giving NOC/LOC for appointment of stockists in Jabalpur and hence he is not liable for any contravention of the provisions of the Act in the facts and circumstances of the present case.

Then dealing with Issue 2, Commission observed that in the absence of any evidence of any anti-competitive conduct on the part of OP-4 to OP-10, they are not liable in the present case. While dealing with the role of OP-12, Commission stated that on the basis of the evidences it was evident that OP-12 sought clearance from OP-1 and/or its district association prior to appointment of a new stockist.  The Commission observes that by mandating NOC/LOC requirement for appointment of stockists, the potential stockists have been discouraged in entering the distribution channel so as to ensure wider options both to the consumers and pharmaceutical companies. Such a restrictive practice does not accrue any benefits to end consumer in as much as the availability of medicines to the consumers can be adversely affected both in terms of quantity as well as its availability at competitive prices. OP-1 and OP-12 have failed to exhibit that such practice is in any manner beneficial in terms of factors laid down under clauses (d), (e) and (f) of Section 19(3) of the Act. Hence, Commission held that OP-12 and OP-1 have entered into an anti-competitive arrangement in violation of Section 3(1) of the Act. While dealing with the role of OP-13, Commission observed that in the absence of any evidence to suggest that OP-13 insisted on NOC/LOC from OP-1 or its affiliates for appointment of stockists or indulged in any anti-competitive behaviour. Therefore, Commission does not find OP-13 guilty of anti-competitive conduct in terms of the provisions of the Act. While dealing with the role of OP-14, Commission found it to have acted in complicity and connivance with OP-1 and OP-11 for appointment of stockists. Therefore, Commission found OP-14 to have an arrangement with OP-1 and OP-11 within the meaning of Section 3(1) of the Act.

Commission, while dealing with the Issue 3, analysed the Section 48 to examine the liability of the office bearers of the contravening associations and pharmaceutical companies. As per the Section 48(1) of the Act, it is the responsibility of the office bearers to prove that such contravention was committed without their knowledge or that they had exercised all due diligence to prevent the commission of such contravention. While referring to the judgment of Mahyco Monsanto Biotech (India) Limited & Others, Commission rejected the arguments of OPs that liability of individuals cannot be fixed under Section 48 of the Act before establishing contravention of the provisions of the Act against the entity.

Thereafter Commission held Mr. Gautam Chand Dhing, President of MPCDA, Mr. Vinay Bakliwal, President Indore Chemist Association, Mr. Nirmal Jain, General Secretary, Indore Chemist Association, Mr. R.K. Vachher, Sales Manager, Himalaya, Ms. Sagaya Mary, Manager – Distribution, Himalaya, Mr. Sanjay Dixit, General Manager, Intas, Mr. Anil Nair, Assistant Manager, Intas and Mr. Hitesh Paida, Sales Manager Wish Division, Intas were found to be liable under Section 48(2) of the Act. Whereas, Mr. Phillipe Haydon, CEO, Himalaya and Mr. Nimesh Chudgar, Managing Director and CEO, Instas, were found liable under Section 48(1) but not liable under Section 48(2) of the Act.  

Commission dropped proceedings under Section 48 of the Act against Mr. Rajeev Singhal, Mr. Dhruv Gulati, Mr. Vijay Basarkar, Mr. K.C. Mathew and Mr. Debasis Bhattacharya (officials of OP-13) as they were not found to be contravening provisions of the Act.

Show More

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *