Competition LawRulings

Demanding advance payment from stockist is not violative of provisions of Competition Act

Kalyan Chowdhary has filed an information under Section 19(1)(a) of the Competition Act, 2002 (Act) against Cipla Limited (OP-1) and Bengal Chemists and Druggists Association (Association) alleging contravention of provisions of Section 3 and 4 of the above-mentioned Act.

Kalyan Chowdhary is a wholesale trader of medicine for more than two decades. Earlier Kalyan Chowdhary has filed a complaint against the Association for mismanagement in elections of Asansol Zonal Committee for which he received favorable order from NCLT. Even though the Association filed an appeal against this order in NCLAT and later in Supreme Court, they failed to receive favorable order against Kalyan. Since then it is alleged that Cipla stopped supplying medicine to Kalyan. It is further alleged that Kalyan was told verbally that this is due to the complaint filed against the Association in NCLT.

Kalyan alleges that Cipla and the Association are manipulating the demand and supply of medicine in the market and hence are in violation of Section 3(3)(a), 3(3)(b), 4(1) and 4(2) of the Competition Act. In addition, Informant prayed before CCI to direct Cipla to continue the supply of medicine and pay compensation for the losses suffered by the Informant due to the non- supply of medicines.

Cipla informed CCI that it  had refused supplying the medicines to Kalyan Chowdhary in order to protect its legitimate commercial interests due to repeated delay in the payments by the Informant. In addition, OP had decided to supply medicines to the Informant on advance payment basis. There were order received from the Informant with advance payment basis and all orders were fulfilled.

In addition, OP 1 clarified that  Informant’s stockistship was subsisting with OP-1 when the complaint was filed. There were business transactions happening between them in the form of credit notes for stocks which the Informant returned to OP-1 on account of inability to sell or expiry of medicines up to March 2017. This showed that dispute between the Informant and Association  had no bearing on the arrangement between OP-1 and the Informant. Hence, Association does not play any role in appointment of stockists or supply of drugs made by OP-1. 

After hearing arguments from both sides, CCI stated that OP-1 did not stop supplying medicines to the Informant; rather, it insisted for advance payment in view of earlier incidents of delayed payments.

Further, CCI observed that that the stockistship of the Informant was still subsisting with OP-1, who has undertaken to supply medicines on orders placed by the Informant on receipt of advance payment. Accordingly, the Commission held that that allegation of non- supply of medicines by OP-1 at the behest of OP-2 is unsubstantiated. Similarly, with regard to the allegation of manipulation of prices of medicines by OPs, the Commission notes that the Informant has neither elaborated on the issue nor corroborated the same.

Further, based on Informant’s unsubstantiated allegation of stoppage of supply of medicines by Cipla, CCI stated, “ it appears to be an afterthought on the part of the Informant by which he tried to give a commercial dispute between him and OP-1 a colour of competition issue”.  

Hence, CCI held that neither Cipla nor the Association are in contravention of any of the provisions of the Competition Act. Cipla merely asked for the advance payment before delivering the products due to his history of delayed payment which is well within their rights looking at the history of delayed payments made by Kalyan.

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