Case No. 26 of 2013. Case: Bio-Med Private Limited Vs Union of India and Ors.. Competition Commision of India
| Case Number | Case No. 26 of 2013 |
| Counsel | For Respondents: Ravinder Yadav, Assistant Depot Manager, GMSD |
| Judges | Ashok Chawla, Chairperson, S.L. Bunker, Sudhir Mital, Augustine Peter and U.C. Nahta, Members |
| Issue | Competition Act, 2002 - Sections 19(1)(a), 2(h), 26(1), 27, 27(b), 3, 3(1), 3(3), 3(3)(d), 4, 48 |
| Judgement Date | June 04, 2015 |
| Court | Competition Commision of India |
Order:
Order under Section 27 of the Competition Act 2002
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The present information has been filed under section 19(1)(a) of the Competition Act, 2002 ("the Act") by M/s. Bio-Med Private Limited ("Informant") against Union of India through Deputy Assistant Director General (Stores), Medical Store Depot ("DADG"), Ministry of Health and Family Welfare, Government of India, New Delhi ("OP-1"); M/s. GlaxoSmithKline Pharmaceutical Limited, Mumbai ("OP-2"); and M/s. Sanofi, Mumbai ("OP-3"); alleging, inter alia, contravention of the provisions of sections 3 and 4 of the Act.
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The Informant is a private limited company incorporated under the Companies Act, 1956 and is engaged in the business of manufacturing vaccines since 1972. In the period between 1972 and 1994, the Informant had been engaged in the business of manufacturing only veterinary vaccines. From 1995 onwards, the Informant has been engaged in the business of manufacturing vaccines for human usage. It developed polysaccharide Quadrivalent Meningococcal Meningitis vaccines (QMMV) in 2004. It is the only indigenous manufacturer of QMMV vaccines.
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It is the case of the Informant that all varieties of vaccines manufactured by it were earlier imported at a substantially high price. The introduction of indigenously manufactured vaccines is stated to have resulted in huge saving of foreign exchange and relief to the patients. It also resulted in creating fair competition in the market leading to noticeable decrease in the price of the vaccines and easy availability thereof. It is further averred that prior to the introduction of meningitis vaccine by the Informant, OP-2 and OP-3 used to supply the vaccine in India.
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It is stated that from the year 2002, OP-1 invites tenders every year for purchase of meningitis vaccine which is required to be administered upon the pilgrims who wish to go on annual pilgrimage of Hajj.
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The Informant has alleged that OP-1 floated its tenders for the supply of meningitis vaccines for the years 2002-03 without asking for any qualifications with respect to annual turnover or manufacturing/marketing experience of the bidders. It is, however, stated that OP-1 thereafter issued a tender for the year 2005-06 with two new conditions related to the eligibility of the participating bidders. These included a minimum annual turnover of Rs. 10 crores (in any of the preceding three years) and a certificate showing the manufacturing and marketing experience of the bidders (in the three preceding three years). The Informant has further alleged that OP-1 once again modified the conditions in the year 2008 with respect to the turnover clause by requiring bidders to have a minimum turnover of Rs. 20 crores in any of the preceding three years.
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The Informant has stated that it achieved the said turnover target and participated in the tenders successfully. Thereafter, the Informant continued to participate in the tender process and competed successfully to become L-1 in the years 2009-10, 2010-11 by offering competitive prices. It is alleged that OP-1 again modified the tender qualification for the year 2011 by requiring the bidders to have a turnover of Rs. 50 crores in any of the preceding three years. This condition was stated to have remained valid for the year 2012 also with a minor variation. The Informant alleges that in the year 2012, OP-1 sought the turnover for the years 2007-08, 2008-09 and 2009-10 unlike the 2011 tender where the turnover criterion was linked to the turnover of the three preceding years.
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The Informant appears to be aggrieved by the aforesaid unilateral action of OP-1 in introducing and modifying the turnover conditions without any reasonable rationale and explanation. This conduct of OP-1 has been alleged by the Informant as abuse of its dominant position having disastrous consequences for the Informant as well as the Government of India and the Indian patients.
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The other limb of the allegation of the Informant revolves around the alleged cartelization by OP-2 and OP-3. It is the case of the Informant that OP-2 and OP-3 have cartelized through bid rotations and geographical allocations (international) from the period 2002 to 2012.
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Based on these allegations and averments, the Informant has filed the present information before the Commission seeking relief, inter alia, for issuance of a direction to the Director General ('DG') to investigate into the alleged abuse of dominant position by OP-1; to direct OP-1 to remove the restrictive conditions in the tenders; to investigate the marketing designs of OP-2 and OP-3 from 2002 to 2012 and to hold them guilty of cartelization in the market.
Directions to the DG
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The Commission after considering the entire material available on record formed a prima facie opinion of contravention of the Act by OP-2 and OP-3 and accordingly, passed an order under section 26(1) of the Act directing the DG to cause an investigation to be made into the matter. The Commission, however, noted that OP-1 was not an enterprise under the Act and therefore, did not direct any investigation against OP-1. The DG investigated the matter and submitted the investigation report on 21.11.2014.
Investigation by the DG
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At the outset, the DG has noted that OP-1 is not an enterprise in accordance with the provisions of Section 2(h) of the Act. However, with a view to understand the entire factual matrix surrounding the Informant's allegation that OP-1 had been changing the tender conditions in order to facilitate a cartel between OP-2 and OP-3, the DG has enquired into the decision making policy of OP-1 in this regard.
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The DG found that the changes in the conditions stipulated in the tenders issued by OP-1 were brought about pursuant to the decisions taken at the Ministerial level. Further, this decision of the Ministry was challenged by the Informant before the Hon'ble High Court of Delhi. Upon a detailed examination of the executive decisions, the Hon'ble High Court of Delhi noted that these were neither arbitrary nor unreasonable. Accordingly, the DG rejected the Informant's allegation detailed above. Pursuant to the directions of the Commission, the DG has conducted a comprehensive investigation into the conduct of OP-2 and OP-3. During the investigation, the DG has collected detailed information from OP-1, OP-2 and OP-3 relating to their business models, decision-making policies, etc.
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The DG analyzed the technical and the price bids submitted by OP-2 and OP-3 in three tenders issued by OP-1 during July-August 2011 and found a clear bidding pattern that indicated the existence of a cartel between OP-2 and OP-3. The DG noted that OP-2 and OP-3 had mutually agreed to: (a) quote higher price bids, and (b) share the total tendered quantity in response to the tenders issued by OP-1 for the procurement of QMMV.
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Finally, the DG has identified the persons in-charge of OP-2 and OP-3 who were responsible for the alleged contraventions of the Act for the purposes of section 48 of the Act.
Consideration of the DG report by the Commission
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The Commission, in its ordinary meeting held on 09.12.2014, considered the investigation report submitted by the DG and decided to forward copies thereof to the parties for filing their replies/objections thereto. The Commission also directed the parties to appear for oral hearing. Subsequently, arguments of the parties were heard by the Commission.
Replies/Objections/Submissions of the parties
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The parties filed their respective replies/objections/submissions to the report of the DG besides making oral submissions.
Replies/objections/submissions of OP-2
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OP-2 has denied the conclusions drawn by the DG in the DG report as rife with inconsistencies. As regards the observation that the Informant's non-participation was on account of the turnover criteria prescribed by OP-1, it has submitted that the DG has failed to appreciate that the primary allegation of the Informant was against the revision in the turnover requirement for the tender floated by OP-1 for the supply of QMMV in the year 2011. It has been specifically emphasized that the change in the tender conditions of the 2011 tender was the sole reason for the Informant's non-participation. It has denied that the non-participation of the Informant was because of the conduct of OP-2.
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The inference of the DG that the inability of the Informant to participate in the tender gave an opportunity for OP-2 and OP-3 to collude has been denied. OP-2 has submitted that the DG has completely overlooked that though the last date for submitting the tender was 25.07.2011, the Hon'ble Delhi High Court, vide its order dated 13.07.2011, had permitted the Informant to participate in 2011 QMMV tender. Moreover, the DG has failed to appreciate that ultimately it was the Informant and OP-3, who made supplies under the 2011 QMMV tender. OP-2 had no occasion to supply under the 2011 QMMV tender.
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It has submitted that the DG has ignored the fact that there was a lack of bonafide on the part of the Informant. It has stated that if the Informant believed that OP-2 had indulged in bid rigging, then it would have approached the Commission in 2011 itself, and should not have waited for two years to file a complaint. It has alleged that it is very likely that the Informant had approached the Commission only to mask its failure to submit its price bid to OP-1 despite the order passed by the Hon'ble High Court of Delhi. Moreover, the Informant has made patently false allegations in an attempt to mislead the Hon'ble Commission, by stating that OP-2 had supplied the remaining quantity under the 2011 QMMV tender, despite being fully aware that OP-2 had no occasion to supply under the 2011 QMMV tender. OP-2 stressed that if the Informant was interested in sincerely pursuing the remedies available under the Act, it would have at the least been present for the oral hearing before the Commission on 19.02.2015.
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