Appeal Nos. 21/2014 to 28/2014, IA Nos. 31/2014 to 46/2014. Case: Chemists & Druggists Association and Ors. Vs Competition Commission of India and Ors.. COMPAT (Competition Appellate Tribunal)

Order:

G. S. Singhvi, J. (Chairman)

1. The questions which arise for consideration in these appeals filed against order dated 05.02.2014 passed by the Competition Commission of India (for short, 'the Commission') in Case No. 60 of 2012 titled M/s. Arora Medical Hall, Ferozepur versus Chemists and Druggists Association, Ferozepur and seven others are whether the practice allegedly followed by Chemists and Druggists Association, Ferozepur (appellant in Appeal No. 21 of 2014) (hereinafter referred to as, the 'Association') making it mandatory for anyone desirous of taking up distributorship of medicines of any pharmaceutical company in Ferozepur to obtain No Objection Certificate (NOC) and Letter of Credit (LOC) on payment of Rs. 2100/- per company is violative of Section 3(3)(b) read with Section 3(1) of the Competition Act, 2002 (for short, 'the Act'), whether the resolution dated 26.05.2012 passed by the Association to boycott Respondent No. 2 - M/s. Arora Medical Hall and to penalise any retailer purchasing medicine from the said respondent is anti-competitive and violative of Sections 3(3)(b) of the Act and whether the penalty imposed by the Commission under Section 27 of the Act is legally sustainable.

2. The Indian Drug Manufacturers Association (IDMA) and Organisation of Pharmaceuticals Producers of India (OPPI) are the pan India associations of drug manufacturers, whereas All India Organisation of Chemists and Druggists (AIOCD) is the apex association of wholesalers and retailers of drugs at all India level. The industry norms relating to various commercial aspects get determined collectively through continuous interaction between these apex associations. There are various state level and district level associations, who look forwards the apex association for guidance and follow the rules, regulations and various guidelines issued by the aforesaid apex association to bring uniformity and standardisation in the pharmaceutical industry. The pharmaceutical industry in India is regulated by the Drugs and Cosmetics Act, 1940 (DCA) and the Drug and Cosmetics Rules (DCR) made thereunder. Under the provisions of the DCA, the office of the Drug Controller of India (DCI) is responsible for enforcing the provisions of the law. At the field level, enforcement is done by the State Governments through their Food and Drug Administration offices.

3. The spread of various district level associations across India is essential to harmonize the vertical relationships between the pharmaceutical companies, the wholesalers and the retailers, as the interests of the said parties are interlinked and sometimes overlapping. In fact, the chemists and druggists associations at the district level play a vital role in streamlining the distribution process and encourage healthy competition at different stages or levels of the production chain or provision of services, in their respective regions.

4. The Association is an unregistered body of chemists and druggists operating in District Ferozepur, Punjab. It is affiliated to Punjab Chemists Association (hereinafter referred to as 'PCA'), which, in turn, is affiliated to All India Organisation of Chemists and Druggists (hereinafter referred to as 'AIOCD'). The Association functions as per the rules, regulations and guidelines framed by the PCA and AIOCD. Though the membership of the Association is not mandatory, more than 200 chemists and druggists (wholesalers and retailers) operating in the district are its members. Even those who are not members of the Association are doing their business of chemists and druggists in the district. The Association has not framed rules or regulations or issued guidelines of its own to its members for conducting their business and its main function is to safeguard the interest of wholesalers and retailers against any discriminatory or unfair practice of pharmaceutical companies. S/Shri Gurpreet Singh, H.C. Gupta, A.K. Gupta, Shyam Lal Kakkar, R.S. Bakshi, Chaman Lal Kakkar and Ashwini Garg, (appellants in Appeal Nos. 22 to 28 of 2014) are office-bearers of the Association.

5. Respondent No. 2 is the largest wholesale dealer of the drugs manufactured by several companies including Ranbaxy, Abbott Solvey, Abbott Piramal, Abbott India, Ozone, Sun Pharma, Alkem, Alkem Gencare, Hetero, Johnson & Johnson, Glenmarks - Gracewel, Pfizer, Pfizer Pharmacia, Cutic, Leeford, Canvarzys, Inuida, Apex Labs, Organon, MSD, Fullford, Modi Mundi, Biocon, Macleods etc. Its area of operation is in and around District Ferozepur, Punjab.

6. Respondent No. 2 was a member of the Association till June, 2010. In 2005, the Association initiated disciplinary action against Respondent No. 2 because it was misusing its monopoly position in the district. Letter dated 16.07.2005 was also written by the Association to some pharmaceutical companies about the highhanded attitude of Respondent No. 2 towards the retailers and it was requested that they may consider appointing more wholesalers for covering about 300 retailers operating in Ferozepur district. After some time, membership of Respondent No. 2 was suspended. That action was revoked after Respondent No. 2 tendered apology vide letter dated 06.10.2007.

7. In 2010, several retailers complained that Respondent No. 2 was indulging in fraudulent billing by manipulating computer software and other malpractices. Thereupon, the Association issued a notice to Respondent No. 2 to explain its position. However, he did not respond to the notice. Therefore, by an order dated 09.06.2010, the Association terminated the membership of Respondent No. 2. That decision has become final because the same is not shown to have been challenged by Respondent No. 2 before any court of law or other competent adjudicatory body.

8. Notwithstanding the termination of its membership, Respondent No. 2 continued to abuse its dominant position. The retailers repeatedly complained that Respondent No. 2 was not deducting the price of expired medicines from the total bills and was overcharging them. In the backdrop of these complaints, a meeting of the general body of the Association was convened on 23.05.2012 for considering the allegations levelled against Respondent No. 2. The meeting was attended by 79 members. After discussing the complaints, the Association passed the following resolution:

During the course of meeting retailers showed bills where cheating was done while calculating value of expired medicines. Retailers were very much annoyed with the scandal of Arora Medical Hall. They shouted to stop dealing (with sic) M/s. Arora Medical Hall till the adjusting (sic adjustment) of cheated amount of all bills of retailers. Now I being Secretary of Chemists Association Ferozepur asked retailer to decide suitably so that cheating is adjusted, instead of boycott. Two guests who came from Fazilka District (1) Mr. Sanjiv Kumar Sanjiwani Medicos (2) Mr. Ashok Kumar Chhabra (Kdi) President District Fazilka suggested to all retailers to do not take any harsh decision but give Arora Medical at least 2 days to explain his status about the cheating done by him. He should contact President Mr. Chaman Lal Kakkar Ferozepur within two (2) days. If he do not turn up to contact President then three member committee can take action for non-cooperation. According non-cooperation was declared. Members were asked to make payment of all previous bills to M/s. Arora Medical Hall. This was the whole episode of M/s. Arora Medical Hall, Ferozepur versus Retail Chemists who were cheated.

Sd/-
Shyam Lal, Secretary

9. Although, the aforesaid resolution envisaged that if Respondent No. 2 does not turn up to contact the President, then a three Member Committee may take action for non-cooperation but Respondent No. 2 appears to have defied the same. Therefore, an extraordinary meeting of the Executive Committee was held on 26.05.2012 and it was resolved that the members should not purchase the medicines from Respondent No. 2. It was further resolved that if any member defy the ban then it will have to pay a fine of Rs. 11,000/- for each violation. In furtherance of that resolution, the President of the Association issued circular dated 27.05.2012, which reads as under:

Dated: 27.05.2012

Ref. No................

Dear Member,
RE: Unity is Strength

Strength is Survival

We are pertinent to mention here that the subject matter speaks volumes of Strength, we have in our association, you had recently exhibited in our General Body Meeting held on 23rd instant. I salute each and every member of our well knot association who have stood as one unit on one platform. I feel real pride to be one amongst you and lead this proud family of our beloved chemists brothers. Hats off to you once again. I would recall and request you all to show your strength on a common cause - Out You are Once for all. It is scandalous world. No one has right to lead scandalous life. Isn't it? Do you agree with me. We have to strike this panic and the decision is yours. We are unanimous in one voice. In order to meet this serious eventuality, an extraordinary meeting of the executive under the chair of President was held on 26-05-2012. Following decisions were taken for the Association and it was decided that these decisions are implemented most seriously right from the date of this circular by each and every chemist.

1. It was decided in the General Body Meeting held on 23-05-2012 to give M/s. Arora Medical Hall time for 2-3 days to clear his position before taking further action. He has not responded to our call so far.

2. Absolute Boycott with M/s. Arora Medical Hall, Ferozepur City. He is not member of our Association and gone to the extent to compromise our dignity in scandals.

3. Stop purchasing goods from him immediately. No more dealings with him with immediate effect. Any chemist defying this decision will be fined Rs. 11,000/-.

4. Till further orders, you are requested not to make him pending...