Suo-Moto Case No. 05 of 2013. Case: In Re: Chemists & Druggists Association Vs. Competition Commision of India
| Case Number | Suo-Moto Case No. 05 of 2013 |
| Counsel | For Appellant: Keane Sardinha, Advocate, Gaurish Agni, Advocate, Prasad Tamba, President, CDAG, Lydon D'Silva, General Secretary, CDAG, Santosh Fondekar, (CDAG), A.N. Haksar, Sr. Advocate, Rashmi Virmani, Advocate, Ashish Kohtri, Advocate, Sunil Miranda, Dy. G.M3., Legal, Amit Sibal, Sr. Advocate, M.M. Sharma, Advocate, Vaibhav Choukse, ... |
| Judges | Ashok Chawla, Chairperson, M.L. Tayal, S.L. Bunker Sudhir Mital, Augustine Peter and U.C. Nahta, Members |
| Issue | Competition Act, 2002 - Sections 26(1), 27, 3, 3(1), 3(3), 3(3)(b), 3(4), 3(4)(d), 48, 66(6) |
| Judgement Date | October 27, 2014 |
| Court | Competition Commision of India |
Order:
Order under Section 27 of the Competition Act 2002
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Background
1.1 M/s. Varca Druggist & Chemists and others, in Case No. MRTP-C-127/2009/DGIR (4/28), had previously filed an information with the then Director General (Investigations & Registrations), Monopolies and Restrictive Trade Practices Commission (DGIR, MRTPC) against Chemists & Druggists Association, Goa, (hereinafter 'CDAG'/the 'Opposite Party No. 1)') for its alleged anti-competitive practices. After repeal of the Monopolies and Restrictive Trade Practices Act, 1969, the said case was transferred to Competition Commission of India under section 66(6) of the Competition Act, 2002 (hereinafter the 'Act'). The Commission, having found prima facie violation of the provisions of section 3 of the Act and had the matter investigated by the Director General (hereinafter the 'DG') and after hearing the parties on the DG report passed an order under section 27 of the Act on 11.06.2012.
1.2 Subsequently, the Commission was informed by Mr. Mario Vaz, proprietor of M/s. Xcel Healthcare (hereinafter the 'Informant') [also one of the Informants in case no. MRTP-C-127/2009/DGIR (4/28)] that CDAG had not complied with the above said order of the Commission and was restraining pharmaceutical companies such as M/s. Glenmark Pharmaceuticals Limited (hereinafter the 'Opposite Party No. 2') and M/s. Wockhardt Limited (hereinafter the 'Opposite Party No. 3') from doing business with his company.
1.3 It was alleged that under the guidance of CDAG, all stockists of the Opposite Party No. 3 appeared to have formed a cartel and stopped receiving goods from the Opposite Party No. 3 so as to compel it to stop dealing with the Informant. It was also alleged that under the influence of CDAG, the Opposite Party No. 2 and the Opposite Party No. 3 stopped supplies to the Informant.
1.4 The Commission took suo-moto cognizance of the allegations raised by the Informant and formed a prima facie opinion that the alleged collective boycott and refusal to deal with the Informant by the Opposite Parties falls foul of the provisions of section 3(3) read with Section 3(1) of the Act. Accordingly, vide order dated 31.05.2013 under Section 26(1) of the Act, the Commission directed the DG to cause an investigation into the matter.
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In compliance with the Commission's order, the DG investigated the matter and submitted the investigation report on 27.06.2014.
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DG Investigation
Findings of DG investigation may be briefly noted:
3.1 The findings of the DG investigation are primarily based on material/evidences in the form of minutes of the Executive Committee (EC) meetings of CDAG, emails exchanged between the Opposite Parties and the Informant, details of supplies made by the Opposite Party No. 2 and the Opposite Party No. 3 to the Informant, the Memorandum of Understanding (MoU) signed between the Opposite Party No. 2 and the Informant, the agreement executed between the Opposite Party No. 3 and the Informant etc., collected during the course of investigation.
3.2 Based on the minutes of different EC meetings of CDAG held during 2012 and emails exchanged between the Opposite Parties and the Informant, it has been reported by DG that CDAG provided a platform for anticompetitive conduct and it controls the supply chain through which drugs and medicines are made available in the market. It has also been reported that CDAG coerced the Opposite Party No. 2 on the issue of appointment of institutional stockists in Goa and restrained it from routing supplies through its appointed institutional stockist i.e., the Informant thereby controlling as well as limiting supplies in the market, in contravention of provisions of Section 3(3)(b) read with Section 3(1) of the Act. DG investigation also found that CDAG coerced the Opposite Party No. 3 to stop supplies to the Informant thereby limiting and controlling supplies in the market of drugs and medicines in Goa in contravention of the provisions of Section 3(3)(b) read with Section 3(1) of the Act.
3.3 Based on the minutes of different EC meetings of CDAG, the DG reported that CDAG neither had any intention to comply with the order of the Commission dated 11.06.2012 in case no. MRTP-C-127/2009/DGIR (4/28) nor did it, in fact comply with the directions of the Commission. Deliberations in the EC meetings of CDAG were indicative of the continuing control exercised by CDAG on the supply chain of drugs and medicines through the practice of requirement of LOC (Letter of Cooperation)/NOC (No objection Certificate) for appointment of stockists by pharmaceutical companies. Such conduct of CDAG was found to be in contravention of the provisions of Section 3(3)(b) read with section 3(1) of the Act.
3.4 From the emails exchanged between CDAG and the Opposite Party No. 2, between the Opposite Party No. 2 and the Informant and internal emails within the office of Opposite Party No. 2, supplies made by the Opposite Party No. 2 to the Informant between June, 2012 upto 20th August, 2013, the DG found that CDAG is issuing diktats and manipulating the behaviour of its members. It is reported that CDAG had serious reservations against the appointment of the Informant as an institutional stockist by the Opposite Party No. 2 and had coerced the Opposite Party No. 2 to refrain from routing supplies through the Informant. Apparently, CDAG directed the Opposite Party No. 2 to route all institutional supplies only through its other appointed stockists instead of an 'unauthorized stockist', referring the Informant as an 'unauthorized stockist', even though it was a duly appointed institutional stockist of the Opposite Party No. 2. Accordingly, the DG found that the conduct of CDAG resulted in limiting and controlling supplies in the market and led to foreclosure of market for the Informant.
3.5 The DG noted that ever since its appointment in June, 2012 as an institutional stockist of the Opposite Party No. 2, the Informant was getting regular supplies from it upto December, 2012. But, due to intervention of CDAG no goods were invoiced between December, 2012 to June, 2013 which indicates that CDAG did succeed in coercing the Opposite Party No. 2 to suspend supplies to the Informant. Ever since the Informant had been appointed as the institutional stockist/distributor of the Opposite Party No. 2, the Opposite Party No. 2 never supplied drugs and medicines directly to Directorate of Health Services (DHS) and Marmagoa Port Trust (MPT) during June, 2012 to January, 2013. However, it is observed in the DG report that during May, 2013 and June, 2013, direct supplies were made by the Opposite Party No. 2 to the said institutions/customers in spite of the Informant continued to be its distributor. It clearly indicates that the Opposite Party No. 2 succumbed to the coercion of CDAG and stopped routing supplies through the Informant.
3.6 Further, from the emails exchanged between CDAG and the Opposite Party No. 2, between the Opposite Party No. 2 and the Informant and some internal emails of the Opposite Party No. 2; DG has reported that, pursuant to the threats by CDAG, the Opposite Party No. 2 took a decision to suspend supplies through the Informant and intimated the same to all its officers to comply with the same decision. It indicates that the Opposite Party No. 2 actually implemented the directions given by CDAG in regards to suspension of supplies through the Informant.
3.7 DG has also collected material evidences showing that CDAG has coerced the Opposite Party No. 3 not to deal with the Informant. The Opposite Party No. 3 in its submissions before the DG has stated that the supplies to the Informant were stopped from June, 2012 onwards on the insistence/threat of CDAG. Examination of details of month wise supplies of the Opposite Party No. 3 to its other stockists during the period Jan, 2012 to December...
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