Case No. C-175/09/DGIR/27/28-MRTP. Case: The Belgaum District Chemists and Druggists Association Vs Abbott India Ltd. and Ors.. Competition Commision of India

Case Number:Case No. C-175/09/DGIR/27/28-MRTP
Party Name:The Belgaum District Chemists and Druggists Association Vs Abbott India Ltd. and Ors.
Counsel:For Appellant: Aman Raj Gandhi, Advocate
Judges:Devender Kumar Sikri, (Chairperson), S.L. Bunker, U.C. Nahta, Memers and G.P. Mittal, J. (Member)
Issue:Competition Act, 2002 - Sections 19(3), 26(1), 26(8), 27, 27(b), 3, 3(1), 3(2), 3(3), 3(3)(a), 3(3)(b), 4, 43, 66(6); Essential Commodities Act, 1955 - Section 3; Monopolies And Restrictive Trade Practices Act, 1969 - Sections 10(a)(iii), 33(1)
Judgement Date:March 02, 2017
Court:Competition Commision of India
 
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Order:

  1. The present matter was transferred to the Competition Commission of India (hereinafter referred to as the "Commission") by the erstwhile Director General of Investigation and Registration, Monopolies and Restrictive Trade Practices Commission (hereinafter referred to as "DGIR") under Section 66(6) of the Competition Act, 2002 (hereinafter referred to as the "Act").

    Facts

  2. The Belgaum District Chemists and Druggists Association (hereinafter referred to as "BCDA" or the "Informant") filed a complaint before erstwhile DGIR on 19th August, 2009, alleging that Abbott India Ltd. (hereinafter referred to as "OP-1") and Geno Pharmaceuticals (hereinafter referred to as "OP-3") stopped supply of essential medicines to some of its members on the ground that they have to first obtain 'No Objection Certificate' (hereinafter referred to as "NOC") from All India Organisation of Chemists and Druggists (hereinafter referred to as "AIOCD" or "OP-4") or from Karnataka Chemists and Druggists Association (hereinafter referred to as "KCDA" or "OP-2"); and due to such conduct, supplies of essential medicines have been restricted. In support of its contention, the Informant had also filed copies of its letters dated 16th June 2009 and 25th July 2009 addressed to OP-3 and OP-1, respectively.

  3. Consequent upon the repeal of the Monopolies and Restrictive Trade Practices Act, 1969 (hereinafter referred to as 'MRTP Act'), the erstwhile DGIR transferred the said complaint to the Commission under Section 66(6) of the Act with the observation that at that stage, the alleged practice appeared to be a restrictive trade practice of refusal to deal.

    Directions to the Director General:

  4. The Commission, after considering the materials available on record, vide its order dated 29th June, 2010, passed under Section 26(1) of the Act, directed the Director General (hereinafter referred to as the "DG") to cause an investigation to be made into the matter.

    Investigation by the DG:

  5. After a detailed investigation into the allegations and replies provided by the parties, DG submitted the investigation report on 8th November, 2010. The DG found that KCDA and AIOCD have indulged in actions and practices that are anti-competitive in nature. The DG concluded that Opposite Parties through their guidelines, rules and regulations coupled with their anti-competitive conduct contributed to appreciable adverse effect in the market for pharmaceutical products, in contravention of the provisions of Section 3(3)(a) and Section 3(3)(b) of the Act. The findings of the DG, in brief, are as follows:

    5.1. The investigation revealed that one M/s. Choudhary Medical Agency wrote a letter dated 10th May, 2009 to the Informant informing that OP-1 has refused supplies to it stating that there have been telephonic orders from KCDA to not supply medicines till NOC from KCDA is obtained. A similar letter dated 22nd September, 2009 was written by one M/s. Basaweshwar Pharma to the Informant, with copy to KCDA, stating that Elder Pharma Limited stopped billing it for want of NOC from KCDA. Further, the Secretary of the Informant submitted copies of two letters to the DG regarding appointment of M/s. Patil Pharmaceuticals and General Merchants as the stockist of Eli Lilly and Company (India) Private Limited (hereinafter referred to as "Eli Lilly"). Eli Lilly, through its letter dated 15th July, 2010, inter alia, informed that it is pleased to offer stockistship to M/s. Patil Pharmaceuticals and General Merchants for Belgaum territory under the condition that it will procure and provide NOC from its Local Association and KCDA. KCDA, through its letter dated 20th July, 2010, inter alia, suggested Eli Lilly to appoint M/s. Patil Pharmaceuticals and General Merchants as its stockist and inform KCDA after appointment, so as to communicate to the members of KCDA about the new stockistship/distribution point.

    5.2. The investigation further revealed that there has been an understanding between AIOCD, Indian Drug Manufacturers' Association (hereinafter referred to as "IDMA") and Organisation of Pharmaceutical Producers of India (hereinafter referred to as "OPPI"), through Memorandum of Understandings and Agreements (hereinafter referred to as "MoUs") amongst them, which shows that: (a) the appointment of stockists by pharmaceutical companies is controlled by Associations under the overall control of AIOCD; (b) trade margins of stockists and retailers have been fixed; and (c) a system of product information service has been introduced for which a charge is collected by the Associations from the pharmaceutical companies who want to introduce new medicines in any territory. The DG also found that a policy for supply of medicines to hospitals/nursing homes has been evolved whereby there can be no direct supply to any private doctor, dispensary, nursing homes or to anybody who has not been approved by AIOCD. The investigation also found that AIOCD circulated a summary of MOUs entered into between AIOCD, IDMA and OPPI from 1982 vide its letter dated 12th May, 2009. The said letter, inter alia, solicits the cooperation of the recipients to have better co-ordination in implementation of the understanding reached between the trade and industry on various issues through different MOUs signed between AIOCD, IDMA and OPPI. The DG concluded that these MOUs are in contravention of Section 3(1) read with Section 3(3) of the Act as it has put a limit on the supply of pharma products and in the absence of such restrictions, the pharma companies could have appointed more wholesalers leading to more supplies in the market. In particular, the DG has concluded that the norms and guidelines adopted by AIOCD regarding appointment of new/additional stockists and fixing of trade margins amounts to contravention of Section 3(3)(a) and Section 3(3)(b) of the Act respectively.

    5.3. However, DG accepted the justification offered by OP-1 and OP-3 for non-supply of medicines to the members of the Informant and has not found them indulging into any anti-competitive conduct.

    Supplementary Investigation by the DG:

  6. Upon considering the investigation report on 2nd December, 2010 and 9th February, 2011, the Commission was of the view that further investigation is required before reaching a conclusion in the matter. Therefore, the Commission directed the DG to conduct further investigation and gather material regarding its finding on determination of price and limiting/controlling of supply of medicines. The DG was also directed to collect financial information necessary to determine appropriate penalties for AIOCD, KCDA and the active members of KCDA, in case the Commission finds that there has been an infringement of the provisions of the Act by them.

  7. Pursuant to the directions of the Commission, DG issued notices to KCDA, inter-alia, directing it to furnish information regarding its balance sheet and profit & loss account for the last three years. Since KCDA did not comply with the directions of the DG, Commission, vide order dated 3rd May, 2011, initiated penalty proceedings against KCDA under Section 43 of the Act. Subsequently, vide another order dated 5th October, 2011, the Commission initiated Section 43 proceedings against the executive members of KCDA. Aggrieved therefrom, KCDA and its office bearers filed Writ Petitions (W.P. Nos. 19759, 19760, 20485-20489 of 2011) before the Hon'ble High Court of Karnataka impugning the aforesaid notices of the DG and the proceedings under Section 43 of the Act.

  8. While the aforesaid Writ Petitions were awaiting disposal, DG submitted its supplementary investigation report on 20th April, 2011 with the observation that it could not obtain the financial statements of KCDA and its members in view of the pendency of the Writ Petitions. The findings in the supplementary investigation report were regarding the relationship between AIOCD and KCDA; limiting and controlling of supply of medicines; and determination of price of medicines. Brief details of the findings of the DG are as follows:

    8.1 On the relationship between AIOCD and KCDA, DG found that AIOCD is the apex body of wholesalers and retailers of pharmaceuticals at all India level. Below AIOCD, there are Associations of wholesalers and retailers at the state level which are affiliated to AIOCD. Further, there are Associations at district level which are affiliated to the concerned State Associations. The DG reiterated that the MoUs entered into between AIOCD, OPPI and IDMA since 1982 prescribe the guidelines and norms regarding margins at the level of wholesalers and retailers, and for appointment of new and additional stockists. The DG noted that the said guidelines and norms show the collective intent of the members of AIOCD. The DG further noted that AIOCD possesses the ability to control the affairs of state and District Level Associations and any member Association that does not follow the norms of AIOCD is boycotted and penalised. The DG has found that KCDA is also an affiliated body of AIOCD like other State Associations and it also follows the restrictive and anticompetitive norms and guidelines formulated by AIOCD.

    8.2 On the issue of limiting and controlling of supply of medicines, DG found that the guidelines and norms prescribed by AIOCD and followed by KCDA impose restrictions on two accounts. Firstly, NOC or Letter of Cooperation (hereinafter referred to as "LOC") from the state Chemists and Druggists Association is necessary for the appointment of new stockist or additional stockist. If the Association does not grant NOC/LOC, new or additional stockist cannot be appointed. Secondly, pharma companies cannot introduce a drug in a territory unless it pays certain amount to the State Chemist and Druggist Association towards services in the name of Product Information Service (hereinafter referred to as "PIS") or Prescribed Product Information Index (hereinafter referred to as "PPII")...

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