The Competition Commission of India (“CCI” ) by way of its order dated 28.07.2016 has found the Karnataka Chemists and Druggist Association (“KCDA”) , Lupin Ltd. (“Lupin”) and their Office bearers to be in contravention of the provisions of the Competition Act, 2002 (the Act).
In a case filed by M/s Maruti & Co., a chemist, based in Bangalore, it was alleged that KCDA restraints pharmaceutical companies from appointing new stockists in the State of Karnataka unless a No Objection Certificate (NOC) is obtained from it. It was also alleged that Lupin refused to supply drugs to M/s Maruti & Co. for not having obtained NOC from KCDA.
Following a detailed investigation by the Director General (DG), the CCI found that KCDA was indulging in the anti-competitive practice of mandating NOC prior to the appointment of new stockists by pharmaceutical companies. The DG had found that Lupin denied supplies to the Informant/Maruti, for the period August 2013 to January,2014 at the instance of KCDA, in spite of having appointed the Informant/ Maruti as its distributor. Such an arrangement/understanding between KCDA and Lupin has been found to be an anti-competitive agreement, which caused an appreciable adverse effect on competition (“AAEC”) in the market, in contravention of the provisions of Section 3(1) of the Act.
Based on the evidence collected by the DG during investigation, the CCI concluded that KCDA has been indulging in the practice of NOC prior to the appointment of stockists by pharmaceutical companies, which has the effect of limiting and controlling of the supply of drugs in the market, in violation of the act. Further , it was observed that instead of desisting from such activity, these associations are mandating the NOC requirement, either verbally (in order to avoid any documentary evidence/proof) or under camouflaged congratulatory/intimation letters. The CCI also observed that the pharmaceutical companies, without any resistance, cooperate with such associations to implement their anti-competitive decisions, thereby becoming equally complicit in the anti-competitive effect of such practice. Instead of approaching the Commission, these pharmaceutical companies cooperate with the NOC requirement of the associations, thus becoming perpetrators of such anti-competitive practice. Thereby, the Commission held the pharmaceutical company, Lupin, to be in contravention of the provisions of the Act for its anti-competitive arrangement/understanding with KCDA, which led to a refusal to supply of drugs to M/s Maruti & Co.
Further, the Commission has also found three office bearers of KCDA, namely Mr. K.E. Prakash, Mr. D.S. Guddodgi and Mr. A.K. Jeevan, responsible under Section 48 of the Act, for their active involvement in the anti-competitive practice of KCDA and also on account of the positions of responsibility held by them in KCDA during the period of contravention. Two officials of Lupin, namely Mr. Amit Kumar Dhiman and Mr. Nishant Ajmera, were found to be actively involved in the anti-competitive arrangement/understanding of Lupin with KCDA during the relevant period on the basis of Emails exchanged .
The CCI imposed a monetary penalty of Rs. 8, 60,321/-, calculated at the rate of 10 % of the average income of KCDA, under the provisions of Section 27 of the Act. While imposing penalty on Lupin, the Commission observed that the refusal to supply by it was for a brief period, after which Lupin resumed supplies to M/s Maruti & Co. considering this as a mitigating factor, the Commission imposed a penalty at the rate of 1% of Lupin’s average turnover, amounting to Rs. 72.96 crores. In addition, monetary penalties were imposed on the office bearers of KCDA and officials of Lupin at the rate of 10% and 1% of their incomes, respectively. Furthermore, KCDA, Lupin and their office bearers/officials have been directed to cease and desist from indulging in the practice of mandating NOC prior to stockist appointment. This case highlights the obstinacy of chemists & druggist associations who, despite various orders by the Commission in similar cases in other parts of India with respect to this NOC practice, have not abstained from indulging in such anti-competitive conduct. (Source: CCI order dated July 27, 2016. For full text see CCI website-www.cci.gov.in)
Comment: This is the second order of CCI imposing penalty on a pharmaceutical company. The order assumes importance because the earlier order imposing penalty of Rs. 74.63 Crores on Alkem Laboratories Ltd, in December, 2015 was set aside by the Competition Appellate Tribunal (COMPAT) vide its Order dated 10th May, 2016, after finding that the Chemists & Druggist Association, Kerala had coerced the pharmaceutical company to insist on production of NOC and the CCI was not right in holding that the pharmaceutical company itself was involved in any anti-competitive” agreement” with the Association as the element of coercion makes the possibility of such an agreement as impossible.