Ed. Note: The post below is from guest contributor Avinash Amarnarth. Avisnash is an attorney with the law firm ‘Vinod Dhall and TT&A’ in New Delhi, India.
Hello from India to all readers! It has been quite a while since my introductory post. There has been a relative lull of activity on the cartel front in India.
However, on 27 October 2014, the Competition Commission of India (CCI) following a complaint filed by M/s Xcel Healthcare, a stockist for pharmaceuticals in the state of Goa, found that the Chemists and Druggists Association, Goa (CDAG) had continued to violate an earlier order of the CCI against it. The CCI found that CDAG had continued to control the supply of pharmaceuticals in Goa through a stipulation that all stockists in Goa must obtain a no-objection certificate (NOC) from it and pressuring pharmaceutical companies into not supplying to those stockists who did not obtain an NOC. The CCI had, in its earlier order, found that such actions amount to a collective boycott/refusal to deal leading to limitation and control of supply in violation of the Competition Act. In the present case, the CDAG had pressurised Glenmark Company and Wockhardt Limited, two pharmaceutical companies, into not supplying to the informant, who had not obtained an NOC from CDAG.
The CCI found that Glenmark and Wockhardt could not be found to be in violation of the Competition Act as the individual agreements between them and CDAG did not qualify either as a horizontal agreement or as a vertical agreement under the Competition Act. The CCI found that there was no evidence of any horizontal agreement between Wockhardt and Glenmark to suspend supplies to the informant. Further, the CCI observed that the mere decision by Wockhardt and Glenmark to suspend supplies to the informant cannot be said to amount to a vertical agreement between these companies and their existing stockists.
Apart from passing a cease and desist order, the CCI imposed a penalty at the rate of 10% (the maximum percentage that can be imposed under the Competition Act) of the average receipts of the CDAG for the last 3 years (amounting to roughly USD 172,888) and decided to initiate proceedings against the individual office bearers of the CDAG.
A few observations on the decision itself. First, this is the first decision of the CCI where a party’s recidivism was considered as an aggravating factor in imposing penalties resulting in the maximum permissible percentage of penalty being imposed on CDAG. Second, the decision creates some confusion about the CCI’s approach to anti-competitive agreements under Section 3 of the Competition Act. As I had highlighted in my previous post, the CCI in an earlier order in Ramakant Kini v. Hiranandani Hospital had held that agreements, which are neither horizontal agreements nor vertical agreements, could still be assessed under the general prohibition on anti-competitive agreements under Section 3. However, the present decision finds that the agreement between the pharmaceutical companies and CDAG qualified neither as a horizontal agreement nor as a vertical agreement and therefore could not be examined under Section 3; thereby suggesting that agreements that are neither horizontal nor vertical cannot be examined under Section 3. It remains to be seen whether this dichotomy in approach will be litigated at the appellate stage.
At a broader level, this decision is the latest in a spate of decisions of the CCI against chemist and druggist trade associations for adopting collective actions aimed at restricting the commercial freedom of individual stockists such as requiring NOCs from the association for operation and fixing their trade margins. In fact, this is the 8th decision of the CCI against chemist and druggist associations in the last 2 years. The CCI has even issued a public notice warning chemist and druggist associations against adopting such actions (here). Other trade associations that have been regularly penalised are film distributors’ associations and travel agents’ associations. It appears that the problem with certain industries in India is a lack of competition culture more than anything else. In fact, in the present case, the minutes of the meetings of the association revealed that the association was trying to use “political clout” to evade the CCI’s order. Apart from enforcement actions, advocacy and training initiatives for such industries are also crucial to spread awareness about competition law and competition rules. The CCI has undertaken such initiatives to some extent but perhaps more focus is needed on those industries where these issues seem to recur.
The full order can be accessed at this link.