Competition Commission of India
Vedant Bio Sciences vs Chemists & Druggists Association Of ... on 5 September, 2012
BEFORE THE COMPETITION COMMISSION OF INDIA, NEW DELHI
In Re: MRTP Case No. C-87/2009/DGIR
Informant: Vedant Bio Sciences through Advocate D.P.Pandey &
Maneesh Dubey
Opposite Party: Chemists & Druggists Association of Baroda through
Advocate Nikhil Goel & Sayid Mazoor
5th
Date of decision: September, 2012
1. BACKGROUND
1.1 This case was initiated on a complaint dated 28.04.2009 filed by Shri Uday
Joshi, Authorised Signatory of Vedant Bio - Sciences, Baroda (hereinafter
referred to as the "Informant"), before the Director General (Investigation
& Registration), Monopolies & Restrictive Trade Practices Commission
[hereinafter referred to as "DG(lR)"] alleging that the Opposite Party,
namely, Chemists & Druggists Association of Baroda (hereinafter referred
to as "CDAB" or 'Association") is indulging into restrictive trade practices.
1.2 The Informant has claimed that he is a Baroda based distributor of few
pharmaceutical companies and sells pharmaceutical formulations of the
companies through promotion and distribution.
1.3 The allegations contained in the complaint / information, in brief, are as
below:
(i) CDAB is an unregistered body and is imposing unfair conditions in sale of
pharmaceutical products of different companies.
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(ii) CDAB has formulated guidelines for its members which require any
person including a member to obtain permission / NOC before which he
can become a stockist of a particular company.
(iii) CDAB forces the additional/new Stockist not to sell the products of a
pharmaceutical company unless NOC is obtained from the existing
Stockist of that pharmaceutical company operating in that area.
(iv) CDAB insists on procuring NOC before a pharmaceutical company
launches new products or appoints new Stockist. In case such NOC is not
obtained, then the company is not allowed to launch new product or
appoint new Stockist.
(v) A circular dated 02.03.2009 was issued by CDAB, wherein permission
has been granted to be Stockists or take work for some pharmaceutical
companies, which indicates that NOC is a must to do business.
(vi) CDAB is also engaged in fixing margins for pharmaceutical companies.
(vii) NOC has to be procured for several aspects like launch of new company
products, appointment of new Stockist or addition of Stockist.
(viii) CDAB charges Rs. 2000/- per product from all companies who want to
launch new product in the market. These charges are collected towards
the advertisements in their magazine called 'Chemists News'. Price
structure of each product is controlled through this advertisement and
without detailed price structure, the products are not allowed to be
launched.
1.4 The Informant had prayed to remove the hurdles forced by All India
Organisation of Chemists & Druggists (AIOCD) through its State Unit! CDAB
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in pharmaceutical business which, as per Informant, would help the prices
of medicines come down by at least 20%.
1.5 After receiving the complaint, the DGIR, MRTPC undertook a preliminary
investigation into the allegations made in the complaint and sought certain
information from the Informant which was duly provided by him.
2. At this stage, consequent upon the repeal of Monopolies and
Restrictive Trade Practices Act, 1969 (the MRTP Act) the case was
transferred to the Competition Commission of India (the Commission)
under section 66 (6) of the Competition Act, 2002 (the Act).
3. The Commission, after considering the material on record formed an
opinion that there existed a prima fade case and vide order dated
18.06.2010 referred the matter to the Director General (DG) for
conducting investigation. In pursuance of the direction of the
Commission the DG conducted investigation and submitted the
investigation report dated 04.11.2010 to the Commission.
4. During the course of investigation the DG gathered facts out of primary
and secondary sources, collected evidences by sending questionnaire to
the concerned parties including information providers, analyzed the
evidence/facts gathered in light of the information supplied to the
Commission and recorded the statements of information providers as
well as members of CDAB. The DG examined issues relating to practice
and decision of the Association to find whether (a) the CDAB is insisting
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upon obtaining no-objection before any concern is appointed as
distributor/stockist by any pharmaceutical company (b) the Association
is also deciding upon price margins for wholesalers (c) the Association is
also charging any amount towards launch of new products in the name
of advertisements and if so whether such conduct fall foul of the
provisions of the Act.
5. Findings of DG Report
5.1 As per the report of the DG, evidence gathered during investigation
established that the Association was not only insisting upon seeking its
NOC before any pharmaceutical company could appoint a wholesaler but
it was also fixing trade margins for the wholesalers and there have been
payments towards advertisements, donations.
5.2 Based on the analysis of the evidences gathered in course of
proceedings, it was concluded by the DG that the circular issued by CDAB
and practices adopted by it were restrictive and anti-competitive in
nature in terms of the provisions of Section 3(3)(a) and Section 3(3)(b) of
the Act.
6. The DG report was considered by the Commission in its meeting held
on 02.12.2010. After considering the report and other material
available on record, the Commission was of the view that further
investigation into certain aspects was necessary in order to arrive at a
proper conclusion. Accordingly, the Commission directed the DG to
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submit a supplementary report after analysing evidence on the
following aspects:
(i) Evidence regarding the agreement, practice and decision amongst
members of the alleged cartel to limit /control prices.
(ii) Evidence and data, on the basis of facts, figures and market survey,
to show that the alleged cartel has actually determined the sale prices of
drugs.
(iii) Further evidence, including data, in support of the finding that CDAB
has limited or controlled supply of drugs.
(iv) Evidence relating to actual supply and movement of drugs in the
market, the actual margins charged at various stages of the supply/
distribution chain, the discounts, if any, given with reference to the margins
laid down in the guidelines.
(v) The nexus between All India Organisation of Chemists & Druggists
(AIOCD) and CDAB and specific evidence about the members of CDAB, who
have participated actively in the operation of the alleged cartel.
(vi) Full financial information necessary to determine appropriate
penalties for AIOCD, CDAB and the active individual members of CDAB, in
case the Commission finally finds that there has been an infringement of
any provision of the Act by the Associations and their members.
7. In the light of the directions given by the Commission the DG conducted
further investigation and submitted a supplementary investigation
report dated 04.03.2011 which was considered by the Commission in
its meeting held on 10.03.2001. The Commission vide its order dated
10.03.2011 decided to send a copy of the investigation report to the
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parties for filing their replies / objections to it. The parties were also
directed to appear for oral hearing, if they so desire, either personally
or through their authorised representatives.
8. Supplementary Investigation
The findings of DG's supplementary investigation report can be summarized
as under:
8.1 Relationship and Nexus between AIOCD and CDAB
8.1.1 As per DG report AIOCD is an apex body of wholesalers and retailers
of pharmaceutical companies at All India Level. Below AIOCD, there
are Associations of wholesalers and retailers at the State Level in the
States. These State Associations are affiliated to AIOCD. Further,
there are Associations at the District Level also, which are affiliated
to State Level Associations. CDAB established in 1937 is a District
Level Association of Gujarat. It is ultimately affiliated to AIOCD
through Federation of Gujarat State Chemists and Druggists
Association, which is a State Level Association in Gujarat and follows
the norms of AIOCD.
8.1.2 The report further stated that AIOCD entered into M0U with
Organization of Pharmaceuticals Producers of India (OPPI) and Indian
Drugs Manufactures Association (IDMA) in 1982, prescribing certain
guidelines and norms regarding margins at the level of wholesalers
and retailers. Among others, guidelines and norms for appointment
of new and additional stockists have also been prescribed. No
pharma drug company can conduct business with wholesalers and
retailers, unless it follows the guidelines and norms of AIOCD, which
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have been formulated by the members of AIOCD - a body of
wholesalers and retailers together. The guidelines and norms show
the collective intent of the members of AIOCD. The guidelines/
norms of M0U are revised from time to time.
8.1.3 As per the DG report the guidelines of AIOCD, which are being
followed by State Level Associations like Federation of Gujarat State
Chemist and Druggist and District Level Associations like CDAB, limit
and control supplies of drugs and number of wholesalers/stockists in
the market and fix margins for wholesalers and retailers which
ultimately has the effect of determination of sale price of drugs in
the market. AIOCD is in position to control the affairs of State and
District Level Associations and these Associations cannot deviate
from the guidelines/norms of AIOCD. If pharma companies do not
follow the norms/guidelines of associations, their normal business
operations get hampered. In case members of Associations at
National, State or District Level, do not follow the guidelines and
norms, they are boycotted and even penalized.
8.1.4 According to DG report the common denominator of all these
Associations as is evident from the statements of persons recorded
by DG is that all of these are following norms / guidelines which are
restrictive and anti-competitive in nature.
8.2 Issue of limit and control on supply of pharmaceutical drugs in the market
8.2.1 The DG has concluded that guidelines/norms prescribed by AIOCD
are found to be restrictive and anti-competitive in nature since they
ultimately have the effect of controlling and limiting supply of drugs
in the market. The restriction is imposed on two counts; one, no
pharmaceutical company can introduce a pharmaceutical drug in a
territory, unless it pays certain amount to the Association in name of
P15 (Product Information Service) purportedly for the purposes of
advertisement and second, before appointment of any new stockist
or additional stockist, the association grants no-objection in name of
NOC/LOC (Letter of Cooperation). If the association does not grant
NOC, no new or additional stockist can be appointed.
8.2.2 The DG has further reported that without getting NOC from the
Association, stockists cannot get supplies from pharmaceutical
companies in order to sell their products in the market. If the dictates
of the Association are not followed, then call of boycott is given by
the Association and the stockists not following the dictates of the
Association are also penalized. The DG has found this practice as anti-
competitive and restrictive. As per DG report the modus operandi
followed in respect of P15 is that a drug company has to get drugs
approved for their launch in a particular territory by the Associations.
The Associations charge Rs. 2000 per drug before it can be launched
in a particular territory. Moreover, amount of Rs. 2000 is not only
charged per drug, but also, per category of that drug. If a drug comes
under different categories- say, 100g. 500g, 1 kg pack, for each such
category of that drug, the drug manufacturing companies will have to
pay Rs.2000. Thus, the DG has concluded that Associations not only
restrict number of players, but also restrict introduction of new drugs
in the market.
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8.2.3 As per the DG report, the CDAB, through enforcing guidelines and
norms laid down by the AIOCD as well as by actual conduct limits
supply of drugs and number of players in market since without NOC
of the Association, no person/enterprise can be appointed as
wholesaler and stockist at Vadodara, Further, if product NOC in form
of PIS approval is not given, companies will not be in a position to
supply drugs. Citing the depositions of persons recorded during
investigation the DG has reported that certain drugs are not available
in Vadodara because PIS approval has not been given. Further, as per
the DG report additional stockist in a particular territory eventually
restricts the number of players in the market and in turn also limits
or control supply of drugs. The system of P15 approval for
introduction of drugs in a particular territory and taking money for
that also leads to obstruction in the supply and availability of drugs.
The DG has concluded that these practices followed by boycott of
those firms which do not follow the dictates of Association and
imposition of penalties on them, establish that the practices and
conduct of CDAB are restrictive and anti-competitive.
8.3 Issue of determination of margins
8.3.1 The DG has reported that besides exercising their control over the
number of stockists and number of products, the Association(s) are
also involved in the fixation of margins and ultimately determination
of sale price of drugs as far as non-controlled drugs are concerned.
As per the DG report, there are broadly two categories of drugs
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under Drug Price Control Order (DPCO) 1995 for the purpose of price
fixation/revision and monitoring. These are scheduled drugs (drugs
under price control) and non-scheduled drugs which are out of price
control. National Pharmaceutical pricing Authority (NPPA)
fixes/revises prices of 74 Scheduled bulk drugs and formulations
based on them. In the case of non-scheduled medicines, trade
margin is normally given by the industry themselves. The DG has
noted that it is in this category of drugs the trade Associations of
wholesalers and retailers are deciding on the margins, which has
been fixed at 20% for retailers and 10% for wholesalers.
8.3.2 On the basis of the evidence furnished in course of proceedings the
DG has concluded that the norms and guidelines of the Association
which prescribe the margins for wholesalers and retailers, not only
has the effect of fixing margins, but also result into determining the
sales price of drugs. The margins of drugs for wholesalers and
retailers are determined by the Association(s) at the time of giving
P15 approval for introduction of drugs in a particular territory. The
circular dated 02.03.2009 of CDAB also indicates that margins and
prices are determined by the Association. The determination of
margins and system of PIS has the effect of increasing the cost of the
drug manufacturing companies, ultimately putting burden on the end
consumers.
8.4 Whether practices of CDAB are restrictive and anti - competitive.
8.4.1 After analyzing the evidence the DG has concluded that practices of
CDAB on the lines of AIOCD and Federation of Gujarat State
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Chemist & Druggist Association are anticompetitive and restrictive
in nature and are violative of provisions of Section 3(3) (a) and 3(3)
(b) of the Act, 2002.
9. The matter was further considered by the Commission in its meeting
held on 19.05.2011 wherein Mrs. Krishna Swamy, Advocate and Shri
Meenesh Dubey, Advocate alongwith Shri Jawahar Sharda and Jitender
Kachadhi for Informant and Shri Avdhoot V. Sumant, Advocate
alongwith Shri Alpesh Z. Patel and V. T. Shah for CDAB appeared before
the Commission and made oral submissions.
10.The Commission had also directed the DG to collect and submit
financial details in respect of CDAB and its active members to the
Commission. The DG vide notes dated 10.06.2011 and 13.07.2011
requested the Commission to extend the time for collecting and
submitting financial information of the active members of CDAB as they
had not furnished the information sought by DG on the pretext that
Shri Alpesh Z. Patel, Secretary of CDAB had filed a special civil
application before Hon'ble Gujarat High Court challenging the order of
the Commission asking for personal financial details of the members.
11.The matter was again taken up by the Commission on 13.09.2011 in
which the Commission considered the DG's letter dated 05.09.2011
recommending initiation of proceedings under section 43 of the Act
against the executive members of CDAB who had failed to furnish their
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profit and loss account and balance sheet in compliance of DG's
direction. Thereafter, the matter was considered by the Commission in
its meeting held on 28.09.2011 in which the final supplementary report
of the DG dated 14.09.2011 was considered by the Commission. The
Commission vide its order dated 28.09.2011 had noted that DG vide his
letter dated 17.03.2011 asked the executive members of CDAB to
furnish their profit and loss account and balance sheets by 23.03.2011.
However, the details were not filed by them. Later on, financial details
of CDAB were filed vide letter 14.04.2011. Financial information in
respect of four executive members viz., Shri Yusuf H. Patel, Shri
Jawahar Sharda, Bhavin Mangrolli and Shri Daxit Patel was also filed.
The other executive members of CDAB did not furnish financial details
even after two reminders dated 04.04.2011 and 26.04.2011 issued by
the DG. The Commission also noted that some executive members of
CDAB had challenged the directions of the DG before the Hon'ble High
Court of Gujarat by filing two Special Civil Applications, however, at that
time no stay or interim order was granted by the Hon'ble High Court in
those matters.
12.After considering all the facts and circumstances of the matter, the
Commission, found that prima facie there had been non-compliance,
without any reasonable cause, of the directions given to CDAB by the
DG under Section 36 (2) read with Section 41(2) of the Act and,
therefore, decided to issue notices to the said executive members of
CDAB under Section 43 of the Act, to show cause within 15 days from
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the date of receipt of the notice as to why penalty for the above
mentioned violation should not be imposed upon them. The
Commission also decided that these executive members of CDAB, if
they so desire, may also avail the opportunity of being heard in person
or through their authorized representatives on 15.11.2011. The
Commission also decided to send copies of the DG investigation report
to all the executive members of the CDAB for filing their reply /
objections within two weeks from the receipt thereof.
13.The matter was again taken up by the Commission in its meeting held
on 30.11.2011 in which Shri Shamik Sanjanwala, Advocate appeared for
the executive members of CDAB, namely, Shri Alpesh Patel, Shri Vrajesh
Shah, Shri Vipun Shal, Shri Harshadbhai Shah, Shri Hitendra Patel, Shri
Sunil Patel, Shri Kirtibhai Joshi, Shri Umeshbhai Joshi, Shri Jayesh Shah,
Shri Sapnesh Shah, Shri Pareekshit Patel, Shri Pinesh Shah, Shri kartik
Doshi, Shri Bhavin Mangloria, Shri Dixit Patel, Shri Dayabhai N. Patel
and Shri Manish S. Shah. He filed a fax copy of the order dated
11.11.2011 passed by Hon'ble Gujarat High Court in Special Civil
Application No. 10039 of 2011 and requested for adjournment of
hearing to enable him to file replies to the DG report and show cause
notices issued under section 43 of the Act which was acceded to by the
Commission.
14.Thereafter, the matter was considered in Commission's meeting held
on 21.12.2011 in which Shri Shamik Sanjanwala, Advocate informed
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that Hon'ble Gujarat High Court had disposed off his client's Special
Civil Application directing them to file application before the
Commission challenging its jurisdiction. The Commission granted the
time to move application within 3 weeks time and directed him to
appear for oral hearing on 31.01.2012.Shri Shamik Sanjanwala,
Advocate, in Commission's meeting held on 08.05.2012 filed an
application alongwith the copy of order dated 04.05.2012 passed by the
Hon'ble Gujarat High Court in Special Civil Application no. 6391 of 2012
and requested for adjournment of the case. The Commission, after
perusing the order of the Hon'ble Gujarat High Court directing status
quo with regard to production of records of individual office bearers,
deferred the matter.
15.ln view of the order passed by the Hon'ble Gujarat High Court the
Commission has decided to dispose of this matter so far as it relates to
the practices and conduct of the CDAB. The Commission shall pass
appropriate orders in respect of the members of CDAB as and when the
Hon'ble Gujarat High Court decides the Special Civil Application no.
6391 of 2012. It is also pertinent to mention here that although in the
supplementary investigation, the role and conduct of AIOCD and
Federation of Gujarat State Chemist & Druggist Association were also
examined by the DG, but since they were not made the subject matter
of inquiry before the Commission and copy of DG reports were not
supplied to them the present order is confined to the role and conduct
of the CDAB only.
16. Reply of CDAB to the DG reports
CDAB filed its reply to the DG report on 05.05.2011. The gist of the reply
filed by CDAB is noted as under:
16.1 The CDAB has submitted that investigation conducted by the office of
DG and consequential reports suffer from serious and inherent
contradictions which are attributable to the process of investigation
being carried out in violation of fairness and propriety. The CDAB has
contended that the present complaint, leading to the preparation of
the report is completely ill motivated and misconceived and
accordingly, deserves to be dropped. CDAB has further submitted that
the reports are based on the completely non existing facts and hence
are suffering from serious and apparent deficiencies the salient
features whereof are as under:
Plea on NOC
16.2 As per the CDAB, the gist of allegations and investigation in the first
report refers to some alleged permission required to be obtained from
CDAB for appointment of stockist. This action has been ultimately
found to be anti-competitive and this finding therefore, has resulted
into the present proceedings. CDAB has contested the findings of the
DG on the issue of NOC. The submissions made by the CDAB are noted
in the following paras.
16.3 It has been submitted that the DG in his report had observed that after
year 2010 when the new Executive Committee came into power the
alleged practice of seeking NOC had been stopped. CDAB has
contended that contrary to the findings of DG such practice never
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16.4 CDAB has contended that not a single copy of the alleged NOC
required to be issued by CDAB had been placed on record either by the
stockist or the pharmaceutical companies. Thus, as per CDAB, the
allegation is based on some assumption without any actual and
concrete evidence. The letters written by any person or company does
not constitute reliable evidence and the principles of fairness and
natural justice require thorough and in-depth investigation which
could find at least one letter of permission or NOC issued by CDAB.
Thus, CDAB submitted that absence of any direct evidence is fatal and
necessitates more thorough and wide investigation in the matter. The
CDAB has contended that it has nothing to do with the process of any
company appointing or selecting the stockiest.
Nexus with AIOCD
16.5 As per CDAB, the relationship has been investigated between two
juristic inanimate persons and therefore an existence of relationship or
affiliation pre requires some legal document in the form of
constitution or regulation requiring inter-linkage through either
membership or payment of affiliation fee or through some formal
process maintained between two bodies. CDAB has emphatically
denied any sort of "affiliation" to anybody whatsoever much less
AIOCD and had stated that the major part of the report imputed the
alleged activities of AICOD to the CDAB and DG report on this count is
liable to be rejected.
16.6 CDAB has submitted that the whole process of investigation is
seriously infested or controlled by persons having personal grudge or
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dispute with CDAB. It has further submitted that there are personal
disputes cropped up between previous and present office bearers and
are being attempted to be settled by using the forum of Commission.
16.7 As per CDAB, the analysis of frame and structure of first report of DG
shows that it is completely devoid of any facts and relevant matter
except an exhibition of some general knowledge resorted to by DG.
CDAB had submitted that the aforesaid frame and contents of law
speaks of complete absence of any reasoning or analysis of facts and
hence even the conclusion of DG report has become generic which
shows the misconception of law and fact founded on confusion on the
part of DG as DG has failed to apply and appreciate the law and fact
with a focus and specific attention to the relevant matters and
documents exclusively applicable to CDAB.
16.8 As per CDAB, the supplementary report has dealt with the alleged
relationship between AIOCD and CDAB. CDAB has submitted that the
finding of such a connection is based on the statement of Shri Jawahar
Sharda who is having organizational enmity with CDAB and his
statement has been relied like a gospel truth. CDAB has also taken the
plea that the DG ought to have at least enquired from the office of
AIOCD regarding the alleged "affiliation". Thus, as per CDAB, the whole
investigation is oriented with the singular source of evidence as
gathered from the group of persons having enmity and disputes with
CDAB. CDAB has further contended that the reliance on the materials
with reference to AIOCD and their activities is wholly irrelevant as
neither CDAB is party to that nor in any way such material was
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subjected to an objective disclosure to CDAB which is ex-facie violation
of principles of fairness and natural justice.
17. REPLY ON MERITS
17.1 As per CDAB, the DG had relied upon the website and some alleged
document executed by AIOCD, but absolutely no effort has been
made to find out any legal or administrative document to identify or
establish the affiliation or formal association between two formal
bodies. CDAB had submitted that DG's employing terminology 'as
would be evident from the statement' and "in the course of
investigation it has been gathered", are sufficient to prove that DG
did not even bother to find out any document which is fundamental
and prerequisite condition to establish any affiliation or formal
association between two juristic persons.
17.2 As per CDAB, the aforesaid facts are sufficient to show that
investigation is wholly deficient and this kind of situation requires
more objective and fact oriented investigation as the report of DG is
more of an opinion based on the perception of DG.
17.3 As per CDAB, the DG has relied upon inherently and fundamentally
deficient perception that CDAB is affiliated with AIOCD like a servant
Association and it follows every alleged guideline as issued by AIOCD.
CDAB has contended that the basic premise itself is imaginary as
CDAB is neither under administrative nor legal nor any other nature
of control of AIOCD and CDAB is an independent Association having
its own independent legal and administrative control, policy and
existence.
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17.4 As per CDAB, the DG had carried out the investigation only by relying
upon the statements and questionnaire recorded from the persons
having personal grudge with the new committee. CDAB has
submitted that the alleged P15 has no privity with CDAB. It has been
argued that as the existence and privity of the P15 itself is not
confirmed, such document cannot be relied upon for preparing
report without bothering as to how such document can have any
bearing against CDAB. As per CDAB, the DG who had relied upon P15
presumed that such document is generated, issued, circulated and
enforced by CDAB whereas in fact CDAB does not have even remote
relationship with such document.
17.5 CDAB has submitted that even statement of Shailesh C. Shah refers
to the fact that the body is not now insisting for the NOC. It was also
admitted that the District Level Association is not having any privity
with the alleged process of NOC. As per CDAB, the DG while
investigating had relied upon Exhibit II without either reading or
applying his mind to the contents thereof. CDAB had contended that
it may be appreciated that document on face of it confirms the fact
of Ashok Medical Agency of Shailesh Shah having given donation to
CDAB. As per CDAB, on the said document on the bottom there is an
overwriting apparently caused by Shailesh Shah while inserting a line
written which appears to be in his own handwriting that "the penalty
charged by the Association for not following their dictate". DG had
relied upon such document by not giving any weightage to the
printed word donation and by ignoring the fabrication. CDAB has also
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highlighted the fact that the document was generated in the year
2008 and Shri Shailesh Shah did not raise any complaint in this regard
till 2011. As per CDAB the aforesaid factual position is applicable to
document Exhibit - 14 also and the DG has taken it as a proof of
penalty by conveniently ignoring the word donation.
17.6 As per CDAB, statements of Shri Nayan Rawal and Firoz Patel relate
to alleged PIS or NOC, but unfortunately the whole investigation
report does not bring forth even one single document which can
even remotely be considered as NOC. CDAB has submitted that
various statements had been accepted on their face value without
any actual investigation. CDAB in this regard has mentioned the
allegation made by Shri Uday Joshi who had alleged that powder
manufactured by Abbot India Ltd is not available in Gujarat because
of some whimsical restriction by CDAB. As per CDAB this allegation is
absolutely false as the said drug is available easily and openly in
market and CDAB had submitted document in support of this fact.
17.7 As per CDAB the DG had relied upon certain circulars and
straightaway reached to adverse conclusion. In this regard, CDAB has
contended that principles of natural justice and fairness require that
where any document or contents thereof are sought to be relied
upon against any person, then such person should be provided an
opportunity to explain especially when the contents do not indicate
any illegality or wrong.
17.8 CDAB further submitted that investigation report observes that
CDAB is practically following all the practices and / or the directions
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of AIOCD whereas in fact it is not the case at all as there is an
inherent absence of any privity between CDAB and AIOCD.
17.9 As regards issue of determination of margin, CDAB submitted that
the margins are fixed by the Government notifications. As per CDAB,
the Indian Pharmaceutical Guide shows that the margins are required
to be maintained by the companies. As an Association, it is duty of
CDAB to ensure that its members are not cheated upon by the
Companies. Accordingly, as per CDAB, in a peculiar case where a
manufacturing company is not adhering to the margins prescribed, a
representation is made on behalf of the members, which cannot be
said to be Anti-Competitive.
17.10 Lastly, the CDAB has prayed that the report of the DG dated
02.11.2010 and 03.03.2011 in case no. MRTP-87/2009/DGIR may be
rejected and consequently the case be dropped. The CDAB has
alternatively requested that an order to reinvestigate the matter may
be issued with direction to maintain and uphold the principles of
legality, fairness, natural justice in the larger interest of truth, legality
and substantial justice.
18. Reply of Informant to the DG reports
The Informant filed its reply to the DG report on 13.05.2011. The gist
of the reply is as under:
18.1 The Informant has submitted that the objections raised by Shri V.
T. Shah of CDAB in their preliminary objections are illogical and are
21
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based on their unfair whims to either misguide the Commission or kill
the time.
18.2 As per the Informant, the claims of CDAB on NOC, PIS and Trade
Margins are completely vague and illogical. Regarding the claim of
the CDAB that statement of Informant as recorded by DG regarding
Ensure Powder was wrong, the Informant has submitted that the bill
copy of M/s Bhavna Sales submitted by the CDAB to prove that
Ensure Powder is being sold in the market is dated 04.04.2011,
whereas the Informant's statement was recorded on 31.01.2011.
Thus, as per the Informant the said bill dated 04.04.2011 carries no
weight.
18.3 As per the Informant, the claim of CDAB regarding no relationship
with State Federation or with AIOCD is contradictory in itself. The
Informant, in this regard, had enclosed a circular of State Federation
confirming affiliation to AIOCD. As per the Informant, the circular
dated 10.11.2009, placed at Exhibit No. 17 of first report, reveals that
they had passed the benefits to Associations of other towns like
Godhra, Bharuch & Surat. The Informant has contended that such
benefit can be passed to other Associations only if they all are
covered under one roof i.e. State Federation. Even the copies of
"Chemist News" were provided to their members as per Para no. 11
of the same Exhibit.
ISSUES
19. The Commission has carefully considered the issues raised by the
Informant, the evidence gathered by the DG in his investigation reports
as well as the replies / submissions filed by the CDAB and the Informant
to the DG report. After thorough perusal of the said documents
Commission finds that following issue arises for consideration and
determination by the Commission in the matter:
1. Whether the conduct and practices of CDAB are anti - competitive and
in violation of Section 3 of the Act?
20. Determination of Issue No. 1
Whether the conduct and practices of CDAB are anti--competitive and in
violation of Section 3 of the Act?
20.1. DG has concluded that the practices and conduct of CDAB are
violative of provisions of section 3(3) (a) and 3(3) (b) of the Competition
Act, 2002.The CDAB has denied indulging into anti-competitive practices
whereas, the Informant has agreed with the conclusion drawn by the
DG.
20.2. Since the DG has found that the CDAB has infringed the provisions of
section 3(3)(a) and 3(3)(b) of the Competition Act, 2002 the relevant
sub-section (3) of section 3 of the Act may be looked into which reads as
under:
"Any agreement entered into between enterprises or
associations of enterprises or persons or associations of persons
or between any person and enterprise or practice carried on, or
decision taken by, any association of enterprises or association
9
/SA CO177i7,
23
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of persons, including cartels, engaged in identical or similar
trade of goods or provision of services, which -
(a) directly or indirectly determines purchase or sale prices;
(b) limits or controls production, supply, markets, technical
development investment or provision of services;
(c) ...........
(d) ...........
shall be presumed to have an appreciable adverse effect on
competition.
20.3. For the purpose of proper appreciation of applicability of relevant
provisions relating to anti-competitive agreements, it is useful to
consider the various elements of section 3 of the Act in some detail.
Section 3(1) of the Act prohibits and section 3(2) makes void all
agreements by association of enterprises or persons in respect of
production, supply, distribution, storage, acquisition or control of goods
or provisions of services which cause or likely to cause appreciable
adverse effect on competition within India.
20.4. It is evident from the above that if any agreement restricts or is likely
to restrict the competition then it will fall foul of section 3 of the Act.
20.5. Further, section 3(3) of the Act applies not only to an agreement
entered into between enterprises or associations of enterprises or
persons or association of persons or between any person and
enterprises but also with equal force to the practice carried on or
decision taken by any association of enterprises or association of
persons including cartels, engaged in identical or similar trade of goods
24
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and provision of services which has the purpose of directly or indirectly
fixing prices, limiting output or sales, or sharing markets or customers.
Once existence of prohibited agreement, practice or decision
enumerated under section 3(3) is established there is no further need
to show an effect on competition because then a rebuttable
presumption is raised that such conduct has an appreciable adverse
effect of competition and is therefore anti-competitive. In such a
situation burden of proof shifts on the opposite parties to show that
impugned conduct does not cause appreciable adverse effect on
competition.
20.6. The next question which needs examination is whether the CDAB,
which is an Association of chemists and druggists at the District Level, is
covered under the category of entities enumerated in section 3(3) of the
Act.
20.7. In this respect the definition of 'enterprise' as provided in section
2(h) assumes significance and which runs as follows:-
"enterprise" means a person or a department of the
Government, who or which is, or has been, engaged in
any activity relating to the production, storage, supply,
distribution, acquisition or control of articles or goods, or
the provision of services of any kind ..................but does
not include any activity of the Government relatable to
the sovereign functions of the Government including all
activities carried on by the departments of the Central
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Government dealing with atomic energy, currency,
defence and space.
20.8. The Commission notes that the CDAB, established in 1937, is
registered under the Bombay Public Trust Act, and is an association of
wholesalers and retailers of Baroda district in the State of Gujrat. It is
noted that the DG has analyzed the relationship and nexus between
AIOCD and CDAB in his investigation report. As per the report of DG,
AIOCD is an apex body of wholesalers and retailers of pharmaceutical at
All India Level. Below AIOCD, there are Associations of wholesalers and
retailers at the State Level in the States. These State Associations are
affiliated to AIOCD. Further, there are Associations at the District Level
also, which are affiliated to State Level Associations. The DG has
observed that the CDAB is ultimately affiliated to AIOCD through
Federation of Gujarat State Chemists and Druggists Association, which is
a State Level Association in Gujarat and follows the norms of AIOCD.
20.9. Therefore, there is no dispute as to the fact that constituent
members of CDAB are stockists and retailers of pharmaceutical
companies who are engaged in the supply of pharma products to the
consumers. Therefore, they fall squarely within the definition of
'enterprise' provided in the Act. Further, sub-section (3) of section 3 of
the Act not only covers agreements entered into between enterprises or
associations of enterprises but also the practice carried on or decision
taken by any association of enterprises engaged in identical or similar
trade of goods or provision of services. There is no denying the fact that
/- c\ Gomrr J/\
26
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/
CDAB is an association of enterprises whose constituent members are
engaged in identical or similar trade of goods.
20.10. The Commission, therefore, holds that since CDAB is taking decisions
relating to distribution and supply of pharmaceutical products on behalf
of the members who are engaged in similar or identical trade of goods,
the practices carried on, or decisions taken by CDAB as association of
enterprises are covered within the scope of section 3(3).
20.11. It is noted by the Commission that the investigation by DG has found
the acts, conduct and practices on part of CDAB as anti-competitive on
various counts. Therefore, it is necessary to examine the evidence
available on record in respect of such infringements in order to arrive at
a conclusion.
Limiting and controlling the supply of pharmaceutical drugs
20.12. It is observed by the Commission that DG while analyzing the nexus
between CDAB and AIOCD has concluded that CDAB being a District
Level Association affiliated to AIOCD through the Federation of Gujarat
State Chemists and Druggists Association follows the guidelines/norms
prescribed by AIOCD. These guidelines have been found to be restrictive
and anti-competitive in nature by DG since they ultimately have the
effect of controlling and limiting supply of drugs in the market.
20.13. The Commission also notes that though the CDAB has vehemently
denied that it is affiliated to AIOCD or it is following or enforcing the
norms set out in the M0U or Guidelines of AIOCD but there is ample
evidence on record to establish these facts contrary to the claims made
by it. The statements of wholesalers includig.thoffice bearers of CDAB
27
recorded by the DG as well as information available on the website of
AIOCD bear clear testimony to the nexus between these Associations
operating at different levels. This inference is further supported by the
terms of the agreement and MoUs entered into between AIOCD on one
hand and OPPI and IDMA on the other. The following excerpts from
MoU executed between AIOCD-IDMA -OPPI (Circulated on 12.05.2009)
as reproduced by DG clearly depict the nexus.
(1) Stockist Policy
(1) Appointment of Stockist:
The company will appoint stockist only in consultation with
State/District association and as per the guidelines laid down by State
Association. Such appointed stockist will work for the area for which
they are appointed. Wherever there is only one stockist of the
company in the district, the second stockist can be appointed in
consultation with state/district association, however the second
stockist should be a bonafide member of the association. Company
will not appoint any Additional stockist for any new division formed
or created, it will be given to the any existing stockist of the company.
(ii) Discontinuation of stockist:
(a) a regular defaulter In payment
(b) dealing in spurious medicines
(c) not keeping adequate stock or is not serving the
market properly or not submitting regular stock
and sales statement.
28
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In such circumstances company will approach State/District
association with proper documentation and written application.
State/District Association will consider the request of the company,
and then looking into the facts of the application will try to resolve
the issue. If they wish to consider the request of the company then
State/District can allow additional or replacement of the stockist to
the company as per the set norms of State/District Association.
20.14.The nexus is rooted in the MoU as shown above and this fact is
further corroborated by the persons involved in the trade of supply and
distribution of pharma products. The following statement of Hemang
Trivedi, proprietor of Amit Agencies recorded on 14.02.2011 is a clear
pointer to the fact that CDAB is following the Guidelines and norms set
by the apex body AIOCD:
Q.3 In your views, how the practices of Chemist and Druggist
Association, Baroda are anti-competitive and restrictive in nature?
Ans.3 AIOCD has entered into MOU with big drug companies by
virtue of which margins of wholesalers and retailers are fixed. This
is as regards non-PCD companies, which means such companies
which are established companies and do not require propaganda
for their sales like Abbott, Ranbaxy etc. This MoU was first
entered in the year 1982 and is amended from time to lime. There
is no MoU of AIOCD with smaller /PCD companies. However,
margins are fixed by AIOCD for the wholesalers and retailers in
these cases also on the lines of MoU entered with non-PCD
ICA
• Comm
29
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companies. CDAB follows the rules and regulations, M0U of A/OCD
and State level Association of Gujarat wherein margins are fixed
for both wholesalers and retailers as stated above. This is done at
the time of taking approval of marketing of drugs in a particular
territory. This is commonly known as PIS approval The PIS is
collected in the name of advertisements published in the
magazines like Chemist News. For PIS, Rs.2000 per product per
strength is charged per state of India which harms the
manufacturers. In case, PIS is not charged, the price of drugs may
go down since that would mean that the companies will have to
bear lesser expenditure than being incurred at present. The
companies may pass on the benefit to consumers in case they are
not being asked to pay for PIS. This practice also restricts freedom
of trade of manufacturers.
20.15.Even otherwise if the conduct and acts of CDAB are scrutinized
independently, it is borne out that CDAB is not only insisting for seeking
its approval in form of NOC in case any new or additional Stockist is
sought to be appointed by any pharmaceutical company but it is also
not allowing any Stockist to sell any pharma products for which NOC was
not obtained from it. In view of the cogent evidence available on record
in the form of documents and oral statements as shown in the following
paras the arguments taken by the CDAB that there is no direct evidence
to substantiate the findings and the conclusions drawn by the DG are
(Z0amiss
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merely based on assumptions and conjectures have no substance and
cannot be accepted.
20.16.The Commission notes that the fact that NOC is insisted upon by the
Association, both for introduction of new products as well as for new
players (stockists) was corroborated by Shri Suresh Kantilal Doshi,
partner of Saurastra Agencies in his statement recorded before DG.
Relevant extracts on this aspect are quoted as under:
Statement of Suresh Kantilal Doshi recorded on 15.02.2011
II
Q•3 In your views, how the practices of Chemist and Druggist
Association, Baroda are anti-competitive and restrictive in nature?
Ans.3 CDAB is a body of wholesalers and retailers at Vadodara.
This association was established in 1937. I was secretary of the
association since 1999 till 2007. Thereafter, a new committee of
16th
the association was appointed on September 2007 and
remained in office till May 2010. The Committee was dominated
by retailers. The new body started insisting for taking their NOC
before any company could appoint stockiest in Baroda. During my
time, NOC was not insisted upon. However, the new committee
under V.T. Shah, President, Jayesh Shah, Treasurer, Hasmukh
Desai, chairman of Coordination Committee, Kartik Doshi,
Secretary, started the practice of issuing NOC. To issue NOC, the
new association, which took over in September 2007, started
taking money from stockiest. This practice was anti-competitive
and restrictive in nature. NOC was issued only to select few who
used to give money to the members of the association in order to
restrict competition. Further, it was stipulated that no benefit
; *j
should be passed on to the retailers, till the retailer becomes a
member of the association. In May 2010, a new committee under
Dahyabhai N.Patel and Jawahar Bhai Sharda was elected. This
body is now not insisting for taking their NOC.
"0. 7 Can you furnish evidences and data to show that the
activities of the members of the association/guidelines of the
association have led to limit or control of supply of drugs in the
market?
Ans. 7 Yes. Without P15, no company can sell drugs in market.
Further, company has to take NOC for appointment of
wholesaler/stockist (including additional stockist) in a particular
territory from the associations. The associations had charged huge
amount from wholesalers/companies for NOC for appointment of
wholesalers by the companies. In my case, Chemist and Druggist
Association, Baroda under President, VT Shah, had given a call of
boycott since / was opposing their policies. This boycott was verbal
and retailers were contacted by the association to boycott and not
to purchase from my firm-Saurashtra Agencies. / had to suffer loss
of about 30% during 2007-09. / had earlier got submitted an
affidavit before your office to support that call of boycott was
given in my case by the association. In one case, the association
got Ashok Pharmaceutical Agency of Baroda appointed as
additional stockiest of lntas Pharmaceuticals in around April 2009.
There were four other existing stockiest of Intas at Baroda. In
32
order to promote sales of Ashok Pharma, the members of
association asked C&F of Intas not to supply to two existing
stockiest namely-Shreeraj Medical Agencies and Shreyas
distributors. Their supplies were stopped after 21.05.2009.
Against that the two petitioners have filed case in Court of Civil
Judge. Vadodara. The association vide a letter wrote to the C&F of
company, M. V. Enterprises,- not to make supplies to Shreeraj
Medical Agencies and Shreyas distributors. The letter is not
available with us. However, on telephone, it has been confirmed
by officers of Intas that the association had written a letter not to
make supplies to Shreeraj Medical Agencies and Shreyas
distributors. In order to get that letter, Court of Civil Judge-has
also been requested in the petition of Shreeraj Medical Agencies
and Shreyas distributors. A copy of petition is submitted. / am also
giving you a list of products which are not available in Gujarat
because for these products companies have been denied NOC (PIS)
from the association at State Level. The NOC (P15) is given by (the
State level association to drug companies, while NOC is given to
wholesalers or companies either by state level associations or
CDAB for appointment of stockiest of a particular company.
20.17.The Commission further notes that the fact that Association not only
controls introduction of drugs but also the appointment of stockist is
also confirmed by the statement of Shri Hemang Trivedi, proprietor of
Amit Agencies. The statement also brings out in focus that any deviant
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33
behaviour is not tolerated and the Association ensures that such entity
is not allowed to operate freely. The relevant extract of the statement
of Shri Trivedi recorded by the DG is reproduced as under:
Q.6 Can you furnish evidences and data to show that the activities
of the members of the association/guidelines of the association
have led to limit or control of supply of drugs in the market?
Ans.6 Yes. Without PIS no company can sell drugs in market.
Further, company will have to take NOC for appointment of
wholesaler/stockist (including additional stockist) in a particular
territory from the associations. The associations charge huge
amount from wholesalers/companies for NOC for appointment of
wholesalers by the companies. In my case, CDAB under President,
VT Shah, had given a call of boycott since I had not agreed to pay
them money for grant of NOC from the association in respect of
supply of drugs of Company - Wallace Pharma. I am submitting
copies of letter from Wallace in which it was written that I was to
obtain NOC from the association for becoming their stockiest.
Similar letters from Beim el Pharma are also submitted. The earlier
association demanded Rs.30,000/- from me for NOC for
subscription of shares of a company-Fraternity of Gujarat Safe
Chemist and Distributor Alliance (FGSCDA) Limited, which was
floated by the earlier association. I am also submitting a copy of
affidavit stating the association had demanded money. This was
towards grant of NOC for Wallace Pharma and for share
subscription of FGSCDA Limited. Since / did not pay money and
Como, 4\
34
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questioned their decision to take NOC for supply of drugs of
Wallace, the association canvassed at level of all retailers to
boycott products of my concern. The association through its
practice of granting NOC for taking stockiest ship of any drug
company, attempts to restrict supplies in the market. My firm
suffered for one year in the year 2009-10. NOCs are usually not
given in written form. The companies ask for NOC (as for example
- Wallace and Bennet in my case) and thereafter the associations
verbally grant approval to the drug companies or C&F agents of
the drug companies. In case of Wallace, I have tendered cheques
in name of company for supply of drugs on my appointment as
stockist of the company. However, since Federation of Gujarat
State Chemists and Druggists Association and earlier President of
CDAB, Mr. V.T. Shah, had not granted NOC, / am still not getting
supplies from Wallace. This is a proof that the associations restrict
supply of drugs in the market.
20.18.The Commission also notes that the statements of Shri J. N. Kachhi,
partner of Shreeraj Medical Agencies, Shri Sailesh Chandrakant Shah,
partner of Ashok Medical Agencies, Shri Jawahar Sharda, partner
Ganesh Pharma, Shri Nayal P.Raval, partner Reliance Agency, Shri Firoz
Patel, partner Allied Trade Corporation, Shri Harish Panmani, Proprietor
J. J. Pharma, Shri Uday Joshi, partner of Vedanta Bio-Sciences also lend
support to the findings of the DG that CDAB through its practices and
conduct, which are restrictive and anti-competitive, limits and controls
the supply of pharmaceutical drugs in the market.
35
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20.19.1n the light of overwhelming evidence available on record the plea
taken by CDAB that there is no direct evidence to support the findings of
the DG loses its steam.
20.20. Furthermore, it is noted by the Commission that in the reports of the
DG, instances have been quoted where the pharma companies had
stopped supplying drugs to wholesalers because NOC of the Association
was not obtained. The reports of the DG also highlighted the cases
where penalties had been imposed upon the stockist for their not
obtaining NOC from the Association. The Commission notes that the
case of Shri Jawahar Sharda, the partner of Ganesh Pharma is a glaring
example of the restrictive nature of practices adopted by the CDAB. Mr
Jawahar Sharda was restricted from supplying drugs in the market since
he had purchased drugs from the Informant without taking NOC from
the Association. Mr Jawahar Sharda has cited the case of Amee
Enterprises on which a penalty of Rs. 30,000/- was slapped since it had
sold injections of Zuventis without taking NOC from the Association. The
relevant excerpts from the statement of Shri Jawahar Sharda given
before DG are reproduced here under:
Statement of Jawahar Sharda, Vice President of CDAB recorded on
31.01.2011
'Q.3 It has been alleged by Udayloshi of Vedant Bio-Sciences that
Chemist and Druggist Association, Baroda (CDAB) had asked you
not to sell drugs of Vedant Bia-Sciences in the year 2009? Is it
/ true?
36 15
( IL
o s' I)
Ans.3 Yes. The association had asked my firm not to sell drugs of
Vedant Bio-sciences and also to purchase the drugs from that
concern, since Vedant Bio-Sciences had not obtained NOC from
the association. Since / did not abide, the association gave a call to
the retailer chemists of boycott of products ofmyfirm. As a result
my firm could not sell to the retailers and suffered loss monetarily
and mentally. I am giving you a letter dated 14th April 2009
written to Vedant Bio-Sciences as evidence to this effect. I had to
apply before Commissioner of Police, Vadodara and Home
Ministry of Gujarot. After these complaints, although they
continued to boycott my products, the door to door campaign
against my firm to each and every retailer stopped. / was also not
getting products from FDC Limited because of the pressure from
the association since I had cooperated with Way Joshi. The
association restricted supplies of drugs to my firm as result of
which drugs could not be made available in the market. / am also
giving these papers as evidence.
Q.11 Can you furnish evidence and data to show that the activities
of the members of the association /guidelines of the associations
have led to limit or control of supply of drugs in the market?
Ans. 11 / have furnished you a letter dated 14.04.2009, addressed
to Vedant Bio-Science to support this. My firm Ganesh Pharma
was restricted to supply drugs to the market if it purchased drugs
from Vedant Bio-sciences, without taking NOC. If the stockists do
not take NOC, associations will impose penalties. In case of Amee
(. coccio,)
37
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Enterprises, penalty of Rs. 30, 000 was imposed since they had
sold injections of Zuventus without taking NOC from association.
This proof has already been submitted to your office.
20.21.The Commission also takes note of the statement of Shri Nayan P.
Raval, partner of Reliance Agency, Vadodara who had stated that the
association through its activities attempts to limit or control supply of
drug in the market and also issue NOC/LOC for appointment of Stockists.
Mr. Raval has also stated that there are restrictions in direct supplies to
hospitals, dispensaries, patients and the doctors.
20.22.Similarly the DG report also refers to letter of Mr Feroze Patel, dated
12.02.2008 stating that not only NOC was required for selling products
of Himalaya Drug Company by his firm but also the Association
demanded huge money in lieu of grant of NOC. Not taking kindly to the
protest made by Feroze Patel a call of boycott was given by the CDAB
resulting into losses for him. In support of his assertion he has filed a CD
containing recorded conversation between him and C&F of Ajanta
Pharma along with free hand English translation. Likewise, another
letter dated 29.6.2010 addressed by Secretary of CDAB to Zydus Cadilta
further lends credence to the fact that the Association issues NOC/LOC
for appointment of stockist.
20.23.Even a cursory glance at the circular dated 02.03.2009 issued by
CDAB after its executive committee meeting discloses that the CDAB is
engaged in granting permission to the wholesalers and stockists to
supply drugs of pharmaceutical companies. The relevant portion of
English translation of the circular dated 02.03.2009 (issued in Gujarati)
in this context finding place in the supplementary DG report is as under:
(7) Members Friends, Permission is Granted to following Companies
to Conduct Activity! Work.
- Ashok Pharma is allowed to work for Sun Pharma.
- R.K.Medicine / Ashirwad Traders & Allied Trade are granted
permission to be stockist of USV.
- Allied & J.K.Dist. are the stockists for Datun Lab.
- Allied & Shreyas are the stockists for Pink Healthcare
- Asha Medical & Santram Medical are the stockists for
Advantage Lab.
- Allied & P. Ambalal are the stockists for Enrich Pharma.
- Ashok Pharma & Reliance Agency are stockists for Rhythm
Pharma.
- Harsh Pharma is Second stockist for Hamps Bio Pvt. Ltd.
- Amit Ag. Balaj Medical are the stockists for ABC
Ne utra ceu tica I.
- Ash irwad & Baroda Agency are the stockists for Zen Life S.
- J. V. Corp. & Ashok Medical are stockists for Kamron lab.
- Ashok Medial & Neelkanth Medical is stockists for Rose Lab
Harsh Pharma is Second stockist for Hamps Bio Pvt. Ltd.
- Amit Ag. Ba/a] Medical are the stockists for ABC
Neutraceutical.
- Ashirwad & Baroda Agency are the stockists for Zen Life S.
- J. V. Corp. & Ashok Medical are stockists for Kamron lab.
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- Ashok Medial & Neelkanth Medical is stockists for Rose Lab
20.24.The Commission also notes from the DG report that unless a firm is a
member of CDAB, it cannot have any normal commercial relationship
with the other members of Association, creating barriers in terms of
doing business. In this regard, a circular dated 10.11.2009 (Exhibit-27 of
the supplementary DG report) brings out that unless a concern becomes
member of CDAB, it cannot transact business with other members of the
Association. Relevant excerpts of the circular dated 10.11.2009 is as
under:
"We have successfully stopped the new people/parties from
opening retail outlet in order to protect our members. This is
the way we have taken care of our members."
"In spite of the demand of our members, we have not granted
permission to start sub-stockist category of the business to
certain elements"
"We have successfully inhibited/reduced the success of non-
members and of chain-stores by depriving them of the benefits
like expiry/breakage, leakage settlement, delivery, discounts
etc."
20.25.Based on above analysis of the evidence the Commission is in
agreement with the findings of DG that CDAB, controls and limits the
supply of drugs in the market in the Baroda district. The Commission
finds that without getting NOC from the association, companies cannot
supply and sell drugs manufactured by them in the market nor a
wholesaler can become stockist of any pharmaceutical company. The
7 Coma
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Commission is also of the view that there had been instances where the
drug companies had stopped supplying drugs to wholesalers since the
Association was insisting for taking its NOC. Further, if a stockist did not
follow the dictates of the CDAB, penalty was imposed upon it.
20.26.After considering the entire evidence in its entirety as discussed
above the Commission agrees with the following conclusions drawn by
the DG:
(i) The guidelines and practice of issuing NOC for
appointment of a new or an additional stockist in a
particular territory eventually restrict the number of
players in the market and in turn also limits or control
supply of drugs.
(ii) CDAB, through guidelines and actual conduct is limiting
supply of drugs as without obtaining NOC from the
Association no Stockist is allowed to sell any new drug in
the market.
(iii) The boycott of those firms which do not follow the
dictates of Association and imposition of penalties on
them, establish that the practices and conduct of CDAB
are restrictive and anti-competitive.
20.27.The consequential inference which flows from above findings is that
if the practice of NOC is done away with, there would be more supply of
drugs in the market and resultantly more availability of the drugs to the
common man.
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20.28. In the light of the aforegoing analysis the Commission comes to the
conclusion that the conduct and practices of CDAB are limiting and
controlling the supply of drugs in the district of Baroda in the state of
Gujrat in violation of provisions of Section 3(3)(b) read with Section 3(1)
of the Act.
Issue of PIS Approval
20.29. On the issue of charging fee from the drug manufacturing companies
for new medicines / formulation in the name of PIS on the pretext of
publishing the information regarding the medicine / formulation in the
Chemist News Bulletin, Commission finds that the evidence discloses
that PIS approval is given by the State Federations / State Unit of AIOCD,
and therefore, the liability for the same cannot be fixed upon CDAB
which is a District level association.
Issue of determination of margins
20.30.The Commission also notes that that besides exercising their control
over the number of stockists and number of products, the CDAB is also
involved in the fixation of margins leading to determination of sale price
of drugs so far as non-controlled drugs are concerned. There are broadly
two categories of drugs under DPCO 1995 for the purpose of price
fixation/revision and monitoring. These are scheduled drugs (drugs
under price control) and non-scheduled drugs which are out of price
control. NPPA fixes/revises prices of Scheduled bulk drugs, and
formulations based on them. In the case of non-scheduled medicines,
trade margin is normally given by the industry themselves. It is in this
category of drugs that trade Associations decide upon the margins -
which has been fixed 20% for retailers and 10% for wholesalers.
20.3 1.The Commission is of the view that the trade margins fixed by the
Association(s) ultimately have the effect of determination of sales price
of drug for the end consumer. It is borne out from the record that this
practice has its origin in the MoU between AIOCD - IDMA (Indian Drug
Manufacturers' Association) and OPPI (Organisation of Pharmaceutical
Producers of India) and the State & District Level Associations follow and
enforce the norms set by the AIOCD.
20.32.The fact that the CDAB is following and enforcing the norms laid
down by the apex body becomes evident from the perusal of the
following excerpts of the circular of the CDAB dated 02.03.2009:
"5) Member Friends, below listed companies did not have margins as per
Norms so we have discussed with such companies & did the Margins as
per Norms. Names of such companies are listed below.
1) Ace Lab. 2) Vibrant Pharma 3) Ravi Pharma 4) Medoz Pharma 5)
Bennet Pharma 6) Ambrossia 7) Panzer 8) Mars Remedies 9)
Pharmadent 10) RPG 11) Mediforce 12) Xcel Lab 13) Satyam
Healthcare 14) French Formulation 15) Healthcare Formulation
16) GIPL 17) Parry Lab. 18) Vasu Healthcare 19) Sienna
Formulation.
6) To set the Margins as per the Norms WIS. Members have
cooperated us & we at Association Thank them all. The Margins as
per Norms should be 20% after deducting VAT in Non DPCO Products
& 16% after deducting VAT in DPCO Products. Other than above listed
companies any companies you find not giving Margins as per Norms
inform in writing to Kartikhahi Doshi, Secretary."
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20.33. This fact is reinforced from the statement of Shri Jawahar Sharda,
Vice President of CDAB. Shri Sharda in his statement had submitted as
under:
"Q.9Can you furnish/Do you have evidences regarding the
agreement, practices or any decision amongst the members of the
Chemist and Druggists Association,, Baroda to limit/control prices,
if any?
Ans.9 The MOU of AIOCD which was first executed in 1982 and
continues till date is clearly anti-competitive since by that trade
margins and prices are fixed. The M0U also attempts to determine
the appointment of stockists by companies and control the affairs
of the stockist and drug companies. The some is followed by CDAB
also."
20.34.1t has also been shown by the DG that the margins to retailers are
charged on MRP and not on price to retailer basis. The Commission
notes that the DG has established this fact by giving the actual
mechanism employed in determining the MRP. Further, the calculations
given by Shri Uday Joshi also show that the sale price of the drugs would
be reduced for the consumers if the margins are not fixed by the
Association.
20.35.On the basis of the evidence as analysed above the Commission
holds that the CDAB is fixing the margins for the wholesalers and
retailers by enforcing the norms laid down by the AIOCD and which has
the effect of determination of sale prices of drugs in the market in
TA 17 1
44 CL
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violation of the provisions of Section 3(3)(a) read with Section 3(1) of
the Act.
Order under section 27 of the Act
21. As the Commission has found that the CDAB has violated the provisions of Section 3(3)(a) & 3(3)(b) read with Section 3(1) of the Act, the Commission, keeping in mind the benefit of common man and the freedom of trade, proceeds to pass suitable orders under section 27 of the Act against the CDAB including penalty.
22. CDAB vide letter dated 14.04.2012 had submitted its Profit & Loss Account and Balance Sheet for three years which was annexed with the second supplementary DG report dated 13.09.2011 as Annexure-l. From the Profit & Loss Accounts and Balance Sheets it is noted that CDAB had the following Annual Income during 2006-07, 2007-08 & Financial Years Receipts/Gross Annual Income (in Rs.) 2006-07 7,31,505 2007-08 5,27,607 2008-09 3,56,008
23.Thus, Commission after considering the facts and circumstances of the instant case deems it appropriate to impose penalty @10% of the average of the receipts for financial year 2006-07, 2007-08 & 2008-09 (in respect of which the figures are available with the Commission) on ç Efl 45 I 3• \o \* ir ej _ CDAB. Therefore, in exercise of power under Section 27(b) of the Act, the Commission imposes penalty on CDAB computed as follows:
Annual Income during the Year 2006-07 : Rs. 7,31,505.00 Annual Income during the Year 2007-08 : Rs. 5,27,607.00 Annual Income during the Year 2008-09 : Rs. 3,56,008.00 Average of the Annual Income : Rs. 5,38,373.00 10% of the Average of the Annual Income : Rs. 53,837.30 Penalty (Rounded off to the nearest number) : Rs. 53,837.00 24 Accordingly, the Commission passes the following orders, under Section 27 of the Act:
(i) The CDAB and its members are directed to cease and desist from indulging in and following practices which have been found anticompetitive in violation of Section 3 of the Act in the preceding paras of the order.
(ii) The CDAB is further directed to file an undertaking that practices with respect to fixing of trade margins of pharma products, non appointment of a stockist or wholesaler from amongst the non-
members of CDAB, requirement of No Objection Certificate from the CDAB for appointment of stockist or wholesaler and limit on number of stockist of pharmaceutical companies have been done away within 90 days from the date of receipt of the order.
(iii) A penalty of Rs. 53,837 is also imposed on CDAB. The penalty shall be paid by CDAB within 90 days from the date of receipt of the copy of this order. CC, /7 1\ (°* k\*t 46
25. Secretary is directed to send a copy of this order to the concerned parties for compliance immediately.
Sd!-
Member (G) Sd!-
Member (AG) Sd!-
Member (T)
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Chairper0
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GAHLAUT
ssstant Director
etition CommSSiOfl of India
New Delhi