Monopolies and Restrictive Trade Practices Commission
Director-General (Investigation And ... vs Indian Drugs Manufacturers ... on 16 August, 1991
Equivalent citations: [1992]73COMPCAS663(NULL)
ORDER
R.A. Jahagirdar, J. (Chairman)
1. This is an enquiry pursuant to an application of the Director-General of Investigation and Registration under Section 10(a)(iii) of the Monopolies and Restrictive Trade Practices Act, 1969. That application mentions that respondent No. 1 is an association of manufacturers of pharmaceutical products while respondent No. 2 is an association of chemists and druggists. Respondents Nos. 1 and 2 entered into an agreement dated April 27, 1982, under which respondent No. 1 fixed uniform discounts for wholesalers and retailers. It was alleged that this had resulted in the increase of the retail prices in respect of which there is no price control under the Drugs (Prices Control) Order, 1979. Details of the said agreement were mentioned in the application.
2. It was also alleged in the application that the respondents have entered into a supplementary agreement dated August 13, 1984, under which member-companies of respondent No. 1 agreed to give a 20% margin on the maximum recommended price to the retailers and a 10% margin to stockists/distributors in respect of all products falling under category IV. According to the Director-General, these agreements fell under Clauses (d) and (e) of Section 33(1) of the Monopolies and Restrictive Trade Practices Act.
3. Replies have been filed by both the respondents. The first respondent, in its reply, has explained in detail the manner in which the prices of drugs are fixed. It has been pointed out that the Central Government has, in exercise of the powers conferred upon it by Section 3 of the Essential Commodities Act, 1955, issued the Drugs (Prices Control) Order, 1979. This order will be hereafter referred to as "the said Order". We will refer to the provisions of this order later in the judgment. Hence it is not necessary to summarise what has been stated by the first respondent in its reply. However, it is necessary to mention that the first respondent has stated in its reply that nearly 80% of the pharmaceuticals fall under category I, II or III. The prices of these pharmaceuticals are fixed by the Government and any increase in the margin allowed to the traders does not result in the increase of the prices of the pharmaceuticals. Hence no burden is passed on to the consumers as a result of the fixation of higher margins for the traders. It was also contended on behalf of the, first-respondent that the trade practice to which the Director-General has taken exception does not fall under Section 2(o) of the Monopolies and Restrictive Trade Practices Act nor does it fall under Clause (d) or any other clause of Section 33(1) of the Act.
4. The second-respondent also filed a reply in which a detailed history of the circumstances in which the margins were fixed under the two impugned agreements has been given. The second-respondent also contended that the impugned agreements do not contain any restrictive trade practice under the Monopolies and Restrictive Trade Practices Act.
5. On April 29, 1988, issues were framed as follows :
(1) Whether, by virtue of the impugned clauses of the agreement, the respondents are indulging in the restrictive trade practices as alleged in the notice of enquiiy ?
(2) If the answer to issue No. (1) is in the affirmative, then whether the said trade practices are not prejudicial to public interest as alleged.
6. The Director-General has not led any evidence. He only relied upon the two impugned agreements dated April 27, 1982, and August 13, 1984. The first one is at exhibit A-I while the second one is at exhibit A-2 and is called supplementary agreement. The provisions of the said agreements may be considered for deciding the issues before the Commission. Exhibit A-1, i.e., the agreement dated April 27, 1982, mentions that the first-respondent will provide a minimum of 18% of trade margin on selling prices of category IV drugs to retailers. It is provided that the trade margin for pharmaceuticals in categories I, II and III will remain unchanged. The supplementary agreement dated August 15, 1984, at exhibit A-2 mentions that any new product under category III introduced on or after September 1, 1984, will be given a margin of 15% on the maximum retail price for the retailers and 8% on retailers' price for distributors/stockists. Companies giving different margins on category III in some States will give uniformly in all States 15% and 8% margins on products introduced from January 1, 1983, with effect from September 1, 1984. On all products of category IV, the first respondent agreed to give 20% margin on the maximum retail price to retailers and 10% on retailers' price to distributors/stockists. It was further agreed that the status quo in regard to the trade margins would be maintained in respect of products in categories I and II. These two agreements provide for uniform margins to be given by the manufacturers of the pharmaceuticals to the retailers and distributors of the pharmaceuticals. There is no discrimination among the retailers or the distributors and the stockists. It seems to be the contention of the Director-General that fixation of these margins which has been done under duress of the second respondent results in the increase of the prices to consumers. In order to see whether this apprehension of the Director-General is justified, we must briefly notice the provisions of the Drugs (Prices Control) Order, 1979.
7. The said Order has been issued by the Government of India in exercise of the powers conferred upon it by Section 3 of the Essential Commodities Act, 1955. The Order is divided into different paragraphs. Paragraph 12 of the Order empowers the Government to fix leader prices for formulations specified in categories I and II of the Third Schedule and such leader price shall operate as the selling price for every manufacturer. Paragraph 13 empowers the Government to fix the retail prices of formulations specified in category III of the Third Schedule. From these provisions, it is clear that the selling prices of the pharmaceuticals mentioned in categories I, II and III of the Third Schedule are fixed by the Government under the order. There is, no provision that these prices shall be increased by the manufacturers on account of any trade margin given by them to the retailers or the stockists and the distributors. If the manufacturers decide to give additional margins as has been done under the impugned agreements, the burden of the same has to be absorbed by the manufacturers themselves because the maximum retail prices of the pharmaceuticals have been fixed by the Government.
8. In respect of the formulations not covered by categories I to III of the Third Schedule, paragraph 15 is relevant. This paragraph read with the Fifth Schedule of the Order also indirectly fixes the maximum retail price of those pharmaceuticals not included in categories I to III of the Third Schedule. The Fifth Schedule to the Order fixes the maximum pre-tax return on sale turnover of the manufacturers or importers of the formulations depending upon to which category in the Fifth Schedule they belong. It is thus seen that there is no unlimited freedom to the manufacturers to fix the prices of the pharmaceuticals at any level they liked.
9. The above discussion is strictly not relevant while considering the question whether the impugned agreements fall under Clause (d) of Section 33(1) of the Monopolies and Restrictive Trade Practices Act. Clause (d) reads as follows.:
"(d) any agreement to purchase or sell goods or to tender for the sale or purchase of goods only at prices or on terms or conditions agreed upon between the sellers or purchasers ;"
10. The language of this provision shows that it deals with an agreement between sellers or an agreement between the buyers. It does not deal with an agreement between sellers and purchasers. An agreement among the sellers to sell goods or to tender for the sale of goods only at prices or on terms or conditions agreed between them is covered by Clause (d) of Section 33(1) of the Monopolies and Restrictive Trade Practices Act. Similarly, an agreement among the purchasers to purchase or to tender for purchase of goods only at prices and on terms and conditions agreed among the purchasers is covered by Clause (d) of Section 33(1). An agreement between sellers and purchasers cannot obviously attract the provisions of Clause (d) because such an agreement is always an agreement to purchase or sell goods at prices or on terms and conditions agreed between the purchasers and the sellers. Such an agreement is a contract. The rationale behind this provision is to prevent the sellers acting in concert to sell goods at particular prices. Similarly, it is also to prevent the purchasers from acting in concert to purchase goods at particular prices. It is, therefore, clear to us from the language of Section 33(1)(d) that the agreement between sellers and purchasers is not covered by the said provision.
11. We have already seen the nature of the two agreements which have been impugned by the Director-General. They are agreements between the manufacturers acting as sellers on the one hand and the chemists and druggists acting as purchasers on the other. In other words, the impugned agreements are between the sellers and purchasers. They are not agreements between sellers inter se nor are they agreements between purchasers inter se. These agreements, therefore, are not agreements as contemplated by Clause (d) of Section 33(1) of the Monopolies and Restrictive Trade Practices Act.
12. The next question is whether the impugned agreements come under the provisions of Clause (e) of Section 33(1) of the Monopolies and Restrictive Trade Practices Act. In our opinion, the answer to this question is necessarily in the negative because these agreements do not grant any concessions or benefits to the parties to the agreement. The trade margins given by the first respondent to the members of the second respondent are in the nature of regular margins given to the traders in the normal course of business. The trade margins are given uniformly to all the members of the second respondent. They are, therefore, not discriminatory. It is in this sense that they are not concessions or benefits given by the first respondent to the members of the second respondent.
13. In the result, we hold that the impugned agreements are not covered by Clauses (d) and (e) of Section 33(1) of the Monopolies and Restrictive Trade Practices Act. The notice of enquiry is, accordingly, discharged.