Monopolies and Restrictive Trade Practices Commission
Director-General (I & R) vs All India Organisation Of Chemists And ... on 1 July, 1996
ORDER
S. Chakravarthy, Member
1. This enquiry needs to be disposed of in the light of the interpretation of law laid down by the Supreme Court in Voltas Ltd. v. Union of India [1995] 83 Comp Cas 228. Before we deal with the facts of this enquiry, it is desirable, in our considered view, to narrate the law laid down by the Supreme Court/in interpreting Section 33(1) of the Monopolies and Restrictive Trade Practices Act, 1969. We, therefore, proceed to do this exercise at the very threshold.
2. Prior to the amendment to Sub-section (1) of Section 33 of the Act, by Act No. 30 of 1984 with effect from August 1, 1984, an agreement -relating to a restrictive trade practice falling within one or more of the categories specified in the said sub-section was compulsorily required to be registered. After the amendment, with effect from August 1, 1984, which introduced a deeming clause, an agreement falling within one or more of the categories mentioned in the said Sub-section (1), "shall be deemed for the purposes of this Act, to be an agreement relating to restrictive trade practices and shall be subject to registration". Thus, while amending and substituting that part of Sub-section (1) of Section 33, Parliament determined, and specified that agreements falling within one or more of the categories mentioned in the said Sub-section (1) of Section 33, shall be deemed to be agreements relating to restrictive trade practices. By the deeming clause, there is now no requirement to treat any imaginary state of affairs as real but to treat the agreements specified and enumerated in Sub-section (1) of Section 33 of the Act as agreements relating to restrictive trade practices. The Supreme Court has observed in Voltes Limited's case [1995] 83 Comp Gas 228, 237 as follows :
"It can be said that Parliament after having examined different trade practices, has identified such trade practices which have to be held as restrictive trade practices for the purposes of the Act. To keep such trade practices beyond controversy in any proceeding, a deeming clause has been introduced in Sub-section (1) of Section 33, saying that they shall be deemed to be restrictive trade practices. In this background, according to us, there is not much scope, for argument that although a particular agreement is covered by one or the other clause of Sub-section (1) of Section 33, still it shall not amount to an agreement containing conditions which can be held to be restrictive trade practices within the meaning of the Act."
3. With the amendment to Sub-section (1) of Section 33 of the Act, a statutory fiction has been created. The framers of the Act have now in clear and unambiguous words said that an agreement which falls within the mischief of one or more of the categories specified in Clauses (a) to (1) of Sub-section (1) of Section 33 shall constitute a restrictive trade practice and be subject to registration. The Supreme Court has further observed as follows (at page 240) :
"Now, it is no more open to the Commission or to this court to test and examine any of the trade practices mentioned in Clauses (a) to (1) of Sub-section (1) of Section 33 in the light of Section 2(o) of the Act, for the purpose of recording a finding as to whether those types of trade practices shall be restrictive trade practices within the meaning of Section 2(o) of the Act. This exercise has to be done only in respect of such trade practices which have not been enumerated in any of the clauses from (a) to (1). Only such trade practices have to be examined in the light of Section 2(o) of the Act, as to whether, they amounted to restrictive trade practices . . . But after the amendment of Sub-section (1) of Section 33, if an agreement falls within one of the clauses of the said sub-section, specifying a restrictive trade practice, then it is no more open to the Commission or to the court to say that it shall not amount to a restrictive trade practice. The trade practices enumerated in Clauses (a) to (1) of Sub-section (1) of Section 33, shall be deemed to have now been statutorily determined and specified as restrictive trade practices. Neither the Commission, nor the court can question the wisdom of Parliament in having statutorily determined certain trade practices as restrictive trade practices unless in this process, there is contravention of any of the provisions of the Constitution."
4. While the legal fiction in Sub-section (1) of Section 33 of the Act has been clearly interpreted by the apex court as in the aforesaid paragraphs, a further question which came up for consideration before it, was the scope of enquiry by the Commission. Here again, the interpretation of the apex court is, with respect, very incisive. The court observed as follows (at page 241) :
"As such persons who have got their agreements registered on their own in order to escape prosecution, although in such agreements, there may not be any clause relating to restrictive trade practices, cannot urge before the Commission, after having got the agreements registered, that they do not contain any clause relating to any restrictive trade practice. On the other hand, persons who for one reason or other have not got their agreements registered under Section 35, will be in an advantageous position in as much as in respect of their agreements, the Commission will have to examine both aspects (i) whether the agreement relates to any restrictive trade practice, (ii) even if it relates to restrictive trade practice, whether the said practice is prejudicial to the public interest. It is true that under Section 37, the Commission has been vested with the power to inquire in respect of agreements which have been registered under Section 35 as well as those which have not been registered. But the fact remains that once the Commission is satisfied that a particular agreement which has not been registered under Section 35, falls within any of the clauses from (a) to (1) of Sub-section (1) of Section 33, then no further inquiry is to be done, as to whether such agreement relates to restrictive trade practices or not."
5. Thus, the interpretation of Sub-section (1) of Section 33 of the Act is to the effect that the Commission is vested with the power to enquire in respect of agreements, whether registered or not under Section 35 of the Act. The Commission according to the ruling of the apex court, stands admonished to examine in every case falling under Section 33(1) of the Act, whether the agreement relates to any restrictive trade practice and whether the said practice is prejudicial to public interest. But once the Commission is satisfied that a particular agreement falls within the mischief of any of the clauses from (a) to (1) of Section 33(1), then no further enquiry needs to be done as to whether such agreement relates to restrictive trade practices or not.
6. In terms of the provisions of the Act, after the Commission is satisfied in respect of a restrictive trade practice, it has to proceed to consider whether any of the "gateways" provided in Section 38(1) of the Act exists, so that the trade practice, though found restrictive, is deemed not to be prejudicial to public interest. It is in this context that the Supreme Court passed the following further observations in Voltas Limited's case [1995] 83 Comp Cas 228, 244 :
"As such every aspect of the matter is required to be examined in the light of the provisions of sections 37 and 38 of the Act before an order to 'cease and desist' is passed by the Commission."
7. The law relating to Section 33(1) of the Act after its interpretation by the Supreme Court is now very clear. The decision of the apex court was pronounced on February 7, 1995, and prior to that date, some of the earlier decisions of the Commission and the rulings of the Supreme Court in Mahindra and Mahindra Limited v. Union of India [1979] 49 Comp Cas 419 (SC) and Tata Engineering and Locomotive Co. Ltd, v. Registrar of Restrictive Trade Agreements [1977] 47 Comp Cas 520 (SC) were holding the field. The instant case, coming up for a decision now, has, therefore, the distinct advantage of the application of the Supreme Court ruling in Voltas Limited's case [1995] 83 Comp Cas 228.
8. For the facts of the case, there is nothing better than citing the detailed narration of the same recorded in this Commission's interim order dated May 12, 1987. It is a very long interim order which summarises the charges against the respondents and also the replies and affidavits of the respondents. We, therefore, desire and direct that the said interim order be read as a part of this order. However, for the purpose of proper appreciation of the facts, we give below the facts by way of a very brief summary.
9. The Director-General of Investigation and Registration moved this Commission with an application dated October 9, 1986, under Section 10(a)(iii) of the Monopolies and Restrictive Trade Practices Act, indicting respondents Nos. 1 to 33 of having indulged in certain restrictive trade practices. Respondent No. 1 is the All India Organisation of Chemists and Druggists which is an apex body operating from its office in Madras. Respondents Nos. 2 to 19 are State Associations and members of the apex body (respondent No. 1). Respondents Nos. 20 and 21 are the Retail and Dispensing Chemists Association 4nd. Pharmaceuticals Wholesalers Association respectively. Respondents Nos. 22 to 33 are associations of manufacturers of pharmaceutical products and manufacturers of such products.
10. The Director-General in his application to this Commission has alleged that respondents Nos. 1 to 21 are compelling respondents Nos. 22 to 33 to obtain no objection certificates (NOC)/letters bf co-operation (LOG), before marketing a new product, discontinuing an existing stockist and/or appointing new or additional stockists in any area. The NOC/LOC can be obtained only after respondents Nos. 22 to 33, have complied with the detailed procedure/conditions and have made the payment of prescribed fees, etc. The Director-General has alleged that the above mentioned guidelines/procedure/agreement constitute restrictive trade practices in terms of Sections 33(1)(a) and 33(1)(ja) of the Act. He has also contended that the said restrictive trade practices are prejudicial to the public interest.
11. Based on the Director-General's application, the Commission arrived at a prima facie view, that it is a fit case for enquiry and ordered the issue of a notice of enquiry (NOE). The notice of enquiry was issued on February 20, 1987, to all the respondents along with a copy of the Director-General's application. An injunction application was also filed by the Director-General under Section 12A of the Act. The detailed replies and affidavits, filed by the respondents were taken into consideration by the Commission and an order was passed on May 12, 1987, against respondents Nos. 1 to 22 restraining them till the disposal of the enquiry from continuing with the system of NOC/LOC as spelt out in the guidelines issued by respondent No. 1 and worked out by respondents Nos. 2 to 22. It was clarified in the said order that the views expressed therein are only for the purpose of disposing of the injunction application and that they will not prejudice the final decision of the enquiry.
12. Though the clarification in the injunction order dated May 12, 1987, of this Commission had declared that the views expressed therein are only for the purpose of disposing of the injunction application, we have had a very close look at the same and notice that the said order is the outcome of a detailed consideration and analysis of the allegations of the Director-General, the replies and the affidavits of the respondents, and the arguments of counsel for different parties. As we are in full agreement, with the said analysis and views expressed, we would like to state at this stage that after examining the allegations and perusing the pleadings, we are of the view that the guidelines/procedure/agreement stipulated by respondent No. 1 and worked out by respondents Nos. 2 to 22 indeed constitute restrictive trade practices falling within the mischief of Section 33(1)(a) and Section 33(1)(ja) of the Monopolies and Restrictive Trade Practices Act. Thus, in line with the Supreme Court decision in Voltes Limited's case [1995] 83 Comp Cas 228 there is no further enquiry that needs to be done whether the said guidelines/procedure/agreement relate to restrictive trade practices or not.
13. In fact, this aspect of the matter was argued before us by Shri O.P. Dua, counsel for the Director-General and Shri Mariarputham, counsel for respondents Nos. 1 to 21, when they made their final presentations. After the Supreme Court's ruling, we do not have to really address ourselves to the arguments on this aspect of the case but we would only like to observe that we are in agreement with Shri O.P. Dua, counsel for the Director-General, that after the detailed interim order dated May 12, 1987, of this Commission, there is a categorical satisfaction on the part of the Commission that the guidelines/procedure/agreement in question spelt out by respondent No. 1 thus indeed constitute restrictive trade practices in terms of Section 33(1)(a) and Section 33(1)(ja) of the Act. In the premises, all that needs to be done now, consequent on our reiteration of the satisfaction that the guidelines/procedure/agreement spelt out by respondent No. 1 constitute restrictive trade practices, is to examine if the respondents are entitled to any gateway under Section 38(1) of the Act. Before we do so, we would like to mention here, a decision given by the Commission of date September 9, 1991. The then Chairman, Shri Justice R.A. Jahagirdar and the then Member, Shri H.C. Gupta directed as follows :
"We notice that in this enquiry no order is sought against respondents Nos. 22 to 33. They are either manufacturers of medicines or associations of manufacturers of medicines. Shri Gupta, JDG, suggests that it is not necessary that the enquiry should proceed against them and their names can be deleted at this stage itself. Hence, notice of enquiry is discharged against respondents Nos. 22 to 33. The enquiry shall proceed only against respondents Nos. 1 to 21."
14. In view of this, there is Ao need to pass any order against respondents Nos. 22 to 33. The order that follows, therefore, will govern only respondents Nos. 1 to 21.
15. In view of the fact, that we have in entirety concurred with the analysis and observations in the interim order of this Commission dated May 12, 1987, we direct that paras 5 to 30 of the said interim order shall form a part of this order. For the purpose of convenience, the said paras 5 to 30 of the interim order have been reproduced in the annexure to this order and attached.
16. After the pleadings were completed, the following issues were framed :
1. Is the petition of the Director-General not maintainable for reasons stated in the preliminary objections of respondents Nos. 1 to 21 ?
2. Did respondents Nos. 1 to 21 or any of them indulge in the restrictive trade practices as mentioned in the notice of enquiry and the application of the Director-General of Investigation and Registration ?
3. In case issue No. 1 is decided in favour of the Director-General, are the restrictive trade practices covered by any of the gateways provided in Section 38 of the Monopolies and Restrictive Trade Practices Act and are those restrictive trade practices not prejudicial to the public interest ?
4. Relief.
17. In so far as the first two issues are concerned, there is no need to address them at this stage after we have concurred with the earlier interim order of the Commission dated May 12, 1987, and expressed our satisfaction regarding the impugned guidelines/procedure/agreement falling within the express provisions of Section 33(1)(a) and Section 33(1)(ja) of the Act. In view of this, the first issue is decided in the negative and against respondents Nos. 1 to 21. The second issue is decided in the affirmative against the said respondents Nos. 1 to 21. This leaves us with the third issue relating to gateways and the fourth issue, namely, the relief that should be directed.
18. Seven witnesses were examined on behalf of the Director-General and only one on behalf of the respondents. We gave a hearing to Shri O.P. Dua, counsel for the Director-General and Shri A. Mariarputham, counsel for respondents Nos. 1 to 21.
19. The notice of enquiry indicates the charging section against the respondents as Section 33(1)(a) and Section 33(1)(j). Both counsel agreed that the second charging section had been wrongly typed as Section 33(1)(j) and that it ought to be Section 33(1)(ja). Even the interim order of this Commission dated May 12, 1987, and the Director-General's application mention only Section 33(1)(ja). In view of this, the charging section in the notice of enquiry shall be read as Section 33(1)(a) and Section 33(1)(ja) of the Monopolies and Restrictive Trade Practices Act.
20. Practically, no argument was advanced by Shri O.P. Dua, in so far as the charges in terms of Section 33(1)(ja) are concerned. Shri Mariarputham, counsel for respondents Nos. 1 to 21, also emphasised that the Director-General himself did not advance any evidence in support of the charges under Section 33(1)(ja). However, Shri Mariarputham added that even if the charging section were to be Section 33(1)(j) in the notice of enquiry, as the prices were controlled by the Government, the question of the respondents indulging in any restrictive trade practices in terms of Section 33(1)(j) would not arise. Section 33(1)(j) relates to agreements to sell goods at such prices as would have the effect of eliminating competition or a competitor. It is obvious, that the pleadings and the documents produced in this Commission, do not relate to any charge which can fall under Section 33(1)(j).
21. In view of this, we accept Shri Mariarputham's statement that as the Government controls and fixes the prices for many of the drugs and medicines in question, Section 33(1)(j) will not be attracted. In respect of four categories of goods, he added, that discretion to fix prices was available to the manufacturers but that here again, the Drug Prices Control Order provides formulae for fixing prices for such categories. This was not refuted by Shri O.P. Dua, counsel for the Director-General, or for that matter, this was not rebutted nor addressed by the Director-General in his application. Therefore, we discharge the notice of enquiry so far as the charges under Section 33(1)(ja) or for that matter, Section 33(1)(j) are concerned. We are, therefore, left with only the charges in terms of Section 33(1)(a) of the Act.
22. Section 33(1)(a) of the Act, relates to agreements which restrict or are likely to restrict by any method the persons or classes of persons to whom goods are sold or from whom goods are bought. In other words, where there is refusal to deal or where there is a threat of boycott, Section 33(1)(a) is attracted. Let us examine if the guidelines/procedure/agreement spelt out by respondent No. 1 are hit by Section 33(1)(a) of the Act.
23. Shri Mariarputham drew our attention to certain statements made by the witnesses who are examined in this Commission. They are listed below together for convenience :
. Shri Atul Dutt (RW-1), vice president of respondent No. 1, during his cross-examination stated that "obtaining of LOG or/NOC is not mandatory or compulsory". He also deposed that "the NOC and LOG are required for the protection of the members and not because of any statutory compulsion".
2. Shri Mihir Chatterjee (AW-3), Commercial General Manager of German Remedies Limited, during his cross-examination stated that it would be difficult to introduce a new product in the market, in case the company did not write in advance to the Chemists and Druggists Association seeking LOC/NOC implying thereby that a company could introduce a new product and market the same despite the compulsory requirement of LOC/NOC and despite the alleged threat of non-co-operation or boycott.
3. Shri Villas J. Bhusari (AW-6), Divisional Sales Manager of Glindia Limited (formerly, Glaxo Laboratories (India) Limited), during his cross-examination stated that he did not remember whether he signed the applications for LOG and that he would not be able to tell the exact date on which capsule Ventorlin was introduced in the market. According to his memory, it was introduced in the market in the first half of 1986. Shri Bhusari added that in so far as Phexin capsules are concerned, it was marketed "in a phased manner" and that "in certain States it was marketed in 1985" and "at some other places" in his area, "it was marketed in 1986". He was unable to tell the date on which the application for obtaining the LOG was made.
4. Shri Atul Dutt (RW-1), vice president of respondent No. 1, in his affidavit dated September 5, 1989, stated at para 12 thereof, that three products, namely, Tini Suspension, Tini 150 Suspension, Pipni Drops were already in the Bombay market "before LOG was sought". He gave certain dates in proof of this statement.
5. The first respondent in reply to the notice of enquiry has stated at pages 3 to 9 thereof that various statutory provisions are available which regulate the sale and purchase of drugs and medicines and that they are in force for the "larger interest of the community". This implies that the dealers' and stockists could be punished severely for certain faults and lapses on their part in terms of the various statutory provisions in force. The LOC/NOC is merely designed to keep a surveillance by the associations over the manufacturers of drugs and medicines. The restrictions are, therefore, reasonably necessary to protect the consumer interest, as the system of LOC/NOC has been introduced to minimise if not eliminate the injury to public interest that may be occasioned by the use of spurious drugs and by the exercise of unethical behaviour on the part of the manufacturers.
6. Shri Ramanath Ganapathy (AW-1), Manager, Hoechst India Limited, during his cross-examination stated by implication that both the manufacturers and the druggists and chemists mutually benefitted by the system of LOC/NOC, when he said that his company had written on its own to the association, seeking LOC/NOC for introduction of new products and that he would not be able to say if the company had written letters seeking LOC/NOC "on the asking of anyone".
24. We have gone through the various statements of the witnesses and in particular those highlighted and referred to by Shri Mariarputham during his arguments. The said statements directly have a bearing essentially on the issue whether the guidelines/procedure/agreement constitute any restrictive trade practice. We have already noted and ruled that it is no more open to the Commission to consider the said issue after our categorical satisfaction that the guidelines/procedure/agreement constitute restrictive trade practices and that they have been indulged in by respondent No. 1 to respondent No. 21. The only point of note in Shri Mariarputham's argument is that the alleged restrictive trade practices can be justified in terms of gateways protection provided in Section 38(1)(a), (b), (d), (e) and (h) of the Act. But we are not convinced by this argument for the following reasons.
25. As far as Section 38(1)(a) is concerned, we fail to understand how the restriction is "reasonably necessary" having regard to the character of the goods to which it applies namely pharmaceutical products, to protect the public against injury in connection with the consumption or use thereof. Even if the intention is that the system of LOC/NOC will protect the interests of the consumers, it is amply clear as made out in paras 17, 18, 19 and 20 of the interim order dated May 12, 1987 of the Commission (please refer to annexure attached to this order), that the system does not serve the purpose and is also not authorised by law. Similarly, the gateway in terms of Section 38(1)(b) of the Act also does not seem to be available to the respondents as there is no "other specific and substantial benefits or advantages" which flow from the impugned system and which will be denied to the public, if the system is discontinued. On the other hand, the system adversely affects the consumers as it denies them the use of new pharmaceutical products and new outlets of supply of such products. Section 38(1)(d), does not seem to apply because the chemists and druggists are not dealing with "any one person" "who controls a preponderant part of the trade". In any case, this aspect has not been argued either by the respondents in their replies or affidavits or Shri Mariarputham at the time of arguments.
26. Nor do we understand how removal of the impugned system is "likely to have a serious and persistent adverse effect on the general level of unemployment in an area or in areas taken together, in which a substantial portion of the trade or industry" to which the impugned system relates is situated. Thus Section 38(1)(e) is also not applicable. There may be limited unemployment in case existing stockists lose stockistships but the effect cannot be considered "serious and persistent". In fact, there may be no unemployment considering that there is no exclusivity in stockistship and the affected stockists will continue business in products of other companies. We have also given thought to Section 38(1)(h), whether it is applicable to the instant case. But, we are unable to see that the system restricts or discourages competition to any material degree. The system covers all manufacturers of pharmaceutical products and a large number of chemists and druggists organised as associations spread throughout the country. Another relevant factor to be noted is that the pharmaceutical products have to be marketed, under law only by licensed chemists and druggists and if they obstruct the introduction of new products and new manufacturers, the affected products will not be available to the consumers through any other channel. The system is prejudicial to public and consumer interest.
27. In the context of the above analysis, we are clearly of the view that the gateways in Section 38(1) are not available to the respondents indicted in this case, namely, respondents Nos. 1 to 21. The third issue is, therefore, answered in the negative against the respondents.
28. Shri Mariarputham, during his arguments very fairly agreed that the guidelines/procedure/agreement could be suitably altered to remove the offending expressions which bring this system under the mischief of the restrictive trade practices. We accept the offer of Shri Mariarputham and direct that respondent No. 1 shall address itself to the reformulation of the guidelines/procedure/agreement, keeping in view, the relevant provisions of the MRTP Act and our observations above. The reformulated system shall be produced before the Director-General, who shall scrutinise the same for satisfaction, if nothing of what is stated therein (after reformu-lalion) constitutes any restrictive trade practice in terms of the Monopolies and Restrictive Trade Practices Act.
29. However, in the light of the foregoing discussion and analysis, we direct that respondents Nos. 1 to 21 shall discontinue the impugned system ' forthwith and shall not repeat the same in future. In any case, the injunction order already passed by this Commission is continuing and in this context, it is presumed, that the restrictive trade practices have already been discontinued. Respondents Nos. 1 to 21 shall file an affidavit in compliance with the above direction within six weeks from the date of this order.
30. There shall be no order as to costs.