CCI | Companies not to indulge in mandating clearance/NOC/LOC that are anti-competitive as per S. 3 of Competition Act

Competition Commission of India (CCI): Ashok Kumar Gupta (Chairperson) and U.C. Nahta and Sangeeta Verma (Members) heard the information filed by MPCDF under Section 19(1)(a) of the Competition Act, 2002 and disposed of the same.

The Informant herein, was involved in pharmaceutical trade whereas, Opposite Party 1 (OP-1), was a registered state-level association of wholesalers and retailers of pharmaceutical companies. One of the Informant’s member, dealt in pharmaceutical products. The Informant had alleged that its aforesaid member, had approached clearing and forwarding agents of various pharmaceutical companies, seeking supply of their products, for which he made an advance payment to them in the form of cheques/Demand Drafts (DD). However, these cheques/DDs were returned and he was denied the supply of pharmaceutical products by said companies without assigning any reason.

It was alleged that OP-1 used to issue No Objection Certificate (NOC)/Letter of Consent (LOC) on the basis of which appointment of the stockist was made by pharmaceutical  companies and, the practice of mandating NOC/LOC was stifling competition in the market by limiting access of consumers to various pharmaceutical products and controlling supply of drugs in the market by ensuring that only those distributors which were favored by OP-1 were eventually selected by the pharmaceutical companies to do business with them. The Commission prima facie found merit in the allegations of the Informant. Accordingly, the Commission directed the Director General (DG) to cause an investigation.

Findings of the DG in the Main Investigation Report

The DG investigated the conduct of OP-1 to determine whether it was mandating the requirement of NOC/LOC to be taken from it prior to the appointment of stockist by the pharmaceutical companies. He observed that Clause 28(a) of the Drugs (Price Control) Order, 2013 created an obligation on a pharmaceutical company to sell drugs/medicines unless there was a “good and sufficient reason” to refuse. He also observed that member of the Informant, used to send indent along with a draft/cheque, without having been appointed as a stockist, despite being aware of the procedure for appointment of stockist. Instead of following the due procedure, the member of the Informant indulged in threatening the pharmaceutical companies, issuing reminders within a very short gap and sending letters at wrong addresses. The DG concluded that OP-1 was consistently using anti-competitive activities which included grant of approval before appointment of stockist, imposing restrictions on the rates of the products and regulating the supply of the goods and despite there being a circular in place against the practice of seeking and providing NOC/LOC, OP-1 was constantly violating it. According to the DG, the act of indulging in the said practices by OP-1, amounted to limiting and controlling supplies of pharma products, thereby contravening provisions of Section 3 of the Act.

Oral Submission by OP-1

OP-1 denied all the allegations made against it. OP-1 had no role to play between the distributors/stockist and the pharmaceutical companies. OP-1 further stated that the DG had cherry-picked the statements of witnesses to suit its findings and had not provided complete detailed versions of replies and submissions of the Informant or him.

Order

The Commission relied on DG’s Report and directed OP-1, to cease and desist from indulging in the practice of mandating clearance/NOC/LOC which had been held to be anti-competitive in terms of the provisions of Section 3 of the Act. It also directed OP-1 to organize, in letter and spirit, at least five competition awareness and compliance programs for its members. The Commission imposed a penalty on OP-1 at the rate of 10% of the average of its income.[Madhya Pradesh Chemists and Distributors Federation (MPCDF) V. Madhya Pradesh Chemists Druggist Association (MPCDA), 2019 SCC OnLine CCI 7, decided on 03-06-2019 ]

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