Introduction

By way of a July 28 2016 order, the Competition Commission of India (CCI) found the Karnataka Chemists and Druggist Association (KCDA), Lupin Ltd and their office bearers and officials to be in contravention of the Competition Act 2002.(1) In the case filed by M/s Maruti & Co, a chemist based in Bangalore, it was alleged that KCDA had restrained pharmaceutical companies from appointing new stockists in Karnataka unless they obtained a no objection certificate (NOC) from KCDA. It was also alleged that Lupin had refused to supply drugs to Maruti for not obtaining a NOC.

CCI order

Following a detailed investigation by the director general, the CCI found that KCDA was indulging in the anti-competitive practice of mandating that pharmaceutical companies obtain a NOC before appointing new stockists. The director general found that Lupin had denied supplies to Maruti between August 2013 and January 2014 at the insistence of KCDA, despite having appointed Maruti as its distributor. The anti-competitive agreement between KCDA and Lupin was found to cause an appreciable adverse effect on competition in the market, in contravention of Section 3(1) of the act.

Based on the evidence collected by the director general, the CCI concluded that KCDA's practice of requiring a NOC limited and controlled the supply of drugs in the market, in violation of the act. Further, it was observed that instead of desisting from this activity, the associations mandated the NOC requirement either verbally (in order to avoid any documentary evidence) or camouflaged within congratulatory and intimation letters.

Moreover, instead of approaching the CCI, the pharmaceutical companies cooperated with the NOC requirement and were thus equally complicit in the anti-competitive conduct. As such, the CCI found Lupin to be in contravention of the act based on its anti-competitive arrangement with KCDA, which had led to the refusal to supply drugs to Maruti.

Further, the CCI found three of KCDA's office bearers – K E Prakash, D S Guddodgi and A K Jeevan – responsible under Section 48 of the act in light of their involvement in KCDA's anti-competitive conduct and their positions of responsibility during the period of contravention. Two of Lupin's officials – Amit Kumar Dhiman and Nishant Ajmera – were found to be actively involved in the anti-competitive arrangement between Lupin and KCDA during the relevant period based on email exchanges.

The CCI imposed an Rs860,321 fine on KCDA, calculated at 10% of the average income of KCDA, based on Section 27 of the act. While imposing a penalty on Lupin, the CCI observed that its refusal was for only a brief period, after which Lupin resumed supply to Maruti. Considering this as a mitigating factor, the CCI imposed a penalty at the rate of 1% of Lupin's average turnover, amounting to Rs729.6 million. In addition, monetary penalties were imposed on KCDA's office bearers and Lupin's officials at a rate of 10% and 1% of their incomes, respectively. Further, KCDA, Lupin and their office bearers/officials were directed to cease and desist from mandating NOCs before appointing stockists.

Comment

This is the second CCI order to impose a penalty on a pharmaceutical company. This order is of particular importance, as the December 2015 order imposed on Alkem Laboratories Ltd was set aside by the Competition Appellate Tribunal (COMPAT) in its May 10 2016 order. COMPAT found that the Kerala Chemists and Druggist Association had coerced the pharmaceutical company into requiring NOCs and thus the CCI's assertion that Alkem had an anti-competitive agreement with the association was overturned.

This case highlights the obstinacy of chemists and druggist associations that, despite various orders by the commission in similar cases, have continued to indulge in anti-competitive practices.

For further information on this topic please contact MM Sharma at Vaish Associates by telephone (+91 11 4929 2525) or email (mmsharma@vaishlaw.com). The Vaish Associates website can be accessed at www.vaishlaw.com.

Endnotes

(1) CCI order dated July 28 2016. For full text see the CCI's website at www.cci.gov.in.

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