The Competition Appellate Tribunal (COMPAT) on 10 May 2016 has passed a landmark decision setting aside the Competition Commission of India’s (CCI) decision in P K Krishnan v Paul Madavana and Ors1, which arose out of an alleged anti-competitive practice relating to the pharmaceutical industry.

Background

The CCI through its order dated 1 December 2015 had for the first time penalised a pharmaceutical company, Alkem Laboratories Limited (Alkem), to the tune of INR 746.3 millions for allegedly facilitating the All Kerala Chemists & Druggists Association (Association) in its anti-competitive practices, in contravention of Section 3(1) of the Competition Act, 2002 (as amended) (Competition Act).

These practices among others included (i) imposition of conditions like requirement of a ‘No Objection Certificate’ from the Association before appointment of a stockist; and (ii) indulging in anti-competitive practices which could have potential consumer harm. The CCI noted that pharmaceutical companies comply with the Association’s diktat under a threat of boycott.

Two office bearers of Alkem were also penalised, solely on account of their position in Alkem even though they were not granted an opportunity of presenting their defence. The Association was penalised for contravention of Section 3(3)(b) of the Competition Act.

Alkem along with its office bearers had appealed against this decision of the CCI before the COMPAT.

COMPAT’s order

The COMPAT in its order dated 10 May 2016 allowed the appeals and set aside the CCI’s order. The key takeaways of the COMPAT order are as follows:

  1. While the CCI’s order among other things noted that the Association had threatened the pharmaceutical companies to follow their diktat, it concluded that there was an agreement between Alkem and the Association.

The COMPAT questioned as to how an arrangement between parties entered into under coercion could be termed as an “agreement”. Besides, it was found by conclusive evidence (both at the stage of investigation and during the final hearing before the CCI) that the informant was a stockist of Alkem prior to filing of the information with the CCI.

Further, no proof of any demand of ‘No Objection Certificate’ was established against Alkem. The informant admittedly this suppressed material fact while filing the information. While this fact was not considered material in the final order of the CCI, it was viewed adversely by the COMPAT.

  1. On the appeal from the office bearers, the COMPAT held that there was a violation of the principles of natural justice by the CCI since no opportunity was extended to the office bearers to present their defense and, accordingly, reversed the penalty order imposed on them.
  2. The COMPAT also made an observation that the informant had willfully suppressed material information from the CCI, which had bearing on the decision passed by the CCI. However, the COMPAT refrained from passing any adverse order against the informant on account of the apologies tendered to the Joint Director General and the CCI.

Comments

This decision in many ways can be considered as a precedent-setting order and should come as a respite to the pharmaceutical companies which are under investigation before the CCI.