By way of a December 7 2016 order,(1) the Competition Appellate Tribunal (COMPAT) set aside a July 28 2016 Competition Commission of India (CCI) order, quashing the Rs73 million fine imposed on Lupin Ltd and its two officials. Lupin and its two officials had allegedly entered into an anti-competitive agreement with the Karnataka Chemists and Druggists Association (KCDA), under which they had refused to supply drugs to respondent M/s Maruti & Co, a chemist based in Bangalore, because it had not obtained a no objection certificate (NOC) from the KCDA (for further details see "CCI fines Lupin Ltd for anti-competitive behaviour").

In setting aside the CCI's order, COMPAT noted that the director general and the CCI had committed a jurisdictional error by finding that Lupin had violated the Competition Act. According to COMPAT, the decision reached by "the Joint [director general], which [was] approved by the Commission, that Lupin [had] acted in violation of Section 3(1) read with Section 3(3)(b) [was] ex-facie erroneous". COMPAT held that this section could not be invoked because "there [was] not a shred of evidence direct or circumstantial to show that the appellants and respondent no. 3 (KCDA) were engaged in identical or similar trade of goods or provisions of services".

The director general obtained no evidence from other distributors or consumers that there was a shortage of the medicines ordered by Maruti on August 24 2013, nor that consumers had suffered any ill effects due to the claimed shortage. In the absence of any evidence, neither the director general nor the CCI could find that the appellants' failure to supply medicine to Maruti had caused an appreciable adverse effect on competition, considering the factors enumerated in Section 19(3) of the act.

When the case was originally filed before the CCI, Maruti alleged that the KCDA had restrained pharmaceutical companies from appointing new stockists in Karnataka unless a NOC was obtained from the KCDA. It was also alleged that Lupin had refused to supply drugs to Maruti for not obtaining a NOC.

Following a detailed investigation by the director general, the CCI found that the KCDA was indulging in the anti-competitive practice of mandating that pharmaceutical companies obtain a NOC before appointing new stockists. With regard to the penalty, COMPAT observed that the CCI had imposed the penalty by considering Lupin's average total turnover for the preceding three financial years, ignoring the fact that Lupin was a multi-produce company. COMPAT further noted that:

"deliberate suppression of material facts by [Maruti] coupled with the lack of objectivity in the conduct of investigation has resulted in unwarranted harassment to the appellants who have become victims of rivalry between different factions of respondent no. 3."

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) COMPAT order dated December 7 2016. For the full text, please see http://compat.nic.in/Judgements.aspx.

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