CCI in its order dated October 12, 2015 found Sonipat Distributor (“FMCG”) Association (“SDA”) contravening the provisions of section 3(3)(b)& (c) of the Competition Act, 2002 (Act). CCI, while passing the “cease and desist” orders against SDA holding them guilty observed that being an association of its constituent enterprises, the association is taking decisions relating to distribution of FMCG products on behalf of the members who are engaged in similar or identical trade of goods. Such an association of enterprises are covered within the scope of section 3(3) of the Act. Further, bye-laws of the association indicate that the members of SDA by agreeing to bye-laws have disturbed the forces of free trade and limited competition amongst the distributors of FMCG products in the area of Sonipat.
Since under the regulations of the association, it is mandatory for each distributor and retailer to become a member of the said association, no new stockist/ distributor is appointed by drugs and pharmaceutical companies unless the person desirous of becoming a stockist/ distributor becomes member of the said association and gets “No Objection Certificate” (NOC) from the old dealer in the proforma issued by the association. The bye-laws provide for a penalty of INR 2500/- on a new distributor if he fails to obtain NOC from an existing dealer. The requirement to obtain NOC by a newly appointed distributor before starting of a business creates entry barriers besides limiting and controlling the supply of services. Besides, the association also imposed areas of distribution upon the members doing business and imposed penalties for not adhering to one’s area of distribution. It is apparent that such bye-laws besides limiting/ controlling the supplies also allocated the markets and cause appreciable adverse effect on competition under section 3(3)(b) and section 3(3)(c) of the Act. The prerequisite of NOC by SDA forecloses the competition by hindering entry of new players in the market and SDA has also ensured that the dealers have exclusive area of supply and thereby restricted competition. Such practices primarily stop the distributor from selling products outside the area allocated to it. Therefore, CCI held that the activities of the SDA are in contravention of the provisions of the Act and directed its office bearers to cease and desist from indulging in such activities and further directed the SDAto modify its bye-laws so as to bring the same in accord with the provisions of Act. The CCI also directed SDA to implement, in letter and spirit, a “Competition Compliance Manual”to educate its members about the basic tenets of competition law principles. The CCI decided not to impose penalty since the SDA had stopped the practice of NOC since the case was filed in the CCI.