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CCI’s Order in Madhya Pradesh pharmaceutical case: Drawing the line for Trade Associations

Vineet John Samuel

Competition Commission of India in its order dated 3rd June 2019, held Himalaya Drug Company (“Himalaya”) and Intex Pharmaceuticals Limited (“intex”) in violation of the Competition Act (“Act”) and imposed a penalty of 18.5 crore and 55.5 crore rupees respectively. It also held Madhya Pradesh Chemist and Druggist Association (MPCDA) and Indore Chemists Association (ICA) in contravention of the law and levied a fine of 10 per cent turnover on both the parties. The said order comes at a time when players across states are being held liable for displaying anti-competitive conduct in the pharmaceutical market using almost the same modus operandi.

Facts of the case include one Madhya Pradesh Chemists and Distributors Federation (the “Informant”) alleged that the Opposite Parties (OPs) are trying to control supply of pharmaceutical products in the market through the mechanism of No-Objection Certificate (NOC)/ Letter of Consent (LOC) issued by MPCDA, when the same is already being declared anti-competitive by the Commission in its various decisions. Even though ICA, Himalaya and Intex were not originally the OPs, the Commission later impleaded them to be one, after going through the investigation report.

The overall reasoning adopted by the Commission holding the parties in contravention, in light of evidence relied upon and the contextual background given, sounds cogent. While the competition regulator had to bypass Section 3(3) and Section 3(4) of the Act to prove the violation, thereby relying on the unpredictable Section 3(1), the evidence used by the Commission gives clarity to the reader as far as practice of obtaining NOC/LOC is concerned.

The Commission through its catena of judgments has held that the role of pharmaceutical trade associations is only to do a background check for the companies, and as far as the process of appointing stockists is concerned, it has to be an independent decision of the companies, keeping in mind the competition concerns. As held by the CCI in Neeraj Malhotra case (Case No. 5 of 2009), the agreement can also happen by a ‘nod’ or ‘wink’, therefore making the tractability of the evidence quite difficult. In such a background, the Commission has rightly shifted responsibility on the firms to report any anti-competitive practices prevalent in the industry to the Commission [Para 133].

A critical reading of the case law would suggest that the evidence was starker against Himalaya, when compared to Intex. In the case of former, the firm explicitly requested for an ‘approval’ from the MPCDA, thereby displaying anti-competitive conduct, on the contrary the latter only received a forwarded mail from MPCDA with no text in the body. Even though the CCI gave a contextual reading to the mail and interpreted contravention of the law into the same, the reasoning lies on a far more shaky ground, at least when compared to the former.

A related issue is the quantum of penalty imposed on the parties. While the text of the SC order in Excel Crop Care case would suggest that the Commission has wide discretionary powers to decide the amount of penalty, the rule of law and economic analysis of the Act, both suggest that the Commission has to rationalise the fine it imposes. In this particular case, while MPCDA was acting as the nodal body to forge anti-competitive agreements, thereby invoking the maximum penalty envisaged in the Act (10 per cent of the turnover), the case for Himalaya and Intex warrants a second look. The mitigating factor in case of Himalaya has more convincing power than the Intex’s. Intex argued that it was able to appoint one stockiest without the consent of IDA, The said reasoning goes in stark contrast with what was held by the DG, and accepted by the Commission [Para 120], that sometimes the agreement is formed on phone, and even oral permissions are given by the relevant players so as to leave no trail for the misconduct. The contextual reading of the same would suggest that the Commission should not have allowed appointment of single one stockist to qualify as a mitigating circumstance, just because there was absence of documentary support in support of the same.

Overall, it is also important to see that the Commission took almost 4.5 years to dispose the said case, and the DG investigation took almost two years to complete. The same gains prominence in light of overall scheme of the Act interpreted by the SC in CCI Vs. SAIL order (2010), where it held that timely and faster disposal of cases is the essence of the statute. It even held that the deadline to complete the DG investigation is 45 days, which is nowhere close to the real time taken by the DG to submit the report in this case. A delay might be attributed to inclusion of certain parties in investigation which were initially not a part of it, but the gap between 45 days and two years still seems too stretched. Given the dynamic nature of the Competition Act, one may argue it is high time for the Commission to focus on speedy justice so as to cater the original intent of the lawmaker. It would not only help the parties get timely relief, but work in Commission’s best interests to resolve the cases in backlog.