Competition Commission of India (CCI) in Alkem Laboratories case found All Kerala Chemists and Druggists Association (OP-3), Alkem Laboratories (OP-2), its sales manager (OP-1) in contravention of Section 3(1) and Section 3(3)(b) of the Competition Act. As a result, the Commission under Section 27 imposed a penalty of 10 per cent of the turnover, amounting to 4.3 lakh rupees, and instructed OP-3 to organize at least five “competition awareness and compliance programs” for its members. It also imposed a penalty of three per cent of the turnover on OP-2 amounting to 74 crore rupees.

The facts of the case were that the Informant (a distributor of medicines) filed an information against OP-2, OP-1 and OP-3 alleging anti-competitive conduct on their part. Informant was required to obtain an NOC (No Objection Certificate) from OP-3 in order to get supplies from OP-2, even when there is no such requirement under the licensing agreement. Such a practice was allegedly used by OP-3 to illegally monitor the supply of medicines in the market according to their discretion.

While this was not the first time Commission was dealing with such type of a case, there are certain loopholes in the said order. The Commission failed to set explicit standard of proof and also didn’t characterize the conduct of OPs as “agreement”, “practice carried on”, “decision taken by” delineated in Section 2(b) of the Act, before calling it anti-competitive. Another important gap in the ruling is the absence of OPs being termed as ‘person’, ‘enterprise’ or ‘association of enterprises’ elaborated in Section 3 of the Act. However a bigger concern with the order is the punishment awarded by it to both OP-2 and OP-3.

In case no. 20 of 2011, the Commission got a similar information where it held that the memorandum of AICDA (All India Chemists and Druggists Association- parent association of AKCDA, i.e. OP 3) contained multiple anti-competitive clauses and passed an order under Section 27 directing the OPs to ‘cease and desist’ from the above mentioned practice, issue an ‘undertaking’ stating that the practice regarding insisting on NOC be discontinued within 60, and fined AICDA 10 per cent of its last three years’ average turnover.

Nine months later, in case no. 30 of 2011, the Commission received a complaint against AKCDA (among other parties, including AICDA) where the informant was aggrieved because of the same practice requiring the distributors to obtain an NOC in order to get medicine supplies. The Commission interestingly passed the exact same order again as it did nine months ago, directing the OPs to ‘cease and desist’ … and issue an ‘undertaking’ … and fined them the same 10 per cent of their average turnover.

And yet again, in the present case, in 2014, when AKCDA was found to still continue the same NOC practice, the Commission passed the same order except that this time it also asked them to organize five “competition awareness and compliance programs” for its members. Therefore there is a clear departure where the CCI started promoting competition law, apart from penalizing the parties who violate it. What becomes however more interesting is when a case of similar kind came to the CCI in 2015 (No. 54). This time the Commission chose to pass the same order, except that it withdrew the competition awareness program.

Such a sequence of events raises multiple questions on the mandate of CCI. While the Commission has a statutory duty to eliminate practices causing AAEC, the Commission did not increase the quantum of penalty on repeated violations. In such a case what is the incentive for the parties to stop anti-competitive conduct? The meaning of the word ‘undertaking’ is also unclear and the consequences if a person files it, but yet does not follow.

Section 27(g) of the Competition Act empowers the Commission with the enormous power to pass “such other order or issue such directions as it may deem fit”. When such sweeping powers are given to the Commission under the statute, they ought to take stricter action to ensure that their order is obeyed and that anti-competitive practices actually end.

Another issue is the imposition of penalty on OP-2. It is widely known that often, pharmaceutical companies do end up granting supplies to distributors who haven’t obtained the NOC, only to end up facing trade boycott/ non-cooperation by the Association. This shows that the Association plays an active part in implementing such a practice. The Commission even reproduced a letter in this order, written by the President of AKCDA, in the same regard. However when it comes to penalty, it is the companies who are taking the maximum burden where OP-2 being charged 74 crore rupees as penalty, contrary to measly 4.3 lakh on the Association. Therefore there is a clear mismatch between the violator of the law, and the party paying for it. This is a clear evidence suggesting a gap on Commission’s part to fulfill its duties entrusted as per Section 18 of the Act.