2014 (3) TMI 445 - Commission - Law of Competition

Pharmacy Group Penalized for Price-Fixing and Supply Control, Urged to Stop Anti-Competitive Practices in 30 Days.

The Commission found the Bengal Chemist and Druggists Association (BCDA) guilty of anti-competitive practices, violating Sections 3(3)(a), 3(3)(b), and ... Anti-competitive practice of fixing selling prices by an association - concerted decision/practice by an association of enterprises - restriction or control of supply and market by collective action - rebuttable presumption under Section 3(3) for certain practices - liability of office-bearers and executive members for contraventions - cease and desist and penalty powers under Section 27Anti-competitive practice of fixing selling prices by an association - concerted decision/practice by an association of enterprises - rebuttable presumption under Section 3(3) for certain practices - BCDA and its District and Zonal Committees engaged in anti-competitive practices in violation of Section 3(3)(a) and 3(3)(b) read with Section 3(1) of the Act - HELD THAT: - The Commission found on the evidence (minutes, circulars, witness statements and district inspection reports) that BCDA, as an association of enterprises, adopted and sought to enforce a decision that drugs be sold only at MRP and that discounts should not be given. The minutes and communications show an organised programme (w.e.f. 01.04.2012), the formation and action of District/Zonal/Vigilance Committees, issuance/display of 'No Discount' notices, picketing, fines, threats and stoppage of supplies to non-cooperating members. Such concerted practice directly or indirectly fixed the selling price (MRP as the ruling price) and curtailed price competition, thereby falling within the category of practices in Section 3(3)(a) and (b) which attract the statutory presumption of appreciable adverse effect on competition. The pleas of ignorance of law, bona fide protection of small retailers and moral suasion were rejected on the record. The Commission therefore concluded that the impugned conduct caused or was likely to cause appreciable adverse effect on competition. [Paras 62, 63, 64, 65, 66]BCDA and its District and Zonal Committees were engaged in anti-competitive practices in contravention of Section 3(3)(a) and 3(3)(b) read with Section 3(1) of the Act.Liability of office-bearers and executive members for contraventions - cease and desist and penalty powers under Section 27 - Office-bearers and executive committee members of BCDA are liable for the contraventions and punishable under Section 27 of the Act - HELD THAT: - Having examined the supplementary investigation, minutes and role of those who took/ratified decisions, the Commission held that office-bearers and executive committee members participated in the decision-making and organisational actions that caused the contravention. The Commission noted that Section 27 sanctions directed against associations can be applied to those who run and direct the association and declined to limit liability on the basis of BCDA's status as a non-profit company. Accordingly, the identified office-bearers and executive members were held guilty of the contravention and liable to penalties under Section 27. [Paras 67, 68, 69, 70, 71]The office-bearers and executive committee members named by the DG are guilty of the contravention and are liable to be punished under Section 27.Cease and desist and penalty powers under Section 27 - Remedial directions and quantum of penalty for BCDA and specified office-bearers/executive members were determined - HELD THAT: - The Commission issued a cease-and-desist direction requiring BCDA and its office-bearers/executive members to immediately desist from the anti-competitive practices found. Viewing the gravity and market control exercised by BCDA, and finding no mitigating factors on record, the Commission decided to impose monetary penalties to ensure deterrence. The Commission fixed penalties by applying rates of 10% of average turnover/income/receipts for those who run affairs and play lead role, and 7% for executive committee members, computed on the financial statements filed; associated directions were issued for undertaking and deposit of penalty within specified timelines. [Paras 72, 73, 74, 75, 76]BCDA and the named office-bearers/executive members are directed to cease and desist; monetary penalties are imposed at the specified rates and are to be deposited within the prescribed time, with an undertaking to be filed.Cease and desist and penalty powers under Section 27 - Decision on quantum and compliance in respect of certain individual members to be considered separately - HELD THAT: - The Commission recorded that one office-bearer is deceased and that another (Shri Pradeep Kumar Paul) claimed not to be in business since 2010 and sought exemption from filing financial statements; Shri Dinesh Parolia had not submitted financial statements. The Commission reserved separate consideration and decision on quantum of penalty and issues arising from non-submission or absence of financial statements for these individuals. [Paras 73]Quantum of penalty and related decisions concerning Shri Dinesh Parolia and Shri Pradeep Kumar Paul to be taken separately.Final Conclusion: On the record (minutes, DG reports, witness statements and investigations), the Commission held that BCDA and its District/Zonal Committees engaged in concerted anti-competitive practices of enforcing sale at MRP and restricting discounts, thereby fixing selling prices and restricting supply in breach of Section 3(3)(a) and 3(3)(b) read with Section 3(1); the office-bearers and executive members who directed/ratified those practices were held liable under Section 27 and directed to cease and desist, with monetary penalties imposed as specified and limited residual questions concerning penalty for certain individuals reserved for separate decision. Issues Involved:1. Anti-competitive practices by BCDA and its committees.2. Liability of BCDA's members/office bearers for these practices.Issue-wise Detailed Analysis:1. Anti-competitive practices by BCDA and its committees:The Commission received an email on 28.08.2012 from Shri Arun Kumar Singh alleging that the Bengal Chemist and Druggists Association (BCDA) was engaged in anti-competitive practices by determining the sale price of drugs and controlling their supply, violating Section 3(3)(a) and 3(3)(b) of the Competition Act, 2002. Based on this information, the Commission initiated a suo moto enquiry under Section 19(1) of the Act. BCDA, an association of wholesalers and retailers of drugs affiliated with the All India Organization of Chemist and Druggist (AIOCD), allegedly directed its members not to offer discounts on MRP and enforced compliance through vigilance operations and punitive measures.The Director of Drugs Control, West Bengal, also filed a reference against BCDA under Section 19(1)(b) of the Act, alleging similar anti-competitive practices. Investigations revealed that BCDA and its committees enforced the sale of drugs only at MRP, preventing price competition among retailers and controlling the supply of medicines through concerted actions, violating Sections 3(3)(a) and (b) read with Section 3(1) of the Act.The Commission examined the minutes of BCDA's Executive Committee meetings from 2011 to 2013, which showed concerted actions against retailers offering discounts, including organizational movements, threats, and fines. The Commission found that BCDA's actions restricted competition and harmed consumers by preventing lower prices and innovative business practices.2. Liability of BCDA's members/office bearers for these practices:The Commission directed the DG to investigate the role of individual office bearers in decision-making. The DG's supplementary report identified office bearers and executive committee members involved in anti-competitive practices. The office bearers argued that Section 48 of the Act did not apply to them, as BCDA is a non-profit company under Section 25 of the Companies Act, 1956. However, the Commission held that the provisions of Section 27 of the Act were sufficient to make office bearers liable for contraventions without Section 48.The Commission imposed penalties on BCDA and its office bearers and executive committee members, directing them to cease and desist from anti-competitive practices. Penalties were calculated based on their respective turnover/income/receipts.Order:The Commission directed BCDA and its office bearers to immediately cease anti-competitive practices and file an undertaking within 30 days. Penalties were to be deposited within 60 days, with amounts specified for each individual based on their financial statements.