2024 (11) TMI 935 - CCI - Law of Competition

NABL cleared of competition violations for requiring laboratories to change from proprietorship structure

CCI dismissed allegations against NABL regarding a circular requiring accredited laboratories to transition from proprietorship to other business forms by ... Contravention of provisions of Section 3 and 4 of the Competition Act, 2002 - forcible transfer of entity from one form/type of organization structure to another - HELD THAT:- The primary grievance of the Informant appears to be emanating from a circular/letter No. NABL/ANCMT/2023/01/22-03 dated 22.03.2023, issued by NABL, directing its accredited CABs which are under proprietorship form to align with any of the following forms of entity by 30.12.2023 i.e., One Person Company, Limited Liability Partnership, Company, Society/Trust, Government. It is stated that most of the CABs are micro and small enterprises in India as it is easier to establish these labs under sole proprietorship firms and migrating these labs under any other forms will pose many challenges and it may not be economically viable for the small and medium entrepreneur to survive. This has been alleged by the Informant to be violative of Section 4(2)(c) of the Act. The Commission, vide order dated 22.08.2023 passed under Section 26(2) of the Act in Case No. 12 of 2023, had inter-alia, held that there was no reason to intervene with the impugned circular, as the same was mandating a structure which a laboratory had to follow if it wished to seek accreditation services from NABL. Accordingly, there is no reason for the Commission to re-examine the contents of the impugned circular from the competition perspective in the instant matter. With regards to alleged violation under Section 3 of the Act, the Commission notes that the Informant has neither referred to any particular agreement nor provided any document which could suggest existence of anti-competitive agreement in the matter. The Commission is of the prima facie view that no case is made out against NABL in respect of either Section 3 or 4 of the Act. Accordingly, the Information filed is directed to be closed forthwith under Section 26(2) of the Act. Consequently, no case for grant of reliefs as sought under Section 33 of the Act arises. Issues:Alleged contravention of provisions of Section 3 and 4 of the Competition Act, 2002 by National Accreditation Board for Testing and Calibration Laboratories (NABL).Detailed Analysis:Issue 1: Alleged Violation of Section 4(2)(c) of the ActThe Informant, an association of Indian laboratories, filed an Information alleging that NABL, the accreditation body, violated Section 4(2)(c) of the Act by issuing a circular directing accredited CABs to align with specific forms of entities by a certain deadline. The Informant argued that this directive was discriminatory, favored larger players, and disadvantaged small entrepreneurs. The Informant highlighted challenges faced by small labs in transitioning to new forms of entities, such as lease cancellations, loan transfer issues, heavy GST implications, and the loss of goodwill. The Informant contended that such a move would lead to the closure of several CAB businesses. The Commission noted the Informant's concerns but referred to a previous case where a similar circular was upheld, stating that the structure mandated by NABL was essential for seeking accreditation services and aligning with ISO standards. The Commission found no reason to intervene with the circular, as it did not appear to be abusive or anti-competitive.Issue 2: Alleged Violation of Section 3 of the ActThe Informant also alleged a violation of Section 3 of the Act by NABL, claiming that the requirement for enterprises to register under the Companies Act, 2013, as part of accreditation compliance, favored larger players and posed challenges for micro and small enterprises. However, the Informant did not provide specific agreements or documents suggesting the existence of anti-competitive agreements. The Commission, after reviewing the facts and circumstances, concluded that no case was made out against NABL under either Section 3 or 4 of the Act. Consequently, the Information was directed to be closed under Section 26(2) of the Act, and no relief under Section 33 of the Act was granted.In conclusion, the Commission found no merit in the allegations of anti-competitive conduct by NABL and closed the case, stating that the impugned circular did not raise competition concerns and was essential for maintaining accreditation standards. The Commission emphasized the importance of aligning with ISO requirements and upheld NABL's directive as necessary for ensuring trust, accountability, and compliance in the accreditation process.