India: Pharma Manufacturers Breathe Easy: Competition Regulator Treats Old Ailment Affecting The Industry


On February 19, 2013, the Competition Commission of India ("CCI") passed a significant order, which has the potential of re-defining the way drug manufacturers and importers in India ("Drug Manufacturers") market their products domestically. In the reasoned order, the CCI has held certain practices of All India Organization of Chemists and Druggists ("AIOCD") to be violative of the Competition Act, 2002 ("Competition Act") and inter-alia ordered the organization to cease and desist from engaging in those practices. It was recently reported that the AIOCD has issued a circular to all its members to comply with the CCI order.1

Considering the importance of the judgment on distribution of drugs in India, in this hotline with have analysed the judgement and the consequences arising therefrom.


The case was instituted on the complaint of Santuka Associates Pvt. Ltd. ("Informant"), being a clearing and forwarding agent (a key player in the distribution chain) of various pharmaceutical companies at Cuttack, including USV Ltd. ("USV"). The Informant was member of the Cuttack District Chemists and Druggists Association ("CDCDA"). The Informant was aggrieved by a development surrounding the potential revocation of its arrangement with USV by virtue of directions of the AIOCD. Consequently the Informant approached the CCI with a prayer to restrain AIOCD from abusing its dominant position to threaten and coerce any drug manufacturer in India, including USV, to terminate its arrangements with Informant.

The CCI found a prima facie case in the complaint to investigate the matter further and ordered the Director General ("DG") to investigate the activities of the AIOCD and its affiliates. Interestingly, in the course of hearing of the matter, the Informant applied to the CCI to withdraw its compliant. The Commission held that once an investigation has been ordered by CCI, then withdrawal of complaint will neither affect the inquiry of the DG nor disable the CCI from hearing the matter based on the report of the DG.

The opposite parties to the Informant in this proceeding were AIOCD, Organisation of Pharmaceutical Producers of India ("OPPI") and Indian Drug Manufacturers' Association ("IDMA"). The OPPI and IDMA are associations of drug manufacturers, and were made parties to this proceeding because of an allegation of the Informant that OPPI and IDMA had entered into Memorandum of Understanding ("MoU") with AIOCD which enabled AIOCD to carry out anti- competitive practices.

The controversial practices of the AIOCD relevant from the point of view of competition law are discussed next.


The AIOCD is a national level association of chemists and druggists, active since 1975 and registered under the Societies Registration Act, 1860. It functions in an established hierarchy of chemists and druggist association, which works as follows:

At the bottom of the pyramid are 'district- level chemists and druggists association' ("DLA") which have chemists and druggists of district as its members. The middle of the pyramid comprises of 'state- level chemists and druggists association' ("SLA") to which all district- level chemists and druggists associations in that state are affiliated. Finally, at the top of the pyramid is AIOCD, to which all SLAs are affiliated. The decisions of the AIOCD percolate the pyramid and are enforced through SLAs and DLAs.

As per the AIOCD website, the association has over 750,000 chemists and is the "only true representative body of the pharmaceutical trade in India".

Over the years, AIOCD has functioned as a single- window for distribution- related negotiations between Drug Manufacturers and chemists and druggists throughout India. The following practices of AIOCD, now on record of CCI, are worth discussing:

  1. Requirement of NOC or LOC from SLAs

    Before appointment of any clearing & forwarding agent, super- distributor, distributor or stockist in a state, the drug manufacturer has to apply to SLA of that State requesting for a "No Objection Certificate" ("NoC") or "Letter of Consent / Co- operation" ("LoC") from it. In other words, a drug manufacturer cannot appoint any person for distribution of its drugs at any level in the distribution chain unless the said person has a NoC or LoC from the SLA of the State. The SLA issues NoC / LoC as per its discretion or based on the recommendation of the DLA (depending upon the level of the distribution). Such NoC / LoC is usually issued to only one person at a particular level in the distribution chain and that person is required to be appointed by the drug manufacturer. Needless to say, it is a pre- requisite to be a member of the DLA to be considered as a choice for NoC or LoC.

    Until the end of 2011, this arrangement held water by virtue of MoU entered by AIOCD with OPPI and IDMA to that effect ("Controversial MoU"). In 2011, both OPPI and IDMA discontinued their Controversial MoU with AIOCD but the practice continues as an industry standard owing to threat of all- India boycott by AIOCD.
  2. Requirement of payment for Product Information Service

    All SLAs publish a Product Information Services ("PIS") bulletin in periodic intervals, which contains description of new medicines to be launched in market. The drug manufacturers are charged a one- time fee for publication of an entry containing description of their medicine in the bulletin. It is an unwritten by- law of the AIODC that a medicine which is not described in a PIS bulletin published by a SLA will not be sold in the market of the State to which the SLA belongs. Consequently, all drug manufacturers are stretched to ensure an entry into every SLA's PIS bulletin before a product launch. Many a times, drug manufacturers face difficulty in launching a product if a SLA demands exorbitant sum for publication of to- be launched medicines in its PIS bulletin.

    The requirement for payment of fees for publication in PIS bulletins was also agreed upon as a term in the Controversial MoU. It continues to survive today as an industry practices for reasons same as that for survival of requirement of NoC / LoC stated above.
  3. Fixation of Trade Margins

    There exists a uniform whole sale and retail margin ("Trade Margin") for sale of all drugs in India. The Trade Margin for drugs whose prices are controlled by the Central Government through Drug Price Control Order, 1995 ("DPCO") are fixed by law. The Trade Margins of uncontrolled drugs are, however, fixed by AIOCD. It has become industry practice for drug manufacturers to offer 10 % margin to whole- sellers and 20% margin to retailers for sale of their drugs. No whole- seller or retailer will offer to settle for a margin lesser than the fixed margin.

    The fixation of Trade Margins for uncontrolled drugs was also agreed upon in the Controversial MoU. As is true with practices above, the Trade Margins continue to be fixed post expiry of the MoU for the same reasons as are applicable to other controversial practices.
  4. Boycott from sale of medicines at regional, district, state or national level

    In the past, AIOCD and its affiliate associations have boycotted Drug Manufacturers to ensure that the requirements of NoC, publication in PIS bulletin and uniform Trade Margins are adhered to. Many a times, AIOCD and its affiliates have issued letters to Drug Manufacturers directing them to call back the goods dispatched to certain stockists, who are not members of the association or who have indulged in anti- associational activities.


Applicable Law: Any agreement that restricts or is likely to restrict the competition will attract provisions of Section 3 of the Competition Act. Section 3(3) of the Act is attracted when, inter alia, enterprises or association of enterprises, engaged in identical or similar trade of goods and provisions of services, enter into an agreement, or carry on a practice, or take a decision, for the purpose of directly or indirectly fixing prices, limiting output or sales, or sharing markets or customers. All such agreements, practices and decisions are presumed to be anti- competitive. Where after inquiry the CCI finds that any such agreement is in contravention of the provisions of the Competition Act, it has the power under section 27 of the Competition Act to inter-alia to direct the defendant to desist from carrying such act and impose a penalty on the defendant up to 10 % of the average of its annual turn- over for the last three financial years.

AIOCD as an Association of Enterprises: The CCI noted that the controversial practices of the AIOCD can be tested for violation of Section 3(3) of the Competition Act since AIOCD is an association of enterprises engaged in identical or similar trade of goods or provision of services. All SLAs are affiliated to AIOCD and all DLAs are affiliated to respective SLAs and union territory associations. The CCI observed "It can be inferred that that members / constituents of AIOCD (though indirectly) are stockist and retailers of pharmaceutical companies who are engaged in the supply of Pharma products to the consumers. Therefore, such members / constituents fall squarely within the definition of 'enterprise' provided in the Act'". CCI goes on to hold that "AIOCD, being association of constituent enterprises, is taking decisions relating to distribution and supply of pharma products on behalf of its members who are engaged in similar or identical trade of goods and that such practices carried on, or decisions taken by AIOCD as an association of enterprises are covered within the scope of Section 3(3)."

Whether requirement of NOC or LoC from SLAs is anti- competitive: DG's submission: The requirement of NoC or LoC clearly limits the market / supply and thus the conduct of AIOCD and its affiliates, is anti- competitive.

AIOCD's response: The practice of obtaining NoC from the SLAs was evolved to curb the proliferation of large number of stockist and whole sellers at the cost of small retailers. Such NoC has led to a balanced relationship between the large pharmaceutical companies and small retailers.

CCI's judgement: The CCI found overwhelming evidence which proved that normally, without obtaining NoC form AIOCD (acting through respective State and District Associations) no stockist can be appointed. Therefore, it held that the requirement of NoC attracts Section 3(3) of the Act as AIOCD and its affiliates create restraint on freedom of trade on account of NoC, which has the effect of limiting or controlling market supply.

Whether requirement for payment for Product Information Service is anti- competitive: DG's submission: Any attempt on part of the members of AIOCD and / or its affiliates to delay or withhold any PIS publication (also understood as PIS approval) on any ground which limits or controls supply or market thereof has to be treated as kind of boycott, thus attracting the provisions of Section 3(3) of the Competition Act.

AIOCD's response: The requirement of PIS publication is actually to prevent entry of spurious / doubtful drugs of those purchased from unauthorized sources. This in consonance with the Mashelkar Committee's recommendation for chemists and pharmacists to act as "watch dogs" through their Associations.

CCI's judgement: The CCI found overwhelming evidence which proved that payment of prescribed charges for publication in the PIS bulletin was a sine qua non (without which nothing), in absence of which new products were not allowed to be introduced in the distribution channel. Therefore, it held that actions of AIOCD and its affiliates delaying or withholding PIS approval is in violation of Section 3(3).

Whether fixation of Trader Margin is anti- competitive : DG's submission: The fact that trade margins have been decided for the whole sellers and retailers operating in pharmaceutical market would mean that the prices of the drugs are not getting fixed by the interplay of market forces. The minimum trade margins are part of horizontal agreements amongst the members of the trade and industry because of the Controversial MoU. There is hardly any competition between one retailer and the other, resulting in drugs being generally sold on MRP. Thus, fixation of Trade Margins has directly or indirectly led to the determination of the purchase or sale prices of drugs in market, which is violative of the Competition Act.

AIOCD's submission: The Trade Margin of decontrolled formulations has been specified in law itself. The DPCO paragraph which describes the Trade Margin for controlled drugs also mentions Trade Margin for decontrolled drugs.

CCI's judgement: The CCI found overwhelming evidence which proved that the Trade Margins were fixed and followed as a practice. It observed that Trade Margin of unregulated drugs was not specified in DPCO as claimed by AIOCD. It further observed that in a scenario where Trade Margin is not fixed, competition amongst the retailers will force them to reduce their trade margins resulting into sale of drugs at prices even below the MRP. Therefore, it upheld the DG's view that fixation of Trade Margins had the effect of directly or indirectly determining the purchase or sale price of drugs in market and such a practice was in violation of Section 3(3).

Whether boycott from sale of medicines at regional, state and or national level was anti- competitive : DG's submission: The act of boycott has the effect of limiting or controlling the supplies, distribution, availability of drugs which causes appreciable adverse effect on competition for pharma companies and non- availability to the consumers.

AIOCD's response: AIOCD had no response to DG's submission.

CCI's judgement: The CCI found overwhelming evidence which proved that AIOCD and its affiliates threatened pharma companies of boycott and, at times, actually boycotted them, to enforce its decision connected to various controversial practices described above. It held that such boycott results in denial of market access to pharma companies and non- availability of drugs to customers. Therefore, the act of boycott by AIOCD and its affiliates violated Section 3(3) of the Act.

In its final order, the CCI ordered AIOCD to:

  1. (along with its affiliates) Cease and desist from the controversial practices found to be anti- competitive by the CCI.
  2. File an undertaking that the practices carried on by it and its members regarding grant of NOC for appointment of stockist, fixation of trade margins, collection of PIS charges and boycott of products of pharmaceutical companies have been discontinued within 60 days from the date of receipt of the order by it.
  3. Issue a letter to OPPI, IDMA and USV that there is no requirement of obtaining an NOC for appointment of stockist and the pharma companies, stockist, whole sellers were at liberty to give discounts to the customers.
  4. Issue a circular / letter to all chemists and druggist associations that they are free to give discounts to the customers.
  5. Issue circular that PIS charges were not mandatory and PIS services could be availed by manufacturers / pharmaceuticals firms on voluntary basis.
  6. Pay a penalty of INR 47,40,613 within 60 days from the date of receipt of copy of the order by it.

It is worth mentioning here that the DG had accused the OPPI and IDMA of collaborating with AIOCD by entering into the Controversial MoU. On examination of this issue by CCI, it came to the conclusion that the OPPI and IDMA would not have entered into an agreement to restrict or limit supply of products of its own members unless it was a victim of exploitative tactics of the AIOCD. Further, it found that the OPPI and IDMA do not satisfy the basic test of being an 'enterprise' in order to examine the vertical agreement (Controversial MoU) entered by each one of them with AIODC for anti- competitive characteristics. Hence, it judged that OPPI and IDMA were not parties to anti- competitive practices carried out by AIOCD.


The order of CCI described above is bound to have a deep impact on the distribution of medicines in India as well as prices charged to the customers. Effective February 19, 2013, a Drug Manufacturer may appoint any person or agency, and any number of persons and agencies, at any level in its distribution chain as it may deem fit without any fear of repercussions from the traders' body. It may also set up an exclusive distribution channel managed by itself for distribution and sale of its medicines. In cases of appointment for distributor, a Drug Manufacturer now has the option to negotiate the Trade Margin. Further, Drug Manufacturers can launch and distribute their new products without publishing information of their products in PIS bulletins.

The players in the distribution chain such stockist, distributors and retailers can offer discounts to the consumer without fear of boycott from AIODC and its affiliates.

In case any Drug Manufacturer or concerned party is victim of any anti- competitive practice described above, it may notify the CCI who will take appropriate action as required, usually amounting to criminal proceedings against the guilty associations and its office- bearers, and imposition of heavy monetary penalty.


1 See "AIOCD issues circular to members, state assns urging strict compliance of CCI order", published in on Friday, May 17, 2013. Available at (last checked May 17, 2013).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.