Editor: M M Sharma
Editorial Team: Vinay Vaish, Satwinder Singh, Deepika Rajpal, Danish Khan
I. CARTELS AND ANTI-COMPETITIVE AGREEMENTS
Competition Commission of India (CCI) passes cease and desist order against Sonipat Distributor (FMCG) Association
CCI in its order dated October 12, 2015 found Sonipat Distributor ("FMCG") Association ("SDA") contravening the provisions of section 3(3)(b)& (c) of the Competition Act, 2002 (Act). CCI, while passing the "cease and desist" orders against SDA holding them guilty observed that being an association of its constituent enterprises, the association is taking decisions relating to distribution of FMCG products on behalf of the members who are engaged in similar or identical trade of goods. Such an association of enterprises are covered within the scope of section 3(3) of the Act. Further, bye-laws of the association indicate that the members of SDA by agreeing to bye-laws have disturbed the forces of free trade and limited competition amongst the distributors of FMCG products in the area of Sonipat.
Since under the regulations of the association, it is mandatory for each distributor and retailer to become a member of the said association, no new stockist/ distributor is appointed by drugs and pharmaceutical companies unless the person desirous of becoming a stockist/ distributor becomes member of the said association and gets "No Objection Certificate" (NOC) from the old dealer in the proforma issued by the association. The bye-laws provide for a penalty of INR 2500/- on a new distributor if he fails to obtain NOC from an existing dealer. The requirement to obtain NOC by a newly appointed distributor before starting of a business creates entry barriers besides limiting and controlling the supply of services. Besides, the association also imposed areas of distribution upon the members doing business and imposed penalties for not adhering to one's area of distribution. It is apparent that such bye-laws besides limiting/ controlling the supplies also allocated the markets and cause appreciable adverse effect on competition under section 3(3)(b) and section 3(3)(c) of the Act. The prerequisite of NOC by SDA forecloses the competition by hindering entry of new players in the market and SDA has also ensured that the dealers have exclusive area of supply and thereby restricted competition. Such practices primarily stop the distributor from selling products outside the area allocated to it. Therefore, CCI held that the activities of the SDA are in contravention of the provisions of the Act and directed its office bearers to cease and desist from indulging in such activities and further directed the SDAto modify its bye-laws so as to bring the same in accord with the provisions of Act. The CCI also directed SDA to implement, in letter and spirit, a "Competition Compliance Manual"to educate its members about the basic tenets of competition law principles. The CCI decided not to impose penalty since the SDA had stopped the practice of NOC since the case was filed in the CCI.
(Source: Order dated October 12, 2015. For full text see CCI website- www.cci.gov.in)
Competition Appellate Tribunal set asides the penalty imposed by CCI against Andhra Pradesh Film Chamber of Commerce
Competition Appellate Tribunal ("COMPAT")in its judgment dated October 14, 2015 set aside the penalty of INR 12.89 lacs imposed by CCI on Andhra Pradesh Film Chamber of Commerce (Appellant). In the case filed by Cinergy Independent Film Service Pvt. Ltd., CCI had held that the Appellant was restricting exhibition of film "Mausam" produced by the Informant, as the Informant had owed certain amounts to a member of Appellant. The Appellant forced its members to abide by its unfair rules and dictates. Certain rules as framed by Appellant were found in violation of Section 3 of the Act as they were limiting and restricting the rights of producers for a period of three years from the date of obtaining Censor Certificate to distribute movies to TV channels and electronic media to telecast.
However, the Hon'ble COMPAT while setting aside the penalty observed that , there was no evidence produced by the Respondents to prove that the Appellant had prevented or obstructed the release of film 'Mausam' on the scheduled date. In fact, the only evidence available to CCI was the letter dated 09.09.2011 sent by a member of Appellant to various parties including the Appellant complaining against the non-payment of outstanding dues in respect of another film("Rann"). Appellant had forwarded the letter to various associations and Cinergy to settle the issue to avoid any inconvenience before the release of the film "Mausam".
There was no evidence produced by Cinergy to prove that the Appellant had prevented or obstructed the release of film "Mausam". COMPAT observed that CCI which was expected to objectively and independently analyse the facts and evidence collected by the DG during the course of investigation abdicated its duty and mechanically approved the findings recorded by the DG. COMPAT set aside the CCI order, which the COMPAT opined was based on assumptions and not on evidences. Further, COMPAT was of the view that the exercise undertaken by the DG to go into the validity of the said rules was per se without jurisdiction because the informant had not questioned the rules on the ground that the same are anti-competitive and thus ultra vires the provisions of the Act.
(Source: COMPAT: Order dated October 14, 2015; http://blog.scconline.com/ for full text see COMPAT website).
Competition Appellate Tribunal sets aside the penalty imposed by CCI against Chemist and Druggist Association, Ferozepur
COMPAT by its judgment dated 30 October 2015 over-ruled the order penalizing Chemist and Druggist Association, Ferozepur, Punjab in a case filed by Arora Medical Hall, Ferozepur, Punjab.
Arora Medical Hall (the Informant) was the largest wholesale dealer of drugs manufactured by several pharmaceutical companies in Ferozepur. Informant had alleged that the Association had issued circulars to boycott the Informant following allegations made by the member of the Associations that the Informant had indulged in malpractices against the members of Association and issued them inflated bills for orders placed on the Informant by the members of the Association. The Informant also alleged that the Association forced any new wholesaler/retailer to procure an NOC from the Association before it could commence business in the area of Ferozepur and surrounding areas.
The report of the Director General (DG) as well as the CCI considered the above allegations and found the conduct of the Association violating Section 3(3)(b) of the Act, on the basis of the allegations, replies filed by the Association and the pharmaceutical companies as well as an undated affidavit of a partner of the Informant.
The COMPAT noted that, firstly, the Association was not the apex association in the district of Ferozepur and neighboring areas. Various other associations and wholesalers and distributors operated in the district of Ferozepur and neighboring areas, without the membership of Informant. The biggest example of the same was the Informant itself who, despite being expelled by the Association, had stated itself to be the biggest wholesaler in Ferozepur.
COMPAT noted that the CCI failed to take into account that the Informant was expelled from the membership of the Association because of its own highhandedness and unethical conduct of charging inflated bills to the members of the Association. In fact, the Informant had already filed a case against the Association against the expulsion in the District Court of Ferozepur but the same was dismissed with costs for failure to prosecute by the Informant. Further, despite the allegations that the Informant lost revenue due to the boycott by the Association, the DG failed to note that the revenue of Informant from the neighboring Fazilka region had rose 100% since the expulsion. The Association had also submitted that the Informant's revenue in Ferozepur area dwindled only as a result of its own conduct.
As regards the practice of NOC, the COMPAT noted that the same was not mandatory by the Association. Those stockists who did not want to take NOC/LOC from the Association did so from the associations in neighboring areas and freely operated in Ferozepur. The DG had conducted the investigation with a predetermination to return a finding of violation of section 3(3)(b) of the Act. In doing so, he ignored the replies filed by majority of the pharmaceutical companies that the Association had not imposed a condition of mandatory procurement of NOC. The DG based his entire finding on the basis of an undated affidavit of the Informant, which he did not even present to the Association to defend against. No opportunity of cross-examination of the Informant was provided to the Association. The CCI mechanically approved the finding of the DG on the issue of violation of section 3(3)(b).
The conduct of the DG as well as the CCI amounted to violation of principles of natural justice. After the CCI had sent the reports (main as well as supplementary) to the Appellants, they filed detailed objections to the findings recorded by DG including the one that the concerned officer had acted in blatant disregard to the rules of natural justice and fairness and had omitted to consider the relevant documents and material. Unfortunately, the CCI did not objectively deal with the objections taken by the appellants and did not advert to the unequivocal stand taken by the eight out of ten pharmaceutical companies that NOC/LOC was not mandatory for appointment of a distributor in district Ferozepur. Resultantly, the CCI arbitrarily concluded that the action taken by the Association amounted to violation of section 3(3)(b) of the Act. The Appeals were allowed and the order of the CCI has been set-aside.
(Source: COMPAT: Order dated October 30, 2015; For full text see COMPAT website)
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