The Competition Commission of India ('CCI') in the Belgaum District Chemists and Druggists Association ('Informant') AND Abbott India Ltd. & Ors.1:
- Held that Karnataka Chemists and Druggists Association's ('KCDA') practice of mandating NOC as a prerequisite for appointment of stockist and !xing of trade margins for retailers and wholesalers is anti-competitive under Section 3(1) read with Section 3(3) of the Competition Commission of Act, 2002 ('Act').
- Directed KCDA to cease and desist from indulging in the aforesaid practice.
The Informant filed a complaint before erstwhile Director General of Investigation and Registration, Monopolies and Restrictive Trade Practices Commission ("DGIR") in August 2009, alleging that Abbott India Ltd. ('Abbott') and Geno Pharmaceuticals ('Geno') stopped supply of essential medicines to some of its members on the ground that they have to first obtain 'No Objection Certificate' ('NOC') from All India Organisation of Chemists and Druggists ('AIOCD') or from KCDA; and due to such conduct, supplies of essential medicines have been restricted.
Pursuant to repeal of the Monopolies and Restrictive Trade Practices Act, 1969, the erstwhile DGIR transferred this matte to the CCI under Section 66(6) of the Act with the observation that at that stage, the alleged practice appeared to be a restrictive trade practice of refusal to deal. The CCI, vide its order dated 29th June, 2010, directed the Director General ('DG') to cause an investigation to be made into the matter.
DG found that the guidelines and norms prescribed by AIOCD and followed by KCDA impose restrictions inter alia on account of NOC or Letter of Cooperation ('LOC') from the state Chemists and Druggists Association is necessary for the appointment of new stockist or additional stockist. If the Association does not grant NOC/LOC, new or additional stockist cannot be appointed.
The DG further found that KCDA and AIOCD have indulged in actions and practices that are anticompetitive in nature and their guidelines, rules and regulations coupled with their anti-competitive conduct contributed to appreciable adverse effect in the market for pharmaceutical products, in contravention of the provisions of Section 3(3)(a) and Section 3(3)(b) of the Act.
DG also found that the margin of retailers and wholesalers have been fixed at 20% and 10% respectively. The DG concluded that KCDA prescribed the margins for wholesalers and retailers, which not only has the effect of fixing margins but also the effect of determining the sales price of nonscheduled drugs.
CONTENTIONS OF AIOCD
AIOCD contended that NOC practice acts as a benchmark to ensure that adequate quantity of drugs are available in the market and quality is not compromised. AIOCD claimed that NOC practice has evolved to prevent entry of spurious/doubtful quality drugs purchased from unauthorised sources. AIOCD also contended that there is no prohibition in law on manufacturers to consult an association regarding credibility of the person sought to be appointed as stockist.
Regarding fixing of trade margins, AIOCD submitted that Para 19 of Drugs (Prices Control Order) 2013 fixes trade margin of 8% and 16% for stockists and retailers respectively for scheduled formulations and therefore, the same cannot be termed as anticompetitive. Since DPCO did not fix margin in respect of nonscheduled formulations, a little higher trade margin of 10% for wholesalers and 20% for retailers has been agreed between manufacturers and stockist/retailers.
CCI'S FINDINGS AND ORDER
The CCI noted that the Complaint originated from the Informant's allegation that Abbott and Geno refused to supply drugs to the members of the Informant as they were not having NOC from KCDA or AIOCD. However, based on DG's findings it was noted by the CCI that there is no contravention by Abbott and Geno as temporary suspension of supply of medicine is due to the non-submission of the demand draft/ cheque or periodic internal review and not on account of want of NOC from KCDA or AIOCD.
The CCI found that the practice of mandating NOC prior to the appointment of stockists results in limiting and controlling of the supply of drugs in the market and amounts to anti-competitive practice, in violation of the provisions of Section 3(1) read with Section 3(3) (b) of the Act. Therefore, the CCI concluded that KCDA contravened the provisions of Section 3(1) read with Section 3(3)(b) of the Act.
The CCI further concluded that fixation of trade margins for wholesalers and retailers by KCDA has resulted in determination of the sale and purchase price of wholesalers and purchase price of retailers, which ultimately impacts and determines the sale price of the pharmaceutical products, that would have otherwise been determined by the market forces. Thus, the determination of trade margins for wholesalers and retailers by KCDA is in contravention of the provisions of Section 3(1) read with Section 3(3)(a) of the Act.
In view of the above findings, the CCI directed KCDA to cease and desist from indulging in the practice of mandating NOC as a prerequisite for appointment of stockist and fixing of trade margins for retailers and wholesalers.
Sale, stock and distribution of drugs are undertaken by pharmaceutical companies through their distributors, stockists, sales consignment agents, etc. In view of the above order of the CCI, the pharmaceutical companies should keep in view that supply to drugs to any person/entity or their appointment as distributor/stockist ought not to be subject to any NOC from any association or organization.
1. Case No. C-175/09/DGIR/27/28-MRTP.
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