2016 (5) TMI 1624 - AT - Law of Competition

Suppression of facts by the Informant makes the present proceedings infructuous - penalty under section 45(1)(b) of the Competition Act 2002 - contravention of any of the provisions of section 3 of the Act. Whether the suppression of facts by the Informant makes the present proceedings infructuous as alleged by the Opposite Parties? - Whether the Informant is liable to be penalized under section 45(1)(b) of the Act? - HELD THAT - Although it is not intended to penalise Respondent No. 2 by imposing fine under Section 45 of the Act having carefully perused the detailed information prepared by him on 31.03.2014 and his affidavit dated 09.04.2014 we do not have the slightest hesitation in recording a finding that he had deliberately suppressed the vital facts and documents from the Commission which resulted in passing of the order under Section 26(1) on the premise that Appellant No. 1 had refused to appoint Respondent No. 2 as a stockist and supply the medicines on the ground of non-production of NOC from AKCDA - It is neither the pleaded case of Respondent No. 2 nor it has been argued before us that he is an illiterate person. Rather the facts brought on record show that he is a graduate and has been in the business of medicines as a stockist of various pharmaceutical companies for last more than one decade. Therefore he cannot plead innocent ignorance for rebutting the charge of deliberately concealing the material facts and documents from the Commission. Whether the conduct/practices of OP 2 and/or OP 3 amount to contravention of any of the provisions of section 3 of the Act? - HELD THAT - The findings recorded by the Commission about the alleged complicity of Appellant No. 1 in the anti-competitive practices/conduct of Respondent No. 3 are self-contradictory and are perverse. Once the Commission found that Respondent No. 3 had been issuing diktats to the pharmaceutical companies or coercing them to insist on production of NOC for appointment of a person as a stockist or supply of medicines the element of agreement/concurrence automatically disappears and Appellant No. 1 could not have been held guilty of acting in violation of Section 3(1) of the Act. It is also an admitted position that after his appointment as a stockist by the competent authority i.e. Appellant No. 3 Respondent No. 2 applied for supply of medicines and the needful was done without asking for NOC from AKCDA. Indeed it is not even the case of Respondent No. 2 that Appellant No. 1 or any of its officers had demanded NOC before his appointment as a stockist in March 2014 or thereafter. Thus the entire edifice of the finding recorded by the Commission that Appellant No. 1 had acted in violation of Section 3(1) falls to the ground. Whether the Commission could have held Appellants Nos. 2 and 3 guilty by invoking Section 48(1) of the Act? - HELD THAT - Section 48 finds place in Chapter VI of the Act which contains various provisions relating to penalties that can be imposed by the Commission. Section 42 confers power upon the Commission to penalize any person who without reasonable cause fails to comply with the orders or directions issued by it under Sections 27 28 31 32 33 42A and 43A of the Act. Under Section 42(2) the Commission can impose fine to the extent of rupees one lakh for each day during which such non-compliance occurs subject to a maximum of rupees ten crore - The extent of penalty which can be imposed under that section extend to one percent of the total turnover or the assets whichever is higher of such a combination. Section 44 provides for imposition of penalty on a person who is a party to a combination and makes false statement in any material particular or knowing it to be false or omits to state any material particular knowing it to be material. The extent of penalty which can be imposed under this section is rupees fifty lakh to one crore. Section 45 empowers the Commission to punish any person who fails to provide necessary information or documents omits to state any material fact knowing it to be material or willfully alters suppresses or destroys any document which is required to be furnished. Section 46 confers power upon the Commission to impose lesser penalty than the one specified in the preceding sections. Since the provision contained in Section 48(1) raises a presumption of guilty against every person who at the time of contravention of the provisions of the Act by the company was incharge of and was responsible for the conduct of its business and visits him with penalty the same deserves to be construed strictly and in our view the deeming provisions contained in the two sub-sections of Section 48 can be invoked only after it is found that the company has contravened the provisions of the Act or any rule regulation order made and direction issued thereunder. The use of the word committed in the two sub-sections necessarily implies that before any person incharge of and responsible to the company or director manager etc. of the company can be proceeded against and punished by invoking the deeming provisions contained in Section 48(1) and/or (2) there must exist an affirmative finding by some competent authority that the company has contravened the provisions of the Act or any rule regulation etc. - in the absence of a determination by the Commission that the company has committed contravention of any of the provisions of the Act or any rule regulation etc. the deeming clause contained in Section 48(1) cannot be invoked for punishing the person incharge of and responsible to the company for the conduct of its business. Similarly the deeming provision contain in Section 48(2) cannot be invoked for penalising any director manager secretary or other officer of the company whose consent or connivance or negligence may have resulted in contravention of the provisions of the Act or of any rule regulation or order made or direction issued thereunder by the company unless a finding is recorded by the competent authority that the company has in fact contravened the provisions of the Act. In the present case the Commission initiated investigation into the role of the persons incharge of and responsible for the conduct of business to Appellant No. 1 at the threshold. This is crystal clear from paragraph 5 of order dated 29.09.2014 passed by the Commission under Section 26(1) of the Act. However the issues framed by the Jt. D.G. in Chapter 5 of his report which have been extracted in the earlier part of this order do not contain any indication that the role of Appellants Nos. 2 and 3 was also to be investigated. On his part Respondent No. 2 neither averred/alleged nor he led any evidence to prove that Appellants Nos. 2 and 3 were incharge of and were responsible to Appellant No. 1 for the conduct of its business. The Jt. D.G. did record a conclusion that Appellant No. 1 is equally complicit in the decisions being taken by AKCDA for appointment of stockists and supply of medicines. After considering the report of the Jt. D.G. in its ordinary meeting held on 23.04.2015 the Commission did direct that copy thereof be supplied to the parties and 11 individuals including Appellants Nos. 2 and 3 but the proceedings recorded in that meeting or the communications sent to the two appellants did not contain any indication about the action proposed to be taken against them under Section 48(1) of the Act - Appellants Nos. 2 and 3 did not get an opportunity to show that Section 48(1) cannot be invoked against them because they were neither the incharge of nor responsible to Appellant No. 1 for the conduct of its business. Therefore it must be held the penalty imposed by the Commission on Appellants Nos. 2 and 3 by invoking Section 48(1) is also vitiated due to the violation of rule of audi alteram partem and is liable to be declared as nullity. In any case once the Tribunal has come to the conclusion that the finding recorded by the Commission against Appellant No. 1 is legally unsustainable the consequential penalty imposed by the Commission on Appellants Nos. 1 2 and 3 cannot be sustained and is liable to be quashed. Conclusion - The evidence did not support the allegations of anti-competitive conduct or the individual liability of Appellants Nos. 2 and 3. The impugned order set aside - appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in the judgment include:

• Whether the suppression of facts by the Informant (Respondent No. 2) makes the proceedings infructuous and whether the Informant is liable to be penalized under section 45(1)(b) of the Competition Act, 2002.
• Whether the conduct/practices of Alkem Laboratories Ltd. (Appellant No. 1) and/or All Kerala Chemists and Druggists Association (AKCDA - Respondent No. 3) amount to contravention of any provisions of section 3 of the Competition Act, 2002.
• Whether Appellants Nos. 2 and 3 can be held liable under Section 48(1) of the Act for the anti-competitive conduct of Appellant No. 1.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Suppression of Facts by the Informant

• Relevant Legal Framework and Precedents: Section 45(1)(b) of the Competition Act, 2002, which deals with penalties for making false statements or omissions.
• Court's Interpretation and Reasoning: The Commission found that the Informant had suppressed material facts, such as his appointment as a stockist by Appellant No. 3 and the supply of medicines, which could have influenced the Commission's decision to initiate an investigation.
• Conclusions: Despite the suppression, the Commission did not penalize the Informant, concluding that the non-disclosure was not significant enough to warrant action under Section 45(1)(b).

Issue 2: Anti-competitive Conduct of Appellant No. 1 and AKCDA

• Relevant Legal Framework and Precedents: Section 3(1) of the Competition Act, 2002, which prohibits anti-competitive agreements.
• Court's Interpretation and Reasoning: The Commission found that AKCDA had been issuing diktats to pharmaceutical companies to obtain NOC before appointing stockists, which Appellant No. 1 allegedly complied with, thus contravening Section 3(1).
• Key Evidence and Findings: The Commission relied on complaints and communications suggesting that AKCDA exerted pressure on pharmaceutical companies, including Appellant No. 1, to follow its instructions.
• Conclusions: The Commission concluded that Appellant No. 1 acted in violation of Section 3(1) by facilitating AKCDA's anti-competitive practices.

Issue 3: Liability of Appellants Nos. 2 and 3 under Section 48(1)

• Relevant Legal Framework and Precedents: Section 48(1) of the Competition Act, 2002, which holds individuals in charge of a company liable for the company's contraventions.
• Court's Interpretation and Reasoning: The Commission found Appellants Nos. 2 and 3 liable under Section 48(1) based on their positions within the company, despite a lack of direct evidence showing their involvement in the anti-competitive conduct.
• Conclusions: The Tribunal found that the Commission's decision to hold Appellants Nos. 2 and 3 liable was not supported by evidence and violated principles of natural justice.

3. SIGNIFICANT HOLDINGS

• Core Principles Established: The judgment emphasizes the need for evidence to support findings of contravention under Section 3(1) and the importance of adhering to principles of natural justice, especially when invoking Section 48(1) to hold individuals liable.
• Final Determinations on Each Issue: The Tribunal set aside the Commission's findings against Appellants Nos. 1, 2, and 3, concluding that the evidence did not support the allegations of anti-competitive conduct or the individual liability of Appellants Nos. 2 and 3.

The Tribunal's decision underscores the necessity for thorough and evidence-based investigations in competition law cases and highlights the procedural safeguards that must be observed to ensure fair adjudication.