2014 (3) TMI 445 - Commission - Companies Law

Suo-moto enquiry u/s 19(1) of the Act - Determination of sale price - Anti-competitive practice - Whether the BCDA is engaged in anti-competitive practice of directly or indirectly determining the sale price of drugs and controlling the supply of drugs in a concerted manner in violation of Section 3(3)(a) and 3(3)(b) of the Competition Act, 2002 Held that - BCDA being an association of its constituent enterprises, is taking decisions relating to distribution and supply of pharma products on behalf of the members who are engaged in similar or identical trade of goods and that such practices carried on, or decisions taken, by BCDA as an association of enterprises are covered within the scope of Section 3(3) of the Act - It is evident from the various minutes that BCDA and its affiliated District and Zonal Committees have taken concerted action against the retailers, largely the chain stores, who have indulged in sale of medicine below MRP by offering discounts to the customers - They had launched organizational movement with effect from 1st April, 2012 against these entities and have tried to enforce their decision regarding sale of drugs on MRP by activating Vigilance and Zonal Committees in the various Districts and Zones of Kolkata - Thus, the contention raised by BCDA that it has not taken any measures against those members who offered medicines at discounts does not appear to hold any trace of truth in it and is bound to be rejected. BCDA has not brought on record any evidence to suggest that the business of significant number of retailers was seriously affected by heavy discounts being offered by big retailers leading to closure of their business which compelled it to pass such resolutions - Even assuming without conceding that the argument put forth by BCDA is based on true facts/actual state of affairs, no such practice or decision which contravenes the law of the land in force can be allowed to continue - irrespective of the provision under which notice was issued, nonetheless an opportunity was given to Shri Tushar Chakraborty to meaningfully respond to the observations of the Commission thus, there was no violation of principles of natural justice. The Commission holds that the BCDA and its District and Zonal Committees were engaged in anti-competitive practices of directly or indirectly determining the sale prices of drugs and controlling or limiting the supply of drugs through concerted and restrictive practices, in violation of the provisions of Section 3(3)(a) and (b) read with Section 3(1) of the Act - The plea taken by the BCDA that since it has ceased from the practices of opposing sale of drug on discounts or selling them below MRP cannot be accepted thus, the Commission directs the BCDA and its office bearers & executive committee members to seize and desist from indulging in anticompetitive practices found to be anticompetitive in terms of the provisions of Section 3 of the Act. Penalty u/s 27 of the Act Held that - The anticompetitive acts and conducts require to be penalized to cause deterrence in future among the erring entities engaged in such actions - it is required that the degree of punishment is scaled to the severity of the violation - the position of BCDA to control the market of drugs and medicines in its area of operation is undoubted - the conduct of BCDA and its office bearers & executive committee members requires to be sternly dealt with - no mitigating factor is shown by the parties and none is borne out from the records thus, the Commission decides to impose a penalty on the BCDA and its those office bearers who are directly responsible for running its affairs and play lead role in decision making @10% and on the executive committee members @7%, of their respective turnover/income/receipts based on the financial statements filed by them Decided against the association.

Summary

Issues Involved:
1. Anti-competitive practices by BCDA and its committees.
2. Liability of BCDA's members/office bearers for these practices.

Issue-wise Detailed Analysis:

1. Anti-competitive practices by BCDA and its committees:

The Commission received an email on 28.08.2012 from Shri Arun Kumar Singh alleging that the Bengal Chemist and Druggists Association (BCDA) was engaged in anti-competitive practices by determining the sale price of drugs and controlling their supply, violating Section 3(3)(a) and 3(3)(b) of the Competition Act, 2002. Based on this information, the Commission initiated a suo moto enquiry under Section 19(1) of the Act. BCDA, an association of wholesalers and retailers of drugs affiliated with the All India Organization of Chemist and Druggist (AIOCD), allegedly directed its members not to offer discounts on MRP and enforced compliance through vigilance operations and punitive measures.

The Director of Drugs Control, West Bengal, also filed a reference against BCDA under Section 19(1)(b) of the Act, alleging similar anti-competitive practices. Investigations revealed that BCDA and its committees enforced the sale of drugs only at MRP, preventing price competition among retailers and controlling the supply of medicines through concerted actions, violating Sections 3(3)(a) and (b) read with Section 3(1) of the Act.

The Commission examined the minutes of BCDA's Executive Committee meetings from 2011 to 2013, which showed concerted actions against retailers offering discounts, including organizational movements, threats, and fines. The Commission found that BCDA's actions restricted competition and harmed consumers by preventing lower prices and innovative business practices.

2. Liability of BCDA's members/office bearers for these practices:

The Commission directed the DG to investigate the role of individual office bearers in decision-making. The DG's supplementary report identified office bearers and executive committee members involved in anti-competitive practices. The office bearers argued that Section 48 of the Act did not apply to them, as BCDA is a non-profit company under Section 25 of the Companies Act, 1956. However, the Commission held that the provisions of Section 27 of the Act were sufficient to make office bearers liable for contraventions without Section 48.

The Commission imposed penalties on BCDA and its office bearers and executive committee members, directing them to cease and desist from anti-competitive practices. Penalties were calculated based on their respective turnover/income/receipts.

Order:

The Commission directed BCDA and its office bearers to immediately cease anti-competitive practices and file an undertaking within 30 days. Penalties were to be deposited within 60 days, with amounts specified for each individual based on their financial statements.