The questions which arise for consideration in these appeals filed against order dated 05.02.2014 passed by the Competition Commission of India (for short, the Commission) in Case No. 60 of 2012 titled M/s. Arora Medical Hall, Ferozepur versus Chemists and Druggists Association, Ferozepur and seven others are whether the practice allegedly followed by Chemists and Druggists Association, Ferozepur (appellant in Appeal No. 21 of 2014) (hereinafter referred to as, the Association) making it mandatory for anyone desirous of taking up distributorship of medicines of any pharmaceutical company in Ferozepur to obtain No Objection Certificate (NOC) and Letter of Credit (LOC) on payment of Rs. 2100/- per company is violative of Section 3(3)(b) read with Section 3(1) of the Competition Act, 2002 (for short, the Act), whether the resolution dated 26.05.2012 passed by the Association to boycott Respondent No. 2 - M/s. Arora Medical Hall and to penalise any retailer purchasing medicine from the said respondent is anti-competitive and violative of Sections 3(3)(b) of the Act and whether the penalty imposed by the Commission under Section 27 of the Act is legally sustainable.
2. The Indian Drug Manufacturers Association (IDMA) and Organisation of Pharmaceuticals Producers of India (OPPI) are the pan India associations of drug manufacturers, whereas All India Organisation of Chemists and Druggists (AIOCD) is the apex association of wholesalers and retailers of drugs at all India level. The industry norms relating to various commercial aspects get determined collectively through continuous interaction between these apex associations. There are various state level and district level associations, who look forwards the apex association for guidance and follow the rules, regulations and various guidelines issued by the aforesaid apex association to bring uniformity and standardisation in the pharmaceutical industry. The pharmaceutical industry in India is regulated by the Drugs and Cosmetics Act, 1940 (DCA) and the Drug and Cosmetics Rules (DCR) made thereunder. Under the provisions of the DCA, the office of the Drug Controller of India (DCI) is responsible for enforcing the provisions of the law. At the field level, enforcement is done by the State Governments through their Food and Drug Administration offices.
3. The spread of various district level associations across India is essential to harmonize the vertical relationships between the pharmaceutical companies, the wholesalers and the retailers, as the interests of the said parties are interlinked and sometimes overlapping. In fact, the chemists and druggists associations at the district level play a vital role in streamlining the distribution process and encourage healthy competition at different stages or levels of the production chain or provision of services, in their respective regions.
4. The Association is an unregistered body of chemists and druggists operating in District Ferozepur, Punjab. It is affiliated to Punjab Chemists Association (hereinafter referred to as PCA), which, in turn, is affiliated to All India Organisation of Chemists and Druggists (hereinafter referred to as AIOCD). The Association functions as per the rules, regulations and guidelines framed by the PCA and AIOCD. Though the membership of the Association is not mandatory, more than 200 chemists and druggists (wholesalers and retailers) operating in the district are its members. Even those who are not members of the Association are doing their business of chemists and druggists in the district. The Association has not framed rules or regulations or issued guidelines of its own to its members for conducting their business and its main function is to safeguard the interest of wholesalers and retailers against any discriminatory or unfair practice of pharmaceutical companies. S/Shri Gurpreet Singh, H.C. Gupta, A.K. Gupta, Shyam Lal Kakkar, R.S. Bakshi, Chaman Lal Kakkar and Ashwini Garg, (appellants in Appeal Nos.22 to 28 of 2014) are office-bearers of the Association.
5. Respondent No.2 is the largest wholesale dealer of the drugs manufactured by several companies including Ranbaxy, Abbott Solvey, Abbott Piramal, Abbott India, Ozone, Sun Pharma, Alkem, Alkem Gencare, Hetero, Johnson & Johnson, Glenmarks Gracewel, Pfizer, Pfizer Pharmacia, Cutic, Leeford, Canvarzys, Inuida, Apex Labs, Organon, MSD, Fullford, Modi Mundi, Biocon, Macleods etc. Its area of operation is in and around District Ferozepur, Punjab.
6. Respondent No. 2 was a member of the Association till June, 2010. In 2005, the Association initiated disciplinary action against Respondent No. 2 because it was misusing its monopoly position in the district. Letter dated 16.07.2005 was also written by the Association to some pharmaceutical companies about the highhanded attitude of Respondent No. 2 towards the retailers and it was requested that they may consider appointing more wholesalers for covering about 300 retailers operating in Ferozepur district. After some time, membership of Respondent No. 2 was suspended. That action was revoked after Respondent No. 2 tendered apology vide letter dated 06.10.2007.
7. In 2010, several retailers complained that Respondent No. 2 was indulging in fraudulent billing by manipulating computer software and other malpractices. Thereupon, the Association issued a notice to Respondent No. 2 to explain its position. However, he did not respond to the notice. Therefore, by an order dated 09.06.2010, the Association terminated the membership of Respondent No. 2. That decision has become final because the same is not shown to have been challenged by Respondent No.2 before any court of law or other competent adjudicatory body.
8. Notwithstanding the termination of its membership, Respondent No. 2 continued to abuse its dominant position. The retailers repeatedly complained that Respondent No. 2 was not deducting the price of expired medicines from the total bills and was overcharging them. In the backdrop of these complaints, a meeting of the general body of the Association was convened on 23.05.2012 for considering the allegations levelled against Respondent No. 2. The meeting was attended by 79 members. After discussing the complaints, the Association passed the following resolution : During the course of meeting retailers showed bills where cheating was done while calculating value of expired medicines. Retailers were very much annoyed with the scandal of Arora Medical Hall. They shouted to stop dealing (with sic) M/s. Arora Medical Hall till the adjusting (sic adjustment) of cheated amount of all bills of retailers. Now I being Secretary of Chemists Association Ferozepur asked retailer to decide suitably so that cheating is adjusted, instead of boycott. Two guests who came from Fazilka District (1) Mr. Sanjiv Kumar Sanjiwani Medicos (2) Mr. Ashok Kumar Chhabra (Kdi) President District Fazilka suggested to all retailers to do not take any harsh decision but give Arora Medical at least 2 days to explain his status about the cheating done by him. He should contact President Mr. Chaman Lal Kakkar Ferozepur within two (2) days. If he do not turn up to contact President then three member committee can take action for non-cooperation. According non- cooperation was declared. Members were asked to make payment of all previous bills to M/s. Arora Medical Hall. This was the whole episode of M/s. Arora Medical Hall, Ferozepur versus Retail Chemists who were cheated. Sd/- Shyam Lal, Secretary
9. Although, the aforesaid resolution envisaged that if Respondent No.2 does not turn up to contact the President, then a three Member Committee may take action for non-cooperation but Respondent No. 2 appears to have defied the same. Therefore, an extraordinary meeting of the Executive Committee was held on 26.05.2012 and it was resolved that the members should not purchase the medicines from Respondent No. 2. It was further resolved that if any member defy the ban then it will have to pay a fine of Rs.11,000/- for each violation. In furtherance of that resolution, the President of the Association issued circular dated 27.05.2012, which reads as under : Ref. No Dated : 27.05.2012 Dear Member, RE : Unity is Strength Strength is Survival We are pertinent to mention here that the subject matter speaks volumes of Strength, we have in our association, you had recently exhibited in our General Body Meeting held on 23rd instant. I salute each and every member of our well knot association who have stood as one unit on one platform. I feel real pride to be one amongst you and lead this proud family of our beloved chemists brothers. Hats off to you once again. I would recall and request you all to show your strength on a common cause Out You are Once for all. It is scandalous world. No one has right to lead scandalous life. Isnt it? Do you agree with me. We have to strike this panic and the decision is yours. We are unanimous in one voice. In order to meet this serious eventuality, an extraordinary meeting of the executive under the chair of President was held on 26-05-2012. Following decisions were taken for the Association and it was decided that these decisions are implemented most seriously right from the date of this circular by each and every chemist.
1. It was decided in the General Body Meeting held on 23-05-2012 to give M/s Arora Medical Hall time for 2-3 days to clear his position before taking further action. He has not responded to our call so far.
2. Absolute Boycott with M/s. Arora Medical Hall, Ferozepur City. He is not member of our Association and gone to the extent to compromise our dignity in scandals.
3. Stop purchasing goods from him immediately. No more dealings with him with immediate effect. Any chemist defying this decision will be fined Rs.11,000/-.
4. Till further orders, you are requested not to make him pending payments after you check the bills.
5. All the whole-sellers are further requested to stop dealings with the particular retailer who continue purchasing goods from M/s. Arora Medical Hall. I hope it makes you all clear. I always look forward for your whole hearted cooperation. Cordially yours (Chaman Lal Kakkar) President (Since the circular has been reproduced ad verbatim from the paper book of the Appeal the mistakes contained therein have got repeated hereinabove).
10. Respondent No. 2 challenged the aforementioned resolution and circular by filing civil and criminal cases, the details of which are given below :
i) Civil Suit No. 311/2012 filed in the Court of Civil Judge (Senior Division), Ferozepur for award of damages to the tune of Rs.5 lacs. ii) Civil Suit No.689/2012 filed in the Court of Civil Judge (Senior Division), Ferozepur for grant of a declaration that resolution dated 26.05.2012 and circular letter dated 27.05.2012 issued by the Association were wrong, illegal, null and void, ineffective and inoperative. iii) Criminal proceedings under Section 499 and 500 of Indian Penal Code were filed for defamation. (In both the suits, Respondent No. 2 impleaded the appellants herein as party defendants).
11. Some of the members (retailers) of the Association also filed First Information Report dated 01.09.2012 against Respondent No. 2 at Police Station Ferozepur City under Section 420 of the Indian Penal Code read with Section 66(1) of the Information Technology Act, 2000. The allegation levelled by the retailers was that Respondent No. 2 had issued inflated computerised bills without deducting the amount of expired drugs and medicines returned by them and this was despite the fact that the billing software automatically deducts the amount for expired medicines returned to Respondent No. 2.
12. In paragraphs 3, 4, 6, 7 and 8 of the suit filed for declaration, Respondent No. 2 made the following averments :
3. That the defendant association circulated a letter in the market with malice and with a plan to defame the business carried on by the plaintiff firm on 22.5.2012 vide which a general body meeting was called for 23.5.2012 at J.B. Resort Ferozepur Cantt at 8 PM on the following Agenda :
i) Scandal of M/s Arora Medical Hall ii) Misappropriation while calculation in the bills. The plaintiff firm through its partners have not called in the said meeting by the defendants.
4. That the defendant association wrongly and illegally passed resolution on 26.5.2012 circulated on 27.5.2012 under which the defendants wrongly and illegally decided and bycott the plaintiff firm and further asked others to stop dealings with the plaintiff firm with immediate effect. The defendants further instructed the dealers to stop dealings and if anybody found defined the decision of the defendant association, he will be fined Rs. 11000/-. The defendants further wrongly and illegally decided and requested other dealers not to make pending payments to the plaintiff firm and other whole salers were also requested to stop dealings with the plaintiff firm.
6. That the plaintiff firm deals in medicines and they very well understand the role of whole saler in the society. The plaintiff firm have all the qualities of good businessman and is respected by all, who came in contact with them either as retailers or as customers and from the society. Since the plaintiff is having flourishing business and his annual turnover is approximately Rs. 5 Crores while the defendants being competitors always feel jealous of it and always expect that the plaintiff should pay money to the defendant association.
7. That the defendants in the meeting as well as in the resolution referred above had intentionally used derogatory and defamatory remarks against the plaintiff firm and by using defamatory words in the above said meeting as well as published in the resolution, which intended to be read, heard, published, imputation concerning the plaintiff firm with the intention to harm and having reason to believe that such imputations will harm and reputation of the plaintiff firm, the defendants had defamed the plaintiff firm wrongly and illegally and as such the defendant association is liable to compensate the plaintiff firm besides to tender unconditional apology. The plaintiff firm is also entitled to sue the defendants under criminal law and will also retain their right to challenge the abovesaid resolution.
8. That the said false imputations against the business dealings of the plaintiff firm were made by the defendants, which had lowered the moral and intellect character of the plaintiff firm in the estimation of others and thus the plaintiff firm is entitled to claim damages from the defendants. The plaintiff firm have suffered a great loss to their business and reputation, which cannot be calculated in terms of money and the false allegations against the plaintiff firm had caused huge mental stress, stain and torture to them. The reputation of the plaintiff firm has been lowered in the estimation of others by serving agenda, holding meeting and further by passing and serving resolution on false facts. Several retailers and whole salers also came to know about the said resolution and agenda and the publication of the facts alleged in the said resolution. The reputation of the plaintiff firm in the eyes of office staff, customers, retailers as well as whole salers including doctors etc. have been lowered in their estimation, which gave a cause of action to the plaintiff firm against the defendants for levelling false allegations. The prayer made in that suit was : Hence, it is prayed that a decree of declaration to the effect that the resolution dated 26.5.2012 circulated vide letter dated 27.5.2012 passed by defendants whereby they have wrongly and illegally bycotted the dealings with the plaintiff firm and defamed the plaintiff firm in the estimation of others is wrong, illegal, null and void, ineffective and inoperative on the rights of the plaintiff firm and is liable to be set aside; With consequential relief of mandatory injunction directing the defendants to withdraw the said resolution and to tender unconditional apology on the basis of oral and documentary evidence may kindly be passed in favour of the plaintiff and against the defendants with costs of the suit.
13. In the suit filed for damages, Respondent No. 2 repeated the averments made in the suit for declaration and prayed for award of damages to the tune of Rs. 5 Lacs with costs along with pendente lite and future interest @ 12% per annum till realization.
14. In Civil Suit No. 311-1 of 2012, filed for award of damages, learned Additional Civil Judge (Senior Division), Ferozepur framed the following issues:
1. Whether the defendants defamed the plaintiff? OPP
2. If Issue No.1 proved, whether the plaintiffs are entitled to damages as prayed for? OPP
3. Whether the suit of the plaintiff is barred under provisions of Order 2 rule 2 CPC? OPD
4. Whether the suit of the plaintiff is bad for misjoinder and non- joinder of necessary parties? OPD
5. Relief. In Civil Suit No. 689-1/2012 filed for declaring resolution dated 26.05.2010 circulated dated 27.05.2012 as nullity, the learned Civil Judge (Senior Division), Ferozepur framed the following issues:
1. Whether the plaintiff is entitled for declaration as prayed for? OPP
2. Whether the plaintiff is entitled to the consequential relief of mandatory injunction against defendants? OPP
3. Whether the plaintiff has got no locus standi to file the present suit?
4. Whether the suit is not maintainable in the present form? OPD
5. Relief.
15. Both the suits were tried by the Additional Civil Judge (Senior Division), Ferozepur and were dismissed by common judgment dated 12.05.2015, paragraphs 12 to 19 of which are reproduced below :
12. I have heard learned counsel for the parties and have gone through the file carefully. My findings on the aforesaid issues are as under :- Issue in Case NO.311-1 of 02.06.2012 ISSUE NO.1. Whether the defendants defamed the plaintiff? OPP ISSUE NO.2. If issue No.1 proved, whether the plaintiffs are Entitled to damages as prayed for? Issue in Case No.689-1 of 2.06.2012 ISSUE NO.1 Whether the plaintiffs is entitled for declaration as prayed for? ISSUE NO.2 Whether the plaintiff is entitled to the Consequential relief of mandatory injunction Against defendants?
13. Issues No.1 and 2 of both the suits are taken up together being interlinked and to avoid any repetition in discussion. To prove all these issues the onus was heavily upon the plaintiff. Plaintiff Rajesh Arora himself appeared into the witness box as PW1 in support of his own case. He examined Amandeep Singh son of Bhagwan Singh as PW2 (though he has not come present for his cross-examination). The plaintiff further examined Sajjan Kumar Grover son of Udey Shanker Grover as PW3. No other witness examined by the plaintiff.
14. To rebut the contention of the plaintiff, defendant R.S. Bakshi himself stepped into the witness box as DW1, whose statement is corroborated by Sham Lal Kakkar son of Diwan Chand who appeared as DW2. No other witness examined by the defendants.
15. After hearing the rival contentions of both the counsel for the parties, I am of the considered opinion that present suit is for decree of recovery of Rs.5 lacs as damages along with interests on account of lowering the reputation of the plaintiff in estimation of others and loss of business. If the plaintiff succeeds to prove that with the act of defendants he has been defamed and his reputation has been lowered down, in that event only the plaintiff is entitled for the recovery as prayed for. The plaintiff is also burdened with the onus to be discharged that defendants have wrongly and illegally boycotted the dealings with the plaintiff firm vide resolution dated 26.05.2010 circulated vide letter dated 27.05.2012, therefore, defendants are liable to be withdraw the said resolution and to tender unconditional apology. From the entire evidence on the record I have come to the conclusion that plaintiffs have miserably failed to discharge this onus that by circulating any resolution by which the defendants boycotted the dealings with the plaintiffs, the reputation of the plaintiff in estimation of others have been lowered down and there was loss in their business. The cross-examination of plaintiff clinches the entire matter and helps the court to reach at the just conclusion of the case. It comes out that plaintiff firm remained the member of defendant association since the year 1989 to 2010 i.e. from the year when the plaintiff firm started its initial business in the year 1989. Admittedly the plaintiff firm was expelled from the membership of association by the defendants and that expulsion order never challenged by the plaintiffs till today. In these circumstances as the plaintiff remained no member of the defendant association, his suit becomes infructuous. The plaintiff firm is no more member of the defendant association after 2010 and present suit is filed in the year 2010 without submitting any representation to the defendant association to reconsider his expulsion.
16. It is to be seen even otherwise it is not proved on the record that with the circulation of any resolution by the defendants the reputation of the plaintiffs has been lowered down in the eyes of others. Saajan Kumar Grover when stepped into the witness box as RW3 clarifies that he is medical representative of Hethro Drug Company and he infact does not know the actual dispute between the parties. He admits that as per his estimations Rajesh Kumar being partner of the plaintiff firm is nice person and he has been dealing with him in the same manner in which he had been dealing earlier. Though he stated that several of the medical agencies refused to purchase the medicines from the plaintiff firm, but this contention is highly baseless and without any cogent proof on the record. Admittedly this witness is not in position of any document to prove the fact that the area of Ferozepur which is with him ever refused to purchase the medicines from the plaintiff. Except this witness the plaintiff has not examined any person from the locality who came and depose that with the circulation of any resolution the reputation of the plaintiff firm lowered down in the eyes of others.
17. As well as the monetary loss to the plaintiff firm is concerned, the same is neither pleaded nor proved on the record by any cogent evidence. Rather it comes out from the cross-examination of plaintiff itself that he has withheld the best evidence to prove the fact that due to any act of the defendant he has suffered monetary loss. Plaintiff failed to bring the account books of his firm from 2008 till date to show the total sale of medicines. It is not out of sight that he was even directed to produce the original account books for the relevant period but he failed to bring the same. Adverse inference is liable to be drawn against the plaintiffs for withholding the best evidence on the file. Even the statement of Sajjan Kumar PW2 regarding decreasing the sale of medicines and earnings from Rs.75,000/- to Rs.15,000/- per month is without any documentary proof. In these circumstances this fact has also not been proved on the record. Even it is nowhere pleaded that any mental agony was being faced by the plaintiffs due to the circulation of resolution. Most importantly it is liable to be added here that the resolution which the plaintiff is challenging through this suit is never produced and proved on the record. The cause of action is pleaded to be accrued on passing of resolution and on refusal by the defendants to pay the amount but not on account of lower the reputation of the plaintiffs in estimation of others and as and when there was loss of business. The other points raised by the parties to the suit are not the subject matter and the court is not to decide all that controversy between the parties. Keeping in view the above discussion all these issues are decided against the plaintiffs and in favour of the defendants.
18. The onus to prove all these issue was upon the defendants. These issues were not pressed by the learned counsel for the defendants during the course of arguments. So all these issues are decided against the defendants and in favour of the plaintiffs. RELIEF.
19. In view of my findings on issues No. 1 and 2 in both the suits, both the suits are dismissed with costs. Original judgment be placed in Civil Suit No. 311-1 dated 02.06.2012 titled as M/s. Arora Medical Hall vs. Chemists and Druggists Association, Ferozepur and another whereas attested copy of this judgment be placed in consolidated suit bearing Case No. 689-1 of 2.06.2012 titled as M/s. Arora Medical Hall Vs. Chemists and Druggists Association, Ferozepur and another. Decree sheets be prepared separately and the files be consigned to the Judicial Record Room, Ferozepur.
16. The criminal complaint filed by Respondent No.2 was dismissed by the concerned court for want of prosecution.
17. During the course of hearing of these appeals, Ms. Soni Singh, learned counsel for the Commission stated that as per her information, Respondent No.2 has challenged the judgment and decree dated 12.05.2015 by filing appeals and the order dismissing the criminal complaint has been challenged by filing a petition in the Court of Session Judge, Ferozepur.
18. While the civil suits and criminal complaint filed by him were pending, Respondent No.2 filed an information dated 20.09.2012 under section 19(1)(a) of the Act with the allegations that the requirement of NOC and LOC prescribed by the Association as a condition for taking distributorship is violative of Sections 3 and 4 of the Act. Respondent No. 2 further alleged that the Association was putting pressure on other wholesalers not to supply medicines to the retailers, who were purchasing medicines from it and this clearly amounts to violation of Section 3(3) of the Act in as much as it would affect supply of medicine. Another allegation made by Respondent No. 2 was that in 2010 it had objected to the mandatory requirement of NOC/LOC and on that account it was expelled from the primary membership of the Association. According to Respondent No.2, resolution dated 26.05.2012 and circular dated 27.05.2012 were intended to wipe out competition from the market and by taking advantage of its dominant position, the Association was directly and indirectly imposing unfair or discriminatory conditions on the purchase or sale of medicines. In the end, Respondent No.2 made the following prayers :
1. The acts of the OPs in violation of Section 3(4) and Section 4(2) of the Act, and, the acts of restricting competition and abusing dominant position in the distribution and sale of medicines including life saving drugs, be inquired and fined heavily as per the provisions of the Competition Act, 2002.
2. Grant of Interim Relief by issuing orders to the OPs to withdraw the boycott letter dated 27.05.2012.
3. The IP be granted damages of Rs.50 lakhs for business lost from June 2012 till date with interest @ 12% per annum till realization from OP1.
4. The OPs be directed to pay the costs suffered by the IP.
5. The Commission may pass any other order apart from the above in favour of the IP as deemed fit including the cost of the present suit.
19. The Commission considered the information filed by Respondent No.2 and felt prima facie satisfied that a case of violation of Sections 3 of the Act is made out. The Commission also opined that the office-bearers of the Association who are competitors of Respondent No.2 had a strong motivation to distort competition in the market by issuing letter dated 27.05.2012. On that premise, the Commission passed an order dated 30.10.2012 under Section 26(1) of the Act and the directed the Director General to cause an investigation to be made into the allegations made by Respondent No. 2.
20. On receipt of the aforesaid order, the Director General entrusted the investigation to the Joint Director General (Jt. DG). The latter issued notices to the Association under Section 36(2) read with Section 41(2) of the Act requiring it to furnish certain information and also produce the relevant rules, regulations, bye-laws and documents. Similar notices were issued to the other appellants and they were called upon to explain their role as office bearers of the Association and also furnish income-tax returns for the assessment years 2010-11, 2011-12 and 2012-13. PCA and AIOCD and some of the wholesalers and retailers operating in Ferozepur were called upon to explain their stand in the context of the allegations made by Respondent No. 2. Pharmaceutical companies, namely, Merck Limited, M/s. Intas Pharmaceutical Limited, M/s. Abbott India Limited, M/s. Apex Laboratories Limited, M/s. Glenmark Pharmaceuticals Limited, M/s. Invida India Private Limited, M/s. Macleods Pharmaceuticals Limited, M/s. Sun Pharmaceuticals Limited, M/s. Zuventus Healthcare Limited, M/s. J.B. Chemicals & Pharmaceuticals Limited, M/s. Tayal Associates, M/s. Punjab Medical Agencies, M/s. Ferozepur Medical Agency, M/s. Bhagwati Medilinkers, M/s. Ganpati Pharmaceuticals and M/s. Dimple Enterprises were also called upon to file their responses to the allegations made by Respondent No. 2 that NOC/LOC has been made mandatory by the Association for doing business as Chemists and Druggists in District Ferozepur.
21. The Association filed four replies dated 31.12.2012, 11.02.2013, 25.03.2013 and 08.04.2013 and supplied the required information and documents to the Jt. DG including circular dated 15.04.2006. Simultaneously, it controverted allegations made by Respondent No. 2.
22. The office-bearers of the Association, who are appellants in Appeal Nos.22 to 28 of 2014 filed separate replies, the dates of which are given below :
1. Shri Chaman Lal Kakkar President - 03.12.2012
2. Shri H. C. Gupta Vice President - 03.12.2012
3. Shri A.K. Gupta - Vice President - 06.12.2012
4. Shri Shyam Lal Kakkar Secretary - 29.11.2012, 23.01.2013 and 09.05.2013
5. Shri R.S. Bakshi - Joint Secretary - 29.11.2012, 16.01.2013 and 04.05.2013
6. Shri Ashwani Garg - Treasurer - 06.12.2012
7. Shri Gurpreet Singh PRO - 03.12.2012
23. Respondent No. 2 on whom notice was issued by the DG submitted three responses on 19.11.2012, 17.04.2013 and 21.04.2013. Shri Rajesh Arora claiming to be the partner of Respondent No. 2 filed affidavit dated Nil, which reads as under : I Rajesh Arora S/o Shri Beli Ram Arora Partner of M/s Arora Medical Hall, Bazar Krishan Sudama, Mohalla Peeran Wala, Ferozepur City 152002 (pb) do hereby solemnly affirm and declare that the sales of M/s Arora Medical Hall, Ferozepur City for particularly in Ferozepur has been reduced from Rs. 2,23,18,399.82 (Rupees two crore twenty three lacs eighteen thousand three hundred ninety nine and eighty two paisa) only for the period from 01-06-2011 to 31-03-2012 to Rs. 39,70,718.36 (Rupees thirty nine lacs seventy thousand seven hundred eighteen and thirty six paisa) only for the period from 01-06-2012 to 31-03-2013 Resulting into a net loss of sales in Ferozepur is Rs.1,83,47,681.46 (Rupees one crore eighty three lacs forty seven thousand six hundred eighty one and forty six paisa) only. Deponent The above statements submitted by me are true as per records and nothing has been concealed by me.
24. PCA and AIOCD filed their replies on 14.05.2013 and 26.02.2013 respectively. They talked about their respective affiliations as also affiliations of district bodies and referred to the practice of NOC.
25. The pharmaceutical companies to whom notices were issued by the Jt. DG filed their responses on different dates, which are detailed below :
1. M/s. Merck Limited 25.03.2013
2. M/s. Intas Pharmaceutical Limited 02.04.2013
3. M/s. Abbott India Limited 15.04.2013
4. M/s. Apex Laboratories Limited 21.03.2013 and 07.04.2013
5. M/s. Glenmark Pharmaceuticals Limited 08.04.2013
6. M/s. Invida India Pvt. Ltd. 09.04.2013
7. M/s. Macleods Pharmaceuticals Limited 25.03.2013
8. M/s. Sun Pharmaceuticals Limited 08.04.2013
9. M/s. Zuventus Healthcare Limited 16.04.2013
10. M/s. J. B. Chemicals & Pharmaceuticals Ltd. 09.05.2013
26. Some of the dealers to whom also notices were issued by the Jt. DG also submitted their replies on different dates which are detailed below :
1. M/s. Tayal Associates 06.04.2013
2. M/s. Punjab Medical Agencies 08.04.2013
3. M/s. Ferozepur Medical Agency 02.04.2013
4. M/s. Bhagwati Medilinkers 05.04.2013
5. M/s. Ganpati Pharmaceuticals 08.04.2013
6. M/s. Dimple Enterprises 07.04.2013
27. The Jt. DG also recorded the statements of the office bearers of the Association, Shri Rajesh Arora (partner of Respondent No. 2 ) and Shri Surjit Mehta, President, PCA, who also produced copy of the memorandum of Association. Of course, no opportunity was given to the Association and other appellants to controvert the averments contained in the responses filed by Respondent No. 2 or to cross-examine him in the context of his statement.
28. After completing the aforesaid exercise, the Jt. DG submitted report dated 10.06.2013. He briefly adverted to the allegations contained in the information, the directive given by the Commission under Section 26(1) and formulated the following issues :
1. Whether the decisions taken by OP1 in its Extra Ordinary Meeting held on 26.05.2012 and the directions given vide its Circular dated 27.05.2012 violate any provisions of the Competition Act, 2002.
2. Whether the office bearers of OP1 had formed a cartel to eliminate competition in the relevant market i.e. the market of drugs and medicines in Ferozepur, Punjab.
3. Whether, OP1 stipulates any condition regarding NOC / LOC necessarily required to be taken from it prior to appointment of any new or additional stockist in Ferozepur as alleged by the IP, and if so, whether such stipulation falls foul with any of the provisions of the Competition Act.
4. Whether OP1 and its office bearers are engaged in any other activities or following any practices in addition to those alleged by the IP which contravene the provisions of the Act.
5. Examination of the role of State level Association i.e. Punjab Chemists Association (PCA) and All India Organisation of Chemists and Druggists (AIOCD).
29. The Jt. DG then recorded the brief summary of the replies/written submissions filed by the Association and other appellants, Respondent No. 2, PCA, AIOCD, pharmaceutical companies, namely, M/s. Merck Limited, M/s. Intas Pharmaceuticals Limited, M/s. Abbott India Limited, M/s. Apex Laboratories Limited, M/s. Glenmark Pharmaceuticals Limited, M/s. Invida India Private Limited, M/s. Macleods Pharmaceuticals Limited, M/s. Sun Pharmaceuticals Limited, M/s. Zuventus Healthcare Limited, M/s. J.B. Chemicals & Pharmaceuticals Limited, the wholesalers/stockists namely, M/s. Tayal Associates, M/s. Punjab Medical Agencies, M/s. Ferozepur Medical Agency, M/s. Bhagwati Medilinkers, M/s. Ganpati Pharmaceuticals and M/s. Dimple Enterprises, referred to the answers given by the appellants in Appeals Nos. 22 to 28 of 2014 to the particular queries made to them and recorded the following conclusions:
1. In view of the above, investigation has concluded that the decisions taken by OP1 in its Extra Ordinary Meeting held on 26.05.2012 and the directions issued vide its Circular dated 27.05.2012 violate clause (b) of sub-section (3) read with sub- section (1) of Section 3 of the Act as the same limit and control the supply of drugs and medicines in Ferozepur.
2. Investigation has concluded that OP1 and its office bearers / Executive Committee members i.e. OP 2 to OP 8, have, by taking the decisions in the Extra Ordinary Meeting held on 26.05.2012 and circulating the same vide Circular dated 27.05.2012 contravened the provisions of Section 3(3)(b) read with Section 3(1) of the Act.
3. Based on the above, investigation has concluded that OP1 has been following a practice of NOC necessarily required to be taken from it prior to appointment of a new / additional stockist in Ferozepur which has the effect of limiting and controlling the supply of drugs and medicines in Ferozepur thereby contravening the provisions of Section 3(3)(b) read with Section 3(1) of the Competition Act.
4. Based on the above, investigation has not come across any evidence suggesting that OP1 has been indulging in any activities or following practices other than those detailed in the foregoing paras of the Report which contravene the provisions of the Act such as PIS approval and fixation of trade margins.
5. Based on the above facts and analysis, investigation has concluded that till Punjab Chemists Association amends its Rules & Regulations regarding authorization given by it to District level Associations to issue NOC / LOC for appointment of stockists and till PCA issues formal directions to its affiliated associations to cease and desist from the practice of NOC / LOC for appointment of new / additional stockists, PCA does not get absolved from being a party to the practices being followed by its affiliated Association viz OP1, which have the effect of limiting and controlling supplies and as such PCA is contravening the provisions of Section 3(3)(b) read with Section 3(1) of the Act.
30. Based on his analysis of the allegations contained in the information filed by Respondent No.2, the statements made by/on behalf of the appellants, the replies of PCA and AIOCD, pharmaceuticals companies and wholesalers as well as retailers, the Jt. DG submitted report dated 10.06.2013, Chapter-6 of which reads as under :- CHAPTER 6 Summary of Findings 6.1 The investigation has clearly established that the decisions and practices of the OPs contravene the various provisions of the Competition Act, 2002. A summary of findings are narrated hereunder:
i) The decision taken by the OPs in their Extra Ordinary Meeting held on 26.05.2012 as circulated vide circular dated 27.05.2013 have the effect of limiting and controlling the supply of drugs and medicines in Ferozepur district of Punjab. ii) The OPs by taking the said decisions have restricted the freedom of trade of not only the IP, but also of other wholesalers and retailers in Ferozepur as well as pharmaceutical companies supplying their products in the said market. iii) The decisions taken by the OPs have the effect of driving out existing competitors from the market. iv) OP 1 is engaged in a practice of NOC necessarily required to be taken from it prior to appointment of a new/ additional stockist in Ferozepur which has the effect of limiting and controlling the supply of drugs and medicines in Ferozepur.
v) By indulging in the practice of non grant of NOC to non members, the OP association is foreclosing the market for such non members. 6.2 Investigation has further established that Punjab Chemists Association by authorizing District level Associations in terms of article 17 of the rules & regulations, to issue NOC/ LOC for appointment of new additional stockists, and, by assuming the right to issue the same in the event of any disputes, is party to the practices being followed by its affiliated association viz OP 1, that have the effect of limiting and controlling supplies of drugs and medicines in the State of Punjab thereby contravening the provisions of Section 3(3)(b) read with Section 3(1) of the Act. Conclusion 6.3 The investigation has established that the Opposite Parties (OP 1 TO OP 8) and Punjab Chemists Association have violated the provisions of Competition Act, 2002 by taking decisions and indulging in practices found to be in contravention of the provisions of Section 3(1) read with Section 3(3)(b) of the Competition Act 2002. 6.4 None of the parties has claimed confidential treatment of their information in terms of Regulations 35 of CCI (General) Regulations 2009. However, due care may kindly be taken as per the provisions of Section 57 of the Competition Act read with Regulation 37 of CCI (General) Regulations, 2009. 6.5 The investigation Report does not contain any information which has been granted confidentiality in terms of the aforesaid Regulations. 6.8 The Report may kindly be placed before the Competition Commission of India for consideration.
31. The aforesaid report was considered by the Commission in its meeting held on 20.06.2013 and the Jt. DG was directed to investigate the role of individual office-bearers of the Managing Committee/ Executive Body in terms of Section 48(2) of the Act. The relevant portions of the decision taken by the Commission are reproduced below : It is observed that the DG has not investigated the role of individual office bearers of the Managing Committee / Executive Body of the Association in decision making, in terms of Section 48(2) of the Competition Act. DG is directed to issue notices to the office bearers of the Managing Committee / Executive Body of the Chemists and Druggist Association, Ferozepur, in terms of Section 48(2) of the Act, and give them an opportunity to explain the role of individual office bearers in the decision making in respect of practices/circulars/directions etc., which were found anti-competitive.
32. In compliance of the directive given by the Commission, the Jt. DG issued notice dated 03.07.2013 to the office bearers of the Association. In response to the notice, Shri Chaman Lal Kakkar, President of the Association filed his own affidavit through e-mail dated 18.07.2013. The remaining office-bearers submitted joint affidavit through e-mail dated 19.07.2013. Subsequently, they sent original affidavits.
33. The Jt. DG adverted to the allegations made against the office-bearers, their responses in the form of affidavits and recorded the following observations: OBSERVATIONS
20. As can be seen from the Affidavits of the Office Bearers / Executive Committee members of Chemists and Druggists Association, Ferozepur filed by them in response to the Notices sent to them, none of the Office Bearers / Executive Committee members has denied their role with respect to the decision of boycott of the informant by way of Resolution / Circular dated 27.05.2012 and have cited various reasons compelling them to take the said decision.
21. The primary reason cited by the Office Bearers / Executive Committee members for taking the decision of boycott is that the informant was indulging in unfair practices of raising false ills and over charging retailers by tampering the computer billing software and refusing to rectify the same and misbehaving with the retailers. It has been stated that the decision was taken to protect the interests of the members of the Association and only after affording reasonable opportunity to the Informant. It has also been informed that an FIR No. 230 dated 01.09.2012 under Section 429 IPC read with Section 66(1) of the Information and Technology Act had been registered against the Informant who was on bail by the Orders of Learned Session Judge, Ferozepur.
22. As against the above contentions, the Informant had in the Information filed with the Commission, alleged that Chemists and Druggists Association, Ferozepur had a rule that stipulated taking of its NOC on payment of Rs.2100/- per company, prior to taking up distributorship of any pharmaceutical company. It had been informed that since the Informant had objected to the said practice in the year 2010, he was expelled from the membership of the Association. It had been informed by the IP that in response to a letter sent by him in the said matter, the Ministry of Health & Family Welfare had vide letter dated 25th June 2010 informed that only the Licensing Authority of the State was empowered to limit the activity under the rules and regulations of the drugs & cosmetics act & rules. It was further informed by the IP, that the facts of the said letter were brought into the notice of the area Drug Inspector, since restricting the business activities of a wholesaler duly appointed by the State Drug Authority also amounted to violation of the provisions of Article 19(1)(g) of the Indian Constitution. It had been informed by the Informant that in view of the above objections raised by it with respect to the NOC practice, and in view of having brought the same to the notice of the concerned authorities, the Association through its President and other interested wholesalers holding different positions in the Association were making all efforts since 2010 to stop the business of the Informant to eliminate competition being posed by it.
23. The Informant had contended that the discrepancy in billing due to software error which prompted the Association to boycott it, had been duly rectified by it by issuing credit notes to the affected parties. The Informant had alleged that taking advantage of the opportunity arising out of the discrepancy in billing, and with malafide intent to drive out competition posed by it, a General Body meeting of Chemists and Druggists Ferozepur was convened on 23.05.2012 having agenda against the Informant. It has been alleged that natural justice had not been meted to the Informant as it was not called in the said General Body Meeting of the Association where after, the boycott decision was taken in the Extra Ordinary meeting of the Association held on 26.05.2012 and circulated by the Association amongst its members vide Circular dated 27.05.2012. As is evident from the above, there are allegations and counter allegations between the Informant, and the OP Association & its Office Bearers with respect to the reasons for the boycott decision of the Association.
24. Investigation has already observed in its Investigation Report dated 10th June 2013, that the Chemists and Druggists Association is an unregistered association of wholesalers and retailers of Ferozepur and has no legal or statutory mandate to regulate the business of distribution and sale and drugs and medicines. In the said Report, investigation had not delved into the merits of the allegations and counter allegations, the issue of incorrect billing being essentially a bilateral issue between the Informant and the concerned retailers who reportedly had filed an FIR in the matter. However, without disputing the merits of the allegations of the Association/ its Office Bearers/ Executive Committee members with regard to overbilling etc. done by the Informant, redressal of the grievance of its members should have been sought by the Association legally at the appropriate forum rather than resorting to measures that are not legally tenable such as boycott of the Informant and imposing penalties on those not complying with its decision which have adverse implications on competition in the market. Undeniably, the OP Association may be well within its rights to work for the welfare of its members, however it was incumbent upon the Office Bearers/ Executive Committee members, to have prevailed upon the aggrieved members of the Association to take recourse to legal measures for redressal of their grievances and the Office Bearers/ Executive Committee members of the Association should have refrained from taking the boycott decision, circulating it, and, enforcing compliance of the same by imposing penalties on those not complying with the said decision. The contentions in the Affidavit to the effect that the main object of the decision was rather to increase the efficiency in supply, distribution, storage, acquisition and control of goods including provision of services besides being not substantiated by any evidence in support of the contention, the repercussions of the boycott decision in terms of adverse effect on competition by limiting and controlling supply of drugs and medicines in the market, curtailing the freedom of trade of the market intermediate etc. cannot be overlooked.
25. With regard to the contention of the Office Bearers/ Executive Committee members in their Affidavits that the sales in the IP had not declined as a result of the boycott decision and that several retailers of Ferozepur were still purchasing medicines from the Informant, it may be mentioned that during the course of investigations, the Informant had vide written submissions dated 17.04.2013, submitted that its turnover had declined from Rs.223.18 lakhs to Rs.39.71 lakhs between the corresponding periods of 01.06.2011 to 31.03.2012 and 01.06.2012 to 31.03.2013 respectively i.e. period prior to, and after the boycott decision. The Informant had also submitted a monthwise break of its sales pertaining to the above periods with respect to Ferozepur as well as other regions. However, in view of the rebuttal of the Office Bearers/ Executive Committee members in their Affidavits regarding contentions of the Informant regarding decline in sales, the Informant was asked to substantiate its above contentions and to submit a Certificate from its Auditor conforming the Sales figures along with monthwise break up of Sales during the said periods. The Informant was also directed to swear on Affidavit its written submissions made by the letter dated 17.04.2013 regarding Sales, in Ferozepur having declined from Rs.223.18 lakhs to Rs.39.71 lakhs between the corresponding periods of 01.06.2011 to 31.03.2012 and 01.06.2012 to 31.03.2013 respectively.
26. In response to the above, the Informant has filed a Certificate from its Auditors Lal & Associates, Moga, Punjab dated 24.07.2013 confirming the sales figures of the Informant pertaining to Ferozepur during the periods 01.06.2011 to 31.03.2012 and 01.06.2012 to 31.03.2013 respectively. The Informant has also filed an Affidavit confirming the above figures in support of its written submissions made earlier regarding decline of sales in Ferozepur consequent upon the boycott decision dated 27.05.2012. Copy of the Certificate the Auditor certifying the Sales figures and copy of the Affidavit of the Informant are enclosed as Annexures-4 & 5 respectively.
27. In view of the above, the contention of the OP Association and its Office Bearers as per their sworn Affidavit to the effect that their decision of boycott was aimed at increasing the efficiency in supply, distribution, storage, acquisition and control of goods including provision of services and that the same had not resulted in decline of sales of the Informant does not hold ground.
28. The Office Bearers/ Executive Committee members of Chemists and Druggists Association, Ferozepur by signing and filing identical Affidavits stating therein that The Association has always been ready to reconsider its resolution dated 27.05.2012 provided Rajesh Arora submit an unconditional apology..and further assure the Association that he will not indulge in such malpractices in future is an admittance of their role in the collective decision making process which resulted in the issuance of Circular dated 27.05.2012 boycotting the Informant.
29. With regard to the practice of NOC/ LOC necessarily required to be taken from the Association after payment of prescribed fee and prior to taking up distributorship of any pharmaceutical company, the Office Bearers/ Executive Committee members of the Association by perpetuating this anti-competitive practice which has the effect of limiting and controlling the provision of drugs and medicines are party to the said practice.
34. The Commission forwarded copies of both the reports of DG to the appellants and Respondent No. 2. The Association filed detailed comments/ submissions/ objections dated 10th October, 2013 along with seven documents marked A to G (pages 598 to 693 and 714 to 783 of the paper book), which included copy of the letter dated 16.07.2005 issued by the Association to the pharmaceutical companies, copy of letter dated 06.07.2007 sent by Respondent No. 2 to the President of the Association tendering apology in respect of some episode, copy of letter dated 09.06.2010 issued by the Chairman, Disciplinary Action Committee to Shri Rajesh Arora informing him about the expulsion of Respondent No. 2, copies of bills of purchases made by retailers of Ferozepur from the wholesalers of the neighbouring town, copy of LOC issued by the District Chemists Federation, Jalalabad to M/s. Merck Limited for appointment of Respondent No. 2 as stockist, bills issued by Respondent No. 2 to M/s. Raj Medicos (a member of the Association) after the alleged boycott, copy of bills issued by Respondent No. 2 providing 3% discount. The Association filed additional submissions dated 22.10.2013 with two documents marked annexures A and B (pages 695 to 706). Annexure A consists of copies of letters written by M/s. Merck Limited and Jacques Biotech for grant of NOC to appoint Respondent No. 2 as dealer at Ferozepur and Annexure B is copy of the application form submitted by M/s. Sun Pharmaceuticals Limited for appointment of new stockist. The Association also filed list marked as Annexure A-21 of persons to whom NOCs were issued after receiving fees of Rs. 2,100/- and Annexure A-22, list of
80 persons who were doing the business as stockists without obtaining NOC. The copy of NOC issued by the District Chemists Federation, Jalalabad in favour of Respondent No. 2 was also annexed. The other appellants filed joint preliminary submissions on 14.10.2013 (pages 707 to 713) and documents marked Annexures A-11 to A-26 (pages 714 to 800). They pleaded that the action proposed to be taken against them under Section 48 is without jurisdiction because the ingredients necessary for invoking that section were absent in the case.
35. The first set of objections/ submissions filed by the Association are divided into seven chapters. In Chapter III, the Association detailed the background in which the information was filed by Respondent No.2. In Chapter IV, the Association briefly referred to the findings recorded by the Jt. DG. In Chapter V, the Association enumerated its comments and objections to the report of the Jt. DG. In paragraphs 47 to 57 and 59 to 61 of that Chapter, the Association highlighted its objections to the analysis made by the Jt. DG and conclusion recorded by him.
36. Since the impugned order contains only cryptic references to the objections and submissions made by the appellants, we deem it proper to notice the same in a greater detail so that the stand taken by the Association can be appreciated in a correct perspective in the light of the stand taken by the others including PCA, AIOCD, pharmaceutical companies as also the wholesalers/ retailers and the statements recorded by the Jt. DG. The relevant paragraphs of the objections/ submissions filed by the Association are reproduced below :
47. It is submitted that the DG erroneously assumes that the CDAF is the apex association for the district of Ferozepur. This erroneous assumption has led the DG to arrive at an incorrect theory of harm to competition in the relevant market.
48. The membership of CDAF comprises of wholesalers and retailers in Ferozepur City and Ferozepur Cantt. The district of Ferozepur comprises of, amongst other areas, Ferozepur City, Ferozepur Cantt., Fazilka, Abohar, Jalalabad and Zira. Wholesalers supply medicines not only to Ferozepur city and Ferozepur cant. but also to neighbouring towns such as Faridkot, Kotkapura, Zira, Talwandi Bhai, Mudki, Guruharsahai, Jalalabad, Farilka, Abohar and other neighbouring districts. Further, there are no restrictions placed on retailers of Ferozepurs to purchase the drugs and medicines from the aforesaid neighbourhood towns, thereby ensuring unrestricted supply of medicines in the district of Ferozepur. Copies of bills for purchase made by members (retailers) of CDAF from wholesalers of neighbouring towns like Faridkot, Bathinda, Jalandhar are attached as Annexure D. This is further supported by the fact that the Informant claims loss of sales in Ferozepur City and Ferozepur Cantt, while, during the same time, the Informants sales to Fazilkha grew at over 100%.
49. Also, at the cost of repetition, it is reiterated that the decision of CDAF not to grant NOC to its member (wholesaler) does not preclude the wholesaler to obtain the required NOC from the Chemist and Druggists Association of the neighbouring areas, like Faridkot, Kotkapura, Talwandi Bhai, Mudki, Guruharsahai, Jalalabad, Fazilka and Abohar. It is pertinent to note that Informant received a NOC from the Distt. Chemist Federation, Jalalabad, for its appointment as a stockists/ wholesaler for M/s. Merck Limited. It is therefore submitted that there is no restriction on the wholesaler to supply medicines of pharmaceutical companies, obtained from neighbouring areas of Ferozepur, to the retailers situated in Ferozepur. Thus, there is evident supply side substitutability between Ferozepur and the neighbouring areas of Faridkot, Kotkapura, Talwandi Bhai, Mudki, Guruharsahai, Jalalabad, Fazilka and Abohar. In fact, the DG admits that the Informant being a wholesaler of drugs and medicines is part of the supply and distribution chain through which various drugs and medicines manufactured by pharmaceutical companies are channelized in the market of such products in the district of Ferozepur and adjoining areas. A copy of the NOC issued by Distt. Chemist Federation, Jalalabad, in favour of the Informant is attached as Annexure E.
50. It is submitted therefore that the DG Report lacks any cogent material to even assess the allegation of limiting or controlling the supply of drugs and medicines in Ferozepur district of Punjab. It presupposes the existence of quantity/ supply restriction even before undertaking a cursory analysis of the conditions of competition prevailing in the relevant market.
51. The theory of harm professed by the DG assumes that the actions of CDAF not only curtail the freedom of trade of the Informant but also amount to limiting and controlling the supply in the market of drugs and medicines. The DG erroneously submits that the directions of CDAF to stop purchasing from the Informant and imposition of fine on the retailers dealing with the Informant have the effect of driving out existing competitor (Informant) out of the market without taking into account that the market is in fact much larger. The Informant on his part has simply moved its supplies from one part of the relevant market to another without any switching costs or significant effort. Action of boycott merely on grounds of moral persuasion having no binding effect
52. The DG while noting the malpractices of misappropriation by the Informant in the bills raised, has concluded that the decision taken by CDAF vide circular dated 27 May 2012, not only curtails the freedom of trade of the Informant but also amount to limiting and controlling the supply in the market of drugs and medicines. The DG further submits that the directions of CDAF to stop purchasing from the Informant and imposition of fine on the retailers dealing with the Informant have the effect of driving out existing competitor (Informant) out of the market.
53. It is humbly submitted that the analysis undertaken by the DG during the course of the investigation suffers on account of its incompleteness, the reliance it places on certain steps taken by CDAF without any reference to the context and backdrop in which the said steps have been taken. Furthermore, the DG Report has disregarded critical clarifications and submissions by CDAF and contains an incomplete and baseless analysis, which has resulted from the DG cherry picking facts/ information/ documents and drawing illogical assumptions to base the adverse findings against CDAF.
54. As submitted hereinabove, the DG has based its entire analysis on certain steps/ actions taken by CDAF without any regard or reference to the critical facts and circumstances surrounding the said steps/ actions. It is submitted that the DG Report has elide on merely two factors to assess the impact of the impugned action of CDAF, namely :
i. sales of the Informant has allegedly reduced from INR
223 lakhs during the period 01 June 2011 to 31 March 2012, as compared to INR 39.71 lakhs in the period after the boycott, i.e., 01 June 2012 to 31 March 2013;
ii. alleged directions of CDAF to penalize those retailers who continue dealing with the Informant and to other wholesalers not to deal with those retailers who continue to deal with the Informant.
55. It is submitted that the analysis carried out by the DG (on the basis of abovementioned steps/ actions taken by the CDAF) is inherently flawed and suffers on account of the false and illogical assumptions being drawn in the DG Report. Furthermore, the DG Report fails to appreciate the critical fact that none of the abovementioned actions undertaken by the CDAF (and relied upon by the DG to arrive at its findings against CDAF) are aimed to distort the competition fabric or benefit/ promote a particular member or group of the CDAF to the prejudice of others. xx xx
57. The DG Report has completely failed to substantiate that the impugned steps/ actions taken by the CDAF are demonstrative of the collective intent and concerted behaviour of CDAF to distort competition. In this regard, CDAF most humbly wishes to clarify the critical facts and circumstances underlying the abovementioned steps taken by CDAF, which the DG has wrongly assumed as amount to anti-competitive behaviour: A. Reduction in sales of the Informant after alleged boycott -
i. It is humbly submitted that the DG Report has : (A) completely glossed over the fact that the action taken by CDAF against the Informant is in line with the role and responsibilities of an association representing an industry group. From a legal perspective, the DG Report completely fails to appreciate the essential fact that while the Act is focused on the larger goal of protecting and promoting competition in markets, whereas the impugned action of CDAF has a much narrower focus, i.e., protecting the retailers of Ferozepur from the fraudulent practices of the Informant. The DG Report completely fails to appreciate the divergence in the objectives of the Act and impugned action of CDAF. If the logic adopted by the DG is accepted by this Honble Commission, it would lead to an untenable situation where trade associations representing the interests of an industry group, will be barred from adopting any measures necessary to protect the interests of the concerned industry; and (B) without any reason or logic cast aside the explanation submitted by the President, CDAF in its Affidavit dated 18 July 2013 that there has been no reduction in the sales of the Informant as several retailers of CDAF are still purchasing from the Informant. Bills issued by the Informant to M/s. Raj Medicos (member of CDAF) after the alleged boycott are attached as Annexure F (Colly.). Thus, the alleged boycott was merely on paper and carries no effect on the members, much less on competition. The DG further failed to consider the fact that the impugned action of CDAF was taken only after affording reasonable opportunity to the Informant to explain his position. The Circular dated 27th May 2012 itself states that the Informant was given 2-3 days time to clear his position before taking further action. However, the Informant remained adamant and non-cooperative with an intention to hide his fraud. It is further submitted that the DG, without assigning any reason, discarded the reply dated 21 March 2013, filed by Apex Laboratories Private Limited, stating that the decision to appoint M/s. H S Agencies as their stockists in Ferozepur was taken only after experiencing non-cooperation from M/s Arora Agencies which affected their business in the Ferozepur area. This is evident of the malpractices of the Informant experienced by all enterprises in the distribution chain of drugs and medicines in Ferozepur, AND (C) failed to take into account the clarification supplied by CDAF that the alleged reduction in the sales of the Informant, if any, was only on account of the malpractices carried out by the Informant. The retailers, on being made aware of such malpractices (of issuing inflated bills), considered it wise not to purchase from the Informant. This may be one of the reasons attributable to the alleged fall in sales of the Informant, which the DG failed to look into. Without prejudice, it is also submitted that the reduction in sales of the Informant may also be attributed to the reduction in commission/ discount offered to the retailers. It is evident from the bills furnished by the Informant to the DG with its reply dated 19th November 2012 (Annexure 3 Page No.65), that the cash discount by the Informant reduced from 5% to 3% thereby resulting in reduction of sales. A copy of the bills issued by the Informant providing 3% discount is annexed as Annexure
ii. It is also pertinent to note that the same billing software, Surya was used by other members of the CDAF also, who did not experience any such problems as expressed by the Informant. Even otherwise, the Informant continued with the aforesaid malpractices after changing the billing software (Marg), exhibiting the mala fide intention of the Informant, which was completely overlooked by the DG.
iii. Given the reasons stated above, it is most humbly submitted that the DG has, without any reasons or logic, sought to wrongly assert that the actions initiated by CDAF on behalf of its members and the necessary actions/ steps taken by CDAF and/or its members in order to sustain the impugned boycott of the Informant is evidence of limiting or controlling the supply of drugs and medicines in the district of Ferozepur.
iv. It is further submitted that the reliance placed by the DG on the impugned action undertaken by CDAF to arrive at the flawed and illogical conclusion that the impugned action demonstrates limiting or supply of drugs and medicines in Ferozepur is wholly wrong and misplaced. If the DG Report is relied upon by this Honble Commission, it would lead to grave miscarriage of justice. B. Alleged directions of CDAF to penalize those retailers who continue dealing with the Informant and to wholesalers not to deal with those retailers who continue to deal with the Informant
i. It is humbly submitted that the biased mindset of the DG is clearly visible in view of the fact that the alleged directions, as viewed by the DG to the members (both wholesalers and retailers) of the CDAF were mere requests, in order to take disciplinary action against the Informant for its malpractices. The DG Report paints the legitimate trade association activities undertaken by CDAF with the brush of illegality without in any manner referring to the true context and background of such legitimate trade association activities. Other than reproducing the submissions made by CDAF in relation to the issue of malpractices conducted by the Informant (which the DG has without reason or logic refused to reply upon), the DG Report has completely failed to substantiate its conclusion that these alleged directions to the wholesalers are retailers led to limiting or controlling the supply of drugs and medicines. In paragraph 62 to 68, the Association emphasized that no restriction has been placed on retailers to purchase the drugs and medicines from neighbouring town like Faridkot, Kotkapura, Talwandi Bhai, Mudki, Guruharsahai, Jalalabad, Fazilka and Abohar. These paragraphs read as under :
62. The DG Report completely fails to prove existence of the alleged fact as to whether the impugned action of CDAF has led to limiting or controlling the production or supply of drugs and medicines in the district of Ferozepur.
63. As stated above, there are no restrictions placed on retailers of Ferozepur to purchase the drugs and medicines from the aforesaid neighbourhood towns like Faridkot, Kotkapura, Talwandi Bhai, Mudki, Guruharsahai, Jalalabad, Fazilka and Abohar, thereby ensuring unrestricted supply of medicines in the district of Ferozepur. This is clear from the fact that the retailers in this region regularly procure medicines from wholesalers located throughout
64. Moreover, the wholesalers, including the Informant, are free to obtain the NOC from the aforesaid neighbouring towns and sell their drugs and medicines in the district of Ferozepur. In fact, the Informant received a NOC from the Distt. Chemist Federation, Jalalabad, for its appointment as a stockist/ wholesaler for M/s. Merck Limited (Annexue D). Thus, there is evident supply side substitutability between Ferozepur and the neighbouring areas of Faridkot, Kotkapura, Talwandi Bhai, Mudki, Guruharsahai, Jalalabad, Fazilka and Abohar, rebutting the claim of the DG that there is disruption in the business activities of the informant or other retailers of Ferozepu.
65. It is further submitted that the DG has reached its finding on the likely impact of availability of drugs and medicines to the retailers and to the end consumers, merely on the basis that Informant is the biggest wholesaler of drugs and medicines in Ferozepur. The said finding of the DG is whimsical and based on mere conjectures and surmises. It is humbly submitted that the DG failed to summon or question even a single retailer from Ferozepur, to assess the claims of the Informant on limiting or controlling of supply.
66. In fact, the DG also glossed over the fact that the retailers, had filed an FIR on 01 September 2012 to report the fraudulent practices of the Informant issuing inflated computerized bills to the retailers of Ferozepur, without deducting the amount for expired drugs and medicines retuned by the retailers. And, it was only after the Informant continued to abuse its dominant position by refusing to refund the amount to the retailers, that the members, that the members urged CDAF to boycott the Informant.
67. The DG further claims that the pharmaceutical companies too stand to be affected by the alleged disruptions in the business of the Informant, without posing any such question to the companies. It is pertinent to note that no pharmaceutical company in its reply has stated any disruption in their business activities due to the alleged boycott of the Informant.
68. Most importantly, it is submitted that the actions of CDAF can only be called into question where the purported object of the decision is to distort or prevent competition in the relevant market in order to reap anti-competitive gains. In other words, in the absence of the intent to gain supra competitive profits, no case under section 3(3) is made out. The findings of the DG must fall on the basis of its own findings where the DG concludes that with respect to the remaining office bearers who are engaged in the wholesale business of drugs and medicines, the allegation of the IP regarding horizontal cartel also does not appear to be well founded for the reason that there is no evidence to suggest that the loss of business of the IP allegedly due to the boycott decision of OP-1, to which these wholesale office bearers were party, could exclusively be cornered by these office bearers. In paragraphs 69 to 77, the Association highlighted that NOC for appointment of additional stockists was not a condition precedent and the NOCs were issued at the asking of pharmaceuticals firms. The association also pointed out that practice of NOC was evolved on the recommendations of Mashelkar Committee appointed by Union Health Ministry, Government of India. These paragraphs are also extracted below :
69. At the outset, it is submitted that the practice of NOC was evolved on the recommendation of the Mashelkar Committee appointed by the Union Health Ministry of the Government of India which had recommended that the chemists and pharmacists through their association should act as watch dog to prevent entry of spurious/ doubtful quality drugs of those purchased from unauthorised sources and had specifically reiterated that AIOCD should play an active role to educate their members and to cooperate with regulatory authorities to eliminate sale of spurious and sub standard drugs by their members.
70. It is further submitted that in the instant case, the practice of issuing NOC to new/ additional stockists was undertaken at the behest of the pharmaceutical companies, who were demanding NOC of CDAF, prior to appointment of a new or additional stockists. Placing reliance on a letter dated 25 March 2013 issued by M/s. Merc Limited, it is submitted that pharmaceutical company insists on NOC/LOC from persons desiring to obtain the companys distributorship. M/s. Merck Limited further admitted that obtaining NOC from the concerned association was an industry wide practice and the company was no exception. Further, the DG also mentions the letter dated 12 September 2009 from M/s. Tayal Associates, a wholesaler, requesting for LOC on behalf of M/s. Intas Pharmaceutical Limited for its appointment. Another letter from M/s Jacques Biotech has also been furnished seeking NOC for appointment of new stockists. The DG failed to analyse the different stance taken by pharmaceutical companies on the practice of issuance of NOC.
71. Moreover, replies filed by M/s. Ferozepur Medical Agency and Bhagwati Medilinkers, dated 02 April 2013 and 05 April 2013 respectively; clearly bring out the stance that pharmaceutical companies demand NOC from the Chemists and Druggists Associations for the appointment of additional/ new stockists. The reply of M/s Dimple Enterprises dated 07 April 2013 attached to the DG Report, substantiates this submissions. In view of the various submissions by pharmaceutical companies and wholesalers of drugs and medicines in Ferozepur, it is evident that the DG adopted the cherry-picking approach and prepared the DG Report with a pre-determined mind set. It is humbly submitted that the findings of the DG Report on this issue is liable to be rejected on this ground alone.
72. It is submitted that the pharmaceutical companies seek a NOC from the concerned chemists and druggists association to avoid unhealthy competition and prevent creating excess supply in the market. The present of excess supply might lead to expired medicines being left with the additional stockists, affecting their investment and business. Keeping in mind the limited shelf life of medicines, appointment of new/ additional stockists, than otherwise required, results in huge losses for the pharmaceutical companies, in the event that expired drugs and medicines are returned by such additional stockists. The said practice also harms the stockists, whose investment is blocked, as the recovery from pharmaceutical companies is a time consuming process. In other words, NOC is used as a tool to create an efficient distribution chain in a given district and restrict the potential conflicts between the pharmaceutical companies and the stockists, in the event of excess supply. NOC does not amount to limiting or controlling supplies and provision of services in the relevant market.
73. Without prejudice to the above, it is reiterated that the decision of CDAF not to grant NOC to the member/ non- member (wholesaler of medicines) does not preclude the wholesaler to obtain the required NOC from the pharmaceutical company directly or Chemist and Druggists Associations of the neighbouring area, like Faridkot, Kotkapura, Talwandi Bhai, Mudki, Guruharsahai, Jalalabad, Fazilka and Abohar. It is pertinent to note that the Informant received a NOC from the Distt. Chemist Federation, Jalalabad, for its appointment as a stockist/ wholesaler for M/s Merck Limited (Annexure D). It is therefore submitted that there is no restriction on the wholesaler to supply medicines of pharmaceutical companies, obtained from neighbouring areas of Ferozepur, to the retailers situated in Ferozepur.
74. The DG further states that non-grant of NOC to those parties who are not members of CDAF, has the effect of foreclosure of the market for such interested parties. It is humbly submitted that this finding of the DG is without any factual or legal basis and therefore lacks merit. The NOC process is entirely voluntary and initiated at the behest of the pharmaceutical companies or stockists. Further, it is not necessary to become a member of CDAF, in order to do business in Ferozepur. The wholesalers, who are not members of CDAF, are free to approach the pharmaceutical companies directly and seek for appointment as stockists. CDAF does not in any manner prevent or restrict the freedom of wholesalers to perform their business activities in Ferozepur City or Ferozepur Cantt areas. Nor does it impose any fetters on wholesalers or retailers in the relevant market or district of Ferozepur and adjoining areas. The DG further failed to investigate the ground realities, as there was no NOC/LOC requirement in case of mergers and acquisitions between pharmaceutical companies. CDAF has not issued any separate NOC/LOC in the cases of mergers and acquisition case of Abbott-Solvay, Pifizer-Wyeth, Abbott-Piramal, Abbott-Nicholas and Pfizr-Pharmicia. The stockists of any one of such pharmaceutical companies have been receiving drugs and medicines of the acquired/ merged entity, without the requirement of fresh NOC from CDAF. In view of this fact, it is apparent that the DG investigated the entire matter with a pre-determined mind-set and failed to analyse any facts/ arguments contrary to its biased view.
75. Without prejudice to the above, it is submitted that there are a large number of stockists/ wholesalers in Ferozepur, who are selling drugs and medicines to retailers without obtaining NOC from the CDAF. The best example of such practice is the Informant, who admits of being the biggest wholesaler in Ferozepur, even when the Informant was expelled from the membership of CDAF in 2010, on behavioural grounds, in addition, there are various instances of distributor of pharmaceutical companies operated without any NOC from the CDAF. The DG further refused to acknowledge and take into account the submission of various office bearers, who have stated that CDAF has no objection in the pharmaceutical company appoints an additional/ new wholesaler, without a NOC.
76. It is pertinent to note that the DG admits that CDAF is guided by the motive to protect the interests of its members and the rules and regulations of the State Level Association, i.e., PCA, which clearly stipulates the practice of NOC/LOC (Article 17 of the Rules and Regulations of PCA). Therefore, it is humbly requested that alleged practice may kindly be viewed in light of the bona fide intentions and good faith exhibited by CDAF in discharging its duties.
77. To sum up, the DG has failed to establish the effect of limiting and controlling the supply of drugs and medicines in Ferozepur because of the alleged practice of issuance of NOC by CDAF, prior to appointment of new/ additional stockists in Ferozepur. This is particularly so, since the refusal of CDAF to grant a NOC to its member does not preclude the wholesaler to obtain the required NOC from the Chemist and Druggists Associations of the neighbouring areas, like Faridkot, Kotkapura, Talwandi Bhai, Mudki, Guruharsahai, Jalalabad, Fazilka and Abohar, and sell its drugs and medicines to the retailers in Ferozepur. This is evident from Annexure D placed on record. Moreover, the DG failed to consider the submissions of pharmaceutical companies stating that the practice of NOC was followed industry wide. In the end, the Association pleaded that notwithstanding criticism of the findings recorded by the Jt. DG, it was prepared to take steps for pro-competitive activities among the members. This is evident from para 87 of Chapter VI, which is extracted below :
87. In addition to the various beneficial functions performed by CDAF for its members, CDAF also wishes to act as a vehicle to promote pro-competitive activities amongst its members and develop best practices guidelines for its members to create awareness of acceptable and unacceptable behaviour under the Act. In order to initiate this process, CDAF suo moto, undertakes to execute the following steps, inter alia, with immediate effect :
i. revoking the boycott of the informant;
ii. returning the penalty amount of INR 5000/- imposed on Sonia Medical Store;
iii. discontinue with the practice of issuance of NOC; and
iv. utilize the amount collected by issuance of NOC towards welfare needs of the association and its members in general. Without prejudice to the submissions contained in the foregoing chapters, it is humbly requested that if this Honble Commission comes to the conclusion that the CDAF has violated any provision of the Act, it may kindly consider the mitigating factors, submissions and undertakings set out in this chapter of the instant Reply. Accordingly it is humbly requested that instead of proceeding against the CDAF under Section 27(a) of the Act, the Honble Commission may pass appropriate order(s) under Section 27(g) to guide the CDAF in complying with the provisions of the Act and develop a strong competition culture.
37. In their common preliminary reply the office bearers pleaded that Section
48 is not applicable to them and as such they cannot be held liable for the alleged violation of the Act. They further pleaded that the action for imposition of penalty could not have been initiated against them because by then no finding was recorded by the competent authority that the Association had indulged in anti- competitive activities/ practices.
38. The stand taken by different pharmaceutical companies, as extracted in the report of the Jt. DG., reads as under : M/s. Merck Limited 4.19. In response to the Notice dated 05.03.2013, it has been informed that though there are no written guidelines issued by AIOCD or local district associations regarding NOC/LOC to be obtained by any person desirous of being appointed a wholesaler, however AIOCD and its affiliates insist for the same through various means including boycotting the companys products in case such NOC/LOC is not obtained by any wholesaler or distributer so appointed by the company. As such to avoid harassment and boycott of its products, the company has been asking for NOC/LOC from persons desiring to obtain the companys distributorship. It has been stated that this was the industry wide practice and the company was no exception. A copy of NOC obtained by the IP from the District Chemist Federation, Ferozepur has been furnished. It has been informed that the company avails Product Information Services from the concerned State/District Associations of Chemists and Druggists affiliated to AIOCD in order to inform the pharmacies about its new product launches and pays for these services on account of printing and circulation of the advertisement as per the advertisement tariff. The company has informed that as per guidelines issued by NPPA the margin on Scheduled formulation is 8% to wholesalers and 16% to pharmacies. Regarding non-scheduled formulation it has been informed that as per industry practice the margin is 10% for wholesalers and 20% for pharmacies. M/s. Intas Pharmaceutical Limited 4.20 The company has informed vide its letter dated 02.04.2013 that in the matter of NOC/LOC/PIS from Chemists & Druggists Associations, the same is not a requirement stipulated by the company. With regard to margins of wholesaler and retailers, it has been informed that the same are in accordance with the Drug Pricing Control Order. In the matter of PIS and trade margins, the company has informed vide its letter dated 10.04.2013 that before launching of any new pharmaceutical products / drugs, it furnishes an information sheet normally known as Product Information System (PIS) containing the details of the product etc. to the respective trade Association of Chemists and Druggists which according to the company was being circulated in the trade for general information. It has been stated that the company does not require any NOC /LOC from any trade Association or its affiliates prior to launching new pharmaceutical products / drugs to wholesalers or retailers, it has been confirmed that the same are not prescribed or decided by any apex body or trade Association. It has been stated that trade margins to wholesalers and retailers are being implemented at the pre-determined rate in accordance with the provisions of DPCO. M/s. Abbott India Limited 4.21 The company has informed vide its letter dated 15.04.2013 that it has not appointed any new stockist for its products in Ferozepur area for over last three years and is not aware of any requirement to take any NOC/LOC from Chemists & Druggists Association, Ferozepur or from Punjab Chemists Association, Patiala prior to appointment of stockists of companys products in Ferozepur. The company has denied knowledge about fee, if any prescribed by the above associations for NOC / LOC. The company has also stated that it is not aware about any requirement of NOC/LOC/PIS approval required to be taken from the Associations prior to launching new products in the State of Punjab. It has however been informed that fees for the purpose of publication of product information in periodical publications of Punjab Chemists Association for the purpose of spreading awareness amongst the trade about the new products has been paid which as per its records is about Rs. 2000/- for each publication. In the matter of trade margins of stockists or retailers of the companys products, it has been informed that the company is not aware of any apex body or trade association prescribing or deciding the said margins. It has been informed that margins for scheduled formulations have been prescribed under the DPCO 1995. Regarding non-scheduled formulations, the company generally offers 10% margins to stockists and 20% margins to retailers which as per its understanding is broadly in line with he prevailing industry practice. M/s. Apex Laboratories Limited 4.22 The company has informed vide its letter dated 21.03.2013 that appointment of its existing stockist namely H.C. Medical Agencies at Ferozepur was done due to non-cooperation of the IP which was affecting the companys business, as well as the desire expressed by the IP for discontinuation of its stockist ship of the company. It has further been informed that the existing stockist had been appointed after duly obtaining NOC from the Association of Ferozepur. The company has vide its subsequent letter dated 07.04.2013 informed that as per standard practice, before appointing any stockists in Ferozepur the company has to obtain NOC from the district association which was also the practice in all other States. It has been informed that no fees for the NOC had been paid by the company. It has been clarified that there is no written communication from any apex body or association regarding the requirement of NOC, however, it was he business practice to get NOC. Regarding Product Information Service (PIS) it has been informed that fees on account of advertisement for new products towards launching of such new products, the company has paid prescribed fee to the State level Association i.e. Punjab Chemists Association. Copies of the receipt issued by PCA in this respect have been enclosed. In the matter of margins (Price of Retailers). It has been informed that as per trade practice margins are fixed for retailers at 10% for non-DPCO product sand 8% for DPCO products. M/s. Glenmark Pharmaceutical Limited 4.23 The company has informed vide its letter dated 08.04.2013 that appointment of stockist/retailer is as per companys internal selection criteria for which the company nether consults any Chemists or Druggists Association nor does it obtain or is required to obtain any NOC /LOC from any Chemists or Druggists Association or its affiliated associations for appointment of its Stockists / retailers. It has further been informed that there are no directives / decisions in the knowledge of the company of any apex body or association regulating the pharmaceutical industry in the matter of NOC/LOC to be obtained by the company from any Association. 4.24 The company has informed that it does not seek any Product Information Service (PIS) approval from any trade association or its affiliates for launch of any new product. However, for creating awareness in the trade about the new products launched by the company from time to time, advertisements of the products are got published in the bulletins published by trade associations and / or their affiliates by payment of prescribed charges for the advertisements. In the matter of trade margins, it has been informed that as per customary industry practice for non DPCO products, the margins are 10% to stockist & 20% to retailers and as per prescribed statutory provisions for DPCO products, the margins are 8% to stockist and 16% to retailers. M/s. Invida India Private Limited 4.25 The company has informed vide its letter dated 09.04.2013 that it is not required to seek NOC/LOC prior to appointment of its distributors / CA /stockist for State of Punjab. In the matter of PIS, it has been informed that the company had launched a product in the month of February, 2012 in Punjab which it could commence selling by complying with the formalities and making payment of Rs. 4000/- to Punjab Chemists Association. Regarding margins, it has been informed that in line with the pharma industry practice, the company offers minimum margins of 10% and 20% of stockist and retailers respectively for non-scheduled formulations. M/s. Macleods Pharmaceuticals Limited 4.26 The company has informed vide its letter dated 25.03.2013 that though it has not taken any NOC /LOC from Chemists and Druggists Association, Ferozepur for appointment of stockists, however, parties directly approached the Association and seek LOC/NOC from their respective District Association. Copies of some NOC/LOC issued by OP1 have been enclosed and it has been informed that since the company does not take the NOC/LOC, it has neither paid any fees for the same nor is it aware of the prescribed fee, if any. The company has informed that there are no directive to it from any apex body or Association in the matter of taking NOC/LOC. Regarding PIS charges, it has been informed that the company is paying the prescribed free for advertisement of new product information prior to launching new product in the State. The company has also informed that no margin has been prescribed or decided by the Trade Association for wholesalers/retailers of non-scheduled pharmaceutical products. M/s. Sun Pharmaceuticals Limited 4.27 In response to the clarification sought as to whether prior to appointment wholesaler/stock/retailer in Ferozepur whether any NOC/LOC was required to be taken by the company from CDAF or PCA, the company has informed vide its letter dated 08.04.2013 that there was no requirement of taking NOC/LOC by its prospective wholesaler/stockist/retailer from the said associations. The company has stated that it was well aware that NOC before appointment leading to reduction of supply in the market would be in contravention of Section 3(3)(b) of the Act. However, while appointing distributor/stockist, to verify the worthiness and credentials, the company only enquires from respective associations, however, the stockist/distributor/retailer is not insisted upon to obtain any NOC/LOC as pre-requisite to appointment. The company has denied any information about the details of the fee prescribed by the associations for grant of NOC/LOC and also confirmed that there was no requirement as per decision / directive e of any apex body or associations regulating the pharmaceutical industry for taking NOC/LOC. 4.28 In the matte of NOC/LOC/PIS approval prior to launching any new pharmaceutical products / drugs of the company, it has been stated that the company does not have any information about the prescribed fee / charges for grant of such approval. It has been stated that in terms of proposition of law, fixing of PIS charges may lead to fixing of prices of drugs in violation of Section 3(3)(a) of the Act. The company has informed that in terms of DPCO directives, whenever a new drug is introduced in the market information to wholesalers, retailers and consumers to be given about the new drug for which the price list of new products is published in the magazines of respective associations on payment of applicable publication fee. In the matter of margins the company has stated that though it was well aware about the propositions of law that margins do not amount to fixation of prices under the Act. It follows the provisions of DPCO in this respect. However, regarding non-scheduled pharmaceutical products/drugs of the company sold in Punjab including Ferozepur, the company has stated that margins of wholesalers / retailers with respect to the same are not prescribed or decided by any apex body/trade associations. M/s. Zuventus Healthcare Limited 4.29 The company vide its letter dated 16.04.2013 informed that the NOC dated 01.12.2012 from Chemists and Druggists association, Ferozepur had been furnished to the company by M/s. Ferozepur Medical Agency a wholesaler. The company has stated that as per its information no NOC is mandatory for appointment of any party as stockist. The company has also stated that no directive / decision / MoU of any apex body or Association has been received by it regulating appointment of stockist / wholesaler and that no NOC is required to be obtained from any trade Association or its affiliates prior to launching any pharmaceutical products/drugs. It has been stated that the company has not experienced any delay or refusal in obtaining PIS approval. License / permission of FDA and other regulatory bodies as required under the Drugs and Cosmetics Act, the Drugs and Cosmetics Rules and other applicable statutory regulation is obtained prior to launch any new drugs and pharmaceutical products. It has further been informed that it has not received any communication from any trade Association prescribing any margin of wholesalers or retailers with respect to the Non-Scheduled Pharmaceutical products / drugs. M/s. J.B. Chemicals & Pharmaceuticals Limited 4.30 The company has vide its letter dated 09.05.2013 informed that NOC for appointment of Ram Medical Agencies, a wholesaler of Ferozepur was provided in terms of MOU between IDMA and AIOCD which as per information received by the company from IDMA in April, 2012 was terminated w.e.f. December, 2011. The company has informed that NOC was obtained from Chemists & Druggists Association Ferozepure with respect to the said wholesaler prior to April, 2012. The company has submitted copy each of the NOC dated 28.2.2012 and MOU dated 12.09.2003. the Company has also informed that after termination of MOU, there is no need of NOC/LOC /PIS charges for launch of new products. With regard to PIS approval, it has been informed that the Associations voluntarily provide PIS services at their option. It has further been informed that the company pays trade margins as per the provisions of DPCO. It has been informed that for scheduled products margins of stockists was 8% and for non-scheduled products the same was 10% excluding excise duty and local taxes. 4.31 Notices sent to M/s. Jacques Biotech, M/s. Coral Biotech, M/s. Ozone Pharmaceuticals Limited, M/s. RevenMac Pharmaceuticals Private Limited, M/s. Pharmed Limited and M/s. Sava Medica Limited were not responded to by these companies.
39. The wholesalers / stockists namely, M/s. Tayal Associates, M/s. Punjab Medical Agencies, M/s. Ferozepur Medical Agency, M/s. Bhagwati Medilinkers, M/s. Ganpati Pharmaceuticals and M/s. Dimple Enterprises submitted separate replies stating that there is a long standing practice that the companies demand NOC / LOC from the Association but no circular has been issued in this regard. According to some of the dealers, a decision was taken in the General Body Meeting to make the NOC mandatory but no document was produced by either of them to prove this assertion. However, majority of the wholesalers pleaded ignorance about the requirement of NOC/LOC from the Association as a condition precedent for appointment of distributor.
40. The Commission noticed the summary of findings and conclusions recorded by the Jt. DG (paragraphs 10, 11 and 15). In paragraphs 17 to 56, the Commission briefly adverted to the objections/submissions made by the Association and other appellants. In paragraphs 59 and 60, the Commission referred to the allegations made by Respondent No. 2. In paragraph 61, it referred to the circular dated 27.05.2012 issued by the Association and proceeded to hold that the impugned conduct of the association is anti- competitive in as much as it limited/controlled supply/provision of goods/service being in contravention of Section 3(3)(b) read with Section 3(1). The observations made by the Commission which constitute the foundation of this conclusion are contained in paragraphs 62 to 72, which are extracted below :
62. From a plain reading of the circular, it is evident that a decision to boycott the informant was taken by CDAF in its Extraordinary Meeting held on 26.05.2012. The said decision was further circulated by CDAF to its members. This aspect has neither been disputed nor denied by the opposite parties in their respective replies, though diverse reasons were given in support of the decision.
63. Furthermore, the above decisions taken by CDAF were also being implemented by it in letter and spirit. This is evident from the fact that some office-bearers including the President of CDAF have during recording of statement confirmed that penalty had been imposed by CDAF on a retailer (M/s. Sonia Medical Store) in January 2013 for defying its directives and continuing dealings with the informant.
64. In response, it was submitted on behalf of CDAF that all the retailers, who are its members, objected to the abusive conduct of the informant in not refunding the inflated/tampered bills raised by the informant, without deducting the amount for expired medicines returned by the retailers, as detailed earlier. In this connection, it was pointed out that in order to resolve the issue, CDAF in its General Body meeting held on 23.05.2012 provided 2-3 days time to the informant to settle the accounts of the retailers. However, the informant refused to discuss the matter with CDAF or clear his position. It was therefore submitted that the impugned action of CDAF to boycott the informant was taken only upon deliberation of the retailers, who were suffering due to the abusive and fraudulent conduct of the informant.
65. It is not in dispute that CDAF is an association of enterprises engaged in similar trade as far as the issues projected in the present information are concerned. The Commission is of opinion that the decision taken by CDAF in its meeting held on 26.05.2012 and as circulated vide its circular dated 27.05.2012 amounts to limiting and controlling supply in the market of drugs and medicines. Further, from the tenure of the decision, it appears that non-membership of the association was an important consideration for CDAF to take the impugned decision. From a cumulative reading of the decisions taken in the meeting as recorded in the circular, the Commission has no hesitation in holding that the same have the effect of not only limiting and controlling the supply of goods and provision of services but also driving existing competitors out of the market.
66. This is also strengthened from the figures submitted by the informant whereby it has been pointed out that its sales in Ferozepur for the period after its boycott by CDAF i.e. from 01.06.2012 to 31.03.2013 and during the corresponding prior period i.e. 01.06.2011 to 31.03.2012 had declined to Rs.39.71 lakhs from Rs. 223.18 lakhs.
67. The other aspect which needs to be examined in the present case relates to the stipulation by CDAF regarding NOC/LOC.
68. The informant has alleged that the opposite party No. 1 i.e. CDAF has made it mandatory for any chemist/druggist, who wishes to take distributorship for medicines of a company in Ferozepur city, to take an NOC and LOC from it by making a payment of Rs. 2100/- per company. The informant states that it objected to the said rule in 2010, because of which it was expelled from the primary membership of CDAF.
69. It is not in dispute that CDAF issued a circular dated 15.04.2006 wherein the decision taken by the Executive Committee of CDAF in its meeting held on 13.04.2006 was recorded. For the felicity of reference, the same is quoted below: During EC meeting on 13.04.2006 held at M/s. H.C. Medical Agencies, Ferozepur, it was decided after debated and discussions unanimously to receive N.O.C. fees. Now Rs. 2100/- will be charged for taking N.O.C. for each Co. any whole seller who added new Co. is liable to pay Rs. 2100/- for added each Co. and then start its supply to trade.
70. From a bare reading of the circular, it is apparent that supplies cannot start without obtaining NOC. CDAF, while conceding that NOCs are being issued by it, has contended that the same was being done at the instance of the pharmaceutical companies who were demanding NOC of CDAF prior to appointment of a new or additional stockist. This plea, besides being misconceived and of no bearing, also stood contradicted from the statements recorded by the DG of the office-bearers of the opposite party association itself, wherein the office-bearer sought to rationalise the requirement of NOC.
71. Moreover, it is the case of CDAF itself that it is guided by the motive to protect the interests of its members and the Rules and Regulations of the State level Association i.e. Punjab Chemists Association (PCA) which stipulate the practice of NOC/LOC. The relevant Article 17 of the Rules and Regulations of PCA in this regard may be excerpted: the District President/General Secretary/Office bearers of the District Chemists Association is authorized to issue LOC for the appointment of a stockist by the company in their district. In case of any dispute, if arises, the President/General Secretary of Punjab Chemists Association is authorized to issue the LOC.
72. Based on the evidence collected by the DG, it is safe to conclude that CDAF has been following a practice of requirement of NOC prior to appointment of a new/additional stockist in Ferozepur, which has the effect of limiting and controlling the supply of drugs and medicines in Ferozepur.
41. In paragraphs 74 to 76 the Commission referred to Section 3(1), (2) and (3) of the Act and recorded its final conclusion in the following words :
74. The Commission notes that in terms of the provisions contained in section 3(1) of the Act, no enterprise or association of enterprises or person or association of persons can enter into any agreement in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services, which causes or is likely to cause an appreciable adverse effect on competition within India. Section 3(2) of the Act declares that any agreement entered into in contravention of the provisions contained in sub- section (1) shall be void. Further, by virtue of the presumption contained in sub-section (3), any agreement entered into between enterprises or associations of enterprises or persons or associations of persons or between any person and enterprise or practice carried on, or decision taken by, any association of enterprises or association of persons, including cartels, engaged in identical or similar trade of goods or provision of services, which (a) directly or indirectly determines purchase or sale prices; (b) limits or controls production, supply, markets, technical development, investment or provision of services; (c) shares the market or source of production or provision of services by way of allocation of geographical area of market, or type of goods or services, or number of customers in the market or any other similar way; (d) directly or indirectly results in bid rigging or collusive bidding, shall be presumed to have an appreciable adverse effect on competition.
75. Thus, in case of agreements as listed in section 3(3) of the Act, once it is established that such an agreement exists, it will be presumed that the agreement has an appreciable adverse effect on competition; the onus to rebut this presumption would lie upon the opposite party.
76. In the present case, the opposite party association could not rebut the said presumption. It has not been shown by the opposite party association how the impugned conduct resulted into accrual of benefits to consumers or made improvements in production or distribution of goods in question. Further, the opposite party could not explain as to how the said conduct did not foreclose competition.
42. The Commission then adverted to the supplementary investigation report, noted the objection raised by the office bearers that Section 48 is not attracted in the matter and held that Section 27 itself is sufficient for holding the office bearers guilty of contravention without the aid and assistance of Section 48. Finally, the Commission imposed penalty on all the appellants @ 10% of their respective average turnover.
43. We have heard the learned counsel for the parties and perused the record including the objections submitted by the Association and other appellants, the replies filed by the pharmaceutical companies, wholesalers/retailers, Respondent No. 2 and the undated affidavit of Shri Rajesh Arora.
44. Before deciding the questions formulated in the opening paragraph of this order, we consider it imperative to observe that the procedure adopted by the Jt. DG for conducting investigation and the final order passed by the Commission under Section 27 of the Act suffer from several legal infirmities.
(i) The Jt. DG conducted investigation with a pre-determination to return a finding that the Association and its office bearers are guilty of anti- competitive conduct and violation of Section 3(3)(b). This is the reason why he neither confronted the appellants with the material collected in the form of three responses sent by Respondent No. 2, his affidavit, replies sent by the pharmaceutical companies and wholesalers and retailers, some of which contained suggestive references to mandatory character of NOC/LOC. He did ask several leading questions to the Association and its office-bearers but without disclosing them, the adverse material proposed to be used for recording findings on the issue of violation of Section 3. This methodology adopted by the Jt. DG was totally unjustified and contrary to the basics of fairness and natural justice.
(ii) What is most interesting is that Respondent No. 2 had not produced any evidence to prove that NOC/LOC was made mandatory by the Association or that it had suffered particular loss and the Jt. DG conveniently overlooked the uncontroverted assertion made by the Association and other office bearers that those including Respondent No. 2, who did not want to take NOC/LOC from the Association, did so from associations of the neighbouring district and continued to do business in Ferozepur without any hindrance and that as many as 80 stockists were doing business in Ferozepur district without obtaining NOC/LOC from the Association.
(iii) The Jt. DG went to the extent of brushing aside the most serious allegation against Respondent No. 2 that he had overcharged the retailers by tampering with the computer software, which had worked well with other wholesalers and there was no complaint by the retailers that other wholesalers were also giving fabricated bills and overcharging them.
(iv) Not only this, while recording a finding that obtaining NOC/LOC was mandatory for appointment of distributors in Ferozepur, the Jt. DG completely ignored that majority of pharmaceutical companies had denied the suggestion that the Association was following such a practice. The replies given by eight out of ten pharmaceutical companies amply prove that none of the Associations including the appellant in Appeal No. 21 of 2014 had issued instructions, guidelines etc. making the NOC/LOC mandatory for appointment of a distributor/stockist in Ferozepur district and that a number of wholesalers were doing business without obtaining NOC/LOC and that this was sufficient to prove that the requirement of NOC/LOC was not mandatory.
(v) The supplementary report prepared by the Jt. DG is per se one-sided in as much as he overlooked the categorical stand taken by the office bearers that they had not indulged in anti-competitive action and brushed aside their all arguments by adverting to the bald allegations contained in the information filed by Respondent No. 2 and the affidavit filed by Shri Rajesh Arora.
(vi) In so far as the Commission is concerned, it mechanically approved the findings recorded by the Jt. DG on the issue of violation of Section 3(3)(b). Under the scheme of the Act, Director General is primarily a fact-finding authority. He is entrusted with the task of conducting investigation and submit report keeping in view Regulation 20(4) of the Competition Commission of India (General) Regulations, 2009 (for short, the 2009 Regulations). In terms of Section 26(7), the Commission can, if it is of the opinion that further investigation is called for, direct such investigation by the Director General or cause further inquiry to be made in the matter by a designated officer or itself proceed further with the inquiry in the matter in accordance with the provisions of the Act. If the Director General submits a report with the finding that there is contravention of any of the provisions of the Act and the Commission is of the opinion that further inquiry is called for, it is entitled to inquire into such contravention in accordance with the provisions of the Act. Section 27 empowers the Commission to pass order after finalisation of the inquiry. For the sake of convenient reference, Sections 3(1), 3(3), Sections 19(1), 26(1) to (8), Sections 27, 36(1) and 48 of the Act and Regulations 18, 19 and 21 of the 2009 Regulations are reproduced below : Sec. 3. Anti-competitive agreements.- (1) No enterprise or association of enterprises or person or association of persons shall enter into any agreement in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services, which causes or is likely to cause an appreciable adverse effect on competition within India. xx xx xx (3) Any agreement entered into between enterprises or associations of enterprises or persons or associations of persons or between any person and enterprise or practice carried on, or decision taken by, any association of enterprises or association of persons, including cartels, engaged in identical or similar trade of goods or provision of services, which- (a) directly or indirectly determines purchase or sale prices; (b) limits or controls production, supply, markets, technical development, investment or provision of services; (c) shares the market or source of production or provision of services by way of allocation of geographical area of market, or type of goods or services, or number of customers in the market or any other similar way; (d) directly or indirectly results in bid rigging or collusive bidding, shall be presumed to have an appreciable adverse effect on competition: Provided that nothing contained in this sub-section shall apply to any agreement entered into by way of joint ventures if such agreement increases efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of services. Explanation.- For the purposes of this sub-section, "bid rigging" means any agreement, between enterprises or persons referred to in sub-section (3) engaged in identical or similar production or trading of goods or provision of services, which has the effect of eliminating or reducing competition for bids or adversely affecting or manipulating the process for bidding. Sec.19. Inquiry into certain agreements and dominant position of enterprise.(1) The Commission may inquire into any alleged contravention of the provisions contained in sub- section (1) of section 3 or sub-section (1) of section 4 either on its own motion or on (a) [receipt of any information, in such manner and] accompanied by such fee as may be determined by regulations, from any person, consumer or their association or trade association; or 24 (b) a reference made to it by the Central Government or a State Government or a statutory authority. Sec. 26. Procedure for inquiry under section 19. (1) On receipt of a reference from the Central Government or a State Government or a statutory authority or its own knowledge or information received under section 19, if the Commission is of the opinion that there exists a prima facie case, it shall direct the Director-General to cause an investigation to be made in to the matter: Provided that if the subject-matter of an information received is, in the opinion of the Commission, substantially the same as or has been covered by any previous information received, then the new information may be clubbed with the previous information. (2) Where on receipt of a reference from the Central Government or a State Government or a statutory authority or information received under section 19, the Commission is of the opinion that there exists no prima facie case, it shall close the matter forthwith and pass such orders as it deems fit and send a copy of its order to the Central Government or the State Government or the statutory authority or the parties concerned, as the case may be. (3) The Director-General shall, on receipt of direction under sub-section (1), submit a report on his findings within such period as may be specified by the Commission. (4) The Commission may forward a copy of the report referred to in subsection (3) to the parties concerned: Provided that in case the investigation is caused to be made based on a reference received from the Central Government or the State government or the statutory authority, the Commission shall forward a copy of the report referred to in sub-section (3) to the Central Government or the State Government or the statutory authority, as the case may (5) If the report of the Director-General referred to in sub-section (3) recommends that there is no contravention of the provisions of this Act, the Commission shall invite objections or suggestions from the Central Government or the State government or the statutory authority or the parties concerned, as the case may be, on such report of the Director- General. (6) If, after consideration of the objections or suggestions referred to in subsection (5), if any, the Commission agrees with the recommendation of the Director- General, it shall close the matter forthwith and pass such orders as it deems fit and communicate its order to the Central Government or the State Government or the statutory authority or the parties concerned, as the case may be. (7) If, after consideration of the objections or suggestions referred to in subsection (5), if any, the Commission is of the opinion that further investigation is called for, it may direct further investigation in the matter by the Director-General or cause further inquiry to be made in the matter or itself proceed with further inquiry in the matter in accordance with the provisions of this Act. (8) If the report of the Director-General referred to in sub-section (3) recommends that there is contravention of any of the provisions of this Act, and the Commission is of the opinion that further inquiry is called for, it shall inquire into such contravention in accordance with the provisions of the Act. Sec. 27. Orders by Commission after inquiry into agreements or abuse of dominant position.- Where after inquiry the Commission finds that any agreement referred to in section 3 or action of an enterprise in a dominant position, is in contravention of section or section 4, as the case may be, it may pass all or any of the following orders, namely:- (a) direct any enterprise or association of enterprises or person or association of persons, as the case may be, involved in such agreement, or abuse of dominant position, to discontinue and not to re-enter such agreement or discontinue such abuse of dominant position, as the case may be; (b) impose such penalty, as it may deem fit which shall be not more than ten per cent. of the average of the turnover for the last three preceding financial years, upon each of such person or enterprises which are parties to such agreements or abuse: Provided that in case any agreement referred to in section 3 has been entered into by any cartel, the Commission shall impose upon each producer, seller, distributor, trader or service provider included in that cartel, a penalty equivalent to three times of the amount of profits made out of such agreement by the cartel or ten per cent. of the average of the turnover of the cartel for the last preceding three financial years, whichever is higher; (c) award compensation to parties in accordance with the provisions contained in section 34; (d) direct that the agreements shall stand modified to the extent and in the manner as may be specified in the order by the Commission; (e) direct the enterprises concerned to abide by such other orders as the Commission may pass and comply with the directions, including payment of costs, if any; (f) recommend to the Central Government for the division of an enterprise enjoying dominant position; (g) pass such other order as it may deem fit. [Provided that while passing orders under this section, if the Commission comes to a finding, that an enterprise in contravention to section 3 or section 4 of the Act is a member of a group as defined in clause (b) of the Explanation to section 5 of the Act, and other members of such a group are also responsible for, or have contributed to, such a contravention, then it may pass orders, under this section, against such members of the group.] Sec.36. Power of Commission to regulate its own procedure.--(1) In the discharge of its functions, the Commission shall be guided by the principles of natural justice and, subject to the other provisions of this Act and of any rules made by the Central Government, the Commission shall have the powers to regulate its own procedure. Sec.48. Contravention by companies.- (1) Where a person committing contravention of any of the provisions of this Act or of any rule, regulation, order made or direction issued there under is a company, every person who, at the time the contravention was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly. Provided that nothing contained in this sub-section shall render any such person liable to any punishment if he proves that the contravention was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such contravention. (2) Notwithstanding anything contained in sub- section (1), where a contravention of any of the provisions of this Act or of any rule, regulation, order made or direction issued there under has been committed by a company and it is proved that the contravention has taken place with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilt y of that contravention and shall be liable to be proceeded against and punished accordingly. Explanation.-For the purposes of this section,- (a) "company" means a body corporate and includes a firm or other association of individuals; and (b) "director", in relation to a firm, means a partner in the firm. Regulations 18, 19, 20 and 21:
18. Issue of direction to cause investigation on prima facie case (1) Where the Commission is of the opinion that a prima facie case exists, the Secretary shall convey the directions of the Commission 1[within seven days,] to the Director-General to investigate the matter. (2) A direction of investigation to the Director-General shall be deemed to be the commencement of an inquiry under section 26 of the Act.
19. Communication of order when no prima facie case found. If the Commission is of the opinion that there exists no prima facie case, the Secretary shall send a copy of the order of the Commission regarding closure of the matter forthwith to the Central Government or the State Government or the Statutory Authority or the parties concerned, as the case may be, as provided in sub-section (2) of section 26 of the Act.
20. Investigation by Director-General. (1) The Secretary shall, while conveying the directions of the Commission under regulation 18, send a copy of the information or reference, as the case may be, with all other documents or materials or affidavits or statements which have been filed either along with the said information or reference or at the time of preliminary conference, to the Director-General. (2) The Commission shall direct the Director-General to submit a report within such time as may be specified by the Commission which ordinarily shall not exceed sixty days from the date of receipt of the directions of the Commission. (3) The Commission may, on an application made by the Director-General, giving sufficient reasons, extend the time for submission of the report by such period as it may consider reasonable. (4) The report of the Director-General shall contain his findings on each of the allegations made in the information or reference, as the case may be, together with all evidences or documents or statements or analyses collected during the investigation. Provided that when considered necessary, the Director General may, for maintaining confidentiality, submit his report in two parts. One of the parts shall contain the documents to which access to the parties may be accorded and another part shall contain confidential and commercially sensitive information and documents to which access may be partially or totally restricted. (5) Ten copies of the report of the Director-General, along with a soft copy in document format, shall be forwarded to the Secretary within the time specified by the Commission: Provided that the Secretary may ask for more copies of the report as and when required. (6) If the Commission, on consideration of the report, is of the opinion that further investigation is called for, it may direct the Director-General to make further investigation and submit a supplementary report on specific issues within such time as may be specified by the Commission but not later than forty-five days.
21. Procedure for inquiry under section 26 of the Act. (1) On receipt of the report of the Director General, the Secretary shall place the said report before the Commission [within seven days,] for further orders and, in accordance with the direction of the Commission, forward [either a hard or a soft copy (in electronic form)] [of non confidential version] thereof to the Central Government or the State Government or the statutory authority, or the parties concerned, as the case may be. (2) If the report of the Director-General finds no contravention of the provisions of the Act, the Secretary shall [within seven days,] convey the directions of the Commission for inviting objections or suggestions [to be filed within fifteen days] from the Central Government or the State Government or the statutory authority, or from the parties concerned, as the case may be on such report of the Director-General. (3) If the Commission orders closure of the matter on consideration of the objections or suggestions, if any, referred to in sub-regulation (2), an agrees with the findings of the Director- General, the Secretary shall [within seven days,] convey the orders of the Commission to the Central Government or the State Government or the statutory authority or the parties concerned, as the case may be. (4) If the Commission, on consideration of the objections or suggestions, referred to in sub-regulation (2), directs further investigations in the matter by the Director-General or further inquiries in the matter to be made by an officer of the Commission so authorized by it, the Secretary shall [within seven days,] convey the directions of the Commission to the Central Government or the officer so authorized, as the case may be. (5) On an application made by the officer authorized by the Commission justifying the production of specified books or other documents, as may be required to make further inquiries under sub-regulation (4), the Commission may direct any person to produce such specified books or other documents relating to any trade carried out by such person or enterprise, as per the provisions of sub section (4) of section 36 of the Act. Explanation. - For the purpose of this sub-regulation, the word officer shall include the experts and professionals mentioned under sub-section (3) of section 17 or sub-section (3) of section
17 or sub-section (3) of section 36 of the Act. (6) On receipt of the report of the Director-General on further investigation or report of the authorized officer on further inquiries, as the case may be, the Secretary shall [with the approval of the Chairperson, fix the meeting of the Commission within seven days for consideration thereof]. (7) If the report of the Director-General mentioned under sub- regulation (1) finds contravention of any of the provisions of the Act, the Secretary shall obtain the orders of the Commission for inviting objections or suggestions from the Central Government or the State Government or the statutory authority or the parties concerned, as the case may be. (8) On consideration of the objections or suggestions from the Central Government or the State Government or the statutory authority or the parties concerned, or the report of further investigation or further inquiries, as the case may be, if the Commission is of the opinion that further inquiry is called for, the Secretary shall fix the meeting of the Commission for consideration thereof, after issue of notice as per regulation 22, to the Central Government or the State Government or the statutory authority or the parties concerned, as the case may be. (9) The Secretary shall keep the Director-General informed of the dates of the meetings of the Commission for inquiry under sub-section (7) or sub-section (8) of section 26 of the Act for appearing in person or through any of his officers in accordance with the provisions of section 35 of the Act. (vi-a). Some of the above reproduced provisions were considered by a three judge Bench of the Supreme Court in Competition Commission of India vs. Steel Authority of India Limited [(2010) 10 SCC 744]. In that case, the Commission had challenged the maintainability of an appeal filed by the respondent against an order passed under 29 Section 26(1) of the Act. The Supreme Court analysed the relevant provisions of the Act and the Regulations and laid down several propositions including the following :
78. Cumulative reading of these provisions, in conjunction with the scheme of the Act and the object sought to be achieved, suggests that it will not be in consonance with the settled rules of interpretation that a statutory notice or an absolute right to claim notice and hearing can be read into the provisions of Section 26(1) of the Act. Discretion to invite, has been vested in the Commission, by virtue of the Regulations, which must be construed in their plain language and without giving it undue expansion.
97. The above reasoning and the principles enunciated, which are consistent with the settled canons of law, we would adopt even in this case. In the backdrop of these determinants, we may refer to the provisions of the Act. Section 26, under its different sub-sections, requires the Commission to issue various directions, take decisions and pass orders, some of which are even appealable before the Tribunal. Even if it is a direction under any of the provisions and not a decision, conclusion or order passed on merits by the Commission, it is expected that the same would be supported by some reasoning. At the stage of forming a prima facie view, as required under Section 26(1) of the Act, the Commission may not really record detailed reasons, but must express its mind in no uncertain terms that it is of the view that prima facie case exists, requiring issuance of direction for investigation to the Director General. Such view should be recorded with reference to the information furnished to the Commission. Such opinion should be formed on the basis of the records, including the information furnished and reference made to the Commission under the various provisions of the Act, as afore- referred. However, other decisions and orders, which are not directions simpliciter and determining the rights of the parties, should be well reasoned analyzing and deciding the rival contentions raised before the Commission by the parties. In other words, the Commission is expected to express prima facie view in terms of Section 26(1) of the Act, without entering into any adjudicatory or determinative process and by recording minimum reasons substantiating the formation of such opinion, while all its other orders and decisions should be well reasoned. (vi-b) A careful reading of Section 26(1) shows that once the Commission forms an opinion that there exists a prima facie case, it shall direct the Director General to cause an investigation to be made into the matter. In terms of Regulation 18 read with Regulation 20, the direction of the Commission is required to be communicated by its Secretary to the Director General along with a copy of the information or reference with all other documents or materials or affidavits or statements which have been filed with the information or reference or at the time of preliminary conference. Section 26(3) requires the Director General to submit a report on its findings within the time specified by the Commission. Such findings must cover each of the allegations contained in the information or reference together with evidence or documents or statements or analysis collected during the investigation. Section 26(4) enjoins the Commission to forward the report of the Director General to the parties concerned. If the investigation is caused to be made based on a reference received from the Central Government or the State Government or the statutory authority, then the report is required to be sent to the appropriate Government or the statutory authority. The object of sending report to the appropriate Government or the statutory authority or the parties concerned is to enable them to submit objections or suggestions qua the findings recorded by the Director General. This exercise has to be undertaken by the Commission even if the Director General finds that there is no contravention of Sections 3 or 4 of the Act. The Commission can close the case if, after considering the objections or suggestions, it agrees with the recommendations of the Director General. If the Commission is not satisfied with the report of the Director General and forms an opinion that further investigation is called for then it can direct the Director General to make such investigation or cause further inquiry into the matter through an authorized officer or itself hold enquiry [Section 26(7) read with Regulation 21 (4)]. If the report of the Director General discloses contravention of provisions of the Act and the Commission opines that further inquiry is called for then it shall hold inquiry into such contravention. In such an eventuality, the Commission is required to give notice to the Central Government or the State Government or the statutory authority or the parties concerned [Section 26(8) read with Regulation 21 (8)] and invite their objections or suggestions. Not only this, the Secretary of the Commission is obliged to inform the Director General about the dates fixed for the meetings of the Commission, so as to enable him to appear in person or through an officer. If as a result of the inquiry held under Section 26(7) or 26(8) read with the relevant regulations, the Commission comes to the conclusion that contravention of Section 3 or Section 4 of the Act is established then it can pass appropriate order under Section 27 including an order for imposing penalty. (vi-c). The exercise required to be undertaken by the Commission under Sections 26(7) or 26(8) read with the relevant regulations and an order passed under Section 27 which visits the concerned person with civil consequences makes the functions of the Commission adjudicatory/quasi judicial. Therefore, before recording an adverse finding against a person and holding him guilty of violating Section 3 or 4 of the Act, the Commission is obliged to comply with various facets of the principles of natural justice. This necessarily implies that while holding an inquiry under Section 26(7) or Section 26(8) the Commission is required to comply with the rule of audi alteram partem and give an effective opportunity of hearing to the person against whom a finding is likely to be recorded on the issue of contravention of Section 3 or Section 4 of the Act not only to controvert the allegation made against him as also the evidence/material proposed to be used in support of such allegation but also produced evidence to show that he/she/it has not violated any provision of the Act. If the Commission wants to rely upon some information/ material, which does not form part of the report of the Director General then such information/material must be disclosed to the person concerned and an effective opportunity has to be given to him to controvert the same. The Commission is also required to pass a speaking order to demonstrate application of mind to the relevant factors/considerations and exclusion of irrelevant and extraneous factors/considerations. (vi-d). The ambit and scope of principles of natural justice has been considered by the Courts across the globe. In India, the High Courts and Supreme Court have invoked these principles in innumerable cases and quashed administrative, quasi judicial or even judicial orders the ground of violation thereof. In Ridge vs. Baldwin, 164 AC 40, the House of Lords made the following observation : It may be convenient at this point to deal with an argument that, even if as a general rule a watch committee must hear a constable in his own defence before dismissing him, this case was so clear that nothing that the appellant could have said could have made any difference. It is at least very doubtful whether that could be accepted as an excuse. But, even if it could, the respondents would, in my view, fail on the facts. It may well be that no reasonable body of men could have reinstated the appellant. But as between the other two courses open to the watch committee the case is not so clear. Certainly on the facts, as we know them, the watch committee could reasonably have decided to forfeit the appellant's pension rights, but I could not hold that they would have acted wrongly or wholly unreasonably if they had in the exercise of their discretion decided to take a more lenient course. The judgment in State of Orissa vs. Dr. (Miss) Binapani Dei and others [AIR 1967 SC 1269], contains a lucid exposition of the principles of natural justice and their applicability to what was then thought as purely administrative action. The facts of that case were that the respondent had been retired from service by the State Government by relying upon the date of birth which was unilaterally changed by the competent authority. The Orissa High Court quashed the retirement of the respondent by declaring that it was punitive and amounted to removal from service within the meaning of Article 311 of the Constitution. The High Court further held that the order of retirement was vitiated because the writ petitioner had not been given a reasonable opportunity of showing cause against the proposed change in the date of birth recorded in her service book. While approving the second part of the High Courts order, the Supreme Court made the following observations :
9. The deciding authority, it is true, is not in the position of a Judge called upon to decide an action between contesting parties, and strict compliance with the forms of judicial procedure may not be insisted upon. He is however under a duty to give the person against whom an enquiry is held an opportunity to set up his version or defence and an opportunity to correct or to controvert any evidence in the possession of the authority which is sought to be relied upon to his prejudice. For that purpose the person against whom in enquiry is held must be informed of the case he is called upon to meet, and the evidence in support thereof. The rule that a party to whose prejudice an order is intended to be passed is entitled to a hearing applies alike to judicial tribunals and bodies of persons invested with authority to adjudicate upon matters involving civil consequences. It is one of the fundamental rules of our constitutional set-up that every citizen is protected against exercise of arbitrary authority by the State or its officers. Duty to act judicially would therefore arise from the very nature of the function intended to be performed: it need not be shown to be superadded. If there is power to decide and determine to the prejudice of a person, duty to act judicially is implicit in the exercise of such power. If the essentials of justice be ignored and an order to the prejudice of a person is made, the order is a nullity. That is a basic concept of the rule of law and importance thereof transcends the significance of a decision in any particular case.
12. It is true that some preliminary enquiry was made by Dr S. Mitra. But the report, of that enquiry officer was never disclosed to the first respondent. Thereafter the first respondent was required to show cause why April 16, 1907 should not be accepted as the date of birth and without recording any evidence the order was passed. We think that such an enquiry and decision were contrary to the basic concept of justice and cannot have any value. It is true that the order is administrative in character, but even an administrative order which involves civil consequences, as already stated, must be made consistently with the rules of natural justice after informing the first respondent of the case of the State, the evidence in support thereof and after giving an opportunity to the first respondent of being heard and meeting or explaining the evidence. (Emphasis supplied) In Rajesh Kumar vs. CIT [(2007) 2 SCC 181], the Suprerme Court made the following observation :
48. In any event, when civil consequences ensue, there is hardly any distinction between an administrative order and a quasi judicial order. There might have been difference of opinions at one point of time, but it is now well-settled that a thin demarcated line between an administrative order and quasi-judicial order now stands obliterated.
55. Justice, as is well known, is not only be done but manifestly seem to be done. If the assessee is put to notice, he could show that the nature of accounts is not such which would require appointment of special auditors. He could further show that what the assessing officer considers to be complex is in fact not so. It was also open to him to show that the same would not be in the interest of the Revenue.
56. In this case itself the appellants were not made known as to what led the Deputy Commissioner to form an opinion that all relevant factors including the ones mentioned in Section 142(2A) of the Act are satisfied. If even one of them was not satisfied, no order could be passed. If the attention of the Commissioner could be drawn to the fact that the underlined purpose for appointment of the special auditor is not bona fide it might not have approved the same. (Underlining is ours) In Kothari Filaments and another vs. Commissioner of Customs (Port), Kolkata and others [(2009) 2 SCC 192], the Supreme Court considered the correctness of an order passed by the Calcutta High Court dismissing the writ petition filed by the appellant against the order of the Customs, Excise and Gold (Control) Appellate Tribunal, Calcutta, which, in turn, approved the order of confiscation and penalty passed by the competent authority under the Customs Act, 1962. After noticing the fact that the appellant had not been given opportunity to explain the material used against it, the Supreme Court observed:
14. The statutory authorities under the Act exercise quasi- judicial function. By reason of the impugned order, the properties could be confiscated, redemption fine and personal fine could be imposed and in the event an importer was found guilty of violation of the provisions of the Act. In the event, a finding as regards violation of the provisions of the Act is arrived at, several steps resulting in civil or evil consequences may be taken. The principles of natural justice, therefore, were required to be complied with.
15. The Act does not prohibit application of the principles of natural justice. The Commissioner of Customs either could not have passed the order on the basis of the materials which were known only to them, copies whereof were not supplied or inspection thereto had not been given. He, thus, could not have adverted to the report of the overseas enquiries. A person charged with misdeclaration is entitled to know the ground on the basis whereof he would be penalized. He may have an answer to the charges or may not have. But there cannot be any doubt whatsoever that in law he is entitled to a proper hearing which would include supply of the documents. Only on knowing the contents of the documents, he could furnish an effective reply. (Emphasis supplied) In Balchandra L. Jharkihoili and others vs. B.S. Yeddyurappa and others [(2011) 7 SCC 1], the Supreme Court set aside an order passed by the Karnataka High Court which had upheld the decision of the Speaker of the Karnataka Assembly to disqualify the appellant. One of the questions considered by the Supreme Court was whether the speaker was duty bound to supply the affidavits filed by the two MLAs, which constituted the foundation of his order. While answering the question in affirmative, the Supreme Court observed:
124. The Speaker apparently did not take into consideration the rule of evidence that a person making an allegation has to prove the same with supporting evidence and the mere fact that the allegation was not denied, did not amount to the same having been proved on 36 account of the silence of the person against whom such allegations are made. Except for the affidavit filed by Shri K.S. Eswarappa, State President of the B.J.P., and the statements of two of the thirteen MLAs, who had been joined in the Disqualification Application, there is nothing on record in support of the allegations which had been made therein. Significantly, the said affidavits had not been served on the Appellants. Since Shri K.S. Eswarappa was not a party to the proceedings, the Speaker should have caused service of copies of the same on the Appellants to enable them to meet the allegations made therein.
125. In our view, not only did the Speaker's action amount to denial of the principles of natural justice to the Appellants, but it also reveals a partisan trait in the Speaker's approach in disposing of the Disqualification Application filed by Shri B.S. Yeddyurappa. If the Speaker wished to rely on the statements of a third party which were adverse to the Appellants' interests, it was obligatory on his part to have given the Appellants an opportunity of questioning the deponent as to the veracity of the statements made in the affidavit. This conduct on the part of the Speaker is also indicative of the hot haste with which the Speaker disposed of the Disqualification Petition as complained of by the Appellants.
126. The question does, therefore, arise as to why the Speaker did not send copies of the affidavit affirmed and filed by Shri Eswarappa as also the affidavits of the two MLAs, who had originally withdrawn support to the Government led by Shri Yeddyurappa, but were later allowed to retract their statements, to the Appellants. Given an opportunity to deal with the said affidavits, the Appellants could have raised the question as to why the said two MLAs, Shri M.P. Renukacharya and Shri Narasimha Nayak, were treated differently on account of their having withdrawn the letters which they had addressed to the Governor, while, on the other hand, disqualifying the appellants who had written identical letters to the Governor, upon holding that they had ceased to be members of the Bharatiya Janata Party, notwithstanding the Show-Cause notices issued to them.
155. As we have earlier indicated, even if the Disqualification Rules were only directory in nature, even then sufficient opportunity should have been given to the Appellants to meet the allegations levelled against them. The fact that the Show-Cause notices were issued within the time fixed by the Governor for holding the Trust Vote, may explain service of the Show-Cause notices by affixation at the official residence of the Appellants, though without the documents submitted by Shri Yeddyurappa along with his application, but it is hard to explain as to how the affidavits, affirmed by Shri K. S. Eswarappa, Shri M.P. Renukacharya and Shri Narasimha Nayak, were served on the learned Advocates appearing for the Appellants only on the date of hearing and that too just before the hearing was to commence. Extraneous considerations are writ large on the face of the order of the Speaker and the same has to be set aside. (Emphasis added) In Ayaaubkhan Noorkhan Pathan vs. State of Maharashtra and others [(2013) 4 SCC 465], the Supreme Court considered the question whether the caste certificate issued in favour of the appellant could be cancelled without giving him reasonable opportunity of hearing including an opportunity to cross-examine the witnesses examined by the department. After noticing the judgment of the Constitutional Bench judgment in State of M.P. vs. Chintaman Sadashiva Waishampayan [AIR 1961 SC 1623] and large number of other decisions, a Bench of two judges observed :
24. A Constitution Bench of this Court in State of M.P. v. Chintaman Sadashiva Vaishampayan, AIR 1961 SC 1623, held that the rules of natural justice, require that a party must be given the opportunity to adduce all relevant evidence upon which he relies, and further that, the evidence of the opposite party should be taken in his presence, and that he should be given the opportunity of cross-examining the witnesses examined by that party. Not providing the said opportunity to cross-examine witnesses, would violate the principles of natural justice. (See also: Union of India v. T.R. Varma, Meenglas Tea Estate v. Workmen, M/s. Kesoram Cotton Mills Ltd. v. Gangadhar & Ors., New India Assurance Company Ltd.
v . Nusli Neville Wadia and Anr., Rachpal Singh & Ors. v. Gurmit Singh & Ors., Biecco Lawrie 38 & Anr. v. State of West Bengal & Anr., and State of Uttar Pradesh v. Saroj Kumar Sinha).
25. In Lakshman Exports Ltd. v. Collector Of Central Excise, this Court, while dealing with a case under the Central Excise Act, 1944, considered a similar issue i.e. permission with respect to the cross-examination of a witness. In the said case, the assessee had specifically asked to be allowed to cross-examine the representatives of the firms concern, to establish that the goods in question had been accounted for in their books of accounts, and that excise duty had been paid. The Court held that such a request could not be turned down, as the denial of the right to crossexamine, would amount to a denial of the right to be heard i.e. audi alteram partem.
26. In New India Assurance Company Ltd., v. Nusli Neville Wadia, this Court considered a case under the Public Premises (Eviction of Unauthorised Occupants) Act, 1971 and held as follows :
45. If some facts are to be proved by the landlord, indisputably the occupant should get an opportunity to crossexamine. The witness who intends to prove the said fact has the right to cross-examine the witness. This may not be provided by under the statute, but it being a part of the principle of natural justice should be held to be indefeasible right. In view of the above, we are of the considered opinion that the right of cross-examination is an integral part of the principles of natural justice.
45. From what we have observed above, it is clear that if as a result of the inquiry the Commission finds that any agreement referred to in Section 3 read with Section 2(b) or action of an enterprise in a dominant position is in contravention of Section 3 or Section 4, then it may pass all or any of the orders enumerated in Clauses (1), (b), (d), (e) or (g) of Section 27. In the scheme of things, it is bounden duty of the Commission to objectively consider the report of the Director General together with the findings recorded by him, make its own analysis of the pleadings and documents to find out whether or not there has been contravention of Sections 3 or 4. This necessarily implies that the Commission must consider the allegations made in the information, the replies received in response to notices issued under Section 36(2) read with Section 41(2), the information and documents collected by the Director General/Jt. DG and then record its own findings. The Commission cannot abdicate its duty and simply approve the findings of the facts and the conclusion recorded by the Director General and pass order under Section 27 and/or Section 48 of the Act.
46. As mentioned above, the impugned order does not depict objective consideration of the responses given by the appellants to the notices issued by the Jt. DG under Section 36(2) read with Section 41(2), the documents produced by them, the material collected by the Jt. DG in the course of investigation, which included the responses of Respondent No. 2, his affidavit, replies sent by PCA and AIOCD, ten pharmaceutical companies and a number of wholesalers and retailers. After the Commission had sent the reports (main as well as supplementary) to the appellants, they filed detailed objections to the findings recorded by the Jt. 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 Commission 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. The Commission also did not take into consideration, the background in which resolution dated 26.05.2012 was passed by the Association including the fact that Respondent No. 2 had indulged in several malpractices and harassed the retailers, many of whom were members of the Association by issuing inflated bills and refusing to deduct the amount relating to expired drugs which were returned. The Commission also did not take note of the fact that Respondent No. 2 had been expelled because of malpractices indulged by it and that no evidence whatsoever was produced to prove that supply of medicines/drugs had been adversely affected due to the termination of membership of Respondent No. 2 or its boycott. The only thing which Respondent No. 2 did was to make a bald statement in his reply and affidavit that his turnover had reduced from 223.81 Lacs to 39.71 Lacs. However, no contemporaneous evidence like return filed before the Income Tax Authority or any other competent authority to show that its boycott had adversely affected its business. That apart, there was absolutely no evidence to show that the boycott of Respondent No. 2 had the effect of limiting supply of medicines/drugs in the market. Respondent No. 2 could have examined some of the wholesalers, retailers or representatives of the pharmaceutical companies to prove the allegations on the issue of reduction in the availability of drugs and medicines in the market, but no such offer was made by him/it and yet the Jt. DG and the Commission arbitrarily concluded that the action taken by the Association was contrary to Section 3(3)(b) of the Act.
47. What needs to be emphasised that being an adjudicatory body, the Commission exercises quasi judicial function. The orders passed by it can have great adverse impact on the rights of the parties. Therefore, it is bound to act in consonance with the provisions of the Statute and also rules of natural justice, which are required to be followed by every quasi judicial authority functioning under our Constitution. To put it differently, no quasi judicial body has the right to trample over the fundamentals of the rule of law, constitute an integral part of democracy in our country. One of the facets of the rules of natural justice is that every quasi judicial authority must record reasons in support of its order. Such reasons reflect and demonstrate the application of mind by the quasi judicial authority. An order which is bereft of reasons is just like inscrutable face of a sphinx.
48. An extremely lucid exposition of law on the requirement of speaking order has been made by the Full Bench of Gujrat High Court in Testeels Ltd. Vs. N.M. Desai and Another [AIR 1970 Guj. 1]. In the judgement authored by him on behalf of the Full Bench, P.N. Bhagwati, C.J. (as he then was) examined the issue whether the administrative officer discharging quasi judicial functions is bound to give reasons in support of his order he makes. That question arose in the backdrop of challenge of an order made by the Conciliation Officer under Section 33(2)(b) of the Industrial Disputes Act, 1947. After examining the various facets of the question, the Full Bench observed :
3. There are two strong and cogent reasons why we must insist that every quasi-judicial order must disclose reasons in support of it. The necessity of giving reasons flows as a necessary corollary from the rule of law which constitutes one of the basic principles of our constitutional set up. Our Constitution posts a welfare State in which every citizen must have justice - social, economic and political and in order to achieve the ideal of welfare State, the State has to perform several functions involving acts of interferences with the free and unrestricted exercise of private rights. The State is called upon to regulate and control the social and economic life of the citizen in order to establish socio-economic justice and remove the existing imbalance in the socio-economic structure. The State has, therefore, necessarily to entrust diverse functions to administrative authorities which involve making of orders and decisions and performance of acts affecting the rights of individual members of the public. In exercise of some of these functions, the administrative authorities are required to act judicially. Now what is involved in a judicial process is well settled and as pointed out by Shah J., in Jaswant Sugar Mills's case, AIR 1963 SC 677 (supra), a quasi-judicial decision involves the following three elements: (1) It is in substance a determination upon investigation of a question by the application of objective standards to facts found in the light of pre-existing legal rules: (2) It declares rights or imposes upon parties obligations affecting their civil rights; and (3) the investigation is subject to certain procedural attributes contemplating an opportunity of presenting its case to a party, ascertainment of facts by means of material if a dispute be on question of facts, and if the dispute be on question of law, on the presentation, of legal argument, and a decision resulting in the disposal of the matter on findings based upon those questions of law and fact. The administrative authorities having a duty to act judicially cannot therefore decide on considerations of policy or expediency. They must decide the matter "solely on the facts of the particular case solely on the material before them and apart from any extraneous considerations" by applying "pre-existing legal norms to factual situations". The duty to act judicially excludes arbitrary exercise of power and it is, therefore, essential to the rule of law that the duty to act judicially is strictly observed by the administrative authorities upon whom it is laid. If any departure from the observance of the duty to act judicially could pass unnoticed, it would open the door to arbitrariness and make a serious inroad on the rule of law. To quote the words of the Supreme Court in S. G. Jaisinghani v. Union of India, AIR 1967 SC 1427: ". . . . .. the absence of arbitrary power is the first essential of the rule of law upon which our whole constitutional system is based. In a system governed by rule of law, discretion, when conferred upon executive authorities, must be confined within clearly defined limits. The rule of law from this point of view means that decisions should be made by the application of known principles and rules and, in general, such decisions should be predictable and the citizen should know where he is. If a decision is taken without any principle or without any rule it is unpredictable and such a decision is the antithesis of a decision taken in accordance with the rule of law." Now the necessity of giving reasons is one of the most important safeguards to ensure observance of the duty to act judicially. If the administrative officers can make orders without giving reasons, such power in the hands of unscrupulous or dishonest officers may turn out to be a potent weapon for abuse of power. But if reasons are required to be given for an order, it will be an effective restraint on such abuse as the order, if it discloses extraneous or irrelevant considerations or is arbitrary, will be subject to judicial scrutiny and correction. As observed by Subba Rao J., as he then was, in Madhya Pradesh Industries Ltd., v. Union of India, AIR 1966 SC 671, "A speaking order will at its best be a reasonable and at its worst at least a plausible one". The condition to give reasons introduces clarity, checks the introduction of extraneous or, at any rate, minimises arbitrariness in the decision making process it gives satisfaction to the party against whom the order is made and guarantees consideration of all relevant factors and discharge of his functions by the officer in accordance with the requirement of law. We may in this connection usefully quote the following passage from "American Administrative Law" by Bernard Schwartz at page 163: "The value of reasoned decisions as a check upon the arbitrary use of administrative power seems clear.... The right to know the reasons for a decision which adversely affects one's person or property is a basic right of every litigant (and that whether the forum be judicial or administrative). But the requirement that reasons be given does more than merely vindicate the right of the individual to know why a decision injurious to him has been rendered. For the obligation to give a reasoned decision is a substantial check upon the misuse of power. The giving of reasons serves both to convince those subject to decisions that they are not arbitrary and to ensure that they are not, in fact, arbitrary. The need publicly to articulate the reasoning process upon which a decision is based, more than anything else, requires the Magistrate (judicial or administrative) to work out in his own mind all the factors which are present in a case. A decision supported by specific findings and reasons is much less likely to rest on caprice or careless consideration. As Judges Jerome Frank well put it in language as applicable to decision-making by administrators as by trial judges, the requirement of reasons has the primary purpose of evoking care on the part of the decider. . . . ." If the administrative officers having a duty to act judicially are required to set forth in writing the mental processes of reasoning which have led them to the decision, it would to a large extent help to ensure performance of the duty to act judicially and exclude arbitrariness and caprice in the discharge of their functions. The public should not be deprived of this only safeguard.
4. Another reason of equal cogency which weighs with us in spelling out the necessity for giving reasons is based on the power of judicial review which is possessed by the High Court under Article
226 and the Supreme Court under Article 32. The High Court under Article 226 and the Supreme Court under Article 32 have the power to quash by certiorari a quasi-judicial order made by an administrative officer and this power of review exercisable by issue of certiorari can be effectively exercised only if the order is a speaking order and reasons are given in support of it. If no reasons are given, it would not be possible for the High court or the Supreme Court exercising its power of judicial review to examine whether the administrative officer has made any error of law in making the order. It would be the easiest thing for an administrative officer to avoid judicial scrutiny and correction by omitting to give reasons in support of his order. The High Court and the Supreme Court would be powerless to interfere so as to keep the administrative officer within the limits of the law. The result would be that the power of judicial review would be stultified and no redress being available to the citizen, there would be insidious encouragement to arbitrariness and caprice. The power of judicial review is a necessary concomitant of the rule of law and if judicial review is to be made an effective instrument for maintenance of the rule of law, it is necessary that administrative officers discharging quasi-judicial functions must be required to give reasons in support of their orders so that they can be subject to judicial scrutiny and correction.
5. This has always been regarded as a most important reasons in the United States for insisting that quasi-judicial decisions must show reasons on their face. To quote from Schwartz's "American Administrative Law" at page 166: "In the United States, perhaps the most prominent reasons advanced for the requirements of reasoned decisions is the role of such decisions in facilitating review by the courts. If the bases of administrative decisions are not articulated, it is most difficult for a reviewing court to determine whether the decision is a proper one. 'We must know what a decision means before the duty becomes ours to say whether it is right or wrong', reads an oft-cited statement of Gardozo J., . . . . . . for judicial control to be of practical value, the administrative tribunal or agency, 'in making its order, should not make it an unspeaking or unintelligible order, but should in some way, state upon the face of the order the element which had led to the decision'. The words quoted are from a noted judgment of Lord Cairns, L.C., in which he laid down the distinction between 'speaking' and 'unspeaking' orders, which has become of basic importance in present-day English Administrative law. When Lord Cairns speaks of an 'unspeaking or unintelligible order', he obviously means an order which gives no reasons. If the administrator does not give reasons, he, in effect, disarms the exercise of the High Court's supervisory jurisdiction. In such a case, the Court cannot examine further than the face of the challenged decision, which, in Lord Sumner's famous phrase, 'speaks' only with 'inscrutable face of a sphinx'." It is therefore necessary for giving full meaning and content to the power of judicial review conferred on the High Court and the Supreme Court by the Constitution that every administrative officer exercising quasi-judicial functions must make a speaking order, that it, give reasons in support of the order. If the order speaks only with the "inscrutable face of a sphinx" it would be impossible for the High Court and the Supreme Court to effectively exercise their power of judicial review by means of certiorari.
6. This view is not only supportable on principle but it is also in consonance with the trend of juristic thought in the United States where there is considerable development in the field of administrative law in recent times. In the United States, as will be evident from the two passages from Schwartz's "American Administrative Law" quoted above, the American Courts have always insisted that administrative decisions should be speaking ones, that is, they must contain at least the findings upon which they are based and the reasons which have prevailed with them in introducing this requirement are the same two reasons which have found favour with us. It is also interesting to find that the administrative law in France has moved in the same directions. For a long time Conseil d'Etat consistently refused to require that the administration should give reasons for its decisions in the absence of a statutory provision imposing that requirement. But in a decision rendered by it in 1950 Conseil d'Etat opened, in the words of one commentator, "a first breach in the established jurisprudence under which in the absence of a legal text requiring it the decisions of the administrative authorities need not be reasoned ones" and annulled an administrative decision in which no reasons were given. The Commissaire du gouvernment there advocated a bold departure from the prior case law and stated that the Conseil should require reasoned decision in every case in which the administrator was exercising quasi-judicial functions, even though the Legislature did not expressly impose such requirement. Otherwise, he asked, how could the Conseil really determine the validity of a challenged decision? In its decision adopting the approach of the Commissaire, the Conseil d'Etat stated that the obligation to give reasons was imposed "in order to enable the reviewing court to determine whether the directions and prohibitions contained in the law have been followed." This is the same reason which has motivated the American Courts in requiring that administrative decisions must contain findings that show their basis and it is the same reason which has appealed to us for taking the view that in India too, as in the United States and France, administrative officers exercising quasi- judicial functions must make speaking orders. xx xx xx
8. So much on principle. But quite apart from principle, there is in our view clear authority for the proposition that every quasi-judicial decision must be supported by reasons. The germ of this principle is to be found in the decision of the Supreme Court in Express Newspaper (Private) Ltd., v. Union of India, AIR 1958 SC 578. In that case the validity of the Working Journalists (Conditions of Service) and Miscellaneous Provisions Act, 1955 was challenged inter alia on the ground that the impugned Act did not provide for the giving of reasons for its decision by the Wage Board and thus rendered the petitioner's right to approach the Supreme Court for the enforcement of their fundamental rights nugatory. Dealing with this contention. N. H. Bhagwati J., speaking on behalf of the Supreme Court said: "It is no doubt true that if there was any provision to be found in the impugned Act which prevented the Wage Board from giving reasons for its decision, it might be construed to mean that the order which was thus made by the wage board could not be a speaking order and no writ of certiorari could ever be available to the petitioners in that behalf. It is also true that in that event this Court would be powerless to redress the grievances of the petitioners by issuing a writ in the nature of certiorari and the fundamental right which a citizen has of approaching this Court under Art. 32 of the Constitution would be rendered nugatory." The Supreme Court, however, took the view that there was no provision in the main Act which prevented the Wage Board from giving reasons for its decision and the challenge was negatived on that ground. But these observations undoubtedly support, the second reason which we have given for taking the view that reasons must be given in support of every quasi-judicial decision.
9. There is also another decision of the Supreme Court on the point and that is the decision in Govindrao v. State of Madhya Pradesh. AIR 1965 SC 1222. The appellants in that case claiming to be the descendants of former Ruling Chiefs in some districts of Madhya Pradesh applied under the Central Provinces and Berar Revocation of Land Revenue Exemption Act, 1948, for grant of money or pension as suitable maintenance for themselves. They held estates in two districts on favourable terms as Jahgirdars, Maufidars and Ubaridars and enjoyed exemption from payment of land revenue amounting in the aggregate to Rs. 27,828.5-0 per year. On the passing of the Act the exemption was lost and they claimed to be entitled to grant of money or pension under the provisions of the Act. They applied to the Deputy Commissioner who forwarded their applications to the State Government. These were rejected without any reasons being given therefor. The appellants filed a petition in the High Court of Madhya Pradesh under Article 226 for a writ of certiorari to quash the order of the State Government. On the petition being dismissed, the appellants preferred an appeal to the Supreme Court. One of the grounds of challenge before the Supreme Court was that the order of the State Government was invalid since the appellants had not been heard by the State Government before making the order and the order was not supported by any reasons. The Supreme Court upheld this ground of challenge observing: "The next question is whether Government was in making the order of April 26, 1955? That order gives no reasons at all. The Act lays down upon the Government a duty which obviously must be performed in a judicial manner. The appellants do not seem to have been heard at all. The Act bars a suit and there is all the more reason that Government must deal with such cases in a quasi-judicial manner giving an opportunity to the claimants to state their case in the light of the report of the Deputy Commissioner. The appellants were also entitled to know the reason why their claim for the grant of money or a pension was rejected by Government and how they were considered as not falling within the class of persons who it was clearly intended by the Act to be compensation in this manner. Even in those cases where the order of the Government is based upon confidential material this Court has insisted that reason should appear when Government performs curial or quasi-judicial functions (See M/s. Hari Nagar Sugar Mills Ltd., v. Shyam Sundar Jhunjhumwala, (1962) 2 SCR 339 = (AIR 1961 SC 1669). The High Court did not go into any other question at all because it rejected the petition at the threshold on its interpretation of S. 5(3). That interpretation has been found by us to the erroneous and the order of the High Court must be set aside. As the order of Government does not fulfil the elementary requirements of a quasi-judicial process we do not consider it necessary to order a remit to the High Court. The order of the State Government must be set aside. . . . . . . . . ." The Supreme Court held that the necessity to give reasons was an elementary requirement of quasi-judicial process and since the order of the Government did not fulfil this elementary requirement, it was liable to be set aside. This decision to our mind is a direct authority for the proposition that every quasi-judicial decision must be supported by reasons and no further authority is necessary in support of the proposition.
10. But if any further authority were needed, it is to be found in the recent decision of the Supreme Court in Bhagat Raja's case AIR 1967 SC 1606 (supra). The order impugned in that case was an order of the Central Government in exercise of its revisional power under Rule 55 of the Mineral Concession Rules, 1960 and the question directly arose whether the order was bad in that it did not give any reasons in support of it. The Supreme Court after an elaborate review of various decisions bearing on the point came to the conclusion that the Central Government was bound to give reasons in support of the impugned order and since no reasons had been given, the impugned order was bad. This decision was sought to be distinguished on behalf of the State on the ground that the Central Government whose order was impugned in that case was a tribunal within the meaning of Art. 136 and therefore subject to the appellate jurisdiction of the Supreme Court under that Article and it was the existence of this right of appeal to the Supreme Court against the order of the Central Government which weighed with the Supreme Court in taking the view that the order of the Central Government required to be supported by reasons. The argument on behalf of the State was that the ratio of this decision was confined to a case of quasi-judicial authority which was a tribunal within the meaning of Article 136 and it had no application where an order made by a quasi-judicial authority other than a tribunal was in question. This argument is in our view not well founded. It ignores the true ratio of the Supreme Court decision. It is undoubtedly true that the Central Government was a tribunal within the meaning of Article 136 and the Supreme Court therefore emphasized the existence of a right of appeal against the decision of the Central Government under that Article but the reasoning on which the decision was based is applicable alike to a case of an administrative authority which is not a tribunal within the meaning of Article 136. Just as there is a right of judicial review against the decision of a quasi-judicial authority under Article 226 and 32 and the reasons which impelled the Supreme Court to import the necessity of giving reasons because there is a right of appeal under Article 136 must equally apply in spelling out the necessity of giving reasons when there is a right of judicial review under Articles 226 and 32. If the right of appeal under Article 136 would be stultified by absence of reasons, equally would the right of judicial review under Article 32 and 226 be stultified if no reasons are given. Moreover, we find that the first reason which we have given above for importing the necessity of giving reasons is also adverted to by the Supreme Court in paragraph 13 of the judgment and has been relied upon for the purpose of holding that the Central Government was bound to give reasons in support of its order and the validity of this reason does not depend upon whether the quasi-judicial authority is a tribunal or not. This decision also, therefore, supports the view we are inclined to take.
49. The same view had been taken by the Supreme Court in Hari Nagar Sugar Mills Ltd. Vs. Shyam Sundar Jhunjhumwala-[AIR 1961 SC 1669], Madhya Pradesh Industries Ltd. Vs. Union of India [AIR 1966 SC 671], Bhagat Raja Vs. The Union of India and others-[1967 AIR 1606], Siemens Engineering and Manufacturing Co. of India Limited Vs. Union of India and another-[AIR 1976 SC 1785] and S.N. Mukherjee Vs. Union of India-[(1990) 4 SCC 594].
50. We shall now consider the question whether the Association has been following a practice of making it mandatory for anyone desirous of taking distributorship of medicines of any pharmaceutical company in Ferozepur district to obtain NOC/LOC on payment of fees of Rs. 2,100/- per company and the same is violative of Section 3(3)(b) read with Section 3(1) of the Act.
51. As mentioned above, the Commission mechanically approved the findings recorded by the Jt. DG without examining the material available on record. While doing so, the Commission conveniently overlooked the following factors/features:
(i) that the Association had neither taken any policy decision nor issued circulars making NOC/LOC mandatory for appointment of distributors in District Ferozepur. It was merely following the directives issued by PAC with whom it is affiliated;
(ii) that the lack of mandatory character of NOC/LOC is evident from the fact that as many as 80 stockists were doing business in Ferozepur without taking NOC/LOC from the Association;
(iii) that the genesis of the concept of NOC lay in the Memorandum of Understanding dated 12.09.2003 entered into between the Indian Drugs Manufacturers Association (IDMA), the Organization of Pharmaceutical Producers of India (OPPI) and the All India Organization of Chemists and Druggists Association (AIOCD) and the Association has done nothing except to follow the circulars issued by AIOCD;
(iv) that the practice of NOC was also introduced by the Punjab Chemists Association with which the Association was affiliated. Article 17 of the Rules and Regulations of the Punjab Chemists Association authorise the District President / General Secretary / office bearers of the District Chemists Association to issue LOC for appointment of stockist by the company in their District and in case of any dispute, the President / General Secretary of Punjab Chemists Association is authorised to issue LOC;
(v) that as long as Respondent No. 2 was a member of the association, he was never refused a NOC and after he ceased to be a member there was no occasion to issue NOC to him;
(vi) that for appointment as stockist for M/s. Merck Limited, Respondent No. 2 had obtained NOC from District Chemists Federation, Jalalabad and this shows that absence of NOC from the Association did not have any adverse effect on the business of Respondent No.2;
(vii) that the fact that the practice of NOC/LOC is not mandatory and sole objective thereof was to provide mechanism to identify the number of local stockist for a particular pharmaceutical company. In support of this plea, the Association relied upon the statement made by the President Chaman Lal Kakkar on 25.04.2013, statement dated 25.04.2013 made by its Vice Chairman Shri H.C.Gupta, statement dated 26.04.2013 made by its Vice- President Shri A.K. Gupta and statement dated 26.04.2013 made by its Secretary Shri Sham Lal Kakkar and statement dated 26.04.2013 made by its Treasurer Shri Ashwani Kumar Garg. These statements are extracted below:
i) Statement of evidence dated 25th April 2013 of Mr. Chaman Lal Kakkar the President of the Association
11. It has been contended by you that permission is being demanded by pharma companies before appointing additional stockists. Why would pharma companies inquire from your Association the need for appointment of additional stockists based on demand when they can themselves assess the demand and the need or otherwise for appointment of additional stockist paged on demand when they can themselves assess the demand and the need or otherwise for appointment of additional stockists? Ans. The Medical Representatives of pharmaceutical companies do not reveal the correct picture of demand to their companies and are only interested in meeting their sales targets which later results in disputes related to payments between the company and the wholesalers. As such, it is the companies which demand NOC / LOC to avoid such a situation as well as to check the financial credibility of the interested wholesalers.
12. It has been stated in your written submissions that your Association studies the market before NOC is granted depending upon demand to avoid unhealthy competition. Please explain what do you mean by unhealthy competition. Ans. The pharmaceutical companies pass on extra discounts to big wholesalers whereas small wholesalers do not get this benefit and are thus in a disadvantageous position. Further, because of extra discounts, the big wholesalers is in a position to pass on discounts to some retailers who prefer to procure their supplies from such big wholesaler. This is to the disadvantage of smaller wholesalers and smaller retailers. However, since Ferozepur market is not very substantial there is only nominal impact of the above.
13. What shall be the implications of pharma companies appointing additional stockists / whole sellers in spite of low demand of their pharmaceutical products and why does it call for intervention by your association in the form of NOC / LOC and should not be left to the pharma companies to decide? Ans. In case pharmaceutical companies are allowed to appoint stockists / wholesalers without any intervention of the association in the form of NOC / LOC, it may lead to a situation where some wholesalers / retailers would be stranded with unsold stocks and dead investment and may have to ultimately close down their business. ii) Statement of evidence dated 25th April 2013 of Mr. H.C. Gupta, - the Vice President of the Association
4. Does your Association insist for its NOC / LOC before allowing any pharma company to appoint any new or additional stockists / whole seller of drug and pharmaceutical products in Ferozepur and if so, under whose authority / directions has this condition been stipulated and what is the justification for the same? Ans. It is the pharmaceutical companies which insist for NOC of our Association to avoid any disputes at a later stage with the wholesaler / stockist. Moreover, the medical representatives to meet their targets insist for appointment of new / additional wholesalers even though the demand does not justify the same. In such a case, stockists are dumped with stocks which ultimately expire and their investment is blocked recovery of which from pharma companies becomes difficult. As such, to protect the wholesalers as well as retailers the practice of NOC is justified. iii). Statement of evidence dated 26th April 2013 of Mr. A. K. Gupta the Vice President of the association which is set out below :
5. What would be the implication if additional stockists / new stockists could be appointed by pharma companies in Ferozepur without any restriction? Ans. In such a situation, the existing stockists would be vulnerable to be exploited by the pharmaceutical companies in terms of payments / refunds being held up in respect of returned damaged / expired stocks etc. of the existing stockists as the company would appoint new stockist without resolving the issues of the existing stockists related to payment etc. iv) Statement of evidence dated 26th April 2013 of Mr. Shyam Lal Kakkar the Secretary of the Association
5. What would be the implication if additional / new stockists could be appointed by pharma companies in Ferozepur without any restriction of NOC / LOC of your Association? Ans. Our intention is to protect the existing stockists from being exploited by pharmaceutical companies. If there is no NOC requirement, there is possibility that stockists would suffer and there may be disputes between stockists and between pharma companies and stockists.
6. Do you agree that the requirement of NOC / LOC acts as a deterrent to unhealthy competition in the market of wholesale / retail sales of drugs and pharmaceutical products as contended by the Association, and if so, how? Ans. Yes. In case a pharma company appoints a new stockiest, the company ignores the interest of the existing stockist who has already paid for the stocks and as such to meet the competition from the new stockist, the existing stockists may resort to passing on discounts to off load his stocks in the market. This leads to unhealthy competition in the market.
v) Statement of evidence dated 26th April 2013 of Mr. Aashwini Kumar Garg the Treasurer of the Association
3. Your Association insists for NOC / LOC before allowing any Wholesaler / stockiest to take up business of any pharmaceutical company. How does this practice eliminate unhealthy competition from the market as contended by your Association? Ans. In the absence of NOC, pharmaceutical companies would appoint new / additional stockists without taking into account the unsold stocks already lying with existing stockists which ultimately may have to be returned back causing loss to the company as well as the wholesaler. This may lead to unhealthy competition between existing and new wholesalers. vi) In their statements dated 25.04.2013 and 26.04.2013 S/Shri H. C. Gupta (Vice-President) and Sham Lal Kakkar (Secretary) unequivocally denied the suggestion that the possession of NOC was a mandatory condition for appointment of a new or additional stockist. These statements are also extracted below : Statement of evidence dated 25th April 2013 of Mr. H. C. Gupta the Vice President of the Association
5. Under what legal or statutory authority does the Association stipulate requirement of NOC / LOC prior to appointment of a new or additional stockiest / wholesaler and what action, if any, is taken by your Association on those not following its directives in this respect? Ans. We do not insist for NOC, it is the pharmaceutical companies who ask for NOC from the Association to avoid unnecessary harassment / disputes between stockists inter Se, medical representative etc. it is rare that a company appoints stockists without NOC of the Association. We have no objection if the company appoints additional / new stockist without our NOC. Statement of evidence dated 26th April 2013 of Mr. Shyam Lal Kakkar the Secretary of the Association
4. As per information, your Association insists of NOC / LOC before allowing any pharma company to appoint any new or additional stockists / wholesalers of drug and pharmaceutical products in Ferozepur. What action does your Association take in case the wholesaler or the pharma company does not take your NOC / LOC and goes ahead with sale of these products in Ferozepur? Ans. We have no objection if NOC is not taken from the Association.
(viii) Unfortunately, the Commission completely overlooked the statements of all the office-bearers. It also overlooked that the pharmaceutical companies like Abbot India Limited, M/s. Glenmark Pharmaceuticals Limited, M/s. Invida India Private Limited, M/s. Macleods Pharmaceuticals Limited, M/s. Sun Pharmaceuticals Limited, M/s. Zuventus Healthcare Limited unequivocally rejected the suggestion that an applicant should have obtained NOC / LOC from the association before he / she could be appointed as stockists. The replies filed by these pharmaceutical companies are reproduced below : Abbot India Limited reply dated 15th April 2013 originally Annexure 24 to the Director Generals report
2. Now dealing with the information and clarifications sought by you, based on the information available and records maintained with us, our reply with respect to each of them is as follows: a. With respect to para : At the outset we have not appointed any new stockists for our products in Ferozepur area for over last three years. We are not aware of any requirement to take any NOC / LOC from Chemist and Druggist Association, Ferozepur or from Punjab Chemist Association, Patiala (hereinafter collectively referred to as Associations) prior to appointment of stockists of Companys products in Ferozepur; b. With respect to Para 2 : As per the records available with us, we have not received any NOC / LOC from the Associations for appointment of stockist of Companys products in Ferozepur. We are not aware of the free, if any, prescribed by Associations for such NOC / LOC; c. With respect to Para 3 : As stated above, we are not aware of any requirement to take any NOC / LOC from Associations prior to appointment of stockists of companys products in Ferozepur and we therefore, do not have copies of the documents sought for; d. With respect to Para 4 : We are not aware of any NOC/LOC/PIS approval required from Associations prior to launching our new products in the State of Punjab. Glenmark Pharmaceuticals Ltd. reply dated 8th April 2013 originally Annexure 27 to the Director Generals report With regard to the information / clarifications requested for, without prejudice to our legal rights, we hereby submit as under ad seriatum:
1. We set our own internal selection criteria or norms for the appointment of stickiest /retailers. We dont consult any Chemist and Druggist Association or any of its affiliated associations nor are we required to obtain any NOC / LOC from any Chemist and Druggist Association or its affiliated associations for appointment of our stockiest / retailers. We shortlist and appoint a stockiest / retailers based on our assessment of its suitability.
2. As stated above we reiterate that we do not obtain any NOC / LOC from Chemists and Druggists Association or its affiliated associations.
3. To the best of our knowledge we do not have any directive/decision of any apex body or association regulating the Pharmaceutical industry, which we are required to follow for appointment of the stockist / retailer and hence the question of following one does not arise. Invida India Pvt. Ltd. reply dated nil originally Annexure 28 to the Director Generals report
1. We were not required to seek NOC / LOC prior to appointment of our distributor / CA / Stockists for the state of Punjab. Macleods Pharmaceuticals Limited reply dated 25th March 2013 originally Annexure 29 to the Director Generals report
1. We are not taking any NOC / LOC from Chemist & Druggists Association Firozpur for appointment stockists. However, parties are directly approaching the association and sought LOC / NOC from their respective district association. Sun Pharmaceuticals Industries Limited reply dated 8th April 2013 originally Annexure 30 to the Director Generals report
1. Please note that there is no requirement of taking NOC / LOC by our prospective wholesaler / stockiest / retailer from Chemist & Druggists Association Ferozpur or from Punjab Chemist Association, Patiala. We are well aware that as NOC before the appointment of stockiest / distributor / retailer leads to reduction of supply in the market, it is a contravention of Section 3(3)(b) of the Competition Act, 2002. It is apposite to mention that generally, while appointing distributor / stockiest, so as to verify quickly and easily their worthiness and other ethical credentials including, that they are not involved into any spurious and objectionable dug business activities, we only enquire from respective association. Please note we are not insisting the stockists / distributor / retailer for obtaining any NOC / LOC as pre-requisite prior to the appointment.
2. Please be informed that we do not have any such copies of NOCs / LOCs issued by Chemist and Druggist Association, Ferozepur or from Punjab Chemist Association, Patiala permitting appointment of wholesaler/stockiest/retailers. Furthermore, we have no material information about the details of the fee prescribed by the Association (s) for grant of NOC /LOC.
3. We reiterate that there is no requirement of taking any NOC / LOC as per directives / decision of any apex body or Association which may be regulating the Pharmaceutical Industry.
4. There is no requirement for obtaining any NOC/LOC/PIS approval from any Trade Association or its affiliates inany district of Punjab, including Ferozepur, prior to launching any new pharmaceutical products / drugs by our company. Further we have not material information about the details of the prescribed fees / charges payable for grant of such approval. Zuventus Health Care Limited reply dated 16th April 2013 originally Annexure 31 to the Director Generals report M/s. Ferozepur Medical Agency had produced the NOC dated December 1, 2012 from Chemist & Druggists Association Firozpur. To our knowledge, no NOC is mandatory for making appointment of any party as stockiest. We have annexed hereto the copy of the said NOC. We have not received any directive / decision / MOU of any apex body or Association regulating such appointments. To our knowledge, no NOC is required to be obtained from any trade association or its affiliates prior to launching any pharmaceutical products / drugs.
(ix) The Commission also overlooked the statement made by Shri Surjeet Mehta, Chairman Punjab Chemists Association on 05.06.2013 in which he unequivocally stated that the relevant rules and regulations will be amended to dispense with the requirement of LOC. The relevant portions of statement of Shri Surjit Mehta are reproduced below :
7. As per Article 17 of the Rules and Regulations of PCA furnished by you, PCA has authorized District level Chemists Associations to issue LOC for appointment of stockists and in the event of any disputes reserved the right with itself, to issue LOC. Please explain the rationale behind the practice of NOC / LOC necessarily required to be taken by a wholesaler / pharmaceutical company from the district level association or your Association prior to appointment of stockist. Ans. This authorisation was given to the district level associations so that they could check the entry of spurious / sub-standard medicines being introduced by some unscrupulous manufacturers in the market. The district level associations were expected to use their expertise and knowledge in the field to check the above menace. However, we have stopped this practice since last 4 -5 years.
8. Please explain under what legal, statutory or other authority has this authorisation been given by PCA to district level Associations and under what legal, statutory or other authority such LOCs, in case of disputes, are being issued by your Association. Ans. There was no legal or statutory authority to give the above authorization, however, it was done with a view to check the entry of spurious / sub-standard medicine as explained above.
9. If PCA is not issuing any LOCs as contended, and if district associations are acting independently, why have you not amended your Rules & Regulations accordingly and intimated the same to all your affiliated district level Associations? Ans. We shall amend our rules and regulations and withdraw the article under which Authorization for issuing LOC has been given to District Associations and shall also intimate them in writing that LOC / NOC condition for appointment of new/additional stockists should not be imposed by the Associations. A copy of the minutes of the General Body Meeting before which the proposal for amendment shall be put up along with copy of the amended rules and regulations shall be furnished shortly.
(x) The Commission also failed to take note of the recommendations made by the report prepared by the Expert Committee under the Chairmanship of Dr. R.A. Mashelkar to examine all the aspects regarding the regulatory infrastructure and the extent and problem of spurious/substandard drugs in the country. The Committee have been asked by the Government of India to make recommendations and suggest a roadmap for implementation of the recommended measures so that the problem could be solved in its entirety. The Committee is consisted of an eminent scientist, an eminent lawyer and former Police Commissioners as its members. Officials representing key Ministries/Departments/States/drug manufacturers, trade, consumer and professional associations were also inducted as members. After an in-depth study of various facets of the problems, the Committee submitted a detailed report in November, 2003 running into 137 pages with the title as A COMPREHENSIVE EXAMINATION OF DRUG REGULATORY ISSUES, INCLUDING THE PROBLEM OF SPURIOUS DRUGS. In paragraph 4, the Committee recommended steps to be taken by the pharmaceutical industry and pharmacy associations to tackle the problem of spurious drugs. Paragraph 4.11 of that chapter reads as under : 4.11 Recommended Action for the Pharma Trade Association a. Play a proactive and visible role to contain the menace of spurious/counterfeit drugs. b. Develop its mechanism in identifying the persons directly or indirectly involved in abetting the distribution of spurious, counterfeit or questionable quality drugs. c. Prepare a checklist for the guidance of members and widely publicize it for information to all members. d. sub rule 3 of rule 65 (4) of drugs & cosmetics rules requires that the supply by retail of any drug shall be made against a cash/credit memo. This condition of licence should be strictly adhered to by all retail licensees. e. Every chemist/pharmacist to act as a watchdog to prevent entry of any spurious/doubtful quality drugs or those purchased from unauthorized sources or without proper bills in the supply chain. Paragraph 9 of the report consists of summary of measures to deal with the problem of spurious/counterfeit drugs. Paragraph 9.1 of that chapter reads as under : 9.1 The Committee endorsed the views expressed by the DGHS Committee and also the views that emerged as outcome of discussion at the meeting of State Health Minsters. The members re-emphasised several of these suggestions as remedial measures to eliminate/reduce the menace of spurious drugs in the country. In summary, the gist of the recommendations is : Effective interaction between the stakeholders i.e. industry and regulators, industry and consumers, trade and regulators and medical professional and regulators. Creation of intelligence cum legal cells in State and Central offices. Discouraging proliferation of drug distribution outlets. Changes in law to provide enhanced penalties, making the offences cognisable and non-bailable in the light of similar provisions in Narcotic Drugs and Psychotropic Substances Act. Designation of special courts to try the cases of spurious drugs. Preparation of dossiers of suspected dealers and manufacturers. Provision of secret funds and incentives to informers. Effective networking system between States. Check on drug supplies to practitioners who buy and supply drugs to their patients. Industry to have its counterfeit drug strategies, better surveillance and efficient complaint handling system. Trade associations to have better surveillance on defaulting members and to take strict action against them. Creation of better awareness amongst consumers.
(xi). Unfortunately, the Commission failed to keep in view the recommendations made by the Mashelkar Report, which pointed out the apex body like AIOCD and other similar organisations as also the State bodies to suggest that the persons desirous to take distributorship of any pharmaceutical company should obtain NOC/LOC from the concerned association. This precisely what the Association had done as a practice though, as mentioned above, it was not mandatory for all to take NOC/LOC as a condition precedent for appointment of distributor. This is strengthened from the facts that as many as 90 stockists were operating in Ferozepur district without obtaining NOC/LOC from the Association. On the basis of the above discussion, we hold that the conclusion recorded by the Commission that by insisting on obtaining NOC/LOC as a condition precedent for the appointment of a distributor of any pharmaceutical company, the Association had acted in violation of Section 3(3)(b) is legally unsustainable and is liable to be set aside.
52. The next question which merits consideration is whether resolution dated 26.05.2012 passed by the Association, which was circulated among the wholesalers/retailers vide circular dated 27.05.2012 resulted in curtailment of supply of medicines/drugs and this amounted to violation of Section 3(3)(b) of the Act.
53. In this context what is most significant is that both the Jt. DG and the Commission completely overlooked the background in which the resolution was passed. It is not in dispute that Respondent No. 2 was expelled from the membership of the Association because of the grave misconduct of overcharging the retailers by manipulation of the computer software and, as mentioned above, the decision of expulsion had become final because it has not been questioned in any court of law. The Jt. DG and the Commission also overlooked another important aspect of the matter that even after termination of membership, Respondent No. 2 continued his business as usual. Unfortunately, they have relied upon wholly unsubstantiated statement of Respondent No. 2 and its partner (Director, Shri Rajesh Arora) that as a result of resolution dated 26.05.2012 its sale was drastically reduced. Not a shred of evidence was produced by Respondent No. 2 before the Jt. DG in support of the bald statement contained in the information, its three responses and the affidavit that its sale had declined to Rs. 39.71 Lacs from Rs. 223.81 lacs and odd. If there was any grain of truth in this assertion, it would have certainly produced its account-books and other records to prove that its sale got reduced by almost 2 crores after passing of resolution dated 26.05.2012. In the absence of such evidence, the Jt. DG and the Commission were not entitled to record a finding that the resolution had adversely affected supply of medicines/drugs in the market and consequential violation of Sections 3(3)(b) and 3(1) of the Act.
54. The question which remains to be considered is whether the penalty imposed on the office bearers of the Association is legally sustainable. In our view, that part of the impugned order is liable to be set aside on the ground that while remitting the matter to the DG for the limited purpose of fixing the responsibility of the office bearers, the Commission had unequivocally referred to Section 48 of the Act and directed the DG to issue notice to the office bearers of the Managing Committee/Executive Body of the Association under Section 48(2) and give them opportunity to explain their role in the decision making in respect of practices / circulars / directions etc. which were found anti-competitive. In compliance of the directive given by the Commission, the DG issued notices dated 03.07.2013 and gave them opportunity under proviso to Section 48(1) of the Act and produce evidence to prove that contravention of Section 3(3)(b) read with Section 3(1) was committed by the Association without their knowledge or that they had exercised due diligence to prevent the Commission of such contravention. However, after receipt of supplementary report dated 31.07.2013 in which the Joint DG recorded a conclusion that office bearers were complicit in anti-competitive practice followed by the Association, the Commission gave up idea of imposing penalty under Section 48 of the Act apparently after realising that the ingredients of that section are not satisfied and reverted to Section 27(b) for the purpose of imposing penalty. This is evident from the paragraphs 80 to
82 of the impugned order, which reads as under :
80. The said office-bearers in their common reply have taken a preliminary objection that the provisions of section 48 of the Act (dealing with the liability of the persons in-charge of the company) are not attracted. The office-bearers have not disputed the findings of the DG on merits reserving their right to file additional response.
81. The Commission is of opinion that irrespective of the plea taken by the office-bearers or its merit, in the factual scenario of the present case, it is evident that the office-bearers are parties to the impugned decision of the association.
82. In this scenario, the provisions of section 27 of the Act are themselves sufficient to hold the office-bearers guilty of contraventions without the aid and assistance of the provisions of section 48 of the Act. As per the provisions of Section 27(b)of the Act, where after inquiry, the Commission finds that any agreement referred to in section 3 or action of an enterprise in a dominant position, is in contravention of Section 3 or Section 4, as the case may be, it may impose such penalty, as it may deem fit which shall be not more than ten percent of the average of the turnover for the last three preceding financial years, upon each of such person or enterprises which are parties to such agreements or abuse.
55. In our view, after having resorted to Section 48, the Commission could not have reverted to Section 27(b) for the purpose of imposing penalty and that too without giving an action oriented notice and reasonable opportunity of hearing to the appellants in Appeal Nos. 22 to 28 of 2014 to show cause why the penalty may not be imposed on them under Section 27(b) of the Act.
56. We may also mention that if Section 48 (1) was to be invoked for penalizing the appellants Gurpreet Singh and six others, the Jt. DG was required to prove that they were in charge of and were responsible for the company (Association) for the conduct of its business as well as the Association itself. However no such finding was recorded by the Jt. DG. The Commission realized that these fundamental ingredients are not satisfied in the present case. Therefore, it conveniently switched over to Section 27(b) and imposed heavy penalties on the office bearers. However, no such finding was recorded by the Jt. DG.
57. An ancillary issue which merits consideration is whether the Commission was justified in overlooking the fact that Respondent No. 2 had filed parallel remedies. He filed two civil suits, one for grant of a declaration that Resolution dated 26.05.2012 passed by the Association is nullity and for grant of permanent injunction and the other for award of damages to the tune of Rs. 5 Lacs for the loss of reputation and business. He also filed criminal complaints under Section 499, 500 506 of Indian Penal Code. During the pendency of the complaints, Respondent No. 2 filed information under section 19(1)(a). During the course of investigation, the Association and other appellants brought to the notice of the Jt. DG that Respondent No. 2 had already filed remedies by filing civil suits and criminal complaint, but he did not take cognisance of the same and proceeded to submit report with the finding that the Association and its office-bearers are guilty of violating Section 3(3(b) read with Section 3(1) of the Act. The facts relating to the pendency of the cases before the competent Court was also brought to the notice of the Commission but it altogether overlooked this important and crucial factor and proceeded to pronounce upon the issue relating to violation of Section 3 of the Act and imposed penalty on all the appellants.
58. No doubt Section 62 of the Act declares that the provisions of this Act shall be in addition to, and not in derogation of, the provisions of any other law for the time being enforce, meaning thereby that a party availing remedy under any other law can also initiate proceedings under the Act but this section does not empower a party to simultaneously avail two remedies which may result in passing of inconsistent or contradictory orders by two adjudicatory forums as has happened in the present case because while the Commission has ruled that the practices adopted by the Association are violative of Section 3(3)(b) read with Section 3(1) of the Act and imposed penalty on all the appellants, the suits filed by the respondent for grant of a declaration that Resolutions passed by the Association are nullity and for award of damage in lieu of the loss suffered by it were dismissed by the competent Court i.e. Additional Civil Judge (Senior Division), Ferozepur.
59. It is not in dispute that Respondent No. 2 had filed two suits and a criminal complaint before filing information dated 20.09.2012 under section 19(1)(a) of the Act. It is a sheer co-incidence that the information culminated into passing of order dated 05.02.2014 by the Commission vide which the Association was held guilty of acting in violation of Section 3(3)(b) read with Section 3(1) of the Act and penalty was imposed on the Association and its office bearers under Section 27 of the Act, but two suits filed for substantially similar were dismissed on 12.05.2015. It is a different thing that Respondent No. 2 had challenged the judgment and decree dated 12.05.2015 by filing appeals and has also questioned the order passed by the competent court dismissing the complaint filed by him under Sections 499 and 500 CPC.
60. In our view, once the DG had been apprised of the facts relating to pending civil and criminal cases, he should have brought this fact to the notice of the Commission and sought its guidance and the latter should have as a measure of proprietary stayed further proceedings. In any case, the Commission should not have finally pronounced upon the guilt of the Association and the other appellants and should have waited for the final verdict of the civil and criminal cases.
61. What is most surprising is that even though the Commission had passed order dated 05.02.2014 and the same was subject matter of appeal under Section 53-B, this development was not brought to the notice of Additional Civil Judge (Senior Division), Ferozepur, so as to enable her to take appropriate view of the matter and then decide whether or not she should finally adjudicate the suits.
62. Be that as it may, we are convinced that the Commission should have, on being apprised of the fact that Respondent No. 2 had already availed remedy by filing two civil suits and a criminal complaint on the same cause, stayed the proceeding of the information and should not have passed the impugned order.
63. In the result, the appeals are allowed and the impugned order is set aside. If any of the appellants has deposited whole or a fraction of the penalty then the same shall be refunded to it / him within four weeks from today.
64. As a sequel to disposal of the main appeals, all the interlocutory applications are disposed of as infructuous. [G.S. Singhvi] Chairman [Rajeev Kher] Member 30th October, 2015
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