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Alkem Laboratories Limited v. Competition Commission Of India
Factual and Procedural Background
These appeals arise from the order dated 01.12.2015 passed by the Competition Commission of India (CCI) in Case No. 28 of 2014. The Commission found M/s. Alkem Laboratories Limited (Appellant No. 1) responsible for contravention of Section 3(1) of the Competition Act, 2002, and Shri Johnson Mathew (Appellant No. 2) and Shri T.K. Haridas (Appellant No. 3), officers of Alkem, individually responsible under Section 48(1) of the Act. Penalties were imposed on all appellants based on their average income.
The dispute originated when Shri P.K. Krishnan, proprietor of M/s. Vinayaka Pharma (Respondent No. 2), applied to become a stockist for Alkem in Palakkad District. An unauthorized official of Alkem issued an appointment letter to him, but the company refused to supply medicines, allegedly demanding a No Objection Certificate (NOC) from the All Kerala Chemists and Druggists Association (AKCDA). Respondent No. 2 filed complaints with the Assistant Drugs Controller and later with the Competition Commission alleging refusal to deal and anti-competitive conduct.
The Assistant Drugs Controller initially rejected Respondent No. 2's complaint, accepting Alkem's assertion that the unauthorized appointment letter was invalid. Subsequently, Respondent No. 2 was officially appointed as stockist by the competent authority in Alkem and medicines were supplied. Despite this, Respondent No. 2 pursued the complaint before the CCI alleging anti-competitive practices involving NOC requirements imposed by AKCDA.
The CCI directed an investigation by the Director General (DG). The DG conducted detailed inquiries, issued notices, recorded statements from parties and third parties, and submitted a report finding anti-competitive conduct by Alkem and AKCDA. The Commission held Alkem and its officers liable under the Competition Act and imposed penalties.
Legal Issues Presented
- Whether the practice of requiring NOC from AKCDA before appointment of stockists amounts to anti-competitive conduct violating Section 3(1) of the Competition Act, 2002.
- Whether M/s. Alkem Laboratories Limited engaged in refusal to deal by denying supply to M/s. Vinayaka Pharma on grounds related to NOC requirements.
- Whether the officers of Alkem (Appellants Nos. 2 and 3) are individually liable under Section 48(1) of the Competition Act for the anti-competitive conduct.
- Whether Respondent No. 2 suppressed material facts in filing the information before the Commission, warranting penalization under Section 45(1)(b) of the Act.
Arguments of the Parties
Appellant's Arguments
- The investigation report was incomplete and biased as the DG did not include all defense materials submitted by Alkem, violating principles of natural justice.
- The DG did not allow Alkem's advocates to assist their deponent during oral testimony, but allowed the informant's advocate, indicating procedural unfairness.
- The Commission erred in initiating investigation into the personal liability of Appellants Nos. 2 and 3 at the prima facie stage, contrary to statutory scheme.
- The DG and Commission failed to provide Appellants Nos. 2 and 3 opportunity to present their case or give evidence before holding them liable under Section 48.
- There was no evidence of refusal to deal by Alkem under Section 3(4)(d); the appointment process was delayed due to unauthorized issuance of appointment letter by an unapproved official.
- The informant (Respondent No. 2) suppressed material facts, including his eventual appointment as stockist and receipt of medicines without NOC, misleading the Commission.
- The alleged requirement of NOC was not substantiated by evidence; no official at Alkem demanded NOC before appointment or supply after March 2014.
- The DG failed to establish appreciable adverse effect on competition (AAEC) as required under the Act.
- The findings against Appellants Nos. 2 and 3 under Section 48 are unsustainable due to lack of evidence that they were in charge of and responsible for the company’s business at the relevant time.
- The Commission’s imposition of penalty on Appellants Nos. 2 and 3 violated principles of natural justice as they were not given notice or opportunity to be heard on personal liability.
Respondent No. 2's Arguments
- The informant did not intend to conceal material facts and was unaware of the importance of the omitted information regarding appointment and supply after March 2014.
- The initial refusal to supply medicines and insistence on NOC from AKCDA constituted anti-competitive conduct in violation of the Competition Act.
- The involvement of Appellants Nos. 2 and 3 in the anti-competitive conduct was justified given their key positions in Alkem.
Counsel for the Commission's Arguments
- The Commission’s findings are supported by evidence, including complaints from other parties and documents showing that AKCDA threatened pharmaceutical companies to enforce NOC requirement.
- Appellant No. 1 acted in connivance with AKCDA to deny supply to Respondent No. 2, violating Section 3(1) of the Act.
- Appellants Nos. 2 and 3 were responsible for the anti-competitive conduct and rightly penalized under Section 48.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Ramjas Foundation and Another Vs. Union of India and Others, 2010 (14) SCC 38 | Principles on penalizing suppression of material facts before a statutory authority. | Relied upon to argue that Respondent No. 2's suppression of facts warranted penalization. |
| Amar Singh Vs. Union of India (UOI) and Others, 2011 (7) SCC 69 | Natural justice and procedural fairness in quasi-judicial proceedings. | Invoked to stress the need for fair procedure in investigation and adjudication by the Commission. |
| Shamsher Kataria vs Honda Siel Cars India Ltd. & Others, Case No.03/2011 | Analysis of appreciable adverse effect on competition (AAEC) under Section 19(3) of Competition Act. | Used to emphasize the requirement to balance positive and negative factors in competition assessment. |
| Tamil Nadu Electricity Board Vs. Rasipuram Textile (P) Ltd. and Others, (2008) 17 SCC 285 | Interpretation of Section 48 (or analogous provisions) regarding liability of persons in charge of company conduct. | Held that burden to prove responsibility of persons in charge lies on complainant; applied to reject penalty on Appellants Nos. 2 and 3. |
| Competition Commission of India Vs. Steel Authority of India Limited and Another, 2010 (10) SCC 744 | Nature of powers and functions of the Competition Commission and Director General, including compliance with natural justice. | Outlined procedural requirements for investigation and adjudication under the Competition Act, relied upon to analyze procedural fairness in the case. |
| Rangi International Limited vs. Nova Scotia Bank and others, 2013 (7) SCC 160 | Principles of natural justice and fairness in adjudicatory proceedings. | Supported the Tribunal’s view on procedural fairness obligations of the Commission. |
| State of Orissa Vs. Dr. (Miss) Binapani Dei, AIR 1967 SC 1269 | Natural justice and principles of fair hearing. | Used to emphasize the need for impartiality and fair hearing in quasi-judicial proceedings. |
| A.K. Kraipak Vs. Union of India, 1969 (2) SCC 262 | Natural justice and procedural fairness in administrative actions. | Referred to in context of fair investigation and hearing procedures. |
| Sayeedur Rehman V. State of Bihar, 1973 (3) SCC 333 | Natural justice principles. | Invoked to underline fair procedure in adjudicatory process. |
| Maneka Gandhi Vs. Union of India, 1978 (1) SCC 248 | Right to fair procedure and due process under law. | Referred to support procedural fairness requirements. |
| Mohinder Singh Gill Vs. Chief Election Commissioner, 1978 (1) SCC 405 | Natural justice and fair hearing. | Applied to ensure adherence to fair hearing principles. |
| Mahipal Singh Tomar Vs. State of U.P, 2013 (16) SCC 771 | Fair procedure and natural justice. | Used to reinforce procedural fairness obligations. |
| Manohar Vs. State of Maharashtra, 2012 (13) SCC 14 | Principles of natural justice in administrative proceedings. | Invoked to uphold fair procedural standards. |
| The Board of Control for Cricket in India Vs. Competition Commission of India and Another, Order dated 23.02.2015 (Appeal No.17/2015) | Adherence to natural justice and fair procedure by the Competition Commission. | Referenced to emphasize procedural fairness in competition law proceedings. |
Court's Reasoning and Analysis
The Tribunal examined the entire factual matrix and procedural history, emphasizing the legal principles governing competition law investigations and adjudications. It noted that the informant (Respondent No. 2) had suppressed material facts, particularly his appointment as stockist by the competent authority and subsequent supply of medicines without NOC, which misled the Commission into ordering investigation.
The Tribunal found that the investigation and Commission proceeded on the erroneous premise that Appellant No. 1 had refused supply due to non-production of NOC, ignoring Alkem's consistent stance that the initial appointment letter was unauthorized and that the official appointment occurred later without NOC conditions.
The Tribunal critically analyzed the DG’s findings that Alkem and AKCDA had an agreement restricting competition by enforcing NOC requirements. It held that once the Commission found AKCDA's coercive diktats, the element of agreement or concurrence by Alkem was inherently negated, making the finding against Alkem self-contradictory and perverse.
Regarding the liability of Appellants Nos. 2 and 3 under Section 48(1), the Tribunal underscored the strict construction of the deeming provisions. It held that there was no evidence that these individuals were in charge of or responsible for the conduct of Alkem’s business at the relevant time. The Commission’s casual imposition of personal liability without notice or opportunity to be heard was a violation of natural justice and legally untenable.
The Tribunal also emphasized the procedural safeguards and natural justice principles embedded in the Competition Act and its Regulations. It noted procedural irregularities, including the DG's refusal to allow counsel to assist during depositions and failure to provide Appellants Nos. 2 and 3 with proper notice.
Finally, the Tribunal concluded that the Commission’s findings against Appellant No. 1 under Section 3(1) were legally unsustainable and that the penalties imposed on all appellants could not stand as a consequence.
Holding and Implications
The appeals are allowed and the impugned order dated 01.12.2015 passed by the Competition Commission of India is set aside insofar as it relates to Appellants Nos. 1, 2, and 3.
The Tribunal found that the Commission erred in holding Alkem Laboratories liable under Section 3(1) due to flawed factual premises and contradictory reasoning. It also held that the imposition of personal liability and penalties on Appellants Nos. 2 and 3 under Section 48(1) was without evidence and violated natural justice principles. The Tribunal did not impose penalty on Respondent No. 2 despite his suppression of material facts, considering his apology.
This decision directly affects the parties by quashing the penalties and findings against the appellants. No new precedent was established beyond the application of existing legal principles concerning procedural fairness, burden of proof under Section 48, and the requirement of appreciable adverse effect on competition.
These appeals are directed against order dated 01.12.2015 passed by the Competition Commission of India (for shot, the Commission) in Case 4No.28 of 2014, whereby it declared that M/s. Alkem Laboratories Limited (Appellant in Appeal No. 09 of 2016) is responsible for contravention of Section 3(1) of the Competition Act, 2002 (for short, the Act) and Shri Johnson Mathew (Appellant in Appeal No.14 of 2016), who was then working as DGM-ACE, Sales, M/s. Alkem Laboratories Limited (South and West Bangalore) and Shri T.K. Haridas (Appellant in Appeal No.15 of 2016), who was then working as Branch Manager of M/s. Alkem Laboratories Ltd. at Kochi, Ernakulam (Kerala) are individually responsible under Section 48(1) of the Act and imposed penalty on all the appellants @ 3% of their respective average income.
2. For the sake of convenient reference, the three appellants shall hereinafter be referred to as Appellant Nos.1, 2 and 3.
3. Appellant No. 1 is engaged in the manufacture and marketing of branded as well as generic drugs. It is one of the most efficient Pharmaceuticals Companies of the Indian Market in the anti-infective and pain management segments. It has eight manufacturing plants across the country and maintains 25 depots along with four Clearing and Forwarding (C&F) agents in various regions and 29 distribution points for supply of the products to various distributors/ stockists.
4. Respondent No.2 Shri P.K. Krishnan is the Proprietor of M/s. Vinayaka Pharma, which is a stockist of the medicines manufactured by various pharmaceutical companies and is doing business in District Palakkad. Respondent No.2 submitted application dated 02.09.2013 to the Branch Manager of Appellant No.1 for grant of stockistship of the products 5of Appellant No. 1 for Palakkad District. On receipt of the application, Shri Vijayan Nair, Area Business Manager and Shri Peter A. Tharu, Regional Manager conducted the field survey and submitted their report. As per the practice being followed by Appellant No.1, the application of Respondent No.2 was required to be approved by the Divisional Head of the Region i.e. Vice President (Marketing) and also by the Authorised Signatory, but the same was directly dealt with by Shri Paul Madavana (Divisional Sales Manager) and letter dated 14.11.2013 was issued by him appointing Respondent No. 2 as stockist of Appellant No. 1 for Palakkad District and its surroundings. Immediately thereafter, Respondent No.2 is said to have submitted demand draft of Rs.5 lakhs for supply of medicines, but the same was not accepted by the concerned authority on the ground that M/s. Vinayaka Pharma had not been appointed as a stockist by the competent authority.
5. Feeling aggrieved by the alleged refusal of Appellant No. 1 to supply the medicines, Respondent No. 2 submitted complaint dated 06.12.2013 to the Assistant Drugs Controller, Ernakulam, which reads as under :
VINAYAKA PHARMA 11/259/1, Kannara Street, Palakkad 678001 E-mail vinayakakrishnan@yahoo.com The Asst. Drugs Controller, Ernakulam, Dear Sir, Sub : Refusal of supply of medicines by M/s. Alkem Laboratories Ltd. 6I submit that I am holding valid drugs License in form 20 b & 21 under the Name and Style of VINAYAKA PHARMA, Kanara Street Palakkad. I am engaged in distribution of Medicines manufactured by various companys. I have been offered distributorship of M/s. Alkem Laboratories in Palakad district by the company after completing the usual survey conducted by them and upon satisfactory reports from the market the company officials have issued M/s. VINAYAKA PHARMA their offer letter conforming my distributorship of the company. As advised by them I had completed all formalities by sending them DD for Rupees. Five Lakhs along with the order for the company products. (copy enclosed) surprising the company has returned the order and the draft with a direction orally from the Depo Manager to obtain NOC from AKCDA. This is gross violation of Drugs and Cosmetics Act and also against the Competition Commission of India New Delhi Verdict (copy enclosed). The deliberate violation of the above mentioned Acts by the company have not only cost financial losses to me but also has hurt me mentally and physically. 7It is therefore my humble request to look into the matter and do the needful for providing justice to my Fundamental Rights. Thanking you, Yours faithfully, 06.12.2013 P.K. KRISHNAN ( Proprietor )[Emphasis supplied]
6. The Assistant Drugs Controller issued notice to Appellant No.1 and called upon it to explain as to why the medicines were not supplied to M/s. Vinayaka Pharma. On behalf of Appellant No. 1, reply dated 22.01.2014 was sent in which it was categorically stated that Shri Paul Madavana, Additional Divisional Manager, who had issued the offer letter on behalf of the company was not an authorised person. Appellant No. 1 also denied the assertion of Respondent No. 2 that the Depot Manager had orally asked him to produce NOC from AKCDA. According to Appellant No. 1, there is no Depot Manager in the Cochin office and no money had been received for supply of the products. For better appreciation of the stand taken by Appellant No.1, its reply is reproduced below :
ALKEM LABORATORIES LIMITED ALKEM House, Vishwarups No.VII 166J, Vaikom Road, South Paravoor P.O. Udayamperoor, Ernakulam 682 320. Tel : 0484 2793006/ 2792004/ 2791136 Fax : 0484 2793005 Email : alkemcochin@alkem.com To, 22.1.2014 The Assistant Drug Controller & Licensing Authority Civil Station, Kakkanad, Cochin Sub : Refusal of appointment of stockistship of Vinayaka Pharma, Palakkad. 8We are in receipt of your letter dt. 21.12.2013 addressed to our Mumbai office. We have also gone through the copy of the letter dt. 14.11.2013 issued by M/s. Vinayaka Pharma by the Divisional Sales Manager Mr. Paul Madavana. It may be noted that the above said Divisional Sales Manager who has issued the offer letter on behalf of M/s. Alkem Laboratories Ltd., Cochin is not an authorized person who can sign or act on behalf of the company. When the undersigned person T.K. Haridas, Branch Manager alone is individually authorized to represent the company in all matter. The offer letter given is only a preliminary stage and it is finalized at any point of time, the authorized signatory can withdraw the offer, move the letter to head of the company has been used by the said Divisional Sales Manager without consent or knowledge of the undersigned. The undersigned has aware about the offer only when we received a copy of the offer letter. The further argument in the letter issued by M/s. Vinayaka Pharma is that there was an oral instruction from Depot Manager which is not correct as there is no depot manager available in our Cochin office. The undersigned has not received any amount or order from M/s. Vinayaka Pharma for any product. M/s. Vinayaka Pharma has not been appointed as the stockist as the 9offer letter which they have received from Divisional Manager is not an authorized one. Since M/s. Vinayaka Pharma is not appointed as a stockist by the undersigned or our head office no question of violation of Drugs & Cosmetics Act or competitive commission arises. Moreover we have no product shortage or distribution problem in Palakkad area. We have not made any objection to supply any product to this party. Hence we hereby confirm that M/s. Vinayaka Pharma, Palakkad is not a stockiest of our company and no authorized offer letter has been given to them by our Cochin office or Head office. Copy of the authorized persons letter is attached hereby for your reference. We therefore request you to kindly reject their petition and oblige. Thanking you, For Alkem Laboratories Ltd. AUTHORISED SIGNATORY[Underlining is ours]
7. The Assistant Drugs Controller accepted the reply of Appellant No. 1 and informed Respondent No. 2 vide letter dated 17.03.2014 that no action can be taken on his petition. The letter of the Assistant Drugs Controller reads as under:
L.7271/2013/ADC/EKM. Office of the Asst. Drugs Controller, Civil Station, Kakkanad, Kochi-30, Dated : 17.03.2014 From The Asst. drugs Controller Shri P.K. Krishnan, Vinayaka Pharma II/259/1, Kannara Street, Palakkad 678 001. Sir, Sub :- Refusal Supply of drugs reg. Ref :- Your Petition dated : 6.12.2013. Your immediate attention is invited to the reference. On verification of the issue raised in your petition it is found that you are not an authorised stockist or distributor of M/s. Alkem Laboratories Ltd. M/s Alkem Laboratories Ltd., informed that the offer letter issued to you by the Divisional Sales Manager of the company is not an authorised person to sign and act on behalf of the company. Hence, it is informed that no action can be taken on your petition. Yours faithfully, Asst. Drugs Controller[Emphasis supplied]
8. Immediately thereafter, Respondent No. 2 submitted fresh application for appointment as a stockist. After considering the report of survey already conducted by the Area Business Manager and the Regional Manager, Appellant No. 3 issued letter dated 19.03.2014 and appointed Respondent No. 2 as a stockist for Palakkad District. That letter reads as under:
ALKEM LABORATORIES LIMITED ALKEM House, Vishwarups No.VII 166J, Vaikom Road, South Paravoor P.O. Udayamperoor, Ernakulam 682 320. Tel : 0484 2793006/ 2792004/ 2791136 Fax : 0484 2793005 Email : alkemcochin@alkem.com March 19, 2014 Mr. P.K. Krishnan Proprietor M/s. Vinayaka Pharma 11/259/1, Kannara Street Palakkad 678 001 Ph : No.0491-2531109 Dear Sir, Your application for stockistship at Palakkad District With reference to the above subject, we are pleased to offer and appoint you as our stockist for Palakkad District. The terms and conditions will be informed you later on. Kindly send your orders with advance payment by D/D to enable us to execute your order as soon as possible. Thanking you, assuring you our best co-operation at all times. Yours faithfully, For Alkem Laboratories Limited T.K. Haridas Branch Manager & Power of Attorney Holder
9. On the next day i.e. 20.03.2014, Respondent No.2 submitted the papers and deposited money required for supply of medicines and the needful was done by the concerned officers/officials of Appellant No. 1 after completion of the necessary formalities.
10. In the meanwhile, Respondent No.2 submitted complaint dated 06.01.2014 to the Commission alleging violation of the provisions of the Act at the instance of AKCDA and prayed that action may be taken for the financial loss suffered by him. The complaint made by Respondent No.2 reads as under :
To, 6/1/2014 The Competition Commission of India New Delhi Honorable Members Sub : - Refusal of supply of medicines by M/s. Alkem Laboratories Ltd., inspite of Competent Commission order instructing not to insist on NOC from Akeda. I am a valid drug license holder in form 20 & 21 B operating in the name and style of Vinayaka Pharma, Palakkad. I am engaged in distribution of medicines manufactured by various companies, I have been offered distribution ship of M/s. Alkem Laboratories Ltd., Alkem House, Devashish, Senapati Bapat Marg, Lower Parel, Mumbai400 013, Phone No.022-39829999, Fax No.022- 24902419 for Palakkad district by the company, after completing the usual survey conducted by them and upon satisfactory reports from the market company officials have issued M/s. Vinayaka Pharma, Palakkad their office letter confirming my distribution ship for the company. As advised by them I had completed all formalities by sending them a DD for Rs. 5 lakhs along with order for the company products. Surprisingly the company has returned the order and draft with the direction orally from the depo manager to obtain NOC from All Kerala Chemists & Druggists Association. Which is led by President A.N. Mohan. This is the gross violation of competitive commission of India, New Delhi verdict and also against drugs & cosmetics act. The deliberate violation by the company due to interference from AKDCA have not only cause financial losses but also has hurt me mentally. It is therefore my humble request look in to the matter and do the needful for providing justice my fundamental rights. Encl : M/s. Alkem offer letter DD copy Order copy Drugs Licence copies
11. By letter dated 30.01.2014, the Secretariat of the Commission informed Respondent No. 2 that his complaint cannot be entertained because the same was not in the prescribed format and was not accompanied by the requisite fee. He was also informed that an information can be filed only in accordance with the provisions contained in Section 19 of the Act read with the Competition Commission of India (General) Regulations, 2009 and deposit the requisite fee. Respondent No. 2 then filed an information dated 19.02.2014 under Section 19 but the same was found to be defective. After one month and 24 days, he re-submitted the information by complying with all the statutory formalities. For the sake of reference, the information filed by Respondent No. 2 in the prescribed format is reproduced below :
INDEX CONTENTSNo.VII/166J, Vaikom Road, South Paravoor, Post: Udayamperoor, Dist: Ernakulam, Kerala 68201 Forwarding letter addressed to the Secretary, Competition Commission
02 Format No.1 for filing information
03 Statement of Facts submitted by the Complainant/ informer
04 Letter dated 02.09.2013 addressed to M/s. Alkem Laboratories Limited, Ernakulam
05 Reply dated 14.11.2013 of M/s. Alkem Laboratories Ltd.
06 Letter dated 28.11.2013 of Vinayaka Pharma addressed to Alkem Laboratories, cochin for supply of their products
07 Copy of DD No.386358 dated 28.11.2013 in favour of Alkem Laboratories Ltd
08 Letter dated 06.12.2013 addressed to the Asst. Drugs Controller, Ernakulam
09 Copy of the receipt dated 06.12.2013 of Asstt. Drugs Controller
10 Letter dated 06.01.2014 addressed to the Competition Commission of India, New Delhi
11 Reply dated 30.01.2014 of the Competition Commission of India
12 Letter addressed to the Divisional Sales Manager, Alkem Laboratories Ltd. Ernakulam
13. Copy of the registration receipt for having sent the letter to Divisional Sales Manager, Alkem Laboratories Ltd. Ernakulam * * * From P.K. Krishnan, Proprietor, Vinayaka Pharma, 11/259/1, Kannara Street, Palakkad, Kerala, Pin 678 001. Tel : 0491-2531109, 0491-3203073 The Secretary, Competition Commission of India, Hindustan Times House, (3rd, 4th and 7th Floor), 18-20, Kasturba Gandhi Marg, New Delhi- 110001. Subject : Re-submission of Complaint/ information filed u/s 19(1)(a) of the Competition Act 2002 : Reg Ref : Letter No. PC to M.F. No.10(1)/2010- Sectt/2298 Dated 07th March 2014 of Sir, Kindly refer to your letter number PC to M.F. No.10 (1)/2010-Sectt/2298 dated 07th March 2014 through which I was informed about the various defects found in my complaint/ information.
2. The above defects were rectified and the following documents are enclosed herewith for your kind perusal and further necessary action please. (a) Information in Format No.1 along with all documentary evidence in booklet form-8 nos, (b) Proof of Information copy provided to M/s Alkem Laboratories Limited, Alkem House, Viswarupa
320. (c) It is kindly requested to look into my grievance and necessary action/ direction may be given to M/s Alkem Laboratories Limited for the relief sought by me at the earliest please. Encl : Yours faithfully Palakkad, Date : 31/03/2014 (P.K. KRISHNAN) Proprietor * * * Format No.I BEFORE COMPETITION COMMISSION OF INDIA AT NEW DELHI (FOR FILING INFORMATION)
1. Particulars of the Informant(s) Legal name P.K. KRISHNAN
2. Complete Postal address in India for delivering of summons or notice with PIN code Vinayaka Pharma, 11/259/1 Kannara Street, Post : Palakkad Dist : Palakkad, Kerala State Pin
678 001
3 Tel No, Fax no & E-mail address 0491-2531109, 0491-3203073 vinayakrishnan@yahoo.com
4 Mode of service preferred To take action against M/s. Alkem Laboratories Ltd. for refusal to deal
5 Name of the individual/ enterprise/ corporation/ association etc against which information is filed (along with address) PAUL MADAVANA, Divisional Sales Manager, Alkem Laboratories Limited Alkem House, vishwarupa No.VII/166J, Vaikom Road, South Paravoor, Post : Udayamperoor, Dist : Ernakulam, Kerala State. Pin 682
6 Name and address of the counsel or other authorized representative Not applicable since no counsel is authorised
7 Details of fee paid in accordance with regulation 49 of CCI (General Regulation, 2009) (Applicable fee shall be paid either by tendering demand draft or pay order or bankers cheque, payable in favour of Competition Commission of India (Competition Found), New Delhi or through Electronic Clearance Service (ECS) by direct remittance to the Competition Commission of India (Competition Fund), Account No.1988002100187687 with
Punjab National Bank, Bhikaji Cama Place, New Delhi 110066). Demand Draft No.805699 dated 19.02.2014 for Rs.5000/- (Rupees five thousand only) of Punjab National Bank, Palakkad Branch in favour of Competition Commission of India (Competition Fund) payable at Punjab National Bank D. No.2107, CDPC Delhi Finacle.No.VII/166J, Vaikom Road, South 2002, if any (for this purpose the informant shall explain that8 Introduction/ brief of the facts giving rise to filing of the information M/s Alkem Laboratories Limited refused to deal with my firm M/s Vinayaka Pharma by refusing to supply their products in spite of sending DD for Rs.500000/- without any valid reason. The above action of M/s Alkem Laboratories is an act for creation of barriers to new entrants in the market and also for driving existing competitors out of the market.
9 Jurisdiction of CCI (applicant(s) should satisfy before filing application whether the issue taken up is covered under the provisions of the Competition Act, 2002) Refusal to deal with us by M/s Alkem Laboratories Ltd. is a violation of Section 4(d) of Chapter II of the Competition Act 2002 read with the Competition (Amendment Act 2007), as well as Chapter IV 19(3)(b) driving existing competitors out of the market and (c) foreclosure of competition by hindering entry into the market.
10 Details of alleged contravention of the provisions of the Competition Act 2002 (in the case of contravention of Section 3 of the Competition Act 2002, all documents, affidavits and evidence, as the case may be, in support of the alleged contravention may be furnished) And / or In the case of contravention of Section 4 of the Competition Act, 2002, information relating to relevant market and all documents, affidavits and evidence, as the case may be, in support of alleged contravention may be furnished) On 02.09.2013, my firm M/s. Vinayaka Pharma requested M/s. Alkem Laboratories Ltd. for stockistship of their products for Palakkad District and its surrounding. In reply, on 14.11.2013, M/s. Alkem Laboratories confirmed that they were pleased to offer their stockistship to us for Palakkad District and its surroundings on the terms and conditions after completion of all formalities from my end. All formalities as per their direction were completed by me and the company officials of M/s. Alkem Laboratories Ltd. completed their survey which was satisfactory. Accordingly a DD No.386358 dated 28.11.2013 for Rs.500000/- (Rupees five lakh only) was sent to M/s. Alkem Laboratories Ltd. with a list of their products required by me. Surprisingly the company has returned the order and DD with the oral direction to obtain NOC from All Kerala Chemists and Druggists Association led by President Mr. A.N. Mohan. The above act of M/s. Alkem Laboratories Ltd. is refusal to deal with my firm which is a violation of The Competition Act 2002 which is an act of driving existing competitors out of the market and foreclosure of competition by hindering my firms entry into the market.
11. Detailed facts about the case Refusal to deal with my firm for supply of the products of M/s. Alkem Laboratories Limited and refusal to appoint my firm as a stockiest for their products. It has resulted into an act of driving existing competitors out of the market and foreclosure of competition by hindering my firms entry into the market.
12 Whether the confidentiality of the information is to be maintained (Section 57 read with Reg.35) Not necessary 13.1 Whether any document or documents or parts thereof is to be treated confidential (While seeking confidentiality of document or documents or parts thereof the provisions Regulation No.35(3) of the CCI (General Regulations, 2009 shall be followed scrupulously) Not necessary 13.2 If 13.1 is yes,
(i) The reason for seeking confidentially of document or documents or parts thereof
(ii) the period for which confidentiality is sought
(iii) Whether the procedure laid down in Regulation No.35(5) of CCI (General) Regulations, 2009 have been followed and a non confidential part of the documents has been filled. Not applicable
14. Any other relevant fact in connection with the filing of information
15 Interim relief sought for under section 33 of the Competition Act M/s. Alkem Laboratories Limited, Alkem House, Vishwarupa
(i) What irreparable loss is cause/ likely to be caused to the informant;
(ii) How balance of convenience lies in his favour Paravoor, Post : Udayamperoor, Dist : Ernakulam, Kerala State Pin 682 320 may be directed to appoint M/s.Vinayaka Pharma as stockistship for Palakkad District and the surrounding areas and supply their products.
16 Relief sought for from the CCI Direction of M/s. Alkem Laboratories Ltd to appoint M/s Vinayaka Pharma as stockistship for Palakkad and nearby areas and supply their products on demand.
17. Verification I, P.K. Krishnan, Proprietor of M/s Vinayaka Pharma, 11/259/1, Kannara Street, Palakkad 678 001, do hereby declare that the above information is true and correct to the best of my knowledge and belief. Palakkad, (Signature of the Informant(s) Date : 31/03/14 (P.K. KRISHNAN) * * * STATEMENT OF FACTS I, P.K. Krishnan, Proprietor, Vinayaka Pharma, 11/259/1, Kannara Street, Palakkad, Kerala 678 001, do solemnly affirm and state as follows :-
2. That, I am the proprietor of Vinayaka Pharma, 11/259/1, Kannara Street, Palakkad, Kerala 678 001. I started the firm at my own and I am the sole and absolute owner of the above said Vinayaka Pharma and having a valid drug licence holder in Form 21 & 21 B operating in the name and style of Vinayaka Pharma at Palakkad in Kerala State. I am engaged in distribution of medicines manufactured by various companies. My firm is one of the fastest growing distributors of Pharmaceutical products in Palakkad District with a turnover of over Rs.6.5 Crores per annum. I have an excellent coverage of all the territories in Palakkad district of Kerala. I am having well experience salesmen and well trained office staff to look after the operation of my business activities.
3. On 02.09.2013, I had sent a request letter to the Branch Manager of M/s. Alkem Laboratories Ltd., Ernakulam (Copy of the letter is enclosed as Annexure-I) for considering my firm for their Stockistship for Palakkad District and its surrounding. In response to my letter Mr. Paul Madavana, Divisional Sales Manager of M/s Alkem Laboratories Limited informed me vide his letter No. Nil dated 14th November, 2013 has informed me that they are pleased to offer me their stockistship for Palakkad District and its surrounding. It is also mentioned that the terms and condition will be informed after completion of all the formalities from my side. Accordingly, I had completed all formalities as per their direction. Thereafter the Company Officials completed the usual survey and upon satisfactory reports from the market company officials, they have issued their offer letter confirming my distribution ship for the company. (Copy of the letter is enclosed as Annexure-2). Later on a list of their products required by me along with Demand Draft for Rs.500000/- (Rupees five lakh only) bearing No.386358 dated 28.11.2013 of Indian Bank payable at Service Branch Ernakulam in favour of Alkem Laboratories Ltd. was sent to them on 28.11.2013 (Copies of the list of items sent by me is enclosed as Annexure-3 and Demand Draft as Annexure-4).
4. Surprisingly, M/s. Alkem Laboratories Ltd. refused to receive my letter and Demand Draft and informed me orally over phone to obtain No Objection Certificate from All Kerala Chemists and Druggists Association which is led by President Mr. A.N. Mohan.
5. The above direction is a gross violation of Section 3(4)(d) (refusal to deal) of Chapter II of the Competition Act 2002 read with the Competition (Amendment) Act 2007 without any valid reason. It is also a violation of the Order No.F No.1(20)2011-Sectt/1248 dated 25th February 2013 of the Competition Commission of India, New Delhi. In this order it is clearly mentioned that It will not be required to obtain NOC for appointment of stockiest. It is also a violation of Drugs and Cosmetics Act. The above act of M/s Alkem Laboratories Ltd. is refusal to deal with my firm and also a deliberate act of driving me being existing competitor out of the market and foreclosure of competition by hindering my firms entry into the market which is violation of Chapter IV 19(b) and (c) of Competition (Amendment Act 2007). Therefore, I had submitted a complaint to Asstt. Drugs Controller, Ernakulam on 06.12.2013. (Copy of the complaint is enclosed as Annexure-5 as the receipt of the Asst. Drugs Controller is enclosed as Annexure-6).
6. Therefore, relief is sought from the Competitive Commission of India to issue direction to M/s. Alkem Laboratories Ltd. on the above mentioned address to fulfil their offer of distribution ship as per the rules to my firm Vinayaka Pharma. It is also requested to take necessary action against M/s. Alkem Laboratories Limited for refusal to deal with me which is a deliberate act of driving me out of the market and foreclosure of the competition by hindering my firms entry into the market which is violation of Chapter IV 19(b) and (c) of Competition (Amendment Act 2007). I P.K. Krishnan, Proprietor of Vinayaka Pharma, 11/259/1, Kannara Street Palakkad 678 001, Kerala State, do hereby declare that the above information is true and correct to the best of my knowledge and belief. Palakkad (P.K. KRISHNAN) Date : 31.03.2014 Proprietor, Vinayaka Pharma 11/259/1 Kannara Street, Palakkad, Kerala, Pin 678 001 [Underlining is ours]
12. Respondent No. 2 also filed an affidavit dated 09.04.2014 in which he reiterated the allegation that refusal to supply the medicine was contrary to Section 3(4)(d) of the Act. He also invoked Section 19(b) and (c) of the Act to drive home the point that Appellant No.1 had acted in violation of the provisions of the Act. The affidavit of Respondent No.2 reads as under :
AFFIDAVIT I, P.K. Krishnan, aged 49 years son of Shri. P.S. Krishnan, Proprietor, Vinayaka Pharma, 11/259/1, Kannara Street, Palakkad, Kerala 678 001 do solemnly affirm and state as follows :-2. That, I am the proprietor of Vinayaka Pharma, 11/259/1, Kannara Street, Palakkad, Kerala 678 001. I started the firm at my own and I am the sole and absolute owner of the above said Vinayaka Pharma and having a valid drug license holder in Form 21 & 21 B operating in the name and style of Vinayaka Pharma at Palakkad in Kerala State. I am engaged in distribution of medicines manufactured by various companies. My firm is one of the fastest growing distributors of Pharmaceutical products in Palakkad District with a turnover of over Rs.6.5 Crores per annum. I have an excellent coverage of all the territories in Palakkad district of Kerala. I am having well experience salesmen and well trained office staff to look after the operation of my business activities.
3. On 02.09.2013, I had sent a request letter to the of M/s. Alkem Laboratories Ltd., Ernakulam for considering my firm for their Stockistship for Palakkad District and its surrounding. In response to my letter Mr. Paul Madavana, Divisional Sales Manager of M/s Alkem Laboratories Limited informed me vide his letter No. Nil dated 14th November, 2013 that they are pleased to offer me their stockistship for Palakkad District and its surrounding. It is also mentioned that the terms and condition will be informed after completion of all the formalities from my side. Accordingly, I had completed all formalities as per their direction. Thereafter the Company officials completed the usual survey and upon satisfactory reports from the market company officials, they have issued their offer letter confirming my distribution ship for the company. Later on a list of their products required by me along with Demand Draft for Rs.500000/- (Rupees five lakh only) bearing No.386358 dated 28.11.2013 of Indian Bank payable at Service Branch Ernakulam in favour of Alkem (Laboratories Ltd. was sent to them on 28.11.2013.
4. Surprisingly, M/s. Alkem Laboratories Ltd. refused to receive my letter and Demand Draft and informed me orally over phone to obtain No Objection Certificate from All Kerala Chemists and Druggists Association which is led by President Mr. A.N. Mohan.
5. The above direction is a gross violation of Section 3(4)(d) (refusal to deal) of Chapter II of the Competition Act 2002 read with the Competition (Amendment) Act 2007 without any valid reason. It is also a violation of the Order No.F No.1(20)2011-Sectt/1248 dated 25th February 2013 of the Competition Commission of India, New Delhi. In this order it is clearly mentioned that It will not be required to obtain NOC for appointment of stockiest. It is also a violation of Drugs and Cosmetics Act. The above act of M/s Alkem Laboratories Ltd. is refusal to deal with my firm and also a deliberate act of driving me being existing competitor out of the market and foreclosure of competition by hindering my firms entry into the market which is violation of Chapter IV 19(b) and (c) of Competition (Amendment Act 2007). Therefore, I had submitted a complaint to Asstt. Drugs Controller, Ernakulam on 06.12.2013.
6. Therefore, relief is sought from the Competitive Commission of India to issue direction to M/s. Alkem Laboratories Ltd. on the above mentioned address to fulfil their offer of distribution ship as per the rules to my firm Vinayaka Pharma. It is also requested to take necessary action against M/s. Alkem Laboratories Limited for refusal to deal with me which is a deliberate act of driving me out of the market and foreclosure of the competition by hindering my firms entry into the market which is violation of Chapter IV 19(b) and (c) of Competition (Amendment Act 2007). I P.K. Krishnan, Proprietor of Vinayaka Pharma, 11/259/1, Kannara Street Palakkad 678 001, Kerala State, do hereby declare that the above information is true and correct to the best of my knowledge and belief. Palakkad (P.K. KRISHNAN) Date : 09.04.2014. Proprietor, Vinayaka Pharma 11/259/1 Kannara Street, Palakkad, Kerala, Pin 678 001
13. At this stage, we deem it necessary to mention that even though the re-filed information bears the date 31.03.2014 and the supporting affidavit bears the date 09.04.2014, the same were actually filed in the Secretariat of the Commission only on 30.04.2014. It is also of considerable significance to note that neither in the index or the body of the information nor in the prescribed format, the statement of facts and affidavit dated 09.04.2014, Respondent No. 2 disclosed that the complaint filed by him before the Assistant Drugs Controller, Ernakulam about the non-supply of medicines by Appellant No.1 was not entertained by the concerned officer who accepted the latters assertion that Respondent No. 2 had not been appointed as authorised stockist / distributor by the competent authority of Appellant No. 1. It is equally important to note that neither in the statements of facts filed with the format of the information nor in his affidavit dated 09.04.2014, Respondent No. 2 had mentioned that Appellant No. 3 had orally told him that medicines cannot be supplied unless NOC is obtained from AKCDA. These omissions will acquire significance when we critically examine the affidavit filed by Respondent No. 2 and the statement made by him before the Jt. DG.
14. The information re-filed by Respondent No. 1 was registered by the secretariat of the Commission as Case No.28 of 2014. The matter was considered in the ordinary meeting of the Commission held on 19.06.2014 in the presence of the Advocate for Respondent no.2, but was adjourned at her request. On the next date i.e. 01.07.2014, Respondent No. 2 appeared in person and made oral submissions before the Commission, which decided to pass an appropriate order in due course. This is evident from the orders passed by the Commission on those dates, which are reproduced below :
Order dated 19.06.2014 The Commission considered the matter in the ordinary meeting held on 19.06.2014. Advocate Ms. Rashmi Nandakumar appeared on behalf of Informant before the Commission and sought for short adjournment to explain the case. The Commission allowed the request and decided to hear the Informant on 01.07.2014 at 10.30 A.M.
Order dated 01.07.2014 The Commission considered the matter in the ordinary meeting held today. Informant Shri P.K. Krishnan in person, appeared before the Commission and made oral submissions at length. The Commission decided to pass appropriate order in due course.
15. After two months and 29 days, the Commission passed order dated 29.09.2014 under Section 26(1) and directed the Director General (DG) to cause an investigation into the matter. The relevant portions of that order are reproduced below :
Order under Section 26(1) of the Competition Act, 2002[Emphasis added]1. Shri P.K. Krishnan (the Informant) Proprietor of Vinayak Pharma has filed the instant information 2002 (the Act) against Shri Paul Madavana, Divisional Sales Manager of M/s. Alkem Laboratories Limited, Kerala (the Opposite Party) alleging, inter alia, contravention of the provisions of Section 4 of the Act in the matter.
2. Facts of the case, as stated in the information, may be briefly noted : 2.1 The Informant is engaged in the business of distribution of medicines manufactured by various companies. He operates his business under the name and style of Vinayak Pharma in Palakkad District of Kerala. The Opposite Party is Pharmaceutical company. 2.2 The Informant states that he sought to become a stockiest for the Opposite Party. He alleged to have received a response from the Opposite Party, offering him the stockistship of Palakkad District, with terms and conditions to be communicated later. After completing the necessary formalities, Opposite Party alleged to have confirmed the distributorship of the Informant. Later, Opposite Party returned Informants Demand Draft No.386358 dated 28/11/2013 for an amount of Rs.5,00,000/- with oral instructions to submit No Objection Certificate (NOC) from All Kerala Chemists and Druggists Association (AKCDA). 2.3 It is alleged that imposing the condition of procuring NOC from AKCDA by the Opposite Party is in contravention of the provisions of section 4 of the Act. It is averred that the above direction is in violation of section 4(d) of the Act and amounts to an act of refusal to deal and driving existing competitors out of the market. 2.4 Based on the above averments and allegations, the Informant has prayed, inter alia, for the issuance of direction to the Opposite Party to appoint his firm as Stockistship for Palakkad and nearby areas for supply of their products and also to initiate action against the Opposite Party for violation of the provisions of the Act. 2.5 The facts of the case, as detailed above, reveal that the Opposite Party has refused to appoint the Informant as stockist because Informant purportedly failed to obtain NOC from AKCDA. Even if it can be said that the conduct of Opposite Party in refusing to deal with Informant emanated from its anxiety to avoid punitive action from AKCDA and to protect its business interest the same, nonetheless, falls foul of Section 3(4)(d) read with section 3(1) of the Act. Furthermore, although the Informant has not made AKCDA party in this case the refusal of Opposite Party to appoint Informant as stockist essentially arises from the anticompetitive conduct of AKCDA requiring the pharmaceutical companies not to appoint any person as stockist unless he obtains NOC from the association. In Case No.30 of 2011 the Commission has found such practice on behalf of AKCDA and AIOCD violative of section 3(3)(b) read with section 3(1) of the Act as it controlled and limited the supplies of pharma products in the market.
3. In the light of the above analysis, the Commission is of the prima facie view that the Opposite Party and AKCDA have contravened the provisions of Section 3 of the Act in the matter and this is a fit case for investigation by the Director General (DG).
4. Accordingly, under the provisions of 26(1) of the Act, DG is directed to cause an investigation into the matter and to complete the investigation within a period of 60 days from receipt of this order.
5. During the course of investigation, if involvement of any other party is found, DG shall investigate the conduct of such other parties who may indulge in the said contravention. In case of contravention, DG shall also investigate the role of the persons who at the time of such contravention were in- charge of and responsible for the conduct of the business of the contravening entity.
6. Nothing stated in this order shall tantamount to final expression of opinion on merits of the case and the DG shall conduct investigation without being swayed in any manner whatsoever by any observations made herein.
16. In compliance of the directive given by the Commission, the Joint Director General (for short Jt. DG), to whom the investigation appears to have been entrusted, issued notices dated 24.12.2014, 08.01.2015, 04.02.2015 and 20.03.2015 to Appellant No.1 under Section 41(2) read with Section 36(2) and called upon it to supply the specified information and documents. Appellant No. 1 filed three replies dated 07.01.2015, 13.02.2015 and 19.03.2015. The categorical stand taken by Appellant No.1 was that Shri Paul Madavana, Divisional Sales Manager was not authorised to appoint M/s. Vinayaka Pharma as a stockist and this was the reason why the medicines were not supplied between November, 2013 and March, 2014 and not because of non-production of NOC from AKCDA. It was also stated that Respondent No. 2 was granted stockistship by the competent authority vide letter dated 19.03.2014 and, soon thereafter, the medicines were supplied to his proprietorship concern, i.e., M/s. Vinayaka Pharma. For the sake of reference, the relevant portions of replies dated 19.01.2015 and 13.02.2015 submitted on behalf of Appellant No.1, which contain answers to the queries made by the Jt. DG and which were accompanied by several dozen documents including certified true copy of the resolution passed in the meeting of the Board of Directors held on 12.06.2013 authorizing Appellant No.3, Shri T.K. Haridas to look-after the day-to-day business of the premises situated at Ernakulam, are reproduced below:
Reply dated 19.01.2015* * * Question (iv) of the DGs Notice The method of appointing your distributors, stockists, wholesalers and retailers etc. Response : The method of appointing a distributor/ stockist/wholesaler (for ease of reference referred collectively as Stockist) is described below :3. At the outset the allegation or refusal to deal under Section 3(4)(d) of the Competition Act, 2002 (as amended) (Competition Act) against the Company is vehemently denied. This is to bring to you notice that the Company never refused to deal with M/s. Vinayaka Pharma. The factual matrix establishing that there has been no refusal to deal by the company is provided below:
(i) M/s Vinayaka Pharma applied for being appointed as a Stockiest on 2 September 2013 to the Branch Manager of Alkem, Ernakulam;
(ii) Pursuant to the application from M/s Vinayaka Pharma, Mr. Vijayan K. Nair, Area Business Manager, and Mr. Peter A Tharu, Regional Manager, conducted the field survey. The field survey was based on the oral feedback of various chemists about M/s Vinayaka Pharma in the region;
(iii) In terms of the procedure for appointing of a Stockist, the request for appointment would require the approval from the divisional head of the region, i.e., Vice President (Marketing). After obtaining approval of the Divisional head, the approval could only be given under the hand of authorized signatory of the Company for such matters, i.e., the Branch Manager of the region. However, in this particular case, Mr. Paul Madavana, the Divisional Sales Manager processed the request at his own end and without authorization replied with the letter dated 14 November 2013 on the letter-head of the Company;
(iv) Purportedly M/s Vinayaka Pharma sent a request for the Company on 28 November 2013 for certain products along with a Demand Draft of Rs.5,00,000 which was allegedly not honoured by the Company. In this relation, the M/s Vinayaka Pharma also wrote a letter to the Assistant Drugs Controller, Ernakulam dated 6 December 2013 seeking his intervention for relief, which is already on record of the Honble Commission.
(v) It is brought to your notice that the Company received a letter dated 21 December 2013 from the Assistant Drugs Controller, Ernakulam, asking for explanation for the alleged refusal to supply drugs to M/s Vinayaka Pharma. A copy of the letter is attached as Annexure 1;
(vi) On receiving the letter, the Company responded to the Assistant Drug Controller, Ernakulam, vide letter dated 22 January 2014, stating that the offer letter on behalf of the Company was issued by Mr. Paul Madavana, Divisional Sales Manager, without any authorization by the Company to do so. It was clarified that Mr. T.K. Haridas, the Branch Manager, alone was authorised to sign any such offer letter. A copy of the letter dated 22 January 2014 from the Company to the Assistant Drug Controller is attached as Annexure 2;
(vii) After verifying the complete details of the matter, the Assistant Drugs Controller came to the conclusion that M/s Vinayaka Pharma was not an authorized stockist of the Company and issued a letter to Mr. P.K. Krishnan, M/s Vinayaka Pharma, informing that no action can be taken on the basis of his petition. A copy of the letter issued by the Assistant Drugs Controller has been obtained by the Company and is attached Annexure 3;
(viii) Thus, it is amply clear that M/s Vinayaka Pharma was never appointed as an authorized stockist at the first place. Moreover, there was no oral communication from any Depot Manager to M/s. Vinayaka Pharma about obtaining No Objection Certificate (NOC) from the All Kerala Chemists and Druggists Association (AKCDA). Further, the Branch Manager never received any order along with the Demand Draft;
(ix) Pursuant to the reply of Assistant Drug Controller, M/s Vinayaka Pharma again applied to be appointed as a stockist which was on this occasion processed from the authorized officials of the Company and M/s Vinayaka Pharma was formally offered stockistship at Palakkad district. A copy of the offer letter dated 19th March 2014, issued by the Company to M/s Vinayaka Pharma for appointment as a stockist is attached as Annexure 4;
(x) Currently, M/s Vinayaka Pharma is an active stockist of the products of the Company and there have been regular transactions between the companies ever since M/s Vinayaka Pharma has been appointed as an authorized stockist through authorized channels of the Company. A true copy of the value of the transactions of the Company with M/s Vinayaka Pharma, as an evidence of regular transactions is attached herewith as Annexure 5;
(xi) In light of the above factual details, it is clear that there has been no refusal to deal with M/s. Vinayaka Pharma which can possibly attract the provisions of Section 3(4)(d) of the Competition Act.
(xii) Without prejudice to the above, the question under consideration before you and the Honble Commission is not within the ambit of the provisions relating to refusal to deal under Section 3(4)(d) of the Competition Act. Section 3(4)(d) relates to refusal to deal when there are vertical agreements between parties at different stages of production stage. The provision is to attack vertical agreements which lead to lessening of intra-brand competition in light of weak inter-brand competition in the relevant market under question. Such lessening of intra-brand competition may lead to exerting upward pressure on the prices on the relevant product, leading to consumer harm. In the present case the refusal to deal which is under question has no relevance in terms of weakening of intra-brand competition, rather this concerns a dispute relating to obtaining NOC from the AKCDA which cannot be subjected to an investigation under Section 3(4)(d) of the Competition Act.
(i) The concerned stockist approaches the Company through the field employees of the Company, i.e., either the Area Business Manager or the Regional Manager.
(ii) On receiving the request the above-named filed employees survey the position and standing of the stockist in relation to its credit-worthiness, market presence and chemist coverage. Field employees also assess whether the prospective stockist is in a position to supply the products as per the requirement of the market.
(iii) Based on the survey and assessment, the field employees prepare a report for the consideration of the concerned National Sales Manager or Division Sales Manager. Thereafter, the concerned National Sales Manager / Division Sales Manager forwards the request for appointment of the stockist to its respective Divisional Head or the Vice President (Marketing) for the final approval.
(iv) Once an approval is received from the Divisional Head, the offer letter of appointment as a stockist of the Company is issued by the authorized signatory (in the instant case concerning Palakkad district, the Branch Manager). The approved request of the stockist along with a request of supplying certain documents (in the form of a check list) are provided to the Distribution Department of the Company for further processing and registering the details in the internal servers of the Company.
(v) After registering the details on the server, the offer letter along with the request for documents are forwarded to the concerned stockist. Question (v) of the DGs Notice What formalities are to be completed by prospective distributors, stockists, wholesalers or retailers before you retain them in respective capacity as pointed by you in your letter dated 14 November 2013 issued to M/s. Vinayaka Pharma, Palakkad. Response : As stated in our response to Question (iv) above, a prospective distributor, stockist, or a wholesaler is required to submit certain documents which are provided to it in the form a checklist. The checklist of documentation is attached herewith for your reference as Annexure 10. * * * Question (xiii) of the DGs Notice Copies of all the letters/mails/communications/notes including in the electronic form received by you from All India Organisation of Chemists and Druggists, Mumbai and its various State affiliates including All Kerala Chemists and Druggists Association. Response The All India Organization of Chemists and Druggists, Mumbai has communicated with the Company through certain letters over the relevant period (2013 onwards) which are attached herewith for your ready reference as Annexure 13. Please note that there have been no communication with All Kerala Chemists and Druggists Association. * * *
Reply dated 13.02.2015 Question 3 of the DGs Notice According to the Alkems submission dated 19.01.2015, after receiving the response from Assistant Drug Controller in the matter, Vinayaka Pharma has again applied to be appointed as stockiest of your company. Please inform the date on which such request has made by Vinayaka Pharma. Also provide a copy of the First and second Application / request made by Vinayaka Pharma and filed in formats to get the stockiest-ship from your company. Response : The copies of the applications made by M/s. Vinayaka Pharma are collectively enclosed as Annexure 3 (colly). It is submitted that M/s. Vinayaka Pharma first applied for stockiestship of Alkem by an application dated 31 August 2013 as per the available records of Alkem and sent further documents as per the procedural requirements on[Emphasis supplied]31 October 2013. The second application was made by M/s. Vinayaka Pharma under a letter dated 18 March 2014. It may be noted that as per the documents provided by M/s. Vinayaka Pharma to the Honble Commission along with the information, the application was dated 2 September 2013, however, the records of Alkem indicate that the application was dated 31 August 2013 received by Alkem on 3 September 2013. The Honble DG is requested to investigate as to why the letter dated 2 September 2013 was relied upon by the M/s. Vinayaka Pharma when the same was not sent to Alkem on the said date. Question 4 of the DGs Notice How many Firms have been appointed as stockiests / distributors for M/s. Alkem Laboratories Ltd. during the last three years in Kerala State ? District-wise detail thereof. (details may include serial number, name of the Firm/company, date appointment and etc.). Response : The list of the stockiests appointed during the last three years in Kerala by Alkem are provided as Annexure 4. Question 5 of the DGs Notice Copies of Offer / Appointment letters issued to the stockiest by the company during the last three years. Response : Copies of the appointments letter issued to stockiests by Alkem for the last 2 financial years are collectively enclosed as Annexure 5 (colly). Question 6 of the DGs Notice What formalities have been completed by at least 10 Firms, which have been appointed as stockiest / distributor for M/s. Alkem Laboratories Ltd. during last two years in the State of Kerala (District-wise) ? Also provide a copy of application made by the respective stockiest and the documents viz. check-list / filled-up formats so submitted to you for obtaining the stockiest- ship. Response : The copies of the applications submitted by stockiest to Alkem along with the procedural documents are provided along with Annexure 5 above. Question 7 of the DGs Notice How many Firms have been submitted NOC/ Clearance Certificate from AKCDA for their appointment as stockiest / distributor for your company during the last three years. Copies of such NOC /Clearance certificate may be provided to us. Response : It is submitted that no stockiest has submitted any NOC to Alkem in the last three years. Question 8 of the DGs Notice It is also observed that the letter dated 17.03.2014 of Assistant Drug Controller was issued only to Vinayaka Pharma on 19.03.2014 i.e. the date on which Vinayaka Pharma has been offered stockiest-ship of your company. Please clarify as to how all the requisite formalities were completed on the same day and offered stockiest-ship of your company to Vinayaka Pharma ? Response As already stated during the deposition and in the reply dated 19 January 2015, the internal procedure relating to verification and field survey as per the policies of the Company was conducted and an offer letter was issued to M/s. Vinayaka Pharma on completion of the formalities. It is submitted that Alkem was not aware of the letter dated 17 March 2014 issued to M/s. Vinayaka Pharma. It had written a letter to Alkem on 18 March 2014 enclosing certain procedural documents and accordingly the offer was made to him after completion of the formalities. A copy of the letter dated 18 March 2014 which has not been disclosed by M/s. Vinayaka Pharma to the Honble Commission or the office of the DG has been enclosed along with Annexure 3 above. Question 5 of the DGs Notice You have stated that, considering the subsequent request of Vinayaka Pharma, M/s. Alkem Laboratories Ltd. offered stockistship of the company to applicant on 19.03.2014, after completing all formalities. Please furnish the date-wise details (in chronological order) of all events and formalities which were undertaken before offering stockiest-ship of your company to Vinayaka Pharma, till the offer letter is issued. Response All the documents pertaining to the application of M/s. Vinayaka Pharma are collectively enclosed as Annexure
6 (colly). Question 10 of the DGs Notice It is noted that, along with your submission dated 19.01.2015 you have submitted copies of letter dated 17.03.2014 but issued on 19.03.2014 by Assistant Drug Controller, Kochi to Mr. P.K. Krishnan and the petition dated 06.12.2013 made to Assistant Drug Controller, Kochi to Mr. P.K. Krishnan. Please let us know how you got copies of these letters, when a copy of the same was not marked to your company. Response It is submitted that Alkem through its Local Advocate, G. Subramanian filed an application under Right to Information Act, 2005 to the Public Information Officer at the Office of Assistant Drug Controller, Ernakulam on 8 January 2015 for obtaining a copy of the reply issued by the Assistant Drug Controller to M/s. Vinayaka Pharma in response to the reply by Alkem dated 22 January 2014. A copy of the reply received from the Public Information officer dated 15 January 2015 along with the letter dated
17 March 2014 is enclosed as Annexure 7. As regards the petition of M/s. Vinayaka Pharma to the Assistant Drug Controller dated 6 December 2013, it is submitted that the Assistant Drug Controller issued a letter dated 21 December 2013 to Alkem seeking response on the issues raised by the petition filed by M/s. Vinayaka Pharma. The petition dated 6 December 2013 was enclosed along with the letter of the Assistant Drug Controller. It may be noted that the letter dated 21 December 2013 has already been field as Annexure 1 of the reply dated 19 January 2015. Question 11 of the DGs Notice Please refer to your submission dated 19.01.2015. It may be noted that along with Annexure II (page 19 & 20) i.e. letter dated 22.01.2014 of Alkem, it was mentioned on page 20 that copy of the authorized persons letter is attached hereby for your reference.. However, the same was not enclosed by you, hence you are advised to submit the same. Response The enclosure in the letter dated 22 January 2014 filed before the office of the DG was inadvertently missed out and the same is enclosed as Annexure 8. The attachment is a board resolution in favour of Mr. T K Haridas, Branch Manager of Alkem. Question 12 of the DGs Notice Similarly, in reply dated 19.01.2015, (Annexure-V) (Page No. 23) i.e. Sales Figure of M/s Vinayaka Pharma, it was not mentioned the units of currency (Indian Rupees / Rs.In lakhs or in U.S. Dollars, etc.) Response The sales figures in Annexure V of the reply dated 19 January 2015 are in INR Lakhs. Question 13 of the DGs Notice First five dates of supplies made by you company to M/s. Vinayaka Pharma in the following format, copies of such supply orders also be submitted. Response The list of first five supplies to M/s. Vinayaka Pharma along with copies of the invoices is collectively enclosed as annexure 9 (colly.). Notwithstanding the responses given above, Alkem would like to reiterate that the offer of stockiestship to M/s Vinayaka Pharma was issued upon completion of formalities according to the policies and procedures of the Company and there has been no occasion to refusal to deal with M/s. Vinayaka Pharma by Alkem. It is submitted that M/s. Vinayaka Pharmas appointment as one of the recognised stockiests of Alkem was administratively delayed as the appointment was not completed through proper approvals and authorization. The administrative delays cannot be attributed to any legal breach much less a breach of Section 3(4)(d) of the Act. It is evident from the sales figures for the period from March 2014 to December 2014, provided to the Honble DG, that Alkem has been engaging regularly with M/s. Vinayaka Pharma in business and the volume of sales was to the tune of INR 26.82 Lakhs. These facts are sufficient to show that M/s. Vinayaka Pharma was a stockiest of Alkem and the allegations made by it before the Honble Commission in March 2014 were misleading and are liable to be rejected post investigation by the Honble DG. It is, therefore, prayed before the Honble DG to consider the facts as stated in the foregoing and responses submitted from time to time to the DG by Alkem and recommend closure of the case against Alkem as the allegations made against could not be substantiated during the investigation. It would not be out of place to mention that Alkem has been contemplating to file an application before the Honble Commission requesting it to afford an opportunity to cross-examine Mr P K Krishnan of M/s. Vinayaka Pharma so as to ascertain as to why material facts were suppressed from being disclosed before the Honble Commission while filing the information and even until the date of formation of the prima facie view by the Honble Commission in terms of Section 26(1) of the Act. Thanking you Yours faithfully For and on behalf of Alkem Laboratories Ltd. Manas Kumar Chaudhuri Advocate Khaitan & Co Enclosed : Index and Annexures
17. The Jt. DG also issued notices dated 24.12.2014, 07.01.2015, 06.02.2015 and 24.03.2015 to Respondent No. 2, who filed replies and reiterated the allegations made in the complaint. Respondent No. 3, to whom notices dated 24.12.2014, 08.01.2015, 24.03.2015 and 26.03.2015 were issued, denied the allegations that it had indulged in anti-competitive activity and claimed that it had not insisted on obtaining of NOC as a condition for appointment of the stockist or the supply of medicines. Notices/ probe letters were also issued to by the Jt. DG to All India Organisation of Chemists and Druggists, M/s. Merck Limited, M/s. Mankind Pharma Ltd., M/s. Lividus Pharmaceuticals Limited (TP), M/s. Cadila Healthcare Limited, M/s. Glenmark Pharmaceuticals Ltd., M/s. Sunanda Associates, M/s. C.M. Corporation (C&F Agents of M/s. Merck Limited) and BSNL, Palakkad and Trivandrum Districts, who filed their respective responses.
18. In addition to the notices/probe letters issued by him to Appellant No. 1, Respondent No. 2 and others, the Jt. DG issued summons to several persons and recorded the statements of the following :
i) Shri P.K. Krishnan, Proprietor of Vinayaka Pharma (IP) on 30.01.2015. ii) Shri Paul Madavana, Divisional Sales Manager of Alkem Laboratories Ltd. (OP-1) on 02.02.2015. iii) Shri A.N. Mohan, President of AKCDA (OP-3) on 03.03.2015. iv) Shri Tiji K. Varghese, Area Manager General Medicines of M/s. Merck Limited (TP) on 13.03.2015.(Although in his report, the Jt. DG adversely commented on the conduct of Appellants Nos. 2 and 3, neither any notice was given to them nor their statements were recorded during the investigation)v) Shri V. Srinivasulu Reddy, Vice President Demand Planning & Logistics from M/s. Glenmark Pharmaceuticals Ltd. (TP) on 16.03.2015. vi) Shri A.N. Mohan, President of AKCDA (OP-3) on 18.03.2015. vii) Shri V. Srinivasulu Reddy, Vice President Demand Planning & Logistics from M/s. Glenmark Pharmaceuticals Ltd. (TP) on 25.03.2015. viii) Shri Sanjeev Kumar Singh, DGM-Legal and Company Secretary of M/s. Mankind Pharma Ltd. (TP) on 26.03.2015.
19. After completing the investigation, the Jt. DG considered replies/responses of various parties, the statements recorded by him and submitted report dated 31.03.2015. In Chapter 4 of the report, the Jt. DG outlined the procedure adopted for investigation. In Chapter 5, he identified the following issues :
(i) Whether AKCDA (OP-3) is compelling the Pharma companies to seek NOC before appointment of new Stockists/ Distributors. If reply is in affirmative, then whether the said conduct amounts to refusal to deal and hence hit by the provisions of the Competition Act, 2002.(ii) Whether the allegations of the IP against OP-2 (M/s. Alkem Laboratories Ltd.) regarding practice of the requirement of NOC from OP-3 (AKCDA) prior to appointment of stockists by pharmaceutical companies is substantiated by evidences. If so, whether such arrangement between OP-2 and OP-
3 violates provisions of the Competition Act, 2002.
(iii) Whether the IP has concealed/ suppressed any material facts before the Commission at the time of filing the information against the OP-2.
(iv) In the event of investigation concluding contravention of the provisions of the Competition Act, 2002, identification of persons who are responsible for the said conduct.
20. In Chapter 6 of the report, the Jt. DG referred to the notices/ probe letters issued to various persons and briefly adverted to their responses. In Chapter 7, the Jt. DG recorded the findings on various issues. While dealing with Issue No.(i), the Jt. DG referred to the allegation made by Respondent No.2 that even though he had been offered stockistship by Appellant No.1 vide letter dated 14.11.2013 and he had sent demand draft dated 28.11.2013 for purchase of medicines, the same was returned with the direction to submit NOC from Respondent No.3. The Jt. DG also adverted to the statement of Shri A.N. Mohan, President of Respondent No.3 and replies given by him to the queries made during the investigation and recorded the following findings :
Findings : The replies given by the President of AKCDA (OP-3) are evasive and factually incorrect. The contents of the above emails prove him otherwise. From the above, it was noted that Emails dated 19.02.2015 (Q. No.2.1.i) and 09.12.2014 (Q. No.2.8) reveal that requirement NOC is still in practice by OP-[Underlining is ours]3 (AKCDA) and some Pharma Companies. From the emails dated 07.01.2015 (Q. No.2.6); 09.12.2014 (Q.No.2.8); 28.11.2014 (Q. No.2.11); 28.11.2014 (Q.No.2.13), reveal that OP-3 (AKCDA) indulges in non-cooperation tactics by regulating the supply of stocks to some of the pharma companies. The answers to the above questions also reveal that some office bearers indulge into anti-competitive practices. As far as email dated 01.12.2014 (Q. No.2.9) is concerned, the email was sent by Mr. A.N. Mohan, President, AKCDA (OP-3) from his email account (anmohanpoonam@gmail.com) to personal email account of Mr. Jagannath Shinde, President, AIOCD (jagannath.shinde50@gmail.com) on the issue of M/s. Merck Limited. This communication clearly establishes the following crucial points :
i) Most of the pharma companies are co-operating with OP-3 (AKCDA) and appointments of Stockists are made with the approval of OP-3s (AKCDAs) District/ State units. ii) OP-3 (AKCDA) and AIOCD advise the pharma companies to meet them for negotiations. In this instance, it was M/s. Merck Limited, who was not interested to meet them or submit their price list even after OP-3s (AKCDAs) repeated requests. Even they (officials of AIOCD & M/s. Merck Ltd.) have had a meeting to discuss these issues at AIOCD office on 20th August, 2014. iii) OP-3 (AKCDA) influences and compels the pharma companies to meet them before making any new appointment of stockists. Even supplies are made under the intimation to OP-3 (AKCDA). The OP-3 is not only practising NOC but aggressively pursuing it with AIOCD and is also infuriated with M/s. Merck Limited as it appointed stockists without their (AKCDAs OP-3s) consent. iv) The State Committee of AKCDA (OP-3) unanimously decided to extend non-cooperation to M/s. Merck Limited. Initially Stockists were requested (1) Not to give STOCK & SALES statement from 1st December onwards and (2) Not to accept NEW PRODUCTS without their signed order and Price List in Form V.
v) AKCDA (OP-3) has also confirmed that 95% stockists complied with their requests. vi) From this email dated 01.12.2014, it is evident that the office bearers of AKCDA and AIOCD influence or control the provision of services by way of allocation of geographical area of market or type of services, or number of stockists in the market, which is in contravention with the provisions of the Competition Act, 2002. vii) This communication also confirms the anti- competitive conduct of AKCDA (OP-3) requiring the pharmaceutical companies not to appoint any person as stockiest unless he obtains NOC from it.
22. In the second part of the discussion made under Issue No(i), the Jt. DG referred to the affidavits of Shri Giri Nair, Managing Director of M/s. Pharma Trade and of Shri D. Krishna Murthy, Managing Partner of M/s. Dorai Agencies and recorded the following observations :
This reveals that in order to avoid any action by CCI/ Courts etc. the OP-3 (AKCDA) has stopped giving instructions in writing and is adopting the anti-competitive practices orally.
23. The Jt. DG then referred to the e-mails / communications and documents exchanged by various persons and held that the existing practice in the industry to insist on NOC from Respondent No.3 is clearly established. He also took cognizance of letters dated 07.08.2014 and 20.08.2014 sent by M/s. Sunanda Associates to Appellant No.1 on the issue of stoppage of supply of medicines, order dated 04.12.2014 passed by the Kerala High Court in Writ Petitions (Civil) No.32640 and 32668 of 2014 directing Appellant No.1 and M/s. Wallace Pharmaceuticals Pvt. Ltd. to supply medicines to M/s. Sunanda Associates and recorded the following findings:
Findings : From the evidences cited at Sl.No.(a) to (p), Page Nos. 53 to 55, it is evident that pharma companies under an agreement or with an understanding with OP-3 (AKCDA) are influencing and insisting for NOC from OP-3 (AKCDA) before a potential/ new stockiest is to be appointed. It may also be noted that the IP as well as few other parties have confirmed that the instance of NOC is on oral basis to avoid non-compliance of the CCI orders in few cases in the past. From the evidence listed at Sl.No.(I) Page No.54, it may be observed that earlier OP-3 (AKCDA) issued letters to the stockists congratulating them for getting stockistship of pharma companies, which may be one of the forms of acknowledging their presence in the process of appointment of stockists by the pharma companies. This is nothing but conveying NOC by OP-3 to pharma companies. From the evidence listed at Sl.No. (m), Page No.54, it may also be observed that the OP-3 (AKCDA) issued Clearance Certificates on the said dates to some of the Stockists. From the evidence listed at Sl.No.(p), Page No.55, it is evident that AKCDA (OP-3) indulges into anti- competitive practices by pressurising the pharma companies to concede to its demands by threatening boycott of their products. It is also pressurising the field executives to obtain NOC/ Clearance Certificate from them. From the evidences listed above, it is evident that the conduct of the AKCDA (OP-3) i.e. indulging into practice of NOC and other anti-competitive practices are still being carried on by the office bearers of AKCDA. Appointment of new stockists/ distributors should be a consumer choice and not the trade associations. In fact, the right to do a business, a fundamental right, is taken away by the above mentioned anti-competitive practices of OP-3 (AKCDA) in direct or indirect agreement/ collusion with some pharma companies. From the above evidences, it can be construed that the OP-3 (AKCDA) not only practised but actively pursued the anti-competitive practices with the pharma companies and others.
24. On the basis of the aforesaid findings, the Jt. DG recorded the following conclusion :
Based on the above investigation, it has been concluded that the AKCDA (OP-3), the office bearers, together collectively with an understanding or in direct or indirect agreement with the pharma companies have been following a practice of insisting for NOC necessarily required to be taken from the State/ District unit of AKCDA for appointment of new/ additional stockists which has the effect of limiting and controlling the supply of drugs and medicines in Kerala apart from creating an entry barrier to take out the business of stockist/ distributors thereby contravening the provisions of Section 3(3)(b) read with Section 3(1) of the Competition Act, 2002.
25. The Jt. DG then dealt with Issue No. (ii), referred to the allegation made by Respondent No. 2 in the context of non-supply of medicines by Appellant No.1 in December, 2013 and observed :
Based on the above investigation, it has been concluded that the AKCDA (OP-3), the office bearers, together collectively with an understanding or in direct or indirect agreement with the pharma companies have been following a practice of insisting for NOC necessarily required to be taken from the State/ District unit of AKCDA for appointment of new/ additional stockists which has the effect of limiting and controlling the supply of drugs and medicines in Kerala apart from creating an entry barrier to take out the business of stockiest/ distributors thereby contravening the provisions of Section 3(3)(b) read with Section 3(1) of the Competition Act, 2002. * * * Considering the development of the case, it appears that due to influence of OP-3 (AKCDA), the OP-2 not supplied any stock to the IP for about 4 months. The influence of the OP-3 (AKCDA) in this regard was also noticed when the offer letter dated 14.11.2013 issued by OP-1 to the IP was found in the Email dated 29.12.2014 of Shri A.N. Moha, President, AKCDA (OP-3). From this, it is evident that the AKCDA (OP -3) is acting in consultation with OP-2. * * * Out of the 20 emails, an email dated 29th December, 2014, at 05:03 P.M., which was forwarded by Shri T.K. Haridas, Branch Manager of M/s. Alkem Laboratories Limited (OP-2) from his email ID tkharidas@alkem.com to Shri A.N. Mohan, President of AKCDA (OP-3) to his email ID anmohanpoonam@gmail.com was also found along with an attachment to it. The fact that this communication i.e. email dated 29.12.2014 (informing appointment of IP as stockiest forwarding the stockists offer letter dated 14.11.2013 signed by Shri Paul Madavana sent by Branch Head Shri T.K. Haridas on 29.12.2014, clearly establish that the original offer letter signed by Shri Paul Madavana (OP-1) was within the knowledge of the companys (OP-2s) seniors.[Underlining is ours] He also referred to the similar complaint allegedly made by M/s. Sunanda Associates and observed :
In view of the above facts and evidences, it is established that there has been refusal to deal with IP by OP-2 with an understanding/ in direct or indirect agreement with the AKCDA (OP-3) and therefore it is established that the OP-2 also involved in the anti- competitive practices.[Underlining is ours]
26. The Jt. DG then adverted to the reply given by Appellant No.1 to various queries and recorded the following observations and conclusions :
From the above it was noted that the OP-1 has no cogent reasons to justify his action for issuance of such an offer letter dated 14.11.2013 to the IP. Further the conduct of OP-2 of refusing to deal with the IP in absence of an NOC/ Consent from OP-3 (AKCDA), seems to be an arrangement/ agreement being practiced between OP-2 and OP-3 and as such OP-2 has contravened the provisions of Section 3(1) of the Competition Act, 2002.
Conduct of the OP-2 in refusing to deal with the IP even emanated from its anxiety to avoid punitive action from OP-3 (AKCDA) and to protect its own business interest the same, none-the less, falls foul of Section 3(1) of the Act. The actions/ conduct of OP-2 cannot be excused on the ground of compulsions as there are various other pharma companies which may not be indulging in any such anti-competitive practices in the same region.[Emphasis added]
27. The Jt. DG next considered whether Respondent No.2 had concealed material facts from the Commission at the time of filing information, took cognizance of the apologies tendered by Respondent No.2 in reply to Question Nos.20 and 23 and observed :
From the above, it may be worth noting here that the IP, though he got the appointment as stockiest of the OP-1 on 19th March, 2014 and get the first Stock Invoice on 20th March, 2014 itself, the same was not informed to the Honble Commission during the process of filing the information before the Commission on 30th April, 2014 or subsequently. Further, the IP has also accepted the concealment of the above facts from the Honble Commission and apologized for the same.[Emphasis supplied]
28. The Jt. DG also dealt with application dated 20th February, 2014 made on behalf of Appellant No.1 under Section 45(1)(b) and held that Respondent No.2 had concealed / suppressed material facts, which had bearing on the prima facie view / decision of the Commission.
29. In Chapter 8 of his report, the Jt. DG considered the issue relating to the involvement of Appellants Nos. 2 and 3 in the alleged anti-competitive conduct of Appellant No. 1 and held that they are equally complicit in the practices being carried on and the decision taken by Appellant No. 1 in the matter of appointment of stockists. All this is borne out from paragraph 8.1.2 of the investigation report, which is extracted below :
8.1.2 However, as per the information submitted by the OP-2 vide its letter dated 19th March, 2015 (annexed as Annexure A), the persons responsible for decision making and appointment of stockists, distributors etc. in the districts of Palakkad, Ernakulam and Calicut in Kerala on behalf of M/s. Alkem Laboratories Ltd. (OP-2) are as follows : Year: 2013-14 & 2014-15 Name & Designation Address, phone nos. & email PAN No. Marketing Department :1. Johnson Mathew DGM-ACE Sales South & West) Bangalore Apartment No. 001, Shravanthi Gardens, J.P. Nagar, Phase 5/13th Main, Bangalore 560078 Mobile No. +91 9611667402 Email : Johnson.mathew@alkem.com ADDPJ0665Q Distribution Department :
2. T.K. Haridas Branch Manager & Authorised Signatory 29/1657-A1, Haritha, Jawahar Road, Vyttila, Kochi, Ernakulam, Kerala 682019. Mobile No. +91 94465 77035 E mail : tkharidas@alkem.com AANPH7431H Conclusion : In view of the above, investigation has concluded that the afore mentioned two members of M/s. Alkem Laboratories Ltd. (OP-2) are equally complicit in the practices being carried on and the decisions with regard to appointment of stockists being taken by OP-2, which have been found to be contravening the provisions of the Competition Act, 2002.
30. In Chapter 9 of the report, the Jt. DG summarised his findings/ conclusions in the following words :
1. Investigation has concluded that the conduct of OP-2 of refusing to deal with the IP in the absence of an NOC from AKCDA (OP-3 can be construed to be an arrangement/ agreement being practiced between OP-2 and OP-3, and as such OP-2 has contravened the provisions of Section 3(1) of the Competition Act, 2002.[Emphasis supplied]2. Investigation has also concluded that OP-3 (AKCDA) as an association of stockists and distributors has been following a practice of NOC necessarily required to be taken from it for appointment of a new/ additional stockiest which has the effect of limiting and controlling the supply of drugs and medicines in Kerala, apart from being an entry barrier, thereby contravening the provisions of Section 3(3)(b) read with Section 3(1) of the Competition Act, 2002.
3. Investigation has concluded that the IP has concealed/ suppressed material fact before the Honble Commission, thereby contravening the provisions of Section 45 of the Competition Act, 2002.
31. The investigation report was considered by the Commission in its meeting held on 23.04.2015 and it was decided that electronic copy thereof be forwarded to the parties and 11 individuals including the appellants to enable them to file their replies/suggestions/objections. The Commission also directed the opposite parties and the individuals to furnish their income details including income tax returns for the last three financial years and fixed 10.06.2015 as the date for oral hearing. The order passed on the basis of the decision taken in the meeting held on 23.04.2015 reads as under:
In the instant case, the Commission vide its Order dated 29th September, 2014 under Section 26(1) of the Competition Act, 2002 (Act) had directed the Director General (DG) to cause an investigation. Accordingly, the DG, after completing the investigation, has filed the investigation report. Today, the Commission considered the investigation report of the DG and decided to forward an electronic copy of the investigation report of the DG to the parties for filing their replies/ objections. The Commission also decided to forward an electronic copy of the investigation report of the DG to the following persons who were identified by the DG as employees of OP-2 and to the executive committee members, of OP- 3, who at the time of contravention of the provisions of the Act were responsible for the conduct of the affairs of OP-2 and OP-3, respectively : (1) Shri Jonson Mathew DGM (Sales South & West) of OP-2; (2) Shri T.K. Haridas, Branch Manager of OP-2; (3) Shri A.N. Mohanakurup, President of OP-3; (4) Shri Thomas Raju, General Secretary of OP-3; (5) Shri O.M. Abduljaleel, Treasurer of OP-3; (6) Shri P.K. Surendranath, Vice-President (North) of OP-3; (7) Shri P. Sankaranarayanan, Vice President (Central) of OP-3; (8) Shri Antony K.J., Vice President (South) of OP-3; (9) Shri C.K. Asif, Secretary, (North) of OP-3; (10) Shri Wilson K.K., Secretary, (Central) of OP-3; and (11) Shri S. Subramoniam, Secretary, (South) of OP-3. The Commission directed the parties, including the aforesaid individuals, to file their suggestions/ objections latest by 5th June 2015. The Informant is directed to provide a copy of his suggestion/objections to the Opposite Parties and each of the Opposite Parties is directed to provide a copy of his/ its suggestions/ objections to the Informant. The Opposite Parties are also directed to furnish their audited balance sheet and profit and loss account/ turnover for the last three financial years latest by 5th June 2015. The aforesaid individuals are directed to furnish their income details including their Income Tax Returns for the last three financial years latest by 5th June 2015. All the parties are directed to appear before the Commission, either in person or through a duly authorized representative, for oral hearing on the investigation report of the DG on 10th June 2015 at 10:30 The Commission also considered the following submission/ application : (a) Findings in the investigation report of the DG under Section 45 of the Act, regarding concealment/ suppression of the material facts by the Informant with respect to the information filed before the Commission; and (b) Application dated 25th March 2015 of the DG requesting initiation of proceedings against M/s Lividus Pharmaceuticals Pvt. Ltd. under Section 43 of the Act. With regard to these applications, the Commission decided to issue show cause notice to the Informant and M/s Lividus Pharmaceuticals Pvt. Ltd. under Sections 45 and 43 of the Act, respectively. The Secretary is directed to inform, and issue notices, to the concerned parties for necessary compliance.
32. On the next date, i.e., 10.06.2015, the Commission passed three orders. By one order, the Commission directed that application dated 09.06.2015 received from S/Shri Sudeep P.M., K.A. Sundaran, Antony K.V. and Giri Nair for joining them as parties shall be heard on 18.06.2015. By the second order, the Commission directed that an opportunity be given to M/s. Lividus Pharmaceuticals Pvt. Ltd. to file its reply before passing an order under Section 43. In the third order, the Commission took cognisance of the replies/submissions received from Respondents Nos. 4 and 5 and issued certain directions to Respondents Nos. 4 and 5. The relevant portions of the second and third orders are reproduced below: Second Order passed on 10.06.2015 :
In the instant case, the Commission vide its Order dated 29th September 2014 under Section 26(1) of the Competition Act, 2002 (Act) had directed the Director General (DG) to cause an investigation. Accordingly, the DG, after completing the investigation, has filed the investigation report along with an application dated 25th March 2015 requesting initiation of proceedings against M/s. Lividus Pharmaceuticals Pvt. Ltd. under Section 43 of the Act for not complying with the directions of the DG. The Commission considered the application dated 25th March 2015 in its ordinary meeting held on 23rd April, 2015 and decided to issue show cause notice to M/s. Lividus Pharmaceuticals Pvt. Ltd. under SectionThird order passed on 10.06.2015 :43 of the Act. Accordingly, notice dated 12th May 2015 was issued to M/s. Lividus Pharmaceuticals Pvt. Ltd. directing them to show cause, in writing, within 15 days, from the receipt of the notice as to why a penalty upto rupees one lac per day to the maximum of rupees one crore in terms of the provision of Section 43 of the Act should not be imposed upon them. M/s. Lividus Pharmaceuticals Pvt. Ltd. was also directed to appear before the Commission on 10th June 2015 for an oral hearing. As per the postal tracking system, the notice dated 12th May 2015 was delivered to M/s. Lividus Pharmaceuticals Pvt. Ltd. on 16th May 2015. However, no reply was received from M/s. Lividus Pharmaceuticals Pvt. Ltd. Further, none appeared for them today. The Commission took serious note of the conduct of M/s. Lividus Pharmaceuticals Pvt. Ltd. However, in the interest of justice, the Commission decided to provide one more opportunity to M/s Lividus Pharmaceuticals Pvt. Ltd. before passing any order under Section 13 of the Act. Therefore, the Commission directed M/s. Lividus Pharmaceuticals Pvt. Ltd. by giving one more opportunity to file its written reply to the notice dated 12th May 2015 latest by 16th June 2015 and to appear for an oral hearing on 23rd June 2015.
1. In the instant case, the Commission had considered the investigation report of the DG in its ordinary meeting held on 23rd April 2015 and decided to forward an electronic copy of the same to all the parties, including the individuals, identified by the DG as responsible for the conduct of the affairs of OP-2 and OP-3 at the time of alleged contravention of the Act. The Parties were directed to file their replies/ objections to the investigation report, latest by 5th June 2015 and appear for an oral hearing before the Commission on 10th June 2015. The Opposite parties were also directed to furnish their audited balance sheet and profit and loss account/ turnover for the last three financial years latest by 5th June 2015. The said individuals were also directed to furnish their income details including their income tax returns for the last three financial years latest by 5th June 2015.[Underlining is ours]2. On 23rd April 2015, the Commission had also considered the findings in the investigation report of the DG, regarding concealment/ suppression of material facts by the Informant. In that regard, the Commission had decided to issue show cause notice to the Informant under Section 45 of the Act. Accordingly, show cause notice dated 13th May 2015 was issued to the Informant directing him to appear for an oral hearing on 10th June 2015.
3. Subsequently, the Commission has received the following submissions from the parties :
a) reply/ submission dated 4th June 2015 from OP-2 along with (i) balance sheet/profit and loss statements for the financial years 2011-12, 2012-13 & 2013-
14 for OP-2; (ii) income tax return (ITRs) of Shri Johnson Matthew, DGM (Sales) of OP-2 and Shri T.K. Haridas, Branch Manager of OP-2 for financial years 2012- 13, 2013-14 & 2014-15; and (iii) application dated 4th June 2015 from OP-
2 filed under Regulation 26 of the Competition Commission of India (General) Regulations, 2009;
b) application dated 5th June 2015 filed by the Informant inter alia seeking extension of time for filing his reply to the DG report and to the show cause notice dated 13th May 2015;
c) reply/ submission dated 9th June 2015 of OP-3 along with (i) trial balance sheet as on 31st March 2015, income details for the period between 20th August 2013 to 31st March 2014 and balance sheet as on 31st March 2014; (ii) ITRs of Shri A.N. Mohanakurup, President of OP-3, Shri O. M. Abdul Jaleel, treasurer of OP-3, Shri P. Sankaranarayanan, Vice-President, Secretary (South) of OP-3, Shri C.K. Asif, Secretary (North) of OP-3 and Shri Subramoniam, Secretary (South) of OP-3 for financial years 2012-13, 2013-14 & 2014-15; and (iii) Submissions of Shri Thomas Raju, General Secretary of OP-3, Shri K.P. Surendranath, Vice-President (North) of OP-3, Shri Anthony K.J. Vice- President (South) of OP-3 and Shri Wilson. K.K. Secretary (Central) of OP-3;
4. Today, the Commission heard the counsel for the Informant and Opposite Parties on the investigation report. The Commission directed the counsel for OP-2 to file information regarding its internal policy/ process for appointing stockists, including the details regarding its officers authorized to appoint stockists, and the details of due diligence done by OP-2 while appointing Informant as a stockist along with a copy of the appointment letter.
5. The counsel for OP-3 and the Informant requested for additional time to file their reply/ objections regarding the DG report and an oral hearing thereafter. The Commission considered the request and directed the parties to file their reply/ objections latest by 10th July 2015 and appear for oral hearing on 4th August 2015 at 10.30 A.M. The Informant is directed to provide a copy of his/ its reply/ objection to the Informant.
6. The counsel for the Informant was also directed to file his reply to the show cause notice dated 13th may, 2015, latest by 10th July 2015 and appear for an oral hearing in that regard on 4th August 2015. The Commission also observed that OP-1 did not file his income details regarding the income tax returns for the last three financial years. Similarly, OP-3 has not filed its income details/ profit and loss details/ balance sheet for the last three financial years. Therefore, the Commission directed OP-1 to file his income tax returns for the last three financial years and OP-3 to file its income/ turnover details including copies of its audited income and expenditure statement for the last three financial years.
7. The Secretary is directed to inform the concerned parties accordingly.
33. In the meetings held on 18.06.2015 and 23.06.2015, the Commission passed the following orders :
Order dated 18.06.2015 In the instant matter, Shri Sudeep P.M., Shri K.A. Sundaran, Shri Antony K.V. and Shri Giri Nair have filed an application dated 9th June 2015 under General Regulation 25 of the Competition Commission of India (General) Regulations, 2009 requesting to the Commission to allow them to join as interveners in the case. The Commission considered the aforementioned application in its ordinary meeting held on 10th June 2015 and decided to hear the applicants on 18th June 2015. Today, the Commission heard the counsel for the interveners and decided to list the matter again on 25th June 2015.
Order dated 23.06.2015 In the instant case, the Director General (DG) vide application dated 25th March 2015 had requested the Commission to initiate Section 43 proceedings against M/s Lividus Pharmaceuticals Pvt. Ltd. as it had failed to comply with the directions of the DG. The Commission considered the said application in its ordinary meeting held on 23rd April, 2015 and decided to issue show cause notice to M/s. Lividus Pharmaceuticals Pvt. Ltd. Accordingly, notice dated 12th May, 2015 was issued to M/s. Lividus Pharmaceuticals Pvt. Ltd. directing it to show cause, in writing, within 15 days, from the receipt of the notice as to why a monetary penalty should not be imposed upon it in terms of Section 43 of the Act. M/s Lividus Pharmaceuticals Pvt. Ltd. was also directed to appear before the Commission on 10th June 2015 for an oral hearing. In compliance to above directions, the Commission noted that no reply was filed and none appeared on behalf of M/s Lividus Pharmaceuticals Pvt. Ltd. on 10th June 2015. The Commission took a serious note of the conduct of M/s Lividus Pharmaceuticals Pvt. Ltd. However, the Commission decided to provide one more opportunity to M/s Lividus Pharmaceuticals Pvt. Ltd. and directed it to file reply to the show cause notice and also appear for an oral hearing on 23rd June 2015. Today, none appeared on behalf of M/s Lividus Pharmaceuticals Pvt. Ltd. The Commission deferred the matter for consideration in another meeting.
34. In the next meeting held on 25.06.2015, the Commission observed that the allegations contained in the application filed by Shri Sudeep P.M. and three others were different from those investigated by the DG and decided to treat the same as separate information and pass appropriate order in due course.
35. On 04.08.2015, the Commission heard further arguments and recorded the following order :
1. In the instant case, the Commission had considered the investigation report of the DG in its ordinary meeting held on 23rd April, 2015 and decided to forward an electronic copy of the same to all the parties. The parties were directed to file their replies/ objections to the investigation report, appear for an oral hearing on 10th June 2015. The Commission had also considered the findings in the investigation report of the DG, regarding concealment/ suppression of material facts by the Informant. In that regard, the Commission had decided to issue show cause notice to the Informant under Section 45 of the Act. Accordingly, show cause notice dated 13th May 2015 was issued to the Informant directing him to appear for an oral hearing on 10th June 2015.2. Accordingly, the Commission heard the counsel for the Informant and Opposite Parties on the investigation report on 10th June 2015. The Commission inter alia directed OP 2 to file certain details/ information regarding its internal policy/ process. Further, OP-3 and the Informant requested for additional time to file their reply/ objections regarding the DG report and an oral hearing thereafter. The commission acceded the request of the Informant and Opposite Parties and decided to hear the parties on 4th August 2015. The Commission also directed the Informant to file his reply to the show cause notice dated 13th May 2015, latest by 10th July 2015. The Commission also directed OP-1 to file his income tax returns for the last three financial years and OP-3 to file its income/ turnover details including copies of its audited income and expenditure statement for the last three financial years.
3. Subsequently, the Commission has received the following submissions from the parties :
a) reply/ submission dated 10th July, 2015 from Informant;
b) written submission/ reply dated 10th July 2015 from OP-2, Shri Johnson Matthew and Shri T.K. Haridas, and
c) Independent auditors report dated 13th May 2014 (filed/ received on 30th July 2015).
4. Today, the Commission heard the counsel for the Informant and Opposite Parties on the investigation report of the DG. The parties have concluded their arguments.
5. Upon the request of OP-2 and OP-3, the Commission has granted them time to file additional submissions, if any, by 24th August 2015. The Opposite Parties are directed to provide a copy of his/ its additional submission to the Informant.
6. The Secretary is directed to inform the concerned parties, accordingly.
36. In compliance of the directive given by the Commission, Appellant No.1 filed detailed reply running into 219 pages, some paragraphs of which are extracted below :
4. It is further submitted that on perusal of the DG Report, it was observed that the DG has not enclosed some of the essential documents submitted by Alkem as a part of its core defense during the period of investigation. We, therefore, conducted an inspection of the CCI and DG case records and found that the DG has not enclosed all the materials gathered during the period of investigation from other Opposite Parties and Informant along with the DG Report. By submitting incomplete documents and more importantly ignoring evidences supporting the defense of Alkem, the DG has caused bias in the minds of the Honble Members of the Honble Commission and prejudiced the Honble Commission against Alkem. This is also in clear breach of the statutory provision of Regulation 20(4) of the Regulations which alone can be considered a breach of principles of natural justice and render the entire Investigation Report a nullity in law. Regulation 20(4) provides that 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.on 30 January 2015 that he was a Graduate and was also a Medical Representative as such necessity of translation from English to Malayalam and vice versa through the good offices of an Advocate during the oral deposition appears misleading in respect of demeanour of the Informant. This action of the DG in allowing the counsel of the informant during the oral deposition makes the entire investigation report a nullity in law as against Alkem and its functionaries as the DG seemed to have acted with bias and in the process prejudiced the Honble Commission against the Opposite Parties including Alkem.6. It is an admitted position of the DG, and a very unusual practice, which has recently been adopted by the DG without any public notice that no Advocate be allowed to accompany the client/deponent(s) during the oral deposition before the DG. In fact, when the DG conducted the oral testimony on oath of Mr. Paul Madavana on 2 February 2015, the Advocates for Alkem, orally requested the DG to permit them to assist the deponent during the oral deposition process, however, the DG did not allow this request. Surprisingly, Alkem and its Advocates noticed that a gross discrimination in procedure of oral testimony on oath was adopted by the DG. The DG permitted the Informants Advocate to be present during the oral testimony of the Informant
2 days before i.e. on 30 January 2015 of oral deposition of Mr. Paul Madavana which was held on 2 February 2015. The presence of the Informants Advocate as well her interpreting the communication between the DG and the Informant from Malayalam to English and vice versa would lead one to wonder if the Informants answers were his own or driven by the Advocate. It is noteworthy that the Informant on his own admission submitted before the DG during the oral testimony on oath
7. It is submitted that the Honble Commission in its Section 26(1) Order dated 29 September 2014 directed the DG to also investigate the role of the persons who, at the time of such contravention, were in-charge of an responsible for the conduct of the business of the contravening entity so as to fix responsibility of such persons under Section 48 of the Competition Act. This direction of the Honble Commission at the very preliminary threshold to the DG is colourable exercise of statutory powers since Section 48 could not be invoked at 26(1) stage unless the Honble Commission and not the DG is able to conclusively find contravention of Section 3 read with Section 27 of the Competition Act by adopting due process against OPs. This direction of the Honble Commission at the very prima facie stage of the inquiry has prejudiced the mind of the DG against the management of Alkem and therefore, the conclusion of the DG against Mr. Johnson Matthew and Mr. T.K. Haridas under Section 48 of the Competition Act, without any evidence on the date of formation of the prima facie order, is untenable in law.
8. It is further submitted that the DG has concluded a finding of contravention of Section 48 of the Competition Act against Mr. Mathew and Mr. Haridas without issuing any notice or taking oral depositions on oath thereby denying them any opportunity to place their facts and role on record. It is also unclear how the DG can come to a conclusion without even calling upon or taking evidences from a person alleged to have contravened the Competition Act in his personal capacity. This is a clear violation of the principles of natural justice and makes the DG Report untenable under law.
10. It is submitted that the Informant is an active member of the AKCDA and did not even make them a party to case (the Honble Commission decided to add the AKCDA as a party in the prima facie order) and this very important fact goes on to prove that the informant may all along have been a party to demanding NOCs from various other distributors/stockist in the past, since AKCDA and its members could jointly and severally be liable for all activities including breaches, if any, of the Competition Act prior to instituting of this very inquiry/investigation. Alkem strongly challenges the intent of the Informant to initiate the proceedings against Alkem and its officers under Section 19(1) read with Section 3 of the Competition Act. In fact, it is submitted that the Informant cannot take advantage of the Competition Act through by-passing and/or suppressing its own past legal misdemeanours including internal disorders within AKCDA, if any, and initiating a false/frivolous inquiry against Alkem. This suppression of another material fact alone can vitiate the entire proceedings.
11. It is reaffirmed and reiterated that the demeanour of the Informant is doubtful and unworthy of reliance considering that the DG has proved violation of Section 45 of the Competition Act much before the passing of the Order by the Honble Commission on 5 March 2015 as such the findings of the DG as against Alkem, Mr. Mathew and Mr. Haridas are liable to be rejected.
13. The DG has stated that Alkem has contravened the provisions of Section 3(1) of the Competition Act. In this regard it is submitted that sub-section (1) of Section 3 of the Competition Act is a general provision and not the substantive charging section as per intent of the legislation. However, assuming but not admitting that Section 3(1) has been breached, the DG has still failed to establish appreciable adverse effect on competition (AAEC) as required under sub- section (3)(a) to (c) of Section 19 of the Competition Act. On the contrary with the supply of stocks to the Informant by Alkem to the tune of Rs. 34.09 lakhs from March 2014 up to February 2015 the consumers of the region have in fact been benefited along with the Informant.
17. In a chronological order of events it is stated that on 2 September 2013, the Informant through his firm M/s. Vinayaka Pharma applied for stockistship of Alkem to the Branch Manager of Alkem, Ernakulam.
18. Pursuant to the Informants application, Mr. Vijayan K. Nair, Area Business Manager, and Mr. Peter A Tharu, Regional manager, conducted the field survey, a routine process, followed prior to the appointment of any stockist. The field survey was conducted on the basis of the oral feedback of various chemists about the Informant in the region.
19. The process of appointment of a stockist essentially requires the approval from the divisional head of the region, i.e., Vice President (Marketing) as the first step. Subsequent to the approval of the divisional head, the approval is then required to be given by the authorized signatory of Alkem, i.e. the Branch Manager of the region. However, in this particular case, Mr. Madavana, processed the request at his own end and without authorization replied with the letter dated 14 November 2013 on the letter-head of Alkem.
20. The Informant has alleged that he had sent a request to Alkem on 28 November 2013 for certain products along with a Demand Draft of Rs.5,00,000 which was allegedly not honoured by Alkem. Surprisingly, the Informant has failed to provide any evidence in proof of his allegation. It is submitted that the DG did neither ask the Informant to confirm as to whether or not the DD of Rs. 500,000/- allegedly given to Alkem was debited from its Bank Account in favour of Alkem nor did it ask Alkem or its functionaries to submit the details of the crediting of Rs. 500,000/- allegedly given to it by way of a DD by the Informant. Absence of this prudent procedural process alone shall render the allegation of the Informant void as against Alkem and its functionaries. It is submitted that the DG has failed to apply its mind in this important procedural function.
26. That ever since March 2014, products are being supplied against orders received from the Informant from time to time. Therefore, Alkem has not refused to supply products to the Informant after being appointed as stockist. There has never been any demand for NOC from the Informant and the DG or the Informant has not placed on record any evidence of the same. In any event, it may be noted that till date no NOC has been obtained or provided by the Informant to Alkem. However, non-furnishing of the NOC has not prevented Alkem from supplying the products to the Informant. In response to Question 10 of the deposition (Page 355 of the DG Report) the Informant had submitted that
For the offer of stockistship, they have not asked NOC or Clearance Certificate. However, they have directed to get the NOC before invoicing. But I got the first stock invoice date was 20th March 2014 without submitting any NOC to M/s. Alkem Laboratories ltd., because of my complaint in CCI.
27. It is therefore highly noteworthy that the Informant, during its oral Testimony on oath before the DG, admittedly averred that Alkem did not demand submission of NOC at the time of appointing his enterprise as one of the Stockist of Alkem in Palakkad District of Kerala. It is also noteworthy that the Informant had filed the Information on 30 April 2014 with the Honble Commission, much after being appointed as stockist of Alkem on 19 March 2014 and has also been successfully receiving the products from Alkem until this date.
32. At the outset, it is clarified that Alkem is not a member of AKCDA. Alkem is a pharmaceutical company engaged in the manufacture and distribution of pharmaceutical products whereas AKCDA i.e. OP-3 is an association of chemists and druggists and the informant is a Member of the same association enterprise under Section 2(h) of the Competition Act. Clearly, Alkem does not operate at the same level of production chain as that of the chemists and druggists. Alkem has no incentive to restrain appointment of stockist or supply of products to the stockist. In fact, appointment of additional stockist is beneficial for Alkems commercial interest as this would lead to better market penetration and consequently, contribute to Alkems business growth.
33. The informant has alleged that on 1st or 2nd week of December 2013, the Informant was asked by Mr. T.K. Haridas of Alkem to produce an NOC from the AKCDA without which no invoice could be raised. However, the Informant has been unable to produce any evidence in corroboration of this allegation.
34. The DG at paragraph 7.2 on page 36 of the DG Report has noted that
Subsequently, the IP had sent a purchase order dated 28.11.2013 along with a Demand Draft No. 386358 dated 28.11.2013 for an amount of Rs. 5,00,000/-. However, purportedly, the OP-2 returned IPs above demand draft in 1st or 2nd week of December, 2013 with oral instructions to submit No Objection Certificate (NOC) from OP-3 (AKCDA).
35. It is submitted that this statement is a mere conjectures unsupported by any evidence. The Informant has also failed to place on record any evidence of delivery of the purchase order dated
28 November 2013. It is reiterated that the Informant had not been appointed as an authorized stockist in November 2013 as has been alleged by the Informant. It is reiterated that the DG should have ascertained the veracity of the furnishing of the DD of Rs. 5,00,000/- by examining the Bank records of the Informant and Alkem. Uncorroborated evidences of vital facts are unworthy of being relied upon.
37. In fact, it is reiterated and reaffirmed that the Informant has stated in response to Question 10 of the deposition (Page 355 of the DG Report) that
For the offer of stockistship, they have not asked NOC or Clearance Certificate. However, they have directed to get the NOC before invoicing. But I got the first stock invoice date was 20th March, 2014 without submitting any NOC to M/s Alkem Laboratories Ltd, because of my complaint in CCI.
38. The statement of the Informant that Alkem supplied products to the Informant because of his complaint to the Honble Commission, stands negated in the light of the fact that the invoice of products was raised by the Informant in March 2014, whereas the information was submitted by him to the Honble Commission only on 30 April 2014, i.e. a month later. By making such false oral statements on oath i.e. because of my complaint in CCI, the Informant is misleading the Honble Commission.
39. It is submitted that had an NOC been an absolute pre-requisite for Alkem, the Informant would not have been appointed as an authorized stockist for the Palakkad district in the first place. In fact, until today and even in March 2014, when the first order from the Informant was received there was no NOC that was received by Alkem. If the real intention of Alkem would have been to restrict supplies to the Informant until an NOC was received from AKCDA, Alkem would not have been obliged to supply the products to the Informant until this date as there is no NOC with Alkem even on this date of submission.
41. It is submitted that the assumption of the DG regarding the issue of holding stocks of M/s Sunanda Associates is baseless and denied. The facts do not relate to the present case and hence cannot be relied upon by the DG. It may be noted that M/s Sunanda Associates has filed a writ petition before the Honble High Court of Kerala on a separate issue not relating to the allegation under Competition Act which are being strongly challenged by Alkem. The matter is sub-judice, hence reliance cannot be placed by the DG to substantiate its findings.
43. It is submitted that there is no evidence collected by the DG to fulfil the criteria to prove an agreement under Section 3(1) of the Competition Act.
44. Section 3 of the Competition Act deals with anti- competitive agreements in particular, Section 3(1) states that no enterprise or association of enterprises.shall enter into any agreement in respect of production, supply, distribution, storage, acquisition and control of goods and production of services, which causes or is likely to cause an appreciable adverse effect on competition within India. Therefore, it is very clear that there has to be an agreement which has to cause an appreciable adverse effect on Competition (AAEC) for a breach under Section 3 of the Competition Act. The charging sub-section in this case as per the information of the Informant could have been Section 3(4)(d) only. Section 3(1) is the general sub-section which legally intended to cover the overall principles of breach of either Section 3(3) or 3(4) of the Competition Act. Conclusion of breach of Section 3(1) in the absence of findings relatable to breach of Section 3(4)(d) in this case against Alkem is bad in law. Had that been the intent of the legislation then sub- section 3(3), 3(4) and 3(5) would not have found place in the overall ambit of Section 3 of the Competition Act. It is undisputed that Alkem and the Informant are in vertical chain of business, as such non-invoking of Section 3(4) is possible only when the DG fails to find suitable and reliable evidences against Alkem under Section 3(4)(d) of the Competition Act. * * *
50. The DG on the basis of OP-1s deposition has concluded at page 65 that:
Further the conduct of OP-2 of refusing to deal with the IP in absence of an NOC/ Consent from OP-3 (AKCDA), seems to be an arrangement/ agreement being practiced between OP-2 and OP-3 and as such OP-2 has contravened the provisions of Section 3(1) of the Competition Act, 2002.
51. It is submitted that the DG has based its findings of agreement on an allegation of refusal to supply drugs to the Informant without any substantial evidence of actual refusal to deal within the strict meaning of Section 3(4)(d) of the Competition Act. Furthermore, at no point has an NOC been demanded by Alkem. It is submitted that before concluding that there was an agreement, the DG has to prove beyond reasonable doubt that there was a refusal to supply the drugs by Alkem. Once that is proved, the DG will have to show an AAEC in terms of the factors laid down under Section 19(3) of the Competition Act to prove a contravention.
52. In order to establish an AAEC, it is mandatory for the DG to analyse in detail the factors laid down in Section 19(3)(a) to (c) of the competition Act. The DG has failed to show the triggering of any of the factors laid down and furthermore, a meeting of minds to prove an agreement has also not been shown. The Honble Commission in Shamsher Kataria vs Honda Siel Cars India Ltd. & Others, Case No.03/2011 at paragraph 20.6.11 has noted that :
..It is pertinent to note that clauses (a)-(c) of section 19(3) deals with factors which restrict the competitive process in the markets where the agreements operate (negative factors) while clauses (d)-(f) deals with factors which enhance the efficiency of the distribution process and contribute to consumer welfare (positive factors). An agreement which creates barriers to entry may also induce improvements in promotion or distribution of goods or vice-versa. Thus, whether an agreement restricts the competitive process is always an analysis of the balance between the positive and the negative factors listed under section 19(a)- (f).
53. It is submitted that the DG has failed to conduct any investigation into ascertaining whether there has been any appreciable adverse effect on competition in India. Merely quoting Section 19(3) of the Competition Act at paragraph 7.9.1 at page
66 of the DG Report is no sufficient to establish AAEC. Therefore, the conclusions of the DG are baseless and liable to be rejected. [Emphasis added]
37. After hearing the parties, the Commission passed the impugned order whereby it held that Appellant No. 1 is responsible for contravention of Section 3(1) and Appellants Nos. 2 and 3 are individually responsible under Section 48(1) for the anti-competitive conduct perpetrated by Appellant No.
1. As a sequel to these findings, the Commission imposed penalty @ 3% of the average income of the appellants. Appellant No. 1 was saddled with the penalty of Rs. 7463.1066 Lacs and Appellants Nos. 2 and 3 were saddled with the penalty of Rs. 71371.0701 and Rs. 342448.36 respectively.
38. In paragraph 2 of its order, the Commission noticed the background in which the information was filed by Respondent No. 2. In paragraph 3, it referred to the methodology adopted by the Jt. DG for conducting investigation and the findings recorded by him. In paragraph 4, the Commission briefly adverted to the replies/submissions made by the informant, the appellants and Respondent No. 3 and framed the following issues : Issue I : Whether the suppression of facts by the Informant makes the present proceedings infructuous, as alleged by the Opposite Parties? Whether the Informant is liable to be penalized under Section 45(1)(b) of the Act? Issue II : Whether the conduct/ practices of OP 2 and/ or OP
3 amount to contravention of any of the provisions of section 3 of the Act?
39. The Commission first considered whether Respondent No. 2 can be held guilty of suppression of material facts and made the following observations :
6.4 From the material placed on record, it is an uncontroverted fact that OP 2 had appointed the Informant as its stockist vide its letter dated 14.11.2013 sent by OP 1. The said letter was also marked to Mr. T.K. Haridas, Branch Manager of OP 2, who as per OP 2 was the authorized person to issue the appointment letter to the Informant. Thereafter, OP 2 refused to supply drugs to the Informant and returned the demand draft sent by the Informant dated 28.11.2013. On enquiry, the Informant came to know that the refusal to deal/ supply the medicines by OP 2 was because of the intervention of OP 3. The Commission is of the view that these facts formed the foundation on which the prima facie order was issued. These facts, irrespective of the later appointment of the Informant as stockist of OP 2, were enough to cause the Commission to order enquiry in the said particular case. The Commission, however, is not revisiting the validity of its prima facie order and the present exercise has been undertaken only with a view to satisfy that the process of the Commission has not been abused by the Informant.
40. On the basis of the above noted observations, the Commission declined to penalise Respondent No. 2 by observing that non-disclosure of the factum of his appointment as a stockist vide letter dated 19.03.2014 was not such which could warrant initiation of proceedings under Section 45(1)(b) of the Act.
41. In paragraphs 7.1 to 7.7, the Commission noticed the factors appearing against Respondent No. 3 and recorded the following conclusion:
7.9 These lead to inescapable conclusion that OP 3 has been indulging in the practice of mandatory NOC/ clearance certificate from it before appointment of any new stockist. It has also been revealed that OP 3 has been threatening the pharmaceutical companies to follow its diktats by threatening them that it would boycott the products of non-complying pharmaceutical companies.[Emphasis added]
42. After recording an unequivocal conclusion that Respondent No. 3 has been threatening pharmaceutical companies to follow its diktat, the Commission considered whether Appellant No. 1 had acted in violation of Section 3(1) and observed :
7.17 With regard to OP 2, it may be noted that as per the accepted position, the Informant was offered to become a stockist of OP 2 vide letter dated 14.11.2013. However, no supplies were made to the Informant in spite of repeated request. Thereafter, the Informant claims that he was informed by the Branch/ Depot Manager of OP 2, Mr. T.K. Haridas that supplies were denied because of the pressure from OP 3 as the Informant did not obtain NOC before being appointed as a stockist. OP 2, on the other hand, claims that supplies were denied because the letter dated 14.11.2013 was issued by OP 1 without authority. Thereafter, the Informant was finally appointed as stockist of OP 2 on 19.03.2014 and the supplies were made from 20.03.2014 onwards. 7.18 The Commission is not convinced with the justification offered by OP 2. OP 2 failed to explain why OP 1 issued a letter without authority. It is observed that letter was also sent to Mr. T.K. Haridas who was the authorised signatory to issue such appointment/ offer letters. Further, the demand draft of the Informant dated 28.11.2013 was returned without assigning this reason which also shows that the same was an after-thought to cover up the refusal to supply for want of NOC. 7.19 The Commission further notes that the evidence collected by the DG in this case shows that OP 2 was holding up the supply of stocks to other stockists also because of the pressure of OP 3. The complaint dated 11.09.2014 and 08.11.2014 submitted by M/s Sunanda Associates to Drug Controller of Kerala regarding holding up of the stocks partly/ non-supply of medicines by OP 2 shows that OP 2 was indulging in such anti- competitive conduct. Purportedly, the authorised representative of OP 2 i.e., Mr. T.K. Haridas has expressed that OP 3 had threatened him that OP[Emphasis supplied]2 will be boycotted if supplies were made by it to M/s Sunanda Associates. 7.20 Based on the aforesaid, the Commission is of the opinion that denial of supply by OP 2 is established by the evidence placed on record. Such refusal was because of the instructions given by OPs and as such amounts to understanding between OP 2 and OP 3. 7.21 Since OP 3, an association of enterprises, was not itself engaged in the supply and distribution of drugs and medicines in the market and, OP 2 is the manufacturer of drugs and medicines, as such, any agreement between OP 2 and OP 3 being not between entities engaged in identical or similar trade of goods or provision of services, as envisaged under section 3(3) of the Act, does not fall within the ambit of the said sub-section. Also, such an agreement between OP 2 and OP 3 cannot also be considered to be an agreement between entities at different stages or levels of the production chain in different markets in terms of the provisions of section 3(4) of the Act. 7.22 However, pursuant to Commissions decision in Dr. L. H. Hiranandani Case (Case No. 39 of 2012) the position is quite clear that an agreement, even if it is not falling under section 3(3) or 3(4) of the Act, is amenable to the jurisdiction of the Commission under section 3(1) if the same has an appreciable adverse effect on competition (AAEC). With that background in mind, the Commission considered the arrangement/ understanding between them. 7.23 Therefore, OP 3s instructions to OP 2 and OP 2s agreement to such instructions can be construed as an agreement amenable under section 3(1) of the Act subject to establishment of AAEC. 7.24 With regard to the AAEC, the Commission has looked into the effect of OP 2s conduct in executing the anti-competitive instructions of OP 3. During oral arguments, OP 2 submitted that there is no AAEC of OP 2s conduct as its market share is miniscule in market for supply of drugs and medicines.
43. In paragraph 7.26, the Commission made the following general but significant observations:
7.26 The Commission has seen in number of previous cases involving chemists and druggists associations where the diktats of the Association are followed by the members without any hesitation. Even though OP 2 acted on the directions and threats of OP 3, the same cannot absolve it from any liability under the Act. OP 2 could have approached the Commission instead of complying with the directions of OP 3 which were against the order of the Commission for refusing to deal with unauthorized stockists. Such denial of supply to unauthorized stockists by various pharmaceutical companies like OP 2 undoubtedly affects the competition in the market adversely and appreciably. The Commission thinks it appropriate to issue orders against such pharmaceutical companies as well to deter their actions of facilitating the associations in indulging in anti- competitive practices in the market. In view of the foregoing, the Commission deems it appropriate to hold OP 2 responsible for its anti-competitive conduct under section 3(1) of the Act as they were facilitating the acts of OP 3. With regard to the liability under section 48, the DG found Mr. Johnson Mathew, DGM-ACE Sales (South & West Bangalore) and Mr. T.K. Haridas, Branch Manager & Authorised Signatory of OP 2 to be responsible for the conduct of OP 2 which has been found to be in contravention of the provisions of the Act.[Emphasis supplied]
44. As regards Appellants Nos. 2 and 3, the Commission made very casual observations in paragraphs 7.27 that they were responsible by virtue of their key positions in the organisation of Appellant No.1 and that despite ample opportunity given to them, they failed to adduce any evidence to establish their innocence. On that premise, the Commission held Appellant Nos. 2 and 3 individually responsible under Section 48(1) for the anti- competitive conduct of Appellant No.1. These observations were made without a shred of evidence that Appellants Nos. 2 and 3 were incharge of and were responsible for the conduct of the business of Appellant No. 1. Respondent No. 2 had not adduced any evidence whatsoever on this aspect of the case. The Jt. DG also did not make any investigation about the position of Appellants Nos. 2 and 3 except mentioning that Shri Johnson Matthew was working as DGM-ACE, Sales and Shri T.K. Haridas was working as Branch Manager, Ernakulam.
45. Shri Amit Sibal, learned senior counsel for the appellants argued that the impugned order is liable to be set aside because the very initiation of investigation by the Commission was tainted by the suppression and concealment of material facts by Respondent No. 2. He referred to the averments/allegations contained in the information filed by Respondent No.2 to show that even though as on the date of preparation of the information i.e. 31.03.2014 and affidavit i.e. 09.04.2014, he was aware that the complaint made by him to the Assistant Drugs Controller, Ernakulam about non-supply of medicines by Appellant No.1 had been rejected vide letter dated 17.03.2014 on the ground that he had not been appointed as a stockist of Appellant No. 1 by the competent authority. Respondent No. 2 was also very much aware that he had been appointed as stockist by the competent authority i.e. Appellant No. 3 vide letter dated 19.03.2014 and the medicines had also been supplied to him in response to the order placed on 20.03.2014 but he deliberately refrained from incorporating these facts in the information, and thereby, misled the Commission in believing that Appellant No. 1 had indulged in the anti-competitive practices. To substantiate this argument, Shri Sibal relied upon the averments contained in Columns 10 and 11 of Format No. I of the information filed by Respondent No. 2. Shri Sibal also pointed out that Respondent No. 2 also concealed the fact that he was appointed as stockist vide letter dated 19.03.2014 without requiring him to produce NOC from AKCDA. Learned senior counsel pointed out that there was a gap of 30 days and 21 days respectively between preparation of the information and the affidavit of Respondent No.2 and filing thereof in the Secretariat of the Commission, but he deliberately omitted to inform the Commission about the crucial developments which had taken place between the initial filing of the complaint in January, 2014 and re-submission of the information in April, 2014 i.e. his appointment as a stockist by the competent authority i.e. Appellant No. 3 and supply of medicines. Shri Sibal emphasised that if the Commission had been apprised of the full and correct facts, it could not have ordered an investigation by assuming that Appellant No. 1 had refused to supply medicines to Respondent No. 2 and insisted on production of NOC from AKCDA. Shri Sibal referred to paragraphs 7.10.2 to 7.10.5 of the investigation report to show that the Jt. DG had returned an unequivocal finding that Respondent No. 2 had concealed/suppressed material facts which had bearing on the prima facie view /decision of the Commission and argued that the latter brushed aside the objection taken by Appellant No. 1 on the specious ground that subsequent appointment of Respondent No. 2 as stockist was inconsequential. Learned senior counsel referred to the contents of the order passed by the Commission under Section 26(1) of the Act to emphasise that the alleged refusal of Appellant No. 1 to supply medicines to Respondent No. 2, which constituted the foundation of the opinion formed by the Commission that the allegations made by Respondent No. 2 call for investigation and argued that if Respondent No.2 had candidly apprised the Commission of the fact that he had been appointed as stockist vide letter dated 19.03.2014 issued by Appellant No.3 without insisting on furnishing of NOC from Respondent No. 3 and the medicines had also been supplied to him in March - April, the Commission would not have issued a direction for investigation. Shri Sibal argued that even though Section 19(1) read with Section 26(1) of the Act confers very wide power on the Commission to order investigation even in the absence of an information or a reference, the said power has to be exercised objectively and the Commission was duty bound to give due weightage to the contumacious conduct of Respondent No. 2 and adequately penalise him under Section
45 of the Act. In support of this argument, learned senior counsel relied upon the judgements of the Supreme Court in Ramjas Foundation and Another Vs. Union of India and Others 2010 (14) SCC 38 and Amar Singh Vs. Union of India (UOI) and Others 2011 (7) SCC 69.
46. On merits, Shri Sibal argued that the concurrent finding recorded by the Jt. DG and the Commission on the issue of violation of Section 3(1) by Appellant No. 1 is per se contrary to the plain language of that section and is also perverse. He pointed out that even though Respondent No. 2 had not produced any evidence to prove that Appellant No. 3 had orally asked him to produce NOC from Respondent No. 3, the Jt. DG and the Commission relied upon the bald and vague statement contained in the information that at the time of refusal to supply medicines, the Depot Manager had orally asked him to bring NOC from Respondent No. 3 and concluded that it was Appellant No. 3 who had said so. Shri Sibal submitted that at the relevant time, there was no Depot Manager at Ernakulam and the Jt. DG as also the Commission committed grave illegality by assuming that it was Appellant No. 3 (who was then holding the post of Branch Manager), who declined to supply the medicines and asked Respondent No. 2 to produce NOC from AKCDA.
47. The next argument of Shri Sibal is that the finding recorded by the Commission that Appellant No. 1 had insisted on production of NOC from Respondent No. 3 or that there was a tacit understanding between Appellant No. 1 and Respondent No. 3 on the issue of production of NOC is based on pure surmises and conjectures. He invited the Tribunals attention to several paragraphs of the report of Jt. DG and the impugned order to show that on the one hand the Jt. DG and the Commission relied upon the alleged diktats/directions issued by Respondent No. 3 to the parties to obtain NOC and at the same time, recorded a finding that there was some understanding between Appellant No. 1 and Respondent No. 3 on the issue of production of NOC as a condition precedent for supply of medicines.
48. Shri Jaiveer Shergill, learned counsel for the Commission extensively referred to various paragraphs of the investigation report and the impugned order and argued that the Commission has given cogent reasons for recording a finding that Appellant No. 1 had acted in connivance with Respondent No. 3 to deny supply of medicines to Respondent No. 2 and, thereby, acted in contravention of Section 3(1) of the Act. Shri Shergill made pointed reference to complaints dated 11.09.2014 and 08.11.2014 sent by M/s. Sunanda Associates to show that Respondent No. 3 had threatened Appellant No. 2 against the supply of medicines without NOC. He also relied upon copy of the proforma of bio-data of stockists produced by M/s. Mankind Pharma and the affirmative answer given by it in paragraph 17 that NOC was required from Respondent No. 3 for appointment of a stockist. In support of his argument, learned counsel relied upon the contents of paragraph (j) at pages 496 of Volume III of the paper-book to show that Appellant No. 3 had informed M/s. Sunanda Associates about the threat of boycott given by Respondent No. 3. Shri Shergill also relied upon paragraphs 7.8.4 and 7.8.5 of the investigation report and argued that Appellant No. 3 was responsible for non-supply of the medicines to Respondent No. 2 because he was under the influence of Respondent No.3.
49. Shri Rana Mukherjee, learned senior counsel for Respondent No. 2 argued that the Tribunal should not upset the impugned order only on the ground that his client had filed information by suppressing some facts. Learned senior counsel submitted that Respondent No. 2 is a lay person and he did not realise the importance of making a mention of letter dated 17.03.2014 issued by the Assistant Drugs Controller and his own appointment as stockist by Appellant No. 3 vide letter dated 19.03.2014 in the information, but he did not intend to conceal the material facts and documents from the Commission. Shri Mukherjee emphasised that the information had been initially filed in the form of a complaint in the month of January, 2014 and as on that date, neither the Assistant Drugs Controller had decided his complaint nor Appellant No. 3 had appointed him as a stockist. Shri Mukherjee pointed out that copy of letter dated 14.11.2013 issued by Shri Paul Madavana appointing Respondent No. 2 as a stockist of Appellant No. 1 was endorsed to Appellant No. 3, but the latter did not object to the same on the ground of lack of competence of Shri Paul Madavana and argued that this should be treated as his tacit approval to Respondent No. 2s appointment as a stockist. Learned senior counsel further argued that the finding recorded by the Jt. DG about the involvement of Appellant No. 1 in the anti-competitive practice, which has been approved by the Commission is based on correct analysis of the facts and evidence brought on record and Appellants Nos. 2 and 3 have been rightly penalised because they were the persons incharge of and were responsible to Appellant No. 1 for the conduct of its business at the time of contravention of Section 3(1) of the Act.
50. We have considered the respective arguments and scanned the original record of Case No. 28 of 2014 sent by the Commission.
51. Although we do not intend to penalise Respondent No. 2 by imposing fine under Section 45 of the Act, having carefully perused the detailed information prepared by him on 31.03.2014 and his affidavit dated 09.04.2014, we do not have the slightest hesitation in recording a finding that he had deliberately suppressed the vital facts and documents from the Commission, which resulted in passing of the order under Section 26(1) on the premise that Appellant No. 1 had refused to appoint Respondent No. 2 as a stockist and supply the medicines on the ground of non-production of NOC from AKCDA. We are sure that if the Commission had been apprised about complaint dated 06.12.2013 made by Respondent No. 2 to the Assistant Drugs Controller that despite his appointment as a stockist by Shri Paul Madavana, vide letter dated 14.11.2013, the medicines were not supplied and the Depot Manager had orally asked him to produce NOC from AKCDA, reply dated 22.01.2014 sent by Appellant No. 1 mentioning that Respondent No. 2 had not been appointed as a stockist by the competent authority and acceptance of that assertion by the Assistant Drugs Controller vide letter dated 17.03.2014 and also the fact that the competent authority
i.e. Appellant No. 3 had appointed Respondent No.2 as a stockist and supplied medicines much before 31.03.2014, the Commission would not have entertained the allegations contained in the information and wasted its own time as also the time of the investigating officer and of this Tribunal, whose personnel are paid out of public funds.
52. It is neither the pleaded case of Respondent No. 2 nor it has been argued before us that he is an illiterate person. Rather, the facts brought on record show that he is a graduate and has been in the business of medicines as a stockist of various pharmaceutical companies for last more than one decade. Therefore, he cannot plead innocent ignorance for rebutting the charge of deliberately concealing the material facts and documents from the Commission.
53. We shall now consider whether the finding recorded by the Jt. DG, which has been approved by the Commission that Appellant No. 1 had acted in violation of Section 3(1) of the Act is legally sustainable.
54. As a prelude to this, we deem it proper to point out that both the Jt. DG and the Commission have proceeded on a wholly erroneous assumption that Respondent No. 2 had been appointed as a stockist by the competent authority of Appellant No. 1. Rather, from the day one, Appellant No. 1 had taken a stand that Shri Paul Madavana (Divisional Sales Manager), who had issued letter dated 14.11.2013 appointing Respondent No. 2 as a stockist was not competent to do so. According to Appellant No. 1, application dated 02.09.2013 made by Respondent No. 2 for grant of stockistship for Palakkad district was processed by Shri Vijayan Nair, Area Business Manager and Shri Peter A Tharu, Regional Manager, who conducted the field survey and submitted report. Appellant No. 1 had also pointed out that as per the prevalent practice, the application of Respondent No. 2 was required to be approved by the Divisional Head of the Region i.e. Vice President-Marketing and also by the authorised signatory but the same was directly dealt with by Shri Paul Madavana, who, on his own, appointed Respondent No. 2 as a stockist. This was also the stand taken by Appellant No. 1 in its reply dated 22.01.2014 submitted to the Assistant Drugs Controller, who accepted the same and rejected the complaint made by Respondent No. 2. It was also the pleaded case of Appellant No. 1 that the Branch Manager was the competent authority to appoint a stockist and, at the relevant time, that post was held by Appellant No. 3. Unfortunately, the Jt. DG and the Commission completely overlooked the import of communication dated 17.03.2014 issued by the Assistant Drugs Controller and repeatedly observed that the medicines were not supplied to Respondent No. 2 and he was orally asked by the Depot Manager to produce NOC from AKCDA. The Jt. DG and the Commission also failed to take cognisance of the assertion made on behalf of Appellant No. 1 that there was no Depot Manager at Ernakulam at the relevant point of time and, therefore, the statement made by Respondent No. 2 that the Depot Manager orally asked him to produce NOC from AKCDA was false.
55. In Chapter 7 of his report, the Jt. DG first considered whether AKCDA (Respondent No. 3 herein) is compelling the pharmaceutical companies to seek NOC before the appointment of new stockists/distributors and whether the said conduct amounts to refusal to deal and is hit by the provisions of the Act. The Jt. DG referred to the statements made by Shri A.N. Mohana Kurup, President of Respondent No. 3 and observed that despite the order passed by the Commission in M/s. Peeveears case (Case No. 30 of 2011- M/s. Peeveear Medical Agencies, Kerala Vs. All India Organisation of Chemists and Druggists and five others), Respondent No. 3 indulged in anti- competitive practice by regulating the supply of stocks by the pharmaceutical companies; that most of the pharmaceutical companies were cooperating with Respondent No. 3 and appointment of stockists were made with its approval; that Respondent No. 3 influenced and compelled the pharmaceutical companies to comply with its diktats before making any new appointment of stockist and that 95% of them complied with its diktats. The Jt. DG also observed that the pharmaceutical companies have an agreement/understanding with Respondent No. 3 and they have been insisting on production of NOC from Respondent No. 3 before a potential/new stockist is to be appointed. While dealing with Issue No. 2 in Chapter 7, the Jt. DG recorded findings and conclusions on pure assumptions and conjectures as is evident from the following portions of the investigation report :
7.8.4 Resultantly, the IP did not get supply of stock from OP-2 during the period from 28.11.2013 to 20.03.2014 i.e. about 4 months. Considering the development of the case, it appears that due to influence of OP-3 (AKCDA), the OP-2 not supplied any stock to the IP for about 4 months. The influence of the OP-3 (AKCDA) in this regard was also noticed when the offer letter dated 14.11.2013 issued by OP-1 to the IP was found in the Email dated 29.12.2014 of Shri A.N. Mohan, President, AKCDA (OP-3). From this, it is evident that the AKCDA (OP-3) is acting in consultation with OP-2. 7.8.7 The IP, in support of his allegations has also submitted the Email dated 01.12.2014 of Shri A.N. Mohan, President, AKCDA (OP-3) which was sent to Shri J.S. Shinde, President, AIOCD informing about decision of their State Committee for non- cooperation against M/s. Merck Limited etc., which was discussed earlier in detail. In view of the above facts and evidences, it is established that there has been refusal to deal with IP by OP-2 with an understanding / direct or indirect agreement with the AKCDA (OP-3) and therefore it is established that the OP-2 also involved in the anti-competitive practices. * * * From the above it was noted that the OP-1 has no cogent reasons to justify his action for issuance of such an offer letter dated 14.11.2013 to the IP. Further the conduct of OP-2 of refusing to deal with the IP in absence of an NOC/Consent from OP-3 (AKCDA), seems to be an arrangement/ agreement being practiced between OP-2 and OP-3 and as such OP-2 has contravened the provisions of Section 3(1) of the Competition Act, 2002. * * * Conduct of the OP-2 in refusing to deal with the IP even emanated from its anxiety to avoid punitive action from OP-3 (AKCDA) and to protect its own business interest the same, none-the-less, falls foul of Section 3(1) of the Act. The actions/ conduct of OP-2 cannot be excused on the ground of compulsions as there are various other pharma companies which may not be indulging in any such anti-competitive practices in the same region.
56. The Commission went a step further and returned several findings on similar lines as is from paragraph 7.5, 7.8, 7.9, 7.18 to 7.20, 7.23 and 7.26 of the impugned order, which are extracted below :
7.5 This undoubtedly shows that OP 3 has been exercising influence and controlling the supply of medicines by way of allocations the geographic market, or number of stockists in the market and enforcing such intervention by way of boycotts etc. This conduct of OP 3 results in restricting the provisioning of goods in the market, is in contravention of section 3(3)(b) read with section 3(1) of the Act. 7.8 Further, the Commission has also perused the copies of the complaints dated 11.09.2014 and 08.11.2014 submitted by M/s. Sunanda Associates to Drug Controller of Kerala regarding the holding of stocks partly/ non-supply of medicines by OP 2 even after they had received payment. Purportedly, the authorised representative of OP 2 i.e., Mr. T.K. Haridas has expressed that OP 3 had threatened him that OP2 will be boycotted if supplies were made by it to M/s Sunanda Associates. 7.9 These lead to inescapable conclusion that OP 3 has been indulging in the practice of mandatory NOC/ clearance certificate from it before appointment of any new stockist. It has also been revealed that OP 3 has been threatening the pharmaceutical companies to follow its diktats by threatening them that it would boycott the products of non-complying pharmaceutical companies. 7.18 The Commission is not convinced with the justification offered by OP 2. OP 2 failed to explain why OP 1 issued a letter without authority. It is observed that letter was also sent to Mr. T.K. Haridas who was the authorised signatory to issue such appointment/ offer letters. Further, the demand draft of the Informant dated 28.11.2013 was returned without assigning this reason which also shows that the same was an after-thought to cover up the refusal to supply for want of NOC. 7.19 The Commission further notes that the evidence collected by the DG in this case shows that OP 2 was holding up the supply of stocks to other stockists also because of the pressure of OP 3. The complaint dated 11.09.2014 and 08.11.2014 submitted by M/s Sunanda Associates to Drug Controller of Kerala regarding holding up of the stocks partly/ non-supply of medicines by OP 2 shows that OP 2 was indulging in such anti- competitive conduct. Purportedly, the authorised representative of OP 2 i.e., Mr. T.K. Haridas has expressed that OP 3 had threatened him that OP 2 will be boycotted if supplies were made by it to M/s Sunanda Associates. 7.20 Based on the aforesaid, the Commission is of the opinion that denial of supply by OP 2 is established by the evidence placed on record. Such refusal was because of the instructions given by OPs and as such amounts to understanding between OP 2 and OP 3. 7.23 Therefore, OP 3s instructions to OP 2 and OP 2s agreement to such instructions can be construed as an agreement amenable under section 3(1) of the Act subject to establishment of AAEC. 7.26 The Commission has seen in number of previous cases involving chemists and druggists associations where the diktats of the Association are followed by the members without any hesitation. Even though OP 2 acted on the directions and threats of OP 3, the same cannot absolve it from any liability under the Act. OP 2 could have approached the Commission instead of complying with the directions of OP 3 which were against the order of the Commission for refusing to deal with unauthorized stockists. Such denial of supply to unauthorized stockists by various pharmaceutical companies like OP 2 undoubtedly affects the competition in the market adversely and appreciably. The Commission thinks it appropriate to issue orders against such pharmaceutical companies as well to deter their actions of facilitating the associations in indulging in anti-competitive practices in the market. In view of the foregoing, the Commission deems it appropriate to hold OP 2 responsible for its anti- competitive conduct under section 3(1) of the Act as they were facilitating the acts of OP 3. With regard to the liability under section 48, the DG found Mr. Johnson Mathew, DGM-ACE Sales (South & West Bangalore) and Mr. T.K. Haridas, Branch Manager & Authorised Signatory of OP 2 to be responsible for the conduct of OP 2 which has been found to be in contravention of the provisions of the Act.
57. In our opinion, the findings recorded by the Commission about the alleged complicity of Appellant No. 1 in the anti-competitive practices/conduct of Respondent No. 3 are self-contradictory and are perverse. Once the Commission found that Respondent No. 3 had been issuing diktats to the pharmaceutical companies or coercing them to insist on production of NOC for appointment of a person as a stockist or supply of medicines, the element of agreement/concurrence automatically disappears and Appellant No. 1 could not have been held guilty of acting in violation of Section 3(1) of the Act.
58. The Jt. DG and the Commission committed another grave error in returning a finding of guilty against Appellant No. 1. At the cost of repetition, we may observe that Appellant No. 1 had taken a categorical stand from the day one that Shri Paul Madavana was not competent to appoint Respondent No. 2 as a stockist and this was the reason why the medicines were not supplied to him. Appellant No. 1 had also pleaded that the application made by Respondent No. 2 in March, 2014 was accepted by the competent authority i.e. Appellant No. 3 because a field survey had already been conducted by Shri Vijayan Nair, Area Business Manager and Shri Peter A. Tharu, Regional Manager and letter dated 19.11.2013 was issued without insisting on production of NOC from Respondent No. 3. It is also an admitted position that after his appointment as a stockist by the competent authority
i.e. Appellant No. 3, Respondent No. 2 applied for supply of medicines and the needful was done without asking for NOC from AKCDA. Indeed, it is not even the case of Respondent No. 2 that Appellant No. 1 or any of its officers had demanded NOC before his appointment as a stockist in March, 2014 or thereafter. Thus, the entire edifice of the finding recorded by the Commission that Appellant No. 1 had acted in violation of Section 3(1) falls to the ground.
59. The issue which remains to be considered is whether the Commission could have held Appellants Nos. 2 and 3 guilty by invoking Section 48(1) of the Act.
60. Before considering the aforesaid issue in the light of the facts brought on record, we may observe that the scheme of the Act was considered by the Supreme Court in Competition Commission of India Vs. Steel Authority of India Limited and Another 2010 (10) SCC 744 and it was held that while discharging adjudicatory functions, the Commission acts as a quasi-judicial body. The provisions of the Act and the Competition Commission of India (General) Regulations, 2009 (for short, the Regulations) have also been analysed by this Tribunal in several decisions. In Appeal No. 105 of 2012 Lafarge India Limited Vs. Competition Commission of India and Another decided on 11.12.2015 along with a batch of matters, the Tribunal extensively referred to the provisions of the Act and the Regulations and ruled the while deciding the allegation contained in the information filed or reference made under section 19(1)(a) and passing orders under Sections 27, 33, 39, 42, 42A, 43, 43A, 44 and 45 the Commission does not exercise purely administrative power or discharge administrative functions and that it is bound to comply with various facets of the principles of natural justice. Paragraphs 44 to 48 of that order, which have bearing on the decision of this appeal, read as under:
44. An analysis of the provisions noticed hereinabove gives a clear indication of the nature of powers and functions exercisable by the Commission and the Director General. The inquiry envisaged by Section 19(1) into any alleged contravention of Section 3(1) or Section 4(1) can be initiated by the Commission either on its own motion or on receipt of any information from any person, consumer or their association or trade association or a reference made by the Central or State Government or a statutory authority. After the information or reference received in the office of the Commission is scrutinized by the Secretary of the Commission and if the same is found to be fulfilling all the requirements of the Regulation 14, then the same is placed before the Commission for consideration whether a prima facie case has been made out for investigation. In terms of Regulation 17, the Commission can hold preliminary conference for that purpose. The Commission can invite the information provider and such other person, as may be considered necessary for the preliminary conference. Section 26(1) read with Regulation 18 provides that if the Commission forms an opinion that there exists a prima facie case, then it is required to issue direction to the Director General to cause an investigation to be made into the matter. The detailed procedure for conducting investigation is contained in Section 41 read with Section 36 and Regulations 20, 21, 35, 41, 42 and 45. In terms of Regulation 41, the Director General can determine the manner in which the evidence may be adduced. In the proceedings before him in terms of Regulation 41(2), the Director General can admit evidence taken in the form of verifiable transcripts of tape recordings, unedited versions of video recording, electronic mail, telephone records including authenticated mobile telephone records, written signed unsworn statements of individuals or signed responses to written questionnaires or interviews or comments or opinions or analyses of experts based upon market surveys or economic studies or other authoritative texts or otherwise, as material evidence; admit on record every document purporting to be a certificate, certified copy or other document, which is by law declared to be admissible as evidence of any particular fact provided it is duly certified by a gazetted officer of the Central Government or by a State Government or a statutory authority, as the case may be or a Magistrate or a Notary appointed under the Notaries Act, 1952 or the Secretary of the Commission; admit the entries in the books of account, including those maintained in an electronic form, regularly kept in the course of business, including entries in any public or other official book, register or record or an electronic record, made by a public servant in the discharge of his official duty, or by any other person in performance of a duty specially enjoined by the law of the country in which such book, register or record or an electronic record is kept, as documentary evidence; admit the opinion of any person acquainted with the handwriting of the person by whom a document is supposed to have been written or signed, as relevant fact to prove the handwriting of the person by whom the document was written or signed; admit the opinion of the handwriting experts or the experts in identifying finger impressions or the persons specially skilled in interpretation of foreign law or of science or art; take notice of the facts of which notice can be taken by a court of law under Section 57 of the Indian Evidence Act, 1872; accept the facts, which parties to the proceedings admit or agree in writing as proved; presume that any document purporting to be a certified copy of any record of any authority, court or government of any country not forming part of India as genuine and accurate, if the document purports to be certified in any manner which is certified by any representative of the National Government of such country including certification by the Embassy or the High Commission of that country in India and admit such documents including electronic records in evidence as may be considered relevant and material for the proceedings. Clause (3) of Regulation 41 makes Sections 22A, 47A, 65B, 67A, 73A, 81A, 85A 85B, 85C, 88A, 89 and 90A of the Evidence Act applicable for the purpose of investigation by the Director General, subject, of course, to clause (2) of Regulation[Emphasis supplied] In support of the conclusion recorded in paragraph 48 above, the Tribunal relied upon the judgements of the Supreme Court in Rangi International Limited vs. Nova Scotia Bank and others 2013 (7) SCC 160, State of Orissa Vs. Dr. (Miss) Binapani Dei-AIR 1967 SC 1269, A.K. Kraipak Vs. Union of India- 1969 (2) SCC 262, Sayeedur Rehman V. State of Bihar- 1973 (3) SCC 333, Maneka Gandhi Vs. Union of India- 1978 (1) SCC 248, Mohinder Singh Gill Vs. Chief Election Commissioner- 1978 (1) SCC 405, Mahipal Singh Tomar Vs. State of U.P. - 2013 (16) SCC 771, Manohar Vs. State of Maharashtra -2012 (13) SCC 14 and order dated 23.02.2015 passed in Appeal No.17/2015, The Board of Control for Cricket in India Vs. Competition Commission of India and Another.45. In terms of clause (4), the Director General can call for the parties to lead evidence by way of affidavit or lead oral evidence in the matter. In terms of clause (5), the Director General can give an opportunity to the other party or parties to cross-examine the person giving the evidence. Clause (6) empowers the Director General to entrust the task of recording evidence to any officer or person designated for the said purpose. Regulation 42 provides that the Director General can, for sufficient reasons, order that any particular fact or facts may be supported by an affidavit. Various clauses of this Regulation prescribe the mode and manner in which the affidavit required to be filed under clause (1) is to be prepared. On completion of investigation, the Director General is required to submit his report to the Commission. clause (4) of regulation 20 provides that the report 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. Proviso to this clause empowers the Director General to grant partial or total confidentiality to the commercially sensitive information and documents.
46. Once the report of the Director General is received, the Commission is required to act in accordance with the procedure enshrined in sub-sections (4) to (8) of Section 26, which provide for forwarding a copy of the record to the parties concerned including the Central or the State Government or the statutory body, as the case may be, sub-sections (5) and (6) of Section 26 deal with the situation in which the report of the Director General recommends that there is no contravention of the provisions of the Act. In that event, the Commission is required to invite objections or suggestions from the Central Government or the State Government or the statutory authority or parties concerned, as the case may be. If after considering the objections/suggestions filed in terms of sub-section (5), the Commission agrees with the recommendations of the Director General, then it is required to close the matter and pass orders, which may be communicated to the Central or State Government or statutory authority or the concerned parties. If after considering the objections/suggestions referred to in sub-section (5), the Commission forms an opinion that the further investigation is to be made, or cause further inquiry to be made in the matter or itself proceed with further inquiry in accordance with the provisions of the Act [Regulation 26(7)]. If the report of the Director General recommends that there is contravention of any of the provisions of the Act and the Commission forms the view that further inquiry is called for then it shall inquire into such contravention in accordance with the provisions of the Act [Regulation 26(8)]. Regulations 21 to 27 and Regulations 41 to 44 contain the procedure for conducting inquiry by the Commission. Under Regulation 35, the Commission can make a reference to any statutory authority for opinion under section 21a. regulation 35 empowers the Commission to grant confidentiality in certain situations. Regulation 43 empowers the Commission to take additional evidence. Regulation 46 postulates representation of the parties by their representatives before the Commission. Regulation 52 empowers the Commission to invite experts of eminence to assist the Commission in discharging of its functions under the Act. Section 36(2) lays down that the Commission shall have, for the purposes of discharging its functions under the Act, the same powers as are vested in a Civil Court under the Code of Civil Procedure, 1908 in respect of the matters relating to summoning and enforcing the attendance of any person and examining him on oath; requiring the discovery and production of documents; receiving evidence on affidavit; issuing commissions for the examination of witnesses or documents and requisitioning any public record or document or copy of such record or document from any office. Under Section 36(3), the Commission is empowered to call upon experts, from the fields of economics, commerce and accountancy. Under Section 36(4), the Commission can issue direction to any person to produce books of accounts or other documents in his custody or under the control before the Director General and to furnish to him or Secretary of the Commission such other information as may be in his possession in relation to trade carried on by such person as may be required for the purposes of the Act. At the end of this exercise, the Commission can pass appropriate orders under Section 27 including an order for imposing penalty in cases involving contravention of section 3 and/or section 4. By virtue of Section 41(2), Director General is entitled to exercise the powers conferred upon the Commission under Section 36(2). Section 42(2) provides for imposition of fine for contravention of orders or directions issued under Section 27, 28, 31, 32, 33, 42A and 43A. The quantum of fine may extend to rupees one lakh per day, subject to a maximum of rupees ten crores. If any person fails to comply with the orders or directions issued by the Commission or fails to pay the fine imposed under Section 42(2), then he can be punished with imprisonment for a term which may extend to three year of with fine upto rupees twenty five crores or with both, as the Chief Judicial Magistrate may determine. Section 42A postulates award of compensation for contravention of decision or order of the Commission issued under Section 27, 28, 31, 32 and 33 or any condition or restriction subject to which any approval, sanction, direction or exemption has been granted or for delay in carrying out such orders or directions. Section 43 provides for imposition of fine for non-compliance of direction by the Commission under Section 36(2) and (4) or by the Director General under Section 41(2). The amount of fine may extend to rupees one lakh per day during the period of continuance of such failure subject to a maximum of rupees one crore. Section 43A provides for imposition of penalty for non-furnishing of information under Section 6(2). The extent of such penalty may be upto 10% of the total turnover or the assets of the wrong doer, whichever is higher. Section 44 provides for imposition of penalty for making a false statement or omission to furnish material information in combination case. Section 45 contains a general provisions for imposition of fine upto rupees one crore for making false statement or omission to state any material fact knowing it to be a material or wilful alteration, suppression or destruction of any document, which is required to be furnished.
47. From what we have mentioned above, it is clear that the procedure required to be followed by the Director General for conducting investigation and by the Commission as a prelude to the passing of orders/issue directions under Section 27 and/or the various provisions contained in Chapter-VI of the Act and corresponding regulations is akin to the procedure required to be followed by the Civil Court for deciding a suit except that the Director General and the Commission are not bound by the technicalities of the procedure contained in the Code of Civil Procedure, 1908 and rules embodied in the Evidence Act except to the extent indicated in the Act.
48. The above survey of various provisions of the Act and the Regulations shows that even while amending the Act by Act 39 of 2007 and Act 39 of 2009, Parliament consciously decided to retain provisions relating to adjudicatory functions of the Commission in their full vigour and the mere fact that by virtue of substituted Section 22, the business of the Commission is required to be transacted in its meetings and the business would necessarily include exercise of adjudicatory functions/powers, cannot lead to an inference that while deciding the allegations contained in the information filed or reference made under section 19(1)(a) and passing orders under Sections 27, 33, 39, 42, 42A, 43, 43A, 44 and 45, the Commission exercises purely administrative power or discharge administrative functions or that while passing orders under those sections and also under Section 28, which can have far-reaching impact on the rights of the parties, the Commission is not required to act as per the accepted standard of fairness and render just decision after complying with the principles of natural justice as expounded by the Courts across the globe including the Supreme Court of India. Rather, on the basis of case law developed in this country, it must be held that like any other adjudicatory body, the Commission is bound to comply with various facets of the principles of natural justice and its proceedings confirm to the objective standard of fairness.
61. Section 27, which empowers the Commission to pass orders after inquiry into the agreements or abuse of dominant position and Section 48, which deals with contravention by companies, read as under :
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 3 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 may impose upon each producer, seller, distributor, trader or service provider included in that cartel, a penalty of up to three times of its profit for each year of the continuance of such agreement or ten per cent. of its turnover for each year of the continuance of such agreement, whichever is higher. (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; (g) pass such other order or issue such directions 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. 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 thereunder 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 thereunder 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 guilty 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; (b) director, in relation to a firm, means a partner in the firm.
62. Section 27 is a part of Chapter IV of the Act, which contains provisions relating to duties, powers and functions of the Commission. Under this section, the Commission is empowered to pass any of the orders enumerated in Clauses (a) to (g) if after inquiry it 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 of the Act. Under Clause (a), the Commission can direct any enterprise or association of enterprises or person or association of persons 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. Under Clause (b), the Commission can impose penalty upto of 10% of the average of the turnover for the last three preceding financial years, upon each of such person or enterprises which are parties to the agreements referred to in section 3 or abuse referred to in section 4. Proviso to this clause lays down that if any agreement referred to in section 3 has been entered into by a cartel than the Commission can impose penalty of upto three times of profit for each year of continuance of an agreement or 10% of the turnover for each of the year of the continuance of such agreement, whichever is higher on every producer, seller, distributor, trader or service provider who is a party to an agreement entered into by a cartel. In terms of Clause (d), the Commission can direct that the agreements found to be in contravention of Section 3 shall stand modified to the extent and in the manner as may be specified in the order. Clause (e) lays down that the Commission can direct the enterprises concerned to abide by such other orders as the Commission may pass and mandate compliance thereof including payment of costs. Clause (g) confers an omnibus power upon the Commission to pass such other order or issue such directions as it may deem fit.
63. Section 48 finds place in Chapter VI of the Act, which contains various provisions relating to penalties that can be imposed by the Commission. Section 42 confers power upon the Commission to penalize any person, who, without reasonable cause, fails to comply with the orders or directions issued by it under Sections 27, 28, 31, 32, 33, 42A and 43A of the Act. Under Section 42 (2), the Commission can impose fine to the extent of rupees one lakh for each day during which such non-compliance occurs, subject to a maximum of rupees ten crore. Sub-section 3 of Section 42 declares that if any person does not comply with the orders or directions issued, or fails to pay the fine imposed under sub-section 2 then he shall be punishable with imprisonment for a period which may extend to three years or with fine which may extend to rupees twenty-five crore, or with both, as the Chief Metropolitan Magistrate, Delhi may deem fit. Section 42A provides for making any application by any person for recovery of compensation from any enterprise for any loss or damage suffered by him/it as a result of violation of the directions issued by the Commission or contravention of any decision or order of the Commission issued under Sections 27, 28, 31, 32 and 33 or any condition or restriction subject to which any approval, sanction, direction or exemption in relation to any matter has been accorded, given, made or granted under the Act or delaying in carrying out the orders or directions of the Commission. Section 43 lays down that if any person fails to comply, without reasonable cause, with a direction given by the Commission under Section 36(2) and (4) or the Director-General while exercising powers under Section 41(2), then he shall be punishable with fine which may extend to rupees one lakh for each day during which such failure continues subject to a maximum of rupees one crore. Section 43(A) which was inserted with effect from 01.06.2011 provides for imposition of penalty if any person or enterprise fails to give notice under Section 6(2). The extent of penalty which can be imposed under that section extend to one percent of the total turnover or the assets, whichever is higher, of such a combination. Section 44 provides for imposition of penalty on a person, who is a party to a combination and makes false statement in any material particular, or knowing it to be false, or omits to state any material particular knowing it to be material. The extent of penalty which can be imposed under this section is rupees fifty lakh to one crore. Section 45 empowers the Commission to punish any person who fails to provide necessary information or documents, omits to state any material fact knowing it to be material, or wilfully alters, suppresses or destroys any document which is required to be furnished. Section 46 confers power upon the Commission to impose lesser penalty than the one specified in the preceding sections.
64. Section 48(1) lays down that where a person committing contravention of any of the provisions of the Act or of any rule, regulations, order made or direction issued thereunder is a company, every person who, at the time of contravention was incharge of and was responsible to the company for the conduct of its business as well as the company shall be deemed to be guilty of contravention and shall be liable to be proceeded against and punished accordingly. Sub-section 2 contains a similar provision qua any director, manager, secretary or other officer of the company. The explanation appended to Section 48 makes it clear that for the purpose of Section 48, the term Company means a body corporate and includes a firm or other association of individuals and the term Director in relation to a firm, means a partner in the firm.
65. Since the provision contained in Section 48(1) raises a presumption of guilty against every person, who, at the time of contravention of the provisions of the Act by the company, was incharge of, and was responsible for the conduct of its business and visits him with penalty, the same deserves to be construed strictly and in our view, the deeming provisions contained in the two sub-sections of Section 48 can be invoked only after it is found that the company has contravened the provisions of the Act or any rule, regulation, order made and direction issued thereunder. The use of the word committed in the two sub-sections necessarily implies that before any person incharge of and responsible to the company or director, manager etc. of the company can be proceeded against and punished by invoking the deeming provisions contained in Section 48(1) and/or (2), there must exist an affirmative finding by some competent authority that the company has contravened the provisions of the Act or any rule, regulation etc. Under the scheme of the Act, final determination on the issue of contravention of the provisions of the Act or any rule, regulation etc. can be made only by the Commission and not by the Director General or any other authority. Even the determination made by the Commission is subject to the right of the aggrieved person to challenge the same by filing an appeal under Section 53B(2) of the Act. To put it differently, in the absence of a determination by the Commission that the company has committed contravention of any of the provisions of the Act or any rule, regulation etc., the deeming clause contained in Section 48(1) cannot be invoked for punishing the person incharge of and responsible to the company for the conduct of its business. Similarly, the deeming provision contain in Section 48(2) cannot be invoked for penalising any director, manager, secretary or other officer of the company whose consent or connivance or negligence may have resulted in contravention of the provisions of the Act or of any rule, regulation or order made or direction issued thereunder by the company unless a finding is recorded by the competent authority that the company has in fact contravened the provisions of the Act.
66. In the present case, the Commission initiated investigation into the role of the persons incharge of and responsible for the conduct of business to Appellant No. 1 at the threshold. This is crystal clear from paragraph 5 of order dated 29.09.2014 passed by the Commission under Section 26(1) of the Act. However, the issues framed by the Jt. DG in Chapter 5 of his report, which have been extracted in the earlier part of this order, do not contain any indication that the role of Appellants Nos. 2 and 3 was also to be investigated. On his part, Respondent No. 2 neither averred/alleged nor he led any evidence to prove that Appellants Nos. 2 and 3 were incharge of and were responsible to Appellant No. 1 for the conduct of its business. The Jt. DG did record a conclusion that Appellant No. 1 is equally complicit in the decisions being taken by AKCDA for appointment of stockists and supply of medicines. He also held that Shri A.N. Mohana Kurup and Shri Thomas Raju, President and General Secretary of Respondent No. 3 respectively, were equally complicit in the anti-competitive practices being carried on by that respondent, but he did not return a finding that Appellants Nos. 2 and 3 were incharge of and were responsible for the conduct of business of Appellant No. 1.
67. Notwithstanding the fact that no evidence was collected by the Jt. DG during investigation that Appellants Nos. 2 and 3 were incharge of and responsible to Appellant No. 1 for the conduct of its business, the Commission casually held them guilty under Section 48(1). This approach of the Commission is ex- facie contrary to the law laid down by the Supreme Court in Tamil Nadu Electricity Board Vs. Rasipuram Textile (P) Ltd. and Others (2008) 17 SCC 285. In that case, the Supreme Court interpreted Section 49-A of the Electricity Act, 2010 which is pari materia to Section 48 of the Act and it was held that the burden to prove that the particular person was incharge of and was responsible to the company for the conduct of business of the company is primarily on the complainant and the same shifts on the other party only if it is established by evidence that the particular person was, in fact, incharge of and was responsible to the company for its business. Paragraphs 11 to 14 of that judgment which notices the relevant provision and contains analysis thereof read as under :
11. Section 49-A which was inserted by act 32 of 1959 provides for offence by companies. It reads as under:
49A Offence by companies.--(1) If the person committing an offence under this Act is a company, every person who at the time the offence 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 offence 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 offence was committed without his knowledge or that he exercised all due diligence to prevent the commission of such offence. (2) Notwithstanding anything contained in sub-section (1), where an offence under this Act has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director or manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. Explanation.-- For the purposes of this section.(a) company means any 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.
12. In terms of the aforesaid provision, therefore, it was obligatory on the part of the complainant not only to make requisite averments in the complaint petition but also to prove that any of the Directors who had been prosecuted for alleged commission of the aforementioned offence was incharge of and was otherwise responsible for the conduct or the affairs of the Company.
13. We have noticed hereinbefore that how the learned trial Judge has dealt with the entire aspect. Learned trial Judge has misconstrued and misinterpreted the provisions of Section 49A of the Act.
14. In terms of sub-section (1) of Section 49-A, it is for the complainant to prove that the Director of the Company at the time when the theft was committed was in charge of and/or was responsible for the conduct of its business. Only in the event such an averment is made and sufficient and cogent evidence is brought on record to prove the said allegations, the proviso appended to Section 49-A would be attracted; meaning thereby only in the event it is proved that a Director or a Group of Directors of the Company were in charge of and/or were responsible for the conduct of the business of the company, the burden would shift on the accused to establish the ingredients contained in the proviso appended to Section 49-A of the Act. [Emphasis supplied]
68. The ratio of the above noted judgment is that the primary burden to prove that the particular person was, at the time of contravention of the incharge and was responsible to the company is on the one who makes such allegation and only after the evidence has been led to show that the particular person was, in fact, at the time of commission of offence, incharge of and was responsible to the company for the conduct of its business.
69. In our view, the aforesaid judgment is squarely attracted in the present case. At the cost of repetition, we would like to emphasise that neither Respondent No. 2 had not produced nor the Jt. DG independently collected any evidence to prove that Appellants Nos. 2 and 3 were incharge of and were responsible to Appellant No. 1 for the conduct of its business. Rather, from the very beginning, the stand of Appellant No.1 was that the application made by Respondent No. 2 in September, 2013 for appointment as a stockist was processed by two of its officers and the final decision was required to be taken by the Vice President-Marketing and the authorised signatory, but the letter appointing Respondent No. 2 as a stockist was issued by Shri Paul Madavana without any authority to do so. The Assistant Drugs Controller accepted this statement and the Jt. DG and the Commission did not find any valid ground to discard the same. Therefore, there is no escape from the conclusion that Appellants Nos. 2 and 3 were neither the incharge of nor responsible to Appellant No. 1 for the conduct of its business so as to attract Section 48(1) of the Act. The mere fact that Appellant No. 3 had issued letter dated 19.03.2014 appointing Respondent No. 2 as a stockist cannot lead to an inference that he was incharge of and responsible for the conduct of the business of Appellant No. 1. As far as Appellant No.2 is concerned, not a shred of evidence was produced before the Jt. DG to show that his case falls within the ambit of Section 48(1) of the Act. Therefore, the Commission committed grave error by penalising the two appellants under that section.
70. The manner in which the Commission had dealt with their cases leaves much to be desired. Even a person of ordinary prudence would not have, on the basis of material/evidence collected by the Jt. DG, recorded a finding that Appellants Nos. 2 and 3 should be penalised by invoking the deeming clause contained in Section 48(1) of the Act.
71. Another fatal flaw with which the exercise undertaken by the Commission to penalise Appellants Nos. 2 and 3 suffers is gross violation of principles of natural justice. The record of the case shows that the Jt. DG did not issue any notice to Appellants Nos. 2 and 3 and called upon them to explain their position in regard to the alleged anti-competitive conduct of Appellant No. 1 and, as mentioned above, no evidence was adduced by Respondent No. 2 to prove the ingredients of Section 48(1). The Jt. DG also did not issue summons to Appellants Nos. 2 and 3 for the purpose of recording their statements, as was done in the case of the informant- Respondent No. 2 and the President of Respondent No. 3 - AKCDA. It is thus clear that during the course of investigation, Appellants Nos. 2 and 3 did not get any opportunity to explain their position or to cross-examine Respondent No. 2, who had made all sorts of unfounded allegations against Appellant No. 1 and went to the extent of making a false statement that the Depot Manager had orally asked him to produce NOC from AKCDA as a condition for supply of medicines.
72. After considering the report of the Jt. DG in its ordinary meeting held on 23.04.2015, the Commission did direct that copy thereof be supplied to the parties and 11 individuals including Appellants Nos. 2 and 3 but the proceedings recorded in that meeting or the communications sent to the two appellants did not contain any indication about the action proposed to be taken against them under Section 48(1) of the Act. Like others, Appellants Nos. 2 and 3 were also given opportunity by the Commission to file their reply/suggestions/objections but there was not even a whisper that their role was being probed in the context of Section 48(1) of the Act. Therefore, Appellants Nos. 2 and 3 did not get an opportunity to show that Section 48(1) cannot be invoked against them because they were neither the incharge of nor responsible to Appellant No. 1 for the conduct of its business. Therefore, it must be held the penalty imposed by the Commission on Appellants Nos.
2 and 3 by invoking Section 48(1) is also vitiated due to the violation of rule of audi alteram partem and is liable to be declared as nullity.
73. In any case, once the Tribunal has come to the conclusion that the finding recorded by the Commission against Appellant No. 1 is legally unsustainable, the consequential penalty imposed by the Commission on Appellants Nos. 1, 2 and 3 cannot be sustained and is liable to be quashed.
74. In the result, the appeals are allowed. The impugned order is set aside in so far as it relates to Appellants Nos. 1, 2 and 3.
75. Ordinarily, we would have saddled Respondent No. 2 with exemplary cost because he has been found guilty of highly contumacious conduct but keeping in view the apology tendered by him before the Jt. DG and the Commission, we refrain from doing so. [G.S. Singhvi] Chairman [Rajeev Kher] Member 10th May, 2016
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