Competition Appellate Tribunal (COMPAT) sets aside penalty against GSK Pharmaceuticals Ltd. (GSK) and Sanofi Ltd.(Sanofi) for alleged bid-rigging in procurement of meningitis vaccine for Haj and Umrah pilgrims by Ministry of Health and Family Welfare

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COMPAT by its order dated  November 8, 2016, has set aside the penalty imposed by CCI on GSK and Sanofi for being guilty of acting in contravention of Section 3 (3) (d) read with Section 3(1) of the Act and imposed penalty at the rate of 3% of their turnover of last three financial years.

In the Information filed by Bio-med Pvt Ltd., an indigenous manufacturers of the QMMV vaccine, it was alleged that the Union of India had abused its dominant position by incorporating restrictive and exclusionary conditions like minimum annual turnover of INR 10 Crores initially, then INR 20 Crores and later INR 50 Crores in subsequent tenders, and a certificate in support of manufacturing and marketing for the last three years. Being an indigenous manufacturers, the Informant was supplying the vaccines to the Union of India at a price much lower than GSK/Sanofi. However, the introduction of these new conditions restricted the participation of the Informant even though it was fully licensed under the provisions of the Drugs and Cosmetics Act, 1940.

Further, the Informant alleged that GSK and Sanofi have adopted deliberate plan where only one of the companies plans to participate in a tender process. While from 2003 to 2008, only GSK participated in the tender or the tender offer by Sanofi was higher than GSK; the roles were reversed from 2008 onwards. In formant alleged the same as amounting to violation of Section 3(3) (d) of the Act.

The CCI ordered investigation against GSK and Sanofi for alleged bid rigging, while rejecting allegations of abuse of dominance. The DG Report noted that both Sanofi and GSK had failed to explain why they quoted half quantities in the tender of 2011 and why the prices quoted were higher than the approved prices of the last tender. The DG found that the documents produced by GSK and Sanofi did not show any constraint relating to supply of vaccines. Considering their regular global supplies, it was not explained with evidences as to how they were unable to supply full quantity in the tender of 2011. According to the DG, non-participation of GSK in tenders of 2012 and 2013 further established the collusion. Thus, the DG Report recommended that the conduct of GSK and Sanofi, sharing the tender quantity and having quoted very high price in the bids given for the year 2011, was in contravention of Section 3(3)(d) read with Section 3(1) of the Act.

The CCI approved the finding recorded by the DG that the GSK and Sanofi have acted in contravention of Section 3(3)(d) read with Section 3(1) of the Act and imposed penalty of Rs.604,890,469.998 on GSK and Rs.30,434,200.89 on Sanofi respectively.

Both GSK and Sanofi challenged the order of the CCI imposing penalty before COMPAT. It was contended that GSK did not participate in the tender of August 2011 because the time gap between the opening of tender and supply of the vaccine was very short and it was impossible to import the vaccine from Belgium and then undertake the exercise of putting stickers, testing and packaging. Sanofi argued that GSK did not participate in the first and the second re-tender, the question of collusive bidding or bid rigging is altogether ruled out, more so because no evidence was produced to show that non-participation of GSK in the first and second re-tender was a part of the arrangement made between the Sanofi and GSK

The COMPAT noted that in response to tender notice dated 25.06.2011, GSK had given bid for 1,00,000 doses @ Rs. 3000.90 per 10 doses vial and Sanofi had given bid for supply of 90,000 doses @ Rs.2899/- per 10 doses vial. Both the GSK and Sanofi had given cogent explanation and produced voluminous records to show as to why they had given bids for limited quantity. Sanofi had explained that it did not give bid for the entire quantity because in the previous years, it remained unsuccessful and had to destroy the vaccine by incurring huge losses. GSK had explained that it was not plausible to import vaccine from Belgium, get the same tested at Kasauli, put stickers and do packaging in a short period of 11-12 days in response to the first re-tender and 2-3 days in response to the second re-tender. Notwithstanding this, the DG observed that the appellants had quoted identical quantity at the same price. Further, the bid price of Sanofi was not higher by 39.44% as compared to the last purchase as stated by the DG, but was only higher by 16.14% higher than the previous purchase price and that too was as a result of general increase in the price.

Consequently, the COMPAT held that the finding recorded by the CCI that the GSK and Sanofi are guilty of collusive conduct and violated Section 3(3) (d) read with Section 3(1) of the Act was legally unsustainable and the impugned order is liable to be set-aside in toto. (Source: COMPAT Order dated November 08, 2016. For full text see COMPAT website)

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