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CCI finds Alkem and Macleods limiting supplies to stockists under duress of Bengal Chemists Associations and district associations
By way of order dated 12.03.2020, the Competition Commission of India (“CCI/Commission”) in three separate cases , has found the Bengal Chemist and Druggist Association (BCDA) , and its District Committees/units of Murshidabad and Burdwan, along with two pharmaceutical companies viz. Alkem Laboratories Ltd (“Alkem”) and Macleods pharmaceuticals Ltd (“Macleods”), limiting supplies to new stockists in contravention of Section 3 of the Competition Act, 2002 (“the Act”) by mandating the stockists to obtain ‘’necessary clearance’ in the form of Product Availability Information (“PAI”) and Stock Availability Information (“SAI”)/”No Objection Certificate” from BCDA and its District units.
Background and Allegations
Case 36/2015
The information before the CCI was filed by the proprietor of M/s Suman Distributors ,Murshidabad against (i) the District secretary of Murshidabad District Committee of Bengal Chemists and Druggist Association; (ii) Organising secretary of MDC (iii) Committee of Bengal Chemists and Druggists Association and Secretary of Nowda Zone Committee; (iv) Treasurer of Murshidabad District Committee of Bengal Chemists and Druggists Association and Secretary of Nabagram Zone Committee; (v) Vice-President of Nowda Zone Committee; (vi) President of Nowda Zone Committee and (vii) BCDA alleging the malpractice of mandating PAI and SAI. It was alleged that for the issuance of PAI and SAI, heavy amounts were charged by the office bearers of Nabagram Zone Committee of Murshidabad District Committee of BCDA. It was further stated in the information that BCDA was a silent supporter of such anti-competitive practices of PAI and SAI being adopted by the various identified office-bearers of Murshidabad District Committee and Nowda Zone Committee in the District of Murshidabad, thereby limiting and controlling the supply of drugs and pharmaceutical products in the market of Murshidabad.
Case 31/2016
The Branch secretary of Pharmaceuticals Traders Welfare Association of Bengal (‘PTAB’) filed the information before the CCI alleging that even after the Offer Letter for Stockistship (“OLS”) was issued to M/s Siddheshwari Medical Hall (“Siddheshwari”) , Alkem Laboratories Ltd (“Alkem”) did not make supplies to it and insisted Siddheshwari to obtain a No Objection Certificate (“NOC”) or SAI from BCDA under the garb of imposing the condition that M/s Siddheshwari Medical Hall needs to ‘get clearance from the required authorities’ for grant of stockistship of Alkem.
It was alleged that Alkem, BCDA and the Burdwan District Committee of BCDA had an arrangement amongst themselves to not supply essential drugs to any licensee without prior endorsement and direction from BCDA and resultantly restricted/controlled the supply and distribution of lifesaving drugs in the West Bengal market, particularly in the District of Burdwan.
Case 58/2016
Information was filed by the proprietor of M/s Maa Tara Medical Agency, Murshidabad (“Maa Tara”) alleging that when Maa Tara was granted OLS by Macleods Pharmaceuticals Ltd (“Macleods”), it was asked to procure SAI/PAI from BCDA. It was further stated that Maa Tara was denied the SAI/PAI by Murshidabad District Committee of BCDA because it had earlier agitated against the same. However, Maa Tara was finally able to procure the NOC from BCDA and only thereafter was the supply made to it by Macleods.
The Commission after forming a prima facie opinion of contravention in each case directed the Director General (“DG”) to conduct an investigation. The DG submitted a consolidated investigation report to the Commission in all three cases.
DG Investigation
The DG found that BCDA was carrying on the practice of issuing SAI/NOC for the appointment of stockists prior to the appointment by pharma companies. It was also found that BCDA was collecting donations for issuing SAI to prospective stockists under the nomenclature of ‘donation’ or ‘well wishes’ from prospective distributors which were not voluntary in nature and rather was forced upon by BCDA. Some Promotion Cum Distributor (“PCD”) agents admitted before the DG that all PCD agents used to obtain PAI after paying a subscription fee to BCDA and thereafter on the basis of this PAI, the District Committee of BCDA issued a SAI after receiving some amount as donation. As regards Alkem and Macleods, it was found that they only made supplies to the new stockist after BCDA issued a circular stating ‘to enable to publish your appointment as Alkem Laboratories Ltd./ Macleods Pharmaceuticals Ltd. stockiest in the Ousadh-O-Prasadhani/ Journal of BCDA, please deposit a sum of Rs. 100/-as circulation charges.
The DG found that BCDA gave information in its journal declaring the distributor having been appointed as stockist of Alkem and Macleods without any verification from the companies and neither Alkem nor Macleods objected to the same. As per the DG, the only possible reason for BCDA to not verify the factual status of the new stockists before circulation and for Alkem or Macleods to not object to this irregular practice was that both of them were aware that publication in the journal of BCDA was a camouflaged NOC for starting the supplies and this camouflaged practice was to avoid the ire of regulatory bodies such as the Commission. Therefore, the DG concluded that there was an anti-competitive agreement between BCDA on the one hand and Alkem and Macleods on the other hand in the appointment of stockists by Alkem and Macleods on account of which, a dealer was not able to get the supplies of pharmaceutical products as an authorised dealer/ distributor of Alkem or Macleods until an NOC/ SAI was issued by BCDA.
The DG had also issued queries to All India Organisation of Chemists and Druggists (“AIOCD”) on actions taken by it to prevent recurrence of anti-competitive activities post decision of the Commission in the case of Santuka Associates Pvt. Ltd., Cuttak v. AIOCD and Ors,[1] , however no response was received which led to the inference that AIOCD was supporting the anti-competitive activities being indulged in by BCDA and its affiliate committees.
CCI Analysis
BCDA
The Commission observed that the DG had collected numerous SAI letters issued to the prospective stockists of various pharmaceutical companies by BCDA and it was only thereafter that supply of drugs to them commenced from the pharmaceutical companies. When the DG made enquiries from the stockists, they submitted that they had to obtain SAI from BCDA as ‘necessary clearance’ after payment of a ‘donation’. The Commission also considered a telephone transcript submitted by M/s Green Vision of its employee’s conversation with the officials of other pharmaceutical companies including Alembic Pharmaceuticals Ltd. wherein he was asked to submit NOC from BCDA. The Commission also acknowledged the transcripts of telephonic conversation between M/s Maa Tara and General Secretary of BCDA regarding SAI for supplies from Macleods. This conversation was denied by the General Secretary pursuant to which the DG obtained his CDRs and the duration of audio recording submitted and the duration of the call received by the General Secretary was found to be matching. Further, the former office bearers of Murshidabad District Committee of BCDA had also accepted before the DG that when a stockist approached them, the District Executive Committee of Murshidabad made a recommendation to the State Committee, and based on the same, BCDA issued a Circulation Letter (SAI) in favour of the stockist.
On consideration of the above-mentioned evidences, the Commission concluded that BCDA was indulging in the practice of requiring prospective stockists to obtain SAI/NOC before supply of drugs could be commenced by the pharmaceutical companies and certain district Committees of BCDA such as Murshidabad District Committee collected monetary considerations in the form of donations from prospective stockists before recommending their name to BCDA.
Another allegation with respect to BCDA was that it charged illegal donations from the PCD agents of pharma companies for issuance of PAI. The Commission observed that in the information it was alleged that the office-bearers of BCDA’s Nowda and Nabagram Zone Committee, through the retail chemist threatened to boycott the products of M/s Trumac Healthcare and Alna Biotech Pvt. Ltd. sold by the informant (the PCD agent), unless Rs. 30,000 was paid in the name of approval for such marketing to BCDA. The Commission found that on examination of the bank details of BCDA, it was observed that there were 216 entries of Rs. 30,000 each credited from various distributors. As per the Commission, it was highly unlikely that all these distributors would have given the donations of exact Rs. 30,000 only, voluntarily. Accordingly, CCI concluded that BCDA was also indulging in the anti-competitive practice of charging monetary considerations in the form of ‘voluntary’ donations form the PCD agents of pharma companies for issuance of PAI, for them to start marketing drugs of their respective pharma companies.
Alkem
In order to assess the conduct of Alkem, the DG had summoned two stockists appointed by Alkem namely M/s Subha Medical Agency and M/s Manorama Medical Stores who submitted that Alkem had directed them to obtain SAI in the form of ‘necessary clearance’ from BCDA after making a donation of Rs. 13,000/-. Further, the Commission also took note of a letter issued by Alkem to the BCDA seeking approval for appointment of a new stock point in the District of Murshidabad. Further, from the testimony of the former office bearers of Murshidabad District Committee of BCDA have categorically accepted before the DG, it was deduced that in order to obtain supplies from Alkem, the stockists had to pay money to the BCDA and obtain SAI from it.
As regards the conduct with respect to Siddheshwari- the informant, the Commission found that OLS was granted to Siddheshwari by Alkem stating that they have to obtain ‘necessary clearance’ from the required authorities. The Commission found that not only in the case of Siddheshwari, but rather in cases of all new stockists appointed in 2014-15, Alkem started its first supply to its new stockists only after BCDA issued the circulation letter to them declaring that they have been appointed as a stockist of Alkem. As per the Commission, the phrase ‘necessary clearance’ in the OLSs issued by Alkem meant NOC from BCDA. The CCI also noted that BCDA obtained no verification from Alkem regarding appointment of such stockists before issuing such circulation letters to them.
The Commission concluded that Alkem, after issuing OLS to prospective stockists, in agreement with BCDA, was indulging in the practice of demanding SAI/ NOC/ Approval Letter/ Circulation Letter from BCDA before commencing supplies and was in contravention of Section 3(1) of the Act. The Commission while holding Alkem in contravention of Section 3(1) of the Act observed that Section 3 (1) is the main provision and can be applied independently of Section 3 (3) or Section 3 (4) of the Act. It prohibits all kinds of ‘anti-competitive agreements’ and is not limited to or exhausted by Section 3 (3) or Section 3 (4) of the Act.(Para 21.16)
Macleods
The Commission found that at the time of issuing OLS to Maa Tara, Macleod had asked it to ‘fulfil the formalities’ which included obtaining NOC/SAI from BCDA. It was found that in order to obtain the SAI, Maa Tara had contacted the General Secretary of BCDA and after procurement of SAI, Maa Tara informed the same to Shri Pradipta Dhar and Shri Subrata Sadhukan of of Macleods via telephone. The Commission found that Shri Subrata Sadhukan had sent Shri Liton Das/ Liton Saha to collect the documents, including SAI, from Maa Tara who, in lieu of collecting the documents gave him a checklist in which item no. 4 was “NOC from the association”.
The Commission further found that it was not only with respect to Maa Tara but also with many other new stockists appointed in 2014-15 in various Districts that Macleods started its first supply to its new stockists only when BCDA issued the circulation letter to them declaring that they have been appointed as a stockist of Macleods. The Commission was of the opinion that this revealed that the phrase ‘fulfil the formalities’ in the OLSs issued by Macleods meant SAI from BCDA. Further, it was found that that BCDA did not obtain any verification from Macleods regarding appointment of such stockists before issuing circulation letters to them and Macleods did not raise any objections. Macleods had argued that while NOC/ SAI may have been submitted by a few stockists to it before commencement of supplies to them, it had appointed a very large number of stockists in the State of West Bengal without them having any NOC/ SAI. The Commission, however, held that a few instances of demanding SAI/ NOC by Macleods by themselves, are sufficient to conclude that Macleods was engaging in such practice. The Commission found that Macleods was indulging in the practice of demanding SAI/ NOC/ Approval Letter/ Circulation Letter from BCDA before commencing supplies. It was submitted on behalf of Macleods that these acts were carried out by junior employees without authorisation from the company. However, the CCI held that it was highly unlikely that junior employees may have carried on such practice of demanding NOC/ SAI for almost a year, without knowledge of the company. The Commission also noted that the DG also collected evidence in the form of numerous instances wherein BCDA had issued SAI letters to the prospective stockists of various pharmaceutical companies, such as Alembic Pharmaceutical Ltd,. Allergan Pharmaceutical Pvt Ltd., Blue Cross Pvt Ltd. Etc. and it was only thereafter that supply of drugs to them commenced from the pharmaceutical companies.
Order
The Commission found BCDA, the district committees of Murshidabad and Burdwan, their officers, Alkem and Macleods in contravention of Section 3 of the Act.
Surprisingly, only a cease and desist order was passed and no penalty was imposed on any party. The Commission observed that BCDA had taken several steps in the direction of ending the practice of requiring NOC/ SAI post the decision of the Commission in Santuka Associates Pvt. Ltd. v. AIOCD and Others[2]. As regards Alkem and Macleods, the Commisison acknowledged the submission that they were indulging in the impugned conduct under threat/duress/ directions from BCDA and decided not to impose any monetary penalty.
Comment: This order is in series of several such orders passed by CCI against the State and District levels of Chemists & Druggists trade associations and reveals a new form of taking the No objection certificate by the trade associations and how some pharmaceutical companies still succumb to their pressures before commencing to supply medicines to the new stockists . It seems that this practice refuses to die in the pharmaceutical sector but only changes its nomenclature. This also shows the loosening of grip of the All India Organization of Chemists & Druggists (AIOCD) on its State Units since the AIOCD in several instances have committed to have stopped this practice of obtaining NOC.
Incidentally, this practice is included in the very first issue titled Role of Intermediaries in the Drug Price Build up included in Policy Note on Healthcare Sector [3]issued by the Commission in October 2018 ,wherein the Commission categorically admits that “self-regulation by trade associations also contributes towards high margins as these trade associations controls the entire drug distribution system in a manner that mutes competition”.
You may like to see the video of the full scale Webinar on Impact of Competition Law on Pharmaceutical & Healthcare Sectors in India the above Policy Note conducted by me along with two General Counsels of a leading pharmaceutical company and a leading hospital and healthcare chain in India .
M[1] Case No. 20 of 2011 decided on 19.02.2013
[2] 2013 Comp.L.R. 223 (CCI)
[3] Policy Note titled “Making Markets Work for Affordable Healthcare” published by CCI in October 2018.
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