COMPAT set asides penalty imposed on Lupin and its office bearers

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COMPAT vide order dated December 07, 2016 while setting aside the order dated July 28, 2016 of CCI has quashed the penalty of Rs 73 Crores imposed on Lupin Ltd. (“Lupin”) and its two officials for alleged anticompetitive agreement between Lupin and the Karnataka Chemists and Druggists Association (KCDA) for refusal to supply drugs to the respondent No. 2 i. e. M/s Maruti & Co., Bangalore as it did not have no-objection certificate from KCDA.

Setting aside the CCI order COMPAT noted that “Joint DG and the Commission committed a jurisdictional error” by returning a finding that Lupin had acted in violation of certain provisions of the Competition Act”. The conclusion drawn  by “the Joint DG, which has been approved by the Commission, that Lupin has acted in violation of Section 3(1) read with Section 3(3)(b) is “ex-facie erroneous”. This Section cannot be invoked because “there is not a shred of evidence direct or circumstantial to show that the appellants and respondent no. 3 (KCDA) were engaged in identical or similar trade of goods or provisions of services”. The Jt. DG did not collect any evidence from other distributors and/or consumers to show that there was shortage of the medicines for which order was placed by Respondent No. 2 on 24.08.2013 and that due to this the consumers had suffered. In the absence of any evidence, neither the Jt. DG nor the Commission could have recorded a finding that the failure of Appellant Nos. 1 and 2 to supply of medicines to Respondent No. 2 in response to the order placed on 24.08.2013 had (caused) appreciable adverse effect on competition and that too without taking into consideration the factors enumerated in Section 19(3) of the Act”.

The present case was filed by M/s Maruti & Co., before the CCI alleging that KCDA restrained pharmaceutical companies from  appointing  new  stockiest  in  the  State  of  Karnataka  unless  a  No  Objection  Certificate (‘NOC’) is obtained from it. It was alleged that Lupin refused to supply drugs to M/s Maruti & Co. on account of not having obtained NOC from KCDA. CCI after investigation by DG, concluded that KCDA was indulging in the anti-competitive practice of mandating NOC prior to the appointment of new stockists by pharmaceutical companies. On the issue of the penalty, COMPAT observed that CCI had imposed the penalty by taking into consideration the average of the total turnover of Lupin for the preceding three financial years ignoring the fact that Lupin is a multi-product company.  COMPAT further, noted that “deliberate suppression of material facts by respondent no 2 coupled with the lack of objectivity in the conduct of investigation has resulted in unwarranted harassment to the appellants who have become victims of rivalry between different factions of respondent no 3.  The original order of CCI dated July 28, 2016 was reported in a detail coverage by this News Bulletin in its August 2015 issue and can be read at: http://competitionlawyer.in/wp-content/uploads/2015/10/CLB-37.pdf

(Source: COMPAT Order dated December 07, 2016. For full text see COMPAT website)

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