Varca Druggist CO120055COM699171

MANU/CO/0060/2012
Equivalent Citation: 2012CompLR838(CCI)
IN THE COMPETITION COMMISSION OF INDIA

NEW DELHI
MRTP Case No. C-127/2009/DGIR (4/28)
Decided On: 11.06.2012
Appellants: Varca Druggist & Chemist & Others
Vs.
Respondent: Chemists & Druggists Association, Goa
Hon'ble Judges/Coram:
Ashok Chawla, (Chairperson), H.C. Gupta, Anurag Goel and M.L. Tayal, Members
Case Note:
Jurisdiction - Subject matter - SectionÂ 66(6) of the Competition Act, 2002
- Whether the allegations against the Opposite Party were in the nature of
Restrictive Trade Practices and Competition Commission of India had the
power and authority to investigate into the same after the repeal of MRTP
Act, 1969? Held, as on filing of the complaint the DGIR, MRTPC undertook
the preliminary investigation which was still pending when the MRTP Act,
1969 was repealed and investigation had not culminated into a "case", the
matter was rightly transferred to the Competition Commission by the DGIR,
MRTPC invoking the provisions of SectionÂ 66(6) of the Act as the
allegations involved in the complaint were related to restrictive trade
practices of CDAG. Even a plain reading of SectionÂ 66(6) of the Act clearly
demonstrated that on receiving the matters where investigation was
pending, the Commission may order for conduct of the investigation in the
manner as it deems fit. As the complaint filed before the DGIR, MRTPC was
still at the stage of preliminary investigation no right, liability, privilege or
obligation could be said to have been accrued to any party and, therefore,
the provisions of SectionÂ 66(1A) or 66(10) were are not applicable in the
present situation. Furthermore, the Commission has not been conferred any
power to adjudicate any matter invoking the provisions of repealed MRTP
Act. This premise becomes clear when the provisions of SectionÂ 66(6) are
contrasted with the provisions of SectionÂ 66(3) of the Act. Whereas the
Competition Appellate Tribunal has been specifically conferred power to
adjudicate cases pertaining to monopolistic and restrictive trade practices
pending before MRTP Commission in accordance with the provisions of
repealed MRTP Act under SectionÂ 66(3) of the Act, no such power has
been given to the Commission under SectionÂ 66(6) of the Act. In the
backdrop of the provisions of the Act as analysed above, it was held that
there is no illegality in entertaining and examining the present case under
the Competition Act, 2002 in which the investigation was pending before
the DGIR, MRTPC before the MRTP Act was repealed. Further, even in cases
where the alleged anti-competitive conduct was started before coming into
force of SectionÂ 3 and 4, the Commission has the jurisdiction to look into
such conduct if it continues even after the enforcement of relevant
provisions of the Act which was found in the present case. Again, as
regards supplementary investigation by the DG, the Act has not placed any
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fetter on the power of the Commission to conduct further investigation or
further inquiry. It was also pointed out that RegulationÂ 20(6) of the
Competition Commission of India (General) Regulations, 2009 specifically
empowers the Commission to direct the DG to conduct further investigation
even after the DG has submitted his report. Further no procedural
irregularity was committed by the DG while conducting supplementary
investigation. Enterprise - Determination thereof - SectionÂ 2(h) of the
Competition Act, 2002 - Whether the CDAG, being an association of
chemists and druggists in the state of Goa was covered under the category
of entities enumerated in SectionÂ 3(3) of theÂ Act? Held, CDAG, registered
under the Societies Registration Act, 1860 and the constituent members of
CDAG, stockists and retailers of pharmaceutical companies who were
engaged in the supply of pharma products to the consumers fell squarely
within the definition of "enterprise" provided in the Act. There was no
denying the fact that CDAG was an association of enterprises whose
constituent members were engaged in identical or similar trade of goods.
The MoU, rules, regulations and guidelines were reflective of the collective
intent of the constituent members based upon which the CDAG took
decisions and members in turn gave effect to the decisions by acting upon
them. The CDAG and members had common interests in trade, which join
together to further their commercial objectives. It was therefore, held that
since CDAG is taking decisions relating to distribution and supply of pharma
products on behalf of the members, the practices carried on, or decisions
taken by CDAG as association of enterprises were covered within the scope
of SectionÂ 3(3). Anti-competitive agreement - SectionÂ 3(3)(b) of the
Competition Act, 2002 - Whether the conduct and practices of CDAG were
limiting and controlling the supply in violation of SectionÂ 3(3)(b) of the
Act? Held, the cumulative effect of practice like compulsory membership of
the Association for anyone entering into the drug market, obtaining NOC
and giving fees for introduction of any new product by any pharmaceutical
company and appointment of new stockist and further imposing penalties
on violation of guidelines clearly established that Chemist and Druggist
Association of Goa (CDAG) was engaged in the practice of eventually
restricting the number of players in the market and in turn also limiting or
controlling supply and availability of drugs. If the practice of NOC was done
away with, there would be more supply of drugs in the market and
consequently more availability of the drugs to the consumers. The
guidelines and practice of issuing NOC for appointment of a new or an
additional stockist in a particular territory eventually restricted the number
of players in the market and in turn also limits or controlled supply of
drugs. Had there been no compulsion on the pharmaceutical companies to
seek PIS approval before introducing the drugs in any territory and they
were allowed to opt for mechanism of PIS for information dissemination
voluntarily it may not have possibly given rise to any anti-competitive
practice. But in the present matter the aforesaid conduct of CDGA followed
by imposition of penalties on firms which did not follow the dictates of
association established that the practices and conduct of CDAG were
limiting and controlling the supply of drugs in the state of Goa in violation
of provisions of SectionÂ 3(3)(b) of the Act. Fixing sale price -
SectionÂ 3(3)(a) of the Competition Act, 2002 - Whether the Opposite
Party could be held liable for fixing the sale price thus violating
SectionÂ 3(3)(a) of the Act? Held, the norms and guidelines of the

Association which prescribe the margins for wholesalers and retailers, were
not only fixing margins, but also have the effect of indirectly determining
the sale price of drugs. The margins of drugs for wholesalers and retailers
were determined by the Association at the time of giving PIS approval for
introduction of drugs in a particular territory. Under the system of PIS
approvals, the CDAG took an amount of Rs.Â 500 per drug per category from
drug manufacturing companies for introduction/marketing of drugs in a
particular territory. CDAG held sway over the supply of drugs in the territory
of Goa. Furthermore, the conduct and practices of CDAG emanating from the
guidelines and MoU of the Association definitely amounted to indirectly
fixing the sale prices of pharmaceutical drugs in violation of the provisions
of SectionÂ 3(3)(a) of the Act. In such a situation, when efforts were being
made to ensure supply of drugs to the common man at a cheaper rate, the
restrictive guidelines of Chemists and Druggists Association work as
stumbling block and did not appear to be in line with the government plans
to provide medicines to common man at an affordable rate. Anti-
competitive behavior - SectionÂ 3 of the Competition Act, 2002 - Whether
the members of Executive Committee of CDAG were also liable for violation
of SectionÂ 3 of the Act? Held, under the scheme of the Act in case of
association of enterprises, called trade associations in common parlance,
comprising of members which are themselves enterprises, the constituent
enterprises of association may be held liable for contravention of
SectionÂ 3 of the Act arising from an agreement or concerted practice
between them. Further, the anti-competitive decision or practice of the
association can be attributed to the members who are responsible for
running the affairs of the association and actively participated in giving
effect to the anti-competitive decision or practice of the association. In
case the contravention of any of the provisions of this Act is made by a
company, SectionÂ 48 of the Act specifically provides for the individual
liability of the persons, in addition to the liability of the company, who
were in charge of and were responsible for the conduct of the business of
the company at the time when the contravention was committed. The
Explanation to SectionÂ 48 further provides that for the purposes of this
section, company includes a firm or other association of individuals.
Therefore, the members of the Executive Committee of CDAG who were
responsible for anti-competitive conduct of CDAG were also held liable, in
addition to CDAG, for contravention of SectionÂ 3(3)(a) and 3(3)(b) ofÂ the
Act. R. Prasad (Dissenting) Anti-competitive behavior - Applicability of the
provision - SectionÂ 3 of the Competition Act, 2002 - Whether SectionÂ 3
was applicable in case of the CDAG, being an association of chemists and
druggists in the state of Goa? Held, the agreement envisaged in SectionÂ 3
is not an agreement to form an association but an agreement which creates
an appreciable adverse on competition. Therefore, the fact that the
association was formed with the idea of gaining economic power and
creating an adverse effect on competition was not acceptable. Further, as
the association in this case was a person, it could not enter into an
agreement with oneself or take a decision unilaterally or unilaterally have
practices so as to be hit by the provisions of SectionÂ 3 of the Act. For
SectionÂ 3, there has got to be more than one person. As in this case there
was only one person, as sanctioned by law under SectionÂ 2(1) of the Act,
SectionÂ 3 had no application. Price-fixing - SectionÂ 3(3)(a) of the
Competition Act, 2002 - Whether fixing of trade margins for stockists and

distributors, wholesalers and the retailers amounted to fixing of prices in
accordance with SectionÂ 3(3)(a) of the Act? Held, the margin is the source
of revenue to the wholesalers and the retailers. Without this systems of
discounts and rebates called the margin money, the retail chain cannot
survive. This system cannot be regarded as fixing of prices. In this
particular case, the margins fixed at 20Â perÂ cent and 10Â perÂ cent for
wholesellers and retailers were not unreasonable and was in line with the
similar practices followed in other trades in the market. The margins fixed
were in line with the margins fixed by the DPCO order though in the case of
non-scheduled drugs the margins were fixed in accordance with
agreements entered into by AIOCD, the IDMA and the OPPI. But in any case
there was no doubt that margins fixed for the wholesalers and the retailers
resulted in fixing the prices of drugs indirectly. But this fixation of prices
was done by the manufacturers and not the association CDAG. Therefore
CDAG could not be held responsible for fixing the prices. Further applying
the rule of reason fixing the prices by taking into account the margins did
not amount to fixation of prices under the Competition Act. The issue which
was important was the directive issued by CDAG that the wholesaler would
not give discount of more than 2Â perÂ cent to the retailer and that the
retailers would not give any discount to the consumer otherwise they were
liable to fee fined by the association. This was a restriction on freedom to
do business and was an anti-consumer behaviour. Competition arises when
two entities compete with each other on the basis of prices to get more
competitors. If each competitor is made to sell at the same price then there
would be no competition in the market. Thus, by making the retailer not to
pass on the discount to the consumer it limited the market for a retailer.
Further by not allowing a wholesaler or a retailer to give discount to a
buyer, as it was a restriction on the freedom of trades, it also amounted to
putting unfair conditions in the purchase or sale of goods. Thus, these
activities of the association were anti-competitive in accordance with the
provisions of theÂ Act. Restriction on supply and availability - SectionÂ 3(3)
(b) of the Competition Act,Â 2002 - Whether insistence on P.I.S. payments
restricted the supply and availability of drugs and thus anti-competitive?
Held, it was not clear as to how a small sum of Rs.Â 500 taken from a
wholesaler at the time of introduction of a new drug was anti-competitive.
It was also not clear as to how the charge of P.I.S. lead to a restriction and
supply of medicines in the market. It is on the basis of D.P.C.O. directive
that at the time of introduction of a new drug information has to be given
to the retailer and the consumer. The information to be furnished involves
cost and if this cost, which is nominal, has to be paid by a wholesaler, it
does not lead to restriction of supply. Therefore the levy of PIS did not
restrict the market and was held not to be anti-competitive. Denial of
market access - SectionÂ 3(3)(b) of the Competition Act, 2002 - Whether
the condition that no person who was not a member of the CDAG could do
business as a retailer or wholesaler, resulted in denial of market access and
thus anti-competitive?. Held, the behavior of following different policy
when the stockist/wholesaler was not a CDAG member, in which a retailer
asked the retailers to take a credit of three of fourÂ months, was
discriminatory. Where CDAG had limited the market to just five stockists, it
was also a restriction on the freedom to carry on business. Further, by
limiting the number of stockist, competition had been reduced and the
availability of medicines would accordingly reduced. No material has been

submitted to show that there was a sale of spurious target and the system
of NOC helped in eliminating such sellers of spurious drugs from the
market. In fact the main aim was to restrict the number of wholesalers and
stockists so as to ensure that there were lesser number of players in the
market so that each stockist would have a larger share of the pie. By the
action of CDAG the market was limited and there was a denial of market
access to many persons. The denial of market access to persons to sell
medicines in the State of Goa was an infringement of the freedom of trade
and lesser consumer satisfaction because the availability of the
drugsÂ decreases. Determination of dominance - SectionÂ 19(4) of the
Competition Act, 2002 - Whether CDAG enjoyed a dominant position in the
relevant market? Held, the position of dominance arose due to the
formation of a product association for the State of Goa as well as the MoUs
entered into by AIOCD with OPPI and IDMA. Due to this collective strength
of association CDAG was able to operate independently of competitive
forces primarily because no competitive force was prevailing in the State of
Goa. The object of the association was to regulate the trade of the sale of
medicines in the State of Goa. Thus the association was able to affect its
consumers in the relevant market in its favour. As far as a market share of
the association, the size and resources of the association, size and
importance of the competitors, economic power of the enterprise, vertical
integration of the enterprise, countervailing buying power, market
structure and the size of the market was concerned, were the factors which
cannot be seen or examined in this case of the association. But the
consumers were depending on the decisions of the association and the
dominant position had been acquired due to the collective bargaining power
which the association is acquired for forming the association. Therefore
under ClauseÂ (g) of SectionÂ 19(4) the dominance had been acquired
under the item "otherwise". No relative advantage acquired in terms of
economic development by informing the association or by regulating the
trade of medicines in the State of Goa. But as medicines were important for
human life, social obligations and social costs were necessary. Therefore
clause (f) (g), (h), (k) and (I) of SectionÂ 19(4) were applicable. Abuse of
dominance - Determination thereof - SectionÂ 4 of the Competition
Act,Â 2002 - Whether the Opposite Party abused it position of dominance in
the relevant market? Held, the behaviour of CDAG was discriminatory as far
as the conditions of purchase and sale of goods which was medicines in this
case. Therefore, the provisions of SectionÂ 4(2)(a)(i) were attracted. The
action of CDAG also limited and restricted the market of medicines in Goa
as there was restriction to the entry of stockists and wholesalers in the
State of Goa. Therefore, the provisions of SectionÂ 4(2)(b)(i) were clearly
attracted. The practice followed by CDAG also results in denial of market
access as no one could enter the market without no objection certificate
from the association. Therefore CDAG had contravened SectionÂ 4(2)(c) of
the Act. Dr. Geeta Gouri (Dissenting) Anti-competitive behaviour - Section
3(3)(b) of the Competition Act, 2002 - Whether the requirement of no-
objection certificate (NOC) from CDAG before the appointment of
stockists/distributors in Goa lead to limiting supply in the market, in
contravention of SectionÂ 3(3)(b) of the Act? Held, agreeing with the main
order, that detailed examination of the facts and evidences brought on
record made it clear that the Guidelines enforced by the association
emanated from the various vertical agreements and MoUs entered into

between AIOCD, IDMA and OPPI. CDAG and all other state associations
were enforcing such agreements in their respective states. While this
certainly did not preclude the liability of CDAG in this specific case, at the
same time it warranted an in depth inquiry into the role and function of the
parent associations (AIOCD, IDMA, OPPI) who have been setting the terms
of business between the players at the various levels of the supply chain
over theÂ years. The attention in this case was on the allegations levelled
against CDAG and therefore the practices of CDAG were the focal point of
investigation in the majority order. However, the culpability of the parent
associations could not be overruled. In order to clearly bring out the facts,
separate investigation on the role of the parent associations AIOCD, OPPI
and IDMA needed to be initiated to analyse the nexus and application of
the provisions ofÂ theÂ Act. Anti-competitive behaviour - Price fixation -
Section 3(3)(a) of the Competition Act, 2002 - Whether fixing of trade
margins for stockists/wholesalers and retailers amounted to violation of
SectionÂ 3(3)(a) of the Act? Held, the margins were largely in line with the
margins regulated by NPPA for scheduled drugs. It was important to note
that the margins are allowed as a percentage of MRP, but determination of
MRP is vested with the manufacturing company, and not the Association.
Also, in any product where MRP is to be indicated, the margins for the
intermediate players are considered by the manufacturer and these are
largely based on industry practices and do not fluctuate much over a period
of time. Even in this case, the margins for scheduled drugs were same since
1995. Thus, it was stated that margin fixation was more a question of
distribution of total margin among the intermediaries rather than a
question of retail price fixation. This could also have been looked into for
being anti-competitive, had the same not been in line with the NPPA
prescribed margins. Under the circumstances, the margin fixation seemed
to work in the direction of achieving the price control over non-scheduled
drugs on the same lines as the scheduled drugs. From the perspective of the
end consumer, it was noted that in India, NPPA regulates the pricing of
scheduled drugs and monitors the pricing of non-scheduled drugs, which
protects the end consumer from any adverse effect (if any) of margin
fixation in the industry. Thus, it was concluded that while margin fixation
in case of product such as drugs and pharmaceuticals, had the merit of
introducing transparency and stability in the industry operations, the
adverse impact on prices and end consumer remained inconclusive. On that
note, it was held that margin fixation had not produced any anti-
competitive effect on the consumer. There was no appreciable adverse
effect on competition and no perceived consumer harm. Anti-competitive
conduct - SectionÂ 3 of the Competition Act, 2002 - Whether capping of
cash discount at 2Â perÂ cent by wholesaler to retailer and non-allowance
of any discount by retailer to end consumer resulted into anti-competitive
conduct of the Opposite Party-Association? Held, it was important to note
that the association guidelines provides for Cash Discount and not trade
discount. The purpose of cash discount was to encourage quicker
realisation and the said guideline was applicable to all retailers who pay
within stipulated time. Cash discounts were aimed to facilitate quicker
conversions of receivables to cash so as to reduce the overall length of the
operating cycle. The quantum of cash discount to be allowed by a market
player was based on the opportunity cost of funds. Allowance or non-
allowance or capping of cash discount, however, did not raise competition

concerns. Further, there was uniform application and no discrimination
could also be alleged. The restriction however, of the association in not
permitting retailers to extend discounts to consumers was anti-competitive
as it interfered in the freedom of trade and devoid consumers, the benefits
of lower prices. Restriction on supply and availability - SectionÂ 3(3)(b) of
the Competition Act,Â 2002 - Whether insistence on P.I.S. payments
restricted the supply and availability of drugs and thus anti-competitive?
Held, PIS as the name suggested is the Public Information System and
plays a very important role lending transparency to wholesalers, retailers
and patients on the constituents of different drugs. The DPCO directives
require the drug companies to give information about the new drugs to the
wholesalers, retailers and consumers. Based on the available facts and
evidences, it was not imminently clear as to how the PIS system by itself
restricted the supply of drugs or created entry barrier or PIS Charges lead to
price fixing. In view of the possibility that such service may be deemed
beneficial and a cost-effective way of disseminating information by the
manufacturers, a conclusion on the effect of PIS could not be arrived at
without a complete analysis of the merits and demerits of the system and
the manufacturers' perspective on the same. The evaluation of the possible
rationale for having such a system in place assumed all the more
importance given that the practice had evolved and had been standardised
through a process of mutual understanding between the drug
manufacturers and the distributors' associations. On the basis of available
facts, it was an efficient system for information dissemination made
available at a nominal cost charged by the Association(s). The negligible
cost was immaterial to the eventual cost and price of the product, and the
efficiencies of the information were clearly more than proportionate to the
restrictions it imposed. The system of PIS was indispensable to the pharma
industry. Therefore, this system could not be faulted for price fixation or for
restriction of supply and hence could not be termed as anti-competitive as
per provisions of the Act. S.N. Dhingra (Dissenting) Anti-competitive
agreements - Cartelisation - SectionÂ 3 of the Competition Act, 2002 -
Whether there existed a cartel formation amongst the CDAG and it
constituent members? Held, various decisions and guidelines showed that
the OP in this had practically taken the shape of a cartel. The guidelines
issued by CDAG that no company could appoint stockist without obtaining
LOC or no stockist would be allowed to be appointed unless the previous
stockist had reached a certain minimum turnover, or unless he is made
stockist for all the divisions, were in the nature of limiting the provisions of
service. The decision regarding number of stockists to be appointed in a
particular territory was taken by pharma companies based on demand for
drugs. Any restriction on such matters collectively imposed or mandated by
an association of competitors not only infringed on the freedom of trade as
guaranteed by Constitution of India but also erected barrier to competition.
The conduct of the OP in terms of imposition of restriction on appointment
of stockists was anti-competitive. The restrictive guidelines and norms
implemented by the association, seen in conjunction with the action taken
for non-compliance, established that the conduct of the CDAG amounted to
limiting the number of players and controlling the supply of drugs in the
state of Goa and therefore, contravened SectionÂ 3(3)(b) of the
Competition Act, 2002. The guidelines issued by CDAG and for which
penalties are imposed by CDAG limit the provision of service of supply of

drugs to the retailers as well as to the consumers. CDAG has fixed trade
margins, fixed the prices of all drugs for the consumer as MRP and fixed the
discounts in case of non-scheduled drug which also resulted into fixing the
prices. No discounts by wholesalers resulted in no price competition in the
sale of drugs between the wholesalers. They did not give discount to the
consumer because all of them joined hands and formed a cartel. This
cartelisation had taken place because all the members subscribed to the
decisions of the Association that they would abide by the guidelines issued
by the Association in respect of retail and wholesale discounts. This case
clearly showed that there was a cartel of the members of the Association in
the relevant market of supply/distribution of drugs in order to kill the
competition among the retailers, among the wholesalers and among the
stockists. CDAG as an association of enterprises was held to be violating
SectionÂ 3(3)(a) & (b) by issuing various guidelines and enforcing them
and the members of the Association were guilty of forming a cartel for
determining the sale price of the drugs at MRP with no discounts to
customer.
ORDER
1. BACKGROUND
1.1 This case was initiated on a complaint filed by Varca Druggist & Chemist through
its proprietor Mr. Hemant Pai Angle and two other proprietors of pharmaceutical
drugs and medicines firms (hereinafter referred to as "Informants"), before the
Director General (Investigation & Registrations), Monopolies & Restrictive Trade
Practices Commission (hereinafter referred to as "DGIR, MRTPC") alleging that the
Opposite Party, namely, Chemist & Druggist Association, Goa (hereinafter referred to
as "CDAG" or "Association") is indulging into restrictive trade practices.
1.2 The Informants have claimed that they are members of CDAG which has been
formed by chemists, druggists, distributors, stockists and retailers of various
pharmaceutical companies in Goa.
1.3 The allegations made by the Informants in the complaint / information are
summarized as below:
(i) CDAG has formed various guidelines, which its members are bound to
abide. The said guidelines were formed by the members of the CDAG for the
benefit of its members so that the business of stocking, whole-selling and
retailing could be smoothly facilitated among its members. However over a
period of time due to the unfair practices of some of the members of its
Executive Committee, CDAG has become a monopolistic body and has started
practicing certain restrictive trade practices.
(ii) As per the normal practices, whenever a new pharmaceutical company
establishes its industry in Goa, or is interested in distributing its products in
Goa, it has to appoint stockist and wholesalers for the various regions as per
its requirements. These stockist/wholesalers then sell these medicines to the
retailers who possess a drug license. However, as per the CDAG guidelines,
the CDAG has not only directed but also forced all such companies to appoint
their stockist and wholesalers only from those individuals and firms, who are
members of the CDAG, thus, making it very clear that no person or firm who
is not a member of the CDAG is eligible for being appointed as the stockist

or wholesaler of such a company.
(iii) Furthermore, even when such a company wishes to appoint stockist and
retailers from the members of the CDAG, it is insisted and directed that no
such stockist or wholesaler could be appointed unless they receive a 'No
Objection Certificate' from the CDAG.
(iv) The company desirous to appoint a third wholesaler or stockist has to
fulfill the conditions placed by the CDAG that the sale of the previous
stockists has to be above Rs. 2 lakh per month. The conditions further go on
to restrict the company from appointing the 4th stockist till the sale exceeds
Rs. 4 lakh per month. Similarly, only if the average sale crosses Rs. 6 lakh
per month then the company can apply to the CDAG for appointment of their
5th stockist.
(v) The guidelines laid down by CDAG do not permit appointing more than
five stockists by any pharmaceutical company.
(vi) A committee has been formed by CDAG which has recommended huge
increase in the above mentioned slabs without taking retailers into
confidence. The retailers and the wholesalers together form this association.
The slab of appointment of stockist now starts from Rs. 6 lakh and ends at
Rs. 40 lakh for a 5th stockist which totally extinguishes the chances of small
wholesalers who could get a offer letter of a particular company to be its
stockist as the CDAG bars any new appointment even though the company
feels the need.
(vii) The company is restricted to appoint another stockist for one year after
it appoints a stockist, even if the company feels the need.
(viii) It has also been the practice of the CDAG that even in cases where the
2 stockists have to be appointed, 'No Objection' by the CDAG is given only
for one stockist, and the reason for such an action cannot be questioned by
any member of the CDAG or the pharmaceutical company. But earlier, two
stockists, who were on their good books, have been appointed.
(ix) As per the market trends in the pharmaceutical business, the
pharmaceutical companies introduce schemes for retailers. However, some
financially powerful stockist-members of the CDAG who are also on the
executive council refuse to pass on the benefits of the schemes to their
retailers.
(x) It is also a settled practice in the pharmaceutical business that if a
particular batch of drugs or medicines has crossed its expiry date, then such
drugs are to be returned by the retailer to the stockist who in turn returns it
to the respective company and can claim refund. However such refund is
never passed on to the retailers. Some stockists also overcharge the retailers
when such products are supplied to the retailer and the retailer has no forum
to complain against such a stockist as they are appointed by the company on
recommendations of CDAG, and even if the company desires to take action, it
cannot do so, because in that case they shall not have any stockist to
distribute their products, unless the CDAG gives 'No Objection' to appoint a
new stockist.

(xi) Even a new individual or firm which possesses all the qualifications and
means for being appointed as stockist, distributor or a wholesaler can't be
appointed by any company, although there may be dire need for appointing
such a new stockist, unless and until such a firm or a wholesaler obtains a
no objection from the CDAG. Further such an individual or firm has to
become a member of the CDAG, first.
(xii) When any firm or individual wishes to bid for any government tenders,
then the CDAG directs that such tenders are to be routed only through the
'authorized stockist', and such 'authorized stockist' are the members of
CDAG, who control the affairs of the CDAG being financially powerful and
influencing the executive council.
(xiii) The companies are threatened with punitive actions by the office
bearers and therefore, reluctantly the company has to follow the directions of
the committee in fear of boycott and the small wholesalers who want to
participate in the government tenders are illegally barred from doing so.
(xiv) The members who are wholesalers and who are qualified to quote and
bid for the government tenders are threatened of dire consequences if they
do not route the supply from the 'authorised stockist'. The companies are
also threatened of dire consequences if they do not follow the guidelines of
CDAG.
(xv) It is also a common practice of the CDAG to force and compel any new
entrant who wishes to carry out business of stockist, distributor or retailer of
any pharmaceutical product to become its member. If such a new entrant
refuses to become a member, then the CDAG directs all its members not to
purchase stocks from such a stockist and if he is a retailer then not to supply
him with stocks of other companies. Similarly if a company wishes to appoint
a new or a additional stockist then they cannot do so without the 'consent' of
the CDAG, which is against the fundamental rights as enshrined in Article
19(1)(g) of The Constitution of India.
(xvi) The CDAG also directs that no credit be given to retailer although as
per the market practice, a credit of 20 days to one month is normally given
to settle all dues. However, if a company appoints a stockist without the
consent of the CDAG, then the CDAG directs the existing stockist of such a
company to give credit of 3-4 months to retailers so that the retailers do not
purchase stocks from the new stockist and also directs its existing stockist
who are members of the CDAG not to purchase stocks from such a company
so that eventually the company bows down to the demands of the CDAG. So
also if the company wishes to supply its stocks directly to a retailer, then in
such a case they are directed by the CDAG not to do so and demand that all
stocks should be routed through the stockists who are members of CDAG.
(xvii) CDAG's governing body i.e. its Executive Committee, comprises of one
President, four Vice Presidents, one Chairman of wholesalers, one Chairman
of retailers and seven Members and take arbitrary decisions and force its
views on all its members as well as non-members. The Executive Committee
consists of some very financially influential persons who are themselves
stockist of various companies and are therefore not allowing companies to
appoint new or additional stockist for fear of losing their business so much

so that they have even tried to amend the association guidelines so that new
companies cannot appoint new stockist. No new stockist has been appointed
by any company, without NOC, for the last nine years in Goa as the CDAG
does not give its 'No Objection'.
(xviii) Some of the wholesalers are harassed by the Association to relinquish
the stockist ship of a particular company, because some of the members of
the Executive Committee were interested to grab the company of that
particular stockist.
(xix) The retailers are harassed by such stockist by unnecessarily making
them stand in queues, demanding immediate payment, non refund on
products that have crossed expiry dates, non supply of stock even when such
stock is in surplus, non-passing of schemes to such retailers, even when the
company has floated various schemes. As some of the stockists enjoy
position of monopoly, the retailers are at their wits end.
(xx) At the time of the Annual General Meeting (AGM), most of the members
are not intimated, only those members are intimated about the date and time
of meeting who are in good books with the executive council members of the
CDAG. This is done with the ulterior motive of remaining in power and for
the fear of being voted out by majority of the members. In case members
wish to make certain suggestions, which are contrary to the opinion of the
members of the executive committee of the CDAG, then the committee
unlawfully adjourns the meeting and the next date of meeting is never
communicated to such members.
1.4 The Informants prayed for following reliefs :
(i) After conducting inquiry into the working of CDAG and looking into
guidelines issued by it, the current executive council be debarred from taking
any decisions with respect to any amendment of CDAG guidelines and also
that the provisions in the guidelines which restrict the companies to appoint
the number of stockists should be scrapped.
(ii) CDAG should be barred from interfering in the free bidding and supply of
goods by the wholesaler to the Government.
1.5 After receiving the complaint, the DGIR, MRTPC undertook a preliminary
investigation into the allegations made in the complaint and sought the comments
from CDAG. -
1.6 The CDAG submitted its objections on 05.10.2009 before DGIR, MRTPC denying
the allegations made in the complaint and submitted that guidelines issued by CDAG
did not amount to monopolistic and restrictive trade practice. It was also submitted
by CDAG that the pharmaceutical companies are at liberty to appoint as many
stockists and dealers of their choice as they wish and CDAG is not placing any
restriction on appointment of stockists or retailers.
At this stage, consequent upon the repeal of Monopolies and Restrictive Trade
Practices Act, 1969 (the MRTP Act) the case was transferred to the Competition
Commission of India (the Commission) under section 66(6) of the Competition Act,
2002 (the Act).
2. The Commission, after considering the material on record formed an opinion that a

2. The Commission, after considering the material on record formed an opinion that a
prima facie case existed and referred the matter to the Director General (DG) for
conducting investigation. In pursuance of the direction of the Commission the DG
conducted investigation and submitted the investigation report on 16.06.2010.
3 . During the course of investigation the DG gathered facts out of primary and
secondary sources, collected evidences by sending questionnaire to the concerned
parties including information providers, analyzed the evidence/facts gathered in light
of the information supplied to the Commission and recorded the statements of
information providers as well as members of CDAG.
Findings of DG Report
4. The observations and the findings in the DG Report can be summarised as under:
4.1. As per the report of DG, from the examination of various clauses of the
guidelines of CDAG it is undisputed that unless the CDAG grants NOC, pharmaceutical
companies cannot appoint a wholesaler/stockist on its own. Further, it is also
stipulated that in order to become a wholesaler or a retailer in Goa, one has to
become a member of the association. These conditions, in effect, limit the supply of
pharma products in the territory of Goa. The DG in this regard has observed that had
it not been for the guidelines, the pharma companies could have appointed more
wholesalers and there would have been more retailers leading to more supplies in the
market. By restricting the numbers of wholesalers and retailers, the association has
restricted the supply of medicines in the market of Goa.
4.2. After examining the conditions prescribed in the guidelines the DG has noted
that no wholesaler is a allowed to take stockistship of any company without taking
permission of the association. Similarly, wholesalers can supply to retailers only if
retailers are the members of the association. Thus, there has been understanding
among the stockist not to allow other players come in the market and compete
against them. Further, as per Memorandum of Understanding, maximum cash
discount offered to retailers should be 2% only and wholesalers should not operate
any indirect beneficiary schemes to get larger orders from Retailers. As per
guidelines, any wholesaler found violating the above rules will be liable to strict
action by CDAG on the recommendation of the disciplinary committee appointed for
the purpose. The guidelines also state that retailers should not resort to any
unhealthy competition by giving discount to their customers and should not operate
any beneficiary schemes to attract the customers and retailers found violating the
above rules will be liable to strict action taken by CDAG on the recommendation of
the Disciplinary Committee appointed for the purpose.
4.3. The DG has observed that the guidelines of the association and understanding
among the wholesalers and retailer are anti-competitive since they are acting in
concert to fix prices in terms of Section 3(3)(a) of the Act by not allowing the
wholesalers and retailers to give discounts or extend any beneficiary schemes to the
customers. Instead of the market forces determining the price of the drugs, ban has
been imposed on lowering prices or offering incentives. The DG has quoted the
statement of Albert De Sa, President of CDAG confirming that association in its
meetings does discuss issues related to price margins etc.
4.4. Further, as per DG, the guidelines are also in violation of Section 3(3)(b) of the
Act, since by not allowing any outsider (who is not a member of association) to
become stockist or retailer restriction has been placed on the number of players,

thereby, limiting the supply of drugs in the market. More players would mean more
availability of the drugs in the market and consequently more provisions of goods
and services.
4.5. DG has noted that the members of CDAG are meeting during Annual General
Meetings and Executive body meetings on regular basis. Apart from the discussion on
the topics of common interest of members, certain issues have also been discussed
which show that the Chemists and Druggists Association of Goa hold regular
meetings with a view to regulating the conduct and behaviour of members and
discipline them. From the excerpts of the meetings, it was also noted that direct
supplies from the pharma companies to the hospitals or retailers were severely
discouraged. Unity of wholesalers and retailers for a common cause was also
discussed in several of these meetings. The minutes also show that without the
express approval of the Association, pharma companies cannot engage wholesalers
and retailers.
4.6. The DG has come to the conclusion that actions of Association have no positive
market outcomes and its conduct and actions, on the contrary, are against public
interest. The report goes on to show that three factors listed in Section 19(3) which
could have been advanced as justification for their actions as being pro-competitive
and consumer friendly, namely, (I) accrual of benefits to consumers, (II)
improvements in production or distribution of goods or provision of services and III)
promotion of technical, scientific and economic development by means of production
or distribution of goods or provision of services, do not offer any kind of defence to
them. The DG has also cited the ratio laid down in the cases of Consten Grundif v.
Commission (1966) ECR 299, GlaxoSmithKline Services Limited V. Commission
[2006] ECRII-2969(2006), wherein it has been held that the benefits produced by an
agreement must be something of objective value to the Community as a whole, not a
private benefit to the parties themselves. Thus, according to the report of DG there is
a case against the CDAG to say that their guidelines, rules and regulations coupled
with their actions contribute to appreciable adverse effect on competition (AAEC) in
the market of pharmaceuticals.
5. Are members of CDAG acting like Cartels?
5.1 The DG has further investigated the aspect as to whether the activities of
CDAG/members of CDAG were akin to cartel within the meaning of Section 3(3) of
the Act. The DG in this regard observed that it is undeniable that the trade or
professional associations in modern times benefit their members and may also be
beneficial in increasing the efficiency of the market. Most trade associations take an
active role in shaping the way their industries work. They promote product standards
and best practices, and define and promote standard terms and conditions of sale.
They also issue recommendations to their members on a variety of commercial and
noncommercial issues and also promote, represent and protect the interest of
members on legislation, regulations, taxation and policy matters likely to affect them.
According to OECD, "although their principal function is to provide services to their
members, trade associations also have important "industrial policy" and "political
functions". However, the trade or professional associations have to limit their
activities in such a manner that they do not run afoul of the competition law. Often
discussions of such associations, even if they are meant to pursue legitimate
association objectives, bring together direct competitors and provide them with
opportunities for exchange of views on the market, which could easily spill over into
illegal coordination. Casual discussions of prices, quantities and future business

strategies can lead to agreements or informal understandings in clear violation of
antitrust rules. Frequently businesses use trade associations as a means of providing
"cover" for their cartel activities. It is for this reason that trade associations and their
activities are subject to close scrutiny by competition authorities around the world.
5.2 DG has further observed that the trade associations often have been found to
serve as a vehicle for practices that prohibit competition in the market as has been
seen in cases of some cartels like lysine cartels where activities were carried out
under the garb of associations. The competition agencies across the world have
frowned upon trade associations for their direct or indirect involvement in conduct
which harm or restrain competition. Office of Fair Trade (UK) has been of the view
that functions of trade associations are useful to members - especially, perhaps, to
smaller firms - and they may also be beneficial in increasing the efficiency of the
market system as a whole. Activities of trade associations which have no appreciable
adverse effect on competition may be of no concern. A trade association may,
however, provide directly or indirectly the vehicle for anti-competitive, or even
collusive activity. When associations act as a conduit for the organization of
concerted actions by its members - for example by making recommendations as to
the prices at which its members sell their goods or services or by giving a call of
collective boycott -both the constituent members and the trade association itself may
face condemnation under Article 81 of EC or Section 1 of Sherman Act.
5.3 Many associations including law and attorney firms, worldwide, have issued
guidelines for the associations so that their behaviour is compatible with the anti-
trust laws. It has been recognized that activities of trade associations such as general
assemblies and meetings can be a forum for concentration between the members.
Such concentration does not necessarily have to be related to the subjects that are
formally on the agenda of the association. As members of the association will usually
also be the competitors, information concerning the meetings of the association
might be considered as an indication or proof that the intention to restrict
competition or restrictive practices exists amongst certain members.
5.4 The organization cost of a cartel is significantly lowered where a trade
association exists. Trade associations, by lowering the cost of meetings and
coordinating activities among firms in a market, facilitate the establishment and
enforcement of a cartel.
5.5 Here, on this aspect the DG has observed that the wholesalers and retailers used
CDAG as platform and issued guidelines/directives which restrict the supply of
medicines in the market. It is significant that many powerful wholesalers are retailers
as well and such wholesalers could have their own interest in creating such type of
guidelines so that others may not get entry in the market of pharmaceuticals in Goa.
On the basis of the guidelines issued by CDAG, following activities of wholesalers
and retailers carried out through CDAG, as per the DG may be taken as cartel-like:
i) Guidelines/Directives issued to the members by the association to obtain
no-objection certificate to get stockist ship of any pharma company.
ii) Organizing meetings to pursue their agenda.
iii) Talking about pricing margins in the meetings as has been confirmed in
the statement of Mr. Albert De Sa.
iv) Taking collective actions in terms of deciding issues of trade, prices,

discounts and also awarding punishment to the violators.
v) Denying business unless one becomes member of CDAG and agrees with
the terms and conditions of the association.
5.6 The DG in his report emphasized that looking at the nature of activities of the
wholesalers and retailers who are the members of CDAG (engaged in similar or
identical trade), it can be stated that they reached an agreement amongst themselves
and decided to restrict the market of pharmaceutical products by limiting it amongst
themselves. As per DG, following factors which have been identified in general as
factors for existence of cartels, facilitated the cartel like behaviour of the wholesalers
and retailers:
i) Barriers to entry have been put by CDAG by coming out with the guidelines
which state that till one becomes member of CDAG, he or she will not get
no-objection to get stockist ship from any pharma company in case of a
wholesaler or supply from any wholesaler in case of a retailer. This is clear
from the following clauses in guidelines/MoU:
"POLICY TO MAKE SUPPLIES TO NEW RETAIL OUTLETS
Following conditions apply to new Retailers outlets for a period of
minimum one year.
a) SUPPLY: No supply to be made to any Retailer by any wholesaler
unless such Retailer becomes member of CDAG" (Clause 8 of MoU)."
"Appointment / Termination of new stockiest shall only be done with the
permission of the Association."(Clause 1 of Prescription Guidelines)
ii) The pharma companies could have appointed more wholesalers and there
could have been more number of retailers but for the existing guidelines. Not
only members but companies also are liable for punishment as per the
guidelines of Association, if wholesalers and retailers are appointed without
seeking permission from the Association. The companies are also barred
from direct supplies to the doctors, nursing homes, chemists. (Clause 7
under the heading General-Prescription Guidelines). CDAG is, thus,
controlling the market of medicines.
iii) The cartel like behaviour of wholesalers-retailers was facilitated by the
existence of associations and interaction of the wholesalers-retailers in those
associations. The members of CDAG are united together and exhibit
collective action.
iv) Since the wholesalers and retailers are all concentrated in small state of
Goa, Geographical advantage of being present at a small concentrated area
also helped the wholesalers-retailers to organize and act together.
v) The guidelines of association contain clauses which try to discipline the
violators, an act quite typical of the Cartels. The clauses contain in clear
terms the penal clauses in terms of monetary fines in case of violations of
guidelines of association. Clause 7 and clause 9 under the heading procedure
of Prescription Guidelines). Thus, policing of activities of members is being
done typical of all cartels.

vi) Low expectation of severe punishment because of the fact that MRTPC
(which was in existence earlier) did not have powers of penalizing the firms
for anti-competitive behaviour also facilitated the cartel like behaviour.
5.7 Collusion among independent firms in the same industry to co-ordinate pricing,
production or marketing practices in order to limit competition, maximise market
power and affect market prices has been referred to as a "cartel". (Canadian Economy
online, available at
htttp://www.canadianeconomy.gc.ca/english/economy/cartel.html). The most
common practice undertaken by cartels is price-fixing. This is the term generically
applied to a wide variety of concerted actions taken by competitors, which have a
direct effect on price. The simplest form is an agreement on the price or prices to be
charged to some or all customers. In addition to simple agreements on what price to
charge, the following are also considered price-fixing:
• Agreement on price increase.
• Agreement on a standard formula, according to which prices will be
computed;
• Agreement to maintain a fixed ratio between the prices of competing but
non-identical products;
• Agreement to eliminate discounts or to establish uniform discounts
including agreement on credit terms that will be extended to customers;
• Agreement to remove products offered at low prices from the market so as
to limit supply and keep prices high;
• Agreement not to reduce prices without notifying other cartel members
including agreement to adhere to the published prices;
• Agreement not to sell unless agreed price terms are met; and agreement to
use a uniform price as starting point for negotiations.
5.8 As per the report of DG, it can be seen from the clauses contained in the
guidelines of CDAG that discounts are being severely discouraged. Restrictions have
been imposed on the members not to pass on beneficiary schemes to the consumers.
Further, as has been admitted by Mr. Albert De Sa in his statement, in meetings of
association, issues of pricing, price margins are discussed. DG has mentioned that
the following clauses in MoU clearly bring out agreements to eliminate discounts or
to establish uniform discounts including agreement on credit terms that will be
extended to customers:
"1. Purchase and Payment (Clause 1 of MoU)
a) All Wholesalers should make cash bills of minimum Rs. 100/- However the
minimum amount for credit bills is at the discretion of the Wholesalers.
b) It is agreed that maximum cash discount offered to Retailers should be
2% only. The minimum purchase by Retailers for eligibility of cash discount
is to be decided by the concerned Wholesaler.
c) No other indirect discount should be given such as selling to Retailers and
Doctors without LST / giving free offer either in excess to the trade offer

officially operated by the company or giving free other products where no
trade offer is operated by the company. Any such things will be considered
as indirect discount.
d) Wholesaler should not operate any indirect beneficiary schemes to get
larger orders from Retailer.
e) Any wholesaler found violating the above rules will be liable to strict
action taken by CDAG on the recommendation of the disciplinary committee
appointed for the purpose.
) For first violation a fine Rs. 2500/- will be imposed beside warning letter
will be written to the Wholesaler.
) For second violation a fine of Rs. 5000/- will be imposed and also
executive committee will not issue any NOC to such a wholesaler for a period
of 1 year for being appointed as a stockiest any company.
f) Retailers should not resort to any unhealthy competition by giving discount
to their customers and should not operate any beneficiary schemes to attract
the customers.
g) Any Retailers found violating the above rules will be liable to strict action
taken by CDAG on the recommendation of the Disciplinary Committee
will be written to the concerned Retailer.
) For second violation a fine of Rs. 5000/- will be imposed and all
Wholesaler will boycott such retailer for a period of 3 months."
5.9 DG has observed that since cartels operate in secrecy, they go up to great
lengths to hide their activities. Using trade associations as a cover usually means
using an umbrella protection to avoid arousing any suspicion. Based upon guidelines
discussed above and the activities of the bodies like CDAG, DG concluded that these
association exhibited cartel like behaviour.
5.10 The DG has concluded that the facts brought out during the investigation are
indicative that the guidelines of CDAG are restrictive and anticompetitive in nature.
The DG has recommended that apart from considering action against the CDAG for
their anti-competitive conduct, the Commission may also through Department of
Pharmaceuticals, Govt. of India, consider getting directions issued to all such
associations including All India Chemists and Druggists Association to desist from
such practices.
6 . The DG report was considered by the Commission in its meeting held on
29.06.2010 and CDAG was invited to file its comments / objections to the report of
DG.
Reply of CDAG to DG report
7. The CDAG filed its reply dated 13.09.2010 before the Commission and also made
oral submissions on 12.10.2010. The gist of the objections of CDAG is as under:

7.1 The CDAG has contended that the acts alleged in the complaint filed with the
DGIR, MRTPC on 16.06.2009 against CDAG under the MRTP Act, 1969 are for the
period prior to 16th June 2009. Consequent upon the repeal of MRTP Act, the said
case was transferred to the Commission under Section 66(6) of the Competition Act,
2002. In this regard it is pertinent to note that the notice for investigation dated
20.08.2009 sent by the DGIR, MRTPC was replied on 02.10.2009. Thereafter, on
14.10.2009, the Competition Act, 2002 was enforced vide the Competition
(Amendment) Ordinance 2009 (Ordinance 6 of 2009) which also repealed the MRTP
Act, 1969. Thereafter, this Commission took up the matter received by transfer from
the MRTPC under section 66(6) of the Competition Act, 2002 and carried out an
investigation culminating in investigation report dated 15.06.2010. CDAG in this
regard emphasized that the entire evidence taken by the DG while preparing the
report relates to the period prior to 16th June 2009, as the 1st Show Cause Notice
was issued by the DGIR on 20th August 2009 under the provision of the MRTP Act,
1969 and the present proceedings and preceding investigation were pursuant to the
said Notice dated 20th August 2009 only.
7.2 On the above basis the CDAG has argued that the entire investigation and
proceedings including the investigation report are completely without jurisdiction and
ultra vires of the several provision of law and this Commission as well as the DG of
the Commission do not have jurisdiction or any lawful authority in the matter. The
CDAG by quoting the various provisions contained in section 66 of the Competition
Act, 2002, section 6 of the General Clause Act, 1897 (10 of 1897) as well assertion 2
(o), section 2(u) and section 36A of the Monopolies and Restrictive Trade Practice
Act, 1969 has contended that a conjoint reading of these provisions makes it clear
that after the repeal of MRTP Act, 1969 by the Competition Act, 2002 the authorities
under the MRTP Act, 1969 viz. the MRTP Commission as well as the DGIR, MRTPC
ceased to be in existence and the relevant provisions contained in section 66(3) to
66(8)of the Competition Act, 2002 provide for continuance of the investigations and
proceedings pending under the MRTP Act, 1969 before the commencement of the
Competition Act, 2002. As per the averment of CDAG the scheme envisaged for
dealing with matters pending under the repealed MRTP, Act is as follows:
i. Section 66(3) of the Competition Act, 2002 provides that all the cases
pertaining to Monopolistic Trade Practices and Restrictive Trade Practices
pending before the MRTP Commission shall be transferred to the Appellate
Tribunal and shall be adjudicated as per the provisions of the MRTP Act,
1969 as if it had not been repealed.
ii. Likewise, section 66(4) of the Competition Act, 2002 provides that all the
cases pertaining to the Unfair Trade Practices pending before the MRTP
Commission be transferred to the National Commission under the Consumer
Protection Act, 1986 and shall be adjudicated as per the provisions of the
MRTP Act, 1969 as if it had not been repealed.
iii. Furthermore, section 66(6) of the Competition Act, 2002 provides that all
investigations or proceedings, other than those relating to unfair trade
practices, pending before the Director General of Investigation and
Registration on or before the commencement of the Competition Act, 2002
Act shall stand transferred to the Competition Commission of India.
iv. Section 66(7) of the Competition Act, 2002 provides that all
investigations or proceedings relating to Unfair Trade Practices pending

before the Director General of Investigation and Registration on or before the
Commencement of the Competition Act, 2002 shall stand transferred to the
National Commission constituted under the Consumer Protection Act, 1986
and the National Commission may conduct or order for conduct of such
investigation or proceedings in the manner as it deems fit.
7.3 Therefore, as per CDAG, this Commission can exercise jurisdiction only in
investigations or proceedings in matters other than those related to Unfair Trade
Practices which were pending before the DG (I & R)., MRTPC under the MRTP Act,
1969. On the other hand, investigation or proceedings related to the Unfair Trade
Practices are to be handled only by the National Commission under the Consumer
Protection Act, 1986.
7.4 As per the contention advanced by CDAG, section 2(o) of the MRTP Act, 1969 as
cited hereinabove defines "Restrictive Trade Practices and the necessary ingredient
for "Restrictive Trade Practices" is that there should be an imposition of unjustified
cost or restriction on consumers by manipulation as set out in the said section.
Further, section 2(u) of the MRTP Act, 1969 defines Trade Practices and finally
section 36A of the MRTP Act, 1969 defines Unfair Trade Practices. It has been pointed
out that the allegations against CDAG as set out in the complaint of M/s Varca
Druggists and Chemists and others (on which the entire saga has commenced) are
covered under Section 36A(5) of the MRTP Act, 1969. Thus, as per CDAG the
allegations against it are, at the most, in the nature of Unfair Trade Practices and
therefore as provided under Section 66(7) of the Competition Act, 2002 only the
National Commission under the Consumer Protection 'Act, 1986 has the power and
authority to investigate into the same.
7.5 In light of the above submissions, the CDAG has contended that this Commission
has exceeded its jurisdiction and has taken up a matter which it is not entitled nor
empowered to entertain. Therefore, as per CDAG, the order of this Commission
directing the Director General to investigate the matter under section 26(1) of the
Competition Act, 2002 is illegal, unlawful and ultra vires.
7.6 It has been also argued that without prejudice to whatever has been stated
hereinabove, under Section 66(1A) and Section 66(10) of the Competition Act, 2002
as well as under Section 6 of the General Clauses Acts 1897, the repeal of the MRTP
Act, 1969 does not affect its previous operation or anything duly done or suffered
thereunder or any right, privilege, obligation or liability accrued, acquired or incurred
under the MRTP Act, 1969. As per the submission made by CDAG it is expressly
provided in these provisions that any proceedings or remedy can be instituted,
continued or enforced as if the MRTP Act, 1969 had not been repealed.
7.7 It has been submitted that, therefore, any act committed during the currency of
the MRTP Act, 1969 cannot be called in question under the Competition Act, 2002.
Furthermore; it is expressly provided that the provisions of the MRTP Act, 1969 will
alone be applicable to proceedings which have been instituted under the MRTP Act,
1969 "BEFORE" the commencement of the Competition Act, 2002. Thus, even if it is
assumed even for the sake of argument that the present proceedings and
investigation are legally maintainable, the provisions of the Competition Act, 2002
cannot be applied under any circumstances and any prosecution or proceedings can
be undertaken only in accordance with the provisions of the MRTP Act, 1969 as the
entire matter is based on a complaint dated 16.06.2009 viz. before the
commencement of the Competition Act, 2002.

7.8 As per the submission made by CDAG, there is no provision in the Competition
Act, 2002 whereby the said Act has been granted retrospective effect. Therefore
under section 5(3) of the General Clauses Act, the Competition Act can only be
enforced and implemented after 14th October 2009 and not prior to that date. Thus,
CDAG contended that the complaint dated 16.05.2009 received from M/s Varca
Druggist and Chemist shall have to be treated and disposed off only under the
provisions of the MRTP Act, 1969 and not under the Competition Act, 2002 under any
circumstances. The only provisions of the Competition Act, 2002 which may be
employed in the present matter are Sections 66(1A) and 66(7) of the Competition Act
since they provide for continuity of the proceedings / investigations in view of the
immediate disbandment of the MRTP Commission and the DGIR, MRTPC. Therefore,
any penal provisions or violations, if any, shall be solely and exclusively subject to
the provisions of the MRTP Act and not the Competition Act, 2002.
7.9 It has also been submitted by CDAG that the entire evidence recorded and
collected by the DG while preparing report dated 15.06.2010 was for the period prior
to 16th June 2009 when the Competition Act, 2002 was not enforced and the proper
law at the time of the purported commission of the alleged offences was the MRTP
Act, 1969. Therefore, CDAG cannot now be subjected to proceedings or penalized
under the Competition Act, 2002 on evidence which pertains to period prior to the
enforcement of the said Act.
7.10 CDAG has also contended that the DG has submitted report dated 15.06.2010
inter alia finding alleged infringement of the provisions of Competition Act, 2002
whereas in fact, he ought to have restricted himself only to the provisions of the
MRTP Act, 1969 in terms of Section 66(1A), 66(10) of the Competition Act, 2002 and
Section 6 of the General Clauses Act, 1897. On the basis of above submissions the
CDAG has argued that the investigation report of DG, therefore, is violative of and
ultra vires of express provisions of law and is not sustainable.
7.11 Moreover, as per CDAG, since alleged acts were done purportedly in violation of
the MRTP Act, 1969, no action can be taken under the Competition Act, 2002 for the
very same acts. On this ground also the present proceedings deserve to be
dismissed.
7.12 CDAG has also submitted that without prejudice to the above submissions, it
can be seen that the DG has failed to take into consideration provisions of Section
19(3)(d) and (e) of the Competition Act, 2002 which mandate that while determining
whether an agreement has an appreciable adverse effect on competition (AAEC) due
regard to the following factors ought to be given:-
(d) Accrual of benefits to consumers.
(e) Improvements in production or distribution of goods or provision of
services.
7.13 CDAG has submitted that the DG failed to consider the fact that on account of
the actions of CDAG, ultimately the consumers have been benefited and that the
distribution and sale of drugs has been effectively regulated by CDAG in larger public
interests. Therefore, CDAG has committed no infringement of any law much less the
Competition Act, 2002.
7.14 CDAG has also submitted that the complainant M/s Varca Druggist and Chemist
is a disgruntled and mischievous element and is out to harass and trouble CDAG. Mr.

Hemant Angle, the Proprietor of the said Varca Druggist and Chemist was himself the
Vice-President of the Executive Committee of CDAG for the period from 2006-2008
and relinquished his office when he lost the elections. Furthermore, Mr. Angle is
himself Defendant No. 12 in Special Civil Suit No. 36 of 2008 wherein CDAG is also a
Co-Defendant. The documents related to that Civil Case are placed as Exhibit-2 in
Volume II of the investigation report dated 15.06.2010. Therefore, since the
Informant is sailing in the same boat as CDAG, he is not entitled to make such
serious, baseless, false and frivolous allegations against CDAG. It has been further
averred that Mr. Angle is misusing the process of this Commission in order to
pressurize and browbeat the democratically elected office-bearers of CDAG into
abdicating their responsibilities so that Shri. Angle can wrest control of it.
7.15 CDAG has submitted that it is a non profit-oriented Association and is interested
in the welfare of the trade and the consumers at large and is taking an active role in
the trade and is working with the various parties in order to bring about some sense
of responsibility and accountability in the trade within the State. CDAG has prayed
that it should be encouraged in its benevolent efforts rather than be called into
question for its actions which are in the larger interests of the public. Inviting the
attention of the Commission to the mandate set out in the Preamble of the Act, the
CDAG has also submitted that that the Competition Act, 2002 has been enacted in
order to generally protect the interests of the consumers. As per CDAG, it is striving
hard to protect the interests of the consumers and therefore none of its actions can
be said to be violative or contrary to the provisions of the Act. On the contrary, the
objects of the Act as well as those of CDAG are in consonance with each other.
8. On 02.12.2010, the report of the DG dated 16.06.2010 along with entire material
including the submissions made by the CDAG was placed for consideration of the
Commission. After going through the entire material, the Commission opined that in
order to enable it to come to a conclusion, a further inquiry into certain aspects is
required. The Commission, therefore, directed the DG to collect supplementary
information / evidence on the following issues:
(i) Determination of price by cartel: Since DG has considered operation of
CDAG as a cartel, prohibited under section 3 of the Act, it is necessary to
establish the following through reliable evidence on the record;
(a) Material regarding the agreement, practice & decision amongst the
members of the alleged cartel to fix prices.
(b) Material to show that the alleged cartel has actually determined the sale
prices of drugs as required u/s 3(3)(a) of the Act, with requisite data.
(ii) Limits or controls production etc. : Though DG has concluded violation of
Section 3(3)(b) of the Act, it is necessary to get the following evidence for
establishing this finding in terms of the specific provisions of Section 3(3)
(b):
(a) If CDAG has limited or controlled market for Drugs and Pharmaceuticals -
information needed to show that they are actually in a position to do this.
(b) If CDAG, has limited or controlled supply of drugs - there has to be data
to establish at least the actual existence of such limitation on supply, if not
the extent.

(iii) In addition to the above, the DG was also required to fully investigate
and report on the entire structure of the cartel and the active members. As
CDAG is a part of All India Organisation of Chemists and Druggists (AIOCD),
which also operated through various state units engaged in activities similar
to that of CDAG, DG was required to clearly bring out the nexus between
AIOCD and CDAG. DG was also required to give specific evidence about the
members of CDAG, who have participated actively in the operation of the
stated cartel. In addition, DG had to give full financial information necessary
to determine appropriate penalties for AIOCD, CDAG and the active individual
members of CDAG, in case the Commission ultimately comes to a finding of
a violation of provisions of the Act.
9 . In accordance with the directions of the Commission a further investigation was
conducted by the DG and a supplementary investigation report dated 18.03.2011 was
submitted to the Commission.
Findings of supplementary DG report
1 0 . The observations and findings given in the supplementary DG report are
summarized as under:
10.1 Relationship and Nexus between AIOCD and Chemist and Druggist
Association, Goa
10.1.1 It has been noted by the DG that AIOCD (All India Organisation of
Chemists and Druggists) is an apex body of wholesalers and retailers of
pharmaceuticals at All India Level and below AIOCD, there are associations
of wholesalers and retailers at the state level in the States. These state
associations are affiliated to AIOCD. Further, there are associations at the
district level also, which are affiliated to state level associations. DG has
further noted that CDAG was registered under the Societies Registration Act,
1860 in the year 1967 and is a state level association of Goa. It is ultimately
affiliated to AIOCD. This fact was confirmed in the statement of Hemant Pai
Angle, member of Chemist & Druggist Association, Goa recorded on
28.02.2011 and also corroborated by the Informant Mr. Mario Vaz, of Xcel
Healthcare, Bardez, Goa, in his statement separately recorded on
28.02.2011.
10.1.2 From the web-site of AIOCD, it has been gathered by DG that AIOCD
has been operating at National Level, while there are associations further
down at state and district level, which are ultimately affiliated to AIOCD.
10.1.3 The Commission while seeking supplementary report had also called
for financial details of CDAG, AIOCD and active members of CDAG. The DG
has observed that although in the instant case AIOCD was not named as
respondents the information and the information was filed against CDAG,
however, the financial information in respect of AIOCD was obtained for the
year ending 31.03.2006 and 31.03.2007. The financials details of
executive/main committee members of CDAG who are tasked with the
functioning of CDAG were called for but were not submitted during the
investigation.
10.1.4 A copy of Annual Report of CDAG showing its comparative financial
details for 2008-09 and 2009-10 along with copies of accounts of AIOCD has

also been enclosed as Exhibit - 2 to the supplementary investigation report
by the DG.
10.1.5 In course of investigation, it has been gathered by the DG that AIOCD
has entered into MoU with Organisation of Pharmaceutical Producers of India
(OPPA) and Indian Drug Manufacturers Association (IDMA) in 1982,
prescribing certain guidelines and norms regarding margins at the level of
wholesalers and retailers. Among others, guidelines and norms for
appointment of new and additional stockists have also been prescribed. No
pharma drug company can conduct business with wholesalers and retailers,
unless it follows the guidelines and norms of AIOCD, which have been
formulated by the members of AIOCD - a body of wholesalers and retailers
together. The guidelines and norms show the collective intent of the
members of AIOCD. The guidelines/norms of MoU are revised from time to
time.
10.1.6 The supplementary DG report brought out as to how the guidelines of
AIOCD, which are being followed by State/District Level associations like
Chemists and Druggists Association of Goa (CDAG), limit and control
supplies of drugs and number of wholesalers/stockists in the market and fix
margins for wholesalers and retailers which ultimately has the effect of
determination of sale price of drugs in the market. AIOCD is in position to
control the affairs of State/District Level Associations and these associations
cannot deviate from the guidelines/norms of AIOCD. If pharma companies do
not follow the norms/guidelines of associations, their normal business
operations get hampered. In case members of associations at National, State
or District Level, do not follow the guidelines and norms, they are boycotted
and even penalized.
10.1.7 The DG has noted that common factor of all these Associations, as is
evident from the statements of persons recorded, is that all of these are
following norms/guidelines which are restrictive and anticompetitive in
nature. This has come out in the statement of Shri Hemant Pai Angle,
member of CDAG and statement to similar effect has been given by Mr. Mario
Vazalso.
10.1.8 As per DG, if any wholesaler or retailer wants to transact business
with the members of CDAG, it has to compulsorily follow the norms and
guidelines of association. Further, pharma companies are also obliged to
follow the norms of associations, otherwise they would also face problems in
selling their products in a particular territory.
10.2 Issue of limit or control of supply
10.2.1. As per DG, CDAG being a state level association and affiliated to
AIOCD follows the guidelines/norms prescribed by AIOCD. These guidelines
are found to be restrictive and anti-competitive in nature since they
ultimately have the effect of controlling and limiting supply of drugs in the
market. The restriction is imposed on two counts; one, no pharma company
can introduce a pharma drug in a territory, unless it pays certain amount to
the association in name of PIS (Product Information Service) purportedly for
the purposes of advertisement and second, before appointment of any new
stockist or additional stockist, the association grants no-objection in name of

NOC/LOC (Letter of Cooperation). If the association does not grant NOC, no
new or additional stockist can be appointed. Following excerpts from
compilation of all the Memorandum of Understanding (MoU) and Agreement
executed between AIOCD-IDMA-OPPI from 1982 till date (Circulated on
12.05.2009 reveal this position:
1. Stockist Policy:
(i) Appointment of Stockist:
The company will appoint stockist only in consultation with State/District
association and as per the guidelines laid down by State Association. Such
appointed stockist will work for the area for which they are appointed.
Wherever there is only one stockist of the company in the district, the second
stockist can be appointed in consultation with state/district association,
however the second stockist should be a bonafide member of the association.
Company will not appoint any additional stockist for any new division formed
or created, it will be given to the any existing stockist of the company.
(ii) Discontinuation of stockist:
a) a regular defaulter in payment
b) dealing in spurious medicines
c) not keeping adequate stock or is not serving the market properly
or not submitting regular stock and sales statement
In such circumstances company will approach State/District association with
proper documentation and written application. State/District Association will
consider the request of the company, then looking into the facts of the
application will try to resolve the issue. If they wish to consider the request
of the company then State/District can allow additional or replacement of the
stockist to the company as per the set norms of State/District association."
10.2.2. Further, as regards additional stockist also, guidelines have been prescribed
to the effect that additional stockist can be appointed only with the concurrence of
associations.
"VII. Additional Stockists Appointment (beyond two):
(a) Additional Stockists may be appointed, subject to State Association's
concurrence, provided there is substantial increase in sales, which the
existing stockists are unable to cope with. There will be no LOC/LOT fee for
such additional stockist's appointments.
(b) The State Association will decide within 30 days from the date of new
stockists request to the Association, Internal uniform guidelines will be
formulated by AIOCD for State Associations to facilitate expeditious disposal
of stockist's applications.
10.2.3. As per DG, without getting NOC from the association, stockists cannot get
supplies from pharmaceutical companies in order to sell their products in the market.
If the dictates of the association are not followed, then call of boycott is given by the
association and the stockists not following the dictates of the association are also

penalized. Along with grant of NOC for appointment of stockists/additional stockists,
the association has also adopted the practice of approving introduction of drugs in a
particular territory in name of Product Information Service (PIS) and taking money
for the same. This practice is also found to be anti-competitive and restrictive. The
modus operandi followed in respect of PIS is that a drug company has to get drugs
approved for their launch in a particular territory by the associations. The association
(CDAG) charge Rs. 500 per drug before it can be launched in a particular territory.
Moreover, amount of Rs. 500 is not only charged per drug, but also, per category of
that drug. For example if a drug comes under different categories- say, 1 gm, 50 gm,
500 gm pack, for each such category of that drug, the drug manufacturing companies
will have to pay Rs. 500. Thus, the association (CDAG) not only restricts number of
players, but also restricts introduction of new drugs in the market. The relevant
portion of MoU of AIOCD on PIS is as under:
II. Product Information Service (PIS)
(a) If no PIS Bulletin was published or circulated regularly, no PIS charges
would be payable. PIS Bulletin information will cover the information as per
From V of DPCO.
(b) PIS charges would be payable only on State-wise basis, except in
Maharashtra, where the present District-wise system would continue until
March 2004. Thereafter, Maharashtra would also implement PIS system on
State-wise basis.
(c) For the purpose of PIS charges, States would be classified under A & B
categories as per Schedule 'A' attached hereto.
(d) Subject to above, with effect from 1st October 2003, PIS would be
payable as follows:
'A' Category States - Rs. 2000/- per entry in PIS Bulletin.
'B' Category States - Rs. 500/- per entry in PIS Bulletin.
Note: 'Entry' means product brand/dosage from/strength for which PIS
charges will be paid.
(e) No PIS charges are payable for additional pack sizes, additional flavours
and/or price revisions. As such, entries will be published free in PIS
Bulletins.
(f) All registered SSI units with their own marketing set-up and having
annual turnover of up to Rs. 25 crores (calculated at Company Prices) as
certified by IDMA/OPPI on balance sheet basis, will be eligible for 50%
concessional PIS charges.
10.2.4. The DG has quoted the guidelines formulated by CDAG for
appointment/termination of stockist which were found to be restrictive in nature. The
DG has cited the clauses of Memorandum of Understanding of CDAG to show that in
case guidelines/MoU are not followed, members would be boycotted and penalties
would be imposed on the defaulting firms.
10.2.5. The DG after examining the minutes of meeting of CDGA and has come out
with the conclusion that the Association is limiting and controlling the supply of

drugs. According to DG the minutes of the meeting of association bring out the fact
that the CDGA controls the supply of drugs by way of PIS since unless the PIS is
paid, drugs cannot be introduced in Goa. Further, the issue of appointment of
stockist is also decided by the association.
10.2.6. The DG has noted that according to Memorandum of Understanding (MoU)
between Retailers & Wholesalers dated 15/3/2004, no wholesaler is allowed to
directly sell the products to the customers and any wholesaler found violating the
above rules will be liable to strict action taken by the Association on the
recommendation of the Disciplinary Committee appointed for the Purpose. As per the
clauses stipulated therein a fine of Rs. 2500/- will be imposed for first violation
besides warning letter to be issued to the concerned wholesaler. Further, for second
violation a fine of Rs. 5000/- is stipulated to be imposed and additionally executive
committee will not issue any LOC to such a wholesaler for a period of 1 year for
being appointed as stockiest of any company.
10.2.7. The DG has stated that the letters written by CDAG to the Pharmaceutical
Companies confirmed that the guidelines issued by CDAG were actually enforced. The
DG has referred letter dated 10.01.2009 addressed to M/s Eris Life Sciences Pvt. Ltd.,
Ahmadabad to show that without NOC of the association, companies cannot appoint
stockist. In the said letter the association (CDAG) has intimated the company that as
per guidelines it was mandatory for a new company to appoint two stockists. Since
the company had not followed the guidelines, the NOC was withdrawn. Similarly the
letter dated 8.9.2007 to M/s. Emcure Pharmaceutical Ltd., Pune revealed that the NOC
from the association (CDAG) is required for appointment of additional stockist.
10.2.8. As per DG report the letter dated 8.9.2008 addressed to M/s Micro
Laboratories Limited also revealed the fact that companies can supply only through
stockiest appointed by the association (CDAG) as per guidelines. The DG has come to
the conclusion that the evidence gathered during investigation establish that the
associations- AIOCD, and Chemist and Druggist Association of Goa (CDAG) are
engaged in the practice of;
a) Issuing NOC for appointment of a new or an additional stockist in a
particular territory which eventually restricts the number of players in the
market and in turn also limits or controls supply of drugs;
b) Insisting for PIS approval for introduction of drugs in a particular territory
and taking money for that which eventually restricts the supply and
availability of drugs;
c) Imposing penalties in case the firms do not follow the norms prescribed
by the associations.
10.2.9. DG has stated that if the practice of NOC is done away with, there would be
more supply of drugs in the market and consequently more availability of the drug
for the common man.
10.2.10. Thus, DG has concluded that CDAG through guidelines and actual conduct
is able to limit supply of drugs and number of players in market, since without NOC
of the Association, no person/enterprise can be appointed as wholesaler and stockiest
at Goa. Further, if product NOC in form of PIS approval is not given, companies will
not be in a position to supply drugs. The guidelines and practice of issuing NOC for
appointment of a new or an additional stockist in a particular territory eventually

restricts the number of players in the market and in turn also limits or control supply
of drugs. The system of PIS approval for introduction of drugs in a particular territory
and taking money for that also restricts the supply and availability of drugs. These
followed by imposition of penalties on firms which do not follow the dictates of
association establish that the practices and conduct of CDAG are restrictive and anti-
competitive.
11. Issue of determination of price
11.1 As per the report of DG, besides exercising their control over the number of
stockists and products as discussed above, the Association (s) are also involved in
the issue of fixation of margins and ultimately determination of sale price of drugs as
far as non-controlled drugs are concerned. The DG has noted that there are broadly
two categories of drugs under Drug Price Control Orders (DPCO) for the purpose of
price fixation/revision and monitoring. These are scheduled drugs (drugs under price
control) and non-scheduled drugs which are out of price control. It has been stated
by DG that in the category of non-scheduled drugs the trade associations are
determining the margins -which generally is 20% for retailers and 10% for
wholesalers. The report has further relied on the statement made by Shri Hemant Pai
Angle, member of Chemist & Druggist Association Goa recorded during the course of
investigation wherein he has explained the mechanism of determining the trade
margins for non scheduled drugs as per the norms fixed in the guidelines of the
Association.
11.2 As an evidence that trade margins are decided by the association(s) at the time
of giving PIS approval, Mario Vaz, the information provider submitted before the DG
copies of approvals of Product Information Service (PIS) given by Chemist & Druggist
Association (placed as Exhibit-10 of supplementary report).The DG has stated that
the circular of CDAG dated 25.05.2009 also established that trade margins are fixed
as per guidelines of Association. The DG has concluded that norms of margin fixed
by the association ultimately have the effect of determination of sales price of drug
for the end consumer.
11.3 It has been noted by DG that at the time when PIS approval is given by the
CDAG for launch of drugs in a particular area, margins for wholesalers and retailers
are fixed. The DG has mentioned the instances where margins of some drugs to
stockists and retailers were determined and approved under the system of Product
Information Service.
11.4 The DG has also noted that apart from fixing margins on drugs, the CDAG also
determines the amount of discount to be extended by wholesalers and retailers that
has the impact of ultimate determination of price of drugs. In this regard, circulars of
CDAG dated 16.08.2005 and 11.06.2009 have been cited by DG.
11.5 From the evidence furnished in course of proceedings in form of PIS approvals
and statements of persons recorded in course of proceedings, the DG has concluded
that the norms and guidelines of the Association which prescribe the margins for
wholesalers and retailers, not only has the effect of fixing margins, but also has the
effect of determining the sales price of drugs. The margins of drugs for wholesalers
and retailers are determined by the association(s) at the time of giving PIS approval
for introduction of drugs in a particular territory. The DG has stated that MoU and
guidelines of CDAG posted on their website also reveal that margins are determined
by the Association. Under the system of PIS approvals, the CDAG takes an amount of

Rs. 500 per drug per category from drug manufacturing companies for
introduction/marketing of drugs in a particular territory.
12. Whether practices of CDAG are restrictive and anti-competitive
12.1 On the basis of evidence gathered during investigation the DG has come to the
conclusion that the practices of CDAG are anti-competitive and restrictive in nature
since they not only tend to control and limit the supplies of drugs in the market, but
also, fix the margins for the wholesalers and retailers, ultimately determining the sale
price of drugs in the market. It has also been observed by the DG that if the practice
of NOC is done away with, there could be more supply of drugs in the market and
consequently more availability of the drugs for the common man. The DG has also
noted that as per guidelines, a disciplinary committee has been constituted to
discipline the members. This shows that the association exercises complete control
over its members and in case of any violation of guidelines, the members are also
punished.
12.2 The DG has concluded that the practices of CDAG are anti competitive to the
extent that margins are fixed for wholesalers and retailers, prices are determined,
and the supplies are restricted in the market.
13. Role and involvement of members of CDAG
13.1 As regards the question as to who are the members of CDAG responsible for
anti-competitive practices, the DG has concluded that it is the executive/main
committee of association which takes decisions on behalf of association. Such
members are - Albert De Sa, Mahesh Naik, Akhtar Shah, Santosh Fondekar,
Venkatesh Prabhu Desai, BM Prabhu Desai, Datta Ram M. Mopkar, Lyndon D' Silva,
Amit Kamt, Sudesh Molio, Rajesh Colvalkar, Livio Vaz, Rajaram Gawas. Further, Mr.
Hemant Pai Angle and Mario Vaz in their statements have also named persons, who
according to them, are actively involved in the anti-competitive practices.
13.1.1. The DG has also quoted the following statement of Hemant Pai Angle in this
regard:
"Q. Who are the members of the Chemist and Druggist Association, Goa who
are active participants in the affairs of the Association and all their other
alleged anti-competitive practices?
Ans. 11. The main person is Albert De Sa who is President of CDAG and is
partner of CS Enterprises. All executive committee members who are
wholesalers like - Raj Enterprises (Prop. Rajesh Colvalkar), ICM Enterprises
(Prop. Mahesh Naik) and Pharma Plus (of which Santosh Fondekar), Babu
Pharma (Prop. Babu Mopkar), G.N. Agencies (Partner- Yatin Naik), D'Silva
and D'Silva (Partner- Lyndon D' Silva) are active participants in the
association. In addition, Prakash Shankwalkar, Partner of Drogaria Ananta,
although not part of the association is also active in the affairs of CDAG."
13.1.2. In the course of investigation, a letter from one, Shri. Nadie Jauhri of Nashik
was received by the DG in which Shri Jauhri pointed out towards anti-competitive
practices of associations stating that they are engaged in giving price approvals and
fixing margins of trade. He also requested that his letter along with papers enclosed
may be made part of investigation report.

14. Conclusions in the DG report
14.1 On the basis of the evidence collected in course of proceedings and statements
of persons recorded the DG has concluded that the associations, not only limit and
control supply of drugs in the market through a system of PIS approvals, but also
limit and control the number of players by insisting on need of NOC of associations
for appointment of stockists in their areas of operations. It has also been concluded
that the associations through their guidelines and norms fix margins for the
wholesalers and retailers, which has the effect of determination of sale prices of
drugs in the market. AS per the findings of DG these practices and conduct of CDAG
are violative of provisions of Section 3(3)(a) and 3(3) of the Competition Act, 2002.
1 5 . After examining the entire material and supplementary report of DG, the
Commission in its meeting held on 26.04.2011 decided that a copy of the DG report
be sent to the Informants and the CDAG to invite their comments / objections. The
Commission also directed the parties to appear for oral hearing, if they so desire, on
19.05.2011.
1 6 . The Commission further considered the matter in its meetings held on
19.05.2011, 09.06.2011, 30.06.2011 and 21.07.2011.
17. The informants filed their written submissions dated 19.05.2011 & 06.07.2011
11.07.2011 wherein they reiterated the allegations made in the complaint and before
DG which primarily relate to the anticompetitive and monopolistic working of the
CDAG through the draconian guidelines for appointment of stockists and regarding
the requirement of NOC for appointment of stockists. The Informants have also
submitted that the contention of CDAG that the supplementary investigation is in
fundamental violations of the Competition Act is a ploy to mislead the Commission
and to delay the proceedings. The Informants also submitted that the mention of the
case pending before Hon'ble High Court of Karnataka wherein the Commission is also
a party is another ploy of CDAG's delaying tactics.
18. The CDAG filed its response to DG's supplementary investigation report vide its
replies dated 24.06.2011 and 09.07.2011. In the meeting of the Commission held on
21.07.2011, Shri Yusuf Iqbal Yusuf, Advocate appeared on behalf of the CDAG and
made oral submissions.
19. The gist of the above said replies of CDAG to the supplementary investigation
report of DG is as under:
A: Preliminary Objections
On behalf of CDAG it has been contended that the proceedings initiated by
the Commission on the basis of the DG's supplementary investigation report
dated 18.03.2011 are not sustainable in law as fundamental violations of the
statutory provisions of the Competition Act, 2002 have been made. It has
been submitted that the continuation of these proceedings are required to be
reviewed by the Commission, in the light of the following, amongst others,
grounds:
i. It has been argued that since violation of the provisions of the Act
was recommended in the DG investigation report dated 16.06.2010,
the Commission was obliged to conduct an inquiry under section
26(8) of the Act, after considering the objections to the DG report

filed by the parties.
ii. The CDAG has contended that after conclusion of the hearing from
both sides, during the said inquiry held on 12.10.2010 under section
26(8) of the Act, the Commission closed the case for orders and no
indication of any direction to the DG for any further / supplementary
investigation was given to the parties during the said hearing on
12.10.2010.
iii. Based on above it has been argued that the order of the
Commission directing the DG to conduct further / supplementary
investigation into the same matter, after the matter had been
inquired into by the Commission under section 26(8) of the Act and
the case closed for orders in the presence of all the parties, was void
ab initio in the absence of any provision to this effect under section
26 of the Act. Consequently, the supplementary investigation
conducted by the DG and his supplementary report dated 18.03.2011
are non est and without any legal basis.
iv. The CDAG has further contended that without prejudice to the
apparent illegality of the order of the Hon'ble Commission directing
supplementary investigation and conducting further proceedings
based on the supplementary investigation report it is also to be
noted that whereas a notice dated 16.03.2011 was issued by the DG
to the CDAG calling upon for supplementary information and fixing
the date for hearing on 23.03.2011 and subsequently hearing the
matter on 07.04.2011 and written submissions were also tendered
by the counsel for CDAG on 08.04.2011, the CDAG was surprised to
know through the notice of Commission dated 28.04.2011 that the
supplementary investigation report was already submitted by the DG
to the Commission on 18.03.2011.
v. It has been argued that it is apparently clear and evident that the
entire exercise of issuing notice by the DG to the respondent CDAG
and calling upon it to present itself for hearing on 23.03.2011, when
the supplementary report had already been submitted on 18.03.2011
itself was of no meaning and this aspect should have been taken into
account by the Commission.
vi. it has been further contended that on grounds of similar violation
of the statutory provisions of the Act in a similar case the Karnataka
Chemists and Druggists (TKCD) has filed Writ Petition in the Hon'ble
High Court of Karnataka at the Principal Bench at Bangalore vide
W.P. No. 19579/2011. Since the same legal issues have also been
raised in WP NO. 19579/2011 before the Karnataka High Court and
the matter is sub judice the Commission should keep the present
proceedings in abeyance till the matter is decided in the Karnataka
High Court at Bangalore.
vii. It has been further contended that it is abundantly clear from the
sequence of events as recorded hereinabove that the entire exercise
of directing the Supplementary Investigation was done in order to
bring the matter within the purview of the Competition Act, 2002

especially since the CDAG had vehemently stated in its written
submissions dated 13.09.2010 that the offence, if any, was
committed under the Monopolies and Restrictive Trade Practices Act.
Therefore by virtue of specific directions as laid down in section
66(1A) of the Competition Act, 2002 as well as section 6 of the
General Clauses Act, the Director General who was conducting the
investigation under the Competition Act, 2002 could have at the very
most found contravention with the provisions of the MRTP Act which
was in existence at the time when the complaint was received. The
provisions of the aforesaid sections are very clear, lucid and can
hardly be disputed. This Commission can direct an investigation in
matters which it receives on transfer from the MRTP Commission
subject to the conditions laid down in the sub-sections of section 66
of the Competition Act. It has been submitted that the law is very
clear that if any violation is found in such matters, the same can only
be that of the MRTP Act and not the Competition Act, 2002. Thus,
even if the Director General finds contravention, he can find such
contravention only of the MRTP Act and not the Competition Act,
2002 since the Competition Act was not in existence on the date
when the complaint was received. Also, the Competition Act was not
in force on the date when the alleged infractions are purported to
have been committed. It has been submitted that in the detailed
investigation report of 2010, the Director General went beyond the
scope of the law and found contravention of the Competition Act,
2002.
viii. It has been submitted that all the reports of the Director General
are in the context of the Competition Act, 2002 and he has not found
any contravention of the provisions of the MRTP Act (which was in
force on the date of the alleged offences as complained). Therefore,
the present proceedings deserve to be dropped and quashed.
ix. In addition to the preliminary objections, it has been submitted
that the DG has failed to carry out any economic analysis in respect
of the relevant market or any anti-competitive agreement in both the
Main Report as well as the Supplementary Report. No evidence
showing the existence of any "agreement" between the members of
the respondent CDAG has been submitted with both the said Reports
to show the violation of section 3(3) of the Act.
x. It has been further contended that the CDAG is an association of
Chemists and Druggists and is covered under the definition of an
"enterprise" under section 2(h) of the Act only by virtue of the
service of introducing the new products launched by the drug
manufacturing companies through its bulletins and charging the
"product information service (PIS) for the said service. The relevant
product market for the CDAG has, therefore, to be related to this
"service" rendered by the respondent association and it can certainly
not be the "market for pharmaceuticals in the state of Goa" or that of
"drugs sold by the stockists and retailers to the consumers", as
determined by the DG in Para 7.2.2 of the first report.
xi. The CDAG has, thus, contended that in the absence of an

appropriate market definition the conclusion of violation of section
3(3)(a) and section 3(3)(b) drawn by the DG in the investigation
report, cannot be sustained under the eyes of the law.
xii. It has been also contended that the DG has failed to collect any
material evidence even in support of his general and vague
conclusion except the statement of the complainants which too are
full of leading questions and suggestive answers without having
been subjected to cross examination by the CDAG and, therefore,
they are inadmissible in evidence. The DG has shown utmost
disregard to the established legal principles of examination of
witnesses on oath in exercise of his power under section 41(2) of
the Act and hence the documentary evidences attached with both the
reports are not admissible in evidence.
xiii. The CDAG has also raised the contention that the DG has based
his conclusion entirely on the basis of oral allegations made by the
complainants without any corroborative independent evidence and
the allegations being made by interested witnesses cannot be relied
upon. The investigation has been conducted in a most casual manner
and no efforts were made to collect onsite evidence by discreet
inspection to verify the veracity of the allegations made in the
complaint.
B: Objections on merits
i. The CDAG has also submitted that DG has failed to examine the stockists
and dealers in Goa who are not members of the respondent CDAG, and who
were specifically mentioned in the reply dated 25.03.2010 filed by the CDAG.
ii. It has been further submitted that the fact that Chemists and Druggists
who are not members of the respondent CDAG are operating both as
stockists and retailers in Goa goes to show that the requirement of obtaining
a no objection certificate from the CDAG does not restrict the entry of new
players in the market.
iii. The CDAG has submitted that DG has failed to study and understand the
structure of the highly regulated pharmaceutical sector in India.
It is submitted that there is a National Pharmaceutical Pricing Authority
(NPPA) which regulates the prices of bulk drugs sold in India and there exists
a Drug Policy, 1986 announced in September 1994. The NPPA regulates the
fixation and revision of prices of bulk drugs and formulations and also
monitors the prices of both controlled and decontrolled drugs in the country
through the provisions of the Drugs (Price Control) Order, 1995 (DPCO). it
has been pointed out that till date no complaint has been made before the
NPPA for any violation of the DPCO by any member of the respondent CDAG.
The DG has failed to examine this essential aspect of the case in his Reports.
iv. According to the submissions made by CDAG, the margins allowed to
wholesalers and retailers are fixed at 16% for controlled drugs and trade
margins of the decontrolled formulations have been mentioned as 20% for
retailers and 10% for wholesalers as per the norms of DPCO. It has been
pointed out that the same trade margins have been mentioned in the MoU

signed between the AIOCD and IDMA and OPPI produced by the complainant
and relied upon by the DG in his reports to conclude the so called "fixation"
of trade margins by the CDAG.
v. It has been further contended that the DG has also failed to recognize the
history behind the practice of obtaining "no objection certificate" by the
pharmaceutical companies from the State Association of Chemists and
Druggists. It has been submitted that this practice was evolved on the
recommendations of the Mashelkar Committee appointed by the Union Health
Ministry of the Government of India. The report of the Mashelkar Committee
recommended that the Chemist and pharmacists through their association
should act as "watch dog" to prevent entry of spurious / doubtful quality
drugs of those purchase from unauthorized sources and had specifically
reiterated that all India organization of chemists and druggists (AIOCD)
should play an active role to educate their members and to cooperate with
regulatory authorities to eliminate sale of spurious and sub standard drug by
their members. The said committee had noted the role of the pharmacy
industry, trade and other professional associations including the AIOCD in
preventing the monopolistic activities of large pharmaceuticals companies.
vi. That the MOU was signed between the AIOCD and IDMA and OPPI in the
above context and based on the recommendations of the Mashelkar
Committee whereby the trade of sale of pharmaceutical products through
chemists was organized in accordance with the DPCO and the practice of
obtaining "no-objection certificate" from the State level associations of
Chemists and Druggists was evolved to curb the proliferation of large
number of stockists and wholesalers at the cost of smaller retailers. The DG
in his reports has completely overlooked the growth of competition in the
pharmacy trade and has failed to recognize the efforts made by the Apex
organisation i.e. the AIOCD in organizing a balanced relationship between
the large pharmaceuticals companies and the small retailers.
vii. It has also been contended that the DG has also failed to examine any
pharmaceutical company to verify the allegations made by the complainants
regarding the alleged role of the respondent in restricting the entry of new
stockists.
20. The Commission again considered the matter in its meeting held on 21.10.2011
and decided to direct the CDAG to file its financial statements for the last three years
and also to file the names of its office bearers year-wise since June 2009 i.e. the
period when complaint was filed by the informant. In response to the directions of
the Commission, a reply dated 04.11.2011 was submitted by the counsel of the
Opposite Party which was considered by the Commission in its meeting held on
15.11.2011. In the said reply, the directions given to the party vide letter dated
01.11.2011 by the Commission have been termed as illegal, unlawful and
unsustainable. The party has further called upon the Commission to show any
provision of law which permits calling of such information.
21. After considering the above said letter of CDAG, the Commission passed an order
on 13.12.2011 to the effect that whenever, the Commission finds that an enterprise
was in breach of Section 3 or 4 of the Competition Act, the Commission, apart from
passing other directions has powers under Sec. 27 of Competition Act to impose
penalty upto not more than 10% of the average turnover for the last 3 preceding

financial years. In case of cartels, the Commission has power to impose penalty upto
3 times of the profit for each year of the continuance of such agreement whichever is
higher.
22. In view of the above provision contained in Section 27 of the Competition Act,
Commission held that it is imperative that the party involved in a case before the
Commission should supply the requisite information about its financial status,
including the turnover & profits for last three years. The Commission for the purpose
of discharging its functions can even otherwise call upon the concerned parties to file
each and every required information. Non filing of the requisite information is looked
upon seriously by the legislature and Section 43 of the Competition act provides that
if any person (which includes an association or an enterprise) fails to comply with
the directions of the omission or with the directions of the DG, seeking information
then such persons is liable to be punished with fine, which may extend upto Rs.
1,00,000/- for each day, during such continuance of refusal subject to a maximum of
Rs. 1,00,00,000/-. Therefore, law being very clear on the aspect, it was held by the
Commission that non-submission of requisite information by CDAG without
reasonable cause will hamper further proceedings in the matter. The Commission,
therefore, decided to initiate proceedings against CDAG under Section 43 of the Act.
The Commission further decided to accord opportunity to the Association of being
heard in person or through their authorized representative on 13.12.2011, if it so
desired.
23. The Commission thereafter listed the matter for 13.12.2011 to consider the issue
of imposition of penalty on CDAG for non-providing of information as required by the
Commission. As no one put appearance on behalf of CDAG, the penalty proceedings
were taken up ex-parte. The Commission noted that CDAG has deliberately and
purposefully refused to part with the information and has rather questioned the
authority of the Commission to ask for the information. In view of this conduct, the
Commission imposed a penalty of Rs. 25,000/- per day on CDAG for non furnishing
the requisite information w.e.f. 13.12.2011 for a period of 30 days. In case, the
information is not furnished within the 30 days, it was decided that the penalty shall
be Rs. 50,000/- per day for the next 30 days and Rs. 1,00,000/- per day thereafter,
till the penalty amount culminates to Rs. 1,00,00,000/-.
ISSUES
24. The matter was thereafter considered by the Commission in its meeting held on
05.01.2012 and 07.01.2012. The Commission has carefully considered the essential
issues raised by the Informants in the instant case, the submissions made by the
CDAG before the DG and the evidence gathered by the DG in his first investigation
report and the supplementary investigation report as well as the replies filed by the
CDAG and the Informants in response to the notice of this Commission. After
thorough perusal of the aforesaid documents, the following issues arise for
consideration and determination of the Commission in the case:-
(I) Whether the present information can be examined under the provisions of
the Competition Act, 2002?
(II) If the answer to the first issue is in affirmative, whether the conduct and
practices of CDAG are anti-competitive and in violation of section 3 of the
Act?
(III) Whether the members of Executive Committee of CDAG are also liable

for violation of section 3 of the Act?
25. Determination of Issue No. 1
25.1 The CDAG has contended that it is clear from a reading of the provisions of the
Competition Act, 2002, MRTP Act, 1969 and General Clauses Act, 1897 that after the
repeal of MRTP Act, 1969 by the Competition Act, 2002 the authorities under the
MRTP Act, 1969 viz. the MRTP Commission as well as the DGIR ceased to be in
existence and the relevant provisions of the Competition Act, 2002 govern the
proceedings and investigation which were pending under the MRTP Act 1969 before
the commencement of the Competition Act, 2002. Since the authorities under the
MRTP Act, 1969 ceased to be in existence on the commencement of the Competition
Act, 2002, section 66(3) to 66(8) of the Competition Act, 2002 provide for
continuance of the investigations and proceedings under the MRTP Act, 1969 before
the commencement of the Competition Act, 2002. It has been contended that,
however, it has been specifically provided that such pending matters should be dealt
with under the provisions of the MRTP Act, 1969 as if it had not been repealed.
25.2 Section 66(6) of the Competition Act, 2002 provides that all investigations or
proceedings, other than those relating to unfair trade practices, pending before the
Director General of Investigation and Registration on or before the commencement of
the Competition Act, 2002 Act shall stand transferred to the Competition Commission
of India.
25.3 Therefore, as per CDAG, this Commission can exercise jurisdiction only in
investigations or proceedings in matters other than those related to Unfair Trade
Practices which were pending before the Director General of Investigation and
Registration under the MRTP Act, 1969. On the other hand, investigation or
proceedings related the Unfair Trade Practices are to be handled only by the National
Commission under the Consumer Protection Act, 1986.
25.4 As per CDAG, the ingredients for "Restrictive Trade Practices" as defined in
section 2 (o) of the MRTP Act, 1969 is that there should be an imposition of
unjustified cost or restriction on consumers by manipulation as set out in the said
section. Section 2(u) of the MRTP Act, 1969 defines Trade Practices and finally
section 36A of the MRTP Act, 1969 defines Unfair Trade Practices. As per CDAG, the
allegations against it as in the complaint from M/s Varca Druggists and Chemists and
others (on which the entire saga has commenced) are covered under section 36A(5)
of the MRTP Act, 1969. Thus, CDAG contends that the allegations against CDAG are at
the most in the nature of Unfair Trade Practices and therefore as provided under
Section 66(7) of the Competition Act, 2002 only the National Consumer Commission
has the power and authority to investigate into the same under the Consumer
Protection Act, 1986.
25.5 In light of the above submissions, CDAG has emphasized that this Commission
has exceeded its jurisdiction and has taken up a matter which it is not entitled nor
empowered to and accordingly the order of this Commission directing the Director
General to investigate the matter under Section 26(1) of the Competition Act, 2002 is
illegal, unlawful and ultra vires. Thus, it has been argued by CDAG that the
Investigation Report pursuant to such order is of no legal force, effect or
consequence in any manner whatsoever.
25.6 Further CDAG has contended that under section 66(1A) and section 66(10) of
the Competition Act, 2002 as well as under section 6 of the General Clauses Acts

1897; the repeal of the MRTP Act, 1969 does not affect its previous operation nor
anything duly done or suffered thereunder nor any right, privilege, obligation or
liability accrued, acquired or incurred under the MRTP Act, 1959 and any proceedings
or remedy can be instituted, continued or enforced as if the MRTP Act, 1969 had not
been repealed.
25.7 Therefore, CDAG contended that any act committed during the currency of the
MRTP Act, 1969 cannot be called in question under the Competition Act, 2002,
Furthermore, it is expressly provided that the provisions of the MRTP Act, 1969 will
only be applicable to proceedings which have been instituted under the MRTP Act,
1969 "BEFORE" the commencement of the Competition Act, 2002. Thus, as per
CDAG, the provisions of the Competition Act, 2002 cannot be applied under any
circumstances in the present case and any prosecution or proceedings are to be in
strict accordance of the MRTP Act, 1969 only as the entire matter is based on a
complaint dated 16.06.2009 viz. before the commencement of the Competition Act,
2002.
25.8 Therefore as per CDAG there is no provision in the Competition Act, 2002
whereby the said Act has been granted retrospective effect. Therefore, under section
5(3) of the General Clauses Act, the Competition Act can only be enforced and
implemented after 14th October 2009 and not prior thereto. Thus, the complaint
dated 16.06.2009 received from M/s Varca Druggist and Chemist shall have to be
treated and disposed off only under the provisions of the MRTP Act, 1969 and not
under the Competition Act, 2002 under any circumstances. The only provisions of the
Competition Act, 2002 which may be employed in the present matter are sections
66(1A) and 66(7) of the Competition Act since they provide for continuity of the
proceedings / investigations in view of the immediate disbandment of the MRTP
Commission and the DGIR. However, any penal provisions or violations, if any, shall
be solely and exclusively subject to the provisions of the MRTP Act and not the
Competition Act, 2002.
25.9 In view of the Commission, the preliminary objections taken by the CDAG are
contrary to the scheme of the Act and the legal position on this aspect is quite clear.
In this regard it is also noted that Hon'ble High Court of Delhi in W.P. (C) 6805 /
2010, Interglobe Aviation Ltd. Vs Competition Commission of India & Ors. decided on
06.10.2010 has held on similar issue that where the investigation by the DGIR,
MRTPC remained incomplete and the matter did not crystallize into a 'case' before the
MRTPC, it was not incumbent on the DGIR, MRTPC to transfer the case to the
Competition Appellate Tribunal and not to Commission. This view was reiterated by
the Hon'ble High Court of Delhi in W.P. (C) 7766 / 2010, Gujrat Guardian Ltd. Vs
Competition Commission of India & Ors. decided on 23.11.2010. In this case the
petitioner advanced the argument that as the matter was pending before DGIR,
MRTPC the case ought to have been transferred to Competition Appellate Tribunal and
not to the Commission. It was also contended that the Commission had no power to
pass order under section 26(1) in such matter and that the Commission had to
proceed under the provisions of the MRTP Act. The Delhi High Court rejected the
arguments raised by the petitioner and held that "This Court finds that since the
investigation was incomplete the matter was rightly transferred to the CO. On further
consideration of the material on record the CCI formed a prima facie opinion to
proceed under Section 26(1) of the CA. This was not contrary to Section 66(6) of the
CA. It is possible in the course of investigation that the DG, CO forms a prima facie
opinion to proceed under the provisions of the CA, 2002 itself There is no illegality
per se in such action of the DG, CCI."

25.10 The Commission notes that the present matter was filed before the DGIR,
MRTPC on 16.06.2009 and section 3 and 4 of the Competition Act, 2002 dealing with
anti-competitive conduct were brought into force on 20.05.2009. Furthermore, on
filing of the complaint the DGIR, MRTPC undertook the preliminary investigation
which was still pending when the MRTP Act, 1969 was repealed vide ordinance dated
14.10.2009. As the investigation had not culminated into a 'case' the matter was
rightly transferred to the Competition Commission by the DGIR, MRTPC invoking the
provisions of section 66(6) of the Act as the allegations involved in the complaint
were related to restrictive trade practices of CDAG. Even a plain reading of section
66(6) of the Act clearly demonstrates that on receiving the matters where
investigation was pending, the Commission may order for conduct of the
investigation in the manner as it deems fit. If the Commission were to order
investigation in such matters, the only section of the Act which empowers the
Commission to do so is section 26 by treating the complaint as information under the
Competition Act. Further, on receiving the matter the order for investigation under
section 26(1) can be passed only if in the view of the Commission there existed a
prima facie case of violation of the provisions of Competition Act. As the complaint
filed before the DGIR, MRTPC was still at the stage of preliminary investigation no
right, liability, privilege or obligation can be said to have been accrued to any party
and, therefore, the provisions of section 66(1A) or 66(10), referred by CDAG are not
applicable in the present situation. Furthermore, the Commission has not been
conferred any power to adjudicate any matter invoking the provisions of repealed
MRTP, Act. This premise becomes clear when the provisions of section 66(6) are
contrasted with the provisions of section 66(3) of the Act. Whereas the Competition
Appellate Tribunal has been specifically conferred power to adjudicate cases
pertaining to monopolistic and restrictive trade practices pending before MRTP
Commission in accordance with the provisions of repealed MRTP Act under section
66(3) of the Act, no such power has been given to the Commission under section
66(6) of the Act. In the backdrop of the provisions of the Act as analysed above, the
Commission finds that there is no illegality in entertaining and examining the present
case under the Competition Act, 2002 in which the investigation was pending before
the DGIR, MRTPC before the MRTP Act was repealed.
25.11 Further, even in cases where the alleged anti-competitive conduct was started
before coming into force of section 3 and 4, the Commission has the jurisdiction to
look into such conduct if it continues even after the enforcement of relevant
provisions of the Act. This position has been settled by the Hon'ble High Court of
Bombay in W.P. No. 1785 / 200, Kingfisher Airlines Ltd. Vs Competition Commission
of India & Ors. decided on 31.03.2010. In the said case, it has been held by the
Hon'ble Bombay High Court that though the Act is not retrospective, it would cover
all agreements covered by the Act though entered into prior to the commencement of
the Act but sought to be acted upon now, i.e., if the effect of the agreement
continues even after 20.5.2009. In the present case, the practices of CDAG alleged to
be anti - competitive have been found by DG to be still continuing and there is
nothing on record to contradict the same. Therefore, in view of the continuance of
enforcement of the guidelines of CDAG and understanding / agreement amongst the
members of CDAG which have been shown to have anti-competitive effect, the
present case is squarely covered by the law propounded by the judgment of the
Hon'ble High Court of Bombay in the aforesaid case. The Commission therefore is of
the considered view that in the light of legal position as discussed above there is
absolutely no illegality in the proceedings in the present case and the arguments and
the contentions of the CDAG on this aspect have no force.

25.12 As regards the contention of the CDAG that the Commission has no power to
direct the DG to carry out supplementary investigation, the Commission is of the
considered view that the plea taken by the CDAG is devoid of any merit and is liable
to be rejected. The Act has not placed any fetter on the power of the Commission to
conduct further investigation or further inquiry. The Commission vide order dated
02.12.2010, while considering the DG investigation report, had noted that in order to
enable it to come to a proper conclusion, a further inquiry into certain aspect is
essential and accordingly had directed the DG to conduct further investigations in
respect of certain issues specified in the direction with a view to do complete justice
in the matter. It is also pointed out that Regulation 20(6) of The Competition
Commission of India (General) Regulations, 2009 specifically empowers the
Commission to direct the DG to conduct further investigation even after the DG has
submitted his report.
25.13 The Commission also finds that no procedural irregularity was committed by
the DG while conducting supplementary investigation. In this regard, a perusal of the
note of the DG forwarding the representation dated 08.04.2011 filed by the advocate
of the CDAG reveals that letters were written to the members of the CDAG by the DG
for submitting their profit & loss accounts and balance sheets. The advocate of CDAG
had filed the aforesaid representation / objection to the supplementary investigation
challenging the legality of the proceedings and at the same time choosing to ignore
the request of the DG to furnish the requisite information. The DG had stated in the
supplementary report that information regarding financial details were called for from
the CDAG and the same will be submitted as and when it is submitted. As the DG had
already filed the supplementary report there was no occasion for him to give hearing
or deal with the objections raised in the representation. In any case the objections
taken in the representation were also raised by the CDAG in its reply to the
supplementary report of the DG and they have already been dealt with in the
preceding paras of this order and on this count no prejudice has been caused to the
CDAG.
25.14 As regards the contention of CDAG that the margins allowed to whole sellers
and retailers are fixed at 16% for controlled drugs and at 20% for retailers and 10%
for whole sellers for the decontrolled formulations as per Drug Price Control Order
(DPCO), it is noted that whereas the trade margins for the scheduled drugs is fixed at
16% for a retailer as per para 19 of the DPCO, 1995, in case of non-scheduled drugs
(non price controlled drugs) the trade margins have been determined for the
wholesalers and retailers operating in the pharmaceutical market through an
agreement between the trade associations and the pharmaceutical industry. Thus, the
MOU between AIOCD, OPPI and IDMA, which has been referred in DG report, has in
fact led to the determination of the trade margins on sale of the non scheduled drugs.
The CDAG has followed the guidelines laid down by AIOCD in this respect. MR.
Hemant Pai Angle, member of CDAG has confirmed this in his statement recorded
before the DG. On the basis of above facts, the Commission finds that there is no
force in the argument of CDAG that the trade margins are being fixed in terms of
DPCO.
26. Determination of issue no. 2
26.1. Having decided the issue no. 1 in affirmative, the Commission now proceeds to
determine issue no. 2 i.e. whether the acts and practices of CDAG are anti -
competitive in nature.

26.2. DG has come to the conclusion that decision in form of guidelines, actions and
practices of CDGA are anti-competitive in terms of provisions of section 3(3)(a) and
3(3)(b) of the Competition Act, 2002. The Informants have agreed with the
conclusions drawn by the DG and on the other hand the CDAG has denied indulging
into any anticompetitive activities.
26.3. Since the DG has found that the CDAG has violated the provisions of section
3(3)(a) and 3(3)(b) of the Competition Act, 2002 the relevant sub-section (3) of
section 3 of the may be looked into which reads as under :
"Any agreement entered into between enterprises or associations of
enterprises or persons or associations of persons or between any person and
enterprise or practice carried on, or decision taken by, any association of
enterprises or association of persons, including cartels, engaged in identical
or similar trade of goods or provision of services, which -
(a) directly or indirectly determines purchase or sale prices;
(b) limits or controls production, supply, markets, technical
development investment or provision of services;
(c)...........
(d)...........
shall be presumed to have an appreciable adverse effect on competition.
26.4. For the purpose of proper appreciation of applicability of relevant provisions
relating to anti-competitive agreements, it is useful to consider the various elements
of section 3 of the Act in some detail. Section 3(1) of the Act prohibits and section
3(2) makes void all agreements by association of enterprises or persons in respect of
production, supply, distribution, storage, acquisition or control of goods or
provisions of services which cause or likely to cause appreciable adverse effect on
completion within India.
26.5. Therefore, if any agreement restricts or is likely to restrict the competition then
it will fall foul of section 3 of the Act.
26.6. Further, section 3(3) of the Act applies not only to an agreement entered into
between enterprises or associations of enterprises or persons or association of
persons or between any person and enterprises but also with equal force to the
practice carried on or decision taken by any association of enterprises or association
of persons including cartels, engaged in identical or similar trade of goods and
provision of services which has the purpose of directly or indirectly fixing prices,
limiting output or sales for sharing markets or customers. Once existence of
prohibited agreement, practice or decision enumerated under section 3(3) is
established there is no further need to show an effect on competition because then a
rebuttable presumption is raised that such conduct has an appreciable adverse effect
of competition and is therefore anti-competitive. In such a situation burden of proof
shifts on the opposite parties to show that impugned conduct does not cause
appreciable adverse effect on competition.
26.7. The next question arises whether the CDAG, being an association of chemists
and druggists in the state of Goa is covered under the category of entities

enumerated in section 3(3) of the Act.
26.8. In this respect the definition of 'enterprise' as provided in section 2(h) assumes
significance and which runs as follows:-
"enterprise" means a person or a deportment of the Government, who or
which is, or has been, engaged in any activity relating to the production,
storage, supply, distribution, acquisition or control of articles or goods, or
the provision of services of any kind..................but does not include any
activity of the Government relatable to the sovereign functions of the
Government including all activities carried on by the departments of the
Central Government dealing with atomic energy, currency, defence and
space.
26.9. It is noted by the Commission that CDAG is an association of wholesalers and
retailers of Goa region and is affiliated to AIOCD. From the records it is also gathered
that it was registered under the Societies Registration Act, 1860 in the year 1967. Its
constituent members comprise of retailers and wholesalers of Goa. A list of members
has been enclosed by the DG with the investigation report. The DG has also placed
on record MoU of Chemists and Druggist Association, Goa, copies of Rules and
Regulations and guidelines to be followed for appointment/termination of stockist by
all pharmaceuticals companies including ayurvedic companies selling through
chemists.
26.10. There is no dispute as to the fact that constituent members of CDAG are
stockists and retailers of pharmaceutical companies who are engaged in the supply of
pharma products to the consumers. Therefore, they fall squarely within the definition
of 'enterprise' provided in the Act. Further, sub-section (3) of section 3 of the Act not
only covers agreements entered into between enterprises or associations of
enterprises but also the practice carried on or decision taken by any association of
enterprises engaged in identical or similar trade of goods or provision of services.
There is no denying the fact that CDAG is an association of enterprises whose
constituent members are engaged in identical or similar trade of goods.
26.11. The MoU, rules, regulations and guidelines are reflective of the collective
intent of the constituent members based upon which the CDAG takes decisions and
members in turn give effect to the decisions by acting upon them. The CDAG is
composed of stockists and retailers with common interests in trade, which join
together to further their commercial objectives.
26.12. The Commission, therefore, holds that since CDAG is taking decisions relating
to distribution and supply of pharma products on behalf of the members who are
engaged in similar or identical trade of goods, the practices carried on, or decisions
taken by CDAG as association of enterprises are covered within the scope of section
3(3).
26.13. It is noted by the Commission that the investigation by DG has found many
acts and conduct on part of CDAG as anti-competitive. Therefore, it is necessary to
examine such infringements by CDAG as alleged in the information and found
substantiated by the DG in order to arrive at a conclusion.
Limiting the supply of pharma products
26.14. It is observed by the Commission that in the course of investigation, DG has

found that various clauses of MoU and guidelines framed by CDGA as well as the
practice carried on by it restrict and control the supply of drugs. In this regard the
guidelines of CDGA (placed as Exhibit-4 of supplementary report) are reproduced
below:
"GUIDELINES TO BE FOLLOWED FOR APPOINTMENT / TERMINATION OF
STOCKITS BY ALL PHARMACEUTICALS COMPANIES INCLUDING AYURVEDIC
COMPANIES SELLING THROUGH CHEMISTS
Definition: Stockiest means Trade and Institutional Stockiest. There shall be
no differentiation between Trade and Institutional Stockiest as a Stockiest
will deal with both wings.
Appointment / Termination of new stockiest shall only be done with the
permission of the Association.
Since Goa is a small state it shall be considered as ONE district divided into
two North Goa and South Goa. A new company can initially appoint only two
stockiest one in North Goa and 2nd in South Goa Preferably. These stockiest
may or may not have branches.
All stockiest operating prior to 14th September, 1997 will continue to be the
stockiest of their respective companies, irrespective of the number of
stockiest in Goa.
All further appointments shall be made as per the following formula: When
the average secondary trade sale crosses 2 lacs, per month, a third stockiest
can be appointed. Average means 6 months trade sales prior to date of
application.
When the average secondary trade sale crosses 4 lacs, per month, a fourth
stockiest can be appointed.
When the average secondary trade sales are above 6 lacs per month, a fifth
stockiest can be appointed.
There can be no more than 5 stockiest except in case of mergers and
acquisitions.
Replacement of stockiest is allowed on condition the Association is satisfied
the need of replacement taking into consideration the company's interest.
The Association must have the consent of the retiring stockiest in writing to
allow replacement. Howe ever, such replacement should be effected within
six months of the last invoice raised by the supplier on the retiring stockiest.
However, if the current sales are not within the above guidelines no
replacement shall be given e.g. If there are 3 existing stockiest and if one
retires and if the sales are below 2 lacs no replacement will be granted. The
company will have to manage with the 2 existing stockiest. No mutual
transfer of stockiest ship is permissible, even with the consent of the existing
stockiest. Appointment of additional stockiest even with the consent of
existing stockiest is not allowed. The decision of the Association is final and
binding on all members. Any member purchasing the liabilities and assets of
a retiring member (member who wants to close down his pharma business)
will be allowed to take over the existing stockiest ship of the retiring

member, with a letter from the retiring member to that effect. No other
transfer of stockiest ship is permissible.
Once a company appoints a stockiest, no further appointments can be inside
for one year.
If any wholesaler takes stockiest ship of a company without the permission
of the Association, then the stockiest will be terminated and he will be fined
(minimum Rs. 5000/-) and will not be granted permission to take any new
stockiest ship for a period of one year. PROCEDURE
Those companies who are eligible as per above guidelines for additional
stock point should give an offer / appointment letter in original to the
Association or to the wholesaler whom they wish to appoint. Such offer /
appointment letter should be signed by the Manager or a superior officer or
issued directly from the company office on the company's letterhead. The
company should explain in their letter, the need to change the existing
arrangement within the above guidelines.
The wholesaler in turn should inform the CDAG enclosing the above
offer/appointment letter and submit the necessary proof on which eligibility
is based.
The steering committee which is constituted for this purpose shall scrutinize
such application and issue clearance if the conditions as per stockiest ship
guidelines given above are satisfied.
Applications should be disposed off within 30 days from the date of receipt.
Within this period the committee should confirm that there are no long
pending issue between the company and the existing stockiest.
Routine claim concerning expiry / breakage etc. less than 6 months should
not be treated as pending issues.
No stockiest shall place order to the company before receiving clearance
certificate within the stipulated period of 30 days.
The final clearance shall be given by the President / Secretary. In case of any
disputes in the implementation of the above norms the first appeal authority
shall be the steering committee, and the final appeal forum shall be the State
Executive Committee.
Any wholesaler violating these guidelines/procedure shall be asked to leave
the particular stockiest ship and he will be debarred from taking up any
further lines for one year and will have to pay a fine (minimum Rs. 5,000/-).
Any Company which has violated the guidelines will have to pay a fine
(Minimum Rs. 10,000/-) and abide by the final decision of the Association.
The Company shall be solely responsible for the excess stocks with the
existing stockiest. It is the duty of the company to take back the excess
stocks or transfer the stocks to the new stockiest. The excess stock problem
should be first settled before the Company dispatches stock to the new
stockiest.

A Company can apply for NOC for a new stockiest for each division
separately provided that the new stockiest to be appointed is a stockiest of
any other division of the Company. A completely new stockiest will be
eligible only when the existing stockiest are dealing with all the divisions,
and if the application is within the guidelines. If only one division applies for
NOC then the new stockiest will have to deal ONLY for that division and
CANNOT order or sell goods of the other divisions. The Company will have to
apply fresh for the other divisions in such cases.
If a Company policy is that a stockiest should deal with all its divisions, then
the company should apply accordingly, provided all existing stockiest are
dealing with all divisions.
A stockiest operating in Goa with multiple branches will be considered as a
single stockiest of the company even if the Company raises separate invoice
for their different branches.
The NOC given to a Company to appoint a new stockiest is valid for 6 months
only. After 6 months the NOC is invalid and the Company/Stockiest will have
to submit a fresh application.
GENERAL
Notwithstanding anything in these norms a company can replace a stockiest
when:
Companies are genuinely aggrieved and are losing sales due to the non
performance of a stockiest.
A stockiest relinquishes his stockiest ship.
Note: Criteria for non performance will be as follows:
Stockiest is a habitual defaulter of payments to the company.
Does not operate scheme meant for the retailers.
Does not maintain adequate stocks as per inventory norms. (Salesx2 -
Closing stock - Stock in transit = Order of next month).
Does not co-operate with the company in providing agreed information.
When the company is aggrieved based on the above criteria and wishes to
replace a stockiest it will have to submit the necessary evidence to the
Association and the Association in turn after discussing the matter with the
concerned stockiest will its decision.
The company can only appoint as STOCKIEST a wholesaler who is member of
our ASSOCIATION.
If a company has not raised any invoice on a wholesaler / stockiest for
continuous 12 months it shall be deemed that the stockiest ship has been
terminated and in no way can be restarted without the permission of the
Association, provided there is no correspondence between the stockiest and
the company on stopping supplies and the Association is informed about this
correspondence.

No company can make direct supplies to doctors, nursing homes, chemist.
All supplies must be routed through authorized stockiest ONLY. Companies
may quote directly to Government Institutions like G.M.C., D.H.S, M.P.T. but
cannot deal with private hospitals, Nursing Homes etc. except through their
authorized stockiest.
If a company has stopped operations in Goa for more than 2 years and if it
wants to restart operations it will be considered as a new company and will
have to apply fresh for P.I.S. and for appointment of stockiest, provided all
previous claims of old stockiest / retailers have been settled. Preference to
old stockiest should be considered. Selling of products / brands from one
company to another will be considered as a new product.
If a company has closed down its operation then the stockiest are
responsible for taking back unsold and expiry stocks from the retailers. The
Wholesaler is responsible for expiry of goods sold by him even if company is
not giving Credit Note for the same.
It is the duty of the stockiest to inform retailers / Association about the
stoppage of operations by the company.
IMPORTANT: No wholesaler should supply goods to any new Retailers, even
on CASH, unless the retailers became a member of the Association. The
retailer not be given any CREDIT facilities for a period of 6 months after
which the wholesaler may extend Credit facility to the party at his
discretion."
"POLICY TO MAKE SUPPLIES TO NEW RETAIL OUTLETS
Following conditions apply to new Retailers outlets for a period of minimum
one year.
a) SUPPLY: No. supply to be made to any Retailer by any wholesaler unless
such Retailer becomes member of CDAG."
26.15. The examination of the clauses of the guidelines conclusively establishes that
no person or entity is allowed to do business of pharmaceutical drugs as wholesaler
and retailer unless it becomes member of Association. It is also evident that without
obtaining NOC from CDAG neither any new product can be introduced by any
pharmaceutical company nor any new stockist can be appointed. These facts were
also confirmed by Hemant Pai Angle, Proprietor of Varca Druggist and Chemist in his
statement recorded before DG wherein it has been stated by him that in order to
become stockist of any pharma company, a stockist/wholesaler has to take NOC from
CDAG.
26.16. The fact that the Association not only controls introduction of drugs but also
the appointment of stockists has also been confirmed by Mr. Mario Vaz, proprietor of
Xcel Healthcare in his statement made before DG.
26.17. The following excerpts from Memorandum of Understanding of CDAG have
been reproduced by the DG to show that in case guidelines/MoU are not followed,
members would be boycotted and penalties would be imposed on the defaulting
firms:

"Purchase & payment"
Any wholesaler found violating the above rules (a to d listed in MoU) will be liable to
strict action taken by CDAG on the recommendation of the disciplinary committee
For first violation a fine Rs. 2500/- will be imposed beside warning letter will be
written to the Wholesaler.
For second violation a fine of Rs. 5000/- will be imposed and also executive
committee will not issue any NOC to such a wholesaler for a period of 1 year for
being appointed as a stockiest any company.
Retailers should not resort to any unhealthy competition by giving discount to their
customers and should not operate any beneficiary schemes to attract the customers.
Any Retailers found violating the above rules will be liable to strict action taken by
CDAG on the recommendation of the Disciplinary Committee appointed for the
purpose.
For first violation a fine Rs. 2500/- will be imposed beside warning letter will be
written to the concerned Retailer.
For second violation a fine of Rs. 5000/- will be imposed and all Wholesaler will
boycott such retailer for a period of 3 months.
Retailers should make payment of credit purchases within 21 days failing which the
wholesaler will charge 18% interest from the 30th day.
Wholesalers should report the name of retailers along with details of bills of retailers
delaying the payment beyond 60 days which will be forwarded to the Disciplinary
Committee
Following action will be taken against the retailers if found guilty.
Issue of warning letter to the defaulting retailer and order him to pay the dues to the
respective wholesaler within 8 days along with the interest there on.
In case the defaulting retailer still fails to make the payment to the wholesaler all
other wholesaler will be directed to stop supplies to such retailer.
26.18. The fact that the Association is limiting and controlling the supply of drugs is
further substantiated from the examination of the following minutes of meeting of
CDGA quoted in DG report:
26.18.1. Minutes of the Wholesalers meeting held at Keservel Garden Retreat,
Cortalim on 25.08.2006
"Some wholesalers said that the Company's were selling goods directly to
Doctors by passing both the wholesalers and retailers. The names of
Companies were Cipla, Glenmark, VHB, Organon, and Thivim
Pharmaceuticals. Other wholesalers/retailers who were aware of direct
supplies from Company/C & F to Doctors were to report the same to the
Association. It was decided that a letter should be sent to such companies."

26.18.2. Minutes of the EC meeting held at the office premises, Panaji, on
14.11.2006
"Regarding Micro Labs it was decided that as they are already having 5
stockists in Goa, a new stockiest cannot be appointed as per our guidelines."
26.18.3. Minutes of the EC meeting held on 20.07.2007
"Mr. Kurtarkar said that he had put before the wholesalers meeting that some
wholesalers were making products available and supplying to retailers
without paying PIS and he had therefore proposed that for a product made
available by a wholesaler without paying PIS charges the wholesaler would
have to pay Rs. 1000 instead of Rs. 500/-".
26.18.4. Annual Report for the year 2007-08
"The total collection on Product Information Service during the last year has
been around 12 Lakh which means 2400 new products have been launched
during the last year. Retailers should purchase products only which are
registered with the association."
26.18.5. Minutes of Executive Committee Meeting held on 31.07.2008
"................................President asked the wholesalers chairman that a
wholesalers committee should be formed which would be responsible for
deciding on the issue of appointment of stockiest."
'Complaint from Desai and Co. and Drogaria Menezes and Cia.
"There was a complaint from Desai and Co., about Mahaveer Agency, super
stockist of Micro Laboratories and Raju Sales Corporations.
1.....................
2.....................
3. Micro Laboratories do not take PIS for the new products.
4 . Raju Sales Corporation has sold directly as C & F agent to the retail
chemists.
It was decided to write to Mahaveer Agency about the complaints and
instruct the firm to adhere to the rules and regulations of the Association."
"Regarding Mediwings Bioscience Pvt. Ltd, Mr. Albert explained the reason
for denying the third stockiestship for the company. EC decided to fine the
company but Mr. Albert informed that the company and the existing stockiest
are settling the issue amicably. It was agreed upon"
"Mr. Ashish explained the Mahaveer Pharmaceuticals issue. It was decided to
write to Micro Laboratories explaining the violation of the CDAG guidelines
by their super stockiest with a cc to Mahaveer Pharmaceuticals."

26.18.8. Minutes of the meeting held on 12.02.2009 at office premises
"On the receipt side, Mr. Lyndon said that PIS of total 1860 new products
was taken up till 10th of December."
26.18.9. Minutes of the EC meeting held on 20.02.2009 at office premises
'Mr. Rajesh suggested that E.C. should make an offer to the companies. The
company can avail a waiver on PIS fees for an year if it sponsors a minimum
of Rs. 1 lakh."
26.18.10. Annual Report 2008-09
"During the year we have added 48 new members to the Association and
earned Rs. 1.2 Lakh by way of New membership fees. The total collection on
the Product Information Service has been Rs. 12,53,500."
26.19. Thus, perusal of the minutes of the meeting of association clearly brings out
the fact that the CDGA controls the supply of drugs by way of PIS since unless the
PIS is paid, drugs cannot be introduced in Goa. When the minutes are read in the
context of guidelines and MoU of CDAG, it also establishes beyond any dispute that
the appointment of stockist is also controlled by the Association.
26.20. Further, according to Memorandum of Understanding (MoU) between Retailers
& Wholesalers dated 15/3/2004, no wholesaler is allowed to directly sell the products
to the customers and any wholesaler found violating the above rules will be liable to
strict action taken by the Association on the recommendation of the Disciplinary
Committee appointed for the purpose. As per the clauses stipulated therein a fine of
Rs. 2500/- will be imposed for first violation besides warning letter to be issued to
the concerned wholesale. And for second violation a fine of Rs. 5000/- is stipulated
to be imposed and additionally executive committee will not issue any LOC to such a
wholesaler for a period of one year for being appointed as stockiest of any company.
26.21. The Commission is in agreement with the findings of DG that the letters
written by CDAG to the Pharmaceutical Companies confirmed that the guidelines
issued by CDAG were actually enforced. Further, the letter dated 10.01.2009
addressed to M/s Eris Life Sciences Pvt. Ltd., Ahmadabad goes on to show that
without NOC of the Association, companies cannot appoint stockist. In the said letter
the CDAG intimated the company that as per guidelines it was mandatory for a new
company to appoint two stockists and since the company had not followed the
guidelines, the NOC was withdrawn. Similarly the contents of letter dated 8.9.2007 to
M/s Emcure Pharmaceutical Ltd., Pune reveal that the NOC from the CDAG is required
for appointment of additional stockist.
26.22. This finding also flows from examination of the letter dated 8.9.2008
addressed to M/s Micro Laboratories Limited which reveals that companies can supply
only through stockiest appointed by the CDAG as per guidelines.
26.23. After considering the cumulative effect of the evidence as discussed above the
Commission agrees with the conclusion drawn by the DG that the evidence gathered
during investigation clearly establishes that Chemist and Druggist Association of Goa
(CDAG) is engaged in the practice of;
(i) Issuing NOC for appointment of a new or an additional stockist in a

particular territory which eventually restricts the number of players in the
market and in turn also limits or control supply of drugs;
(ii) Mandating PIS approval for introduction of drugs in a particular territory
and taking money for that which eventually restricts the supply and
availability of drugs;
26.24. To enforce the guidelines the CDAG has also put in place the mechanism of
imposing penalties in case the stockists or retailers do not follow the norms
prescribed by the CDAG.
26.25. The contention of CDAG that it is not restricting either the number of stockists
or retailers falls flat in the light of clinching evidence as analysed in the preceding
paras.
26.26. The necessary corollary which flows from above findings is that if the practice
of NOC is done away with, there would be more supply of drugs in the market and
consequently more availability of the drugs to the consumers.
26.27. Thus, Commission concludes that CDAG through guidelines and actual
conduct is able to limit supply of drugs and number of players in market, since
without NOC of the Association; no person can be appointed as wholesaler or
stockiest at Goa. Further, if NOC in form of PIS approval is not given for pharma
products the companies will not be in a position to supply drugs. The guidelines and
practice of issuing NOC for appointment of a new or an additional stockist in a
particular territory eventually restricts the number of players in the market and in
turn also limits or controls supply of drugs. The system of compulsory PIS approval
for introduction of drugs in a particular territory and taking money for that also
restricts the supply and availability of drugs. Had there been no compulsion on the
pharmaceutical companies to seek PIS approval before introducing the drugs in any
territory and they were allowed to opt for mechanism of PIS for information
dissemination voluntarily it may not have possibly given rise to any anticompetitive
practice. But in the present matter the aforesaid conduct of CDGA followed by
imposition of penalties on firms which do not follow the dictates of association
establishes that the practices and conduct of CDAG are limiting and controlling the
supply of drugs in the state of Goa in violation of provisions of section 3(3)(b) of the
Act.
26.28. The CDAG has also taken the plea that the conclusion of DG are not based on
any economic analysis and the relevant market has been incorrectly defined by the
DG and, therefore, the conclusion of violation of section 3(3)(b) drawn by the DG in
the Supplementary Report, cannot be sustained under the eyes of the law.
26.29. At the very outset, in Commission's view, the arguments raised by the CDAG
are flawed and contrary to the scheme and provisions of the Act. For finding
contravention under section 3, the delineation of relevant market is not required to
be done. Furthermore, as discussed in preceding paras, once the elements
constituting the violation of section 3(3) of the Act have been established, the
presumption regarding AAEC is triggered and the onus shifts on the infringing entity
to rebut that presumption referring to the factors enumerated in section 19(3) of the
Act In the present matter no effort has been made by the CDAG to repel the
presumption.
26.30. As pointed out above that though the Commission is not required to launch

into an enquiry in cases related to section 3(3) to find out the existence of AAEC,
however, the DG has analyzed the action of CDAG vis-a-vis factors mentioned in
Section 19(3) in following terms:
(I) Creation of barriers to new entrants in the market: As per the guidelines
of the association, no new wholesaler can be appointed unless the pharma
companies give no-objection certificate to this effect. The pharma companies
can appoint new stockist only as per the guidelines of CDAG which are
restrictive in nature. Further, only those retailers are eligible to get supplies
from the wholesalers who are the members of the association. With their
collective market power, the association of Chemists and druggists has tried
to ensure that no new player gets entry in the market without their no-
objection. The association has made its members and pharma companies
comply with their terms and conditions. During merger of Sarabhai and
Nicholas, a group of stockist prevailed over CDAG to ensure that number of
stockist remains restricted and thereafter Secretary of CDAG wrote to
Nicholas Piramal India Limited not to change in the distribution policy
without taking LOC from the association. (It is said that Cipla, a
manufacturer of asthma drugs, tried to bypass the supply chain by providing
home service for its products. Cipla faced strong resistance from one of the
traders lobby- (of some other State), which stopped stocking Cipla's product.
Ultimately, Cipla had to withdraw the scheme.)1. When a company launches
a new product (either branded or generic), to make that product available in
the pharmacy, the company has to pay certain amount in form of Product
Information System (PIS) to the association. Thus, entry barriers have been
created by the association in terms of new players and introduction of new
products. Even in case of government tenders, as per the dictate of
association, only authorised stockist can make supplies as is evident from
the letter addressed to M/s Xcel Healthcare Pharmaceutical distributors, Alto
Porvorim, Goa (Exhibit-4) of the DG report informing them that sale by
unauthorized stockist tantamount to violation of Rules and Regulations of
CDAG and invites disciplinary action and also asking them to show cause as
to why action should not be initiated against them.
(II) Driving existing competitors out of the market: The agreements of the
like entered by the wholesalers-retailers through CDAG is agreement among
competitors at the same level of value chain. Through their actions, the
wholesalers-retailers have attempted to ensure that if the wholesalers-
retailers do not abide by the decisions of the association, they will be
punished and they will not get stockist ship of pharrna companies.
(III) Foreclosure of competition by hindering entry into the market: The act
of wholesalers-retailers certainly attempted to hinder the entry of those
wholesalers and retailers who are not the members of the association into
the market. Moreover, the pharma companies would also not get entry in the
market of pharmaceuticals, unless the association provides a no-objection
certificate to them. Thus, the competition has been restricted by their
conduct.
(IV) Accrual of benefits to consumers: As has been brought out above, the
guidelines, rules and regulations of the association are certainly not such
which facilitate any benefit to the consumers. On the contrary, rules and
regulations of the association which stipulate that retailers cannot pass on

any beneficiary schemes or discount to the consumers certainly is anti-
consumer in nature.
(V) Improvements in production or distribution of goods or provision of
services: The acts, guidelines, rules and regulations of the association also
do not bring about any improvement in production or distribution of goods
or provision of services since the number of the wholesalers-retailers gets
limited and restricted because of the clauses mentioned in the guidelines.
(VI) Promotion of technical, scientific and economic development by means
of production or distribution of goods or provision of services: Further, there
is no justification or case made out by the association of its members to
prove that their action resulted in promotion of technical, scientific and
economic development by means of production or distribution of goods or
provision of services. There was no positive outcome achieved either in
terms of improvements in production or distribution of goods or provision of
services or in terms of promotion of technical, scientific and economic
development by means of production or distribution of goods or provision of
services as a result of the action of the association or its members.
26.31. Thus, on the basis of analysis of the factors enumerated in Section 19(3) of
the Act as brought out by the DG, it can be seen that all pro-competitive factors are
absent and at same time all factors indicating anti-competitive effect are present in
this case. The analysis done by the DG further strengthens the finding of the
Commission that the Chemists and Druggists Association, Goa is engaged in actions
and practices which are anticompetitive and violative of provisions of section 3(3)(b)
of the Act.
Determining the sale prices of drugs
26.32. In the present case, the DG has also returned the finding that the conduct and
practices of CDAG are also indirectly determining the sale prices of non controlled
drugs in violation of section 3(3)(a) of the Act. On the other hand the CDAG has
denied this charge.
26.33. It has been brought out in DG report that there are broadly two categories of
drugs; the scheduled drugs (drugs under price control of DPCO) and non-scheduled
drugs which are out of price Control. It is in the category of non scheduled drugs that
trade associations decide upon the margins - which generally is 20% for retailers and
10% for wholesalers.
26.34. As regards the issue of determination of margins and sale prices of drugs by
the association, in his statement before DG, Shri Hemant Pai Angle, Member of
Chemist & Druggist Association Goa, has submitted as under:
"Q. Can you furnish/Do you have evidences regarding the agreement,
practices or any decision amongst the members of the Chemist and Druggists
Association, Goa to control prices, if any?
Ans. CDAG is affiliated to AIOCD and follows the guidelines of AIOCD. in the
guidelines, the margins have been fixed for drugs for both wholesalers and
retailers. The margins are fixed at the time of giving PIS approvals. The PIS
is collected in the name of advertisements published in the magazines like
"Bulletin-cum-PIS". For PIS, Rs. 500 per product per strength/formulation is

charged. I am giving you copies of approvals given by AIOCD published in
"Bulletin-cum-PIS" which would show that Product Information Service is
charged by associations.
Q. Can you furnish/Do you have evidences and data to show that the
activities of members of the association have led to determination of the sale
price of drugs?
Ans. Trade margins fixed by AIOCD followed by CDAG and PIS charged by
them may have impact on prices of drugs. Circular dated 04.06.2010 of
CDAG also brings out that the association writes to the companies for
effecting variation in prices."
26.35. When asked by the DG how the margins/discounts are decided by the
association at various stages of supply/distribution chain, Mr. Hemant Pai Angle, has
stated as under:
"Q. What are the margins charged at various stages of the supply/distribution
chain? Please furnish evidences, in your possession, if any?
Ans. The PIS approvals as handed over to you given for different companies
would reveal that margins are fixed.
Q. What are the discounts given with reference to the margins laid down in
the guidelines?
Ans. Discount policies is given in MoU of CDAG which states that wholesalers
can pass only 2% as cash discount to retailers. Further, CDAG also restricts
the retailers from passing on discounts to customers which affects the
common man. If retailers give discount to customers/Common man,
penalties are imposed. Thus, sale price of drugs are impacted in a way
because the retailers, even if they would like to pass on discounts to
common man, cannot do so. I am given two pieces of evidences - circular
dated 16.08.2005 and 11.06.2009 to support this contention."
26.36. Further, in order to show that trade margins are decided by the Association at
the time of giving PIS approval, Mario Vaz, the information provider, submitted
copies of approvals of Product Information Service (PIS) given by Chemist & Druggist
Association Goa before the DG. The fact that margins are fixed for the wholesaler and
retailer at the time of PIS approval, is also borne out from the following statement of
Mr. Mario Vaz of Xcel Healthcare Vaz:
"Q. Can you furnish/Do you have evidences and data to show that the
activities of the members of the association have led to determination of the
sale price of drugs?
Ans. Trade margin fixed by AIOCD followed by CDAG and PIS charged by
them may have impact on price of drugs.
Q. What are the margins charged at various stages of the supply/distribution
chain? Please furnish evidences, in your possession, if any?
Arts. PIS approvals as handed over to you given for different companies
would reveal that margins for wholesalers and retailers are fixed. There
cannot be deviation from the margins which are laid down in the guidelines.

Q. What are the discounts given with reference to the margins laid down in
the guidelines?
Ans. Discount policy is given in MoU of CDAG which states that wholesalers
can pass only 2% as cash discount to retailers. Further, CDAG also restricts
the retailers from passing on discounts to customers which affect the
common man. If retailers given discount to customers/common man,
penalties are imposed. Thus, sale price of drugs are impacted in a way
because the retailers, even if they would like to pass on discounts to
common man, cannot do so."
26.37. A circular dated 25.05.2009 of CDAG which is available on record also
establishes that trade margins are fixed as per the norms set by the guidelines of
associations. The trade margins fixed by the association ultimately have the effect of
indirect determination of sales price of drug for the end consumer.
26.38. It has also come in evidence that at the time when PIS approval is given by
the association for launch of drugs in a particular area, margins for wholesalers and
retailers are fixed. The DG has mentioned margins of some drugs to stockists and
retailers manufactured by drug companies as determined and approved under the
system of Product Information Service.
26.39. Apart from fixing margins on drugs, the Association also determines the
amount of discount to be extended by wholesalers and retailers that has the impact
of ultimate determination of price of drugs. In this regard, following circular of CDAG
dated 16.08.2005 assumes significance;
"a - With immediate effect Wholesalers could extend a maximum of 2% Cash
Discount for immediate cash payment or payment with current dated cheques
to retailers.
Wholesalers are requested not to offer more than 2% CD. and in case of
cheque payment the Cheques should be deposited in the bank immediately.
Retailers please do not demand more than 2% CD. and do not give post-
dated cheques or do ask wholesalers to present cheques late to the bank.
26.40. In this regard another circular dated 11.06.2009 of the CDAG has also been
furnished which also restricts the competition between retailers by denouncing the
practice of extending discounts;
"We have been receiving a lot of complaints that many retailers are giving
discounts which run even upto 10%.
Please be aware that our Association and its parent body - The AIOCD thrive
hard to bargain the companies and maintain our trade margins on medicines.
These trade margins are just enough (and some occasions not enough) to
sustain ourselves & have a respectable living.
Please also be aware that a big pharmacy retail chain in the Southern India
which was brashly advertising and giving discounts to customers, is today in
bankruptcy, with losses amounting to crores of rupees.
Giving discounts not only disturbs the other retailers in the neighbourhood
who do not give discounts, but it also leads to unethical practices and is

actually hampering your own profits in the long run. You giving discounts is
not only destroying the neighbouring retailers, but will also eventually
destroy you too.
Please note, strict action will be taken against any retailers found given
discounts. We therefore appeal to you to stop giving discounts. Help us to
keep the trade healthy & alive!"
26.41. Thus, it is evident that the CDAG is also determining the amount of discount
that may be extended by the stockists to the retailers and also the extent of discount
which can be given to the consumers by the retailers.
26.42. When the evidence available on record in form of PIS approvals and
statements of persons recorded by the DG in course of investigation, is taken into
account conjointly it becomes clear that the norms and guidelines of the Association
which prescribe the margins for wholesalers and retailers, are not only fixing
margins, but also have the effect of indirectly determining the sale price of drugs.
The margins of drugs for wholesalers and retailers are determined by the Association
at the time of giving PIS approval for introduction of drugs in a particular territory.
The DG has made PIS approvals in some of the cases as part of his report, which
clearly show that margins for wholesalers and retailers are determined by the
Association. The MoU and guidelines of CDAG posted on their website also
corroborate the finding that margins are determined by the Association. Under the
system of PIS approvals, the CDAG takes an amount of Rs. 500 per drug per category
from drug manufacturing companies for introduction/marketing of drugs in a
particular territory.
26.43. After careful examination of all the facts and evidence as disclosed by DG
report and referred in the foregoing paras the Commission has come to the
conclusion that CDAG holds sway over the supply of drugs in the territory of Goa.
Furthermore, the cumulative effect of the evidence collected by the DG during
investigation and analysed in the light of contentions advanced by the DG leads to
inevitable conclusion that the conduct and practices of CDAG emanating from the
guidelines and MoU of the Association definitely amount to indirectly fixing the sale
prices of pharmaceutical drugs in violation of the provisions of section 3(3)(a) of the
Act. The contention raised by the CDAG that their actions cannot be said to be
determining the price of drugs cannot be accepted in view of uncontroverted evidence
available on record.
26.44. The Commission finds force in the findings of the DG that in such a situation,
when efforts are being made to ensure supply of drugs to the common man at a
cheaper rate, the restrictive guidelines of Chemists and Druggists Association work as
stumbling block and do not appear to be in Sine with the government plans to
provide medicines to common man at an affordable rate. In view of the aforesaid, the
Commission is of the view that CDAG not only limit and control supply of drugs in
the market through a system of PIS approvals and limit and control the number of
players by insisting on need of its NOC for appointment of stockist but also through
its guidelines fixes trade margins for the wholesalers and retailers which, in turn,
results into determination of sale prices of drugs in the market. Therefore, the
Commission holds that CDAG has violated the provisions of Section 3(3)(a) and 3(3)
(b) of the Act.
27. Determination of Issue no. 3

27.1. After having decided that the conduct and practices followed by CDAG are anti-
competitive and in violation of provisions of section 3(3)(a) and 3(3)(b) of the Act
the Commission proceeds to decide the issue no. 3 i.e. whether the members, of the
executive body of CDAG are also liable for anti-competitive conduct violative of
provisions of section 3(3)(a) and 3(3)(b) of the Act.
27.2. Under the scheme of the Act in case of association of enterprises, called trade
associations in common parlance, comprising of members which are themselves
enterprises, liability for anti-competitive conduct may arise two fold. An association
of enterprises may be liable for breach of section 3 of the Act embodied in a decision
taken by that association, while additionally the constituent enterprises of association
may be held liable for contravention of section 3 of the Act arising from an
agreement or concerted practice between them. Further, the anti-competitive decision
or practice of the association can be attributed to the members who were responsible
for running the affairs of the association and actively participated in giving effect to
the anti-competitive decision or practice of the association. In case the contravention
of any of the provisions of this Act is made by a company, section 48 of the Act
specifically provides for the individual liability of the persons, in addition to the
liability of the company, who were in charge of and were responsible for the conduct
of the business of the company at the time when the contravention was committed.
The Explanation to section 48 further provides that for the purposes of this section,
company includes a firm or other association of individuals. Therefore, the members
of the Executive Committee of CDAG who were responsible for anti-competitive
conduct of CDAG are also liable, in addition to CDAG, for contravention of section
3(3)(a) and 3(3)(b) of the Act.
27.3. The DG has identified the members of the executive committee of CDAG who
were responsible for the anti-competitive decisions taken and enforced by the CDAG.
Such members are - Albert De Sa, Mahesh Naik, Akhtar Shah, Santosh Fondekar,
Venkatesh Prabhu Desai, BM Prabhu Desai, Datta Ram M. Mopkar, Lyndon D' Silva,
Amit Kamt, Sudesh Molio, Rajesh Colvalkar, Livio Vaz, Rajaram Gawas. Further, Mr.
Hemant Pai Angle and Mario Vaz in their statements have also named persons, who
according to them, are actively involved in the anti-competitive practices. The
relevant part of the statement of Mr. Hemant Pai Angle recorded by DG is reproduced
below:
"Q.11. Who are the members of the Chemist and Druggist Association, Goa
who are active participants in the affairs of the Association and all their other
alleged anti-competitive practices?
Ans. 11. The main person is Albert De Sa who is President of CDAG and is
partner of CS Enterprises. All executive committee members who are
wholesalers like - Raj Enterprises (Prop. Rajesh Colvalkar), ICM Enterprises
(Prop. Mahesh Naik) and Pharma Plus (of which Santosh Fondekar), Babu
Pharma (Prop. Babu Mopkar), G.N. Agencies (Partner- Yatin Naik), D'Silva
and D'Silva (Partner- Lyndon D' Silva) are active participants in the
association. In addition, Prakash Shankwalkar, Partner of Drogaria Ananta,
although not part of the association is also active in the affairs of CDAG.
27.4. The Commission vide its order dated 13.12.2011 directed the CDAG to submit
its financial statement for the last 3 years and also to furnish the names of the office
bearers, however, CDAG not file the requisite information. Therefore, the Commission
has decided to deal with the issue of passing orders under section 27 of the Act

against the individual members separately when the requisite information is furnished
by the CDAG.
Order under section 27 of the Act
2 8 . As the Commission has found that the CDAG has violated the provisions of
section 3(3)(a) and 3(3)(b) of the Act the Commission now proceeds to pass suitable
orders under section 27 of the Act against the CDAG including penalty.
29. As per the Statutory Audit Report on Audited Accounts for Financial Year 2009-
2010 dated November 11, 2010, annexed with the supplementary investigation report
of DG, CDAG (entity against which the allegations have been filed) had the following
receipts during 2008-09 and 2009-10:
Financial Y ears Receipts (in Rs.)
-09 ,38,955.00
-10 ,72,007.00
30. Thus, Commission after considering the facts and circumstances of the instant
case is of the opinion that it is appropriate to impose penalty @ 10% of the average
of the receipts for financial year 2008-09 and 2009-10 (in respect of which the
figures are available with the Commission) on CDAG. Therefore, in exercise of
powers under Section 27 (b) of the Act, the Commission imposes penalty on CDAG
computed as follows:
Gross Revenue Receipts during the year : Rs.
2008-03 21,38,955.00
Gross Revenue Receipts during the year : Rs.

2009-10 18,72,007.00
Average of the Revenue Receipts : Rs.

20,05,481.00.
% of the Average of the Revenue : Rs.

Receipts 2,00,548.0%
Penalty (Rounded off to the nearest : Rs. 2,00,000.00

number)
31. Accordingly, the Commission passes the following orders, under Section 27 of
the Act against the aforesaid contravening entities:
(I) The CDAG and its members are directed to cease and desist from
indulging in and following practices which have been found anticompetitive
in violation of section 3 of the Act in the preceding paras of this order.
(II) The CDAG is further directed to file an undertaking that Guidelines and
MoU with respect to non appointment of a stockist or wholesaler from
amongst the non-members of CDAG, requirement of No Objection Certificate
from the CDAG for appointment of stockist or wholesaler and limit on
number of stockist of pharmaceutical companies as well as the clauses
mandating compulsory PIS approval from CDAG for introduction of drugs in

the territory of Goa and requiring routing of bids for supply of drugs to the
Government and Hospitals through authorised stockists only have been done
away within 60 days from the date of receipt of the order.
(III) The CDAG is also directed to remove the clauses in the Circulars, MoU
and Guidelines which lay down the margins for wholesalers and retailers in
the category of non- scheduled drugs, prescribing a cap on the amount of
discount a wholesaler can give to the retailers and prohibiting the retailers
from giving any discounts to the consumers and file an undertaking to this
effect within 60 days from the date of receipt of this order.
(IV) A penalty of Rs. 2,00,000/- is also imposed on CDAG. The penalty shall
be paid by CDAG within sixty days from the date of receipt of the copy of
this Order.
32. Secretary is directed to send a copy of this order to the concerned parties for
compliance immediately.
33. I have gone through the orders passed by the majority of the members of the
Commission. I have a different view and am therefore passing a separate order. The
facts are stated in the order of the majority and there is no need to repeat them. The
first issue is the applicability of Section 3 of the Competition Act. The scheme of the
entire Competition Act, 2002 is against monopoly or dominance. This is done either
by entering into anticompetitive agreements which is Section 3 of the Act. Persons
who do not have sufficient dominance or market/economic power enter into
anticompetitive agreements so as to collectively acquire monopoly power.
Anticompetitive aspects of such agreements are defined in Section 3 and the factors
to determine such anticompetitive activities are described in Section 19(3) of the Act.
Dominance or monopoly power can also be acquired by acquisition or merger and
amalgamations. These are the subject matter for consideration in Sections 5 and 6 of
the Act. The factors to be seen for identifying the concentration of economic power
are mentioned in Section 20(4) of the Act. Under Sections 3, 5 and 6 of the Act,
Commission is required to establish appreciable adverse effect on competition. But
when dealing With dominance in Section 4, the Commission is not required to
establish appreciable adverse effect on competition. Once dominance is established in
a relevant market, then under Section 4 only the abuse needs to be examined.
34. Now, coming to the issue at hand i.e. the application of Section 3 of the Act, we
have to examine the provisions. According to the provisions, persons or enterprises
cannot enter into an agreement in respect of supply, storage, distribution of goods
and provisions of services which creates an appreciable adverse on competition. If an
appreciable effect on competition is caused then the agreement is void. But would an
agreement entered into by enterprises to form an association would be an agreement
in respect of restriction on supply, storage, distribution of goods and provisions of
services. The agreement envisaged in Section 3 is not an agreement to form an
association but an agreement which creates an appreciable adverse on competition. I
therefore do not agree that the association was formed with the idea of gaining
economic power and creating an adverse effect on competition. The agreement
referred to in Section 3 is not the agreement to form an association. It is an
agreement which leads to an anticompetitive behaviour in the markets. If the
memorandum of CDAG is seen, it would show that the agreement to form the
association was not to create AAEC in the market. Forming an association for the
welfare of the members is a constitutional right guaranteed under Article 19 of the

Constitution of India. If the argument that the association was formed with the idea
of gaining economic power then all the trade associations formed would have to be
treated as void under Section 3(2) of the Act. By forming a trade association, one
gets economic strength and may be a position of strength and dominance. But the
agreements referred to in Section 3(1) are different agreements between enterprises
which are entered into with the motive of causing appreciable adverse effect on
competition in India. If a view is taken that the formation of a trade association
agreement hit by the provisions of Section 3 then it has to be establish that such an
association is causing an appreciable adverse effect competition in India.
35. If one looks at the definition of person in Section 2(1) of the Act, then a society
registered under the Societies Act is a person. Therefore from this definition it is
clear that the intention of the legislature was to recognize the formation of such
societies or associations as a person and such agreements to form such societies
were not the subject matter of the rigours of Section 3 of the Act. Once the law treats
an entity as a person, the Commission is not entitled to treat such a person's
formation for an inquiry under Section 3of the Act.
3 6 . Section 2(h) of the Act defines an enterprise as a person or a government
department. In India, we are not governed by the European or American competition
laws where a person is not defined. In such a case, the formation of such an
association itself may be questioned as an anticompetitive agreement. But in India
the issue is different. In the case of Hindustan Lever Ltd. AIR 1971 SC 1285, the
Supreme Court has looked down upon the intention of authorities to look at the laws
foreign jurisdiction when there is no requirement as our laws are clear.
3 7 . Further, as the association in this case is a person, it cannot enter into an
agreement with one self or take a decision unilaterally or unilaterally have practices
so as to be hit by the provisions of Section 3 of the Act. For Section 3, there has got
to be more than one person. As in this case there is only one person, as sanctioned
by law under Section 2(1) of the Act, Section 3 has no application.
3 8 . The question for examination is that when such a person is exhibiting
anticompetitive behaviour, what would be the procedure to deal with such behaviour
under the provisions of the Competition Act, 2002. In this particular case there is no
doubt that the society CDAG's formation increased the economic strength of the small
retailers, stockists and the wholesellers dealing with the sale of drugs within the
territorial jurisdiction of Goa. This society/association had no statutory backing for
running its affairs but it started regulating the trade in the state of Goa. This was
possible for the association to do so because it could boycott a person and ensure
that market access was denied to person who did fall in line with, the directives of
the association. In fact it could drive a person out of business by its activities. The
society could also ensure that a company marketing drugs in Goa could be driven out
of Goa markets if the drug marketing / manufacturing company did not follow the
directives of the society. This could be done by a diktat issued by the society that its
members would not deal in the drugs manufactured/marketed by the companies who
did not follow the directives of the society. All the members would then stop buying
and selling the drugs of the delinquent drug company and in a short time, the drug
company would have to exit the market of Goa. A company trying to market its goods
in Goa would not be able to market the goods in Goa as it would not be able to set
up a marketing chain in Goa without the blessings of the CDAG.
39. Before taking the discussion further it is necessary to examine the functioning of

CDAG. CDAG functions in Goa but then there is an All India chain of wholesellers and
retail of All India level known as All India Organisation of Chemists and Druggists
(AIOCD). CDAG is affiliated to AIOCD like other state level association. In a state
there are associations of wholesellers and retailers at district levels which are
affiliated to the state level associations. AIOCD had entered into a MOU with the
Organisation of Pharmaceutical Products of India (OPPI) and Indian Drug
Manufacturers Association (IDMA) in 1982. According to the norms laid down in the
MOU margins were fixed at the level of wholesellers and retailers. Guidelines in the
MOU have also been laid down for the appointment of new and additional stockists.
Further no drug manufacturing company could conduct business with wholesellers
and retailers unless it followed the guidelines and norms of AIOCD. Many of the
guidelines appear to be restrictive and anticompetitive in nature. These guidelines are
applicable to the manufacturers, stockists and distributors.
4 0 . Pharmaceutical products are marketed in a regulated under the Drug Price
Control Order (D.P.C.O.) issued by the Central government Under the Price Control
Order, whenever a drug is introduced in the market, it is for the drug company to
give information to the consumers about the drug. As this involves costs, the drug
companies pay the association certain sums of money to the association and it is the
job of the association to give information about the product to the consumers. The
payment is known to be paid for Product Information Service (PIS).
41. The D.G. has reported in his report that each state association has to follow the
guidelines laid down by AIOCD. According to him these guidelines have the effect of
controlling and limiting supplies of medicines in the market. One of the respective
factors mentioned by the DG is PIS. The second anticompetitive measure referred to
by the D.G. is the requirement to obtain a no objection from the state level
association from the State/District level association. Further a new stockist or a
distributor has to become a member of the association before he can become a
distributor/stockist. The State/District level association can levy fines on a
stockist/distributor if he does not follow the guidelines laid down by the
AIOCD/State/District association. Normally in an area according to the AIOCD
guidelines not more than two stockists can be appointed. If the third stockist is
appointed it can only be done after an approval of the State association is obtained.
Further as AIOCD has entered into an agreement with OPPI and IDMA, if a stockist
does not obtain a NOC, the manufacturers would not supply medicines to the said
stockist. Whenever, a new drug is introduced in the market a SSI unit, it has to be
certified by the OPPI/IDMA. According to the agreement between AIOCD and
OPPI/IDMA whenever a new drug introduced in the market, PIS charges are to be
paid. If the PIS Bulletin is not published then no PIS charges are payable by the drug
companies. If the balance sheet of a SSI unit is certified by OPPI/IDMA, the SSI unit
get 50% discount on PIS charges. Another abuse noted by the D.G. was the fact that
no wholeseller could sell goods to the consumers without incurring a penalty from
the association. Further, no drug company market drugs directly in the market to
consumers/doctors. No drug company could appoint any stockist/distributor without
NOC from the association.
42. The D.G. has held in his report that -
(i) fixing of trade margins for stockists/distributor amounts to fixing of prices
under Section 3(3)(a) of the Act.
(ii) fixing of PIS charges leads to the fixing of prices of drugs in violation of

Section 3(3)(a) of the Act.
(iii) As N.O.C. before the appointment of stockists/distributor leads to
reduction of supply in the market, it is a contravention of Section 3 (3)(b) of
the Act.
43. The first issue to be decided is that fixing of trade margins for stockists and
distributors amounts to fixing of prices in accordance with Section 3(3)(a) of the Act.
The facts of the case are that medicines are subject to Essential Commodities Act,
1955. Under the said Act, a Drug Price Control Order (DPCO) has been issued.
Around 350 medicines are covered under this order. In this order, the drugs listed
are known as scheduled drugs. The other drugs not covered by the DPCO order are
known as non scheduled drug. According to the DPCO, the margin is fixed for the
wholesellers at 16% and for the retailers it is fixed at 8%. This is mandatory and all
the manufacturers, the wholesellers and the retailers have to follow this order. As far
as non scheduled drugs are concerned. AIOCD in its agreement with the IDMA and
the OPPI has decided that the margins for the wholesellers 20% and for the retailers
would be 10%.
4 4 . The question to be decided whether the fixation of the margins for the
wholesellers and the retailers by the AIOCD, the IDMA and the OPPI amounts to a
fixation of price. In every trade while marketing products, discounts and rebates are
allowed to wholesellers and retailers. This margin is the source of revenue to the
wholesellers and the retailers. Without this systems of discounts and rebates called
the margin money, the retail chain cannot survive. This system cannot be regarded as
fixing of prices. In the case of Hindustan Lever Ltd. AIR 1971 SC 1285, the Supreme
Court has stated that in case of competition, rule of reason has got to be adopted. In
the opinion 'per se' rule in respect of a provision is not applicable under Indian laws.
'Per se rule' may be applicable under the American legal system but it is not
applicable in the Indian legal system. In this particular case, the margins fixed at
20% and 10% for wholesellers and retailers are not unreasonable and is line with the
similar practices followed in other trades in the market. There is no doubt that the
margins fixed are in line with the margins fixed by the DPCO order though in the case
of non-scheduled drugs the margins were fixed in accordance with agreements
entered into by AIOCD, the IDMA and the OPPI. But in any case there is no doubt that
margins fixed for the wholesellers and the retailers result in fixing the prices of drugs
indirectly. But this fixation of prices is done by the manufacturers and not the
association CDAG. Therefore CDAG cannot be held responsible for fixing the prices.
Further applying the rule of reason fixing the prices by taking into account the
margins does not amount to fixation of prices under the Competition Act.
45. The issue which is important is the directive issued by CDAG that the wholeseller
would not give discount of more than 2% to the retailer and that the retailers would
not give any discount to the consumer. If the wholeseller and the retailer gave any
discount to the retailer and the consumer respectively they were liable to fee fined by
the association. This is a restriction on freedom to do business, The behaviour of the
association is anti-consumer. If a retailer wanted to give discount to a consumer out
of its margin of 8% for scheduled drug or out of 10% out of non scheduled drug, the
association had no right to stop this. Competition arises when two entities compete
with each other on the basis of prices to get more competitors. If each competitor is
made to sell at the same price then there would be no competition in the market.
Thus, by making the retailer not to pass on the discount to the consumer it limits the
market for a retailer. Further by not allowing a wholeseller or a retailer to give

discount to a buyer, as it is a restriction on the freedom of trades, it also amounts to
putting unfair conditions in the purchase or sale of goods. Thus, these activities of
the association are anticompetitive in accordance with the provisions of the Act.
46. The second issue is the issue of PIS. Whenever a new drug is introduced in the
market, DPCO directives require the drug companies to give information about the
new drug to the wholesellers, retailers and the consumers. The drug companies
because they do not access to all the retailers, wholesellers and the consumers they
pass on this duty to the AIOCD. For this purpose the drug companies pay a sum of
Rs. 2000/- before introducing a new drug. As far as the State agencies are
concerned, they are entitled to receive a sum of Rs. 500/- whenever a drug company
introduces a new drug. According to MOU between AIOCD and the IDMA and the OPPI
if the information bulletin is not published then the drug companies are to give any
PIS fund either to the AIOCD or the State agencies. CDAG found that some
wholesalers were making new drugs available to the retailers without paying PIS
charges to CDAG. CDAG proposed to fine the wholeseller a sum of Rs. 1000/- instead
of Rs. 500/- payable as PIS. According to the D.G., the insistence on P.I.S. payments
restricts the supply and availability of drugs. It is not clear as to how a small sum of
Rs. 500/- taken from a wholeseller at the time of introduction of a new drug is
anticompetitive. It is also not clear as to how the charge of P.I.S. leads to a
restriction and supply of medicines in the market. It is on the basis of D.P.C.O.
directive that at the time of introduction of a new drug information has to be given to
the retailer and the consumer. The information to be furnished involves cost and if
this cost, which is nominal, has to be paid by a wholeseller, it does not lead to
restriction of supply. Therefore the levy of PIS does restrict the market and is held
not to be anticompetitive.
47. The next issue to be considered is the issue of the denial of market access. An
issue which was raised in the information and which has also come out DG's report is
that in Goa no person who is not a member of the CDAG can do business as a retailer
or wholeseller. If the enterprise wants to become a wholeseller or a stockist, it has to
first become a member of CDAG and then apply for a no objection certificate. Without
the no objection certificate, no drug manufacturer can make an enterprise either a
wholeseller or a stockist. This is on the basis of the MOU between AIOCD and the
IDMA and the OPPI. If a manufacturer makes someone a wholeseller or a stockist of
its drugs without the NOC from CDAG the retailers would boycott the said wholeseller
or the stockist. This happens because the retailers being members of the CDAG would
follow the directives of CDAG. But the boycott would drive the newly appointed
stockist out of business. Further when a retailer buys medicines from a
stockist/wholeseller who is a member of CDAG, according to the CDAG guidelines, he
is given a credit of 20 days and after that the retailer has to pay interest at 18%. If a
retailer is a habitual defaulter, CDAG directs the other stockists not to supply
medicines to driven out of business. But if the stockist/wholeseller is not a CDAG
member, CDAG follows a different policy. A retailer in such a case asks the retailers
to take a credit of three of four months. This behaviour of CDAG is having a
discriminatory behaviour.
48. Taking the issue of denial of market aceess further the whole process starts with
the MOU between AIOCD and the IDMA and the OPPI. According to this MOU in a
state or an area, not more than two stockists could be appointed by a drug company.
But in Goa, a drug company could appoint five stockists depending on the turnover of
the concerned medicines. Thus, the CDAG has limited the market to just five
stockists. It is also a restriction on the freedom to carry on business. Further, by

limiting the number of stockist, competition has been reduced and the availability of
medicines would accordingly reduced.
49. It has been argued on behalf of CDAG that the NOC was required in order to
eliminate sellers of spurious drugs in the market. No material has been submitted to
show that there was a sale of spurious target and the system of NOC helped in
eliminating such sellers of spurious drugs from the market. In fact the main aim was
to restrict the number of wholesalers and stockists so as to ensure that there were
lesser number of players in the market so that each stockist would have a larger
share of the pie. Therefore the arguments of CDAG are without any basis and cannot
be accepted. The fact is that by the action of CDAG the market is limited and there
was a denial of market access to many persons. The denial of market access to
persons to sell medicines in the State of Goa as an infringement of the freedom of
trade and lesser consumer satisfaction because the availability of the drugs
decreases.
50. An argument can be raised that as the CDAG does not carry out any business, it
cannot be treated as an enterprise under Section 2(h) of the Competition Act.
According to the definition the keyword is carrying out any activity. As the activity of
CDAG has an effect on carrying on the business of medicines in the State of Goa, it is
certainly hit by the definition of enterprise as it is also a person defined under section
2(1) of the Act. Carrying on business is not necessary for a person to fall under the
definition of enterprise under the Competition Act. This view has been confirmed by
the Delhi High Court in the case of Hemant Sharma vs. Chess Federation, Writ
Petition (Civil) No. 5770 2011.
5 1 . The next issue to be decided in this case is as to whether CDAG enjoys a
dominant position in the relevant market. The market has to be defined with
reference to the relevant product market or the relevant geographic market or with
reference to both the markets. In this particular case the relevant geographic market
would be the State of Goa. As far as the relevant product market is concerned it
means the marketing medicines in Goa. The position of dominance arises due to the
formation of a product association for the State of Goa as well as the MoUs entered
into by AIOCD with OPPI and IDMA. Due to this collective strength of association
CDAG is able to operate independently of competitive forces primarily because no
competitive force is prevailing in the State of Goa. The object of the association is to
regulate the trade of the sale of medicines in the State of Goa. Thus the association
be able to affect its consumers in the relevant market in its favour. The fact is
mentioned in Section 19(4) have also be considered while deciding the issue of
dominance. As far as a market share of the association, the size and resources of the
association, size and importance of the competitors, economic power of the
enterprise, vertical integration of the enterprise, countervailing buying power, market
structure and the size of the market is concerned, are the factors which cannot be
seen or examined in this case of the association. But the consumers are depending
on the decisions of the association and the dominant position has been acquired due
to the collective bargaining power which the association is acquired for forming the
association. Therefore under clause (g) of Section 19(4) the dominance has been
acquired under the item 'otherwise'. No relative advantage acquired in terms of
economic development by informing the association or by regulating the trade of
medicines in the State of Goa. But as medicines are important for human life, social
obligations and social costs are necessary. Therefore clause (f) (g), (h), (k) and (I)
of Section 19(4) are applicable to the facts case.

52. In view of these facts the dominance of CDAG is established in the market of
medicines in the State of Goa. The abuse of dominance is already established as
discussed in Paras 16 and 17 of this order. The behaviour of CDAG is discriminatory
as far as the conditions of purchase and sale of goods which is medicines in this
case. Therefore the provisions of Section 4(2)(a)(i) are attracted. The action of CDAG
also limits and restricts the market of medicines in Goa as there is restriction to the
entry of stockists and wholesalers in the State of Goa. Therefore the provisions of
Section 4(2)(b)(i) are clearly attracted. The practice followed by CDAG also results in
denial of market access as no one can enter the market without no objection
certificate from the association. Therefore CDAG has contravened section 4(2)(c) of
the Act.
53. As the abuse of dominance is established, I am in agreement with the majority
view that penalty has to be levied in this case. I agree with the majority view to the
extent of the penalty levied in this case. The other directions issued in the order of
majority have to be followed by the CDAG in this case The secretary is directed to
send a copy of this order to the concerned parties.
Dr. Geeta Gouri, Member
5 4 . The Commission received an information filed by Varca Drugs & Chemists &
Others, Goa, transferred from Monopolies and Restrictive Trade Practices Commission
(MRTPC) under Section 66(6) of the Competition Act, 2002. The allegations pertain to
certain restrictive trade practices adopted by Chemists and Druggists Association,
Goa, (hereinafter referred to as 'CDAG'). While the original information was filed
before MRTPC. The substance of allegation shall be analysed on the basis of the
provisions of the Competition Act. According to the informant, CDAG as an
association, framed various guidelines, meant to benefit its members in carrying out
their business of stocking, wholesaling and retailing of pharmaceutical product.
However, as per the allegations, over the years due to the unfair practices of some of
the members of its Executive Committee, the CDAG has become a monopolistic body
and has started indulging in certain restrictive trade practices, now deemed anti-
competitive. The allegation of the informant centred on the selection process and
appointments stockists by AIOCD (national level association of wholesalers and
retailers) and CDAG and its abuse, resulting from existing guidelines and
MoUs/between CDAG and the manufacturers.
55. During the course of investigation, DG noted several anti-competitive conditions
emanating from these very guidelines. The Commission ordered further enquiry into
the links between CDAG and AIOCD and the anti- competitive practices mentioned in
the investigation report of DG by issuing a supplementary order dated December 2,
2010. Since the facts of the case have been detailed in the majority Order, only a
brief summary of the allegations are set out below.
56. The informant, in his submission to the Commission, has drawn attention to the
method and process of appointing stockist/wholesalers and restricting their number
in the state of Goa which, in his opinion, creates entry barrier and hence is anti-
competitive. The crux of the allegations lies in the issue of 'no objection certificate'
(NOC) by CDAG for appointment of stockists/wholesalers. Further, no
stockist/wholesaler can be appointed without an NOC from CDAG. This 'right' which
normally rests with manufacturers has been transferred to AIOCD and CDAG through
the MOU signed with the pharmaceutical companies. Additionally, the MOU mandates
all pharma companies to appoint stockists/retailers in the state of Goa only from the

members of CDAG.
57. The ' right of appointment of stockist translates into:
i. Restrictions on the number of stockists in the state;
ii. Conditions for permitting appointment of additional stockist.
Limited number of Stockists so appointed control the supply of drugs in the markets
in Goa.
5. The appointed stockists/wholesalers are under instructions from CDAG and;
a. are not permitted to pass on the financial benefits of schemes introduced
by the Pharma companies,
b. To refuse refunds to retailers by wholesalers in respect of stocks which
have crossed expiry date.
c. Forcing bids for government tenders to be routed only through the
'authorized stockist',
d. Not to allow credit to retailer, contrary to the industry practice of allowing
a credit of 20 days to one month.
58. Restrictions have also been imposed by CDAG on pharma companies as under:
a. Pharma companies are not permitted to make direct supplies to doctors,
nursing homes, chemists etc. and instead route the same through the
authorized stockists only.
b. Pharma companies and wholesalers are restricted from supply of drugs to
retailers who are not the members of CDAG.
59. The DG, during the course of investigation, has brought out certain additional
anti-competitive practices (hereafter referred to as 'observed' allegations) of CDAG
which included
a) Fixation of trade margins to wholesalers and retailers;
b) Not permitting discounts to retail consumers in the name of preventing
unhealthy competition;
c) Capping of cash discount available to retailer;
d) Issue of PIS by the Associations.
Methodology of Analysis
DG and Majority Order:
60. The approach of DG pertaining to the allegations both filed and observed was to
examine these as an integral part of association functioning. This can be observed
from the finding of DG. To quote:
Evidences collected in course of proceedings and statements of persons

recorded before this office are indicative of the fact that the associations, not
only limit and control supply of drugs in the market through a system of PIS
approvals, but also limit and control the number of players by insisting on
need of NOC of associations for appointment in their areas of operations. It
has also been found that the associations through their guidelines and norms
fix margins for the wholesalers and retailers, which has the effect of
determination of sale prices of drugs in the market. These practices and
conduct of CD AG are violative of provisions of section 3(3)(a) and 3(3) (b)
of the Competition Act, 2002" (DG supplementary report dated March 18,
2011).
6 1 . This approach, while it may have its merits can lead to situations where the
positive activities of an association tend to get blurred by the undesirable outcomes.
More significantly, it prevents identification of the precise anticompetitive effects
which as per DG are in built into the guidelines and MOU. Moreover, DG, by limiting
investigation to CDAG, was unable to capture what he mentions in his report itself-
the linkages between associations, both horizontal and vertical. Further, he has not
been able to capture the dynamics of an industry where associations have been in
existence for over four decades and the present guidelines are a result of long term
negotiations between the industry players, which might have contributed to the
overall stabilization of the industry, thus mutually benefitting all the participants. The
majority order has also followed the same approach and concluded that the
association(s), not only limit and control supply of drugs in the market through a
system of PIS approvals, but also limit and control the number of players by insisting
on NOC for appointment of stockists. It was also concluded that associations, through
their guidelines and norms, fix margins for wholesaler and retailers, which has the
effect of determination of sale price of drugs in the market. The DG and the majority
Order found all these activities to be in contravention of Section 3(3)(a) and 3(3)(b)
of the Act.
Approach of the present Order:
62. I prefer to look at each of the following allegations / practices separately for
anti-competitive conduct as these require separate examination from the lens of
competition assessment (as also followed in the Order of Member (R)):
(i) Requirement of no-objection certificate (NOC) from CDAG before the
appointment of stockists/distributors leads to reduction of supply in the
market, in contravention of Section 3(3)(b) of the Act.
(ii) Fixing of trade margins for stockists/distributor amounts to fixing of
prices violating section 3(3)(a) of the Act.
(iii) Issue of restriction on discounts to be allowed by the wholesaler to
retailer, and by retailer to end consumer.
(iv) Fixing of PIS charges leading to the fixing of prices of drugs in violation
of Section 3(3)(a) of the Act.
63. In the light of the approach taken in this Order I briefly outline the structure of
pharmaceutical sector in India and the role of associations.
6 4 . Pharmaceutical industry and Associations Among others, the industry is
characterised by two main features- (I) existence of associations at each level of the

value chain viz. manufacturers and wholesalers/retailers; (ii) high degree of
regulation. These features are elaborated in the following paragraphs.
6 5 . The Indian Drug Manufacturers Association (IDMA) and Organization of
Pharmaceutical Producers of India (OPPI) are the pan India associations of drug
manufacturers, whereas AIOCD is the apex association of wholesalers and retailers of
drugs at all India level. The industry norms relating to various commercial aspects
get determined collectively through continuous interaction between these apex
associations.
66. The industry is highly regulated by a host of government regulations which have
evolved over the years to address concerns relating to drug safety, quality standard,
IPR protection, affordability and accessibility. The pharmaceutical industry in India is
regulated by the Drugs and Cosmetics Act 1940 (DCA) and the Drugs and Cosmetics
Rules (DCR) made thereunder. Under the provisions of DCA, the office of the Drug
Controller of India (DCI) is responsible for enforcing the provisions of the law. At the
field level, enforcement is done by the State governments through their Food and
Drug Administration offices. Matters of product approval and standards, clinical trials,
introduction of new drugs, and import licenses for new drugs are handled by the DCI,
whereas the approvals for setting up manufacturing facilities, and obtaining licenses
to sell and stock drugs are provided by the State Governments. The licenses are to be
renewed periodically.
67. It may be pertinent to mention here that the pricing of drugs are also regulated
by the National Pharmaceuticals Pricing Authority (NPPA). NPPA, through the Drug
Pricing and Control Orders, provides not only the price formula but also the margins
for wholesaler and retailer in case of scheduled drugs. The Pharmaceutical Policy,
2002 provides detailed pricing framework specifically focussing on Maximum
Allowable post-Manufacturing Expenses (MAPE), margin for imported formulations,
pricing of formulations, ceiling prices and monitoring thereof. It also monitors the
pricing of non-scheduled formulations. As per press release of Press Trust of India
dated May 15, 2012, prices of 95 packs of non-scheduled drugs were reduced
following the intervention of NPPA. Thus the task of price setting, margin
reasonableness etc. is being looked into by the NPPA and this should also be a factor
in analysis of allegations.
68. The provisions of Competition Act, 2002, with its distinct focus on prevention of
anti-competitive practices, complements all such diverse set of laws, polices and
regulation governing the pharmaceutical sector.
6 9 . Having gone through the industry peculiarities, it is now important that the
assessment of the conduct and practices of CDAG as pointed out by the opposite
party, be contextualised with respect to the overall structure of the pharmaceutical
industry in India, including the pharmaceutical value chain, the regulatory framework
and the role of and linkages between the various industry associations.
70. The spread of Associations interlinked horizontally and vertically in a regulated
sector tends to obfuscate the boundaries of regulator and the regulated. It is in this
framework that each of the allegations are now examined:
(i) Issue of requirement of no-objection certificate (NOC) from CDAG before
the appointment of stockists/distributors in Goa leads to limiting supply in
the market, in contravention of section 3(3)(b) of the Act.

71. On this issue, I agree with the main order, but detailed examination of the facts
and evidences brought on record makes it clear that the aforementioned Guidelines
enforced by the association emanate from the various vertical agreements and MoUs
entered into between AIOCD, IDMA and OPPI. CDAG and all other state associations
are enforcing such agreements in their respective states. While this certainly does not
preclude the liability of CDAG in this specific case, at the same time it warrants an in
depth inquiry into the role and function of the parent associations (AIOCD, IDMA,
OPPI) who have been setting the terms of business between the players at the
various levels of the supply chain over the years. The attention in this case was on
the allegations levelled against CDAG and therefore the practices of CDAG have been
the focal point of investigation in the majority order. However, the culpability of the
parent associations cannot be overruled. In order to clearly bring out the facts,
separate investigation on the role of the parent associations AIOCD, OPPI and IDMA
needs to be initiated to analyse the nexus and application of the provisions of the
Act.
(ii) Fixing of trade margins for stockists/wholesalers and retailers
72. DG has concluded that margin fixation by AIOCD / CDAG at different level of
supply chain amounts to violation of Section 3(3)(a) of the Act. This has been
accepted subsequently in the majority Order.
7 3 . NPPA regulates the margins for wholesaler and retailer at 8% and 16%,
respectively. These regulations are for Scheduled drugs and are effected through
Drug Pricing and Control Orders. The industry norms as stated by the informant are
10% and 20% for wholesaler and retailer respectively for non- scheduled drugs. It is
observed that these margins are largely in line with the margins regulated by NPPA
for scheduled drugs.
74. The critical aspect of margin fixation being anti-competitive in the Main order
was that it was leading to pride fixation. In this regard, it is important to note that
the margins are allowed as a percentage of MRP, but determination of MRP is vested
with the manufacturing company, and not the Association. Also, in any product where
MRP is to be indicated, the margins for the intermediate players are considered by the
manufacturer and these are largely based on industry practices and do not fluctuate
much over a period of time. Even in this case, the margins for scheduled drugs are
same since1995. Thus, it is stated that margin fixation is more a question of
distribution of total margin among the intermediaries rather than a question of retail
price fixation. This could also have been looked into for being anti-competitive, had
the same not been in line with the NPPA prescribed margins. Under the
circumstances, the margin fixation seems to work in the direction of achieving the
price control over non-scheduled drugs on the same lines as the scheduled drugs.
75. Having said that the system of margin fixation is conceptually different and does
not imply price fixation, still, DG, on the issue of margin-price nexus could have
looked into the price fixation formula of pharma manufacturers for the non-scheduled
category, which has not been looked into. DG has placed some evidence in the form
of minutes of the meetings of CDAG to suggest that there was attempt to fix end
prices also, but the evidence is inconclusive.
76. The issue of margin fixation has also been looked into, from the perspective of
the end consumer. In this connection, we may note the observation of WHO/HAI as
brought out in their working paper titled "The Regulation of Mark Ups in

Pharmaceutical Supply Chain" published in May 2011. According to the report, around
60% of low income countries regulate wholesale or retail mark ups in the public or
private sector, which suggests that this is a global industry practice. The report
notes: "Regulation of mark ups as part of comprehensive price regulation strategy
probably will lead to reduced medicine prices. However, regulation of mark-ups
without regulation of either the manufacturer's selling price or the retail selling price
is unlikely to lead to reduced medicine prices". In India, as already stated, NPPA
regulates the pricing of scheduled drugs and monitors the pricing of non-scheduled
drugs, which protects the end consumer from any adverse effect (if any) of margin
fixation in the industry.
77. Thus, it can be concluded that while margin fixation in case of product such as
drugs and pharmaceuticals, has the merit of introducing transparency and stability in
the industry operations, the adverse impact on prices and end consumer remains
inconclusive. On that note, it is held that margin fixation has not produced any anti-
competitive effect on the consumer, as for him, the effective price is MRP, which has
to be paid and the investigation has not been able to establish the adverse impact of
margins on prices. There is no appreciable adverse effect on competition and no
perceived consumer harm.
78. The supplementary order of Member (R) also emphasises the view that margin
fixation cannot be presumed to be anti-competitive activity. The fact that margins
prescribed by association are in line with the margins prescribed by NPPA for
scheduled drugs and are thus not unreasonable to be viewed as anticompetitive.
Margin price nexus has also not been established by DG.
(iii) Issue of capping of cash discount at 2% by wholesaler to retailer and non-
allowance of any discount by retailer to end consumer.
7 9 . There are two discounts to be examined in this allegation. They are: i) cash
discount between wholesaler to retailer and ii) any discount offered by the retailer to
the end consumer. It is important to note that the association guidelines provides for
Cash Discount and not trade discount. The purpose of cash discount is to encourage
quicker realization and the said guidelines is applicable to all retailers who pay within
stipulated time. Cash discounts are aimed to facilitate quicker conversions of
receivables to cash so as to reduce the overall length of the operating cycle. The
quantum of cash discount to be allowed by a market player is based on the
opportunity cost of funds. Allowance or non-allowance or capping of cash discount,
however, does not raise competition concerns. Further, there is uniform application
and no discrimination can also be alleged. The restriction however, of the association
in not permitting retailers to extend discounts to consumers is anti-competitive as it
interferes in the freedom of trade and devoid consumers, the benefits of lower prices.
(iv) Issue of PIS
80. The main order on the subject of PIS concludes that PIS approval is functioning
like NOC, without which the pharma companies will not be in a position to supply
drugs. The system of PIS approval for introduction of drugs in a particular territory
and acceptance of PIS money restricts the supply and availability of drugs in
contravention of Section 3(3)(b) of the Act.
81. PIS as the name suggests is the Public Information System and plays a very
important role lending transparency to wholesalers, retailers and patients on the
constituents of different drugs. The DPCO directives require the drug companies to

give information about the new drugs to the wholesalers, retailers and consumers.
82. Based on the available facts and evidences, it is not imminently clear as to how
the PIS system by itself restricts the supply of drugs or creates entry barrier or PIS
Charges lead to price fixing. In view of the possibility that such service may be
deemed beneficial and a cost-effective way of disseminating information by the
manufacturers, a conclusion on the effect of PIS cannot be arrived at without a
complete analysis of the merits and demerits of the system and the manufacturers'
perspective on the same. The evaluation of the possible rationale for having such a
system in place assumes all the more importance given that the practice has evolved
and has been standardised through a process of mutual understanding between the
drug manufacturers and the distributors' associations. On the basis of available facts,
it is an efficient system for information dissemination made available at a nominal
cost charged by the Association(s) as pointed out by Member (R). The negligible cost
is immaterial to the eventual cost and price of the product, and the efficiencies of the
information are clearly more than proportionate to the restrictions it imposes. In fact,
internationally there is a move for greater information through PIS and strengthening
the existing regulatory system especially for enabling more detailed and universal
classification of drugs and chemicals between branded generic and generic and also
strengthening the public information system where simple drugs are known to
consumers.
83. Thus, it is abundantly clear that the system of PIS is indispensable to the pharma
industry. This being so, it cannot be termed as anti-competitive by any stretch of
imagination. The drug companies have passed on this task to the AIOCD, who
publishes the same in their information bulletin. As regards cost of PIS, it is a mutual
understanding between the drug companies and the association. I am of the view that
a onetime payment of Rs. 20007- to AIOCD and Rs. 500/- when a new drug is
introduced is negligible, given the total cost of production/marketing over the entire
product life cycle.
84. Therefore this system cannot be faulted for price fixation or for restriction of
supply and hence cannot be termed as anti-competitive as per provisions of the Act.
Conclusion
85. In this order I have analysed in depth the activities of CDAG which are alleged to
contravene the provisions of the Competition Act. Each allegation has been examined
separately in the context of the role played by CDAG and other Associations in the
Pharmaceutical industry. Though it is observed that Associations in this industry have
had beneficial impact, but over the years the Associations have crossed the 'Rubicon'
of purely Association activities denying benefits of competition to consumers.
Order
This order finds contravention by CDAG on two counts;
a. In the appointment of stockists by way of issue of 'NOC and regulating the
number of stockists in contravention of Section 3(3)(b) of the Competition
Act, 2002
b. In preventing and restricting the retailers from allowing discounts to the
consumers in contravention of Section 3(3)(a) of the Competition Act, 2002
As mentioned earlier a suo motto investigation be initiated into the nexus

between associations both horizontal and vertical for as observed most of the
practices have evolved over several decades. In fact, association in the
pharma industry associations have impacted on several activities along the
value chain
The amount of penalty may be in line with the majority order.
CDAG to cease and desist from the following activities within 60 days from
the date of receiving this order and to furnish an undertaking to this effect:
a. Limiting and controlling the number of stockists by doing away
with the restrictive clauses contained in guidelines as the same is in
contravention of Section 3(3)(b).
b. The restriction on extending any discount to the consumer by the
retailer which is in contravention of Section 3(3)(a).
c. The restrictive conditions related to insistence on routing the bids
through authorized stockists, non-allowance of companies and
wholesalers to deal with retailers who are not the members of CDAG
which are in contravention of Section 3(3)(b).
The Secretary is directed to inform the parties accordingly.
86. I had the benefit of going through the order passed by my learned colleagues
and having different opinion on certain issues, decided to pass a separate order, The
informant in this case had brought to the notice of the Commission various acts and
deeds of the opposite party and asked the Commission to take appropriate action
under the provisions of the Competition Act. The investigation was conducted by the
DG who had collected documentary material and oral evidence about the allegations
made by the informant. The evidence consists of Memorandum of Association,
various guidelines issued by the Association, letters, minutes of meetings and
statement of office bearers of OP narrating the conduct of association about holding
of meetings and issuance of letters etc.. Thus the evidence available on record is
beyond the pale of doubt.
87. The opposite party is an association of wholesalers, stockists and retailers in
Goa. A perusal of list of executive members of the Association would show that the
Association was having separate wholesellers Chairman and Retailers Chairman. It
was being governed by an executive body having President, Secretary, Vice
Presidents, the two Chairmen as stated above and executive members.
88. The Opposite Party was having a Memorandum of Association and had enacted
by-laws and guidelines for its members. The guidelines issued by the OP to be
followed by the members and drug manufacturing companies including Ayurvedic
companies, inter-alia, contained following directions :-
) Appointment/termination of stockists shall only be done with the
permission of the Association.
) A new company can appoint only two stockists, one in North Goa and the
second in South Goa.
) The steering Committee shall issue clearance certificate for appointment of
stockist if the stockiest satisfies the conditions as per guidelines. No person

can be appointed stockiest by a company without letter of clearance/NOC.
) No stockist shall place order to a company before receiving a letter of
clearance.
) Any wholesaler violating the guidelines shall leave the stockistship and
shall be debarred from taking further lines for one year and will have to pay
a minimum fine of Rs. 5,000 to the opposite party.
) The number of stockists to be appointed by the pharmaceutical companies
is also governed by the guidelines.
) Companies are not allowed to appoint another stockist for one year after it
appoints a stockist, even if the company feels the need for another stockist.
) A company violating the guidelines will have to pay a minimum fine of Rs.
10,000 and it shall abide by the final decision the Association.
) A company wanting to appoint a new stockist shall apply for NOC to the
Association. Application shall be made separately for the two districts of Goa
and new stockist would be given NOC if the existing stockist has already
reached a minimum-sale.
) No company can make direct supply of medicines to doctors, nursing
homes, hospitals or chemists. All supplies must be routed through an
authorized stockist only. A company cannot directly deal with private
hospitals, nursing homes i.e. bulk purchasers
) Bids for Government tenders are to be routed through CDAG. failing which
the companies/stockists may be boycotted by CDAG and threatened of dire
consequences is given.
) Schemes of the pharmaceutical companies (giving benefits) are not to be
passed on by the retailers to the consumers and the detractors are to be
penalized by the disciplinary committee of the CDAG.
) If a company has stopped operations in Goa for more than two years and
want to restart the operations, it will be considered a new company and will
have to apply for fresh PIS (Product Information service) and for
appointment of stockists.
) Wholesalers shall give maximum cash discount to retailers only of 2%.
) Wholesalers should not operate any indirect beneficiary scheme to get
larger orders from retailers.
) A wholesaler found violating the guidelines & rules will be liable to strict
action by CDAG on the recommendation of Disciplinary Committee appointed
for the purpose. On being found violating rules, he shall be fined Rs. 2,500
and a warning letter for first violation and a fine of Rs. 5,000 for second
violation coupled with debarring him for a period of one year for being
appointed a stockist.
) Retailers were directed not to enter into unhealthy competition of giving
discount to the customers and to not to operate any beneficiary scheme to

attract the customers. A retailer found violating the rules would be levied a
fine of Rs. 2,500 besides warning letter for first violation and a fine of Rs.
5,000 for second violation with directions to all wholesalers to boycott such
retailer for a period of 3 months.
89. The above guidelines formed part of the enforceable rules of the OP. Apart from
these guidelines, the minutes of meetings of AGM held by OP show that the OP had
been serious about implementation of such guidelines and had been ensuring that the
wholesalers, companies, stockists and retailers follow these guidelines. Right from
2005 onwards AGM minutes of OP show that in the AGMs, there was discussion about
different wholesalers and stockists and companies who had not followed the
guidelines and there was mention of action taken by the Association against them.
NOCs were been denied and penalties were imposed in pursuance of above
guidelines. In the meeting held on 20th July, 2007 at the office of CDAG, one
member produced a bill from "Vintage Hospital" showing 10% discount on regular
medicines purchased and a note was taken of this violation and it was decided that
this violation be put up before wholesalers meeting. It was also noted that some
wholesalers were making products available and supplying drugs to retailers without
payment of PIS charges. This matter was also discussed and it was decided that the
wholesalers will have to pay Rs. 1,000/- to the Association instead of Rs. 500/- the
normal charges being levied illegally by CDAG. The annual report for the year 2007-
08 mentions that the wholesalers should become members of the Association and
while making first supply to the retailers, they should first check the membership of
new chemists, The retailers should also place orders only on those wholesalers who
were members of the Association. In the meeting of wholesalers of 14th August,
2008, the Chairman reported that a letter was being written to 'Raikar Distributors'
regarding practice of giving extra discount to the retailers against the guidelines.
Similarly, it was also decided to write letter to 'Micro Labs' seeking explanation
regarding violation of CDAG guidelines by their super stockists. The letter dated 10th
September, 2008 written by CDAG to Micro Labs is on record. In this letter, Micro
Labs has been told to direct its super stockists not to supply medicines to those
stockists who were not official stockists (i.e. not registered with CDAG
90. The resolutions passed by the Association of 3rd February, 2009 are on record.
Resolution No. 3 provides that it was mandatory for all companies that the stockist
which has one division of a company shall get all other divisions of the said
company. The resolution No. 4 provides that if the existing stockist of the company
satisfies the guidelines regarding limit of sales of a stockist, then only the executive
Committee of CDAG shall give NOC to the company to appoint another stockist
simultaneously. Similarly, five resolutions were passed in the meeting of 1st March,
2009. The first resolution provided that the Association shall make it mandatory for
all existing companies and new companies to appoint at least two stockists one in
North Goa and other in South Goa. The third resolution provided that it would be
mandatory for all companies that the stockist, which has division a company, shall
get all other divisions of the said company.
91. A perusal of the minutes of two other meetings of the Executive Committee and
Association available on record would show that the OP Association has been
insisting on obtaining LOC (letter of consent) and NOC from it before appointment of
any wholesaler, stockist in the area by companies. Any company which resisted the
dictates of OP was boycotted by the members, in pursuance of guidelines & circulars
and the members of the association faithfully followed the dictates of the association.
The companies were denied LOC for appointment of additional stockists and did not

appoint additional stockists under the fear of boycott of their products. For example
M/s. 'Raikar Distributors' were denied appointment of additional stockist in Goa
despite existing stockists having given NOC that it may appoint more stockists.
92. CDAG had been compulsorily charging PIS from every company which introduced
any new drug or a new variant of existing drug. PIS was being charged at a fixed rate
and a company was bound to pay this amount if it wanted to sell its product within
Goa. In case of non-payment of PIS charges, penalties were imposed by CDAG and
threat of boycott is there. Product Information Service (PIS) is a service provided by
CDAG by publishing the information about the drug of the company in its periodical
publication which is circulated to the chemists and druggists within Goa. CDAG
charges separate PIS for the same drug even in cases of quantity variants i.e. if a
company has come out with 3 versions of a drug, say in 10 mg, 20 mg. and 40 mg.,
it will have to pay separate PIS for each version. Payment of PIS is compulsory for all
the companies.
9 3 . In the wake of above facts and practices of CDAG in controlling the entire
business of retail and wholesale of drugs the state of Goa, the informant argued that
MOU, guidelines, acts and deeds of CDAG amounted to violation of provisions of the
Competition Act and wanted that the Commission should restrain CDAG from
enforcing anti competitive guidelines and such guidelines should be scrapped. The
Commission should amend the guidelines and should pass orders for freeing the
business of supply of drugs from the clutches of CDAG.
94. It was submitted that CDAG had become a monopolist body and was practicing
and doing acts which were anti competitive. The practice of CDAG forcing companies
to appoint stockists and wholesalers from only those persons who were members of
CDAG amounted to killing of competition. Imposition of penalties by CDAG and
boycott threat was violative of the provisions of the Competition Act.
9 5 . The above matter was filed in June, 2009 under MRTP Act before Director
General (Investigation & Registration). The informant was perhaps unaware of the
Competition Act having come into force on 20th May, 2009. However, the complaint
was forwarded to the Competition Commission as MRTP Act had ceased to exist.
96. The main argument of the OP is that the Association was working for the welfare
of its members and for betterment of the trade. It was regulating the trade in such a
manner that it was for the benefit of the members & consumers. It is stated that
Union Health Ministry had constituted Mashelkar Committee which recommended that
Chemists & Pharmacists through their association should act as a watch dogs to
prevent entry of spurious drugs/medicines purchased from unauthorized resources
and had specifically reiterated that All India organization of Chemists & Druggists
should play an active role to educate their members and to cooperate with regulatory
authorities to eliminate sale of spurious and sub standard drugs by their members. It
is stated that the Association CDAG was issuing NOC after verifying the antecedents
of the Stockists, wholesalers and retailers to ensure that nobody deals with spurious
drugs. Therefore, whatever was being done was being done for the benefit of the
consumers.
97. The argument of the opposite party must fail. Formation of an association is a
fundamental right of people of India, but no association can be formed for illegal
purposes or to perpetuate illegality. A perusal of minutes of AGM of oP would show
that the whole effort of the OP has been to protect the sizeable profit margin of its

members, whether wholesellers or retailers. OP had no business to regulate the profit
margins or issue letter of consents or NOCs to persons for doing business in
wholesale or retail supply line of drugs/medicines. Only few professions have been
given responsibility of keeping a watch on the professionals by legislature by
enacting necessary statutes. The elected bodies of Advocates, CAs, CSs, ICWAs &
Doctors have been given statutory powers to regulate the profession. No such power
has been given by legislature to chemists & Druggists Associations either at state
level or national level to regulate business, fix margins & ensure profits or to regulate
the entry and exit of the person in this business or to fix norms of minimum turn
over etc. The entry into this business is regulated by a host of central rules and
regulations and a complete administrative structure is there at state and central level
under Drugs & Cosmatic Act & Rules. It is the state which grants or revokes licence to
do trade in this field. No association can super impose its own dictate over retailers
or wholesellers about whether they can open shop in an area or not. The business
person itself has to decide whether he wants to enter the field and compete with
others or not. CDAG or any other association of existing retailers or whole sellers
cannot decide nor has business to decide whether a new entrant in the field should
be there or not. There can be no worse anti competitive act than denial of market
access to a person.
98. Section 3 of the Competition Act (the Act) provides that where an agreement is
entered into between enterprises or association of enterprises etc. etc. or a practice is
carried on or a decision is taken by any association or enterprise or association of
persons including cartels engaged in identical or similar trade of goods or provision
of service, which directly or indirectly causes or likely to cause an appreciable
adverse effect on the competition within India, such an agreement shall be void.
Section 3(3) provides that if decision or practice determines purchase or sale price, it
shall be presumed to have an appreciable adverse effect on competition. Similarly, if
the actions or decisions or practices limit or control production/supply, market of
provision of services, it shall be presumed to have appreciable adverse effect on
competition. Section 3 prohibits an agreement in respect of supply, production,
distribution, storage, acquisition or control of goods which causes or is likely to
cause an appreciable adverse effect on competition within India.
99. Cartel is defined under section 2(c). Cartel includes an association of producers,
sellers, distributors, traders or service providers who by agreement among
themselves limit, control or attempt to control production distribution, sale or price
of, or trade in goods or provision of services.
100. In order to form a cartel, it is not necessary that a formal association should be
got registered. A cartel can be formed by an informal association of enterprises as
well as by a formal registered Association of enterprises. The coordination between
the enterprises can be achieved through medium of either of the associations.
Formation of a trade association becomes handy where cartel consists of a large
number of firms. In such cases where trade associations are formed for the purpose
of cartelization, the compliance of the rules made by the cartel needs to be monitored
and is monitored through the Executive Committee or the members of the
Association. Where only a few firms unite to form a cartel, it is relatively easy for
each firm to monitor one another. However, where large numbers are there, this
monitoring and penalizing is done through reporting by the members. The members
keep on giving information to the Executive Committee about the violation as it
comes to their knowledge. Then the executive committee takes action.

101. The legislature was aware that associations can take the shape of cartels and
that is why in section 2(c), the association of producers, sellers, etc. has been
included in the definition of cartels. Similarly, the legislature in section 3 also
envisaged a situation where enterprises may form an association and take such
decisions or adopt such practices which were akin to a cartel. The constitution of an
association and adopting of its Memorandum of Articles of Association, its rules, bye-
laws, guidelines itself is a decision of the enterprise. Every individual member who
subscribes to the Memorandum of Association and becomes member of the
Association either at the time of inception or later on, is a party to the decision as
recorded in the form of by-laws, guidelines, rules & regulations of the association.
The decisions of the Executive Committee of the Association elected by the general
body of the association are not only the decisions on behalf of Association but
amount to the decisions of the members of the Association. It is quite possible that
some members may not agree with the decision of Executive Committee. Those
members who do not agree with such decisions which affect the trade or service are
supposed to convey their disagreement with the decisions to the Association. If no
member conveys disagreement to the decision of the Executive body, it is presumed
that he agrees with the decision.
102. An association may have two faces, one that of the looking after the welfare of
the Association members and other face that of killing the competition among the
members and to ensure cooperation in earning assured profits as well as taking such
decisions which are anti competitive. The Commission has to adopt a functional
approach. Those actions of the Association which are only in the nature of welfare of
the members of the association like ensuring that the members get credit from
wholesalers, they are not harassed by the authorities, organizing welfare schemes,
cultural programmes etc. are the measures of an association which are not to be
objected to. However, those functions and decisions of the association which violate
Competition law are to be considered in a different perspective and cannot be
considered as legitimate functions of the association. An association of enterprises
can be held responsible as a body for anti competitive decisions and the members of
the Association individually can also be held responsible for those decisions and
practices which are anti competitive and show formation of a cartel.
103. The various decisions and guidelines some which have been enumerated in
paragraph 4 above, would show that the OP in this has practically taken the shape of
a cartel. The guidelines issued by CDAG that no company can appoint stockist
without obtaining LOC or no stockist would be allowed to be appointed unless the
previous stockist had reached a certain minimum turnover, or unless he is made
stockist for all the divisions, are in the nature of limiting the provisions of service.
104. Appointment of stockist, wholesalers is for the purpose of supply of drugs.
These drugs are supplied by stockists to wholesalers and by wholesalers to the
retailers. This chain of supply of drugs exists so that the supplies go to the ultimate
consumers uninterrupted, in this market of supply of drugs CDAG by its guidelines,
actions and penal provisions had put limits to the provision of the services. The
decision regarding number of stockists to be appointed in a particular territory is
taken by pharma companies based on demand for drugs. Any restriction on such
matters collectively imposed or mandated by an association of competitors not only
infringes on the freedom of trade as guaranteed by Constitution of India but also
erects barrier to competition. It may again be reiterated here that there exists a
government regulatory mechanism which ensures the fulfillment of regulatory
requirements for issuing licenses to all sales establishments pertaining to drugs

including wholesalers and retailers. The conduct of the OP in terms of imposition of
restriction on appointment of stockists is anti competitive. The restrictive guidelines
and norms implemented by the association, seen in conjunction with the action taken
for non-compliance, establish that the conduct of the CDAG amounts to limiting the
number of players and controlling the supply of drugs in the state of Goa and
therefore, contravenes Section 3(3)(b) of the Competition Act, 2002.
105. The guidelines issued by CDAG and for which penalties are imposed by CDAG
limit the provision of service of supply of drugs to the retailers as well as to the
consumers. CDAG has even ensured that wholesalers and retailers also cannot
function in the territory of Goa without obtaining NOC from the Association and
without becoming member of the association. A collective coercive action is taken by
CDAG through its members, if any one dares to defy the guidelines of CDAG.
106. The undisputed evidence shows that CDAG has fixed trade margins at wholesale
and retail levels for all non-scheduled drugs at 10% and 20% across states. It went a
step further and through the MOU for its members and dictated even discounts to be
extended by wholesalers and retailers. The relevant clauses of the MoU as posted on
CDAG website as on 4.5.2012, are as under:
Purchase & Payment
(b): It is agreed that maximum cash discount offered to Retailers should be
2% only. The minimum purchase by Retailers for eligibility of cash discount
is to be decided by the concerned Wholesaler.
(c): No other indirect discount should be given such as selling to Retailers
and Doctors without LST/giving free offer either in excess to the trade offer
officially operated by the company or giving free other products where no
trade offer is operated by the company. Any such things will be considered
as indirect discount.
(d): Wholesaler should not operate any indirect beneficiary schemes to get
larger orders from retailer.
(e): Any wholesaler found violating the above rules will be liable to strict
action taken by CDAG on the recommendation of the disciplinary committee
will be written to the Wholesaler.
) For second violation a fine of Rs. 5000/- will be imposed and also
executive committee will not issue any NOC to such a wholesaler for a period
of 1 year for being appointed as a stockist any company.
(f): Retailers should not resort to any unhealthy competition by giving
discount to their customers and should not operate any beneficiary schemes
to attract the customers.
(g) Any Retailer found violating the above rules will be liable to strict action
taken by CDAG on the recommendation of the Disciplinary Committee
) For first violation a fine of Rs. 2500/- will be imposed beside warning letter

will be written to the concerned Retailer.
) For second violation a fine of Rs. 5000/- will be imposed and all wholesaler
will boycott such retailer for a period of 3 months.
107. The circular of CDAG dated 16.8.2005 is self explanatory and reads as under:
a) With immediate effect Wholesalers could extend a maximum of 2% Cash
Discount for immediate cash payment or payment with current dated cheques
to retailers. Wholesalers are requested not to offer more than 2% CD. and in
case of cheque payment the Cheques should be deposited in the bank
immediately. Retailers please do not demand more than 2% CD. and do not
give post-dated cheques or do ask wholesalers to present cheques late to the
bank.
108. In the statements made before the D.G., Shri Hemant Pai Angle, Member of
Chemist & Druggist Association, Goa, has submitted as under:
CDAG is affiliated to AIOCD and follows the guidelines of AIOCD. In the
guidelines, the margins have been fixed for drugs for both wholesalers and
retailers. The margins are fixed at the time of giving PIS approvals. The PIS
is collected in the name of advertisements published in the magazines like
'Bulletin-cum-PIS'. For PIS, Rs. 500 per product per strength/formulation is
charged. I am giving you copies of approvals given by AIOCD published in
'Bulletin-cum-PIS' which would show that Product Information service is
charged by associations.
Trade margins fixed by AIOCD followed by CDAG and PIS charged by them
may have impact on prices of drugs. Circular dated 4.6.2010 of CDAG (a
copy of which is being submitted) also brings out that the association writes
to the companies for effecting variation in prices.
109. The circular dated 11.06.2009 issued by the CDAG demonstrates the attempt to
restrict competition between retailers by denouncing the practice of extending
discounts to the end customers. The circular reads :-
We have been receiving a lot of complaints that many retailers are giving
discounts which run even upto 10%.
Please be aware that out Association and its parent body - The AIOCD thrive
hard to bargain the companies and maintain our trade margins on medicines.
These trade margins are just enough (and some occasions not enough) to
sustain ourselves & have a respectable living.
Please also be aware that a big pharmacy retail chain in the Southern India
which was brashly advertising and giving discounts to customers, is today in
bankruptcy, with losses amounting to crores of rupees.
Giving discounts not only disturbs the other retailers in the neighbourhood
who do not give discounts, but it also leads to unethical practices and is
actually hampering your own profits in the long run. Your giving discounts is
not only destroying the neighbouring retailers, but will also eventually
destroy you too.
Please note, strict action will be taken against any retailers found given

discounts. We therefore appeal to you to stop giving discounts. Help us to
keep the trade healthy & alive.
110. The directions given by CDAG to retail chemists that they should not enter into
'unhealthy competition' by giving discounts to consumer shows that CDAG had in fact
fixed the prices of all drugs for the consumer as MRP and no discount can be given to
the consumers. Similarly directions and guidelines given by CDAG to its wholesalers
and stockists about fixing the discounts in case of non-scheduled drug also results
into fixing the prices. The wholesalers cannot give additional discounts to the
retailers for showing better performance nor a wholesaler can try to increase its sale
by offering more discounts. Thus there is no price competition in the sale of drugs
between the wholesalers because every wholesaler has to sell a drug at the same
price despite the fact that he has wide margins out of which he can give further
discounts to the customers ultimately which will go to the consumers.
111. The drugs these days are quite costly. Some of the drugs cost in lakhs. Many of
these are essential drugs used in serious ailments. If a drug costs Rs. 1,00,000 for a
pack of one month, the discount of 20% would amount to Rs. 20,000. Even if the
wholesaler or the retailer can afford to give additional discount to the consumer, they
do not give discount to the consumer because all of them have joined hands and
formed a cartel that no discount would be given to the consumer.
112. This cartelization had taken place because all the members have subscribed to
the decisions of the Association that they would abide by the guidelines issued by the
Association in respect of retail and wholesale discounts. The association had fixed
cash discounts and had also given directions of non transferring of benefits to the
consumers. The decision of the association is the decision of the members of the
Association. It is apparent that all the members of the Association together acted as a
cartel by subscribing to the Memorandum of association and guidelines and by
following it. A perusal of the minutes of the General Body meeting would show that
violions of the guidelines were brought to the notice of the Executive Committee and
the Executive Committee decided to take action against the violators.
113. I, therefore, consider that the facts proved in this case clearly show that there
was a cartel of the members of the Association in the relevant market of
supply/distribution of drugs in order to kill the competition among the retailers,
among the wholesalers and among the stockists. CDAG and its members considered
the competition as 'unhealthy'. But for these decisions of CDAG, the
companies/manufacturers would also have been compelled to give better discounts in
order to compete so that the sale of their medicines would increase but the
cartelization by CDAG has ensured of fixing the price and drugs are now sold at pre
determined prices i.e. MRP to the consumer without any competition among the
chemists.
1 1 4 . On consideration of all evidences including the copies of PIS Bulletin,
statements of persons recorded in the course of proceedings, various circulars issued
by the CDAG, it is evident that the Association not only prescribed the margins for
wholesalers and retailers as determined in the agreement entered into between
AIOCD, IDMA and OP1 but also dictated the maximum discounts to be offered to the
retailers and to the consumers. While trade margins and levels of discounts may tend
to converge across players even through a market driven mechanism, collective
determination of the same by an association of competitors is against the principles
of competition and is in contravention of Section 3(3) of the Competition Act, 2002.

115. Another feature of the Association is to ask for charges for PIS. This has been
made compulsory by the association and every company is asked to pay PIS. PIS is
Production Information Service. A company which produces a new drug is bound to
give information of this drug in various medical journals and research journals. It is
not that PIS is the only mode of giving information of their product either to the
ultimate consumers or to the chemists. In India Rosemay Sharp, a missionary from
UK had started first drug information centre at Christian Medical College, Vellore in
early 1970. This centre provides information on drug to members, pharmacists,
nurses and other personnel of various departments. The centre has established
several other drug information centres in other places outside Vellore. While in the
past, the drugs available were few in number and the need for drug information was
minimal but now the situation has changed and the number of drugs has increased
phenomenally. Apart from Drug Information Centres of Christian Medical College,
Vellore, there are various other journals who publish drug information. The list of
these journals is available at internet and almost every medical professional is aware
about these journals. Linking of payment of PIS and making payment of PIS
compulsory for companies is another high handed practice of CDAG. Since the
amount charged is not significant, the issue is worth ignoring.
116. From my above discussion, I find that CDAG as an association of enterprises
has violated section 3(3)(a) & (b) by issuing various guidelines and enforcing them
and the members of the Association were guilty of forming a cartel for determining
the sale price of the drugs at MRP with no discounts to customer. The adverse effect
of the decisions of Association and of its members on competition is self evident in
view of presumption drawn by law. Section 3(3) provides that where decisions of
association or cartel directly or indirectly determines sale prices or limits or controls
supply of provisions, the Commission shall presume that such decisions caused
appreciable adverse effect on competition.
117. The next issue which arises is about imposition of penalty under section 27 of
the ''Act; If the Commission after inquiry finds that any agreement or practice or
decision referred to under section 3 was in contravention of the provisions of the Act,
it should pass cease and desist order and declare such part of the agreement as void.
It should declare the violative practice & decision as void. The Commission can also
impose penalty. Since a Memorandum of association forms an agreement between
the members, the Memorandum of Association, guidelines, bylaws form an agreement
between its members, these memorandum of association, guidelines and bye laws if
violative of section 3 are to be declared as null and void.
118. I therefore, consider that the guidelines enumerated above in paragraphs 4 &
22 including prescribing discounts margins, cash discount are null and void.
Similarly, CDAG has no authority to issue NOC or LOC for appointment of
wholesalers, stockists or retailers. All guidelines, instructions, circulars regarding
issuance of NOC, LOC by CDAG are held anti competitive and shall be void and not
binding on the members and companies. The guidelines and circulars and articles of
MOU restraining companies/stockists from directly supplying medicines to hospitals,
nursing homes or bulk purchasers are null and void and are so declared.
1 1 9 . I also consider that the members and the Association must be imposed
appropriate penalty for violation of the provisions of the Act. As per record, the
Association has 243 retail members and 65 wholesalers within Goa state. So there
are more than 300 members of the association. All these members through their
Association have been following the policy of cartelization through and with the help

of their Association. They are all liable to pay penalty through the Association.
Section 27 provides that the Commission may impose such penalty as it may deem fit
subject to the condition that the penalty should not be more than 10% of the average
turn over for the last three preceding financial years. An Association of enterprises in
itself may not have significant turnover. That does not mean that an Association of
enterprises indulging into cartel activity, highly affecting the competition should go
scot free. If it is so, it will be easy for the enterprises to indulge into cartelization &
escape penalty by forming an association. That could never be the intention of
legislature. I consider that while imposing penalty, the Commission has to take into
account the average turn over of all its members and thereafter impose a reasonable
penalty which should not exceed 10% of the total turn over of its members. If we
consider that the average turnover of each retailer was about Rs. 2 lakh per month or
Rs. 24 lakhs per annum, the total turn over of all the retailers would be Rs. 24 lakh x
240 (members) = Rs. 57.6 crores. And if we consider that the average turnover of
each wholesaler per annum was Rs. 5 crores, the total turnover of all the wholesalers
would be Rs. 5 crores x 65 (wholesalers) = Rs. 325 crores. Thus the total turn over
of all the members would be approx. Rs. 382.6 crores, say Rs. 380 crores.
Considering this turnover in mind, I think a penalty of Rs. 20 crores on CDAG would
be the appropriate penalty. CDAG would recover this penalty from all its members
and shall deposit this amount with the Commission within a period of 60 days. It is
also directed that Memorandum of Association and guidelines shall be modified by
CDAG and all offending clauses & guidelines as enumerated in paragraphs 4 & 22
above shall be dropped.
120. The competition bodies of different jurisdictions have issued guidelines of dos
and don'ts for their associations. Some of the don'ts are required to be followed by
associations of enterprises as under :-
a) Do not issue guidelines/bye-laws/instructions about
i) price at which products or services are to be purchased or supplied;
ii) the level of discounts to be given by the producer, stockists, wholesaler;
iii) requirement of obtaining LOC, NOC from the association for any person
to enter the trade.
iv) Instructions to the company as to who should be appointed as stockist,
wholesaler etc.
121. The goal of the trade association should be to keep within the boundaries of
Competition Law. Sales territories should not be fixed. Compulsory service in the
nature of PIS should not be there. No restriction on sale volumes or supply to
hospitals and other institutions should be there. No penalty should be imposed for
giving discounts or other benefits to the consumers either by the stockists or by
wholesalers or by the retailer. Allocation of customers and restrictions on types of
product or market division should not be there. In cases where companies are held
guilty of the provision of the Competition Act, Section 48 of the Competition Act
provides that persons responsible for the conduct of business of the company shall
also be deemed to guilty for contravention of the act and shall be liable to be
punished. The Company has been defined in this section as a body corporate or a
firm or association of individuals. However, Association of enterprises has not been
considered as a company. I therefore, consider that the office bearers of CDAG would
not be covered under section 48 and only CDAG and its members would be the

enterprise which can be punished. So no penalty is leviable on the office bearers.
© Manupatra Information Solutions Pvt. Ltd.

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MANU/CO/0060/2012

Equivalent Citation: 2012CompLR838(CCI)

IN THE COMPETITION COMMISSION OF INDIA

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Gross Revenue Receipts during the year : Rs.

Average of the Revenue Receipts : Rs.

% of the Average of the Revenue : Rs.

Penalty (Rounded off to the nearest : Rs. 2,00,000.00

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