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COMPETITION APPELLATE TRIBUNAL

NEW DELHI

Appeal Nos. 21/2014 to 28/2014 and IA Nos. 31/2014 to 46/2014

[Under Section 53-B of the Competition Act, 2002 against order dated 05.02.2014
passed by the Competition Commission of India in Case No. 60/2012]

CORAM

Honble Shri. Justice G.S. Singhvi


Chairman

Honble Shri Rajeev Kher


Member

In the matter of:

1. Appeal No. 21/2014 and I.A. Nos. 31 & 32 of 2014

Chemists & Druggists Association


Through its President
Shri Chaman Lal Kakkar,
National Drug House, Near Amar Hospital,
Near Railway Bridge, Ferozepur City,
Punjab 152 002 Appellant

Versus

1. Competition Commission of India


Hindustan Times House,
3rd, 4th and 7th Floor,
18-20, Kasturba Gandhi Marg,
New Delhi 110 001.

2. M/s. Arora Medical Hall


Through Partner, Shri Rajesh Arora,
Bazar Krishna Sudama,
Mohalla Peeran Wali,
Ferozepur
Punjab 152 002. Respondents

2. Appeal No. 22/2014 and I.A. Nos. 32 and 33 of 2014

Shri Gurpreet Singh,


Public Relation Officer,
M/s. G.S. Medicine Traders,
7, Preet Nagar, Ferozepur City,
Punjab 152 002 Appellant
Versus
1. Competition Commission of India
Hindustan Times House,
3rd, 4th and 7th Floor,
18-20, Kasturba Gandhi Marg,
New Delhi 110 001.
2

2. M/s. Arora Medical Hall


Through Partner, Shri Rajesh Arora,
Bazar Krishna Sudama,
Mohalla Peeran Wali,
Ferozepur
Punjab 152 002. Respondents

3. Appeal No. 23/2014 and I.A. Nos. 35 and 36 of 2014

Shri H.C. Gupta,


Vice President,
C/o M/s. H.C. Medical Agencies,
Bazar No. 5, Ferozepur Cantt.,
Punjab 152 001 Appellant

Versus

1. Competition Commission of India


Hindustan Times House,
3rd, 4th and 7th Floor,
18-20, Kasturba Gandhi Marg,
New Delhi 110 001.

2. M/s. Arora Medical Hall


Through Partner, Shri Rajesh Arora,
Bazar Krishna Sudama,
Mohalla Peeran Wali,
Ferozepur
Punjab 152 002. Respondents

4. Appeal No. 24/2014 and I.A. Nos. 37 and 38 of 2014

Shri A.K. Gupta,


Vice President,
C/o M/s. A.K. Medical Agencies,
# 81, Bazar No. 4, Ferozepur Cantt.,
Punjab 152 001 Appellant

Versus

1. Competition Commission of India


Hindustan Times House,
3rd, 4th and 7th Floor,
18-20, Kasturba Gandhi Marg,
New Delhi 110 001.

2. M/s. Arora Medical Hall


Through Partner, Shri Rajesh Arora,
Bazar Krishna Sudama,
Mohalla Peeran Wali,
Ferozepur
Punjab 152 002. Respondents
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5. Appeal No. 25/2014 and I.A. Nos. 39 and 40 of 2014

Shri Shyam Lal Kakkar,


Secretary,
C/o M/s. Rajesh Medical Agencies,
Near Railway Bridge, Ferozepur (City),
Punjab Appellant

Versus

1. Competition Commission of India


Hindustan Times House,
3rd, 4th and 7th Floor,
18-20, Kasturba Gandhi Marg,
New Delhi 110 001.

2. M/s. Arora Medical Hall,


Through Partner, Shri Rajesh Arora,
Bazar Krishna Sudama,
Mohalla Peeran Wali,
Ferozepur
Punjab 152 002. Respondents

6. Appeal No. 26/2014 and I.A. Nos. 41 and 42 of 2014

Shri R.S. Bakshi,


Joint Secretary,
C/o M/s. Bakson Pharma,
Main Bazar, Ferozepur Cantt.,
Punjab 152 002 Appellant

Versus

1. Competition Commission of India


Hindustan Times House,
3rd, 4th and 7th Floor,
18-20, Kasturba Gandhi Marg,
New Delhi 110 001.

2. M/s. Arora Medical Hall,


Through Partner, Shri Rajesh Arora,
Bazar Krishna Sudama,
Mohalla Peeran Wali,
Ferozepur
Punjab 152 002. Respondents

7. Appeal No. 27/2014 and I.A. Nos. 43 and 44 of 2014

Shri Chaman Lal Kakkar,


President,
C/o M/s. National Drug House,
Near Railway Bridge, Ferozepur (City),
Punjab Appellant
4

Versus

1. Competition Commission of India


Hindustan Times House,
3rd, 4th and 7th Floor,
18-20, Kasturba Gandhi Marg,
New Delhi 110 001.

2. M/s. Arora Medical Hall,


Through Partner, Shri Rajesh Arora,
Bazar Krishna Sudama,
Mohalla Peeran Wali,
Ferozepur
Punjab 152 002. Respondents

8. Appeal No. 28/2014 and I.A. Nos. 45 and 46 of 2014

Shri Ashwini Garg,


Treasurer,
C/o M/s. Shiva Medical Stores,
Near Amar Talkies, Ferozepur (Cantt.),
Punjab 152 001 Appellant

Versus

1. Competition Commission of India


Hindustan Times House,
3rd, 4th and 7th Floor,
18-20, Kasturba Gandhi Marg,
New Delhi 110 001.

2. M/s. Arora Medical Hall,


Through Partner, Shri Rajesh Arora,
Bazar Krishna Sudama,
Mohalla Peeran Wali,
Ferozepur
Punjab 152 002. Respondents

Appearances : Shri Gauri Shankar Saikumar, Shri Sandeep Bajaj, Shri


Siddharth Jain and Ms. Soumya Saikumar, Advocates for
the Appellants.

Ms. Soni Singh and Shri Pramod Soren, Advocates for


Respondent No.1.

Per Chairman
ORDER

The questions which arise for consideration in these appeals filed against

order dated 05.02.2014 passed by the Competition Commission of India (for

short, the Commission) in Case No. 60 of 2012 titled M/s. Arora Medical Hall,
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Ferozepur versus Chemists and Druggists Association, Ferozepur and seven

others are whether the practice allegedly followed by Chemists and Druggists

Association, Ferozepur (appellant in Appeal No. 21 of 2014) (hereinafter referred

to as, the Association) making it mandatory for anyone desirous of taking up

distributorship of medicines of any pharmaceutical company in Ferozepur to

obtain No Objection Certificate (NOC) and Letter of Credit (LOC) on payment of

Rs. 2100/- per company is violative of Section 3(3)(b) read with Section 3(1) of

the Competition Act, 2002 (for short, the Act), whether the resolution dated

26.05.2012 passed by the Association to boycott Respondent No. 2 - M/s. Arora

Medical Hall and to penalise any retailer purchasing medicine from the said

respondent is anti-competitive and violative of Sections 3(3)(b) of the Act and

whether the penalty imposed by the Commission under Section 27 of the Act is

legally sustainable.

2. The Indian Drug Manufacturers Association (IDMA) and Organisation of

Pharmaceuticals Producers of India (OPPI) are the pan India associations of drug

manufacturers, whereas All India Organisation of Chemists and Druggists

(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.

There are various state level and district level associations, who look forwards

the apex association for guidance and follow the rules, regulations and various

guidelines issued by the aforesaid apex association to bring uniformity and

standardisation in the pharmaceutical industry. The pharmaceutical industry in

India is regulated by the Drugs and Cosmetics Act, 1940 (DCA) and the Drug and

Cosmetics Rules (DCR) made thereunder. Under the provisions of the 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.


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3. The spread of various district level associations across India is essential

to harmonize the vertical relationships between the pharmaceutical companies,

the wholesalers and the retailers, as the interests of the said parties are

interlinked and sometimes overlapping. In fact, the chemists and druggists

associations at the district level play a vital role in streamlining the distribution

process and encourage healthy competition at different stages or levels of the

production chain or provision of services, in their respective regions.

4. The Association is an unregistered body of chemists and druggists

operating in District Ferozepur, Punjab. It is affiliated to Punjab Chemists

Association (hereinafter referred to as PCA), which, in turn, is affiliated to All

India Organisation of Chemists and Druggists (hereinafter referred to as

AIOCD). The Association functions as per the rules, regulations and guidelines

framed by the PCA and AIOCD. Though the membership of the Association is

not mandatory, more than 200 chemists and druggists (wholesalers and retailers)

operating in the district are its members. Even those who are not members of

the Association are doing their business of chemists and druggists in the district.

The Association has not framed rules or regulations or issued guidelines of its

own to its members for conducting their business and its main function is to

safeguard the interest of wholesalers and retailers against any discriminatory or

unfair practice of pharmaceutical companies. S/Shri Gurpreet Singh, H.C. Gupta,

A.K. Gupta, Shyam Lal Kakkar, R.S. Bakshi, Chaman Lal Kakkar and Ashwini

Garg, (appellants in Appeal Nos.22 to 28 of 2014) are office-bearers of the

Association.

5. Respondent No.2 is the largest wholesale dealer of the drugs

manufactured by several companies including Ranbaxy, Abbott Solvey, Abbott

Piramal, Abbott India, Ozone, Sun Pharma, Alkem, Alkem Gencare, Hetero,

Johnson & Johnson, Glenmarks Gracewel, Pfizer, Pfizer Pharmacia, Cutic,

Leeford, Canvarzys, Inuida, Apex Labs, Organon, MSD, Fullford, Modi Mundi,
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Biocon, Macleods etc. Its area of operation is in and around District Ferozepur,

Punjab.

6. Respondent No. 2 was a member of the Association till June, 2010. In

2005, the Association initiated disciplinary action against Respondent No. 2

because it was misusing its monopoly position in the district. Letter dated

16.07.2005 was also written by the Association to some pharmaceutical

companies about the highhanded attitude of Respondent No. 2 towards the

retailers and it was requested that they may consider appointing more

wholesalers for covering about 300 retailers operating in Ferozepur district. After

some time, membership of Respondent No. 2 was suspended. That action was

revoked after Respondent No. 2 tendered apology vide letter dated 06.10.2007.

7. In 2010, several retailers complained that Respondent No. 2 was indulging

in fraudulent billing by manipulating computer software and other malpractices.

Thereupon, the Association issued a notice to Respondent No. 2 to explain its

position. However, he did not respond to the notice. Therefore, by an order dated

09.06.2010, the Association terminated the membership of Respondent No. 2.

That decision has become final because the same is not shown to have been

challenged by Respondent No.2 before any court of law or other competent

adjudicatory body.

8. Notwithstanding the termination of its membership, Respondent No. 2

continued to abuse its dominant position. The retailers repeatedly complained

that Respondent No. 2 was not deducting the price of expired medicines from the

total bills and was overcharging them. In the backdrop of these complaints, a

meeting of the general body of the Association was convened on 23.05.2012 for

considering the allegations levelled against Respondent No. 2. The meeting was

attended by 79 members. After discussing the complaints, the Association

passed the following resolution :


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During the course of meeting retailers showed bills where cheating

was done while calculating value of expired medicines. Retailers

were very much annoyed with the scandal of Arora Medical Hall.

They shouted to stop dealing (with sic) M/s. Arora Medical Hall till

the adjusting (sic adjustment) of cheated amount of all bills of

retailers. Now I being Secretary of Chemists Association Ferozepur

asked retailer to decide suitably so that cheating is adjusted,

instead of boycott. Two guests who came from Fazilka District (1)

Mr. Sanjiv Kumar Sanjiwani Medicos (2) Mr. Ashok Kumar Chhabra

(Kdi) President District Fazilka suggested to all retailers to do not

take any harsh decision but give Arora Medical at least 2 days to

explain his status about the cheating done by him. He should

contact President Mr. Chaman Lal Kakkar Ferozepur within two (2)

days. If he do not turn up to contact President then three member

committee can take action for non-cooperation. According non-

cooperation was declared. Members were asked to make payment

of all previous bills to M/s. Arora Medical Hall. This was the whole

episode of M/s. Arora Medical Hall, Ferozepur versus Retail

Chemists who were cheated.

Sd/-
Shyam Lal, Secretary

9. Although, the aforesaid resolution envisaged that if Respondent No.2 does

not turn up to contact the President, then a three Member Committee may take

action for non-cooperation but Respondent No. 2 appears to have defied the

same. Therefore, an extraordinary meeting of the Executive Committee was held

on 26.05.2012 and it was resolved that the members should not purchase the

medicines from Respondent No. 2. It was further resolved that if any member

defy the ban then it will have to pay a fine of Rs.11,000/- for each violation. In
9

furtherance of that resolution, the President of the Association issued circular

dated 27.05.2012, which reads as under :

Ref. No Dated : 27.05.2012


Dear Member,
RE : Unity is Strength
Strength is Survival

We are pertinent to mention here that the subject matter

speaks volumes of Strength, we have in our association, you had

recently exhibited in our General Body Meeting held on 23rd instant.

I salute each and every member of our well knot association who

have stood as one unit on one platform. I feel real pride to be one

amongst you and lead this proud family of our beloved chemists

brothers. Hats off to you once again. I would recall and request you

all to show your strength on a common cause Out You are Once

for all. It is scandalous world. No one has right to lead scandalous

life. Isnt it? Do you agree with me. We have to strike this panic and

the decision is yours. We are unanimous in one voice. In order to

meet this serious eventuality, an extraordinary meeting of the

executive under the chair of President was held on 26-05-2012.

Following decisions were taken for the Association and it was

decided that these decisions are implemented most seriously right

from the date of this circular by each and every chemist.

1. It was decided in the General Body Meeting held on 23-05-2012

to give M/s Arora Medical Hall time for 2-3 days to clear his

position before taking further action. He has not responded to

our call so far.


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2. Absolute Boycott with M/s. Arora Medical Hall, Ferozepur City.

He is not member of our Association and gone to the extent to

compromise our dignity in scandals.

3. Stop purchasing goods from him immediately. No more

dealings with him with immediate effect. Any chemist defying

this decision will be fined Rs.11,000/-.

4. Till further orders, you are requested not to make him pending

payments after you check the bills.

5. All the whole-sellers are further requested to stop dealings with

the particular retailer who continue purchasing goods from M/s.

Arora Medical Hall.

I hope it makes you all clear. I always look forward for your whole

hearted cooperation.

Cordially yours

(Chaman Lal Kakkar)


President

(Since the circular has been reproduced ad verbatim from the paper

book of the Appeal the mistakes contained therein have got

repeated hereinabove).

10. Respondent No. 2 challenged the aforementioned resolution and circular

by filing civil and criminal cases, the details of which are given below :

i) Civil Suit No. 311/2012 filed in the Court of Civil Judge (Senior

Division), Ferozepur for award of damages to the tune of Rs.5 lacs.

ii) Civil Suit No.689/2012 filed in the Court of Civil Judge (Senior

Division), Ferozepur for grant of a declaration that resolution dated

26.05.2012 and circular letter dated 27.05.2012 issued by the


11

Association were wrong, illegal, null and void, ineffective and

inoperative.

iii) Criminal proceedings under Section 499 and 500 of Indian Penal

Code were filed for defamation.

(In both the suits, Respondent No. 2 impleaded the appellants

herein as party defendants).

11. Some of the members (retailers) of the Association also filed First

Information Report dated 01.09.2012 against Respondent No. 2 at Police Station

Ferozepur City under Section 420 of the Indian Penal Code read with Section

66(1) of the Information Technology Act, 2000. The allegation levelled by the

retailers was that Respondent No. 2 had issued inflated computerised bills

without deducting the amount of expired drugs and medicines returned by them

and this was despite the fact that the billing software automatically deducts the

amount for expired medicines returned to Respondent No. 2.

12. In paragraphs 3, 4, 6, 7 and 8 of the suit filed for declaration, Respondent

No. 2 made the following averments :

3. That the defendant association circulated a letter in the

market with malice and with a plan to defame the business

carried on by the plaintiff firm on 22.5.2012 vide which a

general body meeting was called for 23.5.2012 at J.B. Resort

Ferozepur Cantt at 8 PM on the following Agenda :

i) Scandal of M/s Arora Medical Hall

ii) Misappropriation while calculation in the bills.

The plaintiff firm through its partners have not called in

the said meeting by the defendants.


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4. That the defendant association wrongly and illegally passed

resolution on 26.5.2012 circulated on 27.5.2012 under which

the defendants wrongly and illegally decided and bycott the

plaintiff firm and further asked others to stop dealings with the

plaintiff firm with immediate effect. The defendants further

instructed the dealers to stop dealings and if anybody found

defined the decision of the defendant association, he will be

fined Rs. 11000/-. The defendants further wrongly and

illegally decided and requested other dealers not to make

pending payments to the plaintiff firm and other whole salers

were also requested to stop dealings with the plaintiff firm.

6. That the plaintiff firm deals in medicines and they very well

understand the role of whole saler in the society. The plaintiff

firm have all the qualities of good businessman and is

respected by all, who came in contact with them either as

retailers or as customers and from the society. Since the

plaintiff is having flourishing business and his annual turnover

is approximately Rs. 5 Crores while the defendants being

competitors always feel jealous of it and always expect that

the plaintiff should pay money to the defendant association.

7. That the defendants in the meeting as well as in the resolution

referred above had intentionally used derogatory and

defamatory remarks against the plaintiff firm and by using

defamatory words in the above said meeting as well as

published in the resolution, which intended to be read, heard,

published, imputation concerning the plaintiff firm with the

intention to harm and having reason to believe that such

imputations will harm and reputation of the plaintiff firm, the


13

defendants had defamed the plaintiff firm wrongly and illegally

and as such the defendant association is liable to compensate

the plaintiff firm besides to tender unconditional apology. The

plaintiff firm is also entitled to sue the defendants under

criminal law and will also retain their right to challenge the

abovesaid resolution.

8. That the said false imputations against the business dealings

of the plaintiff firm were made by the defendants, which had

lowered the moral and intellect character of the plaintiff firm in

the estimation of others and thus the plaintiff firm is entitled to

claim damages from the defendants. The plaintiff firm have

suffered a great loss to their business and reputation, which

cannot be calculated in terms of money and the false

allegations against the plaintiff firm had caused huge mental

stress, stain and torture to them. The reputation of the plaintiff

firm has been lowered in the estimation of others by serving

agenda, holding meeting and further by passing and serving

resolution on false facts. Several retailers and whole salers

also came to know about the said resolution and agenda and

the publication of the facts alleged in the said resolution. The

reputation of the plaintiff firm in the eyes of office staff,

customers, retailers as well as whole salers including doctors

etc. have been lowered in their estimation, which gave a

cause of action to the plaintiff firm against the defendants for

levelling false allegations.

The prayer made in that suit was :

Hence, it is prayed that a decree of declaration to the effect

that the resolution dated 26.5.2012 circulated vide letter dated


14

27.5.2012 passed by defendants whereby they have wrongly and

illegally bycotted the dealings with the plaintiff firm and defamed the

plaintiff firm in the estimation of others is wrong, illegal, null and void,

ineffective and inoperative on the rights of the plaintiff firm and is

liable to be set aside;

With consequential relief of mandatory injunction directing the

defendants to withdraw the said resolution and to tender

unconditional apology on the basis of oral and documentary

evidence may kindly be passed in favour of the plaintiff and against

the defendants with costs of the suit.

13. In the suit filed for damages, Respondent No. 2 repeated the averments

made in the suit for declaration and prayed for award of damages to the tune of

Rs. 5 Lacs with costs along with pendente lite and future interest @ 12% per

annum till realization.

14. In Civil Suit No. 311-1 of 2012, filed for award of damages, learned

Additional Civil Judge (Senior Division), Ferozepur framed the following issues:

1. Whether the defendants defamed the plaintiff? OPP

2. If Issue No.1 proved, whether the plaintiffs are entitled to

damages as prayed for? OPP

3. Whether the suit of the plaintiff is barred under provisions of

Order 2 rule 2 CPC? OPD

4. Whether the suit of the plaintiff is bad for misjoinder and non-

joinder of necessary parties? OPD

5. Relief.
15

In Civil Suit No. 689-1/2012 filed for declaring resolution dated

26.05.2010 circulated dated 27.05.2012 as nullity, the learned Civil

Judge (Senior Division), Ferozepur framed the following issues:

1. Whether the plaintiff is entitled for declaration as prayed for? OPP

2. Whether the plaintiff is entitled to the consequential relief of

mandatory injunction against defendants? OPP

3. Whether the plaintiff has got no locus standi to file the present suit?

OPD

4. Whether the suit is not maintainable in the present form? OPD

5. Relief.

15. Both the suits were tried by the Additional Civil Judge (Senior Division),

Ferozepur and were dismissed by common judgment dated 12.05.2015,

paragraphs 12 to 19 of which are reproduced below :

12. I have heard learned counsel for the parties and have gone

through the file carefully. My findings on the aforesaid issues are

as under :-

Issue in Case NO.311-1 of 02.06.2012

ISSUE NO.1. Whether the defendants defamed the


plaintiff? OPP
ISSUE NO.2. If issue No.1 proved, whether the plaintiffs are
Entitled to damages as prayed for?
Issue in Case No.689-1 of 2.06.2012
ISSUE NO.1 Whether the plaintiffs is entitled for declaration
as prayed for?
ISSUE NO.2 Whether the plaintiff is entitled to the
Consequential relief of mandatory injunction
Against defendants?

13. Issues No.1 and 2 of both the suits are taken up together

being interlinked and to avoid any repetition in discussion. To prove


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all these issues the onus was heavily upon the plaintiff. Plaintiff

Rajesh Arora himself appeared into the witness box as PW1 in

support of his own case. He examined Amandeep Singh son of

Bhagwan Singh as PW2 (though he has not come present for his

cross-examination). The plaintiff further examined Sajjan Kumar

Grover son of Udey Shanker Grover as PW3. No other witness

examined by the plaintiff.

14. To rebut the contention of the plaintiff, defendant R.S. Bakshi

himself stepped into the witness box as DW1, whose statement is

corroborated by Sham Lal Kakkar son of Diwan Chand who

appeared as DW2. No other witness examined by the defendants.

15. After hearing the rival contentions of both the counsel for the

parties, I am of the considered opinion that present suit is for decree

of recovery of Rs.5 lacs as damages along with interests on

account of lowering the reputation of the plaintiff in estimation of

others and loss of business. If the plaintiff succeeds to prove that

with the act of defendants he has been defamed and his reputation

has been lowered down, in that event only the plaintiff is entitled for

the recovery as prayed for. The plaintiff is also burdened with the

onus to be discharged that defendants have wrongly and illegally

boycotted the dealings with the plaintiff firm vide resolution dated

26.05.2010 circulated vide letter dated 27.05.2012, therefore,

defendants are liable to be withdraw the said resolution and to

tender unconditional apology. From the entire evidence on the

record I have come to the conclusion that plaintiffs have miserably

failed to discharge this onus that by circulating any resolution by

which the defendants boycotted the dealings with the plaintiffs, the

reputation of the plaintiff in estimation of others have been lowered


17

down and there was loss in their business. The cross-examination

of plaintiff clinches the entire matter and helps the court to reach at

the just conclusion of the case. It comes out that plaintiff firm

remained the member of defendant association since the year 1989

to 2010 i.e. from the year when the plaintiff firm started its initial

business in the year 1989. Admittedly the plaintiff firm was expelled

from the membership of association by the defendants and that

expulsion order never challenged by the plaintiffs till today. In these

circumstances as the plaintiff remained no member of the

defendant association, his suit becomes infructuous. The plaintiff

firm is no more member of the defendant association after 2010 and

present suit is filed in the year 2010 without submitting any

representation to the defendant association to reconsider his

expulsion.

16. It is to be seen even otherwise it is not proved on the record

that with the circulation of any resolution by the defendants the

reputation of the plaintiffs has been lowered down in the eyes of

others. Saajan Kumar Grover when stepped into the witness box

as RW3 clarifies that he is medical representative of Hethro Drug

Company and he infact does not know the actual dispute between

the parties. He admits that as per his estimations Rajesh Kumar

being partner of the plaintiff firm is nice person and he has been

dealing with him in the same manner in which he had been dealing

earlier. Though he stated that several of the medical agencies

refused to purchase the medicines from the plaintiff firm, but this

contention is highly baseless and without any cogent proof on the

record. Admittedly this witness is not in position of any document

to prove the fact that the area of Ferozepur which is with him ever
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refused to purchase the medicines from the plaintiff. Except this

witness the plaintiff has not examined any person from the locality

who came and depose that with the circulation of any resolution the

reputation of the plaintiff firm lowered down in the eyes of others.

17. As well as the monetary loss to the plaintiff firm is concerned,

the same is neither pleaded nor proved on the record by any cogent

evidence. Rather it comes out from the cross-examination of

plaintiff itself that he has withheld the best evidence to prove the

fact that due to any act of the defendant he has suffered monetary

loss. Plaintiff failed to bring the account books of his firm from 2008

till date to show the total sale of medicines. It is not out of sight that

he was even directed to produce the original account books for the

relevant period but he failed to bring the same. Adverse inference

is liable to be drawn against the plaintiffs for withholding the best

evidence on the file. Even the statement of Sajjan Kumar PW2

regarding decreasing the sale of medicines and earnings from

Rs.75,000/- to Rs.15,000/- per month is without any documentary

proof. In these circumstances this fact has also not been proved

on the record. Even it is nowhere pleaded that any mental agony

was being faced by the plaintiffs due to the circulation of resolution.

Most importantly it is liable to be added here that the resolution

which the plaintiff is challenging through this suit is never produced

and proved on the record. The cause of action is pleaded to be

accrued on passing of resolution and on refusal by the defendants

to pay the amount but not on account of lower the reputation of the

plaintiffs in estimation of others and as and when there was loss of

business. The other points raised by the parties to the suit are not

the subject matter and the court is not to decide all that controversy
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between the parties. Keeping in view the above discussion all

these issues are decided against the plaintiffs and in favour of the

defendants.

18. The onus to prove all these issue was upon the defendants.

These issues were not pressed by the learned counsel for the

defendants during the course of arguments. So all these issues are

decided against the defendants and in favour of the plaintiffs.

RELIEF.

19. In view of my findings on issues No. 1 and 2 in both the suits,

both the suits are dismissed with costs. Original judgment be placed

in Civil Suit No. 311-1 dated 02.06.2012 titled as M/s. Arora Medical

Hall vs. Chemists and Druggists Association, Ferozepur and

another whereas attested copy of this judgment be placed in

consolidated suit bearing Case No. 689-1 of 2.06.2012 titled as M/s.

Arora Medical Hall Vs. Chemists and Druggists Association,

Ferozepur and another. Decree sheets be prepared separately and

the files be consigned to the Judicial Record Room, Ferozepur.

16. The criminal complaint filed by Respondent No.2 was dismissed by the

concerned court for want of prosecution.

17. During the course of hearing of these appeals, Ms. Soni Singh, learned

counsel for the Commission stated that as per her information, Respondent No.2

has challenged the judgment and decree dated 12.05.2015 by filing appeals and

the order dismissing the criminal complaint has been challenged by filing a

petition in the Court of Session Judge, Ferozepur.

18. While the civil suits and criminal complaint filed by him were pending,

Respondent No.2 filed an information dated 20.09.2012 under section 19(1)(a) of


20

the Act with the allegations that the requirement of NOC and LOC prescribed by

the Association as a condition for taking distributorship is violative of Sections 3

and 4 of the Act. Respondent No. 2 further alleged that the Association was

putting pressure on other wholesalers not to supply medicines to the retailers,

who were purchasing medicines from it and this clearly amounts to violation of

Section 3(3) of the Act in as much as it would affect supply of medicine. Another

allegation made by Respondent No. 2 was that in 2010 it had objected to the

mandatory requirement of NOC/LOC and on that account it was expelled from

the primary membership of the Association. According to Respondent No.2,

resolution dated 26.05.2012 and circular dated 27.05.2012 were intended to wipe

out competition from the market and by taking advantage of its dominant position,

the Association was directly and indirectly imposing unfair or discriminatory

conditions on the purchase or sale of medicines. In the end, Respondent No.2

made the following prayers :

1. The acts of the OPs in violation of Section 3(4) and Section

4(2) of the Act, and, the acts of restricting competition and

abusing dominant position in the distribution and sale of

medicines including life saving drugs, be inquired and fined

heavily as per the provisions of the Competition Act, 2002.

2. Grant of Interim Relief by issuing orders to the OPs to

withdraw the boycott letter dated 27.05.2012.

3. The IP be granted damages of Rs.50 lakhs for business lost

from June 2012 till date with interest @ 12% per annum till

realization from OP1.

4. The OPs be directed to pay the costs suffered by the IP.

5. The Commission may pass any other order apart from the

above in favour of the IP as deemed fit including the cost of

the present suit.


21

19. The Commission considered the information filed by Respondent No.2 and

felt prima facie satisfied that a case of violation of Sections 3 of the Act is made

out. The Commission also opined that the office-bearers of the Association who

are competitors of Respondent No.2 had a strong motivation to distort

competition in the market by issuing letter dated 27.05.2012. On that premise,

the Commission passed an order dated 30.10.2012 under Section 26(1) of the

Act and the directed the Director General to cause an investigation to be made

into the allegations made by Respondent No. 2.

20. On receipt of the aforesaid order, the Director General entrusted the

investigation to the Joint Director General (Jt. DG). The latter issued notices to

the Association under Section 36(2) read with Section 41(2) of the Act requiring

it to furnish certain information and also produce the relevant rules, regulations,

bye-laws and documents. Similar notices were issued to the other appellants

and they were called upon to explain their role as office bearers of the Association

and also furnish income-tax returns for the assessment years 2010-11, 2011-12

and 2012-13. PCA and AIOCD and some of the wholesalers and retailers

operating in Ferozepur were called upon to explain their stand in the context of

the allegations made by Respondent No. 2. Pharmaceutical companies, namely,

Merck Limited, M/s. Intas Pharmaceutical Limited, M/s. Abbott India Limited, M/s.

Apex Laboratories Limited, M/s. Glenmark Pharmaceuticals Limited, M/s. Invida

India Private Limited, M/s. Macleods Pharmaceuticals Limited, M/s. Sun

Pharmaceuticals Limited, M/s. Zuventus Healthcare Limited, M/s. J.B. Chemicals

& Pharmaceuticals Limited, M/s. Tayal Associates, M/s. Punjab Medical

Agencies, M/s. Ferozepur Medical Agency, M/s. Bhagwati Medilinkers, M/s.

Ganpati Pharmaceuticals and M/s. Dimple Enterprises were also called upon to

file their responses to the allegations made by Respondent No. 2 that NOC/LOC

has been made mandatory by the Association for doing business as Chemists

and Druggists in District Ferozepur.


22

21. The Association filed four replies dated 31.12.2012, 11.02.2013,

25.03.2013 and 08.04.2013 and supplied the required information and

documents to the Jt. DG including circular dated 15.04.2006. Simultaneously, it

controverted allegations made by Respondent No. 2.

22. The office-bearers of the Association, who are appellants in Appeal

Nos.22 to 28 of 2014 filed separate replies, the dates of which are given below :

1. Shri Chaman Lal Kakkar President - 03.12.2012

2. Shri H. C. Gupta Vice President - 03.12.2012

3. Shri A.K. Gupta - Vice President - 06.12.2012

4. Shri Shyam Lal Kakkar Secretary - 29.11.2012, 23.01.2013


and 09.05.2013

5. Shri R.S. Bakshi - Joint Secretary - 29.11.2012, 16.01.2013


and 04.05.2013

6. Shri Ashwani Garg - Treasurer - 06.12.2012

7. Shri Gurpreet Singh PRO - 03.12.2012

23. Respondent No. 2 on whom notice was issued by the DG submitted three

responses on 19.11.2012, 17.04.2013 and 21.04.2013. Shri Rajesh Arora

claiming to be the partner of Respondent No. 2 filed affidavit dated Nil, which

reads as under :

I Rajesh Arora S/o Shri Beli Ram Arora Partner of M/s Arora

Medical Hall, Bazar Krishan Sudama, Mohalla Peeran Wala,

Ferozepur City 152002 (pb) do hereby solemnly affirm and declare

that the sales of M/s Arora Medical Hall, Ferozepur City for

particularly in Ferozepur has been reduced from Rs. 2,23,18,399.82

(Rupees two crore twenty three lacs eighteen thousand three

hundred ninety nine and eighty two paisa) only for the period from

01-06-2011 to 31-03-2012 to Rs. 39,70,718.36 (Rupees thirty nine


23

lacs seventy thousand seven hundred eighteen and thirty six paisa)

only for the period from 01-06-2012 to 31-03-2013 Resulting into a

net loss of sales in Ferozepur is Rs.1,83,47,681.46 (Rupees one

crore eighty three lacs forty seven thousand six hundred eighty one

and forty six paisa) only.

Deponent

The above statements submitted by me are true as per

records and nothing has been concealed by me.

24. PCA and AIOCD filed their replies on 14.05.2013 and 26.02.2013

respectively. They talked about their respective affiliations as also affiliations of

district bodies and referred to the practice of NOC.

25. The pharmaceutical companies to whom notices were issued by the Jt.

DG filed their responses on different dates, which are detailed below :

1. M/s. Merck Limited 25.03.2013

2. M/s. Intas Pharmaceutical Limited 02.04.2013

3. M/s. Abbott India Limited 15.04.2013

4. M/s. Apex Laboratories Limited 21.03.2013 and


07.04.2013

5. M/s. Glenmark Pharmaceuticals Limited 08.04.2013

6. M/s. Invida India Pvt. Ltd. 09.04.2013

7. M/s. Macleods Pharmaceuticals Limited 25.03.2013

8. M/s. Sun Pharmaceuticals Limited 08.04.2013

9. M/s. Zuventus Healthcare Limited 16.04.2013

10. M/s. J. B. Chemicals & Pharmaceuticals Ltd. 09.05.2013

26. Some of the dealers to whom also notices were issued by the Jt. DG also

submitted their replies on different dates which are detailed below :

1. M/s. Tayal Associates 06.04.2013


24

2. M/s. Punjab Medical Agencies 08.04.2013

3. M/s. Ferozepur Medical Agency 02.04.2013

4. M/s. Bhagwati Medilinkers 05.04.2013

5. M/s. Ganpati Pharmaceuticals 08.04.2013

6. M/s. Dimple Enterprises 07.04.2013

27. The Jt. DG also recorded the statements of the office bearers of the

Association, Shri Rajesh Arora (partner of Respondent No. 2 ) and Shri Surjit

Mehta, President, PCA, who also produced copy of the memorandum of

Association. Of course, no opportunity was given to the Association and other

appellants to controvert the averments contained in the responses filed by

Respondent No. 2 or to cross-examine him in the context of his statement.

28. After completing the aforesaid exercise, the Jt. DG submitted report dated

10.06.2013. He briefly adverted to the allegations contained in the information,

the directive given by the Commission under Section 26(1) and formulated the

following issues :

1. Whether the decisions taken by OP1 in its Extra Ordinary

Meeting held on 26.05.2012 and the directions given vide its

Circular dated 27.05.2012 violate any provisions of the

Competition Act, 2002.

2. Whether the office bearers of OP1 had formed a cartel to

eliminate competition in the relevant market i.e. the market

of drugs and medicines in Ferozepur, Punjab.

3. Whether, OP1 stipulates any condition regarding NOC / LOC

necessarily required to be taken from it prior to appointment

of any new or additional stockist in Ferozepur as alleged by

the IP, and if so, whether such stipulation falls foul with any

of the provisions of the Competition Act.


25

4. Whether OP1 and its office bearers are engaged in any other

activities or following any practices in addition to those

alleged by the IP which contravene the provisions of the Act.

5. Examination of the role of State level Association i.e. Punjab

Chemists Association (PCA) and All India Organisation of

Chemists and Druggists (AIOCD).

29. The Jt. DG then recorded the brief summary of the replies/written

submissions filed by the Association and other appellants, Respondent No. 2,

PCA, AIOCD, pharmaceutical companies, namely, M/s. Merck Limited, M/s. Intas

Pharmaceuticals Limited, M/s. Abbott India Limited, M/s. Apex Laboratories

Limited, M/s. Glenmark Pharmaceuticals Limited, M/s. Invida India Private

Limited, M/s. Macleods Pharmaceuticals Limited, M/s. Sun Pharmaceuticals

Limited, M/s. Zuventus Healthcare Limited, M/s. J.B. Chemicals &

Pharmaceuticals Limited, the wholesalers/stockists namely, M/s. Tayal

Associates, M/s. Punjab Medical Agencies, M/s. Ferozepur Medical Agency, M/s.

Bhagwati Medilinkers, M/s. Ganpati Pharmaceuticals and M/s. Dimple

Enterprises, referred to the answers given by the appellants in Appeals Nos. 22

to 28 of 2014 to the particular queries made to them and recorded the following

conclusions:

1. In view of the above, investigation has concluded that the

decisions taken by OP1 in its Extra Ordinary Meeting held on

26.05.2012 and the directions issued vide its Circular dated

27.05.2012 violate clause (b) of sub-section (3) read with sub-

section (1) of Section 3 of the Act as the same limit and control

the supply of drugs and medicines in Ferozepur.

2. Investigation has concluded that OP1 and its office bearers /

Executive Committee members i.e. OP 2 to OP 8, have, by taking

the decisions in the Extra Ordinary Meeting held on 26.05.2012


26

and circulating the same vide Circular dated 27.05.2012

contravened the provisions of Section 3(3)(b) read with Section

3(1) of the Act.

3. Based on the above, investigation has concluded that OP1 has

been following a practice of NOC necessarily required to be taken

from it prior to appointment of a new / additional stockist in

Ferozepur which has the effect of limiting and controlling the

supply of drugs and medicines in Ferozepur thereby contravening

the provisions of Section 3(3)(b) read with Section 3(1) of the

Competition Act.

4. Based on the above, investigation has not come across any

evidence suggesting that OP1 has been indulging in any activities

or following practices other than those detailed in the foregoing

paras of the Report which contravene the provisions of the Act

such as PIS approval and fixation of trade margins.

5. Based on the above facts and analysis, investigation has

concluded that till Punjab Chemists Association amends its Rules

& Regulations regarding authorization given by it to District level

Associations to issue NOC / LOC for appointment of stockists and

till PCA issues formal directions to its affiliated associations to

cease and desist from the practice of NOC / LOC for appointment

of new / additional stockists, PCA does not get absolved from

being a party to the practices being followed by its affiliated

Association viz OP1, which have the effect of limiting and

controlling supplies and as such PCA is contravening the

provisions of Section 3(3)(b) read with Section 3(1) of the Act.

30. Based on his analysis of the allegations contained in the information filed

by Respondent No.2, the statements made by/on behalf of the appellants, the
27

replies of PCA and AIOCD, pharmaceuticals companies and wholesalers as well

as retailers, the Jt. DG submitted report dated 10.06.2013, Chapter-6 of which

reads as under :-

CHAPTER 6

Summary of Findings

6.1 The investigation has clearly established that the decisions

and practices of the OPs contravene the various provisions of the

Competition Act, 2002. A summary of findings are narrated

hereunder:

i) The decision taken by the OPs in their Extra Ordinary

Meeting held on 26.05.2012 as circulated vide

circular dated 27.05.2013 have the effect of limiting

and controlling the supply of drugs and medicines in

Ferozepur district of Punjab.

ii) The OPs by taking the said decisions have restricted

the freedom of trade of not only the IP, but also of

other wholesalers and retailers in Ferozepur as well

as pharmaceutical companies supplying their

products in the said market.

iii) The decisions taken by the OPs have the effect of

driving out existing competitors from the market.

iv) OP 1 is engaged in a practice of NOC necessarily

required to be taken from it prior to appointment of a

new/ additional stockist in Ferozepur which has the

effect of limiting and controlling the supply of drugs

and medicines in Ferozepur.

v) By indulging in the practice of non grant of NOC to

non members, the OP association is foreclosing the

market for such non members.


28

6.2 Investigation has further established that Punjab Chemists

Association by authorizing District level Associations in terms of

Article 17 of the Rules & Regulations, to issue NOC/ LOC for

appointment of new additional stockists, and, by assuming the right

to issue the same in the event of any disputes, is party to the

practices being followed by its affiliated association viz OP 1, that

have the effect of limiting and controlling supplies of drugs and

medicines in the State of Punjab thereby contravening the

provisions of Section 3(3)(b) read with Section 3(1) of the Act.

Conclusion

6.3 The investigation has established that the Opposite Parties

(OP 1 TO OP 8) and Punjab Chemists Association have violated

the provisions of Competition Act, 2002 by taking decisions and

indulging in practices found to be in contravention of the provisions

of Section 3(1) read with Section 3(3)(b) of the Competition Act

2002.

6.4 None of the parties has claimed confidential treatment of

their information in terms of Regulations 35 of CCI (General)

Regulations 2009. However, due care may kindly be taken as per

the provisions of Section 57 of the Competition Act read with

Regulation 37 of CCI (General) Regulations, 2009.

6.5 The investigation Report does not contain any information

which has been granted confidentiality in terms of the aforesaid

Regulations.

6.8 The Report may kindly be placed before the Competition

Commission of India for consideration.

31. The aforesaid report was considered by the Commission in its meeting

held on 20.06.2013 and the Jt. DG was directed to investigate the role of
29

individual office-bearers of the Managing Committee/ Executive Body in terms of

Section 48(2) of the Act. The relevant portions of the decision taken by the

Commission are reproduced below :

It is observed that the DG has not investigated the role of individual

office bearers of the Managing Committee / Executive Body of the

Association in decision making, in terms of Section 48(2) of the

Competition Act.

DG is directed to issue notices to the office bearers of the Managing

Committee / Executive Body of the Chemists and Druggist Association,

Ferozepur, in terms of Section 48(2) of the Act, and give them an

opportunity to explain the role of individual office bearers in the decision

making in respect of practices/circulars/directions etc., which were found

anti-competitive.

32. In compliance of the directive given by the Commission, the Jt. DG issued

notice dated 03.07.2013 to the office bearers of the Association. In response to

the notice, Shri Chaman Lal Kakkar, President of the Association filed his own

affidavit through e-mail dated 18.07.2013. The remaining office-bearers

submitted joint affidavit through e-mail dated 19.07.2013. Subsequently, they

sent original affidavits.

33. The Jt. DG adverted to the allegations made against the office-bearers,

their responses in the form of affidavits and recorded the following observations:

OBSERVATIONS

20. As can be seen from the Affidavits of the Office Bearers /

Executive Committee members of Chemists and Druggists

Association, Ferozepur filed by them in response to the Notices

sent to them, none of the Office Bearers / Executive Committee

members has denied their role with respect to the decision of


30

boycott of the informant by way of Resolution / Circular dated

27.05.2012 and have cited various reasons compelling them to take

the said decision.

21. The primary reason cited by the Office Bearers / Executive

Committee members for taking the decision of boycott is that the

informant was indulging in unfair practices of raising false ills and

over charging retailers by tampering the computer billing software

and refusing to rectify the same and misbehaving with the retailers.

It has been stated that the decision was taken to protect the

interests of the members of the Association and only after affording

reasonable opportunity to the Informant. It has also been informed

that an FIR No. 230 dated 01.09.2012 under Section 429 IPC read

with Section 66(1) of the Information and Technology Act had been

registered against the Informant who was on bail by the Orders of

Learned Session Judge, Ferozepur.

22. As against the above contentions, the Informant had in the

Information filed with the Commission, alleged that Chemists and

Druggists Association, Ferozepur had a rule that stipulated taking

of its NOC on payment of Rs.2100/- per company, prior to taking

up distributorship of any pharmaceutical company. It had been

informed that since the Informant had objected to the said practice

in the year 2010, he was expelled from the membership of the

Association. It had been informed by the IP that in response to a

letter sent by him in the said matter, the Ministry of Health & Family

Welfare had vide letter dated 25th June 2010 informed that only the

Licensing Authority of the State was empowered to limit the activity

under the rules and regulations of the Drugs & Cosmetics Act &

Rules. It was further informed by the IP, that the facts of the said
31

letter were brought into the notice of the area Drug Inspector, since

restricting the business activities of a wholesaler duly appointed by

the State Drug Authority also amounted to violation of the

provisions of Article 19(1)(g) of the Indian Constitution. It had been

informed by the Informant that in view of the above objections

raised by it with respect to the NOC practice, and in view of having

brought the same to the notice of the concerned authorities, the

Association through its President and other interested wholesalers

holding different positions in the Association were making all efforts

since 2010 to stop the business of the Informant to eliminate

competition being posed by it.

23. The Informant had contended that the discrepancy in billing

due to software error which prompted the Association to boycott it,

had been duly rectified by it by issuing credit notes to the affected

parties. The Informant had alleged that taking advantage of the

opportunity arising out of the discrepancy in billing, and with

malafide intent to drive out competition posed by it, a General Body

meeting of Chemists and Druggists Ferozepur was convened on

23.05.2012 having agenda against the Informant. It has been

alleged that natural justice had not been meted to the Informant as

it was not called in the said General Body Meeting of the

Association where after, the boycott decision was taken in the Extra

Ordinary meeting of the Association held on 26.05.2012 and

circulated by the Association amongst its members vide Circular

dated 27.05.2012. As is evident from the above, there are

allegations and counter allegations between the Informant, and the

OP Association & its Office Bearers with respect to the reasons for

the boycott decision of the Association.


32

24. Investigation has already observed in its Investigation

Report dated 10th June 2013, that the Chemists and Druggists

Association is an unregistered association of wholesalers and

retailers of Ferozepur and has no legal or statutory mandate to

regulate the business of distribution and sale and drugs and

medicines. In the said Report, investigation had not delved into the

merits of the allegations and counter allegations, the issue of

incorrect billing being essentially a bilateral issue between the

Informant and the concerned retailers who reportedly had filed an

FIR in the matter. However, without disputing the merits of the

allegations of the Association/ its Office Bearers/ Executive

Committee members with regard to overbilling etc. done by the

Informant, redressal of the grievance of its members should have

been sought by the Association legally at the appropriate forum

rather than resorting to measures that are not legally tenable such

as boycott of the Informant and imposing penalties on those not

complying with its decision which have adverse implications on

competition in the market. Undeniably, the OP Association may be

well within its rights to work for the welfare of its members, however

it was incumbent upon the Office Bearers/ Executive Committee

members, to have prevailed upon the aggrieved members of the

Association to take recourse to legal measures for redressal of their

grievances and the Office Bearers/ Executive Committee members

of the Association should have refrained from taking the boycott

decision, circulating it, and, enforcing compliance of the same by

imposing penalties on those not complying with the said decision.

The contentions in the Affidavit to the effect that the main object of

the decision was rather to increase the efficiency in supply,

distribution, storage, acquisition and control of goods including


33

provision of services besides being not substantiated by any

evidence in support of the contention, the repercussions of the

boycott decision in terms of adverse effect on competition by

limiting and controlling supply of drugs and medicines in the market,

curtailing the freedom of trade of the market intermediate etc.

cannot be overlooked.

25. With regard to the contention of the Office Bearers/

Executive Committee members in their Affidavits that the sales in

the IP had not declined as a result of the boycott decision and that

several retailers of Ferozepur were still purchasing medicines from

the Informant, it may be mentioned that during the course of

investigations, the Informant had vide written submissions dated

17.04.2013, submitted that its turnover had declined from

Rs.223.18 lakhs to Rs.39.71 lakhs between the corresponding

periods of 01.06.2011 to 31.03.2012 and 01.06.2012 to 31.03.2013

respectively i.e. period prior to, and after the boycott decision. The

Informant had also submitted a monthwise break of its sales

pertaining to the above periods with respect to Ferozepur as well

as other regions. However, in view of the rebuttal of the Office

Bearers/ Executive Committee members in their Affidavits

regarding contentions of the Informant regarding decline in sales,

the Informant was asked to substantiate its above contentions and

to submit a Certificate from its Auditor conforming the Sales figures

along with monthwise break up of Sales during the said periods.

The Informant was also directed to swear on Affidavit its written

submissions made by the letter dated 17.04.2013 regarding Sales,

in Ferozepur having declined from Rs.223.18 lakhs to Rs.39.71


34

lakhs between the corresponding periods of 01.06.2011 to

31.03.2012 and 01.06.2012 to 31.03.2013 respectively.

26. In response to the above, the Informant has filed a Certificate

from its Auditors Lal & Associates, Moga, Punjab dated 24.07.2013

confirming the sales figures of the Informant pertaining to

Ferozepur during the periods 01.06.2011 to 31.03.2012 and

01.06.2012 to 31.03.2013 respectively. The Informant has also

filed an Affidavit confirming the above figures in support of its

written submissions made earlier regarding decline of sales in

Ferozepur consequent upon the boycott decision dated

27.05.2012. Copy of the Certificate the Auditor certifying the Sales

figures and copy of the Affidavit of the Informant are enclosed as

Annexures-4 & 5 respectively.

27. In view of the above, the contention of the OP Association

and its Office Bearers as per their sworn Affidavit to the effect that

their decision of boycott was aimed at increasing the efficiency in

supply, distribution, storage, acquisition and control of goods

including provision of services and that the same had not resulted

in decline of sales of the Informant does not hold ground.

28. The Office Bearers/ Executive Committee members of

Chemists and Druggists Association, Ferozepur by signing and

filing identical Affidavits stating therein that The Association has

always been ready to reconsider its resolution dated 27.05.2012

provided Rajesh Arora submit an unconditional apology..and

further assure the Association that he will not indulge in such

malpractices in future is an admittance of their role in the collective


35

decision making process which resulted in the issuance of Circular

dated 27.05.2012 boycotting the Informant.

29. With regard to the practice of NOC/ LOC necessarily

required to be taken from the Association after payment of

prescribed fee and prior to taking up distributorship of any

pharmaceutical company, the Office Bearers/ Executive Committee

members of the Association by perpetuating this anti-competitive

practice which has the effect of limiting and controlling the provision

of drugs and medicines are party to the said practice.

34. The Commission forwarded copies of both the reports of DG to the

appellants and Respondent No. 2. The Association filed detailed comments/

submissions/ objections dated 10th October, 2013 along with seven documents

marked A to G (pages 598 to 693 and 714 to 783 of the paper book), which

included copy of the letter dated 16.07.2005 issued by the Association to the

pharmaceutical companies, copy of letter dated 06.07.2007 sent by Respondent

No. 2 to the President of the Association tendering apology in respect of some

episode, copy of letter dated 09.06.2010 issued by the Chairman, Disciplinary

Action Committee to Shri Rajesh Arora informing him about the expulsion of

Respondent No. 2, copies of bills of purchases made by retailers of Ferozepur

from the wholesalers of the neighbouring town, copy of LOC issued by the District

Chemists Federation, Jalalabad to M/s. Merck Limited for appointment of

Respondent No. 2 as stockist, bills issued by Respondent No. 2 to M/s. Raj

Medicos (a member of the Association) after the alleged boycott, copy of bills

issued by Respondent No. 2 providing 3% discount. The Association filed

additional submissions dated 22.10.2013 with two documents marked annexures

A and B (pages 695 to 706). Annexure A consists of copies of letters written by

M/s. Merck Limited and Jacques Biotech for grant of NOC to appoint Respondent
36

No. 2 as dealer at Ferozepur and Annexure B is copy of the application form

submitted by M/s. Sun Pharmaceuticals Limited for appointment of new stockist.

The Association also filed list marked as Annexure A-21 of persons to whom

NOCs were issued after receiving fees of Rs. 2,100/- and Annexure A-22, list of

80 persons who were doing the business as stockists without obtaining NOC.

The copy of NOC issued by the District Chemists Federation, Jalalabad in favour

of Respondent No. 2 was also annexed. The other appellants filed joint

preliminary submissions on 14.10.2013 (pages 707 to 713) and documents

marked Annexures A-11 to A-26 (pages 714 to 800). They pleaded that the

action proposed to be taken against them under Section 48 is without jurisdiction

because the ingredients necessary for invoking that section were absent in the

case.

35. The first set of objections/ submissions filed by the Association are divided

into seven chapters. In Chapter III, the Association detailed the background in

which the information was filed by Respondent No.2. In Chapter IV, the

Association briefly referred to the findings recorded by the Jt. DG. In Chapter V,

the Association enumerated its comments and objections to the report of the Jt.

DG. In paragraphs 47 to 57 and 59 to 61 of that Chapter, the Association

highlighted its objections to the analysis made by the Jt. DG and conclusion

recorded by him.

36. Since the impugned order contains only cryptic references to the

objections and submissions made by the appellants, we deem it proper to notice

the same in a greater detail so that the stand taken by the Association can be

appreciated in a correct perspective in the light of the stand taken by the others

including PCA, AIOCD, pharmaceutical companies as also the wholesalers/

retailers and the statements recorded by the Jt. DG. The relevant paragraphs of

the objections/ submissions filed by the Association are reproduced below :


37

47. It is submitted that the DG erroneously assumes that the

CDAF is the apex association for the district of Ferozepur.

This erroneous assumption has led the DG to arrive at an

incorrect theory of harm to competition in the relevant

market.

48. The membership of CDAF comprises of wholesalers and

retailers in Ferozepur City and Ferozepur Cantt. The district

of Ferozepur comprises of, amongst other areas, Ferozepur

City, Ferozepur Cantt., Fazilka, Abohar, Jalalabad and Zira.

Wholesalers supply medicines not only to Ferozepur city and

Ferozepur cant. but also to neighbouring towns such as

Faridkot, Kotkapura, Zira, Talwandi Bhai, Mudki,

Guruharsahai, Jalalabad, Farilka, Abohar and other

neighbouring districts. Further, there are no restrictions

placed on retailers of Ferozepurs to purchase the drugs and

medicines from the aforesaid neighbourhood towns, thereby

ensuring unrestricted supply of medicines in the district of

Ferozepur. Copies of bills for purchase made by members

(retailers) of CDAF from wholesalers of neighbouring towns

like Faridkot, Bathinda, Jalandhar are attached as Annexure

D. This is further supported by the fact that the Informant

claims loss of sales in Ferozepur City and Ferozepur Cantt,

while, during the same time, the Informants sales to

Fazilkha grew at over 100%.

49. Also, at the cost of repetition, it is reiterated that the decision

of CDAF not to grant NOC to its member (wholesaler) does

not preclude the wholesaler to obtain the required NOC from

the Chemist and Druggists Association of the neighbouring

areas, like Faridkot, Kotkapura, Talwandi Bhai, Mudki,


38

Guruharsahai, Jalalabad, Fazilka and Abohar. It is pertinent

to note that Informant received a NOC from the Distt.

Chemist Federation, Jalalabad, for its appointment as a

stockists/ wholesaler for M/s. Merck Limited. It is therefore

submitted that there is no restriction on the wholesaler to

supply medicines of pharmaceutical companies, obtained

from neighbouring areas of Ferozepur, to the retailers

situated in Ferozepur. Thus, there is evident supply side

substitutability between Ferozepur and the neighbouring

areas of Faridkot, Kotkapura, Talwandi Bhai, Mudki,

Guruharsahai, Jalalabad, Fazilka and Abohar. In fact, the

DG admits that the Informant being a wholesaler of drugs

and medicines is part of the supply and distribution chain

through which various drugs and medicines manufactured

by pharmaceutical companies are channelized in the market

of such products in the district of Ferozepur and adjoining

areas. A copy of the NOC issued by Distt. Chemist

Federation, Jalalabad, in favour of the Informant is attached

as Annexure E.

50. It is submitted therefore that the DG Report lacks any cogent

material to even assess the allegation of limiting or

controlling the supply of drugs and medicines in Ferozepur

district of Punjab. It presupposes the existence of quantity/

supply restriction even before undertaking a cursory analysis

of the conditions of competition prevailing in the relevant

market.

51. The theory of harm professed by the DG assumes that the

actions of CDAF not only curtail the freedom of trade of the

Informant but also amount to limiting and controlling the


39

supply in the market of drugs and medicines. The DG

erroneously submits that the directions of CDAF to stop

purchasing from the Informant and imposition of fine on the

retailers dealing with the Informant have the effect of driving

out existing competitor (Informant) out of the market without

taking into account that the market is in fact much larger.

The Informant on his part has simply moved its supplies

from one part of the relevant market to another without any

switching costs or significant effort.

Action of boycott merely on grounds of moral persuasion having no

binding effect

52. The DG while noting the malpractices of misappropriation by

the Informant in the bills raised, has concluded that the

decision taken by CDAF vide circular dated 27 May 2012,

not only curtails the freedom of trade of the Informant but

also amount to limiting and controlling the supply in the

market of drugs and medicines. The DG further submits that

the directions of CDAF to stop purchasing from the Informant

and imposition of fine on the retailers dealing with the

Informant have the effect of driving out existing competitor

(Informant) out of the market.

53. It is humbly submitted that the analysis undertaken by the

DG during the course of the investigation suffers on account

of its incompleteness, the reliance it places on certain steps

taken by CDAF without any reference to the context and

backdrop in which the said steps have been taken.

Furthermore, the DG Report has disregarded critical

clarifications and submissions by CDAF and contains an

incomplete and baseless analysis, which has resulted from


40

the DG cherry picking facts/ information/ documents and

drawing illogical assumptions to base the adverse findings

against CDAF.

54. As submitted hereinabove, the DG has based its entire

analysis on certain steps/ actions taken by CDAF without

any regard or reference to the critical facts and

circumstances surrounding the said steps/ actions. It is

submitted that the DG Report has elide on merely two factors

to assess the impact of the impugned action of CDAF,

namely :

i. sales of the Informant has allegedly reduced from INR

223 lakhs during the period 01 June 2011 to 31 March

2012, as compared to INR 39.71 lakhs in the period

after the boycott, i.e., 01 June 2012 to 31 March 2013;

and

ii. alleged directions of CDAF to penalize those retailers

who continue dealing with the Informant and to other

wholesalers not to deal with those retailers who

continue to deal with the Informant.

55. It is submitted that the analysis carried out by the DG (on the

basis of abovementioned steps/ actions taken by the CDAF)

is inherently flawed and suffers on account of the false and

illogical assumptions being drawn in the DG Report.

Furthermore, the DG Report fails to appreciate the critical

fact that none of the abovementioned actions undertaken by

the CDAF (and relied upon by the DG to arrive at its findings

against CDAF) are aimed to distort the competition fabric or

benefit/ promote a particular member or group of the CDAF

to the prejudice of others.


41

xx xx

57. The DG Report has completely failed to substantiate that the

impugned steps/ actions taken by the CDAF are

demonstrative of the collective intent and concerted

behaviour of CDAF to distort competition. In this regard,

CDAF most humbly wishes to clarify the critical facts and

circumstances underlying the abovementioned steps taken

by CDAF, which the DG has wrongly assumed as amount to

anti-competitive behaviour:

A. Reduction in sales of the Informant after alleged

boycott -

i. It is humbly submitted that the DG Report has :

(A) completely glossed over the fact that the action

taken by CDAF against the Informant is in line

with the role and responsibilities of an

association representing an industry group.

From a legal perspective, the DG Report

completely fails to appreciate the essential fact

that while the Act is focused on the larger goal

of protecting and promoting competition in

markets, whereas the impugned action of

CDAF has a much narrower focus, i.e.,

protecting the retailers of Ferozepur from the

fraudulent practices of the Informant. The DG

Report completely fails to appreciate the

divergence in the objectives of the Act and

impugned action of CDAF. If the logic adopted

by the DG is accepted by this Honble

Commission, it would lead to an untenable


42

situation where trade associations

representing the interests of an industry group,

will be barred from adopting any measures

necessary to protect the interests of the

concerned industry; and

(B) without any reason or logic cast aside the

explanation submitted by the President, CDAF

in its Affidavit dated 18 July 2013 that there has

been no reduction in the sales of the Informant

as several retailers of CDAF are still

purchasing from the Informant. Bills issued by

the Informant to M/s. Raj Medicos (member of

CDAF) after the alleged boycott are attached

as Annexure F (Colly.). Thus, the alleged

boycott was merely on paper and carries no

effect on the members, much less on

competition. The DG further failed to consider

the fact that the impugned action of CDAF was

taken only after affording reasonable

opportunity to the Informant to explain his

position. The Circular dated 27th May 2012

itself states that the Informant was given 2-3

days time to clear his position before taking

further action. However, the Informant

remained adamant and non-cooperative with

an intention to hide his fraud. It is further

submitted that the DG, without assigning any

reason, discarded the reply dated 21 March

2013, filed by Apex Laboratories Private


43

Limited, stating that the decision to appoint

M/s. H S Agencies as their stockists in

Ferozepur was taken only after experiencing

non-cooperation from M/s Arora Agencies

which affected their business in the Ferozepur

area. This is evident of the malpractices of the

Informant experienced by all enterprises in the

distribution chain of drugs and medicines in

Ferozepur, AND

(C) failed to take into account the clarification

supplied by CDAF that the alleged reduction in

the sales of the Informant, if any, was only on

account of the malpractices carried out by the

Informant. The retailers, on being made aware

of such malpractices (of issuing inflated bills),

considered it wise not to purchase from the

Informant. This may be one of the reasons

attributable to the alleged fall in sales of the

Informant, which the DG failed to look into.

Without prejudice, it is also submitted that the

reduction in sales of the Informant may also be

attributed to the reduction in commission/

discount offered to the retailers. It is evident

from the bills furnished by the Informant to the

DG with its reply dated 19th November 2012

(Annexure 3 Page No.65), that the cash

discount by the Informant reduced from 5% to

3% thereby resulting in reduction of sales. A

copy of the bills issued by the Informant


44

providing 3% discount is annexed as Annexure

G.

ii. It is also pertinent to note that the same billing

software, Surya was used by other members

of the CDAF also, who did not experience any

such problems as expressed by the Informant.

Even otherwise, the Informant continued with

the aforesaid malpractices after changing the

billing software (Marg), exhibiting the mala

fide intention of the Informant, which was

completely overlooked by the DG.

iii. Given the reasons stated above, it is most

humbly submitted that the DG has, without any

reasons or logic, sought to wrongly assert that

the actions initiated by CDAF on behalf of its

members and the necessary actions/ steps

taken by CDAF and/or its members in order to

sustain the impugned boycott of the Informant

is evidence of limiting or controlling the supply

of drugs and medicines in the district of

Ferozepur.

iv. It is further submitted that the reliance placed

by the DG on the impugned action undertaken

by CDAF to arrive at the flawed and illogical

conclusion that the impugned action

demonstrates limiting or supply of drugs and

medicines in Ferozepur is wholly wrong and

misplaced. If the DG Report is relied upon by


45

this Honble Commission, it would lead to

grave miscarriage of justice.

B. Alleged directions of CDAF to penalize those

retailers who continue dealing with the

Informant and to wholesalers not to deal with

those retailers who continue to deal with the

Informant

i. It is humbly submitted that the biased mindset

of the DG is clearly visible in view of the fact

that the alleged directions, as viewed by the

DG to the members (both wholesalers and

retailers) of the CDAF were mere requests, in

order to take disciplinary action against the

Informant for its malpractices. The DG Report

paints the legitimate trade association

activities undertaken by CDAF with the brush

of illegality without in any manner referring to

the true context and background of such

legitimate trade association activities. Other

than reproducing the submissions made by

CDAF in relation to the issue of malpractices

conducted by the Informant (which the DG has

without reason or logic refused to reply upon),

the DG Report has completely failed to

substantiate its conclusion that these alleged

directions to the wholesalers are retailers led

to limiting or controlling the supply of drugs and

medicines.
46

In paragraph 62 to 68, the Association emphasized that no restriction has been

placed on retailers to purchase the drugs and medicines from neighbouring town

like Faridkot, Kotkapura, Talwandi Bhai, Mudki, Guruharsahai, Jalalabad, Fazilka

and Abohar. These paragraphs read as under :

62. The DG Report completely fails to prove existence of the alleged

fact as to whether the impugned action of CDAF has led to limiting

or controlling the production or supply of drugs and medicines in

the district of Ferozepur.

63. As stated above, there are no restrictions placed on retailers of

Ferozepur to purchase the drugs and medicines from the aforesaid

neighbourhood towns like Faridkot, Kotkapura, Talwandi Bhai,

Mudki, Guruharsahai, Jalalabad, Fazilka and Abohar, thereby

ensuring unrestricted supply of medicines in the district of

Ferozepur. This is clear from the fact that the retailers in this region

regularly procure medicines from wholesalers located throughout

the

64. Moreover, the wholesalers, including the Informant, are free to

obtain the NOC from the aforesaid neighbouring towns and sell

their drugs and medicines in the district of Ferozepur. In fact, the

Informant received a NOC from the Distt. Chemist Federation,

Jalalabad, for its appointment as a stockist/ wholesaler for M/s.

Merck Limited (Annexue D). Thus, there is evident supply side

substitutability between Ferozepur and the neighbouring areas of

Faridkot, Kotkapura, Talwandi Bhai, Mudki, Guruharsahai,

Jalalabad, Fazilka and Abohar, rebutting the claim of the DG that

there is disruption in the business activities of the informant or other

retailers of Ferozepu.
47

65. It is further submitted that the DG has reached its finding on the

likely impact of availability of drugs and medicines to the retailers

and to the end consumers, merely on the basis that Informant is the

biggest wholesaler of drugs and medicines in Ferozepur. The said

finding of the DG is whimsical and based on mere conjectures and

surmises. It is humbly submitted that the DG failed to summon or

question even a single retailer from Ferozepur, to assess the claims

of the Informant on limiting or controlling of supply.

66. In fact, the DG also glossed over the fact that the retailers, had filed

an FIR on 01 September 2012 to report the fraudulent practices of

the Informant issuing inflated computerized bills to the retailers of

Ferozepur, without deducting the amount for expired drugs and

medicines retuned by the retailers. And, it was only after the

Informant continued to abuse its dominant position by refusing to

refund the amount to the retailers, that the members, that the

members urged CDAF to boycott the Informant.

67. The DG further claims that the pharmaceutical companies too stand

to be affected by the alleged disruptions in the business of the

Informant, without posing any such question to the companies. It

is pertinent to note that no pharmaceutical company in its reply has

stated any disruption in their business activities due to the alleged

boycott of the Informant.

68. Most importantly, it is submitted that the actions of CDAF can only

be called into question where the purported object of the decision

is to distort or prevent competition in the relevant market in order to

reap anti-competitive gains. In other words, in the absence of the

intent to gain supra competitive profits, no case under section 3(3)

is made out. The findings of the DG must fall on the basis of its

own findings where the DG concludes that with respect to the


48

remaining office bearers who are engaged in the wholesale

business of drugs and medicines, the allegation of the IP regarding

horizontal cartel also does not appear to be well founded for the

reason that there is no evidence to suggest that the loss of business

of the IP allegedly due to the boycott decision of OP-1, to which

these wholesale office bearers were party, could exclusively be

cornered by these office bearers.

In paragraphs 69 to 77, the Association highlighted that NOC for appointment of

additional stockists was not a condition precedent and the NOCs were issued at

the asking of pharmaceuticals firms. The association also pointed out that

practice of NOC was evolved on the recommendations of Mashelkar Committee

appointed by Union Health Ministry, Government of India. These paragraphs are

also extracted below :

69. At the outset, it is submitted that the practice of NOC was

evolved on the recommendation of the Mashelkar

Committee appointed by the Union Health Ministry of the

Government of India which had recommended that the

chemists and pharmacists through their association should

act as watch dog to prevent entry of spurious/ doubtful

quality drugs of those purchased from unauthorised sources

and had specifically reiterated that AIOCD 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.

70. It is further submitted that in the instant case, the practice of

issuing NOC to new/ additional stockists was undertaken at

the behest of the pharmaceutical companies, who were


49

demanding NOC of CDAF, prior to appointment of a new or

additional stockists. Placing reliance on a letter dated 25

March 2013 issued by M/s. Merc Limited, it is submitted that

pharmaceutical company insists on NOC/LOC from persons

desiring to obtain the companys distributorship. M/s. Merck

Limited further admitted that obtaining NOC from the

concerned association was an industry wide practice and the

company was no exception. Further, the DG also mentions

the letter dated 12 September 2009 from M/s. Tayal

Associates, a wholesaler, requesting for LOC on behalf of

M/s. Intas Pharmaceutical Limited for its appointment.

Another letter from M/s Jacques Biotech has also been

furnished seeking NOC for appointment of new stockists.

The DG failed to analyse the different stance taken by

pharmaceutical companies on the practice of issuance of

NOC.

71. Moreover, replies filed by M/s. Ferozepur Medical Agency

and Bhagwati Medilinkers, dated 02 April 2013 and 05 April

2013 respectively; clearly bring out the stance that

pharmaceutical companies demand NOC from the Chemists

and Druggists Associations for the appointment of

additional/ new stockists. The reply of M/s Dimple

Enterprises dated 07 April 2013 attached to the DG Report,

substantiates this submissions. In view of the various

submissions by pharmaceutical companies and wholesalers

of drugs and medicines in Ferozepur, it is evident that the

DG adopted the cherry-picking approach and prepared the

DG Report with a pre-determined mind set. It is humbly


50

submitted that the findings of the DG Report on this issue is

liable to be rejected on this ground alone.

72. It is submitted that the pharmaceutical companies seek a

NOC from the concerned chemists and druggists

association to avoid unhealthy competition and prevent

creating excess supply in the market. The present of excess

supply might lead to expired medicines being left with the

additional stockists, affecting their investment and business.

Keeping in mind the limited shelf life of medicines,

appointment of new/ additional stockists, than otherwise

required, results in huge losses for the pharmaceutical

companies, in the event that expired drugs and medicines

are returned by such additional stockists. The said practice

also harms the stockists, whose investment is blocked, as

the recovery from pharmaceutical companies is a time

consuming process. In other words, NOC is used as a tool

to create an efficient distribution chain in a given district and

restrict the potential conflicts between the pharmaceutical

companies and the stockists, in the event of excess supply.

NOC does not amount to limiting or controlling supplies and

provision of services in the relevant market.

73. Without prejudice to the above, it is reiterated that the

decision of CDAF not to grant NOC to the member/ non-

member (wholesaler of medicines) does not preclude the

wholesaler to obtain the required NOC from the

pharmaceutical company directly or Chemist and Druggists

Associations of the neighbouring area, like Faridkot,

Kotkapura, Talwandi Bhai, Mudki, Guruharsahai, Jalalabad,

Fazilka and Abohar. It is pertinent to note that the Informant


51

received a NOC from the Distt. Chemist Federation,

Jalalabad, for its appointment as a stockist/ wholesaler for

M/s Merck Limited (Annexure D). It is therefore submitted

that there is no restriction on the wholesaler to supply

medicines of pharmaceutical companies, obtained from

neighbouring areas of Ferozepur, to the retailers situated in

Ferozepur.

74. The DG further states that non-grant of NOC to those parties

who are not members of CDAF, has the effect of foreclosure

of the market for such interested parties. It is humbly

submitted that this finding of the DG is without any factual or

legal basis and therefore lacks merit. The NOC process is

entirely voluntary and initiated at the behest of the

pharmaceutical companies or stockists. Further, it is not

necessary to become a member of CDAF, in order to do

business in Ferozepur. The wholesalers, who are not

members of CDAF, are free to approach the pharmaceutical

companies directly and seek for appointment as stockists.

CDAF does not in any manner prevent or restrict the

freedom of wholesalers to perform their business activities in

Ferozepur City or Ferozepur Cantt areas. Nor does it

impose any fetters on wholesalers or retailers in the relevant

market or district of Ferozepur and adjoining areas. The DG

further failed to investigate the ground realities, as there was

no NOC/LOC requirement in case of mergers and

acquisitions between pharmaceutical companies. CDAF has

not issued any separate NOC/LOC in the cases of mergers

and acquisition case of Abbott-Solvay, Pifizer-Wyeth,

Abbott-Piramal, Abbott-Nicholas and Pfizr-Pharmicia. The


52

stockists of any one of such pharmaceutical companies have

been receiving drugs and medicines of the acquired/ merged

entity, without the requirement of fresh NOC from CDAF. In

view of this fact, it is apparent that the DG investigated the

entire matter with a pre-determined mind-set and failed to

analyse any facts/ arguments contrary to its biased view.

75. Without prejudice to the above, it is submitted that there are

a large number of stockists/ wholesalers in Ferozepur, who

are selling drugs and medicines to retailers without obtaining

NOC from the CDAF. The best example of such practice is

the Informant, who admits of being the biggest wholesaler in

Ferozepur, even when the Informant was expelled from the

membership of CDAF in 2010, on behavioural grounds, in

addition, there are various instances of distributor of

pharmaceutical companies operated without any NOC from

the CDAF. The DG further refused to acknowledge and take

into account the submission of various office bearers, who

have stated that CDAF has no objection in the

pharmaceutical company appoints an additional/ new

wholesaler, without a NOC.

76. It is pertinent to note that the DG admits that CDAF is guided

by the motive to protect the interests of its members and the

rules and regulations of the State Level Association, i.e.,

PCA, which clearly stipulates the practice of NOC/LOC

(Article 17 of the Rules and Regulations of PCA). Therefore,

it is humbly requested that alleged practice may kindly be

viewed in light of the bona fide intentions and good faith

exhibited by CDAF in discharging its duties.


53

77. To sum up, the DG has failed to establish the effect of limiting

and controlling the supply of drugs and medicines in

Ferozepur because of the alleged practice of issuance of

NOC by CDAF, prior to appointment of new/ additional

stockists in Ferozepur. This is particularly so, since the

refusal of CDAF to grant a NOC to its member does not

preclude the wholesaler to obtain the required NOC from the

Chemist and Druggists Associations of the neighbouring

areas, like Faridkot, Kotkapura, Talwandi Bhai, Mudki,

Guruharsahai, Jalalabad, Fazilka and Abohar, and sell its

drugs and medicines to the retailers in Ferozepur. This is

evident from Annexure D placed on record. Moreover, the

DG failed to consider the submissions of pharmaceutical

companies stating that the practice of NOC was followed

industry wide.

In the end, the Association pleaded that notwithstanding criticism of the

findings recorded by the Jt. DG, it was prepared to take steps for pro-competitive

activities among the members. This is evident from para 87 of Chapter VI, which

is extracted below :

87. In addition to the various beneficial functions performed by

CDAF for its members, CDAF also wishes to act as a vehicle

to promote pro-competitive activities amongst its members

and develop best practices guidelines for its members to

create awareness of acceptable and unacceptable

behaviour under the Act. In order to initiate this process,

CDAF suo moto, undertakes to execute the following steps,

inter alia, with immediate effect :


54

i. revoking the boycott of the informant;

ii. returning the penalty amount of INR 5000/- imposed

on Sonia Medical Store;

iii. discontinue with the practice of issuance of NOC; and

iv. utilize the amount collected by issuance of NOC

towards welfare needs of the association and its

members in general.

Without prejudice to the submissions contained in the

foregoing chapters, it is humbly requested that if this Honble

Commission comes to the conclusion that the CDAF has

violated any provision of the Act, it may kindly consider the

mitigating factors, submissions and undertakings set out in

this chapter of the instant Reply. Accordingly it is humbly

requested that instead of proceeding against the CDAF

under Section 27(a) of the Act, the Honble Commission may

pass appropriate order(s) under Section 27(g) to guide the

CDAF in complying with the provisions of the Act and

develop a strong competition culture.

37. In their common preliminary reply the office bearers pleaded that Section

48 is not applicable to them and as such they cannot be held liable for the alleged

violation of the Act. They further pleaded that the action for imposition of penalty

could not have been initiated against them because by then no finding was

recorded by the competent authority that the Association had indulged in anti-

competitive activities/ practices.

38. The stand taken by different pharmaceutical companies, as extracted in

the report of the Jt. DG., reads as under :


55

M/s. Merck Limited

4.19. In response to the Notice dated 05.03.2013, it has been

informed that though there are no written guidelines issued by

AIOCD or local district associations regarding NOC/LOC to be

obtained by any person desirous of being appointed a wholesaler,

however AIOCD and its affiliates insist for the same through various

means including boycotting the companys products in case such

NOC/LOC is not obtained by any wholesaler or distributer so

appointed by the company. As such to avoid harassment and

boycott of its products, the company has been asking for NOC/LOC

from persons desiring to obtain the companys distributorship. It

has been stated that this was the industry wide practice and the

company was no exception. A copy of NOC obtained by the IP from

the District Chemist Federation, Ferozepur has been furnished. It

has been informed that the company avails Product Information

Services from the concerned State/District Associations of

Chemists and Druggists affiliated to AIOCD in order to inform the

pharmacies about its new product launches and pays for these

services on account of printing and circulation of the advertisement

as per the advertisement tariff. The company has informed that as

per guidelines issued by NPPA the margin on Scheduled

formulation is 8% to wholesalers and 16% to pharmacies.

Regarding non-scheduled formulation it has been informed that as

per industry practice the margin is 10% for wholesalers and 20%

for pharmacies.

M/s. Intas Pharmaceutical Limited

4.20 The company has informed vide its letter dated 02.04.2013

that in the matter of NOC/LOC/PIS from Chemists & Druggists


56

Associations, the same is not a requirement stipulated by the

company. With regard to margins of wholesaler and retailers, it has

been informed that the same are in accordance with the Drug

Pricing Control Order. In the matter of PIS and trade margins, the

company has informed vide its letter dated 10.04.2013 that before

launching of any new pharmaceutical products / drugs, it furnishes

an information sheet normally known as Product Information

System (PIS) containing the details of the product etc. to the

respective trade Association of Chemists and Druggists which

according to the company was being circulated in the trade for

general information. It has been stated that the company does not

require any NOC /LOC from any trade Association or its affiliates

prior to launching new pharmaceutical products / drugs to

wholesalers or retailers, it has been confirmed that the same are

not prescribed or decided by any apex body or trade Association.

It has been stated that trade margins to wholesalers and retailers

are being implemented at the pre-determined rate in accordance

with the provisions of DPCO.

M/s. Abbott India Limited

4.21 The company has informed vide its letter dated 15.04.2013

that it has not appointed any new stockist for its products in

Ferozepur area for over last three years and is not aware of any

requirement to take any NOC/LOC from Chemists & Druggists

Association, Ferozepur or from Punjab Chemists Association,

Patiala prior to appointment of stockists of companys products in

Ferozepur. The company has denied knowledge about fee, if any

prescribed by the above associations for NOC / LOC. The

company has also stated that it is not aware about any requirement
57

of NOC/LOC/PIS approval required to be taken from the

Associations prior to launching new products in the State of Punjab.

It has however been informed that fees for the purpose of

publication of product information in periodical publications of

Punjab Chemists Association for the purpose of spreading

awareness amongst the trade about the new products has been

paid which as per its records is about Rs. 2000/- for each

publication. In the matter of trade margins of stockists or retailers

of the companys products, it has been informed that the company

is not aware of any apex body or trade association prescribing or

deciding the said margins. It has been informed that margins for

scheduled formulations have been prescribed under the DPCO

1995. Regarding non-scheduled formulations, the company

generally offers 10% margins to stockists and 20% margins to

retailers which as per its understanding is broadly in line with he

prevailing industry practice.

M/s. Apex Laboratories Limited

4.22 The company has informed vide its letter dated 21.03.2013

that appointment of its existing stockist namely H.C. Medical

Agencies at Ferozepur was done due to non-cooperation of the IP

which was affecting the companys business, as well as the desire

expressed by the IP for discontinuation of its stockist ship of the

company. It has further been informed that the existing stockist

had been appointed after duly obtaining NOC from the Association

of Ferozepur. The company has vide its subsequent letter dated

07.04.2013 informed that as per standard practice, before

appointing any stockists in Ferozepur the company has to obtain

NOC from the district association which was also the practice in all

other States. It has been informed that no fees for the NOC had
58

been paid by the company. It has been clarified that there is no

written communication from any apex body or association regarding

the requirement of NOC, however, it was he business practice to

get NOC. Regarding Product Information Service (PIS) it has been

informed that fees on account of advertisement for new products

towards launching of such new products, the company has paid

prescribed fee to the State level Association i.e. Punjab Chemists

Association. Copies of the receipt issued by PCA in this respect

have been enclosed. In the matter of margins (Price of Retailers).

It has been informed that as per trade practice margins are fixed for

retailers at 10% for non-DPCO product sand 8% for DPCO

products.

M/s. Glenmark Pharmaceutical Limited

4.23 The company has informed vide its letter dated 08.04.2013

that appointment of stockist/retailer is as per companys internal

selection criteria for which the company nether consults any

Chemists or Druggists Association nor does it obtain or is required

to obtain any NOC /LOC from any Chemists or Druggists

Association or its affiliated associations for appointment of its

Stockists / retailers. It has further been informed that there are no

directives / decisions in the knowledge of the company of any apex

body or association regulating the pharmaceutical industry in the

matter of NOC/LOC to be obtained by the company from any

Association.

4.24 The company has informed that it does not seek any Product

Information Service (PIS) approval from any trade association or its

affiliates for launch of any new product. However, for creating

awareness in the trade about the new products launched by the

company from time to time, advertisements of the products are got


59

published in the bulletins published by trade associations and / or

their affiliates by payment of prescribed charges for the

advertisements.

In the matter of trade margins, it has been informed that as per

customary industry practice for non DPCO products, the margins

are 10% to stockist & 20% to retailers and as per prescribed

statutory provisions for DPCO products, the margins are 8% to

stockist and 16% to retailers.

M/s. Invida India Private Limited

4.25 The company has informed vide its letter dated 09.04.2013

that it is not required to seek NOC/LOC prior to appointment of its

distributors / CA /stockist for State of Punjab. In the matter of PIS,

it has been informed that the company had launched a product in

the month of February, 2012 in Punjab which it could commence

selling by complying with the formalities and making payment of Rs.

4000/- to Punjab Chemists Association. Regarding margins, it has

been informed that in line with the pharma industry practice, the

company offers minimum margins of 10% and 20% of stockist and

retailers respectively for non-scheduled formulations.

M/s. Macleods Pharmaceuticals Limited

4.26 The company has informed vide its letter dated 25.03.2013

that though it has not taken any NOC /LOC from Chemists and

Druggists Association, Ferozepur for appointment of stockists,

however, parties directly approached the Association and seek

LOC/NOC from their respective District Association. Copies of

some NOC/LOC issued by OP1 have been enclosed and it has

been informed that since the company does not take the NOC/LOC,

it has neither paid any fees for the same nor is it aware of the
60

prescribed fee, if any. The company has informed that there are no

directive to it from any apex body or Association in the matter of

taking NOC/LOC. Regarding PIS charges, it has been informed

that the company is paying the prescribed free for advertisement of

new product information prior to launching new product in the State.

The company has also informed that no margin has been

prescribed or decided by the Trade Association for

wholesalers/retailers of non-scheduled pharmaceutical products.

M/s. Sun Pharmaceuticals Limited

4.27 In response to the clarification sought as to whether prior to

appointment wholesaler/stock/retailer in Ferozepur whether any

NOC/LOC was required to be taken by the company from CDAF or

PCA, the company has informed vide its letter dated 08.04.2013

that there was no requirement of taking NOC/LOC by its

prospective wholesaler/stockist/retailer from the said associations.

The company has stated that it was well aware that NOC before

appointment leading to reduction of supply in the market would be

in contravention of Section 3(3)(b) of the Act. However, while

appointing distributor/stockist, to verify the worthiness and

credentials, the company only enquires from respective

associations, however, the stockist/distributor/retailer is not insisted

upon to obtain any NOC/LOC as pre-requisite to appointment. The

company has denied any information about the details of the fee

prescribed by the associations for grant of NOC/LOC and also

confirmed that there was no requirement as per decision / directive

e of any apex body or associations regulating the pharmaceutical

industry for taking NOC/LOC.


61

4.28 In the matte of NOC/LOC/PIS approval prior to launching

any new pharmaceutical products / drugs of the company, it

has been stated that the company does not have any

information about the prescribed fee / charges for grant of

such approval. It has been stated that in terms of proposition

of law, fixing of PIS charges may lead to fixing of prices of

drugs in violation of Section 3(3)(a) of the Act. The company

has informed that in terms of DPCO directives, whenever a

new drug is introduced in the market information to

wholesalers, retailers and consumers to be given about the

new drug for which the price list of new products is published

in the magazines of respective associations on payment of

applicable publication fee. In the matter of margins the

company has stated that though it was well aware about the

propositions of law that margins do not amount to fixation of

prices under the Act. It follows the provisions of DPCO in

this respect. However, regarding non-scheduled

pharmaceutical products/drugs of the company sold in

Punjab including Ferozepur, the company has stated that

margins of wholesalers / retailers with respect to the same

are not prescribed or decided by any apex body/trade

associations.

M/s. Zuventus Healthcare Limited

4.29 The company vide its letter dated 16.04.2013 informed that

the NOC dated 01.12.2012 from Chemists and Druggists

association, Ferozepur had been furnished to the company

by M/s. Ferozepur Medical Agency a wholesaler. The

company has stated that as per its information no NOC is


62

mandatory for appointment of any party as stockist. The

company has also stated that no directive / decision / MoU

of any apex body or Association has been received by it

regulating appointment of stockist / wholesaler and that no

NOC is required to be obtained from any trade Association

or its affiliates prior to launching any pharmaceutical

products/drugs. It has been stated that the company has not

experienced any delay or refusal in obtaining PIS approval.

License / permission of FDA and other regulatory bodies as

required under the Drugs and Cosmetics Act, the Drugs and

Cosmetics Rules and other applicable statutory regulation is

obtained prior to launch any new drugs and pharmaceutical

products. It has further been informed that it has not

received any communication from any trade Association

prescribing any margin of wholesalers or retailers with

respect to the Non-Scheduled Pharmaceutical products /

drugs.

M/s. J.B. Chemicals & Pharmaceuticals Limited

4.30 The company has vide its letter dated 09.05.2013 informed

that NOC for appointment of Ram Medical Agencies, a wholesaler

of Ferozepur was provided in terms of MOU between IDMA and

AIOCD which as per information received by the company from

IDMA in April, 2012 was terminated w.e.f. December, 2011. The

company has informed that NOC was obtained from Chemists &

Druggists Association Ferozepure with respect to the said

wholesaler prior to April, 2012. The company has submitted copy

each of the NOC dated 28.2.2012 and MOU dated 12.09.2003. the

Company has also informed that after termination of MOU, there is

no need of NOC/LOC /PIS charges for launch of new products.


63

With regard to PIS approval, it has been informed that the

Associations voluntarily provide PIS services at their option. It has

further been informed that the company pays trade margins as per

the provisions of DPCO. It has been informed that for scheduled

products margins of stockists was 8% and for non-scheduled

products the same was 10% excluding excise duty and local taxes.

4.31 Notices sent to M/s. Jacques Biotech, M/s. Coral Biotech, M/s.

Ozone Pharmaceuticals Limited, M/s. RevenMac Pharmaceuticals

Private Limited, M/s. Pharmed Limited and M/s. Sava Medica

Limited were not responded to by these companies.

39. The wholesalers / stockists namely, M/s. Tayal Associates, M/s. Punjab

Medical Agencies, M/s. Ferozepur Medical Agency, M/s. Bhagwati Medilinkers,

M/s. Ganpati Pharmaceuticals and M/s. Dimple Enterprises submitted separate

replies stating that there is a long standing practice that the companies demand

NOC / LOC from the Association but no circular has been issued in this regard.

According to some of the dealers, a decision was taken in the General Body

Meeting to make the NOC mandatory but no document was produced by either

of them to prove this assertion. However, majority of the wholesalers pleaded

ignorance about the requirement of NOC/LOC from the Association as a

condition precedent for appointment of distributor.

40. The Commission noticed the summary of findings and conclusions

recorded by the Jt. DG (paragraphs 10, 11 and 15). In paragraphs 17 to 56, the

Commission briefly adverted to the objections/submissions made by the

Association and other appellants. In paragraphs 59 and 60, the Commission

referred to the allegations made by Respondent No. 2. In paragraph 61, it

referred to the circular dated 27.05.2012 issued by the Association and

proceeded to hold that the impugned conduct of the association is anti-

competitive in as much as it limited/controlled supply/provision of goods/service


64

being in contravention of Section 3(3)(b) read with Section 3(1). The

observations made by the Commission which constitute the foundation of this

conclusion are contained in paragraphs 62 to 72, which are extracted below :

62. From a plain reading of the circular, it is evident that a decision

to boycott the informant was taken by CDAF in its

Extraordinary Meeting held on 26.05.2012. The said decision

was further circulated by CDAF to its members. This aspect

has neither been disputed nor denied by the opposite parties

in their respective replies, though diverse reasons were given

in support of the decision.

63. Furthermore, the above decisions taken by CDAF were also

being implemented by it in letter and spirit. This is evident from

the fact that some office-bearers including the President of

CDAF have during recording of statement confirmed that

penalty had been imposed by CDAF on a retailer (M/s. Sonia

Medical Store) in January 2013 for defying its directives and

continuing dealings with the informant.

64. In response, it was submitted on behalf of CDAF that all the

retailers, who are its members, objected to the abusive

conduct of the informant in not refunding the

inflated/tampered bills raised by the informant, without

deducting the amount for expired medicines returned by the

retailers, as detailed earlier. In this connection, it was pointed

out that in order to resolve the issue, CDAF in its General

Body meeting held on 23.05.2012 provided 2-3 days time to

the informant to settle the accounts of the retailers. However,

the informant refused to discuss the matter with CDAF or clear


65

his position. It was therefore submitted that the impugned

action of CDAF to boycott the informant was taken only upon

deliberation of the retailers, who were suffering due to the

abusive and fraudulent conduct of the informant.

65. It is not in dispute that CDAF is an association of enterprises

engaged in similar trade as far as the issues projected in the

present information are concerned. The Commission is of

opinion that the decision taken by CDAF in its meeting held

on 26.05.2012 and as circulated vide its circular dated

27.05.2012 amounts to limiting and controlling supply in the

market of drugs and medicines. Further, from the tenure of the

decision, it appears that non-membership of the association

was an important consideration for CDAF to take the

impugned decision. From a cumulative reading of the

decisions taken in the meeting as recorded in the circular, the

Commission has no hesitation in holding that the same have

the effect of not only limiting and controlling the supply of

goods and provision of services but also driving existing

competitors out of the market.

66. This is also strengthened from the figures submitted by the

informant whereby it has been pointed out that its sales in

Ferozepur for the period after its boycott by CDAF i.e. from

01.06.2012 to 31.03.2013 and during the corresponding prior

period i.e. 01.06.2011 to 31.03.2012 had declined to Rs.39.71

lakhs from Rs. 223.18 lakhs.

67. The other aspect which needs to be examined in the present

case relates to the stipulation by CDAF regarding NOC/LOC.


66

68. The informant has alleged that the opposite party No. 1 i.e.

CDAF has made it mandatory for any chemist/druggist, who

wishes to take distributorship for medicines of a company in

Ferozepur city, to take an NOC and LOC from it by making a

payment of Rs. 2100/- per company. The informant states that

it objected to the said rule in 2010, because of which it was

expelled from the primary membership of CDAF.

69. It is not in dispute that CDAF issued a circular dated

15.04.2006 wherein the decision taken by the Executive

Committee of CDAF in its meeting held on 13.04.2006 was

recorded. For the felicity of reference, the same is quoted

below:

During EC meeting on 13.04.2006 held at M/s. H.C.

Medical Agencies, Ferozepur, it was decided after

debated and discussions unanimously to receive

N.O.C. fees. Now Rs. 2100/- will be charged for taking

N.O.C. for each Co. any whole seller who added new

Co. is liable to pay Rs. 2100/- for added each Co. and

then start its supply to trade.

70. From a bare reading of the circular, it is apparent that

supplies cannot start without obtaining NOC. CDAF, while

conceding that NOCs are being issued by it, has contended

that the same was being done at the instance of the

pharmaceutical companies who were demanding NOC of

CDAF prior to appointment of a new or additional stockist.

This plea, besides being misconceived and of no bearing, also

stood contradicted from the statements recorded by the DG

of the office-bearers of the opposite party association itself,


67

wherein the office-bearer sought to rationalise the

requirement of NOC.

71. Moreover, it is the case of CDAF itself that it is guided by the

motive to protect the interests of its members and the Rules

and Regulations of the State level Association i.e. Punjab

Chemists Association (PCA) which stipulate the practice of

NOC/LOC. The relevant Article 17 of the Rules and

Regulations of PCA in this regard may be excerpted:

the District President/General Secretary/Office bearers

of the District Chemists Association is authorized to

issue LOC for the appointment of a stockist by the

company in their district. In case of any dispute, if

arises, the President/General Secretary of Punjab

Chemists Association is authorized to issue the LOC.

72. Based on the evidence collected by the DG, it is safe to

conclude that CDAF has been following a practice of

requirement of NOC prior to appointment of a new/additional

stockist in Ferozepur, which has the effect of limiting and

controlling the supply of drugs and medicines in Ferozepur.

41. In paragraphs 74 to 76 the Commission referred to Section 3(1), (2) and

(3) of the Act and recorded its final conclusion in the following words :

74. The Commission notes that in terms of the provisions

contained in section 3(1) of the Act, no enterprise or

association of enterprises or person or association of persons

can enter into any agreement in respect of production, supply,

distribution, storage, acquisition or control of goods or

provision of services, which causes or is likely to cause an


68

appreciable adverse effect on competition within India.

Section 3(2) of the Act declares that any agreement entered

into in contravention of the provisions contained in sub-

section (1) shall be void. Further, by virtue of the presumption

contained in sub-section (3), 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) shares the market or

source of production or provision of services by way of

allocation of geographical area of market, or type of goods or

services, or number of customers in the market or any other

similar way; (d) directly or indirectly results in bid rigging or

collusive bidding, shall be presumed to have an appreciable

adverse effect on competition.

75. Thus, in case of agreements as listed in section 3(3) of the

Act, once it is established that such an agreement exists, it

will be presumed that the agreement has an appreciable

adverse effect on competition; the onus to rebut this

presumption would lie upon the opposite party.

76. In the present case, the opposite party association could not

rebut the said presumption. It has not been shown by the

opposite party association how the impugned conduct


69

resulted into accrual of benefits to consumers or made

improvements in production or distribution of goods in

question. Further, the opposite party could not explain as to

how the said conduct did not foreclose competition.

42. The Commission then adverted to the supplementary investigation report,

noted the objection raised by the office bearers that Section 48 is not attracted in

the matter and held that Section 27 itself is sufficient for holding the office bearers

guilty of contravention without the aid and assistance of Section 48. Finally, the

Commission imposed penalty on all the appellants @ 10% of their respective

average turnover.

43. We have heard the learned counsel for the parties and perused the record

including the objections submitted by the Association and other appellants, the

replies filed by the pharmaceutical companies, wholesalers/retailers, Respondent

No. 2 and the undated affidavit of Shri Rajesh Arora.

44. Before deciding the questions formulated in the opening paragraph of this

order, we consider it imperative to observe that the procedure adopted by the Jt.

DG for conducting investigation and the final order passed by the Commission

under Section 27 of the Act suffer from several legal infirmities.

(i) The Jt. DG conducted investigation with a pre-determination to return a

finding that the Association and its office bearers are guilty of anti-

competitive conduct and violation of Section 3(3)(b). This is the reason

why he neither confronted the appellants with the material collected in the

form of three responses sent by Respondent No. 2, his affidavit, replies

sent by the pharmaceutical companies and wholesalers and retailers,

some of which contained suggestive references to mandatory character of


70

NOC/LOC. He did ask several leading questions to the Association and

its office-bearers but without disclosing them, the adverse material

proposed to be used for recording findings on the issue of violation of

Section 3. This methodology adopted by the Jt. DG was totally unjustified

and contrary to the basics of fairness and natural justice.

(ii) What is most interesting is that Respondent No. 2 had not produced any

evidence to prove that NOC/LOC was made mandatory by the Association

or that it had suffered particular loss and the Jt. DG conveniently

overlooked the uncontroverted assertion made by the Association and

other office bearers that those including Respondent No. 2, who did not

want to take NOC/LOC from the Association, did so from associations of

the neighbouring district and continued to do business in Ferozepur

without any hindrance and that as many as 80 stockists were doing

business in Ferozepur district without obtaining NOC/LOC from the

Association.

(iii) The Jt. DG went to the extent of brushing aside the most serious allegation

against Respondent No. 2 that he had overcharged the retailers by

tampering with the computer software, which had worked well with other

wholesalers and there was no complaint by the retailers that other

wholesalers were also giving fabricated bills and overcharging them.

(iv) Not only this, while recording a finding that obtaining NOC/LOC was

mandatory for appointment of distributors in Ferozepur, the Jt. DG

completely ignored that majority of pharmaceutical companies had denied

the suggestion that the Association was following such a practice. The

replies given by eight out of ten pharmaceutical companies amply prove

that none of the Associations including the appellant in Appeal No. 21 of

2014 had issued instructions, guidelines etc. making the NOC/LOC


71

mandatory for appointment of a distributor/stockist in Ferozepur district

and that a number of wholesalers were doing business without obtaining

NOC/LOC and that this was sufficient to prove that the requirement of

NOC/LOC was not mandatory.

(v) The supplementary report prepared by the Jt. DG is per se one-sided in

as much as he overlooked the categorical stand taken by the office bearers

that they had not indulged in anti-competitive action and brushed aside

their all arguments by adverting to the bald allegations contained in the

information filed by Respondent No. 2 and the affidavit filed by Shri Rajesh

Arora.

(vi) In so far as the Commission is concerned, it mechanically approved the

findings recorded by the Jt. DG on the issue of violation of Section 3(3)(b).

Under the scheme of the Act, Director General is primarily a fact-finding

authority. He is entrusted with the task of conducting investigation and

submit report keeping in view Regulation 20(4) of the Competition

Commission of India (General) Regulations, 2009 (for short, the 2009

Regulations). In terms of Section 26(7), the Commission can, if it is of the

opinion that further investigation is called for, direct such investigation by

the Director General or cause further inquiry to be made in the matter by

a designated officer or itself proceed further with the inquiry in the matter

in accordance with the provisions of the Act. If the Director General

submits a report with the finding that there is contravention of any of the

provisions of the Act and the Commission is of the opinion that further

inquiry is called for, it is entitled to inquire into such contravention in

accordance with the provisions of the Act. Section 27 empowers the

Commission to pass order after finalisation of the inquiry. For the sake of

convenient reference, Sections 3(1), 3(3), Sections 19(1), 26(1) to (8),


72

Sections 27, 36(1) and 48 of the Act and Regulations 18, 19 and 21 of the

2009 Regulations are reproduced below :

Sec. 3. Anti-competitive agreements.- (1) No enterprise or

association of enterprises or person or association of persons

shall enter into any agreement in respect of production,

supply, distribution, storage, acquisition or control of goods or

provision of services, which causes or is likely to cause an

appreciable adverse effect on competition within India.

xx xx xx

(3) 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) shares the market or source of production or provision

of services by way of allocation of geographical area of

market, or type of goods or services, or number of

customers in the market or any other similar way;

(d) directly or indirectly results in bid rigging or collusive

bidding, shall be presumed to have an appreciable

adverse effect on competition: Provided that nothing


73

contained in this sub-section shall apply to any

agreement entered into by way of joint ventures if such

agreement increases efficiency in production, supply,

distribution, storage, acquisition or control of goods or

provision of services.

Explanation.- For the purposes of this sub-section, "bid

rigging" means any agreement, between enterprises or

persons referred to in sub-section (3) engaged in

identical or similar production or trading of goods or

provision of services, which has the effect of

eliminating or reducing competition for bids or

adversely affecting or manipulating the process for

bidding.

Sec.19. Inquiry into certain agreements and dominant

position of enterprise.(1) The Commission may inquire into

any alleged contravention of the provisions contained in sub-

section (1) of section 3 or sub-section (1) of section 4 either

on its own motion or on (a) [receipt of any information, in

such manner and] accompanied by such fee as may be

determined by regulations, from any person, consumer or

their association or trade association; or 24 (b) a reference

made to it by the Central Government or a State Government

or a statutory authority.

Sec. 26. Procedure for inquiry under section 19. (1) On

receipt of a reference from the Central Government or a State

Government or a statutory authority or its own knowledge or

information received under section 19, if the Commission is of


74

the opinion that there exists a prima facie case, it shall direct

the Director-General to cause an investigation to be made in

to the matter:

Provided that if the subject-matter of an information

received is, in the opinion of the Commission, substantially the

same as or has been covered by any previous information

received, then the new information may be clubbed with the

previous information.

(2) Where on receipt of a reference from the Central

Government or a State Government or a statutory authority or

information received under section 19, the Commission is of

the opinion that there exists no prima facie case, it shall close

the matter forthwith and pass such orders as it deems fit and

send a copy of its order to the Central Government or the

State Government or the statutory authority or the parties

concerned, as the case may be.

(3) The Director-General shall, on receipt of direction

under sub-section (1), submit a report on his findings within

such period as may be specified by the Commission.

(4) The Commission may forward a copy of the report

referred to in subsection (3) to the parties concerned:

Provided that in case the investigation is caused to be

made based on a reference received from the Central

Government or the State government or the statutory

authority, the Commission shall forward a copy of the report

referred to in sub-section (3) to the Central Government or the

State Government or the statutory authority, as the case may

be.
75

(5) If the report of the Director-General referred to in

sub-section (3) recommends that there is no contravention of

the provisions of this Act, the Commission shall invite

objections or suggestions from the Central Government or the

State government or the statutory authority or the parties

concerned, as the case may be, on such report of the Director-

General.

(6) If, after consideration of the objections or

suggestions referred to in subsection (5), if any, the

Commission agrees with the recommendation of the Director-

General, it shall close the matter forthwith and pass such

orders as it deems fit and communicate its order to the Central

Government or the State Government or the statutory

authority or the parties concerned, as the case may be.

(7) If, after consideration of the objections or

suggestions referred to in subsection (5), if any, the

Commission is of the opinion that further investigation is called

for, it may direct further investigation in the matter by the

Director-General or cause further inquiry to be made in the

matter or itself proceed with further inquiry in the matter in

accordance with the provisions of this Act.

(8) If the report of the Director-General referred to in

sub-section (3) recommends that there is contravention of any

of the provisions of this Act, and the Commission is of the

opinion that further inquiry is called for, it shall inquire into

such contravention in accordance with the provisions of the

Act.
76

Sec. 27. Orders by Commission after inquiry into

agreements or abuse of dominant position.- Where after

inquiry the Commission finds that any agreement referred to

in section 3 or action of an enterprise in a dominant position,

is in contravention of section or section 4, as the case may be,

it may pass all or any of the following orders, namely:-

(a) direct any enterprise or association of enterprises or

person or association of persons, as the case may be,

involved in such agreement, or abuse of dominant

position, to discontinue and not to re-enter such

agreement or discontinue such abuse of dominant

position, as the case may be;

(b) impose such penalty, as it may deem fit which shall be

not more than ten per cent. of the average of the

turnover for the last three preceding financial years,

upon each of such person or enterprises which are

parties to such agreements or abuse: Provided that in

case any agreement referred to in section 3 has been

entered into by any cartel, the Commission shall

impose upon each producer, seller, distributor, trader

or service provider included in that cartel, a penalty

equivalent to three times of the amount of profits made

out of such agreement by the cartel or ten per cent. of

the average of the turnover of the cartel for the last

preceding three financial years, whichever is higher;

(c) award compensation to parties in accordance with the

provisions contained in section 34;


77

(d) direct that the agreements shall stand modified to the

extent and in the manner as may be specified in the

order by the Commission;

(e) direct the enterprises concerned to abide by such other

orders as the Commission may pass and comply with

the directions, including payment of costs, if any;

(f) recommend to the Central Government for the division

of an enterprise enjoying dominant position;

(g) pass such other order as it may deem fit.

[Provided that while passing orders under this

section, if the Commission comes to a finding, that an

enterprise in contravention to section 3 or section 4 of

the Act is a member of a group as defined in clause (b)

of the Explanation to section 5 of the Act, and other

members of such a group are also responsible for, or

have contributed to, such a contravention, then it may

pass orders, under this section, against such members

of the group.]

Sec.36. Power of Commission to regulate its own

procedure.--(1) In the discharge of its functions, the

Commission shall be guided by the principles of natural justice

and, subject to the other provisions of this Act and of any rules

made by the Central Government, the Commission shall have

the powers to regulate its own procedure.


78

Sec.48. Contravention by companies.- (1) Where a person

committing contravention of any of the provisions of this Act

or of any rule, regulation, order made or direction issued there

under is a company, every person who, at the time the

contravention was committed, was in charge of, and was

responsible to the company for the conduct of the business of

the company, as well as the company, shall be deemed to be

guilty of the contravention and shall be liable to be proceeded

against and punished accordingly.

Provided that nothing contained in this sub-section

shall render any such person liable to any punishment if he

proves that the contravention was committed without his

knowledge or that he had exercised all due diligence to

prevent the commission of such contravention.

(2) Notwithstanding anything contained in sub-

section (1), where a contravention of any of the provisions of

this Act or of any rule, regulation, order made or direction

issued there under has been committed by a company and it

is proved that the contravention has taken place with the

consent or connivance of, or is attributable to any neglect on

the part of, any director, manager, secretary or other officer of

the company, such director, manager, secretary or other

officer shall also be deemed to be guilt y of that contravention

and shall be liable to be proceeded against and punished

accordingly.

Explanation.-For the purposes of this section,-

(a) "company" means a body corporate and includes a firm

or other association of individuals; and


79

(b) "director", in relation to a firm, means a partner in the

firm.

Regulations 18, 19, 20 and 21:

18. Issue of direction to cause investigation on prima facie

case (1) Where the Commission is of the opinion that a prima

facie case exists, the Secretary shall convey the directions of the

Commission 1[within seven days,] to the Director-General to

investigate the matter.

(2) A direction of investigation to the Director-General shall be

deemed to be the commencement of an inquiry under section 26

of the Act.

19. Communication of order when no prima facie case found.

If the Commission is of the opinion that there exists no prima facie

case, the Secretary shall send a copy of the order of the

Commission regarding closure of the matter forthwith to the

Central Government or the State Government or the Statutory

Authority or the parties concerned, as the case may be, as

provided in sub-section (2) of section 26 of the Act.

20. Investigation by Director-General. (1) The Secretary shall,

while conveying the directions of the Commission under

regulation 18, send a copy of the information or reference, as the

case may be, with all other documents or materials or affidavits

or statements which have been filed either along with the said

information or reference or at the time of preliminary conference,

to the Director-General.

(2) The Commission shall direct the Director-General to

submit a report within such time as may be specified by the


80

Commission which ordinarily shall not exceed sixty days from the

date of receipt of the directions of the Commission.

(3) The Commission may, on an application made by the

Director-General, giving sufficient reasons, extend the time for

submission of the report by such period as it may consider

reasonable.

(4) The report of the Director-General shall contain his

findings on each of the allegations made in the information or

reference, as the case may be, together with all evidences or

documents or statements or analyses collected during the

investigation.

Provided that when considered necessary, the Director

General may, for maintaining confidentiality, submit his report in

two parts. One of the parts shall contain the documents to which

access to the parties may be accorded and another part shall

contain confidential and commercially sensitive information and

documents to which access may be partially or totally restricted.

(5) Ten copies of the report of the Director-General, along

with a soft copy in document format, shall be forwarded to the

Secretary within the time specified by the Commission:

Provided that the Secretary may ask for more copies of the

report as and when required.

(6) If the Commission, on consideration of the report, is of

the opinion that further investigation is called for, it may direct the

Director-General to make further investigation and submit a

supplementary report on specific issues within such time as may

be specified by the Commission but not later than forty-five days.


81

21. Procedure for inquiry under section 26 of the Act. (1) On

receipt of the report of the Director General, the Secretary shall

place the said report before the Commission [within seven days,]

for further orders and, in accordance with the direction of the

Commission, forward [either a hard or a soft copy (in electronic

form)] [of non confidential version] thereof to the Central

Government or the State Government or the statutory authority,

or the parties concerned, as the case may be.

(2) If the report of the Director-General finds no contravention

of the provisions of the Act, the Secretary shall [within seven

days,] convey the directions of the Commission for inviting

objections or suggestions [to be filed within fifteen days] from the

Central Government or the State Government or the statutory

authority, or from the parties concerned, as the case may be on

such report of the Director-General.

(3) If the Commission orders closure of the matter on

consideration of the objections or suggestions, if any, referred to

in sub-regulation (2), an agrees with the findings of the Director-

General, the Secretary shall [within seven days,] convey the

orders of the Commission to the Central Government or the State

Government or the statutory authority or the parties concerned,

as the case may be.

(4) If the Commission, on consideration of the objections or

suggestions, referred to in sub-regulation (2), directs further

investigations in the matter by the Director-General or further

inquiries in the matter to be made by an officer of the Commission

so authorized by it, the Secretary shall [within seven days,]


82

convey the directions of the Commission to the Central

Government or the officer so authorized, as the case may be.

(5) On an application made by the officer authorized by the

Commission justifying the production of specified books or other

documents, as may be required to make further inquiries under

sub-regulation (4), the Commission may direct any person to

produce such specified books or other documents relating to any

trade carried out by such person or enterprise, as per the

provisions of sub section (4) of section 36 of the Act.

Explanation. - For the purpose of this sub-regulation, the word

officer shall include the experts and professionals mentioned

under sub-section (3) of section 17 or sub-section (3) of section

17 or sub-section (3) of section 36 of the Act.

(6) On receipt of the report of the Director-General on further

investigation or report of the authorized officer on further inquiries,

as the case may be, the Secretary shall [with the approval of the

Chairperson, fix the meeting of the Commission within seven days

for consideration thereof].

(7) If the report of the Director-General mentioned under sub-

regulation (1) finds contravention of any of the provisions of the

Act, the Secretary shall obtain the orders of the Commission for

inviting objections or suggestions from the Central Government

or the State Government or the statutory authority or the parties

concerned, as the case may be.

(8) On consideration of the objections or suggestions from the

Central Government or the State Government or the statutory

authority or the parties concerned, or the report of further


83

investigation or further inquiries, as the case may be, if the

Commission is of the opinion that further inquiry is called for, the

Secretary shall fix the meeting of the Commission for

consideration thereof, after issue of notice as per regulation 22,

to the Central Government or the State Government or the

statutory authority or the parties concerned, as the case may be.

(9) The Secretary shall keep the Director-General informed of

the dates of the meetings of the Commission for inquiry under

sub-section (7) or sub-section (8) of section 26 of the Act for

appearing in person or through any of his officers in accordance

with the provisions of section 35 of the Act.

(vi-a). Some of the above reproduced provisions were considered by a three

judge Bench of the Supreme Court in Competition Commission of India

vs. Steel Authority of India Limited [(2010) 10 SCC 744]. In that case, the

Commission had challenged the maintainability of an appeal filed by the

respondent against an order passed under 29 Section 26(1) of the Act.

The Supreme Court analysed the relevant provisions of the Act and the

Regulations and laid down several propositions including the following :

78. Cumulative reading of these provisions, in conjunction

with the scheme of the Act and the object sought to be

achieved, suggests that it will not be in consonance

with the settled rules of interpretation that a statutory

notice or an absolute right to claim notice and hearing

can be read into the provisions of Section 26(1) of the

Act. Discretion to invite, has been vested in the

Commission, by virtue of the Regulations, which must


84

be construed in their plain language and without giving

it undue expansion.

97. The above reasoning and the principles enunciated,

which are consistent with the settled canons of law, we

would adopt even in this case. In the backdrop of these

determinants, we may refer to the provisions of the Act.

Section 26, under its different sub-sections, requires

the Commission to issue various directions, take

decisions and pass orders, some of which are even

appealable before the Tribunal. Even if it is a direction

under any of the provisions and not a decision,

conclusion or order passed on merits by the

Commission, it is expected that the same would be

supported by some reasoning. At the stage of forming

a prima facie view, as required under Section 26(1) of

the Act, the Commission may not really record detailed

reasons, but must express its mind in no uncertain

terms that it is of the view that prima facie case exists,

requiring issuance of direction for investigation to the

Director General. Such view should be recorded with

reference to the information furnished to the

Commission. Such opinion should be formed on the

basis of the records, including the information

furnished and reference made to the Commission

under the various provisions of the Act, as afore-

referred. However, other decisions and orders, which

are not directions simpliciter and determining the rights

of the parties, should be well reasoned analyzing and


85

deciding the rival contentions raised before the

Commission by the parties. In other words, the

Commission is expected to express prima facie view in

terms of Section 26(1) of the Act, without entering into

any adjudicatory or determinative process and by

recording minimum reasons substantiating the

formation of such opinion, while all its other orders and

decisions should be well reasoned.

(vi-b) A careful reading of Section 26(1) shows that once the Commission forms

an opinion that there exists a prima facie case, it shall direct the Director

General to cause an investigation to be made into the matter. In terms of

Regulation 18 read with Regulation 20, the direction of the Commission is

required to be communicated by its Secretary to the Director General

along with a copy of the information or reference with all other documents

or materials or affidavits or statements which have been filed with the

information or reference or at the time of preliminary conference. Section

26(3) requires the Director General to submit a report on its findings within

the time specified by the Commission. Such findings must cover each of

the allegations contained in the information or reference together with

evidence or documents or statements or analysis collected during the

investigation. Section 26(4) enjoins the Commission to forward the report

of the Director General to the parties concerned. If the investigation is

caused to be made based on a reference received from the Central

Government or the State Government or the statutory authority, then the

report is required to be sent to the appropriate Government or the statutory

authority. The object of sending report to the appropriate Government or

the statutory authority or the parties concerned is to enable them to submit

objections or suggestions qua the findings recorded by the Director


86

General. This exercise has to be undertaken by the Commission even if

the Director General finds that there is no contravention of Sections 3 or 4

of the Act. The Commission can close the case if, after considering the

objections or suggestions, it agrees with the recommendations of the

Director General. If the Commission is not satisfied with the report of the

Director General and forms an opinion that further investigation is called

for then it can direct the Director General to make such investigation or

cause further inquiry into the matter through an authorized officer or itself

hold enquiry [Section 26(7) read with Regulation 21 (4)]. If the report of the

Director General discloses contravention of provisions of the Act and the

Commission opines that further inquiry is called for then it shall hold inquiry

into such contravention. In such an eventuality, the Commission is

required to give notice to the Central Government or the State Government

or the statutory authority or the parties concerned [Section 26(8) read with

Regulation 21 (8)] and invite their objections or suggestions. Not only this,

the Secretary of the Commission is obliged to inform the Director General

about the dates fixed for the meetings of the Commission, so as to enable

him to appear in person or through an officer. If as a result of the inquiry

held under Section 26(7) or 26(8) read with the relevant regulations, the

Commission comes to the conclusion that contravention of Section 3 or

Section 4 of the Act is established then it can pass appropriate order under

Section 27 including an order for imposing penalty.

(vi-c). The exercise required to be undertaken by the Commission under

Sections 26(7) or 26(8) read with the relevant regulations and an order

passed under Section 27 which visits the concerned person with civil

consequences makes the functions of the Commission adjudicatory/quasi

judicial. Therefore, before recording an adverse finding against a person

and holding him guilty of violating Section 3 or 4 of the Act, the


87

Commission is obliged to comply with various facets of the principles of

natural justice. This necessarily implies that while holding an inquiry under

Section 26(7) or Section 26(8) the Commission is required to comply with

the rule of audi alteram partem and give an effective opportunity of

hearing to the person against whom a finding is likely to be recorded on

the issue of contravention of Section 3 or Section 4 of the Act not only to

controvert the allegation made against him as also the evidence/material

proposed to be used in support of such allegation but also produced

evidence to show that he/she/it has not violated any provision of the Act.

If the Commission wants to rely upon some information/ material, which

does not form part of the report of the Director General then such

information/material must be disclosed to the person concerned and an

effective opportunity has to be given to him to controvert the same. The

Commission is also required to pass a speaking order to demonstrate

application of mind to the relevant factors/considerations and exclusion of

irrelevant and extraneous factors/considerations.

(vi-d). The ambit and scope of principles of natural justice has been considered

by the Courts across the globe. In India, the High Courts and Supreme

Court have invoked these principles in innumerable cases and quashed

administrative, quasi judicial or even judicial orders the ground of violation

thereof. In Ridge vs. Baldwin, 164 AC 40, the House of Lords made the

following observation :

It may be convenient at this point to deal with an argument

that, even if as a general rule a watch committee must hear a

constable in his own defence before dismissing him, this case

was so clear that nothing that the appellant could have said

could have made any difference. It is at least very doubtful

whether that could be accepted as an excuse. But, even if it


88

could, the respondents would, in my view, fail on the facts. It

may well be that no reasonable body of men could have

reinstated the appellant. But as between the other two

courses open to the watch committee the case is not so clear.

Certainly on the facts, as we know them, the watch committee

could reasonably have decided to forfeit the appellant's

pension rights, but I could not hold that they would have acted

wrongly or wholly unreasonably if they had in the exercise of

their discretion decided to take a more lenient course.

The judgment in State of Orissa vs. Dr. (Miss) Binapani Dei and others

[AIR 1967 SC 1269], contains a lucid exposition of the principles of natural

justice and their applicability to what was then thought as purely

administrative action. The facts of that case were that the respondent had

been retired from service by the State Government by relying upon the

date of birth which was unilaterally changed by the competent authority.

The Orissa High Court quashed the retirement of the respondent by

declaring that it was punitive and amounted to removal from service within

the meaning of Article 311 of the Constitution. The High Court further held

that the order of retirement was vitiated because the writ petitioner had

not been given a reasonable opportunity of showing cause against the

proposed change in the date of birth recorded in her service book. While

approving the second part of the High Courts order, the Supreme Court

made the following observations :

9. The deciding authority, it is true, is not in the position

of a Judge called upon to decide an action between contesting

parties, and strict compliance with the forms of judicial

procedure may not be insisted upon. He is however under a

duty to give the person against whom an enquiry is held an


89

opportunity to set up his version or defence and an opportunity

to correct or to controvert any evidence in the possession of

the authority which is sought to be relied upon to his prejudice.

For that purpose the person against whom in enquiry is held

must be informed of the case he is called upon to meet, and

the evidence in support thereof. The rule that a party to whose

prejudice an order is intended to be passed is entitled to a

hearing applies alike to judicial tribunals and bodies of

persons invested with authority to adjudicate upon matters

involving civil consequences. It is one of the fundamental

rules of our constitutional set-up that every citizen is protected

against exercise of arbitrary authority by the State or its

officers. Duty to act judicially would therefore arise from the

very nature of the function intended to be performed: it need

not be shown to be superadded. If there is power to decide

and determine to the prejudice of a person, duty to act

judicially is implicit in the exercise of such power. If the

essentials of justice be ignored and an order to the prejudice

of a person is made, the order is a nullity. That is a basic

concept of the rule of law and importance thereof transcends

the significance of a decision in any particular case.

12. It is true that some preliminary enquiry was made by Dr

S. Mitra. But the report, of that enquiry officer was never

disclosed to the first respondent. Thereafter the first

respondent was required to show cause why April 16, 1907

should not be accepted as the date of birth and without

recording any evidence the order was passed. We think that

such an enquiry and decision were contrary to the basic


90

concept of justice and cannot have any value. It is true that

the order is administrative in character, but even an

administrative order which involves civil consequences, as

already stated, must be made consistently with the rules of

natural justice after informing the first respondent of the case

of the State, the evidence in support thereof and after giving

an opportunity to the first respondent of being heard and

meeting or explaining the evidence.

(Emphasis supplied)

In Rajesh Kumar vs. CIT [(2007) 2 SCC 181], the Suprerme Court made

the following observation :

48. In any event, when civil consequences ensue, there is

hardly any distinction between an administrative order and a

quasi judicial order. There might have been difference of

opinions at one point of time, but it is now well-settled that a

thin demarcated line between an administrative order and

quasi-judicial order now stands obliterated.

55. Justice, as is well known, is not only be done but

manifestly seem to be done. If the assessee is put to notice,

he could show that the nature of accounts is not such which

would require appointment of special auditors. He could

further show that what the assessing officer considers to be

complex is in fact not so. It was also open to him to show that

the same would not be in the interest of the Revenue.

56. In this case itself the appellants were not made known as

to what led the Deputy Commissioner to form an opinion that

all relevant factors including the ones mentioned in Section


91

142(2A) of the Act are satisfied. If even one of them was not

satisfied, no order could be passed. If the attention of the

Commissioner could be drawn to the fact that the underlined

purpose for appointment of the special auditor is not bona fide

it might not have approved the same.

(Underlining is ours)

In Kothari Filaments and another vs. Commissioner of Customs (Port),

Kolkata and others [(2009) 2 SCC 192], the Supreme Court considered

the correctness of an order passed by the Calcutta High Court dismissing

the writ petition filed by the appellant against the order of the Customs,

Excise and Gold (Control) Appellate Tribunal, Calcutta, which, in turn,

approved the order of confiscation and penalty passed by the competent

authority under the Customs Act, 1962. After noticing the fact that the

appellant had not been given opportunity to explain the material used

against it, the Supreme Court observed:

14. The statutory authorities under the Act exercise quasi-

judicial function. By reason of the impugned order, the

properties could be confiscated, redemption fine and personal

fine could be imposed and in the event an importer was found

guilty of violation of the provisions of the Act. In the event, a

finding as regards violation of the provisions of the Act is

arrived at, several steps resulting in civil or evil consequences

may be taken. The principles of natural justice, therefore, were

required to be complied with.

15. The Act does not prohibit application of the principles of

natural justice. The Commissioner of Customs either could

not have passed the order on the basis of the materials which
92

were known only to them, copies whereof were not supplied

or inspection thereto had not been given. He, thus, could not

have adverted to the report of the overseas enquiries. A

person charged with misdeclaration is entitled to know the

ground on the basis whereof he would be penalized. He may

have an answer to the charges or may not have. But there

cannot be any doubt whatsoever that in law he is entitled to a

proper hearing which would include supply of the documents.

Only on knowing the contents of the documents, he could

furnish an effective reply.

(Emphasis supplied)

In Balchandra L. Jharkihoili and others vs. B.S. Yeddyurappa and others

[(2011) 7 SCC 1], the Supreme Court set aside an order passed by the

Karnataka High Court which had upheld the decision of the Speaker of

the Karnataka Assembly to disqualify the appellant. One of the questions

considered by the Supreme Court was whether the speaker was duty

bound to supply the affidavits filed by the two MLAs, which constituted the

foundation of his order. While answering the question in affirmative, the

Supreme Court observed:

124. The Speaker apparently did not take into consideration

the rule of evidence that a person making an allegation has to

prove the same with supporting evidence and the mere fact

that the allegation was not denied, did not amount to the same

having been proved on 36 account of the silence of the person

against whom such allegations are made. Except for the

affidavit filed by Shri K.S. Eswarappa, State President of the

B.J.P., and the statements of two of the thirteen MLAs, who


93

had been joined in the Disqualification Application, there is

nothing on record in support of the allegations which had been

made therein. Significantly, the said affidavits had not been

served on the Appellants. Since Shri K.S. Eswarappa was not

a party to the proceedings, the Speaker should have caused

service of copies of the same on the Appellants to enable

them to meet the allegations made therein.

125. In our view, not only did the Speaker's action amount

to denial of the principles of natural justice to the Appellants,

but it also reveals a partisan trait in the Speaker's approach in

disposing of the Disqualification Application filed by Shri B.S.

Yeddyurappa. If the Speaker wished to rely on the statements

of a third party which were adverse to the Appellants'

interests, it was obligatory on his part to have given the

Appellants an opportunity of questioning the deponent as to

the veracity of the statements made in the affidavit. This

conduct on the part of the Speaker is also indicative of the hot

haste with which the Speaker disposed of the Disqualification

Petition as complained of by the Appellants.

126. The question does, therefore, arise as to why the

Speaker did not send copies of the affidavit affirmed and filed

by Shri Eswarappa as also the affidavits of the two MLAs, who

had originally withdrawn support to the Government led by

Shri Yeddyurappa, but were later allowed to retract their

statements, to the Appellants. Given an opportunity to deal

with the said affidavits, the Appellants could have raised the

question as to why the said two MLAs, Shri M.P.

Renukacharya and Shri Narasimha Nayak, were treated


94

differently on account of their having withdrawn the letters

which they had addressed to the Governor, while, on the other

hand, disqualifying the appellants who had written identical

letters to the Governor, upon holding that they had ceased to

be members of the Bharatiya Janata Party, notwithstanding

the Show-Cause notices issued to them.

155. As we have earlier indicated, even if the

Disqualification Rules were only directory in nature, even then

sufficient opportunity should have been given to the

Appellants to meet the allegations levelled against them. The

fact that the Show-Cause notices were issued within the time

fixed by the Governor for holding the Trust Vote, may explain

service of the Show-Cause notices by affixation at the official

residence of the Appellants, though without the documents

submitted by Shri Yeddyurappa along with his application, but

it is hard to explain as to how the affidavits, affirmed by Shri

K. S. Eswarappa, Shri M.P. Renukacharya and Shri

Narasimha Nayak, were served on the learned Advocates

appearing for the Appellants only on the date of hearing and

that too just before the hearing was to commence. Extraneous

considerations are writ large on the face of the order of the

Speaker and the same has to be set aside.

(Emphasis added)

In Ayaaubkhan Noorkhan Pathan vs. State of Maharashtra and others

[(2013) 4 SCC 465], the Supreme Court considered the question whether

the caste certificate issued in favour of the appellant could be cancelled

without giving him reasonable opportunity of hearing including an

opportunity to cross-examine the witnesses examined by the department.


95

After noticing the judgment of the Constitutional Bench judgment in State

of M.P. vs. Chintaman Sadashiva Waishampayan [AIR 1961 SC 1623]

and large number of other decisions, a Bench of two judges observed :

24. A Constitution Bench of this Court in State of M.P. v.

Chintaman Sadashiva Vaishampayan, AIR 1961 SC 1623,

held that the rules of natural justice, require that a party must

be given the opportunity to adduce all relevant evidence upon

which he relies, and further that, the evidence of the opposite

party should be taken in his presence, and that he should be

given the opportunity of cross-examining the witnesses

examined by that party. Not providing the said opportunity to

cross-examine witnesses, would violate the principles of

natural justice. (See also: Union of India v. T.R. Varma,

Meenglas Tea Estate v. Workmen, M/s. Kesoram Cotton Mills

Ltd. v. Gangadhar & Ors., New India Assurance Company Ltd.

v . Nusli Neville Wadia and Anr., Rachpal Singh & Ors. v.

Gurmit Singh & Ors., Biecco Lawrie 38 & Anr. v. State of West

Bengal & Anr., and State of Uttar Pradesh v. Saroj Kumar

Sinha).

25. In Lakshman Exports Ltd. v. Collector of Central

Excise, this Court, while dealing with a case under the Central

Excise Act, 1944, considered a similar issue i.e. permission

with respect to the cross-examination of a witness. In the said

case, the assessee had specifically asked to be allowed to

cross-examine the representatives of the firms concern, to

establish that the goods in question had been accounted for

in their books of accounts, and that excise duty had been paid.

The Court held that such a request could not be turned down,
96

as the denial of the right to crossexamine, would amount to a

denial of the right to be heard i.e. audi alteram partem.

26. In New India Assurance Company Ltd., v. Nusli Neville

Wadia, this Court considered a case under the Public

Premises (Eviction of Unauthorised Occupants) Act, 1971 and

held as follows :

45. If some facts are to be proved by the landlord,

indisputably the occupant should get an opportunity to

crossexamine. The witness who intends to prove the

said fact has the right to cross-examine the witness.

This may not be provided by under the statute, but it

being a part of the principle of natural justice should be

held to be indefeasible right.

In view of the above, we are of the considered opinion that the

right of cross-examination is an integral part of the principles

of natural justice.

45. From what we have observed above, it is clear that if as a result of the

inquiry the Commission finds that any agreement referred to in Section 3 read

with Section 2(b) or action of an enterprise in a dominant position is in

contravention of Section 3 or Section 4, then it may pass all or any of the orders

enumerated in Clauses (1), (b), (d), (e) or (g) of Section 27. In the scheme of

things, it is bounden duty of the Commission to objectively consider the report of

the Director General together with the findings recorded by him, make its own

analysis of the pleadings and documents to find out whether or not there has

been contravention of Sections 3 or 4. This necessarily implies that the

Commission must consider the allegations made in the information, the replies

received in response to notices issued under Section 36(2) read with Section
97

41(2), the information and documents collected by the Director General/Jt. DG

and then record its own findings. The Commission cannot abdicate its duty and

simply approve the findings of the facts and the conclusion recorded by the

Director General and pass order under Section 27 and/or Section 48 of the Act.

46. As mentioned above, the impugned order does not depict objective

consideration of the responses given by the appellants to the notices issued by

the Jt. DG under Section 36(2) read with Section 41(2), the documents produced

by them, the material collected by the Jt. DG in the course of investigation, which

included the responses of Respondent No. 2, his affidavit, replies sent by PCA

and AIOCD, ten pharmaceutical companies and a number of wholesalers and

retailers. After the Commission had sent the reports (main as well as

supplementary) to the appellants, they filed detailed objections to the findings

recorded by the Jt. DG including the one that the concerned officer had acted in

blatant disregard to the rules of natural justice and fairness and had omitted to

consider the relevant documents and material. Unfortunately, the Commission

did not objectively deal with the objections taken by the appellants and did not

advert to the unequivocal stand taken by the eight out of ten pharmaceutical

companies that NOC/LOC was not mandatory for appointment of a distributor in

district Ferozepur. The Commission also did not take into consideration, the

background in which resolution dated 26.05.2012 was passed by the Association

including the fact that Respondent No. 2 had indulged in several malpractices

and harassed the retailers, many of whom were members of the Association by

issuing inflated bills and refusing to deduct the amount relating to expired drugs

which were returned. The Commission also did not take note of the fact that

Respondent No. 2 had been expelled because of malpractices indulged by it and

that no evidence whatsoever was produced to prove that supply of

medicines/drugs had been adversely affected due to the termination of

membership of Respondent No. 2 or its boycott. The only thing which


98

Respondent No. 2 did was to make a bald statement in his reply and affidavit that

his turnover had reduced from 223.81 Lacs to 39.71 Lacs. However, no

contemporaneous evidence like return filed before the Income Tax Authority or

any other competent authority to show that its boycott had adversely affected its

business. That apart, there was absolutely no evidence to show that the boycott

of Respondent No. 2 had the effect of limiting supply of medicines/drugs in the

market. Respondent No. 2 could have examined some of the wholesalers,

retailers or representatives of the pharmaceutical companies to prove the

allegations on the issue of reduction in the availability of drugs and medicines in

the market, but no such offer was made by him/it and yet the Jt. DG and the

Commission arbitrarily concluded that the action taken by the Association was

contrary to Section 3(3)(B) of the Act.

47. What needs to be emphasised that being an adjudicatory body, the

Commission exercises quasi judicial function. The orders passed by it can have

great adverse impact on the rights of the parties. Therefore, it is bound to act in

consonance with the provisions of the Statute and also rules of natural justice,

which are required to be followed by every quasi judicial authority functioning

under our Constitution. To put it differently, no quasi judicial body has the right

to trample over the fundamentals of the rule of law, constitute an integral part of

democracy in our country. One of the facets of the rules of natural justice is that

every quasi judicial authority must record reasons in support of its order. Such

reasons reflect and demonstrate the application of mind by the quasi judicial

authority. An order which is bereft of reasons is just like inscrutable face of a

sphinx.

48. An extremely lucid exposition of law on the requirement of speaking order

has been made by the Full Bench of Gujrat High Court in Testeels Ltd. Vs. N.M.

Desai and Another [AIR 1970 Guj. 1]. In the judgement authored by him on behalf

of the Full Bench, P.N. Bhagwati, C.J. (as he then was) examined the issue
99

whether the administrative officer discharging quasi judicial functions is bound to

give reasons in support of his order he makes. That question arose in the

backdrop of challenge of an order made by the Conciliation Officer under Section

33(2)(b) of the Industrial Disputes Act, 1947. After examining the various facets

of the question, the Full Bench observed :

3. There are two strong and cogent reasons why we must insist

that every quasi-judicial order must disclose reasons in support of it.

The necessity of giving reasons flows as a necessary corollary from

the rule of law which constitutes one of the basic principles of our

constitutional set up. Our Constitution posts a welfare State in which

every citizen must have justice - social, economic and political and

in order to achieve the ideal of welfare State, the State has to perform

several functions involving acts of interferences with the free and

unrestricted exercise of private rights. The State is called upon to

regulate and control the social and economic life of the citizen in

order to establish socio-economic justice and remove the existing

imbalance in the socio-economic structure. The State has, therefore,

necessarily to entrust diverse functions to administrative authorities

which involve making of orders and decisions and performance of

acts affecting the rights of individual members of the public. In

exercise of some of these functions, the administrative authorities

are required to act judicially. Now what is involved in a judicial

process is well settled and as pointed out by Shah J., in Jaswant

Sugar Mills's case, AIR 1963 SC 677 (supra), a quasi-judicial

decision involves the following three elements:

(1) It is in substance a determination upon investigation of a

question by the application of objective standards to facts found in

the light of pre-existing legal rules:


100

(2) It declares rights or imposes upon parties obligations affecting

their civil rights; and (3) the investigation is subject to certain

procedural attributes contemplating an opportunity of presenting its

case to a party, ascertainment of facts by means of material if a

dispute be on question of facts, and if the dispute be on question of

law, on the presentation, of legal argument, and a decision resulting

in the disposal of the matter on findings based upon those questions

of law and fact.

The administrative authorities having a duty to act judicially cannot

therefore decide on considerations of policy or expediency. They

must decide the matter "solely on the facts of the particular case

solely on the material before them and apart from any extraneous

considerations" by applying "pre-existing legal norms to factual

situations". The duty to act judicially excludes arbitrary exercise of

power and it is, therefore, essential to the rule of law that the duty to

act judicially is strictly observed by the administrative authorities

upon whom it is laid. If any departure from the observance of the duty

to act judicially could pass unnoticed, it would open the door to

arbitrariness and make a serious inroad on the rule of law. To quote

the words of the Supreme Court in S. G. Jaisinghani v. Union of India,

AIR 1967 SC 1427: ". . . . .. the absence of arbitrary power is the first

essential of the rule of law upon which our whole constitutional

system is based. In a system governed by rule of law, discretion,

when conferred upon executive authorities, must be confined within

clearly defined limits. The rule of law from this point of view means

that decisions should be made by the application of known principles

and rules and, in general, such decisions should be predictable and

the citizen should know where he is. If a decision is taken without


101

any principle or without any rule it is unpredictable and such a

decision is the antithesis of a decision taken in accordance with the

rule of law." Now the necessity of giving reasons is one of the most

important safeguards to ensure observance of the duty to act

judicially. If the administrative officers can make orders without giving

reasons, such power in the hands of unscrupulous or dishonest

officers may turn out to be a potent weapon for abuse of power. But

if reasons are required to be given for an order, it will be an effective

restraint on such abuse as the order, if it discloses extraneous or

irrelevant considerations or is arbitrary, will be subject to judicial

scrutiny and correction. As observed by Subba Rao J., as he then

was, in Madhya Pradesh Industries Ltd., v. Union of India, AIR 1966

SC 671, "A speaking order will at its best be a reasonable and at its

worst at least a plausible one". The condition to give reasons

introduces clarity, checks the introduction of extraneous or, at any

rate, minimises arbitrariness in the decision making process it gives

satisfaction to the party against whom the order is made and

guarantees consideration of all relevant factors and discharge of his

functions by the officer in accordance with the requirement of law.

We may in this connection usefully quote the following passage from

"American Administrative Law" by Bernard Schwartz at page 163:

"The value of reasoned decisions as a check upon the arbitrary

use of administrative power seems clear....

The right to know the reasons for a decision which adversely affects

one's person or property is a basic right of every litigant (and that

whether the forum be judicial or administrative). But the requirement

that reasons be given does more than merely vindicate the right of

the individual to know why a decision injurious to him has been


102

rendered. For the obligation to give a reasoned decision is a

substantial check upon the misuse of power. The giving of reasons

serves both to convince those subject to decisions that they are not

arbitrary and to ensure that they are not, in fact, arbitrary. The need

publicly to articulate the reasoning process upon which a decision is

based, more than anything else, requires the Magistrate (judicial or

administrative) to work out in his own mind all the factors which are

present in a case. A decision supported by specific findings and

reasons is much less likely to rest on caprice or careless

consideration. As Judges Jerome Frank well put it in language as

applicable to decision-making by administrators as by trial judges,

the requirement of reasons has the primary purpose of evoking care

on the part of the decider. . . . ." If the administrative officers having

a duty to act judicially are required to set forth in writing the mental

processes of reasoning which have led them to the decision, it would

to a large extent help to ensure performance of the duty to act

judicially and exclude arbitrariness and caprice in the discharge of

their functions. The public should not be deprived of this only

safeguard.

4. Another reason of equal cogency which weighs with us in

spelling out the necessity for giving reasons is based on the power

of judicial review which is possessed by the High Court under Article

226 and the Supreme Court under Article 32. The High Court under

Article 226 and the Supreme Court under Article 32 have the power

to quash by certiorari a quasi-judicial order made by an

administrative officer and this power of review exercisable by issue

of certiorari can be effectively exercised only if the order is a

speaking order and reasons are given in support of it. If no reasons


103

are given, it would not be possible for the High court or the Supreme

Court exercising its power of judicial review to examine whether the

administrative officer has made any error of law in making the order.

It would be the easiest thing for an administrative officer to avoid

judicial scrutiny and correction by omitting to give reasons in support

of his order. The High Court and the Supreme Court would be

powerless to interfere so as to keep the administrative officer within

the limits of the law. The result would be that the power of judicial

review would be stultified and no redress being available to the

citizen, there would be insidious encouragement to arbitrariness and

caprice. The power of judicial review is a necessary concomitant of

the rule of law and if judicial review is to be made an effective

instrument for maintenance of the rule of law, it is necessary that

administrative officers discharging quasi-judicial functions must be

required to give reasons in support of their orders so that they can

be subject to judicial scrutiny and correction.

5. This has always been regarded as a most important reasons

in the United States for insisting that quasi-judicial decisions must

show reasons on their face. To quote from Schwartz's "American

Administrative Law" at page 166:

"In the United States, perhaps the most prominent reasons

advanced for the requirements of reasoned decisions is the role

of such decisions in facilitating review by the courts. If the bases

of administrative decisions are not articulated, it is most difficult

for a reviewing court to determine whether the decision is a

proper one. 'We must know what a decision means before the

duty becomes ours to say whether it is right or wrong', reads an

oft-cited statement of Gardozo J., . . . . . . for judicial control to be


104

of practical value, the administrative tribunal or agency, 'in

making its order, should not make it an unspeaking or

unintelligible order, but should in some way, state upon the face

of the order the element which had led to the decision'. The words

quoted are from a noted judgment of Lord Cairns, L.C., in which

he laid down the distinction between 'speaking' and 'unspeaking'

orders, which has become of basic importance in present-day

English Administrative law. When Lord Cairns speaks of an

'unspeaking or unintelligible order', he obviously means an order

which gives no reasons. If the administrator does not give

reasons, he, in effect, disarms the exercise of the High Court's

supervisory jurisdiction. In such a case, the Court cannot

examine further than the face of the challenged decision, which,

in Lord Sumner's famous phrase, 'speaks' only with 'inscrutable

face of a sphinx'."

It is therefore necessary for giving full meaning and content to the

power of judicial review conferred on the High Court and the

Supreme Court by the Constitution that every administrative officer

exercising quasi-judicial functions must make a speaking order, that

it, give reasons in support of the order. If the order speaks only with

the "inscrutable face of a sphinx" it would be impossible for the High

Court and the Supreme Court to effectively exercise their power of

judicial review by means of certiorari.

6. This view is not only supportable on principle but it is also in

consonance with the trend of juristic thought in the United States

where there is considerable development in the field of

administrative law in recent times. In the United States, as will be

evident from the two passages from Schwartz's "American


105

Administrative Law" quoted above, the American Courts have always

insisted that administrative decisions should be speaking ones, that

is, they must contain at least the findings upon which they are based

and the reasons which have prevailed with them in introducing this

requirement are the same two reasons which have found favour with

us. It is also interesting to find that the administrative law in France

has moved in the same directions. For a long time Conseil d'Etat

consistently refused to require that the administration should give

reasons for its decisions in the absence of a statutory provision

imposing that requirement. But in a decision rendered by it in 1950

Conseil d'Etat opened, in the words of one commentator, "a first

breach in the established jurisprudence under which in the absence

of a legal text requiring it the decisions of the administrative

authorities need not be reasoned ones" and annulled an

administrative decision in which no reasons were given. The

Commissaire du gouvernment there advocated a bold departure

from the prior case law and stated that the Conseil should require

reasoned decision in every case in which the administrator was

exercising quasi-judicial functions, even though the Legislature did

not expressly impose such requirement. Otherwise, he asked, how

could the Conseil really determine the validity of a challenged

decision? In its decision adopting the approach of the Commissaire,

the Conseil d'Etat stated that the obligation to give reasons was

imposed "in order to enable the reviewing court to determine whether

the directions and prohibitions contained in the law have been

followed." This is the same reason which has motivated the

American Courts in requiring that administrative decisions must

contain findings that show their basis and it is the same reason which

has appealed to us for taking the view that in India too, as in the
106

United States and France, administrative officers exercising quasi-

judicial functions must make speaking orders.

xx xx xx

8. So much on principle. But quite apart from principle, there is

in our view clear authority for the proposition that every quasi-judicial

decision must be supported by reasons. The germ of this principle is

to be found in the decision of the Supreme Court in Express

Newspaper (Private) Ltd., v. Union of India, AIR 1958 SC 578. In that

case the validity of the Working Journalists (Conditions of Service)

and Miscellaneous Provisions Act, 1955 was challenged inter alia on

the ground that the impugned Act did not provide for the giving of

reasons for its decision by the Wage Board and thus rendered the

petitioner's right to approach the Supreme Court for the enforcement

of their fundamental rights nugatory. Dealing with this contention. N.

H. Bhagwati J., speaking on behalf of the Supreme Court said:

"It is no doubt true that if there was any provision to be found in

the impugned Act which prevented the Wage Board from giving

reasons for its decision, it might be construed to mean that the

order which was thus made by the wage board could not be a

speaking order and no writ of certiorari could ever be available to

the petitioners in that behalf. It is also true that in that event this

Court would be powerless to redress the grievances of the

petitioners by issuing a writ in the nature of certiorari and the

fundamental right which a citizen has of approaching this Court

under Art. 32 of the Constitution would be rendered nugatory."

The Supreme Court, however, took the view that there was no

provision in the main Act which prevented the Wage Board from

giving reasons for its decision and the challenge was negatived on
107

that ground. But these observations undoubtedly support, the

second reason which we have given for taking the view that reasons

must be given in support of every quasi-judicial decision.

9. There is also another decision of the Supreme Court on the

point and that is the decision in Govindrao v. State of Madhya

Pradesh. AIR 1965 SC 1222. The appellants in that case claiming to

be the descendants of former Ruling Chiefs in some districts of

Madhya Pradesh applied under the Central Provinces and Berar

Revocation of Land Revenue Exemption Act, 1948, for grant of

money or pension as suitable maintenance for themselves. They

held estates in two districts on favourable terms as Jahgirdars,

Maufidars and Ubaridars and enjoyed exemption from payment of

land revenue amounting in the aggregate to Rs. 27,828.5-0 per year.

On the passing of the Act the exemption was lost and they claimed

to be entitled to grant of money or pension under the provisions of

the Act. They applied to the Deputy Commissioner who forwarded

their applications to the State Government. These were rejected

without any reasons being given therefor. The appellants filed a

petition in the High Court of Madhya Pradesh under Article 226 for a

writ of certiorari to quash the order of the State Government. On the

petition being dismissed, the appellants preferred an appeal to the

Supreme Court. One of the grounds of challenge before the Supreme

Court was that the order of the State Government was invalid since

the appellants had not been heard by the State Government before

making the order and the order was not supported by any reasons.

The Supreme Court upheld this ground of challenge observing:

"The next question is whether Government was in making the

order of April 26, 1955? That order gives no reasons at all. The
108

Act lays down upon the Government a duty which obviously must

be performed in a judicial manner. The appellants do not seem to

have been heard at all. The Act bars a suit and there is all the

more reason that Government must deal with such cases in a

quasi-judicial manner giving an opportunity to the claimants to

state their case in the light of the report of the Deputy

Commissioner. The appellants were also entitled to know the

reason why their claim for the grant of money or a pension was

rejected by Government and how they were considered as not

falling within the class of persons who it was clearly intended by

the Act to be compensation in this manner. Even in those cases

where the order of the Government is based upon confidential

material this Court has insisted that reason should appear when

Government performs curial or quasi-judicial functions (See M/s.

Hari Nagar Sugar Mills Ltd., v. Shyam Sundar Jhunjhumwala,

(1962) 2 SCR 339 = (AIR 1961 SC 1669). The High Court did not

go into any other question at all because it rejected the petition at

the threshold on its interpretation of S. 5(3). That interpretation has

been found by us to the erroneous and the order of the High Court

must be set aside. As the order of Government does not fulfil the

elementary requirements of a quasi-judicial process we do not

consider it necessary to order a remit to the High Court. The order

of the State Government must be set aside. . . . . . . . . ."

The Supreme Court held that the necessity to give reasons was an

elementary requirement of quasi-judicial process and since the order

of the Government did not fulfil this elementary requirement, it was

liable to be set aside. This decision to our mind is a direct authority

for the proposition that every quasi-judicial decision must be


109

supported by reasons and no further authority is necessary in

support of the proposition.

10. But if any further authority were needed, it is to be found in the

recent decision of the Supreme Court in Bhagat Raja's case AIR

1967 SC 1606 (supra). The order impugned in that case was an

order of the Central Government in exercise of its revisional power

under Rule 55 of the Mineral Concession Rules, 1960 and the

question directly arose whether the order was bad in that it did not

give any reasons in support of it. The Supreme Court after an

elaborate review of various decisions bearing on the point came to

the conclusion that the Central Government was bound to give

reasons in support of the impugned order and since no reasons had

been given, the impugned order was bad. This decision was sought

to be distinguished on behalf of the State on the ground that the

Central Government whose order was impugned in that case was a

tribunal within the meaning of Art. 136 and therefore subject to the

appellate jurisdiction of the Supreme Court under that Article and it

was the existence of this right of appeal to the Supreme Court

against the order of the Central Government which weighed with the

Supreme Court in taking the view that the order of the Central

Government required to be supported by reasons. The argument on

behalf of the State was that the ratio of this decision was confined to

a case of quasi-judicial authority which was a tribunal within the

meaning of Article 136 and it had no application where an order

made by a quasi-judicial authority other than a tribunal was in

question. This argument is in our view not well founded. It ignores

the true ratio of the Supreme Court decision. It is undoubtedly true

that the Central Government was a tribunal within the meaning of


110

Article 136 and the Supreme Court therefore emphasized the

existence of a right of appeal against the decision of the Central

Government under that Article but the reasoning on which the

decision was based is applicable alike to a case of an administrative

authority which is not a tribunal within the meaning of Article 136.

Just as there is a right of judicial review against the decision of a

quasi-judicial authority under Article 226 and 32 and the reasons

which impelled the Supreme Court to import the necessity of giving

reasons because there is a right of appeal under Article 136 must

equally apply in spelling out the necessity of giving reasons when

there is a right of judicial review under Articles 226 and 32. If the right

of appeal under Article 136 would be stultified by absence of

reasons, equally would the right of judicial review under Article 32

and 226 be stultified if no reasons are given. Moreover, we find that

the first reason which we have given above for importing the

necessity of giving reasons is also adverted to by the Supreme Court

in paragraph 13 of the judgment and has been relied upon for the

purpose of holding that the Central Government was bound to give

reasons in support of its order and the validity of this reason does not

depend upon whether the quasi-judicial authority is a tribunal or not.

This decision also, therefore, supports the view we are inclined to

take.

49. The same view had been taken by the Supreme Court in Hari Nagar Sugar

Mills Ltd. Vs. Shyam Sundar Jhunjhumwala-[AIR 1961 SC 1669], Madhya

Pradesh Industries Ltd. Vs. Union of India [AIR 1966 SC 671], Bhagat Raja Vs.

The Union of India and others-[1967 AIR 1606], Siemens Engineering and

Manufacturing Co. of India Limited Vs. Union of India and another-[AIR 1976 SC

1785] and S.N. Mukherjee Vs. Union of India-[(1990) 4 SCC 594].


111

50. We shall now consider the question whether the Association has been

following a practice of making it mandatory for anyone desirous of taking

distributorship of medicines of any pharmaceutical company in Ferozepur district

to obtain NOC/LOC on payment of fees of Rs. 2,100/- per company and the same

is violative of Section 3(3)(b) read with Section 3(1) of the Act.

51. As mentioned above, the Commission mechanically approved the findings

recorded by the Jt. DG without examining the material available on record. While

doing so, the Commission conveniently overlooked the following factors/features:

(i) that the Association had neither taken any policy decision nor issued

circulars making NOC/LOC mandatory for appointment of distributors in

District Ferozepur. It was merely following the directives issued by PAC

with whom it is affiliated;

(ii) that the lack of mandatory character of NOC/LOC is evident from the fact

that as many as 80 stockists were doing business in Ferozepur without

taking NOC/LOC from the Association;

(iii) that the genesis of the concept of NOC lay in the Memorandum of

Understanding dated 12.09.2003 entered into between the Indian Drugs

Manufacturers Association (IDMA), the Organization of Pharmaceutical

Producers of India (OPPI) and the All India Organization of Chemists and

Druggists Association (AIOCD) and the Association has done nothing

except to follow the circulars issued by AIOCD;

(iv) that the practice of NOC was also introduced by the Punjab Chemists

Association with which the Association was affiliated. Article 17 of the

Rules and Regulations of the Punjab Chemists Association authorise the

District President / General Secretary / office bearers of the District

Chemists Association to issue LOC for appointment of stockist by the


112

company in their District and in case of any dispute, the President /

General Secretary of Punjab Chemists Association is authorised to issue

LOC;

(v) that as long as Respondent No. 2 was a member of the association, he

was never refused a NOC and after he ceased to be a member there was

no occasion to issue NOC to him;

(vi) that for appointment as stockist for M/s. Merck Limited, Respondent No. 2

had obtained NOC from District Chemists Federation, Jalalabad and this

shows that absence of NOC from the Association did not have any adverse

effect on the business of Respondent No.2;

(vii) that the fact that the practice of NOC/LOC is not mandatory and sole

objective thereof was to provide mechanism to identify the number of local

stockist for a particular pharmaceutical company. In support of this plea,

the Association relied upon the statement made by the President Chaman

Lal Kakkar on 25.04.2013, statement dated 25.04.2013 made by its Vice

Chairman Shri H.C.Gupta, statement dated 26.04.2013 made by its Vice-

President Shri A.K. Gupta and statement dated 26.04.2013 made by its

Secretary Shri Sham Lal Kakkar and statement dated 26.04.2013 made

by its Treasurer Shri Ashwani Kumar Garg. These statements are

extracted below:

i) Statement of evidence dated 25th April 2013 of Mr.

Chaman Lal Kakkar the President of the Association

11. It has been contended by you that permission is being

demanded by pharma companies before appointing

additional stockists. Why would pharma companies

inquire from your Association the need for

appointment of additional stockists based on demand


113

when they can themselves assess the demand and

the need or otherwise for appointment of additional

stockist paged on demand when they can themselves

assess the demand and the need or otherwise for

appointment of additional stockists?

Ans. The Medical Representatives of pharmaceutical

companies do not reveal the correct picture of

demand to their companies and are only interested in

meeting their sales targets which later results in

disputes related to payments between the company

and the wholesalers. As such, it is the companies

which demand NOC / LOC to avoid such a situation

as well as to check the financial credibility of the

interested wholesalers.

12. It has been stated in your written submissions that

your Association studies the market before NOC is

granted depending upon demand to avoid unhealthy

competition. Please explain what do you mean by

unhealthy competition.

Ans. The pharmaceutical companies pass on extra

discounts to big wholesalers whereas small

wholesalers do not get this benefit and are thus in a

disadvantageous position. Further, because of extra

discounts, the big wholesalers is in a position to pass

on discounts to some retailers who prefer to procure

their supplies from such big wholesaler. This is to the

disadvantage of smaller wholesalers and smaller

retailers. However, since Ferozepur market is not


114

very substantial there is only nominal impact of the

above.

13. What shall be the implications of pharma companies

appointing additional stockists / whole sellers in spite

of low demand of their pharmaceutical products and

why does it call for intervention by your association in

the form of NOC / LOC and should not be left to the

pharma companies to decide?

Ans. In case pharmaceutical companies are allowed to

appoint stockists / wholesalers without any

intervention of the association in the form of NOC /

LOC, it may lead to a situation where some

wholesalers / retailers would be stranded with unsold

stocks and dead investment and may have to

ultimately close down their business.

ii) Statement of evidence dated 25th April 2013 of Mr.

H.C. Gupta, - the Vice President of the Association

4. Does your Association insist for its NOC / LOC before

allowing any pharma company to appoint any new or

additional stockists / whole seller of drug and

pharmaceutical products in Ferozepur and if so,

under whose authority / directions has this condition

been stipulated and what is the justification for the

same?

Ans. It is the pharmaceutical companies which insist for

NOC of our Association to avoid any disputes at a

later stage with the wholesaler / stockist. Moreover,

the medical representatives to meet their targets

insist for appointment of new / additional wholesalers


115

even though the demand does not justify the same.

In such a case, stockists are dumped with stocks

which ultimately expire and their investment is

blocked recovery of which from pharma companies

becomes difficult. As such, to protect the wholesalers

as well as retailers the practice of NOC is justified.

iii). Statement of evidence dated 26th April 2013 of Mr. A.

K. Gupta the Vice President of the association

which is set out below :

5. What would be the implication if additional stockists /

new stockists could be appointed by pharma

companies in Ferozepur without any restriction?

Ans. In such a situation, the existing stockists would be

vulnerable to be exploited by the pharmaceutical

companies in terms of payments / refunds being held

up in respect of returned damaged / expired stocks

etc. of the existing stockists as the company would

appoint new stockist without resolving the issues of

the existing stockists related to payment etc.

iv) Statement of evidence dated 26th April 2013 of Mr.

Shyam Lal Kakkar the Secretary of the Association

5. What would be the implication if additional / new

stockists could be appointed by pharma companies in

Ferozepur without any restriction of NOC / LOC of

your Association?

Ans. Our intention is to protect the existing stockists from

being exploited by pharmaceutical companies. If

there is no NOC requirement, there is possibility that

stockists would suffer and there may be disputes


116

between stockists and between pharma companies

and stockists.

6. Do you agree that the requirement of NOC / LOC acts

as a deterrent to unhealthy competition in the market of

wholesale / retail sales of drugs and pharmaceutical

products as contended by the Association, and if so,

how?

Ans. Yes. In case a pharma company appoints a new

stockiest, the company ignores the interest of the

existing stockist who has already paid for the stocks

and as such to meet the competition from the new

stockist, the existing stockists may resort to passing on

discounts to off load his stocks in the market. This

leads to unhealthy competition in the market.

v) Statement of evidence dated 26th April 2013 of Mr.

Aashwini Kumar Garg the Treasurer of the

Association

3. Your Association insists for NOC / LOC before

allowing any Wholesaler / stockiest to take up

business of any pharmaceutical company.

How does this practice eliminate unhealthy

competition from the market as contended by

your Association?

Ans. In the absence of NOC, pharmaceutical

companies would appoint new / additional

stockists without taking into account the unsold

stocks already lying with existing stockists

which ultimately may have to be returned back

causing loss to the company as well as the


117

wholesaler. This may lead to unhealthy

competition between existing and new

wholesalers.

vi) In their statements dated 25.04.2013 and 26.04.2013

S/Shri H. C. Gupta (Vice-President) and Sham Lal

Kakkar (Secretary) unequivocally denied the

suggestion that the possession of NOC was a

mandatory condition for appointment of a new or

additional stockist. These statements are also

extracted below :

Statement of evidence dated 25th April 2013 of Mr. H.

C. Gupta the Vice President of the Association

5. Under what legal or statutory authority does the

Association stipulate requirement of NOC / LOC prior

to appointment of a new or additional stockiest /

wholesaler and what action, if any, is taken by your

Association on those not following its directives in this

respect?

Ans. We do not insist for NOC, it is the pharmaceutical

companies who ask for NOC from the Association to

avoid unnecessary harassment / disputes between

stockists inter Se, medical representative etc. it is

rare that a company appoints stockists without NOC

of the Association. We have no objection if the

company appoints additional / new stockist without

our NOC.
118

Statement of evidence dated 26th April 2013 of Mr. Shyam

Lal Kakkar the Secretary of the Association

4. As per information, your Association insists of NOC /

LOC before allowing any pharma company to appoint

any new or additional stockists / wholesalers of drug

and pharmaceutical products in Ferozepur. What

action does your Association take in case the

wholesaler or the pharma company does not take

your NOC / LOC and goes ahead with sale of these

products in Ferozepur?

Ans. We have no objection if NOC is not taken from the

Association.

(viii) Unfortunately, the Commission completely overlooked the statements of

all the office-bearers. It also overlooked that the pharmaceutical

companies like Abbot India Limited, M/s. Glenmark Pharmaceuticals

Limited, M/s. Invida India Private Limited, M/s. Macleods Pharmaceuticals

Limited, M/s. Sun Pharmaceuticals Limited, M/s. Zuventus Healthcare

Limited unequivocally rejected the suggestion that an applicant should

have obtained NOC / LOC from the association before he / she could be

appointed as stockists. The replies filed by these pharmaceutical

companies are reproduced below :

Abbot India Limited reply dated 15th April 2013 originally

Annexure 24 to the Director Generals report

2. Now dealing with the information and clarifications sought by

you, based on the information available and records

maintained with us, our reply with respect to each of them is

as follows:
119

a. With respect to para : At the outset we have not

appointed any new stockists for our products in

Ferozepur area for over last three years. We are not

aware of any requirement to take any NOC / LOC from

Chemist and Druggist Association, Ferozepur or from

Punjab Chemist Association, Patiala (hereinafter

collectively referred to as Associations) prior to

appointment of stockists of Companys products in

Ferozepur;

b. With respect to Para 2 : As per the records available with

us, we have not received any NOC / LOC from the

Associations for appointment of stockist of Companys

products in Ferozepur. We are not aware of the free, if

any, prescribed by Associations for such NOC / LOC;

c. With respect to Para 3 : As stated above, we are not

aware of any requirement to take any NOC / LOC from

Associations prior to appointment of stockists of

companys products in Ferozepur and we therefore, do

not have copies of the documents sought for;

d. With respect to Para 4 : We are not aware of any

NOC/LOC/PIS approval required from Associations prior

to launching our new products in the State of Punjab.

Glenmark Pharmaceuticals Ltd. reply dated 8th April 2013

originally Annexure 27 to the Director Generals report

With regard to the information / clarifications requested

for, without prejudice to our legal rights, we hereby

submit as under ad seriatum:

1. We set our own internal selection criteria or norms for

the appointment of stickiest /retailers. We dont


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consult any Chemist and Druggist Association or any

of its affiliated associations nor are we required to

obtain any NOC / LOC from any Chemist and

Druggist Association or its affiliated associations for

appointment of our stockiest / retailers. We shortlist

and appoint a stockiest / retailers based on our

assessment of its suitability.

2. As stated above we reiterate that we do not obtain

any NOC / LOC from Chemists and Druggists

Association or its affiliated associations.

3. To the best of our knowledge we do not have any

directive/decision of any apex body or association

regulating the Pharmaceutical industry, which we are

required to follow for appointment of the stockist /

retailer and hence the question of following one does

not arise.

Invida India Pvt. Ltd. reply dated nil originally Annexure 28 to the

Director Generals report

1. We were not required to seek NOC / LOC prior to

appointment of our distributor / CA / Stockists for the

state of Punjab.

Macleods Pharmaceuticals Limited reply dated 25th March 2013

originally Annexure 29 to the Director Generals report

1. We are not taking any NOC / LOC from

Chemist & Druggists Association Firozpur for

appointment stockists. However, parties are

directly approaching the association and

sought LOC / NOC from their respective

district association.
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Sun Pharmaceuticals Industries Limited reply dated 8th April 2013

originally Annexure 30 to the Director Generals report

1. Please note that there is no requirement of taking

NOC / LOC by our prospective wholesaler / stockiest

/ retailer from Chemist & Druggists Association

Ferozpur or from Punjab Chemist Association,

Patiala. We are well aware that as NOC before the

appointment of stockiest / distributor / retailer leads to

reduction of supply in the market, it is a contravention

of Section 3(3)(b) of the Competition Act, 2002. It is

apposite to mention that generally, while appointing

distributor / stockiest, so as to verify quickly and easily

their worthiness and other ethical credentials

including, that they are not involved into any spurious

and objectionable dug business activities, we only

enquire from respective association. Please note we

are not insisting the stockists / distributor / retailer for

obtaining any NOC / LOC as pre-requisite prior to the

appointment.

2. Please be informed that we do not have any such

copies of NOCs / LOCs issued by Chemist and

Druggist Association, Ferozepur or from Punjab

Chemist Association, Patiala permitting appointment

of wholesaler/stockiest/retailers. Furthermore, we

have no material information about the details of the

fee prescribed by the Association (s) for grant of NOC

/LOC.

3. We reiterate that there is no requirement of taking any

NOC / LOC as per directives / decision of any apex


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body or Association which may be regulating the

Pharmaceutical Industry.

4. There is no requirement for obtaining any

NOC/LOC/PIS approval from any Trade Association

or its affiliates inany district of Punjab, including

Ferozepur, prior to launching any new

pharmaceutical products / drugs by our company.

Further we have not material information about the

details of the prescribed fees / charges payable for

grant of such approval.

Zuventus Health Care Limited reply dated 16th April 2013

originally Annexure 31 to the Director Generals report

M/s. Ferozepur Medical Agency had produced the

NOC dated December 1, 2012 from Chemist & Druggists

Association Firozpur. To our knowledge, no NOC is

mandatory for making appointment of any party as stockiest.

We have annexed hereto the copy of the said NOC.

We have not received any directive / decision / MOU of any

apex body or Association regulating such appointments.

To our knowledge, no NOC is required to be obtained from

any trade association or its affiliates prior to launching any

pharmaceutical products / drugs.

(ix) The Commission also overlooked the statement made by Shri Surjeet

Mehta, Chairman Punjab Chemists Association on 05.06.2013 in which

he unequivocally stated that the relevant rules and regulations will be

amended to dispense with the requirement of LOC. The relevant portions

of statement of Shri Surjit Mehta are reproduced below :


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7. As per Article 17 of the Rules and Regulations of PCA

furnished by you, PCA has authorized District level

Chemists Associations to issue LOC for appointment

of stockists and in the event of any disputes reserved

the right with itself, to issue LOC. Please explain the

rationale behind the practice of NOC / LOC

necessarily required to be taken by a wholesaler /

pharmaceutical company from the district level

association or your Association prior to appointment

of stockist.

Ans. This authorisation was given to the district level

associations so that they could check the entry of

spurious / sub-standard medicines being introduced

by some unscrupulous manufacturers in the market.

The district level associations were expected to use

their expertise and knowledge in the field to check the

above menace. However, we have stopped this

practice since last 4 -5 years.

8. Please explain under what legal, statutory or other

authority has this authorisation been given by PCA to

district level Associations and under what legal,

statutory or other authority such LOCs, in case of

disputes, are being issued by your Association.

Ans. There was no legal or statutory authority to give the above

authorization, however, it was done with a view to check the

entry of spurious / sub-standard medicine as explained

above.

9. If PCA is not issuing any LOCs as contended, and if district

associations are acting independently, why have you not


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amended your Rules & Regulations accordingly and

intimated the same to all your affiliated district level

Associations?

Ans. We shall amend our Rules and Regulations and withdraw

the Article under which Authorization for issuing LOC has

been given to District Associations and shall also intimate

them in writing that LOC / NOC condition for appointment of

new/additional stockists should not be imposed by the

Associations. A copy of the minutes of the General Body

Meeting before which the proposal for amendment shall be

put up along with copy of the amended rules and regulations

shall be furnished shortly.

(x) The Commission also failed to take note of the recommendations made

by the report prepared by the Expert Committee under the Chairmanship

of Dr. R.A. Mashelkar to examine all the aspects regarding the regulatory

infrastructure and the extent and problem of spurious/substandard drugs

in the country. The Committee have been asked by the Government of

India to make recommendations and suggest a roadmap for

implementation of the recommended measures so that the problem could

be solved in its entirety. The Committee is consisted of an eminent

scientist, an eminent lawyer and former Police Commissioners as its

members. Officials representing key Ministries/Departments/States/drug

manufacturers, trade, consumer and professional associations were also

inducted as members. After an in-depth study of various facets of the

problems, the Committee submitted a detailed report in November, 2003

running into 137 pages with the title as A COMPREHENSIVE

EXAMINATION OF DRUG REGULATORY ISSUES, INCLUDING THE

PROBLEM OF SPURIOUS DRUGS. In paragraph 4, the Committee


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recommended steps to be taken by the pharmaceutical industry and

pharmacy associations to tackle the problem of spurious drugs.

Paragraph 4.11 of that chapter reads as under :

4.11 Recommended Action for the Pharma Trade

Association

a. Play a proactive and visible role to contain the

menace of spurious/counterfeit drugs.

b. Develop its mechanism in identifying the

persons directly or indirectly involved in abetting

the distribution of spurious, counterfeit or

questionable quality drugs.

c. Prepare a checklist for the guidance of

members and widely publicize it for information

to all members.

d. Sub Rule 3 of Rule 65 (4) of Drugs & Cosmetics

Rules requires that the supply by retail of any

drug shall be made against a cash/credit memo.

This condition of licence should be strictly

adhered to by all retail licensees.

e. Every chemist/pharmacist to act as a watchdog

to prevent entry of any spurious/doubtful quality

drugs or those purchased from unauthorized

sources or without proper bills in the supply

chain.

Paragraph 9 of the report consists of summary of measures to deal with

the problem of spurious/counterfeit drugs. Paragraph 9.1 of that chapter

reads as under :
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9.1 The Committee endorsed the views expressed by the

DGHS Committee and also the views that emerged as

outcome of discussion at the meeting of State Health

Minsters. The members re-emphasised several of these

suggestions as remedial measures to eliminate/reduce the

menace of spurious drugs in the country. In summary, the gist

of the recommendations is :

Effective interaction between the stakeholders i.e.

industry and regulators, industry and consumers, trade

and regulators and medical professional and

regulators.

Creation of intelligence cum legal cells in State and

Central offices.

Discouraging proliferation of drug distribution outlets.

Changes in law to provide enhanced penalties, making

the offences cognisable and non-bailable in the light of

similar provisions in Narcotic Drugs and Psychotropic

Substances Act.

Designation of special courts to try the cases of

spurious drugs.

Preparation of dossiers of suspected dealers and

manufacturers.

Provision of secret funds and incentives to informers.

Effective networking system between States.

Check on drug supplies to practitioners who buy and

supply drugs to their patients.

Industry to have its counterfeit drug strategies, better

surveillance and efficient complaint handling system.


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Trade associations to have better surveillance on

defaulting members and to take strict action against

them.

Creation of better awareness amongst consumers.

(xi). Unfortunately, the Commission failed to keep in view the

recommendations made by the Mashelkar Report, which pointed out the

apex body like AIOCD and other similar organisations as also the State

bodies to suggest that the persons desirous to take distributorship of any

pharmaceutical company should obtain NOC/LOC from the concerned

association. This precisely what the Association had done as a practice

though, as mentioned above, it was not mandatory for all to take

NOC/LOC as a condition precedent for appointment of distributor. This is

strengthened from the facts that as many as 90 stockists were operating

in Ferozepur district without obtaining NOC/LOC from the Association.

On the basis of the above discussion, we hold that the conclusion

recorded by the Commission that by insisting on obtaining NOC/LOC as

a condition precedent for the appointment of a distributor of any

pharmaceutical company, the Association had acted in violation of Section

3(3)(b) is legally unsustainable and is liable to be set aside.

52. The next question which merits consideration is whether resolution dated

26.05.2012 passed by the Association, which was circulated among the

wholesalers/retailers vide circular dated 27.05.2012 resulted in curtailment of

supply of medicines/drugs and this amounted to violation of Section 3(3)(b) of

the Act.
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53. In this context what is most significant is that both the Jt. DG and the

Commission completely overlooked the background in which the resolution was

passed. It is not in dispute that Respondent No. 2 was expelled from the

membership of the Association because of the grave misconduct of overcharging

the retailers by manipulation of the computer software and, as mentioned above,

the decision of expulsion had become final because it has not been questioned

in any court of law. The Jt. DG and the Commission also overlooked another

important aspect of the matter that even after termination of membership,

Respondent No. 2 continued his business as usual. Unfortunately, they have

relied upon wholly unsubstantiated statement of Respondent No. 2 and its

partner (Director, Shri Rajesh Arora) that as a result of resolution dated

26.05.2012 its sale was drastically reduced. Not a shred of evidence was

produced by Respondent No. 2 before the Jt. DG in support of the bald statement

contained in the information, its three responses and the affidavit that its sale had

declined to Rs. 39.71 Lacs from Rs. 223.81 lacs and odd. If there was any grain

of truth in this assertion, it would have certainly produced its account-books and

other records to prove that its sale got reduced by almost 2 crores after passing

of resolution dated 26.05.2012. In the absence of such evidence, the Jt. DG and

the Commission were not entitled to record a finding that the resolution had

adversely affected supply of medicines/drugs in the market and consequential

violation of Sections 3(3)(b) and 3(1) of the Act.

54. The question which remains to be considered is whether the penalty

imposed on the office bearers of the Association is legally sustainable. In our

view, that part of the impugned order is liable to be set aside on the ground that

while remitting the matter to the DG for the limited purpose of fixing the

responsibility of the office bearers, the Commission had unequivocally referred to

Section 48 of the Act and directed the DG to issue notice to the office bearers of

the Managing Committee/Executive Body of the Association under Section 48(2)


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and give them opportunity to explain their role in the decision making in respect

of practices / circulars / directions etc. which were found anti-competitive. In

compliance of the directive given by the Commission, the DG issued notices

dated 03.07.2013 and gave them opportunity under proviso to Section 48(1) of

the Act and produce evidence to prove that contravention of Section 3(3)(b) read

with Section 3(1) was committed by the Association without their knowledge or

that they had exercised due diligence to prevent the Commission of such

contravention. However, after receipt of supplementary report dated 31.07.2013

in which the Joint DG recorded a conclusion that office bearers were complicit in

anti-competitive practice followed by the Association, the Commission gave up

idea of imposing penalty under Section 48 of the Act apparently after realising

that the ingredients of that section are not satisfied and reverted to Section 27(b)

for the purpose of imposing penalty. This is evident from the paragraphs 80 to

82 of the impugned order, which reads as under :

80. The said office-bearers in their common reply have taken a

preliminary objection that the provisions of section 48 of the

Act (dealing with the liability of the persons in-charge of the

company) are not attracted. The office-bearers have not

disputed the findings of the DG on merits reserving their right

to file additional response.

81. The Commission is of opinion that irrespective of the plea

taken by the office-bearers or its merit, in the factual scenario

of the present case, it is evident that the office-bearers are

parties to the impugned decision of the association.

82. In this scenario, the provisions of section 27 of the Act are

themselves sufficient to hold the office-bearers guilty of

contraventions without the aid and assistance of the

provisions of section 48 of the Act. As per the provisions of


130

section 27(b)of the Act, where after inquiry, the Commission

finds that any agreement referred to in section 3 or action of

an enterprise in a dominant position, is in contravention of

section 3 or section 4, as the case may be, it may impose

such penalty, as it may deem fit which shall be not more than

ten percent of the average of the turnover for the last three

preceding financial years, upon each of such person or

enterprises which are parties to such agreements or abuse.

55. In our view, after having resorted to Section 48, the Commission could not

have reverted to Section 27(b) for the purpose of imposing penalty and that too

without giving an action oriented notice and reasonable opportunity of hearing to

the appellants in Appeal Nos. 22 to 28 of 2014 to show cause why the penalty

may not be imposed on them under Section 27(b) of the Act.

56. We may also mention that if Section 48 (1) was to be invoked for penalizing

the appellants Gurpreet Singh and six others, the Jt. DG was required to prove

that they were in charge of and were responsible for the company (Association)

for the conduct of its business as well as the Association itself. However no such

finding was recorded by the Jt. DG. The Commission realized that these

fundamental ingredients are not satisfied in the present case. Therefore, it

conveniently switched over to Section 27(b) and imposed heavy penalties on the

office bearers. However, no such finding was recorded by the Jt. DG.

57. An ancillary issue which merits consideration is whether the Commission

was justified in overlooking the fact that Respondent No. 2 had filed parallel

remedies. He filed two civil suits, one for grant of a declaration that Resolution

dated 26.05.2012 passed by the Association is nullity and for grant of permanent

injunction and the other for award of damages to the tune of Rs. 5 Lacs for the
131

loss of reputation and business. He also filed criminal complaints under Section

499, 500 506 of Indian Penal Code. During the pendency of the complaints,

Respondent No. 2 filed information under Section 19(1)(a). During the course of

investigation, the Association and other appellants brought to the notice of the

Jt. DG that Respondent No. 2 had already filed remedies by filing civil suits and

criminal complaint, but he did not take cognisance of the same and proceeded

to submit report with the finding that the Association and its office-bearers are

guilty of violating Section 3(3(b) read with Section 3(1) of the Act. The facts

relating to the pendency of the cases before the competent Court was also

brought to the notice of the Commission but it altogether overlooked this

important and crucial factor and proceeded to pronounce upon the issue relating

to violation of Section 3 of the Act and imposed penalty on all the appellants.

58. No doubt Section 62 of the Act declares that the provisions of this Act shall

be in addition to, and not in derogation of, the provisions of any other law for the

time being enforce, meaning thereby that a party availing remedy under any other

law can also initiate proceedings under the Act but this section does not empower

a party to simultaneously avail two remedies which may result in passing of

inconsistent or contradictory orders by two adjudicatory forums as has happened

in the present case because while the Commission has ruled that the practices

adopted by the Association are violative of Section 3(3)(b) read with Section 3(1)

of the Act and imposed penalty on all the appellants, the suits filed by the

respondent for grant of a declaration that Resolutions passed by the Association

are nullity and for award of damage in lieu of the loss suffered by it were

dismissed by the competent Court i.e. Additional Civil Judge (Senior Division),

Ferozepur.

59. It is not in dispute that Respondent No. 2 had filed two suits and a criminal

complaint before filing information dated 20.09.2012 under section 19(1)(a) of the

Act. It is a sheer co-incidence that the information culminated into passing of


132

order dated 05.02.2014 by the Commission vide which the Association was held

guilty of acting in violation of Section 3(3)(b) read with Section 3(1) of the Act and

penalty was imposed on the Association and its office bearers under Section 27

of the Act, but two suits filed for substantially similar were dismissed on

12.05.2015. It is a different thing that Respondent No. 2 had challenged the

judgment and decree dated 12.05.2015 by filing appeals and has also questioned

the order passed by the competent court dismissing the complaint filed by him

under Sections 499 and 500 CPC.

60. In our view, once the DG had been apprised of the facts relating to pending

civil and criminal cases, he should have brought this fact to the notice of the

Commission and sought its guidance and the latter should have as a measure of

proprietary stayed further proceedings. In any case, the Commission should not

have finally pronounced upon the guilt of the Association and the other appellants

and should have waited for the final verdict of the civil and criminal cases.

61. What is most surprising is that even though the Commission had passed

order dated 05.02.2014 and the same was subject matter of appeal under Section

53-B, this development was not brought to the notice of Additional Civil Judge

(Senior Division), Ferozepur, so as to enable her to take appropriate view of the

matter and then decide whether or not she should finally adjudicate the suits.

62. Be that as it may, we are convinced that the Commission should have, on

being apprised of the fact that Respondent No. 2 had already availed remedy by

filing two civil suits and a criminal complaint on the same cause, stayed the

proceeding of the information and should not have passed the impugned order.

63. In the result, the appeals are allowed and the impugned order is set aside.

If any of the appellants has deposited whole or a fraction of the penalty then the

same shall be refunded to it / him within four weeks from today.


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64. As a sequel to disposal of the main appeals, all the interlocutory

applications are disposed of as infructuous.

[G.S. Singhvi]
Chairman

[Rajeev Kher]
Member
30th October, 2015