Karnataka HC refuses to interfere with CCI probe against KCDA


A single Judge of the Karnataka High Court Justice K. S. Hemalekha has refused to interfere with the ongoing Competition Commission of India (CCI) probe against the Karnataka Chemists and Druggists Association (KCDA) holding the challenge to the probe as premature. 

The High Court disposed of the writ petition filed by the KCDA challenging CCI probe by granting liberty to submit its objections/information/documents to the investigation arm of the CCI (Office of the Director-General/DG) within four weeks whereafter the DG CCI shall proceed in accordance with law and complete the proceedings within four weeks from the receipt of such information. 

Complaint before CCI 

The case was initiated by the CCI on a complaint filed by All India Chemists Distributors Federation against KCDA alleging contravention of the provisions of the Competition Act, 2002 which deal with prohibition of anti-competitive agreements and abuse of dominant position. 

The Distributors Federation alleged in the complaint that All India Organisation of Chemists & Druggists/ AIOCD – the umbrella organisation of KCDA – was compelling the Association of Manufacturers to enter into pact with them and such MoUs were based on the unreasonable AIOCD’s demands, which were being used to arm twist the market to its advantage. 

The Distributors Federation stated in its complaint before the CCI that AIOCD and its affiliate associates were collecting Product Information Service (PIS) charges from manufacturers for every drug that is introduced in the market. PIS charges are collected to give information to the public about the product. 

Based on the complaint of Distributors Federation, the CCI ordered a probe by DG in 2012. The DG issued probe letters to KCDA which were challenged before the Karnataka High Court and vide an order issued on November 10, 2022, the writ petition was disposed of by the court noting the same as premature and granted liberty to KCDA to submit the information to DG.

Market Study on the Pharmaceutical Sector in India

Pharma sector has been on the CCI’s radar for some time. In November 2021, the CCI released a report titled ‘Market Study on the Pharmaceutical Sector in India’. The Study noted various trade practices followed by the Associations in supply and distribution of drugs.  

The mandatory requirement of NOC for appointment of stockists and mandatory payment of PIS charges for introduction of new drugs by pharmaceutical companies, have been held to be anti-competitive by the CCI in several cases pertaining to different states/districts of India. 

Most of the interventions of CCI were directed at AIOCD and its member associations at the State and district levels. These cases before CCI have shown that the entire supply chain of drugs is ‘self-regulated’ by the trade associations, resulting in market distortions. 

With the purported goal of self-regulation, the apex association and its local affiliates were found to essentially play a gatekeeper role at various levels of the distribution chain, making pharmaceutical markets impervious to the incentives of competition. 

With the overarching objective of understanding the factors that influence price competition in the pharmaceutical sector, the study focused on the specific realms of pharmaceutical distribution and the role of trade associations therein, trade margins, online pharmacies and the prevalence of branded generic drugs in India and its implications for competition. 

Since the pharmaceutical sector is a regulated, the study explored the areas of interface between regulation and competition with a view to ascertain the CCI’s advocacy priorities. 

The competition panel expected that the insights gained from the market study will inform and contribute significantly to the design of the pharma market in India to help attain the objective of affordable medicines for all.

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