In order to justify its actions of directing the retailers to not offer discounts to consumers, Bengal Chemist and Druggist Association (BCDA) is planning to file a plea to the Competition Commission of India (CCI) to reverse its decision of imposing a fine of Rs.18.38 crore on the trade body and its office bearers for anti competitive practices.
According to BCDA, the directions and circulars with reference to not to offer discount to customers is an attempt to discourage unhealthy competition and to maintain that quality branded drugs should be dispensed at the Market Retail Price (MRP) as stipulated by the government through the new Drug Price Control Order (DPCO).
The CCI had imposed a penalty through an order on BCDA dated 11.03. 2014 after a case was filed by Dr Chintamoni Ghosh, director, Directorate of Drugs, West Bengal. As per the case filed, BCDA was allegedly engaged in issuing anti competitive circulars directing the retailers not to give any discount to the consumers.
The CCI observed that the activities of BCDA inter alia to direct its members to sell drugs only at their MRP is a palpable anti competitive conduct which cannot be justified on the ground that most of the members of the BCDA, would be ruined if competitive forces are allowed to operate in the market. The CCI accordingly concluded that the activities of the BCDA has contravened the provisions of Section 3(1), Section 4(1) and Section 4(2) of the Competition Act relating to anti-competitive agreements and abuse of dominant position respectively.
A penalty of 10 per cent on the office bearers of BCDA and 7 per cent on the trade body's executive committee members was imposed to be borne out of the turnover or income or receipts of the BCDA based on the financial statements filed. BCDA was also directed to file an undertaking within 30 days with reference to the CCI’s directions to cease and desist from indulging in anti-competitive practices have been complied with. The amount of penalty imposed was directed to be deposited within 60 of the receipt of the order.
The Commission opines that the BCDA has indulged in the concerted anti - competitive practice of sale of drugs only on MRP. The collusive action has been taken to ensure that the trade margins do not get determined on a competitive basis and are uniform for all the wholesalers and retailers respectively. It would be pertinent to mention that while working out the price of scheduled drugs, the National Pharmaceutical Pricing Authority (NPPA) makes an allowance for 16 per cent margin on price to retailer (as per DPCO, 1995) and 8 per cent margin to wholesaler as per practice. However, for non-scheduled drugs (drugs not under price control), the margins to the retailers or the wholesalers are to be determined as per market forces.
As per the industry practice, these margins are at least 20 per cent on price to retailer and 10 per cent to the wholesalers. The BCDA has argued that these margins to be earned on sale of drugs on their MRP are reasonable. In this regard, the Commission observes that it does not matter whether these are reasonable or not.
As per the CCI order, the fact that BCDA has decided that drugs be sold only at their MRP and that no discounts be offered implies that the maximum retail price has been decided to be the ruling price, thus precluding the possibility of drugs being sold at prices lower than the MRP.