Professional Documents
Culture Documents
NEW DELHI
[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
Versus
Versus
Versus
Versus
Versus
Versus
Versus
Per Chairman
ORDER
The questions which arise for consideration in these appeals filed against
short, the Commission) in Case No. 60 of 2012 titled M/s. Arora Medical Hall,
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others are whether the practice allegedly followed by Chemists and Druggists
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
Medical Hall and to penalise any retailer purchasing medicine from the said
whether the penalty imposed by the Commission under Section 27 of the Act is
legally sustainable.
Pharmaceuticals Producers of India (OPPI) are the pan India associations of drug
(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
There are various state level and district level associations, who look forwards
the apex association for guidance and follow the rules, regulations and various
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
the wholesalers and the retailers, as the interests of the said parties are
associations at the district level play a vital role in streamlining the distribution
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
A.K. Gupta, Shyam Lal Kakkar, R.S. Bakshi, Chaman Lal Kakkar and Ashwini
Association.
Piramal, Abbott India, Ozone, Sun Pharma, Alkem, Alkem Gencare, Hetero,
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.
because it was misusing its monopoly position in the district. Letter dated
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.
position. However, he did not respond to the notice. Therefore, by an order dated
That decision has become final because the same is not shown to have been
adjudicatory body.
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
were very much annoyed with the scandal of Arora Medical Hall.
They shouted to stop dealing (with sic) M/s. Arora Medical Hall till
instead of boycott. Two guests who came from Fazilka District (1)
Mr. Sanjiv Kumar Sanjiwani Medicos (2) Mr. Ashok Kumar Chhabra
take any harsh decision but give Arora Medical at least 2 days to
contact President Mr. Chaman Lal Kakkar Ferozepur within two (2)
of all previous bills to M/s. Arora Medical Hall. This was the whole
Sd/-
Shyam Lal, Secretary
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
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
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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
life. Isnt it? Do you agree with me. We have to strike this panic and
to give M/s Arora Medical Hall time for 2-3 days to clear his
4. Till further orders, you are requested not to make him pending
I hope it makes you all clear. I always look forward for your whole
hearted cooperation.
Cordially yours
(Since the circular has been reproduced ad verbatim from the paper
repeated hereinabove).
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
ii) Civil Suit No.689/2012 filed in the Court of Civil Judge (Senior
inoperative.
iii) Criminal proceedings under Section 499 and 500 of Indian Penal
11. Some of the members (retailers) of the Association also filed First
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
plaintiff firm and further asked others to stop dealings with the
6. That the plaintiff firm deals in medicines and they very well
criminal law and will also retain their right to challenge the
abovesaid resolution.
also came to know about the said resolution and agenda 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,
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
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:
4. Whether the suit of the plaintiff is bad for misjoinder and non-
5. Relief.
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3. Whether the plaintiff has got no locus standi to file the present suit?
OPD
5. Relief.
15. Both the suits were tried by the Additional Civil Judge (Senior Division),
12. I have heard learned counsel for the parties and have gone
as under :-
13. Issues No.1 and 2 of both the suits are taken up together
all these issues the onus was heavily upon the plaintiff. Plaintiff
Bhagwan Singh as PW2 (though he has not come present for his
15. After hearing the rival contentions of both the counsel for the
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
boycotted the dealings with the plaintiff firm vide resolution dated
which the defendants boycotted the dealings with the plaintiffs, the
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
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
expulsion.
others. Saajan Kumar Grover when stepped into the witness box
Company and he infact does not know the actual dispute between
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
refused to purchase the medicines from the plaintiff firm, but this
to prove the fact that the area of Ferozepur which is with him ever
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witness the plaintiff has not examined any person from the locality
who came and depose that with the circulation of any resolution the
the same is neither pleaded nor proved on the record by any cogent
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
proof. In these circumstances this fact has also not been proved
to pay the amount but not on account of lower the reputation of the
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
19
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
RELIEF.
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
16. The criminal complaint filed by Respondent No.2 was dismissed by the
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
18. While the civil suits and criminal complaint filed by him were pending,
the Act with the allegations that the requirement of NOC and LOC prescribed by
and 4 of the Act. Respondent No. 2 further alleged that the Association was
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
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,
from June 2012 till date with interest @ 12% per annum till
5. The Commission may pass any other order apart from the
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
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
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
Merck Limited, M/s. Intas Pharmaceutical Limited, M/s. Abbott India Limited, 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
Nos.22 to 28 of 2014 filed separate replies, the dates of which are given below :
23. Respondent No. 2 on whom notice was issued by the DG submitted three
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
that the sales of M/s Arora Medical Hall, Ferozepur City for
hundred ninety nine and eighty two paisa) only for the period from
lacs seventy thousand seven hundred eighteen and thirty six paisa)
crore eighty three lacs forty seven thousand six hundred eighty one
Deponent
24. PCA and AIOCD filed their replies on 14.05.2013 and 26.02.2013
25. The pharmaceutical companies to whom notices were issued by the Jt.
26. Some of the dealers to whom also notices were issued by the Jt. DG also
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
28. After completing the aforesaid exercise, the Jt. DG submitted report dated
the directive given by the Commission under Section 26(1) and formulated the
following issues :
the IP, and if so, whether such stipulation falls foul with any
4. Whether OP1 and its office bearers are engaged in any other
29. The Jt. DG then recorded the brief summary of the replies/written
PCA, AIOCD, pharmaceutical companies, namely, M/s. Merck Limited, M/s. Intas
Associates, M/s. Punjab Medical Agencies, M/s. Ferozepur Medical Agency, M/s.
to 28 of 2014 to the particular queries made to them and recorded the following
conclusions:
section (1) of Section 3 of the Act as the same limit and control
Competition Act.
cease and desist from the practice of NOC / LOC for appointment
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
reads as under :-
CHAPTER 6
Summary of Findings
hereunder:
Conclusion
2002.
Regulations.
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
Section 48(2) of the Act. The relevant portions of the decision taken by the
Competition Act.
anti-competitive.
32. In compliance of the directive given by the Commission, the Jt. DG issued
the notice, Shri Chaman Lal Kakkar, President of the Association filed his own
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
and refusing to rectify the same and misbehaving with the retailers.
It has been stated that the decision was taken to protect the
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
informed that since the Informant had objected to the said practice
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
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
alleged that natural justice had not been meted to the Informant as
Association where after, the boycott decision was taken in the Extra
OP Association & its Office Bearers with respect to the reasons for
Report dated 10th June 2013, that the Chemists and Druggists
medicines. In the said Report, investigation had not delved into the
rather than resorting to measures that are not legally tenable such
well within its rights to work for the welfare of its members, however
The contentions in the Affidavit to the effect that the main object of
cannot be overlooked.
the IP had not declined as a result of the boycott decision and that
respectively i.e. period prior to, and after the boycott decision. The
from its Auditors Lal & Associates, Moga, Punjab dated 24.07.2013
and its Office Bearers as per their sworn Affidavit to the effect that
including provision of services and that the same had not resulted
practice which has the effect of limiting and controlling the provision
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
Action Committee to Shri Rajesh Arora informing him about the expulsion of
from the wholesalers of the neighbouring town, copy of LOC issued by the District
Medicos (a member of the Association) after the alleged boycott, copy of bills
M/s. Merck Limited and Jacques Biotech for grant of NOC to appoint Respondent
36
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
marked Annexures A-11 to A-26 (pages 714 to 800). They pleaded that the
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.
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
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
retailers and the statements recorded by the Jt. DG. The relevant paragraphs of
market.
as Annexure E.
market.
binding effect
against CDAF.
namely :
and
55. It is submitted that the analysis carried out by the DG (on the
xx xx
anti-competitive behaviour:
boycott -
Ferozepur, AND
G.
Ferozepur.
Informant
medicines.
46
placed on retailers to purchase the drugs and medicines from neighbouring town
Ferozepur. This is clear from the fact that the retailers in this region
the
obtain the NOC from the aforesaid neighbouring towns and sell
retailers of Ferozepu.
47
65. It is further submitted that the DG has reached its finding on the
and to the end consumers, merely on the basis that Informant is the
66. In fact, the DG also glossed over the fact that the retailers, had filed
refund the amount to the retailers, that the members, that the
67. The DG further claims that the pharmaceutical companies too stand
68. Most importantly, it is submitted that the actions of CDAF can only
is made out. The findings of the DG must fall on the basis of its
horizontal cartel also does not appear to be well founded for the
additional stockists was not a condition precedent and the NOCs were issued at
the asking of pharmaceuticals firms. The association also pointed out that
NOC.
Ferozepur.
77. To sum up, the DG has failed to establish the effect of limiting
industry wide.
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 :
members in general.
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-
however AIOCD and its affiliates insist for the same through various
boycott of its products, the company has been asking for NOC/LOC
has been stated that this was the industry wide practice and the
pharmacies about its new product launches and pays for these
per industry practice the margin is 10% for wholesalers and 20%
for pharmacies.
4.20 The company has informed vide its letter dated 02.04.2013
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
general information. It has been stated that the company does not
require any NOC /LOC from any trade Association or its affiliates
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
company has also stated that it is not aware about any requirement
57
awareness amongst the trade about the new products has been
paid which as per its records is about Rs. 2000/- for each
deciding the said margins. It has been informed that margins for
4.22 The company has informed vide its letter dated 21.03.2013
had been appointed after duly obtaining NOC from the Association
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
It has been informed that as per trade practice margins are fixed for
products.
4.23 The company has informed vide its letter dated 08.04.2013
Association.
4.24 The company has informed that it does not seek any Product
advertisements.
4.25 The company has informed vide its letter dated 09.04.2013
been informed that in line with the pharma industry practice, the
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
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
PCA, the company has informed vide its letter dated 08.04.2013
The company has stated that it was well aware that NOC before
company has denied any information about the details of the fee
has been stated that the company does not have any
new drug for which the price list of new products is published
company has stated that though it was well aware about the
associations.
4.29 The company vide its letter dated 16.04.2013 informed that
required under the Drugs and Cosmetics Act, the Drugs and
drugs.
4.30 The company has vide its letter dated 09.05.2013 informed
company has informed that NOC was obtained from Chemists &
each of the NOC dated 28.2.2012 and MOU dated 12.09.2003. the
further been informed that the company pays trade margins as per
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.
39. The wholesalers / stockists namely, M/s. Tayal Associates, M/s. Punjab
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
recorded by the Jt. DG (paragraphs 10, 11 and 15). In paragraphs 17 to 56, the
Ferozepur for the period after its boycott by CDAF i.e. from
68. The informant has alleged that the opposite party No. 1 i.e.
below:
N.O.C. for each Co. any whole seller who added new
Co. is liable to pay Rs. 2100/- for added each Co. and
requirement of NOC.
(3) of the Act and recorded its final conclusion in the following words :
76. In the present case, the opposite party association could not
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
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
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
finding that the Association and its office bearers are guilty of anti-
why he neither confronted the appellants with the material collected in the
(ii) What is most interesting is that Respondent No. 2 had not produced any
other office bearers that those including Respondent No. 2, who did not
Association.
(iii) The Jt. DG went to the extent of brushing aside the most serious allegation
tampering with the computer software, which had worked well with other
(iv) Not only this, while recording a finding that obtaining NOC/LOC was
the suggestion that the Association was following such a practice. The
NOC/LOC and that this was sufficient to prove that the requirement of
that they had not indulged in anti-competitive action and brushed aside
information filed by Respondent No. 2 and the affidavit filed by Shri Rajesh
Arora.
a designated officer or itself proceed further with the inquiry in the matter
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
Commission to pass order after finalisation of the inquiry. For the sake of
Sections 27, 36(1) and 48 of the Act and Regulations 18, 19 and 21 of the
xx xx xx
services, which-
prices;
provision of services.
bidding.
or a statutory authority.
the opinion that there exists a prima facie case, it shall direct
to the matter:
previous information.
the opinion that there exists no prima facie case, it shall close
the matter forthwith and pass such orders as it deems fit and
be.
75
General.
Act.
76
of the group.]
and, subject to the other provisions of this Act and of any rules
accordingly.
firm.
facie case exists, the Secretary shall convey the directions of the
of the Act.
or statements which have been filed either along with the said
to the Director-General.
Commission which ordinarily shall not exceed sixty days from the
reasonable.
investigation.
two parts. One of the parts shall contain the documents to which
Provided that the Secretary may ask for more copies of the
the opinion that further investigation is called for, it may direct the
place the said report before the Commission [within seven days,]
as the case may be, the Secretary shall [with the approval of the
Act, the Secretary shall obtain the orders of the Commission for
vs. Steel Authority of India Limited [(2010) 10 SCC 744]. In that case, the
The Supreme Court analysed the relevant provisions of the Act and the
it undue expansion.
(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
along with a copy of the information or reference with all other documents
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
of the Act. The Commission can close the case if, after considering the
Director General. If the Commission is not satisfied with the report of the
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
Commission opines that further inquiry is called for then it shall hold inquiry
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,
about the dates fixed for the meetings of the Commission, so as to enable
held under Section 26(7) or 26(8) read with the relevant regulations, the
Section 4 of the Act is established then it can pass appropriate order 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
natural justice. This necessarily implies that while holding an inquiry under
evidence to show that he/she/it has not violated any provision of the Act.
does not form part of the report of the Director General then such
(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
thereof. In Ridge vs. Baldwin, 164 AC 40, the House of Lords made the
following observation :
was so clear that nothing that the appellant could have said
pension rights, but I could not hold that they would have acted
The judgment in State of Orissa vs. Dr. (Miss) Binapani Dei and others
administrative action. The facts of that case were that the respondent had
been retired from service by the State Government by relying upon the
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
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
(Emphasis supplied)
In Rajesh Kumar vs. CIT [(2007) 2 SCC 181], the Suprerme Court made
complex is in fact not so. It was also open to him to show that
56. In this case itself the appellants were not made known as
142(2A) of the Act are satisfied. If even one of them was not
(Underlining is ours)
Kolkata and others [(2009) 2 SCC 192], the Supreme Court considered
the writ petition filed by the appellant against the order of the Customs,
authority under the Customs Act, 1962. After noticing the fact that the
appellant had not been given opportunity to explain the material used
not have passed the order on the basis of the materials which
92
or inspection thereto had not been given. He, thus, could not
(Emphasis supplied)
[(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
considered by the Supreme Court was whether the speaker was duty
bound to supply the affidavits filed by the two MLAs, which constituted the
prove the same with supporting evidence and the mere fact
that the allegation was not denied, did not amount to the same
125. In our view, not only did the Speaker's action amount
Speaker did not send copies of the affidavit affirmed and filed
with the said affidavits, the Appellants could have raised the
fact that the Show-Cause notices were issued within the time
fixed by the Governor for holding the Trust Vote, may explain
(Emphasis added)
[(2013) 4 SCC 465], the Supreme Court considered the question whether
held that the rules of natural justice, require that a party must
Gurmit Singh & Ors., Biecco Lawrie 38 & Anr. v. State of West
Sinha).
Excise, this Court, while dealing with a case under the Central
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
held as follows :
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
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
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
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
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
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
retailers. After the Commission had sent the reports (main as well as
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
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
district Ferozepur. The Commission also did not take into consideration, the
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 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
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
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,
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
sphinx.
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
give reasons in support of his order he makes. That question arose in the
33(2)(b) of the Industrial Disputes Act, 1947. After examining the various facets
3. There are two strong and cogent reasons why we must insist
the rule of law which constitutes one of the basic principles of our
every citizen must have justice - social, economic and political and
in order to achieve the ideal of welfare State, the State has to perform
regulate and control the social and economic life of the citizen in
must decide the matter "solely on the facts of the particular case
solely on the material before them and apart from any extraneous
power and it is, therefore, essential to the rule of law that the duty to
upon whom it is laid. If any departure from the observance of the duty
AIR 1967 SC 1427: ". . . . .. the absence of arbitrary power is the first
clearly defined limits. The rule of law from this point of view means
rule of law." Now the necessity of giving reasons is one of the most
officers may turn out to be a potent weapon for abuse of power. But
SC 671, "A speaking order will at its best be a reasonable and at its
The right to know the reasons for a decision which adversely affects
that reasons be given does more than merely vindicate the right of
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
administrative) to work out in his own mind all the factors which are
a duty to act judicially are required to set forth in writing the mental
safeguard.
spelling out the necessity for giving reasons is based on the power
226 and the Supreme Court under Article 32. The High Court under
Article 226 and the Supreme Court under Article 32 have the power
are given, it would not be possible for the High court or the Supreme
administrative officer has made any error of law in making the order.
of his order. The High Court and the Supreme Court would be
the limits of the law. The result would be that the power of judicial
proper one. 'We must know what a decision means before the
unintelligible order, but should in some way, state upon the face
of the order the element which had led to the decision'. The words
face of a sphinx'."
it, give reasons in support of the order. If the order speaks only with
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
has moved in the same directions. For a long time Conseil d'Etat
from the prior case law and stated that the Conseil should require
the Conseil d'Etat stated that the obligation to give reasons was
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
xx xx xx
in our view clear authority for the proposition that every quasi-judicial
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
the impugned Act which prevented the Wage Board from giving
order which was thus made by the wage board could not be a
the petitioners in that behalf. It is also true that in that event this
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
second reason which we have given for taking the view that reasons
On the passing of the Act the exemption was lost and they claimed
petition in the High Court of Madhya Pradesh under Article 226 for a
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.
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
have been heard at all. The Act bars a suit and there is all the
reason why their claim for the grant of money or a pension was
material this Court has insisted that reason should appear when
(1962) 2 SCR 339 = (AIR 1961 SC 1669). The High Court did not
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
The Supreme Court held that the necessity to give reasons was an
question directly arose whether the order was bad in that it did not
been given, the impugned order was bad. This decision was sought
tribunal within the meaning of Art. 136 and therefore subject to the
against the order of the Central Government which weighed with the
Supreme Court in taking the view that the order of the Central
behalf of the State was that the ratio of this decision was confined to
there is a right of judicial review under Articles 226 and 32. If the right
the first reason which we have given above for importing the
in paragraph 13 of the judgment and has been relied upon for the
reasons in support of its order and the validity of this reason does not
take.
49. The same view had been taken by the Supreme Court in Hari Nagar Sugar
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
50. We shall now consider the question whether the Association has been
to obtain NOC/LOC on payment of fees of Rs. 2,100/- per company and the same
recorded by the Jt. DG without examining the material available on record. While
(i) that the Association had neither taken any policy decision nor issued
(ii) that the lack of mandatory character of NOC/LOC is evident from the fact
(iii) that the genesis of the concept of NOC lay in the Memorandum of
Producers of India (OPPI) and the All India Organization of Chemists and
(iv) that the practice of NOC was also introduced by the Punjab Chemists
LOC;
was never refused a NOC and after he ceased to be a member there was
(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
(vii) that the fact that the practice of NOC/LOC is not mandatory and sole
the Association relied upon the statement made by the President Chaman
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
extracted below:
interested wholesalers.
unhealthy competition.
above.
same?
your Association?
and stockists.
how?
Association
your Association?
wholesalers.
extracted below :
respect?
our NOC.
118
products in Ferozepur?
Association.
have obtained NOC / LOC from the association before he / she could be
as follows:
119
Ferozepur;
not arise.
Invida India Pvt. Ltd. reply dated nil originally Annexure 28 to the
state of Punjab.
district association.
121
appointment.
of wholesaler/stockiest/retailers. Furthermore, we
/LOC.
Pharmaceutical Industry.
(ix) The Commission also overlooked the statement made by Shri Surjeet
of stockist.
above.
Associations?
(x) The Commission also failed to take note of the recommendations made
of Dr. R.A. Mashelkar to examine all the aspects regarding the regulatory
Association
to all members.
chain.
reads as under :
126
of the recommendations is :
regulators.
Central offices.
Substances Act.
spurious drugs.
manufacturers.
them.
apex body like AIOCD and other similar organisations as also the State
52. The next question which merits consideration is whether resolution dated
the Act.
128
53. In this context what is most significant is that both the Jt. DG and the
passed. It is not in dispute that Respondent No. 2 was expelled from the
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
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
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
Section 48 of the Act and directed the DG to issue notice to the office bearers of
and give them opportunity to explain their role in the decision making in respect
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
in which the Joint DG recorded a conclusion that office bearers were complicit in
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
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
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
the appellants in Appeal Nos. 22 to 28 of 2014 to show cause why the penalty
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
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.
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
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
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
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
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
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
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
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
[G.S. Singhvi]
Chairman
[Rajeev Kher]
Member
30th October, 2015