1. INFORMER | ISSUE 25 39
REGULATING
ANTICOMPETITIVE
CONDUCT IN INDIA:
A GROWING TREND
By Namrata Khemchandani
Doing business in India has become increasingly
challenging over the years. This is evident from the
2013-14 Global Competitiveness Report of the World
Economic Forum, which shows that India has fallen
15 places in the rankings of 148 economies since 2006. It
now holds the 60th position, behind all the BRICS
nations, except for Russia1
.
REUTERS/Denis Datta

2. 40 INFORMER | ISSUE 25
With the new “business-friendly” Bharatiya
Janata Party-led National Democratic
Alliance government that came into power
in May 2014, there are promises of more
efficiency. As a result, hopes are high for an
improved business environment in the
country, with lower levels of bureaucracy
and graft. This in turn has led to greater
interest in the country’s market structure
and its competition culture.
Fair competition in a market enhances
innovation and reduces waste, which is
essential for reduced costs, a wider choice
and better quality of products. In Asia,
countries like Korea and Japan have been
quite successful in achieving this by having
strong antimonopoly systems in place. The
Korea Fair Trade Commission’s investigated
cases (in which a fine was imposed)
increased from 24% in 2011 to 54% in
20122
. Now it is the turn of the second
generation of the Asian emerging markets
to start following suit.
India’s competition law is governed by its
Competition Act that came into effect in
2002 and has been amended twice since
then, in 2007 and 2009. A delay in
replacing its erstwhile Monopoly and
Restrictive Trade Practices Act also delayed
the formation of the Competition
Commission of India (CCI). Though it was
established in October 2003, it only
became fully operational in May 2009.
This, together with the country’s slow move
towards a market economy, had thus far
kept the culture of competition weak and
its compliance poor.
However, analysis of the recent trend of
actions taken by the CCI shows that its
actions against anticompetitive trade
practices have involved entities ranging
from chemist and pharmacy associations to
cement manufacturers to sporting bodies
such as the Boards for Control of Cricket
and Hockey India. In August the CCI
imposed a fine of INR 25.5 billion (USD
420 million) on 14 automakers for
restricting availability of spare parts,
eventually leading to high retail prices3
.
Earlier in July, it was Adani Gas Limited that
got penalized close to INR 257 million for
imposing unfair conditions on buyers
through Gas Sales Agreements4
.
With its merger control regime coming into
effect only in June 2011, India has recently
started actively enforcing its competition
law in this area as well. As a result, it has
become more important for companies
in auto, cement and pharmaceutical
manufacturing and distribution industries
to gain an in-depth understanding of the
enhanced regulatory requirements
expected of them.
The Indian pharmaceutical sector has
continuously experienced double-digit
growth, is considered the world’s third
largest in terms of volume and will likely
have the highest focus in the years to come.
Multinational corporations (MNCs) and
domestic companies have started working
together not just in research and
manufacturing but also on wide-ranging
marketing and distribution networks.
Furthermore, introduction of product
patents and removal of certain restrictions,
more so on the brownfield foreign
investments5
than the greenfield6
ones, has
led to the higher possibility of mergers and
acquisitions (M&As). These M&As come
with their own set of negative effects on
competition in this sector, as smaller
players face the additional risk of getting
overpowered by the large industry players.
A look into one of the ongoing cases with
the CCI suggests challenges that will need
to be faced by the larger corporations in
order to maintain a competitive market for
both the small entities and consumers.
MERGERS & ACQUISITIONS
The proposed merger of Sun
Pharmaceutical Industries Limited and
Ranbaxy Laboratories Limited is one of the
most notable cases in this regard. Although
Sun Pharmaceutical agreed to buy
Ranbaxy for USD 3.2 billion in April 2014, it
has still not received approval from the
antitrust regulator, and on September 4th,
the latter invited public feedback on the
proposed merger7
. In spite of an initial
investigation and a show cause notice in
July, a second-level inquiry has been
initiated. This has never been done before
by the regulator and clearly indicates
enhanced vigilance.
The reason for such high scrutiny is the
8.5% market share and 46 drug
formulations that the merged entity will
hold8
. Since only the prices of five essential
formulations out of those 46 are regulated
by the government, the possibility of
market domination in the rest is the main
concern for the CCI. This deal is also being
scrutinized by the U.S. Federal Trade
Commission, as it will make Sun
Pharmaceutical the world’s fifth-largest
generic drug manufacturer. Scenarios such
as these bring an international perspective
to the antitrust regulatory environment
faced by companies in this industry, and
those unable to comply will pose a
reputation risk for their associates.
A COMPLICATED APPROACH TO
BUREAUCRACY AND PENALTIES
Apart from keeping a check on possible
anticompetitive mergers, the CCI plays
another important role of penalizing the
entities and organizations that abuse their
dominant position in the market. This has
proven to be costly, as fines have ranged
from 1% to 10% of a company’s average
turnover of up to three years, and the ones
penalized include not only domestic and
multinational companies but also
state-owned entities. Those unable to stay
abreast of the country’s competition laws
and its amendments have been heavily
penalized. The Indian Trade Promotion
Organization, Coal India Limited and even
the National Stock Exchange of India have
not been spared.
Another example from the pharmaceutical
sector is the case of All India Organization
of Chemists and Druggists (AIOCD), who
have faced heavy penalties for limiting and
restricting the supply of medicines in India.
In this example, one of the organization’s
own members, a clearing and forwarding
agent (CFA) in the state of Odisha, filed a
complaint against the AIOCD for pressuring
a company to terminate its agreement with
the CFA in order to sell its products in India.
The AIOCD allegedly stopped the
company’s medicine sales, worth INR 35
million per month in the city of Mumbai,
with the warning to block it pan-
Maharashtra9
as well. This was done so as
to prevent business with those stockists
who did not have a No Objections
Certificate from the AIOCD or its affiliated
bodies. Even though the erstwhile
Monopolistic and Restrictive Trade Practice
(MRTP) Commission directed the
pharmaceutical companies in 2005 not to
cease business with dealers just because
they were unable to get a consent letter
from the relevant association, the AIOCD
continued imposing its regulations. Finally,
the CCI imposed a cease-and-desist order
against the AIOCD in December 2013,
stopping short of imposing another penalty
for abusing its dominant position and
restricting the supply of essential
medicines to the market.
Such conflicting rulings and restrictions by
different bodies create confusion for
existing and new companies in the industry.
This increased bureaucracy has been seen
by many as an impediment to business
growth in the country, and hence the
possibility of a company’s decisions getting
altered by a political juggernaut is high.
Furthermore, the increase in red tape can
lead to bribery and corruption in order to

3. INFORMER | ISSUE 25 41
ease the way to get bureaucratic approvals.
Thus, with these automatic barriers to
trade, the high risk involved in entering
and doing business in the Indian
pharmaceutical sector needs to
be understood.
Trends in the rest of Asia also suggest a
possibility of foreign firms being at greater
risk than domestic ones, as competition in
many of its economies gets more and more
regulated. In January last year, the National
Development and Reform Commission –
the Chinese price regulator – imposed a
USD 56.8 million fine on two South Korean
and four Taiwanese LCD screen manufac-
turers for forming a price cartel10
. In August
this year, the same agency imposed a USD
201 million fine on 12 Japanese auto parts
makers for manipulating prices11
. Although
some of those companies have also been
fined in the U.S., Europe and Japan,
indicating a legitimate purpose behind
these regulations, heavy penalties on
multinationals have heightened the risk for
foreign firms. This also raises concerns of
enhanced protectionism by the
governments, especially in the backdrop of
the World Trade Organization (WTO) trade
facilitation agreement.
CONCLUSION
The expanding Indian consumer base that
has the potential of becoming possibly the
world’s largest middle-class market is
attracting businesses throughout the
spectrum. The cases mentioned above
clearly indicate a strong shift toward
enforcement of the competition law and
also emphasize the complexity of
regulations and lack of clarity in India’s
compliance culture. Other than those cases
mentioned above, segments such as
e-commerce, mobile and telecommunica-
tion, and FMCG are also at risk, should they
do business with individuals and entities
that have been charged in connection with
breaches of the competition legislation.
The result of this is that they could face
both financial damage from heavy fines
imposed on them by the regulator or being
barred from conducting business in
particular regions for a length of time, as
well as the associated damage to their
reputation. In order to take advantage of
the Indian expanding consumer base, an
important focus for manufacturers,
distributors, importers, exporters and
retailers in these sectors should be on the
competition and antitrust aspects of their
businesses.
1
http://www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2013-14.pdf
2
http://www.cliffordchance.com/briefings/2014/02/a_guide_to_antitrustandcompetitionlawinasi.html
3
http://www.cci.gov.in/May2011/OrderOfCommission/27/032011.pdf
4
http://www.cci.gov.in/May2011/OrderOfCommission/27/712012.pdf
5
A foreign direct investment strategy where a company or government entity purchases or leases existing production facilities to launch a new production activity
(source: http://www.investopedia.com)
6
A form of foreign direct investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up. This is opposite to a
brownfield investment (source: http://www.investopedia.com/)
7
http://cci.gov.in/May2011/PressRelease/C-2014-05-170-Press-Release.pdf
8
http://www.livemint.com/Companies/pVjNNf1J3Ok1rZgO0rq3UO/SunRanbaxy-CCI-probe-in-new-phase.html
9
http://www.cci.gov.in/May2011/OrderOfCommission/202011.pdf
10
http://www.cecc.gov/publications/commission-analysis/chinese-authorities-fine-lcd-cartel-in-first-case-concerning
11
http://www.reuters.com/article/2014/08/19/us-china-antitrust-autoparts-idUSKBN0GJ0P420140819
The Indian pharmaceutical sector has
continuously experienced double-digit
growth, is considered the world’s third
largest in terms of volume and will likely
have the highest focus in the years
to come.