National Accreditation Board for Testing and Calibration Laboratories' Circular Mandating Entity Change For Increased Accountability Is Not Anti-Competitive: CCI

Brief Facts:

Association of Indian Laboratories (“Informant”) filed information against the National Accreditation Board for Testing and Calibration Laboratories (“NABL”), alleging violations of Section 3 (anti-competitive agreements) and Section 4 (abuse of dominance) of the Competition Act, 2002 (“the Act”). NABL is an accreditation body and is a constituent of the Quality Council of India (QCI). The Informant claimed that it acquired a position of dominance by holding 90% of the market share. Further, its services were widely recognized for assuring good laboratory practices to entities. This recognition allegedly enabled decision-makers to rely on test results, further solidifying NABL's dominance.

The issue arose when NABL issued a circular, requiring accredited Conformity Assessment Bodies (“CABs”) operating as sole proprietors to mandatorily convert into One Person Company (OPC), Limited Liability Partnership (LLP), Company, Society/Trust, or Government. The Circular unfairly favoured only large players and was impartial towards small entrepreneurs. Most CABs were Micro and Small Enterprises (MSMEs). However, the circular posed various challenges for them to transition to the prescribed legal entities, including financial, regulatory, and operational hurdles. Further, sole proprietorship is easier to manage. Whereas, transitioning into the prescribed form of entities would pose difficulties in transferring loans, tax implications on asset transfers, and the cumbersome process of obtaining various statutory licenses and registrations. As per the Informant, this constituted a violation of Section 3 of the Act.

The Informant also accused NABL of leveraging its monopoly in the laboratory accreditation market, reinforced by governmental preferences for NABL-accredited laboratories in tender documents. This, according to the Informant, constituted a violation of Section 4(2)(c) of the Competition Act.

Observations of the Commission:

After reviewing the information and pertinent materials, the CCI discerned that the crux of the Informant's grievance stemmed from a circular issued by NABL, directing accredited CABs operating under proprietorship to transition to specific legal entities by a set deadline. The Informant argued that this directive contravened Section 4(2)(c) of the Act, particularly impacting micro and small enterprises, which find it easier to establish labs under sole proprietorships.

However, the CCI noted that a similar circular was previously contested in a case titled Prem Prakash and National Accreditation Board for Testing and Calibration Laboratories & Others [Case No. 12 of 2023]. In that instance, the CCI found no grounds to intervene with the circular, as it mandated a structure necessary for laboratories seeking accreditation from NABL, aligning with ISO 17025:2017 standards. The CCI emphasized the trust element inherent in CAB accreditation and endorsed the transition to legal entities separate from their owners to reinforce accountability and compliance.

Considering its prior ruling and the absence of new evidence or arguments regarding the circular's alleged anti-competitive nature, the CCI determined that there was no need to re-examine its contents from a competition perspective. Moreover, the Informant failed to provide evidence of any specific anti-competitive agreement under Section 3 of the Act.

The CCI concluded that there was no prima facie case against NABL concerning violations of either Section 3 or 4 of the Act. Consequently, the information filed was directed to be closed under Section 26(2) of the Act, and no grounds for granting relief under Section 33 arose.

Case Title: Association of Indian Laboratories vs National Accreditation Board for Testing and Calibration

Case No.: 35 of 2023

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