CCI Rules Out Violation Of Competition Act By Health Ministry Agency In Procurement Of Condoms [Read Order]

The Competition Commission of India has dismissed allegations of anti-competitive practises by Union Ministry of Health & Family Welfare and Central Medical Services Society(CMSS) in relation to procurement of male condoms.

The informant before the CCI was Cupid Limited, a company which had won a bid to supply male condoms to the CMSS. The CMSS acts as a procurements agency for the Ministry for supply of male condoms to low-income groups as part of the health and birth-control policies of the Government.

It was alleged that CMSS abused its dominance by forcing a standard form contract with unilateral conditions on the informant, resulting in violation of Section 4 of the Competition Act, 2002 . The further allegation was that the agreement restricted its right to deal with other buyers, leading to infringment of Sections 3(4)(b) & 3(4)(d)

Dealing with the information, the CCI bench of Ashok Kumar Gupta, Augustine Peter and U C Nahata reached the following conclusions :

Ministry not an 'enterprise' under Competition Act

The Health Ministry, which was made the first Opposite Party, was held to be not an  'enterprise' as per Sec.2(h) of the Act. The Ministry was involved in framing policy and guidelines in the public health sector of the country. Its activities cannot be termed as commercial.

However, the CMSS was found to be an 'enterprise', as it was involved in economic/ commercial functions such as tendering, bid evaluation,procurement, concluding rate agreement, placing purchase order, receiving stores, sampling and testing, releasing payment to suppliers and keeping stocks of the drugs available in warehouses for distribution to state programme offices. 

Suppliers can continue in market without procurement from Govt

The CCI proceeded by taking the relevant market as "the market for male condoms in the territory of India".

To adjudicate the issue, the CCI applied the concept of 'demand side substitutability' inversely i.e. by assessing the availability of substitutes for suppliers and their ability to switch to alternative sales opportunities both in terms of products as well as geographies.

It was noted that the suppliers have the option to supply their product either to the Government under its free supply / social marketing programme or in the commercial market anywhere in India or even export the product.

The CMSS procures 75% of its demand from Hindustan Latex Ltd, a pubic sector undertaking. Bids from private players are invited for the rest 25%.

Though CMSS is the largest procurer in the market, the suppliers are not foreclosed from the market if it does not procure from them.Even the unsuccessful bidders who do not win the tenders of the Government continue to have the option to sell in the commercial market, which as per informant's calculation of market shares constituted around 65% to 75% of the relevant market. 

CMSS acts with social objective; has no incentive to influence market.

The CCI noted that Government is procuring condoms to supply it to low-income groups of the society. It was acting with a social objective.

The bench observed :

It does not appear to have any incentive to influence the relevant market, particularly when it can procure 75% or more of its required quantity from HLL that too at a rate lesser than the market rate. Thus, in absence of the ability or the incentive to affect the relevant market in its favour, OP-2(CMSS) cannot be considered dominant in the relevant market for male condoms in India. 

On the basis of above findings, the CCI held that there was no abuse of dominance by CMSS.

Agreement terms do not violate Sections 3(4)(b) & 3(4)(d)

It was alleged that by giving extensive specification and varied printing requirement in the Agreement,including the printing of code on the product itself, CMSS ensured that the product cannot be sold to anybody else.The agreement further mandated the supplier to print "For Govt Supply. Not for outside sale" in the product packs. It was alleged that such requirements were in violation of the provisions of Section 3(4)(b) i.e. exclusive supply agreement and under Section 3(4)(d) i.e. refusal to deal.

The Commission noted that the printing and packing requirements were only in respect of the products to be supplied to CMSS. The conditions neither restricted the Informant from dealing in goods other than those of the CMSS nor imposed any restriction on the Informant to sell its goods to any other buyer.Therefore, the CCI ruled out violation of Sections 3(4)(b) & 3(4)(d).