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India – CCI Penalises Hiranandani Hospital For Anti-Competitive Agreement.

10 April, 2014

 


On February 5, 2014, CCI passed an order imposing a penalty on Dr. L.H. Hiranandani Hospital (‘Hiranandani’) for violating Sections 3 and 4 of the Act. CCI was called upon to examine whether Hiranandani’s exclusive arrangement with Cryobanks International India (‘Cryobanks’) for collection and storage of stem cells infringed: (i) Section 3(4) of the Act as being in the nature of an anticompetitive vertical agreement; (ii) Section 4(2)(a)(i) of the Act since it resulted in imposition of unfair conditions on patients availing maternity related services at Hiranandani; and (iii) Section 4(2)(c) of the Act since it resulted in denial of market access to competitors of Cryobanks.

 
While examining the claims under Section 3(4) of the Act, CCI observed that, Section 3(3) and Section 3(4) of expansion of Section 3(1) but are not exhaustive of the scope of Section 3(1). The scope of Section 3(1) is vast and has to be considered, keeping in view the aims and objects of the Act i.e. freedom of trade, consumer welfare etc., by ensuring that the markets are not distorted and made anti-competitive by such agreements of the enterprises which appreciably adversely affect the market, or are likely to adversely affect the market. Accordingly, CCI did not find any merit in Hiranandani’s contention that its agreement with Cryobanks could not be examined under Section 3(4) of the Act since the two did not operate at different levels of production chain. Rather, based on its view that Sections 3(3) and 3(4) of the Act do not limit the scope of Section 3(1), CCI proceeded to examine the likely anti-competitive effects of the agreement between Hiranandani and Cryobanks.

 
CCI observed that: (i) exclusive contracts between a hospital and stem cell bank have the tendency of distorting market competition; (ii) the development and competition in stem cell service industry is bound to be hindered because of such exclusive arrangement between Hiranandani and Cryobanks, as each player, instead of competing with other players for efficiency and competitive price, would endeavor to pay commission to different hospitals and mop up clients; (iii) the adverse effect on competition is much more telling in this particular market, because of the total dependence of the expecting mothers on the maternity service providers to get access to the stem cell/cord blood from newly born children in the hospital; (iv) consumer may further suffer in the long run when the tied up stem cell banker, due to inefficiency vis-à-vis other competitors or otherwise, exits or the level of services provided by him falls. In such a scenario, exclusive arrangements like the one in question in this case would result in total failure of service for consumer who wanted stem cells of the child to be preserved for future use. Accordingly, CCI held that Hiranandani’s agreement with Cryobanks is inconsistent with Section 3(1) of the Act and declared the agreements for the years 2011-12 and 2012-13 null and void. CCI also directed Hiranandani to not enter into similar agreement with any stem cell bank in future.

 
While examining the allegations under Section 4 of the Act, CCI defined the relevant market as the market for “provision of maternity services by super Specialty/high-end Hospitals within a distance of 01-12 kilo meters from the Hiranandani Hospital covering S, L, N, K/E, T and P/S wards of Municipal Corporation of Greater Mumbai”. On facts, CCI did not find Hiranandani to be in a dominant position in this relevant market. Accordingly, CCI dismissed the claims under Section 4(2)(a)(i) and Section 4(2)(c) of the Act.

 
For infringing the provisions of Section 3(1) of the Act, CCI levied a penalty of INR 3,81,58,303 (approximately USD 630,413), equaling 4% of Hiranandani’s average turnover for the years, 2009-10, 2010-11, and 2011-12.

 

AZB

 

For further information, please contact:

 

Zia Mody, AZB & Partners
[email protected]

 

Abhijit Joshi, AZB & Partners 
[email protected].com


Shuva Mandal, AZB & Partners 

[email protected]

 

Samir Gandhi, AZB & Partners
[email protected]


Percy Billimoria, AZB & Partners 
[email protected]

 

Aditya Bhat, AZB & Partners 
[email protected]

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