Tag: ESSENTIAL SERVICES

On 13 March 2020, the Ministry of Consumer Affairs, Food and Public Distribution notified masks (2 ply & 3 ply surgical masks, N95 masks) & hand sanitizers as essential commodities under the Essential Commodities Act, 1955 (Act) up to 30 June 2020.

Under the Act, if the Central Government deems fit, it may, in the interest of public, notify certain commodities as ‘essential’ in order to control the production, supply and distribution of such commodities.
The origins of this Act can be found in the Defence of India Act, 1939 (“DOI Act”) and the Defence of India Rules, 1939 (“DOI Rules”). The DOI Act and the DOI Rules conferred broad discretionary powers on the Government to regulate and prohibit the production, distribution, consumption, movement and disposal of goods notified by the Government and forbid the practice of controlling prices by withholding of goods from the market. The DOI Act and DOI Rules ceased to have force in 1946, but the need to have control over certain commodities to meet inflation and shortages persisted. Therefore, the Essential Supplies (Temporary Powers) Act, 1946 was enacted.[1] Post-independence, keeping in mind the Constitutional principles and safeguards, the Act was enacted in 1955 and is the present legislation that regulates the market for “essential commodities”.
The term ‘essential commodities’ although not defined under the Act refers to the commodities listed in the Schedule of the Act. Until 05 June, 2020 the schedule had 9 commodities.

When an item is enlisted in the Schedule of the Act, the Central Government has the authority vested under Section 3 of the Act, to;

(i) Regulate its manufacture/ production by licenses and permits;

(ii) Control the price at which it is bought and sold;

(iii) Prohibit its withholding from sale;

(iv) Direct any person holding it in stock to sell whole/ part of the stock held;

(v) Regulate its storage, transport, use, consumption and disposal.

On 24 March 2020 the Ministry of Consumer Affairs further issued a control order to regulate the prices of 2 ply and 3 ply masks till 30 June 2020.

Three months into the pandemic, the Ministry of Consumer Affairs, declared that, the 13 March 2020 and 24 March 2020 orders, notifying the masks and sanitizers as essential commodities and regulating their prices, will not be extended beyond 30 June 2020. The reason cited by the Ministry was that, face masks and hand sanitizers are no more essential products as their supply is sufficient in the country and therefore must be kept out of the purview of the Act.

In a welcome move, on 19 April 2020 the Competition Commission of India (CCI), issued an Advisory to businesses operating in the times of COVID-19 (Advisory). Taking cognizance of the disruption in supply chains caused by the pandemic, especially in healthcare and essential products/ services, the CCI acknowledged that there is a legitimate reason for businesses to collaborate and coordinate to ensure supply and fair distribution of products/ services including medical and healthcare products such as ventilators, face masks, gloves, vaccines, etc. and essential commodities. Such collaboration includes sharing data on stock levels, timings of operations, sharing distribution networks, transport logistics, research and development, production, etc.

Without committing to any specific relaxations or providing additional safe harbour, the CCI has stressed upon the fact that the Competition Act, 2002 (Act) already has in-built safeguards to protect businesses from sanctions for certain types of collaborations, such as:

• Joint ventures resulting in increased efficiencies in the production and distribution of products/ services in the market[1].
  
  
• While doing the competition assessment, the CCI would consider whether a particular conduct/ collaboration leads to (i) an increase in efficiencies in production and distribution of products/ services in the market (ii) benefits the consumer and/ or (iii) promotes technical, scientific and economic development[2].

The CCI, however, noted that it would consider the constraints of the current prevailing circumstances while assessing anti-competitive behaviour, as long as the measures taken by businesses are restricted to only what is necessary and proportionate to cope with the crisis. Further, it warned businesses that crisis should not become a “cover” for non-essential collaborations to obtain economic benefits.

Given that the Advisory lacks specifics, we set out some practical considerations for businesses in order to avoid violating competition law:

Do’s

1. Collaborations: Ensure that the joint ventures/ collaborations are in fact efficiency-enhancing and that the benefits outweigh the harm to customers. For example, R&D collaborations with the objective of treating COVID-19 patients.
   
2. Necessary and proportionate conduct: Be careful to limit the collaboration in terms of time and / or scope only to what is required to cope with COVID-19 pandemic.
   
3. Documentation: Ensure that all collaboration activities are properly recorded and documented to safeguard the interest of the businesses as well as decision-makers if the conduct is flagged for assessment by the CCI.
   
4. Sound justifications Ensure that all activities that may be viewed as “anti-competitive” by the CCI are backed by sound economic justifications and social motives during the current crisis.
   
5. Call from Government: Companies to specifically consider competition law when being asked by the Government to collaborate with competitors or when approached by competitors to collaborate – even if these are to meet public health objectives or for providing essential services.
   
6. Legal advice: Take legal advice if any kind of collaboration with competitors is contemplated or in case of any deviation from existing business practices.

Don’ts

1. Anti-competitive behaviour: Avoiding any activities with competitors which may lead to (i) fixing prices, (ii) restricting output or technical development, (iii) sharing markets or customers, or (iv) rigging bids.
   
2. Dominant businesses: Companies in a position of market power or dominance, even if temporary, need to be alert to their special responsibilities while dealing with customers and suppliers. For example, price gouging, illegal tying/ bundling and refusal to deal, etc.
   
3. Benefit from the pandemic: Refrain from exploiting the current situation for unscrupulous economic benefits.

(Source: CCI Advisory dated 19 April 2020)

[1] Proviso to Section 3(3) of the Act.
[2] Factors mentioned under Section 19(3) of the Act.

The Ministry of Consumer Affairs, Food and Public Distribution (Department of Consumer Affairs) in its order dated 13th March 2020 notified masks (2ply & 3ply surgical masks, N95 masks) & hand sanitizers as essential commodities under the Essential Commodities Act, 1955. This was done to regulate the production, quality, distribution, logistics of masks (2ply & 3ply surgical masks, N95 masks) & hand sanitizers for the effective management of COVID-19. This notification shall remain in force for a period up to 30th June, 2020.

The addition of masks and hand sanitizers in the Schedule of essential commodities will enable the government to protect the interest of the general public as it will be able to control the production, supply and distribution of and trade and commerce in such commodities and their prices and quality standard. The government has also issued an advisory under the Legal Metrology Act. Under the Essential Commodities Act, the states can ask the manufacturers to enhance their production capacity of these commodities and under the Legal Metrology Act the states can ensure sale of both the masks and the sanitizers at MRP.

Section 2A of the Essential Commodities Act, 1955 defines essential commodity to mean the items listed in the Schedule which, inter alia includes drugs, fertilizers, food stuff etc. It further empowers the Central Government to add or remove a commodity from the Schedule in the public interest and for reasons to be specified in the notification published in the Official Gazette amending the Schedule. Any such notification shall also specify that the commodity added to the Schedule shall be deemed to be an essential commodity for a period of up to 6 months. However, the Central Government may extend such period beyond the said 6 months in public interest.

Given the spree of panic buying and hoarding that spread through the public, this is an essential move to ensure that sufficient protective equipment is available for those who need it most – healthcare workers and infected patients.