Mr.

Ramakant Kini (Informant)

Nature of Infringement: Anti-competitive agreement (tying-in) in contravention of the

Legal Provisions: Section 3, Section 4, Section 19 (1), Section 19(3), Section 27, Section 33,
of the Competition Act, 2002.

Order: Order Passed under Section 27of the Competition Act, 2002.

Key Words: Exclusive Agreements, Tying-in

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FACT OF THE CASE

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With the advancement in medical science, it is now possible to cure certain diseases

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with the help of stem cells. Umbilical cord of the new born baby is a primary source of stem
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cells; therefore, many people approach stem cell banks in order to get the stem cells
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preserved for future use. One Mrs. Jain, who was expecting a baby, entered into an agreement
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with M/s Life Cell India Pvt. Ltd. (‘Life Cell’) for the purpose of preservation of the stem
cells of the baby. Mrs. Jain was availing the maternity services from Dr. L.H. Hiranandani
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Hospital (‘OP hospital’) and was scheduled to get the baby delivered therein. Mrs. Jain let the
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OP hospital know that she is availing the stem cells banking services of Life Cell and
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requested the OP hospital that Life Cell may be allowed to collect the stem cells blood right
after the delivery, i.e. within 10 minutes.
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The request of Mrs. Jain was turned down by the OP hospital. They informed her that
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they will not allow Life Cell to enter the premises of the hospital for the purpose of collecting
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the stem cells blood and that if she was inclined to get the stem cells collected, she could
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resort to the services of another stem cells bank, i.e. Cryobanks International India
(‘Cryobank’). She was informed by the OP hospital that they had an exclusive agreement
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with the Cryobank because of which only Cryobank is permitted to collect the stem cells of
expecting mothers who are admitted in the OP hospital. Consequent to this refusal, Mrs. Jain
had to get her delivery done at Seven Hills Multi Super Speciality Hospital rather than at the
OP hospital.

The above mentioned facts forms the basis of the informant’s allegation that the OP
hospital has violated Section 3(4) and 4(2)(a)(i) and 4(2)(c) of the Competition Act, 2002.
The Commission was of a prima facie opinion that there has been a violation of the
provisions of the Act. Consequently, the Commission directed the DG undertake an
investigation into the matter. The investigation report submitted by the DG also concurred
with the informant’s averment that the agreement between the OP hospital and Cryobank was
anti-competitive in nature and that the OP hospital is abusing its dominant position in order to
impose unfair conditions on the expecting mothers.
 It was stated on behalf of the OP hospital that for an agreement to attract the
provisions of Section 3(4) of the Act, the agreement must be between two undertakings
operating at different stages or levels of production chain in different markets in respect of
production, supply, distribution, storage, sale or price or trade in goods or provision of
services. But, it was stated by OP hospital, the agreement involves provision of maternity
services by the OP hospital and stem cells banking services by Cryobank, which are two
different markets and not different stages or levels of production in the production chain of
similar services. The OP hospital also stated that Cryobank was selected for the agreement by
way of a “clear, transparent and documented process”, wherein all the stem cells banks were
invited to submit their respective proposals for the purpose of provision of stem cells banking
services at the OP hospital. The OP hospital also argued that the expecting mothers admitted
in the hospital were not compelled to take the services of Cryobank and that they were free to
leave the hospital.

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COMMISSION’S DECISION

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In reply to the first argument of the OP hospital, i.e. the agreement between OP
hospital and Cryobank being one between the entities engaged in different markets all
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together, cannot fall under the provisions of Section 3(4), the Commission observed that the
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kinds of agreements enumerated in Section 3(30 and Section 3(4) are illustrative in nature
and they, by no means, restrict the ambit of Section 3(1). Section 3(1) prohibits any
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agreement which causes or is likely to cause appreciable adverse effect on competition within
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India and therefore, the Commission can delve into any agreement which has an appreciable
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adverse effect on the competition. Thus, according to the Commission, what needed to be
considered in the case was as to whether the agreement had caused or was likely to cause
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appreciable adverse effect on the competition. For the said purpose, the Commission
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assessed the anti-competitive effects of the agreement on the basis of the factors enumerated
in Section 19(3) of the Act.
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After such an assessment, the Commission observed that such kind of agreements
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would result in a hindrance to the growth of the market, as the stem cells banks would prefer
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to pay commission to the hospitals and gather the clients, rather than competing with the
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other players on the basis of efficiency and competitive prices. The Commission also
observed that the agreement of the kind involved in the case precludes the competition in the
market as well as creates entry barriers for the prospective competitors and thereby reducing
the choice of the consumers and denying them quality service and competitive prices. On the
other hand, according to the Commission, the agreement does not result in any benefit for the
consumer or in any improvements in production or distribution of goods or provision of
services. It does not even leads to the promotion of technical, scientific and economic
development by means of production or distribution of goods or provision of services. Thus,
on weighing the agreement on the basis of the factors enumerated in Section 19(3) of the Act,
the Commission arrived at the conclusion that the agreement does effect the competition in an
appreciably adverse fashion.

As regards OP hospital’s argument that it selected Cryobank for providing stem cell
banking services to the hospital by a clear, transparent and documented procedure, the
Commission observed that the various documents collected by the DG indicates the fact that
the selection of Cryobank was not a result of an objective consideration of the proposals by
the various stem cells banks, but rather a result of the financial considerations, i.e. who
proposes to pay the highest commission to the hospital. The Commission also disregarded the
argument of the OP hospital that the expecting mothers who want a different stem cells
banking services are free to leave the hospital; the Commission observed that the argument is
misconceived because of a simple fact that an expecting mother, who has been consulting a
particular gynaecologist of a hospital during the whole gestation period, develops a trust in
the treatment of the hospital and would eventually want to get the delivery done in the same
hospital. Therefore, if she is not initially told about the exclusive agreement with the stem
cells banking services and later given an option to either chose the services of the stem cells
bank having an agreement with the hospital or else to leave the hospital, the woman will,
most probably, stay with the same hospital even on the pain of losing some money.

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However, the argument that the OP hospital is wielding dominant position in the

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market was rejected by the Commission due to the lack of evidences to support the said

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averments.

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Therefore, the Commission, by way of an order, declared the impugned agreement

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between the OP hospital and Cryobank to be null and void. The OP hospital was also directed
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to desist from entering into a similar agreement in the future. Penalty at the rate of 4% of the
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average turnover of last 3 years was imposed on the OP hospital by the Commission.
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