Background of the case:

The Commission received a copy of an agreement from an anonymous source bearing the title ‘Agreement for Retail and Wholesale Rate fixing (the ‘Agreement’) and was ostensibly undertaken between Diamond Paints and its dealers based in the city of Multan. Based on the contents of the Agreement a team of officers was authorized to enter and search premises of Diamond Paints under Section 34 of the Act, to look for evidence of any possible violation of Section 4 of the Act. Subsequent to the findings of the search & inspection team an enquiry was initiated to duly probe into the matter.

The enquiry concluded that the dealers by agreeing on a price floor for onward sales of the relevant products have entered a price fixing Agreement in prima facie violation of Section 4(2) (a) of the Act. It was elaborated by the enquiry report that the Diamond Paints has effectively entered into a Minimum RPM arrangement with its dealers, thereby introducing a restrictive trading condition that appears to facilitate a downstream cartel with the object or effect of restricting competition in the Relevant Market in prima facie contravention of Section 4(2) (a) of the Act.

Issues:

a) Whether the Competition Act, 2010 is ultra vires the Constitution, and beyond the legislative competence of the Federal legislature?

b) Whether the Commission cannot proceed in the matter due to lack of quorum in terms of Section 14(1) of the Act?

c) Whether the relevant provisions of the Competition Act, 2010 were followed in proceedings against Diamond Paints?

d) Whether the parties to the proceedings in the instant matter are undertakings of clause (q) of subsection (1) of Section 2 of the Act?

e) What is the relevant market for the purpose of the instant matter?

f) Whether Diamond Paints entered into an ‘Agreement’ for the fixing of price?

g) If Diamond did entered into an Agreement – does it violate section 4 of the Competition Act, 2010?

Foreign Judgment:

a) Bayer A.G. v E.C. Commission [2001] 4 C.M.L.R. 4

b) Monsanto v. Spray-Rite

c) Leegin Creative Leather Products v. PSKS

d) AfzauddinAnsary vs. State of West Bengal (1997)

e) Continental T.V., Inc. v. GTE Sylvania Inc. (1977)

f) Volkswagen AG vs. Commission (2003)

g) Nathan – Bricolux OJ (2001)

Order:

The Commission held that it is not the proper forum to decide questions as to the constitutionality of the Competition Ordinance, 2007.

With respect to the quorum, the Commission held that the legislature, in all its wisdom, has not provided for any quorum to be present for the Commission to perform any of its functions outlined in the Competition Act, and that the Competition Appellate Triunal has already held in 2019 CLD 254 that in light of Section 14(7) of the Competition Act, no act or proceeding of the Commission would be rendered invalid by the reason of the number of members present.

The Commission also clarified that a reading of Section 34 and Section 37 of the Competition Act makes it clear that there is no pre-condition (for instance, initiation of an enquiry or proceedings) with respect to the power to enter and search premises. The Commission may, at any time, for the reasons to be recorded, carry out the research and inspection of any premises for the purposes of enforcing any provisions of the Act.

The Commission further held that M/s Arain Paints Multan, M/s Gulzar Paints Multan, M/s Madina Paints Multan, M/s Bismillah Paints Multan, M/s Haji Sattar & Sons Multan, M/s Hamza Paints Multan, M/s Al Masoom Paints Multan, M/s Nadeem Brothers Multan, M/s Majid Paints Multan and M/s Al Maqsood Traders individually and collectively have violated the provisions of Section 4 of the Act by entering into the Agreement for fixing the price of paints, which has the object of preventing, restricting, or reducing competition within the relevant market and is to be condemned per se is illegal and violative of Section 4 of the Act. Facts identified as validating the presence of the vertical agreement between the undertakings by the Commission were:

1. Recovery of Documents from the regional office of diamond paint in Multan which implied that Diamond Paint was aware and a party to the agreement. The agreement was on stamp paper, which was issued in the name of Diamond Paint and Aarian Paints and Hardware Store, and was signed by the area manager of Diamond Paint.

2. The whole sale clause of the Agreement, which stated that dealers would be able to interchangeable transactions of up to 25% only on all products of Diamond Paint, which showed that Diamond Paint was quota fixing its dealers up to 25% of the stock only, which was anti competitive. The same clause stated that no dealer could extend its whole sale to any other region of Multan, and they needed to seek the Zonal Manager’s permission to create a sub dealer for further sale in any region, which once again was anti-competitive conduct.

3. Diamond Paint, through the agreement, was forcing its dealers to restrict their investment indirectly by fixing the price, quota and region for the whole sale of the product of Diamond Paints.

However, no penalty was imposed on account of the leniency request of the dealers and subsequent surrender to the Commission, and due to the absence of conclusive that the Dealers actually acted upon the said agreement.

The Registrar of the Commission was directed to circulate Urdu and English transcripts of the instant order amongst all the Chambers of Commerce across Pakistan and Paint Manufacturers for education of their dealers.