Competition Commission of India: Northern India Motion Pictures Association shall cease Cease and Desist from Pressurizing Distributors to Settle Monetary Disputes with its Members.

By Krushi N. Barfiwala, Partner

The Competition Commission of India (“CCI”), vide order dated January 10, 2013 has directed the Northern India Motion Pictures Association (“NIMPA”) “to cease and desist from the practices of pressurizing the distributors to settle the monetary disputes with its members”. On November 4, 2011, M/s Shri Ashtavinayak Cine Vision Limited, Mumbai  (“the Informant”), filed the Information, inter alia, against M/s PVR Pictures Ltd.(“PVR”), carrying on the business of distribution and exhibition of feature films and the NIMPA alongwith several other associations of distributors.

In the Information filed, the Informant had stated that according to the industry practise, an exhibitor cannot be approached directly. A distributor has to register a film through the distributor’s association and after the registration process is complete, the distributor is allowed to book theatres for the film’s release.  The following are broadly the allegations made by the Informant:

  1. The Associations make it compulsory for distributors to register themselves with the association, failing which the film’s exhibition lays in jeopardy. The members of the Association threaten the other members with dire consequences, if they happen to exhibit a film, which is not registered with the association.
  2. It was alleged by the Informant that the Association strengthen their dominant position and impose undue and unfair restrictions against the various stakeholders. Effectively, the associations are acting as a cartel of distributors for the benefit of the member distributors, at the cost of imposing unfair restrictions on others.  Further, it was alleged that the associations make the distributors sign certain standard form contracts containing clauses limiting the distributors from exploiting other rights, like satellite rights, home video rights etc, in such films. 
  3. It was submitted that the act of non-registering its film by the associations is prohibited by section 4(2) (a) of the Competition Act, 2002 (the “Act”) read with section 19 of the Act. Further, the consequence of impugned action of the associations is denial of market access to the informant under section 4(2)(c) of the Act. The informant has also alleged that the associations, in addition to the contravention of provision of section 4 of the Act, had also contravened section 3(3) with section 3(1) and 3(2) by entering into an anti-competitive agreement with members in the form of circulars and directives with a view to limit or control the production, supply, market or provision of services. It is pointed out that Section 3 of the Act deals with the Prohibition of Anti Competitive Agreements, Section 4 pertains to the Abuse of Dominant Position and Section 19 provides for the Inquiry into certain agreement and abuse of dominant position by enterprises.

Upon considering the Information filed, the Competition Commission of India (“Commission”) took the view that there exists a prima facie case and directed the Director General (“DG”) to proceed with the investigation and submit a report in the instant matter.

It is pertinent to note that one of the contentions of the associations, in support of non-registration and release of the film of the Informant, was that the Informant has failed to pay some amount due to PVR and the Informant and PVR had not reached a full and final monetary settlement pertaining to an earlier dispute. In view of the same, PVR had sent a letter to the NIMPA that there are some amount due from the Informant. The NIMPA, in turn, sent a letter informing its members that the Informant had a pending dispute with PVR and hence the Informant’s movie should not registered or allowed to be released till the full and final settlement of the claim. 

It was also submitted that the membership of the association is voluntary and is not a pre-requisite for exhibition of a movie. Further, on behalf of the associations, it was contended that in the instant case, there is no “agreement amongst themselves” as contemplated by the definition of cartel given under section 2 (b) of the Act.

The DG reported that on several occasions, the NIMPA resorted to the tactic of threatening non-member distributors with non-registration of film and interfering in the release of film to settle the dispute relating to outstanding amount of its member. It was observed by the DG that the circumstances clearly indicate that the Informant was pressured by refusing to register the film in the territory of the NIMPA. As per DG report, the opposite party associations are deciding not to have any dealing with a person who does not agree with the directions of the Associations. Thus, based on the practices adopted and rules and regulations framed by the opposite party associations, the DG had reported that the opposite party associations are involved in anti-competitive conducts in the film distribution business in their respective territories. It is pertinent to note that the Commission observed that the said conduct of the associations in writing such letters to the members of the association in its effort to secure its alleged outstanding dues cannot be per se termed as anti-competitive.

Keeping in mind the numerous contentions raised by the Informant and the association and the observations given by the DG, the Commission noted that the compulsory registration of the film as a pre-requisite for its release is restrictive in nature. The Commission noted that the associations were unable to successfully refute the competition assessment by the DG.

In the concluding paragraphs of the order, the Commission stated that in earlier cases it was observed that “the activities of an association may benefit their members and also play a significant role in encouraging and enforcing codes of ethics. These activities may include keeping association members informed of trade developments, improving the quality of products, and working together at improving trade and industry laws. Cooperation, education and information exchanges through trade associations may also lead to technological advancements”. However, in the present case, the Commission observed that the acts and conduct of the associations, more specifically, the NIMPA, instead of bringing in pro-competitive effects have caused adverse effects on competition. It was noted that activities of film associations, which limit supplies of films are anti-competitive under section 3 of the Act. Keeping in mind the facts and circumstances of the case, the Commission directed the NIMPA to cease and desist from pressurizing distributors from settling monetary disputes. 

With reference to the NIMPA’s by-laws prohibiting members from dealing with non-members; making registration of film compulsory before release; observance of hold back period for exploitation of films through other media; and conduct of issuing letters threatening non-registration of film if previous claims are not settled etc. were found to be anti-competitive in 2010 when the Commission was dealing with another Information filed against the NIMPA. The Commission had then ordered NIMPA to suitably modify its by-laws and had imposed a penalty on NIMPA. In view of the same, the Commission thought it would not be necessary to impose penalties on the NIMPA.

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