The Monopoly Control Authority, under the Chairmanship of Mr. Khalid A. Mirza, issued an important, landmark, Order on September 13th designed to remove serious anomalies in the contractual relationship between two associated companies, viz Searle Pakistan Ltd (Searle) and International Brands (Pvt) Limited, (IBL) regarding the distribution of Searle’s products by IBL, a privately-owned leading distributor that also has a substantial equity interest in Searle.

Noting that the distribution agreement and related arrangements in place since July 2000 had the effect of unfairly benefiting the shareholders of IBL to the prejudice of the shareholders of Searle, which is a listed company with shareholders from the general public, the Order remarks that “it is difficult to imagine a more glaring manifestation of undue concentration of economic power at play….”. The Authority has stated that it is an “obvious situation” which comes within the mischief of Section 4(b) of the Monopolies and Restrictive Trade Practices (Control & Prevention) Ordinance, 1970, and has laid down the principles setting out a fair and equitable basis upon which the parties must not only redefine their relationship for all future dealings but also recalculate and settle all past transactions since July, 2000. Among other matters, the Authority rescinded the consignment basis that was in vogue till July 2005 (with financial consequences that follow from this), reduced the period of interest-free credit enjoyed by IBL on payments due to Searle from 120 days to 40 days, reversed warehousing rent charged by IBL to Searle, and laid down a strict basis upon which reimbursement of expenses could be claimed by IBL from Searle.

The Authority ordered that the parties engage either the statutory auditors of Searle or a firm of Chartered Accountants approved by the Authority to examine all transactions between the two undertakings since July 2000 based on the principles laid down by it and determine the net amount due from IBL to Searle. They have been required to complete this task within 90 days and to effect settlement of the net amount determined as due and payable to Searle to the satisfaction of the Authority within 120 days of the date of this order.

Also, in this connection, the Authority noted the possible contravention of Sections 195 and 208 of the Companies Ordinance, 1984, and directed its Registrar to make a reference to the Securities and Exchange Commission of Pakistan for the Commission to take cognizance and to take such measures as may be deemed appropriate by it.

Monopoly Control Authority (MCA) heard M/s International Brands (Pvt.) Limited (IBL), in the matter of undue concentration of economic power under the Chairmanship of Mr. Khalid A. Mirza on September 05, 2007 at Islamabad. Member (L&A) was also present. Chief Investigation and Registrar assisted the Authority.

The total value of assets of the undertaking, as per its annual audited accounts, for the year ended June 30, 2006 was Rs 4.3 billion and this situation, prima facie, constitutes undue concentration of economic power under Section 4(a)(i) of the Ordinance and the undertaking is required to convert itself into a public limited company.

In response to the Show Cause Notice under Section 11 of the MRTPO, 1970 the undertaking submitted its response and it was afforded an opportunity of being heard on September 5, 2007 at Islamabad.

Mr. Abdul Rehman Memon & Mr. S. M. Nasir Raza, Directors and Mr. Mehmood A. Razzak, Partner of M/s Mahmood Idrees Qamar & Company, Chartered Accountants, appeared before the Authority on behalf of the undertaking. They admitted that their original submissions were erroneous since they had not averted to the Supreme Court’s ruling in Sanaulla Woolen Mills Ltd & Another vs.s MCA in the matter. They agreed that under the provisions of Section 4(a)(i) of the MRTPO, 1970, the undertaking is required to be converted into a pubic limited company and requested for grant of time upto December 31, 2007 but were not able to provide any cogent reason for this. The Authority also pointed a wholly irrelevant portion in the undertaking’s reply to the Show Cause Notice.
After considering the matter, the Authority decided to give them time untill October 15 this year to convert into a public company.

The Authority will pass its Orders accordingly.

Monopoly Control Authority has been examining on oath the Chief Executives of Cement producing companies under the provisions of clause (a) of sub-section(1) of Section 15 of the MRTPO, 1970, in a special enquiry under Section 14 of the Ordinance, conducted upon a reference made to it by the Federal Government. During the current week, the Authority heard the Chief Executives of two undertakings at Islamabad on 27th & 30th August, 2007.

The statements were recorded at the Authority’s headquarter in Islamabad. Both Members of the Authority, Chiefs Investigations & Economic Research and Registrar were present.

On August 27, 2007, Mr. Zameer Muhammad Chaoudhery, Chief Executive, Bestway Cement Ltd and on August 30, 2007, Maj. Gen. (Rtd.) Rehmat Khan, Deputy General Manager, Pakistan Cement Company Ltd, appeared before the Authority and recorded their statements on oath. Maj. Gen. (Rtd.) Rehmat Khan was authorized by the Board of Directors of the company for recording statement on behalf of the Chief Executive, who is residing in Egypt.

During the current week, the Authority also heard the following cases under the Chairmanship of Mr. Khalid A. Mirza.
On August 27, 2007, in the matter of non-registration by M/s Nawabsons Laboratories (Pvt.) Limited, Mr. Akhter Hussain, Director of the undertaking, alongwith Mr. Abdul Hamid Bhutta, Advocate Supreme Court and counsel of the undertaking appeared before the Authority and argued the case. The counsel contended that the Pharmaceutical Sector is being regulated by Ministry of Health under Drugs Act, 1976, which is a special law and the MRTPO, 1970, being a general law, cannot override that law. The Authority informed the representatives of the undertaking that the undertaking is required to be registered under Section 16(1)(d) of the Ordinance. The Section provides that in order that information relevant to the performance of its functions under the Ordinance is available to the Authority, the undertakings, individuals and agreements as specified, in the section, shall be registered with the Authority. The modus operandi for registration is prescribed in Rule 10 of the Monopoly Control Authority Rules, 1971. Moreover, the functions stipulated by the Ordinance pertain to undue concentration of economic power, unreasonable monopoly power and unreasonably restrictive trade practices, which are not covered under the provisions of the Drugs Act, 1976 or regulated by the Ministry of Health.
The Authority after considering the facts of the case, submissions of the authorized representatives, decided to impose a penalty of Rs 100,000/- on the undertaking, M/s Nawabsons Laboratories (Pvt.) Limited and directed the representatives to get the undertaking registered within ten days from the date of the hearing. The undertaking is also required to deposit the penalty under the relevant head of account within fifteen days from the date of receipt of the Order.

On August 28, 2007, the Authority heard M/s Pakistan Mobile Communications Ltd (Mobilink GSM) in a matter pertaining to alleged unreasonably restrictive trade practices on the part of the undertaking. Mr. Ehab Muhammad Roehdy Abdul Aziz, Chief Financial Officer and Mr. Babur Suhail, Head of Legal Department alongwith Mr. Ali Asim Sayed, Advocate and counsel of the undertaking appeared before the Authority and argued the case. The counsel contended that the telecommunications sector is being regulated by Pakistan Telecommunications Authority, and therefore, the MRTPO, 1970 is not applicable to that sector.

The Authority pointed out that the matter under consideration concerns the sale of hardware and does not pertain to telecommunication services. The issue is the sale of Blackberry mobile handsets with exclusive tie-in arrangements that makes it impossible to access the special Blackberry internet services without receiving the Mobile-link telecommunications service.

The Authority asked the undertaking to provide documentation and clarifications with regard to various aspects of the case by Monday September 03, 2007, and intends to proceed further in the matter after receipt of their submissions. At that point, the Authority will also take a decision as to the action necessary with regard to the non-appearance by Orascom Telecom Holding SAE (OTH) and Research In Motion (RIM) (two foreign undertakings that have a relevant business relations with Mobilink) on the date of hearing.

In the last ten days, the Monopoly Control Authority has noted sporadic reports in the media suggesting that a decision of the Authority (called “judgment” in one news item) in connection with its investigation into cement prices was imminent.

The Authority would like to clarify that in response to a reference made to it by the Federal Government with regard to the upsurge in cement prices earlier this year, a Committee formed by the Authority comprising two members and two senior officers is conducting a special inquiry under Section 14 of the Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance, 1970 (MRTPO). The end-product of this inquiry would be essentially the submission of a report to the Government in the matter. While the Authority is sanguine that the report would be an informative and well-reasoned document, the process does not per se call for a decision of the Authority. However, it goes without saying, that in the event the inquiry reveals any information that obliges the Authority to take cognizance under the provisions of the MRTPO, it will be duly bound to do so and to take such steps as are necessary in accordance with law.

It is noteworthy that the Inquiry Committee has already collected substantial data despite poor response from the public for the supply of information. At present, it is engaged in recording statements on oath from relevant individuals, including Chief Executive Officers of selected cement manufacturers. After this work is completed, the Committee will then proceed to sift and analyze the information and data secured by it through the inquiry process and finalize its report.

Monopoly Control Authority summoned the Chief Executives of Cement producing companies and stake holders, for examination on oath, under the provisions of clause (a) of sub-section(1) of Section 15 of the MRTPO, 1970, in special enquiry under Section 14 of the Ordinance, conducted upon a reference made to it by the Federal Government. The Authority heard the Chief Executives of the undertakings at Karachi on 21st & 22nd August, 2007.

The hearings were held in the Authority’s camp office, located at 5th Floor, State Life Building No.2, Wallace Road, off: I.I Chundrigar Road, Karachi. Both the Members of the Authority, Chiefs Investigations & Economic Research and Registrar were present.

On August 21, 2007, Mr. Wali Bhai Patel, President, Karachi Cement Dealers Action Committee (KCDAC) and Mr. Javed Ali Khan, Chief Executive, Pioneer Cement Ltd., appeared before the Authority and recorded their statements on oath. Mr. Nusrat Mirza Chughtai, Vice President, Association of Builders and Developers (ABAD) also appeared before the Authority but he was informed that the President of the Association was summoned to witness on oath and not the Vice President. He explained the unavoidable personal reasons for non-appearance by the President of the Association to the satisfaction of the Authority. The Authority, therefore, decided to hear him on August 22, 2007.

On August 22, 2007 Mr. M.A Jamil, Chief Executive, Zeal Pak Cement Factory Ltd, Mr. Muhammad Ali Tabba, Chief Executive, Lucky Cement Ltd and Mr. Hafeez-ur-Rehman Butt., President, Association of Builders and Developers (ABAD), appeared before the Authority and recorded their statements on oath.

The Authority also heard the following cases, on August 21 & 22, 2007, under the Chairmanship of Mr. Khalid A. Mirza
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My Bank Ltd – In the matter of undue concentration of economic power.

On August 21, 2007 Mr. Iqbal Alimohamed, Chairman mybank Ltd, Mr. Muhammad Yousuf Adil, Managing Director & Abdul Rab Director, Yousuf Adil Saleem & Company, Chartered Accountants, appeared before the Authority, and argued the case. They submitted that mybank falls under Section 25(c) & (e) of the MRTPO, 1970, as it was exempted by the State Bank of Pakistan and the Federal Government, from the provisions of Section 14(1)(iv) of Banking Companies Ordinance 1962, allowing Mr. Iqbal Alimohamed to hold shares in excess of 5% of the voting rights and the bank is also regulated by the State Bank of Pakistan. The Authority informed them that neither the bank falls under Section 25(c) nor 25(e) of the MRTPO, 1970. The Federal Government exempted the Individual to hold shares in excess of 5% but not beyond 50% and the State Bank of Pakistan has also not been notified as a regulatory authority under Section 25(e) of the Ordinance. The Authority shall, therefore, pass appropriate Order, directing the Individual to reduce his shareholding/voting power to such an extent to bring it below 50%. They were satisfied with the decision of the Authority.

International Brands (Pvt.) Limited – In the matter of undue concentration of economic power:

No one appeared before the Authority on behalf of the undertaking. The Authority took a serious view of un-compliance of its Notice by the undertaking, however, due to weather conditions in Karachi decided to provide it another opportunity of being heard on September 5, 2007 at Islamabad.

The hearings were held in the Authority’s camp office, located at 3rd Floor, Associated House, 7-Egerton Road, Lahore. Both the Members of the Authority, Chiefs Investigations & Economic Research and Registrar were present.

Mr. Karamat Ullah Chaudhry, Chief Executive, NESPAK Consulting Engineers was called by the Authority on August 16, 2007. He did not appear before the Authority rather he authorized two officers for making attendance on his behalf. The Authority took a serious view of his un-compliance with the Authority’s directions. The Authority directed the officials to convey the Authority’s displeasure regarding Mr. Karamat Ullaah’s un-appearance. Necessary action will be taken by the Authority in this connection in accordance with law

On August 17,2007, Mr. Sayeed Saigol, Chief Executive, Maple Leaf Cement Factory Limited and Mian Raza Mansha, Chief Executive, D.G.Khan Cement Limited appeared before Authority and recorded their Statements on oath.
The Authority also heard the following cases, on August 16, 2007, under the Chairmanship of Mr.Khalid A Mirza.
In the case of M/s. Nawabsons Laboratories ((Pvt) Limited, Mr. Asghar Hamid Bhutta, Advocate Supreme Court and counsel of the undertaking appeared before the Authority and requested for adjournment to another date as he had not done the necessary preparation to be able to represent the undertaking. The Authority expressed its strong reservations and displeasure over this untoward situation but decided to adjourn the matter to be heard on August 27,2007,at 3.00 P.M, in Islamabad.

No one appeared on behalf of M/s. Aqua Safe Mineral Water Company in the matter of non compliance with the Order of the Authority. The Authority decided the matter ex-parte and imposed a penalty of Rs 10,000/- per day on the undertaking, from the date of the Order till compliance of its Order dated April 27,2007.

Nestle Case:
In the case of Nestle, Mr. Zeeshan Ashraf Mir and Mr. Mashhood Hussain Chaudhary, Advocates of the High Court, represented the Company. The Authority pointed out several obvious mis-statements, factual inaccuracies, and unsupported assertions apart from a few instances of objectionable language in Nestlé’s response to the Authority’s Show Cause Notice. Counsel representing Nestle were unable to come up with any explanation or defence with regard to these matters. They sought time to seek instructions from the company’s senior management and perhaps withdraw the reply. The Chairman expressed his surprise that a company of the eminence and stature of Nestle could have made such an egregious submission to a public agency. It was also noted with concern that counsel for the company were not fully briefed. The case will now be heard in Islamabad on December 12, 2006.

Other Cases:
Six cases pertained to textile units that defaulted in the supply of information required by the Authority under law and three cases were in respect of pharmaceutical companies that had not registered their distribution agreements. While the case against Resham Textile was vacated because they supplied the requisite information prior to the date of hearing, the Authority imposed penalties on eight cases as follows:

Name of Undertaking Penalty Imposed

The above undertakings are also required to comply with the Orders of MCA failing which they shall be liable to action under sub-section (2) of Section 19 of MRTPO 1970 for imposition of further penalty of Rs 10,000/- per day

The undertakings M/s. Redco Textile Mills Limited, M/s. Rizwan Textile Mills Limited and M/s. Universal Tobacco Co. (Pvt) Limited did not attend the hearing. MCA decided their matters ex-parte and imposed maximum penalty of Rs.100,000/- on each of them. The undertakings are required to deposit the penalty under the relevant head of account within fifteen days from the date of receipt of the Orders. They are also required to comply with the Orders of MCA failing which they shall be liable for action under sub-section (2) of Section 19 of MRTPO 1970 for imposing a further penalty of Rs.10,000/- per day.

M/s. Murtaza Construction Corporation (Pvt) Limited granted 60.784 million rupees interest free loan to its associated undertaking M/s. Zaver Petroleum Corporation Limited. On 6-11-2006 an authorized representative of the undertaking M/s. Zaver Petroleum Corporation Ltd appeared before MCA and requested for a short adjournment. MCA, acceding to his request, adjourned the mater for 10-11-2006. No one appeared on behalf of M/s. Murtaza Construction Corporation (Pvt) Limited. MCA, taking a lenient view, adjourned its matter also for 10-11-2006.

On 10-11-2006, the representatives of both the undertakings appeared before the Authority and argued the case. The Authority directed them to supply their accounts and shareholding alongwith shareholding of their associated undertaking M/s. Hashoo Holdings Ltd. The undertakings are required to supply the requisite information by 17-11-2006. On receipt of the information MCA will consider if the matter falls under the purview of undue concentration of economic power.

M/s. Yousaf Weaving Mills Ltd was asked to supply the information under Section 21 of MRTPO 1970 but the undertaking failed to supply the requisite information even after issue of a Show Cause Notice. The matter was fixed for hearing on 6-11-2006. Mr. Muhammad Jahangir Khan, Company Secretary of the undertaking appeared before MCA and regretted for late supply of the information which was also incomplete. He also apologized and requested MCA for grant of two days time for supply of the requisite information. MCA allowed him time upto November 8, 2006 and the undertaking supplied the information within the given timeframe. MCA passed Order and, taking a lenient view, imposed a penalty of Rs. 20,000/- on the undertaking.

M/s. Redco Textile Mills Limited and M/s. Rizwan Textile Mills Limited were asked to supply the information under Section 21 of the MRTPO 1970 but they could not supply the requisite information even after issue of Show Cause Notices. MCA fixed their cases on 7-11-2006 but no one appeared before MCA on behalf of both the undertakings. MCA considered the default of the undertakings, in supply of the requisite information and also not appearing before it on the date of hearing, as willful. MCA therefore, passed ex-parte Orders and imposed penalty of Rs. 100,000/- on each of the undertakings.

M/s. Universal Tobacco Co. (Pvt) Limited were asked to apply for registration under Section 16(1)(d) of the MRTPO 1970 but they failed inspite of Show Cause Notice served on them. MCA fixed the matter for 7-11-2006 but no one appeared before MCA on the date of hearing. MCA passed ex-parte Order and imposed a penalty of Rs. 100,000/- on the undertaking.

M/s. Amros Pharmaceuticals was heard by MCA on 31-10-2006 at Karachi. The undertaking was granted time upto November 3, 2006 for depositing the penalty under the relevant head of account and providing original paid challan to MCA by that date. The undertaking deposited the penalty within the given timeframe and also furnished original paid challan. MCA, therefore, disposed off the matter.

The matter of non-supply of information by M/s. Dostsons Cotton Mills (Pvt) Limited was heard by MCA at Karachi on 31-10-2006. The authorized representative stated that the undertaking supplied the information after receipt of Show Cause Notice. The Authority passed Order and, taking a lenient view, imposed a penalty of Rs 25,000/- on the undertaking.

In the matter of execution of non-competition agreement by M/s. Dalda Foods (Pvt) Limited and M/s. Unilever Pakistan Ltd, the undertakings were required to provide further information by 6-11-2006 which has been supplied by them within the given timeframe. The information is under examination of MCA and an Order will be passed in due course.

Monopoly Control Authority had been advising sugar mills for releasing sufficient quantity of sugar so that scarcity of the commodity is not created in the market. It was observed that 42 sugar mills were not releasing adequate quantities of sugar.  Therefore, show cause notices were issued to them in March, 2006. These mills were also afforded opportunity for hearing in Ist week of April, 2006. After due process, 42 sugar mills were directed to release at least 58.31% of production by 30th April, 2006 and report compliance to MCA.  33 sugar mills have not reported compliance of the orders of the Authority. Accordingly notices for hearing have been issued to these mills to explain why penalty should not be imposed for non compliance of the orders of MCA.
Sugar mills reported production of 2.907 million tons of sugar approximately. Against this, sales/lifting of sugar was 1.738 million tons up to 31-5-2006. The industry was holding stock of approximately 1.169 million tons on 31-5-2006.  Four sugar mills have not provided data. Action as provided  in the law is being taken against them separately.

Monopoly Control Authority taking notice of consistent increase in price of sugar decided to monitor on a fortnightly basis supply position of the commodity by the sugar mills.  Initially, sugar mills which were releasing less sugar were issued advice not to reduce supply by limiting sale. Thereafter, show cause notices under section 11 of Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance, 1970 were issued to 42 sugar mills that were found limiting sales through restricted releases of sugar. The undertakings submitted reply. Thereafter, as required under the law, opportunity of hearing was afforded.
2.         In order to improve supply of sugar, MCA accepted the argument raised by some sugar mills that sugar is produced during 5-6 months, but consumed in 12 months. Therefore, to maintain uniform supply throughout the year, minimum monthly release of sugar by each mill works out to 8.33%. Sugar industry observes October to September as sugar year. Accordingly, after completion of due process, Orders have been issued to the following sugar mills directing them to release 58.33% of their production as on 30-4-2006 (October-April) and report compliance of the order by the end of May, 2006. Implementation of the order will obviate shortage of supply of sugar and consequential increase in price.