An association of chemists takes CCI and SEBI to court over the IPO of PharmEasy

A lawsuit has been filed against the Competition Commission of India (ICC) and the Securities and Exchange Board of India (SEBI) by the South Chemists & Distributors Association (SCDA) in the Delhi High Court against the ICC and SEBI fail to respond to SCDA’s concerns about PharmEasy’s parent company – API Holdings.

The Delhi HC has now issued opinions on the matter and ordered CCI and SEBI to attend the next hearing scheduled for Jan. 13, 2022, according to a press release from SCDA. The Union government, API Holdings and Docon Technologies were also declared respondents in the case, according to a copy of the petition reviewed by MediaNama.

Why is this important: Litigation can put a stop to the work of the IPO of PharmEasy, which is awaiting the green light from SEBI. The petition also highlights serious issues which, if true, may derail PharmEasy’s plans to go fully public.

Petition prayers

The traders organization asks Delhi HC to issue the following orders:

  • Request CCI to initiate an investigation into the acquisition by API Holdings of a majority stake in Thyrocare Technologies Ltd. through Docon Technologies Pvt. Ltd under the Competition Law, 2002.
  • Call on SEBI to reject the draft prospectus on red herring (DRHP) filed by API Holdings under Article 11A from SEBI Law, 1992.

What are the grounds on which SCDA is arguing its case?

The traders body revealed that it is moving closer to Delhi HC to protect investor wealth. Here is a summary of the reasons that compelled SCDA to file this motion:

Responsibilities of the ICC: “… Respondent # 2 (CCI) cannot abdicate its duties under the Competition Act, 2002. Respondent # 2’s failure to investigate the combination of Thyrocare Technologies Ltd. with API Holdings Ltd. through Docon Technologies is against the law and affects the interests of the petitioner, consumers and investors in general, ”the petition states.

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The acquisition of Thyrocare has not been notified: The petition alleged that the combination of Thyrocare Technologies Ltd. and API Holdings Ltd. had not been notified to CCI as required by Section 6 (2) of the Competition Law of 2002.

  • CCI has not undertaken a motorcycle investigation: “Because even if an entity fails to inform the ICC, it has the power to initiate a suo moto investigation in accordance with section 20 of the competition law,” the petition states. SCDA alleged that CCI did not respond to its statement after writing to the commission about Thyrocare’s merger with API Holdings Ltd assuming the agency had been notified by API.

The acquisition is beyond the prescribed threshold: “… according to the Competition Act, 2002, any combination of entities which have combined assets of more than Rs. 2000 crore at the company level or more than Rs. 8000 crore at the group level must be notified to the ICC, ”says the petition. SCDA argued that the consolidation is above the prescribed threshold because API’s assets after the Thryocare acquisition amounted to Rs. 12,460 crore according to the DRHP.

PharmEasy’s DRHP does not meet SEBI’s criteria: The petition states that SEBI must decide the DRHP of API Holdings and that it can be rejected based on the following criteria defined by SEBI:

  • SEBI has reasonable grounds to believe that investors may not be able to assess the risks associated with the issue.
  • The existence of litigation, including regulatory action, is so important that the survival of the issuer depends on the outcome of the litigation.

Uncertainty about e-pharmacy: SCDA alleged that API Holdings’ main exposure and business was from PharmEasy, the e-pharmacy arm of their business. He cited an order in a case (Dr. Zaheer Ahmed v Union of India & Anr) whereby the court “ordered unlicensed drug sale online” and ordered the government to ensure that it is banned. until further notice. “It is clear that e-pharmacy has no legal validity in our country,” the petition states, adding that investors can lose billions if e-pharmacy rules are set against their business model.

  • Affidavit filed by the Department of Health: The petition highlighted an affidavit filed by the Department of Health and Family Welfare in a separate case stating:
    • The issue of the online sale of medicines is currently under consideration by the Union government.
    • the Drugs and Cosmetics Act, 1940, and Rules, 1945, currently have no provisions on the online sale of drugs or online pharmacies.
    • A provision for the registration of electronic pharmacies by the Central Licensing Authority has been proposed in a notification and is under consideration by the Union government.

Deceptive business structure: “… The corporate structure of API Holdings and its association with PharmEasy is misleading to potential investors,” the petition states. SCDA argued that the company contradicts its own position by first asserting that the PharmEasy market is operated by Axelia Solutions Private Limited and Threpsi Solutions Private Limited, simply owns the “PharmEasy” brand and that they are not involved in the PharmEasy market operations in a letter sent to SCDA. “The DRHP paints a very different picture of PharmEasy ownership by claiming brand ownership and suggesting that its proprietary technology platform feeds the PharmEasy marketplace.

  • Multiple business structures are an illusion: The petition added that API Holdings’ role in owning and operating PharmEasy appears understated in the eyes of regulators, but that they are engaged in deceiving and luring potential investors because of their association.
  • Clarify the scope of ownership: The proposed IPO is able to garner so much traction just thanks to PharmEasy according to the petition. He called this an attempt by API Holdings to deceive potential investors without the company taking action to clarify its ownership and involvement.

The activity of PharmEasy is illegal: Several small businesses under SCDA have neither the means nor the resources to survive in the face of the millions injected by foreign investors into API Holdings, according to the petition. API Holdings raises funds from the general public by resorting to cash consumption and unfair market policies such as large discounts to perpetuate illegality, the petition added. This conduct violates the fundamental rights of CSAE guaranteed by Articles 14, 19 and 21 of the Indian Constitution.

  • There is no denying that API Holdings is the parent company of the online pharmacy platform PharmEasy. Its activity is illegal and contrary to the existing provisions of the Law on Medicines and Cosmetics, concludes the petition.

Summary of objections encountered by PharmEasy to date

September 2020: The merger of PharmEasy with the merger of MedLife was approved despite opposition from CSAE who argued that online pharmacies were not permitted by law, and therefore ICC cannot allow a “combination at illegal purposes ”. In a representation to the CCI, the association had specified that the merger project is essentially “that of two e-pharmacies as well as companies involved in the distribution chain”. He also said that large discounts from e-pharmacies can hurt competition, as these “are not based on any efficient business model, but only because of the consumption of cash through investments of based entities. abroad “.

July 2021: The acquisition by PharmEasy of Thyrocare was opposed by SCDA in a letter sent to CCI asking the regulator to reject the acquisition as e-pharmacies are not legal under Indian law and therefore the proposed acquisition should be rejected . He also claimed that allowing PharmEasy to acquire Thyrocare would lead to market domination by API Holdings.

November 2021: SCDA again asked SEBI to reject PharmEasy’s Initial Public Offer (IPO) on the grounds that online pharmacies are not legal under Indian law, according to a letter sent by the association. The association lists the same reasons as in the petition to plead its case.

December 2021: The Confederation of All Indian Traders (CAIT) wrote to SEBI a few weeks ago asking the regulator to reject the Initial Public Offer (IPO) from API Holdings, which owns PharmEasy, arguing that the pharmacy’s business model online is “based entirely on gross illegality.” ”

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Andrew B. Reiter