Delhi High Court: A batch of appeals were filed challenging a common judgment arising from various petitions filed by pharmaceutical companies assailing the demand notices issued to them by the National Pharmaceutical Pricing Authority (‘NPPA’), holding the respondents guilty of overcharging consumers for certain drug formulations manufactured by them, in contravention of Drugs (Price Control) Order, 2013 (‘DPCO 2013’). A division bench of Satish Chandra Sharma, CJ., and Subramonium Prasad, JJ., disposed of the appeal finding no infirmity in the impugned judgment.
The main grievance of the appellant is that the Single Judge erred in interpreting Para 20 of the DPCO 2013 and has failed to capture its true essence. The Single Judge observed that the DPCO 2013 does not envisage that non-scheduled formulations are subject to the rigors of price control. It was observed that Para 20 of the DPCO 2013 contemplates that the MRP of non-scheduled formulations is to be determined by market forces and is subject to the rider that the annual increase would not exceed 10%, and in case it exceeds 10%, the manufacturer has to roll back the MRP to the permissible MRP under the DPCO and keep it at that level for the next twelve (12) months. Para 20 of the DPCO 2013 merely places an obligation upon the Government to monitor and oversee that the MRP of non-scheduled formulations does not increase by more than 10% in a year.
A bare perusal of Para 20 of the DPCO 2013 shows that the same is divided into two separate and identifiable parts. The first part provides that a manufacturer of a non-scheduled formulation may increase the maximum retail price (‘MRP’) of such non-scheduled formulation by 10% of the MRP during the preceding twelve months and preserve the said MRP for the next twelve months. It also casts an obligation upon the Government to monitor the MRP of such non-scheduled formulation so that the MRP is not increased over 10% in the succeeding year or the same year. The second part of Para 20 of the 2013 DPCO deals with the consequences of a transgression by a manufacturer, if it increases the MRP of a nonscheduled formulation beyond 10% of the MRP during the preceding twelve months.
The Court noted that in 1955, the Parliament of India passed the EC Act to control the production, supply, distribution, and pricing of certain essential commodities. As per the price control regime envisaged under the NPPP 2012, there has been a conscious decision by the Government to exclude non-scheduled or non-essential formulations from the rigors of price control to enable manufacturers of non-scheduled formulations to fix prices as per market forces. The Schedule and definitions of the 2013 DPCO make it clear that there is no distinction between essential medicines/drugs and scheduled formulations under the DPCO 2013. Consequently, it would follow that non-scheduled formulations under the DPCO 2013 are non-essential medicines as per NPPP 2012. Thus, non-scheduled drug formulations under the DPCO 2013 would not be subject to a price control regime.
The Court further noted that the powers of the government to fix and revise MRP of drugs under the DPCO 2013 is limited to scheduled formulations and does not extend to non-scheduled formulations. In respect of non-scheduled formulations, the Government only has the power to monitor the MRP increase so as to ensure that the same does not increase by more than 10% in a year, and in case there is an increase beyond 10% in a year, there are penal consequences that are prescribed in Para 20 of the DPCO 2013 itself.
On the aspect of whether a manufacturer is entitled to round off the MRP of a non-scheduled formulation and if rounding-off is permitted, then what is the manner in which such rounding-off may be done, the Court observed that it is difficult to find any rationale or justification as to why the benefit of rounding-off may be limited to only scheduled formulations, which are governed by a much stricter price control regime. The price monitoring system, as envisaged under Para 20 of the DPCO 2013 is more lenient, and there is no reasonable basis for not extending the benefit of rounding-off to non-scheduled formulations as well. Thus, limiting the applicability of the principle of rounding-off only to scheduled formulations would be unreasonable and arbitrary. Therefore, while the principle of rounding-off is applicable to nonscheduled formulations as well as scheduled formulations, the benefit of rounding-off is extended only to two decimal places, and only when no other malafide intention on the part of the company is evident.
The Court concluded that Para 20 of the DPCO 2013, as a whole, cannot be said to be a penal provision. A conjoint reading of Para 20 and Para 23 of the 2013 DPCO indicates that the date of transgression of Para 20 of the DPCO 2013 cannot mean the date on which a demand notice is issued to the manufacturer, but must be read to mean the date on which the manufacturer has increased the MRP of a non-scheduled formulation by more than 10% in a period of twelve months. The manufacturer is liable to deposit the amount overcharged along with interest with the Government. The date from which the liability of a manufacturer to deposit the amount overcharged is the date from which the price of the non-scheduled formulation has been increased beyond the 10% increase permissible. The amount overcharged shall be calculated as the difference between the “actual increase in MRP” and “permissible increase in MRP”.
[Union of India v Bharat Serums and Vaccines Limited, 2023 SCC OnLine Del 7262, decided on 08-11-2023]
Advocates who appeared in this case :
Mr. Kirtiman Singh, CGSC with Ms. Manmeet Kaur Sareen, Ms. Vidhi Jain, Advocates for appellants
Mr. Rohan Shah, Mr. Alok Yadav and Ms. Srisabari Rajan, Advocates for respondents
