The Bombay High Court has held that the National Pharmaceutical Pricing Authority (NPPA) could not impose a blanket price ceiling on a formulation without following the mechanism prescribed under paragraphs 7 and 9 of the Drugs (Prices Control) Order, 1995 (DPCO 1995). The Court held that the NPPA's notification dated January 30, 2009 was ultra vires the DPCO 1995 and quashed the same, along with the demand notices seeking recovery of alleged overcharged amounts.

A division bench of Justice Manish Pitale and Justice Shreeram V. Shirsat was hearing a writ petition filed challenging notifications and demand notices issued on the allegation that the company had sold its medicinal formulation above the ceiling price fixed under the DPCO 1995. The formulation in question was Cartigen Forte, used for treatment of osteoarthritis.

The NPPA had issued a notification in 2007, fixing ceiling prices for multivitamin and mineral tablets and capsules. Later, in 2009, it issued another notification providing that any formulation not covered by its standing orders but containing any scheduled drug as an ingredient would be subject to the corresponding price ceiling unless a specific price had subsequently been fixed for that formulation. The company contended that its formulation was not covered by the 2007 notification and that the 2009 notification was impermissibly broad.

The Court noted that the respondents certainly have power to fix the price of a formulation on the basis of information available with it when the manufacturer or importer of a bulk drug or formulation fails to submit an application for price fixation and also fails to furnish information as required under DPCO 1995. However, it highlighted that calculation of the ceiling price necessarily required incorporating the relevant factors provided for the same under DPCO.

“… the said respondents were required to pass an order by notification in the official gazette after calculating the ceiling price on the basis of the aforesaid formula specified in paragraph 7 of DPCO 1995. No such exercise was ever undertaken by the said respondents in respect of the subject formulation,” the Court noted.

Hence, the Court held that the very basis of claiming that the petitioners had overcharged is taken away. Therefore, the impugned notification dated 27.09.2007 to the extent that it is sought to be applied to the subject formulation, was set aside.

The Court then considered the January 30, 2009 notification and held that it was extremely widely worded and operated in the teeth of the DPCO 1995.

“The impugned notification dated 30.01.2009 is clearly over broad, expansive and it operates in the teeth of the paragraphs of DPCO 1995 itself. In other words, it is beyond the power vested in respondent No.2-NPPA to issue such kind of notification,” the Court observed.

The Court also noted that the petitioners had been made to face a demand for interest after considerable delay on the part of the NPPA in granting a hearing, but held that there was no necessity to examine the issue of violation of principles of natural justice since the impugned notifications themselves were liable to be set aside.

The writ petition was accordingly allowed. The September 27, 2007 notification was quashed to the extent of its applicability to the petitioners' formulation, while the January 30, 2009 notification was quashed and set aside in its entirety.

Case Title: M/s. Pharmed Limited v. Union of India [Writ Petition No. 595 of 2017]

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