Govt Can Only ‘Monitor’ MRP Of Non-Scheduled Formulations Under Drugs (Price Control) Order, Not Fix Or Revise It: Delhi High Court

A Division Bench of the Delhi High Court recently held that the government only has power to “monitor” the maximum retail price (MRP) of non-scheduled formulations, and not to fix or revise it. It was added that in case there is an increase in the MRP beyond this limit, the consequences are prescribed in Para 20 itself.

The judgment came to be passed in a batch of LPAs filed by pharmaceutical companies, bringing into question interpretation of Para 20 of the Drugs (Price Control) Order, 2013 (DPCO 2013), which deals with monitoring of non-scheduled formulations’ MRP.

In essence, the pharmaceutical companies were aggrieved by demand notices issued to them by National Pharmaceutical Pricing Authority (NPPA) alleging overcharging of consumers w.r.t. certain drug formulations (in contravention of Para 20, DPCO 2013).

Noting that Para 20 was modelled on National Pharmaceuticals Pricing Policy (NPPP) 2012, the court rejected the appellants’ contention that non-scheduled drugs were outside the purview of price control regime under DPCO 2013. It held that non-scheduled formulations under DPCO 2013 are a part of a price “monitoring” mechanism envisaged under NPPP 2012.

The Division Bench, comprising the Chief Justice and Justice Subramonium Prasad, drew a contrast with DPCO 1995 and opined that the power to fix and revise prices for non-scheduled formulations had deliberately and consciously been done away with under DPCO 2013.

The appellants/UOI had come before the Bench, assailing orders of the Single Judge, whereby challenge of the pharmaceutical companies to the demand notices was allowed.

They contended that Para 20, DPCO 2013 was penal in nature. As per them, it was aimed as a deterrent against unreasonable profiteering by manufacturers, detrimental to consumers’ interest, so that life-saving drugs could be made available at fair price.

The appellants also averred that non-scheduled drugs were not outside the purview of price control mechanism.

The court noted that Para 20 of DPCO 2013 was divided into two “separate and identifiable parts”. First part provides that a manufacturer of a non-scheduled formulation may increase its MRP by 10% of the MRP during preceding 12 months and preserve the said MRP for the next 12 months (the increase being monitored by the government).

The second part, it was said, deals with consequences in case of a transgression by the manufacturer. These consequences include manufacturer’s liability to deposit the overcharged amount along with interest from the date of transgression, and reduction of the MRP of the non-scheduled formulation to the level of 10% of MRP for the next 12 months.

After hearing the rival contentions, the Bench held that DPCO 2013, unlike DPCO 1995, only applied to drug formulations and not to bulk drugs. It refused to accept the appellants’ contention that Para 20 was a penal provision and opined that they failed to establish that the price monitoring system envisaged under the provision did not keep in mind consumers’ interests.

“Penalty is only stipulated under the parent legislation and cannot be a part of an Order under the same. Thus,the term “penalty” under Para 20 of the 2013 DPCO does not create an additional penalty beyond what is provided under the EC Act”.

Applying the rule of literal construction, the court further said that the words ‘preceding’ and ‘next’ in Para 20 must be interpreted to mean the period of 12 months immediately prior/after the date when MRP of the non-scheduled formulation was increased. In other words, the date of transgression means the date from which MRP was increased.

On the appellants’ contention that the concept of rounding-off of MRP was not applicable to drugs under DPCO 2013, the Single Judge had held that rounding-off was permissible in case of non-scheduled formulations, considering the practical difficulties that may be faced by consumers and suppliers.

The Bench, agreeing with the Single Judge, opined that limiting the applicability of the principle of rounding-off only to scheduled formulations would be unreasonable and arbitrary.

It however agreed with the appellants that the benefit of rounding-off was permitted only upto two decimal points, when no other mala-fide intention on part of the company was evident. This, the court said, was in line with NPPA’s Minutes of Meeting dated 12.04.2016.

“This Court finds it 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”.

Lastly, it was underlined that the 10% increase in MRP must be calculated based on actual MRP in the preceding 12 months and not on what was the MRP permissible.

Mr. Kirtiman Singh, CGSC with Ms. Manmeet Kaur Sareen, Ms. Vidhi Jain, Advocates appeared for appellants

Mr. Rohan Shah, Mr. Alok Yadav and Ms. Srisabari Rajan, Advocates appeared for Bharat Serums and Vaccines

Ms. Archana Sahadeva, Advocate appeared for Cipla

Ms. Krishna Sarma, Mr. Kumar and Ms. Archita Phookun, Advocates appeared for Bard Healthcare India

Case Title: Union of India & Anr. v. Bharat Serums and Vaccines Limited

Citation: 2023 LiveLaw (Del) 1120

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