The Bombay High Court upon a plain and conjoint reading of the Drugs (Price Control) Order, 2013 (DPCO 2013), particularly the definitions of “ceiling price,” “scheduled formulation,” “non-scheduled formulation,” and “schedule,” read with paragraphs 4, 17 and 20, has clarified that the ceiling price under DPCO 2013 applies only to formulations specifically included in the First Schedule, or subsequently added thereto by specific orders issued under the powers conferred by DPCO 2013. A formulation whose dosage and strength are not specified in the First Schedule remains a non-scheduled formulation and is therefore not subject to ceiling price, though its MRP may be monitored under paragraph 20.
The Court held that where a specific drug delivery system such as Sustained Release (SR) or Controlled Release (CR) is not expressly included in the First Schedule to DPCO 2013, the National Pharmaceutical Pricing Authority (NPPA) cannot treat such formulation as covered merely because the underlying drug or salt in conventional form appears in the Schedule. The separate inclusion of formulations with different drug delivery systems by specific subsequent orders, along with separate ceiling prices, demonstrates that such formulations are distinct for the purposes of DPCO 2013.
Therefore, NPPA’s attempt to apply ceiling price to Glyciphage SR 500 mg tablet, which was neither part of the original First Schedule nor subsequently added thereto by a specific order, was contrary to DPCO 2013, and the overcharging notices and demand notices founded on that basis were unsustainable, added the Court.
The Division Bench comprising Justice Manish Pitale and Justice Shreeram V. Shirsat observed that DPCO 2013 had to be interpreted in the backdrop of the National Pharmaceutical Pricing Policy, 2012, which brought about a fundamental change in the principles for pricing of pharmaceuticals by shifting from control of bulk drugs to control of formulations only. The Bench treated this policy shift as a crucial factor and noted that DPCO 2013, issued under Section 3 of the Essential Commodities Act, 1955 in supersession of DPCO 1995, had to be read in that context.
The Bench considered paragraph 17 of DPCO 2013, which provides for amendment of the list of scheduled formulations, and specifically noted that medicines omitted from the First Schedule would fall under the category of non-scheduled formulations. It then examined paragraph 20, under which the Government is empowered to monitor the MRPs of all drugs, including non-scheduled formulations, so that no manufacturer increases the MRP of a drug by more than ten percent during the preceding twelve months.
The Bench then relied on the documents on record showing that the Ministry of Chemicals and Fertilizers exercised powers under paragraphs 4, 11 and 14 of DPCO 2013 to issue specific orders for adding formulations with ceiling prices to the First Schedule. According to the Bench, this clearly demonstrated that where ceiling prices were fixed for specific formulations, those formulations were brought within the First Schedule by specific orders, and formulations not already forming part of the Schedule became scheduled formulations only upon issuance of such orders.
Lastly, the Bench clarified that fixation of ceiling prices must be in accordance with the governing policy and the drug price control order itself. It held that NPPA cannot insist on a price ceiling in the teeth of the policy and the DPCO where those instruments specify a particular manner of identifying medicines for fixing ceiling prices. Therefore, where the policy is found to be arbitrarily implemented, the writ court can certainly interfere. Consequently, the Bench held that NPPA’s stand was against the interpretation of DPCO 2013 adopted by the parent Ministry, rendering the impugned notices and demands unsustainable.
Briefly, the petitioners were M/s. Franco Indian Pharmaceuticals Pvt Ltd., a manufacturer, marketer and distributor of pharmaceutical formulations, and the Indian Drug Manufacturers Association (IDMA), a registered association of manufacturers of drugs and pharmaceuticals in India. The controversy concerned the interpretation and implementation of the DPCO 2013, specifically whether the NPPA could insist on ceiling price for formulations that did not form part of the First Schedule to DPCO 2013. IDMA also challenged NPPA’s communication, which purported to interpret DPCO 2013 contrary to the interpretation of the Ministry of Chemicals and Fertilizers, Department of Pharmaceuticals.
Since NPPA proceeded on the footing that formulations not specifically mentioned in the First Schedule were also amenable to price ceiling, manufacturers were issued claims for recovery of allegedly overcharged amounts. In that background, interim relief was sought, and the Court granted protection that no coercive steps would be taken pursuant to the demand notices issued against such manufacturers. The interim relief continued till final hearing after pleadings were completed.
On Dec 07, 2012, the Union of India, through the Ministry of Chemicals and Fertilizers, issued the National Pharmaceutical Pricing Policy, 2012, under which the key principles for regulation of prices were identified as essentiality of drugs, control of prices of formulations only instead of specific bulk drugs, and market-based pricing. The policy specifically provided that essentiality would be determined by the medicines specified in NLEM, and for the purpose of price regulation reliance was placed on NLEM 2011, with the span of price control specified on the basis of dosages and strengths listed therein.
Thereafter, on May 15, 2013, DPCO 2013 was notified. The First Schedule appended to DPCO 2013 incorporated NLEM 2011 and thereby specified the formulations to which ceiling prices applied. DPCO 2013 defined expressions such as ceiling price, formulation, schedule, scheduled formulation, non-scheduled formulation and price list, and also laid down the manner in which ceiling prices would be fixed for scheduled formulations and prices of non-scheduled formulations would be monitored. The Ministry of Chemicals and Fertilizers thereafter issued orders which specified “Metformin Tablets” of strength 500 mg with a ceiling price of Rs. 1.56 per tablet. Franco Indian Pharmaceuticals implemented the same for its Metformin 500 mg plain tablet. However, it was also manufacturing “Glyciphage SR 500 mg tablet,” which contained Metformin, and since that formulation was not mentioned in the First Schedule to DPCO 2013, the petitioner proceeded on the basis that no ceiling price stood fixed for it.
The petitioners’ case was that plain conventional Metformin tablets are based on simple wet granulation manufacturing technology, under which the drug is released at one go in the gastrointestinal tract, whereas sustained release formulations use a different and sophisticated technology, namely biphasic polymer matrix diffusion technology, with a different drug delivery system and prolonged gastric residence. On that basis, the petitioners contended that unless Sustained Release (SR) and/or Controlled Release (CR) formulations were specifically included in the First Schedule to DPCO 2013, NPPA could not insist upon ceiling price for such formulations.
In August 2013, IDMA approached the Union of India and interactive meetings were held regarding DPCO 2013 and the issues arising therefrom. The Ministry of Chemicals and Fertilizers clarified to IDMA that innovative dosage form of scheduled formulations were opined not to be kept under price control under DPCO 2013, and the Ministry of Health and Family Welfare issued an office memorandum stating that conventional forms of drugs like tablets, capsules and injections, as mentioned in NLEM 2011, would be considered as part thereof and not dosage forms like modified release forms, dispersible, effervescent, soluble, etc., unless specified in non-conventional dosage form in NLEM 2011.
Despite these clarifications, notices began to be issued alleging overcharging in respect of formulations not included in the First Schedule. Franco Indian Pharmaceuticals received notice from NPPA in relation to Glyciphage SR 500 mg tablet, on the ground that its MRP was higher than the ceiling price. The petitioner replied stating that the SR formulation was not covered by the First Schedule to DPCO 2013, but NPPA did not accept the response. Thereafter, NPPA issued a show cause notice alleging overcharging of about Rs. 3.85 crores in respect of Glyciphage SR 500 mg tablet, and thereafter by demand notice, called upon the petitioner to deposit Rs. 7.88 crores along with 15% interest, failing which recovery proceedings as arrears of land revenue under the Essential Commodities Act, 1955 would be initiated.
Appearances:
Senior Advocate Navroz Seervai, along with Advocates Arti Raghavan and Tavleen Saini, for Petitioners in WP/2216/2015
Advocates Dheeraj Nair, Pratik Pawar, Shanaya Cyrus Irani, Avni Sharma and Sanjana Pandey, for Petitioner in WP/885/2015
Advocate M. S. Bhardwaj, for Respondents in WP/2216/2015
Advocates G. R. Sharma and D. P. Singh, for Respondents in WP/885/2015
