The Bombay High Court has emphasised that different drug delivery systems require specific mention when intended to be covered by price control, and held that the ceiling price fixed for Theophylline SR 300 mg could not be treated as applicable to the distinct drug delivery system sold by Tridoss Laboratories (petitioner) as Phylobid CR 300 mg.
Consequently, the demand notice issued by the Union of India through the Department of Pharmaceuticals, and the notice of demand to a defaulter issued by the Tahsildar under Section 267 of the Maharashtra Land Revenue Code, 1966, seeking recovery of the alleged overcharged amount in respect of a pharmaceutical formulation, as arrears of land revenue, was quashed and set aside.
The Division Bench comprising Justice Manish Pitale and Justice Shreeram V. Shirsat observed that the respondent’s own record failed to establish service of the alleged notice on the petitioner, and that service on the petitioner’s licensee could not justify a presumption of service on the petitioner itself. The Bench therefore held that the first notice served on the petitioner was the notice dated February 18/20, 2015 relating to the period May 2004 to February 2006, meaning that the petitioner was sought to be proceeded against after a delay of nine years, and by the demand notice dated February 15, 2016 after a delay of more than ten years.
The Bench observed that the notice dated February 15, 2016 made a complete departure from the earlier notice dated February 18/20, 2015. The earlier notice had proceeded on the basis that the petitioner had failed to apply for price approval and was therefore liable to deposit the entire sale proceeds as “unauthorized sale proceeds.” In contrast, the later notice, expressly issued in supersession of the earlier one, treated the case as one of overcharging and restricted the claim to the overcharged amount calculated by taking the ceiling price fixed for Theophylline SR 300 mg as applicable to Theophylline CR 300 mg. The Bench treated this as a conscious abandonment by the respondents of the earlier basis of liability.
Further, the Bench found substance in the petitioner’s contention that the gross delay of more than ten years had prejudiced its defence because the relevant data and record were no longer available, and that the respondents could not be permitted to “rise from their slumber” after more than a decade to allege overcharging. It held that such delayed action amounted to violation of principles of natural justice and reiterated that even where a statute is silent on limitation, authorities are expected to initiate action within a reasonable period. The Bench expressly held that, in the facts of the case, the gross delay itself could be a ground to set aside the show cause notice, demand notice and the consequential notice under the Maharashtra Land Revenue Code.
The Bench also observed that respondent No.1 and National Pharmaceutical Pricing Authority (NPPA) were expected to act fairly and reasonably even while taking administrative action. It relied on the principle that the distinction between quasi-judicial and administrative functions has withered away and that principles of natural justice must inform administrative decision-making as well. The Bench opined that fairness in the present case required acting within a reasonable time, granting a fair hearing, and recording reasons, especially when severe consequences such as recovery of a large amount as arrears of land revenue were being inflicted.
The petitioner had raised substantive grounds in its responses dated March 14, 2016, May 09, 2016 and December 02, 2016, including non-applicability of ceiling price fixation to Theophylline CR 300 mg, its small-scale industry exemption, and the non-availability of records due to lapse of time. Despite this, the petitioner was never granted a hearing, the respondents directly proceeded to recover the amount as arrears of land revenue, and no reasons were recorded for the drastic action. The Bench held that this approach violated principles of natural justice and reflected lack of fairness in the exercise of power.
The Bench also observed that respondent No.1 had consciously included Theophylline SR 300 mg tablets under the price fixation regime by notification dated August 09, 1996 but had not included Theophylline CR 300 mg tablets until October 03, 2006. The respondents’ contention that sustained release (SR) and controlled release (CR) should be treated as equivalent was held unacceptable, particularly because the subsequent notification of October 03, 2006 specifically included Theophylline CR 300 mg, indicating that separate inclusion was necessary.
Briefly, the petition was filed by Tridoss Laboratories Pvt. Ltd. and its authorized representative challenging (i) the demand notice dated February 15, 2016 issued by the Union of India through the Department of Pharmaceuticals, and (ii) the notice of demand to a defaulter issued by the Tahsildar under Section 267 of the Maharashtra Land Revenue Code, 1966, seeking recovery of the alleged overcharged amount as arrears of land revenue. The petitioners contended that they were not liable to pay the demanded amount for alleged overcharging in respect of a pharmaceutical formulation and, in any event, the demand was hopelessly time-barred.
On January 06, 1995, the Union of India issued the Drugs (Price Control) Order, 1995 under Section 3 of the Essential Commodities Act, 1955. The First Schedule to DPCO 1995 specified bulk drugs and formulations for which ceiling price was to be fixed, and for the purposes of the case, inclusion of “Theophylline” in the First Schedule was relevant. DPCO 1995 also contained provisions concerning definitions, fixation of retail and ceiling prices, and recovery of overcharged amounts from manufacturers and marketers of bulk drugs and formulations.
The petitioner claimed exemption under a notification dated March 02, 1995 meant for small scale units. Thereafter, by notification dated November 06, 1995, ceiling prices were fixed for various formulations of Theophylline. The petitioner was manufacturing Theophylline CR 300 mg tablets, but that formulation was not included in the notification. Even when certain variants were added by subsequent notification dated August 09, 1996, the petitioner’s formulation, namely Theophylline CR 300 mg tablets, was still not included. On that basis, the petitioner proceeded on the footing that no ceiling price applied to its formulation.
After about nine years, by notification dated October 03, 2006, ceiling prices were introduced for the first time for the variant Theophylline (CR/SR) 300 mg tablets. By then, the petitioner had already discontinued manufacture of its brand “Phylobid CR 300 mg tablet.” The respondents claimed that a notice dated June 02, 2008 had been issued regarding alleged overcharging in respect of that product, but the petitioner denied receipt, and the Court found that the material on record did not support the respondents’ assertion that such notice had been served on the petitioner.
No further action was taken until February 18/20, 2015, when a notice was issued alleging that the petitioner had manufactured and marketed Phylobid CR 300 mg tablets between May 2004 and February 2006 without applying for price approval despite knowing that the product was in the controlled price category. That notice proceeded on the footing that the entire amount received from sale of the product was payable because the petitioner had not applied for price approval. Subsequently, on February 15, 2016, a demand notice was issued to the petitioner and its licensee, superseding the earlier notice and alleging overcharging above the ceiling price fixed for the product.
The petitioner responded that manufacture of the product had been discontinued in 2006. By detailed reply dated May 09, 2016, the petitioner specifically denied receipt of the alleged June 02, 2008 notice and contended that the amended notification under DPCO 1995 fixed a ceiling price only for Theophylline SR 300 mg tablets and not for Theophylline CR 300 mg tablets sold by it as Phylobid CR 300 mg tablet. On October 30, 2017, the Tahsildar issued a notice of demand to a defaulter under Section 267 of the Maharashtra Land Revenue Code demanding Rs. 1,25,22,416/- within 20 days and threatening attachment and sale of the petitioner’s property in case of non-payment.
Appearances:
Senior Advocate Sharan Jagtiani, along with Advocates Surabhi Agrawal, Vishal Maheshwari and Kamini Pansare, for the Petitioners
Senior Advocate A. S. Khandeparkar, along with Advocates D. P. Singh, Yashodeep Deshmukh and Vaidehi Pradeep, for Respondent No.1/ UOI
AGP Uma Rahi, for the Respondent Nos.2 and 3/ State
