Delhi High Court
Alembic Pharmaceuticals Limited vs Union Of India And Ors. on 8 February, 2019
$~40
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ W.P.(C) 11391/2017 & CM Nos. 46498/2017 & 46499/2017
ALEMBIC PHARMACEUTICALS LIMITED ..... Petitioner
Through: Mr Saurav Agrawal, Ms Archana
Sahadeva, Mr Tajali Andrabi and
Mr. Anshuman Chowdhury,
Advocates.
versus
UNION OF INDIA AND ORS. ..... Respondents
Through: Mr Vinod Diwakar, CGSC with
Mr Sayandeep Pahari and Ms
Radhika Roy, Advocates for R-
1/UOI with Mr Manoj Kumar
Singh, NPPA.
CORAM:
HON'BLE MR. JUSTICE VIBHU BAKHRU
ORDER
% 08.02.2019
VIBHU BAKHRU, J
1. The petitioner has filed the present petition, inter alia, impugning
a demand notice dated 09.11.2017 (hereafter „the impugned notice‟)
issued by the National Pharmaceutical Pricing Authority (hereafter
„NPPA‟). By the impugned notice, the petitioner has been called upon to
deposit a sum of ₹2,36,75,036/- with the Pay and Accounts Officer,
NPPA, on the ground that the said amount was overcharged by the
petitioner in respect of the formulation, "Althrocin 125 mg Syrup
containing Erythromycin 125 mg." (hereafter „the Formulation‟).
2. A plain reading of the impugned notice indicates that the same has
been issued under Paragraph 14(2) of the Drugs (Prices Control) Order,
2013 (hereafter referred to as „the DPCO‟).
3. The Formulation was excluded from Schedule-I of the DPCO,
with effect from 10.03.2016. It is accordingly contended on behalf of the
petitioner that the NPPA has no jurisdiction to fix any ceiling price for
the Formulation in terms of the DPCO. And, consequently, the demand
raised under Paragraph 14 of the DPCO which is premised on the
allegation that the petitioner has charged a price in excess of the ceiling
price framed for the Formulation, is also without jurisdiction.
4. The aforesaid controversy arises in the following context.
5. Admittedly, the Formulation was included in the National List of
Essential Medicines, 2011 (NLEM, 2011), which was incorporated as
Schedule I of the DPCO. Clause (zb) of Sub-paragraph (1) of Paragraph
2 of the DPCO defines the expression „scheduled formulation‟ to mean
"any formulation, included in the First Schedule whether referred to by
generic versions or brand name". As the Formulation was included in
the First Schedule to the DPCO, it fell with the scope of a „scheduled
formulation‟, within the meaning of the aforesaid clause.
6. Sub-paragraph (1) of Paragraph 14 of the DPCO requires the
Government to fix and notify the ceiling prices of scheduled
formulations in accordance with the provisions of the DPCO. And, by a
notification dated 25.03.2015, the NPPA fixed the ceiling price for the
Formulation at 50 paise per ml (₹30 for a pack of 60ml). The said
ceiling price came into effect from 01.04.2015.
7. On 02.03.2016, NPPA issued another notification, S.O.644(E),
whereby the ceiling price for the Formulation was reduced to 49 paise
per ml (which translates to ₹29.40 for 60 ml), with effect from
01.04.2016.
8. By a notification, S.O. 701(E), dated 10.03.2016, the First
Schedule to the DPCO was substituted and the National List of Essential
Medicines, 2015, was incorporated as Schedule - I to the DPCO. The
Formulation was not included therein and, therefore, with effect from
10.03.2016, the Formulation ceased to be a „scheduled formulation‟. It
now fell within the definition of a „non-scheduled formulation‟ within
the meaning of clause (v) of sub-paragraph (1) of Paragraph 2 of the
DPCO.
9. Thereafter, on 06.04.2016, the NPPA issued an Office
Memorandum (hereafter „the Office Memorandum‟), which provided the
ceiling price for those scheduled formulations which were excluded from
the list of scheduled formulations, would be the price as notified in terms
of the notification dated 02.03.2016. The Office Memorandum was
subsequently withdrawn on 01.05.2017.
10. The respondents contend that in terms of the Office Memorandum,
the Maximum Retail Price (MRP) of the Formulation was fixed at ₹0.49
per ml and, therefore, the same could not be revised for a period of
twelve months commencing from 01.04.2016.
11. The petitioner revised the MRP of the Formulation with effect
from 05.05.2016 to ₹32.86. According to the respondents, the same was
impermissible. Conseqently, the respondents have issued the impugned
notice.
Reasons and Conclusion
12. The NPPA claims that the petitioner has charged in excess of the
ceiling price as notified in terms of the notification dated 02.03.2016. It
is apparent that the NPPA‟s case that the petitioner has overcharged for
the Formulation is founded on the Office Memorandum. It is contended
on behalf of the NPPA that in terms of the Office Memorandum, the
MRP of the scheduled formulations that were excluded from the First
Schedule with effect from 10.03.2016, was fixed at the ceiling price as
fixed on 02.03.2016; in terms of Paragraph 20 of the DPCO, the
petitioner was proscribed from increasing the same for further period of
twelve months from the said date
13. It is clear from the plain reading of the provisions of the DPCO
that NPPA‟s case is fundamentally flawed. Sub-paragraph (1) of
Paragraph 14 of the DPCO, 2013 enables the NPPA to fix ceiling price
of „scheduled formulations‟. Paragraph 14 of the DPCO, is set out
below:-
"14. Fixation of ceiling price of scheduled
formulations.-
(1) The Government shall fix and notify the ceiling
prices of the scheduled formulations in accordance with
the provisions of the paragraphs 4 and 6, as the case
may be, and no manufacturer shall sell the scheduled
formulations at a price higher than the ceiling price
(plus local taxes as applicable) so fixed and notified by
the Government.
(2) Where any manufacturer sells a scheduled
formulation at a price higher than the ceiling price (plus
local taxes as applicable) fixed and notified by the
Government, such manufacturers shall be liable to
deposit the overcharged amount along with interest
thereon from the date of such overcharging."
14. It is clear from the above that the NPPA has no power to fix the
ceiling price or the MRP of any formulation other than a scheduled
formulation. Concededly, the Formulation had ceased to be a „Scheduled
formulation‟ with effect from 10.03.2016. Consequently, the power of
the NPPA to fix a ceiling price for the Formulation had also ceased with
effect from 10.03.2016.
15. Having stated above, it is also necessary to refer Paragraph 20 of
the DPCO, which reads as under:-
"20. Monitoring the prices of non-scheduled
formulations.-
(1) The Government shall monitor the maximum retail
prices (MRP) of all the drugs, including the non-
scheduled formulations and ensure that no
manufacturer increases the maximum retail price of a
drug more than ten percent of maximum retail price
during preceding twelve months and where the
increase is beyond ten percent of maximum retail
price, it shall reduce the same to the level of ten
percent of maximum retail price for next twelve
months.
(2) The manufacturer shall be liable to deposit the
overcharged amount along with interest thereon from
the date of increase in price in addition to the
penalty."
16. It is clear from the plain language of Sub- paragraph (1) of
Paragraph 20 of the DPCO that the Government is required to monitor
the MRP of all drugs, including the non-scheduled formulations.
However, the same does not empower NPPA (the Government) to fix a
MRP for a non-scheduled formulation. The only restriction placed by
virtue of Paragraph 20 of the DPCO is that a manufacturer cannot
increase the MRP of any drug by more than 10% of the MRP as
prevailing during the preceding twelve months. Thus, in terms of
Paragraph 20 of the DPCO, the NPPA would be well within its rights to
ensure that the petitioner does not increase the MRP of the Formulation
for a period of twelve months.
17. Admittedly, in the present case, the MRP of the Formulation at the
time when it ceased to be a scheduled formulation - which was also the
ceiling price at the material time - was fixed on 01.04.2015. Therefore,
in terms of Paragraph 20 of the DPCO, the petitioner could not have
increased that price for a further period of one year from that date, that is,
from 01.04.2015 till 01.04.2016. By that time, the Formulation was no
longer a „scheduled formulation‟ and, therefore, there was no prohibition
on the petitioner to increase the price, subject to such increase being
within the permissible limit of 10% of the MRP prevailing during the
preceding twelve months.
18. The petitioner revised the MRP of the Formulation with effect
from 05.05.2016, which was well beyond the period of twelve months
from 01.04.2015 (the date of the last revision of the MRP). Further, it is
also not the respondent‟s case that such revision was beyond the limit of
10% as permitted under Paragraph 20 of the DPCO.
19. As noticed above, the contention that the petitioner was proscribed
from increasing the price is founded on the Office Memorandum. Thus,
the next question to be addressed is with regard to the validity of the
Office Memorandum, which is at the fulcrum of the case set up by the
respondent.
20. The Office Memorandum is set out below:-
"No.19(119)/2014/Div-II/NPPA
Government of India
Ministry of Chemicals & Fertilizers
Department of Pharmaceuticals
National Pharmaceutical Pricing Authority
5th/3rd Floor,
YMCA Cultural Centre Building,
1, Jai Singh Road, New Delhi-110001
Dated 06.04.2016
OFFICE MEMORANDUM
"Sub: Clarification regarding formulations shifted to the
Non-Scheduled category due to amendment of
Schedule-I of the DPCO, 2013.... reg.
The Authority took note of S.O. 644(E) dated
02.03.2016 whereby NPPA notified revised ceiling
prices of 530 scheduled formulations, after applying
WPI of (-) 2.7105% ; and (ii) notification no.
S.O.701(E) dated 10.03.2016 of Department of
Pharmaceuticals (DOP) whereby the Schedule-I of
DPCO 2013, has been revised.
a. Reference date for price revision for any non-
scheduled formulation is the date succeeding twelve
months of last notified ceiling price or last revised
MRP (in case of those formulations being sold at sub-
ceiling prices), as the case may be.
b. Reference date of transition from scheduled to non-
scheduled category in respect of those formulations is
10.03.2016. Last ceiling price as notified on
02.03.2016 for such formulations (or sub-ceiling price
with corresponding reduction due to decline in WPI,
as per paragraph 16(4) of DPCO, 2013 shall be kept
frozen and maintained as MRP for twelve months
from 01.04.2016 by the manufacturers of such
formulations; and thereafter increase upto ten percent
in MRP will be allowed as per paragraph 20 of
DPCO, 2013.
-sd-
(A. K. Khurana)
Director
Copy to:
Apex Pharma Associations i.e. OPPI, IDMA,
AISSPMA, FICCI, CII, IPA and FOPE for
information & necessary action please."
21. It is apparent from the plain reading of the Office Memorandum
that the NPPA has fixed the MRP of non-scheduled formulations by
ascribing the values of the ceiling prices fixed by virtue of the
notification dated 02.03.2016. Plainly, this is impermissible as the
NPPA has no jurisdiction to fix prices of non-scheduled formulations.
As noticed above, in terms of Paragraph 14 of the DPCO, the power to
fix the ceiling prices is limited to fixing the ceiling prices of scheduled
formulations. The power to fix the prices of non-scheduled formulations
is not found in any of the provisions of the DPCO. As noticed above,
Paragraph 20 of the DPCO only enables the Government to monitor the
MRP of the drugs in the manner as specified therein. It does not permit
the Government to fix a MRP. The NPPA, thus, had no jurisdiction to
fix the ceiling price as notified on 02.03.2016, to be the MRP with a
further direction to follow the same for a further period of twelve months
with effect from 01.04.2016.
22. In view of the above, the Office Memorandum is without
jurisdiction. Therefore, the respondents‟ case which is founded on the
Office Memorandum, must also fail.
23. It is also relevant to note that a Review Petition was filed by M/s
Abbott India Limited under Paragraph 31 of the DPCO, inter alia,
against the Office Memorandum. The said petition was disposed of by an
order dated 14.09.2016, whereby the Government had directed the NPPA
to withdraw the Office Memorandum. Admittedly, in compliance with
the aforesaid order, the NPPA had issued an Office Memorandum dated
01.05.2017, whereby the Office Memorandum was withdrawn.
24. Before concluding, it is also relevant to note that the impugned
demand is founded on Paragraph 14 of the DPCO and, no contentions
have been advanced before this Court to support the said demand on the
basis of fixation of a ceiling price under Paragraph 14(1) of the DPCO.
The contentions advanced on behalf of the respondents are founded on
sustaining the demand on the basis of Paragraph 20 of the DPCO. Thus,
in any view of the matter, the impugned notice cannot be sustained.
25. In view of the above, impugned notice is set aside.
26. The petition is allowed in the aforesaid terms. The parties are left
to bear their own costs.
27. The pending applications are also disposed of.
VIBHU BAKHRU, J
FEBRUARY 08, 2019/MK
