M/S T.C. HEALTHCARE P. LTD. & ANR. versus UNION OF INDIA & ANR. on 15 November 2019

SUPREME COURT REPORTS

[2019] 14 S.C.R.

A

M/S T.C. HEALTHCARE P. LTD. & ANR.

v.

UNION OF INDIA & ANR.

(Civil Appeal No. 4687 of 2010)

BNOVEMBER 15, 2019

[ARUN MISHRA, VINEET SARAN ANDS. RAVINDRA BHAT, JJ.]

Drugs (Price Control) Order, 1995: Paras 3, 7, 8 and 9Fixation of ceiling price of drug, Scheduled formulations –CNotifications dated 11[th] July, 2006 and 30[th] April, 2009 imposingceiling prices on a drug formulation, Frusemide, Potassium andTheophylline – Challenged to, by the drug manufacturers as ultravires Para 7 of the DPCO – High Court dismissed the writ petitions– Interference with – Held: Not called for – Modifications in drugDrelease are often desirable to increase the stability, safety andefficacy of the drug, to improve the therapeutic outcome of the drugtreatment and/or to increase patient compliance and convenienceof administration – Use of the term “sustained release” denotesthe systems that maintain the rate of drug release over a sustainedEperiod – Controlled release systems are drug delivery systems inwhich the drug is released in a predetermined pattern over a fixedperiod of time – Materials on the record show that the DPCO wasaware of the existence of different systems of drug delivery andof sustained release – Manufacturers ought to have demonstratedthat the systems used by them were unique or different – In absenceFthereof, they were obliged to follow the pricing norms and ceilingprices fixed by the impugned notifications.

Dismissing the appeals, the Court

HELD: 1.1 The High Court, took note of the notificationdated 13[th] August, 2008, which fixed conversion costs for plainGtablets, coated tablets, dispersible tablets, gelatin coated tablets,bi layered tablets, sustained release tablets, chewable tablets,effervescent tablets, inlay tablets, capsules and other drugs. Theappellants had not urged that different conversion costs werefixed for controlled release system, or the continuous releaseHsystems, anytime. In these circumstances, it was held that the pricing norms were applicable. Note (d) to the notification of 30[th]April, 2009, stated that for different packing materials used ordifferent drug delivery systems or any other special features/formsclaimed, the ceiling prices, as specified in Column 5 shall beapplicable unless the companies approach NPPA for specific priceapprovals for its formulations”. In the instant case, the appellantsdid not approach NPPA for specific price, or contend before itthat their products contained special features. On the otherhand, the allusion to “sustained release” and drug deliverysystems (in Note (d)) clearly contemplated that unless otherwisespecifically sought– in regard to particular drugs, the pricefixation norms applied to all. [Para 10, 11] [626-C-G]

1.2 According to pharmacopedias and the US Food andDrug Administration’s definitions, modifications in drug releaseare often desirable to increase the stability, safety and efficacyof the drug, to improve the therapeutic outcome of the drugtreatment and/or to increase patient compliance and convenienceof administration. In that context, the use of the term “sustainedrelease” denotes the systems that maintain the rate of drugrelease over a sustained period. For example, if the release ofthe drug from the dosage form is sustained such that the releasetakes place throughout the entire gastrointestinal tract, onecould prolong the time interval of drug concentration in thetherapeutic range. This in turn may reduce the frequency ofdosing, for example from three times a day to once a day.Sustained–release dosage forms achieve this mostly by the useof suitable polymers, used either to coat granules or tablets(reservoir systems) or to form a matrix in which the drug isdissolved or dispersed (matrix systems). Controlled releasesystems are drug delivery systems in which the drug is releasedin a predetermined pattern over a fixed period of time.Therefore, the materials on the record show that the DPCO wasaware of the existence of different systems of drug delivery; itspecifically talked of sustained release. If the appellants wishedto say that the systems used by them were unique or different,it was open for them to have so demonstrated. Their omissionto do so, did not in any way affect their obligation to follow thepricing norms and ceiling prices fixed by the impugnednotifications. Therefore, there is no reason to differ from the A

B

C

D

E

F

G

H

Aconclusions and findings of the High Court. [Para 12] [626-G-H; 627-A-D]

Union of India v. Cynamide India Ltd. (1987) 2 SCC720 – referred to.

Case Law Reference

B

(1987) 2 SCC 720

referred toPara 6

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4687of 2010.

From the Judgment and Order dated 20.04.2010 of the HighCCourt of Judicature at Allahabad in Writ Petition No. 33753 of 2009.

With

C.A. No. 4679/2010 and 10687/2011.

Maninder Singh, Sr. Adv., N.S. Ahluwalia, Salil Seth, NeerajDMalik, Umesh Kumar Khaitan, Somiran Sharma, A.P. Mayee, GurmeetSingh Makker, Advs. for the appearing parties.

The Judgment of the Court was delivered by

S. RAVINDRA BHAT, J.

E1. This appeal by special leave questions a decision of theAllahabad High Court rejecting a writ petition. In those proceedings,the appellant had challenged the vires of notifications dated 11[th] July,2006 and 30[th] April, 2009, which imposed ceiling prices on a drugformulation, Frusemide.F2. The facts necessary for deciding this appeal are that theappellants, i.e. TC Healthcare and Modi Mundipharma Pvt. Ltd.(hereafter “TCH” and “Modi” respectively and “the appellants”collectively), at the relevant time, manufactured drugs. By reason of anotification dated 2[nd] March, 1995, the appellants were exempted fromthe regime of price fixation, under the Drugs (Price Control) Order,G1995 (hereafter “DPCO”) as they were small scale units. Para 8 ofthe DPCO prescribed that if the Central Government were to fix theprice of any bulk drug under Para 3, and such bulk drug is used by amanufacturer to prepare a formulation, the manufacturer must applyunder Form III for price revision of such formulation, upon which theHCentral Government may fix or revise the price of the formulation.

3. TCH, at the relevant time, was manufacturing several drugformulations. It was registered as a small-scale unit (SSU) and therefore,exempt, by reason of Para 8 of the DPCO, from the drug price controlregime. Likewise, Modi too was, at the relevant time, exempt, as anSSU, from drug price control. TCH produces and distributes severalformulations, including Diucontin K (20mg and 40mg) prepared fromthe bulk drug Frusemide. Modi on the other hand, manufacturesUnicontin (400 mg and 600 mg) derived from the bulk drugTheophylline. For this formulation, (i.e in the 400 mg and 600 mg tablets)drug ceiling prices were fixed by a notification dated 11[th] July, 2006.Initially, Modi filed an injunction suit; however, that was dismissed fornon-prosecution. Upon receiving demand notices, it sought for quashingof the said notification (dated 11[th] July, 2006) and the consequentnotifications/ demands, in writ proceedings before the Allahabad HighCourt. Similarly, TCH’s writ petition challenged the notification dated30[th] April, 2009, whereby the ceiling price of formulations containingFrusemide and Potassium were fixed; it also questioned the consequentdemands by the Central Government.

4. Before the High Court, it was contended by the presentappellants that the price fixation exercise was undertaken arbitrarily andwas the result of non-application of mind. It was urged that thenotification overlooked the cost and efficiency of major manufacturers.It was also urged that the price fixation through the impugnednotifications was ultra vires Para 7 of the DPCO, as there were noprice norms in respect of formulations that used the sustained releasetechnology or method in the final product for effective dose delivery.It was further urged that the respondents had no figures or details withrespect to cost or efficiency of major manufacturers and thatconsequently, they were obliged to call for such particulars. Similarly,in respect of Unicontin, it was urged by Modi that there were no normsin respect of the continuous release technology used for effective andefficacious drug delivery.

5. In the impugned judgment, the High Court negatived thechallenge to the notifications on the ground that they were ultra viresPara 7 of the DPCO, observing that the material brought on record bythe Central Government and other respondents revealed that a set ofquestionnaires were designed by the Cost Audit Branch of the Ministryof Finance to elicit information for various costs for CC, PC and PL

AB

C

D

E

F

G

H

Anorms, which were sent to 470 pharmaceutical producers across thecountry, covering a diverse range of products. Further, a press releasewas issued and published in newspapers, informing the manufacturersabout the move to revise the norms, and further seeking data andinformation. Such data and information was furnished bypharmaceutical manufacturers and companies, and was considered. TheBnorms were notified on 13[th] August, 2008. In that, the conversion cost,packing charges, process loss of raw materials and other norms werefixed.

6. The High Court refuted the charge by the appellants that theCabsence of any notice, permitting their participation- in the drug pricefixation process, vitiated it. The court relied on the judgment of this courtin Union of India v. Cynamide India Ltd. (1987) 2 SCC 720, to theeffect that price fixation is essentially a legislative exercise. The HighCourt also rejected the argument that the technology used by TCH andModi, i.e. sustained release (SR) and continuous release of dosageDthrough the products could not be subjected to price fixation as thosemethods or technologies were not contemplated by the DPCO, 1995.

7. The relevant provisions of DPCO, 1995, are extracted below:

7. The relevant provisions of DPCO, 1995, are extracted below:

“2 (v) “Scheduled formulation” means a formulationEcontaining any bulk drug specified in the First Scheduleeither individually or in combination with other drugs,including one or more than one drug or drugs not specifiedin the First Schedule except single ingredient formulationbased on bulk drugs specified in the First Schedule and soldFunder the generic name.”8. Paragraph 7 of DCPO, 1995, (which replaced DCPO, 1987)and other relevant provisions are extracted below:

“7. CALCULATION OF RETAIL PRICE OFFORMULATION—The retail price of a formulation shall beGcalculated by the Government in accordance with thefollowing formula, namely:

R.P. = (M.C. + C.C. + P.M. + P.C.) x (1 + MAPE/100) +

E.D.

H“R.P.” means retail price.

“M.C.” means material cost and includes the cost of drugsand other pharmaceutical aids used including overages, ifany, and process loss there on in accordance with such normsas may be specified by the government from time to time bynotification in the official gazette in this behalf.

“C.C” means conversion cost worked out in accordance withestablished procedures of costing and shall be fixed as anorm every year by notification in the Official Gazette in thisbehalf.

“P.M.” means the cost of packing material used in thepacking of a concerned formulation, including process loss,and shall be fixed as a norm every year by notification inthe Official Gazette in this behalf.

“P.C.” means packing charges worked out in accordancewith established procedures of costing and shall be fixed asa norm every year by notification in the Official Gazette inthis behalf.

“MAPE” (Maximum Allowable Post ManufacturingExpenses) means all costs incurred by a manufacturer fromthe stage of ex-factory cost to retailing and includes trademargin and margin for the manufacturer and it shall notexceed One hundred per cent for indigenously manufacturedScheduled formulations:

“E.D.” means excise duty.

Provided that in the case of an imported formulation, thelanded cost shall form the basis for fixing its price alongwith such margin to cover selling and distribution expensesincluding interest and importer’s profit which shall not exceedfifty per cent of the landed cost.

Explanation—For the purpose of this proviso, “landed cost”means the cost of import of formulation inclusive of customsduty and clearing charges.

The relevant provision in DCPO 1987, i.e. Para 10,significantly, provided that retail cost had to be calculatedin the following manner:

A

B

C

D

E

F

G

H

SUPREME COURT REPORTS

[2019] 14 S.C.R.

A

“R.P. = (M.C. + C.C. + P.M. + P.C.) x (1 + M.U./100) +

E.D.

“R.P.” means retail price.

“M.C.” means material cost and includes the cost of drugsand other pharmaceutical aids used including overages, ifany, and process loss there on in accordance with such normsas may be specified by the government from time to time bynotification in the official gazette in this behalf.

B

“C.C” means conversion cost worked out in accordance withsuch norms as may be specified by the government from timeto time by notification in the official gazette in this behalf.

C

“P.M.” means the cost of packing material including processloss thereon worked out in accordance with such norms asmay be specified by the government from time to time bynotification in the official gazette in this behalf.

D

“P.C.” means packing charges worked out in accordancewith such norms as may be specified by the government fromtime to time by notification in the official gazette in thisbehalf.

E

“M.U.” means mark-up referred to in para 11.

“E.D.” means excise duty.

8(4). Any manufacturer, who desires revision of the retailFprice of a formulation fixed under sub-paragraph (1), shallmake an application to the, Government in Form III or FormIV, as the case maybe, and the Government shall after makingsuch enquiry, as it deems fit within a period of two monthsfrom the date of receipt of the complete information, fix aGrevised price for such formulation or reject the applicationfor revision for reasons to be recorded in writing.

8(6) No manufacturer or importer shall market a new pack,if not covered under sub-paragraph 3 of para 9, or a new H

A

formulation or a new dosage form of his existing Scheduledformulation without obtaining the prior approval of its pricefrom the Government.

9. Power to fix ceiling price of Scheduled formulations:

1. Notwithstanding anything contained in this Order, theBGovernment may, from time to time, by notification inthe Official Gazette, fix the ceiling price of a Scheduledformulation in accordance with the formula laid downin paragraph 7, keeping in view the cost or efficiency,or both, of major manufacturers of such formulationsand such price shall operate as the ceiling sale priceCfor all such packs including those sold under genericname and for every manufacturer of such formulations.

2. The Government may, either on its own motion or onapplication made to it in this behalf by a manufacturerin Form III or Form IV, as the case may be, afterDcalling for such information as it may considernecessary, by notification in the Official Gazette, fixa revised ceiling price for a Scheduled formulation.

3. With a view to enabling the manufacturers of similarformulations to sell those formulations in pack sizedifferent to the pack size for which ceiling price hasbeen notified under the sub-paragraphs (1) and (2),manufacturers shall work out the price for theirrespective formulation packs in accordance with suchnorms, as may be notified by the Government from timeto time, and he shall intimate the price of formulationpack, so worked out, to the Government and suchformulation packs shall be released for sale only afterthe expiry of sixty days after such intimation.

E

F

GH

13. Power to recover Overcharged Amount: Notwithstandinganything contained in this order, the Government shall bynotice, require the manufacturers, importers or distributors,as the case maybe, to deposit the amount accrued due tocharging of prices higher than those fixed or notified by the 626SUPREME COURT REPORTS

AGovernment under the provisions of Drugs (Prices Control)Order, 1987 and under the provisions of this Order.”

9. The appellants argue before this court, that the High Courterred in overlooking that the “sustained release” and “continuousrelease” technologies used in their products had not been made theBsubject of any price fixation norm. Therefore, the price fixation resortedto in their case was contrary to law. The learned senior counselappearing on their behalf submitted that the High Court had fallen intoerror in this regard, and consequently, its decision requires to be setaside.

C10. The High Court, in the impugned judgment, we notice, hadtaken note of the notification dated 13[th] August, 2008, which fixedconversion costs for plain tablets, coated tablets, dispersible tablets,gelatin coated tablets, bi layered tablets, sustained release tablets,chewable tablets, effervescent tablets, inlay tablets, capsules and otherdrugs. The appellants had not urged that different conversion costs wereDfixed for controlled release system, or the continuous release systems,anytime. In these circumstances, it was held that the pricing norms wereapplicable. The court also extracted Note (d) to the notification of 30[th]April, 2009, which pertinently stated that:

“(d) For different packing materials used or different drugEdelivery systems or any other special features/forms claimed,the ceiling prices, as specified in Column 5 above, shall beapplicable unless the companies approach NPPA for specificprice approvals for its formulations”

11. In this case, the appellants did not approach NPPA for specificFprice, or contend before it that their products contained special features.On the other hand, the allusion to “sustained release” and drug deliverysystems (in Note (d)) clearly contemplated that unless otherwisespecifically sought- in regard to particular drugs, the price fixation normsapplied to all.G

12. According to pharmacopedias and the US Food and DrugAdministration’s definitions, modifications in drug release are oftendesirable to increase the stability, safety and efficacy of the drug, toimprove the therapeutic outcome of the drug treatment and/or to increasepatient compliance and convenience of administration. In that context,Hthe use of the term “sustained release” denotes the systems that maintain the rate of drug release over a sustained period. For example,if the release of the drug from the dosage form is sustained such thatthe release takes place throughout the entire gastrointestinal tract, onecould prolong the time interval of drug concentration in the therapeuticrange. This in turn may reduce the frequency of dosing, for examplefrom three times a day to once a day. Sustained-release dosage formsachieve this mostly by the use of suitable polymers, used either to coatgranules or tablets (reservoir systems) or to form a matrix in whichthe drug is dissolved or dispersed (matrix systems). Controlled releasesystems are drug delivery systems in which the drug is released in apredetermined pattern over a fixed period of time. Therefore, thematerials on the record show that the DPCO was aware of theexistence of different systems of drug delivery; it specifically talked ofsustained release. If the appellants wished to say that the systems usedby them were unique or different, it was open for them to have sodemonstrated. Their omission to do so, did not in any way affect theirobligation to follow the pricing norms and ceiling prices fixed by theimpugned notifications. This court, therefore, sees no reason to differfrom the conclusions and findings of the High Court.

13. In view of the above analysis, these appeals have to fail. Theyare accordingly dismissed, without order on costs.

Nidhi Jain

Appeals dismissed.

AB

C

D

E

F

G

H